diff --git a/raw/filings/0001911467/2025/0001096906-26-000364/filing_metadata.csv b/raw/filings/0001911467/2025/0001096906-26-000364/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..badc462e6675ccab9bf91dda27a1a5a50e88fc8c --- /dev/null +++ b/raw/filings/0001911467/2025/0001096906-26-000364/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001911467,CRCE,"Circle Energy, Inc./NV",2025,10-K,2026-03-24,2025-12-31,2026-03-24T18:59:06.000Z,0001096906-26-000364,crcl-20251231_10k.htm,"CIRCLE ENERGY, INC./NV - FORM 10-K SEC FILING",2313911,1,1,https://www.sec.gov/Archives/edgar/data/1911467/000109690626000364/crcl-20251231_10k.htm,https://www.sec.gov/Archives/edgar/data/1911467/000109690626000364/ diff --git a/raw/filings/0001911545/2024/0001213900-25-036973/filing.txt b/raw/filings/0001911545/2024/0001213900-25-036973/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..6b3c0264bd5c79860955707a0104fcda8eb82a11 --- /dev/null +++ b/raw/filings/0001911545/2024/0001213900-25-036973/filing.txt @@ -0,0 +1,5912 @@ +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +FORM 10-K +(Mark One) +☒ ANNUAL REPORT PURSUANT TO SECTION 13 +OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 +☐ TRANSITION REPORT PURSUANT TO SECTION +13 OR 15(D) OF THE SECURITIES EXCHANGE +ACT OF 1934 +For the fiscal year ended December 31 , 2024 +For the transition period from ____________ to____________ +Commission file number: 001-41763 +Global Interactive Technologies, Inc +(Exact name of registrant as specified in its +charter) +Delaware 7370 88-1368281 +(State or other jurisdiction of +incorporation or organization) (Primary Standard Industrial +Classification Code Number) (I.R.S. Employer +Identification Number) +160, Yeouiseo-ro , +Yeongdeungpo-Gu , Seoul +Republic of Korea , 07231 ++82-2-564-8588 +(Address, including zip code, and telephone +number, including area code, of Registrant’s principal executive offices) +N/A +(Former name, former address and former fiscal +year, if changed since last report) +Securities registered pursuant to Section 12(b) +of the Act: +Title of Each Class: Trading Symbol(s) Name of Each Exchange on Which Registered: +Class A Common Stock, $0.02 par +value per share GITS The Nasdaq Stock Market LLC +( Nasdaq Capital Market) +Securities registered pursuant to Section 12(g) +of the Act: None +Indicate by check mark if the registrant is a +well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ +Indicate by check mark if the registrant is not +required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐ No ☒ +Indicate by check mark whether the registrant +(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months +(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements +for the past 90 days. Yes ☒ No ☐ +Indicate by check mark whether the registrant +has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 +of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). +Yes ☒ No ☐ +Indicate by check mark whether the registrant +is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. +See definition of “large accelerated filer,” accelerated filer, “smaller reporting company” and “emerging +growth company” in Rule 12b-2 of the Exchange Act. +Large accelerated filer ☐ Accelerated filer ☐ +Non-accelerated filer ☒ Smaller reporting company ☒ +Emerging growth company ☒ +If an emerging growth company, indicate by check +mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting +standards provided pursuant to Section 13(a) of the Exchange Act. ☐ +Indicate by check mark whether the registrant +has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial +reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or +issued its audit report. ☐ +If securities are registered pursuant to Section +12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction +of an error to previously issued financial statements. ☐ +Indicate by check mark whether any of those error +corrections are restatements that require a recovery analysis of incentive-based compensation received by any of the registrant’s +executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ +Indicate by check mark whether the registrant +is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ +The aggregate market value of +the registrant’s common stock held by non-affiliates, computed by reference to the closing price of $0.2471 per share as reported +on the Nasdaq Stock Market on December 31, 2024, and based on the 52,808,589 shares of common stock outstanding prior to the Company’s +1-for-20 reverse stock split effected on January 27, 2025, was approximately $ 10,587,362 . +As of December 31, 2024, the +registrant had 52,808,589 shares of Class A Common Stock issued and outstanding. On January 27, 2025, the Company effected a 1-for-20 +reverse stock split of its Common Stock. As a result, the number of shares outstanding was proportionally reduced, and as of the filing +date of April 29, 2025, there were 2,640,429 shares of Class A Common Stock issued and outstanding on a post-split basis (par value $0.02 +per share). +TABLE OF CONTENTS +PAGE +PART I +1 +Item 1. +Business +1 +Item 1A. +Risk Factors +14 +Item 1B. +Unresolved Staff Comments +41 +Item 1C. +Cybersecurity +41 +Item 2. +Properties +42 +Item 3. +Legal Proceedings +42 +Item 4. +Mine Safety Disclosures +42 +PART II +43 +Item 5. +Market for Registrant’s Ordinary Shares, Related Stockholder Matters and Issuer Purchases of Equity Securities +43 +Item 6. +[Reserved] +43 +Item 7. +Management’s Discussion and Analysis of Financial Condition and Results of Operations +43 +Item 7A. +Quantitative and Qualitative Disclosures About Market Risk +50 +Item 8. +Financial Statements and Supplementary Data +50 +Item 9. +Changes in and Disagreements with Accountants on Accounting and Financial Disclosure +50 +Item 9A. +Controls and Procedure +50 +Item 9B. +Other Information +51 +Item 9C +Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +51 +PART III +52 +Item 10. +Directors, Executive Officers and Corporate Governance +52 +Item 11. +Executive Compensation +56 +Item 12. +Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters +61 +Item 13. +Certain Relationships and Related Transactions, and Director Independence +62 +Item 14. +Principal Accounting Fees and Services +64 +PART IV +66 +Item 15. +Exhibits and Financial Statement Schedules +66 +Item 16. +Form 10-K Summary +66 +i +As used in this Annual +Report on Form 10-K, unless otherwise indicated, Global Interactive Technologies, Inc, together with its consolidated subsidiaries, is +hereinafter referred to as “Global interactive technologies” “us,” “we,” “our,” or the +“Company.” +SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS +This Annual Report on Form 10-K contains forward-looking +statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act +of 1934, as amended, that are based on our management’s beliefs and assumptions and on information currently available to management, +and which statements involve substantial risk and uncertainties. All statements contained in this Annual Report on Form 10-K other than +statements of historical fact, including statements regarding our future operating results and financial position, our business strategy +and plans, market growth and trends, and objectives for future operations are forward-looking statements. Forward-looking statements generally +relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because +they contain words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” +“could,” “intends,” “target,” “projects,” “contemplates,” “believes,” +“estimates,” “predicts,” “potential,” or “continue” or the negative of these words or +other similar terms or expressions that concern our expectations, strategy, plans or intentions. +Although we believe that we have a reasonable +basis for each forward-looking statement contained in this Report, we caution you that these statements are based on a combination +of facts and factors currently known by us and our expectations of the future, about which we cannot be certain. Forward-looking statements +include statements about: +● +overall strength and stability of general economic conditions and of the social media platform and content creation industry in the United States and globally; +● +changes in consumer demand for, and acceptance of, our services, including our platform, as well as social media platforms in general; +● +changes in the competitive environment, including adoption of technologies, services and products that compete with our own; +● +our expectations regarding our future operating and financial performance; +● +our ability to effectively execute our business plan and continue to expand internationally; +● +our ability to recruit, retain, and motivate skilled personnel, including key members of senior management; +● +changes in the price of equipment, network infrastructure, hosting and maintenance; +● +uncertainties around the successful improvement and modification of our existing applications and development of new products and services, which may require significant expenditures and time; +● +changes in laws or regulations governing our business and operations; +● +our ability to maintain adequate liquidity and financing sources and an appropriate level of debt on terms favorable to us; +● +our ability to effectively market our services; +● +costs and risks associated with litigation brought against us; +ii +● +our ability to obtain and protect our existing intellectual property protections, including trademarks and copyrights; +● +changes in accounting principles, or their application or interpretation, and our ability to make estimates and the assumptions underlying the estimates, which could have an effect on earnings; +● +our ability to list our shares on the Nasdaq Capital Market or any other exchange and maintain such listing; and +● +other risks described from time to time in periodic and current reports that we file with the SEC. +This list of factors that may affect future performance +and the accuracy of forward-looking statements is illustrative, but not exhaustive. New risk factors and uncertainties not described +here or elsewhere in this Report, including in the sections entitled “ Risk Factors ,” may emerge from time to time. +Moreover, because we operate in a competitive and rapidly changing environment, it is not possible for our management to predict all risk +factors and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination +of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. +The forward-looking statements are also subject +to the risks and uncertainties specific to our Company, including but not limited to the fact that we have no operating history as a public +company. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this Report may not occur, +and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. +You should not rely upon forward-looking statements +as predictions of future events. We have based the forward-looking statements contained in this Annual Report on Form 10-K primarily on +our current expectations and projections about future events and trends that we believe may affect our business, financial condition, +results of operations, and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, +and other factors described in the section titled “Risk Factors” and elsewhere in this Annual Report on Form 10-K. We undertake +no obligation to update any forward-looking statements after the date of this Annual Report on Form 10-K or to conform such statements +to actual results or revised expectations, except as required by law. +RISK FACTOR SUMMARY +Our business is subject to numerous risks and +uncertainties, including those highlighted in the section titled “Risk Factors.” These risks include, among others, the following: +● Limited Operating History and Rapid Growth Challenges: +As a development-stage company, Global +Interactive Technologies has a limited operating history and has grown rapidly since launching its FANING (FANTOO) platform. However, +this growth may not be sustainable, and the company may struggle to manage future expansion, diversify revenue streams, retain users, +and adapt to evolving business models and market demands. +● Industry and Technological Risks: +Operating in the fast-evolving social +media and content creation sector, the company faces challenges in keeping up with rapid technological changes and shifting user trends. +Developing new products, features, and technologies is costly and uncertain, and there is no assurance of commercial success or market +acceptance. Failure to innovate could adversely impact the business. +● Legal and Content Liability Risks: +As a creator and distributor of digital +media, the company is exposed to legal claims related to deceptive advertising, copyright, and trademark infringement, especially concerning +third-party or user-generated content. Defending against these claims could be costly and divert management resources1. +iii +PART I +Item 1. Business. +Overview +Global Interactive Technologies, Inc. (the “Company”), +a Delaware corporation formerly known as Hanryu Holdings, Inc., is a technology-driven platform company connecting global fans of Korean +culture through innovative digital experiences. The Company operates Faning, a comprehensive interactive platform designed to facilitate +content discovery, monetization, user-generated content, and deep community engagement among global fandom communities. The Company focuses +on leveraging technology to expand Korean culture (Hallyu) beyond traditional K-Pop, spanning digital media, entertainment, and interactive +platform services. +The Company is a corporation that was incorporated in the state of +Delaware on October 20, 2021, as Hanryu Holdings, Inc. On December 5, 2024, the Company formally changed its name from Hanryu Holdings, +Inc. to Global Interactive Technologies, Inc. pursuant to an amendment to its Certificate of Incorporation filed with the Secretary of +State of Delaware. In connection with the name change, the Company also changed its Nasdaq ticker symbol from HRYU to GITS. +Corporate Structure and Subsidiaries +As of December 31, 2024, the Company’s primary operating subsidiary +is Faning Korea, LLC, a wholly-owned subsidiary based in Seoul, Republic of Korea. Faning Korea oversees the development, maintenance, +and operation of the Faning application and related web services. +Throughout 2024, the Company restructured its subsidiaries, including +the divestiture of Hanryu Bank on December 28, 2024, and FNS and Marine Island on November 5, 2024. Faning Korea, LLC was acquired on +December 4, 2024. These changes were not deemed material and, therefore, were not separately reported on Form 8-K. +IPO and Nasdaq Listing +On July 31, 2023, the Company successfully completed its IPO on Nasdaq, +raising approximately $8.77 million through issuing 877,328 shares of Class A common stock at $10 per share. The Company’s stock +initially traded under the symbol ‘HRYU,’ changing subsequently to ‘GITS’ following the name change. +Strategic Developments +On February 26, 2024, the Company’s Board of Directors terminated +the employment of Changhuyk Kang as Chief Executive Officer for cause. On the same day, the Board appointed Mr. Taehoon Kim, the Company’s +Chief Technology Officer and Vice President, as Interim Chief Executive Officer, effective immediately. +FANING ( successor to the Fantoo platform ) +FANING has become a globally recognized platform +for providing an amazing and active community among people that have an interest in K-POP and modern Korean culture. The multifaceted +nature of the Company’s operations has solidified the business’ reputation as one of the preeminent platforms for fandom. +FANING’s users are able to seamlessly interact with each other to discuss exciting K-POP topics. +1 +FANING allows fans to interact within their fandoms and discuss +these interests, create and share content, and interact through a number of channels, including (i) secure, direct messaging, (ii) open +social pages, and (iii) virtual spaces (“ FANING Clubs ” or “ Clubs ”). FANING Clubs concentrate +on a specific topic, allowing moderators to control the Club functions, and the Club members to aggregate their FP rewards. Integrated +within each FANING Club is a “Club Vault,” a service provided by FANING that allows the individual members of a Club to donate +their personal FP to an account held by the Club. The Club Vault allows the Club’s members to aggregate their FP and increase their +purchasing power. This increase in purchasing power allows the Club’s individual users to more rapidly accumulate FP and pool their +rewards with other users, in order to purchase services such as fan events or the ability to live stream a concert from their favorite +band. Decisions regarding the use of the accumulated FP within the Club Vault are determined by a vote of the Club members. +Our users are the core of our business. We provide +our users with customized experiences, including unique interactions within the FANING community. FANING algorithms curate individual +user experiences, recommending content, clubs to join, users to connect with, and enabling users to subscribe to keywords and access automatic +content geared toward their interests. Through these services, FANING provides the fandom community a way to stay connected and up to +date with their fandom communities. +FANING further offers each user the ability to +freely create, upload, and monetize their own content by earning in-platform rewards of FP. FANING removes language barriers, providing +live chat ability between users worldwide, and global access to platform content, as the FANING platform supports automatic, real-time +translation services for 17 languages. FANING also offers a fast, secure, and easy-to-use commerce and user-to-user transaction system. +These unique features will allow FANING to generate user loyalty, maintain user interest in the platform, and attract new users. +For growth, we intend to develop short content +(two minutes) that will focus on interesting pop music and cultural topics. These videos will be distributed through FANING while concurrently +being shown on third party social media platforms and video sharing websites. This new aspect of growth is important for a few reasons. +First, it will further enhance the strength of the FANING community by fostering a greater degree of engagement. Second, it will allow +for greater visibility for K-POP on a global basis. Management will continue to expand this aspect of operations through the life of the +business. +2 +THE FANING ECOSYSTEM +We designed FANING as an ecosystem that is easy +for users to adapt and use all features throughout the platform, and for us to develop and roll-out new technologies and functionality. +FANING’s launch included a rollout of our messenger, community and club technologies, along with our reward system for users, as +described below. Since FANING’s launch in May 2021, the FANING platform has attracted more than 26.6 million users, as +of December 31, 2024, from the regions in the chart below: +The main age groups that compose our use base +are the 20-29-year age group, and 30-39-year age group, as set forth in the chart below: +The combined age groups of 20-39 years +have the highest purchasing power among commercial and entertainment industries, and accounts for more than 80% of all FANING users, with +a median age of 27 years old. FANING available to individuals 12 years and older and has an age restriction set that will not allow +users under the age of 12 to sign up. +3 +User Reward System +The reward system is the basis of FANING ecosystem. +Users earn FP based on: (i) the level of each user’s activity within the FANING platform; and (ii) the revenue we derive +from FANING’s advertising sales. At midnight of each day, all advertising revenue for that day is accumulated, and 50% +of that day’s total net advertising profits are distributed as FP to users, based upon their level of contribution within the +FANING platform. From the 50% of profits that are distributed to users as FP, approximately 30% of the distribution of rewards will go +to users who are content creators, and the remaining 20% will be issued to general users who participate on the platform. For the +purposes of calculating advertising profits allocated for user rewards, the amount of FP issued will be exchanged at a ratio of one FP +for every 100 Korean Won. For the avoidance of doubt, the issuance of FP from advertising revenue is limited to advertising revenue generated +within the FANING platform, and the Company may earn revenue from advertising outside of the FANING platform that would not result in +the issuance of FP. +Faning Point ( “ FP ” ) +FP is a measurement of reward points within the +FANING platform. Accruing FP allows users to redeem FP for a wide variety of products and services within FANING, including content from +other users and artists available on FANING, K-Culture merchandise, and more. FP will be stored and quantified as rewards point within +the FANTOO platform under the in-platform reward system structure that consists of (i) the Company’s FP reserve account, (ii) the +Company’s active account for collected advertising revenue which was converted into FP and ready to distribute to users based on +user contributions to the FANING platform, (iii) the Company’s recycled FP account, which stores FP after being spent by users +to make purchases within the application, and (iv) each user’s individual account stores. The value of FP is set at a fixed +ratio of 1:100 FP to Korean Won. The Company does not intend to repurchase FP from users now or in the future. FP does not expire, and +FP that is not redeemed by a user will accumulate in such user’s account unless and until such user deactivates their account, at +which time such FP will be forfeited and moved to the Company’s reserve account for redistribution. +FP Storage and Security +FP are stored and managed through a database that +is separate and apart from other databases used to store and manage other FANING app data. The separate FP database is operated to ensure +maximum data confidentiality by minimizing access to the database and limiting the number of individuals who are able to access such database. +Access to the database is limited to permitted IP bands, and the backup function of the cloud service used to store data can be restored +within a few hours in the event of a disaster recovery event such as a server failure. +4 +User-to-User Interactions +We developed FANING to include numerous opportunities +for our users to engage with the platform, including clubs, community forums, chat functions, and functionality to create user-generated +content, each of which are intended to build the FANING brand and deepen the loyalty of our users. +FANING Clubs +FANING Clubs are user-created based upon areas +of interest in order to link users across the globe and create friendships. Users have the ability to create clubs based upon topics of +their own choosing, such as favorite artists, television series, movies, video games, sports, and more. A club can be customized by its +moderator according to various policies and preferences to cultivate a close group of users based upon a shared culture. Integrated within +each FANING Club is a “Club Vault,” a service provided by FANING that allows the individual members of a Club to donate their +personal FP to an account held by the Club. The Club Vault allows the Club’s members to aggregate their FP and increase their purchasing +power. This increase in purchasing power allows the Club’s users to more rapidly accumulate FP and pool their rewards, in order +to purchase services such as fan events or the ability to live stream a concert from their favorite band. Decisions regarding the +use of accumulated FP within the Club Vault are determined by a vote of the Club members. +FANING Communities +FANING communities are open forums where user-generated +content is socially promoted and curated by FANING users. Once user requests for a community based around a certain topic exceed a pre-determined +threshold, the FANING platform will create such a community based upon the users submitting the requests. +FANING Chats +Real-time multilingual translation capability, +currently offered in 17 languages, allows both private messages and open chats via the FANING chats function without language barriers. +Messages and chats are protected utilizing end-to-end encryption to prevent leakage of personal information. End-to-end encryption is +a system of secured communication to prevent third parties from accessing chat messages, increasing the level of security. +Content +User-Created Content. Core to our business +is moving into a user-based content creation model that allows users varying ways to create and sell fandom content to other FANING users, +including the content types described below: +● +Fanart is artwork created by fans relating to artists, movies, and dramas they like. +● +Web Novels are user written novels, uploaded by users to the FANING platform. Readers can make comments at very specific areas within the novel. Novels can be viewed in the language of each user’s choice. If the desired language is not available, users can request or suggest the corresponding language translation. Through the process of “translation matching”, writers can search for translators while translators can ask writers for permissions to obtain the right to translate their stories. Once the writer and translator approve and consent, these translated stories can be sold to users. Any profit will be distributed automatically by FANING based on their prior agreement. +● +Webtoons are user-created digital comics, uploaded by users to the FANING platform. Users can also buy and sell user-translated copies of these webtoons through the “translation matching” services referenced above, allowing users across the globe to enjoy their favorite webtoons in their own language. +● +User-generated content also includes any other content created and sold by FANING users, such as the FANING shop offerings described below. +5 +Company-Created Content. FANING original content. +The Company also creates and distributes its own content. Content is distributed within the FANING platform both for free and for sale +for premium content. The Company currently has 12 key employees broken up into a number of content-creating teams that cast entertainers +for creating original video content, primarily uploaded on FANING TV within the FANING platform. As the business grows, the Company intends +to hire more employees and produce high-quality content that engages the users into the FANING platform. In addition to the content types +similar to the categories listed above for user-generated content, FANING original content also includes: +● +FANING original shows and web series are shows and web series produced by FANING. This original content is exclusively available on the FANING platform. From time-to-time, we may sell such content for distribution on other third-party channels and platforms. +● +Concerts are hosted by FANING for its users across numerous musical genres, from Korean pop to independent music, in venues of all sizes, from stadiums to small stages. Users that cannot attend these concerts in person can access these concerts on FANING via our online streaming service, and tickets can be purchased, using FP or cash, in the FANING Shop, also known as the “Fanshop.” +Third Party Content. Third party content +includes content from trusted third-party media companies. Third party content can be uploaded to FANING pursuant to certain agreements +between the Company and third-party providers. These articles and videos are provided in real time, with automatic translation support +in 17 languages. +FANING Fanshop +The FANING Fanshop is the e-commerce service provided +through the FANING platform to its users. Through the Fanshop, users can purchase various items directly from FANING, such as gifts for +artists, pre-paid cards, concert tickets, and other fandom goods using FP or cash. To the extent that items are purchased by the Company +to sell within the FANING Fanshop, the Company uses cash to purchase the products and then lists the items in the Fanshop. The Fanshop +will also offer a video commerce service, intended to be an online version of traditional home shopping networks on cable television. +For example, users can purchase items relating to their favorite K-pop artist, such as the artist’s latest album, at the same time +such user is streaming the artist’s live event. +Within the Fanshop, FANING users can also participate +in user-to-user transactions, such as selling or purchasing the following: +● +Emojis used within chats on the FANING platform. Users have the ability to create emojis and register them in the Fanshop to generate sales by selling them to other users, generating FP in such transactions. +● +Augmented reality ( “ AR ” ) filters used in videos within the FANING platform . Users have the ability to create and sell registered AR filters within the Fanshop to other users. +● +Digital stickers used within the FANING platform. Users have the ability to create and sell registered digital stickers within the Fanshop to other users. +6 +For both user-to-user transactions and transactions with +the Company, payment can be made either by credit card through a secure, third-party payment system built into the FANING platform, or +by settling the total with the use of FP. Sales settled in FP will be charged a transaction fee based upon the specific item sold, +ranging between 7% to 15% of the sale price. For user-to-user transactions, the selling user receives the proceeds upon the purchaser’s +confirmation of receipt of the good sold. +If the item sold in the user-to-user transaction +requires shipping, the Company intends on partnering with providers such as Qxpress to provide shipping services for which the fee will +be bundled into the total transaction cost. Alternatively, users can ship the item directly using another third-party shipping service. +Also, the Company set up international logistic +service for FANING with partners called the Epic eCommerce platform. We believe the operations of the Epic eCommerce platform will catapult +the income of Global interactive technologies. This is state -of-the-art eCommerce marketplace will allow for substantial revenues to +be produced by facilitating sales among companies that want to provide their inventories to the FANING user base. The platform will provide +a complete end-to-end sales and logistics solution for enrolled users. +This new business unit will integrate a full ordering +management system (“OMS”), cross border shipping management tools, and seller shipping tools. It has the potential to reach +an immense audience, on a global basis, among companies and independent entre preneurs that are seeking to target younger demographics +with their products. The benefits of using this system include: +● +Sell globally with one origin +● +Duty-free for eCommerce orders +● +Provide guidelines for eCommerce customs clearance +● +Various shipping options to choose and create last-mile labels from our system +● +Fast international shipping and reduced costs +● +Provide local fulfillment services to various countries +● +Customs clearance status +● +Shipment tracking system +7 +The key markets that Management will target for +Epic’s operations include: +● +South Korea +● +Hong Kong +● +Japan +● +Malaysia +● +Singapore +● +Thailand +● +Indonesia +● +Taiwan +Our Opportunity +With the continued global expansion of the Korean Wave (Hallyu), K-Culture +has become a dominant cultural force, shaping trends in entertainment, media, fashion, and consumer behavior across the world. According +to the Korea Foundation ’ s 2023 Global Hallyu Trends Report , the global K-Culture fan base reached approximately 229 +million fans across 119 countries , up from 156.6 million in 2021 — a nearly 50% increase in just two years. +As of the most recent data: +● China remains the country with the largest number of K-Culture fans, totaling 86.32 million , followed by: +◦ The United States : 27.17 million +◦ Thailand : 17.37 million +◦ Indonesia : 16.36 million +◦ Japan : 7.9 million +◦ Vietnam : 6.1 million +◦ Mexico : 5.5 million +◦ India : 5.2 million +◦ Philippines : 4.8 million +◦ Brazil : 4.6 million +Due to regulatory concerns related to data privacy and national policy +within China, the Company does not operate or provide services in China, Hong Kong, or Macau. For further details, refer to “Risk +Factors — Our decision not to provide products and services and to restrict user access in China (including Hong Kong and Macau) +will limit our total addressable market and may limit our ability to grow our business…” +In parallel with this cultural momentum, K-Culture ’ s +global purchasing power was estimated at $147.3 billion as of 2023, according to the Korea Creative Content Agency (KOCCA) . +Despite economic pressures and the lingering effects of the COVID-19 pandemic, Korean content exports continue to rise, contributing billions +annually to South Korea’s GDP and influencing global consumer trends. +The proliferation of mobile and digital access is a major accelerator. +As of 2023, more than 5.6 billion people globally use mobile phones , with more than 60% of the global population active +on social media platforms. Studies by KOFICE and KMFA show that mobile-first access is now the dominant channel for engaging +with K-Culture content, whether through music streaming, webtoons, fandom communities, or virtual events. +We believe FANING is uniquely positioned to capture this growing demand. +The platform’s real-time engagement tools, multilingual UX (supporting 17 languages), monetization mechanisms, and mobile/PC accessibility +align closely with how K-Culture is consumed and celebrated worldwide. +The rise of virtual concerts and online fan events has further +opened the market. For example, BTS’s virtual concert Bang Bang Con: The Live set a Guinness World Record with 756,000 +concurrent viewers from 107 countries . According to Grand View Research , the global virtual events market was +valued at approximately $114.1 billion in 2023 and is projected to reach $657.6 billion by 2030 , growing at a CAGR of 21.4%. +8 +With its integrated reward system, partnerships +across the Korean entertainment industry, and rapidly growing user base, the FANING platform is strategically positioned to become a leading +player in the digital K-Culture experience economy. +OUR VALUE +We focus on providing user-centric services to +provide a single platform that can address and satisfy the interests of fans within FANING. FANING will enrich users fandom experience +by providing an all-in-one platform for fandom content, including news, popular culture, discussions, live shows, and fan creativity. +FANING is currently available in 17 languages, with real-time translation services. These real time translation services enable our users +to communicate with each other across the globe without language barriers. For languages that are not available for real-time translation, +FANING provides a solution through the use of translation matching services among users. Through the translation matching services, FANING +ensures that content is accurately translated and available to a greater number of global fans in their own languages. In addition, FANING +further allows users to freely create and monetize their own content, enabling fast and secure user-to-user sales. +Within FANING, our reward system ensures users +are rewarded with FP for staying active and creative within the platform, as well as attracting new users. The more FP a user earns, the +more purchasing power the user has within the FANING platform, allowing users to purchase goods and/or services within the FANING platform +either directly from us or from other users. +OUR STRENGTHS +We differentiate ourselves from competing social +networks through the power of a fully-integrated platform and established partnerships with leaders in the entertainment industry within +South Korea. Our platform and partnerships enable our users to create clubs, communities, and gather over similar fandoms, all while monetizing +their content and contributing to the FANING platform experience. Our core strengths include the following: +● +Value Creation Through Direct Sales Revenue. We intend to derive revenue from multiple revenue sources, including: (i) advertising revenue, which includes advertisement sales through the placement of banners, splash advertising, pop-up advertisement within the platform, in-platform promotions, branded content productions, and other FANING produced programs; (ii) content sales revenue as FANING continues to produce original content, such as web series, sold to FANING users or otherwise licensed to other third party media services; and (iii) the sale of e-commerce goods through FANING’s Fanshop, including the latest fandom goods and concert tickets. +● +Value Creation Through Revenue Derived From User Activity. We intend to generate revenue from the sale of goods and/or services within the FANING platform from one user to another. Revenue is derived from user-to-user sales as follows: (i) from the sale of emojis and online stickers, from which we will collect 30% of the price paid by the purchaser, with the remaining 70% being remitted to the seller; (ii) from web novels and webtoons. If posted for free, the creator will only receive rewards in FP in relation to the number of views and likes; however, if the creator charges for the content, we intend to collect 30% of the price paid by the user, with the remaining 70% being remitted to the seller; (iii) users can offer the service of translation matching, where a user offers to translate another user’s content for a commission (in either cash or FP), and the parties agree to split the sales revenue from the translated content at a pre-determined ratio, for which we will collect 30% of each sale, and remit the remainder to the creator and translator based on a split determined by the parties; and (iv) for transactions between users involving tangible goods or other non-platform based fandom items (such as concert tickets), we intend to charge a fee of 3.5% of the total value of the transaction at the time of sale. +● +FANING ’ s Direct Advertising Platform. We intend to directly engage with our advertisers. Without the need for third-party engagement, we can leverage the FANING platform to better understand advertisers and their expectations, ensuring we can create highly curated advertising products that will promote high levels of engagement and sales conversions for advertisers. We believe this will increase advertising revenue and build sustainable relationships with advertisers, while concurrently increasing the attractiveness of the FANING platform to new advertisers and users interested in the products advertised within the FANING platform. +● +Industry Leading Privacy and Safety. Privacy and safety is provided by the FANING platform through the implementation of artificial intelligence (“ AI ”). +● +High User Engagement. We intend to drive user engagement by offering a one-stop fandom platform and by offering an in-platform reward system. These features are intended to allow the FANING platform to keep and maintain a highly engaged user-base, loyal to the FANING platform and its brand. This brand loyalty will assist by reducing the Company’s advertising costs by replacing it with non-paid platform promotion through the word-of-mouth of its current user base. +9 +OUR GROWTH STRATEGY +Our core strategy is to pursue initiatives that +promote the viral growth of our user base, and in doing so, drive advertising revenue, user-generated revenue, and create other revenue +streams. Our focus on user acquisition and retention provides the primary lens to view our plans for community growth, engagement, and +long-term brand equity. +● +Attracting Global Users. Our core business strategy is to promote the FANTING platform and grow our global user base, which will drive revenue growth by increasing advertising revenue and user activity-based revenue. +● +Broaden Product and Service Offerings. Within the FANING platform our objective is for users to benefit from a wide range of products and services offered, and we intend to continuously expand our product and service offerings as the user-base and revenue grow. Broadening our product offerings will ensure FANING grows along with the fandom community in which it operates, eventually creating a one-stop platform for our users across all fandoms. +● +Continued Research and Development. We intend to continue to invest in developing and implementing the newest technologies to ensure a better and more secure user experience compared to other social media platforms. +● +Development of Intellectual Property. We intend to develop our own intellectual property assets based upon user-demand and data analysis from the FANING platform. Since the intellectual property developed from user-data will be based on user-demand, we believe that any new intellectual property will facilitate user engagement and growth. +● +Expansion to Other Fandoms. We intend to expand FANING outside of the K-Culture fandom, and into other fandoms across an expansive number of entertainment types and cultures. Users will be able to easily transition between different fandom clubs and communities, and seamlessly access the newest trends and popular cultures. This anticipated expansion is intended to make FANING a platform that can evolve with, and fully integrate, all fans utilizing the FANING platform, regardless of the continuous rise and fall of popular culture trends. +The Company’s revenue growth strategy spans multiple time +horizons. In the short term, the Company aims to generate revenue through virtual events hosted on the FANING platform, monetizing both +commissions and operational profits. Additionally, the Company plans to establish a base of steady monthly income by offering premium +subscription services tailored to both individual users and institutional partners. In the mid-term, the Company intends to drive explosive +revenue growth by leveraging FANING’s advertising infrastructure, which will include affiliate marketing partnerships and platform-driven +advertising sales. +OUR MARKETING STRATEGY +We intend to market our platform to users through +media ads, promotions, campaigns, referrals, and other similar initiatives. Currently, we focus on our core target in K-Culture, and specifically, +the K-pop fandom. We intend to achieve user growth by utilizing the following strategies: +● +Localized Marketing Efforts. As we intend to capture a larger percentage of the global fandom market, we will need to effectively develop marketing for each region’s fandom community. This will require localized marketing efforts for regional marketing to be successful. We believe we can successfully develop regional marketing results by: (i) partnering with local content creators to create regional-specific marketing; and (ii) partnering with local advertising agencies to develop advertising campaigns that will attract regional users. It is important for us to localize our services and marketing strategies in order to expand our business in the U.S. Therefore, we plan to set up branches in the U.S. in the first half of 2025, and plan to hire around 20 developers to localize the services of FANING. We also plan to work with U.S. marketing experts and cooperate with marketing agencies to reach U.S. audiences through online marketing, sponsoring advertisements, and holding various user-engagement events and promotions in the major cities in the U.S. When we believe the operation in the U.S. is settled, we will set up a branch office in the United Kingdom for further expansion into Europe. The Company currently has no intention of expanding into China due to the Chinese government’s unofficial ban on K-Culture as well as official ban on all foreign social media platforms. Additionally, due to regulatory concerns regarding data protection and privacy within China, the Company will not expand its business into China in order to protect the privacy of the Company’s users. For the avoidance of any doubt, the Company does not have customers in, does not otherwise provide products or services in, and restricts user access to individuals in China (including Hong Kong and Macau). See “Risk Factors — Our decision not to provide products and services and to restrict user access in China (including Hong Kong and Macau) will limit our total addressable market and may limit our ability to grow our business” for additional information. +● +Global Ambassador Program. We intend to engage with individuals in various countries (“ Global Ambassadors ”) that will create theme-specific content aimed at potential users in the Global Ambassador’s region, and further communicate with fans and targeted users within their region, to increase the growth in the user-base, and attract fans of K-Culture within that region to the FANING platform. Our Global Ambassadors will focus on users who enjoy K-Culture while simultaneously promoting FANING and hosting localized events. +● +Building Strong User-Relationships. We intend to build strong ties with our existing users to increase their loyalty. We communicate with our users through various channels including social media, surveys, direct messages, focus groups, and similar means of communication to improve our service offerings so that we can exceed current users’ expectations. We believe that our fully engaged and satisfied users will be more likely to promote our platform voluntarily, thereby promoting organic growth through a continuous flow of new users by way of current user referrals. The rate of organic growth that we can achieve will accelerate the growth of FANING’s user-base. +● +Special Event Hosting. In order to provide value to both our current users and targeted users, as well as promote activity within the FANING platform, we intend to host special themed events to which both current users and targeted users are invited. These events include K-pop concerts, dance performances, and other live shows. Generally, these events are driven by user input by way of voting for events that our users would prefer to attend. The participation of our users within our platform to determine upcoming events further encourages users to be active within the FANING platform. +10 +Technology and Intellectual Property +The Company developed FANING +as an evolution of its previous FANTOO platform, significantly enhancing functionality and scalability. +FANING offers competitive +advantages through an integrated suite of advanced tools designed specifically for fandom communities, including live-streaming, +real-time interaction, digital content monetization, subscriptions, and extensive community-building features such as clubs and +forums. These robust capabilities enable creators to directly monetize their content and engage deeply with fans, significantly +differentiating FANING from generalist social platforms. +FANING also offers a PC version alongside its mobile app, designed +to enhance accessibility and convenience for users. Through the PC version, users can manage their profiles, access news and updates, +and participate in fandom events, all through a user-friendly UX/UI tailored for desktop engagement. +FANING was designed and developed to connect fans +across the globe. As a result, we have been developing and acquiring cutting edge technologies in order to deliver a smooth experience, +regardless of location. These technologies include: +● +AI-driven content curation through personalized searches and content delivery recommendations. +● +AI speech synthesis that will allow our AI to learn from voice recordings through specialized vocabulary, that will eventually be able to read unrecorded sentences in the voice of whichever celebrity a user may choose. This will allow various literary works and written content to be spoken to the user in the user’s favorite celebrity’s voice. +● +AI-powered nudity detection that automatically filters and blocks users from exposure to nudity if uploaded on the FANING platform. +● +AI-enabled deepfake detection that performs verification services to identify whether images and/or videos uploaded on the FANING platform are actually authentic images/videos of the person depicted in the video, or if the image/video was falsified and computer generated through the use of “deepfake” technology. +Competition +Our competitors include: +● +Social platforms, such as Facebook, Instagram and Twitter(X) +● +Community service platforms, such as Reddit +● +K-pop fandom platforms, such as Lysn, Weverse and Universe +● +Amateur content creating platforms, such as Whattpad, and +● +eCommerce platforms, such as Amazon, eBay and Ticketmaster. +While many of these platforms have achieved success +in growing users and have greater financial resources than the Company, we believe the FANING platform is the only all-in-one global fandom +platform that also offers a unique user reward system that incentivizes users to participate and engage within the platform. These features +were developed to position FANING to successfully complete with the more established platforms and facilitate an active fandom experience. +Partnerships +On April 19, 2021, Hanryu Bank Co., Ltd. +(“HBC”), our wholly owned subsidiary entered into a memorandum of understanding with the Federation of Artistic & +Cultural Organization of Korea (“ FACO ”) (the “ MOU ”). Pursuant to the MOU, we were granted certain +collaborative rights in which we can promote cultural events, while participating and taking advantage of FACO’s infrastructure +and network to develop and export South Korea’s popular culture around the globe. +FACO was established as a non-profit business +in 1961, organized for the purpose of contributing to the development of Korean art and culture, promoting the international exchange +of Korean art and culture, and ensuring the well-being of affiliated artists. FACO’s membership currently consists of over 1.3 million +artists from 10 different member associations, spread across 167 branches globally, including two branches in the United States and +one in Japan. +We have strategically developed this partnership +with FACO due to their substantial contribution to the Korean entertainment and pop-culture industry. The partnership benefits FANING +users through the synergy between these organizations and the FANING platform, such as content creation, hosting K-pop concerts, and much +more. +On September 10, 2021, we entered into a +partnership with the “Metaverse Alliance,” an initiative led by South Korea’s Ministry of Science and Information and +Communication Technology (“ MSIT ”) (the “ MSIT Partnership ”), which is intended to facilitate our +development of innovative technologies and advancements within the metaverse. The MSIT built the Metaverse Alliance to coordinate and +facilitate the development of virtual and augmented reality platforms. Approximately 643 firms have joined MSIT to date, including Samsung, +Hyundai Motors and Naver. +11 +Digital Properties and Websites The Company owns several digital +properties to support its platform business and broader digital strategy, including: +● FANING Platform: fanining.xyz, faning.co.kr +● Corporate Website: www.gitechnologies.com +● Koreavibe.net: a digital media property providing original news content and +features dedicated to global K-culture fandoms, attracting substantial viewership through its website and various social media channels. +Koreavibe.net complements our primary platform, FANING, by driving additional user engagement and brand visibility. +Corporate Structure and Subsidiaries +As of December 31, 2024, the Company’s primary +operating subsidiary is Faning Korea, LLC (“Faning Korea”), a wholly-owned subsidiary based in Seoul, Republic of Korea. Faning +Korea oversees the development, maintenance, and operation of the Faning application and related web services. +Throughout 2024, the Company restructured its +subsidiaries, including the divestiture of Hanryu Bank on December 28, 2024, and FNS and Marine Island on November 5, 2024. Faning Korea +was acquired on December 4, 2024. These changes were not deemed material and, therefore, were not separately reported on Form 8-K. +IPO and Nasdaq Listing +On July 31, 2023, the Company successfully completed +its IPO on Nasdaq, raising approximately $8.77 million through issuing 877,328 shares of Class A common stock at $10 per share. The Company’s +stock initially traded under the symbol ‘HRYU,’ changing subsequently to ‘GITS’ following the name change. +Strategic Developments +On February 26, 2024, the Company’s Board +of Directors terminated the employment of Changhuyk Kang as Chief Executive Officer for cause. On the same day, the Board appointed Mr. +Taehoon Kim, the Company’s Chief Technology Officer and Vice President, as Interim Chief Executive Officer, effective immediately. +Employees and Labor Relations +As of December 31, 2024, the Company had five +full-time employed directly through Global Interactive Technologies, Inc., with an additional seven full-time employees through Faning +Korea, LLC. Additionally, we occasionally enter into agreements with contractors, on an as-needed basis, to perform certain services, +including contract workers. The Company continues to operate with a lean organizational structure appropriate to its current size and +stage of development. There has been no labor dispute. None of our employees are represented by labor unions. +12 +Seasonality +We do not expect to experience any significant seasonality trends that +would materially impact our operations or financial performance. However, seasonality trends may emerge in the future as our user base +and service offerings evolve. +Governmental Regulation +We are subject to a variety of national, regional, and local laws and +regulations in both the United States and the Republic of Korea. These laws affect multiple aspects of our business, including how we +interact with users, partners, and vendors. Applicable areas of law include fair trade, competition, labor and employment, privacy and +data protection, intellectual property, consumer protection, and import/export regulations. +Many of these laws are continuing to evolve, especially those governing +digital platforms, content, and data. The interpretation and enforcement of these regulations are often uncertain, particularly in emerging +and fast-developing sectors like ours. As a result, there may be instances where we are not, or may not have been, fully compliant with +all applicable requirements in every jurisdiction. +Due to the extent of our operations in South Korea, +we are subject to several specific Korean regulatory regimes, including but not limited to: +● Copyright Act: Protects various types of creative works, including software and databases. It enforces fair use, statutory +damages, and online service provider exemptions under the Korea–U.S. Free Trade Agreement. +● Youth Protection Act: Regulates media content and environments accessible to minors, classifying harmful content and restricting +distribution through specific administrative procedures. +● Content Industry Promotion Act: Governs the production and sale of digital content, requiring content providers to include +consumer protection provisions in their terms of service, such as refunds, cancellation rights, and damage compensation. +● Personal Information Protection Act (PIPA): Regulates the collection, use, and destruction of personal data. It includes strict +consent requirements, data subject rights, breach notification obligations, and administrative and criminal penalties for non-compliance. +● Monopoly Regulation and Fair Trade Act: Overseen by the Korean Fair Trade Commission (KFTC), this law imposes disclosure and +compliance obligations on business groups with assets exceeding 5 trillion KRW. +Cost of Compliance with Environmental Laws +To date, we have not incurred any material costs +associated with compliance with environmental laws or regulations. We do not currently anticipate incurring such costs in the near future; +however, we cannot guarantee that this will remain the case as our operations expand or regulations evolve. +Facilities +The Company’s primary operational and development +activities are conducted from office premises located at 160 Yeouiseo-ro, Yeongdeungpo-gu, Seoul, Korea. +Legal Proceedings +As of December 31, 2024, the Company is not subject to any material +pending legal proceedings or claims. Previously disclosed legal matters were associated with subsidiaries that have since been divested +and no longer affect the Company’s operations or financial position. +Available Information +The Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports +filed pursuant to Sections 13(a) and 15(d) of the Exchange Act are filed with the Securities and Exchange Commission (the “SEC”). +The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) +and files or furnishes reports, proxy statements, and other information with the SEC. Such reports and other information filed by the +Company with the SEC are available free of charge on the Company’s website at www.gitechnologies.com when such reports are available +on the SEC’s website. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information +regarding issuers that file electronically with the SEC at www.sec.gov. The contents of these websites are not incorporated into this +filing. Further, the Company’s references to the URLs for these websites are intended to be inactive textual references only. +13 +Item 1A. Risk Factors. +RISKS RELATED TO OUR BUSINESS +We have incurred significant losses since +our inception, and we intend to continue to invest in our business. As a result, we may continue to experience losses in the future. +The Company incurred a net loss of approximately +$(6.2) million for the year ended December 31, 2024, and reclassified Additional Paid-in Capital of approximately $7.2 million related +to the disposal of subsidiary interests to Accumulated Deficit. For the period ended December 31, 2023, the Company incurred a net loss +of approximately $(9.4) million. As of December 31, 2024, the accumulated deficit was approximately $(37.9) million, compared to approximately +$(38.9) million as of December 31, 2023. The audited report of our independent registered public accounting firm to the financial statements +for the years ended December 31, 2024, and 2023, included elsewhere in the Report, contains an explanatory paragraph stating that our +recurring losses from operations, accumulated deficit and negative working capital raise substantial doubt about our ability to continue +as a going concern. +We expect to continue to invest heavily in our +product development and operations, to focus on our FANING platform to increase our user base to support future growth, and to meet our +expanded reporting and compliance obligations as a public company. We may not generate sufficient revenue to offset such costs to achieve +or sustain profitability in the future. +We believe our current cash, net proceeds from +debt issuances and the amount available from future issuances of common stock will be sufficient to fund our working capital requirements +beyond the next 12 months. This belief assumes, among other things, that we will be able to raise additional equity financing, will +continue to be successful in implementing our business strategy and that there will be no material adverse developments in the business, +liquidity or capital requirements. If one or more of these factors do not occur as expected, it could have a material adverse impact on +our activities, including (i) reduction or delay of our business activities, (ii) forced sales of material assets, (iii) defaults +on our obligations, or (iv) insolvency. Our planned investments may not result in increased revenue or growth of our business. We +cannot assure you that we will be able to generate revenue sufficient to offset our expected cost increases and planned investments in +our business and platform. As a result, we may incur significant losses for the foreseeable future, and may not be able to achieve and/or +sustain profitability. If we fail to achieve and sustain profitability, then we may not be able to achieve our business plan, fund our +business or continue as a going concern. The financial statements included in this Report do not contain any adjustments which might be +necessary if we were unable to continue as a going concern. +Our auditor has +included an explanatory paragraph in their opinion regarding our ability to continue as a going concern. If we are unable to continue +as a going concern, our securities will have little or no value. +OenStop Assurance, PAC, +our independent registered public accounting firm for the fiscal year ended December 31, 2024 and December 31, 2023, has included an explanatory +paragraph in their opinion that accompanies our audited consolidated financial statements as of and for the year ended December 31, 2024 +and December 31, 2023, indicating that our recurring losses from operations and a working capital deficiency raises substantial doubt +about our ability to continue as a going concern. If we are unable to obtain profitability or improve our liquidity position, we may not +be able to continue as a going concern. +We anticipate that we +will continue to generate operating losses and use cash in operations through the foreseeable future. As further set forth below, we anticipate +that we will need significant additional capital, or we may be required to curtail or cease operations. +14 +To continue as +a going concern, we will require significant additional capital, which we may be unable to obtain. +The revenues generated +from our operations are not presently sufficient to sustain our operations. Therefore, we will need to raise additional capital in the +future to continue our operations. We anticipate that our principal sources of liquidity will not be sufficient to fund our activities +to obtain long-term, sustainable profitability. To have sufficient cash to fund our operations to obtain long-term, sustainable profitability, +we will need to raise additional equity or debt capital. There can be no assurance that additional funds will be available when needed +from any source or, if available, will be available on terms that are acceptable to us. We will be required to pursue sources of additional +capital through various means, including debt or equity financing. Future financing through equity investments will be dilutive to existing +stockholders. The terms of securities we may issue in future capital transactions may be more favorable for new investors. Newly issued +securities may include preferences, superior voting rights, the issuance of warrants or other derivative securities, and the issuances +of incentive awards under equity employee incentive plans, all of which will have additional dilutive effects. Further, we may incur substantial +costs in pursuing future capital and/or financing, including investment banking fees, legal fees, accounting fees, printing and distribution +expenses and other costs. We may also be required to recognize non-cash expenses in connection with certain securities we may issue, such +as convertible notes and warrants, which may adversely impact our financial condition. Our ability to obtain needed financing may be impaired +by such factors as the capital markets and our history of losses, which could impact the availability and cost of future financing. If +the amount of capital we can raise from financing activities, together with our revenues and profits from operations, is not sufficient +to satisfy our capital needs, even to the extent that we reduce our operations accordingly, we may be required to curtail or cease operations. +We are a development stage company, and +we may not be able to sustain our rapid growth, effectively manage our anticipated future growth or implement our business strategies. +We have a limited operating history. Although +we have experienced significant growth since FANING(FANTOO) was launched, our historical growth rate may not be indicative of our future +performance due to our limited operating history and the rapid evolution of our business model, including a focus on the FANING application. +We may not be able to achieve similar results or accelerate growth at the same rate as we have historically. As our application offerings +continue to develop, we may adjust our strategy and business model to adapt. These adjustments may not achieve expected results and may +have a material and adverse impact on our financial condition and results of operations. +In addition, our rapid growth and expansion +have placed, and continue to place, significant strain on our management and resources. This level of significant growth may not be sustainable +or achievable at all in the future. We believe that our continued growth will depend on many factors, including our ability to develop +new sources of revenues, diversify monetization methods including advertising revenue, attract and retain users, increase engagement on +our FANING platform, continue developing innovative technologies and application uses in response to shifting demand in the market, increase +brand awareness, and expand into new markets. We cannot assure you that we will achieve any of the above, and our failure to do so may +materially and adversely affect our business and results of operations. +Global interactive technologies is a holding +company with no business operations of its own and manages a network of South Korean subsidiaries, subject to South Korean regulation. +Further, as we have no business operations of our own, we will depend on the cash flow and business of our subsidiaries to make payments +to us and meet our obligations. +Global interactive technologies is a holding company with +no independent operations of our own. Our South Korean subsidiaries, including Faning Korea,LLC, conduct substantially all of Global interactive +technologies’ business operations. Managing the regulatory compliance activities for each of these subsidiaries is a complicated +task, and we may expend significant resources doing so. However, we cannot guarantee that we will be able to keep abreast of the changing +legal and regulatory landscapes for each of the jurisdictions in which our subsidiaries exist. If any of the regulatory environments applicable +to our subsidiaries change materially, and we fail to adapt to such change, our business and financial results may be harmed. Applicable +tax laws may also subject such payments to us by our subsidiaries to further taxation. +15 +Additionally, as a holding company, we may rely on our operating +subsidiaries for distributions or payments for cash flow. Therefore, our ability to fund and conduct our business, service any debt, and +pay dividends, if any, in the future may depend on the ability of our South Korean subsidiaries to make upstream cash distributions or +payments to us, which may be impacted, for example, by their ability to generate sufficient cash flow or limitations on the ability to +repatriate funds, whether as a result of currency liquidity restrictions, monetary or exchange controls, regulatory restrictions, or otherwise. +Further, our subsidiaries’ ability to make payments to us will depend on: +● +their earnings; +● +covenants contained in any debt agreements to which we may then be subject, including any debt agreements of our subsidiaries; +● +covenants contained in other agreements to which we or our subsidiaries are or may become subject; +● +business and tax considerations; and +● +applicable law, including any restrictions under South Korean law that may be imposed on our subsidiaries, including HBC or its subsidiaries and affiliates, that would restrict its ability to make payments to Global interactive technologies. +We cannot assure that the operating results of +our subsidiaries at any given time will be sufficient to make distributions or other payments to us. +We are subject to risks associated with +operating in a rapidly developing industry and a relatively new market. +Many elements of our business are unique, evolving +and relatively unproven. Our business and prospects depend on the continuing development of the social media market, which is relatively +new, rapidly developing and subject to significant challenges. Our business relies upon our ability to cultivate and grow an active online +community, and our ability to successfully monetize such community through methods that include, without limitation, advertising revenue. +In addition, our continued growth depends, in part, on our ability to respond to constant changes in the industry, including rapid technological +evolution, continued shifts in user trends. Developing and integrating new content, products, services or infrastructure could be expensive +and time-consuming, and these efforts may not yield the benefits we expect to achieve at all. We cannot assure you that we will succeed +in any of these aspects or that the industry will continue to grow as rapidly as it has in the past. +Our success depends on our ability to develop +products and services to address the rapidly evolving market for the content creation and social media platform industry, and, if we are +not able to implement successful enhancements and new features for our products and services, our business could be materially and adversely +affected. +We expect that new services and technologies applicable +to the content creation and social media platform industry in which we operate will continue to emerge and evolve. Rapid and significant +technological changes continue to confront the industries in which we operate, including developments in the social media platform and +content creation industry. Incorporating new technologies into our products and services may require substantial expenditures and take +considerable time, and we may not be successful in realizing a return on these development efforts in a timely manner or at all. There +can be no assurance that any new products or services we develop and offer to our customers will achieve significant commercial acceptance. +Our ability to develop new products and services may be inhibited by industry-wide standards, laws and regulations, resistance to change +from buyers or sellers, or third parties’ intellectual property rights. Our success will depend on our ability to develop new technologies +and to adapt to technological changes and evolving industry standards. If we are unable to provide enhancements and new features for our +products and services or to develop new products and services that achieve market acceptance or that keep pace with rapid technological +developments and evolving industry standards, our business would be materially and adversely affected. +The success of enhancements, new features, and +products and services depends on several factors, including the timely completion, introduction, and market acceptance of the enhancements +or new features or services. We often rely not only on our own initiatives and innovations, but also on third parties, including some +of our competitors, for the development of and access to new technologies. +16 +In addition, because our products and services are designed to +operate with a variety of systems, infrastructures, and devices, we need to continuously modify and enhance our products and services +to keep pace with changes in mobile, software, communication, and database technologies. We may not be successful in either developing +these modifications and enhancements or in bringing them to market in a timely and cost-effective manner. Any failure of our products +and services to continue to operate effectively with third-party infrastructures and technologies could reduce the demand for our products +and services, result in dissatisfaction of our sellers or their customers, and materially and adversely affect our business. +As a creator and a distributor of digital +media content, we face liability and expenses for legal claims based on the nature and content of the materials that we create or distribute, +including materials provided by third parties. If we are required to pay damages or expenses in connection with these legal claims, our +business and results of operations may be harmed. +We display original content and third-party content on +our websites and in our marketing messages. As a result, we have faced and will continue to face potential liability based on a variety +of theories, including deceptive advertising and copyright or trademark infringement. We generally rely on the “fair use” +exception for our use of third-party brand names and marks, but these third parties may disagree, and the laws governing the fair use +of these third-party materials are imprecise and adjudicated on a case-by-case basis. We also create content we believe to be original +for our websites. While we do not believe that this content infringes on any third-party copyrights or other intellectual property +rights, owners of competitive websites that present similar content have taken and may take the position that our content infringes on +their intellectual property rights. We are also exposed to risk that content provided by third parties is inaccurate or misleading, +and for material posted to our websites by users and other third parties. These claims could divert management time and attention away +from our business and result in significant costs to investigate and defend, regardless of the merit of these claims. The general liability +insurance we maintain may not cover potential claims of this type or may not be adequate to indemnify us for all liability that may +be imposed. Any imposition of liability that is not covered by insurance, or is in excess of insurance coverage, could materially adversely +affect our business, financial condition and results of operations. +Our dependence on third-party relationships +with content producers and distribution channels to develop and distribute entertainment content is critical to the success of the FANING +Platform. +We rely on third party relationships with content +producers and distribution channels to develop and distribute entertainment content. Our financial performance may be adversely affected +by our relationships with content producers and distribution channels. Some of our content producers may have their own or other distribution +capabilities in the markets in which we operate. These third-party content producers and distribution channels may decide, +or be required by their respective parent companies, to use their intracompany distribution or content production capabilities rather +than posting such content with us. Our business may be harmed if the content producers and distribution channels with which we work stop +or reduce the amount of content they produce for us, or otherwise demand less favorable terms to us. +Our decision not to provide products and +services and to restrict user access in China (including Hong Kong and Macau) will limit our total addressable market and may limit our +ability to grow our business. +China and Hong Kong could represent a large market +opportunity for our business. However, and although we believe that such a decision may benefit the Company in the long run, by choosing +not to provide products and services, and restricting user access in China (including Hong Kong and Macau), we are sacrificing potential +business opportunities that may negatively impact the Company. As a result, the Company’s total addressable market and potential +growth may be limited and, as a result, the market price of our common stock may significantly decrease or become worthless. +If our content streaming initiatives are +unsuccessful, our business, financial condition or results of operations could be adversely affected. +Content streaming is intensely competitive and +cash intensive and there can be no assurance that our content creation initiatives will be profitable or otherwise successful. Our ability +to attract, engage and retain users within the FANING platform, as well as the corresponding advertising revenues they generate, will +depend on our ability to consistently provide appealing and differentiated content globally, effectively market our content and services +and provide a quality experience for selecting and viewing that content. Our success will require significant investments to produce original +content and acquire the rights to third-party content, as well as the establishment and maintenance of key content and distribution +partnerships. +17 +We must continually add new users and meaningfully +engage with existing users to manage turnover, or “churn,” to grow our business. If we are unable to successfully compete +with competitors in attracting, engaging with and retaining users as well as creative talent, our business, financial condition or results +of operations could be adversely affected. The relative service levels, content offerings, promotions and pricing and related features +of our competitors’ services may adversely impact our ability to attract, engage and retain users. If consumers do not consider +our platform to be of value compared to our competitors’ platforms, including because we fail to introduce attractive new content +and features, do not maintain competitive pricing, terminate or modify promotional or trial period offerings, experience technical issues, +or change the mix of content in a manner that is unfavorably received, we may not be able to attract, engage and retain users. If we are +not able to attract new users, or our existing users decide to not continue using our services for any reason, including a perception +that they do not use our platform sufficiently, the need to cut household expenses, unsatisfactory content, promotions or offers expire +or are modified, competitive platforms provide a better value or experience or customer service or technical issues are not satisfactorily +resolved, our business, financial condition or results of operations could be adversely affected. +We are dependent on the continued services +and on the performance of key third party content contributors, the loss of which could adversely affect our business. +We rely on content contributed by third party +providers, which has in turn attracted users that drive advertising revenue. The loss of the services of any of such key contributors +could have a material adverse effect on our business, operating results, and financial condition. We also depend on our ability to identify, +attract, and retain other highly skilled third-party content contributors. Competition for such contributors is intense, and there can +be no assurance that we will be able to successfully attract, assimilate or retain them. The loss or limitation of the services of any +of our key third party contributors, or the inability to attract and retain additional qualified key contributors, could have a material +adverse effect on our business, financial condition or results of operations. +Substantial and increasingly intense competition +in the social media platform and content creation industry may harm our business. +We compete in markets characterized by vigorous +competition, changing technology, evolving industry standards, and frequent introductions of new products and services. We expect competition +to intensify in the future as existing and new competitors introduce new services or enhance existing services. We compete against many +companies to attract customers, and some of these companies have greater financial resources and substantially larger bases of customers +than we do, which may provide them with significant competitive advantages. These companies may devote greater resources to the development, +promotion, and sale of products and services, and they may introduce their own innovative products and services that adversely impact +our growth. Mergers and acquisitions by these companies may lead to even larger competitors with more resources. We also expect new entrants +to offer competitive products and services. If we are unable to differentiate ourselves from and successfully compete with our competitors, +our business will be materially and adversely affected. +We may also face pressures from competitors for +user engagement and, in the future, advertising revenues. Some potential competitors are able to offer greater returns on content sales +to content creators for similar services by cross-subsidizing their payments services through other services they offer. Such competition +may result in the need for us to alter the amount we charge creators in content-sales transactions, and could reduce our gross profit. +In addition, as we grow, influential creators may demand more customized and favorable pricing from us, and competitive pressures may +require us to agree to such pricing, further reducing our gross profit. +18 +Systems failures, interruptions, delays +in service, catastrophic events, and resulting interruptions in the availability of our products or services could harm our business and +our brand, and subject us to substantial liability. +Our systems and those of our third-party data +center facilities may experience service interruptions, denial-of-service and other cyber-attacks, human error, earthquakes, hurricanes, +floods, fires, natural disasters, power losses, disruptions in telecommunications services, fraud, military or political conflicts, terrorist +attacks and other geopolitical unrest, computer viruses, or other events. Our systems are also subject to break-ins, sabotage, and acts +of vandalism. Some of our systems are not fully redundant, and our disaster-recovery planning is not sufficient for all eventualities. +In addition, as a provider of payments solutions, we are subject to increased scrutiny by regulators that may require specific business +continuity and disaster recovery plans and more rigorous testing of such plans. This increased scrutiny may be costly and time-consuming +and may divert our resources from other business priorities. +We may, and are likely to, experience denial-of-service +attacks, system failures, and other events or conditions that interrupt the availability or reduce the speed or functionality of our products +and services. These events, should they occur, would likely result in loss of revenue. In addition, they could result in significant expense +to repair or replace damaged equipment and remedy resultant data loss or corruption. A prolonged interruption in the availability or reduction +in the speed or other functionality of our products or services could materially harm our reputation and business. Frequent or persistent +interruptions in our products and services could cause users to believe that our products and services are unreliable, leading them to +switch to our competitors or to avoid our products and services, and could permanently harm our reputation and business. Moreover, to +the extent that any system failure or similar event results in damages to customers or their businesses, these customers could seek compensation +from us for their losses, and those claims, even if unsuccessful, would likely be time-consuming and costly for us to address. +Our success depends largely on the continued +service and availability of key personnel. +Much of the Company’s future success depends +on the continued availability and service of key personnel, including its Chief Executive Officer, executive team and other highly skilled +employees. Since the technology industry is characterized by high demand and intense competition for talents, we cannot assure you that +we will be able to attract or retain qualified staff or other highly skilled employees. In addition, as the Company is relatively young, +our ability to train and integrate new employees into our operations may not meet the growing demands of our business which may materially +and adversely affect our ability to grow our business and hence our results of operations. +From time to time, we may become involved +in legal proceedings. +From time to time, we may become subject to legal +proceedings, claims, litigation and government investigations or inquiries, which could be expensive, lengthy, disruptive to normal business +operations and occupy a significant amount of our employees’ time and attention. In addition, the outcome of any legal proceedings, +claims, litigation, investigations, or inquiries may be difficult to predict and could have a material adverse effect on our business, +operating results, or financial condition. +The preparation of our financial statements +involves the use of good faith estimates, judgments and assumptions, and our financial statements may be materially affected if such good +faith estimates, judgments or good faith assumptions prove to be inaccurate . +Financial statements prepared in accordance with +accounting principles generally accepted in the United States of America (“ GAAP ”) typically require the use of +good faith estimates, judgments and assumptions that affect the reported amounts. Often, different estimates, judgments and assumptions +could reasonably be used that would have a material effect on such financial statements, and changes in these estimates, judgments and +assumptions may occur from period to period over time. Significant areas of accounting requiring the application of management’s +judgment include, but are not limited to, determining the fair value of assets, share-based compensation and the timing and amount of +cash flows from assets. These estimates, judgments and assumptions are inherently uncertain and, if our estimates were to prove to be +wrong, we would face the risk that charges to income or other financial statement changes or adjustments would be required. Any such charges +or changes would require a restatement of our financial statements and could harm our business, including our financial condition and +results of operations and the price of our securities. See “ Management ’ s Discussion and Analysis of Financial Condition +and Results of Operations ” for a discussion of the accounting estimates, judgments and assumptions that we believe are the most +critical to an understanding of our financial statements and our business. +19 +RISKS RELATED TO GOVERNMENT REGULATION +Our business is subject to regulation, and +changes in applicable regulations may negatively impact our business. +We are subject to a number of foreign and domestic +laws and regulations relating to user privacy, data collection, retention, electronic commerce, virtual items and currency, consumer protection, +content, advertising, localization, and information security which have been adopted or are being considered for adoption by many jurisdictions +and countries throughout the world. These laws could harm our business by limiting the products and services we can offer consumers or +the manner in which we offer them. The costs of compliance with these laws may increase in the future as a result of changes in interpretation. +Furthermore, any failure on our part to comply with these laws or the application of these laws in an unanticipated manner may harm our +business and result in penalties or significant legal liability. +Actions by governments that restrict access +to FANING in their countries, or that otherwise impair our ability to sell advertising in their countries, could substantially harm our +business and financial results. +Governments from time to time seek to censor content +available on social media platforms, or restrict access to social media platforms from their country entirely, or impose other restrictions +that may affect the accessibility of our products in their country for an extended period of time or indefinitely. For example, user access +to certain other company social media platforms has been or is currently restricted in whole or in part in China, Iran, and North Korea. +In addition, government authorities in other countries may seek to restrict user access to our products if they consider us to be in violation +of their laws or a threat to public safety or for other reasons, and certain of our products have been restricted by governments in other +countries from time to time. It is also possible that government authorities could take action that impairs our ability to sell advertising, +including in countries where access to our consumer-facing products may be blocked or restricted. In the event that content shown on FANING +is subject to censorship, access to our products is restricted, in whole or in part, in one or more countries, we are required to or elect +to make changes to our operations, or other restrictions are imposed on our products, or our competitors are able to successfully penetrate +new geographic markets or capture a greater share of existing geographic markets that we cannot access or where we face other restrictions, +our ability to retain or increase our user base, user engagement, or the level of advertising by marketers may be adversely affected, +we may not be able to maintain or grow our revenue as anticipated, and our financial results could be adversely affected. +Our business is subject to complex and evolving +U.S. and foreign laws and regulations regarding privacy, data use and data protection, content, competition, consumer protection, +and other matters. Many of these laws and regulations are subject to change and uncertain interpretation, and could result in claims, +changes to our business practices, monetary penalties, increased cost of operations, or declines in user growth or engagement, or otherwise +harm our business. +We are subject to a variety of laws and regulations +that involve matters central to our business, including privacy, data use, data protection and personal information, rights of publicity, +content, intellectual property, advertising, marketing, distribution, data security, data retention and deletion, data localization and +storage, data disclosure, artificial intelligence, electronic contracts and other communications, competition, protection of minors, consumer +protection, telecommunications, product liability, e-commerce, taxation, economic or other trade prohibitions or sanctions, anti-corruption +and political law compliance, securities law compliance, and online payment services. The introduction of new products, expansion of our +activities in certain jurisdictions, or other actions that we may take may subject us to additional laws, regulations, or other government +scrutiny. In addition, foreign data protection, privacy, content, competition, and other laws and regulations can impose different obligations +or be more restrictive than those in the United States. +20 +Since our operations are based in Korea, where +most of our users are domiciled, we are subject to, among others, the Personal Information Protection Act and related legislation, regulations +and orders (the “ PIPA ”), the Act on the Promotion of Information and Communications Network Utilization and Protection +of Information Act (Korea), and the Credit Information Act in Korea that specifically regulates certain sensitive personal information. +PIPA requires consent by the consumer with respect to the use of his or her data and requires the persons responsible for management of +personal data to take the necessary technological and managerial measures to prevent data breaches and, among other duties, to notify +the Personal Information Protection Commission of any data breach incidents within 24 hours. Failure to comply with PIPA in any manner +may subject these persons responsible to personal liability for not obtaining such consent in an appropriate manner or for such breaches, +including even negligent breaches, and violators face varying penalties ranging from monetary penalties to imprisonment. We strive to +take the necessary technological and managerial measures to comply with PIPA, including the implementation of privacy policies concerning +the collection, use, and disclosure of subscriber data on our apps and websites, and we regularly review and update our policies and practices. +Despite these efforts to comply with PIPA, these rules are complex and evolving, subject to interpretation by government regulators which +may change over time and therefore we are subject to the risk of claims by regulators of failure to comply with PIPA. Any failure, +or perceived failure, by us to comply with such policies, laws, regulations, and other legal obligations and regulatory guidance could +adversely affect our reputation, brand, and business, and may result in claims, proceedings, or actions, including criminal proceedings, +against us and certain of our executive officers by governmental entities or others or other liabilities. Any such claim, proceeding, +or action, could hurt our reputation, brand, and business, force us to incur significant expenses in defense of such proceedings, distract +our management, increase our costs of doing business, result in a loss of customers and merchants, and could have an adverse effect on +our business, financial condition, and results of operations. +These U.S. federal and state and foreign laws and regulations, +which in some cases can be enforced by private parties in addition to government entities, are constantly evolving and can be subject +to significant change. As a result, the application, interpretation, and enforcement of these laws and regulations are often uncertain, +particularly in the new and rapidly evolving industry in which we operate, and may be interpreted and applied inconsistently from country +to country and inconsistently with our current policies and practices. For example, regulatory or legislative actions affecting the manner +in which we display content to our users or obtain consent to various practices could adversely affect user growth and engagement. Such +actions could affect the manner in which we provide our services or adversely affect our financial results. +We are also subject to evolving laws and regulations +that dictate whether, how, and under what circumstances we can transfer, process and/or receive certain data that is critical to our operations, +including data shared between countries or regions in which we operate and data shared among our products and services. If we are unable +to transfer data between and among countries and regions in which we operate, or if we are restricted from sharing data among our products +and services, it could affect our ability to provide our services, the manner in which we provide our services or our ability to target +ads, which could adversely affect our financial results. +Proposed or new legislation and regulations could +also significantly affect our business. Laws and regulations are evolving and subject to interpretation, and resulting limitations on +our advertising services, or reductions of advertising by marketers, have to some extent adversely affected, and will continue to adversely +affect, our advertising business. Changes to our products or business practices as a result of these developments may adversely affect +our advertising business. Similarly, there are a number of legislative proposals in the European Union, the United States, at both +the federal and state level, as well as other jurisdictions that could impose new obligations or limitations in areas affecting our business. +In addition, some countries are considering or have passed legislation implementing data protection requirements or requiring local storage +and processing of data or similar requirements that could increase the cost and complexity of delivering our services. +21 +For example, the European Union traditionally +has imposed stricter obligations under its laws and regulations relating to privacy, data protection and consumer protection than the +United States. In May 2018, the European Union’s new regulation governing data practices and privacy called the General +Data Protection Regulation, or GDPR, became effective and substantially replaced the data protection laws of the individual European Union +member states. The law requires companies to meet more stringent requirements regarding the handling of personal data of individuals in +the EU than were required under predecessor EU requirements. In the United Kingdom, a Data Protection Bill that substantially implements +the GDPR also became law in May 2018. The law also increases the penalties for non-compliance, which may result in monetary penalties +of up to €20.0 million or 4% of a company’s worldwide turnover, whichever is higher. The GDPR and other similar regulations +require companies to give specific types of notice and in some cases seek consent from consumers and other data subjects before collecting +or using their data for certain purposes, including some marketing activities. Outside of the European Union, many countries have laws, +regulations, or other requirements relating to privacy, data protection, information security, and consumer protection, and new countries +are adopting such legislation or other obligations with increasing frequency. Many of these laws may require consent from consumers for +the use of data for various purposes, including marketing, which may reduce our ability to market our products. There is no harmonized +approach to these laws and regulations globally. Consequently, we increase our risk of non-compliance with applicable foreign data protection +laws by operating internationally. We may need to change and limit the way we use personal information in operating our business and may +have difficulty maintaining a single operating model that is compliant. In addition, various federal, state and foreign legislative and +regulatory bodies, or self-regulatory organizations, may expand current laws or regulations, enact new laws or regulations or issue revised +rules or guidance regarding privacy, data protection, information security and consumer protection. For example, California recently adopted +the California Consumer Privacy Act of 2018 (“ CCPA ”), which provides new data privacy rights for consumers +and new operational requirements for businesses. The CCPA includes a statutory damages framework and private rights of action against +businesses that fail to comply with certain CCPA terms or implement reasonable security procedures and practices to prevent data breaches. +The CCPA went into effect in January 2020. The effects of the CCPA potentially are significant, however, and may require us to modify +our data processing practices and policies and to incur substantial costs and expenses in an effort to comply. As a general matter, compliance +with laws, regulations, and any applicable rules or guidance from self- regulatory organizations relating to privacy, data protection, +information security and consumer protection, may result in substantial costs and may necessitate changes to our business practices, which +may compromise our growth strategy, adversely affect our ability to acquire customers, and otherwise adversely affect our business, financial +condition and operating results. +These laws and regulations, as well as any associated +claims, inquiries, or investigations or any other government actions, have in the past led to, and may in the future lead to, unfavorable +outcomes including increased compliance costs, delays or impediments in the development of new products, negative publicity and reputational +harm, increased operating costs, diversion of management time and attention, and remedies that harm our business, including fines or demands +or orders that we modify or cease existing business practices. +Payment transactions may subject us to additional +regulatory requirements and other risks that could be costly and difficult to comply with or that could harm our business. +Our users can purchase virtual and digital goods +from creators and developers within our platform and infrastructure on FANING. In addition, certain of our users can use our FANING +infrastructure, including within Clubs and communities, for other activities, such as sending money to other users or purchasing goods +and/or services from other users. We are subject to a variety of laws and regulations in the United States, Europe, and elsewhere, +including those governing anti-money laundering and counter-terrorist financing, money transmission, gift cards and other prepaid access +instruments, electronic funds transfer, charitable fundraising, and import and export restrictions. Depending on how our payments +product evolves, we may also be subject to other laws and regulations including those governing gambling, banking, and lending. In some +jurisdictions, the application or interpretation of these laws and regulations is not clear. Our efforts to comply with these laws and +regulations could be costly and result in diversion of management time and effort and may still not guarantee compliance. In the event +that we are found to be in violation of any such legal or regulatory requirements, we may be subject to monetary fines or other penalties +such as a cease and desist order, or we may be required to make product changes, any of which could have an adverse effect on our business +and financial results. +In addition, we are subject to a variety +of additional risks as a result of payments transactions, including: increased costs and diversion of management time and effort and other +resources to deal with bad transactions or customer disputes; potential fraudulent or otherwise illegal activity by users, developers, +employees, or third parties; restrictions on the investment of consumer funds used to transact payments; and additional disclosure and +reporting requirements. We have also launched/have announced plans to develop digital payments products and services, which may subject +us to many of the foregoing risks and additional licensing requirements. +22 +Changes in tax laws or regulations that +are applied adversely to us or our customers may have a material adverse effect on our business, cash flow, financial condition or results +of operations. +New income, sales, use or other tax laws, statutes, +rules, regulations or ordinances could be enacted at any time, which could affect the tax treatment of our earnings and adversely affect +our operations, and our business and financial performance. Further, existing tax laws, statutes, rules, regulations or ordinances could +be interpreted, changed, modified or applied adversely to us. There may be material adverse effects resulting from the legislation +that we have not yet identified. No estimated tax provision has been recorded in the financial statements included herein for tax attributes +that are incomplete or subject to change. +The foregoing items could have a material adverse +effect on our business, cash flow, financial condition or results of operations. In addition, it is unclear how these U.S. federal +income tax changes will affect state and local taxation, which often uses federal taxable income as a starting point for computing state +and local tax liabilities. The impact of this tax legislation on holders of our common stock is also uncertain and could be adverse. We +urge our stockholders and investors to consult with our legal and tax advisors with respect to this legislation and the potential tax +consequences of investing in or holding our common stock. +Failure to comply with the U.S. Foreign +Corrupt Practices Act could result in fines, criminal penalties and an adverse effect on our business. +We may operate in a number of countries throughout +the world, including countries known to have a reputation for corruption. We are committed to doing business in accordance with applicable +anti-corruption laws and have adopted a code of business conduct and ethics which is consistent and in full compliance with the U.S. Foreign +Corrupt Practices Act of 1977, or the FCPA. We are subject, however, to the risk that we, our affiliated entities or our +or their respective officers, directors, employees and agents may take actions determined to be in violation of such anti- corruption +laws, including the FCPA. Any such violation could result in substantial fines, sanctions, civil and/or criminal penalties, curtailment +of operations in certain jurisdictions, and might adversely affect our business, results of operations or financial condition. In addition, +actual or alleged violations could damage our reputation and ability to do business. Furthermore, detecting, investigating, and resolving +actual or alleged violations is expensive and can consume significant time and attention of our senior management. +RISKS RELATED TO DOING BUSINESS IN KOREA +Fluctuations in exchange rates could result +in foreign currency exchange losses to us. +The value of the Korean Won and other currencies +against the U.S. dollar has fluctuated, and may continue to fluctuate and is affected by, among other things, changes in political +and economic conditions. It is difficult to predict how market forces or Korean or U.S. government policy, including any interest +rate increases by the Federal Reserve, may impact the exchange rate between the Korean Won and the U.S. dollar in the future. +A substantial percentage of our revenue and costs +are denominated in Korean Won, and a significant portion of our financial assets are also denominated in Korean Won, while we anticipate +that a substantial portion of any debt incurred will be denominated in U.S. dollars. We are a holding company and we may receive +dividends, loans and other distributions on equity paid by our operating subsidiaries in Korea. Any significant fluctuations in the value +of the Korean Won may materially and adversely affect our liquidity and cash flows. For example, the depreciation of the Korean Won and +other foreign currencies against the U.S. dollar typically results in a material increase in the cost of hosting services and equipment +purchased from outside of Korea and the cost of servicing debt denominated in currencies other than the Korean Won. As a result, any significant +depreciation of the Korean Won or other major foreign currencies against the U.S. dollar may have a material adverse effect on our +results of operations. If we decide to convert our Korean Won into U.S. dollars for the purpose of repaying principal or interest +expense on any future U.S. dollar-denominated debt, making payments for dividends on our common stock, or other business purposes, +depreciation of the Korean Won or other foreign currencies against the U.S. dollar would have a negative effect on the U.S. dollar +amount we would receive. Conversely, to the extent that we need to convert U.S. dollars into Korean Won for our operations, appreciation +of the Korean Won against the U.S. dollar would have an adverse effect on the Korean Won amount we would receive. +23 +Tensions with North Korea could have an adverse effect on our +business, financial condition, and results of operations, and the price per share of our common stock. +Relations between Korea and North Korea have fluctuated +over the years. Tension between Korea and North Korea may increase or change abruptly as a result of current and future events. In +particular, there have been heightened security concerns in recent years stemming from North Korea’s nuclear weapon and ballistic +missile programs as well as its hostile military actions against Korea. +North Korea’s economy also faces severe +challenges, which may further aggravate social and political pressures within North Korea. Since April 2018, North Korea has held +a series of bilateral summit meetings with Korea and the United States to discuss peace and denuclearization of the Korean peninsula. +However, North Korea has since resumed its missile testing, heightening tensions, and the outlook of such discussions remains uncertain. +Further tensions in North Korean relations could +develop due to a leadership crisis, breakdown in high-level inter-Korea contacts or military hostilities. Alternatively, tensions may +be resolved through reconciliatory efforts, which may include peace talks, alleviation of sanctions or reunification. We cannot assure +you that future negotiations will result in a final agreement on North Korea’s nuclear program, including critical details such +as implementation and timing, or that the level of tensions between Korea and North Korea will not escalate. Any increase in the level +of tension between Korea and North Korea, an outbreak in military hostilities or other actions or occurrences, could adversely affect +our business, prospects, financial condition, and results of operations and could lead to a decline in the price per share of our common +stock. +There are special risks involved with investing +in Korean companies, including the possibility of restrictions being imposed by the Korean government in emergency circumstances, accounting +and corporate disclosure standards that differ from those in other jurisdictions, and the risk of direct or vicarious criminal liability +for executive officers of our Korean affiliates. +Our wholly owned subsidiary, Faning Korea, LLC, +is our Korean subsidiary and operates in a business and cultural environment that is different from that of other countries. For example, +under the Foreign Exchange Transaction Act of Korea, if the Korean government determines that in certain emergency circumstances, +including sudden fluctuations in interest rates or exchange rates, extreme difficulty in stabilizing the balance of payments or substantial +disturbance in the Korean financial and capital markets are likely to occur, it may impose any necessary restriction such as requiring +Korean or foreign investors to obtain prior approval from the Minister of Economy and Finance of Korea prior to entering into a capital +markets transaction, repatriating interest, dividends or sales proceeds arising from Korean securities or from the disposition of such +securities or other transactions involving foreign exchange. Although investors will hold shares of our common stock, Faning Korea,LLC +may experience adverse risks and in turn could adversely impact our business, prospects, financial condition, and results of operations +and could lead to a decline in the price per share of our common stock. +In addition, under Korean law, there are circumstances +in which certain executive officers of a company may be investigated or held criminally liable either directly or vicariously for the +actions of the company and its executives and employees. For example, complaints alleging infringement of intellectual property rights, +breaches of certain Korean laws (e.g., labor standards laws and fair trade laws), and product-related claims may be investigated and prosecuted +as criminal offenses with both the company and the company’s executive officers being named as defendants in such proceedings. These +risks change over time. +As a result of these current and changing risks, +Faning Korea,LLC’s executive officers may be named in the future in criminal investigations or proceedings stemming from our operations. +In Korea, company executive officers being named in such investigations or proceedings is a common occurrence, even though in practice +many such cases result in no liability to the individual. If Faning Korea,LLC’s executive officers were to be named in such criminal +proceedings or held either directly or vicariously criminally liable for the actions of the company and its executives and employees, +our business, financial condition, and results of operations may be harmed. +Faning Korea,LLC’s transactions with +its subsidiaries and affiliates may be restricted under Korean fair trade regulations. +Faning Korea,LLC enters into business relationships +and transactions with its subsidiaries and affiliates, which are subject to scrutiny by the Korean Fair Trade Commission (“ KFTC ”) +as to, among other things, whether such relationships and transactions constitute undue financial support among companies in the same +business group. If, in the future, the KFTC determines that Faning Koera,LLC has engaged in transactions that violate the fair trade laws +and regulations, it may be subject to an administrative and/or criminal fine, surcharge or other actions, which may have an adverse effect +on our business, financial condition, and results of operations. +24 +Our Korean subsidiary, Faning Korea, LLC, +may be designated as an affiliated group under Korean law, in which case the group of companies would be required to make certain disclosures +and implement additional corporate governance requirements. +Our Korean subsidiary, Faning Korea, LLC +are likely to be designated as a business group subject to disclosure under the Korean Monopoly Regulation and Fair Trade Act. As described +in greater detail in the section titled “Government Regulation-The Monopoly Regulation and Fair Trade Act”, such a designation +would impose additional corporate governance and public disclosure requirements on this group of affiliated companies. These requirements +would create additional costs of compliance and could subject this group of affiliated companies to greater regulatory scrutiny and risk +of penalties for any failure to comply with the additional obligations imposed. +Faning Korea, LLC is subject to certain +requirements and restrictions under Korean law that may, in certain circumstances, require it to act in a manner that may not be in our +or our stockholders ’ best interest. +Under applicable Korean law, directors of a Korean +company, such as Faning Korea,LLC, owe a fiduciary duty to the company itself rather than to its stockholders. This fiduciary duty obligates +directors of a Korean company to perform their duties faithfully for the good of the company as a whole. As a result, if circumstances +arise in which the good of Faning Korea, LLC conflicts with the good of Global Interactive Technologies, Inc or our stockholders, Faning +Korea, LLC may not be permitted under applicable Korean law to act in a manner that is in the best interest of Global Interactive Technologies, +Inc, as its parent, or our stockholders. For example, providing guarantees or collateral by Faning Korea, LLC in favor of Global Interactive +Technologies, Inc, as its parent, without a justifiable cause and on other than arm’s length terms may cause breach of a fiduciary +duty of directors to Faning Korea, LLC. +Approval by the board of directors of a Korean +company is required for, among other things, all transactions between a director or major stockholder (including a 10% or more stockholder) +and the company for the director’s or the major stockholder’s account. As a result, intercompany transactions between us and +Faning Korea, LLC (or any other Korean subsidiary we may own, from time to time), could arise in the future in which the directors of +the Korean subsidiary are not able to act in ours or our stockholders’ best interest as a result of competing interests of the subsidiary. +Since substantially all of our operations are conducted by Faning Korea, LLC, any such occurrence with respect to Faning Korea, LLC could +adversely affect our business, financial condition, and results of operations. +Faning Korea, LLC’s transactions with +related parties are subject to close scrutiny by the Korean tax authorities, which may result in adverse tax consequences. +Under Korean tax law, there is an inherent risk +that Faning Korea, LLC ’s transactions with its subsidiaries, affiliates or any other person or company that is related +to us may be challenged by the Korean tax authorities if such transactions are viewed as having been made on terms that were not on an +arm’s-length basis. If the Korean tax authorities determine that any of its transactions with related parties were on other than +arm’s-length terms, it may not be permitted to deduct as expenses, or may be required to include as taxable income, any amount which +is found to be undue financial support between related parties in such transaction, which may have adverse tax consequences for us and, +in turn, may adversely affect our business, financial condition, and results of operations. +If we are deemed to have a +“ place of effective management ” in Korea, we will be treated as a Korean company for the purpose +of Korean corporate income tax with regards to our worldwide income. +Under the Corporate Tax Act (“ CTA ”), +as amended on August 17, 2021, a corporation having a “place of effective management” in Korea will be treated as a Korean +company for the purposes of Korean corporate income tax. However, the CTA does not clearly define what constitutes “place of effective +management” and, to date, there has not been any court precedent. If we are deemed to have a “place of effective management” +in Korea, we will be required to file annual corporate income tax returns with the Korean tax authorities and be subject to Korean corporate +income tax. Currently, the applicable rates are 9.9% (inclusive of local corporate taxes) for taxable income up to 200 million Korean +Won, 23.1% (inclusive of local corporate taxes) for taxable income exceeding 200 million Korean Won and less than 20 billion +Korean Won, 24.2% (inclusive of local corporate taxes) for taxable income greater than 20 billion won and less than 300 billion +Korean Won, and 26.4% (inclusive of local corporate tax) for taxable income greater than 300 billion Korean Won. Taxable income would +include any worldwide income, such as dividends we receive from our Korean operating company and any interest income earned outside of +Korea. If we are required to pay Korean corporate income tax, it may reduce our cash flow and negatively impact the returns to investors. +25 +If we are deemed to have a “ permanent +establishment ” in Korea, we will be subject to Korean corporate income tax with regards to any Korean source income +attributable to or effectively connected with such permanent establishment. +If we are deemed to have a “permanent establishment” +as defined under Korean tax law, we would be required to file annual corporate income tax returns with the Korean tax office and be subject +to Korean corporate income tax. The applicable rates are 9.9% (inclusive of local corporate taxes) for taxable income up to 200 million +Korean Won, 20.9% (inclusive of local corporate taxes) for taxable income exceeding 200 million Korean Won and less than 20 billion +Korean Won, 23.1% (inclusive of local corporate taxes) for taxable income greater than 20 billion won and less than 300 billion +Korean Won, and 26.4% (inclusive of local corporate tax) for taxable income greater than 300 billion Korean Won. Taxable income includes +any Korean source income attributable to or effectively connected with such permanent establishment, such as dividends we receive from +our Korean operating company. If we are required to pay Korean corporate income tax, it may reduce our cash flow and negatively impact +the returns to investors. +A focus on regulating copyright and patent +infringement by the Korean government subjects us to extra scrutiny in our operations and could subject us to sanctions, fines, or other +penalties, which could adversely affect our business and operations in Korea. +The Korean government has recently focused on +addressing copyright and patent infringement in Korea, particularly with respect to luxury and brand name merchandise. Despite measures +we have taken to address copyright and patent infringement, the Korean government may subject us to sanctions, fines, or other penalties, +which could adversely affect our business and operations in Korea. +Our business may be adversely affected by +developments that negatively impact the Korean economy and uncertainties in economic conditions that impact spending patterns of our customers +in Korea. +We have historically generated a substantial majority +of our revenue from sales in Korea. Our future performance will depend in large part on Korea’s future economic growth. Adverse +developments in Korea’s economy as a result of various factors, including economic, political, legal, regulatory, and social conditions +in Korea may have an adverse effect on customer spending, which may not allow us to achieve our desired revenue growth. The economic indicators +in Korea in recent years have shown mixed signs of growth and uncertainty, and in 2020, the Korean and global economies were affected +as a result of the COVID-19 pandemic. As a result, future growth of the Korean economy is subject to many factors beyond our control, +including developments in the global economy. +The Korean economy is closely tied to, and is +affected by developments in, the global economy. In recent years, adverse conditions and volatility in the worldwide financial markets, +fluctuations in oil and commodity prices, and the COVID-19 pandemic, have contributed to the uncertainty of global economic prospects +in general and have adversely affected, and may continue to adversely affect, the Korean economy. Due to liquidity and credit concerns +and volatility in the global financial markets, the value of the Korean Won relative to the U.S. dollar and other foreign currencies +and the stock prices of Korean companies have fluctuated significantly in recent years. Further declines in the Korea Composite Stock +Price Index, and large amounts of sales of Korean securities by foreign investors and subsequent repatriation of the proceeds of such +sales may adversely affect the value of the Won, the foreign currency reserves held by financial institutions in Korea, and the ability +of Korean companies to raise capital. Any future deterioration of the Korean economy or the global economy could adversely affect our +business, financial condition, and results of operations. +26 +New legislative proposals may expose +our business to additional risks from litigation, regulation, and government investigations. +We are subject to changing laws and regulations +everywhere we do business, including in Korea. For example, on September 28, 2020, the Korean Ministry of Justice announced (i) a +proposed amendment to the Korean Commercial Code to adopt a punitive damages system that would apply generally to all areas of business, +and (ii) a proposed bill to introduce a class action litigation system in Korea. +Previously, punitive or exemplary damages have +been available in Korea only in specific business fields. The proposed legislation would broaden the potential availability of such damages. +Similarly, the proposal relating to class actions would make such litigation applicable to a broader scope of cases, would allow for a +Korean style discovery process, jury trials in many cases, and would apply to claims whose cause arose before the bill’s enactment. +Additionally, on September 28, 2020, the +KFTC introduced a proposed bill entitled the “Fair Online Platform Intermediary Transactions Act.” This proposed act is intended +to augment the existing legal framework under the Monopoly Regulation and Fair Trade Act of Korea to regulate competition and +fairness issues arising in the business of online platforms. This proposed act would enhance liability of online platform operators to +merchants, suppliers, and customers. +Also, on January 8, 2021, the main session +of the Korean National Assembly passed a draft Bill on Punishment for Serious Accidents, etc. (the “ Serious Accidents Act ”), +which came into effect January 27, 2022. The Serious Accidents Act imposes enhanced liability (including criminal liability) on businesses, +managers, and individuals who are responsible for causing loss of life by failing to fulfill duties relating to workplace safety and health +or risk prevention. The Serious Accidents Act provides the potential for criminal punishment, public disclosure of punishment, and monetary +damages, including punitive damages up to five times the actual damages suffered. The Serious Accidents Act extends potential liability +to a wider group of persons than under existing law, including those who oversee safety and health matters for the business concerned +and also general managers of the business. +These are just some examples of how our business +could be affected by changing regulations. If these proposals are enacted and implemented, our Korean subsidiary, Faning Korea, LLC, could +face substantial costs and management could be required to spend significant time and attention on these matters, which would divert our +focus from our core business. This could adversely affect our business, financial condition, and results of operations. +As Faning Korea, LLC is incorporated in +Korea, it may be more difficult to enforce judgments obtained in courts outside Korea. +Our operations are primarily conducted outside +of the United States. In addition, all of our directors and officers are non-residents of the United States, and all or a substantial +portion of the assets of these non-residents are located outside the United States. As a result, it may be difficult or impossible +for U.S. investors to serve process within the United States upon us, our subsidiaries or our directors and officers or to enforce +a judgment against us for civil liabilities in U.S. courts. In addition, you should not assume that courts in the countries in which +we or our subsidiaries are incorporated or where our or the assets of our subsidiaries are located (1) would enforce judgments of +U.S. courts obtained in actions against us or our subsidiaries based upon the civil liability provisions of applicable U.S. federal +and state securities laws or (2) would enforce, in original actions, liabilities against us or our subsidiaries based on those laws. +27 +RISKS RELATED TO OUR TECHNOLOGY +Technology changes rapidly in our business +and if we fail to anticipate or successfully implement new technologies or adopt new business strategies, technologies or methods, the +quality and competitiveness of our service offerings may suffer. +Technology changes rapidly in the social media +market which requires us to anticipate which technologies we must develop, implement and take advantage of in order to remain competitive. +We have invested, and in the future may invest, in new business strategies including technologies, products, and to continue to persistently +deliver the best product. Such endeavours may involve significant risks and uncertainties, and no assurance can be given that the technology +we choose to adopt and the features that we pursue will be successful. If we do not successfully implement these new technologies, our +reputation may be materially adversely affected and our financial condition and operating results may be impacted. We also may miss opportunities +to adopt technology, or develop new technologies, which could adversely affect our financial results. It may take significant time and +resources to shift our focus to new technologies, putting us at a competitive disadvantage. +There may be losses or unauthorized access +to or releases of confidential information, including personally identifiable information (“PII”), that could subject the +Company to significant reputational, financial, legal and operational consequences. +The Company’s business requires it to use +and store confidential information including, among other things, PII, with respect to the Company’s customers and employees. The +Company devotes significant resources to network and data security, including through the use of encryption and other security measures +intended to protect its systems and data. However, these measures cannot provide absolute security, and losses or unauthorized access +to or releases of confidential information occur and could materially adversely affect the Company’s reputation, financial condition +and operating results. +The Company’s business also requires it +to share confidential information with suppliers and other third parties. Although the Company takes steps to secure confidential information +that is provided to third parties, such measures are not always effective and losses or unauthorized access to or releases of confidential +information occur and could materially adversely affect the Company’s reputation, financial condition and operating results. +For example, the Company may experience a security +breach impacting the Company’s information technology systems, which, for the avoidance of doubt, includes the Company’s separate +FP database, that compromises the confidentiality, integrity or availability of confidential information. Such an incident could, among +other things, impair the Company’s ability to attract and retain customers for its products and services, impact the Company’s +stock price, materially damage supplier relationships, and expose the Company to litigation or government investigations, which could +result in penalties, fines or judgments against the Company. +The Company has implemented systems and processes +intended to secure its information technology systems and prevent unauthorized access to or loss of sensitive data, including through +the use of encryption and authentication technologies. As with all companies, these security measures may not be sufficient for all eventualities +and may be vulnerable to hacking, employee error, malfeasance, system error, faulty password management or other irregularities. +In addition to the risks relating to general confidential +information described above, the Company is also subject to specific obligations relating to payment card data. Under payment card rules +and obligations, if cardholder information is potentially compromised, the Company could be liable for associated investigatory expenses +and could also incur significant fees or fines if the Company fails to follow payment card industry data security standards. The Company +could also experience a significant increase in payment card transaction costs or lose the ability to process payment cards if it fails +to follow payment card industry data security standards, which would materially adversely affect the Company’s reputation, financial +condition and operating results. +While the Company maintains insurance coverage +that is intended to address certain aspects of data security risks, such insurance coverage may be insufficient to cover all losses or +all types of claims that may arise. +28 +We use third-party services and technologies +in connection with our business, and any disruption to the provision of these services and technologies to us could result in negative +publicity and a slowdown in the growth of our users, which could materially and adversely affect our business, financial condition and +results of operations. +Our business partially depends on services provided +by, and relationships with, various third parties, including cloud hosting and broadband providers, among others. To this end, when our +cloud hosting and broadband vendors experience outages, our services offered through FANING and related applications will be negatively +impacted and alternative resources will not be immediately available. We exercise no control over the third-party vendors that we rely +upon for cloud hosting, broadband and software service. If such third parties increase their prices, fail to provide their services effectively, +terminate their service or agreements or discontinue their relationships with us, we could suffer service interruptions, reduced revenues +or increased costs, any of which may have a material adverse effect on our business, financial condition and results of operations. +Growth of our client base depends upon effective +interoperability with mobile operating systems, networks, mobile devices and standards that we do not control. +We are dependent on the interoperability of our +services with popular mobile devices and mobile operating systems that we do not control, such as Android and iOS. Any changes in +such mobile operating systems or devices that degrade the functionality of our services or give preferential treatment to competitive +services could adversely affect usage of our services. In order to deliver high quality services, it is important that our services work +well across a range of mobile operating systems, networks, mobile devices and standards that we do not control. We may not be successful +in developing relationships with key participants in the mobile industry or in developing services that operate effectively with these +operating systems, networks, devices and standards. In the event that it is difficult for our users to access and use our services, particularly +on their mobile devices, our user growth and user engagement could be harmed, and our business and operating results could be adversely +affected. +Security breaches, improper access to or +disclosure of our data or user data, other hacking and phishing attacks on our systems, or other cyber incidents could harm our reputation +and adversely affect our business. +Our industry is prone to cyber-attacks by third +parties seeking unauthorized access to our data or users’ data or to disrupt our ability to provide service. Our products and services +involve the collection, storage, processing, and transmission of a large amount of data, including FP stored in the Company’s separate +FP database. Any failure to prevent or mitigate security breaches and improper access to or disclosure of our data or user data, including +personal information, content, or payment information from users, or information from marketers, could result in the loss, modification, +disclosure, destruction, or other misuse of such data, including FP stored in the Company’s separate FP database, which could harm +our business and reputation and diminish our competitive position. In addition, computer malware, viruses, social engineering (predominantly +spear phishing attacks), scraping, and general hacking have become more prevalent in our industry, have occurred on our systems in the +past, and will occur on our systems in the future. Our efforts to protect our company data or the information we receive, and to disable +undesirable activities on our platform, may also be unsuccessful due to software bugs or other technical malfunctions; employee, contractor, +or vendor error or malfeasance, including defects or vulnerabilities in our vendors’ information technology systems or offerings; +government surveillance; breaches of physical security of our facilities or technical infrastructure; or other threats that evolve. In +addition, third parties may attempt to fraudulently induce employees or users to disclose information in order to gain access to our data +or our users’ data. Cyber-attacks continue to evolve in sophistication and volume, and inherently may be difficult to detect for +long periods of time. Although we have developed systems and processes that are designed to protect our data and user data, to prevent +data loss, to disable undesirable accounts and activities on our platform, and to prevent or detect security breaches, we cannot assure +you that such measures will provide absolute security, that we will be able to react in a timely manner, or that our remediation efforts +will be successful. +We may experience such cyber-attacks and other +security incidents of varying degrees from time to time, and we may incur significant costs in protecting against or remediating such +incidents. In addition, we are subject to a variety of laws and regulations in the United States and abroad relating to cybersecurity +and data protection. As a result, affected users or government authorities could initiate legal or regulatory actions against us in connection +with any actual or perceived security breaches or improper access to or disclosure of data, which could cause us to incur significant +expense and liability or result in orders or consent decrees forcing us to modify our business practices. Such incidents or our efforts +to remediate such incidents may also result in a decline in our active users base or engagement levels. Any of these events could have +a material and adverse effect on our business, reputation, or financial results. +29 +We anticipate that our ongoing efforts related +to privacy, safety, security, and content review will identify instances of misuse of user data or other undesirable activity by third +parties on our platform. +In addition to our efforts to mitigate cybersecurity +risks, we are making significant investments in privacy, safety, security, and content review efforts to combat misuse of our services +and user data by third parties, including investigations and audits of platform applications. As a result of these efforts, we anticipate +that we may discover incidents of misuse of user data or other undesirable activity by third parties. We may not discover all such incidents +or activity, whether as a result of our data or technical limitations, including our lack of visibility over our encrypted services, the +scale of activity on our platform, challenges related to our personnel working remotely during the COVID-19 pandemic, the allocation of +resources to other projects, or other factors, and we may be notified of such incidents or activity by the media or other third parties. +Such incidents and activities may, in the future, include the use of user data or our systems in a manner inconsistent with our terms, +contracts or policies, the existence of false or undesirable user accounts, improper advertising practices, activities that threaten people’s +safety on- or offline, or instances of spamming, scraping, data harvesting, unsecured datasets, or spreading misinformation. We may also +be unsuccessful in our efforts to enforce our policies or otherwise remediate any such incidents. Any of the foregoing developments may +negatively affect user trust and engagement, harm our reputation and brands, require us to change our business practices in a manner adverse +to our business, and adversely affect our business and financial results. Any such developments may also subject us to litigation and +regulatory inquiries, which could subject us to monetary penalties and damages, divert management’s time and attention, and lead +to enhanced regulatory oversight. +Our products and internal systems rely on +software and hardware that is highly technical, and any errors, bugs, or vulnerabilities in these systems, or failures to address or mitigate +technical limitations in our systems, could adversely affect our business. +Our products and internal systems rely on software +and hardware, including software and hardware developed or maintained internally and/or by third parties, that is highly technical and +complex. In addition, our products and internal systems depend on the ability of such software and hardware to store, retrieve, process, +and manage immense amounts of data. The software and hardware on which we rely may contain, and will in the future may further contain, +errors, bugs, or vulnerabilities, and our systems are subject to certain technical limitations that may compromise our ability to meet +our objectives. Some errors, bugs, or vulnerabilities inherently may be difficult to detect and may only be discovered after the code +has been released for external or internal use. Errors, bugs, vulnerabilities, design defects, or technical limitations within the software +and hardware on which we rely have in the past led to, and may in the future lead to, outcomes including a negative experience for users +and marketers who use our products, compromised ability of our products to perform in a manner consistent with our terms, contracts, or +policies, delayed product introductions or enhancements, targeting, measurement, or billing errors, compromised ability to protect the +data of our users and/or our intellectual property or other data, or reductions in our ability to provide some or all of our services. +For example, we make commitments to our users as to how their data will be used within and across our products, and our systems are subject +to errors, bugs and technical limitations that may prevent us from fulfilling these commitments reliably. In addition, any errors, bugs, +vulnerabilities, or defects in our systems or the software and hardware on which we rely, failures to properly address or mitigate the +technical limitations in our systems, or associated degradations or +interruptions of service or failures to fulfil +our commitments to our users may in the future lead to outcomes including damage to our reputation, loss of users, loss of marketers, +loss of revenue, regulatory inquiries, litigation, or liability for fines, damages, or other remedies, any of which could adversely affect +our business and financial results. +30 +RISKS RELATED TO DIGITAL ASSETS +Regulatory changes or actions may restrict +the use of digital assets in a manner that adversely affects our business, prospects or operations. +FP may be considered a digital asset. Although +FP is not offered on a public blockchain and its value is derived primarily from its utility exclusively within its closed network community, +it may also be subject to increasingly restrictive, complex and evolving U.S. and foreign laws and regulations regarding digital +assets, including commodities and securities, anti-money laundering and counter-terrorist financing, money transmission, consumer protection, +taxation, intellectual property, property rights and other matters (for the purposes of this section, the “ Digital Asset Laws ”). +Many of these laws and regulations are subject to change and uncertain interpretation, and could result in outright bans in certain jurisdictions, +sanctions, monetary penalties, claims, increased compliance costs, or declines in adoption that could impede user growth or engagement, +or otherwise harm our business. +For example, in the United States, the SEC +has been particularly active in pursuing digital asset issuers for unregistered security offerings to U.S. residents. In Korea, the +Financial Services Commission has banned initial coin offerings within Korea. We have not offered KDC in jurisdictions where it was be +prohibited or in a manner that is prohibited. The initial public offering of KDC was conducted on centralized digital asset exchanges +that excluded subscribers from prohibited jurisdictions. Further, we conducted no public solicitation for the offering of KDC in the United States +or South Korea. Nonetheless, because KDC is available on the public blockchain it may be possible for residents in such jurisdictions +to acquire KDC in peer to peer transactions, as most jurisdictions, including the United States and South Korea, do not prohibit +private parties from engaging in peer to peer digital asset transactions. With respect to resales or secondary digital asset transactions, +jurisdictions generally regulate intermediaries for such transactions dependent on the extent and nature of an intermediary’s role +in a transaction. Decentralized finance (“ defi ”) applications that are connected to the public blockchain have substantially +minimized the role of the intermediary. Given the emerging nature of such defi applications, the regulatory landscape pertaining to such +applications is still evolving and consequently, numerous defi applications are available to transaction parties, often irrespective of +the physical location of a party and irrespective of the actions or inactions of the issuers of such digital assets. To date, we do not +monitor for such defi transactions, nor do we have any prospective plans to do so. Furthermore, given that we would never have access +to the personal information of the parties to such transactions, even if we had the ability to restrict private defi transactions we would +not have the ability to identify whether any particular transaction should be restricted under the Digital Asset Laws of any given jurisdiction +or whether we would be under any obligation to endeavour to enforce such restrictions, to the extent possible. To the extent government +enforcement authorities or regulators seek to enforce current or future Digital Asset Laws against us for these transactions, we may be +subject to investigation, administrative or court proceedings, and civil or criminal monetary fines and penalties, all of which could +harm our reputation and negatively impact our business operations. +Regulation of digital assets and digital asset +exchanges is currently undeveloped and likely to evolve rapidly, vary significantly among international regulatory agencies, and is subject +to significant uncertainty. A failure by the Company to comply with any laws, rules and regulations, some of which may not exist yet or +are subject to interpretation and may be subject to change, could result in a variety of adverse consequences, including civil penalties +and fines imposed by governmental authorities. Under certain circumstances, such failure to comply by the Company could also result in +criminal sanctions +As blockchain networks and digital assets +have grown in popularity and in market size, governments and regulatory agencies have begun to take interest in, and in some cases regulate, +their use and operation. To the extent that a government or quasi-governmental agency exerts regulatory authority over a blockchain network +or asset upon which our business relies, our business could be adversely affected. Blockchain networks currently face an uncertain regulatory +landscape in many jurisdictions. The effect of any future legal or regulatory change is impossible to predict, but such laws, regulations +or directives may directly and negatively impact our business. +31 +Governments may in the future curtail or outlaw +the acquisition, use or redemption of digital assets. Ownership of, holding or trading in digital assets may then be considered illegal +and subject to sanction. Governments may also take regulatory action that may increase the cost and/or subject digital asset companies +to additional regulation. Judicial determinations may also have an adverse impact on the trading of digital assets. +Users of FANING are issued FP for engaging +and transacting within the Company ’ s ecosystem. FP may be subject to various regulations in South Korea that restrict +or limit the use of FP on FANING. +In addition to the application of the Digital +Asset Laws arising as a result of the use of FP in various jurisdictions, our operation of the FANING platform within South Korea and +the issuance of FP to users engaging with the FANING platform may subject us to various regulations in South Korea, including the +Financial Investment Services and Capital Markets Act (“ FISCM ”) and the Act on Reporting and Using Specified Financial +Transaction Information (“ RSFTI ”). The FISCM was enacted to advance the Korean financial market by improving +the competitive edge of the nation’s capital market and financial investment industry, and the RSFTI provides for the regulation +of matters concerning reporting on and use of specified financial transaction information necessary to regulate money laundering and financing +of terrorism through financial transactions, such as foreign exchange transactions, thereby contributing to preventing crimes and further +establishing a sound and transparent financial system. Although FP is not currently classified as a financial investment instrument as +such term is defined in the FISCM, or a virtual asset, as such term is defined by the RSFTI, any amendments to or interpretations of the +FISCM, RSFTI or FP in the future may subject the Company to regulation, including among other requirements, providing financial transaction +information in order to, among others, prevent money laundering and financing of terrorism. +We may have security laws exposure relating +to the previous issuances of Kingdom Coin. +While we no longer hold or otherwise possess KC, +we are subject to compliance with securities laws, which could expose us to potential liabilities, including potential rescission +rights. In August of 2021, we issued to certain creditors of HBC an aggregate total of 348,679,380 KDC in exchange for the cancellation +of an aggregate value of $9,428,664 in HBC debt (the “ KDC Exchange ”). KDC was further listed on LBank.com in August, +2021, and XT.com in September 2021 (LBank.com and XT.com are collectively, the “ Listing Platforms ”). The current +market price of KDC ($0.00011) is significantly lower than the valuation of KDC used to extinguish the HBC debt. +At the time of the KDC Exchange, and subsequently +at the time of listing of KDC on the Listing Platforms, HBC was operated solely under the jurisdiction of the ROK. During the KDC Exchange, +and subsequently upon the listing of KDC on the Listing Platforms, the Company did not direct any sales efforts in the United States +or to U.S. Persons. Further, pursuant to the terms and conditions of each Listing Platform, neither Listing Platform permits U.S. Persons +as customers. While the Company therefore believes there were no sales of KDC to or by a U.S. person, or efforts to sell KDC to U.S. persons +that would be subject to U.S. federal securities laws, we relied on each of the Listing Platforms to prevent offers and sales in +the United States and to U.S. persons. As such, the Company may be subject to the risks below in the event that the policies +and procedures of the Listing Platforms are not effective and/or sufficient to prevent such offers and sales or that persons may have +been able to circumvent such policies and procedures. +While we do not believe that we were subject to +U.S. federal securities laws at the time of the KDC Exchange and the listing of KDC on the Listing Platforms, and therefore did not +need to conduct the offerings pursuant to an available exemption under the U.S. federal securities laws, the analysis of such jurisdictional +question is factual. The applicability of jurisdiction under the Securities Act, and the availability of any exemptions thereunder, depends +upon our conduct and that of those persons contacting potential investors and making the offering. We further relied on the terms and +conditions of the Listing Platforms to ensure that no offers or sales were made in the United States or to U.S. persons. As +such, if the KDC Exchange, the listing of KDC on the Listing Platforms, or any other such offering of securities by the Company is +determined by either judicial decision or by the SEC to fall under the jurisdiction of U.S. federal securities laws, and does not +qualify for an exemption from registration under the Securities Act, an investor would have the right to rescind its purchase of the securities +if it so desired. It is possible that if an investor should seek rescission, such investor would succeed. If investors were successful +in seeking rescission, we would face severe financial demands that could adversely affect our business and operations. Additionally, if +we did in fact fall under the jurisdiction of U.S. federal securities laws, or alternatively, if such offerings do not qualify for +an exemption thereunder, we may become subject to significant fines and penalties imposed by the SEC and state securities agencies. +32 +RISKS RELATED TO INTELLECTUAL PROPERTY +We may be subject to claims of infringement +of third-party intellectual property rights. +From time to time, third parties may claim that +we have infringed their intellectual property rights. For example, patent holding companies may assert patent claims against us in which +they seek to monetize patents they have purchased or otherwise obtained. Although we take steps to avoid knowingly violating the intellectual +property rights of others, it is possible that third parties still may claim infringement. Existing or future infringement claims against +us, whether valid or not, may be expensive to defend and divert the attention of our employees from business operations. Such claims or +litigation could require us to pay damages, royalties, legal fees and other costs. We also could be required to stop offering, distributing +or supporting the FANING application, or other features or services which incorporate the affected intellectual property rights, redesign +products, features or services to avoid infringement, or obtain a license, all of which could be costly and harm our business. +Our technology, content and brands are subject +to the threat of piracy, unauthorized copying and other forms of intellectual property infringement. +We regard our technology, content and brands as +proprietary and take measures to protect our technology, content and brands and other confidential information from infringement. Piracy +and other forms of unauthorized copying and use of our technology, content and brands may become persistent, and policing is difficult. +Further, the laws of some countries in which our products are or may be distributed either do not protect our intellectual property rights +to the same extent as the laws of the United States, or are poorly enforced. Legal protection of our rights may be ineffective in +such countries. In addition, although we take steps to enforce and police our rights, factors such as the proliferation of technology +designed to circumvent the protection measures used by our business partners or by us, the availability of broadband access to the Internet, +the refusal of Internet service providers or platform holders to remove infringing content in certain instances, and the proliferation +of online channels through which infringing product is distributed all have contributed to a general expansion in unauthorized copying +of technology, content and brands. +We may not be able to prevent others from +unauthorized use of our intellectual property, which could harm our business and competitive position. +We regard our registered trademark and pending +trademarks, service marks, domain names, trade secrets, proprietary technologies and similar intellectual property as critical to our +success. We rely on trademark law, trade secret protection and confidentiality and license agreements with our employees and others to +protect our proprietary rights. +We have invested significant resources to develop +our own intellectual property and acquire licenses to use and distribute the intellectual property of others in the operation of the FANING +platform. Failure to maintain or protect these rights could harm our business. In addition, any unauthorized use of our intellectual property +by third parties may adversely affect our current and future revenues and our reputation. +Policing unauthorized use of proprietary technology +is difficult and expensive. We rely on a combination of copyright, trademark and trade secret laws and restrictions on disclosure to protect +our intellectual property rights. Further, we require every employee and consultant to execute proprietary information and invention agreements +prior to commencing work. Despite our efforts to protect our proprietary rights, third parties may attempt to copy or otherwise obtain +and use our intellectual property or seek court declarations that they do not infringe upon our intellectual property rights. Monitoring +unauthorized use of our intellectual property is difficult and costly, and we cannot assure you that the steps we have taken will prevent +misappropriation of our intellectual property. From time to time, we may have to resort to litigation to enforce our intellectual property +rights, which could result in substantial costs and diversion of our resources. +33 +GOVERNANCE RISKS AND RISKS RELATED TO OUR COMMON +STOCK +We received a notice +from Nasdaq that our common stock may be delisted from trading on the Nasdaq Capital Market if we fail to comply with the continued listing +requirements, including the minimum bid price requirement and timely filing requirements of all required periodic reports with the SEC. +A delisting of our common stock is likely to reduce the liquidity of our common stock and may inhibit or preclude our ability to raise +additional financing. +We are required to comply +with certain Nasdaq continued listing requirements, including a minimum bid price for our common stock and timely filing requirements +of all required periodic reports with the SEC . If we fail to maintain compliance with any of those requirements, our common shares +could be delisted from Nasdaq. +On +May 21, 2024, we received a delinquency compliance alert notice (the “Notice”) from the Listing Qualifications Department +of The Nasdaq Stock Market LLC (“Nasdaq”). The Notice stated that the Company was not in compliance with Nasdaq’s continued +listing requirements under Nasdaq Listing Rule 5250(c)(1), as the Company had failed to timely file its Quarterly Report on Form 10-Q +for the period ended March 31, 2024, and remained delinquent in filing its Annual Report on Form 10-K for the fiscal year ended December +31, 2023, with the U.S. Securities and Exchange Commission (SEC). Subsequently, the Company filed its Quarterly Report on Form 10-Q for +the first quarter on September 30, 2024, thereby resolving the basis for delisting. +On +April 18, 2024, we received a delinquency compliance alert notice from Nasdaq advising the Company that due to the Company’s failure +to timely file its Annual Report on Form 10-K for the fiscal year ended December 31, 2023, with the Securities and Exchange Commission +(the “ SEC ”), the Company is not in compliance with Nasdaq’s continued listing requirements under Nasdaq +Listing Rule 5250(c)(1), which requires the timely filing of all required periodic reports with the SEC. +On +June 17, 2024, the Listing Qualifications Department of The Nasdaq Stock Market LLC (“Nasdaq”) requested that the Company +submit a plan (the “Plan”) to address the noncompliance issue by June 17. The Company submitted the Plan on June 14, 2024. +Subsequently, on July 16, 2024, the Company filed its Annual Report on Form 10-K for the fiscal year 2023, thereby resolving the basis +for delisting +On +August 20, 2024, the Company received a delinquency compliance alert notice (the “Notice”) from the Listing Qualifications +Department of The Nasdaq Stock Market LLC (“Nasdaq”). The Notice stated that the Company was not in compliance with Nasdaq’s +continued listing requirements under Nasdaq Listing Rule 5250(c)(1) (the “Rule”) because it failed to timely file its Quarterly +Report on Form 10-Q for the period ended June 30, 2024, with the U.S. Securities and Exchange Commission (SEC). Subsequently, the Company +filed the Form 10-Q for the second quarter on October 15, 2024, thereby resolving the basis for delisting. +On February 5, 2024, the Company received +a delinquency compliance alert notice from the Listing Qualifications Department (the “Staff”) of The Nasdaq Stock Market +LLC (“Nasdaq”), stating that the Company was not in compliance with the minimum bid price requirement for continued listing +on the Nasdaq Capital Market, as set forth in Nasdaq Listing Rule 5550(a)(2), because the closing bid price of the Company’s common +stock had been below $1.00 for the previous 30 consecutive business days. To regain compliance with the minimum bid price requirement, +the Company’s common stock must maintain a closing bid price of at least $1.00 per share for a minimum of 10 consecutive business +days during the 180-calendar-day period from February 5, 2024 to August 4, 2024. +Subsequently, on February 5, 2025, the Company +received a determination letter (the “Determination Letter”) from the Nasdaq Staff stating that the Company was subject to +delisting for failing to meet the minimum bid price requirement under Nasdaq Listing Rule 5550(a)(2). In order to resolve the deficiency, +the Company implemented a reverse stock split on January 27, 2025. Following the reverse split, the closing bid price of the Company’s +common stock met or exceeded $1.00 for 10 consecutive business days, and on February 10, 2025, the Company received a notice from Nasdaq +confirming that it had regained compliance with the minimum bid price requirement and that the matter was closed. +34 +If, +for any reason, Nasdaq should delist our common stock from trading on its exchange and we are unable to obtain listing on another national +securities exchange or take action to restore our compliance with the Nasdaq continued listing requirements, a reduction in some or all +of the following may occur, each of which could have a material adverse effect on our stockholders: +● +the liquidity of our common stock; +● +the market price of our common stock; +● +we will become a “penny stock”, which will make trading of our common stock much more difficult; +● +our ability to obtain financing for the continuation of our operations; +● +the number of institutional and general investors that will consider investing in our common stock; +● +the number of investors in general that will consider investing in our common stock; +● +the number of market makers in our common stock; +● +the availability of information concerning the trading prices and volume of our common stock; and +● +the number of broker-dealers willing to execute trades in shares of our common stock. +Our stock price may be volatile, and you +could lose all or part of your investment. +The trading +price of our common stock following our offering may fluctuate substantially and may be higher or lower than the initial public offering +price. This may be especially true for companies with a small public float. The trading price of our common stock following our offering +will depend on several factors, including those described in this “ Risk Factors ” section, many of which are beyond +our control and may not be related to our operating performance. These fluctuations could cause you to lose all or part of your investment +in our common stock since you might be unable to sell your shares at or above the price you paid in the offering. +In addition, +the stock market in general, and the market for technology companies in particular, have experienced extreme price and volume fluctuations +that have often been unrelated or disproportionate to the operating performance of those companies. Broad market and industry factors, +as well as general economic, political and market conditions such as recessions or interest rate changes, may seriously affect the market +price of our common stock, regardless of our actual operating performance. These fluctuations may be even more pronounced in the trading +market for our stock shortly following our offering. If the market price of our common stock after our offering does not exceed the initial +public offering price, you may not realize any return on your investment in us and may lose some or all of your investment. +In addition, in the past, following periods +of volatility in the overall market and the market prices of particular companies’ securities, securities class action litigations +have often been instituted against these companies. Litigation of this type, if instituted against us, could result in substantial costs +and a diversion of our management’s attention and resources. Any adverse determination in any such litigation or any amounts paid +to settle any such actual or threatened litigation could require that we make significant payments. +If securities industry analysts do not publish +research reports on us, or publish unfavourable reports on us, then the market price and market trading volume of our common stock could +be negatively affected. +Any trading market for our common stock will be +influenced in part by any research reports that securities industry analysts publish about us. We may not obtain any future research coverage +by securities industry analysts. In the event we are covered by research analysts, and one or more of such analysts downgrade our securities, +or otherwise reports on us unfavourably, or discontinues coverage of us, the market price and market trading volume of our common stock +could be negatively affected. +35 +You will experience dilution as a result +of future equity offerings. +We may in the future offer additional shares of +our common stock or other securities convertible into or exchangeable for our common stock. Although no assurances can be given that we +will consummate a future financing, in the event we do, or in the event we sell shares of common stock or other securities convertible +into shares of our common stock in the future, additional and potentially substantial dilution will occur. In addition, investors purchasing +shares or other securities in the future could have rights superior to future investors. +We have not paid cash dividends in the past +and do not expect to pay dividends in the future. Any return on investment will likely be limited to the value of our common stock. +We have never paid cash dividends on our common +stock and do not anticipate doing so in the foreseeable future. The payment of dividends on our common stock will depend on earnings, +financial condition and other business and economic factors affecting us at such time as our board of directors may consider relevant. +If we do not pay dividends, our common stock may be less valuable because a return on your investment will only occur if our stock price +appreciates. +Since we do not anticipate paying any cash +dividends on our capital stock in the foreseeable future, stock price appreciation, if any, will be your sole source of gain. +We currently intend to retain all of our future +earnings, if any, to finance the growth and development of our business. In addition, the terms of any future debt agreements may preclude +us from paying dividends. As a result, appreciation, if any, in the market price of our common stock will be your sole source of gain +for the foreseeable future. +Future issuances of debt securities, which +would rank senior to our common stock upon our bankruptcy or liquidation, and future issuances of preferred stock, which would rank senior +to our common stock for the purposes of dividends and liquidating distributions, may adversely affect the level of return you may be able +to achieve from an investment in our common stock . +In the future, we may attempt to increase our +capital resources by offering debt securities. In the event of a bankruptcy or liquidation, holders of our debt securities, and lenders +with respect to other borrowings we may make, would receive distributions of our available assets prior to any distributions being made +to holders of our common stock. Moreover, if we issue preferred stock in the future, the holders of such preferred stock could be entitled +to preferences over holders of common stock in respect of the payment of dividends and the payment of liquidating distributions. Because +our decision to issue debt or preferred securities in any future offering, or borrow money from lenders, will depend in part on market +conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of any such future offerings +or borrowings. Holders of our common stock must bear the risk that any such future offerings we conduct or borrowings we make may adversely +affect the level of return they may be able to achieve from an investment in our common stock. +We may need to implement additional finance +and accounting systems, procedures and controls as we grow our business and organization and to satisfy new reporting requirements . +Upon becoming subject to reporting requirements +of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), we will be required to +comply with a variety of extensive reporting, accounting, and other rules and regulations. Compliance with each of these requirements +is expensive, time consuming and intricate. Further requirements may increase our costs and require additional management time and resources. +We may need to implement additional finance and accounting systems, procedures and controls to satisfy our reporting requirements. We +intend to remediate this weakness when we become a public company by adding additional, qualified and experienced accounting personnel. +If our internal controls over financial reporting +remain ineffective, such failure could cause investors to lose confidence in our reported financial information, negatively affect the +market price of our common stock, subject us to regulatory investigations and penalties, cause us to have to restate our financial statements, +and adversely impact our business and financial condition. +36 +We are an emerging growth +company, and any decision on our part to comply only with certain reduced reporting and disclosure requirements applicable to emerging +growth companies could make our common stock less attractive to investors. +We are an emerging growth company, and, for +as long as we continue to be an emerging growth company, we may choose to take advantage of exemptions from various reporting requirements +applicable to other public companies that are not “emerging growth companies,” including: +● +not being required to have our independent registered public accounting firm audit our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act; +● +reduced disclosure obligations regarding executive compensation in our periodic reports and annual report on Form 10-K; and +● +exemptions from the requirements of holding a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. +We could be an emerging growth company for +up to five years following the listing of our common stock on the Nasdaq Market. Our status as an emerging growth company will +end as soon as any of the following takes place: +● +the last day of the fiscal year in which we have more than $1.07 billion in annual revenue; +● +the date we qualify as a “large accelerated filer,” with at least $700 million of equity securities held by non-affiliates as of the prior June 30; +● +the date on which we have issued, in any three-year period, more than $1.0 billion in non-convertible debt securities; or +● +the last day of the fiscal year ending after the fifth anniversary of the listing of our common stock on the Nasdaq Market. +We cannot predict if investors will find our common +stock less attractive if we choose to rely on the exemptions afforded emerging growth companies. If some investors find our common stock +less attractive because we rely on any of these exemptions, there may be a less active trading market for our common stock and the market +price of our common stock may be more volatile. +Under the JOBS Act, emerging growth companies +can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected +to use this extended transition period for complying with new or revised accounting standards that have different effective dates for +public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively +and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable +to companies that comply with new or revised accounting pronouncements as of public company effective dates. +We will incur increased costs as a +result of being a public company, particularly after we cease to qualify as an “ emerging growth company. ” +As a public company, +we expect to incur significant legal, accounting and other expenses that we did not incur as a private company, particularly after we +are no longer an “emerging growth company” as defined under the JOBS Act. In addition, new and changing laws, regulations +and standards relating to corporate governance and public disclosure, including the Dodd-Frank Act and the rules and regulations promulgated +and to be promulgated thereunder, as well as under the Sarbanes-Oxley Act and the JOBS Act, have created uncertainty for public companies +and increased costs and time that boards of directors and management must devote to complying with these rules and regulations. The Sarbanes-Oxley +Act and related rules of the SEC and the Nasdaq Stock Market regulate corporate governance practices of public companies. We expect compliance +with these rules and regulations to increase our legal and financial compliance costs and lead to a diversion of management time and attention +from sales-generating activities. For example, we will be required to adopt new internal controls and disclosure controls and procedures. +In addition, we will incur additional expenses associated with our SEC reporting requirements and increased compensation for our management +team. We cannot predict or estimate the amount of additional costs we will incur as a public company or the specific timing of such costs. +37 +Because of our status as an emerging growth +company, you will not be able to depend on any attestation from our independent registered public accounting firm as to our internal control +over financial reporting for the foreseeable future . +Our independent registered public accounting firm +will not be required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 of the +Sarbanes-Oxley Act until the later of the year following our first annual report required to be filed with the SEC or the date we are +no longer an “emerging growth company” as defined in the JOBS Act. Accordingly, you will not be able to depend on any attestation +concerning our internal control over financial reporting from our independent registered public accounting firm for the foreseeable future. +Subsequent to the time frame above, our independent registered public accounting firm will not be required to attest to the effectiveness +of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act until such time that the Company becomes an “accelerated +filer,” as defined by the SEC. +If our shares become subject to the penny +stock rules, it would become more difficult to trade our shares . +The SEC has adopted rules that regulate broker-dealer +practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00, +other than securities registered on certain national securities exchanges or authorized for quotation on certain automated quotation systems, +provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. +If we do not obtain or retain a listing on the Nasdaq Capital Market or if the price of our common stock falls below $5.00, our common +stock will be deemed a penny stock. The penny stock rules require a broker-dealer, before a transaction in a penny stock not otherwise +exempt from those rules, to deliver a standardized risk disclosure document containing specified information. In addition, the penny stock +rules require that before effecting any transaction in a penny stock not otherwise exempt from those rules, a broker-dealer must make +a special written determination that the penny stock is a suitable investment for the purchaser and receive (i) the purchaser’s +written acknowledgment of the receipt of a risk disclosure statement; (ii) a written agreement to transactions involving penny stocks; +and (iii) a signed and dated copy of a written suitability statement. These disclosure requirements would likely have the effect +of reducing the trading activity in the secondary market for our common stock, and therefore stockholders may have difficulty selling +their shares. +FINRA sales practice requirements may limit +a stockholder ’ s ability to buy and sell our stock . +In addition to the “penny stock” rules +described above, the Financial Industry Regulatory Authority, Inc. (“ FINRA ”), has adopted rules that require that in +recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for +that customer. Prior to recommending speculative, low-priced securities to their non-institutional customers, broker-dealers must make +reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. +The FINRA requirements may make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may +have the effect of reducing the level of trading activity in our common stock. As a result, fewer broker-dealers may be willing to make +a market in our common stock, reducing a stockholder’s ability to resell shares, as well as overall liquidity, of our common stock. +38 +We will incur increased costs as a result +of operating as a listed public company and our management will be required to devote substantial time to new compliance initiatives and +corporate governance practices . +If at some point in the future we are no longer +an “emerging growth company,” we will incur significant legal, accounting and other expenses that we have not incurred in +the past. The Sarbanes-Oxley Act, the JOBS Act, the listing requirements of the Nasdaq Capital Market and other applicable securities +rules and regulations impose various requirements on public companies beyond what management has experienced in operating a privately +held company. Our management and other personnel will need to devote a substantial amount of time to comply with these requirements. Moreover, +these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and +costly. For example, we expect that these rules and regulations may make it more difficult and more expensive for us to obtain directors’ +and officers’ liability insurance, which could make it more difficult for us to attract and retain qualified members of our board +of directors. We cannot predict or estimate the amount of additional costs we will incur as a listed public company, or the timing of +such costs, but such costs will be significant. +We are evaluating these rules and regulations, +and cannot predict or estimate the amount of additional costs we may incur or the timing of such costs. These rules and regulations are +often subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice +may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding +compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. +We may be considered a smaller reporting +company and will be exempt from certain disclosure requirements, which could make our common stock less attractive to potential investors . +We are also a smaller reporting company as defined +in the Exchange Act. We may continue to be a smaller reporting company even after we are no longer an emerging growth company. We +may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of +these scaled disclosures for so long as (i) the market value of our voting and non-voting common stock held by non-affiliates is +less than $250 million measured on the last business day of our second fiscal quarter or (ii) our annual revenue is less +than $100 million during the most recently completed fiscal year and the market value of our voting and non-voting common stock held +by non-affiliates is less than $700 million measured on the last business day of our second fiscal quarter. Specifically, as +a smaller reporting company, we may choose to present only the two most recent fiscal years of audited financial statements in our +Annual Report on Form 10-K and have reduced disclosure obligations regarding executive compensation, and, similar to emerging growth +companies, if we are a smaller reporting company with less than $100 million in annual revenue, we would not be required to obtain +an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. +If we fail to remediate our internal control +weakness and maintain an effective system of internal controls over financial reporting, we may be unable to accurately report our results +of operations, meet our reporting obligations or prevent fraud, and investor confidence and the market price of our common stock may be +materially and adversely affected. +We have historically operated as a private company +with limited accounting personnel and other resources with which to address our internal controls and procedures. The management has reviewed +the current internal controls over financial reporting and concluded that our internal controls are ineffective, registration statement. +Our independent registered public accounting firm has not conducted an audit of our internal control over financial reporting. In addition, +after we become a public company, our reporting obligations will place a significant strain on our management, operational and financial +resources and systems for the foreseeable future and we may be unable to timely complete our evaluation testing and any required remediation. +During the course of documenting and testing our +internal control procedures, we identified weaknesses and deficiencies in our internal control over financial reporting. In addition, +if we fail to remediate these weaknesses and maintain the adequacy of our internal control over financial reporting, as these standards +are modified, supplemented, or amended from time to time, we will not be able to conclude on an ongoing basis that we have effective internal +control over financial reporting. Generally, if we continue to fail to achieve and maintain an effective internal control environment, +we could suffer material misstatements in our financial statements and fail to meet our reporting obligations, which would likely cause +investors to lose confidence in our reported financial information. This could in turn limit our access to capital markets, harm our results +of operations, and lead to a decline in the trading price of our common stock. Additionally, ineffective internal control over financial +reporting could expose us to increased risk of fraud or misuse of corporate assets and subject us to potential delisting from the stock +exchange on which we list, regulatory investigations and civil or criminal sanctions. +39 +We may need additional capital, and we may be unable to +obtain such capital in a timely manner or on acceptable terms, or at all. Furthermore, our future capital needs may require us to sell +additional equity or debt securities that may dilute our stockholders or introduce covenants that may restrict our operations or our ability +to pay dividends. +To grow our business and remain competitive, we +may require additional capital from time to time for our daily operation. Our ability to obtain additional capital is subject to a variety +of uncertainties, including: +● +our market position and competitiveness in the content creation and social media platform market; +● +our future profitability, overall financial condition, results of operations and cash flows; and +● +economic, political and other conditions in the U.S. and internationally. +We may be unable to obtain additional capital +in a timely manner or on acceptable terms or at all. In addition, our future capital needs and other business reasons could require us +to sell additional equity or debt securities or obtain a credit facility. The sale of additional equity or equity-linked securities could +dilute our stockholders. The incurrence of indebtedness would result in increased debt service obligations and could result in operating +and financing covenants that would restrict our operations or our ability to pay dividends to our stockholders. +Because we do not expect to pay dividends +in the foreseeable future, you must rely on price appreciation of our common stock for return on your investment. +We currently intend to retain most, if not all, +of our available funds and any future earnings to fund the development and growth of our business. As a result, we do not expect to pay +any cash dividends in the foreseeable future. Therefore, you should not rely on an investment in our common stock as a source for any +future dividend income. +Our board of directors has complete discretion +as to whether to distribute dividends, subject to certain requirements of Delaware General Corporation Law. Even if our board of directors +decides to declare and pay dividends, the timing, amount and form of future dividends, if any, will depend on, among other things, our +future results of operations and cash flow, our capital requirements and surplus, the amount of distributions, if any, received by us +from our subsidiaries, our financial condition, contractual restrictions and other factors deemed relevant by our board of directors. +Accordingly, the return on your investment in our common stock will likely depend entirely upon any future price appreciation of our common +stock. There is no guarantee that our common stock will appreciate in value or even maintain the price at which you purchase the common +stock. You may not realize a return on your investment in our common stock and you may even lose your entire investment in our common +stock. +Substantial future sales or perceived potential +sales of our common stock in the public market could cause the price of our common stock to decline. +On January 27, 2025, we implemented a 1-for-20 +reverse stock split of our issued and outstanding shares of common stock. As a result of the reverse stock split, every 20 shares of existing +common stock were consolidated into one share, reducing the total number of issued shares from 52,808,589 to 2,640,429. All registered +shares of common stock are freely transferable without restriction or additional registration under the Securities Act. Sales of common +stock in the market by registered stockholders, or even the perception that such sales may occur, could cause a decline in the market +price of our common stock and could have a material adverse effect on our business, financial condition, and results of operations. +40 +Our certificate of incorporation designates +a state or federal court located within the State of Delaware as the exclusive forum for certain litigation that may be initiated by our +stockholders, which could limit our stockholders ’ ability to obtain a favorable judicial forum for disputes with us. +Pursuant to our certificate of incorporation and +our bylaws, unless we consent in writing to the selection of an alternative forum, the sole and exclusive forum for (i) any derivative +action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, +officers or other employees to us or our stockholders, (iii) any action asserting a claim against us arising pursuant to any provision +of the Delaware General Corporation Law, (iv) any action asserting a claim against the Corporation governed by the internal affairs +doctrine, in each case subject to the Court of Chancery of the State of Delaware having jurisdiction over the subject matter and personal +jurisdiction over the indispensable parties name as defendants therein, or (v) any action asserting an “internal corporate +claim” as that term is defined in Section 115 of the DGCL. Any person or entity purchasing or otherwise acquiring any +interest in shares of our capital stock shall be deemed to have notice of and consented to this provision. The forum selection clause +in our bylaws may have the effect of discouraging lawsuits against us or our directors and officers and may limit our stockholders’ +ability to obtain a favorable judicial forum for disputes with us. These choice of forum provisions will not apply to suits brought to +enforce a duty or liability created by the Securities Act, the Exchange Act, or any other claim for which federal courts have exclusive +jurisdiction. +These exclusive forum provisions may limit the +ability of our stockholders to bring a claim in a judicial forum that such stockholders find favorable for disputes with us or our directors, +officers, or employees, if any, which may discourage such lawsuits against us and our directors, officers, and employees, if any. Alternatively, +if a court were to find the choice of forum provisions contained in our certificate of incorporation to be inapplicable or unenforceable +in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could materially adversely +affect our business, financial condition, and operating results. For example, under the Securities Act, federal courts have concurrent +jurisdiction over all suits brought to enforce any duty or liability created by the Securities Act, and investors cannot waive compliance +with the federal securities laws and the rules and regulations thereunder. In addition, the exclusive forum provisions described above +do not apply to any actions brought under the Exchange Act. +Inconsistencies in legal filings related +to the reverse stock split, caused by former legal counsel, may expose the Company to compliance or reputational risks. +In connection with the reverse stock split approved +by shareholders in 2024, the Company’s former legal counsel drafted and filed documents that contained inconsistencies between the +proxy disclosure and the Certificate of Amendment filed with the Delaware Secretary of State. These discrepancies were not the result +of Company management and were addressed promptly upon discovery. +See “Reverse Stock Split and Legal Disclosure +Clarification” under Management’s Discussion and Analysis of Financial Condition and Results of Operations for additional +details. +Item 1B. Unresolved Staff Comments. +Not applicable. +Item 1C. Cybersecurity +Risk Management and Strategy +We have an information +security program designed to identify , protect, detect and respond to, and manage reasonably foreseeable cybersecurity risks and threats. +To protect our information systems from cybersecurity threats, we utilize various security tools that help prevent, identify, escalate, +investigate, resolve, and recover from identified vulnerabilities and security incidents in a reasonably timely manner. These include, +but are not limited to, internal reporting and tools for monitoring and detecting cybersecurity threats. +We evaluate the risks +associated with technology and cybersecurity threats and monitor our information systems for potential weaknesses. We review and test +our information technology system on an as-needed basis and also utilize internal team personnel to evaluate and assess the efficacy of +our information technology system and enhance our controls and procedures. The results of these assessments are reported to our Audit +Committee and, from time to time, our Board of Directors. +41 +There can be no assurances +that our cybersecurity risk management program and processes, including our policies, controls, or procedures, will be fully implemented, +complied with or are effective in protecting our systems and information. +As of the date of +this report, we are not aware of any cybersecurity incidents, that have had a materially adverse effect on our operations, business, +results of operations, or financial condition. Please refer to the “Risk Factors” in Part I, Item 1A of this Form 10-K +for more information on risks posed by cybersecurity threats to the Company. +Governance +Our Board of Directors +considers cybersecurity risk as part of its risk oversight function. It has delegated oversight of cybersecurity and other information +technology risks to the Audit Committee of the Board of Directors. The Audit Committee oversees the implementation of the cybersecurity +risk management program. +The Audit Committee receives +periodic reports from management on potential cybersecurity risks and threats. The Audit Committee reports to the full Board of Directors +regarding its activities, including those related to cybersecurity. The full Board of Directors also receives briefings from management +on the cybersecurity risk management program as needed. +Management is responsible +for assessing and managing our material risks from cybersecurity threats. Management has primary responsibility for our overall cybersecurity +risk management program and supervises both the internal cybersecurity personnel and external cybersecurity consultants . +The management team supervises +efforts to prevent, detect, mitigate, and remediate cybersecurity risks and incidents through various means, which may include briefings +from internal security personnel, threat intelligence and other information obtained from governmental, public or private sources, including +external consultants; and alerts and reports produced by security tools deployed in the IT environment. Our cybersecurity incident response +plan governs our assessment and response upon the occurrence of a material cybersecurity incident, including the process for informing +senior management and our Board of Directors. +Item 2. ‘Properties. +The Company uses approximately 19,200 square feet of office space at +the Seoul Marina free of charge. +Item 3. Legal Proceedings. +As of December 31, 2024, the Company is not subject +to any material pending legal proceedings or claims. Previously disclosed legal matters were associated with subsidiaries that have since +been divested and no longer affect the Company’s operations or financial position. +Item 4. Mine Safety Disclosures. +Not applicable. +42 +PART II +Item 5. Market for Registrant’s Ordinary Shares, Related Shareholder +Matters, and Issuer Purchases of Equity Securities. +(a) +Market Information +Our Class A Common Stock is listed on The Nasdaq Capital Market under +the symbol “GITS.” Trading commenced on August 1, 2023. On December 29, 2024, we changed our corporate name from Hanryu Holdings, +Inc. to Global Interactive Technologies, Inc., and our Nasdaq ticker symbol was changed from “HRYU” to “GITS.” +On January 27, 2025, we effected a 1-for-20 reverse stock split of our Class A Common Stock. For additional information regarding the +legal and procedural matters related to the reverse stock split, see “Management’s Discussion and Analysis of Financial Condition +and Results of Operations – Reverse Stock Split and Legal Disclosure Clarification +(b) +Holders +As of December +31, 2024, we had 59 holders of record of our common stock based upon the records of our transfer agent, which do not include beneficial +owners of common stock whose shares are held in the names of various securities brokers, dealers and registered clearing agencies. +(c) +Dividends +We have not paid any cash dividends on our ordinary +shares to date. The decision on whether to pay cash dividends on our common stock in the future will be made by our board of directors, +at its discretion, and will depend on our financial condition, operating results, capital requirements and other factors that the board +of directors considers significant. +(d) +Securities Authorized for Issuance Under Equity Compensation Plans. +None. +(e) +Recent Sales of Unregistered Securities +None. +(f) +Purchases of Equity Securities by the Issuer and Affiliated Purchasers +See Item 11. +Item 6. Reserved. +Item 7. Management’s Discussion and Analysis of Financial +Condition and Results of Operations. +You should read this discussion and analysis together +with our audited financial statements, the notes to such statements, and the other financial information included in this Form 10-K. This +discussion contains forward-looking statements that involve risks and uncertainties. As a result of many factors, such as those set forth +under the section entitled “Risk Factors” and elsewhere in this Form 10-K, our actual results may differ materially from those +anticipated in these forward-looking statements. See “Cautionary Statements Regarding Forward-Looking Statements” for a discussion +of the uncertainties, risks, and assumptions associated with these statements. +Overview +The Company also implemented significant leadership +changes and board realignment aimed at improving governance and execution. A new management team with deeper public company experience +was appointed, and the workforce was streamlined by transitioning core functions to outsourced development and operational support, significantly +reducing capital expenditure while enhancing operational flexibility. +Liquidity remained constrained during the year, +driven by negative operating cash flow and continued investment in the FANING platform. As of December 31, 2024, the Company had current +assets of $2,987 and current liabilities of $668,339, resulting in an accumulated deficit of $37,901,301. These conditions raise substantial +doubt about the Company’s ability to continue as a going concern. To support its turnaround efforts, the Company plans to raise +new capital through equity financing and borrowing and expects revenue growth and cost efficiency to improve following the release of +the upgraded FANING platform in 2025. +Refer to the subsequent sections of this Item +7 for a detailed discussion of our results of operations, liquidity and capital resources, and financial condition. +43 +Results of Operations +The Company’s consolidated statements of operations for the years +ended December 31, 2024 and 2023 are as follows. +GLOBAL INTERACTIVE TECHNOLOGIES, INC. AND +ITS SUBSIDIARIES +Consolidated Statements of Operations +For the Years Ended December 31, 2024 and 2023 +December 31, +2024 +December 31, +2023 +Sales +$ — +$ — +Cost of Revenue +— +— +Gross profit +— +— +Operating cost and expenses +(888,363 ) +(2,005,925 ) +Loss from operations +(888,363 ) +(2,005,925 ) +OTHER INCOME (EXPENSE): +Impairment loss on intangible assets +(94,264 ) +— +Gain on disposal of subsidiary +12,400,373 +— +Loss on disposal of tangible assets +(23,937 ) +— +Interest income (expense), net +(1,181 ) +32 +Gain on foreign currency transactions +3,617 +154,561 +Bad-debt expense of other assets +(16,179,823 ) +— +Other expense, net +(73 ) +— +Net other (expense)/ income +(3,895,288 ) +154,593 +Net Loss from continuing operations before taxes +(4,783,651 ) +(1,851,332 ) +Income tax expense +— +— +Net loss from continuing operations +(4,783,651 ) +(1,851,332 ) +Discontinued operations: +Loss from discontinued operations +(1,388,318 ) +(7,556,303 ) +Income tax benefit +— +— +Loss from discontinued operation +(1,388,318 ) +(7,556,303 ) +Net Loss +(6,171,969 ) +(9,407,635 ) +Less net loss attributable to non-controlling interest +— +(121,725 ) +Net Loss attributable to equity holders of the Company +(6,171,969 ) +(9,285,910 ) +Net Loss +(6,171,969 ) +(9,407,635 ) +Basic net loss per share: +Loss from continuing operations +(1.81 ) +(0.73 ) +Loss from discontinued operations +(0.53 ) +(2.99 ) +Total basic net loss per share +(2.34 ) +(3.68 ) +Diluted net loss per share +Loss from continuing operations +(1.81 ) +(0.73 ) +Loss from discontinued operations +(0.53 ) +(2.99 ) +Total diluted net loss per share +(2.34 ) +(3.68 ) +Weighted average number of common shares outstanding: +Basic and Diluted +2,640,429 +2,525,171 +44 +During the fiscal year ended December 31, 2024, the Company underwent +a year of restructuring, including the replacement of management that had been operating the Company ineffectively and the divestiture +of financially distressed subsidiaries. As a result, no revenue was generated during the year ended December 31, 2024. Furthermore, for +the comparative period ended December 31, 2023, revenue has been reclassified as discontinued operations following the divestiture of +the three subsidiaries in 2024, and thus there is no revenue from continuing operations. For reference, revenue from discontinued operations +amounted to $196 in 2024 and $827,489 in 2023. +Selling, general, and administrative expenses related to continuing +operations decreased by 56% to $888,363 in 2024, compared to $2,005,925 in 2023, due to workforce reductions and the sale of subsidiaries. +In addition, selling, general, and administrative expenses related to discontinued operations significantly decreased to $1,489,006 in +2024 from $10,483,401 in 2023. +The subsidiaries sold in 2024—Hanryu Bank Co., Ltd., FNS Co., +Ltd., and Marin Island Co., Ltd.—have been reclassified as discontinued operations and reflected as such in the financial statements. +The Company expects that its financial structure will improve starting +in 2025, driven by the launch of the upgraded, user-centric FANING platform and enhanced cost efficiency from the 2024 restructuring efforts. +The new management team is committed to securing long-term sustainability by expanding the user base, diversifying revenue streams, and +maintaining tight cost controls. +45 +Liquidity and Capital Resources +The Company’s balance sheets as of December 31, 2024 and 2023 are as follows. +GLOBAL INTERACTIVE TECHNOLOGIES, INC. AND +ITS SUBSIDIARIES +Consolidated Balance Sheets +December 31, 2024 and December 31, 2023 +December 31, +2024 +December 31, 2023 +ASSETS +CURRENT ASSETS: +Cash and Cash Equivalents +$ 2,352 +$ 69,688 +Short-term loans receivable +338 +131,080 +Non-trade receivables +297 +— +Prepaid expenses and other receivable +— +748 +Current assets, discontinued operations +— +20,219,410 +Total current assets +2,987 +20,420,926 +PROPERTY PLANT AND EQUIPMENT, NET +2,656 +124,030 +INTANGIBLE ASSETS, NET +4,940,000 +— +OPERATING LEASE RIGHT-OF-USE ASSET +1,458,780 +— +Total Assets +$ 6,404,423 +$ 20,544,956 +LIABILITIES AND STOCKHOLDER’S DEFICIT +CURRENT LIABILITIES: +Short-term loans payable +$ 20,436 +$ — +Short-term loans payable from related parties +349,607 +— +Non-trade accounts payable +290,917 +— +Accrued expenses and other current liabilities +7,379 +— +Current liabilities, discontinued operations +— +7,476,491 +Total current liabilities +668,339 +7,476,491 +Total Liabilities +668,339 +7,476,491 +Commitments and contingencies (Note 16) +STOCKHOLDER’SDEFICIT: +Common Stock, $0.02 par value +Authorized 110,000,000 (common:100,000,000, preferred:10,000,000) shares; Issued and outstanding 2,640,429 common shares and 2,640,429 common shares as of December 31, 2024 and December 31, 2023* +52,809 +52,809 +Additional paid-in capital* +44,251,046 +51,415,476 +Accumulated deficit +(37,901,301 ) +(38,893,762 ) +Accumulated other comprehensive income +(666,470 ) +493,942 +Equity(Deficit) attributable to equity holder of the Company +5,736,084 +13,068,465 +Total Stockholders’ Equity +5,736,084 +13,068,465 +Total Liabilities and Stockholders’ Equity +$ 6,404,423 +$ 20,544,956 +46 +The Company’s liquidity position remained severely constrained +throughout 2024. As of December 31, 2024, from continuing operations, the Company reported cash and cash equivalents of $2,352 and total +current assets of $2,987, compared to $69,688 and $201,516, respectively, as of December 31, 2023. This sharp decline reflects the depletion +of cash reserves due to operational restructuring, platform development efforts, and the absence of revenue. +Total current liabilities increased to $668,339 as of December 31, +2024, from $0 as of December 31, 2023 (from continuing operations), primarily due to accrued professional fees and other operating expenses. +As a result, the Company’s working capital deficit widened, underscoring the urgency of its capital-raising efforts. +In response, management initiated actions to secure additional funding +through equity issuances and potential debt financing. In early 2025, the Company also executed a reverse stock split to maintain its +Nasdaq listing and enhance its appeal to institutional investors. +To conserve capital, the Company adopted a leaner operational model +by outsourcing key development and administrative functions to third-party providers. These cost-saving measures are expected to support +near-term cash flow stabilization. +The Company’s ability to continue as a going concern depends +on its success in raising additional capital and executing its platform monetization strategies. Management believes that the launch of +the upgraded FANING platform and recent operational realignments provide a foundation for improved performance beginning in 2025. +Financial Condition and Going Concern +As of December 31, 2024, the Company’s financial condition reflected +a continued working capital deficiency, a significant accumulated deficit, and ongoing operating losses. These factors raise substantial +doubt about the Company’s ability to continue as a going concern within one year from the issuance date of the financial statements. +In evaluating the Company’s ability to continue as a going concern, +management considered its current cash position, projected operating expenditures, and anticipated financing activities. Management is +actively pursuing financing alternatives and has taken steps to reduce operating costs, including the divestiture of non-core subsidiaries +and implementation of an outsourced operational model. +While there can be no assurance that sufficient funding will be secured +in a timely manner, the Company believes its improved governance structure, upgraded FANING platform, and streamlined business focus enhance +its ability to attract investment and commercial partnerships. +Management will continue to monitor liquidity closely and adjust operational +plans as needed to conserve resources while maintaining progress toward its strategic objectives. +47 +Critical Accounting Estimates +The preparation of financial statements in conformity with U.S. generally +accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts +of assets, liabilities, revenue, and expenses, as well as related disclosures. +Significant accounting estimates and judgments include: +● Classification and presentation of discontinued operations +resulting from the divestiture of subsidiaries. +● Assessment of going concern and the recoverability of assets +and obligations. +● Allocation of shared operating expenses and liabilities between +continuing and discontinued operations. +● Potential impairment of intangible assets related to platform +development. +Management regularly reviews its estimates and assumptions, which are +based on historical experience and other relevant factors, including the current economic environment. Actual results may differ materially +from these estimates. Any material changes in assumptions could have a significant impact on our financial statements. +FANING is a fandom-centered platform designed to deliver an all-in-one +ecosystem that enriches the fan experience through content, community, commerce, and creativity. The platform is available in 17 languages +and supports real-time multilingual translation, enabling global fan engagement. Users can consume K-culture content, interact socially, +and monetize creative work, including fan art, webtoons, and merchandise. +The platform’s monetization strategy includes: +● Direct revenue from advertising, digital content, and commerce +● Commissions on user-to-user transactions, including gifts, +stickers, translation matching, and creator content +As of December 31, 2024, FANING had over 26.6 million registered users +globally. The platform is positioned to capitalize on the global rise in K-Culture fandom, now exceeding 229 million fans in 119 countries. +The Company uses the following Key Performance Indicators (KPIs) to +monitor platform performance +Key Performance Indicators ( “ KPIs ” ) +In addition to the measures presented in our consolidated +financial statements, our management regularly monitors certain KPIs for our business. The KPIs used by the Company are: (1) user +base; (2) monthly active users; (3) average revenue per user; and (4) user acquisition cost (“ UAC ”). +User Base +User base is defined by the Company as all registered +users, regardless of the frequency they access the FANING platform. +2024 average user base: ~26.6 million +48 +Monthly Active User Accounts ( “ MAUs ” ) +MAUs is defined by the Company as unique +user accounts that access the FANING app during the prior 30 days of the period. The number of MAUs does not correspond to the +number of unique individuals who actively utilize the FANING platform or the number of devices associated with an account. For +example, a single account may be used by more than one individual, such as a family, and one account may use multiple devices. We +believe that the number of MAUs is a relevant measure to gauge the size of our user base and the opportunity to increase the FANING +platform’s revenue and gross profit. The table below sets forth the number of users compared to MAUs, and the respective +percentage of MAUs to the entire FANING user base. The number of MAUs grew significantly in 2022, but both the number of MAUs and +their ratio to the user base did not increase following the year ended December 31, 2023. This is because the Company focused on +R&D and infrastructure investments to stabilize and monetize the FANING app. It is also due to a reduction in the +Company’s marketing budget; however, the Company expects that the number of MAUs and the percentage of MAUs to user base will +increase once the company has more capital and is able to increase marketing spend and invest in more technological +developments. +24-Jan +24-Feb +24-Mar +24-Apr +24-May +24-Jun +24-Jul +24-Aug +24-Sep +24-Oct +24-Nov +24-Dec +User Base +26,698,810 +26,545,310 +26,570,423 +26,615,003 +26,651,734 +26,651,331 +26,612,491 +26,662,825 +26,412,013 +26,415,256 +26,452,013 +26,471,290 +MAU +627,689 +745,716 +645,632 +847,716 +925,882 +792,716 +824,012 +814,527 +745,716 +795,159 +725,026 +635,613 +% +2.35 % +2.81 % +2.43 % +3.18 % +3.47 % +2.97 % +3.10 % +3.08 % +2.82 % +3.01 % +2.74 % +2.40 % +Average Revenue Per User (“ARPU”) +We use ARPU to evaluate and monitor the amount +of revenue generated by FANING platform users and analyze growth patterns. ARPU is defined as total revenue generated from the FANING +platform during the period, divided by the average of the number of MAUs at the beginning and end. The average number of MAUs, for purposes +of our calculation, is the sum of MAUs for the first month of a year and the MAUs for the last month of the same year divided by two. +We measure progress in our platform using ARPU because it helps us understand the rate at which we are monetizing our user base. +We believe ARPU is useful to investors in evaluating +our operating performance and, more specifically, evaluating the monetization of the FANING platform. ARPU and similar measures with similar +titles are common measures used by investors, analysts and peers to compare performance in our industry, although our measure of ARPU +may not be directly comparable to similarly titled measures reported by other companies. +ARPU was zero for the years ended December 31, +2023 and 2024, consistent with the Company’s pre-monetization development phase. ARPU will remain a key performance indicator as +FANING’s monetization strategies launch in 2025. Management expects future growth to be driven by organic user expansion, improved +marketing efficiency, and the commercial rollout of the upgraded FANING platform beginning in April 2025. +User Acquisition Cost ( “ UAC ” ) +UAC is the total cost to acquire a new user, and +is calculated by dividing sales and marketing expense by the number of new users. The Company believes UAC is important in understanding +the Company’s effectiveness at acquiring each of its users. UAC was $0.18 for the year ended December 31, 2024. and, for the year +ended December 31, 2023 was $0.17 respectively. These efficiencies are expected to improve following the release of the upgraded FANING +platform in April 2025. +49 +Item 7A. Quantitative and Qualitative Disclosures about Market Risk. +We are a smaller reporting company as defined +in Item 10(f)(1) of Regulation S-K and are not required to provide the information otherwise required under this item. +Item 8. Financial Statements and Supplementary Data. +The Financial Statements and Supplementary Data +required by this Item 8 are incorporated by reference to information beginning on Page F-1 of this Form 10-K. +Item 9. Changes in and Disagreements with Accountants on Accounting +and Financial Disclosure. +None. +Item 9A. Controls and Procedures. +Evaluation of Disclosure Controls and Procedures +Our management has evaluated the effectiveness +of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended +(the “Exchange Act”), as of December 31, 2024. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer +have concluded that as of December 31, 2024, our disclosure controls and procedures were ineffective to provide reasonable assurance that +information required to be disclosed by us in the reports that we file or submit under the Exchange Act (a) is recorded, processed, summarized +and reported within the time periods specified by Securities and Exchange Commission (“SEC”) rules and forms and (b) is accumulated +and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely +decisions regarding any required disclosure. +Management has identified control deficiencies +regarding inadequate accounting resources, the lack of segregation of duties and the need for a stronger internal control environment. +Management of the Company believes that these material weaknesses are due to the small size of the Company’s accounting staff. The +small size of the Company’s accounting outsourced staff may prevent adequate controls in the future due to the cost/benefit of such +remediation. +To mitigate the current limited resources and +limited employees, we rely heavily on direct management oversight of transactions, along with the use of external legal and accounting +professionals. As we grow, we expect to increase our number of employees, which will enable us to implement adequate segregation of duties +within the internal control framework. +50 +These control deficiencies could result in a misstatement +of account balances that would result in a reasonable possibility that a material misstatement to our financial statements may not be +prevented or detected on a timely basis. In light of this material weakness, we performed additional analyses and procedures in order +to conclude that our financial statements for the years ended December 31, 2024 and December 31, 2023 included in this Annual +Report on Form 10-K were fairly stated in accordance with GAAP. Accordingly, management believes that despite our material weaknesses, +our financial statements for the years ended December 31, 2024 and December 31, 2023 are fairly stated, in all material respects, +in accordance with GAAP. +Management’s Annual Report on Internal Control over Financial +Reportin g +Our management is responsible for establishing +and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the +Exchange Act. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial +Officer, we conducted an evaluation of the effectiveness, as of December 31, 2024, of our internal control over financial reporting based +on the framework in 2013 Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. +Based on our evaluation under this framework, our management concluded that our internal control over financial reporting was not effective +as of December 31, 2024 due to material weaknesses in our internal control over financial reporting described above. +Changes in Internal Control Over Financial Reporting +Except for the material weaknesses identified +above, there were no other changes in our system of internal control over financial reporting (as defined in Rule 13a-15(f) under the +Exchange Act) during the quarter ended December 31, 2024 that has materially affected, or is reasonably likely to materially affect, our +internal control over financial reporting. +Limitations on Effectiveness of Controls and Procedures +In designing and evaluating the disclosure controls +and procedures and internal control over financial reporting, management recognizes that any controls and procedures, no matter how well +designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure +controls and procedures and internal control over financial reporting must reflect the fact that there are resource constraints and that +management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs. +Item 9B. Other Information. +Not Applicable. +Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent +Inspections. +51 +PART III +Item 10. Directors, Executive Officers and Corporate Governance. +The following table sets forth certain information +regarding our executive officers, directors and director nominees as of December 31, 2024. +Name +Age +Position +Executive Officers and Directors: +Taehoon Kim +51 +Chief Executive Officer +Juhyon Shin +51 +Chief Financial Officer +David Gregg +62 +Chief Communications Officer +John S. Morris +62 +Director +Amy Shi +43 +Director +Jay Hyong Woo +53 +Director +Aram Ahn +56 +Director +Larry Namer +76 +Director +On February 26, +2024, the board of directors (the “Board”) of Global Interactive Technologies, Inc. (the “Company”) terminated +the employment of Changhuyk Kang as the Chief Executive Officer of the Company for cause, effective immediately. On the same date, the +Board appointed Taehoon Kim, who serves as the Chief Technology Officer and Vice President of the Company, as the interim Chief Executive +Officer of the Company, effective immediately. +Background of Executive Officers and Directors +Taehoon Kim, age 51, Chief Executive Officer +Taehoon Kim was appointed as the Chief Technology +Officer (CTO) and Vice President of Hanryu Holdings on June 1, 2022, and was later appointed as the interim Chief Executive Officer by +the Board of Directors on February 26, 2024. Mr. Kim was the Founder of Rulemakr Inc. and served as CEO from June 2014 to May 2021. +He also served as CEO at Webzen Mobile, Inc. from May 2012 to May 2014, as COO at Webzen, Inc. from September 2008 to April 2012, +and as Director at NHN Games Corporation from August 2005 to August 2008. Mr. Kim earned a bachelor’s degree in the +Department of German Language Education in Seoul National University in February 1997 and received his MBA from Seoul National University +in February 2014. +Juhyon Shin, age 51, Chief Financial +Officer +Juhyon Shin has served as the Chief Financial +Officer of the Company since May 2021. Prior to that, he served, in finance management roles at Centralinsight Co., Ltd., a KOSPI +listed company, from January 2021 to May 2021 and at EQCELL Co., Ltd., a KOSDAQ listed company, from October 2019 to January 2021 +Mr. Shin also served as the Chief Financial Officer of LUXL Co., Ltd, a KOSDAQ listed company, from June 2001 to October 2019. +Mr. Shin earned a bachelor’s degree in the Department of Business Administration from SeoHae University in North Jeonla, South +Korea in February 1997. +52 +David Gregg, age 62, Chief Communications Officer +David Gregg was appointed as Chief Communications +Officer of the Company in January 2022. Mr. Gregg previously worked as a Social Enterprise Strategist, including as the Chief +Executive Officer and co-founder of Socialwise, since 2013. Mr. Gregg earned a bachelor’s degree in Communications from Brigham +Young University in Rexburg, Idaho in July 1992. +John S. Morris, age 43, Director +John S. Morris was appointed as a director +of the Company on February 14, 2022. Mr. Moris is the Chief Financial Officer for Metra Commuter Rail and a member of the Chicago +Board of Directors for Cents Ability. He has served as the finance leader for Synchrony’s Oil and Gas Programs from 2015 to 2021. +Prior to that, Mr. Morris has served as the CFO for US Commercial Cards at J.P. Morgan from 2010 to 2014, as well as serving +as the financial leader for programs including Best Buy and Yamaha at HSBC from 2007 to 2009. Mr. Morris is a Certified Public Accountant +and earned a bachelor’s degree in nuclear engineering from The United States Military Academy at West Point, MBA from Northwestern +University’s Kellogg School, and a Master’s degree in science from University of Southern California’s Viterbi School. +Mr. Morris was selected to be a director +based on his background as a financial analysis executive with over 20 years of experience in the financial services industry. +Amy Shi, age 53, Director +Amy Shi brings over 20 years of experience +in business development and relationship management across the banking, investment management, international trade, media, and technology +industries. Currently based in Seoul as an independent management consultant, she focuses on driving growth for global media and tech +firms. She made significant contributions to the Company as an independent consultant from October 2021 to April 2023. From +May 2019 to August 2020, Ms. Shi worked as Vice President at HSBC, where she managed high-net-worth portfolios, and as +AVP at JPMorgan Chase from August 2012 to May 2019 where her strategies led to significant business expansion. In the tech industry, +she served in Partner Relations at Apple Inc. from 2016 to 2017 and as Account Executive at China Telecom from 2002 to 2005. She also +has extensive experience in operations and management consulting, having served as Operations Manager at Bestview International from 2007 +to 2010 and as Management Consultant at Phoenix Design from 2010 to 2012. Complementing her business acumen, Ms. Shi also has over a decade +of experience as an actress and producer in Hollywood, where she developed expertise in content production and gained valuable insights +into the global entertainment market. Fluent in English, Mandarin, and Korean, Ms. Shi holds dual bachelor’s degrees in Computer +Science and Marketing, as well as a Master’s degree from Ohio State University. +We believe Ms. Shi’s extensive background +in banking, technology, and media, combined with her cross-industry management expertise and global perspective, qualifies her to +serve on our board of directors. +Jay Hyong Woo, age 53, Director +Jay Hyong Woo was appointed as a director of the +Company on February 14, 2022. Mr. Woo has served as the president of Epic Pro, Inc since November 2003. He also served +as the Chief Executive Officer of CTK US from August 2017 to December 2021. Prior to that, Mr. Woo served as the President +of Crossen, Inc, from August 2009 to March 2018. Mr. Woo earned a Bachelor of Arts in Hotel Management from the University +of Nevada Las Vegas. +Mr. Woo was selected to be a director based +on his extensive experience operating and advising businesses in a number of different industries. This will benefit the Company as we +develop our business, and seek to expand the areas in which we operate. +Aram Ahn, age 56, Director +Aram Ahn was appointed as a director of the Company +on February 14, 2022. Mr. Ahn has served as the Chief Executive Officer of Leverstone Financial Co, Inc. since February 2016. +From January 2013 to October of 2015, Mr. Ahn managed the trading department at Maxberry T&I. Mr. Ahn earned a +bachelor’s degree in statistics from Korea University in Seoul, South Korea, and a Masters degree in the Department of Financial +Law from Korea University in Seoul, South Korea. +Mr. Ahn was selected to be a director based on his extensive experience +in the financial services industry. +Larry Namer, age 76, Director +Larry Namer founded E! Entertainment in July 1987 and served as +President and Chairman of LJN Media from January 2003 to the present. Mr. Namer is a seasoned media entrepreneur and innovator +with over 50 years of experience in the entertainment industry. He is best known for founding E! Entertainment Television, a network +currently in 140 countries and valued at over five billion USD. Prior to that, Mr. Namer served as President of Company Communications +from February 1989 to January 2023. Mr. Namer also served as Chairman of Steeplechase Media from January 1985 to December 2003. +He has worked extensively in Russia until 2003 and then moved on to China where his company Metan continues bringing Western media to +international audiences reaching over one billion Mandarin speakers. Mr. Namer earned a bachelor’s degree in economics from +Brooklyn College. +We believe Mr. Namer’s extensive experience in the entertainment +industry qualified him to serve on our board of directors. +53 +Board Composition +Our Board currently consists of five members. +Each of our directors will serve until our next annual meeting of stockholders or until his or her successor is elected and duly qualified. +Our Board is authorized to appoint persons to the offices of Chair of the Board of Directors, Vice Chair of the Board of Directors, Chief +Executive Officer, President, one or more Vice Presidents, Chief Financial Officer, Treasurer, one or more Assistant Treasurers, Secretary, +one or more Assistant Secretaries, and such other officers as may be determined by the Board. The Board may also empower the Chief Executive +Officer, or in absence of a Chief Executive Officer, the President, to appoint such other officers and agents as our business may require. +Any number of offices can be held by the same person. +Audit Committee +Our audit committee, which is a separately +designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as +amended (the “Exchange Act”), is composed of John S. Morris, Jay Hyong Woo, and Larry Namer, each of whom is independent +under Nasdaq Stock Market (“Nasdaq”) Rule 5605(c)(2) and Rule 10A-3 under the Exchange Act. +The Board has determined that it has at +least one “audit committee financial expert” serving on the Audit Committee. John S. Morris serves as the audit +committee financial expert. Mr. Morris also serves as the Chairman of the Audit Committee. +Director Independence +Our Board has determined that four members of +its board of directors qualify as independent directors in accordance with the rules of the Nasdaq Stock Market (“Nasdaq”). +The director independence definition under the Nasdaq rule includes a series of objective tests, including that the director is not, and +has not been for at least three years, one of our employees and that neither the director nor any of his family members has engaged +in various types of business dealings with us. In addition, as required by Nasdaq rules, our Board has made a subjective determination +as to each independent director that no relationships exist, which, in the opinion of our Board, would interfere with the exercise of +independent judgment in carrying out the responsibilities of a director. In making these determinations, our Board reviewed and discussed +information provided by the directors and us with regard to each director’s business and personal activities and relationships as +they may relate to us and our management. +There are no other family relationships among +any of our directors or executive officers. +Role of Board in Risk Oversight Process +Our Board has responsibility for the oversight +of the Company’s risk management processes and, either as a whole or through its committees, regularly discusses with management +our major risk exposures, their potential impact on our business, and the steps we take to manage them. The risk oversight process includes +receiving regular reports from Board committees and members of senior management to enable our Board to understand our risk identification, +risk management and risk mitigation strategies with respect to areas of potential material risk, including operations, finance, legal, +regulatory, strategic and reputational risk. Cybersecurity risk is a key consideration in our operational risk management capabilities. +We are in the process of instituting a formal information security management program, which will be subject to oversight by, and reporting +to, our Board. Given the nature of our operations and business, cybersecurity risk may manifest itself through various business activities +and channels and is thus considered an enterprise-wide risk which is subject to control and monitoring at various levels of management +throughout the business. Our Board will oversee and review reports on significant matters of corporate security, including cybersecurity. +In addition, we maintain specific cyber insurance through our corporate insurance program, the adequacy of which is subject to review +and oversight by our Board. +Our audit committee reviews information regarding +liquidity and operations and oversees our management of financial risks. Periodically, our audit committee reviews our policies with respect +to risk assessment, risk management, loss prevention and regulatory compliance. Oversight by the audit committee includes direct communication +with our external auditors, and discussions with management regarding significant risk exposures and the actions management has taken +to limit, monitor or control such exposures. Our compensation committee is responsible for assessing whether any of our compensation policies +or programs has the potential to encourage excessive risk-taking. Matters of significant strategic risk are considered by our Board as +a whole. +Board Committees and Independence +Our Board has established the following three +standing committees: audit committee, compensation committee, and nominating and governance committee. Our Board has adopted written charters +for each of these committees. We made each committee’s charter available under the Corporate Governance section of our website at +https://gitechnologies.com . The reference to our website address does not constitute incorporation by reference of the information +contained at or available through our website, and you should not consider it to be a part of this Report. All members of the Audit and +Compensation Committees will meet the criteria for independence. +54 +Board Diversity +Our nominating and governance committee will be +responsible for reviewing with the Board, on an annual basis, the appropriate characteristics, skills and experience required for the +Board as a whole and its individual members. In evaluating the suitability of individual candidates (both new candidates and current members), +the nominating and governance committee, in recommending candidates for election, and the Board, in approving (and, in the case of vacancies, +appointing) such candidates, will take into account many factors, including the following: +● +personal and professional integrity, ethics and values; +● +experience in corporate management, such as serving as an officer or former officer of a publicly-held company; +● +experience as a board member or executive officer of another publicly-held company; +● +strong finance experience; +● +diversity of expertise and experience in substantive matters pertaining to our business relative to other board members; +● +diversity of background and perspective, including, but not limited to, with respect to age, gender, race, place of residence and specialized experience; +● +experience relevant to our business industry and with relevant social policy concerns; and +● +relevant academic expertise or other proficiency in an area of our business operations. +Our Board evaluates each individual in the context +of the Board as a whole, with the objective of assembling a group that can best maximize the success of the business and represent stockholder +interests through the exercise of sound judgment using its diversity of experience in these various areas. +Compensation Committee Interlocks and Insider +Participation +None of the members of our compensation committee, +at any time, have been one of our officers or employees. None of our executive officers currently serves, or in the past year has served, +as a member of the board of directors or compensation committee of any other entity that has one or more executive officers on our Board +of Directors or compensation committee. +Code of Business Conduct and Ethics +We have adopted a Code of Business Conduct and +Ethics applicable to our employees, officers and directors. We made our Code of Business Conduct and Ethics available under the Corporate +Governance section of our website at https://gitechnologies.com . The reference to our website address does not constitute incorporation +by reference of the information contained at or available through our website, and you should not consider it to be a part of this Report. +We intend to disclose any future amendments to certain provisions of our Code of Business Conduct and Ethics, or waivers of these provisions, +on our website or in our filings with the SEC under the Exchange Act. +Limitation of Liability and Indemnification +Our Certificate of Incorporation (“ Charter ”), +and our bylaws (“ Bylaws ”) provide the indemnification of our directors and officers to the fullest extent permitted +under the Delaware General Corporation Law (“ DGCL ”). In addition, the Charter provides that our directors shall not +be personally liable to us or our shareholders for monetary damages for breach of fiduciary duty as a director and that if the DGCL is +amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of our directors +shall be eliminated or limited to the fullest extent permitted by the DGCL, as so amended. +55 +As permitted by the DGCL, we have entered into +or plan to enter into separate indemnification agreements with each of our directors and certain of our officers that require us, among +other things, to indemnify them against certain liabilities which may arise by reason of their status as directors, officers or certain +other employees. We expect to obtain and maintain insurance policies under which our directors and officers are insured, within the limits +and subject to the limitations of those policies, against certain expenses in connection with the defense of, and certain liabilities +that might be imposed as a result of, actions, suits or proceedings to which they are parties by reason of being or having been directors +or officers. The coverage provided by these policies may apply whether or not we would have the power to indemnify such person against +such liability under the provisions of the DGCL. +We believe that these provisions and agreements +are necessary to attract and retain qualified persons as our officers and directors. At present, there is no pending litigation or proceeding +involving our directors or officers for whom indemnification is required or permitted, and we are not aware of any threatened litigation +or proceeding that may result in a claim for indemnification. +Insider Trading Policy +The Company has an insider trading policy +governing the purchase, sale and other dispositions of the Company’s securities (the “Insider Trading Policy”) +that applies to all of the Company’s directors, officers, employees and other covered persons identified within the Insider +Trading Policy. The Company believes that the Insider Trading Policy is reasonably designed to promote compliance with applicable +U.S. federal securities laws, rules and regulations, as well as Nasdaq listing standards applicable to the Company, relating to +insider trading. In addition, with regard to the Company’s trading in its own securities, it is the Company’s policy to +comply with applicable federal securities laws and Nasdaq listing requirements. The Insider Trading Policy is filed as Exhibit 19.1 +to this Annual Report on Form 10-K. +Item 11. Executive Compensation +We are an emerging growth company for purposes +of the SEC’s executive compensation disclosure rules. In accordance with such rules, we are required to provide a Summary Compensation +table and an Outstanding Equity Awards at Fiscal Year End table, as well as limited narrative disclosures regarding executive compensation +for our last two completed fiscal years. Further, our reporting obligations extend only to our “named executive officers,” +who are those individuals serving as our principal executive officer and our two other most highly compensated executive officers who +were serving as executive officers at the end of the last completed fiscal year (the “ Named Executive Officers ”). +We have identified Taehoon Kim and Juhyon Shin +as our Named Executive Officers. Our Named Executive Officers for the fiscal year ending December 31, 2024 may change, as we may +hire or appoint new executive officers. +56 +For the fiscal years ended December 31, +2024 and December 31, 2023, compensation for NEO was as follows: +Name and principal position +Year +Compensation +Salary +($) +Bonus +($) +Stock +Awards +($) +Option +Awards +($) (1) +All Other +Compensation +($) +Total +($) +Taehoon Kim +Received +$ — +$ — +$ — +$ — +$ — +$ — +Chief Executive Officer +2024 +Accrued +$ 58,600 +$ — +$ — +$ — +$ — +$ 58,600 +Changhyuk Kang +Received +$ — +$ — +$ — +$ — +$ — +$ — +Chief Executive Officer +2024 +Accrued +$ — +$ — +$ — +$ — +$ — +$ — +Juhyon Shin +Received +$ 7,368 +$ — +$ — +$ — +$ — +$ 7,368 +Chief Financial Officer +2024 +Accrued +$ 44,000 +$ — +$ — +$ — +$ — +$ 44,000 +Taehoon Kim +Received +$ — +$ — +$ — +$ — +$ — +$ — +Chief Executive Officer +2023 +Accrued +$ 75,000 +$ — +$ — +$ — +$ — +$ 75,000 +Changhyuk Kang +Received +$ — +$ — +— +$ — +$ — +$ — +Chief Executive Officer +2023 +Accrued +$ 91,925 +$ — +$ — +$ — +$ — +$ 91,925 +Juhyon Shin +Received +$ 58,736 +$ — +$ — +$ — +$ — +$ 58,753 +Chief Financial Officer +2023 +Accrued +$ 75,213 +$ — +$ — +$ — +$ — +$ 75,213 +(1) +This column represents the grant date fair value calculated in accordance with the Financial Accounting Standards Board’s Accounting Standards Codification Topic 718, Compensation — Stock Compensation (“ ASC 718 ”). These amounts do not represent the actual value, if any, that may be realized by the Named Executive Officers. +(2) +Accrued and unpaid salary expenses which were recorded for the years ended December 31, 2024 and December 31, 2023 will be paid and was paid during the year of 2024 and 2023. +(3) +Changhyuk Kang was removed from his position as CEO by the board of directors of Global Interactive Technologies, Inc. (the “Company”) on February 26, 2024. +Elements of Compensation +Our executive compensation program consisted of +the following components of compensation in 2024 and 2023: +Base Salary +Each of our executive officers receives a base +salary for the expertise, skills, knowledge and experience he or she offers to our management team. The base salary of each of our executive +officers is re-evaluated annually, and may be adjusted to reflect: +● +the nature, responsibilities, and duties of the officer’s position; +● +the officer’s expertise, demonstrated leadership ability, and prior performance; +● +the officer’s salary history and total compensation, including annual equity incentive awards; and +● +the competitiveness of the officer’s base salary. +57 +Equity Incentive Awards +Moving forward, we believe that to attract and +retain management, key employees and non-management directors, the compensation paid to these persons should include, in addition to base +salary, annual equity incentives. Our Compensation committee will determine the amount and terms of equity-based compensation granted +to each individual. In determining whether to grant certain equity awards to our executive officers, the Compensation Committee will assess +the level of the executive officer’s achievement of meeting individual goals, as well as the executive officer’s contribution +towards goals of the Company. Whenever possible, equity incentive awards will be granted under our equity incentive plan, described below. +Employment Agreements and Potential Payments +upon Termination or Change of Control +On June 1, 2022, Taehoon Kim entered into an employment +agreement to serve as Chief Technology Officer (CTO) and Vice President. He was subsequently appointed as the Interim Chief Executive +Officer by the Board of Directors on February 26, 2024. Effective April 1, 2024, he will receive an annual base salary of $58,600 under +a one-year term commencing March 1, 2024. His salary was initially determined in Korean Won and converted to USD at an exchange rate of +1,450 KRW to $1.00. +On May 3, 2021, Juhyon Shin entered into an employment +agreement to serve as Chief Financial Officer (CFO). Effective April 1, 2024, he will receive an annual base salary of $44,000 under a +one-year term beginning on April 1, 2024. His salary was initially determined in Korean Won and converted to USD at an exchange rate of +1,450 KRW to $1.00. +On January 1, 2022, entered into an employment +agreement with David Gregg, the Company’s Chief Communications Officer (CCO). This agreement provides for a monthly base salary +of $5,000 under a one-year term beginning April 1, 2023. +On February 26, 2024, the Company’s Board +terminated the employment of Changhuyk Kang as the Chief Executive Officer of the Company for cause, effective immediately. On the same +date, the Board appointed Taehoon Kim, who served as the Chief Technology Officer and Vice President of the Company, as the interim Chief +Executive Officer of the Company, effective immediately. +None of the aforementioned employment agreements +require any payments beyond salary already earned in the event of the executive’s termination or a change in control. +Outstanding Equity Awards at Fiscal Year-End +There were no outstanding stock option awards, +or other equity-based awards, held by any of the Named Executive Officers as of December 31, 2024. +58 +Securities Authorized for Issuance under Equity Compensation +Plans +The following table provides a summary of the +securities authorized for issuance under our equity compensation plans as of December 31, 2024 +Plan category +Number of +securities to be +issued upon +exercise of +outstanding +options, +warrants and +rights +Weighted- +average exercise +price of +outstanding +options, +warrants and +rights +Number of +securities +remaining +available for +future issuance +under equity +compensation +plans (excluding +securities +reflected in +column (a)) +(a) +(b) +(c) +Equity compensation plans approved by security holders: +2022 Omnibus Equity Incentive Plan +— +$ — +1,500,000 +Equity compensation plans not approved by security holders +— +— +— +Total +— +$ — +1,500,000 +Stock Option and Incentive Plan +Global Interactive Technologies, Inc.(Former +: Hanryu Holdings, Inc) 2022 Omnibus Equity Incentive Plan +Our Board unanimously approved the Global Interactive +Technologies, Inc.(Former : Hanryu Holdings, Inc) . 2022 Omnibus Equity Incentive Plan (the “ Plan ”) on February 14, +2022. The maximum number of shares of common stock issuable under the Plan is currently 1.5 million shares, subject to adjustments +for stock, stock dividends or other similar changes in our common stock or our capital structure. +Our Plan provides for the grant of (a) Incentive +Stock Options (within the meaning of Section 422 of the Code) to our full-time employees (“ Employees ”), subject +to the requirements of Section 422(c)(6) where an Employee owns 10% or more of our voting stock outstanding; (b) Non-Qualified +Options (together with Incentive Stock Options, “ Options ”); (c) stock awards; and (d) performance shares +to any individual who is (i) an Employee, (ii) a member of our Board, or (iii) an independent contractor who provides services +for the Company. +Plan Administration +Pursuant to the Plan, our Board has delegated +the authority to administer the Plan to the Board’s Compensation Committee (the “ Committee ”). Subject to the +provisions of our Plan, the Committee has the power to determine the terms of the awards, including the exercise price, the number of +shares subject to each award, the exercisability of the awards, and the form of consideration, if any, payable upon exercise. The Committee +also has the authority to amend, modify, extend renew or terminate outstanding Options, or may accept the cancellation of outstanding +Options, whether or not granted under the Plan, in return for the grant of new Options at the same or a different price. Additionally, +the Committee may shorten the vesting period, extend the exercise period, remove any or all restrictions or convert an Incentive Option +to a Non-Qualified Option, if, at its sole discretion, it determines that such action is in the best interest of the Company; provided, +however, that any modification made to outstanding Options requires the prior consent of the holder(s) of such Options, unless +the Committee determines that the action would not materially and adversely affect such holder(s). +Incentive Stock Options +The exercise price of Incentive Stock Options +granted under our Plan must at least be equal to 100% of the fair market value of our common stock on the date of grant. The term of an +Incentive Stock Option may not exceed ten years, except that with respect to any participant who owns more than 10% of the voting +power of all classes of our outstanding stock, the term must not exceed five years and the exercise price must equal at least 110% +of the fair market value on the grant date. +Non-Qualified Stock Options +The exercise price of Non-Qualified Options granted +under our Plan must at least be equal to 85% of the fair market value of our common stock on the date of grant. The term of a Non-Qualified +Stock Option may not exceed ten years. +59 +Stock Awards or Sales +Eligible individuals may be issued shares of common +stock directly, upon the attainment of performance milestones or the completion of a specified period of service or as a bonus for past +services. The purchase price for the shares shall not be less than 100% of the fair market value of the shares on the date of issuance, +and payment may be in the form of cash or past services rendered. Eligible individuals shall have no stockholder rights with respect to +any unvested restricted shares or restricted share units issued to them under the stock award or sales program, however, eligible individuals +shall have the right to receive any regular cash dividends paid on such shares. +Termination of Relationship +Except as the Committee may otherwise determine +with respect to a Non-Qualified Stock Option, if the holder of an Option ceases to have a Relationship (as defined in the Plan) with the +Company for any reason other than death or permanent disability, any Options granted to him shall terminate 90 days from the date +on which such Relationship terminates; provided, however , that no Option may be exercised or claimed by the holder of an Option +following the termination of his Relationship for Cause (as defined in the Plan). In the event that the Relationship terminates as a result +of the death or permanent disability of the Option holder, any Options granted to him shall terminate one year from the date of his death +or termination due to permanent disability. In no event may an option be exercised later than the expiration of its term. +Certain Adjustments +In the event of certain changes in our capitalization, +to prevent diminution or enlargement of the benefits or potential benefits available under the Plan, the administrator will adjust the +number and class of shares available for future grants under the Plan, the exercise price of outstanding Options, the number of shares +covered by each outstanding award, or the purchase price of each outstanding award. +Reorganization +In the event we are a party to a merger or other +corporate reorganization, all outstanding Options shall be subject to the agreement of merger or reorganization. Such agreement may provide +for the assumption of the outstanding Options by the surviving corporation or its parent or for their continuation by the Company (if +the Company is a surviving corporation); provided, however , that if the assumption or continuation is not [provided by/used in] +such agreement, then the Committee, in its sole discretion, shall have the option of offering the payment of a cash settlement equal to +the difference between the amount to be paid for one share under the agreement and the exercise price. +Change of Control +Under the Plan, a Change of Control is generally +defined as: (i) the sale of all or substantially all of the assets of the Company, or (ii) any merger, consolidation or acquisition +of the Company with, by or into another corporation, entity or third party, the result of which is a change in the ownership of more than +50% of the voting capital stock of the Company. +In the event of a Change of Control, all restrictions +on all awards or sales of shares will accelerate and vesting on all unexercised and unvested Options will occur on the Change of Control +date. +Policies and Practices Related to the Grant +of Certain Equity Awards +Neither the Board nor the compensation +committee takes material nonpublic information into account when determining the timing or terms of equity awards, including with +respect to options, nor do we time the disclosure of material nonpublic information for the purpose of affecting the value of +executive compensation. Equity awards may be granted at other times during the year to newly hired or promoted employees, and in +other special circumstances. In 2024, we did not grant any stock options, stock appreciation rights, or similar option-like +instruments. +Director Compensation +Each of our non-employee directors are entitled +to receive a monthly retainer of $3,000 for serving on the Board, which fee may be paid either in cash, options or shares of common stock. +As of December 31, 2024, we have paid no compensation to non-employee directors. +60 +Item 12. Security Ownership of Certain Beneficial Owners and +Management and Related Shareholder Matters +The following table sets forth certain information +known to us regarding beneficial ownership of our Common Stock as of April 15, 2025(the most recent practicable date) for (i) each +of our executive officers and directors individually, (ii) all of our executive officers and directors as a group, and (iii) each +person, or group of affiliated persons, known by us to be the beneficial owner of more than 5% of our capital stock. The percentage of +beneficial ownership in the table below is based on 2,640,429 shares of common stock deemed to be outstanding after the reverse stock +split on January 27, 2025. +Name, address and title of beneficial owner (1) +Shares of +Common Stock +Total Number +of Shares +Beneficially +Owned +Percentage of +Voting +Common Stock +Outstanding (2) +Officers and Directors +Taehoon Kim +Chief Executive Officer +7,500 +7,500 +0.28 % +Changhyuk Kang +(Former) Chief Executive Officer +70,000 +70,000 +2.65 % +Ju-Hyon Shin +Chief Financial Officer +5,000 +5,000 +0.19 % +David Gregg +Chief Communications Officer +— +— +— +John S. Morris +Director +— +— +— +Aram Ahn +Director +— +— +— +Shi Amy +Director +19,340 +19,340 +0.73 % +Jay Hyong Woo +Director +— +— +— +Larry Namer +Director +— +— +— +Executive Officers and Directors as a Group +(9 persons) +101,840 +101,840 +3.85 % +Greater than 5% Stockholders +Hangmuk Shin and his related parties +(Seoul, Republic of Korea) +346,793 +346,793 +13.13 % +Si Young Jang +(Seoul, Republic of Korea) +145,000 +145,000 +5.49 % +* +Less than 1.0% +(1) +Unless otherwise indicated, the business address for each of the executive officers and directors is c/o Global Interactive Technologies, Inc., 160, Yeouiseo-ro, Yeongdeungpo-gu, Seoul, Republic of Korea 07231. +(2) +Beneficial ownership is determined in accordance with the rules of the SEC. In computing the number of shares beneficially owned by a person and the percentage of ownership by that person, shares of voting common stock subject to outstanding rights to acquire shares of voting common stock held by that person that are currently exercisable or exercisable within 60 days are deemed outstanding. Such shares are not deemed outstanding for the purpose of computing the percentage of ownership by any other person. +61 +Securities Authorized for Issuance under Equity Compensation Plans +See Item 11. +Changes in Control +None. +Item 13. Certain Relationships and Related +Transactions, and Director Independence Certain Relationships and Related Transactions +The Company is affiliated with several individuals +that have common ownership, and transacts a portion of its business with related parties. +“Short-Term Loan Payables” +December 31, +2024 +December 31, +2023 +Jaeman Lee, July 1, 2024 through December 23, 2024 +$ 255,286 +$ — +Hangmuk Shin, July 1, 2024 through December 23, 2024 +$ 94,321 +— +Aram Ahn, 2024 and April 2024 +— +— +Total +$ 349,607 +— +Jaeman lee +- On July 1, 2024, the Company entered into a +short-term loan agreement with President Jaman Lee at an annual interest rate of 4.6%. The principal amount of the loan was KRW 100,000,000 +(USD 68,027), and the maturity date is June 30, 2025. The principal and interest will be repaid at maturity. +- On July 8, 2024, the Company entered into a +short-term loan agreement with President Jaman Lee at an annual interest rate of 4.6%. The principal amount of the loan was KRW 50,000,000 +(USD 34,014), and the maturity date is July 7, 2025. The principal and interest will be repaid at maturity. +- On September 23, 2024, the Company entered into +a short-term loan agreement with President Jaman Lee at an annual interest rate of 4.6%. The principal amount of the loan was KRW 1,015,000 +(USD 691), and the maturity date is September 22, 2025. The principal and interest will be repaid at maturity. +- On September 27, 2024, the Company entered into +a short-term loan agreement with President Jaman Lee at an annual interest rate of 4.6%. The principal amount of the loan was KRW 100,000,000 +(USD 68,027), and the maturity date is September 26, 2025. The principal and interest will be repaid at maturity. +- On October 14, 2024, the Company entered into +a short-term loan agreement with President Jaman Lee at an annual interest rate of 4.6%. The principal amount of the loan was KRW 50,000,000 +(USD 34,014), and the maturity date is October 13, 2025. The principal and interest will be repaid at maturity. +- On October 25, 2024, the Company entered into +a short-term loan agreement with President Jaman Lee at an annual interest rate of 4.6%. The principal amount of the loan was KRW 4,026,400 +(USD 2,739), and the maturity date is October 24, 2025. The principal and interest will be repaid at maturity. +62 +- On October 29, 2024, the Company entered into +a short-term loan agreement with President Jaman Lee at an annual interest rate of 4.6%. The principal amount of the loan was KRW 5,500,000 +(USD 3,742), and the maturity date is October 28, 2025. The principal and interest will be repaid at maturity. +- On November 13, 2024, the Company entered into +a short-term loan agreement with President Jaman Lee at a 0% annual interest rate. The principal amount of the loan was KRW 19,655,025 +(USD 13,371), and the maturity date is November 12, 2025. The principal will be repaid at maturity. +- On November 20, 2024, the Company entered into +a short-term loan agreement with President Jaman Lee at an annual interest rate of 4.6%. The principal amount of the loan was KRW 5,000,000 +(USD 3,401), and the maturity date is November 19, 2025. The principal and interest will be repaid at maturity. +- On November 26, 2024, the Company entered into +a short-term loan agreement with President Jaman Lee at an annual interest rate of 4.6%. The principal amount of the loan was KRW 73,800 +(USD 50), and the maturity date is November 25, 2025. The principal and interest will be repaid at maturity. +- On December 4, 2024, the Company entered into +a short-term loan agreement with President Jaman Lee at a 0% annual interest rate. The principal amount of the loan was KRW 1,000,000 +(USD 680), and the maturity date is December 3, 2025. The principal will be repaid at maturity. +- On December 20, 2024, the Company entered into +a short-term loan agreement with President Jaman Lee at an annual interest rate of 4.6%. The principal amount of the loan was KRW 19,000,000 +(USD 12,925), and the maturity date is December 19, 2025. The principal and interest will be repaid at maturity. +- On December 23, 2024, the Company entered into +a short-term loan agreement with President Jaman Lee at an annual interest rate of 4.6%. The principal amount of the loan was KRW 20,000,000 +(USD 13,605), and the maturity date is December 22, 2025. The principal and interest will be repaid at maturity. +Hangmuk Shin +- On July 1, 2024, the Company entered into a short-term borrowing +agreement with its largest shareholder, Hangmuk Shin, at an interest rate of 4.6%. The principal amount of the loan was KRW 110,000,000 +(USD $74,830), and the maturity date is June 30, 2025. The principal and interest will be repaid at maturity. +- On July 2, 2024, the Company repaid KRW 1,000,000 (USD $680) of the +loan to Hangmuk Shin. +- On July 5, 2024, the Company entered into another short-term borrowing +agreement with Hangmuk Shin at an interest rate of 4.6%. The principal amount was KRW 300,000 (USD $204), and the maturity date is July +4, 2025. The principal and interest will be repaid at maturity. +- On September 13, 2024, the Company entered into a short-term borrowing +agreement with Hangmuk Shin at an interest rate of 4.6%. The principal amount was KRW 10,000 (USD $7), and the maturity date is September +12, 2025. The principal and interest will be repaid at maturity. +- On October 14, 2024, the Company entered into a short-term borrowing +agreement with Hangmuk Shin at an interest rate of 4.6%. The principal amount was KRW 30,000,000 (USD $20,408), and the maturity date +is October 13, 2025. The principal and interest will be repaid at maturity. +- On October 29, 2024, the Company repaid KRW 3,000,000 (USD $2,041) +of the loan to Hangmuk Shin. +- On October 31, 2024, the Company entered into a short-term borrowing +agreement with Hangmuk Shin at an interest rate of 4.6%. The principal amount was KRW 1,000,000 (USD $680), and the maturity date is October +30, 2025. The principal and interest will be repaid at maturity. +63 +- On November 2, 2024, the Company entered into a short-term borrowing +agreement with Hangmuk Shin at an interest rate of 4.6%. The principal amount was KRW 50,000 (USD $34), and the maturity date is November +1, 2025. The principal and interest will be repaid at maturity. +- On November 22, 2024, the Company entered into a short-term borrowing +agreement with Hangmuk Shin at an interest rate of 4.6%. The principal amount was KRW 150,000 (USD $102), and the maturity date is November +21, 2025. The principal and interest will be repaid at maturity. +- On December 13, 2024, the Company entered into a short-term borrowing +agreement with Hangmuk Shin at an interest rate of 4.6%. The principal amount was KRW 500,500 (USD $340), and the maturity date is December +12, 2025. The principal and interest will be repaid at maturity. +- On December 17, 2024, the Company entered into a short-term borrowing +agreement with Hangmuk Shin at an interest rate of 4.6%. The principal amount was KRW 658,000 (USD $448), and the maturity date is December +16, 2025. The principal and interest will be repaid at maturity. +- On December 23, 2024, the Company repaid KRW 16,763 (USD $11) of +the loan to Hangmuk Shin. +Aram Ahn +On June 26, 2024, the Company entered into a short-term borrowing agreement +with outside director Aram Ahn at an interest rate of 0%, and the loan amount of $400 was repaid on September 27, 2024. +Item 14 . Principal Accountant +Fees and Services. +We have appointed One +Stop Assurance PAC(“ONESTOP”) to serve as our independent registered public accounting firm for the fiscal years ending December +31, 2024 and December 31, 2023. +Fees Billed to the +Company in fiscal year 2024 and 2023 +The following table sets +forth the fees billed to us by our principal auditor, ONESTOP, professional services rendered for the during the fiscal years ended December +31, 2024 and December 2023: +December 31, +2024 +December 31, +2023 +Audit fees (1) +$ 180,000 +$ 230,000 +Audit related fees (2) +9,000 +11,500 +Tax fees (3) +— +— +All other fees +— +— +Total +189,000 +241,500 +64 +The following table sets +forth the fees billed to us by our BF Borgers, PC, BFB, professional services rendered for the during the fiscal years ended December +31, 2024 and December 2023: +December 31, +2024 +December 31, +2023 +Audit fees (1) +$ — +$ 50,000 +Audit related fees (2 ) +— +5,000 +Total +— +55,000 +(1) +Audit Fees — Audit fees consist of fees billed for the audit of our annual financial statements and the review of the interim consolidated financial statements. +(2) +Audit-Related Fees — These consisted principally of the aggregate fees related to audits that are not included Audit Fees. +(3) +Tax Fees — Tax fees consist of aggregate fees for tax compliance and tax advice, including the review and preparation of our various jurisdictions’ income tax returns. +Changes in and Disagreements with Accountants +on Accounting and Financial Disclosure +Except as described below, +there have been no changes in or disagreements with accountants on accounting and financial disclosure. +On January 4, 2024, Global +Interactive Technologies, Inc(Former : Hanryu Holdings, Inc (the “ Company ”)) retained ONESTOP as its independent registered +public accounting firm for the fiscal year ending December 31, 2023. +On May 11, 2024, the +Company retained ONESTOP as its independent registered public accounting firm for the fiscal year ending December 31, 2022 since the previous +independent public accounting firm for the fiscal year ending December 31, 2022, BFB, is not currently permitted to appear or practice +before the SEC for reasons described in the SEC’s Order Instituting Public Administrative and Cease-and-Desist Proceedings Pursuant +to Section 8A of the Securities Act of 1933, Sections 4C and 21C of the Securities Exchange Act of 1934 and Rule 102(e) of the SEC’s +Rules of Practice, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order, dated May 3, 2024. BFB’s audit +reports on the Company’s consolidated financial statements as of and for the fiscal years ended December 31, 2022 did not contain +an adverse opinion or a disclaimer of opinion and were not qualified or modified as to audit scope or accounting principles. There have +been no “disagreements” (as that term is defined in Item 304(a)(1)(iv) of Regulation S-K) and no “reportable event” +occurred (as that term is defined in Item 304(a)(1)(v) of Regulation S-K during the fiscal years ended December 31, 2022 and the subsequent +interim periods up to the date between the Company and BFB on any matter of accounting principles or practices, financial statement disclosure +or auditing scope or procedure, which, if not resolved to the satisfaction of BFB, would have caused them to make reference to the subject +matter of the disagreement in connection with their report on the Company’s financial statements for those periods. +Pre-Approval Policy +Our Audit Committee has +the authority to appoint or replace our independent registered public accounting firm (subject, if applicable, to stockholder ratification). +Our Audit Committee is also responsible for the compensation and oversight of the work of the independent registered public accounting +firm (including resolution of disagreements between management and the independent registered public accounting firm regarding financial +reporting) for the purpose of preparing or issuing an audit report or related work. The independent registered public accounting firm +was engaged by, and reports directly to, our Audit Committee. +Our Audit Committee pre-approves +all audit services and permitted non-audit services (including the fees and terms thereof) to be performed for us by our independent registered +public accounting firm, subject to the de minimis exceptions for non-audit services described in Section 10A(i)(1)(B) of the +Exchange Act and Rule 2-01(c)(7)(i)(C) of Regulation S-X, provided that all such excepted services are subsequently +approved prior to the completion of the audit. We have complied with the procedures set forth above, and our Audit Committee has otherwise +complied with the provisions of its charter. +65 +PART IV +Item 15. Exhibit and Financial Statement Schedules. +(a) The following documents are filed as part of this Report: +(1) Financial Statements +Page +Report of Independent Registered Public Accounting Firm (PCAOB ID : 6732 ) F-1 +Balance Sheets F-2 +Statements of Operations F-3 +Statements of Changes in Shareholders’ Deficit F-4 +Statements of Cash Flows F-5 +Notes to Financial Statements F-7 +(2) Financial Statements Schedule +All financial statement schedules are omitted +because they are not applicable or the amounts are immaterial and not required, or the required information is presented in the financial +statements and notes beginning on F-1 on this Report. +(3) Exhibits +We hereby file as part of this Report the exhibits +listed in the attached Exhibit Index. Exhibits which are incorporated herein by reference are available on the SEC website at www.sec.gov. +Item 16. Form 10-K Summary. +Not applicable. +66 +REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING +FIRM +To the Board of Directors and +Stockholders of Global Interactive Technologies, +Inc. (formerly as “Hanryu Holdings, Inc.”) +Opinion on the Financial Statements +We have audited the accompanying consolidated +balance sheets of Global Interactive Technologies, Inc. (formerly as “Hanryu Holdings, Inc.”) and its subsidiaries (“the +Company”) as of December 31, 2024 and 2023, and the related consolidated statements of operations and comprehensive loss, stockholders’ +equity, and cash flows for each of the years in the two-year period ended December 31, 2024 and the related notes (collectively +referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, +the financial positions of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each +of the years in the two-year period ended December 31, 2024, in conformity with accounting principles generally accepted in the United +States of America. +The Company’s Ability to Continue as +a Going Concern +The accompanying consolidated financial statements +have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, +the Company has incurred recurring losses from operations, has a working capital deficiency, these factors raise substantial doubt about +the Company’s ability to continue as a going concern. Management’s evaluation of the events and conditions and management’s +plans regarding these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that +might result from the outcome of this uncertainty. +Basis for Opinion +These financial statements are the responsibility +of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our +audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) +and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable +rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance with the +standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial +statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged +to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding +of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s +internal control over financial reporting. Accordingly, we express no such opinion. +Our audits included performing procedures to assess +the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond +to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. +Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating +the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. +/s/ Onestop Assurance PAC +We have served as the Company’s auditor +since 2023. +Singapore +April 29, 2025 +F- 1 +GLOBAL INTERACTIVE TECHNOLOGIES, INC. AND +ITS SUBSIDIARIES +Consolidated Balance Sheets +December 31, 2024 and December 31, 2023 +December 31, +2024 +December 31, 2023 +ASSETS +CURRENT ASSETS: +Cash and Cash Equivalents +$ 2,352 +$ 69,688 +Short-term loans receivable +338 +131,080 +Non-trade receivables +297 +— +Prepaid expenses and other receivable +— +748 +Current assets, discontinued operations +— +20,219,410 +Total current assets +2,987 +20,420,926 +PROPERTY PLANT AND EQUIPMENT, NET +2,656 +124,030 +INTANGIBLE ASSETS, NET +4,940,000 +— +OPERATING LEASE RIGHT-OF-USE ASSET +1,458,780 +— +Total Assets +$ 6,404,423 +$ 20,544,956 +LIABILITIES AND STOCKHOLDER’S DEFICIT +CURRENT LIABILITIES: +Short-term loans payable +$ 20,436 +$ +— +Short-term loans payable from related parties +349,607 +— +Non-trade accounts payable +290,917 +— +Accrued expenses and other current liabilities +7,379 +— +Current liabilities, discontinued operations +— +7,476,491 +Total current liabilities +668,339 +7,476,491 +Total Liabilities +668,339 +7,476,491 +Commitments and contingencies (Note 16) +STOCKHOLDER’SDEFICIT: +Common Stock, $ 0.02 par value +Authorized 110,000,000 (common: 100,000,000 , preferred: 10,000,000 ) shares; Issued and outstanding 2,640,429 common shares and 2,640,429 common shares as of December 31, 2024 and December 31, 2023* +52,809 +52,809 +Additional paid-in capital* +44,251,046 +51,415,476 +Accumulated deficit +( 37,901,301 ) +( 38,893,762 ) +Accumulated other comprehensive income +( 666,470 ) +493,942 +Equity attributable to equity holder of the Company +5,736,084 +13,068,465 +Total Stockholders’ Equity +5,736,084 +13,068,465 +Total Liabilities and Stockholders’ Equity +$ 6,404,423 +$ 20,544,956 +* On January 27, 2025, the Company effected a 1-for-20 reverse +stock split of its issued and outstanding common shares. As a result of the reverse stock split, every 20 shares of the Company’s +issued and outstanding common stock were combined into one share, reducing the total number of issued shares from 52,808,589 to 2,640,429. +The par value per share changed from $0.001 to $0.02. All share and per-share amounts in the accompanying consolidated financial statements +and related notes have been retroactively adjusted to reflect the reverse stock split for all periods presented. +F- 2 +GLOBAL INTERACTIVE TECHNOLOGIES, INC. AND +ITS SUBSIDIARIES +Consolidated Statements of Operations +For the Years Ended December 31, 2024 and 2023 +December 31, +2024 +December 31, +2023 +Sales +$ +— +$ +— +Cost of Revenue +— +— +Gross profit +— +— +Operating cost and expenses +( 888,363 ) +( 2,005,925 ) +Loss from operations +( 888,363 ) +( 2,005,925 ) +OTHER INCOME (EXPENSE): +Impairment loss on intangible assets +( 94,264 ) +— +Gain on disposal of subsidiary +12,400,373 +— +Loss on disposal of tangible assets +( 23,937 ) +— +Interest income (expense), net +( 1,181 ) +32 +Gain on foreign currency transactions +3,617 +154,561 +Bad-debt expense of other assets +( 16,179,823 ) +— +Other expense, net +( 73 ) +— +Net other (expense)/ income +( 3,895,288 ) +154,593 +Net Loss from continuing operations before taxes +( 4,783,651 ) +( 1,851,332 ) +Income tax expense +— +— +Net loss from continuing operations +( 4,783,651 ) +( 1,851,332 ) +Discontinued operations: +Loss from discontinued operations +( 1,388,318 ) +( 7,556,303 ) +Income tax benefit +— +— +Loss from discontinued operation +( 1,388,318 ) +( 7,556,303 ) +Net Loss +( 6,171,969 ) +( 9,407,635 ) +Less net loss attributable to non-controlling interest +— +( 121,725 ) +Net Loss attributable to equity holders of the Company +( 6,171,969 ) +( 9,285,910 ) +Net Loss +( 6,171,969 ) +( 9,407,635 ) +Basic net loss per share: +Loss from continuing operations +( 1.81 ) +( 0.73 ) +Loss from discontinued operations +( 0.53 ) +( 2.99 ) +Total basic net loss per share +( 2.34 ) +( 3.68 ) +Diluted net loss per share +Loss from continuing operations +( 1.81 ) +( 0.73 ) +Loss from discontinued operations +( 0.53 ) +( 2.99 ) +Total diluted net loss per share +( 2.34 ) +( 3.68 ) +Weighted average number of common shares outstanding: +Basic and Diluted +2,640,429 +2,525,171 +F- 3 +GLOBAL INTERACTIVE TECHNOLOGIES, INC. AND +ITS SUBSIDIARIES +Consolidated Statements of Changes in Stockholders’ Equity +For the Years Ended December 31, 2024 and 2023 +Common Stock +Additional Paid-in +and Other +Accumulated +Accumulated other +Comprehensive +Non-controlling +Total Stockholder’s +Equity +Shares +Amount +Capital +Deficit +Gain (Loss) +interests +(Deficit) +Balance at December 31, 2022* +2,270,847 +$ 45,417 +27,578,666 +$ ( 29,607,852 ) +$ 879,420 +$ ( 236,166 ) +$ ( 1,340,515 ) +Issuance of common stock at $ 10.00 per share by private placement, net of issuance costs issuance +50,000 +1,000 +9,999,000 +— +— +— +10,000,000 +Issuance of common stock at $ 10.00 per share by initial public offering, net of issuance costs +43,866 +877 +7,707,140 +— +— +— +7,708,017 +Exercise of warrants at $ 1.27 per share by cash considerations, net of issuance costs +51,000 +1,020 +427,380 +— +— +— +428,400 +Exercise of warrants at $ 1.27 per share by cash considerations, net of issuance costs +209,244 +4,185 +5,310,624 +— +— +— +5,314,809 +Exercise of warrants at $ 1.27 per share by cash considerations, net of issuance costs +15,472 +310 +392,666 +— +— +— +392,976 +translation adjustment +( 385,478 ) +357,891 +( 27,587 ) +Net loss +— +— +— +( 9,285,910 ) +— +( 121,725 ) +( 9,407,635 ) +Balance at December 31, 2023 +2,640,429 +$ 52,809 +51,415,476 +$ ( 38,893,762 ) +$ 493,942 +$ +— +$ 13,068,465 +Reclassification of APIC to +Accumulated Deficit +— +— +( 7,164,430 ) +7,164,430 +— +— +— +Currency translation adjustment +— +— +— +— +( 1,160,412 ) +— +( 1,160,412 ) +Net loss +— +— +— +( 6,171,969 ) +— +— +( 6,171,969 ) +Balance at December 31, 2024 +2,640,429 +$ 52,809 +$ 44,251,046 +$ ( 37,901,301 ) +$ ( 666,470 ) +$ +— +$ 5,736,084 +On January 27, 2025, the Company completed a 1-for-20 reverse stock split of its issued and outstanding common shares. As a result, every 20 shares were combined into one share, reducing the total number of issued shares from 52,808,589 to 2,640,429. The par value per share was increased from $0.001 to $0.02. All share and per-share amounts in the accompanying consolidated financial statements and related notes have been retroactively adjusted to reflect the reverse stock split for all periods presented. +F- 4 +GLOBAL INTERACTIVE TECHNOLOGIES, INC. AND +ITS SUBSIDIARIES +Consolidated Statements of Cash Flows +For the Years December 31, 2024 and 2023 +December 31, +2024 +December 31, +2023 +CASH FLOWS FROM OPERATING ACTIVITIES: +Net income(loss) from continuing operations +$ ( 4,783,651 ) +$ ( 1,851,332 ) +Adjustments to reconcile net loss to net cash provided by (used in) operating activities: +Depreciation +6,352 +9,183 +Gain on disposal of subsidiary +( 12,400,373 ) +— +Bad-debt expense of other assets +16,179,823 +— +Loss on disposal of tangible assets +23,937 +— +Impairment loss on intangible assets +94,264 +— +Changes in operating assets and liabilities: +Non-trade receivable +2,170 +— +Prepaid expenses and other current assets +( 357 ) +( 739 ) +Other assets +414,610 +— +Accrued expenses and other current liabilities +6,812 +— +Net cash used in operating activities of continuing operations +( 456,413 ) +( 1,842,888 ) +CASH FLOWS FROM INVESTING ACTIVITIES: +Receipt from collection of short-term loan receivable +84,154 +11,988 +Payment for short-term loan receivable +( 14,103 ) +( 6,037,561 ) +Disposal of property and equipment +84,097 +— +Purchase of property and equipment +— +( 131,692 ) +Net cash provided by/(used in) investing activities of continuing operations +154,148 +( 6,157,265 ) +CASH FLOWS FROM FINANCING ACTIVITIES: +Proceeds from short-term loan payable +10,264 +505 +Proceeds from short-term loan payable from related parties +364,172 +— +Proceeds from exercising warrants +— +420,000 +Net proceeds from IPO +— +7,708,016 +Repayment of short-term loan payable +( 2,933 ) +( 505 ) +Repayment of short-term loan payable from related parties +( 3,351 ) +— +Net cash provided by financing activities of continuing operations +368,152 +8,128,016 +Net change in cash – continued operations +65,887 +127,863 +Cash from discontinued operations: +Net cash used in operating activities of discontinued operations +( 1,222,364 ) +( 13,851,297 ) +Net cash (used in) provided by investing activities of discontinued operations +( 5,235,253 ) +2,161,641 ) +Net cash (used in) provided by financing activities of discontinued operations +311,413 +16,718,667 +Net change in cash – discontinued operations +( 6,146,204 ) +5,029,011 ) +Cash beginning of the year- continued operations +69,688 +8,343 +Cash beginning of the year - discontinued operations +5,358,142 +110,615 +Beginning cash +5,427,830 +118,958 +Cash end of the year – continued operations +2,352 +69,688 +Cash end of the year - discontinued operations +1,408 +5,358,142 +Ending cash +3,760 +5,427,830 +NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS +( 6,080,317 ) +5,156,874 ) +EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS +656,247 +151,998 ) +CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR +5,427,830 +118,958 +CASH AND CASH EQUIVALENTS AT END OF THE YEAR +$ 3,760 +$ 5,427,830 +SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: +Cash receipt (paid) for interest – all operations +$ 63 +70,122 ) +Less Cash receipt for interest - discontinued operations +$ 63 +4 +Cash receipt (paid) for interest – continued operations +$ +— +$ 70,118 ) +Cash receipt (paid) during the period for interest +$ 63 +$ 70,122 ) +Supplemental disclosure of non-cash investing and financing activities: +— +— +F- 5 +GLOBAL INTERACTIVE TECHNOLOGIES, INC. AND +ITS SUBSIDIARIES +Consolidated Statements of Comprehensive Income +For the Years Ended December 31, 2024 and 2023 +2024 +2023 +NET LOSS +$ ( 6,171,969 ) +$ ( 9,407,635 ) +Other comprehensive income (loss): +Change in foreign currency translation adjustment +( 1,160,412 ) +( 385,478 ) +Change in foreign currency translation adjustment to attributable to noncontrolling interest +— +357,891 +COMPREHENSIVE LOSS +$ ( 7,332,381 ) +$ ( 9,435,222 ) +Less : Comprehensive Income/(Loss) attributable to noncontrolling interest +— +( 236,166 ) +Comprehensive Income(Loss) attributable to the Company +( 7,332,381 ) +( 9,199,056 ) +F- 6 +GLOBAL INTERACTIVE TECHNOLOGIES, INC. AND +SUBSIDIARIES +Notes to Consolidated Financial Statements +NOTE 1 — NATURE OF OPERATIONS +AND BASIS OF PRESENTATION +Business +Global Interactive Technologies, Inc. (“GITS”) +is a corporation incorporated in the State of Delaware, and in 2024, we acquired 100 % ownership of our subsidiary, Faning Korea, LLC. +We aim to become a leading company in the global Korean entertainment market, also known as “Hanryu” or “K-Culture,” +through our fan-participation-based social media platform, FANING. The FANING platform is an all-in-one global playground where fans around +the world can consume, create, and get rewarded for content related to their interests, and connect with other like-minded fans. +Corporate History +Since the inception of Global Interactive Technologies, +Inc in 2018, we have accomplished a number of key objectives, as follows: +Date Event/Milestone +October 18, 2018 HBC is incorporated under the laws of the ROK with the idea of creating an all-in-one product to capture the growing global momentum and popularity of K-Culture. +October 29, 2020 HBC establishes FNS,and begins the initial stages of designing and implementing a platform that can create a fandom networking system. +March 11, 2021 HBC establishes Hanryu Times. Hanryu Times begins operations as HBC’s media outlet, reporting on and providing up-to-date K-Culture news within the FANTOO platform, across a number of languages, including English, Japanese, Chinese (simplified/traditional), Indonesian, Spanish, Russian, and Portuguese. +March 31, 2021 +HBC consummates an agreement and plan of merger (the “ Merger Agreement ”) with RnDeep, Co. Ltd, a Korean corporation (“ RnDeep ”), pursuant to which RnDeep merged with and into HBC, with HBC continuing as the surviving corporation (the “ RnDeep Acquisition ”). As consideration for the RnDeep Acquisition, HBC ratably issued a total 4,150,000 HBC common shares, par value $ 0.45 per share (“ Common Shares ”), to the former shareholders of RnDeep. +As a result of the RnDeep Acquisition, HBC acquired the underlying technologies that the Company plans on utilizing in the future development of new functions and integrations within the FANTOO platform. Once the FANTOO platform is ready to integrate the technology acquired, this technology will support new functions and integrations including, without limitation, the Company’s enterprise resource planning solution, and its artificial intelligence (“ AI ”), which the Company plans on using to power many of FANTOO’s upcoming features such as speech synthesis, curated content delivery, deepfake detection and blocking, and nudity detection and blocking. +May 17, 2021 The FANTOO platform is launched and made available to the public. +June 30, 2021 HBC enters into an agreement to acquire all the issued and outstanding common shares of Marine Island (the “ Marine Island Acquisition ”), which owns the right to use and occupy 19,200 square-feet of office space within the iconic Seoul Marina, located at 160 Yeouiseo-ro, Yeungdeungpo-gu, Seoul, Korea (the “ Seoul Marina ”) from Sewang Co., Ltd. (“ Sewang ”), for the purchase price of 3,500,000,000 Korean Won (“ KRW ”), along with the assumption of all Marine Island’s liabilities. +F- 7 +GLOBAL INTERACTIVE TECHNOLOGIES, INC. AND +SUBSIDIARIES +Notes to Consolidated Financial Statements +NOTE 1 — NATURE OF OPERATIONS +AND BASIS OF PRESENTATION (cont.) +Date Event/Milestone +August 30, 2021 HBC establishes FANTOO Entertainment. FANTOO Entertainment provides a variety of content to the Company’s FANTOO platform, which contributes to the spread of the Korean Wave by promoting new entertainers and artists. +October 3, 2021 HBC consummates the Marine Island Acquisition, making it the owner of 100 % of the issued and outstanding common shares of Marine Island. +October 3, 2021 +HBC consummates a strategic acquisition of 50.8 % of the outstanding common shares of K-Commerce. In consideration for the shares of K-Commerce, HBC forgave a short-term loan of $ 270,530 (KRW 309,600,000 ) owed to HBC by K-Commerce. +HBC’s investment into K-Commerce was a strategic acquisition in order to integrate K-Commerce’s retail platform, “SelloveLive” into the FANTOO ecosystem as the FANTOO Fanshop. When launched as the FANTOO Fanshop, K-Commerce’s platform will offer combined services of shopping and live broadcasting, allowing users to easily live-stream travel and share local attractions, local festivals, cultures, and news from around the world. +Prior to HBC’s acquisition of its shares in K-Commerce, K-Commerce was 100 % owned by Changhyuk Kang, the Company’s Chief Executive Officer and Donghoon Park, the Company’s Chief Marketing Officer. +October 20, 2021 Hanryu Holdings is incorporated in the State of Delaware. +February 25, 2022 through May 10, 2022 +Hanryu Holdings, HBC, and the shareholders of HBC (the “ HBC Shareholders ”) enter into a share exchange agreement (the “ Share Exchange Agreement ”), pursuant to which the HBC Shareholders agreed to assign, transfer, and deliver, free and clear of all liens, 100 % of the issued and outstanding Common Shares, representing 100 % of the voting securities in HBC, to the Company in exchange for the Company issuing 42,565,786 restricted shares of the Company’s common stock, par value $ 0.001 per share (“ Common Stock ”) to the HBC Shareholders (the “ Share Exchange ”). +Concurrently with entering into the Share Exchange Agreement, the Company, HBC, and the holders (the “ HBC Warrantholders ”) of all outstanding warrants to purchase Common Shares (“ HBC Warrants ”) enter into a warrant exchange agreement, pursuant to which the HBC Warrantholders agreed to assign, transfer, and delivery, free and clear of any liens, 100 % of the outstanding HBC Warrants to the Company in exchange for the Company issuing to the HBC Warrantholders 10,046,666 warrants to purchase restricted shares of Common Stock (the “ Warrant Exchange ”). +The Warrants and Common Shares of HBC transferred to the Company in the Share Exchange and the Warrant Exchange constituted 100 % of the outstanding equity securities of HBC. +June 16, 2022 +Hanryu Holdings, HBC, the HBC Shareholders, and the HBC Warrantholders consummate the Share Exchange and Warrant Exchange concurrently, pursuant to which HBC became a wholly owned subsidiary of the Company, and the HBC Stockholders and HBC Warrantholders, collectively, acquired a controlling interest in the Company. +June 22, 2022 The Company divests itself of all Kingdom Coin (“ KDC ”) holdings and terminates all crypto-currency-related activity, including, without limitation, the operation of the MainNet (FandomChain) and the Kingdom Wallet, pursuant to a Business Transfer Agreement (the “ Divestiture Agreement ”) between HBC and an unaffiliated and unrelated third party, Kingdom Coin Holdings, a Cayman Islands Foundation Company (the “ KDC Foundation ”) (the “ KDC Divestiture ”), to substantially reduce its involvement with blockchain technologies. Pursuant to the Divestiture Agreement, as of June 22, 2022, the Company no longer owns any KDC, and no longer conducts or controls the operations, issuances, or sales of KDC. In connection with the KDC Divestiture, the Company revised its procedures regarding FP and no longer allows, nor has the technology to allow, for the transfer of FP outside of the FANTOO platform or the exchange of FP and KDC +August 1, 2023 The shares of the Company are listed at NASDAQ exchange market. +December 28, 2023 HBC sold owned whole shares of Hanryu Times, Fantoo Entertainment, and K-Commerce, so the business from the three companies became the discontinued operations. +November 5, 2024 HBC sold its 100 % ownership interests in its subsidiaries, FNS Co., Ltd. and Marine Island Co., Ltd., in order to improve its financial structure. +December 4, 2024 We acquired 100 % ownership of Faning Korea, LLC to pursue a new business aimed at improving profitability. +December 28, 2024 We sold 100 % of our ownership interest in Hanryu Bank Co., Ltd. (“HBC”), our wholly owned subsidiary, to improve our financial structure. +F- 8 +GLOBAL INTERACTIVE TECHNOLOGIES, INC. AND +SUBSIDIARIES +Notes to Consolidated Financial Statements +NOTE 1 — NATURE OF OPERATIONS +AND BASIS OF PRESENTATION (cont.) +Risks and Uncertainties +The Company is subject to a number of risks similar +to other companies in its industries, including rapid technological change and transitions in Hanryu trends. The extent of the impact +of the COVID-19 pandemic on the Company’s business continues to be highly uncertain and difficult to predict, as the responses that +the Company, other businesses and governments are taking continue to evolve. Furthermore, capital markets and economies worldwide have +also been negatively impacted by the COVID-19 pandemic, and it is possible that it could cause a lasting national and/or global economic +recession. Policymakers around the globe have responded with fiscal policy actions to support the entertainment industry and economy as +a whole. +To date, the Company has experienced significant +changes in the business as a result of the COVID-19 pandemic. The impact has delayed the Company’s ability to generate revenue as +result of the diversification of potential customer budgets towards the COVID-19 pandemic. The extent to which the COVID-19 pandemic may +in the future materially impact the Company’s financial condition, liquidity or results of operations is uncertain. +Going Concern +The Company had an accumulated deficit of $ 37,901,301 +and working capital of $( 665,352 ) as of December 31, 2024. As of December 31, 2023, the accumulated deficit was $ 38,893,762 and working +capital was $( 2,927,886 ). Also, the Company has operating losses of $ 888,363 and $ 2,005,925 for the years ended December 31, 2024 and +December 31, 2023, respectively. These uncertainties raise substantial doubt about the Company’s ability to continue as a going +concern for after the issuance date of these financial statements. The accompanying financial statements have been prepared under the +assumption that we will continue as a going concern. The financial statements do not include any adjustments to reflect the possible future +effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible +inability of us to continue as a going concern. +The Company is soon to launch the upgraded FANING2 +version. The upgraded FANING2 version has been restructured with a user-centric approach and is designed to create a platform focused +on ensuring profitability. Additionally, through its subsidiary, Faning Korea, LLC, the Company plans to pursue K-Food products and entertainment +business ventures. Furthermore, to secure additional operating capital, the Company intends to proceed with a capital increase and borrowings. +However, there can be no assurance as to the outcome of these factors or that future funding efforts will generate sufficient capital +to maintain our operations. +F- 9 +GLOBAL INTERACTIVE TECHNOLOGIES, INC. AND +SUBSIDIARIES +Notes to Consolidated Financial Statements +NOTE 2 — SIGNIFICANT ACCOUNTING +POLICIES +A summary of the significant accounting policies +followed by the Company in the preparation of the accompanying consolidated financial statements follows: +Principles of Consolidation +The Company’s consolidated financial statements +include Global Interactive Technologies and its wholly owned subsidiary Faning Korea, LLC, which was acquired on December 4, 2024. The +financial statements also include Hanryu Bank Co. Ltd, FNS Co. Ltd, and Marin Island Co. Ltd, which were classified as discontinued operations +following the sale of their equity interests in 2024. Additionally, all significant intercompany transactions and balances have been eliminated +in consolidation. +Changes in the consolidated group’s interest +in a subsidiary that do not result in a loss of control are accounted for as equity transactions. +On November 5, 2024, Hanryu Bank Co. Ltd (“HBC”) +sold all of its equity interests in FNS Co. Ltd and Marin Island Co. Ltd. Furthermore, on December 28, 2024, Global Interactive Technologies +(“the Company”) sold all of its equity interest in Hanryu Bank Co. Ltd (“HBC”). As a result, these subsidiaries will +be excluded from consolidation starting from the date of the equity sales. +Goodwill +Goodwill represents the excess of the purchase +price over the fair value of the identifiable net assets acquired in a business combination. Goodwill is not amortized but is tested for +impairment at least annually, or more frequently if events or changes in circumstances indicate that the carrying value may not be recoverable. +The Company performs its annual impairment assessment on goodwill as of December 31 of each fiscal year. If the carrying value of the +reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to the excess, not to exceed the total amount +of goodwill allocated to the reporting unit. +Intangible Assets +Intangible assets acquired separately are recorded +at cost, and those acquired in a business combination are recognized at fair value as of the acquisition date. The Company’s intangible +assets primarily consist of trademarks, customer relationships, and software, which are amortized on a straight-line basis over their +estimated useful life of 5 years. The Company reviews the recoverability of its intangible assets whenever events or changes in circumstances +indicate that the carrying amount may not be recoverable. If the carrying amount of an intangible asset is not recoverable, an impairment +loss is recognized for the amount by which the carrying amount exceeds its fair value. +Foreign Currency +The Company’s functional currency for all +operations is the KRW. The Company’s accounting records are maintained in KRW, and translated into U.S. Dollars at year-end +for the purposes of presentation. During the translation process, the year-end closing exchange rate is used for the valuation of all +assets and liabilities, historical exchange rate is used to value stockholder’s equity, and the average exchange rate for the year +is used for the calculation of the consolidated financial statements. The net impact of the translation into the U.S. Dollar is included +in the accumulated other comprehensive income (loss) of the Company’s consolidated balance sheet as of December 31, 2024 and December 31, +2023. During the year ended December 31, 2024, there was a fluctuation in the exchange rates ranging from KRW 1,289.40 /USD $ 1 to KRW 1,470.00 /USD +$ 1 . Also, cash flows are also translated at average translation rates for the periods, therefore, amounts reported on the statement of +cash flows will not necessarily agree with changes in the corresponding balances on the consolidated balance sheets. +Use of Estimates +The preparation of the Company’s consolidated +financial statements and related disclosures in conformity with U.S. Generally Accepted Accounting Principles (“ US GAAP ”) +requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosures of contingent +liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Management +evaluates its estimates on an ongoing basis. Although estimates are based on the Company’s historical experience, knowledge of current +events and actions it may undertake in the future, actual results may materially differ from these estimates and assumptions. +Cash and Cash Equivalents +The Company considers all highly liquid investments +with maturities of three months or less at the date of purchase to be cash equivalents. The Company maintains its cash in bank deposit +accounts which, at times, may exceed the federal insurance limit, and the balance of deposit accounts of the Company exceed the federal +insurance limit as of December 31, 2024. +F- 10 +GLOBAL INTERACTIVE TECHNOLOGIES, INC. AND +SUBSIDIARIES +Notes to Consolidated Financial Statements +NOTE 2 — SIGNIFICANT ACCOUNTING +POLICIES (cont.) +Accounts Receivable +Accounts receivables are recorded at the invoiced +amount and do not bear interest. Amounts collected on trade accounts receivable are included in net cash provided by operating activities +in the consolidated statements of cash flows. The Company maintains an Allowance for credit losses for estimated losses inherent in its +accounts receivable portfolio. In establishing the required allowance, management considers historical losses adjusted to take into account +current market conditions and customers’ financial condition in dispute, and the current receivables aging and current payment patterns. +The Company reviews its Allowance for credit losses quarterly. Past-due balances over 90 days and over a specified amount are reviewed +individually for collectability. Account balances are written off against the allowance after all means of collection have been exhausted +and the potential for recovery is considered remote. The Company recorded the allowance of $ 0 on the accompanying consolidated balance +sheets as of December 31, 2024 and December 31, 2023. The Company does not have any off-balance-sheet credit exposure related to +its customers. +Non-Trade Receivables +Non-trade receivables are recorded at the invoiced +amount and do not bear interest. Amounts collected on non-trade receivables are included in net cash provided by operating activities +in the consolidated statements of cash flows. The Company maintains an Allowance for credit losses for estimated losses inherent in its +non-trade receivables portfolio. In establishing the required allowance, management considers historical losses adjusted to take into +account current market conditions and customers’ financial condition in dispute, and the current receivables aging and current payment +patterns. The Company reviews its Allowance for credit losses quarterly. Past-due balances over 90 days and over a specified amount +are reviewed individually for collectability. Account balances are written off against the allowance after all means of collection have +been exhausted and the potential for recovery is considered remote. The Company has set an Allowance for credit losses of $ 16,179,823 +in full as of December 31, 2024, related to the loan balance from the sale of subsidiaries, and had no Allowance for credit losses as +of December 31, 2023. The Company does not have any off-balance-sheet credit exposure related to its customers. +Credit Losses +The Company maintains current receivable amounts with most of its customers and vendors. The Company regularly monitors and assesses its +risk of not collecting amounts owed by them. This evaluation is based upon an analysis of current and past due amounts, along with relevant +history and facts particular to the customer. The Company records its allowance for credit losses based on the results of this analysis. +The analysis requires the Company to make significant estimates and as such, changes in facts and circumstances could result in material +changes in the allowance for credit losses. The Company considers as past due any receivable balance not collected within its contractual +terms. +The Company wrote off $ 16,179,823 of short-term +loan receivables as of December 31, 2024. +Revenue Recognition +The Company anticipates generating revenues from +(i) FANING platform through advertising, direct sales, and user to user commissions, and (ii) other businesses. Revenue billed +or collected in advance will be recorded as deferred revenue until the event occurs or until applicable performance obligations are satisfied. +Revenue is recognized when the Company transfers +promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange +for those goods and services. In this regard, revenue is recognized when: (i) the parties to the contract have approved the contract +(in writing, orally, or in accordance with other customary business practices) and are committed to perform their respective obligations; +(ii) the entity can identify each party’s rights regarding the goods or services to be transferred; (iii) the entity can +identify the payment terms for the goods or services to be transferred; (iv) the contract has commercial substance (that is, the +risk, timing, or amount of the entity’s future cash flows is expected to change as a result of the contract); and (v) it is +probable that the entity will collect substantially all of the consideration to which it will be entitled in exchange for the goods or +services that will be transferred to the customer. +Transaction prices are based on the amount of +consideration to which we expect to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts +collected on behalf of third parties, if any. We consider the explicit terms of the revenue contract, which are typically written and +executed by the parties, our customary business practices, the nature, timing, and the amount of consideration promised by a customer +in connection with determining the transaction price for our revenue arrangements. Refunds and sales returns historically have not been +material. +F- 11 +GLOBAL INTERACTIVE TECHNOLOGIES, INC. AND +SUBSIDIARIES +Notes to Consolidated Financial Statements +NOTE 2 — SIGNIFICANT ACCOUNTING +POLICIES (cont.) +For the years ended December 31, 2024 and December +31, 2023, the Company recognized product sales revenue amounting to $ 0 and $ 0 . Revenue is derived at the point in time when merchandise +is sold and shipped or delivered to customers. Merchandise sales are fulfilled with inventory sourced from our owned inventory. Although +the Company does not currently have any inventory as of the balance sheet date, the Company, from time to time, may hold products in inventory +for an abbreviated amount of time before shipping such inventory and recognizing the corresponding revenue. +Revenue is recognized when control of the product +passes to the customer, typically at the date of delivery of the merchandise to the customer, or the date a service is provided and is +recognized in an amount that reflects the expected consideration to be received in exchange for such goods or services. As such, customer +orders are recorded as unearned revenue prior to delivery of products or services ordered. If the Company ships high volumes of packages +through multiple carriers, the Company will use estimates to determine which shipments are to be delivered and, therefore, recognized +as revenue at the end of the period. Delivery date estimates are based on average shipping transit times, which are calculated using the +following factors: (i) the type of shipping carrier (as carriers have different in-transit times); (ii) the fulfilment source; +(iii) the delivery destination; and (iv) actual transit time experience, which shows that delivery date is typically one to +eight business days from the date of shipment. The Company reviews and updates our estimates on a quarterly basis based on our +actual transit time experience. However, actual shipping times may differ from our estimates. +Generally, the Company requires authorization +from credit cards or other payment vendors whose services the Company offers to customers or verification of receipt of payment, before +the Company ships products to purchasers. The Company generally receives payments from our customers before our payments to our suppliers +are due. The Company does not recognize assets associated with costs to obtain or fulfill a contract with a customer. +Shipping and handling is considered a fulfillment +activity, as it takes place prior to the customer obtaining control of the merchandise, and fees charged to customers are included in +net revenue upon completion of our performance obligations. The Company presents revenue net of sales taxes, discounts, and expected refunds. +Merchandise sales contracts include terms that +could cause variability in the transaction price for items such as discounts, credits, or sales returns. Accordingly, the transaction +price for product sales includes estimates of variable consideration to the extent it is probable that a significant reversal of revenue +recognized will not occur. At the time of sale, the Company estimates a sales return liability for the variable consideration based on +historical experience, which is recorded within “Accrued Liabilities” in the consolidated balance sheet. The Company records +an allowance for returns based on current period revenues and historical returns experience. The Company analyzes actual historical returns, +current economic trends and changes in order volume, and acceptance of our products when evaluating the adequacy of the sales returns +allowance in any accounting period. +The Company evaluates the criteria outlined in +the Financial Accounting Standards Board (“ FASB ”) Accounting Standards Codification (“ ASC ”) 606-10-55, +Principal versus Agent Considerations , in determining whether it is appropriate to record the gross amount of merchandise sales +and related costs or the net amount earned as commissions. When the Company is the principal in a transaction and controls the specific +good or service before it is transferred to the customer, revenue is recorded gross; otherwise, revenue is recorded on a net basis. Currently, +the Company records all advertising revenue as a net basis, and other revenues are recorded as a gross basis, and the revenues as a gross +basis for the years ended December 31, 2024 and December 31, 2023 are $ 0 and $ 0 . Through contractual terms with our partners, we have +the ability to control the promised goods or services and as a result record the majority of the revenue on a gross basis. +The Company did not record revenue amounts as +it classified the subsidiaries, from which past revenue was generated, as discontinued operations following their sale in 2024. +F- 12 +GLOBAL INTERACTIVE TECHNOLOGIES, INC. AND +SUBSIDIARIES +Notes to Consolidated Financial Statements +NOTE 2 — SIGNIFICANT ACCOUNTING +POLICIES (cont.) +Cost of Revenue +Cost of revenue is recognized at the time the +products or services are delivered to the customers. Cost of revenue includes all direct labor, material, shipping and handling cost and +other direct costs such as travel, postage, telecommunication, vehicle charge, printing, and training, and allocated indirect costs related +to revenue such as supplies, utilities, office equipment rental, and computers. +Property Plant and Equipment +Property plant and equipment are carried at cost +(see Note 5). Depreciation expense is provided over the estimated useful lives of the assets using the straight line method for vehicles +and the declining balance method for fixtures and equipment. A summary of the estimated useful lives is as follows: +Classification Estimated +Useful Life +in Years +Vehicles 5 +Fixtures 5 +Equipment 5 +Maintenance and repairs are charged to expense +as incurred, while any additions or improvements are capitalized. +The Company evaluates property and equipment for +impairment when facts and circumstances indicate that the carrying values of such assets may not be recoverable. When evaluating for impairment, +the Company first compare the carrying value of the asset to the asset’s estimated future undiscounted cash flows. If the estimated +undiscounted future cash flows are less than the carrying value of the asset, the Company determines if there is an impairment loss by +comparing the carrying value of the asset to the asset’s estimated fair value and recognizes an impairment charge when the asset’s +carrying value exceeds its estimated fair value. The fair value of the asset is estimated using a discounted cash flow model based on +forecasted future revenues and operating costs, using internal projections. There were no significant property and equipment asset impairment +charges recorded during the year ended December 31, 2024, and the year ended December 31, 2023. +Impairment of Long-Lived Assets +The Company assesses the recoverability of long-lived +assets whenever events or changes in circumstances indicate that their carrying value may not be recoverable. If the cost basis of a long-lived +asset is greater than the projected future undiscounted net cash flows from such asset, an impairment loss is recognized. Impairment losses +are calculated as the difference between the cost basis of an asset and its estimated fair value. There were no significant long-lived +assets impairment charges recorded during the year ended December 31, 2024 and the year ended December 31, 2023. +F- 13 +GLOBAL INTERACTIVE TECHNOLOGIES, INC. AND +SUBSIDIARIES +Notes to Consolidated Financial Statements +NOTE 2 — SIGNIFICANT ACCOUNTING +POLICIES (cont.) +Concentrations of Credit Risk +Cash and cash equivalents are financial instruments +that potentially subject the Company to concentrations of credit risk. The Company may maintain deposits in financial institutions in +excess of government insured limits. The Company believes that it is not exposed to significant credit risk as its deposits are held at +financial institutions that management believes to be of high credit quality and the Company has not experienced any losses on these deposits. +The Company is also potentially subject to concentrations of credit risk in its accounts receivable and loans. Credit risk with respect +to receivables is limited due to the number of companies comprising the Company’s customer base. Credit risk with respect to loans +is limited since they are made principally related to the collaborative activities between the Company and loan holders. Since the Company +is directly affected by the financial condition of its customers and loan holders, management carefully watch if any significant credit +risks exist, and they will make actions to remove or mitigate such risks if there are any. As of December 31, 2024 and December 31, 2023, +there were no outstanding accounts receivable balances. The Company believes that the credit risk related to accounts receivable is manageable +and controllable as of December 31, 2024 and December 31, 2023. Generally, the Company does not require collateral or other securities +to support its accounts receivable and loans. +Fair Value of Financial Instruments +The fair value of Company’s financial instruments, +consisting of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, debt receivables, debt payables approximate +their recorded amounts due to their relatively short settlement terms. +Fair Value Measurements +The Company applies a three-level valuation +hierarchy for fair value measurements. The categorization of assets and liabilities within the valuation hierarchy is based on the lowest +level of input that is significant to the measurement of fair value. +Level 1 +Inputs to the valuation methodology utilize unadjusted quoted market prices in active markets for identical assets and liabilities. +Level 2 +Inputs to the valuation methodology are other observable inputs, including quoted market prices for similar assets and liabilities, quoted prices for identical and similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data. +Level 3 +Inputs to the valuation methodology are unobservable inputs based on management’s best estimate of the inputs that market participants would use in pricing the asset or liability at the measurement date, including assumptions about risk. +A change to the level of an asset or liability +within the fair value hierarchy is determined at the end of a reporting period. +Investments +The Company’s investments are carried at +historical cost. As of December 31, 2024 and December 31, 2023, there is no balance of investments. +Earning (Loss) Per Share +Basic earning (loss) per share is computed by +dividing the income or loss by the weighted-average number of outstanding shares of Common Stock for the applicable period. Diluted earning +(loss) per share is computed by dividing the income or loss by the weighted-average number of outstanding shares of Common Stock for the +applicable period, including the dilutive effect of Common Stock equivalents. Potentially dilutive Common Stock equivalents primarily +consist of warrants issued in connection with financings. For purposes of computing both basic and diluted earning (loss) per share, income +or loss shall exclude the income or loss attributable to the non-controlling interest. The Company calculates net loss per share in accordance +with FASB ASC Topic 260, Earnings Per Share . Basic net loss per share amounts have been computed by dividing net loss excluded +loss attributable to the non-controlling interest by the weighted-average number of common shares outstanding during the period. For the +years ended December 31, 2024 and 2023, the Company reported net losses and, accordingly, potential common shares were not included since +such inclusion would have been anti-dilutive. As a result, our basic and diluted net loss per share are the same because the Company generated +a net loss in all periods presented. +F- 14 +GLOBAL INTERACTIVE TECHNOLOGIES, INC. AND +SUBSIDIARIES +Notes to Consolidated Financial Statements +NOTE 2 — SIGNIFICANT ACCOUNTING +POLICIES (cont.) +Income Taxes +Deferred income tax assets and liabilities are +determined based on differences between the financial statement reporting and tax basis of assets and liabilities and are measured using +the enacted tax rates and laws in effect when the differences are expected to reverse. The measurement of deferred income tax assets is +reduced, if necessary, by a valuation allowance for any tax benefits which are not expected to be realized. The effect on deferred income +tax assets and liabilities of a change in tax rates is recognized in the period that such tax rate changes are enacted. We have determined +that all of our deferred tax benefits are not likely to be realized due to our historical and expected future taxable losses. Accordingly, +we have maintained a full valuation allowance. +The Company applies the provisions of FASB ASC +Topic 740-10, Uncertainty in Income Taxes . The Company has evaluated our tax positions, and there are none as of December +31, 2024 and December 31, 2023. +Income taxes on the Company’s taxable income +from operating activities are subject to various tax laws and determinations of the authority in the ROK. Regarding taxes payable +in the ROK, if a certain portion of taxable income is not used for investments or for increases in wages or dividends, in accordance with +the Tax System for Recirculation of Corporate Income, the Company is liable to pay additional income tax calculated based on Korean tax +law. +The Company assesses uncertainty over a tax treatment. +When the Company concludes it is not probable that the taxation authority will accept an uncertain tax treatment, the Company will reflect +the effect of uncertainty for each uncertain tax treatment by using either of the following methods, depending on which method the Company +expects to better predict the resolution of the uncertainty; +● +The most likely amount: The single most likely amount in a range of possible outcomes. +● +The expected value: The sum of the probability-weighted amounts in a range of possible outcomes. +Lease +Under ASC 842, the determination of whether +an arrangement is a lease is made at the lease’s inception and a contract is (or contains) a lease if it conveys the right to control +the use of an identified asset for a period of time in exchange for consideration. Control is defined under the standard as having both +the right to obtain substantially all of the economic benefits from use of the asset and the right to direct the use of the asset. Management +only reassesses its determination if the terms and conditions of the contract are changed. Operating leases are included in operating +lease right-of-use (“ROU”) assets, other current liabilities, and operating lease liabilities in our balance sheets. Finance +leases are included in property and equipment, other current liabilities, and other long-term liabilities in our balance sheets. +ROU assets represent our right to use an underlying +asset for the lease term, and lease liabilities represent our obligation to make lease payments. Operating lease ROU assets and liabilities +are recognized at the lease commencement date based on the present value of lease payments over the lease term. The Company uses the implicit +rate when it is readily determinable. Since most of the Company’s leases do not provide an implicit rate, to determine the present +value of lease payments, management uses the Company’s incremental borrowing rate based on the information available at lease commencement. +Operating lease ROU assets also includes any lease payments made and excludes any lease incentives. Lease expense for lease payments is +recognized on a straight-line basis over the lease term. Leases with an initial term of 12 months or less are not recorded on the +balance sheet. +F- 15 +GLOBAL INTERACTIVE TECHNOLOGIES, INC. AND +SUBSIDIARIES +Notes to Consolidated Financial Statements +NOTE 2 — SIGNIFICANT ACCOUNTING +POLICIES (cont.) +The Company has lease agreements with lease and +non-lease components, which are generally accounted for separately with amounts allocated to the lease and non-lease components based +on stand-alone prices or for which it has made an accounting policy election to account for these as a single lease component. For certain +equipment leases, like vehicles, the Company accounts for the lease and non-lease components as a single lease. Refer to Note 7 for +additional disclosures required as a result of the adoption of this new standard. +Recently Issued Accounting Standards +In August 2020, the FASB +issued ASU No. 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — +Contracts in Entity’s Own Equity (Subtopic 815-40) . ASU 2020-06 simplifies the accounting for convertible instruments by removing +certain separation models and revises the guidance on diluted earnings per share. This update is effective for fiscal years beginning +after December 15, 2023. +In November 2019, the +FASB issued ASU 2019-10, which amended the effective dates for various standards including credit losses, hedging, and leases. For smaller +reporting companies like the Company, ASU 2016-13 (Credit Losses – Topic 326) is effective for fiscal years beginning after December +15, 2022. The Company adopted this standard in the quarter ended September 30, 2023. +In June 2016, the FASB +issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments , +which requires the use of a current expected credit loss (CECL) model. Several amendments have since been issued to clarify implementation. +In December 2023, the +FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures . This update enhances the transparency +of income tax disclosures by requiring detailed information on the effective tax rate reconciliation and income taxes paid by jurisdiction. +The amendments are effective for annual periods beginning after December 15, 2024, with early adoption permitted. +In March 2024, the FASB +issued ASU 2024-03, Income Statement—Reporting Comprehensive Income (Subtopic 220-40): Expense Disaggregation Disclosures . +This update requires entities to disclose more detailed information about the nature of the expenses within certain income statement captions +(such as cost of sales, SG&A, etc.). The standard is effective for fiscal years beginning after December 15, 2024, and interim periods +within fiscal years beginning after December 15, 2025. Early adoption is permitted. +The Company is currently +evaluating the impact of these new standards and does not expect them to have a material effect on its financial statements upon adoption. +NOTE 3 — SHORT-TERM +LOAN RECEIVABLES +The following table summarizes information with +regard to short-term loan receivables outstanding as of December 31, 2024 and December 31, 2023, and the interest income from short-term +loan receivables is $ 0 and $ 0 for the year ended December 31, 2024 and December 31, 2023. +Interest +Rate +December 31, +2024 +December 31, +2023 +LA PRIMERA CAPITAL INVESTMENTS +0 % +$ 30,000 +$ 30,000 +AMERIDGE CORPORATION +0.1 % +11,000 +97,000 +HANRYU BANK CO.LTD +0 % +14,721,901 +— +FNS CO.LTD +0 % +250,332 +— +Due to exchange rate fluctuations +— +4,080 +(-) Allowance for credit losses +( 15,012,895 ) +— +Total short-term loans +$ 338 +$ 131,080 +* For the fiscal year ended December 31, 2024, the Company +wrote off short-term loan receivables in the amount of $ 16,179,823 , based on the fact that more than six months had passed since the +loan due dates and after assessing the recoverability of the amounts. Hanryu Bank Co. Ltd. and FNS Co. Ltd. were excluded from the consolidated +subsidiaries as of 2024 due to the sale of all their shares. +* Allowance for credit losses related to short-term loan receivables +denominated in foreign currencies was recognized. The bad debt expense presented in the statement of operations was translated using +the average exchange rate, while the allowance balance in the balance sheet was translated using the closing exchange rate. The difference +between these amounts arises from exchange rate fluctuations and does not represent an actual change in the amount of credit loss or +additional provision. +As of December 31, 2023, the balance of short-term loans changed from $ 127,000 as of December 31, 2022, to $ 131,080 due to the application +of the year-end exchange rate, reflecting an increase in the exchange rate. This change is due to exchange rate fluctuations and is not +related to any actual change in the loan amount or additional allowance for credit losses. +F- 16 +GLOBAL INTERACTIVE TECHNOLOGIES, INC. AND +SUBSIDIARIES +Notes to Consolidated Financial Statements +NOTE 4 — PREPAID EXPENSES AND +OTHER RECEIVABLES +The following table summarizes information with +regard to prepaid expenses and other receivables as of December 31, 2024 and December 31, 2023. +December 31, +2024 +December 31, +2023 +Total prepaid expenses and other receivables +$ +— +$ 748 +As of December 31, 2024, and December 31, 2023, prepaid expenses and +other receivables were $0 and $ 748 , respectively. +NOTE 5 — PROPERTY PLANT AND +EQUIPMENT +Property plant and equipment consist of the following: +December 31, +2024 +December 31, +2023 +Vehicles +$ +— +$ +126,981 +Fixtures +5,567 +6,346 +5,567 +133,327 +Less accumulated depreciation +( 2,911 +) +( 9,297 +) +Property plant and equipment, net +$ +2,656 +$ +124,030 +The total depreciation expense for the years ended +December 31, 2024, and December 31, 2023, was $ 6,352 and $ 9,183 , respectively. Depreciation expense is reflected in operating costs and +expenses in the consolidated statements of operations. In 2024, the Company sold its vehicle and recorded depreciation expense up to the +date of sale. The loss on disposal of the vehicle was $ 23,937 . Due to the disposal of subsidiaries in 2024, the Company classified property, +plant, and equipment, as well as related depreciation expense, as discontinued operations for both 2024 and 2023, and excluded them from +the presentation in the financial statements. +NOTE 6 — SOFTWARE +The Company acquired the software through two +transactions: (1) an asset transfer agreement with its former subsidiary, Hanryu Bank Co., Ltd., from which all equity interest was sold +in December 2024, and (2) the transfer of the Faning application. The acquisition cost of $ 4,940,000 was determined based on an independent +appraisal. The software is classified as an intangible asset in accordance with ASC 350 – Intangibles—Goodwill and Other, +and is being amortized on a straight-line basis over its estimated useful life of five years . Beginning in 2025, the related amortization +expense will be recognized as a non-operating expense in the consolidated statements of operations. +December 31, +2024 +December 31, +2023 +Acquisition cost +$ 4,940,000 +$ +— +Less Accumulated amortization +(— +) +(— +) +Net book value +$ 4,940,000 +$ +— +The Company regularly evaluates the recoverability +of its software assets and determined that no impairment was necessary as of December 31, 2024. +NOTE 7 – Goodwill and Impairment Loss +On December 4, 2024, the Company acquired 100 % of the equity interests +in Faning Korea, LLC and recognized goodwill in the amount of $ 94,264 . This amount represents the excess of the purchase consideration +over the fair value of the identifiable net assets acquired. +Impairment Testing and Recognition of Impairment Loss +In accordance with ASC 350, the Company performs an annual impairment test on goodwill, and interim assessments are made when there are +indicators of impairment. As of December 31, 2024, the Company determined that the goodwill had no recoverable value and concluded that +the carrying amount of the goodwill exceeded its recoverable amount. +Accordingly, the Company recognized an impairment loss on intangible +assets of $ 94,264 , which has been reflected in the consolidated statement of operations for the year ended December 31, 2024. As a result, +the carrying amount of goodwill related to Faning Korea, LLC has been fully written off, and the remaining balance is $ 0 . +F- 17 +GLOBAL INTERACTIVE TECHNOLOGIES, INC. AND +SUBSIDIARIES +Notes to Consolidated Financial Statements +NOTE 8 — LEASE +The Company uses approximately 19,200 square feet +of office space at the Seoul Marina free of charge. Although there is no formal lease agreement, the Company determined that the ASC 842 +accounting standard applies and recognized the fair value of the rent-free use of the property through May 2031 as a right-of-use (ROU) +asset, with corresponding lease expense recognized in the statement of operations. +At the time of initial acquisition from SMC in +July 2021, the Company used the following assumptions: +● Annual lease cost : 300,000,000 Korean +Won +● 10 -year present value calculation +● Assumed annual rent increase : - 4.96 % +● Interest rate : 3 % +● 10 -year Korean government bond yield : +2.11 % +● Exchange rate : 1,188.5 KRW/USD +Based on the assumptions outlined, the Company +calculated the present value of 10 years of free rent to be $ 2,775,512 and recognized it as a long-term right-of-use (ROU) asset as of +June 30, 2021. Since the space was provided free of charge, no lease liability was recognized. The ROU asset was amortized at approximately +$ 23,000 per month over the 10 -year lease term. +As the Company initially allocated $ 2,935,658 +to the SMC receivable and leasehold rights, an impairment loss of $ 158,278 was recognized on the ROU asset as of December 31, 2021. +In December 2024, the Company sold its entire +equity interest in Hanryu Bank Co., Ltd. (“HBC”), a subsidiary that held the rent-free rights to the Seoul Marina building. +However, through an asset transfer agreement between the Company and HBC, the Company acquired the rent-free rights to the Seoul Marina +building. The transfer amount was based on the net book value of the ROU asset as of the contract date and was offset against the Company’s +outstanding loan receivable. As of December 31, 2024, the carrying amount of the ROU asset was $ 1,458,780 . +Following the sale of the subsidiary in December +2024, the lease expense has been reclassified to discontinued operations and is not presented in the statements of operations for the +years ended December 31, 2024 and 2023. +NOTE 9 — SHORT-TERM LOAN PAYABLES +The following table summarizes information with +regard to short-term loan payables outstanding as of December 31, 2024 and December 31, 2023. +Interest Rate +December 31, +2024 +December 31, +2023 +Jaeman Lee, July 1, 2024 through December 23, 2024 +4.60 % +$ 255,286 +$ +— +Hangmuk Shin, July 1, 2024 through December 23, 2024 +4.60 % +94,321 +— +Mijung Oh, September 30, 2024 +0 % +5,436 +— +Changhyuk Kang, April 1, 2024 +0 % +15,000 +— +Total short-term loan payables +$ 370,043 +$ +— +The Company recognized interest expense of $ 5,962 and $ 0 for the years +ended December 31, 2024 and 2023, respectively. +As of December 31, 2024, the balance of short-term borrowings includes +amounts borrowed in Korean Won, which have been converted into U.S. dollars using the exchange rate as of December 31, 2024 (e.g., 1 USD += 1,470.00 KRW). This may result in differences due to fluctuations in the exchange rate. +F- 18 +GLOBAL INTERACTIVE TECHNOLOGIES, INC. AND +SUBSIDIARIES +Notes to Consolidated Financial Statements +NOTE 10 — SHORT-TERM LOAN PAYABLES +FROM RELATED PARTIES +The following table summarizes information regarding +short-term loan payables from related parties as of December 31, 2024 and December 31, 2023. Jaman Lee was appointed as the Company’s +President in 2024, and Hangmuk Shin is the largest shareholder of Global Interactive Technologies, Inc. +December 31, +2024 +December 31, 2023 +Jaeman Lee, July 1, 2024 through December 23, 2024 +$ 255,286 +$ +— +Hangmuk Shin, July 1, 2024 through December 23, 2024 +94,321 +— +Total +$ 349,607 +— +As of December 31, 2024, the interest rate on +the loan payables is 4.6 % per annum, and the total interest accrued amounts to $ 5,962 . There are no other financial covenants. +NOTE 11 — FAIR VALUE MEASUREMENTS +Fair value has been determined on a basis +consistent with the requirements of FASB ASC Topic 825, Financial Instruments , and the Company adopted on a prospective basis +required provisions of FASB ASC Topic 820, Fair Value Measurement. +Financial Items Measured at Fair Value on +a Recurring Basis +The carrying amounts reported in the consolidated +balance sheet for short-term financial instruments, including cash and cash equivalents, short-term loans, accounts receivable, prepaid +expenses, short-term borrowings, accrued expense and other current liabilities due to the short maturities of these instruments. +Assets and liabilities measured at fair value +on a recurring basis as of December 31, 2024 and December 31, 2023 are summarized in the table below. +December 31, 2024 +Level 1 +Level 2 +Level 3 +Total +Assets +Investments +$ +— +$ +— +$ +— +$ +— +Liabilities +Bonds with warrants +$ +— +$ +— +$ +— +$ +— +F- 19 +GLOBAL INTERACTIVE TECHNOLOGIES, INC. AND +SUBSIDIARIES +Notes to Consolidated Financial Statements +NOTE 11 — FAIR VALUE MEASUREMENTS +(cont.) +December 31, 2023 +Level 1 +Level 2 +Level 3 +Total +Assets +Investments +$ +— +$ +— +$ +— +$ +— +Liabilities +Bonds with warrants +$ +— +$ +— +$ +— +$ +— +Financial Items Measured at Fair Value on +a Nonrecurring Basis +There are no financial assets or liabilities measured +at fair value on a nonrecurring basis as of December 31, 2024 and December 31, 2023. +Nonfinancial Items Measured at Fair Value +on a Recurring Basis +There are no nonfinancial assets measured at fair +value on a recurring basis as of December 31, 2024 and December 31, 2023. +Nonfinancial Items Measured at Fair Value +on a Nonrecurring Basis +The fair value of long-lived assets is measured +whenever the carrying value of long-lived asset or asset group is not recoverable on an undiscounted cash flow basis. No impairment is +recognized for long-lived assets as of as of December 31, 2024 and December 31, 2023. +NOTE 12 — SIGNIFICANT NON-CASH TRANSACTION +The company reclassified its operations into continuing +and discontinued operations due to the sale of its subsidiary in 2024. There were no significant non-cash transactions related to continuing +operations for the years ended December 31, 2024, and December 31, 2023. +NOTE 13 — OTHER EXPENSE/INCOME +Other expense for the fiscal year ended December +31, 2024 was $( 3,895,288 ), a decrease of $ 4,049,881 , compared to the other income for the fiscal year ended December 31, 2023. This decrease +was primarily due to the recognition of a gain on the disposal of subsidiaries amounting to $ 12,400,373 and a bad debt expense of $ 16,179,823 +related to the short-term loan +NOTE 14 — OTHER +The Company believes that KDC meets the definition +of indefinite-lived intangible assets under ASC 350, as it is nonfinancial asset that lacks physical substance. Therefore, KDC was +recognized and measured at historical cost. In addition, the Company determined that KDC has an indefinite life since there is no legal, +regulatory, contractual, competitive, economic, or other factors that limit the useful life of KDC, in accordance with ASC 350-30-35-4. +F- 20 +GLOBAL INTERACTIVE TECHNOLOGIES, INC. AND +SUBSIDIARIES +Notes to Consolidated Financial Statements +NOTE 14 — OTHER (cont.) +The Company initially created KDC, a public digital +cryptocurrency separate and apart from the FANING platform, as a method of onboarding and offboarding FP to and from the FANING platform +through the Kingdom Wallet. However, on June 22, 2022, the Company entered into a Business Transfer Agreement (the “ KDC +Agreement ”) with Kingdom Coin Holdings, a corporation incorporated in the Cayman Islands (the “ KDC Foundation ”), +pursuant to which the Company transferred all of its KDC to the KDC Foundation, and no longer conducts or controls the operations, issuance, +or sales of KDC in order to substantially reduce our involvement with blockchain technologies. This shift in our business plan was undertaken +both to protect our users from potential risks associated with speculation in KDC, and because of the recent market and regulatory conditions +surrounding cryptocurrency in general. As such, the Company no longer supports or operates Kingdom Wallet, and no longer allows the conversion +of FP into KDC (and vice-versa). Neither Hanryu Holdings, nor any of its subsidiaries, have any affiliation with the KDC Foundation. +Additionally, and for the avoidance of doubt, +the control person of Plus Meta PTE Ltd., KDC Foundation’s management company, is not an affiliate, and is not in any way related +to, any officer, director, or shareholder of the Company. The KDC Foundation does not, has not, and will not coordinate any of its activities +with the Company or the Company’s operation of FANING. Further, KDC will not be marketed to FANTOO users. +Pursuant to the KDC Agreement, in exchange for +the Company transferring (a) its then-existing outstanding KDC balance of 299,651,320,620 , (b) blockchain mainnet known as the +Fandomchain, and (c) the Kingdom Wallet to the KDC Foundation, the KDC Foundation will (y) assume all obligations and liabilities +with respect to KDC and Kingdom Wallet, and (z) pay to the Company the following contingent amounts, if, at December 31, 2024: +● The KDC Foundation generates sales in excess of $ 74 million from the assets transferred from the Company, the KDC Foundation shall pay 10 % of such sales to the Company; +● The KDC Foundation generates sales in excess of $ 37 million, but less than $ 74 million, from the assets transferred from the Company, the KDC Foundation shall pay 15 % of such sales to the Company; and +● The Company will receive no consideration from the KDC Foundation if the assets transferred from the Company generates sales under $ 37 million. +For the avoidance of doubt, sales generated from +the transferred assets do not include any post-transfer newly created KDC. KDC Foundation planned to generate revenue by integrating +KDC, FandomChain, and the Kingdom Wallet into mobile games, and monetizing such games. Due to current cryptocurrency-related market conditions, +the Company does not expect to receive any payments from KDC Foundation through December 31, 2024 in accordance with the terms of +the Business Transfer Agreement. +The KDC agreement included contingent earn-out +consideration, the fair value of which was estimated on June 22, 2022, as the present value of the expected future contingent receivables +which the Company determined using a probability-weighted discounted cash flow model for probabilities of possible future receivables. +The Company determined the fair value of contingent consideration as zero on June 22, 2022. Contingent consideration is remeasured +to fair value at each reporting date until the contingency is resolved, with changes in fair value recognized in profit or loss in most +circumstances. The Company recorded zero value of the contingent consideration on the accompanying consolidated balance sheets as of December 31, +2024. +The Company believes that the transfer of KDC +meets the definition of a “Component of an Entity” under FASB ASC Topic 205-20, Discontinued Operations , and as +such can be disposed of by a means other than sale. The divestiture of KDC and its associated operations does not represent a strategic +shift, nor has (and will not have), a major effect on the Company’s operations and financial results because the blockchain/KDC +operations did not represent: +● 15 % of the Company’s total revenue; +● Geographical area that represents 20 % of the Company’s total assets; or +● 30 % of the Company’s historic net income and 15 % of the current period’s income. +The Company did not present the divestiture of +its holdings of KDC and KDC-related activity as discontinued operations because there was no revenue, asset value, or net income from +the divestiture of KDC and the related operations. +F- 21 +GLOBAL INTERACTIVE TECHNOLOGIES, INC AND +SUBSIDIARIES +Notes to Consolidated Financial Statements +NOTE 15 — SHARE CAPITAL +As of December 31, 2024, and December 31, +2023, Global Interactive Technologies’ total authorized capital stock is 110,000,000 shares, consisting of 100,000,000 shares of +Common Stock, par value $ 0.001 per share, and 10,000,000 shares of undesignated preferred stock, par value $ 0.001 per share. +On January 4, 2023, through March 8, +2023, warrants of $ 1,813,120 were exercised with an exercise price of $ 1.27 to purchase 1,427,653 shares of Common Stock by cash of $ 1,420,144 +and debt conversion of $ 392,776 . +In February and March of 2023, the Company closed +two private placements solely to accredited investors (as defined by Rule 501(a) of Regulation D of the Securities Act) +pursuant to which the Company sold an aggregate amount of 240,000 shares of common stock for $ 10.00 per share, resulting in gross proceeds +of $ 2,400,000 . The purchase price of the common stock purchased in the private placements is subject to adjustment to the price of the +common stock sold in the Company’s IPO, such that additional common stock shall be issued to the purchasers if the price of common +stock sold in the IPO is less than $ 10.00 per share, or the purchasers shall return common stock to the Company if the price of the common +stock sold in the IPO is greater than $ 10.00 per share, in each case resulting in the purchasers purchasing an aggregate amount of $ 2,400,000 +of Company common stock at the IPO price. The offerings were exempt from registration under Section 4(a)(2) of the Securities +Act. The subscription agreements pursuant to which the common stock was sold to accredited investors contain customary representations +and warranties of the Company and the investors and customary indemnification rights and obligations of the parties. +On March 24, 2023, warrants of $ 8,400 were +exercised with an exercise price of $ 0.42 to purchase 20,000 shares of Common Stock by cash. +On April 13, 2023, warrants of $ 420,000 were +exercised with an exercise price of $ 0.42 to purchase 1,000,000 shares of Common stock by cash. +On May 4, 2023, thorough May 8, 2023, warrants +of $ 3,894,666 were exercised with an exercise price of $ 1.27 to purchase 3,066,666 shares of Common stock by cash. +On May 31, 2023, the Company completed a +private placement to solely to an accredited investor (as defined by Rule 501(a) of Regulation D of the Securities Act) +pursuant to which the Company sold an aggregate amount of 760,000 shares of common stock for $ 10.00 per share, resulting in gross proceeds +of $ 7,600,000 . +On July 31 2023, the Company consummated its initial +public offering (the “IPO”) of 877,328 shares of Comon stock at a public offering price of $ 10.00 per share, generating gross +proceeds of $ 8,773,280 . Net proceeds from the IPO was approximately $ 7.7 million after deducting underwriting discounts and commissions +and other offering expenses of approximately $ 1.1 million. +The Company also granted the underwriters a 45-day +option to purchase up to 131,599 additional shares (equal to 15 % of the shares of Common stock sold in the IPO) to cover over-allotments, +if any, which the underwriters did not exercise. In addition, the Company issued to the representative of the underwriters warrants to +purchase a number of shares of Common stock equal to 5.0 % of the aggregate number of Common stocks sold in the IPO (including shares of +Common stock sold upon exercise of the over-allotment option). The representative’s warrants will be exercisable at any time and +from time to time, in whole or in part, during the four-and-½-year period commencing six months from the date of commencement of +the sales of the shares of Common stock in connection with the IPO, at an initial exercise price per share of $ 10.00 (equal to 125 % of +the initial public offering price per share of class A common stock). No representative’s warrants have been exercised. +As a result, the total number of issued and outstanding +shares of Common Stock issued increased from 45,416,942 to 52,808,589 . Each holder of Common Stock is entitled to one vote per share at +all meetings of stockholders. +On January 27, 2025, the Company effected a 1-for-20 +reverse stock split of its issued and outstanding Common Stock. As a result, every 20 shares of Common Stock were combined into one share, +reducing the total number of issued and outstanding shares from 52,808,589 to 2,640,429 . The par value per share was changed from $ 0.001 +to $ 0.02 . +All share and per-share amounts in the accompanying +consolidated financial statements and related notes have been retroactively adjusted to reflect the reverse stock split for all periods +presented. +F- 22 +GLOBAL INTERACTIVE TECHNOLOGIES, +INC. AND SUBSIDIARIES +Notes to Consolidated Financial Statements +NOTE 16 — COMMITMENTS AND CONTINGENCIES +Legal Matters +As of December 31, 2024, the Company is not subject +to any material pending legal proceedings or claims. Previously disclosed legal matters were related to subsidiaries that have since been +divested and no longer impact the Company’s operations or financial position. +NOTE 17 — RELATED PARTY +TRANSACTIONS +The company conducts transactions with related +parties under standard commercial terms and follows appropriate procedures to protect the company’s interests. Below are the related party +transaction details as of December 31, 2024, and December 31, 2023. +December 31, +2024 +December 31, +2023 +Jaeman Lee, July 1, 2024 through December 23, 2024 +$ 255,286 +$ +— +Hangmuk Shin, July 1, 2024 through December 23, 2024 +$ 94,321 +— +Total +$ 349,607 +— +(President) +- On July 1, 2024, the Company entered into a +short-term loan agreement with President Jaman Lee at an annual interest rate of 4.6 %. The principal amount of the loan was KRW 100,000,000 +(USD 68,027 ), and the maturity date is June 30, 2025 . The principal and interest will be repaid at maturity. +- On July 8, 2024, the Company entered into a +short-term loan agreement with President Jaman Lee at an annual interest rate of 4.6 %. The principal amount of the loan was KRW 50,000,000 +(USD 34,014 ), and the maturity date is July 7, 2025 . The principal and interest will be repaid at maturity. +- On September 23, 2024, the Company entered into +a short-term loan agreement with President Jaman Lee at an annual interest rate of 4.6 %. The principal amount of the loan was KRW 1,015,000 +(USD 691 ), and the maturity date is September 22, 2025 . The principal and interest will be repaid at maturity. +- On September 27, 2024, the Company entered into +a short-term loan agreement with President Jaman Lee at an annual interest rate of 4.6 %. The principal amount of the loan was KRW 100,000,000 +(USD 68,027 ), and the maturity date is September 26, 2025 . The principal and interest will be repaid at maturity. +- On October 14, 2024, the Company entered into +a short-term loan agreement with President Jaman Lee at an annual interest rate of 4.6 %. The principal amount of the loan was KRW 50,000,000 +(USD 34,014 ), and the maturity date is October 13, 2025 . The principal and interest will be repaid at maturity. +- On October 25, 2024, the Company entered into +a short-term loan agreement with President Jaman Lee at an annual interest rate of 4.6 %. The principal amount of the loan was KRW 4,026,400 +(USD 2,739 ), and the maturity date is October 24, 2025 . The principal and interest will be repaid at maturity. +- On October 29, 2024, the Company entered into +a short-term loan agreement with President Jaman Lee at an annual interest rate of 4.6 %. The principal amount of the loan was KRW 5,500,000 +(USD 3,742 ), and the maturity date is October 28, 2025 . The principal and interest will be repaid at maturity. +- On November 13, 2024, the Company entered into +a short-term loan agreement with President Jaman Lee at a 0 % annual interest rate. The principal amount of the loan was KRW 19,655,025 +(USD 13,371 ), and the maturity date is November 12, 2025 . The principal will be repaid at maturity. +- On November 20, 2024, the Company entered into +a short-term loan agreement with President Jaman Lee at an annual interest rate of 4.6 %. The principal amount of the loan was KRW 5,000,000 +(USD 3,401 ), and the maturity date is November 19, 2025 . The principal and interest will be repaid at maturity. +F- 23 +GLOBAL INTERACTIVE TECHNOLOGIES, +INC. AND SUBSIDIARIES +Notes to Consolidated Financial Statements +NOTE 17 — RELATED PARTY TRANSACTIONS +(Cont.) +- On November 26, 2024, the Company entered into +a short-term loan agreement with President Jaman Lee at an annual interest rate of 4.6 %. The principal amount of the loan was KRW 73,800 +(USD 50 ), and the maturity date is November 25, 2025 . The principal and interest will be repaid at maturity. +- On December 4, 2024, the Company entered into +a short-term loan agreement with President Jaman Lee at a 0 % annual interest rate. The principal amount of the loan was KRW 1,000,000 +(USD 680 ), and the maturity date is December 3, 2025 . The principal will be repaid at maturity. +- On December 20, 2024, the Company entered into +a short-term loan agreement with President Jaman Lee at an annual interest rate of 4.6 %. The principal amount of the loan was KRW 19,000,000 +(USD 12,925 ), and the maturity date is December 19, 2025 . The principal and interest will be repaid at maturity. +- On December 23, 2024, the Company entered into +a short-term loan agreement with President Jaman Lee at an annual interest rate of 4.6 %. The principal amount of the loan was KRW 20,000,000 +(USD 13,605 ), and the maturity date is December 22, 2025 . The principal and interest will be repaid at maturity. +Hangmuk Shin(Global Interactive Technologies’s +Largest Shareholder) +- On July 1, 2024, the Company entered into a +short-term borrowing agreement with its largest shareholder, Hangmuk Shin, at an interest rate of 4.6 %. The principal amount of the loan +was KRW 110,000,000 (USD $ 74,830 ), and the maturity date is June 30, 2025 . The principal and interest will be repaid at maturity. +- On July 2, 2024, the Company repaid KRW 1,000,000 +(USD $ 680 ) of the loan to Hangmuk Shin. +- On July 5, 2024, the Company entered into another +short-term borrowing agreement with Hangmuk Shin at an interest rate of 4.6 %. The principal amount was KRW 300,000 (USD $ 204 ), and the +maturity date is July 4, 2025 . The principal and interest will be repaid at maturity. +- On September 13, 2024, the Company entered into +a short-term borrowing agreement with Hangmuk Shin at an interest rate of 4.6 %. The principal amount was KRW 10,000 (USD $ 7 ), and the +maturity date is September 12, 2025 . The principal and interest will be repaid at maturity. +- On October 14, 2024, the Company entered into +a short-term borrowing agreement with Hangmuk Shin at an interest rate of 4.6 %. The principal amount was KRW 30,000,000 (USD $ 20,408 ), +and the maturity date is October 13, 2025 . The principal and interest will be repaid at maturity. +- On October 29, 2024, the Company repaid KRW +3,000,000 (USD $ 2,041 ) of the loan to Hangmuk Shin. +- On October 31, 2024, the Company entered into +a short-term borrowing agreement with Hangmuk Shin at an interest rate of 4.6 %. The principal amount was KRW 1,000,000 (USD $ 680 ), and +the maturity date is October 30, 2025 . The principal and interest will be repaid at maturity. +- On November 2, 2024, the Company entered into +a short-term borrowing agreement with Hangmuk Shin at an interest rate of 4.6 %. The principal amount was KRW 50,000 (USD $ 34 ), and the +maturity date is November 1, 2025 . The principal and interest will be repaid at maturity. +- On November 22, 2024, the Company entered into +a short-term borrowing agreement with Hangmuk Shin at an interest rate of 4.6 %. The principal amount was KRW 150,000 (USD $ 102 ), and the +maturity date is November 21, 2025 . The principal and interest will be repaid at maturity. +- On December 13, 2024, the Company entered into +a short-term borrowing agreement with Hangmuk Shin at an interest rate of 4.6 %. The principal amount was KRW 500,500 (USD $ 340 ), and the +maturity date is December 12, 2025 . The principal and interest will be repaid at maturity. +- On December 17, 2024, the Company entered into +a short-term borrowing agreement with Hangmuk Shin at an interest rate of 4.6 %. The principal amount was KRW 658,000 (USD $ 448 ), and the +maturity date is December 16, 2025 . The principal and interest will be repaid at maturity. +- On December 23, 2024, the Company repaid KRW +16,763 (USD $ 11 ) of the loan to Hangmuk Shin. +Aram Ahn(Director) +On June 26, 2024, the Company entered into a short-term +borrowing agreement with outside director Aram Ahn at an interest rate of 0 %, and the loan amount of $ 400 was repaid on September 27, +2024. +F- 24 +GLOBAL INTERACTIVE TECHNOLOGIES, INC. AND +SUBSIDIARIES +Notes to Consolidated Financial Statements +NOTE 18 — DISPOSAL OF SUBSIDIARIES +AND DISCONTINUED OPERATIONS +Hanryu Bank Co. Ltd (“HBC”) sold 100 % +of its shares in FNS Co. Ltd for $ 733 and Marin Island Co. Ltd for $ 367 on November 5, 2024, to improve its financial structure. Additionally, +Global Interactive Technologies, Inc. (“the Company”) sold 100 % of its shares in Hanryu Bank Co. Ltd (“HBC”) for $ 2,200 +on December 28, 2024. From the date of these sales, the three subsidiaries are no longer included in the consolidated financial statements +and are classified as discontinued operations. A gain of $ 18,832,006 was recognized from the disposal of the shares in these three subsidiaries. +The following table outlines the calculation of +the gain on disposal related to the sale of the subsidiaries on November 5, 2024, and December 28, 2024. +As of December 28, +2024 +Consideration received (sale price) +$ 3,300 +The carrying amount of any noncontrolling interest +— +Net liabilities +11,502,964 +foreign exchange difference +894,109 +Gain on disposal of subsidiaries +$ 12,400,373 +1. In connection with the deconsolidation of Hanryu +Bank Co.Ltd in 2024, the Company reclassified $ 7,164,430 of Additional Paid-in Capital to Accumulated Deficit, in accordance with ASC +810-10-40. This amount was arouse from group restructuring of the same subsidiary’s equity at the consolidated level, resulting from differences +between the subsidiary’s equity structure and the consolidated equity accounts. The reclassification is reflected in the Consolidated +Statement of Stockholders’ Equity for the year ended December 31, 2024. +2. The gain or loss on the disposal of investments +in subsidiaries was calculated based on the difference between the consideration received and the net assets of the subsidiaries. In this +process, the net assets of the subsidiaries were translated using the exchange rate as of December 31, 2024, while the gain or loss on +disposal was calculated using the average exchange rate for the year 2024. As a result, a foreign exchange difference arose due to the +use of different exchange rates. This difference was not recognized separately as a foreign exchange gain or loss, but was included in +the gain or loss on disposal. +F- 25 +GLOBAL INTERACTIVE TECHNOLOGIES, +INC. AND SUBSIDIARIES +Notes to Consolidated Financial Statements +The financials of the three companies for the years ended December 31, 2024 and December 31, 2023 are as follows. +December 31, +2024 +December 31, +2023 +CURRENT ASSETS: +$ 39,653,805 +$ 17,415,555 +Cash and Cash Equivalents +1,408 +5,358,142 +Short-term loans +26,550,250 +3,658,820 +Accounts receivable, net of allowance +5,971,432 +324,413 +Non-trade receivables +24,320 +171,893 +Prepaid expenses and other receivables +7,106,395 +7,902,287 +PROPERTY PLANTAND EQUIPMENT, NET +247,188 +505,155 +Operating lease right-of-use asset +— +1,918,966 +Other Asset +216,258 +379,735 +Total Assets +$ 40,117,251 +$ 20,219,411 +CURRENT LIABILITIES: +$ 51,620,215 +$ +— +Short-term borrowings +40,248,754 +1,589,887 +Non-trade accounts payable +8,211,344 +2,312,669 +Bonds with Warrants +3,061,224 +3,489,995 +Accrued expenses and other current liabilities +98,893 +83,940 +Total Liabilities +$ 51,620,215 +$ 7,476,491 +Total Stockholder’s Equity (Deficiency) +$ ( 11,502,964 ) +$ 12,742,920 +December 31, +2024 +December 31, +2023 +Sales +196 +827,489 +Cost of Revenue +— +79,097 +Gross profit (Loss) +$ 196 +$ 748,392 +OPERATING EXPENSES: +1,489,006 +10,483,401 +OPERATING LOSS +( 1,488,810 ) +( 9,735,009 ) +OTHER INCOME(EXPENSE): +100,492 +( 2,178,706 ) +Net loss before taxes +( 1,338,318 ) +( 7,556,303 ) +Income tax expense +— +— +NET INCOME(LOSS) +$ ( 1,338,318 ) +$ ( 7,556,303 ) +NOTE 19 — SUBSEQUENT EVENTS +The Company has evaluated subsequent events through the date of this +filing and determined that the following events occurred after December 31, 2024 and prior to the issuance of these financial statements: +1. In February 2025, the Company entered into a debt conversion agreement to convert $ 210,000 of outstanding debt into shares of common +stock. +2. The Company entered into an additional short-term borrowing agreement of $ 86,666 in the first quarter +of 2025 to support working capital needs. +F- 26 +EXHIBIT INDEX +3.1 +Amended and Restated Certificate of Incorporation of Registrant +3.2 +Bylaws of Registrant +4.1 +Form of Common Stock Certificate +4.3 +Description of Registrant’s Securities +10.1 +Form of IPO Lock-Up Agreement +10.2 +Hanryu Holdings, Inc 2022 Omnibus Equity Incentive Plan +10.3 +Employment Agreement by and between Taehoon Kim and Hanryu Holdings,Inc, dated April 1, 2024 +10.4 +Employment Agreement by and between Juhyon Shin and Hanryu Holdings,Inc, dated April 1, 2024 +10.5 +Employment Agreement by and between David Gregg and Hanryu Holdings,Inc. dated April 1, 2023 +10.6 +Business Transfer Agreement, dated June 22, 2022, by and between Hanryu Bank Co., Ltd., and Kingdom Coin Holdings, a corporation incorporated in the Cayman Islands +10.7 +Hanryu Holdings, Inc. Subscription Agreement +16.1 +Letter from BF Borgers, CPA, PC dated October 25, 2023 +21.1 +Subsidiaries of Registrant +31.1 +Certification of Taehoon Kim pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 +31.2 +Certification of Ju-hyon Shin pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 +32.1 +Certification of Taehoon Kim pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 +32.2 +Certification of Ju-hyon Shin pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 +97.1 +Clawback Policy +101.INS +Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. +101.SCH +Inline XBRL Taxonomy Extension Schema Document. +101.CAL +Inline XBRL Taxonomy Extension Calculation Linkbase Document. +101.DEF +Inline XBRL Taxonomy Extension Definition Linkbase Document. +101.LAB +Inline XBRL Taxonomy Extension Label Linkbase Document. +101.PRE +Inline XBRL Taxonomy Extension Presentation Linkbase Document. +104 +Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. +67 +SIGNATURES +Pursuant to the requirements +of Section 13 or 15(d) of the Securities Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, +thereunto duly authorized. +April 29, 2025 +Global Interactive Technologies, Inc +By: +/s/ Taehoon Kim +Name: +Taehoon Kim +Title: +Interim Chief Executive Officer +(Principal Executive Officer) +Pursuant to the requirements +of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in +the capacities and on the dates indicated. +Signature +Title +Date +/s/ Taehoon Kim +Interim Chief Executive Officer +April 29, 2025 +(Principal Executive Officer) +/s/ Ju-Hyon Shin +Chief Financial Officer +April 29, 2025 +(Principal Accounting Officer) +/s/ John. 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Business. +Overview +Global Interactive Technologies, Inc. (the “Company”), +a Delaware corporation formerly known as Hanryu Holdings, Inc., is a technology-driven platform company connecting global fans of Korean +culture through innovative digital experiences. The Company operates Faning, a comprehensive interactive platform designed to facilitate +content discovery, monetization, user-generated content, and deep community engagement among global fandom communities. The Company focuses +on leveraging technology to expand Korean culture (Hallyu) beyond traditional K-Pop, spanning digital media, entertainment, and interactive +platform services. +The Company is a corporation that was incorporated in the state of +Delaware on October 20, 2021, as Hanryu Holdings, Inc. On December 5, 2024, the Company formally changed its name from Hanryu Holdings, +Inc. to Global Interactive Technologies, Inc. pursuant to an amendment to its Certificate of Incorporation filed with the Secretary of +State of Delaware. In connection with the name change, the Company also changed its Nasdaq ticker symbol from HRYU to GITS. +Corporate Structure and Subsidiaries +As of December 31, 2024, the Company’s primary operating subsidiary +is Faning Korea, LLC, a wholly-owned subsidiary based in Seoul, Republic of Korea. Faning Korea oversees the development, maintenance, +and operation of the Faning application and related web services. +Throughout 2024, the Company restructured its subsidiaries, including +the divestiture of Hanryu Bank on December 28, 2024, and FNS and Marine Island on November 5, 2024. Faning Korea, LLC was acquired on +December 4, 2024. These changes were not deemed material and, therefore, were not separately reported on Form 8-K. +IPO and Nasdaq Listing +On July 31, 2023, the Company successfully completed its IPO on Nasdaq, +raising approximately $8.77 million through issuing 877,328 shares of Class A common stock at $10 per share. The Company’s stock +initially traded under the symbol ‘HRYU,’ changing subsequently to ‘GITS’ following the name change. +Strategic Developments +On February 26, 2024, the Company’s Board of Directors terminated +the employment of Changhuyk Kang as Chief Executive Officer for cause. On the same day, the Board appointed Mr. Taehoon Kim, the Company’s +Chief Technology Officer and Vice President, as Interim Chief Executive Officer, effective immediately. +FANING ( successor to the Fantoo platform ) +FANING has become a globally recognized platform +for providing an amazing and active community among people that have an interest in K-POP and modern Korean culture. The multifaceted +nature of the Company’s operations has solidified the business’ reputation as one of the preeminent platforms for fandom. +FANING’s users are able to seamlessly interact with each other to discuss exciting K-POP topics. +1 +FANING allows fans to interact within their fandoms and discuss +these interests, create and share content, and interact through a number of channels, including (i) secure, direct messaging, (ii) open +social pages, and (iii) virtual spaces (“ FANING Clubs ” or “ Clubs ”). FANING Clubs concentrate +on a specific topic, allowing moderators to control the Club functions, and the Club members to aggregate their FP rewards. Integrated +within each FANING Club is a “Club Vault,” a service provided by FANING that allows the individual members of a Club to donate +their personal FP to an account held by the Club. The Club Vault allows the Club’s members to aggregate their FP and increase their +purchasing power. This increase in purchasing power allows the Club’s individual users to more rapidly accumulate FP and pool their +rewards with other users, in order to purchase services such as fan events or the ability to live stream a concert from their favorite +band. Decisions regarding the use of the accumulated FP within the Club Vault are determined by a vote of the Club members. +Our users are the core of our business. We provide +our users with customized experiences, including unique interactions within the FANING community. FANING algorithms curate individual +user experiences, recommending content, clubs to join, users to connect with, and enabling users to subscribe to keywords and access automatic +content geared toward their interests. Through these services, FANING provides the fandom community a way to stay connected and up to +date with their fandom communities. +FANING further offers each user the ability to +freely create, upload, and monetize their own content by earning in-platform rewards of FP. FANING removes language barriers, providing +live chat ability between users worldwide, and global access to platform content, as the FANING platform supports automatic, real-time +translation services for 17 languages. FANING also offers a fast, secure, and easy-to-use commerce and user-to-user transaction system. +These unique features will allow FANING to generate user loyalty, maintain user interest in the platform, and attract new users. +For growth, we intend to develop short content +(two minutes) that will focus on interesting pop music and cultural topics. These videos will be distributed through FANING while concurrently +being shown on third party social media platforms and video sharing websites. This new aspect of growth is important for a few reasons. +First, it will further enhance the strength of the FANING community by fostering a greater degree of engagement. Second, it will allow +for greater visibility for K-POP on a global basis. Management will continue to expand this aspect of operations through the life of the +business. +2 +THE FANING ECOSYSTEM +We designed FANING as an ecosystem that is easy +for users to adapt and use all features throughout the platform, and for us to develop and roll-out new technologies and functionality. +FANING’s launch included a rollout of our messenger, community and club technologies, along with our reward system for users, as +described below. Since FANING’s launch in May 2021, the FANING platform has attracted more than 26.6 million users, as +of December 31, 2024, from the regions in the chart below: +The main age groups that compose our use base +are the 20-29-year age group, and 30-39-year age group, as set forth in the chart below: +The combined age groups of 20-39 years +have the highest purchasing power among commercial and entertainment industries, and accounts for more than 80% of all FANING users, with +a median age of 27 years old. FANING available to individuals 12 years and older and has an age restriction set that will not allow +users under the age of 12 to sign up. +3 +User Reward System +The reward system is the basis of FANING ecosystem. +Users earn FP based on: (i) the level of each user’s activity within the FANING platform; and (ii) the revenue we derive +from FANING’s advertising sales. At midnight of each day, all advertising revenue for that day is accumulated, and 50% +of that day’s total net advertising profits are distributed as FP to users, based upon their level of contribution within the +FANING platform. From the 50% of profits that are distributed to users as FP, approximately 30% of the distribution of rewards will go +to users who are content creators, and the remaining 20% will be issued to general users who participate on the platform. For the +purposes of calculating advertising profits allocated for user rewards, the amount of FP issued will be exchanged at a ratio of one FP +for every 100 Korean Won. For the avoidance of doubt, the issuance of FP from advertising revenue is limited to advertising revenue generated +within the FANING platform, and the Company may earn revenue from advertising outside of the FANING platform that would not result in +the issuance of FP. +Faning Point ( “ FP ” ) +FP is a measurement of reward points within the +FANING platform. Accruing FP allows users to redeem FP for a wide variety of products and services within FANING, including content from +other users and artists available on FANING, K-Culture merchandise, and more. FP will be stored and quantified as rewards point within +the FANTOO platform under the in-platform reward system structure that consists of (i) the Company’s FP reserve account, (ii) the +Company’s active account for collected advertising revenue which was converted into FP and ready to distribute to users based on +user contributions to the FANING platform, (iii) the Company’s recycled FP account, which stores FP after being spent by users +to make purchases within the application, and (iv) each user’s individual account stores. The value of FP is set at a fixed +ratio of 1:100 FP to Korean Won. The Company does not intend to repurchase FP from users now or in the future. FP does not expire, and +FP that is not redeemed by a user will accumulate in such user’s account unless and until such user deactivates their account, at +which time such FP will be forfeited and moved to the Company’s reserve account for redistribution. +FP Storage and Security +FP are stored and managed through a database that +is separate and apart from other databases used to store and manage other FANING app data. The separate FP database is operated to ensure +maximum data confidentiality by minimizing access to the database and limiting the number of individuals who are able to access such database. +Access to the database is limited to permitted IP bands, and the backup function of the cloud service used to store data can be restored +within a few hours in the event of a disaster recovery event such as a server failure. +4 +User-to-User Interactions +We developed FANING to include numerous opportunities +for our users to engage with the platform, including clubs, community forums, chat functions, and functionality to create user-generated +content, each of which are intended to build the FANING brand and deepen the loyalty of our users. +FANING Clubs +FANING Clubs are user-created based upon areas +of interest in order to link users across the globe and create friendships. Users have the ability to create clubs based upon topics of +their own choosing, such as favorite artists, television series, movies, video games, sports, and more. A club can be customized by its +moderator according to various policies and preferences to cultivate a close group of users based upon a shared culture. Integrated within +each FANING Club is a “Club Vault,” a service provided by FANING that allows the individual members of a Club to donate their +personal FP to an account held by the Club. The Club Vault allows the Club’s members to aggregate their FP and increase their purchasing +power. This increase in purchasing power allows the Club’s users to more rapidly accumulate FP and pool their rewards, in order +to purchase services such as fan events or the ability to live stream a concert from their favorite band. Decisions regarding the +use of accumulated FP within the Club Vault are determined by a vote of the Club members. +FANING Communities +FANING communities are open forums where user-generated +content is socially promoted and curated by FANING users. Once user requests for a community based around a certain topic exceed a pre-determined +threshold, the FANING platform will create such a community based upon the users submitting the requests. +FANING Chats +Real-time multilingual translation capability, +currently offered in 17 languages, allows both private messages and open chats via the FANING chats function without language barriers. +Messages and chats are protected utilizing end-to-end encryption to prevent leakage of personal information. End-to-end encryption is +a system of secured communication to prevent third parties from accessing chat messages, increasing the level of security. +Content +User-Created Content. Core to our business +is moving into a user-based content creation model that allows users varying ways to create and sell fandom content to other FANING users, +including the content types described below: +● +Fanart is artwork created by fans relating to artists, movies, and dramas they like. +● +Web Novels are user written novels, uploaded by users to the FANING platform. Readers can make comments at very specific areas within the novel. Novels can be viewed in the language of each user’s choice. If the desired language is not available, users can request or suggest the corresponding language translation. Through the process of “translation matching”, writers can search for translators while translators can ask writers for permissions to obtain the right to translate their stories. Once the writer and translator approve and consent, these translated stories can be sold to users. Any profit will be distributed automatically by FANING based on their prior agreement. +● +Webtoons are user-created digital comics, uploaded by users to the FANING platform. Users can also buy and sell user-translated copies of these webtoons through the “translation matching” services referenced above, allowing users across the globe to enjoy their favorite webtoons in their own language. +● +User-generated content also includes any other content created and sold by FANING users, such as the FANING shop offerings described below. +5 +Company-Created Content. FANING original content. +The Company also creates and distributes its own content. Content is distributed within the FANING platform both for free and for sale +for premium content. The Company currently has 12 key employees broken up into a number of content-creating teams that cast entertainers +for creating original video content, primarily uploaded on FANING TV within the FANING platform. As the business grows, the Company intends +to hire more employees and produce high-quality content that engages the users into the FANING platform. In addition to the content types +similar to the categories listed above for user-generated content, FANING original content also includes: +● +FANING original shows and web series are shows and web series produced by FANING. This original content is exclusively available on the FANING platform. From time-to-time, we may sell such content for distribution on other third-party channels and platforms. +● +Concerts are hosted by FANING for its users across numerous musical genres, from Korean pop to independent music, in venues of all sizes, from stadiums to small stages. Users that cannot attend these concerts in person can access these concerts on FANING via our online streaming service, and tickets can be purchased, using FP or cash, in the FANING Shop, also known as the “Fanshop.” +Third Party Content. Third party content +includes content from trusted third-party media companies. Third party content can be uploaded to FANING pursuant to certain agreements +between the Company and third-party providers. These articles and videos are provided in real time, with automatic translation support +in 17 languages. +FANING Fanshop +The FANING Fanshop is the e-commerce service provided +through the FANING platform to its users. Through the Fanshop, users can purchase various items directly from FANING, such as gifts for +artists, pre-paid cards, concert tickets, and other fandom goods using FP or cash. To the extent that items are purchased by the Company +to sell within the FANING Fanshop, the Company uses cash to purchase the products and then lists the items in the Fanshop. The Fanshop +will also offer a video commerce service, intended to be an online version of traditional home shopping networks on cable television. +For example, users can purchase items relating to their favorite K-pop artist, such as the artist’s latest album, at the same time +such user is streaming the artist’s live event. +Within the Fanshop, FANING users can also participate +in user-to-user transactions, such as selling or purchasing the following: +● +Emojis used within chats on the FANING platform. Users have the ability to create emojis and register them in the Fanshop to generate sales by selling them to other users, generating FP in such transactions. +● +Augmented reality ( “ AR ” ) filters used in videos within the FANING platform . Users have the ability to create and sell registered AR filters within the Fanshop to other users. +● +Digital stickers used within the FANING platform. Users have the ability to create and sell registered digital stickers within the Fanshop to other users. +6 +For both user-to-user transactions and transactions with +the Company, payment can be made either by credit card through a secure, third-party payment system built into the FANING platform, or +by settling the total with the use of FP. Sales settled in FP will be charged a transaction fee based upon the specific item sold, +ranging between 7% to 15% of the sale price. For user-to-user transactions, the selling user receives the proceeds upon the purchaser’s +confirmation of receipt of the good sold. +If the item sold in the user-to-user transaction +requires shipping, the Company intends on partnering with providers such as Qxpress to provide shipping services for which the fee will +be bundled into the total transaction cost. Alternatively, users can ship the item directly using another third-party shipping service. +Also, the Company set up international logistic +service for FANING with partners called the Epic eCommerce platform. We believe the operations of the Epic eCommerce platform will catapult +the income of Global interactive technologies. This is state -of-the-art eCommerce marketplace will allow for substantial revenues to +be produced by facilitating sales among companies that want to provide their inventories to the FANING user base. The platform will provide +a complete end-to-end sales and logistics solution for enrolled users. +This new business unit will integrate a full ordering +management system (“OMS”), cross border shipping management tools, and seller shipping tools. It has the potential to reach +an immense audience, on a global basis, among companies and independent entre preneurs that are seeking to target younger demographics +with their products. The benefits of using this system include: +● +Sell globally with one origin +● +Duty-free for eCommerce orders +● +Provide guidelines for eCommerce customs clearance +● +Various shipping options to choose and create last-mile labels from our system +● +Fast international shipping and reduced costs +● +Provide local fulfillment services to various countries +● +Customs clearance status +● +Shipment tracking system +7 +The key markets that Management will target for +Epic’s operations include: +● +South Korea +● +Hong Kong +● +Japan +● +Malaysia +● +Singapore +● +Thailand +● +Indonesia +● +Taiwan +Our Opportunity +With the continued global expansion of the Korean Wave (Hallyu), K-Culture +has become a dominant cultural force, shaping trends in entertainment, media, fashion, and consumer behavior across the world. According +to the Korea Foundation ’ s 2023 Global Hallyu Trends Report , the global K-Culture fan base reached approximately 229 +million fans across 119 countries , up from 156.6 million in 2021 — a nearly 50% increase in just two years. +As of the most recent data: +● China remains the country with the largest number of K-Culture fans, totaling 86.32 million , followed by: +◦ The United States : 27.17 million +◦ Thailand : 17.37 million +◦ Indonesia : 16.36 million +◦ Japan : 7.9 million +◦ Vietnam : 6.1 million +◦ Mexico : 5.5 million +◦ India : 5.2 million +◦ Philippines : 4.8 million +◦ Brazil : 4.6 million +Due to regulatory concerns related to data privacy and national policy +within China, the Company does not operate or provide services in China, Hong Kong, or Macau. For further details, refer to “Risk +Factors — Our decision not to provide products and services and to restrict user access in China (including Hong Kong and Macau) +will limit our total addressable market and may limit our ability to grow our business…” +In parallel with this cultural momentum, K-Culture ’ s +global purchasing power was estimated at $147.3 billion as of 2023, according to the Korea Creative Content Agency (KOCCA) . +Despite economic pressures and the lingering effects of the COVID-19 pandemic, Korean content exports continue to rise, contributing billions +annually to South Korea’s GDP and influencing global consumer trends. +The proliferation of mobile and digital access is a major accelerator. +As of 2023, more than 5.6 billion people globally use mobile phones , with more than 60% of the global population active +on social media platforms. Studies by KOFICE and KMFA show that mobile-first access is now the dominant channel for engaging +with K-Culture content, whether through music streaming, webtoons, fandom communities, or virtual events. +We believe FANING is uniquely positioned to capture this growing demand. +The platform’s real-time engagement tools, multilingual UX (supporting 17 languages), monetization mechanisms, and mobile/PC accessibility +align closely with how K-Culture is consumed and celebrated worldwide. +The rise of virtual concerts and online fan events has further +opened the market. For example, BTS’s virtual concert Bang Bang Con: The Live set a Guinness World Record with 756,000 +concurrent viewers from 107 countries . According to Grand View Research , the global virtual events market was +valued at approximately $114.1 billion in 2023 and is projected to reach $657.6 billion by 2030 , growing at a CAGR of 21.4%. +8 +With its integrated reward system, partnerships +across the Korean entertainment industry, and rapidly growing user base, the FANING platform is strategically positioned to become a leading +player in the digital K-Culture experience economy. +OUR VALUE +We focus on providing user-centric services to +provide a single platform that can address and satisfy the interests of fans within FANING. FANING will enrich users fandom experience +by providing an all-in-one platform for fandom content, including news, popular culture, discussions, live shows, and fan creativity. +FANING is currently available in 17 languages, with real-time translation services. These real time translation services enable our users +to communicate with each other across the globe without language barriers. For languages that are not available for real-time translation, +FANING provides a solution through the use of translation matching services among users. Through the translation matching services, FANING +ensures that content is accurately translated and available to a greater number of global fans in their own languages. In addition, FANING +further allows users to freely create and monetize their own content, enabling fast and secure user-to-user sales. +Within FANING, our reward system ensures users +are rewarded with FP for staying active and creative within the platform, as well as attracting new users. The more FP a user earns, the +more purchasing power the user has within the FANING platform, allowing users to purchase goods and/or services within the FANING platform +either directly from us or from other users. +OUR STRENGTHS +We differentiate ourselves from competing social +networks through the power of a fully-integrated platform and established partnerships with leaders in the entertainment industry within +South Korea. Our platform and partnerships enable our users to create clubs, communities, and gather over similar fandoms, all while monetizing +their content and contributing to the FANING platform experience. Our core strengths include the following: +● +Value Creation Through Direct Sales Revenue. We intend to derive revenue from multiple revenue sources, including: (i) advertising revenue, which includes advertisement sales through the placement of banners, splash advertising, pop-up advertisement within the platform, in-platform promotions, branded content productions, and other FANING produced programs; (ii) content sales revenue as FANING continues to produce original content, such as web series, sold to FANING users or otherwise licensed to other third party media services; and (iii) the sale of e-commerce goods through FANING’s Fanshop, including the latest fandom goods and concert tickets. +● +Value Creation Through Revenue Derived From User Activity. We intend to generate revenue from the sale of goods and/or services within the FANING platform from one user to another. Revenue is derived from user-to-user sales as follows: (i) from the sale of emojis and online stickers, from which we will collect 30% of the price paid by the purchaser, with the remaining 70% being remitted to the seller; (ii) from web novels and webtoons. If posted for free, the creator will only receive rewards in FP in relation to the number of views and likes; however, if the creator charges for the content, we intend to collect 30% of the price paid by the user, with the remaining 70% being remitted to the seller; (iii) users can offer the service of translation matching, where a user offers to translate another user’s content for a commission (in either cash or FP), and the parties agree to split the sales revenue from the translated content at a pre-determined ratio, for which we will collect 30% of each sale, and remit the remainder to the creator and translator based on a split determined by the parties; and (iv) for transactions between users involving tangible goods or other non-platform based fandom items (such as concert tickets), we intend to charge a fee of 3.5% of the total value of the transaction at the time of sale. +● +FANING ’ s Direct Advertising Platform. We intend to directly engage with our advertisers. Without the need for third-party engagement, we can leverage the FANING platform to better understand advertisers and their expectations, ensuring we can create highly curated advertising products that will promote high levels of engagement and sales conversions for advertisers. We believe this will increase advertising revenue and build sustainable relationships with advertisers, while concurrently increasing the attractiveness of the FANING platform to new advertisers and users interested in the products advertised within the FANING platform. +● +Industry Leading Privacy and Safety. Privacy and safety is provided by the FANING platform through the implementation of artificial intelligence (“ AI ”). +● +High User Engagement. We intend to drive user engagement by offering a one-stop fandom platform and by offering an in-platform reward system. These features are intended to allow the FANING platform to keep and maintain a highly engaged user-base, loyal to the FANING platform and its brand. This brand loyalty will assist by reducing the Company’s advertising costs by replacing it with non-paid platform promotion through the word-of-mouth of its current user base. +9 +OUR GROWTH STRATEGY +Our core strategy is to pursue initiatives that +promote the viral growth of our user base, and in doing so, drive advertising revenue, user-generated revenue, and create other revenue +streams. Our focus on user acquisition and retention provides the primary lens to view our plans for community growth, engagement, and +long-term brand equity. +● +Attracting Global Users. Our core business strategy is to promote the FANTING platform and grow our global user base, which will drive revenue growth by increasing advertising revenue and user activity-based revenue. +● +Broaden Product and Service Offerings. Within the FANING platform our objective is for users to benefit from a wide range of products and services offered, and we intend to continuously expand our product and service offerings as the user-base and revenue grow. Broadening our product offerings will ensure FANING grows along with the fandom community in which it operates, eventually creating a one-stop platform for our users across all fandoms. +● +Continued Research and Development. We intend to continue to invest in developing and implementing the newest technologies to ensure a better and more secure user experience compared to other social media platforms. +● +Development of Intellectual Property. We intend to develop our own intellectual property assets based upon user-demand and data analysis from the FANING platform. Since the intellectual property developed from user-data will be based on user-demand, we believe that any new intellectual property will facilitate user engagement and growth. +● +Expansion to Other Fandoms. We intend to expand FANING outside of the K-Culture fandom, and into other fandoms across an expansive number of entertainment types and cultures. Users will be able to easily transition between different fandom clubs and communities, and seamlessly access the newest trends and popular cultures. This anticipated expansion is intended to make FANING a platform that can evolve with, and fully integrate, all fans utilizing the FANING platform, regardless of the continuous rise and fall of popular culture trends. +The Company’s revenue growth strategy spans multiple time +horizons. In the short term, the Company aims to generate revenue through virtual events hosted on the FANING platform, monetizing both +commissions and operational profits. Additionally, the Company plans to establish a base of steady monthly income by offering premium +subscription services tailored to both individual users and institutional partners. In the mid-term, the Company intends to drive explosive +revenue growth by leveraging FANING’s advertising infrastructure, which will include affiliate marketing partnerships and platform-driven +advertising sales. +OUR MARKETING STRATEGY +We intend to market our platform to users through +media ads, promotions, campaigns, referrals, and other similar initiatives. Currently, we focus on our core target in K-Culture, and specifically, +the K-pop fandom. We intend to achieve user growth by utilizing the following strategies: +● +Localized Marketing Efforts. As we intend to capture a larger percentage of the global fandom market, we will need to effectively develop marketing for each region’s fandom community. This will require localized marketing efforts for regional marketing to be successful. We believe we can successfully develop regional marketing results by: (i) partnering with local content creators to create regional-specific marketing; and (ii) partnering with local advertising agencies to develop advertising campaigns that will attract regional users. It is important for us to localize our services and marketing strategies in order to expand our business in the U.S. Therefore, we plan to set up branches in the U.S. in the first half of 2025, and plan to hire around 20 developers to localize the services of FANING. We also plan to work with U.S. marketing experts and cooperate with marketing agencies to reach U.S. audiences through online marketing, sponsoring advertisements, and holding various user-engagement events and promotions in the major cities in the U.S. When we believe the operation in the U.S. is settled, we will set up a branch office in the United Kingdom for further expansion into Europe. The Company currently has no intention of expanding into China due to the Chinese government’s unofficial ban on K-Culture as well as official ban on all foreign social media platforms. Additionally, due to regulatory concerns regarding data protection and privacy within China, the Company will not expand its business into China in order to protect the privacy of the Company’s users. For the avoidance of any doubt, the Company does not have customers in, does not otherwise provide products or services in, and restricts user access to individuals in China (including Hong Kong and Macau). See “Risk Factors — Our decision not to provide products and services and to restrict user access in China (including Hong Kong and Macau) will limit our total addressable market and may limit our ability to grow our business” for additional information. +● +Global Ambassador Program. We intend to engage with individuals in various countries (“ Global Ambassadors ”) that will create theme-specific content aimed at potential users in the Global Ambassador’s region, and further communicate with fans and targeted users within their region, to increase the growth in the user-base, and attract fans of K-Culture within that region to the FANING platform. Our Global Ambassadors will focus on users who enjoy K-Culture while simultaneously promoting FANING and hosting localized events. +● +Building Strong User-Relationships. We intend to build strong ties with our existing users to increase their loyalty. We communicate with our users through various channels including social media, surveys, direct messages, focus groups, and similar means of communication to improve our service offerings so that we can exceed current users’ expectations. We believe that our fully engaged and satisfied users will be more likely to promote our platform voluntarily, thereby promoting organic growth through a continuous flow of new users by way of current user referrals. The rate of organic growth that we can achieve will accelerate the growth of FANING’s user-base. +● +Special Event Hosting. In order to provide value to both our current users and targeted users, as well as promote activity within the FANING platform, we intend to host special themed events to which both current users and targeted users are invited. These events include K-pop concerts, dance performances, and other live shows. Generally, these events are driven by user input by way of voting for events that our users would prefer to attend. The participation of our users within our platform to determine upcoming events further encourages users to be active within the FANING platform. +10 +Technology and Intellectual Property +The Company developed FANING +as an evolution of its previous FANTOO platform, significantly enhancing functionality and scalability. +FANING offers competitive +advantages through an integrated suite of advanced tools designed specifically for fandom communities, including live-streaming, +real-time interaction, digital content monetization, subscriptions, and extensive community-building features such as clubs and +forums. These robust capabilities enable creators to directly monetize their content and engage deeply with fans, significantly +differentiating FANING from generalist social platforms. +FANING also offers a PC version alongside its mobile app, designed +to enhance accessibility and convenience for users. Through the PC version, users can manage their profiles, access news and updates, +and participate in fandom events, all through a user-friendly UX/UI tailored for desktop engagement. +FANING was designed and developed to connect fans +across the globe. As a result, we have been developing and acquiring cutting edge technologies in order to deliver a smooth experience, +regardless of location. These technologies include: +● +AI-driven content curation through personalized searches and content delivery recommendations. +● +AI speech synthesis that will allow our AI to learn from voice recordings through specialized vocabulary, that will eventually be able to read unrecorded sentences in the voice of whichever celebrity a user may choose. This will allow various literary works and written content to be spoken to the user in the user’s favorite celebrity’s voice. +● +AI-powered nudity detection that automatically filters and blocks users from exposure to nudity if uploaded on the FANING platform. +● +AI-enabled deepfake detection that performs verification services to identify whether images and/or videos uploaded on the FANING platform are actually authentic images/videos of the person depicted in the video, or if the image/video was falsified and computer generated through the use of “deepfake” technology. +Competition +Our competitors include: +● +Social platforms, such as Facebook, Instagram and Twitter(X) +● +Community service platforms, such as Reddit +● +K-pop fandom platforms, such as Lysn, Weverse and Universe +● +Amateur content creating platforms, such as Whattpad, and +● +eCommerce platforms, such as Amazon, eBay and Ticketmaster. +While many of these platforms have achieved success +in growing users and have greater financial resources than the Company, we believe the FANING platform is the only all-in-one global fandom +platform that also offers a unique user reward system that incentivizes users to participate and engage within the platform. These features +were developed to position FANING to successfully complete with the more established platforms and facilitate an active fandom experience. +Partnerships +On April 19, 2021, Hanryu Bank Co., Ltd. +(“HBC”), our wholly owned subsidiary entered into a memorandum of understanding with the Federation of Artistic & +Cultural Organization of Korea (“ FACO ”) (the “ MOU ”). Pursuant to the MOU, we were granted certain +collaborative rights in which we can promote cultural events, while participating and taking advantage of FACO’s infrastructure +and network to develop and export South Korea’s popular culture around the globe. +FACO was established as a non-profit business +in 1961, organized for the purpose of contributing to the development of Korean art and culture, promoting the international exchange +of Korean art and culture, and ensuring the well-being of affiliated artists. FACO’s membership currently consists of over 1.3 million +artists from 10 different member associations, spread across 167 branches globally, including two branches in the United States and +one in Japan. +We have strategically developed this partnership +with FACO due to their substantial contribution to the Korean entertainment and pop-culture industry. The partnership benefits FANING +users through the synergy between these organizations and the FANING platform, such as content creation, hosting K-pop concerts, and much +more. +On September 10, 2021, we entered into a +partnership with the “Metaverse Alliance,” an initiative led by South Korea’s Ministry of Science and Information and +Communication Technology (“ MSIT ”) (the “ MSIT Partnership ”), which is intended to facilitate our +development of innovative technologies and advancements within the metaverse. The MSIT built the Metaverse Alliance to coordinate and +facilitate the development of virtual and augmented reality platforms. Approximately 643 firms have joined MSIT to date, including Samsung, +Hyundai Motors and Naver. +11 +Digital Properties and Websites The Company owns several digital +properties to support its platform business and broader digital strategy, including: +● FANING Platform: fanining.xyz, faning.co.kr +● Corporate Website: www.gitechnologies.com +● Koreavibe.net: a digital media property providing original news content and +features dedicated to global K-culture fandoms, attracting substantial viewership through its website and various social media channels. +Koreavibe.net complements our primary platform, FANING, by driving additional user engagement and brand visibility. +Corporate Structure and Subsidiaries +As of December 31, 2024, the Company’s primary +operating subsidiary is Faning Korea, LLC (“Faning Korea”), a wholly-owned subsidiary based in Seoul, Republic of Korea. Faning +Korea oversees the development, maintenance, and operation of the Faning application and related web services. +Throughout 2024, the Company restructured its +subsidiaries, including the divestiture of Hanryu Bank on December 28, 2024, and FNS and Marine Island on November 5, 2024. Faning Korea +was acquired on December 4, 2024. These changes were not deemed material and, therefore, were not separately reported on Form 8-K. +IPO and Nasdaq Listing +On July 31, 2023, the Company successfully completed +its IPO on Nasdaq, raising approximately $8.77 million through issuing 877,328 shares of Class A common stock at $10 per share. The Company’s +stock initially traded under the symbol ‘HRYU,’ changing subsequently to ‘GITS’ following the name change. +Strategic Developments +On February 26, 2024, the Company’s Board +of Directors terminated the employment of Changhuyk Kang as Chief Executive Officer for cause. On the same day, the Board appointed Mr. +Taehoon Kim, the Company’s Chief Technology Officer and Vice President, as Interim Chief Executive Officer, effective immediately. +Employees and Labor Relations +As of December 31, 2024, the Company had five +full-time employed directly through Global Interactive Technologies, Inc., with an additional seven full-time employees through Faning +Korea, LLC. Additionally, we occasionally enter into agreements with contractors, on an as-needed basis, to perform certain services, +including contract workers. The Company continues to operate with a lean organizational structure appropriate to its current size and +stage of development. There has been no labor dispute. None of our employees are represented by labor unions. +12 +Seasonality +We do not expect to experience any significant seasonality trends that +would materially impact our operations or financial performance. However, seasonality trends may emerge in the future as our user base +and service offerings evolve. +Governmental Regulation +We are subject to a variety of national, regional, and local laws and +regulations in both the United States and the Republic of Korea. These laws affect multiple aspects of our business, including how we +interact with users, partners, and vendors. Applicable areas of law include fair trade, competition, labor and employment, privacy and +data protection, intellectual property, consumer protection, and import/export regulations. +Many of these laws are continuing to evolve, especially those governing +digital platforms, content, and data. The interpretation and enforcement of these regulations are often uncertain, particularly in emerging +and fast-developing sectors like ours. As a result, there may be instances where we are not, or may not have been, fully compliant with +all applicable requirements in every jurisdiction. +Due to the extent of our operations in South Korea, +we are subject to several specific Korean regulatory regimes, including but not limited to: +● Copyright Act: Protects various types of creative works, including software and databases. It enforces fair use, statutory +damages, and online service provider exemptions under the Korea–U.S. Free Trade Agreement. +● Youth Protection Act: Regulates media content and environments accessible to minors, classifying harmful content and restricting +distribution through specific administrative procedures. +● Content Industry Promotion Act: Governs the production and sale of digital content, requiring content providers to include +consumer protection provisions in their terms of service, such as refunds, cancellation rights, and damage compensation. +● Personal Information Protection Act (PIPA): Regulates the collection, use, and destruction of personal data. It includes strict +consent requirements, data subject rights, breach notification obligations, and administrative and criminal penalties for non-compliance. +● Monopoly Regulation and Fair Trade Act: Overseen by the Korean Fair Trade Commission (KFTC), this law imposes disclosure and +compliance obligations on business groups with assets exceeding 5 trillion KRW. +Cost of Compliance with Environmental Laws +To date, we have not incurred any material costs +associated with compliance with environmental laws or regulations. We do not currently anticipate incurring such costs in the near future; +however, we cannot guarantee that this will remain the case as our operations expand or regulations evolve. +Facilities +The Company’s primary operational and development +activities are conducted from office premises located at 160 Yeouiseo-ro, Yeongdeungpo-gu, Seoul, Korea. +Legal Proceedings +As of December 31, 2024, the Company is not subject to any material +pending legal proceedings or claims. Previously disclosed legal matters were associated with subsidiaries that have since been divested +and no longer affect the Company’s operations or financial position. +Available Information +The Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports +filed pursuant to Sections 13(a) and 15(d) of the Exchange Act are filed with the Securities and Exchange Commission (the “SEC”). +The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) +and files or furnishes reports, proxy statements, and other information with the SEC. Such reports and other information filed by the +Company with the SEC are available free of charge on the Company’s website at www.gitechnologies.com when such reports are available +on the SEC’s website. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information +regarding issuers that file electronically with the SEC at www.sec.gov. The contents of these websites are not incorporated into this +filing. Further, the Company’s references to the URLs for these websites are intended to be inactive textual references only. +13 \ No newline at end of file diff --git a/raw/filings/0001911545/2024/0001213900-25-036973/item13.txt b/raw/filings/0001911545/2024/0001213900-25-036973/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..9224085cea643d65348f08251b93d5ac8dc5985e --- /dev/null +++ b/raw/filings/0001911545/2024/0001213900-25-036973/item13.txt @@ -0,0 +1,3 @@ +Item 13. +Certain Relationships and Related Transactions, and Director Independence +62 \ No newline at end of file diff --git a/raw/filings/0001911545/2025/0001493152-26-025106/filing.txt b/raw/filings/0001911545/2025/0001493152-26-025106/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..d1c7e160640c429894913a8795840447b007e958 --- /dev/null +++ b/raw/filings/0001911545/2025/0001493152-26-025106/filing.txt @@ -0,0 +1,6770 @@ +false +FY +0001911545 +0001911545 +2025-01-01 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ended December 31 , 2025 +☐ +TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 +For +the transition period from ____________ to____________ +Commission +file number: 001-41763 +Global +Interactive Technologies, Inc +(Exact +name of registrant as specified in its charter) +Delaware +88-1368281 +(State +or other jurisdiction of +incorporation or organization) +(I.R.S. +Employer +Identification Number) +160, +Yeouiseo-ro , +Yeongdeungpo-Gu , +Seoul +Republic +of Korea , 07231 +(Address principal executive offices) +Registrant’s telephone number, including +area code: +82 - 2 - 564-8588 +Securities +registered pursuant to Section 12(b) of the Act: +Title +of Each Class: +Trading +Symbol(s) +Name +of Each Exchange on Which Registered: +Class +A Common Stock, $0.001 par value per share +GITS +The +Nasdaq Stock Market LLC (Nasdaq Capital Market) +Securities +registered pursuant to Section 12(g) of the Act: None +Indicate +by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ +Indicate +by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐ +No ☒ +Indicate +by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange +Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) +has been subject to such filing requirements for the past 90 days. Yes ☐ No ☒ +Indicate +by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule +405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant +was required to submit and post such files). Yes ☒ No ☐ +Indicate +by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting +company or an emerging growth company. See definition of “large accelerated filer,” accelerated filer, “smaller reporting +company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. +Large +accelerated filer +☐ +Accelerated +filer +☐ +Non-accelerated +filer +☒ +Smaller +reporting company +☒ +Emerging +growth company +☒ +If +an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying +with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ +Indicate +by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness +of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered +public accounting firm that prepared or issued its audit report. ☐ +If +securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant +included in the filing reflect the correction of an error to previously issued financial statements. ☐ +Indicate +by check mark whether any of those error corrections are restatements that require a recovery analysis of incentive-based compensation +received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ +Indicate +by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ +The +aggregate market value of the common stock outstanding, other than shares held by persons who may be deemed affiliates of the +registrant, computed by reference to the closing price for Class A Common Stock on +June 30, 2025, which was $1.36, as reported on the Nasdaq Stock Market was $ 4,040,052.72 . +As +of the filing date of May 22, 2026, the number of shares of Class A Common Stock issued and outstanding is 3,674,208 +shares (par value $ 0.001 per +share), as adjusted to reflect the 1-for-20 reverse stock split effected on January 27, 2025. +TABLE +OF CONTENTS +PAGE +PART +I +Item +1. +Business +1 +Item +1A. +Risk +Factors +13 +Item +1B. +Unresolved Staff Comments +39 +Item +1C. +Cybersecurity +39 +Item +2. +Properties +40 +Item +3. +Legal Proceedings +40 +Item +4. +Mine Safety Disclosures +40 +PART II +Item +5. +Market for Registrant’s Common Stock, Related Shareholder Matters and Issuer Purchases of Equity Securities +41 +Item +6. +[Reserved] +41 +Item +7. +Management’s Discussion and Analysis of Financial Condition and Results of Operations +41 +Item +7A. +Quantitative and Qualitative Disclosures About Market Risk +47 +Item +8. +Financial Statements and Supplementary Data +48 +Item +9. +Changes in and Disagreements with Accountants on Accounting and Financial Disclosure +48 +Item +9A. +Controls and Procedures +48 +Item +9B. +Other Information +49 +Item +9C +Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +49 +PART III +Item +10. +Directors, Executive Officers and Corporate Governance +50 +Item +11. +Executive Compensation +54 +Item +12. +Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters +56 +Item +13. +Certain Relationships and Related Transactions, and Director Independence +59 +Item +14. +Principal Accounting Fees and Services +61 +PART IV +Item +15. +Exhibits and Financial Statement Schedules +62 +i +As +used in this Annual Report on Form 10-K, unless otherwise indicated, Global Interactive Technologies, Inc. together with its consolidated +subsidiaries, is hereinafter referred to as “Global Interactive Technologies” “us,” “we,” “our,” +or the “Company.” +SPECIAL +NOTE REGARDING FORWARD-LOOKING STATEMENTS +This +Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, +and Section 21E of the Securities Exchange Act of 1934, as amended, that are based on our management’s beliefs and assumptions +and on information currently available to management, and which statements involve substantial risk and uncertainties. All statements +contained in this Annual Report on Form 10-K other than statements of historical fact, including statements regarding our future operating +results and financial position, our business strategy and plans, market growth and trends, and objectives for future operations are forward-looking +statements. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, +you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” +“expects,” “plans,” “anticipates,” “could,” “intends,” “target,” +“projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” +or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, +plans or intentions. +Although +we believe that we have a reasonable basis for each forward-looking statement contained in this Annual Report on Form 10-K, we caution you that +these statements are based on a combination of facts and factors currently known by us and our expectations of the future, about +which we cannot be certain. These forward-looking statements are subject to numerous risks, including, +without limitation, the following: +● our ability to continue as a going concern given that we have incurred +recurring losses from operations, have a working capital deficiency, and our auditors have stated that substantial doubt exists about +our ability to continue as a going concern; +● our ability to obtain significant additional capital, which we may be +unable to obtain and will require to continue as a going concern. +● overall +strength and stability of general economic conditions and of the social media platform and +content creation industry in the United States and globally; +● changes +in consumer demand for, and acceptance of, our services, including our platform, as well +as social media platforms in general; +● changes +in the competitive environment, including adoption of technologies, services and products +that compete with our own; +● our +expectations regarding our future operating and financial performance; +● our +ability to effectively execute our business plan and continue to expand internationally; +● our +ability to recruit, retain, and motivate skilled personnel, including key members of senior +management; +● changes +in the price of equipment, network infrastructure, hosting and maintenance; +● uncertainties +around the successful improvement and modification of our existing applications and development +of new products and services, which may require significant expenditures and time; +● changes +in laws or regulations governing our business and operations; +● our +ability to maintain adequate liquidity and financing sources and an appropriate level of +debt on terms favorable to us; +● our +ability to effectively market our services; +● costs +and risks associated with litigation brought against us; +● our +ability to obtain and protect our existing intellectual property protections, including trademarks +and copyrights; +● changes +in accounting principles, or their application or interpretation, and our ability to make +estimates and the assumptions underlying the estimates, which could have an effect on earnings; +● our ability to maintain the listing of our shares on the Nasdaq Capital +Market or our ability to list our shares on any other exchange and maintain such listing; and +● other +risks described from time to time in periodic and current reports that we file with the SEC. +This +list of factors that may affect future performance and the accuracy of forward-looking statements is illustrative, but not exhaustive. +New risk factors and uncertainties not described here or elsewhere in this Report, including in the sections entitled “ Risk +Factors ,” may emerge from time to time. Moreover, because we operate in a competitive and rapidly changing environment, it +is not possible for our management to predict all risk factors and uncertainties, nor can we assess the impact of all factors on our +business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained +in any forward-looking statements we may make. +The +forward-looking statements are also subject to the risks and uncertainties specific to our Company, including but not limited to the +fact that we have limited operating history as a public company. In light of these risks, uncertainties and assumptions, the future +events and trends discussed in this Annual Report on Form 10-K may not occur, and actual results could differ materially and +adversely from those anticipated or implied in the forward-looking statements. +You +should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained +in this Annual Report on Form 10-K primarily on our current expectations and projections about future events and trends that we believe +may affect our business, financial condition, results of operations, and prospects. The outcome of the events described in these forward-looking +statements is subject to risks, uncertainties, and other factors described in the section titled “Risk Factors” and elsewhere +in this Annual Report on Form 10-K. We undertake no obligation to update any forward-looking statements after the date of this Annual +Report on Form 10-K or to conform such statements to actual results or revised expectations, except as required by law. +ii +PART I +Item +1. Business. +Overview +Global +Interactive Technologies, Inc. (“GITS” or the “Company”), a Delaware corporation formerly known as Hanryu Holdings, +Inc., is a technology-focused platform company operating and developing Faning, a global digital fan engagement platform centered on +Korean entertainment and culture, including K-pop. +Faning +is designed to support online fan communities, content discovery and sharing, user interaction, multilingual communication, user-generated +content, and digital engagement experiences across mobile and web-based services. +Corporate +Structure and Subsidiaries +The +Company is a corporation that was incorporated in the state of Delaware on October 20, 2021, as Hanryu Holdings, Inc. On December 5, +2024, the Company formally changed its name from Hanryu Holdings, Inc. to Global Interactive Technologies, Inc. pursuant to an amendment +to its Certificate of Incorporation filed with the Secretary of State of Delaware. In connection with the name change, the Company also +changed its Nasdaq ticker symbol from HRYU to GITS. +As +of December 31, 2025, the Company conducted its core Faning business and platform strategy directly through Global Interactive Technologies, +Inc., including platform development, management, commercialization strategy, and related digital services. +FANING +KOREA, LLC, a wholly owned subsidiary based in Seoul, Republic of Korea, provides administrative support to the Company in South Korea. +Reverse +Stock Split +On +January 27, 2025, the Company effected a 1-for-20 reverse stock split of its issued and outstanding common stock. +Faning +Faning +is the innovative successor to the ‘Fantoo’ platform, specifically engineered to serve as a global epicenter for enthusiasts +of K-POP and contemporary Korean culture (“K-Culture”). Moving beyond traditional social networking, the Company has developed +a multifaceted digital ecosystem designed to facilitate high-velocity user interaction, content creation, and deep community engagement. +As of December 31, 2025, Faning has transitioned from a primary development phase into early-stage commercialization, focused +on scaling a global audience. +1 +Core +Functionality & User Experience (UX) +The platform leverages proprietary algorithms to deliver a personalized +user journey, designed to provide a seamless connection between fans, creators, and content. +● Faning +Clubs: Users organize into topic-specific virtual communities (“Clubs”) centered +on artists, movies, and lifestyle trends, utilizing messaging and discussion forums +to maintain 24/7 connectivity. +● Global Interaction: Faning provides real-time, automatic +translation functionality for 17 different languages, enabling a truly unified global fandom +experience. +● Interactive +Engagement Tools: The platform integrates participation-driven features, including +voting mechanisms and engagement tools that empower users to influence content rankings and +support their favorite creators. +Monetization Model +In +2025, the Company implemented a diversified revenue structure optimized for the digital fandom economy: +● Vote +& Boost Sales: Central to the platform’s economy are participation-based features. +Users purchase Vote Packages to participate in community activities and Boosts—paid +enhancements that increase the visibility and impact of their support for specific content +or artists. +● Premium +Subscription Services: The Company offers tiered subscription plans, providing users with +exclusive features and an enhanced interface. +● Scalable +Advertising: The Company generates revenue through targeted display advertisements and sponsored +content, a stream designed to scale with continued user growth and engagement. +Synergistic +Content & Music Production +Complementing +the platform business, the Company has secured strategic agreements for the production and release of music content featuring K-pop artists +and animation projects. +● IP +Monetization: Through digital streaming and distribution, the Company can capture diverse revenue +streams that provide a higher-margin complement to platform operations. +● Short-Form Content Growth: Recognizing the market trend, the Company +will produce 2-minute “short-form” cultural content. These videos are distributed will be Faning and third-party social media +networks to maximize K-POP’s global visibility and help drive organic user acquisition. +Development +Status & Future Outlook +Global Interactive Technologies continues to prioritize infrastructure +scalability and the expansion of engagement features. Monetization is in its inaugural stages, and the ongoing execution of this strategy +remains dependent on successful user adoption and continued access to capital. +2 +Faning +Ecosystem and Legacy Fantoo Platform +Faning evolved from the legacy Fantoo platform ecosystem, which historically accumulated approximately 27 million registered accounts +globally. +The +Company views this historical registered account base as a potential long-term strategic asset. However, the Company did not +complete a migration or reactivation of this historical user base during 2025 and cannot currently predict the extent to which such +historical users may become active users, retained users, or monetizable users within the Faning platform. +The +Faning platform is designed to support a multilingual user community across multiple geographic regions. The platform includes community +engagement tools, messaging functionality, club-based interaction features, and multilingual communication tools, including real-time +translation functionality. +During +2025, the Company focused on maintaining and supporting the Faning platform, continuing development of platform functionality, and preparing +for future commercialization initiatives. As of December 31, 2025, the Company remained in an early-stage commercialization phase, and +revenue from the Faning platform remained limited. +Global +Reach and Engagement +The +Faning platform is designed to support a multilingual user community across multiple geographic regions, including users historically +concentrated in markets such as the Philippines, Indonesia, Thailand, South America, and the Republic of Korea. +The +platform includes community engagement tools, messaging functionality, club-based interaction features, and multilingual communication +tools, including real-time translation functionality intended to facilitate communication among users across different regions. +Demographics +and Target Audience +The +Faning platform is primarily focused on users interested in Korean entertainment and culture, including K-pop and related digital fandom +communities. +Historically, +a significant portion of platform engagement for the legacy Fantoo platform ecosystem had been concentrated among users in the +20–39 age demographic. The Company believes this audience represents an active segment of the global digital entertainment and +social media market. +The +platform is intended for users aged 12 and older. The Company maintains policies and technical measures designed to restrict access by +underage users and to support platform safety and compliance requirements. +The +Company may continue evaluating future user growth opportunities across multiple geographic regions and demographic groups as the Faning +platform develops and commercialization initiatives evolve. +3 +User +Reward System & Faning Points (FP) +The +reward system is a foundational element of the Faning ecosystem, designed to incentivize higher-quality content creation and active community +participation. +FP +Generation and Distribution +Users +accumulate Faning Points (FP) through multiple engagement channels: +● Activity-Based +Rewards: FP is granted based on a user’s level of contribution and engagement within +the Faning platform. +● Ad-Revenue +Sharing: As part of our commitment to a user-centric economy, 50% of the daily net advertising +profits generated within the platform are distributed as FP to users. Historically, this +distribution has been allocated with approximately 30% designated for content creators and +20% for general participating users. +● Fixed +Value: For the purposes of the platform economy, the value of FP is maintained at a fixed +ratio of 1 FP to 100 Korean Won. +Utility +and Redemption +FP +serves as the primary internal currency for the Faning ecosystem. Users can redeem accrued FP for a wide array of products and services, +including: +● Exclusive +Content: Access to premium content from artists and other creators. +● K-Culture +Merchandise: Purchase of physical and digital goods within the Faning Fanshop. +● Platform +Engagement: Utilization of FP for platform-based activities, such as voting and boosting +content, which are key components of our monetization strategy. +Storage, +Security, and Governance +The +Company prioritizes the integrity and security of the reward ecosystem through technical and administrative controls: +● Segmented Database Architecture: FP data is stored and managed in a dedicated +database, isolated from other application data for confidentiality and greater security. Access is limited to authorized personnel via +permitted IP bands. +● Disaster +Recovery: The FP database utilizes cloud backup functions, which can enable rapid restoration +within hours in the event of a system failure. +● Account +Policy: FP does not expire and accumulates in the user’s account. However, upon account +deactivation, any unredeemed FP is forfeited and moved to the Company’s reserve account +for redistribution into the ecosystem. The Company does not intend to repurchase FP from +users. +4 +User-to-User +Interactions +We +have engineered Faning to provide an expansive array of interactive opportunities, fostering a vibrant ecosystem where global users can +engage deeply with the platform and each other. These interactions—comprising clubs, community forums, and chat functions—are +strategically designed to solidify the Faning brand identity and cultivate long-term user loyalty +Faning +Clubs & Communities: Integrated Engagement Ecosystem +The Faning platform is designed to provide a seamless, +multi-layered engagement ecosystem to transition casual user interest into active community leadership and collective participation. +● Dynamic +Community Creation: Faning communities function as open forums for user-generated content +and social curation. New communities are established based on organic demand; once user requests +for a specific topic reach a strategic threshold, the platform automatically activates a +dedicated space for that interest group. +● Strategic +Club Integration: From these broad communities, users can establish specialized “Clubs” +to foster deeper, culture-specific interactions. Moderators have the autonomy to customize +policies, allowing each Club to remain a space for dedicated fandoms. +● Collective +Action & Support System: Every Club is equipped with a proprietary collaborative system +that allows members to pool their Faning Points (FP) toward shared objectives. This collective +power enables the community to secure premium rewards, such as future exclusive fan events or live-streamed +concerts, that would be unattainable through individual effort. +● Democratic +Governance: To ensure transparency and maintain user loyalty, decisions regarding the +allocation of collective resources are determined by a formal voting process among the members. +● Monetization +Engine: This integrated structure is a key driver for our revenue strategy. By funneling community discussions into Club-based actions, +we can stimulate higher-volume participation in Vote and Boost features. +Faning +Chats: Retention Social Architecture (2025 Update) +Faning’s +integrated communication layer is a primary driver of user engagement, specifically engineered to maximize platform session duration +and foster cross-border social ecosystems. +● +Social Connectivity & Retention: Unlike generic messaging services, +Faning empowers users to establish dedicated, real-time chat environments within Faning Clubs. By anchoring social interactions directly +within these interest-based communities, the platform fosters deeper user loyalty and can increase can increase daily active usage (DAU). +5 +● +Global Interaction: Our proprietary real-time translation engine, currently supporting 17 languages, can eliminate language barriers and enable a truly unified global fandom regardless of geographic or linguistic origin. +● +Enterprise-Grade Privacy: +Communications are protected through end-to-end encryption (E2EE). This security infrastructure can help to mitigate data leakage risks +and solidify user trust, a key component of our brand value +● +Monetization Synergy: These high-engagement chat hubs serve as the +strategic entry point for our monetization features. Continuous interaction within these spaces can directly stimulate participation in +community-led Vote and Boost activities, which can convert social engagement into revenue. +Content +and Intellectual Property Ecosystem +The +Faning ecosystem utilizes a collaborative content model designed to bridge the gap between K-Culture creators and a global audience through +structured localization and IP distribution. +1. +Collaborative User-Generated Content (UGC) & Localization +At the core of our platform is a decentralized content +model that empowers our users to produce and monetize culture-specific intellectual property. +● Creative +Assets: Users can generate fandom content, including Fanart, Web Novels, and Webtoons, +tailored to global K-Culture trends. +● Strategic +Localization Ecosystem: To facilitate global reach, Faning operates a proprietary localization +matching system that connects original content creators with skilled localizers for higher-quality, culturally nuanced translations. +● Revenue +Management: The platform facilitates a structured revenue-sharing model based on pre-set +agreements between creators and localizers. This system is designed to ensure that as content is localized +and sold, profits are tracked and managed according to the agreed-upon terms, providing a +scalable and transparent business environment. +● Engagement-Led +Growth: This content ecosystem can drive higher-volume participation in our Vote and Boost features, +as global fans utilize these tools to promote and elevate localized content within their +regions. +2. +Original IP & Premium Productions +The +Company focuses on high-fidelity original content to anchor user loyalty and provide revenue streams. +● +Faning TV Originals: Specialized content teams will produce exclusive shows and web series, leveraging K-pop and animation IPs to drive premium engagement. +● +Concerts and Global Streaming: Faning may host and broadcast diverse musical events, with digital tickets and access sold through the Fanshop using FP or cash. +● +Music & Animation Distribution: In 2025, the Company expanded its IP portfolio to include the distribution of music for K-pop artists and international animation projects, such as The Nut Job 3, diversifying revenue through streaming and royalties. +6 +Faning +Fanshop: Integrated E-Commerce & Delivery +The +Faning Fanshop is the central e-commerce destination within our ecosystem, enabling users to transition from content engagement +to commercial transactions. +1. +Direct Commerce & Product Offerings +The +Fanshop serves as a premier marketplace where users purchase high-demand fandom items directly from the Company. +● Core +Merchandise: Our inventory focuses on artist gifts, premium fandom goods, and exclusive K-Culture +products. +● Ticketing +& Events: Fanshop is an exclusive portal for purchasing tickets to both physical and +live-streamed concerts, driving significant higher-margin revenue. +2. Payment & Revenue Model +We +provide a flexible financial environment for transactions. +● Dual +Payment Systems: Users can settle purchases using credit cards via third-party processors +or through Faning Points (FP). +● Transaction +Integrity: For any community-based transactions, the platform has been set up to release funds upon confirmed receipt of goods. +3. +Global Fulfillment & Delivery Infrastructure +To +support our international user base, the Company has established an efficient global logistics framework. +● Cross-Border +Capabilities: Our delivery system is optimized for international shipping, enabling +merchandise to reach fans across our key markets, including South Korea, Japan, Taiwan, and +Southeast Asia. +● Seamless +Logistics: By integrating established third-party logistics partners, we provide real-time +shipment tracking and reliable last-mile delivery, enhancing the overall user experience. +7 +Market +Opportunity +The +Company believes that continued global interest in Korean entertainment and culture (“K-Culture” or “Hallyu”) +may create future opportunities for digital fan engagement platforms and related online community services. +According +to the Korea Foundation’s 2024 Global Hallyu Status Report, the number of global Hallyu fans surpassed 225 million as of December +2023 across 119 countries. The Korea Foundation reported that this figure represented significant growth compared to prior years. +The +Company believes that increasing global consumption of K-pop, Korean television content, webtoons, digital media, virtual events, and +mobile-based entertainment services may continue to support demand for multilingual fan engagement platforms and online fandom communities. +The Ministry of Culture, Sports and Tourism and the Korean Foundation for International Cultural Exchange (“KOFICE”) also +reported continued international growth in Korean Wave content consumption through the 2024 Overseas Hallyu Survey. +According +to the ‘2025 Overseas Hallyu Status Survey’ released by the Ministry of Culture, Sports and Tourism and KOFICE in April 2025, +the total export value of Hallyu-related sectors reached $15.18 billion in 2024, marking a 4.5% increase compared to the previous year. +The +Company believes that mobile-first engagement, multilingual communication tools, online fan communities, and virtual participation features +may continue to play an important role in the global digital entertainment ecosystem. +The +Faning platform is designed to support these types of digital fan engagement activities through community interaction tools, multilingual +communication functionality, and mobile and web-based accessibility. However, the Company remains in an early-stage commercialization +phase and cannot assure that it will successfully expand its user base, achieve significant monetization, or establish a material market +position within the global digital fandom industry. +Our +Value +The +Faning platform is designed to provide users with a centralized digital environment for Korean entertainment and culture-related fandom +activities, including community interaction, content sharing, multilingual communication, and digital engagement. +The +platform’s multilingual functionality is intended to reduce language barriers among users in different geographic regions. Faning +also supports user-generated content and community-based participation tools that may provide a foundation for future monetization initiatives. +The +Faning Point (“FP”) reward system is designed to encourage user participation within the platform. As of December 31, 2025, +however, monetization features associated with the platform remained in early stages of commercialization, and revenue from the FANING +platform remained limited. +OUR +STRENGTHS +We +believe Faning’S potential strengths include: +Focused Fandom Platform: Faning is designed specifically for users interested in Korean entertainment and culture, including K-pop. +Multilingual +Engagement: Faning supports multilingual communication, including real-time translation functionality, to facilitate interaction +among users in different regions. +Community-Based +Features: Faning includes community forums, clubs, messaging, and user-generated content tools designed to support user participation +and engagement. +Digital +Engagement Tools: Faning includes Vote and Boost features designed to support user participation, community-driven engagement, and +potential platform monetization. +FANING +Point Reward System: The Faning Point (“FP”) system is designed to encourage user participation within the platform. +Mobile +and Web Accessibility: Faning is accessible through mobile and web-based services, allowing users to engage with the platform across +different devices. +8 +OUR +GROWTH STRATEGY +Our +core strategy is to achieve global expansion by leveraging user acquisition models and maximizing the value of our growing fandom ecosystem. +● +Global User Acquisition: The Company prioritizes a data-driven growth model characterized by lower Customer Acquisition Costs (CAC). By optimizing performance marketing, we focus on capturing user growth across emerging markets. +● +Expansion of Higher-Margin Monetization: We are deploying a diverse revenue mix, centering on our proprietary “Vote and Boost” mechanisms. These tools can create a scalable and recurring revenue base by transforming global fan engagement into measurable commercial transactions. +● +Technological Leadership & Global Infrastructure: We continue to invest in innovative technologies, including our 17-language real-time translation engine and end-to-end encryption (E2EE). This enables an user experience that facilitates social interaction for our expanding global community. +● +Cross-Cultural Diversification: While rooted in K-Culture, our strategy includes expanding into broader global fandoms, including cinema, gaming, and sports. This enables the Faning ecosystem to adapt to the continuous evolution of global cultural trends. +● +Revenue Channels: The Company aims to generate consistent income through virtual events, live-streaming, and premium subscription services. These features are designed to foster long-term brand loyalty and establish a monthly recurring revenue (MRR) base. +OUR +MARKETING STRATEGY +We +focus on a data-driven, higher-efficiency marketing model designed to capture the global K-Culture fandom. Our strategy prioritizes scalable +user growth through optimized performance marketing and strategic regional engagement. +● +Higher-Efficiency Performance Marketing: Our primary strategy centers on leveraging data analytics to achieve lower Customer Acquisition Costs (CAC). By optimizing digital ad spend and targeting higher-growth emerging markets, we focus on acquiring an user base with minimal capital expenditure. +● +Localized Ecosystem Development: To penetrate global markets, we implement region-specific marketing initiatives. +○ Strategic +Localization: We collaborate with local content creators and marketing experts to tailor +our services for key regions, including the United States, Europe, and Southeast Asia. +○ Operational +Compliance: We maintain a strict policy of not operating or providing services in China (including +Hong Kong and Macau) due to regulatory concerns and data privacy protections. This is designed to ensure +the security of our global user base and compliance with international standards. +● Global +Ambassador & Influencer Program: We engage with “Global Ambassadors” and +local influencers who resonate with fandom communities in their respective regions. These +partners create localized, theme-specific content to drive organic interest and migrate fans +of K-Culture directly to the Faning platform. +● Community-Driven +Organic Growth: We foster deep relationships with our users through various engagement channels +to drive brand loyalty. By maintaining higher satisfaction levels, we can encourage voluntary peer-to-peer +referrals, creating a flow of organic growth that can reduce long-term marketing +costs. +● Interactive +Event Integration: We may host themed virtual or physical fan engagement events, including K-pop related experiences, to increase user +participation and platform engagement. Our Vote and Boost mechanisms are designed to encourage user interaction and community activity +across the platform. +9 +Technology +and Intellectual Property +The +Company developed Faning as a technological evolution, focusing on higher scalability and a premium user experience. Our proprietary +infrastructure is designed to handle global traffic while providing specialized tools for fandom engagement. +● Integrated Suite of Tools: Faning differentiates itself through live-streaming, +real-time interaction, and diverse monetization mechanisms such as Vote and Boost. +● Multi-Platform Accessibility: The platform is optimized for both mobile +and PC, featuring a minimalist and higher-end UI/UX designed to provide for accessibility for our global user base. +● AI-Powered +Safety & Verification: We deploy AI protocols: +○ Automated Content Filtering: AI-powered nudity detection systems that identify +and block sensitive content. +○ Deepfake & Identity Verification: AI-enabled detection tools that verify +the authenticity of uploaded media. +● Global +Linguistic Integration: Our AI-driven translation engine supports 17 languages in real-time, +enabling seamless, borderless communication without the need for manual intervention. +● Personalized Content Curation: Algorithms analyze user engagement data +to deliver personalized search results and content recommendations, designed to create platform stickiness and user retention. +Digital +Properties and Websites +The +Company maintains a streamlined portfolio of digital properties to support its global platform operations and corporate governance requirements. +● Faning +Platform: The Company operates its core global fandom services through its primary domains, +Faning.xyz and Faning.co.kr. These properties serve as the central hub for the platform’s +engagement and monetization features. +● Corporate +Website: The Company’s official corporate presence is maintained at www.gitechnologies.com . +This site hosts our corporate information, SEC filings, and +investor relations for Global Interactive Technologies. +10 +Competition +The +market for global fandom and digital engagement is highly competitive. We compete across several sectors, including: +● Global +Social Media Platforms: Large-scale networks such as Facebook, Instagram, and X (formerly +Twitter). +● Community +& Discussion Platforms: Specialized community services like Reddit. +● Dedicated +K-pop Fandom Platforms: Industry-specific services such as Weverse and Lysn. +● User-Generated +Content (UGC) Platforms: Content creation hubs like Wattpad. +OUR +COMPETITIVE ADVANTAGE +W e +believe we possesses the following strategic advantages. +● +Marketing & Acquisition Efficiency: Our most significant advantage is a data-driven marketing model characterized by lower Customer Acquisition Costs (CAC). This can allow the Company to achieve user growth with lower marketing expenditures. +● +Monetization Architecture: Faning is engineered for monetization through proprietary tools like Vote and Boost. This can transform organic fan engagement into digital transactions, providing a revenue model different than advertising-dependent networks. +● +Global Inclusivity: Faning features a native, AI-driven 17-language real-time translation engine. This technology can enable a seamless, borderless experience for the global fandom, fostering a more integrated and loyal international community. +● +Lean and Scalable Infrastructure: Our focus on minimalist UI/UX and security protocols (E2EE) can provide a premium user experience with lower operational overhead. This lean operational model allows the Company to remain agile and adapt more quickly to shifting global cultural trends. +Partnerships +and Industry Participation +The +Company has participated in certain industry organizations and collaborative initiatives related to Korean culture, digital platforms, +and technology development. +Federation +of Artistic & Cultural Organization of Korea (“FACO”): Since 2021, the Company has maintained a relationship with FACO, +a non-profit organization focused on Korean art and cultural activities. FACO includes multiple member associations and international +branches supporting cultural exchange and artistic activities. +Metaverse +Alliance: The company has participated in the Metaverse Alliance, an initiative associated with South Korea’s Ministry of Science +and ICT (“MSIT”) involving companies and organizations engaged in digital platform and technology-related initiatives. +The +Company may continue to explore strategic relationships and industry collaborations that support the development of the FANING platform +and related business activities. +11 +Employees +and Labor Relations +As +of December 31, 2025, the Company maintained a lean organizational structure consisting of five personnel at Global Interactive Technologies, +Inc. and seven personnel at FANING KOREA, LLC. +The +Company also engages contractors and consultants from time to time to support technical development, platform maintenance, marketing, +administrative functions, and other business needs. +None +of the Company’s employees are represented by a labor union or covered by a collective bargaining agreement. The Company has not +experienced any material labor disputes. +Seasonality +The +Company does not currently experience significant seasonality that materially affects its operations or financial results. +As +the Faning platform develops, user engagement and future revenue, if any, may fluctuate based on entertainment industry cycles, major +K-Culture events, artist release schedules, holidays, and regional user activity patterns. The Company will continue to monitor these +factors as its commercialization initiatives evolve. +Governmental +Regulation +We +are subject to a variety of national, regional, and local laws and regulations in both the United States and the Republic of Korea. These +laws affect multiple aspects of our business, including user interaction, data management, and international commerce. Applicable areas +of law include fair trade, competition, labor and employment, privacy and data protection, intellectual property, and consumer protection. +Many +of these laws are continuing to evolve, especially those governing digital platforms, artificial intelligence (AI), and cross-border +data transfer. Due to the extent of our operations, we are subject to several specific regulatory regimes, including: +● Copyright +Act: Protects creative works, software, and databases. It enforces fair use and online service +provider exemptions under the Korea–U.S. Free Trade Agreement. +● Youth +Protection Act: Regulates media content accessible to minors, classifying harmful content +and restricting distribution through administrative procedures. +● Content +Industry Promotion Act: Governs the production and sale of digital content, requiring consumer +protection provisions such as refunds and cancellation rights in our terms of service. +● Personal +Information Protection Act (PIPA): Regulates the collection, use, and destruction of personal +data in South Korea. It includes strict consent requirements, data subject rights, and breach +notification obligations. +● Monopoly +Regulation and Fair Trade Act: Overseen by the Korea Fair Trade Commission (KFTC), this act +ensures fair competition and prevents unfair trade practices. The Company monitors compliance +regarding related party transactions and corporate disclosures to enable transparency. +● Global +Data Privacy & AI Ethics: As we expand globally, the Company monitors compliance with +international standards, including the General Data Protection Regulation (GDPR) in Europe +and evolving AI safety regulations. +Facilities +The +Company’s primary operational and development activities are conducted from office premises located at 160 Yeouiseo-ro, Yeongdeungpo-gu, +Seoul, Korea. +Legal +Proceedings +From +time to time, the Company may become involved in routine claims, inquiries, or proceedings arising in the ordinary course of business. +As of the filing of this Annual Report on Form 10-K, the Company was not subject to any material pending legal proceedings that management believes would have a +material adverse effect on the Company’s consolidated financial position or results of operations. +Available +Information +Our +annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to reports filed or +furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available free of charge under the Investors +Relations page on our website, www.gitechnologies.com, as soon as reasonably practicable after such reports are electronically filed +with, or furnished to, the Securities and Exchange Commission (“SEC”). Information on our website is not included as a +part of, or incorporated by reference into, this report. The Securities and Exchange Commission maintains an internet site that +contains reports, proxy and information statements, and other information regarding issuers that file electronically with the +Securities and Exchange Commission. Our SEC filings are also available through the SEC’s website, www.sec.gov. +12 +Item +1A. Risk Factors. +Risk +Factor Summary +The +following is a summary of the risks and uncertainties that could cause our business, financial condition or operating results to be harmed. +We encourage you to carefully review the full risk factors contained in this report in their entirety for additional information regarding +these risks and uncertainties. +● We +have incurred significant losses since our inception, and we intend to continue to invest +in our business. As a result, we may continue to experience losses in the future. +● Our +auditor has included an explanatory paragraph in their opinion regarding our ability to continue +as a going concern. If we are unable to continue as a going concern, our securities will +have little or no value. +● To +continue as a going concern, we will require significant additional capital, which we may +be unable to obtain. +● We are a development stage company, and we may not be able to generate +any or sustain our growth or implement our business strategies. +● We +are subject to risks associated with operating in a rapidly developing industry and a relatively +new market. +● Our +success depends on our ability to develop products and services to address the rapidly evolving +market for the content creation and social media platform industry, and, if we are not able +to implement successful enhancements and new features for our products and services, our +business could be materially and adversely affected. +● If +our content streaming initiatives are unsuccessful, our business, financial condition or +results of operations could be adversely affected. +● Substantial +and increasingly intense competition in the social media platform and content creation industry +may harm our business. +● Systems +failures, interruptions, delays in service, catastrophic events, and resulting interruptions +in the availability of our products or services could harm our business and our brand, and +subject us to substantial +● We +currently have ineffective internal control over financial reporting. +● Our +business is subject to complex and evolving U.S. and foreign laws and regulations regarding +privacy, data use and data protection, content, competition, consumer protection, and other +matters. Many of these laws and regulations are subject to change and uncertain interpretation, +and could result in claims, changes to our business practices, monetary penalties, increased +cost of operations, or declines in user growth or engagement, or otherwise harm our business. +● Changes +in tax laws or regulations that are applied adversely to us or our customers may have a material +adverse effect on our business, cash flow, financial condition or results of operations. +● Tensions +with North Korea could have an adverse effect on our business, financial condition, and results +of operations, and the price per share of our common stock. +● There +are special risks involved with investing in Korean companies, including the possibility +of restrictions being imposed by the Korean government in emergency circumstances, accounting +and corporate disclosure standards that differ from those in other jurisdictions, and the +risk of direct or vicarious criminal liability for executive officers of our Korean affiliates. +● Our +business may be adversely affected by developments that negatively impact the Korean economy +and uncertainties in economic conditions that impact spending patterns of our customers in +Korea. +● New +legislative proposals may expose our business to additional risks from litigation, regulation, +and government investigations. +● There +may be losses or unauthorized access to or releases of confidential information, including +personally identifiable information (“PII”), that could subject the Company to +significant reputational, financial, legal and operational consequences. +● Security +breaches, improper access to or disclosure of our data or user data, other hacking and phishing +attacks on our systems, or other cyber incidents could harm our reputation and adversely +affect our business. +● Regulatory +changes or actions may restrict the use of digital assets in a manner that adversely affects +our business, prospects or operations. +● We +may not be able to prevent others from unauthorized use of our intellectual property, which +could harm our business and competitive position. +● Our +stock price may be volatile, and you could lose all or part of your investment. +● We +are an emerging growth company, and any decision on our part to comply only with certain +reduced reporting and disclosure requirements applicable to emerging growth companies could +make our common stock less attractive to investors. +13 +RISKS +RELATED TO OUR BUSINESS +We +have incurred significant losses since our inception, and we intend to continue to invest in our business. As a result, we may continue +to experience losses in the future. +We +incurred a net loss of approximately $4.6 million and $6.2 million for the years ended December 31, 2025 and for the periods ended December +31, 2024, respectively. As of December 31, 2025, we had an accumulated deficit of approximately $42.5 million, and $37.9 million as of +December 31, 2024. The audited report of our independent registered public accounting firm to the financial statements for the years +ended December 31, 2025, and 2024, included elsewhere in the Report, contains an explanatory paragraph stating that our recurring losses +from operations, accumulated deficit and negative working capital raise substantial doubt about our ability to continue as a going concern. +We +expect to continue to invest heavily in our product development and operations, to focus on our Faning platform to increase our user +base to support future growth, and to meet our expanded reporting and compliance obligations as a public company. We cannot assure you +that we will be able to generate revenue sufficient to offset our expected cost increases and planned investments in our business and +platform. As a result, we may incur significant losses for the foreseeable future, and may not be able to achieve or sustain profitability. +If we fail to achieve or sustain profitability, then we may not be able to achieve our business plan, fund our business or continue as +a going concern. The financial statements included in this Report do not contain any adjustments which might be necessary if we were +unable to continue as a going concern. +Our +auditor has included an explanatory paragraph in their opinion regarding our ability to continue as a going concern. If we are unable +to continue as a going concern, our securities will have little or no value. +OneStop +Assurance, PAC, our independent registered public accounting firm for the fiscal year ended December 31, 2025 and December 31, 2024, +has included an explanatory paragraph in their opinion that accompanies our audited consolidated financial statements as of and for the +year ended December 31, 2025 and December 31, 2024, indicating that our recurring losses from operations and a working capital deficiency +raises substantial doubt about our ability to continue as a going concern. If we are unable to obtain profitability or improve our liquidity +position, we may not be able to continue as a going concern. +We +anticipate that we will continue to generate operating losses and use cash in operations through the foreseeable future. We will need significant additional capital, or we may be required to curtail or cease operations. +14 +To +continue as a going concern, we will require significant additional capital, which we may be unable to obtain. +The revenues generated from our operations are +not presently sufficient to sustain our operations. Therefore, we will need to raise additional capital in the future to continue our +operations. We currently believe that existing cash on hand is sufficient to support operations for approximately two months based on +the current operating cash burn rate and estimate that we will require approximately $250,000 per month to support ongoing operations +and execute our business plan. Accordingly, we estimate that approximately $3.0 million of additional capital will be required over the +next 12 months +We anticipate that our principal sources of liquidity will not be sufficient to fund +our activities to obtain long-term, sustainable profitability. To have sufficient cash to fund our operations to obtain long-term, sustainable +profitability, we will need to raise additional equity or debt capital. There can be no assurance that additional funds will be available +when needed from any source or, if available, will be available on terms that are acceptable to us. We will be required to pursue sources +of additional capital through various means, including debt or equity financing. Future financing through equity investments will be +dilutive to existing stockholders. The terms of securities we may issue in future capital transactions may be more favorable for new +investors. Newly issued securities may include preferences, superior voting rights, the issuance of warrants or other derivative securities, +and the issuances of incentive awards under equity employee incentive plans, all of which will have additional dilutive effects. Further, +we may incur substantial costs in pursuing future capital and/or financing, including investment banking fees, legal fees, accounting +fees, printing and distribution expenses and other costs. We may also be required to recognize non-cash expenses in connection with certain +securities we may issue, such as convertible notes and warrants, which may adversely impact our financial condition. Our ability to obtain +needed financing may be impaired by such factors as the capital markets and our history of losses, which could impact the availability +and cost of future financing. If the amount of capital we can raise from financing activities, together with any revenues and profits +from operations, is not sufficient to satisfy our capital needs, even to the extent that we reduce our operations accordingly, we may +be required to curtail or cease operations. +We +are a development stage company, and we may not be able to generate or sustain our growth or implement our business strategies. +We +have a limited operating history. As our application offerings continue to develop, we may adjust our strategy and business model to adapt. +These adjustments may not achieve expected results and may have a material and adverse impact on our financial condition and results +of operations. +In +addition, any growth or expansion of our business may significant strain on our management and resources. We believe that any growth +of our business will depend on many factors, including our ability to develop new sources of revenues, diversify monetization methods +including advertising revenue, attract and retain users, increase engagement on our Faning platform, continue developing innovative technologies +and application uses in response to shifting demand in the market, increase brand awareness, and expand into new markets. We cannot assure +you that we will achieve any of the above, and our failure to do so may materially and adversely affect our business and results of operations. +15 +We +are subject to risks associated with operating in a rapidly developing industry and a relatively new market. +Many +elements of our business are unique, evolving and relatively unproven. Our business and prospects depend on the continuing +development of the social media market, which is relatively new, rapidly developing and subject to significant challenges. Our +business relies upon our ability to cultivate and grow an active online community, and our ability to successfully monetize such +community through methods that include, without limitation, advertising revenue. In addition, our continued growth depends, in part, +on our ability to respond to constant changes in the industry, including rapid technological evolution and continued shifts in user +trends. Developing and integrating new content, products, services or infrastructure could be expensive and time-consuming, and +these efforts may not yield the benefits we expect to achieve at all. We cannot assure you that we will succeed in any of these +aspects or that the industry will continue to grow as rapidly as it has in the past. +Our +success depends on our ability to develop products and services to address the rapidly evolving market for the content creation and social +media platform industry, and, if we are not able to implement successful enhancements and new features for our products and services, +our business could be materially and adversely affected. +We +expect that new services and technologies applicable to the content creation and social media platform industry in which we operate will +continue to emerge and evolve. Rapid and significant technological changes continue to confront the industries in which we operate, including +developments in the social media platform and content creation industry. Incorporating new technologies into our products and services +may require substantial expenditures and take considerable time, and we may not be successful in realizing a return on these development +efforts in a timely manner or at all. There can be no assurance that any new products or services we develop and offer to our customers +will achieve commercial acceptance. Our ability to develop new products and services may be inhibited by industry-wide standards, +laws and regulations, resistance to change from buyers or sellers, or third parties’ intellectual property rights. Our success +will depend on our ability to develop new technologies and to adapt to technological changes and evolving industry standards. If we are +unable to provide enhancements and new features for our products and services or to develop new products and services that achieve market +acceptance or that keep pace with rapid technological developments and evolving industry standards, our business would be materially +and adversely affected. +The +success of enhancements, new features, and products and services depends on several factors, including the timely completion, introduction, +and market acceptance of the enhancements or new features or services. We often rely not only on our own initiatives and innovations, +but also on third parties, including some of our competitors, for the development of and access to new technologies. +16 +In +addition, because our products and services are designed to operate with a variety of systems, infrastructures, and devices, we need +to continuously modify and enhance our products and services to keep pace with changes in mobile, software, communication, and database +technologies. We may not be successful in either developing these modifications and enhancements or in bringing them to market in a timely +and cost-effective manner. Any failure of our products and services to continue to operate effectively with third-party infrastructures +and technologies could reduce the demand for our products and services, result in dissatisfaction of our sellers or their customers, +and materially and adversely affect our business. +As +a creator and a distributor of digital media content, we face liability and expenses for legal claims based on the nature and content +of the materials that we create or distribute, including materials provided by third parties. If we are required to pay damages or expenses +in connection with these legal claims, our business and results of operations may be harmed. +We +display original content and third-party content on our websites and in our marketing messages. As a result, we have faced and will continue +to face potential liability based on a variety of theories, including deceptive advertising and copyright or trademark infringement. +We generally rely on the “fair use” exception for our use of third-party brand names and marks, but these third parties may +disagree, and the laws governing the fair use of these third-party materials are imprecise and adjudicated on a case-by-case basis. We +also create content we believe to be original for our websites. While we do not believe that this content infringes on any third-party +copyrights or other intellectual property rights, owners of competitive websites that present similar content have taken and may take +the position that our content infringes on their intellectual property rights. We are also exposed to risk that content provided by third +parties is inaccurate or misleading, and for material posted to our websites by users and other third parties. These claims could divert +management time and attention away from our business and result in significant costs to investigate and defend, regardless of the merit +of these claims. The general liability insurance we maintain may not cover potential claims of this type or may not be adequate to indemnify +us for all liability that may be imposed. Any imposition of liability that is not covered by insurance, or is in excess of insurance +coverage, could materially adversely affect our business, financial condition and results of operations. +Our +dependence on third-party relationships with content producers and distribution channels to develop and distribute entertainment content +is critical to the success of the Faning Platform. +We +rely on third party relationships with content producers and distribution channels to develop and distribute entertainment content. Our +financial performance may be adversely affected by our relationships with content producers and distribution channels. Some of our content +producers may have their own or other distribution capabilities in the markets in which we operate. These third-party content producers +and distribution channels may decide, or be required by their respective parent companies, to use their intracompany distribution or +content production capabilities rather than posting such content with us. Our business may be harmed if the content producers and distribution +channels with which we work stop or reduce the amount of content they produce for us, or otherwise demand less favorable terms to us. +Our +decision not to provide products and services and to restrict user access in China (including Hong Kong and Macau) will limit our total +addressable market and may limit our ability to grow our business. +China +and Hong Kong could represent a large market opportunity for our business. However, and although we believe that such a decision may +benefit the Company in the long run, by choosing not to provide products and services, and restricting user access in China (including +Hong Kong and Macau), we are sacrificing potential business opportunities that may negatively impact the Company. As a result, the Company’s +total addressable market and potential growth may be limited and, as a result, the market price of our common stock may significantly +decrease or become worthless. +If +our content streaming initiatives are unsuccessful, our business, financial condition or results of operations could be adversely affected. +Content +streaming is intensely competitive and cash intensive and there can be no assurance that our content creation initiatives will be profitable +or otherwise successful. Our ability to attract, engage and retain users within the Faning platform, as well as the corresponding advertising +revenues they generate, will depend on our ability to consistently provide appealing and differentiated content globally, effectively +market our content and services and provide a quality experience for selecting and viewing that content. Our success will require significant +investments to produce original content and acquire the rights to third-party content, as well as the establishment and maintenance of +key content and distribution partnerships. +17 +We +must continually add new users and meaningfully engage with existing users to manage turnover, or “churn,” to grow our business. +If we are unable to successfully compete with competitors in attracting, engaging with and retaining users as well as creative talent, +our business, financial condition or results of operations could be adversely affected. The relative service levels, content offerings, +promotions and pricing and related features of our competitors’ services may adversely impact our ability to attract, engage and +retain users. If consumers do not consider our platform to be of value compared to our competitors’ platforms, including because +we fail to introduce attractive new content and features, do not maintain competitive pricing, terminate or modify promotional or trial +period offerings, experience technical issues, or change the mix of content in a manner that is unfavorably received, we may not be able +to attract, engage and retain users. If we are not able to attract new users, or our existing users decide to not continue using our +services for any reason, including a perception that they do not use our platform sufficiently, the need to cut household expenses, unsatisfactory +content, promotions or offers expire or are modified, competitive platforms provide a better value or experience or customer service +or technical issues are not satisfactorily resolved, our business, financial condition or results of operations could be adversely affected. +We +are dependent on the continued services and on the performance of key third party content contributors, the loss of which could adversely +affect our business. +We +rely on content contributed by third party providers, which has in turn attracted users that drive advertising revenue. The loss of the +services of any of such key contributors could have a material adverse effect on our business, operating results, and financial condition. +We also depend on our ability to identify, attract, and retain other highly skilled third-party content contributors. Competition for +such contributors is intense, and there can be no assurance that we will be able to successfully attract, assimilate or retain them. +The loss or limitation of the services of any of our key third party contributors, or the inability to attract and retain additional +qualified key contributors, could have a material adverse effect on our business, financial condition or results of operations. +Substantial +and increasingly intense competition in the social media platform and content creation industry may harm our business. +We +compete in markets characterized by vigorous competition, changing technology, evolving industry standards, and frequent introductions +of new products and services. We expect competition to intensify in the future as existing and new competitors introduce new services +or enhance existing services. We compete against many companies to attract customers, and some of these companies have greater financial +resources and substantially larger bases of customers than we do, which may provide them with significant competitive advantages. These +companies may devote greater resources to the development, promotion, and sale of products and services, and they may introduce their +own innovative products and services that adversely impact our growth. Mergers and acquisitions by these companies may lead to even larger +competitors with more resources. We also expect new entrants to offer competitive products and services. If we are unable to differentiate +ourselves from and successfully compete with our competitors, our business will be materially and adversely affected. +We +may also face pressures from competitors for user engagement and, in the future, advertising revenues. Some potential competitors are +able to offer greater returns on content sales to content creators for similar services by cross-subsidizing their payments services +through other services they offer. Such competition may result in the need for us to alter the amount we charge creators in content-sales +transactions, and could reduce revenue. In addition, as we grow, influential creators may demand more customized and favorable +pricing from us, and competitive pressures may require us to agree to such pricing, further reducing our gross profit. +18 +Systems +failures, interruptions, delays in service, catastrophic events, and resulting interruptions in the availability of our products or services +could harm our business and our brand, and subject us to substantial liability. +Our +systems and those of our third-party data center facilities may experience service interruptions, denial-of-service and other cyber-attacks, +human error, earthquakes, hurricanes, floods, fires, natural disasters, power losses, disruptions in telecommunications services, fraud, +military or political conflicts, terrorist attacks and other geopolitical unrest, computer viruses, or other events. Our systems are +also subject to break-ins, sabotage, and acts of vandalism. Some of our systems are not fully redundant, and our disaster-recovery planning +is not sufficient for all eventualities. In addition, as a provider of payments solutions, we are subject to increased scrutiny by regulators +that may require specific business continuity and disaster recovery plans and more rigorous testing of such plans. This increased scrutiny +may be costly and time-consuming and may divert our resources from other business priorities. +We +may, and are likely to, experience denial-of-service attacks, system failures, and other events or conditions that interrupt the availability +or reduce the speed or functionality of our products and services. These events, should they occur, would likely result in loss of revenue. +In addition, they could result in significant expense to repair or replace damaged equipment and remedy resultant data loss or corruption. +A prolonged interruption in the availability or reduction in the speed or other functionality of our products or services could materially +harm our reputation and business. Frequent or persistent interruptions in our products and services could cause users to believe that +our products and services are unreliable, leading them to switch to our competitors or to avoid our products and services, and could +permanently harm our reputation and business. Moreover, to the extent that any system failure or similar event results in damages to +customers or their businesses, these customers could seek compensation from us for their losses, and those claims, even if unsuccessful, +would likely be time-consuming and costly for us to address. +Our +success depends largely on the continued service and availability of key personnel. +Much +of the Company’s future success depends on the continued availability and service of key personnel, including its Chief Executive +Officer. Since the technology industry is characterized by high demand and intense +competition for talents, we cannot assure you that we will be able to attract or retain qualified staff or other highly skilled employees. +In addition, as the Company is relatively young, our ability to train and integrate new employees into our operations may not meet the +growing demands of our business which may materially and adversely affect our ability to grow our business and hence our results of operations. +From +time to time, we may become involved in legal proceedings. +From +time to time, we may become subject to legal proceedings, claims, litigation and government investigations or inquiries, which could +be expensive, lengthy, disruptive to normal business operations and occupy a significant amount of our employees’ time and attention. +In addition, the outcome of any legal proceedings, claims, litigation, investigations, or inquiries may be difficult to predict and could +have a material adverse effect on our business, operating results, or financial condition. +The +preparation of our financial statements involves the use of good faith estimates, judgments and assumptions, and our financial statements +may be materially affected if such good faith estimates, judgments or good faith assumptions prove to be inaccurate . +Financial +statements prepared in accordance with accounting principles generally accepted in the United States of America (“ GAAP ”) +typically require the use of good faith estimates, judgments and assumptions that affect the reported amounts. Often, different estimates, +judgments and assumptions could reasonably be used that would have a material effect on such financial statements, and changes in these +estimates, judgments and assumptions may occur from period to period over time. Significant areas of accounting requiring the application +of management’s judgment include, but are not limited to, determining the fair value of assets, share-based compensation and the +timing and amount of cash flows from assets. These estimates, judgments and assumptions are inherently uncertain and, if our estimates +were to prove to be wrong, we would face the risk that charges to income or other financial statement changes or adjustments would be +required. Any such charges or changes would require a restatement of our financial statements and could harm our business, including +our financial condition and results of operations and the price of our securities. See “ Management ’ s Discussion +and Analysis of Financial Condition and Results of Operations ” for a discussion of the accounting estimates, judgments and +assumptions that we believe are the most critical to an understanding of our financial statements and our business. +We +currently have ineffective internal control over financial reporting. +We +currently have ineffective internal control over financial reporting. We have historically outsourced our accounting to small firms and +also replaced our accounting firm with another small firm, the transition of which has caused a lack of continuity and loss of efficiency +in the preparation of our financial statements. While we intend to remediate this weakness by hiring more permanent, qualified and experienced +accounting personnel at the Company and/or to hire a larger accounting firm with more resources and expertise, we may not be able to remediate this weakness. +19 +RISKS +RELATED TO GOVERNMENT REGULATION +Our +business is subject to regulation, and changes in applicable regulations may negatively impact our business. +We +are subject to a number of foreign and domestic laws and regulations relating to user privacy, data collection, retention, electronic +commerce, virtual items and currency, consumer protection, content, advertising, localization, and information security which have been +adopted or are being considered for adoption by many jurisdictions and countries throughout the world. These laws could harm our business +by limiting the products and services we can offer consumers or the manner in which we offer them. The costs of compliance with these +laws may increase in the future as a result of changes in interpretation. Furthermore, any failure on our part to comply with these laws +or the application of these laws in an unanticipated manner may harm our business and result in penalties or significant legal liability. +Actions +by governments that restrict access to Faning in their countries, or that otherwise impair our ability to sell advertising in their countries, +could substantially harm our business and financial results. +Governments +from time to time seek to censor content available on social media platforms, or restrict access to social media platforms from +their country entirely, or impose other restrictions that may affect the accessibility of our products in their country for an +extended period of time or indefinitely. For example, user access to certain other company social media platforms has been or is +currently restricted in whole or in part in China, Iran, and North Korea. In addition, government authorities in other countries may +seek to restrict user access to our products if they consider us to be in violation of their laws or a threat to public safety or +for other reasons. If +access to our products or services is restricted in one or more countries, our ability to attract users, increase user engagement, +or generate advertising revenue in those markets may be adversely affected.. It is also possible that government authorities could +take action that impairs our ability to sell advertising, including in countries where access to our consumer-facing products may be +blocked or restricted. In the event that content shown on Faning is subject to censorship, access to our products is restricted, in +whole or in part, in one or more countries, we are required to or elect to make changes to our operations, or other restrictions are +imposed on our products, or our competitors are able to successfully penetrate new geographic markets or capture a greater share of +existing geographic markets that we cannot access or where we face other restrictions, our ability to retain or increase our user +base, user engagement, or the level of advertising by marketers may be adversely affected, we may not be able to maintain or grow +our revenue as anticipated, and our financial results could be adversely affected. +Our +business is subject to complex and evolving U.S. and foreign laws and regulations regarding privacy, data use and data protection, content, +competition, consumer protection, and other matters. Many of these laws and regulations are subject to change and uncertain interpretation, +and could result in claims, changes to our business practices, monetary penalties, increased cost of operations, or declines in user +growth or engagement, or otherwise harm our business. +We +are subject to a variety of laws and regulations that involve matters central to our business, including privacy, data use, data protection +and personal information, rights of publicity, content, intellectual property, advertising, marketing, distribution, data security, data +retention and deletion, data localization and storage, data disclosure, artificial intelligence, electronic contracts and other communications, +competition, protection of minors, consumer protection, telecommunications, product liability, e-commerce, taxation, economic or other +trade prohibitions or sanctions, anti-corruption and political law compliance, securities law compliance, and online payment services. +The introduction of new products, expansion of our activities in certain jurisdictions, or other actions that we may take may subject +us to additional laws, regulations, or other government scrutiny. In addition, foreign data protection, privacy, content, competition, +and other laws and regulations can impose different obligations or be more restrictive than those in the United States. +Since +our operations are based in Korea, where most of our users are domiciled, we are subject to, among others, the Personal Information Protection +Act and related legislation, regulations and orders (the “ PIPA ”), the Act on the Promotion of Information and Communications +Network Utilization and Protection of Information Act (Korea), and the Credit Information Act in Korea that specifically regulates certain +sensitive personal information. PIPA requires consent by the consumer with respect to the use of his or her data and requires the persons +responsible for management of personal data to take the necessary technological and managerial measures to prevent data breaches and, +among other duties, to notify the Personal Information Protection Commission of any data breach incidents within 24 hours. Failure to +comply with PIPA in any manner may subject these persons responsible to personal liability for not obtaining such consent in an appropriate +manner or for such breaches, including even negligent breaches, and violators face varying penalties ranging from monetary penalties +to imprisonment. We strive to take the necessary technological and managerial measures to comply with PIPA, including the implementation +of privacy policies concerning the collection, use, and disclosure of subscriber data on our apps and websites, and we regularly review +and update our policies and practices. Despite these efforts to comply with PIPA, these rules are complex and evolving, subject to interpretation +by government regulators which may change over time and therefore we are subject to the risk of claims by regulators of failure to comply +with PIPA. Any failure, or perceived failure, by us to comply with such policies, laws, regulations, and other legal obligations and +regulatory guidance could adversely affect our reputation, brand, and business, and may result in claims, proceedings, or actions, including +criminal proceedings, against us and certain of our executive officers by governmental entities or others or other liabilities. Any such +claim, proceeding, or action, could hurt our reputation, brand, and business, force us to incur significant expenses in defense of such +proceedings, distract our management, increase our costs of doing business, result in a loss of customers and merchants, and could have +an adverse effect on our business, financial condition, and results of operations. +20 +These +U.S. federal and state and foreign laws and regulations, which in some cases can be enforced by private parties in addition to government +entities, are constantly evolving and can be subject to significant change. As a result, the application, interpretation, and enforcement +of these laws and regulations are often uncertain, particularly in the new and rapidly evolving industry in which we operate, and may +be interpreted and applied inconsistently from country to country and inconsistently with our current policies and practices. For example, +regulatory or legislative actions affecting the manner in which we display content to our users or obtain consent to various practices +could adversely affect user growth and engagement. Such actions could affect the manner in which we provide our services or adversely +affect our financial results. +We +are also subject to evolving laws and regulations that dictate whether, how, and under what circumstances we can transfer, process and/or +receive certain data that is critical to our operations, including data shared between countries or regions in which we operate and data +shared among our products and services. If we are unable to transfer data between and among countries and regions in which we operate, +or if we are restricted from sharing data among our products and services, it could affect our ability to provide our services, the manner +in which we provide our services or our ability to target ads, which could adversely affect our financial results. +Proposed +or new legislation and regulations could also significantly affect our business. Laws and regulations are evolving and subject to interpretation, +and resulting limitations on our advertising services, or reductions of advertising by marketers, have to some extent adversely affected, +and will continue to adversely affect, our advertising business. Changes to our products or business practices as a result of these developments +may adversely affect our advertising business. Similarly, there are a number of legislative proposals in the European Union, the United +States, at both the federal and state level, as well as other jurisdictions that could impose new obligations or limitations in areas +affecting our business. In addition, some countries are considering or have passed legislation implementing data protection requirements +or requiring local storage and processing of data or similar requirements that could increase the cost and complexity of delivering our +services. +For +example, the European Union traditionally has imposed stricter obligations under its laws and regulations relating to privacy, data protection +and consumer protection than the United States. In May 2018, the European Union’s new regulation governing data practices and privacy +called the General Data Protection Regulation, or GDPR, became effective and substantially replaced the data protection laws of the individual +European Union member states. The law requires companies to meet more stringent requirements regarding the handling of personal data +of individuals in the EU than were required under predecessor EU requirements. In the United Kingdom, a Data Protection Bill that substantially +implements the GDPR also became law in May 2018. The law also increases the penalties for non-compliance, which may result in monetary +penalties of up to €20.0 million or 4% of a company’s worldwide turnover, whichever is higher. The GDPR and other similar +regulations require companies to give specific types of notice and in some cases seek consent from consumers and other data subjects +before collecting or using their data for certain purposes, including some marketing activities. Outside of the European Union, many +countries have laws, regulations, or other requirements relating to privacy, data protection, information security, and consumer protection, +and new countries are adopting such legislation or other obligations with increasing frequency. Many of these laws may require consent +from consumers for the use of data for various purposes, including marketing, which may reduce our ability to market our products. There +is no harmonized approach to these laws and regulations globally. Consequently, we increase our risk of non-compliance with applicable +foreign data protection laws by operating internationally. We may need to change and limit the way we use personal information in operating +our business and may have difficulty maintaining a single operating model that is compliant. In addition, various federal, state and +foreign legislative and regulatory bodies, or self-regulatory organizations, may expand current laws or regulations, enact new laws or +regulations or issue revised rules or guidance regarding privacy, data protection, information security and consumer protection. For +example, California recently adopted the California Consumer Privacy Act of 2018 (“ CCPA ”), which provides new data +privacy rights for consumers and new operational requirements for businesses. The CCPA includes a statutory damages framework and private +rights of action against businesses that fail to comply with certain CCPA terms or implement reasonable security procedures and practices +to prevent data breaches. The CCPA became effective in January 2020. While the Company has not experienced any material adverse impact from the CCPA to date, +compliance with evolving privacy laws and regulations may require ongoing adjustments to our data processing practices and may result +in additional compliance costs in the future. +21 +These +laws and regulations, as well as any associated claims, inquiries, or investigations or any other government actions, have in the past +led to, and may in the future lead to, unfavorable outcomes including increased compliance costs, delays or impediments in the development +of new products, negative publicity and reputational harm, increased operating costs, diversion of management time and attention, and +remedies that harm our business, including fines or demands or orders that we modify or cease existing business practices. +Payment +transactions may subject us to additional regulatory requirements and other risks that could be costly and difficult to comply with or +that could harm our business. +Our +users can purchase virtual and digital goods from creators and developers within our platform and infrastructure on Faning. In addition, +certain of our users can use our Faning infrastructure, including within Clubs and communities, for other activities, such as sending +money to other users or purchasing goods and/or services from other users. We are subject to a variety of laws and regulations in the +United States, Europe, and elsewhere, including those governing anti-money laundering and counter-terrorist financing, money transmission, +gift cards and other prepaid access instruments, electronic funds transfer, charitable fundraising, and import and export restrictions. +Depending on how our payments product evolves, we may also be subject to other laws and regulations including those governing gambling, +banking, and lending. In some jurisdictions, the application or interpretation of these laws and regulations is not clear. Our efforts +to comply with these laws and regulations could be costly and result in diversion of management time and effort and may still not guarantee +compliance. In the event that we are found to be in violation of any such legal or regulatory requirements, we may be subject to monetary +fines or other penalties such as a cease and desist order, or we may be required to make product changes, any of which could have an +adverse effect on our business and financial results. +In +addition, we are subject to a variety of additional risks as a result of payments transactions, including: increased costs and diversion +of management time and effort and other resources to deal with bad transactions or customer disputes; potential fraudulent or otherwise +illegal activity by users, developers, employees, or third parties; restrictions on the investment of consumer funds used to transact +payments; and additional disclosure and reporting requirements. We have also launched/have announced plans to develop digital payments +products and services, which may subject us to many of the foregoing risks and additional licensing requirements. +Changes +in tax laws or regulations that are applied adversely to us or our customers may have a material adverse effect on our business, cash +flow, financial condition or results of operations. +New +income, sales, use or other tax laws, statutes, rules, regulations or ordinances could be enacted at any time, which could affect the +tax treatment of our earnings and adversely affect our operations, and our business and financial performance. Further, existing tax +laws, statutes, rules, regulations or ordinances could be interpreted, changed, modified or applied adversely to us. There may be material +adverse effects resulting from the legislation that we have not yet identified. No estimated tax provision has been recorded in the financial +statements included herein for tax attributes that are incomplete or subject to change. +The +foregoing items could have a material adverse effect on our business, cash flow, financial condition or results of operations. In addition, +it is unclear how these U.S. federal income tax changes will affect state and local taxation, which often uses federal taxable income +as a starting point for computing state and local tax liabilities. The impact of this tax legislation on holders of our common stock +is also uncertain and could be adverse. We urge our stockholders and investors to consult with our legal and tax advisors with respect +to this legislation and the potential tax consequences of investing in or holding our common stock. +22 +Failure +to comply with the U.S. Foreign Corrupt Practices Act could result in fines, criminal penalties and an adverse effect on our business. +We +may operate in a number of countries throughout the world, including countries known to have a reputation for corruption. We are committed +to doing business in accordance with applicable anti-corruption laws and have adopted a code of business conduct and ethics which is +consistent and in full compliance with the U.S. Foreign Corrupt Practices Act of 1977, or the FCPA. We are subject, however, to the risk +that we, our affiliated entities or our or their respective officers, directors, employees and agents may take actions determined to +be in violation of such anti- corruption laws, including the FCPA. Any such violation could result in substantial fines, sanctions, civil +and/or criminal penalties, curtailment of operations in certain jurisdictions, and might adversely affect our business, results of operations +or financial condition. In addition, actual or alleged violations could damage our reputation and ability to do business. Furthermore, +detecting, investigating, and resolving actual or alleged violations is expensive and can consume significant time and attention of our +senior management. +RISKS +RELATED TO DOING BUSINESS IN KOREA +Fluctuations +in exchange rates could result in foreign currency exchange losses to us. +The +value of the Korean Won and other currencies against the U.S. dollar has fluctuated, and may continue to fluctuate and is affected by, +among other things, changes in political and economic conditions. It is difficult to predict how market forces or Korean or U.S. government +policy, including any interest rate increases by the Federal Reserve, may impact the exchange rate between the Korean Won and the U.S. +dollar in the future. +A +substantial percentage of our revenue and costs are denominated in Korean Won, and a significant portion of our financial assets are +also denominated in Korean Won, while we anticipate that a substantial portion of any debt incurred will be denominated in U.S. dollars. +We may receive dividends, loans and other distributions on equity paid by our operating subsidiary in Korea. Any significant fluctuations +in the value of the Korean Won may materially and adversely affect our liquidity and cash flows. For example, the depreciation of the +Korean Won and other foreign currencies against the U.S. dollar typically results in a material increase in the cost of hosting services +and equipment purchased from outside of Korea and the cost of servicing debt denominated in currencies other than the Korean Won. As +a result, any significant depreciation of the Korean Won or other major foreign currencies against the U.S. dollar may have a material +adverse effect on our results of operations. If we decide to convert our Korean Won into U.S. dollars for the purpose of repaying principal +or interest expense on any future U.S. dollar-denominated debt, making payments for dividends on our common stock, or other business +purposes, depreciation of the Korean Won or other foreign currencies against the U.S. dollar would have a negative effect on the U.S. +dollar amount we would receive. Conversely, to the extent that we need to convert U.S. dollars into Korean Won for our operations, appreciation +of the Korean Won against the U.S. dollar would have an adverse effect on the Korean Won amount we would receive. +Tensions +with North Korea could have an adverse effect on our business, financial condition, results of operations, and the price per share of +our common stock. +Relations +between Korea and North Korea have fluctuated over the years. Tension between Korea and North Korea may increase or change abruptly as +a result of current and future events. In particular, there have been heightened security concerns in recent years stemming from North +Korea’s nuclear weapon and ballistic missile programs as well as its hostile military actions against Korea. +North +Korea’s economy also faces severe challenges, which may further aggravate social and political pressures within North Korea. Geopolitical tensions involving North Korea and the surrounding region +remain elevated and unpredictable. Changes in political, economic, or military conditions in the Korean peninsula could adversely affect +regional stability, financial markets, and business operations in South Korea and surrounding markets. +23 +Further +tensions in North Korean relations could develop due to a leadership crisis, breakdown in high-level inter-Korea contacts or military +hostilities. Alternatively, tensions may be resolved through reconciliatory efforts, which may include peace talks, alleviation of sanctions +or reunification. We cannot assure you that future negotiations will result in a final agreement on North Korea’s nuclear program, +including critical details such as implementation and timing, or that the level of tensions between Korea and North Korea will not escalate. +Any increase in the level of tension between Korea and North Korea, an outbreak in military hostilities or other actions or occurrences, +could adversely affect our business, prospects, financial condition, and results of operations and could lead to a decline in the price +per share of our common stock. +There +are special risks involved with investing in Korean companies, including the possibility of restrictions being imposed by the Korean +government in emergency circumstances, accounting and corporate disclosure standards that differ from those in other jurisdictions, and +the risk of direct or vicarious criminal liability for executive officers of our Korean affiliates. +Our +wholly owned subsidiary, FANING KOREA, LLC, is our Korean subsidiary and operates in a business and cultural environment that is different +from that of other countries. For example, under the Foreign Exchange Transaction Act of Korea, if the Korean government determines that +in certain emergency circumstances, including sudden fluctuations in interest rates or exchange rates, extreme difficulty in stabilizing +the balance of payments or substantial disturbance in the Korean financial and capital markets are likely to occur, it may impose any +necessary restriction such as requiring Korean or foreign investors to obtain prior approval from the Minister of Economy and Finance +of Korea prior to entering into a capital markets transaction, repatriating interest, dividends or sales proceeds arising from Korean +securities or from the disposition of such securities or other transactions involving foreign exchange. Although investors will hold +shares of our common stock, FANING KOREA, LLC may experience adverse risks and in turn could adversely impact our business, prospects, +financial condition, and results of operations and could lead to a decline in the price per share of our common stock. +In +addition, under Korean law, there are circumstances in which certain executive officers of a company may be investigated or held criminally +liable either directly or vicariously for the actions of the company and its executives and employees. For example, complaints alleging +infringement of intellectual property rights, breaches of certain Korean laws (e.g., labor standards laws and fair trade laws), and product-related +claims may be investigated and prosecuted as criminal offenses with both the company and the company’s executive officers being +named as defendants in such proceedings. These risks change over time. +As +a result of these current and changing risks, FANING KOREA, LLC’s executive officers may be named in the future in criminal investigations +or proceedings stemming from our operations. In Korea, company executive officers being named in such investigations or proceedings is +a common occurrence, even though in practice many such cases result in no liability to the individual. If FANING KOREA, LLC’s executive +officers were to be named in such criminal proceedings or held either directly or vicariously criminally liable for the actions of the +company and its executives and employees, our business, financial condition, and results of operations may be harmed. +Our +Korean subsidiary, FANING KOREA, LLC, may be designated as an affiliated group under Korean law, in which case the group of companies +would be required to make certain disclosures and implement additional corporate governance requirements. +Our +Korean subsidiary, FANING KOREA, LLC is likely to be designated as a business group subject to disclosure under the Korean Monopoly +Regulation and Fair Trade Act. As described in greater detail in the section titled “Government Regulation-The Monopoly Regulation +and Fair Trade Act”, such a designation would impose additional corporate governance and public disclosure requirements on this +group of affiliated companies. These requirements would create additional costs of compliance and could subject this group of affiliated +companies to greater regulatory scrutiny and risk of penalties for any failure to comply with the additional obligations imposed. +FANING +KOREA, LLC is subject to certain requirements and restrictions under Korean law that may, in certain circumstances, require it to act +in a manner that may not be in our or our stockholders ’ best interest. +Under +applicable Korean law, directors of a Korean company, such as FANING KOREA, LLC , owe a fiduciary duty to the company itself rather than +to its stockholders. This fiduciary duty obligates directors of a Korean company to perform their duties faithfully for the good of the +company as a whole. As a result, if circumstances arise in which the good of FANING KOREA, LLC conflicts with the good of Global Interactive +Technologies, Inc. or stockholders, FANING KOREA, LLC may not be permitted under applicable Korean law to act in a manner that is in +the best interest of Global Interactive Technologies, Inc. as its parent, or our stockholders. For example, providing guarantees or collateral +by FANING KOREA, LLC in favor of Global Interactive Technologies, Inc. as its parent, without a justifiable cause and on other than arm’s +length terms may cause breach of a fiduciary duty of directors to FANING KOREA, LLC. +24 +Approval +by the board of directors of a Korean company is required for, among other things, all transactions between a director or major stockholder +(including a 10% or more stockholder) and the company for the director’s or the major stockholder’s account. As a result, +intercompany transactions between us and FANING KOREA, LLC (or any other Korean subsidiary we may own, from time to time), could arise +in the future in which the directors of the Korean subsidiary are not able to act in ours or our stockholders’ best interest as +a result of competing interests of the subsidiary. Since substantially all of our operations are conducted by FANING KOREA, LLC, any +such occurrence with respect to FANING KOREA, LLC could adversely affect our business, financial condition, and results of operations. +FANING +KOREA, LLC’s transactions with related parties are subject to close scrutiny by the Korean tax authorities, which may result in +adverse tax consequences. +Under +Korean tax law, there is an inherent risk that FANING KOREA, LLC’s transactions with its subsidiaries (if any), affiliates or any +other person or company that is related to us may be challenged by the Korean tax authorities if such transactions are viewed as having +been made on terms that were not on an arm’s-length basis. If the Korean tax authorities determine that any of its transactions +with related parties were on other than arm’s-length terms, it may not be permitted to deduct as expenses, or may be required to +include as taxable income, any amount which is found to be undue financial support between related parties in such transaction, which +may have adverse tax consequences for us and, in turn, may adversely affect our business, financial condition, and results of operations. +If +we are deemed to have a “ place of effective management ” in Korea, we will be treated as a Korean +company for the purpose of Korean corporate income tax with regards to our worldwide income. +Under +the Corporate Tax Act (“ CTA ”), as amended on August 17, 2021, a corporation having a “place of effective management” +in Korea will be treated as a Korean company for the purposes of Korean corporate income tax. However, the CTA does not clearly define +what constitutes “place of effective management” and, to date, there has not been any court precedent. If we are deemed to +have a “place of effective management” in Korea, we will be required to file annual corporate income tax returns with the +Korean tax authorities and be subject to Korean corporate income tax. Currently, the applicable rates are 9.9% (inclusive of local corporate +taxes) for taxable income up to KRW 200 million, 20.9% (inclusive of local corporate taxes) for taxable income exceeding KRW 200 million +and less than KRW 20 billion, 23.1% (inclusive of local corporate taxes) for taxable income exceeding KRW 20 billion and less than KRW +300 billion, and 26.4% (inclusive of local corporate taxes) for taxable income exceeding KRW 300 billion. Taxable income would include +any worldwide income, such as dividends we receive from our Korean operating company and any interest income earned outside of Korea. +If we are required to pay Korean corporate income tax, it may reduce our cash flow and negatively impact the returns to investors. +If +we are deemed to have a “ permanent establishment ” in Korea, we will be subject to Korean corporate +income tax with regards to any Korean source income attributable to or effectively connected with such permanent establishment. +If +we are deemed to have a “permanent establishment” as defined under Korean tax law, we would be required to file annual corporate +income tax returns with the Korean tax office and be subject to Korean corporate income tax. The applicable rates are 9.9% (inclusive +of local corporate taxes) for taxable income up to KRW 200 million, 20.9% (inclusive of local corporate taxes) for taxable income exceeding +KRW 200 million and less than KRW 20 billion, 23.1% (inclusive of local corporate taxes) for taxable income exceeding KRW 20 billion +and less than KRW 300 billion, and 26.4% (inclusive of local corporate taxes) for taxable income exceeding KRW 300 billion. Taxable income +includes any Korean source income attributable to or effectively connected with such permanent establishment, such as dividends we receive +from our Korean operating company. If we are required to pay Korean corporate income tax, it may reduce our cash flow and negatively +impact the returns to investors. +25 +A +focus on regulating copyright and patent infringement by the Korean government subjects us to extra scrutiny in our operations and could +subject us to sanctions, fines, or other penalties, which could adversely affect our business and operations in Korea. +The +Korean government has recently focused on addressing copyright and patent infringement in Korea, particularly with respect to luxury +and brand name merchandise. Despite measures we have taken to address copyright and patent infringement, the Korean government may subject +us to sanctions, fines, or other penalties, which could adversely affect our business and operations in Korea. +Our +business may be adversely affected by developments that negatively impact the Korean economy and uncertainties in economic conditions +that impact spending patterns of our customers in Korea. +We +have historically generated a substantial majority of our revenue from sales in Korea. Our future performance will depend in large part +on Korea’s future economic growth. Adverse developments in Korea’s economy as a result of various factors, including economic, +political, legal, regulatory, and social conditions in Korea may have an adverse effect on customer spending, which may not allow us +to achieve our desired revenue growth. The economic indicators in Korea in recent years have shown mixed signs of growth and uncertainty. +As a result, future growth of the Korean economy is subject to many factors beyond our control, including developments in the global +economy. +The +Korean economy is closely tied to, and is affected by developments in, the global economy. In recent years, adverse conditions and volatility +in the worldwide financial markets and fluctuations in oil and commodity prices have contributed to the uncertainty of global economic +prospects in general and have adversely affected, and may continue to adversely affect, the Korean economy. Due to liquidity and credit +concerns and volatility in the global financial markets, the value of the Korean Won relative to the U.S. dollar and other foreign currencies +and the stock prices of Korean companies have fluctuated significantly in recent years. Further declines in the Korea Composite Stock +Price Index, and large amounts of sales of Korean securities by foreign investors and subsequent repatriation of the proceeds of such +sales may adversely affect the value of the Won, the foreign currency reserves held by financial institutions in Korea, and the ability +of Korean companies to raise capital. Any future deterioration of the Korean economy or the global economy could adversely affect our +business, financial condition, and results of operations. +New +legislative proposals may expose our business to additional risks from litigation, regulation, and government investigations. +We +are subject to changing laws and regulations everywhere we do business, including in Korea. +Previously, +punitive or exemplary damages have been available in Korea only in specific business fields. The proposed legislation would broaden the +potential availability of such damages. Similarly, the proposal relating to class actions would make such litigation applicable to a +broader scope of cases, would allow for a Korean style discovery process, jury trials in many cases, and would apply to claims whose +cause arose before the bill’s enactment. +South Korea continues to strengthen regulations relating to online platform +operators, digital commerce, consumer protection, and fair trade practices. Changes in applicable laws and regulations may increase compliance +obligations and operational costs for online platform businesses, including social media and digital community platforms such as ours. +Also, +on January 8, 2021, the main session of the Korean National Assembly passed a draft Bill on Punishment for Serious Accidents, etc. (the +“ Serious Accidents Act ”), which came into effect January 27, 2022. The Serious Accidents Act imposes enhanced liability +(including criminal liability) on businesses, managers, and individuals who are responsible for causing loss of life by failing to fulfill +duties relating to workplace safety and health or risk prevention. The Serious Accidents Act provides the potential for criminal punishment, +public disclosure of punishment, and monetary damages, including punitive damages up to five times the actual damages suffered. The Serious +Accidents Act extends potential liability to a wider group of persons than under existing law, including those who oversee safety and +health matters for the business concerned and also general managers of the business. +These +are just some examples of how our business could be affected by changing regulations. If these proposals are enacted and implemented, +our Korean subsidiary, FANING KOREA, LLC could face substantial costs and management could be required to spend significant time and +attention on these matters, which would divert our focus from our core business. This could adversely affect our business, financial +condition, and results of operations. +As +FANING KOREA, LLC is incorporated in Korea, it may be more difficult to enforce judgments obtained in courts outside Korea. +Our +operations are primarily conducted outside of the United States. In addition, all of our directors and officers are non-residents of +the United States, and all or a substantial portion of the assets of these non-residents are located outside the United States. As a +result, it may be difficult or impossible for U.S. investors to serve process within the United States upon us, our subsidiaries or our +directors and officers or to enforce a judgment against us for civil liabilities in U.S. courts. In addition, you should not assume that +courts in the countries in which we or our subsidiaries are incorporated or where our or the assets of our subsidiaries are located (1) +would enforce judgments of U.S. courts obtained in actions against us or our subsidiaries based upon the civil liability provisions of +applicable U.S. federal and state securities laws or (2) would enforce, in original actions, liabilities against us or our subsidiaries +based on those laws. +26 +RISKS +RELATED TO OUR TECHNOLOGY +Technology +changes rapidly in our business and if we fail to anticipate or successfully implement new technologies or adopt new business strategies, +technologies or methods, the quality and competitiveness of our service offerings may suffer. +Technology +changes rapidly in the social media market which requires us to anticipate which technologies we must develop, implement and take +advantage of in order to remain competitive. We have invested, and in the future may invest, in new business strategies including +technologies and products. Such endeavors may involve significant risks +and uncertainties, and no assurance can be given that the technology we choose to adopt and the features that we pursue will be +successful. If we do not successfully implement these new technologies, our reputation may be materially adversely affected and our +financial condition and operating results may be impacted. We also may miss opportunities to adopt technology, or develop new +technologies, which could adversely affect our financial results. It may take significant time and resources to shift our focus to +new technologies, putting us at a competitive disadvantage. +There +may be losses or unauthorized access to or releases of confidential information, including personally identifiable information (“PII”), +that could subject the Company to significant reputational, financial, legal and operational consequences. +The +Company’s business requires it to use and store confidential information including, among other things, PII, with respect to the +Company’s customers and employees. The Company devotes significant resources to network and data security, including through the +use of encryption and other security measures intended to protect its systems and data. However, these measures cannot provide absolute +security, and losses or unauthorized access to or releases of confidential information occur and could materially adversely affect the +Company’s reputation, financial condition and operating results. +The +Company’s business also requires it to share confidential information with suppliers and other third parties. Although the Company +takes steps to secure confidential information that is provided to third parties, such measures are not always effective and losses or +unauthorized access to or releases of confidential information occur and could materially adversely affect the Company’s reputation, +financial condition and operating results. +For +example, the Company may experience a security breach impacting the Company’s information technology systems, which, for the avoidance +of doubt, includes the Company’s separate FP database, that compromises the confidentiality, integrity or availability of confidential +information. Such an incident could, among other things, impair the Company’s ability to attract and retain customers for its products +and services, impact the Company’s stock price, materially damage supplier relationships, and expose the Company to litigation +or government investigations, which could result in penalties, fines or judgments against the Company. +The +Company has implemented systems and processes intended to secure its information technology systems and prevent unauthorized access to +or loss of sensitive data, including through the use of encryption and authentication technologies. As with all companies, these security +measures may not be sufficient for all eventualities and may be vulnerable to hacking, employee error, malfeasance, system error, faulty +password management or other irregularities. +In +addition to the risks relating to general confidential information described above, the Company is also subject to specific obligations +relating to payment card data. Under payment card rules and obligations, if cardholder information is potentially compromised, the Company +could be liable for associated investigatory expenses and could also incur significant fees or fines if the Company fails to follow payment +card industry data security standards. The Company could also experience a significant increase in payment card transaction costs or +lose the ability to process payment cards if it fails to follow payment card industry data security standards, which would materially +adversely affect the Company’s reputation, financial condition and operating results. +While +the Company maintains insurance coverage that is intended to address certain aspects of data security risks, such insurance coverage +may be insufficient to cover all losses or all types of claims that may arise. +27 +We +use third-party services and technologies in connection with our business, and any disruption to the provision of these services and +technologies to us could result in negative publicity and a slowdown in the growth of our users, which could materially and adversely +affect our business, financial condition and results of operations. +Our +business partially depends on services provided by, and relationships with, various third parties, including cloud hosting and broadband +providers, among others. To this end, when our cloud hosting and broadband vendors experience outages, our services offered through Faning +and related applications will be negatively impacted and alternative resources will not be immediately available. We exercise no control +over the third-party vendors that we rely upon for cloud hosting, broadband and software service. If such third parties increase their +prices, fail to provide their services effectively, terminate their service or agreements or discontinue their relationships with us, +we could suffer service interruptions, reduced revenues or increased costs, any of which may have a material adverse effect on our business, +financial condition and results of operations. +Growth +of our client base depends upon effective interoperability with mobile operating systems, networks, mobile devices and standards that +we do not control. +We +are dependent on the interoperability of our services with popular mobile devices and mobile operating systems that we do not control, +such as Android and iOS. Any changes in such mobile operating systems or devices that degrade the functionality of our services or give +preferential treatment to competitive services could adversely affect usage of our services. In order to deliver high quality services, +it is important that our services work well across a range of mobile operating systems, networks, mobile devices and standards that we +do not control. We may not be successful in developing relationships with key participants in the mobile industry or in developing services +that operate effectively with these operating systems, networks, devices and standards. In the event that it is difficult for our users +to access and use our services, particularly on their mobile devices, our user growth and user engagement could be harmed, and our business +and operating results could be adversely affected. +Security +breaches, improper access to or disclosure of our data or user data, other hacking and phishing attacks on our systems, or other cyber +incidents could harm our reputation and adversely affect our business. +Our +industry is prone to cyber-attacks by third parties seeking unauthorized access to our data or users’ data or to disrupt our ability +to provide service. Our products and services involve the collection, storage, processing, and transmission of a large amount of data, +including FP stored in the Company’s separate FP database. Any failure to prevent or mitigate security breaches and improper access +to or disclosure of our data or user data, including personal information, content, or payment information from users, or information +from marketers, could result in the loss, modification, disclosure, destruction, or other misuse of such data, including FP stored in +the Company’s separate FP database, which could harm our business and reputation and diminish our competitive position. In addition, +computer malware, viruses, social engineering (predominantly spear phishing attacks), scraping, and general hacking have become more +prevalent in our industry, have occurred on our systems in the past, and will occur on our systems in the future. Our efforts to protect +our company data or the information we receive, and to disable undesirable activities on our platform, may also be unsuccessful due to +software bugs or other technical malfunctions; employee, contractor, or vendor error or malfeasance, including defects or vulnerabilities +in our vendors’ information technology systems or offerings; government surveillance; breaches of physical security of our facilities +or technical infrastructure; or other threats that evolve. In addition, third parties may attempt to fraudulently induce employees or +users to disclose information in order to gain access to our data or our users’ data. Cyber-attacks continue to evolve in sophistication +and volume, and inherently may be difficult to detect for long periods of time. Although we have developed systems and processes that +are designed to protect our data and user data, to prevent data loss, to disable undesirable accounts and activities on our platform, +and to prevent or detect security breaches, we cannot assure you that such measures will provide absolute security, that we will be able +to react in a timely manner, or that our remediation efforts will be successful. +We +may experience such cyber-attacks and other security incidents of varying degrees from time to time, and we may incur significant costs +in protecting against or remediating such incidents. In addition, we are subject to a variety of laws and regulations in the United States +and abroad relating to cybersecurity and data protection. As a result, affected users or government authorities could initiate legal +or regulatory actions against us in connection with any actual or perceived security breaches or improper access to or disclosure of +data, which could cause us to incur significant expense and liability or result in orders or consent decrees forcing us to modify our +business practices. Such incidents or our efforts to remediate such incidents may also result in a decline in our active users base or +engagement levels. Any of these events could have a material and adverse effect on our business, reputation, or financial results. +28 +We +anticipate that our ongoing efforts related to privacy, safety, security, and content review will identify instances of misuse of user +data or other undesirable activity by third parties on our platform. +In +addition to our efforts to mitigate cybersecurity risks, we are making significant investments in privacy, safety, security, and content +review efforts to combat misuse of our services and user data by third parties, including investigations and audits of platform applications. +As a result of these efforts, we anticipate that we may discover incidents of misuse of user data or other undesirable activity by third +parties. We may not discover all such incidents or activity, whether as a result of our data or technical limitations, including our +lack of visibility over our encrypted services, the scale of activity on our platform, the allocation of resources to other projects, +or other factors, and we may be notified of such incidents or activity by the media or other third parties. Such incidents and activities +may, in the future, include the use of user data or our systems in a manner inconsistent with our terms, contracts or policies, the existence +of false or undesirable user accounts, improper advertising practices, activities that threaten people’s safety on- or offline, +or instances of spamming, scraping, data harvesting, unsecured datasets, or spreading misinformation. We may also be unsuccessful in +our efforts to enforce our policies or otherwise remediate any such incidents. Any of the foregoing developments may negatively affect +user trust and engagement, harm our reputation and brands, require us to change our business practices in a manner adverse to our business, +and adversely affect our business and financial results. Any such developments may also subject us to litigation and regulatory inquiries, +which could subject us to monetary penalties and damages, divert management’s time and attention, and lead to enhanced regulatory +oversight. +Our +products and internal systems rely on software and hardware that is highly technical, and any errors, bugs, or vulnerabilities in these +systems, or failures to address or mitigate technical limitations in our systems, could adversely affect our business. +Our +products and internal systems rely on software and hardware, including software and hardware developed or maintained internally +and/or by third parties, that is highly technical and complex. In addition, our products and internal systems depend on the ability +of such software and hardware to store, retrieve, process, and manage immense amounts of data. The software and hardware on which we +rely may contain, and will in the future may further contain, errors, bugs, or vulnerabilities, and our systems are subject to +certain technical limitations that may compromise our ability to meet our objectives. Some errors, bugs, or vulnerabilities +inherently may be difficult to detect and may only be discovered after the code has been released for external or internal use. +Errors, bugs, vulnerabilities, design defects, or technical limitations within the software and hardware on which we rely have in +the past led to, and may in the future lead to, outcomes including a negative experience for users and marketers who use our +products, compromised ability of our products to perform in a manner consistent with our terms, contracts, or policies, delayed +product introductions or enhancements, targeting, measurement, or billing errors, compromised ability to protect the data of our +users and/or our intellectual property or other data, or reductions in our ability to provide some or all of our services. For +example, we make commitments to our users as to how their data will be used within and across our products, and our systems are +subject to errors, bugs and technical limitations that may prevent us from fulfilling these commitments reliably. In addition, any +errors, bugs, vulnerabilities, or defects in our systems or the software and hardware on which we rely, failures to properly address +or mitigate the technical limitations in our systems, or associated degradations or interruptions of service or failures to fulfil +our commitments to our users may in the future lead to outcomes including damage to our reputation, loss of users, loss of +marketers, loss of revenue, regulatory inquiries, litigation, or liability for fines, damages, or other remedies, any of which could +adversely affect our business and financial results. +29 +RISKS +RELATED TO DIGITAL ASSETS +Regulatory +changes or actions may restrict the use of digital assets in a manner that adversely affects our business, prospects or operations. +FP +may be considered a digital asset. Although FP is not offered on a public blockchain and its value is derived primarily from its utility +exclusively within its closed network community, it may also be subject to increasingly restrictive, complex and evolving U.S. and foreign +laws and regulations regarding digital assets, including commodities and securities, anti-money laundering and counter-terrorist financing, +money transmission, consumer protection, taxation, intellectual property, property rights and other matters (for the purposes of this +section, the “ Digital Asset Laws ”). Many of these laws and regulations are subject to change and uncertain interpretation, +and could result in outright bans in certain jurisdictions, sanctions, monetary penalties, claims, increased compliance costs, or declines +in adoption that could impede user growth or engagement, or otherwise harm our business. +For +example, in the United States, the SEC has been particularly active in pursuing digital asset issuers for unregistered security offerings +to U.S. residents. In Korea, the Financial Services Commission has banned initial coin offerings within Korea. We have not offered KDC +in jurisdictions where it was be prohibited or in a manner that is prohibited. The initial public offering of KDC was conducted on centralized +digital asset exchanges that excluded subscribers from prohibited jurisdictions. Further, we conducted no public solicitation for the +offering of KDC in the United States or South Korea. Nonetheless, because KDC is available on the public blockchain it may be possible +for residents in such jurisdictions to acquire KDC in peer-to-peer transactions, as most jurisdictions, including the United States and +South Korea, do not prohibit private parties from engaging in peer-to-peer digital asset transactions. With respect to resales or secondary +digital asset transactions, jurisdictions generally regulate intermediaries for such transactions dependent on the extent and nature +of an intermediary’s role in a transaction. Decentralized finance (“ defi ”) applications that are connected to +the public blockchain have substantially minimized the role of the intermediary. Given the emerging nature of such defi applications, +the regulatory landscape pertaining to such applications is still evolving and consequently, numerous defi applications are available +to transaction parties, often irrespective of the physical location of a party and irrespective of the actions or inactions of the issuers +of such digital assets. To date, we do not monitor for such defi transactions, nor do we have any prospective plans to do so. Furthermore, +given that we would never have access to the personal information of the parties to such transactions, even if we had the ability to +restrict private defi transactions we would not have the ability to identify whether any particular transaction should be restricted +under the Digital Asset Laws of any given jurisdiction or whether we would be under any obligation to endeavor to enforce such restrictions, +to the extent possible. To the extent government enforcement authorities or regulators seek to enforce current or future Digital Asset +Laws against us for these transactions, we may be subject to investigation, administrative or court proceedings, and civil or criminal +monetary fines and penalties, all of which could harm our reputation and negatively impact our business operations. +Regulation +of digital assets and digital asset exchanges is currently undeveloped and likely to evolve rapidly, vary significantly among international +regulatory agencies, and is subject to significant uncertainty. A failure by the Company to comply with any laws, rules and regulations, +some of which may not exist yet or are subject to interpretation and may be subject to change, could result in a variety of adverse consequences, +including civil penalties and fines imposed by governmental authorities. Under certain circumstances, such failure to comply by the Company +could also result in criminal sanctions +As +blockchain networks and digital assets have grown in popularity and in market size, governments and regulatory agencies have begun to +take interest in, and in some cases regulate, their use and operation. To the extent that a government or quasi-governmental agency exerts +regulatory authority over a blockchain network or asset upon which our business relies, our business could be adversely affected. Blockchain +networks currently face an uncertain regulatory landscape in many jurisdictions. The effect of any future legal or regulatory change +is impossible to predict, but such laws, regulations or directives may directly and negatively impact our business. +Governments +may in the future curtail or outlaw the acquisition, use or redemption of digital assets. Ownership of, holding or trading in digital +assets may then be considered illegal and subject to sanction. Governments may also take regulatory action that may increase the cost +and/or subject digital asset companies to additional regulation. Judicial determinations may also have an adverse impact on the trading +of digital assets. +30 +Users +of Faning are issued FP for engaging and transacting within the Company ’ s ecosystem. FP may be subject to various +regulations in South Korea that restrict or limit the use of FP on Faning. +In +addition to the application of the Digital Asset Laws arising as a result of the use of FP in various jurisdictions, our operation of +the Faning platform within South Korea and the issuance of FP to users engaging with the Faning platform may subject us to various regulations +in South Korea, including the Financial Investment Services and Capital Markets Act (“ FISCM ”) and the Act on Reporting +and Using Specified Financial Transaction Information (“ RSFTI ”). The FISCM was enacted to advance the Korean financial +market by improving the competitive edge of the nation’s capital market and financial investment industry, and the RSFTI provides +for the regulation of matters concerning reporting on and use of specified financial transaction information necessary to regulate money +laundering and financing of terrorism through financial transactions, such as foreign exchange transactions, thereby contributing to +preventing crimes and further establishing a sound and transparent financial system. Although FP is not currently classified as a financial +investment instrument as such term is defined in the FISCM, or a virtual asset, as such term is defined by the RSFTI, any amendments +to or interpretations of the FISCM, RSFTI or FP in the future may subject the Company to regulation, including among other requirements, +providing financial transaction information in order to, among others, prevent money laundering and financing of terrorism. +We +may have security laws exposure relating to the previous issuances of Kingdom Coin. +While +we no longer hold or otherwise possess Kingdom Coin (“KDC”), we are subject to compliance with securities laws, which could expose us to potential liabilities, +including potential rescission rights. In August of 2021, we issued to certain creditors of HBC an aggregate total of 348,679,380 KDC +in exchange for the cancellation of an aggregate value of $9,428,664 in HBC debt (the “ KDC Exchange ”). KDC was further +listed on LBank.com in August, 2021, and XT.com in September 2021 (LBank.com and XT.com are collectively, the “ Listing Platforms ”). +The current market price of KDC ($0.00011) is significantly lower than the valuation of KDC used to extinguish the HBC debt. +At +the time of the KDC Exchange, and subsequently at the time of listing of KDC on the Listing Platforms, HBC was operated solely under +the jurisdiction of the Republic of Korea (“ROK”). During the KDC Exchange, and subsequently upon the listing of KDC on the +Listing Platforms, the Company did not direct any sales efforts in the United States or to U.S. Persons. Further, pursuant to the terms +and conditions of each Listing Platform, neither Listing Platform permits U.S. Persons as customers. While the Company therefore believes +there were no sales of KDC to or by a U.S. person, or efforts to sell KDC to U.S. persons that would be subject to U.S. federal securities +laws, we relied on each of the Listing Platforms to prevent offers and sales in the United States and to U.S. persons. As such, the Company +may be subject to the risks below in the event that the policies and procedures of the Listing Platforms are not effective and/or sufficient +to prevent such offers and sales or that persons may have been able to circumvent such policies and procedures. +While +we do not believe that we were subject to U.S. federal securities laws at the time of the KDC Exchange and the listing of KDC on the +Listing Platforms, and therefore did not need to conduct the offerings pursuant to an available exemption under the U.S. federal securities +laws, the analysis of such jurisdictional question is factual. The applicability of jurisdiction under the Securities Act, and the availability +of any exemptions thereunder, depends upon our conduct and that of those persons contacting potential investors and making the offering. +We further relied on the terms and conditions of the Listing Platforms to ensure that no offers or sales were made in the United States +or to U.S. persons. As such, if the KDC Exchange, the listing of KDC on the Listing Platforms, or any other such offering of securities +by the Company is determined by either judicial decision or by the SEC to fall under the jurisdiction of U.S. federal securities laws, +and does not qualify for an exemption from registration under the Securities Act, an investor would have the right to rescind its purchase +of the securities if it so desired. It is possible that if an investor should seek rescission, such investor would succeed. If investors +were successful in seeking rescission, we would face severe financial demands that could adversely affect our business and operations. +Additionally, if we did in fact fall under the jurisdiction of U.S. federal securities laws, or alternatively, if such offerings do not +qualify for an exemption thereunder, we may become subject to significant fines and penalties imposed by the SEC and state securities +agencies. +31 +RISKS +RELATED TO INTELLECTUAL PROPERTY +We +may be subject to claims of infringement of third-party intellectual property rights. +From +time to time, third parties may claim that we have infringed their intellectual property rights. For example, patent holding companies +may assert patent claims against us in which they seek to monetize patents they have purchased or otherwise obtained. Although we take +steps to avoid knowingly violating the intellectual property rights of others, it is possible that third parties still may claim infringement. +Existing or future infringement claims against us, whether valid or not, may be expensive to defend and divert the attention of our employees +from business operations. Such claims or litigation could require us to pay damages, royalties, legal fees and other costs. We also could +be required to stop offering, distributing or supporting the Faning application, or other features or services which incorporate the +affected intellectual property rights, redesign products, features or services to avoid infringement, or obtain a license, all of which +could be costly and harm our business. +Our +technology, content and brands are subject to the threat of piracy, unauthorized copying and other forms of intellectual property infringement. +We +regard our technology, content and brands as proprietary and take measures to protect our technology, content and brands and other confidential +information from infringement. Piracy and other forms of unauthorized copying and use of our technology, content and brands may become +persistent, and policing is difficult. Further, the laws of some countries in which our products are or may be distributed either do +not protect our intellectual property rights to the same extent as the laws of the United States, or are poorly enforced. Legal protection +of our rights may be ineffective in such countries. In addition, although we take steps to enforce and police our rights, factors such +as the proliferation of technology designed to circumvent the protection measures used by our business partners or by us, the availability +of broadband access to the Internet, the refusal of Internet service providers or platform holders to remove infringing content in certain +instances, and the proliferation of online channels through which infringing product is distributed all have contributed to a general +expansion in unauthorized copying of technology, content and brands. +We +may not be able to prevent others from unauthorized use of our intellectual property, which could harm our business and competitive position. +We +regard our registered trademark(s) and pending trademarks, service marks, domain names, trade secrets, proprietary technologies and similar +intellectual property as critical to our success. We rely on trademark law, trade secret protection and confidentiality and license agreements +with our employees and others to protect our proprietary rights. +We +have invested significant resources to develop our own intellectual property and acquire licenses to use and distribute the intellectual +property of others in the operation of the Faning platform. Failure to maintain or protect these rights could harm our business. In addition, +any unauthorized use of our intellectual property by third parties may adversely affect our current and future revenues and our reputation. +Policing +unauthorized use of proprietary technology is difficult and expensive. We rely on a combination of copyright, trademark and trade secret +laws and restrictions on disclosure to protect our intellectual property rights. Further, we require every employee and consultant to +execute proprietary information and invention agreements prior to commencing work. Despite our efforts to protect our proprietary rights, +third parties may attempt to copy or otherwise obtain and use our intellectual property or seek court declarations that they do not infringe +upon our intellectual property rights. Monitoring unauthorized use of our intellectual property is difficult and costly, and we cannot +assure you that the steps we have taken will prevent misappropriation of our intellectual property. From time to time, we may have to +resort to litigation to enforce our intellectual property rights, which could result in substantial costs and diversion of our resources. +32 +GOVERNANCE +RISKS AND RISKS RELATED TO OUR COMMON STOCK +We +received a notice from Nasdaq that our common stock may be delisted from trading on the Nasdaq Capital Market if we fail to comply with +the continued listing requirements, including the timely filing requirements of all required periodic +reports with the SEC. A delisting of our common stock is likely to reduce the liquidity of our common stock and may inhibit or preclude +our ability to raise additional financing. +We +are required to comply with certain Nasdaq continued listing requirements, including a minimum bid price for our common stock and timely +filing requirements of all required periodic reports with the SEC. If we fail to maintain compliance with any of those requirements, +our common shares could be delisted from Nasdaq. +On +April 24, 2025, we received written notice from the Listing Qualifications Department of Nasdaq notifying the Company that it did not +timely file its Annual Report on Form 10-K for the year ended December 31, 2024, as required for continued +listing on the Nasdaq Stock Market pursuant to Nasdaq Listing Rule 5250(c)(1). Subsequently, the Company filed its Annual Report on Form +10-K for the fiscal year ended 2024, thereby resolving the basis for delisting. +O n April 16, 2026, we received written +notice from the Listing Qualifications Department of Nasdaq notifying the Company that it did not timely file its Annual Report on Form +10-K for the year ended December 31, 2025, as required for continued listing on The Nasdaq Stock Market pursuant to Nasdaq Listing Rule +5250(c)(1). Under Nasdaq rules, the Company has 60 calendar days from the date of notification letter from Nasdaq to submit to Nasdaq +a plan to regain compliance with Nasdaq Listing Rule 5250(c)(1). On April 30, 2026, the Company submitted its plan to regain compliance +to Nasdaq . +O n May 21, 2026, we received written +notice from the Listing Qualifications Department of Nasdaq notifying the Company that it did not timely file its Quarterly Report on +Form 10-Q for the quarter ended March 31, 2026, as required for continued listing on The Nasdaq Stock Market pursuant to Nasdaq Listing +Rule 5250(c)(1). Because we had not yet filed this Annual Report on Form 10-K for the year ended December 31, 2025, any additional exception +to allow us to regain compliance with the delinquent filings is limited to a maximum of 180 calendar days from the due date of the Annual +Report on Form 10-K for the year ended December 31, 2025, or October 12, 2026. Additionally, we must submit an update by no later than +June 22, 2026 to our original plan of compliance with respect to the filing requirement. While we expect the filing of this Annual Report +on Form 10-K for the year ended December 31, 2025 and the Quarterly Report on Form 10-Q for the quarter ended March 31, 2026 to cause +us to regain compliance with Nasdaq Listing Rule 5250(c)(1), there can be no guarantee that the Company will be able to do so . +If, +for any reason, Nasdaq should delist our common stock from trading on its exchange and we are unable to obtain listing on another national +securities exchange or take action to restore our compliance with the Nasdaq continued listing requirements, a reduction in some or all +of the following may occur, each of which could have a material adverse effect on our stockholders: +● the +liquidity of our common stock; +● the +market price +of our common stock; +● becoming +a “penny stock”, which may make trading +of our common stock much more difficult; +● our +ability to obtain financing for the continuation of our operations; +● the +number of institutional and general investors that will consider investing in our common +stock; +● the +number of investors in general that will consider investing in our common stock; +● the +number of market makers in our common stock; +● the +availability of information concerning the trading prices and volume of our common stock; +and +● the +number of broker-dealers willing to execute trades in shares of our common stock. +Our +stock price may be volatile, and you could lose all or part of your investment. +The +trading price of our common stock may fluctuate substantially depending on several factors, including those described in this “ Risk +Factors ” section, many of which are beyond our control and may not be related to our operating performance. These fluctuations +could cause you to lose all or part of your investment in our common stock since you might be unable to sell your shares at or above +the price you paid in the offering. +In +addition, the stock market in general, and the market for technology companies in particular, have experienced extreme price and volume +fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. Broad market and industry +factors, as well as general economic, political and market conditions such as recessions or interest rate changes, may seriously affect +the market price of our common stock, regardless of our actual operating performance. +In +addition, in the past, following periods of volatility in the overall market and the market prices of particular companies’ securities, +securities class action litigations have often been instituted against these companies. Litigation of this type, if instituted against +us, could result in substantial costs and a diversion of our management’s attention and resources. Any adverse determination in +any such litigation or any amounts paid to settle any such actual or threatened litigation could require that we make significant payments. +33 +If +securities industry analysts do not publish research reports on us, or publish unfavorable reports on us, then the market price and market +trading volume of our common stock could be negatively affected. +Any +trading market for our common stock will be influenced in part by any research reports that securities industry analysts publish about +us. We may not obtain any future research coverage by securities industry analysts. In the event we are covered by research analysts, +and one or more of such analysts downgrade our securities, or otherwise reports on us unfavorably, or discontinues coverage of us, the +market price and market trading volume of our common stock could be negatively affected. +You +will experience dilution as a result of future equity offerings. +We +may in the future offer additional shares of our common stock or other securities convertible into or exchangeable for our common stock. +Although no assurances can be given that we will consummate a future financing, in the event we do, or in the event we sell shares of +common stock or other securities convertible into shares of our common stock in the future, additional and potentially substantial dilution +will occur. In addition, investors purchasing shares or other securities in the future could have rights superior to future investors. +We +have not paid cash dividends in the past and do not expect to pay dividends in the future. Any return on investment will likely be limited +to the value of our common stock. +We +have never paid cash dividends on our common stock and do not anticipate doing so in the foreseeable future. The payment of dividends +on our common stock will depend on earnings, financial condition and other business and economic factors affecting us at such time as +our board of directors may consider relevant. +We +currently intend to retain all of our future earnings, if any, to finance the growth and development of our business. In addition, the +terms of any future debt agreements may preclude us from paying dividends. Accordingly, the return on your investment in our common stock +will likely depend entirely upon any future price appreciation of our common stock. There is no guarantee that our common stock will +appreciate in value or even maintain the price at which you purchase the common stock. You may not realize a return on your investment +in our common stock and you may even lose your entire investment in our common stock. +Future +issuances of debt securities, which would rank senior to our common stock upon our bankruptcy or liquidation, and future issuances of +preferred stock, which would rank senior to our common stock for the purposes of dividends and liquidating distributions, may adversely +affect the level of return you may be able to achieve from an investment in our common stock . +In +the future, we may attempt to increase our capital resources by offering debt securities. In the event of a bankruptcy or liquidation, +holders of our debt securities, and lenders with respect to other borrowings we may make, would receive distributions of our available +assets prior to any distributions being made to holders of our common stock. Moreover, if we issue preferred stock in the future, the +holders of such preferred stock could be entitled to preferences over holders of common stock in respect of the payment of dividends +and the payment of liquidating distributions. Because our decision to issue debt or preferred securities in any future offering, or borrow +money from lenders, will depend in part on market conditions and other factors beyond our control, we cannot predict or estimate the +amount, timing or nature of any such future offerings or borrowings. Holders of our common stock must bear the risk that any such future +offerings we conduct or borrowings we make may adversely affect the level of return they may be able to achieve from an investment in +our common stock. +We +may need to implement additional finance and accounting systems, procedures and controls as we grow our business and organization and +to satisfy new reporting requirements . +We +are subject to reporting requirements of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), +we will be required to comply with a variety of extensive reporting, accounting, and other rules and regulations. Compliance with each +of these requirements is expensive, time consuming and intricate. Further requirements may increase our costs and require additional +management time and resources. We may need to implement additional finance and accounting systems, procedures and controls to +satisfy our reporting requirements. We intend to remediate this weakness by adding additional, qualified and experienced accounting +personnel but there is no guarantee that we will be able to add additional qualified and +experienced accounting personnel or remediate this weakness . +34 +If +our internal controls over financial reporting remain ineffective, such failure could cause investors to lose confidence in our reported +financial information, negatively affect the market price of our common stock, subject us to regulatory investigations and penalties, +cause us to have to restate our financial statements, and adversely impact our business and financial condition. +We +are an emerging growth company, and any decision on our part to comply only with certain reduced reporting and disclosure requirements +applicable to emerging growth companies could make our common stock less attractive to investors. +We +are an emerging growth company, and, for as long as we continue to be an emerging growth company, we may choose to take advantage of +exemptions from various reporting requirements applicable to other public companies that are not “emerging growth companies,” +including: +● not +being required to have our independent registered public accounting firm audit our internal +control over financial reporting under Section 404 of the Sarbanes-Oxley Act; +● reduced +disclosure obligations regarding executive compensation in our periodic reports and annual +report on Form 10-K; and +● exemptions +from the requirements of holding a non-binding advisory vote on executive compensation and +stockholder approval of any golden parachute payments not previously approved. +We +could be an emerging growth company for up to five years following the listing of our common stock on the Nasdaq Market. Our status as +an emerging growth company will end as soon as any of the following takes place: +● the +last day of the fiscal year in which we have more than $1.235 billion in annual revenue; +● the +date we qualify as a “large accelerated filer,” with at least $700 million of +equity securities held by non-affiliates as of the prior June 30; +● the +date on which we have issued, in any three-year period, more than $1.0 billion in non-convertible +debt securities; or +● the +last day of the fiscal year ending after the fifth anniversary of the listing of our common +stock on the Nasdaq Market. +We +cannot predict if investors will find our common stock less attractive if we choose to rely on the exemptions afforded emerging growth +companies. If some investors find our common stock less attractive because we rely on any of these exemptions, there may be a less active +trading market for our common stock and the market price of our common stock may be more volatile. +Under +the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards +apply to private companies. We have elected to use this extended transition period for complying with new or revised accounting standards +that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth +company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial +statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective +dates. +We +will incur increased costs as a result of being a public company, particularly after we cease to qualify as an “ emerging +growth company. ” +As +a public company, we expect to incur significant legal, accounting and other expenses that we did not incur as a private company, particularly +after we are no longer an “emerging growth company” as defined under the JOBS Act. In addition, new and changing laws, regulations +and standards relating to corporate governance and public disclosure, including the Dodd-Frank Act and the rules and regulations promulgated +and to be promulgated thereunder, as well as under the Sarbanes-Oxley Act and the JOBS Act, have created uncertainty for public companies +and increased costs and time that boards of directors and management must devote to complying with these rules and regulations. The Sarbanes-Oxley +Act and related rules of the SEC and the Nasdaq Stock Market regulate corporate governance practices of public companies. We expect compliance +with these rules and regulations to increase our legal and financial compliance costs and lead to a diversion of management time and +attention from sales-generating activities. In addition, we will incur additional expenses associated with our SEC reporting requirements and increased compensation +for our management team. We cannot predict or estimate the amount of additional costs we will incur as a public company or the specific +timing of such costs. +35 +Because +of our status as an emerging growth company, you will not be able to depend on any attestation from our independent registered public +accounting firm as to our internal control over financial reporting for the foreseeable future . +Our +independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial +reporting pursuant to Section 404 of the Sarbanes-Oxley Act until the later of the year following our first annual report required to +be filed with the SEC or the date we are no longer an “emerging growth company” as defined in the JOBS Act. Accordingly, +you will not be able to depend on any attestation concerning our internal control over financial reporting from our independent registered +public accounting firm for the foreseeable future. Subsequent to the time frame above, our independent registered public accounting firm +will not be required to attest to the effectiveness of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act +until such time that the Company becomes an “accelerated filer,” as defined by the SEC. +Our +common stock is subject to the “penny stock” rules of the SEC, which makes transactions in our stock cumbersome and may reduce +the value of an investment in our stock. +The +SEC has adopted regulations which generally define a “penny stock” as an equity security that has a market price of less +than $5.00 per share, subject to specific exemptions. The SEC’s penny stock rules require a broker-dealer, before a transaction +in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about +penny stocks and the risks in the penny stock market. The broker-dealer must also provide the customer with current bid and offer quotations +for the penny stock, the compensation of the broker-dealer and the salesperson in the transaction, and monthly account statements showing +the market value of each penny stock held in the customer’s account. In addition, the penny stock rules generally require that +before a transaction in a penny stock occurs, the broker-dealer must make a special written determination that the penny stock is a suitable +investment for the purchaser and receive the purchaser’s agreement to the transaction. If applicable in the future, these rules +may restrict the ability of brokers-dealers to sell our common stock and may affect the ability of investors to sell their shares, until +our common stock no longer is considered a penny stock. +FINRA +sales practice requirements may limit a stockholder ’ s ability to buy and sell our stock . +In +addition to the “penny stock” rules described above, the Financial Industry Regulatory Authority, Inc. (“ FINRA ”), +has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing +that the investment is suitable for that customer. Prior to recommending speculative, low-priced securities to their non-institutional +customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, +investment objectives and other information. The FINRA requirements may make it more difficult for broker-dealers to recommend that their +customers buy our common stock, which may have the effect of reducing the level of trading activity in our common stock. As a result, +fewer broker-dealers may be willing to make a market in our common stock, reducing a stockholder’s ability to resell shares, as +well as overall liquidity, of our common stock. +36 +We +are a smaller reporting company and will be exempt from certain disclosure requirements, which could make our common stock +less attractive to potential investors . +We +are also a smaller reporting company as defined in the Exchange Act. We may continue to be a smaller reporting company even after we +are no longer an emerging growth company. We may take advantage of certain of the scaled disclosures available to smaller reporting companies +and will be able to take advantage of these scaled disclosures for so long as (i) the market value of our voting and non-voting common +stock held by non-affiliates is less than $250 million measured on the last business day of our second fiscal quarter or (ii) our annual +revenue is less than $100 million during the most recently completed fiscal year and the market value of our voting and non-voting common +stock held by non-affiliates is less than $700 million measured on the last business day of our second fiscal quarter. Specifically, +as a smaller reporting company, we may choose to present only the two most recent fiscal years of audited financial statements in our +Annual Report on Form 10-K and have reduced disclosure obligations regarding executive compensation, and, similar to emerging growth +companies, if we are a smaller reporting company with less than $100 million in annual revenue, we would not be required to obtain an +attestation report on internal control over financial reporting issued by our independent registered public accounting firm. +If +we fail to remediate our internal control weaknesses and maintain an effective system of internal controls over financial reporting, +we may be unable to accurately report our results of operations, meet our reporting obligations or prevent fraud, and investor confidence +and the market price of our common stock may be materially and adversely affected. +As a public company, our reporting obligations +place a significant strain on our management, operational and financial resources and systems for the foreseeable future and we may be +unable to timely complete our evaluation testing and any required remediation. +If +we fail to remediate the weaknesses and maintain the adequacy of our internal control over financial reporting, as these standards are +modified, supplemented, or amended from time to time, we will not be able to conclude on an ongoing basis that we have effective internal +control over financial reporting. Generally, if we continue to fail to achieve and maintain an effective internal control environment, +we could suffer material misstatements in our financial statements and fail to meet our reporting obligations, which would likely cause +investors to lose confidence in our reported financial information. This could in turn limit our access to capital markets, harm our +results of operations, and lead to a decline in the trading price of our common stock. Additionally, ineffective internal control over +financial reporting could expose us to increased risk of fraud or misuse of corporate assets and subject us to potential delisting from +the stock exchange on which we list, regulatory investigations and civil or criminal sanctions. +37 +We +may need additional capital, and we may be unable to obtain such capital in a timely manner or on acceptable terms, or at all. Furthermore, +our future capital needs may require us to sell additional equity or debt securities that may dilute our stockholders or introduce covenants +that may restrict our operations or our ability to pay dividends. +To continue as a going concern, +grow our business and remain competitive, we may require additional capital from time to time for our daily operation. Our ability to +obtain additional capital is subject to a variety of uncertainties, including: +● our +market position and competitiveness in the content creation and social media platform market; +● our +future profitability, overall financial condition, results of operations and cash flows; +and +● economic, +political and other conditions in the U.S. and internationally. +We +may be unable to obtain additional capital in a timely manner or on acceptable terms or at all. In addition, our future capital needs +and other business reasons could require us to sell additional equity or debt securities or obtain a credit facility. The sale of additional +equity or equity-linked securities could dilute our stockholders. The incurrence of indebtedness would result in increased debt service +obligations and could result in operating and financing covenants that would restrict our operations or our ability to pay dividends +to our stockholders. +Substantial +future sales or perceived potential sales of our common stock in the public market could cause the price of our common stock to decline. +On +January 27, 2025, we implemented a 1-for-20 reverse stock split of our issued and outstanding shares of common stock. As a result of +the reverse stock split, every 20 shares of existing common stock were consolidated into one share, reducing the total number of issued +shares from 52,808,589 to 2,640,429. All registered shares of common stock are freely transferable without restriction or additional +registration under the Securities Act. Sales of common stock in the market by registered stockholders, or even the perception that such +sales may occur, could cause a decline in the market price of our common stock and could have a material adverse effect on our business, +financial condition, and results of operations. +Our +certificate of incorporation designates a state or federal court located within the State of Delaware as the exclusive forum for certain +litigation that may be initiated by our stockholders, which could limit our stockholders ’ ability to obtain a favorable +judicial forum for disputes with us. +Pursuant +to our certificate of incorporation and our bylaws, unless we consent in writing to the selection of an alternative forum, the sole and +exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary +duty owed by any of our directors, officers or other employees to us or our stockholders, (iii) any action asserting a claim against +us arising pursuant to any provision of the Delaware General Corporation Law, (iv) any action asserting a claim against the Corporation +governed by the internal affairs doctrine, in each case subject to the Court of Chancery of the State of Delaware having jurisdiction +over the subject matter and personal jurisdiction over the indispensable parties name as defendants therein, or (v) any action asserting +an “internal corporate claim” as that term is defined in Section 115 of the DGCL. Any person or entity purchasing or otherwise +acquiring any interest in shares of our capital stock shall be deemed to have notice of and consented to this provision. The forum selection +clause in our bylaws may have the effect of discouraging lawsuits against us or our directors and officers and may limit our stockholders’ +ability to obtain a favorable judicial forum for disputes with us. These choice of forum provisions will not apply to suits brought to +enforce a duty or liability created by the Securities Act, the Exchange Act, or any other claim for which federal courts have exclusive +jurisdiction. +These +exclusive forum provisions may limit the ability of our stockholders to bring a claim in a judicial forum that such stockholders find +favorable for disputes with us or our directors, officers, or employees, if any, which may discourage such lawsuits against us and our +directors, officers, and employees, if any. Alternatively, if a court were to find the choice of forum provisions contained in our certificate +of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action +in other jurisdictions, which could materially adversely affect our business, financial condition, and operating results. For example, +under the Securities Act, federal courts have concurrent jurisdiction over all suits brought to enforce any duty or liability created +by the Securities Act, and investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. +In addition, the exclusive forum provisions described above do not apply to any actions brought under the Exchange Act. +38 +Item +1B. Unresolved Staff Comments. +Not +applicable. +Item +1C. Cybersecurity +Risk +Management and Strategy +We +have an information security program designed to identify, protect, detect and respond to, and manage reasonably foreseeable cybersecurity +risks and threats. These processes are integrated into our overall enterprise +risk management framework. To protect our information systems from cybersecurity threats, we utilize various security tools and methodologies, +including regular vulnerability assessments, that help prevent, identify, escalate, investigate, resolve, and recover from identified +vulnerabilities and security incidents in a reasonably timely manner. These include, but are not limited to, internal reporting and tools +for monitoring and detecting cybersecurity threats, as well as processes to assess and manage cybersecurity risks associated with our +third-party service providers. +We evaluate the risks associated with technology and cybersecurity threats +and monitor our information systems for potential weaknesses. We periodically review and test our information technology system on a regular +basis and also utilize internal team personnel to evaluate and assess the efficacy of our information technology system and enhance our +controls and procedures. The results of these assessments are reported to our Audit Committee and, from time to time, our Board of Directors. +There +can be no assurances that our cybersecurity risk management program and processes, including our policies, controls, or procedures, will +be fully implemented, complied with or are effective in protecting our systems and information. +As +of the date of this report, we are no t aware of any cybersecurity incidents, that have had a materially adverse effect on our operations, +business, results of operations, or financial condition. +39 +Governance +Our +Board of Directors considers cybersecurity risk as part of its risk oversight function. It has delegated oversight of cybersecurity and +other information technology risks to the Audit Committee of the Board of Directors. The Audit Committee oversees the implementation +of the cybersecurity risk management program. +The +Audit Committee receives periodic reports from management on potential cybersecurity risks and threats. The Audit Committee reports to +the full Board of Directors regarding its activities, including those related to cybersecurity. The full Board of Directors also receives +briefings from management on the cybersecurity risk management program as needed. +Management, +including the Chief Executive Officer is responsible for assessing and managing the Company’s +material risks from cybersecurity threats. The Chief Executive Officer, who has over 25 years of experience in information technology, +network infrastructure, and cybersecurity management, oversees the Company’s cybersecurity risk management program, including supervision +of internal cybersecurity personnel and external cybersecurity consultants. Management regularly evaluates cybersecurity risks, monitors +prevention and detection measures, and reports material cybersecurity matters to the Board of Directors. +The +management team supervises efforts to prevent, detect, mitigate, and remediate cybersecurity risks and incidents through various means, +which may include briefings from internal security personnel, threat intelligence and other information obtained from governmental, public +or private sources, including external consultants; and alerts and reports produced by security tools deployed in the IT environment. +Our cybersecurity incident response plan governs our assessment and response upon the occurrence of a material cybersecurity incident, +including the process for informing senior management and our Board of Directors. +Item +2. Properties. +Our +executive offices are located at 160, Yeouiseo-ro, Yeongdeungpo-gu, Seoul, Republic of Korea 07231, and our telephone number is +82-2-564-8588 . +We consider our current office space adequate for our current operations. +Item +3. Legal Proceedings. +As +of the filing of this Annual Report on Form 10-K, 2026, the Company is not subject to any material pending legal proceedings or claims. Previously disclosed legal matters +were associated with subsidiaries that have since been divested and no longer affect the Company’s operations or financial position. +Item +4. Mine Safety Disclosures. +Not +applicable. +40 +PART +II +Item +5. Market for Registrant’s Common Stock, Related Stockholder Matters, and Issuer Purchases of Equity Securities. +(a) +Market Information +The shares of our Common Stock are traded on Nasdaq under the symbol “GITS” The shares of our Common +Stock commenced public trading on August 1, 2023. +(b) +Holders +As of May 22, 2026, we had 39 holders of record of our common stock +based upon the records of our transfer agent, which do not include beneficial owners of common stock whose shares are held in the names +of various securities brokers, dealers and registered clearing agencies. +(c) +Dividend +We have not paid any cash dividends on our common stock to date. The decision on whether to pay cash dividends +on our common stock in the future will be made by our board of directors, at its discretion, and will depend on our financial condition, +operating results, capital requirements and other factors that the board of directors considers significant. +(d) +Securities Authorized for Issuance Under Equity Compensation Plans. +See “Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +– Securities Authorized for Issuance under Equity Compensation Plans” for +information on securities authorized for issuance under equity compensation plans. +(e) +Recent Sales of Unregistered Securities +On +March 19, 2025, the Company issued 300,000 shares of Common Stock at a conversion price of $0.70 per share in connection with the conversion +of $210,000 of indebtedness payable to Evan Trust. Debt conversion loss was $300,030. +On +May 7, 2025, the Company issued 90,123 shares of Common Stock at a conversion price of $1.19 per share, together with warrants to purchase +81,739 shares of Common Stock at an exercise price of $1.29 per share and expiring on the fifth anniversary of the issuance date, in +connection with the conversion of $105,444 of indebtedness payable to Hangmuk Shin. Debt conversion loss was $178,748. +On +May 7, 2025, the Company issued 135,817 shares of Common Stock at a conversion price of $1.27 per share, together with warrants to purchase +125,383 shares of Common Stock at an exercise price of $1.42 per share and expiring on the fifth anniversary of the issuance date, in +connection with the conversion of $175,205 of indebtedness payable to Jeyoun Baeg. Debt conversion loss was $257,054. +On +May 7, 2025, the Company issued 135,817 shares of Common Stock at a conversion price of $1.27 per share, together with warrants to purchase +125,383 shares of Common Stock at an exercise price of $1.42 per share and expiring on the fifth anniversary of the issuance date, in +connection with the conversion of $175,205 of indebtedness payable to Jungok You. Debt conversion loss was $257,054. +On +May 20, 2025, the Company issued 246,666 shares of Common Stock at a conversion price of $0.70 per share in connection with the conversion +of $172,666 of indebtedness payable to PixelArc LLC. Debt conversion loss was $175,343. +On +August 19, 2025, warrants held by Jungok You were exercised at an exercise price of $1.42 per share, resulting in the issuance of 125,383 +shares of Common Stock for aggregate cash proceeds of approximately $ 178,044. +All +of the foregoing issuances of unregistered securities were made in reliance upon the exemption from registration provided by Section +4(a)(2) of the Securities Act of 1933, as amended. The recipients of securities in each case represented their intention to acquire the +securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends +were affixed to the share certificates and instruments issued in such transactions. +(f) +Purchase of Equity Securities by the Issuer and Affiliated Purchasers +None. +Item +6. Reserved. +Item +7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. +You +should read this discussion and analysis together with our audited financial statements, the notes to such statements and the other financial +information included in this Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. As +a result of many factors, such as those set forth under the section entitled “Risk Factors” and elsewhere in this Form 10-K, +our actual results may differ materially from those anticipated in these forward-looking statements. See “Special Note Regarding +Forward-Looking Statements” for a discussion of the uncertainties, risks and assumptions associated with these statements. +Overview +Global +Interactive Technologies, Inc. (“Global Interactive Technologies” or the “Company”) is a Delaware corporation +operating and developing Faning, a global digital fan engagement platform focused on Korean entertainment and culture, including K-pop. +Faning +is designed to support online fan communities, user interaction, multilingual communication, and digital engagement experiences across +mobile and web-based services. The platform evolved from the legacy Fantoo platform ecosystem. +During +2025, the Company’s primary operational focus was the continued development, maintenance, and support of the Faning platform, along +with preparation for future commercialization initiatives. The Company also focused on public company compliance activities, operational +restructuring, and financing initiatives. +41 +Although +the Company continued developing monetization-related functionality during 2025, including digital engagement features, subscription-related +functionality, and advertising infrastructure, the Faning platform remained in an early-stage commercialization phase as of December +31, 2025. Revenue generated from the platform during the year remained limited. +The +Company believes that continued global interest in Korean entertainment and culture may create future opportunities for user engagement +and platform growth; however, the Company’s future growth and commercialization efforts remain subject to substantial uncertainty, +including user adoption, successful execution of monetization initiatives, availability of capital resources, and overall market conditions. +Faning +Platform +The +Faning platform includes community engagement tools, messaging and communication features, multilingual support functionality, user-generated +content capabilities, and digital participation systems intended to facilitate interaction among users with shared entertainment and +cultural interests. +The +Company has also explored and developed various monetization initiatives associated with the platform, including digital engagement tools, +subscription-related functionality, advertising infrastructure, and other fandom-related digital services. As of December 31, 2025, these +monetization initiatives remained in early stages of commercialization. +Key +Performance Indicators +Management +monitors certain operational metrics and key performance indicators (“KPIs”) to evaluate platform activity and future business +opportunities. These metrics include registered users, monthly active users (“MAUs”), average revenue per user (“ARPU”), +and user acquisition cost (“UAC”). +The +legacy Fantoo platform historically accumulated approximately 26.6 million registered accounts as of December 31, 2024. The Company views +this historical registered account base as a potential long-term strategic asset; however, the Company did not complete a migration +or reactivation of this historical user base during 2025 and cannot currently predict the extent to which such historical users may become +active users, retained users, or monetizable users within the Faning platform. +ARPU +remained limited during 2025 as the Company continued operating in an early-stage commercialization phase. Management expects that future +operational performance, if commercialization initiatives are successfully implemented, may depend on user engagement, monetization adoption, +marketing efficiency, and broader platform growth initiatives. +Components +of Results of Operations +Functional +Currency +The functional currency of the Company’s operations is the Korean +Won (“KRW”). The Company’s some accounting records are maintained in KRW and +translated into the U.S. Dollar(“USD”) for financial reporting purposes. Exchange rate fluctuations between KRW and USD may affect the Company’s reported +financial results. +Revenue +The +Company’s revenue is currently derived primarily from limited early-stage Faning platform-related activities and certain legacy +business activities. Revenue during 2025 remained limited as the Company continued operating in an early-stage commercialization phase. +The +Company has been developing monetization initiatives associated with the Faning platform, including digital engagement features, subscription-related +functionality, advertising-related infrastructure, and other platform-based services. However, these monetization initiatives remained +in early stages during 2025 and did not generate material revenue during the fiscal year. +42 +Cost +of Revenue +Cost +of revenue consists primarily of platform-related service costs, hosting and infrastructure expenses, and other costs directly associated +with revenue-generating activities. +Sales +and Marketing Expense +Sales +and marketing expenses consist primarily of advertising, promotional activities, user acquisition initiatives, consulting expenses, travel, +and other marketing-related costs. Advertising costs are expensed as incurred. +Sales +and marketing expenses may fluctuate depending on the timing and scale of future marketing initiatives and commercialization activities. +Research +and Development Expense +Research +and development expense consists primarily of costs associated with maintaining, supporting, and developing the Faning platform, including +software development, contractors, technology infrastructure, and related personnel costs. +General +and Administrative Expense +General +and administrative expenses consist primarily of personnel-related costs, professional fees, public company compliance expenses, legal +and accounting costs, investor relations expenses, consulting fees, office expenses, and other corporate administrative costs. +During +2025, a substantial portion of the Company’s operating expenses related to public company compliance activities, financing initiatives, +legal and professional fees, and corporate administrative matters. +Results +of Operations +Year +Ended December 31, 2025 Compared to Year Ended December 31, 2024 +Revenue +Revenue +for the year ended December 31, 2025 was approximately $1,932, compared to no material revenue during the year ended December 31, 2024. +Revenue +during 2025 primarily reflected limited early-stage commercialization activities associated with the Faning platform. The Company remained +in the development and user integration phase throughout most of 2025, and monetization initiatives had not yet achieved material scale. +43 +Operating +Expenses +Operating +expenses for the year ended December 31, 2025 were approximately $2.44 million, compared to approximately $0.89 million for the year +ended December 31, 2024. +Line Item +FY2025 +FY2024 +Change +Revenue +1,932 +0 +1,932 +Operating Expenses +2,440,752 +888,363 +1,552,389 +Other Expenses +2,194,073 +3,895,288 +(1,701,215 ) +Net Loss +4,632,893 +6,171,969 +(1,539,076 ) +Cash and Cash Equivalents +6,990 +2,352 +4,638 +Stockholders’ Equity +3,442,705 +5,736,084 +(2,293,379 ) +The +increase in operating expenses was primarily attributable to public company operating costs, including legal, accounting, audit, investor +relations, Nasdaq compliance, and other professional expenses associated with operating as a publicly listed company, as well as expenses +related to attempted financing and capital markets activities during 2025. The increase was not primarily driven by material revenue-generating +operations. +The +Company also incurred additional expenses related to corporate governance, SEC reporting obligations, financing initiatives, and administrative +infrastructure associated with maintaining and supporting its public company operations. During 2025 and 2024, Research and Development expenses and Sales and Marketing expenses remained minimal, as +the Company primarily focused its resources and liquidity on establishing its public company infrastructure and corporate governance. +However, the Company expects these expenses to increase significantly in future periods as it shifts focus toward platform development +and user growth. +The +Company expects operating expenses to remain elevated as it continues investing in platform functionality, infrastructure scalability, +and user acquisition initiatives, while also continuing to incur significant public company compliance and professional service costs. +Impairment +Loss on Intangible Assets +The +Company recorded an impairment loss on intangible assets of approximately $1.02 million during the year ended December 31, 2025, compared +to approximately $94,000 during the year ended December 31, 2024. +The +impairment charge primarily reflected management’s reassessment of projected future cash flows and commercialization timelines +associated with certain intangible assets, taking into account the Company’s limited current revenues, ongoing operating losses, +and revised near-term market assumptions. +Net +Loss +Net +loss for the year ended December 31, 2025 was approximately $ 4.63 million, compared to approximately $6.17 million during the year ended +December 31, 2024. +The +decrease in net loss was primarily attributable to the gain on disposal of subsidiaries recognized during 2024, partially offset by increased +operating expenses and higher impairment charges during 2025. +Liquidity +and Capital Resources +As +of December 31, 2025, the Company had cash and cash equivalents of approximately $6,990, compared to approximately $2,352 as of December +31, 2024. +The following table summarizes our cash flows +from continuing operations for the periods presented: +December 31, 2025 ($) +December 31, 2024 ($) +Change ($) +Not cash used in operating activities +(751,197 ) +(456,431 ) +(294,766 ) +Net cash provided by investing activities +0 +154,418 +(154,148 ) +Net cash provided by financing activities +757,344 +368,152 +389.192 +Total Net Change in Cash – Continued Operations +6,147 +65,887 +(59,740 ) +Cash beginning of period – continued operations +2,352 +69,688 +(67,336 ) +Cash end of period – continued operations +6,990 +2,352 +4,638 +Operating Activities +Net cash used in operating activities from continuing +operations was $751,197 for the year ended December 31, 2025, compared to $456,431 for the year ended December 31, 2024. Although our +net loss decreased slightly from $4,783,651 in 2024 to $4,632,893 in 2025, the cash outflow from operations increased by $294,766. This +increased cash usage was primarily driven by cash paid for public company operating costs and compliance activities, partially offset +by significant non-cash adjustments in 2025, including $1,021,192 in amortization, $1,168,228 in debt extinguishment loss, and $1,019,611 +in impairment loss on intangible assets, as well as a $459,096 increase in non-trade accounts payable. +Investing Activities +Net cash provided by investing activities from +continuing operations was $0 for the year ended December 31, 2025, compared to $154,148 for the year ended December 31, 2024. The cash +inflow in 2024 was primarily attributable to $84,154 from the collection of short-term loan receivables and $84,097 from the disposal +of property and equipment, whereas there were no such investing activities or asset disposals during 2025. +Financing Activities and Capital Resources +The Company has historically financed operations +through equity issuances, debt financing, and related-party support. Net cash provided by financing activities from continuing operations +was $757,344 for the year ended December 31, 2025, compared to $368,152 for the year ended December 31, 2024. The $389,192 increase in +financing cash inflow was primarily driven by capital raising and liquidity management initiatives in 2025, which included $358,573 in +proceeds from short-term loan payable, $220,727 in proceeds from short-term loan payable from related parties, and $178,044 in proceeds +from the exercising of warrants. These inflows were utilized to fund our working capital requirements and support ongoing public company +compliance operations. +44 +Stockholders’ equity decreased from approximately $5.7 +million as of December 31, 2024 to approximately $3.4 million as of December 31, 2025. The decrease was primarily driven by the Company’s +net loss for 2025, debt conversions and warrant exercise and the impairment charge on intangible assets. The Company also effected a 1-for-20 +reverse stock split in January 2025, which reduced the number of outstanding shares but did not materially affect total stockholders’ +equity. +Going +Concern +The +accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. +As of December 31, 2025, we had cash and cash equivalents +of $6,990. For the year ended December 31, 2025, we incurred a net loss of $4,632,893 and used cash in operating activities of $751,197. +These conditions raise substantial doubt regarding the Company’s ability to continue as a going concern. +Management intends to address these conditions by continuing the launch +and commercialization of the upgraded Faning 2.0 platform, pursuing K-food products and entertainment-related business ventures, seeking +to increase user engagement and monetization, controlling operating costs, and pursuing additional capital through equity financings, +borrowings, or other available financing arrangements. +The Company currently believes that its existing cash +on hand is sufficient to support operations for approximately two months based on the current operating cash burn rate. +Management estimates that the Company will require +approximately $250,000 per month to support ongoing operations and execute its business plan. Accordingly, the Company estimates that +approximately $3.0 million of additional capital will be required over the next 12 months. +To address its liquidity needs and support future +operations, the Company entered into an Equity Purchase Agreement with Hudson Global Ventures providing access to up to $18 million in +equity financing through an equity line facility, subject to the terms and conditions of the agreement. Management believes this financing +arrangement provides the Company with access to sufficient capital resources to support its planned operations and growth initiatives. +There can be no assurance that the Company will be +successful in obtaining additional financing or achieving profitable operations. +Critical +Accounting Policies and Estimates +The preparation of the Company’s consolidated financial statements +in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, +and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues +and expenses during the reporting period. +Significant estimates and assumptions include: +● +Fair value measurements including the fair value of the Company’s +common stock; +● +Stock-based compensation; +● +Recoverability, useful lives, and impairment assessments of long-lived and +intangible assets; +● +Valuation allowance relating to the Company’s deferred tax assets; +and +● +Assumptions related to projected future cash flows and commercialization +timing. +Management evaluates these estimates on an ongoing basis using historical +experience and various other assumptions believed to be reasonable under the circumstances. Actual results may differ materially from +these estimates and assumptions. +Recent +Developments and Outlook +During +2025, the Company continued transitioning the Faning platform from a development-focused stage toward early-stage commercialization. +Management expects future operational focus to include: +● migration and re-engagement of legacy Fantoo users; +● enhancement +of monetization tools and subscription functionality; +● targeted +user acquisition in selected international markets; +● strategic +partnerships involving entertainment and digital content; and +● expansion +of platform engagement features. +The +Company’s future growth remains dependent on successful user adoption, execution of its commercialization strategy, and access to external financing. +45 +Convertible +Debt +On March 19, 2025, the Company issued 300,000 shares of Common Stock +at a conversion price of $0.70 per share in connection with the conversion of $210,000 of indebtedness payable to Evan Trust. Debt conversion +loss was $300,030. +On May 7, 2025, the Company issued 90,123 +shares of Common Stock at a conversion price of $1.19 per share, together with warrants to purchase 81,739 shares of Common Stock at +an exercise price of $1.29 per share and expiring on the fifth anniversary of the issuance date, in connection with the conversion of +$105,444 of indebtedness payable to Hangmuk Shin. Debt conversion loss was $178,748. +On May 7, 2025, the Company issued 135,817 shares of Common Stock at +a conversion price of $1.27 per share, together with warrants to purchase 125,383 shares of Common Stock at an exercise price of $1.42 +per share and expiring on the fifth anniversary of the issuance date, in connection with the conversion of $175,205 of indebtedness payable +to Jeyoun Baeg. Debt conversion loss was $257,054. +On May 7, 2025, the Company issued 135,817 shares of Common Stock at +a conversion price of $1.27 per share, together with warrants to purchase 125,383 shares of Common Stock at an exercise price of $1.42 +per share and expiring on the fifth anniversary of the issuance date, in connection with the conversion of $175,205 of indebtedness payable +to Jungok You. Debt conversion loss was $257,054. +On May 20, 2025, the Company issued 246,666 +shares of Common Stock at a conversion price of $0.70 per share in connection with the conversion of $172,666 of indebtedness payable +to PixelArc LLC. Debt conversion loss was +$175,343 . +On +August 19, 2025, warrants held by Jungok You were exercised at an exercise price of $1.42 per share, resulting in the issuance of 125,383 +shares of Common Stock for aggregate cash proceeds of approximately $ 178,044. +During the year ended December 31, 2025, the company recorded loss +on extinguishment of debt of $1,168,228. +Contractual +Obligations +As +of December 31, 2025, the Company did not have any material long-term contractual obligations, other than obligations incurred in the +ordinary course of business, including accrued professional fees and other accounts payable reflected in the Company’s consolidated +financial statements. +46 +Off-Balance +Sheet Arrangements +As +of December 31, 2025, the Company did not have any off-balance sheet arrangements, as defined under applicable SEC rules, that have or +are reasonably likely to have a material current or future effect on the Company’s financial condition, results of operations, +liquidity, capital expenditures, or capital resources. +Critical Accounting Policies and Estimates +The preparation of the Company’s consolidated financial statements +in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, +and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues +and expenses during the reporting period. +Significant estimates and assumptions include: +● +Fair value measurements (including the fair value of the Company’s +common stock); +● +Stock-based compensation; +● +Recoverability, useful lives, and impairment assessments of long-lived and +intangible assets; +● +Valuation allowance relating to the Company’s deferred tax assets; +and +● +Assumptions related to projected future cash flows and commercialization +timing. +Management evaluates these estimates on an ongoing basis using historical +experience and various other assumptions believed to be reasonable under the circumstances. Actual results may differ materially from +these estimates and assumptions. +Recent Accounting Pronouncements +We have determined that all other issued, but not +yet effective accounting pronouncements are inapplicable or insignificant to us and once adopted are not expected to have a material impact +on our financial position. +Item +7A. Quantitative and Qualitative Disclosures about Market Risk +Quantitative and Qualitative Disclosures about +Market Risk +We +are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial +position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily the result of fluctuations +in foreign currency and credit. +Foreign +Currency Risk +The Company’s functional currency is KRW and reporting currency is USD. FANING KOREA, LLC, the Company’s wholly owned Korean subsidiary, +maintains certain local accounts and records in KRW in connection with administrative support activities in South Korea. +As a result, the Company may be exposed to foreign currency risk from +fluctuations in exchange rates between KRW and USD with respect to KRW-denominated assets, liabilities, expenses, and cash flows associated +with FANING KOREA, LLC’s administrative activities. +The +Company does not currently enter into derivative instruments or other hedging transactions to manage foreign currency risk. +Credit +Risk +The +Company’s cash and cash equivalents, deposits, and other balances held with banks and financial institutions may be subject to +concentration of credit risk. The Company seeks to place its cash and cash equivalents with financial institutions that management believes +are of acceptable credit quality. +47 +Item +8. Financial Statements and Supplementary Data. +The +Financial Statements and Supplementary Data required by this Item 8 are incorporated by reference to information beginning on Page F-1 +of this Form 10-K. +Item +9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. +Except +as described below, there have been no changes in or disagreements with accountants on accounting and financial disclosure. +On +January 4, 2024, Global Interactive Technologies, Inc. (Former: Hanryu Holdings, Inc (the “ Company ”) retained ONESTOP +Assurance PAC (“ONESTOP”) as its independent registered public accounting firm for the fiscal year ending December 31, 2023. +On +May 11, 2024, the Company retained ONESTOP as its independent registered public accounting firm since the previous independent public +accounting firm engaged by the Company for the fiscal year ending December 31, 2022, BF Borgers CPA PC (“BFB”), is not currently +permitted to appear or practice before the SEC for reasons described in the SEC’s Order Instituting Public Administrative and Cease-and-Desist +Proceedings Pursuant to Section 8A of the Securities Act of 1933, Sections 4C and 21C of the Securities Exchange Act of 1934 and Rule +102(e) of the SEC’s Rules of Practice, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order, dated May +3, 2024. BFB’s audit reports on the Company’s consolidated financial statements as of and for the fiscal years ended December +31, 2022 and 2021 did not contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to audit scope +or accounting principles. There have been no “disagreements” (as that term is defined in Item 304(a)(1)(iv) of Regulation +S-K) and no “reportable event” occurred (as that term is defined in Item 304(a)(1)(v) of Regulation S-K during the fiscal +years ended December 31, 2022 and 2021 and the subsequent interim periods up to the date between the Company and BFB on any matter of +accounting principles or practices, financial statement disclosure or auditing scope or procedure, which, if not resolved to the satisfaction +of BFB, would have caused them to make reference to the subject matter of the disagreement in connection with their report on the Company’s +financial statements for those periods. +At +the annual meeting of shareholders held on December 29, 2025, the Company appointed ONESTOP as its independent registered public accounting +firm for the fiscal year ended December 31, 2025. +Item +9A. Controls and Procedures. +Evaluation +of Disclosure Controls and Procedures +Our +management evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the +Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of December 31, 2025. Based on such evaluation, our +Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2025, our disclosure controls and procedures were +not effective to provide reasonable assurance that information required to be disclosed in the reports we file or submit under the Exchange +Act (a) is recorded, processed, summarized, and reported within the time periods specified by SEC rules and forms, and (b) is accumulated +and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions +regarding required disclosure. +Management +acknowledges the observation and understands the importance of establishing formal risk assessment procedures and strengthening segregation +of duties. Due to the Company’s current size and limited resources, certain functions remain concentrated. However, management +plans to gradually enhance internal control procedures, including periodic risk assessments and improved review processes, as the Company +continues to grow. +Management acknowledges the need to further strengthen +the accounting team’s technical knowledge of U.S. GAAP. The Company intends to continue working with external consultants and advisors +and will provide additional training and supervision to improve the accuracy and consistency of financial reporting. +Management recognizes the importance of specialized +U.S. GAAP expertise. The Company will continue to engage external accounting professionals and technical consultants when necessary and +intends to strengthen internal capabilities over time through additional training and recruitment efforts, subject to available resources. +Management acknowledges the deficiency related to +the identification and disclosure assessment of related parties. The Company has corrected the public filing through an amended filing +and plans to implement enhanced procedures for identifying, documenting, and reviewing related-party relationships and transactions prior +to future SEC filings. +These +material weaknesses could result in a misstatement of account balances or disclosures such that a material misstatement of the Company’s +annual or interim financial statements may not be prevented or detected on a timely basis. Notwithstanding the identified material weaknesses, +management performed additional analyses and other procedures and concluded that the consolidated financial statements included in this +Annual Report on Form 10-K fairly present, in all material respects, the Company’s financial position, results of operations, and +cash flows for the periods presented in conformity with U.S. GAAP. +Management’s +Annual Report on Internal Control over Financial Reportin g +Our management +is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules +13a-15(f) and 15d-15(f) under the Exchange Act. Under the supervision and with the participation of our management, including our Chief +Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness, as of December 31, 2025, of our internal +control over financial reporting based on the framework in 2013 Internal Control - Integrated Framework issued by the Committee of Sponsoring +Organizations of the Treadway Commission. Based on our evaluation under this framework, our management concluded that our internal control +over financial reporting was not effective as of December 31, 2025 due to material weaknesses in our internal control over financial +reporting described above. +48 +Changes +in Internal Control Over Financial Reporting +On +December 22, 2025, during the quarter ended December 31, 2025, the Company’s Chief Financial Officer, Juhyon Shin, submitted his +resignation, which was accepted by the company in March 2026 and was disclosed in the Company’s Current Report on Form 8-K filed +on March 19, 2026. +During +the transition, the Company relied on management oversight and outside accounting and professional advisors to support its financial +reporting process. +Except +as described above, there were no changes in the Company’s internal control over financial reporting during the quarter ended December +31, 2025 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial +reporting. +Limitations +on Effectiveness of Controls and Procedures +In +designing and evaluating disclosure controls and procedures and internal control over financial reporting, management recognizes that +any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired +control objectives. +In +addition, the design of disclosure controls and procedures and internal control over financial reporting must reflect resource constraints, +and management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs. +Item +9B. Other Information. +Rule 10b5-1 Trading Arrangements +None +of the Company’s directors or officers adopted , modified or terminated a Rule 10b5-1 trading arrangement or +a non-Rule 10b5-1 trading arrangement during the Company’s fiscal quarter ended December 31, 2025, as such terms are +defined under Item 408(a) of Regulation S-K. +Item +9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. +Not applicable. +49 +PART +III +Item +10. Directors, Executive Officers and Corporate Governance. +The +following table sets forth certain information regarding our executive officers, directors and director nominees as of December 31, 2025. +Name +Age +Position +Executive +Officers and Directors +Taehoon +Kim +52 +Chief +Executive Officer +Juhyon Shin (1) +52 +Chief +Financial Officer +John +S. Morris +6 2 +Independent +Director +Amy +Shi +44 +Independent +Director +Jay +Hyong Woo +54 +Independent +Director +Larry +Namer +77 +Independent +Director +(1) +Juhyon Shin submitted his resignation +as Chief Financial Officer on December 22, 2025, effective March 2026 and as disclosed in the Company’s Current Report on Form +8-K filed on March 19, 2026 +Background +of Executive Officers and Directors +Taehoon +Kim, age 52, Chief Executive Officer +Taehoon +Kim was appointed as the Chief Technology Officer (CTO) and Vice President of Hanryu Holdings on June 1, 2022, and was later +appointed as the interim Chief Executive Officer by the Board of Directors on February 26, 2024. Mr. Kim was the Founder of Rulemakr +Inc. and served as CEO from June 2014 to May 2021. He also served as CEO at Webzen Mobile, Inc. from May 2012 to May 2014, as COO at +Webzen, Inc. from September 2008 to April 2012, and as Director at NHN Games Corporation from August 2005 to August 2008. He has +over 25 years of experience in information technology, network infrastructure, and cybersecurity management, oversees the +Company’s cybersecurity risk management program, including supervision of internal cybersecurity personnel and external +cybersecurity consultants. Mr. Kim earned a bachelor’s degree in the Department of German Language Education in Seoul +National University in February 1997 and received his MBA from Seoul National University in February 2014. +50 +John +S. Morris, Independent Director +John S. Morris was elected as a director of the Company in February, +2022. Mr. Morris has served as the Chief Financial Officer of Metra Commuter Rail since July 25, 2022. From January 2021 to June 2022, +he worked as an Independent Financial Consultant that produced financial models for credit card industry clients. From 2015 to 2021, he +was the finance leader for Synchrony’s Oil and Gas Programs. Prior to that, Mr. Morris served as Chief Financial Officer for US +Commercial Cards at J.P. Morgan from 2010 to 2014, and as the financial leader for programs including Best Buy and Yamaha at HSBC from +2007 to 2009. Mr. Morris is a Certified Public Accountant and earned a bachelor’s degree in nuclear engineering from the United +States Military Academy at West Point, an MBA from Northwestern University’s Kellogg School of Management, and a Master of science +degree from the University of Southern California’s Viterbi School of Engineering. +Mr. +Morris was selected to be a director based on his background as a financial analysis executive with over 20 years of experience +in the financial services industry. +Amy +Shi, Independent Director +Amy Shi was elected as a director of the Company in December 2024. +Ms. Shi brings over 20 years of experience in business development and relationship management across the banking, investment management, +international trade, media, and technology industries. Since December 2024, she has served as Managing Member and CEO of PixelArc LLC, +a Hollywood-based TV and film IP management and production company. From September 2020 to December 2024, she worked as an independent +management consultant in Seoul. Ms. Shi had made significant contributions to the Company as an independent consultant from October 2021 +to April 2023. From May 2019 to August 2020, Ms. Shi served as Vice President at HSBC and from August 2012 to May 2019 +as Assistant Vice President at JPMorgan Chase. In the technology sector, she held a Partner Relations role at Apple Inc. from 2016 to +2017 and earlier worked at China Telecom from 2002 to 2005. She also has prior experience in operations and management consulting at Bestview +International and Phoenix Design. Fluent in English, Mandarin, and Korean, Ms. Shi holds dual bachelor’s degrees in Computer Science +and Marketing, and a Master’s degree from the Ohio State University. +We believe Ms. Shi’s extensive +background in banking, technology, and media, combined with her cross-industry management expertise and global perspective, qualifies +her to serve on our board of directors. +Jay +Hyong Woo, Independent Director +Jay +Hyong Woo was appointed as a director of the Company on February 14, 2022. Mr. Woo has served as the president of Epic Pro, Inc since +November 2003. He also served as the Chief Executive Officer of CTK US from August 2017 to December 2021. Mr. Woo also served as the +President of Crossen, Inc, from August 2009 to March 2018. Mr. Woo earned a Bachelor of Arts in Hotel Management from the University +of Nevada Las Vegas. +Mr. +Woo was selected to be a director based on his extensive experience operating and advising businesses in a number of different industries. +This will benefit the Company as we develop our business and seek to expand the areas in which we operate. +Larry +Namer, Independent Director +Larry +Namer was elected as a director of the Company in December 2024. Mr. Namer founded E! Entertainment in July 1987 and served as President +and Chairman of LJN Media from January 2003 to the present. Mr. Namer is a seasoned media entrepreneur and innovator with over 50 years +of experience in the entertainment industry. He is best known for founding E! Entertainment Television, a network currently in 140 countries +and valued at over $5.0 billion. Prior to that, Mr. Namer also served as President of Company Communications from February 1989 to January +2023. Mr. Namer also served as Chairman of Steeplechase Media from January 1985 to December 2003. He has worked extensively in Russia +until 2003 and then moved on to China where his company Metan continues bringing Western media to international audiences reaching over +one billion Mandarin speakers. Mr. Namer earned a bachelor’s degree in economics from Brooklyn College. We believe Mr. Namer’s +extensive experience in the entertainment industry qualified him to serve on our board of directors. +51 +Board +Composition +Our +Board currently consists of four members. Each of our directors will serve until our next annual meeting of stockholders or until his +or her successor is elected and duly qualified. Our Board is authorized to appoint persons to the offices of Chair of the Board of Directors, +Vice Chair of the Board of Directors, Chief Executive Officer, President, one or more Vice Presidents, Chief Financial Officer, Treasurer, +one or more Assistant Treasurers, Secretary, one or more Assistant Secretaries, and such other officers as may be determined by the Board. +The Board may also empower the Chief Executive Officer, or in absence of a Chief Executive Officer, the President, to appoint such other +officers and agents as our business may require. Any number of offices can be held by the same person. +Director +Independence +Our +Board has determined that each member of the Board qualifies as an independent director in accordance with the rules of the Nasdaq Stock +Market (“Nasdaq”). The director independence definition under the Nasdaq rule includes a series of objective tests, including +that the director is not, and has not been for at least three years, one of our employees and that neither the director nor any of his +family members has engaged in various types of business dealings with us. In addition, as required by Nasdaq rules, our Board has made +a subjective determination as to each independent director that no relationships exist, which, in the opinion of our Board, would interfere +with the exercise of independent judgment in carrying out the responsibilities of a director. In making these determinations, our Board +reviewed and discussed information provided by the directors and us with regard to each director’s business and personal activities +and relationships as they may relate to us and our management. +Family +Relationships +None +of our directors or executive officers is related by blood, marriage or adoption. +Role +of Board in Risk Oversight Process +Our +Board has responsibility for the oversight of the Company’s risk management processes and, either as a whole or through its committees, +regularly discusses with management our major risk exposures, their potential impact on our business, and the steps we take to manage +them. The risk oversight process includes receiving regular reports from Board committees and members of senior management to enable +our Board to understand our risk identification, risk management and risk mitigation strategies with respect to areas of potential material +risk, including operations, finance, legal, regulatory, strategic and reputational risk. Cybersecurity risk is a key consideration in +our operational risk management capabilities. We are in the process of instituting a formal information security management program, +which will be subject to oversight by, and reporting to, our Board. Given the nature of our operations and business, cybersecurity risk +may manifest itself through various business activities and channels and is thus considered an enterprise-wide risk which is subject +to control and monitoring at various levels of management throughout the business. Our Board will oversee and review reports on significant +matters of corporate security, including cybersecurity. In addition, we maintain specific cyber insurance through our corporate insurance +program, the adequacy of which is subject to review and oversight by our Board. +Our +audit committee reviews information regarding liquidity and operations and oversees our management of financial risks. Periodically, +our audit committee reviews our policies with respect to risk assessment, risk management, loss prevention and regulatory compliance. +Oversight by the audit committee includes direct communication with our external auditors, and discussions with management regarding +significant risk exposures and the actions management has taken to limit, monitor or control such exposures. Our compensation committee +is responsible for assessing whether any of our compensation policies or programs has the potential to encourage excessive risk-taking. +Matters of significant strategic risk are considered by our Board as a whole. +Board +Committees and Independence +Our +Board has established the following three standing committees: audit committee, compensation committee, and nominating and governance +committee. Our Board has adopted written charters for each of these committees. We made each committee’s charter available under +the Corporate Governance section of our website at https://gitechnologies.com . The reference to our website address does not constitute +incorporation by reference of the information contained at or available through our website, and you should not consider it to be a part +of this Report. All members of the audit nominating and governance, and compensation committees meet the criteria for independence. +52 +Audit +Committee and Audit Committee Financial Experts +The +Audit Committee consists of John S. Morris, Jay Hyong Woo, and Larry Namer, with Mr. Morris serving as the Chairman. +Mr. +Morris, as the Chairman, is qualified to serve as an audit committee financial expert and satisfies the applicable independence requirements. +Insider +Trading Policy +The +Company has an insider trading policy governing the purchase, sale and other dispositions of the Company’s securities (the “Insider +Trading Policy”) that applies to all of the Company’s directors, officers, employees and other covered persons identified +within the Insider Trading Policy. The Company believes that the Insider Trading Policy is reasonably designed to promote compliance +with applicable U.S. federal securities laws, rules and regulations, as well as Nasdaq listing standards applicable to the Company, relating +to insider trading. In addition, with regard to the Company’s trading in its own securities, it is the Company’s policy to +comply with applicable federal securities laws and Nasdaq listing requirements. The Company does not currently have any practices or +policies regarding the ability of any of its employees, officers or directors to purchase financial instruments or otherwise +engage in transactions that hedge or offset, or are designed to hedge or offset, any decrease in the market value of the Company’s +equity securities. +Involvement +in Certain Legal Proceedings +During +the past ten (10) years, none of our directors or executive officers has been involved in any legal proceeding that is material to the +evaluation of their ability or integrity relating to any of the items set forth under Item 401(f) of Regulation S-K. None of our directors +or executive officers is a party adverse to the Company or any of its subsidiaries in any material proceeding or has a material interest +adverse to the Company or any of its subsidiaries. +Delinquent +Section 16(a) Reports +Section +16(a) of the Exchange Act requires a company’s officers and directors, and persons who own more than ten percent (10%) of a registered +class of a company’s equity securities, to file reports of ownership and changes in ownership with the SEC. +To +our knowledge, based solely on a review of the copies of such reports furnished to us, we believe that all filing requirements applicable +to our directors, executive officers, and persons who own more than 10% of our common stock were complied with during 2025, except for +the following filings: +● The +Evan Trust filed a late Form 3 on May 22, 2025 for a transaction dated February 18, 2025. +● Amy +Shi filed a late Form 3 on May 22, 2025 for a transaction dated December 31, 2024. +● Amy +Shi filed a late Form 4 on June 16, 2025 for a transaction dated May 20, 2025. +● Hangmuk Shin and Sewang Co., Ltd. filed a late Form 4 on April 24, 2026 +for a transaction dated October 29, 2025. +Code +of Business Conduct and Ethics +We +have adopted a Code of Business Conduct and Ethics applicable to our employees, officers and directors. We made our Code of Business +Conduct and Ethics available under the Corporate Governance section of our website at https://gitechnologies.com . The reference +to our website address does not constitute incorporation by reference of the information contained at or available through our website, +and you should not consider it to be a part of this Report. We intend to disclose any future amendments to certain provisions of our +Code of Business Conduct and Ethics, or waivers of these provisions, on our website or in our filings with the SEC under the Exchange +Act. +Limitation +of Liability and Indemnification +Our +Certificate of Incorporation (“ Charter ”), and our bylaws (“ Bylaws ”) provide the indemnification +of our directors and officers to the fullest extent permitted under the Delaware General Corporation Law (“ DGCL ”). +In addition, the Charter provides that our directors shall not be personally liable to us or our shareholders for monetary damages for +breach of fiduciary duty as a director and that if the DGCL is amended to authorize corporate action further eliminating or limiting +the personal liability of directors, then the liability of our directors shall be eliminated or limited to the fullest extent permitted +by the DGCL, as so amended. +As +permitted by the DGCL, we have entered into or plan to enter into separate indemnification agreements with each of our directors and +certain of our officers that require us, among other things, to indemnify them against certain liabilities which may arise by reason +of their status as directors, officers or certain other employees. We expect to obtain and maintain insurance policies under which our +directors and officers are insured, within the limits and subject to the limitations of those policies, against certain expenses in connection +with the defense of, and certain liabilities that might be imposed as a result of, actions, suits or proceedings to which they are parties +by reason of being or having been directors or officers. The coverage provided by these policies may apply whether or not we would have +the power to indemnify such person against such liability under the provisions of the DGCL. +We +believe that these provisions and agreements are necessary to attract and retain qualified persons as our officers and directors. At +present, there is no pending litigation or proceeding involving our directors or officers for whom indemnification is required or permitted, +and we are not aware of any threatened litigation or proceeding that may result in a claim for indemnification. +53 +Item +11. Executive Compensation +We +are an emerging growth company for purposes of the SEC’s executive compensation disclosure rules. In accordance with such rules, +we are required to provide a Summary Compensation Table, an Outstanding Equity Awards at Fiscal Year-End Table, and limited narrative +disclosures regarding executive compensation for our last two completed fiscal years. Our reporting obligations extend only to our “named +executive officers,” consisting of our principal executive officer and our two other most highly compensated executive officers +who were serving as executive officers at the end of the last completed fiscal year. +Name and principal position +Year +Compensation (1) +Salary +($) +Bonus +($) +Stock Awards +($) +Option Awards +($) (2) +All Other Compensations +($) +Total +($) +Taehoon Kim +2025 +Received +0 +- +- +- +- +0 +Chief Executive Officer +Accrued +58,600 +- +- +- +- +58,600 +Juhyon +Shin +2025 +Received +44,000 +- +- +- +- +44,000 +Chief Financial Officer (3) +Accrued +0 +- +- +- +- +0 +Taehoon Kim +2024 +Received +0 +- +- +- +- +0 +Chief Executive Officer +Accrued +58,600 +- +- +- +- +58,600 +Juhyon Shin +2024 +Received +33,588 +- +- +- +- +33,588 +Chief Financial Officer +Accrued +10,412 +- +- +- +- +10,412 +(1) Accrued +and unpaid salary expenses which were recorded for the years ended December 31, 2025 and +December 31, 2024 will be paid and was paid during the year of 2025 and 2024. +(2) This +column represents the grant date fair value calculated in accordance with the Financial Accounting +Standards Board’s Accounting Standards Codification Topic 718, Compensation — +Stock Compensation (“ ASC 718 ”). These amounts do not represent the actual +value, if any, that may be realized by the Named Executive Officers. +(3) Juhyon +Shin submitted his resignation as Chief Financial Officer on December 22, 2025, effective +March 2026 and as disclosed in the Company’s Current Report on Form 8-K filed on March +19, 2026. +Elements +of Compensation +Our +executive compensation program consisted of the following components of compensation in 2025 and 2024: +Base +Salary +Each +of our executive officers receives a base salary for the expertise, skills, knowledge and experience he or she offers to our management +team. The base salary of each of our executive officers is re-evaluated annually, and may be adjusted to reflect: +● the +nature, responsibilities, and duties of the officer’s position; +● the +officer’s expertise, demonstrated leadership ability, and prior performance; +● the +officer’s salary history and total compensation, including annual equity incentive +awards; and +● the +competitiveness of the officer’s base salary. +Equity +Incentive Awards +Moving +forward, we believe that to attract and retain management, key employees and non-management directors, the compensation paid to these +persons should include, in addition to base salary, annual equity incentives. Our Compensation committee will determine the amount and +terms of equity-based compensation granted to each individual. In determining whether to grant certain equity awards to our executive +officers, the Compensation Committee will assess the level of the executive officer’s achievement of meeting individual goals, +as well as the executive officer’s contribution towards goals of the Company. Whenever possible, equity incentive awards will be +granted under our equity incentive plan, described below. Since the Company does not currently grant equity awards, it has not yet adopted a policy or practice regarding granting +equity awards. +54 +Employment +Agreements and Potential Payments upon Termination or Change of Control +On June 1, 2022, Taehoon Kim entered into an employment agreement to serve +as Chief Technology Officer and Vice President. He was subsequently appointed Interim Chief Executive Officer on February 26, 2024 and +later formally appointed Chief Executive Officer on March 26, 2026 by the Board of Directors respectively. Effective April 1, 2024, he +received an annual base salary of $58,600 under an initial one-year term commencing March 1, 2024, and continued serving in such capacity +after the expiration of the initial term. +On +May 3, 2021, Juhyon Shin entered into an employment agreement to serve as Chief Financial Officer. Effective April 1, 2024, he received +an annual base salary of $44,000 under an initial one-year term beginning April 1, 2024, and continued serving in such capacity after +the expiration of the initial term. On December 22, 2025, Mr. Shin submitted his resignation, which was accepted by the Company in March +2026 and disclosed in a Current Report on Form 8-K filed on March 19, 2026. +None +of the aforementioned employment agreements require any payments beyond salary already earned in the event of the executive’s termination +or a change in control. +Outstanding +Equity Awards at Fiscal Year-End +There +were no outstanding stock option awards, or other equity-based awards, held by any of the Named Executive Officers as of December 31, +2025. +Director +Compensation +Each +of our non-employee directors are entitled to receive a monthly retainer of $3,000 for serving on the Board, which fee may be paid either +in cash, options or shares of common stock. As of December 31, 2025, we have paid no compensation to non-employee directors. +55 +Item +12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +Securities +Authorized for Issuance under Equity Compensation Plans +The +following table provides a summary of the securities authorized for issuance under our equity compensation plans as of December 31, 2025. +Plan category +Number of securities to be issued upon exercise of outstanding options, warrants and rights +Weighted average exercise price of outstanding options, warrants and rights +Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column(a)) +(a) +(b) +(c) +Equity compensation plans approved by security holders +- +- +1,500,000 +2022 Omnibus Equity Incentive Plan +Total +- +- +1,500,000 +Stock +Option and Incentive Plan +Our +Board unanimously approved the Global Interactive Technologies, Inc. 2022 Omnibus Equity Incentive Plan, formerly the Hanryu Holdings, +Inc. 2022 Omnibus Equity Incentive Plan, on February 14, 2022. Following the Company’s 1-for-20 reverse stock split effected on +January 27, 2025, the maximum number of shares of common stock issuable under the Plan is currently 75,000 shares, subject to adjustment +for stock splits, stock dividends, recapitalizations, or other similar changes in our common stock or capital structure. +The +Plan provides for the grant of (a) Incentive Stock Options, within the meaning of Section 422 of the Internal Revenue Code, to full-time +employees, subject to the requirements of Section 422(c)(6) where an employee owns 10% or more of our outstanding voting stock; (b) Non-Qualified +Options; (c) stock awards; and (d) performance shares to employees, members of our Board, and independent contractors who provide services +to the Company. +Plan +Administration +Pursuant +to the Plan, our Board has delegated the authority to administer the Plan to the Board’s Compensation Committee (the “ Committee ”). +Subject to the provisions of our Plan, the Committee has the power to determine the terms of the awards, including the exercise price, +the number of shares subject to each award, the exercisability of the awards, and the form of consideration, if any, payable upon exercise. +The Committee also has the authority to amend, modify, extend renew or terminate outstanding Options, or may accept the cancellation +of outstanding Options, whether or not granted under the Plan, in return for the grant of new Options at the same or a different price. +Additionally, the Committee may shorten the vesting period, extend the exercise period, remove any or all restrictions or convert an +Incentive Option to a Non-Qualified Option, if, at its sole discretion, it determines that such action is in the best interest of the +Company; provided, however, that any modification made to outstanding Options requires the prior consent of the holder(s) of such +Options, unless the Committee determines that the action would not materially and adversely affect such holder(s). +Incentive +Stock Options +The +exercise price of Incentive Stock Options granted under our Plan must at least be equal to 100% of the fair market value of our common +stock on the date of grant. The term of an Incentive Stock Option may not exceed ten years, except that with respect to any participant +who owns more than 10% of the voting power of all classes of our outstanding stock, the term must not exceed five years and the exercise +price must equal at least 110% of the fair market value on the grant date. +Non-Qualified +Stock Options +The +exercise price of Non-Qualified Options granted under our Plan must at least be equal to 85% of the fair market value of our common stock +on the date of grant. The term of a Non-Qualified Stock Option may not exceed ten years. +56 +Stock +Awards or Sales +Eligible +individuals may be issued shares of common stock directly, upon the attainment of performance milestones or the completion of a specified +period of service or as a bonus for past services. The purchase price for the shares shall not be less than 100% of the fair market value +of the shares on the date of issuance, and payment may be in the form of cash or past services rendered. Eligible individuals shall have +no stockholder rights with respect to any unvested restricted shares or restricted share units issued to them under the stock award or +sales program, however, eligible individuals shall have the right to receive any regular cash dividends paid on such shares. +Termination +of Relationship +Except +as the Committee may otherwise determine with respect to a Non-Qualified Stock Option, if the holder of an Option ceases to have a Relationship +(as defined in the Plan) with the Company for any reason other than death or permanent disability, any Options granted to him shall terminate +90 days from the date on which such Relationship terminates; provided, however , that no Option may be exercised or claimed by +the holder of an Option following the termination of his Relationship for Cause (as defined in the Plan). In the event that the Relationship +terminates as a result of the death or permanent disability of the Option holder, any Options granted to him shall terminate one year +from the date of his death or termination due to permanent disability. In no event may an option be exercised later than the expiration +of its term. +Certain +Adjustments +In +the event of certain changes in our capitalization, to prevent diminution or enlargement of the benefits or potential benefits available +under the Plan, the administrator will adjust the number and class of shares available for future grants under the Plan, the exercise +price of outstanding Options, the number of shares covered by each outstanding award, or the purchase price of each outstanding award. +Reorganization +In +the event we are a party to a merger or other corporate reorganization, all outstanding Options shall be subject to the agreement of +merger or reorganization. Such agreement may provide for the assumption of the outstanding Options by the surviving corporation or its +parent or for their continuation by the Company (if the Company is a surviving corporation); provided, however , that if the assumption +or continuation is not [provided by/used in] such agreement, then the Committee, in its sole discretion, shall have the option of offering +the payment of a cash settlement equal to the difference between the amount to be paid for one share under the agreement and the exercise +price. +Change +of Control +Under +the Plan, a Change of Control is generally defined as: (i) the sale of all or substantially all of the assets of the Company, or (ii) +any merger, consolidation or acquisition of the Company with, by or into another corporation, entity or third party, the result of which +is a change in the ownership of more than 50% of the voting capital stock of the Company. +In +the event of a Change of Control, all restrictions on all awards or sales of shares will accelerate and vesting on all unexercised and +unvested Options will occur on the Change of Control date. +57 +Security +Beneficial Ownership +The following table sets forth certain +information known to us regarding beneficial ownership of our common stock as of May 22, 2026 for (i) each of our named executive officers +and directors individually, (ii) all of our current executive officers and directors as a group, and (iii) each person, or group of affiliated +persons, known by us to be the beneficial owner of more than 5% of our capital stock. The percentage of beneficial ownership in the table +below is based on 3,674,208 shares of common stock outstanding as of May 22, 2026. +Name, +address and title of beneficial owner (1) +Shares +of Common Stock +Total +Number of Shares Beneficially Owned +Percentage +of Voting Common Stock Outstanding (2) +Officers +and Director +Taehoon +Kim Chief Executive Officer +7,500 +7,500 +0.20 % +Juhyon +Shin (3) +Chief +Financial Officer +5,000 +5,000 +5,000 +John +S. Morris +Independent +Director +- +- +- +Amy +Shi (4) +Independent +Director +12,500 +259,166 +(Including indirect ownership of PixelArc 246,666 shares) +7.05 % +Jay +Hyong Woo Independent Director +- +- +- +Larry +Namer Independent Director +- +- +- +All +current Executive Officers and Directors as a Group (5 Individuals) +20,000 +266,666 +7.25 % +Greater +than 5% Stockholders +Hangmuk +Shin and his related parties (5) +436,915 +436,915 +11.89 % +Evan +Trust (6) +300,000 +300,000 +8.17 % +Jungok +You (7) +261,200 +261,200 +7.11 % +(1) +Unless +otherwise indicated, the business address for each of the executive officers and directors is c/o Global Interactive Technologies, +Inc., 160, Yeouiseo-ro, Yeongdeungpo-gu, Seoul, Republic of Korea 07231. +(2) +Beneficial +ownership is determined in accordance with the rules of the SEC. In computing the number of shares beneficially owned by a person +and the percentage of ownership by that person, shares of voting common stock subject to outstanding rights to acquire shares of +voting common stock held by that person that are currently exercisable or exercisable within 60 days are deemed outstanding. +Such shares are not deemed outstanding for the purpose of computing the percentage of ownership by any other person. +(3) +Juhyon +Shin submitted his resignation as Chief Financial Officer on December 22, 2025, effective March 2026 and as disclosed in the Company’s +Current Report on Form 8-K filed on March 19, 2026 +(4) +Beneficial +ownership includes (i) 12,500 shares of common stock held individually and (ii) 246,666 shares of common stock held by PixelArc LLC, +an entity controlled by Amy Shi. +(5) +Beneficial ownership includes (i) 285,000 shares of common stock held by +Hangmuk Shin individually (including 27,124 shares held by Mr. Shin’s spouse, and 2,950 shares held in the aggregate by Mr. Shin’s +children), (ii) 151,915 shares of common stock held by Sewang Co., Ltd., an entity controlled by Mr. Shin, and (iii) 81,739 shares of +common stock underlying warrants issuable upon exercise of warrants at an exercise price of $1.29. Mr. Shin has sole beneficial ownership +of the shares, and may be deemed to share beneficial ownership of the shares owned by his spouse, children and Sewang Co., Ltd. Mr. Shin +has sole voting and dispositive power over the shares held directly in his name and may be deemed to have shared voting and dispositive +power over the shares held by his spouse, children and Sewang Co., Ltd. The principal business address of Hangmuk Shin and related entities +is 13-10, Seochodaero 65 gil, Seocho-gu, Seoul, Korea. The foregoing information is based upon a Schedule 13D/A filed by Hangmuk Shin +with the SEC on April 24, 2026. +(6) +The +trustee of the Evan Trust is Amy Shi, a director of the Company. Ms. Shi has voting and dispositive power over the shares held by +the Evan Trust. Ms. Shi is not a beneficiary of the Evan Trust, does not have any pecuniary interest in such shares and disclaims +beneficial ownership of such shares. The principal business address of the Evan Trust is 950 N. Kings Road, #218, West Hollywood, +California 90068. The foregoing information is based solely upon a Schedule 13D filed by the Evan Trust on May 22, 2025. +(7) +The +principal business address of Jeongok You is Seongsuil-ro 4-gil, Seongdong-gu, Seoul, Korea. The foregoing information is based upon +information provided by such stockholder to the Company. +Changes +in Control +None. +58 +Item +13. Certain Relationships and Related Transactions, and Director Independence Certain Relationships and Related Transactions +Related Party Transactions +The +Company is affiliated with several individuals that have common ownership, and transacts a portion of its business with related parties. +Short-Term +Loan Payables +December 31, 2025 ($) +December 31, 2024 ($) +Taehoon Kim +583 +- +Jaeman Lee +84 ,733 +255,286 +Hangmuk Shin +6 ,969 +94,321 +PixelArc LLC +963 +- +Total +93 ,248 +349,607 +Taehoon +Kim (CEO) +- +On January 8, 2025, the Company entered into a short-term loan agreement +with Taehoon Kim with a principal amount of $58 3 and an interest rate of 0%. It matured on January 7, 2026. +Jaeman +lee (Family of an independent director) +- The Company entered into a short-term loan agreement +with Jaeman Lee for the period from July 1, 2024, to December 31, 2024, and the outstanding loan balance as of December 31, 2024, was +$255,286. They matured onfrom June 30, 2025 to December 30, 2025. (The loan was partially deposited in KRW, which may result in +a slight difference in the loan amount when converted to USD due to exchange rate fluctuations.) +- On February 4, 2025, the Company entered into a +short-term loan agreement with Jaeman Lee at an annual interest rate of 4.6%. The principal amount of the loan was KRW 7,000,000 (USD +4,764), and it matured on February 3, 2026. The principal and interest will be repaid at maturity. +- On February 7, 2025, the Company entered into a +short-term loan agreement with Jaeman Lee at an annual interest rate of 4.6%. The principal amount of the loan was KRW 29,144,850 (USD +21,000), and it matured on February 6, 2026. The principal and interest will be repaid at maturity. +- On April 7, 2025, the Company entered into a short-term +loan agreement with Jaeman Lee at an annual interest rate of 4.6%. The principal amount of the loan was KRW 510,000 (USD 347), and it +matured on April 6, 2026. The principal and interest will be repaid at maturity. +- On February 17, 2025, Jaeman Lee, with the Company’s +consent, transferred the Company’s loan of $210,000 (KRW 300,000,000) to Evan Trust +- On April 11, 2025, the Company entered into a short-term +loan agreement with Jaeman Lee at an annual interest rate of 4.6%. The principal amount of the loan was KRW 1,020,000 (USD 699), and it +matured on April 10, 2026. The principal and interest will be repaid at maturity. +- On May 5, 2025, the Company entered into a short-term +loan agreement with Jaeman Lee at an annual interest rate of 4.6%. The principal amount of the loan was KRW 1,000,000 (USD 701), and it +matured on May 4, 2026. The principal and interest will be repaid at maturity. +- On July 2, 2025, the Company entered into a short-term +loan agreement with Jaeman Lee at an annual interest rate of 4.6%. The principal amount of the loan was KRW 150,000 (USD 110), and the +maturity date is July 1, 2026. The principal and interest will be repaid at maturity. +- On July 24, 2025, the Company entered into a short-term +loan agreement with Jaeman Lee at an annual interest rate of 4.6%. The principal amount of the loan was KRW 6,130,000 (USD 4,444), and +the maturity date is July 23, 2026. The principal and interest will be repaid at maturity. +- On August 5, 2025, the Company entered into a short-term +loan agreement with Jaeman Lee at an annual interest rate of 4.6%. The principal amount of the loan was KRW 146,000 (USD 105), and the +maturity date is August 4, 2026. The principal and interest will be repaid at maturity. +- On December 3, 2025, the Company entered into a +short-term loan agreement with Jaeman Lee at an annual interest rate of 4.6%. The principal amount of the loan was KRW 1,212,420 (USD +825), and the maturity date is February 3, 2026. The principal and interest will be repaid at maturity. +59 +Hangmuk +Shin (Greater than 10% shareholder) +- The Company entered into a short-term loan agreement +with Hangmuk Shin for the period from July 1, 2024, to December 31, 2024, and the outstanding loan balance as of December 31, 2024, was +$94,321. They matured on from June 30, 2025 to December 30, 2025. (The loan was partially deposited in KRW, which may result in +a slight difference in the loan amount when converted to USD due to exchange rate fluctuations.) +- On January 14, 2025, the Company entered into a +short-term borrowing agreement with Hangmuk Shin at an interest rate of 4.6%. The principal amount was KRW 3,310,000 (USD 2,249), and +it matured on January 13, 2026. The principal and interest will be repaid at maturity. +- On March 6, 2025, the Company entered into a short-term +borrowing agreement with Hangmuk Shin at an interest rate of 4.6%. The principal amount was KRW 6,500 (USD 4), and it matured on March +5, 2026. The principal and interest will be repaid at maturity. +- On March 24, 2025, the Company entered into a short-term +borrowing agreement with Hangmuk Shin at an interest rate of 4.6%. The principal amount was KRW 50,000 (USD 34), and it matured on March +23, 2026. The principal and interest will be repaid at maturity. +- On March 26, 2025, the Company entered into a short-term +borrowing agreement with Hangmuk Shin at an interest rate of 4.6%. The principal amount was KRW 50,000 (USD 34), and it matured on March +25, 2026. The principal and interest will be repaid at maturity. +- +On May 7, 2025, the Company issued 90,123 shares of Common Stock at a conversion price of $1.19 per share, together with warrants to +purchase 81,739 shares of Common Stock at an exercise price of $1.29 per share and expiring on the fifth anniversary of the issuance +date, in connection with the conversion of $105,444 of indebtedness payable to Hangmuk Shin. +- +On December 31, 2025, the Company entered into a short-term borrowing agreement with Hangmuk Shin at an interest rate of 4.6%. The principal +amount was KRW 10,000,000 (USD 6,969), and the maturity date is December 30, 2026. +PixelArc, +LLC +- +On February 18, 2025, the Company entered into a short term borrowing agreement with PixelArc, LLC at an interest rate of 8%. The principal amount was USD $86,666 and it matured on March 14, 2026. +- +On April 18, 2025, the Company entered into a short term borrowing agreement with PixelArc, LLC at an interest rate of 0%, the principle amount was USD $86,000, The it matured onMay 15 2025. +- +On May 20, 2025, the Company accepted PixelArc’s proposal, the total loan principle balance of USD $172,666 was converted into 246,666 shares at $0.7 per share, following the default of the April 18 2025 loan. The shares were issue on May 24, 2025. Accrued interest in the amount of USD $3490.44 remain outstanding. +- +On August 18, 2025, the Company entered into an interest free short term borrowing agreement with PixelArc, LLC, the principle amount was USD $1,000, repayable upon demand. +Director Independence +See “Item 10. Directors, Executive Officers and Corporate Governance – Director Independence.” +60 +Item +14 . Principal Accountant Fees and Services. +We +have appointed One Stop Assurance PAC(“ONESTOP”) to serve as our independent registered public accounting firm for the fiscal +years ending December 31, 2025 and December 31, 2024. +Fees +Billed to the Company in fiscal year 2025 and 2024 +The +following table sets forth the fees billed to us by our principal auditor, ONESTOP, professional services rendered for the during the +fiscal years ended December 31, 2025 and December 2024: +December 31, 2025 ($) +December 31, 2024 ($) +Audit fees (1) +192,000 +180,000 +Audit related fees (2) +9,600 +9,000 +Tax fees (3) +0 +0 +All other fees (4) +31,500 +0 +Total +233,100 +189,000 +(1) Audit +Fees — Audit fees consist of fees billed for the audit of our annual financial statements +and the review of the interim consolidated financial statements. +(2) Audit +Related Fees — These consisted principally of the aggregate fees related to audits +that are not included Audit Fees. +(3) Tax +Fees — Tax fees consist of aggregate fees for tax compliance and tax advice, including +the review and preparation of our various jurisdictions’ income tax returns. +(4) All +other Fees — Including fees for comfort letters regarding S-1 and the related fees. +Changes +in and Disagreements with Accountants on Accounting and Financial Disclosure +There +have been no changes in or disagreements with accountants on accounting and financial disclosure during the fiscal year ended December +31, 2025. +At +the annual meeting of shareholders held on December 29, 2025, the Company appointed ONESTOP Assurance PAC (“ONESTOP”) as +its independent registered public accounting firm for the fiscal year ended December 31, 2025. +Pre-Approval +Policy +Our +Audit Committee has the authority to appoint or replace our independent registered public accounting firm (subject, if applicable, to +stockholder ratification). Our Audit Committee is also responsible for the compensation and oversight of the work of the independent +registered public accounting firm (including resolution of disagreements between management and the independent registered public accounting +firm regarding financial reporting) for the purpose of preparing or issuing an audit report or related work. The independent registered +public accounting firm was engaged by, and reports directly to, our Audit Committee. +Our +Audit Committee pre-approves all audit services and permitted non-audit services (including the fees and terms thereof) to be performed +for us by our independent registered public accounting firm, subject to the de minimis exceptions for non-audit services described in +Section 10A(i)(1)(B) of the Exchange Act and Rule 2-01(c)(7)(i)(C) of Regulation S-X, provided that all such excepted services are subsequently +approved prior to the completion of the audit. We have complied with the procedures set forth above, and our Audit Committee has otherwise +complied with the provisions of its charter. +61 +PART IV +Item +15. Exhibit and Financial Statement Schedules. +(a) +The following documents are filed as part of this Report: +(1) +Financial Statements +Page +Consolidated +Report of Independent Registered Public Accounting Firm (PCAOB ID: 6732 ) +F-1 +Consolidated Balance Sheets +F-2 +Consolidated Statements of Operations +F-3 +Consolidated Statements of Changes in Shareholders’ Deficit +F-4 +Consolidated Statements of Cash Flows +F-5 +Notes to Financial Statements +F-7 +(2) +Financial Statements Schedule +All +financial statement schedules are omitted because they are not applicable or the amounts are immaterial and not required, or the required +information is presented in the financial statements and notes beginning on F-1 on this Report. +(3) +Exhibits +We +hereby file as part of this Report the exhibits listed in the attached Exhibit Index. Exhibits which are incorporated herein by reference +are available on the SEC website at www.sec.gov. +Item +16. Form 10-K Summary +Not Applicable. +62 +Report +of Independent Registered Public Accounting Firm +To +the Board of Directors and +Stockholders +of Global Interactive Technologies, Inc.: +Opinion +on the Financial Statements +We +have audited the accompanying consolidated balance sheets of Global Interactive Technologies, Inc. and its subsidiaries (“the Company”) +as of December 31, 2025, and 2024, and the related consolidated statements of operations and comprehensive loss, stockholders’ +equity, and cash flows for each of the years in the two-year period ended December 31, 2025, +and 2024, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements +present fairly, in all material respects, the financial positions of the Company as of December 31, 2025, and 2024, and the results of +its operations and its cash flows for each of the years in the two-year period ended December 31, +2025, and 2024 , in conformity with accounting principles generally accepted in the United States of America. +The +Company’s Ability to Continue as a Going Concern +The +accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed +in Note 1 to the consolidated financial statements, the Company has incurred recurring losses from operations, has a working capital +deficiency, and has stated that substantial doubt exists about the Company’s ability to continue as a going concern. Management’s +evaluation of the events and conditions and management’s plans regarding these matters are also described in Note 1. The consolidated +financial statements do not include any adjustments that might result from the outcome of this uncertainty. +Basis +for Opinion +These +financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s +financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board +(United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal +securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We +conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain +reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company +is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, +we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion +on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. +Our +audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error +or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding +the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant +estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits +provide a reasonable basis for our opinion. +/s/ +Onestop Assurance PAC +We +have served as the Company’s auditor since 2023. +Singapore +May 22, 2026 +F- 1 +GLOBAL +INTERACTIVE TECHNOLOGIES, INC. AND ITS SUBSIDIARIES +Consolidated Balance Sheets +December 31, 2025 and December 31, 2024 +December +31, 2025 ($) +December +31, 2024 ($) +ASSETS +CURRENT ASSETS: +Cash and Cash +Equivalents +6,990 +2,352 +Short-term loans, net of allowance +- +338 +Accounts receivable, net of +allowance +46 +- +Non-trade receivables +8,525 +297 +Prepaid +expenses and other receivables +26,715 +- +Total +current assets +42,276 +2,987 +PROPERTY AND EQUIPMENT, NET +1,494 +2,656 +INTANGIBLE ASSETS, NET +3,029,061 +4,940,000 +OPERATING LEASE RIGHT-OF-USE +ASSETS +1,264,546 +1,458,780 +PREPAYMENT +38,717 +- +Total +Assets +4,376,094 +6,404,423 +LIABILITIES AND STOCKHOLDER’S +EQUITY +CURRENT LIABILITIES: +Short-term borrowings +29,028 +20,436 +Short-term borrowings from +related parties +93,248 +349,607 +Short-term +borrowings +93,248 +349,607 +Non-trade accounts payable +750,013 +290,917 +Accrued +expenses and other current liabilities +61,100 +7,379 +Total +current liabilities +933,389 +668,339 +Total +Liabilities +933,389 +668,339 +STOCKHOLDER’S DEFICIENCY: +Common Stock, $ 0.001 +par value, Authorized 110,000,000 +(common: 100,000,000 , +preferred: 10,000,000 ) +shares; Issued and outstanding after stock split 3,674,208 : +common shares as of December 31, 2025 Authorized 110,000,000 +(common: 100,000,000 , +preferred: 10,000,000 ) +shares; Issued and outstanding after stock split 2,640,402 : +common shares as of December 31, 2024 +3,674 +2,640 +Additional paid-in and other +capital +$ +46,484,973 +44,301,215 +Accumulated deficit +( 42,534,194 ) +( 37,901,301 ) +Accumulated +other comprehensive income (loss) +( 511,748 ) +( 666,470 ) +Equity attributable to owners +of the Company +3,442,705 +5,736,084 +Total +Stockholder’s Equity (Deficiency) +3,442,705 +5,736,084 +Total +Liabilities and Stockholder’s Deficiency +4,376,094 +6,404,423 +* +As of December 31, 2025, the Company’s issued and outstanding common shares are 3,674,208 . See Item 5.(e) regarding additional issuance during FY 2025-. On January 27, 2025, the Company effected a 1-for-20 reverse stock split of its issued and outstanding common shares. As a result of the reverse stock split, every 20 shares of the Company’s issued and outstanding common stock were combined into one share, reducing the total number of issued shares from 52,808,589 to 2,640,429 . Due to rounding, 27 fractional shares were eliminated, and the resulting $ 0.54 difference was adjusted from common stock to additional paid-in capital. The par value per share is $ 0.001 . +All share and per-share amounts in the accompanying consolidated financial statements and related notes have been retroactively adjusted to reflect the reverse stock split for all periods presented. +F- 2 +GLOBAL +INTERACTIVE TECHNOLOGIES, INC. AND ITS SUBSIDIARIES +Consolidated +Statements of Operations +For the Years Ended December 31, 2025 and 2024 +December 31, 2025 ($) +December 31, 2024 ($) +Sales +1,932 +- +Cost of Revenue +- +- +Gross profit +1,932 +- +Operating cost and expenses +( 2,440,752 ) +( 888,363 ) +OPERATING LOSS +( 2,438,820 ) +( 888,363 ) +OTHER INCOME (EXPENSE): +Impairment loss on intangible assets +( 1,019,611 ) +( 94,264 ) +Gain on disposal of subsidiary, net +- +12,400,373 +Loss on disposal of tangible assets +- +( 23,937 ) +Interest income (expense), net +( 7,017 ) +( 1,181 ) +Gain on foreign currency transactions +1,924 +3,617 +Debt Extinguishment loss +( 1,168,228 ) +- +Bad-debt expense of other assets +( 349 ) +( 16,179,823 ) +Other expense, net +( 792 ) +( 73 ) +Net other income +( 2,194,073 ) +( 3,895,288 ) +Net Loss from continuing operations before tax +( 4,632,893 ) +( 4,783,651 ) +Income tax expense +- +- +Net loss from continuing operations +( 4,632,893 ) +( 4,783,651 ) +Net Loss from discontinued operations before tax +- +( 1,388,318 ) +Income tax benefit +- +- +Net Loss from discontinued operations +- +( 1,388,318 ) +Net Loss +( 4,632,893 ) +( 6,171,969 ) +Basic net loss per share: +Loss from continuing operations +( 1.44 ) +( 1.81 ) +Loss from discontinued operations +- +( 0.53 ) +Total basic net loss per share +( 1.44 ) +( 2.34 ) +Diluted net loss per share: +Loss from continuing operations +( 1.44 ) +( 1.81 ) +Loss from discontinued operations +- +( 0.53 ) +Total diluted net loss per share +( 1.44 ) +( 2.34 ) +Weighted average number of common shares outstanding: +Basic and Diluted +3,220,583 +2,640,429 +F- 3 +GLOBAL +INTERACTIVE TECHNOLOGIES, INC. AND ITS SUBSIDIARIES +Consolidated Statements of Changes in Stockholders’ Equity +For the Years Ended December 31, 2025 and 2024 +Shares +(Common +shares) +Amount($) +Additional +Paid-in and +Other +Capital($) +Accumulated +Deficit($) +Accumulated +Other +Comprehensive +Gain (Loss)($) +Non- +controlling +interests($) +Total +Stockholder’s +Equity +(Deficiency)($) +Balance at December 31, 2023 +2,640,402 +2,640 +51,465,645 +( 38,893,762 ) +493,942 +- +13,068,465 +Reclassification of APIC to Accumulated Deficit +- +- +( 7,164,430 ) +7,164,430 +- +- +- +Currency translation adjustment +- +- +- +- +( 1,160,412 ) +- +( 1,160,412 ) +Net loss +- +( 6,171,969 ) +- +( 6,171,969 ) +Balance at December 31, 2024 +2,640,402 +2,640 +44,301,215 +( 37,901,301 ) +( 666,470 ) +- +5,736,084 +Issuance of common stock upon debt conversion at $ 0.70 per share, net of issuance costs +300,000 +300 +209,700 +- +- +- +210,000 +Issuance of common stock upon debt conversion at $ 0.70 per share, net of issuance costs +246,666 +247 +172,419 +- +- +- +172,666 +Issuance of common stock upon debt conversion at $ 1.19 per share, net of issuance costs +90,123 +90 +105,354 +- +- +- +105,444 +Issuance of common stock upon debt conversion at $ 1.27 per share, net of issuance costs +271,634 +272 +350,138 +- +- +- +350,410 +Fair value adjustment - loss on debt extinguishment +- +- +1,168,228 +- +- +- +1,168,228 +Exercise of warrants at $1.42 per share by cash considerations, net of issuance +cost +125,383 +125 +177,919 +- +- +- +177,919 +Currency translation adjustment +- +154,722 +- +154,722 +Net loss +- +- +- +( 4,632,893 ) +- +- +( 4,632,893 ) +Balance at December 31, 2025 +3,674,208 +3,674 +46,484,973 +( 42,534,194 +) +( 511,748 ) +- +3,442,705 +Balance +3,674,208 +3,674 +46,484,973 +( 42,534,194 ) +( 511,748 ) +- +3,442,705 +* As of December 31, 2025, +the Company’s issued and outstanding common shares are 3,674,208 . On January 27, 2025, the Company effected a 1-for-20 +reverse stock split of its issued and outstanding common shares. As a result of the reverse stock split, every 20 shares of the +Company’s issued and outstanding common stock were combined into one share, reducing the total number of issued shares from 52,808,589 +to 2,640,429 . Due to rounding, 27 fractional shares were eliminated, and the resulting $ 0.54 difference was adjusted from common +stock to additional paid-in capital. The par value per +share is $ 0.001 . +F- 4 +GLOBAL +INTERACTIVE TECHNOLOGIES, INC. AND ITS SUBSIDIARIES +Consolidated Statements of Cash Flows +For the Years December 31, 2025 and 2024 +December 31, 2025 ($) +December 31, 2024 ($) +CASH FLOWS FROM OPERATING ACTIVITIES: +Net loss from continuing operations +( 4,632,893 ) +( 4,783,651 ) +Adjustments to reconcile net loss to net cash provided by(used in) operating activities: +- +- +Depreciation +1,238 +6,352 +Amortization +1,021,192 +- +Lease expense +231,967 +- +Gain on disposal of subsidiary +- +( 12,400,373 ) +Bad-debt expense of other assets +349 +16,179,823 +Loss on disposal of tangible assets +- +23,937 +Debt Extinguishment loss +1,168,228 +- +Impairment loss on intangible assets +1,019,611 +94,264 +Changes in operating assets and liabilities: +Accounts receivable +( 46 ) +- +Non-trade receivable +( 8,228 ) +2,170 +Prepaid expenses and other current assets +( 26,715 ) +( 375 ) +Other assets +( 38,717 ) +414,610 +Non-trade Accounts payable +459,096 +- +Accrued expenses and other current liabilities +53,721 +6,812 +Net cash used in operating activities of continuing operations +( 751,197 ) +( 456,431 ) +CASH FLOWS FROM INVESTING ACTIVITIES: +Receipt from collection of short-term loan receivable +- +84,154 +Payment for short-term loan receivable +- +( 14,103 ) +Proceeds from d isposal of property and equipment +- +84,097 +Net cash provided by investing activities +- +154,148 +CASH FLOWS FROM FINANCING ACTIVITIES: +Proceeds from short-term loan payable +358,573 +10,264 +Proceeds from short-term loan payable from related parties +220,727 +364,172 +Proceeds from short-term loan payable +220,727 +364,172 +Proceeds from exercising Warrants +178,044 +- +Repayment of short-term loan payable +- +( 2,933 ) +Repayment of short-term loan payable from related parties +- +( 3,351 ) +Repayment of short-term loan payable +- +( 3,351 ) +Net cash provided by financing activities +757,344 +368,152 +Net change in cash – continued operations +6,147 +65,887 +Cash from discontinued operations: +Net cash used in operating activities of discontinued operations +- +( 1,222,364 ) +Net cash used in investing activities of discontinued operations +- +( 5,235,253 +) +Net cash provided by financing activities of discontinued operations +- +311,413 +Net change in cash- discontinued operations +- +( 6,146,204 ) +Cash beginning of period - continued operations +2,352 +69,688 +Cash beginning of period - discontinued operations +- +5,358,142 +Beginning cash +2,352 +5,427,830 +Cash end of period – continued operations +6,990 +2,352 +Cash end of period - discontinued operations +- +1,408 +Ending cash +6,990 +3,760 +NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS +6,147 +( 6,080,317 ) +EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS +( 1,509 ) +656,247 +CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD +2,352 +5,427,830 +CASH AND CASH EQUIVALENTS AT END OF THE PERIOD +6,990 +3,760 +SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION: +Cash receipt (paid) for interest – all operations +( 7,020 ) +63 +Less Cash receipt for interest - discontinued operations +- +63 +Cash receipt (paid) for interest – continued operations +( 7,020 ) +- +Cash receipt (paid) during the period for interest +( 7,020 ) +63 +Non-cash financing activities: +Conversion of related-party debt to equity +488,110 +- +Conversion of non-related-party debt to equity +350,410 +- +F- 5 +GLOBAL INTERACTIVE TECHNOLOGIES, INC. +AND ITS SUBSIDIARIES +Consolidated Statements of Comprehensive Income +For the Years Ended December 31, 2025 and 2024 +December 31, 2025 ($) +December 31, 2024 ($) +NET LOSS +( 4,632,893 ) +( 6,171,969 ) +Other comprehensive income(loss): +Change in foreign currency translation adjustment +154,722 +( 1,160,412 ) +Change in foreign currency translation adjustment to attributable to noncontrolling interest +COMPREHENSIVE INCOME(LOSS) +( 4,478,171 ) +( 7,332,381 ) +Comprehensive income(loss) attributable to the Company +( 4,478,171 ) +( 7,332,381 ) +F- 6 +GLOBAL +INTERACTIVE TECHNOLOGIES, INC. AND SUBSIDIARIES +Notes to Consolidated Financial Statements +NOTE +1 — NATURE OF OPERATIONS AND BASIS OF PRESENTATION +Business +Global +Interactive Technologies, Inc. (“GITS” or the “Company”), formerly known as Hanryu Holdings, Inc., is a Delaware +corporation engaged in the development and operation of Faning, a global digital fan engagement platform focused on Korean entertainment +and culture, including K-pop. The Faning platform is designed to enable users to consume, create, share, and engage with digital content +and fan communities across mobile and web-based services. +In 2024, the Company acquired 100 % ownership of FANING KOREA, LLC, a South Korean subsidiary that provides support for the Company’s +operations in South Korea. +Corporate +History +Since +the inception of Global Interactive Technologies, Inc in 2018, we have accomplished a number of key objectives, as follows: +Date +Event/Milestone +October +18, 2018 +HBC +is incorporated under the laws of the ROK with the idea of creating an all-in-one product to capture the growing global momentum +and popularity of K-Culture. +October +29, 2020 +HBC +establishes FNS,and begins the initial stages of designing and implementing a platform that can create a fandom networking system. +March +11, 2021 +HBC +establishes Hanryu Times. Hanryu Times begins operations as HBC’s media outlet, reporting on and providing up-to-date K-Culture +news within the FANTOO platform, across a number of languages, including English, Japanese, Chinese (simplified/traditional), Indonesian, +Spanish, Russian, and Portuguese. +March +31, 2021 +HBC +consummates an agreement and plan of merger (the “Merger Agreement”) with RnDeep, +Co. Ltd, a Korean corporation (“RnDeep”), pursuant to which RnDeep merged with +and into HBC, with HBC continuing as the surviving corporation (the “RnDeep Acquisition”). +As consideration for the RnDeep Acquisition, HBC ratably issued a total 4,150,000 HBC common +shares, par value $ 0.45 per share (“Common Shares”), to the former shareholders +of RnDeep. +As +a result of the RnDeep Acquisition, HBC acquired the underlying technologies that the Company plans on utilizing in the future development +of new functions and integrations within the FANTOO platform. Once the FANTOO platform is ready to integrate the technology acquired, +this technology will support new functions and integrations including, without limitation, the Company’s enterprise resource +planning solution, and its artificial intelligence (“AI”), which the Company plans on using to power many of FANTOO’s +upcoming features such as speech synthesis, curated content delivery, deepfake detection and blocking, and nudity detection and blocking. +March +17, 2021 +The +FANTOO platform was launched and made available to the public. +June +30, 2021 +HBC +enters into an agreement to acquire all the issued and outstanding common shares of Marine Island (the “Marine Island Acquisition”), +which owns the right to use and occupy 19,200 square-feet of office space within the iconic Seoul Marina, located at 160 Yeouiseo-ro, +Yeungdeungpo-gu, Seoul, Korea (the “Seoul Marina”) from Sewang Co., Ltd. (“Sewang”), for the purchase price +of 3,500,000,000 Korean Won (“KRW”), along with the assumption of all Marine Island’s liabilities. +F- 7 +GLOBAL +INTERACTIVE TECHNOLOGIES, INC. AND SUBSIDIARIES +Notes to Consolidated Financial Statements +NOTE +1 — NATURE OF OPERATIONS AND BASIS OF PRESENTATION (cont.) +Date +Event/Milestone +August +30, 2021 +HBC +establishes FANTOO Entertainment. FANTOO Entertainment provides a variety of content to the Company’s FANTOO platform, which +contributes to the spread of the Korean Wave by promoting new entertainers and artists. +October +3, 2021 +HBC +consummates a strategic acquisition of 50.8 % of the outstanding common shares of K-Commerce. In consideration for the shares of K-Commerce, +HBC forgave a short-term loan of $ 270,530 (KRW 309,600,000 ) owed to HBC by K-Commerce. +HBC’s +investment into K-Commerce was a strategic acquisition in order to integrate K-Commerce’s retail platform, “SelloveLive” +into the FANTOO ecosystem as the FANTOO Fanshop. When launched as the FANTOO Fanshop, K-Commerce’s platform will offer combined +services of shopping and live broadcasting, allowing users to easily live-stream travel and share local attractions, local festivals, +cultures, and news from around the world. +Prior +to HBC’s acquisition of its shares in K-Commerce, K-Commerce was 100 % owned by Changhyuk Kang, the Company’s Chief Executive +Officer and Donghoon Park, the Company’s Chief Marketing Officer. +October +20, 2021 +Hanryu +Holdings is incorporated in the State of Delaware. +February +25, 2022 through May 10, 2022 +Hanryu +Holdings, HBC, and the shareholders of HBC (the “HBC Shareholders”) enter into +a share exchange agreement (the “Share Exchange Agreement”), pursuant to which +the HBC Shareholders agreed to assign, transfer, and deliver, free and clear of all liens, +100 % of the issued and outstanding Common Shares, representing 100 % of the voting securities +in HBC, to the Company in exchange for the Company issuing 42,565,786 restricted shares of +the Company’s common stock, par value $ 0.001 per share (“Common Stock”) +to the HBC Shareholders (the “Share Exchange”). +Concurrently +with entering into the Share Exchange Agreement, the Company, HBC, and the holders (the “HBC Warrantholders”) of all +outstanding warrants to purchase Common Shares (“HBC Warrants”) enter into a warrant exchange agreement, pursuant to +which the HBC Warrantholders agreed to assign, transfer, and delivery, free and clear of any liens, 100 % of the outstanding HBC Warrants +to the Company in exchange for the Company issuing to the HBC Warrantholders 10,046,666 warrants to purchase restricted shares of +Common Stock (the “Warrant Exchange”). +The +Warrants and Common Shares of HBC transferred to the Company in the Share Exchange and the Warrant Exchange constituted 100 % of the +outstanding equity securities of HBC. +June +16, 2022 +Hanryu +Holdings, HBC, the HBC Shareholders, and the HBC Warrantholders consummate the Share Exchange +and Warrant Exchange concurrently, pursuant to which HBC became a wholly owned subsidiary +of the Company, and the HBC Stockholders and HBC Warrantholders, collectively, acquired a +controlling interest in the Company. +August +1, 2023 +The +shares of the Company are listed at NASDAQ exchange market. +December +28, 2023 +HBC +sold owned whole shares of Hanryu Times, Fantoo Entertainment, and K-Commerce, so the business from the three companies became the +discontinued operations. +November +5, 2024 +HBC +sold its 100 % ownership interests in its subsidiaries, FNS Co., Ltd. and Marine Island Co., Ltd., in order to improve its financial +structure. +December +4, 2024 +We +acquired 100 % ownership of FANING KOREA, LLC to pursue a new business aimed at improving profitability. +December +28, 2024 +We +sold 100 % of our ownership interest in Hanryu Bank Co., Ltd. (“HBC”), our wholly owned subsidiary, to improve our financial +structure. +F- 8 +GLOBAL +INTERACTIVE TECHNOLOGIES, INC. AND SUBSIDIARIES +Notes to Consolidated Financial Statements +NOTE +1 — NATURE OF OPERATIONS AND BASIS OF PRESENTATION (cont.) +Risks +and Uncertainties +The +Company is subject to a number of risks similar to other companies in its industry, including rapid technological change, changes in +user preferences, shifts in Korean entertainment and K-culture trends, competition for users and content, and the Company’s ability +to develop, commercialize, and monetize its digital platform. +During +2025 and through the date of this report, global economic and market conditions have continued to be affected by geopolitical conflicts, +including ongoing conflicts in Eastern Europe and the Middle East, inflationary pressures, interest rate volatility, foreign exchange +fluctuations, supply chain disruptions, and uncertainty in the capital markets. These conditions may adversely affect consumer spending, +advertising budgets, investor sentiment, access to financing, and the Company’s ability to execute its business plan. +The +Company has not experienced a material direct impact from these geopolitical events to date; however, the extent to which global economic, +political, or market conditions may affect the Company’s financial condition, liquidity, results of operations, or ability to raise +capital remains uncertain. +Going +Concern +The +Company had an accumulated deficit of $ 42,534,194 and +working capital deficit of $ 891,113 as +of December 31, 2025, compared to an accumulated deficit of $ 37,901,301 and +working capital deficit of $ 665,352 as +of December 31, 2024. The Company incurred operating losses of $ 2,440,752 and +$ 888,363 for +the years ended December 31, 2025 and 2024, respectively. +These +conditions raise substantial doubt about the Company’s ability to continue as a going concern for twelve months after the issuance +date of these consolidated financial statements. The accompanying consolidated financial statements have been prepared assuming that +the Company will continue as a going concern. These consolidated financial statements do not include any adjustments that might result +from the outcome of this uncertainty. +Management +intends to address these conditions by continuing the launch and commercialization of the upgraded Faning 2.0 platform, pursuing K-food +products and entertainment-related business ventures, seeking to increase user engagement and monetization, controlling operating costs, +and pursuing additional capital through equity financings, borrowings, or other available financing arrangements. However, there can +be no assurance that the Company will be successful in implementing these plans or that sufficient funding will be available on terms +acceptable to the Company, if at all. +F- 9 +GLOBAL +INTERACTIVE TECHNOLOGIES, INC. AND SUBSIDIARIES +Notes to Consolidated Financial Statements +NOTE +2 — SIGNIFICANT ACCOUNTING POLICIES +A +summary of the significant accounting policies followed by the Company in the preparation of the accompanying consolidated financial +statements follows: +Warrant Accounting Policy +The Company accounts for warrants in accordance with +ASC 815, Derivatives and Hedging . Warrants are evaluated at issuance to determine whether they should be classified as equity or +liabilities based on the applicable accounting criteria. Warrants that meet equity classification requirements are recorded in additional +paid-in capital within stockholders’ equity and are not subsequently remeasured. Warrants that do not meet equity classification criteria +are recorded as derivative liabilities at fair value and are remeasured at each reporting date, with changes in fair value recognized +in earnings. +The fair value of warrant liabilities is estimated +using an appropriate option-pricing model, such as the Black-Scholes option-pricing model, which considers assumptions including expected +volatility, risk-free interest rate, expected term, and dividend yield of the Company’s common stock. +Debt Modifications and Extinguishments +The Company accounts for debt modifications and extinguishments +in accordance with ASC 470-50, Debt—Modifications and Extinguishments . The Company evaluates whether a modification of debt +terms represents a substantial modification or an extinguishment of the original debt instrument. A modification is accounted for as a +continuation of the original debt when the change in the present value of cash flows is less than 10 percent, or when qualitative factors +indicate that the original debt has not been substantially modified. +When a debt modification is determined to be an extinguishment, +the Company derecognizes the existing debt liability and recognizes the new liability or equity consideration transferred at fair value. +The difference between the carrying amount of the extinguished debt and the fair value of consideration transferred is recognized as a +gain or loss on debt extinguishment in the consolidated statements of operations. +Consideration transferred may include cash, common +shares, or warrants. When equity instruments are issued in settlement of debt, the fair value of such instruments is measured based on +the quoted market price of the Company’s common stock at the date of settlement, or other appropriate valuation techniques (such +as option pricing models for warrants) if a quoted price is not readily available. +During the year ended December 31, 2025, +the Company recognized debt extinguishment losses of $ 1,168,228 in connection with the settlement of certain outstanding indebtedness +through the issuance of common stock and warrants. The Company determined that these transactions represented debt extinguishments as +the terms of the modified agreements resulted in a substantial change (exceeding the 10 percent cash flow threshold) to the original +debt instruments. +Principles +of Consolidation +The +consolidated financial statements include the accounts of Global Interactive Technologies, Inc. and its wholly owned subsidiary, FANING +KOREA, LLC. All significant intercompany transactions and balances have been eliminated in consolidation. +Changes +in the Company’s ownership interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions. +Foreign +Currency +The +Company’s functional currency is KRW and the reporting currency is USD. The Company’s some accounting records are +maintained in KRW, and translated into USD at year-end for the purposes of presentation. During the translation process, the +year-end closing exchange rate is used for the valuation of all assets and liabilities, historical exchange rate is used to value +stockholder’s equity, and the average exchange rate for the year is used for the calculation of the consolidated financial +statements. The net impact of the translation into USD is included in the accumulated other comprehensive income (loss) of the +Company’s consolidated balance sheet as of December 31, 2025 and December 31, 2024. During the year ended December 31, 2025, +there was a fluctuation in the exchange rates ranging from KRW 1,289.40/USD $1 to KRW 1,470.00/USD $1. Also, cash flows are also +translated at average translation rates for the periods, therefore, amounts reported on the statement of cash flows will not +necessarily agree with changes in the corresponding balances on the consolidated balance sheets. +Use +of Estimates +The preparation of the Company’s consolidated +financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts +of assets and liabilities, and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the +reported amounts of revenues and expenses during the reporting period. +Significant estimates and assumptions include: +● +Fair value measurements including the fair value of the Company’s common stock; +● +Stock-based compensation; +● +Recoverability, useful lives, and impairment assessments of long-lived and intangible assets; +● +Valuation allowance relating to the Company’s deferred tax assets; and +● +Assumptions related to projected future cash flows and commercialization timing. +Management evaluates these estimates on an ongoing basis using historical experience and various other assumptions +believed to be reasonable under the circumstances. Actual results may differ materially from these estimates and assumptions. +Cash +and Cash Equivalents +The +Company considers all highly liquid investments with maturities of three months or less at the date of purchase to be cash equivalents. +As of December 31, 2025 and 2024, the Company had cash and cash equivalents of $ 6,990 +and $ 2,352 , +respectively. The Company maintains its cash in bank deposit accounts which, at times, may exceed the federal insurance limit, and the +balance of deposit accounts of the Company exceed the federal insurance limit as of December 31, 2024. +F- 10 +GLOBAL +INTERACTIVE TECHNOLOGIES, INC. AND SUBSIDIARIES +Notes to Consolidated Financial Statements +NOTE +2 — SIGNIFICANT ACCOUNTING POLICIES (cont.) +Accounts +Receivable +Accounts +receivables are recorded at the invoiced amount and do not bear interest. Amounts collected on trade accounts receivable are included +in net cash provided by operating activities in the consolidated statements of cash flows. The Company maintains an allowance for doubtful +accounts for estimated losses inherent in its accounts receivable portfolio. In establishing the required allowance, management considers +historical losses adjusted to take into account current market conditions and customers’ financial condition in dispute, and the +current receivables aging and current payment patterns. The Company reviews its allowance for doubtful accounts quarterly. Past-due balances +over 90 days and over a specified amount are reviewed individually for collectability. Account balances are written off against the allowance +after all means of collection have been exhausted and the potential for recovery is considered remote. The Company recorded the allowance +of $ 0 on the accompanying consolidated balance sheets as of December 31, 2025 and December 31, 2024. The Company does not have any off-balance-sheet +credit exposure related to its customers. +Non-Trade +Receivables +Non-trade +receivables are recorded at the invoiced amount and do not bear interest. Amounts collected on non-trade receivables are included in +net cash provided by operating activities in the consolidated statements of cash flows. The Company maintains an allowance for doubtful +accounts for estimated losses inherent in its non-trade receivables portfolio. In establishing the required allowance, management considers +historical losses adjusted to take into account current market conditions and customers’ financial condition in dispute, and the +current receivables aging and current payment patterns. The Company reviews its allowance for doubtful accounts quarterly. Past-due balances +over 90 days and over a specified amount are reviewed individually for collectability. Account balances are written off against the allowance +after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any +off-balance-sheet credit exposure related to its customers. +Revenue +Recognition +The +Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers. Revenue is recognized when control of promised +goods or services is transferred to customers in an amount that reflects the consideration the Company expects to receive in exchange +for those goods or services. +The +Company’s current and anticipated revenue sources primarily relate to the FANING platform and related digital services, including +subscriptions, in-app purchases, advertising services, digital platform services, user engagement services, content-related services, +commissions, and other platform-based monetization activities. +Revenue +is recognized when the applicable performance obligations are satisfied. For subscription-based services, revenue is recognized over the subscription period. Revenue from in-app purchases, digital engagement services, advertising, platform services, and content-related +services is generally recognized at the point in time or over the period in which the applicable services are provided. Amounts billed +or collected in advance of satisfying performance obligations are recorded as deferred revenue. +The +Company evaluates whether it acts as principal or agent in revenue transactions in accordance with ASC 606-10-55, Principal versus Agent +Considerations. Revenue is reported on a gross basis when the Company controls the promised goods or services prior to transfer to the +customer and on a net basis when the Company acts as an agent arranging for goods or services to be provided by another party. +For +the years ended December 31, 2025 and 2024, the Company recognized revenue of $ 1,932 and $ 0 , respectively, primarily related to service-based +activities. +The +Company presents revenue net of sales taxes, discounts, refunds, and other amounts collected on behalf of third parties. Historically, +refunds and sales returns have not been material. +F- 11 +GLOBAL +INTERACTIVE TECHNOLOGIES, INC. AND SUBSIDIARIES +Notes to Consolidated Financial Statements +NOTE +2 — SIGNIFICANT ACCOUNTING POLICIES (cont.) +Cost +of Revenue +Cost +of revenue consists primarily of costs directly related to the Company’s revenue-generating activities, including platform service +costs, third-party service fees, payment processing fees, hosting and infrastructure expenses, content-related costs, direct labor, telecommunication +costs, travel, postage, vehicle charges, printing, training, and other direct costs associated with providing goods or services to customers. +Amortization of capitalized software used in the Company’s platform is included in operating expenses and is not included in cost +of revenue unless the related software amortization is directly attributable to revenue-generating activities. Cost of revenue also includes +allocated indirect costs related to revenue-generating activities, such as supplies, utilities, office equipment rental, software, computers, +and other office-related costs. +Cost +of revenue is recognized as the related goods or services are delivered or provided to customers. +Capitalized +Software +The +Company capitalizes certain costs incurred to develop internal-use software when the preliminary project stage is completed, management +has authorized and committed to funding the project, and it is probable that the project will be completed and used to perform the function +intended. Capitalized software costs are amortized on a straight-line basis over their estimated useful lives once the software is ready +for its intended use. +Amortization +expense related to capitalized software is included in operating expenses in the consolidated statements of operations. For the years +ended December 31, 2025 and 2024, amortization expense related to capitalized software was included in operating expenses. +Property +Plant and Equipment +Property +and equipment are stated at cost(see Note 5), less accumulated depreciation. Depreciation is computed using the declining balance method +over the estimated useful lives of the related assets. A summary of the estimated useful lives is as follows: +SCHEDULE OF ESTIMATED USEFUL LIVES +Classification +Estimated +Useful Life in Years +Fixtures +5 +Equipment +5 +Maintenance +and repairs are charged to expense as incurred, while additions and improvements that extend the useful lives of assets are capitalized. +The +Company reviews property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of +an asset may not be recoverable. +Impairment +of Long-Lived Assets +The +Company reviews operating lease right-of-use assets and finite-lived intangible assets for impairment whenever events or changes in circumstances +indicate that the carrying amount of an asset may not be recoverable. Recoverability is measured by comparing the carrying amount of +the asset to the estimated undiscounted future cash flows expected to result from the use and eventual disposition of the asset. If the +carrying amount is not recoverable, an impairment loss is recognized for the amount by which the carrying amount exceeds the asset’s +estimated fair value. +Impairment +of Capitalized Software +The +Company reviews capitalized software and other long-lived assets for impairment whenever events or changes in circumstances indicate +that the carrying amount of such assets may not be recoverable. If such indicators exist, the Company compares the carrying amount of +the asset group to the undiscounted cash flows expected to be generated by the asset group. If the carrying amount is not recoverable, +an impairment loss is recognized for the amount by which the carrying amount exceeds fair value. +Intangible +assets consist of acquired software with a gross carrying amount of $ 4,917,543 . +The fair value of the software was initially determined using the income approach, specifically the discounted cash flow (“DCF”) +method, based on projected earnings over a five-year period. +During +2025, the Company reassessed the software’s expected economic benefits based on current market conditions and actual operating +performance, resulting in a revision of the remaining useful life from five years to four years. Accordingly, the Company recognized +amortization expense of $ 1,021,192 +for the year ended December 31, 2025, using the straight-line method. No +amortization expense was recognized for the year ended December 31, 2024, as the software was acquired in December 2024. +In addition, the Company recognized an impairment loss of $ 1,019,611 +for the year ended December 31, 2025, compared to $ 94,264 for the year ended December 31, 2024. +F- 12 +GLOBAL +INTERACTIVE TECHNOLOGIES, INC. AND SUBSIDIARIES +Notes to Consolidated Financial Statements +NOTE +2 — SIGNIFICANT ACCOUNTING POLICIES (cont.) +Concentrations +of Credit Risk +Cash +and cash equivalents are financial instruments that potentially subject the Company to concentrations of credit risk. The Company may +maintain deposits in financial institutions in excess of government insured limits. The Company believes that it is not exposed to significant +credit risk as its deposits are held at financial institutions that management believes to be of high credit quality and the Company +has not experienced any losses on these deposits. The Company is also potentially subject to concentrations of credit risk in its accounts +receivable and loans. Credit risk with respect to receivables is limited due to the number of companies comprising the Company’s +customer base. Credit risk with respect to loans is limited since they are made principally related to the collaborative activities between +the Company and loan holders. Since the Company is directly affected by the financial condition of its customers and loan holders, management +carefully watch if any significant credit risks exist, and they will make actions to remove or mitigate such risks if there are any. +As of December 31, 2025 and December 31, 2024, there were no outstanding accounts receivable balances. The Company believes that the +credit risk related to accounts receivable is manageable and controllable as of December 31, 2025 and December 31, 2024. Generally, the +Company does not require collateral or other securities to support its accounts receivable and loans. +Fair +Value of Financial Instruments +The +fair value of Company’s financial instruments, consisting of cash and cash equivalents, accounts receivable, accounts payable, +accrued liabilities, debt receivables, debt payables approximate their recorded amounts due to their relatively short settlement terms. +Fair +Value Measurements +The +Company applies a three-level valuation hierarchy for fair value measurements. The categorization of assets and liabilities within the +valuation hierarchy is based on the lowest level of input that is significant to the measurement of fair value. +Level +1 +Inputs +to the valuation methodology utilize unadjusted quoted market prices in active markets for identical assets and liabilities. +Level +2 +Inputs +to the valuation methodology are other observable inputs, including quoted market prices for similar assets and liabilities, quoted +prices for identical and similar assets and liabilities in markets that are not active, or other inputs that are observable or can +be corroborated by observable market data. +Level +3 +Inputs +to the valuation methodology are unobservable inputs based on management’s best estimate of the inputs that market participants +would use in pricing the asset or liability at the measurement date, including assumptions about risk. +The +carrying amounts of the Company’s financial instruments, including cash and cash equivalents, accounts payable, accrued expenses, +short-term borrowings, related-party borrowings, and other current assets and liabilities, approximate fair value due to the short-term +nature of these instruments. +A +change to the level of an asset or liability within the fair value hierarchy is determined at the end of a reporting period. +Earning +(Loss) Per Share +Basic +earning (loss) per share is computed by dividing the income or loss by the weighted-average number of outstanding shares of Common Stock +for the applicable period. Diluted earning (loss) per share is computed by dividing the income or loss by the weighted-average number +of outstanding shares of Common Stock for the applicable period, including the dilutive effect of Common Stock equivalents. Potentially +dilutive Common Stock equivalents primarily consist of warrants issued in connection with financings. For purposes of computing both +basic and diluted earning (loss) per share, income or loss shall exclude the income or loss attributable to the non-controlling interest. +The Company calculates net loss per share in accordance with FASB ASC Topic 260, Earnings Per Share . Basic net loss per share +amounts have been computed by dividing net loss excluded loss attributable to the non-controlling interest by the weighted-average number +of common shares outstanding during the period. For the years ended December 31, 2025 and 2024, the Company reported net losses and, +accordingly, potential common shares were not included since such inclusion would have been anti-dilutive. As a result, our basic and +diluted net loss per share are the same because the Company generated a net loss in all periods presented. +F- 13 +GLOBAL +INTERACTIVE TECHNOLOGIES, INC. AND SUBSIDIARIES +Notes to Consolidated Financial Statements +NOTE +2 — SIGNIFICANT ACCOUNTING POLICIES (cont.) +Income +Taxes +Deferred income tax assets and liabilities are determined +based on differences between the financial statement carrying amounts and the tax bases of assets and liabilities and are measured using +enacted tax rates and laws that will be in effect when the temporary differences are expected to reverse. The measurement of deferred +tax assets is reduced, if necessary, by a valuation allowance for deferred tax assets that are not expected to be realized. +The Company accounts for income taxes in accordance +with FASB ASC Topic 740, Income Taxes. A valuation allowance is provided when it is more likely than not that some or all of the deferred +tax assets will not be realized. +As of December 31, 2025 and 2024, the Company had deferred tax assets +primarily related to net operating loss carry forwards and other temporary differences. Due to the Company’s historical operating +losses and uncertainty regarding future taxable income, management determined that it was more likely than not that the deferred tax assets +would not be realized. Accordingly, the Company recorded a full valuation allowance against its deferred tax assets as of December 31, +2025 and 2024. +See Note 22 for more information . +The Company evaluates uncertain tax positions in accordance with ASC 740-10. +The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2025 and 2024, +the Company had no uncertain tax positions requiring recognition or disclosure. +Lease +Under +ASC 842, the determination of whether an arrangement is a lease is made at the lease’s inception and a contract is (or contains) +a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Control +is defined under the standard as having both the right to obtain substantially all of the economic benefits from use of the asset and +the right to direct the use of the asset. Management only reassesses its determination if the terms and conditions of the contract are +changed. Operating leases are included in operating lease right-of-use (“ROU”) assets, other current liabilities, and operating +lease liabilities in our balance sheets. Finance leases are included in property and equipment, other current liabilities, and other +long-term liabilities in our balance sheets. +ROU +assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease +payments. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease +payments over the lease term. The Company uses the implicit rate when it is readily determinable. Since most of the Company’s leases +do not provide an implicit rate, to determine the present value of lease payments, management uses the Company’s incremental borrowing +rate based on the information available at lease commencement. Operating lease ROU assets also includes any lease payments made and excludes +any lease incentives. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Leases with an initial +term of 12 months or less are not recorded on the balance sheet. +F- 14 +GLOBAL +INTERACTIVE TECHNOLOGIES, INC. AND SUBSIDIARIES +Notes to Consolidated Financial Statements +NOTE +2 — SIGNIFICANT ACCOUNTING POLICIES (cont.) +The +Company has lease agreements with lease and non-lease components, which are generally accounted for separately with amounts allocated +to the lease and non-lease components based on stand-alone prices or for which it has made an accounting policy election to account for +these as a single lease component. For certain equipment leases, like vehicles, the Company accounts for the lease and non-lease components +as a single lease. Refer to Note 8 for additional disclosures required as a result of the adoption of this new standard. +Recently +Issued Accounting Standards +In December 2023, the Financial Accounting Standards +Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740): Improvements to +Income Tax Disclosures . This update requires public business entities to provide enhanced annual disclosures primarily focused on +the rate reconciliation table and expanded disclosures for income taxes paid, disaggregated by federal, state, and foreign jurisdictions. +For public business entities, the amendments are effective for annual periods beginning after December 15, 2024. The Company has evaluated +this standard and determined that its adoption does not have a material impact on its consolidated financial statements and related disclosures, +given the full valuation allowance recorded against its deferred tax assets. +In November 2024, the FASB issued ASU 2024-03 (as +clarified by ASU 2025-01 in January 2025), Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures +(Subtopic 220-40) . This standard requires public business entities to disclose disaggregated information about specific categories +underlying certain income statement expense line items (such as employee compensation, depreciation, and amortization) in the notes to +the financial statements. The amendments are effective for annual reporting periods beginning after December 15, 2026. The Company is +currently evaluating the potential impact of adopting this standard on its financial statement disclosures. +The Company has evaluated, or is in the process of evaluating, the potential +impact of these new accounting standards on its consolidated financial statements and related disclosures. Based on its current assessment, +management does not expect the adoption of these standards to have a material impact on the Company’s financial position, results +of operations, or cash flows. The Company will continue to monitor developments and evaluate the impact of these standards, including +any additional interpretive guidance that may be issued prior to adoption. +NOTE +3 — SHORT-TERM LOAN RECEIVABLES +The +following table summarizes information with regard to short-term loan receivables outstanding as of December 31, 2025 and December 31, +2024, and the interest income from short-term loan receivables is $ 0 and $ 0 for the year ended December 31, 2025 and December 31, 2024. +SCHEDULE +OF SHORT TERM LOAN RECEIVABLES +Interest Rate +December 31, 2025 ($) +December 31, 2024 ($) +LA PRIMERA CAPITAL INVESTMENT +0 % +- +30.000 +AMERIDGE CORPORATION +0.1 % +- +11,000 +HANRYU BANK CO. LTD +0 % +349 +14,721,563 +FNS CO. LTD +0 % +- +250,332 +(-) Allowances for credit losses +( 349 ) +( 16,179,832 +) +Total short-term loan +- +338 +● +For the fiscal year ended December 31, 2025, the Company wrote off short-term loan receivables in the amount of $ 349 compared to $ 16,179,823 +for the year ended December 31, 2024. +● +Allowance for credit losses related to short-term loan receivables +denominated in foreign currencies was recognized. The bad debt expense presented in the statement of operations was translated using the +average exchange rate, while the allowance balance in the balance sheet was translated using the closing exchange rate. The difference +between these amounts arises from exchange rate fluctuations and does not represent an actual change in the amount of credit loss or additional +provision. +F- 15 +GLOBAL +INTERACTIVE TECHNOLOGIES, INC. AND SUBSIDIARIES +Notes to Consolidated Financial Statements +NOTE +4 — PREPAID EXPENSES AND OTHER RECEIVABLES +The +following table summarizes information with regard to prepaid expenses and other receivables as of December 31, 2025 and December 31, +2024. +SCHEDULE +OF INFORMATION WITH REGARD TO PREPAID EXPENSES AND OTHER RECEIVABLES +December +31, 2025 ($) +December +31, 2024 ($) +IP Usage Fee +23,230 +- +Other prepayment +3,485 +- +Total prepaid expenses and other receivables +26,715 +- +The +prepaid expenses and other receivables of $ 26,715 +represent the one-time recognition of a KRW 5,000,000 +($ 3,485 ) purchase and the straight-line amortization +of a KRW 100,000,000 ($ 69,990 ) +IP usage fee incurred for marketing purposes over the three-year contract term. +As of December 31, 2025, the total current portion +of prepaid expenses is $ 26,715 , which includes the current portion of the IP usage fee amounting to $ 23,230 to be amortized within the +next twelve months. For the year ended December 31, 2025, the company recognized four months +of amortization expense for the IP usage fee in the amount of $ 7,743 (KRW 11,111,111 ) as marketing expense. The remaining unamortized balance of the IP usage fee of $ 61,947 represents the non-current portion and +is classified as a non-current prepaid expense on the balance sheet, which will be systematically recognized as marketing expenses over +the remainder of the contract term through 2028. +Future amortization expense for the prepaid IP usage fee as of December +31, 2025, is as follows: +SCHEDULE +OF FUTURE AMORTIZATION EXPENSE +Year ending December 31, +Amortization Expense ($) +2026 +23,230 +2027 +23,230 +2028 +15,487 +Total +61,947 +NOTE +5 — PROPERTY PLANT AND EQUIPMENT +Property +plant and equipment consist of the following: +SCHEDULE +OF PROPERTY PLANT AND EQUIPMENT +December 31, 2025 ($) +December 31, 2024 ($) +Fixtures +5,703 +5,567 +Less accumulated depreciation +( 4,209 ) +( 2,911 ) +Property plant and equipment, net +1,494 +2,656 +The +total depreciation expense for the years ended December 31, 2025 and December 31, 2024 was $ 1,238 and $ 6,352 , respectively. Depreciation +expense is reflected in operating costs and expenses in the consolidated statements of operations. +F- 16 +GLOBAL +INTERACTIVE TECHNOLOGIES, INC. AND SUBSIDIARIES +Notes to Consolidated Financial Statements +NOTE +6 — SOFTWARE +The +Company acquired the SOFTWARE through an asset transfer agreement with its former subsidiary, Hanryu Bank Co., Ltd., from which it sold +all equity interest in December 2024, and through the transfer of the Faning APPLICATION. The Company recognized the acquisition cost +of $ 4,940,000 based on the appraised value determined by an independent valuation firm. +This +software has been accounted for as an intangible asset in accordance with ASC 350 – Intangibles—Goodwill and Other. +The +software is being amortized on a straight-line basis over its estimated useful life of 5 years. Starting in 2025, amortization expenses +related to the software will be recognized as operating expenses in the consolidated statements of operations. +The +Company reviews the software for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset +may not be recoverable. During the year ended December 31, 2025, management identified impairment indicators, including the Company’s +limited revenue generation from the Faning platform, continuing operating losses, and early-stage commercialization status. As a result, +the Company evaluated the recoverability of the software and recognized an impairment loss of $ 1,019,611 +for the year ended December 31, 2025. The impairment loss is +included in other expense in the consolidated statements of operations. +The +carrying value of software consisted of the following: +SCHEDULE +OF SOFTWARE ASSETS AND DETERMINED +December 31, 2025 ($) +December 31, 2024 ($) +Acquisition cost +4,940,000 +4,940,000 +Less: Accumulated amortization +( 1,021,192 ) +- +Add: foreign currency translation effect +129,864 +- +Less: Impairment loss on intangible assets +( 1,019,611 ) +- +Net book value +3,029,061 +4,940,000 +Amortization +expense related to software was $ 1,021,192 for the year ended December 31, 2025. No amortization expense was recognized for the year +ended December 31, 2024, as the software was acquired in December 2024. The Company recognized an impairment loss of $ 1,019,611 for the +year ended December 31, 2025 compared to $ 94,264 for the year ended December 31, 2024. +SCHEDULE +OF AMORTIZATION OF SOFTWARE +Year ending December 31, +Amount +2026 +$ 757,265 +2027 +757,265 +2028 +757,265 +2029 +757,266 +2030 and thereafter +— +Total +$ 3,029,061 +F- 17 +GLOBAL +INTERACTIVE TECHNOLOGIES, INC. AND SUBSIDIARIES +Notes to Consolidated Financial Statements +NOTE +7 – Goodwill and Impairment Loss +On December 4, 2024, the Company acquired 100% +of the equity interests in Faning Korea, LLC and recognized goodwill in the amount of $94,264. This amount represents the excess of the +purchase consideration over the fair value of the identifiable net assets acquired. +Impairment Testing and Recognition of Impairment Loss +In accordance with ASC 350, the Company performs an +annual impairment test on goodwill, and interim assessments are made when there are indicators of impairment. As of December 31, 2024, +the Company determined that the goodwill had no recoverable value and concluded that the carrying amount of the goodwill exceeded its +recoverable amount. +Accordingly, the Company recognized an impairment loss on intangible assets +of $94,264, which has been reflected in the consolidated statement of operations for the year ended December 31, 2024. As a result, the +carrying amount of goodwill related to Faning Korea, LLC has been fully written off, and the remaining balance is $0. +NOTE +8 — LEASE +The Company uses approximately 19,200 square feet of office space at the Seoul Marina free of charge. Although there is no formal lease agreement, +the Company determined that the ASC 842 accounting standard applies and recognized the fair value of the rent-free use of the property +through May 2031 as a right-of-use (ROU) asset, with corresponding lease expense recognized in the statement of operations. +At +the time of initial acquisition from SMC in July 2021, the Company used the following assumptions to measure the right-of-use asset and +lease liability: +● Annual +lease cost: 300,000,000 Korean Won +● 10 -year +present value calculation +● Assumed +annual rent increase: - 4.96 % +● Interest +rate: 3 % +● 10 -year +Korean government bond yield: 2.11 % +● Exchange +rate: 1,188.5 KRW/USD +As +of December 31, 2025, the weighted-average remaining lease term of operating leases was approximately 5.5 years and the weighted-average discount rate +was 3.0 %. The maturity analysis of operating lease expense is presented in the following table (in KRW and USD): +SCHEDULE +OF MATURITY ANALYSIS OF OPERATING LEASE PAYMENTS +Year +Lease Expense (KRW) +Lease Expense (USD) +2026 +28,500,000 +24,000 +2027 +29,000,000 +24,400 +2028 +29,500,000 +24,800 +2029 +30,000,000 +25,200 +2030 +30,500,000 +25,600 +2031 (half) +15,500,000 +13,000 +Total +163,000,000 +137,000 +Based +on these assumptions, the Company calculated the present value of 10 years of free rent to be $ 2,775,512 and recognized it as a long-term +right-of-use asset as of June 30, 2021. Since the space is provided free of charge, no lease liability was recognized. The ROU asset +has been amortized at approximately $ 23,000 per month over the 10 -year lease term. Because the Company initially allocated $ 2,935,658 +to the SMC receivable and the leasehold rights, it recognized an impairment loss of $ 158,278 on the ROU asset as of December 31, 2021. +In +December 2024, the Company sold its entire equity interest in Hanryu Bank Co., Ltd. (“HBC”), a subsidiary that held the rent-free +rights to the Seoul Marina building. However, through an asset transfer agreement between the Company and HBC, the Company acquired the +rent-free rights to the Seoul Marina building. The transfer amount was based on the net book value of the ROU asset as of the contract +date and was offset against the Company’s outstanding loan receivable. +The +carrying amount of the operating lease right-of-use asset consisted of the following: +SCHEDULE +OF AMOUNT OF OPERATING LEASE RIGHT TO USE OF ASSET +Description +December +31, 2025 +December +31, 2024 +Operating lease right-of-use asset, beginning balance +$ 1,458,780 +— +Asset acquired / transferred +— +$ 1,458,780 +Lease expense / amortization +( 231,967 ) +— +Foreign currency translation effect +37,733 +— +Operating +lease right-of-use asset, ending balance +$ 1,264,546 +$ 1,458,780 +Lease +expense related to the right-of-use asset was $ 231,967 +for the year ended December 31, 2025. Following the sale of +the subsidiary in December 2024, the lease expense has been reclassified to discontinued operations and is not in the statement of operations +for year ended December 31, 2024. +As +of December 31, 2025, the remaining lease term was approximately 5.4 +years, ending in May 2031. Because the Company is not required +to make fixed lease payments under the arrangement, the Company had no operating lease liability as of December 31, 2025 or December +31, 2024, and no future minimum lease payments are required under the arrangement. +NOTE +9 — SHORT-TERM LOAN PAYABLES +The +following table summarizes information with regard to short-term loan payables outstanding as of December 31, 2025 and December 31, 2024. +SCHEDULE +OF SHORT TERM LOAN PAYABLES OUTSTANDING +Interest Rate +December 31, 2025 ($) +December 31, 2024 ($) +Mijung Oh +0 % +8,529 +6,802 +Changhyuk Kang (1) +0 % +13,634 +13,634 +Levenston Korea LLC +4.6 % +1,638 +- +Jeyoun Baeg +0 % +1,394 +- +Yoonseok Choi +0 % +3,833 +- +Total +29,028 +20,436 +(1) +Changhyuk Kang is not a related party, as he is a minority shareholder. +The Company recognized interest expense of $ 14 and +$ 0 for the year ended December 31, 2025 and 2024, respectively. +F- 18 +GLOBAL +INTERACTIVE TECHNOLOGIES, INC. AND SUBSIDIARIES +Notes to Consolidated Financial Statements +NOTE +10 — SHORT-TERM LOAN PAYABLES FROM RELATED PARTIES +The +following table summarizes information regarding short-term loan payables from related parties as of December 31, 2025 and December 31, +2024. Jaeman Lee has been serving as the Company’s Advisor since April 17, 2025, and Hangmuk Shin is the largest shareholder of +Global Interactive Technologies, Inc. +SCHEDULE OF SHORT TERM LOAN PAYABLES AND RELATED PARTY OUTSTANDING +Interest Rate +December 31, 2025 ($) +December 31, 2024 ($) +Taehoon Kim +0 % +583 +- +Jaeman Lee +4.6 % (1) +84,733 +255,286 +Hangmuk Shin +4.6 % +6,969 +94,321 +PixelArc LLC +0 % +963 +- +Total +93,248 +349,607 +(1) +The interest rate applicable to Faning Korea, LLC is 4.6 % per annum, +whereas the interest rate applicable to Global Interactive Technologies, Inc. is 0 %. +The Company recognized interest expense of $ 2,061 +and $ 5,962 for the year ended December 31, 2025 and 2024, respectively. +NOTE +11 — FAIR VALUE MEASUREMENTS +Fair +value has been determined on a basis consistent with the requirements of FASB ASC Topic 825, Financial Instruments , and the Company +adopted on a prospective basis required provisions of FASB ASC Topic 820, Fair Value Measurement. +Financial +Items Measured at Fair Value on a Recurring Basis +The +carrying amounts reported in the consolidated balance sheet for short-term financial instruments, including cash and cash equivalents, +short-term loans, accounts receivable, prepaid expenses, short-term borrowings, accrued expense and other current liabilities due to +the short maturities of these instruments. +Assets +and liabilities measured at fair value on a recurring basis as of December 31, 2025 and December 31, 2024 are summarized in the table +below. +SCHEDULE +OF FAIR VALUE OF ASSETS AND LIABILITIES MEASURED AT FAIR VALUE ON RECURRING BASIS +Level +1 +Level +2 +Level +3 +Total +December 31, 2025 ($) +Level 1 +Level 2 +Level 3 +Total +Assets measured at fair value +— +— +— +— +Liabilities measured at fair value +— +— +— +— +Level +1 +Level +2 +Level +3 +Total +December 31, 2024 ($) +Level 1 +Level 2 +Level 3 +Total +Assets measured at fair value +— +— +— +— +Liabilities measured at fair value +— +— +— +— +F- 19 +GLOBAL +INTERACTIVE TECHNOLOGIES, INC. AND SUBSIDIARIES +Notes to Consolidated Financial Statements +NOTE +11 — FAIR VALUE MEASUREMENTS (cont.) +Financial +instruments measured at fair value on a nonrecurring basis +The +Company had no financial assets or financial liabilities measured at fair value on a nonrecurring basis as of December 31, 2025 or December +31, 2024. +Non-financial +assets measured at fair value on a nonrecurring basis +The +Company’s long-lived assets, including capitalized software, operating lease right-of-use assets, and other finite-lived assets, +are measured at fair value on a nonrecurring basis when events or changes in circumstances indicate that the carrying amount may not +be recoverable. +During +the year ended December 31, 2025, the Company identified impairment indicators related to its capitalized software asset, including limited +current revenue generation, continuing operating losses, and revised expectations regarding the timing of commercialization of the Faning +platform. As a result, the Company evaluated the recoverability of the asset and recognized an impairment loss of $ 1,019,611 +during the year ended December 31, 2025. The impairment loss +is included in other expense in the consolidated statements of operations. +The +fair value measurement related to the software impairment was based on significant unobservable inputs and is classified as a Level 3 +measurement within the fair value hierarchy. +The +following table summarizes nonfinancial assets measured at fair value on a nonrecurring basis: +SCHEDULE +OF FAIR VALUE OF ASSETS AND LIABILITIES MEASURED AT FAIR VALUE ON NON-RECURRING BASIS +Description +Level 1 +Level 2 +Level 3 +Total +Software (Intangible +Asset) — year ended December 31, 202 5 +$ — +$ — +$ 3,029,061 +$ 3,029,061 +Software (Intangible +Asset) — year ended December 31, 202 4 +— +— +— +— +There +were no transfers between Level 1, Level 2, and Level 3 during the years ended December 31, 2025 and 2024. +F- 20 +GLOBAL +INTERACTIVE TECHNOLOGIES, INC. AND SUBSIDIARIES +Notes to Consolidated Financial Statements +NOTE +12 — FAIR VALUE MEASUREMENTS +Valuation +Technique and Significant Unobservable Inputs (Level 3) +The fair value of the Faning software intangible asset as of December 31, +2025 was estimated using the Relief-from-Royalty (RfR) method, an income approach. Under the Relief-from-Royalty method, fair value is +measured as the present value of the after-tax royalty payments that the Company would hypothetically be required to pay to license the +Asset from a third party, assuming the Company did not own it. The hypothetical royalty payments were projected over a discrete four-year +forecast period (FY2026 through FY2029), tax-effected at an assumed statutory rate, and discounted to present value using a risk-adjusted +discount rate. A mid-year discounting convention was applied to reflect the assumption that cash flows are received evenly throughout +each year. +The fair value measurement is categorized within Level 3 of the fair value +hierarchy because it relies on significant unobservable inputs, including projected revenues, royalty rate, discount rate, effective tax +rate, and management assumptions regarding future monetization of the platform. The forecast was prepared by management based on the early-stage +nature of the platform, observed user-acquisition economics, and expected pricing and conversion characteristics of comparable consumer +social platforms. +The following table summarizes the significant unobservable inputs used +in the Level 3 fair value measurement of the Faning software intangible asset as of December 31, 2025: +SCHEDULE OF UNOBSERVABLE INPUTS IN LEVEL 3 +FAIR VALUE MEASUREMENT +Significant Unobservable Input +Value as of December 31, 2025 +Valuation technique +Relief-from-Royalty method (Income Approach) +Royalty rate +19.9 % +Discount rate (WACC) +51.2 % +Remaining useful life +4 years +Subscription conversion rate +2.1 % of Monthly Active Users +MAU conversion rate +55.0 +% +The +projected revenue assumptions incorporate management’s estimates of user growth, user retention, conversion rates, subscription +pricing, in-app purchase activity, advertising monetization, and customer acquisition trends. +The fair value measurement is sensitive to changes in significant unobservable +inputs. Increases in projected revenues, royalty rate, subscription conversion rate, or MAU conversion rate would increase the estimated +fair value, while increases in the discount rate or effective tax rate would decrease the estimated fair value. +Reconciliation +to Impairment Loss +Application +of the Relief-from-Royalty method resulted in an estimated fair value for the Faning software intangible asset of $ 3,029,061 as of December +31, 2025. Because the indicated fair value was below the Asset’s pre-impairment carrying amount, the Company recognized a non-cash +impairment loss of $ 1,019,611 during the year ended December 31, 2025 in accordance with ASC 350-30-35. There were no impairment losses +recognized on the Asset during the year ended December 31, 2024. +Nonfinancial +Items Measured at Fair Value on a Recurring Basis +There +are no nonfinancial assets measured at fair value on a recurring basis as of December 31, 2025 and December 31, 2024. +Nonfinancial +Items Measured at Fair Value on a Nonrecurring Basis +The +fair value of long-lived assets is measured whenever the carrying value of long-lived asset or asset group is not recoverable on an undiscounted +cash flow basis. Except for the intangible asset impairment disclosed in Note 11, no impairment is recognized for long-lived assets as of as of December 31, 2025 and December 31, 2024. +NOTE +13 — SIGNIFICANT NON-CASH TRANSACTION +On March 19, 2025, the +Company issued 300,000 shares of Common Stock at a conversion price of $ 0.70 per share in connection with the conversion of $ 210,000 of +indebtedness payable to Evan Trust. Debt conversion loss was $ 300,030 . +On May 7, 2025, the Company +issued 90,123 shares of Common Stock at a conversion price of $ 1.19 per share, together with warrants to purchase 81,739 shares of Common +Stock at an exercise price of $ 1.29 per share and expiring on the fifth anniversary of the issuance date, in connection with the conversion +of $ 105,444 of indebtedness payable to Hangmuk Shin. Debt conversion loss was $ 178,748 . +On May 7, 2025, the Company +issued 135,817 shares of Common Stock at a conversion price of $ 1.27 per share, together with warrants to purchase 125,383 shares of Common +Stock at an exercise price of $ 1.42 per share and expiring on the fifth anniversary of the issuance date, in connection with the conversion +of $ 175,205 of indebtedness payable to Jeyoun Baeg. Debt conversion loss was $ 257,054 . +On May 7, 2025, the Company +issued 135,817 shares of Common Stock at a conversion price of $ 1.27 per share, together with warrants to purchase 125,383 shares of Common +Stock at an exercise price of $ 1.42 per share and expiring on the fifth anniversary of the issuance date, in connection with the conversion +of $ 175,205 of indebtedness payable to Jungok You. Debt conversion loss was $ 257,054 . +On May 20, 2025, the Company issued 246,666 shares of Common Stock at a conversion price of $ 0.70 per share in connection +with the conversion of $ 172,666 of indebtedness payable to PixelArc LLC. Debt +conversion loss was $ 175,343 . +On August 19, 2025, warrants held by Jungok You were exercised at an exercise price of $ 1.42 per share, resulting +in the issuance of 125,383 shares of Common Stock for aggregate cash proceeds of approximately $ 178,044 . +F- 21 +GLOBAL +INTERACTIVE TECHNOLOGIES, INC. AND SUBSIDIARIES +Notes to Consolidated Financial Statements +NOTE +14 — SHARE CAPITAL +As +of December 31, 2025 and December 31, 2024, Global Interactive Technologies’ total authorized capital stock is 110,000,000 shares, +consisting of 100,000,000 shares of Common Stock, par value $ 0.001 per share, and 10,000,000 shares of undesignated preferred stock, +par value $ 0.001 per share. +On +January 27, 2025, the Company effected a 1-for-20 reverse stock split of its issued and outstanding common shares. As a result of the +reverse stock split, every 20 shares of the Company’s issued and outstanding common stock were combined into one share, reducing +the total number of issued shares from 52,808,589 to 2,640,429 . The par value per share is $ 0.001 . All share and per-share +amounts in the accompanying consolidated financial statements and related notes have been retroactively adjusted to reflect the reverse +stock split for all periods presented. +On +March 19, 2025, the Company issued 300,000 shares of Common Stock at a price of $ 0.7 per share in connection with the conversion of +$ 210,000 of debt owed to Evan Trust. +On May 7, 2025, the Company +issued 90,123 shares of Common Stock at a price of $ 1.19 per share, plus warrants to purchase 81,739 shares of Common Stock at an exercise +price of $ 1.29 per share, expiring on the fifth anniversary of the issuance date, in connection with the conversion of $ 105,444 of debt +owed to Hangmuk Shin. +On May 7, 2025, the Company issued 135,817 shares of Common Stock at +a price of $ 1.27 per share, plus warrants to purchase 125,383 shares of Common Stock at an exercise price of $ 1.42 per share, expiring +on the fifth anniversary of the issuance date, in connection with the conversion of $ 175,205 of debt owed to Jeyoun Baeg. +On +May 7, 2025, the Company issued 135,817 +shares of Common Stock at a price of $ 1.27 +per share, plus warrants to purchase 125,383 +shares of Common Stock at an exercise price of $ 1.42 +per share, expiring on the fifth anniversary of the issuance +date, in connection with the conversion of $ 175,205 +of debt owed to Jungok You. On August 19, 2025, warrants totaling +$ 178,044 +were exercised for cash at an exercise price of $ 1.42 +per share, resulting in the issuance of 125,383 +shares of Common Stock. +On May 20, 2025, the Company issued 246,666 shares of Common Stock at a price of $ 0.7 per share in connection with +the conversion of $ 172,666 of debt owed to PixelArc LLC. +NOTE +15 — COMMITMENTS AND CONTINGENCIES +Legal +Matters +As of December 31, 2025, the Company is not subject to any material pending legal proceedings or claims. Previously +disclosed legal matters were related to subsidiaries that have since been divested and no longer impact the Company’s operations +or financial position. +F- 22 +GLOBAL +INTERACTIVE TECHNOLOGIES, INC. AND SUBSIDIARIES +Notes to Consolidated Financial Statements +NOTE +16 — RELATED PARTY TRANSACTIONS +The +company conducts transactions with related parties under standard commercial terms and follows appropriate procedures to protect the +company’s interests. Below are the related party transaction details as of December 31, 2025, and December 31, 2024. +Short-Term +Loan Payables +SCHEDULE OF RELATED PARTY TRANSACTION +December 31, 2025 ($) +December 31, 2024 ($) +Taehoon Kim +583 +- +Jaeman Lee +84,733 +255,286 +Hangmuk Shin +6,969 +94,321 +PixelArc LLC +963 +- +Total +93,248 +349,607 +Short term loan +93,248 +349,607 +Non-Trade Payables +The Company has non-trade payables due to Hangmuk Shin in the +amount of KRW 3.4 million and to Jaeman Lee in the amount of KRW 6.8 million. These amounts represent unreimbursed business trip expenses +that were personally paid on behalf of the Company and are recorded as non-trade payables. +Taehoon Kim (CEO) +- On January 8, 2025, the Company entered into a short-term +loan agreement with Taehoon Kim with a principal amount of $ 583 and an interest rate of 0 %. It matured on January 7, 2026 . +Jaeman +lee (Family of an independent director) +- +The Company entered into a short-term loan agreement with Jaeman Lee for the period from July 1, 2024, to December 31, 2024, and the +outstanding loan balance as of December 31, 2024, was $ 255,286 +(The +loan was partially deposited in KRW, which may result in a slight difference in the loan amount when converted to USD due to exchange +rate fluctuations.) +- +On February 4, 2025, the Company entered into a short-term loan agreement with Jaeman Lee at an annual interest rate of 4.6 %. The principal +amount of the loan was KRW 7,000,000 (USD 4,764 ), and the maturity date is February 3, 2026 . The principal and interest will be repaid +at maturity. +- +On February 7, 2025, the Company entered into a short-term loan agreement with Jaeman Lee at an annual interest rate of 4.6 %. The principal +amount of the loan was KRW 29,144,850 (USD 21,000 ), and the maturity date is February 6, 2026 . The principal and interest will be repaid +at maturity. +- +On April 7, 2025, the Company entered into a short-term loan agreement with Jaeman Lee at an annual interest rate of 4.6 %. The principal +amount of the loan was KRW 510,000 (USD 347 ), and the maturity date is April 6, 2026 . The principal and interest will be repaid at maturity. +- +On February 17, 2025, Jaeman Lee, with the Company’s consent, transferred the Company’s loan of $ 210,000 (KRW 300,000,000 ) +to Evan Trust +- +On April 11, 2025, the Company entered into a short-term loan agreement with Jaeman Lee at an annual interest rate of 4.6 %. The principal +amount of the loan was KRW 1,020,000 (USD 699 ), and the maturity date is April 10, 2026 . The principal and interest will be repaid at +maturity. +- +On May 5, 2025, the Company entered into a short-term loan agreement with Jaeman Lee at an annual interest rate of 4.6 %. The principal +amount of the loan was KRW 1,000,000 (USD 701 ), and the maturity date is May 4, 2026 . The principal and interest will be repaid at maturity. +- +On July 2, 2025, the Company entered into a short-term loan agreement with Jaeman Lee at an annual interest rate of 4.6 %. The principal +amount of the loan was KRW 150,000 (USD 110 ), and the maturity date is July 1, 2026 . The principal and interest will be repaid at maturity. +- +On July 24, 2025, the Company entered into a short-term loan agreement with Jaeman Lee at an annual interest rate of 4.6 %. The principal +amount of the loan was KRW 6,130,000 (USD 4,444 ), and the maturity date is July 23, 2026 . The principal and interest will be repaid at +maturity. +- +On August 5, 2025, the Company entered into a short-term loan agreement with Jaeman Lee at an annual interest rate of 4.6 %. The principal +amount of the loan was KRW 146,000 (USD 105 ), and the maturity date is August 4, 2026 . The principal and interest will be repaid at maturity. +- +On December 3, 2025, the Company entered into a short-term loan agreement with Jaeman Lee at an annual interest rate of 4.6 %. The principal +amount of the loan was KRW 1,212,420 (USD 825 ), and the maturity date is February 3, 2026 . The principal and interest will be repaid +at maturity. +F- 23 +GLOBAL +INTERACTIVE TECHNOLOGIES, INC. AND SUBSIDIARIES +Notes to Consolidated Financial Statements +NOTE +16 — RELATED PARTY TRANSACTIONS (cont.) +Hangmuk +Shin (Greater than 10% Shareholder) +- +The Company entered into a short-term loan agreement with Hangmuk Shin for the period from July 1, 2024, to December 31, 2024, and the +outstanding loan balance as of December 31, 2024, was $ 94,321 +(The +loan was partially deposited in KRW, which may result in a slight difference in the loan amount when converted to USD due to exchange +rate fluctuations.) +- +On January 14, 2025, the Company entered into a short-term borrowing agreement with Hangmuk Shin at an interest rate of 4.6 %. The principal +amount was KRW 3,310,000 (USD 2,249 ), and the maturity date is January 13, 2026 . The principal and interest will be repaid at maturity. +- On March 6, 2025, the Company entered into a short-term borrowing agreement with Hangmuk Shin at an interest rate of 4.6 %. The principal +amount was KRW 6,500 (USD 4 ), and the maturity date is March 5, 2026 . The principal and interest will be repaid at maturity. +- +On March 24, 2025, the Company entered into a short-term borrowing agreement with Hangmuk Shin at an interest rate of 4.6 %. The principal +amount was KRW 50,000 (USD 34 ), and the maturity date is March 23, 2026 . The principal and interest will be repaid at maturity. +- +On March 26, 2025, the Company entered into a short-term borrowing agreement with Hangmuk Shin at an interest rate of 4.6 %. The principal +amount was KRW 50,000 (USD 34 ), and the maturity date is March 25, 2026 . The principal and interest will be repaid at maturity. +- +On May 7, 2025, the Company issued 90,123 shares of Common Stock at a conversion price of $ 1.19 per share, together with warrants to +purchase 81,739 shares of Common Stock at an exercise price of $ 1.29 per share and expiring on the fifth anniversary of the issuance +date, in connection with the conversion of $ 105,444 of indebtedness payable to Hangmuk Shin. +- +On December 31, 2025, the Company entered into a short-term borrowing agreement with Hangmuk Shin at an interest rate of 4.6 %. The principal +amount was KRW 10,000,000 (USD 6,969 ), and the maturity date is December 30, 2026 . +PixelArc, LLC +- On February 18, 2025, the Company entered into a short term +borrowing agreement with PixelArc, LLC at an interest rate of 8 %. The principal amount was USD $ 86,666 and the maturity date is March +14, 2026 . +- On April 18, 2025, the Company entered into a short term borrowing +agreement with PixelArc, LLC at an interest rate of 0 %, the principle amount was USD $ 86,000 , The maturity date was May 15 2025 . +- On May 20, 2025, the Company accepted PixelArc’s proposal, +the total loan principle balance of USD $ 172,666 was converted into 246,666 shares at $ 0.7 per share, following the default of the April +18 2026 loan. The shares were issue on May 24, 2025. Accrued interest in the amount of USD $ 3490.44 remain outstanding. +- On August 18, 2025, the Company entered into an interest free +short term borrowing agreement with PixelArc, LLC, the principle amount was USD $ 1,000 , repayable upon demand. +NOTE +17 — NON-TRADE PAYABLE +Non-trade payable for the year ended December 31, 2025 was $ 750,013 , compared to $ 290,917 during the year ended December 31, 2024. +The following table summarizes the components of non-trade +payables by nature as of December 31, 2025 and 2024: +SCHEDULE +OF COMPONENTS OF NON-TRADE PAYABLES BY NATURE +Components (by Nature) +December 31, 2025 ($) +December 31, 2024 ($) +Professional & Service Fees +561,111 +237,561 +Social Security & Tax Payable +166,827 +35,457 +Operating Expenses +22,075 +17,899 +Total +750,013 +290,917 +F- 24 +GLOBAL +INTERACTIVE TECHNOLOGIES, INC. AND SUBSIDIARIES +Notes to Consolidated Financial Statements +NOTE 18 — STOCK-BASED COMPENSATION +The Company maintains the 2022 Omnibus Equity Incentive Plan, +which provides for the grant of stock options and other equity-based awards. As of December 31, 2025, there were 75,000 shares remaining +available for future issuance under the plan. +● +Accounting Policy: The Company measures and recognizes +compensation expense for all stock-based payment awards based on their estimated fair values on the grant date. +● +Expense Recognition: Stock-based compensation expense +is recognized on a straight-line basis over the requisite service period (usually the vesting period). +NOTE 19 — SEGMENT INFORMATION +The Company operates its business through its core Faning platform +and strategy. As of December 31, 2025, the Company has +determined that it operates in a single reportable segment focused on digital fan engagement services . +While the Company’s operations are primarily +supported by its subsidiary, FANING KOREA, LLC, located in Seoul, Republic of Korea, the majority of its long-lived assets and revenues +are managed as a single global ecosystem. +NOTE 20 — WARRANTS +In +connection with the debt-to-equity conversion transactions completed during fiscal year 2025, the Company issued detached warrants to +certain debt holders. +- On May 7, 2025, the Company issued 90,123 shares +of Common Stock at a conversion price of $ 1.19 per share, together with warrants to purchase 81,739 shares of Common Stock at an exercise +price of $ 1.29 per share and expiring on the fifth anniversary of the issuance date, in connection with the conversion of $ 105,444 of +indebtedness payable to Hangmuk Shin. +- On May 7, 2025, the Company issued 135,817 shares +of Common Stock at a conversion price of $ 1.27 per share, together with warrants to purchase 125,383 shares of Common Stock at an exercise +price of $ 1.42 per share and expiring on the fifth anniversary of the issuance date, in connection with the conversion of $ 175,205 of +indebtedness payable to Jeyoun Baeg. +- On May 7, 2025, the Company issued 135,817 shares +of Common Stock at a conversion price of $ 1.27 per share, together with warrants to purchase 125,383 shares of Common Stock at an exercise +price of $ 1.42 per share and expiring on the fifth anniversary of the issuance date, in connection with the conversion of $ 175,205 of +indebtedness payable to Jungok You. +All warrants issued above have a contractual +term of five years and expire on the fifth anniversary of the issuance date (May 7, 2030). Subsequently, on August 19, 2025, +warrants held by Jungok You were exercised in full at an exercise price of $ 1.42 +per share, resulting in the issuance of 125,383 +shares of Common Stock for aggregate cash proceeds of approximately $ +178,044 . +The +following table summarizes the Company’s warrant activity for the fiscal year ended December 31, 2025: +SUMMARY OF WARRANT ACTIVITIES +Warrant Activity +Number of Warrants +Weighted-Average Exercise Price ($) +Weighted-Average Remaining Contractual Term (Yrs) +Outstanding at December 31, 2024 +- +- +- +Granted (May 7, 2025) +332,505 +1.39 +5.00 +Exercised (August 19, 2025) +( 125,383 ) +1.42 +- +Expired / Forfeited +- +- +- +Outstanding at December 31, 2025 +207,122 +1.37 +4.35 +Exercisable at December 31, 2025 +207,122 +1.37 +4.35 +In accordance with ASC 470-50, the Company measured +the fair value of the warrants issued as part of the debt extinguishment consideration using the Black-Scholes Option Pricing Model (BSM) +pursuant to the fair value guidance under ASC 820. +F- 25 +GLOBAL +INTERACTIVE TECHNOLOGIES, INC. AND SUBSIDIARIES +Notes to Consolidated Financial Statements +NOTE 20 — WARRANTS +(cont.) +The valuation was performed using the following +assumptions as of the grant date ( May 7, 2025): +SCHEDULE +OF VALUATION PERFORMED USING ASSUMPTIONS AS OF GRANT DATE +Assumption +Input +Stock price at grant date +$ 1.38 +Risk-free interest rate +4.04 % +Expected volatility +186.39 % +Expected term +5.00 Years +Expected dividend yield +0.00 % +Based +on the assumptions above, the specific valuation components by each warrant holder tranche are summarized as follows: +SCHEDULE OF VALUATION ASSUMPTIONS +COMPONENTS BY EACH WARRANT HOLDER TRANCHE +Holder +Warrants +Issued +Exercise +Price +FV/Warrant +($) +Total +Warrant FV ($) +Hangmuk +Shin +81,739 +$ 1.29 +1.97 +160,720.51 +Jeyoun +Baeg +125,383 +$ 1.42 +1.96 +246,186.97 +Jeongok +You +125,383 +$ 1.42 +1.96 +246,186.97 +Total +332,505 +653,094.44 +The aggregate +fair value of the 332,505 warrants +issued was $ 653,094.44 , +which was included as part of the consideration transferred in determining the total loss on debt extinguishment of approximately +$ 1,168,228 . +The corresponding amount was recorded within additional paid-in capital (APIC) – warrants. +NOTE +21 — DISCONTINUED OPERATIONS +Net loss from discontinued operations for the year ended December 31, 2025 +was $ 0 , compared to $ 1,388,318 net loss from discontinued operations during the year ended December 31, 2024. +Hanryu Bank Co. Ltd (“HBC”) +sold 100 % +of its shares in FNS Co. Ltd for $ 733 and +Marin Island Co. Ltd for $ 367 on +November 5, 2024, to improve its financial structure. Additionally, Global Interactive Technologies, Inc. (“the +Company”) sold 100 % +of its shares in Hanryu Bank Co. Ltd (“HBC”) for $ 2,200 on +December 28, 2024. From the date of these sales, the three subsidiaries are no longer included in the consolidated financial +statements and are classified as discontinued operations. A gain of $ 12,400,373 was +recognized from the disposal of the shares in these three subsidiaries. +The following table outlines the calculation of the +gain on disposal related to the sale of the subsidiaries on November 5, 2024, and December 28, 2024. +SCHEDULE OF DISPOSAL OF SUBSIDIARIES AND +DISCONTINUED OPERATIONS +As of December 28, 2024 ($) +Consideration received (sale price) +3,300 +The carrying amount of any noncontrolling interest +- +Net liabilities +11,502,964 +Foreign exchange difference +894,109 +Gain on disposal of subsidiaries +12,400,373 +1. In connection with the deconsolidation of Hanryu +Bank Co.Ltd in 2024, the Company reclassified $ 7,164,430 of Additional Paid-in Capital to Accumulated Deficit, in accordance with +ASC 810-10-40. This amount was arouse from group restructuring of the same subsidiary’s equity at the consolidated level, resulting +from differences between the subsidiary’s equity structure and the consolidated equity accounts. The reclassification is reflected +in the Consolidated Statement of Stockholders’ Equity for the year ended December 31, 2024. +2. The gain or loss on the disposal of investments +in subsidiaries was calculated based on the difference between the consideration received and the net assets of the subsidiaries. In this +process, the net assets of the subsidiaries were translated using the exchange rate as of December 31, 2024, while the gain or loss on +disposal was calculated using the average exchange rate for the year 2024. As a result, a foreign exchange difference arose due to the +use of different exchange rates. This difference was not recognized separately as a foreign exchange gain or loss, but was included in +the gain or loss on disposal. +F- 26 +GLOBAL +INTERACTIVE TECHNOLOGIES, INC. AND SUBSIDIARIES +Notes to Consolidated Financial Statements +NOTE +22 — INCOME TAXES +The Company’s tax rate is generally a function of the tax rates in the jurisdictions in which the Company +operates, the relative amount of income earned by jurisdiction, and the relative amount of losses or income for which no tax benefit or +expense is recognized due to a valuation allowance. +The components of “Loss before income taxes” +in the Consolidated Statements of Operations are as follows: +SCHEDULE +OF COMPONENTS OF LOSS BEFORE INCOME TAXES +December 31, 2025 +December 31, 2024 +United States +$ ( 4,239,851 ) +$ ( 4,754,944 ) +Foreign (Korea) +( 393,042 ) +( 28,707 ) +Total loss before income taxes +$ ( 4,632,893 ) +$ ( 4,783,651 ) +The effective tax rate reconciliation is as follows: +SCHEDULE +OF EFFECTIVE TAX RATE RECONCILIATION +December 31, 2025 +December 31, 2025 +December 31, 2024 +December 31, 2024 +Loss before income taxes +$ ( 4,632,893 ) +$ ( 4,783,651 ) +U.S. federal statutory tax benefit +( 972,908 ) +( 21 )% +( 1,004,567 ) +( 21 )% +State and local income taxes, net of federal benefit +0 +0 % +0 +0 % +Foreign (Korea) tax rate differential +43,628 +1 % +3,186 +1 % +Tax credits (Korean R&D) +0 +0 % +0 +0 % +Effect of changes in tax laws or rate +0 +0 % +0 +0 % +Cross-border tax effects +0 +0 % +0 +0 % +Permanent differences, goodwill impairment loss including nondeductible expenses +0 +0 % +$ 19,795 +0 % +Permanent differences, debt extinguishment loss including nondeductible expenses +245,328 +5 % +0 +0 % +Permanent differences, gain on disposal of subsidiary including nondeductible expenses +0 +0 % +( 2,604,078 ) +( 55 )% +Change in valuation allowance +683,952 +15 % +3,585,663 +75 % +Income tax expense (benefit) +$ 0 +0 % +$ 0 +0 % +Effective Tax Rate +0 % +0 % +Application of ASU 2023-09 5% disaggregation threshold. The five percent +disaggregation threshold for the years ended December 31, 2025 and 2024 was $ 48,645 and $ 50,228 , respectively, computed as five percent +of the income tax benefit derived by applying the U.S. federal statutory income tax rate of 21 % to the loss before income taxes. +The deferred tax asset breakdown is as follows: +SCHEDULE +OF DEFERRED TAX ASSET +Deferred Tax Assets +December 31, 2025 +December 31, 2024 +Net operating loss carryforwards – US Federal +$ 7,254,895 +$ 3,997,981 +Net operating loss carryforwards – Republic of Korea +0 +0 +Amortization differences +145,290 +0 +IA Impairment differences +214,118 +0 +Depreciation differences +260 +1,334 +Lease liabilities and other temporary differences +48,713 +0 +Bad debt +73 +3,397,763 +Forex Translation Adjustment +( 32,492 ) +243,687 +Total deferred tax assets +7,630,858 +7,640,764 +Valuation allowance +( 7,630,858 ) +( 7,640,764 ) +Net deferred tax asset +0 +0 +Deferred Tax Liabilities +0 +0 +Fixed asset basis differences +0 +0 +Total Deferred Tax Liabilities +0 +0 +Net Deferred Tax Asset (Liability) +$ 0 +$ 0 +The Company’s wholly-owned Korean subsidiary, +Faning Korea, LLC was acquired in December 2024. Net operating losses generated under the Korean Corporate Tax Act may be carried forward +for up to 15 years. Based on management’s evaluation of available evidence, no separate deferred tax asset has been recognized for the +Korean tax loss carryforwards, as the related amounts are not material to the consolidated financial statements and any deferred tax asset +recognized would be fully offset by a valuation allowance. +The parent company, Global Interactive Technologies, +Inc. generated approximately $ 7.3 million net operating loss. Utilization of U.S. net operating loss carryforwards may be subject to substantial +annual limitation under IRC 382. +Movements in the valuation allowance for the years ended December 31, +2025 and 2024 were as follows: +SCHEDULE +OF MOVEMENTS IN THE VALUATION ALLOWANCE +Valuation Allowance +December 31, 2025 +December 31, 2024 +Beginning Balance +$ 7,640,764 +$ 413,223 +Additions Charged to Income Tax Expense +( 9,906 ) +7,227,541 +Reductions / Reversals Credited to Income Tax Expense +0 +0 +Ending Balance +$ 7,630,858 +$ 7,640,764 +The Company recorded a full valuation allowance against its gross deferred +tax assets as of December 31, 2025 and 2024. In assessing the realizability of deferred tax assets, the Company considered all available +positive and negative evidence, especially the history of cumulative operating losses incurred at both the U.S. parent and Korean subsidiary +levels, management concluded that it is more likely than not that the deferred tax assets will not be realized. +The cash income taxes paid information is as follows: +SCHEDULE +OF CASH INCOME TAXES PAID +Cash Income Taxes Paid (Refunded), Net +December 31, 2025 +December 31, 2024 +U.S. — Federal +$ 0 +$ 0 +U.S. — State and Local +0 +0 +Republic of Korea +0 +0 +Total Cash Income Taxes Paid, Net +$ 0 +$ 0 +As of December 31, 2025 and 2024, the Company +had no material unrecognized tax benefits, and no material amounts have been accrued for interest or penalties associated with uncertain +tax positions. The Company does not anticipate any significant changes to its unrecognized tax benefits within the twelve months following +December 31, 2025. A reconciliation of the beginning and ending balances of unrecognized tax benefits would result in zero activity for +each period presented and is therefore not separately tabulated. +For the year ended December 31, 2024, the deferred +tax benefit attributable to discontinued operations has been fully offset by a corresponding increase in the valuation allowance. Accordingly, +the Company has allocated no income tax benefit to the discontinued operations loss of $ 1,388,318 (see Note 21). +NOTE +23 — SUBSEQUENT EVENTS +The Company has evaluated subsequent events through +the date of this filing and determined that the following events occurred after December 31, 2025 and prior to the issuance of these financial +statements: +- On January 19, 2026, the Company +entered into a Content Transfer Agreement to acquire all rights to the “Mega Racer” OST master recordings and promotional +materials performed by ATEEZ, Daniel Kang, and KIRAS. The acquisition will be accounted for in accordance with applicable accounting standards, +including ASC 805 or ASC 350, as appropriate. +- On March 26, 2026, the Company +entered into a non-binding term sheet with Hudson Global Ventures, LLC for an equity line of credit of up to $ 18,000,000 . The arrangement +is non-binding and subject to negotiation and execution of definitive agreements and customary closing conditions +- On April 22, 2026, the Company +entered into a Promissory Note agreement with FirstFire Global Opportunities Fund, LLC for a principal amount of $ 506,000 . The note bears +interest at market rate and is subject to the terms of the agreement. +The Company evaluated subsequent events in accordance with ASC 855, Subsequent +Events. Management has assessed whether subsequent events require adjustment or disclosure in the consolidated financial statements. +F- 27 +EXHIBIT +INDEX +3.1 +Amended and Restated Certificate of Incorporation of Registrant +Filed +herewith +3.2 +Bylaws of Registrant +Filed +herewith +4.1 +Form of Common Stock Certificate +Incorporated +herein by reference to Exhibit 4.1 to the Company’s Annual Report on Form 10-K as filed with the SEC on April 30, 2025 +4.2 +Description of Registrant’s Securities +Filed herewith +10.1 +Form of IPO Lock-Up Agreement +Incorporated +herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q as filed with the SEC on September 15, 2023 +10.2* +Hanryu Holdings, Inc 2022 Omnibus Equity Incentive Plan +Incorporated +herein by reference to Exhibit 10.2 to the Company’s Annual Report on Form 10-K as filed with the SEC on July 16, 2024 +10.3* +Employment Agreement by and between Taehoon Kim and Hanryu Holdings, Inc., dated April 1, 2024 +Incorporated +herein by reference to Exhibit 10.3 to the Company’s Annual Report on Form 10-K as filed with the SEC on April 30, 2025 +10.4 +Business Transfer Agreement, dated June 22, 2022, by and between Hanryu Bank Co., Ltd., and Kingdom Coin Holdings, a corporation incorporated in the Cayman Islands +Incorporated +herein by reference to Exhibit 10.7 to the Company’s Annual Report on Form 10-K as filed with the SEC on July 16, 2024 +10.5 +Hanryu Holdings, Inc. Subscription Agreement +Incorporated +herein by reference to Exhibit 10.8 to the Company’s Annual Report on Form 10-K as filed with the SEC on July 16, 2024 +10.6 +Debt Conversion Agreement +Incorporated +herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K as filed with the SEC on March 18, 2025 +10.7 +Promissory Note, dated February 18, 2025, by the Company in favor of PixelArc. +Incorporated +herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K as filed with the SEC on May 22, 2025 +10.8 +Promissory Note, dated April 18, 2025, by the Company in favor of PixelArc. +Incorporated +herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K as filed with the SEC on May 22, 2025 +10.9 +Security Agreement, dated April 18, 2025, between the Company and PixelArc. +Incorporated +herein by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K as filed with the SEC on May 22, 2025 +10.10 +Notice of Conversion, dated May 20, 2025, between the Company and PixelArc. +Incorporated +herein by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K as filed with the SEC on May 22, 2025 +10.11 +Equity Purchase Agreement, dated March 26, 2026, by and between Global Interactive Technologies, Inc. and Hudson Global Ventures, LLC +Incorporated +herein by reference to Exhibit 1 to the Company’s Current Report on Form 8-K as filed with the SEC on March 30, 2026 +10.12 +Securities Purchase Agreement, dated April 22, 2026, by and between the Company and FirstFire Global Opportunities Fund, LLC +Incorporated +herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K as filed with the SEC on April 28, 2026 +10.13 +Convertible Promissory Note, dated April 22, 2026, by and between the Company and FirstFire Global Opportunities Fund, LLC. +Incorporated +herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K as filed with the SEC on April 28, 2026 +10.14 +Lien Asset Transfer Agreement, dated December 28, 2024, by and between the Company and Hanryu Bank Co., Ltd. +Filed Herewith +19.1 +Insider Trading Policy +Filed Herewith +21.1 +Subsidiaries of Registrant +Incorporated +herein by reference to Exhibit 21.1 to the Company’s Annual Report on Form 10-K as filed with the SEC on April 30, 2025 +31.1 +Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of the Principal Executive Officer +Filed +herewith +31.2 +Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of the Principal Financial Officer +Filed +herewith +32.1 +Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of the Principal Executive Officer +Furnished +herewith +32.2 +Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of the Principal Financial Officer +Furnished +herewith +97.1 +Clawback Policy +Incorporated +herein by reference to Exhibit 97.1 to the Company’s Annual Report on Form 10-K as filed with the SEC on July 16, 2024 +101.INS +Inline +XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within +the Inline XBRL document. +Filed +herewith +101.SCH +Inline +XBRL Taxonomy Extension Schema Document. +Filed +herewith +101.CAL +Inline +XBRL Taxonomy Extension Calculation Linkbase Document. +Filed +herewith +101.DEF +Inline +XBRL Taxonomy Extension Definition Linkbase Document. +Filed +herewith +101.LAB +Inline +XBRL Taxonomy Extension Label Linkbase Document. +Filed +herewith +101.PRE +Inline +XBRL Taxonomy Extension Presentation Linkbase Document. +Filed +herewith +104 +Cover +Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags +are embedded within the Inline XBRL document. +63 +SIGNATURES +Pursuant +to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the Registrant has duly caused this Report to be signed on +its behalf by the undersigned, thereunto duly authorized. +May +22, 2026 +Global Interactive Technologies, Inc +By: +/s/ +Taehoon Kim +Name: +Taehoon +Kim +Title: +Chief +Executive Officer (Principal Executive Officer) +64 +Pursuant +to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the +registrant and in the capacities and on the dates indicated. +Signature +Title +Date +Chief +Executive Officer +/s/ +Taehoon Kim +(Principal +Executive Officer, Principal Financial Officer and Principal Accounting Officer) +May +22, 2026 +/s/ +John. S. Morris +Director +May +22, 2026 +/s/ +Jay Hyong Woo +Director +May +22, 2026 +/s/ +Amy Shi +Director +May +22, 2026 +/s/ +Larry Namer +Director +May +22, 2026 +65 \ No newline at end of file diff --git a/raw/filings/0001911545/2025/0001493152-26-025106/filing_metadata.csv b/raw/filings/0001911545/2025/0001493152-26-025106/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..5182e6a054a91d136bc0fdc808c8d4de211aaebe --- /dev/null +++ b/raw/filings/0001911545/2025/0001493152-26-025106/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001911545,GITS,"Global Interactive Technologies, Inc.",2025,10-K,2026-05-26,2025-12-31,2026-05-22T22:25:13.000Z,0001493152-26-025106,form10-k.htm,10-K,14894779,1,1,https://www.sec.gov/Archives/edgar/data/1911545/000149315226025106/form10-k.htm,https://www.sec.gov/Archives/edgar/data/1911545/000149315226025106/ diff --git a/raw/filings/0001911545/2025/0001493152-26-025106/item1.txt b/raw/filings/0001911545/2025/0001493152-26-025106/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..a99012e6c9a43f7639cd4a51886f5d6aa70b7c8c --- /dev/null +++ b/raw/filings/0001911545/2025/0001493152-26-025106/item1.txt @@ -0,0 +1,531 @@ +Item +1. Business. +Overview +Global +Interactive Technologies, Inc. (“GITS” or the “Company”), a Delaware corporation formerly known as Hanryu Holdings, +Inc., is a technology-focused platform company operating and developing Faning, a global digital fan engagement platform centered on +Korean entertainment and culture, including K-pop. +Faning +is designed to support online fan communities, content discovery and sharing, user interaction, multilingual communication, user-generated +content, and digital engagement experiences across mobile and web-based services. +Corporate +Structure and Subsidiaries +The +Company is a corporation that was incorporated in the state of Delaware on October 20, 2021, as Hanryu Holdings, Inc. On December 5, +2024, the Company formally changed its name from Hanryu Holdings, Inc. to Global Interactive Technologies, Inc. pursuant to an amendment +to its Certificate of Incorporation filed with the Secretary of State of Delaware. In connection with the name change, the Company also +changed its Nasdaq ticker symbol from HRYU to GITS. +As +of December 31, 2025, the Company conducted its core Faning business and platform strategy directly through Global Interactive Technologies, +Inc., including platform development, management, commercialization strategy, and related digital services. +FANING +KOREA, LLC, a wholly owned subsidiary based in Seoul, Republic of Korea, provides administrative support to the Company in South Korea. +Reverse +Stock Split +On +January 27, 2025, the Company effected a 1-for-20 reverse stock split of its issued and outstanding common stock. +Faning +Faning +is the innovative successor to the ‘Fantoo’ platform, specifically engineered to serve as a global epicenter for enthusiasts +of K-POP and contemporary Korean culture (“K-Culture”). Moving beyond traditional social networking, the Company has developed +a multifaceted digital ecosystem designed to facilitate high-velocity user interaction, content creation, and deep community engagement. +As of December 31, 2025, Faning has transitioned from a primary development phase into early-stage commercialization, focused +on scaling a global audience. +1 +Core +Functionality & User Experience (UX) +The platform leverages proprietary algorithms to deliver a personalized +user journey, designed to provide a seamless connection between fans, creators, and content. +● Faning +Clubs: Users organize into topic-specific virtual communities (“Clubs”) centered +on artists, movies, and lifestyle trends, utilizing messaging and discussion forums +to maintain 24/7 connectivity. +● Global Interaction: Faning provides real-time, automatic +translation functionality for 17 different languages, enabling a truly unified global fandom +experience. +● Interactive +Engagement Tools: The platform integrates participation-driven features, including +voting mechanisms and engagement tools that empower users to influence content rankings and +support their favorite creators. +Monetization Model +In +2025, the Company implemented a diversified revenue structure optimized for the digital fandom economy: +● Vote +& Boost Sales: Central to the platform’s economy are participation-based features. +Users purchase Vote Packages to participate in community activities and Boosts—paid +enhancements that increase the visibility and impact of their support for specific content +or artists. +● Premium +Subscription Services: The Company offers tiered subscription plans, providing users with +exclusive features and an enhanced interface. +● Scalable +Advertising: The Company generates revenue through targeted display advertisements and sponsored +content, a stream designed to scale with continued user growth and engagement. +Synergistic +Content & Music Production +Complementing +the platform business, the Company has secured strategic agreements for the production and release of music content featuring K-pop artists +and animation projects. +● IP +Monetization: Through digital streaming and distribution, the Company can capture diverse revenue +streams that provide a higher-margin complement to platform operations. +● Short-Form Content Growth: Recognizing the market trend, the Company +will produce 2-minute “short-form” cultural content. These videos are distributed will be Faning and third-party social media +networks to maximize K-POP’s global visibility and help drive organic user acquisition. +Development +Status & Future Outlook +Global Interactive Technologies continues to prioritize infrastructure +scalability and the expansion of engagement features. Monetization is in its inaugural stages, and the ongoing execution of this strategy +remains dependent on successful user adoption and continued access to capital. +2 +Faning +Ecosystem and Legacy Fantoo Platform +Faning evolved from the legacy Fantoo platform ecosystem, which historically accumulated approximately 27 million registered accounts +globally. +The +Company views this historical registered account base as a potential long-term strategic asset. However, the Company did not +complete a migration or reactivation of this historical user base during 2025 and cannot currently predict the extent to which such +historical users may become active users, retained users, or monetizable users within the Faning platform. +The +Faning platform is designed to support a multilingual user community across multiple geographic regions. The platform includes community +engagement tools, messaging functionality, club-based interaction features, and multilingual communication tools, including real-time +translation functionality. +During +2025, the Company focused on maintaining and supporting the Faning platform, continuing development of platform functionality, and preparing +for future commercialization initiatives. As of December 31, 2025, the Company remained in an early-stage commercialization phase, and +revenue from the Faning platform remained limited. +Global +Reach and Engagement +The +Faning platform is designed to support a multilingual user community across multiple geographic regions, including users historically +concentrated in markets such as the Philippines, Indonesia, Thailand, South America, and the Republic of Korea. +The +platform includes community engagement tools, messaging functionality, club-based interaction features, and multilingual communication +tools, including real-time translation functionality intended to facilitate communication among users across different regions. +Demographics +and Target Audience +The +Faning platform is primarily focused on users interested in Korean entertainment and culture, including K-pop and related digital fandom +communities. +Historically, +a significant portion of platform engagement for the legacy Fantoo platform ecosystem had been concentrated among users in the +20–39 age demographic. The Company believes this audience represents an active segment of the global digital entertainment and +social media market. +The +platform is intended for users aged 12 and older. The Company maintains policies and technical measures designed to restrict access by +underage users and to support platform safety and compliance requirements. +The +Company may continue evaluating future user growth opportunities across multiple geographic regions and demographic groups as the Faning +platform develops and commercialization initiatives evolve. +3 +User +Reward System & Faning Points (FP) +The +reward system is a foundational element of the Faning ecosystem, designed to incentivize higher-quality content creation and active community +participation. +FP +Generation and Distribution +Users +accumulate Faning Points (FP) through multiple engagement channels: +● Activity-Based +Rewards: FP is granted based on a user’s level of contribution and engagement within +the Faning platform. +● Ad-Revenue +Sharing: As part of our commitment to a user-centric economy, 50% of the daily net advertising +profits generated within the platform are distributed as FP to users. Historically, this +distribution has been allocated with approximately 30% designated for content creators and +20% for general participating users. +● Fixed +Value: For the purposes of the platform economy, the value of FP is maintained at a fixed +ratio of 1 FP to 100 Korean Won. +Utility +and Redemption +FP +serves as the primary internal currency for the Faning ecosystem. Users can redeem accrued FP for a wide array of products and services, +including: +● Exclusive +Content: Access to premium content from artists and other creators. +● K-Culture +Merchandise: Purchase of physical and digital goods within the Faning Fanshop. +● Platform +Engagement: Utilization of FP for platform-based activities, such as voting and boosting +content, which are key components of our monetization strategy. +Storage, +Security, and Governance +The +Company prioritizes the integrity and security of the reward ecosystem through technical and administrative controls: +● Segmented Database Architecture: FP data is stored and managed in a dedicated +database, isolated from other application data for confidentiality and greater security. Access is limited to authorized personnel via +permitted IP bands. +● Disaster +Recovery: The FP database utilizes cloud backup functions, which can enable rapid restoration +within hours in the event of a system failure. +● Account +Policy: FP does not expire and accumulates in the user’s account. However, upon account +deactivation, any unredeemed FP is forfeited and moved to the Company’s reserve account +for redistribution into the ecosystem. The Company does not intend to repurchase FP from +users. +4 +User-to-User +Interactions +We +have engineered Faning to provide an expansive array of interactive opportunities, fostering a vibrant ecosystem where global users can +engage deeply with the platform and each other. These interactions—comprising clubs, community forums, and chat functions—are +strategically designed to solidify the Faning brand identity and cultivate long-term user loyalty +Faning +Clubs & Communities: Integrated Engagement Ecosystem +The Faning platform is designed to provide a seamless, +multi-layered engagement ecosystem to transition casual user interest into active community leadership and collective participation. +● Dynamic +Community Creation: Faning communities function as open forums for user-generated content +and social curation. New communities are established based on organic demand; once user requests +for a specific topic reach a strategic threshold, the platform automatically activates a +dedicated space for that interest group. +● Strategic +Club Integration: From these broad communities, users can establish specialized “Clubs” +to foster deeper, culture-specific interactions. Moderators have the autonomy to customize +policies, allowing each Club to remain a space for dedicated fandoms. +● Collective +Action & Support System: Every Club is equipped with a proprietary collaborative system +that allows members to pool their Faning Points (FP) toward shared objectives. This collective +power enables the community to secure premium rewards, such as future exclusive fan events or live-streamed +concerts, that would be unattainable through individual effort. +● Democratic +Governance: To ensure transparency and maintain user loyalty, decisions regarding the +allocation of collective resources are determined by a formal voting process among the members. +● Monetization +Engine: This integrated structure is a key driver for our revenue strategy. By funneling community discussions into Club-based actions, +we can stimulate higher-volume participation in Vote and Boost features. +Faning +Chats: Retention Social Architecture (2025 Update) +Faning’s +integrated communication layer is a primary driver of user engagement, specifically engineered to maximize platform session duration +and foster cross-border social ecosystems. +● +Social Connectivity & Retention: Unlike generic messaging services, +Faning empowers users to establish dedicated, real-time chat environments within Faning Clubs. By anchoring social interactions directly +within these interest-based communities, the platform fosters deeper user loyalty and can increase can increase daily active usage (DAU). +5 +● +Global Interaction: Our proprietary real-time translation engine, currently supporting 17 languages, can eliminate language barriers and enable a truly unified global fandom regardless of geographic or linguistic origin. +● +Enterprise-Grade Privacy: +Communications are protected through end-to-end encryption (E2EE). This security infrastructure can help to mitigate data leakage risks +and solidify user trust, a key component of our brand value +● +Monetization Synergy: These high-engagement chat hubs serve as the +strategic entry point for our monetization features. Continuous interaction within these spaces can directly stimulate participation in +community-led Vote and Boost activities, which can convert social engagement into revenue. +Content +and Intellectual Property Ecosystem +The +Faning ecosystem utilizes a collaborative content model designed to bridge the gap between K-Culture creators and a global audience through +structured localization and IP distribution. +1. +Collaborative User-Generated Content (UGC) & Localization +At the core of our platform is a decentralized content +model that empowers our users to produce and monetize culture-specific intellectual property. +● Creative +Assets: Users can generate fandom content, including Fanart, Web Novels, and Webtoons, +tailored to global K-Culture trends. +● Strategic +Localization Ecosystem: To facilitate global reach, Faning operates a proprietary localization +matching system that connects original content creators with skilled localizers for higher-quality, culturally nuanced translations. +● Revenue +Management: The platform facilitates a structured revenue-sharing model based on pre-set +agreements between creators and localizers. This system is designed to ensure that as content is localized +and sold, profits are tracked and managed according to the agreed-upon terms, providing a +scalable and transparent business environment. +● Engagement-Led +Growth: This content ecosystem can drive higher-volume participation in our Vote and Boost features, +as global fans utilize these tools to promote and elevate localized content within their +regions. +2. +Original IP & Premium Productions +The +Company focuses on high-fidelity original content to anchor user loyalty and provide revenue streams. +● +Faning TV Originals: Specialized content teams will produce exclusive shows and web series, leveraging K-pop and animation IPs to drive premium engagement. +● +Concerts and Global Streaming: Faning may host and broadcast diverse musical events, with digital tickets and access sold through the Fanshop using FP or cash. +● +Music & Animation Distribution: In 2025, the Company expanded its IP portfolio to include the distribution of music for K-pop artists and international animation projects, such as The Nut Job 3, diversifying revenue through streaming and royalties. +6 +Faning +Fanshop: Integrated E-Commerce & Delivery +The +Faning Fanshop is the central e-commerce destination within our ecosystem, enabling users to transition from content engagement +to commercial transactions. +1. +Direct Commerce & Product Offerings +The +Fanshop serves as a premier marketplace where users purchase high-demand fandom items directly from the Company. +● Core +Merchandise: Our inventory focuses on artist gifts, premium fandom goods, and exclusive K-Culture +products. +● Ticketing +& Events: Fanshop is an exclusive portal for purchasing tickets to both physical and +live-streamed concerts, driving significant higher-margin revenue. +2. Payment & Revenue Model +We +provide a flexible financial environment for transactions. +● Dual +Payment Systems: Users can settle purchases using credit cards via third-party processors +or through Faning Points (FP). +● Transaction +Integrity: For any community-based transactions, the platform has been set up to release funds upon confirmed receipt of goods. +3. +Global Fulfillment & Delivery Infrastructure +To +support our international user base, the Company has established an efficient global logistics framework. +● Cross-Border +Capabilities: Our delivery system is optimized for international shipping, enabling +merchandise to reach fans across our key markets, including South Korea, Japan, Taiwan, and +Southeast Asia. +● Seamless +Logistics: By integrating established third-party logistics partners, we provide real-time +shipment tracking and reliable last-mile delivery, enhancing the overall user experience. +7 +Market +Opportunity +The +Company believes that continued global interest in Korean entertainment and culture (“K-Culture” or “Hallyu”) +may create future opportunities for digital fan engagement platforms and related online community services. +According +to the Korea Foundation’s 2024 Global Hallyu Status Report, the number of global Hallyu fans surpassed 225 million as of December +2023 across 119 countries. The Korea Foundation reported that this figure represented significant growth compared to prior years. +The +Company believes that increasing global consumption of K-pop, Korean television content, webtoons, digital media, virtual events, and +mobile-based entertainment services may continue to support demand for multilingual fan engagement platforms and online fandom communities. +The Ministry of Culture, Sports and Tourism and the Korean Foundation for International Cultural Exchange (“KOFICE”) also +reported continued international growth in Korean Wave content consumption through the 2024 Overseas Hallyu Survey. +According +to the ‘2025 Overseas Hallyu Status Survey’ released by the Ministry of Culture, Sports and Tourism and KOFICE in April 2025, +the total export value of Hallyu-related sectors reached $15.18 billion in 2024, marking a 4.5% increase compared to the previous year. +The +Company believes that mobile-first engagement, multilingual communication tools, online fan communities, and virtual participation features +may continue to play an important role in the global digital entertainment ecosystem. +The +Faning platform is designed to support these types of digital fan engagement activities through community interaction tools, multilingual +communication functionality, and mobile and web-based accessibility. However, the Company remains in an early-stage commercialization +phase and cannot assure that it will successfully expand its user base, achieve significant monetization, or establish a material market +position within the global digital fandom industry. +Our +Value +The +Faning platform is designed to provide users with a centralized digital environment for Korean entertainment and culture-related fandom +activities, including community interaction, content sharing, multilingual communication, and digital engagement. +The +platform’s multilingual functionality is intended to reduce language barriers among users in different geographic regions. Faning +also supports user-generated content and community-based participation tools that may provide a foundation for future monetization initiatives. +The +Faning Point (“FP”) reward system is designed to encourage user participation within the platform. As of December 31, 2025, +however, monetization features associated with the platform remained in early stages of commercialization, and revenue from the FANING +platform remained limited. +OUR +STRENGTHS +We +believe Faning’S potential strengths include: +Focused Fandom Platform: Faning is designed specifically for users interested in Korean entertainment and culture, including K-pop. +Multilingual +Engagement: Faning supports multilingual communication, including real-time translation functionality, to facilitate interaction +among users in different regions. +Community-Based +Features: Faning includes community forums, clubs, messaging, and user-generated content tools designed to support user participation +and engagement. +Digital +Engagement Tools: Faning includes Vote and Boost features designed to support user participation, community-driven engagement, and +potential platform monetization. +FANING +Point Reward System: The Faning Point (“FP”) system is designed to encourage user participation within the platform. +Mobile +and Web Accessibility: Faning is accessible through mobile and web-based services, allowing users to engage with the platform across +different devices. +8 +OUR +GROWTH STRATEGY +Our +core strategy is to achieve global expansion by leveraging user acquisition models and maximizing the value of our growing fandom ecosystem. +● +Global User Acquisition: The Company prioritizes a data-driven growth model characterized by lower Customer Acquisition Costs (CAC). By optimizing performance marketing, we focus on capturing user growth across emerging markets. +● +Expansion of Higher-Margin Monetization: We are deploying a diverse revenue mix, centering on our proprietary “Vote and Boost” mechanisms. These tools can create a scalable and recurring revenue base by transforming global fan engagement into measurable commercial transactions. +● +Technological Leadership & Global Infrastructure: We continue to invest in innovative technologies, including our 17-language real-time translation engine and end-to-end encryption (E2EE). This enables an user experience that facilitates social interaction for our expanding global community. +● +Cross-Cultural Diversification: While rooted in K-Culture, our strategy includes expanding into broader global fandoms, including cinema, gaming, and sports. This enables the Faning ecosystem to adapt to the continuous evolution of global cultural trends. +● +Revenue Channels: The Company aims to generate consistent income through virtual events, live-streaming, and premium subscription services. These features are designed to foster long-term brand loyalty and establish a monthly recurring revenue (MRR) base. +OUR +MARKETING STRATEGY +We +focus on a data-driven, higher-efficiency marketing model designed to capture the global K-Culture fandom. Our strategy prioritizes scalable +user growth through optimized performance marketing and strategic regional engagement. +● +Higher-Efficiency Performance Marketing: Our primary strategy centers on leveraging data analytics to achieve lower Customer Acquisition Costs (CAC). By optimizing digital ad spend and targeting higher-growth emerging markets, we focus on acquiring an user base with minimal capital expenditure. +● +Localized Ecosystem Development: To penetrate global markets, we implement region-specific marketing initiatives. +○ Strategic +Localization: We collaborate with local content creators and marketing experts to tailor +our services for key regions, including the United States, Europe, and Southeast Asia. +○ Operational +Compliance: We maintain a strict policy of not operating or providing services in China (including +Hong Kong and Macau) due to regulatory concerns and data privacy protections. This is designed to ensure +the security of our global user base and compliance with international standards. +● Global +Ambassador & Influencer Program: We engage with “Global Ambassadors” and +local influencers who resonate with fandom communities in their respective regions. These +partners create localized, theme-specific content to drive organic interest and migrate fans +of K-Culture directly to the Faning platform. +● Community-Driven +Organic Growth: We foster deep relationships with our users through various engagement channels +to drive brand loyalty. By maintaining higher satisfaction levels, we can encourage voluntary peer-to-peer +referrals, creating a flow of organic growth that can reduce long-term marketing +costs. +● Interactive +Event Integration: We may host themed virtual or physical fan engagement events, including K-pop related experiences, to increase user +participation and platform engagement. Our Vote and Boost mechanisms are designed to encourage user interaction and community activity +across the platform. +9 +Technology +and Intellectual Property +The +Company developed Faning as a technological evolution, focusing on higher scalability and a premium user experience. Our proprietary +infrastructure is designed to handle global traffic while providing specialized tools for fandom engagement. +● Integrated Suite of Tools: Faning differentiates itself through live-streaming, +real-time interaction, and diverse monetization mechanisms such as Vote and Boost. +● Multi-Platform Accessibility: The platform is optimized for both mobile +and PC, featuring a minimalist and higher-end UI/UX designed to provide for accessibility for our global user base. +● AI-Powered +Safety & Verification: We deploy AI protocols: +○ Automated Content Filtering: AI-powered nudity detection systems that identify +and block sensitive content. +○ Deepfake & Identity Verification: AI-enabled detection tools that verify +the authenticity of uploaded media. +● Global +Linguistic Integration: Our AI-driven translation engine supports 17 languages in real-time, +enabling seamless, borderless communication without the need for manual intervention. +● Personalized Content Curation: Algorithms analyze user engagement data +to deliver personalized search results and content recommendations, designed to create platform stickiness and user retention. +Digital +Properties and Websites +The +Company maintains a streamlined portfolio of digital properties to support its global platform operations and corporate governance requirements. +● Faning +Platform: The Company operates its core global fandom services through its primary domains, +Faning.xyz and Faning.co.kr. These properties serve as the central hub for the platform’s +engagement and monetization features. +● Corporate +Website: The Company’s official corporate presence is maintained at www.gitechnologies.com . +This site hosts our corporate information, SEC filings, and +investor relations for Global Interactive Technologies. +10 +Competition +The +market for global fandom and digital engagement is highly competitive. We compete across several sectors, including: +● Global +Social Media Platforms: Large-scale networks such as Facebook, Instagram, and X (formerly +Twitter). +● Community +& Discussion Platforms: Specialized community services like Reddit. +● Dedicated +K-pop Fandom Platforms: Industry-specific services such as Weverse and Lysn. +● User-Generated +Content (UGC) Platforms: Content creation hubs like Wattpad. +OUR +COMPETITIVE ADVANTAGE +W e +believe we possesses the following strategic advantages. +● +Marketing & Acquisition Efficiency: Our most significant advantage is a data-driven marketing model characterized by lower Customer Acquisition Costs (CAC). This can allow the Company to achieve user growth with lower marketing expenditures. +● +Monetization Architecture: Faning is engineered for monetization through proprietary tools like Vote and Boost. This can transform organic fan engagement into digital transactions, providing a revenue model different than advertising-dependent networks. +● +Global Inclusivity: Faning features a native, AI-driven 17-language real-time translation engine. This technology can enable a seamless, borderless experience for the global fandom, fostering a more integrated and loyal international community. +● +Lean and Scalable Infrastructure: Our focus on minimalist UI/UX and security protocols (E2EE) can provide a premium user experience with lower operational overhead. This lean operational model allows the Company to remain agile and adapt more quickly to shifting global cultural trends. +Partnerships +and Industry Participation +The +Company has participated in certain industry organizations and collaborative initiatives related to Korean culture, digital platforms, +and technology development. +Federation +of Artistic & Cultural Organization of Korea (“FACO”): Since 2021, the Company has maintained a relationship with FACO, +a non-profit organization focused on Korean art and cultural activities. FACO includes multiple member associations and international +branches supporting cultural exchange and artistic activities. +Metaverse +Alliance: The company has participated in the Metaverse Alliance, an initiative associated with South Korea’s Ministry of Science +and ICT (“MSIT”) involving companies and organizations engaged in digital platform and technology-related initiatives. +The +Company may continue to explore strategic relationships and industry collaborations that support the development of the FANING platform +and related business activities. +11 +Employees +and Labor Relations +As +of December 31, 2025, the Company maintained a lean organizational structure consisting of five personnel at Global Interactive Technologies, +Inc. and seven personnel at FANING KOREA, LLC. +The +Company also engages contractors and consultants from time to time to support technical development, platform maintenance, marketing, +administrative functions, and other business needs. +None +of the Company’s employees are represented by a labor union or covered by a collective bargaining agreement. The Company has not +experienced any material labor disputes. +Seasonality +The +Company does not currently experience significant seasonality that materially affects its operations or financial results. +As +the Faning platform develops, user engagement and future revenue, if any, may fluctuate based on entertainment industry cycles, major +K-Culture events, artist release schedules, holidays, and regional user activity patterns. The Company will continue to monitor these +factors as its commercialization initiatives evolve. +Governmental +Regulation +We +are subject to a variety of national, regional, and local laws and regulations in both the United States and the Republic of Korea. These +laws affect multiple aspects of our business, including user interaction, data management, and international commerce. Applicable areas +of law include fair trade, competition, labor and employment, privacy and data protection, intellectual property, and consumer protection. +Many +of these laws are continuing to evolve, especially those governing digital platforms, artificial intelligence (AI), and cross-border +data transfer. Due to the extent of our operations, we are subject to several specific regulatory regimes, including: +● Copyright +Act: Protects creative works, software, and databases. It enforces fair use and online service +provider exemptions under the Korea–U.S. Free Trade Agreement. +● Youth +Protection Act: Regulates media content accessible to minors, classifying harmful content +and restricting distribution through administrative procedures. +● Content +Industry Promotion Act: Governs the production and sale of digital content, requiring consumer +protection provisions such as refunds and cancellation rights in our terms of service. +● Personal +Information Protection Act (PIPA): Regulates the collection, use, and destruction of personal +data in South Korea. It includes strict consent requirements, data subject rights, and breach +notification obligations. +● Monopoly +Regulation and Fair Trade Act: Overseen by the Korea Fair Trade Commission (KFTC), this act +ensures fair competition and prevents unfair trade practices. The Company monitors compliance +regarding related party transactions and corporate disclosures to enable transparency. +● Global +Data Privacy & AI Ethics: As we expand globally, the Company monitors compliance with +international standards, including the General Data Protection Regulation (GDPR) in Europe +and evolving AI safety regulations. +Facilities +The +Company’s primary operational and development activities are conducted from office premises located at 160 Yeouiseo-ro, Yeongdeungpo-gu, +Seoul, Korea. +Legal +Proceedings +From +time to time, the Company may become involved in routine claims, inquiries, or proceedings arising in the ordinary course of business. +As of the filing of this Annual Report on Form 10-K, the Company was not subject to any material pending legal proceedings that management believes would have a +material adverse effect on the Company’s consolidated financial position or results of operations. +Available +Information +Our +annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to reports filed or +furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available free of charge under the Investors +Relations page on our website, www.gitechnologies.com, as soon as reasonably practicable after such reports are electronically filed +with, or furnished to, the Securities and Exchange Commission (“SEC”). Information on our website is not included as a +part of, or incorporated by reference into, this report. The Securities and Exchange Commission maintains an internet site that +contains reports, proxy and information statements, and other information regarding issuers that file electronically with the +Securities and Exchange Commission. Our SEC filings are also available through the SEC’s website, www.sec.gov. +12 \ No newline at end of file diff --git a/raw/filings/0001911545/2025/0001493152-26-025106/item13.txt b/raw/filings/0001911545/2025/0001493152-26-025106/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..976217a8d337da7aea2dffec3cab992861eb0615 --- /dev/null +++ b/raw/filings/0001911545/2025/0001493152-26-025106/item13.txt @@ -0,0 +1,4 @@ +Item +13. +Certain Relationships and Related Transactions, and Director Independence +59 \ No newline at end of file diff --git a/raw/filings/0001912582/2024/0001213900-25-026239/filing.txt b/raw/filings/0001912582/2024/0001213900-25-026239/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..2fd557cea358153f31febc7fa9f7c84def8687e4 --- /dev/null +++ b/raw/filings/0001912582/2024/0001213900-25-026239/filing.txt @@ -0,0 +1,7182 @@ +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +FORM 10-K +☒ ANNUAL REPORT PURSUANT TO SECTION 13 +OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the fiscal year ended December 31 , +2024 +OR +☐ TRANSITION REPORT PURSUANT TO SECTION +13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +Commission file number: 001-41424 +Thunder Power Holdings, Inc. +(Exact name of registrant as specified in its +charter) +Delaware 87-4620515 +(State or other jurisdiction of +incorporation or organization) (I.R.S. Employer +Identification No.) +221 W 9th St #848 +Wilmington , Delaware 19801 +(Address of principal executive offices) +(909) 214-2482 +(Registrant’s telephone number, including +area code) +Securities registered pursuant to Section 12(b) +of the Act: +Title of each class Trading Symbol(s) Name of each exchange on which registered +Shares of Common Stock, $0.0001 par value per share AIEV The Nasdaq Capital Market +Securities registered pursuant to section 12(g) +of the Act: None. +Indicate by check mark if the registrant is a +well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ +Indicate by check mark if the registrant is not +required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒ +Indicate by check mark whether the registrant: +(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 +months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements +for the past 90 days. Yes ☒ No ☐ +Indicate by check mark whether the registrant +has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 +of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such +files). Yes ☒ No ☐ +Indicate by check mark whether the registrant +is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. +See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” +and “emerging growth company” in Rule 12b-2 of the Exchange Act. +Large accelerated filer ☐ Accelerated filer ☐ +Non-accelerated filer ☒ Smaller reporting company ☒ +Emerging growth company ☒ +If an emerging growth company, indicate by check +mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting +standards provided pursuant to Section 13(a) of the Exchange Act. ☐ +Indicate by check mark whether the registrant +has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial +reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or +issued its audit report. ☐ +If securities are registered pursuant to Section +12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction +of an error to previously issued financial statements. ☐ +Indicate by check mark whether any of those error +corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s +executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐ +Indicate by check mark whether the registrant +is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒ +The aggregate market value of the registrant’s +common stock held by non-affiliates of the registrant was $ 73,331,275 based on the closing sales price on the Nasdaq Stock Market LLC +on June 28, 2024, the last business day of the registrants most recently completed second fiscal quarter. +As of March 24, there were 70,724,664 shares of +common stock, par value $0.0001 per share, issued and outstanding. +DOCUMENTS INCORPORATED BY +REFERENCE +None . +1 As of latest practicable +date, to be within 3-5 days before 10-K +Table of Contents +Page +Cautionary +Note Regarding Forward-Looking Statements +ii +PART I +Item 1. +Business +20 +Item 1A. +Risk Factors +57 +Item 1B. +Unresolved Staff Comments +57 +Item 1C. +Cybersecurity +57 +Item 2. +Properties +58 +Item 3. +Legal Proceedings +58 +Item 4. +Mine Safety Disclosures +59 +PART II +Item 5. +Market +for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +60 +Item 6. +[Reserved] +60 +Item 7. +Management’s Discussion +and Analysis of Financial Condition and Results of Operations +61 +Item 7A. +Quantitative and Qualitative +Disclosures About Market Risk +68 +Item 8. +Financial Statements and +Supplementary Data +68 +Item 9. +Changes in and Disagreements +With Accountants on Accounting and Financial Disclosures +68 +Item 9A. +Controls and Procedures +68 +Item 9B. +Other Information +69 +Item 9C. +Disclosure Regarding Foreign +Jurisdictions that Prevent Inspections +69 +PART III +Item 10. +Directors, Executive Officers +and Corporate Governance +70 +Item 11. +Executive Compensation +77 +Item 12. +Security Ownership of Certain +Beneficial Owners and Management and Related Stockholder Matters +79 +Item 13. +Certain Relationships and +Related Transactions, and Director Independence +82 +Item 14. +Principal Accounting Fees +and Services +84 +PART IV +Item 15. +Exhibits, Financial Statement +Schedules +85 +Item 16. +Form 10-K Summary +88 +SIGNATURES +89 +i +CAUTIONARY NOTE REGARDING +FORWARD-LOOKING STATEMENTS +This Annual Report on Form +10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, (the “Securities +Act”) and Section 21E of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) that are based on our +management’s beliefs and assumptions and on information currently available to management, and which statements involve substantial +risk and uncertainties. All statements contained in this Annual Report on Form 10-K other than statements of historical fact are forward-looking +statements. +Forward-looking statements include information +regarding our future plans and goals, as well as our expectations with respect to: +● Our +business strategy and future growth prospects; +● Our +industry; +● Our +future profitability, cash flows and liquidity; +● Our +financial strategy, budget, projections and operating results; +● The +amount, nature and timing of our capital expenditures and the impact of such expenditures +on our performance; +● The +availability and terms of capital; +● Our +research, development and production activities; +● The +market for our future products and services; +● Competition +within our industry; +● Government +regulations; and +● General +economic conditions. +These forward-looking statements +may be accompanied by words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” +“expect,” “intends,” “may,” “might,” “outlook,” “plan,” “possible,” +“become,” “potential,” “predict,” “project,” “should,” “would,” +“likely,” “future,” “budget,” “pursue,” “seek,” “target,”, “objective,” +“opportunity,” “mission,” “goal,” “positioned” and similar expressions that are predictions +of or indications of future events or trends that do not relate to historical matters, but the absence of these words does not mean that +a statement is not forward-looking. +Our actual results to differ +materially from those described in forward-looking statements due to factors beyond our control, which include, but not limited to, the +following: +● the +ability of the Company to maintain the listing of its Common Stock on Nasdaq, and the potential +liquidity and trading of such securities; +● the +effect of existing and future laws and governmental regulations (or interpretations thereof) +on us, and on our current or future suppliers; +ii +● a +decline in demand for electronic vehicles; +● the +price and availability of competitor’s products and services, including those manufactured +or provided by manufacturers of non-electric vehicles; +● the +Company’s ability to acquire or license rights to intellectual property and technologies +that are at the core of the Company’s planned products, on acceptable terms and in +a timely manner; +● the +Company’s ability to obtain, maintain, protect and enforce intellectual property rights, +including those obtained through any future intellectual property licensing agreements; +● make +milestone, royalty or other payments due under any license or collaboration agreements; +● uncertainty +related to the timing, pace and extent of an economic recovery in the United States and elsewhere, +which in turn will likely affect demand for our products and services; +● inflationary +factors, such as increases in labor costs, material costs and overhead costs; +● the +financial and business performance of the Company, including financial projections and business +metrics and any underlying assumptions thereunder; +● the +Company’s ability to successfully and timely develop and market its technology and +products, and otherwise implement its growth strategy; +● risks +relating to the Company’s operations and business, including information technology +and cybersecurity risks, potential deterioration in relationships between the Company and +its employees; +● introduction +of new technologies or services by competitors in our industry, including using new technologies +subject to patent or other intellection property protections; +● risks +relating to potential disruption of current plans, operations and infrastructure of the Company +as a result of the consummation of the Business Combination; +● risks +that the post-combination company experiences difficulties managing its growth and expanding +operations; +● the +impact of geopolitical, macroeconomic and market conditions, including the ongoing war between +Russia and Ukraine, the war between Israel and Hamas, and the global response to such hostilities +which may negatively impact our operating results; +● the +ability to successfully select, execute or integrate future acquisitions into the business; +● operating +hazards, natural disasters, weather-related delays and other matters beyond our control; +● acts +of terrorism, war or political or civil unrest in the United States or beyond; +● federal, +state and local regulations impacting any aspect of our research, production and development +activities, including public pressure on governmental bodies and regulatory agencies to regulate +our industry; +● the +effects of any future litigation; and +● other +risks and uncertainties set forth in this prospectus in the section entitled “ Risk +Factors ”. +iii +You should not rely upon +forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Annual Report +on Form 10-K primarily on our current expectations and projections about future events and trends that we believe may affect our business, +financial condition, results of operations, and prospects. The outcome of the events described in these forward-looking statements is +subject to risks, uncertainties, and other factors described in the section titled “Risk Factors” and elsewhere in this Annual +Report on Form 10-K. We undertake no obligation to update any forward-looking statements after the date of this Annual Report on Form +10-K or to conform such statements to actual results or revised expectations, except as required by law. +MARKET DATA AND FORECASTS +We are responsible for the +disclosures contained in this Annual Report on Form 10-K. However, unless otherwise indicated, information in this Annual Report on Form +10-K concerning economic conditions, our industry, our markets and our competitive position is based on information obtained from a variety +of sources, including information from independent industry analysts and publications, as well as our own estimates and research. +Our estimates are derived +from publicly available information released by third parties, as well as data from our internal research, and are based on such data +and our knowledge of our industry, which we believe to be reasonable. None of the independent industry publications discussed in this +Annual Report on Form 10-K were prepared on our behalf. +In presenting this information, +we have made certain assumptions that we believe to be reasonable based on such data and other similar sources and on our knowledge of, +and our experience to date in, the markets in which we operate. Market and industry data, which is derived in part from management’s +estimates and beliefs, are subject to change and may be limited by the availability of raw data, the voluntary nature of the data gathering +process and other limitations inherent in any statistical survey of such data. In addition, projections, assumptions and estimates of +the future performance of the markets in which we operate, and our future performance are necessarily subject to uncertainty and risk +due to a variety of factors, including those described in the subsection entitled “Risk Factors” under Part I, Item 1A of +this Annual Report on Form 10-K. These and other factors could cause results to differ materially from those expressed in the estimates +made by third parties and by us. +iv +Summary Risk Factors +Investing in our common +stock involves a high degree of risk because our business is subject to numerous risks and uncertainties, as further described below. +The occurrence of any such risks could adversely affect our business, financial condition, results of operations and prospects. The principal +factors and uncertainties that make investing in our common stock speculative or risky include, among others: +● Our +limited operating history makes evaluating our business and future prospects difficult and may increase the risk of your investment; +● The +success of our business may depend on attracting prospective customers and retaining sufficient capital to commence mass production. +If we are unable to do so, we may not be able to achieve profitability; +● Our +business model has yet to be tested and any failure to commercialize our strategic plans would have an adverse effect on our operating +results and business, harm our reputation and could result in substantial liabilities that exceed our resources; +● Our +business and prospects will depend significantly on our brand; +● We +are actively negotiating with our affiliates to license the intellectual property and technology rights at the core of our business plan, +and our inability to obtain and maintain these licenses could materially affect our business, financial condition, and operating results. +● We +are subject to substantial laws and regulations that could impose substantial costs, legal prohibitions or unfavorable changes upon our +operations or products, and any failure to comply with these laws and regulations, including as they evolve, could substantially harm +our business and results of operations; +● In +the future, if we develop or acquire proprietary intellectual property, protecting such intellectual property will be critical to our +operations and we may suffer competitive harm from infringement on such rights; +● We +may become subject to product liability claims, which could harm our financial condition and liquidity if we are not able to successfully +defend or insure against such claims; +● We +are subject to various environmental, health and safety laws and regulations that could impose substantial costs on us and cause delays +in building and subsequently expanding our production facilities; +● We +are subject to risks associated with autonomous driving and advanced driver assistance system technology, and we cannot guarantee that +our vehicles will achieve our targeted assisted or autonomous driving functionality within our projected timeframe, if ever; +● We +face risks associated with international operations, including unfavorable regulatory, political, tax and labor conditions, which could +harm our business. +● We +have not yet commenced mass production, and any significant delay in the design, manufacture, launch and financing could make it difficult +for us to commence production and harm our business and prospects; +● Our +prospect for future growth depends upon our ability to establish and maintain relationships with our potential suppliers and source suppliers +for our critical components, and to completely build out our supply chain, while effectively managing the risks due to such relationships; +● The +automotive market is highly competitive, and we may not be successful in competing in this +industry; +● Developments +in electric vehicle or alternative fuel technology or improvements in the internal combustion +engine may adversely affect the demand for our vehicles; +v +● Increases +in costs, disruption of supply or shortage of materials, in particular for lithium-ion cells or semiconductors, could harm our business; +● We +must develop complex software and technology systems, including in coordination with vendors and suppliers, in order to produce our electric +vehicles, and there can be no assurance such systems will be successfully developed; +● We +rely on complex machinery for our operations, and production involves a significant degree of risk and uncertainty in terms of operational +performance, safety, security and costs; +● If +our vehicles fail to perform as expected, our ability to develop, market and sell or lease +our products could be harmed; +● Our +vehicles will make use of lithium-ion battery cells, which have been observed to catch fire +or vent smoke and flame. +● Thunder +Power’s management has limited experience in operating a public company; +● Any +unauthorized control, manipulation, interruption or compromise of or access to our products +or information technology systems could result in loss of confidence in us and our products, +harm our business and materially adversely affect our financial performance, results of operations +or prospects; +● We +are subject to evolving laws, regulations, standards, policies, and contractual obligations +related to data privacy and security, and any actual or perceived failure to comply with +such obligations could harm our reputation and brand, subject us to significant fines and +liability, or otherwise adversely affect our business. +● We +are an “emerging growth company” and the reduced disclosure requirements applicable +to emerging growth companies may make our Common Stock less attractive to investors and may +make it more difficult to compare our financial performance with other public companies; +● Future +sales and issuances of Common Stock or rights to purchase Common Stock could result in additional +dilution to our stockholders and could cause the price of our Common Stock to decline; +● Anti-takeover +provisions in our governing documents and under Delaware law could make an acquisition of +us more difficult, limit attempts by our stockholders to replace or remove our current management +and limit the market price of our Common Stock; +● We +may need to raise additional funds and these funds may not be available to us when needed. +If we cannot raise additional funds when we need them, our business, prospects, financial +condition and operating results could be negatively affected; +● Our +financial results may vary significantly from quarter to quarter; +● Unanticipated +changes in effective tax rates or adverse outcomes resulting from examination of our income +or other tax returns could adversely affect our financial condition and results of operations. +● We +are not in compliance with the Nasdaq continued listing requirements. If we are unable to +comply with the continued listing requirements of The Nasdaq Capital Market, our common stock +could be delisted, which could affect our common stock’s market price and liquidity +and reduce our ability to raise capital. +● +Our operating results and +growth strategies will be closely tied to the success of our future franchise partners and we have limited control with respect to +their operations. Additionally, our future franchise partners’ interests may conflict or diverge with our interests in the +future, which could have a negative impact on our business. +vi +PART I +Item 1. Business +Corporate History and Background +FLFV +Prior to June 21, 2024, +we were known as Feutune Light Acquisition Corporation, a Delaware corporation (“FLFV”), and Feutune Light Merger Sub, Inc., +a Delaware corporation and wholly owned subsidiary of FLFV (“Merger Sub”). On October 26, 2023, we entered into a business +combination agreement (as amended, the “Business Combination Agreement”) with Thunder Power Holdings Limited, a British Virgin +Islands company (“Thunder Power”), pursuant to which on June 21, 2024, Thunder Power merged with and into Merger Sub, with +Merger Sub surviving the merger as a wholly owned subsidiary of FLFV (the “Merger” and, together with the other transactions +contemplated by the Business Combination Agreement and any other agreement executed and delivered in connection therewith, the “Business +Combination”). At the closing of the Business Combination, FLFV was renamed as “Thunder Power +Holdings, Inc.” Unless the context indicates otherwise, references in this prospectus to the “Company,” “Thunder +Power Holdings,” “we,” “us,” “our” and similar terms refer to Thunder Power Holdings, Inc. +(f/k/a Feutune Light Acquisition Corporation). References to “FLFV” refer to our predecessor company prior to the consummation +of the Business Combination. +Thunder Power +On March 21, 2013, Thunder +Power Hong Kong Ltd. (“TP HK”) was established as a wholly owned subsidiary of Thunder Power with the intention to act as +a financial and operational hub of Thunder Power, to deal with various corporate actions such as fundraising, back-office operations +and bridge the operations between China and Europe. On April 8, 2016, China New Energy Vehicle Company Limited (“China NEV”) +was established as a subsidiary of Thunder Power. On August 6, 2021, the Board of Directors of the Thunder Power approved the spin-off +of China NEV and TP HK, and the transaction was completed on December 14, 2021 with no cash consideration. Upon consummation of the spin-off, +Thunder Power no longer holds any equity shares in China NEV and TP HK and retains only one subsidiary. Thunder Power New Energy Vehicle +Development Company Limited (“TP NEV”) which was established in accordance with laws and regulations of British Virgin Islands +on October 19, 2016. +Our Company +Thunder Power is a technology +innovator and a prospective manufacturer of premium electric vehicles (“EVs”). The Company has developed several proprietary +technologies which are the building blocks of the Thunder Power family of EVs. Thunder Power Holdings, Inc., a Delaware corporation, +was incorporated in January 2022 as a blank check company under the name Feutune Light Acquisition Corporation (“FLFV”). +In June 2024, the Company completed its Business Combination with Thunder Power Holdings Limited (“Thunder Power”), which +resulted in Thunder Power becoming a wholly-owned subsidiary of the Company. Thunder Power’s wholly-owned subsidiary, Thunder Power +New Energy Vehicle Development Company Limited, a company established in accordance with the laws and regulations of the British Virgin +Islands on October 19, 2016 (“TP NEV”), has developed several proprietary technologies which are the building blocks of the +Thunder Power family of EVs. Thunder Power is a holding company with no operations that was incorporated under the laws and regulations +of the British Virgin Islands with limited liability on September 30, 2015. +You can find additional +information on our website at https://aiev.ai/. The information contained on, or that can be accessed through, our website is not part of, +and is not incorporated into, this Annual Report on Form 10-K. +Our Business Divisions +We envision to structure +our operations into three different divisions: vehicle development, strategic alliance and mergers and acquisitions, and trade and consulting, +each of which intend to address a large, fragmented market. +1 +Vehicle Development +Thunder Power is strategically +focused on the development and production of electric vehicles (EVs) that combine timeless Italian design with an emphasis on delivering +a joyful and engaging driving experience at an accessible price point. The Company’s vehicle development efforts are structured +around three core series: Core Products, Niche Offerings, and Collaborative Projects. +Core Product +At the heart of Thunder +Power’s product portfolio is the Compact City Car, which is scheduled for launch in 2027. This model integrates Thunder Power’s +proprietary innovations, developed prior to its public listing, with state-of-the-art technical solutions. The vehicle’s design +is led by renown European designer, ensuring a blend of functionality and aesthetic appeal. We expect to outsource the initial production +to facilities in Italy, with an option for insourced production beginning in 2029. +Key features of our Compact +City Car include: +● Italian +Craftsmanship: An affordable, compact sports car that reflects Italian design, quality, and +driving spirit. +● Driver-Focused +Experience: Engineered for superior ride and handling, prioritizing driver engagement with +a human-centric design and minimal reliance on screens. +● Integrated +Smart AI: Advanced AI software offering personalized features such as maps, driving modes, +and individual settings to enhance the driving experience. +We intend to focus on achieving +symmetry of parts to simplify both manufacturing and assembly processes, adhering to niche manufacturing principles. We also aim to to +minimize the number of unique components by promoting design repeatability. The Compact City Car is planned to integrate a combination +of internal and external “off the shelf” parts alongside new development components, enhancing efficiency and reducing complexity +in production. +The +Compact City Car is designed to cater to a younger, urban demographic of first-time car buyers who value sustainability and view +their car as an extension of their identity and lifestyle. The initial launch will target Taiwan as +a pilot market, with subsequent expansion planned in Asia and Europe . +2 +Niche Offerings +Thunder Power’s niche +vehicle development focuses on creating high-impact, emotionally compelling products that prioritize personalization and unique design. +These offerings are positioned as complementary vehicles for households, rather than primary functional cars. +Leveraging its existing +chassis and technologies, we are well-position to develop and launch the Sports Coupe, a high-performance luxury vehicle that combines +European styling with superior craftsmanship and driving dynamics. Drawing inspiration from other succesfful benchmarks, this model is +designed to deliver exceptional comfort and performance, with a targeted starting retail price of $100,000. Production will be outsourced +to Italy. +We also expect to explore +opportunities in tailor-made retro vehicle development and restomod projects, leveraging its modular in-house chassis as a technological +base. These offerings are aimed at a younger generation of automotive enthusiasts who value vintage aesthetics but seek modern performance, +comfort, and eco-conscious functionality. In particular, we intend to explore the “electromods” trend, which involve converting +classic cars to electric powertrains. This approach provides a unique driving experience while reducing emissions, appealing to both +sustainability-minded and performance-driven customers. +Through these niche offerings, +we aim to establish ourselves as a key player in the luxury and specialty automotive markets, emphasizing the traditional values of driving +pleasure, craftsmanship, and grand touring. +Collaborative Projects +We actively pursue pursuing +joint venture and collaboration opportunities to expand its footprint in emerging automotive segments. This includes leveraging its AIEV +design framework to enhance third-party platforms for exclusive markets. +One of the Company’s +primary areas of focus is the rapidly growing microcar segment, which offers a unique opportunity to bridge the gap between motorcycles +and traditional passenger vehicles. Microcars are particularly well-suited for urban environments and have experienced significant growth +in Europe, with strong potential for further expansion in Asia. According to McKinsey’s Future Mobility 2022 survey, the global +microcar market is projected to reach a total addressable value of $340 billion annually by 2030, driven by increased consumer demand +for sustainable and versatile urban mobility solutions. +The first Microcar project +is planned as a low-volume joint venture, leveraging the platform of an existing manufacturer, with production targeted to begin in 2026. +This model will incorporate Thunder Power’s signature Italian design elements. A fully unique Microcar is anticipated to launch +from 2029, subject to achieving market-relevant retail pricing, which is currently under evaluation. +Mergers and Acquisitions (M&A) +We are committed to pursuing +a proactive mergers and acquisitions strategy, primarily targeting opportunities within the clean energy sector and related industries. +The focus will be on acquisitions that are immediately revenue-generating, reinforcing the Company’s financial position while creating +synergies with its core business. +On December 19, 2024, +we entered into a share exchange agreement with certain shareholders (“TW Shareholders”) of Electric Power Technology +Limited, a Taiwan corporation (“TW Company”). On February 10, 2025, the Company and TW Shareholders executed an amendment to the Agreement (the “Amendment”, and together with the Agreement, the “Amended +Agreement”). Purusant to the terms of the Amended Agreement, upon completion of the transaction, the Company will hold +approximately 37.4% of TW Company’s total issued and outstanding shares. The transaction is currently under review and subject +to approval. This transaction is expected to strengthen Thunder Power’s position in renewable energy while providing immediate +revenue streams +We also intend to explore +mergers and acquisition opportunities in artificial intelligence sector and related industries, which offer significant growth potential +and opportunities for technological and financial returns. +3 +Acquisitions in this space +are expected to bring immediate revenue and profit to the Company while bolstering its expertise in advanced technologies. The market +is experiencing significant growth and increasing demand, driven by the rise of mobile devices, IoT, and cloud computing, along with +emerging technologies in sectors such as automotive (electric vehicles), data centers, and consumer electronics. Rapid technological +advancements are leading to continuous improvements in storage capacity, speed, and efficiency, exemplified by innovations like 3D NAND +technology, which in turn enhances the value of patents and proprietary technologies. Additionally, with the increasing emphasis on sustainability +initiatives and the expansion of applications includingaugmented reality (AR) and virtual reality (VR), we expect future demand for advanced +flash solutions and AI technologies continue to grow. +We will continue to focus +and evaluate potential targets which demonstrate innovative technologies, strong supply chain management, and a solid market position. +The company would assess their growth potential in emerging markets and their ability to adapt to technological changes and regulatory +requirements. +Trade and Consulting +At the core of our strategy +is to generate revenue during the capital-intensive vehicle development phase. To achieve this, the Company plans to engage in complementary +activities that do not interfere with its core business operations but provide additional revenue streams and cash flow. +Vehicle Trading +As a precursor to building +a dealer network and cultivating sales contacts, we intend to engage in limited prestige vehicle trading. This initiative will focus +on trading new and nearly-new vehicles in the European and Asian markets, leveraging the Company’s market expertise and industry +relationships. +In addition to its opportunity +to bringing cash flow, we also expect these trading activities to enable us establish valuable industry connections and insights, laying +the groundwork for a future dealer network and strengthening the Company’s presence in key markets. +Consulting +We also intend to offer +design consulting services and licensing access to its patent portfolio as part of its broader strategy to monetize intellectual property +and technical expertise. +Capitalizing the Company’s +in-house design capabilities and patent portfolio, we plan to unlock additional revenue opportunities while maintaining ensuring cost +efficiency. +Technology +Thunder Power is an automotive +company that plans to use innovative EV technology to set new standards for sustainable transportation. Thunder Power is negotiating +and securing licensing rights to intellectual property of its affiliates, which have developed the cutting-edge EV technology that +the Company believes could set a new benchmark for EVs. Core to Thunder Power’s DNA is achievement of technical excellence, which +the Company hope to secure through licensing of intellectual property from its affiliates for proprietary technologies, such as the modular +flexible chassis system, wireless charging, multi-link suspension system, light weight engineering, BMS, TMS and the use of EV certain +EV TDPs. +4 +● +Battery Pack. The +Battery Pack is expected to utilize 18,650 cylindrical batteries in each EV, while the BMS is expected to control and monitor the +Battery Pack, which the Company views as extra high safety standards and an innovative charge-balancing system designed to slow +aging and degradation of the Battery Pack. +● +Battery Management +System. Thunder Power believes that the proprietary BMS is the most important and valuable part of the Battery Pack, indeed +of the entire EV. The functional purpose of the proprietary BMS is to prolong the battery life cycle, improve passenger safety +by allowing EV operators to get to a safe location, and predict the potential for battery malfunctions. To accomplish this, the BMS +modulates and monitors the temperature range, battery cell voltage limits, and power output limit when the EV is in operation. The +BMS consists of local management units (“LMUs”), which monitor cell voltages and temperature in individual modules of +the Battery Pack. This information is then collected and sent to the BMS, which monitors the overall voltage of each module and calculates +the state of charge (“SOC”) of the Battery Pack. This enables the BMS to estimate the available power output and remaining +driving range of the EV, as well as determine the state of health (“SOH”) of the Battery Pack by predicting the potential +for battery failures through monitoring the voltage, temperature, and usage of the batteries. +● +The BMS Concept. +In the unlikely event of a critical failure, the BMS is intended to cut the high-voltage power to a lower voltage, ensuring +that the EV has sufficient power to reach a safe location. Should a minor malfunction occur in a battery cell or module, the BMS +is able to detect the failure and inform the driver to schedule a maintenance appointment. +EV Traction Drivetrain (EV TDP) +The EV TDP has various core +competencies that are critical to the Company’s products. We believe that the EV TDP is energy efficient. The product contains +a synchronous motor with both PM (permanent magnet) and reluctance torque and has a high-fill factor bar-wound design. The inverter drive +has a maximum efficiency vector control, which we believe could achieve high efficiency in a broad speed and power range. Additionally, +we believe that it could benefit our EVs by providing a greater driving range and lower battery capacity requirements, as compared to +those of our competitors’ vehicles. We believe that the EV TDP is scalable. The product’s power range is believed to be 50~250 +kW. The EV TDP features a standardized stator diameter and its output power is varied by changing stack lamination; therefore, we believe +that it allows a broad spectrum application for various types of EVs. We believe that EV TDP is highly integrated with the liquid cooling +motor, inverter drive and gear, which in turn makes the EV TDP compact and lightweight, and optimized for system performance. Finally, +we believe that the EV TDP is cost effective. The EV TDP has a low-pressure loss cooling tunnel design, integrated cooling jacket and +a motor frame design. +5 +The Company does not hold +the intellectual property rights to the traction motor, all rights for which are owned by Mr. Wellen Sham, the former chief executive +officer of Thunder Power, in his capacity as an individual inventor. There is no licensing agreement in place for the EV TDP between +the Company and Mr. Sham. +6 +The traction motor is demonstrated +above; Thunder Power does not hold the intellectual property rights to the traction motor, all rights for which are owned by Mr. Wellen +Sham in his capacity as an individual inventor. There is no licensing agreement in place between the Company and Mr. Sham for the +traction motor. +The above power train is +manufactured by Electric Power Technology Ltd (a Taiwanese public company, Taiwan List Co. 4529), an affiliate and one of the shareholders +of Thunder Power +In addition, as mentioned +below in the section under the heading ” Future Technology and Vehicle Programs ”, Thunder Power may explore the +potential of applying EV TDP in other commercial applications. +Intellectual Property +Thunder Power, as a holding +company, does not own any patents. Patents are primarily owned by Thunder Power’s wholly owned subsidiary, TP NEV, except for the +EV TDP, the patent for which is owned by Mr. Wellen Sham in his capacity as an individual inventor and patent holder. There is no +licensing agreement in place between Thunder Power and TP NEV or Mr. Sham. These patents are predominantly utility patents, with a number +of design patents. +Intellectual property is +important to our business. Our commercial success depends on our ability to obtain, maintain and protect the intellectual property and +other proprietary technology that we develop or acquire the rights to, to operate without infringing, misappropriating or otherwise violating +the intellectual property and proprietary rights of others, and to prevent others from infringing, misappropriating or violating our +intellectual property and proprietary rights. We expect to rely on a combination of patents, trademarks, trade secrets, know-how, continuing +technological innovation, confidential information and other measures to develop and maintain our proprietary position including through +personnel, contractor, consultant and third-party nondisclosure and invention assignment agreements and other contractual arrangements. +7 +Regardless of the protective +measures that we may implement to safeguard our intellectual property and proprietary technology, there is always a risk that alterations +from our products or processes may provide sufficient basis for a competitor to avoid infringement claims. In addition, the coverage +claimed in a patent application can be significantly reduced before a patent is issued and courts can reinterpret a patent’s scope +after issuance. Many jurisdictions, including the United States, permit third parties to challenge issued patents in administrative +proceedings, which may result in further narrowing or even cancellation of patent claims. We cannot provide any assurance that any patents +will be issued from our pending or any future applications or that any current or future issued patents will adequately protect our intellectual +property. For this and other risks related to our proprietary technology, inventions and improvements, please see the section under the +heading “Risk Factors.” +Through TP NEV, Thunder +Power is expected to have access to 154 issued U.S. patents, once it secures a licensing agreement. +We hope to develop additional +intellectual property and proprietary technology as our engineering and validation activities ramp up. Technologies that we expect to +have access to, through licensing agreements, and intend to invest in and develop include engineering software, drivetrain systems and +controls, infotainment, cybersecurity, telematics and electrical architecture hardware and software. As we develop our technology, we +will continue to build our intellectual property portfolio, including by pursuing patent and other intellectual property protection when +we believe it is possible, cost-effective, beneficial, and consistent with our overall intellectual property protection strategy. +Generally, the terms of +individual issued patents extend for varying periods depending on the date of filing of the patent application or the date of patent +issuance and the legal term of patents in the countries in which they are obtained. Generally, utility patents issued for applications +filed in the United States are granted a term of 20 years from the earliest effective filing date of a non-provisional patent +application, assuming the patent has not been terminally disclaimed over a commonly-owned patent or a patent naming a common inventor, +or over a patent not commonly owned but that was disqualified as prior art as the result of activities undertaken within the scope of +a joint research agreement. The life of a patent, and the protection it affords, is therefore limited and once the patent lives of our +issued patents have expired, we may face competition, including from other competing technologies. The duration of foreign patents varies +in accordance with provisions of applicable local law, but typically is also 20 years from the earliest effective filing date. The +actual protection afforded by a patent may vary from country to country and can depend upon many factors, including the type of patent, +the scope of its coverage, the availability of patent term adjustments or extensions, the availability of legal remedies in a particular +country and the validity and enforceability of the patent. As a result, our owned patent portfolio may not provide us with sufficient +rights to exclude others from commercializing products similar or identical to ours. +Furthermore, we rely upon +trade secrets and know-how, confidential information, unpatented technologies, continuing technological innovation and other proprietary +information to develop, protect and maintain our competitive position and aspects of our business that are not amenable to, or that we +do not presently consider appropriate for, patent protection and prevent competitors from reverse engineering or copying our technologies. +However, the foregoing rights, technologies and information are difficult to protect. We seek to protect them by, in part, using confidentiality +agreements with our personnel and consultants and any potential commercial partners and collaborators and invention assignment agreements +with our personnel We also have implemented or intend to implement confidentiality agreements or invention assignment agreements with +our selected consultants and any potential commercial partners. These agreements are designed to protect our proprietary information +and, in the case of the invention assignment agreements, to grant us ownership of technologies that are developed through a relationship +with a third party. These agreements may be breached, and we may not have adequate remedies for any breach. There can be no assurance +that these agreements will be self-executing or otherwise provide meaningful protection for our trade secrets or other intellectual +property or proprietary information. In addition, our trade secrets may otherwise become known or be independently discovered by competitors. +To the extent that our commercial partners, collaborators, personnel and consultants use intellectual property owned by others in their +work for us, disputes may arise as to the rights in related or resulting know-how and inventions. +8 +Our commercial success will +also depend in part on not infringing, misappropriating or otherwise violating the intellectual or proprietary rights of third parties. +The issuance of third-party patents could require us to alter our development or commercial strategies, change our products or processes, +obtain licenses to additional third-party patents or other intellectual property or cease certain activities. Our breach of any +license agreements or failure to obtain a license to proprietary rights that we may require to develop or commercialize our future products +or technologies may have an adverse impact on us. Given that patent applications in the United States and certain other jurisdictions +are maintained in secrecy for 18 months or potentially longer, and since publication of discoveries in the scientific or patent +literature often lags behind actual discoveries, we cannot be certain of the patent protection being sought by third parties and/or the +priority of inventions covered by such patent applications. Moreover, we may have to participate in interference, revocation, derivation, +re-examination, post-grant review, inter partes review or opposition proceedings brought by third parties or declared by the U.S. Patent +and Trademark Office or an equivalent foreign body. See “ Risk Factors ” for additional information regarding these +and other risks related to our intellectual property portfolio and their potential effect on us. +Patents Pertaining to the Battery Pack/BMS +The U.S. patent applications +of the Company’s affiliate in connection with the Battery Pack/BMS innovations include: +● +Auto-detection and Self-exclusion of +Malfunctioned Battery Modules in an Electric Vehicle Battery Pack. This technology is designed to allow the user to continue +driving the EV, albeit with fewer batteries and lower voltage, to reach a service center or a safer location. This, in turn, is expected +to reduce the frequency of need for roadside assistance and associated maintenance costs. +● +The Communication +Structure of Battery Pack. The technology collects modular data from the Battery Pack and then calculates and interprets +the data, sending the results to the vehicle control unit (“VCU”). A key benefit of its innovation is the overall reduction +in Control Area Network (“CAN”) data volumes and lack of interference with other subsystems, ensuring greater communication +stability . +● +The Wireless Data +Transmission of the EV Battery Pack in Electric Vehicles. The technology utilizes wireless technology to communicate between +the Battery Pack and the VCU, charger, and maintenance center. The innovative design effectively reduces the amount of electrical +wiring required and could also be beneficial to swappable battery solutions (by avoiding connector corrosion). +● +Intelligent Charge +Balancing System. Typically, EVs run multiple battery cells. However, when one of the cells malfunctions, there is the potential +for the entire battery pack to malfunction or underperform. Thunder Power’s innovation, through the application of independent +switching circuits, detects modular imbalances and eliminates them — thereby maintaining consistent performance levels. +A key benefit is that it slows Battery Pack aging and battery capacity degradation. +● +Thermal Management +System (“TMS”). Thunder Power believes that its thermal management system (the “TMS”) controls the +vehicle temperature in a safe and efficient manner by taking an integrated approach to create a vehicle heating, drivetrain, and +temperature control unit. The key benefit of Thunder Power’s design is the reduction in vehicle weight and energy requirements +that contribute to its extended driving range. +9 +Unlike an internal combustion +engine (“ICE”), an EV uses electricity from batteries as a power source. As a result, additional heaters and chillers are +required to better control the vehicle temperature in operation and provide cabin comfort. The downside of heating and cooling devices +within conventional EVs is their power consumption. TMS to heat or cool, can use up to 50% of all stored battery energy. As a result, +an EV’s TMS is critical to both driving range and energy efficiency. The Company intends to use a proprietary integrated thermal +management system that is responsible for controlling heating, ventilation, and air conditioning, as well as drivetrain temperature and +battery temperature. +By regulating the operating +temperature of the vehicle, this technology increases the lifespan of sub-systems, including the Battery Pack. Moreover, through what +the Company believes to be an efficient heating circuit design, dissipated heat from the electric power train, battery system, or other +electrical device can be recaptured and used for cabin heating. The system is also intended to include environmental temperature monitoring, +which can determine the need to switch to different circulation loops to ensure optimal performance or activate pre-heating functionality +when operating in cold climates (crucial to Battery Pack functionality). +Patents Pertaining to the Thermal Management System (“TMS”) +Thunder Power’s affiliate +has filed U.S. patent applications for several innovations in connection with the TMS which seek to reduce energy consumption and +allow for an extended range to the EVs. Patents include: +● +Series and Parallel Structure of Thermal Management +System for Cabin Heater +● +Parallel Structure of Thermal Management System +for Cabin Heater +● +Radiator and AC heat Exchanger Airflow System +● +Double-way Coolant Pipe for Battery Cooling +Loop. +10 +Battery Pack/BMS and TMS Patent list +The following is a list of material patents currently expected +to be used by Thunder Power: +PATENT NO. +TITLE +COUNTRY +FUNCTION +TYPE +EXPIRATION +10,703,211 +BATTERY PACK, BATTERY CHARGING STATION, +AND CHARGING METHOD +US +Battery Pack/BMS +Utility +3/2/2036 +9,499,067 +POWER MANAGEMENT IN ELECTRIC VEHICLES +US +Battery Pack/BMS +Utility +6/23/2035 +9,716,392 +BATTERY PACK AND CONNECTING CIRCUITS OF BATTERY MODULES +US +Battery Pack/BMS +Utility +10/14/2035 +9,783,020 +BATTERY PACK, BATTERY CHARGING STATION, AND CHARGING +METHOD +US +Battery Pack/BMS +Utility +6/23/2035 +10,312,558 +BATTERY PACKAGING AND INSERT MOLDING FOR ELECTRIC VEHICLES +US +Battery Pack/BMS +Utility +12/20/2036 +9,865,905 +BATTERY COOLANT LOOP PAD FOR ELECTRIC VEHICLES +US +Battery Pack/BMS +Utility +7/13/2036 +10,144,304 +POWER MANAGEMENT IN ELECTRIC VEHICLES +US +Battery Pack/BMS +Utility +6/23/2035 +10,700,335 +BATTERY SYSTEM HOUSING WITH INTERNAL BUSBAR +US +Battery Pack/BMS +Utility +4/28/2037 +10,164,225 +BATTERY SYSTEM HOUSING WITH BUSBAR GRID FIXATION +US +Battery Pack/BMS +Utility +3/24/2037 +10,396,410 +BATTERY SYSTEM HOUSING WITH INTERNAL BUSBAR +US +Battery Pack/BMS +Utility +7/3/2037 +10,103,414 +BATTERY SYSTEM ASSEMBLY PROCESS AND BATTERY SYSTEM +ASSEMBLY +US +Battery Pack/BMS +Utility +3/24/2037 +10,347,888 +BATTERY SYSTEM HOUSING WITH UNDERSIDE ARMOR +US +Battery Pack/BMS +Utility +3/24/2037 +10,403,943 +BATTERY SYSTEM +US +Battery Pack/BMS +Utility +8/11/2037 +10,027,001 +BATTERY SYSTEM +US +Battery Pack/BMS +Utility +8/11/2037 +10,723,230 +INTELLIGENT VEHICLE CHARGING +US +Battery Pack/BMS +Utility +8/11/2037 +10,298,061 +WIRELESS VEHICLE RECHARGING SYSTEM +US +Battery Pack/BMS +Utility +8/11/2037 +10,118,504 +BATTERY SYSTEM HOUSING WITH FASTENER +US +Battery Pack/BMS +Utility +3/24/2037 +9,755,202 +BATTERY PACK OF ELECTRIC VEHICLE, ELECTRIC VEHICLE +CHASSIS AND METHOD FOR REPLACING BATTERY MODULES +US +Battery Pack/BMS +Utility +1/26/2036 +10,227,010 +POWER MANAGEMENT IN ELECTRIC VEHICLES +US +Battery Pack/BMS +Utility +6/23/2035 +10,044,012 +BATTERY PACK OF ELECTRIC VEHICLE, ELECTRIC VEHICLE +CHASSIS AND METHOD FOR REPLACING BATTERY MODULES +US +Battery Pack/BMS +Utility +1/26/2036 +9,991,484 +BATTERY PACK OF ELECTRIC VEHICLE, ELECTRIC VEHICLE +CHASSIS AND METHOD FOR REPLACING BATTERY MODULES +US +Battery Pack/BMS +Utility +1/26/2036 +10,084,175 +BATTERY SYSTEM ASSEMBLY PRESS AND PROCESS OF MANUFACTURING +A BATTERY SYSTEM ASSEMBLY +US +Battery Pack/BMS +Utility +3/24/2037 +10,744,845 +BATTERY PACK, BATTERY CHARGING STATION, AND CHARGING +METHOD +US +Battery Pack/BMS +Utility +6/28/2036 +10,665,914 +BATTERY SYSTEM HOUSING WITH INTEGRATED COOLING PIPE +US +Battery Pack/BMS +Utility +3/24/2037 +10,312,559 +BATTERY SYSTEM +US +Battery Pack/BMS +Utility +8/11/2037 +10,625,615 +BATTERY MANAGEMENT SYSTEM +US +Battery Pack/BMS +Utility +2/3/2037 +11 +10,784,487 +INTEGRATED BUSBAR AND BATTERY CONNECTION +FOR ELECTRIC VEHICLE BATTERY PACKS +US +Battery Pack/BMS +Utility +1/20/2037 +9,533,551 +ELECTRIC VEHICLE THERMAL MANAGEMENT SYSTEM WITH SERIES +AND PARALLEL STRUCTURE +US +TMS +Utility +8/3/2035 +9,991,484 +BATTERY PACK OF ELECTRIC VEHICLE, ELECTRIC VEHICLE +CHASSIS AND METHOD FOR REPLACING BATTERY MODULES +US +Battery Pack/BMS +Utility +1/26/2036 +10,084,175 +BATTERY SYSTEM ASSEMBLY PRESS AND PROCESS OF MANUFACTURING +A BATTERY SYSTEM ASSEMBLY +US +Battery Pack/BMS +Utility +3/24/2037 +10,744,845 +BATTERY PACK, BATTERY CHARGING STATION, AND CHARGING +METHOD +US +Battery Pack/BMS +Utility +6/28/2036 +10,665,914 +BATTERY SYSTEM HOUSING WITH INTEGRATED COOLING PIPE +US +Battery Pack/BMS +Utility +3/24/2037 +10,312,559 +BATTERY SYSTEM +US +Battery Pack/BMS +Utility +8/11/2037 +10,625,615 +BATTERY MANAGEMENT SYSTEM +US +Battery Pack/BMS +Utility +2/3/2037 +10,784,487 +INTEGRATED BUSBAR AND BATTERY CONNECTION FOR ELECTRIC +VEHICLE BATTERY PACKS +US +Battery Pack/BMS +Utility +1/20/2037 +9,533,551 +ELECTRIC VEHICLE THERMAL MANAGEMENT SYSTEM WITH SERIES +AND PARALLEL STRUCTURE +US +TMS +Utility +8/3/2035 +10,035,401 +BATTERY SYSTEM WITH HEAT EXCHANGE DEVICE +US +TMS +Utility +8/10/2035 +10,347,955 +BATTERY SYSTEM WITH HEAT EXCHANGE DEVICE +US +TMS +Utility +3/28/2036 +9,707,822 +ELECTRIC VEHICLE THERMAL MANAGEMENT SYSTEM +US +TMS +Utility +8/3/2035 +9,809,082 +ELECTRIC VEHICLE THERMAL MANAGEMENT SYSTEM WITH SERIES +AND PARALLEL STRUCTURE +US +TMS +Utility +8/3/2035 +9,802,460 +ELECTRIC VEHICLE THERMAL MANAGEMENT SYSTEM WITH SERIES +AND PARALLEL STRUCTURE +US +TMS +Utility +8/3/2035 +10,516,191 +METHODS AND SYSTEMS FOR BUSBAR COOLING +US +TMS +Utility +8/11/2037 +9,882,253 +COOLED BUSBARS AND PLATE +US +TMS +Utility +8/11/2037 +10,035,402 +THERMAL DISSIPATION SYSTEM OF AN ELECTRIC VEHICLE +US +TMS +Utility +9/1/2035 +9,895,954 +THERMAL DISSIPATION SYSTEM OF AN ELECTRIC VEHICLE +US +TMS +Utility +9/1/2035 +10,272,736 +ELECTRIC VEHICLE THERMAL MANAGEMENT SYSTEM +US +TMS +Utility +8/3/2035 +10,173,496 +VEHICLE RADIATOR V TYPE LAYOUT +US +TMS +Utility +12/21/2035 +10,343,484 +ELECTRIC VEHICLE THERMAL MANAGEMENT SYSTEM WITH SERIES +AND PARALLEL STRUCTURE +US +TMS +Utility +8/3/2035 +10,525,787 +ELECTRIC VEHICLE THERMAL MANAGEMENT SYSTEM WITH SERIES +AND PARALLEL STRUCTURE +US +TMS +Utility +1/13/2036 +10,734,692 +BATTERY COOLANT LOOP PAD FOR ELECTRIC VEHICLES +US +TMS +Utility +9/1/2036 +10,566,666 +COOLED BUSBARS AND PLATE +US +TMS +Utility +8/11/2037 +10,173,518 +THERMAL DISSIPATION SYSTEM OF AN ELECTRIC VEHICLE +US +TMS +Utility +9/1/2035 +10,406,888 +ELECTRIC VEHICLE THERMAL MANAGEMENT SYSTEM +US +TMS +Utility +8/3/2035 +12 +Micro Lens Array Lighting +The Company intends to leverage +Intelligent Micro Lens Array headlights created and engineered by its affiliate, which are expected to provide a homogeneous and luminant +light source. +Showroom rendering (source from Thunder Power): +13 +Facilities and Production +In alignment with the our +focus on efficiency and scalability, we expect to conduct all short- and medium-term vehicle production through outsourcing partnerships +with established manufacturing facilities. This approach enables the Company to leverage the expertise, resources, and infrastructure +of its production partners, ensuring high-quality manufacturing standards while maintaining flexibility to scale operations in response +to market demand. +For the longer term, Thunder +Power retains the option to transition to insourced production. This potential shift will be carefully evaluated based on market conditions, +production volumes, and cost efficiencies, with the goal of enhancing operational control and capturing additional value across the manufacturing +process. This dual approach ensures that the Company remains agile and competitive while maintaining the ability to adapt its production +strategy to evolving business needs and industry dynamics.. +Funding and Revenue +Thunder Power is a pre-revenue +company and has not generated any revenue from the sales of its vehicles. We expect to generate revenue from the sale of our EV Models, +the sale and/or licensing of our technologies, and from any future research and development services that we may provide. +Go-To-Market Strategy +Thunder Power plans to establish +a comprehensive and well-structured network of dealer partners, designed to provide both sales and after-sales service, ensuring a seamless +and reliable customer experience. These dealer partners will serve as key touchpoints for customers, offering personalized support, product +education, and maintenance solutions to uphold the brand’s commitment to quality and customer satisfaction. This traditional dealership +model will be complemented by centrally coordinated marketing initiatives, aimed at driving brand visibility and delivering consistent +messaging across all markets. Furthermore, to cater to evolving consumer preferences and the growing demand for convenience, Thunder +Power will also provide customers with the option to order vehicles directly through its online platform. This dual-channel approach +allows the Company to reach a broader audience, offering the flexibility to engage with the brand in a manner that best suits individual +preferences, whether through in-person interactions at dealerships or the convenience of digital commerce. +Competition +Thunder Power anticipates +that it will face competition from both traditional automotive original equipment manufacturer (“OEMs”) and an increasing +number of newer companies focused on electric and other alternative fuel vehicles. Thunder Power expects this competition to increase, +particularly as the transportation sector continues to shift towards low-emission, zero-emission or carbon neutral solutions. +Any of the Company’s +future vehicles are expected to compete with both traditional luxury internal combustion vehicles from established automotive OEMs and +electric and other alternative fuel vehicles from both new manufacturers and established automotive OEMs, many of which have entered +or have announced plans to enter the alternative fuel and EV market. Many major automobile manufacturers, including luxury automobile +manufacturers, have EVs available today, and other current and prospective automobile manufacturers are also developing EVs. In addition, +numerous manufacturers offer hybrid vehicles, including plug-in versions, with which Thunder Power’s vehicles will also compete. +Thunder Power believes the +primary competitive factors on which it will compete include, but are not limited to: +● product +quality, reliability and safety; +● range, +efficiency and charging speeds; +● product +performance; +● technological +innovation, including with respect to AD/ADAS features; +● access +to charging options; +14 +● design, +styling and luxury; +● service +options and customer experience; +● management +team experience at bringing electric vehicles and other disruptive technologies to market; +● manufacturing +efficiency; +● +brand recognition and prestige; and +● product +price. +Thunder Power believes that +it is favorably positioned to compete on the basis of these factors. However, many of Thunder Power’s current and potential competitors +have substantially greater financial, technical, manufacturing, marketing and other resources than Thunder Power. Thunder Power’s +competitors may be able to deploy greater resources to the design, development, manufacturing, distribution, promotion, sales, marketing +and support of their products. Additionally, many of Thunder Power’s competitors also have greater name recognition, longer operating +histories, larger sales forces, broader customer and industry relationships and other tangible and intangible resources that exceed Thunder +Power’s. Furthermore, many of Thunder Power’s competitors operate with a traditional sales and dealer distribution model +for vehicles that may be viewed more favorably by potential customers. These competitors also compete with Thunder Power in recruiting +and retaining qualified research and development, sales, marketing and management personnel, as well as in acquiring technologies complementary +to, or necessary for, Thunder Power’s products. Additional mergers and acquisitions in the EV and luxury automotive markets may +result in even more resources being concentrated in Thunder Power’s competitors. +Government Regulations and Credits +Environmental Regulations +(i) +At the U.S. Federal level: +In 2012 the Environmental +Protection Agency (“EPA”) adopted greenhouse gas emissions (GHG) standards for light duty vehicles produced in model years +2017 – 2025 (Control of Air Pollution from Motor Vehicles: Tier 3 Motor Vehicle Emission and Fuel Standards, 79 FR 23414 +(Apr. 28, 2014)). In 2020 (The Safer Affordable Fuel-Efficient (SAFE) Vehicles Rule for Model Years 2021-2026 Passenger +Cars and Light Vehicles, 85 FR 24174 (Apr. 30, 2020)) and 2021 (Revised 2023 and Later Model Year Light-Duty Vehicle Greenhouse +Gas Emissions Standards, 86 FR 74434 (Dec. 30, 2021), the EPA revised and made more stringent its GHG standards and proposed and +finalized a rulemaking (the “2021 rulemaking”), respectively, for model years 2023 – 2026 light-duty passenger +cars. Thunder Power’s production schedule starting in 2025 and covering 2026 will subjected to these more stringent GHG standards. +On April 22, 2021, +the Biden-Harris Administration announced a 50 to 52 percent target reduction from 2005 levels in GHGs by 2030, representing the +U.S. Nationally Determined Contribution (NDC) under the Paris Agreement. This announcement was followed by Executive Order 14037 +on August 5, 2021 (“Strengthening American Leadership in Clean Cars and Trucks”) reinforcing the goal of at least a +50 percent GHG reductions from new zero-emission vehicles sales by 2030. In addition, in 2021 and 2022, respectively, Congress passed +the Infrastructure Investment and Jobs Act (Pub. Law 117-58, Bipartisan Infrastructure Law) and the Inflation Reduction Act (Pub. Law +117-169) providing significant government-wide funding and support for GHG reductions, including funding for component technology +and infrastructure for the manufacture, sales and use of electric vehicles. +15 +In 2023, the EPA under its +Clean Air Act (CAA) authority proposed new rules for light-duty vehicles with model years 2027 – 2032, specifically +“off-cycle and air conditioning credits, treatment of upstream emissions associated with zero-emission vehicles and plug-in hybrid +electric vehicles in compliance calculations, medium-duty vehicle incentive multipliers, vehicle certification and compliance, new +standards to control refueling emissions from incomplete medium-duty vehicles, battery durability and warranty requirements for +light-duty and medium-duty plug-in vehicles and minor amendments to requirements for aftermarket fuel conversions, importing +vehicles and engines, evaporative emission test procedures, and test fuel specifications for measuring fuel economy.” (Multi-Pollutant Emissions +Standards for Model Years 2027 and Later Light-Duty and Medium-Duty Vehicles, 88 Fed. Reg. 29184, Proposed Rule (May 5, +2023)) Any EVs Thunder Power, as a light-duty vehicle manufacturer (manufacturing vehicles between 8,501 and 14,000 pounds gross +vehicle weight rating (GVWR)), produces in 2027 to 2032 would be subjected to any final rules. +In addition, during production +periods from 2025 to 2032, Thunder Power would have to comply with two separate EPA rules on GHG reduction standards. +(ii) +At the U.S. state level: +California: The +2022 Advanced Clean Cars II rule requires all new light-duty vehicles sold in the state of California to be zero-emission vehicles +by 2035. ( Id . at 29188, note 14, citing to the California Air Resources Board “California moves to accelerate to 100% +new zero-emission vehicle sales by 2035.” Also, Id . note 15, citing the State of California Office of the +Governor, “Governor Newsom Announces California Will Phase Out Gasoline-Powered Cars & Drastically Reduce Demand for Fossil +Fuel in California’s Fight Against Climate Change”). +New York: In +2021, in advance of Climate Week 2021, New York Governor Hochul signed Legislation (A.4302/A.2758) requiring all new light-duty vehicles +sold in the state of New York to be zero-emission vehicles by 2035. ( Id . note 17, citing Governor of New York Press +Office, “In Advance of Climate Week 2021, Governor Hochul Announces New Actions to Make New York’s Transportation Sector +Greener, Reduce Climate-Altering Emissions”). +Massachusetts: Though +not finalized, in 2022 the state of Massachusetts announced that it may ban sale of all new gas-powered vehicles by 2035. ( Id . +note 18, citing Boston.com, “Following California’s lead, state will likely ban all sales of new gas-powered cars +by 2035.”). +Washington: Also +in 2022, the Department of Ecology in the State of Washington issued a press release regarding its plan to require 100% of new passenger +cars and trucks to run on zero-emission technology by 2035. ( Id . note 20, citing Washington Department of Ecology “Washington +sets path to phase out gas vehicles by 2035.”). +Other States: In +2022, the Associated Press (“AP”) reported that 17 states may follow California’s rule to require all new cars, pickups +and SUVs to be electric or hydrogen powered by 2035. According to the AP article “under the EPA’s Clean Air Act, states must +abide by the federal governments standard vehicle emissions standards unless they at least partially opt to follow California’s +stricter requirements.” ( Id . note 21, citing Associated Press, “17 states weigh adopting California’s electric +car mandate”). States such as Virginia, Minnesota, Colorado and Pennsylvania are unsure to follow California’s new laws citing +climate differences and wanting to give consumers options. +(iii) +Globally: +International Zero-Emission Vehicle +Alliance: In November 2021, ZEV announced that by 2035 its members will move to all ZEV sales. ( Id .) ZEV members +are Baden-Württemberg, British Columbia, California, Canada, Chile, Connecticut, Costa Rica, Germany, Maryland, Massachusetts, Netherlands, +New Jersey, New York, Norway, Oregon, Québec, Rhode Island, United Kingdom, Vermont, and Washington. +According to the EPA, “at +least 20 countries, as well as numerous local jurisdictions, have announced targets for shifting all new passenger car sales to zero-emission vehicles +in the coming years, including Norway (2025); Austria, the Netherlands, Denmark, Iceland, India, Ireland, Israel, Scotland, Singapore, +Sweden, and Slovenia (2030); Canada, Chile, Germany, Thailand, and the United Kingdom (2035); and France, Spain, and Sri Lanka (2040).” +( Id . note 23, citing Environmental and Climate Change Canada, “Achieving a Zero-Emission Future for Light-Duty Vehicles: +Stakeholder Engagement Discussion Document December 17”). +16 +Emissions Credits +In January 2023, Tesla +reported sales of carbon offset credits or carbon allowances to other manufacturers who failed to meet the emissions standards set by +the California Air Resources board (CARB) of USD 1.78 billion. (Carbon Credits, Jennifer L., Tesla Carbon Credit Sales +Reach Record $1.78 Billion in 2022 , Jan. 27, 2023, available at https://carboncredits.com/tesla-carbon-credit-sales-reach-record-1-78-billion-in-2022 ). +Thunder Power expects to +earn carbon offset credits and other regulatory credits that it will sell to other manufacturers from its manufacture, sale, and/or registration +of Zero Emission Vehicles (“ZEVs”). In addition, Thunder Power anticipated that it will be able to sell ZEV credits in up +to 12 Section 177 States such as California, Connecticut, Delaware, Maine, Maryland, Massachusetts, New Jersey, New York, Oregon, +Pennsylvania, Rhode Island, Vermont, and Washington. Thunder Power may also expect to earn and sell U.S. Department of Transportation’s +Corporate Average Fuel Economy (“CAFÉ”) credits, EPA’s greenhouse gas credits and credits earned or saleable +in other North American regions, UK, Europe, and Asia. +EPA Emissions and Certificate of Conformity +The U.S. Clean Air +Act requires that Thunder Power obtain a Certificate of Conformity issued by the EPA and a California Executive Order issued by the California +Air Resources Board (“ CARB ”) certifying that its vehicles comply with applicable emissions requirements. A Certificate +of Conformity is required for vehicles sold in the United States, and an Executive Order from the CARB is required for vehicles +sold in states that have adopted California standards. CARB sets the California standards for emissions control for certain regulated +pollutants for new vehicles and engines sold in California. States that have adopted the California standards as approved by EPA also +recognize the CARB Executive Order for sales of vehicles. In addition to California, there are 13 other states that have either adopted +or are in the process of adopting the stricter California standards, including New York, Massachusetts, Vermont, Maine, Pennsylvania, +Connecticut, Rhode Island, Washington, Oregon, New Jersey, Maryland, Delaware and Colorado. +Although the Thunder Power +vehicles will have zero emissions, Thunder Power is required to seek an EPA Certificate of Conformity and, for vehicles sold in California +or any of the other 13 states that have adopted the stricter California standards, a CARB Executive Order. +Vehicle Safety and Testing +Thunder Power’s vehicles +will be subject to, and will be required to comply with, numerous regulatory requirements established by the National Highway Traffic +Safety Administration (“ NHTSA ”), including applicable U.S. Federal Motor Vehicle Safety Standards (“ FMVSS ”). +Thunder Power intends that its family of EVs will fully comply with all applicable FMVSSs without the need for any exemptions, and we +expect future Thunder Power’s EVs to either fully comply or comply with limited exemptions related to new technologies. Additionally, +there are regulatory changes being considered for several FMVSSs, and while Thunder Power anticipates compliance, there is no assurance +that Thunder Power will comply with such changes under the final versions as enacted. +As a U.S.-based manufacturer, +Thunder Power must self-certify that its EVs meet all applicable FMVSS, as well as the NHTSA bumper standard, or otherwise are exempt, +before its EVs can be sold in the United States. Numerous FMVSS will apply to Thunder Power’s EVs, such as crash-worthiness +requirements, crash avoidance requirements and EV-specific requirements. Thunder Power will also be required to comply with other +federal laws and regulations administered by NHTSA, including, among other things, ensuring its EVs do not contain defects related to +motor vehicle safety, recall requirements, the Corporate Average Fuel (CAFE) standards, Theft Prevention Act requirements, consumer information +labeling requirements, reporting required notices, bulletins and other communications, Early Warning Information reporting, foreign recall +reporting and owner’s manual requirements. +The Automobile Information +and Disclosure Act requires manufacturers of motor vehicles to disclose certain information regarding the manufacturer’s suggested +retail price, optional equipment and pricing. In addition, this law allows inclusion of city and highway fuel economy ratings, as determined +by the U.S. Environmental Protection Agency (EPA), as well as crash test ratings as determined by NHTSA if such tests are conducted. +17 +Thunder Power intends to +bring production in Europe and then expand its offerings within the U.S. and outside of the U.S., and in connection with such expansion +its EVs will be subject to foreign safety, environmental and other regulations. Many of those regulations are different from those applicable +in the U.S. and may require redesign and/or retesting. For example, the European Union (“ E.U. ”) has established +new approval and oversight rules requiring that a national authority certify compliance with heightened safety rules, emissions limits +and production requirements before vehicles can be sold in each E.U. member state, the initial of which rules were rolled out on September 1, +2020. There is also regulatory uncertainty regarding how these rules will impact sales in the United Kingdom given its withdrawal from +the E.U. These changes could impact the rollout of new vehicle features in Europe. +In addition to the various +territorial legal requirements Thunder Power is obligated to meet, Thunder Power’s family of EVs is engineered with the expectation +that it will deliver overall five-star performance in the two main voluntary vehicle safety performance assessment programs, the +U.S. New Car Assessment Program (“ NCAP ”) and the European New Car Assessment Programme (“ Euro NCAP ”). +Five-star is the maximum attainable score. These independent organizations have introduced a number of additional safety related +tests aimed at improving the safety of passenger vehicles, both for occupants and pedestrians involved in collisions with vehicles. Some +of these tests are derived from legal requirements, such as side impact, but have higher performance requirements. Others are unique +to the programs. Areas covered by these tests in 2020 included: +● Mobile +Progressive Deformable Barrier; +● +Full Width Rigid Barrier;. +● +Mobile Side Impact Barrier; +● +Side Pole; +● +Far Side Impact; +● +Whiplash; +● +Vulnerable Road Users (Pedestrians +and Cyclists); +● +Safety Assist; and +● +Rescue and Extrication +Automobile Manufacturer and Dealer Regulation +In the United States, +state laws regulate the manufacture, distribution, sale and service of automobiles, and generally require motor vehicle manufacturers +and dealers to be licensed in order to sell vehicles directly to residents. Certain states do not permit automobile manufacturers to +be licensed as dealers or to act in the capacity of a dealer, or otherwise restrict a manufacturer’s ability to deliver or service +vehicles. To sell vehicles to residents of states where Thunder Power is not licensed as a dealer, Thunder Power expects to conduct the +transfer of title out of the state. In certain such states, Thunder Power expects to open studios that serve an educational purpose and +where the title transfer may not occur. +Some automobile dealer trade +associations may challenge the legality of Thunder Power’s operations and direct selling operations by OEMs in court and may use +administrative and legislative processes to attempt to prohibit or limit such OEMs’ ability to operate existing stores or expand +to new locations. Certain dealer associations may also actively lobbied state licensing agencies and legislators to interpret existing +laws or enact new laws in ways not favorable to Thunder Power’s planned direct sales and service model. Thunder Power expects dealer +trade associations to continue to lobby state licensing agencies and legislators to interpret existing laws or enact new laws in ways +not favorable to its business model; however, Thunder Power intends to oppose such efforts to limit its ability to operate and intends +to proactively support legislation that enables its business model. +18 +Should Thunder Power not +be allowed to develop relationships with the largest multi-brand and high-end brand dealers in the U.S. it would be difficult +for it as a newcomer to the U.S. EV market to gain a foothold in the U.S. Thunder Power recognizes that its best strategy for +market penetration is to align itself with a U.S. dealership network, especially for sale of the Coupe, and the eventual servicing +of its family of EVs. +Battery Safety and Testing Regulation +Thunder Power’s battery +packs are designed to conform to mandatory regulations that govern transport of “dangerous goods,” defined to include lithium-ion batteries, +which may present a risk in transportation. The governing regulations, which are issued by the Pipeline and Hazardous Materials Safety +Administration, are based on the United Nation (“ U.N. ”) Recommendations on the Safe Transport of Dangerous Goods Model +Regulations and related U.N. Manual Tests and Criteria. The regulations vary by mode of shipping transportation, such as by ocean +vessel, rail, truck or air. Prior to launch, Thunder Power plans to complete all applicable transportation tests for its battery packs, +demonstrating its compliance with applicable regulations. Thunder Power intends to use lithium-ion cells in the high voltage battery +packs in its EVs. The use, storage and disposal of battery packs is regulated under federal law. Thunder Power’s battery packs +are intended to meet the applicable compliance requirements of the UN Manual of Tests and Criteria demonstrating its ability to ship +battery packs by any method. These tests include: +● +Altitude simulation — simulating air transport; +● +Thermal cycling — assessing cell and battery +seal integrity; +● +Vibration — simulating vibration during transport; +● +Shock — simulating possible impacts during transport; +● +External short circuit — simulating an external +short circuit; and +● +Overcharge — evaluating the ability of a rechargeable +battery to withstand overcharging. +Data Privacy and Security Laws +Numerous state, federal +and foreign laws, regulations and standards govern the collection, use, access to, confidentiality and security of health-related and +other personal information, and could apply now or in the future to our operations or the operations of our partners. In the United States, +numerous federal and state laws and regulations, including data breach notification laws, health information privacy and security laws +and consumer protection laws and regulations govern the collection, use, disclosure, and protection of health-related and other personal +information. In addition, certain foreign laws govern the privacy and security of personal data, including health-related data. Privacy +and security laws, regulations, and other obligations are constantly evolving, may conflict with each other to complicate compliance +efforts, and can result in investigations, proceedings, or actions that lead to significant civil and/or criminal penalties and restrictions +on data processing. +Employees and Human Capital Resources +As of December 31, 2024, +we had 2 full-time employees. None of our employees are represented by a labor union or party to a collective bargaining agreement. +Our human capital objectives +include retaining and incentivizing existing employees and recruiting and integrating new employees. The principal purposes of our compensation +program, including our equity incentive plans, are to attract, retain and appropriately motivate employees, consultants and directors +through the granting of stock-based compensation awards and cash-based bonus awards. +Corporate Information +Our corporate office +is located at 221 W 9th St #848, Wilmington, DE 19801 and its telephone number is (909) 214-2482. Our telephone number is (909) 214-2482. +Information contained on, or that can be accessed through, our website is not incorporated by reference into this Annual Report on Form +10-K, and you should not consider information on our website to be part of this Annual Report on Form 10-K. +19 +Item 1A. Risk Factors +You should consider carefully +the following risk factors, as well as the other information set forth in this report, including our consolidated financial statements +and the notes thereto. The following discussion of risk factors includes forward-looking statements and our actual results may differ +substantially from those discussed in such forward-looking statements. See “Cautionary Note Regarding Forward-Looking Statements.” +The disclosures of a risk should not be interpreted to imply that such risk has not already materialized. Additional risks not currently +known to us or that we currently believe are immaterial may also impair our business, financial condition, results of operations and +cash flows. The occurrence of any of the events or developments described below could materially and adversely affect our business, financial +condition, results of operations, and growth prospects. In such an event, the market price of our common stock could decline, and you +may lose all or part of your investment. Unless otherwise indicated, references in these risk factors to our business being harmed will +include harm to our business, reputation, brand, financial condition, results of operations, and prospects. +Risks Related to Thunder Power’s Business and +Industry +Our limited operating +history makes evaluating our business and future prospects difficult and may increase the risk of your investment. +We are an early-stage company +with a limited operating history, operating in a rapidly evolving and highly regulated market. Furthermore, we have not released any +commercially available product, and we have no experience manufacturing or selling a commercial product at scale. Because we have not +generated revenue, and as a result of the capital-intensive nature of our business, we expect to continue to incur substantial operating +losses for the foreseeable future. +We have encountered and +expect to continue to encounter risks and uncertainties frequently experienced by early-stage companies in rapidly changing markets, +including risks relating to our ability to, among other things: +● +hire, integrate and retain +professional and technical talent, including key members of management; +● +continue to make significant +investments in research, development, manufacturing, marketing and sales; +● +successfully obtain, maintain, +protect and enforce our intellectual property and defend against claims of intellectual property infringement, misappropriation or +other violation; +● +build a well-recognized and +respected brand; +● +establish, refine and scale +our commercial manufacturing capabilities and distribution infrastructure; +● +establish and maintain +satisfactory arrangements with third-party suppliers; +● +establish and expand a +customer base; +● +navigate an evolving and +complex regulatory environment; +● +anticipate and adapt to +changing market conditions, including consumer demand for certain vehicle types, models or trim levels, technological developments +and changes in competitive landscape; and +● +successfully design, build, +manufacture and market new variants and models of electric vehicles. +You must consider the risks +and difficulties we face as an early stage company with a limited operating history. If we do not successfully address these risks, our +business, prospects, operating results and financial condition will be materially and adversely harmed. We have a very limited operating +history on which investors can base an evaluation of our business, operating results and prospects. There are no assurances that we will +be able to secure future business with potential customers. As an early stage company, it is difficult to predict our future revenues +and appropriately budget for our expenses, and we have limited insight into trends that may emerge and affect our business. In the event +that actual results differ from our estimates or we adjust our estimates in future periods, our operating results and financial position +could be materially affected. Our performance and expectations depend on the successful implementation of management’s growth strategies +and are based on assumptions and events over which we have only partial or no control, including, but not limited to, adverse economic +conditions, regulatory developments, our ability to finance our contemplated operations, difficulties in engineering, delays in designs +or materials provided by the customer or a third party, equipment and materials delivery delays, schedule changes, customer scope changes, +delays related to obtaining regulatory permits and rights-of-way, inability to find adequate sources of labor in the locations where +we are building new plants, weather-related delays, delays by customers’ contractors in completing their portion of a project, +technical or transportation difficulties, cost overruns, supply difficulties, geopolitical risks and other factors. The assumptions underlying +our expectations require the exercise of judgment and may not occur, and the expectations are subject to uncertainty due to the effects +of economic, business, competitive, regulatory, legislative, and political or other changes. +20 +The success of our business may depend +on attracting prospective customers and retaining sufficient capital to commence mass production. If we are unable to do so, we may not +be able to achieve profitability. +We currently do not have +any customers that our business depends upon, and our success depends, in large part, on attracting prospective customers and retaining +sufficient capital to commence mass production. We expect to incur significant and sustained marketing expenses to attract prospective +customers. In addition, if our prospective customers perceive our vehicles and services as lacking in quality, value, cost competitiveness +with vehicles from other manufacturers, performance or aesthetic appeal, we may not be able to attract customers. If, for any of these +reasons, we are unable to attract, or to build and maintain a strong customer base, our business, prospects, financial condition, results +of operations, and cash flows may be materially harmed. +If we fail to implement +our business strategy, our financial condition and results of operations could be adversely affected. Our future financial performance +and success depend in large part on our ability to successfully implement our business strategy. We cannot assure you that we will be +able to successfully implement our business strategy or be able to improve our operating results. In particular, we cannot assure you +that we will successfully negotiate and sign contracts with customers and suppliers nor can we assure you that we will be able to successfully +execute our contracts if signed. Implementation of our business strategy may be impacted by factors outside of our control, including +competition, price fluctuations, industry, legal and regulatory changes or developments and general economic and political conditions. +Any failure to successfully implement our business strategy could adversely affect our financial condition and results of operations. +We may, in addition, decide to alter or discontinue certain aspects of our business strategy at any time. +We have incurred net losses each year since +our inception and expect to incur increasing expenses and substantial losses for the foreseeable future. +We have no operating history +in the electric vehicle market and have never generated revenue from product sales. Since inception, we have incurred significant net +losses. We anticipate our losses will increase substantially as we: +● +Continue designing and +developing our vehicles +● +Establish manufacturing +capabilities +● +Build our brand and marketing +operations +● +Develop our distribution +infrastructure +● +Invest in research and +development +Given the significant capital +required to bring our products to market, we expect to continue incurring substantial losses for the foreseeable future. There is no +assurance that we will ever achieve or sustain profitability. Our lack of operating history in a highly competitive and rapidly evolving +industry makes evaluating our business and future prospects difficult. We face all the risks and uncertainties of an early-stage company +in a complex, capital-intensive industry. If we fail to successfully address these risks and uncertainties, our business, financial condition, +and results of operations will be materially harmed. +If our product development +or commercialization of vehicles is delayed, our costs and expenses may be significantly higher than we currently expect. Because we +will incur the costs and expenses from these efforts before we receive any incremental revenues with respect thereto, we expect our losses +in future periods will be significant. +21 +Our business model has yet to be tested +and any failure to commercialize our strategic plans would have an adverse effect on our operating results and business, harm our reputation +and could result in substantial liabilities that exceed our resources. +Investors should be aware +of the difficulties normally encountered by an early stage enterprise, many of which are beyond our control, including substantial risks +and expenses in the course of establishing or entering new markets, organizing operations and undertaking marketing activities. The likelihood +of our success must be considered in light of these risks, expenses, complications, delays and the competitive environment in which we +operate. There is, therefore, nothing at this time upon which to base an assumption that our business plan will prove successful, and +we may not be able to generate significant revenue, raise additional capital or operate profitably. We will continue to encounter risks +and difficulties frequently experienced by early commercial stage companies, including scaling up our infrastructure and headcount, and +may encounter unforeseen expenses, difficulties or delays in connection with our growth. In addition, as a result of the capital-intensive nature +of our business, we can be expected to continue to sustain substantial operating expenses and may not generate sufficient revenues to +cover expenditures. Any investment in our company is therefore highly speculative and could result in the loss of your entire investment. +We may have difficulty managing growth +in our business, which could have a material adverse effect on our business, financial condition and results of operations and our ability +to execute its business plan in a timely fashion. +Because of our small size, +growth in accordance with our business plans, if achieved, may place a significant strain on our financial, technical, operational and +management resources. If we expand our activities, developments and production, and increase the number of projects we are evaluating +or in which we participate, there will be additional demands on our financial, technical and management resources. The failure to continue +to upgrade our technical, administrative, operating and financial control systems or the occurrence of unexpected expansion difficulties +could have a material adverse effect on our business, financial condition and results of operations and our ability to execute our business +plan in a timely fashion. +We intend to hire a significant +number of additional personnel, including design and manufacturing personnel and service technicians for our vehicles. Because our vehicles +are based on a different technology platform than traditional internal combustion engines, individuals with sufficient training in electric +vehicles may not be available to hire, and as a result, we will need to expend significant time and expense training the personnel we +do hire. Competition for individuals with experience designing, engineering, manufacturing and servicing electric vehicles is intense, +and we may not be able to identify, attract, integrate, train, motivate or retain additional highly qualified personnel in the future. +The failure to identify, attract, integrate, train, motivate and retain these additional personnel could seriously harm our business +and prospects. If we are unable to grant equity awards, or if we are forced to reduce the value of equity awards we grant due to shortage +of shares available for issuance under our 2024 Omnibus Equity Inventive Plan, we may not be able to attract, hire and retain the personnel +necessary for our business, which would have a material adverse effect on our business, prospects financial condition and results of +operations. +In addition, we have no +experience in mass manufacturing our vehicles. We cannot assure our investors that we will be able to develop efficient, automated, low-cost manufacturing +capabilities and processes, and reliable sources of component supply that will enable us to meet the quality, price, engineering, design +and production standards, as well as the production volumes, required to successfully market our vehicles. Any failure to develop such +manufacturing processes and capabilities within our projected costs and timelines could stunt our future growth and impair our ability +to produce, market, service and sell or lease our vehicles successfully. In addition, our success is substantially dependent upon the +continued service and performance of our senior management team and key technical and vehicle management personnel. If any key personnel +were to terminate their employment with us, such termination would likely increase the difficulty of managing our future growth and heighten +the foregoing risks. If we fail to manage our growth effectively, such failure could result in negative publicity and damage to our brand +and have a material adverse effect on our business, prospects, financial condition and results of operations. +22 +The proceeds received in the Business Combination +will only fund operations for a limited time and we will need to obtain additional financing to continue operations and execute our business +plans. If we are unable to obtain such financing, we may be unable to complete the development and commercialization of our products +and services. +Our operations have consumed +substantial amounts of cash since inception. The net losses of Thunder Power Holdings Limited were $2.50 and $1.82 million for the years +ended December 31, 2024 and 2023, respectively. We anticipate that our future cash requirements will continue to be significant and +we will need to obtain additional financing beyond that being provided by the Business Combination to implement our business plan as described +in this prospectus. Specifically, we may need to raise additional funds to complete the research and development, testing, manufacturing, +marketing, and shipping of our vehicles, as well as to support the continued research and development of our vehicles and the development +of other models, and to build contingencies for unforeseen events. Such financings could include equity financing, which may be dilutive +to stockholders, or debt financing, which would likely restrict our ability to borrow from other sources. In addition, such securities +may contain rights, preferences or privileges senior to those of the rights of the stockholders of the Company upon the closing thereof. +Additional funds may not be available when we need them, on terms attractive to us, or at all. +If adequate funds are not +available on a timely basis, we may be required to curtail the development of our technology, products or services, or materially delay, +curtail, reduce or terminate our research and development and commercialization activities. We could be forced to sell or dispose of +our rights or assets. Any inability to raise adequate funds on commercially reasonable terms could have a material adverse effect on +our business, financial condition, results of operation and prospects, including the possibility that a lack of funds could cause our +business to fail and liquidate with little or no return to investors. +Thunder Power’s management has limited experience in operating +a public company. +Thunder Power’s management +has limited experience in the management of a publicly traded company. Thunder Power’s management team may not successfully or +effectively manage its transition to a public company that will be subject to significant regulatory oversight and reporting obligations +under U.S. federal securities laws. Their limited experience in dealing with the increasingly complex laws pertaining to public companies +could be a significant disadvantage in that it is likely that an increasing amount of their time may be devoted to these activities which +will result in less time being devoted to the management and growth of the post-combination company. Thunder Power may not have +adequate personnel with the appropriate level of knowledge, experience and training in the accounting policies, practices or internal +control over financial reporting required of public companies in the U.S. Any fault in Thunder Power’s finance and accounting +systems could impact its ability or prevent it from timely reporting its operating results, timely filing required reports with the SEC +and complying with Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”). The +development and implementation of the standards and controls necessary for Thunder Power to achieve the level of accounting standards +required of a public company in the U.S. may require costs greater than expected. It is possible that Thunder Power will be required +to expand its employee base and hire additional employees to support its operations as a public company which will increase its operating +costs in future periods. +We are actively negotiating with our affiliates +to license the intellectual property and technology rights at the core of our business plan, and our inability to obtain and maintain +these licenses could materially affect our business, financial condition, and operating results. +Our entire business model +depends on intellectual property we do not own. We are actively negotiating with our affiliates to license critical intellectual property +and technology rights that form the core of our business plan. As of the date of this prospectus, we have not secured any licensing agreements. +If we fail to obtain these licenses on favorable terms, or at all, our ability to develop, manufacture, and sell our products would be +severely compromised, potentially rendering our business model unviable. Even if we secure these licenses, we may face challenges in +maintaining them, or the licenses may be terminated, significantly impacting our operations. Our lack of direct ownership of key patents +and technologies exposes us to substantial risk and uncertainty regarding our ability to execute our business strategy. +23 +If we are unable to maintain +our planned license agreements, our ability to continue developing, designing, manufacturing, distributing, and selling our products +would be limited and may require us to stop operations entirely. If any such future license agreement is terminated for any reason, we +may be forced to acquire or develop alternative technology, which we may be unable to do in a commercially feasible manner, if at all, +and may require us to use alternative technology of lower quality or performance standards. This would, in turn, limit, delay or disrupt +our ability to offer new or competitive products and could also increase our costs, which would adversely affect our margins, market +share, business, financial condition, and operating results. +The obligations associated with being a +public company involve significant expenses and require significant resources and management attention, which may divert from our business +operations. +As a public company, we +are subject to the ongoing reporting requirements of the Exchange Act and Sarbanes-Oxley Act. The Exchange Act requires the +filing of annual, quarterly, and current reports with respect to our business and financial condition. The Sarbanes-Oxley Act requires, +among other things, that we establish and maintain effective internal controls over financial reporting. As a result, we have and expect +to continue to incur significant legal, accounting, and other expenses that Thunder Power did not incur prior to the Business Combination. +For example, these rules and regulations may make it more difficult or more expensive for us to obtain director and officer liability +insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same +or similar coverage. Additionally, our officers and many of our other employees may need to devote substantial time and attention to +regulatory compliance which may divert their time and attention from our business operations. +The inability to attract and retain qualified +personnel may adversely impact our business. +If we fail to attract, hire +and retain qualified personnel, we may not be able to develop, market or sell our products or successfully manage our business. We are +dependent upon a highly skilled, experienced and efficient workforce to be successful. The inability to attract and hire qualified individuals +or the loss of key employees in very skilled areas could have a negative effect on our financial results. +Uninsured losses could result in payment +of substantial damages, which would decrease our cash reserves and could harm our cash flow and financial condition. +In the ordinary course of +business, we may be subject to losses resulting from product liability, accidents, acts of God and other claims against us, for which +we may have no insurance coverage. While we currently carry insurance that is customary for our size and operations, we may not maintain +as much insurance coverage as other original equipment manufacturers do, and in some cases, we may not maintain any at all. Additionally, +the policies that we have may include significant deductibles, and we cannot be certain that our insurance coverage will be sufficient +to cover all or any future claims against us. A loss that is uninsured or exceeds policy limits may require us to pay substantial amounts, +which could adversely affect our financial condition and results of operations. Further, insurance coverage may not continue to be available +to us or, if available, may be at a significantly higher cost, especially if insurance providers perceive any increase in our risk profile +in the future. +Our strategy to outsource various elements +of the products and services we sell may subject us to the business risks of our future third-party service providers, which could have +a material adverse impact on our operations. +In areas where we will depend +on third-party service providers for retail product distribution and full-service networks, we will be subject to the risk of customer +dissatisfaction with the quality or performance of the products or services we sell due to third-party service provider’s failure. +Third-party service providers may not have the same incentives we do and may not allocate adequate or sufficient time and/or resources +for performing services for us. In addition, business difficulties experienced by a third-party service provider could lead to the +interruption of our ability to distribute products or provide services and ultimately our inability to supply products or services to +our customers. Third-party service provider business interruptions may include, but are not limited to, work stoppages, union negotiations +and other labor disputes. Current or future economic conditions could also impact the ability of third-party service providers to access +credit and, thus, impair their ability to provide us quality services in a timely manner, or at all. +24 +Our business and prospects will depend +significantly on our brand. +Our business and prospects +will heavily depend on our ability to develop, maintain and strengthen the “Thunder Power” brand association with luxury +and technological excellence. Promoting and positioning our brand will likely depend significantly on our ability to provide a consistently +high-quality customer experience, an area in which we have limited experience. To promote our brand, we will be required to invest +in, and over time we may be required to change our customer development and branding practices, which could result in substantially increased +expenses, including the need to use traditional media such as television, radio and print advertising. Our ability to successfully position +our brand could also be adversely affected by perceptions about the quality of our competitors’ vehicles or our competitors’ +success. For example, certain of our competitors have been subject to significant scrutiny for incidents involving their self-driving technology +and battery fires, which could result in similar scrutiny of us. +In particular, any negative +publicity, whether or not true, can quickly proliferate on social media and harm consumer perception and confidence in our brand. The +growing use of social media increases the speed with which information and opinions can be shared and, thus, the speed with which a company’s +reputation can be affected. If we fail to correct or mitigate misinformation or negative information, including information spread through +social media or traditional media channels, about us, the products we offer, our customer experience, or any aspect of our brand, our +business, sales and results of operations could be adversely impacted. From time to time, our vehicles or those of our competitors may +be evaluated and reviewed by third parties. Perceptions of our offerings in the marketplace may be significantly influenced by these +reviews, which are disseminated via various media, including the internet. Any negative reviews or reviews which compare us unfavorably +to competitors could adversely affect consumer perception about our vehicles and reduce demand for our vehicles, which could have a material +adverse effect on our business, results of operations, prospects and financial condition. +Risks Related to Regulation and Litigation +The SEC and other parties may find that +Thunder Power’s public-relations information before the production on any of our EVs may have misled investors or conditioned +the market for investors or that we may have omitted to provide information that investors may reasonably find important to their investment +decision. +There is always a risk against +making false claims about the prospects of an EV technology company. One such notable case was United States of America v. Trevor +Milton, No. 21-00478, U.S. District Court, Southern District of New York, 21 Cr. 478 (ER) (“ Nikola” ). +Nikola involved an electric truck maker who the SEC alleged in 2020-2021 defrauded its investors with false claims +about its EV technology. In a cease-and-desist order against Nikola and the subsequent case S.E.C. v. Milton, No. 21 Civ. 06445 +(AKH), the SEC said that Trevor Milton (“Milton”), the founder and one-time chairperson of Nikola, lied to inflate stock +prices during the company’s public-relations campaign to investors by making forward-looking statements since the company +had not yet produced a single vehicle. Other misleading and forward-looking statements included claims about Nikola’s technological +advancements, in-house production capabilities, hydrogen production, truck reservations and orders, financial outlook, refueling +time, and a potential partnership with a globally known car maker. Several electric vehicle prototypes of the Sedan and City Car were +built by TongGao Advanced Manufacturing Technology (Taicang) Co. Ltd, an affiliate of Thunder Power. There prototypes were built for +the purpose of showcasing Thunder Power’s technology and for early fundraising purpose. Thunder Power has not produced a single +electric vehicle and all our statements in this prospectus regarding our production capabilities, technologies, weight, charging time, +driving range and potential partnerships are forecasts or forward-looking statements based on our own beliefs, opinions, and internal +research, development and testing. +25 +Some of our directors, officers and assets +reside or be located outside of the United States, which may cause investors difficulty in enforcing judgments against our directors +and officers. +Some of our directors and +officers reside outside the United States and a majority of our assets are located outside the United States. As a result, +it may be difficult or impossible to effect service of process within the United States upon these directors and officers, or to +recover against those persons on judgments of United States courts, including judgments predicated upon the civil liability provisions +of the United States federal securities laws. Moreover, it is not certain that a court in the British Virgin Islands, Hong Kong, +or Taiwan would award damages on the same basis as a United States court, or that a British Virgin Islands, Hong Kong, or Taiwanese +court would enforce foreign judgments if it viewed the amount of damages as excessive or inconsistent with local practice or public policy. +Further, the United States +may not be declared by the Government of other countries to be a reciprocating territory for the purposes of enforcement of foreign judgments, +and there are grounds upon which British Virgin Islands, Hong Kong, or Taiwan courts may decline to enforce the judgments of United States +courts. Some remedies available under the laws of the United States, including remedies available under the United States federal +securities laws, may not be allowed in British Virgin Islands, Hong Kong, or Taiwan courts if deemed contrary to public policy in +such jurisdictions. +Our affiliated parties such as our major +shareholders may be involved in governmental investigations and civil litigation relating to the business affairs of companies with which +they are, were or may in the future be affiliated with. +Our controlling shareholder, +Mr. Wellen Sham, is currently the defendant in significant legal proceedings that could materially impact our business. Mr. Sham faces +criminal prosecution in Taiwan on 11 indictments related to securities violations, breaches of fiduciary duty, and other financial matters. +Additionally, he is subject to multiple civil actions seeking his dismissal as chairman of a related company and claiming damages for +investors. While these proceedings do not directly involve our company, they create substantial risks, including: +● Potential +reputational damage affecting our ability to secure partnerships, investments, and customer +trust; +● Diversion +of Mr. Sham’s attention from our business operations; +● Possible +loss of Mr. Sham’s leadership or voting control if legal actions are successful; +● Challenges +in accessing capital markets or obtaining favorable terms from suppliers and partners. +26 +Mr. Wellen Sham, Thunder +Power’s former Chief Executive Officer, is a defendant in a claim brought by the Taiwan Taipei District Prosecutor’s Office +(the “Prosecutor”) in 2022. This claim is currently being litigated in Taiwan Taipei District Court Criminal Division (Taiwan +Taipei District Court, Year 2022, Jin-Chong-Su-Zhi, No. 19) by a public Prosecutor. The prosecution is based on 11 indictments involving +the following: a securities purchase which may have been a related party transaction; the use of a non-exclusive license to offset +a debt owed to a related party; an exclusive authorized sales agent agreement for USD 4,950,000; an agreement for parts for an electric +four-door sedan for USD 4,480,000; a land purchase in a non-arm’s length related party transaction; executive control over +bonuses of USD 150,000, USD 50,000, USD 100,000, and NTD 6,000,000 from affiliates; utilization of funds to cover all expenses associated +with a seminar hosted by Thunder Power Electric Vehicle Limited (“TPEV”); utilization of funds to cover the salaries of employees; +and instructions to issue a false press release with the aim of disseminating rumors or misleading information (collectively, the “Criminal +Prosecution”). In conjunction with the Criminal Prosecution, Taiwan’s Securities Investor and Futures Trader Protection Center +(“SFIPC”), based on the content of the Criminal Prosecution, initiated civil actions against Mr. Sham, including: requesting +that Mr. Sham shall bear liability for damages incurred by EPTECH; asserting Mr. Sham should be dismissed from the position +of Chairman of EPTECH; asserting that Mr. Sham shall bear liability for damages incurred by investors of EPTECH; and applying for +a provisional seizure procedure against Mr. Sham. While Thunder Power is unable to predict the outcome of these matters with certainty, +in response to the foregoing accusations, Mr. Sham sought relief by asserting his innocence, appointing a defense attorney, applying +for an investigation of favorable evidence, and actively exercising his right to defend himself. +The outcome of these legal +matters is uncertain and could have far-reaching consequences for our business strategy, operations, and future prospects. +We are subject to substantial laws and +regulations that could impose substantial costs, legal prohibitions or unfavorable changes upon our operations or products, and any failure +to comply with these laws and regulations, including as they evolve, could substantially harm our business and results of operations. +We are or will be subject +to complex environmental, manufacturing, health and safety laws and regulations at numerous jurisdictional levels, including laws relating +to the use, handling, storage, recycling, disposal and human exposure to hazardous materials and with respect to constructing, expanding +and maintaining our facilities. The costs of compliance, including remediating contamination if any is found on our properties and any +changes to our operations mandated by new or amended laws, may be significant. We may also face unexpected delays in obtaining permits +and approvals required by such laws in connection with our manufacturing facilities, which would hinder our ability to continue our commercial +manufacturing operations. Such costs and delays may adversely impact our business prospects and results of operations. Furthermore, any +violations of these laws may result in substantial fines and penalties, remediation costs, third party damages, or a suspension or cessation +of our operations. +In addition, models will +be to substantial regulation under international, federal, state and local laws. We have incurred, and expect to continue to incur, significant +costs in complying with these regulations. Any failures to comply could result in significant expenses, delays or fines. In the United States, +vehicles must meet or exceed all federally mandated motor vehicle safety standards to be certified under the federal regulations. Rigorous +testing and the use of approved materials and equipment are among the requirements for achieving federal certification. Any future vehicles +will be subject to substantial regulation under federal, state and local laws and standards. These regulations include those promulgated +by the U.S. Environmental Protection Agency, NHTSA, other federal agencies, various state agencies and various state boards, and +compliance certification is required for each individual vehicle we manufacture for sale. These laws and standards are subject to change +from time to time, and we could become subject to additional regulations in the future, which would increase the effort and expense of +compliance. In addition, federal, state and local laws and industrial standards for electric vehicles are still developing, and we face +risks associated with changes to these regulations, which could have an impact on the acceptance of our electric vehicles, and increased +sensitivity by regulators to the needs of established automobile manufacturers with large employment bases, high fixed costs and business +models based on the internal combustion engine, which could lead them to pass regulations that could reduce the compliance costs of such +established manufacturers or mitigate the effects of government efforts to promote electric vehicles. Compliance with these regulations +is challenging, burdensome, time consuming and expensive. If compliance results in delays or substantial expenses, our business could +be adversely affected. +We also expect to become +subject to laws and regulations applicable to the supply, manufacture, import, sale and service of automobiles internationally, including +in Europe, the Middle East and China. Applicable regulations in countries outside of the U.S., such as standards relating to vehicle +safety, fuel economy and emissions, among other things, are often materially different from requirements in the United States. Compliance +with such regulations will therefore require additional time, effort and expense to ensure regulatory compliance in those countries. +This process may include official review and certification of our vehicles by foreign regulatory agencies prior to market entry, as well +as compliance with foreign reporting and recall management systems requirements. There can be no assurance that we will be able to achieve +foreign regulatory compliance in a timely manner and at our expected cost, or at all, and the costs of achieving international regulatory +compliance or the failure to achieve international regulatory compliance could harm our business, prospects, results of operations and +financial condition. +27 +We may have to choose in the future, or +we may be compelled, to undertake product recalls or take other actions, which could adversely affect our business, prospects, results +of operations, reputation and financial condition. +Product recalls may result +in adverse publicity, damage our reputation and adversely affect our business, prospects, results of operations and financial condition. +If a large number of vehicles are the subject of a recall or if needed replacement parts are not in adequate supply, we may be unable +to service and repair recalled vehicles for a significant period of time. These types of disruptions could jeopardize our ability to +fulfill existing contractual commitments or satisfy demand for our electric vehicles and could also result in the loss of business to +our competitors. Such recalls, whether caused by systems or components engineered or manufactured by us or our suppliers, would involve +significant expense and diversion of management’s attention and other resources, which could adversely affect our brand image in +our target market and our business, prospects, results of operations and financial condition. +In the future, if we develop or acquire +proprietary intellectual property, protecting such intellectual property will be critical to our operations and we may suffer competitive +harm from infringement on such rights. +If we develop or acquire +new technologies, it will be critical that we protect our intellectual property assets against third-party infringement. If we develop +or acquire intellectual property, there is a risk that our patent applications may not be granted, or we may not receive sufficient protection +of our proprietary interests. We may also expend considerable resources in defending any future patents against third-party infringement. +It may become critical that we protect our proprietary intellectual property interests to prevent competitive harm. +We are subject to legal proceedings, regulatory +disputes and governmental inquiries that could cause us to incur significant expenses, divert our management’s attention, and adversely +affect our business, results of operations, cash flows and financial condition. +From time to time, we may +be subject to claims, lawsuits, government investigations and other proceedings involving product liability, consumer protection, competition +and antitrust, intellectual property, privacy, securities, tax, labor and employment, health and safety, our direct distribution model, +environmental claims, commercial disputes and other matters that could adversely affect our business, results of operations, cash flows +and financial condition. In the ordinary course of business, we have been the subject of complaints or litigation, including claims related +to employment matters. +Litigation and regulatory +proceedings may be protracted and expensive, and the results are difficult to predict. Additionally, our litigation costs could be significant, +even if we achieve favorable outcomes. Adverse outcomes with respect to litigation or any of these legal proceedings may result in significant +settlement costs or judgments, penalties and fines, or require us to modify, make temporarily unavailable or stop manufacturing or selling +our vehicles in some or all markets, all of which could negatively affect our sales and revenue growth and adversely affect our business, +prospects, results of operations, cash flows and financial condition. +The results of litigation, +investigations, claims and regulatory proceedings cannot be predicted with certainty, and determining reserves for pending litigation +and other legal and regulatory matters requires significant judgment. There can be no assurance that our expectations will prove correct, +and even if these matters are resolved in our favor or without significant cash settlements, these matters, and the time and resources +necessary to litigate or resolve them, could harm our business, results of operations, cash flows and financial condition. In addition, +the threat or announcement of litigation or investigations by governmental authorities or other parties, irrespective of the merits of +the underlying claims, may itself have an adverse impact on the trading price of our common stock. +28 +We may become subject to product liability +claims, which could harm our financial condition and liquidity if we are not able to successfully defend or insure against such claims. +We may become subject to +product liability claims, which could harm our business, prospects, results of operations and financial condition. The automotive industry +experiences significant product liability claims, and we face inherent risks of exposure to claims in the event our production vehicles +do not perform or are claimed not to perform as expected or malfunction, resulting in property damage, personal injury or death. We also +expect that, as is true for other automakers, our vehicles will be involved in crashes resulting in death or personal injury, and even +if not caused by the failure of our vehicles, we may face product liability claims and adverse publicity in connection with such incidents. +In addition, we may face claims arising from or related to failures, claimed failures or misuse of new technologies that we expect to +offer. In addition, the battery packs that we produce make use of lithium-ion cells. On rare occasions, lithium-ion cells +can rapidly release the energy they contain by venting smoke and flames in a manner that can ignite nearby materials as well as other +lithium-ion cells. While we have designed our battery packs to passively contain a single cell’s release of energy without +spreading to neighboring modules, there can be no assurance that a field or testing failure of our vehicles or other battery packs that +we produce will not occur, in particular due to a high-speed crash. In addition, although we equip our vehicles with systems designed +to detect and warn vehicle occupants of such thermal events, there can be no assurance that such systems will function as designed or +will provide vehicle occupants with sufficient, or any, warning in all circumstances. Any such events or failures of our vehicles, battery +packs or warning systems could subject us to lawsuits, product recalls or redesign efforts, all of which would be time consuming and +expensive. +A successful product liability +claim against us could require us to pay a substantial monetary award. Our risks in this area are particularly pronounced in light of +the limited field experience of our vehicles. Moreover, a product liability claim against us or our competitors could generate substantial +negative publicity about our vehicles and business and inhibit or prevent commercialization of our future vehicles, which would have +material adverse effect on our brand, business, prospects and results of operations. Our insurance coverage might not be sufficient to +cover all potential product liability claims, and insurance coverage may not continue to be available to us or, if available, may be +at a significantly higher cost. Any lawsuit seeking significant monetary damages or other product liability claims may have a material +adverse effect on our reputation, business and financial condition. +We may be exposed to delays, limitations +and risks related to the environmental permits and other operating permits required to establish or operate our manufacturing facilities. +Operation of an automobile +manufacturing facility requires land use and environmental permits and other operating permits from federal, state and local government +entities. We believe that we will have the permits necessary to carry out and perform our current plans and operations at our future +US manufacturing facilities based on our current targeted production capacity. We plan to build our manufacturing facilities and construct +additional manufacturing facilities over time to achieve a future target production capacity and will be required to apply for and secure +various environmental, wastewater, and land use permits and certificates of occupancy necessary for the commercial operation of such +expanded and additional facilities. Delays, denials or restrictions on any of the applications for or assignment of the permits to operate +our manufacturing facilities could adversely affect our ability to execute on our business plans and objectives based on our current +target production capacity or our future target production capacity. +We are subject to various environmental, +health and safety laws and regulations that could impose substantial costs on us and cause delays in building and subsequently expanding +our production facilities. +Our operations are subject +to federal, state and local environmental laws and regulations and will be subject to international environmental laws, including laws +relating to the use, handling, storage, disposal of and human exposure to hazardous materials. Environmental, health and safety laws +and regulations are complex, and we have limited experience complying with them. Moreover, we may be affected by future amendments to +such laws or other new environmental, health and safety laws and regulations which may require us to change our operations, potentially +resulting in a material adverse effect on our business, prospects, results of operations and financial condition. These laws can give +rise to liability for administrative oversight costs, cleanup costs, property damage, bodily injury, fines and penalties. Capital and +operating expenses needed to comply with environmental laws and regulations can be significant, and violations could result in substantial +fines and penalties, third-party damages, suspension of production or a cessation of our operations. +Contamination at properties +we own or operate, properties we formerly owned or operated or properties to which we sent hazardous substances may result in liability +for us under environmental laws and regulations, including, but not limited to, the Comprehensive Environmental Response, Compensation +and Liability Act, which can impose liability for the full amount of remediation-related costs without regard to fault, for the +investigation and cleanup of contaminated soil and ground water, for building contamination and impacts to human health and for damages +to natural resources. The costs of complying with environmental laws and regulations and any claims concerning noncompliance, or liability +with respect to contamination in the future, could have a material adverse effect on our financial condition or results of operations. +29 +Our operations are also +subject to federal, state, and local workplace safety laws and regulations, including, but not limited to, the Occupational Health and +Safety Act, which require compliance with various workplace safety requirements, including requirements related to environmental safety. +These laws and regulations can give rise to liability for oversight costs, compliance costs, bodily injury (including workers’ +compensation), fines, and penalties. +Additionally, non-compliance could +result in delay or suspension of production or cessation of operations. The costs required to comply with workplace safety laws can be +significant, and non-compliance could adversely affect our production or other operations, including with respect to the production +of our first models, the Coupe and the City Car, which could have a material adverse effect on our business, prospects and results of +operations. +We are subject to risks associated with autonomous driving and +advanced driver assistance system technology, and we cannot guarantee that our vehicles will achieve our targeted assisted or autonomous +driving functionality within our projected timeframe, if ever. +Our vehicles are designed +with a modularized chassis system. This approach contrasts with the normal industry practice for internal combustion engine manufacturers +(“ICE”), where other components, such as the engine, gearbox, and fuel tank, need to be taken into consideration before styling +can be completed. The modular chassis allows a much simpler solution for the chassis design, thereby reducing development time and cost +with new vehicle development. Additionally, vehicle stiffness/rigidity is enhanced, and weight is reduced in comparison to the weight +of other electric vehicles. +Advanced Driver Assistance +Systems (“ADAS”) technologies are emerging and becoming increasingly common in electric vehicles. ADAS is subject to known +and unknown risks, and there have been accidents and fatalities associated with such technologies. The safety of such technologies depends +in part on user interaction, and users, as well as other drivers on the roadways, may not be accustomed to using or adapting to such +technologies. In addition, self-driving technologies are the subject of intense public scrutiny and interest, and previous accidents +involving autonomous driving features in other vehicles, including alleged failures or misuse of such features, have generated significant +negative media attention and government investigations. We and others in our industry are subject to a Standing General Order issued +by NHTSA that requires us to report any crashes in which certain ADAS features were active, and these crash reports will become publicly +available. To the extent accidents associated with our ADAS technologies occur, we could be subject to significant liability, negative +publicity, government scrutiny and further regulation. Any of the foregoing could materially and adversely affect our results of operations, +financial condition and growth prospects. +In addition, we face substantial +competition in the development and deployment of ADAS technologies. Many of our competitors, including established automakers and technology +companies, have devoted significant time and resources to developing self-driving technologies. If we are unable to develop competitive +Level 2 or more advanced ADAS technologies in-house or acquire access to such technologies via partnerships or investments in other +companies or assets, we may be unable to equip our vehicles with competitive ADAS features, which could damage our brand, reduce consumer +demand for our vehicles or trigger cancellations of reservations and could have a material adverse effect on our business, results of +operations, prospects and financial condition. +ADAS technology is also +subject to considerable regulatory uncertainty, which exposes us to additional risks. +We face risks associated with international +operations, including unfavorable regulatory, political, tax and labor conditions, which could harm our business. +We anticipate having operations +in the United States, Europe and distributions in the United States, European and Asian markets, each that which may be subject +to the legal, political, regulatory and social requirements and economic conditions in these jurisdictions. We are subject to a number +of risks associated with international business activities that may increase our costs, impact our ability to sell, service and manufacture +our vehicles, and require significant management attention. These risks include: +● conforming +our vehicles to various international regulatory requirements where our vehicles are sold, or homologation; +30 +● establishing +localized supply chains and managing international supply chain and logistics costs; +● establishing +sufficient charging points for our customers in those jurisdictions, via partnerships or, +if necessary, via development of our own charging networks; +● difficulty +in staffing and managing foreign operations; +● difficulties +attracting customers in new jurisdictions; +● difficulties +establishing international manufacturing operations, including difficulties establishing +relationships with or establishing localized supplier bases and developing cost-effective and +reliable supply chains for such manufacturing operations and financing such manufacturing +operations; +● foreign +government taxes, regulations and permit requirements; +● inflation +as well as fluctuations in foreign currency exchange rates and interest rates, including +risks related to any forward currency contracts, interest rate swaps or other hedging activities +we undertake; +● United States +and foreign government trade restrictions, tariffs and price or exchange controls; +● foreign +labor laws, regulations and restrictions; +● foreign +data privacy and security laws, regulations and obligations; +● changes +in diplomatic and trade relationships, including political risk and customer perceptions +based on such changes and risks; +● political +instability, natural disasters, pandemics, war or events of terrorism; and +● the +strength of international economies. +If we fail to successfully +address these risks, our business, prospects, results of operations and financial condition could be materially harmed. +Increasing scrutiny and changing expectations +from global regulations, our investors, customers and personnel with respect to our ESG practices may impose additional costs on us or +expose us to new or additional risks. +There is increased focus, +including from governmental organizations and investors, customers and personnel, on ESG issues such as environmental stewardship, climate +change, diversity and inclusion, racial justice and workplace conduct. There can be no certainty that we will manage such issues successfully, +or that we will successfully meet society’s expectations as to our proper role. Negative public perception, adverse publicity or +negative comments in social media could damage our reputation if we do not, or are not perceived to, adequately address these issues. +Any harm to our reputation could impact our personnel’s engagement and retention and the willingness of our customers and partners +to do business with us. +It is possible that our +stakeholders may not be satisfied with our ESG practices, or the speed of their adoption and our systems may not be adequate to meet +increasing global regulations on ESG topics. Actual or perceived shortcomings with respect to our ESG initiatives and reporting could +negatively impact our business. We could also incur additional costs and require additional resources to monitor, report, and comply +with various ESG practices. In addition, a variety of organizations have developed ratings to measure the performance of companies on +ESG topics, and the results of these assessments are widely publicized. Investment in funds that specialize in companies that perform +well in such assessments are increasingly popular, and major institutional investors have publicly emphasized the importance of such +ESG measures to their investment decisions. Unfavorable ratings of our company or our industries, as well as non-inclusion of our +stock on ESG-oriented investment funds, may lead to negative investor sentiment and the diversion of investment to other companies +or industries, which could have a negative impact on our stock price. +31 +In addition, due to the +impacts of climate change, there are increasing risks to our business, including physical risks such as wildfires, floods, tornadoes +or other events, that could cause disruptions to our supply chain, manufacturing, and corporate functions. We may incur additional costs +and resources preparing for and addressing such risks. +Various states’ automobile manufacturer +and dealer regulations may limit Thunder Power’s ability to implement its business model for the sale of the Coupe and for the +servicing of its entire family of EVs in the U.S. EV market. +In the United States, +state laws regulate the manufacture, distribution, sale and service of automobiles, and generally require motor vehicle manufacturers +and dealers to be licensed in order to sell vehicles directly to residents. Certain states do not permit automobile manufacturers to +be licensed as dealers or to act in the capacity of a dealer, or otherwise restrict a manufacturer’s ability to deliver or service +vehicles. To sell vehicles to residents of states where Thunder Power is not licensed as a dealer, Thunder Power expects to conduct the +transfer of title out of the state. In certain such states, Thunder Power expects to open Studios that serve an educational purpose and +where the title transfer may not occur. +Some automobile dealer trade +associations may challenge the legality of Thunder Power’s operations and direct selling operations by OEMs in court and may use +administrative and legislative processes to attempt to prohibit or limit such original equipment manufacturers’ (“OEMs”) +ability to operate existing stores or expand to new locations. Certain dealer associations may also actively lobbied state licensing +agencies and legislators to interpret existing laws or enact new laws in ways not favorable to Thunder Power’s planned direct sales +and service model. Thunder Power expects dealer trade associations to continue to lobby state licensing agencies and legislators to interpret +existing laws or enact new laws in ways not favorable to its business model; however, Thunder Power intends to oppose such efforts to +limit its ability to operate and intends to proactively support legislation that enables its business model. +Should Thunder Power not +be allowed to develop relationships with the largest multi-brand and high-end brand dealers in the U.S. it would be difficult +for it as a newcomer to the U.S. EV market to gain a foothold in the U.S. Thunder Power recognizes that its best strategy for +market penetration is to align itself with a U.S. dealership network, especially for sale of the Coupe, and the eventual servicing +of its family of EVs. +If Thunder Power is successful +in building out its business model without limitations from legislations, trade associations or lobbyist, it may be able to explore having +a relationship with one of the large service providers for EVs in the U.S. This potential partner currently maintains 1,000 technicians, +750 mobile service trucks and 24/7 call centers for warranty and service processing. This potential partner is currently servicing reputable +BYD commercial vehicles. In addition, a sister company of this potential partner specializes in and is the leading full-service provider +of repair/remanufacture, storage, distribution and logistics, first life extension and recycling services on the entire battery life +cycle. Together these two companies are subsidiaries of a large $21 billion revenue privately held company in the U.S. and +would offer great potential to Thunder Power should the service segment of Thunder Power’s business model materializes. Thunder +Power has not entered into any formal discussions or negotiations with this potential partner and there is no guarantee that Thunder +Power will ever do so. +ADAS technology is subject to uncertain +and evolving regulations. +We expect to introduce certain +ADAS technologies into our vehicles over time. ADAS technology is subject to considerable regulatory uncertainty as the law evolves to +catch up with the rapidly evolving nature of the technology itself, all of which is beyond our control. There is a variety of international, +federal and state regulations that may apply to self-driving and driver-assisted vehicles, which include many existing vehicle +standards that assume a human driver will be controlling the vehicle at all times. There are currently no federal U.S. regulations +pertaining to the safety of self-driving vehicles; however, NHTSA has established recommended guidelines. Certain states have legal +restrictions on self-driving vehicles, and many other states are considering them. In Europe, certain vehicle safety regulations +apply to self-driving braking and steering systems, and certain treaties also restrict the legality of certain higher levels of +self-driving vehicles. Self-driving laws and regulations are expected to continue to evolve in numerous jurisdictions in the +United States and foreign countries, which increases the likelihood of a patchwork of complex or conflicting regulations or may +delay products or restrict self-driving features and availability, which could adversely affect our business. Our vehicles may not +achieve compliance with the regulatory requirements in some countries or jurisdictions for certification and rollout to consumers or +satisfy changing regulatory requirements which could require us to redesign, modify or update our ADAS hardware and related software +systems. Any such requirements or limitations could impose significant expense or delays and could harm our competitive position, which +could adversely affect our business, prospects, results of operations and financial condition. +32 +Our auditor, Assentsure PAC, is headquartered +in Singapore, and is subject to inspection by the PCAOB on a regular basis. To the extent that our independent registered public +accounting firm’s audit documentation related to their audit reports for our business activities in Hong Kong or Taiwan, the +PCAOB may not be able inspect such audit documentation and, as such, you may be deprived of the benefits of such inspection and our Common +Stock could be delisted from the stock exchange pursuant to the Holding Foreign Companies Accountable Act. +The Holding Foreign Companies +Accountable Act, or the HFCAA, was enacted on December 18, 2020. The HFCAA states if the SEC determines that we have filed audit +reports issued by a registered public accounting firm that has not been subject to inspection by the Public Company Accounting Oversight +Board (the “PCAOB”) for three consecutive years beginning in 2021, the SEC shall prohibit our shares from being traded +on a national securities exchange or in the over-the-counter trading market in the United States. +Pursuant to the HFCAA, the +PCAOB issued a Determination Report on December 16, 2021 which found that the PCAOB is unable to inspect or investigate completely +registered public accounting firms headquartered in parts of the PRC including: (i) Mainland China, and (ii) Hong Kong. +In addition, the PCAOB’s report identified the specific registered public accounting firms which are subject to these determinations. +Our auditor, Assentsure PAC, is headquartered in Singapore and is subject to inspection by the PCAOB once every three years or as +determined by the PCAOB. Our auditor is not headquartered in the PRC and was not identified in this report as a firm subject to +the PCAOB’s determination. +Our independent registered +public accounting firm issued an audit opinion on the financial statements included in this report filed with the SEC and will issue +audit reports related to us in the future. As auditors of companies that are traded publicly in the United States and a firm registered +with the PCAOB, our auditor is required by the laws of the United States to undergo regular inspections by the PCAOB but there is +a risk that our auditor’s work papers has not been subjected to inspection by the PCAOB or the PCAOB is currently unable to conduct +inspections for reasons unknown or beyond our control. Inspections of certain other accounting firms that the PCAOB has conducted have +identified deficiencies in those firms’ audit procedures and quality control procedures, which may be addressed as part of the +inspection process to improve future audit quality. We are required by the HFCAA to have an auditor that is subject to the inspection +by the PCAOB. While our present auditor is located in the United States and the PCAOB is able to conduct inspections on such +auditor, to the extent this status changes in the future and our auditor’s audit documentation related to their audit reports for +our company becomes outside of the inspection by the PCAOB or if the PCAOB is unable to inspect or investigate completely our auditor +because of a position taken by an authority in a foreign jurisdiction, trading in our Ordinary shares could be prohibited under the HFCAA, +and as a result our ordinary shares could be delisted from NASDAQ. +On March 24, 2021, +the SEC adopted interim final rules relating to the implementation of certain disclosure and documentation requirements of the HFCAA, +which became effective on May 5, 2021. We will be required to comply with these rules if the SEC identifies our auditors as having +a “non-inspection” year under a process to be subsequently established by the SEC. +On May 13, 2021, the +PCAOB proposed a new rule for implementing the HFCAA. Among other things, the proposed rule provides a framework for the PCAOB to +use when determining, under the HFCAA, whether it is unable to inspect or investigate completely registered public accounting firms located +in a foreign jurisdiction because of a position taken by one or more authorities in that jurisdiction. The proposed rule would also establish +the manner of the PCAOB’s determinations; the factors the PCAOB will evaluate and the documents and information it will consider +when assessing whether a determination is warranted; the form, public availability, effective date, and duration of such determinations; +and the process by which the board of the PCAOB can modify or vacate its determinations. The proposed rule was adopted by the PCAOB on +September 22, 2021 and approved by the SEC on November 5, 2021. +33 +On June 22, 2021, the +U.S. Senate passed AHFCAA which, if passed by the U.S. House of Representatives and signed into law, would reduce the number +of consecutive non-inspection years required for triggering the prohibitions under the HFCAA from three years to two, +under this proposal, if the auditor is not subject to PCAOB inspections for two consecutive years, it will trigger the prohibition +on trading, thus posing more risks on potential delisting as well as the price of Company’s Ordinary shares especially on foreign +companies. +The SEC is assessing how +to implement other requirements of the HFCAA, including the listing and trading prohibition requirements described above. The SEC may +propose additional rules or guidance that could impact us if our auditor is not subject to the PCAOB inspection. For example, on August 6, +2020, the President’s Working Group on Financial Markets, or the PWG, issued the Report on Protecting United States Investors +from Significant Risks from Chinese Companies to the then President of the United States. This report recommended the SEC implement +five recommendations to address companies from jurisdictions that do not provide the PCAOB with sufficient access to fulfill its statutory +mandate. Some of the concepts of these recommendations were implemented with the enactment of the HFCAA. However, some of the recommendations +were more stringent than the HFCAA. For example, if a company was not subject to the PCAOB inspection, the report recommended that +the transition period before a company would be delisted would end on January 1, 2022. +On December 2, 2021, +the SEC issued amendments to finalize the interim final rules previously adopted in March 2021, and established procedures to identify +issuers and prohibit the trading of the securities of certain registrants as required by the HFCAA. +While the HFCAA is not currently +applicable to us because our current auditors are subject to PCAOB review, if this changes in the future for any reason, we may +be subject to the HFCAA. The implications of this regulation as applied to us is uncertain. Such uncertainty could cause the market +price of our ordinary shares to be materially and adversely affected, and our securities could be delisted or prohibited from being traded on +Nasdaq earlier than would be required by the HFCAA. If our Common Stock are unable to be listed on another securities exchange, +such a delisting may substantially impair your ability to sell or purchase our Common Stock, and the risk and uncertainty associated +with a potential delisting would have a negative impact on the price of the Common Stock. +Risks Related to Thunder Power’s Products and Services +We have not yet commenced mass production, +and any significant delay in the design, manufacture, launch and financing could make it difficult for us to commence production and +harm our business and prospects. +Our plan to commercially +manufacture and sell our vehicles is dependent upon the timely availability of funds, upon our finalizing of the related design, engineering, +component procurement, testing, build-out and manufacturing plans in a timely manner and also upon our ability to execute these +plans within the planned timeline. Automobile manufacturers often experience delays in the design, manufacture and commercial release +of new vehicle models, and if we experience significant delays in any of the foregoing processes, it would be difficult for us to commence +production, which could harm our business and prospects. +Many of our vehicles are +still in the development and/or testing phase, and may occur later or not at all. Additionally, prior to mass production of our electric +vehicles, we will also need the vehicles to be fully approved for sale according to differing requirements, including but not limited +to regulatory requirements, in the different geographies where we intend to launch our vehicles. Likewise, we may encounter delays with +the design, construction, and regulatory or other approvals necessary to bring online our future manufacturing facility in the United States. +Furthermore, we would rely +on third party suppliers for the development, manufacture, and/or provision and development of many of the key components and materials +used in our vehicles, as well as provisioning and servicing equipment in our manufacturing facilities. We understand that many automobile +manufacturers have been affected by ongoing, industry-wide challenges in logistics and supply chains, such as increased port congestion, +intermittent supplier delays, a shortfall of semiconductor supply, and international travel restrictions preventing supply quality engineers +from conducting in-person visits and quality engineering for parts production. We expect to face these and similar challenges which +may affect our ability, and the ability of our suppliers, to obtain parts, components and manufacturing equipment on a timely basis, +and in some instances have resulted in increased costs. We expect that these industry-wide trends will continue for the foreseeable +future. To the extent our suppliers experience any delays in providing us with or developing necessary components, we could experience +delays in delivering on our timelines. +34 +Any significant delay or +other complication in the development, manufacture, launch and production ramp of our future products, features and services, including +complications associated with completing and subsequently expanding our production capacity and supply chain or obtaining or maintaining +related regulatory approvals, or inability to manage such ramps cost-effectively, could materially damage our brand, business, prospects, +financial condition and results of operations. +The continued development +of and the ability to manufacture our vehicles, are and will be subject to risks, including with respect to: +● our +ability to ensure readiness of firmware features and functions to be integrated into the +unified hardware network and cloud as planned and on the desired timeline; +● any +delays by us in delivering final component designs to our suppliers; +● our +or our suppliers’ ability to successfully tool their manufacturing facilities as planned +and on the desired timeline; +● our +ability to ensure a working supply chain and desired supplier part quality and quantity as +planned and on the desired timeline; +● our +ability to accurately manufacture vehicles within specified design tolerances; +● our +ability to establish, refine and scale, as well as make significant investments in manufacturing, +supply chain management and logistics functions, including the related information technology +systems and software applications; +● our +ability to adequately reduce and control the costs of key parts and materials; +● our +ability to manage any transitions or changes in our production process, planned or unplanned; +● the +occurrence of product defects that cannot be remedied without adversely affecting the production; +● our +ability to secure necessary funding; +● our +ability to negotiate and execute definitive agreements with various suppliers for hardware, +software, or services necessary to engineer or manufacture our vehicles; +● our +ability to obtain required regulatory approvals and certifications; +● our +ability to comply with environmental, safety, and similar regulations and in a timely manner; +● our +ability to secure necessary components, services, or licenses on acceptable terms and in +a timely manner; +● our +ability to attract, recruit, hire, retain and train skilled personnel including supply chain +management, supplier quality, manufacturing and logistics personnel; +● our +ability to implement effective and efficient quality controls; +● delays +or disruptions in our supply chain including raw material supplies; +● our +ability to maintain arrangements on commercially reasonable terms with our suppliers, delivery +and other partners, after sales service providers, and other operationally significant third +parties; +● other +delays, backlog in manufacturing and research and development of new models, and cost overruns; +and +● any +other risks identified herein. +35 +We expect that we will require +additional financing to fund our planned operations and expansion plans. If we are unable to arrange for required funds under the terms +and on the timeline that we anticipate, our plans for tooling and building out our manufacturing facilities and for commercial production +of our electric vehicles could be significantly delayed, which would materially adversely affect our business, prospects, financial condition +and results of operations. +Our prospect for future growth depends +upon our ability to establish and maintain relationships with our potential suppliers and source suppliers for our critical components, +and to completely build out our supply chain, while effectively managing the risks due to such relationships. +Our success will depend +on our ability to enter into supplier agreements and establish and maintain our relationships with hundreds of suppliers that are critical +to the output and production of our vehicles. We currently have no supply or supplier agreements and the supplier agreements we have +been in discussions regarding, or may enter into with potential key suppliers in the future may have provisions where such agreements +can be terminated in various circumstances, including potentially without cause. To the extent that we do not have long-term supply +agreements with guaranteed pricing for our parts or components, we will be exposed to fluctuations in prices of components, materials +and equipment. In addition, our agreements for the purchase of other components may contain pricing provisions that are subject to adjustment +based on changes in market prices of key commodities. Substantial increases in the prices for such components, materials and equipment, +whether due to supply chain or logistics issues or due to inflation, would increase our operating costs and could reduce our margins +if we cannot recoup the increased costs. Any attempts to increase the announced or expected prices of our vehicles in response to increased +costs could be viewed negatively by our potential customers and could adversely affect our business, prospects, financial condition or +results of operations. +We currently have no supply +or supplier agreements and may be at a disadvantage in negotiating supply or supplier agreements for the production of our vehicles as +we have not commenced the mass production of our vehicles. In addition, given that in many cases we are an aggregator of automotive parts +produced by third party manufacturers, there is the possibility that supply or supplier agreements for the parts and components for our +vehicles could be at costs that make it difficult for us to operate profitably. +The automotive market is highly competitive, +and we may not be successful in competing in this industry. +The global automotive market, +particularly for electric and alternative fuel vehicles, is highly competitive, and we expect it will become even more so in the future. +In recent years, the electric vehicle industry has grown, with several companies that focus completely or partially on the electric +vehicle market. We expect additional companies to enter this market within the next several years. Electric vehicle manufacturers +with which we compete include Tesla, BYD, NIO as well as an increasing number of U.S.-based and international entrants, +many of which have announced plans to begin selling their own electric vehicles in the near-term. We also compete with established automobile +manufacturers in the luxury vehicle segment, many of which have entered or have announced plans to enter the alternative fuel and electric +vehicle market with either fully electric or plug-in hybrid versions of their vehicles. We compete for sales with luxury vehicles +with internal combustion engines from established manufacturers. Many of our current and potential competitors have significantly greater +financial, technical, manufacturing, marketing and other resources than we do and may be able to devote greater resources to the design, +development, manufacturing, distribution, promotion, sale, servicing, and support of their products. In addition, many of these companies +have longer operating histories, greater name recognition, larger and more established sales forces, broader customer and industry relationships +and other resources than we do. Our competitors may be in a stronger position to respond quickly to new technologies and may be able +to design, develop, market and sell their products more effectively than we do. We expect competition in our industry to significantly +intensify in the future in light of increased demand for alternative fuel vehicles, continuing globalization, favorable governmental +policies, and consolidation in the worldwide automotive industry. Our ability to successfully compete in our industry will be fundamental +to our future success in existing and new markets. There can be no assurance that we will be able to compete successfully in our markets. +36 +Our ability to generate meaningful product +revenue will depend on consumer adoption of electric vehicles. +We are developing and producing +only electric vehicles and, accordingly, our ability to generate meaningful product revenue will highly depend on sustained consumer +demand for alternative fuel vehicles in general and electric vehicles in particular. If the market for electric vehicles does not develop +as we expect or develops more slowly than we expect, or if there is a decrease in consumer demand for electric vehicles, our business, +prospects, financial condition and results of operations will be harmed. The market for electric and other alternative fuel vehicles +is relatively new, rapidly evolving, characterized by rapidly changing technologies, price competition, additional competitors, evolving +government regulation (including government incentives and subsidies) and industry standards, frequent new vehicle announcements and +changing consumer demands and behaviors. Any number of changes in the industry could negatively affect consumer demand for electric vehicles +in general and our electric vehicles in particular. +In addition, demand for electric vehicles may +be affected by factors directly impacting automobile prices or the cost of purchasing and operating automobiles such as sales and financing +incentives such as tax credits, prices of raw materials and parts and components, cost of fuel, availability of consumer credit, and +governmental regulations, including tariffs, import regulation and other taxes. Volatility in demand may lead to lower vehicle unit sales, +which may result in downward price pressure and adversely affect our business, prospects, financial condition and results of operations. +Further, sales of vehicles in the automotive industry tend to be cyclical in many markets, which may expose us to increased volatility, +especially as we expand and adjust our operations and retail strategies. Specifically, it is uncertain how such macroeconomic factors +will impact us as a new entrant in an industry that has globally been experiencing a recent decline in sales. +Other factors that may influence the adoption +of electric vehicles include: +● perceptions +about electric vehicle quality, safety, design, performance and cost; +● perceptions +about the limited range over which electric vehicles may be driven on a single battery charge; +● perceptions +about the total cost of ownership of electric vehicles, including the initial purchase price +and operating and maintenance costs, both including and excluding the effect of government +and other subsidies and incentives designed to promote the purchase of electric vehicles; +● concerns +about electric grid capacity and reliability; +● perceptions +about the sustainability and environmental impact of electric vehicles, including with respect +to both the sourcing and disposal of materials for electric vehicle batteries and the generation +of electricity provided in the electric grid; +● the +availability of other alternative fuel vehicles, including plug-in hybrid electric vehicles; +● improvements +in the fuel economy of the internal combustion engine; +● the +quality and availability of service for electric vehicles, especially in international markets; +● volatility +in the cost of oil and gasoline; +● government +regulations and economic incentives promoting fuel efficiency and alternate forms of energy; +37 +● access +to charging stations and cost to charge an electric vehicle, especially in international +markets, and related infrastructure costs and standardization; +● the +availability of tax and other governmental incentives to purchase and operate electric vehicles +or future regulation requiring increased use of nonpolluting vehicles; and +● macroeconomic +factors. +The influence of any of +the factors described above or any other factors may cause a general reduction in consumer demand for electric vehicles or our electric +vehicles in particular, either of which would materially and adversely affect our business, results of operations, financial condition +and prospects. +Until the foreseeable future our revenue +will be significantly dependent on a limited number of models of electric vehicles. +The Company currently has +four models of electric vehicles featured in its phased development strategy and our revenue in the foreseeable future will be significantly +dependent on a limited number of models. Although we have other vehicle models on our product roadmap, we currently do not expect to +introduce another vehicle model for sale to these four models until at least 2030. We expect to rely on sales from the Limited Edition +Coupe (the “Coupe” or “488”), Long-range Sedan (the “Sedan”), Compact City Car (the “City +Car” or “Chloe”) and the Long-range SUV (the “SUV”, the Coupe, Sedan, City Car and SUV collectively +referred to as the “Models”), among other sources of financing, for the capital that will be required to develop and commercialize +those subsequent models. To the extent that production of the models is delayed, reduced, or is not well-received by the market +for any reason, our revenue and cash flow would be adversely affected, we may need to seek additional financing earlier than we expect, +and such financing may not be available to us on commercially reasonable terms, or at all. +Developments in electric vehicle or alternative +fuel technology or improvements in the internal combustion engine may adversely affect the demand for our vehicles. +We may be unable to keep +up with changes in electric vehicle technology or alternatives to electricity as a fuel source and, as a result, our competitiveness +may suffer. Significant developments in alternative technologies, such as alternative battery cell technologies, hydrogen fuel cell technology, +advanced gasoline, ethanol or natural gas, or improvements in the fuel economy of the internal combustion engine, may materially and +adversely affect our business and prospects in ways we do not currently anticipate. Existing and other battery cell technologies, fuels +or sources of energy may emerge as customers’ preferred alternative to the technologies in our electric vehicles. Any failure by +us to develop new or enhanced technologies or processes, or to react to changes in existing technologies, could materially delay our +development and introduction of new and enhanced electric vehicles, which could result in the loss of competitiveness of our vehicles, +decreased revenue and a loss of market share to competitors. In addition, we expect to compete in part on the basis of our vehicles’ +range, efficiency, charging speeds and performance, and improvements in the technology offered by competitors could reduce demand for +our models or other future vehicles. As technologies change, we plan to upgrade or adapt our vehicles and introduce new models that reflect +such technological developments, but our vehicles may become obsolete, and our research and development efforts may not be sufficient +to adapt to changes in alternative fuel and electric vehicle technology. Additionally, as new companies and larger, existing vehicle +manufacturers continue to enter the electric vehicle space, we may lose any technological advantage we may have and suffer a decline +in our competitive position. Any failure by us to successfully react to changes in existing technologies or the development of new technologies +could materially harm our competitive position and growth prospects. +We will be dependent on our suppliers and +the inability of these suppliers to deliver necessary components of our products according to our schedule and at prices, quality levels +and volumes acceptable to us, or our inability to efficiently manage these components or to implement or maintain effective inventory +management and other systems, processes and personnel to support ongoing and increased production, could have a material adverse effect +on our results of operations and financial condition. +We will rely on third-party suppliers +for the provision and development of many of the key components and materials used in our vehicles. While we plan to obtain components +from multiple sources whenever possible, many of the components used in our vehicles will be purchased by us from a single, yet unknown, +source. Our limited, and in many cases single-source, supply chain approach exposes us to multiple potential sources of delivery failure +or component shortages for our production. Our potential third-party suppliers may not be able to meet our required product specifications +and performance characteristics, which would impact our ability to achieve our product specifications and performance characteristics +as well. Additionally, our potential third-party suppliers may be unable to obtain required certifications or provide necessary +warranties for their products that are necessary for use in our vehicles. +38 +We may be affected by ongoing, +industry-wide challenges in logistics and supply chains, such as increased port congestion, intermittent supplier delays a shortfall +of semiconductor supply, and international travel restrictions preventing supply quality engineers from conducting in-person visits +and quality engineering for parts production. We expect that these industry-wide trends will continue to affect the ability of us +and our suppliers to obtain parts, components and manufacturing equipment on a timely basis for the foreseeable future, and may result +in increased costs. We may also be impacted by changes in our future supply chain or production needs, including cost increases from +our suppliers, in order to meet our quality targets and development timelines as well as due to design changes. Likewise, any significant +increases in our production may in the future require us to procure additional components in a short amount of time. Our suppliers may +not ultimately be able to sustainably and timely meet our cost, quality and volume needs, requiring us to replace them with other sources. +In many cases, our suppliers will be providing us with custom-designed parts that would require significant lead time to obtain +from alternative suppliers, or may not be available from alternative suppliers at all. If we are unable to obtain suitable components +and materials used in our vehicles from our suppliers or if our suppliers decide to create or supply a competing product, our business +could be adversely affected. Further, if we are unsuccessful in our efforts to control and reduce supplier costs, our results of operations +will suffer. +We have not experienced, +but may in the future experience, delays if our suppliers do not meet agreed upon timelines, experience capacity constraints, or deliver +components that do not meet our quality standards. Any disruption in the supply of components, whether or not from a single source supplier, +could temporarily disrupt production of our vehicles until an alternative supplier is able to supply the required material. Any such +delay, even if caused by a delay or shortage in only one part, could significantly affect our ability to meet our planned vehicle production +targets. Even in cases where we may be able to establish alternate supply relationships and obtain or engineer replacement components +for our single source components, we may be unable to do so quickly, or at all, at prices or quality levels that are acceptable to us. +This risk is heightened by the fact that we have less negotiating leverage with suppliers than larger and more established automobile +manufacturers, which could adversely affect our ability to obtain necessary components and materials on a timely basis, on favorable +pricing and other terms, or at all. The industry in which we operate has recently experienced severe supply chain disruptions, and we +expect these conditions to continue for the foreseeable future. Any such supply disruption could materially and adversely affect our +results of operations, financial condition and prospects. +Furthermore, as the scale +of our vehicle production increases in the future, we will need to accurately forecast, purchase, warehouse and transport components +to our manufacturing facilities and servicing locations internationally and at much higher volumes. We have not yet scaled production +in our manufacturing facilities to significant volumes or begun servicing vehicles at significant volumes. Accordingly, our ability to +scale production and vehicle servicing and mitigate risks associated with these activities has not been thoroughly tested. If we are +unable to accurately match the timing and quantities of component purchases to our actual needs, successfully recruit and retain personnel +with relevant experience, or successfully implement automation, inventory management and other systems or processes to accommodate the +increased complexity in our supply chain and manufacturing operations, we may incur unexpected production disruption, storage, transportation +and write-off costs, which could have a material adverse effect on our results of operations and financial condition. +Furthermore, unexpected +changes in business conditions, materials pricing, labor issues, wars, governmental changes, tariffs, natural disasters, health epidemics, +and other factors beyond our and our suppliers’ control could also affect these suppliers’ ability to deliver components +to us on a timely basis. We have also identified certain of our suppliers, including certain suppliers we deem critical, as having poor +financial health or being at risk of bankruptcy. Although we routinely review our suppliers’ financial health and attempt to identify +alternate suppliers where possible, the loss of any supplier, particularly a single- or limited-source supplier, or the disruption +in the supply of components from our suppliers, could lead to vehicle design changes, production delays, idle manufacturing facilities +and potential loss of access to important technology and parts for producing, servicing and supporting our vehicles, any of which could +result in negative publicity, damage to our brand and a material and adverse effect on our business, prospects, results of operations +and financial condition. In addition, if our suppliers experience substantial financial difficulties, cease operations or otherwise face +business disruptions, we may be required to provide substantial financial support to ensure supply continuity, which could have an additional +adverse effect on our liquidity and financial condition. +39 +Increases in costs, disruption of supply +or shortage of materials, in particular for lithium-ion cells or semiconductors, could harm our business. +As we scale commercial production +of our vehicles or any future energy storage systems, we have experienced and may continue to experience increases in the cost of or +a sustained interruption in the supply or shortage of materials. Any such increase, supply interruption or shortage could materially +and adversely impact our business, results of operations, prospects and financial condition. In addition, we use various materials in +our business, including aluminum, steel, lithium, nickel, copper, cobalt, neodymium, terbium, praseodymium and manganese, as well as +lithium-ion cells and semiconductors from suppliers. The prices for these materials fluctuate, and their available +supply may be unstable, depending on market conditions, inflationary pressure and global demand for these materials, including as a result +of increased production of electric vehicles, energy storage products by our competitors and the global supply chain crisis, and could +adversely affect our business and results of operations. For instance, we are exposed to multiple risks relating to lithium-ion cells. +These risks include: +● the +inability or unwillingness of current battery manufacturers to build or operate battery cell +manufacturing plants to supply the numbers of lithium-ion cells required to support +the growth of the electric vehicle industry as demand for such cells increases; +● an +increase in the cost, or decrease in the available supply, of materials, such as cobalt, +used in lithium-ion cells; +● disruption +in the supply of cells due to quality issues or recalls by battery cell manufacturers; and +● fluctuations +in the value of any foreign currencies, in which battery cell and related raw material purchases +are or may be denominated against the U.S. dollar. +Our ability to manufacture +our vehicles or any future energy storage systems will depend on the continued supply of battery cells for the battery packs used in +our products. We have limited flexibility in changing battery cell suppliers, and any disruption in the supply of battery cells from +such suppliers could disrupt production of our vehicles until a different supplier is fully qualified. Furthermore, our ability to manufacture +our vehicles depends on continuing access to semiconductors and components that incorporate semiconductors. A global semiconductor supply +shortage is having wide-ranging effects across multiple industries and the automotive industry in particular, and it has impacted +many automotive suppliers and manufacturers, including us, that incorporate semiconductors into the parts they supply or manufacture. +We have experienced and may continue to experience an impact on our operations as a result of the semiconductor supply shortage, and +such shortage could in the future have a material impact on us or our suppliers, which could delay or reduce planned production levels +of the Models or planned future vehicles, impair our ability to continue production once started or force us or our suppliers to pay +exorbitant rates for continued access to semiconductors, and of which could have a material adverse effect on our business, prospects +and results of operations. In addition, prices and transportation expenses for these materials fluctuate depending on many factors beyond +our control, including fluctuations in supply and demand, currency fluctuations, tariffs and taxes, fluctuations and shortages in petroleum +supply, freight charges and other economic and political factors. These risks could be further magnified by geographical developments +such as the conflict between Ukraine and Russia. Substantial increases in the prices for our materials or prices charged to us, such +as those charged by battery cell or semiconductor suppliers, would increase our operating costs, and could reduce our margins if we cannot +recoup the increased costs through increased prices. Any attempts to increase product prices in response to increased material costs +could result in cancellations of orders and reservations and materially and adversely affect our brand, image, business, results of operations, +prospects and financial condition. +Furthermore, currency fluctuations, +tariffs or shortages in petroleum and other economic or political conditions have and may continue to result in significant increases +in freight charges and raw material costs. Substantial increases in the prices for our raw materials or components would increase our +operating costs and could reduce our margins. In addition, a growth in popularity of electric vehicles without a significant expansion +in battery cell production capacity could result in shortages which would result in increased materials costs to us, and would impact +our expected manufacturing and delivery timelines, and adversely affect our business, prospects, financial condition, results of operations, +and cash flows. +We must develop complex software and technology +systems, including in coordination with vendors and suppliers, in order to produce our electric vehicles, and there can be no assurance +such systems will be successfully developed. +Our vehicles, use a substantial +amount of third-party and proprietary software and complex technological hardware to operate, some of which is still subject to +further development and testing. The development and implementation of such advanced technologies is inherently complex, and requires +coordination with our vendors and suppliers in order to integrate such technology into our electric vehicles and ensure it interoperates +with other complex technology as designed and as expected. +40 +We may fail to detect defects +and errors that are subsequently revealed, and our control over the performance of third-party services and systems may be limited. +Any defects or errors in, or which are attributed to, our technology, could result in, among other things: +● delayed +production and delivery of our vehicles; +● delayed +market acceptance of our vehicles; +● loss +of customers or inability to attract new customers; +● diversion +of engineering or other resources for remedying the defect or error; +● damage +to our brand or reputation; +● increased +service and warranty costs; +● legal +action by customers or third parties, including product liability claims; and +● penalties +imposed by regulatory authorities. +In addition, if we are unable +to develop the software and technology systems necessary to operate our vehicles, our competitive position will be harmed. We rely on +third-party suppliers to develop a number of technologies for use in our products. There can be no assurances that +our suppliers will be able to meet the technological requirements, production timing and volume requirements to support our business +plan. In addition, such technology may not satisfy the cost, performance useful life and warranty characteristics we anticipate in our +business plan, which could materially adversely affect our business, prospects and results of operations. +If our manufacturing facilities become +inoperable, we will be unable to produce our vehicles and our business will be harmed. +Any failure to continue +commercial production on schedule, such as a breakdown or interruption of our supply chain, would lead to additional costs and would +delay our ability to generate meaningful revenues. In addition, it could prevent us from gaining the confidence of potential customers, +spur cancellations of reservations for the Models and open the door to increased competition. All of the foregoing could hinder our ability +to successfully launch and grow our business and achieve a competitive position in the market. +We rely on complex machinery for our operations, +and production involves a significant degree of risk and uncertainty in terms of operational performance, safety, security and costs. +We expect to utilize a number +of new manufacturing technologies, techniques and processes for our vehicles, such as motor winding equipment, and we may utilize additional +new technologies, techniques and processes in the future. Certain design features in our vehicles present additional manufacturing challenges, +such the Battery Management System and Thermal Management System. There is no guarantee that we will be able to successfully and timely +introduce and scale any such new processes or features. +We also rely heavily on +complex machinery for our operations, and our production involves a significant degree of uncertainty and risk in terms of operational +performance and costs. Our manufacturing plant employs large-scale, complex machinery combining many components, which may suffer unexpected +malfunctions from time to time and will depend on repairs and spare parts that may not be available when needed. +41 +Unexpected malfunctions +of the manufacturing plant components may significantly decrease our operational efficiency, including by forcing manufacturing shutdowns +in order to conduct repairs or troubleshoot manufacturing problems. Our facilities may also be harmed or rendered inoperable by natural +or man-made disasters, including but not limited to earthquakes, tornadoes, flooding, fire, power outages, environmental hazards +and remediation, costs associated with decommissioning of equipment, labor disputes and strikes, difficulty or delays in obtaining governmental +permits and licenses, damages or defects in electronic systems, industrial accidents or health epidemics, such as the recent COVID-19 pandemic, +which may render it difficult or impossible for us to manufacture our vehicles for some period of time. The inability to produce our +vehicles or the backlog that could develop if our manufacturing plant is inoperable for even a short period of time may result in the +loss of customers or harm our reputation. Although we maintain insurance for damage to our property and the disruption of our business, +this insurance may not be sufficient to cover all of our potential losses and may not continue to be available to us on acceptable terms, +if at all. Should operational risks materialize, they may result in the personal injury to or death of our workers, the loss of production +equipment, damage to manufacturing facilities, monetary losses, delays and unanticipated fluctuations in production, environmental damage, +administrative fines, increased insurance costs and potential legal liabilities, all which could have a material adverse effect on our +business, results of operations, cash flows, financial condition or prospects. +If we update or discontinue the use of +our manufacturing equipment more quickly than expected, we may have to shorten the useful lives of any equipment to be retired as a result +of any such update, and the resulting acceleration in our depreciation could negatively affect our financial results. +We have invested and expect +to continue to invest significantly in what we believe is state of the art tooling, machinery and other manufacturing equipment, and +we depreciate the cost of such equipment over their expected useful lives. However, manufacturing technology may evolve rapidly, and +we may decide to update our manufacturing processes more quickly than expected. Moreover, as we ramp the commercial production of our +vehicles, our experience may cause us to discontinue the use of already installed equipment in favor of different or additional equipment. +The useful life of any equipment that would be retired early as a result would be shortened, causing the depreciation on such equipment +to be accelerated, and our results of operations could be negatively impacted. +We have no experience to date in mass manufacturing +of our electric vehicles. +We cannot provide any assurance +as to whether we will be able to develop efficient, automated, low-cost logistics and production capabilities and processes and +reliable sources of component supply that will enable us to meet the quality, price, engineering, design and production standards, as +well as the production volumes, required to successfully mass market our vehicles. Even if we are successful in developing our high volume +production capability and processes and reliably source our component supply, no assurance can be given as to whether we will be able +to do so in a manner that avoids significant delays and cost overruns, including as a result of factors beyond our control such as problems +with suppliers and vendors, or force majeure events, or in time to meet our commercialization schedules, or to store and deliver parts +in sufficient quantities to the manufacturing lines in a manner that enables us to maintain our production ramp curve and rates, or to +satisfy the requirements of customers and potential customers. Any failure to develop such logistics and production processes and capabilities +within our projected costs and timelines could have a material adverse effect on our business, results of operations, prospects and financial +condition. Bottlenecks and other unexpected challenges have and may continue to arise as we ramp production of the models, and it will +be important that we address them promptly while continuing to control our logistics and manufacturing costs. If we are not successful +in doing so, or if we experience issues with our logistics and manufacturing process improvements, we could face further delays in establishing +and/or sustaining our production ramps or be unable to meet our related cost and profitability targets. +42 +If our vehicles fail to perform as expected, +our ability to develop, market and sell or lease our products could be harmed. +Our vehicles or the components +installed therein have in the past and may in the future contain defects in design and manufacture that may cause them not to perform +as expected or that may require repairs, recalls, and design changes, any of which would require significant financial and other resources +to successfully navigate and resolve. Although we will attempt to remedy any issues we observe in our products as effectively and rapidly +as possible, such efforts could significantly distract management’s attention from other important business objectives, may not +be timely, may hamper production or may not be to the satisfaction of our customers. Further, our limited operating history and limited +field data reduce our ability to evaluate and predict the long-term quality, reliability, durability and performance characteristics +of our battery packs, powertrains and vehicles. There can be no assurance that we will be able to detect and fix any defects in our products +prior to their sale or lease to customers. +Any defects, delays or legal +restrictions on vehicle features, or other failure of our vehicles to perform as expected, could harm our reputation and result in delivery +delays, product recalls, product liability claims, breach of warranty claims and significant warranty and other expenses, and could have +a material adverse impact on our business, results of operations, prospects and financial condition. Any such defects or noncompliance +with legal requirements could also result in safety recalls. See “ — Risks Related to Regulation and Litigation .” +As a new entrant to the industry attempting to build customer relationships and earn trust, these effects could be significantly +detrimental to us. Additionally, problems and defects experienced by other electric consumer vehicles could by association have a negative +impact on perception and customer demand for our vehicles. +In addition, even if our +vehicles function as designed, we expect that the battery efficiency, and hence the range, of our electric vehicles, like other electric +vehicles that use current battery technology, will decline over time. Other factors, such as usage, time and stress patterns, may also +impact the battery’s ability to hold a charge, or could require us to limit vehicles’ battery charging capacity, including +via over-the-air or other software updates, for safety reasons or to protect battery capacity, which could further decrease our +vehicles’ range between charges. Such decreases in or limitations of battery capacity and therefore range, whether imposed by deterioration, +software limitations or otherwise, could also lead to consumer complaints or warranty claims, including claims that prior knowledge of +such decreases or limitations would have affected consumers’ purchasing decisions. Further, there can be no assurance that we will +be able to improve the performance of our battery packs, or increase our vehicles’ range, in the future. Any such battery deterioration +or capacity limitations and related decreases in range may negatively influence potential customers’ willingness to purchase our +vehicles and negatively impact our brand and reputation, which could adversely affect our business, prospects, results of operations +and financial condition. +We face challenges providing charging solutions for our vehicles. +Demand for our vehicles +will depend in part on the availability of charging infrastructure both domestically and internationally. While the prevalence of charging +stations has been increasing, charging station locations are significantly less widespread than gas stations. Globally there are supportive +regulations and funding to build and implement more charging stations. In the U.S., there is a movement toward having a uniform charging +adaptor whereby customers of different brands of electric vehicles may use any charging station. However, there is no assurance that +more changing stations will be built and implemented in the future, or that a uniform charging adaptor will be available in the future. +Insufficient reserves to cover future warranty +or part replacement needs or other vehicle repair requirements, including any potential software upgrades, could materially adversely +affect our business, prospects, financial condition and results of operations. +We provide a new vehicle +limited warranty on all vehicles, components and systems. Warranty reserves will include our management team’s best estimate of +the projected costs to repair or to replace items under warranty. Such estimates are inherently uncertain, particularly in light of our +limited operating history and the limited field data available to us, and changes to such estimates based on real-world observations +may cause material changes to our warranty reserves in the future. If our reserves are inadequate to cover future maintenance requirements +on our vehicles, our business, prospects, financial condition and results of operations could be materially and adversely affected. We +may become subject to significant and unexpected expenses as well as claims from our customers, including loss of revenue or damages. +There can be no assurances that then-existing reserves will be sufficient to cover all claims. In addition, if future laws or regulations +impose additional warranty obligations on us that go beyond our manufacturer’s warranty, we may be exposed to materially higher +warranty, parts replacement and repair expenses than we expect, and our reserves may be insufficient to cover such expenses. +43 +We may not be able to accurately estimate +the supply and demand for our vehicles, which could result in a variety of inefficiencies in our business and hinder our ability to generate +revenue. If we fail to accurately predict our manufacturing requirements, we could incur additional costs or experience delays. +It is difficult to predict +our future revenues and appropriately budget for our expenses, and we have limited insight into trends that may emerge and affect our +business. We will be required to provide forecasts of our demand to our suppliers several months prior to the scheduled delivery +of vehicles to our prospective customers. Currently, there is no historical basis for making judgments about the demand for our vehicles +or our ability to develop, manufacture, and deliver vehicles, or our profitability in the future. If we overestimate our requirements, +our suppliers may have excess inventory, which indirectly would increase our costs. If we underestimate our requirements, our suppliers +may have inadequate inventory, which could interrupt manufacturing of our products and result in delays in shipments and revenues. In +addition, lead times for materials and components that our suppliers order may vary significantly and depend on factors such as the specific +supplier, contract terms and demand for each component at a given time. If we fail to order sufficient quantities of product components +in a timely manner, the delivery of vehicles to our customers could be delayed, which would harm our business, financial condition and +results of operations. +Our vehicles will make use of lithium-ion battery +cells, which have been observed to catch fire or vent smoke and flame. +The battery packs within +our vehicles make use of, and any future energy storage systems will make use of lithium-ion cells. On rare occasions, lithium-ion cells +can rapidly release the energy they contain by venting smoke and flames in a manner that can ignite nearby materials as well as other +lithium-ion cells. While we have designed our battery packs to passively contain a single cell’s release of energy without +spreading to neighboring cells, a field or testing failure of our vehicles or other battery packs that we produce could occur. In addition, +although we equip our vehicles with systems designed to detect and warn vehicle occupants of such thermal events, there can be no assurance +that such systems will function as designed or will provide vehicle occupants with sufficient, or any, warning in all crashes. Any such +events or failures of our vehicles, battery packs or warning systems could subject us to lawsuits, product recalls, or redesign efforts, +all of which would be time consuming and expensive. Also, negative public perceptions regarding the suitability of lithium-ion cells +for automotive applications or any future incident involving lithium-ion cells, such as a vehicle or other fire, even if such incident +does not involve our vehicles, could seriously harm our business and reputation. +Risks Related to Cybersecurity and Data Privacy +Any unauthorized control, manipulation, +interruption or compromise of or access to our products or information technology systems could result in loss of confidence in us and +our products, harm our business and materially adversely affect our financial performance, results of operations or prospects. +Our products may contain +complex information technology systems. For example, our vehicles are designed with built-in data connectivity to accept and install +periodic remote updates to improve their functionality. +In addition, we expect to +collect, store, transmit and otherwise process data from vehicles, customers, personnel and other third parties as part of our business +operations, which may include personal data or confidential or proprietary information. We also work with third-party service providers +and vendors that collect, store and process such data on our behalf. We have taken certain measures to prevent unauthorized access and +plan to continue to deploy additional measures as we grow. Our third-party service providers and vendors also take steps to protect +the security and integrity of our and their information technology systems and our and their customers’ information. However, there +can be no assurance that such systems and measures will not be compromised as a result of intentional misconduct, including by personnel, +contractors, or vendors, as well as by software bugs, human error, or technical malfunctions. +44 +Furthermore, cyber threat +actors may in the future attempt to gain unauthorized access to, modify, alter and use our vehicles, products and systems to (i) gain +control of, (ii) change the functionality, user interface and performance characteristics of and/or (iii) gain access to data +stored in or generated by, our vehicles, products and systems. Advances in technology, new vulnerability discoveries, an increased level +of sophistication and diversity of our products and services, an increased level of expertise of cyber threat actors and new discoveries +in the field of cryptography could lead to a compromise or breach of the measures that we or our third-party service providers use. +Some of our products and information technology systems contain or use open source software, which can create additional risks, including +potential security vulnerabilities. We and our third-party service providers’ may in the future be affected by security incidents. +Our systems are also vulnerable to damage or interruption from, among other things, computer viruses, malware, ransomware, killware, +wiperware, computer denial or degradation of service attacks, telecommunications failures, social engineering schemes (such as vishing, +phishing or smishing), domain name spoofing, insider theft, physical theft, fire, terrorist attacks, natural disasters, power loss, war, +or misuse, mistake or other attempts to harm our products and systems. Our data center and our third-party service providers’ +or vendors’ data centers could be subject to break-ins, sabotage and intentional acts of vandalism causing potential disruptions. +Some of our systems will not be fully redundant, and our disaster recovery planning cannot account for all eventualities. Any problems +at our or our third-party service providers’ or vendors’ data centers and/or cloud infrastructure could result in lengthy +interruptions in our service and our business operations. There can be no assurance that any security or other operational measures that +we or our third-party service providers or vendors have implemented will be effective against any of the foregoing threats or issues. +These risks have been heightened +in connection with the ongoing conflict between Russia and Ukraine and we cannot be certain how this new risk landscape will impact our +operations. When geopolitical conflicts develop, government systems as well as critical infrastructures such as financial services and +utilities may be targeted by state-sponsored cyberattacks even if they are not directly involved in the conflict. There can be no +assurance that our business will not become a potential target as adversaries may attack networks and systems indiscriminately. Such +cyberattacks may potentially cause unauthorized access to our sensitive data (including our proprietary software codes), products, and +systems, causing data breach, or disruption, modification, destruction to our systems and applications. As a result, we may suffer monetary +losses, business interruption, and long-lasting operational issues, damage to our reputation and brand, loss of our intellectual +property or trade secrets. +If we are unable to protect +our products and systems (and the information stored in our systems) from unauthorized access, use, disclosure, disruption, modification, +destruction or other breach, such problems or security breaches could have negative consequences for our business and future prospects, +including compromise of vehicle integrity and physical safety, causing monetary losses, giving rise to liabilities under our contracts +or to the owners of the applicable information, subjecting us to substantial fines, penalties, damages and other liabilities under applicable +laws and regulations, incurring substantial costs to respond to, investigate and remedy such incidents, reducing customer demand for +our products, harming our reputation and brand and compromising or leading to a loss of protection of our intellectual property or trade +secrets. In addition, regardless of their veracity, reports of unauthorized access to our vehicles, systems or data, as well as other +factors that may result in the perception that our vehicles, systems or data are vulnerable to being “hacked,” could negatively +affect our brand. In addition, some members of the U.S. federal government, including certain members of Congress and the National +Highway Traffic Safety Administration (“ NHTSA ”) , have recently focused attention on automotive cybersecurity +issues and may in the future propose or implement regulations specific to automotive cybersecurity. In addition, the United Nations Economic +Commission for Europe has introduced new regulations governing connected vehicle cybersecurity, which became effective in January 2021 +and are expected to apply in the European Union to all new vehicle types beginning in July 2022 and to all existing architectures/new +vehicles from July 2024. Such regulations are also in effect, or expected to come into effect, in certain other international jurisdictions. +These and other regulations could adversely affect the timing of our entry into various markets, and if such regulations or other future +regulations are inconsistent with our approach to automotive cybersecurity, we would be required to modify our systems to comply with +such regulations, which would impose additional costs and delays and could expose us to potential liability to the extent our automotive +cybersecurity systems and practices are inconsistent with such regulation. +We may not have adequate +insurance coverage to cover losses associated with any of the foregoing, if any. The successful assertion of one or more large claims +against us that exceeds our available insurance coverage, or results in changes to our insurance policies (including premium increases +or the imposition of large deductible or co-insurance requirements), could have an adverse effect on our business. In addition, +we cannot be sure that our existing insurance coverage will continue to be available on acceptable terms or that our insurers will not +deny coverage as to any future claim. +45 +Furthermore, we are continuously +expanding and improving our information technology systems. In particular, our planned future vehicles will necessitate continued development, +maintenance and improvement of our information technology and communication systems in the United States and abroad, such as systems +for product data management, vehicle management tools, vehicle security systems, vehicle security management processes, procurement of +bill of material items, supply chain management, inventory management, production planning and execution, lean manufacturing, sales, +service and logistics, dealer management, financial, tax and regulatory compliance systems. Our ability to operate our business will +depend on the availability and effectiveness of these systems. The implementation, maintenance, segregation and improvement of these +systems require significant management time, support and cost. Moreover, there are inherent risks associated with developing, improving +and expanding our core systems as well as implementing new systems, including the disruption of our data management, procurement, manufacturing +execution, finance, supply chain, inventory management, and sales and service processes. We cannot be certain that these systems or their +required functionality will be effectively and timely developed, implemented, maintained or expanded as planned. If we are unsuccessful +in any of the foregoing, our operations may be disrupted, our ability to accurately or timely report our financial results could be impaired, +and deficiencies may arise in our internal control over financial reporting, which may impact our ability to certify our financial results. +If these systems or their functionality do not operate as we expect them to, we may be required to expend significant resources to make +corrections or find alternative sources for performing these functions. Any of the foregoing could materially adversely affect our business, +prospects, results of operations and financial condition. +In addition, our vehicles +depend on the ability of software and hardware to store, retrieve, process and manage immense amounts of data. Our software and hardware, +including any over-the-air or other updates, may contain, errors, bugs, design defects or vulnerabilities, and our systems may be +subject to technical limitations that may compromise our ability to meet our objectives. Some errors, bugs or vulnerabilities may reside +in third-party intellectual property or open source software and/or be inherently difficult to detect and may only be discovered +after code has been released for external or internal use. Although we will attempt to remedy any issues we observe in our vehicles as +effectively and rapidly as possible, such efforts may not be timely, may hamper production or may not be to the satisfaction of our customers. +Additionally, if we are able to deploy updates to the software addressing any issues but our over-the-air update procedures fail +to properly update the software, our customers will then be responsible for working with our service personnel to install such updates +to the software, and their vehicle will be subject to these vulnerabilities until they do so. Any compromise of our intellectual property, +proprietary information, systems or vehicles or inability prevent or effectively remedy errors, bugs, vulnerabilities or defects in our +software and hardware may cause us to suffer lengthy interruptions to our ability to operate our business and our customers’ ability +to operate their vehicles, compromise of vehicle integrity and physical safety, damage to our reputation, loss of customers, loss of +revenue, governmental fines, investigations or litigation or liability for damages, any of which could materially adversely affect our +business, results of operations, prospects and financial condition. +We are subject to evolving laws, regulations, +standards, policies, and contractual obligations related to data privacy and security, and any actual or perceived failure to comply +with such obligations could harm our reputation and brand, subject us to significant fines and liability, or otherwise adversely affect +our business. +In the course of our operations, +we may collect, use, store, disclose, transfer and otherwise process personal information from our customers, personnel and third parties +with whom we conduct business, including names, accounts, driver license information, user IDs and passwords, and payment or transaction +related information. Additionally, we will use our vehicles’ electronic systems to log information about each vehicle’s use, +such as charge time, battery usage, geolocation, mileage and driving behavior, in order to aid it in vehicle diagnostics, repair and +maintenance, as well as to help us customize and improve the driving and riding experience. +Accordingly, we may be subject +to or affected by a number of federal, state, local and international laws and regulations, as well as contractual obligations and industry +standards, that impose certain obligations and restrictions with respect to data privacy and security and govern our collection, storage, +retention, protection, use, transmission, sharing, disclosure and other processing of personal information including that of our personnel, +customers and other third parties with whom we conduct business. These laws, regulations and standards may be interpreted and applied +differently over time and from jurisdiction to jurisdiction, and it is possible that they will be interpreted and applied in ways that +may have a material and adverse impact on our business, financial condition and results of operations. +46 +The global data protection +landscape is rapidly evolving, and implementation standards and enforcement practices are likely to remain uncertain for the foreseeable +future. We may not be able to monitor and react to all developments in a timely manner. For example, the European Union adopted the General +Data Protection Regulation (“ GDPR ”) , which became effective in May 2018, California adopted the California +Consumer Privacy Act of 2018 (“ CCPA ”) , which became effective in January 2020, Canada adopted +the Personal Information Protection and Electronic Documents Act (“ PIPEDA ”) and continues to amend the statute, the +United Arab Emirates adopted the Data Protection Law (“ DPL ”), which became effective in January 2022, and the +Kingdom of Saudi Arabia enacted the Personal Data Protection Law (“ PDPL ”) which will take effect in March 2023. +Each of the GDPR, the CCPA, the PIPEDA, the DPL and the PDPL impose additional obligations on companies regarding the handling of personal +data and provides certain individual privacy rights to persons whose data is collected. Compliance with existing, proposed and recently +enacted laws and regulations (including implementation of the privacy and process enhancements called for under the GDPR, CCPA, PIPEDA, +DPL and PDPL) can be costly, and any failure to comply with these regulatory standards could subject us to legal and reputational risks. +Specifically, failure to +comply with the GDPR can result in significant fines and other liability, including, under the GDPR, fines of up to EUR 20 million +or four percent (4%) of global revenue, whichever is greater. The cost of compliance, and the potential for fines and penalties for non-compliance, +with GDPR may have a significant adverse effect on our business and operations. Recent legal developments in the European Economic Area +(“ EEA ”), including recent rulings from the Court of Justice of the European Union and from various EU member state +data protection authorities, have created complexity and uncertainty regarding transfers of personal data from the EEA to the United States +and other so-called third countries outside the EEA. Similar complexities and uncertainties also apply to transfers from the +United Kingdom to third countries. While we have taken steps to mitigate the impact on us, the efficacy and longevity of these mechanisms +remains uncertain. +At the state level, we may +be subject to law and regulations such as the CCPA. The CCPA establishes a privacy framework for covered businesses, including an +expansive definition of personal information and data privacy rights for California residents. The CCPA includes a framework with potentially +severe statutory damages for violations and a private right of action for certain data breaches. The CCPA requires covered businesses +to provide California residents with new privacy-related disclosures and new ways to opt-out of certain uses and disclosures +of personal information. As we expand our operations, the CCPA may increase our compliance costs and potential liability. Some observers +have noted that the CCPA could mark the beginning of a trend toward more stringent privacy legislation in the United States. Additionally, +effective in most material respects starting on January 1, 2023, the California Privacy Rights Act (“ CPRA ”) , will +significantly modify the CCPA, including by expanding California residents’ rights with respect to certain sensitive personal information. +The CPRA also creates a new state agency that will be vested with the authority to implement and enforce the CCPA and the CPRA. +Other states, including +Virginia and Colorado, have enacted or are in the process of enacting, or considering similar laws. Compliance with these state statutes, +other similar state or federal laws that may be enacted in the future, and other applicable privacy and data security laws and regulations +is a rigorous and time-intensive process, and we may be required to put in place additional mechanisms to comply with such laws +and regulations, which could cause us to incur substantial costs or require us to change our business practices, including our data practices, +in a manner adverse to our business. In particular, certain emerging privacy laws are still subject to a high degree of uncertainty as +to their interpretation and application. Failure to comply with applicable laws or regulations or to secure personal information could +result in investigations, enforcement actions and other proceedings against us, which could result in substantial fines, damages and +other liability as well as damage to our reputation and credibility, which could have a negative impact on revenues and profits. +We will be required to post +public privacy policies and other documentation regarding our collection, use, disclosure and other processing of personal information. +Although we will endeavor to comply with our published policies and other documentation, we may at times fail to do so or may be perceived +to have failed to do so. Moreover, despite our efforts, we may not be successful in achieving compliance if our personnel, contractors, +service providers, vendors or other third parties fail to comply with our published policies and documentation. Such failures could carry +similar consequences or subject us to potential local, state and federal action if they are found to be deceptive, unfair or misrepresentative +of our actual practices. Claims that we have violated individuals’ privacy rights or failed to comply with data protection laws +or applicable privacy notices could, even if we are not found liable, be expensive and time-consuming to defend and could result +in adverse publicity that could harm our business. +47 +Most jurisdictions have +enacted laws requiring companies to notify individuals, regulatory authorities and other third parties of security breaches involving +certain types of data. For example, laws in all 50 U.S. states generally require business to provide notice under certain circumstances +to consumers whose personal information has been disclosed as a result of a breach. Such laws may be inconsistent or may change or additional +laws may be adopted. In addition, our agreements with certain customers may require us to notify them in the event of a security breach. +Such mandatory disclosures are costly, could lead to negative publicity, penalties or fines, litigation and our customers losing confidence +in the effectiveness of our security measures and could require us to expend significant capital and other resources to respond to or +alleviate problems caused by the actual or perceived security breach. Any of the foregoing could materially adversely affect our business, +prospects, results of operations and financial condition. +Risks Related to Ownership of Thunder Power’s Securities +Risks Related to Ownership of Thunder Power’s +Common Stock +The price of our Common Stock may be volatile. +The stock price of our Common Stock may be volatile. +The market price for our Common Stock may be influenced by many factors, including the other risks described in this section and the +following: +● actual +or anticipated variations in our financial results or those of companies that are perceived +to be similar to us; +● market +conditions in the EV sectors; +● market +conditions and sentiment involving companies that have recently completed a business combination +with a special purpose acquisition company (“SPAC”); +● announcements +by us or our competitors of significant acquisitions, strategic alliances, joint ventures +or capital commitments; +● developments +or disputes concerning patents or other proprietary rights, including patents, litigation +matters and our ability to obtain patent protection for its products; +● our +ability or inability to raise additional capital and the terms on which it is raised; +● the +recruitment or departure of key personnel; +● actual +or anticipated changes in earnings estimates or changes in stock market analyst recommendations +regarding our Common Stock, other comparable companies or the industry generally; +● our +failure or the failure of our competitors to meet analysts’ projections or guidance; +● fluctuations +in the valuation of companies perceived by investors to be comparable to us; +● announcement +and expectation of additional financing efforts; +● speculation +in the press or investment community; +● trading +volume of our Common Stock; +● sales +of our Common Stock by us or Selling Stockholders; +● the +concentrated ownership of our Common Stock; +● changes +in accounting principles; +● terrorist +acts, acts of war or periods of widespread civil unrest; +48 +● natural +disasters, public health crises and other calamities; and +● general +economic, industry and market conditions. +In addition, the stock markets +in general, and the markets for SPAC post-business combination businesses, EV stocks in particular, have experienced extreme volatility +during 2024. This volatility can often be unrelated to the operating performance of the underlying business. These broad market and industry +factors may seriously harm the market price of our Common Stock, regardless of our operating performance. +We may incur significant costs from class action litigation +due to stock volatility. +Our stock price may fluctuate +for many reasons, including as a result of public announcements regarding the progress of development efforts for our EVs, the development +efforts of future collaborators or competitors, the addition or departure of key personnel, variations in quarterly operating results +and changes in market valuations of EV companies. This risk is especially relevant to us because EV companies have experienced significant +stock price volatility in recent years, including since the public announcement of our Business Combination in October 2023. +In addition, recently there has been significant stock price volatility involving the shares of companies that have recently completed +business combinations with SPACs. When the market price of a stock has been volatile, as our stock price may be, holders of that stock +have occasionally brought securities class action litigation against the company that issued the stock. Additionally, there has recently +been a general increase in litigation against companies that have recently completed business combinations with SPACs alleging fraud +and other claims based on inaccurate or misleading disclosures. If any of our stockholders were to bring a lawsuit of this type against +us, even if the lawsuit is without merit, we could incur substantial costs defending the lawsuit. The lawsuit could also divert the time +and attention of management. +We are an “emerging growth company” +and the reduced disclosure requirements applicable to emerging growth companies may make our Common Stock less attractive to investors +and may make it more difficult to compare our financial performance with other public companies. +We are an emerging growth +company, as defined in the JOBS Act, and we intend to take advantage of certain exemptions from various reporting requirements that are +applicable to other public companies that are not emerging growth companies, including not being required to comply with the auditor +attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation +in periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation +and stockholder approval of any golden parachute payments not previously approved. An emerging growth company may elect to delay the +adoption of new or revised accounting standards. As a result, our financial statements may not be comparable to companies that comply +with the effective dates of revised accounting standards. Investors may find our Common Stock less attractive because of our reliance +on these exemptions. If some investors find our Common Stock less attractive as a result, there may be a less active trading market for +their common stock, and the stock price may be more volatile. +Future sales and issuances of Common Stock +or rights to purchase Common Stock could result in additional dilution to our stockholders and could cause the price of our Common Stock +to decline. +Significant additional capital +will be needed in the future to continue our planned operations. To raise capital, we may sell shares of Common Stock, convertible securities, +or other equity securities in one or more transactions at prices and in a manner as determined from time to time. If we sell Common Stock, +convertible securities, or other equity securities, current stockholders may be materially diluted by such sales. New investors could +gain rights, preferences, and privileges senior to the current holders of our Common Stock. +Pursuant to the 2024 Plan, +the Board or a committee appointed by the Board to administer the 2024 Omnibus Equity Incentive Plan (the “Administrator”), +is authorized to grant stock options to our employees, non-employee directors, and consultants. Initially, the maximum aggregate +number of shares of Common Stock that may be issued pursuant to stock awards under the 2024 Omnibus Equity Incentive Plan is approximately 4,588,005 shares +of Common Stock. Annually, on the first trading day of the calendar year, beginning with calendar year 2025, such share reserve +will automatically increase by 5% of the total number of shares of Common Stock outstanding as of the last day of the immediately +preceding calendar year, unless the Administrator acts prior to January 1 of such year to provide that there will be no increase +or a lesser increase in the share reserve for that year. +49 +The issuance of additional +shares of Common Stock or other equity securities of equal or senior rank may have some or all of the following effects: +● the +amount of cash available per share, including for payment of dividends in the future, may +decrease; +● the +relative voting strength of each previously outstanding share of common stock may be diminished; +and +● the +market price of our Common Stock may decline. +Reports published by analysts, including +projections in those reports that differ from our actual results, could adversely affect the price and trading volume of our Common Stock. +Securities research analysts +may publish their own periodic financial projections for our business. These projections may vary widely and may not accurately predict +the results that we actually achieve. Our stock price may decline if our actual results do not match the projections of these securities +research analysts. Similarly, if one or more of the analysts who write reports on us downgrades our stock or publishes inaccurate or +unfavorable research about our business, our stock price could decline. If one or more of these analysts ceases coverage or fails to +publish reports on us regularly, our stock price or trading volume could decline. If no analysts cover us, the trading price and volume +for our Common Stock could be adversely affected. +Anti-takeover provisions in our governing +documents and under Delaware law could make an acquisition of us more difficult, limit attempts by our stockholders to replace or remove +our current management and limit the market price of our Common Stock. +The Second Amended and Restated +Certificate of Incorporation of the Company (the “Charter”), the Company’s bylaws (the “Bylaws”) and Delaware +law contain provisions that could have the effect of rendering more difficult, delaying, or preventing an acquisition deemed undesirable +by the Board. Among other things, the Charter and/or the Company’s Bylaws include the following provisions: +● permit +the Board to issue up to 100,000,000 shares of preferred stock, with any rights, preferences, +and privileges as they may designate, including the right to approve an acquisition or other +change of control; +● provide +that the number of directors may be changed only by resolution of the Board; +● provide +that, subject to the rights of any series of preferred stock to elect directors, directors +may be removed only for cause by the holders of two-thirds (66 and 2/3%) of the voting +power of all of the then outstanding shares of voting stock of Combined Company entitled +to vote generally at an election of directors; +● provide +that all vacancies, subject to the rights of any series of preferred stock, including newly +created directorships, may, except as otherwise required by law, be filled exclusively by +the affirmative vote of a majority of the directors then in office, even though less than +a quorum, or by a sole remaining director; +● provide +that stockholders seeking to present proposals before a meeting of stockholders or seeking +to nominate candidates for election as directors at a meeting of stockholders must provide +advance notice in writing, and specify requirements as to the form and content of such notice; +● provide +that special meetings of the our stockholders may be called the Board; and +● provide +that the Board will be divided into three classes of directors, with only one class of directors +being elected each year and each individual director serving a three-year term, thereby +making it more difficult for stockholders to change the composition of the Board. +50 +These provisions, alone +or together, could delay or prevent hostile takeovers and changes in control or changes in our management. As a Delaware corporation, +we are also subject to provisions of Delaware law, including Section 203 of the Delaware General Corporation Law, as may be amended from +time to time (the “DGCL”), which prevents interested stockholders, such as certain stockholders holding more than 15% of +our outstanding common stock, from engaging in certain business combinations unless (i) prior to the time such stockholder became an +interested stockholder, the board of directors approved the transaction that resulted in such stockholder becoming an interested stockholder, +(ii) upon consummation of the transaction that resulted in such stockholder becoming an interested stockholder, the interested stockholder +owned at least 85% of the common stock, or (iii) following board approval, such business combination receives the approval of the holders +of at least two-thirds of our outstanding common stock not held by such interested stockholder. +Any provision of the Charter, +the Company’s Bylaws or Delaware law that has the effect of delaying, preventing or deterring a change in control could limit the +opportunity for our stockholders to receive a premium for their shares of our common stock and could also affect the price that some +investors are willing to pay for our common stock. +If the Business Combination’s benefits +do not meet the expectations of investors, stockholders or financial analysts, the market price of our Common Stock may decline. +If the benefits of the Business +Combination do not meet the expectations of investors or securities analysts, the market price of our Common Stock may decline. Any of +the factors listed below could have a material adverse effect on your investment in our Common Stock and it may trade at a price significantly +below the price you paid for it. +Factors affecting the trading price of our Common +Stock following the Business Combination may include: +● actual +or anticipated fluctuations in our quarterly financial results or the quarterly financial +results of companies perceived to be similar to us; +● changes +in the market’s expectations about our operating results; +● our +operating results failing to meet the expectation of securities analysts or investors in +a particular period; +● operating +and stock price performance of other companies that investors deem comparable to us; +● changes +in laws and regulations affecting our business; +● commencement +of, or involvement in, litigation involving us; +● changes +in our capital structure, such as future issuances of securities or the incurrence of additional +debt; +● the +volume of shares available for public sale; +● any +major change in our Board or senior management; +● sales +of substantial amounts of securities by our directors, executive officers, or significant +stockholders or the perception that such sales could occur; and +● other +material developments affecting the EV industry. +51 +Broad market and industry +factors may materially affect the market price of our Common Stock irrespective of our operating performance. The stock market in general +and Nasdaq have experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating performance +of the particular companies affected. The trading prices and valuations of these stocks, and of our securities, may not be predictable. +A loss of investor confidence in the market for retail stocks or the stocks of other companies, notably in the EV industry, which investors +perceive to be similar to us could depress our stock price regardless of its business, prospects, financial conditions or results of +operations. A decline in the market price for our Common Stock also could adversely affect our ability to issue additional securities +and our ability to obtain additional financing in the future. +Risks Related to Ownership of Thunder Power’s Warrants +Our warrants became exercisable for our +Common Stock thirty (30) days after the completion of the Business Combination, which increased the number of shares eligible for +future issuance and resale in the public market. +Outstanding warrants to +purchase an aggregate of 10,537,475 shares of our Common Stock became exercisable in accordance with the terms of the Warrant Agreement +governing those securities. The public warrants became exercisable 30 days after the completion of the Business Combination. The +likelihood that those warrants will be exercised increases if the trading price of our Common Stock exceeds the exercise price of the +warrants. The exercise price of these warrants is $11.50 per share. There is no guarantee that the warrants will ever be in the money +after they become exercisable prior to their expiration, and as such, the warrants may expire worthless. To the extent warrants are exercised, +additional shares of our Common Stock will be issued, which may result in dilution to the holders of our Common Stock and increase the +number of shares eligible for resale in the public market. Sales of substantial numbers of shares issued upon the exercise of warrants +in the public market could adversely affect the market price of our Common Stock. +Once our warrants become exercisable, we may redeem the unexpired +warrants prior to their exercise at a time or in a manner that is disadvantageous to you. +As of the date of the annual +report, there were 10,537,475 warrants issued and outstanding, which will expire five years after the date of the Closing. We have the +ability to redeem outstanding warrants at any time prior to their expiration, at a price of $0.01 per warrant, provided that the last +reported sales price of our Common Stock equals or exceeds $16.50 per share (as adjusted for stock splits, stock dividends, reorganizations, +recapitalizations and the like) for any 20 trading days within a 30 trading-day period ending on the third business day +prior to the date on which we give proper notice of such redemption and provided certain other conditions are met. There can be no assurance +that the price of our Common Stock will not exceed the threshold of $16.50 after the Business Combination. +We will notify the warrant +agent and publicly announce the call for redemption at least thirty (30) days prior to the redemption date and mail the registered holders +by first class mail. We will not redeem the warrants unless a registration statement under the Securities Act covering the shares of +Common Stock issuable upon exercise of the warrants is effective and a current prospectus relating to those shares of Common Stock is +available throughout the redemption period, except if the warrants may be exercised on a cashless basis and such cashless exercise is +exempt from registration under the Securities Act. If we elect to redeem the warrants on a cashless basis, we will not receive any cash +proceeds from the exercise of such warrants. +Redemption of the outstanding +warrants could force you (i) to exercise warrants and pay the exercise price therefor at a time when it may be disadvantageous for +you to do so, (ii) to sell warrants at the then-current market price when you might otherwise wish to hold warrants or (iii) to +accept the nominal redemption price which, at the time the outstanding warrants are called for redemption, is likely to be substantially +less than the market value of the warrants. +52 +The Warrant Agreement designates the courts of the State of +New York or the United States District Court for the Southern District of New York as the exclusive forum for certain types of actions +and proceedings that may be initiated by holders of the warrants. +Pursuant to the Warrant +Agreement, any action, proceeding or claim against us arising out of or relating in any way to the Warrant Agreement shall be brought +and enforced in the courts of the State of New York or the United States District Court for the Southern District of New York. The provision +will apply to suit, action, proceeding or claim brought to enforce any liability or duty arising under the Securities Act. Notwithstanding +the foregoing, the provision will not apply to suits brought to enforce any liability or duty created by the Exchange Act or any other +claim for which the federal district courts of the United States of America are the sole and exclusive forum. Any person or entity purchasing +or otherwise acquiring any interest in our warrants shall be deemed to have notice of and to have consented to the forum provisions in +the Warrant Agreement. +This choice-of-forum provision +may limit a warrant holder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with the Company, +which may discourage such lawsuits. Alternatively, if a court were to find this provision of the Warrant Agreement inapplicable or unenforceable +with respect to one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving +such matters in other jurisdictions, which could materially and adversely affect our business, financial condition and results of operations +and result in a diversion of the time and resources of our management or Board. +If we do not file and maintain a current +and effective prospectus relating to the Common Stock issuable upon exercise of our warrants, warrant holders will only be able to exercise +such warrants on a “cashless basis.” +If we do not file and maintain +a current and effective prospectus relating to the shares of Common Stock issuable upon exercise of our warrants at the time that holders +wish to exercise such warrants, they will only be able to exercise them on a “cashless basis” provided that an exemption +from registration is available. As a result, the number of shares of our Common Stock that holders will receive upon exercise of our +warrants will be fewer than it would have been had such holder exercised such warrant for cash. Further, if an exemption from registration +is not available, holders will not be able to exercise on a cashless basis and will only be able to exercise their warrants for cash +if a prospectus relating to the shares of Common Stock issuable upon exercise of our warrants is filed and effective. Under the terms +of the Warrant Agreement, ewe have agreed to use our best efforts to meet these conditions and to file and maintain a current and effective +prospectus relating to the shares of Common Stock issuable upon exercise of our warrants, until the expiration of our warrants. However, +we cannot assure you that it will be able to do so. If we are unable to do so, the potential value of the holder’s warrants may +be reduced or such warrants may expire worthless. +Risks Related to Finance, Accounting and Tax Matters +Our actual results could differ from the estimates and assumptions +used to prepare our consolidated financial statements. +The preparation of our consolidated +financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts +of certain assets, liabilities, revenues and expenses for the periods covered and certain amounts disclosed in the notes to our consolidated +financial statements. These estimates are based on information available through the date of the issuance of the consolidated financial +statements and actual results could differ from those estimates, which could have a material adverse impact on our financial condition, +results of operations and cash flows. +We may need to raise additional funds and +these funds may not be available to us when needed. If we cannot raise additional funds when we need them, our business, prospects, financial +condition and operating results could be negatively affected. +The sourcing, purchasing, +development, and servicing of our projects may be capital-intensive. We may determine that additional funds are necessary. This capital +may be necessary to fund our future operations and to locate new opportunities. We may raise additional funds through the issuance of +equity, equity related or debt securities or through obtaining credit from government or financial institutions. We cannot be certain +that additional funds will be available on favorable terms when required, or at all. If we cannot raise additional funds when needed, +our business, prospects, financial condition and operating results could be materially adversely affected. +53 +Our financial results may vary significantly from quarter to +quarter. +We expect our revenue and +operating results to vary from quarter to quarter. We may incur significant operating expenses during the start-up and early stages +of large contracts and may not be able to recognize corresponding revenue in that same quarter. We may also incur additional expenses +when contracts are terminated or expire and are not renewed. We may also incur additional expenses when companies are newly acquired. +Payments that may be due to us from our future customers may be delayed due to billing cycles or as a result of failures of government +budgets to gain congressional and administration approval in a timely manner. +Additional factors that +may cause our financial results to fluctuate from quarter to quarter include those addressed elsewhere in this “ Risk Factors ” +section, including the immediately preceding risk factor, and the following factors, among others: +● variability +in demand for our services and solutions; +● timing +of award or performance incentive fee notices; +● timing +of shipments and deliveries to potential future customers; +● variable +purchasing patterns under blanket purchase agreements and other indefinite delivery/indefinite +quantity contracts; +● terms +of potential future contracts which may affect the timing of revenue recognition; +● costs +related to government inquiries; +● strategic +decisions by us or our competitors, such as acquisitions, divestitures, spin-offs and +joint ventures; +● strategic +investments or changes in business strategy; +● changes +in the extent to which we use subcontractors; +● potential +performance errors in our systems; +● seasonal +fluctuations in our staff utilization rates; +● changes +in our effective tax rate, including changes in our judgment as to the necessity of the valuation +allowance recorded against our deferred tax assets; and +● the +length of sales cycles. +We could be subject to additional tax liabilities. +We are subject to federal, +state, and local income taxes in the United States. Determining our provision for income taxes requires significant management judgment, +and the ultimate tax outcome may be uncertain. In addition, our provision for income taxes is subject to volatility and could be adversely +affected by many factors, including, among other things, changes to our operating or holding structure, changes in the amounts of earnings +in jurisdictions with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, and changes in +U.S. tax laws. Tax authorities may disagree with our calculation of research and development tax credits, cross-jurisdictional transfer +pricing, or other matters and assess additional taxes, interest, or penalties. While we regularly assess the likely outcomes of these +examinations to determine the adequacy of our provision for income taxes and we believe that our financial statements reflect adequate +reserves to cover any such contingencies, there can be no assurance that the outcomes of such examinations will not have a material impact +on our results of operations and cash flows. If tax authorities change applicable tax laws, our overall taxes could increase, and our +financial condition or results of operations may be adversely impacted. +54 +Unanticipated changes in effective tax +rates or adverse outcomes resulting from examination of our income or other tax returns could adversely affect our financial condition +and results of operations. +We are subject to income +taxes in the United States and other jurisdictions, and our tax liabilities are subject to the allocation of expenses in differing jurisdictions. +Our future effective tax rates could be subject to volatility or adversely affected by a number of factors, including: +● changes +in the valuation of our deferred tax assets and liabilities; +● expected +timing and amount of the release of any tax valuation allowances; +● tax +effects of stock-based compensation; +● costs +related to intercompany restructurings; +● changes +in tax laws, regulations or interpretations thereof; or +● lower +than anticipated future earnings in jurisdictions where we have lower statutory tax rates +and higher than anticipated future earnings in jurisdictions where we have higher statutory +tax rates. +In addition, we may be subject to audits of our +income, sales and other transaction taxes by taxing authorities. Outcomes from these audits could have an adverse effect on our financial +condition and results of operations. +The issuance and sale of additional shares +of Common Stock under the Purchase Agreement may result in dilution to our stockholders and have a negative impact on the market price +of our Common Stock. +From time to time following +the effectiveness of this registration statement, we may direct Westwood to purchase shares of our Common Stock under the Purchase Agreement. +The purchase price for shares will be based on the lowest daily volume weighted average price of our Common Stock during a three consecutive +trading day period following delivery of a purchase notice, less a 5% discount. Because this price is based on prevailing market prices +at the time of each sale, if our stock price declines, we might need to issue more shares to raise the same amount of funding. +While we have the right +to control the timing and amount of sales under the Purchase Agreement, subject to certain conditions, any such issuances would result +in dilution to our existing stockholders. The extent of dilution will depend on numerous factors, including: +● The +market price of our Common Stock at the time of each sale +● The +number of shares we ultimately sell to Westwood +● Other +sales of our Common Stock that we may make from time to time +Moreover, additional issuances +of Common Stock under the Purchase Agreement could have a negative impact on the market price of our Common Stock. This in turn could: +● Increase +the dilution to existing stockholders from future issuances +● Impair +our ability to raise additional capital through other equity offerings +● Make +it more difficult to meet the Nasdaq continued listing requirements +55 +We are not in compliance with the Nasdaq +continued listing requirements. If we are unable to comply with the continued listing requirements of The Nasdaq Capital Market, our +common stock could be delisted, which could affect our common stock’s market price and liquidity and reduce our ability to raise +capital. +On +March 7, 2025, Thunder Power Holdings, Inc., a Delaware corporation (the “Company”) received a notification letter from the +Nasdaq Listing Qualifications department of The Nasdaq Stock Market LLC (“Nasdaq”) stating that the Company has not regained +compliance with Nasdaq Listing Rules 5450(a)(1), which requires the Company’s listed securities to maintain a minimum bid price +of $1.00 per share (the “Bid Price Rule”) and 5450(b)(2)(A), which requires the Company to maintain a minimum Market Value +of Listed Securities (“MVLS”) of $50,000,000 (the “MVLS Rule”). Accordingly, the Nasdaq Staff has determined +that the Company’s securities will be delisted from the Nasdaq Global Market. Unless the Company requests an appeal of Nasdaq’s +determination, trading of the Company’s common stock will be suspended at the opening of business on March 18, 2025, and a Form +25-NSE will be filed with the Securities and Exchange Commission, which will remove the Company’s securities from listing and registration +on The Nasdaq Stock Market. +As +previously disclosed in the Company’s Current Report on Form 8-K filed on September 6, 2024, Nasdaq notified the Company on September +4, 2024 that, based upon the closing bid price for the Company’s common stock for the 30 prior consecutive business days, the Company +no longer satisfied the Bid Price Rule, and that it had been provided a 180-calendar day grace period to regain compliance with that +requirement, through March 3, 2025. As disclosed in the same Form 8-K, Nasdaq also notified the Company that it was not in compliance +with the MVLS Rule based upon the Company’s MVLS for the previous 30 consecutive business days, and that it had been provided a +180-calendar day grace period to regain compliance with that requirement, through March 3, 2025. +There +can be no assurances that the Panel will grant our request for a hearing or a stay on its suspension of our securities. Additionally, +there can be no assurances that the Panel will provide a decision in our favor after the hearing, or that we will be able to remain in +compliance with the applicable Nasdaq listing requirements on an ongoing basis. +If our common stock is delisted, +it could be more difficult to buy or sell our common stock and to obtain accurate quotations, and the price of our common stock could +suffer a material decline. Delisting could also impair the liquidity of our common stock and could harm our ability to raise capital +through alternative financing sources on terms acceptable to us, or at all, and may result in potential loss of confidence by investors, +employees, and fewer business development opportunities. +56 +Item 1B. Unresolved Staff Comments +None. +Item 1C. Cybersecurity +Risk Management and Strategy +We have an information security +program designed to identify, protect, detect and respond to, and manage reasonably foreseeable cybersecurity risks and threats. To protect +our information systems from cybersecurity threats, we utilize various security tools that help prevent, identify , escalate, investigate, +resolve, and recover from identified vulnerabilities and security incidents in a reasonably timely manner. These include, but are not +limited to, internal reporting and tools for monitoring and detecting cybersecurity threats. +We evaluate the risks associated +with technology and cybersecurity threats and monitor our information systems for potential weaknesses. We review and test our information +technology system on an as-needed basis and also utilize internal team personnel to evaluate and assess the efficacy of our information +technology system and enhance our controls and procedures. The results of these assessments are reported to our [Audit Committee] and, +from time to time, our Board of Directors. +There can be no assurances +that our cybersecurity risk management program and processes, including our policies, controls, or procedures, will be fully implemented, +complied with or are effective in protecting our systems and information. +As of the date of this report, +we are not aware of any cybersecurity incidents, that have had a materially adverse effect on our operations, business, results of operations, +or financial condition. +Governance +Our Board of Directors considers +cybersecurity risk as part of its risk oversight function. It has delegated oversight of cybersecurity and other information technology +risks to the Audit Committee of the Board of Directors. The Audit Committee oversees the implementation of the cybersecurity risk management +program. +The Audit Committee receives +periodic reports from management on potential cybersecurity risks and threats. The Audit Committee reports to the full Board of Directors +regarding its activities, including those related to cybersecurity. The full Board of Directors also receives briefings from management +on the cybersecurity risk management program as needed. +Management is responsible +for assessing and managing our material risks from cybersecurity threats. Management has primary responsibility for our overall cybersecurity +risk management program and supervises both the internal cybersecurity personnel and external cybersecurity consultants. +The management team supervises +efforts to prevent, detect, mitigate, and remediate cybersecurity risks and incidents through various means, which may include briefings +from internal security personnel, threat intelligence and other information obtained from governmental, public or private sources, including +external consultants; and alerts and reports produced by security tools deployed in the IT environment. Our cybersecurity incident response +plan governs our assessment and response upon the occurrence of a material cybersecurity incident, including the process for informing +senior management and our Board of Directors. +57 +Item 2. Properties +Our executive office Unit 5, 21/F., Westley Square, +48 Hoi Yuen Road, Kwun Tong, Kowloon, Hong Kong. . +Item 3. Legal Proceedings +Legal Proceedings +There are no material proceedings +to which any director or officer, or any associate of any such director or officer, is a party that is adverse to our company or any +of our subsidiaries or has a material interest adverse to our company or any of our subsidiaries. No director or executive officer has +been a director or executive officer of any business which has filed a bankruptcy petition or had a bankruptcy petition filed against +it during the past ten years. No current director or executive officer has been convicted of a criminal offense or is the subject of +a pending criminal proceeding during the past ten years. No current director or executive officer has been the subject of any order, +judgment or decree of any court permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any +type of business, securities or banking activities during the past ten years. No current director or officer has been found by a court +to have violated a federal or state securities or commodities law during the past ten years. +From time to time, we are +subject to various legal proceedings that arise from the normal course of business activities. In addition, from time to time, third +parties may assert claims of intellectual property infringement, misappropriation or other violation against us in the form of letters +and other forms of communication. If an unfavorable ruling were to occur, there exists the possibility of a material adverse impact on +our results of operations, prospects, cash flows, financial position and brand. +We are not currently a party +to any material legal proceedings; however, Mr. Well Sham, our controlling shareholder, is a party to the following legal proceedings: +Criminal prosecution against Mr. Wellen Sham +Taiwan Taipei District Prosecutor’s +Office (the “Prosecutor”) initiated a public prosecution against Mr. Wellen Sham on May 2, 2022, currently being +litigated in Taiwan Taipei District Court Criminal Division (Taiwan Taipei District Court, Year 2022, Jin-Chong-Su-Zhi, No. 19, +the “Criminal Prosecution”). Four court sessions for the Criminal Prosecution have been held. The last court session was +on November 16, 2023. In response to the defendant’s request, the court has scheduled a series of hearings starting from March 2024. +The Prosecutor currently has 11 indictments against Mr. Sham in the Criminal Prosecution, which include the following alleged charges: +1. the offense of “causing +financial statements to become untrue by other improper means” under the Business Entity +Accounting Act of Taiwan as a result of failure to disclose a related party transaction +in connection with Electric Power Technology Limited’s (“EPTECH”) purchase +of Fund D securities from Sino-JP Fund Co., Ltd because Mr. Sham is associated +with EPTECH and Sino-JP Fund Co., Ltd. Inc. +2. violation of Securities +and Exchange Act of Taiwan by misrepresentations of EPTECH’s financial +statements, non-arm’s length transaction, and/or breach of Mr. Sham’s fiduciary +duty to EPTECH because the Prosecutor alleged those transactions are not in the normal course +of business of EPTECH or non-beneficial to EPTECH. +a. +Mr. Sham’s acquisition of shares in Thunder +Power Hong Kong Limited (“TPHK”), a company wholly owned by EPTECH, paid for by his GPS patents which the Prosecutor +alleged were priced at “an unreasonably high price.” +b. +EPTECH acquired a non-exclusive license for a +battery pack patent from TPHK by offsetting the debt owed by TPHK to EPTECH, which the Prosecutor alleged was “orchestrated” +by Mr. Sham and was “non-beneficial to EPTECH.” +c. +EPTECH engaged an exclusive +authorized agent for the electric coupe and agreed to pay USD $4,950,000 immediately, which the Prosecutor alleged was “orchestrated” +by Mr. Sham and was “deemed outside the normal course of EPTECH’s business” and caused significant losses +for EPTECH. +d. +EPTECH paid USD $4,480,000 +for parts for an electric four-door sedan from TPHK, which the Prosecutor alleged was “arranged” by Mr. Sham, +not in the normal course of business of EPTECH and non-beneficial to EPTECH, and constituted a non-arm’s length transaction +and a breach of fiduciary duty under the Securities and Exchange Act of Taiwan. +e. +According to the Prosecutor, +EPTECH failed to fully disclose the transaction terms to the shareholders when negotiating the land purchase transaction between +EPTECH and Xiang Fang International Co., Ltd. (“XFI”) or agreed to alter terms that may have been advantageous to EPTECH, +resulting in substantial losses to EPTECH. +58 +3. Electric Power Technology +International Limited (“EPTI”), a subsidiary of EPTECH, granted bonuses to Mr. Sham +in the amount of USD $150,000, USD $50,000, and USD $100,000, and EPTECH granted +a bonus of NTD 6,000,000 to Mr. Sham. The Prosecutor alleged that those bonuses +were granted in violation of fiduciary duty under the Securities and Exchange Act of Taiwan +and caused losses for EPTECH. +4. Thunder Power granted +bonuses in the form of an option to purchase approximately 28 million shares of Thunder +Power at a price of HKD 1.00 per share to Mr. Sham and his spouse*, which the Prosecutor +alleged to have resulted in losses for EPTECH and constituting a breach of fiduciary duty +under the Securities and Exchange Act of Taiwan. +5. EPTECH paid for expenses +associated with a seminar hosted by Thunder Power Electric Vehicle Limited (“TPEV”), +which the Prosecutor alleged was under the direction of Mr. Sham, constituting a breach +of trust under the Criminal Code of Taiwan. +6. EPTECH paid the salaries +of certain employees of TPEV and TPHK, which the Prosecutor alleged was a breach of a fiduciary +duty under the Securities and Exchange Act of Taiwan. +7. According to the Prosecutor, +Mr. Sham instructed Mr. Albert Chen to compose a false press release with the aim +of disseminating rumors or misleading information as EPTECH’s spokesperson, which the +Prosecutor alleged was intended to impact EPTECH’s stock prices and influence investors’ +judgments in the stock market, constituting the crime of manipulating the trading prices +of securities under the Securities and Exchange Act of Taiwan. +In response to the Prosecutor’s +accusations, Mr. Sham sought relief by asserting his innocence, appointing a defense attorney, applying for an investigation of +favorable evidence, and actively exercising his right to defend himself. +Civil actions against Wellen Sham +In conjunction with the +Criminal Prosecution, Taiwan’s Securities Investor and Futures Trader Protection Center (“SFIPC”) initiated the following +civil actions against Mr. Sham: +1. On October 18, +2022, SFIPC initiated an ancillary civil action to the Criminal Prosecution, requesting that +Mr. Sham shall bear liability for damages incurred by EPTECH. This civil action +is currently consolidated with the Criminal Prosecution and is under the jurisdiction of +Taiwan Taipei District Court Criminal Division, but has not been litigated in court. +2. Based on the content +of the Prosecutor’s indictment, SFIPC initiated a civil suit on August 11, 2022, +asserting Mr. Sham should be dismissed from the position of Chairman of EPTECH. This +suit is currently being litigated by the Intellectual Property and Commercial Court (Intellectual +Property and Commercial Court, Year 2022, Shang-Su-Zi, No. 28). Currently, an agreement to +suspend litigation has been reached with the opposing party (SFIPC). It is anticipated that +the litigation will resume after the witnesses are summoned in the Criminal Prosecution. +3. Based on the content +of the Prosecutor’s indictment, SFIPC initiated a civil suit on November 7, 2022, +asserting that the valuation of Mr. Sham’s GPS patent, acquired through technical +investment, is overestimated, and asserts that EPTECH’s financial reports are misleading. +SFIPC further asserts that Mr. Sham shall bear liability for damages incurred by investors +of EPTECH. This suit is currently being litigated by the Intellectual Property and Commercial +Court (Intellectual Property and Commercial Court, Year 2023, Shang-Su-Zi, No. 17). The court +has required the SFIPC to bear the burden of proof. +4. Pursuant to the civil +suit of claim for damages of financial misrepresentation (paragraph #3, immediately preceding +this paragraph), SFIPC has applied for a provisional seizure procedure. Intellectual Property +and Commercial Court has ruled to grant the provisional seizure on November 25, 2022. +After Mr. Sham’s appeal, the Supreme Court reverse the original provisional seizure +ruling, and on December 29, 2023, the Intellectual Property and Commercial Court changed +the ruling (Intellectual Property and Commercial Court, Year 2023, Shang-Quan-Geng-Zi, No. +2) to reducing the amount of the provisional seizure and required the SFIPC to first provide +a security deposit before seizing Mr. Sham’s property. This requirement to SFIPC +to pay a security deposit is an uncommon practice. Mr. Sham has currently appealed the +Intellectual Property and Commercial Court’s remanded ruling on the provisional seizure +and is awaiting a decision from the Supreme Court. +While we are unable to predict +the outcomes of these matters with certainty, we expect that the final outcomes of these pending matters against Mr. Sham will not, +either individually or in the aggregate, have a material adverse effect on our business, results of operations or financial condition; +however, we cannot guarantee whether, when and how it would impact our brand, reputation, business, results of operations or financial +condition. For additional information about legal proceedings that we may be subject to and the risks to our business related to litigation, +see “ Risk Factors —Risks Related to Regulation and Litigation — Our affiliated parties such as our major +shareholders may be involved in governmental investigations and civil litigation relating to the business affairs of companies with which +they are, were or may in the future be affiliated with. ” +Item 4. Mine Safety Disclosures +None. +* Mr. Sham’s spouse is a former director of Thunder +Power, who has resigned from all roles with Thunder Power in October 2021. +59 +PART II +Item 5. Market for Registrant’s +Common Equity, Related Stockholders Matters and Issuer Purchases of Equity Securities +Market Information +Our common stock is listed on the Nasdaq Capital +Market under the symbol “AIEV”. +Holders of Record +As of March 25, 2025, there +were 70,724,664 shares of common stock issued and outstanding held by approximately 55 stockholders of record. The number of record holders +was determined from the records of our transfer agent and does not include beneficial owners of shares of common stock whose shares are +held in the names of various security brokers, dealers, and registered clearing agencies. +Dividends +We have never declared or +paid any cash dividends on our capital stock. We currently intend to retain all available funds and future earnings, if any, for the +operation and expansion of our business and do not anticipate declaring or paying any dividends in the foreseeable future. Any future +determination related to our dividend policy will be made at the discretion of our board of directors after considering our financial +condition, results of operations, capital requirements, business prospects and other factors the board of directors deems relevant, and +subject to the restrictions contained in any financing instruments. Our ability to declare dividends may also be limited by restrictive +covenants pursuant to any other future debt financing agreements. +Recent Sales of Unregistered Equity Securities +Upon closing of the Business +Combination on June 21, 2024, the Sponsor had provided a total of $2,636,000 in working capital loans and elected to convert all such +working capital loans into 263,600 working capital units, which include 263,600 shares of common stock, par value $0.0001 per share, +263,600 warrants, each of which may be exercised into one share of common stock of the Company, and 263,600 rights, each of which +entitles the holder to receive one-tenth of one share of common stock of the Company at the closing of the Business Combination. The +Company issued 289,960 shares of common stock to the Sponsor on June 21, 2024. +In connection with the Business +Combination, FLFV engaged a third party financial advisor to assist FLFV in locating target businesses, holding meetings with its +shareholders to discuss a potential business combination and the target business’ attributes, introduce FLFV to potential investors +that are interested in purchasing securities, assist FLFV in obtaining shareholder approval for the business combination and assist with +press releases and public filings in connection with a business combination. On June 21, 2024, the Company issued 1,200,000 shares of +common stock to the financial advisor as service fees. The fair value of the 1,200,000 shares of common stock issued to the financial +advisor was $3,072,000, calculated at $2.56 per share by reference to the Nasdaq closing price of the Company’s common stock +on June 21, 2024. +In March 2024, April 2024 +and June 2024, the Company entered into certain private placement agreements with certain investors, pursuant to which the Company issued +1,310,740 shares of common stock, 44,940 shares of common stock and 1,155,513 shares of common stock, respectively. The Company raised +an aggregated proceeds of $946,800 from these private placements. On July 2, 2024, the sellers purchased and the Company issued additional +3,706,461 shares of the Company’s common stock pursuant to the Forward Purchase Agreement and Subscription Agreement. The sellers +made a prepayment shortfall of $150,000. +On August 20, 2024, the +Company entered into a Common Stock Purchase Agreement (the “Purchase Agreement”) and a Registration Rights Agreement (the +“Registration Rights Agreement”) with Westwood Capital Group LLC, a Delaware limited liability company (“Westwood”), +pursuant to which Westwood has committed to purchase, subject to certain limitations, up to $100 million of the Company’s common +stock, par value $0.0001 per share (the “Total Commitment”). In addition, the Company has agreed to pay Westwood a commitment +fee valued at $1,500,000 in the form of 150,000 shares of common stock (the “Commitment Shares”) or an amount of cash (up +to $1,500,000), depending on various factors. Pursuant to the Purchase Agreement, the Company issued 150,000 shares of the Company’s +stock as commitment shares to Westwood. +Issuer Purchases of Equity Securities +None. +Item 6. [Reserved] +60 +Item 7. Management’s Discussion and Analysis +of Financial Condition and Results of Operations +You should read the following discussion and +analysis of our financial condition and results of operations together with our condensed consolidated financial statements and the related +notes and other financial information included elsewhere in this Annual Report on Form 10-K. As discussed in the section titled “Note +Regarding Forward-Looking Statements,” the following discussion and analysis contains forward-looking statements that involve risks +and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially +from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to these differences include, +but are not limited to, those identified below and those discussed in the section titled “Risk Factors”. +Overview +Our mission is to power +the future of sustainable transportation by creating stylish, innovative and cost-efficient premium electric vehicles centered around +differentiated designs and solutions tailored for every lifestyle. We are a technology innovator and a developer of premium electric +vehicles (“EVs”). We have developed several proprietary technologies which are the building blocks of the Thunder Power family +of EVs. +We focus on the development +and manufacturing of premium EVs with differentiated designs and solutions for every lifestyle. Four models are currently featured in +our phased development and roll-out strategy: the limited-edition coupe, (the “Coupe” or “488”), long-range Sedan +(the “Sedan”), compact city car (the “City Car” or “Chloe”) and the long-range SUV (the “SUV”, +and together with the Coupe, Sedan, and City Car, the “Models”). We intend to target not just consumers who desire EVs, but +consumers who desire practical and innovative EVs, as well as consumers who seek a luxury experience. We believe that by leveraging our +modular integration concept starting with the modularized chassis system patented by us, we are creating a family of EVs (excluding the +City Car) which share common parts and modules which we believe requires lower investment and reduced design and production time as opposed +to those of traditional automotive manufacturers. We intend to first create the initial design for our Sedan, and then scale upwards +to create the Coupe and scale downward to create the City Car. In time, we expect to round off our offering with the SUV. +We expect to offer to the +market eco-friendly, premium EVs positioned to earn market share based on design, quality, comfort, range, and price. Among other advantages, +we believe that our proprietary technologies will significantly increase the driving range for our EVs while allowing for faster recharging +and lower costs of ownership. +Business Combination +On June 21, 2024, Feutune +Light Acquisition Corporation (“FLFV”) consummated the business combination with Thunder Power Holdings Limited (“TP +Holdings”), pursuant to the Merger Agreement (the “Business Combination”). Following the Business Combination, the +combined company changed its name to “Thunder Power Holdings, Inc.” (the “Company”), which is organized under +the laws of the State of Delaware. +Upon consummation of the +Business Combination, FLFV acquired all of the issued and outstanding securities of TP Holdings in exchange for (i) 40,000,000 shares +of common stock, and (ii) earn out payments consisting of up to an additional 20,000,000 shares of common stock (the “Earnout +Shares”) if the Company met certain revenue performance target in the following years through December 31, 2026 (see “ Note +11 – Contingent Consideration ”). +Following the consummation +of the Business Combination, the combined Company’s common stock began trading on the Nasdaq Global Market (the “Nasdaq”) +under the symbol “AIEV” on June 24, 2024. +The reverse recapitalization +is equivalent to the issuance of securities by TP Holdings for the net monetary assets of FLFV, accompanied by a recapitalization. The +Company debited equity for the fair value of the net liabilities of FLFV. In the subsequent financial statements after the Business Combination, +the amounts of assets and liabilities for the period before the reverse recapitalization in financial statements, are presented as those +of TP Holdings and recognized and measured at their pre-combination carrying amounts. +61 +Recent development +On December 19, 2024, the +Company entered into a Share Exchange Agreement (the “Agreement”) with certain shareholders (the “TW Company Shareholders”) +of Electric Power Technology Limited, a Taiwan corporation (“TW Company”). +Pursuant to the Agreement, +the TW Company Shareholders will exchange 26,079,550 ordinary shares of TW Company for 31,034,666 newly issued shares of the Company’s +common stock, par value $0.0001 per share (the “Exchange”). Upon completion of the Exchange, the Company will acquire approximately +30.8% of TW Company’s total issued and outstanding shares. The closing of the Exchange is subject to customary conditions, including +receipt of all necessary regulatory approvals and the approval of the Company’s shareholders. The Agreement contains customary +representations, warranties and covenants by the parties. The closing must occur no later than October 31, 2025. The Agreement may be +terminated: (1) by mutual consent of the parties; (2) by either party upon material breach by the other party that remains uncured for +10 days after notice; (3) if the closing has not occurred within 90 days of signing (subject to extension for regulatory approvals); +or (4) by either party if a court or regulatory authority permanently enjoins the transaction. +Key Factors Affecting Our Results of Operations +We believe that our performance +and future success will depend on several Company specific factors, including those key factors discussed below and other factors in +the section under the heading “ Risk Factors ” of the registration statement on Form S-4 filed with the Securities and +Exchange Commission (the “SEC”) on December 7, 2023, as amended from time to time. +Our ability to evaluate our business and future prospects +We are an early-stage company +with an early stage/limited operating history, operating in a rapidly evolving and highly regulated market. Furthermore, we have not +released any commercially available vehicle, and we have no experience manufacturing or selling a commercial product at scale. Because +we have not generated revenue from the sale of EVs, and because of the capital-intensive nature of our business, we expect to continue +to incur substantial operating losses for the foreseeable future. +Our ability to develop different models of vehicles +We currently have four models +featured in our phased development strategy and our revenue in the foreseeable future will be significantly dependent on a limited number +of models. Although we have other vehicle models on our product roadmap, we currently do not expect to introduce another vehicle model +until at least 2030. We expect to rely on sales from the Coupe, the Sedan, the City Car, and the SUV, among other sources of financing, +for the capital that will be required to develop and commercialize future models. To the extent that production of the models is delayed, +reduced or is not well-received by the market for any reason, our revenue and cash flow would be adversely affected, we may need to seek +additional financing earlier than we expect, and such financing may not be available to us on commercially reasonable terms, or at all. +Our ability to control the substantial costs associated +with our operations +We will require significant +capital to develop and grow our business. We have incurred and expect to continue to incur significant expenses as we build our brand +and develop and market our vehicles; expenses relating to developing and manufacturing our vehicles, tooling and expanding our manufacturing +facilities; research and development expenses (including expenses related to the development of the current and future products), raw +material procurement costs; and general and administrative expenses as we scale our operations. As a company, we do not have historical +experience forecasting and budgeting for any of these expenses, and these expenses could be significantly higher than we currently anticipate. +In addition, any disruption to our manufacturing operations, obtaining necessary equipment or supplies, expansion of our manufacturing +facilities, or the procurement of permits and licenses relating to our expected manufacturing, sales and distribution model could significantly +increase our expenses. +Our ability to develop a third-party retail product +distribution and a full-service network +We anticipate utilizing +third-party retail product distribution and full-service networks to execute on such plans in all markets. If our use of third-party +retail production and full-service networks is not effective, our results of operations and financial conditions could be adversely affected. +62 +Key Components of Results of Operations +The following section presents +the key components of our results of operations by the nature of corresponding operating activities for the periods indicated. You should +read this financial information in conjunction with those presented elsewhere in this Annual Report including our financial statements +and notes to our financial statements. +Revenues +We have not generated revenue +from the sale of EVs. We expect to generate revenue from the sale of our EV models, the sale and/or licensing of our technologies, and +from research and development services. +Cost of revenues +Although we have no revenue, +we have incurred costs associated with trying to generate revenue such as research and development, general and administrative expenses, +liquidity and financing expenses and other operating activities as further described below. +General and administrative expenses +General and administrative +expenses primarily consist of personnel salary and welfare expenses and professional and consulting expenses. Over the next several years, +we anticipate an increase in our general and administrative expenses with our launch of production lines of our EV cars. Additionally, +we expect to incur higher costs related to professional and consulting expenses associated with being a publicly traded company. +Taxation +The Company is incorporated +in the State of Delaware and is required to pay franchise taxes to the State of Delaware on an annual basis. The Company is also registered +as a foreign corporation with the State of New Jersey Department of the Treasury. The Company would be subject to income tax under New +Jersey state tax laws if it has operations in New Jersey. +On August 16, 2022, +the Inflation Reduction Act of 2022 (the “IRA”) was signed into federal law. The IRA provides for, among other things, a +new U.S. federal 1% excise tax on certain repurchases (including redemptions) of stock by publicly traded domestic (i.e., U.S.) +corporations and certain domestic subsidiaries of publicly traded foreign corporations. The excise tax is imposed on the repurchasing +corporation itself, not its shareholders from which shares are repurchased. The amount of the excise tax is generally 1% of the +fair market value of the shares repurchased at the time of the repurchase. However, for purposes of calculating the excise tax, repurchasing +corporations are permitted to net the fair market value of certain new stock issuances against the fair market value of stock repurchases +during the same taxable year. In addition, certain exceptions apply to the excise tax. The U.S. Department of the Treasury (the “Treasury”) +has been given authority to provide regulations and other guidance to carry out and prevent the abuse or avoidance of the excise tax. +The IRA applies only to repurchases that occur after December 31, 2022. +Our operating subsidiary +Thunder Power New Electric Vehicles (TPNEV) are under the current and applicable laws of BVI and is not subject to tax on income or capital +gains. As of December 31, 2024 and 2023, there was no temporary differences and no deferred tax asset or liability recognized. We do +not believe that there was any uncertain tax position as of December 31, 2024 and 2023. +63 +Results of Operations for the years ended December 31, 2024 +and 2023 +The following table sets +forth a summary of our results of operations for the years ended December 31, 2024 and 2023. This information should be read together +with our consolidated financial statements and related notes included elsewhere in this Annual Report. The operating results in any period +are not necessarily indicative of the results that may be expected for any future period. +For the Year Ended +December 31, +2024 +2023 +Revenues +$ — +$ — +Operating expenses +General and administrative expenses +(2,502,190 ) +(1,815,071 ) +Total operating expenses +(2,502,190 ) +(1,815,071 ) +Other income (expenses) +Interest income, net +51 +— +Foreign currency exchange loss +(212 ) +(573 ) +Total other expenses, net +(161 ) +(573 ) +Loss before income taxes +(2,502,351 ) +(1,815,644 ) +Income tax expenses +— +— +Net loss +$ (2,502,351 ) +$ (1,815,644 ) +General and administrative +expenses. For the years ended December 31, 2024 and 2023, our general and administrative expenses were approximately $2.5 million +and $1.8 million, respectively. The increase in general and administrative expenses was primarily due to an increase of approximately +$0.3 million in professional expenses which were incurred to support the closing of business combination, and an increase of share-based +compensation of approximately $0.7 million as we issued 90,000 shares of common stock to three independent directors of FLFV at the consummation +of the Business Combination, partially offset by a decrease of share-based settlement expenses of approximately $0.5 million. +Net loss. As +a result of the foregoing, we incurred a net loss of approximately $2.5 million and $1.8 million for the years ended December +31, 2024 and 2023. +64 +Liquidity and Capital Resources +To date, we have financed +our operating activities primarily through cash raised in loans from related parties (see “ Note 9 – Related Party Transactions +and Balances ”), and equity financing including private placements. As of September 30, 2024, our cash was $142,616. +We have been incurring losses +from operations since inception. Accumulated loss amounted to approximately $36.9 million and $34.4 million as of December 31, 2024 and +2023, respectively. Net cash used in operating activities were approximately $1.2 million and $0.7 million for the years ended December +31, 2024 and 2023. As of December 31, 2024, we had a negative working capital of $6.6 million, compared to a working capital of approximately +$0.7 million as of December 31, 2023. The working capital excluded the non-cash items, which are prepaid expenses for the certain forward +purchase agreement entered into on June 11, 2024, by and among FLFV, the Company and certain investors (the “Forward Purchase Agreement”), +deferred offering costs and advance of subscription fees from shareholders. These conditions raised substantial doubts about the Company’s +ability to continue as a going concern. +Our liquidity is based on +our ability to generate cash from operating activities, obtain capital financing from equity interest investors and borrow funds on favorable +economic terms to fund our general operations and capital expansion needs. Our ability to continue as a going concern is dependent on +management’s ability to successfully execute our business plan, which includes increasing revenue while controlling operating cost +and expenses to generate positive operating cash flows and obtaining funds from outside sources of financing to generate positive financing +cash flows. Currently, we are working to improve our liquidity and capital sources mainly through borrowing from related parties by obtaining +financial support from our principal shareholder who has committed to continue providing funds for our working capital needs whenever +needed. +In addition, in order to +fully implement our business plan and sustain continued growth, we are also actively seeking private equity financing from outside investors. +However, there can be no assurance that these plans and arrangements will be sufficient to fund our ongoing capital expenditure, working +capital, and other requirements. +Cash Flows +The following table sets +forth a summary of our cash flows for the periods presented: +For the Year Ended +December 31, +2024 +2023 +Net cash used in operating activities +$ (1,227,253 ) +$ (658,729 ) +Net cash provided by investing activities +929,302 +— +Net cash provided by financing +activities +153,660   +605,250 +Net decrease in cash +(144,291 ) +(53,479 ) +Cash at beginning of year +196,907 +250,386 +Cash at end of year +$ 52,616 +$ 196,907 +Operating Activities +Net cash used in operating +activities for the years ended December 31, 2024 was approximately $1.2 million, primarily attributable to net loss of approximately +$2.5 million, adjusted for non-cash share-based compensation expenses of approximately $1.0 million, an increase of approximately +$0.1 million in due to related parties, and an increase of $0.1 million in accrued expenses and other current liabilities incurred for +professional consulting expenses since the closing of the Business Combination. +Net cash used in operating +activities for the year ended December 31, 2023 was approximately $0.7 million, primarily attributable to net loss of approximately +$1.8 million, adjusted for non-cash share-based compensation expenses of approximately $0.3 million, share-based settlement +expenses of approximately $0.5 million, and an increase of approximately $0.2 million in amounts due to related parties which +paid certain operating expenses on behalf of us. +65 +Investing activities +For the year ended December +31, 2024, we reported cash provided by investing activities of approximately $0.9 million, which was from the reverse acquisition we +closed with FLFV in June 2024. +For the year ended December +31, 2023, we did not report cash provided by or used in investing activities. +Financing Activities +For the year ended December +31, 2024, we reported cash provided by financing activities of approximately $0.2 million, which were primarily provided by subscription +fees of $0.4 million from shareholders in the private placements raised by TP Holdings, borrowings of approximately $1.0 million from +our controlling shareholder, and proceeds of approximately $0.2 million from investors pursuant to Forward Purchase Agreement, partially +offset by payment of offering cost of approximately $1.0 million and payment of approximately $0.4 million of extension loans on behalf +of the Sponsor. +For the year ended +December 31, 2023, we reported cash provided by financing activities of approximately $0.6 million, which were primarily provided +by subscription fees of approximately $1.8 million advanced from shareholders, partially offset by payment of approximately $0.6 million +of extension loans on behalf of the sponsor of a SPAC and payment of approximately $0.4 million of offering costs. +Commitment and Contingencies +On June 21, 2024, the Company +entered into an escrow agreement (the “Escrow Agreement”) with Mr. Wellen Sham, Yuanmei Ma and CST, pursuant to which, among +other things, (1) CST will act as the escrow agent under the Escrow Agreement; (2) at the closing of the Business Combination, the Company +deposited with CST 20,000,000 shares of common stock as Earnout Shares, to be held by CST in a segregated escrow account (“Earnout +Escrow Account”); and (3) if any portion of the Earnout Shares becomes eligible for release in accordance with the terms of the +Escrow Agreement, CST will release the applicable portion of the Earnout Shares from the Earnout Escrow Account in accordance with the +terms of the Escrow Agreement and disburse to each eligible recipient the applicable portion of Earnout Shares therefrom. +The Earnout Shares shall +be released or otherwise forfeited as follows: (i) an aggregate of 5,000,000 Earnout Shares (the “Tranche 1 Earnout Shares”) +will be vested, if and only if, on the occurrence that the amount of sales/revenues of the Company for any of the fiscal years (such +fiscal year is referred to as “Tranche 1 Fiscal Year”) ending from December 31, 2023 to December 31, 2025 is no less than +$42,200,000 as evidenced by the audited financial statements of the Company prepared in accordance with U.S. GAAP for the Tranche 1 Fiscal +Year that is contained in an annual report on Form 10-K filed by the Company with the SEC (the “Tranche 1 Annual Report”); +(ii) an aggregate of 15,000,000 Earnout Shares (the “Tranche 2 Earnout Shares”) will be vested, if and only if, on the occurrence +that the amount of sales/revenues of the Company for any of the fiscal years (such fiscal year is referred to as “Tranche 2 Fiscal +Year”) ending from December 31, 2023 to December 31, 2026 is no less than $415,000,000 as evidenced by the audited financial statements +of the Company prepared in accordance with U.S. GAAP for the Tranche 2 Fiscal Year that is contained in an annual report on Form 10-K +filed by the Company with the SEC (the “Tranche 2 Annual Report”); (iii) Within five (5) business days following the determination +that all or any portion of the Tranche 1 Earnout Shares or Tranche 2 Earnout Shares become vested, the Company, together with Mr. Sham +and Ms. Ma, shall instruct the Escrow Agent to irrevocably and unconditionally release the vested tranche of Earnout Shares from the +Escrow Account in accordance with the terms of the Escrow Agreement to certain of the Company’s shareholders. Each tranche of Earnout +Shares may be released only once, but more than one tranche can be released in any year in accordance with the Escrow Agreement. +The Earnout Shares are determined +as contingent consideration in connection with the reverse recapitalization. In addition, the issuance of Earnout Shares does not meet +any condition to be classified as a liability under ASC 815, thus it should be classified as an equity financial instrument, and measure +at fair value using the quoted market price on grant date, June 11, 2024, which was $2.56 per share. +66 +For the years ended December +31, 2024, the sales/revenue condition described above was not met. Currently the Company could not reasonably assess the performance +condition for the year ending December 31, 2025. +Other than the above, in +the normal course of business, we are subject to loss contingencies, such as certain legal proceedings, claims and disputes. We record +a liability for such loss contingencies when the likelihood of an unfavorable outcome is probable and the amount of loss can be reasonably +estimated. +Off-Balance Sheet Arrangements +We have not entered into +any financial guarantees or other commitments to guarantee the payment obligations of any third parties. In addition, we have not entered +into any derivative contracts that are indexed to the shares of our common stock and classified as shareholder’s equity or that +are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets +transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable +interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in product development +services with us. +Research and Development +We have incurred minimal +research and development expenses for the years ended December 31, 2024 and 2023. The researched and development expenses were recorded +in “general and administrative expenses” in the consolidated statements of operations. +Critical Accounting Estimates +We prepare our financial +statements in accordance with U.S. GAAP, which requires our management to make judgments, estimates and assumptions that affect +the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities on the date of the consolidated financial +statements, and the reported amounts of revenue and expenses during the reporting period. We continually evaluate these judgments, estimates +and assumptions based on our own historical experience, knowledge and assessment of current business and other conditions, our expectations +regarding the future based on available information and various assumptions that we believe to be reasonable, which together form our +basis for making judgments about matters that are not readily apparent from other sources. Since the use of estimates is an integral +component of the financial reporting process, our actual results could differ from those estimates. Some of our accounting policies require +a higher degree of judgment than others in their application. +The selection of critical +accounting policies, the judgments and other uncertainties affecting application of those policies and the sensitivity of reported results +to changes in conditions and assumptions are factors that should be considered when reviewing our financial statements. We believe the +following accounting policies involve the most significant judgments and estimates used in the preparation of our financial statements. +You should read the description of critical accounting policies, judgments and estimates in conjunction with our consolidated financial +statements and other disclosures included in this Annual Report. +We do not have critical +accounting estimates that are related to us. A list of accounting policies, judgements and estimates that are relevant to us is included +in notes to our consolidated financial statements included elsewhere in this Annual Report (see “ Note 2 – Summary of Significant +Accounting Policies ”). +Recently Issued Accounting Pronouncements +The Company has evaluated +all recently issued accounting pronouncements and believes such pronouncements do not have a material effect on the Company’s condensed +consolidated financial statements. A list of recently issued accounting pronouncements that are relevant to us is included in the notes +to our consolidated financial statements included elsewhere in this Annual Report (see “ Note 2 – Summary of Significant +Accounting Policies ”). +67 +Item 7A. Quantitative and Qualitative Disclosures +About Market Risk +Under SEC rules and regulations, +because we are considered to be a “smaller reporting company”, we are not required to provide the information required by +this item in this report. +Item 8. Financial Statements and Supplementary +Data +The Financial Statements +and Supplementary Data required by this Item 8 are incorporated by reference to information beginning on Page F-1 of this Form 10-K. +Item 9. Changes in and Disagreements with Accountants +on Accounting and Financial Disclosures +None. +Item 9A. Controls and Procedures +Evaluation of Disclosure Controls and +Procedures +Our +management evaluated, with the participation of our Chief Executive Officer (the principal executive officer) and our Chief Financial +Officer (the principal financial officer), the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) +and 15d-15(e) under the Exchange Act) as of December 31, 2024. Based upon the evaluation, our Chief Executive Officer and Chief Financial +Officer concluded that the Company’s disclosure controls and procedures were not effective, at the reasonable assurance level, +as of September 30, 2024, we identified the material weakness that we are lack of sufficient financial reporting and accounting personnel +with appropriate knowledge of U.S. GAAP and SEC reporting requirements to properly address complex U.S. GAAP technical accounting issues +and prepare and review financial statements and related disclosures in accordance with U.S. GAAP and reporting requirements set forth +by the SEC. Our management is currently in the process of evaluating the steps necessary to remediate the ineffectiveness, such as (i) +hiring a consulting firm with U.S. GAAP experience to strengthen our financial reporting function; (ii) establishing an ongoing program +to provide sufficient and appropriate training for financial reporting and accounting personnel, especially training related to U.S. +GAAP and SEC reporting requirement. +Limitations +on Controls and Procedures +We +do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and +procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the +disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there +are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure +controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all +our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain +assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated +goals under all potential future conditions. +Management’s Annual Report on Internal +Control Over Financial Reporting +This +Annual Report does not include a report of management’s assessment regarding internal control over financial reporting or an attestation +report of the company’s registered public accounting firm. +Prior +to June 21, 2024, we were known as Feutune Light Acquisition Corporation, a Delaware corporation (“FLFV”), and Feutune Light +Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of FLFV (“Merger Sub”). On October 26, 2023, we entered +into a business combination agreement (as amended, the “Business Combination Agreement”) with Thunder Power Holdings Limited, +a British Virgin Islands company (“Thunder Power”), pursuant to which on June 21, 2024, Thunder Power merged with and into +Merger Sub, with Merger Sub surviving the merger as a wholly owned subsidiary of FLFV (the “Merger”). +68 +FLFV, +our predecessor company prior to the consummation of the Merger, is a non-operating public, and the internal controls of the legal acquirer +no longer exist as of the assessment date. We are not able to conduct an assessment of Thunder Power, a private operating company prior +to the Merger, and we are not able to account FLFV’s internal control over financial reporting in the period bewteen the consummation +date of the Merger and the assessment date. +Changes in Internal Control Over Financial +Reporting +Except +as discussed above, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(d) and 15d-15(d) +of the Exchange Act) during the quarter ended December 31, 2024, that have materially affected, or are reasonably likely to materially +affect, our internal control over financial reporting. +Limitations on Effectiveness of Controls +and Procedures +Our +management team, including our Chief Executive Officer and Interim Chief Financial Officer, believes that our disclosure controls and +procedures and internal controls over financial reporting are designed to provide reasonable assurance of achieving their objectives +and are effective at the reasonable assurance level. However, the effectiveness of any internal control over financial reporting is subject +to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, +and the inability to completely eliminate all potential for misconduct. Because of the inherent limitations in all control systems, no +evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. The +design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance +that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate +because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Because of the inherent limitations +in any cost-effective control system, misstatements due to error or fraud may occur and not be detected. +Item 9B. Other Information +Trading Plans +During +the three months ended December 31, 2023, no director or officer (as defined in Rule 16a-1(f) under the Exchange Act) of the company +adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term +is defined in Item 408(a) of Regulation S-K. +Item 9C. Disclosure Regarding Foreign Jurisdictions +that Prevent Inspections +Not applicable. +69 +Part III +Item 10. Directors, Executive Officers and +Corporate Governance +Current Directors and Executive Officers +The following table provides +information regarding our executive officers and members of our board of directors as of the date of this Annual Report on Form 10-K: +Name +Age +Position +Christopher Nicoll +56 +Chief Executive Officer +and Director +Pok Man Ho +39 +Interim Chief Financial +Officer +Dr. Chen ChiWen +49 +Director and Chairman of +the Board +Mingchih Chen (1)(2)(3) +58 +Director +Ferdinand Kaiser (1)(2)(3) +61 +Director +Kevin Vassily (1)(2)(3) +58 +Director +(1) +Member of the audit committee. +(2) +Member of the compensation +committee. +(3) +Member of the nominating +and corporate governance committee. +Executive Officers +Christopher Nicoll +serves as our Chief Executive Officer and a member of the Board. Since 2021, Mr. Nicoll operated the Auto Advisory Board Ltd. +as a business owner and a commercial automotive consultant, through which he takes on diverse automotive projects and interim roles including, +without limitation, implementing commercial, financial and logistics processes for a start-up, supervised technical conversion, homologation +and emissions testing, and advised a major European dealer group on its international product launch. Mr. Nicoll has previously served +in the capacity of the managing and commercial director of AGT Europe between 2018 and 2020, where he launched the official EU import +for Dodge cars, Ram trucks and MOPAR spare parts. Between 2015 and 2018, Mr. Nicoll was the head of marketing and business development +at TPEV where he oversaw start-up EV projects such as, without limitation, R&D activities in Italy, and led cross-functional commercial +and engineering teams. From 2010 through 2014, Mr. Nicoll held the positions of the head of global network development, head of APAC +region, and head of EMEA region at Lotus Cars. Mr. Nicoll received a BA in Business Administration from Middlesex University in the UK +and a Diplom Betriebswirt from the Reutlingen University in Germany. +Pok Man Ho +serves as our Interim Chief Financial Officer since September 16, 2024. Previously, Mr. Ho was part of Thunder Power since 2015, where +he played a pivotal role in corporate finance, financial planning and analysis, human resources, and corporate governance. Over his tenure +with Thunder Power he was instrumental in driving strategic decision-making, optimizing resource allocation, and ensuring regulatory +compliance. Prior to that, Mr. Ho held regional roles in the insurance and luxury retail industries from 2012 to 2015. During this period, +he leveraged his expertise in taxation and human resources cost analysis in Assicurazioni Generali S.p.A. and Gucci Group, respectively. +This experience provided him with a comprehensive understanding of the financial and operational challenges faced by multinational corporations +in different sectors. Prior to that, Mr. Ho began his career at KPMG in 2009, where he specialized in taxation. During the three-year +tenure with KPMG, Mr. Ho gained valuable insight into tax regulations and frameworks, and developed a strong foundation in financial +planning and compliance. Mr. Ho graduated from Monash University (Accounting and Finance) in Australia in 2008, and Mr. Ho is a Certified +Public Accountant. +70 +Directors +Dr. Chen ChiWen +serves as an Independent Director and Chairman of the Board of Directors of the Company following his appointment by the Board of Directors +on November 28, 2024. Dr. Chen currently serves as Assistant Professor in the Master of Global Entrepreneurial Management Program at +Fu Jen Catholic University and CEO of the Taipei-Ningbo Exchange Foundation. He holds independent directorships at several publicly listed +companies including Oceanic Beverages Co., Inc., Skardin Industrial Corp., Electric Power Technology Limited, and ACpay Co., Ltd. Dr. +Chen holds a Ph.D. in Business Administration from Fu Jen Catholic University, a Ph.D. in Physical Education from National Taiwan Sport +University, and is currently a Ph.D. candidate in Sustainable Energy Technology at National Taiwan University of Science and Technology. +Ferdinand Kaiser +serves as an Independent Director of the Company following his appointment by the Board of Directors on November 28, 2024. Mr. Kaiser +will serve as Chair of the Compensation Committee. Mr. Kaiser currently serves as COO Project Manager at SANLUCAR in Austria. From 2018 +to 2020, he served as Manager Central EU EMEA at DODGE RAM AGT Europe AG, where he was responsible for automotive business management +across the EU-27 region. From 2016 to 2018, he was Assistant Vice President of Procurement at Thunder Power Electric Vehicle Limited. +Previously, he held several CEO positions within FIAT Group companies, including CEO & Country Manager for FIAT S.p.a Owned Dealer +Europe EMEA and CEO & Brand Country Manager for JEEP & Lancia. Mr. Kaiser holds an Academic Diploma in Business Administration +from the Vienna University of Economics and Business (Wirtschaftsuniversität Wien). +Mingchih Chen serves +as an independent member of the Board since September 11, 2024. Ms. Chen is a highly accomplished professional with a strong background +in industrial engineering and academia. With her extensive educational and professional experience, Ms. Chen has made significant contributions +to various institutions. Ms. Chen pursued her education at Texas A&M University in the United States. She obtained her Doctoral degree +in Industrial Engineering from Texas A&M University from January 1991 to December 1993. Prior to that, she completed her master’s +degree in industrial engineering from September 1989 to December 1990. Ms. Chen also holds a bachelor’s degree in industrial engineering +from Chung-Yuan Christian University in Taiwan, which she completed from September 1984 to June 1988. Throughout her career, Ms. Chen +has held various academic positions and made significant contributions to the field of business administration and industrial engineering. +From August 2021 to July 2023, she served as the Executive Director of the Artificial Intelligence Development Center at Fu Jen Catholic +University. She also held the position of Director and Professor at Fu Jen Catholic University’s Graduate Institute of Business +Administration in New Taipei City from August 2015 to July 2023. Ms. Chen has been a Professor at Fu Jen Catholic University’s +Graduate Institute of Business Administration since February 2013. Prior to that, she served as an Associate Professor at the same institution +from August 2010 to January 2013. Her academic career also includes positions as an Associate Professor at Chaoyang University of Technology’s +Department of Industrial Engineering and Management in Wufeng, Taiwan, from August 1997 to July 2010, and as an Associate Professor at +Ming-Chuan University’s Department of Business Management in Taipei, Taiwan, from August 1994 to July 1997. Ms. Chen’s professional +experience extends beyond academia. She worked as an Industrial Engineer at Phillip Electronics Company in Chung-Li, Taiwan, from June +1988 to July 1989. In addition, she served as a Post-doctoral Research Associate under Dr. Way Kuo at Texas A&M University from January +1994 to July 1994. With her broad expertise in industrial engineering and business administration, Ms. Chen will bring valuable insights +and strategic guidance to our Board. Her extensive academic and professional background ensures that the company benefits from her wealth +of knowledge and experience. +71 +Kevin Vassily serves +as an independent member of the Board. Mr. Vassily has extensive working experience as a senior management team member serving private +and public companies. Mr. Vassily has served as an independent director of FLFV since June 2022. Mr. Vassily is a director of the board +of directors of Denali Capital Acquisition Corp. since April 2022, and a member of the board of directors of Aimfinity Investment Corp. +I since March 2023, two SPACs listed on Nasdaq. In January 2021, he was appointed Chief Financial Officer, and in March 2021, became +a member of the board of directors of iPower Inc. (Nasdaq: IPW), an online hydroponic equipment retailer and supplier. Prior to joining +iPower, from 2019 to January 2021, Mr. Vassily served as Vice President of Market Development for Facteus, Inc., a financial analytics +company focused on the Asset Management industry. From October 2018 through its acquisition in March 2020, Mr. Vassily served as an advisor +at Go Capture (which was acquired by Deloitte China in 2020), where he was responsible for providing strategic, business development, +and product development advisory services for the company’s emerging “Data as a Service” platform. Since February 2020, +Mr. Vassily has served as a director of Zhongchao Inc. (Nasdaq: ZCMD), a provider of healthcare information, education and training services +to healthcare professionals and the public in China. Since July 2018, Mr. Vassily has also served as an advisor at Prometheus Fund, a +Shanghai-based merchant bank/private equity firm focused on the “green” economy. From April 2015 through May 2018, Mr. Vassily +served as an associate director of research at Keybanc Capital Markets Inc. From June 2010 to April 2015, he served as the director of +research at Pacific Epoch, LLC (a wholly-owned subsidiary of Pacific Crest Securities LLC). From May 2007 to May 2010, he served as the +Asia Technology business development representative and as a senior analyst at Pacific Crest Securities. From July 2003 to September +2006, he served as senior research analyst in the semiconductor technology group at Susquehanna International Group, LLP. From September +2001 to June 2003, Mr. Vassily served as the vice president and senior research analyst for semiconductor capital equipment at Thomas +Weisel Partners Group, Inc. Mr. Vassily began his career on Wall Street in August 1998, as a research associate covering the semiconductor +industry at Lehman Brothers. He holds a B.A. in liberal arts from Denison University and an M.B.A. from the Tuck School of Business at +Dartmouth College. +Christopher Nicoll serves as a +member of the Board. For a brief biography of Mr. Nicoll, please see above under “ Executive Officers .” +Role of Board +in Risk Oversight +One of the key functions +of the Board is the informed oversight of our risk management process. The Board does not have a standing risk management committee, +but rather administers this oversight function directly through the Board as a whole, as well as through the standing committees of the +Board that address risks inherent in each committee’s respective area of oversight. In particular, the Board is responsible for +monitoring and assessing strategic risk exposure and the audit committee has the responsibility of considering and discussing financial +risk exposure and the steps management should take to monitor and control such exposure, including implementing guidelines and policies +to govern the process by which risk assessment and management is undertaken. +Board Composition +Our Board consists of five members. +The Board consists of the following members: +● Christopher +Nicoll, Dr. Chen ChiWen, Mingchih Chen, Ferdinand Kaiser, and Kevin Vassily and their terms +will expire at the annual meeting of stockholders to be held in 2025; +72 +Director +Independence +The Board is expected to +annually undertake a review of the independence of each director. Based upon information requested from and provided by each director +concerning his or her background, employment, and affiliations, including family relationships, the following members of the Board were +determined by the Board not to have a relationship that would interfere with the exercise of independent judgment in carrying out the +responsibilities of a director and that each of Mingchih Chen, Ferdinand Kaiser, and Kevin Vassily are considered to be “independent” +as that term is defined under Nasdaq rules. +In making these determinations, +the Board has considered the current and prior relationships that each non-employee director has with the Company and all other facts +and circumstances that the Board deems relevant in determining their independence, including the beneficial ownership of the Company’s +capital stock by each non-employee director. +Board Committees +The standing committees +of the Board consist of the Audit Committee, the Compensation Committee and a Nominating and Corporate Governance Committee, each of +which has the composition and the responsibilities described below. Additionally, from time to time, special committees may be established +under the direction of the Board, as and when the Board deems it necessary or advisable to address specific matters. +The Chief Executive Officer +and other executive officers regularly report to the non-executive directors and each standing committee to ensure effective +and efficient oversight of its activities and to assist in proper risk management and the ongoing evaluation of management controls. +Audit +Committee +The members of our audit +committee are Mingchih Chen, Ferdinand Kaiser, and Kevin Vassily. Mr. Vassily is the Chair of the audit committee and an “audit +committee financial expert,” as that term is defined under the SEC rules implementing Section 407 of SOX, and possesses financial +sophistication, as defined under the rules of Nasdaq. The Company’s audit committee has the following functions, among others: +● perform +such other functions as the board of directors may from time to time assign to the audit +committee. +● evaluating +the performance, independence and qualifications of Thunder Power’s independent auditors +and determining whether to retain Thunder Power’s existing independent auditors or +engage new independent auditors; +● monitoring +the integrity of Thunder Power’s financial statements and Thunder Power’s compliance +with legal and regulatory requirements as they relate to financial statements or accounting +matters; +● reviewing +the integrity, adequacy and effectiveness of Thunder Power’s internal control policies +and procedures; +● preparing +the audit committee report required by the SEC to be included in Thunder Power’s annual +proxy statement; +● discussing +the scope and results of the audit with Thunder Power’s independent auditors, and reviewing +with management and Thunder Power’s independent auditors Thunder Power’s interim +and year-end operating results; +73 +● establishing +and overseeing procedures for employees to submit concerns anonymously about questionable +accounting or auditing matters; +● reviewing +Thunder Power’s guidelines and policies on risk assessment and risk management; +● Reviewing +and approving related-party transactions; +● obtaining +and reviewing a report by Thunder Power’s independent auditors at least annually that +describes Thunder Power’s independent auditors internal quality control procedures, +any material issues raised by review under such procedures, and any steps taken to deal with +such issues when required by applicable law; and +● approving +(or, as permitted, pre-approving) all audit and non-audit services to be performed by +Thunder Power’s independent auditors. +The Company’s audit committee operates +under a written charter, which satisfies the applicable rules of the SEC and the listing standards of Nasdaq. The foregoing summary +of the audit committee’s functions and responsibilities does not purport to be complete and is subject to the provisions of the +audit committee’s charter, which is filed with the registration statement of which this prospectus forms a part, which should be +read carefully and in its entirety. +Compensation Committee +The members of our compensation committee are +Mingchih Chen, Ferdinand Kaiser, and Kevin Vassily. Ferdinand Kaiser serves as Chair of the compensation committee. The Company has adopted +a compensation committee charter, which details the purpose and responsibility of the compensation committee, including: +● approving +the retention of compensation consultants and outside service providers and advisors; +● reviewing +and approving, or recommending that the Thunder Power Board approve the compensation of Thunder +Power’s executive officers, including annual base salary, annual incentive bonuses, +specific performance goals relevant to their compensation, equity compensation, and employment; +● reviewing +and recommending to the Thunder Power Board the compensation of Thunder Power’s directors; +● administering +and determining any award grants under Thunder Power’s 2024 Plan; +● reviewing +and evaluating succession plans for the executive officers; +● preparing +the compensation committee report required by the SEC to be included in Thunder Power’s +annual proxy statement; and +● periodically +reviewing Thunder Power’s practices and policies of employee compensation as they relate +to risk management and risk-taking incentives. +The charter also provides that the compensation +committee may, in its sole discretion, retain or obtain the advice of a compensation consultant, independent legal counsel or other adviser +and will be directly responsible for the appointment, compensation and oversight of the work of any such adviser. However, before engaging +or receiving advice from a compensation consultant, external legal counsel or any other adviser, the compensation committee will consider +the independence of each such adviser, including the factors required by Nasdaq and the SEC. The foregoing summary of the compensation +committee’s functions and responsibilities does not purport to be complete and is subject to the provisions of the compensation +committee’s charter, which is filed with the registration statement of which this prospectus forms a part, which should be read +carefully and in its entirety. +74 +Nominating +and Corporate Governance Committee +The members of the Company’s nominating +and corporate governance committee are Mingchih Chen, Ferdinand Kaiser, and Kevin Vassily. Ms. Chen serves as Chair of the nominating +and corporate governance committee. The Company has adopted a nominating and corporate governance committee charter, which details the +purpose and responsibility of the nominating and corporate governance committee, including: +● identifying, +evaluating, and recommending individuals qualified to become members of the Board and its +committees; +● evaluating +the performance of the Board and of individual directors; +● developing +and recommending corporate governance guidelines to the Board; and +● overseeing +an annual evaluation of the Board and management. +The nominating and corporate +governance committee operates under a written charter, which satisfies the applicable rules of the SEC and the listing standards of Nasdaq. +The foregoing summary of the nominating and corporate governance committee’s functions and responsibilities does not purport to +be complete and is subject to the provisions of the nominating and corporate governance committee’s charter, which is filed with +the registration statement of which this prospectus forms a part, which should be read carefully and in its entirety. +Code of Business +Conduct +We have adopted a Code of +Business Conduct that applies to the Company’s directors, officers, and employees, including our principal executive officer, principal +financial officer, principal accounting officer or controller or, persons performing similar functions. The Code of Business Conduct +is available on our website at www.aiev.ai/en . We intend to disclose any amendments to or waivers of our Code of Business +Conduct in a Current Report on Form 8-K. Information contained on our website is not incorporated by reference into this prospectus +and should not be considered to be part of this prospectus. +Insider Trading +Policy +Our board of directors has +adopted an Insider Trading Policy which prohibits trading based on “material, nonpublic information” regarding our company +or any company whose securities are listed for trading or quotation in the United States. The policy covers all officers and directors +of the company and its subsidiaries, all other employees of the company and its subsidiaries, and consultants or contractors to the company +or its subsidiaries who have or may have access to material non-public information and members of the immediate family or household of +any such person. The policy is reasonably designed to promote compliance with insider trading laws, rules and regulations, and Nasdaq +listing standards. The policy is filed as an exhibit to this Annual Report on Form 10-K. +Clawback +Policy +Our board of directors has +adopted a clawback policy, which provides that in the event we are required to prepare an accounting restatement due to noncompliance +with any financial reporting requirements under the securities laws or otherwise erroneous data or we determine there has been a significant +misconduct that causes financial or reputational harm, we shall recover a portion or all of any incentive compensation. The policy is +filed as an exhibit to this Annual Report on Form 10-K. +75 +Compensation +Committee Interlocks and Insider Participation +None of the members of our +compensation committee is or has been an officer or employee of the Company. None of our executive officers currently serves, or in the +past fiscal year has served, as a member of the board of directors, or compensation committee (or other board committee performing equivalent +functions) of any entity that has one or more executive officers serving on the Board or compensation committee. +Limitation +on Liability and Indemnification of Directors and Officers +Our Charter contains certain +provisions permitted under the DGCL related to the liability of directors and officers. These provisions eliminate the personal liability +for monetary damages resulting from a breach of fiduciary duty as a director, to the fullest extent permitted by the DGCL. Our Bylaws +also provide that we may indemnify our directors and officers to the fullest extent permitted by the DGCL and also provide that we must +pay expenses, as incurred, to our directors and officers in connection with a legal proceeding to the fullest extent permitted by the +DGCL, subject to very limited exceptions. +These provisions may discourage +stockholders from bringing a lawsuit against our directors for breach of their fiduciary duty. These provisions also may have the effect +of reducing the likelihood of derivative litigation against officers and directors, even though such an action, if successful, might +otherwise benefit us and our stockholders. Furthermore, a stockholder’s investment may be adversely affected to the extent we pay +the costs of settlement and damage awards against officers and directors pursuant to these indemnification provisions. +We believe that these provisions, +the directors’ and officers’ liability insurance and the indemnity agreements are necessary to attract and retain talented +and experienced officers and directors. +Non-Employee Director +Compensation +The Board reviews director +compensation periodically to ensure that director compensation remains competitive such that the Company is able to recruit and retain +qualified directors. The Company is in the process of developing a board of directors’ compensation program that is designed to +align compensation with the Company’s business objectives and the creation of stockholder value, while enabling the Company to +attract, retain, incentivize, and reward directors who contribute to the long-term success of the Company. +Compliance with Section 16(a) of the Exchange +Act +Section 16(a) of the Exchange +Act requires our executive officers, directors and persons who beneficially own more than 10% of a registered class of our equity securities +to file with the SEC initial reports of ownership and reports of changes in ownership of our common stock and other equity securities. +These executive officers, directors, and greater than 10% beneficial owners are required by SEC regulation to furnish us with copies +of all Section 16(a) forms filed by such reporting persons. Based solely on our review of such forms furnished to us and written representations +from certain reporting persons, we believe that during the year ended December 31, 2024, all reports applicable to our executive officers, +directors and greater than 10% beneficial owners were filed in a timely manner in accordance with Section 16(a) of the Exchange Act. +76 +Item 11. Executive Compensation +Summary Compensation Table +The following table summarizes +the compensation awarded to, earned by, or paid to Thunder Power’s executive officers for the fiscal years ended December 31, +2024 and 2023. +Name and Principal Position +Year +Salary +($) +Bonus +($) +Option +Awards +($) +Stock +Awards +($) +All Other +Compensation +($) +Total +($) +Christopher Nicoll +2024 +45,000 +— +— +— +— +45,000 +Chief Executive Officer +2023 +— +— +— +— +— +— +Wellen Sham +2024 +— +— +— +— +— +— +Former Chief Executive Officer +2023 +206,110 +— +— +— +461,566 (1) +667,676 +Chiu Wai Jo +2024 +60,987 +— +— +— +— +60,987 +Director of Financial Planning & +Analysis +2023 +66,026 +— +— +— +— +66,026 +Pok Man Ho +2024 +89,679 +— +— +— +— +89,679 +Interim CFO +2023 +84,500 +— +— +— +— +84,500 +(1) +In June 2023, Thunder Power issued 17,008,312 shares +of Thunder Power’s common stock at $0.058 per share to Mr. Wellen Sham to settle certain of Thunder Power’s then-outstanding liabilities. +On the issuance date, the fair value of the common stock was $0.063 per share, and the fair value of the common stock exceeding Thunder +Power’s then-outstanding liabilities was $461,566, which was deemed as share-based compensation to Mr. Wellen Sham. +For additional information, see “ Note 7 — Common Stocks ” and “ Note 9 — Share-Based Compensation +— Other Share-Based Compensation ” to the notes to Thunder Power’s audited consolidated financial statements. +Elements of Compensation +Our compensation program +for NEOs consists of the following elements of compensation, each described in greater depth below: +● base +salaries; +● performance-based +bonuses; +● equity-based +incentive compensation; and +● general +benefits. +Base Salary +Base salaries are an annual +fixed level of cash compensation to reflect each NEO’s performance, role and responsibilities, and retention considerations. +Performance-Based Bonus +To incentivize management +to drive strong operating performance and reward achievement of our company’s business goals, our executive compensation program +includes performance-based bonuses for NEOs. Our Compensation Committee has established annual target performance-based bonuses for each +NEO during the first quarter of the fiscal year. +Equity Compensation +We may pay equity-based +compensation to our NEOs in order to link our long-term results achieved for our stockholders and the rewards provided to NEOs, thereby +ensuring that such NEOs have a continuing stake in our long-term success. +General Benefits +Our NEOs are provided with +other fringe benefits that we believe are commonly provided to similarly situated executives. +77 +Employment Agreements +Effective July 27, 2022, +we executed an employment agreement with Stephan Kim for Mr. Kim to serve as our full time Chief Financial Officer, effective immediately. +Mr. Kim shall receive a monthly payment of $12,000 ($144,000 annually) as compensation for his services, and we granted $56,000 worth +of restricted stock units (RSUs), which vested 3 months after employment and can be sold after one year. The employment agreement is +an at-will agreement and is terminable by either party at any time. +Except as set forth above +we do not currently have employment agreements with any of our NEOs . +Employment Agreements +Prior to the Business Combination, +Thunder Power did not entered into employment agreements with Messrs. Wellen Sham, Chiu Wai Jo or Pok Man Ho. Following the Business +Combination, on September 24, 2024 and September 25, 2024, Thunder Power AI Subsidiary, Inc. (“TPAI”) Thunder Power’s +Hong Kong branch, entered into certain employment agreements with Ho Pok Man and Christopher Nicoll, respectively. +Ho Agreement +Based on the employment +agreement by and between TPAI and Ho Pok Man (the “Ho Agreement”), effective September 16, 2024, TPAI shall pay Mr. Ho a +fixed monthly salary of US$8,000, payable in arrears on the sixth of each month (pro rated for the months if that period of service is +less than one calendar month). In addition, TPAI also agreed to issue to Mr. Ho a total of 100,000 the Company’s Common Stock every +year (in two instalments, one on January 1, the other on June 1) under the Company’s 2024 Omnibus Equity Incentive Plan. Mr. Ho +may also be subject to certain discretionary bonus in form of either cash or options, or both, if the Company’s financial target +is achieved. +Nicoll Agreement +Based on the employment +agreement by and between TPAI and Christopher Nicoll (the “Nicoll Agreement”), effective July 1, 2024, TPAI shall pay Mr. +Nicoll a fixed monthly salary of US$5,000 for the first 3 months of the employment and US$10,000 since then, payable in arrears on the +sixth of each month (pro rated for the months if that period of service is less than one calendar month). In addition, TPAI also agreed +to issue to Mr. Nicoll a total of 200,000 of the Company’s Common Stock every year, payable on the first day of each quarter, in +four equal instalments, under the Company’s 2024 Omnibus Equity Incentive Plan. Mr. Nicoll may also be subject to certain discretionary +bonus in form of either cash or options, or both, if the Company’s financial target is achieved. +Director Compensation +None of the non-employee directors received +compensation during the fiscal years ended December 31, 2024 and 2023 for services rendered to the Company. +Rule 10b5-1 Sales Plans +Our directors and executive +officers may adopt written plans, known as Rule 10b5-1 plans, in which they will contract with a broker to buy or +sell shares of our Common Stock on a periodic basis. Under a Rule 10b5-1 plan, a broker executes trades pursuant +to parameters established by the director or executive officer when entering into the plan, without further direction from them. The +director or executive officer may amend a Rule 10b5-1 plan in some circumstances and may terminate a plan at any +time. Our directors and executive officers also may buy or sell additional shares outside of a Rule 10b5-1 plan when +they are not in possession of material non-public information, subject to compliance with the terms of our insider trading policy. The +sale of any shares under such a plan will be subject to the Lock-Up Agreements, to the extent that the selling director +or executive officer is a party thereto. +Emerging +Growth Company Status +The Company is an “emerging +growth company,” as defined in the Jobs Act. As an emerging growth company, it is exempt from certain requirements related to executive +compensation, including the requirements to hold a nonbinding advisory vote on executive compensation and to provide information relating +to the ratio of total compensation of its chief executive officer to the median of the annual total compensation of all of its employees, +each as required by the Investor Protection and Securities Reform Act of 2010, which is part of the Dodd-Frank Wall Street Reform and +Consumer Protection Act. +78 +Item 12. Security Ownership of Certain Beneficial +Owners and Management and Related Stockholder Matters +The following table sets +forth, as of the date of this annual report, the beneficial ownership information of each current director, including each nominee for +director, of the Company, as well as the Company’s executive officers, and the executive officers and directors as a group. There +is no person known to the Company to beneficially own 5% or more of the outstanding shares of the Company’s common stock. Percentage +of beneficial ownership is based on 70,724,664 shares of the Company’s common stock outstanding as of the date of this annual report. +Beneficial ownership is determined +in accordance with the rules of the Securities and Exchange Commission (“SEC”) and includes voting or investment power with +respect to the securities. Ownership information for those persons who beneficially own 5% or more of the shares of the Company’s +common stock is based upon filings by such persons with the SEC and other information obtained from such persons, if available. +The beneficial ownership +percentages set forth in the table below are based on 70,724,664 shares of Common Stock issued and outstanding as as of the date of this +annual report, which includes the Earn Out Shares held by Continental Stock Transfer & Trust Company and do not take into account +the issuance of any shares of Common Stock upon the exercise of Public Warrants or Sponsor Warrants. In computing the number of shares +of Common Stock beneficially owned by a person, we deemed to be outstanding all shares of Common Stock subject to warrants and convertible +notes held by the person that are currently exercisable or convertible or may be exercised or converted within 60 days of January 24, +2025. The Company did not deem these shares outstanding, however, for purpose of computing the percentage of ownership of any other person. +Unless otherwise noted in the footnotes to the following table, and subject to applicable community property laws, the persons and entities +named in the table have sole voting and investment power with respect to their beneficially owned Common Stock. +Name +and Address of Beneficial Owner (1) +Number of +Shares +Percent +Directors and Named Executive Officers: +Christopher Nicoll +— +— +Chiwen Chen +— +— +Mingchih Chen +— +— +Ferdinand Kaiser +— +— +Kevin Vassily +50,000 +* +Pok Ho Man +64,200 +* +All directors and officers as a group (5 individuals) +114,200 +* +Five Percent Holders +Wellen Sham (2) +17,900,564 +25.3 % +* +Represents less than 1 +(1) Unless +otherwise indicated, the business address of each of the following entities or individuals is 221 W 9th St #848, Wilmington, DE 19801. +79 +(2) Includes: +(a) 10,834,898 +shares of Common Stock held of record by Electric Power Technology Ltd, a Taiwanese public company listed in Taiwan (Taiwan List Co. +4529), of which Mr. Sham is a chairperson. Mr. Sham and Ling Houng Sham have a 19.36% interest in the ordinary shares of Electric Power +Technology Ltd, and companies with which Mr. Sham is affiliated with have a 20.31% interest in the ordinary shares of Electric Power +Technology Ltd. Accordingly, Mr. Sham may be deemed to have or share the beneficial ownership of the shares of Common Stock held directly +by Electric Power Technology Ltd. Mr. Sham and Ling Houng Sham disclaim beneficial ownership of the shares held of record by Electric +Power Technology Ltd. The principal business address of Electric Power Technology Ltd is 4F, No. 632 Guangfu South Road, Da’an +District, Taipei Taiwan. +(b) 4,129,066 +shares of Common Stock held of record by Old Gen Holdings LLC, a Delaware limited liability company, of which Mr. Sham is the primary +beneficiary. Accordingly, Mr. Sham may be deemed to have or share the beneficial ownership of the shares of Common Stock held directly +by Old Gen Holdings LLC. The principal place of business of Old Gen Holdings LLC is 108 W 13th St, Ste. 100, Wilmington DE 19801. +(c) 752,713 +shares of Common Stock held of record by Ling Houng Sham, wife of Mr. Sham. +(d) 2,183,887 +shares of Common Stock held of record by Mr. Wellen Sham, former Chief Executive Officer of Thunder Power prior to consummation of the +Business Combination. +Securities Authorized for Issuance Under Equity Compensation Plans +In October 2014, TP Holdings +adopted a Thunder Power Holdings Limited Share Option Plan (the “2014 Plan”), As of September 30, 2024, the 2014 Plan existed +to the extent that there are options/awards outstanding thereunder. +On June 17, 2024, the stockholders +of the Company voted to approve the 2024 Omnibus Equity Incentive Plan (the “2024 Plan”), which became effective +at the closing of the Business Combination. All outstanding options to purchase share of TP Holdings granted under the 2014 Plan has +rolled over into the 2024 Plan and became options to purchase share of Common Stock of the Company. Such options granted under the 2014 +Plan will continue to be subject to the terms and conditions as set forth in the agreements evidencing such stock options and the terms +of the 2024 Plan (including the terms of the Prior Plan attached as an exhibit to the 2024 Plan). +80 +The total number of shares +of the Company’s Common Stock reserved and available for grant and issuance pursuant to awards under the 2024 Plan equals 10% +of the total number of outstanding shares of the Company’s Common Stock immediately following the Business Combination, the full +amount of which may be issued pursuant to incentive stock options. In addition, annually on the first trading day of the calendar year, +beginning with the 2025 calendar year, the share reserve (but not the incentive stock option limit) will automatically increase by 5% +of the total number of shares of the Company’s Common Stock outstanding as of the last day of the immediately preceding calendar +year, unless the administrator of the 2024 Plan acts prior to January 1 of such calendar year to provide that there will be no increase +or a lesser increase in the share reserve for that year. Under the 2024 Plan, non-employee directors, employees and consultants, and +any individual to whom the Company and the affiliates have extended a formal offer of employment, are eligible to receive awards under +the 2024 Plan. There is no limit on the number or class of directors, employees or consultants that are eligible to receive awards. +Plan Category +(a) +Number of securities to be issued upon exercise of outstanding options, warrants and rights +(b) +Weighted-average exercise price of outstanding options, warrants and rights +(c) +Number of securities remaining available for future issuance under equity compensation plans +(excluding securities reflected in column (a)) +Equity compensation plans approved by security holders +— +— +— +Equity compensation plans not approved by security holders +— +— +— +Changes in Control +None. +81 +Item 13. Certain Relationships and Related +Transactions, and Director Independence +Related Person Transactions Policy +The Board has adopted a +related person transaction policy that sets forth the Company’s procedures for the identification, review, consideration and approval +or ratification of related person transactions. The policy became effective upon approval by the Board following the consummation of +the Business Combination. The Company’s audit committee has the primary responsibility for reviewing and approving or disapproving +“related party transactions.” The charter of the Company’s audit committee provides that the audit committee will review +and approve in advance any related party transaction. +A “related person transaction” is +a transaction, arrangement or relationship, or any series of similar transactions, arrangements or relationships, in which: +● the +Company has been or is to be a participant, +● the +amount involved exceeds or will exceed $120,000; and +● any +of the Company’s directors or executive officers or holders of more than 5% of the +Company’s capital stock, or any immediate family member of, or person sharing the household +with, any of these individuals, had or will have a direct or indirect material interest. +Under the policy, if a transaction has been identified +as a related person transaction, including any transaction that was not a related person transaction when originally consummated or any +transaction that was not initially identified as a related person transaction prior to consummation, the Company’s management must +present information regarding the related person transaction to the Company’s audit committee, for review, consideration and approval +or ratification. The audit committee will consider all relevant facts and circumstances of such a transaction, including, but not limited +to: (i) the related party’s relationship to the Company and interests in the transaction, (ii) the proposed amount involved in +the transaction, (iii) whether the transaction was or will be undertaken in the ordinary course of the Company’s and related party’s +business, (iv) the way in which any transaction was or is to be initiated, (v) whether the potential related party transaction is on +terms comparable to those available from an unrelated third party, (vi) the benefits to the Company of the proposed transaction, and +(vii) any other material fact pertinent to the transaction. +Nature of relationships with related parties : +Relationship +with the Company +Thunder Power (Hong Kong) +Limited (“TP HK”) +Over which the spouse of +Mr. Wellen Sham, the Company’s controlling shareholder, exercises significant influence +Thunder Power Electric +Vehicle (Hong Kong) Limited (“TPEV HK”) +Over which the spouse of +Mr. Wellen Sham, the Company’s controlling shareholder, exercises significant influence +Mr. Wellen Sham +Controlling shareholder +of the Company +Ms. Ling Houng Sham +Spouse of Mr. Wellen Sham +Feutune Light Sponsor LLC +(“FLFV Sponsor”) +Shareholder of the Company +82 +b. Related party transactions: +For the Year Ended +December 31, +Nature +2024 +2023 +TP HK +Rental expenses +$ 27,681 +$ 27,696 +On June 30, 2023, the outstanding +balances due to TP HK, TPEV HK and Mr. Wellen Sham as of June 30, 2023 were settled by issuance of 2,183,887 of the Company’s +common stock. +For the year ended December +31, 2024, the Company borrowed $951,560 from Mr. Wellen Sham to support the Company’s operations. The borrowings bear interest +rate ranging between 8% and 10% and is payable through December 2025. As of December 31, 2024, the Company repaid borrowings of $25,000 +to Mr. Wellen Sham. +Balance with related parties: +For the Year Ended +December 31, +Nature +2024 +2023 +TP +HK (1) +Amount due to the related party +$ 96,236 +$ 68,992 +Mr. +Wellen Sham (2) +Amount due to the related party +1,271,415 +— +Ms. +Ling Houng Sham (2) +Amount due to the related party +208,636 +— +FLFV +Sponsor (3) +Amount due to the related party +190,000 +— +$ 1,766,287 +$ 68,992 +(1) +The balance due to TP HK +represented the payments made by TP HK on behalf of TP Holdings regarding the office rental fee and employee salary expenses. The +balance is interest free and is repayable on demand. +(2) +The balance due to Mr. Wellen Sham represented +the promissory notes of $560,000 for extension of FLFV, promissory notes of $691,560 for the daily operation of the Company, other +payable of $4,000 for payment of operating expenses on behalf of the Company and interest payable of $40,855. The balance due to +Ms. Ling Houng Sham represented promissory notes of $200,000 for extension of FLFV and interest payable of $8,636. +Among the promissory notes issued to Mr. +Wellen Sham, $260,000 of which was borrowed by Thunder Power and bear interest rate of 8% per annum and were payable on June 21, +2024, $300,000 was borrowed by FLFV which bear interest rate of 10% and is payable on September 19, 2024, $350,060 was borrowed by +the Company which bear interest rate of 10% and is payable on September 10, 2025, $100,000 was borrowed by the Company which bear +interest rate of 10% and is payable on October 16, 2025, $121,500 was borrowed by the Company which bear interest rate of 8% and +is payable on November 12, 2025, and $120,000 was borrowed by the Company which bear interest rate of 8% and is payable on December +9, 2025. As of December 31, 2024, the Company repaid $25,000 to Mr. Wellen Sham. As of the date of this Annual Report, the Company +has not settled the promissory notes with Mr. Wellen Sham. +Among the promissory notes issued to Ms. +Ling Houng Sham, $100,000 borrowed by Thunder Power which bear interest rate of 8% per annum and were payable on June 21, 2024, and $100,000 +borrowed by FLFV which bear interest rate of 8% and is payable on June 21, 2024. As of the date of this Annual Report, the Company has +not settled the promissory notes with Ms. Ling Houng Sham. +(3) +In May and June 2024, FLFV +issued three promissory notes to the FLFV Sponsor in exchange for an aggregated loans of $190,000 from the FLFV Sponsor, among which +$50,000 was payable on closing of the Business Combination, and $140,000 was payable on July 21, 2024. As of the date of this Annual +Report, the Company has not settled the promissory notes with FLFV Sponsor. +83 +Item 14. Principal Accountant Fees and Services +Prior Audit Firm +MaloneBailey, LLP (“MaloneBailey”) +served as our independent registered public accounting firm from April 25, 2023. At such time, we amicably terminated the engagement +of MaloneBailey, and such termination was approved by our Board of Directors and Audit Committee. The reports of MaloneBailey on our +financial statements as of and for the fiscal year ended December 31, 2023did not contain any adverse opinion or disclaimer +of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles, with the exception of providing +a qualification as to our predecessor’s ability to continue as a going concern. Since its appointment and through the subsequent +interim period ended August 1, 2024, there were no disagreements with MaloneBailey on any matter of accounting principles or practices, +financial statement disclosure, or auditing scope or procedure, which disagreement(s), if not resolved to the satisfaction of MaloneBailey, +would have caused it to make reference to the subject matter of the disagreement(s) in connection with its report; and there were +no reportable events of the type described in Item 304(a)(1)(v) of Regulation S-K. +Current Audit Firm +We have appointed Assentsure +PAC (“Assentsure”) to serve as our independent registered public accounting firm for the fiscal year ending December 31, +2024. BCRG has served as our independent registered public accounting firm since August 1, 2024. +Fees Billed to the Company in fiscal year +2024 and 2023 +The following table sets +forth the fees billed to us by our principal auditor and former principal auditor professional services rendered during the fiscal years +ended December 31, 2023 and our principal auditor, Assentsure PAC, for professional services rendered during the fiscal years +ended December 31, 2024: +31-Dec-24 +31-Dec-23 +Audit +fees (1) +$ 245,000 +$ 371,750 +Audit +related fees (2) +$ 55,300 +92 +Tax +fees (3) +- +- +All other fees +- +- +Total fees +$ 300,300 +$ 371,842 +(1) +Audit Fees — Audit +fees consist of fees billed for the audit of our annual financial statements and the review of the interim consolidated financial +statements. +(2) +Audit-Related Fees — These +consisted principally of the aggregate fees related to audits that are not included Audit Fees. +(3) +Tax Fees — Tax +fees consist of aggregate fees for tax compliance and tax advice, including the review and preparation of our various jurisdictions’ +income tax returns. +Pre-Approval Policies and Procedures +The Audit Committee has +the authority to appoint or replace our independent registered public accounting firm (subject, if applicable, to stockholder ratification). +The Audit Committee is also responsible for the compensation and oversight of the work of the independent registered public accounting +firm (including resolution of disagreements between management and the independent registered public accounting firm regarding financial +reporting) for the purpose of preparing or issuing an audit report or related work. The independent registered public accounting firm +was engaged by, and reports directly to, the Audit Committee. +The Audit Committee pre-approves +all audit services and permitted non-audit services (including the fees and terms thereof) to be performed for us by our independent +registered public accounting firm, subject to the de minimis exceptions for non-audit services described in Section 10A(i)(1)(B) of +the Exchange Act and Rule 2-01(c)(7)(i)(C) of Regulation S-X, provided that all such excepted services are subsequently +approved prior to the completion of the audit. We have complied with the procedures set forth above, and the Audit Committee has otherwise +complied with the provisions of its charter. +84 +PART IV +Item 15. Exhibits, Financial Statement Schedule +(a) The +following documents are filed as part of this Report: +(1) +Financial Statements +Page +Report +of Independent Registered Public Accounting Firm +F-2 +Balance +Sheets +F-3 +Statements of Operations +F-4 +Statements +of Changes in Shareholders’ Deficit +F-5 +Statements +of Cash Flows +F-6 +Notes +to Financial Statements +F-7 +(2) +Financial Statements Schedule +All financial statement +schedules are omitted because they are not applicable or the amounts are immaterial and not required, or the required information is +presented in the financial statements and notes beginning on F-1 on this Report. +(b) +Exhibits +85 +Item 16. +Exhibits and Financial Statement Schedules. +(a) +Exhibits. +Incorporated +by Reference +Exhibit No. +Description +Form +File +Number +Exhibit +Filing +Date +2.1†* +Agreement and Plan of Merger, dated as of October 26, 2023, by and among Feutune Light Acquisition Corp., Feutune Light Merger Sub, Inc., and Thunder Power Holdings Limited. +8-K +001-41424 +Exhibit 2.1 +October 27, 2023 +2.2* +First Amendment to Agreement and Plan of Merger, dated as of March 19, 2024, by and among Feutune Light Acquisition Corporation, Feutune Light Merger Sub, Inc., and Thunder Power Holdings Limited. +8-K +001-41424 +Exhibit 1.1 +March 20, 2024 +3.1* +Form of Third Amended and Restated Certificate of Incorporation of Thunder Power Holdings, Inc. +Proxy Statement +333-275933 +Annex C +May 17, 2024 +3.2* +Amended and Restated Bylaws of Thunder Power Holdings, Inc. +8-K +001-41424 +Exhibit 3.2 +June 27, 2024 +4.1* +Amended and Restated Warrant Agreement, dated June 21, 2024, by and between Feutune Light Acquisition Corporation and Continental Stock Transfer & Trust Company. +8-K +001-41424 +Exhibit 10.1 +June 27, 2024 +10.1* +Letter Agreement, dated June 15, 2022, among Feutune Light Acquisition Corporation and certain stockholders. +8-K +333-264221 +Exhibit 10.1 +June 21, 2022 +10.2* +Promissory Note, dated May 20, 2024, issued by Feutune Light Acquisition Corporation to Thunder Power Holdings Limited. +8-K +333-264221 +Exhibit 10.1 +May 22, 2024 +10.3* +Promissory Note, dated May 22, 2024, issued by Feutune Light Acquisition Corporation to Ling Houng Sham. +8-K +333-264221 +Exhibit 10.2 +May 22, 2024 +10.4* +Promissory Note, dated May 22, 2024, issued by Feutune Light Acquisition Corporation to Rockridge International Inc. +8-K +333-264221 +Exhibit 10.3 +May 22, 2024 +10.5* +Promissory Note, dated June 21, 2024, issued by Feutune Light Acquisition Corporation to Wellen Sham. +8-K +001-41424 +Exhibit 10.6 +June 27, 2024 +10.6* +Promissory Note, dated June 21, 2024, issued by Feutune Light Acquisition Corporation to Sam Yu. +8-K +001-41424 +Exhibit 10.7 +June 27, 2024 +10.7* +Promissory Note, dated June 21, 2024, issued by Feutune Light Acquisition Corporation to Sau Fong Yeung. +8-K +001-41424 +Exhibit 10.8 +June 27, 2024 +10.8* +Letter Agreement date June 21, 2024, among Feutune Light Acquisition Corporation and certain stockholders +8-K +001-41424 +Exhibit 10.9 +June 27, 2024 +10.9* +Forward Purchase Agreement, dated June 11, 2024, by and among Feutune Light Acquisition Corporation, Thunder Power Holdings Limited, Meteora Select Trading Opportunities Master, LP, Meteora Capital Partners, LP and Meteora Strategic Capital, LLC. +8-K +001-41424 +Exhibit 10.1 +June 13, 2024 +86 +10.10* +Subscription Agreement, dated June 11, 2024, by and among Feutune Light Acquisition Corporation, Meteora Select Trading Opportunities Master, LP, Meteora Capital Partners, LP and Meteora Strategic Capital, LLC. +8-K +001-41424 +Exhibit 10.2 +June 13, 2024 +10.11* +Escrow Agreement, dated June 21, 2024, by and between Feutune Light Acquisition Corporation, Wellen Sham, Yuanmei Ma and Continental Stock Transfer & Trust Company. +8-K +001-41424 +Exhibit 10.2 +June 27, 2024 +10.12* +Letter +Agreement re Settlement of Outstanding Note, dated June 21, 2024, by and between Feutune Light Acquisition Corporation and certain promissory +noteholders. +8-K +001-41424 +Exhibit 10.9 +June 27, 2024 +10.13* +Form of Non-Competition Agreement. +8-K +001-41424 +Exhibit 10.3 +June 27, 2024 +10.14* +Form of Lock-up Agreement. +8-K +001-41424 +Exhibit 10.4 +June 27, 2024 +10.15#* +Form of Indemnification Agreement. +8-K +001-41424 +Exhibit 10.5 +June 27, 2024 +10.16#* +2024 Omnibus Equity Incentive Plan. +Proxy Statement +333-275933 +Annex D +May 17, 2024 +10.17* +Common Stock Purchase Agreement, dated August 20, 2024, by and between Thunder Power Holdings, Inc. and Westwood Capital Group LLC. +8-K +001-41424 +Exhibit 10.1 +August 21, 2024 +10.18* +Registration Rights Agreement, dated August 20, 2024, by and between Thunder Power holdings, Inc. and Westwood Capital Group LLC +8-K +001-41424 +Exhibit 10.2 +August 21, 2024 +10.19* +Promissory Note, dated October 10, 2024, issued by Thunder Power Holdings, Inc. to Wellen Sham. +Form S-1 +333-283040 +Exhibit 10.19 +November 6, 2024 +10.20#* +Employment Agreement with Ho Pok Man. +Form S-1 +333-283040 +Exhibit 10.20 +November 6, 2024 +10.21#* +Employment Agreement with Christopher Nicoll. +Form S-1 +333-283040 +Exhibit 10.21 +November 6, 2024 +10.22* +Capital Markets Advisory Agreement, dated May 15, 2024, by and between Thunder Power Holdings, Inc. and Benjamin Securities, Inc. +Form S-1 +255-30173 +Exhibit 10.26 +January 14, 2025 +10.23* +First Amendment to Capital Markets Advisory Agreement, dated June 21, 2024, by and between Thunder Power Holdings, Inc. and Benjamin Securities, Inc. +Form S-1 +255-30173 +Exhibit 10.27 +January 14, 2025 +87 +10.24* +The Share Exchange Agreement +Proxy Statement +257-20030 +Appendix A +January 29, 2025 +10.25* +The Amendment Agreement +Proxy Statement +257-20030 +Appendix B +January 29, 2025 +14* +Code of Business Conduct. +Form S-1 +333-283040 +Exhibit 14 +November 6, 2024 +19.1** +Insider Trading Policy +21.1* +List of Subsidiaries of Thunder Power Holdings, Inc. +Form S-1 +333-283040 +Exhibit 21.1 +November 6, 2024 +24** +Power of Attorney (included on signature page to initial filing of this Registration Statement). +31.1** +Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. +31.2** +Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. +99.1* +Audit Committee Charter. +Form S-1 +99.1 +November 6, 2024 +99.2* +Compensation Committee Charter. +Form S-1 +99.2 +November 6, 2024 +99.3* +Nominating and Corporate Governance Committee Charter. +Form S-1 +99.3 +November 6, 2024 +97** +Policy relating to recovery of compensation +101.INS +Inline XBRL Instance Document. +101.SCH +Inline XBRL Taxonomy Extension Schema Document. +101.CAL +Inline XBRL Taxonomy Extension Calculation Linkbase Document. +101.DEF +Inline XBRL Taxonomy Extension Definition Linkbase Document. +101.LAB +Inline XBRL Taxonomy Extension Label Linkbase Document. +101.PRE +Inline XBRL Taxonomy Extension Presentation Linkbase Document. +104 +Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). +* +Previously Filed. +** +Filed herewith +† +Certain portions of this exhibit (indicated by “***”) +have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K because it is not material and is the type of information +that the Registrant treats as private or confidential. The Registrant agrees to furnish supplementally a copy of such schedules, +or any section thereof, to the SEC upon request. +# +Indicate management contract or compensatory plan or +arrangement. +Item 16. Form 10-K Summary +None. +88 +SIGNATURES +Pursuant to the requirements +of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on +its behalf by the undersigned, thereunto duly authorized. +Date: March 31, 2025 +Thunder Power +Holdings, Inc. +By: +/s/ +Christopher Nicoll +Name: +Christopher Nicoll +Title: +Chief Executive Officer +(principal executive officer) +Pursuant to the requirements +of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in +the capacities and on the dates indicated. +Signature +Title +Date +/s/ +Christopher Nicoll +Chairperson of the Board, +President, Chief Executive Officer +March +31, 2025 +Christopher Nicoll +(principal executive officer) +and interim Chief Financial Officer +(principal financial officer and principal accounting officer) +/s/ +Pok Man Ho +Interim Chief Financial Officer +March 31, 2025 +Pok Man Ho +/s/ +Chiwen Chen +Director +and Chairman of the Board +March +31, 2025 +Chiwen Chen +Director +Mingchih Chen +/s/ +Ferdinand Kaiser +Director +March +31, 2025 +Ferdinand Kaiser +/s/ +Kevin Vassily +Director +March +31, 2025 +Kevin Vassily +89 +THUNDER POWER HOLDINGS, +INC. +INDEX TO FINANCIAL STATEMENTS +Page +Report +of Independent Registered Public Accounting Firm +F-2 +Balance Sheets +F-3 +Statements of Operations +F-4 +Statements +of Changes in Shareholders’ Deficit +F-5 +Statements +of Cash Flows +F-6 +Notes +to Financial Statements +F-7 +F- 1 +REPORT OF INDEPENDENT REGISTERED +PUBLIC ACCOUNTING FIRM +To The Shareholders and the Board of Directors of Thunder Power Holdings +Inc +Opinion on the Financial Statements +We have audited the accompanying consolidated +balance sheets of Thunder Power Holdings Inc and its subsidiaries (collectively, the “Company”) as of December 31, 2024 and +2023 and the related statements of income and comprehensive income, changes in shareholders’ equity and cash flow for the years +ended December 31, 2024 and 2023, and the related notes (collectively referred to as the “financial statements”). In our opinion, +the financial statements present fairly, in all material respects, the financial positions of the Company as of December 31, 2024 and +2023, and the results of its income and comprehensive income and its cash flows for the years ended December 31, 2024 and 2023, in conformity +with accounting principles generally accepted in the United States of America. +Explanatory Paragraph - Going Concern +The +accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As described +in Note 3 to the consolidated financial statements, the Company has accumulated deficits of $36,932,246 and $34,429,895 as of December +31, 2024 and 2023, respectively and loss from operations of $2,502,351 and $1,815,644 +in 2024 and 2023, respectively. These factors raise substantial doubts about the Company’s ability to continue as a going concern. +Management’s plans in regard to these matters are described in Note 3. The consolidated financial statements do not include any +adjustments that might result from the outcome of this uncertainty. +Basis for Opinion +These financial statements are the responsibility +of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our +audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) +and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable +rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance with the +standards of the PCAOB and in accordance with the auditing standards generally accepted in the United States of America. Those standards +require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material +misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal +control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial +reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial +reporting. Accordingly, we express no such opinion. +Our audits included performing procedures to assess +the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond +to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. +Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating +the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. +/s/ +Assentsure PAC +Singapore +March 31, 2025 +PCAOB ID Number 6783 +We have served as the Company’s auditor +since 2023. +F- 2 +THUNDER POWER HOLDINGS, +INC. +(f/k/a Feutune Light +Acquisition Corporation) +CONSOLIDATED BALANCE SHEETS +As of December 31, 2024 and 2023 +(Expressed in U.S. dollar, except for the number of shares) +December 31, +2024 +December 31, +2023 +ASSETS +Current Assets +Cash +$ 52,616 +$ 196,907 +Deferred offering costs +— +429,750 +Prepaid expenses for forward purchase contract +13,114,964 +— +Other current assets +382,865 +623,221 +Total Current Assets +13,550,445 +1,249,878 +Non-current Assets +Property and equipment, net +— +1,974 +Right of use assets +4,614 +5,740 +Total Non-current +Assets +4,614 +7,714 +Total Assets +$ 13,555,059 +$ 1,257,592 +LIABILITIES AND SHAREHOLDERS’ EQUITY +Current Liabilities +Advance of subscription fees from shareholders +$ +— +$ 590,000 +Amount due to related parties +1,766,287 +68,992 +Other payable and accrued expenses +2,340,440 +97,297 +Lease liabilities +3,455 +— +Underwriter fee payable +2,921,250 +— +Total Current Liabilities +7,031,432 +756,289 +Total Liabilities +7,031,432 +756,289 +Commitments and Contingencies (Note +12) +Shareholders’ Equity +Common stock ($ 0.0001 par value, 1,000,000,000 shares authorized; 50,724,664 and +37,488,807 shares issued and outstanding at December 31, 2024 and 2023, respectively)* +5,073 +3,749 +Additional paid-in capital* +43,450,667 +34,927,449 +Accumulated loss +( 36,932,246 ) +( 34,429,895 ) +Accumulated other comprehensive income +133 +— +Total Shareholders’ +Equity +6,523,627 +501,303 +Total Liabilities and +Shareholders’ Equity +$ 13,555,059 +$ 1,257,592 +* The share information and additional paid-in capital are presented on a retroactive basis to reflect the reverse recapitalization on June 21, 2024 (see the discussion under the heading “ Reverse Recapitalization ” in “ Note 1 – Organization and Business Description ”). +The accompanying notes +are an integral part of the financial statements. +F- 3 +THUNDER POWER HOLDINGS, INC. +(f/k/a Feutune Light +Acquisition Corporation) +CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS +For the Years Ended December 31, 2024 and 2023 +(Expressed in U.S. dollar, except for the number of shares and loss per share) +For the Year Ended +December 31, +2024 +2023 +Revenues +$ +— +$ +— +Operating expenses +General and administrative expenses +( 2,502,190 ) +( 1,815,071 ) +Total operating expenses +( 2,502,190 ) +( 1,815,071 ) +Other income (expenses) +Interest income, net +51 +— +Foreign currency exchange loss +( 212 ) +( 573 ) +Total other expenses, net +( 161 ) +( 573 ) +Loss before income taxes +( 2,502,351 ) +( 1,815,644 ) +Income tax expenses +— +— +Net loss +( 2,502,351 ) +( 1,815,644 ) +Other comprehensive income +Foreign currency adjustments +133 +— +Comprehensive loss +$ ( 2,502,218 ) +$ ( 1,815,644 ) +Loss per share – basic and diluted* +$ ( 0.06 ) +$ ( 0.05 ) +Weighted average shares – basic and diluted* +44,736,947 +34,870,846 +* The shares and per share information are presented on a retroactive basis to reflect the reverse recapitalization on June 21, 2024 (see the discussion under the heading “ Reverse Recapitalization ” in “ Note 1 - Organization and Business Description ”). +The accompanying notes are an integral part +of the consolidated financial statements. +F- 4 +THUNDER POWER HOLDINGS, +INC. +(f/k/a Feutune Light Acquisition Corporation) +CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICITS) +For the Years Ended December 31, 2024 and 2023 +(Expressed in U.S. dollar, except for the number of shares) +Common stock +Additional +Accumulated other +Total +shareholders’ +Number of +stock* +Amount* +paid-in +capital * +Accumulated +loss +comprehensive income +equity +(deficits) +Balance as of December 31, 2022 +31,754,844 +$ 3,175 +$ 32,091,251 +$ ( 32,614,251 ) +$ +— +$ ( 519,825 ) +Capital injection from shareholders +5,583,236 +559 +2,762,215 +— +— +2,762,774 +Issuance of ordinary shares to a related party to settle liabilities +due to the related party +150,727 +15 +73,938 +— +— +73,953 +Share-based compensation +— +— +45 +— +— +45 +Net loss +( 1,815,644 ) +— +( 1,815,644 ) +Balance as of December 31, 2023 +37,488,807 +$ 3,749 +$ 34,927,449 +$ ( 34,429,895 ) +$ +— +$ 501,303 +Capital injection from shareholders +2,511,193 +251 +946,549 +— +— +946,800 +Reverse recapitalization (Note 1) +5,279,673 +528 +3,911,563 +— +— +3,912,091 +Issuance of common stock to a financial advisor (Note 8) +1,200,000 +120 +( 120 ) +— +— +— +Issuance of common stock to independent directors +90,000 +9 +899,991 +— +— +900,000 +Share-based compensation +— +— +107,712 +— +— +107,712 +Settlement of working capital loans +289,960 +29 +2,635,971 +— +— +2,636,000 +Issuance of ordinary shares pursuant to forward purchase contracts +3,706,461 +371 +( 371 ) +— +— +— +Issuance of ordinary shares pursuant to a private placement +150,000 +15 +( 15 ) +— +— +— +Share-based compensation to non-employees (Note 11) +8,570 +1 +21,938 +— +— +21,939 +Net loss +— +— +— +( 2,502,351 ) +— +( 2,502,351 ) +Foreign exchange adjustments +— +— +— +— +133 +133 +Balance as of December 31, 2024 +50,724,664 +$ 5,073 +$ 43,450,667 +$ ( 36,932,246 ) +$ 133 +$ 6,523,627 +* +The share information and +additional paid-in capital are presented on a retroactive basis to reflect the reverse recapitalization on June 21, 2024 (see the +discussion under the heading “ Reverse Recapitalization ” in “ Note 1 - Organization and Business Description ”). +The accompanying notes are an integral part +of the consolidated financial statements. +F- 5 +THUNDER POWER HOLDINGS, +INC. +(f/k/a Feutune Light Acquisition Corporation) +CONSOLIDATED STATEMENTS OF CASH FLOWS +For the Years Ended December 31, 2024 and 2023 +(Expressed in U.S. dollar) +For the Year Ended +December 31, +2024 +2023 +Cash flows from operating activities: +Net loss +$ ( 2,502,351 ) +$ ( 1,815,644 ) +Adjustments to reconcile net loss to net cash used in operating +activities: +Depreciation expenses +1,974 +4,366 +Amortization of right of use assets +26,995 +26,718 +Share-based compensation +1,007,712 +331,295 +Share-based settlement expenses +— +479,174 +Changes in operating assets and liabilities: +Other current assets +( 6,997 ) +( 8,221 ) +Amount due to related parties +130,735 +236,803 +Other payable and accrued expenses +137,093 +86,269 +Lease liabilities +( 22,414 ) +511 +Net cash used in operating +activities +( 1,227,253 ) +( 658,729 ) +Cash flows from investing activities: +Cash acquired in reverse capitalization +929,302 +— +Net cash provided +by investing activities +929,302 +— +Cash flows from financing activities: +Subscription fees advanced from shareholders +— +1,750,000 +Subscription fees received from shareholders +356,800 +— +Payment of offering cost +( 999,700 ) +( 429,750 ) +Return of subscription fees to an investor +— +( 100,000 ) +Borrowings from related parties +1,051,560 +— +Repayment of borrowings to a related party +( 25,000 ) +— +Payment of extension loans +( 380,000 ) +( 300,000 ) +Payment of extension loans on behalf of a third party +— +( 315,000 ) +Proceeds of prepayment shortfall under +forward purchase contract +150,000 +— +Net cash +provided by financing activities +153,660 +605,250 +Net decrease in cash +( 144,291 ) +( 53,479 ) +Cash at beginning of year +196,907 +250,386 +Cash at end of year +$ 52,616 +$ 196,907 +Supplemental cash flow information +Cash paid for interest expense +$ +— +$ +— +Cash paid for income tax +$ +— +$ +— +Non-cash investing and financing activities +Operating lease right-of-use assets obtained +in exchange for operating lease liabilities +$ 25,824 +$ +— +Transfer of advance of subscription fees +from shareholders to equity +$ 590,000 +$ 1,460,000 +Payable of expenses directly related to +the business combination +$ 1,353,913 +— +Issuance of ordinary shares to settle the +liabilities due to a controlling shareholder +$ +— +$ 609,958 +Issuance of ordinary shares to settle the +liabilities due to a related party +$ +— +$ 56,346 +Issuance of ordinary shares to settle working +capital loans +$ 2,636,000 +$ +— +Share based compensation to a non-employee +as part of offering cost +$ 21,939 +$ +— +The accompanying notes are an integral part +of the consolidated financial statements. +F- 6 +THUNDER POWER HOLDINGS, +INC. +(f/k/a Feutune Light Acquisition Corporation) +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +1. ORGANIZATION AND BUSINESS DESCRIPTION +History of Thunder Power Holdings Limited +(“TP Holdings”) +TP Holdings is a company +incorporated under the laws and regulations of the British Virgin Islands with limited liability on December 31, 2015 . TP Holdings is +a parent holding company with no operations. +TP Holdings has one wholly-owned +subsidiary, Thunder Power New Energy Vehicle Development Company Limited (“TP NEV”) which was established in accordance with +laws and regulations of British Virgin Islands on October 19, 2016. +TP Holdings together with +TP NEV, are engaged in design, development and manufacturing of high-performance electric vehicles. As of December 31, 2024 and 2023, +its operations activities were carried out in Taiwan and its management team are currently located in Taiwan and USA. +History of Feutune Light Acquisition Corporation (“FLFV”) +FLFV is a blank check company +incorporated as a Delaware company on January 19, 2022. FLFV was formed for the purpose of entering into a merger, stock exchange, asset +acquisition, share purchase, recapitalization, reorganization or similar business combination with one or more businesses. On July 3, +2023, FLFV incorporated Feutune Light Merger Sub, Inc (“Merger Sub”), a Delaware corporation and wholly owned subsidiary +of FLFV. Merger Sub is a holding company with no operations. +Reverse recapitalization +On June 21, 2024, FLFV consummated +its business combination with TP Holdings (the “Business Combination”), pursuant to that certain Agreement and Plan of Merger, +dated as of October 26, 2023 (as amended on March 19, 2024 and April 5, 2024, the “Merger Agreement”). The combined company +changed its name to “Thunder Power Holdings, Inc.” (the “Company”). +Upon closing of the Business +Combination, the Company acquired all of the issued and outstanding securities of TP Holdings in exchange for (i) 40,000,000 shares +of common stock, par value $ 0.0001 per share, and (ii) earn out payments consisting of up to an additional 20,000,000 shares +of common stock (the “Earnout Shares”) if the Company meets certain revenue performance targets in the following years through +December 31, 2026 (see “ Note 12 – Contingent Consideration ”). +Immediately after giving +effect to the Business Combination, there were (i) 46,859,633 shares of common stock of the Company, par value $ 0.0001 per +share, issued and outstanding (without taking into account the Earnout Shares), (ii) 10,537,475 warrants to purchase 10,537,475 +shares of common stock issued and outstanding, and (iii) 20,000,000 shares of common stock reserved for issuance as Earnout Shares and +placed in an escrow account managed by Continental Stock Transfer & Trust Company (“CST”). +We have also capitalized +offering cost of $ 1,491,495 , which was recorded as reduction against additional paid-in capital. +Following the consummation +of the Business Combination, the combined Company’s common stock began trading on the Nasdaq Global Market (the “Nasdaq”) +under the symbol “AIEV” on June 24, 2024. +F- 7 +THUNDER POWER HOLDINGS, INC. +(f/k/a Feutune Light Acquisition Corporation) +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +1. ORGANIZATION AND BUSINESS DESCRIPTION (cont.) +The reverse recapitalization +is equivalent to the issuance of securities by TP Holdings for the net monetary assets of FLFV, accompanied by a recapitalization. The +Company debited equity for the fair value of the net liabilities of FLFV. In the subsequent financial statements after the Business Combination, +the amounts of assets and liabilities for the period before the reverse recapitalization in financial statements, are presented as those +of TP Holdings and recognized and measured at their pre-combination carrying amounts. The equity account of TP Holdings was carried forward +in the reverse recapitalization, subject to adjustments to reflect the par value of the outstanding capital stock of FLFV. +As part of the Business +Combination, the Company issued 5,279,673 shares of common stock to the shareholders of FLFV, among which 2,443,750 shares +of common stock were issued to the Initial Insiders (defined below), 548,761 shares of common stock were issued to Private Shareholders +(defined below), 2,227,162 shares of common stock were issued to Public Shareholders (defined below) and 60,000 shares of common stock +were issued to the underwriter in FLFV’s initial public offering as representative shares. +Initial Insiders were comprised +of Feutune Light Sponsor LLC (the “Sponsor”), US Tiger Securities, Inc (“US Tiger”). and certain officers and +directors of the Company. The Private Shareholders referred to the Sponsor and US Tiger. The Public Shareholders referred to the shareholders +who held the public shares that were issued in the initial public offering of FLFV. +Upon closing of the Business +Combination, the Company issued an aggregated 90,000 shares of common stock to three independent directors of FLFV. The fair value of +these shares was $ 900,000 by reference to the per share price of $ 10.00 . +In connection with the Business +Combination, FLFV engaged a third party financial advisor to assist FLFV in locating target businesses, holding meetings with its +shareholders to discuss a potential business combination and the target business’ attributes, introduce FLFV to potential investors +that are interested in purchasing securities, assist FLFV in obtaining shareholder approval for the business combination and assist with +press releases and public filings in connection with a business combination. On June 21, 2024, the Company issued 1,200,000 shares of +common stock to the financial advisor as service fees. The fair value of the 1,200,000 shares of common stock issued to the financial +advisor was $ 3,072,000 , calculated at $ 2.56 per share by reference to the Nasdaq closing price of the Company’s common stock +on June 21, 2024. +Entry into share exchange +agreement +On December 19, 2024, the +Company entered into a Share Exchange Agreement (the “Agreement”) with certain shareholders (the “TW Company Shareholders”) +of Electric Power Technology Limited, a Taiwan corporation (“TW Company”). +Pursuant to the Agreement, +the TW Company Shareholders will exchange 26,079,550 ordinary shares of TW Company for 31,034,666 newly issued shares of the Company’s +common stock, par value $ 0.0001 per share (the “Exchange”). Upon completion of the Exchange, the Company will acquire approximately +30.8 % of TW Company’s total issued and outstanding shares. The closing of the Exchange is subject to customary conditions, including +receipt of all necessary regulatory approvals and the approval of the Company’s shareholders. The Agreement contains customary +representations, warranties and covenants by the parties. The closing must occur no later than October 31, 2025. The Agreement may be +terminated: (1) by mutual consent of the parties; (2) by either party upon material breach by the other party that remains uncured for +10 days after notice; (3) if the closing has not occurred within 90 days of signing (subject to extension for regulatory approvals); +or (4) by either party if a court or regulatory authority permanently enjoins the transaction. +F- 8 +THUNDER POWER HOLDINGS, INC. +(f/k/a Feutune Light Acquisition Corporation) +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES +Basis of Presentation +The accompanying financial +statements are presented in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), +as determined by the Financial Accounting Standards Board (“FASB”) and pursuant to the accounting and disclosure rules and +regulations of the SEC. +Basis of consolidation +The consolidated financial +statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances have been +eliminated upon consolidation. +Use of estimates +The preparation of consolidated +financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported +amounts of assets and liabilities, disclosures of contingent assets and liabilities on the date of the consolidated financial statements, +and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates under different +assumptions or conditions. On an ongoing basis, management reviews these estimates and assumptions using the currently available information. +Changes in facts and circumstances may cause the Company to revise its estimates. The Company bases its estimates on past experience and +on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying +values of assets and liabilities. Estimates are used when accounting for items and matters including, but not limited to, determinations +of the useful lives and valuation of long-lived assets, estimates of allowances for expected credit losses, valuation allowance of deferred +tax assets and other provisions and contingencies. To the extent there are material differences between the estimates and actual results, +the Company’s future results of operations will be affected. +Fair value of financial instruments +The Company’s financial +instruments are accounted for at fair value on a recurring basis. Fair value is defined as the price that would be received to sell an +asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The three levels +of the fair value hierarchy are described below: +Level 1 — +inputs to the valuation +methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. +Level 2 — +inputs to the valuation +methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets +or liability, either directly or indirectly, for substantially the full term of the financial instruments. +Level 3 — +inputs to the valuation +methodology are unobservable and significant to the fair value. +As of December 31, 2024 +and 2023, financial instruments of the Company primarily comprised of current assets and current liabilities including cash, other current +assets, due to related parties, other payables, lease liabilities and underwriter fee payable. The carrying amount of these current assets +and current liabilities approximate their fair values because of the short-term nature of these instruments. +F- 9 +THUNDER POWER HOLDINGS, INC. +(f/k/a Feutune Light Acquisition Corporation) +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) +Foreign currency translation +Transactions denominated in currencies other +than the functional currency are translated into the functional currency at the exchange rates prevailing on the dates of the transaction. +Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency +using the applicable exchange rates on the date of the balance sheet. +The reporting currency of the Company and its +subsidiaries is U.S. dollars (“US$”). +In general, for consolidation purposes, assets +and liabilities of the Company and its subsidiaries whose functional currency is not the US$, are translated into US$, using the exchange +rate on the balance sheet date. Revenues and expenses are translated at average rates prevailing during the period. The gains and losses +resulting from translation of financial statements of the Company and its subsidiaries are recorded as a separate component of accumulated +other comprehensive income within the statement of shareholders’ equity. +Translation of amounts from TWD into US$ has +been made at the following exchange rates for the respective periods: +December 31, +2024 +December 31, +2023 +TWD exchange rate for balance sheet items, except +for equity accounts +32.79 +- +For the Year Ended +December 31, +2024 +2023 +TWD exchange rate for items in the statements +of operations and comprehensive loss, and statements of cash flows +32.31 +- +Cash +Cash and cash equivalents +primarily consist of bank deposits with original maturities of three months or less, which are unrestricted as to withdraw and use. +Prepaid expenses for forward purchase contract +On June 11, 2024, FLFV and +TP Holdings entered into an agreement with (i) Meteora Capital Partners, LP (“MCP”), (ii) Meteora Select Trading Opportunities +Master, LP (“MSTO”), and (iii) Meteora Strategic Capital, LLC (“MSC” and, collectively with MCP and MSTO, the +“Seller”, or, the “Meteora”) (the “Forward Purchase Agreement”). For purposes of the Forward Purchase +Agreement, (i) FLFV is referred to as the “Counterparty” prior to the consummation of the Business Combination, while the +Company is referred to as the “Counterparty” after the consummation of the Business Combination and (ii) “Shares” +means shares of the Class A common stock, par value $ 0.0001 per share, of FLFV prior to the closing of the Business Combination, and, +after the closing of the Business Combination, shares of common stock, par value $ 0.0001 per share, of the Company. +Pursuant to the terms of +the Forward Purchase Agreement, the Seller intends, but is not obligated, to purchase up to 4,900,000 Shares (the “Purchased Amount”), +less the number of shares purchased by the Seller separately from third parties through a broker in the open market (“Recycled +Shares”). The Seller will not be required to purchase an amount of shares such that following such purchase, the Seller’s +ownership would exceed 9.9 % of the total Shares outstanding immediately after giving effect to such purchase, unless the Seller, at its +sole discretion, waives such 9.9 % ownership limitation. +The Forward Purchase Agreement +provides for a prepayment shortfall in an amount in U.S. dollars equal to 0.25 % of the product of the Recycled Shares and the Initial +Price which is equal to the redemption price of $ 11.1347 (the “Prepayment Shortfall”). The Seller will pay the Prepayment +Shortfall to the Company on the prepayment date (which amount will be netted from the Prepayment Amount) (the “Initial Prepayment +Shortfall”). +F- 10 +THUNDER POWER HOLDINGS, INC. +(f/k/a Feutune Light Acquisition Corporation) +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) +Prepaid expenses for forward purchase contract (cont.) +The Seller in its sole discretion +may sell Recycled Shares at any time following June 11, 2024 and at any sales price, without payment by the Seller of any early termination +obligation until such time as the proceeds from such sales equal 110 % of the Prepayment Shortfall (such sales, “Shortfall Sales,” +and such shares, “Shortfall Sale Shares”). A sale of shares is only (a) a “Shortfall Sale,” subject to the terms +and conditions applicable to Shortfall Sale Shares, when a Shortfall Sale Notice is delivered under the Forward Purchase Agreement, and +(b) an Optional Early Termination, subject to the terms and conditions of the Forward Purchase Agreement applicable to Terminated Shares +(as defined in the Forward Purchase Agreement), when an OET Notice (as defined in the Forward Purchase Agreement) is delivered under +the Forward Purchase Agreement, in each case the delivery of such notice in the sole discretion of the Seller (as further described under +“Optional Early Termination” and “Shortfall Sales” in the Forward Purchase Agreement). +The Seller will purchase +“Additional Shares” from the Counterparty at any date prior to the Valuation Date at the Initial Price, with such number +of Shares to be specified in a Pricing Date Notice as Additional Shares subject to 9.9 % ownership limitations which may be waived by +Seller at its sole discretion; provided that such number of Additional Shares that may be purchased from the Counterparty will not exceed +(x) the Maximum Number of Shares, minus (y) the Recycled Shares. +The Forward Purchase Agreement +provides that the Seller will be paid directly an aggregate cash amount (the “Prepayment Amount”) equal to (x) the product +of (i) the number of Shares as set forth in a Pricing Date Notice and (ii) the redemption price per share of $ 11.1347 , less (y) the Initial +Prepayment Shortfall. In addition to the Prepayment Amount, the Counterparty will pay directly from the Trust Account, on the Prepayment +Date, an amount equal to the product of (x) up to 100,000 (with such final amount to be determined by Seller in its sole discretion via +written notice to the Counterparty) and (y) the Initial Price. The Shares purchased with the Share Consideration (the “Share Consideration +Shares”) will be incremental to the Maximum Number of Shares (as defined below) and will not be included in the number of Shares +in connection with the Transaction under the Forward Purchase Agreement. +The reset price (the “Reset +Price”) will initially be $ 10.00 . The Reset Price will be subject to reset on a weekly basis commencing the first week following +the thirtieth day after the closing of the Business Combination to be the lowest of (a) the then current Reset Price, (b) the Initial +Price and (c) the VWAP Price of the Shares of the prior trading weeks; provided that the Reset Price will be subject to reduction upon +a Dilutive Offering Reset immediately upon the occurrence of such Dilutive Offering. The “Maximum Number of Shares” subject +to the Forward Purchase Agreement will initially be the Purchased Amount; upon the occurrence of a Dilutive Offering Reset, a number +of Shares equal to the quotient of (i) the Purchased Amount divided by (ii) the quotient of (a) the price of such Dilutive Offering divided +by (b) the $ 10.00 . The “Maximum Number of Shares” subject to the Forward Purchase Agreement will initially be the Purchased +Amount; upon the occurrence of a Dilutive Offering Reset, a number of Shares equal to the quotient of (i) the Purchased Amount divided +by (ii) the quotient of (a) the price of such Dilutive Offering divided by (b) the $ 10.00 . +From time to time and on +any date following the Trade Date (any such date, an “OET Date”) and subject to the terms and conditions in the Forward Purchase +Agreement, the Seller may, in its absolute discretion, terminate the Transaction in whole or in part by providing written notice to the +Counterparty (the “OET Notice”), by the later of (a) the fifth Local Business Day following the OET Date and (b) no later +than the next Payment Date following the OET Date, (which will specify the quantity by which the number of Shares will be reduced (such +quantity, the “Terminated Shares”)). The effect of an OET Notice will be to reduce the number of Shares by the number of +Terminated Shares specified in such OET Notice with effect as of the related OET Date. As of each OET Date, the Counterparty will be +entitled to an amount from the Seller, and the Seller will pay to the Counterparty an amount, equal to the product of (x) the number +of Terminated Shares and (y) the Reset Price in respect of such OET Date (except that no amount will be due to Counterparty upon any +Shortfall Sale). The payment date may be changed within a quarter at the mutual agreement of the parties. +F- 11 +THUNDER POWER HOLDINGS, INC. +(f/k/a Feutune Light Acquisition Corporation) +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) +Prepaid expenses for forward purchase contract (cont.) +The “Valuation Date” +is the earlier to occur of (a) the date that is 36 months after the Closing Date, (b) the date specified by the Seller in a written notice +to be delivered to the Counterparty at the Seller’s discretion (which Valuation Date will not be earlier than the day such notice +is effective) after the occurrence of any of (v) a Shortfall Variance Registration Failure, (w) a VWAP Trigger Event, (x) a Delisting +Event, (y) a Registration Failure or (z) unless otherwise specified therein, upon any Additional Termination Event, and (c) the date +specified by the Seller in a written notice to be delivered to the Counterparty at the Seller’s sole discretion (which Valuation +Date will not be earlier than the day such notice is effective). The Valuation Date notice will become effective immediately upon its +delivery from the Seller to the Counterparty in accordance with the Forward Purchase Agreement. +On June 15, 2024, the Sellers +issued a pricing date notice to the Company, pursuant to which the Sellers had 1,089,038 shares of Recycled Shares. Together with the +100,000 Share Consideration Shares and net off Prepayment Shortfall, the Company made a total of Prepayments Amount of $ 13,264,964 to +the Sellers. The Company recorded the prepayment in the account of “prepaid expenses for forward purchase contract” on the +consolidated balance sheet. The Company will subsequently derecognize the prepayments when the Sellers sell the Recycled Shares. The +difference between the fair value on the date when the Sellers sell the Recycled Shares and $ 11.1347 will be charged to additional paid-in +capital. The Company assessed that there are no material risks arising from the Forward Purchase Agreement. On July 10, 2024, the Company +issued an aggregate of 3,706,461 shares of the Company’s common stock to Meteora pursuant to the Forward Purchase Agreement and +Subscription Agreement. +On July 2, 2024, the Sellers +purchased and the Company issued additional 3,706,461 shares of the Company’s common stock to Meteora pursuant to the Forward Purchase +Agreement and Subscription Agreement. The sellers made a prepayment shortfall of $ 150,000 . The Company recorded the proceeds from shortfall +prepayments as a reduction against the account of “prepaid expenses for forward purchase contract”. As of December 31, 2024, +the Company had outstanding balance of prepaid expenses for forward purchase contract of $ 13,114,964 . +Property and equipment, net +Property and equipment primarily +consist of office equipment. Office equipment is stated at cost less accumulated depreciation less any provision required for impairment +in value. Depreciation is computed using the straight-line method with no residual value based on the estimated useful lives of five years. +Costs of repairs and maintenance +are expensed as incurred and asset improvements are capitalized. The cost and related accumulated depreciation of assets disposed of +or retired are removed from the accounts, and any resulting gain or loss is reflected in the consolidated statement of operations. +Impairment of long-lived assets +The Company reviews long-lived +assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. +Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted +cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment recognized is measured +by the amount by which the carrying amount of the assets exceeds the fair value of the assets. The Company impaired the property and +equipment with net book value of nil for the year ended December 31, 2024. +F- 12 +THUNDER POWER HOLDINGS, INC. +(f/k/a Feutune Light Acquisition Corporation) +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) +Underwriter fee payable +The underwriter fee payable +was due to two underwriters of FLFV in the initial public offering. Pursuant to the underwriter agreements, the Company paid a total +underwriter fee of 2.0 % of the gross proceeds of the IPO, or $ 1,955,000 to the underwriters at the closing of the IPO. In addition, +the underwriters are entitled to an underwriter fee of 3.5 % of the gross proceeds of the IPO, or $ 3,421,250 upon the closing +of the Business Combination. +For the year ended December +31, 2024, the Company paid a total of $ 500,000 to both underwriters. As of December 31, 2024, the Company had underwriter fee payable +of $ 2,921,250 . +General and administrative expenses +General and administrative +expenses consist primarily of salaries, share-based compensation and benefits for employees involved in general corporate functions, +depreciation, legal and professional services fees, rental and other general corporate related expenses. +Income taxes +The Company accounts for +income taxes in accordance with the asset and liability method, the recognition of deferred income tax liabilities and assets for the +expected future tax consequences of temporary differences between the income tax basis and financial reporting basis of assets and liabilities. +Provision for income taxes consists of taxes currently due plus deferred taxes. The charge for taxation is based on the results for the +year as adjusted for items which are non-assessable or disallowed. It is calculated using tax rates that have been enacted or substantively +enacted by the balance sheet date. +Deferred tax is accounted +for using the balance sheet liability method in respect of temporary differences arising from differences between the carrying amount +of assets and liabilities in the financial statements and the corresponding tax basis. Deferred tax assets are recognized to the extent +that it is probable that taxable income to be utilized with prior net operating loss carried forwards. Deferred tax is calculated using +tax rates that are expected to apply to the period when the asset is realized or the liability is settled. Deferred tax is charged or +credited in the statements of operations, except when it is related to items credited or charged directly to equity. Deferred tax assets +are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred +tax assets will not be realized. Current income taxes are provided for in accordance with the laws of the relevant taxing authorities. +An uncertain tax position +is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, +with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50 % likely +of being realized on examination. Penalties and interest incurred related to underpayment of income tax are classified as income tax +expense in the period incurred. +The Company may be subject +to income taxes in the U.S. and foreign jurisdictions, when applicable. The Company is incorporated in the State of Delaware and is required +to pay either income tax or franchise tax, whichever is applicable, to the State of Delaware on an annual basis. The Company is also +registered as a foreign corporation with the State of New Jersey Department of the Treasury The Company would be subject to New Jersey +state tax laws if it has operation in the State of New Jersey. +Under the current and applicable +laws of BVI, both TP Holdings and TP NEV are not subject to tax on income or capital gains. As of December 31, 2024 and 2023, there were +no temporary differences and no deferred tax asset or liability recognized. The Company does not believe that there was any uncertain +tax positions as of December 31, 2024 and 2023. +F- 13 +THUNDER POWER HOLDINGS, INC. +(f/k/a Feutune Light Acquisition Corporation) +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) +Operating leases +The Company leases its offices, +which are classified as operating leases in accordance with Topic 842. Operating leases are required to record in the balance sheet +as right-of-use assets and lease liabilities, initially measured at the present value of the lease payments. The Company has elected +the package of practical expedients, which allows the Company not to reassess (1) whether any expired or existing contracts as of +the adoption date are or contain a lease, (2) lease classification for any expired or existing leases as of the adoption date, and +(3) initial direct costs for any expired or existing leases as of the adoption date. The Company elected the short-term lease exemption +as the lease terms are 12 months or less. +At the lease commencement +date, the Company recognizes the lease liability at the present value of the lease payments not yet paid, discounted using the interest +rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate for the same +term as the underlying lease. +The right-of-use asset is +recognized initially at cost, which primarily comprises the initial amount of the lease liability, plus any initial direct costs incurred, +consisting mainly of brokerage commissions, less any lease incentives received. All right-of-use assets are reviewed for impairment. +There was no impairment for right-of-use lease assets as of December 31, 2024 and 2023. +Loss per share +Basic loss per share is +computed by dividing net income attributable to the holders of common stock by the weighted average number of common stock outstanding +during period presented. Diluted loss per share is calculated by dividing net income attributable to the holders of common stock as adjusted +for the effect of dilutive ordinary share equivalents, if any, by the weighted average number of common stock and dilutive common stock +equivalents outstanding during the period. However, ordinary share equivalents are not included in the denominator of the diluted earnings +per share calculation when inclusion of such shares would be anti-dilutive. +Commitments and contingencies +In the normal course of +business, the Company is subject to loss contingencies, such as legal proceedings and claims arising out of its business, that cover +a wide range of matters, including, among others, government investigations and tax matters. In accordance with ASC No. 450, the Company +records accruals for such loss contingencies when it is probable that a liability has been incurred and the amount of loss can be reasonably +estimated. +The Jumpstart Our Business +Startups Act of 2012 (“JOBS Act”) provides that an emerging growth company (“EGC”), as defined therein, can take +advantage of an extended transition period for complying with new or revised accounting standards. This allows an EGC to delay adoption +of certain accounting standards until those standards would otherwise apply to private companies. The Company qualifies as an EGC as +of December 31, 2021 and has elected to apply the extended transition period for complying with new or revised accounting standards +that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an EGC or (ii) +affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our consolidated financial +statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective +dates. +F- 14 +THUNDER POWER HOLDINGS, INC. +(f/k/a Feutune Light Acquisition Corporation) +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) +Recently issued accounting standards +In November 2024, the FASB +issued ASU 2024-03, “Income Statement—Reporting Comprehensive Income (Subtopic 220-40): Disaggregation of Income Statement +Expenses.” This pronouncement introduces new disclosure requirements aimed at enhancing transparency in financial reporting by +requiring disaggregation of specific income statement expense captions. Under the new guidance, entities are required to disclose a breakdown +of certain expense categories, such as: employee compensation; depreciation; amortization, and other material components. The disaggregated +information can be presented either on the face of the income statement or in the notes to the financial statements, often using a tabular +format. The ASU is effective for fiscal years beginning after December 15, 2025, and interim periods within those fiscal years. Early +adoption is permitted. The Company is currently evaluating these new disclosure requirements and does not expect the adoption to have +a material impact. In January 2025, the FASB issued ASU 2025-01, which revises the effective date of ASU 2024-03 (on disclosures +about disaggregation of income statement expenses) “to clarify that all public business entities are required to adopt the guidance +in annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December +15, 2027.” Entities within the ASU’s scope are permitted to early adopt the ASU. +In December 2023, the FASB +issued ASU 2023-09, which is an update to Topic 740, Income Taxes. The amendments in this update related to the rate reconciliation and +income taxes paid disclosures improve the transparency of income tax disclosures by requiring (1) adding disclosures of pretax income +(or loss) and income tax expense (or benefit) to be consistent with U.S. Securities and Exchange Commission (SEC) Regulation S-X 210.4-08(h), +Rules of General Application—General Notes to Financial Statements: Income Tax Expense, and (2) removing disclosures that no longer +are considered cost beneficial or relevant. For public business entities, the amendments in this update are effective for annual periods +beginning after December 15, 2024. For entities other than public business entities, the amendments are effective for annual periods +beginning after December 15, 2025. Early adoption is permitted for annual financial statements that have not yet been issued or made +available for issuance. The amendments in this update should be applied on a prospective basis. Retrospective application is permitted. +In November 2023, the FASB +issued ASU 2023-07, Segment Reporting – Improvements to Reportable Segment Disclosures. The amendments improve reportable segment +disclosure requirements, primarily through enhanced disclosures about significant segment expenses. In addition, the amendments enhance +interim disclosure requirements, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, provide +new segment disclosure requirements for entities with a single reportable segment, and contain other disclosure requirements. The purpose +of the amendments is to enable investors to better understand an entity’s overall performance and assess potential future cash +flows. The ASU is effective for public entities for fiscal years beginning after December 15, 2023, and interim periods in fiscal years +beginning after December 15, 2024. The Company assesses that the adoption of these ASUs will not have a material impact on the Company’s +consolidated balance sheets, consolidated statements of operations and consolidated statements of cash flows. +In October 2023, the +FASB issued ASU 2023-06, Disclosure Improvements — codification amendments in response to SEC’s disclosure Update and Simplification +initiative which amend the disclosure or presentation requirements of codification subtopic 230-10 Statement of Cash Flows—Overall, +250-10 Accounting Changes and Error Corrections— Overall, 260-10 Earnings Per Share— Overall, 270-10 Interim Reporting— +Overall, 440-10 Commitments—Overall, 470-10 Debt—Overall, 505-10 Equity—Overall, 815-10 Derivatives and Hedging—Overall, +860-30 Transfers and Servicing—Secured Borrowing and Collateral, 932-235 Extractive Activities— Oil and Gas—Notes to +Financial Statements, 946-20 Financial Services— Investment Companies— Investment Company Activities, and 974-10 Real Estate—Real +Estate Investment Trusts—Overall. The amendments represent changes to clarify or improve disclosure and presentation requirements +of above subtopics. Many of the amendments allow users to more easily compare entities subject to the SEC’s existing disclosures +with those entities that were not previously subject to the SEC’s requirements. Also, the amendments align the requirements in +the Codification with the SEC’s regulations. For entities subject to existing SEC disclosure requirements or those that must provide +financial statements to the SEC for securities purposes without contractual transfer restrictions, the effective date aligns with the +date when the SEC removes the related disclosure from Regulation S-X or Regulation S-K. Early adoption is not allowed. For all other +entities, the amendments will be effective two years later from the date of the SEC’s removal. +The Company does not believe +other recently issued but not yet effective accounting standards, if currently adopted, would have a material impact on it’s the +consolidated financial position, statements of operations and cash flows. +F- 15 +THUNDER POWER HOLDINGS, INC. +(f/k/a Feutune Light Acquisition Corporation) +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) +Significant risks and uncertainties +Credit risk +Assets that potentially +subject the Company to significant concentration of credit risk primarily consist of cash and cash equivalents. The maximum exposure +of such assets to credit risk is their carrying amount as at the balance sheet dates. As of December 31, 2024, the Company held cash +of $ 52,616 , among which $ 10,679 was deposits in bank accounts in Taiwan, $ 131,687 deposited in bank accounts in the United States and +$ 250 in bank accounts in Hong Kong. +Bank accounts in each bank +in Taiwan is insured by the government authority with the maximum limit of TW$ 3,000,000 (equivalent to approximately $ 91,500 ). Each bank +account in the United States is insured by Federal Deposit Insurance Corporation (“FDIC”) insurance with the maximum limit +of $ 250,000 . Each bank account in Hong Kong is insured by the government authority with the maximum limit of HK$ 500,000 (equivalent +to approximately $ 64,400 ). To limit exposure to credit risk relating to deposits, the Company primarily place cash and cash equivalent +deposits with large financial institutions in the United States and Hong Kong which management believes are of high credit quality +and the Company also continually monitors their credit worthiness. +3. GOING CONCERN +The Company has been incurring +losses from operations since its inception. The Company had limited operations and did not generate any revenue for the financial year +ended December 31, 2024, and 2023 respectively. This resulted in an accumulated deficit of $ 36,932,246 and $ 34,429,895 , loss from operations +of $ 2,502,351 and $ 1,815,644 and net cash outflows from operating activities of $ 1,227,253 and $ 658,729 in 2024 and 2023 respectively. +The working capital excluded the non-cash items, which are prepaid expenses for the Forward Purchase Agreement, deferred offering costs +and advance of subscription fees from shareholders. These conditions raised substantial doubts about the Company’s ability to continue +as a going concern. +The Company’s liquidity +is based on its ability to obtain capital financing from equity interest investors and borrow funds on favorable economic terms to fund +its general operations and capital expansion needs. The Company’s ability to continue as a going concern is dependent on management’s +ability to successfully raise more capitals and execute its business plan, which includes increasing revenue while controlling operating +cost and expenses to generate positive operating cash flows and obtaining funds from outside sources of financing to generate positive +financing cash flows. Currently, the Company is working to improve its liquidity and capital sources mainly through borrowing from related +parties and obtaining financial support from its principal shareholder who has agreed to continue providing funds for the Company’s +working capital needs whenever needed. +In addition, in order to +fully implement its business plan and sustain continued growth, the Company is also actively seeking financing from outside investors, +borrowings from related parties and financial institutions. However, there can be no assurance that these plans and arrangements will +be sufficient to fund the Company’s ongoing capital expenditure, working capital, and other requirements. The accompanying consolidated +financial statements do not include any adjustments related to the recoverability or classification of asset and the amounts or classification +of liabilities that may result from the outcome of this uncertainty. +F- 16 +THUNDER POWER HOLDINGS, INC. +(f/k/a Feutune Light Acquisition Corporation) +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +4. OTHER CURRENT ASSETS +Other current assets consisted +of the following: +December 31, +2024 +December 31, +2023 +Payments +made on behalf of the Sponsor (a) +$ +— +$ 300,000 +Payments +made on behalf of a third party (b) +315,000 +315,000 +Prepaid expenses +67,865 +8,221 +$ 382,865 +$ 623,221 +(a) As discussed in Note 1, TP Holdings entered into a Merger Agreement with FLFV and its Merger Sub. The balance of payments on behalf of the Sponsor represented the payments of extension loans in an amount of $ 300,000 made by TP Holdings on behalf of the Sponsor. The balance was deducted against additional paid-in capital upon the closing of the Business Combination in 2024. +(b) Before entering into a Merger Agreement with FLFV, TP Holdings entered into a letter of intent with Aetherium Acquisition Corp. (“GMFI”) to explore a potential business combination. TP Holdings paid extension loans in an amount of $ 300,000 and working capital loans in an amount of $ 15,000 on behalf of GMFI. In March 2024, the letter of intent with GMFI was terminated. +5. PROPERTY AND EQUIPMENT, NET +Property and equipment, +net consisted of the following: +December 31, +2024 +December 31, +2023 +Office equipment +$ +— +$ 302,196 +Less: accumulated depreciation +— +( 300,222 ) +$ — +$ 1,974 +Depreciation +expense was $ 1,974 and $ 4,366 for the years ended December 31, 2024 and 2023, respectively. For +the year ended December 31, 2024, the Company fully wrote off its office equipment +with net book value of $ nil . +6. OPERATING LEASE +In March 2022, TP Holdings +entered into one office spaces lease agreement (“March 2022 lease arrangement”) in Hong Kong under non-cancellable operating +lease, with lease terms of 24 months. In March 2024, the March 2022 lease arrangement extended for 12 months through March 2025. +The Company considers those renewal or termination options that are reasonably certain to be exercised in the determination of the lease +term and initial measurement of right of use assets and lease liabilities . Lease expense for lease payment is recognized on a straight-line +basis over the lease term. +The Company determines whether +a contract is or contains a lease at inception of the contract and whether that lease meets the classification criteria of a finance +or operating lease. When available, the Company uses the rate implicit in the lease to discount lease payments to present value; however, +most of the leases do not provide a readily determinable implicit rate. Therefore, the Company discounts lease payments based on an estimate +of the incremental borrowing rate. +F- 17 +THUNDER POWER HOLDINGS, INC. +(f/k/a Feutune Light Acquisition Corporation) +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +6. OPERATING LEASE (cont.) +For operating leases that +include rent holidays and rent escalation clauses, the Company recognizes lease expense on a straight-line basis over the lease term +from the date it takes possession of the leased property. The Company records the straight-line lease expense and any contingent rent, +if applicable, in general and administrative expenses on the consolidated statements of income and comprehensive income. +The lease agreements do +not contain any material residual value guarantees or material restrictive covenants. +For short-term leases, the +Company records operating lease expense in its consolidated statements of income and comprehensive income on a straight-line basis over +the lease term and record variable lease payments as incurred. +The table below presents +the operating lease related assets and liabilities recorded on the consolidated balance sheets. +December 31, +2024 +December 31, +2023 +Right of use assets +$ 4,614 +$ 5,740 +Operating lease liabilities, current +3,455 +$ +— +Operating lease liabilities, noncurrent +— +— +Total operating lease +liabilities +$ 3,455 +$ +— +In June 2023, the Company +issued ordinary shares to settle obligations due to related parties, including lease liabilities of $ 131,588 (Note 7). As of December 31, +2023, the Company had no outstanding lease liabilities. +Other information about +the Company’s leases is as follows: +For the Year Ended +December 31, +2024 2023 +Weighted average remaining lease term (years) $ 0.21 $ 0.21 +Weighted average discount rate 5.5 % 5.5 % +Operating lease expenses +were $ 27,681 and $ 27,696 , respectively, for the years ended December 31, 2024 and 2023. +F- 18 +THUNDER POWER HOLDINGS, INC. +(f/k/a Feutune Light Acquisition Corporation) +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +7. OTHER PAYABLE AND ACCRUED EXPENSES +Other payable and accrued +expenses consisted of the following: +December 31, +2024 +December 31, +2023 +Accrued professional expenses incurred for Business +Combination (a) +$ 1,176,358 +$ +— +Accrued exercise tax on repurchases of common stocks (b) +913,742 +— +Others +250,340 +97,297 +$ 2,340,440 +$ 97,297 +(a) As of December 31, 2024, the balance of accrued professional expenses incurred for business combination consisted of expenses payable to a financial advisor, the counselor, public relation service providers and transfer agent. +(b) On August 16, 2022, the Inflation Reduction Act of 2022 (the “IRA”) was signed into federal law. The IRA provides for, among other things, a new U.S. federal 1 % excise tax on certain repurchases (including redemptions) of stock by publicly traded domestic (i.e., U.S.) corporations and certain domestic subsidiaries of publicly traded foreign corporations. The excise tax is imposed on the repurchasing corporation itself, not its shareholders from which shares are repurchased. As of December 31, 2024, the amount of the excise tax was accrued at 1 % of the fair market value of the shares repurchased at the time of the repurchase. +8. EQUITY +Common Stock +The Company has 1,000,000,000 +shares of common stock authorized with par value $ 0.0001 per share. +As part of the Business +Combination between the FLFV and TP Holdings, the Company issued 5,279,673 shares of common stock to the shareholders of FLFV, +among which 2,443,750 shares of common stock were issued to the sponsor of FLFV, 548,761 shares of common stock were issued to private +shareholders, 2,227,162 shares of common stock were issued to public shareholders and 60,000 shares of common stock were issued to the +underwriter as representative shares. +Upon closing of the Business +Combination on June 21, 2024, the Sponsor had provided a total of $ 2,636,000 in working capital loans and elected to convert all such +working capital loans into 263,600 working capital units, which include 263,600 shares of common stock, par value $ 0.0001 per share, +263,600 warrants, each of which may be exercised into one share of common stock of the Company, and 263,600 rights, each of which +entitles the holder to receive one-tenth of one share of common stock of the Company at the closing of the Business Combination. The +Company issued 289,960 shares of common stock to the Sponsor on June 21, 2024. +In connection with the Business +Combination, FLFV engaged a third party financial advisor to assist FLFV in locating target businesses, holding meetings with its +shareholders to discuss a potential business combination and the target business’ attributes, introduce FLFV to potential investors +that are interested in purchasing securities, assist FLFV in obtaining shareholder approval for the business combination and assist with +press releases and public filings in connection with a business combination. On June 21, 2024, the Company issued 1,200,000 shares of +common stock to the financial advisor as service fees. The fair value of the 1,200,000 shares of common stock issued to the financial +advisor was $ 3,072,000 , calculated at $ 2.56 per share by reference to the Nasdaq closing price of the Company’s common stock +on June 21, 2024. +Upon closing of the Business +Combination, the Company issued an aggregated 90,000 shares of common stock to three independent directors of FLFV. The fair value of +these shares was $ 900,000 by reference to the per share price of $ 10.00 . +In March 2024, April 2024 +and June 2024, the Company entered into certain private placement agreements with certain investors, pursuant to which the Company issued +1,310,740 shares of common stock, 44,940 shares of common stock and 1,155,513 shares of common stock, respectively. The Company raised +an aggregated proceeds of $ 946,800 from these private placements. +F- 19 +THUNDER POWER HOLDINGS, INC. +(f/k/a Feutune Light Acquisition Corporation) +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +8. EQUITY (cont.) +On July 2, 2024, the Sellers +purchased and the Company issued additional 3,706,461 shares of the Company’s common stock to Meteora pursuant to the Forward Purchase +Agreement and Subscription Agreement. The sellers made a prepayment shortfall of $ 150,000 . +On August 20, 2024, the +Company entered into a Common Stock Purchase Agreement (the “Purchase Agreement”) and a Registration Rights Agreement (the +“Registration Rights Agreement”) with Westwood Capital Group LLC, a Delaware limited liability company (“Westwood”), +pursuant to which Westwood has committed to purchase, subject to certain limitations, up to $ 100 million of the Company’s common +stock, par value $ 0.0001 per share (the “Total Commitment”). In addition, the Company has agreed to pay Westwood a commitment +fee valued at $ 1,500,000 in the form of 150,000 shares of common stock (the “Commitment Shares”) or an amount of cash (up +to $ 1,500,000 ), depending on various factors. Pursuant to the Purchase Agreement, the Company issued 150,000 shares of the Company’s +stock as commitment shares to Westwood. +As of December 31, 2024, +the Company had 50,716,094 shares of common stock issued and outstanding. +Preferred Stock +The Company has 100,000,000 +shares of Preferred Stock authorized with par value $ 0.0001 per share. As of December 31, 2024, the Company had nil shares of Preferred +Stock issued and outstanding. +Warrants +Warrants issued in connection with FLFV’s +initial public offering (“IPO”) +In connection with FLFV’s +IPO on June 21, 2022, FLFV issued 9,775,000 warrants (“Public Warrants”). Substantially concurrently with the closing +of the IPO, FLFV issued 478,875 warrants to FLFV’s Sponsor and 20,000 warrants to US Tiger (“Private +Warrants”) (Public Warrants and Private Warrants collectively the “Warrants”). Each Warrant entitles the registered +holder to purchase one share of common stock at a price of $ 11.50 per share, subject to adjustment, at any time commencing on the +later of 12 months from the closing of the IPO or 30 days after June 21, 2024. The Warrants will expire five years after June +21, 2024. +The Warrants became exercisable +after the consummation of the Business Combination on June 21, 2024. No Warrants will be exercisable for cash unless the Company has +an effective and current registration statement covering the common stock issuable upon exercise of the Warrants and a current prospectus +relating to such common stock. +The Company may call the +Warrants for redemption at a price of $ 0.01 per Warrant: +● in +whole and not in part; +● upon not less than 30 days ’ prior written notice of redemption (the “ 30 -day redemption period”) to each warrant holder; and +● if, and only if, the reported last sale price of the common stock equals or exceeds $ 16.50 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within a 30 -trading day period ending three business days before the Company sends the notice of redemption to the warrant holders. +F- 20 +THUNDER POWER HOLDINGS, INC. +(f/k/a Feutune Light Acquisition Corporation) +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +8. EQUITY (cont.) +The Company accounted for +the Warrants as equity instruments in accordance with ASC 480, “Distinguishing Liabilities from Equity” and ASC 815-40, +“Derivatives and Hedging: Contracts in Entity’s Own Equity”. The Company accounted for the Warrants as an expense +of the IPO resulting in a charge directly to stockholders’ equity. The Company estimates that the fair value of the Public Warrants +and Private Warrants to be approximately $ 1.1 million and $ 0.05 million, respectively, or at $ 0.108 per warrant, using +the Monte Carlo Model. The fair value of the Public Warrants and Private Warrant are estimated as of the date of grant using the +following assumptions: (1) expected volatility of 10.3 %, (2) risk-free interest rate of 2.92 %, (3) expected life of 1.38 years, +(4) exercise price of $ 11.50 and (5) stock price of $ 9.76 . +Other Warrants +Upon closing of the Business +Combination on June 21, 2024, the Sponsor had provided a total of $ 2,636,000 in working capital loans and elected to convert all such +working capital loans into 263,600 working capital units, which include 263,600 shares of common stock, par value $ 0.0001 per share, +263,600 warrants, each of which may be exercised into one share of common stock of the Company, and 263,600 rights, each of which +entitles the holder to receive one-tenth of one share of common stock of the Company at the closing of the Business Combination. On December +31, 2024, the Company issued 263,600 warrants to the Sponsor. +As of December 31, 2024, +the Company had issued and outstanding 10,537,475 warrants to purchase 10,537,485 shares of common stock. +Rights +On June 21, 2022, FLFV issued 9,775,000 Rights +(as defined below) in connection with the IPO. Substantially concurrently with the closing of the IPO, FLFV issued 478,875 Rights +to the Sponsor and 20,000 rights to US Tiger. Except in cases where FLFV was not the surviving company in an initial business +combination, each holder of a Right was automatically entitled to receive one-tenth (1/10) of common stock (the “Rights”) +upon consummation of the initial business combination. +On June 21, 2024, the Company +issued 1,027,386 shares of common stock to settle the rights. As of December 31, 2024, the Company did not have outstanding rights. +F- 21 +THUNDER POWER HOLDINGS, INC. +(f/k/a Feutune Light Acquisition Corporation) +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +9. INCOME TAXES +Cayman Islands +Under the current laws of +the Cayman Islands, the Company is not subject to tax on income or capital gain. Additionally, upon payments of dividends to the shareholders, +no Cayman Islands withholding tax will be imposed. +British Virgin +Islands +Under the current and applicable laws +of BVI, TP Holdings and TP NEV are not subject to tax on income or capital gains. +Hong Kong +TP HK is incorporated in +Hong Kong and is subject to Hong Kong Profits Tax on the taxable income as reported in its statutory financial statements adjusted +in accordance with relevant Hong Kong tax laws. The applicable tax rate for the first HKD$ 2 million of assessable profits is +8.25 % and assessable profits above HKD$ 2 million will continue to be subject to the rate of 16.5 % for corporations in Hong Kong, +effective from the year of assessment 2018/2019. Before that, the applicable tax rate was 16.5 % for corporations in Hong Kong. +Taiwan +TP TW is incorporated in +Taiwan and is subject to Taiwan corporate income tax on the taxable income as reported in its statutory financial statements adjusted +in accordance with relevant Taiwan tax laws. The applicable tax rate for the first TW$ 120,000 of assessable profits is exempt from tax +and assessable profits above TWD$ 120,000 will be subject to the rate of 20 % for resident companies in Taiwan. +For the year ended December +31, 2024 and 2023, the Company did not incur income tax expenses. Below is a reconciliation of the statutory tax rate to the effective +tax rate: +December 31, +2024 +December 31, +2023 +BVI statutory income tax rate +0 % +0 % +Effect of different income tax rates in other jurisdictions +0.4 % +0 % +Effect of changes in valuation allowance +( 0.4 )% +0 % +Effective tax rate +0 % +0 % +Deferred tax assets and +deferred tax liabilities as of December 31, 2024 and 2023 consist of the following: +December 31, +2024 +December 31, +2023 +Net operating losses carryforwards +$ 9,701 +$ +— +Less: valuation allowance +( 9,701 ) +— +Total deferred tax assets +$ +— +$ +— +As of December 31, +2024, the Company had net operating loss carrying forwards of $ 117,590 from the Company’s Hong Kong subsidiaries, which will be +carried forward indefinitely to offset future profits of the Company’s Hong Kong subsidiaries. The Company evaluates its valuation +allowance requirements at end of each reporting period by reviewing all available evidence, both positive and negative, and considering +whether, based on the weight of that evidence, a valuation allowance is needed. When circumstances cause a change in management’s +judgement about the realizability of deferred tax assets, the impact of the change on the valuation allowance is generally reflected +in income from operations. The future realization of the tax benefit of an existing deductible temporary difference ultimately depends +on the existence of sufficient taxable income of the appropriate character within the carryforward period available under applicable +tax law. The Company reviews deferred tax assets for a valuation allowance based upon whether it is more likely than not that the deferred +tax asset will be fully realized. As of December 31, 2024, full valuation allowance of was provided against deferred tax assets arising +from net operation losses carryforwards as the Company assessed that it was more likely than not that that the net operating losses would +not be fully utilized before expiration. +Uncertain tax positions +The Company evaluates each +uncertain tax position (including the potential application of interest and penalties) based on the technical merits, and measure the +unrecognized benefits associated with the tax positions. As of December 31, 2024 and 2023, the Company did not have any unrecognized +uncertain tax positions and the Company does not believe that its unrecognized tax benefits will change over the next twelve months. +For the years ended December 31, 2024 and 2023, the Company did not incur any interest and penalties related to potential underpaid income +tax expenses. +F- 22 +THUNDER POWER HOLDINGS, INC. +(f/k/a Feutune Light Acquisition Corporation) +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +10. RELATED PARTY TRANSACTIONS AND BALANCES +a. Nature of relationships with +related parties: +Relationship with the Company +Thunder Power (Hong Kong) Limited (“TP HK”) Over which the spouse of Mr. Wellen Sham, the Company’s controlling shareholder, exercises significant influence +Thunder Power Electric Vehicle (Hong Kong) Limited (“TPEV HK”) Over which the spouse of Mr. Wellen Sham, the Company’s controlling shareholder, exercises significant influence +Mr. Wellen Sham Controlling shareholder of the Company +Ms. Ling Houng Sham Spouse of Mr. Wellen Sham +Feutune Light Sponsor LLC (“FLFV Sponsor”) Shareholder of the Company +b. Related party transactions: +For the Year Ended December 31, +Nature 2024 2023 +TP HK Rental expenses $ 27,681 $ 27,696 +On June 30, 2023, the outstanding +balances due to TP HK, TPEV HK and Mr. Wellen Sham as of June 30, 2023 were settled by issuance of 2,183,887 of the Company’s +common stock. +For the year ended December +31, 2024, the Company borrowed $ 951,560 from Mr. Wellen Sham to support the Company’s operations. The borrowings bear interest +rate ranging between 8 % and 10 % and is payable through December 2025. As of December 31, 2024, the Company repaid borrowings of $ 25,000 +to Mr. Wellen Sham. +c. Balance with related parties: +For the Year Ended +December 31, +Nature 2024 2023 +TP HK (1) Amount due to the related party $ 96,236 $ 68,992 +Mr. Wellen Sham (2) Amount due to the related party 1,271,415 +— +Ms. Ling Houng Sham (2) Amount due to the related party 208,636 +— +FLFV Sponsor (3) Amount due to the related party 190,000 +— +$ 1,766,287 $ 68,992 +(1) The balance due to TP HK represented the payments made by TP HK on behalf of TP Holdings regarding the office rental fee and employee salary expenses. The balance is interest free and is repayable on demand. +(2) +The balance due to Mr. Wellen Sham represented the promissory notes of $ 560,000 for extension of FLFV, promissory notes of $ 691,560 for the daily operation of the Company, other payable of $ 4,000 for payment of operating expenses on behalf of the Company and interest payable of $ 40,855 . The balance due to Ms. Ling Houng Sham represented promissory notes of $ 200,000 for extension of FLFV and interest payable of $ 8,636 . +Among the promissory notes issued to Mr. Wellen Sham, $ 260,000 of which was borrowed by TPHL and bear interest rate of 8 % per annum and were payable on June 21, 2024, $ 300,000 was borrowed by FLFV which bear interest rate of 10 % and is payable on September 19, 2024, $ 350,060 was borrowed by the Company which bear interest rate of 10 % and is payable on September 10, 2025, $ 100,000 was borrowed by the Company which bear interest rate of 10 % and is payable on October 16, 2025, $ 121,500 was borrowed by the Company which bear interest rate of 8 % and is payable on November 12, 2025, and $ 120,000 was borrowed by the Company which bear interest rate of 8 % and is payable on December 9, 2025. As of December 31, 2024, the Company repaid $ 25,000 to Mr. Wellen Sham. As of the date of this Annual Report, the Company has not settled the promissory notes with Mr. Wellen Sham. +Among the promissory notes issued to Ms. Ling Houng Sham, $ 100,000 borrowed by TPHL which bear interest rate of 8 % per annum and were payable on June 21, 2024, and $ 100,000 borrowed by FLFV which bear interest rate of 8 % and is payable on June 21, 2024. As of the date of this Annual Report, the Company has not settled the promissory notes with Ms. Ling Houng Sham. +(3) In May and June 2024, FLFV issued three promissory notes to the FLFV Sponsor in exchange for an aggregated loans of $ 190,000 from the FLFV Sponsor, among which $ 50,000 was payable on closing of the Business Combination, and $ 140,000 was payable on July 21, 2024. As of the date of this Annual Report, the Company has not settled the promissory notes with FLFV Sponsor. +F- 23 +THUNDER POWER HOLDINGS, INC. +(f/k/a Feutune Light Acquisition Corporation) +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +11. SHARE-BASED COMPENSATION +Share options +In October 2014, TP +Holdings adopted a Thunder Power Holdings Limited Share Option Plan (the “2014 Plan”), As of December 31, 2024, the 2014 +Plan existed to the extent that there are options/awards outstanding thereunder. +On June 17, 2024, the stockholders +of the Company voted to approve the 2024 Omnibus Equity Incentive Plan (the “2024 Plan”), which became effective at the closing +of the Business Combination. All outstanding options to purchase share of TP Holdings granted under the 2014 Plan has rolled over into +the 2024 Plan and became options to purchase share of Common Stock of the Company. Such options granted under the 2014 Plan will continue +to be subject to the terms and conditions as set forth in the agreements evidencing such stock options and the terms of the 2024 Plan +(including the terms of the Prior Plan attached as an exhibit to the 2024 Plan). +The total number of shares +of the Company’s Common Stock reserved and available for grant and issuance pursuant to awards under the 2024 Plan equals 10 % of +the total number of outstanding shares of the Company’s Common Stock immediately following the Business Combination, the full amount +of which may be issued pursuant to incentive stock options. In addition, annually on the first trading day of the calendar year, beginning +with the 2025 calendar year, the share reserve (but not the incentive stock option limit) will automatically increase by 5 % of the total +number of shares of the Company’s Common Stock outstanding as of the last day of the immediately preceding calendar year, unless +the administrator of the 2024 Plan acts prior to January 1 of such calendar year to provide that there will be no increase or a lesser +increase in the share reserve for that year. Under the 2024 Plan, non-employee directors, employees and consultants, and any individual +to whom the Company and the affiliates have extended a formal offer of employment, are eligible to receive awards under the 2024 Plan. +There is no limit on the number or class of directors, employees or consultants that are eligible to receive awards. +For the years ended December +31, 2024 and 2023, the transaction activities of share options were as below: +Number +of +options +Weighted average exercise price per +option +Outstanding at December 31, 2022 +817,500 +$ 1.03 +Forfeited +( 227,500 ) +$ 1.00 +Outstanding at December 31, 2023 +590,000 +$ 1.02 +Forfeited +( 212,500 ) +$ 1.00 +Outstanding at December 31, 2024 +377,500 +$ 1.02 +The following table summarizes +information with respect to outstanding share options to employees as of December 31, 2024. +Number of +options Weighted average remaining +contractual +term (years) +Outstanding at December 31, 2024 377,500 $ 0.31 +For the year ended December +31, 2024 and 2023, the Company charged share-based compensation expenses of $ nil and $ 45 , respectively, in the accounts of “General +and administrative expenses”. +F- 24 +THUNDER POWER HOLDINGS, +INC. +(f/k/a Feutune Light Acquisition Corporation) +NOTES TO CONSOLIDATED +FINANCIAL STATEMENTS +11. SHARE-BASED COMP ENSATION +(cont.) +Other share-based compensation +As noted in Note 8, +the Company issued 2,183,887 shares of common stock to Mr. Wellen Sham, to settle its outstanding liabilities due to related parties +aggregating $ 609,958 . The fair value of the common stock was $ 0.49 per share. The total fair value of these common stock of $ 1,071,524 +exceeded the outstanding liabilities by $ 461,566 , which was deemed as share-based compensation to Mr. Wellen Sham. The Company recorded +$ 461,566 as share-based settlement expenses in the account of “General and administrative expenses” in the consolidated statements +of operations. +In July 2023, the Company +issued 2,835,526 shares of common stock to certain investors in exchange for cash consideration of $ 1,060,000 . On the issuance date, +the fair value of the common stock was $ 0.49 per share. The total fair value of the common stock of $ 1,391,250 exceeded the cash consideration +by $ 331,250 , which was deemed as share-based compensation expenses to these investors. The Company recorded $ 331,250 as share-based compensation +expenses in the account of “General and administrative expenses” in the consolidated statements of operations. +In July 2023, the Company +issued 150,727 shares of common stock to Ms. Wanda Tong. The issuance of common stock was to settle the consulting service fees of $ 56,346 +due to Ms. Tong. On the issuance date, the fair value of the common stock was $ 0.49 per share. The fair value of the common stock of +$ 73,953 exceeded the Company’s liabilities by $ 17,608 , which was deemed as a share-based compensation expenses to Ms. Tong. The +Company recorded $ 17,608 as share-based compensation expenses in the account of “General and administrative expenses” in +the consolidated statements of operations. +In June 2024, the Company +issued 90,000 shares of common stock to three independent directors of FLFV for their past services. The grant date fair value of the +common stock was $ 900,000 , calculated at $ 10 per share. The Company recorded share-based compensation expenses in the “general +and administrative expenses” with corresponding accounts to equity. +Immediately prior to the +closing of FLFV’s IPO on June 21, 2022, FLFV’s Sponsor agreed to transfer an aggregated amount of 505,000 founder shares +that are shares of FLFV Common Stock initially purchased by the Sponsor (“Founder Shares”)to FLFV’s officers, directors, +secretary and their designees. The Founders Shares were granted subject to a performance condition (i.e., the occurrence of a business +combination). Compensation expense related to the Founders Shares is recognized only when the business combination is consummated under +ASC 718. The sale of the Founders Shares to FLFV’s management and directors is within the scope of FASB ASC Topic 718, “Compensation-Stock +Compensation” (“ASC 718”). Under ASC 718, stock-based compensation associated with equity-classified awards is measured +at fair value upon the grant date. On June 21, 2024, the Sponsor transferred 429,350 shares to FLFV’s officers, directors, secretary +and their designees. The fair value was $ 107,712 for a total of 429,350 shares or $ 0.25 per share. The Company recognized share-based +compensation expenses of $ 107,712 on June 21, 2024. +On June 21, 2024, the Company +entered into an advisory agreement with a service provider, pursuant to which the Company would issue 8,570 shares of common stock to +the service provider for its services provided in connection with consummation of the Business Combination. The Company referred the +closing price of $ 2.56 per share on June 21, 2024 as the grant date fair value, and recorded the share-based compensation expenses of +$ 21,939 as reduction against additional paid-in capital. In October 2024, the Company issued 8,570 shares of common stock to the service +provider. +F- 25 +THUNDER POWER HOLDINGS, +INC. +(f/k/a Feutune Light Acquisition Corporation) +NOTES TO CONSOLIDATED +FINANCIAL STATEMENTS +12. CONTINGENT CONSIDERATION +On June 21, 2024, the Company +entered into an escrow agreement (the “Escrow Agreement”) with Mr. Wellen Sham, Yuanmei Ma and CST, pursuant to which, among +other things, (1) CST will act as the escrow agent under the Escrow Agreement; (2) at the closing of the Business Combination, the Company +deposited with CST 20,000,000 shares of common stock as Earnout Shares, to be held by CST in a segregated escrow account (“Earnout +Escrow Account”); and (3) if any portion of the Earnout Shares becomes eligible for release in accordance with the terms of the +Escrow Agreement, CST will release the applicable portion of the Earnout Shares from the Earnout Escrow Account in accordance with the +terms of the Escrow Agreement and disburse to each eligible recipient the applicable portion of Earnout Shares therefrom. +The Earnout Shares shall +be released or otherwise forfeited as follows: (i) an aggregate of 5,000,000 Earnout Shares (the “Tranche 1 Earnout Shares”) +will be vested, if and only if, on the occurrence that the amount of sales/revenues of the Company for any of the fiscal years (such +fiscal year is referred to as “Tranche 1 Fiscal Year”) ending from December 31, 2023 to December 31, 2025 is no less than +$ 42,200,000 as evidenced by the audited financial statements of the Company prepared in accordance with U.S. GAAP for the Tranche 1 Fiscal +Year that is contained in an annual report on Form 10-K filed by the Company with the SEC (the “Tranche 1 Annual Report”); +(ii) an aggregate of 15,000,000 Earnout Shares (the “Tranche 2 Earnout Shares”) will be vested, if and only if, on the occurrence +that the amount of sales/revenues of the Company for any of the fiscal years (such fiscal year is referred to as “Tranche 2 Fiscal +Year”) ending from December 31, 2023 to December 31, 2026 is no less than $ 415,000,000 as evidenced by the audited financial statements +of the Company prepared in accordance with U.S. GAAP for the Tranche 2 Fiscal Year that is contained in an annual report on Form 10-K +filed by the Company with the SEC (the “Tranche 2 Annual Report”); (iii) Within five (5) business days following the determination +that all or any portion of the Tranche 1 Earnout Shares or Tranche 2 Earnout Shares become vested, the Company, together with Mr. Sham +and Ms. Ma, shall instruct the Escrow Agent to irrevocably and unconditionally release the vested tranche of Earnout Shares from the +Escrow Account in accordance with the terms of the Escrow Agreement to certain of the Company’s shareholders. Each tranche of Earnout +Shares may be released only once, but more than one tranche can be released in any year in accordance with the Escrow Agreement. +The Earnout Shares are determined +as contingent consideration in connection with the reverse recapitalization. In addition, the issuance of Earnout Shares does not meet +any condition to be classified as a liability under ASC 815, thus it should be classified as an equity financial instrument, and measure +at fair value using the quoted market price on grant date, June 11, 2024, which was $ 2.56 per share. +For the year ended December +31, 2024, the sales/revenues condition described above was not met. Currently the Company could not reasonably assess the performance +condition for the year ending December 31, 2025. The Company will recognize share-based compensation expenses with corresponding account +charged to additional paid-in capital upon the vesting of Earnout Shares. +13. CONTINGENCIES +On December 19, 2024, the Company entered into a Share Exchange Agreement +(the “Agreement”) with certain shareholders (the “TW Company Shareholders”) of Electric Power Technology Limited, +a Taiwan corporation (“TW Company”). Pursuant to the Agreement, the TW Company Shareholders will exchange 31,626,082 ordinary +shares of TW Company for 37,635,039 newly issued shares of the Company’s common stock, par value $ 0.0001 per share (the “Exchange”). +Upon completion of the Exchange, the Company will acquire approximately 30.8 % of TW Company’s total issued and outstanding shares. +The closing of the Exchange is subject to customary conditions, including receipt of all necessary regulatory approvals and the approval +of the Company’s shareholders. The Agreement contains customary representations, warranties and covenants by the parties. The closing +must occur no later than October 31, 2025. +14. SUBSEQUENT EVENT +On March 7, 2025, +the Company received a notification letter from the Nasdaq Listing Qualifications department of The Nasdaq Stock Market LLC (“Nasdaq”) +stating that the Company has not regained compliance with Nasdaq Listing Rules 5450(a)(1), which requires the Company’s listed +securities to maintain a minimum bid price of $ 1.00 per share (the “Bid Price Rule”) and 5450(b)(2)(A), which requires the +Company to maintain a minimum Market Value of Listed Securities (“MVLS”) of $ 50,000,000 (the “MVLS Rule”). Accordingly, +the Nasdaq Staff has determined that the Company’s securities was delisted from the Nasdaq Global Market. Unless the Company requests +an appeal of Nasdaq’s determination, trading of the Company’s common stock was suspended at the opening of business on March +18, 2025, and a Form 25-NSE was filed with the Securities and Exchange Commission, which removed the Company’s securities from +listing and registration on The Nasdaq Stock Market. +On March 26, 2025, the Company +received approval from the Listing Qualifications Department of the Nasdaq Stock Market (“Nasdaq”) to transfer the listing +of the Company’s common stock (“Common Stock”) from the Nasdaq Global Market to the Nasdaq Capital Market (the “Approval +Letter”). The Company’s Common Stock was transferred to the Nasdaq Capital Market at the opening of business on March 28, +2025, and will continue to trade under the symbol “AIEV.” +Following the transfer of +the Company’s Common Stock to the Nasdaq Capital Market on March 28, 2025, the Company is now subject to continued listing requirements +of the Nasdaq Capital Market. The MVLS Requirement is no longer applicable to the Company. In the Approval Letter, Nasdaq notified the +Company that the Company is non-compliant with Nasdaq Capital Market Listing Rule 5555(a)(1), which requires the Company to comply with +the same Bid Price Requirement. 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Business +Corporate History and Background +FLFV +Prior to June 21, 2024, +we were known as Feutune Light Acquisition Corporation, a Delaware corporation (“FLFV”), and Feutune Light Merger Sub, Inc., +a Delaware corporation and wholly owned subsidiary of FLFV (“Merger Sub”). On October 26, 2023, we entered into a business +combination agreement (as amended, the “Business Combination Agreement”) with Thunder Power Holdings Limited, a British Virgin +Islands company (“Thunder Power”), pursuant to which on June 21, 2024, Thunder Power merged with and into Merger Sub, with +Merger Sub surviving the merger as a wholly owned subsidiary of FLFV (the “Merger” and, together with the other transactions +contemplated by the Business Combination Agreement and any other agreement executed and delivered in connection therewith, the “Business +Combination”). At the closing of the Business Combination, FLFV was renamed as “Thunder Power +Holdings, Inc.” Unless the context indicates otherwise, references in this prospectus to the “Company,” “Thunder +Power Holdings,” “we,” “us,” “our” and similar terms refer to Thunder Power Holdings, Inc. +(f/k/a Feutune Light Acquisition Corporation). References to “FLFV” refer to our predecessor company prior to the consummation +of the Business Combination. +Thunder Power +On March 21, 2013, Thunder +Power Hong Kong Ltd. (“TP HK”) was established as a wholly owned subsidiary of Thunder Power with the intention to act as +a financial and operational hub of Thunder Power, to deal with various corporate actions such as fundraising, back-office operations +and bridge the operations between China and Europe. On April 8, 2016, China New Energy Vehicle Company Limited (“China NEV”) +was established as a subsidiary of Thunder Power. On August 6, 2021, the Board of Directors of the Thunder Power approved the spin-off +of China NEV and TP HK, and the transaction was completed on December 14, 2021 with no cash consideration. Upon consummation of the spin-off, +Thunder Power no longer holds any equity shares in China NEV and TP HK and retains only one subsidiary. Thunder Power New Energy Vehicle +Development Company Limited (“TP NEV”) which was established in accordance with laws and regulations of British Virgin Islands +on October 19, 2016. +Our Company +Thunder Power is a technology +innovator and a prospective manufacturer of premium electric vehicles (“EVs”). The Company has developed several proprietary +technologies which are the building blocks of the Thunder Power family of EVs. Thunder Power Holdings, Inc., a Delaware corporation, +was incorporated in January 2022 as a blank check company under the name Feutune Light Acquisition Corporation (“FLFV”). +In June 2024, the Company completed its Business Combination with Thunder Power Holdings Limited (“Thunder Power”), which +resulted in Thunder Power becoming a wholly-owned subsidiary of the Company. Thunder Power’s wholly-owned subsidiary, Thunder Power +New Energy Vehicle Development Company Limited, a company established in accordance with the laws and regulations of the British Virgin +Islands on October 19, 2016 (“TP NEV”), has developed several proprietary technologies which are the building blocks of the +Thunder Power family of EVs. Thunder Power is a holding company with no operations that was incorporated under the laws and regulations +of the British Virgin Islands with limited liability on September 30, 2015. +You can find additional +information on our website at https://aiev.ai/. The information contained on, or that can be accessed through, our website is not part of, +and is not incorporated into, this Annual Report on Form 10-K. +Our Business Divisions +We envision to structure +our operations into three different divisions: vehicle development, strategic alliance and mergers and acquisitions, and trade and consulting, +each of which intend to address a large, fragmented market. +1 +Vehicle Development +Thunder Power is strategically +focused on the development and production of electric vehicles (EVs) that combine timeless Italian design with an emphasis on delivering +a joyful and engaging driving experience at an accessible price point. The Company’s vehicle development efforts are structured +around three core series: Core Products, Niche Offerings, and Collaborative Projects. +Core Product +At the heart of Thunder +Power’s product portfolio is the Compact City Car, which is scheduled for launch in 2027. This model integrates Thunder Power’s +proprietary innovations, developed prior to its public listing, with state-of-the-art technical solutions. The vehicle’s design +is led by renown European designer, ensuring a blend of functionality and aesthetic appeal. We expect to outsource the initial production +to facilities in Italy, with an option for insourced production beginning in 2029. +Key features of our Compact +City Car include: +● Italian +Craftsmanship: An affordable, compact sports car that reflects Italian design, quality, and +driving spirit. +● Driver-Focused +Experience: Engineered for superior ride and handling, prioritizing driver engagement with +a human-centric design and minimal reliance on screens. +● Integrated +Smart AI: Advanced AI software offering personalized features such as maps, driving modes, +and individual settings to enhance the driving experience. +We intend to focus on achieving +symmetry of parts to simplify both manufacturing and assembly processes, adhering to niche manufacturing principles. We also aim to to +minimize the number of unique components by promoting design repeatability. The Compact City Car is planned to integrate a combination +of internal and external “off the shelf” parts alongside new development components, enhancing efficiency and reducing complexity +in production. +The +Compact City Car is designed to cater to a younger, urban demographic of first-time car buyers who value sustainability and view +their car as an extension of their identity and lifestyle. The initial launch will target Taiwan as +a pilot market, with subsequent expansion planned in Asia and Europe . +2 +Niche Offerings +Thunder Power’s niche +vehicle development focuses on creating high-impact, emotionally compelling products that prioritize personalization and unique design. +These offerings are positioned as complementary vehicles for households, rather than primary functional cars. +Leveraging its existing +chassis and technologies, we are well-position to develop and launch the Sports Coupe, a high-performance luxury vehicle that combines +European styling with superior craftsmanship and driving dynamics. Drawing inspiration from other succesfful benchmarks, this model is +designed to deliver exceptional comfort and performance, with a targeted starting retail price of $100,000. Production will be outsourced +to Italy. +We also expect to explore +opportunities in tailor-made retro vehicle development and restomod projects, leveraging its modular in-house chassis as a technological +base. These offerings are aimed at a younger generation of automotive enthusiasts who value vintage aesthetics but seek modern performance, +comfort, and eco-conscious functionality. In particular, we intend to explore the “electromods” trend, which involve converting +classic cars to electric powertrains. This approach provides a unique driving experience while reducing emissions, appealing to both +sustainability-minded and performance-driven customers. +Through these niche offerings, +we aim to establish ourselves as a key player in the luxury and specialty automotive markets, emphasizing the traditional values of driving +pleasure, craftsmanship, and grand touring. +Collaborative Projects +We actively pursue pursuing +joint venture and collaboration opportunities to expand its footprint in emerging automotive segments. This includes leveraging its AIEV +design framework to enhance third-party platforms for exclusive markets. +One of the Company’s +primary areas of focus is the rapidly growing microcar segment, which offers a unique opportunity to bridge the gap between motorcycles +and traditional passenger vehicles. Microcars are particularly well-suited for urban environments and have experienced significant growth +in Europe, with strong potential for further expansion in Asia. According to McKinsey’s Future Mobility 2022 survey, the global +microcar market is projected to reach a total addressable value of $340 billion annually by 2030, driven by increased consumer demand +for sustainable and versatile urban mobility solutions. +The first Microcar project +is planned as a low-volume joint venture, leveraging the platform of an existing manufacturer, with production targeted to begin in 2026. +This model will incorporate Thunder Power’s signature Italian design elements. A fully unique Microcar is anticipated to launch +from 2029, subject to achieving market-relevant retail pricing, which is currently under evaluation. +Mergers and Acquisitions (M&A) +We are committed to pursuing +a proactive mergers and acquisitions strategy, primarily targeting opportunities within the clean energy sector and related industries. +The focus will be on acquisitions that are immediately revenue-generating, reinforcing the Company’s financial position while creating +synergies with its core business. +On December 19, 2024, +we entered into a share exchange agreement with certain shareholders (“TW Shareholders”) of Electric Power Technology +Limited, a Taiwan corporation (“TW Company”). On February 10, 2025, the Company and TW Shareholders executed an amendment to the Agreement (the “Amendment”, and together with the Agreement, the “Amended +Agreement”). Purusant to the terms of the Amended Agreement, upon completion of the transaction, the Company will hold +approximately 37.4% of TW Company’s total issued and outstanding shares. The transaction is currently under review and subject +to approval. This transaction is expected to strengthen Thunder Power’s position in renewable energy while providing immediate +revenue streams +We also intend to explore +mergers and acquisition opportunities in artificial intelligence sector and related industries, which offer significant growth potential +and opportunities for technological and financial returns. +3 +Acquisitions in this space +are expected to bring immediate revenue and profit to the Company while bolstering its expertise in advanced technologies. The market +is experiencing significant growth and increasing demand, driven by the rise of mobile devices, IoT, and cloud computing, along with +emerging technologies in sectors such as automotive (electric vehicles), data centers, and consumer electronics. Rapid technological +advancements are leading to continuous improvements in storage capacity, speed, and efficiency, exemplified by innovations like 3D NAND +technology, which in turn enhances the value of patents and proprietary technologies. Additionally, with the increasing emphasis on sustainability +initiatives and the expansion of applications includingaugmented reality (AR) and virtual reality (VR), we expect future demand for advanced +flash solutions and AI technologies continue to grow. +We will continue to focus +and evaluate potential targets which demonstrate innovative technologies, strong supply chain management, and a solid market position. +The company would assess their growth potential in emerging markets and their ability to adapt to technological changes and regulatory +requirements. +Trade and Consulting +At the core of our strategy +is to generate revenue during the capital-intensive vehicle development phase. To achieve this, the Company plans to engage in complementary +activities that do not interfere with its core business operations but provide additional revenue streams and cash flow. +Vehicle Trading +As a precursor to building +a dealer network and cultivating sales contacts, we intend to engage in limited prestige vehicle trading. This initiative will focus +on trading new and nearly-new vehicles in the European and Asian markets, leveraging the Company’s market expertise and industry +relationships. +In addition to its opportunity +to bringing cash flow, we also expect these trading activities to enable us establish valuable industry connections and insights, laying +the groundwork for a future dealer network and strengthening the Company’s presence in key markets. +Consulting +We also intend to offer +design consulting services and licensing access to its patent portfolio as part of its broader strategy to monetize intellectual property +and technical expertise. +Capitalizing the Company’s +in-house design capabilities and patent portfolio, we plan to unlock additional revenue opportunities while maintaining ensuring cost +efficiency. +Technology +Thunder Power is an automotive +company that plans to use innovative EV technology to set new standards for sustainable transportation. Thunder Power is negotiating +and securing licensing rights to intellectual property of its affiliates, which have developed the cutting-edge EV technology that +the Company believes could set a new benchmark for EVs. Core to Thunder Power’s DNA is achievement of technical excellence, which +the Company hope to secure through licensing of intellectual property from its affiliates for proprietary technologies, such as the modular +flexible chassis system, wireless charging, multi-link suspension system, light weight engineering, BMS, TMS and the use of EV certain +EV TDPs. +4 +● +Battery Pack. The +Battery Pack is expected to utilize 18,650 cylindrical batteries in each EV, while the BMS is expected to control and monitor the +Battery Pack, which the Company views as extra high safety standards and an innovative charge-balancing system designed to slow +aging and degradation of the Battery Pack. +● +Battery Management +System. Thunder Power believes that the proprietary BMS is the most important and valuable part of the Battery Pack, indeed +of the entire EV. The functional purpose of the proprietary BMS is to prolong the battery life cycle, improve passenger safety +by allowing EV operators to get to a safe location, and predict the potential for battery malfunctions. To accomplish this, the BMS +modulates and monitors the temperature range, battery cell voltage limits, and power output limit when the EV is in operation. The +BMS consists of local management units (“LMUs”), which monitor cell voltages and temperature in individual modules of +the Battery Pack. This information is then collected and sent to the BMS, which monitors the overall voltage of each module and calculates +the state of charge (“SOC”) of the Battery Pack. This enables the BMS to estimate the available power output and remaining +driving range of the EV, as well as determine the state of health (“SOH”) of the Battery Pack by predicting the potential +for battery failures through monitoring the voltage, temperature, and usage of the batteries. +● +The BMS Concept. +In the unlikely event of a critical failure, the BMS is intended to cut the high-voltage power to a lower voltage, ensuring +that the EV has sufficient power to reach a safe location. Should a minor malfunction occur in a battery cell or module, the BMS +is able to detect the failure and inform the driver to schedule a maintenance appointment. +EV Traction Drivetrain (EV TDP) +The EV TDP has various core +competencies that are critical to the Company’s products. We believe that the EV TDP is energy efficient. The product contains +a synchronous motor with both PM (permanent magnet) and reluctance torque and has a high-fill factor bar-wound design. The inverter drive +has a maximum efficiency vector control, which we believe could achieve high efficiency in a broad speed and power range. Additionally, +we believe that it could benefit our EVs by providing a greater driving range and lower battery capacity requirements, as compared to +those of our competitors’ vehicles. We believe that the EV TDP is scalable. The product’s power range is believed to be 50~250 +kW. The EV TDP features a standardized stator diameter and its output power is varied by changing stack lamination; therefore, we believe +that it allows a broad spectrum application for various types of EVs. We believe that EV TDP is highly integrated with the liquid cooling +motor, inverter drive and gear, which in turn makes the EV TDP compact and lightweight, and optimized for system performance. Finally, +we believe that the EV TDP is cost effective. The EV TDP has a low-pressure loss cooling tunnel design, integrated cooling jacket and +a motor frame design. +5 +The Company does not hold +the intellectual property rights to the traction motor, all rights for which are owned by Mr. Wellen Sham, the former chief executive +officer of Thunder Power, in his capacity as an individual inventor. There is no licensing agreement in place for the EV TDP between +the Company and Mr. Sham. +6 +The traction motor is demonstrated +above; Thunder Power does not hold the intellectual property rights to the traction motor, all rights for which are owned by Mr. Wellen +Sham in his capacity as an individual inventor. There is no licensing agreement in place between the Company and Mr. Sham for the +traction motor. +The above power train is +manufactured by Electric Power Technology Ltd (a Taiwanese public company, Taiwan List Co. 4529), an affiliate and one of the shareholders +of Thunder Power +In addition, as mentioned +below in the section under the heading ” Future Technology and Vehicle Programs ”, Thunder Power may explore the +potential of applying EV TDP in other commercial applications. +Intellectual Property +Thunder Power, as a holding +company, does not own any patents. Patents are primarily owned by Thunder Power’s wholly owned subsidiary, TP NEV, except for the +EV TDP, the patent for which is owned by Mr. Wellen Sham in his capacity as an individual inventor and patent holder. There is no +licensing agreement in place between Thunder Power and TP NEV or Mr. Sham. These patents are predominantly utility patents, with a number +of design patents. +Intellectual property is +important to our business. Our commercial success depends on our ability to obtain, maintain and protect the intellectual property and +other proprietary technology that we develop or acquire the rights to, to operate without infringing, misappropriating or otherwise violating +the intellectual property and proprietary rights of others, and to prevent others from infringing, misappropriating or violating our +intellectual property and proprietary rights. We expect to rely on a combination of patents, trademarks, trade secrets, know-how, continuing +technological innovation, confidential information and other measures to develop and maintain our proprietary position including through +personnel, contractor, consultant and third-party nondisclosure and invention assignment agreements and other contractual arrangements. +7 +Regardless of the protective +measures that we may implement to safeguard our intellectual property and proprietary technology, there is always a risk that alterations +from our products or processes may provide sufficient basis for a competitor to avoid infringement claims. In addition, the coverage +claimed in a patent application can be significantly reduced before a patent is issued and courts can reinterpret a patent’s scope +after issuance. Many jurisdictions, including the United States, permit third parties to challenge issued patents in administrative +proceedings, which may result in further narrowing or even cancellation of patent claims. We cannot provide any assurance that any patents +will be issued from our pending or any future applications or that any current or future issued patents will adequately protect our intellectual +property. For this and other risks related to our proprietary technology, inventions and improvements, please see the section under the +heading “Risk Factors.” +Through TP NEV, Thunder +Power is expected to have access to 154 issued U.S. patents, once it secures a licensing agreement. +We hope to develop additional +intellectual property and proprietary technology as our engineering and validation activities ramp up. Technologies that we expect to +have access to, through licensing agreements, and intend to invest in and develop include engineering software, drivetrain systems and +controls, infotainment, cybersecurity, telematics and electrical architecture hardware and software. As we develop our technology, we +will continue to build our intellectual property portfolio, including by pursuing patent and other intellectual property protection when +we believe it is possible, cost-effective, beneficial, and consistent with our overall intellectual property protection strategy. +Generally, the terms of +individual issued patents extend for varying periods depending on the date of filing of the patent application or the date of patent +issuance and the legal term of patents in the countries in which they are obtained. Generally, utility patents issued for applications +filed in the United States are granted a term of 20 years from the earliest effective filing date of a non-provisional patent +application, assuming the patent has not been terminally disclaimed over a commonly-owned patent or a patent naming a common inventor, +or over a patent not commonly owned but that was disqualified as prior art as the result of activities undertaken within the scope of +a joint research agreement. The life of a patent, and the protection it affords, is therefore limited and once the patent lives of our +issued patents have expired, we may face competition, including from other competing technologies. The duration of foreign patents varies +in accordance with provisions of applicable local law, but typically is also 20 years from the earliest effective filing date. The +actual protection afforded by a patent may vary from country to country and can depend upon many factors, including the type of patent, +the scope of its coverage, the availability of patent term adjustments or extensions, the availability of legal remedies in a particular +country and the validity and enforceability of the patent. As a result, our owned patent portfolio may not provide us with sufficient +rights to exclude others from commercializing products similar or identical to ours. +Furthermore, we rely upon +trade secrets and know-how, confidential information, unpatented technologies, continuing technological innovation and other proprietary +information to develop, protect and maintain our competitive position and aspects of our business that are not amenable to, or that we +do not presently consider appropriate for, patent protection and prevent competitors from reverse engineering or copying our technologies. +However, the foregoing rights, technologies and information are difficult to protect. We seek to protect them by, in part, using confidentiality +agreements with our personnel and consultants and any potential commercial partners and collaborators and invention assignment agreements +with our personnel We also have implemented or intend to implement confidentiality agreements or invention assignment agreements with +our selected consultants and any potential commercial partners. These agreements are designed to protect our proprietary information +and, in the case of the invention assignment agreements, to grant us ownership of technologies that are developed through a relationship +with a third party. These agreements may be breached, and we may not have adequate remedies for any breach. There can be no assurance +that these agreements will be self-executing or otherwise provide meaningful protection for our trade secrets or other intellectual +property or proprietary information. In addition, our trade secrets may otherwise become known or be independently discovered by competitors. +To the extent that our commercial partners, collaborators, personnel and consultants use intellectual property owned by others in their +work for us, disputes may arise as to the rights in related or resulting know-how and inventions. +8 +Our commercial success will +also depend in part on not infringing, misappropriating or otherwise violating the intellectual or proprietary rights of third parties. +The issuance of third-party patents could require us to alter our development or commercial strategies, change our products or processes, +obtain licenses to additional third-party patents or other intellectual property or cease certain activities. Our breach of any +license agreements or failure to obtain a license to proprietary rights that we may require to develop or commercialize our future products +or technologies may have an adverse impact on us. Given that patent applications in the United States and certain other jurisdictions +are maintained in secrecy for 18 months or potentially longer, and since publication of discoveries in the scientific or patent +literature often lags behind actual discoveries, we cannot be certain of the patent protection being sought by third parties and/or the +priority of inventions covered by such patent applications. Moreover, we may have to participate in interference, revocation, derivation, +re-examination, post-grant review, inter partes review or opposition proceedings brought by third parties or declared by the U.S. Patent +and Trademark Office or an equivalent foreign body. See “ Risk Factors ” for additional information regarding these +and other risks related to our intellectual property portfolio and their potential effect on us. +Patents Pertaining to the Battery Pack/BMS +The U.S. patent applications +of the Company’s affiliate in connection with the Battery Pack/BMS innovations include: +● +Auto-detection and Self-exclusion of +Malfunctioned Battery Modules in an Electric Vehicle Battery Pack. This technology is designed to allow the user to continue +driving the EV, albeit with fewer batteries and lower voltage, to reach a service center or a safer location. This, in turn, is expected +to reduce the frequency of need for roadside assistance and associated maintenance costs. +● +The Communication +Structure of Battery Pack. The technology collects modular data from the Battery Pack and then calculates and interprets +the data, sending the results to the vehicle control unit (“VCU”). A key benefit of its innovation is the overall reduction +in Control Area Network (“CAN”) data volumes and lack of interference with other subsystems, ensuring greater communication +stability . +● +The Wireless Data +Transmission of the EV Battery Pack in Electric Vehicles. The technology utilizes wireless technology to communicate between +the Battery Pack and the VCU, charger, and maintenance center. The innovative design effectively reduces the amount of electrical +wiring required and could also be beneficial to swappable battery solutions (by avoiding connector corrosion). +● +Intelligent Charge +Balancing System. Typically, EVs run multiple battery cells. However, when one of the cells malfunctions, there is the potential +for the entire battery pack to malfunction or underperform. Thunder Power’s innovation, through the application of independent +switching circuits, detects modular imbalances and eliminates them — thereby maintaining consistent performance levels. +A key benefit is that it slows Battery Pack aging and battery capacity degradation. +● +Thermal Management +System (“TMS”). Thunder Power believes that its thermal management system (the “TMS”) controls the +vehicle temperature in a safe and efficient manner by taking an integrated approach to create a vehicle heating, drivetrain, and +temperature control unit. The key benefit of Thunder Power’s design is the reduction in vehicle weight and energy requirements +that contribute to its extended driving range. +9 +Unlike an internal combustion +engine (“ICE”), an EV uses electricity from batteries as a power source. As a result, additional heaters and chillers are +required to better control the vehicle temperature in operation and provide cabin comfort. The downside of heating and cooling devices +within conventional EVs is their power consumption. TMS to heat or cool, can use up to 50% of all stored battery energy. As a result, +an EV’s TMS is critical to both driving range and energy efficiency. The Company intends to use a proprietary integrated thermal +management system that is responsible for controlling heating, ventilation, and air conditioning, as well as drivetrain temperature and +battery temperature. +By regulating the operating +temperature of the vehicle, this technology increases the lifespan of sub-systems, including the Battery Pack. Moreover, through what +the Company believes to be an efficient heating circuit design, dissipated heat from the electric power train, battery system, or other +electrical device can be recaptured and used for cabin heating. The system is also intended to include environmental temperature monitoring, +which can determine the need to switch to different circulation loops to ensure optimal performance or activate pre-heating functionality +when operating in cold climates (crucial to Battery Pack functionality). +Patents Pertaining to the Thermal Management System (“TMS”) +Thunder Power’s affiliate +has filed U.S. patent applications for several innovations in connection with the TMS which seek to reduce energy consumption and +allow for an extended range to the EVs. Patents include: +● +Series and Parallel Structure of Thermal Management +System for Cabin Heater +● +Parallel Structure of Thermal Management System +for Cabin Heater +● +Radiator and AC heat Exchanger Airflow System +● +Double-way Coolant Pipe for Battery Cooling +Loop. +10 +Battery Pack/BMS and TMS Patent list +The following is a list of material patents currently expected +to be used by Thunder Power: +PATENT NO. +TITLE +COUNTRY +FUNCTION +TYPE +EXPIRATION +10,703,211 +BATTERY PACK, BATTERY CHARGING STATION, +AND CHARGING METHOD +US +Battery Pack/BMS +Utility +3/2/2036 +9,499,067 +POWER MANAGEMENT IN ELECTRIC VEHICLES +US +Battery Pack/BMS +Utility +6/23/2035 +9,716,392 +BATTERY PACK AND CONNECTING CIRCUITS OF BATTERY MODULES +US +Battery Pack/BMS +Utility +10/14/2035 +9,783,020 +BATTERY PACK, BATTERY CHARGING STATION, AND CHARGING +METHOD +US +Battery Pack/BMS +Utility +6/23/2035 +10,312,558 +BATTERY PACKAGING AND INSERT MOLDING FOR ELECTRIC VEHICLES +US +Battery Pack/BMS +Utility +12/20/2036 +9,865,905 +BATTERY COOLANT LOOP PAD FOR ELECTRIC VEHICLES +US +Battery Pack/BMS +Utility +7/13/2036 +10,144,304 +POWER MANAGEMENT IN ELECTRIC VEHICLES +US +Battery Pack/BMS +Utility +6/23/2035 +10,700,335 +BATTERY SYSTEM HOUSING WITH INTERNAL BUSBAR +US +Battery Pack/BMS +Utility +4/28/2037 +10,164,225 +BATTERY SYSTEM HOUSING WITH BUSBAR GRID FIXATION +US +Battery Pack/BMS +Utility +3/24/2037 +10,396,410 +BATTERY SYSTEM HOUSING WITH INTERNAL BUSBAR +US +Battery Pack/BMS +Utility +7/3/2037 +10,103,414 +BATTERY SYSTEM ASSEMBLY PROCESS AND BATTERY SYSTEM +ASSEMBLY +US +Battery Pack/BMS +Utility +3/24/2037 +10,347,888 +BATTERY SYSTEM HOUSING WITH UNDERSIDE ARMOR +US +Battery Pack/BMS +Utility +3/24/2037 +10,403,943 +BATTERY SYSTEM +US +Battery Pack/BMS +Utility +8/11/2037 +10,027,001 +BATTERY SYSTEM +US +Battery Pack/BMS +Utility +8/11/2037 +10,723,230 +INTELLIGENT VEHICLE CHARGING +US +Battery Pack/BMS +Utility +8/11/2037 +10,298,061 +WIRELESS VEHICLE RECHARGING SYSTEM +US +Battery Pack/BMS +Utility +8/11/2037 +10,118,504 +BATTERY SYSTEM HOUSING WITH FASTENER +US +Battery Pack/BMS +Utility +3/24/2037 +9,755,202 +BATTERY PACK OF ELECTRIC VEHICLE, ELECTRIC VEHICLE +CHASSIS AND METHOD FOR REPLACING BATTERY MODULES +US +Battery Pack/BMS +Utility +1/26/2036 +10,227,010 +POWER MANAGEMENT IN ELECTRIC VEHICLES +US +Battery Pack/BMS +Utility +6/23/2035 +10,044,012 +BATTERY PACK OF ELECTRIC VEHICLE, ELECTRIC VEHICLE +CHASSIS AND METHOD FOR REPLACING BATTERY MODULES +US +Battery Pack/BMS +Utility +1/26/2036 +9,991,484 +BATTERY PACK OF ELECTRIC VEHICLE, ELECTRIC VEHICLE +CHASSIS AND METHOD FOR REPLACING BATTERY MODULES +US +Battery Pack/BMS +Utility +1/26/2036 +10,084,175 +BATTERY SYSTEM ASSEMBLY PRESS AND PROCESS OF MANUFACTURING +A BATTERY SYSTEM ASSEMBLY +US +Battery Pack/BMS +Utility +3/24/2037 +10,744,845 +BATTERY PACK, BATTERY CHARGING STATION, AND CHARGING +METHOD +US +Battery Pack/BMS +Utility +6/28/2036 +10,665,914 +BATTERY SYSTEM HOUSING WITH INTEGRATED COOLING PIPE +US +Battery Pack/BMS +Utility +3/24/2037 +10,312,559 +BATTERY SYSTEM +US +Battery Pack/BMS +Utility +8/11/2037 +10,625,615 +BATTERY MANAGEMENT SYSTEM +US +Battery Pack/BMS +Utility +2/3/2037 +11 +10,784,487 +INTEGRATED BUSBAR AND BATTERY CONNECTION +FOR ELECTRIC VEHICLE BATTERY PACKS +US +Battery Pack/BMS +Utility +1/20/2037 +9,533,551 +ELECTRIC VEHICLE THERMAL MANAGEMENT SYSTEM WITH SERIES +AND PARALLEL STRUCTURE +US +TMS +Utility +8/3/2035 +9,991,484 +BATTERY PACK OF ELECTRIC VEHICLE, ELECTRIC VEHICLE +CHASSIS AND METHOD FOR REPLACING BATTERY MODULES +US +Battery Pack/BMS +Utility +1/26/2036 +10,084,175 +BATTERY SYSTEM ASSEMBLY PRESS AND PROCESS OF MANUFACTURING +A BATTERY SYSTEM ASSEMBLY +US +Battery Pack/BMS +Utility +3/24/2037 +10,744,845 +BATTERY PACK, BATTERY CHARGING STATION, AND CHARGING +METHOD +US +Battery Pack/BMS +Utility +6/28/2036 +10,665,914 +BATTERY SYSTEM HOUSING WITH INTEGRATED COOLING PIPE +US +Battery Pack/BMS +Utility +3/24/2037 +10,312,559 +BATTERY SYSTEM +US +Battery Pack/BMS +Utility +8/11/2037 +10,625,615 +BATTERY MANAGEMENT SYSTEM +US +Battery Pack/BMS +Utility +2/3/2037 +10,784,487 +INTEGRATED BUSBAR AND BATTERY CONNECTION FOR ELECTRIC +VEHICLE BATTERY PACKS +US +Battery Pack/BMS +Utility +1/20/2037 +9,533,551 +ELECTRIC VEHICLE THERMAL MANAGEMENT SYSTEM WITH SERIES +AND PARALLEL STRUCTURE +US +TMS +Utility +8/3/2035 +10,035,401 +BATTERY SYSTEM WITH HEAT EXCHANGE DEVICE +US +TMS +Utility +8/10/2035 +10,347,955 +BATTERY SYSTEM WITH HEAT EXCHANGE DEVICE +US +TMS +Utility +3/28/2036 +9,707,822 +ELECTRIC VEHICLE THERMAL MANAGEMENT SYSTEM +US +TMS +Utility +8/3/2035 +9,809,082 +ELECTRIC VEHICLE THERMAL MANAGEMENT SYSTEM WITH SERIES +AND PARALLEL STRUCTURE +US +TMS +Utility +8/3/2035 +9,802,460 +ELECTRIC VEHICLE THERMAL MANAGEMENT SYSTEM WITH SERIES +AND PARALLEL STRUCTURE +US +TMS +Utility +8/3/2035 +10,516,191 +METHODS AND SYSTEMS FOR BUSBAR COOLING +US +TMS +Utility +8/11/2037 +9,882,253 +COOLED BUSBARS AND PLATE +US +TMS +Utility +8/11/2037 +10,035,402 +THERMAL DISSIPATION SYSTEM OF AN ELECTRIC VEHICLE +US +TMS +Utility +9/1/2035 +9,895,954 +THERMAL DISSIPATION SYSTEM OF AN ELECTRIC VEHICLE +US +TMS +Utility +9/1/2035 +10,272,736 +ELECTRIC VEHICLE THERMAL MANAGEMENT SYSTEM +US +TMS +Utility +8/3/2035 +10,173,496 +VEHICLE RADIATOR V TYPE LAYOUT +US +TMS +Utility +12/21/2035 +10,343,484 +ELECTRIC VEHICLE THERMAL MANAGEMENT SYSTEM WITH SERIES +AND PARALLEL STRUCTURE +US +TMS +Utility +8/3/2035 +10,525,787 +ELECTRIC VEHICLE THERMAL MANAGEMENT SYSTEM WITH SERIES +AND PARALLEL STRUCTURE +US +TMS +Utility +1/13/2036 +10,734,692 +BATTERY COOLANT LOOP PAD FOR ELECTRIC VEHICLES +US +TMS +Utility +9/1/2036 +10,566,666 +COOLED BUSBARS AND PLATE +US +TMS +Utility +8/11/2037 +10,173,518 +THERMAL DISSIPATION SYSTEM OF AN ELECTRIC VEHICLE +US +TMS +Utility +9/1/2035 +10,406,888 +ELECTRIC VEHICLE THERMAL MANAGEMENT SYSTEM +US +TMS +Utility +8/3/2035 +12 +Micro Lens Array Lighting +The Company intends to leverage +Intelligent Micro Lens Array headlights created and engineered by its affiliate, which are expected to provide a homogeneous and luminant +light source. +Showroom rendering (source from Thunder Power): +13 +Facilities and Production +In alignment with the our +focus on efficiency and scalability, we expect to conduct all short- and medium-term vehicle production through outsourcing partnerships +with established manufacturing facilities. This approach enables the Company to leverage the expertise, resources, and infrastructure +of its production partners, ensuring high-quality manufacturing standards while maintaining flexibility to scale operations in response +to market demand. +For the longer term, Thunder +Power retains the option to transition to insourced production. This potential shift will be carefully evaluated based on market conditions, +production volumes, and cost efficiencies, with the goal of enhancing operational control and capturing additional value across the manufacturing +process. This dual approach ensures that the Company remains agile and competitive while maintaining the ability to adapt its production +strategy to evolving business needs and industry dynamics.. +Funding and Revenue +Thunder Power is a pre-revenue +company and has not generated any revenue from the sales of its vehicles. We expect to generate revenue from the sale of our EV Models, +the sale and/or licensing of our technologies, and from any future research and development services that we may provide. +Go-To-Market Strategy +Thunder Power plans to establish +a comprehensive and well-structured network of dealer partners, designed to provide both sales and after-sales service, ensuring a seamless +and reliable customer experience. These dealer partners will serve as key touchpoints for customers, offering personalized support, product +education, and maintenance solutions to uphold the brand’s commitment to quality and customer satisfaction. This traditional dealership +model will be complemented by centrally coordinated marketing initiatives, aimed at driving brand visibility and delivering consistent +messaging across all markets. Furthermore, to cater to evolving consumer preferences and the growing demand for convenience, Thunder +Power will also provide customers with the option to order vehicles directly through its online platform. This dual-channel approach +allows the Company to reach a broader audience, offering the flexibility to engage with the brand in a manner that best suits individual +preferences, whether through in-person interactions at dealerships or the convenience of digital commerce. +Competition +Thunder Power anticipates +that it will face competition from both traditional automotive original equipment manufacturer (“OEMs”) and an increasing +number of newer companies focused on electric and other alternative fuel vehicles. Thunder Power expects this competition to increase, +particularly as the transportation sector continues to shift towards low-emission, zero-emission or carbon neutral solutions. +Any of the Company’s +future vehicles are expected to compete with both traditional luxury internal combustion vehicles from established automotive OEMs and +electric and other alternative fuel vehicles from both new manufacturers and established automotive OEMs, many of which have entered +or have announced plans to enter the alternative fuel and EV market. Many major automobile manufacturers, including luxury automobile +manufacturers, have EVs available today, and other current and prospective automobile manufacturers are also developing EVs. In addition, +numerous manufacturers offer hybrid vehicles, including plug-in versions, with which Thunder Power’s vehicles will also compete. +Thunder Power believes the +primary competitive factors on which it will compete include, but are not limited to: +● product +quality, reliability and safety; +● range, +efficiency and charging speeds; +● product +performance; +● technological +innovation, including with respect to AD/ADAS features; +● access +to charging options; +14 +● design, +styling and luxury; +● service +options and customer experience; +● management +team experience at bringing electric vehicles and other disruptive technologies to market; +● manufacturing +efficiency; +● +brand recognition and prestige; and +● product +price. +Thunder Power believes that +it is favorably positioned to compete on the basis of these factors. However, many of Thunder Power’s current and potential competitors +have substantially greater financial, technical, manufacturing, marketing and other resources than Thunder Power. Thunder Power’s +competitors may be able to deploy greater resources to the design, development, manufacturing, distribution, promotion, sales, marketing +and support of their products. Additionally, many of Thunder Power’s competitors also have greater name recognition, longer operating +histories, larger sales forces, broader customer and industry relationships and other tangible and intangible resources that exceed Thunder +Power’s. Furthermore, many of Thunder Power’s competitors operate with a traditional sales and dealer distribution model +for vehicles that may be viewed more favorably by potential customers. These competitors also compete with Thunder Power in recruiting +and retaining qualified research and development, sales, marketing and management personnel, as well as in acquiring technologies complementary +to, or necessary for, Thunder Power’s products. Additional mergers and acquisitions in the EV and luxury automotive markets may +result in even more resources being concentrated in Thunder Power’s competitors. +Government Regulations and Credits +Environmental Regulations +(i) +At the U.S. Federal level: +In 2012 the Environmental +Protection Agency (“EPA”) adopted greenhouse gas emissions (GHG) standards for light duty vehicles produced in model years +2017 – 2025 (Control of Air Pollution from Motor Vehicles: Tier 3 Motor Vehicle Emission and Fuel Standards, 79 FR 23414 +(Apr. 28, 2014)). In 2020 (The Safer Affordable Fuel-Efficient (SAFE) Vehicles Rule for Model Years 2021-2026 Passenger +Cars and Light Vehicles, 85 FR 24174 (Apr. 30, 2020)) and 2021 (Revised 2023 and Later Model Year Light-Duty Vehicle Greenhouse +Gas Emissions Standards, 86 FR 74434 (Dec. 30, 2021), the EPA revised and made more stringent its GHG standards and proposed and +finalized a rulemaking (the “2021 rulemaking”), respectively, for model years 2023 – 2026 light-duty passenger +cars. Thunder Power’s production schedule starting in 2025 and covering 2026 will subjected to these more stringent GHG standards. +On April 22, 2021, +the Biden-Harris Administration announced a 50 to 52 percent target reduction from 2005 levels in GHGs by 2030, representing the +U.S. Nationally Determined Contribution (NDC) under the Paris Agreement. This announcement was followed by Executive Order 14037 +on August 5, 2021 (“Strengthening American Leadership in Clean Cars and Trucks”) reinforcing the goal of at least a +50 percent GHG reductions from new zero-emission vehicles sales by 2030. In addition, in 2021 and 2022, respectively, Congress passed +the Infrastructure Investment and Jobs Act (Pub. Law 117-58, Bipartisan Infrastructure Law) and the Inflation Reduction Act (Pub. Law +117-169) providing significant government-wide funding and support for GHG reductions, including funding for component technology +and infrastructure for the manufacture, sales and use of electric vehicles. +15 +In 2023, the EPA under its +Clean Air Act (CAA) authority proposed new rules for light-duty vehicles with model years 2027 – 2032, specifically +“off-cycle and air conditioning credits, treatment of upstream emissions associated with zero-emission vehicles and plug-in hybrid +electric vehicles in compliance calculations, medium-duty vehicle incentive multipliers, vehicle certification and compliance, new +standards to control refueling emissions from incomplete medium-duty vehicles, battery durability and warranty requirements for +light-duty and medium-duty plug-in vehicles and minor amendments to requirements for aftermarket fuel conversions, importing +vehicles and engines, evaporative emission test procedures, and test fuel specifications for measuring fuel economy.” (Multi-Pollutant Emissions +Standards for Model Years 2027 and Later Light-Duty and Medium-Duty Vehicles, 88 Fed. Reg. 29184, Proposed Rule (May 5, +2023)) Any EVs Thunder Power, as a light-duty vehicle manufacturer (manufacturing vehicles between 8,501 and 14,000 pounds gross +vehicle weight rating (GVWR)), produces in 2027 to 2032 would be subjected to any final rules. +In addition, during production +periods from 2025 to 2032, Thunder Power would have to comply with two separate EPA rules on GHG reduction standards. +(ii) +At the U.S. state level: +California: The +2022 Advanced Clean Cars II rule requires all new light-duty vehicles sold in the state of California to be zero-emission vehicles +by 2035. ( Id . at 29188, note 14, citing to the California Air Resources Board “California moves to accelerate to 100% +new zero-emission vehicle sales by 2035.” Also, Id . note 15, citing the State of California Office of the +Governor, “Governor Newsom Announces California Will Phase Out Gasoline-Powered Cars & Drastically Reduce Demand for Fossil +Fuel in California’s Fight Against Climate Change”). +New York: In +2021, in advance of Climate Week 2021, New York Governor Hochul signed Legislation (A.4302/A.2758) requiring all new light-duty vehicles +sold in the state of New York to be zero-emission vehicles by 2035. ( Id . note 17, citing Governor of New York Press +Office, “In Advance of Climate Week 2021, Governor Hochul Announces New Actions to Make New York’s Transportation Sector +Greener, Reduce Climate-Altering Emissions”). +Massachusetts: Though +not finalized, in 2022 the state of Massachusetts announced that it may ban sale of all new gas-powered vehicles by 2035. ( Id . +note 18, citing Boston.com, “Following California’s lead, state will likely ban all sales of new gas-powered cars +by 2035.”). +Washington: Also +in 2022, the Department of Ecology in the State of Washington issued a press release regarding its plan to require 100% of new passenger +cars and trucks to run on zero-emission technology by 2035. ( Id . note 20, citing Washington Department of Ecology “Washington +sets path to phase out gas vehicles by 2035.”). +Other States: In +2022, the Associated Press (“AP”) reported that 17 states may follow California’s rule to require all new cars, pickups +and SUVs to be electric or hydrogen powered by 2035. According to the AP article “under the EPA’s Clean Air Act, states must +abide by the federal governments standard vehicle emissions standards unless they at least partially opt to follow California’s +stricter requirements.” ( Id . note 21, citing Associated Press, “17 states weigh adopting California’s electric +car mandate”). States such as Virginia, Minnesota, Colorado and Pennsylvania are unsure to follow California’s new laws citing +climate differences and wanting to give consumers options. +(iii) +Globally: +International Zero-Emission Vehicle +Alliance: In November 2021, ZEV announced that by 2035 its members will move to all ZEV sales. ( Id .) ZEV members +are Baden-Württemberg, British Columbia, California, Canada, Chile, Connecticut, Costa Rica, Germany, Maryland, Massachusetts, Netherlands, +New Jersey, New York, Norway, Oregon, Québec, Rhode Island, United Kingdom, Vermont, and Washington. +According to the EPA, “at +least 20 countries, as well as numerous local jurisdictions, have announced targets for shifting all new passenger car sales to zero-emission vehicles +in the coming years, including Norway (2025); Austria, the Netherlands, Denmark, Iceland, India, Ireland, Israel, Scotland, Singapore, +Sweden, and Slovenia (2030); Canada, Chile, Germany, Thailand, and the United Kingdom (2035); and France, Spain, and Sri Lanka (2040).” +( Id . note 23, citing Environmental and Climate Change Canada, “Achieving a Zero-Emission Future for Light-Duty Vehicles: +Stakeholder Engagement Discussion Document December 17”). +16 +Emissions Credits +In January 2023, Tesla +reported sales of carbon offset credits or carbon allowances to other manufacturers who failed to meet the emissions standards set by +the California Air Resources board (CARB) of USD 1.78 billion. (Carbon Credits, Jennifer L., Tesla Carbon Credit Sales +Reach Record $1.78 Billion in 2022 , Jan. 27, 2023, available at https://carboncredits.com/tesla-carbon-credit-sales-reach-record-1-78-billion-in-2022 ). +Thunder Power expects to +earn carbon offset credits and other regulatory credits that it will sell to other manufacturers from its manufacture, sale, and/or registration +of Zero Emission Vehicles (“ZEVs”). In addition, Thunder Power anticipated that it will be able to sell ZEV credits in up +to 12 Section 177 States such as California, Connecticut, Delaware, Maine, Maryland, Massachusetts, New Jersey, New York, Oregon, +Pennsylvania, Rhode Island, Vermont, and Washington. Thunder Power may also expect to earn and sell U.S. Department of Transportation’s +Corporate Average Fuel Economy (“CAFÉ”) credits, EPA’s greenhouse gas credits and credits earned or saleable +in other North American regions, UK, Europe, and Asia. +EPA Emissions and Certificate of Conformity +The U.S. Clean Air +Act requires that Thunder Power obtain a Certificate of Conformity issued by the EPA and a California Executive Order issued by the California +Air Resources Board (“ CARB ”) certifying that its vehicles comply with applicable emissions requirements. A Certificate +of Conformity is required for vehicles sold in the United States, and an Executive Order from the CARB is required for vehicles +sold in states that have adopted California standards. CARB sets the California standards for emissions control for certain regulated +pollutants for new vehicles and engines sold in California. States that have adopted the California standards as approved by EPA also +recognize the CARB Executive Order for sales of vehicles. In addition to California, there are 13 other states that have either adopted +or are in the process of adopting the stricter California standards, including New York, Massachusetts, Vermont, Maine, Pennsylvania, +Connecticut, Rhode Island, Washington, Oregon, New Jersey, Maryland, Delaware and Colorado. +Although the Thunder Power +vehicles will have zero emissions, Thunder Power is required to seek an EPA Certificate of Conformity and, for vehicles sold in California +or any of the other 13 states that have adopted the stricter California standards, a CARB Executive Order. +Vehicle Safety and Testing +Thunder Power’s vehicles +will be subject to, and will be required to comply with, numerous regulatory requirements established by the National Highway Traffic +Safety Administration (“ NHTSA ”), including applicable U.S. Federal Motor Vehicle Safety Standards (“ FMVSS ”). +Thunder Power intends that its family of EVs will fully comply with all applicable FMVSSs without the need for any exemptions, and we +expect future Thunder Power’s EVs to either fully comply or comply with limited exemptions related to new technologies. Additionally, +there are regulatory changes being considered for several FMVSSs, and while Thunder Power anticipates compliance, there is no assurance +that Thunder Power will comply with such changes under the final versions as enacted. +As a U.S.-based manufacturer, +Thunder Power must self-certify that its EVs meet all applicable FMVSS, as well as the NHTSA bumper standard, or otherwise are exempt, +before its EVs can be sold in the United States. Numerous FMVSS will apply to Thunder Power’s EVs, such as crash-worthiness +requirements, crash avoidance requirements and EV-specific requirements. Thunder Power will also be required to comply with other +federal laws and regulations administered by NHTSA, including, among other things, ensuring its EVs do not contain defects related to +motor vehicle safety, recall requirements, the Corporate Average Fuel (CAFE) standards, Theft Prevention Act requirements, consumer information +labeling requirements, reporting required notices, bulletins and other communications, Early Warning Information reporting, foreign recall +reporting and owner’s manual requirements. +The Automobile Information +and Disclosure Act requires manufacturers of motor vehicles to disclose certain information regarding the manufacturer’s suggested +retail price, optional equipment and pricing. In addition, this law allows inclusion of city and highway fuel economy ratings, as determined +by the U.S. Environmental Protection Agency (EPA), as well as crash test ratings as determined by NHTSA if such tests are conducted. +17 +Thunder Power intends to +bring production in Europe and then expand its offerings within the U.S. and outside of the U.S., and in connection with such expansion +its EVs will be subject to foreign safety, environmental and other regulations. Many of those regulations are different from those applicable +in the U.S. and may require redesign and/or retesting. For example, the European Union (“ E.U. ”) has established +new approval and oversight rules requiring that a national authority certify compliance with heightened safety rules, emissions limits +and production requirements before vehicles can be sold in each E.U. member state, the initial of which rules were rolled out on September 1, +2020. There is also regulatory uncertainty regarding how these rules will impact sales in the United Kingdom given its withdrawal from +the E.U. These changes could impact the rollout of new vehicle features in Europe. +In addition to the various +territorial legal requirements Thunder Power is obligated to meet, Thunder Power’s family of EVs is engineered with the expectation +that it will deliver overall five-star performance in the two main voluntary vehicle safety performance assessment programs, the +U.S. New Car Assessment Program (“ NCAP ”) and the European New Car Assessment Programme (“ Euro NCAP ”). +Five-star is the maximum attainable score. These independent organizations have introduced a number of additional safety related +tests aimed at improving the safety of passenger vehicles, both for occupants and pedestrians involved in collisions with vehicles. Some +of these tests are derived from legal requirements, such as side impact, but have higher performance requirements. Others are unique +to the programs. Areas covered by these tests in 2020 included: +● Mobile +Progressive Deformable Barrier; +● +Full Width Rigid Barrier;. +● +Mobile Side Impact Barrier; +● +Side Pole; +● +Far Side Impact; +● +Whiplash; +● +Vulnerable Road Users (Pedestrians +and Cyclists); +● +Safety Assist; and +● +Rescue and Extrication +Automobile Manufacturer and Dealer Regulation +In the United States, +state laws regulate the manufacture, distribution, sale and service of automobiles, and generally require motor vehicle manufacturers +and dealers to be licensed in order to sell vehicles directly to residents. Certain states do not permit automobile manufacturers to +be licensed as dealers or to act in the capacity of a dealer, or otherwise restrict a manufacturer’s ability to deliver or service +vehicles. To sell vehicles to residents of states where Thunder Power is not licensed as a dealer, Thunder Power expects to conduct the +transfer of title out of the state. In certain such states, Thunder Power expects to open studios that serve an educational purpose and +where the title transfer may not occur. +Some automobile dealer trade +associations may challenge the legality of Thunder Power’s operations and direct selling operations by OEMs in court and may use +administrative and legislative processes to attempt to prohibit or limit such OEMs’ ability to operate existing stores or expand +to new locations. Certain dealer associations may also actively lobbied state licensing agencies and legislators to interpret existing +laws or enact new laws in ways not favorable to Thunder Power’s planned direct sales and service model. Thunder Power expects dealer +trade associations to continue to lobby state licensing agencies and legislators to interpret existing laws or enact new laws in ways +not favorable to its business model; however, Thunder Power intends to oppose such efforts to limit its ability to operate and intends +to proactively support legislation that enables its business model. +18 +Should Thunder Power not +be allowed to develop relationships with the largest multi-brand and high-end brand dealers in the U.S. it would be difficult +for it as a newcomer to the U.S. EV market to gain a foothold in the U.S. Thunder Power recognizes that its best strategy for +market penetration is to align itself with a U.S. dealership network, especially for sale of the Coupe, and the eventual servicing +of its family of EVs. +Battery Safety and Testing Regulation +Thunder Power’s battery +packs are designed to conform to mandatory regulations that govern transport of “dangerous goods,” defined to include lithium-ion batteries, +which may present a risk in transportation. The governing regulations, which are issued by the Pipeline and Hazardous Materials Safety +Administration, are based on the United Nation (“ U.N. ”) Recommendations on the Safe Transport of Dangerous Goods Model +Regulations and related U.N. Manual Tests and Criteria. The regulations vary by mode of shipping transportation, such as by ocean +vessel, rail, truck or air. Prior to launch, Thunder Power plans to complete all applicable transportation tests for its battery packs, +demonstrating its compliance with applicable regulations. Thunder Power intends to use lithium-ion cells in the high voltage battery +packs in its EVs. The use, storage and disposal of battery packs is regulated under federal law. Thunder Power’s battery packs +are intended to meet the applicable compliance requirements of the UN Manual of Tests and Criteria demonstrating its ability to ship +battery packs by any method. These tests include: +● +Altitude simulation — simulating air transport; +● +Thermal cycling — assessing cell and battery +seal integrity; +● +Vibration — simulating vibration during transport; +● +Shock — simulating possible impacts during transport; +● +External short circuit — simulating an external +short circuit; and +● +Overcharge — evaluating the ability of a rechargeable +battery to withstand overcharging. +Data Privacy and Security Laws +Numerous state, federal +and foreign laws, regulations and standards govern the collection, use, access to, confidentiality and security of health-related and +other personal information, and could apply now or in the future to our operations or the operations of our partners. In the United States, +numerous federal and state laws and regulations, including data breach notification laws, health information privacy and security laws +and consumer protection laws and regulations govern the collection, use, disclosure, and protection of health-related and other personal +information. In addition, certain foreign laws govern the privacy and security of personal data, including health-related data. Privacy +and security laws, regulations, and other obligations are constantly evolving, may conflict with each other to complicate compliance +efforts, and can result in investigations, proceedings, or actions that lead to significant civil and/or criminal penalties and restrictions +on data processing. +Employees and Human Capital Resources +As of December 31, 2024, +we had 2 full-time employees. None of our employees are represented by a labor union or party to a collective bargaining agreement. +Our human capital objectives +include retaining and incentivizing existing employees and recruiting and integrating new employees. The principal purposes of our compensation +program, including our equity incentive plans, are to attract, retain and appropriately motivate employees, consultants and directors +through the granting of stock-based compensation awards and cash-based bonus awards. +Corporate Information +Our corporate office +is located at 221 W 9th St #848, Wilmington, DE 19801 and its telephone number is (909) 214-2482. Our telephone number is (909) 214-2482. +Information contained on, or that can be accessed through, our website is not incorporated by reference into this Annual Report on Form +10-K, and you should not consider information on our website to be part of this Annual Report on Form 10-K. +19 \ No newline at end of file diff --git a/raw/filings/0001912582/2024/0001213900-25-026239/item13.txt b/raw/filings/0001912582/2024/0001213900-25-026239/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..1197039c2453dd7b4a61b9fb5156a490170d3270 --- /dev/null +++ b/raw/filings/0001912582/2024/0001213900-25-026239/item13.txt @@ -0,0 +1,4 @@ +Item 13. +Certain Relationships and +Related Transactions, and Director Independence +82 \ No newline at end of file diff --git a/raw/filings/0001912582/2025/0001213900-26-041108/filing.txt b/raw/filings/0001912582/2025/0001213900-26-041108/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..48c87093004e1a2427d20c4b9699fed81b683a1c --- /dev/null +++ b/raw/filings/0001912582/2025/0001213900-26-041108/filing.txt @@ -0,0 +1,6102 @@ +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +FORM 10-K +☒ ANNUAL REPORT PURSUANT TO SECTION +13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the fiscal year ended December 31 , +2025 +OR +☐ TRANSITION REPORT PURSUANT TO SECTION +13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the transition period from ______ to ______ +Commission file number: 001-39727 +Thunder Power Holdings, Inc. +(Exact name of registrant as specified in its +charter) +Delaware 87-4620515 +(State or other jurisdiction of +incorporation or organization) (I.R.S. Employer +Identification No.) +221 W 9th St #848 +Wilmington , Delaware 19801 +(Address of principal executive offices) +(909) 214-2482 +(Registrant’s telephone number, including +area code) +Securities registered pursuant to Section 12(b) +of the Act: +Title of each class Trading Symbol(s) Name of each exchange on which registered +Shares of Common Stock, $0.0001 par value per share AIEV OTCQB Venture Market +Securities registered pursuant to section 12(g) +of the Act: None. +Indicate by check mark if the registrant is a +well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ +Indicate by check mark if the registrant is not +required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒ +Indicate by check mark whether the registrant: +(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months +(or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements +for the past 90 days. Yes ☒ No ☐ +Indicate by check mark whether the registrant +has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 +of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). +Yes ☒ No ☐ +Indicate by check mark whether the registrant +is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. +See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” +and “emerging growth company” in Rule 12b-2 of the Exchange Act. +Large accelerated filer ☐ Accelerated filer ☐ +Non-accelerated filer ☒ Smaller reporting company ☒ +Emerging growth company ☒ +If an emerging growth company, indicate by check +mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting +standards provided pursuant to Section 13(a) of the Exchange Act. ☐ +Indicate by check mark whether the registrant +has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial +reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or +issued its audit report. ☐ +If securities are registered pursuant to Section +12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction +of an error to previously issued financial statements. ☐ +Indicate by check mark whether any of those error +corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s +executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐ +Indicate by check mark whether the registrant +is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒ +The aggregate market value of the registrant’s +Common Stock held by non-affiliates of the registrant was $ 7,072,466 based on the closing sales price on the OTCQB Venture Market on June +30, 2025, the last business day of the registrants most recently completed second fiscal quarter. +As of March 24, 2026, there were 70,724,664 shares +of Common Stock, par value $0.0001 per share, issued (including 50,724,664 shares that are issued and outstanding and 20,000,000 earnout +shares that are issued but not outstanding, to vest upon the achievement of certain performance milestones). +DOCUMENTS INCORPORATED BY REFERENCE +None. +Table of Contents +Page +Cautionary Note Regarding Forward-Looking Statements +ii +PART I +Item 1. +Business +1 +Item 1A. +Risk Factors +13 +Item 1B. +Unresolved Staff Comments +44 +Item 1C. +Cybersecurity +44 +Item 2. +Properties +45 +Item 3. +Legal Proceedings +45 +Item 4. +Mine Safety Disclosures +47 +PART II +Item 5. +Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +48 +Item 6. +[Reserved] +49 +Item 7. +Management’s Discussion and Analysis of Financial Condition and Results of Operations +49 +Item 7A. +Quantitative and Qualitative Disclosures About Market Risk +58 +Item 8. +Financial Statements and Supplementary Data +58 +Item 9. +Changes in and Disagreements With Accountants on Accounting and Financial Disclosures +58 +Item 9A. +Controls and Procedures +58 +Item 9B. +Other Information +59 +Item 9C. +Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +59 +PART III +Item 10. +Directors, Executive Officers and Corporate Governance +60 +Item 11. +Executive Compensation +66 +Item 12. +Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +68 +Item 13. +Certain Relationships and Related Transactions, and Director Independence +70 +Item 14. +Principal Accounting Fees and Services +72 +PART IV +Item 15. +Exhibits, Financial Statement Schedules +73 +Item 16. +Form 10-K Summary +76 +SIGNATURES +77 +i +CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS +This Annual Report on Form +10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, (the “Securities +Act”) and Section 21E of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) that are based on our +management’s beliefs and assumptions and on information currently available to management, and which statements involve substantial +risk and uncertainties. All statements contained in this Annual Report on Form 10-K other than statements of historical fact are forward-looking +statements. +Forward-looking statements include information +regarding our future plans and goals, as well as our expectations with respect to: +● Our business strategy and future growth prospects; +● Our industry; +● Our future profitability, cash flows and liquidity; +● Our financial strategy, budget, projections and operating results; +● The amount, nature and timing of our capital expenditures and the impact +of such expenditures on our performance; +● The availability and terms of capital; +● Our research, development and production activities; +● The market for our future products and services; +● Competition within our industry; +● Government regulations; and +● General economic conditions. +These forward-looking statements +may be accompanied by words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” +“expect,” “intends,” “may,” “might,” “outlook,” “plan,” “possible,” +“become,” “potential,” “predict,” “project,” “should,” “would,” +“likely,” “future,” “budget,” “pursue,” “seek,” “target,”, “objective,” +“opportunity,” “mission,” “goal,” “positioned” and similar expressions that are predictions +of or indications of future events or trends that do not relate to historical matters, but the absence of these words does not mean that +a statement is not forward-looking. +Our actual results to differ +materially from those described in forward-looking statements due to factors beyond our control, which include, but not limited to, the +following: +● the ability of the Company to maintain the trading +of its Common Stock on the OTCQB Venture Market, and the potential liquidity and trading of such securities; +● the effect of existing and future laws and governmental +regulations (or interpretations thereof) on us, and on our current or future suppliers; +ii +● a +decline in demand for electronic vehicles; +● the price and availability of competitor’s +products and services, including those manufactured or provided by manufacturers of non-electric vehicles; +● the Company’s ability to acquire or license +rights to intellectual property and technologies that are at the core of the Company’s planned products, on acceptable terms and +in a timely manner; +● the Company’s ability to obtain, maintain, +protect and enforce intellectual property rights, including those obtained through any future intellectual property licensing agreements; +● make milestone, royalty or other payments due +under any license or collaboration agreements; +● uncertainty related to the timing, pace and extent +of the macro economy in the United States and elsewhere, which in turn will likely affect demand for our products and services; +● inflationary factors, such as increases in labor +costs, material costs and overhead costs; +● the financial and business performance of the +Company, including financial projections and business metrics and any underlying assumptions thereunder; +● the Company’s ability to successfully and +timely develop and market its technology and products, and otherwise implement its growth strategy; +● risks relating to the Company’s operations +and business, including information technology and cybersecurity risks, potential deterioration in relationships between the Company and +its employees; +● introduction of new technologies or services +by competitors in our industry, including using new technologies subject to patent or other intellection property protections; +● risks relating to potential disruption of current +plans, operations and infrastructure of the Company as a result of the consummation of the Business Combination; +● the impact of geopolitical, macroeconomic and +market conditions, including the ongoing war between Russia and Ukraine, the war between Iran, Israel and U.S., and the global response +to such hostilities which may negatively impact our operating results; +● acts of terrorism, war or political or civil +unrest in the United States or beyond; +● federal, state and local regulations impacting +any aspect of our research, production and development activities, including public pressure on governmental bodies and regulatory agencies +to regulate our industry; +● the effects of any future litigation; and +● other risks and uncertainties set forth in this +prospectus in the section entitled “ Risk Factors ”. +You should not rely upon +forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Annual Report +on Form 10-K primarily on our current expectations and projections about future events and trends that we believe may affect our business, +financial condition, results of operations, and prospects. The outcome of the events described in these forward-looking statements is +subject to risks, uncertainties, and other factors described in the section titled “Risk Factors” and elsewhere in this Annual +Report on Form 10-K. We undertake no obligation to update any forward-looking statements after the date of this Annual Report on Form +10-K or to conform such statements to actual results or revised expectations, except as required by law. +iii +MARKET DATA AND FORECASTS +We are responsible for the +disclosures contained in this Annual Report on Form 10-K. However, unless otherwise indicated, information in this Annual Report on Form +10-K concerning economic conditions, our industry, our markets and our competitive position is based on information obtained from a variety +of sources, including information from independent industry analysts and publications, as well as our own estimates and research. +Our estimates are derived +from publicly available information released by third parties, as well as data from our internal research, and are based on such data +and our knowledge of our industry, which we believe to be reasonable. None of the independent industry publications discussed in this +Annual Report on Form 10-K were prepared on our behalf. +In presenting this information, +we have made certain assumptions that we believe to be reasonable based on such data and other similar sources and on our knowledge of, +and our experience to date in, the markets in which we operate. Market and industry data, which is derived in part from management’s +estimates and beliefs, are subject to change and may be limited by the availability of raw data, the voluntary nature of the data gathering +process and other limitations inherent in any statistical survey of such data. In addition, projections, assumptions and estimates of +the future performance of the markets in which we operate, and our future performance are necessarily subject to uncertainty and risk +due to a variety of factors, including those described in the subsection entitled “Risk Factors” under Part I, Item 1A of +this Annual Report on Form 10-K. These and other factors could cause results to differ materially from those expressed in the estimates +made by third parties and by us. +iv +Summary Risk Factors +Investing in our Common Stock involves a high +degree of risk because our business is subject to numerous risks and uncertainties, as further described below. The occurrence of any +such risks could adversely affect our business, financial condition, results of operations and prospects. The principal factors and uncertainties +that make investing in our Common Stock speculative or risky include, among others: +● Our +limited operating history makes evaluating our business and future prospects difficult and may increase the risk of your investment; +● The success of our business may depend on attracting +prospective customers and retaining sufficient capital to commence mass production. If we are unable to do so, we may not be able to achieve +profitability; +● Our business model has yet to be tested and any +failure to commercialize our strategic plans would have an adverse effect on our operating results and business, harm our reputation and +could result in substantial liabilities that exceed our resources; +● Our business and prospects will depend significantly +on our brand; +● We are actively negotiating with our affiliates +to license the intellectual property and technology rights at the core of our business plan, and our inability to obtain and maintain +these licenses could materially affect our business, financial condition, and operating results. +● We are subject to substantial laws and regulations +that could impose substantial costs, legal prohibitions or unfavorable changes upon our operations or products, and any failure to comply +with these laws and regulations, including as they evolve, could substantially harm our business and results of operations; +● In the future, if we develop or acquire proprietary +intellectual property, protecting such intellectual property will be critical to our operations and we may suffer competitive harm from +infringement on such rights; +● We may become subject to product liability claims, +which could harm our financial condition and liquidity if we are not able to successfully defend or insure against such claims; +● We are subject to various environmental, health +and safety laws and regulations that could impose substantial costs on us and cause delays in building and subsequently expanding our +production facilities; +● We are subject to risks associated with autonomous +driving and advanced driver assistance system technology, and we cannot guarantee that our vehicles will achieve our targeted assisted +or autonomous driving functionality within our projected timeframe, if ever; +● We face risks associated with international operations, +including unfavorable regulatory, political, tax and labor conditions, which could harm our business. +● We have not yet commenced mass production, and +any significant delay in the design, manufacture, launch and financing could make it difficult for us to commence production and harm +our business and prospects; +● Our prospect for future growth depends upon our +ability to establish and maintain relationships with our potential suppliers and source suppliers for our critical components, and to +completely build out our supply chain, while effectively managing the risks due to such relationships; +● The automotive market is highly competitive, +and we may not be successful in competing in this industry; +● Developments in electric vehicle or alternative +fuel technology or improvements in the internal combustion engine may adversely affect the demand for our vehicles; +v +● We must develop complex software and technology +systems, including in coordination with vendors and suppliers, in order to produce our electric vehicles, and there can be no assurance +such systems will be successfully developed; +● We rely on complex machinery for our operations, +and production involves a significant degree of risk and uncertainty in terms of operational performance, safety, security and costs; +● If our vehicles fail to perform as expected, +our ability to develop, market and sell or lease our products could be harmed; +● Our vehicles will make use of lithium-ion battery +cells, which have been observed to catch fire or vent smoke and flame. +● Thunder Power’s management has limited +experience in operating a public company; +● Any unauthorized control, manipulation, interruption +or compromise of or access to our products or information technology systems could result in loss of confidence in us and our products, +harm our business and materially adversely affect our financial performance, results of operations or prospects; +● We are subject to evolving laws, regulations, +standards, policies, and contractual obligations related to data privacy and security, and any actual or perceived failure to comply with +such obligations could harm our reputation and brand, subject us to significant fines and liability, or otherwise adversely affect our +business. +● We are an “emerging growth company” +and the reduced disclosure requirements applicable to emerging growth companies may make our Common Stock less attractive to investors +and may make it more difficult to compare our financial performance with other public companies; +● Future sales and issuances of Common Stock or +rights to purchase Common Stock could result in additional dilution to our stockholders and could cause the price of our Common Stock +to decline; +● Anti-takeover provisions in our governing documents +and under Delaware law could make an acquisition of us more difficult, limit attempts by our stockholders to replace or remove our current +management and limit the market price of our Common Stock; +● We may need to raise additional funds and these +funds may not be available to us when needed. If we cannot raise additional funds when we need them, our business, prospects, financial +condition and operating results could be negatively affected; +● Our financial results may vary significantly +from quarter to quarter; +● Unanticipated changes in effective tax rates +or adverse outcomes resulting from examination of our income or other tax returns could adversely affect our financial condition and results +of operations. +● Our Common Stock has been delisted from The Nasdaq +Capital Market and is now traded on the OTCQB Venture Market, which could adversely affect its market price, liquidity, and our ability +to raise capital. +● Our operating results and growth strategies will +be closely tied to the success of our future franchise partners, and we have limited control with respect to their operations. Additionally, +our future franchise partners’ interests may conflict or diverge with our interests in the future, which could have a negative impact +on our business. +vi +PART I +Item 1. Business +Corporate History and Background +FLFV +Prior to June 21, 2024, we +were known as Feutune Light Acquisition Corporation, a Delaware corporation (“FLFV”), and Feutune Light Merger Sub, Inc., +a Delaware corporation and wholly owned subsidiary of FLFV (“Merger Sub”). On October 26, 2023, we entered into a business +combination agreement (as amended, the “Business Combination Agreement”) with Thunder Power Holdings Limited, a British Virgin +Islands company (“Thunder Power”), pursuant to which on June 21, 2024, Thunder Power merged with and into Merger Sub, with +Merger Sub surviving the merger as a wholly owned subsidiary of FLFV (the “Merger” and, together with the other transactions +contemplated by the Business Combination Agreement and any other agreement executed and delivered in connection therewith, the “Business +Combination”). At the closing of the Business Combination (the “Closing”), FLFV was renamed as “Thunder Power +Holdings, Inc.” Unless the context indicates otherwise, references in this prospectus to the “Company,” “Thunder +Power Holdings,” “we,” “us,” “our” and similar terms refer to Thunder Power Holdings, Inc. +References to “FLFV” refer to our predecessor company prior to the consummation of the Business Combination. +Thunder Power +On March 21, 2013, Thunder +Power Hong Kong Ltd. (“TP HK”) was established as a wholly owned subsidiary of Thunder Power with the intention to act as +a financial and operational hub of Thunder Power, to deal with various corporate actions such as fundraising, back-office operations and +bridge the operations between China and Europe. As from December 14, 2021, Thunder Power retains only one subsidiary, Thunder Power New +Energy Vehicle Development Company Limited (“TP NEV”) which was established in accordance with laws and regulations of British +Virgin Islands on October 19, 2016. +Our Company +Thunder Power is a technology +innovator and a prospective manufacturer of premium electric vehicles (“EVs”). The Company has developed several proprietary +technologies which are the building blocks of the Thunder Power family of EVs. Thunder Power’s wholly-owned subsidiary, Thunder +Power New Energy Vehicle Development Company Limited, a company established in accordance with the laws and regulations of the British +Virgin Islands on October 19, 2016 (“TP NEV”), has developed several proprietary technologies which are the building blocks +of the Thunder Power family of EVs. Thunder Power is a holding company with no operations that was incorporated under the laws and regulations +of the British Virgin Islands with limited liability on September 30, 2015. +You can find additional information +on our website at www.aiev.com. The information contained on, or that can be accessed through, our website is not part of, and is not +incorporated into, this Annual Report on Form 10-K. +Our Business Divisions +We envision to structure our +operations into three different divisions: vehicle development, strategic alliance and mergers and acquisitions, and trade and consulting, +each of which intends to address large and fragmented markets. +1 +Vehicle Development +Thunder Power is strategically +focused on the development and production of electric vehicles (EVs) that combine timeless Italian design with an emphasis on delivering +a joyful and engaging driving experience at an accessible price point. The Company’s vehicle development efforts are structured +around three core series: Core Products, Niche Offerings, and Collaborative Projects. +Core Product +At the heart of Thunder Power’s +product portfolio is the Compact City Car, which is scheduled for launch in 2028. This model integrates Thunder Power’s proprietary +innovations, developed prior to its public listing, with state-of-the-art technical solutions. The vehicle’s design is led by renown +European designer, ensuring a blend of functionality and aesthetic appeal. We expect to outsource the initial production to facilities +in Italy, with an option for insourced production beginning in 2030. +Key features of our Compact +City Car include: +● Italian Craftsmanship: An affordable, compact sports car that reflects Italian design, quality, and driving +spirit. +● Driver-Focused Experience: Engineered for superior ride and handling, prioritizing driver engagement with +a human-centric design and minimal reliance on screens. +● Integrated Smart AI: Advanced AI software offering personalized features such as maps, driving modes, +and individual settings to enhance the driving experience. +We intend to focus on achieving +symmetry of parts to simplify both manufacturing and assembly processes, adhering to niche manufacturing principles. We also aim to minimize +the number of unique components by promoting design repeatability. The Compact City Car is planned to integrate a combination of internal +and external “off the shelf” parts alongside new development components, enhancing efficiency and reducing complexity in production. +The City Car is designed +to cater to a younger, urban demographic of first-time car buyers who value sustainability and view their car as an extension of their +identity and lifestyle. The initial launch will target Taiwan as a pilot market, with subsequent expansion planned in Asia +and Europe . +2 +Niche Offerings +Thunder Power’s niche +vehicle development focuses on creating high-impact, emotionally compelling products that prioritize personalization and unique design. +These offerings are positioned as complementary vehicles for households, rather than primary functional cars. +Leveraging its existing chassis +and technologies, we are well-position to develop and launch the Sports Coupe, a high-performance luxury vehicle that combines European +styling with superior craftsmanship and driving dynamics. Drawing inspiration from other successful benchmarks, this model is designed +to deliver exceptional comfort and performance, with a targeted starting retail price of $100,000. Production will be outsourced to Italy. +We also expect to explore +opportunities in tailor-made retro vehicle development and restomod projects, leveraging its modular in-house chassis as a technological +base. These offerings are aimed at a younger generation of automotive enthusiasts who value vintage aesthetics but seek modern performance, +comfort, and eco-conscious functionality. In particular, we intend to explore the “electromods” trend, which involve converting +classic cars to electric powertrains. This approach provides a unique driving experience while reducing emissions, appealing to both sustainability-minded +and performance-driven customers. +Through these niche offerings, +we aim to establish ourselves as a key player in the luxury and specialty automotive markets, emphasizing the traditional values of driving +pleasure, craftsmanship, and grand touring. +Collaborative Projects +We are actively pursuing joint ventures and collaboration opportunities +to expand its footprint in emerging automotive segments. This includes leveraging its AIEV design framework to enhance third-party platforms +for exclusive markets. +One of the Company’s +primary areas of focus is the rapidly growing microcar segment, which offers a unique opportunity to bridge the gap between motorcycles +and traditional passenger vehicles. Microcars are particularly well-suited for urban environments and have experienced significant growth +in Europe, with strong potential for further expansion in Asia. According to McKinsey’s Future Mobility 2022 survey, the global +microcar market is projected to reach a total addressable value of $340 billion annually by 2030, driven by increased consumer demand +for sustainable and versatile urban mobility solutions. +The first Microcar project +is planned as a low-volume joint venture, leveraging the platform of an existing manufacturer, with production targeted to begin in 2027. +This model will incorporate Thunder Power’s signature Italian design elements. A fully unique Microcar is anticipated to launch +from 2030, subject to achieving market-relevant retail pricing, which is currently under evaluation. +Mergers and Acquisitions (M&A) +We are committed to pursuing +a proactive merger and acquisitions strategy, primarily targeting opportunities within the clean energy sector and related industries. +The focus will be on acquisitions that are immediately revenue-generating, reinforcing the Company’s financial position while creating +synergies with its core business. +On December 19, 2024, we +entered into a share exchange agreement with certain shareholders (the “TW Company Shareholders”) of Electric Power Technology +Limited, a Taiwan corporation (“TW Company”). On January 27, 2025, the Company and TW Shareholders have executed an amendment +to the Agreement and certain subsequent amendments (the “Amendments”, and together with the Agreement, the “Amended +Agreements”). Pursuant to the terms of the Amended Agreement, a portion of the TW Company Shareholders are expected to exchange +a total of 26,783,838 ordinary shares in TW Company for an aggregate of 31,832,768 shares of newly issued Common Stock of the Company +in weeks, with the remaining total of 1,715,000 shares of the TW Company to be transferred to the Company for 2,038,621 shares in a few +months. Upon completion of the transaction, the Company is expected to hold approximately 33.71% of TW Company’s total issued and +outstanding shares. The transaction has been reviewed and approved by the Taiwan government. This transaction is expected to strengthen +Thunder Power’s position in renewable energy while providing immediate revenue streams +3 +Trade and Consulting +At the core of our strategy +is to generate revenue during the capital-intensive vehicle development phase. To achieve this, the Company plans to engage in complementary +activities that do not interfere with its core business operations but provide additional revenue streams and cash flow. +Vehicle Trading +As a precursor to building +a dealer network and cultivating sales contacts, we intend to engage in limited prestige vehicle trading. This initiative will focus on +trading new and nearly new vehicles in the European and Asian markets, leveraging the Company’s market expertise and industry relationships. +In addition to the opportunity +to bringing cash flow, we also expect these trading activities to enable us to establish valuable industry connections and insights, laying +the groundwork for a future dealer network and strengthening the Company’s presence in key markets. +Consulting +We also intend to offer design +consulting services and licensing access to its patent portfolio as part of its broader strategy to monetize intellectual property and +technical expertise. +Capitalizing the Company’s +in-house design capabilities and patent portfolio, we plan to unlock additional revenue opportunities while maintaining ensuring cost +efficiency. +Technology +Thunder Power is currently +exploring potential licensing arrangements of intellectual property from its affiliates. These technologies may include, among others, +modular flexible chassis system, wireless charging, multi-link suspension system, light weight engineering, battery management system +(BMS), thermal management systems (TMS), and the use of EV TDPs. No licensing agreements have been finalized, and there can be no assurance +that the Company will obtain rights to any such technologies. +Intellectual Property +Thunder Power, as a holding +company, does not own any patents. Patents are primarily owned by Thunder Power’s wholly owned subsidiary, TP NEV, except for the +EV TDP, the patent for which is owned by Mr. Wellen Sham in his capacity as an individual inventor and patent holder. There is no +licensing agreement in place between Thunder Power and TP NEV or Mr. Sham. These patents are predominantly utility patents, with a number +of design patents. +Intellectual property is +important to our business. Our commercial success depends on our ability to obtain, maintain and protect the intellectual property and +other proprietary technology that we develop or acquire the rights to, to operate without infringing, misappropriating or otherwise violating +the intellectual property and proprietary rights of others, and to prevent others from infringing, misappropriating or violating our intellectual +property and proprietary rights. We expect to rely on a combination of patents, trademarks, trade secrets, know-how, continuing technological +innovation, confidential information and other measures to develop and maintain our proprietary position including through personnel, +contractor, consultant and third-party nondisclosure and invention assignment agreements and other contractual arrangements. +Regardless of the protective +measures that we may implement to safeguard our intellectual property and proprietary technology; there is always a risk that alterations +from our products or processes may provide sufficient basis for a competitor to avoid infringement claims. In addition, the coverage claimed +in a patent application can be significantly reduced before a patent is issued and courts can reinterpret a patent’s scope after +issuance. Many jurisdictions, including the United States, permit third parties to challenge issued patents in administrative proceedings, +which may result in further narrowing or even cancellation of patent claims. We cannot provide any assurance that any patents will be +issued from our pending or any future applications or that any current or future issued patents will adequately protect our intellectual +property. For this and other risks related to our proprietary technology, inventions and improvements, please see the section under the +heading “Risk Factors.” +4 +TP NEV currently holds 154 +issued U.S. patents. Thunder Power does not currently have a licensing agreement in place with TP NEV with respect to such patents, and +there can be no assurance that such agreement will be entered into. +We may explore potential +licensing arrangements for certain technologies developed by our affiliates. No licensing agreements have been finalized, and there can +be no assurance that the Company will obtain rights to any such technologies. Technologies that we hope to have access to through licensing +agreements and intend to invest in and develop include engineering software, drivetrain systems and controls, infotainment, cybersecurity, +telematics and electrical architecture hardware and software. As we develop our technology, we will continue to build our intellectual +property portfolio, including by pursuing patents and other intellectual property protection when we believe it is possible, cost-effective, +beneficial, and consistent with our overall intellectual property protection strategy. +Generally, the terms of individual +issued patents extend for varying periods depending on the date of filing of the patent application or the date of patent issuance and +the legal term of patents in the countries in which they are obtained. Generally, utility patents issued for applications filed in the +United States are granted a term of 20 years from the earliest effective filing date of a non-provisional patent application, +assuming the patent has not been terminally disclaimed over a commonly-owned patent or a patent naming a common inventor, or over +a patent not commonly owned but that was disqualified as prior art as the result of activities undertaken within the scope of a joint +research agreement. The life of a patent, and the protection it affords, is therefore limited and once the patent lives of our issued +patents have expired, we may face competition, including other competing technologies. The duration of foreign patents varies in accordance +with provisions of applicable local law but typically is also 20 years from the earliest effective filing date. The actual protection +afforded by a patent may vary from country to country and can depend upon many factors, including the type of patent, the scope of its +coverage, the availability of patent term adjustments or extensions, the availability of legal remedies in a particular country and the +validity and enforceability of the patent. As a result, our owned patent portfolio may not provide us with sufficient rights to exclude +others from commercializing products similar or identical to ours. +Furthermore, we rely upon +trade secrets and know-how, confidential information, unpatented technologies, continuing technological innovation and other proprietary +information to develop, protect and maintain our competitive position and aspects of our business that are not amenable to, or that we +do not presently consider appropriate for, patent protection and prevent competitors from reverse engineering or copying our technologies. +However, the foregoing rights, technologies and information are difficult to protect. We seek to protect them by, in part, using confidentiality +agreements with our personnel and consultants and any potential commercial partners and collaborators and invention assignment agreements +with our personnel We also have implemented or intend to implement confidentiality agreements or invention assignment agreements with +our selected consultants and any potential commercial partners. These agreements are designed to protect our proprietary information and, +in the case of the invention assignment agreements, to grant us ownership of technologies that are developed through a relationship with +a third party. These agreements may be breached, and we may not have adequate remedies for any breach. There can be no assurance that +these agreements will be self-executing or otherwise provide meaningful protection for our trade secrets or other intellectual property +or proprietary information. In addition, our trade secrets may otherwise become known or be independently discovered by competitors. To +the extent that our commercial partners, collaborators, personnel and consultants use intellectual property owned by others in their work +for us, disputes may arise as to the rights in related or resulting know-how and inventions. +Our commercial success will +also depend in part on not infringing, misappropriating or otherwise violating the intellectual or proprietary rights of third parties. +The issuance of third-party patents could require us to alter our development or commercial strategies, change our products or processes, +obtain licenses to additional third-party patents or other intellectual property or cease certain activities. Our breach of any license +agreements or failure to obtain a license for proprietary rights that we may require to develop or commercialize our future products or +technologies may have an adverse impact on us. Given that patent applications in the United States and certain other jurisdictions +are maintained in secrecy for 18 months or potentially longer, and since publication of discoveries in the scientific or patent literature +often lags behind actual discoveries, we cannot be certain of the patent protection being sought by third parties and/or the priority +of inventions covered by such patent applications. Moreover, we may have to participate in interference, revocation, derivation, re-examination, +post-grant review, inter partes review or opposition proceedings brought by third parties or declared by the U.S. Patent and +Trademark Office or an equivalent foreign body. See “ Risk Factors ” for additional information regarding these and other +risks related to our intellectual property portfolio and their potential effect on us. +5 +Showroom rendering (source from Thunder Power): +Facilities and Production +In alignment with our focus +on efficiency and scalability, we expect to conduct all short- and medium-term vehicle production through outsourcing partnerships with +established manufacturing facilities. This approach enables the Company to leverage the expertise, resources, and infrastructure of its +production partners, ensuring high-quality manufacturing standards while maintaining flexibility to scale operations in response to market +demand. +For the longer term, Thunder +Power retains the option to transition to insourced production. This potential shift will be carefully evaluated based on market conditions, +production volumes, and cost efficiencies, with the goal of enhancing operational control and capturing additional value across the manufacturing +process. This dual approach ensures that the Company remains agile and competitive while maintaining the ability to adapt its production +strategy to evolving business needs and industry dynamics. +6 +Funding and Revenue +Thunder Power is a pre-revenue company and has +not generated any revenue from the sales of its vehicles. We expect to generate revenue from the sale of our EV Models, the sale and/or +licensing of our technologies, and from any future research and development services that we may provide. +Go-To-Market Strategy +Thunder Power plans to establish +a comprehensive and well-structured network of dealer partners, designed to provide both sales and after-sales service, ensuring seamless +and reliable customer experience. These dealer partners will serve as key touchpoints for customers, offering personalized support, product +education, and maintenance solutions to uphold the brand’s commitment to quality and customer satisfaction. This traditional dealership +model will be complemented by centrally coordinated marketing initiatives, aimed at driving brand visibility and delivering consistent +messaging across all markets. Furthermore, to cater to evolving consumer preferences and the growing demand for convenience, Thunder Power +will also provide customers with the option to order vehicles directly through its online platform. This dual-channel approach allows +the Company to reach a broader audience, offering the flexibility to engage with the brand in a manner that best suits individual preferences, +whether through in-person interactions at dealerships or the convenience of digital commerce. +Competition +Thunder Power anticipates +that it will face competition from both traditional automotive original equipment manufacturer (“OEMs”) and an increasing +number of newer companies focused on electric and other alternative fuel vehicles. Thunder Power expects this competition to increase, +particularly as the transportation sector continues to shift towards low-emission, zero-emission or carbon neutral solutions. +Any of the Company’s +future vehicles are expected to compete with both traditional luxury internal combustion vehicles from established automotive OEMs and +electric and other alternative fuel vehicles from both new manufacturers and established automotive OEMs, many of which have entered or +have announced plans to enter the alternative fuel and EV market. Many major automobile manufacturers, including luxury automobile manufacturers, +have EVs available today, and other current and prospective automobile manufacturers are also developing EVs. In addition, numerous manufacturers +offer hybrid vehicles, including plug-in versions, with which Thunder Power’s vehicles will also compete. +Thunder Power believes the +primary competitive factors on which it will compete include, but are not limited to: +● +product quality, reliability and safety; +● +range, efficiency and charging speeds; +● +product performance; +● +technological innovation, including with respect to AD/ADAS features; +● +access to charging options; +● +design, styling and luxury; +● +service options and customer experience; +● +management team experience at bringing electric vehicles and other disruptive technologies to market; +● +manufacturing efficiency; +● +brand recognition and prestige; and +● +product price. +7 +Thunder Power believes that +it is favorably positioned to compete on the basis of these factors. However, many of Thunder Power’s current and potential competitors +have substantially greater financial, technical, manufacturing, marketing and other resources than Thunder Power. Thunder Power’s +competitors may be able to deploy greater resources to the design, development, manufacturing, distribution, promotion, sales, marketing +and support of their products. Additionally, many of Thunder Power’s competitors also have greater name recognition, longer operating +histories, larger sales forces, broader customer and industry relationships and other tangible and intangible resources that exceed Thunder +Power’s. Furthermore, many of Thunder Power’s competitors operate with a traditional sales and dealer distribution model for +vehicles that may be viewed more favorably by potential customers. These competitors also compete with Thunder Power in recruiting and +retaining qualified research and development, sales, marketing and management personnel, as well as in acquiring technologies complementary +to, or necessary for, Thunder Power’s products. Additional mergers and acquisitions in the EV and luxury automotive markets may +result in even more resources being concentrated on Thunder Power’s competitors. +Government Regulations and Credits +Environmental Regulations +(i) +At the U.S. Federal level: +In 2012, the Environmental +Protection Agency (“EPA”) adopted greenhouse gas emissions (GHG) standards for light duty vehicles produced in model years +2017 – 2025 (Control of Air Pollution from Motor Vehicles: Tier 3 Motor Vehicle Emission and Fuel Standards, 79 FR 23414 +(Apr. 28, 2014)). In 2020 (The Safer Affordable Fuel-Efficient (SAFE) Vehicles Rule for Model Years 2021-2026 Passenger +Cars and Light Vehicles, 85 FR 24174 (Apr. 30, 2020)) and 2021 (Revised 2023 and Later Model Year Light-Duty Vehicle Greenhouse +Gas Emissions Standards, 86 FR 74434 (Dec. 30, 2021), the EPA revised and made more stringent its GHG standards and proposed and +finalized a rulemaking (the “2021 rulemaking”), respectively, for model years 2023 – 2026 light-duty passenger +cars. Thunder Power’s production schedule starting in 2025 and covering 2026 will be subjected to these more stringent GHG standards. +On April 22, 2021, the +Biden-Harris Administration announced a 50 to 52 percent target reduction from 2005 levels in GHGs by 2030, representing the U.S. Nationally +Determined Contribution (NDC) under the Paris Agreement. This announcement was followed by Executive Order 14037 on August 5, 2021 +(“Strengthening American Leadership in Clean Cars and Trucks”) reinforcing the goal of at least a 50 percent GHG reductions +from new zero-emission vehicles sales by 2030. In addition, in 2021 and 2022, respectively, Congress passed the Infrastructure Investment +and Jobs Act (Pub. Law 117-58, Bipartisan Infrastructure Law) and the Inflation Reduction Act (Pub. Law 117-169) providing significant +government-wide funding and support for GHG reductions, including funding for component technology and infrastructure for the manufacture, +sales and use of electric vehicles. +In 2023, the EPA under its +Clean Air Act (CAA) authority proposed new rules for light-duty vehicles with model years 2027 – 2032, specifically +“off-cycle and air conditioning credits, treatment of upstream emissions associated with zero-emission vehicles and plug-in hybrid +electric vehicles in compliance calculations, medium-duty vehicle incentive multipliers, vehicle certification and compliance, new +standards to control refueling emissions from incomplete medium-duty vehicles, battery durability and warranty requirements for light-duty and +medium-duty plug-in vehicles and minor amendments to requirements for aftermarket fuel conversions, importing vehicles and engines, +evaporative emission test procedures, and test fuel specifications for measuring fuel economy.” (Multi-Pollutant Emissions +Standards for Model Years 2027 and Later Light-Duty and Medium-Duty Vehicles, 88 Fed. Reg. 29184, Proposed Rule (May 5, +2023)) Any EVs Thunder Power, as a light-duty vehicle manufacturer (manufacturing vehicles between 8,501 and 14,000 pounds gross +vehicle weight rating (GVWR)), produces in 2027 to 2032 would be subjected to any final rules. +8 +In addition, during production +periods from 2025 to 2032, Thunder Power would have to comply with two separate EPA rules on GHG reduction standards. +(ii) +At the U.S. state level: +California: The +2022 Advanced Clean Cars II rule requires all new light-duty vehicles sold in the state of California to be zero-emission vehicles +by 2035. ( Id . at 29188, note 14, citing to the California Air Resources Board “California moves to accelerate to 100% +new zero-emission vehicle sales by 2035.” Also, Id . note 15, citing the State of California Office of the +Governor, “Governor Newsom Announces California Will Phase Out Gasoline-Powered Cars & Drastically Reduce Demand for Fossil +Fuel in California’s Fight Against Climate Change”). +New York: In +2021, in advance of Climate Week 2021, New York Governor Hochul signed Legislation (A.4302/A.2758) requiring all new light-duty vehicles +sold in the state of New York to be zero-emission vehicles by 2035. ( Id . note 17, citing Governor of New York Press +Office, “In Advance of Climate Week 2021, Governor Hochul Announces New Actions to Make New York’s Transportation Sector Greener, +Reduce Climate-Altering Emissions”). +Massachusetts: Though +not finalized, in 2022, the state of Massachusetts announced that it may ban sale of all new gas-powered vehicles by 2035. ( Id . +note 18, citing Boston.com, “Following California’s lead, state will likely ban all sales of new gas-powered cars +by 2035.”). +Washington: Also +in 2022, the Department of Ecology in the State of Washington issued a press release regarding its plan to require 100% of new passenger +cars and trucks to run on zero-emission technology by 2035. ( Id . note 20, citing Washington Department of Ecology “Washington +sets path to phase out gas vehicles by 2035.”). +Other States: In +2022, the Associated Press (“AP”) reported that 17 states may follow California’s rule to require all new cars, pickups +and SUVs to be electric or hydrogen powered by 2035. According to the AP article “under the EPA’s Clean Air Act, states must +abide by the federal governments standard vehicle emissions standards unless they at least partially opt to follow California’s +stricter requirements.” ( Id . note 21, citing Associated Press, “17 states weigh adopting California’s electric +car mandate”). States such as Virginia, Minnesota, Colorado and Pennsylvania are unsure to follow California’s new laws citing +climate differences and wanting to give consumers options. +(iii) +Globally: +International Zero-Emission Vehicle +Alliance: In November 2021, ZEV announced that by 2035 its members will move to all ZEV sales. ( Id .) ZEV members are +Baden-Württemberg, British Columbia, California, Canada, Chile, Connecticut, Costa Rica, Germany, Maryland, Massachusetts, Netherlands, +New Jersey, New York, Norway, Oregon, Québec, Rhode Island, United Kingdom, Vermont, and Washington. +According to the EPA, “at +least 20 countries, as well as numerous local jurisdictions, have announced targets for shifting all new passenger car sales to zero-emission vehicles +in the coming years, including Norway (2025); Austria, the Netherlands, Denmark, Iceland, India, Ireland, Israel, Scotland, Singapore, +Sweden, and Slovenia (2030); Canada, Chile, Germany, Thailand, and the United Kingdom (2035); and France, Spain, and Sri Lanka (2040).” +( Id . note 23, citing Environmental and Climate Change Canada, “Achieving a Zero-Emission Future for Light-Duty Vehicles: +Stakeholder Engagement Discussion Document December 17”). +Emissions Credits +In January 2023, Tesla +reported sales of carbon offset credits or carbon allowances to other manufacturers who failed to meet the emissions standards set by +the California Air Resources board (CARB) of USD 1.78 billion. (Carbon Credits, Jennifer L., Tesla Carbon Credit Sales +Reach Record $1.78 Billion in 2022 , Jan. 27, 2023, available at https://carboncredits.com/tesla-carbon-credit-sales-reach-record-1-78-billion-in-2022 ). +Thunder Power expects to +earn carbon offset credits and other regulatory credits that it will sell to other manufacturers from its manufacture, sale, and/or registration +of Zero Emission Vehicles (“ZEVs”). In addition, Thunder Power anticipated that it will be able to sell ZEV credits in up +to 12 Section 177 States such as California, Connecticut, Delaware, Maine, Maryland, Massachusetts, New Jersey, New York, Oregon, +Pennsylvania, Rhode Island, Vermont, and Washington. Thunder Power may also expect to earn and sell U.S. Department of Transportation’s +Corporate Average Fuel Economy (“CAFÉ”) credits, EPA’s greenhouse gas credits and credits earned or saleable +in other North American regions, UK, Europe, and Asia. +9 +EPA Emissions and Certificate of Conformity +The U.S. Clean Air Act +requires that Thunder Power obtain a Certificate of Conformity issued by the EPA and a California Executive Order issued by the California +Air Resources Board (“ CARB ”) certifying that its vehicles comply with applicable emissions requirements. A Certificate +of Conformity is required for vehicles sold in the United States, and an Executive Order from the CARB is required for vehicles sold +in states that have adopted California standards. CARB sets California standards for emissions control for certain regulated pollutants +for new vehicles and engines sold in California. States that have adopted the California standards as approved by EPA also recognize the +CARB Executive Order for sales of vehicles. In addition to California, there are 13 other states that have either adopted or are in the +process of adopting the stricter California standards, including New York, Massachusetts, Vermont, Maine, Pennsylvania, Connecticut, +Rhode Island, Washington, Oregon, New Jersey, Maryland, Delaware and Colorado. +Although the Thunder Power +vehicles will have zero emissions, Thunder Power is required to seek an EPA Certificate of Conformity and, for vehicles sold in California +or any of the other 13 states that have adopted the stricter California standards, a CARB Executive Order. +Vehicle Safety and Testing +Thunder Power’s vehicles +will be subject to, and will be required to comply with, numerous regulatory requirements established by the National Highway Traffic +Safety Administration (“ NHTSA ”), including applicable U.S. Federal Motor Vehicle Safety Standards (“ FMVSS ”). +Thunder Power intends that its family of EVs will fully comply with all applicable FMVSSs without the need for any exemptions, and we +expect future Thunder Power’s EVs to either fully comply or comply with limited exemptions related to new technologies. Additionally, +there are regulatory changes being considered for several FMVSSs, and while Thunder Power anticipates compliance, there is no assurance +that Thunder Power will comply with such changes under the final versions as enacted. +As a U.S.-based manufacturer, +Thunder Power must self-certify that its EVs meet all applicable FMVSS, as well as the NHTSA bumper standard, or otherwise are exempt, +before its EVs can be sold in the United States. Numerous FMVSS will apply to Thunder Power’s EVs, such as crash-worthiness +requirements, crash avoidance requirements and EV-specific requirements. Thunder Power will also be required to comply with other +federal laws and regulations administered by NHTSA, including, among other things, ensuring its EVs do not contain defects related to +motor vehicle safety, recall requirements, the Corporate Average Fuel (CAFE) standards, Theft Prevention Act requirements, consumer information +labeling requirements, reporting required notices, bulletins and other communications, Early Warning Information reporting, foreign recall +reporting and owner’s manual requirements. +The Automobile Information +and Disclosure Act requires manufacturers of motor vehicles to disclose certain information regarding the manufacturer’s suggested +retail price, optional equipment and pricing. In addition, this law allows inclusion of city and highway fuel economy ratings, as determined +by the U.S. Environmental Protection Agency (EPA), as well as crash test ratings as determined by NHTSA if such tests are conducted. +Thunder Power intends to +bring production in Europe and then expand its offerings within the U.S. and outside of the U.S., and in connection with such expansion +its EVs will be subject to foreign safety, environmental and other regulations. Many of those regulations are different from those applicable +in the U.S. and may require redesign and/or retesting. For example, the European Union (“ E.U. ”) has established +new approval and oversight rules requiring that a national authority certify compliance with heightened safety rules, emissions limits +and production requirements before vehicles can be sold in each E.U. member state, the initial of which rules were rolled out on September 1, +2020. There is also regulatory uncertainty regarding how these rules will impact sales in the United Kingdom given its withdrawal from +the E.U. These changes could impact the rollout of new vehicle features in Europe. +10 +In addition to the various +territorial legal requirements Thunder Power is obligated to meet, Thunder Power’s family of EVs is engineered with the expectation +that it will deliver overall five-star performance in the two main voluntary vehicle safety performance assessment programs, the +U.S. New Car Assessment Program (“ NCAP ”) and the European New Car Assessment Programme (“ Euro NCAP ”). +Five-star score is the maximum attainable score. These independent organizations have introduced a number of additional safety related +tests aimed at improving the safety of passenger vehicles, both for occupants and pedestrians involved in collisions with vehicles. Some +of these tests are derived from legal requirements, such as side impact, but have higher performance requirements. Others are unique to +the programs. Areas covered by these tests in 2020 included: +● +Mobile Progressive Deformable Barrier; +● +Full Width Rigid Barrier; +● +Mobile Side Impact Barrier; +● +Side Pole; +● +Far Side Impact; +● +Whiplash; +● +Vulnerable Road Users (Pedestrians and Cyclists); +● +Safety Assist; and +● +Rescue and Extrication +Automobile Manufacturer and Dealer Regulation +In the United States, +state laws regulate the manufacture, distribution, sale and service of automobiles, and generally require motor vehicle manufacturers +and dealers to be licensed in order to sell vehicles directly to residents. Certain states do not permit automobile manufacturers to be +licensed as dealers or to act in the capacity of a dealer, or otherwise restrict a manufacturer’s ability to deliver or service +vehicles. To sell vehicles to residents of states where Thunder Power is not licensed as a dealer, Thunder Power expects to conduct the +transfer of title out of the state. In certain such states, Thunder Power expects to open studios that serve an educational purpose and +where the title transfer may not occur. +Some automobile dealer trade +associations may challenge the legality of Thunder Power’s operations and direct selling operations by OEMs in court and may use +administrative and legislative processes to attempt to prohibit or limit such OEMs’ ability to operate existing stores or expand +to new locations. Certain dealer associations may also actively lobbied state licensing agencies and legislators to interpret existing +laws or enact new laws in ways not favorable to Thunder Power’s planned direct sales and service model. Thunder Power expects dealer +trade associations to continue to lobby state licensing agencies and legislators to interpret existing laws or enact new laws in ways +not favorable to its business model; however, Thunder Power intends to oppose such efforts to limit its ability to operate and intends +to proactively support legislation that enables its business model. +Should Thunder Power not +be allowed to develop relationships with the largest multi-brand and high-end brand dealers in the U.S. it would be difficult +for it as a newcomer to the U.S. EV market to gain a foothold in the U.S. Thunder Power recognizes that its best strategy for +market penetration is to align itself with a U.S. dealership network, especially for sale of the Coupe, and the eventual servicing +of its family of EVs. +11 +Battery Safety and Testing Regulation +Thunder Power’s battery +packs are designed to conform to mandatory regulations that govern transport of “dangerous goods,” defined to include lithium-ion batteries, +which may present a risk in transportation. The governing regulations, which are issued by the Pipeline and Hazardous Materials Safety +Administration, are based on the United Nation (“ U.N. ”) Recommendations on the Safe Transport of Dangerous Goods Model +Regulations and related U.N. Manual Tests and Criteria. The regulations vary by mode of shipping transportation, such as by ocean +vessel, rail, truck or air. Prior to launch, Thunder Power plans to complete all applicable transportation tests for its battery packs, +demonstrating its compliance with applicable regulations. Thunder Power intends to use lithium-ion cells in the high voltage battery +packs in its EVs. The use, storage and disposal of battery packs is regulated under federal law. Thunder Power’s battery packs are +intended to meet the applicable compliance requirements of the UN Manual of Tests and Criteria demonstrating its ability to ship battery +packs by any method. These tests include: +● +Altitude simulation — simulating air transport; +● +Thermal cycling — assessing cell and battery seal integrity; +● +Vibration — simulating vibration during transport; +● +Shock — simulating possible impacts during transport; +● +External short circuit — simulating an external short circuit; and +● +Overcharge — evaluating the ability of a rechargeable battery to withstand overcharging. +Data Privacy and Security Laws +Numerous state, federal and +foreign laws, regulations and standards govern the collection, use, access to, confidentiality and security of health-related and other +personal information and could apply now or in the future to our operations or the operations of our partners. In the United States, numerous +federal and state laws and regulations, including data breach notification laws, health information privacy and security laws and consumer +protection laws and regulations govern the collection, use, disclosure, and protection of health-related and other personal information. +In addition, certain foreign laws govern the privacy and security of personal data, including health-related data. Privacy and security +laws, regulations, and other obligations are constantly evolving, may conflict with each other to complicate compliance efforts, and can +result in investigations, proceedings, or actions that lead to significant civil and/or criminal penalties and restrictions on data processing. +Employees and Human Capital Resources +As of December 31, 2025, +we had 2 full-time employees. None of our employees are represented by a labor union or party to a collective bargaining agreement. +Our human capital objectives +include retaining and incentivizing existing employees and recruiting and integrating new employees. The principal purposes of our compensation +program, including our equity incentive plans, are to attract, retain and appropriately motivate employees, consultants and directors +through the granting of stock-based compensation awards and cash-based bonus awards. +Corporate Information +Our corporate office +is located at 221 W 9th St #848, Wilmington, DE 19801 and its telephone number is (909) 214-2482. Our telephone number is (909) 214-2482. +Information contained on, or that can be accessed through, our website is not incorporated by reference into this Annual Report on Form +10-K, and you should not consider information on our website to be part of this Annual Report on Form 10-K. +12 +Item 1A. Risk Factors +You should consider carefully +the following risk factors, as well as the other information set forth in this report, including our consolidated financial statements +and the notes thereto. The following discussion of risk factors includes forward-looking statements and our actual results may differ +substantially from those discussed in such forward-looking statements. See “Cautionary Note Regarding Forward-Looking Statements.” +The disclosures of a risk should not be interpreted to imply that such risk has not already materialized. Additional risks not currently +known to us or that we currently believe are immaterial may also impair our business, financial condition, results of operations and cash +flows. The occurrence of any of the events or developments described below could materially and adversely affect our business, financial +condition, results of operations, and growth prospects. In such an event, the market price of our common stock could decline, and you +may lose all or part of your investment. Unless otherwise indicated, references in these risk factors to our business being harmed will +include harm to our business, reputation, brand, financial condition, results of operations, and prospects. +Risks Related to Thunder Power’s Business and +Industry +Our limited operating history makes evaluating our business and +future prospects difficult and may increase the risk of your investment. +We are an early-stage company +with a limited operating history, operating in a rapidly evolving and highly regulated market. Furthermore, we have not released any commercially +available product, and we have no experience manufacturing or selling a commercial product on a scale. Because we have not generated revenue, +and as a result of the capital-intensive nature of our business, we expect to continue to incur substantial operating losses for +the foreseeable future. +We have encountered and expect +to continue to encounter risks and uncertainties frequently experienced by early-stage companies in rapidly changing markets, including +risks relating to our ability to, among other things: +● +hire, integrate and retain professional and technical talent, including key members of management; +● +continue to make significant investments in research, development, manufacturing, marketing and sales; +● +successfully obtain, maintain, protect and enforce our intellectual property and defend against claims of intellectual property infringement, misappropriation or other violation; +● +build a well-recognized and respected brand; +● +establish, refine and scale our commercial manufacturing capabilities and distribution infrastructure; +● +establish and maintain satisfactory arrangements with third-party suppliers; +● +establish and expand a customer base; +● +navigate an evolving and complex regulatory environment; +● +anticipate and adapt to changing market conditions, including consumer demand for certain vehicle types, models or trim levels, technological developments and changes in competitive landscape; and +● +successfully design, build, manufacture and market new variants and models of electric vehicles. +13 +You must consider the risks +and difficulties we face as an early-stage company with a limited operating history. If we do not successfully address these risks, our +business, prospects, operating results and financial condition will be materially and adversely harmed. We have a very limited operating +history on which investors can base an evaluation of our business, operating results and prospects. There are no assurances that we will +be able to secure future business with potential customers. As an early-stage company, it is difficult to predict our future revenues +and appropriately budget for our expenses, and we have limited insight into trends that may emerge and affect our business. In the event +that actual results differ from our estimates or we adjust our estimates in future periods, our operating results and financial position +could be materially affected. Our performance and expectations depend on the successful implementation of management’s growth strategies +and are based on assumptions and events over which we have only partial or no control, including, but not limited to, adverse economic +conditions, regulatory developments, our ability to finance our contemplated operations, difficulties in engineering, delays in designs +or materials provided by the customer or a third party, equipment and materials delivery delays, schedule changes, customer scope changes, +delays related to obtaining regulatory permits and rights-of-way, inability to find adequate sources of labor in the locations where we +are building new plants, weather-related delays, delays by customers’ contractors in completing their portion of a project, +technical or transportation difficulties, cost overruns, supply difficulties, geopolitical risks and other factors. The assumptions underlying +our expectations require the exercise of judgment and may not occur, and the expectations are subject to uncertainty due to the effects +of economic, business, competitive, regulatory, legislative, and political or other changes. +We have incurred net losses each year since +our inception and expect to incur increasing expenses and substantial losses for the foreseeable future. +We have no operating history +in the electric vehicle market and have never generated revenue from product sales. Since inception, we have incurred significant net +losses. We anticipate our losses will increase substantially as we: +● +Continue designing and developing our vehicles +● +Establish manufacturing capabilities +● +Build our brand and marketing operations +● +Develop our distribution infrastructure +● +Invest in research and development +Given the significant capital +required to bring our products to market, we expect to continue incurring substantial losses for the foreseeable future. There is no assurance +that we will ever achieve or sustain profitability. Our lack of operating history in a highly competitive and rapidly evolving industry +makes evaluating our business and future prospects difficult. We face all the risks and uncertainties of an early-stage company in a complex, +capital-intensive industry. If we fail to successfully address these risks and uncertainties, our business, financial condition, and results +of operations will be materially harmed. +If our product development +or commercialization of vehicles is delayed, our costs and expenses may be significantly higher than we currently expect. Because we will +incur the costs and expenses from these efforts before we receive any incremental revenues with respect thereto, we expect our losses +in future periods will be significant. +Our business model has yet to be tested +and any failure to commercialize our strategic plans would have an adverse effect on our operating results and business, harm our reputation +and could result in substantial liabilities that exceed our resources. +Investors should be aware +of the difficulties normally encountered by an early-stage enterprise, many of which are beyond our control, including substantial risks +and expenses in the course of establishing or entering new markets, organizing operations and undertaking marketing activities. The likelihood +of our success must be considered in light of these risks, expenses, complications, delays and the competitive environment in which we +operate. There is, therefore, nothing at this time upon which to base an assumption that our business plan will prove successful, and +we may not be able to generate significant revenue, raise additional capital or operate profitably. We will continue to encounter risks +and difficulties frequently experienced by early commercial stage companies, including scaling up our infrastructure and headcount, and +may encounter unforeseen expenses, difficulties or delays in connection with our growth. In addition, as a result of the capital-intensive nature +of our business, we can be expected to continue to sustain substantial operating expenses and may not generate sufficient revenues to +cover expenditure. Any investment in our company is therefore highly speculative and could result in a loss of your entire investment. +14 +We may have difficulty managing growth in +our business, which could have a material adverse effect on our business, financial condition and results of operations and our ability +to execute its business plan in a timely fashion. +Because of our small size, +growth in accordance with our business plans, if achieved, may place a significant strain on our financial, technical, operational and +management resources. If we expand our activities, developments and production, and increase the number of projects we are evaluating +or in which we participate, there will be additional demands on our financial, technical and management resources. The failure to continue +to upgrade our technical, administrative, operating and financial control systems or the occurrence of unexpected expansion difficulties +could have a material adverse effect on our business, financial condition and results of operations and our ability to execute our business +plan in a timely fashion. +We intend to hire a significant +number of additional personnel, including design and manufacturing personnel and service technicians for our vehicles. Because our vehicles +are based on a different technological platform than traditional internal combustion engines, individuals with sufficient training in +electric vehicles may not be available to hire, and as a result, we will need to spend significant time and expense training the personnel +we do hire. Competition for individuals with experience in designing, engineering, manufacturing and servicing electric vehicles is intense, +and we may not be able to identify, attract, integrate, train, motivate or retain additional highly qualified personnel in the future. +The failure to identify, attract, integrate, train, motivate and retain these additional personnel could seriously harm our business and +prospects. If we are unable to grant equity awards, or if we are forced to reduce the value of equity awards we grant due to shortage +of shares available for issuance under our 2024 Omnibus Equity Inventive Plan, we may not be able to attract, hire and retain the personnel +necessary for our business, which would have a material adverse effect on our business, prospects financial condition and results of operations. +In addition, we have no experience +in mass manufacturing our vehicles. We cannot assure our investors that we will be able to develop efficient, automated, low-cost manufacturing +capabilities and processes, and reliable sources of component supply that will enable us to meet the quality, price, engineering, design +and production standards, as well as the production volumes required to successfully market our vehicles. Any failure to develop such +manufacturing processes and capabilities within our projected costs and timelines could stunt our future growth and impair our ability +to produce, market, service and sell or lease our vehicles successfully. In addition, our success is substantially dependent upon the +continued service and performance of our senior management team and key technical and vehicle management personnel. If any key personnel +were to terminate their employment with us, such termination would likely increase the difficulty of managing our future growth and heighten +the foregoing risks. If we fail to manage our growth effectively, such failure could result in negative publicity and damage to our brand +and have a material adverse effect on our business, prospects, financial condition and results of operations. +The proceeds received in the Business Combination +will only fund operations for a limited time and we will need to obtain additional financing to continue operations and execute our business +plans. If we are unable to obtain such financing, we may be unable to complete the development and commercialization of our products and +services. +Our operations have consumed +substantial amounts of cash since inception. The net losses of Thunder Power Holdings Limited were $2.12 and $2.50 million for the years +ending December 31, 2025 and 2024, respectively. We anticipate that our future cash requirements will continue to be significant +and we will need to obtain additional financing beyond that being provided by the Business Combination to implement our business plan +as described in this prospectus. Specifically, we may need to raise additional funds to complete the research and development, testing, +manufacturing, marketing, and shipping of our vehicles, as well as to support the continued research and development of our vehicles and +the development of other models, and to build contingencies for unforeseen events. Such financing could include equity financing, which +may be dilutive to stockholders, or debt financing, which would likely restrict our ability to borrow from other sources. In addition, +such securities may contain rights, preferences or privileges senior to those of the rights of the stockholders of the Company upon closing +thereof. Additional funds may not be available when we need them, on terms attractive to us, or at all. +If adequate funds are not +available on a timely basis, we may be required to curtail the development of our technology, products or services, or materially delay, +curtail, reduce or terminate our research and development and commercialization activities. We could be forced to sell or dispose of our +rights or assets. Any inability to raise adequate funds on commercially reasonable terms could have a material adverse effect on our business, +financial condition, results of operation and prospects, including the possibility that a lack of funds could cause our business to fail +and liquidate with little or no return to investors. +15 +Thunder Power’s management has limited experience in operating +a public company. +Thunder Power’s management +has limited experience in the management of a publicly traded company. Thunder Power’s management team may not successfully or effectively +manage its transition to a public company that will be subject to significant regulatory oversight and reporting obligations under U.S. +federal securities laws. Their limited experience in dealing with the increasingly complex laws pertaining to public companies could be +a significant disadvantage in that it is likely that an increasing amount of their time may be devoted to these activities which will +result in less time being devoted to the management and growth of the post-combination company. Thunder Power may not have adequate +personnel with the appropriate level of knowledge, experience and training in the accounting policies, practices or internal control over +financial reporting required of public companies in the U.S. Any fault in Thunder Power’s finance and accounting systems could +impact its ability or prevent it from timely reporting its operating results, timely filing required reports with the SEC and complying +with Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”). The development and +implementation of the standards and controls necessary for Thunder Power to achieve the level of accounting standards required of a public +company in the U.S. may require costs greater than expected. It is possible that Thunder Power will be required to expand its employee +base and hire additional employees to support its operations as a public company which will increase its operating costs in future periods. +We are actively negotiating with our affiliates +to license the intellectual property and technology rights at the core of our business plan, and our inability to obtain and maintain +these licenses could materially affect our business, financial condition, and operating results. +Our entire business model +depends on intellectual property we do not own. We are actively negotiating with our affiliates to license critical intellectual property +and technology rights that form the core of our business plan. As of the date of this prospectus, we have not secured any licensing agreements. +If we fail to obtain these licenses on favorable terms, or at all, our ability to develop, manufacture, and sell our products would be +severely compromised, potentially rendering our business model unviable. Even if we secure these licenses, we may face challenges in maintaining +them, or the licenses may be terminated, significantly impacting our operations. Our lack of direct ownership of key patents and technologies +exposes us to substantial risk and uncertainty regarding our ability to execute our business strategy. +If we are unable to maintain +our planned license agreements, our ability to continue developing, designing, manufacturing, distributing, and selling our products would +be limited and may require us to stop operations entirely. If any such future license agreement is terminated for any reason, we may be +forced to acquire or develop alternative technology, which we may be unable to do in a commercially feasible manner, if at all, and may +require us to use alternative technology of lower quality or performance standards. This would, in turn, limit, delay or disrupt our ability +to offer new or competitive products and could also increase our costs, which would adversely affect our margins, market share, business, +financial condition, and operating results. +The obligations associated with being a +public company involve significant expenses and require significant resources and management attention, which may divert from our business +operations. +As a public company, we are +subject to the ongoing reporting requirements of the Exchange Act and Sarbanes-Oxley Act. The Exchange Act requires the filing +of annual, quarterly, and current reports with respect to our business and financial condition. The Sarbanes-Oxley Act requires, among +other things, that we establish and maintain effective internal controls over financial reporting. As a result, we have and expect to +continue to incur significant legal, accounting, and other expenses that Thunder Power did not incur prior to the Business Combination. +For example, these rules and regulations may make it more difficult or more expensive for us to obtain director and officer liability +insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same +or similar coverage. Additionally, our officers and many of our other employees may need to devote substantial time and attention to regulatory +compliance which may divert their time and attention from our business operations. +16 +The inability to attract and retain qualified +personnel may adversely impact our business. +If we fail to attract, hire +and retain qualified personnel, we may not be able to develop, market or sell our products or successfully manage our business. We are +dependent upon a highly skilled, experienced and efficient workforce to be successful. The inability to attract and hire qualified individuals +or the loss of key employees in very skilled areas could have a negative effect on our financial results. +Uninsured losses could result in payment +of substantial damages, which would decrease our cash reserves and could harm our cash flow and financial condition. +In the ordinary course of +business, we may be subject to losses resulting from product liability, accidents, acts of God and other claims against us, for which +we may have no insurance coverage. While we currently carry insurance that is customary for our size and operations, we may not maintain +as much insurance coverage as other original equipment manufacturers do, and in some cases, we may not maintain any at all. Additionally, +the policies that we have may include significant deductibles, and we cannot be certain that our insurance coverage will be sufficient +to cover all or any future claims against us. A loss that is uninsured or exceeds policy limits may require us to pay substantial amounts, +which could adversely affect our financial condition and results of operations. Further, insurance coverage may not continue to be available +to us or, if available, may be at a significantly higher cost, especially if insurance providers perceive any increase in our risk profile +in the future. +Our strategy to outsource various elements +of the products and services we sell may subject us to the business risks of our future third-party service providers, which could have +a material adverse impact on our operations. +In areas where we will depend +on third-party service providers for retail product distribution and full-service networks, we will be subject to the risk of customer +dissatisfaction with the quality or performance of the products or services we sell due to third-party service provider’s failure. +Third-party service providers may not have the same incentives we do and may not allocate adequate or sufficient time and/or resources +for performing services for us. In addition, business difficulties experienced by a third-party service provider could lead to the +interruption of our ability to distribute products or provide services and ultimately our inability to supply products or services to +our customers. Third-party service provider business interruptions may include, but are not limited to, work stoppages, union negotiations +and other labor disputes. Current or future economic conditions could also impact the ability of third-party service providers to access +credit and, thus, impair their ability to provide us with quality services in a timely manner, or at all. +Our business and prospects will depend significantly +on our brand. +Our business and prospects +will heavily depend on our ability to develop, maintain and strengthen the “Thunder Power” brand association with luxury and +technological excellence. Promoting and positioning our brand will likely depend significantly on our ability to provide consistently +high-quality customer experience, an area in which we have limited experience. To promote our brand, we will be required to invest +in, and over time we may be required to change our customer development and branding practices, which could result in substantially increased +expenses, including the need to use traditional media such as television, radio and print advertising. Our ability to successfully position +our brand could also be adversely affected by perceptions about the quality of our competitors’ vehicles or our competitors’ +success. For example, certain of our competitors have been subject to significant scrutiny for incidents involving their self-driving technology +and battery fires, which could result in similar scrutiny of us. +In particular, any negative +publicity, whether or not true, can quickly proliferate on social media and harm consumer perception and confidence in our brand. The +growing use of social media increases the speed with which information and opinions can be shared and, thus, the speed with which a company’s +reputation can be affected. If we fail to correct or mitigate misinformation or negative information, including information spread through +social media or traditional media channels, about us, the products we offer, our customer experience, or any aspect of our brand, our +business, sales and results of operations could be adversely impacted. From time to time, our vehicles or those of our competitors may +be evaluated and reviewed by third parties. Perceptions of our offerings in the marketplace may be significantly influenced by these reviews, +which are disseminated via various media, including the internet. Any negative reviews or reviews which compare us unfavorably to competitors +could adversely affect consumer perception about our vehicles and reduce demand for our vehicles, which could have a material adverse +effect on our business, results of operations, prospects and financial condition. +17 +Risks Related to Regulation and Litigation +The SEC and other parties may find that Thunder Power’s public-relations information +before the production on any of our EVs may have misled investors or conditioned the market for investors or that we may have omitted +to provide information that investors may reasonably find important to their investment decision. +There is always a risk of +making false claims about the prospects of an EV technology company. One such notable case was United States of America v. Trevor +Milton, No. 21-00478, U.S. District Court, Southern District of New York, 21 Cr. 478 (ER) (“ Nikola” ). +Nikola involved an electric truck maker who the SEC alleged in 2020-2021 defrauded its investors with false claims +about its EV technology. In a cease-and-desist order against Nikola and the subsequent case S.E.C. v. Milton, No. 21 Civ. 06445 (AKH), +the SEC said that Trevor Milton (“Milton”), the founder and one-time chairperson of Nikola, lied to inflate stock prices +during the company’s public-relations campaign to investors by making forward-looking statements since the company had +not yet produced a single vehicle. Other misleading and forward-looking statements included claims about Nikola’s technological +advancements, in-house production capabilities, hydrogen production, truck reservations and orders, financial outlook, refueling +time, and a potential partnership with a globally known car maker. Several electric vehicle prototypes of the Sedan and City Car were +built by TongGao Advanced Manufacturing Technology (Taicang) Co. Ltd, an affiliate of Thunder Power. These prototypes were built for the +purpose of showcasing Thunder Power’s technology and for early fundraising purposes. Thunder Power has not produced a single electric +vehicle and all our statements in this prospectus regarding our production capabilities, technologies, weight, charging time, driving +range and potential partnerships are forecasts or forward-looking statements based on our own beliefs, opinions, and internal research, +development and testing. +Some of our directors, officers and assets +reside or be located outside of the United States, which may cause investors difficulty in enforcing judgments against our directors +and officers. +Some of our directors and +officers reside outside the United States and a majority of our assets are located outside the United States. As a result, it +may be difficult or impossible to effect service of process within the United States upon these directors and officers, or to recover +against those persons on judgments of United States courts, including judgments predicated upon the civil liability provisions of +the United States federal securities laws. Moreover, it is not certain that a court in the British Virgin Islands, Hong Kong, +or Taiwan would award damages on the same basis as a United States court, or that a British Virgin Islands, Hong Kong, or Taiwanese +court would enforce foreign judgments if it viewed the number of damages as excessive or inconsistent with local practice or public policy. +Further, the United States +may not be declared by the Government of other countries to be a reciprocating territory for the purposes of enforcement of foreign judgments, +and there are grounds upon which British Virgin Islands, Hong Kong, or Taiwan courts may decline to enforce the judgments of United States +courts. Some remedies available under the laws of the United States, including remedies available under the United States federal +securities laws, may not be allowed in British Virgin Islands, Hong Kong, or Taiwan courts if deemed contrary to public policy in +such jurisdictions. +Our affiliated parties such as our major +shareholders may be involved in governmental investigations and civil litigation relating to the business affairs of companies with which +they are, were or may in the future be affiliated with. +Our controlling shareholder, +Mr. Wellen Sham, is currently the defendant in significant legal proceedings that could materially impact our business. Mr. Sham faces +criminal prosecution in Taiwan on 11 indictments related to securities violations, breaches of fiduciary duty, and other financial matters. +Additionally, he is subject to multiple civil actions seeking his dismissal as chairman of a related company and claiming damages for +investors. While these proceedings do not directly involve our company, they create substantial risks, including: +● +Potential reputational damage affecting our ability to secure partnerships, investments, and customer trust; +18 +● +Diversion of Mr. Sham’s attention from our business operations; +● +Possible loss of Mr. Sham’s leadership or voting control if legal actions are successful; +● +Challenges in accessing capital markets or obtaining favorable terms from suppliers and partners. +Mr. Wellen Sham, Thunder +Power’s former Chief Executive Officer, is a defendant in a claim brought by the Taiwan Taipei District Prosecutor’s Office +(the “Prosecutor”) in 2022. This claim is currently being litigated in Taiwan Taipei District Court Criminal Division (Taiwan +Taipei District Court, Year 2022, Jin-Chong-Su-Zhi, No. 19) by a public Prosecutor. The prosecution is based on 11 indictments involving +the following: a securities purchase which may have been a related party transaction; the use of a non-exclusive license to offset +a debt owed to a related party; an exclusive authorized sales agent agreement for USD 4,950,000; an agreement for parts for an electric +four-door sedan for USD 4,480,000; a land purchase in a non-arm’s length related party transaction; executive control over +bonuses of USD 150,000, USD 50,000, USD 100,000, and NTD 6,000,000 from affiliates; utilization of funds to cover all expenses associated +with a seminar hosted by Thunder Power Electric Vehicle Limited (“TPEV”); utilization of funds to cover the salaries of employees; +and instructions to issue a false press release with the aim of disseminating rumors or misleading information (collectively, the “Criminal +Prosecution”). In conjunction with the Criminal Prosecution, Taiwan’s Securities Investor and Futures Trader Protection Center +(“SFIPC”), based on the content of the Criminal Prosecution, initiated civil actions against Mr. Sham, including: requesting +that Mr. Sham shall bear liability for damages incurred by EPTECH; asserting Mr. Sham should be dismissed from the position +of Chairman of EPTECH; asserting that Mr. Sham shall bear liability for damages incurred by investors of EPTECH; and applying for +a provisional seizure procedure against Mr. Sham. While Thunder Power is unable to predict the outcome of these matters with certainty, +in response to the foregoing accusations, Mr. Sham sought relief by asserting his innocence, appointing a defense attorney, applying +for an investigation of favorable evidence, and actively exercising his right to defend himself. +The outcome of these legal matters is uncertain +and could have far-reaching consequences for our business strategy, operations, and future prospects. +We are subject to substantial laws and regulations +that could impose substantial costs, legal prohibitions or unfavorable changes upon our operations or products, and any failure to comply +with these laws and regulations, including as they evolve, could substantially harm our business and results of operations. +We are or will be subject +to complex environmental, manufacturing, health and safety laws and regulations at numerous jurisdictional levels, including laws relating +to the use, handling, storage, recycling, disposal and human exposure to hazardous materials and with respect to constructing, expanding +and maintaining our facilities. The costs of compliance, including remediating contamination, if any, are found on our properties and +any changes to our operations mandated by new or amended laws, may be significant. We may also face unexpected delays in obtaining permits +and approvals required by such laws in connection with our manufacturing facilities, which would hinder our ability to continue our commercial +manufacturing operations. Such costs and delays may adversely impact our business prospects and results of operations. Furthermore, any +violations of these laws may result in substantial fines and penalties, remediation costs, third-party damages, or a suspension or cessation +of our operations. +In addition, models will +be subject to substantial regulations under international, federal, state and local laws. We have incurred and expect to continue to incur +significant costs in complying with these regulations. Any failures to comply could result in significant expenses, delays or fines. In +the United States, vehicles must meet or exceed all federally mandated motor vehicle safety standards to be certified under the federal +regulations. Rigorous testing and the use of approved materials and equipment are among the requirements for achieving federal certification. +Any future vehicles will be subject to substantial regulation under federal, state and local laws and standards. These regulations include +those promulgated by the U.S. Environmental Protection Agency, NHTSA, other federal agencies, various state agencies and various +state boards, and compliance certification is required for each individual vehicle we manufacture for sale. These laws and standards are +subject to change from time to time, and we could become subject to additional regulations in the future, which would increase the effort +and expense of compliance. In addition, federal, state and local laws and industrial standards for electric vehicles are still developing, +and we face risks associated with changes to these regulations, which could have an impact on the acceptance of our electric vehicles, +and increased sensitivity by regulators to the needs of established automobile manufacturers with large employment bases, high fixed costs +and business models based on the internal combustion engine, which could lead them to pass regulations that could reduce the compliance +costs of such established manufacturers or mitigate the effects of government efforts to promote electric vehicles. Compliance with these +regulations is challenging, burdensome, time consuming and expensive. If compliance results in delays or substantial expenses, our business +could be adversely affected. +19 +We also expect to become +subject to laws and regulations applicable to the supply, manufacture, import, sale and service of automobiles internationally, including +in Europe, the Middle East and China. Applicable regulations in countries outside of the U.S., such as standards relating to vehicle safety, +fuel economy and emissions, among other things, are often materially different from requirements in the United States. Compliance +with such regulations will therefore require additional time, effort and expense to ensure regulatory compliance in those countries. This +process may include official review and certification of our vehicles by foreign regulatory agencies prior to market entry, as well as +compliance with foreign reporting and recall management systems requirements. There can be no assurance that we will be able to achieve +foreign regulatory compliance in a timely manner and at our expected cost, or at all, and the costs of achieving international regulatory +compliance or the failure to achieve international regulatory compliance could harm our business, prospects, results of operations and +financial condition. +In the future, if we develop or acquire +proprietary intellectual property, protecting such intellectual property will be critical to our operations and we may suffer competitive +harm from infringement on such rights. +If we develop or acquire +proprietary intellectual property in the future, protecting such intellectual property will be critical to our operations. There is no +assurance that our patent applications will be granted or that issued patents will provide adequate protection. We may also need to expend +significant resources to defend our intellectual property against third-party infringement, and failure to protect these rights could +result in competitive harm. +We are subject to legal proceedings, regulatory +disputes and governmental inquiries that could cause us to incur significant expenses, divert our management’s attention, and adversely +affect our business, results of operations, cash flows and financial condition. +From time to time, we may +be subject to claims, lawsuits, government investigations and other proceedings involving product liability, consumer protection, competition +and antitrust, intellectual property, privacy, securities, tax, labor and employment, health and safety, our direct distribution model, +environmental claims, commercial disputes and other matters that could adversely affect our business, results of operations, cash flows +and financial condition. In the ordinary course of business, we have been the subject of complaints or litigation, including claims related +to employment matters. +Litigation and regulatory +proceedings may be protracted and expensive, and the results are difficult to predict. Additionally, our litigation costs could be significant, +even if we achieve favorable outcomes. Adverse outcomes with respect to litigation or any of these legal proceedings may result in significant +settlement costs or judgments, penalties and fines, or require us to modify, make temporarily unavailable or stop manufacturing or selling +our vehicles in some or all markets, all of which could negatively affect our sales and revenue growth and adversely affect our business, +prospects, results of operations, cash flows and financial condition. +The results of litigation, +investigations, claims and regulatory proceedings cannot be predicted with certainty, and determining reserves for pending litigation +and other legal and regulatory matters require significant judgment. There can be no assurance that our expectations will prove correct, +and even if these matters are resolved in our favor or without significant cash settlements, these matters, and the time and resources +necessary to litigate or resolve them, could harm our business, results of operations, cash flows and financial condition. In addition, +the threat or announcement of litigation or investigations by governmental authorities or other parties, irrespective of the merits of +the underlying claims, may itself have an adverse impact on the trading price of our Common Stock. +20 +We may become subject to product liability +claims, which could harm our financial condition and liquidity if we are not able to successfully defend or insure against such claims. +We +may become subject to product liability claims, which could harm our business, prospects, results of operations and financial condition. +The automotive industry experiences significant product liability claims, and we face inherent risks of exposure to claims in the event +our production vehicles do not perform or are claimed not to perform as expected or malfunction, resulting in property damage, personal +injury or death. We also expect that, as is true for other automakers, our vehicles will be involved in crashes resulting in death or +personal injury, and even if not caused by the failure of our vehicles, we may face product liability claims and adverse publicity in +connection with such incidents. In addition, we may face claims arising from or related to failures, claimed failures or misuse of new +technologies that we expect to offer. In addition, the battery packs that we produce make use of lithium-ion cells. On +rare occasions, lithium-ion cells can rapidly release the energy they contain by venting smoke and flames in a manner that can ignite +nearby materials as well as other lithium-ion cells. While we have designed our battery packs to passively contain a single cell’s +release of energy without spreading to neighboring modules, there can be no assurance that a field or testing failure of our vehicles +or other battery packs that we produce will not occur, in particular due to a high-speed crash. In addition, although we equip our +vehicles with systems designed to detect and warn vehicle occupants of such thermal events, there can be no assurance that such systems +will function as designed or will provide vehicle occupants with sufficient, or any, warning in all circumstances. Any such events or +failures of our vehicles, battery packs or warning systems could subject us to lawsuits, product recalls or redesign efforts, all of +which would be time-consuming and expensive. +A successful product liability +claim against us could require us to pay a substantial monetary award. Our risks in this area are particularly pronounced in light of +the limited field experience of our vehicles. Moreover, a product liability claim against us or our competitors could generate substantial +negative publicity about our vehicles and business and inhibit or prevent commercialization of our future vehicles, which would have material +adverse effect on our brand, business, prospects and results of operations. Our insurance coverage might not be sufficient to cover all +potential product liability claims, and insurance coverage may not continue to be available to us or, if available, may be at a significantly +higher cost. Any lawsuit seeking significant monetary damages or other product liability claims may have a material adverse effect on +our reputation, business and financial condition. +We are subject to various environmental, +health and safety laws and regulations that could impose substantial costs on us and cause delays in building and subsequently expanding +our production facilities. +Our operations are subject +to federal, state and local environmental laws and regulations and will be subject to international environmental laws, including laws +relating to the use, handling, storage, and disposal of and human exposure to hazardous materials. Environmental, health and safety laws +and regulations are complex, and we have limited experience complying with them. Moreover, we may be affected by future amendments to +such laws or other new environmental, health and safety laws and regulations which may require us to change our operations, potentially +resulting in a material adverse effect on our business, prospects, results of operations and financial condition. These laws can give +rise to liability for administrative oversight costs, cleanup costs, property damage, bodily injury, fines and penalties. Capital and +operating expenses needed to comply with environmental laws and regulations can be significant, and violations could result in substantial +fines and penalties, third-party damages, suspension of production or a cessation of our operations. +Contamination at properties +we own or operate, properties we formerly owned or operated or properties to which we sent hazardous substances may result in liability +for us under environmental laws and regulations, including, but not limited to, the Comprehensive Environmental Response, Compensation +and Liability Act, which can impose liability for the full amount of remediation-related costs without regard to fault, for the investigation +and cleanup of contaminated soil and ground water, for building contamination and impacts to human health and for damages to natural resources. +The costs of complying with environmental laws and regulations and any claims concerning noncompliance, or liability with respect to contamination +in the future, could have a material adverse effect on our financial condition or results of operations. +Our operations are also subject +to federal, state, and local workplace safety laws and regulations, including, but not limited to, the Occupational Health and Safety +Act, which require compliance with various workplace safety requirements, including requirements related to environmental safety. These +laws and regulations can give rise to liability for oversight costs, compliance costs, bodily injury (including workers’ compensation), +fines, and penalties. +Additionally, non-compliance could +result in delay or suspension of production or cessation of operations. The costs required to comply with workplace safety laws can be +significant, and non-compliance could adversely affect our production or other operations, including with respect to the production +of our first models, the Coupe and the City Car, which could have a material adverse effect on our business, prospects and results of +operations. +21 +We face risks associated with international +operations, including unfavorable regulatory, political, tax and labor conditions, which could harm our business. +We anticipate having operations +in the United States, Europe and distributions in the United States, European and Asian markets, each that which may be subject +to the legal, political, regulatory and social requirements and economic conditions in these jurisdictions. We are subject to a number +of risks associated with international business activities that may increase our costs, impact our ability to sell, service and manufacture +our vehicles, and require significant management attention. These risks include: +● +conforming our vehicles to various international regulatory requirements where our vehicles are sold, or homologation; +● +establishing localized supply chains and managing international supply chain and logistics costs; +● +establishing sufficient charging points for our customers in those jurisdictions, via partnerships or, if necessary, via development of our own charging networks; +● +difficulty in staffing and managing foreign operations; +● +difficulties attracting customers in new jurisdictions; +● +difficulties establishing international manufacturing operations, including difficulties establishing relationships with or establishing localized supplier bases and developing cost-effective and reliable supply chains for such manufacturing operations and financing such manufacturing operations; +● +foreign government taxes, regulations and permit requirements; +● +inflation as well as fluctuations in foreign currency exchange rates and interest rates, including risks related to any forward currency contracts, interest rate swaps or other hedging activities we undertake; +● +United States and foreign government trade restrictions, tariffs and price or exchange controls; +● +foreign labor laws, regulations and restrictions; +● +foreign data privacy and security laws, regulations and obligations; +● +changes in diplomatic and trade relationships, including political risk and customer perceptions based on such changes and risks; +● +political instability, natural disasters, pandemics, war or events of terrorism; and +● +the strength of international economies. +If we fail to successfully +address these risks, our business, prospects, results of operations and financial condition could be materially harmed. +Various states’ automobile manufacturer +and dealer regulations may limit Thunder Power’s ability to implement its business model for the sale of the Coupe and for the servicing +of its entire family of EVs in the U.S. EV market. +In the United States, +state laws regulate the manufacture, distribution, sale and service of automobiles, and generally require motor vehicle manufacturers +and dealers to be licensed in order to sell vehicles directly to residents. Certain states do not permit automobile manufacturers to be +licensed as dealers or to act in the capacity of a dealer, or otherwise restrict a manufacturer’s ability to deliver or service +vehicles. To sell vehicles to residents of states where Thunder Power is not licensed as a dealer, Thunder Power expects to conduct the +transfer of title out of the state. In certain such states, Thunder Power expects to open Studios that serve an educational purpose and +where the title transfer may not occur. +22 +Some automobile dealer trade +associations may challenge the legality of Thunder Power’s operations and direct selling operations by OEMs in court and may use +administrative and legislative processes to attempt to prohibit or limit such original equipment manufacturers’ (“OEMs”) +ability to operate existing stores or expand to new locations. Certain dealer associations may also actively lobbied state licensing agencies +and legislators to interpret existing laws or enact new laws in ways not favorable to Thunder Power’s planned direct sales and service +model. Thunder Power expects dealer trade associations to continue to lobby state licensing agencies and legislators to interpret existing +laws or enact new laws in ways not favorable to its business model; however, Thunder Power intends to oppose such efforts to limit its +ability to operate and intends to proactively support legislation that enables its business model. +Should Thunder Power not +be allowed to develop relationships with the largest multi-brand and high-end brand dealers in the U.S. it would be difficult +for it as a newcomer to the U.S. EV market to gain a foothold in the U.S. Thunder Power recognizes that its best strategy for +market penetration is to align itself with a U.S. dealership network, especially for sale of the Coupe, and the eventual servicing +of its family of EVs. +Our auditor, Assentsure PAC, is headquartered +in Singapore, and is subject to inspection by the PCAOB on a regular basis. To the extent that our independent registered public +accounting firm’s audit documentation related to their audit reports for our business activities in Hong Kong or Taiwan, the +PCAOB may not be able inspect such audit documentation and, as such, you may be deprived of the benefits of such inspection and our Common +Stock could be delisted from the stock exchange pursuant to the Holding Foreign Companies Accountable Act. +The Holding Foreign Companies +Accountable Act, or the HFCAA, was enacted on December 18, 2020. The HFCAA states if the SEC determines that we have filed audit +reports issued by a registered public accounting firm that has not been subject to inspection by the Public Company Accounting Oversight +Board (the “PCAOB”) for three consecutive years beginning in 2021, the SEC shall prohibit our shares from being traded +on a national securities exchange or in the over-the-counter trading market in the United States. +Pursuant to the HFCAA, the +PCAOB issued a Determination Report on December 16, 2021, which found that the PCAOB is unable to inspect or investigate completely +registered public accounting firms headquartered in parts of the PRC including: (i) Mainland China and (ii) Hong Kong. +In addition, the PCAOB’s report identified the specific registered public accounting firms which are subject to these determinations. +Our auditor, Assentsure PAC, is headquartered in Singapore and is subject to inspection by the PCAOB once every three years or as +determined by the PCAOB. Our auditor is not headquartered in the PRC and was not identified in this report as a firm subject to the +PCAOB’s determination. +Our independent registered +public accounting firm issued an audit opinion on the financial statements included in this report filed with the SEC and will issue audit +reports related to us in the future. As auditors of companies that are traded publicly in the United States and a firm registered +with the PCAOB, our auditor is required by the laws of the United States to undergo regular inspections by the PCAOB but there is +a risk that our auditor’s work papers has not been subjected to inspection by the PCAOB or the PCAOB is currently unable to conduct +inspections for reasons unknown or beyond our control. Inspections of certain other accounting firms that the PCAOB has conducted have +identified deficiencies in those firms’ audit procedures and quality control procedures, which may be addressed as part of the inspection +process to improve future audit quality. We are required by the HFCAA to have an auditor that is subject to the inspection by the PCAOB. While +our present auditor is located in the United States and the PCAOB is able to conduct inspections on such auditor, to the extent this +status changes in the future and our auditor’s audit documentation related to their audit reports for our company becomes outside +of the inspection by the PCAOB or if the PCAOB is unable to inspect or investigate completely our auditor because of a position taken +by an authority in a foreign jurisdiction, trading in our Common Stock on the over-the-counter market could be restricted, and our securities +could be subject to regulatory actions under the HFCAA. +On March 24, 2021, the +SEC adopted interim final rules relating to the implementation of certain disclosure and documentation requirements of the HFCAA, which +became effective on May 5, 2021. We will be required to comply with these rules if the SEC identifies our auditors as having a “non-inspection” year +under a process to be subsequently established by the SEC. +23 +On May 13, 2021, the +PCAOB proposed a new rule for implementing the HFCAA. Among other things, the proposed rule provides a framework for the PCAOB to +use when determining, under the HFCAA, whether it is unable to inspect or investigate completely registered public accounting firms located +in a foreign jurisdiction because of a position taken by one or more authorities in that jurisdiction. The proposed rule would also establish +the manner of the PCAOB’s determinations; the factors the PCAOB will evaluate and the documents and information it will consider +when assessing whether a determination is warranted; the form, public availability, effective date, and duration of such determinations; +and the process by which the board of the PCAOB can modify or vacate its determinations. The proposed rule was adopted by the PCAOB on +September 22, 2021 and approved by the SEC on November 5, 2021. +On June 22, 2021, the +U.S. Senate passed AHFCAA which, if passed by the U.S. House of Representatives and signed into law, would reduce the number +of consecutive non-inspection years required for triggering the prohibitions under the HFCAA from three years to two, under +this proposal, if the auditor is not subject to PCAOB inspections for two consecutive years, it will trigger the prohibition on trading, +thus posing more risks on potential delisting as well as the price of Company’s Ordinary shares especially on foreign companies. +The SEC is assessing how +to implement other requirements of the HFCAA, including the listing and trading prohibition requirements described above. The SEC may +propose additional rules or guidance that could impact us if our auditor is not subject to the PCAOB inspection. For example, on August 6, +2020, the President’s Working Group on Financial Markets, or the PWG, issued the Report on Protecting United States Investors +from Significant Risks from Chinese Companies to the then President of the United States. This report recommended the SEC implement +five recommendations to address companies from jurisdictions that do not provide the PCAOB with sufficient access to fulfill its statutory +mandate. Some of the concepts of these recommendations were implemented with the enactment of the HFCAA. However, some of the recommendations +were more stringent than the HFCAA. For example, if a company was not subject to the PCAOB inspection, the report recommended that +the transition period before a company would be delisted would end on January 1, 2022. +On December 2, 2021, +the SEC issued amendments to finalize the interim final rules previously adopted in March 2021, and established procedures to identify +issuers and prohibit the trading of the securities of certain registrants as required by the HFCAA. +While the HFCAA is not currently +applicable to us because our current auditors are subject to PCAOB review, if this changes in the future for any reason, we may be +subject to the HFCAA. The implications of this regulation as applied to us are uncertain. Such uncertainty could cause the market +price of our ordinary shares to be materially and adversely affected. While our securities are no longer listed on Nasdaq, failure to +comply with the HFCAA could result in restrictions on trading our securities on the over-the-counter market, impairing your ability to +sell or purchase our Common Stock. The risks and uncertainties associated with a potential delisting would have a negative impact on the +price of the Common Stock. +Risks Related to Thunder Power’s Products and Services +We have not yet commenced mass production, +and any significant delay in the design, manufacture, launch and financing could make it difficult for us to commence production and harm +our business and prospects. +Our plan to commercially +manufacture and sell our vehicles is dependent upon the timely availability of funds, upon our finalizing of the related design, engineering, +component procurement, testing, build-out and manufacturing plans in a timely manner and also upon our ability to execute these plans +within the planned timeline. Automobile manufacturers often experience delays in the design, manufacture and commercial release of new +vehicle models, and if we experience significant delays in any of the foregoing processes, it would be difficult for us to commence production, +which could harm our business and prospects. +Many of our vehicles are +still in the development and/or testing phase and may occur later or not at all. Additionally, prior to mass production of our electric +vehicles, we will also need the vehicles to be fully approved for sale according to differing requirements, including but not limited +to regulatory requirements, in the different geographies where we intend to launch our vehicles. Likewise, we may encounter delays with +the design, construction, and regulatory or other approvals necessary to bring online our future manufacturing facility in the United States. +24 +Furthermore, we would rely +on third party suppliers for the development, manufacture, and/or provision and development of many of the key components and materials +used in our vehicles, as well as provisioning and servicing equipment in our manufacturing facilities. We understand that many automobile +manufacturers have been affected by ongoing, industry-wide challenges in logistics and supply chains, such as increased port congestion, +intermittent supplier delays, a shortfall of semiconductor supply, and international travel restrictions preventing supply quality engineers +from conducting in-person visits and quality engineering for parts production. We expect to face these and similar challenges which +may affect our ability, and the ability of our suppliers, to obtain parts, components and manufacturing equipment on a timely basis, and +in some instances have resulted in increased costs. We expect that these industry-wide trends will continue for the foreseeable future. +To the extent our suppliers experience any delays in providing us with or developing necessary components, we could experience delays +in delivering on our timelines. +Any significant delay or +other complication in the development, manufacture, launch and production ramp of our future products, features and services, including +complications associated with completing and subsequently expanding our production capacity and supply chain or obtaining or maintaining +related regulatory approvals, or inability to manage such ramps cost-effectively, could materially damage our brand, business, prospects, +financial condition and results of operations. +We expect that we will require +additional financing to fund our planned operations and expansion plans. If we are unable to arrange for required funds under the terms +and on the timeline that we anticipate, our plans for tooling and building out our manufacturing facilities and for commercial production +of our electric vehicles could be significantly delayed, which would materially adversely affect our business, prospects, financial condition +and results of operations. +Our prospect for future growth depends upon +our ability to establish and maintain relationships with our potential suppliers and source suppliers for our critical components, and +to completely build out our supply chain, while effectively managing the risks due to such relationships. +Our success will depend on +our ability to enter into supplier agreements and establish and maintain our relationships with hundreds of suppliers that are critical +to the output and production of our vehicles. We currently have no supply or supplier agreements and the supplier agreements we have been +in discussions regarding or may enter into with potential key suppliers in the future may have provisions where such agreements can be +terminated in various circumstances, including potentially without cause. To the extent that we do not have long-term supply agreements +with guaranteed pricing for our parts or components, we will be exposed to fluctuations in prices of components, materials and equipment. +In addition, our agreements for the purchase of other components may contain pricing provisions that are subject to adjustment based on +changes in market prices of key commodities. Substantial increases in the prices for such components, materials and equipment, whether +due to supply chain or logistics issues or due to inflation, would increase our operating costs and could reduce our margins if we cannot +recoup the increased costs. Any attempts to increase the announced or expected prices of our vehicles in response to increased costs could +be viewed negatively by our potential customers and could adversely affect our business, prospects, financial condition or results of +operations. +We currently have no supply +or supplier agreements and may be at a disadvantage in negotiating supply or supplier agreements for the production of our vehicles as +we have not commenced the mass production of our vehicles. In addition, given that in many cases we are an aggregator of automotive parts +produced by third party manufacturers, there is the possibility that supply or supplier agreements for the parts and components for our +vehicles could be at costs that make it difficult for us to operate profitably. +The automotive market is highly competitive, +and we may not be successful in competing in this industry. +The +global automotive market, particularly for electric and alternative fuel vehicles, is highly competitive, and we expect it will become +even more so in the future. In recent years, the electric vehicle industry has grown, with several companies that focus completely +or partially on the electric vehicle market. We expect additional companies to enter this market within the next several years. +Electric vehicle manufacturers with which we compete include Tesla, BYD, NIO as well as an increasing number of U.S.-based and +international entrants, many of which have announced plans to begin selling their own electric vehicles in the near-term. We also compete +with established automobile manufacturers in the luxury vehicle segment, many of which have entered or have announced plans to enter +the alternative fuel and electric vehicle market with either fully electric or plug-in hybrid versions of their vehicles. We compete +for sales with luxury vehicles with internal combustion engines from established manufacturers. Many of our current and potential competitors +have significantly greater financial, technical, manufacturing, marketing and other resources than we do and may be able to devote greater +resources to the design, development, manufacturing, distribution, promotion, sale, servicing, and support of their products. In addition, +many of these companies have longer operating histories, greater name recognition, larger and more established sales forces, broader +customer and industry relationships and other resources than we do. Our competitors may be in a stronger position to respond quickly +to new technologies and may be able to design, develop, market and sell their products more effectively than we do. We expect competition +in our industry to significantly intensify in the future in light of increased demand for alternative fuel vehicles, continuing globalization, +favorable governmental policies, and consolidation in the worldwide automotive industry. Our ability to successfully compete in our industry +will be fundamental to our future success in existing and new markets. There can be no assurance that we will be able to compete successfully +in our markets. +25 +Our ability to generate meaningful product +revenue will depend on consumer adoption of electric vehicles. +We are developing and producing +only electric vehicles and, accordingly, our ability to generate meaningful product revenue will highly depend on sustained consumer demand +for alternative fuel vehicles in general and electric vehicles in particular. If the market for electric vehicles does not develop as +we expect or develops more slowly than we expect, or if there is a decrease in consumer demand for electric vehicles, our business, prospects, +financial condition and results of operations will be harmed. The market for electric and other alternative fuel vehicles is relatively +new, rapidly evolving, characterized by rapidly changing technologies, price competition, additional competitors, evolving government +regulation (including government incentives and subsidies) and industry standards, frequent new vehicle announcements and changing consumer +demands and behaviors. Any number of changes in industry could negatively affect consumer demand for electric vehicles in general and +our electric vehicles in particular. +In addition, demand for electric +vehicles may be affected by factors directly impacting automobile prices or the cost of purchasing and operating automobiles such as sales +and financing incentives such as tax credits, prices of raw materials and parts and components, cost of fuel, availability of consumer +credit, and governmental regulations, including tariffs, import regulation and other taxes. Volatility in demand may lead to lower vehicle +unit sales, which may result in downward price pressure and adversely affect our business, prospects, financial condition and results +of operations. Further, sales of vehicles in the automotive industry tend to be cyclical in many markets, which may expose us to increased +volatility, especially as we expand and adjust our operations and retail strategies. Specifically, it is uncertain how such macroeconomic +factors will impact us as a new entrant in an industry that has globally been experiencing a recent decline in sales. +Until the foreseeable future our revenue +will be significantly dependent on a limited number of models of electric vehicles. +The Company currently has +four models of electric vehicles featured in its phased development strategy and our revenue in the foreseeable future will be significantly +dependent on a limited number of models. Although we have other vehicle models on our product roadmap, we currently do not expect to introduce +another vehicle model for sale to these four models until at least 2030. We expect to rely on sales from the Limited Edition Coupe (the +“Coupe” or “488”), Long-range Sedan (the “Sedan”), Compact City Car (the “City Car” +or “Chloe”) and the Long-range SUV (the “SUV”, the Coupe, Sedan, City Car and SUV collectively referred to +as the “Models”), among other sources of financing, for the capital that will be required to develop and commercialize those +subsequent models. To the extent that production of the models is delayed, reduced, or is not well-received by the market for any +reason, our revenue and cash flow would be adversely affected, we may need to seek additional financing earlier than we expect, and such +financing may not be available to us on commercially reasonable terms, or at all. +Developments in electric vehicle or alternative +fuel technology or improvements in the internal combustion engine may adversely affect the demand for our vehicles. +We may be unable to keep +up with changes in electric vehicle technology or alternatives to electricity as a fuel source and, as a result, our competitiveness may +suffer. Significant developments in alternative technologies, such as alternative battery cell technologies, hydrogen fuel cell technology, +advanced gasoline, ethanol or natural gas, or improvements in the fuel economy of the internal combustion engine, may materially and adversely +affect our business and prospects in ways we do not currently anticipate. Existing and other battery cell technologies, fuels or sources +of energy may emerge as customers’ preferred alternative to the technologies in our electric vehicles. Any failure by us to develop +new or enhanced technologies or processes, or to react to changes in existing technologies, could materially delay our development and +introduction of new and enhanced electric vehicles, which could result in the loss of competitiveness of our vehicles, decreased revenue +and a loss of market share to competitors. In addition, we expect to compete in part on the basis of our vehicles’ range, efficiency, +charging speeds and performance, and improvements in the technology offered by competitors could reduce demand for our models or other +future vehicles. As technologies change, we plan to upgrade or adapt our vehicles and introduce new models that reflect such technological +developments, but our vehicles may become obsolete, and our research and development efforts may not be sufficient to adapt to changes +in alternative fuel and electric vehicle technology. Additionally, as new companies and larger, existing vehicle manufacturers continue +to enter the electric vehicle space, we may lose any technological advantage we may have and suffer a decline in our competitive position. +Any failure by us to successfully react to changes in existing technologies or the development of new technologies could materially harm +our competitive position and growth prospects. +26 +We will be dependent on our suppliers and +the inability of these suppliers to deliver necessary components of our products according to our schedule and at prices, quality levels +and volumes acceptable to us, or our inability to efficiently manage these components or to implement or maintain effective inventory +management and other systems, processes and personnel to support ongoing and increased production, could have a material adverse effect +on our results of operations and financial condition. +We will rely on third-party suppliers +for the provision and development of many of the key components and materials used in our vehicles. While we plan to obtain components +from multiple sources whenever possible, many of the components used in our vehicles will be purchased by us from a single, yet unknown, +source. Our limited, and in many cases single-source, supply chain approach exposes us to multiple potential sources of delivery failure +or component shortages for our production. Our potential third-party suppliers may not be able to meet our required product specifications +and performance characteristics, which would impact our ability to achieve our product specifications and performance characteristics +as well. Additionally, our potential third-party suppliers may be unable to obtain required certifications or provide necessary warranties +for their products that are necessary for use in our vehicles. +We may be affected by ongoing, +industry-wide challenges in logistics and supply chains, such as increased port congestion, intermittent supplier delays, a shortfall +of semiconductor supply, and international travel restrictions preventing supply quality engineers from conducting in-person visits +and quality engineering for parts production. We expect that these industry-wide trends will continue to affect the ability of us +and our suppliers to obtain parts, components and manufacturing equipment on a timely basis for the foreseeable future and may result +in increased costs. We may also be impacted by changes in our future supply chain or production needs, including cost increases from our +suppliers, in order to meet our quality targets and development timelines as well as due to design changes. Likewise, any significant +increases in our production may in the future require us to procure additional components in a short amount of time. Our suppliers may +not ultimately be able to sustainably and in a timely manner to meet our cost, quality and volume needs, requiring us to replace them +with other sources. In many cases, our suppliers will be providing us with custom-designed parts that would require significant lead +time to obtain from alternative suppliers or may not be available from alternative suppliers at all. If we are unable to obtain suitable +components and materials used in our vehicles from our suppliers or if our suppliers decide to create or supply a competing product, our +business could be adversely affected. Further, if we are unsuccessful in our efforts to control and reduce supplier costs, our results +of operations will suffer. +We have not experienced, +but may in the future experience, delays if our suppliers do not meet agreed upon timelines, experience capacity constraints, or deliver +components that do not meet our quality standards. Any disruption in the supply of components, whether or not from a single source supplier, +could temporarily disrupt production of our vehicles until an alternative supplier is able to supply the required material. Any such delay, +even if caused by a delay or shortage in only one part, could significantly affect our ability to meet our planned vehicle production +targets. Even in cases where we may be able to establish alternate supply relationships and obtain or engineer replacement components +for our single source components, we may be unable to do so quickly, or at all, at prices or quality levels that are acceptable to us. +This risk is heightened by the fact that we have less negotiating leverage with suppliers than larger and more established automobile +manufacturers, which could adversely affect our ability to obtain necessary components and materials on a timely basis, on favorable pricing +and other terms, or at all. The industry in which we operate has recently experienced severe supply chain disruptions, and we expect these +conditions to continue for the foreseeable future. Any such supply disruption could materially and adversely affect our results of operations, +financial condition and prospects. +27 +Furthermore, as the scale +of our vehicle production increases in the future, we will need to accurately forecast, purchase, warehouse and transport components to +our manufacturing facilities and servicing locations internationally and at much higher volumes. We have not yet scaled production in +our manufacturing facilities to significant volumes or begun servicing vehicles at significant volumes. Accordingly, our ability to scale +production and vehicle servicing and mitigate risks associated with these activities has not been thoroughly tested. If we are unable +to accurately match the timing and quantities of component purchases to our actual needs, successfully recruit and retain personnel with +relevant experience, or successfully implement automation, inventory management and other systems or processes to accommodate the increased +complexity in our supply chain and manufacturing operations, we may incur unexpected production disruption, storage, transportation and +write-off costs, which could have a material adverse effect on our results of operations and financial condition. +Furthermore, unexpected changes +in business conditions, materials pricing, labor issues, wars, governmental changes, tariffs, natural disasters, health epidemics, and +other factors beyond our and our suppliers’ control could also affect these suppliers’ ability to deliver components to us +on a timely basis. We have also identified certain of our suppliers, including certain suppliers we deem critical, as having poor financial +health or being at risk of bankruptcy. Although we routinely review our suppliers’ financial health and attempt to identify alternate +suppliers where possible, the loss of any supplier, particularly a single- or limited-source supplier, or the disruption in the supply +of components from our suppliers, could lead to vehicle design changes, production delays, idle manufacturing facilities and potential +loss of access to important technology and parts for producing, servicing and supporting our vehicles, any of which could result in negative +publicity, damage to our brand and a material and adverse effect on our business, prospects, results of operations and financial condition. +In addition, if our suppliers experience substantial financial difficulties, cease operations or otherwise face business disruptions, +we may be required to provide substantial financial support to ensure supply continuity, which could have an additional adverse effect +on our liquidity and financial condition. +Increases in costs, disruption of supply +or shortage of materials, in particular for lithium-ion cells or semiconductors, could harm our business. +As +we scale commercial production of our vehicles or any future energy storage systems, we have experienced and may continue to experience +increases in the cost of or a sustained interruption in the supply or shortage of materials. Any such increase, supply interruption or +shortage could materially and adversely impact our business, results of operations, prospects and financial condition. In addition, we +use various materials in our business, including aluminum, steel, lithium, nickel, copper, cobalt, neodymium, terbium, praseodymium and +manganese, as well as lithium-ion cells and semiconductors from suppliers. The prices for these materials fluctuate, +and their available supply may be unstable, depending on market conditions, inflationary pressure and global demand for these materials, +including as a result of increased production of electric vehicles, energy storage products by our competitors and the global supply +chain crisis, and could adversely affect our business and results of operations. For instance, we are exposed to multiple risks relating +to lithium-ion cells. These risks include: +● +the inability or unwillingness of current battery manufacturers to build or operate battery cell manufacturing plants to supply the numbers of lithium-ion cells required to support the growth of the electric vehicle industry as demand for such cells increases; +● +an increase in the cost, or decrease in the available supply, of materials, such as cobalt, used in lithium-ion cells; +● +disruption in the supply of cells due to quality issues or recalls by battery cell manufacturers; and +● +fluctuations in the value of any foreign currencies, in which battery cell and related raw material purchases are or may be denominated against the U.S. dollar. +28 +Our ability to manufacture +our vehicles or any future energy storage systems will depend on the continued supply of battery cells for the battery packs used in our +products. We have limited flexibility in changing battery cell suppliers, and any disruption in the supply of battery cells from such +suppliers could disrupt production of our vehicles until a different supplier is fully qualified. Furthermore, our ability to manufacture +our vehicles depends on continuing access to semiconductors and components that incorporate semiconductors. A global semiconductor supply +shortage is having wide-ranging effects across multiple industries and the automotive industry in particular, and it has impacted +many automotive suppliers and manufacturers, including us, that incorporate semiconductors into the parts they supply or manufacture. +We have experienced and may continue to experience an impact on our operations as a result of the semiconductor supply shortage, and such +shortage could in the future have a material impact on us or our suppliers, which could delay or reduce planned production levels of the +Models or planned future vehicles, impair our ability to continue production once started or force us or our suppliers to pay exorbitant +rates for continued access to semiconductors, and of which could have a material adverse effect on our business, prospects and results +of operations. In addition, prices and transportation expenses for these materials fluctuate depending on many factors beyond our control, +including fluctuations in supply and demand, currency fluctuations, tariffs and taxes, fluctuations and shortages in petroleum supply, +freight charges and other economic and political factors. These risks could be further magnified by geographical developments such as +the conflict between Ukraine and Russia. Substantial increases in the prices for our materials or prices charged to us, such as those +charged by battery cell or semiconductor suppliers, would increase our operating costs, and could reduce our margins if we cannot recoup +the increased costs through increased prices. Any attempts to increase product prices in response to increased material costs could result +in cancellations of orders and reservations and materially and adversely affect our brand, image, business, results of operations, prospects +and financial condition. +Furthermore, currency fluctuations, +tariffs or shortages in petroleum and other economic or political conditions have and may continue to result in significant increases +in freight charges and raw material costs. Substantial increases in the prices for our raw materials or components would increase our +operating costs and could reduce our margins. In addition, a growth in popularity of electric vehicles without a significant expansion +in battery cell production capacity could result in shortages which would result in increased materials costs to us, and would impact +our expected manufacturing and delivery timelines, and adversely affect our business, prospects, financial condition, results of operations, +and cash flows. +We must develop complex software and technology +systems, including in coordination with vendors and suppliers, in order to produce our electric vehicles, and there can be no assurance +such systems will be successfully developed. +Our vehicles use a substantial +amount of third-party and proprietary software and complex technological hardware to operate, some of which are still subject to +further development and testing. The development and implementation of such advanced technologies is inherently complex and requires coordination +with our vendors and suppliers in order to integrate such technology into our electric vehicles and ensure it interoperates with other +complex technology as designed and as expected. +We may fail to detect defects +and errors that are subsequently revealed, and our control over the performance of third-party services and systems may be limited. +Any defects or errors in, or which are attributed to, our technology could result in, among other things: +● +delayed production and delivery of our vehicles; +● +delayed market acceptance of our vehicles; +● +loss of customers or inability to attract new customers; +● +diversion of engineering or other resources for remedying the defect or error; +● +damage to our brand or reputation; +29 +● +increased service and warranty costs; +● +legal action by customers or third parties, including product liability claims; and +● +penalties imposed by regulatory authorities. +In +addition, if we are unable to develop the software and technology systems necessary to operate our vehicles, our competitive +position will be harmed. We rely on third-party suppliers to develop a number of technologies for use in our +products. There can be no assurances that our suppliers will be able to meet the technological requirements, +production timing and volume requirements to support our business plan. In addition, such technology may not satisfy the cost, +performance useful life and warranty characteristics we anticipate in our business plan, which could materially adversely affect our +business, prospects and results of operations. +We rely on complex machinery for our operations, +and production involves a significant degree of risk and uncertainty in terms of operational performance, safety, security and costs. +We expect to utilize a number +of new manufacturing technologies, techniques and processes for our vehicles, such as motor winding equipment, and we may utilize additional +new technologies, techniques and processes in the future. Certain design features in our vehicles present additional manufacturing challenges, +such the Battery Management System and Thermal Management System. There is no guarantee that we will be able to successfully and timely +introduce and scale any such new processes or features. +We also rely heavily on complex +machinery for our operations, and our production involves a significant degree of uncertainty and risk in terms of operational performance +and costs. Our manufacturing plant employs large-scale, complex machinery combining many components, which may suffer unexpected malfunctions +from time to time and will depend on repairs and spare parts that may not be available when needed. +Unexpected malfunctions of +the manufacturing plant components may significantly decrease our operational efficiency, including by forcing manufacturing shutdowns +in order to conduct repairs or troubleshoot manufacturing problems. Our facilities may also be harmed or rendered inoperable by natural +or man-made disasters, including but not limited to earthquakes, tornadoes, flooding, fire, power outages, environmental hazards +and remediation, costs associated with decommissioning of equipment, labor disputes and strikes, difficulty or delays in obtaining governmental +permits and licenses, damages or defects in electronic systems, industrial accidents or health epidemics, such as the recent COVID-19 pandemic, +which may render it difficult or impossible for us to manufacture our vehicles for some period of time. The inability to produce our vehicles +or the backlog that could develop if our manufacturing plant is inoperable for even a short period of time may result in the loss of customers +or harm our reputation. Although we maintain insurance for damage to our property and the disruption of our business, this insurance may +not be sufficient to cover all of our potential losses and may not continue to be available to us on acceptable terms, if at all. Should +operational risks materialize, they may result in the personal injury to or death of our workers, the loss of production equipment, damage +to manufacturing facilities, monetary losses, delays and unanticipated fluctuations in production, environmental damage, administrative +fines, increased insurance costs and potential legal liabilities, all which could have a material adverse effect on our business, results +of operations, cash flows, financial condition or prospects. +We have no experience to date in mass manufacturing +of our electric vehicles. +We cannot provide any assurance +as to whether we will be able to develop efficient, automated, low-cost logistics and production capabilities and processes and reliable +sources of component supply that will enable us to meet the quality, price, engineering, design and production standards, as well as the +production volumes required to successfully mass market our vehicles. Even if we are successful in developing our high volume production +capability and processes and reliably source our component supply, no assurance can be given as to whether we will be able to do so in +a manner that avoids significant delays and cost overruns, including as a result of factors beyond our control such as problems with suppliers +and vendors, or force majeure events, or in time to meet our commercialization schedules, or to store and deliver parts in sufficient +quantities to the manufacturing lines in a manner that enables us to maintain our production ramp curve and rates, or to satisfy the requirements +of customers and potential customers. Any failure to develop such logistics and production processes and capabilities within our projected +costs and timelines could have a material adverse effect on our business, results of operations, prospects and financial condition. Bottlenecks +and other unexpected challenges have and may continue to arise as we ramp production of the models, and it will be important that we address +them promptly while continuing to control our logistics and manufacturing costs. If we are not successful in doing so, or if we experience +issues with our logistics and manufacturing process improvements, we could face further delays in establishing and/or sustaining our production +ramps or be unable to meet our related cost and profitability targets. +30 +If our vehicles fail to perform as expected, +our ability to develop, market and sell or lease our products could be harmed. +Our vehicles or the components +installed therein have in the past and may in the future contain defects in design and manufacture that may cause them not to perform +as expected or that may require repairs, recalls, and design changes, any of which would require significant financial and other resources +to successfully navigate and resolve. Although we will attempt to remedy any issues we observe in our products as effectively and rapidly +as possible, such efforts could significantly distract management’s attention from other important business objectives, may not +be timely, may hamper production or may not be to the satisfaction of our customers. Further, our limited operating history and limited +field data reduce our ability to evaluate and predict the long-term quality, reliability, durability and performance characteristics +of our battery packs, powertrains and vehicles. There can be no assurance that we will be able to detect and fix any defects in our products +prior to their sale or lease to customers. +Any defects, delays or legal +restrictions on vehicle features, or other failure of our vehicles to perform as expected, could harm our reputation and result in delivery +delays, product recalls, product liability claims, breach of warranty claims and significant warranty and other expenses, and could have +a material adverse impact on our business, results of operations, prospects and financial condition. Any such defects or noncompliance +with legal requirements could also result in safety recalls. See “ — Risks Related to Regulation and Litigation .” +As a new entrant to the industry attempting to build customer relationships and earn trust, these effects could be significantly +detrimental to us. Additionally, problems and defects experienced by other electric consumer vehicles could by association have a negative +impact on perception and customer demand for our vehicles. +In addition, even if our +vehicles function as designed, we expect that the battery efficiency, and hence the range, of our electric vehicles, like other electric +vehicles that use current battery technology, will decline over time. Other factors, such as usage, time and stress patterns, may also +impact the battery’s ability to hold a charge, or could require us to limit vehicles’ battery charging capacity, including +via over-the-air or other software updates, for safety reasons or to protect battery capacity, which could further decrease our vehicles’ +range between charges. Such decreases in or limitations of battery capacity and therefore range, whether imposed by deterioration, software +limitations or otherwise, could also lead to consumer complaints or warranty claims, including claims that prior knowledge of such decreases +or limitations would have affected consumers’ purchasing decisions. Further, there can be no assurance that we will be able to improve +the performance of our battery packs, or increase our vehicles’ range, in the future. Any such battery deterioration or capacity +limitations and related decreases in range may negatively influence potential customers’ willingness to purchase our vehicles and +negatively impact our brand and reputation, which could adversely affect our business, prospects, results of operations and financial +condition. +We face challenges providing charging solutions for our vehicles. +Demand for our vehicles will +depend in part on the availability of charging infrastructure both domestically and internationally. While the prevalence of charging +stations has been increasing, charging station locations are significantly less widespread than gas stations. Globally there are supportive +regulations and funding to build and implement more charging stations. In the U.S., there is a movement toward having a uniform charging +adaptor whereby customers of different brands of electric vehicles may use any charging station. However, there is no assurance that more +changing stations will be built and implemented in the future, or that a uniform charging adaptor will be available in the future. +31 +Insufficient reserves to cover future warranty +or part replacement needs or other vehicle repair requirements, including any potential software upgrades, could materially adversely +affect our business, prospects, financial condition and results of operations. +We provide a new vehicle +limited warranty on all vehicles, components and systems. Warranty reserves will include our management team’s best estimate of +the projected costs to repair or to replace items under warranty. Such estimates are inherently uncertain, particularly in light of our +limited operating history and the limited field data available to us, and changes to such estimates based on real-world observations +may cause material changes to our warranty reserves in the future. If our reserves are inadequate to cover future maintenance requirements +on our vehicles, our business, prospects, financial condition and results of operations could be materially and adversely affected. We +may become subject to significant and unexpected expenses as well as claims from our customers, including loss of revenue or damages. +There can be no assurances that then-existing reserves will be sufficient to cover all claims. In addition, if future laws or regulations +impose additional warranty obligations on us that go beyond our manufacturer’s warranty, we may be exposed to materially higher +warranty, parts replacement and repair expenses than we expect, and our reserves may be insufficient to cover such expenses. +We may not be able to accurately estimate +the supply and demand for our vehicles, which could result in a variety of inefficiencies in our business and hinder our ability to generate +revenue. If we fail to accurately predict our manufacturing requirements, we could incur additional costs or experience delays. +It is difficult to predict +our future revenues and appropriately budget for our expenses, and we have limited insight into trends that may emerge and affect our +business. We will be required to provide forecasts of our demand to our suppliers several months prior to the scheduled delivery +of vehicles to our prospective customers. Currently, there is no historical basis for making judgments about the demand for our vehicles +or our ability to develop, manufacture, and deliver vehicles, or our profitability in the future. If we overestimate our requirements, +our suppliers may have excess inventory, which indirectly would increase our costs. If we underestimate our requirements, our suppliers +may have inadequate inventory, which could interrupt manufacturing of our products and result in delays in shipments and revenues. In +addition, lead times for materials and components that our suppliers order may vary significantly and depend on factors such as the specific +supplier, contract terms and demand for each component at a given time. If we fail to order sufficient quantities of product components +in a timely manner, the delivery of vehicles to our customers could be delayed, which would harm our business, financial condition and +results of operations. +Risks Related to Cybersecurity and Data Privacy +Any unauthorized control, manipulation, +interruption or compromise of or access to our products or information technology systems could result in loss of confidence in us and +our products, harm our business and materially adversely affect our financial performance, results of operations or prospects. +Our products may contain +complex information technology systems. For example, our vehicles are designed with built-in data connectivity to accept and install +periodic remote updates to improve their functionality. +In addition, we expect to +collect, store, transmit and otherwise process data from vehicles, customers, personnel and other third parties as part of our business +operations, which may include personal data or confidential or proprietary information. We also work with third-party service providers +and vendors that collect, store and process such data on our behalf. We have taken certain measures to prevent unauthorized access and +plan to continue to deploy additional measures as we grow. Our third-party service providers and vendors also take steps to protect +the security and integrity of our and their information technology systems and our and their customers’ information. However, there +can be no assurance that such systems and measures will not be compromised as a result of intentional misconduct, including by personnel, +contractors, or vendors, as well as by software bugs, human error, or technical malfunctions. +32 +Furthermore, cyber threat +actors may in the future attempt to gain unauthorized access to, modify, alter and use our vehicles, products and systems to (i) gain +control of, (ii) change the functionality, user interface and performance characteristics of and/or (iii) gain access to data +stored in or generated by, our vehicles, products and systems. Advances in technology, new vulnerability discoveries, an increased level +of sophistication and diversity of our products and services, an increased level of expertise of cyber threat actors and new discoveries +in the field of cryptography could lead to a compromise or breach of the measures that we or our third-party service providers use. +Some of our products and information technology systems contain or use open-source software, which can create additional risks, including +potential security vulnerabilities. We and our third-party service providers’ may in the future be affected by security incidents. +Our systems are also vulnerable to damage or interruption from, among other things, computer viruses, malware, ransomware, killware, wiper +ware, computer denial or degradation of service attacks, telecommunications failures, social engineering schemes (such as vishing, phishing +or smishing), domain name spoofing, insider theft, physical theft, fire, terrorist attacks, natural disasters, power loss, war, or misuse, +mistake or other attempts to harm our products and systems. Our data center and our third-party service providers’ or vendors’ +data centers could be subject to break-ins, sabotage and intentional acts of vandalism causing potential disruptions. Some of our systems +will not be fully redundant, and our disaster recovery planning cannot account for all eventualities. Any problems at our or our third-party service +providers’ or vendors’ data centers and/or cloud infrastructure could result in lengthy interruptions in our service and our +business operations. There can be no assurance that any security or other operational measures that we or our third-party service +providers or vendors have implemented will be effective against any of the foregoing threats or issues. +These risks have been heightened +in connection with the ongoing conflict between Russia and Ukraine and we cannot be certain how this new risk landscape will impact our +operations. When geopolitical conflicts develop, government systems as well as critical infrastructures such as financial services and +utilities may be targeted by state-sponsored cyberattacks even if they are not directly involved in the conflict. There can be no +assurance that our business will not become a potential target as adversaries may attack networks and systems indiscriminately. Such cyberattacks +may potentially cause unauthorized access to our sensitive data (including our proprietary software codes), products, and systems, causing +data breach, or disruption, modification, destruction to our systems and applications. As a result, we may suffer monetary losses, business +interruption, and long-lasting operational issues, damage to our reputation and brand, loss of our intellectual property or trade +secrets. +If we are unable to protect +our products and systems (and the information stored in our systems) from unauthorized access, use, disclosure, disruption, modification, +destruction or other breach, such problems or security breaches could have negative consequences for our business and future prospects, +including compromise of vehicle integrity and physical safety, causing monetary losses, giving rise to liabilities under our contracts +or to the owners of the applicable information, subjecting us to substantial fines, penalties, damages and other liabilities under applicable +laws and regulations, incurring substantial costs to respond to, investigate and remedy such incidents, reducing customer demand for our +products, harming our reputation and brand and compromising or leading to a loss of protection of our intellectual property or trade secrets. +In addition, regardless of their veracity, reports of unauthorized access to our vehicles, systems or data, as well as other factors that +may result in the perception that our vehicles, systems or data are vulnerable to being “hacked,” could negatively affect +our brand. In addition, some members of the U.S. federal government, including certain members of Congress and the National Highway +Traffic Safety Administration (“ NHTSA ”) , have recently focused attention on automotive cybersecurity issues +and may in the future propose or implement regulations specific to automotive cybersecurity. In addition, the United Nations Economic +Commission for Europe has introduced new regulations governing connected vehicle cybersecurity, which became effective in January 2021 +and are expected to apply in the European Union to all new vehicle types beginning in July 2022 and to all existing architectures/new +vehicles from July 2024. Such regulations are also in effect, or expected to come into effect, in certain other international jurisdictions. +These and other regulations could adversely affect the timing of our entry into various markets, and if such regulations or other future +regulations are inconsistent with our approach to automotive cybersecurity, we would be required to modify our systems to comply with +such regulations, which would impose additional costs and delays and could expose us to potential liability to the extent our automotive +cybersecurity systems and practices are inconsistent with such regulation. +We may not have adequate +insurance coverage to cover losses associated with any of the foregoing, if any. The successful assertion of one or more large claims +against us that exceed our available insurance coverage, or results in changes to our insurance policies (including premium increases +or the imposition of large deductible or co-insurance requirements), could have an adverse effect on our business. In addition, we +cannot be sure that our existing insurance coverage will continue to be available on acceptable terms or that our insurers will not deny +coverage as to any future claim. +33 +Furthermore, we are continuously +expanding and improving our information technology systems. In particular, our planned future vehicles will necessitate continued development, +maintenance and improvement of our information technology and communication systems in the United States and abroad, such as systems +for product data management, vehicle management tools, vehicle security systems, vehicle security management processes, procurement of +bill of material items, supply chain management, inventory management, production planning and execution, lean manufacturing, sales, service +and logistics, dealer management, financial, tax and regulatory compliance systems. Our ability to operate our business will depend on +the availability and effectiveness of these systems. The implementation, maintenance, segregation and improvement of these systems require +significant management time, support and cost. Moreover, there are inherent risks associated with developing, improving and expanding +our core systems as well as implementing new systems, including the disruption of our data management, procurement, manufacturing execution, +finance, supply chain, inventory management, and sales and service processes. We cannot be certain that these systems or their required +functionality will be effectively and timely developed, implemented, maintained or expanded as planned. If we are unsuccessful in any +of the foregoing, our operations may be disrupted, our ability to accurately or timely report our financial results could be impaired, +and deficiencies may arise in our internal control over financial reporting, which may impact our ability to certify our financial results. +If these systems or their functionality does not operate as we expect them to, we may be required to expend significant resources to make +corrections or find alternative sources for performing these functions. Any of the foregoing could materially adversely affect our business, +prospects, results of operations and financial condition. +In addition, our vehicles +depend on the ability of software and hardware to store, retrieve, process and manage immense amounts of data. Our software and hardware, +including any over-the-air or other updates, may contain errors, bugs, design defects or vulnerabilities, and our systems may be +subject to technical limitations that may compromise our ability to meet our objectives. Some errors, bugs or vulnerabilities may reside +in third-party intellectual property or open-source software and/or be inherently difficult to detect and may only be discovered +after code has been released for external or internal use. Although we will attempt to remedy any issues we observe in our vehicles as +effectively and rapidly as possible, such efforts may not be timely, may hamper production or may not be to the satisfaction of our customers. +Additionally, if we are able to deploy updates to the software addressing any issues but our over-the-air update procedures fail +to properly update the software, our customers will then be responsible for working with our service personnel to install such updates +to the software, and their vehicle will be subject to these vulnerabilities until they do so. Any compromise of our intellectual property, +proprietary information, systems or vehicles or inability prevent or effectively remedy errors, bugs, vulnerabilities or defects in our +software and hardware may cause us to suffer lengthy interruptions to our ability to operate our business and our customers’ ability +to operate their vehicles, compromise of vehicle integrity and physical safety, damage to our reputation, loss of customers, loss of revenue, +governmental fines, investigations or litigation or liability for damages, any of which could materially adversely affect our business, +results of operations, prospects and financial condition. +We are subject to evolving laws, regulations, +standards, policies, and contractual obligations related to data privacy and security, and any actual or perceived failure to comply with +such obligations could harm our reputation and brand, subject us to significant fines and liability, or otherwise adversely affect our +business. +In the course of our operations, +we may collect, use, store, disclose, transfer and otherwise process personal information from our customers, personnel and third parties +with whom we conduct business, including names, accounts, driver license information, user IDs and passwords, and payment or transaction +related information. Additionally, we will use our vehicles’ electronic systems to log information about each vehicle’s use, +such as charge time, battery usage, geolocation, mileage and driving behavior, in order to aid it in vehicle diagnostics, repair and maintenance, +as well as to help us customize and improve the driving and riding experience. +Accordingly, we may be subject +to or affected by a number of federal, state, local and international laws and regulations, as well as contractual obligations and industry +standards, that impose certain obligations and restrictions with respect to data privacy and security and govern our collection, storage, +retention, protection, use, transmission, sharing, disclosure and other processing of personal information including that of our personnel, +customers and other third parties with whom we conduct business. These laws, regulations and standards may be interpreted and applied +differently over time and from jurisdiction to jurisdiction, and it is possible that they will be interpreted and applied in ways that +may have a material and adverse impact on our business, financial condition and results of operations. +The global data protection +landscape is rapidly evolving, and implementation standards and enforcement practices are likely to remain uncertain for the foreseeable +future. We may not be able to monitor and react to all developments in a timely manner. For example, the European Union adopted the General +Data Protection Regulation (“ GDPR ”) , which became effective in May 2018, California adopted the California +Consumer Privacy Act of 2018 (“ CCPA ”) , which became effective in January 2020, Canada adopted +the Personal Information Protection and Electronic Documents Act (“ PIPEDA ”) and continues to amend the statute, the +United Arab Emirates adopted the Data Protection Law (“ DPL ”), which became effective in January 2022, and the +Kingdom of Saudi Arabia enacted the Personal Data Protection Law (“ PDPL ”) which will take effect in March 2023. +Each of the GDPR, the CCPA, the PIPEDA, the DPL and the PDPL impose additional obligations on companies regarding the handling of personal +data and provides certain individual privacy rights to persons whose data is collected. Compliance with existing, proposed and recently +enacted laws and regulations (including implementation of the privacy and process enhancements called for under the GDPR, CCPA, PIPEDA, +DPL and PDPL) can be costly, and any failure to comply with these regulatory standards could subject us to legal and reputational risks. +34 +Specifically, failure to +comply with the GDPR can result in significant fines and other liability, including, under the GDPR, fines of up to EUR 20 million +or four percent (4%) of global revenue, whichever is greater. The cost of compliance, and the potential for fines and penalties for non-compliance, +with GDPR may have a significant adverse effect on our business and operations. Recent legal developments in the European Economic Area +(“ EEA ”), including recent rulings from the Court of Justice of the European Union and from various EU member state +data protection authorities, have created complexity and uncertainty regarding transfers of personal data from the EEA to the United States +and other so-called third countries outside the EEA. Similar complexities and uncertainties also apply to transfers from the +United Kingdom to third countries. While we have taken steps to mitigate the impact on us, the efficacy and longevity of these mechanisms +remain uncertain. +At the state level, we may +be subject to law and regulations such as the CCPA. The CCPA establishes a privacy framework for covered businesses, including an +expansive definition of personal information and data privacy rights for California residents. The CCPA includes a framework with potentially +severe statutory damages for violations and a private right of action for certain data breaches. The CCPA requires covered businesses +to provide California residents with new privacy-related disclosures and new ways to opt out of certain uses and disclosures +of personal information. As we expand our operations, the CCPA may increase our compliance costs and potential liability. Some observers +have noted that the CCPA could mark the beginning of a trend toward more stringent privacy legislation in the United States. Additionally, +effective in most material respects starting on January 1, 2023, the California Privacy Rights Act (“ CPRA ”) , will +significantly modify the CCPA, including by expanding California residents’ rights with respect to certain sensitive personal information. +The CPRA also creates a new state agency that will be vested with the authority to implement and enforce the CCPA and the CPRA. +Other states, including Virginia +and Colorado, have enacted or are in the process of enacting, or considering similar laws. Compliance with these state statutes, other +similar state or federal laws that may be enacted in the future, and other applicable privacy and data security laws and regulations is +a rigorous and time-intensive process, and we may be required to put in place additional mechanisms to comply with such laws and +regulations, which could cause us to incur substantial costs or require us to change our business practices, including our data practices, +in a manner adverse to our business. In particular, certain emerging privacy laws are still subject to a high degree of uncertainty as +to their interpretation and application. Failure to comply with applicable laws or regulations or to secure personal information could +result in investigations, enforcement actions and other proceedings against us, which could result in substantial fines, damages and other +liability as well as damage to our reputation and credibility, which could have a negative impact on revenues and profits. +We will be required to post +public privacy policies and other documentation regarding our collection, use, disclosure and other processing of personal information. +Although we will endeavor to comply with our published policies and other documentation, we may at times fail to do so or may be perceived +to have failed to do so. Moreover, despite our efforts, we may not be successful in achieving compliance if our personnel, contractors, +service providers, vendors or other third parties fail to comply with our published policies and documentation. Such failures could carry +similar consequences or subject us to potential local, state and federal action if they are found to be deceptive, unfair or misrepresentative +of our actual practices. Claims that we have violated individuals’ privacy rights or failed to comply with data protection laws +or applicable privacy notices could, even if we are not found liable, be expensive and time-consuming to defend and could result +in adverse publicity that could harm our business. +Most jurisdictions have enacted +laws requiring companies to notify individuals, regulatory authorities and other third parties of security breaches involving certain +types of data. For example, laws in all 50 U.S. states generally require business to provide notice under certain circumstances to +consumers whose personal information has been disclosed as a result of a breach. Such laws may be inconsistent or may change, or additional +laws may be adopted. In addition, our agreements with certain customers may require us to notify them in the event of a security breach. +Such mandatory disclosures are costly, could lead to negative publicity, penalties or fines, litigation and our customers losing confidence +in the effectiveness of our security measures and could require us to expend significant capital and other resources to respond to or +alleviate problems caused by the actual or perceived security breach. Any of the foregoing could materially adversely affect our business, +prospects, results of operations and financial condition. +35 +Risks Related to Ownership of Thunder Power’s +Securities +The price of our Common Stock may be volatile. +The stock price of our Common +Stock may be volatile. The market price for our Common Stock may be influenced by many factors, including the other risks described in +this section and the following: +● +actual or anticipated variations in our financial results or those of companies that are perceived to be similar to us; +● +market conditions in the EV sectors; +● +market conditions and sentiment involving companies that have recently completed a business combination with a special purpose acquisition company (“SPAC”); +● +announcements by us or our competitors of significant acquisitions, strategic alliances, joint ventures or capital commitments; +● +developments or disputes concerning patents or other proprietary rights, including patents, litigation matters and our ability to obtain patent protection for its products; +● +our ability or inability to raise additional capital and the terms on which it is raised; +● +the recruitment or departure of key personnel; +● +actual or anticipated changes in earnings estimates or changes in stock market analyst recommendations regarding our Common Stock, other comparable companies or the industry generally; +● +our failure or the failure of our competitors to meet analysts’ projections or guidance; +● +fluctuations in the valuation of companies perceived by investors to be comparable to us; +● +announcement and expectation of additional financing efforts; +● +speculation in the press or investment community; +● +trading volume of our Common Stock; +● +sales of our Common Stock by us or Selling Stockholders; +● +the concentrated ownership of our Common Stock; +● +changes in accounting principles; +● +terrorist acts, acts of war or periods of widespread civil unrest; +● +natural disasters, public health crises and other calamities; and +● +general economic, industry and market conditions. +In addition, the stock markets +in general, and the markets for SPAC post-business combination businesses, EV stocks in particular, have experienced extreme volatility +during 2024. This volatility can often be unrelated to the operating performance of the underlying business. Since our delisting from +The These broad market and industry factors may seriously harm the market price of our Common Stock, regardless of our operating performance. +36 +We may incur significant costs from class action litigation due +to stock volatility. +Our stock price may fluctuate +for many reasons, including as a result of public announcements regarding the progress of development efforts for our EVs, the development +efforts of future collaborators or competitors, the addition or departure of key personnel, variations in quarterly operating results +and changes in market valuations of EV companies. This risk is especially relevant to us because EV companies have experienced significant +stock price volatility in recent years, including since the public announcement of our Business Combination in October 2023. +In addition, recently there has been significant stock price volatility involving the shares of companies that have recently completed +business combinations with SPACs. When the market price of a stock has been volatile, as our stock price may be, holders of that stock +have occasionally brought securities class action litigation against the company that issued the stock. Additionally, there has recently +been a general increase in litigation against companies that have recently completed business combinations with SPACs alleging fraud and +other claims based on inaccurate or misleading disclosures. If any of our stockholders were to bring a lawsuit of this type against us, +even if the lawsuit is without merit, we could incur substantial costs by defending the lawsuit. The lawsuit could also divert the time +and attention of management. +We are an “emerging growth company” +and the reduced disclosure requirements applicable to emerging growth companies may make our Common Stock less attractive to investors +and may make it more difficult to compare our financial performance with other public companies. +We are an emerging growth +company, as defined in the JOBS Act, and we intend to take advantage of certain exemptions from various reporting requirements that are +applicable to other public companies that are not emerging growth companies, including not being required to comply with the auditor attestation +requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in periodic +reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and +stockholder approval of any golden parachute payments not previously approved. An emerging growth company may elect to delay the adoption +of new or revised accounting standards. As a result, our financial statements may not be comparable to companies that comply with the +effective dates of revised accounting standards. Investors may find our Common Stock less attractive because of our reliance on these +exemptions. If some investors find our Common Stock less attractive as a result, there may be a less active trading market for their common +stock, and the stock price may be more volatile. +Future sales and issuances of Common Stock +or rights to purchase Common Stock could result in additional dilution to our stockholders and could cause the price of our Common Stock +to decline. +Significant additional capital +will be needed in the future to continue our planned operations. To raise capital, we may sell shares of Common Stock, convertible securities, +or other equity securities in one or more transactions at prices and in a manner as determined from time to time. If we sell Common Stock, +convertible securities, or other equity securities, current stockholders may be materially diluted by such sales. New investors could +gain rights, preferences, and privileges senior to the current holders of our Common Stock. +Pursuant to the 2024 Plan, +the Board or a committee appointed by the Board to administer the 2024 Omnibus Equity Incentive Plan (the “Administrator”), +is authorized to grant stock options to our employees, non-employee directors, and consultants. Initially, the maximum aggregate +number of shares of Common Stock that may be issued pursuant to stock awards under the 2024 Omnibus Equity Incentive Plan is approximately 4,588,005 shares +of Common Stock. Annually, on the first trading day of the calendar year, beginning with calendar year 2025, such share reserve will +automatically increase by 5% of the total number of shares of Common Stock outstanding as of the last day of the immediately preceding +calendar year, unless the Administrator acts prior to January 1 of such year to provide that there will be no increase or a lesser +increase in the share reserve for that year. +37 +The issuance of additional shares of Common Stock +or other equity securities of equal or senior rank may have some or all of the following effects: +● +the amount of cash available per share, including for payment of dividends in the future, may decrease; +● +the relative voting strength of each previously outstanding share of Common Stock may be diminished; and +● +the market price of our Common Stock may decline. +Reports published by analysts, including +projections in those reports that differ from our actual results, could adversely affect the price and trading volume of our Common Stock. +Securities research analysts +may publish their own periodic financial projections for our business. These projections may vary widely and may not accurately predict +the results that we actually achieve. Our stock price may decline if our actual results do not match the projections of these securities +research analysts. Similarly, if one or more of the analysts who write reports on us downgrades our stock or publishes inaccurate or unfavorable +research about our business, our stock price could decline. If one or more of these analysts ceases coverage or fails to publish reports +on us regularly, our stock price or trading volume could decline. If no analysts cover us, the trading price and volume for our Common +Stock could be adversely affected. +Anti-takeover provisions in our governing +documents and under Delaware law could make an acquisition of us more difficult, limit attempts by our stockholders to replace or remove +our current management and limit the market price of our Common Stock. +The Second Amended and Restated +Certificate of Incorporation of the Company (the “Charter”), the Company’s bylaws (the “Bylaws”) and Delaware +law contain provisions that could have the effect of rendering more difficult, delaying, or preventing an acquisition deemed undesirable +by the Board. Among other things, the Charter and/or the Company’s Bylaws include the following provisions: +● +permit the Board to issue up to 100,000,000 shares of preferred stock, with any rights, preferences, and privileges as they may designate, including the right to approve an acquisition or other change of control; +● +provide that the number of directors may be changed only by resolution of the Board; +● +provide that, subject to the rights of any series of preferred stock to elect directors, directors may be removed only for cause by the holders of two-thirds (66 and 2/3%) of the voting power of all of the then outstanding shares of voting stock of Combined Company entitled to vote generally at an election of directors; +● +provide that all vacancies, subject to the rights of any series of preferred stock, including newly created directorships, may, except as otherwise required by law, be filled exclusively by the affirmative vote of a majority of the directors then in office, even though less than a quorum, or by a sole remaining director; +● +provide that stockholders seeking to present proposals before a meeting of stockholders or seeking to nominate candidates for election as directors at a meeting of stockholders must provide advance notice in writing, and specify requirements as to the form and content of such notice; +● +provide that special meetings of the our stockholders may be called the Board; and +● +provide that the Board will be divided into three classes of directors, with only one class of directors being elected each year and each individual director serving a three-year term, thereby making it more difficult for stockholders to change the composition of the Board. +These provisions, alone or +together, could delay or prevent hostile takeovers and changes in control or changes in our management. As a Delaware corporation, we +are also subject to provisions of Delaware law, including Section 203 of the Delaware General Corporation Law, as may be amended from +time to time (the “DGCL”), which prevents interested stockholders, such as certain stockholders holding more than 15% of our +outstanding common stock, from engaging in certain business combinations unless (i) prior to the time such stockholder became an interested +stockholder, the board of directors approved the transaction that resulted in such stockholder becoming an interested stockholder, (ii) +upon consummation of the transaction that resulted in such stockholder becoming an interested stockholder, the interested stockholder +owned at least 85% of the common stock, or (iii) following board approval, such business combination receives the approval of the holders +of at least two-thirds of our outstanding common stock not held by such interested stockholder. +38 +Any provision of the Charter, +the Company’s Bylaws or Delaware law that has the effect of delaying, preventing or deterring a change in control could limit the +opportunity for our stockholders to receive a premium for their shares of our common stock and could also affect the price that some investors +are willing to pay for our common stock. +If the Business Combination’s benefits +do not meet the expectations of investors, stockholders or financial analysts, the market price of our Common Stock may decline. +If the benefits of the Business +Combination do not meet the expectations of investors or securities analysts, the market price of our Common Stock may decline. Any of +the factors listed below could have a material adverse effect on your investment in our Common Stock and it may trade at a price significantly +below the price you paid for it. +Factors affecting the trading +price of our Common Stock following the Business Combination may include: +● +actual or anticipated fluctuations in our quarterly financial results or the quarterly financial results of companies perceived to be similar to us; +● +changes in the market’s expectations about our operating results; +● +our operating results failing to meet the expectation of securities analysts or investors in a particular period; +● +operating and stock price performance of other companies that investors deem comparable to us; +● +changes in laws and regulations affecting our business; +● +commencement of, or involvement in, litigation involving us; +● +changes in our capital structure, such as future issuances of securities or the incurrence of additional debt; +● +the volume of shares available for public sale; +● +any major change in our Board or senior management; +● +sales of substantial amounts of securities by our directors, executive officers, or significant stockholders or the perception that such sales could occur; and +● +other material developments affecting the EV industry. +Broad market and industry +factors may materially affect the market price of our Common Stock irrespective of our operating performance. The stock market in general +has experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the particular +companies affected. The trading prices and valuations of these stocks, and of our securities, may not be predictable. A loss of investor +confidence in the market for retail stocks or the stocks of other companies, notably in the EV industry, which investors perceive to be +similar to us could depress our stock price regardless of its business, prospects, financial conditions or results of operations. A decline +in the market price for our Common Stock also could adversely affect our ability to issue additional securities and our ability to obtain +additional financing in the future. +39 +Risks Related to Ownership of Thunder Power’s Warrants +Our warrants became exercisable for our +Common Stock thirty (30) days after the completion of the Business Combination, which increased the number of shares eligible for +future issuance and resale in the public market. +Outstanding warrants to purchase +an aggregate of 10,537,475 shares of our Common Stock became exercisable in accordance with the terms of the Warrant Agreement governing +those securities. The public warrants became exercisable 30 days after the completion of the Business Combination. The likelihood +that those warrants will be exercised increases if the trading price of our Common Stock exceeds the exercise price of the warrants. The +exercise price of these warrants is $11.50 per share. There is no guarantee that the warrants will ever be in the money after they become +exercisable prior to their expiration, and as such, the warrants may expire worthless. To the extent warrants are exercised, additional +shares of our Common Stock will be issued, which may result in dilution to the holders of our Common Stock and increase the number of +shares eligible for resale in the public market. Sales of substantial numbers of shares issued upon the exercise of warrants in the public +market could adversely affect the market price of our Common Stock. +Once our warrants become exercisable, we may redeem the unexpired +warrants prior to their exercise at a time or in a manner that is disadvantageous to you. +As of the date of the annual +report, there were 10,537,475 warrants issued and outstanding, which will expire five years after the date of the Closing. We have the +ability to redeem outstanding warrants at any time prior to their expiration, at a price of $0.01 per warrant, provided that the last +reported sales price of our Common Stock equals or exceeds $16.50 per share (as adjusted for stock splits, stock dividends, reorganizations, +recapitalizations and the like) for any 20 trading days within a 30 trading-day period ending on the third business day +prior to the date on which we give proper notice of such redemption and provided certain other conditions are met. There can be no assurance +that the price of our Common Stock will not exceed the threshold of $16.50 after the Business Combination. +We will notify the warrant +agent and publicly announce the call for redemption at least thirty (30) days prior to the redemption date and mail the registered holders +by first class mail. We will not redeem the warrants unless a registration statement under the Securities Act covering the shares of Common +Stock issuable upon exercise of the warrants is effective and a current prospectus relating to those shares of Common Stock is available +throughout the redemption period, except if the warrants may be exercised on a cashless basis and such cashless exercise is exempt from +registration under the Securities Act. If we elect to redeem the warrants on a cashless basis, we will not receive any cash proceeds from +the exercise of such warrants. +Redemption of the outstanding +warrants could force you (i) to exercise warrants and pay the exercise price therefor at a time when it may be disadvantageous for +you to do so, (ii) to sell warrants at the then-current market price when you might otherwise wish to hold warrants or (iii) to +accept the nominal redemption price which, at the time the outstanding warrants are called for redemption, is likely to be substantially +less than the market value of the warrants. +The Warrant Agreement designates the courts of the State of New +York or the United States District Court for the Southern District of New York as the exclusive forum for certain types of actions and +proceedings that may be initiated by holders of the warrants. +Pursuant to the Warrant Agreement, +any action, proceeding or claim against us arising out of or relating in any way to the Warrant Agreement shall be brought and enforced +in the courts of the State of New York or the United States District Court for the Southern District of New York. The provision will apply +to suits, actions, proceedings or claims brought to enforce any liability or duty arising under the Securities Act. Notwithstanding the +foregoing, the provision will not apply to suits brought to enforce any liability or duty created by the Exchange Act or any other claim +for which the federal district courts of the United States of America are the sole and exclusive forum. Any person or entity purchasing +or otherwise acquiring any interest in our warrants shall be deemed to have notice of and to have consented to the forum provisions in +the Warrant Agreement. +This choice-of-forum provision +may limit a warrant holder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with the Company, +which may discourage such lawsuits. Alternatively, if a court were to find this provision of the Warrant Agreement inapplicable or unenforceable +with respect to one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving +such matters in other jurisdictions, which could materially and adversely affect our business, financial condition and results of operations +and result in a diversion of the time and resources of our management or Board. +40 +If we do not file and maintain a current +and effective prospectus relating to the Common Stock issuable upon exercise of our warrants, warrant holders will only be able to exercise +such warrants on a “cashless basis.” +If we do not file and maintain +a current and effective prospectus relating to the shares of Common Stock issuable upon exercise of our warrants at the time that holders +wish to exercise such warrants, they will only be able to exercise them on a “cashless basis” provided that an exemption from +registration is available. As a result, the number of shares of our Common Stock that holders will receive upon exercise of our warrants +will be fewer than it would have been had had such holder exercised such warrant for cash. Further, if an exemption from registration +is not available, holders will not be able to exercise on a cashless basis and will only be able to exercise their warrants for cash if +a prospectus relating to the shares of Common Stock issuable upon exercise of our warrants is filed and effective. Under the terms of +the Warrant Agreement, we have agreed to use our best efforts to meet these conditions and to file and maintain a current and effective +prospectus relating to the shares of Common Stock are issuable upon exercise of our warrants, until the expiration of our warrants. However, +we cannot assure you that it will be able to do so. If we are unable to do so, the potential value of the holder’s warrants may +be reduced, or such warrants may expire worthless. +Risks Related to Finance, Accounting and Tax Matters +Our actual results could differ from the +estimates and assumptions used to prepare our consolidated financial statements. +The preparation of our consolidated +financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts +of certain assets, liabilities, revenues and expenses for the periods covered and certain amounts disclosed in the notes to our consolidated +financial statements. These estimates are based on information available through the date of the issuance of the consolidated financial +statements and actual results could differ from those estimates, which could have a material adverse impact on our financial condition, +results of operations and cash flows. +We may need to raise additional funds and +these funds may not be available to us when needed. If we cannot raise additional funds when we need them, our business, prospects, financial +condition and operating results could be negatively affected. +The sourcing, purchasing, +development, and servicing of our projects may be capital-intensive. We may determine that additional funds are necessary. This capital +may be necessary to fund our future operations and to locate new opportunities. We may raise additional funds through the issuance of +equity, equity related or debt securities or through obtaining credit from government or financial institutions. We cannot be certain +that additional funds will be available on favorable terms when required, or at all. If we cannot raise additional funds when needed, +our business, prospects, financial condition and operating results could be materially adversely affected. +Our financial results may vary significantly +from quarter to quarter. +We expect our revenue and +operating results to vary from quarter to quarter. We may incur significant operating expenses during the start-up and early stages +of large contracts and may not be able to recognize corresponding revenue in that same quarter. We may also incur additional expenses +when contracts are terminated or expire and are not renewed. We may also incur additional expenses when companies are newly acquired. +Payments that may be due to us from our future customers may be delayed due to billing cycles or as a result of failures of government +budgets to gain congressional and administration approval in a timely manner. +Additional factors that may +cause our financial results to fluctuate from quarter to quarter include those addressed elsewhere in this “ Risk Factors ” +section, including the immediately preceding risk factor, and the following factors, among others: +● +variability in demand for our services and solutions; +● +timing of award or performance incentive fee notices; +● +timing of shipments and deliveries to potential future customers; +41 +● +variable purchasing patterns under blanket purchase agreements and other indefinite delivery/indefinite quantity contracts; +● +terms of potential future contracts which may affect the timing of revenue recognition; +● +costs related to government inquiries; +● +strategic decisions by us or our competitors, such as acquisitions, divestitures, spin-offs and joint ventures; +● +strategic investments or changes in business strategy; +● +changes in the extent to which we use subcontractors; +● +potential performance errors in our systems; +● +seasonal fluctuations in our staff utilization rates; +● +changes in our effective tax rate, including changes in our judgment as to the necessity of the valuation allowance recorded against our deferred tax assets; and +● +the length of sales cycles. +We could be subject to additional tax liabilities. +We are subject to federal, +state, and local income taxes in the United States. Determining our provision for income taxes requires significant management judgment, +and the ultimate tax outcome may be uncertain. In addition, our provision for income taxes is subject to volatility and could be adversely +affected by many factors, including, among other things, changes to our operating or holding structure, changes in the amounts of earnings +in jurisdictions with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, and changes in U.S. +tax laws. Tax authorities may disagree with our calculation of research and development tax credits, cross-jurisdictional transfer pricing, +or other matters and assess additional taxes, interest, or penalties. While we regularly assess the likely outcomes of these examinations +to determine the adequacy of our provision for income taxes and we believe that our financial statements reflect adequate reserves to +cover any such contingencies, there can be no assurance that the outcomes of such examinations will not have a material impact on our +results of operations and cash flows. If tax authorities change applicable tax laws, our overall taxes could increase, and our financial +condition or results of operations may be adversely impacted. +Unanticipated changes in effective tax rates or adverse outcomes +resulting from examination of our income or other tax returns could adversely affect our financial condition and results of operations. +We are subject to income +taxes in the United States and other jurisdictions, and our tax liabilities are subject to the allocation of expenses in differing jurisdictions. +Our future effective tax rates could be subject to volatility or adversely affected by a number of factors, including: +● +changes in the valuation of our deferred tax assets and liabilities; +● +expected timing and amount of the release of any tax valuation allowances; +● +tax effects of stock-based compensation; +● +costs related to intercompany restructurings; +● +changes in tax laws, regulations or interpretations thereof; or +● +lower than anticipated future earnings in jurisdictions where we have lower statutory tax rates and higher than anticipated future earnings in jurisdictions where we have higher statutory tax rates. +42 +In addition, we may be subject +to audits of our income, sales and other transaction taxes by taxing authorities. Outcomes from these audits could have an adverse effect +on our financial condition and results of operations. +The issuance and sale of additional shares +of Common Stock under the Purchase Agreement may result in dilution to our stockholders and have a negative impact on the market price +of our Common Stock. +From time to time, following +the effectiveness of this registration statement, we may direct Westwood to purchase shares of our Common Stock under the Purchase Agreement. +The purchase price for shares will be based on the lowest daily volume weighed average price of our Common Stock during a three consecutive +trading day following delivery of a purchase notice, less a 5% discount. Because this price is based on prevailing market prices at the +time of each sale, if our stock price declines, we might need to issue more shares to raise the same amount of funding. +While we have the right to +control the timing and number of sales under the Purchase Agreement, subject to certain conditions, any such issuances would result in +dilution to our existing stockholders. The extent of dilution will depend on numerous factors, including: +● +The market price of our Common Stock at the time of each sale +● +The number of shares we ultimately sell to Westwood +● +Other sales of our Common Stock that we may make from time to time +Moreover, additional issuances +of Common Stock under the Purchase Agreement could have a negative impact on the market price of our Common Stock. This in turn could: +● +Increase the dilution to existing stockholders from future issuances +● +Impair our ability to raise additional capital through other equity offerings +● +Adversely affect the liquidity and trading price of our Common Stock on the OTCQB Venture Market +Our Common Stock has been delisted from +The Nasdaq Capital Market and is now traded on the OTCQB Venture Market, which could adversely affect its market price, liquidity, and +our ability to raise capital. +On +March 7, 2025, the Company received a notification letter from the Nasdaq Listing Qualifications department of The Nasdaq Stock Market +LLC (“Nasdaq”) stating that the Company has not regained compliance with Nasdaq Listing Rules 5450(a)(1), which requires the +Company’s listed securities to maintain a minimum bid price of $1.00 per share (the “Bid Price Rule”) and 5450(b)(2)(A), +which requires the Company to maintain a minimum Market Value of Listed Securities (“MVLS”) of $50,000,000 (the “MVLS +Rule”). Accordingly, the Nasdaq Staff has determined that the Company’s securities will be delisted from The Nasdaq Global +Market. Unless the Company requests an appeal of Nasdaq’s determination, trading of the Company’s Common Stock will be suspended +at the opening of business on March 18, 2025, and a Form 25-NSE will be filed with the Securities and Exchange Commission, which will +remove the Company’s securities from listing and registration on The Nasdaq Stock Market. +As +previously disclosed in the Company’s Current Report on Form 8-K filed on September 6, 2024, Nasdaq notified the Company on September +4, 2024 that, based upon the closing bid price for the Company’s Common Stock for the 30 prior consecutive business days, the Company +no longer satisfied the Bid Price Rule, and that it had been provided a 180-calendar day grace period to regain compliance with that requirement, +through March 3, 2025. As disclosed in the same Form 8-K, Nasdaq also notified the Company that it was not in compliance with the MVLS +Rule based upon the Company’s MVLS for the previous 30 consecutive business days, and that it had been provided a 180-calendar day +grace period to regain compliance with that requirement, through March 3, 2025. +43 +On +March 26, 2025, the Company received approval from the Listing Qualifications Department of Nasdaq to transfer the listing of the Company’s +Common Stock from The Nasdaq Global Market to The Nasdaq Capital Market. On April 1, 2025, the Company received a partial moot letter +from Nasdaq, stating that the noncompliance concern of MVLS Rule is moot, and that the Company is only noncompliant with the Bid Price +Rule. On April 2, 2025, the Company submitted its written pre-hearing materials, detailing its plan to regain the Bid Price Rule. Despite +of the foregoing, on April 8, 2025, the Company received an additional Staff delist determination letter, outlining a new concern that +the Staff believed the Company is a “public shell,” as that term is defined by Nasdaq under Nasdaq Listing Rule 5101 and will +consider this matter in rendering a determination regarding the Company’s continued listing. The Company disagrees with the Staff’s +conclusion. As previously disclosed, the Company has requested a hearing before the Nasdaq Hearings Panel (the “Panel”), and +plans to address the issue at the hearing. +On April 17, 2025, Nasdaq +notified the Company that the Panel has determined to affirm the denial of the Company’s request to continue its listing of the +Company’s Common Stock, and that trading of the Company’s Common Stock was suspended at the open of trading on April 21, 2025. +On July 21, 2025, Nasdaq filed Form 25 with the Securities and Exchange Commission to delist the Company’s securities from Nasdaq. +The delisting became effective on July 31, 2025. As of the date of this report, the Company’s Common Stock is traded on the over-the-counter +market under the symbol “AIEV”. +As our securities were delisted +from the The Nasdaq Capital Market on July 31, 2025, there can be no assurance that an active or liquid trading market for our Common +Stock will be sustained on the over-the-counter market. It could be more difficult to buy or sell our Common Stock and to obtain accurate +quotations, and the price of our Common stock could suffer a material decline. Delisting could also impair the liquidity of our common +stock and could harm our ability to raise capital through alternative financing sources on terms acceptable to us, or at all, and may +result in potential loss of confidence by investors, employees, and fewer business development opportunities. +Item 1B. Unresolved Staff Comments +None. +Item 1C. Cybersecurity +Risk Management and Strategy +We have an information security +program designed to identify, protect, detect and respond to, and manage reasonably foreseeable cybersecurity risks and threats. To protect +our information systems from cybersecurity threats, we utilize various security tools that help prevent, identify , escalate, investigate, +resolve, and recover from identified vulnerabilities and security incidents in a reasonably timely manner . These include, but are not +limited to, internal reporting and tools for monitoring and detecting cybersecurity threats. +We evaluate the risks associated +with technology and cybersecurity threats and monitor our information systems for potential weaknesses. We review and test our information +technology system on an as-needed basis and also utilize internal team personnel to evaluate and assess the efficacy of our information +technology system and enhance our controls and procedures. The results of these assessments are reported to our [Audit Committee] and, +from time to time, our Board of Directors. +There can be no assurances +that our cybersecurity risk management program and processes, including our policies, controls, or procedures, will be fully implemented, +complied with or are effective in protecting our systems and information. +As of the date of this report, +we are not aware of any cybersecurity incidents that have had a materially adverse effect on our operations, business, results of operations, +or financial condition. +44 +Governance +Our Board of Directors considers +cybersecurity risk as part of its risk oversight function. It has delegated oversight of cybersecurity and other information technology +risks to the Audit Committee of the Board of Directors. The Audit Committee oversees the implementation of the cybersecurity risk management +program. +The Audit Committee receives +periodic reports from management on potential cybersecurity risks and threats. The Audit Committee reports to the full Board of Directors +regarding its activities, including those related to cybersecurity. The full Board of Directors also receives briefings from management +on the cybersecurity risk management program as needed. +Management is responsible +for assessing and managing our material risks from cybersecurity threats. Management has primary responsibility for our overall cybersecurity +risk management program and supervises both the internal cybersecurity personnel and external cybersecurity consultants. +The management team supervises +efforts to prevent, detect, mitigate, and remediate cybersecurity risks and incidents through various means, which may include briefings +from internal security personnel, threat intelligence and other information obtained from governmental, public or private sources, including +external consultants; and alerts and reports produced by security tools deployed in the IT environment. Our cybersecurity incident response +plan governs our assessment and response upon the occurrence of a material cybersecurity incident, including the process for informing +senior management and our Board of Directors. +Item 2. Properties +Our executive office Unit 5, 21/F., Westley Square, +48 Hoi Yuen Road, Kwun Tong, Kowloon, Hong Kong. +Item 3. Legal Proceedings +Legal Proceedings +There are no material proceedings +to which any director or officer, or any associate of any such director or officer, is a party that is adverse to our company or any of +our subsidiaries or has a material interest adverse to our company or any of our subsidiaries. No director or executive officer has been +a director or executive officer of any business which has filed a bankruptcy petition or had a bankruptcy petition filed against it during +the past ten years. No current director or executive officer has been convicted of a criminal offense or is the subject of a pending criminal +proceeding during the past ten years. No current director or executive officer has been the subject of any order, judgment or decree of +any court permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities +or banking activities during the past ten years. No current director or officer has been found by a court to have violated a federal or +state securities or commodities law during the past ten years. +From time to time, we are +subject to various legal proceedings that arise from the normal course of business activities. In addition, from time to time, third parties +may assert claims of intellectual property infringement, misappropriation or other violation against us in the form of letters and other +forms of communication. If an unfavorable ruling were to occur, there exists the possibility of a material adverse impact on our results +of operations, prospects, cash flows, financial position and brand. +45 +We are not currently a party +to any material legal proceedings; however, Mr. Well Sham, our controlling shareholder, is a party to the following legal proceedings: +Criminal prosecution against Mr. Wellen Sham +Taiwan Taipei District Prosecutor’s +Office (the “Prosecutor”) initiated a public prosecution against Mr. Wellen Sham on May 2, 2022, currently being +litigated in Taiwan Taipei District Court Criminal Division (Taiwan Taipei District Court, Year 2022, Jin-Chong-Su-Zhi, No. 19, the +“Criminal Prosecution”). Four court sessions for the Criminal Prosecution have been held. The last court session was on November 16, +2023. In response to the defendant’s request, the court has scheduled a series of hearings starting from March 2024. The Prosecutor +currently has 11 indictments against Mr. Sham in the Criminal Prosecution, which include the following alleged charges: +1. the offense of “causing financial statements to become +untrue by other improper means” under the Business Entity Accounting Act of Taiwan as a result of failure to disclose +a related party transaction in connection with Electric Power Technology Limited’s (“EPTECH”) purchase of Fund D securities +from Sino-JP Fund Co., Ltd because Mr. Sham is associated with EPTECH and Sino-JP Fund Co., Ltd. Inc. +2. violation of Securities and Exchange Act of Taiwan +by misrepresentations of EPTECH’s financial statements, non-arm’s length transaction, and/or breach of Mr. Sham’s +fiduciary duty to EPTECH because the Prosecutor alleged those transactions are not in the normal course of business of EPTECH or non-beneficial to +EPTECH. +a. Mr. Sham’s +acquisition of shares in Thunder Power Hong Kong Limited (“TPHK”), a company wholly owned by EPTECH, paid for by his +GPS patents which the Prosecutor alleged were priced at “an unreasonably high price.” +b. EPTECH +acquired a non-exclusive license for a battery pack patent from TPHK by offsetting the debt owed by TPHK to EPTECH, which the Prosecutor +alleged was “orchestrated” by Mr. Sham and was “non-beneficial to EPTECH.” +c. EPTECH +engaged an exclusive authorized agent for the electric coupe and agreed to pay USD $4,950,000 immediately, which the Prosecutor alleged +was “orchestrated” by Mr. Sham and was “deemed outside the normal course of EPTECH’s business” and +caused significant losses for EPTECH. +d. EPTECH +paid USD $4,480,000 for parts for an electric four-door sedan from TPHK, which the Prosecutor alleged was “arranged” +by Mr. Sham, not in the normal course of business of EPTECH and non-beneficial to EPTECH and constituted a non-arm’s +length transaction and a breach of fiduciary duty under the Securities and Exchange Act of Taiwan. +e. According +to the Prosecutor, EPTECH failed to fully disclose the transaction terms to the shareholders when negotiating the land purchase transaction +between EPTECH and Xiang Fang International Co., Ltd. (“XFI”) or agreed to alter terms that may have been advantageous to +EPTECH, resulting in substantial losses to EPTECH. +3. Electric Power Technology International Limited (“EPTI”), +a subsidiary of EPTECH, granted bonuses to Mr. Sham in the amount of USD $150,000, USD $50,000, and USD $100,000, +and EPTECH granted a bonus of NTD 6,000,000 to Mr. Sham. The Prosecutor alleged that those bonuses were granted in violation +of fiduciary duty under the Securities and Exchange Act of Taiwan and caused losses for EPTECH. +4. Thunder Power granted bonuses in the form of an option to +purchase approximately 28 million shares of Thunder Power at a price of HKD 1.00 per share to Mr. Sham and his spouse*, which +the Prosecutor alleged to have resulted in losses for EPTECH and constituting a breach of fiduciary duty under the Securities and Exchange Act of Taiwan. +* Mr. Sham’s spouse is a former director of Thunder +Power, who resigned from all roles with Thunder Power in October 2021. +5. EPTECH paid for expenses associated with a seminar hosted +by Thunder Power Electric Vehicle Limited (“TPEV”), which the Prosecutor alleged was under the direction of Mr. Sham, +constituting a breach of trust under the Criminal Code of Taiwan. +6. EPTECH paid the salaries of certain employees of TPEV and +TPHK, which the Prosecutor alleged was a breach of fiduciary duty under the Securities and Exchange Act of Taiwan. +7. According to the Prosecutor, Mr. Sham instructed Mr. Albert +Chen to compose a false press release with the aim of disseminating rumors or misleading information as EPTECH’s spokesperson, +which the Prosecutor alleged was intended to impact EPTECH’s stock prices and influence investors’ judgments in the stock +market, constituting the crime of manipulating the trading prices of securities under the Securities and Exchange Act of Taiwan. +46 +In response to the Prosecutor’s +accusations, Mr. Sham sought relief by asserting his innocence, appointing a defense attorney, applying for an investigation of favorable +evidence, and actively exercising his right to defend himself. +Civil actions against Wellen Sham +In conjunction with the Criminal +Prosecution, Taiwan’s Securities Investor and Futures Trader Protection Center (“SFIPC”) initiated the following civil +actions against Mr. Sham: +1. On October 18, 2022, SFIPC initiated an ancillary civil +action to the Criminal Prosecution, requesting that Mr. Sham shall bear liability for damages incurred by EPTECH. This civil +action is currently consolidated with the Criminal Prosecution and is under the jurisdiction of Taiwan Taipei District Court Criminal +Division but has not been litigated in court. +2. Based on the content of the Prosecutor’s indictment, +SFIPC initiated a civil suit on August 11, 2022, asserting Mr. Sham should be dismissed from the position of Chairman of EPTECH. This +suit is currently being litigated by the Intellectual Property and Commercial Court (Intellectual Property and Commercial Court, Year +2022, Shang-Su-Zi, No. 28). Currently, an agreement to suspend litigation has been reached with the opposing party (SFIPC). It is anticipated +that the litigation will resume after the witnesses are summoned in the Criminal Prosecution. +3. Based on the content of the Prosecutor’s indictment, +SFIPC initiated a civil suit on November 7, 2022, asserting that the valuation of Mr. Sham’s GPS patent, acquired through +technical investment, is overestimated, and asserts that EPTECH’s financial reports are misleading. SFIPC further asserts that +Mr. Sham shall bear liability for damages incurred by investors of EPTECH. This suit is currently being litigated by the Intellectual +Property and Commercial Court (Intellectual Property and Commercial Court, Year 2023, Shang-Su-Zi, No. 17). The court has required the +SFIPC to bear the burden of proof. +4. Pursuant to the civil suit of claim for damages of financial +misrepresentation (paragraph #3, immediately preceding this paragraph), SFIPC has applied for a provisional seizure procedure. Intellectual +Property and Commercial Court has ruled to grant the provisional seizure on November 25, 2022. After Mr. Sham’s appeal, +the Supreme Court reverse the original provisional seizure ruling, and on December 29, 2023, the Intellectual Property and Commercial +Court changed the ruling (Intellectual Property and Commercial Court, Year 2023, Shang-Quan-Geng-Zi, No. 2) to reducing the amount of +the provisional seizure and required the SFIPC to first provide a security deposit before seizing Mr. Sham’s property. This +requirement to SFIPC to pay a security deposit is an uncommon practice. Mr. Sham has currently appealed to the Intellectual Property +and Commercial Court’s remanded ruling on the provisional seizure and is awaiting a decision from the Supreme Court. +While we are unable to predict +the outcomes of these matters with certainty, we expect that the final outcomes of these pending matters against Mr. Sham will not, +either individually or in the aggregate, have a material adverse effect on our business, results of operations or financial condition; +however, we cannot guarantee whether, when and how it would impact our brand, reputation, business, results of operations or financial +condition. For additional information about legal proceedings that we may be subject to and the risks to our business related to litigation, +see “ Risk Factors —Risks Related to Regulation and Litigation — Our affiliated parties such as our major +shareholders may be involved in governmental investigations and civil litigation relating to the business affairs of companies with which +they are, were or may in the future be affiliated with. ” +Item 4. Mine Safety Disclosures +None. +47 +PART II +Item 5. Market for Registrant’s Common +Equity, Related Stockholders Matters and Issuer Purchases of Equity Securities +Market Information +Our Common Stock is listed on the OTCQB Venture +Market under the symbol “AIEV”. +Holders of Record +As of March 25, 2026, there +were 70,724,664 shares of Common Stock issued and outstanding held by approximately 55 stockholders of record. The number of record holders +was determined from the records of our transfer agent and does not include beneficial owners of shares of common stock whose shares are +held in the names of various security brokers, dealers, and registered clearing agencies. +Dividends +We have never declared or +paid any cash dividends on our capital stock. We currently intend to retain all available funds and future earnings, if any, for the operation +and expansion of our business and do not anticipate declaring or paying any dividends in the foreseeable future. Any future determination +related to our dividend policy will be made at the discretion of our board of directors after considering our financial condition, results +of operations, capital requirements, business prospects and other factors the board of directors deems relevant, and subject to the restrictions +contained in any financing instruments. Our ability to declare dividends may also be limited by restrictive covenants pursuant to any +other future debt financing agreements. +Recent Sales of Unregistered Equity Securities +Upon closing of the Business +Combination on June 21, 2024, the Sponsor had provided a total of $2,636,000 in working capital loans and elected to convert all such +working capital loans into 263,600 working capital units, which include 263,600 shares of common stock, par value $0.0001 per share, 263,600 +warrants, each of which may be exercised into one share of common stock of the Company, and 263,600 rights, each of which entitles +the holder to receive one-tenth of one share of common stock of the Company at the closing of the Business Combination. The Company issued +289,960 shares of common stock to the Sponsor on June 21, 2024. +In connection with the Business +Combination, FLFV engaged a third party financial advisor to assist FLFV in locating target businesses, holding meetings with its +shareholders to discuss a potential business combination and the target business’ attributes, introduce FLFV to potential investors +that are interested in purchasing securities, assist FLFV in obtaining shareholder approval for the business combination and assist with +press releases and public filings in connection with a business combination. On June 21, 2024, the Company issued 1,200,000 shares of +common stock to the financial advisor as service fees. The fair value of the 1,200,000 shares of common stock issued to the financial +advisor was $3,072,000, calculated at $2.56 per share by reference to the Nasdaq closing price of the Company’s common stock +on June 21, 2024. +In March 2024, April 2024 +and June 2024, the Company entered into certain private placement agreements with certain investors, pursuant to which the Company issued +1,310,740 shares of common stock, 44,940 shares of common stock and 1,155,513 shares of common stock, respectively. The Company raised +aggregated proceeds of $946,800 from these private placements. On July 2, 2024, the sellers purchased and the Company issued additional +3,706,461 shares of the Company’s common stock pursuant to the Forward Purchase Agreement and Subscription Agreement. The sellers +made a prepayment shortfall of $150,000. +48 +Issuer Purchases of Equity Securities +None. +Item 6. [Reserved] +Item 7. Management’s Discussion and Analysis of Financial +Condition and Results of Operations +Overview +Our mission is to power the +future of sustainable transportation by creating stylish, innovative and cost-efficient premium electric vehicles centered around differentiated +designs and solutions tailored for every lifestyle. We are a technology innovator and a developer of premium electric vehicles (“EVs”). +We have developed several proprietary technologies which are the building blocks of the Thunder Power family of EVs. +Four models are currently +featured in our phased development and roll-out strategy: the limited-edition coupe, (the “Coupe” or “488”), long-range +Sedan (the “Sedan”), compact city car (the “City Car” or “Chloe”) and the long-range SUV (the “SUV”, +and together with the Coupe, Sedan, and City Car, the “Models”). We intend to target not just consumers who desire EVs, but +consumers who desire practical and innovative EVs, as well as consumers who seek a luxury experience. We believe that by leveraging our +modular integration concept starting with the modularized chassis system patented by us, we are creating a family of EVs (excluding the +City Car) which share common parts and modules which we believe require lower investment and reduced design and production time as opposed +to those of traditional automotive manufacturers. We intend to first create the initial design for our Sedan and then scale upwards to +create the Coupe and scale downward to create the City Car. In time, we expect to round off our offering with the SUV. +We expect to offer to the +market eco-friendly, premium EVs positioned to earn market share based on design, quality, comfort, range, and price. Among other advantages, +we believe that our proprietary technologies will significantly increase the driving range for our potential EVs while allowing for faster +recharging and lower costs of ownership. +Business Combination +On June 21, 2024, Feutune +Light Acquisition Corporation (“FLFV”) consummated the business combination with Thunder Power Holdings Limited (“TP +Holdings”), pursuant to the Merger Agreement (the “Business Combination”). Following the Business Combination, the combined +company changed its name to “Thunder Power Holdings, Inc.” (the “Company”), which is organized under the laws +of the State of Delaware. +Upon consummation of the +Business Combination, FLFV acquired all of the issued and outstanding securities of TP Holdings in exchange for (i) 40,000,000 shares +of common stock, and (ii) earn out payments consisting of up to an additional 20,000,000 shares of common stock (the “Earnout +Shares”) if the Company met certain revenue performance target in the following years through December 31, 2026 (see “ Note +12 – Contingent Consideration ”). +Following the consummation of the Business Combination, the combined +Company’s common stock began trading on the Nasdaq Global Market under the symbol “AIEV” on June 24, 2024. Effective +July 31, 2025, Nasdaq delisted the Company’s securities. As of the date of this report, the Company’s Common Stock is traded +on OTCQB Venture Market under the symbol “AIEV”. +The reverse recapitalization +is equivalent to the issuance of securities by TP Holdings for the net monetary assets of FLFV, accompanied by a recapitalization. The +Company debited equity for the fair value of the net liabilities of FLFV. In the subsequent financial statements after the Business Combination, +the amounts of assets and liabilities for the period before the reverse recapitalization in financial statements are presented as those +of TP Holdings and recognized and measured at their pre-combination carrying amounts. +49 +Recent Developments +On December 19, 2024, the +Company entered into a Share Exchange Agreement (the “Agreement”) with certain shareholders (the “TW Company Shareholders”) +of Electric Power Technology Limited, a Taiwan corporation (“TW Company”). On January 27, 2025, the Company and TW Company +Shareholders have agreed to execute an amendment to the Share Exchange Agreement (the “First Amendment”, together with the +Agreement, the “Amended Agreement”), amending, among other things, the share exchange ratio as 119 shares of the Company’s +common stock for every 100 ordinary shares of TW Company. Pursuant to the Amended Agreement, a portion of the TW Company Shareholders +are expected to exchange a total of 26,783,838 ordinary shares in TW Company for an aggregate of 31,832,768 shares of newly issued Common +Stock of the Company in weeks, with the remaining total of 1,715,000 shares of the TW Company to be transferred to the Company for 2,038,621 +shares in a few months. Upon completion of the transaction, the Company is expected to hold approximately 33.71% of TW Company’s +total issued and outstanding shares. On June 26, 2025, the Company held its 2025 Annual Meeting of Stockholders (the “Annual Meeting”). +At the Annual Meeting, the shareholders voted to approve, among others, the share exchanges. +Key Factors Affecting Our Results of Operations +We believe that our performance +and future success will depend on several Company specific factors, including those key factors discussed below and other factors in the +section under the heading “ Risk Factors ” of this report. +Our ability to evaluate our business and future prospects +We are an early-stage company +with an early stage/limited operating history, operating in a rapidly evolving and highly regulated market. Furthermore, we have not released +any commercially available vehicles, and we have no experience manufacturing or selling a commercial product at scale. Because we have +not generated revenue from the sale of EVs, and because of the capital-intensive nature of our business, we expect to continue to incur +substantial operating losses for the foreseeable future. +Our ability to develop different models of vehicles +We currently have four models +featured in our phased development strategy and our revenue in the foreseeable future will be significantly dependent on a limited number +of models. Although we have other vehicle models on our product roadmap, we currently do not expect to introduce another vehicle model +until at least 2030. We expect to rely on sales from the Coupe, the Sedan, the City Car, and the SUV, among other sources of financing, +for the capital that will be required to develop and commercialize future models. To the extent that production of the models is delayed, +reduced or is not well-received by the market for any reason, our revenue and cash flow would be adversely affected, we may need to seek +additional financing earlier than we expect, and such financing may not be available to us on commercially reasonable terms, or at all. +Our ability to control the substantial costs associated with +our operations +We will require significant +capital to develop and grow our business. We have incurred and expect to continue to incur significant expenses as we build our brand +and develop and market our vehicles; expenses relating to developing and manufacturing our vehicles, tooling and expanding our manufacturing +facilities; research and development expenses (including expenses related to the development of the current and future products), raw +material procurement costs; and general and administrative expenses as we scale our operations. As a company, we do not have historical +experience forecasting and budgeting for any of these expenses, and these expenses could be significantly higher than we currently anticipate. +In addition, any disruption to our manufacturing operations, obtaining necessary equipment or supplies, expansion of our manufacturing +facilities, or the procurement of permits and licenses relating to our expected manufacturing, sales and distribution model could significantly +increase our expenses. +Our ability to develop a third-party retail product distribution +and a full-service network +We anticipate utilizing third-party +retail product distribution and full-service networks to execute on such plans in all markets. If our use of third-party retail production +and full-service networks is not effective, our results of operations and financial conditions could be adversely affected. +50 +Key Components of Results of Operations +The following section presents +the key components of our results of operations by the nature of corresponding operating activities for the periods indicated. You should +read this financial information in conjunction with those presented elsewhere in this report including our financial statements and notes +to our financial statements. +Revenues +We have not generated revenue +from the sale of EVs. We expect to generate revenue from the sale of our EV models, the sale and/or licensing of our technologies, and +from research and development services. +Cost of revenues +Although we have no revenue, +we have incurred costs associated with trying to generate revenue such as general and administrative expenses, liquidity and financing +expenses and other operating activities as further described below. +General and administrative expenses +General and administrative +expenses primarily consist of personnel salary and welfare expenses and professional and consulting expenses. Over the next several years, +we anticipate an increase in our general and administrative expenses with our launch of production lines of our EV cars. Additionally, +we expect to incur higher costs related to professional and consulting expenses associated with being a publicly traded company. +Taxation +The Company is incorporated +in the State of Delaware and is required to pay franchise taxes to the State of Delaware on an annual basis. The Company is also registered +as a foreign corporation with the State of New Jersey Department of the Treasury. The Company would be subject to income tax under New +Jersey state tax laws if it has operations in New Jersey. +On August 16, 2022, +the Inflation Reduction Act of 2022 (the “IRA”) was signed into federal law. The IRA provides for, among other things, a new +U.S. federal 1% excise tax on certain repurchases (including redemptions) of stock by publicly traded domestic (i.e., U.S.) corporations +and certain domestic subsidiaries of publicly traded foreign corporations. The excise tax is imposed on the repurchasing corporation itself, +not its shareholders from which shares are repurchased. The amount of the excise tax is generally 1% of the fair market value of +the shares repurchased at the time of the repurchase. However, for purposes of calculating the excise tax, repurchasing corporations are +permitted to net the fair market value of certain new stock issuances against the fair market value of stock repurchases during the same +taxable year. In addition, certain exceptions apply to the excise tax. The U.S. Department of the Treasury (the “Treasury”) +has been given authority to provide regulations and other guidance to carry out and prevent the abuse or avoidance of the excise tax. +The IRA applies only to repurchases that occur after December 31, 2022. +Our operating subsidiary +Thunder Power New Electric Vehicles (TPNEV) are under the current and applicable laws of BVI and is not subject to tax on income or capital +gains. +TP HK is incorporated in +Hong Kong and is subject to Hong Kong Profits Tax on the taxable income as reported in its statutory financial statements adjusted +in accordance with relevant Hong Kong tax laws. The applicable tax rate for the first HKD$2 million of assessable profits is +8.25% and assessable profits above HKD$2 million will continue to be subject to the rate of 16.5% for corporations in Hong Kong. +TP TW is incorporated +in Taiwan and is subject to Taiwan corporate income tax on the taxable income as reported in its statutory financial statements adjusted +in accordance with relevant Taiwan tax laws. The applicable tax rate for the first TW$120,000 of assessable profits is exempt from tax +and assessable profits above TWD$120,000 (approximately $3,900) will be subject to the rate of 20% for resident companies in Taiwan. +51 +Result of operations +The following table sets +forth a summary of our results of operations for the year ended December 31, 2025 and 2024. This information should be read together with +our consolidated financial statements and related notes included elsewhere in this report. The operating results in any period are not +necessarily indicative of the results that may be expected for any future period. +For the Years Ended +December 31, +2025 +2024 +Revenues +$ — +$ — +Operating expenses +General and administrative expenses +(1,917,739 ) +(2,502,190 ) +Total operating expenses +(1,917,739 ) +(2,502,190 ) +Other income (expenses) +Other expenses, net +(824 ) +— +Interest (expenses) income +(200,946 ) +51 +Foreign currency exchange income (loss) +92 +(212 ) +Total other expenses, net +(201,678 ) +(161 ) +Loss before income taxes +(2,119,417 ) +(2,502,351 ) +Income tax expenses +— +— +Net loss +$ (2,119,417 ) +$ (2,502,351 ) +General and administrative +expenses. For the years ended December 31, 2025 and 2024, our general and administrative expenses were approximately $1.7 million +and $2.5 million, respectively. The decrease in general and administrative expenses was primarily because we incurred share-based compensation +expenses of approximately $1.0 million upon closing of the Business Combination in June 2024 as we issued 900,000 shares of Common Stock +to three FLFV’s independent directors and transferred 429,350 shares of Common Stock from Sponsor to FLFV’s officers, directors, +secretary and their designees, partially offset by an increase of approximately $0.3 million in provision for credit losses against other +current assets. +Net loss. As +a result of the foregoing, we incurred a net loss of approximately $2.2 million and $2.5 million for the year ended December +31, 2025 and 2024. +52 +Liquidity and Capital Resources +To date, we have financed +our operating activities primarily through cash raised in loans from related parties (see “ Note 10 – Related Party Transactions +and Balances ”), and equity financing including private placements. +As of December 31, 2025, +the Company had cash of $10,093 and has incurred recurring losses from operations since inception. The Company reported a net loss of +approximately $2.1 million for the year ended December 31, 2025 and has an accumulated deficit of approximately $39.1 million. These conditions +raise substantial doubt about the Company’s ability to continue as a going concern. The Company faces several significant uncertainties, +including: +● +Operating losses and liquidity constraints – The Company has not generated sufficient revenues to support its operations and has limited cash resources to meet its obligations. +● +Prepaid Forward Contract – The Company has recorded a prepaid balance related to a forward purchase agreement as a current asset. The realization of this balance is dependent on the counterparty’s sale of the Company’s shares and is subject to significant uncertainty, including market conditions and the Company’s listing status. The arrangement is not expected to generate near-term cash inflows and may not be readily realizable in cash. Accordingly, this balance does not provide immediate liquidity to support the Company’s operations. +● +Nasdaq delisting – The Company’s common stock was suspended from trading on the Nasdaq Stock Market on April 21, 2025 and subsequently delisted in July 2025. The Company’s securities are currently quoted on the over-the-counter market. This significantly limits the Company’s ability to access public capital markets and raises substantial uncertainty regarding its ability to obtain financing. +● +Dependence on principal shareholder – The Company has historically relied on financial support from its principal shareholder. Due to ongoing legal proceedings involving the shareholder, there is significant uncertainty regarding the shareholder’s ability and willingness to continue providing financial support. +Management has undertaken +certain actions to address these conditions, including exploring potential financing alternatives, seeking additional equity or debt funding, +and evaluating cost reduction and restructuring initiatives. The Company is also pursuing strategic transactions, including a proposed +acquisition; however, such transaction remains subject to completion and other uncertainties, and the target entity is also subject to +its own going concern considerations. +However, there can be no +assurance that these plans will be successfully implemented or will be sufficient to alleviate the substantial doubt regarding the Company’s +ability to continue as a going concern, including the Company’s ability to realize value from the forward purchase arrangement. +Accordingly, the Company’s +ability to continue as a going concern is dependent upon its ability to obtain additional financing and generate sufficient cash flows +from operations. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and +classification of assets or the amounts and classification of liabilities that might result from the outcome of this uncertainty. +53 +Cash Flows +The following table sets +forth a summary of our cash flows for the periods presented: +For the Years Ended +December 31, +2025 +2024 +Net cash used in operating activities +$ (1,514,036 ) +$ (1,227,253 ) +Net cash (used in) provided by investing activities +(1,400 ) +929,302 +Net cash provided by financing activities +1,473,264 +153,660 +Effect of exchange rates on cash +(351 ) +— +Net decrease in cash +(42,523 ) +(144,291 ) +Cash at beginning of year +52,616 +196,907 +Cash at end of year +$ 10,093 +$ 52,616 +Operating Activities +Net cash used in operating +activities for the year ended December 31, 2025 was approximately $1.5 million, primarily attributable to net loss of approximately +$2.1 million, adjusted for non-cash item of provision for credit losses of approximately $0.3 million against other current assets, +and changes in operating assets and liabilities, including an increase of approximately $0.2 million in due to related parties and a decrease +of approximately $0.4 million in other payable and accrued expenses. +Net cash used in operating +activities for the years ended December 31, 2024 was approximately $1.2 million, primarily attributable to net loss of approximately +$2.5 million, adjusted for non-cash share-based compensation expenses of approximately $1.0 million, an increase of approximately +$0.1 million in due to related parties, and an increase of $0.1 million in accrued expenses and other current liabilities incurred for +professional consulting expenses since the closing of the Business Combination. +Investing activities +For the year ended December +31, 2025, we reported cash used in investing activities of approximately $1,400, which was from purchase of short-term investments of +approximately $1,400. +For the year ended December +31, 2024, we reported cash provided by investing activities of approximately $0.9 million, which was from the reverse acquisition we closed +with FLFV in June 2024. +Financing Activities +For the year ended December +31, 2025, we reported cash provided by financing activities of approximately $1.5 million, which were primarily provided by borrowings +of approximately $1.5 million from our controlling shareholder and his family member. +For the year ended December +31, 2024, we reported cash provided by financing activities of approximately $0.2 million, which were primarily provided by subscription +fees of $0.4 million from shareholders in the private placements raised by TP Holdings, borrowings of approximately $1.0 million from +our controlling shareholder, and proceeds of approximately $0.2 million from investors pursuant to Forward Purchase Agreement, partially +offset by payment of offering cost of approximately $1.0 million and payment of approximately $0.4 million of extension loans on behalf +of the Sponsor. +54 +Commitment and Contingencies +On June 21, 2024, the Company +entered into an escrow agreement (the “Escrow Agreement”) with Mr. Wellen Sham, Yuanmei Ma and CST, pursuant to which, among +other things, (1) CST will act as the escrow agent under the Escrow Agreement; (2) at the closing of the Business Combination, the Company +deposited with CST 20,000,000 shares of common stock as Earnout Shares, to be held by CST in a segregated escrow account (“Earnout +Escrow Account”); and (3) if any portion of the Earnout Shares becomes eligible for release in accordance with the terms of the +Escrow Agreement, CST will release the applicable portion of the Earnout Shares from the Earnout Escrow Account in accordance with the +terms of the Escrow Agreement and disburse to each eligible recipient the applicable portion of Earnout Shares therefrom. +The Earnout Shares shall +be released or otherwise forfeited as follows: (i) an aggregate of 5,000,000 Earnout Shares (the “Tranche 1 Earnout Shares”) +will be vested, if and only if, on the occurrence that the amount of sales/revenues of the Company for any of the fiscal years (such fiscal +year is referred to as “Tranche 1 Fiscal Year”) ending from December 31, 2023 to December 31, 2025 is no less than $42,200,000 +as evidenced by the audited financial statements of the Company prepared in accordance with U.S. GAAP for the Tranche 1 Fiscal Year that +is contained in an annual report on Form 10-K filed by the Company with the SEC (the “Tranche 1 Annual Report”); (ii) an aggregate +of 15,000,000 Earnout Shares (the “Tranche 2 Earnout Shares”) will be vested, if and only if, on the occurrence that the amount +of sales/revenues of the Company for any of the fiscal years (such fiscal year is referred to as “Tranche 2 Fiscal Year”) +ending from December 31, 2023 to December 31, 2026 is no less than $415,000,000 as evidenced by the audited financial statements of the +Company prepared in accordance with U.S. GAAP for the Tranche 2 Fiscal Year that is contained in an annual report on Form 10-K filed by +the Company with the SEC (the “Tranche 2 Annual Report”); (iii) Within five (5) business days following the determination +that all or any portion of the Tranche 1 Earnout Shares or Tranche 2 Earnout Shares become vested, the Company, together with Mr. Sham +and Ms. Ma, shall instruct the Escrow Agent to irrevocably and unconditionally release the vested tranche of Earnout Shares from the Escrow +Account in accordance with the terms of the Escrow Agreement to certain of the Company’s shareholders. Each tranche of Earnout Shares +may be released only once, but more than one tranche can be released in any year in accordance with the Escrow Agreement. +The Earnout Shares were issued +in connection with the Business Combination and are classified as equity instruments. The Earnout Shares were measured at their grant-date +fair value on June 21, 2024 and recorded within additional paid-in capital. Because the Earnout Shares are classified as equity instruments, +they are not subsequently remeasured. For the years ended December 31, 2025 and 2024, the revenue performance conditions required for +vesting were not achieved. Accordingly, no Earnout Shares were released from escrow as of December 31, 2025. +The Earnout Shares are classified +as equity instruments. Because the Earnout Shares are subject to vesting conditions, the Company evaluated the appropriate grant-date +measurement basis in accordance with applicable U.S. GAAP and recorded the Earnout Shares within equity. The Earnout Shares are not subsequently +remeasured. +Off-Balance Sheet Arrangements +We have not entered into +any financial guarantees or other commitments to guarantee the payment obligations of any third parties. In addition, we have not entered +into any derivative contracts that are indexed to the shares of our common stock and classified as shareholder’s equity or that +are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets +transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable +interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in product development +services with us. +55 +Research and Development +We have incurred minimal +research and development expenses for the years ended December 31, 2025 and 2024. The researched and development expenses were recorded +in “general and administrative expenses” in the consolidated statements of operations and comprehensive loss. +Critical Accounting Estimates +We prepare our financial +statements in accordance with U.S. GAAP, which requires our management to make judgments, estimates and assumptions that affect the +reported amounts of assets and liabilities, disclosures of contingent assets and liabilities on the date of the consolidated financial +statements, and the reported amounts of revenue and expenses during the reporting period. We continually evaluate these judgments, estimates +and assumptions based on our own historical experience, knowledge and assessment of current business and other conditions, our expectations +regarding the future based on available information and various assumptions that we believe to be reasonable, which together form our +basis for making judgments about matters that are not readily apparent from other sources. Since the use of estimates is an integral component +of the financial reporting process, our actual results could differ from those estimates. Some of our accounting policies require a higher +degree of judgment than others in their application. +Our expectations regarding +the future are based on available information and assumptions that we believe to be reasonable, which together form our basis for making +judgments about matters that are not readily apparent from other sources. Since the use of estimates is an integral component of the financial +reporting process, our actual results could differ from those estimates. Some of our accounting policies require a higher degree of judgment +than others in their application. +We consider an accounting +estimate to be critical if: (i) the accounting estimate requires us to make assumptions about matters that were highly uncertain +at the time the accounting estimate was made, and (ii) changes in the estimate that are reasonably likely to occur from period to +period or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial +condition or results of operations. +When reading our unaudited +condensed consolidated financial statements, you should consider our selection of critical accounting policies, the judgment and other +uncertainties affecting the application of such policies and the sensitivity of reported results to changes in conditions and assumptions. +See Note 2 — Summary of Significant Accounting Policies to our consolidated financial statements for the disclosure of +these accounting policies. We believe the following accounting estimates involve the most significant judgments used in the preparation +of our financial statements. +While management believes +its judgments, estimates and assumptions are reasonable, they are based on information presently available and actual results may differ +significantly from those estimates under different assumptions and conditions. We believe that the following critical accounting estimates +involve the most significant judgments used in the preparation of our financial statements. +(i) Allowance for expected credit losses of other receivable +We assessed the collectability +by reviewing other receivable on an individual basis in accordance with ASC Topic 326, Credit Losses (“ASC 326”). +Before entering into a Merger Agreement with FLFV, we entered into a letter of intent with Aetherium Acquisition Corp. (“GMFI”) +to explore a potential business combination. We paid extension loans in an amount of $300,000 and working capital loans in an amount of +$15,000 on behalf of GMFI. In March 2024, the letter of intent with GMFI was terminated. +For the year ended December +31, 2025, we assessed the payment intention and payment ability of GMFI and provided full allowance for credit losses against the balance +due to liquidation of GMFI. +(ii) Allowance for prepaid expenses for Forward Purchase Contract +As of December 31, 2025, +we assessed the recoverability of prepaid expenses for forward purchase contract which will be realized as the counterparty sells our +shares. +56 +The evaluation of impairment +requires significant judgment, particularly in assessing whether the prepaid balance will be fully recovered through future share transactions. +Key factors considered include: (a) our current and expected share price relative to the reference/reset price under the agreement, (b) +the enforceability of the Forward Purchase Contract, (c) the counterparty’s performance, including whether the counterparty continues +to sell shares in accordance with the contract, (d) the volume of remaining shares held and expected pace of future sales, and (e) overall +market conditions and liquidity of the Company’s shares. +Given that recovery of the +prepaid amount is dependent on future share sales and market prices, there is inherent uncertainty in the timing and amount of recovery. +As of December 31, 2025, we did not provide allowance against prepaid expenses for Forward Purchase Contract. +(iii) Classification of prepaid expenses for Forward Purchase Contract +Pursuant to the agreement +between us and the counterparty, we made an upfront payment to facilitate a forward share transaction whereby the counterparty acquires +and subsequently sells our shares in the market. Our economic benefit is realized through the sales of these shares, with settlement reflected +through equity (additional paid-in capital) rather than cash flows. +The arrangement does not +meet the definition of a derivative or financial asset in accordance with ASC 815, rather the upfront payment represents a prepaid asset +under ASC 340, providing future economic benefit as the underlying shares are sold. Accordingly, the upfront payment is recognized as +a prepaid expense and will be derecognized as the related share transactions occur, with any differences recognized in additional paid-in +capital in accordance with ASC 505. +(iv) Classification of prepaid expenses for Forward Purchase Contract as a current asset +We also applied judgment +in classifying the prepaid balance as current, based on the expectation that the underlying share sales and related settlement will occur +within 12 months of the reporting date, supported by the ongoing execution of the Forward Purchase Contract and historical pace of share +dispositions. +(v) Accrued legal expenses +We exercised significant +judgment in estimating accrued legal expenses where invoices are disputed and final settlement has not been reached. +As of December 31, 2025, +we recorded an accrual of $250,000 related to legal services provided by Brown Rudnick. The original invoices totaled approximately $659,910, +which management disputed due to delayed filings and incomplete services. No settlement agreement had been finalized as of the reporting +date. +We based our estimation on +actual services rendered, which represents the best assessment of the probable obligation under ASC 450. Given the range of possible outcomes +and ongoing negotiations, the ultimate settlement amount may differ from the amount accrued. +Recently Issued Accounting Pronouncements +The Company has evaluated +all recently issued accounting pronouncements and believes such pronouncements do not have a material effect on the Company’s consolidated +financial statements. A list of recently issued accounting pronouncements that are relevant to us is included in the notes to our consolidated +financial statements included elsewhere in this report (see “ Note 2 – Summary of Significant Accounting Policies ”). +57 +Item 7A. Quantitative and Qualitative Disclosures About Market Risk +Under SEC rules and regulations, +because we are considered to be a “smaller reporting company”, we are not required to provide the information required by +this item in this report. +Item 8. Financial Statements and Supplementary Data +The Financial Statements +and Supplementary Data required by this Item 8 are incorporated by reference to information beginning on Page F-1 of this Form 10-K. +Item 9. Changes in and Disagreements with Accountants on Accounting +and Financial Disclosures +None. +Item 9A. Controls and Procedures +Evaluation of Disclosure Controls and Procedures +Our +management evaluated, with the participation of our Chief Executive Officer (the principal executive officer) and our Chief Financial +Officer (the principal financial officer), the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) +and 15d-15(e) under the Exchange Act) as of December 31, 2025. Based upon the evaluation, our Chief Executive Officer and Chief Financial +Officer concluded that the Company’s disclosure controls and procedures were not effective, at the reasonable assurance level, as +of December 31, 2025, we identified the material weakness that we are lack of sufficient financial reporting and accounting personnel +with appropriate knowledge of U.S. GAAP and SEC reporting requirements to properly address complex U.S. GAAP technical accounting issues +and prepare and review financial statements and related disclosures in accordance with U.S. GAAP and reporting requirements set forth +by the SEC. Our management is currently in the process of evaluating the steps necessary to remediate the ineffectiveness, such as (i) +hiring a consulting firm with U.S. GAAP experience to strengthen our financial reporting function; (ii) establishing an ongoing program +to provide sufficient and appropriate training for financial reporting and accounting personnel, especially training related to U.S. GAAP +and SEC reporting requirement. +Limitations +on Controls and Procedures +We +do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and +procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the +disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there +are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure +controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all +our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain +assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated +goals under all potential future conditions. +Management’s Annual Report on Internal +Control Over Financial Reporting +This +Annual Report does not include a report of management's assessment regarding internal control over financial reporting or an attestation +report of the company's registered public accounting firm. +Prior +to June 21, 2024, we were known as Feutune Light Acquisition Corporation, a Delaware corporation (“FLFV”), and Feutune Light +Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of FLFV (“Merger Sub”). On October 26, 2023, we entered +into a business combination agreement (as amended, the “Business Combination Agreement”) with Thunder Power Holdings Limited, +a British Virgin Islands company (“Thunder Power”), pursuant to which on June 21, 2024, Thunder Power merged with and into +Merger Sub, with Merger Sub surviving the merger as a wholly owned subsidiary of FLFV (the “Merger”). +58 +FLFV, +our predecessor company prior to the consummation of the Merger, is a non-operating public, and the internal controls of the legal acquirer +no longer exist as of the assessment date. We are not able to conduct an assessment of Thunder Power, a private operating company prior +to the Merger, and we are not able to account FLFV’s internal control over financial reporting in the period between the consummation +date of the Merger and the assessment date. +Changes in Internal Control Over Financial +Reporting +Except +as discussed above, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(d) and 15d-15(d) +of the Exchange Act) during the quarter ended December 31, 2025, that have materially affected, or are reasonably likely to materially +affect, our internal control over financial reporting. +Limitations on Effectiveness of Controls +and Procedures +Our +management team, including our Chief Executive Officer and Interim Chief Financial Officer, believes that our disclosure controls and +procedures and internal controls over financial reporting are designed to provide reasonable assurance of achieving their objectives and +are effective at the reasonable assurance level. However, the effectiveness of any internal control over financial reporting is subject +to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, +and the inability to completely eliminate all potential for misconduct. Because of the inherent limitations in all control systems, no +evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. The +design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance +that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate +because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Because of the inherent limitations +in any cost-effective control system, misstatements due to error or fraud may occur and not be detected. +Item 9B. Other Information +Trading Plans +During +the three months ended December 31, 2025, no director or officer (as defined in Rule 16a-1(f) under the Exchange Act) of the company adopted +or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined +in Item 408(a) of Regulation S-K. +Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent +Inspections +Not applicable. +59 +Part III +Item 10. Directors, Executive Officers and Corporate Governance +Current Directors and Executive Officers +The following table provides +information regarding our executive officers and members of our board of directors as of the date of this Annual Report on Form 10-K: +Name +Age +Position +Christopher Nicoll +57 +Chief Executive Officer and Director +Pok Man Ho +40 +Interim Chief Financial Officer +Dr. Chen ChiWen +50 +Director and Chairman of the Board +Mingchih Chen (1)(2)(3) +59 +Director +Ferdinand Kaiser (1)(2)(3) +62 +Director +Kevin Vassily (1)(2)(3) +59 +Director +(1) Member +of the audit committee. +(2) Member +of the compensation committee. +(3) Member +of the nominating and corporate governance committee. +Executive Officers +Christopher Nicoll +serves as our Chief Executive Officer and a member of the Board. Since 2021, Mr. Nicoll operated the Auto Advisory Board Ltd. as a business +owner and a commercial automotive consultant, through which he takes on diverse automotive projects and interim roles including, without +limitation, implementing commercial, financial and logistics processes for a start-up, supervised technical conversion, homologation and +emissions testing, and advised a major European dealer group on its international product launch. Mr. Nicoll previously served in the +capacity of the managing and commercial director of AGT Europe between 2018 and 2020, where he launched the official EU import for Dodge +cars, Ram trucks and MOPAR spare parts. Between 2015 and 2018, Mr. Nicoll was the head of marketing and business development at TPEV where +he oversaw start-up EV projects such as, without limitation, R&D activities in Italy, and led cross-functional commercial and engineering +teams. From 2010 through 2014, Mr. Nicoll held the position as the head of global network development, head of APAC region, and head of +EMEA region at Lotus Cars. Mr. Nicoll received a BA in Business Administration from Middlesex University in the UK and a Diplom Betriebswirt +from the Reutlingen University in Germany. +Pok Man Ho +serves as our Interim Chief Financial Officer since September 16, 2024. Previously, Mr. Ho was part of Thunder Power since 2015, where +he played a pivotal role in corporate finance, financial planning and analysis, human resources, and corporate governance. Over his tenure +with Thunder Power he was instrumental in driving strategic decision-making, optimizing resource allocation, and ensuring regulatory compliance. +Prior to that, Mr. Ho held regional roles in the insurance and luxury retail industries from 2012 to 2015. During this period, he leveraged +his expertise in taxation and human resources cost analysis in Assicurazioni Generali S.p.A. and Gucci Group, respectively. This experience +provided him with a comprehensive understanding of the financial and operational challenges faced by multinational corporations in different +sectors. Prior to that, Mr. Ho began his career at KPMG in 2009, where he specialized in taxation. During the three-year tenure with KPMG, +Mr. Ho gained valuable insight into tax regulations and frameworks and developed a strong foundation in financial planning and compliance. +Mr. Ho graduated from Monash University (Accounting and Finance) in Australia in 2008, and Mr. Ho is a Certified Public Accountant. +Directors +Dr. Chen ChiWen +serves as an Independent Director and Chairman of the Board of Directors of the Company following his appointment by the Board of Directors +on November 28, 2024. Dr. Chen currently serves as Assistant Professor in the Master of Global Entrepreneurial Management Program at Fu +Jen Catholic University and CEO of the Taipei-Ningbo Exchange Foundation. He holds independent directorships at several publicly listed +companies including Oceanic Beverages Co., Inc., Skardin Industrial Corp., Electric Power Technology Limited, and ACpay Co., Ltd. Dr. +Chen holds a Ph.D. in Business Administration from Fu Jen Catholic University, a Ph.D. in Physical Education from National Taiwan Sport +University, and is currently a Ph.D. candidate in Sustainable Energy Technology at National Taiwan University of Science and Technology. +60 +Ferdinand Kaiser +serves as an Independent Director of the Company following his appointment by the Board of Directors on November 28, 2024. Mr. Kaiser +will serve as Chair of the Compensation Committee. Mr. Kaiser currently serves as COO Project Manager at SANLUCAR in Austria. From 2018 +to 2020, he served as Manager Central EU EMEA at DODGE RAM AGT Europe AG, where he was responsible for automotive business management +across the EU-27 region. From 2016 to 2018, he was Assistant Vice President of Procurement at Thunder Power Electric Vehicle Limited. +Previously, he held several CEO positions within FIAT Group companies, including CEO & Country Manager for FIAT S.p.a Owned Dealer +Europe EMEA and CEO & Brand Country Manager for JEEP & Lancia. Mr. Kaiser holds an Academic Diploma in Business Administration +from the Vienna University of Economics and Business (Wirtschaftsuniversität Wien). +Mingchih Chen serves +as an independent member of the Board since September 11, 2024. Ms. Chen is a highly accomplished professional with a strong background +in industrial engineering and academia. With her extensive educational and professional experience, Ms. Chen has made significant contributions +to various institutions. Ms. Chen pursued her education at Texas A&M University in the United States. She obtained her Doctoral degree +in Industrial Engineering from Texas A&M University from January 1991 to December 1993. Prior to that, she completed her master’s +degree in industrial engineering from September 1989 to December 1990. Ms. Chen also holds a bachelor’s degree in industrial engineering +from Chung-Yuan Christian University in Taiwan, which she completed from September 1984 to June 1988. Throughout her career, Ms. Chen +has held various academic positions and made significant contributions to the field of business administration and industrial engineering. +From August 2021 to July 2023, she served as the Executive Director of the Artificial Intelligence Development Center at Fu Jen Catholic +University. She also held the position of Director and Professor at Fu Jen Catholic University’s Graduate Institute of Business +Administration in New Taipei City from August 2015 to July 2023. Ms. Chen has been a Professor at Fu Jen Catholic University’s Graduate +Institute of Business Administration since February 2013. Prior to that, she served as an Associate Professor at the same institution +from August 2010 to January 2013. Her academic career also includes positions as an Associate Professor at Chaoyang University of Technology’s +Department of Industrial Engineering and Management in Wufeng, Taiwan, from August 1997 to July 2010, and as an Associate Professor at +Ming-Chuan University’s Department of Business Management in Taipei, Taiwan, from August 1994 to July 1997. Ms. Chen’s professional +experience extends beyond academia. She worked as an Industrial Engineer at Phillip Electronics Company in Chung-Li, Taiwan, from June +1988 to July 1989. In addition, she served as a Post-doctoral Research Associate under Dr. Way Kuo at Texas A&M University from January +1994 to July 1994. With her broad expertise in industrial engineering and business administration, Ms. Chen will bring valuable insights +and strategic guidance to our Board. Her extensive academic and professional background ensures that the company benefits from her wealth +of knowledge and experience. +Kevin Vassily serves +as an independent member of the Board. Mr. Vassily has extensive working experience as a senior management team member serving private +and public companies. Mr. Vassily has served as an independent director of FLFV since June 2022. Mr. Vassily is a director of the board +of directors of Denali Capital Acquisition Corp. since April 2022, and a member of the board of directors of Aimfinity Investment Corp. +I since March 2023, two SPACs listed on Nasdaq. In January 2021, he was appointed Chief Financial Officer, and in March 2021, became a +member of the board of directors of iPower Inc. (Nasdaq: IPW), an online hydroponic equipment retailer and supplier. Prior to joining +iPower, from 2019 to January 2021, Mr. Vassily served as Vice President of Market Development for Facteus, Inc., a financial analytics +company focused on the Asset Management industry. From October 2018 through its acquisition in March 2020, Mr. Vassily served as an advisor +at Go Capture (which was acquired by Deloitte China in 2020), where he was responsible for providing strategic, business development, +and product development advisory services for the company’s emerging “Data as a Service” platform. Since February 2020, +Mr. Vassily has served as a director of Zhongchao Inc. (Nasdaq: ZCMD), a provider of healthcare information, education and training services +to healthcare professionals and the public in China. Since July 2018, Mr. Vassily has also served as an advisor at Prometheus Fund, a +Shanghai-based merchant bank/private equity firm focused on the “green” economy. From April 2015 through May 2018, Mr. Vassily +served as an associate director of research at Keybanc Capital Markets Inc. From June 2010 to April 2015, he served as the director of +research at Pacific Epoch, LLC (a wholly-owned subsidiary of Pacific Crest Securities LLC). From May 2007 to May 2010, he served as the +Asia Technology business development representative and as a senior analyst at Pacific Crest Securities. From July 2003 to September 2006, +he served as senior research analyst in the semiconductor technology group at Susquehanna International Group, LLP. From September 2001 +to June 2003, Mr. Vassily served as the vice president and senior research analyst for semiconductor capital equipment at Thomas Weisel +Partners Group, Inc. Mr. Vassily began his career on Wall Street in August 1998, as a research associate covering the semiconductor industry +at Lehman Brothers. He holds a B.A. in liberal arts from Denison University and an M.B.A. from the Tuck School of Business at Dartmouth +College. +Christopher Nicoll serves as a member +of the Board. For a brief biography of Mr. Nicoll, please see above under “ Executive Officers .” +61 +Role of Board +in Risk Oversight +One of the key functions +of the Board is the informed oversight of our risk management process. The Board does not have a standing risk management committee but +rather administers this oversight function directly through the Board as a whole, as well as through the standing committees of the Board +that address risks inherent in each committee’s respective area of oversight. In particular, the Board is responsible for monitoring +and assessing strategic risk exposure and the audit committee has the responsibility of considering and discussing financial risk exposure +and the steps management should take to monitor and control such exposure, including implementing guidelines and policies to govern the +process by which risk assessment and management is undertaken. +Board Composition +Our Board consists of five members. +The Board currently consists +of the following members: Christopher Nicoll, Dr. Chen ChiWen, Mingchih Chen, Ferdinand Kaiser, and Kevin Vassily, each of whom was duly +elected at the 2025 annual meeting of stockholders and is serving their term accordingly. +Director Independence +The Board is expected to +annually undertake a review of the independence of each director. Based upon information requested from and provided by each director +concerning his or her background, employment, and affiliations, including family relationships, the following members of the Board were +determined by the Board not to have a relationship that would interfere with the exercise of independent judgment in carrying out the +responsibilities of a director and that each of Mingchih Chen, Ferdinand Kaiser, and Kevin Vassily are considered to be “independent” +for purposes of the Company’s corporate governance policies. +In making these determinations, +the Board has considered the current and prior relationships that each non-employee director has with the Company and all other facts +and circumstances that the Board deems relevant in determining their independence, including the beneficial ownership of the Company’s +capital stock by each non-employee director. +Board Committees +The standing committees of +the Board consist of the Audit Committee, the Compensation Committee and a Nominating and Corporate Governance Committee, each of which +has the composition and the responsibilities described below. Additionally, from time to time, special committees may be established under +the direction of the Board, as and when the Board deems it necessary or advisable to address specific matters. +The Chief Executive Officer +and other executive officers regularly report to the non-executive directors and each standing committee to ensure effective +and efficient oversight of their activities and to assist in proper risk management and the ongoing evaluation of management controls. +Audit Committee +The members of our audit +committee are Mingchih Chen, Ferdinand Kaiser, and Kevin Vassily. Mr. Vassily is the Chair of the audit committee and an “audit +committee financial expert,” as that term is defined under the SEC rules implementing Section 407 of SOX, and possesses financial +sophistication as required by applicable SEC rules. The Company’s audit committee has the following functions, among others: +● +perform such other functions as the board of directors may from time to time assign to the audit committee. +● +evaluating the performance, independence and qualifications of Thunder Power’s independent auditors and determining whether to retain Thunder Power’s existing independent auditors or engage new independent auditors; +● +monitoring the integrity of Thunder Power’s financial statements and Thunder Power’s compliance with legal and regulatory requirements as they relate to financial statements or accounting matters; +62 +● +reviewing the integrity, adequacy and effectiveness of Thunder Power’s internal control policies and procedures; +● +preparing the audit committee report required by the SEC to be included in Thunder Power’s annual proxy statement; +● +discussing the scope and results of the audit with Thunder Power’s independent auditors, and reviewing with management and Thunder Power’s independent auditors Thunder Power’s interim and year-end operating results; +● +establishing and overseeing procedures for employees to submit concerns anonymously about questionable accounting or auditing matters; +● +reviewing Thunder Power’s guidelines and policies on risk assessment and risk management; +● +Reviewing and approving related-party transactions; +● +obtaining and reviewing a report by Thunder Power’s independent auditors at least annually that describes Thunder Power’s independent auditors internal quality control procedures, any material issues raised by review under such procedures, and any steps taken to deal with such issues when required by applicable law; and +● +approving (or, as permitted, pre-approving) all audit and non-audit services to be performed by Thunder Power’s independent auditors. +The Company’s audit +committee operates under a written charter, which satisfies the applicable rules of the SEC. The foregoing summary of the audit committee’s +functions and responsibilities does not purport to be complete and is subject to the provisions of the audit committee’s charter, +which is filed with the registration statement of which this prospectus forms a part, which should be read carefully and in its entirety. +Compensation Committee +The members of our compensation +committee are Mingchih Chen, Ferdinand Kaiser, and Kevin Vassily. Ferdinand Kaiser serves as Chair of the compensation committee. The +Company has adopted a compensation committee charter, which details the purpose and responsibility of the compensation committee, including: +● +approving the retention of compensation consultants and outside service providers and advisors; +● +reviewing and approving, or recommending that the Thunder Power Board approve the compensation of Thunder Power’s executive officers, including annual base salary, annual incentive bonuses, specific performance goals relevant to their compensation, equity compensation, and employment; +● +reviewing and recommending to the Thunder Power Board the compensation of Thunder Power’s directors; +● +administering and determining any award grants under Thunder Power’s 2024 Plan; +● +reviewing and evaluating succession plans for the executive officers; +● +preparing the compensation committee report required by the SEC to be included in Thunder Power’s annual proxy statement; and +● +periodically reviewing Thunder Power’s practices and policies of employee compensation as they relate to risk management and risk-taking incentives. +63 +The charter also provides +that the compensation committee may, in its sole discretion, retain or obtain the advice of a compensation consultant, independent legal +counsel or other adviser and will be directly responsible for the appointment, compensation and oversight of the work of any such adviser. +However, before engaging in or receiving advice from a compensation consultant, external legal counsel or any other adviser, the compensation +committee will consider the independence of each such adviser, including the factors required by the SEC. The foregoing summary of the +compensation committee’s functions and responsibilities does not purport to be complete and is subject to the provisions of the +compensation committee’s charter, which is filed with the registration statement of which this prospectus forms a part, which should +be read carefully and in its entirety. +Nominating +and Corporate Governance Committee +The members of the Company’s +nominating and corporate governance committee are Mingchih Chen, Ferdinand Kaiser, and Kevin Vassily. Ms. Chen serves as Chair of the +nominating and corporate governance committee. The Company has adopted a nominating and corporate governance committee charter, which +details the purpose and responsibility of the nominating and corporate governance committee, including: +● +identifying, evaluating, and recommending individuals qualified to become members of the Board and its committees; +● +evaluating the performance of the Board and of individual directors; +● +developing and recommending corporate governance guidelines to the Board; and +● +overseeing an annual evaluation of the Board and management. +The nominating and corporate +governance committee operates under a written charter, which satisfies the applicable rules of the SEC. The foregoing summary of the nominating +and corporate governance committee’s functions and responsibilities does not purport to be complete and is subject to the provisions +of the nominating and corporate governance committee’s charter, which is filed with the registration statement of which this prospectus +forms a part, which should be read carefully and in its entirety. +Code of Business +Conduct +We have adopted a Code of +Business Conduct that applies to the Company’s directors, officers, and employees, including our principal executive officer, principal +financial officer, principal accounting officer or controller or, persons performing similar functions. The Code of Business Conduct is +available on our website at www.aiev.ai/en . We intend to disclose any amendments to or waivers of our Code of Business Conduct +in a Current Report on Form 8-K. Information contained on our website is not incorporated by reference into this prospectus and should +not be considered to be part of this prospectus. +Insider Trading +Policy +Our board of directors has +adopted an Insider Trading Policy which prohibits trading based on “material, nonpublic information” regarding our company +or any company whose securities are listed for trading or quotation in the United States. The policy covers all officers and directors +of the company and its subsidiaries, all other employees of the company and its subsidiaries, and consultants or contractors to the company +or its subsidiaries who have or may have access to material non-public information and members of the immediate family or household of +any such person. The policy is reasonably designed to promote compliance with insider trading laws, rules and regulations. The policy +is filed as an exhibit to this Annual Report on Form 10-K. +Clawback Policy +Our board of directors has +adopted a clawback policy, which provides that in the event we are required to prepare an accounting restatement due to noncompliance +with any financial reporting requirements under the securities laws or otherwise erroneous data or we determine there has been a significant +misconduct that causes financial or reputational harm, we shall recover a portion or all of any incentive compensation. The policy is +filed as an exhibit to this Annual Report on Form 10-K. +64 +Compensation +Committee Interlocks and Insider Participation +None of the members of our +compensation committee is or has been an officer or employee of the Company. None of our executive officers currently serves, or in the +past fiscal year has served, as a member of the board of directors, or compensation committee (or other board committee performing equivalent +functions) of any entity that has one or more executive officers serving on the Board or compensation committee. +Limitation +on Liability and Indemnification of Directors and Officers +Our Charter contains certain +provisions permitted under the DGCL related to the liability of directors and officers. These provisions eliminate the personal liability +for monetary damages resulting from a breach of fiduciary duty as a director, to the fullest extent permitted by the DGCL. Our Bylaws +also provide that we may indemnify our directors and officers to the fullest extent permitted by the DGCL and also provide that we must +pay expenses, as incurred, to our directors and officers in connection with a legal proceeding to the fullest extent permitted by the +DGCL, subject to very limited exceptions. +These provisions may discourage +stockholders from bringing a lawsuit against our directors for breach of their fiduciary duty. These provisions also may have the effect +of reducing the likelihood of derivative litigation against officers and directors, even though such an action, if successful, might otherwise +benefit us and our stockholders. Furthermore, a stockholder’s investment may be adversely affected to the extent we pay the costs +of settlement and damage awards against officers and directors pursuant to these indemnification provisions. +We believe that these provisions, +the directors’ and officers’ liability insurance and the indemnity agreements are necessary to attract and retain talented +and experienced officers and directors. +Non-Employee Director +Compensation +The Board reviews director +compensation periodically to ensure that director compensation remains competitive such that the Company is able to recruit and retain +qualified directors. The Company is in the process of developing a board of directors’ compensation program that is designed to +align compensation with the Company’s business objectives and the creation of stockholder value, while enabling the Company to attract, +retain, incentivize, and reward directors who contribute to the long-term success of the Company. +Compliance with Section 16(a) of the Exchange +Act +Section 16(a) of the Exchange +Act requires our executive officers, directors and persons who beneficially own more than 10% of a registered class of our equity securities +to file with the SEC initial reports of ownership and reports of changes in ownership of our common stock and other equity securities. +These executive officers, directors, and greater than 10% beneficial owners are required by SEC regulation to furnish us with copies of +all Section 16(a) forms filed by such reporting persons. Based solely on our review of such forms furnished to us and written representations +from certain reporting persons, we believe that during the year ended December 31, 2025, all reports applicable to our executive officers, +directors and greater than 10% beneficial owners were filed in a timely manner in accordance with Section 16(a) of the Exchange Act. +65 +Item 11. Executive Compensation +Summary Compensation Table +The following table summarizes the compensation +awarded to, earned by, or paid to Thunder Power’s executive officers for the fiscal years ended December 31, 2025 and +2024. +Name and Principal Position +Year +Salary +($) +Bonus +($) +Option +Awards +($) +Stock +Awards +($) +All Other +Compensation +($) +Total +($) +Christopher Nicoll +2025 +64,500 +— +— +— +— +64,500 +Chief Executive Officer +2024 +45,000 +— +— +— +— +45,000 +Pok Man Ho +2025 +96,000 +— +— +— +— +96,000 +Interim CFO +2024 +89,679 +— +— +— +— +89,679 +Elements of Compensation +Our compensation program +for NEOs consists of the following elements of compensation, each described in greater depth below: +● +base salaries; +● +performance-based bonuses; +● +equity-based incentive compensation; and +● +general benefits. +Base Salary +Base salaries are an annual +fixed level of cash compensation to reflect each NEO’s performance, role and responsibilities, and retention considerations. +Performance-Based Bonus +To incentivize management +to drive strong operating performance and reward achievement of our company’s business goals, our executive compensation program +includes performance-based bonuses for NEOs. Our Compensation Committee has established annual target performance-based bonuses for each +NEO during the first quarter of the fiscal year. +Equity Compensation +We may pay equity-based compensation +to our NEOs in order to link our long-term results achieved for our stockholders and the rewards provided to NEOs, thereby ensuring that +such NEOs have a continuing stake in our long-term success. +General Benefits +Our NEOs are provided with +other fringe benefits that we believe are commonly provided to similarly situated executives. +66 +Employment Agreements +Thunder Power AI Subsidiary, +Inc. (“TPAI”), Thunder Power’s Hong Kong branch, entered into certain employment agreements with Ho Pok Man and Christopher +Nicoll, respectively. +Ho Agreement +Based on the employment agreement +by and between TPAI and Ho Pok Man (the “Ho Agreement”), effective September 16, 2024, TPAI shall pay Mr. Ho a fixed monthly +salary of US$8,000, payable in arrears on the sixth of each month (pro-rated for the months if that period of service is less than one +calendar month). In addition, TPAI also agreed to issue to Mr. Ho a total of 100,000 the Company’s Common Stock every year (in two +instalments, one on January 1, the other on June 1) under the Company’s 2024 Omnibus Equity Incentive Plan. Mr. Ho may also be subject +to certain discretionary bonus in form of either cash or options, or both, if the Company’s financial target is achieved. +Nicoll Agreement +Based on the employment agreement +by and between TPAI and Christopher Nicoll (the “Nicoll Agreement”), effective July 1, 2024, TPAI paid Mr. Nicoll a fixed +monthly salary of US$5,000 for the first 3 months of the employment and US$10,000 since then, payable in arrears on the sixth of each +month (pro-rated for the months if that period of service is less than one calendar month). Effective February 1, 2025, Mr. Nicoll’s +monthly salary was reduced to US$7,500, and further reduced to US$3,500 effective June 1, 2025, which remains his current salary. +In addition, Mr. Nicoll is +entitled to an aggregate of 200,000 shares of the Company’s Common Stock for the period from July 1, 2024 through June 30, 2025 +under the Company’s 2024 Omnibus Equity Incentive Plan. Mr. Nicoll is not entitled to any additional equity grants under this arrangement +after June 30, 2025. Mr. Nicoll may also be subject to certain discretionary bonus in form of either cash or options, or both, if the +Company’s financial target is achieved. +Director Compensation +None of the non-employee directors received +compensation during the fiscal years ended December 31, 2025 and 2024 for services rendered to the Company. +Rule 10b5-1 Sales Plans +Our directors and executive +officers may adopt written plans, known as Rule 10b5-1 plans, in which they will contract with a broker to buy or +sell shares of our Common Stock on a periodic basis. Under a Rule 10b5-1 plan, a broker executes trades pursuant to +parameters established by the director or executive officer when entering into the plan, without further direction from them. The director +or executive officer may amend a Rule 10b5-1 plan in some circumstances and may terminate a plan at any time. Our +directors and executive officers also may buy or sell additional shares outside of a Rule 10b5-1 plan when they are +not in possession of material non-public information, subject to compliance with the terms of our insider trading policy. The sale of +any shares under such a plan will be subject to the Lock-Up Agreements, to the extent that the selling director or +executive officer is a party thereto. +Emerging +Growth Company Status +The Company is an “emerging +growth company,” as defined in the Jobs Act. As an emerging growth company, it is exempt from certain requirements related to executive +compensation, including the requirements to hold a nonbinding advisory vote on executive compensation and to provide information relating +to the ratio of total compensation of its chief executive officer to the median of the annual total compensation of all of its employees, +each as required by the Investor Protection and Securities Reform Act of 2010, which is part of the Dodd-Frank Wall Street Reform and +Consumer Protection Act. +67 +Item 12. Security Ownership of Certain Beneficial Owners and Management +and Related Stockholder Matters +The following table sets forth, +as of the date of this annual report, the beneficial ownership information of each current director, including each nominee for director, +of the Company, as well as the Company’s executive officers, and the executive officers and directors as a group. There is no person +known to the Company to beneficially own 5% or more of the outstanding shares of the Company’s common stock. Percentage of beneficial +ownership is based on 70,724,664 shares of the Company’s common stock outstanding as of the date of this annual report. +Beneficial ownership is determined +in accordance with the rules of the Securities and Exchange Commission (“SEC”) and includes voting or investment power with +respect to the securities. Ownership information for those persons who beneficially own 5% or more of the shares of the Company’s +common stock is based upon filings by such persons with the SEC and other information obtained from such persons, if available. +The beneficial ownership percentages +set forth in the table below are based on 70,724,664 shares of Common Stock issued and outstanding as of the date of this annual report, +which includes the Earn Out Shares held by Continental Stock Transfer & Trust Company and do +not take into account the issuance of any shares of Common Stock upon the exercise of Public Warrants or Sponsor Warrants. In computing +the number of shares of Common Stoc k beneficially owned by a person, we deemed to be outstanding all shares of Common Stock subject +to warrants and convertible notes held by the person that are currently exercisable or convertible or may be exercised or converted within +60 days of January 24, 2025. The Company did not deem these shares outstanding, however, for purpose of computing the percentage of ownership +of any other person. Unless otherwise noted in the footnotes to the following table, and subject to applicable community property laws, +the persons and entities named in the table have sole voting and investment power with respect to their beneficially owned Common Stock. +Name and Address of Beneficial Owner (1) +Number of +Shares +Percent +Directors and Named Executive Officers: +Christopher Nicoll +— +— +Chiwen Chen +— +— +Mingchih Chen +— +— +Ferdinand Kaiser +— +— +Kevin Vassily +50,000 +* +Pok Ho Man +64,200 +* +All directors and officers as a group (5 individuals) +114,200 +* +Five Percent Holders +Wellen Sham (2) +21,236,910 +30.0 % +* +Represents less than 1 +(1) Unless +otherwise indicated, the business address of each of the following entities or individuals is 221 W 9th St #848, Wilmington, DE 19801. +(2) Includes: +(a) 10,034,898 +shares of Common Stock held of record by Electric Power Technology Ltd, a Taiwanese public company listed in Taiwan (Taiwan List Co. +4529), of which Mr. Sham is a chairperson. Mr. Sham and Ling Houng Sham have a 19.36% interest in the ordinary shares of Electric Power +Technology Ltd, and companies with which Mr. Sham is affiliated with have a 20.31% interest in the ordinary shares of Electric Power +Technology Ltd. Accordingly, Mr. Sham may be deemed to have or share the beneficial ownership of the shares of Common Stock held directly +by Electric Power Technology Ltd. Mr. Sham and Ling Houng Sham disclaim beneficial ownership of the shares held of record by Electric +Power Technology Ltd. The principal business address of Electric Power Technology Ltd is 4F, No. 632 Guangfu South Road, Da’an +District, Taipei Taiwan. +68 +(b) 4,129,066 +shares of Common Stock held of record by Old Gen Holdings LLC, a Delaware limited liability company, of which Mr. Sham is the primary +beneficiary. Accordingly, Mr. Sham may be deemed to have or share the beneficial ownership of the shares of Common Stock held directly +by Old Gen Holdings LLC. The principal place of business of Old Gen Holdings LLC is 108 W 13th St, Ste. 100, Wilmington DE 19801. +(c) 3,449,835 +shares of Common Stock held of record by Ling Houng Sham, wife of Mr. Sham. +(d) 3,623,111 +shares of Common Stock held of record by Mr. Wellen Sham, former Chief Executive Officer of Thunder Power prior to consummation of the +Business Combination. +Securities Authorized for Issuance Under Equity Compensation Plans +In October 2014, TP Holdings +adopted a Thunder Power Holdings Limited Share Option Plan (the “2014 Plan”), As of September 30, 2024, the 2014 Plan existed +to the extent that there are options/awards outstanding thereunder. +On June 17, 2024, the stockholders +of the Company voted to approve the 2024 Omnibus Equity Incentive Plan (the “2024 Plan”), which became effective +at the closing of the Business Combination. All outstanding options to purchase share of TP Holdings granted under the 2014 Plan have +rolled over into the 2024 Plan and became options to purchase share of Common Stock of the Company. Such options granted under the 2014 +Plan will continue to be subject to the terms and conditions as set forth in the agreements evidencing such stock options and the terms +of the 2024 Plan (including the terms of the Prior Plan attached as an exhibit to the 2024 Plan). +The total number of shares +of the Company’s Common Stock reserved and available for grant and issuance pursuant to awards under the 2024 Plan equals 10% +of the total number of outstanding shares of the Company’s Common Stock immediately following the Business Combination, the full +amount of which may be issued pursuant to incentive stock options. In addition, annually on the first trading day of the calendar year, +beginning with the 2025 calendar year, the share reserve (but not the incentive stock option limit) will automatically increase by 5% +of the total number of shares of the Company’s Common Stock outstanding as of the last day of the immediately preceding calendar +year, unless the administrator of the 2024 Plan acts prior to January 1 of such calendar year to provide that there will be no increase +or a lesser increase in the share reserve for that year. Under the 2024 Plan, non-employee directors, employees and consultants, and any +individual to whom the Company and the affiliates have extended a formal offer of employment, are eligible to receive awards under the +2024 Plan. There is no limit on the number or class of directors, employees or consultants that are eligible to receive awards. +Plan Category +(a) +Number of +securities +to be issued +upon +exercise of +outstanding +options, +warrants +and rights +(b) +Weighted-average +exercise price of +outstanding +options, warrants +and rights +(c) +Number of +securities +remaining +available for +future +issuance +under equity +compensation +plans +(excluding +securities +reflected in +column (a)) +Equity compensation plans approved by security holders +— +— +— +Equity compensation plans not approved by security holders +— +— +— +Changes in Control +None. +69 +Item 13. Certain Relationships and Related Transactions, and Director +Independence +Related Person Transactions Policy +The Board has adopted a related +person transaction policy that sets forth the Company’s procedures for the identification, review, consideration and approval or +ratification of related person transactions. The policy became effective upon approval by the Board following the consummation of the +Business Combination. The Company’s audit committee has the primary responsibility for reviewing and approving or disapproving “related +party transactions.” The charter of the Company’s audit committee provides that the audit committee will review and approve +in advance any related party transaction. +A “related person transaction” is +a transaction, arrangement or relationship, or any series of similar transactions, arrangements or relationships, in which: +● +the Company has been or is to be a participant, +● +the amount involved exceeds or will exceed $120,000; and +● +any of the Company’s directors or executive officers or holders of more than 5% of the Company’s capital stock, or any immediate family member of, or person sharing the household with, any of these individuals, had or will have a direct or indirect material interest. +Under the policy, if a transaction +has been identified as a related person transaction, including any transaction that was not a related person transaction when originally +consummated or any transaction that was not initially identified as a related person transaction prior to consummation, the Company’s +management must present information regarding the related person transaction to the Company’s audit committee, for review, consideration +and approval or ratification. The audit committee will consider all relevant facts and circumstances of such a transaction, including, +but not limited to: (i) the related party’s relationship to the Company and interests in the transaction, (ii) the proposed amount +involved in the transaction, (iii) whether the transaction was or will be undertaken in the ordinary course of the Company’s and +related party’s business, (iv) the way in which any transaction was or is to be initiated, (v) whether the potential related party +transaction is on terms comparable to those available from an unrelated third party, (vi) the benefits to the Company of the proposed +transaction, and (vii) any other material fact pertinent to the transaction. +Nature of relationships with related parties : +Relationship with the Company +Thunder Power (Hong Kong) Limited (“TP HK”) +Over which the spouse of Mr. Wellen Sham, the Company’s controlling shareholder, exercises significant influence +Thunder Power Electric Vehicle (Hong Kong) Limited (“TPEV HK”) +Over which the spouse of Mr. Wellen Sham, the Company’s controlling shareholder, exercises significant influence +Mr. Wellen Sham +Controlling shareholder of the Company +Ms. Ling Houng Sham +Spouse of Mr. Wellen Sham +Feutune Light Sponsor LLC (“FLFV Sponsor”) +Shareholder of the Company +70 +b. Related party transactions: +For the Year Ended +December 31, +Nature +2025 +2024 +TP HK +Rental expenses +$ 17,137 +$ 27,681 +For year ended December 31, +2025, the Company borrowed $1,349,264 from Mr. Wellen Sham to support the Company’s operations. The borrowings bear interest rate +of 8% and are payable through December 2026. For the year ended December 31, 2025, the Company borrowed $100,000 from Ms. Ling Houng Sham +to support the Company’s operations. The borrowings bear interest rate of 8% and is payable through March 2026. For the year ended +December 31, 2025, Mr. Wellen Sham also made payments of $24,000 on behalf of the Company. +For the year ended December +31, 2024, the Company borrowed $991,560 from Mr. Wellen Sham to support the Company’s operations. The borrowings bear interest rate +ranging between 8% and 10% and is payable through December 2025. As of December 31, 2024, the Company repaid borrowings of $25,000 to +Mr. Wellen Sham. +Balance with related parties: +Nature +December 31, +2025 +December 31, +2024 +TP HK (1) +Amount due to the related party +$ 113,498 +$ 96,236 +Mr. Wellen Sham (2) +Amount due to the related party +2,823,585 +1,271,415 +Ms. Ling Houng Sham (2) +Amount due to the related party +330,751 +208,636 +FLFV Sponsor (3) +Amount due to the related party +190,000 +190,000 +$ 3,457,834 +$ 1,766,287 +(1) +The balance due to TP HK represented the payments made by TP HK on behalf of TP Holdings regarding the office rental fee and employee salary expenses. The balance is interest free and is repayable on demand. +(2) +The balance due to Mr. Wellen Sham represented +the promissory notes of $560,000 for extension of FLFV, promissory notes of $2,575,824 for the daily operation of the Company, other payable +of $28,000 for payment of operating expenses on behalf of the Company and interest payable of $219,761. The balance due to Ms. Ling Houng +Sham represented promissory notes of $300,000 for extension of FLFV and interest payable of $30,751. +The promissory notes issued to Mr. Wellen Sham +matured through December 2026 with interest rate ranging between 8% and 10%. The promissory notes issued to Ms. Wellen Sham matured through +March 2026 with interest rate of 8%. +(3) +In May and June 2024, FLFV issued three promissory notes to the FLFV Sponsor in exchange for an aggregated loans of $190,000 from the FLFV Sponsor, among which $50,000 was payable on closing of the Business Combination, and $140,000 was payable on June 21, 2024. As of the date of this Annual Report, the Company has not settled the promissory notes with FLFV Sponsor. +71 +Item 14. Principal Accountant Fees and Services +Current Audit Firm +We have appointed Assentsure +PAC (“Assentsure”) to serve as our independent registered public accounting firm for the fiscal year ending December 31, +2025. +Fees Billed to the Company in fiscal year +2025 and 2024 +The following table sets +forth the fees billed to us by our auditor professional services rendered during the fiscal years ended December 31, 2025 and +2024: +31-Dec-25 +31-Dec-24 +Audit fees (1) +$ 180,000 +$ 245,000 +Audit related fees (2) +40,500 +55,300 +Tax fees (3) +- +- +All other fees +- +- +Total fees +$ 220,500 +$ 300,300 +(1) +Audit Fees — Audit fees consist of fees billed for the audit of our annual financial statements and the review of the interim consolidated financial statements. +(2) +Audit-Related Fees — These consisted principally of the aggregate fees related to audits that are not included Audit Fees. +(3) +Tax Fees — Tax fees consist of aggregate fees for tax compliance and tax advice, including the review and preparation of our various jurisdictions’ income tax returns. +Pre-Approval Policies and Procedures +The Audit Committee has the +authority to appoint or replace our independent registered public accounting firm (subject, if applicable, to stockholder ratification). +The Audit Committee is also responsible for the compensation and oversight of the work of the independent registered public accounting +firm (including resolution of disagreements between management and the independent registered public accounting firm regarding financial +reporting) for the purpose of preparing or issuing an audit report or related work. The independent registered public accounting firm +was engaged by, and reports directly to, the Audit Committee. +The Audit Committee pre-approves +all audit services and permitted non-audit services (including the fees and terms thereof) to be performed for us by our independent registered +public accounting firm, subject to the de minimis exceptions for non-audit services described in Section 10A(i)(1)(B) of the +Exchange Act and Rule 2-01(c)(7)(i)(C) of Regulation S-X, provided that all such excepted services are subsequently +approved prior to the completion of the audit. We have complied with the procedures set forth above, and the Audit Committee has otherwise +complied with the provisions of its charter. +72 +PART IV +Item 15. Exhibits, Financial Statement Schedule +(a) +The following documents are filed as part of this Report: +(1) +Financial Statements +Page +Report of Independent Registered Public Accounting Firm +F-2 +Balance Sheets +F-3 +Statements of Operations +F-4 +Statements of Changes in Shareholders’ Deficit +F-5 +Statements of Cash Flows +F-6 +Notes to Financial Statements +F-7 +(2) +Financial Statements Schedule +All financial statement schedules +are omitted because they are not applicable or the amounts are immaterial and not required, or the required information is presented in +the financial statements and notes beginning on F-1 on this Report. +(b) +Exhibits +73 +Item 16. Exhibits and Financial +Statement Schedules. +(a) +Exhibits. +Incorporated by Reference +Exhibit No. +Description +Form +File +Number +Exhibit +Filing Date +2.1*† +Agreement and Plan of Merger, dated as of October 26, 2023, by and among Feutune Light Acquisition Corp., Feutune Light Merger Sub, Inc., and Thunder Power Holdings Limited. +8-K +001-41424 +Exhibit 2.1 +October 27, 2023 +2.2* +First Amendment to Agreement and Plan of Merger, dated as of March 19, 2024, by and among Feutune Light Acquisition Corporation, Feutune Light Merger Sub, Inc., and Thunder Power Holdings Limited. +8-K +001-41424 +Exhibit 1.1 +March 20, 2024 +3.1* +Form of Third Amended and Restated Certificate of Incorporation of Thunder Power Holdings, Inc. +Proxy Statement +333-275933 +Annex C +May 17, 2024 +3.2* +Amended and Restated Bylaws of Thunder Power Holdings, Inc. +8-K +001-41424 +Exhibit 3.2 +June 27, 2024 +4.1* +Amended and Restated Warrant Agreement, dated June 21, 2024, by and between Feutune Light Acquisition Corporation and Continental Stock Transfer & Trust Company. +8-K +001-41424 +Exhibit 10.1 +June 27, 2024 +10.1* +Letter Agreement, dated June 15, 2022, among Feutune Light Acquisition Corporation and certain stockholders. +8-K +333-264221 +Exhibit 10.1 +June 21, 2022 +10.2* +Promissory Note, dated May 20, 2024, issued by Feutune Light Acquisition Corporation to Thunder Power Holdings Limited. +8-K +333-264221 +Exhibit 10.1 +May 22, 2024 +10.3* +Promissory Note, dated May 22, 2024, issued by Feutune Light Acquisition Corporation to Ling Houng Sham. +8-K +333-264221 +Exhibit 10.2 +May 22, 2024 +10.4* +Promissory Note, dated May 22, 2024, issued by Feutune Light Acquisition Corporation to Rockridge International Inc. +8-K +333-264221 +Exhibit 10.3 +May 22, 2024 +10.5* +Promissory Note, dated June 21, 2024, issued by Feutune Light Acquisition Corporation to Wellen Sham. +8-K +001-41424 +Exhibit 10.6 +June 27, 2024 +10.6* +Promissory Note, dated June 21, 2024, issued by Feutune Light Acquisition Corporation to Sam Yu. +8-K +001-41424 +Exhibit 10.7 +June 27, 2024 +10.7* +Promissory Note, dated June 21, 2024, issued by Feutune Light Acquisition Corporation to Sau Fong Yeung. +8-K +001-41424 +Exhibit 10.8 +June 27, 2024 +74 +10.8* +Forward Purchase Agreement, dated June 11, 2024, by and among Feutune Light Acquisition Corporation, Thunder Power Holdings Limited, Meteora Select Trading Opportunities Master, LP, Meteora Capital Partners, LP and Meteora Strategic Capital, LLC. +8-K +001-41424 +Exhibit 10.1 +June 13, 2024 +10.9* +Subscription Agreement, dated June 11, 2024, by and among Feutune Light Acquisition Corporation, Meteora Select Trading Opportunities Master, LP, Meteora Capital Partners, LP and Meteora Strategic Capital, LLC. +8-K +001-41424 +Exhibit 10.2 +June 13, 2024 +10.10* +Escrow Agreement, dated June 21, 2024, by and between Feutune Light Acquisition Corporation, Wellen Sham, Yuanmei Ma and Continental Stock Transfer & Trust Company. +8-K +001-41424 +Exhibit 10.2 +June 27, 2024 +10.11* +Promissory Note, dated June 21, 2024, issued by Thunder Power Holdings, Inc. to Wellen Sham. +8-K +001-41424 +Exhibit 10.6 +June 27, 2024 +10.12* +Promissory Note, dated June 21, 2024, issued by Thunder Power Holdings, Inc. to Sam Yu. +8-K +001-41424 +Exhibit 10.7 +June 27, 2024 +10.13* +Promissory Note, dated June 21, 2024, issued by Thunder Power Holdings, Inc. to Sau Fong Yeung. +8-K +001-41424 +Exhibit 10.8 +June 27, 2024 +10.14* +Letter Agreement dated June 21, 2024. +8-K +001-41424 +Exhibit 10.9 +June 27, 2024 +10.15* +Form of Non-Competition Agreement. +8-K +001-41424 +Exhibit 10.3 +June 27, 2024 +10.16* +Form of Lock-up Agreement. +8-K +001-41424 +Exhibit 10.4 +June 27, 2024 +10.17*# +Form of Indemnification Agreement. +8-K +001-41424 +Exhibit 10.5 +June 27, 2024 +10.18*# +2024 Omnibus Equity Incentive Plan. +Proxy Statement +333-275933 +Annex D +May 17, 2024 +10.19* +Common Stock Purchase Agreement, dated August 20, 2024, by and between Thunder Power Holdings, Inc. and Westwood Capital Group LLC. +8-K +001-41424 +Exhibit 10.1 +August 21, 2024 +10.20* +Registration Rights Agreement, dated August 20, 2024, by and between Thunder Power holdings, Inc. and Westwood Capital Group LLC. +8-K +001-41424 +Exhibit 10.2 +August 21, 2024 +10.21* +Promissory Note, dated October 10, 2024, issued by Thunder Power Holdings, Inc. to Wellen Sham. +Form S-1 +333-283040 +Exhibit 10.19 +November 6, 2024 +10.22*# +Employment Agreement with Ho Pok Man. +Form S-1 +333-283040 +Exhibit 10.20 +November 6, 2024 +10.23*# +Employment Agreement with Christopher Nicoll. +Form S-1 +333-283040 +Exhibit 10.21 +November 6, 2024 +10.24* +Promissory Note, dated September 11, 2024, issued by Thunder Power Holdings, Inc. to Wellen Sham +Form S-1 +333-284279 +Exhibit 10.22 +January 14, 2025 +10.25* +Promissory Note, dated October 16, 2024, issued by Thunder Power Holdings, Inc. to Wellen Sham +Form S-1 +333-284279 +Exhibit 10.23 +January 14, 2025 +10.26* +Promissory Note, dated November 13, 2024, issued by Thunder Power Holdings, Inc. to Wellen Sham +Form S-1 +333-284279 +Exhibit 10.24 +January 14, 2025 +10.27* +Promissory Note, dated December 10, 2024, issued by Thunder Power Holdings, Inc. to Wellen Sham +Form S-1 +333-284279 +Exhibit 10.25 +January 14, 2025 +10.28* +Capital Markets Advisory Agreement, dated May 15, 2024, by and between Thunder Power Holdings, Inc. and Benjamin Securities, Inc. +Form S-1 +333-284279 +Exhibit 10.26 +January 14, 2025 +75 +10.29* +First Amendment to Capital Markets Advisory Agreement, dated June 21, 2024, by and between Thunder Power Holdings, Inc. and Benjamin Securities, Inc. +Form S-1 +333-284279 +Exhibit 10.27 +January 14, 2025 +10.30* +The Share Exchange Agreement +Proxy Statement +001-41424 +Appendix A +January 29, 2025 +10.31* +Amendment to Share Exchange Agreement. +Proxy Statement +001-41424 +Appendix B +January 29, 2025 +14* +Code of Business Conduct. +Form S-1 +333-283040 +Exhibit 14 +November 6, 2024 +19.1* +Insider Trading Policy. +Form 10-K +001-41424 +Exhibit 19.1 +March 31, 2025 +21.1* +List of Subsidiaries of Thunder Power Holdings, Inc. +Form S-1 +333-283040 +Exhibit 21.1 +November 6, 2024 +24** +Power of Attorney (included on signature page to initial filing of this Registration Statement). +31.1** +Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. +31.2** +Certification of Principal Financial Officer Pursuant +to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act +of 2002. +32.1** +Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. +97.1* +Policy relating to recovery of compensation. +Form 10-K +001-41424 +Exhibit 97 +March 31, 2025 +99.1* +Audit Committee Charter. +Form S-1 +333-283040 +Exhibit 99.1 +November 6, 2024 +99.2* +Compensation Committee Charter. +Form S-1 +333-283040 +Exhibit 99.2 +November 6, 2024 +99.3* +Nominating and Corporate Governance Committee Charter. +Form S-1 +333-283040 +Exhibit 99.3 +November 6, 2024 +101.INS +Inline XBRL Instance Document. +101.SCH +Inline XBRL Taxonomy Extension Schema Document. +101.CAL +Inline XBRL Taxonomy Extension Calculation Linkbase Document. +101.DEF +Inline XBRL Taxonomy Extension Definition Linkbase Document. +101.LAB +Inline XBRL Taxonomy Extension Label Linkbase Document. +101.PRE +Inline XBRL Taxonomy Extension Presentation Linkbase Document. +104 +Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). +* +Previously Filed. +** +Filed herewith +† +Certain portions of this exhibit (indicated by “***”) have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K because it is not material and is the type of information that the Registrant treats as private or confidential. The Registrant agrees to furnish supplementally a copy of such schedules, or any section thereof, to the SEC upon request. +# +Indicate management contract or compensatory plan or arrangement. +Item 16. Form 10-K Summary +None. +76 +SIGNATURES +Pursuant to the requirements +of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on +its behalf by the undersigned, thereunto duly authorized. +Date: April 7, 2026 +Thunder Power Holdings, Inc. +By: +/s/ Christopher Nicoll +Name: +Christopher Nicoll +Title: +Chief Executive Officer +(principal executive officer) +Pursuant to the requirements +of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in +the capacities and on the dates indicated. +Signature +Title +Date +/s/ Christopher Nicoll +Director, President, Chief +Executive Officer +April 7, 2026 +Christopher Nicoll +(principal executive officer) +/s/ Pok Man Ho +Interim Chief Financial Officer +April 7, 2026 +Pok Man Ho +(principal financial officer and principal accounting officer) +/s/ Chiwen Chen +Director and Chairman of the Board +April 7, 2026 +Chiwen Chen +/s/ Mingchih Chen +Director +April 7, 2026 +Mingchih Chen +/s/ Ferdinand Kaiser +Director +April 7, 2026 +Ferdinand Kaiser +/s/ Kevin Vassily +Director +April 7, 2026 +Kevin Vassily +77 +THUNDER POWER HOLDINGS, INC. +INDEX TO FINANCIAL STATEMENTS +Page +Report of Independent Registered Public Accounting Firm +F-2 +Balance Sheets +F-3 +Statements of Operations +F-4 +Statements of Changes in Shareholders’ Deficit +F-5 +Statements of Cash Flows +F-6 +Notes to Financial Statements +F-7 +F- 1 +REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING +FIRM +To The Shareholders and the Board of Directors of Thunder Power Holdings +Inc +Opinion on the Financial Statements +We have audited the accompanying consolidated +balance sheets of Thunder Power Holdings Inc and its subsidiaries (collectively, the “Company”) as of December 31, 2025 and +2024 and the related statements of income and comprehensive income, changes in shareholders’ equity and cash flow for the years +ended December 31, 2025 and 2024, and the related notes (collectively referred to as the “financial statements”). In our opinion, +the financial statements present fairly, in all material respects, the financial positions of the Company as of December 31, 2025 and +2024, and the results of its income and comprehensive income and its cash flows for the years ended December 31, 2025 and 2024, in conformity +with accounting principles generally accepted in the United States of America. +Explanatory Paragraph - Going Concern +The accompanying consolidated financial statements +have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, +the Company has incurred recurring losses from operations and has accumulated deficits of $39,051,663 and $36,932,246 as of December 31, +2025, and 2024, respectively. +In addition, the Company has limited cash resources +and faces significant liquidity constraints. The Company’s common stock was suspended from trading on the Nasdaq Stock Market in +April 2025 and subsequently delisted in July 2025, and is currently quoted on the over-the-counter market, which significantly limits +its access to capital markets. Further, certain assets, including prepaid forward purchase arrangements, are not expected to generate +near-term cash inflows and their realization is subject to significant uncertainty. The Company’s ability to obtain financial support +from its principal shareholder is also uncertain due to ongoing legal proceedings. +These conditions raise substantial doubt about +the Company’s ability to continue as a going concern for a period of at least one year from the date that the financial statements +are issued. Management’s plans in regard to these matters are described in Note 3. The consolidated financial statements do not +include any adjustments that might result from the outcome of this uncertainty. +Basis for Opinion +These financial statements are the responsibility +of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our +audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) +and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable +rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance with the +standards of the PCAOB and in accordance with the auditing standards generally accepted in the United States of America. Those standards +require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material +misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal +control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial +reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial +reporting. Accordingly, we express no such opinion. +Our audits included performing procedures to assess +the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond +to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. +Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating +the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. +/s/ Assentsure PAC +Singapore +April 7, 2026 +PCAOB ID Number 6783 +We have served as the Company’s auditor +since 2023. +F- 2 +THUNDER POWER HOLDINGS, INC. +CONSOLIDATED BALANCE SHEETS +As of December 31, 2025 and 2024 +(Expressed in U.S. dollar, except for the number of shares) +As of +December 31, +2025 +2024 +ASSETS +Current Assets +Cash +$ 10,093 +$ 52,616 +Short-term investments +933 +— +Prepaid expenses for forward purchase contract +13,114,964 +13,114,964 +Other current assets +28,712 +382,865 +Total Current Assets +13,154,702 +13,550,445 +Non-current Assets +Right of use assets +17,865 +4,614 +Total Non-current Assets +17,865 +4,614 +Total Assets +$ 13,172,567 +$ 13,555,059 +LIABILITIES AND SHAREHOLDERS’ EQUITY +Current Liabilities +Amount due to related parties +$ 3,457,834 +$ 1,766,287 +Other payable and accrued expenses +1,961,155 +2,340,440 +Lease liabilities, current +14,877 +3,455 +Underwriter fee payable +2,921,250 +2,921,250 +Total Current Liabilities +8,355,116 +7,031,432 +Non-current Liabilities +Lease liabilities, non-current +1,703 +— +Total Non-current Liabilities +1,703 +— +Total Liabilities +8,356,819 +7,031,432 +Commitments and Contingencies (Note 12) +Shareholders’ Equity +Common stock ($ 0.0001 par value, 1,000,000,000 shares authorized; 70,724,664 and 70,724,664 shares issued at December 31, 2025 and 2024, respectively; 50,724,664 and 50,724,664 shares outstanding at December 31, 2025 and 2024, respectively)* +5,073 +5,073 +Additional paid-in capital +43,862,158 +43,450,667 +Accumulated loss +( 39,051,663 ) +( 36,932,246 ) +Accumulated other comprehensive income +180 +133 +Total Shareholders’ +Equity +4,815,748 +6,523,627 +Total Liabilities and +Shareholders’ Equity +$ 13,172,567 +$ 13,555,059 +* The difference between issued and outstanding shares relates to 20,000,000 earnout shares held in escrow that will vest upon achievement of certain performance milestones. +The accompanying notes are an integral part +of the consolidated financial statements. +F- 3 +THUNDER POWER HOLDINGS, INC. +CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE +LOSS +For the years ended December 31, 2025 and 2024 +(Expressed in U.S. dollar, except for the number of shares and loss per share) +For the Years Ended +December +31, +2025 +2024 +Revenues +$ +— +$ +— +Operating expenses +General and administrative +expenses +( 1,917,739 ) +( 2,502,190 ) +Total operating expenses +( 1,917,739 ) +( 2,502,190 ) +Other income (expenses) +Other expenses, net +( 824 ) +— +Interest (expenses) income +( 200,946 ) +51 +Foreign currency exchange income (loss) +92 +( 212 ) +Total other expenses, +net +( 201,678 ) +( 161 ) +Loss before income taxes +( 2,119,417 ) +( 2,502,351 ) +Income tax expenses +— +— +Net loss +( 2,119,417 ) +( 2,502,351 ) +Other comprehensive loss +Foreign currency adjustments +47 +133 +Comprehensive loss +$ ( 2,119,370 ) +$ ( 2,502,218 ) +Loss per share – basic +and diluted +$ ( 0.04 ) +$ ( 0.06 ) +Weighted average shares – basic +and diluted +50,724,664 +44,736,947 +The accompanying notes are an integral part +of the consolidated financial statements. +F- 4 +THUNDER POWER HOLDINGS, INC. +CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY +For the years ended December 31, 2025 and 2024 +(Expressed in U.S. dollar, except for the number of shares) +Common stock +Additional +Accumulated other +Total +Number of +stock* +Amount* +paid-in +capital * +Accumulated +loss +comprehensive income +shareholders’ +equity +Balance as of December 31, 2023 +37,488,807 +$ 3,749 +$ 34,927,449 +$ ( 34,429,895 ) +$ +— +$ 501,303 +Capital injection from shareholders +2,511,193 +251 +946,549 +— +— +946,800 +Reverse recapitalization (Note 1) +5,279,673 +528 +3,911,563 +— +— +3,912,091 +Issuance of common stock to a financial advisor (Note +8) +1,200,000 +120 +( 120 ) +— +— +— +Issuance of common stock to independent directors +90,000 +9 +899,991 +— +— +900,000 +Share-based compensation +— +— +107,712 +— +— +107,712 +Settlement of working capital loans +289,960 +29 +2,635,971 +— +— +2,636,000 +Issuance of ordinary shares pursuant to forward purchase +contracts +3,706,461 +371 +( 371 ) +— +— +— +Issuance of ordinary shares pursuant to a private placement +150,000 +15 +( 15 ) +— +— +— +Share-based compensation to non-employees (Note 11) +8,570 +1 +21,938 +— +— +21,939 +Net loss +— +— +— +( 2,502,351 ) +— +( 2,502,351 ) +Foreign exchange adjustments +— +— +— +— +133 +133 +Balance as of December 31, 2024 +50,724,664 +$ 5,073 +$ 43,450,667 +$ ( 36,932,246 ) +$ 133 +$ 6,523,627 +Reversal of previously accrued excise tax related to repurchases of +common stocks +— +— +411,491 +— +— +411,491 +Net loss +— +— +— +( 2,119,417 ) +— +( 2,119,417 ) +Foreign exchange adjustments +— +— +— +— +47 +47 +Balance as of December 31, 2025 +50,724,664 +$ 5,073 +$ 43,862,158 +$ ( 39,051,663 ) +$ 180 +$ 4,815,748 +The accompanying notes are an integral part +of the consolidated financial statements. +F- 5 +THUNDER POWER HOLDINGS, INC. +CONSOLIDATED STATEMENTS OF CASH FLOWS +For the years ended December 31, 2025 and 2024 +(Expressed in U.S. dollar) +For the Years Ended +December 31, +2025 +2024 +Cash flows from operating activities: +Net loss +$ ( 2,119,417 ) +$ ( 2,502,351 ) +Adjustments to reconcile net loss to net cash used in operating activities: +Depreciation expenses +— +1,974 +Amortization of right of use assets +17,137 +26,995 +Share-based compensation +— +1,007,712 +Allowance for credit losses against other current assets +315,000 +— +Changes in fair value of short-term investments +818 +— +Reversal of exercise tax payable (Note 6) +411,491 +— +Changes in operating assets and liabilities: +Other current assets +39,153 +( 6,997 ) +Amount due to related parties +218,283 +130,735 +Other payable and accrued expenses +( 379,238 ) +137,093 +Lease liabilities +( 17,263 ) +( 22,414 ) +Net cash used in operating activities +( 1,514,036 ) +( 1,227,253 ) +Cash flows from investing activities: +Cash acquired in reverse capitalization +— +929,302 +Purchase of short-term investments +( 1,400 ) +— +Net cash (used in) provided by investing activities +( 1,400 ) +929,302 +Cash flows from financing activities: +Subscription fees received from shareholders +— +356,800 +Payment of offering cost +— +( 999,700 ) +Borrowings from related parties +1,473,264 +1,051,560 +Repayment of borrowings to a related party +— +( 25,000 ) +Payment of extension loans +— +( 380,000 ) +Proceeds of prepayment shortfall under forward purchase contract +— +150,000 +Net cash provided by financing activities +1,473,264 +153,660 +Effect of exchange rates on cash +( 351 ) +— +Net decrease in cash +( 42,523 ) +( 144,291 ) +Cash at beginning of year +52,616 +196,907 +Cash at end of year +$ 10,093 +$ 52,616 +Supplemental cash flow information +Cash paid for interest expense +$ +— +$ +— +Cash paid for income tax +$ +— +$ +— +Non-cash investing and financing activities +Operating lease right-of-use assets obtained in exchange for operating lease liabilities +$ 29,223 +$ 25,824 +Transfer of advance of subscription fees from shareholders to equity +$ +— +$ 590,000 +Offering costs payable accrued directly related to the business combination +$ +— +1,353,913 +Issuance of ordinary shares to settle working capital loans +$ +— +$ 2,636,000 +Share based compensation to a non-employee as part of offering cost +$ +— +$ 21,939 +The accompanying notes are an integral part +of the consolidated financial statements. +F- 6 +THUNDER POWER HOLDINGS, INC. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +1. ORGANIZATION AND BUSINESS DESCRIPTION +History of Thunder Power Holdings Limited +(“TP Holdings”) +TP Holdings is a company +incorporated under the laws and regulations of the British Virgin Islands with limited liability on December 31, 2015 . TP Holdings is +a parent holding company with no operations. Upon the closing business combination closed on June 21, 2024, TP +Holdings changed its name to Thunder Power AI Subsidiary, Inc. +TP Holdings has one wholly-owned +subsidiary, Thunder Power New Energy Vehicle Development Company Limited (“TP NEV”) which was established in accordance with +laws and regulations of British Virgin Islands on October 19, 2016. +TP Holdings also setup two branches, namely Thunder Power AI Subsidiary, +Inc. (Hong Kong) (“TPAI-HK”) and Thunder Power Holdings Ltd (“TPAI-TW”) in Hong Kong and Taiwan, respectively. +Both branches are not legal entities, but rather they have tax identity in their respective jurisdictions. +TP Holdings together with +TP NEV, are engaged in design, development and manufacturing of high-performance electric vehicles. As of December 31, 2025 and 2024, +its operations activities were carried out in Taiwan and its management team are currently located in Taiwan and USA. +History of Feutune Light Acquisition Corporation (“FLFV”) +FLFV is a blank check company +incorporated as a Delaware company on January 19, 2022. FLFV was formed for the purpose of entering into a merger, stock exchange, asset +acquisition, share purchase, recapitalization, reorganization or similar business combination with one or more businesses. On July 3, +2023, FLFV incorporated Feutune Light Merger Sub, Inc (“Merger Sub”), a Delaware corporation and wholly owned subsidiary +of FLFV. Merger Sub is a holding company with no operations. +Reverse recapitalization +On June 21, 2024, FLFV consummated +its business combination with TP Holdings (the “Business Combination”), pursuant to that certain Agreement and Plan of Merger, +dated as of October 26, 2023 (as amended on March 19, 2024 and April 5, 2024, the “Merger Agreement”). The combined company +changed its name to “Thunder Power Holdings, Inc.” (the “Company”). +Upon closing of the Business +Combination, the Company acquired all of the issued and outstanding securities of TP Holdings in exchange for (i) 40,000,000 shares +of common stock, par value $ 0.0001 per share, and (ii) earn out payments consisting of up to an additional 20,000,000 shares +of common stock (the “Earnout Shares”) if the Company meets certain revenue performance targets in the following years through +December 31, 2026 (see “ Note 12 – Contingent Consideration ”). +Immediately after giving +effect to the Business Combination, there were (i) 46,859,633 shares of common stock of the Company, par value $ 0.0001 per +share, issued and outstanding (without taking into account the Earnout Shares), (ii) 10,537,475 warrants to purchase 10,537,475 +shares of common stock issued and outstanding, and (iii) 20,000,000 shares of common stock reserved for issuance as Earnout Shares and +placed in an escrow account managed by Continental Stock Transfer & Trust Company (“CST”). +We also capitalized offering +cost of $ 1,491,495 , which was recorded as reduction against additional paid-in capital. +Following the consummation +of the Business Combination, the combined Company’s common stock began trading on the Nasdaq Global Market (the “Nasdaq”) +under the symbol “AIEV” on June 24, 2024. +The reverse recapitalization +is equivalent to the issuance of securities by TP Holdings for the net monetary assets of FLFV, accompanied by a recapitalization. The +Company debited equity for the fair value of the net liabilities of FLFV. In the subsequent financial statements after the Business Combination, +the amounts of assets and liabilities for the period before the reverse recapitalization in financial statements are presented as those +of TP Holdings and recognized and measured at their pre-combination carrying amounts. The equity account of TP Holdings was carried forward +in the reverse recapitalization, subject to adjustments to reflect the par value of the outstanding capital stock of FLFV. +F- 7 +THUNDER POWER HOLDINGS, INC. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +1. ORGANIZATION AND BUSINESS DESCRIPTION (cont.) +As part of the Business +Combination, the Company issued 5,279,673 shares of common stock to the shareholders of FLFV, among which 2,443,750 shares +of common stock were issued to the Initial Insiders (defined below), 548,761 shares of common stock were issued to Private Shareholders +(defined below), 2,227,162 shares of common stock were issued to Public Shareholders (defined below) and 60,000 shares of common stock +were issued to the underwriter in FLFV’s initial public offering as representative shares. +Initial Insiders were comprised +of Feutune Light Sponsor LLC (the “Sponsor”), US Tiger Securities, Inc. (“US Tiger”) and certain officers and +directors of the Company. The Private Shareholders referred to the Sponsor and US Tiger. The Public Shareholders referred to the shareholders +who held the public shares that were issued in the initial public offering of FLFV. +Upon closing of the Business +Combination, the Company issued an aggregated 90,000 shares of common stock to three independent directors of FLFV. The fair value of +these shares was $ 900,000 by reference to the per share price of $ 10.00 . +In connection with the Business +Combination, FLFV engaged a third party financial advisor to assist FLFV in locating target businesses, holding meetings with its +shareholders to discuss a potential business combination and the target business’ attributes, introduce FLFV to potential investors +that are interested in purchasing securities, assist FLFV in obtaining shareholder approval for the business combination and assist with +press releases and public filings in connection with a business combination. On June 21, 2024, the Company issued 1,200,000 shares of +common stock to the financial advisor as service fees. The fair value of the 1,200,000 shares of common stock issued to the financial +advisor was $ 3,072,000 , calculated at $ 2.56 per share by reference to the Nasdaq closing price of the Company’s common stock +on June 21, 2024. +Entry into share exchange +agreement +On December 19, 2024, the +Company entered into a Share Exchange Agreement (the “Agreement”) with certain shareholders (the “TW Company Shareholders”) +of Electric Power Technology Limited, a Taiwan corporation (“TW Company”). On January 27, 2025, the Company and TW Company +Shareholders have agreed to execute an amendment to the Share Exchange Agreement (the “First Amendment”, together with the +Agreement, the “Amended Agreement”), amending, among other things, the share exchange ratio as 119 shares of the Company’s +common stock for every 100 ordinary shares of TW Company. Pursuant to the Amended Agreement, a portion of the TW Company Shareholders +are expected to exchange a total of 26,783,838 ordinary shares in TW Company for an aggregate of 31,832,768 shares of newly issued Common +Stock of the Company in weeks, with the remaining total of 1,715,000 shares of the TW Company to be transferred to the Company for 2,038,621 +shares in a few months. Upon completion of the transaction, the Company is expected to hold approximately 33.71 % of TW Company’s +total issued and outstanding shares. On June 26, 2025, the Company held its 2025 Annual Meeting of Stockholders (the “Annual Meeting”). +At the Annual Meeting, the shareholders voted to approve, among others, the share exchanges. +On April 17, 2025, the Nasdaq +Stock Market LLC (the “Nasdaq”) notified the Company that the Nasdaq Hearings Panel (the “Panel”) has determined +to affirm the denial of the Company’s request to continue its listing of the Company’s common stock, par value $ 0.0001 per +share (“Common Stock”), and that trading of the Company’s Common Stock was suspended at the open of trading on April +21, 2025. On July 21, 2025, Nasdaq filed Form 25 with the Securities and Exchange Commission to delist the Company’s securities +from Nasdaq. The delisting became effective on July 31, 2025. The Company’s Common Stock are traded on the over-the-counter market +under the symbol “AIEV”. +F- 8 +THUNDER POWER HOLDINGS, INC. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES +Basis of Presentation +The accompanying financial +statements are presented in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), +as determined by the Financial Accounting Standards Board (“FASB”) and pursuant to the accounting and disclosure rules and +regulations of the SEC. +Basis of consolidation +The consolidated financial +statements include the accounts of the Company and its wholly-owned subsidiary. All intercompany transactions and balances have been +eliminated upon consolidation. +Use of Estimates +The Company’s consolidated +financial statements have been prepared in accordance with GAAP. The preparation of consolidated financial statements in conformity with +GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures +of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses +during the reporting period. Actual results could differ from those estimates. The Company bases its estimates on historical experience +and on various other assumptions that are believed to be reasonable for making judgments that are not readily apparent from other sources. +The most significant estimates with regard to these consolidated financial +statements are allowance for expected credit losses of other receivable, allowance for prepaid expenses for Forward Purchase Contract, +classification of prepaid expenses for Forward Purchase Contract, and accrued legal expenses. +Fair value of financial instruments +The Company’s financial +instruments are accounted for at fair value on a recurring basis. Fair value is defined as the price that would be received to sell an +asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The three levels +of the fair value hierarchy are described below: +Level 1 — +inputs to the valuation +methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. +Level 2 — +inputs to the valuation +methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets +or liability, either directly or indirectly, for substantially the full term of the financial instruments. +Level 3 — +inputs to the valuation +methodology are unobservable and significant to the fair value. +As of December 31, 2025 +and 2024, financial instruments of the Company primarily comprised of current assets and current liabilities including cash, short-term +investments, other current assets, amount due to related parties, other payables and underwriter fee payable. The carrying amount of +these current assets and current liabilities approximate their fair values because of the short-term nature of these instruments. +F- 9 +THUNDER POWER HOLDINGS, INC. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) +Foreign currency translation +Transactions denominated +in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing on the +dates of the transaction. Monetary assets and liabilities denominated in currencies other than the functional currency are translated +into the functional currency using the applicable exchange rates on the date of the balance sheet. +The reporting currency of +the Company and its subsidiaries is U.S. dollars (“US$”). +In general, for consolidation purposes, assets and liabilities of the +Company and its subsidiary whose functional currency is not the US$, are translated into US$, using the exchange rate on the balance sheet +date. Revenues and expenses are translated at average rates prevailing during the period. The gains and losses resulting from translation +of financial statements of the Company and its subsidiary are recorded as a separate component of accumulated other comprehensive income +within the statement of shareholders’ equity. +Translation of amounts from +TWD into US$ has been made at the following exchange rates for the respective periods: +As of +December 31, +2025 +2024 +TWD exchange rate for balance sheet items, except +for equity accounts +31.37 +32.79 +For the Years Ended +December +31, +2025 +2024 +TWD exchange rate for items in the statements of operations +and comprehensive loss, and statements of cash flows +31.17 +32.31 +Prepaid expenses for forward purchase contract +On June 11, 2024, FLFV and +TP Holdings entered into an agreement with (i) Meteora Capital Partners, LP (“MCP”), (ii) Meteora Select Trading Opportunities +Master, LP (“MSTO”), and (iii) Meteora Strategic Capital, LLC (“MSC” and, collectively with MCP and MSTO, the +“Seller”, or, the “Meteora”) (the “Forward Purchase Agreement”). For purposes of the Forward Purchase +Agreement, (i) FLFV is referred to as the “Counterparty” prior to the consummation of the Business Combination, while the +Company is referred to as the “Counterparty” after the consummation of the Business Combination and (ii) “Shares” +means shares of the Class A common stock, par value $ 0.0001 per share, of FLFV prior to the closing of the Business Combination, and, +after the closing of the Business Combination, shares of common stock, par value $ 0.0001 per share, of the Company. +Pursuant to the terms of +the Forward Purchase Agreement, the Seller intends, but is not obligated, to purchase up to 4,900,000 Shares (the “Purchased Amount”), +less the number of shares purchased by the Seller separately from third parties through a broker in the open market (“Recycled +Shares”). The Seller will not be required to purchase an amount of shares such that following such purchase, the Seller’s +ownership would exceed 9.9 % of the total Shares outstanding immediately after giving effect to such purchase, unless the Seller, at its +sole discretion, waives such 9.9 % ownership limitation. +F- 10 +THUNDER POWER HOLDINGS, INC. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) +Prepaid expenses for forward purchase contract (cont.) +The Forward Purchase Agreement +provides for a prepayment shortfall in an amount in U.S. dollars equal to 0.25 % of the product of the Recycled Shares and the Initial +Price which is equal to the redemption price of $ 11.1347 (the “Prepayment Shortfall”). The Seller will pay the Prepayment +Shortfall to the Company on the prepayment date (which amount will be netted from the Prepayment Amount) (the “Initial Prepayment +Shortfall”). +The Seller in its sole discretion +may sell Recycled Shares at any time following June 11, 2024 and at any sales price, without payment by the Seller of any early termination +obligation until such time as the proceeds from such sales equal 110 % of the Prepayment Shortfall (such sales, “Shortfall Sales,” +and such shares, “Shortfall Sale Shares”). A sale of shares is only (a) a “Shortfall Sale,” subject to the terms +and conditions applicable to Shortfall Sale Shares, when a Shortfall Sale Notice is delivered under the Forward Purchase Agreement, and +(b) an Optional Early Termination, subject to the terms and conditions of the Forward Purchase Agreement applicable to Terminated Shares +(as defined in the Forward Purchase Agreement), when an OET Notice (as defined in the Forward Purchase Agreement) is delivered under +the Forward Purchase Agreement, in each case the delivery of such notice in the sole discretion of the Seller (as further described under +“Optional Early Termination” and “Shortfall Sales” in the Forward Purchase Agreement). +The Seller will purchase +“Additional Shares” from the Counterparty at any date prior to the Valuation Date at the Initial Price, with such number +of Shares to be specified in a Pricing Date Notice as Additional Shares subject to 9.9 % ownership limitations which may be waived by +Seller at its sole discretion; provided that such number of Additional Shares that may be purchased from the Counterparty will not exceed +(x) the Maximum Number of Shares, minus (y) the Recycled Shares. +The Forward Purchase Agreement +provides that the Seller will be paid directly an aggregate cash amount (the “Prepayment Amount”) equal to (x) the product +of (i) the number of Shares as set forth in a Pricing Date Notice and (ii) the redemption price per share of $ 11.1347 , less (y) the Initial +Prepayment Shortfall. In addition to the Prepayment Amount, the Counterparty will pay directly from the Trust Account, on the Prepayment +Date, an amount equal to the product of (x) up to 100,000 (with such final amount to be determined by Seller in its sole discretion via +written notice to the Counterparty) and (y) the Initial Price. The Shares purchased with the Share Consideration (the “Share Consideration +Shares”) will be incremental to the Maximum Number of Shares (as defined below) and will not be included in the number of Shares +in connection with the Transaction under the Forward Purchase Agreement. +The reset price (the “Reset +Price”) will initially be $ 10.00 . The Reset Price will be subject to reset on a weekly basis commencing the first week following +the thirtieth day after the closing of the Business Combination to be the lowest of (a) the then current Reset Price, (b) the Initial +Price and (c) the VWAP Price of the Shares of the prior trading weeks; provided that the Reset Price will be subject to reduction upon +a Dilutive Offering Reset immediately upon the occurrence of such Dilutive Offering. The “Maximum Number of Shares” subject +to the Forward Purchase Agreement will initially be the Purchased Amount; upon the occurrence of a Dilutive Offering Reset, a number +of Shares equal to the quotient of (i) the Purchased Amount divided by (ii) the quotient of (a) the price of such Dilutive Offering divided +by (b) the $ 10.00 . The “Maximum Number of Shares” subject to the Forward Purchase Agreement will initially be the Purchased +Amount; upon the occurrence of a Dilutive Offering Reset, a number of Shares equal to the quotient of (i) the Purchased Amount divided +by (ii) the quotient of (a) the price of such Dilutive Offering divided by (b) the $ 10.00 . +F- 11 +THUNDER POWER HOLDINGS, INC. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) +Prepaid expenses for forward purchase contract (cont.) +From time to time and on +any date following the Trade Date (any such date, an “OET Date”) and subject to the terms and conditions in the Forward Purchase +Agreement, the Seller may, in its absolute discretion, terminate the Transaction in whole or in part by providing written notice to the +Counterparty (the “OET Notice”), by the later of (a) the fifth Local Business Day following the OET Date and (b) no later +than the next Payment Date following the OET Date, (which will specify the quantity by which the number of Shares will be reduced (such +quantity, the “Terminated Shares”)). The effect of an OET Notice will be to reduce the number of Shares by the number of +Terminated Shares specified in such OET Notice with effect as of the related OET Date. As of each OET Date, the Counterparty will be +entitled to an amount from the Seller, and the Seller will pay to the Counterparty an amount, equal to the product of (x) the number +of Terminated Shares and (y) the Reset Price in respect of such OET Date (except that no amount will be due to Counterparty upon any +Shortfall Sale). The payment date may be changed within a quarter at the mutual agreement of the parties. +The “Valuation Date” +is the earlier to occur of (a) the date that is 36 months after the Closing Date, (b) the date specified by the Seller in a written notice +to be delivered to the Counterparty at the Seller’s discretion (which Valuation Date will not be earlier than the day such notice +is effective) after the occurrence of any of (v) a Shortfall Variance Registration Failure, (w) a VWAP Trigger Event, (x) a Delisting +Event, (y) a Registration Failure or (z) unless otherwise specified therein, upon any Additional Termination Event, and (c) the date +specified by the Seller in a written notice to be delivered to the Counterparty at the Seller’s sole discretion (which Valuation +Date will not be earlier than the day such notice is effective). The Valuation Date notice will become effective immediately upon delivery +from the Seller to the Counterparty in accordance with the Forward Purchase Agreement. +On June 15, 2024, the Sellers +issued a pricing date notice to the Company, pursuant to which the Sellers had 1,089,038 shares of Recycled Shares. Together with the +100,000 Share Consideration Shares and net off Prepayment Shortfall, the Company made a total of Prepayments Amount of $ 13,264,964 to +the Sellers. The Company recorded the prepayment in the account of “prepaid expenses for forward purchase contract” on the +consolidated balance sheet. The Company will subsequently derecognize the prepayments when the Sellers sell the Recycled Shares. The +difference between the fair value on the date when the Sellers sell the Recycled Shares and $ 11.1347 will be charged to additional paid-in +capital. The Company assessed that there are no material risks arising from the Forward Purchase Agreement. On July 2, 2024, the Company +issued an aggregate of 3,706,461 shares of the Company’s common stock to Meteora pursuant to the Forward Purchase Agreement and +Subscription Agreement. +On July 2, 2024, the Sellers +purchased, and the Company issued an additional 3,706,461 shares of the Company’s common stock to Meteora pursuant to the Forward +Purchase Agreement and Subscription Agreement. The Sellers made a prepayment shortfall of $ 150,000 . The Company recorded the proceeds +from the shortfall prepayment as a reduction to “prepaid expenses for forward purchase contract.” +As of December 31, 2025 +and 2024, the Company had an outstanding balance of prepaid expenses for forward purchase contract of $ 13,114,964 . +Management assessed the +recoverability of the prepaid balance and concluded that no impairment was recorded as of December 31, 2025 and 2024. The realization +of this balance is dependent on future share transactions under the Forward Purchase Agreement and is subject to significant uncertainty, +including market conditions and the Company’s listing status. Accordingly, the prepaid balance is not expected to generate near-term +cash inflows. +F- 12 +THUNDER POWER HOLDINGS, INC. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) +Income taxes +The Company accounts for +income taxes in accordance with the asset and liability method, the recognition of deferred income tax liabilities and assets for the +expected future tax consequences of temporary differences between the income tax basis and financial reporting basis of assets and liabilities. +Provision for income taxes consists of taxes currently due plus deferred taxes. The charge for taxation is based on the results for the +year as adjusted for items which are non-assessable or disallowed. It is calculated using tax rates that have been enacted or substantively +enacted by the balance sheet date. +Deferred tax is accounted +for using the balance sheet liability method in respect of temporary differences arising from differences between the carrying amount +of assets and liabilities in the financial statements and the corresponding tax basis. Deferred tax assets are recognized to the extent +that it is probable that taxable income to be utilized with prior net operating loss carried forwards. Deferred tax is calculated using +tax rates that are expected to apply to the period when the asset is realized or the liability is settled. Deferred tax is charged or +credited in the statements of operations, except when it is related to items credited or charged directly to equity. Deferred tax assets +are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred +tax assets will not be realized. Current income taxes are provided for in accordance with the laws of the relevant taxing authorities. +An uncertain tax position +is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, +with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50 % likely +of being realized on examination. Penalties and interest incurred related to underpayment of income tax are classified as income tax +expense in the period incurred. +The Company may be subject +to income taxes in the U.S. and foreign jurisdictions, when applicable. The Company is incorporated in the State of Delaware and is required +to pay either income tax or franchise tax, whichever is applicable, to the State of Delaware on an annual basis. The Company is also +registered as a foreign corporation with the State of New Jersey Department of the Treasury. The Company would be subject to New Jersey +state tax laws if it has operation in the State of New Jersey. +Under the current and applicable +laws of BVI, both TP Holdings and TP NEV are not subject to tax on income or capital gains. As of December 31, 2025 and 2024, there were +no temporary differences and no deferred tax asset or liability recognized. The Company does not believe that there were any uncertain +tax positions as of December 31, 2025 and 2024. +Segment reporting +The Company uses the management +approach to determine operating segment. The management approach considers the internal organization and reporting used by the Company’s +chief operating decision maker (“CODM’’) for making decisions, allocation of resource and assessing performance. The +Company operates and manages its business as a single operating and reportable segment. The Company’s CODM has been identified +as the Chief Executive Officer who reviews the consolidated net loss when making decisions about allocating resources and assessing performances +of the Company. Significant segment expenses are the same as these presented under the operating costs and expenses in the consolidated +statements of operations and comprehensive loss, and the difference between net revenue less significant segment expenses and consolidated +net loss are the other segment items. The CODM reviews and utilizes these financial metrics together with non-financial metrics to make +operation decisions, such as the determination of the fee rate at which the Company charges for its products and services and the allocation +of budget between operating costs and expense. +For the years ended December +31, 2025 and 2024, the Company has not generated revenues from operating activities. +F- 13 +THUNDER POWER HOLDINGS, INC. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) +Recently adopted accounting standards +In March 2024, the FASB +issued ASU 2024-02, “Codification Improvements – Amendments to Remove References to the Concept Statements” (“ASU +2024-02”). ASU 2024-02 contains amendments to the FASB Accounting Standards Codification that remove references to various FASB +Concepts Statements. In most instances, the references are extraneous and not required to understand or apply the guidance. In other +instances, the references were used in prior Statements to provide guidance in certain topical areas. The Company adopted ASU 2024-02 +for the annual period ending December 31, 2025. The adoption of this standard did not have a material impact to our results of operations, +cash flows or financial condition. +Recently issued accounting standards +In December 2025, the FASB +issued ASU 2025-11, which is intended to improve the navigability of the guidance in ASC 270 and clarify when it applies. Under +the amendments, an entity is subject to ASC 270 if it provides interim financial statements and notes in accordance with GAAP. The ASU +also addresses the form and content of such financial statements, adds lists to ASC 270 of the interim disclosures required by all other +Codification topics, and establishes a principle under which an entity must disclose events since the end of the last annual reporting +period that have a material impact on the entity. As the Board stated in the proposed guidance and reiterates in the ASU, the amendments +are not intended to change the fundamental nature of interim reporting or expand or reduce current interim disclosure requirements. For +public business entities, the amendments in ASU 2025-11 are effective for interim reporting periods within annual reporting periods beginning +after December 15, 2027. For entities other than public business entities, for interim reporting periods within annual reporting periods +beginning after December 15, 2028. Early adoption is permitted for all entities. +In July 2025, the FASB issued ASU +2025-05, which amends ASC 326-20 to provide a practical expedient for all entities which elect a practical expedient that assumes +that current conditions as of the balance sheet date do not change for the remaining life of the asset in developing reasonable and supportable +forecasts as part of estimating expected credit losses, and an accounting policy election for all entities, other than a public business +entity, that elect the practical expedient related to the estimation of expected credit losses for current accounts receivable and current +contract assets that arise from transactions accounted for under ASC 606. Under ASU 2025-05, an entity is required to disclose whether +it has elected to use the practical expedient and, if so, whether it has also applied the accounting policy election. An entity that +makes the accounting policy election is required to disclose the date through which subsequent cash collections are evaluated. ASU 2025-05 +is effective for annual reporting periods beginning after December 15, 2025, and interim reporting periods within those annual reporting +periods, with early adoption permitted. Entities should apply the new guidance prospectively. The Company is currently evaluating these +new disclosure requirements and does not expect the adoption to have a material impact. +In January 2025, the FASB +issued ASU 2025-01, “Income Statement – Comprehensive Income – Expense Disaggregation Disclosure (Subtopic 220-40): +Clarifying the Effective Date.” This pronouncement revises the effective date of ASU 2024-03 and clarifies that all public business +entities are required to adopt the guidance in annual reporting periods beginning after December 15, 2026, and interim periods within +annual reporting periods beginning after December 15, 2027. Entities within the ASU’s scope are permitted to early adopt the accounting +standard update. The Company is currently evaluating these new disclosure requirements and does not expect the adoption to have a material +impact. +In November 2024, the FASB +issued ASU 2024-03, “Income Statement—Reporting Comprehensive Income (Subtopic 220-40): Disaggregation of Income Statement +Expenses.” This pronouncement introduces new disclosure requirements aimed at enhancing transparency in financial reporting by +requiring disaggregation of specific income statement expense captions. Under the new guidance, entities are required to disclose a breakdown +of certain expense categories, such as: employee compensation; depreciation; amortization, and other material components. The disaggregated +information can be presented either on the face of the income statement or in the notes to the financial statements, often using a tabular +format. The ASU is effective for fiscal years beginning after December 15, 2025, and interim periods within those fiscal years. Early +adoption is permitted. The Company is currently evaluating these new disclosure requirements and does not expect the adoption to have +a material impact. In January 2025, the FASB issued ASU 2025-01, which revises the effective date of ASU 2024-03 (on disclosures +about disaggregation of income statement expenses) “to clarify that all public business entities are required to adopt the guidance +in annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December +15, 2027.” Entities within the ASU’s scope are permitted to early adopt the ASU. The Company is currently evaluating these +new disclosure requirements and does not expect the adoption to have a material impact. +F- 14 +THUNDER POWER HOLDINGS, INC. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) +Recently issued accounting standards (cont.) +In October 2023, the FASB +issued ASU 2023-06, Disclosure Improvements — codification amendments in response to SEC’s disclosure Update and Simplification +initiative which amend the disclosure or presentation requirements of codification subtopic 230-10 Statement of Cash Flows—Overall, +250-10 Accounting Changes and Error Corrections— Overall, 260-10 Earnings Per Share— Overall, 270-10 Interim Reporting— +Overall, 440-10 Commitments—Overall, 470-10 Debt—Overall, 505-10 Equity—Overall, 815-10 Derivatives and Hedging—Overall, +860-30 Transfers and Servicing—Secured Borrowing and Collateral, 932-235 Extractive Activities— Oil and Gas—Notes to +Financial Statements, 946-20 Financial Services— Investment Companies— Investment Company Activities, and 974-10 Real Estate—Real +Estate Investment Trusts—Overall. The amendments represent changes to clarify or improve disclosure and presentation requirements +of above subtopics. Many of the amendments allow users to more easily compare entities subject to the SEC’s existing disclosures +with those entities that were not previously subject to the SEC’s requirements. Also, the amendments align the requirements in +the Codification with the SEC’s regulations. For entities subject to existing SEC disclosure requirements or those that must provide +financial statements to the SEC for securities purposes without contractual transfer restrictions, the effective date aligns with the +date when the SEC removes the related disclosure from Regulation S-X or Regulation S-K. Early adoption is not allowed. For all other +entities, the amendments will be effective two years later from the date of the SEC’s removal. The Company is currently evaluating +these new disclosure requirements and does not expect the adoption to have a material impact. +The Company does not believe +other recently issued but not yet effective accounting standards, if currently adopted, would have a material impact on its consolidated +financial position, statements of operations and cash flows. +Significant risks and uncertainties +Credit risk +Assets that potentially +subject the Company to a significant concentration of credit risk primarily consist of cash and cash equivalents. The maximum exposure +of such assets to credit risk is their carrying amount as at the balance sheet dates. As of December 31, 2025, the Company held cash +of $ 10,093 , among which $ 8,911 was deposits in bank accounts in Taiwan, $ 217 deposited in bank accounts in the United States and $ 965 +in bank accounts in Hong Kong. +Bank accounts in each bank +in Taiwan are insured by the government authority with the maximum limit of TW$ 3,000,000 (equivalent to approximately $ 95,600 ). Each +bank account in the United States is insured by Federal Deposit Insurance Corporation (“FDIC”) insurance with the maximum +limit of $ 250,000 . Each bank account in Hong Kong is insured by the government authority with the maximum limit of HK$ 800,000 (equivalent +to approximately $ 102,800 ). To limit exposure to credit risk relating to deposits, the Company primarily place cash and cash equivalent +deposits with large financial institutions in the United States and Hong Kong which management believes are of high credit quality +and the Company also continually monitors their credit worthiness. +F- 15 +THUNDER POWER HOLDINGS, INC. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +3. GOING CONCERN +As of December 31, 2025, +the Company had cash of $ 10,093 and has incurred recurring losses from operations since inception. The Company reported a net loss of +approximately $ 2.1 million for the year ended December 31, 2025 and has an accumulated deficit of approximately $ 39.1 million. These +conditions raise substantial doubt about the Company’s ability to continue as a going concern. The Company faces several significant +uncertainties, including: +● +Operating losses and liquidity +constraints – The Company has not generated sufficient revenues to support its operations and has limited cash resources to +meet its obligations. +● +Prepaid Forward Contract +– The Company has recorded a prepaid balance related to a forward purchase agreement as a current asset. The realization of +this balance is dependent on the counterparty’s sale of the Company’s shares and is subject to significant uncertainty, +including market conditions and the Company’s listing status. The arrangement is not expected to generate near-term cash inflows +and may not be readily realizable in cash. Accordingly, this balance does not provide immediate liquidity to support the Company’s +operations. +● +Nasdaq delisting – The Company’s common stock was suspended from trading on the Nasdaq Stock Market on April 21, 2025 and subsequently delisted on July 31, 2025. The Company’s securities are currently quoted on the over-the-counter market. This significantly limits the Company’s ability to access public capital markets and raises substantial uncertainty regarding its ability to obtain financing. +● +Dependence on principal +shareholder – The Company has historically relied on financial support from its principal shareholder. Due to ongoing legal +proceedings involving the shareholder, there is significant uncertainty regarding the shareholder’s ability and willingness +to continue providing financial support. +Management has undertaken +certain actions to address these conditions, including exploring potential financing alternatives, seeking additional equity or debt +funding, and evaluating cost reduction and restructuring initiatives. The Company is also pursuing strategic transactions, including +a proposed acquisition; however, such transaction remains subject to completion and other uncertainties, and the target entity is also +subject to its own going concern considerations. +However, there can be no +assurance that these plans will be successfully implemented or will be sufficient to alleviate the substantial doubt regarding the Company’s +ability to continue as a going concern, including the Company’s ability to realize value from the forward purchase arrangement. +Accordingly, the Company’s +ability to continue as a going concern is dependent upon its ability to obtain additional financing and generate sufficient cash flows +from operations. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and +classification of assets or the amounts and classification of liabilities that might result from the outcome of this uncertainty. +F- 16 +THUNDER POWER HOLDINGS, INC. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +4. OTHER CURRENT ASSETS +Other current assets consisted +of the following: +As of +December 31, +2025 +2024 +Payments made on behalf of a third party (a) +$ 315,000 +$ 315,000 +Prepaid expenses +28,712 +67,865 +Less: allowance for credit losses +( 315,000 ) +— +$ 28,712 +$ 382,865 +(a) Before entering into a Merger Agreement with FLFV, TP Holdings entered into a letter of intent with Aetherium Acquisition Corp. (“GMFI”) to explore a potential business combination. TP Holdings paid extension loans in an amount of $ 300,000 and working capital loans in an amount of $ 15,000 on behalf of GMFI. In March 2024, the letter of intent with GMFI was terminated. For the year ended December 31, 2025, the Company provided full allowance for credit losses against the balance due to liquidation of GMFI. +5. OPERATING LEASE +As of December 31, 2025, +TP Holdings had one 24-month office spaces lease agreement in Hong Kong with Thunder Power (Hong Kong) Limited (“TP HK”), +a related party of the Company (Note 9). The lease agreement is non-cancellable, expiring in March 2027. The Company considers those +renewal or termination options that are reasonably certain to be exercised in the determination of the lease term and initial measurement +of right of use assets and lease liabilities. Lease expense for lease payment is recognized on a straight-line basis over the lease term. +The Company determines whether +a contract is or contains a lease at inception of the contract and whether that lease meets the classification criteria of a finance +or operating lease. When available, the Company uses the rate implicit in the lease to discount lease payments to present value; however, +most of the leases do not provide a readily determinable implicit rate. Therefore, the Company discounts lease payments based on an estimate +of the incremental borrowing rate. +For operating leases that +include rent holidays and rent escalation clauses, the Company recognizes lease expense on a straight-line basis over the lease term +from the date it takes possession of the leased property. The Company records the straight-line lease expense and any contingent rent, +if applicable, in general and administrative expenses on the consolidated statements of operations and comprehensive loss. +The lease agreements do +not contain any material residual value guarantees or material restrictive covenants. +For short-term leases, the +Company records operating lease expense in its consolidated statements of operations and comprehensive loss on a straight-line basis +over the lease term and record variable lease payments as incurred. +The table below presents +the operating lease related assets and liabilities recorded on the consolidated balance sheets. +As of +December 31, +2025 +2024 +Right of use assets +$ 17,865 +$ 4,614 +Operating lease liabilities, current +$ 14,877 +$ 3,455 +Operating lease liabilities, non-current +1,703 +— +Total operating lease liabilities +$ 16,580 +$ 3,455 +F- 17 +THUNDER POWER HOLDINGS, INC. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +5. OPERATING LEASE (cont.) +Other information about +the Company’s leases is as follows: +For the Years Ended +December 31, +2025 2024 +Weighted average remaining lease term (years) 1.19 0.21 +Weighted average discount rate 5.5 % 5.5 % +Amortization of right of use assets $ 17,137 $ 26,995 +For the years ended December +31, 2025 and 2024, operating lease expenses were $ 35,472 and $ 27,681 , respectively, among which $ 18,335 and $ nil were incurred for +short-term lease expenses. +The following is a schedule, +by years, of maturities of lease liabilities as of December 31, 2025: +December 31, +2025 +For the year ending December 31, 2026 +$ 15,418 +For the year ending December 31, 2027 +1,713 +Total lease payments +17,131 +Less: Imputed interest +( 551 ) +Present value of lease liabilities +$ 16,580 +6. OTHER PAYABLE AND ACCRUED EXPENSES +Other payable and accrued +expenses consisted of the following: +As of +December 31, +2025 +2024 +Accrued professional expenses incurred for Business Combination (a) +$ +1,176,358 +$ +1,176,358 +Accrued excise tax on repurchases of common stocks (b) +502,251 +913,742 +Others +282,546 +250,340 +$ +1,961,155 +$ +2,340,440 +(a) As of December 31, 2025 and 2024, the balance of accrued professional expenses incurred for business combination consisted of expenses payable to a financial advisor, the counselor, public relation service providers and transfer agent. +(b) On August 16, 2022, the Inflation Reduction Act of 2022 (the “IRA”) was signed into federal law. The IRA provides for, among other things, a new U.S. federal 1 % excise tax on certain repurchases (including redemptions) of stock by publicly traded domestic (i.e., U.S.) corporations and certain domestic subsidiaries of publicly traded foreign corporations. In connection with share redemptions that occurred in June 2024, the Company initially recorded an excise tax payable of $ 411,491 . During the year ended December 31, 2025, the Company reversed this liability as additional share issuances during the period reduced the net excise tax obligation under the provisions of the IRA. +F- 18 +THUNDER POWER HOLDINGS, INC. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +7. EQUITY +Common Stock +The Company has 1,000,000,000 +shares of common stock authorized with par value $ 0.0001 per share. +As part of the Business +Combination between the FLFV and TP Holdings, the Company issued 5,279,673 shares of common stock to the shareholders of FLFV, +among which 2,443,750 shares of common stock were issued to the sponsor of FLFV, 548,761 shares of common stock were issued to private +shareholders, 2,227,162 shares of common stock were issued to public shareholders and 60,000 shares of common stock were issued to the +underwriter as representative shares. +Upon closing of the Business +Combination on June 21, 2024, the Sponsor had provided a total of $ 2,636,000 in working capital loans and elected to convert all such +working capital loans into 263,600 working capital units, which include 263,600 shares of common stock, par value $ 0.0001 per share, +263,600 warrants, each of which may be exercised into one share of common stock of the Company, and 263,600 rights, each of which +entitles the holder to receive one-tenth of one share of common stock of the Company at the closing of the Business Combination. The +Company issued 289,960 shares of common stock to the Sponsor on June 21, 2024. +In connection with the Business +Combination, FLFV engaged a third party financial advisor to assist FLFV in locating target businesses, holding meetings with its +shareholders to discuss a potential business combination and the target business’ attributes, introduce FLFV to potential investors +that are interested in purchasing securities, assist FLFV in obtaining shareholder approval for the business combination and assist with +press releases and public filings in connection with a business combination. On June 21, 2024, the Company issued 1,200,000 shares of +common stock to the financial advisor as service fees. The fair value of the 1,200,000 shares of common stock issued to the financial +advisor was $ 3,072,000 , calculated at $ 2.56 per share by reference to the Nasdaq closing price of the Company’s common stock +on June 21, 2024. +Upon closing of the Business +Combination, the Company issued an aggregated 90,000 shares of common stock to three independent directors of FLFV. The fair value of +these shares was $ 900,000 by reference to the per share price of $ 10.00 . +In March 2024, April 2024 +and June 2024, the Company entered into certain private placement agreements with certain investors, pursuant to which the Company issued +1,310,740 shares of common stock, 44,940 shares of common stock and 1,155,513 shares of common stock, respectively. The Company raised +an aggregated proceeds of $ 946,800 from these private placements. +On July 2, 2024, the Sellers +purchased and the Company issued additional 3,706,461 shares of the Company’s common stock to Meteora pursuant to the Forward Purchase +Agreement and Subscription Agreement. The sellers made a prepayment shortfall of $ 150,000 . +On August 20, 2024, the +Company entered into a Common Stock Purchase Agreement (the “Purchase Agreement”) and a Registration Rights Agreement (the +“Registration Rights Agreement”) with Westwood Capital Group LLC, a Delaware limited liability company (“Westwood”), +pursuant to which Westwood has committed to purchase, subject to certain limitations, up to $ 100 million of the Company’s common +stock, par value $ 0.0001 per share (the “Total Commitment”). In addition, the Company has agreed to pay Westwood a commitment +fee valued at $ 1,500,000 in the form of 150,000 shares of common stock (the “Commitment Shares”) or an amount of cash (up +to $ 1,500,000 ), depending on various factors. Pursuant to the Purchase Agreement, the Company issued 150,000 shares of the Company’s +stock as commitment shares to Westwood. +As of December 31, 2025 +and 2024, the Company had 70,724,664 and 70,724,664 shares of common stock issued, respectively. Of these shares, 20,000,000 shares were +issued and deposited into an escrow account in connection with the Business Combination and are subject to vesting conditions under the +earnout arrangement. These escrowed shares are not considered outstanding until the applicable vesting conditions are satisfied. As of +December 31, 2025 and 2024, the Company had 50,724,664 and 50,724,664 shares of common stock outstanding, respectively. +F- 19 +THUNDER POWER HOLDINGS, INC. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +7. EQUITY (cont.) +Preferred Stock +The Company has 100,000,000 shares of Preferred Stock authorized with +par value $ 0.0001 per share. As of December 31, 2025 and 2024, the Company had nil and nil shares of Preferred Stock issued +and outstanding. +Warrants +Warrants issued in connection with FLFV’s +initial public offering (“IPO”) +In connection with FLFV’s +IPO on June 21, 2022, FLFV issued 9,775,000 warrants (“Public Warrants”). Substantially concurrently with the closing +of the IPO, FLFV issued 478,875 warrants to FLFV’s Sponsor and 20,000 warrants to US Tiger (“Private +Warrants”) (Public Warrants and Private Warrants collectively the “Warrants”). Each Warrant entitles the registered +holder to purchase one share of common stock at a price of $ 11.50 per share, subject to adjustment, at any time commencing on the +later of 12 months from the closing of the IPO or 30 days after June 21, 2024. The Warrants will expire five years after June +21, 2024. +The Warrants became exercisable +after the consummation of the Business Combination on June 21, 2024. No Warrants will be exercisable for cash unless the Company has +an effective and current registration statement covering the common stock issuable upon exercise of the Warrants and a current prospectus +relating to such common stock. +The Company may call the +Warrants for redemption at a price of $ 0.01 per Warrant: +● +in whole and not in part; +● upon not less than 30 days ’ prior written notice of redemption (the “ 30 -day redemption period”) to each warrant holder; and +● if, and only if, the reported last sale price of the common stock equals or exceeds $ 16.50 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within a 30 -trading day period ending three business days before the Company sends the notice of redemption to the warrant holders. +The Company accounted for +the Warrants as equity instruments in accordance with ASC 480, “Distinguishing Liabilities from Equity” and ASC 815-40, +“Derivatives and Hedging: Contracts in Entity’s Own Equity”. The Company accounted for the Warrants as an expense +of the IPO resulting in a charge directly to stockholders’ equity. The Company estimates that the fair value of the Public Warrants +and Private Warrants to be approximately $ 1.1 million and $ 0.05 million, respectively, or at $ 0.108 per warrant, using +the Monte Carlo Model. The fair value of the Public Warrants and Private Warrant are estimated as of the date of grant using the +following assumptions: (1) expected volatility of 10.3 %, (2) risk-free interest rate of 2.92 %, (3) expected life of 1.38 years, +(4) exercise price of $ 11.50 and (5) stock price of $ 9.76 . +F- 20 +THUNDER POWER HOLDINGS, INC. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +7. EQUITY (cont.) +Warrants (cont.) +Other Warrants +Upon closing of the Business +Combination on June 21, 2024, the Sponsor had provided a total of $ 2,636,000 in working capital loans and elected to convert all such +working capital loans into 263,600 working capital units, which include 263,600 shares of common stock, par value $ 0.0001 per share, +263,600 warrants, each of which may be exercised into one share of common stock of the Company, and 263,600 rights, each of which +entitles the holder to receive one-tenth of one share of common stock of the Company at the closing of the Business Combination. On December +31, 2025 and 2024, the Company issued 263,600 warrants to the Sponsor. +As of December 31, 2025 +and 2024, the Company issued outstanding warrants to purchase 10,537,475 and 10,537,475 shares of common stock, respectively. +Rights +On June 21, 2022, FLFV issued 9,775,000 Rights +(as defined below) in connection with the IPO. Substantially concurrently with the closing of the IPO, FLFV issued 478,875 Rights +to the Sponsor and 20,000 rights to US Tiger. Except in cases where FLFV was not the surviving company in an initial business +combination, each holder of a Right was automatically entitled to receive one-tenth (1/10) of common stock (the “Rights”) +upon consummation of the initial business combination. +On June 21, 2024, the Company +issued 1,027,386 shares of common stock to settle the rights. As of December 31, 2025 and 2024, the Company did not have outstanding +rights. +8. INCOME TAXES +Cayman Islands +Under the current laws of +the Cayman Islands, the Company is not subject to tax on income or capital gain. Additionally, upon payments of dividends to the shareholders, +no Cayman Islands withholding tax will be imposed. +British Virgin +Islands +Under the current and applicable +laws of BVI, TP Holdings and TP NEV are not subject to tax on income or capital gains. +Hong Kong +TPAI-HK is incorporated in Hong Kong and is subject to Hong Kong +Profits Tax on the taxable income as reported in its statutory financial statements adjusted in accordance with relevant Hong Kong +tax laws. The applicable tax rate for the first HKD$ 2 million of assessable profits is 8.25 % and assessable profits above HKD$ 2 million +will continue to be subject to the rate of 16.5 % for corporations in Hong Kong. +F- 21 +THUNDER POWER HOLDINGS, INC. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +8. INCOME TAXES (cont.) +Taiwan +TPAI-TW is incorporated +in Taiwan and is subject to Taiwan corporate income tax on the taxable income as reported in its statutory financial statements +adjusted in accordance with relevant Taiwan tax laws. The applicable tax rate for the first TW$ 120,000 of assessable profits is +exempt from tax and assessable profits above TWD$ 120,000 (approximately $ 3,900 ) will be subject to the rate of 20 % for resident +companies in Taiwan. +For the years ended December +31, 2025 and 2024, the Company did not incur income tax expenses. Below is a reconciliation of the statutory tax rate to the effective +tax rate: +For the Years Ended +December 31, +2025 +2024 +BVI statutory income tax rate +$ 0 % +$ 0 % +Effect of different income tax rates in other jurisdictions +1.1 % +0.4 % +Effect of changes in valuation allowance +( 1.1 )% +( 0.4 )% +Effective tax rate +$ 0 % +$ 0 % +Deferred tax assets and +deferred tax liabilities as of December 31, 2025 and 2024 consist of the following: +For the Years Ended +December 31, +2025 +2024 +Net operating losses carryforwards +$ 32,885 +$ 9,701 +Less: valuation allowance +( 32,885 ) +( 9,701 ) +Total deferred tax assets +$ +— +$ +— +As of December 31, 2025, the Company had net operating loss carrying +forwards of $ 398,606 from the Company’s Hong Kong subsidiary, which will be carried forward indefinitely to offset future profits +of the Company’s Hong Kong subsidiary. The Company evaluates its valuation allowance requirements at end of each reporting period +by reviewing all available evidence, both positive and negative, and considering whether, based on the weight of that evidence, a valuation +allowance is needed. When circumstances cause a change in management’s judgement about the realizability of deferred tax assets, +the impact of the change on the valuation allowance is generally reflected in income from operations. The future realization of the tax +benefit of an existing deductible temporary difference ultimately depends on the existence of sufficient taxable income of the appropriate +character within the carryforward period available under applicable tax law. The Company reviews deferred tax assets for a valuation allowance +based upon whether it is more likely than not that the deferred tax asset will be fully realized. As of December 31, 2025, full valuation +allowance of was provided against deferred tax assets arising from net operation losses carryforwards as the Company assessed that it +was more likely than not that that the net operating losses would not be fully utilized before expiration. +Uncertain tax positions +The Company evaluates each +uncertain tax position (including the potential application of interest and penalties) based on the technical merits, and measures the +unrecognized benefits associated with the tax positions. As of December 31, 2025 and 2024, the Company did not have any unrecognized +uncertain tax positions, and the Company does not believe that its unrecognized tax benefits will change over the next twelve months. +For the years ended December 31, 2025 and 2024, the Company did not incur any interest and penalties related to potential underpaid income +tax expenses. +F- 22 +THUNDER POWER HOLDINGS, INC. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +9. RELATED PARTY TRANSACTIONS AND BALANCES +a. Nature of relationships with +related parties: +Relationship with the Company +Thunder Power Hong Kong Limited (“TP HK”) Over which the spouse of Mr. Wellen Sham, the Company’s controlling shareholder, exercises significant influence +Thunder Power Electric Vehicle (Hong Kong) Limited (“TPEV HK”) Over which the spouse of Mr. Wellen Sham, the Company’s controlling shareholder, exercises significant influence +Mr. Wellen Sham Controlling shareholder of the Company +Ms. Ling Houng Sham Spouse of Mr. Wellen Sham +Feutune Light Sponsor LLC (“FLFV Sponsor”) Shareholder of the Company +b. Related party transactions: +For the years ended December +31, 2025 and 2024, TP HK charged operating lease expenses of $ 17,137 and $ 27,681 , respectively. +For year ended December 31, 2025, the Company borrowed $ 1,349,264 from +Mr. Wellen Sham to support the Company’s operations. The borrowings bear interest rate of 8 % per annum and are payable +through December 2026. For the year ended December 31, 2025, the Company borrowed $ 100,000 from Ms. Ling Houng Sham to support the Company’s +operations. The borrowings bear interest rate of 8 % per annum and is payable through March 2026. For the year ended December +31, 2025, Mr. Wellen Sham also made payments of $ 24,000 on behalf of the Company. +For the year ended December 31, 2024, the Company borrowed $ 991,560 from Mr. Wellen Sham to support the Company’s operations. The +borrowings bear interest rate ranging between 8 % per annum and 10 % per annum and is payable through December 2025. As of December 31, +2024, the Company repaid borrowings of $ 25,000 to Mr. Wellen Sham. +c. Balance with related parties: +Nature +December 31, +2025 +December 31, +2024 +TP HK (1) +Amount due to the related party +$ 113,498 +$ 96,236 +Mr. Wellen Sham (2) +Amount due to the related party +2,823,585 +1,271,415 +Ms. Ling Houng Sham (2) +Amount due to the related party +330,751 +208,636 +FLFV Sponsor (3) +Amount due to the related party +190,000 +190,000 +$ 3,457,834 +$ 1,766,287 +(1) The balance due to TP HK represented the payments made by TP HK on behalf of TP Holdings regarding the office rental fee and employee salary expenses. The balance is interest free and is repayable on demand. +(2) The balance due to Mr. Wellen Sham represented the promissory notes of $ 560,000 for extension of FLFV, promissory notes of $ 2,575,824 for the daily operation of the Company, other payable of $ 28,000 for payment of operating expenses on behalf of the Company and interest payable of $ 219,761 . The balance due to Ms. Ling Houng Sham represented promissory notes of $ 300,000 for extension of FLFV and interest payable of $ 30,751 . +The promissory notes issued to Mr. +Wellen Sham matured through December 2026 with interest rate ranging between 8 % and 10 %. The promissory notes issued to Ms. Wellen Sham +matured through March 2026 with interest rate of 8 %. +(3) +In May and June 2024, FLFV issued three +promissory notes to the FLFV Sponsor in exchange for an aggregated loans of $ 190,000 from the FLFV Sponsor, among which $ 50,000 was payable +on closing of the Business Combination, and $ 140,000 was payable on June 21, 2024. As of the date of this Annual Report, the Company +has not settled the promissory notes with FLFV Sponsor. +F- 23 +THUNDER POWER HOLDINGS, INC. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +10. SHARE-BASED COMPENSATION +Share options +In October 2014, TP +Holdings adopted a Thunder Power Holdings Limited Share Option Plan (the “2014 Plan”), As of December 31, 2024, the 2014 +Plan existed to the extent that there are options/awards outstanding thereunder. +On June 17, 2024, the stockholders +of the Company voted to approve the 2024 Omnibus Equity Incentive Plan (the “2024 Plan”), which became effective at the closing +of the Business Combination. All outstanding options to purchase share of TP Holdings granted under the 2014 Plan have rolled over into +the 2024 Plan and became options to purchase share of Common Stock of the Company. Such options granted under the 2014 Plan will continue +to be subject to the terms and conditions as set forth in the agreements evidencing such stock options and the terms of the 2024 Plan +(including the terms of the Prior Plan attached as an exhibit to the 2024 Plan). +The total number of shares +of the Company’s Common Stock reserved and available for grant and issuance pursuant to awards under the 2024 Plan equals 10 % of +the total number of outstanding shares of the Company’s Common Stock immediately following the Business Combination, the full amount +of which may be issued pursuant to incentive stock options. In addition, annually on the first trading day of the calendar year, beginning +with the 2025 calendar year, the share reserve (but not the incentive stock option limit) will automatically increase by 5 % of the total +number of shares of the Company’s Common Stock outstanding as of the last day of the immediately preceding calendar year, unless +the administrator of the 2024 Plan acts prior to January 1 of such calendar year to provide that there will be no increase or a lesser +increase in the share reserve for that year. Under the 2024 Plan, non-employee directors, employees and consultants, and any individual +to whom the Company and the affiliates have extended a formal offer of employment, are eligible to receive awards under the 2024 Plan. +There is no limit on the number or class of directors, employees or consultants that are eligible to receive awards. +For the years ended December +31, 2025 and 2024, the transaction activities of share options were as below: +Number of +options +Weighted average +exercise price +per option +Outstanding at December 31, 2023 +590,000 +$ 1.02 +Forfeited +( 212,500 ) +$ 1.00 +Outstanding at December 31, 2024 +377,500 +$ 1.02 +Forfeited +( 197,500 ) +$ 1.03 +Outstanding at December 31, 2025 +180,000 +$ 1.00 +The following table summarizes +information with respect to outstanding share options to employees as of December 31, 2025. +Number of +options Weighted +average +remaining +contractual +term +(years) +Outstanding at December 31, 2025 180,000 0.00 +As of December 31, 2025, +the 180,000 outstanding options had no intrinsic value because the exercise price is higher than the strike price as of December 31, +2025. As of December 31, 2025, the Company did not have outstanding exercisable options. +No share-based compensation +expense was recognized during the years ended December 31, 2025 and 2024 as the remaining outstanding options were fully vested. +Other share-based compensation +In June 2024, the Company +issued 90,000 shares of common stock to three independent directors of FLFV for their past services. The grant date fair value +of the common stock was $ 900,000 , calculated at $ 10 per share. The Company recorded share-based compensation expenses in the “general +and administrative expenses” with corresponding accounts to equity. +F- 24 +THUNDER POWER HOLDINGS, INC. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +11. CONTINGENT CONSIDERATION +On June 21, 2024, the Company +entered into an escrow agreement (the “Escrow Agreement”) with Mr. Wellen Sham, Yuanmei Ma and CST, pursuant to which, among +other things, (1) CST will act as the escrow agent under the Escrow Agreement; (2) at the closing of the Business Combination, the Company +deposited with CST 20,000,000 shares of common stock as Earnout Shares, to be held by CST in a segregated escrow account (“Earnout +Escrow Account”); and (3) if any portion of the Earnout Shares becomes eligible for release in accordance with the terms of the +Escrow Agreement, CST will release the applicable portion of the Earnout Shares from the Earnout Escrow Account in accordance with the +terms of the Escrow Agreement and disburse to each eligible recipient the applicable portion of Earnout Shares therefrom. +The Earnout Shares shall +be released or otherwise forfeited as follows: (i) an aggregate of 5,000,000 Earnout Shares (the “Tranche 1 Earnout Shares”) +will be vested, if and only if, on the occurrence that the amount of sales/revenues of the Company for any of the fiscal years (such +fiscal year is referred to as “Tranche 1 Fiscal Year”) ending from December 31, 2023 to December 31, 2025 is no less than +$ 42,200,000 as evidenced by the audited financial statements of the Company prepared in accordance with U.S. GAAP for the Tranche 1 Fiscal +Year that is contained in an annual report on Form 10-K filed by the Company with the SEC (the “Tranche 1 Annual Report”); +(ii) an aggregate of 15,000,000 Earnout Shares (the “Tranche 2 Earnout Shares”) will be vested, if and only if, on the occurrence +that the amount of sales/revenues of the Company for any of the fiscal years (such fiscal year is referred to as “Tranche 2 Fiscal +Year”) ending from December 31, 2023 to December 31, 2026 is no less than $ 415,000,000 as evidenced by the audited financial statements +of the Company prepared in accordance with U.S. GAAP for the Tranche 2 Fiscal Year that is contained in an annual report on Form 10-K +filed by the Company with the SEC (the “Tranche 2 Annual Report”); (iii) Within five (5) business days following the determination +that all or any portion of the Tranche 1 Earnout Shares or Tranche 2 Earnout Shares become vested, the Company, together with Mr. Sham +and Ms. Ma, shall instruct the Escrow Agent to irrevocably and unconditionally release the vested tranche of Earnout Shares from the +Escrow Account in accordance with the terms of the Escrow Agreement to certain of the Company’s shareholders. Each tranche of Earnout +Shares may be released only once, but more than one tranche can be released in any year in accordance with the Escrow Agreement. +The Earnout Shares were +issued in connection with the Business Combination and are classified as equity instruments. The Earnout Shares were measured at their +grant-date fair value on June 21, 2024 and recorded within additional paid-in capital. Because the Earnout Shares are classified as equity +instruments, they are not subsequently remeasured. For the years ended December 31, 2025 and 2024, the revenue performance conditions +required for vesting were not achieved. Accordingly, no Earnout Shares were released from escrow as of December 31, 2025. +The Earnout Shares are classified +as equity instruments. Because the Earnout Shares are subject to vesting conditions, the Company evaluated the appropriate grant-date +measurement basis in accordance with applicable U.S. GAAP and recorded the Earnout Shares within equity. The Earnout Shares are not subsequently +remeasured. +12. COMMITMENT AND CONTINGENCIES +The Company’s principal +shareholder was involved in 11 legal proceedings that went to first trial, among which six cases were ended in acquittals, and five cases +were in process of second trial. Currently, the outcome of the five cases cannot be reasonably estimated. +Brown Neri, Smith & +Khan LLP (‘BNSK”) was engaged to represent the Company as a defendant in a lawsuit that was filed by plaintiff Sam Yu (“Yu”) +on or about June 11, 2025 (the “Lawsuit”). The Lawsuit pertains to allegations by Yu against the Company and other individual +defendants pertaining to a Special Purchase Acquisition Company and various Securities Purchase Agreements and related claims of fraud, +breach of contract and negligence. The matter remains pending and is in the discovery phase, with the Company’s Demurrer and Motion +to Strike set for hearing in August 2026. It is too early to make a precise determination regarding potential damages. It is premature +to assess the likelihood of an outcome, but BNSK intends to aggressively defend the matter, while continually assessing the possibility +and favorability of informal resolution. +From time to time, the Company +may be subject to certain legal proceedings, claims and disputes that arise in the ordinary course of business. Although the outcomes +of these legal proceedings cannot be predicted, the Company does not believe these actions, in the aggregate, will have a material adverse +impact on its financial position, results of income or liquidity. +13. SUBSEQUENT EVENTS +The Company evaluated all events and transactions from December 31, +2025 up to the report date, which is the date that these consolidated financial statements are available to be issued. There are no material +subsequent events that require disclosures in the consolidated financial statements. +F- 25 +NONE +http://fasb.org/us-gaap/2025#Liabilities +1 +1 +The balance due to Mr. Wellen Sham represented the promissory notes of $560,000 for extension of FLFV, promissory notes of $2,575,824 for the daily operation of the Company, other payable of $28,000 for payment of operating expenses on behalf of the Company and interest payable of $219,761. The balance due to Ms. Ling Houng Sham represented promissory notes of $300,000 for extension of FLFV and interest payable of $30,751. +The promissory notes issued to Mr. Wellen Sham matured through December 2026 with interest rate ranging between 8% and 10%. 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Inc.",2025,10-K,2026-04-07,2025-12-31,2026-04-07T20:57:23.000Z,0001213900-26-041108,ea0285006-10k_thunder.htm,ANNUAL REPORT,6401300,1,1,https://www.sec.gov/Archives/edgar/data/1912582/000121390026041108/ea0285006-10k_thunder.htm,https://www.sec.gov/Archives/edgar/data/1912582/000121390026041108/ diff --git a/raw/filings/0001912582/2025/0001213900-26-041108/item1.txt b/raw/filings/0001912582/2025/0001213900-26-041108/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..d96e60319a07c618b2f8f3603f9b58d1b7b2e661 --- /dev/null +++ b/raw/filings/0001912582/2025/0001213900-26-041108/item1.txt @@ -0,0 +1,504 @@ +Item 1. Business +Corporate History and Background +FLFV +Prior to June 21, 2024, we +were known as Feutune Light Acquisition Corporation, a Delaware corporation (“FLFV”), and Feutune Light Merger Sub, Inc., +a Delaware corporation and wholly owned subsidiary of FLFV (“Merger Sub”). On October 26, 2023, we entered into a business +combination agreement (as amended, the “Business Combination Agreement”) with Thunder Power Holdings Limited, a British Virgin +Islands company (“Thunder Power”), pursuant to which on June 21, 2024, Thunder Power merged with and into Merger Sub, with +Merger Sub surviving the merger as a wholly owned subsidiary of FLFV (the “Merger” and, together with the other transactions +contemplated by the Business Combination Agreement and any other agreement executed and delivered in connection therewith, the “Business +Combination”). At the closing of the Business Combination (the “Closing”), FLFV was renamed as “Thunder Power +Holdings, Inc.” Unless the context indicates otherwise, references in this prospectus to the “Company,” “Thunder +Power Holdings,” “we,” “us,” “our” and similar terms refer to Thunder Power Holdings, Inc. +References to “FLFV” refer to our predecessor company prior to the consummation of the Business Combination. +Thunder Power +On March 21, 2013, Thunder +Power Hong Kong Ltd. (“TP HK”) was established as a wholly owned subsidiary of Thunder Power with the intention to act as +a financial and operational hub of Thunder Power, to deal with various corporate actions such as fundraising, back-office operations and +bridge the operations between China and Europe. As from December 14, 2021, Thunder Power retains only one subsidiary, Thunder Power New +Energy Vehicle Development Company Limited (“TP NEV”) which was established in accordance with laws and regulations of British +Virgin Islands on October 19, 2016. +Our Company +Thunder Power is a technology +innovator and a prospective manufacturer of premium electric vehicles (“EVs”). The Company has developed several proprietary +technologies which are the building blocks of the Thunder Power family of EVs. Thunder Power’s wholly-owned subsidiary, Thunder +Power New Energy Vehicle Development Company Limited, a company established in accordance with the laws and regulations of the British +Virgin Islands on October 19, 2016 (“TP NEV”), has developed several proprietary technologies which are the building blocks +of the Thunder Power family of EVs. Thunder Power is a holding company with no operations that was incorporated under the laws and regulations +of the British Virgin Islands with limited liability on September 30, 2015. +You can find additional information +on our website at www.aiev.com. The information contained on, or that can be accessed through, our website is not part of, and is not +incorporated into, this Annual Report on Form 10-K. +Our Business Divisions +We envision to structure our +operations into three different divisions: vehicle development, strategic alliance and mergers and acquisitions, and trade and consulting, +each of which intends to address large and fragmented markets. +1 +Vehicle Development +Thunder Power is strategically +focused on the development and production of electric vehicles (EVs) that combine timeless Italian design with an emphasis on delivering +a joyful and engaging driving experience at an accessible price point. The Company’s vehicle development efforts are structured +around three core series: Core Products, Niche Offerings, and Collaborative Projects. +Core Product +At the heart of Thunder Power’s +product portfolio is the Compact City Car, which is scheduled for launch in 2028. This model integrates Thunder Power’s proprietary +innovations, developed prior to its public listing, with state-of-the-art technical solutions. The vehicle’s design is led by renown +European designer, ensuring a blend of functionality and aesthetic appeal. We expect to outsource the initial production to facilities +in Italy, with an option for insourced production beginning in 2030. +Key features of our Compact +City Car include: +● Italian Craftsmanship: An affordable, compact sports car that reflects Italian design, quality, and driving +spirit. +● Driver-Focused Experience: Engineered for superior ride and handling, prioritizing driver engagement with +a human-centric design and minimal reliance on screens. +● Integrated Smart AI: Advanced AI software offering personalized features such as maps, driving modes, +and individual settings to enhance the driving experience. +We intend to focus on achieving +symmetry of parts to simplify both manufacturing and assembly processes, adhering to niche manufacturing principles. We also aim to minimize +the number of unique components by promoting design repeatability. The Compact City Car is planned to integrate a combination of internal +and external “off the shelf” parts alongside new development components, enhancing efficiency and reducing complexity in production. +The City Car is designed +to cater to a younger, urban demographic of first-time car buyers who value sustainability and view their car as an extension of their +identity and lifestyle. The initial launch will target Taiwan as a pilot market, with subsequent expansion planned in Asia +and Europe . +2 +Niche Offerings +Thunder Power’s niche +vehicle development focuses on creating high-impact, emotionally compelling products that prioritize personalization and unique design. +These offerings are positioned as complementary vehicles for households, rather than primary functional cars. +Leveraging its existing chassis +and technologies, we are well-position to develop and launch the Sports Coupe, a high-performance luxury vehicle that combines European +styling with superior craftsmanship and driving dynamics. Drawing inspiration from other successful benchmarks, this model is designed +to deliver exceptional comfort and performance, with a targeted starting retail price of $100,000. Production will be outsourced to Italy. +We also expect to explore +opportunities in tailor-made retro vehicle development and restomod projects, leveraging its modular in-house chassis as a technological +base. These offerings are aimed at a younger generation of automotive enthusiasts who value vintage aesthetics but seek modern performance, +comfort, and eco-conscious functionality. In particular, we intend to explore the “electromods” trend, which involve converting +classic cars to electric powertrains. This approach provides a unique driving experience while reducing emissions, appealing to both sustainability-minded +and performance-driven customers. +Through these niche offerings, +we aim to establish ourselves as a key player in the luxury and specialty automotive markets, emphasizing the traditional values of driving +pleasure, craftsmanship, and grand touring. +Collaborative Projects +We are actively pursuing joint ventures and collaboration opportunities +to expand its footprint in emerging automotive segments. This includes leveraging its AIEV design framework to enhance third-party platforms +for exclusive markets. +One of the Company’s +primary areas of focus is the rapidly growing microcar segment, which offers a unique opportunity to bridge the gap between motorcycles +and traditional passenger vehicles. Microcars are particularly well-suited for urban environments and have experienced significant growth +in Europe, with strong potential for further expansion in Asia. According to McKinsey’s Future Mobility 2022 survey, the global +microcar market is projected to reach a total addressable value of $340 billion annually by 2030, driven by increased consumer demand +for sustainable and versatile urban mobility solutions. +The first Microcar project +is planned as a low-volume joint venture, leveraging the platform of an existing manufacturer, with production targeted to begin in 2027. +This model will incorporate Thunder Power’s signature Italian design elements. A fully unique Microcar is anticipated to launch +from 2030, subject to achieving market-relevant retail pricing, which is currently under evaluation. +Mergers and Acquisitions (M&A) +We are committed to pursuing +a proactive merger and acquisitions strategy, primarily targeting opportunities within the clean energy sector and related industries. +The focus will be on acquisitions that are immediately revenue-generating, reinforcing the Company’s financial position while creating +synergies with its core business. +On December 19, 2024, we +entered into a share exchange agreement with certain shareholders (the “TW Company Shareholders”) of Electric Power Technology +Limited, a Taiwan corporation (“TW Company”). On January 27, 2025, the Company and TW Shareholders have executed an amendment +to the Agreement and certain subsequent amendments (the “Amendments”, and together with the Agreement, the “Amended +Agreements”). Pursuant to the terms of the Amended Agreement, a portion of the TW Company Shareholders are expected to exchange +a total of 26,783,838 ordinary shares in TW Company for an aggregate of 31,832,768 shares of newly issued Common Stock of the Company +in weeks, with the remaining total of 1,715,000 shares of the TW Company to be transferred to the Company for 2,038,621 shares in a few +months. Upon completion of the transaction, the Company is expected to hold approximately 33.71% of TW Company’s total issued and +outstanding shares. The transaction has been reviewed and approved by the Taiwan government. This transaction is expected to strengthen +Thunder Power’s position in renewable energy while providing immediate revenue streams +3 +Trade and Consulting +At the core of our strategy +is to generate revenue during the capital-intensive vehicle development phase. To achieve this, the Company plans to engage in complementary +activities that do not interfere with its core business operations but provide additional revenue streams and cash flow. +Vehicle Trading +As a precursor to building +a dealer network and cultivating sales contacts, we intend to engage in limited prestige vehicle trading. This initiative will focus on +trading new and nearly new vehicles in the European and Asian markets, leveraging the Company’s market expertise and industry relationships. +In addition to the opportunity +to bringing cash flow, we also expect these trading activities to enable us to establish valuable industry connections and insights, laying +the groundwork for a future dealer network and strengthening the Company’s presence in key markets. +Consulting +We also intend to offer design +consulting services and licensing access to its patent portfolio as part of its broader strategy to monetize intellectual property and +technical expertise. +Capitalizing the Company’s +in-house design capabilities and patent portfolio, we plan to unlock additional revenue opportunities while maintaining ensuring cost +efficiency. +Technology +Thunder Power is currently +exploring potential licensing arrangements of intellectual property from its affiliates. These technologies may include, among others, +modular flexible chassis system, wireless charging, multi-link suspension system, light weight engineering, battery management system +(BMS), thermal management systems (TMS), and the use of EV TDPs. No licensing agreements have been finalized, and there can be no assurance +that the Company will obtain rights to any such technologies. +Intellectual Property +Thunder Power, as a holding +company, does not own any patents. Patents are primarily owned by Thunder Power’s wholly owned subsidiary, TP NEV, except for the +EV TDP, the patent for which is owned by Mr. Wellen Sham in his capacity as an individual inventor and patent holder. There is no +licensing agreement in place between Thunder Power and TP NEV or Mr. Sham. These patents are predominantly utility patents, with a number +of design patents. +Intellectual property is +important to our business. Our commercial success depends on our ability to obtain, maintain and protect the intellectual property and +other proprietary technology that we develop or acquire the rights to, to operate without infringing, misappropriating or otherwise violating +the intellectual property and proprietary rights of others, and to prevent others from infringing, misappropriating or violating our intellectual +property and proprietary rights. We expect to rely on a combination of patents, trademarks, trade secrets, know-how, continuing technological +innovation, confidential information and other measures to develop and maintain our proprietary position including through personnel, +contractor, consultant and third-party nondisclosure and invention assignment agreements and other contractual arrangements. +Regardless of the protective +measures that we may implement to safeguard our intellectual property and proprietary technology; there is always a risk that alterations +from our products or processes may provide sufficient basis for a competitor to avoid infringement claims. In addition, the coverage claimed +in a patent application can be significantly reduced before a patent is issued and courts can reinterpret a patent’s scope after +issuance. Many jurisdictions, including the United States, permit third parties to challenge issued patents in administrative proceedings, +which may result in further narrowing or even cancellation of patent claims. We cannot provide any assurance that any patents will be +issued from our pending or any future applications or that any current or future issued patents will adequately protect our intellectual +property. For this and other risks related to our proprietary technology, inventions and improvements, please see the section under the +heading “Risk Factors.” +4 +TP NEV currently holds 154 +issued U.S. patents. Thunder Power does not currently have a licensing agreement in place with TP NEV with respect to such patents, and +there can be no assurance that such agreement will be entered into. +We may explore potential +licensing arrangements for certain technologies developed by our affiliates. No licensing agreements have been finalized, and there can +be no assurance that the Company will obtain rights to any such technologies. Technologies that we hope to have access to through licensing +agreements and intend to invest in and develop include engineering software, drivetrain systems and controls, infotainment, cybersecurity, +telematics and electrical architecture hardware and software. As we develop our technology, we will continue to build our intellectual +property portfolio, including by pursuing patents and other intellectual property protection when we believe it is possible, cost-effective, +beneficial, and consistent with our overall intellectual property protection strategy. +Generally, the terms of individual +issued patents extend for varying periods depending on the date of filing of the patent application or the date of patent issuance and +the legal term of patents in the countries in which they are obtained. Generally, utility patents issued for applications filed in the +United States are granted a term of 20 years from the earliest effective filing date of a non-provisional patent application, +assuming the patent has not been terminally disclaimed over a commonly-owned patent or a patent naming a common inventor, or over +a patent not commonly owned but that was disqualified as prior art as the result of activities undertaken within the scope of a joint +research agreement. The life of a patent, and the protection it affords, is therefore limited and once the patent lives of our issued +patents have expired, we may face competition, including other competing technologies. The duration of foreign patents varies in accordance +with provisions of applicable local law but typically is also 20 years from the earliest effective filing date. The actual protection +afforded by a patent may vary from country to country and can depend upon many factors, including the type of patent, the scope of its +coverage, the availability of patent term adjustments or extensions, the availability of legal remedies in a particular country and the +validity and enforceability of the patent. As a result, our owned patent portfolio may not provide us with sufficient rights to exclude +others from commercializing products similar or identical to ours. +Furthermore, we rely upon +trade secrets and know-how, confidential information, unpatented technologies, continuing technological innovation and other proprietary +information to develop, protect and maintain our competitive position and aspects of our business that are not amenable to, or that we +do not presently consider appropriate for, patent protection and prevent competitors from reverse engineering or copying our technologies. +However, the foregoing rights, technologies and information are difficult to protect. We seek to protect them by, in part, using confidentiality +agreements with our personnel and consultants and any potential commercial partners and collaborators and invention assignment agreements +with our personnel We also have implemented or intend to implement confidentiality agreements or invention assignment agreements with +our selected consultants and any potential commercial partners. These agreements are designed to protect our proprietary information and, +in the case of the invention assignment agreements, to grant us ownership of technologies that are developed through a relationship with +a third party. These agreements may be breached, and we may not have adequate remedies for any breach. There can be no assurance that +these agreements will be self-executing or otherwise provide meaningful protection for our trade secrets or other intellectual property +or proprietary information. In addition, our trade secrets may otherwise become known or be independently discovered by competitors. To +the extent that our commercial partners, collaborators, personnel and consultants use intellectual property owned by others in their work +for us, disputes may arise as to the rights in related or resulting know-how and inventions. +Our commercial success will +also depend in part on not infringing, misappropriating or otherwise violating the intellectual or proprietary rights of third parties. +The issuance of third-party patents could require us to alter our development or commercial strategies, change our products or processes, +obtain licenses to additional third-party patents or other intellectual property or cease certain activities. Our breach of any license +agreements or failure to obtain a license for proprietary rights that we may require to develop or commercialize our future products or +technologies may have an adverse impact on us. Given that patent applications in the United States and certain other jurisdictions +are maintained in secrecy for 18 months or potentially longer, and since publication of discoveries in the scientific or patent literature +often lags behind actual discoveries, we cannot be certain of the patent protection being sought by third parties and/or the priority +of inventions covered by such patent applications. Moreover, we may have to participate in interference, revocation, derivation, re-examination, +post-grant review, inter partes review or opposition proceedings brought by third parties or declared by the U.S. Patent and +Trademark Office or an equivalent foreign body. See “ Risk Factors ” for additional information regarding these and other +risks related to our intellectual property portfolio and their potential effect on us. +5 +Showroom rendering (source from Thunder Power): +Facilities and Production +In alignment with our focus +on efficiency and scalability, we expect to conduct all short- and medium-term vehicle production through outsourcing partnerships with +established manufacturing facilities. This approach enables the Company to leverage the expertise, resources, and infrastructure of its +production partners, ensuring high-quality manufacturing standards while maintaining flexibility to scale operations in response to market +demand. +For the longer term, Thunder +Power retains the option to transition to insourced production. This potential shift will be carefully evaluated based on market conditions, +production volumes, and cost efficiencies, with the goal of enhancing operational control and capturing additional value across the manufacturing +process. This dual approach ensures that the Company remains agile and competitive while maintaining the ability to adapt its production +strategy to evolving business needs and industry dynamics. +6 +Funding and Revenue +Thunder Power is a pre-revenue company and has +not generated any revenue from the sales of its vehicles. We expect to generate revenue from the sale of our EV Models, the sale and/or +licensing of our technologies, and from any future research and development services that we may provide. +Go-To-Market Strategy +Thunder Power plans to establish +a comprehensive and well-structured network of dealer partners, designed to provide both sales and after-sales service, ensuring seamless +and reliable customer experience. These dealer partners will serve as key touchpoints for customers, offering personalized support, product +education, and maintenance solutions to uphold the brand’s commitment to quality and customer satisfaction. This traditional dealership +model will be complemented by centrally coordinated marketing initiatives, aimed at driving brand visibility and delivering consistent +messaging across all markets. Furthermore, to cater to evolving consumer preferences and the growing demand for convenience, Thunder Power +will also provide customers with the option to order vehicles directly through its online platform. This dual-channel approach allows +the Company to reach a broader audience, offering the flexibility to engage with the brand in a manner that best suits individual preferences, +whether through in-person interactions at dealerships or the convenience of digital commerce. +Competition +Thunder Power anticipates +that it will face competition from both traditional automotive original equipment manufacturer (“OEMs”) and an increasing +number of newer companies focused on electric and other alternative fuel vehicles. Thunder Power expects this competition to increase, +particularly as the transportation sector continues to shift towards low-emission, zero-emission or carbon neutral solutions. +Any of the Company’s +future vehicles are expected to compete with both traditional luxury internal combustion vehicles from established automotive OEMs and +electric and other alternative fuel vehicles from both new manufacturers and established automotive OEMs, many of which have entered or +have announced plans to enter the alternative fuel and EV market. Many major automobile manufacturers, including luxury automobile manufacturers, +have EVs available today, and other current and prospective automobile manufacturers are also developing EVs. In addition, numerous manufacturers +offer hybrid vehicles, including plug-in versions, with which Thunder Power’s vehicles will also compete. +Thunder Power believes the +primary competitive factors on which it will compete include, but are not limited to: +● +product quality, reliability and safety; +● +range, efficiency and charging speeds; +● +product performance; +● +technological innovation, including with respect to AD/ADAS features; +● +access to charging options; +● +design, styling and luxury; +● +service options and customer experience; +● +management team experience at bringing electric vehicles and other disruptive technologies to market; +● +manufacturing efficiency; +● +brand recognition and prestige; and +● +product price. +7 +Thunder Power believes that +it is favorably positioned to compete on the basis of these factors. However, many of Thunder Power’s current and potential competitors +have substantially greater financial, technical, manufacturing, marketing and other resources than Thunder Power. Thunder Power’s +competitors may be able to deploy greater resources to the design, development, manufacturing, distribution, promotion, sales, marketing +and support of their products. Additionally, many of Thunder Power’s competitors also have greater name recognition, longer operating +histories, larger sales forces, broader customer and industry relationships and other tangible and intangible resources that exceed Thunder +Power’s. Furthermore, many of Thunder Power’s competitors operate with a traditional sales and dealer distribution model for +vehicles that may be viewed more favorably by potential customers. These competitors also compete with Thunder Power in recruiting and +retaining qualified research and development, sales, marketing and management personnel, as well as in acquiring technologies complementary +to, or necessary for, Thunder Power’s products. Additional mergers and acquisitions in the EV and luxury automotive markets may +result in even more resources being concentrated on Thunder Power’s competitors. +Government Regulations and Credits +Environmental Regulations +(i) +At the U.S. Federal level: +In 2012, the Environmental +Protection Agency (“EPA”) adopted greenhouse gas emissions (GHG) standards for light duty vehicles produced in model years +2017 – 2025 (Control of Air Pollution from Motor Vehicles: Tier 3 Motor Vehicle Emission and Fuel Standards, 79 FR 23414 +(Apr. 28, 2014)). In 2020 (The Safer Affordable Fuel-Efficient (SAFE) Vehicles Rule for Model Years 2021-2026 Passenger +Cars and Light Vehicles, 85 FR 24174 (Apr. 30, 2020)) and 2021 (Revised 2023 and Later Model Year Light-Duty Vehicle Greenhouse +Gas Emissions Standards, 86 FR 74434 (Dec. 30, 2021), the EPA revised and made more stringent its GHG standards and proposed and +finalized a rulemaking (the “2021 rulemaking”), respectively, for model years 2023 – 2026 light-duty passenger +cars. Thunder Power’s production schedule starting in 2025 and covering 2026 will be subjected to these more stringent GHG standards. +On April 22, 2021, the +Biden-Harris Administration announced a 50 to 52 percent target reduction from 2005 levels in GHGs by 2030, representing the U.S. Nationally +Determined Contribution (NDC) under the Paris Agreement. This announcement was followed by Executive Order 14037 on August 5, 2021 +(“Strengthening American Leadership in Clean Cars and Trucks”) reinforcing the goal of at least a 50 percent GHG reductions +from new zero-emission vehicles sales by 2030. In addition, in 2021 and 2022, respectively, Congress passed the Infrastructure Investment +and Jobs Act (Pub. Law 117-58, Bipartisan Infrastructure Law) and the Inflation Reduction Act (Pub. Law 117-169) providing significant +government-wide funding and support for GHG reductions, including funding for component technology and infrastructure for the manufacture, +sales and use of electric vehicles. +In 2023, the EPA under its +Clean Air Act (CAA) authority proposed new rules for light-duty vehicles with model years 2027 – 2032, specifically +“off-cycle and air conditioning credits, treatment of upstream emissions associated with zero-emission vehicles and plug-in hybrid +electric vehicles in compliance calculations, medium-duty vehicle incentive multipliers, vehicle certification and compliance, new +standards to control refueling emissions from incomplete medium-duty vehicles, battery durability and warranty requirements for light-duty and +medium-duty plug-in vehicles and minor amendments to requirements for aftermarket fuel conversions, importing vehicles and engines, +evaporative emission test procedures, and test fuel specifications for measuring fuel economy.” (Multi-Pollutant Emissions +Standards for Model Years 2027 and Later Light-Duty and Medium-Duty Vehicles, 88 Fed. Reg. 29184, Proposed Rule (May 5, +2023)) Any EVs Thunder Power, as a light-duty vehicle manufacturer (manufacturing vehicles between 8,501 and 14,000 pounds gross +vehicle weight rating (GVWR)), produces in 2027 to 2032 would be subjected to any final rules. +8 +In addition, during production +periods from 2025 to 2032, Thunder Power would have to comply with two separate EPA rules on GHG reduction standards. +(ii) +At the U.S. state level: +California: The +2022 Advanced Clean Cars II rule requires all new light-duty vehicles sold in the state of California to be zero-emission vehicles +by 2035. ( Id . at 29188, note 14, citing to the California Air Resources Board “California moves to accelerate to 100% +new zero-emission vehicle sales by 2035.” Also, Id . note 15, citing the State of California Office of the +Governor, “Governor Newsom Announces California Will Phase Out Gasoline-Powered Cars & Drastically Reduce Demand for Fossil +Fuel in California’s Fight Against Climate Change”). +New York: In +2021, in advance of Climate Week 2021, New York Governor Hochul signed Legislation (A.4302/A.2758) requiring all new light-duty vehicles +sold in the state of New York to be zero-emission vehicles by 2035. ( Id . note 17, citing Governor of New York Press +Office, “In Advance of Climate Week 2021, Governor Hochul Announces New Actions to Make New York’s Transportation Sector Greener, +Reduce Climate-Altering Emissions”). +Massachusetts: Though +not finalized, in 2022, the state of Massachusetts announced that it may ban sale of all new gas-powered vehicles by 2035. ( Id . +note 18, citing Boston.com, “Following California’s lead, state will likely ban all sales of new gas-powered cars +by 2035.”). +Washington: Also +in 2022, the Department of Ecology in the State of Washington issued a press release regarding its plan to require 100% of new passenger +cars and trucks to run on zero-emission technology by 2035. ( Id . note 20, citing Washington Department of Ecology “Washington +sets path to phase out gas vehicles by 2035.”). +Other States: In +2022, the Associated Press (“AP”) reported that 17 states may follow California’s rule to require all new cars, pickups +and SUVs to be electric or hydrogen powered by 2035. According to the AP article “under the EPA’s Clean Air Act, states must +abide by the federal governments standard vehicle emissions standards unless they at least partially opt to follow California’s +stricter requirements.” ( Id . note 21, citing Associated Press, “17 states weigh adopting California’s electric +car mandate”). States such as Virginia, Minnesota, Colorado and Pennsylvania are unsure to follow California’s new laws citing +climate differences and wanting to give consumers options. +(iii) +Globally: +International Zero-Emission Vehicle +Alliance: In November 2021, ZEV announced that by 2035 its members will move to all ZEV sales. ( Id .) ZEV members are +Baden-Württemberg, British Columbia, California, Canada, Chile, Connecticut, Costa Rica, Germany, Maryland, Massachusetts, Netherlands, +New Jersey, New York, Norway, Oregon, Québec, Rhode Island, United Kingdom, Vermont, and Washington. +According to the EPA, “at +least 20 countries, as well as numerous local jurisdictions, have announced targets for shifting all new passenger car sales to zero-emission vehicles +in the coming years, including Norway (2025); Austria, the Netherlands, Denmark, Iceland, India, Ireland, Israel, Scotland, Singapore, +Sweden, and Slovenia (2030); Canada, Chile, Germany, Thailand, and the United Kingdom (2035); and France, Spain, and Sri Lanka (2040).” +( Id . note 23, citing Environmental and Climate Change Canada, “Achieving a Zero-Emission Future for Light-Duty Vehicles: +Stakeholder Engagement Discussion Document December 17”). +Emissions Credits +In January 2023, Tesla +reported sales of carbon offset credits or carbon allowances to other manufacturers who failed to meet the emissions standards set by +the California Air Resources board (CARB) of USD 1.78 billion. (Carbon Credits, Jennifer L., Tesla Carbon Credit Sales +Reach Record $1.78 Billion in 2022 , Jan. 27, 2023, available at https://carboncredits.com/tesla-carbon-credit-sales-reach-record-1-78-billion-in-2022 ). +Thunder Power expects to +earn carbon offset credits and other regulatory credits that it will sell to other manufacturers from its manufacture, sale, and/or registration +of Zero Emission Vehicles (“ZEVs”). In addition, Thunder Power anticipated that it will be able to sell ZEV credits in up +to 12 Section 177 States such as California, Connecticut, Delaware, Maine, Maryland, Massachusetts, New Jersey, New York, Oregon, +Pennsylvania, Rhode Island, Vermont, and Washington. Thunder Power may also expect to earn and sell U.S. Department of Transportation’s +Corporate Average Fuel Economy (“CAFÉ”) credits, EPA’s greenhouse gas credits and credits earned or saleable +in other North American regions, UK, Europe, and Asia. +9 +EPA Emissions and Certificate of Conformity +The U.S. Clean Air Act +requires that Thunder Power obtain a Certificate of Conformity issued by the EPA and a California Executive Order issued by the California +Air Resources Board (“ CARB ”) certifying that its vehicles comply with applicable emissions requirements. A Certificate +of Conformity is required for vehicles sold in the United States, and an Executive Order from the CARB is required for vehicles sold +in states that have adopted California standards. CARB sets California standards for emissions control for certain regulated pollutants +for new vehicles and engines sold in California. States that have adopted the California standards as approved by EPA also recognize the +CARB Executive Order for sales of vehicles. In addition to California, there are 13 other states that have either adopted or are in the +process of adopting the stricter California standards, including New York, Massachusetts, Vermont, Maine, Pennsylvania, Connecticut, +Rhode Island, Washington, Oregon, New Jersey, Maryland, Delaware and Colorado. +Although the Thunder Power +vehicles will have zero emissions, Thunder Power is required to seek an EPA Certificate of Conformity and, for vehicles sold in California +or any of the other 13 states that have adopted the stricter California standards, a CARB Executive Order. +Vehicle Safety and Testing +Thunder Power’s vehicles +will be subject to, and will be required to comply with, numerous regulatory requirements established by the National Highway Traffic +Safety Administration (“ NHTSA ”), including applicable U.S. Federal Motor Vehicle Safety Standards (“ FMVSS ”). +Thunder Power intends that its family of EVs will fully comply with all applicable FMVSSs without the need for any exemptions, and we +expect future Thunder Power’s EVs to either fully comply or comply with limited exemptions related to new technologies. Additionally, +there are regulatory changes being considered for several FMVSSs, and while Thunder Power anticipates compliance, there is no assurance +that Thunder Power will comply with such changes under the final versions as enacted. +As a U.S.-based manufacturer, +Thunder Power must self-certify that its EVs meet all applicable FMVSS, as well as the NHTSA bumper standard, or otherwise are exempt, +before its EVs can be sold in the United States. Numerous FMVSS will apply to Thunder Power’s EVs, such as crash-worthiness +requirements, crash avoidance requirements and EV-specific requirements. Thunder Power will also be required to comply with other +federal laws and regulations administered by NHTSA, including, among other things, ensuring its EVs do not contain defects related to +motor vehicle safety, recall requirements, the Corporate Average Fuel (CAFE) standards, Theft Prevention Act requirements, consumer information +labeling requirements, reporting required notices, bulletins and other communications, Early Warning Information reporting, foreign recall +reporting and owner’s manual requirements. +The Automobile Information +and Disclosure Act requires manufacturers of motor vehicles to disclose certain information regarding the manufacturer’s suggested +retail price, optional equipment and pricing. In addition, this law allows inclusion of city and highway fuel economy ratings, as determined +by the U.S. Environmental Protection Agency (EPA), as well as crash test ratings as determined by NHTSA if such tests are conducted. +Thunder Power intends to +bring production in Europe and then expand its offerings within the U.S. and outside of the U.S., and in connection with such expansion +its EVs will be subject to foreign safety, environmental and other regulations. Many of those regulations are different from those applicable +in the U.S. and may require redesign and/or retesting. For example, the European Union (“ E.U. ”) has established +new approval and oversight rules requiring that a national authority certify compliance with heightened safety rules, emissions limits +and production requirements before vehicles can be sold in each E.U. member state, the initial of which rules were rolled out on September 1, +2020. There is also regulatory uncertainty regarding how these rules will impact sales in the United Kingdom given its withdrawal from +the E.U. These changes could impact the rollout of new vehicle features in Europe. +10 +In addition to the various +territorial legal requirements Thunder Power is obligated to meet, Thunder Power’s family of EVs is engineered with the expectation +that it will deliver overall five-star performance in the two main voluntary vehicle safety performance assessment programs, the +U.S. New Car Assessment Program (“ NCAP ”) and the European New Car Assessment Programme (“ Euro NCAP ”). +Five-star score is the maximum attainable score. These independent organizations have introduced a number of additional safety related +tests aimed at improving the safety of passenger vehicles, both for occupants and pedestrians involved in collisions with vehicles. Some +of these tests are derived from legal requirements, such as side impact, but have higher performance requirements. Others are unique to +the programs. Areas covered by these tests in 2020 included: +● +Mobile Progressive Deformable Barrier; +● +Full Width Rigid Barrier; +● +Mobile Side Impact Barrier; +● +Side Pole; +● +Far Side Impact; +● +Whiplash; +● +Vulnerable Road Users (Pedestrians and Cyclists); +● +Safety Assist; and +● +Rescue and Extrication +Automobile Manufacturer and Dealer Regulation +In the United States, +state laws regulate the manufacture, distribution, sale and service of automobiles, and generally require motor vehicle manufacturers +and dealers to be licensed in order to sell vehicles directly to residents. Certain states do not permit automobile manufacturers to be +licensed as dealers or to act in the capacity of a dealer, or otherwise restrict a manufacturer’s ability to deliver or service +vehicles. To sell vehicles to residents of states where Thunder Power is not licensed as a dealer, Thunder Power expects to conduct the +transfer of title out of the state. In certain such states, Thunder Power expects to open studios that serve an educational purpose and +where the title transfer may not occur. +Some automobile dealer trade +associations may challenge the legality of Thunder Power’s operations and direct selling operations by OEMs in court and may use +administrative and legislative processes to attempt to prohibit or limit such OEMs’ ability to operate existing stores or expand +to new locations. Certain dealer associations may also actively lobbied state licensing agencies and legislators to interpret existing +laws or enact new laws in ways not favorable to Thunder Power’s planned direct sales and service model. Thunder Power expects dealer +trade associations to continue to lobby state licensing agencies and legislators to interpret existing laws or enact new laws in ways +not favorable to its business model; however, Thunder Power intends to oppose such efforts to limit its ability to operate and intends +to proactively support legislation that enables its business model. +Should Thunder Power not +be allowed to develop relationships with the largest multi-brand and high-end brand dealers in the U.S. it would be difficult +for it as a newcomer to the U.S. EV market to gain a foothold in the U.S. Thunder Power recognizes that its best strategy for +market penetration is to align itself with a U.S. dealership network, especially for sale of the Coupe, and the eventual servicing +of its family of EVs. +11 +Battery Safety and Testing Regulation +Thunder Power’s battery +packs are designed to conform to mandatory regulations that govern transport of “dangerous goods,” defined to include lithium-ion batteries, +which may present a risk in transportation. The governing regulations, which are issued by the Pipeline and Hazardous Materials Safety +Administration, are based on the United Nation (“ U.N. ”) Recommendations on the Safe Transport of Dangerous Goods Model +Regulations and related U.N. Manual Tests and Criteria. The regulations vary by mode of shipping transportation, such as by ocean +vessel, rail, truck or air. Prior to launch, Thunder Power plans to complete all applicable transportation tests for its battery packs, +demonstrating its compliance with applicable regulations. Thunder Power intends to use lithium-ion cells in the high voltage battery +packs in its EVs. The use, storage and disposal of battery packs is regulated under federal law. Thunder Power’s battery packs are +intended to meet the applicable compliance requirements of the UN Manual of Tests and Criteria demonstrating its ability to ship battery +packs by any method. These tests include: +● +Altitude simulation — simulating air transport; +● +Thermal cycling — assessing cell and battery seal integrity; +● +Vibration — simulating vibration during transport; +● +Shock — simulating possible impacts during transport; +● +External short circuit — simulating an external short circuit; and +● +Overcharge — evaluating the ability of a rechargeable battery to withstand overcharging. +Data Privacy and Security Laws +Numerous state, federal and +foreign laws, regulations and standards govern the collection, use, access to, confidentiality and security of health-related and other +personal information and could apply now or in the future to our operations or the operations of our partners. In the United States, numerous +federal and state laws and regulations, including data breach notification laws, health information privacy and security laws and consumer +protection laws and regulations govern the collection, use, disclosure, and protection of health-related and other personal information. +In addition, certain foreign laws govern the privacy and security of personal data, including health-related data. Privacy and security +laws, regulations, and other obligations are constantly evolving, may conflict with each other to complicate compliance efforts, and can +result in investigations, proceedings, or actions that lead to significant civil and/or criminal penalties and restrictions on data processing. +Employees and Human Capital Resources +As of December 31, 2025, +we had 2 full-time employees. None of our employees are represented by a labor union or party to a collective bargaining agreement. +Our human capital objectives +include retaining and incentivizing existing employees and recruiting and integrating new employees. The principal purposes of our compensation +program, including our equity incentive plans, are to attract, retain and appropriately motivate employees, consultants and directors +through the granting of stock-based compensation awards and cash-based bonus awards. +Corporate Information +Our corporate office +is located at 221 W 9th St #848, Wilmington, DE 19801 and its telephone number is (909) 214-2482. Our telephone number is (909) 214-2482. +Information contained on, or that can be accessed through, our website is not incorporated by reference into this Annual Report on Form +10-K, and you should not consider information on our website to be part of this Annual Report on Form 10-K. +12 \ No newline at end of file diff --git a/raw/filings/0001912582/2025/0001213900-26-041108/item13.txt b/raw/filings/0001912582/2025/0001213900-26-041108/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..ff1abf811a3837d6e661c50b068ddec36fdeb91a --- /dev/null +++ b/raw/filings/0001912582/2025/0001213900-26-041108/item13.txt @@ -0,0 +1,3 @@ +Item 13. +Certain Relationships and Related Transactions, and Director Independence +70 \ No newline at end of file diff --git a/raw/filings/0001913577/2024/0001213900-25-027319/filing.txt b/raw/filings/0001913577/2024/0001213900-25-027319/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..146ca1a5fdbc9dc472a4c07ba04d6df9556e9b4f --- /dev/null +++ b/raw/filings/0001913577/2024/0001213900-25-027319/filing.txt @@ -0,0 +1,4444 @@ +UNITED +STATES +SECURITIES +AND EXCHANGE COMMISSION +Washington, +D.C. 20549 +FORM +10-K +(Mark +One) +☒ +ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For +the fiscal year ended December 31 , 2024 +or +☐ +TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For +the transition period from ____ to ____. +Commission +File Number: 001-41351 +Denali +Capital Acquisition Corp. +(Exact +name of registrant as specified in its charter) +Cayman Islands 98-1659463 +(State or other jurisdiction of +incorporation or organization) (I.R.S. Employer +Identification Number) +437 Madison Avenue , 27th Floor +New York , New York 10022 +(Address of principal executive offices) (Zip Code) +(646) +978-5180 +(Registrant’s +telephone number, including area code) +Securities +registered pursuant to Section 12(b) of the Act: +Title of each class Trading symbol(s) Name of each exchange on which registered +Units, each consisting of one Class A ordinary share and one redeemable warrant DECAU The Nasdaq Stock Market LLC +Class A ordinary shares, par value $0.0001 per share DECA The Nasdaq Stock Market LLC +Warrants, each whole warrant exercisable for one Class A ordinary share at an exercise price of $11.50 per share +DECAW +The Nasdaq Stock Market LLC +Securities +registered pursuant to Section 12(g) of the Act: None +Indicate +by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. +Yes +☐ No ☒ +Indicate +by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. +Yes +☐ No ☒ +Indicate +by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange +Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) +has been subject to such filing requirements for the past 90 days. +Yes +☒ No ☐ +Indicate +by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule +405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant +was required to submit such files). +Yes +☒ No ☐ +Indicate +by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting +company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” +“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. +Large accelerated filer ☐ Accelerated filer ☐ +Non-accelerated filer ☒ Smaller reporting company ☒ +Emerging growth company ☒ +If +an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying +with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ +Indicate +by check mark whether the Registrant has filed a report on and attestation to its management’s assessment of the effectiveness +of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered +public accounting firm that prepared or issued its audit report. ☐ +If +securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant +included in the filing reflect the correction of an error to previously issued financial statements. ☐ +Indicate +by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation +received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ +Indicate +by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). +Yes +☒ No ☐ +The +aggregate market value of the ordinary shares held by non-affiliates of the registrant, computed as of June 28, 2024 (the last business +day of the registrant’s most recently completed second fiscal quarter) was $ 8,413,056 . +As of April 1, 2025, there were 1,261,837 Class +A ordinary shares and 2,062,500 Class B ordinary shares of the registrant issued and outstanding. +DOCUMENTS +INCORPORATED BY REFERENCE +None . +TABLE +OF CONTENTS +Page +CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS +ii +Item 1. +Business +1 +Item 1A. +Risk Factors +8 +Item 1B. +Unresolved Staff Comments +10 +Item 1C. +Cybersecurity +10 +Item 2. +Properties +10 +Item 3. +Legal Proceedings +10 +Item 4. +Mine Safety Disclosures +10 +Item 5. +Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +11 +Item 6. +[Reserved] +12 +Item 7. +Management’s Discussion and Analysis of Financial Condition and Results of Operations +13 +Item 7A. +Quantitative and Qualitative Disclosures About Market Risk +21 +Item 8. +Financial Statements and Supplementary Data +22 +Item 9. +Changes in and Disagreements With Accountants on Accounting and Financial Disclosure +22 +Item 9A. +Controls and Procedures +23 +Item 9B. +Other Information +23 +Item 9C. +Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +23 +Item 10. +Directors, Executive Officers and Corporate Governance +24 +Item 11. +Executive Compensation +28 +Item 12. +Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +28 +Item 13. +Certain Relationships and Related Transactions, and Director Independence +30 +Item 14. +Principal Accountant Fees and Services +33 +Item 15. +Exhibit and Financial Statement Schedules +34 +Item 16. +Form 10-K Summary +34 +i +CAUTIONARY +NOTE REGARDING FORWARD-LOOKING STATEMENTS +This +report, including, without limitation, statements under the heading “Management’s Discussion and Analysis of Financial Condition +and Results of Operations,” includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 +and Section 21E of the Securities Exchange Act of 1934. Our forward-looking statements include, but are not limited to, statements regarding +our or our management team’s expectations, hopes, beliefs, intentions or strategies regarding the future, including with respect +to our business combination with Semnur (as defined below). In addition, any statements that refer to projections, forecasts or other +characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words +“anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” +“intends,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” +“project,” “should,” “would” and similar expressions may identify forward-looking statements, but +the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements in this report may include, +for example, statements about: +● our +ability to select an appropriate target business or businesses; +● our +ability to complete our initial business combination, including the business combination +with Semnur Pharmaceuticals, Inc. (“Semnur”) (the “Business Combination”); +● our +expectations around the performance of the prospective target business or businesses; +● our +success in retaining or recruiting, or changes required in, our officers, key employees or +directors following our initial business combination; +● our +officers and directors allocating their time to other businesses and potentially having conflicts +of interest with our business; +● our +potential ability to obtain additional financing to complete our initial business combination; +● our +pool of prospective target businesses; +● our +ability to consummate an initial business combination due to the uncertainty resulting from +the ongoing conflicts in the Middle East, ongoing military action with the country of Ukraine +commenced by the Russian Federation and Belarus in February 2022, adverse changes in general +economic industry and competitive conditions, or adverse changes in government regulation +or prevailing market interest rates; +● our +public securities’ potential liquidity and trading; +● the +lack of a market for our securities; +● the +use of proceeds not held in the trust account or available to us from interest income on +the trust account balance; or +● the +trust account not being subject to claims of third parties. +The forward-looking statements +contained in this report are based on our current expectations and beliefs concerning future developments and their potential effects +on us. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements +involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or +performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties +include, but are not limited to, those factors described under the heading “Risk Factors,” elsewhere in this Annual Report +on Form 10-K and in our other filings with the Securities and Exchange Commission (the “SEC”), including in our definitive +proxy statement filed March 27, 2025 (File No. 001-41351) and our preliminary prospectus/proxy statement included in our Registration +Statement on Form S-4 (File No. 333-283019) that we filed with the SEC on November 6, 2024 relating to our proposed business combination +with Semnur (as may be amended from time to time, the “Semnur Disclosure Statement”). Should one or more of these risks or +uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected +in these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result +of new information, future events or otherwise, except as may be required under applicable securities laws. +ii +PART +I +References +in this report to “we,” “our,” “us,” “Denali” or the “Company” refer to Denali +Capital Acquisition Corp. References to our “management” or our “management team” refer to our officers and directors, +and references to the “sponsor” refer to Denali Capital Global Investments LLC. References to “founder shares” +are to shares of our Class B ordinary shares initially purchased by our sponsor in a private placement prior to our initial public offering, +and the shares of our Class A ordinary shares issued upon the conversion thereof as provided herein, and references to “initial +shareholders” are to holders of our founder shares prior to our initial public offering. +Item +1. Business. +General +We +are a blank check company incorporated as a Cayman Islands exempted company for the purpose of effecting a merger, share exchange, asset +acquisition, share purchase, reorganization or similar business combination with one or more businesses, which we refer to throughout +this report as our initial business combination. We have neither engaged in any operations nor generated any revenue to date. Based on +our business activities, we are a “shell company” as defined under the Securities Exchange Act of 1934 (the “Exchange +Act”) because we have no operations and nominal assets consisting almost entirely of cash. On April 11, 2022, we consummated our +initial public offering (the “IPO”) of 8,250,000 units, which included 750,000 units issued pursuant to the partial exercise +by the underwriters of their over-allotment option (the “Units”), each Unit consisting of one Class A ordinary share of the +Company, par value $0.0001 per share (the “public shares”) and one redeemable warrant (each, a “Public Warrant”), +each whole Public Warrant entitling the holder thereof to purchase one Class A ordinary share for $11.50 per share. The Units were sold +at a price of $10.00 per Unit, and the IPO generated gross proceeds of $82,500,000. Simultaneously with the closing of the IPO, we consummated +a private placement (the “Private Placement”) with our sponsor, of an aggregate of 510,000 units (the “Private Placement +Units”) (including 30,000 Private Placement Units purchased pursuant to the partial exercise by the underwriters of their over-allotment +option) at a price of $10.00 per Private Placement Unit, generating gross proceeds of $5,100,000. Each Private Placement Unit consists +of one Class A ordinary share (the “Private Placement Shares”) and one warrant. The terms and provisions of the warrants +in the Private Placement Units (the “Private Placement Warrants”) are identical to the Public Warrants, except that, subject +to certain limited exceptions, they are subject to transfer restrictions until 30 days following the consummation of an initial business +combination. On April 11, 2022, a total of $84,150,000 of the net proceeds from the IPO and the Private Placement was deposited in a +trust account (the “Trust Account”) established for the benefit of the Company’s public shareholders at a U.S. based +trust account, with Wilmington Trust, National Association, acting as trustee. +On +January 25, 2023, we entered into an Agreement and Plan of Merger (the “Longevity Merger Agreement”), by and among Longevity +Biomedical, Inc. (“Longevity”), Denali SPAC Holdco, Inc., a Delaware corporation and direct, wholly owned subsidiary of the +Company (“Holdco”), Denali SPAC Merger Sub, Inc., a Delaware corporation and direct, wholly owned subsidiary of Holdco (“Denali +Merger Sub”), Longevity Merger Sub, Inc., a Delaware corporation and direct, wholly owned subsidiary of Holdco (“Longevity +Merger Sub”), and Bradford A. Zakes, solely in the capacity as seller representative (the “Seller Representative”). +Pursuant to the Longevity Merger Agreement, the parties thereto agreed to enter into a business combination with Longevity (the “Longevity +Business Combination”). +On +October 11, 2023, our shareholders held an extraordinary general meeting (the “Extension Meeting”) to vote in favor of approving +amendments to the Company’s amended and restated memorandum and articles of association (the “Articles”) to, amongst +other things, extend the date by which we must consummate an initial business combination from October 11, 2023 to July 11, 2024 by electing +to extend the date to consummate an initial business combination on a monthly basis for up to nine times by an additional one month each +time, subject to the sponsor (or its affiliates or permitted designees) depositing into the Trust Account for each such one-month extension +the lesser of (a) an aggregate of $50,000 or (b) $0.03 per public share that remains outstanding and is not redeemed prior to any such +one-month extension, unless the closing of our initial business combination has occurred. +Furthermore, +in connection with the Extension Meeting, shareholders holding 3,712,171 public shares (after giving effect to withdrawals of redemptions) +exercised their right to redeem such shares for a pro rata portion of the funds in our Trust Account. As a result, approximately $40.5 +million (approximately $10.92 per share) was removed from the Trust Account to pay such holders. Following redemptions, we had 4,537,829 +public shares outstanding. +On +January 9, 2024, our shareholders held an extraordinary general meeting (the “Longevity Business Combination Meeting”) and +voted in favor of approving the Longevity Business Combination. +On +June 26, 2024, pursuant to Section 11.1(a) of the Longevity Merger Agreement, the parties to the Longevity Merger Agreement entered into +a termination agreement (the “Termination Agreement”) pursuant to which the Longevity Merger Agreement was terminated effective +as of the date of the Termination Agreement. As a result of the Termination Agreement, the Longevity Merger Agreement is of no further +force and effect (other than certain customary limited provisions that survive the termination pursuant to the terms of the Longevity +Merger Agreement) and ancillary agreements entered into in connection with the Longevity Merger Agreement also automatically terminated +in accordance with their respective terms. As a result of the termination of the Longevity Merger Agreement, Holdco filed the Registration +Withdrawal Request on Form RW on August 9, 2024, to withdraw its registration statement on Form S-4, as amended, initially filed with +the SEC on March 29, 2023. +On +July 2, 2024, the Company issued a press release to announce that it entered into a letter of intent with Semnur, a wholly owned subsidiary +of Scilex Holding Company (“Scilex”), for a potential business combination. +1 +On +July 10, 2024, our shareholders held an extraordinary general meeting (the “Second Extension Meeting”) to consider and vote +upon a proposal to amend, by way of special resolution, the Articles to extend the date by which we must (i) consummate a merger, share +exchange, asset acquisition, share purchase, reorganization or similar business combination involving Denali and one or more businesses +or entities; (ii) cease its operations, except for the purpose of winding up, if it fails to complete such initial business combination; +and (iii) redeem 100% of the public shares from July 11, 2024 to April 11, 2025, by electing to extend the date to consummate an initial +business combination on a monthly basis for up to nine (9) times by an additional one month each time (such date as extended, the “Extended +Date”), unless the closing of the initial business combination has occurred, without the need for any further approval of our shareholders, +provided that the sponsor (or its affiliates or permitted designees) will deposit into the Trust Account for each such one-month extension +the lesser of (a) an aggregate of $20,000 or (b) $0.02 per public share that remains outstanding and is not redeemed prior to any such +one-month extension, unless the closing of the initial business combination has occurred, in exchange for a non-interest bearing promissory +note payable upon consummation of an initial business combination. In connection with the Second Extension Meeting, shareholders holding +3,785,992 public shares (after giving effect to withdrawals of redemptions) exercised their right to redeem such shares for a pro rata +portion of the funds in the Trust Account. As a result, approximately $43.4 million (approximately $11.47 per share) was removed from +the Trust Account to pay such holders. +On +July 10, 2024, we issued a promissory note (the “Sponsor Extension Convertible Promissory Note”) in the total principal amount +of up to $180,000 to the sponsor. The Sponsor Extension Convertible Promissory Note was issued with an initial principal balance of $15,037, +with the remaining $164,963 drawable at our request and upon the consent of the sponsor prior to the maturity of the Sponsor Extension +Convertible Promissory Note. On July 10, 2024, the sponsor had deposited $15,037 drawn down from the Sponsor Convertible Promissory Note +to the Trust Account to extend the time the Company has to consummate an initial business combination to August 11, 2024. +On +August 9, 2024, we issued a convertible promissory note (the “Scilex Convertible Note”) in the total principal amount of +up to $180,000 to Scilex Holding Company (“Scilex”). The Scilex Convertible Note was issued with an initial principal balance +of $15,037, with the remaining $164,963 drawable at our request and upon the consent of Scilex prior to the maturity of the Scilex Convertible +Promissory Note. +On each of August 11, 2024, +September 11, 2024, October 11, 2024, November 11, 2024, December 11, 2024, January 6, 2025, February 11, 2025 and March 11, 2025, Scliex +had deposited $15,064 drawn down from the Scilex Convertible Promissory Note to the Trust Account to extend the time the Company has to +consummate an initial business combination to April 11, 2025. +On +August 14, 2024, Denali Merger Sub Inc., a Delaware corporation, was incorporated as a direct wholly owned subsidiary of Denali (the +“Merger Sub”). +On +August 15, 2024, Holdco filed a Certificate of Ownership and Merger merging each of its wholly owned subsidiaries, Longevity Merger Sub +and Denali Merger Sub, with and into Holdco, with Holdco as the sole surviving corporation. All of the outstanding shares of common stock +of Holdco held by Denali was transferred to the Merger Sub, making Holdco a direct wholly owned subsidiary of the Merger Sub and making +each of Denali Merger Sub and Longevity Merger Sub an indirect wholly-owned subsidiary of the Merger Sub. +On +August 30, 2024, Denali entered into the Agreement and Plan of Merger (the “Merger Agreement”) with Semnur, a wholly owned +subsidiary of Scilex, and Merger Sub. +Pursuant +to the Merger Agreement, subject to the terms and conditions set forth therein, (i) prior to the time at which the Business Combination +becomes effective (the “Effective Time”), Denali will change its jurisdiction of incorporation by deregistering as a Cayman +Islands exempted company and continuing and domesticating as a corporation incorporated under the laws of the State of Delaware (the +“Domestication”) and (ii) at the Effective Time, and following the Domestication, Merger Sub will merge with and into Semnur +(the “Business Combination” and together with the other transactions contemplated in the Merger Agreement, the “Transactions”), +with Semnur continuing as the surviving entity and wholly owned subsidiary of Denali. In connection with the consummation of the Business +Combination, Denali will be renamed as “Semnur Pharmaceuticals, Inc.” and Semnur will be renamed as Semnur, Inc. For more +information about the Merger Agreement, see our Current Report on Form 8-K filed with the SEC on September 5, 2024 and the Semnur Disclosure +Statement. In this document, we use the term “New Semnur” to refer to Denali after completion of the transactions contemplated +by the Merger Agreement. +On November 6, 2024, we filed +a preliminary prospectus/proxy statement included in our registration statement on Form S-4 (File No. 333-283019) relating to our proposed +business combination with Semnur. +On March 27, 2025, we +filed a definitive proxy to hold an extraordinary general meeting of shareholders to consider and vote upon a proposal to amend, by +way of special resolution, the amended and restated memorandum and articles of association of the Company to extend the date by +which the Company must either (i) consummate a merger, share exchange, asset acquisition, share purchase, reorganization or similar +business combination involving the Company and one or more businesses or entities or (ii) cease its operations, except for the +purpose of winding up, if it fails to complete such initial business combination and redeem 100% of the Company’s Class A +ordinary shares, included as part of the units sold in the Company’s IPO that was consummated on April 11, 2022, from April +11, 2025 to December 11, 2025, by electing to extend the date to consummate an initial business combination on a monthly basis for +up to eight (8) times by an additional one month each time, unless the closing of the Company’s initial business combination +has occurred, without the need for any further approval of the Company’s shareholders, provided that the Sponsor (or its +affiliates or permitted designees or a third party) will deposit into the Trust Account for each such one-month extension an +extension fee, unless the closing of the Company’s initial business combination has occurred, in exchange for a non-interest +bearing promissory note payable upon consummation of an initial business combination. +2 +Business +Strategy and Competitive Strengths +Our +business strategy is to identify and complete our initial business combination with a company within the technology, hospitality or consumer +services sector. Our selection process leveraged our team’s broad and deep relationship network, unique industry experiences and +strong deal sourcing capabilities to access a broad spectrum of differentiated opportunities. This network has been developed through +our team’s extensive experience and demonstrated success in both investing in and operating businesses in our target sectors and +across a variety of industries. +We +believe that our management team is well positioned to identify attractive business combination opportunities with a compelling industry +backdrop and an opportunity for transformational growth. Our team’s objectives are to generate attractive returns for shareholders +and enhance value through improving operational performance of the acquired company. In the process of identifying Semnur as a target +for the Business Combination, we broadly focused on potential targets that we believed (i) had attractive long-term growth potential, +(ii) had a core product that was or had the potential to be competitively positioned within the applicable industry and (iii) had an +experienced management team with an attractive business plan that would benefit from being a public company due to the potential for +access to a broader source of capital and greater visibility. In addition, Denali also considered the development stage of potential +targets’ corresponding industries and any relevant regulatory risks associated with such target businesses and their respective +industries. +Business +Combination Criteria +Consistent +with our business strategy, we have identified the following general criteria and guidelines that we believe are important in evaluating +prospective target businesses. We used these criteria and guidelines in evaluating acquisition opportunities, which we believe Semnur +satisfied, as we looked to identify target companies that: +● are +fundamentally sound but are underperforming their potential; +● exhibit +unrecognized value or other characteristics that we believe have been misevaluated by the +marketplace; +● are +at an inflection point where we believe we can drive improved financial performance; +● offer +opportunities to enhance financial performance through organic initiatives and/or inorganic +growth opportunities; +● can +benefit from our founders’ knowledge of the target sectors, proven collection of operational +strategies and tools, and past experiences in profitability and rapidly scaling businesses; +● are +valued attractively relative to their potential for operational improvement; and +● offer +an attractive potential return for our shareholders, weighing potential growth opportunities +and operational improvements in the target business against any identified downside risks. +These +criteria and guidelines are not intended to be exhaustive. Any evaluation relating to the merits of a particular initial business combination +may be based, to the extent relevant, on these general criteria and guidelines as well as other considerations, factors and criteria +that our management may deem relevant. We believe that Semnur met the above criteria, as described in the Semnur Disclosure Statement. +Business +Combination with Longevity +On +January 25, 2023, we entered into the Longevity Merger Agreement, by and among Longevity, Holdco, Denali Merger Sub, Longevity Merger +Sub, and Bradford A. Zakes, solely in the capacity as seller representative. +On +October 11, 2023, our shareholders held the Extension Meeting to vote in favor of approving amendments to the Articles to, amongst other +things, extend the date by which we must consummate an initial business combination from October 11, 2023 to July 11, 2024 by electing +to extend the date to consummate an initial business combination on a monthly basis for up to nine times by an additional one month each +time, subject to the sponsor (or its affiliates or permitted designees) depositing into the Trust Account for each such one-month extension +the lesser of (a) an aggregate of $50,000 or (b) $0.03 per public share that remains outstanding and is not redeemed prior to any such +one-month extension, unless the closing of our initial business combination has occurred. +Furthermore, +in connection with the Extension Meeting, shareholders holding 3,712,171 public shares (after giving effect to withdrawals of redemptions) +exercised their right to redeem such shares for a pro rata portion of the funds in our Trust Account. As a result, approximately $40.5 +million (approximately $10.92 per share) was removed from the Trust Account to pay such holders. Following redemptions, we had 4,537,829 +public shares outstanding. +In connection with the Second +Extension Meeting, shareholders holding 3,785,992 public shares (after giving effect to withdrawals of redemptions) exercised their right +to redeem such shares for a pro rata portion of the funds in the Trust Account. As a result, approximately $43.4 million (approximately +$11.47 per share) was removed from the Trust Account to pay such holders. Following redemptions, we had 751,837 public shares outstanding. +3 +On +January 9, 2024, our shareholders held the Longevity Business Combination Meeting and voted in favor of approving the Longevity Business +Combination. +On +June 26, 2024, pursuant to Section 11.1(a) of the Longevity Merger Agreement, the parties to the Longevity Merger Agreement entered into +the Termination Agreement pursuant to which the Longevity Merger Agreement was terminated effective as of the date of the Termination +Agreement. As a result of the Termination Agreement, the Longevity Merger Agreement is of no further force and effect (other than certain +customary limited provisions that survive the termination pursuant to the terms of the Longevity Merger Agreement) and ancillary agreements +entered into in connection with the Longevity Merger Agreement also automatically terminated in accordance with their respective terms. +As a result of the termination of the Longevity Merger Agreement, Holdco filed the Registration Withdrawal Request on Form RW on August +9, 2024, to withdraw its registration statement on Form S-4, as amended, initially filed with the SEC on March 29, 2023. +Business +Combination with Semnur +On +August 30, 2024, Denali entered into the Agreement and Plan of Merger (the “Merger Agreement”) with Semnur and Merger Sub. +Pursuant +to the Merger Agreement, subject to the terms and conditions set forth therein, (i) prior to the time at which the Business Combination +becomes effective (the “Effective Time”), Denali will change its jurisdiction of incorporation by deregistering as a Cayman +Islands exempted company and continuing and domesticating as a corporation incorporated under the laws of the State of Delaware (the +“Domestication”) and (ii) at the Effective Time, and following the Domestication, Merger Sub will merge with and into Semnur, +with Semnur continuing as the surviving entity and wholly owned subsidiary of Denali. In connection with the consummation of the Business +Combination, Denali will be renamed as “Semnur Pharmaceuticals, Inc.” and Semnur will be renamed as Semnur, Inc. +The +consummation of the proposed Business Combination is subject to certain conditions as further described in the Merger Agreement. +For +more information about the Merger Agreement and the Business Combination, see our Current Report on Form 8-K filed with the SEC on September +5, 2024 and the Semnur Disclosure Statement. Unless specifically stated, this Annual Report on Form 10-K does not give effect to the +Transactions and does not contain the risks associated with the proposed Transactions. Such risks and effects relating to the Transactions +are included in the Semnur Disclosure Statement. +Nasdaq +rules require that we must complete one or more business combinations with a total aggregate fair market value of at least 80% of the +value of the assets held in the Trust Account (excluding any deferred underwriters’ fees and taxes payable on the interest income +earned on the Trust Account) at the time of our signing of a definitive agreement in connection with our initial business combination. +We refer to this as the 80% of net assets test. Our board of directors determined that the fair market value of the Business Combination +equaled at least 80% of the value of the assets held in the Trust Account (excluding any deferred underwriters’ fees and taxes +payable on the interest income earned on the Trust Account). +We +initially had until April 11, 2023, 12 months after the closing of the IPO (or up to 18 months by resolution of our board if requested +by our sponsor to extend the period of time to consummate a business combination by up to two times, each time by an additional three +months), to consummate an initial business combination. On October 11, 2023, we announced that our shareholders approved to extend the +date by which we must consummate an initial business combination from October 11, 2023 to July 11, 2024 by electing to extend the date +to consummate an initial business combination on a monthly basis for up to nine times by an additional one month each time. On July 10, +2024, we announced that our shareholders approved to extend the date by which we must consummate an initial business combination from +July 11, 2024 to April 11, 2025, by electing to extend the date to consummate an initial business combination on a monthly basis for +up to nine times by an additional one month each time. +To +the extent Semnur may be financially unstable or in its early stages of development or growth, we may be affected by numerous risks inherent +in the company or its business. Although our management will endeavor to evaluate the risks inherent in a particular target business, +we cannot assure you that we will properly ascertain or assess all significant risk factors. For more information on the risks associated +with the Business Combination, see the Semnur Disclosure Statement. +4 +Acquisition +Process +In +evaluating a prospective target business, we conducted a due diligence review which encompassed, among other things, meetings with incumbent +management, document reviews, as well as a review of financial, operational, legal and other information which were made available to +us. We also utilized our management team’s expertise in analyzing and evaluating operating plans, financial projections and determining +the appropriate return expectations given the risk profile of the target business as well as the suitability of the target to become +a public company. +Members +of our management team and board of directors, directly or indirectly, own founder shares and/or Private Placement Units and, accordingly, +may have a conflict of interest in determining whether a particular target business is an appropriate business with which to effectuate +our initial business combination. In particular, because the founder shares were purchased at approximately $0.012 per share, the holders +of our founder shares (including our management team that directly or indirectly own founder shares) could make a substantial profit +after our initial business combination even if our public shareholders lose money on their investment as a result of a decrease in the +post-combination value of their ordinary shares (after accounting for any adjustments in connection with an exchange or other transaction +contemplated by the business combination). Further, such officers and directors may have a conflict of interest with respect to evaluating +a particular business combination if the retention or resignation of any such officers and directors was included by a target business +as a condition to any agreement with respect to our initial business combination. +Redemption +Rights for Public Shareholders upon Completion of Our Initial Business Combination +We +will provide our public shareholders with the opportunity to redeem all or a portion of their Class A ordinary shares upon the completion +of our initial business combination at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust +Account calculated as of two business days prior to the consummation of the initial business combination, including interest earned on +the funds held in the Trust Account and not previously released to us to pay our franchise and income taxes, if any, divided by the number +of then-issued and outstanding public shares, subject to the limitations described herein. The amount in the Trust Account was $12.00 +per public share as of December 31, 2024. The per share amount we will distribute to investors who properly redeem their shares will +not be reduced by the deferred underwriting commissions we will pay to the underwriters. The redemption rights will include the requirement +that a beneficial owner must identify itself in order to validly redeem its shares. There will be no redemption rights upon the completion +of our initial business combination with respect to our warrants. Further, we will not proceed with redeeming our public shares, even +if a public shareholder has properly elected to redeem its shares, if a business combination does not close. Our sponsor and each member +of our management team and our directors and Scilex have entered into an agreement with us, pursuant to which they have agreed to waive +their redemption rights with respect to any founder shares and public shares held by them in connection with (i) the completion of our +initial business combination and (ii) a shareholder vote to approve an amendment to our amended and restated memorandum and articles +of association (A) that would modify the substance or timing of our obligation to provide holders of our Class A ordinary shares the +right to have their shares redeemed in connection with our initial business combination or to redeem 100% of our public shares if we +do not complete our initial business combination by the Extended Date or (B) with respect to any other provision relating to the rights +of holders of our Class A ordinary shares. +Manner +of Conducting Redemptions +We +will provide our public shareholders with the opportunity to redeem all or a portion of their Class A ordinary shares upon the completion +of our initial business combination either (i) in connection with a general meeting called to approve the business combination or (ii) +by means of a tender offer. The decision as to whether we will seek shareholder approval of a proposed business combination or conduct +a tender offer will be made by us, solely in our discretion, and will be based on a variety of factors such as the timing of the transaction +and whether the terms of the transaction would require us to seek shareholder approval under applicable law or stock exchange listing +requirement or whether we were deemed to be a foreign private issuer (which would require a tender offer rather than seeking shareholder +approval under SEC rules). Asset acquisitions and share purchases would not typically require shareholder approval while direct mergers +with our company and any transactions where we issue more than 20% of our issued and outstanding ordinary shares or seek to amend our +amended and restated memorandum and articles of association would typically require shareholder approval. We currently intend to conduct +redemptions in connection with a shareholder vote unless shareholder approval is not required by applicable law or stock exchange listing +requirement or we choose to conduct redemptions pursuant to the tender offer rules of the SEC for business or other reasons. So long +as we obtain and maintain a listing for our securities on Nasdaq, we will be required to comply with Nasdaq rules. If we held a shareholder +vote to approve our initial business combination, we will, pursuant to our amended and restated memorandum and articles of association: +● conduct +the redemptions in conjunction with a proxy solicitation pursuant to Regulation 14A of the Exchange Act, which regulates the solicitation +of proxies, and not pursuant to the tender offer rules; and +● file +proxy materials with the SEC. +5 +Submission +of Our Initial Business Combination to a Stockholder Vote +In +the event that we seek shareholder approval of our initial business combination, we will distribute proxy materials and, in connection +therewith, provide our public shareholders with the redemption rights described above upon completion of the initial business combination. +If +we seek shareholder approval of our initial business combination, we will complete our initial business combination only if we obtain +the approval of an ordinary resolution under Cayman Islands law, which requires the affirmative vote of a majority of the shareholders +who attend and vote at a general meeting of the company. In such case, our sponsor and each member of our management team and board of +directors have agreed to vote their founder shares and public shares in favor of our initial business combination. As a result, assuming +our sponsor and each member of our management team and board of directors continue to own the shares they currently own, we would not +need any additional shares to be voted in favor of a transaction, in order to have such initial business combination approved. Each public +shareholder may elect to redeem their public shares irrespective of whether they vote for or against the proposed transaction or vote +at all. In addition, our sponsor and each member of our management team and Scilex and our directors have entered into an agreement with +us, pursuant to which they have agreed to waive their redemption rights with respect to any founder shares and public shares held by +them in connection with (i) the completion of a business combination and (ii) a shareholder vote to approve an amendment to our amended +and restated memorandum and articles of association (A) that would modify the substance or timing of our obligation to provide holders +of our Class A ordinary shares the right to have their shares redeemed in connection with our initial business combination or to redeem +100% of our public shares if we do not complete our initial business combination by April 11, 2025 (or as may be extended by a shareholder +vote to further extend the time to complete an initial business combination, as applicable) or (B) with respect to any other provision +relating to the rights of holders of our Class A ordinary shares. +Limitation +on Redemption upon Completion of our Initial Business Combination if We Seek Stockholder Approval +If +we seek shareholder approval of our initial business combination and we do not conduct redemptions in connection with our initial business +combination pursuant to the tender offer rules, our amended and restated memorandum and articles of association provide that a public +shareholder, together with any affiliate of such shareholder or any other person with whom such shareholder is acting in concert or as +a “group” (as defined under Section 13 of the Exchange Act), will be restricted from redeeming its shares with respect to +more than an aggregate of 15% of the shares sold in the IPO, which we refer to as “Excess Shares,” without our prior consent. +We believe this restriction will discourage shareholders from accumulating large blocks of shares, and subsequent attempts by such holders +to use their ability to exercise their redemption rights against a proposed business combination as a means to force us or our management +to purchase their shares at a significant premium to the then-current market price or on other undesirable terms. Absent this provision, +a public shareholder holding more than an aggregate of 15% of the shares sold in the IPO could threaten to exercise its redemption rights +if such holder’s shares are not purchased by us, our sponsor or our management at a premium to the then-current market price or +on other undesirable terms. By limiting our shareholders’ ability to redeem no more than 15% of the shares sold in the IPO without +our prior consent, we believe we will limit the ability of a small group of shareholders to unreasonably attempt to block our ability +to complete our initial business combination, particularly in connection with a business combination with a target that requires as a +closing condition that we have a minimum net worth or a certain amount of cash. +However, +we would not be restricting our shareholders’ ability to vote all of their shares (including Excess Shares) for or against our +initial business combination. +Redemption +of Public Shares and Liquidation if No Initial Business Combination +Our +amended and restated memorandum and articles of association provide that we will have until the Extended Date to complete an initial +business combination. If we have not consummated an initial business combination within such prescribed time period, we will: (i) cease +all operations except for the purpose of winding up; (ii) as promptly as reasonably possible but not more than ten business days +thereafter, redeem the public shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust +Account, including interest earned on the funds held in the Trust Account and not previously released to us (less tax payable and up +to $100,000 of interest to pay dissolution expenses), divided by the number of the then issued and outstanding public shares, which redemption +will completely extinguish public shareholders’ rights as shareholders (including the right to receive further liquidation distributions, +if any), subject to applicable law; and (iii) as promptly as reasonably possible following such redemption, subject to the approval +of our remaining shareholders and our board of directors, liquidate and dissolve, subject in each case to our obligations under Cayman +Islands law to provide for claims of creditors and the requirements of other applicable law. There will be no redemption rights or liquidating +distributions with respect to our warrants, which will expire worthless if we fail to consummate an initial business combination within +the prescribed time period. Our amended and restated memorandum and articles of association provide that, if we wind up for any other +reason prior to the consummation of our initial business combination, we will follow the foregoing procedures with respect to the liquidation +of the Trust Account as promptly as reasonably possible but not more than ten business days thereafter, subject to applicable Cayman +Islands law. +6 +Corporate +Information +Our +executive offices are located at 437 Madison Avenue, 27th Floor, New York, New York 10022, and our telephone number is 646-978-5180. +We are required to file Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q with the SEC on a regular basis, and are required +to disclose certain material events in Current Reports on Form 8-K, and as applicable, amendments to those reports filed or furnished +pursuant to Section 13(a) or 15(d) of the Exchange Act. The SEC maintains an Internet website that contains reports, proxy and information +statements and other information regarding issuers that file electronically with the SEC. The SEC’s Internet website is located +at http://www.sec.gov. In addition, we will provide copies of these documents without charge upon request from us by telephone at 646-978-5180. +Status +as a Public Company +We +believe our structure will make us an attractive business combination partner to target businesses. As an existing public company, we +offer a target business an alternative to a traditional initial public offering through a merger or other business combination with us. +In a business combination transaction with us, the owners of the target business may, for example, exchange their shares of stock in +the target business for our Class A ordinary shares (or shares of a new holding company) or for a combination of our Class A ordinary +shares and cash, allowing us to tailor the consideration to the specific needs of the sellers. We believe target businesses will find +this method a more expeditious and cost effective method to becoming a public company than a typical initial public offering. The typical +initial public offering process takes a significantly longer period of time than the typical business combination transaction process, +and there are significant expenses in the initial public offering process, including underwriting discounts and commissions, that may +not be present to the same extent in connection with a business combination with us. +Furthermore, +once a proposed business combination is completed, the target business will have effectively become public, whereas an initial public +offering is always subject to the underwriter’s ability to complete the offering, as well as general market conditions, which could +delay or prevent the offering from occurring or have negative valuation consequences. Once public, we believe the target business would +then have greater access to capital, an additional means of providing management incentives consistent with shareholders’ interests +and the ability to use its shares as currency for acquisitions. Being a public company can offer further benefits by augmenting a company’s +profile among potential new customers and vendors and aid in attracting talented employees. +We +are an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended, (the “Securities +Act”) and as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As such, we are eligible +to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not +“emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements +of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and +proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and shareholder +approval of any golden parachute payments not previously approved. If some investors find our securities less attractive as a result, +there may be a less active trading market for our securities and the prices of our securities may be more volatile. +In +addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended +transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other +words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise +apply to private companies. We have taken and intend to continue to take advantage of the benefits of this extended transition period. +We +will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of +the completion of the IPO, (b) in which we have total annual gross revenue of at least $1.235 billion, or (c) in which we are deemed +to be a large accelerated filer, which means the market value of our ordinary shares that are held by non-affiliates exceeds $700 million +as of the end of that year’s second fiscal quarter, and (2) the date on which we have issued more than $1.0 billion in non-convertible +debt securities during the prior three-year period. +7 +Competition +In +identifying, evaluating and selecting a target business for our initial business combination, we have encountered, and expect to continue +to encounter, intense competition from other entities having a business objective similar to ours, including other blank check companies, +private equity groups, leveraged buyout funds, public companies and operating businesses seeking strategic acquisitions. Many of these +entities are well established and have extensive experience identifying and effecting business combinations directly or through affiliates. +Moreover, many of these competitors possess greater financial, technical, human and other resources than us. Our ability to acquire larger +target businesses will be limited by our available financial resources. This inherent competitive limitation gives others an advantage +in pursuing the acquisition of a target business. Furthermore, our obligation to pay cash in connection with our public shareholders +who exercise their redemption rights may reduce the resources available to us for our initial business combination and potential future +dilutions that our outstanding warrants represent, which may place us at a competitive disadvantage in successfully negotiating an initial +business combination. +Facilities +We +currently maintain our executive offices at 437 Madison Avenue, 27th Floor, New York, New York 10022. We consider our current office +space adequate for our current operations. +Employees +We +currently have two executive officers. These individuals are not obligated to devote any specific number of hours to our matters but +they intend to devote as much of their time as they deem necessary to our affairs until we have completed our initial business combination. +The amount of time they will devote in any time period will vary based on the status of the proposed Transactions and, if the proposed +Transactions are not consummated, the stage of the business combination process we are in. We do not intend to have any full time employees +prior to the completion of our initial business combination. +Item +1A. Risk Factors. +As +a smaller reporting company, we are not required to include risk factors in this Report. However, below is a partial list of material +risks, uncertainties and other factors that could have a material effect on us and our operations: +● We +are a recently incorporated blank check company incorporated as a Cayman Islands exempted company with no operating history and no revenues, +and you have no basis on which to evaluate our ability to achieve our business objective. +● Our +independent registered public accounting firm’s report contains an explanatory paragraph that expresses substantial doubt about +our ability to continue as a “going concern.” +● Our +public shareholders may not be afforded an opportunity to vote on our proposed business combination, which means we may complete our +initial business combination even though a majority of our public shareholders do not support such a combination. +● If +we seek shareholder approval of our initial business combination, our initial shareholders have agreed to vote in favor of such initial +business combination, regardless of how our public shareholders vote. +● Your +only opportunity to affect the investment decision regarding a potential business combination will be limited to the exercise of your +right to redeem your shares from us for cash, unless we seek shareholder approval of the business combination. +● The +ability of our public shareholders to redeem their shares for cash may make our financial condition unattractive to potential business +combination targets, which may make it difficult for us to enter into a business combination with a target. +● The +ability of our shareholders to exercise redemption rights with respect to a large number of our shares may not allow us to complete the +most desirable business combination or optimize our capital structure. +● The +ability of our shareholders to exercise redemption rights with respect to a large number of our shares could increase the probability +that our initial business combination would be unsuccessful and that you would have to wait for liquidation in order to redeem your shares. +8 +● The +requirement that we complete our initial business combination within the prescribed time frame may give potential target businesses leverage +over us in negotiating a business combination and may decrease our ability to conduct due diligence on potential business combination +targets as we approach our dissolution deadline, which could undermine our ability to complete our business combination on terms that +would produce value for our shareholders. +● We +may not be able to complete our initial business combination within the prescribed time frame, in which case we would cease all operations +except for the purpose of winding up and we would redeem our public shares and liquidate, or less than such amount in certain circumstances, +and our warrants will expire worthless. +● If +the net proceeds of the IPO and the sale of the Private Placement Units not being held in the Trust Account are insufficient to allow +us to operate until the Extended Date, it could limit the amount available to fund our search for a target business or businesses and +our ability to complete the Business Combination, and we will depend on loans from our sponsor, its affiliates or members of our management +team to fund our search and to complete the Business Combination. +● As +the number of special purpose acquisition companies evaluating targets increases, attractive targets may become scarcer and there may +be more competition for attractive targets. This could increase the cost of our initial business combination and could even result in +our inability to find a target or to consummate an initial business combination. +● If +we seek shareholder approval of our initial business combination, our sponsor, directors, executive officers, advisors and their affiliates +may elect to purchase shares from public shareholders, which may influence a vote on a proposed business combination and reduce the public +“float” of our Class A ordinary shares or Public Warrants. +● If +a public shareholder fails to receive notice of our offer to redeem our public shares in connection with our business combination, or +fails to comply with the procedures for tendering its shares, such shares may not be redeemed. +● +Nasdaq will suspend trading of our securities and commence delisting +proceedings on or about April 7, 2025 due to the Company’s failure satisfy listing rule IM-5101-2 to consummate a business combination +within 36 months of effectiveness of its initial public offering registration statement, which will adversely affect the trading market +for our securities and may impair our ability to complete a business combination. +● Our +shareholders will not be entitled to protections normally afforded to investors of many other blank check companies. +● We +may not have sufficient funds to satisfy indemnification claims of our directors and executive officers. +● You +will not have any rights or interests in funds from the Trust Account, except under certain limited circumstances. To liquidate your +investment, therefore, you may be forced to sell your public shares or warrants, potentially at a loss. +● We +may be a passive foreign investment company, or “PFIC,” which could result in adverse U.S. federal income tax consequences +to U.S. investors. +● We +may reincorporate in another jurisdiction in connection with our initial business combination and such reincorporation may result in +taxes imposed on shareholders. +9 +● We +are an emerging growth company and a smaller reporting company within the meaning of the Securities Act, and if we take advantage of +certain exemptions from disclosure requirements available to “emerging growth companies” or “smaller reporting companies,” +this could make our securities less attractive to investors and may make it more difficult to compare our performance with other public +companies. +● Potential +economic downturns may lead to increased difficulty in completing our business combination. +● Recent +volatility in capital markets may affect our ability to obtain financing for our business combination through sales of our ordinary shares +or issuance of indebtedness. +● Military +conflict in Ukraine, the Middle East, or elsewhere may lead to increased price volatility for public traded securities, which could make +it difficult for us to consummate our business combination. +For +the complete list of risks relating to our operations, see the section titled “Risk Factors” contained in our registration +statement on Form S-1 (File No. 333-263123) filed in connection with our IPO and in the Semnur Disclosure Statement. +Item +1B. Unresolved Staff Comments. +None. +Item +1C. Cybersecurity. +We +are a special purpose acquisition company with no business operations. Since our IPO, our sole business activity has been identifying +and evaluating suitable acquisition transaction candidates. Therefore, we do not consider that we face significant cybersecurity risk +and have not adopted any cybersecurity risk management program or formal processes for assessing cybersecurity risk. Our board of directors +is generally responsible for the oversight of risks from cybersecurity threats, if there is any . We have not encountered any cybersecurity +incidents since our IPO . +Item +2. Properties. +We +do not own or lease any real estate or other physical properties materially important to our operation. We currently maintain our executive +offices at 437 Madison Avenue, 27th Floor, New York, New York 10022. We consider our current office space adequate for our current operations. +Item +3. Legal Proceedings. +To +the knowledge of our management, there is no material litigation, arbitration or governmental proceeding currently pending against us, +any of our officers or directors in their capacity as such, any of our property. +Item +4. Mine Safety Disclosures. +Not +applicable. +10 +PART +II +Item +5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. +Market +Information +Our +units, Class A ordinary shares and warrants are each traded on The Nasdaq Stock Market LLC under the symbols “DECAU,” “DECA” +and “DECAW,” respectively. Our units commenced public trading on April 7, 2022, and our Class A ordinary shares and warrants +commenced separate public trading on May 31, 2022. +Holders +On +December 31, 2024, there were two holders of record of our units, one holder of record of our Class A ordinary shares, one holder of +record of our warrants, and seven holders of record of our Class B ordinary shares. +Dividends +We +have never declared or paid any dividends on our ordinary shares. We do not anticipate paying cash dividends in the foreseeable future. +Securities +Authorized for Issuance Under Equity Compensation Plans +None. +Recent +Sales of Unregistered Securities +In +February 2022, we issued an aggregate of 2,156,250 founder shares to our sponsor in exchange for a payment of $25,000 from our sponsor +to cover for certain expenses on behalf of us, or approximately $0.012 per share. The sponsor later transferred 20,000 founder shares +to our Chief Financial Officer and 110,000 founder shares to certain members of our board of directors and forfeited 93,750 founder shares +pursuant to the underwriters partially exercising their over-allotment option. The sale of the founder shares was made pursuant to an +exemption from registration contained in Section 4(a)(2) of the Securities Act. +As +described above under the heading “Business - General” in Part I of this report, on April 11, 2022, we consummated the Private +Placement, with our sponsor and the underwriters, of an aggregate of 510,000 Private Placement Units (including over-allotment of 30,000 +units) at a purchase price of $10.00 per Private Placement Unit, to the sponsor, generating gross proceeds of $5,100,000. The private +placement warrants in the Private Placement Units are substantially similar to the Public Warrants, except that if held by the sponsor +or its permitted transferees, they may be exercised for cash or on a cashless basis and subject to certain limited exceptions and will +be subject to transfer restrictions until 30 days following the consummation of an initial business combination. If the Private Placement +Warrants are held by holders other than the sponsor or its permitted transferees, the Private Placement Warrants will be redeemable by +us under all redemption scenarios and exercisable by holders on the same basis as the Public Warrants. The Private Placement Warrants +have been issued pursuant to, and are governed by the Private Placement Units Purchase Agreement. The issuances of the Private Placement +Units were made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act. The sale of the Private +Placement Warrants was made pursuant to an exemption from registration contained in Section 4(a)(2) of the Securities Act. +11 +On +August 30, 2024, the sponsor and Scilex entered into a sponsor interest purchase agreement (the “Sponsor Interest Purchase Agreement”), +pursuant to which Scilex purchased 500,000 Class B ordinary shares (the “Purchased Interests”), that were then-held by the +sponsor. The aggregate consideration for the purchase and sale of the Purchased Interests is as follows: (i) $2,000,000 (the “Cash +Consideration”) and (ii) 300,000 shares of common stock, par value $0.0001 per share, of Scilex (the “Scilex Shares”). +Pursuant to the Sponsor Interest Purchase Agreement, Scilex paid the Cash Consideration and has agreed to issue the Scilex Shares to +the sponsor contingent upon and following the occurrence of the Effective Time. The Purchased Interests will convert automatically, on +a one-for-one basis, into one share of New Semnur Common Stock at the effective time of the Domestication (as defined in the Merger Agreement) +pursuant to the terms of the Merger Agreement. The sale of the Purchased Interests was made pursuant to an exemption from registration +contained in Section 4(a)(2) of the Securities Act. +Use +of Proceeds from the Initial Public Offering +On +April 11, 2022, we consummated our IPO of 8,250,000 Units, which included 750,000 Units issued pursuant to the partial exercise by the +underwriters of their over-allotment option. The Units were sold at a price of $10.00 per Unit, and the IPO generated gross proceeds +of $82,500,000. US Tiger Securities, Inc. and EF Hutton, division of Benchmark Investments, LLC (the “Denali Underwriters”) +acted as the underwriters of the IPO. The securities sold in the IPO were registered under the Securities Act on a registration statement +on Form S-1 (No. 333-263123). The SEC declared the registration statement effective on April 6, 2022. +On +April 11, 2022, a total of $84,150,000 of the net proceeds from the IPO and the sale of the Private Placement Units was deposited in +the Trust Account. In connection with the IPO, we incurred $5,105,315 in transaction costs, consisting of $1,650,000 of underwriting +fees, $2,887,500 of deferred underwriting fees (the “Deferred Discount”) and $567,815 of other offering costs. Pursuant to +the Deferred Discount Agreement (as defined below), the Denali Underwriters have agreed to receive $866,250 of the aggregate $2,887,500 +Deferred Discount owed to them upon the closing of the Business Combination in the form of 86,625 shares of New Semnur Common Stock ($10 +per share of New Semnur Common Stock) (the “Common Stock Consideration”). Upon the terms of the Deferred Discount Agreement, +the Common Stock Consideration will be issued at the Closing and the remaining $2,021,250 of the aggregate Deferred Discount owed will +remain payable at the Closing in cash in accordance with the terms of the Underwriting Agreement. Until June 4, 2024, the net proceeds +of our IPO and the Private Placement held in the Trust Account were invested in U.S. government securities with a maturity of 185 days +or less or in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act which invest only in direct +U.S. government treasury obligations. However, on June 4, 2024, to mitigate the risk of being deemed to have been operating as an unregistered +investment company under the Investment Company Act, the Company instructed Wilmington Trust, National Association, the trustee with +respect to the Trust Account, to liquidate the U.S. government securities or money market funds held in the Trust Account and thereafter +to hold all funds in the Trust Account in cash in an interest-bearing bank deposit account. Interest on bank deposit accounts is variable +and such accounts currently yield interest of approximately 3.5% per annum. +Repurchases +of Equity Securities by the Issuer and Affiliated Purchasers +None. +Item +6. [Reserved] +12 +Item +7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. +References +to the “Company,” “Denali,” “our,” “us” or “we” refer to Denali Capital Acquisition +Corp. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction +with the audited consolidated financial statements and the notes related thereto which are included in “Item 8. Financial Statements +and Supplementary Data” of this Annual Report on Form 10-K. Certain information contained in the discussion and analysis set forth +below includes forward-looking statements. Our actual results may differ materially from those anticipated in these forward-looking statements +as a result of many factors. Certain information contained in the discussion and analysis set forth below includes forward-looking statements. +Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including +those set forth under “Cautionary Note Regarding Forward-Looking Statements,” “Item 1A. Risk Factors” and elsewhere +in this Annual Report on Form 10-K. +Overview +We +are a blank check company incorporated as a Cayman Islands exempted company on January 5, 2022 (inception), for the purpose of effecting +an initial business combination. While we will not be limited to a particular industry or geographic region in our identification and +acquisition of a target company, we intend to focus on technology, consumer and hospitality and will not complete our initial business +combination with a target that is headquartered in China (including Hong Kong and Macau) or conducts a majority of its business in China +(including Hong Kong and Macau). We intend to effectuate our initial business combination using cash from the proceeds of our IPO and +the sale of units in the Private Placement to the sponsor, additional shares, debt or a combination of cash, equity and debt. +We +expect to continue to incur significant costs in the pursuit of our acquisition plans. We cannot assure you that our plans to complete +a business combination will be successful. +Recent +Developments +On +February 22, 2024, the Company received a letter (the “Letter”) from the staff at Nasdaq notifying the Company that, for +the 30 consecutive business days prior to the date of the Letter, the Company’s Minimum Value of Listed Securities (“MVLS”) +was below the minimum of $50 million required for continued listing on The Nasdaq Global Market pursuant to Nasdaq Listing Rule 5450(b)(2)(A). +The staff at Nasdaq also noted in the Letter that the Company is not in compliance with Nasdaq Listing Rule 5450(b)(3)(A), which requires +listed companies to have total assets and total revenue of at least $50,000,000 each for the most recently completed fiscal year or for +two of the three most recently completed fiscal years. The Letter is only a notification of deficiency, not of imminent delisting, and +has no current effect on the listing or trading of the Company’s securities on Nasdaq. In accordance with Nasdaq Listing Rule 5810(c)(3)(C), +the Company has 180 calendar days, or until August 20, 2024, to regain compliance. The Letter notes that to regain compliance, the Company’s +MVLS must close at or above $50 million for a minimum of ten consecutive business days during the compliance period. The Letter further +notes that if the Company is unable to satisfy the MVLS requirement prior to such date, the Company may be eligible to transfer the listing +of its securities to The Nasdaq Capital Market (provided that the Company then satisfies the requirements for continued listing on that +market). If the Company does not regain compliance by August 20, 2024, Nasdaq staff will provide written notice to the Company that its +securities are subject to delisting. At that time, the Company may appeal any such delisting determination to a hearings panel. The Company +intends to actively monitor the Company’s MVLS between now and August 20, 2024, and may, if appropriate, evaluate available options +to resolve the deficiency and regain compliance with the MVLS requirement. While the Company is exercising diligent efforts to maintain +the listing of its securities on Nasdaq, there can be no assurance that the Company will be able to regain or maintain compliance with +Nasdaq listing standards.   +On +October 2, 2024, the Company received a written notice (the “Notice”) from the staff at Nasdaq notifying the Company that +the Company is not in compliance with Nasdaq Listing Rule 5450(b)(2)(A) (the “MVLS Rule”), which requires the Company +to maintain a MVLS of $50.0 million, and Nasdaq Listing Rule 5450(b)(3)(A) (the “Total Assets Rule” and, together with +the MVLS Rule, the “Listing Rules”), which requires the Company to maintain total assets and total revenue of at least $50.0 +million each for the most recently completed fiscal year or two of the three most recently completed fiscal years, for continued listing +on the Nasdaq Global Market. The Notice is only a notification of deficiency, not of imminent delisting, and has no current effect on +the listing or trading of the Company’s securities on the Nasdaq Global Market. +13 +The +Notice states that the Company has 180 calendar days, or until March 31, 2025, to regain compliance with the Listing Rules. To regain +compliance, the Company’s MVLS must meet or exceed $50.0 million for a minimum of ten consecutive business days during the 180-day +compliance period ending on March 31, 2025. In the event the Company does not regain compliance with the Listing Rules prior to the expiration +of the compliance period, it will receive written notification that its securities are subject to delisting. At that time, the Company +will have the opportunity to appeal the decision to a Nasdaq Hearing Panel. The Company intends to monitor its MVLS and consider its +available options to regain compliance with the Listing Rules. +On +January 25, 2023, we entered into the Longevity Merger Agreement, by and among Longevity, Holdco, Denali Merger Sub, Longevity Merger +Sub, and the Seller Representative. +On +March 29, 2023, Holdco filed a Form S-4 with the SEC to register shares of its common stock that will be issued in connection with the +business combination contemplated by the Longevity Merger Agreement, as amended by Amendments Nos. 1, 2, 3, 4, 5 and 6 thereto, filed +with the SEC on May 31, 2023, July 13, 2023, September 1, 2023, October 20, 2023, November 21, 2023 and December 6, 2023 respectively. +On December 14, 2023, HoldCo filed a notice of effectiveness. On January 9, 2024, our shareholders held a Business Combination Meeting +and voted in favor of approving the Longevity Business Combination. +On +June 26, 2024, pursuant to Section 11.1(a) of the Longevity Merger Agreement, the parties entered into a termination agreement (the “Termination +Agreement”) pursuant to which the Longevity Merger Agreement was terminated effective as of the date of the Termination Agreement. +As +a result of the Termination Agreement, the Longevity Merger Agreement will be of no further force and effect (other than certain customary +limited provisions that survive the termination pursuant to the terms of the Longevity Merger Agreement) and ancillary agreements entered +into in connection with the Longevity Merger Agreement will also automatically terminate in accordance with their respective terms. As +a result of the termination of the Longevity Merger Agreement, Holdco filed the Registration Withdrawal Request on Form RW on August +9, 2024, to withdraw its registration statement on Form S-4, as amended, initially filed with the SEC on March 29, 2023.   +On +July 2, 2024, the Company issued a press release to announce that it entered into a letter of intent with Semnur Pharmaceuticals, Inc. +(“Semnur”), a wholly owned subsidiary of Scilex Holding Company (“Scilex”), for a potential business combination. +On +July 10, 2024, the shareholders of the Company held an extraordinary general meeting of shareholders (the “Shareholder Meeting”) +to consider and vote upon a proposal to amend, by way of special resolution, the Articles to extend the date by which the Company must: +(i) consummate a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination involving +the Company and one or more businesses or entities (an “initial business combination”); (ii) cease its operations, except +for the purpose of winding up, if it fails to complete such initial business combination; and (iii) redeem 100% of the Company’s +Class A ordinary shares, par value $0.0001 per share (the “Class A ordinary shares”), included as part of the units sold +in the Company’s IPO that was consummated on April 11, 2022, from July 11, 2024 to April 11, 2025, by electing to extend the date +to consummate an initial business combination on a monthly basis for up to nine (9) times by an additional one month each time, unless +the closing of the Company’s initial business combination has occurred, without the need for any further approval of the Company’s +shareholders, provided that the sponsor (or its affiliates or permitted designees) will deposit into the Trust Account for each such +one-month extension the lesser of (a) an aggregate of $20,000 or (b) $0.02 per public share that remains outstanding and is not redeemed +prior to any such one-month extension, unless the closing of the Company’s initial business combination has occurred, in exchange +for a non-interest bearing promissory note payable upon consummation of an initial business combination. +In +connection with the Shareholder Meeting, shareholders holding 3,785,992 public shares exercised their right to redeem such shares for +a pro rata portion of the funds in the Company’s Trust Account. As a result, approximately $43.4 million (approximately $11.47 +per share) was removed from the Trust Account to pay such holders. Following redemptions, the Company had 751,837 public shares outstanding. +On July 10, 2024, the Company +issued a convertible promissory note in the total principal amount of up to $180,000 to the sponsor (the “Sponsor Extension Convertible +Promissory Note”). The Sponsor Extension Convertible Promissory Note was issued with an initial principal balance of $15,037, with +the remaining $164,963 drawable at the Company’s request and upon the consent of the sponsor prior to the maturity of the Sponsor +Extension Convertible Promissory Note. The Sponsor Extension Convertible Promissory Note matures upon the earlier of (i) the effective +date of the consummation of the Company’s initial business combination and (ii) the date of the liquidation of the Company. +14 +On +August 30, 2024, the Company entered into an agreement and plan of merger (the “Merger Agreement”) with Semnur and Denali +Merger Sub Inc., a Delaware corporation and wholly owned subsidiary of the Company (“Merger Sub”). +Subject +to the terms and conditions set forth in the Merger Agreement, the total consideration to be paid at Closing by the Company to Semnur’s +equityholders will be an amount equal to the quotient of (a) $2,500,000,000 divided by (b) $10.00, and will be payable in shares of common +stock of New Semnur (the “New Semnur Common Shares”). In accordance with the terms and subject to the conditions of the Merger +Agreement, following the Domestication and at the effective time of the Merger (the “ Effective Time ”): (i) each share +of common stock of Semnur issued and outstanding immediately prior to the Effective Time will be automatically converted into the right +to receive, without interest, a number of New Semnur Shares equal to the Exchange Ratio (as defined in the Merger Agreement); (ii) each +share of preferred stock of Semnur issued and outstanding immediately prior to the Effective Time will be automatically converted into +the right to receive, without interest, (a) one share of Series A preferred stock of New Semnur (the “New Semnur Preferred Share”) +and (b) one-tenth of one New Semnur Common Share, and (iii) subject to the Company’s receipt of the Option Exchange Approval (as +defined in the Merger Agreement), each option to purchase a share of Semnur common stock that is then outstanding shall be converted +into the right to receive an option to purchase a number of New Semnur Common Shares as determined by the Exchange Ratio upon substantially +the same terms and conditions as are in effect with respect to such option immediately prior to the Effective Time, with the exercise +price thereof adjusted by the Exchange Ratio. For purposes of the Merger Agreement, Semnur’s equity value is $2,500,000,000. +The +Merger Agreement contemplates the execution of various additional agreements and instruments, on or before the closing of the Merger, +including, among others, the following: +Concurrently +with the execution of the Merger Agreement, the sponsor and each of the Company’s directors and executive officers entered into +a sponsor support agreement with the Company and Semnur (the “Sponsor Support Agreement”), pursuant to which the sponsor +and each of Company’s directors and executive officers has agreed to, among other things: (i) vote in favor of the Parent Shareholder +Approval Matters (as defined in the Merger Agreement) and in favor of any proposal in respect of an Extension Amendment (as such terms +are defined in the Merger Agreement); (ii) vote against (or otherwise withhold written consent of, as applicable) any “Business +Combination” (as such term is defined in Denali’s organizational documents) or any proposal relating thereto (in each case, +other than as contemplated by the Merger Agreement); (iii) vote against (or otherwise withhold written consent of, as applicable) any +merger agreement or merger, consolidation, combination, sale of substantial assets, reorganization, recapitalization, dissolution, liquidation +or winding up of or by the Company (other than the Merger Agreement and the transactions contemplated thereby); (iv) vote against (or +otherwise withhold written consent of, as applicable) any change in the business, management or board of directors of the Company (other +than in connection with the Merger Agreement and the transactions contemplated thereby); and (v) vote against (or otherwise withhold +written consent of, as applicable) any proposal, action or agreement that would (a) impede, frustrate, prevent or nullify any provision +of the Sponsor Support Agreement or the Merger Agreement or any of the transactions contemplated thereby, (b) result in a breach in any +respect of any covenant, representation, warranty or any other obligation or agreement of Denali or Merger Sub under the Merger Agreement, +(c) result in any of the conditions set forth in Article VIII of the Merger Agreement not being fulfilled or (d) change in any manner +the dividend policy or capitalization of, including the voting rights of any class of capital stock of, the Company. Under the terms +of the Sponsor Support Agreement, the sponsor also agreed to certain standstill provisions with respect to the ordinary shares and other +equity securities of the Company held by the sponsor. +Concurrently +with the execution of the Merger Agreement, the Company, Semnur and Scilex (as the sole stockholder of Semnur) entered into a company +stockholder support agreement (the “Stockholder Support Agreement”), pursuant to which Scilex agreed to, among other things: +(i) appear at any meeting of Semnur’s stockholders related to the transactions contemplated by the Merger Agreement, or otherwise +cause its shares of Semnur common stock to be counted as present thereat for the purpose of establishing a quorum; (ii) vote (or execute +and return an action by written consent), or cause to be voted at any such meeting of Semnur’s stockholders (or validly execute +and return and cause such consent to be granted with respect to), all of its shares of Semnur common stock in favor of the Merger Agreement +and the Business Combination; (iii) authorize and approve any amendment to Semnur’s certificate of incorporation or bylaws that +is deemed necessary or advisable by Semnur for purposes of effecting the Business Combination; and (iv) vote (or execute and return an +action by written consent), or cause to be voted at any such meeting of Semnur’s stockholders (or validly execute and return and +cause such consent to be granted with respect to), all of its shares of Semnur common stock against any other action that would reasonably +be expected to (a) impede, interfere with, frustrate, delay, postpone or adversely affect the Business Combination, (b) result in a breach +of any covenant, representation or warranty or other obligation or agreement of Semnur under the Merger Agreement or (c) result in a +breach of any covenant, representation or warranty or other obligation or agreement of Scilex contained in the Stockholder Support Agreement. +15 +In +connection with the execution and delivery of the Merger Agreement, the sponsor and Scilex entered into a Sponsor Interest Purchase Agreement +(the “Sponsor Interest Purchase Agreement”) dated August 30, 2024 (the “Signing Date”). Pursuant to the Sponsor +Interest Purchase Agreement, Scilex agreed to purchase 500,000 Class B ordinary shares, par value $0.0001 per share (the “Purchased +Interests”), of the Company that are currently held by the sponsor. The aggregate consideration for the purchase and sale of the +Purchased Interests is as follows: (i) $2,000,000 (the “Cash Consideration”) and (ii) 300,000 shares of common stock, par +value $0.0001 per share, of Scilex (the “Scilex Shares”). Pursuant to the Sponsor Interest Purchase Agreement, Scilex has +paid the Cash Consideration on the Signing Date and has agreed to issue the Scilex Shares to the sponsor contingent upon and following +the occurrence of the Effective Time. The Purchased Interests will convert automatically, on a one-for-one basis, into one New Semnur +Common Share at the effective time of the Domestication pursuant to the terms of the Merger Agreement. The Merger Agreement contemplates +that, at or prior to the closing of the Merger, the Company and Scilex will enter into an amended and restated registration rights agreement +(the “Registration Rights Agreement”), which, among other things, will govern the registration of certain New Semnur Common +Shares for resale and be effective as of the closing of the Merger.   +The +Merger Agreement contemplates that, at or prior to the closing of the Merger, the Company and Scilex will enter into an amended and restated +registration rights agreement (the “Registration Rights Agreement”), which, among other things, will govern the registration +of certain New Semnur Common Shares for resale and be effective as of the closing of the Merger. +Concurrently +with the execution of the Merger Agreement, the Company entered into a Stockholder Agreement with Scilex (the “Stockholder Agreement”). +Pursuant to the Stockholder Agreement, from and after the Effective Time, and for so long as Scilex beneficially owns any New Semnur +Preferred Shares, among other things, (i) Scilex shall have the right, but not the obligation, to designate each director to be nominated, +elected or appointed to the Board of Directors of New Semnur (“New Semnur Board”) (each, a “Stockholder Designee” +and collectively, the “Stockholder Designees”), regardless of (i) whether such Stockholder Designee is to be elected to the +New Semnur Board at a meeting of stockholders called for the purpose of electing directors (or by consent in lieu of meeting) or appointed +by the New Semnur Board in order to fill any vacancy created by the departure of any director or increase in the authorized number of +members of the New Semnur Board, or (ii) the size of the New Semnur Board, and New Semnur will be required to take all actions reasonably +necessary, and not otherwise prohibited by applicable law, to cause each Stockholder Designee to be so nominated, elected or appointed +to the New Semnur Board as more fully described in the Stockholder Agreement. Scilex shall also have the right to designate a replacement +director for any Stockholder Designee that has been removed from the New Semnur Board and the right to appoint a representative of Scilex +to attend all meetings of the committees of the New Semnur Board. The Stockholder Agreement also provides that New Semnur will be prohibited +from taking certain actions without the consent of Scilex. Such actions include, among other things, amendments to the certificate of +designations designating the New Semnur Preferred Shares, increases or decreases in the size of the New Semnur Board, the incurrence +of certain amounts of indebtedness and the payment of dividends on New Semnur Common Shares. In addition, the Stockholder Agreement provides +that New Semnur will be prohibited from taking certain actions without the consent of Oramed (but only until the date on which all payments +under the Oramed Note and all other obligations under the Oramed Note have been paid in full in cash (such date, the “Release Date”)). +The actions that require Oramed’s consent include, among other things, (i) amending certain agreements, including the Stockholder +Agreement, the Merger Agreement, New Semnur’s certificate of incorporation or bylaws, Semnur’s 2024 Stock Option Plan, the +Stockholder Support Agreement and the Debt Exchange Agreement, in each case that adversely affect the rights of capital stock held by +Scilex in New Semnur, (ii) approval of the issuance of capital stock of New Semnur that would result in Scilex holding less than 55% +of the outstanding shares or voting power of New Semnur, (iii) forming any subsidiary that is not wholly owned and controlled by New +Semnur, (iv) permitting any option grants to Scilex Insiders (as defined therein) pursuant to Semnur’s 2024 Stock Option Plan prior +to the execution of the Merger Agreement to be exercisable and (v) permitting certain compensation payments to Scilex Insiders (as defined +therein). +During +the year ended December 31, 2024, the sponsor lent an aggregate of $580,737 to the Company resulting in the aggregate principal amount +of the Convertible Promissory Note and the Sponsor Extension Convertible Promissory Note being increased to $1,423,237. +During +the year ended December 31, 2024, Scilex lent an aggregate of $75,292 to the Company resulting in the principal amount of the related +Scilex Extension Convertible Promissory Note being increased to $75,292. +During +the year ended December 31, 2024, FutureTech (as defined below) lent an aggregate of $300,000 to the Company resulting in the principal +amount of the related convertible promissory note being increased to $1,275,000. +Results +of Operations +We +have neither engaged in any operations nor generated any operating revenues to date. Our only activities from January 5, 2022 (inception) +through December 31, 2024, were organizational activities, those necessary to prepare for and complete the IPO, and, subsequent to the +IPO, identifying a target company for a business combination and activities in connection with the proposed business combination. We +do not expect to generate any operating revenues until after the completion of our initial business combination. We are generating non-operating +income in the form of interest income on marketable securities held after the IPO. We have incurred and will continue to incur increased +expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due +diligence expenses in connection with searching for, and completing, a business combination. +16 +For the year ended December 31, 2024, we had a net loss of $167,306 +which primarily consists of formation and operating expenses of $1,649,106 and interest expense of $96,242 being partially offset by income +earned on investment held in the Trust Account of $1,578,042. +For +the year ended December 31, 2023, we had a net income of $632,536 which primarily consists of income earned on investment held in the +Trust Account of $3,843,271 being partially offset by formation and operating expenses of $3,173,826 and interest expense of $36,909. +Cash +Flows from Operating Activities +For the year ended December 31, 2024, net cash used in operating +activities was $753,296, primarily due to a net loss of $167,306 for the period and the changes in current assets and liabilities of $585,990, +primarily due to decrease of prepaid expenses of $4,976 and increase in accounts payable, accrued expenses of $890,833, increase in accrued +interest expense – related party of $56,534 and increase in accrued interest expense – others of $39,709. In addition, net +cash used in operating activities includes non-cash adjustments to reconcile net loss from income on the Trust Account of $1,578,042. +For +the year ended December 31, 2023, net cash used in operating activities was $632,783, primarily due to a net income of $632,536 +for the year and the changes in current assets and liabilities of $2,577,950, primarily due to prepaid expenses of $83,113, accounts +payable and accrued expenses of $2,457,940, accrued interest expense – related party of $18,021 and accrued interest expense – +others of $18,878. In addition, net cash used in operating activities includes adjustments to reconcile net income from income on the +Trust Account of $3,843,271.  +Cash +Flows from Investing Activities +For the year ended December +31, 2024, net cash used in investing activities was $43,425,328 primarily due to cash withdrawn from Trust Account in connection with +redemption of 3,785,992 shares of our ordinary shares by our public shareholders. +For the year ended December 31, 2023, net cash provided by investing +activities was $39,711,908 primarily due to cash withdrawn from Trust Account in connection with redemption of ordinary shares amounting +to $40,536,908 partially offset by investment held in Trust Account of $825,000 to extend the period of time the Company has to consummate +its initial business combination by an additional three months, from the then current deadline of July 11,2023 to October 11, 2023. +Cash +Flows from Financing Activities +For the year ended December +31, 2024, net cash provided by financing activities was $42,859,628 primarily due to proceeds from issuance of promissory note to related +party of $565,700, and redemption payments of $43,425,328 in connection with redemption of 3,785,992 shares of our ordinary shares by +our public shareholders. +For the year ended December 31, 2023, net cash used in financing activities +was $39,694,407 primarily due to redemption of ordinary shares amounting to $40,536,908 partially offset by proceeds from issuance of +promissory note to related party of $842,500. +Liquidity +and Capital Resources +Our +liquidity needs prior to the consummation of the IPO were satisfied through a payment from the sponsor and the loan under an unsecured +promissory note from the sponsor of up to $400,000 (the “Promissory Note”), which was repaid after the IPO. +On +April 11, 2022, we consummated the IPO of 8,250,000 Units, inclusive of 750,000 Units issued pursuant to the partial exercise by the +underwriters of their over-allotment option. The Units were sold at a price of $10.00 per Unit, generating gross proceeds of $82,500,000. +Simultaneously with the closing of the IPO, we consummated the sale of 510,000 Private Placement Units, inclusive of 30,000 Private Placement +Units sold to the sponsor pursuant to the underwriters’ partial exercise of their over-allotment option. Each whole Private Placement +Unit consists of one Class A ordinary share and one warrant, each whole warrant entitling the holder thereof to purchase one Class A +ordinary share at an exercise price of $11.50 per share. The Private Placement Units were sold at a price of $10.00 per Private Placement +Unit, generating gross proceeds of $5,100,000. +17 +Following +the closing of the IPO and sale of the Private Placement Units on April 11, 2022, a total of $84,150,000 was placed in the Trust Account, +and we had $1,515,795 of cash held outside of the Trust Account, after payment of costs related to the IPO, and available for working +capital purposes. In connection with the IPO, we incurred $5,105,315 in transaction costs, consisting of $1,650,000 of underwriting fees, +$2,887,500 of deferred underwriting fees and $567,815 of other offering costs. As of December 31, 2024, we had investment held in the +Trust Account of $9,021,005. We intend to use substantially all of the remaining funds held in the Trust Account, including any amounts +representing interest earned on the Trust Account (less income taxes payable), to complete our business combination. To the extent that +our share capital or debt is used, in whole or in part, as consideration to complete a business combination, the remaining proceeds held +in the Trust Account will be used as working capital to finance the operations of the target business or businesses, make other acquisitions +and pursue our growth strategies. +As +of December 31, 2024, we had cash of $16,868 outside of the Trust Account. If we do not complete the proposed business combination, we +intend to use the funds held outside the Trust Account primarily to identify and evaluate target businesses, perform business due diligence +on prospective target businesses, travel to and from the offices, plants or similar locations of prospective target businesses or their +representatives or owners, review corporate documents and material agreements of prospective target businesses, and structure, negotiate +and complete a business combination. +For finance transaction costs in connection with a business combination, +the sponsor or an affiliate of the sponsor or certain of our officers and directors may, but are not obligated to, loan us funds as may +be required (the “Working Capital Loans”). If we complete the initial business combination, we would repay such loaned amounts, +or at the lender’s discretion, up to $1.5 million of such Working Capital Loans may be convertible into units of the post business +combination entity at a price of $10.00 per unit. The units would be identical to the Private Placement Units. In the event that the initial +business combination does not close, we may use a portion of the working capital held outside of the Trust Account to repay such loaned +amounts, but no proceeds from the Trust Account would be used for such repayment. On April 11, 2023, we issued a convertible promissory +note (the “Convertible Promissory Note”) in the total principal amount of up to $825,000 to the sponsor. The Convertible Promissory +Note bears an interest accruing on the unpaid and outstanding total principal amount at the lowest short-term Applicable Federal Rate +as in effect on the date thereof and is payable in arrears on the maturity date. Interest will be calculated on the basis of a 365-day +year and the actual number of days elapsed, to the extent permitted by applicable law. The Convertible Promissory Note was issued with +an initial principal balance of $412,500 (the “Initial Principal Balance”). The sponsor has further lent loans in the aggregate +amount of $430,000 on July 18, 2023, October 12, 2023 and December 29, 2023. The sponsor further lent an aggregate of $565,700 to the +Company against the Convertible Promissory Note during the year ended December 31, 2024. As of December 31, 2024, there was an amount +of $1,408,200 outstanding under Working Capital Loans in the form of the Convertible Promissory Note issued to the sponsor. Further, an +amount of $74,555 with interest at 4.86% on the amount borrowed from the sponsor was recognized as accrued interest expense – related +party as of December 31, 2024. On April 2, 2024, the Company and the sponsor agreed that, in addition to the Initial Principal Amount, +the Company may request an additional aggregate amount of up to $186,800, which may be drawn down in one or more tranches at any time +prior to the maturity date raising the total limit up to $1,200,000. For the year ended December 31, 2024, the Company has drawn down +a total of $208,200 of the additional aggregate amount available, exceeding the total principal amount permitted under the Convertible +Promissory Note. To remediate this overdrawn balance, on January 24, 2025, we amended and restated the Convertible Promissory Note to +increase the total principal amount to $2,000,000. +18 +On +July 10, 2024, the Company issued a promissory note (the “Sponsor Extension Convertible Promissory Note”) in the total principal +amount of up to $180,000 to the sponsor. The Sponsor Extension Convertible Promissory Note was issued with an initial principal balance +of $15,037, with the remaining $164,963 drawable at the Company’s request and upon the consent of the sponsor prior to the maturity +of the Sponsor Extension Convertible Promissory Note. +On +July 11, 2023, the Company issued a convertible promissory note in the total principal amount of $825,000 to FutureTech Capital LLC, +a Delaware limited liability company (“FutureTech”) (the “FutureTech Convertible Promissory Note”), and 100% +of such amount has been utilized to fund the required payment in order to extend the period of time to consummate a business combination. +On October 11, 2023, the Company issued another convertible promissory note in the total principal amount of up to $450,000 to +FutureTech (the “Second FutureTech Convertible Promissory Note”). The Second FutureTech Convertible Promissory Note was issued +with an initial principal balance of $50,000, with the remaining $400,000 drawable at the Company’s request and upon the +consent of FutureTech prior to the maturity of the Second FutureTech Convertible Promissory Note. Consequently, $400,000 of such +amount has been utilized to fund the required payment in order to extend the period of time to consummate a business combination from +October 11, 2023 to July 11, 2024. As of December 31, 2024, there was an amount of $1,275,000 outstanding in the form of the Convertible +Promissory Note issued to FutureTech. Further, the amount of $58,586 with interest at 4.80% on amount borrowed from Futuretech +for the Extension was recognized as accrued interest expense – others as of December 31, 2024. +Based +on the foregoing, management believes that we will not have sufficient working capital and borrowing capacity to meet our needs through +the consummation of the initial business combination. If we are unable to raise additional capital, we may be required to take additional +measures to conserve liquidity, which could include, but not necessarily be limited to, curtailing operations, suspending the pursuit +of a potential transaction, and reducing overhead expenses. We cannot provide any assurance that new financing will be available to us +on commercially acceptable terms, if at all. +In +accordance with Accounting Standards Codification (“ASC”) Subtopic 205-40, “Presentation of Financial Statements – +Going Concern”, the Company has evaluated that there are certain conditions and events, considered in the aggregate, that raise +substantial doubt about the Company’s ability to continue as a going concern through April 11, 2025 (as extended pursuant to amended +and restated memorandum and articles of association of the Company dated July 10, 2024), the date that the Company will be required to +cease all operations, except for the purpose of winding up, if a business combination is not consummated. These consolidated financial +statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that +might be necessary should the Company be unable to continue as a going concern. +If +our estimate of the costs of identifying a target business, undertaking in-depth due diligence and negotiating a business combination +are less than the actual amount necessary to do so, we may have insufficient funds available to operate our business prior to our initial +business combination. Moreover, we may need to obtain additional financing either to complete our business combination or because we +become obligated to redeem a significant number of our public shares upon completion of our business combination, in which case we may +issue additional securities or incur debt in connection with such business combination. +19 +Off-Balance +Sheet Arrangements +We +have no obligations, assets or liabilities, which would be considered off-balance sheet arrangements as of December 31, 2024 and 2023. +We do not participate in transactions that create relationships with entities or financial partnerships, often referred to as variable +interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements. We have not entered +into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other +entities, or purchased any non-financial assets. +Other +Contractual Obligations +Registration +Rights +The holders of our founder +shares, Private Placement Shares and Private Placement Warrants, including any of those issued upon conversion of any Working Capital +Loans (and any Private Placement Shares issuable upon the exercise of the Private Placement Warrants that may be issued upon conversion +of any Working Capital Loans) will be entitled to registration rights pursuant to a registration and shareholder rights agreement signed +on April 6, 2022. The holders of these securities are entitled to make up to three demands, excluding short form demands, that we register +such securities. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements +filed after the completion of our initial business combination and rights to require us to register for resale such securities pursuant +to Rule 415 under the Securities Act. We will bear the costs and expenses of filing any such registration statements. +The +Merger Agreement contemplates that, at or prior to the closing of the Business Combination (the “Closing”), Denali, Scilex, +the Sponsor and certain shareholders of Denali will enter into an Amended and Restated Registration Rights Agreement (the “A&R +Registration Rights Agreement”), which, among other things, will govern the registration of certain shares of New Semnur Common +Stock for resale and be effective as of the Closing. +Underwriting +Agreement +The underwriters received +a cash underwriting discount of $0.20 per Unit, or $1,650,000 in the aggregate, paid upon the closing of the IPO. In addition, the underwriters +will be entitled to a deferred fee of $0.35 per Unit, or $2,887,500 in the aggregate. The deferred fee will become payable to the underwriters +from the amounts held in the Trust Account solely in the event that we complete a business combination, subject to the terms of the underwriting +agreement. On November 20, 2023, the Company entered into a Deferred Discount Agreement with the underwriters and Holdco, pursuant to +which the representatives of the IPO agreed to receive $866,250 of the aggregate $2,887,500 deferred fee owed to them upon the closing +of the Business Combination in the form of 86,625 shares of the combined company’s common stock (the “Common Stock Consideration”). +Upon the terms of the Deferred Discount Agreement, the Common Stock Consideration will be issued at the closing of the Business Combination +and the remaining $2,021,250 of the aggregate deferred fee owed will remain payable at the closing of the Business Combination. The Deferred +Discount Agreement will terminate in the event that the Company does not consummate the Business Combination. +20 +Critical +Accounting Estimates +The +preparation of consolidated financial statements and related disclosures in conformity with U.S. GAAP requires management to make estimates +and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date +of the consolidated financial statements, and income and expenses during the periods reported. Actual results could materially differ +from those estimates. Management does not believe that the Company has any critical accounting estimates. +Recent +Accounting Pronouncements +On +December 14, 2023, the FASB issued a final standard on improvements to income tax disclosures. The standard requires disaggregated information +about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. The standard is intended +to benefit investors by providing more detailed income tax disclosures that would be useful in making capital allocation decisions. ASU +2023-09, Improvements to Income Tax Disclosures, applies to all entities subject to income taxes. For public business entities (PBEs), +the new requirements will be effective for annual periods beginning after December 15, 2024. For entities other than public business +entities (non-PBEs), the requirements will be effective for annual periods beginning after December 15, 2025. The guidance will be applied +on a prospective basis with the option to apply the standard retrospectively. Early adoption is permitted. The Company is currently assessing +the impact, if any, that ASU 2023-09 would have on its financial position, results of operations or cash flows. +Management +does not believe that any other recently issued, but not effective, accounting standards, if currently adopted, would have a material +effect on our consolidated financial statements. +Item +7A. Quantitative and Qualitative Disclosures About Market Risk +Until +June 4, 2024, the net proceeds of our IPO and the Private Placement held in the Trust Account were invested in U.S. government securities +with a maturity of 185 days or less or in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company +Act which invest only in direct U.S. government treasury obligations. However, on June 4, 2024, to mitigate the risk of being deemed +to have been operating as an unregistered investment company under the Investment Company Act, the Company instructed Wilmington Trust, +National Association, the trustee with respect to the Trust Account, to liquidate the U.S. government securities or money market funds +held in the Trust Account and thereafter to hold all funds in the Trust Account in cash in an interest-bearing bank deposit account. +Interest on bank deposit accounts is variable and such accounts currently yield interest of approximately 3.5% per annum. Due to the +short-term nature of these investments, we believe there will be no associated material exposure to interest rate risk. +21 +Item +8. Financial Statements and Supplementary Data. +Reference +is made to Pages F-1 through F-28 comprising a portion of this Annual Report on Form 10-K. +Item +9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. +(a) +Dismissal of Independent Registered Public Accounting Firm +Denali, +at the direction of the board of directors, and upon the recommendation of the Audit Committee of the board of directors, dismissed its +independent registered public accountant Marcum LLP (“Marcum”), effective as of July 15, 2024. +Marcum’s +report on the Company’s consolidated financial statements for the fiscal years ended December 31, 2023 and 2022 did not contain +an adverse opinion or a disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope, or accounting principles, +except that Marcum’s report contained an explanatory paragraph expressing substantial doubt about the ability of the Company to +continue as a going concern. +During +the fiscal years ended December 31, 2023 and 2022 and subsequent interim periods through the date of Marcum’s dismissal, there +were (i) no disagreements with Marcum on any matter of accounting principles or practices, financial statement disclosure, or auditing +scope or procedure, any of which, if not resolved to Marcum’s satisfaction, would have caused it to make reference to the subject +matter of any such disagreement in connection with its reports for such years and (ii) no “reportable events” requiring disclosure +pursuant to paragraph (a)(1)(v) of Item 304 of Regulation S-K and the related instructions to Item 304 of Regulation S-K. +(b) +Appointment of New Independent Registered Public Accounting Firm +At +the direction of the board of directors, and upon the recommendation of the Audit Committee, the Company appointed Marcum Asia CPAs LLP +(“Marcum Asia”) as the Company’s new independent registered public accounting firm for the fiscal year ending December +31, 2024, effective as of July 15, 2024. During the Company’s two most recent fiscal years ended December 31, 2023 and 2022, and +the subsequent interim periods through the date of Marcum Asia’s engagement, neither the Company nor anyone on its behalf has consulted +with Marcum Asia regarding (i) the application of accounting principles to a specific transaction, either completed or proposed, or the +type of audit opinion that might be rendered on the Company’s financial statements, where either a written report or oral advice +was provided to the Company that Marcum Asia concluded was an important factor considered by the Company in reaching a decision as to +the accounting, auditing or financial reporting issue, (ii) any matter that was the subject of a disagreement within the meaning of Item +304(a)(1)(iv) of Regulation S-K and the related instructions to Item 304 of Regulation S-K or (iii) any reportable event within the meaning +of Item 304(a)(1)(v) of Regulation S-K. +22 +Item +9A. Controls and Procedures. +Evaluation +of Disclosure Controls and Procedures +Disclosure +controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our +reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in +the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to +ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated +to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. +As +required by Rules 13a-15f and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation +of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2024. Based upon their +evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined +in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective. +Management’s +Report on Internal Controls over Financial Reporting +As +required by SEC rules and regulations implementing Section 404 of the Sarbanes-Oxley Act, our management is responsible for establishing +and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) under the Securities Exchange Act of +1934, as amended). Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability +of financial reporting and the preparation of our financial statements for external reporting purposes in accordance with GAAP. Our internal +control over financial reporting includes those policies and procedures that: +(1) pertain +to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets +of our company, +(2) provide +reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, +and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors, and +(3) provide +reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could +have a material effect on the financial statements. +Because +of its inherent limitations, internal control over financial reporting may not prevent or detect errors or misstatements in our financial +statements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate +because of changes in conditions, or that the degree or compliance with the policies or procedures may deteriorate. Management, including +our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting +at December 31, 2024. In making these assessments, management used the criteria set forth by the Committee of Sponsoring Organizations +of the Treadway Commission (COSO) in Internal Control - Integrated Framework (2013). Based on our assessments and those criteria, management +determined that we maintained effective internal control over financial reporting as of December 31, 2024. +This +Report on does not include an attestation report of internal controls from our independent registered public accounting firm due to our +status as an emerging growth company under the JOBS Act. +Changes +in Internal Control over Financial Reporting +During +the quarter ended December 31, 2024, there has been no change in our internal control over financial reporting that has materially affected, +or is reasonably likely to materially affect, our internal control over financial reporting. +Item +9B. Other Information. +Not +applicable . +Item +9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. +Not +applicable. +23 +PART +III +Item +10. Directors, Executive Officers and Corporate Governance. +Directors +and Executive Officers +Our +directors and executive officers are as follows: +Name +Age +Title +Lei +Huang +53 +Chief +Executive Officer and Director +You +(“Patrick”) Sun +37 +Chief +Financial Officer +Huifeng +Chang +59 +Director +Jim +Mao +57 +Director +Kevin +Vassily +58 +Director +Lei Huang, Chief Executive Officer and Director +Mr. Huang has served as our director and Chief Executive Officer +since its inception. Mr. Huang has also served as a member of the board of directors of US Tiger Securities, Inc. (“US Tiger”) +since December 2019 and previously served as a director of its parent company, UP Fintech Holding Limited (Nasdaq: TIGR), from November +2020 until June 2022. Since December 2021, Mr. Huang has served as the Chief Executive Officer and has been a member of the board +of directors of TradeUP Securities, Inc., a broker/dealer company. +He has also been a member of the board of directors of MDL and International +Corporation since December 2020. He served as the Chief Executive Officer and was a member of the board of directors of Fortune Rise Acquisition +Corporation (Nasdaq: FRLA), a special purpose acquisition company, since its incorporation in January 2021 until December 2022. Prior +to joining US Tiger, Mr. Huang was the Chief Executive Officer of Haitong Securities USA LLC and also served as Chief Compliance +Officer and Operation Manager of CICC US Securities, Inc. from 2010 through 2018. Prior to that, Mr. Huang served as a Compliance +Officer at Morgan Stanley, Lehman Brothers and Barclays. Mr. Huang also formerly served as a Regulatory Supervisor at the National +Association of Securities Dealers. Mr. Huang earned an M.S. degree in Global Financial Analysis from Bentley University. +You (“Patrick”) Sun, Chief Financial Officer +Mr. Sun has served as our Chief Financial Officer since its inception. +Mr. Sun is an experienced banking and asset management professional. Since August 2020, Mr. Sun has served as the Chief Financial +Officer of Lake Crystal Energy LLC, an oil and gas company. As the Chief Financial Officer, Mr. Sun evaluates and sources potential +investments in oil and gas assets. He also oversees all financial functions of the company. Prior to this role, from August 2014 to December +2019, Mr. Sun served as a Vice President and an E&P Analyst of Seaport Global Securities LLC, a full-service investment bank, +capital markets advisory and research platform based in New York. From July 2008 to May 2012, Mr. Sun served as Vice President of +the Pacific Securities Co., Ltd., a Chinese investment bank and brokerage firm. Mr. Sun earned an MBA from Washington University +in St. Louis, Olin Business School, and a B.S. degree in Mechanics from Peking University. +Huifeng Chang, Director +Dr. Chang has served as our director since April 2022. Since May 2016, +Dr. Chang has served as Senior Vice President and Chief Financial Officer and, in September 2020, became a member of the board of directors +of Canadian Solar Inc. (Nasdaq: CSIQ), a company that manufactures solar PV modules and develops large scale solar projects. He has 24 +years of experience in capital markets, financial investment and risk management. From 2010 to 2015, Dr. Chang was the co-head of Sales +& Trading at CICC U.S. Securities Inc. Prior to this role, from 2008 to 2010, he was the Chief Executive Officer of China Southern +Oriental Patron Asset Management based in Hong Kong, investing funds from China in the international markets. From 2000 to 2008, Dr. Chang +was an Equity Proprietary Trader at Citigroup Global Capital Markets Inc. in New York. Before going to New York, Dr. Chang worked at Kamakura +Corporation in Hawaii as a derivative and risk modeler. Mr. Chang has also been an independent director of Scienjoy Holding Corporation +since May 2020 and on the advisory board of Aquamarine Investment Partners Ltd. since 2015. Dr. Chang earned a Ph.D. in Soil Physics and +an MBA from the University of Hawaii at Manoa. He also earned an M.S. degree from Academia Sinica and a B.S. degree from Nanjing Agricultural +University. +24 +Jim Mao, Director +Mr. Mao has served as our director since April 2022. Since February +2020, Mr. Mao has served as a founding and managing partner of Citta Capital (“Citta”), a firm focused on investing in +early growth stage technology startups in Enterprise/SaaS, Blockchain, ESG, AI applications, cloud computing and healthcare technology +since 2020. As of December 31, 2024, Citta has a diverse portfolio of companies that includes Kintsugi (a leading AI based mental +health diagnostics company), Openprise, Inc. (automation solutions), Sequoia Games, Inc. (combining the latest technology with professional +sports), SetPoint (clinical stage neuro treatment), Zeit Medical (early heart stroke detection with FDA breakthrough destination), and +Ryu Games (Web3.0 Gamify). Prior to that, from March 2015 to February 2020, Mr. Mao was a Partner at WestSummit Capital (“WSC”), +a leading global technology growth capital venture firm. He has also co-authored five U.S. patents. He has over 20 years of working experience +in private equity and technology sectors, including enterprise software, Internet, mobile applications, digital media, intelligent hardware, +advanced manufacturing/ materials, medical devices and clean technology. +Kevin D. Vassily, Director +Mr. Vassily has served as our director and Chair of the Audit +Committee since April 2022. Mr. Vassily has extensive working experience as a senior management team member serving private and public +companies. In January 2021, he was appointed Chief Financial Officer, and since March 2021, is a member of the board of directors of iPower +Inc. (Nasdaq: IPW), a leading online hydroponic equipment retailer and supplier. Mr. Vassily is also a member of the board of directors +of Feutune Light Acquisition Corporation (Nasdaq: FLFV), a special purpose acquisition company incorporated in January 2022. On June 21, +2024, Feutune Light Acquisition Corporation consummated its business combination with Thunder Power Holdings Limited, an electric vehicle +company and was renamed Thunder Power Holdings, Inc. The shares of common stock of Thunder Power Holdings, Inc. is trading on Nasdaq under +the symbol “AIEV”. Mr. Vassily is currently an independent director of Thunder Power Holdings, Inc. Mr. Vassily also serves +as an independent director of Aimfinity Investment Corp. I, a special purpose acquisition company incorporated in July 2021. Mr. Vassily +also served as a director of Fortune Joy International Acquisition Corporation, a special purpose acquisition company incorporated in +August 2021. Fortune Joy International Corporation’s registration statement was declared abandoned by the Securities and Exchange +Commission on June 2024. Prior to this role, from 2019 to January 2021, Mr. Vassily served as Vice President of Market Development +for Facteus, a financial analytics company focused on the asset management industry. From March 2019 through 2020, he served as an advisor +at Woodseer, a financial technology firm providing global dividend forecasts. From 2018 through its acquisition in 2020, Mr. Vassily +served as an advisor at Go Capture, where he was responsible for providing strategic, business development, and product development advisory +services for the company’s emerging “Data as a Service” platform. Since November 2019, Mr. Vassily has served as +a director of Zhongchao Inc., a provider of healthcare information, education and training services to healthcare professionals and the +public in China. Since July 2018, Mr. Vassily has also served as an advisor at Prometheus Fund, a Shanghai-based merchant bank & +private equity firm focused on the “green” economy. From 2015 through 2018, Mr. Vassily served as an Associate Director +of Research at Keybanc Capital Markets, and helped to co-manage the technology research vertical. From 2010 to 2014, he served as the +Director of Research at Pacific Epoch, where he was responsible for a complete product overhaul and a complete business model restart +post- acquisition, re-focusing the firm around a “data-first” research offering. From 2007 to 2010, he served as the Asia +Technology Business Development Representative and as a Senior Analyst at Pacific Crest Securities. In this role, he was responsible for +establishing the firm’s presence and relevance covering Asia Technology. From 2003 to 2006, he served as a Senior Research Analyst +in the semiconductor technology group at Susquehanna International Group, where he was responsible for research in semiconductor and related +technologies. From 2001 to 2003, Mr. Vassily served as a Vice President and Senior Research Analyst for semiconductor capital equipment +at Thomas Weisel Partners, where he was responsible for publishing research and maintaining financial models on each of the companies +under coverage. Mr. Vassily began his career on Wall Street in 1998 as a Research Associate covering the semiconductor industry at +Lehman Brothers. Mr. Vassily earned a B.A. degree from Denison University and an MBA from Dartmouth College, Tuck School of Business. +Number +and Terms of Office of Officers and Directors +Our +board of directors consists of three members. Holders of our founder shares will have the right to elect all of our directors prior to +consummation of our initial business combination and holders of our public shares will not have the right to vote on the appointment +of directors during such time. These provisions of our amended and restated memorandum and articles of association may only be amended +if approved by holders of at least 90% of our issued and outstanding ordinary shares entitled to vote thereon. Each of our directors +will hold office for a two-year term. Subject to any other special rights applicable to the shareholders, any vacancies on our board +of directors may be filled by the affirmative vote of a majority of the remaining directors of our board or by a majority of the holders +of our ordinary shares (or, prior to our initial business combination, a majority of the holders of our founder shares). +Our +officers are appointed by the board of directors and serve at the discretion of the board of directors, rather than for specific terms +of office. Our board of directors is authorized to appoint persons to the offices set forth in our amended and restated memorandum and +articles of association as it deems appropriate. Our amended and restated memorandum and articles of association provide that our officers +may consist of one or more chair of the board, chief executive officer, president, chief financial officer, vice presidents, secretary, +treasurer and such other offices as may be determined by the board of directors. +25 +Committees +of the Board of Directors +Our +board of directors has one standing committee: an audit committee. Subject to phase-in rules and a limited exception, the rules of Nasdaq +and Rule 10A-3 of the Exchange Act require that the audit committee of a listed company be comprised solely of independent directors. +As described in Item 11 below, none of our executive officers or directors has received any cash compensation for services rendered to +us. +Audit +Committee +We +have established an audit committee of the board of directors. Huifeng Chang, Jim Mao and Kevin Vassily are members of our audit committee. +Our board of directors has determined that each of Huifeng Chang, Jim Mao and Kevin Vassily are independent under the Nasdaq listing +standards and applicable SEC rules. Kevin Vassily serves as the Chair of the audit committee. Under the Nasdaq listing standards and +applicable SEC rules, we are required to have at least three members of the audit committee, all of whom must be independent within one +year of the listing of our Class A ordinary shares. Each member of the audit committee is financially literate and our board of directors +has determined that Kevin Vassily qualifies as “audit committee financial expert” as defined in applicable SEC rules. +The +audit committee is responsible for: +● meeting +with our independent registered public accounting firm regarding, among other issues, audits, and adequacy of our accounting and control +systems; +● monitoring +the independence of the independent registered public accounting firm; +● verifying +the rotation of the lead (or coordinating) audit partner having primary responsibility for the audit and the audit partner responsible +for reviewing the audit as required by law; +● inquiring +and discussing with management our compliance with applicable laws and regulations; +● pre-approving +all audit services and permitted non-audit services to be performed by our independent registered public accounting firm, including the +fees and terms of the services to be performed; +● appointing +or replacing the independent registered public accounting firm; +26 +● determining +the compensation and oversight of the work of the independent registered public accounting firm (including resolution of disagreements +between management and the independent auditor regarding financial reporting) for the purpose of preparing or issuing an audit report +or related work; +● establishing +procedures for the receipt, retention and treatment of complaints received by us regarding accounting, internal accounting controls or +reports which raise material issues regarding our financial statements or accounting policies; +● monitoring +compliance on a quarterly basis and, if any non-compliance is identified, immediately taking all action necessary to rectify such non-compliance +or otherwise causing compliance; and +● reviewing +and approving all payments made to our existing shareholders, executive officers or directors and their respective affiliates. Any payments +made to members of our audit committee will be reviewed and approved by our board of directors, with the interested director or directors +abstaining from such review and approval. +Compensation +Committee Interlocks and Insider Participation +None +of our executive officers currently serves, and in the past year has not served, as a member of the compensation committee of any entity +that has one or more executive officers serving on our board of directors. +Code +of Ethics +We +have adopted a Code of Ethics applicable to our directors, officers and employees. A copy of the Code of Ethics will be provided without +charge upon request from us. We intend to disclose any amendments to or waivers of certain provisions of our Code of Ethics in a Current +Report on Form 8-K. +Trading +Policies +The +Company has adopted an insider trading policy that governs the purchase, sale, and/or other transactions of our securities by our directors, +officers and employees. A copy of our insider trading policy is filed as Exhibit 19.1 to this Annual Report on Form 10-K for the fiscal +year ended December 31, 2024. In addition, with regard to the Company’s trading in its own securities, it is the Company’s +policy to comply with the federal securities laws and the applicable exchange listing requirements. +Availability +of Documents +We +have filed a copy of our Code of Ethics and our audit committee charter as exhibits to the registration statement relating to our IPO. +You can review these documents by accessing our public filings at the SEC’s website at www.sec.gov. We intend to disclose any amendments +to or waivers of certain provisions of our Code of Ethics in a Current Report on Form 8-K. +Section +16(a) Beneficial Ownership Reporting Compliance +Section +16(a) of the Exchange Act, requires our executive officers, directors and persons who beneficially own more than 10% of a registered +class of our equity securities to file with the SEC initial reports of ownership and reports of changes in ownership of the ordinary +shares of the Company and other equity securities. These executive officers, directors, and greater than 10% beneficial owners are required +by SEC regulation to furnish us with copies of all Section 16(a) forms filed by such reporting persons. +Based +on a review of Section 16 filings with respect to the Company made during or with respect to the most recent fiscal year, we are not +aware of any late Section 16(a) filings other than one late Form 4 report filed by the sponsor and one late Form 4 report by Jiandong +Xu. +27 +Item +11. Executive Compensation. +Executive +Officer and Director Compensation +None +of our executive officers or directors have received any cash compensation for services rendered to us. Our sponsor, executive officers +and directors, or their respective affiliates will be reimbursed for any out-of-pocket expenses incurred in connection with activities +on our behalf such as identifying potential target businesses and performing due diligence on suitable business combinations. Our audit +committee will review on a quarterly basis all payments that were made by us to our sponsor, executive officers or directors, or their +affiliates. Any such payments prior to an initial business combination will be made using funds held outside the Trust Account. Other +than quarterly audit committee review of such reimbursements, we do not expect to have any additional controls in place governing our +reimbursement payments to our directors and executive officers for their out-of-pocket expenses incurred in connection with our activities +on our behalf in connection with consummating an initial business combination. Other than these payments and reimbursements, no compensation +of any kind, including finder’s and consulting fees, will be paid by to our sponsor, executive officers and directors, or their +respective affiliates, prior to completion of our initial business combination. +After +the completion of our initial business combination, directors or members of our management team who remain with us may be paid consulting +or management fees from the combined company. All of these fees will be fully disclosed to shareholders, if applicable and to the extent +then known, in the proxy solicitation materials in connection with the Business Combination. We have not established any limit on the +amount of such fees that may be paid by the combined company to our directors or members of management. It is unlikely the amount of +such compensation will be known at the time of the Business Combination, because the directors of the post-combination business will +be responsible for determining executive officer and director compensation. Any compensation to be paid to our executive officers will +be determined, or recommended to the board of directors for determination, either by a compensation committee constituted solely by independent +directors or by a majority of the independent directors on our board of directors. +We +do not intend to take any action to ensure that members of our management team maintain their positions with us after the consummation +of our initial business combination, although it is possible that some or all of our executive officers and directors may negotiate employment +or consulting arrangements to remain with us after our initial business combination. We do not believe that the ability of our management +to remain with us after the consummation of our initial business combination will be a determining factor in our decision to proceed +with the Business Combination. We are not party to any agreements with our executive officers and directors that provide for benefits +upon termination of employment. +Item +12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. +The following table sets forth +information regarding the beneficial ownership of our ordinary shares as of April 1, 2025, based on information obtained from the persons +named below, with respect to the beneficial ownership of our ordinary shares, by: +● each +person known by us to be the beneficial owner of more than 5% of our outstanding ordinary shares; +● each +of our executive officers and directors; and +● all +of our executive officers and directors as a group. +28 +Unless +otherwise indicated, we believe that all persons named in the table have sole voting and investment power with respect to all ordinary +shares beneficially owned by them. The following table does not reflect record or beneficial ownership of the Private Placement Warrants +as these warrants are not exercisable within 60 days of the date of this report. +Class B ordinary shares +Class A ordinary shares +Name of Beneficial Owners +Number of +Shares +Beneficially +Owned +Approximate +Percentage +of Class +Number of +Shares +Beneficially +Owned +Approximate +Percentage +of Class +Denali Capital Global Investments LLC (our sponsor) +1,432,500 +69.5 % +510,000 ​ (1) +40.4 % +Lei Huang +50,000 +2.4 % +- +- +You (“Patrick”) Sun +20,000 +* +- +- +Huifeng Chang +20,000 +* +- +- +Jim Mao +20,000 +* +- +- +Kevin Vassily +20,000 +* +- +- +All officers and directors as a group (5 individuals) +130,000 +6.3 % +- +- +Scilex Holding Company +500,000 ​ (2) +40.4 % +- +- +TD Securities (USA) LLC +- +80,000 ​ (3) +6.3 % +Meteora Capital, LLC +- +- +498,798 ​ (4) +39.5 % +Mizuho Financial Group, Inc. +- +- +493,672 ​ (5) +39.1 % +* Less +than one percent. +(1) 510,000 +Private Placement Units, each Private Placement Unit consists of one Class A ordinary share +and one warrant. +(2) Consists +of 500,000 Class B ordinary shares of the Company purchased from the sponsor under the Sponsor +Interest Purchase Agreement. The business address of Scilex is 960 San Antonio Road, Palo +Alto, CA 94303. Scilex has sole voting power of 500,000 Class B ordinary shares of the Company. +(3) This +information is based solely on a Schedule 13G filed by TD Securities (USA LLC), Cowen Financial +Products LLC, TD Group US Holdings LLC, Toronto Dominion Bank and Toronto Dominion Holdings +Bank (the “TD Reporting Persons”) with the SEC on December 26, 2024. TD Securities +(USA) LLC has sole voting power of 30,000 shares and Cowen Financial Products LLC has sole +voting power of 50,000 shares. The number of shares held by the TD Reporting Persons is reported +as of December 16, 2024, as stated in the Schedule 13G, which does not reflect any redemption +of shares by the TD Reporting Persons in connection with the Business Combination itself, +or any other transactions after December 16, 2024. The business address of such holder is +One Vanderbilt Avenue, New York, New York 10017. +(4) +This information is based solely on a Schedule 13G/A filed by Meteora Capital, LLC and Vik Mittal (the “Meteora Reporting Persons”) with the SEC on February 7, 2025. The Meteora Reporting Persons have a shared voting power of 498,798 shares and shared dispositive power of 498,798 shares. The number of shares held by Meteora Reporting Persons is reported as of January 31, 2025, as stated in the Schedule 13G/A, which does not reflect any redemption of shares by the Meteora Reporting Persons in connection with extensions of the deadlines to complete the Business Combination or the Business Combination itself, or any other transactions after January 31, 2025. The business address of such holder is 1200 N Federal Hwy, #200, Boca Raton FL 33432. +(5) This +information is based solely on a Schedule 13G filed by Mizuho Financial Group, Inc. (“Mizuho”) +with the SEC on February 10, 2023. Mizuho has sole voting power of 493,672 shares and sole +dispositive power of 493,672 shares. The number of shares held by Mizuho is reported as of +December 31, 2022, as stated in the Schedule 13G, which does not reflect any redemption of +shares by Mizuho in connection with extensions of the deadlines to complete the Business +Combination or the Business Combination itself, or any other transactions after December +31, 2022. The business address of such holder is 1-5-5, Otemachi, Chiyoda-ku, Tokyo 100-8176, +Japan. +29 +As of April 1, 2025, our initial +shareholders beneficially owned approximately 47% of issued and outstanding ordinary shares and have the right to appoint all of our directors +prior to our initial business combination. Holders of our public shares will not have the right to appoint any directors to our board +of directors prior to our initial business combination. Because of this ownership block, our sponsor may be able to effectively influence +the outcome of all other matters requiring approval by our shareholders, including amendments to our amended and restated memorandum and +articles of association and approval of significant corporate transactions including our initial business combination. +Our +sponsor has agreed (a) to vote any founder shares and public shares held by it in favor of any proposed business combination and (b) +not to redeem any founder shares or public shares held by it in connection with a shareholder vote to approve a proposed initial business +combination. +Our +sponsor, our officers, our directors and US Tiger are deemed to be our “promoters” as such term is defined under the federal +securities laws. +Transfers +of Founder Shares and Private Placement Warrants +The +founder shares, Private Placement Units, Private Placement Shares, Private Placement Warrants and any Class A ordinary shares issued +upon conversion or exercise thereof are each subject to transfer restrictions pursuant to lock-up provisions in the agreement entered +into by our sponsor and management team. Our sponsor and each member of our management team have agreed not to transfer, assign or sell +any of their founder shares until the earlier of (A) one year after the completion of our initial business combination and (B) subsequent +to our initial business combination, (x) if the closing price of our Class A ordinary shares equals or exceeds $12.00 per share (as adjusted +for share subdivisions, share capitalizations, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading +day period commencing at least 150 days after our initial business combination, or (y) the date on which we complete a liquidation, merger, +share exchange or other similar transaction that results in all of our public shareholders having the right to exchange their ordinary +shares for cash, securities or other property. The Private Placement Units and the securities within the units are not transferable, +assignable or salable until 30 days after the completion of our initial business combination. The foregoing restrictions are not applicable +to transfers (a) to our officers or directors, any affiliates or family members of any of our officers or directors, any members or partners +of our sponsor or their affiliates, any affiliates of our sponsor, or any employees of such affiliates; (b) in the case of an individual, +by gift to a member of one of the individual’s immediate family or to a trust, the beneficiary of which is a member of the individual’s +immediate family, an affiliate of such person or to a charitable organization; (c) in the case of an individual, by virtue of laws of +descent and distribution upon death of the individual; (d) in the case of an individual, pursuant to a qualified domestic relations order; +(e) by private sales or transfers made in connection with any forward purchase agreement or similar arrangement or in connection with +the consummation of a business combination at prices no greater than the price at which the founder shares, Private Placement Units or +Class A ordinary shares, as applicable, were originally purchased; (f) by virtue of our sponsor’s organizational documents upon +liquidation or dissolution of our sponsor; (g) to us for no value for cancellation in connection with the consummation of our initial +business combination; (h) in the event of our liquidation prior to the completion of our initial business combination; or (i) in the +event of our completion of a liquidation, merger, share exchange or other similar transaction which results in all of our public shareholders +having the right to exchange their Class A ordinary shares for cash, securities or other property after our completion of our initial +business combination; provided, however, that in the case of clauses (a) through (f) these permitted transferees must enter into a written +agreement agreeing to be bound by these transfer restrictions and the other restrictions contained in the letter agreement. +Item +13. Certain Relationships and Related Transactions, and Director Independence. +In +February 2022, we issued an aggregate of 2,156,250 founder shares to our sponsor in exchange for a payment of $25,000 from our sponsor +to cover for certain expenses on behalf of us, or approximately $0.012 per share. Our sponsor later transferred 20,000 founder shares +to our Chief Financial Officer and 110,000 founder shares to certain members of our board of directors and forfeited 93,750 founder shares +pursuant to the underwriters partially exercising their over-allotment option. On August 30, 2024, the sponsor and Scilex entered into +the Sponsor Interest Purchase Agreement, pursuant to which Scilex purchased the Purchased Interests that were then-held by the sponsor. +The aggregate consideration for the purchase and sale of the Purchased Interests is as follows: (i) the Cash Consideration and (ii) 300,000 +Scilex Shares. Pursuant to the Sponsor Interest Purchase Agreement, Scilex paid the Cash Consideration and has agreed to issue the Scilex +Shares to the sponsor contingent upon and following the occurrence of the Effective Time. The Purchased Interests will convert automatically, +on a one-for-one basis, into one share of New Semnur Common Stock at the effective time of the Domestication (as defined in the Merger +Agreement) pursuant to the terms of the Merger Agreement. +30 +Our +sponsor has purchased an aggregate of 510,000 Private Placement Units (with each Private Placement Unit consisting of one Private Placement +Share and one Private Placement Warrant) at the price of $10.00 per unit. Each Private Placement Warrant entitles the holder to purchase +one ordinary share at $11.50 per share, subject to adjustment. The Private Placement Warrants (including the Class A ordinary shares +issuable upon exercise of the Private Placement Warrants) may not, subject to certain limited exceptions, be transferred, assigned or +sold until 30 days after the completion of our initial business combination. In addition, we have agreed not to enter into a definitive +agreement regarding an initial business combination without the prior consent of our sponsor. +If +any of our founders, officers or directors becomes aware of a business combination opportunity which is suitable for an entity to which +he, she or it has then-current fiduciary or contractual obligations, then, subject to their fiduciary duties under Cayman Islands law, +he, she or it will need to honor such fiduciary or contractual obligations to present such business combination opportunity to such entity, +before we can pursue such opportunity. +No +compensation of any kind, including finder’s and consulting fees, will be paid by us to our sponsor, executive officers and directors, +or any of their respective affiliates, for services rendered prior to or in connection with the completion of an initial business combination. +However, these individuals will be reimbursed for any out-of-pocket expenses related to identifying, investigating, negotiating and completing +an initial business combination. Our audit committee will review on a quarterly basis all payments that were made by us to our sponsor, +officers, directors or our or their affiliates. +In addition, in order to fund working capital deficiencies or finance +transaction costs in connection with an intended initial business combination, our sponsor or an affiliate of our sponsor or certain of +our officers and directors may, but are not obligated to, loan us funds as may be required on a non-interest basis. If we complete our +initial business combination, we may repay such loaned amounts out of the proceeds held in the Trust Account released to us. In the event +that the initial business combination does not close, we may use a portion of the working capital held outside the Trust Account to repay +such loaned amounts but no proceeds from our Trust Account would be used for such repayment. Up to $1,500,000 of such loans may be convertible +into warrants of the post business combination entity at a price of $10.00 per warrant at the option of the lender. The warrants would +be identical to the Private Placement Warrants, including as to exercise price, exercisability and exercise period. Except as set forth +above, the terms of such loans, if any, have not been determined and no written agreements exist with respect to such loans. On April +11, 2023, we issued a convertible promissory note (the “Convertible Promissory Note”) in the total principal amount of up +to $825,000 to the sponsor. The Convertible Promissory Note was issued with an initial principal balance of $412,500, with the remaining +$412,500 drawable at our request prior to the maturity of the Convertible Promissory Note. On December 29, 2023, we issued an amended +and restated promissory note (the “Restated Note”) in the total principal amount of up to $1,000,000; on April 2, 2024, we +issued a second amended and restated promissory note (the “Second Restated Note”) in the total principal amount of up to $1,200,000. +As of December 31, 2024, the outstanding amount under the Working Capital Loans in the form of the Convertible Promissory Note issued +to our sponsor had exceeded this limit, reaching $1,408,200, resulting in an overdrawn position. To remediate this overdrawn balance, +on January 24, 2025, we issued a third amended and restated promissory note (the “Third Restated Note”), increasing the total +principal amount to $2,000,000. We may draw down on the Third Restated Note from time to time prior to the earlier of (i) the closing +of Denali’s initial business combination and (ii) the date of the liquidation of the Company. In the event we do not consummate +the Business Combination, the Third Restated Note will be repaid only to the extent that we have funds available to it outside of the +Trust Account. +After +our initial business combination, members of our management team who remain with us may be paid consulting, management or other fees +from the combined company with any and all amounts being fully disclosed to our shareholders, to the extent then known, in the proxy +solicitation or tender offer materials, as applicable, furnished to our shareholders. It is unlikely the amount of such compensation +will be known at the time of distribution of such proxy solicitation or tender offer materials or at the time of a general meeting held +to consider our initial business combination, as applicable, as it will be up to the directors of the post-combination business to determine +executive and director compensation. +31 +We +have entered into a registration and shareholder rights agreement with respect to the founder shares and Private Placement Warrants, +which is described under the heading “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of +Operations - Other Contractual Obligations.” +Policy +for Approval of Related Party Transactions +The +audit committee of our board of directors has adopted a charter, providing for the review, approval and/or ratification of “related +party transactions,” which are those transactions required to be disclosed pursuant to Item 404 of Regulation S-K as promulgated +by the SEC, by the audit committee. At its meetings, the audit committee shall be provided with the details of each new, existing, or +proposed related party transaction, including the terms of the transaction, any contractual restrictions that we have already committed +to, the business purpose of the transaction, and the benefits of the transaction to us and to the relevant related party. Any member +of the committee who has an interest in the related party transaction under review by the committee shall abstain from voting on the +approval of the related party transaction, but may, if so requested by the chairman of the committee, participate in some or all of the +committee’s discussions of the related party transaction. Upon completion of its review of the related party transaction, the committee +may determine to permit or to prohibit the related party transaction. +Management +will present to the audit committee each proposed related party transaction, including all relevant facts and circumstances relating +thereto. Under the policy, we may consummate related party transactions only if our audit committee approves or ratifies the transaction +in accordance with the guidelines set forth in the policy. The policy does not permit any director or executive officer to participate +in the discussion of, or decision concerning, a related person transaction in which he or she is the related party. +Director +Independence +We +will be a “controlled company” within the meaning of the Nasdaq rules prior to the consummation of our initial business combination. +As a controlled company, we will not be required to comply with the Nasdaq rules that require that a majority of our board of directors +be independent. An “independent director” is defined generally as a person who has no material relationship with the listed +company (either directly or as a partner, shareholder or officer of an organization that has a relationship with the company). Our board +of directors has determined that each of Huifeng Chang, Jim Mao and Kevin Vassily are “independent directors” as defined +in the Nasdaq listing standards and applicable SEC rules. Our independent directors will have regularly scheduled meetings at which only +independent directors are present. +32 +Item +14. Principal Accountant Fees and Services. +The +following is a summary of fees paid or to be paid to Marcum Asia CPAs LLP, for services rendered in 2024 and Marcum LLP for services +rendered in 2023. +Audit Fees . Audit +fees consist of fees billed for professional services rendered for the audit of our financial statements, reviews of our quarterly financial +statements and services that are normally provided by our independent registered public accounting firm in connection with statutory +and regulatory filings. The aggregate fees billed by Marcum Asia CPAs LLP for audit fees, inclusive of the interim review and review +of the Registration Statement on Form S-4 and required filings with the SEC for the year ended December 31, 2024, totaled $108,544. The +aggregate fees billed by Marcum LLP for audit fees, inclusive of the interim review and review of the Registration Statement on Form +S-4 filed by Holdco in connection with the Longevity Business Combination and required filings with the SEC for the year ended December +31, 2023, totaled $236,665. +Audit-Related +Fees . Audit-related fees consist of fees billed for assurance and related services that are reasonably related to performance of +the audit or review of our financial statements and are not reported under “Audit Fees.” These services include attest services +that are not required by statute or regulation and consultations concerning financial accounting and reporting standards. We did not +incur any audit-related services for the year ended December 31, 2024 and 2023. +Tax +Fees . Tax fees consist of fees billed for professional services relating to tax compliance, tax planning and tax advice. We did not +incur any services relating to tax compliance, tax planning and tax advice for the year ended December 31, 2024 and 2023. +All +Other Fees . All other fees consist of fees billed for all other services. We did not incur other services for the year ended December +31, 2024 and 2023. +Pre-Approval +Policy +The +audit committee is responsible for the pre-approval of audit and permitted non-audit services to be performed by the Company’s +independent auditor. The audit committee will, on an annual basis, consider and, if appropriate, approve the provision of audit and non-audit +services by the Company’s independent auditor. Thereafter, the audit committee will, as necessary, consider and, if appropriate, +approve the provision of additional audit and non-audit services by the Company’s independent auditor which are not encompassed +by the audit committee’s annual pre-approval and are not prohibited by law. The audit committee has approved all audit and permitted +non-audit services performed by its independent auditor, Marcum Asia CPAs LLP, for Fiscal 2024 and Marcum LLP, for Fiscal 2023. +33 +PART +IV +Item +15. Exhibit and Financial Statement Schedules. +(a) The +following documents are filed as part of this report: +(1) Financial +Statements +(2) Financial +Statements Schedules +All +financial statement schedules are omitted because they are not applicable or the amounts are immaterial and not required, or the required +information is presented in the financial statements and notes herein. +(3) Exhibits +We +hereby file, furnish or incorporate by reference, as applicable, as part of this report the exhibits listed in the attached Exhibit Index. +Copies of such material can be obtained on the SEC website at www.sec.gov. +Item +16. Form 10-K Summary. +Not +applicable. +34 +DENALI +CAPITAL ACQUISITION CORP. +INDEX TO FINANCIAL STATEMENTS +Page +PART 1 - FINANCIAL INFORMATION +Item 1. Consolidated Financial Statements +Report of Independent Registered Public Accounting Firm (PCAOB ID Number 5395 ) F-2 +Report of Independent Registered Public Accounting Firm (PCAOB ID Number 688) F-3 +Consolidated Balance Sheets as of December 31, 2024 and 2023 F-4 +Consolidated Statements of Operations for the years ended December 31, 2024 and 2023 F-5 +Consolidated Statements of Changes in Shareholders’ Deficit for the years ended December 31, 2024 and 2023 F-6 +Consolidated Statements of Cash Flows for the years ended December 31, 2024 and 2023 F-7 +Notes to Consolidated Financial Statements F-8 +F- 1 +PART 1 - FINANCIAL INFORMATION +Item 1. Consolidated +Financial Statements +Report of Independent Registered Public Accounting +Firm +To the Shareholders and Board of Directors of +Denali Capital Acquisition Corp. +Opinion on the Financial Statements +We have audited the accompanying consolidated +balance sheet of Denali Capital Acquisition Corp. (the “Company”) as of December 31, 2024, the related consolidated statements +of operations, shareholders’ deficit and cash flows for the year ended December 31, 2024, and the related notes (collectively referred +to as the “financial statements”). In our opinion, based on our audit, the financial statements present fairly, in all material +respects, the financial position of the Company as of December 31, 2024, and the results of its operations and its cash flows for the +year ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America. +As discussed in Note 9 to the financial statements, +the Company adopted ASU 2023-07, Segment Reporting (Topic 280) as of December 31, 2024. We also have audited the adjustments necessary +to restate the 2023 segment information and to reflect the adoption of ASU 2023-07, Segment Reporting (Topic 280) to the 2023 segment +information, as provided in Note 9. In our opinion, such adjustments are appropriate and have been properly applied. We were not engaged +to audit, review or apply any procedures to the 2023 financial statements of the Company other than with respect to the adjustments and, +accordingly, we do not express an opinion or any other form of assurance on the 2023 financial statements taken as a whole. +Explanatory Paragraph – Going Concern +The accompanying financial statements have been +prepared assuming that the Company will continue as a going concern. As more fully described in Note 1, to the financial statements, the +Company is a Special Purpose Acquisition Corporation that was formed for the purpose of effecting a merger, share exchange, asset acquisition, +stock purchase, reorganization or similar business combination with one or more businesses on or before April 11, 2025 (unless further +extended). There is no assurance that the Company will obtain the necessary approvals or raise the additional capital it needs to fund +its business operations and complete any business combination prior to April 11, 2025 (unless further extended), if at all. The Company +also has no approved plan in place to extend the business combination deadline beyond April 11, 2025 and lacks the capital resources needed +to fund operations and complete any business combination, even if the deadline to complete a business combination is extended to a later +date. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard +to these matters are also described in Note 1. The financial statements do not include any adjustments that might be necessary should +the Company be unable to continue as a going concern. +Basis for Opinion +These financial statements are the responsibility +of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We +are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are +required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and +regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audit in accordance with the +standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial +statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged +to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding +of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal +control over financial reporting. Accordingly, we express no such opinion. +Our audit included performing procedures to assess +the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond +to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. +Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating +the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. +/s/ Marcum Asia CPAs llp +Marcum Asia CPAs llp +We have served as the Company’s auditor since 2024. +New York, NY +April 1, 2025 +F- 2 +Report of Independent Registered Public Accounting Firm +To the Shareholders and Board of Directors of +Denali Capital Acquisition Corp. +Opinion on the Financial Statements +We have audited, before the effects of the retrospective +adjustments to the disclosures for the adoption of ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures +(“ASU 2023-07”) discussed in Notes 2 and 9 to the consolidated financial statements, the accompanying consolidated balance +sheet of Denali Capital Acquisition Corp. (the “Company”) as of December 31, 2023, the related consolidated statements of +operations, changes in shareholders’ deficit, and cash flows for the year ended December 31, 2023, and the related notes (collectively +referred to as the “financial statements”) (the 2023 financial statements before the effects of the adjustments discussed +in Notes 2 and 9 to the financial statements are not presented herein). In our opinion, the 2023 financial statements, before the effects +of the retrospective adjustments to the disclosures for the adoption of ASU 2023-07 discussed in Notes 2 and 9 to the financial statements, +present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and the results of its operations +and its cash flows for the year ended December 31, 2023, in conformity with accounting principles generally accepted in the United States +of America. +We were not engaged to audit, review, or apply +any procedures to the retrospective adjustments to the disclosures for the adoption of ASU 2023-07 discussed in Notes 2 and 9 to the financial +statements, and accordingly, we do not express an opinion or any form of assurance about whether such adjustments are appropriate and +have been properly applied. Those adjustments were audited by Marcum Asia CPAs LLP. +Explanatory Paragraph – Going Concern +The accompanying financial statements have been +prepared assuming that the Company will continue as a going concern. As more fully described in Note 1 to the financial statements, the +Company is a Special Purpose Acquisition Corporation that was formed for the purpose of completing a merger on or before April 11, 2024 +(or July 11, 2024, if certain conditions are met). The Company entered into a definitive merger agreement with a business combination +target on January 25, 2023, and the shareholders approved the merger on January 9, 2024. There is no assurance that the Company will satisfy +the required closing conditions, raise the additional capital it needs to fund its operations, and complete the transaction prior to April +11, 2024 (or July 11, 2024, if certain conditions are met), if at all. The Company also has no approved plan in place to extend the business +combination deadline and fund operations for any period of time after April 11, 2024 (or July 11, 2024, if certain conditions are met), +in the event that it is unable to complete a business combination by that date. These conditions raise substantial doubt about the Company’s +ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements +do not include any adjustments that might result from the outcome of this uncertainty. +Basis for Opinion +These financial statements are the responsibility +of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We +are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are +required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and +regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audit in accordance with the +standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial +statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged +to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding +of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal +control over financial reporting. Accordingly, we express no such opinion. +Our audit included performing procedures to assess +the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond +to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. +Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating +the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. +/s/ Marcum llp +Marcum llp +We have served as the Company’s auditor from 2022 to 2024. +Costa Mesa, CA +April 1, 2024 +F- 3 +DENALI CAPITAL +ACQUISITION CORP. +CONSOLDATED +BALANCE SHEETS +December 31, +2024 +December 31, +2023 +Assets +Cash on hand +$ 16,868 +$ 204,464 +Prepaid expenses +- +4,976 +Total current assets +16,868 +209,440 +Cash and Investments held in trust +9,021,005 +50,477,963 +Total assets +$ 9,037,873 +$ 50,687,403 +Liabilities and Shareholders’ Deficit +Accounts Payable and accrued offering costs and expenses +$ 4,640,414 +$ 3,749,581 +Accrued interest expense -related party +74,555 +18,021 +Accrued interest expense - others +58,586 +18,878 +Promissory Note - related party +1,423,237 +842,500 +Promissory Note - Others +1,350,292 +975,000 +Total current liabilities +7,547,084 +5,603,980 +Deferred underwriter compensation +2,887,500 +2,887,500 +Total liabilities +10,434,584 +8,491,480 +Commitments and contingencies +Class A ordinary shares subject to possible redemption 751,837 and 4,537,829 shares at redemption value of $ 12.00 and $ 11.12 per share as of December 31, 2024 and 2023, respectively +9,021,005 +50,477,963 +Shareholders’ Deficit: +Preference shares, $ 0.0001 par value; 1,000,000 shares authorized; none issued and outstanding +- +- +Class A ordinary shares, $ 0.0001 par value; 200,000,000 shares authorized, 510,000 shares issued and outstanding (excluding 751,837 and 4,537,829 shares subject to possible redemption as of December 31, 2024 and 2023, respectively subject to possible redemption) +51 +51 +Class B ordinary shares, $ 0.0001 par value; 20,000,000 shares authorized, 2,062,500 shares issued and outstanding +206 +206 +Accumulated deficit +( 10,417,973 ) +( 8,282,297 ) +Total shareholders’ deficit +( 10,417,716 ) +( 8,282,040 ) +Total Liabilities and Shareholders’ Deficit +$ 9,037,873 +$ 50,687,403 +The +accompanying notes are an integral part of these consolidated financial statements. +F- 4 +DENALI CAPITAL ACQUISITION CORP. +CONSOLDATED STATEMENTS OF OPERATIONS +For the +For the +Year Ended +Year Ended +December 31, +2024 +December 31, +2023 +Formation and operating costs +$ 1,649,106 +$ 3,173,826 +Loss from operations +1,649,106 +3,173,826 +Other expense/(income) +Interest expense +96,242 +36,909 +Income on Trust account +( 1,578,042 ) +( 3,843,271 ) +Net (loss)/ income +$ ( 167,306 ) +$ 632,536 +Basic and diluted weighted average redeemable ordinary shares outstanding +2,722,627 +7,416,033 +Basic and diluted net income per redeemable ordinary shares +$ 0.32 +$ 0.26 +Basic and diluted weighted average non-redeemable ordinary shares outstanding +2,572,500 +2,572,500 +Basic and diluted net loss (income) per non-redeemable ordinary share +$ ( 0.40 ) +$ ( 0.50 ) +The +accompanying notes are an integral part of these consolidated financial statements. +F- 5 +DENALI +CAPITAL ACQUISITION CORP. +CONSOLIDATED +STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIT +For +the Year Ended December 31, 2024 +Class +A Ordinary Shares +Class +B Ordinary Shares +Accumulated +Shareholders’ +Shares +Amount +Shares +Amount +Deficit +Equity +Deficit +Balance +as of December 31, 2023 +510,000 +$ 51 +$ 2,062,500 +$ 206 +$ ( 8,282,297 ) +$ ( 8,282,040 ) +Net +loss +- +- +- +- +( 167,306 ) +( 167,306 ) +Subsequent +measurement of ordinary shares subject to possible redemption (interest earned on trust account and extension deposit) +- +- +- +- +( 1,968,370 +) +( 1,968,370 +) +Balance +as of December 31, 2024 +510,000 +51 +2,062,500 +206 +$ ( 10,417,973 ) +( 10,417,716 ) +For +the Year Ended December 31, 2023 +Class +A Ordinary Shares +Class +B Ordinary Shares +Accumulated +Shareholders’ +Shares +Amount +Shares +Amount +Deficit +Deficit +Balance +as of December 31, 2022 +510,000 +$ 51 +2,062,500 +$ 206 +$ ( 3,271,562 ) +$ ( 3,271,305 ) +Net +income +- +- +- +- +632,536 +632,536 +Subsequent +measurement of ordinary shares subject to possible redemption (interest earned on trust account and extension deposit) +- +- +- +- +( 5,643,271 ) +( 5,643,271 ) +Balance +as of December 31, 2023 +510,000 +$ 51 +$ 2,062,500 +$ 206 +$ ( 8,282,297 ) +$ ( 8,282,040 ) +The +accompanying notes are an integral part of these consolidated financial statements. +F- 6 +DENALI +CAPITAL ACQUISITION CORP. +CONSOLIDATED +STATEMENTS OF CASH FLOWS +For the +For the +Year Ended +Year Ended +December 31, +2024 +December 31, +2023 +Cash flows from operating activities: +Net (loss)/income +$ ( 167,306 ) +$ 632,536 +Adjustments to reconcile net (loss)/ income to net cash used in operating activities: +Income from Trust +( 1,578,042 ) +( 3,843,271 ) +Changes in current assets and liabilities: +Prepaid Expenses +4,976 +83,113 +Accounts payable and accrued expenses +890,833 +2,457,940 +Accrued interest expense -related party +56,534 +18,021 +Accrued interest expense - others +39,709 +18,878 +Net cash used in operating activities +( 753,296 ) +( 632,783 ) +Cash Flows from Investing Activities: +Investment held in Trust Account +- +( 825,000 ) +Cash withdrawn from Trust Account in connection with redemption +43,425,328 +40,536,908 +Net cash provided by investing activities +43,425,328 +39,711,908 +Cash flows from financing activities: +Proceeds from issuance of promissory note to related party +565,700 +842,500 +Redemption of ordinary shares +( 43,425,328 ) +( 40,536,908 ) +Net cash used in financing activities +( 42,859,628 ) +( 39,694,408 ) +Net change in cash +( 187,596 ) +( 615,283 ) +Cash, beginning of the year +204,464 +819,747 +Cash, end of the year +$ 16,868 +$ 204,464 +Supplemental disclosure of noncash investing and financing activities +Increase in investment held in Trust Account through issuance of promissory note +$ 390,329 +$ 975,000 +Remeasurement adjustment on class A ordinary shares subject to possible redemption +$ 1,968,370 +$ 5,643,271 +The +accompanying notes are an integral part of these consolidated financial statements. +F- 7 +Denali +Capital Acquisition Corp. +Notes +to Consolidated Financial Statements +NOTE +1 – ORGANIZATION AND BUSINESS OPERATION +Denali +Capital Acquisition Corp. (the “Company” or “Denali”) is a newly organized blank check company incorporated in +the Cayman Islands on January 5, 2022. The Company was formed for the purpose of effecting a merger, share exchange, asset acquisition, +share purchase, reorganization, or similar business combination with one or more businesses (a “Business Combination”). +As +of December 31, 2024, the Company had not commenced any operations. All activity for the period from January 5, 2022 (inception) through +December 31, 2024, relates to the Company’s organizational activities, those necessary to prepare for and complete the initial +public offering (“IPO”), identifying a target company for a business combination, and activities in connection with an initial +business combination, including with respect to our proposed business combination with Semnur Pharmaceuticals, Inc (“Semnur”). +The Company does not expect to generate any operating revenues until after the completion of an initial Business Combination. The Company +is generating non-operating income in the form of income from the investment of proceeds derived from the IPO. The Company has selected +December 31 as its fiscal year end. +The +Company’s sponsor is Denali Capital Global Investments LLC, a Cayman Islands limited liability company (the “Sponsor”). +Financing +The +registration statement for the Company’s IPO became effective on April 6, 2022. On April 11, 2022, the Company consummated the +IPO of 8,250,000 units (including over-allotment of 750,000 units) (“Public Units”). Each Public Unit +consists of one Class A ordinary share, $ 0.0001 par value per share (such shares included in the Public Units, the “Public +Shares”), and one redeemable warrant (the “Public Warrants”), each whole Public Warrant entitling the holder thereof +to purchase one Public Share at an exercise price of $ 11.50 per share. The Public Units were sold at a price of $ 10.00 per +Public Unit, generating gross proceeds of $ 82,500,000 , which is described in Note 3. Simultaneously with the closing of the IPO, the +Company consummated the sale of 510,000 units (including over-allotment of 30,000 units) (the “Private Placement +Units”) to the Sponsor at a price of $ 10.00 per Private Placement Unit in a private placement generating gross proceeds of +$ 5,100,000 , which is described in Note 4. Transaction costs amounted to $ 5,105,315 , consisting of $ 1,650,000 of underwriting fees, +$ 2,887,500 of deferred underwriters’ fees and $ 567,815 of other offering costs, and were all initially charged to shareholders’ +equity. +Trust +Account +Following +the consummation of the IPO on April 11, 2022, a total of $ 84,150,000 of the net proceeds from the IPO and the sale of the Private +Placement Units was deposited in a trust account (the “Trust Account”). The net proceeds were invested in U.S. government +securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act of 1940, as amended (the “Investment +Company Act”), with a maturity of 185 days or less, or in any open-ended investment company that holds itself out as +a money market fund and meeting certain conditions under Rule 2a-7 of the Investment Company Act, as determined by the Company. Further, +on April 12, 2023, the Company issued a press release announcing that it deposited $ 825,000 into the Trust Account, 50 % of +this amount being a loan from the Sponsor in the form of a convertible promissory note and other 50 % amount was transferred directly +from the remaining cash on hand balance at that time, in order to extend the period of time it has to consummate a business combination +by an additional three months, from then current deadline of April 11, 2023 to July 11, 2023. On July 13, 2023, the Company issued +a press release announcing that an aggregate of $ 825,000 has been deposited into the Company’s Trust Account in order to extend +the period of time it has to consummate a business combination by an additional three months, from the then current deadline of July 11, +2023 to October 11, 2023. Furthermore, subsequently, on October 11, 2023, the Company issued another press release announcing that the +Company’s shareholders extended the date by which the Company must consummate an initial business combination from October 11, +2023 to July 11, 2024 by electing to extend the date to consummate an initial business combination on a monthly basis for up to nine +times by an additional one month each time (the “Extension”). The Sponsor (or its affiliates or permitted designees) will +deposit into the Trust Account for each such one-month extension the lesser of (a) an aggregate of $ 50,000 or (b) $ 0.03 per +public share that remains outstanding and is not redeemed prior to any such one-month extension, unless the closing of the Company’s +initial business combination has occurred, and hence, an aggregate of $ 150,000 has been deposited into the Company’s Trust +Account through December 31, 2023 in order to extend the period of time it has to consummate a business combination by an additional +three months, from the then current deadline of October 11, 2023 to January 11, 2024. Until June 2024, there has been further deposit +of an aggregate of $ 300,000 into the Trust Account for extension from January 11, 2024 to July 11, 2024. However, on June 4, 2024, +to mitigate the risk of being deemed to have been operating as an unregistered investment company under the Investment Company Act, the +Company instructed Wilmington Trust, National Association, the trustee with respect to the Trust Account, to liquidate the U.S. government +securities or money market funds held in the Trust Account and thereafter to hold all funds in the Trust Account in cash in an interest-bearing +bank deposit account until the earlier of (i) the completion of a Business Combination or (ii) the distribution of the funds in +the Trust Account to the Company’s shareholders, as described below. Interest on bank deposit accounts is variable and such accounts +currently yield interest of approximately 3.5 % per annum. +F- 8 +Denali +Capital Acquisition Corp. +Notes +to Consolidated Financial Statements +During +the shareholder’s meeting held on October 11, 2023, shareholders holding 3,712,171 public shares (after giving effect +to withdrawals of redemptions) exercised their right to redeem such shares for a pro rata portion of the funds in the Company’s +Trust Account. As a result, approximately $ 40.5 million (approximately $ 10.92 per share) was removed from the Trust Account +to pay such holders. Following redemptions and through December 31, 2023, the Company had 4,537,829 public shares outstanding. +On July 10, 2024, the shareholders of the Company held an extraordinary +general meeting of shareholders to consider and vote upon a proposal to amend, by way of special resolution, the amended and restated +memorandum and articles of association of the Company to extend (the “extension”) the date by which the Company must: (i) +consummate a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination involving the Company +and one or more businesses or entities; (ii) cease its operations, except for the purpose of winding up, if it fails to complete such +initial business combination; and (iii) redeem 100 % of the Company’s Class A ordinary shares, par value $ 0.0001 per share (the “Class +A ordinary shares”), included as part of the units sold in the Company’s IPO from July 11, 2024 to April 11, 2025, by electing +to extend the date to consummate an initial business combination on a monthly basis for up to nine (9) times by an additional one month +each time, unless the closing of the Company’s initial business combination has occurred, without the need for any further approval +of the Company’s shareholders, provided that the Sponsor (or its affiliates or permitted designees) will deposit into the Trust +Account for each such one-month extension the lesser of (a) an aggregate of $ 20,000 or (b) $ 0.02 per public share that remains outstanding +and is not redeemed prior to any such one-month extension, unless the closing of the Company’s initial business combination has +occurred, in exchange for a non-interest bearing promissory note payable upon consummation of an initial business combination. +In +connection with the extraordinary general meeting on July 10, 2024, shareholders holding 3,785,992 public shares exercised their right +to redeem such shares for a pro rata portion of the funds in the Company’s Trust Account. As a result, approximately $ 43.4 million +(approximately $ 11.47 per share) was removed from the Trust Account to pay such holders. Following redemptions, the Company had 751,837 +public shares outstanding. +On July +10, 2024, Company issued a convertible promissory note (the “Convertible Promissory Note 2”) in the total principal amount +of up to $ 180,000 to Sponsor. The Convertible Promissory Note 2 was issued with an initial principal balance of $ 15,037 , with the remaining +$ 164,963 drawable at the Company’s request and upon the consent of the Sponsor prior to the maturity of the Convertible Promissory +Note 2. The Convertible Promissory Note 2 matures upon the earlier of (i) the effective date of the consummation of the Company’s +initial business combination and (ii) the date of the liquidation of the Company. +On August 9, 2024, the Company issued a convertible promissory note +in the total principal amount of up to $ 180,000 to Scilex (the “Extension Scilex Convertible Promissory Note”). The Extension +Scilex Convertible Promissory Note was issued with an initial principal balance of $ 15,064 , with the remaining $ 164,936 drawable at the +Company’s request and upon the consent of Scilex prior to the maturity of the Extension Scilex Convertible Promissory Note. The +Extension Scilex Convertible Promissory Note matures upon the earlier of (i) the effective date of the consummation of the Company’s +initial business combination and (ii) the date of the liquidation of the Company. +F- 9 +Denali +Capital Acquisition Corp. +Notes +to Consolidated Financial Statements +As +of December 31, 2024, Scilex deposited aggregated total of $ 75,292 drawn down from the Extension Scilex Convertible Promissory Note to +the Trust Account to extend the time the Company has to consummate an initial business combination to January 11, 2025. +On January 6, 2025, February 11, 2025 and March 11, 2025, Scilex had +deposited an aggregate of $ 45,191 drawn down from the Extension Scilex Convertible Promissory Note to the Trust Account to extend the +time the Company has to consummate an initial business combination from January 11, 2025 to April 11, 2025. +The +Company’s management has broad discretion with respect to the specific application of the net proceeds of the IPO and the sale +of the Private Placement Units, although substantially all of the net proceeds are intended to be applied generally toward consummating +a Business Combination. The stock exchange listing rules require that the Business Combination must be with one or more operating businesses +or assets with a fair market value equal to at least 80 % of the value of the assets held in the Trust Account (excluding any deferred +underwriters’ fees and taxes payable on the interest income earned on the Trust Account). The Company will only complete a Business +Combination if the post-Business Combination company owns or acquires 50 % or more of the issued and outstanding voting securities +of the target or otherwise acquires a controlling interest in the target business sufficient for it not to be required to register as +an investment company under the Investment Company Act. There is no assurance that the Company will be able to successfully effect a +Business Combination. +Business +Combination +The +Company will provide the holders of the outstanding Public Shares (the “Public Shareholders”) with the opportunity to redeem +all or a portion of their Public Shares either (i) in connection with a shareholder meeting called to approve the Business Combination +or (ii) by means of a tender offer in connection with the Business Combination. The decision as to whether the Company will seek shareholder +approval of a Business Combination or conduct a tender offer will be made by the Company. The Public Shareholders will be entitled to +redeem their Public Shares for a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account +calculated as of two business days prior to the consummation of the initial Business Combination (initially anticipated to be $ 10.20 per +Public Unit, plus any pro rata interest then in the Trust Account, net of taxes payable). The Public Shares subject to redemption were +recorded at a redemption value and classified as temporary equity upon the completion of the IPO in accordance with the Financial Accounting +Standards Board (the “FASB”) Accounting Standards Codification (“ASC”) Topic 480, “Distinguishing Liabilities +from Equity” (“ASC 480”). The Company will not redeem Public Shares in an amount that would cause its net tangible +assets to be less than $ 5,000,001 (so that it does not then become subject to the “penny stock” rules of the Securities +and Exchange Commission (the “SEC”)) either prior to or upon consummation of an initial Business Combination. However, a +greater net tangible asset or cash requirement may be contained in the agreement relating to the Business Combination. In shareholders’ +meeting held on October 11, 2023, it was resolved to eliminate this limitation that the Company may not redeem Public Shares in an amount +that would cause the Company’s net tangible assets to be less than $ 5,000,001 (the “Redemption Limitation Amendment”). +If the Company is unable to complete the initial Business Combination within the Combination Period, including Extension (refer to Note +9), the Company will: (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not +more than ten business days thereafter, redeem the Public Shares, at a per-share price, payable in cash, equal to the aggregate amount +then on deposit in the Trust Account, including interest earned on the funds held in the Trust Account and not previously released to +the Company to pay the Company’s franchise and income taxes, if any (less up to $ 100,000 of interest to pay dissolution expenses), +divided by the number of then-issued and outstanding Public Shares, which redemption will completely extinguish Public Shareholders’ +rights as shareholders (including the right to receive further liquidating distributions, if any), subject to applicable law, and (iii) +as promptly as reasonably possible following such redemption, subject to the approval of the Company’s remaining shareholders and +its board of directors, dissolve and liquidate, subject in each case to the Company’s obligations under Cayman Islands law to provide +for claims of creditors and the requirements of other applicable law. There will be no redemption rights or liquidating distributions +with respect to the Company’s warrants, which will expire worthless if the Company fails to complete the Business Combination within +the Combination Period. +F- 10 +Denali +Capital Acquisition Corp. +Notes +to Consolidated Financial Statements +The +founder shares are designated as Class B ordinary shares (the “founder shares”) and, except as described below, are +identical to the Public Shares, and holders of founder shares have the same shareholder rights as Public Shareholders, except that +(i) prior to the Company’s initial Business Combination, only holders of the founder shares have the right to vote on the +appointment of directors, including in connection with the completion of the Company’s initial Business Combination, and +holders of a majority of the founder shares may remove a member of the board of directors for any reason, (ii) the founder shares +are subject to certain transfer restrictions, as described in more detail below, (iii) the Company’s initial shareholders have +entered into an agreement with the Company, pursuant to which they have agreed to (A) waive their redemption rights with respect to +their founder shares and Public Shares in connection with the completion of the Company’s initial Business Combination, (B) +waive their redemption rights with respect to their founder shares and Public Shares in connection with a shareholder vote to +approve an amendment to the Company’s amended and restated memorandum and articles of association that would affect the +substance or timing of the Company’s obligation to provide for the redemption of the Company’s Public Shares in +connection with an initial Business Combination or to redeem 100 % of the Company’s Public Shares if the Company has not +consummated an initial Business Combination by April 11, 2025 (or as may be extended by a shareholder vote to further extend the +time to consummate a business combination, as applicable), and (C) waive their rights to liquidating distributions from the Trust +Account with respect to their founder shares if the Company fails to complete its initial Business Combination by April 11, 2025 (or +as may be extended by a shareholder vote to further extend the time to consummate a business combination, as applicable), although +they will be entitled to liquidating distributions from the Trust Account with respect to any Public Shares they hold if the Company +fails to complete its initial Business Combination within the prescribed time frame, (iv) the founder shares will automatically +convert into Public Shares concurrently with or immediately following the consummation of the Company’s initial Business +Combination, or earlier at the option of the holder thereof, and (v) the founder shares are entitled to registration rights. If the +Company submits its initial Business Combination to its Public Shareholders for a vote, the Sponsor and each member of the +Company’s management team have agreed to vote their Founder Shares and Public Shares in favor of the Company’s initial +Business Combination. During an extraordinary general meeting held on October 11, 2023, a proposal was approved that Class A +ordinary shares will be issued to holders of Class B ordinary shares upon the exercise of the right of a holder of the +Company’s Class B ordinary shares, par value $ 0.0001 per share, to convert such holder’s Class B ordinary shares +into Class A ordinary shares on a one-for-one basis at any time and from time to time prior to the closing of an initial business +combination at the election of the holder (the “Founder Share Amendment”). No such conversions have been made as of the +date of this filing. Further, the Class B ordinary shares that convert into Class A ordinary shares do not possess redemption +rights. +The +Sponsor has agreed that it will be liable to the Company if and to the extent any claims by a third party (other than the Company’s +registered public accounting firm) for services rendered or products sold to the Company, or by a prospective target business with which +the Company has discussed entering into a transaction agreement, reduce the amount of funds in the Trust Account to below the lesser +of (i) $ 10.20 per Public Share or (ii) the actual amount per Public Share held in the Trust Account as of the date of the liquidation +of the Trust Account if less than $ 10.20 per Public Share due to reductions in the value of the trust assets, in each case net of +the interest which may be withdrawn to pay taxes. This liability will not apply with respect to any claims by a third party or prospective +target business who executed a waiver of any and all rights to seek access to the Trust Account, nor will it apply to any claims under +the Company’s indemnity of the underwriters of the IPO against certain liabilities, including liabilities under the Securities +Act of 1933, as amended, (the “Securities Act”). Moreover, in the event that an executed waiver is deemed to be unenforceable +against a third party, the Company’s Sponsor will not be responsible to the extent of any liability for such third party claims. +Merger +Agreement – Longevity (termination) +On +January 25, 2023, the Company entered into an Agreement and Plan of Merger (the “Longevity Merger Agreement”), by and among +Longevity Biomedical, Inc., a Delaware corporation (“Longevity”), Denali SPAC Holdco, Inc., a Delaware corporation and direct, +wholly owned subsidiary of the Company (“Holdco”), Denali SPAC Merger Sub, Inc., a Delaware corporation and direct, wholly +owned subsidiary of Holdco (“Denali Merger Sub”), Longevity Merger Sub, Inc., a Delaware corporation and direct, wholly owned +subsidiary of Holdco (“Longevity Merger Sub”), and Bradford A. Zakes, solely in the capacity as seller representative (the +“Seller Representative”). +F- 11 +Denali +Capital Acquisition Corp. +Notes +to Consolidated Financial Statements +On +June 26, 2024, pursuant to Section 11.1(a) of the Longevity Merger Agreement, the parties entered into a termination agreement (the “Termination +Agreement”) pursuant to which the Longevity Merger Agreement was terminated effective as of the date of the Termination Agreement +(the “Termination”). +As +a result of the Termination Agreement, the Longevity Merger Agreement is of no further force and effect (other than certain customary +limited provisions that survive the termination pursuant to the terms of the Longevity Merger Agreement) and ancillary agreements entered +into in connection with the Longevity Merger Agreement also automatically terminated in accordance with their respective terms. As a +result of the termination of the Longevity Merger Agreement, Holdco filed the Registration Withdrawal Request on Form RW on August 9, +2024, to withdraw its registration statement on Form S-4, as amended, initially filed with the SEC on March 29, 2023. +Merger +Agreement – Semnur +On +August 30, 2024, the Company entered into an agreement and plan of merger (the “Merger Agreement”) with Semnur Pharmaceuticals, +Inc. (“Semnur”), a Delaware corporation and wholly owned subsidiary of Scilex Holding Company (“Scilex”), and +Denali Merger Sub Inc., a Delaware corporation and wholly owned subsidiary of the Company (“Merger Sub”). The term “New +Semnur” is used to refer to the Company after completion of the transactions contemplated by the Merger Agreement. +Subject +to the terms and conditions set forth in the Merger Agreement, the total consideration to be paid at Closing by the Company to Semnur’s +equity holders will be an amount equal to the quotient of (a) $ 2,500,000,000 divided by (b) $ 10.00 , and will be payable in New Semnur +Common Shares. In accordance with the terms and subject to the conditions of the Merger Agreement, following the Company’s deregistering +as a Cayman Islands exempted company and continuing and domesticating as a corporation incorporated under the laws of the State of Delaware +(the “Domestication”) and at the effective time of the Merger (the “Effective Time”): (i) each share of common +stock of Semnur issued and outstanding immediately prior to the Effective Time will be automatically converted into the right to receive, +without interest, a number of shares of common stock of New Semnur (the “New Semnur Common Shares”) equal to the Exchange +Ratio (as defined in the Merger Agreement); (ii) each share of Series A preferred stock of Semnur issued and outstanding immediately +prior to the Effective Time will be automatically converted into the right to receive, without interest, (a) one share of Series A preferred +stock of New Semnur (the “New Semnur Preferred Share”) and (b) one-tenth of one New Semnur Common Share, and (iii) subject +to the Company’s receipt of the Option Exchange Approval (as defined in the Merger Agreement), each option to purchase a share +of Semnur common stock that is then outstanding shall be converted into the right to receive an option to purchase a number of New Semnur +Common Shares as determined by the Exchange Ratio upon substantially the same terms and conditions as are in effect with respect to such +option immediately prior to the Effective Time, with the exercise price thereof adjusted by the Exchange Ratio. For purposes of the Merger +Agreement, Semnur’s equity value is $ 2,500,000,000 . +Other +Agreements +The +Merger Agreement contemplates the execution of various additional agreements and instruments, on or before the closing of the Merger, +including, among others, the following: +F- 12 +Denali +Capital Acquisition Corp. +Notes +to Consolidated Financial Statements +Sponsor +Support Agreement +Concurrently +with the execution of the Merger Agreement, the Sponsor and each of the Company’s directors and executive officers entered into +a sponsor support agreement with the Company and Semnur (the “Sponsor Support Agreement”), pursuant to which the Sponsor +and each of Company’s directors and executive officers has agreed to, among other things: (i) vote in favor of the Parent Shareholder +Approval Matters (as defined in the Merger Agreement) and in favor of any proposal in respect of an Extension Amendment (as such terms +are defined in the Merger Agreement); (ii) vote against (or otherwise withhold written consent of, as applicable) any “Business +Combination” (as such term is defined in Denali’s organizational documents) or any proposal relating thereto (in each case, +other than as contemplated by the Merger Agreement); (iii) vote against (or otherwise withhold written consent of, as applicable) any +merger agreement or merger, consolidation, combination, sale of substantial assets, reorganization, recapitalization, dissolution, liquidation +or winding up of or by the Company (other than the Merger Agreement and the transactions contemplated thereby); (iv) vote against (or +otherwise withhold written consent of, as applicable) any change in the business, management or board of directors of the Company (other +than in connection with the Merger Agreement and the transactions contemplated thereby); and (v) vote against (or otherwise withhold +written consent of, as applicable) any proposal, action or agreement that would (a) impede, frustrate, prevent or nullify any provision +of the Sponsor Support Agreement or the Merger Agreement or any of the transactions contemplated thereby, (b) result in a breach in any +respect of any covenant, representation, warranty or any other obligation or agreement of Denali or Merger Sub under the Merger Agreement, +(c) result in any of the conditions set forth in Article VIII of the Merger Agreement not being fulfilled or (d) change in any manner +the dividend policy or capitalization of, including the voting rights of any class of capital stock of, the Company. Under the terms +of the Sponsor Support Agreement, the Sponsor also agreed to certain standstill provisions with respect to the ordinary shares and other +equity securities of the Company held by the Sponsor. +Stockholder +Support Agreement +Concurrently +with the execution of the Merger Agreement, the Company, Semnur and Scilex (as the sole stockholder of Semnur) entered into a company +stockholder support agreement (the “Stockholder Support Agreement”), pursuant to which Scilex agreed to, among other things: +(i) appear at any meeting of Semnur’s stockholders related to the transactions contemplated by the Merger Agreement, or otherwise +cause its shares of Semnur common stock to be counted as present thereat for the purpose of establishing a quorum; (ii) vote (or execute +and return an action by written consent), or cause to be voted at any such meeting of Semnur’s stockholders (or validly execute +and return and cause such consent to be granted with respect to), all of its shares of Semnur common stock in favor of the Merger Agreement +and the Business Combination; (iii) authorize and approve any amendment to Semnur’s certificate of incorporation or bylaws that +is deemed necessary or advisable by Semnur for purposes of effecting the Business Combination; and (iv) vote (or execute and return an +action by written consent), or cause to be voted at any such meeting of Semnur’s stockholders (or validly execute and return and +cause such consent to be granted with respect to), all of its shares of Semnur common stock against any other action that would reasonably +be expected to (a) impede, interfere with, frustrate, delay, postpone or adversely affect the Business Combination, (b) result in a breach +of any covenant, representation or warranty or other obligation or agreement of Semnur under the Merger Agreement or (c) result in a +breach of any covenant, representation or warranty or other obligation or agreement of Scilex contained in the Stockholder Support Agreement. +Sponsor +Interest Purchase Agreement +In +connection with the execution and delivery of the Merger Agreement, the Sponsor and Scilex entered into a Sponsor Interest Purchase Agreement +(the “SIPA”) dated August 30, 2024 (the “Signing Date”). Pursuant to the SIPA, Scilex agreed to purchase 500,000 +Class B ordinary shares, par value $ 0.0001 per share (the “Purchased Interests”), of the Company that are currently held +by the Sponsor. The aggregate consideration for the purchase and sale of the Purchased Interests is as follows: (i) $ 2,000,000 (the “Cash +Consideration”) and (ii) 300,000 shares of common stock, par value $ 0.0001 per share, of Scilex (the “Scilex Shares”). +Pursuant to the SIPA, Scilex has paid the Cash Consideration on the Signing Date and has agreed to issue the Scilex Shares to the Sponsor +contingent upon and following the occurrence of the Effective Time. The Purchased Interests will convert automatically, on a one-for-one +basis, into one New Semnur Common Share at the effective time of the Domestication pursuant to the terms of the Merger Agreement. +Amended +and Restated Registration Rights Agreement +The +Merger Agreement contemplates that, at or prior to the closing of the Merger, the Company and Scilex will enter into an amended and restated +registration rights agreement (the “Registration Rights Agreement”), which, among other things, will govern the registration +of certain New Semnur Common Shares for resale and be effective as of the closing of the Merger. +F- 13 +Denali +Capital Acquisition Corp. +Notes +to Consolidated Financial Statements +Stockholder +Agreement +Concurrently +with the execution of the Merger Agreement, the Company entered into a Stockholder Agreement with Scilex (the “Stockholder Agreement”). +Pursuant to the Stockholder Agreement, from and after the Effective Time, and for so long as Scilex beneficially owns any New Semnur +Preferred Shares, among other things, (i) Scilex shall have the right, but not the obligation, to designate each director to be nominated, +elected or appointed to the Board of Directors of New Semnur (“New Semnur Board”) (each, a “Stockholder Designee” +and collectively, the “Stockholder Designees”), regardless of (i) whether such Stockholder Designee is to be elected to the +New Semnur Board at a meeting of stockholders called for the purpose of electing directors (or by consent in lieu of meeting) or appointed +by the New Semnur Board in order to fill any vacancy created by the departure of any director or increase in the authorized number of +members of the New Semnur Board, or (ii) the size of the New Semnur Board, and New Semnur will be required to take all actions reasonably +necessary, and not otherwise prohibited by applicable law, to cause each Stockholder Designee to be so nominated, elected or appointed +to the New Semnur Board as more fully described in the Stockholder Agreement. Scilex shall also have the right to designate a replacement +director for any Stockholder Designee that has been removed from the New Semnur Board and the right to appoint a representative of Scilex +to attend all meetings of the committees of the New Semnur Board. The Stockholder Agreement also provides that New Semnur will be prohibited +from taking certain actions without the consent of Scilex. Such actions include, among other things, amendments to the certificate of +designations designating the New Semnur Preferred Shares, increases or decreases in the size of the New Semnur Board, the incurrence +of certain amounts of indebtedness and the payment of dividends on New Semnur Common Shares. In addition, the Stockholder Agreement provides +that New Semnur will be prohibited from taking certain actions without the consent of Oramed (but only until the date on which all payments +under the Oramed Note and all other obligations under the Oramed Note have been paid in full in cash (such date, the “Release Date”)). +The actions that require Oramed’s consent include, among other things, (i) amending certain agreements, including the Stockholder +Agreement, the Merger Agreement, New Semnur’s certificate of incorporation or bylaws, Semnur’s 2024 Stock Option Plan, the +Stockholder Support Agreement and the Debt Exchange Agreement, in each case that adversely affect the rights of capital stock held by +Scilex in New Semnur (ii) approval of the issuance of capital stock of New Semnur that would result in Scilex holding less than 55 % of +the outstanding shares or voting power of New Semnur, (iii) forming any subsidiary that is not wholly owned and controlled by New Semnur, +(iv) permitting any option grants to Scilex Insiders (as defined therein) pursuant to Semnur’s 2024 Stock Option Plan prior to +the execution of the Merger Agreement to be exercisable and (v) permitting certain compensation payments to Scilex Insiders (as defined +therein). +Liquidity, +Capital Resources and Going Concern Consideration +The +Company’s liquidity needs prior to the consummation of the IPO had been satisfied through a payment from the Sponsor of $ 25,000 (see +Note 5) for the founder shares and the loan under an unsecured promissory note (the “Promissory Note”) from the Sponsor of +up to $ 400,000 (see Note 5) which was fully repaid on April 12, 2022. Subsequent to the consummation of the IPO and sale of the +Private Placement Units on April 11, 2022, a total of $ 84,150,000 was placed in the Trust Account, and the Company had +$ 1,515,795 of cash held outside of the Trust Account, after payment of costs related to the IPO, and available for working capital +purposes. In connection with the IPO, the Company incurred $ 5,105,315 in transaction costs, consisting of $ 1,650,000 of underwriting +fees, $ 2,887,500 of deferred underwriting fees and $ 567,815 of other offering costs. +As +of December 31, 2024, all of the assets of $ 9,021,005 held in the Trust Account have been held solely in cash in an interest-bearing +demand deposit account at a bank. The Company intends to use substantially all of the funds held in the Trust Account, including any +amounts representing interest earned on the Trust Account (less income taxes payable), to complete the Business Combination. To the extent +that the Company’s share capital or debt is used, in whole or in part, as consideration to complete a Business Combination, the +remaining proceeds held in the Trust Account will be used as working capital to finance the operations of the target business or businesses, +make other acquisitions and pursue the Company’s growth strategies. +As +of December 31, 2024, the Company had cash of $ 16,868 outside of the Trust Account. If the Company does not complete the business +combination, it intends to use the funds held outside the Trust Account primarily to identify and evaluate target businesses, perform +business due diligence on prospective target businesses, travel to and from the offices, plants or similar locations of prospective target +businesses or their representatives or owners, review corporate documents and material agreements of prospective target businesses, and +structure, negotiate and complete a Business Combination. +F- 14 +Denali +Capital Acquisition Corp. +Notes +to Consolidated Financial Statements +As of December 31, 2024, the Company had a working +deficit of $ 7,530,216 . In order to fund working capital deficiencies or finance transaction costs in connection with a Business Combination, +the Sponsor or an affiliate of the Sponsor or certain of the Company’s officers and directors may, but are not obligated to, +loan the Company funds as may be required (the “Working Capital Loans”). If the Company completes the initial Business Combination, +it will repay such loaned amounts without interest, or, at the lender’s discretion, up to $ 1.5 million of such Working +Capital Loans may be convertible into units of the post Business Combination entity at a price of $ 10.00 per unit. The units would +be identical to the Private Placement Units. In the event that the initial Business Combination does not close, the Company may use a +portion of the working capital held outside of the Trust Account to repay such loaned amounts, but no proceeds from the Trust Account +would be used for such repayment. On April 11, 2023, the Company issued the Convertible Promissory Note (“Convertible Promissory +Note 1”) in the total principal amount of up to $ 825,000 to the Sponsor. The Convertible Promissory Note 1 bears an interest +accruing on the unpaid and outstanding total principal amount at the lowest short-term Applicable Federal Rate as in effect on the date +thereof and is payable in arrears on the earlier of (i) the closing of Denali’s initial business combination and (ii) the date of +the liquidation of the Company (the “Maturity Date”). Interest will be calculated on the basis of a 365-day year and the actual +number of days elapsed, to the extent permitted by applicable law. The Convertible Promissory Note 1 was issued with an initial principal +balance of $ 412,500 (the “Initial Principal Amount”). The Sponsor has further lent loans in the aggregate amount of $ 430,000 on +July 18, 2023, October 12, 2023 and December 29, 2023. The Sponsor further lent an aggregate of $ 565,700 to the Company for the Convertible +Promissory Note 1 during the year ended December 31, 2024. On April 2, 2024 the Company and Sponsor agreed that, in addition to the Initial +Principal Amount, the Company may request an additional aggregate amount of up to $ 186,800 , which may be drawn down in one or more tranches +at any time prior to the Maturity Date raising the total limit up to $ 1,200,000 . On January 24, 2025, the Company and Sponsor agreed that, +in addition to the Initial Principal Amount, the Company may request an additional aggregate amount of up to $ 591,800 , which may be drawn +down in one or more tranches at any time prior to the Maturity Date, raising the total limit up to $ 2,000,000 . +On +July 10, 2024, the Company issued Convertible Promissory Note 2 in the total principal amount of up to $ 180,000 to Sponsor. The Convertible +Promissory Note 2 was issued with an initial principal balance of $ 15,037 , with the remaining $ 164,963 drawable at the Company’s +request and upon the consent of the Sponsor prior to the maturity of the Convertible Promissory Note 2. +As of December 31, 2024, there was an amount of +$ 1,408,200 and $ 15,037 outstanding under Working Capital Loans in the form of the Convertible Promissory Note 1 and 2, respectively, +issued to the Sponsor. +As of December 31, 2024, the outstanding amount under the Working Capital +Loans in the form of the Convertible Promissory Note 1 issued to the Sponsor had exceeded the limit of $ 1,200,000 , reaching $ 1,408,200 , +resulting in an overdrawn position. To remediate this overdrawn balance, on January 24, 2025, the Company issued a third amended and restated +promissory note (the “Third Restated Note”) to amend and restate Convertible Promissory Note 1, increasing the total principal +amount to $ 2,000,000 . +On +July 11, 2023, the Company issued a convertible note (“FutureTech Convertible Promissory Note”) in the total principal amount +of $ 825,000 to FutureTech Capital LLC (“FutureTech”) and 100 % of such amount has been utilized to fund the required +payment in order to extend the period of time to consummate a business combination. On October 11, 2023, the Company issued another convertible +promissory note in the total principal amount of up to $ 450,000 to FutureTech. The Convertible Promissory Note was issued with an +initial principal balance of $ 50,000 , with the remaining $ 400,000 drawable at the Company’s request and upon the consent of +FutureTech prior to the maturity of the Convertible Promissory Note. Consequently, $ 400,000 of such amount has been utilized to +fund the required payment in order to extend the period of time to consummate a business combination from October 11, 2023 to July 11, +2024. As of December 31, 2024, there was an amount of $ 1,275,000 outstanding in the form of the Convertible Promissory Note issued +to FutureTech. Further, the amount of $ 58,586 with interest at 4.80 % on amount borrowed from Futuretech for the Extension was +recognized as accrued interest expense – others as of December 31, 2024. +On August 9, 2024, the Company issued a convertible promissory note +in the total principal amount of up to $ 180,000 to Scilex (the “Extension Scilex Convertible Promissory Note”). The Extension +Scilex Convertible Promissory Note was issued with an initial principal balance of $ 15,064 , with the remaining $ 164,936 drawable at the +Company’s request and upon the consent of Scilex prior to the maturity of the Extension Scilex Convertible Promissory Note. The +Extension Scilex Convertible Promissory Note matures upon the earlier of (i) the effective date of the consummation of the Company’s +initial business combination and (ii) the date of the liquidation of the Company. +As +of December 31, 2024, Scilex deposited aggregated total of $ 75,292 drawn down from the Extension Scilex Convertible Promissory Note to +the Trust Account to extend the time the Company has to consummate an initial business combination to January 11, 2025. +F- 15 +Denali +Capital Acquisition Corp. +Notes +to Consolidated Financial Statements +On January 6, 2025, February 11, 2025 and March 11, 2025, Scilex had +deposited an aggregate of $ 45,191 drawn down from the Extension Scilex Convertible Promissory Note to the Trust Account to extend the +time the Company has to consummate an initial business combination from January 11, 2025 to April 11, 2025. +Based +on the foregoing, management believes that the Company will not have sufficient working capital and borrowing capacity to meet its needs +through the consummation of the initial Business Combination. If the Company is unable to raise additional capital, it may be required +to take additional measures to conserve liquidity, which could include, but not necessarily be limited to, curtailing operations, suspending +the pursuit of a potential transaction, and reducing overhead expenses. The Company cannot provide any assurance that new financing will +be available to it on commercially acceptable terms, if at all. +In +accordance with ASC Subtopic 205-40, “Presentation of Financial Statements – Going Concern”, the Company has evaluated +that there are certain conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability +to continue as a going concern through April 11, 2025 (as extended pursuant to amended and restated memorandum and articles of association +of the Company dated July 10, 2024), the date that the Company will be required to cease all operations, except for the purpose +of winding up, if a Business Combination is not consummated. These consolidated financial statements do not include any adjustments relating +to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable +to continue as a going concern. +Risks +and Uncertainties +In +February 2022, the Russian Federation and Belarus commenced a military action with the country of Ukraine. As a result of this action, +various nations, including the United States, have instituted economic sanctions against the Russian Federation and Belarus. Further, +the impact of this action, related sanctions on the world economy and the ongoing hostilities in the Middle East are not determinable +as of the date of these consolidated financial statements. The specific impact on the Company’s financial condition, results of +operations, and cash flow is also not determinable as of the date of these consolidated financial statements. +On +February 22, 2024, the Company received a letter (the “Letter”) from the staff at Nasdaq notifying the Company that, for +the 30 consecutive business days prior to the date of the Letter, the Company’s Minimum Value of Listed Securities (“MVLS”) +was below the minimum of $ 50 million required for continued listing on The Nasdaq Global Market pursuant to Nasdaq Listing Rule +5450(b)(2)(A). The staff at Nasdaq also noted in the Letter that the Company is not in compliance with Nasdaq Listing Rule 5450(b)(3)(A), +which requires listed companies to have total assets and total revenue of at least $ 50,000,000 each for the most recently completed +fiscal year or for two of the three most recently completed fiscal years. The Letter is only a notification of deficiency, not of imminent +delisting, and has no current effect on the listing or trading of the Company’s securities on Nasdaq. In accordance with Nasdaq +Listing Rule 5810(c)(3)(C), the Company has 180 calendar days, or until August 20, 2024, to regain compliance. The Letter notes that +to regain compliance, the Company’s MVLS must close at or above $ 50 million for a minimum of ten consecutive business days +during the compliance period. The Letter further notes that if the Company is unable to satisfy the MVLS requirement prior to such date, +the Company may be eligible to transfer the listing of its securities to The Nasdaq Capital Market (provided that the Company then satisfies +the requirements for continued listing on that market). If the Company does not regain compliance by August 20, 2024, Nasdaq staff will +provide written notice to the Company that its securities are subject to delisting. At that time, the Company may appeal any such delisting +determination to a hearings panel. The Company intends to actively monitor the Company’s MVLS between now and August 20, 2024, +and may, if appropriate, evaluate available options to resolve the deficiency and regain compliance with the MVLS requirement. While +the Company is exercising diligent efforts to maintain the listing of its securities on Nasdaq, there can be no assurance that the Company +will be able to regain or maintain compliance with Nasdaq listing standards. +On +July 26, 2024, Denali, received a letter from the staff at Nasdaq informing Denali that it had regained compliance with Nasdaq Listing +Rule 5450(b)(2)(A) and that Nasdaq is in compliance with the Nasdaq Global Market’s requirements. The Denali Units continue to +trade on Nasdaq under the symbol “DECAU”, the Class A Ordinary Shares continue to trade on Nasdaq under the symbol “DECA” +and Denali public warrants continue to trade on Nasdaq under the symbol “DECAW.” +F- 16 +Denali +Capital Acquisition Corp. +Notes +to Consolidated Financial Statements +On +October 2, 2024, the Company received a written notice (the “Notice”) from the staff at Nasdaq notifying the Company that +the Company is not in compliance with Nasdaq Listing Rule 5450(b)(2)(A) (the “MVLS Rule”), which requires the Company to +maintain a MVLS of $ 50.0 million, and Nasdaq Listing Rule 5450(b)(3)(A) (the “Total Assets Rule” and, together with the MVLS +Rule, the “Listing Rules”), which requires the Company to maintain total assets and total revenue of at least $ 50.0 million +each for the most recently completed fiscal year or two of the three most recently completed fiscal years, for continued listing on the +Nasdaq Global Market. The Notice is only a notification of deficiency, not of imminent delisting, and has no current effect on the listing +or trading of the Company’s securities on the Nasdaq Global Market. +The +Notice states that the Company has 180 calendar days, or until March 31, 2025, to regain compliance with the Listing Rules. To regain +compliance, the Company’s MVLS must meet or exceed $ 50.0 million for a minimum of ten consecutive business days during the 180-day +compliance period ending on March 31, 2025. In the event the Company does not regain compliance with the Listing Rules prior to the expiration +of the compliance period, it will receive written notification that its securities are subject to delisting. At that time, the Company +will have the opportunity to appeal the decision to a Nasdaq Hearing Panel. The Company intends to monitor its MVLS and consider its +available options to regain compliance with the Listing Rules. +NOTE +2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES +Basis +of Presentation +The +accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the +United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the SEC . +Principles +of Consolidation +The +accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. Any intercompany +transactions and balances have been eliminated in consolidation. +Emerging +Growth Company Status +The +Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our +Business Startups Act of 2012, (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements +that are applicable to other public companies that are not emerging growth companies, including, but not limited to, not being required +to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations +regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding +advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. +Further, +Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting +standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do +not have a class of securities registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) are +required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out +of the extended transition period and comply with the requirements that apply to non-emerging growth companies, but any such election +to opt out is irrevocable. The Company has elected not to opt out of such extended transition period, which means that when a standard +is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, +can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the +Company’s consolidated financial statements with another public company which is neither an emerging growth company nor an emerging +growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences +in accounting standards used. +F- 17 +Denali +Capital Acquisition Corp. +Notes +to Consolidated Financial Statements +Use +of Estimates +The +preparation of the consolidated financial statements in conformity with U.S. GAAP requires the Company’s management to make +estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities +at the date of the consolidated financial statements and the reported amounts of income and expenses during the reporting period. Accordingly, +the actual results could differ significantly from those estimates. +Cash +and Cash Equivalents +The +Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. +The Company did not have any cash equivalents on December 31, 2024 and 2023. +Cash +and Investment Held in Trust Account +Prior +to June 4, 2024, substantially all of the assets held in the Trust Account were invested in United States “government securities” +within the meaning of Section 2(a)(16) of the Investment Company Act having a maturity of 185 days or less or in money market funds meeting +certain conditions under Rule 2a-7 promulgated under the Investment Company Act which invest only in direct U.S. government treasury +obligations. Gains and losses resulting from the change in fair value of these securities are included in income on Trust Account +in the accompanying condensed consolidated statements of operations. The estimated fair values of investment held in the Trust Account +are determined using available market information. +Since +June 4, 2024, all of the assets held in the Trust Account have been held solely in cash in an interest-bearing demand deposit account +at a bank. Interest on bank deposit accounts is variable and such accounts currently yield interest of approximately 3.5 % per annum. +Fair +Value of Financial Instruments +The +fair value of the Company’s assets and liabilities, which qualify as financial instruments under the FASB ASC 825, “Financial +Instruments,” approximates the carrying amounts represented in the consolidated balance sheet, primarily due to its short-term +nature. +Warrants +The +Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s +specific terms and applicable authoritative guidance in FASB ASC 480 and FASB ASC 815, “Derivatives and Hedging” (“ASC +815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition +of a liability pursuant to ASC 480, and meet all of the requirements for equity classification under FASB ASC 815, including whether +the warrants are indexed to the Company’s own ordinary shares and whether the warrant holders could potentially require “net +cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This +assessment is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding. +For +issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component +of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all of the criteria for equity +classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet +date thereafter. The Company accounts for the 8,250,000 Public Warrants (as defined in Note 3) and 510,000 Private +Placement Warrants (as defined in Note 4) as equity-classified instruments. +F- 18 +Denali +Capital Acquisition Corp. +Notes +to Consolidated Financial Statements +Convertible +Debt +The +Company issues debt that may have conversion features. +Convertible +debt – derivative treatment – When the Company issues debt with a conversion feature, the Company must first assess +whether the embedded equity-linked component is clearly and closely related to its host instruments. If a component is clearly and closely +related to its host instruments, then the Company has to assess whether the conversion feature meets the requirements to be treated as +a derivative, as follows: a) one or more underlying, typically the price of our common stock; b) one or more notional amounts or payment +provisions or both, generally the number of shares upon conversion; c) no initial net investment, which typically excludes the amount +borrowed; and d) net settlement provisions, which in the case of convertible debt generally means the stock received upon conversion +can be readily sold for cash. An embedded equity-linked component that meets the definition of a derivative does not have to be separated +from the host instrument if the component qualifies for the scope exception for certain contracts involving an issuer’s own equity. +The scope exception applies if the contract is both a) indexed to its own stock; and b) classified in shareholders’ equity in its +statement of financial position. +If +the conversion feature within convertible debt meets the requirements to be treated as a derivative, the Company estimates the fair value +of the embedded derivative using the Black Scholes method upon the date of issuance. If the fair value of the embedded derivative is +higher than the face value of the convertible debt, the excess is immediately recognized as interest expense. The derivative shall be +recorded at fair value as liability and the carrying value assigned to the host contract represents the difference between the previous +carrying amount of the hybrid instrument and the fair value of the derivative; therefore, there is no gain or loss from the initial recognition +and measurement of an embedded derivative that is accounted for separately from its host contract. +The +ASU changes the accounting for convertible instruments by reducing the number of accounting models. It requires convertible debt instruments +to be accounted for under one of the following three models: embedded derivative, substantial premium, or no proceeds allocated (traditional +debt) models. It eliminates the cash conversion and beneficial conversion feature models, which will likely result in more convertible +debt instruments being accounted for as a single unit. +The +conversion feature in convertible promissory notes issued by the Company in for the year ended December 31, 2024 and 2023 does not qualify +for either the derivative treatment. These convertible promissory notes are presented as traditional debt as of December 31, 2024 and +2023, in the consolidated balance sheets. +Class +A Ordinary Shares Subject to Possible Redemption +The +Company accounts for its Class A ordinary shares subject to possible redemption in accordance with ASC 480. Class A ordinary shares subject +to mandatory redemption (if any) are classified as a liability instrument and measured at fair value. Conditionally redeemable ordinary +shares (including shares that feature redemption rights that are either within the control of the holder or subject to redemption upon +the occurrence of uncertain events not solely within the Company’s control) are classified as temporary equity. At all other +times, ordinary shares are classified as shareholders’ equity. The Company’s ordinary shares feature certain redemption rights +that are considered to be outside of the Company’s control and are subject to the occurrence of uncertain future events. Accordingly, +as of December 31, 2024, and 2023, 751,837 and 4,537,829 Class A ordinary shares subject to possible redemption are presented +at redemption value as temporary equity, respectively, outside of the shareholders’ deficit section of the Company’s consolidated +balance sheets. +On August 16, 2022, the Inflation Reduction Act +of 2022 (the “IR Act”) was signed into U.S. federal law. Among other provisions, the IR Act imposes a new 1 % U.S. federal +excise tax on certain repurchases of stock by publicly traded U.S. domestic corporations and certain U.S. domestic subsidiaries of publicly +traded foreign corporations, effective for transactions occurring on or after January 1, 2023. Since the Company is incorporated in the +Cayman Islands and is neither a U.S. domestic corporation nor a U.S. domestic subsidiary of a publicly traded foreign corporation, it +is exempt from the 1 % U.S. federal excise tax on stock repurchases. +The +Company recognizes changes in redemption value immediately as they occur and adjusts the carrying value of redeemable ordinary shares +to equal the redemption value at the end of each reporting period. Increases or decreases in the carrying amount of redeemable ordinary +shares are affected by charges against additional paid-in capital or accumulated deficit if additional paid-in capital equals to zero. +F- 19 +Denali +Capital Acquisition Corp. +Notes +to Consolidated Financial Statements +As +of December 31, 2024 and 2023, the ordinary shares reflected in the consolidated balance sheets are reconciled in the following table: +Shares +Amount +Ordinary shares subject to possible redemption – December 31, 2022 +8,250,000 +85,371,600 +Redemption of shares ($ 10.92 per share) +( 3,712,171 ) +( 40,536,908 ) +Subsequent measurement of Class A ordinary shares subject to possible redemption (income earned on Trust Account) +- +3,843,271 +Subsequent measurement of Class A ordinary shares subject to possible redemption (extension deposit) +- +1,800,000 +Ordinary shares subject to possible redemption – December 31, 2023 +4,537,829 +$ 50,477,963 +Redemption of shares ($ 11.47 per share) +( 3,785,992 ) +( 43,425,328 ) +Subsequent measurement of Class A ordinary shares subject to possible redemption (income earned on Trust Account) +- +1,578,042 +Subsequent measurement of Class A ordinary shares subject to possible redemption (extension deposit) +- +390,328 +Ordinary shares subject to possible redemption – December 31, 2024 +751,837 +9,021,005 +Concentration +of Credit Risk +Financial +instruments that potentially subject the Company to concentrations of credit risk consist of a cash account in a financial institution, +which, at times, may exceed the Federal Depository Insurance Coverage of $ 250,000 . The Company has not experienced losses on this account. +Net +Income Per Ordinary Share +The +Company complies with the accounting and disclosure requirements of FASB ASC 260, “Earnings Per Share.” Net loss per redeemable +and non-redeemable ordinary share is computed by dividing net loss by the weighted average number of ordinary shares outstanding between +the redeemable and non-redeemable shares during the period, excluding ordinary shares subject to forfeiture. Weighted average shares +were reduced for the effect of an aggregate of 93,750 founder shares that were forfeited during the three months ended June +30, 2022, due to the underwriters’ partial exercise of their over-allotment option. In order to determine the net income attributable +to both the redeemable shares and non-redeemable shares, the Company first considered the undistributed income allocable to both the +redeemable shares and non-redeemable shares and the undistributed income is calculated using the total net loss less dividends paid. +The Company then allocated the undistributed income based on the weighted average number of shares outstanding between the redeemable +and non-redeemable shares. +Subsequent +measurement adjustments recorded pursuant to ASC 480-10-S99-3A related to redeemable shares are treated in the same manner as dividends +on redeemable shares. Class A ordinary shares are redeemable at a price determined by the Trust Account held by the Company. This redemption +price is not considered a redemption at fair value. Accordingly, the adjustments to the carrying amount are reflected in the Earnings +Per Share (“EPS”) using the two-class method. The Company has elected to apply the two-class method by treating the entire +periodic adjustment to the carrying amount of the Class A ordinary shares subject to possible redemption like a dividend. +Based +on the above, any remeasurement of the redemption value of the Class A ordinary shares subject to possible redemption is considered to +be dividends paid to the Public Shareholders. Warrants issued are contingently exercisable (i.e., on the later of 30 days after the completion +of the initial Business Combination or 12 months from the closing of the IPO). Further, Convertible Promissory Notes are also contingently +exercisable upon the consummation of the initial Business Combination. For EPS purpose, the warrants and notes are anti-dilutive since +they would generally not be reflected in basic or diluted EPS until the contingency is resolved. For the years ended December 31, 2024 +and 2023, the Company did not have any other dilutive securities and other contracts that could, potentially, be exercised or converted +into ordinary shares and then share in the earnings of the Company. As a result, diluted income per ordinary share is the same as basic +earnings per ordinary share for the periods presented. +F- 20 +Denali +Capital Acquisition Corp. +Notes +to Consolidated Financial Statements +The +net income per share presented in the consolidated statements of operations is based on the following: +For the year ended +December 31, +2024 +For the year ended +December 31, +2023 +Net (loss)/income +$ ( 167,306 ) +$ 632,536 +Accretion of temporary equity to redemption value +( 1,968,370 ) +( 5,643,271 ) +Net loss including accretion of temporary equity +$ ( 2,135,676 ) +$ ( 5,010,735 ) +For the +Year Ended +For the +Year Ended +December 31, 2024 +December 31, 2023 +Non- +Non- +Redeemable +Redeemable +Redeemable +Redeemable +Common +Common +Common +Common +Stock +Stock +Stock +Stock +Basic and diluted net income (loss) per share: +Numerators: +Allocation of net loss including accretion of temporary equity +$ ( 1,098,113 ) +$ ( 1,037,563 ) +$ ( 3,720,244 ) +$ ( 1,290,491 ) +Accretion of temporary equity to redemption value +1,968,370 +- +5,643,271 +- +Allocation of net income/(loss) +$ 870,257 +$ ( 1,037,563 ) +$ 1,923,027 +$ ( 1,290,491 ) +Denominators: +Weighted-average shares outstanding +2,722,627 +2,572,500 +7,416,033 +2,572,500 +Basic and diluted net income/ (loss) per share +$ 0.32 +$ ( 0.40 ) +$ 0.26 +$ ( 0.50 ) +Income +Taxes +The +Company accounts for income taxes under FASB ASC 740, “Income Taxes” (“ASC 740”). ASC 740 requires the recognition +of deferred tax assets and liabilities for both the expected impact of differences between the financial statements and tax basis of +assets and liabilities and for the expected future tax benefit to be derived from tax loss and tax credit carry forwards. ASC 740 additionally +requires a valuation allowance to be established when it is more likely than not that all or a portion of deferred tax assets will not +be realized. +ASC +740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes +a recognition threshold and measurement process for financial statements recognition and measurement of a tax position taken or expected +to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination +by taxing authorities. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim +period, disclosure and transition. +The +Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. There were no unrecognized +tax benefits and no amounts accrued for interest and penalties as of December 31, 2024 and 2023. The Company is currently not aware of +any issues under review that could result in significant payments, accruals or material deviation from its position. +The +Company determined that the Cayman Islands is the Company’s only major tax jurisdiction and the location of all members of management, +sponsors, directors, any employees, or assets to the extent employed is the United States. +The +Company may be subject to potential examination by federal and state taxing authorities in the areas of income taxes. These potential +examinations may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions and compliance +with federal and state tax laws. The Company’s management does not expect that the total amount of unrecognized tax benefits will +materially change over the next 12 months. +F- 21 +Denali +Capital Acquisition Corp. +Notes +to Consolidated Financial Statements +There +is currently no taxation imposed on income by the Government of the Cayman Islands for the year ended December 31, 2024 and 2023. +Recent +Accounting Pronouncements +On +December 14, 2023, the FASB issued a final standard on improvements to income tax disclosures. The standard requires disaggregated information +about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. The standard is intended +to benefit investors by providing more detailed income tax disclosures that would be useful in making capital allocation decisions. ASU +2023-09, Improvements to Income Tax Disclosures, applies to all entities subject to income taxes. For public business entities (PBEs), +the new requirements will be effective for annual periods beginning after December 15, 2024. For entities other than public business +entities (non-PBEs), the requirements will be effective for annual periods beginning after December 15, 2025. The guidance will be applied +on a prospective basis with the option to apply the standard retrospectively. Early adoption is permitted. The Company is currently assessing +the impact, if any, that ASU 2023-09 would have on its financial position, results of operations or cash flows. +Management +does not believe that any other recently issued, but not effective, accounting standards, if currently adopted, would have a material +effect on the Company’s consolidated financial statements. +NOTE +3 – INITIAL PUBLIC OFFERING +On +April 11, 2022, the Company consummated the IPO of 8,250,000 Public Units, inclusive of 750,000 Public Units issued +pursuant to the underwriters’ partial exercise of their over-allotment option. The Public Units were sold at a purchase price of +$ 10.00 per Public Unit, generating gross proceeds of $ 82,500,000 . Each Public Unit consists of one Public Share and one Public Warrant. +Each Public Warrant entitles the holder thereof to purchase one Public Share at a price of $ 11.50 per share. +The +warrants will become exercisable on the later of 30 days after the completion of the Company’s initial Business Combination +or 12 months from the closing of the IPO and will expire five years after the completion of the Company’s initial Business +Combination or earlier upon redemption or liquidation (see Note 7). +NOTE +4 – PRIVATE PLACEMENT +Simultaneously +with the closing of the IPO, the Company consummated a private placement and the Sponsor purchased an aggregate of 510,000 Private +Placement Units (including 30,000 Private Placement Units pursuant to the underwriters’ partial exercise of the over-allotment +option) at a price of $ 10.00 per Private Placement Unit, generating gross proceeds to the Company of $ 5,100,000 . Each +whole Private Placement Unit consists of one Class A ordinary share (“Private Placement Shares”) and one warrant +(“Private Placement Warrants”). Each Private Placement Warrant entitles the holder to purchase one Class A ordinary +share at a price of $ 11.50 per share, subject to adjustment. Certain of the proceeds from the sale of the Private Placement Units +were added to the net proceeds from the IPO held in the Trust Account. +F- 22 +Denali +Capital Acquisition Corp. +Notes +to Consolidated Financial Statements +If +the Company does not complete a Business Combination by April 11, 2025 (or as may be extended by a shareholder vote to further extend +the time to consummate a business combination, as applicable)(refer to Note 1), the proceeds from the sale of the Private Placement Units +held in the Trust Account will be used to fund the redemption of the Company’s Class A ordinary shares (subject to the requirements +of applicable law) and the Private Placement Units and all underlying securities will expire worthless. The Private Placement Units will +not be transferable, assignable, or saleable until 30 days after the completion of an initial Business Combination, subject to certain +exceptions. +NOTE +5 – RELATED PARTY TRANSACTIONS +Founder +Shares +On +February 3, 2022, the Company issued an aggregate of 2,156,250 founder shares to the Sponsor in exchange for a +payment of $ 25,000 from the Sponsor for deferred offering costs. In March 2022, the Sponsor transferred 20,000 founder +shares to the Chief Financial Officer of the Company and 110,000 founder shares to certain members of the Company’s board +of directors. On May 23, 2022, 93,750 founder shares were forfeited by the Sponsor as the underwriters did not exercise their over-allotment +option on the remaining 375,000 Public Units (see Note 6), resulting in the Sponsor holding a balance of 1,932,500 founder +shares. +The +founder shares are identical to the Class A ordinary shares included in the units sold in the IPO, except that the founder shares will +automatically convert into Class A ordinary shares at the time of the Company’s initial Business Combination (see Note 7). Also, +the Sponsor and each member of the Company’s management team have entered into an agreement with the Company, pursuant +to which they have agreed to waive their redemption rights with respect to any founder shares and Public Shares held by them. +The +Sponsor and the Company’s directors and executive officers have agreed not to transfer, assign or sell any of their founder shares +until the earlier of (A) one year after the completion of an initial Business Combination and (B) subsequent to the Company’s +initial Business Combination, (x) if the closing price of Class A ordinary shares equals or exceeds $ 12.00 per share (as adjusted +for share subdivisions, share capitalizations, reorganizations, recapitalizations and the like) for any 20 trading days within any 30 -trading +day period commencing at least 150 days after an initial Business Combination, or (y) the date on which the Company completes a liquidation, +merger, share exchange or other similar transaction that results in all Public Shareholders having the right to exchange their Public +Shares for cash, securities or other property. Any permitted transferees would be subject to the same restrictions and other agreements +of the Sponsor and the Company’s directors and executive officers with respect to any founder shares. +The +sale of the founder shares to the Company’s Chief Financial Officer and to certain members of the Company’s board of directors +is in the scope of FASB ASC Topic 718, “Compensation-Stock Compensation” (“ASC 718”). Under ASC 718, stock-based +compensation associated with equity-classified awards is measured at fair value upon the grant date. The fair value of the 130,000 shares +granted to the Company’s directors and executive officers was $ 1,005,964 or $ 7.74 per share. The founder shares were +granted subject to a performance condition (i.e., the occurrence of a Business Combination). Compensation expense related to the founder +shares is recognized only when the performance condition is of probable occurrence under the applicable accounting literature in this +circumstance. As of December 31, 2024, the Company determined that a Business Combination is not considered probable until it occurs +and, therefore, no stock-based compensation expense has been recognized. Stock-based compensation would be recognized at the date +a Business Combination is considered probable (i.e., upon consummation of a Business Combination) in an amount equal to the number of +founder shares times the fair value per share at the grant date (unless subsequently modified) less the amount initially received for +the purchase of the founder shares. +In +connection with the execution and delivery of the Merger Agreement, the Sponsor and Scilex entered into a Sponsor Interest Purchase Agreement +(the “SIPA”) dated August 30, 2024 (the “Signing Date”). Pursuant to the SIPA, Scilex agreed to purchase 500,000 +Class B ordinary shares, par value $ 0.0001 per share (the “Purchased Interests”), of the Company that are currently held +by the Sponsor. The aggregate consideration for the purchase and sale of the Purchased Interests is as follows: (i) $ 2,000,000 (the “Cash +Consideration”) and (ii) 300,000 shares of common stock, par value $ 0.0001 per share, of Scilex (the “Scilex Shares”). +Pursuant to the SIPA, Scilex has paid the Cash Consideration on the Signing Date and has agreed to issue the Scilex Shares to the Sponsor +contingent upon and following the occurrence of the Effective Time. The Purchased Interests will convert automatically, on a one-for-one +basis, into one New Semnur Common Share at the effective time of the Domestication pursuant to the terms of the Merger Agreement. +F- 23 +Denali +Capital Acquisition Corp. +Notes +to Consolidated Financial Statements +On +August 30, 2024, Scilex paid the Cash Consideration under the SIPA, and on September 3, 2024, the Sponsor transferred 500,000 Class B +Ordinary Shares to Scilex. The Company accounted for the SIPA in accordance with Staff Accounting Bulletin Topic 5T (“SAB Topic +5T”). The Company determined the SIPA represents a transfer of economic value that benefit to the Company as the SIPA is executed +on the closing of the Merger that was contemplates by the Merger Agreement. According to SAB Topic 5T, if the Sponsor is settling an +obligation or expense on behalf of the Company through a transfer of shares or other consideration, the fair value of the shares transferred +less the consideration received would be recognized as an expense by the Company. +The +Company estimated the fair value of the Company’s 500,000 Class B ordinary shares on September 3, 2024 transferred to Scilex by +the Sponsor, which was less than the $ 2,000,000 Cash Consideration plus the fair value of 300,000 Scilex Shares. The Company determined +that the 500,000 Class B ordinary shares were sold at premium and no expense should be recorded. +Working +Capital Loans +In +order to finance transaction costs in connection with a Business Combination, the Sponsor or an affiliate of the Sponsor, or certain +of the Company’s officers and directors, may, but are not obligated to, provide the Company Working Capital Loans. If the Company +completes a Business Combination, it would repay the Working Capital Loans out of the proceeds of the Trust Account released to +the Company. In the event that a Business Combination does not close the Company may use a portion of proceeds held outside of the +Trust Account to repay the Working Capital Loans, but no proceeds held in the Trust Account would be used for such repayment. +The Working Capital loans would either be repaid +upon consummation of a Business Combination, without interest, or, at the lender’s discretion, up to $ 1.5 million of such Working +Capital Loans may be convertible into units of the post-business combination entity at a price of $ 10.00 per unit. On April 11, 2023, +the Company issued the Convertible Promissory Note in the total principal amount of up to $ 825,000 to the Sponsor. The Convertible +Promissory Note bears an interest accruing on the unpaid and outstanding total principal amount at the lowest short-term Applicable Federal +Rate as in effect on the date thereof and is payable in arrears on the Maturity Date. Interest will be calculated on the basis of a 365-day +year and the actual number of days elapsed, to the extent permitted by applicable law. The Convertible Promissory Note was issued with +an initial principal balance of $ 412,500 . The Sponsor has further lent loans in the aggregate amount of $ 430,000 on July 18, 2023, +October 12, 2023 and December 29, 2023. On December 29, 2023 the Company and Sponsor agreed that, in addition to the Initial Principal +Amount, the Company may request an additional aggregate amount of up to $ 157,500 , which may be drawn down in one or more tranches at any +time prior to the Maturity Date, raising the total limit up to $ 1,000,000 . On April 2, 2024, the Company and Sponsor agreed that, in addition +to the Initial Principal Amount, the Company may request an additional aggregate amount of up to $ 186,800 , which may be drawn down in +one or more tranches at any time prior to the Maturity Date raising the total limit up to $ 1,200,000 . On January 24, 2025, the Company +and Sponsor agreed that, in addition to the Initial Principal Amount, the Company may request an additional aggregate amount of up to +$ 591,800 , which may be drawn down in one or more tranches at any time prior to the Maturity Date, raising the total limit up to $ 2,000,000 . +The Sponsor further lent an aggregate of $ 565,700 to the Company against the Convertible Promissory Note during the year ended December +31, 2024. As of December 31, 2024, there was an amount of $ 1,408,200 outstanding under Working Capital Loans in the form of the Convertible +Promissory Note issued to Sponsor. Further, an amount of $ 74,555 with interest at 4.86 % on the amount borrowed from the Sponsor +was recognized as accrued interest expense – related party as of December 31, 2024. +On +July 10, 2024, the Company issued Convertible Promissory Note 2 in the total principal amount of up to $ 180,000 to Sponsor. The Convertible +Promissory Note 2 was issued with an initial principal balance of $ 15,037 , with the remaining $ 164,963 drawable at the Company’s +request and upon the consent of the Sponsor prior to the maturity of the Convertible Promissory Note 2. +F- 24 +Denali +Capital Acquisition Corp. +Notes +to Consolidated Financial Statements +NOTE +6 – COMMITMENTS AND CONTINGENCIES +Registration +Rights +The +holders of the founder shares, Private Placement Shares and Private Placement Warrants, including any of those issued upon conversion +of the Working Capital Loans (and any Private Placement Shares issuable upon the exercise of the Private Placement Warrants +that may be issued upon conversion of the Working Capital Loans) will be entitled to registration rights pursuant to a registration +and shareholder rights agreement signed on April 6, 2022. The holders of these securities are entitled to make up to three demands, excluding +short form demands, that the Company register such securities. In addition, the holders have certain “piggy-back” registration +rights with respect to registration statements filed after the completion of the initial Business Combination and rights to require the +Company to register for resale such securities pursuant to Rule 415 under the Securities Act. The Company will bear the costs and expenses +of filing any such registration statements. +The +Merger Agreement contemplates that, at or prior to the closing of the business combination between the Company and Semnur (the “Closing”), +Denali, Scilex, the Sponsor and certain shareholders of Denali will enter into the Registration Rights Agreement, which, among other +things, will govern the registration of certain New Semnur Common Shares for resale and be effective as of the Closing. +Underwriting +Agreement +The +underwriters received a cash underwriting discount of $ 0.20 per Public Unit, or $ 1,650,000 in the aggregate, paid upon the +closing of the IPO. In addition, the underwriters will be entitled to a deferred fee of $ 0.35 per Public Unit, or $ 2,887,500 in +the aggregate, which is included in the accompanying consolidated balance sheets. The deferred fee will become payable to the underwriters +from the amounts held in the Trust Account solely in the event that the Company completes a Business Combination, subject to the terms +of the underwriting agreement. On November 20, 2023, the Company’s Underwriters entered into an Underwriter Letter Agreement, pursuant +to which the Company’s Underwriters have agreed to receive 30 %, or $ 866,250 , of the aggregate $ 2,887,500 deferred underwriting +commission owed to them upon the closing of the Company’s initial business combination in the form of 86,625 shares of +shares of common stock of the combined company. Under the terms of the Underwriter Letter Agreement, the shares of common stock of the +combined company will be issued at the Closing and the remaining aggregate $ 2,021,250 of deferred underwriting compensation owed +will remain payable at the Closing in cash under the original terms of the underwriting agreement. +NOTE +7 – SHAREHOLDER’S DEFICIT +Preference +shares – The Company is authorized to issue 1,000,000 preference shares with a par value of $ 0.0001 per +share with such designations, voting and other rights and preferences as may be determined from time to time by the Company’s board +of directors. As of December 31, 2024 and December 31, 2023, there were no preference shares issued and outstanding. +Class +A Ordinary Shares – The Company is authorized to issue 200,000,000 Class A ordinary shares with a par value +of $ 0.0001 per share. As of December 31, 2024 and December 31, 2023, there were 510,000 Class A ordinary shares issued +and outstanding, excluding 751,837 and 4,537,829 Class +A ordinary shares subject to possible redemption, respectively. +Class +B Ordinary Shares – The Company is authorized to issue 20,000,000 Class B ordinary shares with +a par value of $ 0.0001 per share. As of December 31, 2024 and December 31, 2023, there were 2,062,500 Class B ordinary +shares issued and outstanding. On May 23, 2022, 93,750 Class B ordinary shares were forfeited as the underwriters did not exercise +the over-allotment option on the remaining 375,000 Public Units. +Prior +to the Company’s initial Business Combination, only holders of Class B ordinary shares will have the right to vote on the appointment +of directors and holders of a majority of the Company’s Class B ordinary shares may remove a member of the board of directors for +any reason. In addition, in a vote to continue the Company in a jurisdiction outside the Cayman Islands (which requires the approval +of at least two-thirds of the votes of all ordinary shares voted at a general meeting), holders of founder shares will have ten votes +for every founder share and holders of Class A ordinary shares will have one vote for every Class A ordinary share and, as a result, +the Company’s initial shareholders will be able to approve any such proposal without the vote of any other shareholder. +F- 25 +Denali +Capital Acquisition Corp. +Notes +to Consolidated Financial Statements +The +Class B ordinary shares will automatically convert into Class A ordinary shares on the consummation of the initial Business Combination +at a ratio such that the number of Class A ordinary shares issuable upon conversion of all founder shares will equal, in the aggregate, +on an as-converted basis, approximately 20 % of the sum of (i) the total number of ordinary shares issued and outstanding upon completion +of the IPO, plus (ii) the total number of Class A ordinary shares issued or deemed issued or issuable upon conversion or exercise of +any equity-linked securities or rights issued or deemed issued, by the Company in connection with or in relation to the consummation +of the initial Business Combination (after giving effect to any redemptions of Class A ordinary shares by Public Shareholders), excluding +any Class A ordinary shares or equity-linked securities exercisable for or convertible into Class A ordinary shares issued, deemed issued, +or to be issued, to any seller in the initial Business Combination and any Private Placement Units issued to the Sponsor, its affiliates +or any member of the Company’s management team upon conversion of the Working Capital Loans. Any conversion of Class B ordinary +shares described herein will take effect as a compulsory redemption of Class B ordinary shares and an issuance of Class A ordinary shares +as a matter of Cayman Islands law. In no event will the Class B ordinary shares convert into Class A ordinary shares at a rate of less +than one-to-one. During a shareholders’ extraordinary general meeting held on October 11, 2023, a proposal was approved that Class +A ordinary shares will be issued to holders of Class B ordinary shares upon the exercise of the right of a holder of the Company’s +Class B ordinary shares, par value $ 0.0001 per share, to convert such holder’s Class B ordinary shares into Class A ordinary +shares on a one-for-one basis at any time and from time to time prior to the closing of an initial business combination at the election +of the holder (the “Founder Share Amendment”). +Warrants +All +warrants (Public Warrants and Private Warrants) will become exercisable at $ 11.50 per share, subject to adjustment, on the later +of 30 days after the completion of the initial Business Combination or 12 months from the closing of the IPO; provided in each case that +the Company has an effective registration statement under the Securities Act covering the issuance of the Class A ordinary shares issuable +upon exercise of the warrants and a current prospectus relating to them is available (or the Company permits holders to exercise their +warrants on a cashless basis under the circumstances specified in the warrant agreement). The warrants will expire at 5:00 p.m., New +York City time, five years after the completion of the initial Business Combination or earlier upon redemption or liquidation. On the +exercise of any warrant, the warrant exercise price will be paid directly to the Company and not placed in the Trust Account. +In +addition, if (x) the Company issues additional Class A ordinary shares or equity-linked securities for capital raising purposes in connection +with the closing of an initial Business Combination at an issue price or effective issue price of less than $ 9.20 per ordinary share +(with such issue price or effective issue price to be determined in good faith by the board of directors and, in the case of any such +issuance to the Sponsor or its affiliates, without taking into account any founder shares held by the Sponsor or such affiliates, as +applicable, prior to such issuance) (the “Newly Issued Price”), (y) the aggregate gross proceeds from such issuances represent +more than 60 % of the total equity proceeds, and interest thereon, available for the funding of an initial Business Combination on +the date of the consummation of an initial Business Combination (net of redemptions), and (z) the volume weighted average trading price +of Class A ordinary shares during the 20-trading day period starting on the trading day prior to the day on which the Company consummates +an initial Business Combination (such price, the “Market Value”) is below $ 9.20 per share, the exercise price of the +warrants will be adjusted (to the nearest cent) to be equal to 115 % of the higher of the Market Value or the Newly Issued Price +and the $ 16.50 per share redemption trigger price will be adjusted (to the nearest cent) to be equal to 165 % of the higher +of the Market Value or the Newly Issued Price. +The +Company has not registered the Class A ordinary shares issuable upon exercise of the warrants at this time. However, the Company has +agreed that as soon as practicable, but in no event later than 20 business days after the closing of the initial Business Combination, +it will use commercially reasonable efforts to file with the SEC a registration statement covering the Class A ordinary shares issuable +upon exercise of the warrants, and it will use commercially reasonable efforts to cause the same to become effective within 60 business +days following the initial Business Combination and to maintain a current prospectus relating to those Class A ordinary shares until +the warrants expire or are redeemed. Notwithstanding the above, if the Class A ordinary shares are at the time of any exercise +of a warrant not listed on a national securities exchange such that they satisfy the definition of a “covered security” under +Section 18(b)(1) of the Securities Act, the Company may, at its option, require holders of Public Warrants who exercise their warrants +to do so on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act and, in the event the Company so +elects, it will not be required to file or maintain in effect a registration statement, but the Company will be required to use commercially +reasonable efforts to register or qualify the shares under applicable blue sky laws to the extent an exemption is not available. +F- 26 +Denali +Capital Acquisition Corp. +Notes +to Consolidated Financial Statements +Redemption +of Warrants +Once +the warrants become exercisable, the Company may redeem the outstanding warrants: +● +in whole and not in part; +● at a price of $ 0.01 per warrant; +● upon a minimum of 30 days’ prior written notice of redemption, which is referred to as the 30 -day redemption period; and +● if, and only if, the last reported sale price of ordinary shares equals or exceeds $ 16.50 per share (as adjusted for adjustments to the number of shares issuable upon exercise or the exercise price of a warrant) for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date on which the Company sends the notice of redemption to the warrant holders. +The +Company will not redeem the warrants unless a registration statement under the Securities Act covering the ordinary shares issuable upon +exercise of the warrants is effective and a current prospectus relating to those ordinary shares is available throughout the 30-day redemption +period, except if the warrants may be exercised on a cashless basis and such cashless exercise is exempt from registration under the +Securities Act. If and when the warrants become redeemable by the Company, the Company may exercise its redemption right even if it is +unable to register or qualify the underlying securities for sale under all applicable state securities laws. +If +the Company calls the warrants for redemption as described above, its management will have the option to require all holders that wish +to exercise warrants to do so on a “cashless basis.” In determining whether to require all holders to exercise their warrants +on a “cashless basis,” the Company’s management will consider, among other factors, the cash position, the number of +warrants that are outstanding and the dilutive effect on the Company’s shareholders of issuing the maximum number of ordinary shares +issuable upon the exercise of the Company’s warrants. In such event, each holder would pay the exercise price by surrendering the +warrants for that number of Class A ordinary shares equal to the quotient obtained by dividing (x) the product of the number of +Class A ordinary shares underlying the warrants, multiplied by the excess of the “fair market value” over the exercise +price of the warrants by (y) the fair market value. The “fair market value” shall mean the volume weighted average price +of the Class A ordinary shares for the 10 trading days ending on the third trading day prior to the date on which the notice of redemption +is sent to the holders of warrants. +NOTE +8 – FAIR VALUE MEASUREMENTS +The +fair value of the Company’s financial assets and liabilities reflects management’s estimate of amounts that the Company would +have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction +between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company +seeks to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable +inputs (internal assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is +used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and +liabilities: +Level 1: +Quoted prices in active +markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the +asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. +Level 2: +Observable inputs other +than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted +prices for identical assets or liabilities in markets that are not active. +Level 3: +Unobservable inputs based +on our assessment of the assumptions that market participants would use in pricing the asset or liability. +F- 27 +Denali +Capital Acquisition Corp. +Notes +to Consolidated Financial Statements +The +following tables present information about the Company’s assets that are measured at fair value on a recurring basis as of December +31, 2024 and December 31, 2023, and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such +fair value. +As of +December 31, +2024 +Quoted +Prices in +Active +Markets +(Level 1) +Significant +Other +Observable +Inputs +(Level 2) +Significant +Other +Unobservable +Inputs +(Level 3) +Assets: +Investments held in Trust Account +$ 9,021,005 +$ +- +$ +9,021,005 +- +As of +December 31, +2023 +Quoted +Prices in +Active +Markets +(Level 1) +Significant +Other +Observable +Inputs +(Level 2) +Significant +Other +Unobservable +Inputs +(Level 3) +Assets: +Investments held in Trust Account +$ 50,477,963 +$ 50,477,963 +$ - +- +NOTE 9 — SEGMENT INFORMATION +ASC Topic 280, “Segment Reporting,” +establishes standards for companies to report in their financial statement information about operating segments, products, services, geographic +areas, and major customers. Operating segments are defined as components of an enterprise for which separate financial information +is available that is regularly evaluated by the Company’s chief operating decision maker, or group, in deciding how to allocate +resources and assess performance. The Company has adopted the guidance in ASU 2023-07, Segment Reporting (Topic 280): Improvements to +Reportable Segment Disclosures, in the accompanying financial statements using the retrospective method of adoption. +The Company’s chief operating decision maker +has been identified as the Chief Executive Officer (“CODM”), who reviews the operating results for the Company as a whole +to make decisions about allocating resources and assessing financial performance. Accordingly, management has determined that the Company +only has one operating and reportable segment. +When evaluating the Company’s performance +and making key decisions regarding resource allocation the CODM reviews several key metrics, which include the following: +For the Year Ended +December 31, +2024 +For the Year Ended +December 31, +2023 +Professional services fee in connection with Business Combination +$ ( 1,163,962 ) +$ ( 2,268,236 ) +Other formation and operating costs +( 485,144 ) +( 905,590 ) +Total formation and operating costs +( 1,649,106 ) +( 3,173,826 ) +Interest expense +( 96,242 ) +( 36,909 ) +Interest earned on investment held in Trust Account +1,578,042 +3,843,271 +Net (loss) income +$ ( 167,306 ) +$ 632,536 +F- 28 +Denali +Capital Acquisition Corp. +Notes +to Consolidated Financial Statements +The key measures of segment +profit or loss reviewed by our CODM are interest earned on investment in Trust Account and formation and operating expenses. The CODM +reviews interest earned on investment in Trust Account to measure and monitor shareholder value and determine the most effective strategy +of investment with the Trust Account funds while maintaining compliance with the trust agreement. Within formation and operating costs, +the CODM specifically reviews professional service fee in connection with the business combination, which are a significant segment expense, +and include legal fees, and advisory fees, as these represent significant costs affecting the Company’s consummation of the Business +Combination. Other formation and operating costs, including accounting expenses, printing expenses, and regulatory filing fees, are reviewed +in aggregate to ensure alignment with budget and contractual obligations. These expenses +are monitored to manage and forecast cash available to complete a business combination within the required period. +NOTE +10 – SUBSEQUENT EVENTS +The Company has evaluated subsequent events through +April 1, 2025 when these consolidated financial statements were issued and determined that there were no significant unrecognized +events through that date other than those noted below. +On January 6, 2025, February 11, 2025 and March +11, 2025, Scilex had deposited an aggregate of $ 45,191 drawn down from the Extension Scilex Convertible Promissory Note to the Trust Account +to extend the time the Company has to consummate an initial business combination from January 11, 2025 to April 11, 2025. +On January 24, 2025, the Company and Sponsor agreed +that, in addition to the Initial Principal Amount under the Convertible Promissory Note 1, the Company may request an additional aggregate +amount of up to $ 591,800 , which may be drawn down in one or more tranches at any time prior to the Maturity Date, raising the total limit +up to $ 2,000,000 . +On March 27, 2025, the Company filed a definitive proxy to hold an +extraordinary general meeting of shareholders to consider and vote upon a proposal to amend, by way of special resolution, the amended +and restated memorandum and articles of association of the Company to extend the date by which the Company must either (i) consummate +a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination involving the Company and +one or more businesses or entities or (ii) cease its operations, except for the purpose of winding up, if it fails to complete such initial +business combination and redeem 100 % of the Company’s Class A ordinary shares, included as part of the units sold in the Company’s +IPO that was consummated on April 11, 2022 from April 11, 2025 to December 11, 2025, by electing to extend the date to consummate an initial +business combination on a monthly basis for up to eight (8) times by an additional one month each time, unless the closing of the Company’s +initial business combination has occurred, without the need for any further approval of the Company’s shareholders, provided that +the Sponsor (or its affiliates or permitted designees or a third party) will deposit into the Trust Account for each such one-month extension +an extension fee, unless the closing of the Company’s initial business combination has occurred, in exchange for a non-interest +bearing promissory note payable upon consummation of an initial business combination. +F- 29 +EXHIBIT +INDEX +Exhibit +Description +1.1 +Underwriting Agreement, dated April 6, 2022, among the Company, US Tiger Securities, Inc. and EF Hutton, division of Benchmark Investments, LLC, as representatives of the several underwriters named therein (2) +2.1# +Agreement and Plan of Merger, dated as of August 30, 2024, by and among Denali Capital Acquisition Corp., Denali Merger Sub Inc. and Semnur Pharmaceuticals, Inc. (9) +3.1 +Amended and Restated Memorandum and Articles of Association, dated April 6, 2022 (2) +3.2 +Amendments to the Amended and Restated Memorandum and Articles of Association in connection with the Extension Meeting (3) +3.3 +Amendments to the Amended and Restated Memorandum and Articles of Association in connection with the Second Extension Meeting (8) +4.1 +Specimen Unit Certificate (1) +4.2 +Specimen Ordinary Share Certificate (1) +4.3 +Specimen Warrant Certificate (included in Exhibit 4.4) (2) +4.4 +Warrant Agreement, dated April 6, 2022, between the Company and VStock Transfer, LLC, as warrant agent (2) +4.5 +Description of Securities (7) +10.1 +Amended and Restated Promissory Note, dated as of February 3, 2022 between the Company and the Sponsor (1) +10.2 +Letter Agreement, dated April 6, 2022, among the Company and its officers, directors, director nominees and the Sponsor (2) +10.3 +Investment Management Trust Agreement, dated April 6, 2022, between the Company and Wilmington Trust, National Association, as trustee (2) +10.4 +Registration and Shareholder Rights Agreement, dated April 6, 2022, between the Company, the Sponsor and certain other security holders of the Company (2) +10.5 +Securities Subscription Agreement, dated as of February 3, 2022, between the Company and the Sponsor (1) +10.6 +Private Placement Units Purchase Agreement, dated April 6, 2022, between the Company and the Sponsor (2) +10.7 +Form of Indemnity Agreement, dated April 6, 2022, between the Company and each of its directors and executive officers (2) +10.8# +Sponsor Interest Purchase Agreement, dated as of August 30, 2024, by and between Denali Capital Global Investments LLC and Scilex Holding Company (9) +10.9 +Stockholder Agreement, dated as of August 30, 2024, by and between Denali Capital Acquisition Corp. and Scilex Holding Company (9) +10.10# +Company Stockholder Support Agreement, dated as of August 30, 2024, by and among Scilex Holding Company, Semnur Pharmaceuticals, Inc. and Denali Capital Acquisition Corp (9) +35 +10.11^ +Sponsor Support Agreement, dated as of August 30, 2024, by and among Denali Capital Acquisition Corp., Semnur Pharmaceuticals, Inc. and each of the Persons set forth on Schedule I attached thereto (9) +10.12 +Convertible Promissory Note, as amended, dated April 11, 2023, issued by Denali Capital Acquisition Corp. to Denali Capital Global Investments LLC (4) +10.13 +Convertible Promissory Note, dated July 11, 2023, issued by Denali Capital Acquisition Corp. to FutureTech Capital LLC (5) +10.14 +Convertible Promissory Note, dated October 11, 2023, issued by Denali Capital Acquisition Corp. to FutureTech Capital LLC (3) +10.15 +Convertible Promissory Note, dated July 10, 2024, issued by Denali Capital Acquisition Corp. to Denali Capital Global Investments LLC (8) +10.16 +Convertible Promissory Note, dated August 9, 2024, issued by Denali Capital Acquisition Corp. to Scilex Holding Company (10) +10.17 +Deferred Discount Agreement, dated as of November 20, 2023, by and among Denali Capital Acquisition Corp., Denali SPAC Holdco, Inc., US Tiger Securities, Inc., EF Hutton, division of Benchmark Investments, LLC and Craig-Hallum Capital Group LLC (6) +10.18 +Termination Agreement, dated as of June 26, 2024, by and among Denali Capital Acquisition Corp., Longevity Biomedical, Inc. and Bradford A. Zakes, as seller representative (11) +16.1 +Letter Regarding Change in Accountants (12) +19.1* +Insider Trading Policy +21.1* +List of Subsidiaries +31.1* +Certification of Principal Executive Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 +31.2* +Certification of Principal Financial and Accounting Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 +32.1** +Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 +32.2** +Certification of Principal Financial and Accounting Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 +97.1 +Denali Capital Acquisition Corp. Policy on Recoupment of Incentive Compensation, dated as of November 28, 2023 (13) +101.INS +Inline XBRL Instance Document. +101.SCH +Inline XBRL Taxonomy Extension Schema Document. +101.CAL +Inline XBRL Taxonomy Extension Calculation Linkbase Document. +101.DEF +Inline XBRL Taxonomy Extension Definition Linkbase Document. +101.LAB +Inline XBRL Taxonomy Extension Label Linkbase Document. +101.PRE +Inline XBRL Taxonomy Extension Presentation Linkbase Document. +104 +Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). +* Filed +herewith +** Furnished +herewith +36 +# Certain +of the exhibits and schedules to this Exhibit have been omitted in accordance with Regulation S-K Item 601(a)(5). Denali Capital Acquisition +Corp. agrees to furnish a copy of all omitted exhibits and schedules to the SEC upon its request. +^ Certain +identified information has been omitted pursuant to Item 601(b)(10) of Regulation S-K because such information is both (i) not material +and (ii) information that the Registrant treats as private or confidential. Denali Capital Acquisition Corp. hereby undertakes to furnish +supplemental copies of the unredacted exhibit upon request by the SEC. +(1) Filed +as an exhibit to Amendment No. 1 to the Registration Statement on Form S-1 filed with the SEC on March 22, 2022 (File No. 333-263123). +(2) Filed +as an exhibit to the Current Report on Form 8-K filed with the SEC on April 12, 2022 (File No. 001-41351). +(3) Filed +as an exhibit to the Current Report on Form 8-K filed with the SEC on October 11, 2023 (File No. 001-41351). +(4) Filed +as an exhibit to the Current Report on Form 8-K filed with the SEC on April 12, 2023 (File No. 001-41351). +(5) Filed +as an exhibit to the Current Report on Form 8-K filed with the SEC on July 13, 2023 (File No. 001-41351). +(6) Filed +as an exhibit to the Current Report on Form 8-K filed with the SEC on November 20, 2023 (File No. 001-41351). +(7) Filed +as an exhibit to the Annual Report on Form 10-K filed with the SEC on March 17, 2023 (File No.001-41351). +(8) Filed +as an exhibit to the Current Report on Form 8-K filed with the SEC on July 10, 2024 (File No. 001-41351). +(9) Filed +as an exhibit to the Current Report on Form 8-K filed with the SEC on September 5, 2024 (File No. 001-41351). +(10) Filed +as an exhibit to the Current Report on Form 8-K filed with the SEC on August 9, 2024 (File No. 001-41351). +(11) Filed +as an exhibit to the Current Report on Form 8-K filed with the SEC on June 27, 2024 (File No. 001-41351). +(12) Filed +as an exhibit to the Current Report on Form 8-K filed with the SEC on July 17, 2024 (File No. 001-41351). +(13) Filed +as an exhibit to the Annual Report on Form 10-K filed with the SEC on April 1, 2024 (File No. 001-41351). +37 +SIGNATURES +Pursuant +to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the Registrant has duly caused this report to be signed on +its behalf by the undersigned, thereunto duly authorized. +April 1, 2025 +Denali Capital Acquisition Corp. +By: +/s/ +Lei Huang +Name: +Lei Huang +Title: +Chief Executive Officer +Pursuant +to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and +on the dates indicated. +Signature +Title +Date +/s/ +Lei Huang +Chief Executive Officer +and Director +April 1, 2025 +Lei Huang +(Principal Executive Officer) +/s/ +You (“Patrick”) Sun +Chief Financial Officer +April 1, 2025 +You (“Patrick”) +Sun +(Principal Financial and +Accounting Officer) +/s/ +Huifeng Chang +Director +April 1, 2025 +Huifeng Chang +/s/ +Jim Mao +Director +April 1, 2025 +Jim Mao +/s/ +Kevin Vassily +Director +April 1, 2025 +Kevin Vassily +38 +0001913577 +false +FY +0001913577 +2024-01-01 +2024-12-31 +0001913577 +deca:UnitsEachConsistingOfOneClassAOrdinaryShareAndOneRedeemableWarrantMember +2024-01-01 +2024-12-31 +0001913577 +deca:ClassAOrdinarySharesParValue00001PerShareMember +2024-01-01 +2024-12-31 +0001913577 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Business. +General +We +are a blank check company incorporated as a Cayman Islands exempted company for the purpose of effecting a merger, share exchange, asset +acquisition, share purchase, reorganization or similar business combination with one or more businesses, which we refer to throughout +this report as our initial business combination. We have neither engaged in any operations nor generated any revenue to date. Based on +our business activities, we are a “shell company” as defined under the Securities Exchange Act of 1934 (the “Exchange +Act”) because we have no operations and nominal assets consisting almost entirely of cash. On April 11, 2022, we consummated our +initial public offering (the “IPO”) of 8,250,000 units, which included 750,000 units issued pursuant to the partial exercise +by the underwriters of their over-allotment option (the “Units”), each Unit consisting of one Class A ordinary share of the +Company, par value $0.0001 per share (the “public shares”) and one redeemable warrant (each, a “Public Warrant”), +each whole Public Warrant entitling the holder thereof to purchase one Class A ordinary share for $11.50 per share. The Units were sold +at a price of $10.00 per Unit, and the IPO generated gross proceeds of $82,500,000. Simultaneously with the closing of the IPO, we consummated +a private placement (the “Private Placement”) with our sponsor, of an aggregate of 510,000 units (the “Private Placement +Units”) (including 30,000 Private Placement Units purchased pursuant to the partial exercise by the underwriters of their over-allotment +option) at a price of $10.00 per Private Placement Unit, generating gross proceeds of $5,100,000. Each Private Placement Unit consists +of one Class A ordinary share (the “Private Placement Shares”) and one warrant. The terms and provisions of the warrants +in the Private Placement Units (the “Private Placement Warrants”) are identical to the Public Warrants, except that, subject +to certain limited exceptions, they are subject to transfer restrictions until 30 days following the consummation of an initial business +combination. On April 11, 2022, a total of $84,150,000 of the net proceeds from the IPO and the Private Placement was deposited in a +trust account (the “Trust Account”) established for the benefit of the Company’s public shareholders at a U.S. based +trust account, with Wilmington Trust, National Association, acting as trustee. +On +January 25, 2023, we entered into an Agreement and Plan of Merger (the “Longevity Merger Agreement”), by and among Longevity +Biomedical, Inc. (“Longevity”), Denali SPAC Holdco, Inc., a Delaware corporation and direct, wholly owned subsidiary of the +Company (“Holdco”), Denali SPAC Merger Sub, Inc., a Delaware corporation and direct, wholly owned subsidiary of Holdco (“Denali +Merger Sub”), Longevity Merger Sub, Inc., a Delaware corporation and direct, wholly owned subsidiary of Holdco (“Longevity +Merger Sub”), and Bradford A. Zakes, solely in the capacity as seller representative (the “Seller Representative”). +Pursuant to the Longevity Merger Agreement, the parties thereto agreed to enter into a business combination with Longevity (the “Longevity +Business Combination”). +On +October 11, 2023, our shareholders held an extraordinary general meeting (the “Extension Meeting”) to vote in favor of approving +amendments to the Company’s amended and restated memorandum and articles of association (the “Articles”) to, amongst +other things, extend the date by which we must consummate an initial business combination from October 11, 2023 to July 11, 2024 by electing +to extend the date to consummate an initial business combination on a monthly basis for up to nine times by an additional one month each +time, subject to the sponsor (or its affiliates or permitted designees) depositing into the Trust Account for each such one-month extension +the lesser of (a) an aggregate of $50,000 or (b) $0.03 per public share that remains outstanding and is not redeemed prior to any such +one-month extension, unless the closing of our initial business combination has occurred. +Furthermore, +in connection with the Extension Meeting, shareholders holding 3,712,171 public shares (after giving effect to withdrawals of redemptions) +exercised their right to redeem such shares for a pro rata portion of the funds in our Trust Account. As a result, approximately $40.5 +million (approximately $10.92 per share) was removed from the Trust Account to pay such holders. Following redemptions, we had 4,537,829 +public shares outstanding. +On +January 9, 2024, our shareholders held an extraordinary general meeting (the “Longevity Business Combination Meeting”) and +voted in favor of approving the Longevity Business Combination. +On +June 26, 2024, pursuant to Section 11.1(a) of the Longevity Merger Agreement, the parties to the Longevity Merger Agreement entered into +a termination agreement (the “Termination Agreement”) pursuant to which the Longevity Merger Agreement was terminated effective +as of the date of the Termination Agreement. As a result of the Termination Agreement, the Longevity Merger Agreement is of no further +force and effect (other than certain customary limited provisions that survive the termination pursuant to the terms of the Longevity +Merger Agreement) and ancillary agreements entered into in connection with the Longevity Merger Agreement also automatically terminated +in accordance with their respective terms. As a result of the termination of the Longevity Merger Agreement, Holdco filed the Registration +Withdrawal Request on Form RW on August 9, 2024, to withdraw its registration statement on Form S-4, as amended, initially filed with +the SEC on March 29, 2023. +On +July 2, 2024, the Company issued a press release to announce that it entered into a letter of intent with Semnur, a wholly owned subsidiary +of Scilex Holding Company (“Scilex”), for a potential business combination. +1 +On +July 10, 2024, our shareholders held an extraordinary general meeting (the “Second Extension Meeting”) to consider and vote +upon a proposal to amend, by way of special resolution, the Articles to extend the date by which we must (i) consummate a merger, share +exchange, asset acquisition, share purchase, reorganization or similar business combination involving Denali and one or more businesses +or entities; (ii) cease its operations, except for the purpose of winding up, if it fails to complete such initial business combination; +and (iii) redeem 100% of the public shares from July 11, 2024 to April 11, 2025, by electing to extend the date to consummate an initial +business combination on a monthly basis for up to nine (9) times by an additional one month each time (such date as extended, the “Extended +Date”), unless the closing of the initial business combination has occurred, without the need for any further approval of our shareholders, +provided that the sponsor (or its affiliates or permitted designees) will deposit into the Trust Account for each such one-month extension +the lesser of (a) an aggregate of $20,000 or (b) $0.02 per public share that remains outstanding and is not redeemed prior to any such +one-month extension, unless the closing of the initial business combination has occurred, in exchange for a non-interest bearing promissory +note payable upon consummation of an initial business combination. In connection with the Second Extension Meeting, shareholders holding +3,785,992 public shares (after giving effect to withdrawals of redemptions) exercised their right to redeem such shares for a pro rata +portion of the funds in the Trust Account. As a result, approximately $43.4 million (approximately $11.47 per share) was removed from +the Trust Account to pay such holders. +On +July 10, 2024, we issued a promissory note (the “Sponsor Extension Convertible Promissory Note”) in the total principal amount +of up to $180,000 to the sponsor. The Sponsor Extension Convertible Promissory Note was issued with an initial principal balance of $15,037, +with the remaining $164,963 drawable at our request and upon the consent of the sponsor prior to the maturity of the Sponsor Extension +Convertible Promissory Note. On July 10, 2024, the sponsor had deposited $15,037 drawn down from the Sponsor Convertible Promissory Note +to the Trust Account to extend the time the Company has to consummate an initial business combination to August 11, 2024. +On +August 9, 2024, we issued a convertible promissory note (the “Scilex Convertible Note”) in the total principal amount of +up to $180,000 to Scilex Holding Company (“Scilex”). The Scilex Convertible Note was issued with an initial principal balance +of $15,037, with the remaining $164,963 drawable at our request and upon the consent of Scilex prior to the maturity of the Scilex Convertible +Promissory Note. +On each of August 11, 2024, +September 11, 2024, October 11, 2024, November 11, 2024, December 11, 2024, January 6, 2025, February 11, 2025 and March 11, 2025, Scliex +had deposited $15,064 drawn down from the Scilex Convertible Promissory Note to the Trust Account to extend the time the Company has to +consummate an initial business combination to April 11, 2025. +On +August 14, 2024, Denali Merger Sub Inc., a Delaware corporation, was incorporated as a direct wholly owned subsidiary of Denali (the +“Merger Sub”). +On +August 15, 2024, Holdco filed a Certificate of Ownership and Merger merging each of its wholly owned subsidiaries, Longevity Merger Sub +and Denali Merger Sub, with and into Holdco, with Holdco as the sole surviving corporation. All of the outstanding shares of common stock +of Holdco held by Denali was transferred to the Merger Sub, making Holdco a direct wholly owned subsidiary of the Merger Sub and making +each of Denali Merger Sub and Longevity Merger Sub an indirect wholly-owned subsidiary of the Merger Sub. +On +August 30, 2024, Denali entered into the Agreement and Plan of Merger (the “Merger Agreement”) with Semnur, a wholly owned +subsidiary of Scilex, and Merger Sub. +Pursuant +to the Merger Agreement, subject to the terms and conditions set forth therein, (i) prior to the time at which the Business Combination +becomes effective (the “Effective Time”), Denali will change its jurisdiction of incorporation by deregistering as a Cayman +Islands exempted company and continuing and domesticating as a corporation incorporated under the laws of the State of Delaware (the +“Domestication”) and (ii) at the Effective Time, and following the Domestication, Merger Sub will merge with and into Semnur +(the “Business Combination” and together with the other transactions contemplated in the Merger Agreement, the “Transactions”), +with Semnur continuing as the surviving entity and wholly owned subsidiary of Denali. In connection with the consummation of the Business +Combination, Denali will be renamed as “Semnur Pharmaceuticals, Inc.” and Semnur will be renamed as Semnur, Inc. For more +information about the Merger Agreement, see our Current Report on Form 8-K filed with the SEC on September 5, 2024 and the Semnur Disclosure +Statement. In this document, we use the term “New Semnur” to refer to Denali after completion of the transactions contemplated +by the Merger Agreement. +On November 6, 2024, we filed +a preliminary prospectus/proxy statement included in our registration statement on Form S-4 (File No. 333-283019) relating to our proposed +business combination with Semnur. +On March 27, 2025, we +filed a definitive proxy to hold an extraordinary general meeting of shareholders to consider and vote upon a proposal to amend, by +way of special resolution, the amended and restated memorandum and articles of association of the Company to extend the date by +which the Company must either (i) consummate a merger, share exchange, asset acquisition, share purchase, reorganization or similar +business combination involving the Company and one or more businesses or entities or (ii) cease its operations, except for the +purpose of winding up, if it fails to complete such initial business combination and redeem 100% of the Company’s Class A +ordinary shares, included as part of the units sold in the Company’s IPO that was consummated on April 11, 2022, from April +11, 2025 to December 11, 2025, by electing to extend the date to consummate an initial business combination on a monthly basis for +up to eight (8) times by an additional one month each time, unless the closing of the Company’s initial business combination +has occurred, without the need for any further approval of the Company’s shareholders, provided that the Sponsor (or its +affiliates or permitted designees or a third party) will deposit into the Trust Account for each such one-month extension an +extension fee, unless the closing of the Company’s initial business combination has occurred, in exchange for a non-interest +bearing promissory note payable upon consummation of an initial business combination. +2 +Business +Strategy and Competitive Strengths +Our +business strategy is to identify and complete our initial business combination with a company within the technology, hospitality or consumer +services sector. Our selection process leveraged our team’s broad and deep relationship network, unique industry experiences and +strong deal sourcing capabilities to access a broad spectrum of differentiated opportunities. This network has been developed through +our team’s extensive experience and demonstrated success in both investing in and operating businesses in our target sectors and +across a variety of industries. +We +believe that our management team is well positioned to identify attractive business combination opportunities with a compelling industry +backdrop and an opportunity for transformational growth. Our team’s objectives are to generate attractive returns for shareholders +and enhance value through improving operational performance of the acquired company. In the process of identifying Semnur as a target +for the Business Combination, we broadly focused on potential targets that we believed (i) had attractive long-term growth potential, +(ii) had a core product that was or had the potential to be competitively positioned within the applicable industry and (iii) had an +experienced management team with an attractive business plan that would benefit from being a public company due to the potential for +access to a broader source of capital and greater visibility. In addition, Denali also considered the development stage of potential +targets’ corresponding industries and any relevant regulatory risks associated with such target businesses and their respective +industries. +Business +Combination Criteria +Consistent +with our business strategy, we have identified the following general criteria and guidelines that we believe are important in evaluating +prospective target businesses. We used these criteria and guidelines in evaluating acquisition opportunities, which we believe Semnur +satisfied, as we looked to identify target companies that: +● are +fundamentally sound but are underperforming their potential; +● exhibit +unrecognized value or other characteristics that we believe have been misevaluated by the +marketplace; +● are +at an inflection point where we believe we can drive improved financial performance; +● offer +opportunities to enhance financial performance through organic initiatives and/or inorganic +growth opportunities; +● can +benefit from our founders’ knowledge of the target sectors, proven collection of operational +strategies and tools, and past experiences in profitability and rapidly scaling businesses; +● are +valued attractively relative to their potential for operational improvement; and +● offer +an attractive potential return for our shareholders, weighing potential growth opportunities +and operational improvements in the target business against any identified downside risks. +These +criteria and guidelines are not intended to be exhaustive. Any evaluation relating to the merits of a particular initial business combination +may be based, to the extent relevant, on these general criteria and guidelines as well as other considerations, factors and criteria +that our management may deem relevant. We believe that Semnur met the above criteria, as described in the Semnur Disclosure Statement. +Business +Combination with Longevity +On +January 25, 2023, we entered into the Longevity Merger Agreement, by and among Longevity, Holdco, Denali Merger Sub, Longevity Merger +Sub, and Bradford A. Zakes, solely in the capacity as seller representative. +On +October 11, 2023, our shareholders held the Extension Meeting to vote in favor of approving amendments to the Articles to, amongst other +things, extend the date by which we must consummate an initial business combination from October 11, 2023 to July 11, 2024 by electing +to extend the date to consummate an initial business combination on a monthly basis for up to nine times by an additional one month each +time, subject to the sponsor (or its affiliates or permitted designees) depositing into the Trust Account for each such one-month extension +the lesser of (a) an aggregate of $50,000 or (b) $0.03 per public share that remains outstanding and is not redeemed prior to any such +one-month extension, unless the closing of our initial business combination has occurred. +Furthermore, +in connection with the Extension Meeting, shareholders holding 3,712,171 public shares (after giving effect to withdrawals of redemptions) +exercised their right to redeem such shares for a pro rata portion of the funds in our Trust Account. As a result, approximately $40.5 +million (approximately $10.92 per share) was removed from the Trust Account to pay such holders. Following redemptions, we had 4,537,829 +public shares outstanding. +In connection with the Second +Extension Meeting, shareholders holding 3,785,992 public shares (after giving effect to withdrawals of redemptions) exercised their right +to redeem such shares for a pro rata portion of the funds in the Trust Account. As a result, approximately $43.4 million (approximately +$11.47 per share) was removed from the Trust Account to pay such holders. Following redemptions, we had 751,837 public shares outstanding. +3 +On +January 9, 2024, our shareholders held the Longevity Business Combination Meeting and voted in favor of approving the Longevity Business +Combination. +On +June 26, 2024, pursuant to Section 11.1(a) of the Longevity Merger Agreement, the parties to the Longevity Merger Agreement entered into +the Termination Agreement pursuant to which the Longevity Merger Agreement was terminated effective as of the date of the Termination +Agreement. As a result of the Termination Agreement, the Longevity Merger Agreement is of no further force and effect (other than certain +customary limited provisions that survive the termination pursuant to the terms of the Longevity Merger Agreement) and ancillary agreements +entered into in connection with the Longevity Merger Agreement also automatically terminated in accordance with their respective terms. +As a result of the termination of the Longevity Merger Agreement, Holdco filed the Registration Withdrawal Request on Form RW on August +9, 2024, to withdraw its registration statement on Form S-4, as amended, initially filed with the SEC on March 29, 2023. +Business +Combination with Semnur +On +August 30, 2024, Denali entered into the Agreement and Plan of Merger (the “Merger Agreement”) with Semnur and Merger Sub. +Pursuant +to the Merger Agreement, subject to the terms and conditions set forth therein, (i) prior to the time at which the Business Combination +becomes effective (the “Effective Time”), Denali will change its jurisdiction of incorporation by deregistering as a Cayman +Islands exempted company and continuing and domesticating as a corporation incorporated under the laws of the State of Delaware (the +“Domestication”) and (ii) at the Effective Time, and following the Domestication, Merger Sub will merge with and into Semnur, +with Semnur continuing as the surviving entity and wholly owned subsidiary of Denali. In connection with the consummation of the Business +Combination, Denali will be renamed as “Semnur Pharmaceuticals, Inc.” and Semnur will be renamed as Semnur, Inc. +The +consummation of the proposed Business Combination is subject to certain conditions as further described in the Merger Agreement. +For +more information about the Merger Agreement and the Business Combination, see our Current Report on Form 8-K filed with the SEC on September +5, 2024 and the Semnur Disclosure Statement. Unless specifically stated, this Annual Report on Form 10-K does not give effect to the +Transactions and does not contain the risks associated with the proposed Transactions. Such risks and effects relating to the Transactions +are included in the Semnur Disclosure Statement. +Nasdaq +rules require that we must complete one or more business combinations with a total aggregate fair market value of at least 80% of the +value of the assets held in the Trust Account (excluding any deferred underwriters’ fees and taxes payable on the interest income +earned on the Trust Account) at the time of our signing of a definitive agreement in connection with our initial business combination. +We refer to this as the 80% of net assets test. Our board of directors determined that the fair market value of the Business Combination +equaled at least 80% of the value of the assets held in the Trust Account (excluding any deferred underwriters’ fees and taxes +payable on the interest income earned on the Trust Account). +We +initially had until April 11, 2023, 12 months after the closing of the IPO (or up to 18 months by resolution of our board if requested +by our sponsor to extend the period of time to consummate a business combination by up to two times, each time by an additional three +months), to consummate an initial business combination. On October 11, 2023, we announced that our shareholders approved to extend the +date by which we must consummate an initial business combination from October 11, 2023 to July 11, 2024 by electing to extend the date +to consummate an initial business combination on a monthly basis for up to nine times by an additional one month each time. On July 10, +2024, we announced that our shareholders approved to extend the date by which we must consummate an initial business combination from +July 11, 2024 to April 11, 2025, by electing to extend the date to consummate an initial business combination on a monthly basis for +up to nine times by an additional one month each time. +To +the extent Semnur may be financially unstable or in its early stages of development or growth, we may be affected by numerous risks inherent +in the company or its business. Although our management will endeavor to evaluate the risks inherent in a particular target business, +we cannot assure you that we will properly ascertain or assess all significant risk factors. For more information on the risks associated +with the Business Combination, see the Semnur Disclosure Statement. +4 +Acquisition +Process +In +evaluating a prospective target business, we conducted a due diligence review which encompassed, among other things, meetings with incumbent +management, document reviews, as well as a review of financial, operational, legal and other information which were made available to +us. We also utilized our management team’s expertise in analyzing and evaluating operating plans, financial projections and determining +the appropriate return expectations given the risk profile of the target business as well as the suitability of the target to become +a public company. +Members +of our management team and board of directors, directly or indirectly, own founder shares and/or Private Placement Units and, accordingly, +may have a conflict of interest in determining whether a particular target business is an appropriate business with which to effectuate +our initial business combination. In particular, because the founder shares were purchased at approximately $0.012 per share, the holders +of our founder shares (including our management team that directly or indirectly own founder shares) could make a substantial profit +after our initial business combination even if our public shareholders lose money on their investment as a result of a decrease in the +post-combination value of their ordinary shares (after accounting for any adjustments in connection with an exchange or other transaction +contemplated by the business combination). Further, such officers and directors may have a conflict of interest with respect to evaluating +a particular business combination if the retention or resignation of any such officers and directors was included by a target business +as a condition to any agreement with respect to our initial business combination. +Redemption +Rights for Public Shareholders upon Completion of Our Initial Business Combination +We +will provide our public shareholders with the opportunity to redeem all or a portion of their Class A ordinary shares upon the completion +of our initial business combination at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust +Account calculated as of two business days prior to the consummation of the initial business combination, including interest earned on +the funds held in the Trust Account and not previously released to us to pay our franchise and income taxes, if any, divided by the number +of then-issued and outstanding public shares, subject to the limitations described herein. The amount in the Trust Account was $12.00 +per public share as of December 31, 2024. The per share amount we will distribute to investors who properly redeem their shares will +not be reduced by the deferred underwriting commissions we will pay to the underwriters. The redemption rights will include the requirement +that a beneficial owner must identify itself in order to validly redeem its shares. There will be no redemption rights upon the completion +of our initial business combination with respect to our warrants. Further, we will not proceed with redeeming our public shares, even +if a public shareholder has properly elected to redeem its shares, if a business combination does not close. Our sponsor and each member +of our management team and our directors and Scilex have entered into an agreement with us, pursuant to which they have agreed to waive +their redemption rights with respect to any founder shares and public shares held by them in connection with (i) the completion of our +initial business combination and (ii) a shareholder vote to approve an amendment to our amended and restated memorandum and articles +of association (A) that would modify the substance or timing of our obligation to provide holders of our Class A ordinary shares the +right to have their shares redeemed in connection with our initial business combination or to redeem 100% of our public shares if we +do not complete our initial business combination by the Extended Date or (B) with respect to any other provision relating to the rights +of holders of our Class A ordinary shares. +Manner +of Conducting Redemptions +We +will provide our public shareholders with the opportunity to redeem all or a portion of their Class A ordinary shares upon the completion +of our initial business combination either (i) in connection with a general meeting called to approve the business combination or (ii) +by means of a tender offer. The decision as to whether we will seek shareholder approval of a proposed business combination or conduct +a tender offer will be made by us, solely in our discretion, and will be based on a variety of factors such as the timing of the transaction +and whether the terms of the transaction would require us to seek shareholder approval under applicable law or stock exchange listing +requirement or whether we were deemed to be a foreign private issuer (which would require a tender offer rather than seeking shareholder +approval under SEC rules). Asset acquisitions and share purchases would not typically require shareholder approval while direct mergers +with our company and any transactions where we issue more than 20% of our issued and outstanding ordinary shares or seek to amend our +amended and restated memorandum and articles of association would typically require shareholder approval. We currently intend to conduct +redemptions in connection with a shareholder vote unless shareholder approval is not required by applicable law or stock exchange listing +requirement or we choose to conduct redemptions pursuant to the tender offer rules of the SEC for business or other reasons. So long +as we obtain and maintain a listing for our securities on Nasdaq, we will be required to comply with Nasdaq rules. If we held a shareholder +vote to approve our initial business combination, we will, pursuant to our amended and restated memorandum and articles of association: +● conduct +the redemptions in conjunction with a proxy solicitation pursuant to Regulation 14A of the Exchange Act, which regulates the solicitation +of proxies, and not pursuant to the tender offer rules; and +● file +proxy materials with the SEC. +5 +Submission +of Our Initial Business Combination to a Stockholder Vote +In +the event that we seek shareholder approval of our initial business combination, we will distribute proxy materials and, in connection +therewith, provide our public shareholders with the redemption rights described above upon completion of the initial business combination. +If +we seek shareholder approval of our initial business combination, we will complete our initial business combination only if we obtain +the approval of an ordinary resolution under Cayman Islands law, which requires the affirmative vote of a majority of the shareholders +who attend and vote at a general meeting of the company. In such case, our sponsor and each member of our management team and board of +directors have agreed to vote their founder shares and public shares in favor of our initial business combination. As a result, assuming +our sponsor and each member of our management team and board of directors continue to own the shares they currently own, we would not +need any additional shares to be voted in favor of a transaction, in order to have such initial business combination approved. Each public +shareholder may elect to redeem their public shares irrespective of whether they vote for or against the proposed transaction or vote +at all. In addition, our sponsor and each member of our management team and Scilex and our directors have entered into an agreement with +us, pursuant to which they have agreed to waive their redemption rights with respect to any founder shares and public shares held by +them in connection with (i) the completion of a business combination and (ii) a shareholder vote to approve an amendment to our amended +and restated memorandum and articles of association (A) that would modify the substance or timing of our obligation to provide holders +of our Class A ordinary shares the right to have their shares redeemed in connection with our initial business combination or to redeem +100% of our public shares if we do not complete our initial business combination by April 11, 2025 (or as may be extended by a shareholder +vote to further extend the time to complete an initial business combination, as applicable) or (B) with respect to any other provision +relating to the rights of holders of our Class A ordinary shares. +Limitation +on Redemption upon Completion of our Initial Business Combination if We Seek Stockholder Approval +If +we seek shareholder approval of our initial business combination and we do not conduct redemptions in connection with our initial business +combination pursuant to the tender offer rules, our amended and restated memorandum and articles of association provide that a public +shareholder, together with any affiliate of such shareholder or any other person with whom such shareholder is acting in concert or as +a “group” (as defined under Section 13 of the Exchange Act), will be restricted from redeeming its shares with respect to +more than an aggregate of 15% of the shares sold in the IPO, which we refer to as “Excess Shares,” without our prior consent. +We believe this restriction will discourage shareholders from accumulating large blocks of shares, and subsequent attempts by such holders +to use their ability to exercise their redemption rights against a proposed business combination as a means to force us or our management +to purchase their shares at a significant premium to the then-current market price or on other undesirable terms. Absent this provision, +a public shareholder holding more than an aggregate of 15% of the shares sold in the IPO could threaten to exercise its redemption rights +if such holder’s shares are not purchased by us, our sponsor or our management at a premium to the then-current market price or +on other undesirable terms. By limiting our shareholders’ ability to redeem no more than 15% of the shares sold in the IPO without +our prior consent, we believe we will limit the ability of a small group of shareholders to unreasonably attempt to block our ability +to complete our initial business combination, particularly in connection with a business combination with a target that requires as a +closing condition that we have a minimum net worth or a certain amount of cash. +However, +we would not be restricting our shareholders’ ability to vote all of their shares (including Excess Shares) for or against our +initial business combination. +Redemption +of Public Shares and Liquidation if No Initial Business Combination +Our +amended and restated memorandum and articles of association provide that we will have until the Extended Date to complete an initial +business combination. If we have not consummated an initial business combination within such prescribed time period, we will: (i) cease +all operations except for the purpose of winding up; (ii) as promptly as reasonably possible but not more than ten business days +thereafter, redeem the public shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust +Account, including interest earned on the funds held in the Trust Account and not previously released to us (less tax payable and up +to $100,000 of interest to pay dissolution expenses), divided by the number of the then issued and outstanding public shares, which redemption +will completely extinguish public shareholders’ rights as shareholders (including the right to receive further liquidation distributions, +if any), subject to applicable law; and (iii) as promptly as reasonably possible following such redemption, subject to the approval +of our remaining shareholders and our board of directors, liquidate and dissolve, subject in each case to our obligations under Cayman +Islands law to provide for claims of creditors and the requirements of other applicable law. There will be no redemption rights or liquidating +distributions with respect to our warrants, which will expire worthless if we fail to consummate an initial business combination within +the prescribed time period. Our amended and restated memorandum and articles of association provide that, if we wind up for any other +reason prior to the consummation of our initial business combination, we will follow the foregoing procedures with respect to the liquidation +of the Trust Account as promptly as reasonably possible but not more than ten business days thereafter, subject to applicable Cayman +Islands law. +6 +Corporate +Information +Our +executive offices are located at 437 Madison Avenue, 27th Floor, New York, New York 10022, and our telephone number is 646-978-5180. +We are required to file Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q with the SEC on a regular basis, and are required +to disclose certain material events in Current Reports on Form 8-K, and as applicable, amendments to those reports filed or furnished +pursuant to Section 13(a) or 15(d) of the Exchange Act. The SEC maintains an Internet website that contains reports, proxy and information +statements and other information regarding issuers that file electronically with the SEC. The SEC’s Internet website is located +at http://www.sec.gov. In addition, we will provide copies of these documents without charge upon request from us by telephone at 646-978-5180. +Status +as a Public Company +We +believe our structure will make us an attractive business combination partner to target businesses. As an existing public company, we +offer a target business an alternative to a traditional initial public offering through a merger or other business combination with us. +In a business combination transaction with us, the owners of the target business may, for example, exchange their shares of stock in +the target business for our Class A ordinary shares (or shares of a new holding company) or for a combination of our Class A ordinary +shares and cash, allowing us to tailor the consideration to the specific needs of the sellers. We believe target businesses will find +this method a more expeditious and cost effective method to becoming a public company than a typical initial public offering. The typical +initial public offering process takes a significantly longer period of time than the typical business combination transaction process, +and there are significant expenses in the initial public offering process, including underwriting discounts and commissions, that may +not be present to the same extent in connection with a business combination with us. +Furthermore, +once a proposed business combination is completed, the target business will have effectively become public, whereas an initial public +offering is always subject to the underwriter’s ability to complete the offering, as well as general market conditions, which could +delay or prevent the offering from occurring or have negative valuation consequences. Once public, we believe the target business would +then have greater access to capital, an additional means of providing management incentives consistent with shareholders’ interests +and the ability to use its shares as currency for acquisitions. Being a public company can offer further benefits by augmenting a company’s +profile among potential new customers and vendors and aid in attracting talented employees. +We +are an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended, (the “Securities +Act”) and as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As such, we are eligible +to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not +“emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements +of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and +proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and shareholder +approval of any golden parachute payments not previously approved. If some investors find our securities less attractive as a result, +there may be a less active trading market for our securities and the prices of our securities may be more volatile. +In +addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended +transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other +words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise +apply to private companies. We have taken and intend to continue to take advantage of the benefits of this extended transition period. +We +will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of +the completion of the IPO, (b) in which we have total annual gross revenue of at least $1.235 billion, or (c) in which we are deemed +to be a large accelerated filer, which means the market value of our ordinary shares that are held by non-affiliates exceeds $700 million +as of the end of that year’s second fiscal quarter, and (2) the date on which we have issued more than $1.0 billion in non-convertible +debt securities during the prior three-year period. +7 +Competition +In +identifying, evaluating and selecting a target business for our initial business combination, we have encountered, and expect to continue +to encounter, intense competition from other entities having a business objective similar to ours, including other blank check companies, +private equity groups, leveraged buyout funds, public companies and operating businesses seeking strategic acquisitions. Many of these +entities are well established and have extensive experience identifying and effecting business combinations directly or through affiliates. +Moreover, many of these competitors possess greater financial, technical, human and other resources than us. Our ability to acquire larger +target businesses will be limited by our available financial resources. This inherent competitive limitation gives others an advantage +in pursuing the acquisition of a target business. Furthermore, our obligation to pay cash in connection with our public shareholders +who exercise their redemption rights may reduce the resources available to us for our initial business combination and potential future +dilutions that our outstanding warrants represent, which may place us at a competitive disadvantage in successfully negotiating an initial +business combination. +Facilities +We +currently maintain our executive offices at 437 Madison Avenue, 27th Floor, New York, New York 10022. We consider our current office +space adequate for our current operations. +Employees +We +currently have two executive officers. These individuals are not obligated to devote any specific number of hours to our matters but +they intend to devote as much of their time as they deem necessary to our affairs until we have completed our initial business combination. +The amount of time they will devote in any time period will vary based on the status of the proposed Transactions and, if the proposed +Transactions are not consummated, the stage of the business combination process we are in. We do not intend to have any full time employees +prior to the completion of our initial business combination. \ No newline at end of file diff --git a/raw/filings/0001913577/2024/0001213900-25-027319/item13.txt b/raw/filings/0001913577/2024/0001213900-25-027319/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..a20119ae7cf41ab0a07973e735be76adb96b1414 --- /dev/null +++ b/raw/filings/0001913577/2024/0001213900-25-027319/item13.txt @@ -0,0 +1,3 @@ +Item 13. +Certain Relationships and Related Transactions, and Director Independence +30 \ No newline at end of file diff --git a/raw/filings/0001913577/2025/0001193125-26-082642/filing.txt b/raw/filings/0001913577/2025/0001193125-26-082642/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..4bbbd2f0640a0be40f4affcc5123c213615ec780 --- /dev/null +++ b/raw/filings/0001913577/2025/0001193125-26-082642/filing.txt @@ -0,0 +1,3755 @@ +10-K +FY 0001913577 false September 30, 2027 160,000 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2025-12-31 0001913577 2024-08-30 2024-08-30 0001913577 smnr:InducementPlanMember 2025-12-31 0001913577 smnr:LegacySemnurCommonStockMember 2025-12-31 0001913577 smnr:SponsorNoteMember 2025-10-01 2025-12-31 xbrli:pure xbrli:shares smnr:Segment iso4217:USD iso4217:USD xbrli:shares +Table of Contents +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +FORM 10-K +(Mark One) +☒ +ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the fiscal year ended December 31 , 2025 +OR +☐ +TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO +Commission File Number 001-41351 +Semnur Pharmaceuticals, Inc. +(Exact name of Registrant as specified in its Charter) +Delaware +98-1659463 +( State or other jurisdiction of +incorporation or organization) +(I.R.S. Employer +Identification No.) +960 San Antonio Road +Palo Alto , CA +94303 +(Address of principal executive offices) +(Zip Code) +Registrant’s telephone number, including area code: (650) 422-7515 +Securities registered pursuant to Section 12(b) of the Act: +Title of each class +Trading Symbol(s) +Name of each exchange on which registered +Common stock, par value $0.0001 per share +SMNR +* +Warrants to purchase one share of common stock, each at an exercise price of $11.50 per share +SMNRW +* +* On April 16, 2025, the Registrant’s securities were suspended from trading on The Nasdaq Capital Market. On April 17, 2025, the registrant’s securities began trading on the OTCQB marketplace maintained by the OTC Markets Group, Inc. under the symbols “DNQAF”, “DNQWF” and “DNQUF.” In connection with the domestication and business combination discussed herein, on September 23, 2025, Registrant’s securities began trading on the OTCQB marketplace maintained by the OTC Markets Group, Inc. under the symbols “SMNR” and “SMNRW”. +Securities registered pursuant to Section 12(g) of the Act: None +Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ +Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒ +Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ +Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐ +Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. +Large accelerated filer +☐ +Accelerated filer +☐ +Non-accelerated filer +☒ +Smaller reporting company +☒ +Emerging growth company +☒ +If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒ +Indicate by check mark whether the Registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐ +If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the Registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐ +Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the Registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ +Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ +The aggregate market value of voting stock held by non-affiliates of Denali Capital Acquisition Corp., our predecessor, computed by reference to the price at which the common equity was last sold as of June 30, 2025 (the last trading day of the registrant’s second fiscal quarter of 2025) was $ 0.5 million . +The number of shares of Registrant’s Common Stock outstanding as of February 25, 2026 was 230,209,142 . +DOCUMENTS INCORPORATED BY REFERENCE +Portions of the Registrant’s definitive proxy statement relating to the 2026 Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission within 120 days after the end of the Registrant’s fiscal year ended December 31, 2025 , are incorporated by reference into Part III of this Annual Report on Form 10-K. +Table of Contents +Table of Contents +Page +PART I +Item 1. +Business +3 +Item 1A. +Risk Factors +37 +Item 1B. +Unresolved Staff Comments +104 +Item 1C. +Cybersecurity +104 +Item 2. +Properties +105 +Item 3. +Legal Proceedings +105 +Item 4. +Mine Safety Disclosures +105 +PART II +Item 5. +Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +106 +Item 6. +[Reserved] +106 +Item 7. +Management’s Discussion and Analysis of Financial Condition and Results of Operations +107 +Item 7A. +Quantitative and Qualitative Disclosures About Market Risk +116 +Item 8. +Financial Statements and Supplementary Data +116 +Item 9. +Changes in and Disagreements With Accountants on Accounting and Financial Disclosure +116 +Item 9A. +Controls and Procedures +116 +Item 9B. +Other Information +117 +Item 9C. +Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +117 +PART III +Item 10. +Directors, Executive Officers and Corporate Governance +118 +Item 11. +Executive Compensation +118 +Item 12. +Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +118 +Item 13. +Certain Relationships and Related Transactions, and Director Independence +118 +Item 14. +Principal Accounting Fees and Services +118 +PART IV +Item 15. +Exhibits, Financial Statement Schedules +119 +Item 16. +Form 10-K Summary +122 +i +Table of Contents +SEMNUR PHARMACEUTICALS, INC. +In this Annual Report on Form 10-K (the “Annual Report”) , unless the context requires otherwise, references to the “Company”, “Semnur”, “we”, “us”, “our”, and similar terms refer to Semnur Pharmaceuticals, Inc., a Delaware corporation formerly known as Denali Capital Acquisition Corp. (“Denali”), and its consolidated subsidiaries. References to “Legacy Semnur” refer to the private Delaware corporation that is now our wholly owned subsidiary and named Semnur, Inc. (formerly known as “Semnur Pharmaceuticals, Inc.”). +On September 22, 2025, we consummated a business combination pursuant to an agreement and plan of merger, dated as of August 30, 2024 (the “Initial Merger Agreement,” as amended by Amendment No. 1 to Agreement and Plan of Merger, dated April 16, 2025, “Amendment No. 1 to the Initial Merger Agreement” and Amendment No. 2 to Agreement and Plan of Merger, dated July 22, 2025, “Amendment No. 2 to the Initial Merger Agreement” and collectively, the “Merger Agreement”), by and among Denali, Denali Merger Sub Inc., a Delaware corporation and wholly owned subsidiary of Denali (“Merger Sub”), and Legacy Semnur. Pursuant to the terms of the Merger Agreement, the business combination (herein referred to as the “Business Combination” or “reverse recapitalization” for accounting purposes) between Denali and Legacy Semnur was effected through the merger of Merger Sub with and into Legacy Semnur with Legacy Semnur surviving as Denali’s wholly owned subsidiary. In connection with the Business Combination, Denali changed its name from Denali Capital Acquisition Corp. to Semnur Pharmaceuticals, Inc. +Unless otherwise noted or the context requires otherwise, references to our “Common Stock” refer to our common stock, par value $0.0001 per share. +CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS +Certain statements contained in this Annual Report may constitute “forward-looking statements” for purposes of federal securities laws. Such statements can be identified by the fact that they do not relate strictly to historical or current facts. Forward-looking statements appear in a number of places in this Annual Report including, without limitation, in the section titled “ Management’s Discussion and Analysis of Financial Condition and Results of Operations. ” In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. Forward-looking statements are typically identified by words such as “plan,” “believe,” “expect,” “anticipate,” “contemplate,” “intend,” “outlook,” “estimate,” “forecast,” “project,” “continue,” “could,” “may,” “might,” “possible,” “potential,” “predict,” “should,” “will,” “would” and other similar words and expressions (including the negative of any of the foregoing), but the absence of these words does not mean that a statement is not forward-looking. +These forward-looking statements are based on information available as of the date of this Annual Report and our management’s current expectations, forecasts and assumptions, and involve a number of judgments, known and unknown risks and uncertainties and other factors, many of which are outside the control of the Company and our directors, officers and affiliates. There can be no assurance that future developments will be those that have been anticipated. Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date. +These forward-looking statements involve a number of risks, uncertainties or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described in the section of this Annual Report titled “ Risk Factors. ” There can be no assurance that future developments will be those that have been anticipated. Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date. +Forward-looking statements in this Annual Report may include, but are not limited to, statements about: +• +the ability to obtain the listing of our Common Stock on Nasdaq; +• +our public securities’ liquidity and trading; +• +our ability to raise financing in the future; +• +our expected use of proceeds from future issuances of equity or convertible debt securities; +1 +Table of Contents +• +our future financial performance, including our revenue, costs of revenue and operating expenses; +• +our future use of equity or debt financings to execute our business strategy; +• +our ability to use cash on hand to meet current and future financial obligations, including funding our operations, debt service requirements and capital expenditures; +• +the outcome of any legal proceedings that may be instituted against us; +• +our ability to attract and retain qualified directors, officers, employees and key personnel; +• +our ability to compete effectively in a highly competitive market; +• +the competition from larger biotechnology companies that have greater resources, technology, relationships and/or expertise; +• +the ability to protect and enhance our corporate reputation and brand; +• +the impact from future regulatory, judicial and legislative changes in our industry; +• +anticipated regulatory and legal developments in the United States and foreign countries in which we may seek regulatory approval for our product candidates in the future; +• +our ability to obtain and maintain regulatory approval of any of our products and product candidates; +• +our ability to research, discover and develop additional product candidates; +• +our ability to grow and manage growth profitably; +• +our ability to obtain and maintain intellectual property protection and not infringe on the rights of others; +• +our ability to execute our business plans and strategy; +• +our ability to prevent, respond to, and recover from a cybersecurity incident; +• +the effect of any geopolitical conflicts or new or increased international tariffs, including mitigation efforts and economic effects, on any of the foregoing or other aspects of our business operations, including but not limited to our clinical studies and clinical trials; +• +the effect of global economic and political developments, including the conflicts in Ukraine and Israel; +• +regulatory developments related to crypto assets and crypto asset markets; +• +a determination that we are an investment company under the Investment Company Act of 1940; +• +our ability to successfully adopt and execute on our new cryptocurrency treasury strategy; and +• +other factors detailed under the section of this Annual Report titled “ Risk Factors. ” +Should one or more of these risks or uncertainties materialize or should any of the assumptions made by our management prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. There may be additional risks that we consider immaterial or which are unknown. It is not possible to predict or identify all such risks. We do not undertake any obligation to update, add or to otherwise correct any forward-looking statements contained herein to reflect events or circumstances after the date they were made, whether as a result of new information, future events, inaccuracies that become apparent after the date hereof or otherwise, except as may be required under applicable securities laws. +2 +Table of Contents +PART I +It em 1. Business. +Our Company +We are a late-stage clinical biopharmaceutical company focused on developing and commercializing innovative non-opioid pain management products for the treatment of acute and chronic pain. We believe that our innovative non-opioid product portfolio has the potential to provide effective pain management therapies that can have a transformative impact on patients’ lives. We target indications with high unmet needs and large market opportunities with non-opioid therapies for the treatment of patients with acute and chronic pain and are dedicated to advancing and improving patient outcomes. Our lead product candidate, SP-102 (10 mg, dexamethasone sodium phosphate viscous gel), if approved, has the potential to become the first U.S. Food and Drug Administration (“FDA”) approved non-opioid novel injectable corticosteroid gel formulation for patients with moderate to severe LRP (also known as sciatica), containing no preservatives, surfactants, solvents, or particulates and is expected to be available in a pre-filled syringe formulation following approval by the FDA. +Our guiding principle has always been and remains a patient-first approach, which drives our mission to meet the increasing global demand for more effective and safer non-opioid pain management solutions. Through rigorous research and development, we believe we are on the cusp of establishing Semnur as the preeminent name in commercial non-opioid pain management, specifically targeting the unmet needs in both acute and chronic pain sectors with our innovative and leading therapies. We believe that we have made substantial progress in demonstrating the rapid onset and enhanced tolerability of our product candidate. +Semnur was founded in 2013 and we have invested substantial efforts and financial resources on building our intellectual property portfolio and infrastructure. We have conducted pharmacokinetic (“PK”) and toxicology studies, including a Phase 1 PK bridging study, Phase 2 repeat dose study, and a pivotal Phase 3 study. We were acquired by Scilex Holding Company (“Scilex”) on March 18, 2019, pursuant to, and in connection with the transactions contemplated by, an Agreement and Plan of Merger between Scilex, us, Sigma Merger Sub, Inc., Scilex’s then wholly owned subsidiary (“Sigma Merger Sub”), Fortis Advisors LLC, solely as representative of the holders of our equity (the “Semnur Equityholders’ Representative”), and Sorrento Therapeutics, Inc. (“Sorrento”), for limited purposes (as amended, the “Semnur Merger Agreement”). We expect to continue to make investments in research and development, clinical trials and regulatory affairs to develop our product candidate, SP-102. +We are developing SP-102 to be an injectable viscous gel formulation of a widely used corticosteroid designed to address the serious risks posed by off-label ESI, which are administered over 12 million times annually in the United States. SP-102 has been granted fast track designation by the FDA and, if approved, could become the only FDA-approved ESI for the treatment of sciatica. Although such designation has been granted, it may not lead to a faster development or regulatory review process and such designation does not increase the likelihood that SP-102 will receive marketing approval. +We have completed a pivotal Phase 3 study with final results received in March 2022, which results reflected achievement of primary and secondary endpoints, with SP-102 treatment decreasing pain intensity for over a month in sciatica patients and resulting in statistically significant and clinically meaningful improvement in the disability index score while maintaining tolerability comparable to placebo. The Phase 3 study results were published in PAIN®Journal in June 2024, which is the leading journal devoted to pain medicine and research. This Phase 3 study represents a potential significant improvement in treatment of adult patients with sciatica, who struggle with the clinical consequences of no currently FDA-approved therapies being available, suboptimal formulations of corticosteroids used off-label and/or excess pain and disability. The primary endpoint of change in average daily Numeric Pain Rating Scale (“NPRS”) pain in the affected leg over four weeks demonstrated meaningful and statistically significant result over placebo, least square (LS) mean treatment difference (standard error [SE]) of -0.52 (0.163) units [95% confidence interval [CI]: -0.84, -0.20] compared to placebo (P=0.002). +Most of the secondary endpoints at four weeks also demonstrated statistically significant results, supporting the primary outcome. For the key secondary endpoint of mean change in Oswestry Disability Index (“ODI”) from baseline, the LS mean treatment difference (SE) for SP-102 was -3.38 (1.388) units [95% CI: -6.11, -0.65] compared to placebo (P=0.015). SP-102 treatment resulted in a -8.88 point reduction from baseline, which exceeds the established minimal clinically important difference of -8. +3 +Table of Contents +Based on the results of this study, we believed that we had sufficient data to support the safety and efficacy of SP-102, which would provide us with a pathway for a 505(b)(2) new drug application (“NDA”) submission. In November 2023, we had a Type C meeting with the FDA to discuss the requirements for filing a 505(b)(2) NDA for SP-102. In the Type C meeting, the FDA indicated that it did not agree that the clinical data collected from the single CLEAR-1 trial was sufficient to support the safety and efficacy of SP-102, given the risks associated with interventional procedures. The FDA requested that a confirmatory trial be conducted, noting the absence of any existing FDA-approved epidural steroid product for the treatment of sciatica. The FDA provided guidance regarding expectations for this additional trial needed prior to a 505(b)(2) NDA filing, including expectations for the size of the safety database and specific safety monitoring requirements. Specifically, the FDA requested that the confirmatory CLEAR-2 trial include a larger safety database to further validate the safety and efficacy of SP-102. Based on such guidance, we designed an open-label multi-center safety and efficacy trial, which we had expected to commence in the first half of 2024 and in which we would seek to enroll approximately 700 patients with moderate-to-severe LRP requiring an epidural steroid injection. In that trial, we expected to administer SP-102 in up to three injections during a six-month observation period. In February 2024, we had a Type D meeting with the FDA to preview the design of such trial with the FDA, in order to reduce the potential need for any other additional confirmatory trials prior to a 505(b)(2) NDA filing. During the Type D meeting, the FDA provided further guidance with respect to the requirements needed to help best position us to be able to satisfy the requirements for a 505(b)(2) pathway approval. Specifically, the FDA reaffirmed the need for a larger sample size and further requested confirmatory evidence of efficacy through a repeat injection. Based on this feedback, we have instead designed a Phase 3 CLEAR-2 trial, which is expected to be a randomized, active comparator and placebo-controlled, multi-center, safety and efficacy study of SP-102 in subjects with moderate to severe LRP enrolling approximately 700 patients to receive an open-label initial injection, and randomizing approximately 200 subjects to the second phase of repeat injection. The primary and key secondary endpoints of the CLEAR-2 trial are consistent with those used in the CLEAR-1 trial, including (i) average daily NPRS pain in the affected leg over four weeks following the initial injection of SP-102 and (ii) Oswestry Disability Index at four weeks following injection of SP-102 or placebo. We have also optimized certain secondary endpoints to capture additional potential clinical benefits of SP-102. +We initiated our second Phase 3 in September 2025 and, given our experience from conducting the Phase 3 CLEAR-1 study, we expect to be able to complete the trial by 2027 and submit our 505(b)(2) NDA to the FDA for approval. If approved, and given SP-102’s fast-track designation, this would position us to achieve our targeted commercial launch of SP-102 in 2028. Except as described above, as of the date of this Annual Report, we have not yet pursued any additional substantive development of SP-102. +We are focused on identifying treatment options for pain management with established mechanisms that have deficiencies in safety, efficacy or patient experience. We believe this approach allows us to potentially leverage the regulatory approval pathway available under Section 505(b)(2) of the Federal Food, Drug and Cosmetic Act (the “FDCA”) for our product candidate. +Our Strategy +Our vision is to become the leading pain management company delivering novel non-opioid and non-addictive treatments to provide safe, effective and durable relief of multiple pain conditions. To accomplish this, the principal elements of our strategy are the following: +• +Develop SP-102 as a novel epidural injection for the first approved treatment of sciatica. We are developing SP-102 to address the limitations associated with the available corticosteroid epidural injectable products that are used off-label. Many of these products contain potentially neurotoxic preservatives and particulates and are administered over 12 million times annually despite a warning on the label of serious neurologic complications, including loss of vision, stroke, paralysis and death. These products carry warnings required by the FDA that the safety and efficacy of epidural administration has not been established. SP-102 has received fast track designation from the FDA and, if approved, could become the first FDA-approved epidural steroid product with long-term patent protection, which we also believe would create significant barriers to entry. Although such designation has been granted, it may not lead to a faster development or regulatory review process and such designation does not increase the likelihood that SP-102 will receive marketing approval. Due to the novelty of our formulation as well as the associated patents and trade secrets, future potential competitors could be required to conduct extensive preclinical studies and costly comparative clinical trials. A full six-month data analysis was completed in February 2022 and we have completed a pivotal Phase 3 study with final results received in +4 +Table of Contents +March 2022, which results reflect achievement of primary and secondary endpoints. We have extensive clinical and preclinical data (including those obtained from multiple Phase 2 clinical trials) with the novel viscous gel formulation of SP-102. The Phase 3 study results were published in PAIN® Journal in June 2024 and we also presented the pivotal Phase 3 trial results at the American Society of Interventional Pain Physicians annual meeting in Las Vegas, Nevada in May 2022. +• +SP-102 may be the first FDA approved ESI indicated for sciatica. Based on the Phase 3 results, we anticipate being able to show advantages of SP-102 compared to existing steroid formulations. We anticipate that SP-102 may have longer duration of clinical benefit compared to generic dexamethasone formulation. The currently used off-label dexamethasone formulation does not have proven efficacy. Pain specialists who have used current dexamethasone formulation believe the efficacy lasts for a short period of time. We expect the clinical benefit of SP-102 to last up to approximately 100 days. Clinical benefit lasting approximately 100 days will reduce the number of procedures patients need and save the health care system valuable resources. Other steroid formulations currently used are suspension steroid formulations. Suspension steroids can cause serious safety concerns such as paraplegia, stroke, paralysis and death, as reflected in FDA class label warning. We expect SP-102 to have proven tolerability based on data from our preclinical and clinical trials. Our reimbursement team will file for a separate J code for SP-102. Once a product receives a special J code, customers will be reimbursed for the product. We have experienced account executives who will follow the process to file for the special J code prior to the launch, which we expected to be granted within two to three quarters after launch. We believe this will facilitate faster uptake in revenue for SP-102 following FDA approval. +• +Capitalize on the potential market as back pain affects most adults, causes disability for some, and is a common reason for seeking healthcare. In the United States, opioid prescriptions for low back pain have increased, and opioids are now the most commonly prescribed drug class. According to the British Medical Journal 2015, more than half of regular opioid users report back pain. Rates of opioid prescribing in the United States and Canada are two to three times higher than those in most European countries. If approved, SP-102 could become the first FDA-approved ESI product for sciatica. We believe an FDA-approved therapy for the treatment of sciatica could potentially benefit from first-to-market advantage if it can be shown to reduce or delay the need for expensive and potentially risky interventions, such as spinal surgery, and to decrease the use of opioids. +• +Expand our product portfolio by developing or acquiring non-opioid assets that leverage our existing research and development infrastructure. We are continuously evaluating opportunities to leverage our research and development experience to develop non-opioid therapeutics for pain management indications that are not adequately served with existing treatment options. Plans for expansion of our product portfolio include investing in early and late-stage research programs to develop our pipeline and capabilities by selectively acquiring highly differentiated technologies, investing in technologies to prepare for commercialization, evaluating strategic partnerships to improve patient experience or enable greater patient access, and opportunistically pursuing strategic partnerships and collaborations to maximize the value of our pipeline and platform technologies. We also seek to in-license non-opioid therapeutics that can both complement our existing product portfolio and benefit from our existing research and development infrastructure. +• +Leverage the robust and integrated commercial infrastructure and dedicated sales force and sales management, marketing, medical affairs, managed care capabilities, manufacturing and general administration functions of our parent company, Scilex, to commercialize our current and future product candidates, if approved. Scilex has successfully launched three commercial non-opioid pain management products in the past five years by using its in-house sales force and an outsourced sales force, who typically bring strong, proven experience promoting a broad scope of pain management products, as our current and future product candidates are commercialized. Scilex’s three marketed non-opioid pain products have given the Scilex team the opportunity to interact with the key physician audiences for SP-102, while promoting ZTlido â , one of Scilex’s commercial products, and building rapport with the future prescribers as Scilex looks to partner with us for SP-102’s commercial launch. Scilex’s sales representatives leverage their established relationships with pain management healthcare professionals (“HCPs”) to call on over 6,000 target pain specialists, neurologists, and select health care providers, and we believe these same call points that are providing treatment for sciatica could benefit from SP-102, if +5 +Table of Contents +approved. Scilex launched ZTlido in the fourth quarter of 2018 with an integrated internal commercial organization and we believe that Scilex’s differentiated and focused team, combined with its competitive national accounts strategy and active direct marketing and medical efforts have driven, and will continue to drive, accelerated sales growth for Scilex products and in the future can drive market uptake for our pain product candidates, including SP-102. As of December 31, 2025, we have 12 contractors and consultants, in addition to three full-time employees from Scilex dedicated to our product candidate, SP-102. In connection with the closing of the Business Combination, we entered into a Transition Services Agreement (the “Transition Services Agreement”) with Scilex, pursuant to which we can utilize certain employees and other service providers of Scilex (including Scilex’s sales force) to operate our business, including with respect to the following business functions: finance, human resources, information systems, legal and administrative, R&D support and commercialization support. During the transition period and leveraging Scilex’s infrastructure, we will be able to develop our own infrastructure with Scilex’s continued support and as we enter the final stages of development and pre-launch commercialization planning, we plan to increase the number of full-time employees to strengthen our research and development, general administrative, manufacturing, regulatory and commercial functions. The term of the Transition Services Agreement is three years from the closing of the Business Combination, which we believe is sufficient time for us to develop our commercial infrastructure and other business functions. See the section titled “ Risk Factors — Risks Related to Our Relationship with Scile x” elsewhere in this Annual Report. Our financial statements for the fiscal years ended December 31, 2025 and 2024 reflect charges for these services on an allocation basis. As a result, our historical financial statements may not be reflective of conditions that would have existed or what our results of operations would have been had we been a stand-alone public company and no longer a majority owned subsidiary of Scilex. Upon completion of the Phase 3 CLEAR-2 trial by 2027, we will commence the preparation work for the mass production of SP-102. Leveraging Scilex’s commercial infrastructure, upon approval by the FDA, we intend to initiate negotiations with national insurance companies, as well as Medicare and Medicaid, to secure inclusion of SP-102 in their programs. In addition, we plan to enter into a distribution agreement with a major third-party logistic provider for warehousing and distribution of SP-102 as it approaches the NDA approval stage. Utilizing Scilex’s experience and support, we have established cross-functional launch teams and developed a detailed launch playbook to guide the efforts towards a successful product launch. For a brief summary of the launch activities and timelines, please refer to the section titled “ Business — Sales and Marketing ” elsewhere in this Annual Report. +• +Leverage our management team’s experience to further develop and commercialize our current and future product portfolio. Leverage our management team’s experience to further develop and commercialize our current and future product portfolio. Our management team has held senior positions at leading biopharmaceutical companies, including Allergan, Inc., Bristol-Myers Squibb Company, Teva Pharmaceuticals Industries Ltd., Novartis Pharmaceuticals Corporation, Ardelyx, Inc., Pfizer Inc., Johnson and Johnson, Cephalon, Inc., Roche AG, PDL BioPharma, Inc., Xenoport, Inc. and Chiron Corp. Our team has substantial experience in rapidly progressing new drug products to clinical proof of concept, completing successful pivotal registration programs and successfully commercializing products. +We believe that our innovative non-opioid product portfolio has the potential to provide effective pain management therapies that can have a transformative impact on patients’ lives. +Our Management Team +Our management team has extensive experience in the pain and neurology center marketplace and a track record of successfully commercializing pain management and central nervous system products, which helps us in aiming to ensure that our current and future product candidates, pipeline programs, and partnerships in the marketplace are consistently of the highest quality. +Our management team is led by our Chief Executive Officer and President, Jaisim Shah, with strategic guidance from our Executive Chairman, Henry Ji, Ph.D. They collectively have over 60 years of global biopharmaceutical and biotechnology experience. +Jaisim Shah has over 30 years of industry success in leading product development and commercializing innovative therapies and creating companies, with documented success in development and commercialization of some of today’s most recognized pharmaceutical brands. He is a seasoned life science executive and board director with extensive accomplishments at Scilex, Bristol-Myers Squibb, Roche, PDL Biopharma, Pfizer, and start-ups such +6 +Table of Contents +as Elevation. Mr. Shah has served as our Chief Executive Officer and President since our inception in 2013. He also previously served as Scilex’s President, Chief Executive Officer from March 2019 through August 2025, and a board member of Scilex from March 2019 through September 2025 and as a member of the board of directors of Scilex Pharmaceuticals, Inc., Scilex’s wholly owned subsidiary (“Scilex Pharma”), from November 2016 through August 2025. Mr. Shah served as Chief Business Officer of Elevation Pharmaceuticals where he focused on financing, business strategy, mergers and acquisitions, and business development. He led the sale of Elevation to Sunovion Pharmaceuticals in 2012. At Facet Biotech and PDL BioPharma, he served from 2000 to 2009 as Chief Business Officer and also held the position of senior vice president of marketing and medical affairs. During this time, he completed numerous licensing/partnering and strategic transactions including with Roche, Bristol-Myers Squibb, Otsuka, and Biogen Idec. His leadership in marketing and portfolio management, including leading the commercial enterprise, helped the company make large improvements to meet its profitability potential. At Bristol-Myers Squibb, as vice president of global marketing from 1997 to 2000, Mr. Shah received the “Presidents Award” for completing one of the most significant collaborations in the company’s history. He has played a key role in the formulation of long-range plans and pre-launch and launch strategies for brands such as Abilify®, Pegasys®, and Rituxan/MabThera®, each of which have generated well over $1 billion in sales. +Dr. Ji is the holder of several issued and pending patents in the life science research field. Our Chief Financial Officer, Stephen Ma, has more than 15 years of finance and operational expertise across pharmaceuticals and venture-backed biotechnology companies. Our research efforts are guided by highly experienced scientists and experts. Our management team contributes a diverse range of experiences from leading biopharmaceutical companies, including Allergan, Inc., Bristol-Myers Squibb Company, Teva Pharmaceuticals Industries Ltd., Novartis Pharmaceuticals Corporation, Ardelyx, Inc., Johnson and Johnson, Pfizer Inc., Cephalon, Inc., Roche AG, PDL BioPharma, Inc., Xenoport, Inc. and Chiron Corp. With this leadership, we believe we are well positioned to achieve our vision of becoming the leading pain management company delivering novel non-opioid and non-addictive treatments aiming to provide safe, effective and durable relief of multiple pain conditions. +In addition, we are supported by impressive teams across all levels of the organization. We hire and develop world-class talent from diverse backgrounds in biopharma, academia, technology and finance to ensure we have all of the capabilities to design and deliver first-class pain management therapies. +Our Product Candidate — SP-102 +SP-102 is a pivotal Phase 3, novel, injectable viscous gel formulation of a widely used corticosteroid for epidural injections to treat sciatica. No ESIs are currently approved by the FDA. +Sciatica Market Overview +A particularly debilitating complication of back pathology is sciatica, which is a condition caused by mechanical compression of the nerve root, or by the effects of inflammatory mediators arising from a degenerative disc that results in inflammation and damage to the nerve roots. This nerve root compression in the lumbar segment of the spine causes shock-like or burning LBP combined with pain radiating down along the sciatic nerve through the buttocks and down one leg, sometimes reaching the foot. This often severe and debilitating leg pain is usually associated with symptoms of neuropathy-like numbness and tingling. The estimated lifetime incidence of sciatica ranges from 13% to 40% of the U.S. population, and about one-third of these cases will develop symptoms lasting over a year. According to a report by Decision Resources Group, it was estimated that over 4.8 million patients would suffer from sciatica in the United States in 2024. +Market Opportunity for SP-102 +The applicable assumed market for SP-102 is the U.S. ESI Market, with an average market growth rate of 3.6% through 2027 (as estimated by Syneos Health as part of its consulting assignment with Scilex in 2021 and Scilex internal market research, which takes into account Scilex’s anticipated promotional activities), with lower growth thereafter. Projections for SP-102 revenues assume receipt of regulatory approval in 2027 with commercial launch in 2028, a market size of approximately 12.0 million ESI procedures annually (based on Syneos Health’s analysis of prescription claims data), an average growth rate of 3.6% year-over-year through 2027 and lower growth thereafter, a maximum market share of approximately 33% of the U.S. ESI market (based on Syneos Health’s analogue assessment of other similar products in the applicable market and primary market research with healthcare professional specialists as well as Scilex’s assessment of the competitive landscape and that there are currently no FDA-approved ESI therapies for sciatica). Based on the independent market research conducted by Syneos Health in 2020 and 2021, given the potential substantial utilization of SP-102, by the 5th year of launch, sales of SP-102 in sciatica are projected to +7 +Table of Contents +reach $1.5 billion to $2.0 billion annually. As of the date of this Annual Report, SP-102 has not received regulatory approval. As disclosed elsewhere, we expect commercial launch in 2028 but there is no guarantee that we will be able to commence a commercial launch of SP-102 in 2028 or ever, as any such launch would be subject to regulatory approval, which we may not receive. +Current Treatment Landscape and Limitations of Existing Treatments +As the U.S. population ages, the incidence of sciatica and the need for interventions are expected to continue to increase. For example, from 2000 to 2018, ESIs in Medicare beneficiaries increased by more than 125%. +Although there are numerous etiologies of sciatica, and therapies may differ based on the etiology, pain management interventions for sciatica are usually multi-modal. Among the pain management interventions, ESI is considered to be efficacious and has been widely used by physicians across multiple specialties, including anesthesiology, physical medicine and rehabilitation and pain medicine. However, there is no ESI therapy approved by the FDA for sciatica to date, and particulate formulations of glucocorticoids have been associated with severe adverse events. +Patients with sciatica have a wide range of invasive and non-invasive treatment options. Surgical intervention options include vertebroplasty, spinal laminectomy, discectomy, microdiscectomy, foraminotomy, intradiscal electrothermal therapy, nucleoplasty, radiofrequency denervation, spinal fusion and artificial disc replacement. These options are generally the last line of treatment because they can result in prolonged recovery time, may not be successful in reducing pain or addressing the underlying cause, and may result in permanent loss of flexibility. For these reasons, less invasive interventions are usually implemented first. Less invasive interventions may include (i) nonpharmacological therapies such as physical therapy, stretching exercises, spinal manipulations or chiropractic therapy, traction, acupuncture, transcutaneous electrical nerve stimulation, and biofeedback; (ii) oral pharmaceutical therapies such as NSAIDs, muscle relaxants, opiates, antidepressants, and anticonvulsants; and (iii) injectable pharmaceutical therapies such as off-label use of ESIs or nerve blocks. +ESIs for various back pain syndromes are one of the most common procedures performed in the United States and lumbosacral radicular ESI procedures represent 88% of total ESI procedures. ESIs are used when a patient’s pain is inadequately controlled with oral pain medications, topical systems or interventions such as physical therapy. ESIs have demonstrated efficacy in reducing pain, restoring function, reducing the need for other health care and avoiding back surgery. However, in addition to not being FDA-approved for the treatment of sciatica, currently-used ESIs also present various risks and challenges. +When administering an ESI, many physicians use a particulate steroid (including methylprednisolone acetate, triamcinolone acetonide, or betamethasone sodium phosphate or betamethasone sodium acetate) instead of a non-particulate steroid (dexamethasone sodium phosphate) because early studies suggested that the duration of pain relief was longer with the particulates and fewer repeat injections were required, even though dexamethasone is considered an otherwise potent and therapeutically beneficial therapy. Particulate in injectable products is defined as extraneous undissolved particles present in injectable solution products. An example of such particulate is precipitate of insoluble drug product form, or suspended drug product particle. These steroid particles or their aggregates have at least two mechanisms for neurological damage: (1) they can act as emboli if injected into an artery and are of sufficient size to block small terminal arterioles supplying the brain or spinal cord; and (2) several particulate steroids have an immediate and massive effect on microvascular perfusion because of formation of red blood cell aggregates. These emboli can cause rare but catastrophic neurologic injuries including stroke and spinal cord injury that can result in increased pain, severe permanent disability or death. In addition, fungal meningitis has occurred from the injection of steroids manufactured in a compounding pharmacy that did not adhere to sterility standards. +The FDA has been evaluating serious neurologic events with ESIs since 2009, and in 2014, the FDA required a class warning on the currently off-label use of injectable corticosteroids to include information about the risk of serious neurologic events with ESIs. The warning on product labels for all injectable glucocorticoids states that the product is to be used for intramuscular or intravenous purposes only, and specifically includes a warning for serious neurologic adverse reactions with epidural administration. These serious neurologic events have been reported with and without the use of fluoroscopy. The class warning also includes a statement that safety and effectiveness of epidural administration of these corticosteroids have not been established. +Certain third-party payors have also provided limited coverage of ESIs to date. Based on coverage criteria established by different health care plans and certain Medicare Administrative Contractors, an ESI is considered medically necessary and therefore reimbursable only when certain specific criteria are met. +8 +Table of Contents +Our Solution +We are developing SP-102 to address problems associated with currently available corticosteroid products that are used in practice but not approved for epidural injection or the treatment of sciatica. SP-102 is a Phase 3 sterile dexamethasone sodium phosphate viscous gel formulation of 10 mg dexamethasone at a 5 mg/mL concentration in a pre-filled glass syringe for delivery via an epidural injection. SP-102 allows for the use of the potent dexamethasone and provides for longer residency time at the site of injection through the use of a viscous excipient in lieu of particulates. The product is also formulated without the use of preservatives and packaged in a pre-filled syringe, so as to confer greater physician convenience. +Currently-used steroids carry a class warning and are not approved to be administered epidurally for the treatment of sciatica. In fact, there are further warnings that the safety and efficacy of the use of these products following epidural administration has not been established. Their formulations include neurotoxic preservatives, surfactants, suspensions or particulates that carry risks of serious neurologic complications. Unlike currently-used steroids, SP-102 does not contain neurotoxic preservatives, surfactants, suspensions or particulates that carry risk of serious neurologic complications, which we believe may improve tolerability and the extent of pain relief. By using dexamethasone sodium phosphate, the soluble form of the potent dexamethasone, we believe SP-102 may substantially reduce the risk of embolic events in case of inadvertent intra-arterial administration and enable repeat injections. We expect the injectable viscous gel product, SP-102, which uses a biocompatible, biodegradable, novel excipient and is protected by multiple patents and patent applications and trade secrets, to prolong the residence time at the injection site and result in extended local activity. We believe SP-102, if successfully developed and approved, has the potential to reduce the disability related to LRP and help delay or avoid spine surgery. +If approved, SP-102 could become the first FDA-approved ESI product for sciatica. We believe an FDA-approved therapy for the treatment of sciatica could potentially benefit from first-to-market advantage if it can be shown to reduce or delay the need for expensive and potentially risky interventions such as spinal surgery and decrease the use of opioids. SP-102 benefits from our substantial intellectual property portfolio and other technical barriers to entry for potential competitors. Historically, we have purchased our clinical and commercial supply requirements for sodium hyaluronate, one of the excipients for SP-102, from Genzyme pursuant to a supply agreement, which terminated as of May 31, 2024. We are currently in discussions with Sanofi, an affiliate of Genzyme, and are in the process of identifying and certifying new suppliers, in each case to fulfill our future supply requirements for sodium hyaluronate. Our complex manufacturing process, specialized equipment and know-how for sterile viscous product candidates are also key to our competitive edge. +We have completed a pivotal Phase 3 CLEAR trial (NCT03372161), which was designed to evaluate the tolerability and clinical benefit of SP-102 in the proposed indication (i.e., treatment of LRP). The CLEAR clinical trial is a randomized, double-blind, placebo-controlled, multicenter Phase 3 trial that enrolled 401 subjects with LRP at over 40 clinical sites across the United States, with a primary objective to evaluate the analgesic effect on average in the affected leg pain (as measured by the NPRS in the affected leg) following a single epidural transforaminal (TF) injection of SP-102, compared to an intramuscular (i.e., the posterior multifidus muscle) injection of placebo over four weeks. After the primary Week Four analysis period, and if the subject continued to experience leg pain, a repeat injection of open-label SP-102 was made optional at the investigator’s discretion. +Clinical Development Overview +We have completed a Phase 3 pivotal study of SP-102. The CLEAR study is a randomized, double-blind, placebo-controlled Phase 3 trial that enrolled 401 patients with sciatica to compare the epidural administration of SP-102 to placebo. We announced final results from this study in March 2022. The Phase 3 study results have been published in PAIN®Journal in June 2024 and we also presented the pivotal Phase 3 trial results at the American Society of Interventional Pain Physicians annual meeting in Las Vegas, Nevada in May 2022. +Preclinical and Clinical Trial and Highlights +SP-102 has been evaluated in a number of preclinical studies and clinical trials as a potential treatment for sciatica. Key findings from the preclinical studies and clinical trials include: +• +The introduction of SP-102 into blood vessels did not result in neurological complications in the UPD003-IS21 preclinical toxicology study; +• +SP-102 showed an extended residence time and tolerability in the 1014-1512 and the 1014-2847 preclinical studies; +9 +Table of Contents +• +Repeat injections of SP-102 showed continued pain reduction with no unexpected adverse events based on preliminary results from the SP-102-03 study; and +• +SP-102 showed an extended local activity with epidural administration in the ES-1504 study. +Study Details +Phase 3 Pivotal Clinical Trial — CLEAR +We have completed a pivotal, randomized, double-blind, placebo-controlled Phase 3 trial, CLEAR, that enrolled 401 patients with sciatica at over 40 sites across the United States. The study included an open-label extension where subjects were followed for up to 24 weeks after treatment to evaluate the tolerability of administering SP-102 in a larger patient population. After week four, subjects who met certain pain criteria received open-label SP-102 to investigate the tolerability of repeat injections and the duration of pain relief following injection. This well-controlled, double-blind, randomized trial was designed to demonstrate evidence of the analgesic effect and tolerability of SP-102. The schematic of this Phase 3 trial is demonstrated in the flowchart below. +The primary objective of this study was to evaluate the analgesic effect of SP-102 on average leg pain, measured using the NPRS following a single transforaminal injection. These results were compared to an intra-muscular injection of placebo over a four-week period. The secondary objectives of this study include (i) evaluation of the degree of disability over time as measured by the ODI; (ii) characterization of the change of the subject’s radiculopathy symptoms and overall condition, using a combination of PainDETECT, modified Brief Pain Inventory, Clinical Global Impression of Change (“CGIC”), and Patient Global Impression of Change (“PGIC”) and (iii) evaluation of the tolerability of a single and repeat SP-102 injection. +Schematic of CLEAR - SP-102 (SEMDEXA) Phase 3 Pivotal Trial +Results of CLEAR - SP-102 Phase 3 PivotalTrial +A full six-month data analysis was completed in February 2022, and we announced final results from the study in March 2022, which results reflect achievement of primary and secondary endpoints. The Phase 3 study results have been published in PAIN® Journal (Miller et al 2024) and we also presented the pivotal Phase 3 trial results at the American Society of Interventional Pain Physicians annual meeting in Las Vegas, Nevada in May 2022. +The Phase 3 CLEAR trial summary results, which results reflect achievement of primary and majority of secondary endpoints, are as follows: +• +For the intent-to-treat (“ITT”) population, the primary endpoint of change in average daily NPRS pain in the affected leg over four weeks following the initial injection of SP-102 demonstrated least square (“LS”) mean treatment difference (standard error (“SE”)) of -0.52 (0.163) units [95% confidence interval (“CI”): -0.84, -0.20] compared to placebo (P=0.002). The change from baseline to Week Four in the mean daily average NPRS pain score (standard deviation (“SD”)) in the affected leg was -1.81 (1.896) for SP-102 +10 +Table of Contents +versus -1.29 (1.814) in the placebo group. The calculated standardized effect size (Cohen’s D calculated as the group mean difference divided by the pooled standard deviation) associated with the ITT population is 0.28. A statistically significant difference in the mean daily average NPRS pain change between SP-102 and placebo was observed at Week One with a mean change from baseline of -1.49 (1.519) for SP-102 and -1.02 (1.472) for placebo (P=0.002), which was maintained through Week Four. These highly significant differences between SP-102 and placebo were also observed following sensitivity analyses for fixed effects. +• +Likewise for the ITT population, most of the secondary endpoints at four weeks also demonstrated statistically significant results. For the key secondary endpoint of mean change in ODI from baseline, the LS mean treatment difference (SE) for SP-102 was -3.38 (1.388) units [95% CI: -6.11, -0.65] compared to placebo (P=0.015). SP-102 treatment resulted in a -8.88 point reduction from baseline, which exceeds the minimal clinically important difference of -8 established in a reported pain study. +• +Additional secondary endpoints with statistically significant results for the ITT population include worst pain in affected leg at Week Four (P=0.004) and over four weeks (P=0.001), current pain in the affected leg (P=0.009), average pain in lower back (P=0.035), Brief Pain Inventory-Short Form (“BPI-SF”) for pain severity (P=0.003) and pain interference (P=0.049), PGIC (P<0.001) and CGIC (P<0.001), with the proportion of patients achieving a response at 30% (P=0.002). +• +The time to repeat injection (50th quantile [95% CI]) for the ITT population was 84 (71, 100) days for SP-102 versus 58 (50, 69) days for placebo (P=0.001). +Additional analyses were performed with the modified ITT population (“mITT”), the population with fluoroscopically confirmed needle placement. The primary endpoint group mean difference, associated standardized effect size (Cohen’s D), and statistical significance were improved for the mITT population (i.e., -1.08 (0.171), Cohen’s D = 0.68, P<0.001), which were initially observed at Week One and improved through Week Four. Similarly, the mITT population was observed to have improved with mostly highly statistically significant outcomes for SP-102 over placebo for the secondary endpoints. In contrast to the ITT population, the mITT population was observed to have statistically significant PainDETECT (a tool to detect neuropathic pain components) for SP-102 over placebo (P=0.037) as well as number of subjects experiencing a 50% reduction in pain in the affected leg (P<0.001). +• +For the mITT population, the time to repeat injection (50th quantile [95% CI]) was 99 (78, 129) days for SP-102 versus 57 (49, 67) days for placebo. +• +There were no SAEs related to SP-102 or its administration procedure. There were no AEs leading to death, and no AEs of special interest (“AESIs”) (i.e., paraplegia, hematoma, or infection at the injection site). There were four (1.4%) subjects experiencing SAEs and one (0.3%) subject experiencing an AE leading to early withdrawal after receiving SP-102. Two (1.0%) subjects experienced an SAE, with one (0.5%) subject experiencing an AE leading to early withdrawal and one patient death following placebo. The fatal SAE was considered unrelated to the placebo or study procedure, as were the SAEs leading to early withdrawal. In general, a slightly higher proportion of subjects in the SP-102 group had treatment emergent AEs (“TEAEs”) than in the placebo group, (60 [29.7%] subjects vs 42 [21.1%] subjects with any TEAE). The most common TEAEs by system organ class (SOC) were nervous system disorders: 20 (9.9%) in the SP-102 group, 16 (8.0%) in the placebo group, and 20 (7.0%) in the SP-102 repeat injection group. The most common TEAEs by preferred term were headache, reported in 13 (6.4%) subjects in the SP-102 group, 11 (5.5%) subjects in the placebo group, and 10 (3.5%) subjects the SP-102 repeat injection group. +• +Overall, headaches were more commonly reported in subjects exposed to SP-102 than in subjects not exposed to SP-102 through 12 weeks (6.5% vs 2.1%). Headaches were generally mild, transient, and associated with the epidural injection. Pain at the site of injection was only reported for subjects receiving SP-102 following the initial injection (2.0%) and repeat injection (0.7%). Otherwise, TEAEs occurring ³ 2% of subjects were low and balanced between SP-102 and placebo. TEAEs occurring with an incidence ³ 2% remained low following the repeat injection. +• +There were no meaningful differences observed in physical examinations, vital signs, or laboratory parameters between treatment groups. +The data from the primary endpoint analyses is graphically presented below. Summary tables are also provided +11 +Table of Contents +for primary and secondary endpoints. +Mean Change From Baseline in NPRS Average Pain Score (Standard Error) in the Affected Leg (ITT Population) +SP-102 vs Placebo Weeks 1,2,3,4: p = 0.002, 0.005, 0.003, 0.003. Overall treatment Effect (Mean SP-102 vs Placebo difference): Diff = -0.52, SE= 0.163, p =0.002. Error Bars: 95% Confidence Limits. +Primary and Secondary Outcomes: NPRS Average Leg Pain In Affected Leg, ODI Total Score, Mean Daily NPRS (worst, current, and lower back), PainDetect, BPI-SF (Change from Baseline to Four Weeks; ITT Population) +SP-102 +N=202 +Placebo +N=199 +LSM (SE) +95% CI +P-value +Endpoint +Mean Change from Baseline (1) +Mean Change from Baseline +NPRS Average Pain Score in the +Affected Leg (primary endpoint)(2) +-1.81 (1.896) +-1.29 (1.814) +-0.55 (0.187) +-0.92, -0.18 +0.003 +ODI total score(key secondary endpoint)(3) +-8.88 (14.684) +-5.48 (13.083) +-3.38 (1.388) +-6.11, -0.65 +0.015 +Worst pain in affected leg at Week Four(2) +-1.88 (2.014) +-1.33 (1.946) +-0.57 (0.198) +-0.96, -0.18 +0.004 +Worst pain in affected leg over Four Weeks(2) +-0.56 (0.173) +-0.90, -0.22 +0.001 +Current pain in affected leg(2) +-1.8 (2.28) +-1.2 (2.41) +-0.6 (0.23) +-1.1, -0.2 +0.009 +Average pain in lower back(2) +-0.7 (2.54) +-0.2 (2.48) +-0.5 (0.23) +-0.9, 0.0 +0.035 +PainDETECT(3 +-2.7 (6.47) +-2.5 (6.07) +-0.3 (0.62) +-1.5, 0.9 +0.642 +Brief Pain Inventory – Short Form score (pain severity)(2) +-1.56 (1.952) +-0.98 (1.928) +-0.59 (0.200) +-0.98, -0.20 +0.003 +Brief Pain Inventory – Short Form score (pain interference)(3) +-1.16 (2.413) +-0.71 (2.095) +-0.44 (0.221) +-0.87, 0.00 +0.049 +(1) Baseline NPRS score is the mean of at least five days and no more than seven days of scores from the screening visit until treatment randomization. For the current pain baseline is the last score prior to treatment. Baseline ODI is defined as the last ODI assessment score prior to the first dose on Day 1. +(2) The analysis uses a REML-based MMRM with fixed effects for treatment (SP-102 or placebo), week, site, Pain Catastrophizing Scale group (<30 or ≥ 30), baseline score, and treatment-by-week interaction. +(3) The analysis uses an ANCOVA model with fixed effects for treatment (SP-102 or placebo), site, Pain Catastrophizing Scale group (<30 or ≥ 30), and baseline score. +ANCOVA: analysis of covariance; ANOVA: analysis of variance; BPI-SF: Brief Pain Inventory – Short Form; CI: confidence interval; ITT: intent-to-treat (randomized population); LSM: least-squares mean; MMRM: mixed model for repeated measures; NPRS: numeric pain rating scale; REML: restricted maximum likelihood; SE: standard error +Patient Global Impression of Change (PGIC) and Clinical Global Impression of Change (CGIC) – ITT Population +SP-102 +N=202 +Placebo +N=199 +PGIC Responders (number of patients who responded with “very much improved” or “much improved” (1) +71 (35.1%) +39 (19.6%) +Chi-Square +P<0.001 +Logistic regression (odds ratio[95% CI]) (2) +2.25 (1.42, 3.54) +P<0.001 +CGIC Responders (number of patients assessed as “very much improved” or “much improved” (1) +76 (37.6%) +39 (19.6%) +Chi-Square +P<0.001 +Logistic regression (odds ratio [95% CI]) (2) +2.49 (1.58, 3.91) +P<0.001 +(1) 7-point scale rating patient’s overall improvement. Patient change is rated from “very much improved”, “much improved”, “minimally improved”, “no change”, “minimally worse”, “much worse” or “very much worse”. +(2) Logistic regression models with treatment (SP-102 or placebo), site, and Pain Catastrophizing Scale group (<30 or ≥ 30) as factors. +12 +Table of Contents +CI: confidence interval; ITT: intent-to-treat (randomized population) +Time to Repeat Injection – ITT Population +SP-102 +N=202 +Placebo +N=199 +Number of patients with Repeat Injection of SP-102 (patients who received open-label SP-102 between 4 and 20 weeks after initial injection) +134 (66.3%) +152 (76.4%) +Number of censored patients (1) +68 (33.7%) +47 (23.6%) +Chi-Square +P=0.026 +Time (days)to Repeat Injection +N +134 (66.3%) +152 (76.4%) +Mean (SD) +67.0 (33.31) +57.8 (31.69) +Median +57.5 +43.0 +Min, Max +27, 143 +26, 148 +25th quantile (95% CI) (2) +45 (43, 57) +36 (34, 40) +50th quantile (95% CI) (2) +84 (71, 100) +58 (50, 69) +75th quantile (95% CI) (2) +143 (141, 143) +126 (87, 146) +Comparison to Placebo (3) +(Hazard ratio [95% CI]): +0.68 (0.54, 0.86) +P=0.001 +(1) Censored patients are the following: (1) patients who do not receive a repeat injection of SP-102 and (2) patients who discontinued the study prior to Week 20 without receiving a repeat injection. +(2) Quartiles are estimated using Kaplan-Meier estimation . +(3) A Cox proportional hazards model was utilized to test the treatment difference while adjusting for site and Pain Catastrophizing Scale (<30 or ≥ 30). +CI: confidence interval; ITT: intent-to-treat (randomized population); SD: standard deviation +Responder Analysis (Change from Baseline in Mean NPRS, Average Daily Pain in Affected Leg) (1) – ITT Population +SP-102 +N=202 +Placebo +N=199 +30% reduction +88 (43.6%) +57 (28.6%) +Chi-Square +P=0.002 +Logistic regression(2) (odds ratio [95% CI]) +1.96 (1.28, 2.98) +P=0.002 +50% reduction +58 (28.7%) +41 (20.6%) +Chi-Square +P=0.060 +Logistic regression(2) (odds ratio [95% CI]) +1.58 (0.99, 2.52) +P=0.055 +(1) Patients that discontinued or have missing scores at Week Four were considered non-responders. +(2) Logistic regression models with treatment (SP-102 or placebo), site, and Pain Catastrophizing Scale group (<30 or ≥ 30), and baseline averaged daily pain score as factors were used to compare the treatment groups at each week. +CI: confidence interval; ITT: intent-to-treat (randomized population) +Interpreting Clinical Meaningfulness of SP-102 for the Treatment of LRP: a Post-Hoc Analysis of the CLEAR-1 Trial and a Systematic Review of Literature +Analgesic clinical trial studies performed to assess the efficacy of a pharmacological interventions produce results that require interpretation to fully understand their clinical meaningfulness. Commonly, these results are misinterpreted, with the most common source of confusion arising when the magnitude of group differences (typically between active and placebo) are conflated with the determination of the magnitude of improvement within subjects (as assessed by subjects and/or clinicians) that can be considered clinically important. Consequentially, substantial work by researchers, clinicians, and regulatory authorities has been done to establish consensus benchmarks for what constitutes clinically meaningful changes. The analgesic efficacy of SP-102 for the treatment of LRP was evaluated in the pivotal Phase 3 CLEAR-1 clinical trial. The objective of this post-hoc analysis was to interpret the clinical meaningfulness of the magnitude of group mean differences, based on consensus guidelines and benchmarks, of the +13 +Table of Contents +CLEAR-1 trial by comparing to efficacy data observed for other analgesic products, and to evaluate these effects in the context of overall safety. +Statistical analyses for efficacy endpoints from the CLEAR-1 trial were performed for the ITT population, which included all randomized subjects, and the mITT population, which included only subjects with fluoroscopic verification of successful injection. Group difference efficacy data are presented for the 4-week double-blind period (pre-specified and post-hoc analyses) and safety of single and repeat injections. +A systematic review was conducted and all available clinical trials studies for approved products for chronic low back pain (11 products) and any placebo-controlled trials studies that assessed the efficacy of off-label use of ESIs (4 studies) were collected and the GMDs and standardized effect sizes (“SES”) (Cohen’s D) were calculated for comparison with the results of the CLEAR-1 trial. +When the group mean difference (mITT: 1.08-point difference; ITT: 0.52) and SES (mITT: 0.68; ITT: 0.28) for the CLEAR-1 Trial are compared with those of other products known to be clinically meaningful analgesics for chronic low back pain, results for the ITT population were similar to those of the majority of other analgesics while the mITT population produced results greater than those of most (median of other products: group mean difference: 0.7- points; SES: 0.32); results were similar when compared against off-label ESIs (median group mean difference: 0.49; SES: 0.29). Similarly, when evaluating secondary endpoints with consensus clinically meaningful cutoffs (NPRS responder analyses, ODI, and Brief Pain Inventory — Pain Interference), statistically significant separation was observed for both populations. +Overall, these results support that SP-102 has a clinically meaningful effect in treating LRP based on assessment of group mean differences and SESs as recommended by consensus guidelines. +Phase 2 Repeat Dose Study — SP-102-03 +We conducted an open-label, single-arm, pharmacodynamics (“PD”) and tolerability study of repeat epidural injections of SP-102 in patients with sciatica. We conducted this study to characterize repeat dose PD with respect to hypothalamic-pituitary-adrenal suppression using plasma cortisol levels, white blood cell count and blood glucose levels. +The study enrolled 19 subjects, of which 15 received repeat SP-102 epidural injections four to eight weeks after the initial injection. Four of the subjects did not experience recurrent pain and thus did not require a repeat injection. The daily average, current and worst pain in the affected leg and back showed continuous reduction throughout the 28-day observation period for both treatments. Based on a preliminary review of the results, SP-102 injections were generally well tolerated and there were no new unexpected adverse events observed. +Mean Percentage Change in Sciatica-Related Leg Pain as Measured by NPRS +Phase 1 Trial of SP-102 Compared to RLD—ES-1504 +We conducted an open-label, single-arm, two-period, fixed sequential-dose study to evaluate the PK, PD and tolerability of SP-102 when administered by epidural injection. SP-102 was compared to intravenous dexamethasone sodium phosphate injection in subjects with lumbosacral radiculopathy. There were 12 subjects enrolled in this study, all of whom received SP-102 followed by the intravenous dexamethasone sodium phosphate injection (RLD) administered one month later. A RLD is an approved drug product to which new versions are compared to show that they are bioequivalent. The purpose of this study was to establish the pharmaceutical bridge between SP-102 and the RLD. The time to maximum serum concentration (“Tmax”) observed with the administration of SP-102 was four hours, compared to 15 minutes observed with intravenous dexamethasone. The PD parameters and tolerability profiles of both products were similar, and SP-102 did not prolong cortisol suppression time. SP-102 also maintained analgesic effects throughout a one-month observation period. +The overall systemic exposure of dexamethasone was similar, whether administered as SP-102 or injected intravenously, with a mean AUCinf of 0.916 µg*h/mL (observed with SP-102) compared to 0.943 µg*h/mL (observed with intravenously administered dexamethasone). Notably, there was a 16-fold increase in the Tmax following epidural injection of SP-102. The median Tmax was 4.00 hours for SP-102 compared to 0.25 hours for the comparison group. All 12 subjects with sciatica showed continuous reduction in back and leg pain during the one-month observation period following a single epidural injection of SP-102. +This study demonstrated that at an equivalent initial dose of dexamethasone, the systemic exposure to dexamethasone following epidural injection of SP-102 did not exceed the exposure following intravenous injection of +14 +Table of Contents +the RLD. The PD effects, measured as white blood cell count, cortisol levels and glucose levels, as well as the tolerability profile, were similar between the two treatments. SP-102 injections were generally well tolerated and did not result in new unexpected side effects. We believe this trial supports a 505(b)(2) NDA, utilizing the known systemic safety of the FDA-approved RLD dose. +Toxicology Studies - Study Nos. 1014-1512 and 1014-2847 +We conducted PK and toxicology studies in two non-rodent animal species to assess SP-102 administered via epidural and intrathecal routes with single and multiple dose regimens. Pharmacokinetically, a prolonged increase in the active dexamethasone metabolite was consistent with the extended residence time of the viscous gel formulation of SP-102 at the site of injection. There were no new unexpected toxicology findings apart from well-characterized toxicity findings commonly observed with administration of dexamethasone sodium phosphate. Based on these studies, we selected the 10mg dexamethasone in 2mL volume dose for our further clinical studies. This selection was endorsed by the FDA during our pre-IND meeting. +Preclinical Toxicology Study - UPD003-IS21 +We conducted a preclinical toxicology study designed to simulate the accidental introduction of epidural steroids into arterial blood vessels providing blood supply to the spinal cord, which is a major cause of neurological complications associated with current administration of suspension steroids containing particulates. A 2 mL (10 mg of dexamethasone) injection of SP-102 was injected over one to two minutes into the vertebral artery of large animal species. +Pre- and post-dose angiography showed no remarkable changes and all animals survived for approximately 24 hours until euthanasia. The veterinary animal health report and the pathology report concluded there were no vascular, spinal cord or brain injuries associated with injection into the vertebral artery of the animals. +Hydrodynamic Study - SP-PC002 +We conducted a hydrodynamic study of SP-102 in non-rodent animal species, which showed that epidural administration of SP-102 demonstrated an increased local residence half-life and a decreased flow from the injection site. +Hydrodynamic Study - SP-PC002 Epidural Injection Time Course: SP-102 Post-injection in 2 mL SP-102 (DSP 5 mg/mL; 1.25% HA) + 647 mg iohexol vs. Commercial DSP: +Intravascular Injection Study - SEM-005 +We conducted a study to evaluate the accidental intravascular injection of SP-102 into the vertebral artery of non-rodent animals. There were no adverse clinical signs associated with the accidental intra-arterial injection of SP-102 following a 24-hour survival period. +Sales and Marketing +We intend to leverage the robust and integrated commercial infrastructure and dedicated sales force and sales management, marketing, medical affairs and managed care capabilities, manufacturing and general administration functions of our parent company, Scilex, to commercialize our current and future product candidates, if approved. Scilex has successfully launched three commercial non-opioid pain management products in the past five years by using its in-house sales force and an outsourced sales force, who typically bring strong, proven experience promoting a broad scope of pain management products, as our current and future product candidates are commercialized. Scilex’s sales representatives leverage their established relationships with pain management HCPs to call on over 6,000 target pain specialists, neurologists, and select health care providers and we believe these same call points that are providing treatment for sciatica could benefit from SP-102, if approved. Scilex’s marketing team has expertise in pain management and has already launched three products in the pain market, and we intend to leverage Scilex’s marketing expertise to launch SP-102. In connection with the closing of the Business Combination, we entered into the Transition Services Agreement with Scilex, pursuant to which we can utilize certain employees and other service providers of Scilex to operate our business, including with respect to the following business functions: finance, human resources, information systems, legal and administrative, R&D support and commercialization support. During the transition period and leveraging Scilex’s infrastructure, we will be able to develop our own infrastructure with Scilex’s continued support and as we enter the final stages of development and pre-launch commercialization planning, we plan to increase the number of full time employees to strengthen our research and development, general administrative, manufacturing, regulatory and commercial functions. The term of the Transition Services Agreement is three years +15 +Table of Contents +following the closing of the Business Combination, which we believe is sufficient time for us to develop our commercial infrastructure and other business functions. See the section titled “ Risk Factors — Risks Related to Our Relationship with Scilex ” elsewhere in this Annual Report. +We have created cross functional launch teams and developed a launch playbook to guide us towards a successful launch. The launch will be guided by the playbook activities and timelines briefly summarized below: +• +Patient journey : Learn how a patient moves through the disease state and how the patient is treated from the early to late stages of the disease. +• +HCP segmentation and profiling : Understand how to group physicians based on their prescription practices and other behaviors and factors that will influence their prescription practices. +• +Patient segmentation and profiling : Divide patients with sciatica into groups, according to gender, insurance type, state of disease, and any other factors that will help identify ways to increase SP-102’s utilization in each group of patients. +• +HCP and patient research : HCP research on how physicians treat sciatica, what are the unmet needs, what type of product physicians want to use to treat sciatica, and their expectations from the new product. Patient research provides us with information regarding how satisfied patients are with the current treatments, where the current treatments fall short, and their expectations on the new treatments. +• +Marketing conditioning campaign development : Determine how to condition the market, including by identifying the current short falls and unmet needs in current treatments, ways to highlight these prior to launch, and the expectations for the new treatments. +• +Product positioning : Position the product by highlighting physician feedback on the product (e.g., safety, efficacy and length of effectiveness). +• +Branded campaign development and testing : Develop key messages around the benefits of SP-102. +• +Campaign materials and temporary billing/coding reference guide : Develop materials for launch and promotion of SP-102 and develop billing codes guidelines for physicians to charge insurance for SP-102. +• +Omnichannel promotion material development : Develop promotion materials for various channels, ensuring a consistent message, design and tone. These materials could include materials to sales representatives, journal advertisement, direct communication to patient and congress materials. +• +Trade name submission to FDA : Submit the trade name to FDA prior to filing NDA. +• +OPDP submission strategy : Submit launch materials to FDA based on the approved prescribing label. +• +Packaging research : Conduct research on packaging methods with customers, including pharmacists, physicians, nurses, and people who handle the product, to ensure the packaging is convenient for those using SP-102. +• +Baseline/Pre-launch HCP ATU : Based on product profile messaging, discuss with physicians how they intend to prescribe the product to patients, what key messages resonate with them, and their awareness of SP-102. This is to determine which patients are fit to use the product. This is usually done prior to launch and every six to nine months thereafter for the first two to three years. +• +Quant demand study : Discuss with physicians anticipated patient demand for, and physician prescription of, SP-102 as well as dosage requirements. This information will help us develop an accurate forecast and plan for sufficient supply of the product. +• +Forecast refresh : Ongoing analysis of product demand, patient usage, physician feedback, reimbursement levels and other matters that may impact the use of SP-102 and update our forecast accordingly. +Clinical Development and Regulatory +Our clinical development team, which, as discussed above in further detail, consists of dedicated Scilex employees and contractors, includes in-house medical expertise and clinical development experts. The clinical development team works with our CRO to identify sites for clinical trials, support the investigator teams and develop +16 +Table of Contents +publication plans for our product candidate. Additionally, the clinical development team also works with Key Opinion Leaders, professional societies and patient advocacy groups to educate on and support the appropriate use of pain therapeutics. Our clinical development team is responsible for determining registration or supportive studies, overseeing post-approval studies and supporting investigator-sponsored trials. Our regulatory team includes in-house and consultant regulatory professionals as well as ex-FDA regulatory expert advisors. We contract external regulatory group for publishing and performing submissions to the FDA and other regulatory agencies, including Health Canada. +Manufacturing and Supply Chain +We currently contract with third parties for the manufacture, assembly, testing, packaging and storage of our product candidate. Our technical team has extensive pharmaceutical development, manufacturing, analytical, quality and distribution experience and is qualified and capable of managing manufacturing and supply chain operations. Our Quality System, Standard Operating Procedures and contract manufacturing organizations (“CMOs”) comply with cGMP and regulatory requirements. We selected our CMOs for specific competencies having met our development, manufacturing, quality and the FDA regulatory requirements. These CMOs manufacture our clinical supplies and commercial batches. We currently have no plans to build our own manufacturing or distribution infrastructure. +As clinical trial development progresses forward, we will continue to explore both internal capabilities as well as deepening and expanding external relationships to ensure we meet our manufacturing requirements. +SP-102 is a Phase 3 sterile dexamethasone sodium phosphate injectable viscous gel drug product containing dexamethasone sodium phosphate equivalent to 10 mg dexamethasone in a pre-filled glass syringe with a 2 mL deliverable volume. SP-102 also contains sodium hyaluronate, which is a novel, biocompatible, viscosity- enhancing excipient and is listed in the European Pharmacopeia. Historically, we have purchased our clinical and commercial supply requirements for sodium hyaluronate, one of the excipients for SP-102, from Genzyme pursuant to a supply agreement, which terminated as of May 31, 2024. We anticipate that our current supply of sodium hyaluronate will be sufficient to satisfy our clinical and commercial supply requirements for sodium hyaluronate for at least 12 months following our expected commercial launch of SP-102 in 2028. We are currently in discussions with Sanofi, an affiliate of Genzyme, and are in the process of identifying and certifying new suppliers, in each case to fulfill our future supply requirements for sodium hyaluronate. SP-102 is manufactured by a single-source manufacturer, which supports the clinical development, including the completed Phase 3 clinical trial of SP-102. In March 2022, we announced final results of the Phase 3 clinical trial, satisfying the primary and key secondary endpoints. The manufacturing process is proprietary and includes trade secrets. +We plan to engage our existing contract manufacturer, Lifecore, for the commercial production of SP-102, if approved. See the section of this Annual Report titled “ Business — Material Agreements — Lifecore Master Services Agreement ” for additional information regarding the manufacturing of our SP-102 product. +Competition +Our industry is highly competitive and subject to rapid and significant technological change. The large size and expanding scope of the pain management market makes it an attractive therapeutic area for biopharmaceutical businesses. Our potential competitors include pharmaceutical, biotechnology and specialty pharmaceutical companies. Many of these companies have drug product pipelines, readily available capital, and established research and development organizations. +SP-102, if approved, has the potential to become the first FDA-approved epidural steroid product for the treatment of sciatica. While there are currently no FDA-approved ESIs indicated for the treatment of sciatica, we are aware of certain non-steroid product candidates in development. SP-102, if approved, will compete with various opioid pain medications, NSAIDs, muscle relaxants, antidepressants, anticonvulsants and surgical procedures. Procedures may include nerve blocks and transcutaneous electrical nerve stimulations. We may also face indirect competition from the off-label and unapproved use of branded and generic injectable steroids. +We expect that the market will become increasingly competitive in the future. Many of our competitors, either alone or together with their collaborative partners, operate larger research and development programs and have substantially greater financial resources than we do, as well as significantly greater experience in: developing product candidates and technologies, undertaking preclinical studies and clinical trials, obtaining the FDA and other regulatory approvals of product candidates, formulating and manufacturing product candidates and launching, marketing and selling product candidates. +Additional mergers and acquisitions in the biotechnology and pharmaceutical industries may result in even more +17 +Table of Contents +resources being concentrated in our competitors. As a result, these companies may obtain regulatory approval more rapidly than we are able to and may be more effective in selling and marketing their products as well. Smaller or early-stage companies or generic or biosimilar pharmaceutical manufacturers may also prove to be significant competitors, particularly through collaborative arrangements with large, established companies. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs. Competition may increase further as a result of advances in the commercial applicability of technologies and greater availability of capital for investment in these industries. Our commercial opportunity could be reduced or eliminated if our competitors succeed in developing, acquiring or licensing on an exclusive basis, products that are more effective or less costly than any product candidate that we are currently developing or that we may develop. If approved, our product candidates will face competition from commercially available drug products as well as drug products that are in the development pipelines of our competitors and later enter the market. +Established pharmaceutical companies may invest heavily to accelerate discovery and development of novel compounds or to in-license novel compounds that could make our product candidates less competitive. Accordingly, our competitors may succeed in obtaining patent protection, receiving FDA approval or discovering, developing and commercializing medicines before we do. +The key competitive factors affecting the success of SP-102 are likely to be its clinical benefit, durability, tolerability, price, intellectual property protection, and the availability of reimbursement from government and other third-party payors. +Material Agreements +Securities Purchase Agreement (the “PIPE SPA") +On August 20, 2025, we and Legacy Semnur entered into the PIPE SPA with the investor named therein, pursuant to which the investor agreed to purchase 1,250,000 shares of Common Stock at a price of $16.00 per share, for an aggregate purchase price of $20.0 million following the consummation of the Business Combination. On September 22, 2025, the PIPE SPA was amended to provide that unless such agreement was terminated pursuant to its terms (or otherwise by mutual agreement of the parties thereto), the closing of the transactions contemplated thereby would occur not later than the 14th business day following the closing of the Business Combination, subject to the satisfaction or waiver of the closing conditions set forth therein. As of December 31, 2025, the transaction has not closed and accordingly, shares have not been issued and funds have not been received. As the transaction did not close on or before December 31, 2025, the nonbreaching party has an option to terminate the PIPE SPA without liability. +Additionally, in connection with the PIPE SPA, we are obligated to pay a cash financing service fee of 7% of the received investment funds. +Bitcoin Securities Purchase Agreement (the “Semnur/Biconomy SPA”) +On September 23, 2025, we entered into the Semnur/Biconomy SPA with Biconomy PTE.LTD (“Biconomy”). Pursuant to the Semnur/Biconomy SPA, we agreed to issue and sell, and Biconomy agreed to purchase, 6,250,000 shares of Common Stock, at a purchase price of $16.00 per share, for an aggregate purchase price of $100.0 million, payable in Bitcoin blockchain (“Bitcoin”), with such amount of Bitcoin equal to the quotient of (A) the buyer’s respective aggregate purchase price divided by (B) the spot exchange rate for Bitcoin as published by Coinbase.com at 8:00 p.m. (New York City time) on the trading day immediately prior to the closing date of the purchase. As of December 31, 2025, the transaction has not closed and accordingly, shares have not been issued and funds have not been received. As the transaction did not close on or before December 31, 2025, the nonbreaching party has an option to terminate the Semnur/Biconomy SPA without liability. +Promissory Notes +As of December 31, 2025, we have promissory notes totaling $3.5 million, all of which are due in less than a year. +Notwithstanding the payment schedules in the promissory notes, the balance due on any notes (less any payments previously made to the holder thereunder) shall be accelerated and become immediately due and payable in the event we receive gross proceeds from any equity or debt financing (including any private placement offering or registered offering), in an amount equal to or greater than the then-outstanding principal of such note plus any accrued but unpaid interest due thereon. +18 +Table of Contents +In addition, in the case of an event of default, the promissory notes shall bear interest at a rate of 10% per annum until such event of default is cured. The promissory notes shall become immediately due and payable (in accordance with the terms thereof), upon our failure to make payments thereunder when due (subject to a 14-day cure period) or certain other actions related to voluntary or involuntary bankruptcy proceedings (as more fully described therein). +Lifecore Master Services Agreement +On January 27, 2017, Legacy Semnur entered into a Master Services Agreement (as amended, the “Lifecore Master Services Agreement”), with Lifecore Biomedical, LLC (“Lifecore”). Pursuant to the Lifecore Master Services Agreement, Lifecore is responsible for clinical trial material manufacturing and development services for SP-102 as set forth in each separate statement of work. For the purposes of Lifecore’s development and clinical trial material manufacturing obligations, Legacy Semnur granted Lifecore a nonexclusive, worldwide and royalty-free license under our owned or controlled intellectual property rights necessary to manufacture SP-102, without additional right, title or interest in our intellectual property. The Lifecore Master Services Agreement expires on December 31, 2028, unless terminated earlier in accordance with the terms of such agreement, or unless renewed further by the parties. +The foregoing is a summary of the material terms of the Lifecore Master Services Agreement and the amendments thereto in the forms filed as exhibits to this Annual Report. You should read the form of the agreement and its amendments for a complete understanding of all of their respective terms. +Legacy Semnur Merger Agreement +On March 18, 2019, Legacy Semnur was acquired by Scilex pursuant to an Agreement and Plan of Merger with Semnur (as amended, the “Legacy Semnur Merger Agreement”), +Pursuant to the Legacy Semnur Merger Agreement, and upon the terms and subject to the conditions contained therein, Scilex agreed to pay the former holders of Legacy Semnur’s capital stock up to $280.0 million in aggregate contingent cash consideration based on the achievement of certain milestones (which amount is expected to be charged back to us through an intercompany arrangement), comprised of a $40.0 million payment that will be due upon obtaining the first approval of a NDA of our product by the FDA and additional payments that will be due upon the achievement of certain amounts of net sales of our products, as follows: (i) a $20.0 million payment upon the achievement of $100.0 million in cumulative net sales of our product, (ii) a $20.0 million payment upon the achievement of $250.0 million in cumulative net sales of our product, (iii) a $50.0 million payment upon the achievement of $500.0 million in cumulative net sales of our product, and (iv) a $150.0 million payment upon the achievement of $750.0 million in cumulative net sales of our product. To date, none of the foregoing payments have been triggered. +The foregoing is a summary of the material terms of the Legacy Semnur Merger Agreement (including the amendment thereto) in the forms filed as exhibits to this Annual Report. You should read the Legacy Semnur Merger Agreement (including the amendment thereto) for a complete understanding of all of their respective terms. +Shah Assignment Agreement +On August 6, 2013, Legacy Semnur entered into an Assignment Agreement (the “Shah Assignment Agreement”) with Shah Investor LP (“Shah Investor”). Pursuant to the Shah Assignment Agreement, Shah Investor assigned to Legacy Semnur the patents, know-how and other intellectual property related to pharmaceutical compositions of corticosteroids. +In consideration of the license and rights granted by Shah Investor, Legacy Semnur agreed to pay royalties (i) at the rate of 1.5% of the Net Sales for Annual Net Sales (each as defined therein) up to $250.0 million and (ii) at the rate of 2.5% of the Net Sales for Annual Net Sales of $250.0 million and above, subject to certain adjustments as set out in the Shah Assignment Agreement. Such royalties payment for a given calendar quarter shall be due and payable on the date the royalty report for such quarter is due under the Shah Assignment Agreement. To date, none of the foregoing payments have been triggered. +The Shah Assignment Agreement continues in full force and effect on a country-by-country and product-by-product basis until royalties are no longer due on such product under the agreement. +The Shah Investor is not related to Jaisim Shah, our Chief Executive Officer, and Jaisim Shah has no direct or indirect material interest in the Shah Assignment Agreement. +The foregoing is a summary of the material terms of Shah Assignment Agreement in the form filed as an exhibit +19 +Table of Contents +to this Annual Report. You should read the Shah Assignment Agreement for a complete understanding of all of its terms. +Intellectual Property +Our success depends in part on our ability to obtain and maintain proprietary protection for our product candidates, technology and know-how, to operate without infringing the proprietary rights of others and to prevent others from infringing our proprietary rights. Our policy is to seek to protect our proprietary position by, among other methods, pursuing and obtaining patent protection in the United States and in jurisdictions outside of the United States related to our novel adhesion and delivery technology, inventions, improvements and product candidates that are important to the development and implementation of our business. Our patent portfolio is intended to cover our product candidates, their methods of use and processes for their manufacture, and any other inventions that are commercially important to our business. We also rely on trade secret protection of our confidential information and know-how relating to our novel adhesion and delivery technology, platforms and product candidates. +Generally, patents are granted a term of 20 years from the earliest claimed non-provisional filing date. In certain instances, the patent term can be adjusted to recapture a portion of delay by the U.S. PTO in examining the patent application or extended to account for term effectively lost as a result of the FDA regulatory review period, or both. We cannot provide any assurance that any patents will be issued from our pending or future applications or that any patents will adequately protect our product or product candidates. +Our patent portfolio, consisting of owned and/or licensed IP as of December 31, 2025 contains approximately seven issued and unexpired U.S. patents and two pending U.S. patent applications. Our portfolio also includes certain foreign counterparts of these patents and patent applications including in most major international markets. +With respect to our product candidate SP-102, the patents and patent applications that we own include formulations and methods of treatment. The patents are U.S. Pat. Nos. 10,500,284, 10,117,938, and 11,020,485, all of which expire in 2036. We continue to seek to maximize the scope of our patent protection for all our programs. +We believe that we have certain know-how and trade secrets relating to our technology and product candidate. We rely on trade secrets to protect certain aspects of our technology related to our current and future product candidate. However, trade secrets can be difficult to protect. We seek to protect our trade secrets, in part, by entering into confidentiality agreements with our employees, consultants, scientific advisors, service providers, and contractors. We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our premises and physical and electronic security of our information technology systems. +Trademarks, Trade Secrets and Other Proprietary Information +We file trademark applications and pursue registrations in the United States and abroad when appropriate. We own pending trademark applications for “SEMNUR PHARMACEUTICALS” and “SEMDEXA” in the United States. +We also depend upon the skills, knowledge and experience of our scientific and technical personnel, as well as that of our advisors, consultants and other contractors. To help protect our proprietary know-how, we rely on trade secret protection and confidentiality agreements to protect our interests. Our policy is to require each of our employees, consultants and advisors to execute a confidentiality and inventions assignment agreement before beginning their employment, consulting or advisory relationship with us. The agreements generally provide that the individual must keep confidential and not disclose to other parties any confidential information developed or learned by the individual during the course of the individual’s relationship with us except in limited circumstances. These agreements generally also provide that we will own all inventions conceived by the individual in the course of rendering services to us. +SP-102 benefits from our substantial intellectual property portfolio and other technical barriers to entry for potential competitors. Historically, we have purchased our clinical and commercial supply requirements for sodium hyaluronate, one of the excipients for SP-102, from Genzyme pursuant to a supply agreement, which terminated as of May 31, 2024. We are currently in discussions with Sanofi, an affiliate of Genzyme, and are in the process of identifying and certifying new suppliers, in each case to fulfill our future supply requirements for sodium hyaluronate. Our complex manufacturing process, specialized equipment and know-how for sterile viscous product candidates are also key to our competitive edge. We believe that our competitors will be required to conduct lengthy and costly preclinical and clinical trials to establish products with comparable tolerability profiles and clinical benefit to SP-102. +Government Regulation and Product Approval +Government authorities in the United States at the federal, state and local levels, and in other countries and +20 +Table of Contents +jurisdictions, extensively regulate, among other things, the research, development, testing, manufacture, pricing, reimbursement, sales, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, post-approval monitoring and reporting, marketing and export and import of products such as those we are marketing and developing. SP-102 and any other product candidate that we develop must be approved by the FDA or otherwise authorized for marketing before they may be legally marketed in the United States and by the corresponding foreign regulatory agencies before they may be legally marketed in foreign countries. The processes for obtaining marketing approvals, along with subsequent compliance with applicable statutes and regulations and other regulatory authorities, require the expenditure of substantial time and financial resources. +U.S. Drug Development Process +In the United States, the FDA regulates drugs under the FDCA and implementing regulations. Drugs are also subject to other federal, state and local statutes and regulations. The process of obtaining regulatory approvals and the subsequent compliance with applicable federal, state, local and foreign statutes and regulations requires the expenditure of substantial time and financial resources. Failure to comply with the applicable requirements at any time during the product development process, approval process or after approval, may subject an applicant or its products to a variety of administrative or judicial sanctions, such as imposition of a clinical hold, the FDA’s refusal to approve pending applications, withdrawal of an approval, inspection scrutiny, issuance of untitled or warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, or reimbursements, restitution, disgorgement of profits or other civil or criminal penalties. The process required by the FDA before a drug product may be marketed in the United States generally involves the following: +• +completion of preclinical laboratory tests, animal studies and formulation studies according to GLPs or other applicable regulations; +• +submission to the FDA of an Investigational New Drug Application (“IND”), which must become effective before human clinical trials may begin; +• +approval by an IRB covering each clinical site before each trial may be initiated; +• +performance of adequate and well-controlled human clinical trials according to the laws and regulations pertaining to the conduct of human clinical trials, collectively referred to as GCP requirements to establish the safety and efficacy of the proposed drug product for its proposed indication; +• +submission to the FDA of an NDA or other marketing application, for a proposed new drug product, which includes not only the results of the clinical trials, but also, detailed information on the chemistry, manufacturing and quality controls, as well as proposed labeling for the drug candidate; +• +satisfactory completion of an FDA advisory committee review, if applicable; +• +satisfactory completion of an FDA pre-approval inspection (“PAI”) of the manufacturing facility or facilities where the drug substance, drug product, packaging components and device are produced to assess compliance with the FDA’s cGMP requirements to assure that the facilities, manufacturing, methods and controls are adequate to preserve the drug product’s identity, strength, quality and purity; +• +potential FDA audit of the preclinical study and clinical trial sites that generated the data in support of the NDA; and +• +FDA review and approval of the NDA prior to any commercial marketing, sale, distribution or shipment of the drug product. +Before testing novel compounds with potential therapeutic value in humans, the drug candidate enters the preclinical testing stage, also referred to as preclinical studies. Preclinical studies include laboratory evaluations of product chemistry, toxicity and formulation, as well as animal studies to assess the potential safety and activity of the drug product candidate. The conduct of the preclinical studies must comply with federal laws and requirements including GLPs. The IND sponsor must submit the results of the preclinical studies, together with manufacturing information, analytical data, and any available clinical data or literature, to the FDA as part of the IND. The sponsor will also include a protocol detailing, among other things, the objectives of the first phase of the clinical trial, the parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated, if the first phase lends itself to an efficacy evaluation. Some preclinical studies may continue even after the IND is submitted. The IND +21 +Table of Contents +automatically becomes effective 30 days after receipt by the FDA, unless before that time the FDA raises concerns or questions related to one or more proposed clinical trials and places the trial on a clinical hold within that 30-day time period. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. The FDA may also impose clinical holds on a drug product candidate at any time before or during clinical trials due to safety concerns, non-compliance, or for additional reasons. Accordingly, we cannot be sure that submission of an IND will result in the FDA allowing clinical trials to begin, or that, once begun, issues will not arise that suspend or terminate such trial. +Clinical trials involve the administration of the drug candidate to healthy subjects or patients with the target disease under the supervision of qualified investigators, generally physicians not employed by the trial sponsor. Clinical trials are conducted under written study protocols detailing, among other things, the objectives of the clinical trial, subject selection and exclusion criteria, dosing procedures, and the parameters to be used to collect data and to monitor subject safety. Each protocol must be submitted to the FDA as part of the IND, and timely safety reports must be submitted to the FDA and investigators for suspected adverse reactions that are serious and unexpected and other safety-related findings. Clinical trials must be conducted in accordance with applicable statutes, the FDA’s regulations and GCP requirements. Further, each clinical trial must be reviewed and approved by an IRB at or servicing each institution at which the clinical trial will be conducted. An IRB is charged with protecting the welfare and rights of trial participants and considers such items as whether the risks to individuals participating in the clinical trials are minimized and are reasonable in relation to anticipated benefits. The IRB also approves the informed consent form that must be provided to and signed by each clinical trial subject or his or her legal representative and must monitor the clinical trial until it is completed. In some instances, additional oversight boards, such as a data safety monitoring board, are required to evaluate interim data and determine whether a study should continue or be modified or terminated. +A sponsor may choose, but is not required, to conduct a foreign clinical trial under an IND. When a foreign clinical trial is conducted under an IND, all FDA IND requirements must be met unless waived. When the foreign clinical trial is not conducted under an IND, the sponsor must ensure that the study is conducted in accordance with GCP, including review and approval by an independent ethics committee (IEC) and informed consent from subjects. The GCP requirements are intended to help ensure the protection of human subjects enrolled in non-IND foreign clinical trials, as well as the quality and integrity of the resulting data. FDA must also be able to validate the data from the study through an on-site inspection if necessary. Information about many clinical trials is required to be publicly reported on www.ClinicalTrials.gov or similar databases. +Human clinical trials are typically conducted in three sequential phases that may overlap or be combined: +• +Phase 1 . The drug product is initially introduced into healthy human subjects and tested for safety, dosage tolerance, absorption, metabolism, distribution and excretion and, if possible, to gain an early indication of its effectiveness. In the case of some products for severe or life-threatening diseases, especially when the product may be too inherently toxic to ethically administer to healthy volunteers, the initial human testing may be conducted only in patients having the specific disease. +• +Phase 2 . The drug product is evaluated in a limited patient population to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance, optimal dosage and dosing schedule for patients having the specific disease. +• +Phase 3 . The drug product is administered to an expanded patient population in adequate and well-controlled clinical trials to generate sufficient data to statistically confirm the safety and efficacy of the product for potential approval, to establish the overall risk-benefit profile of the product, and to provide adequate information for the labeling of the product. Generally, at least two adequate and well-controlled Phase 3 clinical trials are required by the FDA for approval of an NDA. In some cases, the FDA may approve a drug product based on the results of a single adequate and well-controlled Phase 3 trial for excellent design and which provided highly reliable and statistically strong evidence of important clinical benefit. The FDA’s decision to approve a drug product using the results of a single adequate and well-controlled Phase 3 trial depends both on the quality and quantity of the evidence and considers trial design, trial endpoints, and statistical methodologies, as well as the availability of other confirmatory evidence or reliance on a previous finding of effectiveness of an approved drug when scientifically and legally permissible. +The Company’s planned NDA application for SP-102 will not seek approval based on the results of a single +22 +Table of Contents +adequate and well-controlled Phase 3 trial. The Company initiated Phase 3 CLEAR 2 trial in September 2025 (as described in more detail elsewhere in this Annual Report under the section titled “ Business — Our Company ”). +Post-approval studies, also referred to as Phase 4 clinical trials, may be conducted after initial marketing approval. These studies are used to gain additional experience from the treatment of patients in the intended therapeutic indication and may be required by the FDA as part of the approval process. +Progress reports detailing the status of drug product development and results of the clinical trials must be submitted at least annually to the FDA, and written IND safety reports must be submitted to the FDA and the investigators for suspected adverse reactions that are serious and unexpected (including increased rate of occurrence of such adverse reactions), findings from other studies that suggest a significant risk in humans exposed to the drug product, or any findings from tests in laboratory animals that suggests a significant risk for human subjects or patients. Phase 1, Phase 2 and Phase 3 clinical trials may not yield positive results, or may not be completed successfully within any specified period, if at all. The FDA or the sponsor or its data safety monitoring board may suspend a clinical trial at any time on various grounds, including a finding that the research subjects are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug product has been associated with unexpected serious harm to study subjects. +During the development of a new drug product, sponsors are given opportunities to meet with the FDA at certain points. These points may be prior to submission of an IND, at the end of Phase 2, the end of Phase 3 and before an NDA is submitted. Meetings at other times may be requested. These meetings can provide an opportunity for the sponsor to share information about the data gathered to date, for the FDA to provide advice, and for the sponsor and the FDA to reach agreement on the next phase of development. Sponsors typically use the end of Phase 2 meeting to discuss their Phase 2 clinical results and present their plans for the Phase 3 clinical trials or manufacturing process validation and testing and their pre-NDA meeting to discuss the data that they believe will support approval of the new drug product. +Concurrent with clinical trials, companies usually complete additional animal studies and must also develop additional information about the chemistry and physical characteristics of the drug product as well as validate a process for commercial manufacturing the drug product in accordance with cGMP requirements. The commercial manufacturing process must be capable of consistently and continuously producing quality batches of the drug product candidate and, among other things, the manufacturer must develop appropriate methods for testing the identity, strength, quality and purity of the final drug product. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the drug product candidate does not undergo unacceptable deterioration over its shelf life. +FDA Review and Approval Processes +The results of product development, preclinical studies and clinical trials for the claimed indications are incorporated into an NDA requesting approval to market the product. The application may include both negative or ambiguous results of preclinical trials as well as positive findings. +In addition, proposed labeling and descriptions of the manufacturing process and controls, analytical tests conducted on the chemistry of the drug product, proposed labeling and other relevant information are required to be submitted to the FDA as part of an NDA. The submission of an NDA is subject to the payment of substantial user fees and a waiver of such fees may be obtained under certain limited circumstances. +The FDA reviews the NDA to determine, among other things, whether the proposed product is safe and effective for the specified indication(s), and whether the product is being manufactured in accordance with cGMP to assure and preserve the product’s identity, strength, quality and purity. To support marketing approval, the data submitted must be sufficient in quality and quantity to establish the product’s safety and efficacy to the satisfaction of the FDA. Under the Prescription Drug User Fee Act (“PDUFA”) guidelines that are currently in effect, the FDA has a goal of 10 months from the date of “filing” of a standard, original NDA for a new molecular entity to review and act on the submission. This review typically takes 12 months from the date the NDA is submitted to the FDA because the FDA has approximately two months to make a “filing” decision after the application is submitted. The FDA conducts a preliminary review of all NDAs within the first 60 days after submission, before accepting them for filing, to determine whether they are sufficiently complete to permit substantive review. The FDA may request additional information rather than accepting an NDA for filing. In this event, the NDA must be resubmitted with the additional information. The resubmitted application also is subject to review before the FDA accepts it for filing. +23 +Table of Contents +After the NDA is accepted for filing, the FDA reviews the NDA to determine, among other things, whether the proposed product candidate is safe and effective for its intended use, and whether the product candidate is being manufactured in accordance with cGMP requirements. The FDA may refer applications for novel drug products or drug products which present difficult questions of safety or efficacy to an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions. The FDA conducts its own analysis of the clinical trial data, which could result in extensive discussions between the FDA and us during the review process. The review and evaluation of an NDA by the FDA is extensive and time-consuming and may take longer than originally planned to complete, and we may not receive a timely approval, if at all. +During the drug product approval process, the FDA also will determine whether a Risk Evaluation and Mitigation Strategy (“REMS”) is necessary to assure the safe use of the drug product. If the FDA concludes a REMS is needed, the sponsor of the NDA must submit a proposed REMS. The FDA will not approve the NDA without a REMS, if required. A REMS could include medication guides, physician communication plans or elements to assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. Any of these limitations on approval or marketing could restrict the commercial promotion, distribution, prescription or dispensing of products. +Before approving an NDA, the FDA will generally inspect the facilities at which the product is to be manufactured. The FDA will not approve the product unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. If the FDA determines that the application, manufacturing process or manufacturing facilities are not acceptable, it will outline the deficiencies in the submission and often will request additional testing or information. Additionally, before approving an NDA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP requirements. +After the FDA evaluates an NDA, it will issue an approval letter or a Complete Response Letter. An approval letter authorizes commercial marketing of the drug product with prescribing information for specific indications. A Complete Response Letter indicates that the review cycle of the application is complete, and the application will not be approved in its present form. A Complete Response Letter usually describes the specific deficiencies in the NDA identified by the FDA and may require additional clinical data, such as an additional pivotal Phase 3 trial or other significant and time-consuming requirements related to clinical trials, preclinical studies or manufacturing. If a Complete Response Letter is issued, the sponsor must resubmit the NDA, addressing all of the deficiencies identified in the letter, or withdraw the application. Even if such data and information are submitted, the FDA may decide that the NDA does not satisfy the criteria for approval. +If a product receives regulatory approval, the approval may be significantly limited to specific diseases and dosages or the indications for use may otherwise be limited, which could restrict the commercial value of the product. Further, the FDA may require that certain contraindications, warnings or precautions be included in the product labeling. In addition, the FDA may require post-approval studies, referred to as Phase 4 testing, which involves clinical trials designed to further assess a product’s safety and effectiveness and may require testing and surveillance programs to monitor the safety of approved products that have been commercialized. +Expedited Development and Review Programs +The FDA administers a number of different programs that enable the agency and sponsors in various ways to expedite the development or agency review of a new drug product. Among these, the FDA has a fast track designation that is intended to expedite or facilitate the process for reviewing new drug products that meet certain criteria. New drug products are eligible for fast track designation if they are intended to treat a serious or life-threatening disease or condition and demonstrate the potential to address unmet medical needs for the disease or condition. As an example of the modified processes available to a fast track product, the FDA may consider for review sections of the NDA on a rolling basis before the complete application is submitted, if the sponsor provides a schedule for the submission of the sections of the NDA, the FDA agrees to accept sections of the NDA and determines that the schedule is acceptable, and the sponsor pays any required user fees upon submission of the first section of the NDA. +Any product submitted to the FDA for approval, including a product with a fast track designation, may also be eligible for other types of FDA programs intended to expedite development and review, such as priority review and accelerated approval. A product is eligible for priority review if it has the potential to provide safe and effective therapy where no satisfactory alternative therapy exists or a significant improvement in the treatment, diagnosis or +24 +Table of Contents +prevention of a disease compared to marketed products. The FDA will attempt to direct additional resources to the evaluation of an application for a new drug product designated for priority review in an effort to facilitate the review. The FDA endeavors to review applications with priority review designations within six months of the filing date as compared to ten months for review of other NDAs under its current PDUFA review goals. +In addition, a product may be eligible for accelerated approval. Drug products intended to treat serious or life-threatening diseases or conditions may be eligible for accelerated approval upon a determination that the product has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit, or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity, or prevalence of the condition and the availability or lack of alternative treatments. As a condition of approval, the FDA will require that a sponsor of a drug product receiving accelerated approval perform additional adequate and well-controlled post-marketing clinical trials. Under the Food and Drug Omnibus Reform Act of 2022 (“FDORA”), the FDA is now permitted to require, as appropriate, that such trials be underway prior to approval or within a specific time period after the date of approval for a product approved under the accelerated approval pathway. FDA has issued draft guidance that proposes criteria it will evaluate to determine if a trial is underway, including whether enrollment in the trial has been initiated. Since the FDORA amendments, the FDA has increased authority for expedited procedures to withdraw approval of a drug or indication approved under accelerated approval if, for example, the confirmatory trial fails to verify the predicted clinical benefit of the product. In addition, the FDA currently requires as a condition for accelerated approval pre-use submission of promotional materials, which could adversely impact the timing of the commercial launch of the product. Fast track designation, priority review and accelerated approval do not change the standards for approval but may expedite the development or approval process. +The Food and Drug Administration Safety and Innovation Act established a category of drug products referred to as “breakthrough therapies” that may be eligible to receive breakthrough therapy designation. A sponsor may seek the FDA designation of a product candidate as a “breakthrough therapy” if the product is intended, alone or in combination with one or more other products, to treat a serious or life-threatening disease or condition and preliminary clinical evidence indicates that the product may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. The designation includes all of the fast track program features, as well as more intensive FDA interaction and guidance. The breakthrough therapy designation is a distinct status from both accelerated approval and priority review, which can also be granted to the same drug product if relevant criteria are met. If a product is designated as breakthrough therapy, the FDA will work with the sponsor to expedite the development and review of such drug product. +With passage of the 21st Century Cures Act in December 2016, Congress authorized the FDA to accelerate review and approval of products designated as regenerative advanced therapies. A product is eligible for this designation if it is a regenerative medicine therapy that is intended to treat, modify, reverse or cure a serious or life-threatening disease or condition and preliminary clinical evidence indicates that the product candidate has the potential to address unmet medical needs for such disease or condition. The benefits of a regenerative advanced therapy designation include early interactions with the FDA to expedite development and review, benefits available to breakthrough therapies, potential eligibility for priority review and accelerated approval based on surrogate or intermediate endpoints. +Pediatric Trials +Under the Pediatric Research Equity Act, a marketing application for a drug or biological product for a new active ingredient, new indication, new dosage form, new dosing regimen, or new route of administration must contain data to assess the safety and efficacy of the product for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. The FDCA requires that a sponsor submit an initial Pediatric Study Plan (“PSP”) within 60 days of an end-of-Phase 2 meeting or as may be agreed between the sponsor and the FDA. The FDA and the sponsor must reach agreement on the PSP. The initial PSP must include an outline of the pediatric study or studies that the sponsor plans to conduct or a justification for not including certain required information, and any request for a deferral of pediatric assessments or a full or partial waiver of the requirement to provide data from pediatric studies along with supporting information. The FDA may grant deferrals for the development and submission of pediatric data or full or partial waivers after the initial submission of a PSP. +Post-Approval Requirements +25 +Table of Contents +Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown risks or problems with a product may result in labeling changes, restrictions on the product or even complete withdrawal of the product from the market. After approval, most changes to the approved product, such as adding new indications, certain manufacturing changes and additional labeling claims, are subject to further FDA review and approval. Drug product manufacturers and other entities involved in the manufacture and distribution of approved drug products are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP regulations and other laws and regulations. In addition, the FDA may impose a number of post-approval requirements as a condition of approval of an NDA. For example, the FDA may require post-marketing testing, including Phase 4 clinical trials, and surveillance to further assess and monitor the product’s safety and effectiveness after commercialization. +Any drug products for which we receive FDA approvals are subject to continuing regulation by the FDA, including, among other things, record-keeping requirements, reporting of adverse experiences or quality issues with the product, providing the FDA with updated safety and efficacy information, satisfaction of post-approval requirements or commitments, product sampling and distribution requirements, tracking and tracing requirements and complying with FDA promotion and advertising requirements. These promotion and advertising requirements include, among other things, standards for direct-to-consumer advertising, prohibitions against promoting drug products for uses, or in patient populations, that are not described in the drug product’s approved labeling, which is known as “off-label use,” rules for conducting industry-sponsored scientific and educational activities, and promotional activities involving the internet. Failure to comply with post-approval requirements can have negative consequences, including adverse publicity, enforcement letters from the FDA, mandated corrective advertising or communications with doctors, and civil or criminal penalties. Although physicians may prescribe legally available drug products for off-label uses, manufacturers may not market or promote such off-label uses. Failure to comply with the applicable U.S. requirements at any time during the product development process, approval process or after approval, may subject an applicant, manufacturer or product to administrative or judicial civil or criminal sanctions and adverse publicity. FDA sanctions could include refusal to approve pending applications, withdrawal of an approval, clinical holds on post-approval clinical trials, warning or untitled letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, mandated corrective advertising or communications with doctors, debarment, restitution, disgorgement of profits, or civil or criminal penalties. +Hatch-Waxman Amendments +Section 505 of the FDCA describes three types of NDAs that may be submitted to request marketing authorization for a new drug product, the first being a 505(b)(1) NDA. A 505(b)(1) NDA is an application that contains full reports of investigations of safety and effectiveness. A 505(b)(2) NDA likewise contains full reports of investigations of safety and effectiveness relevant to a product, but where at least some of the information required for approval comes from studies not conducted by or for the applicant, and for which the applicant has not obtained a right of reference. This regulatory pathway enables the applicant to rely, in part, on the FDA’s findings of safety and efficacy for an existing product (the “listed drug”), or published literature, in support of its application. The FDA may also require 505(b)(2) applicants to perform additional studies or measurements to support the change from the listed drug. The FDA may then approve the new product candidate for all or some of the labeled indications for which the listed product has been approved, or for any new indication sought by the 505(b)(2) applicant. +Section 505(j) establishes an abbreviated approval process for generic versions of approved drug products through the submission of an abbreviated new drug product application (“ANDA”). An ANDA generally provides for marketing of a drug product that has the same active ingredients in the same strengths and dosage form, and with the same labeling and route of administration as the listed drug product and has been shown to be bioequivalent to the reference listed drug product. ANDA applicants are required to conduct bioequivalence testing to confirm chemical and therapeutic equivalence to the branded reference drug product. Generic versions of drug products can often, and sometimes must, be substituted by pharmacists under prescriptions written for the branded reference drug product. +In seeking approval of an NDA or a supplement thereto, NDA sponsors are required to list with the FDA each patent with claims that cover the applicant’s product or an approved method of using the product. Upon approval, each of the patents listed by the NDA sponsor is published in the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations, commonly known as the Orange Book. Upon submission of an ANDA or a 505(b)(2) NDA, an applicant must certify to the FDA at least one of the following (1) no patent information on the drug product that is relied upon by the ANDA or 505(b)(2) NDA (known as the reference drug product) has been submitted to the FDA; +26 +Table of Contents +(2) such patent has expired; (3) the date on which such patent expires; or (4) such patent is invalid, unenforceable, or will not be infringed by the manufacture, use or sale of the drug product for which the ANDA or 505(b)(2) NDA is submitted. This last certification is known as a Paragraph IV Certification. If the NDA holder for the reference drug product or patent owner(s) asserts a patent challenge to the Paragraph IV Certification, the FDA may not approve that application until the earlier of 30 months from the receipt of the notice of the Paragraph IV Certification, the expiration of the patent, when the infringement case concerning each such patent was favorably decided in the applicant’s favor or such shorter or longer period as may be ordered by a court. This prohibition is generally referred to as the 30-month stay. Thus, approval of an ANDA or 505(b)(2) NDA could be delayed for a significant period of time depending on the patent certification the applicant makes and the reference drug product sponsor’s or patent owner’s decision to initiate patent litigation. +In addition to, and distinct from the patent protection provisions, the Hatch-Waxman Amendments establish periods of regulatory exclusivity for certain approved drug products, during which the FDA cannot approve (or in some cases accept) an ANDA or 505(b)(2) application that relies on the branded reference drug product. For example, the holder of an NDA may obtain five years of exclusivity upon approval of a new drug product containing a new chemical entity that has not been previously approved by the FDA. The Hatch-Waxman Amendments also provide three years of marketing exclusivity to the holder of an NDA (including a 505(b)(2) NDA) for a particular condition of approval, or change to a marketed product, such as a new formulation for a previously approved product, if one or more new clinical trials (other than bioavailability or bioequivalence studies) was essential to the approval of the application and was conducted/sponsored by the applicant. This three-year exclusivity period protects against FDA approval of ANDAs and 505(b)(2) NDAs for drug products that include the innovation that required the new clinical data, but generally allows the approval for non-protected characteristics and labeling. +Third-Party Payor Coverage, Pricing and Reimbursement +In the United States and markets in other countries, patients who are prescribed treatments for their conditions and providers performing the prescribed services generally rely on third-party payors to reimburse all or part of the associated healthcare costs. Thus, sales of a product will depend, in part, on the extent to which third-party payors provide coverage and establish adequate reimbursement levels for the product. Third-party payors include government payor programs at the federal and state levels, including Medicare and Medicaid, managed care providers, private health insurers and other organizations. In the United States, the principal decisions about reimbursement for new drug products are often made by the Centers for Medicare and Medicaid Services (CMS), an agency within the Department of Health and Human Services (HHS). CMS decides whether and to what extent a new drug product will be covered and reimbursed under Medicare, and private payors tend to follow CMS to a substantial degree. However, no uniform policy of coverage and reimbursement for products exists among third-party payors. The process for determining whether a payor will provide coverage for a product may be separate from the process for setting the price or reimbursement rate that the payor will pay for the product. Third-party payors may limit coverage to specific products on an approved list, or formulary, which might not include all of the FDA-approved products for a particular indication, and which can change over time. Third-party payors are increasingly challenging the price and examining the medical necessity and cost-effectiveness of medical products and services, in addition to their safety and efficacy. We may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of our products, in addition to the costs required to obtain FDA or other comparable regulatory approvals. Additionally, companies may also need to provide discounts to purchasers, private health plans or government healthcare programs, in order for the company’s products to be considered as a formulary option. Nonetheless, product candidates may not be considered by individual payors to be medically necessary or cost-effective. A payor’s decision to provide coverage for a product does not imply that a preferred formulary position or an adequate reimbursement rate will be approved. Further, one payor’s determination to provide coverage for a product does not assure that other payors will also provide coverage and reimbursement for the product, and the level of coverage and reimbursement can differ significantly from payor to payor. Adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development. +The cost of pharmaceuticals continues to generate substantial governmental and third-party payor interest. We expect that the pharmaceutical industry will experience pricing pressures due to the trend toward managed healthcare, the increasing influence of managed care organizations and additional legislative proposals. The U.S. government, state legislatures and foreign governments have shown significant interest in implementing cost containment programs to limit the growth of government-paid healthcare costs, including price controls, restrictions on reimbursement and requirements for substitution of generic products for branded prescription drug products. Adoption of such controls and measures, and tightening of restrictive policies in jurisdictions with existing controls and measures, could limit +27 +Table of Contents +payments for pharmaceuticals such as our products and the product candidates that we are developing and could adversely affect our net revenue and results. See the discussion below under “ U.S. Healthcare Reform ”, and regarding the Inflation Reduction Act for further information. +Different pricing and reimbursement schemes exist in other countries. In the European Economic Area (“EEA”) (which is currently comprised of the 27 Member States of the EU plus Norway, Iceland and Liechtenstein), governments influence the price of pharmaceutical products through their pricing and reimbursement rules and control of national healthcare systems that fund a large part of the cost of those products to consumers. Some countries in the EEA operate positive and negative list systems under which some medicinal products are selected for coverage (positive list) and others are explicitly listed as excluded from reimbursement (negative list). To obtain reimbursement or pricing approval, some of these EEA countries may require the completion of clinical trials that compare the cost-effectiveness of a particular product to currently available therapies. Other EEA countries allow companies to fix their own prices for medicinal products, but monitor and control company profits. The downward pressure on healthcare costs in general, particularly prescription drug products, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products. In addition, in some countries, cross-border imports from low-priced markets exert a commercial pressure on pricing within a country. There can be no assurance that any country that has price controls or reimbursement limitations for products will allow favorable reimbursement and pricing arrangements for any of our products. +U.S. Healthcare Reform +In the United States there have been, and continue to be, proposals by the federal government, state governments, regulators and third-party payors to control or manage the increased costs of healthcare and, more generally, to reform the U.S. healthcare system. The pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives. For example, in March 2010, the Affordable Care Act (the “ACA”) was enacted, which is intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for the healthcare and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms, and which substantially changes the way healthcare is financed by both governmental and private insurers, and significantly impacts the U.S. pharmaceutical industry. The ACA, among other things, (1) subjected therapeutic biologics to potential competition by lower-cost biosimilars by creating a licensure framework for follow-on biologic products, (2) prescribed a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drug products that are inhaled, infused, instilled, implanted or injected, (3) increased the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extended the rebate program to individuals enrolled in Medicaid managed care organizations, (4) established annual nondeductible fees on manufacturers of certain branded prescription drug products, apportioned among these entities according to their market share in certain government healthcare programs, (5) established a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer point-of-sale discounts off negotiated prices of applicable brand drug products to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drug products to be covered under Medicare Part D, (6) expanded eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additional individuals and by adding new mandatory eligibility categories for individuals with income at or below 133% of the federal poverty level, thereby potentially increasing manufacturers’ Medicaid rebate liability, (7) expanded the entities eligible for discounts under the 340B Public Health Service Act program, (8) created a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research, and (9) established a Center for Medicare Innovation at the CMS to test innovative payment and service delivery models to lower Medicare and Medicaid spending, potentially including prescription drug product spending. +Since its enactment, there have been judicial, Congressional and Administrative challenges to certain aspects of the ACA, and we expect there will be additional challenges and amendments to the ACA in the future. For example, legislation affecting the implementation of certain taxes under the ACA has been signed into law. The TCJA included a provision that repealed, effective January 1, 2019, the tax-based shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate”. Further, the Bipartisan Budget Act of 2018 (the “BBA”), among other things, amended the ACA, effective January 1, 2019, to increase from 50% to 70% the point-of-sale discount that is owned by pharmaceutical manufacturers who participate in Medicare Part D and to close the coverage gap in most Medicare drug plans, commonly referred to as the “donut hole”. On June 17, 2021 the U.S. Supreme Court dismissed a challenge on procedural grounds that argued the ACA is unconstitutional in its entirety because the “individual mandate” was +28 +Table of Contents +repealed by Congress. Thus, the ACA will remain in effect in its current form. It is unclear how additional healthcare reform measures of the Trump or subsequent administrations or other efforts, if any, to modify or invalidate the ACA or its implementing regulations, or portions thereof, will impact our business. For example, on July 4, 2025, legislation commonly referred to as the One Big Beautiful Bill Act was signed into law, which reduced funding to federal healthcare programs and imposed additional requirements to be eligible for healthcare, which may result in decreased access to healthcare, particularly in Medicaid programs. Any health care reform measures will likely take time to unfold, and could have an impact on coverage and reimbursement for healthcare items and services. We cannot predict the ultimate content, timing or effect of any healthcare reform legislation or other policy or the impact of potential legislation or other policy on us. +Other legislative and administrative changes have been proposed and adopted in the United States since the ACA was enacted to reduce healthcare expenditures. For example, the Budget Control Act of 2011, among other things, in connection with subsequent legislation, reduced Medicare payments to providers, on average, by 2% per fiscal year. These reductions went into effect on April 1, 2013 and, due to subsequent legislative amendments to the statute, including the BBA, will remain in effect through 2032. Moreover, on January 2, 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, further reduced Medicare payments to several types of providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. If federal spending is further reduced, anticipated budgetary shortfalls may impact the ability of relevant agencies to continue to function at current levels. Amounts allocated to federal grants and contracts may be reduced or eliminated. These reductions may also impact the ability of relevant agencies to timely review and approve research and development, manufacturing, and marketing activities, which may delay our ability to develop, market and sell any products we may develop. +Recently there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, which has resulted in several Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drug products. On August 16, 2022, former President Biden signed into law the Inflation Reduction Act of 2022, which among other things, contains two specific provisions affecting pricing for drug products and biologics. The first provision allows for CMS to negotiate prices for certain single-source drug products and biologics reimbursed under Medicare Part B and Part D, beginning with 10 high-cost drug products paid for by Medicare Part D starting in 2026, followed by 15 Part D drug products in 2027, 15 Part B or Part D drug products in 2028, and 20 Part B or Part D drug products in 2029 and beyond. The legislation subjects drug product manufacturers to civil monetary penalties and a potential excise tax for failing to comply with the legislation by offering a price that is not equal to or less than the negotiated “maximum fair price” under the law or for taking price increases that exceed inflation. The legislation also caps Medicare beneficiaries’ annual out-of-pocket drug product expenses at $2,000. The second provision imposes a requirement that pharma manufacturers provide a rebate to Medicare, if the manufacturer increases price at a rate higher than the measured inflation rate. Medicaid has had a rebate program for several years, but Medicare did not. The intent is to limit price increases. The new rebate applies to drug products covered by Medicare under Part B or Part D. Various industry stakeholders, including pharmaceutical companies, have lawsuits pending against the federal government asserting that the price negotiation provisions of the IRA are unconstitutional. HHS has generally won the substantive disputes in these cases, but certain of these cases continue to be appealed. The current Administration has also issued public statements and other executive orders about its commitment to lowering the cost of prescription drugs and has sought additional voluntary agreements to reduce drug pricing from certain pharmaceutical manufacturers. At the state level, legislatures are increasingly passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures. In some cases, states appear interested in public policy designed to encourage drug product importation from other countries and bulk purchasing. In January 2024, the FDA authorized Florida’s Agency for Health Care Administration’s drug importation program, which is the first step toward Florida facilitating importation of certain prescription drugs from Canada. Authorization of other state programs may follow as other states have submitted importation program proposals. The Trump Administration has publicly supported such state-directed importation programs, and FDA has taken steps to facilitate such states in initiating such programs. Furthermore, there has been increased interest by third-party payors and governmental authorities in reference pricing systems and publication of discounts and list prices. +We expect that other healthcare reform measures that may be adopted in the future may result in more rigorous +29 +Table of Contents +coverage criteria and in additional downward pressure on the price that we receive for any approved product, and could seriously harm our future revenue. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability, or commercialize our product. +Other U.S. Healthcare Laws and Compliance Requirements +In the United States, our activities are potentially subject to regulation by various federal, state and local authorities in addition to the FDA, including the Centers for Medicare and Medicaid Services, other divisions of the United States Department of Health and Human Services ( e.g. , the Office of Inspector General), the United States Department of Justice and individual United States Attorney offices within the Department of Justice, and state and local governments. For example, various activities, including but not limited to sales, marketing and scientific/educational grant programs, must comply with the anti-fraud and abuse provisions of the Social Security Act, the federal Anti-Kickback Statute, the federal False Claims Act and similar state laws, each as amended. Failure to comply with such requirements could potentially result in substantial penalties to us. Even if we structure our programs with the intent of compliance with such laws, there can be no certainty that we would not need to defend against enforcement or litigation, in light of the fact that there is significant enforcement interest in pharmaceutical companies in the United States, and some of the applicable laws are quite broad in scope. +The federal Anti-Kickback Statute prohibits any person, including a pharmaceutical manufacturer (or a party acting on its behalf), from knowingly and willfully soliciting, receiving, offering or providing remuneration, directly or indirectly, to induce or reward either the referral of an individual, or the furnishing, recommending, or arranging for a good or service, for which payment may be made under a federal healthcare program such as the Medicare and Medicaid programs. This statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on one hand and prescribers, purchasers, and formulary managers on the other. +The term “remuneration” is not defined in the federal Anti-Kickback Statute and has been broadly interpreted to include anything of value, including for example, gifts, discounts, the furnishing of supplies or equipment, credit arrangements, payments of cash, waivers of payments, ownership interests and providing anything at less than its fair market value. Although there are a number of statutory exemptions and regulatory safe harbors protecting certain business arrangements from prosecution, the exemptions and safe harbors are drawn narrowly and practices that involve remuneration intended to induce prescribing, purchasing or recommending may be subject to scrutiny if they do not qualify for an exemption or safe harbor. Our practices may not in all cases meet all of the criteria for safe harbor protection from federal Anti-Kickback Statute liability. The government can establish a violation of the Anti-Kickback Statute without proving that a person or entity had actual knowledge of this statute or specific intent to violate it. In addition, the ACA provides that the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal False Claims Act (discussed below) or the civil monetary penalties statute, which imposes fines against any person who is determined to have presented or caused to be presented claims to a federal healthcare program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent. Additionally, many states have adopted laws similar to the federal Anti-Kickback Statute, and some of these state prohibitions apply to referral of patients for healthcare items or services reimbursed by any third-party payor, not only the Medicare and Medicaid programs in at least some cases, and do not contain safe harbors. +The federal False Claims Act imposes liability on any person or entity that, among other things, knowingly presents, or causes to be presented, a false or fraudulent claim for payment of government funds, or knowingly makes, uses, or causes to be made or used a false statement material to a false or fraudulent claim, or knowingly conceals or knowingly and improperly avoids, or decreases an obligation to pay money to the government. The qui tam provisions of the False Claims Act allow a private individual to bring civil actions on behalf of the federal government alleging that the defendant has submitted a false claim to the federal government and to share in any monetary recovery. In recent years, the number of suits brought by private individuals has increased dramatically. In addition, various states have enacted false claims laws analogous to the False Claims Act. Some of these state laws apply where a claim is submitted to any third-party payor and not merely a federal healthcare program. There are many potential bases for liability under the False Claims Act. Liability arises, primarily, when an entity knowingly submits, or causes another to submit, a false claim for reimbursement to the federal government. The False Claims Act has been used to assert liability on the basis of inadequate care, kickbacks and other improper referrals, improperly reported government pricing metrics such as Best Price or Average Manufacturer Price (“AMP”), improper promotion of off-label uses +30 +Table of Contents +( i.e. , uses not expressly approved by the FDA in a drug product’s label), and allegations as to misrepresentations with respect to the services rendered. Our activities relating to the reporting of discount and rebate information and other information affecting federal, state and third-party reimbursement of our products, and the sale and marketing of our products and our service arrangements or data purchases, among other activities, may be subject to scrutiny under these laws. We are unable to predict whether we would be subject to actions under the False Claims Act or a similar state law, or the impact of such actions. However, the cost of defending such claims, as well as any sanctions imposed, could adversely affect our financial performance. +The healthcare fraud provisions under the U.S. federal Health Insurance Portability and Accountability Act of 1996 and its implementing regulations (“HIPAA”) impose criminal liability for, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any health care benefit program, including private third-party payors, or falsifying or covering up a material fact or making any materially false or fraudulent statement in connection with the delivery of or payment for health care benefits, items or services. +We may be subject to, or our marketing activities may be limited by, data privacy and security law and regulation promulgated by both the U.S. federal government and the U.S. states in which we conduct our business. For example, under HIPAA, the U.S. Department of Health and Human Services imposes upon “covered entities” (broadly, healthcare providers, health plans and healthcare clearinghouses) and their respective “business associates” (individuals or entities that create, receive, maintain or transmit protected health information on behalf of a covered entity) the HIPAA Privacy and Security Rules which include privacy obligations; requirements to implement appropriate administrative, physical and technical safeguards to ensure the confidentiality, integrity, and security of electronic protected health information; and breach response notification obligations. Although we are neither a covered entity nor business associate, and therefore not subject to the HIPAA Privacy and Security Rules, we must monitor developments with these requirements for changing obligations that may apply to us. The FTC also requires companies to take appropriate steps to keep consumers’ personal information secure and to make accurate statements regarding how they secure personal information under their custody or control, such as in a privacy notice. The FTC also expects a company’s data security measures to be reasonable and appropriate in light of the sensitivity and volume of personal information it holds, the size and complexity of its business, and the cost of available tools to improve data security and reduce vulnerabilities. Individually identifiable health information, which we process, is considered sensitive data that merits stronger safeguards. Violations of the foregoing FTC requirements may constitute unfair or deceptive acts or practices under Section 5(a) of the Federal Trade Commission Act (the “FTC Act”). While we do not intend to engage in unfair or deceptive acts or practices, the FTC has the power to bring enforcement actions based on the FTC’s interpretation of public privacy statements. Further, events that we cannot fully control, such as data breaches, may also result in civil penalties, FTC enforcement or enforcement by U.S. state attorneys general or other regulators. Various U.S. states have implemented privacy laws and regulations that regulate the use and disclosure of health information and other personal information. For example, the CCPA, established a privacy framework for covered businesses by, among other items, expanding the definition of personal information, establishing new data privacy rights for consumers who are California residents, imposing rules on the collection of personal information from minors, and creating a statutory damages framework for violations of the CCPA, including for failure to implement reasonable security procedures and practices to prevent data breaches. Penalties for violations of the CCPA include civil penalties and may result in related legal claims. The CPRA, most provisions of which became operative on January 1, 2023, introduced significant amendments to the CCPA and established and funded a dedicated California privacy regulator, the California Privacy Protection Agency. Several other states have implemented similar consumer privacy laws that took effect in the past year or will take effect in the near future. Further, Washington’s My Health My Data Act, taking effect July 1, 2024, imposes requirements specific to consumer health data. The foregoing U.S. state privacy laws impose many similar obligations as the CCPA on our processing of personal information. Other U.S. states are considering similar privacy legislation, and industry organizations regularly adopt and advocate for new standards in these areas. The uncertainty, ambiguity, complexity, and potential inconsistency surrounding the implementation and interpretation of the CCPA and other enacted or forthcoming U.S. state privacy laws exemplify the vulnerability of our business to the evolving regulatory environment related to the privacy, security and confidentiality of personal information and protected health information. We may be subject to fines, penalties, or private actions in the event of non-compliance with such laws. +Our activities outside of the U.S. implicate local, state, provincial, and national data protection standards, impose additional compliance requirements and generate additional risks of enforcement for non-compliance. Such laws may also restrict the access, use and disclosure of patient health information abroad. We may be required to expend significant capital and other resources to ensure ongoing compliance with applicable privacy and data security laws, +31 +Table of Contents +to protect against security breaches and hackers, or to remediate issues caused by such breaches. Compliance with these laws is challenging, constantly evolving, time consuming, and requires a flexible privacy framework and substantial resources. Compliance efforts will likely be an increasing and substantial cost in the future. +The U.S. federal Physician Payments Sunshine Act requires certain manufacturers of drug products, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program, with specific exceptions, to annually report to CMS information related to payments or other transfers of value made to physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members. In addition to this federal requirement, a number of individual states and foreign jurisdictions require detailed reporting and often public disclosures concerning transfers of value to physicians, other health care providers and family members. Effective January 1, 2022, these reporting obligations were extended to include transfers of value made to certain non-physician providers such as physician assistants and nurse practitioners. +Compliance with such requirements may require investment in infrastructure to ensure that tracking is performed properly, and some of these laws result in the public disclosure of various types of payments and relationships. +Several states have enacted legislation requiring pharmaceutical companies to, among other things, establish marketing compliance programs, file periodic reports with the state, make periodic public disclosures on sales, marketing, pricing, clinical trials and other activities, or register their sales representatives, as well as prohibiting pharmacies and other healthcare entities from providing certain physician prescribing data to pharmaceutical companies for use in sales and marketing, and prohibiting certain other sales and marketing practices. These laws may affect our sales, marketing and other promotional activities by imposing administrative burdens on us. If we fail to track and report as required by these laws or otherwise comply with these laws, we could be subject to the penalty provisions of the pertinent state and federal authorities. +Where our activities involve foreign government officials, they may also potentially be subject to the FCPA. If we seek to have a product paid for with federal funds under the Medicaid programs or Medicare Part B, various obligations, including government price reporting, are required under the Medicaid rebate provisions of the Omnibus Budget Reconciliation Act of 1990 and the Veterans Health Care Act of 1992, each as amended, which generally require products to be offered at substantial rebates/discounts to such programs and certain purchasers. Government price reporting may also be required with respect to average sales price, which serves as the basis of reimbursement under Medicare Part B. In order to distribute products commercially, we must comply with state laws that require the registration of manufacturers and wholesale distributors of pharmaceutical products in a state, including, in certain states, manufacturers and distributors who ship products into the state even if such manufacturers or distributors have no place of business within the state. Many of our current as well as possible future activities are potentially subject to federal and state consumer protection and unfair competition laws. We must also comply with laws that require clinical trial registration and reporting of clinical trial results on the publicly available clinical trial databank maintained by the National Institutes of Health (“NIH”) at www.ClinicalTrials.gov. We are subject to various environmental, health and safety regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous substances. From time to time, and in the future, our operations may involve the use of hazardous materials. +Because of the breadth of these laws and the narrowness of available statutory and regulatory exemptions, it is possible that some of our business activities could be subject to challenge under one or more of such laws. If our operations are found to be in violation of any of the federal and state laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including criminal and significant civil monetary penalties, damages, fines, imprisonment, exclusion from participation in government healthcare programs, injunctions, recall or seizure of products, total or partial suspension of production, denial or withdrawal of pre-marketing product approvals, private “qui tam” actions brought by individual whistleblowers in the name of the government or refusal to allow us to enter into supply contracts, including government contracts, integrity oversight and reporting obligations to resolve allegations of non-compliance, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations. To the extent that any of our products are sold in a foreign country, we may be subject to similar foreign laws and regulations, which may include, for instance, applicable post-marketing requirements, including safety surveillance, anti-fraud and abuse laws, and implementation of corporate compliance programs and reporting of payments or transfers of value to HCPs. +U.S. Marketing Exclusivity +32 +Table of Contents +Hatch-Waxman Exclusivity . Market exclusivity provisions under the FDCA can also delay the submission or the approval of certain applications of other companies seeking to reference another company’s NDA. If the new drug product is a new chemical entity subject to an NDA, the FDCA provides a five-year period of non-patent marketing exclusivity within the United States to the first applicant to obtain approval of an NDA for a new chemical entity. A drug product is a new chemical entity if the FDA has not previously approved any other new drug product containing the same active moiety, which is the molecule or ion responsible for the action of the drug substance. This definition is currently under FDA review. During the exclusivity period, the FDA may not accept for review an ANDA or a Section 505(b)(2) NDA submitted by another company for another version of such drug product where the applicant does not own or have a legal right of reference to all the data required for approval. However, such an application may be submitted after four years if it contains a certification of patent invalidity or non-infringement to one of the patents listed with the FDA by the innovator NDA holder. The FDCA also provides three years of marketing exclusivity for an NDA, or supplement to an existing NDA, if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the applicant are deemed by the FDA to be essential to the approval of the application, such as new indications, dosages or strengths of an existing drug product. This three-year exclusivity covers only the conditions associated with the new clinical investigations and does not prohibit the FDA from approving ANDAs for drug products containing the original active agent. Five-year and three-year exclusivity will not delay the submission or approval of a full NDA. However, an applicant submitting a full NDA would be required to conduct or obtain a right of reference to all of the preclinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness. +Pediatric Exclusivity . Pediatric exclusivity is another type of regulatory market exclusivity in the United States. Pediatric exclusivity, if granted, adds six months to any existing exclusivity period or patent term. This six-month exclusivity may be granted by the FDA based on the completion of a pediatric clinical trial in accordance with provisions of the FDCA. +Europe/Rest of World Government Regulation +In addition to regulations in the United States, we are subject to a variety of regulations in other jurisdictions governing, among other things, clinical trials, pricing and reimbursement, anti-bribery, advertising and promotion, data privacy and security and any commercial sales and distribution of our future products. +Whether or not we obtain FDA approval for a product, we must obtain the requisite approvals from regulatory authorities in foreign countries prior to the commencement of clinical trials or marketing of the product in those countries. Certain countries outside of the United States have a similar process that requires the submission of a clinical trial application (“CTA”) much like the IND prior to the commencement of human clinical trials. +In the EEA, for example, a CTA must be submitted to each country’s national health authority and an independent ethics committee, much like the FDA and IRB, respectively. Once the CTA is approved in accordance with the EU Clinical Trials Directive 2001/20/EC (the “Clinical Trials Directive”) and the related national implementing provisions of the relevant individual EEA country’s requirements, the clinical trial described in that CTA may proceed. +In April 2014, the new Clinical Trials Regulation, (EU) No 536/2014 (the “Clinical Trials Regulation”) was adopted. The Clinical Trials Regulation entered into force on January 31, 2022. The Clinical Trials Regulation is directly applicable in all the EEA countries, repealing the prior Clinical Trials Directive. The new Clinical Trials Regulation allows a sponsor to start and conduct a clinical trial in accordance with the Clinical Trials Directive during a transitional period of one year after the application date, i.e. January 31, 2022. The transition period for the trials ongoing at the moment of applicability will be a maximum of three years after the date of application of the Clinical Trials Regulation. Clinical trials authorized under the current Clinical Trials Directive before January 31, 2023 can continue to be conducted under the Clinical Trials Directive until January 31, 2025. The new Clinical Trials Regulation is intended to simplify and streamline the approval of clinical trials in the EEA. The main characteristics of the regulation include: a streamlined application procedure through a single entry point, the “EU portal”; a single set of documents to be prepared and submitted for the application as well as simplified reporting procedures for clinical trial sponsors; and a harmonized procedure for the assessment of applications for clinical trials, which is divided into two parts. +For other countries outside of the EEA, such as countries in Eastern Europe, Latin America or Asia, the requirements governing the conduct of clinical trials vary from country to country. Internationally, clinical trials are generally required to be conducted in accordance with GCP, applicable regulatory requirements of each jurisdiction and the medical ethics principles that have their origins in the Declaration of Helsinki. +33 +Table of Contents +In the EEA, medicinal products can be commercialized only after obtaining a Marketing Authorization (“MA”). There are several procedures for requesting marketing authorization which can be more efficient than applying for authorization on a country-by-country basis. There is a “centralized” procedure allowing submission of a single marketing authorization application to the EMA. If the EMA issues a positive opinion, the European Commission will grant a centralized marketing authorization that is valid in all EEA countries. +The “centralized” procedure is mandatory for certain types of products, such as biotechnology medicinal products, orphan medicinal products, and medicinal products containing a new active substance indicated for the treatment of AIDS, cancer, neurodegenerative disorders, diabetes, auto-immune and viral diseases. The “centralized” procedure is optional for products containing a new active substance not yet authorized in the EEA, or for products that constitute a significant therapeutic, scientific or technical innovation or which are in the interest of public health in the EEA. +There is also a “decentralized” procedure allowing companies to file identical applications to several EEA countries simultaneously for product candidates that have not yet been authorized in any EEA country and a “mutual recognition” procedure allowing companies that have a product already authorized in one EEA country to apply for that authorization to be recognized by the competent authorities in other EEA countries. Under the “decentralized” procedure, an identical dossier is submitted to the competent authorities of each of the EEA countries in which the MA is sought, one of which is selected by the applicant as the Reference Member State (“RMS”). If the RMS proposes to authorize the product, and the other EEA countries do not raise objections, the product is authorized in all the EEA countries where the authorization was sought. Before granting the MA, the EMA or the competent authorities of the EEA countries make an assessment of the risk-benefit balance of the product on the basis of scientific criteria concerning its quality, safety and efficacy. +In many countries outside the United States, procedures to obtain price approvals, coverage and reimbursement can take considerable time after the receipt of a MA. Many EEA countries periodically review their reimbursement of medicinal products, which could have an adverse impact on reimbursement status. In addition, we expect that legislators, policymakers and healthcare insurance funds in the EEA countries will continue to propose and implement cost-containing measures, such as lower maximum prices, lower or lack of reimbursement coverage and incentives to use cheaper, usually generic, products as an alternative to branded products, and/or branded products available through parallel import to keep healthcare costs down. Moreover, in order to obtain reimbursement for our products in some EEA countries, including some EU Member States, we may be required to compile additional data comparing the cost-effectiveness of our products to other available therapies. Health Technology Assessment (“HTA”) of medicinal products is becoming an increasingly common part of the pricing and reimbursement procedures in some EEA countries, including those representing the larger markets. The HTA process, which is currently governed by national laws in each EEA country, is the procedure to assess therapeutic, economic and societal impact of a given medicinal product in the national healthcare systems of the individual country. The outcome of an HTA will often influence the pricing and reimbursement status granted to these medicinal products by the competent authorities of individual EEA countries. The extent to which pricing and reimbursement decisions are influenced by the HTA of the specific medicinal product currently varies between EEA countries, although the HTA Regulation, which aims to harmonize the clinical benefit assessment of HTA across the EEA, will apply from January 12, 2025. If we are unable to maintain favorable pricing and reimbursement status in EEA countries that represent significant markets, our anticipated revenue from and growth prospects for our products in the EEA could be negatively affected. +Outside the United States, interactions between pharmaceutical companies and physicians are also governed by strict laws, such as national anti-bribery laws of EEA countries, national sunshine rules, regulations, industry self-regulation codes of conduct and physicians’ codes of professional conduct. Failure to comply with these requirements could result in reputational risk, public reprimands, administrative penalties, fines or imprisonment. +In the EEA, the advertising and promotion of our products are subject to laws governing promotion of medicinal products, interactions with physicians, misleading and comparative advertising and unfair commercial practices. For example, applicable laws require that promotional materials and advertising in relation to medicinal products comply with the product’s Summary of Product Characteristics (“SmPC”), as approved by the competent authorities in connection with a marketing authorization approval. The SmPC is the document that provides information to physicians concerning the safe and effective use of the product. Promotional activity that does not comply with the SmPC is considered off-label and is prohibited in the EEA. Other applicable laws at the EEA level and in the individual EU Member States also apply to the advertising and promotion of medicinal products, including laws that prohibit the direct-to-consumer advertising of prescription-only medicinal products and further limit or restrict the advertising and +34 +Table of Contents +promotion of our products to the general public and to health care professionals. Violations of the rules governing the promotion of medicinal products in the EEA could be penalized by administrative measures, fines and imprisonment. +In addition to data privacy and security regulations in the United States, we may be subject to, or our marketing activities may be limited by, data privacy and security regulations in the EEA, Switzerland, or the United Kingdom (“UK”), where the legislative and regulatory landscape continues to evolve. There has been increased regulator attention to privacy and data security issues that could potentially affect our business, including through legislation such as the EEA GDPR (as defined below) and UK GDPR, which each imposes strict obligations on the processing of personal data, including the transfer of personal data from the EEA, Switzerland, or UK to third countries that the European Commission has determined does not ensure an adequate level of protection, such as the United States. If we violate the GDPR, we may face significant penalties of up to EUR 10,000,000 or 2% of our total worldwide annual turnover, or for more serious violations, up to EUR 20,000,000 or 4% of our total worldwide annual turnover. +The GDPR and other EEA and UK data privacy and security regulations generally restrict the transfer of personal data from the EEA, UK and Switzerland, to the United States and certain other third countries unless the parties to the transfer have implemented specific safeguards to protect the transferred personal data. One of the primary safeguards on which companies may rely to import or export personal data from had been the EU-U.S. Privacy Shield and Swiss-U.S. Privacy Shield frameworks administered by the U.S. Department of Commerce. However, the EU-U.S. Privacy Shield was invalidated in July 2020 by the Court of Justice of the European Union (the “CJEU”) in a case known as “Schrems II.” Following this decision, the Swiss Federal Data Protection and Information Commissioner (the “FDPIC”) announced that the Swiss-U.S. Privacy Shield does not provide adequate safeguards for the purposes of personal data transfers from Switzerland to third countries that are deemed as not providing adequate protection, including the United States. While the FDPIC does not have authority to invalidate the Swiss-U.S. Privacy Shield regime, the FDPIC’s announcement casts doubt on the viability of the Swiss-U.S. Privacy Shield as a compliance mechanism for Swiss-U.S. data transfers. +The CJEU’s decision in Schrems II also raised questions about whether one of the primary alternatives to the EU-U.S. Privacy Shield, namely the European Commission’s Standard Contractual Clauses, can lawfully be used for personal data transfers from Europe to the United States or other third countries that are not the subject of an adequacy decision of the European Commission. While the CJEU upheld the adequacy of the Standard Contractual Clauses in principle in Schrems II, it made clear that reliance on the Standard Contractual Clauses alone may not necessarily be sufficient in all circumstances. Use of the Standard Contractual Clauses must now be assessed on a case-by-case basis taking into account the legal regime applicable in the destination country, in particular regarding applicable surveillance laws and relevant rights of individuals with respect to the transferred data. In the context of any given transfer, where the legal regime applicable in the destination country may or does conflict with the intended operation of the Standard Contractual Clauses and/or applicable European law, the decision in Schrems II and subsequent draft guidance from the European Data Protection Board (the “EDPB”) would require the parties to that transfer to implement certain supplementary technical, organizational and/or contractual measures to rely on the Standard Contractual Clauses as a lawful “transfer mechanism.” However, the draft guidance from the EDPB on such supplementary technical, organizational and/or contractual measures appears to conclude that any combination of such measures may not be sufficient to allow effective reliance on the Standard Contractual Clauses in the context of transfers of personal data “in the clear” to recipients in countries where the power granted to public authorities to access the transferred data goes beyond that which is “necessary and proportionate in a democratic society”—which may, following the CJEU’s conclusions in Schrems II on relevant powers of United States public authorities and commentary in draft EDPB guidance, include the United States in certain circumstances (e.g., where Section 702 of the U.S. Foreign Intelligence Surveillance Act applies). Further, the UK Information Commissioner’s Office has provided for separate international data transfer mechanisms for restricted transfers of data from the UK: an international data transfer agreement (the UK equivalent of the EU Standard Contractual Clauses) (“IDTA”) and an international data transfer addendum (which amends the EU Standard Contractual Clauses for purposes of international data transfers from the UK to countries without an essentially equivalent data protection framework) (the “Addendum”). Both the IDTA and the Addendum came into force in March 2022. +If we are unable to implement a valid solution to transfer personal data from the EEA to the United States or other countries that have not been deemed to provide an essentially equivalent level of data protection, we may face increased exposure to regulatory action, substantial fines, or injunction orders to stop processing personal data from EEA, Swiss, or UK residents. Any inability to import personal data to the United States may also restrict our clinical trials activities in the EU; limit our ability to collaborate with contract research organizations as well as other service providers, contractors and other companies subject to EU data privacy and security laws; and require us to increase +35 +Table of Contents +our data processing capabilities in the EU and the UK at a significant expense. Additionally, other countries outside of the EU have enacted or are considering enacting similar cross-border data transfer restrictions and laws requiring local data residency, which could increase the cost and complexity of delivering our services and operating our business. The types of challenges we face in the EEA, Switzerland, and the UK will likely also arise in other jurisdictions that adopt laws similar to the GDPR or regulatory frameworks of equivalent complexity. +If we fail to comply with applicable foreign regulatory requirements, we may be subject to, among other things, fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions or criminal prosecution. +Employees and Human Capital Resources +As of December 31, 2025, we have 10 full time employees, including three employees who have M.D.s or Ph.D.s As a majority owned subsidiary of Scilex, we have been dependent upon the services provided by Scilex’s employees, including the equivalent of three Scilex employees and 12 Scilex contractors providing full time services to us as of December 31, 2025. We expect that those employees of Scilex will devote a portion of their time to our business and affairs on an ad hoc basis as necessary to manage and conduct our operations. As of December 31, 2025, Scilex has 28 full-time employees, including three employees who have M.D.s or Ph.D.s. Within that workforce, four employees were primarily engaged in research and development, seven were primarily engaged in sales and marketing and 17 were primarily engaged in general management and administration. None of Scilex’s employees are represented by labor unions or covered by collective bargaining agreements. +In connection with the closing of the Business Combination, we entered into the Transition Services Agreement with Scilex, pursuant to which we can utilize certain employees and other service providers of Scilex to operate our business, including with respect to the following business functions: finance, human resources, information systems, legal and administrative, R&D support and commercialization support. Transition services provided by Scilex will be on a cost plus 10% basis, provided that the service fees will not exceed $2.0 million per annum until all payments under that certain senior secured promissory note issued by Scilex to Oramed Pharmaceuticals Inc. (“Oramed”) in September 2023 in the principal amount of $101.9 million (the “Scilex-Oramed Note”) have been paid in full in cash, and we will reimburse Scilex for its out of pocket fees, costs or expenses. During the transition period, we plan to engage and increase full-time employees to support our research and development, general administrative, manufacturing, regulatory and commercial functions as we enter the final stage of development and pre-launch commercialization planning. The term of the Transition Services Agreement is three years following the closing of the Business Combination, which we believe is sufficient time for us to develop our commercial infrastructure and other business functions. +Our Corporate History +We were incorporated under the name “Denali Capital Acquisition Corp.” on January 5, 2022 as a Cayman Islands exempted company for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses or entities. On September 22, 2025, in connection with the Business Combination, we changed our jurisdiction of incorporation by deregistering as a Cayman Islands exempted company and continuing and domesticating as a corporation incorporated under the laws of the State of Delaware. On September 22, 2025, we changed our name to “Semnur Pharmaceuticals, Inc.” +We are an “emerging growth company” as defined in the JOBS Act. As an emerging growth company, we are eligible for exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and reduced disclosure obligations regarding executive compensation. +Additionally, we are currently a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. +Website Access to SEC Filings +We file annual, quarterly and special reports, proxy statements and other information with the Securities and Exchange Commission (“SEC”). The SEC maintains an Internet website at http://www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including Semnur. We maintain an Internet website at www.semnurpharma.com. The information contained on our +36 +Table of Contents +website or that can be accessed through our website does not constitute a part of this report. We make available, free of charge through our Internet website, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after we electronically file or furnish this information to the SEC. +Item 1A. R isk Factors. +Investing in our securities involves a high degree of risk. Before making an investment decision, you should consider carefully the following risk factors, as well as the other information set forth in this this Annual Report, including matters addressed in the section of this Annual Report titled “Cautionary Note Regarding Forward-Looking Statements”. If any of these risks actually occur, it may materially harm our business, financial condition, liquidity and results of operations. As a result, the market price of our securities could decline, and you could lose all or part of your investment. Additionally, the risks and uncertainties described in this Annual Report are not the only risks and uncertainties that we face. We may face additional risks and uncertainties that are not presently known to us, or that we currently deem immaterial. The following discussions should be read in conjunction with our consolidated financial statements and the notes to the consolidated financial statements included therein. +Risk Factor Summary +Below is a summary of material factors that make an investment in our securities speculative or risky. Importantly, this summary does not address all of the risks that we face. Additional discussion of the risks and uncertainties summarized in this risk factor summary, as well as other risks that we face, follows this summary. This summary is qualified in its entirety by that more complete discussion of such risks and uncertainties: +Risks Related to Our Limited Operating History, Financial Condition and Capital Requirements +• +We are a late-stage clinical specialty pharmaceutical company and have incurred significant losses since our inception. We anticipate that we will incur continued losses for the foreseeable future. +• +We have only one product candidate, SP-102, no products approved for commercial sale, have never generated any revenue from product sales and may never be profitable. +• +We currently have no sales and marketing organization and if we do not establish satisfactory sales and marketing capabilities, we may not successfully commercialize SP-102 or any future product candidates. +• +Our recurring losses from operations, negative cash flows and substantial cumulative net losses raise substantial doubt about our ability to continue as a going concern. +Risks Related to Our Product Development +• +We have historically obtained our clinical supply of our only product candidate, SP-102, and certain of the raw materials used in SP-102, from a sole or single source supplier and manufacturer, and we may not be able to find an alternative source on commercially reasonable terms, or at all. In addition, if any such supplier or manufacturer fails to comply with FDA regulations we may be subject to sanctions or delays. +• +We rely on third parties to conduct clinical trials and intend to rely on third parties to conduct all future clinical trials. If these third parties do not successfully carry out their contractual duties, fail to comply with regulatory requirements or meet expected deadlines, we may be unable to obtain regulatory approvals. +• +Delays in clinical trials could result in increased costs to us and delay our ability to obtain commercial approval and generate revenue. +• +Even if we complete the necessary clinical trials, we cannot predict when, or if, we will obtain regulatory approval for our product candidates and the approval may be for a more narrow indication than we seek. +Risks Related to Our Business and Operations +• +If we are unable to retain our key executives, it may delay our development efforts and harm our business, financial condition and results of operations. +37 +Table of Contents +• +We may need to increase the size of our company and may not effectively manage our growth. +• +If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of our product candidates. +• +Any disruption in our research and development facilities could adversely affect our business, financial condition and results of operations. +Risks Related to Our Intellectual Property +• +If we are unable to maintain patent protection for our product candidates, or if the scope of the patent protection obtained is not sufficiently broad, we may not be able to compete effectively in our markets. +• +If our intellectual property rights are invalidated or circumvented, our business will be adversely affected. +• +Confidentiality agreements with employees may not prevent disclosure of our trade secrets and proprietary information and may not adequately protect our intellectual property, which could limit our ability to compete. +Risks Related to Government Regulations +• +The regulatory approval processes of the FDA and comparable non-U.S. regulatory authorities are time-consuming and unpredictable, and if we are unable to obtain regulatory approval for our product candidates, our business will be substantially harmed. Moreover, gaining approval for a product candidate in one jurisdiction does not ensure approval in other jurisdictions, which could limit our total market. +• +If the FDA does not conclude that our product candidate satisfies the requirements for the Section 505(b)(2) regulatory approval pathway, or if the requirements for our product candidate under Section 505(b)(2) are not as we expect, the approval pathway for our product candidate could take significantly longer, cost significantly more and entail greater risks than anticipated, and in either case may not be successful. +• +Any approved product candidate will be subject to ongoing and continued regulatory requirements, which may result in significant expense and limit our ability to commercialize such products. +Risks Related to Our Relationship with Scilex +• +Certain of our directors and officers may have conflicts of interest because of their positions with Scilex. +• +Scilex currently performs or supports many of our important corporate functions. Our financial statements may not necessarily be indicative of the conditions that would have existed or our results of operations if we had been operated as an unaffiliated company of Scilex, and we incurred significant charges in connection with the Business Combination and will incur incremental costs as a stand-alone public company. +• +Our Executive Chairman and Chief Financial Officer each holds an executive officer position at Scilex and devotes time to both companies, which could cause a diversion of their time and attention from our business. +• +We are controlled by Scilex, whose interests may differ from those of our public shareholders. +Risks Related to Ownership of Our Common Stock +• +If our operations and performance do not meet the expectations of investors or securities analysts, the market price of our securities may decline. +• +We have not paid cash dividends in the past and we do not expect to pay cash dividends in the foreseeable future. Any return on investment may be limited to the capital appreciation, if any, of Common Stock. +Risks Related to Cryptocurrency +• +The Company intends to use the net proceeds of the Biconomy SPA, which as of the date of this Annual Report has not closed and will be paid in Bitcoin, to fund investments in other companies. The price of Bitcoin will likely continue to be highly volatile, which could cause the Company’s share price to +38 +Table of Contents +significantly fluctuate. +• +Our cryptocurrency treasury strategy has not been implemented or tested. +• +If any of the digital assets that we hold are classified as a security, we may be subject to extensive regulation, which could result in significant costs or force us to cease operations. +Risks Related to Our Limited Operating History, Financial Condition and Capital Requirements +We are a late-stage clinical specialty pharmaceutical company and have incurred significant losses since our inception. We anticipate that we will incur continued losses for the foreseeable future. +We are a late-stage clinical biopharmaceutical company focused on developing and commercializing innovative non-opioid pain management products for the treatment of acute and chronic pain, and we have a limited operating history. We have not commenced revenue-producing operations and to date, we have focused on organizing and staffing our company, business planning, raising capital, identifying potential non-opioid pain therapy candidates, undertaking preclinical studies and clinical trials of our product candidate and establishing research and development collaborations. Our relatively short operating history as a company makes any assessment of our future success and viability subject to significant uncertainty. +Investment in biopharmaceutical product development is highly speculative because it entails substantial upfront capital expenditures and significant risk that any potential product candidate will fail to demonstrate adequate effect or an acceptable safety profile, gain regulatory approval and become commercially viable. We will encounter risks and difficulties frequently experienced by early-stage biopharmaceutical companies in rapidly evolving fields, and we have not yet demonstrated an ability to overcome such risks and difficulties successfully. Our ability to execute on our business model and generate revenues depends on a number of factors including our ability to: +• +successfully complete ongoing pre-clinical studies and clinical trials and obtain regulatory approvals for our current and future product candidates; +• +identify new acquisition or in-licensing opportunities; +• +successfully identify new product candidates and advance those product candidates into pre-clinical studies and clinical trials; +• +raise additional funds when needed and on terms acceptable to us; +• +attract and retain experienced management and advisory teams; +• +add operational, financial and management information systems and personnel, including personnel to support clinical, pre-clinical manufacturing and planned future commercialization efforts and operations; +• +launch commercial sales of our current and future product candidates, whether alone or in collaboration with others; +• +initiate and continue relationships with third-party suppliers and manufacturers; +• +set acceptable prices for current and future product candidates and obtain coverage and adequate reimbursement from third-party payors; +• +achieve market acceptance of current and future product candidates in the medical community and with third-party payors and consumers; and +• +maintain, expand and protect our intellectual property portfolio. +If we cannot successfully execute any one of the foregoing, our business may not succeed or become profitable. Since our inception, we have incurred significant net losses. For the years ended December 31, 2025 and 2024, we had net losses of $160.4 million and $4.7 million, respectively. As of December 31, 2025, we had an accumulated deficit of $275.8 million. For the foreseeable future, we expect to continue to incur significant expenses related to the research and development of our product candidate, SP-102. We expect to incur substantial losses for the foreseeable future and may never become profitable. +We are subject to risks incidental to the development of new biopharmaceutical products, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our +39 +Table of Contents +business. If we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable could impair our ability to raise capital, maintain our research and development efforts, expand our business or continue our operations. +We have only one product candidate, SP-102, no products approved for commercial sale, have never generated any revenue from product sales and may never be profitable. +We currently only have one product candidate, SP-102. Our ability to generate revenue from product sales and achieve profitability will depend on our ability, alone or with collaborators, to successfully complete the development of, and obtain the regulatory approvals necessary to commercialize, SP-102 and any future product candidates, if any. As a result, we intend to devote a substantial portion of our research and development resources and business efforts to the development of SP-102. We do not anticipate generating revenues from product sales for the next several years, if ever. Our ability to generate future revenue from product sales depends heavily on our, or our future collaborators’, ability to successfully: +• +identify additional product candidates and complete research and preclinical and clinical development of SP-102 and any other product candidates we may identify; +• +seek and obtain regulatory and marketing approvals for any product candidates for which we complete clinical trials; +• +launch and commercialize any product candidates for which we obtain regulatory and marketing approval by establishing a sales force, marketing and distribution infrastructure or, alternatively, collaborating with a commercialization partner; +• +qualify for coverage and adequate reimbursement by government and third-party payors for any product candidates for which we obtain regulatory and marketing approval; +• +develop, maintain, and enhance a sustainable, scalable, reproducible, and transferable manufacturing process for the product candidates we may develop; +• +establish and maintain supply and manufacturing relationships with third parties that can provide adequate, in both amount and quality, products and services to support clinical development and the market demand for any product candidates for which we obtain regulatory and marketing approval; +• +obtain market acceptance of any product candidates as viable treatment options; +• +address competing technological and market developments; +• +implement internal systems and infrastructure, as needed; +• +negotiate favorable terms in any collaboration, licensing or other arrangements into which we may enter, and perform our obligations in such arrangements; +• +maintain, protect, enforce, defend and expand our portfolio of intellectual property rights, including patents, trade secrets and know-how, in the United States and internationally; +• +avoid and defend against third-party interference, infringement and other intellectual property claims in the United States and internationally; and +• +attract, hire and retain qualified personnel. +Even if one or more of the product candidates we develop are approved for commercial sale, we anticipate incurring significant costs associated with commercializing any approved product candidate. Our expenses could increase beyond expectations if we are required by the FDA, the European Medicines Agency (the “EMA”) or other regulatory authorities to perform clinical and other studies in addition to those that we currently anticipate. +Many of the factors listed above are beyond our control and could cause us to experience significant delays or prevent us from completing the development of our current and future product candidates, obtaining regulatory approvals or commercializing our product candidates. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. A failure to become or remain profitable could result in a decline in the value of our company and could also cause you to lose all or part of your investment. +We currently have no sales and marketing organization. If we are unable to establish satisfactory sales and +40 +Table of Contents +marketing capabilities or secure a third-party sales and marketing relationship, we may not be able to successfully commercialize SP-102 or any future product candidates, if any. +At present, we have no sales or marketing personnel. We intend to leverage the sales force and marketing capacities of our parent company, Scilex, to commercialize our current product candidate, SP-102, if approved. As we further grow after the launch of the SP-102, if approved, we will establish our sales, marketing or product distribution strategy for our product candidates. We may use strategic partners, distributors, a contract sales force or establish our own commercial sales force. If we are not successful in recruiting sales and marketing personnel and building a sales and marketing infrastructure or entering into appropriate collaboration arrangements with third parties, we will have difficulty successfully commercializing our product candidate, if approved, which would adversely affect our business, operating results and financial condition. +Even if we enter into third-party marketing and distribution arrangements, we may have limited or no control over the sales, marketing and distribution activities of these third parties. Our future revenues may depend heavily on the success of the efforts of these third parties. In terms of establishing a sales and marketing infrastructure, we will have to compete with established and well-funded pharmaceutical and biotechnology companies to recruit, hire, train and retain sales and marketing personnel. Factors that may inhibit our efforts to build an internal sales organization or enter into collaboration arrangements with third parties include: +• +our inability to recruit and retain adequate numbers of effective sales and marketing personnel; +• +the inability of sales personnel to obtain access to or persuade adequate numbers of physicians to prescribe any of our product candidates, if approved; +• +the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines; and +• +unforeseen costs and expenses associated with creating an internal sales and marketing organization. +We will require substantial additional funding, which may not be available to us on acceptable terms, or at all. +Our operations have consumed substantial amounts of cash since inception. We expect to significantly increase our spending to advance development of our current product candidate and launch and commercialize any product candidate for which we receive regulatory approval. Furthermore, we expect to incur additional costs associated with operating as a public company. We will also require additional capital to fund our other operating expenses and capital expenditures. +As of December 31, 2025, our cash and cash equivalents were $20 thousand and we had an accumulated deficit of $275.8 million. The amount and timing of our future funding requirements will depend on many factors, some of which are outside of our control, including but not limited to: +• +the scope, progress, results and costs of conducting studies and clinical trials for our product candidate, SP-102; +• +the timing of, and the costs involved in, obtaining regulatory approvals for our product candidate; +• +the costs of manufacturing our product candidate; +• +the timing and amount of any milestone, royalty or other payments we are required to make pursuant to any current or future collaboration or license agreements; +• +the potential requirement to reimburse Scilex for up to an aggregate of $280.0 million in respect of milestone payments under the Legacy Semnur Merger Agreement (as defined below) through an intercompany arrangement between Scilex and Semnur, which arrangement is not currently in place (see section titled “ Legacy Semnur Merger Agreement ” under Note 4 of our consolidated financial statements included elsewhere in this Annual Report for more information); +• +our ability to maintain existing, and establish new, strategic collaborations, licensing or other arrangements and the financial terms of any such agreements, including the timing and amount of any future milestone, royalty or other payments due under any such agreement; +• +the extent to which our product candidate, if approved for commercialization, are adopted by the physician community; +41 +Table of Contents +• +our need to expand our research and development activities; +• +the costs of acquiring, licensing or investing in businesses, product candidate and technologies; +• +the effect of competing products and product candidates and other market developments; +• +the number and types of future products or product candidates we develop and commercialize; +• +any product liability or other lawsuits related to our current or future product candidates; +• +the expenses needed to attract, hire and retain skilled personnel; +• +the costs associated with being a public company; +• +our need to implement additional internal systems and infrastructure, including financial and reporting systems; +• +the number of public shares that are redeemed by Denali’s public shareholders; +• +the costs of preparing, filing and prosecuting patent applications and maintaining, enforcing and defending intellectual property-related claims; and +• +the extent and scope of our general and administrative expenses. +Until we are able to generate revenue, if ever, we expect to finance our operations through a combination of equity offerings, debt financings, collaborations, government contracts or other strategic transactions. We cannot be sure that any additional funding, if needed, will be available on terms favorable to us, or at all. Any additional fundraising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize our current and future product candidates. Furthermore, any additional equity or equity-related financing may be dilutive to our stockholders, and debt or equity financing, if available, may subject us to restrictive covenants and significant interest costs. If we raise additional funds through collaborations or strategic alliances with third parties, we may have to relinquish valuable rights to our current or future product candidates, future revenue streams, research programs or technologies, or grant licenses on terms that may not be favorable to us. If we are unsuccessful in our efforts to raise additional financing on acceptable terms, we may be required to significantly reduce or cease our operations. +We may not be able to generate sufficient cash to service our indebtedness and other liquidity needs. +Our ability to make payments on and to refinance our indebtedness and to fund our other obligations, planned capital expenditures and other strategic investments will depend on our ability to generate cash in the future. This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. We may not generate sufficient cash flow from operations, and we cannot assure you that future borrowings will be available to us in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs. +If we do not generate cash flow from operations sufficient to pay our debt service or other obligations, we may have to undertake alternative financing plans, such as refinancing or restructuring our debt, selling assets, reducing or delaying capital investments or seeking to raise additional capital. Our ability to refinance our debt and fund other obligations will depend on the condition of the capital markets and our financial condition at that time. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. See section titled “ Liquidity and Going Concern ” under Note 1 of our consolidated financial statements included elsewhere in this Annual Report, for a discussion regarding our ability to continue as a going concern. +Our recurring losses from operations, negative cash flows and substantial cumulative net losses raise substantial doubt about our ability to continue as a going concern. +In section titled “ Liquidity and Going Concern ” under Note 1 of our consolidated financial statements included elsewhere in this Annual Report, we disclose that there is substantial doubt about our ability to continue as a going concern. In addition, our independent registered public accounting firm included an explanatory paragraph in its report on our financial statements as of and for the year ended December 31, 2025, which stated that substantial doubt existed about our ability to continue as a going concern. We have negative working capital and have incurred significant operating losses and negative cash flows from operations and expect to continue incurring losses for the foreseeable +42 +Table of Contents +future. Further, we had an accumulated deficit of $275.8 million as of December 31, 2025. These conditions raise substantial doubt about our ability to continue as a going concern. Our consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. +Our ability to become a profitable operating company is dependent upon our ability to generate revenue and obtain financing adequate to fulfill our development and commercialization activities, and achieving a level of revenue adequate to support our cost structure. We have plans to obtain additional resources to fund our currently planned operations and expenditures through additional debt and equity financing. If we are unable to obtain sufficient funding, our financial condition and results of operations will be materially and adversely affected and we may be unable to continue as a going concern. Our future financial statements may disclose substantial doubt about our ability to continue as a going concern. If we seek additional financing to fund our business activities in the future and there remains substantial doubt about our ability to continue as a going concern, investors or other financing sources may be unwilling to provide additional funding to us on commercially reasonable terms or at all. +In the past, we have identified material weaknesses in our internal control over financial reporting. Any material weakness may cause us to fail to timely and accurately report our financial results or result in a material misstatement of our financial statements. +In connection with the audit of our financial statements for the years ended December 31, 2023 and 2022, we identified control deficiencies in the design and operation of our internal control over financial reporting that constituted material weaknesses. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis. +Such material weaknesses related to ineffective control activities in the areas of preparation of the carve-out financial statements and stock-based compensation expense. As a result of the material weaknesses, we implemented remediation measures including, but not limited to, performing a comprehensive assessment of the control environment in order to design and implement additional preventive and/or detective review controls as well as hiring additional personnel with sufficient accounting expertise to improve the operating effectiveness of our review controls and monitoring activities, and utilizing external accounting experts as appropriate. Any potential material misstatements were identified and corrected as audit adjustments in the applicable periods. +In the future, in order to properly manage our internal control over financial reporting, we may need to take additional measures to further augment our finance resources, and we cannot be certain that the measures we have taken, and expect to take, to improve our internal controls will be sufficient to ensure that our internal controls will remain effective and eliminate the possibility that other material weaknesses or deficiencies may develop or be identified in the future. If we experience future material weaknesses or deficiencies in internal controls and we are unable to correct them in a timely manner, our ability to record, process, summarize and report financial information accurately and within the time periods specified in the rules and forms of the SEC, will be adversely affected. Any such failure could negatively affect the market price and trading liquidity of the Common Stock, lead to delisting, cause investors to lose confidence in our reported financial information, subject us to civil and criminal investigations and penalties, and generally materially and adversely impact our business and financial condition. +If we identify future material weaknesses in our internal controls over financial reporting or fail to meet the demands that will be placed upon us as a public company, including the requirements of the Sarbanes-Oxley Act, we may be unable to accurately report our financial results or report them within the timeframes required by law or stock exchange regulations. Failure to comply with Section 404 of the Sarbanes-Oxley Act could also potentially subject us to sanctions or investigations by the SEC or other regulatory authorities. If additional material weaknesses exist or are discovered in the future, and we are unable to remediate any such material weakness, our business, financial condition and results of operations could suffer. +Risks Related to Our Product Development +We are substantially dependent on the success of our only product candidate, SP-102. If we are unable to complete development of, obtain approval for and commercialize SP-102 in a timely manner or at all, our business will be harmed. +Our future success is dependent on our ability to timely advance and complete clinical trials, obtain marketing approval for and successfully commercialize our product candidate, SP-102. We are not permitted to market or promote SP-102 or any other future product candidate before we receive marketing approval from the FDA and +43 +Table of Contents +comparable foreign regulatory authorities, and we may never receive such marketing approvals. +The success of SP-102 and any future product candidates, if any, will depend on several factors, including the following: +• +the acceptance of individual investigational review boards (“IRBs”) and scientific review committees at each clinical trial site as to the adequacy of the preclinical data package to support clinical development of SP-102 and their overall general agreement with the use of SP-102 in the intended patient population in the intended manner; +• +the initiation and successful patient enrollment and completion of additional clinical trials of SP-102 on a timely basis; +• +the frequency and severity of adverse events (“AEs”) in the clinical trials; +• +maintaining and establishing relationships with contract research organizations (“CROs”) and clinical sites for the clinical development of SP-102 both in the United States and internationally; +• +successful completion of toxicology studies, biodistribution studies and minimally efficacious dose studies in animals, where applicable; +• +successful completion of clinical trials, under the FDA’s current Good Clinical Practices (“GCP”) and the FDA’s current Good Laboratory Practices (“GLPs”); +• +effective investigational new drug applications or Clinical Trial Authorizations that allow commencement of our planned clinical trials or future clinical trials for our product candidates; +• +the efficacy, safety and tolerability profiles that are satisfactory to the FDA, EMA or any comparable foreign regulatory authority for marketing approval; +• +the timely receipt of marketing approvals for our product candidates from applicable regulatory authorities; +• +the extent of any required post-marketing approval commitments to applicable regulatory authorities; +• +the maintenance of existing or the establishment of new supply arrangements with third-party suppliers and manufacturers for clinical development of SP-102; +• +the maintenance of existing, or the establishment of new, scaled production arrangements with third- party manufacturers to obtain finished products that are appropriate for commercial sale of SP-102, if it is approved; +• +obtaining and maintaining patent protection, trade secret protection and regulatory exclusivity, both in the United States and internationally; +• +a continued acceptable safety profile following any marketing approval; +• +commercial acceptance by patients, the medical community and third-party payors; +• +our ability to obtain coverage and adequate reimbursement from third-party payors for our product candidates, if approved, and patients’ willingness to pay out-of-pocket in the absence of such coverage and adequate reimbursement; and +• +our ability to compete with other treatments. +We do not have complete control over many of these factors, including certain aspects of clinical development and the regulatory submission process, potential threats to our intellectual property rights and the manufacturing, marketing, distribution and sales efforts of any future collaborator. If we are not successful with respect to one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully commercialize SP-102, which would materially harm our business. If we do not receive marketing approvals for SP-102, we may not be able to continue our operations. +We have historically obtained our clinical supply of our only product candidate, SP-102, and certain of the raw materials used in SP-102, from a sole or single source supplier and manufacturer, and we may not be able to find +44 +Table of Contents +an alternative source on commercially reasonable terms, or at all. In addition, if any such supplier or manufacturer fails to comply with FDA regulations, we may be subject to sanctions or delays in the delivery of our clinical supplies which could affect the development of SP-102. +Historically, we have purchased our clinical and commercial supply requirements for sodium hyaluronate, one of the excipients for SP-102, solely from Genzyme Corporation (“Genzyme”) pursuant to a supply agreement, which terminated as of May 31, 2024. We anticipate that our current supply of sodium hyaluronate will be sufficient to satisfy our clinical and commercial supply requirements for sodium hyaluronate for at least 12 months following our expected commercial launch of SP-102 in 2028. There is no guarantee that we will be able to commence a commercial launch of SP-102 in 2028 or ever, as any such launch would be subject to regulatory approval, which we may not receive. +Under our Master Services Agreement, dated January 27, 2017 (as amended, the “Lifecore Master Services Agreement”), with Lifecore Biomedical, LLC (“Lifecore”), we depend on Lifecore to manufacture clinical supplies of SP-102. Lifecore has the right to terminate the Lifecore Master Services Agreement under certain circumstances, including, but not limited to: (1) if we are in material breach of the agreement and fail to cure such breach within 30 days of written notice; (2) if we (a) become insolvent, (b) cease to function as a going concern, (c) become convicted of or plead guilty to a charge of violating any law relating to either party’s business, or (d) engage in any act which materially impairs goodwill associated with SP-102 or materially impairs the terminating party’s trademark or trade name; (3) if we fail to pay past due invoices upon 30 days’ written notice, or (4) if we reject or fail to respond to a major change proposed by Lifecore that does not change Semnur’s written and approved acceptance criteria in its product specifications. In the event that Lifecore decides to terminate the Lifecore Master Services Agreement, finding an alternative manufacturer on commercially reasonable terms, or at all, may be difficult. The Lifecore Master Services Agreement expires on December 31, 2028, unless terminated earlier in accordance with the terms of such agreement, or unless renewed further by the parties. +Additionally, the manufacturing facilities used by our third-party suppliers and manufacturers must continue to comply with FDA regulations and are subject to periodic announced or unannounced inspections. We have limited control over the ability of our third-party suppliers and manufacturers to maintain adequate quality control, quality assurance and qualified personnel. If our third-party suppliers and manufacturers fail to comply with FDA regulations, the FDA may not authorize the manufacture of our product candidate at these facilities, and we may be unable to find alternative manufacturing facilities in a timely manner or at all. The failure by such third parties to comply with applicable regulations could result in sanctions being imposed on us, including clinical holds, fines, injunctions, import detention, civil penalties, delays, suspension or withdrawal of approvals, seizures or recalls of our product, operating restrictions and criminal prosecutions. +In addition, our product candidate may compete with other product candidates and products for access to manufacturing facilities and other supplies. There are a limited number of manufacturers that operate under current Good Manufacturing Practices (“cGMP”) regulations and that might be capable of manufacturing for us. Also, prior to the approval of our product candidate, we would need to identify a contract manufacturer that could produce our products at a commercial scale and that could successfully complete FDA pre-approval inspection and inspections by other health authorities. Agreements with such manufacturers or suppliers may not be available to us at the time we would need to have that capability and capacity. +If our clinical supply of our product candidate and certain of the raw materials used in our product candidate are disrupted or delayed, there can be no assurance that alternative sources can serve as adequate replacements or that supplies will be available on terms that are favorable to us, if at all. Any disruption in supply could affect the development of SP-102. +We rely on third parties to conduct our clinical trials and intend to rely on third parties to conduct all of our future clinical trials. If these third parties do not successfully carry out their contractual duties, fail to comply with applicable regulatory requirements or meet expected deadlines, we may be unable to obtain regulatory approval for our current and future product candidates. +We currently do not have the ability to independently conduct any clinical trials. The FDA and regulatory authorities in other jurisdictions require us to comply with regulations and standards, commonly referred to as GCP requirements for conducting, monitoring, recording and reporting the results of clinical trials, in order to ensure that the data and results are scientifically credible and accurate and that the trial subjects are adequately informed of the potential risks of participating in clinical trials. We rely on medical institutions, clinical investigators, contract +45 +Table of Contents +laboratories and other third parties, such as CROs, to conduct GCP-compliant clinical trials of our current and future product candidates properly and on time. While we have agreements governing their activities, we control only certain aspects of their activities and have limited influence over their actual performance. The third parties with whom we contract for execution of our GCP-compliant clinical trials play a significant role in the conduct of these studies and trials and the subsequent collection and analysis of data. These third parties are not our employees and, except for restrictions imposed by our contracts with such third parties, we have limited ability to control the amount and timing of resources that they devote to our programs. Although we rely on these third parties to conduct our GCP-compliant clinical trials, we remain responsible for ensuring that each of our clinical trials is conducted in accordance with our investigational plan and protocol and applicable laws and regulations, and our reliance on the CROs does not relieve us of our regulatory responsibilities. For any violations of laws and regulations in the conduct of our preclinical studies and clinical trials, we could be subject to warning letters or enforcement actions that may include civil penalties up to and including criminal prosecution. +Many of the third parties with whom we contract may also have relationships with other commercial entities, including our competitors, for whom they may also be conducting clinical trials or other drug development activities that could harm our competitive position. We face the risk of potential unauthorized disclosure or infringement, misappropriation or other violation of our intellectual property by CROs, which may reduce our trade secret and intellectual property protection and allow our potential competitors to access and exploit our proprietary technology. +Further, any of these third parties may terminate their engagements with us or be unable to fulfill their contractual obligations. If the third parties conducting our clinical trials do not adequately perform their contractual duties or obligations, experience significant business challenges, disruptions or failures, do not meet expected deadlines, terminate their agreements with us or need to be replaced, or if the quality or accuracy of the data they obtain is compromised due to their failure to adhere to our protocols or to GCPs, or for any other reason, we may need to enter into new arrangements with alternative third parties. This could be difficult, costly or impossible, and our clinical trials may need to be extended, delayed, terminated or repeated. As a result, we may not be able to obtain regulatory approval or successful commercialization in a timely fashion, or at all, for the applicable product candidate. Our financial results and the commercial prospects for our current and future product candidates would be harmed, our costs could increase, and our ability to generate revenue could be delayed. +We may in the future enter into collaborations, in-licensing arrangements, joint ventures, or strategic alliances with third-parties that may not result in the development of commercially viable products or the generation of significant future revenues. +We may in the future enter into collaborations, in-licensing arrangements, joint ventures, or strategic alliances to develop proposed products and to pursue new markets. +Proposing, negotiating and implementing collaborations, in-licensing arrangements, joint ventures, strategic alliances or partnerships may be a lengthy and complex process. Other companies, including those with substantially greater financial, marketing, sales, technology or other business resources, may compete with us for these opportunities or arrangements. We may not identify, secure or complete any such transactions or arrangements in a timely manner, on a cost-effective basis, on acceptable terms, or at all, and may not realize the anticipated benefits of any such transactions or arrangements. +Additionally, with respect to current and future collaborations, we may not be in a position to exercise sole decision-making authority regarding the transaction or arrangement, which could create the potential risk of creating impasses on decisions, and our collaborators may have economic or business interests or goals that are, or that may become, inconsistent with our business interests or goals. It is possible that conflicts may arise with our collaborators, such as conflicts concerning the achievement of performance milestones, or the interpretation of significant terms under any agreement, such as those related to financial obligations or the ownership or control of intellectual property developed during the collaboration. If any conflicts arise with our current or future collaborators, they may act in their self-interest, which may be adverse to our best interest, and they may breach their obligations to us. In addition, we have limited control over the amount and timing of resources that our current collaborators or any future collaborators devote to our collaborators’ or our future products. Disputes between us and our collaborators may result in litigation or arbitration which would increase our expenses and divert the attention of our management. Further, these transactions and arrangements are contractual in nature and may be terminated or dissolved under the terms of the applicable agreements and, in such event, we may not continue to have rights to the products relating to such transaction or arrangement or may need to purchase such rights at a premium. +46 +Table of Contents +Delays in clinical trials could result in increased costs to us and delay our ability to obtain commercial approval and generate revenue. +Before obtaining marketing approval for the sale of any of our current or future product candidates, we must conduct extensive clinical trials to demonstrate the safety and efficacy of our product candidates for their intended indications. Clinical testing is expensive, time-consuming and uncertain as to outcome. We cannot guarantee that any clinical trials will be conducted as planned or completed on schedule, if at all. A failure of one or more clinical trials can occur at any stage of testing. Events that may prevent successful or timely completion of clinical development include: +• +delays in obtaining regulatory authorizations to commence a clinical trial or reaching a consensus with regulatory authorities on trial design; +• +delays in identifying prospective clinical investigators or clinical trial sites that have necessary qualifications, interest and capacity to perform a requested protocol; +• +delays in reaching agreement on acceptable terms with prospective CROs and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and clinical trial sites; +• +delays in obtaining approval from one or more IRBs; +• +IRBs refusing to approve, suspending or terminating the trial at the investigational site, precluding enrollment of additional subjects, or withdrawing their approval of the trial; +• +changes to the clinical trial protocol; +• +delays in recruiting suitable subjects to participate in our clinical trials; +• +failure by us, any CROs we engage or any other third parties to adhere to clinical trial requirements; +• +failure to perform in accordance with GCPs; +• +delays in the testing, validation, manufacturing and delivery of our product candidates to the clinical sites, including delays by third parties with whom we have contracted to perform certain of those functions; +• +delays in subjects completing participation in a trial or returning for post-treatment follow-up; +• +clinical trial sites or subjects dropping out of a trial; +• +key investigators departing their clinical sites; +• +lack of adequate funding to continue the trial; +• +selection of clinical endpoints that require prolonged periods of clinical observation or analysis of the resulting data; +• +subjects experiencing severe or unexpected drug-related adverse effects; +• +imposition of a clinical hold by regulatory authorities as a result of a serious adverse event, after an inspection of our clinical trial operations, trial sites or manufacturing facilities, or for other reasons; +• +occurrence of serious adverse events (“SAEs”) in our trials or in trials of the same class of agents conducted by other sponsors; +• +changes in regulatory requirements or guidance that require amending or submitting new clinical protocols; +• +a facility manufacturing our product candidates or any of their components being ordered by the FDA to temporarily or permanently shut down due to violations of cGMP regulations or other applicable requirements; +• +any changes to our manufacturing process that may be necessary or desired; +• +third-party clinical investigators losing the licenses or permits necessary to perform our clinical trials +47 +Table of Contents +and/or not performing our clinical trials on our anticipated schedule or consistent with the clinical trial protocol, GCP, or other regulatory requirements; +• +third-party contractors not performing data collection or analysis in a timely or accurate manner; or +• +third-party contractors becoming debarred or suspended or otherwise penalized by the FDA or other government or regulatory authorities for violations of regulatory requirements, in which case we may need to find a substitute contractor, and we may not be able to use some or all of the data produced by subcontractors in support of our marketing applications. +We could also encounter delays if a clinical trial is suspended or terminated by us, by the IRBs of the institutions in which such trials are being conducted, by a Data Safety Monitoring Board for such trial or by the FDA. Such authorities may impose such a suspension or termination due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, participants being exposed to unacceptable health risks, failure to demonstrate a benefit from using a drug, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. In addition, changes in regulatory requirements and policies may occur, and we may need to amend clinical trial protocols to comply with these changes. Amendments may require us to resubmit our clinical trial protocols to IRBs for reexamination, which may impact the costs, timing or successful completion of a clinical trial. +Our product development costs will increase if we experience delays in testing or marketing approvals. The FDA and other regulatory agencies may impose new or refined testing expectations based on experience and increased knowledge over time. In addition, if we make manufacturing or other changes to our product candidates, we may need to conduct additional studies to bridge our modified product candidates to earlier versions. We do not know whether any of our clinical trials, including our planned clinical trial of SP-102, will begin or continue as planned, will need to be restructured or will be completed on schedule, or at all. We may not have the necessary capabilities, including adequate staffing, to successfully manage the execution and completion of any clinical trials we initiate in a way that leads to our obtaining marketing approval for our product candidates in a timely manner, or at all. Significant clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors to bring products to market before we do and impair our ability to successfully commercialize our product candidates. +Even if we complete the necessary clinical trials, we cannot predict when, or if, we will obtain regulatory approval for our product candidates and the approval may be for a more narrow indication than we seek. +We cannot commercialize our current and future product candidates, if any, until the appropriate regulatory authorities have reviewed and approved the product candidates. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state and local statutes and regulations require the expenditure of substantial time and financial resources and we may not be able to obtain the required regulatory approvals. Even if a product candidate meets the safety and efficacy endpoints in clinical trials, the data may not be considered sufficient by regulatory authorities, those regulatory authorities may not complete their review processes in a timely manner, or we may not be able to obtain regulatory approval. Additional delays may result if an FDA advisory committee is convened, including if such advisory committee recommends non-approval or restrictions on approval. In addition, we may experience delays or rejections based upon additional government regulation from future legislation or administrative action or changes in regulatory authority policy or data requirements during the period of product development, clinical trials and the regulatory review process. +Even if we receive regulatory approval, the FDA may approve a product candidate for more limited indications than requested or they may impose significant limitations in the form of narrow indications, black box warnings or a Risk Evaluation and Mitigation Strategy (“REMS”). The FDA may require labeling that includes warnings and precautions or contra-indications with respect to conditions of use, or may grant approval subject to the performance of costly post-marketing clinical trials. In addition, the FDA may not approve the labeling claims that are considered necessary or desirable for the successful commercialization of a product candidate. Any of the foregoing scenarios could materially harm the commercial prospects for a product candidate. +Additionally, if the results of any clinical trials are inconclusive or if there are safety concerns or SAEs associated with a product candidate, we may: +• +be delayed or fail in obtaining marketing approval for a product candidate; +48 +Table of Contents +• +obtain approval for indications or patient populations that are not as broad as we intended or desired; +• +obtain approval with labeling that includes significant use or distribution restrictions or safety warnings; +• +be subject to changes in the way the product candidate is administered; +• +be required to perform additional clinical trials to support approval or be subject to additional post- marketing testing requirements; +• +have regulatory authorities withdraw, or suspend, their approval of the product or impose restrictions on its distribution in the form of a modified REMS; +• +be sued and held liable for harm caused to patients; or +• +experience damage to our reputation. +We may find it difficult to enroll or maintain patients in our clinical trials, which could delay or prevent us from proceeding with clinical trials of our product candidates. +Identifying and qualifying patients to participate in any clinical trials of our current and future product candidates is critical to our success. The timing of any clinical trials depends on our ability to recruit patients and to complete required follow-up periods. If patients are unwilling to participate in our clinical trials due to negative publicity from adverse events, competitive clinical trials for similar patient populations, or for other reasons, the timeline for recruiting patients, conducting trials and potentially obtaining regulatory approval may be delayed. +We may also experience delays if patients withdraw from a clinical trial or do not complete the required monitoring period. These delays could result in increased costs, delays in advancing our product candidates, delays in testing the effectiveness of our product candidates or termination of clinical trials altogether. +Patient enrollment is affected by many factors, including: +• +the size and nature of the patient population; +• +the proximity of patients to clinical sites; +• +the eligibility and exclusion criteria for the trial; +• +the design of the clinical trial; +• +competing clinical trials; +• +the risk that enrolled patients will not complete a clinical trial; +• +ability to monitor patients adequately during and after treatment; +• +potential disruptions caused by the COVID-19 pandemic (or other similar disruptions), including difficulties in initiating clinical sites, enrolling and retaining participants, diversion of healthcare resources away from clinical trials, travel or quarantine policies that may be implemented and other factors; +• +our ability to recruit clinical trial investigators with the appropriate competencies and experience; and +• +clinicians’ and patients’ perceptions as to the potential advantages of the product candidate in relation to other available products. +The conditions for which we currently plan to evaluate our product candidates are common, but the eligibility criteria of our clinical trials limit the pool of available trial participants. For example, we experienced a delay in the enrollment of our now completed SP-102 Phase 3 clinical trial in sciatica due to the selective eligibility criteria in place to reduce the placebo effect and the impacts of COVID-19, and may experience similar issues with enrollment of our other planned clinical trials. +In addition, our clinical trials will compete with other clinical trials for product candidates that are in the same therapeutic areas as our product candidates, and this competition will reduce the number and types of patients available to it, because some patients who have opted to enroll in our trials may instead opt to enroll in a trial being conducted by a competitor. We may conduct some of our clinical trials at the same clinical trial sites that some of our competitors use, which will reduce the number of patients who are available for our clinical trials at such clinical trial sites. +49 +Table of Contents +The incidence and prevalence for target patient populations of our product candidates are based on estimates and third-party sources. If the market opportunities for our product candidates are smaller than we estimate or if any approval that we obtain is based on a narrower definition of the patient population, our revenue and ability to achieve profitability might be materially and adversely affected. +Periodically, we make estimates regarding the incidence and prevalence of target patient populations of our product candidates based on various third-party sources and internally generated analyses and use such estimates in making decisions regarding our product development strategy, including acquiring or in-licensing product candidates and determining indications on which to focus in preclinical studies or clinical trials. +These estimates may be inaccurate or based on imprecise data. For example, the total addressable market opportunities will depend on, among other things, acceptance by the medical community and patient access, drug pricing and reimbursement. The number of patients in the addressable markets may turn out to be lower than expected, patients may not be otherwise amenable to treatment with our product candidates, or new patients may become increasingly difficult to identify or gain access to, all of which may significantly harm our business, financial condition, results of operations and prospects. +We face significant competition and our competitors may discover, develop or commercialize products faster or more successfully than us. +The biotechnology and pharmaceutical industries are characterized by intense competition and rapid technological advances. In addition, the competition in the pain management market, and other relevant markets, is intense. +SP-102, if approved, has the potential to become the first FDA-approved epidural steroid product for the treatment of sciatica. While there are currently no FDA approved epidural steroid injections indicated for the treatment of sciatica, we are aware of certain non-steroid product candidates in development. SP-102, if approved, also will compete with various opioid pain medications, Nonsteroidal Anti-Inflammatory Drugs (“NSAIDs”), muscle relaxants, antidepressants, anticonvulsants and surgical procedures. Procedures may include nerve blocks and transcutaneous electrical nerve stimulations. We may also face indirect competition from the off-label and unapproved use of branded and generic injectable steroids. +We expect that the market will become increasingly competitive in the future. Many of our competitors, either alone or together with their collaborative partners, operate larger research and development programs and have substantially greater financial resources than we do, as well as significantly greater experience in: developing product candidates and technologies, undertaking preclinical studies and clinical trials, obtaining FDA and other regulatory approvals of product candidates, formulating and manufacturing product candidates, and launching, marketing and selling product candidates. +Additional mergers and acquisitions in the biotechnology and pharmaceutical industries may result in even more resources being concentrated in our competitors. As a result, these companies may obtain regulatory approval more rapidly than we are able to and may be more effective in selling and marketing their products as well. Smaller or early-stage companies or generic or biosimilar pharmaceutical manufacturers may also prove to be significant competitors, particularly through collaborative arrangements with large, established companies. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs. Competition may increase further as a result of advances in the commercial applicability of technologies and greater availability of capital for investment in these industries. Our commercial opportunity could be reduced or eliminated if our competitors succeed in developing, acquiring or licensing on an exclusive basis, products that are more effective or less costly than any product candidate that we are currently developing or that we may develop. If approved, our product candidates will face competition from commercially available drugs as well as drugs that are in the development pipelines of our competitors and later enter the market. +Established pharmaceutical companies may invest heavily to accelerate discovery and development of novel compounds or to in-license novel compounds that could make our product candidates less competitive. Accordingly, our competitors may succeed in obtaining patent protection, receiving FDA approval or discovering, developing and commercializing medicines before we do, which would have a material adverse impact on our business, financial condition and results of operations. +Our commercial success depends upon attaining significant market acceptance of our product candidates, if +50 +Table of Contents +approved, among physicians, patients, healthcare payers and operators of major clinics, and we may not be successful in attaining such market acceptance. +Even with the requisite approvals from the FDA in the U.S., the EMA in the EU and other regulatory authorities internationally, the commercial success of our product candidates will depend, in part, upon the degree of market acceptance by physicians, patients, third-party payors and others in the medical community. Any product that we commercialize may not gain acceptance by physicians, patients, health care payors and others in the medical community. If these products do not achieve an adequate level of acceptance, we may not generate significant product revenue and may not become profitable. Efforts to educate the medical community and third-party payors on the benefits of our product candidates may require significant resources, including our management’s time and financial resources, and may not be successful. Even if any product candidate we develop receives marketing approval, it may nonetheless fail to gain sufficient market acceptance by physicians, patients, healthcare payors and others in the medical community. The degree of market acceptance of any product candidate we develop, if approved for commercial sale, will depend on a number of factors, including: +• +the efficacy and safety of such product candidate as demonstrated in clinical trials; +• +the efficacy and safety of other products that are used in combination or in sequence with our product candidates; +• +the potential and perceived advantages of our product candidates compared to alternative treatments; +• +the limitation to our targeted patient population and limitations or warnings contained in approved labeling by the FDA or other regulatory authorities; +• +the ability to offer our products for sale at competitive prices; +• +convenience and ease of administration compared to alternative treatments; +• +the clinical indications for which the product candidate is approved by the FDA, the EMA or other regulatory agencies; +• +the willingness of the target patient population to try novel biologics and of physicians to prescribe these treatments, as well as their willingness to accept an intervention that involves the alteration of the patient’s gene; +• +product labeling or product insert requirements of the FDA, the EMA or other regulatory authorities, including any limitations or warnings contained in a product’s approved labeling; +• +relative convenience and ease of administration; +• +the strength of marketing and distribution support; +• +availability of third-party coverage and sufficiency of reimbursement; and +• +the prevalence and severity of any side effects. +Even if a product candidate is approved, such product may not achieve an adequate level of acceptance, we may not generate significant product revenues, and we may not become profitable. +The third-party payor coverage and reimbursement status of newly approved products is uncertain. Failure to obtain or maintain coverage and adequate reimbursement for our current or future product candidates, if approved, could decrease our ability to generate product revenue. +There is significant uncertainty related to the third-party coverage and reimbursement of existing and newly approved products. Market acceptance and sales of our current and future product candidates, if approved, in domestic markets will depend significantly on the availability of coverage and adequacy of reimbursement from third-party payors, including government programs (such as Medicare and Medicaid) and private payor healthcare and insurance programs. In the United States, no uniform policy of coverage and reimbursement for products exists among third-party payors. Coverage and reimbursement for a product candidate, if approved, may differ significantly from payor to payor, and we may not be able to obtain adequate coverage and reimbursement in the future. +Further, obtaining coverage and reimbursement approval for a product from a government or other third-party payor is a time-consuming and costly process that could require us to provide supporting scientific, clinical and +51 +Table of Contents +cost-effectiveness data for the use of such product candidate, if approved, to each third-party payor separately, with no assurance that coverage and adequate reimbursement will be obtained or applied consistently. We may not be able to provide data sufficient to gain acceptance with respect to coverage and reimbursement. Additionally, coverage may be more limited than the purposes for which the product is approved by the FDA or similar regulatory authorities outside of the United States. Assuming that coverage is obtained for a given product, the resulting reimbursement rates might not be adequate or may require co-payments or co-insurance that patients find unacceptably high. Patients, physicians, and other healthcare providers may be less likely to prescribe, dispense or use, as applicable, any approved product unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost. +The market for our current and future product candidates, if approved, will depend significantly on access to third-party payors’ drug formularies for which third-party payors provide coverage and reimbursement. The industry competition to be included in such formularies often leads to downward pricing pressures on pharmaceutical companies. Also, third-party payors may refuse to include a particular branded product in their formularies or otherwise restrict patient access to a branded product when a less costly generic equivalent or other alternative is available. +In addition, even if we obtain adequate levels of reimbursement, third-party payors carefully review and increasingly question the coverage of, and challenge the prices charged for, products. A primary trend in the U.S. healthcare industry and elsewhere is cost containment. Increasingly, third-party payors are requiring that pharmaceutical companies provide them with predetermined discounts from list prices and are challenging the prices for products. We cannot be sure that coverage and reimbursement will be available for any product candidate that we commercialize and, if reimbursement is available, what the level of reimbursement will be. If coverage and reimbursement of our product candidates are unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, we may be unable to achieve or sustain profitability. Furthermore, the requirements governing medical product pricing vary widely from country to country. In some foreign countries, the proposed pricing for a prescription device must be approved before it may be lawfully marketed. Historically, products launched in the European Union (“EU”) do not follow price structures of the United States and generally prices tend to be significantly lower. +Our product candidate SP-102 is expected to be a physician-administered injectable viscous gel and as such, separate reimbursement for the product itself may not be available. Instead, if SP-102 receives regulatory approval, the administering physician may be reimbursed only for providing the treatment or procedure in which SP-102 is used. To the extent separate coverage and reimbursement should become available for SP-102, we anticipate that it will be sold to physicians on a “buy and bill” basis. Buy and bill products must be purchased by healthcare providers before they can be administered to patients. Healthcare providers subsequently must seek reimbursement for the product from the applicable third-party payor, such as Medicare or a health insurance company. Healthcare providers may be reluctant to administer our product candidates, if approved, because they would have to fund the purchase of the product and then seek reimbursement, which may be lower than their purchase price, or because they do not want the additional administrative burden required to obtain reimbursement for the product. +Further, the codes used by providers to bill for SP-102, if approved, could also affect reimbursement. J-Codes are codes maintained by the Centers for Medicare and Medicaid Services (“CMS”), which are a component of the Healthcare Common Procedure Coding System and are typically used to report injectable drugs that ordinarily cannot be self-administered. We do not have a specific J-Code for SP-102. If our product candidate is approved, we may apply for one but cannot guarantee that a J-Code will be granted. To the extent separate coverage or reimbursement is available for any product candidate, if approved, and a specific J-Code is not available, physicians would need to use a non-specific miscellaneous J-Code to bill third-party payors for these physician- administered drugs. Because miscellaneous J-Codes may be used for a wide variety of products, health plans may have more difficulties determining the actual product used and billed for the patient. These claims must often be submitted with additional information and manually processed, which can create delays in claims processing times as well as increasing the likelihood for claim denials and claim errors. +Results of preclinical studies and early clinical trials may not be predictive of results of future clinical trials, and such results do not guarantee approval of a product candidate by regulatory authorities. In addition, our clinical trials to date have been limited in scope, and results received to date may not be replicated in expanded or additional future clinical trials. +The outcome of preclinical studies and early clinical trials may not be predictive of the success of later clinical trials, and interim results of clinical trials do not necessarily predict success in the results of completed clinical trials. +52 +Table of Contents +There can be no assurance that any of our current or future preclinical and clinical trials will ultimately be successful or support further preclinical or clinical development of our current and future product candidates, if any. Many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late-stage clinical trials after achieving positive results in earlier development, and we could face similar setbacks. The design of a clinical trial can determine whether its results will support approval of a product, and flaws in the design of a clinical trial may not become apparent until the clinical trial is well advanced. Many companies that believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain regulatory approval for their product candidates. In addition, preclinical and clinical data are often susceptible to varying interpretations and analyses, which may delay, limit or prevent regulatory approval. In addition, regulatory delays or rejections may be encountered as a result of many factors, including changes in regulatory policy during the period of product development. Any such adverse events may cause us to delay, limit or terminate planned clinical trials, any of which would have a material adverse effect on our business, financial condition, results of operations and prospects. +In some instances, there can be significant variability in safety or efficacy results between different clinical trials of the same product candidate due to numerous factors, including changes in trial procedures set forth in protocols, differences in the size and type of the patient populations, changes in and adherence to the dosing regimen and other clinical trial procedures and the rate of dropout among clinical trial participants. If we fail to receive positive results in clinical trials of our product candidate, the development timeline and regulatory approval and commercialization prospects for our only product candidate, and, correspondingly, our business and financial prospects would be negatively impacted. A Phase 3 trial was completed for SP-102 for the treatment of sciatica and the second Phase 3 trial was initiated in September 2025. We may not have the necessary capabilities, including adequate staffing, to successfully manage the execution and completion of such clinical trials in a way that leads to our obtaining marketing approval for our product candidate in a timely manner, or at all. Our clinical trials may produce negative or inconclusive results, and, in the future, we may decide, or regulators may require us, to conduct additional clinical trials and preclinical studies in addition to those we have planned. +In March 2022, we announced final results from our Phase 3 trial for SP-102 and believed that we had sufficient data to support the safety and efficacy of SP-102, which would provide us with a pathway for a 505(b)(2) NDA submission. In November 2023, we had a Type C meeting with the FDA to discuss the requirements for filing a 505(b)(2) NDA for SP-102. In the Type C meeting, the FDA indicated that it did not agree that the clinical data collected from the single CLEAR-1 trial was sufficient to support the safety and efficacy of SP-102, given the risks associated with interventional procedures. The FDA requested that a confirmatory trial be conducted, noting the absence of any existing FDA-approved epidural steroid product for the treatment of sciatica. The FDA provided guidance regarding expectations for this additional trial needed prior to a 505(b)(2) NDA filing, including expectations for the size of the safety database and specific safety monitoring requirements. Specifically, the FDA requested that the confirmatory CLEAR-2 trial include a larger safety database to further validate the safety and efficacy of SP-102. In February 2024, we had a Type D meeting with the FDA to preview the newly designed trial with the FDA, in order to reduce the potential need for any other additional confirmatory trials prior to a 505(b)(2) NDA filing. During the Type D meeting, the FDA provided further guidance with respect to the requirements needed to help best position us to be able to satisfy the requirements for a 505(b)(2) NDA pathway approval. Specifically, the FDA reaffirmed the need for a larger sample size and further requested confirmatory evidence of efficacy through a repeat injection. +Interim “top-line” and preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data. +From time to time, we may publish interim “top-line” or preliminary data from our clinical trials, which are based on a preliminary analysis of then-available data. Preliminary or interim data from clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available. Preliminary or interim data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously published. In some instances, there can be significant variability in safety or efficacy results between different clinical trials or clinical trial sites for the same product candidate due to numerous factors, including changes in trial procedures set forth in protocols, differences in the size and type of the patient populations, changes in and adherence to the dosing regimen and other clinical trial procedures and the rate of dropout among clinical trial participants. As a result, interim and preliminary data should be viewed with caution until the final data are available. Adverse differences between preliminary or interim data and final data could significantly harm our business, financial condition and results of operations. +53 +Table of Contents +Further, others, including regulatory agencies, may not accept or agree with our assumptions, estimates, calculations, conclusions or analyses or may interpret or weigh the importance of data differently, which could impact the value of the particular program, the approvability or commercialization of the particular product candidate or product and our company in general. Data disclosures must be carefully managed to conform to limitations on preapproval promotion and laws related to clinical trial registration and posting of results. In addition, the information we choose to publicly disclose regarding a particular study or clinical trial is based on what is typically extensive information, and stockholders may not agree with what we determine is the material or otherwise appropriate information to include in our disclosure, and any information we determine not to disclose may ultimately be deemed significant with respect to future decisions, conclusions, views, activities or otherwise regarding a particular drug, product, product candidate or our business. If the “top-line” data that we report differ from actual results, or if others, including regulatory authorities, disagree with the conclusions reached, our ability to obtain approval for, and commercialize, our product candidates may be harmed, which could harm our business, financial condition and results of operations. +Our clinical trials may fail to demonstrate substantial evidence of the safety and efficacy of product candidates that we may identify and pursue for their intended uses, which would prevent, delay or limit the scope of regulatory approval and commercialization. +Before obtaining regulatory approvals for the commercial sale of any of our current and future product candidates, we must demonstrate through lengthy, complex and expensive non-clinical studies, pre-clinical studies and clinical trials that the applicable product candidate is both safe and effective for use in each target indication. Each product candidate must demonstrate an adequate risk versus benefit profile in its intended patient population and for its intended use. +Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical development process. Most product candidates that begin clinical trials are never approved by regulatory authorities for commercialization. +We cannot be certain that our current clinical trials or any other future clinical trials will be successful. Additionally, any safety concerns observed in any one of our clinical trials in our targeted indications could limit the prospects for regulatory approval of our product candidates in those and other indications, which could have a material adverse effect on our business, financial condition and results of operations. In addition, even if such clinical trials are successfully completed, we cannot guarantee that the FDA or comparable non-U.S. regulatory authorities will interpret the results as we do, and more trials could be required before we submit our product candidates for approval. To the extent that the results of the trials are not satisfactory to the FDA or comparable non-U.S. regulatory authorities for support of a marketing approval, we may be required to expend significant resources, which may not be available to us, to conduct additional trials in support of potential approval of our product candidates. Even if regulatory approval is secured for a product candidate, the terms of such approval may limit the scope and use of the specific product candidate, which may also limit its commercial potential. +Even if we obtain FDA approval for any of our current or future product candidates in the United States, we may never obtain approval for or commercialize any of them in any other jurisdiction, which would limit our ability to realize their full market potential. +In order to market any products in any particular jurisdiction, we must establish and comply with numerous and varying regulatory requirements on a country-by-country basis regarding safety and efficacy. +Approval by the FDA in the United States does not ensure approval by regulatory authorities in other countries or jurisdictions. However, the failure to obtain approval in one jurisdiction may negatively impact our ability to obtain approval elsewhere. In addition, clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and regulatory approval in one country does not guarantee regulatory approval in any other country. In cases where data from United States clinical trials are intended to serve as the basis for marketing approval in the foreign countries, the standards for clinical trials and approval may be different. +Approval processes vary among countries and can involve additional product testing and validation and additional administrative review periods. Seeking foreign regulatory approval could result in difficulties and increased costs for us and require additional preclinical studies or clinical trials, which could be costly and time- consuming. Regulatory requirements can vary widely from country to country and could delay or prevent the introduction of our products in those countries. If we fail to comply with regulatory requirements in international markets or to obtain and maintain required approvals, or if regulatory approvals in international markets are delayed, our target market will be +54 +Table of Contents +reduced and our ability to realize the full market potential of any product we develop will be impeded. +Our business may suffer reputational harm due to failures of our product candidates. +The failure of our current or future product candidates could have a lasting negative impact on our reputation, which could, in turn, impact our ability to successfully enter into future licensing arrangements or other transactions with potential counterparties, raise future capital or attract key personnel to join us. As a result, our business and prospects would be materially harmed, and our results of operations and financial condition would likely suffer materially. +Our product candidates may cause undesirable side effects that could delay or prevent their regulatory approval. +As is the case with pharmaceuticals generally, it is likely that there may be side effects and adverse events associated with our current or future product candidates. In the clinical trials we conduct with our current or future product candidates, patients may experience changes in their health, including illnesses, injuries, discomforts or a fatal outcome. Often, it is not possible to determine whether the product candidate being studied caused or was associated with these conditions. In addition, it is possible that, as we test our clinical products in larger, longer and more extensive clinical programs, or as use of these product candidates becomes more widespread if they receive regulatory approval, illnesses, injuries, discomforts and other adverse events that were observed in earlier clinical trials, as well as conditions that did not occur or went undetected in previous clinical trials, will be reported by subjects. Many times, side effects are only detectable after investigational products are tested in large-scale, Phase 3 clinical trial. +In the event that our current or future product candidates reveal an unacceptable severity and prevalence of these or other side effects, the clinical trials could be suspended or terminated, and the FDA could order us to cease further development of or deny approval of our product candidates for any or all targeted indications. The drug-related side effects could affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims. Any of these occurrences may harm our business, financial condition and results of operations significantly. +Our current product candidate is complex and difficult to manufacture. We could experience delays in satisfying regulatory authorities or manufacturing problems that result in delays in our development or commercialization programs, limit the supply of our current product candidate, or otherwise harm our business. +We currently depend on contract manufacturers to conduct the manufacturing and supply activities for SP-102. Manufacturing this product candidate requires facilities specifically designed for and validated for this purpose and sophisticated quality assurance and quality control procedures are necessary. Several factors could cause production interruptions, including equipment malfunctions, facility contamination, raw material shortages or contamination, natural disasters, disruption in utility services, human error or disruptions in the operations of our suppliers. +If contaminations are discovered in our supply of our current product candidate, or any future product candidates, or in the manufacturing facilities, such manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the contamination. We may not be successful in securing additional sources at all or on a timely basis, which could materially harm our development timelines. Any delay or interruption in the supply of clinical trial supplies could delay the completion of clinical trials, increase the costs associated with maintaining clinical trial programs and, depending upon the period of delay, require us to begin new clinical trials at additional expense or terminate clinical trials completely. +In addition, there are risks associated with large-scale manufacturing for clinical trials or commercial scale including, among others, cost overruns, potential problems with process scale-up, process reproducibility, stability issues, compliance with cGMP, lot consistency and timely availability of raw materials. Slight deviations in the manufacturing process, including those affecting quality attributes and stability, may result in unacceptable changes in the product that could result in lot failures or product recalls. Lot failures or product recalls could cause us to delay clinical trials or product launches, which could be costly to us and otherwise harm our business, financial condition and results of operations. +Furthermore, our manufacturers may encounter problems hiring and retaining the experienced scientific, quality assurance, quality-control and manufacturing personnel needed to operate our complex manufacturing processes, which could result in delays in production or difficulties in maintaining compliance with applicable regulatory requirements. Any problems in our manufacturing process or facilities could make us a less attractive collaborator for potential partners, including larger biotechnology companies and academic research institutions, which could limit our access to additional attractive development programs. Problems in our manufacturing process could restrict our +55 +Table of Contents +ability to meet potential future market demand for products, which could harm our business, financial condition and results of operations. +Risks Related to Our Business and Operations +If we are unable to retain our key executives, it may delay our development efforts and harm our business, financial condition and results of operations. +Our industry has experienced a high rate of turnover of management personnel in recent years. If we are not able to attract, retain and motivate key executives to accomplish our business objectives, we may experience constraints that will significantly impede our ability to raise additional capital and our ability to implement our overall business strategy. In particular, we are highly dependent upon our executive officers, including Jaisim Shah, our Chief Executive Officer and President, Henry Ji, Ph.D., our Executive Chairman, and Stephen Ma, our Chief Financial Officer. The loss of services of these executive officers could delay or prevent the successful development of our product pipeline and completion of our planned clinical trials. We do not carry “key person” insurance on any of our executive officers or other employees. +Competition for key executives in the biotechnology and pharmaceuticals field is intense, due to the limited number of individuals who possess the skills and experience required by our industry. Many of the pharmaceutical companies against which we compete for qualified personnel have greater financial and other resources, different risk profiles and a longer history in the industry than we do. They may also provide more diverse opportunities and better chances for career advancement. Some of these characteristics may be more appealing to qualified candidates than what we have to offer. In addition, regulation or legislation impacting the workforce, such as the proposed rule published by the Federal Trade Commission which would, if issued, generally prevent employers from entering into non-compete agreements with employees and require employers to rescind existing non-compete agreements, may lead to increased uncertainty in hiring and competition for talent. Further, we may experience employee turnover as a result of the ongoing “great resignation” occurring throughout the U.S. economy, which has impacted job market dynamics. New hires require training and take time before they achieve full productivity. New employees may not become as productive as we expect, and we may be unable to hire or retain sufficient numbers of qualified individuals. Moreover, we conduct our operations in the San Francisco Bay Area, a region that is home to many other biopharmaceutical companies as well as many academic and research institutions, resulting in fierce competition for qualified personnel. As such, we could have difficulty attracting and retaining experienced executives and may be required to expend significant financial resources in our recruitment and retention efforts. +We may need to increase the size of our company and may not effectively manage our growth. +As of December 31, 2025, we have 10 full-time employees, including three employees who have a M.D. or Ph.D. As a subsidiary of Scilex, we have been dependent upon the services provided by Scilex employees. As of December 31, 2025, Scilex has 28 full-time employees, including three employees who have M.D.s or Ph.D.s. We will need to expand our managerial, operational, sales and marketing, finance and other resources in order to manage our operations, clinical trials, research and development activities, regulatory filings, manufacturing and supply activities, and any marketing and commercialization activities, including co-promotion activities. Future growth would impose significant added responsibilities on members of management, including: +• +identifying, recruiting, integrating, maintaining and motivating additional employees; +• +managing our internal development efforts effectively, including the clinical, FDA and internal regulatory review process for our current and future product candidates, while complying with our contractual obligations to contractors and other third parties; and +• +improving our operational, financial and management controls, reporting systems and procedures. +Our future financial performance and our ability to commercialize our current and future product candidates will depend, in part, on our ability to effectively manage any future growth, if any, which may cause a significant strain on our management, and our operational, financial and other resources. Our ability to manage our growth effectively will require us to implement and improve our operational, financial and management systems and to expand, train, manage and motivate our employees. These demands may require the hiring of additional management personnel and the development of additional expertise by management. Any increase in resources devoted to research and product development without a corresponding increase in our operational, financial and management systems could have a material adverse effect on our business, financial condition and results of operations. +56 +Table of Contents +Our insurance policies are expensive and protect us only from some business risks, which leaves us exposed to significant uninsured liabilities. +Although we endeavor to obtain appropriate insurance coverage for insurable risks that we identify, we do not carry insurance for all categories of risk that our business may encounter. +Insurance coverage is becoming increasingly expensive. We have observed rapidly changing conditions in the insurance markets relating to nearly all areas of traditional corporate insurance. Such conditions have resulted in higher premium costs, higher policy deductibles and lower coverage limits. We may not be able to maintain insurance coverage at a reasonable cost, or in sufficient amounts to protect us against losses due to liability. While we maintain property, casualty and general liability coverage, we do not carry specific biological or hazardous waste insurance coverage and our insurance policies specifically exclude coverage for damages and fines arising from biological or hazardous waste exposure or contamination. Accordingly, in the event of contamination or injury, we could be held liable for damages or be penalized with fines in an amount exceeding our resources, and our clinical trials or regulatory approvals could be suspended. +We do not know if we will be able to maintain existing insurance with adequate levels of coverage. Any significant uninsured liability may require us to pay substantial amounts, which would adversely affect our business, financial condition and results of operations. +If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of our product candidates. +Clinical testing of our product candidates may expose us to individual product liability claims, class action lawsuits or actions, and other individual or mass tort claims. For example, we may be sued if any product we develop allegedly causes injury or is found to be otherwise unsuitable during product testing, manufacturing, marketing or sale. In addition, physicians may misuse our product candidates, if approved, with their patients if they are not adequately trained, potentially leading to injury and increased risk of product liability. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of risks inherent in the product, negligence, strict liability and a breach of warranties. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our product candidates, if approved. Even successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in: +• +loss of revenue from product sales; +• +decreased demand for any product candidates or products that we develop; +• +injury to our reputation; +• +withdrawal of clinical trial participants; +• +initiation of investigations by regulators; +• +restrictions on labeling, the marketing or manufacturing of any product candidates, if approved, withdrawal of the product candidates, if approved, from the market or voluntary or mandatory product recalls; +• +costs to defend the related litigation; +• +a diversion of management’s time and our resources; +• +substantial monetary awards to trial participants or patients; and +• +the inability to commercialize any of our product candidates. +Our inability to obtain and maintain sufficient product liability insurance at an acceptable cost and scope of coverage to protect against potential product liability claims could prevent or inhibit the commercialization of any products we develop. We currently carry product liability insurance covering use in our clinical trials in the amount of $10.0 million in the aggregate. Although we maintain such insurance, any claim that may be brought against us could result in a court judgment or settlement in an amount that is not covered, in whole or in part, by our insurance or that is in excess of the limits of our insurance coverage. Our insurance policies also have various exclusions and +57 +Table of Contents +deductibles, and we may be subject to a product liability claim for which we have no coverage. +We will have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts. Moreover, in the future, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses. +Any disruption in our research and development facilities could adversely affect our business, financial condition and results of operations. +Our principal executive offices are in the San Francisco Bay Area, California. Our facilities may be affected by natural or man-made disasters. Earthquakes are of particular significance since our facilities are located in an earthquake-prone area. We are also vulnerable to damage from other types of disasters, including power loss, attacks from extremist organizations, fires, floods and similar events. If our facilities are affected by a natural or man-made disaster, we may be forced to curtail our operations and/or rely on third parties to perform some or all of our research and development activities. Although we believe we possess adequate insurance for damage to our property and the disruption of our business from casualties, such insurance may not be sufficient to cover all of our potential losses and may not continue to be available to us on acceptable terms, or at all. In the future, we may choose to expand our operations in either our existing facilities or in new facilities. If we expand our worldwide manufacturing locations, there can be no assurance that this expansion will occur without implementation difficulties, or at all. +We may seek to grow our business through acquisitions and may fail to realize the anticipated benefits of any acquisition, and acquisitions can be costly and dilutive. +Our success depends on our ability to continually enhance and broaden our product offerings in response to changing customer demands, competitive pressures, technologies and market pressures. Accordingly, from time to time we may expand our business and intellectual property portfolio through the acquisition of new businesses and technologies. We cannot assure that we will achieve anticipated benefits from any acquisition to justify the transaction. +Competition within our industry for acquisitions of businesses, technologies and assets may become intense. Even if we are able to identify an acquisition that we would like to consummate, we may not be able to complete the acquisition on commercially reasonable terms or the target may be acquired by another company. We may enter into negotiations for acquisitions that are not ultimately consummated. Those negotiations could result in diversion of management time and significant out-of-pocket costs. +The success of any acquisition depends on, among other things, our ability to combine our business with an acquired business in a manner that does not materially disrupt existing relationships and that allows us to achieve development and operational synergies. If we are unable to achieve these objectives, the anticipated benefits of an acquisition may not be realized fully, or at all, or may take longer to realize than expected. If we are obligated to make any milestone payments in connection with an acquisition or licensing agreement, such obligations could impose substantial additional costs on us and divert resources from other aspects of our business. In addition, if we undertake such a transaction, we may issue dilutive securities, assume or incur debt obligations, incur large one-time expenses or acquire intangible assets that could result in significant future amortization expenses. As a result, an acquisition may not be accretive to our stock value or development pipeline in the near or long term. +We expect to incur higher development and regulatory costs, and additional costs integrating the operations and personnel of any companies we acquire, which cannot be estimated accurately at this time. If the total costs of the integration of our companies and advancement of acquired product candidates and technologies exceed the anticipated benefits of the acquisition, our business, financial condition and results of operations could be adversely affected. +If we conduct business outside of the United States, the international components of our business will expose us to business, legal, regulatory, political, operational, financial and economic risks associated with conducting business outside of the United States. +We may collaborate with international manufacturing partners and expand our business internationally in the future. The purchase and shipment of components from international sources will subject us to U.S. and foreign governmental trade, import and export, and customs regulations and laws. +Compliance with these regulations and laws is costly and exposes us to penalties for non-compliance. Other laws and regulations that can significantly impact us include various anti-bribery laws, including the U.S. Foreign Corrupt Practices Act (the “FCPA”), as well as export controls laws. Any failure to comply with applicable legal and +58 +Table of Contents +regulatory obligations could impact us in a variety of ways that include, but are not limited to, significant criminal, civil and administrative penalties, including imprisonment of individuals, fines and penalties, denial of export privileges, seizure of shipments, restrictions on certain business activities and exclusion or debarment from government contracting. +Moreover, the current administration has substantially altered prior U.S. government international trade policy and has commenced activities to renegotiate, or potentially terminate, certain existing bilateral or multi- lateral trade agreements and treaties with foreign countries. In addition, the current administration has initiated or is considering imposing tariffs on certain foreign goods. Related to this action, certain foreign governments, including China, have instituted or are considering imposing tariffs on certain U.S. goods. It remains unclear what the current administration or foreign governments will or will not do with respect to tariffs or other international trade agreements and policies. Although the current Administration has not yet implemented tariffs on pharmaceuticals, there can be no assurance that it will not implement such tariffs in the future. A trade war or other governmental action related to tariffs or international trade agreements or policies has the potential to disrupt our research activities, affect our suppliers, increase the cost of materials purchased to manufacture our products, impact our ability to sell our products outside the United States or to sell our products outside the United States at competitive prices and/or to affect the United States or global economy or certain sectors thereof and, thus, could adversely impact our business. +Conducting business internationally involves a number of risks, including: +• +multiple, sometimes conflicting and changing laws and regulations such as tax laws, export and import restrictions, employment laws, anti-bribery and anti-corruption laws, regulatory requirements and other governmental approvals, permits and licenses; +• +difficulties in enforcing our intellectual property rights and in defending against third-party threats and intellectual property enforcement actions against us, our distributors or any of our third-party suppliers; +• +failure by us or our distributors to obtain appropriate licenses or regulatory approvals for the sale or use of our product candidates, if approved, in various countries; +• +difficulties in managing foreign operations; +• +cost and availability of shipping and other means of product transportation; +• +foreign currency exchange rate fluctuations; +• +changes in duties and tariffs, license obligations and other non-tariff barriers to trade; +• +the imposition of new trade restrictions; +• +difficulties in enforcing agreements and collecting receivables through certain foreign legal systems; +• +complexities associated with managing multiple payor-reimbursement regimes or self-pay systems; +• +natural disasters, political and economic instability, including wars, terrorism and political unrest, outbreak of disease, boycotts, curtailment of trade and other business restrictions; and +• +failure to comply with the FCPA, including its books and records provisions and its anti-bribery provisions, and similar anti-bribery and anti-corruption laws in other jurisdictions, for example by failing to maintain accurate information and control over sales or distributors’ activities. +Any of these risks, if encountered, could significantly harm our future international expansion and operations and, consequently, negatively impact our business, financial condition and results of operations. +The increasing use of social media platforms presents new risks and challenges. +Social media is increasingly being used to communicate about our research, product candidates, investigational medicines and the diseases our product candidates and investigational medicines are being developed to treat. Social media practices in the biopharmaceutical industry continue to evolve and regulations relating to such use are not always clear. This evolution creates uncertainty and risk of non-compliance with regulations applicable to our business, resulting in potential regulatory actions against us. For example, patients may use social media channels to comment on their experience in an ongoing blind clinical study or to report an alleged adverse event. +When such disclosures occur, there is a risk that we may fail to monitor and comply with applicable adverse +59 +Table of Contents +event reporting obligations or we may not be able to defend our business or the public’s legitimate interests in the face of the political and market pressures generated by social media due to restrictions on what we may say about our product candidates. There is also a risk of inappropriate disclosure of sensitive information or negative or inaccurate posts or comments about us on any social networking website. Furthermore, our employees, affiliates and/or business partners may use social media for their personal use, and their activities on social media or in other forums could result in adverse publicity for us. Any negative publicity as a result of social media posts, whether or not such claims are accurate, could adversely impact us. If any of these events were to occur or we otherwise fail to comply with applicable regulations, we could incur liability, face regulatory actions, or incur other harm to our business, financial condition and results of operations. +Our business and operations would suffer in the event of a system failure. +While we have implemented and maintain security measures, our computer systems and those of our CROs and other contractors and consultants are vulnerable to computer viruses, unauthorized access, cybersecurity attacks, and other security incidents, including as perpetrated by hackers, or as the result of natural disasters, terrorism, war, or telecommunications or electrical failures. While we have not experienced any material system failure or a security breach to date, if such an event were to occur, it could result in a material disruption of our product development programs or a loss of our trade secrets or other proprietary information. For example, the loss of clinical trial data from completed, ongoing, or planned clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce such data. To the extent that any disruption or security breach were to result in the loss of or damage to our data or applications, or the unauthorized disclosure of confidential or proprietary information, including personal data, we could incur material legal liability or be the subject of legal claims, suffer damage to our reputation, lose or harm our intellectual property rights, and delay the continued research, development and commercial efforts of our product candidates, if approved. If we are held liable for a claim against which we are not insured or for damages exceeding the limits of our insurance coverage, whether arising out of cybersecurity matters or some other matter, that claim could have a material adverse effect on our business, financial condition, and results of operations. +Further, a security incident or privacy violation that leads to the unauthorized acquisition, interruption, modification, loss, theft, corruption, interference, or other unauthorized disclosure of, or prevents access to, personal data, including patient data or other protected health information, could harm our reputation, compel us to comply with federal or state breach notification laws and foreign equivalents, subject us to mandatory corrective action, require us to verify the correctness of database contents, and otherwise subject us to liability under laws and regulations that protect personal data, resulting in increased costs or loss of revenue. Our ability to effectively manage and maintain our internal business information depends significantly on our enterprise resource planning (“ERP”) system and other information systems. Portions of our information technology systems may experience interruptions, delays, or cessations of service or produce errors in connection with ongoing systems implementation work. Cybersecurity attacks in particular are continually evolving and include, but are not limited to, malicious software, ransomware, attempts to gain unauthorized access to data under our custody or control, and other electronic security breaches that could lead to disruptions in systems, misappropriation of confidential or otherwise protected information, and corruption of data. If we are unable to prevent such cybersecurity attacks or privacy violations or implement satisfactory remedial measures, our operations could be disrupted, we may suffer loss of reputation, we may be the subject of governmental investigations, legal claims, or litigation, or we may incur financial loss or other regulatory penalties, each of which may not be covered by our insurance. In addition, these breaches and other unauthorized access to our systems can be difficult to detect, and any delay in identifying any such event may lead to increased harm of the type described above. +Unstable market and economic conditions may have serious adverse consequences on our business, financial condition and results of operations. +As widely reported, global credit and financial markets have experienced volatility and disruptions in the past several years, including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability, as well as the continued hostilities between Russia and Ukraine and, more recently, Hamas’ attack against Israel and the ensuing conflict. +In addition, Russia’s invasion of Ukraine and sanctions against Russia are causing disruptions to global economic conditions. The escalation in October 2023 of the conflict between Israel and Hamas and U.S. military intervention in Venezuela also could cause disruptions to global economic conditions and affect the stability of those +60 +Table of Contents +regions. It is not possible to predict the broader consequences of these ongoing conflicts. It is also not possible to predict with certainty these ongoing conflicts and additional adverse effects on existing U.S. macroeconomic conditions and financial markets, all of which could impact the business, financial condition, and results of operations of the Company as well as our ability to raise capital. There can be no assurances that further deterioration in credit and financial markets and confidence in economic conditions will not occur. In addition, the closure of any additional national or regional commercial banks could lead to further economic instability. +Our general business strategy may be adversely affected by any such economic downturn, volatile business environment or continued unpredictable and unstable market conditions. If the current equity and credit markets deteriorate, it may make any necessary debt or equity financing more difficult, more costly and more dilutive. Failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on our growth strategy, financial performance and price of our Common Stock, and could require us to delay or abandon clinical development plans. +Risks Related to Our Intellectual Property +Potential disputes over intellectual property rights that we have licensed may prevent or impair our ability to maintain our current licensing arrangements on acceptable terms. +Licensing of intellectual property rights is of high importance to our business and involves complex legal, business and scientific issues. Disputes may arise between us and our licensors regarding intellectual property rights subject to a license agreement, including: +• +the scope of rights granted under the license agreement and other interpretation-related issues; +• +our financial or other obligations under the license agreement; +• +whether and the extent to which our technology and processes infringe on intellectual property rights of the licensor that are not subject to the licensing agreement; +• +our right to sublicense intellectual property rights to third parties under collaborative development relationships; +• +our diligence obligations with respect to the use of the licensed technology in relation to our development and commercialization of our current product candidate, and what activities satisfy those diligence obligations; and +• +the ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors, us and our partners. +If disputes over intellectual property rights that we have licensed prevent or impair our ability to maintain our current licensing arrangements on acceptable terms, our business, financial condition and results of operations may be adversely affected. We may enter into additional licenses in the future and if we fail to comply with obligations under those agreements, we could suffer adverse consequences. +Furthermore, if our licenses are terminated, or if the underlying patents fail to provide the intended exclusivity, competitors or other third parties would have the freedom to seek regulatory approval of, and to market, products identical or competitive to ours and we may be required to cease our development and commercialization of our current and future product candidates, if approved. Moreover, if disputes over intellectual property that we license prevent or impair our ability to maintain other licensing arrangements on commercially acceptable terms, we may be unable to successfully develop and commercialize the affected product candidate. Any of the foregoing could have a material adverse effect on our business, financial condition and results of operations. +If we are unable to maintain patent protection for our product candidates, or if the scope of the patent protection obtained is not sufficiently broad, we may not be able to compete effectively in our markets. +We rely upon a combination of patents, trademarks, trade secret protection, and confidentiality agreements to protect the intellectual property related to our current and future product candidates. Our success depends in part on our ability to obtain and maintain patent protection in the United States and other countries with respect to our product candidates. We seek to protect our proprietary position by filing and/or in-licensing patent applications in the United States and abroad related to our development programs and product candidates. The patent prosecution process is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent +61 +Table of Contents +applications at a reasonable cost or in a timely manner. +The patents and patent applications that we own or in-license may fail to result in issued patents with claims that protect our product candidates in the United States or in other foreign countries. There is no assurance that all of the potentially relevant prior art relating to our patents and patent applications has been found, which can prevent a patent from issuing from a pending patent application, or be used to invalidate a patent. Even if patents do successfully issue and even if such patents cover our product candidates, third parties may challenge their validity, enforceability or scope, which may result in such patents being narrowed, invalidated or held unenforceable. Any successful opposition to these patents or any other patents owned by or licensed to us could deprive us of rights necessary for the successful commercialization of any product candidates that we may develop. Further, if we encounter delays in regulatory approvals, the period of time during which we could market a product candidate under patent protection could be reduced. +The patent application process is subject to numerous risks and uncertainties, and there can be no assurance that we or any of our potential future collaborators will be successful in protecting our product candidates by obtaining and defending patents. These risks and uncertainties include the following: +• +the U.S. Patent and Trademark Office (the “PTO”) and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other provisions during the patent process, the non-compliance with which can result in abandonment or lapse of a patent or patent application, and partial or complete loss of patent rights in the relevant jurisdiction; +• +patent applications may not result in any patents being issued; +• +patents may be challenged, invalidated, modified, revoked, circumvented, found to be unenforceable or otherwise may not provide any competitive advantage; +• +our competitors, many of whom have substantially greater resources than we do and many of whom have made significant investments in competing technologies, may seek or may have already obtained patents that will limit, interfere with or block our ability to make, use and sell our product candidates; +• +there may be significant pressure on the U.S. government and international governmental bodies to limit the scope of patent protection both inside and outside the United States for disease treatments that prove successful, as a matter of public policy regarding worldwide health concerns; +• +countries other than the United States may have patent laws less favorable to patentees than those upheld by U.S. courts, allowing foreign competitors a better opportunity to create, develop and market competing products; +• +other parties may have designed around our claims or developed technologies that may be related or competitive to our platform, may have filed or may file patent applications and may have received or may receive patents that overlap or conflict with our patent applications, either by claiming the same methods or devices or by claiming subject matter that could dominate our patent position; +• +any successful intellectual property challenge to any patents owned by or licensed to us could deprive us of rights necessary for the practice of our technologies or the successful commercialization of any product candidates that we may develop; +• +because patent applications in the United States and most other countries are confidential for a period of time after filing, we cannot be certain that we or our licensors were the first to file any patent application related to our product candidates, proprietary technologies and their uses; and +• +an interference proceeding can be provoked by a third party or instituted by the PTO to determine who was the first to invent any of the subject matter covered by the patent claims of our applications for any application with an effective filing date before March 16, 2013. +The patent prosecution process is also expensive and time-consuming, and we and our licensors may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner or in all jurisdictions where protection may be commercially advantageous. It is also possible that we and our licensors will fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection. +62 +Table of Contents +If the patent applications we hold or in-license with respect to our development programs and product candidates fail to issue, if their breadth or strength of protection is threatened, or if they fail to provide meaningful exclusivity for our product candidates, it could dissuade other companies from collaborating with us to develop product candidates, and threaten our ability to commercialize our product candidates. Any such outcome could have a materially adverse effect on our business. +We may not be successful in obtaining or maintaining necessary rights to product components and processes and brands for our development pipeline through acquisitions and in-licenses. +Our current and future product candidates may require specific formulations to work effectively and efficiently and these rights may be held by others. It may also be commercially advantageous to use trademarks held by others. We may be unable to acquire or in-license proprietary rights related to any compositions, formulations, methods of use, processes or other intellectual property rights from third parties that we identify as being necessary for our product candidates. Even if we are able to obtain a license to such proprietary rights, it may be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. In that event, we may be required to expend significant time and resources to develop or license replacement technology. +Where we obtain licenses from or collaborate with third parties, we may not have the right to control the preparation, filing and prosecution of patent and trademark applications, or to maintain the patents covering technology that we license from third parties and associated trademark registrations, or such activities, if controlled by us, may require the input of such third parties. We may also require the cooperation of our licensors and collaborators to enforce any licensed patent rights, and such cooperation may not be provided. Therefore, these patents, trademarks and applications may not be prosecuted and enforced in a manner consistent with the best interests of our business, in compliance with applicable laws and regulations, which may affect the validity and enforceability of such patents and trademarks, or any patents and trademark registrations that may issue from such applications. Moreover, if we do obtain necessary licenses, we will likely have obligations under those licenses, including making royalty and milestone payments, and any failure to satisfy those obligations could give our licensor the right to terminate the license. Termination of a necessary license, or expiration of licensed patents or patent applications, or loss of trademark rights, could have a material adverse impact on our business. Our business would suffer if any such licenses terminate, if the licensors fail to abide by the terms of the license, if the licensors fail to enforce licensed patents or trademarks against infringing third parties, if the licensed patents or other rights are found to be invalid or unenforceable, or if we are unable to enter into necessary licenses on acceptable terms. Furthermore, if any licenses terminate, or if the underlying patents fail to provide the intended exclusivity, competitors or other third parties may gain the freedom to seek regulatory approval of, and to market, products identical to ours. Moreover, our licensors may own or control intellectual property that has not been licensed to us and, as a result, we may be subject to claims, regardless of their merit, that we are infringing or otherwise violating the licensor’s rights. In addition, while we cannot currently determine the amount of the royalty obligations we would be required to pay on sales of future products, if any, the amounts may be significant. The amount of our future royalty obligations will depend on the technology and intellectual property we use in products that we successfully develop and commercialize, if any. Therefore, even if we successfully develop and commercialize products, we may be unable to achieve or maintain profitability. +The licensing and acquisition of third-party proprietary rights is a competitive area, and companies, which may be more established, or have greater resources than we do, may also be pursuing strategies to license or acquire third-party proprietary rights that we may consider necessary or attractive in order to commercialize our product candidates. More established companies may have a competitive advantage over us due to their size, cash resources and greater clinical development and commercialization capabilities. We may be unable to negotiate a license within the specified time frame or under terms that are acceptable to us. If we are unable to do so, the third-party may offer, on an exclusive basis, their proprietary rights to other parties, potentially blocking our ability to pursue our program. +In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us, either on reasonable terms, or at all. We also may be unable to license or acquire third-party intellectual property rights on terms that would allow us to make an appropriate return on our investment, or at all. If we are unable to successfully obtain rights to required third-party intellectual property rights on commercially reasonable terms, our ability to commercialize our product candidates, if approved, and our business, financial condition and results of operations could suffer. +We may become subject to claims challenging the inventorship or ownership of our patents and other intellectual property. +63 +Table of Contents +We may be subject to claims that collaborators or other third parties have an interest in our patents or other intellectual property as an inventor or co-inventor. The failure to name the proper inventors on a patent application can result in the patents issuing thereon being unenforceable. Inventorship disputes may arise from conflicting views regarding the contributions of different individuals named as inventors, the effects of foreign laws where foreign nationals are involved in the development of the subject matter of the patent, conflicting obligations of third parties involved in developing our product candidates or as a result of questions regarding co-ownership of potential joint inventions. Litigation may be necessary to resolve these and other claims challenging inventorship and/or ownership. Alternatively, or additionally, we may enter into agreements to clarify the scope of our rights in such intellectual property. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees. +Claims that we infringe, misappropriate, or violate the intellectual property rights of third parties may give rise to costly and lengthy litigation, and we could be prevented from selling product candidates, if approved, forced to pay damages, and defend against litigation. +Third parties may assert patent or other intellectual property infringement or misappropriation claims against us or our strategic partners, licensors or licensees with respect to our product candidates. If any of our current or future product candidates, methods, processes and other technologies are alleged to infringe on or be improperly based on the proprietary rights of other parties, we could face adverse consequences. +The pharmaceutical and biotechnology industries have produced a proliferation of patents, and it is not always clear to industry participants, including us, which patents cover various types of products or methods of use. The coverage of patents is subject to interpretation by the courts, and the interpretation is not always uniform. We cannot assure that any of our current or future product candidates will not infringe existing or future patents. We may not be aware of patents that have already issued that a third party might assert or are infringed by one of our current or future product candidates. +There may be third-party patents of which we are currently unaware with claims to materials, formulations, methods of manufacture or methods for treatment related to the use or manufacture of our product candidates. Because patent applications can take many years to issue and may be confidential for 18 months or more after filing, there may be currently pending third-party patent applications which may later result in issued patents that our product candidates or our technologies may infringe, or which such third parties claim are infringed by the use of our technologies. Parties making claims against us for infringement or misappropriation of their intellectual property rights may seek and obtain injunctive or other equitable relief, which could effectively block our ability to further develop and commercialize one or more of our current or future product candidates. Defense of these claims, regardless of their merit, could involve substantial expenses and could be a substantial diversion of our valuable management and employee resources from our business. +If we collaborate with third parties in the development of technology in the future, our collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary information in such a way as to invite litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to litigation or potential liability. Further, collaborators may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability. In the future, we may agree to indemnify our commercial collaborators against certain intellectual property infringement claims brought by third parties. Any claims of patent infringement asserted by third parties would be time-consuming and could: +• +result in costly litigation; +• +divert the time and attention of our technical personnel and management; +• +cause development delays; +• +prevent us from commercializing our product candidates until the asserted patent expires or is held finally invalid or not infringed in a court of law; +• +require us to develop non-infringing technology, which may not be possible on a cost-effective basis; +• +require us to pay damages to the party whose intellectual property rights we may be found to be infringing, which may include treble damages if we are found to have been willfully infringing such intellectual +64 +Table of Contents +property; +• +require us to pay the attorney’s fees and costs of litigation to the party whose intellectual property rights we may be found to be infringing; and/or +• +require us to enter into royalty or licensing agreements, which may not be available on commercially reasonable terms, or at all. +If we are sued for patent infringement, we would need to demonstrate that our product candidates or methods either do not infringe the patent claims of the relevant patent or that the patent claims are invalid, and we may not be able to do either. Proving invalidity is difficult. For example, in the United States, proving invalidity requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents. Even if we are successful in these proceedings, we may incur substantial costs and divert management’s time and attention in pursuing these proceedings, which could have a material adverse effect on us. If we are unable to avoid infringing the patent rights of others, we may be required to seek a license, which may not be available, defend an infringement action or challenge the validity of the patents in court. Patent litigation is costly and time- consuming. We may not have sufficient resources to bring these actions to a successful conclusion. In addition, if we do not obtain a license, develop or obtain non-infringing technology, fail to defend an infringement action successfully or have infringed patents declared invalid, we may incur substantial monetary damages, encounter significant delays in bringing our product candidates to market and be precluded from manufacturing or selling our product candidates. +We cannot be certain that others have not filed patent applications for technology covered by our pending applications, or that we were the first to invent the technology, because: +• +some patent applications in the United States may be maintained in secrecy until the patents are issued; +• +patent applications in the United States and elsewhere can be pending for many years before issuance, or unintentionally abandoned patents or applications can be revived; +• +pending patent applications that have been published can, subject to certain limitations, be later amended in a manner that could cover our technologies, our product candidates or the use of our product candidates; +• +identification of third-party patent rights that may be relevant to our technology is difficult because patent searching is imperfect due to differences in terminology among patents, incomplete databases and the difficulty in assessing the meaning of patent claims; +• +patent applications in the United States are typically not published until 18 months after the priority date; and +• +publications in the scientific literature often lag behind actual discoveries. +Furthermore, the scope of a patent claim is determined by an interpretation of the law, the written disclosure in a patent and the patent’s prosecution history and can involve other factors such as expert opinion. Our interpretation of the relevance or the scope of claims in a patent or a pending application may be incorrect, which may negatively impact our ability to market our product candidates, if approved. Further, we may incorrectly determine that our technologies or product candidates are not covered by a third-party patent or may incorrectly predict whether a third party’s pending patent application will issue with claims of relevant scope. Our determination of the expiration date of any patent in the United States or internationally that we consider relevant may be incorrect, which may negatively impact our ability to develop and market our product candidates. +Our competitors may have filed, and may in the future file, patent applications covering technology similar to ours, and others may have or obtain patents or proprietary rights that could limit our ability to make, use, sell, offer for sale or import our product candidates and future approved products or impair our competitive position. Numerous third-party U.S. and foreign issued patents and pending patent applications exist in the fields in which we are developing product candidates. There may be third-party patents or patent applications with claims to materials, formulations, methods of manufacture or methods for treatment related to the use or manufacture of our product candidates. Any such patent application may have priority over our patent applications, which could further require us to obtain rights to issued patents covering such technologies. If another party has filed a U.S. patent application on inventions similar to ours, we may have to participate in an interference proceeding declared by the PTO to determine priority of invention in the United States. The costs of these proceedings could be substantial, and it is possible that such efforts would be unsuccessful if, unbeknownst to us, the other party had independently arrived at the same or +65 +Table of Contents +similar invention prior to our own invention, resulting in a loss of our U.S. patent position with respect to such inventions. Other countries have similar laws that permit secrecy of patent applications, and may be entitled to priority over our applications in such jurisdictions. +Some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources. In addition, any uncertainties resulting from the initiation and continuation of any litigation could have a material adverse effect on our ability to raise the funds necessary to continue our operations. +Even if we were to prevail, any litigation or administrative proceeding could be costly and time-consuming and would divert the attention of our management and key personnel from our business operations. Furthermore, as a result of a patent infringement suit brought against us or our strategic partners or licensees, we or our strategic partners or licensees may be forced to stop or delay developing, manufacturing or selling technologies, product candidates or potential products that are claimed to infringe a third party’s intellectual property unless that party grants us or our strategic partners’ or licensees’ rights to use its intellectual property. Ultimately, we may be unable to develop some of our product candidates or may have to discontinue development of a product candidate or cease some of our business operations as a result of patent infringement claims, which could severely harm our business, financial condition and results of operations. +We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, time-consuming and unsuccessful. +Competitors may infringe our patents, trademarks, copyrights or other intellectual property. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time-consuming and divert the time and attention of our management and key personnel. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims against us alleging that we infringe their patents, in addition to counterclaims asserting that our patents are invalid or unenforceable, or both. In any patent infringement proceeding, there is a risk that a court will decide that a patent of ours is invalid or unenforceable, in whole or in part, and that we do not have the right to stop the other party from using the invention at issue. There is also a risk that, even if the validity of such patents is upheld, the court will construe the patent’s claims narrowly or decide that we do not have the right to stop the other party from using the invention at issue on the grounds that our patent claims do not cover the invention. An adverse outcome in a litigation or proceeding involving our patents could limit our ability to assert our patents against those parties or other competitors, and may curtail or preclude our ability to exclude third parties from making and selling similar or competitive products. Any of these occurrences could adversely affect our business, financial condition and results of operations. Similarly, if we assert trademark infringement claims, a court may determine that the marks we have asserted are invalid or unenforceable, or that the party against whom we have asserted trademark infringement has superior rights to the marks in question. In this case, we could ultimately be forced to cease use of such trademarks. +Even if we establish infringement, the court may decide not to grant an injunction against further infringing activity and instead award only monetary damages, which may not be an adequate remedy. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during litigation. There could also be public announcements of the results of hearings, motions or other interim proceedings or developments. +Moreover, there can be no assurance that we will have sufficient financial or other resources to file and pursue such infringement claims, which typically last for years before they are concluded. Even if we ultimately prevail in such claims, the monetary cost of such litigation and the diversion of the attention of our management and scientific personnel could outweigh any benefit we receive as a result of the proceedings. +Because of the expense and uncertainty of litigation, we may conclude that even if a third party is infringing our issued patent, any patents that may be issued as a result of our pending or future patent applications or other intellectual property rights, the risk-adjusted cost of bringing and enforcing such a claim or action may be too high or not in the best interest of our company or our stockholders. In such cases, we may decide that the more prudent course of action is to simply monitor the situation or initiate or seek some other non-litigious action or solution. Any of the foregoing may have a material adverse effect on our business, financial condition and results of operations. +If our intellectual property rights are invalidated or circumvented, our business, financial condition and results of operations will be adversely affected. +66 +Table of Contents +Our long-term success depends on our ability to continually discover, develop and commercialize innovative new pharmaceutical products. Without strong intellectual property protection, we would be unable to generate the returns necessary to support the enormous investments in research and development and capital as well as other expenditures required to bring new product candidates to the market and for commercialization. +Intellectual property protection varies throughout the world and is subject to change over time. In the United States, for small molecule drug products the Hatch-Waxman Act provides generic companies powerful incentives to seek to invalidate our pharmaceutical patents. As a result, we expect that our U.S. patents on major pharmaceutical products will be routinely challenged, and there can be no assurance that our patents will be upheld. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a distraction to management and other employees. We face generic manufacturer challenges to our patents outside the United States as well. In addition, competitors or other third parties may claim that our activities infringe patents or other intellectual property rights held by them. If successful, such claims could result in our being unable to market a product in a particular territory or being required to pay damages for past infringement or royalties on future sales. +If our trademarks and trade names are not adequately protected, then we may not be able to build name recognition and our business, financial condition and results of operations may be adversely affected. +We have registered trademarks with the PTO for the marks “SEMNUR PHARMACEUTICALS” and “SEMDEXA” in the United States. Our trademarks or trade names may be challenged, infringed, diluted, tarnished, circumvented or declared generic or determined to be infringing on other marks. We may not be able to protect our rights to these trademarks and trade names, which we need to build name recognition among potential partners or customers in our markets of interest. At times, competitors or other third parties may adopt trade names or trademarks similar to ours, thereby impeding our ability to build brand identity and possibly leading to market confusion. In addition, there could be potential trade name or trademark infringement, dilution or tarnishment claims brought by owners of other registered trademarks or trademarks that incorporate variations of our registered or unregistered trademarks or trade names. Over the long term, if we are unable to establish name recognition based on our trademarks and trade names, then we may not be able to compete effectively and our business, financial condition and results of operations may be adversely affected. Our efforts to enforce or protect our proprietary rights related to trademarks, trade secrets, domain names, copyrights or other intellectual property may be ineffective and could result in substantial costs and diversion of resources. +Changes in patent laws or patent jurisprudence could diminish the value of patents in general, thereby impairing our ability to protect our product candidates. +As is the case with other biotechnology and pharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the biotechnology and pharmaceutical industries involve both technological and legal complexity. Therefore, obtaining and enforcing biotechnology and pharmaceutical patents is costly, time-consuming and inherently uncertain. In addition, the America Invents Act (the “AIA”), which was passed in September 2011, resulted in significant changes to the U.S. patent system. An important change introduced by the AIA is that, as of March 16, 2013, the United States transitioned from a “first-to-invent” to a “first-to-file” system for deciding which party should be granted a patent when two or more patent applications are filed by different parties claiming the same invention. Under a “first-to-file” system, assuming the other requirements for patentability are met, the first inventor to file a patent application generally will be entitled to a patent on the invention regardless of whether another inventor had made the invention earlier. A third party that files a patent application in the PTO after that date but before us could therefore be awarded a patent covering an invention of ours even if we made the invention before it was made by the third party. This will require us to be cognizant going forward of the time from invention to filing of a patent application and diligent in filing patent applications, but circumstances could prevent us from promptly filing patent applications on our inventions. +Among some of the other changes introduced by the AIA are changes that limit where a patentee may file a patent infringement suit and providing opportunities for third parties to challenge any issued patent in the PTO. This applies to all of our U.S. patents, even those issued before March 16, 2013. Because of a lower evidentiary standard in PTO proceedings compared to the evidentiary standard in U.S. federal courts necessary to invalidate a patent claim, a third party could potentially provide evidence in a PTO proceeding sufficient for the PTO to hold a claim invalid even though the same evidence would be insufficient to invalidate the claim if first presented in a district court action. +Accordingly, a third party may attempt to use the PTO procedures to invalidate our patent claims that would not have been invalidated if first challenged by the third party as a defendant in a district court action. It is not clear what, +67 +Table of Contents +if any, impact the AIA will have on the operation of our business. However, the AIA and its implementation could increase the uncertainties and costs surrounding the prosecution of our or our licensors’ patent applications and the enforcement or defense of our or our licensors’ issued patents. +We may become involved in opposition, interference, derivation, inter partes review, post-grant review, or other proceedings challenging our or our licensors’ patent rights, and the outcome of any proceedings are highly uncertain. An adverse determination in any such proceeding could reduce the scope of, or invalidate, our owned or in-licensed patent rights, allow third parties to commercialize our product candidates and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize products without infringing third-party patent rights. +Additionally, the U.S. Supreme Court has ruled on several patent cases in recent years either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations, and there are other open questions under patent law that courts have yet to decisively address. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on decisions by Congress, the federal courts and the PTO, the laws and regulations governing patents could change in unpredictable ways and could weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future. Any waiver of our patent or other intellectual property protection by the U.S. and other foreign governments could have a material adverse effect on our competitive position, business, financial condition and results of operations. For example, recent decisions raise questions regarding the award of patent term adjustment (“PTA”) for patents in families where related patents have issued without PTA. Thus, it cannot be said with certainty how PTA will or will not be viewed in the future and whether patent expiration dates may be impacted. In addition, the European patent system is relatively stringent in the type of amendments that are allowed during prosecution, but the complexity and uncertainty of European patent laws has also increased in recent years. For example, in Europe, a new unitary patent system took effect June 1, 2023, which will significantly impact European patents, including those granted before the introduction of such a system. Under the unitary patent system, European applications have the option, upon grant of a patent, of becoming a Unitary Patent which will be subject to the jurisdiction of the Unitary Patent Court (the “UPC”). As the UPC is a new court system, there is no precedent for the court, increasing the uncertainty of any litigation. Patents granted before the implementation of the UPC have the option of opting out of the jurisdiction of the UPC and remaining as national patents in the UPC countries. Patents that remain under the jurisdiction of the UPC will be potentially vulnerable to a single UPC-based revocation challenge that, if successful, could invalidate the patent in all countries who are signatories to the UPC. We cannot predict with certainty the long-term effects of any potential changes. Complying with these laws and regulations could limit our ability to obtain new patents in the future that may be important for our business. +Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements. +The PTO and various foreign patent agencies require compliance with a number of procedural, documentary, fee payment and other provisions to maintain patent applications and issued patents. For example, periodic maintenance fees on any issued patent are due to be paid to the PTO and other foreign patent agencies in several stages over the lifetime of the patent. The PTO and various foreign national or international patent agencies require compliance with a number of procedural, documentary, fee payment, and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which non-compliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse of patent rights include, but are not limited to, failure to timely file national and regional stage patent applications based on our international patent application, failure to respond to official actions within prescribed time limits, non-payment of fees, and failure to properly legalize and submit formal documents. If we or any of our licensors fail to maintain the patents or patent applications covering our product candidates, our competitors may be able to enter the market, which would have an adverse effect on our business, financial condition and results of operations. +Confidentiality agreements with employees may not adequately prevent disclosure of our trade secrets and other proprietary information and may not adequately protect our intellectual property, which could limit our ability to compete. +68 +Table of Contents +To help protect our proprietary know-how and our inventions for which patents may be unobtainable or difficult to obtain, or prior to seeking patent protection, we rely on trade secret protection and confidentiality agreements. To this end, we intend to require all our future employees to enter into agreements that prohibit the disclosure of confidential information and, where applicable, require disclosure and assignment to us of the ideas, developments, discoveries and inventions important to our business. These agreements typically limit the rights of the third parties to use or disclose our confidential information. We also typically obtain agreements from these parties that provide that inventions conceived by the party in the course of rendering services to us will be our exclusive property. +However, our future employees may unintentionally or willfully disclose our confidential information to competitors, and confidentiality agreements may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. The need to share trade secrets and other confidential information increases the risk that such trade secrets become known by our competitors, are inadvertently incorporated into the technology of others, or are disclosed or used in violation of these agreements. Given that our competitive position is based, in part, on our know-how and trade secrets, a competitor’s discovery of our trade secrets or other unauthorized use or disclosure would impair our competitive position and may have an adverse effect on our business, financial condition and results of operations. Enforcing a claim that a third party obtained illegally, and is using, trade secrets and/or confidential know-how is expensive, time-consuming and unpredictable, and the enforceability of confidentiality agreements may vary from jurisdiction to jurisdiction. +If any of our trade secrets, know-how or other proprietary information is disclosed, the value of our trade secrets, know-how and other proprietary rights would be significantly impaired and our business and competitive position would suffer. Moreover, our third-party licensing partners may retain rights in some of our proprietary or joint trade secrets, know-how, patented inventions or other proprietary information, including rights to sublicense and rights of publication, which may adversely impact our ability to obtain patents and protect trade secrets, know-how or other proprietary information. +We may be subject to claims asserting that our employees, consultants or advisors have wrongfully used or disclosed alleged trade secrets of their current or former employers or claims asserting ownership of what we regard as our own intellectual property. +We may hire employees, consultants or advisors who are currently, or were previously, employed at universities or other biotechnology or pharmaceutical companies, including our competitors or potential competitors, as well as our academic partners. Although we will try to ensure that our employees, consultants and advisors do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that these individuals or we have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such individual’s current or former employer. We may also be subject to claims that patents and applications that we may file to protect inventions of our employees or consultants are rightfully owned by their former employers or other third parties. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. An inability to incorporate such technologies or features would have a material adverse effect on our business, financial condition and results of operations and may prevent us from successfully commercializing our product candidates, if approved. Moreover, any such litigation or the threat of such litigation may adversely affect our ability to hire employees or contract with independent contractors. A loss of key personnel or their work product could hamper or prevent our ability to commercialize our product candidates, if approved. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management. +In addition, while it is our policy to require our future employees and contractors who may be involved in the conception or development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who, in fact, conceives or develops intellectual property that we regard as our own. Moreover, even when we obtain agreements assigning intellectual property to us, the assignment of intellectual property rights may not be self-executing or the assignment agreements may be breached, and we may be forced to bring claims against third parties, or defend claims that they may bring against us, to determine the ownership of what we regard as our intellectual property. In addition, individuals executing agreements with us may have preexisting or competing obligations to a third party. +Our position as a relatively small company may cause us to be at a significant disadvantage in defending our intellectual property rights and in defending against infringement claims by third parties. +Litigation relating to the ownership and use of intellectual property is expensive, and our position as a relatively +69 +Table of Contents +small company in an industry dominated by very large companies may cause us to be at a significant disadvantage in defending our intellectual property rights and in defending against claims that any of our current or future product candidates infringes or misappropriates third-party intellectual property rights. However, we may seek to use various post-grant administrative proceedings, including procedures created under the AIA, to invalidate potentially overly-broad third-party rights. Even if we can defend our position, the cost of doing so may adversely affect our ability to grow, generate revenue or become profitable. In the course of the ongoing litigation or any future additional litigation to which we may be subject, we may not be able to protect our intellectual property at a reasonable cost, or at all. The outcome of litigation is always uncertain, and in some cases could include judgments against us that require us to pay damages, enjoin us from certain activities or otherwise affect our legal, contractual or intellectual property rights, which could have a significant adverse effect on our business, financial condition and results of operations. +Third-party claims of intellectual property infringement may prevent or delay our drug discovery and development efforts. +There is a substantial amount of litigation involving patent and other intellectual property rights in the biotechnology and pharmaceutical industries, including PTO administrative proceedings, such as inter partes reviews, post-grant reviews and reexamination proceedings before the PTO or oppositions and revocations and other comparable proceedings in foreign jurisdictions. Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we are developing our current and future product candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that our current and future product candidates may give rise to claims of infringement of the patent rights of others. +Despite safe harbor provisions for products prior to commercial launch, third parties may assert that we are employing their proprietary technology without authorization. There may be third-party patents, of which we are currently unaware, with claims to materials, formulations, methods of doing research, methods of manufacture or methods for treatment related to the use or manufacture of our current and future product candidates. Because patent applications can take many years to issue, there may be currently pending unpublished patent applications which may later result in issued patents that our current and future product candidates may infringe. In addition, third parties may obtain patents in the future and claim that the use of our technologies infringes these patents. If any third-party patents were held by a court of competent jurisdiction to cover the manufacturing process of any of our current and future product candidates, any molecules formed during the manufacturing process or any final product itself, the holders of any such patents may be able to block our ability to commercialize such product candidate unless we obtain a license under the applicable patents, or until such patents expire or they are finally determined to be held invalid or unenforceable. +Similarly, if any third-party patent were held by a court of competent jurisdiction to cover aspects of our formulations, processes for manufacture or methods of use, including combination therapy or patient selection methods, the holders of any such patent may be able to block our ability to develop and commercialize the applicable product candidate unless we obtain a license, limit our uses, or until such patent expires or is finally determined to be held invalid or unenforceable. In either case, such a license may not be available on commercially reasonable terms, or at all. +Parties making claims against us may obtain injunctive or other equitable relief, which could effectively block our ability to develop and commercialize one or more of our current and future product candidates. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from our business. In the event of a successful claim of infringement against us, we may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, obtain one or more licenses from third parties, or developing our current and future product candidates, limit our uses, pay royalties or redesign our infringing current and future product candidates, which may be impossible or require substantial time and monetary expenditure. We cannot predict whether any such license would be available at all or whether it would be available on commercially reasonable terms. Furthermore, even in the absence of litigation, we may need to obtain licenses from third parties to advance our research or allow commercialization of our current and future product candidates, if approved. We may fail to obtain any of these licenses at a reasonable cost or on reasonable terms, if at all. In that event, we would be unable to develop and commercialize one or more of our current and future product candidates, which could harm our business, financial condition and results of operations significantly. +We may be subject to claims that we have wrongfully hired an employee from a competitor or that we or our employees have wrongfully used or disclosed alleged confidential information or trade secrets of their former +70 +Table of Contents +employers. +As is common in the biotechnology and pharmaceutical industries, in addition to our future employees, we may engage the services of consultants to assist us in the development of our product candidates. Many of these consultants, and many of our employees, were previously employed at, or may have previously provided or may be currently providing consulting services to, other pharmaceutical companies including our competitors or potential competitors. We may become subject to claims that we, our employees or a consultant inadvertently or otherwise used or disclosed trade secrets or other information proprietary to their former employers or their former or current clients. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel, which could adversely affect our business. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to our management team and other employees. +We may not be able to protect our intellectual property rights throughout the world. +The requirements for patentability and the patent enforcement differ in many countries. Filing, prosecuting and defending patents on all of our current and future product candidates throughout the world would be prohibitively expensive. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and further, may export otherwise infringing products to territories where we have patent protection, but enforcement in some countries is not as strong as that in the United States. These products may compete with our current and future product candidates, if approved, in jurisdictions where we do not have any issued patents and our patent claims or other intellectual property rights may not be effective or sufficient to prevent them from so competing. +The ongoing conflict in Ukraine and related sanctions could significantly devalue our Ukrainian and Russian patent applications. Russian decrees may significantly limit our ability to enforce Russian patents. We cannot predict when or how this situation will change. +Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. The legal systems of certain countries, particularly in certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to biopharmaceuticals and methods of treatment of the human body, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial cost and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate, and the damages or other remedies awarded, if any, may not be commercially meaningful. +In addition, many countries have compulsory licensing laws under which a patent owner may be compelled under specified circumstances to grant licenses to third parties. Furthermore, many countries limit the enforceability of patents against government agencies or government contractors. In those countries, we may have limited remedies if patents are infringed or if we are compelled to grant a license to a third party, which could materially diminish the value of those patents and limit our potential revenue opportunities. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license, which could adversely affect our business, financial condition and results of operations. +If we do not obtain patent term extension and data exclusivity for any of our product candidates we are developing or may develop, our business may be materially harmed. +Depending upon the timing, duration and conditions of any FDA marketing approval of our current and future product candidates, one or more of our U.S. patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman Amendments, and similar legislation in the EU. The Hatch-Waxman Amendments permit a patent term extension of up to five years for a patent covering an approved product as compensation for effective patent term lost during product development and the FDA regulatory review process. However, we may not receive an extension if we fail to exercise due diligence +71 +Table of Contents +during the testing phase or regulatory review process, fail to apply within applicable deadlines, fail to apply prior to expiration of relevant patents or otherwise fail to satisfy applicable requirements. Moreover, the length of the extension could be less than we request. Only one patent per approved product can be extended; the extension cannot extend the total patent term beyond 14 years from approval; and only those claims covering the approved drug, a method for using it or a method for manufacturing it may be extended. If we are unable to obtain a patent term extension or the term of any such extension is less than we request, the period during which we can enforce our patent rights for the applicable product candidate will be shortened, and our competitors may obtain approval to market competing products sooner. As a result, our revenue from applicable products could be reduced. Further, if this occurs, our competitors may take advantage of our investment in development and trials by referencing our clinical and preclinical data and launch their product earlier than might otherwise be the case, and our competitive position, business, financial condition, results of operations, and prospects could be materially harmed. +If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed. +We rely on trade secrets to protect our proprietary technologies, especially where we do not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to protect. Scilex relies in part on confidentiality agreements with its employees, consultants, outside scientific collaborators, sponsored researchers and other advisors, and inventions agreements with employees, consultants and advisors, to protect its trade secrets and other proprietary information. We plan to rely on the same arrangement. In addition to contractual measures, we will try to protect the confidential nature of our proprietary information using commonly accepted physical and technological security measures. Despite these efforts, we cannot provide any assurances that all such agreements have been duly executed, and these agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, others may independently discover our trade secrets and proprietary information. For example, in 2010, the FDA, as part of its Transparency Initiative, recommended steps that the FDA could take to increase transparency, including with respect to making additional information publicly available on a routine basis, which may include information that we may consider to be trade secrets or other proprietary information, and it is not clear at the present time how the FDA’s disclosure policies may change in the future, if at all. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our competitive business position. +In addition, such security measures may not provide adequate protection for our proprietary information, for example, in the case of misappropriation of a trade secret by an employee, consultant, customer or third party with authorized access. Our security measures may not prevent an employee, consultant or customer from misappropriating our trade secrets and providing them to a competitor, and any recourse we take against such misconduct may not provide an adequate remedy to protect our interests fully. Monitoring unauthorized uses and disclosures is difficult, and we do not know whether the steps we have taken to protect our proprietary technologies will be effective. Unauthorized parties may also attempt to copy or reverse engineer certain aspects of our products that we consider proprietary. Competitors and other third parties could attempt to replicate some or all of the competitive advantages we derive from our development efforts, willfully infringe our intellectual property rights, design around our protected technology or develop their own competitive technologies that fall outside of our intellectual property rights. +Enforcing a claim that a party illegally disclosed or misappropriated a trade secret can be difficult, expensive and time-consuming, and the outcome is unpredictable. Even though we use commonly accepted security measures, the criteria for protection of trade secrets can vary among different jurisdictions. In addition, some courts inside and outside the United States are less willing or unwilling to protect trade secrets. Moreover, trade secrets will over time be disseminated within the industry through independent development, the publication of journal articles and the movement of personnel skilled in the art from company to company or academic to industry scientific positions. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent such competitor from using that technology or information to compete with us, which could harm our competitive position. If any of these events occurs or if we otherwise lose protection for our trade secrets, the value of this information may be greatly reduced and our competitive position would be harmed. If we do not apply for patent protection prior to such publication or if we cannot otherwise maintain the confidentiality of our proprietary technology and other confidential information, then our ability to obtain patent protection or to protect our trade secret information may be jeopardized. +Our reliance on third parties may require us to share our trade secrets, which increases the possibility that our +72 +Table of Contents +trade secrets will be misappropriated or disclosed. +Because we rely on third parties to help manufacture and supply SP-102, and we expect to collaborate with third parties on the continuing development of future product candidates, we must, at times, share trade secrets with them. We also expect to conduct research and development programs that may require us to share trade secrets under the terms of our partnerships or agreements with CROs, research institutions and/or investigators. We seek to protect our proprietary technology in part by entering into agreements containing confidentiality and use restrictions and obligations, including, material transfer agreements, consulting agreements, confidentiality agreements or other similar agreements with our advisors, contractors, service providers and consultants prior to disclosing proprietary information. These agreements typically limit the rights of the third parties to use or disclose our confidential information, including our trade secrets. Despite the contractual provisions employed when working with third parties, the need to share trade secrets and other confidential information increases the risk that such trade secrets become known by our competitors, are inadvertently incorporated into the technology of others, or are disclosed or used in violation of these agreements. Given that our proprietary position is based, in part, on our know-how and trade secrets, a competitor’s discovery of our trade secrets or other unauthorized use or disclosure would impair our competitive position and may have an adverse effect on our business, financial condition and results of operations. +In addition, these agreements typically restrict the ability of our advisors, third-party contractors and consultants to publish data potentially relating to our trade secrets, although our agreements may contain certain limited publication rights. Despite our efforts to protect our trade secrets, our competitors may discover our trade secrets, either through breach of our agreements with third parties, independent development or publication of information by any of our third-party collaborators. A competitor’s discovery of our trade secrets would impair our competitive position and have an adverse impact on our business, financial condition and results of operations. +Intellectual property rights and regulatory exclusivity rights do not necessarily address all potential threats to our competitive advantage. +The degree of future protection for our proprietary rights is uncertain because legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep our competitive advantage. If we do not adequately protect our intellectual property and proprietary technology, competitors may be able to use our product candidates and proprietary technologies and erode or negate any competitive advantage we may have, which could have a material adverse effect on our financial condition and results of operations. For example: +• +Others may be able to make products that are similar to our product candidates but that are not covered by the claims of the patents that we own or have exclusively licensed; +• +We or our licensors or strategic partners might not have been the first to make the inventions covered by the issued patent or pending patent application that we own or have exclusively licensed; +• +We or our licensors or strategic partners might not have been the first to file patent applications covering certain of our inventions; +• +Others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights; +• +Our pending patent applications may not lead to issued patents; +• +Issued patents that we own or have exclusively licensed may not provide us with any competitive advantage, or may be held invalid or unenforceable, as a result of legal challenges by our competitors; +• +Our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets; +• +We may not develop additional proprietary technologies that are patentable; and +• +The patents of others may have an adverse effect on our business. +Should any of these events occur, they could significantly harm our business, financial condition and results of operations. +It is possible that defects of form in the preparation or filing of our patents or patent applications may exist, or +73 +Table of Contents +may arise in the future, for example with respect to proper priority claims, inventorship, claim scope or requests for patent term adjustments. If we or our partners, collaborators, licensees or licensors, whether current or future, fail to establish, maintain or protect such patents and other intellectual property rights, such rights may be reduced or eliminated. If our partners, collaborators, licensees or licensors are not fully cooperative or disagree with us as to the prosecution, maintenance or enforcement of any patent rights, such patent rights could be compromised. If there are material defects in the form, preparation, prosecution or enforcement of our patents or patent applications, such patents may be invalid and/or unenforceable, and such applications may never result in valid, enforceable patents. Any of these outcomes could impair our ability to prevent competition from third parties, which may have an adverse impact on our business, financial condition and results of operations. +The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions, and has been and will continue to be the subject of litigation and new legislation. Publications in scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. Therefore, we cannot know with certainty whether we were the first to make the inventions claimed in our own patents or pending patent applications, or that we were the first to file for patent protection of such inventions. As a result of these and other factors, the issuance, scope, validity, enforceability, and commercial value of our patent rights are highly uncertain. Our pending and future patent applications may not result in patents being issued that protect our product candidates, in whole or in part, or which effectively prevent others from commercializing competitive technologies and products. +Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of our patents or narrow the scope of our patent protection. If these changes were to occur, they could have a material adverse effect on our ability to generate revenue. For example, recent decisions raise questions regarding the award of PTA for patents in families where related patents have issued without PTA. Thus, it cannot be said with certainty how PTA will/will not be viewed in the future and whether patent expiration dates may be impacted. Similarly, the complexity and uncertainty of European patent laws have also increased in recent years. In Europe, a new unitary patent system took effect on June 1, 2023, which will significantly impact European patents, including those granted before the introduction of such a system. Under the unitary patent system, European applications have the option, upon grant of a patent, of becoming a Unitary Patent which will be subject to the jurisdiction of the UPC. As the UPC is a new court system, there is no precedent for the court, increasing the uncertainty of any litigation. +Patents granted before the implementation of the UPC have the option of opting out of the jurisdiction of the UPC and remaining as national patents in the UPC countries. Patents that remain under the jurisdiction of the UPC will be potentially vulnerable to a single UPC-based revocation challenge that, if successful, could invalidate the patent in all countries who are signatories to the UPC. We cannot predict with certainty the long-term effects of any potential changes. +Moreover, we may be subject to a third-party pre-issuance submission of prior art to the PTO or become involved in opposition, derivation, reexamination, inter partes review, post-grant review or interference proceedings challenging our patent rights or the patent rights of others. The costs of defending our patents or enforcing our proprietary rights in post-issuance administrative proceedings and litigation can be substantial and the outcome can be uncertain. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, our patent rights, allow third parties to commercialize our product candidates and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize products without infringing third-party patent rights. In addition, if the breadth or strength of protection provided by our patents and patent applications is threatened, it could dissuade companies from collaborating with us to license, develop or commercialize current or future product candidates. +The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our owned and potentially licensed patents may be challenged in the courts or patent offices in the United States and abroad. Such challenges may result in loss of exclusivity or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of our product candidates. Generally, patents are granted a term of 20 years from the earliest claimed non-provisional filing date. In certain instances, patent term can be adjusted and increased to recapture a portion of delay incurred by the PTO in examining the patent application. The scope of patent protection may also be limited. Without patent protection for our current or future product +74 +Table of Contents +candidates, we may be open to competition from generic versions of such products. Given the amount of time required for the development, testing, and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours. +Risks Related to Government Regulations +The regulatory approval processes of the FDA and comparable non-U.S. regulatory authorities are lengthy, time-consuming and inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for our product candidates, our business, financial condition and results of operations will be substantially harmed. Moreover, gaining approval for a product candidate in one country or jurisdiction does not guarantee that we will be able to obtain approval for or commercialize it in any other jurisdiction, which would limit our ability to realize our full market potential. +The time required to obtain marketing approval from the FDA or comparable non-U.S. regulatory authorities for a product candidate is unpredictable but typically takes many years following the commencement of clinical trials and depends upon numerous factors, including the substantial discretion of the regulatory authorities, and its outcome is inherently uncertain. In addition, approval policies, regulations, or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions. For example, following our March 2022 announcement of the final results from our Phase 3 trial for SP-102, we believed that we had sufficient data to support the safety and efficacy of SP-102, which would provide us with a pathway for a 505(b)(2) NDA submission. In November 2023, we had a Type C meeting with the FDA to discuss the requirements for filing a 505(b)(2) NDA for SP-102. In the Type C meeting, the FDA indicated that it did not agree that the clinical data collected from the single CLEAR-1 trial was sufficient to support the safety and efficacy of SP-102, given the risks associated with interventional procedures. The FDA requested that a confirmatory trial be conducted, noting the absence of any existing FDA-approved epidural steroid product for the treatment of sciatica. The FDA provided guidance regarding expectations for this additional trial needed prior to a 505(b)(2) NDA filing, including expectations for the size of the safety database and specific safety monitoring requirements. Specifically, the FDA requested that the confirmatory CLEAR-2 trial include a larger safety database to further validate the safety and efficacy of SP-102. In February 2024, we had a Type D meeting with the FDA to preview the newly designed trial with the FDA, in order to reduce the potential need for any other additional confirmatory trials prior to a 505(b)(2) NDA filing. During the Type D meeting, the FDA provided further guidance with respect to the requirements needed to help best position us to be able to satisfy the requirements for a 505(b)(2) pathway approval. Specifically, the FDA reaffirmed the need for a larger sample size and further requested confirmatory evidence of efficacy through a repeat injection. Our future success depends on our ability to develop, receive regulatory approval for, and introduce new products or product enhancements that will be accepted by the market in a timely manner. +The FDA or comparable non-U.S. regulatory authorities can delay, limit or deny approval of any product candidate for many reasons, including: +• +it may disagree with the design or implementation of our clinical trials; +• +we may be unable to demonstrate to such authorities’ satisfaction that a product candidate is safe and effective for its proposed indication; +• +negative or ambiguous results from our clinical trials may not meet the level of statistical significance required for approval by the FDA; +• +it may disagree with our interpretation of data from preclinical studies or clinical trials; +• +it may not agree that the data collected from clinical trials of our product candidate are acceptable or sufficient to support the submission of an NDA or other submission or to obtain regulatory approval in the United States, and such authorities may impose requirements for additional preclinical studies or clinical trials; +• +it may disagree regarding the formulation, labeling and/or the specifications of our product candidate; +• +such authorities may decline to approve the manufacturing processes or facilities of third-party manufacturers with which we contract for clinical and commercial supplies; and +• +the approval policies or regulations of the FDA or comparable non-U.S. regulatory authority may +75 +Table of Contents +significantly change in a manner rendering our clinical data insufficient for approval. +Of the large number of drugs in development, only a small percentage successfully complete the regulatory approval processes and are commercialized. This lengthy approval process, as well as the unpredictability of future clinical trial results, may result in our failing to obtain regulatory approval to market our product candidate, which would significantly harm our business, financial condition and results of operations. In addition, regulatory authorities may approve our product candidate for fewer or more limited indications than we request, may not approve the price we intend to charge for our product candidate, may grant approval contingent on the performance of costly post-marketing clinical trials, or may approve our product candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that product candidate. Any of the foregoing scenarios could materially harm the commercial prospects for our product candidate. +We have limited experience submitting applications for marketing authorization to the FDA, and we cannot be certain that any of our product candidates will be successful in clinical trials or receive regulatory approval. Further, our product candidates may not receive regulatory approval even if our clinical trials are successful. The U.S. Supreme Court’s June 2024 decision in Loper Bright Enterprises v. Raimondo, which overturned the long-standing Chevron doctrine that required courts to give deference to regulatory agencies’ reasonable interpretations of ambiguous federal statutes, could result in additional legal challenges to regulations and guidance issued by federal agencies, including the FDA, on which we rely. The Loper decision may result in increased regulatory uncertainty, inconsistent judicial interpretations and other impacts to the agency rule-making process, any of which could adversely impact our business and operations. +We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action or as a result of legal challenges, either in the United States or abroad. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, our business could be materially harmed. +Moreover, in order to market any products in any particular jurisdiction, we must establish and comply with numerous and varying regulatory requirements on a country-by-country basis regarding safety and efficacy. Approval of a product candidate by the FDA does not ensure approval by regulatory authorities in any other country or jurisdiction outside the United States. In addition, the clinical trials conducted in one country, and the data generated therefrom, may not be accepted by regulatory authorities in other countries, and regulatory approval in one country does not guarantee regulatory approval in any other country. Approval processes vary among countries and can involve additional product testing and validation, as well as additional administrative review periods. If we do not receive regulatory approvals for our product candidate, our business, financial condition and results of operations will be substantially harmed. +If the FDA does not conclude that our product candidate satisfies the requirements for the Section 505(b)(2) regulatory approval pathway, or if the requirements for our product candidate under Section 505(b)(2) are not as we expect, the approval pathway for our product candidate will likely take significantly longer, cost significantly more and entail significantly greater complications and risks than anticipated, and in either case may not be successful. +For our product candidate SP-102, we may seek FDA approval through the Section 505(b)(2) regulatory pathway. The Hatch-Waxman Act added Section 505(b)(2) to the FDCA. Section 505(b)(2) permits the filing of an NDA where at least some of the information required for approval comes from trials that were not conducted by or for the applicant and for which the applicant has not obtained a right of reference. Section 505(b)(2) allows an NDA we submit to the FDA to rely in part on data in the public domain or the FDA’s prior conclusions regarding the safety and effectiveness of approved compounds, which could expedite the development program for our product candidate by potentially decreasing the amount of data that we would need to generate in order to obtain FDA approval. If the FDA does not agree that the Section 505(b)(2) regulatory pathway is acceptable as we anticipated, we may need to conduct additional clinical trials, provide additional data and information and meet additional standards for regulatory approval. +Even if the FDA accepts our plan to pursue the Section 505(b)(2) regulatory pathway, we cannot assure that our product candidate will receive the requisite approvals for commercialization. In addition, the pharmaceutical industry is highly competitive, and Section 505(b)(2) NDAs are subject to special requirements designed to protect the patent and market exclusivity rights of sponsors of previously approved drugs that are referenced in a Section 505(b)(2) NDA. These requirements may give rise to patent litigation against us and mandatory delays in approval of our NDAs +76 +Table of Contents +for up to 30 months or longer depending on the outcome of any litigation. Further, a manufacturer of an approved product may file a citizen petition with the FDA seeking to delay approval of, or impose additional approval requirements for, pending competing products. +The FDA imposes strict requirements on such petitions in part to dissuade companies from improperly using these petitions to delay approval of competing drug products, Nonetheless, if successful, such petitions can significantly delay, or even prevent, the approval of the new product. However, even if the FDA ultimately denies such a petition, the FDA may delay approval while it considers and responds to the petition. In addition, even if we are able to utilize the Section 505(b)(2) regulatory pathway, there is no guarantee this would ultimately lead to accelerated product development or earlier approval. +Any approved product candidate will be subject to ongoing and continued regulatory requirements, which may result in significant expense and limit our ability to commercialize such products. +Even after a product is approved, we will remain subject to ongoing FDA and other regulatory requirements governing the manufacturing, testing, labeling, packaging, storage, distribution, safety surveillance, advertising, promotion, import, export, record-keeping and reporting of safety and other post-market information. The holder of an approved NDA is obligated to monitor and report adverse events and, among other things, any failure of a distributed product to meet the specifications in the NDA. The holder of an approved NDA must also submit new or supplemental applications and obtain FDA approval for certain changes to the approved product, product labeling or manufacturing process. Advertising and promotional materials must comply with FDA rules and are subject to FDA review, in addition to other potentially applicable federal and state laws. In addition, the FDA may impose significant restrictions on the approved indicated uses for which the product may be marketed. +Other requirements include submissions of safety and other post-marketing information and reports, registration and listing, product tracking and tracing, as well as continued compliance with cGMPs and GCPs for any clinical trials that we conduct post-approval. The future discovery of previously unknown problems with a product, including adverse events of unanticipated type, severity or frequency, or with our third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in, among other things: +• +investigation or additional study obligations; +• +communications to prescribers or patients about specific information or issues; +• +restrictions on the marketing or manufacturing of the product, withdrawal of the product from the market, or voluntary or mandatory product recalls; +• +fines, warning or untitled letters or holds on clinical trials; +• +refusal by the FDA to approve pending applications or supplements to approved applications filed by us, or suspension or revocation of product license approvals; +• +product seizure or detention, or refusal to permit the import or export of products; and +• +injunctions or the imposition of civil or criminal penalties. +The occurrence of any event or penalty described above may inhibit our ability to successfully commercialize our product candidate and generate revenue and could require us to expend significant time and resources in response and could generate negative publicity. We may not be able to regain compliance, or we may only be able to regain compliance after a lengthy delay, significant expense, lost revenues and damage to our reputation. +The FDA’s and other regulatory authorities’ policies may change, and additional laws or government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidate. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained, which would adversely affect our ability to generate revenue and achieve or sustain profitability. Changes in law or government regulations may also alter the competitive landscape, potentially to our disadvantage. +We also cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative or executive action, either in the United States or abroad. For example, certain policies of the current U.S. administration may impact our business and industry. Namely, recent U.S. administrations have taken several executive actions, including the issuance of a number of Executive Orders, that could impose significant +77 +Table of Contents +burdens on, or otherwise materially delay, the FDA’s ability to engage in routine regulatory and oversight activities such as implementing statutes through rulemaking, issuance of guidance, and review and approval of marketing applications. It is difficult to predict how these executive actions, including the Executive Orders, will be implemented, and the extent to which they will impact the FDA’s ability to exercise its regulatory authority. If these executive actions impose constraints on the FDA’s ability to engage in oversight and implementation activities in the normal course, our business, financial condition and results of operations may be negatively affected. +In addition, three decisions from the U.S. Supreme Court in June and July 2024 may lead to an increase in litigation against regulatory agencies that could create uncertainty and thus negatively impact our business. The first decision overturned established precedent that required courts to defer to regulatory agencies’ interpretations of ambiguous statutory language. The second decision overturned a regulatory agency’s ability to impose civil penalties in administrative proceedings. The third decision extended the statute of limitations within which entities may challenge agency actions. These cases may result in increased litigation by industry against regulatory agencies and impact how such agencies choose to pursue enforcement and compliance actions. However, the specific, lasting effects of these decisions, which may vary within different judicial districts and circuits, is unknown. We also cannot predict the extent to which FDA and other agency regulations, policies, and decisions may become subject to increasing legal challenges, delays and changes. +A fast track product designation or other designation to facilitate product candidate development may not lead to faster development or regulatory review or approval process, and it does not increase the likelihood that SP-102 will receive marketing approval. +A product sponsor may apply for fast track designation from the FDA if a product is intended for the treatment of a serious or life-threatening condition and preclinical or clinical data demonstrate the potential to address an unmet medical need for this condition. The FDA has broad discretion whether or not to grant this designation. +We have received fast track designation for SP-102 for the treatment of sciatica. Even though SP-102 has received fast track designation, we may not experience a faster process, review or approval compared to conventional FDA procedures. A fast track designation does not expedite clinical trials, or mean that regulatory requirements are less stringent or provide assurance of ultimate marketing approval by the FDA. Instead, fast track designation provides opportunities for frequent interactions with FDA review staff, as well as eligibility for priority review, if relevant criteria are met, and rolling review of individual sections of an NDA submitted to the FDA as they become finalized. The FDA may rescind the fast track designation if it believes that the designation is no longer supported by data from our clinical development program. The FDA may also withdraw any fast track designation at any time. +Changes in funding for the FDA could hinder its ability to hire and retain key leadership and other personnel, or otherwise prevent new products and services from being developed or commercialized in a timely manner, which could negatively impact our business, financial condition and results of operations. +The ability of the FDA to review and approve new products and conduct other regulatory activities can be affected by a variety of factors, including government budget and funding levels, ability to hire and retain key personnel and accept the payment of user fees, and statutory, regulatory, and policy changes. Average review times at the agency have fluctuated in recent years as a result. In addition, government funding of other government agencies that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable. +Disruptions at the FDA and other regulatory authorities may also slow the time necessary for new drugs to be reviewed and/or approved by necessary government agencies, which would adversely affect our business, financial condition and results of operations. For example, over the last several years, including for 43 days beginning on October 1, 2025, the U.S. government has shut down several times and certain regulatory agencies, such as the FDA and the SEC, have had to furlough critical employees and stop critical activities. Separately, in response to the COVID-19 pandemic, the FDA temporarily postponed routine surveillance inspections of manufacturing facilities in 2020. Additionally, the current administration announced plans to reduce the number of federal employees by establishing voluntary termination programs, by position eliminations or by involuntary terminations. For example, on October 10, 2025, the U.S. government implemented substantial layoffs and workforce reductions in connection with the federal government shutdown, which resulted in the suspension or delay of various government-funded programs. If a prolonged government shutdown occurs, if funding for the FDA or other federal agencies (including their workforce) is reduced or if future global health concerns prevent the FDA or other regulatory authorities from conducting their regular inspections, reviews, or other regulatory activities, it could significantly impact the ability of +78 +Table of Contents +the FDA or other regulatory authorities to timely review and process our regulatory submissions, which could have a material adverse effect on our business, financial condition and results of operations. +A sustained government shutdown could adversely affect our business, financial condition and results of operations. +Government funding of the SEC and other government agencies on which our operations may rely is subject to the political process, which is inherently fluid and unpredictable. If a prolonged government shutdown or significant reduction in force of federal employees occurs, including those working for the SEC, it could significantly impact the ability of the SEC to timely review and process our regulatory filings, which could have a material adverse effect on our business. Further, a sustained government shutdown, or future government shutdowns, and cost-cutting efforts could impact our ability to access the public markets and obtain necessary capital in order to properly capitalize and continue our operations. +Failure to comply with health and data protection laws and regulations could lead to government enforcement actions and civil or criminal penalties, private litigation or adverse publicity and could negatively affect our operating results and business. +We and our collaborators are subject to federal, state and foreign data protection laws and regulations. In the United States, such laws may include, but are not limited to, U.S. state personal data breach notification laws, state health information privacy laws, and federal and state consumer protection laws, including Section 5 of the FTC Act, each of which govern the collection, use, disclosure and protection of health-related and other personal information. +Although we are not subject to U.S. federal Health Insurance Portability and Accountability Act of 1996 and its implementing regulations (“HIPAA”), as we are neither a Covered Entity nor Business Associate (as such terms are defined in HIPAA), we may have access to very sensitive data regarding patients who participate in, or whose tissue samples or other biospecimens are used in, our clinical trials. The maintenance of this data imposes upon us administrative and financial burdens and litigation risks. In addition, we may obtain health information from third parties, including research institutions from which we obtain clinical trial data that are subject to HIPAA and other privacy, data security and consumer protection laws. Depending on the facts and circumstances, we could be subject to criminal penalties if we knowingly receive individually identifiable health information maintained by a Covered Entity in a manner that is not authorized by HIPAA, and we may be subject to other civil and/or criminal penalties if we obtain, use, or disclose information in a manner not permitted by other privacy and data security and consumer protection laws. Our ability to use or disclose information may be limited by the scope of an authorization signed by clinical trial subjects or the terms of the contract that we enter into with providers or other data sources. +Furthermore, U.S. state laws and regulations relating to data privacy and security and consumer protection are constantly evolving. For example, the California Consumer Privacy Act (as amended by the California Privacy Rights Act, the “CCPA”) created new individual privacy rights for California residents, including the right to opt out of certain disclosures of their data, the right to limit the use and disclosure of sensitive personal information (including health information). The CCPA places increased privacy and security obligations on entities handling certain personal data of California residents or households, limits data use and mandates audit requirements for higher risk data. The CCPA also creates a private right of action with statutory damages for certain data breaches, thereby potentially increasing risks associated with a data breach. Although there are limited exemptions for clinical trial data and some other health data under the CCPA, as currently written, the CCPA may impact our business activities and exemplifies the vulnerability of our business to the evolving regulatory environment related to personal data and PHI. The CCPA is enforced by the California Privacy Protection Agency, a data protection authority, which has the power to issue substantive regulations resulting in increased privacy and information security enforcement. Several other states have implemented similar consumer privacy laws that took effect in the past year or will take effect in the near future and states have implemented or are considering laws that specifically focus on the processing of personal data related to individuals’ health, including California’s Confidentiality of Medical Information Act and Washington’s My Health My Data Act. In addition, all 50 U.S. states and territories and international jurisdictions have varying breach notification laws that may require us to notify patients, employees or regulators in the event of unauthorized access to or disclosure of personal or confidential data experienced by us or our service providers. We also may be contractually required to notify patients or other counterparties of a security breach. In addition to government regulation, privacy advocates and industry groups have and may in the future propose self-regulatory standards from time to time. The state privacy laws vary from each other in many ways, which may complicate compliance efforts. The effects on our business of the state privacy laws and general consumer protection authorities are potentially significant, and may require us to modify our data processing practices and policies and to incur substantial costs and expenses in an effort +79 +Table of Contents +to so comply. Privacy laws and regulations are constantly evolving and there are a number of legislative proposals at both the state and federal levels that could impose new obligations or limitations in areas affecting our business. +The FTC also sets expectations for failing to take appropriate steps to keep consumers’ personal information secure, or failing to provide a level of security commensurate to promises made to individuals about the security of their personal information (such as in a privacy notice) may constitute unfair or deceptive acts or practices in violation of Section 5(a) of the FTC Act. While we do not intend to engage in unfair or deceptive acts or practices, the FTC has the power to enforce promises as it interprets them, and events that we cannot fully control, such as data breaches, may be result in FTC enforcement. Enforcement by the FTC under the FTC Act can result in civil penalties or enforcement actions. Additionally, the FTC’s Health Breach Notification Rule that clarified applies to health apps and other similar technologies and includes breach notification requirements, which adds complexity to compliance obligations. Further, the SEC implemented rules around incident reporting, requiring cybersecurity incidents to be reported 4 business days after determining that an incident is material. +The U.S. Department of Justice issued a final rule entitled, “Access to U.S. Sensitive Personal Data and Government-Related Data by Countries of Concern or Covered Persons,” codified at 28 CFR part 202 (the “Bulk Transfer Rule”). The Bulk Transfer Rule prohibits and restricts bulk transfers of sensitive personal data (including genetic and health data) to countries of concern, such as China, Russia, and Iran to prevent access by foreign adversaries. It restricts our ability to engage in certain cross-border transactions involving genomic or biological samples and related data, which may increase compliance costs, lead to increased regulatory scrutiny or liability, and may require additional contractual negotiations, which may adversely impact our business, financial condition, and operating results. +International data protection laws, including the EU’s and UK’s GDPR, may also apply to health-related and other personal information obtained outside of the United States. The GDPR imposes several data protection requirements in the EU, as well as fines for violations that can reach up to the greater of €20 million or 4% of annual global revenue. The regulation imposes numerous requirements for the collection, use, storage and disclosure of personal information, including more stringent requirements relating to consent and the information that must be shared with data subjects about how their personal information is used, the obligation to notify regulators and affected individuals of personal data breaches, extensive new internal privacy governance obligations and obligations to honor expanded rights of individuals in relation to their personal information, including the right to access, correct and delete their data. Such requirements may be subject to change in the near future as the European Commission announced proposed amendments to the GDPR in November 2025. In addition, on June 19, 2025, the UK’s Data (Use and Access) Act 2025, or the DUAA, was granted Royal Assent, implementing various measures concerning data usage in the UK and reforming data protection laws. The provisions within the DUAA will come into force through 2026, and it remains too soon to tell how the DUAA will be implemented and what impact it will have on our international activities. Further, other EU and member state laws and regulations may impose further obligations or restrictions on processing health information in the EEA, such as the European Health Data Space Regulation. +Certain jurisdictions, including the EEA, have enacted laws and regulations governing cross-border personal information transfer and providing for data localization in certain cases. For example, absent appropriate safeguards or other circumstances, the GDPR and laws in Switzerland and the UK generally restrict the transfer of personal information to countries outside the EEA, Switzerland and the UK, such as the United States. Such safeguards include the use of standard contractual clauses approved by the European Commission and the UK and Swiss Data Protection Authorities as well as the EU-U.S. Data Privacy Framework. If we are unable to implement a valid solution to transfer personal data from the EEA to the United States or other countries that have not been deemed to provide an essentially equivalent level of data protection, we may face increased exposure to regulatory action, substantial fines, or injunction orders to stop processing personal data from EEA, Swiss, or UK residents. Any inability to import personal data to the United States may also restrict our clinical trials activities in the EU; limit our ability to collaborate with contract research organizations as well as other service providers, contractors and other companies subject to EU data privacy and security laws; and require us to increase our data processing capabilities in the EU and the UK at a significant expense. Additionally, other countries outside of the EU have enacted or are considering enacting similar cross-border data transfer restrictions and laws requiring local data residency, which could increase the cost and complexity of delivering our services and operating our business. The types of challenges we face in the EEA, Switzerland, and the UK will likely also arise in other jurisdictions that adopt laws similar to the GDPR or regulatory frameworks of equivalent complexity. +Compliance with international data protection laws and regulations could require us to take on more onerous +80 +Table of Contents +obligations in our contracts, increase our compliance costs, restrict our ability to collect, use and disclose data, or in some cases, impact our ability to operate in certain jurisdictions. We cannot guarantee that we are or will be in compliance with all applicable international regulations as they are enforced now or as they evolve. Claims that we have violated individual privacy rights, failed to comply with data protection laws, or breached our contractual obligations, even if we are not found liable, could be expensive and time-consuming to defend against and could result in adverse publicity that could harm our business, financial condition, and results of operations. +Our business involves the use of hazardous materials and we and third parties with whom we contract must comply with environmental laws and regulations, which can be expensive and restrict how we do business. +Our research and development activities involve the controlled storage, use and disposal of hazardous materials, including the components of our current or future product candidates and other hazardous compounds. We and manufacturers and suppliers with whom we may contract are subject to laws and regulations governing the use, manufacture, storage, handling and disposal of these hazardous materials. In some cases, these hazardous materials and various wastes resulting from their use are stored at our manufacturers’ facilities pending their use and disposal. We cannot eliminate the risk of contamination, which could cause an interruption of our commercialization efforts, research and development efforts and business operations, environmental damage resulting in costly clean-up and liabilities under applicable laws and regulations governing the use, storage, handling and disposal of these materials and specified waste products. We cannot guarantee that the safety procedures utilized by third-party manufacturers and suppliers with whom we may contract will comply with the standards prescribed by laws and regulations or will eliminate the risk of accidental contamination or injury from these materials. We do not carry specific biological or hazardous waste insurance coverage, and our property, casualty and general liability insurance policies specifically exclude coverage for damages and fines arising from biological or hazardous waste exposure or contamination. Accordingly, in the event of contamination or injury, we could be held liable for damages or be penalized with fines in an amount exceeding our resources and state or federal or other applicable authorities may curtail our use of certain materials and/or interrupt our business operations. We may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may impair our research, development or production efforts. Furthermore, environmental laws and regulations are complex, change frequently and have tended to become more stringent. We cannot predict the impact of such changes and cannot be certain of our future compliance. +Our employees, independent contractors, consultants, commercial partners, and vendors may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements, which could have a material adverse effect on our business, financial condition and results of operations. +We are exposed to the risk of fraud, illegal activity or other misconduct by our employees, independent contractors, consultants, commercial partners and vendors. Misconduct by employees could include intentional, reckless and/or negligent conduct that fails to comply with the laws and regulations of the FDA, EU Member States, EMA and other similar foreign regulatory bodies, provide true, complete and accurate information to the FDA, EMA and other similar foreign regulatory bodies, comply with manufacturing standards we have established, comply with federal and state health-care fraud and abuse laws and regulations, comply with laws and regulations, including, but not limited to the FCPA and internal policies restricting payments to government agencies and representatives, report financial information or data accurately or disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission or contracting, customer incentive programs and other business arrangements. Misconduct by employees, independent contractors, consultants, commercial partners and vendors could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. It is not always possible to identify and deter misconduct by our employees, independent contractors, consultants, commercial partners and vendors, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations, FDA debarment, exclusion from government-funded healthcare programs or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, financial condition and results of operations, including the imposition of significant fines or other sanctions and serious harm to our reputation. +We may be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws, false claims laws, +81 +Table of Contents +transparency and disclosure, or sunshine, laws, government price reporting, and health information privacy and security laws. If we are unable to comply, or have not fully complied, with such laws, we could face substantial penalties. +Our current and future arrangements with healthcare professionals, clinical sites and clinical investigators, consultants, customers, patient organizations and third-party payors may subject us to various federal and state fraud and abuse laws, including, without limitation, the federal Anti-Kickback Statute and the federal False Claims Act. These laws may impact, among other things, our current activities with clinical study investigators and research subjects, as well as our current and future sales, marketing, patient assistance or advocacy and education programs. In addition, we may be subject to physician payment transparency laws and patient privacy regulation by both the federal government and the states and foreign jurisdictions in which we conduct our business. The laws that may affect our ability to operate include, but are not limited to: +• +the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, to induce, or in return for, either the referral of an individual, or the furnishing, recommending, or arranging for an item or service for which payment may be made under a federal healthcare program, such as the Medicare and Medicaid programs — a person or entity does not need to have actual knowledge of the federal Anti-Kickback Statute or special intent to violate the statute in order to have committed a violation; in addition, the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal False Claims Act; +• +federal civil and criminal false claims laws, including the False Claims Act, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, a false or fraudulent claim for payment of government funds, or knowingly making, using, or causing to be made or used a false statement material to a false or fraudulent claim, or knowingly concealing or knowingly and improperly avoiding or decreasing an obligation to pay money to the federal government. The False Claims Act has been used to assert liability on the basis of kickbacks and other improper referrals, improperly reported government pricing metrics such as Best Price or AMP, and improper promotion of off-label uses (i.e., uses not expressly approved by the FDA in a drug’s label); +• +the federal Physician Payment Sunshine Act, which requires certain manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to CMS information related to payments or other transfers of value made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors), teaching hospitals and, beginning in 2022, certain other healthcare professionals, as well as ownership and investment interests held by the physicians described above and their immediate family members; +• +federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm consumers; +• +the FDCA, which prohibits, among other things, the adulteration or misbranding of drugs, biologics and medical devices; federal government price reporting laws, which require drug manufacturers to calculate and report complex pricing metrics to government agencies, including CMS and the Department of Veterans Affairs (the “VA”), referred to as Government Program Statutory Price Reporting, where such reported prices are used in the calculation of reimbursement and/or discounts on marketed products paid by government healthcare programs. Participation in these programs and compliance with the applicable requirements may result in potentially significant discounts on products subject to reimbursement under federal healthcare programs and increased infrastructure costs, and may potentially limit a drug manufacturer’s ability to offer certain marketplace discounts. Additionally, if it is determined by the government, which could include a government agency such as CMS, Health Resources and Services Administration, the VA, or by the Office of Inspector General or Department of Justice, that the Statutory Price Reporting was incorrect, causing the government to essentially pay more than they should through the reimbursement and/or discount, the manufacturer may be subject to significant False Claims Act investigations, civil monetary penalties and/or additional fines; +• +the Prescription Drug Marketing Act, which restricts the manner in which manufacturers may disseminate complimentary drug samples to healthcare practitioners, requires physical and accounting controls, and +82 +Table of Contents +establishes penalties for improper sample distribution; and +• +state law equivalents of each of the above federal laws, such as licensing, anti-kickback, false claims, consumer protection and unfair competition laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers, state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government that otherwise restricts payments that may be made to healthcare providers and other potential referral sources; state laws that require drug manufacturers to file reports with states regarding pricing information and marketing expenditures, such as the tracking and reporting of gifts, compensations and other remuneration and items of value provided to healthcare professionals and entities, and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts. +In addition, our current and future research and development of our product candidates outside the United States, and any future sales of our product or product candidates once commercialized outside the United States will also likely subject us to foreign equivalents of the healthcare laws mentioned above, among other foreign laws. +Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some of our business activities could be subject to challenge under one or more of such laws. The risk of our being found in violation of these laws is increased by the fact that many of them have not been fully interpreted by the regulatory authorities or the courts, and their provisions are open to a variety of interpretations. Efforts to ensure that our business practices and arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business. +If our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject to, without limitation, civil, criminal, and administrative penalties, damages, monetary fines, disgorgement, exclusion from government-funded healthcare programs, such as Medicare and Medicaid or similar programs in other countries or jurisdictions, integrity oversight and reporting obligations to resolve allegations of non-compliance, imprisonment, contractual damages, reputational harm, diminished profits and future earnings and curtailment or restructuring of our operations, any of which could adversely affect our business, financial condition and results of operations. If any of the physicians or other healthcare providers or entities with whom we expect to do business is found not to be in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from participation in government healthcare programs, which could also materially affect our business, financial condition and results of operations. +The FDA and other regulatory agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses. +If we are found to have improperly promoted off-label uses of our current or future product candidates, if approved, or if we are found to have improperly engaged in pre-approval promotion prior to the approval of such product candidates, we may become subject to significant liability. Such enforcement has become more common in the industry. The FDA and other regulatory agencies strictly regulate the promotional claims that may be made about prescription products, such as our product candidates, if approved. In particular, a product may not be promoted for uses that are not approved by the FDA or such other regulatory agencies as reflected in the product’s approved labeling. Physicians may use our product candidates if they receive marketing approval, for their patients in a manner that is inconsistent with the approved labels, if the physicians believe in their professional medical judgment they could be used in such manner. However, if we are found to have promoted any of our future products for any off-label uses, the federal government could levy civil, criminal and/or administrative penalties, and seek fines against us. The FDA, Department of Justice or other regulatory authorities could also request that we enter into a consent decree, a corporate integrity agreement or corporate mentorship, or seek a permanent injunction against us under which specified promotional conduct is monitored, changed or curtailed. If we cannot successfully manage the promotion of our product candidates, if approved, we could become subject to significant liability, which would materially adversely affect our business, financial condition and results of operations. +Healthcare reform measures could hinder or prevent our product candidate’s commercial success. +There have been, and we expect there will continue to be, a number of legislative and regulatory changes to +83 +Table of Contents +health care systems in the United States and abroad that could impact our ability to sell our products profitably. The United States government and other governments have shown significant interest in pursuing healthcare reform. For example, in March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2020 (the “ACA”) was enacted, which substantially changed the way healthcare is financed by both governmental and private insurers in the United States. Healthcare reform measures like the ACA may adversely impact the pricing of healthcare products and services in the United States or internationally and the amount of reimbursement available from governmental agencies or other third-party payors. +Since its enactment, there have been ongoing efforts to modify the ACA and its implementing regulations. For example, tax legislation enacted at the end of 2017 included provisions that, effective January 1, 2019, eliminated the tax penalty for individuals who do not maintain sufficient health insurance coverage, or the so-called “individual mandate.” It is unclear how healthcare reform measures enacted by Congress or implemented by the current administration or efforts, if any, to modify the ACA or its implementing regulations, or portions thereof, will impact our business. Litigation and legislation over the ACA and other healthcare reform measures are likely to continue, with unpredictable and uncertain results. Further, additional legislative changes to and regulatory changes under or related to the ACA remain possible. +In addition, other legislative changes have been proposed and adopted in the United States since the ACA was enacted. In August 2011, the Budget Control Act of 2011, among other things, led to aggregate reductions of Medicare payments to providers of, on average, 2% per fiscal year. These reductions went into effect in April 2013 and, due to subsequent legislative amendments to the statute, will remain in effect through 2030, with the exception of a temporary suspension from May 1, 2020, through May 31, 2022, due to the COVID-19 pandemic. The law provides for 1% Medicare sequestration in the second quarter of 2022 and allows the full 2% sequestration thereafter until 2030. To offset the temporary suspension during the COVID-19 pandemic, in 2030, the sequestration will be 2.25% for the first half of the year, and 3% in the second half of the year. The American Taxpayer Relief Act of 2012 further reduced Medicare payments to several providers, including hospitals and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. +Moreover, payment methodologies may be subject to changes in healthcare legislation and regulatory initiatives. For example, CMS may develop new payment and delivery models, such as bundled payment models. In addition, recently there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, which has resulted in several U.S. Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to drug pricing, reduce the cost of prescription drugs under government payor programs, and review the relationship between pricing and manufacturer patient programs. While any proposed measures may require authorization through additional legislation to become effective, Congress and recent presidential administrations have each indicated an intent to seek new legislative and/or administrative measures to control drug costs. We expect that additional U.S. federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal health care programs and commercial payers will pay for healthcare products and services, which could result in reduced demand for our product candidate, if approved, or additional pricing pressures. +Individual states in the United States have also increasingly passed legislation and implemented regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. Legally-mandated price controls on payment amounts by third-party payors or other restrictions could harm our business, financial condition and results of operations. In addition, regional healthcare authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription drug and other healthcare programs. Furthermore, there has been increased interest by third-party payors and governmental authorities in reference pricing systems and publication of discounts and list prices. These or other reforms could reduce the ultimate demand for our product candidate, if approved, or put pressure on our product pricing. +We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action in the United States. If we or any third parties we may engage are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we or such third parties are not able to maintain regulatory compliance, we may lose any regulatory approvals that may have been obtained and we may not achieve or sustain profitability. +84 +Table of Contents +We will need to obtain prior FDA authorization for any proposed product brand names, and any failure or delay associated with such approval may adversely impact our business, financial condition and results of operations. +Any brand names we intend to use for our current and future product candidates will require authorization from the FDA regardless of whether we have secured a formal trademark registration from the PTO. The FDA typically conducts a review of proposed product brand names, including an evaluation of potential for confusion with other product names. The FDA may also object to a product brand name if it believes the name inappropriately implies medical claims. If the FDA objects to any of our proposed product brand names, we may be required to adopt an alternative brand name for our product candidates. If we adopt an alternative brand name, we would lose the benefit of our existing trademark applications for such product candidate and may be required to expend significant additional resources in an effort to identify a suitable product brand name that would qualify under applicable trademark laws, not infringe the existing rights of third parties and be acceptable to the FDA. We may be unable to build a successful brand identity for a new trademark in a timely manner, or at all, which would limit our ability to successfully commercialize our product candidates. +We are subject to the U.S. Foreign Corrupt Practices Act and other anti-corruption laws, as well as export control laws, customs laws, sanctions laws and other laws governing our operations. If we fail to comply with these laws, we could be subject to civil or criminal penalties, other remedial measures, and legal expenses, which could adversely affect our business, financial condition and results of operations. +Our operations are subject to certain anti-corruption laws, including the FCPA, and other anti-corruption laws that apply in countries where we conduct business, including performing clinical trials. The FCPA and other anti-corruption laws generally prohibit us and our employees and intermediaries from bribing, being bribed or making other prohibited payments to foreign government officials or other persons to obtain or retain business or gain some other business advantage. We, our commercial partners and our affiliates operate in a number of jurisdictions that pose a risk of potential FCPA violations and we participate in collaborations and relationships with third parties whose actions could potentially subject us to liability under the FCPA or local anti-corruption laws. In addition, we cannot predict the nature, scope or effect of future regulatory requirements to which our international operations might be subject or the manner in which existing laws might be administered or interpreted. +There can be no assurance that we will be completely effective in ensuring our compliance with all applicable anti-corruption laws, including the FCPA or other legal requirements, such as trade control laws. Any investigation of potential violations of the FCPA, other anti-corruption laws or trade control laws by U.S., EU or other authorities could have an adverse impact on our reputation, our business, financial condition and results of operations. Furthermore, should we be found not to be in compliance with the FCPA, other anti-corruption laws or trade control laws, we may be subject to criminal and civil penalties, disgorgement and other sanctions and remedial measures, as well as the accompanying legal expenses, any of which could have a material adverse effect on our reputation and liquidity, as well as on our business, financial condition and results of operations. +We may in the future conduct clinical trials for current or future product candidates outside the U.S., and the FDA and comparable foreign regulatory authorities may not accept data from such trials. +We expect to conduct clinical trials internationally in the future. The acceptance of data from clinical trials conducted outside the U.S. or another jurisdiction by the FDA or comparable foreign regulatory authority may be subject to certain conditions or may not be accepted at all. In cases where data from foreign clinical trials are intended to serve as the basis for marketing approval in the U.S., the FDA will generally not approve the application on the basis of foreign data alone unless (i) the data are applicable to the U.S. population and U.S. medical practice and (ii) the trials were performed by clinical investigators of recognized competence and pursuant to GCP regulations. Additionally, the FDA’s clinical trial requirements, including sufficient size of patient populations and statistical powering, must be met. Many foreign regulatory authorities have similar approval requirements. In addition, such foreign trials are subject to the applicable local laws of the foreign jurisdictions where the trials are conducted. There can be no assurance that the FDA or any comparable foreign regulatory authority will accept data from trials conducted outside of the U.S. or the applicable jurisdiction. If the FDA or any comparable foreign regulatory authority does not accept such data, it would result in the need for additional trials, which could be costly and time-consuming, and which may result in current or future product candidates that we may develop being delayed or not receiving approval for commercialization in the applicable jurisdiction. +Risks Related to Our Relationship with Scilex +Certain of our directors and officers may have actual or potential conflicts of interest because of their positions +85 +Table of Contents +with Scilex. +Mr. Shah, Dr. Ji, Dr. Chun, Mr. Followwill, Ms. Navani and Dr. Wu serve on our Board of Directors (the “Board of Directors”). Dr. Ji is also one of our executive officers, continues to serve as a member of the board of directors of Scilex and as Scilex’s Chairperson, Chief Executive Officer and President. Mr. Ma, our Chief Financial Officer, continues to serve as Chief Financial Officer, Senior Vice President, Secretary and director of Scilex. +Service as an overlapping director or officer of Scilex and us could create, or appear to create, conflicts of interest with respect to matters involving or affecting more than one of the companies to which such directors or officers owe fiduciary duties. For example, these matters could relate to potential acquisitions of businesses or products, the development and ownership of technologies and product candidates, the sale of products, markets and other matters in which our best interest and the best interests of our stockholders may conflict with the best interests of Scilex and its stockholders. In particular, it is possible that we may be precluded from participating in certain business opportunities that we might otherwise have participated in as those opportunities may be presented to Scilex because such directors may deem such opportunities to have a greater benefit to Scilex than to us. +In addition, such directors and officers may own shares of Scilex common stock, options to purchase shares of Scilex common stock or other Scilex equity awards. These individuals’ holdings of Scilex common stock, options to purchase shares of Scilex common stock or other equity awards of Scilex may be significant for some of these persons compared to these persons’ total assets. Their position at Scilex and the ownership of any Scilex equity or equity awards creates, or may create the appearance of, conflicts of interest when these directors and officers are faced with decisions that could have different implications for Scilex than the decisions have for us. For example, potential conflicts of interest could arise in connection with the resolution of any dispute that may arise between Scilex and us regarding the terms of the agreements governing the transition services and the relationship thereafter between the companies. Potential conflicts of interest may also arise if we enter into commercial arrangements with Scilex in the future. As a result of these actual or apparent conflicts, we may be precluded from pursuing certain growth initiatives. +Any potential conflict that qualifies as a “related party transaction” (as defined in Item 404 of Regulation S-K under the Securities Act) is subject to review by our audit committee (the “Audit Committee”) in accordance with our related person transaction policy. There can be no assurance that the terms of any such transactions will be as favorable to us or our stockholders as would be the case where there are no overlapping officers or directors. +Scilex currently performs or supports many of our important corporate functions. Our consolidated financial statements may not necessarily be indicative of the conditions that would have existed or our results of operations if we had been operated as an unaffiliated company of Scilex, and we incurred significant charges in connection with the Business Combination and will incur incremental costs as a stand-alone public company. +We will need to replicate or replace certain functions, systems and infrastructure provided by Scilex to which we no longer have the same access after the Business Combination. We may also need to make investments or hire additional employees to operate without the same access to Scilex’s existing operational and administrative infrastructure. These initiatives may be costly to implement. Due to the scope and complexity of the underlying projects relative to these efforts, the amount of total costs could be materially higher than our estimate, and the timing of the incurrence of these costs is subject to change. +Scilex currently performs or supports many important corporate functions for our company. Our financial statements as of and for the periods ended December 31, 2025 and December 31, 2024 reflect charges for these services on an allocation basis. As a result, our financial statements may not be reflective of conditions that would have existed or what our results of operations would have been had we been a stand-alone public company and no longer a majority owned subsidiary of Scilex. In connection with the closing of the Business Combination, we entered into the Transition Services Agreement with Scilex, pursuant to which we will be able to utilize certain employees and other service providers of Scilex (including Scilex’s sales force) to operate our business, including with respect to the following business functions: finance, human resources, information systems, legal and administrative, R&D support and commercialization support. The services under the Transition Services Agreement will be provided for a period of three years on a cost plus 10% basis, provided that the service fees will not exceed $2.0 million per annum until all payments under the Scilex-Oramed Note have been paid in full in cash, and we will reimburse Scilex for its out-of-pocket fees, costs or expenses. We expect to incur other costs to replace the services and resources that will not be provided by Scilex. We will also incur additional costs as a stand-alone public company. As a stand-alone public company, our total costs related to certain support functions may differ from the costs that were historically allocated to us from Scilex. In addition, in the future, we expect to incur internal costs to implement certain new systems, +86 +Table of Contents +including infrastructure and an ERP system, while our systems are currently being fully supported by Scilex. +While we believe that the term of the Transition Services Agreement is sufficient time for us to develop our commercial infrastructure and other business functions, we may not be able to replace these services or enter into appropriate third-party agreements on terms and conditions, including cost, comparable to those that we will receive from Scilex under the Transition Services Agreement. Additionally, after the Transition Services Agreement terminates, we may be unable to sustain the services at the same levels or obtain the same benefits as when we were receiving such services and benefits from Scilex. When we begin to operate these functions separately from Scilex, if we do not have our own adequate systems and business functions in place, or are unable to obtain them from other providers, we may not be able to operate our business effectively or at comparable costs, and our profitability may decline. In addition, we have historically received informal support from Scilex, which may not be addressed in the Transition Services Agreement. +Our Executive Chairman and Chief Financial Officer each holds an executive officer position at Scilex and devotes time to both companies, which could cause a diversion of their time and attention from our business and operations, and as a result could have a material adverse effect on our business and operations. +Dr. Ji serves as our Executive Chairman and also serves as the Chairman of the board of directors of Scilex and its Chief Executive Officer and President. Mr. Ma, our Chief Financial Officer, also serves as the Chief Financial Officer of Scilex. The amount of time that each of Dr. Ji and Mr. Ma devotes to us varies day-to-day and week-to-week depending on the then current needs and demands of each company’s business, transactions each company may be evaluating, and other corporate matters. Such diversion of management attention could have a material adverse effect on our business and operations. +We are controlled by Scilex, whose interests may differ from those of our public shareholders. +As of December 31, 2025, Scilex (together with certain of its subsidiaries) controls approximately 81.9% of the voting power of our company (excluding voting power represented by the Series A Preferred Stock held by Scilex), which means that, based on its percentage voting power controlled, Scilex will control the vote of all matters submitted to a vote of our stockholders. This control will enable Scilex to control the election of the members of our Board of Directors and all other corporate decisions. In particular, for so long as Scilex continues to own a majority of our Common Stock, Scilex will be able to cause or prevent a change of control of our company or a change in the composition of our Board of Directors and could preclude any unsolicited acquisition of us. +Pursuant to the Amended and Restated Registration Rights Agreement by and among us and certain stockholders, dated September 22, 2025 (the “Registration Rights Agreement”), and the Restated Certificate of Incorporation of Semnur Pharmaceuticals, Inc., filed with the Secretary of the State of Delaware on September 22, 2025 (the “Charter”), Scilex has certain rights, and the ability to take certain actions, that are not otherwise available to all our stockholders. For example, the Registration Rights Agreement provides Scilex the right, subject to certain conditions, to demand that we file a registration statement or request that their shares of Common Stock be covered by a registration statement that we are otherwise filing. In addition, until such time as Scilex first ceases to own greater than 50% of the outstanding voting power of our Common Stock, the Charter effectively provides Scilex with the ability to fill vacancies on our Board of Directors, remove directors (with or without cause), call a special meeting of our stockholders, amend the Charter (subject to approval of our Board of Directors) and amend the Bylaws of Semnur Pharmaceuticals, Inc., effective as of September 22, 2025 (the “Bylaws”). The directors so elected have the authority, subject to the terms of our indebtedness and applicable rules and regulations, to issue additional stock, implement stock repurchase programs, declare dividends and make other decisions. +Even when Scilex ceases to control a majority of our total voting power, for so long as Scilex continues to own a significant percentage of our Common Stock and for so long as Scilex, together with its affiliates, subsidiaries, successors and assigns (other than Semnur and its subsidiaries) (the “Scilex Group”), owns any shares of our Series A Preferred Stock, Scilex will still be able to significantly influence the composition of our Board of Directors and the approval of actions requiring stockholder approval. Accordingly, for such period of time, Scilex will have significant influence with respect to our management, business plans and policies. Because of the significant ownership position held by Scilex, our classified board structure and the rights granted to Scilex under the Stockholder Agreement with Scilex (the “Scilex Stockholder Agreement”), new investors may not be able to effect a change in our business or management. The concentration of ownership and availability of the foregoing rights could deprive our stockholders of an opportunity to receive a premium for their shares of Common Stock as part of a sale of our company and ultimately might affect the market price of our Common Stock. See the risk factor below titled “ Scilex, as the +87 +Table of Contents +holder of our Series A Preferred Stock, will have rights, preferences and privileges that are not held by, and are preferential to, the rights of holders of our Common Stock. ” +Furthermore, the interests of Scilex may not be aligned with those of other stockholders and this could lead to actions that may not be in the best interests of our other stockholders. For example, Scilex may have different tax positions or strategic plans for Semnur, which could influence its decisions regarding whether and when we should dispose of assets or incur new or refinance existing indebtedness. +Additionally, Scilex’s significant ownership of us may discourage someone from making a significant equity investment in us, or could discourage transactions involving a change in control. +In addition, Scilex and its affiliates engage in a broad spectrum of activities, including investments in our industry generally. In the ordinary course of their business activities, Scilex and its affiliates may engage in activities where their interests conflict with our interests or those of other stockholders, such as investing in or advising businesses that directly or indirectly compete with certain portions of our business or those businesses that are suppliers or customers of ours. The Charter will provide that, to the fullest extent permitted by law, none of Scilex and its affiliates and any person or entity who, while a stockholder, director, officer or agent of us or any of our affiliates, is a director, officer, principal, partner, member, manager, employee, agent and/or other representative of Scilex and its affiliates (each an “Identified Person”) will have any duty to refrain from (i) engaging in a corporate opportunity in the same or similar business activities or lines of business in which we or our affiliates are engaged or that are deemed to be competing with us or any of our affiliates or (ii) otherwise investing in or providing services to any person that competes with us or our affiliates engaging, directly or indirectly, in the same or similar business activities or lines of business in which we operate. In addition, to the fullest extent permitted by law, no Identified Person will have any obligation to offer us or our subsidiaries or affiliates the right to participate in any corporate opportunity in the same or similar business activities or lines of business in which we or our affiliates are engaged or that are deemed to be competing with us or any of our affiliates. This means that Scilex may pursue acquisition opportunities that may be complementary to our business and, as a result, those acquisition opportunities may not be available to us. In addition, Scilex may have an interest in pursuing acquisitions, divestitures and other transactions that, in its judgment, could enhance its investment, even though such transactions might involve risks to our stockholders or may not prove beneficial. +Scilex, as the holder of Series A Preferred Stock, has rights, preferences and privileges that are not held by, and are preferential to, the rights of holders of our Common Stock. +The Series A Preferred Stock was issued only to Scilex and is not convertible into shares of Common Stock. However, the holders of Series A Preferred Stock have rights, preferences and privileges that are senior, or in addition, to the rights, preferences and privileges of the holders of Common Stock, including the right to receive, in the event of a change of control, liquidation dissolution or winding up of Semnur, a preference amount out of the assets available for distribution to stockholders before any distribution can be made to holders of Common Stock. The preference amount is $10.00 per share (subject to adjustment as set forth in the certificate of designations (“Certificate of Designations”)). If our Board of Directors declares or pays a dividend on the Common Stock, the holders of the Series A Preferred Stock will participate, on a deemed as-converted-to-common stock basis, in such dividend with the holders of Common Stock. +The holders of Series A Preferred Stock have certain voting rights over our corporate actions (including, among others, any change to the shares of Series A Preferred Stock into cash or other property, the issuance of equity securities that rank on a parity with or senior to the Series A Preferred Stock with respect to dividend rights) or rights upon liquidation, dissolution or winding-up of our company and the amendment of the Charter in a manner that adversely affects the holders of shares of Series A Preferred Stock. +Pursuant to the terms of the Scilex Stockholder Agreement (and subject to certain rights of Oramed), from and after the effective time of the Business Combination, and for so long as the Scilex Group beneficially owns any shares of Series A Preferred Stock, among other things, (i) Scilex shall have the right, but not the obligation, to designate each director to be nominated, elected or appointed to our Board of Directors (each, a “Stockholder Designee” and collectively, the “Stockholder Designees”), regardless of (a) whether such Stockholder Designee is to be elected to our Board of Directors at a meeting of stockholders called for the purpose of electing directors (or by consent in lieu of meeting) or appointed by our Board of Directors in order to fill any vacancy created by the departure of any director or increase in the authorized number of members of our Board of Directors, or (b) the size of our Board of Directors and (ii) we are required to take all actions reasonably necessary, and not otherwise prohibited by applicable law, to +88 +Table of Contents +cause each Stockholder Designee to be so nominated, elected or appointed to our Board of Directors as more fully described in the Scilex Stockholder Agreement. Scilex shall also have the right to designate a replacement director for any Stockholder Designee that has been removed from our Board of Directors and the right to appoint a representative of Scilex to attend all meetings of the committees of our Board of Directors. Notwithstanding the foregoing, the parties have agreed to ensure that our Board of Directors complies with all applicable requirements of the stock exchange, including independence requirements. +The Scilex Stockholder Agreement also provides that we are prohibited from taking certain actions without the consent of Scilex. Such actions include, among other things, amendments to the Certificate of Designations, increases or decreases in the size of our Board of Directors, the incurrence of certain amounts of indebtedness and the payment of dividends on Common Stock. +Risks Related to Ownership of Our Common Stock +If our operations and performance do not meet the expectations of investors or securities analysts, the market price of our securities may decline. +Any of the factors listed below could have a negative impact on your investment in our securities, and our securities may trade at prices significantly below the price you paid for them. In such circumstances, the trading price of our securities may not recover and may experience a further decline. +Factors affecting the trading price of our securities may include: +• +our ability to commercialize its product candidate, if approved; +• +the status and cost of our marketing commitments for its product candidate; +• +announcements regarding results of any clinical trials relating to our product candidate; +• +unanticipated serious safety concerns related to the use of any of our product candidate; +• +adverse regulatory decisions; +• +changes in laws or regulations applicable to our product candidate, including but not limited to clinical trial requirements for approvals; +• +legal disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for its product candidate, government investigations and the results of any proceedings or lawsuits, including, but not limited to, patent or stockholder litigation; +• +our decision to initiate a clinical trial, not initiate a clinical trial or to terminate an existing clinical trial; +• +our dependence on third parties; +• +announcements of the introduction of new products by our competitors; +• +market conditions and trends in the pharmaceutical and biotechnology sectors; +• +announcements concerning product development results or intellectual property rights of others; +• +future issuances of common stock or other securities; +• +the recruitment or departure of key personnel; +• +failure to meet or exceed any financial guidance or expectations regarding product development milestones that we may provide to the public; +• +actual or anticipated variations in quarterly operating results; +• +our failure to meet or exceed the estimates and projections of the investment community; +• +overall performance of the equity markets and other factors that may be unrelated to our operating performance or the operating performance of its competitors, including changes in market valuations of similar companies; +• +announcements of significant acquisitions, strategic partnerships, joint ventures or capital commitments +89 +Table of Contents +by us or our competitors; +• +changes in financial estimates by us or by any securities analysts who might cover its stock; +• +fluctuation of the market values of any of our potential strategic investments; +• +issuances of debt or equity securities; +• +compliance with our contractual obligations; +• +sales of Common Stock by us or our stockholders in the future; +• +trading volume of Common Stock; +• +ineffectiveness of our internal controls; +• +publication of research reports about us or our industry or positive or negative recommendations or withdrawal of research coverage by securities analysts; +• +our relationship with Scilex; +• +general political and economic conditions, including the wars in Ukraine and Israel, and regime change in Venezuela; +• +effects of natural or man-made catastrophic events; +• +effects of public health crises, pandemics and epidemics; and +• +other events or factors, many of which are beyond our control, such as the government closure of Silicon Valley Bank and Signature Bank, and liquidity concerns at other financial institutions. +Further, the global equity markets in general have recently experienced extreme price and volume fluctuations, including as a result of the COVID-19 pandemic, economic uncertainty and increased interest rates, inflation, the government closure of Silicon Valley Bank and Signature Bank, and liquidity concerns at other financial institutions that may be unrelated to our operating performance. Continued market fluctuations could result in extreme volatility in the price of our Common Stock, which could cause a decline in the value of our Common Stock. Price volatility of the Common Stock might worsen if the trading volume of the Common Stock is low. In the past, stockholders have initiated class action lawsuits against pharmaceutical and biotechnology companies following periods of volatility in the market prices of these companies’ stock. Such litigation, if instituted against us, could cause us to incur substantial costs and divert management’s attention and resources from its business. The realization of any of the above risks or any of a broad range of other risks, including those described in these “Risk Factors”, could have a dramatic and material adverse impact on the market price of our Common Stock. +We have not paid cash dividends in the past and we do not expect to pay cash dividends in the foreseeable future. Any return on investment may be limited to the capital appreciation, if any, of Common Stock. +We have not paid cash dividends on our Common Stock and do not anticipate paying cash dividends on our Common Stock in the foreseeable future. The payment of dividends on our capital stock will depend on our earnings, financial condition and other business and economic factors affecting us at such time as its board of directors may consider relevant. In addition, our ability to pay dividends may be limited by covenants in future outstanding indebtedness that we or our subsidiaries may incur. Since we do not intend to pay dividends, a stockholder’s ability to receive a return on such stockholder’s investment will depend on any future appreciation in the market value of our common stock. There is no guarantee that our Common Stock will appreciate or even maintain the price at which our stockholders have purchased it. +Future sales, or the perception of future sales, of a substantial number of shares of Common Stock may cause the price of the Common Stock to decline. +If our existing stockholders sell, or indicate an intention to sell, substantial amounts of our Common Stock, the trading price of our Common Stock could decline and it could impair our ability to raise capital through the sale of additional equity securities. The Common Stock held by Jiandong “Peter” Xu, FutureTech Capital LLC, Huifeng Chang, Lei Huang, Jim Mao, You “Patrick” Sun and Kevin Vassily (the “Sponsor Shares”), except those held by our former directors and officers, and the private warrants issued by Denali in connection with its’ IPO (the “Private Warrants”), together with the warrants sold to public investors in connection with the Denali IPO (the “Public +90 +Table of Contents +Warrants” and, collectively with the Private Warrants, the “Warrants”), are subject to lock-up provisions that restrict the ability to transfer such shares of Common Stock and Private Warrants until one year from the close of the Business Combination, subject to certain exceptions. +Our operating results may fluctuate significantly. +We expect our operating results to be subject to quarterly, and possibly annual, fluctuations. Our net loss and other operating results will be affected by numerous factors, including: +• +variations in the level of expenses related to our development programs; +• +the addition or termination of clinical trials; +• +any intellectual property infringement lawsuit in which Semnur may become involved; +• +regulatory developments affecting our product candidate, regulatory approvals of its product candidate, and the level of underlying demand for such product candidate and purchasing patterns; +• +our execution of any collaborative, licensing or similar arrangements, and the timing of payments we may make or receive under these arrangements; and +• +the effect on pharmaceutical purchases and prices of the timing during which patients who purchase our product satisfy their deductibles under the reimbursement requirements of their health providers’ plans. +If our quarterly or annual operating results fall below the expectations of investors or securities analysts, the price of its common stock could decline substantially. Furthermore, any quarterly or annual fluctuations in our operating results may, in turn, cause the price of our Common Stock to fluctuate substantially. +Our cash and cash equivalents could be adversely affected if the financial institutions in which we hold our cash and cash equivalents fail. +On March 10, 2023, the Federal Deposit Insurance Corporation (the “FDIC”) announced that Silicon Valley Bank had been closed by the California Department of Financial Protection and Innovation and on March 12, 2023, Signature Bank was closed by the New York State Department of Financial Services and the FDIC was named receiver. Although Semnur does not maintain any bank accounts with Silicon Valley Bank or Signature Bank, Semnur regularly maintains cash balances at third-party financial institutions in excess of the FDIC insurance limit. Any failure of a depository institution to return any of our deposits, or any other adverse conditions in the financial or credit markets affecting depository institutions, could impact access to our invested cash or cash equivalents and could adversely impact our operating liquidity and financial performance. +If securities or industry analysts do not publish research or reports about our business, or if they issue an adverse opinion regarding our stock, our stock price and trading volume could decline. +The trading market for Common Stock will be influenced by the research and reports that industry or securities analysts publish about us or our business. We do not currently have and may never obtain research coverage by securities and industry analysts. If no or few securities or industry analysts commence coverage of us, the trading price for our stock would be negatively impacted. In the event we obtain securities or industry analyst coverage, if any of the analysts who cover us issues an adverse opinion regarding us, our business model, our intellectual property or our stock performance, or if our clinical trials and operating results fail to meet the expectations of analysts, our stock price would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause its stock price or trading volume to decline. +Raising additional capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights to our product candidate. +We may issue additional equity securities to fund future expansion and pursuant to equity incentive or employee benefit plans. We may also issue additional equity for other purposes. These securities may have the same rights as Common Stock or, alternatively, may have dividend, liquidation or other preferences to our Common Stock. The issuance of additional equity securities will dilute the holdings of existing stockholders and may reduce the share price of our Common Stock. +Pursuant to the Registration Rights Agreement entered into in connection with the Business Combination, +91 +Table of Contents +certain stockholders can each demand that we register their registrable securities under certain circumstances and will each also have piggyback registration rights for these securities. In addition, we are required to file and maintain an effective registration statement under the Securities Act covering such securities and certain of our other securities. The registration of these securities will permit the public sale of such securities, subject to certain contractual restrictions imposed by the Registration Rights Agreement and the Merger Agreement. The presence of these additional shares of common stock trading in the public market may have an adverse effect on the market price of our securities. +If we raise additional funds through collaboration, licensing or other similar arrangements, we may have to relinquish valuable rights to its product candidate, or grant licenses on terms unfavorable to us. If adequate funds are not available, our ability to achieve profitability or to respond to competitive pressures would be significantly limited and we may be required to delay, significantly curtail or eliminate the development of our product candidate. +Our principal stockholders, directors and executive officers will own a significant percentage of our capital stock, and have significant influence over our management. +As of December 31, 2025, our directors, executive officers, holders of 5% or more of our capital stock and their respective affiliates beneficially own, in the aggregate, approximately 94.6% of our outstanding voting stock (excluding voting power represented by the Series A Preferred Stock held by Scilex). This concentration of voting power may make it less likely that any other holder of Common Stock will be able to affect the way we are managed and could delay or prevent an acquisition of our company on terms that other stockholders may desire. This could prevent transactions in which stockholders might otherwise recover a premium for their shares over current market prices. See “ Risk Factors — We are controlled by Scilex, whose interests may differ from those of our public shareholders ” above for additional information regarding Scilex’s influence and control in us. +Our ability to use our net operating loss and tax credit carryforwards may be subject to limitation. +Generally, a change of more than 50% in the ownership of a company’s stock, by value, over a three-year period constitutes an ownership change for U.S. federal income tax purposes. An ownership change may limit Semnur’s ability to use its net operating loss carryforwards attributable to the period prior to the change. Semnur has experienced a corporate reorganization in the past and may experience ownership changes in the future as a result of the Business Combination and/or subsequent changes in its stock ownership (some of which shifts are outside its control). As a result, if Semnur earns net taxable income, its ability to use its pre-change net operating loss carryforwards to offset U.S. federal taxable income may become subject to limitations, which could potentially result in increased future tax liability for Semnur. +The Tax Cuts and JOBS Act of 2017 (the “TCJA”), as amended by the CARES Act, includes changes to U.S. federal tax rates and the rules governing net operating loss (“NOL”) carryforwards. The TCJA, as modified by the CARES Act, limits a taxpayer’s ability to utilize NOL carryforwards to 80% of taxable income (as calculated before taking the NOLs, and certain other tax attributes, into account) for taxable years beginning after December 31, 2020. In addition, NOLs arising in tax years ending after December 31, 2017 and before January 1, 2021 may be carried back to each of the five taxable years preceding the tax year of such loss, but NOLs arising in taxable years beginning after December 31, 2020 may not be carried back. NOLs arising in tax years beginning after December 31, 2017 can be carried forward indefinitely. NOLs generated in tax years beginning before January 1, 2021 will not be subject to the taxable income limitation, and NOLs generated in tax years ending before January 1, 2018 will continue to have a two-year carryback and 20-year carryforward period. Deferred tax assets for NOLs will need to be measured at the applicable tax rate in effect when the NOL is expected to be utilized. The changes in the carryforward/carryback periods, as well as the new limitation on use of NOLs may significantly impact Semnur’s ability to utilize its NOLs to offset taxable income in the future. +If our estimates or judgments relating to our critical accounting policies are based on assumptions that change or prove to be incorrect, our operating results could fall below our publicly announced guidance or the expectations of securities analysts and investors, resulting in a decline in the market price of our Common Stock. +The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets, liabilities, equity and expenses that are not readily apparent from other sources. If our assumptions change or if actual circumstances differ from our assumptions, our operating results may be adversely +92 +Table of Contents +affected and could fall below our publicly announced guidance or the expectations of securities analysts and investors, resulting in a decline in the market price of Common Stock. +Anti-takeover provisions in the Charter and the Bylaws and under Delaware law could make an acquisition of our company, which may be beneficial to its stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management. +The Charter and the Bylaws, each of which became effective upon completion of the Business Combination, and the General Corporation Law of the State of Delaware (“DGCL”) contain provisions that could make it more difficult for a third party to acquire our company, even if doing so might be beneficial to our stockholders. Among other things, these provisions include: +• +allow our Board of Directors to authorize the issuance of undesignated preferred stock, the terms of which may be established and the shares of which may be issued without stockholder approval, and which may include supermajority voting, special approval, dividend, or other rights or preferences superior to the rights of other stockholders; +• +provide for a classified board of directors with staggered three-year terms; +• +provide that, at any time after the time that the Scilex Group first ceases to beneficially own more than 50% of voting power of the then-outstanding shares of Common Stock entitled to vote generally in the election of directors (the “Scilex Trigger Event”), directors may only be removed for cause, and only by the affirmative vote of holders of at least 66 2/3% in voting power of all the then-outstanding shares of Common Stock entitled to vote thereon, voting together as a single class; +• +prohibit stockholder action by written consent from and after the Scilex Trigger Event; +• +provide that, at any time after the Scilex Trigger Event, special meetings may only be called by or at the direction of the Chairman of our Board of Directors, our Board of Directors or the Chief Executive Officer; +• +provide that, at any time after the Scilex Trigger Event, any alteration, amendment or repeal, in whole or in part, of any provision of the Bylaws by stockholders will require the affirmative vote of the holders of at least 66 2/3% in voting power of all the then-outstanding shares of the Common Stock entitled to vote thereon, voting together as a single class; and +• +establish advance notice requirements for nominations for elections to our Board of Directors and for proposing matters that can be acted upon by stockholders at stockholder meetings. +Section 203 of the DGCL generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any interested stockholder for a period of three years following the date on which the stockholder became an interested stockholder. We have expressly elected not to be governed by Section 203 of the DGCL until the occurrence of a Scilex Trigger Event. At that time, such election shall be automatically withdrawn and we will thereafter be governed by Section 203 of the DGCL, except that the restrictions on business combinations of Section 203 of the DGCL will not apply to Scilex or its current or future Affiliates (as defined in the Charter) regardless of its percentage ownership of Common Stock. These provisions could discourage, delay or prevent a transaction involving a change in control of our company. These provisions could also discourage proxy contests and make it more difficult for our stockholders to elect directors of their choosing and cause us to take other corporate actions they desire, including actions that our stockholders may deem advantageous. In addition, because our Board of Directors is responsible for appointing the members of our management team, these provisions could in turn affect any attempt by our stockholders to replace current members of our management team. +These anti-takeover provisions and other provisions in the Charter, the Bylaws and Delaware law could make it more difficult for stockholders or potential acquirors to obtain control of our Board of Directors or initiate actions that are opposed by our then-current board of directors and could also delay or impede a merger, tender offer or proxy contest involving us. The existence of these provisions could negatively affect the price of Common Stock and limit opportunities for a stockholder to realize value in a corporate transaction. In addition, if prospective takeovers are not consummated for any reason, we may experience negative reactions from the financial markets, including negative impacts on the price of our Common Stock. +The Charter designates the Court of Chancery of the State of Delaware as the exclusive forum for certain litigation +93 +Table of Contents +that may be initiated by our stockholders and the federal district courts of the United States as the exclusive forum for litigation arising under the Securities Act, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with the Company. +Pursuant to the Charter, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (or, if and only if the Court of Chancery of the State of Delaware lacks subject matter jurisdiction, any state court located within the State of Delaware or, if and only if all such state courts lack subject matter jurisdiction, the federal district court for the District of Delaware) and any appellate court therefrom, will, to the fullest extent permitted by law, be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf; (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our current or former directors, officers, employees or stockholders to us or our stockholders; (iii) any action asserting a claim against us or any of our current or former directors, officers, employees or stockholders arising pursuant to any provision of the DGCL, the Charter or the Bylaws; (iv) any claim or cause of action seeking to interpret, apply, enforce or determine the validity of the Charter or the Bylaws; (v) any action or proceeding asserting a claim against us or any of our current or former directors, officers, employees or stockholders as to which the DGCL confers jurisdiction to the Court of Chancery of the State of Delaware and (vi) any action asserting an “internal corporate claim,” as that term is defined in Section 115 of the DGCL; provided that , for the avoidance of doubt, the foregoing forum selection provision will not apply to claims arising under the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. +The Charter also provides that, unless we consent in writing to the selection of an alternative forum, to the fullest extent permitted by law, the federal district courts of the United States shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. The Charter further provides that any person or entity purchasing or otherwise acquiring any interest in shares of our Common Stock is deemed to have notice of and consented to the provisions of the Charter described above. +The forum selection provisions in the Charter may have the effect of discouraging lawsuits against our directors and officers. The enforceability of similar choice of forum provisions in other companies’ certificates of incorporation has been challenged in legal proceedings and there is uncertainty as to whether a court would enforce such provisions. In addition, investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. If the enforceability of our forum selection provisions were to be challenged, it may incur additional costs associated with resolving such challenge. While we currently have no basis to expect any such challenge would be successful, if a court were to find its forum selection provisions to be inapplicable or unenforceable with respect to one or more of these specified types of actions or proceedings, we may incur additional costs associated with having to litigate in other jurisdictions, which could result in a diversion of the time and resources of our employees, management and Board of Directors, and could have an adverse effect on our business, financial condition and results of operations. +We are an emerging growth company, and we cannot be certain if the reduced reporting requirements applicable to emerging growth companies will make our Common Stock less attractive to investors. +We are an emerging growth company, as defined in the JOBS Act. For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements and exemptions from the requirements of holding nonbinding advisory stockholder votes on executive compensation and stockholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our Common Stock less attractive because we may rely on these exemptions. If some investors find our Common Stock less attractive as a result, there may be a less active trading market for our Common Stock and our stock price may be more volatile. +We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the closing of the IPO, (b) in which we have total annual gross revenue of at least $1.235 billion, or (c) in which we are deemed to be a large accelerated filer, which requires the market value of our Common Stock that is held by non-affiliates to equal or exceed $700 million as of the last business day of the second fiscal quarter of such year, and (2) the date on which we have issued more than $1 billion in non-convertible debt during the prior three-year period. +Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards +94 +Table of Contents +until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. As a result, changes in rules of U.S. generally accepted accounting principles or their interpretation, the adoption of new guidance or the application of existing guidance to changes in our business could significantly affect our business, financial condition and results of operations. +As of the date of this Annual Report, we are a controlled company within the meaning of the Nasdaq Listing Rules and, as a result, if our Nasdaq listing application is approved, will qualify for, and may rely on, exemptions from certain corporate governance requirements. Stockholders may not have the same protection afforded to stockholders of companies that are subject to such governance requirements. +As of the date of this Annual Report, Scilex controls a majority of the voting power of the outstanding shares of Common Stock. As a result, if our Nasdaq listing application is approved, we will be a “controlled company” within the meaning of the corporate governance standards of Nasdaq. Under these corporate governance standards, a company of which more than 50% of the voting power for the election of directors is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate governance requirements. For example, controlled companies, within one year of the date of the listing of their common stock: +• +are not required to have a board of directors that is composed of a majority of “independent directors” as defined under the Nasdaq Listing Rules; +• +are not required to have a compensation committee that is composed entirely of independent directors or have a written charter addressing the committee’s purpose and responsibilities; and +• +are not required to have director nominations be made, or recommended to the full board of directors, by its independent directors or by a nominating and corporate governance committee that is composed entirely of independent directors, and to adopt a written charter or a board resolution addressing the nominations process. +While we do not presently intend to rely on these exemptions, we may opt to utilize these exemptions in the future as long as we remain a controlled company. Accordingly, our stockholders may not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of Nasdaq. +If we cease to be a “controlled company” in the future and we are then listed on Nasdaq, we will be required to comply with the Nasdaq listing standards, which may require replacing a number of directors and will require development of certain other governance-related policies and practices. These and any other actions necessary to achieve compliance with such rules may increase our legal and administrative costs, will make some activities more difficult, time-consuming and costly and may also place additional strain on our personnel, systems and resources. +We will incur increased costs as a result of operating as a public company, and our management will devote substantial time to related compliance initiatives. +As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company, and these expenses may increase even more after we are no longer an “emerging growth company.” We will be subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), as well as rules and regulations adopted, and to be adopted, by the SEC and Nasdaq. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, we expect these rules and regulations to substantially increase its legal and financial compliance costs and to make some activities more time-consuming and costly, which will increase its operating expenses. For example, we expect these rules and regulations to make it more difficult and more expensive for we to obtain directors’ and officers’ liability insurance and we may be required to incur substantial costs to maintain sufficient coverage. we cannot predict or estimate the amount or timing of additional costs it may incur to respond to these requirements. The impact of these requirements could also make it more difficult for we to attract and retain qualified persons to serve on our Board of Directors, our board committees or as executive officers. Advocacy efforts by stockholders and third parties may also prompt additional changes in governance and reporting requirements, which could further increase costs. +In addition, we expect that we will need to implement an ERP system. An ERP system is intended to combine and streamline the management of our financial, accounting, human resources, sales and marketing and other +95 +Table of Contents +functions, enabling us to manage operations and track performance more effectively. However, an ERP system would likely require us to complete many processes and procedures for the effective use of the system or to run its business using the system, which may result in substantial costs. Any disruptions or difficulties in implementing or using an ERP system could adversely affect our controls and harm its business, financial condition and results of operations, including its ability to forecast or make sales and collect its receivables. Moreover, such disruption or difficulties could result in unanticipated costs and diversion of management attention. +As a public company, we will be required to incur additional costs and obligations in order to comply with SEC rules that implement Section 404 of the Sarbanes-Oxley Act. Under these rules, we will be required to make a formal assessment of the effectiveness of its internal control over financial reporting, and once we cease to be an emerging growth company, we will be required to include an attestation report on internal control over financial reporting issued by its independent registered public accounting firm. To achieve compliance with Section 404 within the prescribed period, we will be engaging in a process to document and evaluate its internal control over financial reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants and adopt a detailed work plan to assess and document the adequacy of its internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are designed and operating effectively, and implement a continuous reporting and improvement process for internal control over financial reporting. +The rules governing the standards that must be met for management to assess our internal control over financial reporting are complex and require significant documentation, testing and possible remediation to meet the detailed standards under the rules. During the course of its testing, our management may identify material weaknesses or deficiencies which may not be remedied in time to meet the deadline imposed by the Sarbanes-Oxley Act. See “ Risk Factors — We have identified material weaknesses in our internal control over financial reporting. Any material weakness may cause us to fail to timely and accurately report our financial results or result in a material misstatement of our financial statements. ” above for additional information regarding previously identified material weaknesses. These reporting and other obligations place significant demands on our management and administrative and operational resources, including accounting resources. +In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time-consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. we intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of its management’s time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against we and there could be a material adverse effect on our business, financial condition and results of operations. +If we cannot satisfy the initial listing requirements and other rules of Nasdaq, our securities may not be listed on Nasdaq, which could negatively impact the price of its securities and your ability to sell them. +We intend to seek a listing of our securities on Nasdaq. We cannot assure you that we will be able to meet those initial listing requirements at that time. Our securities are currently quoted on the OTC Markets. +Even if our securities are listed on Nasdaq, we cannot assure you that our securities will continue to be listed on Nasdaq. If we fail to satisfy Nasdaq’s continued listing requirements, such as the corporate governance requirements or the minimum closing bid price requirement, Nasdaq may take steps to delist our Common Stock. Such a delisting would likely have a negative effect on the price of Common Stock and would impair a stockholder’s ability to sell or purchase Common Stock when a stockholder wishes to do so. +If Nasdaq does not list our securities, or subsequently delists our securities from trading, we could face significant consequences, including: +• +a limited availability for market quotations for our securities; +• +reduced liquidity with respect to our securities; +96 +Table of Contents +• +a determination that our Common Stock is a “penny stock,” which will require brokers trading in our Common Stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our Common Stock; +• +limited amount of news and analyst coverage; and +• +a decreased ability to issue additional securities or obtain additional financing in the future. +Even if Nasdaq approves our listing application, in the event of a subsequent delisting, we can provide no assurance that any action taken by us to restore compliance with listing requirements would allow our Common Stock to become listed again, stabilize the market price or improve the liquidity of our Common Stock, prevent our Common Stock from dropping below the Nasdaq minimum bid price requirement or prevent future non-compliance with Nasdaq Listing Rules. +Comprehensive U.S. federal income tax reform could adversely affect Semnur. +Changes to tax laws, which changes may have retroactive application, could adversely affect us or holders of our Common Stock. In recent years, many changes have been made to applicable tax laws and changes are likely to continue to occur in the future. +The TCJA, which was enacted in 2017, included changes to U.S. federal tax rates, imposed significant additional limitations on the deductibility of interest, allowed for the expensing of capital expenditures, and put into effect the migration from a “worldwide” system of taxation to a modified territorial system. +On March 27, 2020, President Trump signed into law the CARES Act, which included certain changes in tax law (including to the TCJA) intended to stimulate the U.S. economy in light of the COVID-19 pandemic, including temporary beneficial changes to the treatment of net operating losses, interest deductibility limitations and payroll tax matters. Subsequently, former President Biden signed the IRA into law, which contained certain tax measures, including a corporate alternative minimum tax of 15% on some large corporations, an excise tax of 1% on certain corporate stock buy-backs, and an excise tax with respect to certain drug sales for failing to offer a price that is not equal to or less than the negotiated “maximum fair price” under the law or for taking price increases that exceed inflation. +On July 4, 2025, legislation commonly referred to as the One Big Beautiful Bill Act (the “OBBBA”) was signed into law. The OBBBA includes significant provisions, such as the permanent extension of certain expiring provisions of the TCJA, allowing for accelerated tax deductions for qualified property and research expenditures, and the restoration of favorable tax treatment for certain business provisions. The legislation has multiple effective dates, with certain provisions effective in calendar year 2025 and others implemented through calendar year 2027. The aggregate impact of the OBBBA remains uncertain. Future changes in tax laws could have a material adverse effect on our business, cash flow, financial condition or results of operations. The impact of these tax reforms on holders of our Common Stock is uncertain and could be adverse. We urge our stockholders to consult with their legal and tax advisors with respect to such legislation and the potential tax consequences of investing in our Common Stock. +The Warrants are exercisable for Common Stock, which would increase the number of shares eligible for future resale in the public market and result in dilution to our stockholders. +Outstanding Warrants to purchase an aggregate of 8,760,000 shares of Common Stock became exercisable in accordance with the terms of the warrant agreement, dated April 6, 2022, by and between VStock Transfer, LLC (“VStock”), as warrant agent, and Denali (the “Warrant Agreement”), governing those securities, upon completion of the Business Combination. The exercise price of these Warrants is $11.50 per share. To the extent such Warrants are exercised, additional shares of Common Stock will be issued, which will result in dilution to the holders of Common Stock and increase the number of shares eligible for resale in the public market. Sales of substantial numbers of such shares in the public market, or the fact that such Warrants may be exercised, could adversely affect the prevailing market prices of Common Stock. However, there is no guarantee that the Warrants will ever be in the money prior to their expiration, and as such, the Warrants may expire worthless. See below risk factor, “ The Warrants may never be in the money, and they may expire worthless and the terms of the Warrants may be amended in a manner adverse to a holder if holders of a majority of the then-outstanding Warrants approve of such amendment .” +The Warrants may never be in the money, they may expire worthless and the terms of the Warrants may be amended in a manner adverse to a holder if holders of a majority of the then-outstanding Warrants approve of such amendment. +97 +Table of Contents +The Warrants were issued in registered form under the Warrant Agreement between VStock, as warrant agent, and Denali. The Warrant Agreement provides that the terms of the Warrants may be amended without the consent of any holder to cure any ambiguity or correct any defective provision or correct any mistake, but requires the approval by the holders of a majority of the then-outstanding Warrants to make any change that adversely affects the interests of the registered holders of Warrants. Accordingly, we may amend the terms of the Warrants in a manner adverse to a holder if holders of a majority of the then-outstanding Warrants approve of such amendment. Although our ability to amend the terms of the Warrants with the consent of majority of the then-outstanding Warrants is unlimited, examples of such amendments could be amendments to, among other things, increase the exercise price of the Warrants, convert the Warrants into cash, shorten the exercise period, or decrease the number of shares of Common Stock purchasable upon exercise of a Warrant. +We may redeem any unexpired Warrants prior to their exercise at a time that is disadvantageous to you, thereby making the Warrants worthless. +We have the ability to redeem outstanding Warrants at any time after they become exercisable and prior to their expiration, at a price of $0.01 per Warrant, provided that the closing price of Common Stock equals or exceeds $16.50 per share (as adjusted for share subdivisions, share dividends, rights issuances, subdivisions, reorganizations, recapitalizations and the like) on each of 20 trading days within any 30-trading-day period commencing after the Warrants became exercisable and ending on the third trading day prior to the date on which notice of redemption is given. If and when the Warrants become redeemable, we may exercise our redemption right even if we are unable to register or qualify the underlying securities for sale under all applicable state securities laws. Redemption of the outstanding Warrants could force the holders thereof to: (i) exercise such Warrants and pay the exercise price therefor at a time when it may be disadvantageous for a holder to do so; (ii) sell such Warrants at the then-current market price when a holder might otherwise wish to hold such Warrants; or (iii) accept the nominal redemption price that, at the time the outstanding Warrants are called for redemption, is likely to be substantially less than the market value of such Warrants. +In addition, we may redeem the Warrants at any time after they become exercisable and prior to their expiration for a number of shares of Common Stock determined based on the fair market value of Common Stock. The value received upon exercise of the Warrants (1) may be less than the value the holders would have received if they had exercised their Warrants at a later time where the underlying share price is higher and (2) may not compensate the holders for the value of the Warrants. +Risks Related to Artificial Intelligence +The development, adoption, and use of artificial intelligence (“AI”) technologies are rapidly transforming the life sciences industry, enabling faster data analysis, personalized medicine, and advancements in genomic services and sample management through machine learning and predictive modeling. However, the use of AI technologies by us or our vendors presents risks and challenges that could adversely impact our business. For example, disruption or failure in AI functionality could adversely affect our business, cause delays or inaccuracies in our offerings, or harm our reputation. Additionally, AI algorithms may be flawed and datasets in AI training, development and/or operations may be insufficient, of poor quality, or embed unwanted forms of bias. Outputs of AI systems may include hallucinations, bias or other forms of discrimination. Inappropriate or controversial data practices by, or practices reflecting inherent biases of, data scientists, engineers, and end-users of our systems could impair the acceptance of AI enhanced solutions. If the recommendations, forecasts, or analyses that AI-powered applications assist in producing are deficient or inaccurate, we could be subjected to competitive harm, potential legal liability, and brand or reputational harm. The use of agentic AI models could take unanticipated actions, generate unauthorized code paths or initiate transactions that breach client policies, regulatory requirements or our internal controls, or produce outputs or take action that is incorrect, that reflects biases included in the training data that results in infringements on property rights of others or that is otherwise harmful. Further, if we, our vendors, or our third-party partners experience an actual or perceived breach or privacy or security incident because of the use of generative artificial intelligence, we may lose valuable intellectual property and confidential information and our reputation and the public perception of the effectiveness of our security measures could be harmed. +If we are unable to adopt and deploy AI effectively as quickly as our competitors, it may cause us to be relatively less productive or innovative, adversely impacting our competitiveness and requiring additional investments that increase our costs. Laws and regulations regarding AI technologies are rapidly evolving as well, including in the areas of intellectual property, cybersecurity, privacy, and data protection. Some AI scenarios may also present ethical issues, for example, due to unintentional biases that may stem from the predictive nature of AI algorithms and we may enable +98 +Table of Contents +or offer solutions that draw controversy due to their perceived and actual impact on society. We could suffer reputational or competitive damage in addition to regulatory scrutiny. Compliance with new or changing laws, regulations, or industry standards relating to AI may impose significant operational and financial burdens and may limit our ability to develop, deploy, or use AI technologies in our business. +Risks Related to Cryptocurrency +As disclosed elsewhere in this Annual Report, on September 23, 2025, we entered into the Biconomy SPA with Biconomy, pursuant to which we agreed to issue and sell, and Biconomy agreed to purchase, an aggregate of 6,250,000 Biconomy Shares, for a purchase price of $16.00 per share, payable in Bitcoin. The closing of the transactions contemplated by the Biconomy SPA has not occurred as of the date of this Annual Report. However, before making an investment decision, you should consider carefully whether such pending transaction has been completed and any other disclosures that we may make from time to time regarding the closing of such transaction and/or our future cryptocurrency financings or treasury strategy. +The Company intends to use the net proceeds from the Biconomy SPA, which as of the date of this Annual Report has not closed and will be paid in Bitcoin, to fund investments in other companies. The price of Bitcoin has been, and will likely continue to be, highly volatile. The Company’s operating results and share price may significantly fluctuate, including due to the highly volatile nature of the price of such digital assets and erratic market movements. +We intend to use the net proceeds from the Biconomy SPA, which as of the date of this Annual Report has not closed and will be paid in Bitcoin, to establish the Company’s cryptocurrency treasury operations and to fund our investment in other companies. Digital assets generally are highly volatile assets. In addition, digital assets do not pay interest or other returns and so the ability to generate a return on investment from the net proceeds of any capital raisings will depend on whether there is appreciation in the value of digital assets following our purchases of digital assets with the net proceeds from such capital raisings. Future fluctuations in digital asset trading prices may result in our converting digital assets into cash with a value substantially below what we paid for such digital assets. +Our cryptocurrency treasury strategy has not been implemented or tested. +Our cryptocurrency acquisition and treasury strategy has not been tested. Although we believe cryptocurrency has the potential to serve as a hedge against inflation in the long term, the short-term price of cryptocurrency as an asset class declined in recent periods during which the inflation rate increased. Some investors and other market participants may disagree with our cryptocurrency acquisition strategy or actions we undertake to implement it. If cryptocurrency prices were to decrease or our cryptocurrency acquisition strategy otherwise proves unsuccessful, our financial condition, results of operations, and the market price of our Common Stock would be materially adversely impacted. +Bitcoin and other digital assets are novel assets, and are subject to significant legal, commercial, regulatory and technical uncertainty, which could materially adversely affect the Company’s financial position, operations and prospects. +Bitcoin and other digital assets are relatively novel and are subject to significant uncertainty, which could adversely impact their price. The application of state and federal securities laws and other laws and regulations to digital assets is unclear in certain respects, and it is possible that regulators in the United States or foreign countries may interpret or apply existing laws and regulations in a manner that adversely affects the price of Bitcoin or other digital assets. +The U.S. federal government, states, regulatory agencies, and foreign countries may also enact new laws and regulations, or pursue regulatory, legislative, enforcement or judicial actions, that could materially impact the price of Bitcoin or the ability of individuals or institutions such as us to own or transfer Bitcoin. For example, the U.S. executive branch, SEC, the European Union’s Markets in Crypto Assets Regulation, among others, have been active in recent years, and in the U.K., the Financial Services and Markets Act 2023, or FSMA 2023 became law. It is not possible to predict whether, or when, any of these developments will lead to Congress granting additional authorities to the SEC, Commodity Futures Trading Commission (“CFTC”), or other regulators, or whether, or when, any other federal, state or foreign legislative bodies will take any similar actions. It is also not possible to predict the nature of any such additional authorities, how additional legislation or regulatory oversight might impact the ability of digital asset markets to function or the willingness of financial and other institutions to continue to provide services to the digital assets industry, nor how any new regulations or changes to existing regulations might impact the value of +99 +Table of Contents +digital assets generally and Bitcoin specifically. The consequences of increased regulation of digital assets and digital asset activities could adversely affect the market price of Bitcoin and in turn adversely affect the market price of our Common Stock. +Moreover, the risks of engaging in a digital asset treasury strategy are relatively novel and have created, and could continue to create, complications due to the lack of experience that third parties have with companies engaging in such a strategy, such as increased costs of director and officer liability insurance or the potential inability to obtain such coverage on acceptable terms in the future. +The growth of the digital assets industry in general, and the use and acceptance of Bitcoin in particular, may also impact the price of Bitcoin and is subject to a high degree of uncertainty. The pace of worldwide growth in the adoption and use of Bitcoin may depend, for instance, on public familiarity with digital assets, ease of buying, accessing or gaining exposure to Bitcoin, institutional demand for Bitcoin as an investment asset, the participation of traditional financial institutions in the digital assets industry, consumer demand for Bitcoin as a means of payment, and the availability and popularity of alternatives to Bitcoin. Even if growth in Bitcoin adoption occurs in the near or medium-term, there is no assurance that Bitcoin usage will continue to grow over the long-term. +Because Bitcoin has no physical existence beyond the record of transactions on the Bitcoin blockchain, a variety of technical factors related to the Bitcoin blockchain could also impact the price of Bitcoin. For example, malicious attacks by miners, inadequate mining fees to incentivize validating of Bitcoin transactions, hard “forks” of the Bitcoin blockchain into multiple blockchains, and advances in digital computing, algebraic geometry, and quantum computing could undercut the integrity of the Bitcoin blockchain and negatively affect the price of Bitcoin. The liquidity of Bitcoin may also be reduced and damage to the public perception of Bitcoin may occur, if financial institutions were to deny or limit banking services to businesses that hold Bitcoin, provide Bitcoin-related services or accept Bitcoin as payment, which could also decrease the price of Bitcoin. Similarly, the open-source nature of the Bitcoin blockchain means the contributors and developers of the Bitcoin blockchain are generally not directly compensated for their contributions in maintaining and developing the blockchain, and any failure to properly monitor and upgrade the Bitcoin blockchain could adversely affect the Bitcoin blockchain and negatively affect the price of Bitcoin. +The liquidity of Bitcoin may also be impacted to the extent that changes in applicable laws and regulatory requirements negatively impact the ability of exchanges and trading venues to provide services for Bitcoin and other digital assets. +If any of the digital assets that we hold are classified as a security, we may be subject to extensive regulation, which could result in significant costs or force us to cease operations. +Regulatory changes or interpretations that classify digital assets that we hold as a security under the Securities Act of 1933, as amended, or Investment Company Act of 1940, as amended (the “Investment Company Act”), could require us to register and comply with additional regulations. Compliance with these requirements could impose extraordinary, non-recurring expenses on our business. If the costs and regulatory burdens become too great, we may be forced to modify or cease certain operations, which could be detrimental to our investors. +The SEC has previously indicated that certain digital assets may be considered securities depending on their structure and use. Future developments could change the legal status of digital assets that we may hold, requiring us to comply with securities laws. If we fail to do so, we may be forced to discontinue some or all of our business activities, negatively impacting investments in our securities. +If the SEC or other regulators determine that digital assets that we may hold qualify as securities, we may be required to register as an investment company under the Investment Company Act. This classification would subject us to additional periodic reporting, disclosure requirements, and regulatory compliance obligations, significantly increasing our operational costs. In addition, if Bitcoin or another digital asset we hold were determined to constitute a security for purposes of the federal securities laws, we would likely take steps to reduce the percentage of Bitcoin or such other digital assets that constitute investment assets under the Investment Company Act. These steps may include, among others, selling Bitcoin that we might otherwise hold for the long term and deploying our cash in non-investment assets, and we may be forced to sell our Bitcoin or other digital assets at unattractive prices. +Although we do not currently engage in investing, reinvesting, or trading securities, and we do not hold ourselves out as an investment company, we could inadvertently be deemed one under the Investment Company Act. If we are unable to rely on an exclusion, we would be required to register with the SEC, which could impose additional financial and regulatory burdens. +100 +Table of Contents +Further, state regulators may conclude that the digital assets we hold are securities under state laws, requiring us to comply with state-specific securities regulations. States like California have stricter definitions of “investment contracts” than the SEC, increasing the risk of additional regulatory scrutiny. +The emergence or growth of other digital assets, including those with significant private or public sector backing, could have a negative impact on the price of cryptocurrencies we hold and adversely affect our business. +The emergence or growth of digital assets other than cryptocurrencies we may hold could have a material adverse effect on our financial condition. There are numerous alternative digital assets and many entities, including consortia and financial institutions, are researching and investing resources into private or permissioned blockchain platforms or digital assets. For example, some cryptocurrency networks utilize proof-of-work mining. Others use a “proof-of-stake” mechanism for validating transactions that requires significantly less computing power than proof-of-work mining. If the mechanisms for validating transactions in alternative digital assets are perceived as superior to the mechanisms used by the digital assets in which we invest, those digital assets could gain market share. +Other alternative digital assets could include “stablecoins,” which are designed to maintain a constant price because of, for instance, their issuers’ promise to hold high-quality liquid assets (such as U.S. dollar deposits and short-term U.S. treasury securities) equal to the total value of stablecoins in circulation. Stablecoins have grown rapidly as an alternative to other digital assets as a medium of exchange and store of value, particularly on digital asset trading platforms. +Additionally, central banks in some countries have started to introduce digital forms of legal tender. For example, China’s Central Bank Digital Currency (“CBDC”) project was made available to consumers in January 2022, and governments including the United States, the United Kingdom, the European Union, and Israel have discussed the potential creation of new CBDCs. Whether or not they incorporate blockchain or similar technology, CBDCs, as legal tender in the issuing jurisdiction, could also compete with, or replace, other digital assets as a medium of exchange or store of value. As a result, the emergence or growth of these or other digital assets could cause the market price of cryptocurrencies we hold to decrease, which could have a material adverse effect on our business, financial condition and results of operations. +The lack of legal recourse and insurance for digital assets increases the risk of total loss in the event of theft or destruction. +Digital assets that we acquire will not be insured against theft, loss or destruction. If an event occurs where we lose our digital assets, whether due to cyberattacks, fraud or other malicious activities, we may not have any viable legal recourse or ability to recover the lost assets. Unlike funds held in insured banking institutions, our digital assets are not protected by the Federal Deposit Insurance Corporation or the Securities Investor Protection Corporation. If our digital assets are lost under circumstances that render another party liable, there is no guarantee that the responsible party will have the financial resources to compensate us. As a result, we and our stockholders could face significant financial losses. +The irreversibility of digital asset transactions exposes us to risks of theft, loss and human error, which could negatively impact our business. +Digital asset transactions are not, from an administrative perspective, reversible without the consent and active participation of the recipient of the transaction or, in theory, control or consent of a majority of the processing power on that digital asset network. Once a transaction has been verified and recorded in a block that is added to the blockchain, an incorrect transfer of digital assets or a theft of digital assets generally will not be reversible, and we may not be capable of seeking compensation for any such transfer or theft. +Although we plan to regularly transfer digital assets to or from vendors, consultants and services providers, it is possible that, through computer or human error, or through theft or criminal action, such assets could be transferred in incorrect amounts or to unauthorized third parties. +To the extent we are unable to seek a corrective transaction to identify the third party which has received our digital assets through error or theft, we will be unable to revert or otherwise recover the impacted digital assets, and any such loss could adversely affect our business, results of operations and financial condition. +Changes in the accounting treatment of cryptocurrency holdings could have significant accounting impacts, including increasing the volatility of our results. +In December 2023, the FASB issued ASU 2023-08, which upon our adoption will require us to measure +101 +Table of Contents +in-scope cryptocurrency assets at fair value in our statement of financial position, and to recognize gains and losses from changes in the fair value of our cryptocurrency in net income each reporting period. ASU 2023-08 will also require us to provide certain interim and annual disclosures with respect to our cryptocurrency holdings. The standard is effective for our interim and annual periods beginning January 1, 2025, with a cumulative-effect adjustment to the opening balance of retained earnings as of the beginning of the annual reporting period in which we adopt the guidance. We adopted ASU 2023-08 for the fiscal year beginning January 1, 2025 and the adoption did not have any impact to our consolidated financial statements as we did not have any cryptocurrency holdings at adoption. Due in particular to the volatility in the price of cryptocurrencies, we expect the adoption of ASU 2023-08 to have a material impact on our financial results in future periods, increase the volatility of our financial results, and affect the carrying value of our cryptocurrency on our balance sheet, and it could also have adverse tax consequences, which in turn could have a material adverse effect on our financial results and the market price of our Common Stock. Additionally, as a result of ASU 2023-08 requiring a cumulative-effect adjustment to our opening balance of retained earnings as of the beginning of the annual period in which we adopt the guidance and not permitting retrospective restatement of our historical financial statements, our future results will not be comparable to results from periods prior to our adoption of the guidance. +The broader digital assets industry, including the technology associated with digital assets, the rate of adoption and development of, and use cases for, digital assets, market perception of digital assets, and the legal, regulatory, and accounting treatment of digital assets are constantly developing and changing, and there may be additional risks in the future that are not possible to predict. +Changes in our ownership of cryptocurrency could have accounting, regulatory and other impacts, as well. While we currently intend to primarily own cryptocurrency directly, we may investigate other potential approaches to owning cryptocurrencies, including indirect ownership (for example, through ownership interests in a fund that owns cryptocurrencies and deemed ownership via ownership of cryptocurrency derivative assets). If we were to own all or a portion of our cryptocurrencies in a different manner, the accounting treatment for our cryptocurrencies, our ability to use our cryptocurrencies as collateral for additional borrowings, and the regulatory requirements to which we are subject, may correspondingly change. For example, the volatile nature of cryptocurrencies may force us to liquidate our holdings to use it as collateral, which could be negatively impacted by any disruptions in the cryptocurrency market, and if liquidated, the value of the collateral would not reflect potential gains in market value of our cryptocurrency. +Cryptocurrency holdings are less liquid than our existing cash and cash equivalents and may not be able to serve as a source of liquidity for us to the same extent as cash and cash equivalents. +Historically, the crypto markets have been characterized by significant volatility in price; limited liquidity and trading volumes compared to sovereign currencies markets; relative anonymity; a developing regulatory landscape; potential susceptibility to market abuse and manipulation; compliance and internal control failures at exchanges; and various other risks inherent in its entirely electronic, virtual form and decentralized network. During times of market instability, we may not be able to sell our cryptocurrency at favorable prices or at all. Further, cryptocurrency which we hold with our custodians does not enjoy the same protections as are available to cash or securities deposited with or transacted by institutions subject to regulation by the Federal Deposit Insurance Corporation or the Securities Investor Protection Corporation. If we are unable to sell our cryptocurrency, enter into additional capital raising transactions using cryptocurrency as collateral, or otherwise generate funds using our cryptocurrency holdings, or if we are forced to sell our cryptocurrency at a significant loss, in order to meet our working capital requirements, our business and financial condition could be negatively impacted. +Cryptocurrencies do not pay interest or dividends. +Cryptocurrencies do not pay interest or other returns and we will only generate cash from our cryptocurrency holdings if we sell our cryptocurrency or implement strategies to create income streams or otherwise generate cash by using our cryptocurrency holdings. Even if we pursue any such strategies, we may be unable to create income streams or otherwise generate cash from our cryptocurrency holdings, and any such strategies may subject us to additional risks. +We are not subject to legal and regulatory obligations that apply to investment companies such as mutual funds and exchange-traded funds, or to obligations applicable to investment advisers. +Mutual funds, exchange-traded funds and their directors and management are subject to extensive regulation as “investment companies” and “investment advisers” under U.S. federal and state law; this regulation is intended for +102 +Table of Contents +the benefit and protection of investors. We are not subject to, and do not otherwise voluntarily comply with, these laws and regulations. This means, among other things, that the execution of or changes to our cryptocurrency treasury strategy, our use of leverage, the manner in which our cryptocurrency is intended to be custodied, our ability to engage in transactions with affiliated parties and our operating and investment activities generally are not subject to the extensive legal and regulatory requirements and prohibitions that apply to investment companies and investment advisers. Consequently, our Board of Directors has broad discretion over the investment, leverage and cash management policies it authorizes, whether in respect of our cryptocurrency holdings or other activities we may pursue, and has the power to change our current policies, including our strategy of acquiring and holding cryptocurrency. +If we or our third-party service providers experience a security breach or cyberattack and unauthorized parties obtain access to our cryptocurrency, or if our private keys are lost or destroyed, or other similar circumstances or events occur, we may lose some or all of our cryptocurrency and our financial condition and results of operations could be materially adversely affected. +Security breaches and cyberattacks are of particular concern with respect to cryptocurrency. Blockchain-based cryptocurrencies and the entities that provide services to participants in the cryptocurrency ecosystem have been, and may in the future be, subject to security breaches, cyberattacks, or other malicious activities. For example, in October 2021, it was reported that hackers exploited a flaw in the account recovery process and stole from the accounts of at least 6,000 customers of the Coinbase exchange, although the flaw was subsequently fixed and Coinbase reimbursed affected customers. Similarly, in November 2022, hackers exploited weaknesses in the security architecture of the FTX Trading digital asset exchange and reportedly stole over $400 million in digital assets from customers. A successful security breach or cyberattack could result in: +• +a partial or total loss of our cryptocurrency in a manner that may not be covered by insurance or the liability provisions of the custody agreements with the custodians who hold our cryptocurrency; +• +harm to our reputation and brand; +• +improper disclosure of data and violations of applicable data privacy and other laws; or +• +significant regulatory scrutiny, investigations, fines, penalties, and other legal, regulatory, contractual and financial exposure. +Further, any actual or perceived data security breach or cybersecurity attack directed at other companies with digital assets or companies that operate digital asset networks, regardless of whether we are directly impacted, could lead to a general loss of confidence in the broader cryptocurrency ecosystem or in the use of the cryptocurrency network to conduct financial transactions, which could negatively impact us. +Attacks upon systems across a variety of industries, including industries related to cryptocurrency, are increasing in frequency, persistence, and sophistication, and, in many cases, are being conducted by sophisticated, well-funded and organized groups and individuals, including state actors. The techniques used to obtain unauthorized, improper or illegal access to systems and information (including personal data and digital assets), disable or degrade services, or sabotage systems are constantly evolving, may be difficult to detect quickly, and often are not recognized or detected until after they have been launched against a target. These attacks may occur on our systems or those of our third-party service providers or partners. We may experience breaches of our security measures due to human error, malfeasance, insider threats, system errors or vulnerabilities or other irregularities. In particular, we expect that unauthorized parties will attempt to gain access to our systems and facilities, as well as those of our partners and third-party service providers, through various means, such as hacking, social engineering, phishing and fraud. Threats can come from a variety of sources, including criminal hackers, hacktivists, state-sponsored intrusions, industrial espionage, and insiders. In addition, certain types of attacks could harm us even if our systems are left undisturbed. For example, certain threats are designed to remain dormant or undetectable, sometimes for extended periods of time, or until launched against a target and we may not be able to implement adequate preventative measures. Further, there has been an increase in such activities due to the increase in work-from-home arrangements. The risk of cyberattacks could also be increased by cyberwarfare in connection with the ongoing Russia-Ukraine, Israel-Hamas and Israel-Iran conflicts, or other future conflicts, including potential proliferation of malware into systems unrelated to such conflicts. Any future breach of our operations or those of others in the cryptocurrency industry, including third-party services on which we rely, could materially and adversely affect our financial condition and results of operations. +Our custodially-held cryptocurrencies may become part of the custodian’s insolvency estate if one or more of our +103 +Table of Contents +custodians enters bankruptcy, receivership or similar insolvency proceedings. +Initially, we plan to hold all of our cryptocurrency in custody accounts at either a U.S.-based, institutional-grade custodian that has demonstrated a record of regulatory compliance and information security or offshore third party managed custody accounts, which the Company will control. As we further execute on our strategy, we may expand our holdings to multiple similar custodians. +If our custodially-held cryptocurrencies are considered to be the property of our custodians’ estates in the event that any such custodians were to enter bankruptcy, receivership or similar insolvency proceedings, we could be treated as a general unsecured creditor of such custodians, inhibiting our ability to exercise ownership rights with respect to such cryptocurrencies and this may ultimately result in the loss of the value related to some or all of such assets. A series of recent high-profile bankruptcies, closures, liquidations, regulatory enforcement actions and other events relating to companies operating in the digital asset industry, the closure or liquidation of certain financial institutions that provided lending and other services to the digital assets industry, and the filing and subsequent settlement of a civil fraud lawsuit have highlighted the counterparty risks applicable to owning and transacting in digital assets. These bankruptcies, closures, liquidations and other events have likely negatively impacted the adoption rate and use of cryptocurrencies. Additional bankruptcies, closures, liquidations, regulatory enforcement actions or other events involving participants in the digital assets industry in the future may further negatively impact the adoption rate, price, and use of cryptocurrencies, limit the availability to us of financing collateralized by such assets, or create or expose additional counterparty risks. Any loss associated with such insolvency proceedings is unlikely to be covered by any insurance coverage we maintain related to our cryptocurrencies. Even if we are able to prevent our cryptocurrencies from being considered the property of a custodian’s bankruptcy estate as part of an insolvency proceeding, it is possible that we would still be delayed or may otherwise experience difficulty in accessing our cryptocurrencies held by the affected custodian during the pendency of the insolvency proceedings. Any such outcome could have a material adverse effect on our financial condition and the market price of our listed securities. +It em 1B. Unresolved Staff Comments. +None. +Item 1C. Cybersecurity. +Cybersecurity is a critical element of our information security program. Security controls are implemented in a manner that protects the confidentiality, integrity and availability of our information assets without hindering business operations. Management is responsible for the day-to-day administration of our cybersecurity policies, processes, and practices. Our cybersecurity policies, standards, processes, and practices are based on recognized frameworks established by the National Institute of Standards and Technology (the “NIST”) and management’s knowledge of best practices in the cybersecurity industry. In general, we seek to address material cybersecurity threats through a company-wide approach that addresses the confidentiality, integrity and availability of our information systems or the information that we collect and store, by proactively monitoring for cybersecurity threats and assessing, identifying and managing cybersecurity issues as they occur. +We routinely assess material risks from cybersecurity threats, including any potential unauthorized occurrence on or conducted through our information systems that may result in adverse effects on the confidentiality, integrity, or availability of our information systems or any information residing therein. Key elements of our cybersecurity risk management strategy include: +• +We require an annual Service Organization Control 2 Type 1 report from all third-party providers attesting to the presence of security processes. Additionally, we require that SaaS/PaaS providers perform risk assessments and manage the security risks associated with their services. +• +We have established and maintain a comprehensive incident response plan designed to address our response to a cybersecurity incident. We conduct regular training scenarios to test these plans and ensure personnel are familiar with their roles in a response scenario. +• +We provide regular, mandatory training for employees regarding cybersecurity threats as a means to equip our employees with effective tools to address cybersecurity threats, and to communicate our evolving information security policies, standards, processes and practices. +104 +Table of Contents +• +We use a third party to conduct a periodic assessment of our cybersecurity risk posture and maturity against the NIST Cybersecurity Framework. The results are evaluated by management and the Audit Committee and are used to adjust our cybersecurity policies, standards, processes and practices as necessary. +• +The Company studies and evaluates threats in cyber landscape and aims to regularly improve our risk posture by learning from those lessons. +Our Audit Committee receives quarterly presentations and reports on developments in the cybersecurity space, including risk management practices, recent developments, vulnerability assessments, third-party and independent reviews, the threat environment, and information security issues encountered by other public companies. +The Senior Director of IT acts as the Incident Manager and meets regularly with our Incident Response Team, including members of Financial Risk Management, IT Security and Human Resources senior management to discuss the necessary measures to take prior to and during an incident. In the event of an incident, the Incident Manager meets regularly with the executive leadership team and keeps them apprised of the status of any incident during the incident response. Our Board and the Audit Committee also receive prompt and timely information from the Senior Director of IT and executive leadership regarding any cybersecurity risks that meet certain reporting thresholds, as well as ongoing updates regarding any such risk. Finally, the Incident Response Manager briefs corporate leadership on lessons learned from the incident during or after the recovery phase. +The Senior Director of IT, in collaboration with a team of IT professionals, our legal counsel and Human Resources, are tasked with implementing a program designed to protect our information systems from cybersecurity threats and manage material risks. The Senior Director of IT has served in various roles in information technology and information security for over 20 years. The Senior Director of IT and senior management are informed about and monitor the prevention, detection, mitigation and remediation of cybersecurity threats and incidents in real time and report such threats and incidents to the Audit Committee when appropriate. +Risks from cybersecurity threats, including as a result of any previous cybersecurity incidents, have not materially affected and are not reasonably likely to materially affect our Company, including our business strategy, results of operations, or financial condition as of December 31, 2025. For more information, please see the risk factor disclosures included in Item 1A of this Annual Report. +It em 2. Properties. +Our principal executive office is currently located in Palo Alto, California, and consists of approximately 3,000 square feet of leased office space provided at no cost by Scilex. The lease term expires in September 2027. We believe our facilities are adequate to meet our current needs, although we may seek to negotiate new leases or evaluate additional or alternate space for our operations. We believe appropriate additional or alternative space will be available on commercially reasonable terms. +Ite m 3. Legal Proceedings. +From time to time, we may become involved in various claims and legal proceedings. Regardless of outcome, litigation and other legal and administrative proceedings can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors. We are currently not a party to any legal proceedings the outcome of which, if determined adversely to us, would individually or in the aggregate have a material adverse effect on our business, financial condition, and results of operations. +It em 4. Mine Safety Disclosures. +None. +105 +Table of Contents +PART II +It em 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. +Market Information +Our Common Stock and Warrants are currently traded on the Pink Limited Market of the OTC Markets under the symbols “SMNR” and “SMNRW,” respectively. Investors should be advised that any over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. +Holders +As of February 25, 2026, there were 17 holders of record of our common stock and one holder of record of our Public Warrants, which amount does not include participants of The Depository Trust Company or beneficial owners holding shares through nominee names. +Dividend Policy +We have never declared or paid any dividend on shares of our Common Stock. We anticipate that we will retain all of our future earnings, if any, to fund the development and growth of our business. Any future determination to pay dividends on our capital stock will be at the discretion of our Board of Directors. It is the present intention of our Board of Directors to retain all earnings, if any, for use in our business operations and, accordingly, our Board of Directors does not anticipate declaring any dividend in the foreseeable future. Should we decide in the future to do so, as a holding company, our ability to pay dividends on our capital stock and meet other obligations depends upon the receipt of dividends or other payments from our operating subsidiaries, including Legacy Semnur. Further, our ability to pay dividends may be limited by covenants of any existing and future outstanding indebtedness we or our subsidiaries incur. +Securities Authorized for Issuance Under Equity Compensation Plans +See Item 12 of Part III for information regarding securities authorized for issuance under our equity compensation plans. +Unregistered Sales of Equity Securities +On December 26, 2025 and on December 29, 2025, we issued an aggregate of 468,164 shares of Common Stock pursuant to the cashless exercise of 1,327,878 Public Warrants. +The shares of Common Stock issued upon exercise of the Public Warrants were issued pursuant to the exemption from registration provided by Section 3(a)(9) of the Securities Act. +There were no other unregistered sales of our equity securities during the fiscal year ended December 31, 2025, other than those previously disclosed on our Current Report on Form 8-K. +Purchases of Equity Securities by the Issuer and Affiliated Purchasers +None. +Item 6. [Reserved] +106 +Table of Contents +It em 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. +The following discussion and analysis of our financial condition and results of operations should be read together with the consolidated financial statements and related notes thereto included elsewhere in this Annual Report. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from these forward-looking statements as a result of certain factors. We discuss factors that we believe could cause or contribute to these differences below and elsewhere in this Annual Report, including those set forth in the sections of this Annual Report titled “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.” As a result of these risks, you should not place undue reliance on these forward-looking statements. We assume no obligation to revise or update any forward-looking statements for any reason, except as required by law. +Overview +We are a late-stage clinical biopharmaceutical company focused on developing and commercializing innovative non-opioid pain management products for the treatment of acute and chronic pain. We believe that our innovative non-opioid product portfolio has the potential to provide effective pain management therapies that can have a transformative impact on patients’ lives. We target indications with high unmet needs and large market opportunities with non-opioid therapies for the treatment of patients with acute and chronic pain and are dedicated to advancing and improving patient outcomes. Our lead product candidate, SP-102, if approved, has the potential to become the first U.S. Food and Drug Administration (the “FDA”) approved non-opioid novel injectable corticosteroid gel formulation for patients with moderate to severe LRP (also known as sciatica), containing no preservatives, surfactants, solvents, or particulates and is expected to be available in a pre-filled syringe formulation following approval by the FDA. +Our guiding principle has always been and remains a patient-first approach, which drives our mission to meet the increasing global demand for more effective and safer non-opioid pain management solutions. Through rigorous research and development, we believe we are on the cusp of establishing Semnur as the preeminent name in commercial non-opioid pain management, specifically targeting the unmet needs in both acute and chronic pain sectors with our innovative and leading therapies. We believe that we have made substantial progress in demonstrating the rapid onset and enhanced tolerability of our product candidate. +We are developing SP-102 to be an injectable viscous gel formulation of a widely used corticosteroid designed to address the serious risks posed by off-label epidural injections, which are administered over 12 million times annually in the United States. SP-102 has been granted fast track designation by the FDA and, if approved, could become the only FDA-approved epidural injection for the treatment of sciatica. Although such designation has been granted, it may not lead to a faster development or regulatory review process and such designation does not increase the likelihood that SP-102 will receive marketing approval. +Legacy Semnur was founded in 2013 and we have invested substantial efforts and financial resources on building our intellectual property portfolio and infrastructure. We have conducted phospholipidosis and toxicology studies, including a Phase 1 pharmacokinetic bridging study, Phase 2 repeat dose study, a pivotal Phase 3 study and the second Phase 3 study initiated in September 2025. We expect to continue to make investments in research and development, clinical trials and regulatory affairs to develop our product candidate, SP-102. +We have completed a pivotal Phase 3 study with final results received in March 2022, which results reflected achievement of primary and secondary endpoints, with SP-102 treatment decreasing pain intensity for over a month in sciatica patients and resulting in statistically significant and clinically meaningful improvement in the disability index score while maintaining tolerability comparable to placebo. The Phase 3 study results were published in PAIN ® Journal in June 2024, which is the leading journal devoted to pain medicine and research. This Phase 3 study represents a potential significant improvement in treatment of adult patients with sciatica, who struggle with the clinical consequences of no currently FDA approved therapies being available, suboptimal formulations of corticosteroids used off-label and/or excess pain and disability. We initiated a second Phase 3 study in September 2025. +We are focused on identifying treatment options for pain management with established mechanisms that have deficiencies in safety, efficacy or patient experience. We believe this approach allows us to potentially leverage the regulatory approval pathway available under Section 505(b)(2) of the Federal Food, Drug and Cosmetic Act (the “FDCA”) for our product candidate. +We have incurred significant net losses to date. Our ability to generate product revenue sufficient to achieve profitability will depend on the successful development and eventual commercialization of our current or future +107 +Table of Contents +product candidates. As of December 31, 2025, we had cash and cash equivalents of $20 thousand and accumulated deficit of $275.8 million. During the year ended December 31, 2025, we had operating losses of $160.4 million and used $5.9 million of cash in operations. These losses have resulted primarily from costs incurred in connection with research and development activities, certain allocated general and administrative costs associated with our operations and certain costs associated with the Business Combination. We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future, and our net losses may fluctuate significantly from period to period, depending on the timing of and expenditures on our planned research and development activities. Further, the Company’s consolidated financial statements are dependent on assumptions and allocations from the Scilex Holding Company (“Scilex”) financial statements that management deems were reasonable and appropriate under the circumstances. Nevertheless, the Company’s consolidated financial statements may not include all of the actual expenses that would have been incurred had the Company operated as a standalone company during the periods presented and may not reflect the results of operations, financial position and cash flows had the Company operated as a standalone company during the periods presented. Actual costs that would have been incurred if the Company had operated as a standalone company would depend on multiple factors, including organizational structure and strategic decisions made in various areas, including information technology and infrastructure. The Company also may have incurred additional costs associated with being a standalone, publicly listed company that were not included in the expense allocations and, therefore, would result in additional costs that are not reflected in its historical results of operations, financial position and cash flows. +Business Combination +References to “Legacy Semnur” refer to the private Delaware corporation that is now our wholly owned subsidiary and named Semnur, Inc. (formerly known as “Semnur Pharmaceuticals, Inc.”). Unless otherwise noted or the context requires otherwise, references to “Common Stock” refer to our common stock, par value $0.0001 per share. +On September 22, 2025 (the “Closing”), we consummated a business combination pursuant to an agreement and plan of merger, dated as of August 30, 2024 (the “Initial Merger Agreement,” as amended by Amendment No. 1 to Agreement and Plan of Merger, dated April 16, 2025, “Amendment No. 1 to the Initial Merger Agreement” and Amendment No. 2 to Agreement and Plan of Merger, dated July 22, 2025, “Amendment No. 2 to the Initial Merger Agreement” and collectively, the “Merger Agreement”), by and among Denali Capital Acquisition Corp. (“Denali”), Denali Merger Sub Inc., a Delaware corporation and wholly owned subsidiary of Denali (“Merger Sub”), and Legacy Semnur. Pursuant to the terms of the Merger Agreement, the business combination (herein referred to as the “Business Combination”) between Denali and Legacy Semnur was effected through the merger of Merger Sub with and into Legacy Semnur with Legacy Semnur surviving as Denali’s wholly owned subsidiary. In connection with the Business Combination, Denali changed its name from Denali Capital Acquisition Corp. to Semnur Pharmaceuticals, Inc. +Material Agreements +Securities Purchase Agreement (the “PIPE SPA") +On August 20, 2025, we and Legacy Semnur entered into the PIPE SPA with the investor named therein, pursuant to which the investor agreed to purchase 1,250,000 shares of Common Stock at a price of $16.00 per share, for an aggregate purchase price of $20.0 million following the consummation of the Business Combination. On September 22, 2025, the PIPE SPA was amended to provide that unless such agreement was terminated pursuant to its terms (or otherwise by mutual agreement of the parties thereto), the closing of the transactions contemplated thereby would occur not later than the 14th business day following the closing of the Business Combination, subject to the satisfaction or waiver of the closing conditions set forth therein. As of December 31, 2025, the transaction has not closed and accordingly, shares have not been issued and funds have not been received. As the transaction did not close on or before December 31, 2025, the nonbreaching party has an option to terminate the PIPE SPA without liability. +Additionally, in connection with the PIPE SPA, we are obligated to pay a cash financing service fee of 7% of the received investment funds. +Bitcoin Securities Purchase Agreement (the “Semnur/Biconomy SPA”) +On September 23, 2025, we entered into the Semnur/Biconomy SPA with Biconomy PTE.LTD (“Biconomy”). Pursuant to the Semnur/Biconomy SPA, we agreed to issue and sell, and Biconomy agreed to purchase, 6,250,000 shares of Common Stock, at a purchase price of $16.00 per share, for an aggregate purchase price of $100.0 million, payable in Bitcoin blockchain (“Bitcoin”), with such amount of Bitcoin equal to the quotient of (A) the buyer’s +108 +Table of Contents +respective aggregate purchase price divided by (B) the spot exchange rate for Bitcoin as published by Coinbase.com at 8:00 p.m. (New York City time) on the trading day immediately prior to the closing date of the purchase. As of December 31, 2025, the transaction has not closed and accordingly, shares have not been issued and funds have not been received. As the transaction did not close on or before December 31, 2025, the nonbreaching party has an option to terminate the Semnur/Biconomy SPA without liability. +Promissory Notes +As of December 31, 2025, we have promissory notes totaling $3.5 million, all of which are due in less than a year. +Notwithstanding the payment schedules in the promissory notes, the balance due on any notes (less any payments previously made to the holder thereunder) shall be accelerated and become immediately due and payable in the event we receive gross proceeds from any equity or debt financing (including any private placement offering or registered offering), in an amount equal to or greater than the then-outstanding principal of such note plus any accrued but unpaid interest due thereon. +In addition, in the case of an event of default, the promissory notes shall bear interest at a rate of 10% per annum until such event of default is cured. The promissory notes shall become immediately due and payable (in accordance with the terms thereof), upon our failure to make payments thereunder when due (subject to a 14-day cure period) or certain other actions related to voluntary or involuntary bankruptcy proceedings (as more fully described therein). +Lifecore Master Services Agreement +On January 27, 2017, we entered into a Master Services Agreement (as amended, the “Lifecore Master Services Agreement”), with Lifecore Biomedical, LLC (“Lifecore”). Pursuant to the Lifecore Master Services Agreement, Lifecore is responsible for clinical trial material manufacturing and development services for SP-102 as set forth in each separate statement of work. For the purposes of Lifecore’s development and clinical trial material manufacturing obligations, we granted Lifecore a nonexclusive, worldwide and royalty-free license under our owned or controlled intellectual property rights necessary to manufacture SP-102, without additional right, title or interest in our intellectual property. The Lifecore Master Services Agreement expires on December 31, 2028, unless terminated earlier in accordance with the terms of such agreement, or unless renewed further by the parties. +During the year ended December 31, 2025, we incurred expenses of $0.9 million related to the Lifecore Master Services Agreement. +Legacy Semnur Merger Agreement +On March 18, 2019, Legacy Semnur was acquired by Scilex pursuant to an Agreement and Plan of Merger with Semnur (as amended, the “Legacy Semnur Merger Agreement”), +Pursuant to the Legacy Semnur Merger Agreement, and upon the terms and subject to the conditions contained therein, Scilex agreed to pay the former holders of Legacy Semnur’s capital stock up to $280.0 million in aggregate contingent cash consideration based on the achievement of certain milestones (which amount is expected to be charged back to us through an intercompany arrangement), comprised of a $40.0 million payment that will be due upon obtaining the first approval of a NDA of our product by the FDA and additional payments that will be due upon the achievement of certain amounts of net sales of our products, as follows: (i) a $20.0 million payment upon the achievement of $100.0 million in cumulative net sales of our product, (ii) a $20.0 million payment upon the achievement of $250.0 million in cumulative net sales of our product, (iii) a $50.0 million payment upon the achievement of $500.0 million in cumulative net sales of our product, and (iv) a $150.0 million payment upon the achievement of $750.0 million in cumulative net sales of our product. To date, none of the foregoing payments have been triggered. +Shah Assignment Agreement +On August 6, 2013, Legacy Semnur entered into an Assignment Agreement (the “Shah Assignment Agreement”) with Shah Investor LP (“Shah Investor”). Pursuant to the Shah Assignment Agreement, Shah Investor assigned to Legacy Semnur the patents, know-how and other intellectual property related to pharmaceutical compositions of corticosteroids. +In consideration of the license and rights granted by Shah Investor, Legacy Semnur agreed to pay royalties (i) at the rate of 1.5% of the Net Sales for Annual Net Sales (each as defined therein) up to $250.0 million and (ii) at the +109 +Table of Contents +rate of 2.5% of the Net Sales for Annual Net Sales of $250.0 million and above, subject to certain adjustments as set out in the Shah Assignment Agreement. Such royalties payment for a given calendar quarter shall be due and payable on the date the royalty report for such quarter is due under the Shah Assignment Agreement. To date, none of the foregoing payments have been triggered. +The Shah Assignment Agreement continues in full force and effect on a country-by-country and product-by-product basis until royalties are no longer due on such product under the agreement. +Comparability of Our Results and Our Relationship with Scilex +Since 2019, we have operated as a majority owned subsidiary of Scilex. As a result, our historical financial statements may not be reflective of what our results of operations would have been had we been a standalone public company and no longer a majority owned subsidiary of Scilex. In particular, certain clinical trial management, regulatory, information technology, legal, accounting and finance, facilities and other corporate and infrastructural functions have historically been provided to us by Scilex. We expect that Scilex will continue to provide us with some of the services related to these functions on a transitional basis in exchange for agreed-upon fees pursuant to the Transition Services Agreement (the “Transition Services Agreement”) with Scilex. The costs associated with these services and support were allocated to our operating expenses based on the estimated percentage of time certain Scilex employees spent supporting the SP-102 program, and we expect to incur other costs to replace the services and resources that will not be provided by Scilex. We will also incur additional costs as a standalone public company. As a standalone public company, our total costs related to certain support functions may differ from the costs that were historically allocated to us from Scilex. In addition, in the future, we expect to incur internal costs to implement certain new systems, including infrastructure and an enterprise resource planning system, while our systems are currently being fully supported by Scilex. +Components of Our Results of Operations +Operating Expenses +Research and Development +Research and development expenses are expensed when incurred and consist primarily of direct and allocated costs incurred for our research activities, including the development of our product candidate, and include: +• +direct costs related to clinical trials, including contract manufacturing and supply; +• +allocated portion of salaries, benefits and other related costs, including stock-based compensation expense for Scilex personnel engaged in research and development functions related to the SP-102 program; +• +allocated costs of facilities and support services incurred by Scilex used in drug development related to the SP-102 program; and +• +direct and allocated costs related to outside consultants engaged in research and development functions related to the SP-102 program. +We expect our research and development expenses to increase, as we will incur incremental expenses associated with our lead product candidate, SP-102, currently under development and in clinical trials. Product candidates in later stages of clinical development generally have higher development costs, primarily due to the increased size and duration of later-stage clinical trials. Accordingly, we expect to incur significant research and development expenses in connection with our clinical trials for SP-102. +General and Administrative +General and administrative expenses consist primarily of allocated costs related to salaries and other related costs, including stock-based compensation, for personnel in Scilex’s executive, marketing, finance, corporate and business development and administrative functions. General and administrative expenses also include allocated professional fees for legal, patent, accounting, auditing, tax and consulting services and expenses related to the Business Combination. +We expect that our general and administrative expenses will vary year over year in the future as we adapt our strategies to changes in the business environment. We also expect to incur increased expenses as a result of operating as a public company, including expenses related to compliance with the rules and regulations of the Securities and Exchange Commission (“SEC”), listing standards applicable to companies listed on a national securities +110 +Table of Contents +exchange, additional insurance expenses, investor relations activities and other administrative and professional services. We also expect to allocate additional expenses relating to administrative, finance legal, and other corporate functions to adapt to the changes above and the anticipated growth of our business. +Results of Operations +Comparison of the Years Ended December 31, 2025 and 2024 +The following tables summarize our results of operations for the periods presented (in thousands): +Year Ended December 31, +2025 +2024 +Change +Operating expenses: +Research and development +$ +2,546 +$ +1,709 +$ +837 +General and administrative +157,870 +2,981 +154,889 +Total operating expenses +160,416 +4,690 +155,726 +Loss from operations +(160,416 +) +(4,690 +) +(155,726 +) +Net loss +$ +(160,416 +) +$ +(4,690 +) +$ +(155,726 +) +Research and Development Expenses +The following table summarizes our research and development expenses for the periods presented (in thousands): +Year Ended December 31, +-2025 +2024 +Change +SP-102: +Contracted R&D +$ +1,420 +$ +1,160 +$ +260 +Personnel +923 +492 +431 +Other +203 +57 +146 +Total research and development expenses +$ +2,546 +$ +1,709 +$ +837 +Total research and development expenses for the year ended December 31, 2025 and 2024 were $2.5 million and $1.7 million, respectively. The increase of $0.8 million was primarily related to increased personnel costs due to an increase in headcount and allocation of expenses from Scilex and an increase in contracted R&D due to increased clinical development activities related to development of SP-102. +General and Administrative Expenses +Total general and administrative expenses for the year ended December 31, 2025 and 2024 were $157.9 million and $3.0 million, respectively. The increase of $154.9 million was primarily related to $140.0 million of consulting expense related to consultant shares issued at Closing and $9.9 million of deferred offering costs written off at Closing. Additionally, there was an increase in personnel-related costs due to an increase in headcount and allocation of expenses from Scilex and an increase in consulting expenses due to services required to manage a public company. +Liquidity and Capital Resources +As of December 31, 2025, we had cash and cash equivalents of $20 thousand and accumulated deficit of $275.8 million. During the year ended December 31, 2025, we had operating losses of $160.4 million and used $5.9 million of cash in operations. We are dependent upon Scilex and its affiliates to provide services and funding to support our operations until, at least, such time as external financing is obtained. We expect to incur significant expenses and operating losses for the foreseeable future as we continue our efforts to develop and seek regulatory approval for SP-102. +Future Liquidity Needs +We estimate that our planned operating expenses will be approximately $21.0 million during the next twelve months, which includes the cost of clinical work of approximately $10.0 million. We do not anticipate significant increases in our costs of clinical work during this period. +111 +Table of Contents +In the twelve months following the Business Combination, we expect our primary sources of liquidity to include our existing cash on hand and continued support from Scilex pursuant to the Transition Services Agreement and we are currently exploring various financing alternatives, including new credit facilities, non-dilutive financing options, such as collaborations with international partners to out-license SP-102, debt financings and royalty financings, and equity financing options, such as standby equity purchase arrangements or private placements. +In connection with the PIPE SPA and the Semnur/Biconomy SPA, we may receive financing of $20.0 million and $100.0 million, respectively. +In connection with the Transition Services Agreement with Scilex, we expect to receive approximately $2.0 million of continued support from Scilex, inclusive of fees, in the twelve months following the Business Combination. The continued support from Scilex is expected to consist of (a) clinical support to run the planned Phase 3 trial for approximately $0.8 million, (b) CMC manufacturing support for approximately $0.7 million, (c) general and administrative support, such as human resources, legal and accounting, for approximately $0.4 million and (d) IT support for approximately $0.1 million. +We have based our anticipated operating capital requirements on assumptions that may prove to be incorrect and we may use all our available capital resources sooner than we expect. The amount and timing of our future funding requirements will depend on many factors, some of which are outside of our control, including but not limited to: +• +the scope, progress, results and costs of conducting studies and clinical trials for our product candidate, SP-102; +• +the timing of, and the costs involved in, obtaining regulatory approvals for our product candidate; +• +the costs of manufacturing our product candidate; +• +the timing and amount of any milestone, royalty or other payments we are required to make pursuant to any current or future collaboration or license agreements; +• +our ability to maintain existing, and establish new, strategic collaborations, licensing or other arrangements and the financial terms of any such agreements, including the timing and amount of any future milestone, royalty or other payments due under any such agreement; +• +the extent to which our product candidate, if approved for commercialization, is adopted by the physician community; +• +our need to expand our research and development activities; +• +the costs of acquiring, licensing or investing in businesses, product candidates and technologies; +• +the effect of competing products and product candidates and other market developments; +• +the number and types of future products or product candidates we develop and commercialize; +• +any product liability or other lawsuits related to our current or future product candidates; +• +the expenses needed to attract, hire and retain skilled personnel; +• +the costs associated with being a public company; +• +our need to implement additional internal systems and infrastructure, including financial and reporting systems; +• +the costs of preparing, filing and prosecuting patent applications and maintaining, enforcing and defending intellectual property-related claims; and +• +the extent and scope of our general and administrative expenses. +Should the clinical programs of our product candidate not materialize at the anticipated rate contemplated in our business plan, we will need to raise additional capital in order to continue to fund our research and development, including our plans for clinical and preclinical trials and new product development, as well as to fund operations generally. We will seek to raise additional funds through various potential sources, such as equity offerings, debt financings, collaborations, government contracts or other capital sources, including potential collaborations with other companies or other strategic transactions. +112 +Table of Contents +We cannot be certain that we will be able to secure additional sources of funds to support our operations on acceptable terms, or at all, or, if such funds are available to us, that such additional financing will be sufficient to meet our needs. These conditions, among others, raise substantial doubt about our ability to continue as a going concern. If we raise additional funds by issuing equity or convertible debt securities, it could result in dilution to our existing stockholder or increased fixed payment obligations. In addition, as a condition to providing additional funds to us, future investors may demand, and may be granted, rights superior to those of existing stockholders. If we incur indebtedness, we could become subject to covenants that would restrict our operations and potentially impair our competitiveness, such as limitations on our ability to incur debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. Additionally, any future collaborations we enter into with third parties may provide capital in the near term, but we may have to relinquish valuable rights to our product candidate or grant licenses on terms that are not favorable to us. Any of the foregoing could significantly harm our business, financial condition and results of operations. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may be required to delay, scale back or discontinue the development of our product candidate. +We are dependent upon Scilex and its affiliates to provide services and funding to support our operations until, at least, such time as external financing is obtained. We may also need to take certain other actions to allow us to maintain our projected cash and projected financial position including but not limited to, additional reductions in general and administrative costs, suspension or winding down of clinical development programs and other discretionary costs. Although we believe such plans, if executed and coupled with the above described sources of liquidity, should provide us with financing to meet our needs, successful completion of such plans is dependent on factors outside of our control. +We anticipate that we will continue to incur net losses into the foreseeable future as we support our clinical development to expand approved indications, continue our development of, and seek regulatory approvals for, our product candidate, and expand our corporate infrastructure. As a result, we have concluded that there is substantial doubt about our ability to continue as a going concern within one year after the date that the consolidated financial statements are issued. See Note 1 “ Nature of Operations — Liquidity and Going Concern ” of the notes to our consolidated financial statements included elsewhere in this Annual Report for additional information. Our existing cash and cash equivalents may be insufficient to enable us to fund our operating expenses and capital expenditure requirements for at least the next 12 months. If these sources are insufficient to satisfy our liquidity requirements, we may seek to raise additional funds through equity offerings, debt financings, collaborations, government contracts or other strategic transactions. +Material Cash Requirements +As of December 31, 2025, we have promissory notes totaling $3.5 million, all of which are due in less than a year. +As of December 31, 2025, we have a long-term related party loan totaling $11.9 million due to Scilex. +Off-Balance Sheet Arrangements +We did not have, during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under applicable SEC rules, other than as discussed below. +Subsidiary Guarantee to Scilex-Oramed Note +On September 21, 2023, Scilex entered into, and consummated the transactions contemplated by, a Securities Purchase Agreement (the “Scilex-Oramed SPA”) with Oramed Pharmaceuticals Inc. (“Oramed”) and the Agent (as defined below), pursuant to which, among other things, Scilex issued to Oramed a senior secured promissory note in the principal amount of $101.9 million (the “Scilex-Oramed Note”). In connection with the Scilex-Oramed SPA, Scilex and each of its subsidiaries, including us (collectively, the “Guarantors”), entered into a subsidiary guarantee (as amended, the “Subsidiary Guarantee”) with Oramed and Acquiom Agency Services LLC, as the collateral agent for the holders of the Scilex-Oramed Note (the “Agent”), pursuant to which, the Guarantors have agreed to guarantee and act as surety for payment of the Scilex-Oramed Note and any additional notes issued by Scilex in full or partial substitution of the Scilex-Oramed Note. As of the consummation of the Business Combination, we are no longer a Guarantor under the Subsidiary Guarantee. +Cash Flows +The following table summarizes our cash flows for each of the periods presented (in thousands): +113 +Table of Contents +Year Ended December 31, +2025 +2024 +Change +Net cash used in operating activities +$ +(5,867 +) +$ +(4,891.00 +) +$ +(976 +) +Net cash provided by financing activities +5,875 +4,891 +984 +Net change in cash and cash equivalents +$ +8 +$ +— +$ +8 +Cash Flows from Operating Activities +Net cash used in operating activities increased by $1.0 million during the year ended December 31, 2025 compared to year ended December 31, 2024. The increase is primarily related to higher expenses primarily due to an increase in headcount, an increase in clinical development activities and an increased in general costs associated with managing a public company. +Cash Flows from Financing Activities +For the years ended December 31, 2025 and 2024, net cash provided by financing activities of $5.9 million and $4.9 million, respectively, was primarily due to proceeds from the the related party loan. +Critical Accounting Estimates +Our accounting policies are more fully described in Note 2 of the consolidated financial statements to this Annual Report. As disclosed in Note 2, the preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions about future events that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ significantly from those estimates. We do not have any critical accounting estimates as of December 31, 2025. +Emerging Growth Company +An “emerging growth company” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), is eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. As a result, changes in GAAP or their interpretation, the adoption of new guidance or the application of existing guidance to changes in Semnur’s business could significantly affect our business, financial condition and results of operations. +In addition, we are in the process of evaluating the benefits of relying on the other exemptions and reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, as an emerging growth company, we may take advantage of certain exemptions from various reporting requirements and other burdens that are otherwise applicable generally to public companies. These provisions include, but are not limited to: +• +an exemption from compliance with the requirement to obtain an attestation and report from our auditors on the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”); +• +an exemption from compliance with any new requirements adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotation; +• +reduced disclosure about our executive compensation arrangements in our periodic reports, proxy statements and registration statements; and +• +exemptions from the requirements of holding non-binding advisory votes on executive compensation or +114 +Table of Contents +golden parachute arrangements. +Semnur qualifies and will remain as an emerging growth company until the earlier of (i) the last day of the fiscal year (a) following the fifth anniversary of the closing of the initial public offering, (b) in which Semnur has a total annual gross revenue of at least $1.235 billion, or (c) in which Semnur is deemed to be a large accelerated filer, which means the market value of the common equity of Semnur that is held by non-affiliates equals or exceeds $700 million as of the last business day of its most recently completed second fiscal quarter; and (ii) the date on which Semnur has issued more than $1.00 billion in non-convertible debt securities during the prior three-year period. References herein to “emerging growth company” have the meaning associated with it in the JOBS Act. +Smaller Reporting Company +Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. Semnur qualifies and will remain a smaller reporting company until the last day of the fiscal year in which (i) Semnur has annual revenue of at least $100 million and a public float that equals or exceeds $700 million as of the last business day of its most recently completed second fiscal quarter or (ii) Semnur has a public float that equals or exceeds $250 million as of the last business day of its most recently completed second fiscal quarter. +115 +Table of Contents +Ite m 7A. Quantitative and Qualitative Disclosures About Market Risk. +As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide the information specified under this Item 7A of this Annual Report. +Ite m 8. Financial Statements and Supplementary Data. +Our consolidated financial statements and supplementary data required by this item are set forth at the pages indicated in Item 15(a)(1) and (a)(2), respectively, of this Annual Report. +It em 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. +None. +I tem 9A. Controls and Procedures. +Evaluation of Disclosure Controls and Procedures +We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s regulations, rules and forms and that such information is accumulated and communicated to our management, including our principal officers, as appropriate, to allow for timely decisions regarding required disclosure. +In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. As required by Rule 13a-15(b) promulgated by the SEC under the Exchange Act, we carried out an evaluation, under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Annual Report. Based on the foregoing, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Annual Report. +Management’s Annual Report on Internal Control Over Financial Reporting +Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. Under the supervision of and with the participation of our Principal Executive Officer and Principal Financial Officer, our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2025, based on the criteria set forth in the Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management has concluded that our internal control over financial reporting was effective as of December 31, 2025. +This Annual Report does not include an attestation report of our independent registered public accounting firm on our internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm because the JOBS Act permits emerging growth companies such as our company to provide only management’s report in the Annual Report. +Inherent Limitations on Effectiveness of Controls +Because of its inherent limitations, ICFR may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Accordingly, our controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our control system are met. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. +116 +Table of Contents +Changes in Internal Control over Financial Reporting +There were no changes in our internal control over financial reporting during the quarter ended December 31, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. +It em 9B. Other Information. +10b5-1 Trading Plan Activity +During the fiscal quarter ended December 31, 2025, none of our directors or officers (as defined in Section 16 of the Exchange Act) adopted or terminated any contract, instruction or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act or any “non-Rule 10b5-1 trading arrangement,” as defined in Item 408(c) of Regulation S-K. +It em 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. +Not applicable. +117 +Table of Contents +PART III +It em 10. Directors, Executive Officers and Corporate Governance. +The information required by this item is incorporated by reference from the information contained in the Company’s definitive proxy statement relating to the 2026 Annual Meeting of Stockholders (the “2026 Proxy Statement”), which we expect to file not later than 120 days after the end of the fiscal year covered by this Annual Report. To the extent that we do not file the 2026 Proxy Statement by such date, we will file an amendment to this Annual Report that includes the information required by this Item. +It em 11. Executive Compensation. +The information required by this item is incorporated by reference from the information contained in the 2026 Proxy Statement, which we expect to file not later than 120 days after the end of the fiscal year covered by this Annual Report. To the extent that we do not file the 2026 Proxy Statement by such date, we will file an amendment to this Annual Report that includes the information required by this Item. +It em 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. +The information required by this item is incorporated by reference from the information contained in the 2026 Proxy Statement, which we expect to file not later than 120 days after the end of the fiscal year covered by this Annual Report. To the extent that we do not file the 2026 Proxy Statement by such date, we will file an amendment to this Annual Report that includes the information required by this Item. +It em 13. Certain Relationships and Related Transactions, and Director Independence. +The information required by this item is incorporated by reference from the information contained in the 2026 Proxy Statement, which we expect to file not later than 120 days after the end of the fiscal year covered by this Annual Report. To the extent that we do not file the 2026 Proxy Statement by such date, we will file an amendment to this Annual Report that includes the information required by this Item. +Ite m 14. Principal Accounting Fees and Services. +The information required by this item is incorporated by reference from the information contained in the 2026 Proxy Statement, which we expect to file not later than 120 days after the end of the fiscal year covered by this Annual Report. To the extent that we do not file the 2026 Proxy Statement by such date, we will file an amendment to this Annual Report that includes the information required by this Item. +118 +Table of Contents +PART IV +It em 15. Exhibits, Financial Statement Schedules. +(a) +Financial Statements +(1) +Reference is made to the Index to Consolidated Financial Statements appearing on page F-1 of this Annual Report. +(2) +All other schedules not listed above have been omitted because of the absence of conditions under which they are required, or because the required information is included in the consolidated financial statements or the notes thereto. +(3) +Exhibits +Exhibit +Number +Exhibit Description +Form +File No. +Exhibit +Filing Date +2.1# +Agreement and Plan of Merger, dated as of March 18, 2019, by and among Scilex Holding Company, Sigma Merger Sub, Inc., Semnur Pharmaceuticals, Inc., Fortis Advisors LLC, solely as the representative of the Equityholders and, solely with respect to Section 1.8(a), Section 3.11 and Article X, Sorrento Therapeutics, Inc. +S-4 +333-283019 +333-283019-01 +2.1 +August 12, 2025 +2.2 +Amendment No. 1 to Agreement and Plan of Merger, dated as of August 7, 2019, by and among Semnur Pharmaceuticals, Inc., Scilex Holding Company, Sigma Merger Sub, Inc., Fortis Advisors, LLC, solely as the representative of the Equityholders and, solely with respect to Section 1.8(a), 3.11 and Article X of the Agreement and Plan of Merger, Sorrento Therapeutics, Inc. +S-4 +333-283019 +333-283019-01 +2.2 +August 12, 2025 +2.3# +Agreement and Plan of Merger, dated as of August 30, 2024, by and among Denali Capital Acquisition Corp., Denali Merger Sub Inc. and Semnur Pharmaceuticals, Inc. +S-4 +333-283019 +333-283019-01 +2.3 +August 12, 2025 +2.4 +Amendment No. 1 to Agreement and Plan of Merger, dated as of April 16, 2025, by and among Denali Capital Acquisition Corp., Denali Merger Sub Inc. and Semnur Pharmaceuticals, Inc. +S-4 +333-283019 +333-283019-01 +2.4 +August 12, 2025 +2.5 +Amendment No. 2 to Agreement and Plan of Merger, dated as of July 22, 2025, by and among Denali Capital Acquisition Corp., Denali Merger Sub Inc. and Semnur Pharmaceuticals, Inc. +S-4 +333-283019 +333-283019-01 +2.5 +August 12, 2025 +3.1 +Restated Certificate of Incorporation of Semnur Pharmaceuticals, Inc. +8-K +001-41351 +3.1 +September 26, 2025 +3.2 +Certificate of Designations of Semnur Pharmaceuticals, Inc. +8-K +001-41351 +3.2 +September 26, 2025 +3.3 +Bylaws of Semnur Pharmaceuticals, Inc. +8-K +001-41351 +3.3 +September 26, 2025 +3.4 +Extension Amendment, dated as of April 11, 2025, to the Amended and Restated Memorandum and Articles of Association of Denali Capital Acquisition Corp. +8-K +001-41351 +3.1 +April 16, 2025 +4.1 +Specimen Warrant Certificate of Semnur Pharmaceuticals, Inc. (f/k/a Denali Capital Acquisition Corp.). +S-1 +333-263123 +4.3 +April 5, 2022 +119 +Table of Contents +4.2 +Warrant Agreement, dated as of April 6, 2022, between Denali Capital Acquisition Corp. and VStock Transfer, LLC, as warrant agent. +8-K +001-41351 +4.1 +April 12, 2022 +10.1 +Letter Agreement, dated as of April 6, 2022, by and among Denali Capital Acquisition Corp., Denali Capital Global Investments LLC and certain security holders named therein. +8-K +001-41351 +10.5 +April 12, 2022 +10.2 +Contribution and Satisfaction of Indebtedness Agreement, dated as of August 30, 2024, by and between Scilex Holding Company and Semnur Pharmaceuticals, Inc. +S-4 +333-283019 +333-283019-01 +10.17 +April 21, 2025 +10.3 +Amended and Restated Registration Rights Agreement, dated as of September 22, 2025, by and among Semnur Pharmaceuticals, Inc., Scilex Holding Company and certain security holders. +8-K +001-41351 +10.2 +September 26, 2025 +10.4* +Form of Indemnification Agreement of Semnur Pharmaceuticals, Inc. +S-4 +333-283019 +333-283019-01 +10.11 +April 21, 2025 +10.5* +2024 Semnur Pharmaceuticals, Inc. Stock Option Plan. +S-4 +333-283019 +333-283019-01 +10.12 +August 11, 2025 +10.6* +Form of Stock Option Grant Notice and Form of Stock Option Agreement under 2024 Semnur Pharmaceuticals, Inc. Stock Option Plan. +S-4 +333-283019 +333-283019-01 +10.13 +August 11, 2025 +10.7# +Sponsor Interest Purchase Agreement, dated as of August 30, 2024, by and between Denali Capital Global Investments LLC and Scilex Holding Company. +8-K +001-41351 +10.3 +September 5, 2024 +10.8^ +Master Services Agreement—SP-102, dated as of January 27, 2017, by and between Semnur Pharmaceuticals, Inc. and Lifecore Biomedical, LLC. +S-4 +333-283019 +333-283019-01 +10.19 +August 12, 2025 +10.9 +Amendment No. 1 to Master Services Agreement, dated as of April 26, 2018, by and between Semnur Pharmaceuticals, Inc. and Lifecore Biomedical, LLC. +S-4 +333-283019 +333-283019-01 +10.20 +August 12, 2025 +10.10^ +Amendment No. 2 to Master Services Agreement, dated as of June 6, 2023, by and between Semnur Pharmaceuticals, Inc. and Lifecore Biomedical, LLC. +S-4 +333-283019 +333-283019-01 +10.21 +August 12, 2025 +10.11 +Assignment Agreement by and among Shah Investor LP and the Company, dated as of August 6, 2013. +S-4 +333-283019 +333-283019-01 +10.22 +August 12, 2025 +10.12# +Transition Services Agreement, dated as of September 22, 2025, by and between Scilex Holding Company and the Company. +S-1/A +333-290995 +10.14 +December 19, 2025 +10.13 +Stock Issuance Agreement, dated as of July 22, 2025, by and between Semnur Pharmaceuticals, Inc. and the party named therein. +S-4 +333-283019 +333-283019-01 +10.27 +August 12, 2025 +10.14 +Advisory Services Agreement, dated as of June 12, 2025, by and between JW Investment Management Company Limited and Semnur Pharmaceuticals, Inc. +S-4 +333-283019 +333-283019-01 +10.28 +August 12, 2025 +120 +Table of Contents +10.15 +Amendment to Advisory Services Agreement, dated as of July 22, 2025, by and between JW Investment Management Company Limited and Semnur Pharmaceuticals, Inc. +S-4 +333-283019 +333-283019-01 +10.29 +August 12, 2025 +10.16 +Securities Purchase Agreement, dated as of August 20, 2025, by and among Denali Capital Acquisition Corp., Semnur Pharmaceuticals, Inc. and the Buyers thereto +8-K +001-41351 +10.1 +August 22, 2025 +10.17 +Satisfaction and Discharge of Indebtedness Agreement, dated September 22, 2025, by and between Denali Capital Acquisition Corp. and D. Boral Capital LLC (f/k/a EF Hutton). +8-K +001-41351 +10.5 +September 26, 2025 +10.18 +Promissory Note, dated September 22, 2025, issued by Denali Capital Acquisition Corp. to D. Boral Capital LLC (f/k/a EF Hutton). +8-K +001-41351 +10.6 +September 26, 2025 +10.19 +Satisfaction and Discharge of Indebtedness Agreement, dated September 22, 2025, by and between Denali Capital Acquisition Corp. and US Tiger Securities, Inc. +8-K +001-41351 +10.7 +September 26, 2025 +10.20 +Promissory Note, dated September 22, 2025, issued by Denali Capital Acquisition Corp. to US Tiger Securities, Inc. +8-K +001-41351 +10.8 +September 26, 2025 +10.21 +Satisfaction and Discharge of Indebtedness Agreement, dated September 22, 2025, by and between Denali Capital Acquisition Corp., Denali Capital Global Investments LLC and Scilex Holding Company. +8-K +001-41351 +10.9 +September 26, 2025 +10.22 +Promissory Note, dated September 22, 2025, issued by Denali Capital Acquisition Corp. to Denali Capital Global Investments LLC. +8-K +001-41351 +10.10 +September 26, 2025 +10.23 +Satisfaction and Discharge of Indebtedness Agreement, dated September 22, 2025, by and between Denali Capital Acquisition Corp., Denali Capital Global Investments LLC and FutureTech Capital LLC. +8-K +001-41351 +10.11 +September 26, 2025 +10.24 +Promissory Note, dated September 22, 2025, issued by Denali Capital Acquisition Corp. to FutureTech Capital LLC. +8-K +001-41351 +10.12 +September 26, 2025 +10.25 +Limited Amendment Letter Agreement, dated September 22, 2025, by and among Denali Capital Acquisition Corp., Semnur Pharmaceuticals, Inc. and the investor listed therein. +8-K +001-41351 +10.13 +September 26, 2025 +10.26 +Securities Purchase Agreement, dated September 23, 2025, by and among Semnur Pharmaceuticals, Inc. and the investors listed on the schedule of buyers attached hereto. +8-K +001-41351 +10.14 +September 26, 2025 +10.27 +Employment Agreement, dated September 22, 2025, by and between Semnur Pharmaceuticals, Inc. and Jaisim Shah. +8-K +001-41351 +10.15 +September 26, 2025 +10.28 +Employment Agreement, dated September 22, 2025, by and between Semnur Pharmaceuticals, Inc. and Henry Ji, Ph.D. +8-K +001-41351 +10.16 +September 26, 2025 +10.29 +Employment Agreement, dated September 22, 2025, by and between Semnur Pharmaceuticals, Inc. and Stephen Ma. +8-K +001-41351 +10.17 +September 26, 2025 +19.1 +Semnur Pharmaceuticals, Inc. Insider Trading Policy. +Filed herewith +21.1 +List of Subsidiaries of the Registrant. +Filed herewith +23.1 +Consent of Pipara & Co LLP, independent registered public accounting firm of Semnur. +Filed herewith +121 +Table of Contents +24.1 +Power of Attorney (included on signature page). +31.1 +Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. +Filed herewith +31.2 +Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. +Filed herewith +32.1 +Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. +Filed herewith +32.2 +Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. +Filed herewith +97.1 +Semnur Pharmaceuticals, Inc. Clawback Policy. +Filed herewith +101.INS +Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. +101.SCH +Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents +104 +Cover Page Interactive Data File (embedded within the Inline XBRL document) +* Indicates management contract or compensatory plan or arrangement. +# Certain of the exhibits and schedules to this Exhibit have been omitted in accordance with Regulation S-K Item 601. The Registrant agrees to furnish a copy of all omitted exhibits and schedules to the SEC upon its request. +^ Certain identified information has been omitted pursuant to Item 601(b)(10) of Regulation S-K because such information is both (i) not material and (ii) information that the Registrant treats as private or confidential. The Registrant hereby undertakes to furnish supplemental copies of the unredacted exhibit upon request by the SEC. +Item 16. Form 10-K Summary +None. +122 +Table of Contents +SIGNATURES +Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized . +Semnur Pharmaceuticals, Inc. +Date: February 27, 2026 +By: +/s/ Jaisim Shah +Jaisim Shah +Chief Executive Officer and President +(Principal Executive Officer) +Date: February 27, 2026 +By: +/s/ Stephen Ma +Stephen Ma +Chief Financial Officer +(Principal Financial and Accounting Officer) +POWER OF ATTORNEY +KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints, jointly and severally, each of Jaisim Shah and Stephen Ma, acting alone or together with another attorney-in-fact, as his attorney-in-fact, with full power of substitution and resubstitution, for him in any and all capacities, to sign any and all amendments to this Annual Report, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact, or his substitute, may lawfully do or cause to be done by virtue hereof. +Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated. +Name +Title +Date +/s/ Jaisim Shah +Chief Executive Officer, President and Director +(Principal Executive Officer) +February 27, 2026 +Jaisim Shah +/s/ Stephen Ma +Chief Financial Officer +(Principal Financial and Accounting Officer) +February 27, 2026 +Stephen Ma +/s/ Henry Ji +Executive Chairperson and Director +February 27, 2026 +Henry Ji, Ph.D. +/s/ Dorman Followwill +Director +February 27, 2026 +Dorman Followwill +/s/ Jay Chun +Director +February 27, 2026 +Jay Chun, M.D., Ph.D. +/s/ Yue Alexander Wu +Director +February 27, 2026 +Yue Alexander Wu, Ph.D. +/s/ Annu Navani +Director +February 27, 2026 +Annu Navani, M.D. +123 +Table of Contents +INDEX TO CONSOLIDATED FINANCIAL STATEMENTS +Report of Independent Registered Public Accounting Firm (Pipara & Co LLP, New Delhi, India, PCAOB ID # 6841 ) +F- 2 +Consolidated Balance Sheets as of December 31, 2025 and 2024 +F- 3 +Consolidated Statements of Operations and Comprehensive Loss for the Years ended December 31, 2025 and 2024 +F- 4 +Consolidated Statements of Stockholders’ Deficit for the Years ended December 31, 2025 and 2024 +F- 5 +Consolidated Statements of Cash Flows for the Years ended December 31, 2025 and 2024 +F- 6 +Notes to Consolidated Financial Statements +F- 7 +F- 1 +Table of Contents +REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +To the Stockholders and the Board of Directors of Semnur Pharmaceuticals, Inc. +Opinion on the Financial Statements +We have audited the accompanying consolidated balance sheets of Semnur Pharmaceuticals, Inc. and subsidiaries (the “Company”) as of December 31, 2025 and 2024, the related consolidated statements of operations and comprehensive loss, stockholders' deficit, and cash flows, for each of the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows of the two years in the period ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America. +Company’s Ability to Continue as a Going Concern +The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has negative working capital, has suffered losses from operations, has recurring negative cash flows from operations, dependence upon the support from its parent, Scilex Holding Company, and the success of future development and regulatory approval of SP-102. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s evaluation of the events and conditions and management’s plans regarding these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. +Basis for Opinion +These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. +Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. +Critical Audit Matters +Critical audit matters are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters. +/s/ PIPARA & CO LLP (6841) +We have served as the Company's auditor since 2025. +New Delhi, India +February 27, 2026 +F- 2 +Table of Contents +SEMNUR PHARMACEUTICALS, INC. +CONSOLIDATED BALANCE SHEETS +(In thousands, except share and per share amounts) +December 31, +2025 +2024 +ASSETS +Current assets: +Cash and cash equivalents +$ +20 +$ +12 +Prepaid expenses +576 +2 +Other current assets +— +5,981 +Total current assets +596 +5,995 +Property and equipment, net +750 +689 +Total assets +$ +1,346 +$ +6,684 +LIABILITIES AND STOCKHOLDERS' DEFICIT +Current liabilities: +Accounts payable +$ +5,912 +$ +— +Accrued expenses +739 +35 +Promissory notes +3,517 +— +Total current liabilities +10,168 +35 +Related party loan +11,928 +49,433 +Total liabilities +22,096 +49,468 +Commitments and contingencies (See Note 4) +Stockholders’ deficit: +Preferred stock, $ 0.0001 par value, 45,000,000 shares authorized +as of December 31, 2025 and 2024; 5,423,606 and no shares issued +and outstanding as of December 31, 2025 and 2024, respectively +1 +— +Common stock, $ 0.0001 par value, 740,000,000 and 200,000,000 +shares authorized as of December 31, 2025 and 2024, respectively; +230,209,142 and 200,000,000 issued and outstanding as of +December 31, 2025 and 2024, respectively +23 +20 +Additional paid-in capital +255,026 +72,580 +Accumulated deficit +( 275,800 +) +( 115,384 +) +Total stockholders' deficit +( 20,750 +) +( 42,784 +) +Total liabilities and stockholders' deficit +$ +1,346 +$ +6,684 +See accompanying notes to the consolidated financial statements. +F- 3 +Table of Contents +SEMNUR PHARMACEUTICALS, INC. +CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS +(In thousands, except share and per share amounts) +Year Ended December 31, +2025 +2024 +Operating expenses: +Research and development +$ +2,546 +$ +1,709 +General and administrative +157,870 +2,981 +Total operating expenses +160,416 +4,690 +Loss from operations +( 160,416 +) +( 4,690 +) +Net loss and comprehensive loss +$ +( 160,416 +) +$ +( 4,690 +) +Net loss per share, basic and diluted +$ +( 0.78 +) +$ +( 0.02 +) +Weighted average shares of common +stock outstanding, basic and diluted +204,784,615 +200,000,000 +See accompanying notes to the consolidated financial statements. +F- 4 +Table of Contents +SEMNUR PHARMACEUTICALS, INC. +CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT +(in thousands, except share amounts) +Preferred Stock +Legacy Common Stock +Common Stock +Shares +Amount +Shares +Amount +Shares +Amount +Additional +Paid-in +Capital +Accumulated +Deficit +Total +Stockholders' +Deficit +Balance, January 1, 2024 +— +$ +— +160,000,000 +$ +2 +— +$ +— +$ +72,598 +$ +( 110,694 +) +$ +( 38,094 +) +Retroactive application +of recapitalization +— +— +( 160,000,000 +) +( 2 +) +200,000,000 +20 +( 18 +) +— +— +Adjusted balance, January 1, 2024 +— +— +— +— +200,000,000 +20 +72,580 +( 110,694 +) +( 38,094 +) +Net loss +— +— +— +— +— +— +— +( 4,690 +) +( 4,690 +) +Balance, December 31, 2024 +— +— +— +— +200,000,000 +20 +72,580 +( 115,384 +) +( 42,784 +) +Issuance of preferred stock and +common stock for Debt +Exchange Agreement +5,423,606 +1 +— +— +542,361 +— +54,235 +— +54,236 +Issuance of common stock for +Business Combination +— +— +— +— +2,598,617 +— +( 12,787 +) +— +( 12,787 +) +Issuance of common stock to +consultants +— +— +— +— +26,500,000 +3 +139,998 +— +140,001 +Issuance of common stock to +underwriters +— +— +— +— +100,000 +— +1,000 +— +1,000 +Issuance of common stock upon +cashless exercise of warrants +— +— +— +— +468,164 +— +— +— +— +Net loss +— +— +— +— +— +— +— +( 160,416 +) +( 160,416 +) +Balance, December 31, 2025 +5,423,606 +$ +1 +— +$ +- +230,209,142 +$ +23 +$ +255,026 +$ +( 275,800 +) +$ +( 20,750 +) +See accompanying notes to the consolidated financial statements. +F- 5 +Table of Contents +SEMNUR PHARMACEUTICALS, INC. +CONSOLIDATED STATEMENTS OF CASH FLOWS +(in thousands) +Year Ended December 31, +2025 +2024 +Operating activities +Net loss +$ +( 160,416 +) +$ +( 4,690 +) +Adjustments to reconcile net loss to net cash used for +operating activities: +Stock-based compensation +142,435 +660 +Changes in operating assets and liabilities: +Prepaid expenses +( 586 +) +— +Other assets +9,851 +— +Accounts payable +2,145 +— +Accrued expenses +704 +( 861 +) +Net cash used in operating activities +( 5,867 +) +( 4,891 +) +Financing activities +Proceeds from Business Combination +27 +— +Proceeds from related party loan +5,848 +4,891 +Net cash provided by financing activities +5,875 +4,891 +Net change in cash and cash equivalents +8 +— +Cash and cash equivalents at beginning of period +12 +12 +Cash and cash equivalents at end of period +$ +20 +$ +12 +Supplemental disclosure of non-cash investing and financing activities: +Purchase of equipment through related party loan +$ +61 +Deferred offering costs paid through related party loan +$ +7,602 +$ +5,981 +Payment of promissory notes through related party loan +$ +961 +Net liabilities assumed in Business Combination +$ +12,914 +$ +— +Related party loan settled in preferred stock pursuant +to Debt Exchange Agreement +$ +54,236 +$ +— +Related party loan settled in common stock +$ +1,000 +$ +— +Promissory notes settled in common stock +$ +125 +$ +— +See accompanying notes to the consolidated financial statements. +F- 6 +Table of Contents +SEMNUR PHARMACEUTICALS, INC. +NO TES TO CONSOLIDATED FINANCIAL STATEMENTS +Note 1. Nature of Operations +Organization and Principal Activities +Semnur Pharmaceuticals, Inc. (“Semnur” or the “Company”) is the successor entity to Denali Capital Acquisition Corp. (“Denali”). The Company is a Delaware corporation and is headquartered in Palo Alto, California. As of December 31, 2025, the Company has two wholly owned subsidiaries, Semnur (BVI), Limited and Semnur, Inc. +Denali was formed on January 5, 2022 as a Cayman Islands exempted company for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses or entities. Denali's initial public offering (the “IPO”) became effective on April 6, 2022. +Legacy Semnur (as defined below), now known as Semnur, Inc., was originally formed in 2013 and became a wholly owned subsidiary of Scilex Holding Company (“Scilex”) in 2019. +The Company is a late-stage clinical biopharmaceutical company focused on developing and commercializing innovative non-opioid pain management products for the treatment of acute and chronic pain. +The Company's lead product candidate is SP-102 (10 mg, dexamethasone sodium phosphate viscous gel) (“SP-102” or “SEMDEXA”), a novel, viscous gel formulation of a widely used corticosteroid for epidural injections to treat lumbosacral radicular pain, or sciatica, for which the Company has completed a pivotal Phase 3 study and initiated the second Phase 3 study in September 2025. +Business Combination +References to “Legacy Semnur” refer to the private Delaware corporation that is now the Company's wholly owned subsidiary and named Semnur, Inc. (formerly known as “Semnur Pharmaceuticals, Inc.”). Unless otherwise noted or the context requires otherwise, references to “Common Stock” refer to the Company's common stock, par value $ 0.0001 per share. +On September 22, 2025 (the “Closing”), the Company consummated a business combination pursuant to an agreement and plan of merger, dated as of August 30, 2024 (the “Initial Merger Agreement,” as amended by Amendment No. 1 to Agreement and Plan of Merger, dated April 16, 2025, “Amendment No. 1 to the Initial Merger Agreement” and Amendment No. 2 to Agreement and Plan of Merger, dated July 22, 2025, “Amendment No. 2 to the Initial Merger Agreement” and collectively, the “Merger Agreement”), by and among Denali, Denali Merger Sub Inc., a Delaware corporation and wholly owned subsidiary of Denali (“Merger Sub”), and Legacy Semnur. Pursuant to the terms of the Merger Agreement, the business combination (herein referred to as the “Business Combination” or “reverse recapitalization” for accounting purposes) between Denali and Legacy Semnur was effected through the merger of Merger Sub with and into Legacy Semnur with Legacy Semnur surviving as Denali’s wholly owned subsidiary. In connection with the Business Combination, Denali changed its name from Denali Capital Acquisition Corp. to Semnur Pharmaceuticals, Inc. Pursuant to the Merger Agreement, the Company acquired all of the issued and outstanding equity interests of Legacy Semnur and Denali. +The Company's Common Stock and warrants were listed on the OTC Markets Group, Inc. on September 23, 2025 under the new ticker symbols “SMNR” and “SMNRW”, respectively. +In accordance with the terms and subject to the conditions of the Merger Agreement, at Closing, (i) each outstanding share of Legacy Semnur common stock outstanding immediately prior to Closing was automatically cancelled in exchange for the right to receive 1.25 shares (the “Exchange Ratio”) of Common Stock, (ii) each share of Legacy Semnur preferred stock outstanding immediately prior to the Closing was cancelled in exchange for the right to receive (a) one share of Series A Preferred Stock (as defined in Note 6) and (b) one-tenth of one share of Common Stock, and (iii) each option to purchase shares of Legacy Semnur common stock outstanding as of immediately prior to the Closing was converted into the right to receive a comparable option to purchase shares of Common Stock. +As such, 160,000,000 shares of Legacy Semnur common stock held by Scilex and certain subsidiaries thereof and 40,000,000 Legacy Semnur stock options held by certain Scilex employees, respectively, were automatically cancelled in exchange for 200,000,000 shares of Common Stock and 50,000,000 options to purchase Common Stock, +F- 7 +Table of Contents +SEMNUR PHARMACEUTICALS, INC. +NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS +(unaudited) +respectively, at the Exchange Ratio. +Immediately prior to the Closing, pursuant to the terms of the Debt Exchange Agreement (as defined in Note 8), all existing related party indebtedness between the Company and Scilex, totaling $ 54.2 million, was converted into 5,423,606 shares of Legacy Semnur Series A preferred stock. At Closing, such shares were exchanged for 5,423,606 shares of Series A Preferred Stock and 542,361 shares of Common Stock. +Additionally, at Closing, (i) loans between Scilex and Denali of $ 0.1 million were converted to 12,488 shares of Common Stock, (ii) 500,000 ordinary shares of Denali held by Scilex (see SIPA below) were converted into 500,000 shares of Common Stock and (iv) 2,072,500 ordinary shares of Denali held by Denali Capital Global Investments LLC (the “Sponsor”) (the “Sponsor Shares” ) were converted into 2,072,500 shares of Common Stock. +Simultaneously with the Closing, 26,500,000 shares of Common Stock were issued to consultants (see Note 6 “ Capital Structure — Consulting Agreements with Stock Remuneration ”) and 100,000 shares of Common Stock were issued to Denali underwriters. +The following summarizes the Company's Common Stock immediately following the Business Combination: +Holders +Shares +Denali public shareholders +13,629 +Sponsor +2,072,500 +Scilex Holding Company +201,054,849 +Consultants +26,500,000 +Denali underwriters +100,000 +Total +229,740,978 +The Business Combination was accounted for as a reverse recapitalization. Because Scilex controlled the Company before the Business Combination and will also control the Company following the Business Combination, Denali was treated as the “acquired” company for financial reporting purposes. Accordingly, the Business Combination was treated as the equivalent of Legacy Semnur issuing stock for the net assets of Denali, accompanied by a recapitalization whereby the assets and liabilities of Denali are recognized at historical cost and no goodwill or other intangible assets are recorded. +At Closing, the assets and liabilities of Denali recognized at historical cost included prepaid expenses of $ 12 thousand, accounts payable of $ 4.4 million, related party liabilities of $ 3.9 million and notes payable of $ 4.6 million. +Sponsor Interest Purchase Agreement (the “SIPA”) +In connection with the execution and delivery of the Merger Agreement, the “Sponsor and Scilex entered into the SIPA dated August 30, 2024. Pursuant to the SIPA, Scilex agreed to purchase 500,000 Class B ordinary shares, par value $ 0.0001 per share (the “Purchased Interests”), of the Company that were held by the Sponsor. The aggregate consideration for the purchase and sale of the Purchased Interests is as follows: (i) $ 2.0 million (the “Cash Consideration”) and (ii) 300,000 shares of common stock, par value $ 0.0001 per share, of Scilex (the “Scilex Shares”). Pursuant to the SIPA, Scilex paid the Cash Consideration and agreed to issue the Scilex Shares to the Sponsor contingent upon and following the occurrence of the Business Combination. The Purchased Interests converted automatically, on a one-for-one basis, into one Common Stock share upon Closing pursuant to the terms of the Merger Agreement. On September 22, 2025, the requirement to deliver the Scilex Shares was discharged pursuant to that certain Satisfaction and Discharge Agreement by and among the Company, Sponsor and Scilex. +Securities Purchase Agreement (the “PIPE SPA”) +On August 20, 2025, the Company and Legacy Semnur entered into the PIPE SPA with the investor named therein, pursuant to which the investor agreed to purchase 1,250,000 shares of Common Stock at a price of $ 16.00 per share, for an aggregate purchase price of $ 20.0 million following the consummation of the Business Combination. On September 22, 2025, the PIPE SPA was amended to provide that unless such agreement was terminated pursuant to its terms (or otherwise by mutual agreement of the parties thereto), the closing of the transactions contemplated thereby would occur not later than the 14th business day following the closing of the Business Combination, subject to the satisfaction or waiver of the closing conditions set forth therein. As of December 31, 2025, the transaction has not closed and accordingly, the shares have not been issued and the funds have not been received. As the transaction did +F- 8 +Table of Contents +SEMNUR PHARMACEUTICALS, INC. +NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS +(unaudited) +not close on or before December 31, 2025, the nonbreaching party has an option to terminate the PIPE SPA without liability. +Additionally, in connection with the PIPE SPA, the Company is obligated to pay a cash financing service fee of 7 % of the received investment funds (see Note 6 “ Capital Structure — Consulting Services Agreement with JW Investment Management Company Limited ”). +Bitcoin Securities Purchase Agreement (the “Semnur/Biconomy SPA”) +On September 23, 2025, the Company entered into the Semnur/Biconomy SPA with Biconomy PTE.LTD (“Biconomy”). Pursuant to the Semnur/Biconomy SPA, the Company agreed to issue and sell, and Biconomy agreed to purchase, 6,250,000 shares of Common Stock, at a purchase price of $ 16.00 per share, for an aggregate purchase price of $ 100.0 million, payable in Bitcoin blockchain (“Bitcoin”), with such amount of Bitcoin equal to the quotient of (A) the buyer’s respective aggregate purchase price divided by (B) the spot exchange rate for Bitcoin as published by Coinbase.com at 8:00 p.m. (New York City time) on the trading day immediately prior to the closing date of the purchase. As of December 31, 2025, the transaction has not closed and accordingly, the shares have not been issued and the funds have not been received. As the transaction did not close on or before December 31, 2025, the nonbreaching party has an option to terminate the Semnur/Biconomy SPA without liability. +Public Warrants and Private Placement Warrants +Upon completion of the Business Combination, 8,760,000 public and private placement warrants that were issued by Denali in connection with its IPO (“Public Warrants” and “Private Warrants”, respectively, and together, the “Warrants”) remained outstanding and pursuant to the terms thereof holders of such warrants are entitled to acquire shares of Semnur Common Stock at an exercise price of $ 11.50 . The Warrants expire in September 2027 . +In December 2025, 1,327,878 Warrants were exercised on a cashless basis for 468,164 shares of the Company's Common Stock. As of December 31, 2025 there were 7,432,122 Warrants outstanding which are exercisable for 7,432,122 shares of Common Stock. +The Company may redeem any unexpired Warrants prior to their exercise at a price of $ 0.01 per Warrant, provided that the closing price of Common Stock equals or exceeds $ 16.50 per share (as adjusted for share subdivisions, share dividends, rights issuances, subdivisions, reorganizations, recapitalizations and the like) on each of 20 trading days within any 30-trading-day period commencing after the Warrants became exercisable and ending on the third trading day prior to the date on which notice of redemption is given. If and when the Warrants become redeemable, the Company may exercise its redemption right even if they are unable to register or qualify the underlying securities for sale under all applicable state securities laws. In addition, the Company may redeem the Warrants at any time after they become exercisable and prior to their expiration for a number of shares of Common Stock determined based on the fair market value of Common Stock. +Liquidity and Going Concern +The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. Management has assessed the Company’s ability to continue as a going concern for at least one year after the issuance date of the accompanying consolidated financial statements. +As of December 31, 2025, the Company had cash and cash equivalents of $ 20 thousand and accumulated deficit of $ 275.8 million . During the year ended December 31, 2025, the Company had operating losses of $ 160.4 million and used $ 5.9 million of cash in operations. The Company is dependent upon Scilex to provide services and funding to support the operations of the Company until, at least, such time as external financing is obtained. The Company expects to incur significant expenses and operating losses for the foreseeable future as it continues its efforts to develop and seek regulatory approval for SP-102. +The Company will need additional financing to fund its ongoing activities. The Company may obtain additional funding through a combination of equity offerings, debt financings, collaborations, government contracts or other capital sources, including potential collaborations with other companies or other strategic transactions. The Company’s plans are also dependent upon the success of future development and regulatory approval of SP-102. +Although the Company believes such plans, if executed, should provide the Company with financing to meet its needs, successful completion of such plans is dependent on factors outside the Company’s control. As a result, +F- 9 +Table of Contents +SEMNUR PHARMACEUTICALS, INC. +NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS +(unaudited) +management has concluded that the aforementioned conditions, among other things, raise substantial doubt about the Company’s ability to continue as a going concern for one year after the date the consolidated financial statements are issued. +Forward Stock Split +On August 30, 2024, the Company effected a 160,000-for-1 forward stock split of all outstanding shares of Common Stock which proportionally increased the number of all issued and outstanding shares of Common Stock from 1,000 to 160,000,000 and did not change the par value per share. All equity-related information including per share amounts for all periods presented within these consolidated financial statements have been adjusted retroactively, where applicable, to reflect the forward stock split. +Emerging Growth Company Status +The Company is an emerging growth company, as defined in Section 2(a) of the Securities Act of 1933, as amended, (the “Securities Act”), as modified by the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”). The Company may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. +Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act, until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, these consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates. +Note 2. Summary of Significant Accounting Policies +Basis of Presentation +The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include all adjustments necessary for the fair presentation of the Company’s financial position for the periods presented. All intercompany balances and transactions have been eliminated in consolidation. Certain prior period amounts in the statement of cash flows have been reclassified to conform to the current period presentation. +Carve-Out Method +As of December 31, 2025, the Company’s financial results are included in Scilex’s consolidated financial results. +The accompanying consolidated financial statements reflect assets, liabilities, and expenses that are directly attributable to the Company, including the assets, liabilities, and expenses of the SP-102 development program. The assets and liabilities excluded from the accompanying consolidated financial statements consist of: +• +Cash held by Scilex to fund the Company’s operations. Scilex uses a centralized approach to cash management and financing of its operations and those of its subsidiaries. Accordingly, only the cash and cash equivalents residing in the Company’s bank accounts and legally owned by the Company have been reflected in these consolidated financial statements. +• +Other assets and liabilities at Scilex which are not directly related to, or are not specifically owned by, or are not commitments, of the Company, including certain fixed assets, intangible assets, and leases shared by the Company with other business operations of Scilex. +• +Third-party debt held by Scilex and the related interest expense have not been allocated to the Company's +F- 10 +Table of Contents +SEMNUR PHARMACEUTICALS, INC. +NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS +(unaudited) +consolidated financial statements as the Company was not the legal obligor of the third-party debt and Scilex’s borrowings were not directly attributable to the Company. To fund the Company’s operating cash flow needs, Scilex made payments on behalf of the Company directly to vendors and allocated non-cash stock-based compensation expenses during the year ended December 31, 2025. See Note 8 “ Related Parties ” for additional details. +The Company’s operating expenses consisted of both research and development (“R&D”) and general and administrative (“G&A”) expenses. R&D expenses directly related to the Company, including third-party costs of conducting studies and clinical trials for the SP-102 product candidate, were entirely attributed to the Company in the accompanying consolidated financial statements. R&D salaries, wages, benefits, and stock-based compensation related to Scilex's equity incentive plans were allocated to the Company based on the estimated percentage of time certain Scilex R&D employees spent on the SP-102 program during the reporting period. +The Company also received services and support from other functions of Scilex. The Company’s operations are dependent upon the ability of these other functions to provide these services and support. The costs associated with these services and support were allocated to the Company based on the estimated percentage of time certain Scilex employees spent supporting the SP-102 program. These allocated costs were primarily related to corporate administrative expenses, G&A employee related costs, including salaries, stock-based compensation related to Scilex's equity incentive plans, and other benefits for corporate employees, as well as other expenses for shared assets for the following functional groups: information technology, legal, accounting and finance, facilities, and other corporate and infrastructural services. These allocated costs were recorded as R&D expenses and G&A expenses in the statements of operations and comprehensive loss. +The Company believes the assumptions and allocations underlying the accompanying consolidated financial statements were reasonable and appropriate under the circumstances. Nevertheless, the Company’s consolidated financial statements may not include all of the actual expenses that would have been incurred had the Company operated as a standalone company during the periods presented and may not reflect the results of operations, financial position and cash flows had the Company operated as a standalone company during the periods presented. Actual costs that would have been incurred if the Company had operated as a standalone company would depend on multiple factors, including organizational structure and strategic decisions made in various areas, including information technology and infrastructure. The Company also may have incurred additional costs associated with being a standalone, publicly listed company that were not included in the expense allocations and, therefore, would result in additional costs that are not reflected in its historical results of operations, financial position and cash flows. +Use of Estimates +The preparation of these consolidated financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of operating expenses during the reporting period. These estimates include, but are not limited to, fair value of financial instruments, useful lives of property and equipment, certain assumptions used to calculate the fair value of Scilex stock option awards, as well as the percentage of time certain Scilex employees spent supporting the Company’s SP-102 program, which is used to calculate the amount of operating expenses allocated from Scilex as discussed in the “Carve-Out Method” section above. +Risks and Uncertainties +Any product candidates developed by the Company will require approvals from the U.S. Food and Drug Administration (the “FDA”) or foreign regulatory agencies prior to commercial sales. There can be no assurance that the Company’s current and future product candidates will meet desired efficacy and safety requirements to obtain the necessary approvals. If approval is denied or delayed, it may have a material adverse impact on the Company’s business and its consolidated financial statements. +The Company is subject to a number of risks similar to other late-stage pharmaceutical companies including, but not limited to, dependency on the clinical success of the Company’s product candidates, ability to obtain regulatory approval of its product candidates, the need for substantial additional financing to achieve its goals, uncertainty of broad adoption of its approved products, if any, by physicians and consumers, significant competition, untested manufacturing capabilities, and dependence on key individuals and sole source suppliers. +Global economic and business activities continue to face widespread macroeconomic and geopolitical +F- 11 +Table of Contents +SEMNUR PHARMACEUTICALS, INC. +NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS +(unaudited) +uncertainties, including global trade disputes, labor shortages, declines in consumer confidence, inflation and monetary supply shifts, recession risks, potential disruptions from the ongoing wars in Ukraine and the Middle East and related sanctions, declines in economic growth, tariffs, the current U.S. government shutdown and uncertainty about economic stability. The Company continues to actively monitor the impact of these macroeconomic and geopolitical factors on its financial condition, liquidity, operations, and workforce. The extent of the impact of these factors on the Company’s operational and financial performance, including its ability to execute its business strategies and initiatives in the expected time frame, will depend on future developments, which are uncertain and cannot be predicted; however, any continued or renewed disruption resulting from these factors could negatively impact the Company’s business. +Concentration of Credit Risk +Financial instruments that potentially subject the Company to concentrations of credit risk consist of a cash account in a financial institution, which, at times, may exceed the Federal Depository Insurance Coverage of $ 250,000 . The Company has not experienced losses on this account. +Concentration of Supply Risk +The Company contracts with third parties for the manufacture, assembly, testing, packaging and storage of its product candidate. The Company’s contract manufacturing organizations (“CMOs”) comply with Current Good Manufacturing Practice and regulatory requirements. The CMOs are selected for specific competencies having met the Company’s development, manufacturing, quality and the FDA regulatory requirements. These CMOs manufacture the Company’s clinical supplies and commercial batches. The Company currently has no plans to build its own manufacturing or distribution infrastructure. As clinical trial development progresses forward, the Company will continue to explore both internal capabilities as well as deepening and expanding external relationships to ensure it is able to meet manufacturing requirements. +Lifecore Master Services Agreement +On January 27, 2017, the Company entered into a Master Services Agreement (as amended, the “Lifecore Master Services Agreement”), with Lifecore Biomedical, LLC (“Lifecore”). Pursuant to the Lifecore Master Services Agreement, Lifecore is responsible for clinical trial material manufacturing and development services for SP-102 as set forth in each separate statement of work. For the purposes of Lifecore’s development and clinical trial material manufacturing obligations, the Company granted Lifecore a nonexclusive, worldwide and royalty-free license under the Company's owned or controlled intellectual property rights necessary to manufacture SP-102, without additional right, title or interest in the Company’s intellectual property. +The Lifecore Master Services Agreement expires on December 31, 2028, unless terminated earlier in accordance with the terms of such agreement, or unless renewed further by the parties. Either party may terminate the Lifecore Master Services Agreement (1) if the other party is in material breach of the agreement and fails to cure such breach within 30 days of written notice, subject to certain exceptions; or (2) immediately upon written notice to the other party if the other party (a) becomes insolvent, (b) ceases to function as a going concern, (c) is convicted of or pleads guilty to a charge of violating any law relating to either party’s business, or (d) engages in any act which materially impairs goodwill associated with SEMDEXA or materially impairs the terminating party’s trademark or trade name. In addition, Lifecore may terminate the agreement if (i) Semnur fails to pay past due invoices upon 30 days’ written notice, or (ii) Semnur rejects or fails to respond to a major change or minor change proposed by Lifecore that does not change SEMDEXA’s written and approved acceptance criteria. +The Lifecore Master Services Agreement contains customary reciprocal indemnification obligations for Lifecore and Semnur. +During the year ended December 31, 2025, the Company incurred expenses of $ 0.9 million related to the Lifecore Master Services Agreement. +Segments +Operating segments are identified as components of an entity where separate discrete financial information is available for evaluation by the chief operating decision maker in making decisions on how to allocate resources and assesses performance. The Company has determined that its chief operating decision maker (“CODM”) is its Chief Executive Officer , as he is responsible for making decisions regarding the allocation of resources and assessing +F- 12 +Table of Contents +SEMNUR PHARMACEUTICALS, INC. +NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS +(unaudited) +performance as well as for strategic operational decisions. Since inception, the Company has devoted all of its efforts to the development of SP-102. Accordingly, the Company has determined that it operates its business as a single operating segment and has one reportable segment. T he CODM assesses performance and decides how to allocate resources based on net loss. Net loss is used to monitor budget versus actual results. The measure of segment net loss and segment expenses is reported on the consolidated statements of operations and comprehensive loss. The measure of segment assets is reported on the consolidated balance sheets as total assets. All long-lived assets are maintained in the United States of America and Switzerland. +Cash and Cash Equivalents +The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents, such as money market accounts. The Company minimizes its credit risk associated with cash and cash equivalents by periodically evaluating the credit quality of its primary financial institution. +Fair Value of Financial Instruments +The Company follows accounting guidance on fair value measurements for financial instruments measured on a recurring basis, as well as for certain assets and liabilities that are initially recorded at their estimated fair values. Fair value is defined as the exit price, or the amount that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company uses the following three-level hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs to value its financial instruments: +Level 1 — Observable inputs such as unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date; +Level 2 — Inputs (other than quoted prices included in Level 1) that are either directly or indirectly observable inputs for similar assets or liabilities. These include quoted prices for identical or similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active; and +Level 3 — Significant unobservable inputs which are supported by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation. +Financial instruments measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires it to make judgments and consider factors specific to the asset or liability. The use of different assumptions and/or estimation methodologies may have a material effect on estimated fair values. Accordingly, the fair value estimates disclosed or initial amounts recorded may not be indicative of the amount that the Company or holders of the instruments could realize in a current market exchange. +The Company’s financial assets carried at fair value are comprised of cash and cash equivalents. Cash and cash equivalents consist of money market accounts and bank deposits which are highly liquid and readily tradable. These assets are Level 1 assets as they are valued using inputs observable in active markets for identical securities. +Deferred Offering Costs +The Company’s legal, accounting and other fees directly attributable to the Business Combination were deferred and capitalized within other current assets on the consolidated balance sheets. Total costs deferred and capitalized in relation to the Business Combination as of December 31, 2024 were $ 6.0 million. Deferred offering costs of $ 9.9 million were fully expensed upon Closing of the Business Combination within G&A expenses on the consolidated statement of operations and comprehensive loss for the year ended December 31, 2025 . +Property and Equipment +Property and equipment are carried at cost less accumulated depreciation. Depreciation of property and equipment is computed using the straight-line method over the estimated useful lives of the assets, which are generally five to seven years . The cost of repairs and maintenance is expensed as incurred. Costs for property and equipment not yet placed into service are capitalized as construction-in-progress and depreciated once placed into service. +Impairment of Long-Lived Assets +F- 13 +Table of Contents +SEMNUR PHARMACEUTICALS, INC. +NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS +(unaudited) +Long-lived assets consist of property and equipment. Long-lived assets to be held and used are tested for recoverability whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. Factors that the Company considers in deciding when to perform an impairment review include significant underperformance of the business in relation to expectations, significant negative industry or economic trends and significant changes or planned changes in the use of the assets. If an impairment review is performed to evaluate a long-lived asset for recoverability, the Company compares forecasts of undiscounted cash flows expected to result from the use and eventual disposition of the long-lived asset to its carrying value. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of an asset are less than its carrying amount. The impairment loss would be based on the excess of the carrying value of the impaired asset over its fair value, determined based on discounted cash flows. There was no impairment of long-lived assets during the years ended December 31, 2025 and 2024 . +Promissory Notes and Related Party Loan +The Company accounts for its promissory notes and related party loan in accordance with ASC 470, Debt , and related guidance. Debt is recognized at the issuance date fair value, net of any debt discounts or issuance costs. Debt is subsequently carried at amortized cost, with any applicable interest expense recognized using the effective interest method over the contractual term. +If the debt is amended or exchanged, the Company evaluates whether the modification is considered a troubled debt restructuring or an extinguishment under ASC 470-50. When extinguishment accounting applies, the old debt is derecognized and any difference between the reacquisition price and the carrying amount of the extinguished debt is recognized in earnings. +Warrants +The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC 480, Distinguishing Liabilities from Equity , and ASC 815, Derivatives and Hedging . The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own ordinary shares and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding. For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in-capital at the time of issuance. For issued or modified warrants that do not meet all of the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter. As of December 31, 2025 and 2024 , the Company has accounted for the Warrants as equity-classified instruments. +Research and Development Costs +The Company expenses the cost of R&D as incurred. R&D expenses are comprised of costs incurred in performing R&D activities, including clinical trial costs, manufacturing costs for clinical materials, and the costs relating to other contracted services, license fees and other external costs. Nonrefundable advance payments for goods and services that will be used in future research and development activities are expensed when the activity is performed or when the goods have been received, rather than when payment is made, in accordance with ASC 730, Research and Development. +Stock-Based Compensation +The Company accounts for stock-based compensation in accordance with ASC 718, Compensation – Stock Compensation, which establishes accounting for equity instruments exchanged for employee and consulting services. Stock-based compensation cost is measured at the grant date, based on the fair value of the award determined using the Black-Scholes option pricing model, and is recognized as an expense, under the straight-line method, over the employee’s requisite service period (generally the vesting period of the equity grant) or non-employee’s vesting period. The Company accounts for forfeitures as incurred. +For purposes of determining the inputs used in the calculation of stock-based compensation, the Company determines the expected life assumption for options issued using the simplified method, which is an average of the +F- 14 +Table of Contents +SEMNUR PHARMACEUTICALS, INC. +NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS +(unaudited) +contractual term of the option and its ordinary vesting period since the Company does not have historic exercise behavior. The Company determines an estimate of option volatility based on an assessment of historical volatilities of comparable companies whose share prices are publicly available. The Company uses these estimates, in conjunction with the fair value of Scilex’s common stock, risk-free interest rate, and the expected dividend yield as inputs in the Black-Scholes option pricing model. Depending upon the number of stock options granted, any fluctuations in these calculations could have a material effect on the results presented in the Company’s statement of operations. +Stock-based compensation for Scilex employees who provide services and support activities related to the Company are allocated and attributed to the Company based on the estimated percentage of their time spent providing services attributable to the Company. +Income Taxes +The provisions of ASC 740, Income Taxes , address the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC 740-10, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. The Company has determined that it has uncertain tax positions. +The Company accounts for income taxes using the asset and liability method to compute the differences between the tax basis of assets and liabilities and the related financial amounts, using currently enacted tax rates. +The Company has deferred tax assets, which are subject to periodic recoverability assessments. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount that more likely than not will be realized. +Comprehensive loss +Comprehensive loss is defined as a change in equity of a business enterprise during a period, resulting from transactions from non-owner sources. There are no components of comprehensive loss for the Company. Thus, comprehensive loss is the same as the net loss for the periods presented. +Net Loss per Share +Basic net loss per share is computed by dividing net loss for the period by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share reflects the additional dilution from potential issuances of common stock, such as stock issuable pursuant to the exercise of stock options and warrants. The treasury stock method is used to calculate the potential dilutive effect of these common stock equivalents. Potentially dilutive shares are excluded from the computation of diluted net loss per share when their effect is anti-dilutive. In periods where a net loss is presented, all potentially dilutive securities are anti-dilutive and are excluded from the computation of diluted net loss per share. +Recently Adopted Accounting Pronouncements +In December 2023, the FASB issued Accounting Standards Update 2023-08, Intangibles—Goodwill and Other—Crypto Assets (Subtopic 350-60): Accounting for and Disclosure of Crypto Assets (“ASU 2023-08” ), which requires cryptocurrency assets to be measured at fair value on the balance sheet and gains and losses from changes in the fair value of cryptocurrency assets to be recognized on the statement of operations and comprehensive loss in each reporting period. ASU 2023-08 also requires certain interim and annual disclosures with respect to cryptocurrency holdings. The Company adopted ASU 2023-08 for the fiscal year beginning January 1, 2025 and the adoption did no t have any impact to the Company's consolidated financial statements as the Company did not have any cryptocurrency holdings at adoption. +In December 2023, the FASB issued Accounting Standards Update 2023-09, Income Taxes - Improvements to Income Tax Disclosures (“ASU 2023-09”) requiring enhancements and further transparency to certain income tax disclosures, most notably the tax rate reconciliation and income taxes paid. ASU 2023-09 does not change the recognition or measurement of income taxes under ASC 740. The Company adopted ASU 2023-09 on a prospective basis for the fiscal year ended December 31, 2025 and other than the presentation of additional disaggregated data in the income tax footnote disclosure, there was no material impact on the Company's consolidated financial statements. Prior-period comparative disclosures for the income tax footnote have not been recast to the expanded format required by ASU 2023-09, consistent with the transition guidance in ASU 2023-09. +F- 15 +Table of Contents +SEMNUR PHARMACEUTICALS, INC. +NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS +(unaudited) +Recently Issued Accounting Pronouncements +In November 2024, the FASB issued Accounting Standards Update 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (“ASU 2024-03”), which requires disaggregated information about certain income statement expense line items on an annual and interim basis. ASU 2024-03 is effective for annual periods beginning after December 15, 2026 and interim reporting periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted and can be applied prospectively or retrospectively. The Company is evaluating the impact of the adoption of this standard on the Company’s consolidated financial statements and related disclosures. +Note 3. Balance Sheet Components +Prepaid expenses +Prepaid expenses consist of the following (in thousands): +December 31, +2025 +2024 +Prepaid research & development +$ +436 +$ +2 +Prepaid insurance +140 +— +Total prepaid expenses +$ +576 +$ +2 +Property and equipment, net +Property and equipment, net consists of the following (in thousands): +December 31, +2025 +2024 +Construction-in-progress +$ +750 +$ +689 +Furniture +17 +17 +Computers and equipment +8 +8 +Property and equipment, gross +775 +714 +Less: accumulated depreciation +( 25 +) +( 25 +) +Property and equipment, net +$ +750 +$ +689 +The Company recognized no depreciation expense for years ended December 31, 2025 and 2024. Costs for long-lived assets not yet placed into service are capitalized as construction-in-progress and depreciated once placed into service. +Accrued Expenses +Accrued expenses consist of the following (in thousands): +December 31, +2025 +2024 +Accrued research & development +$ +30 +$ +8 +Accrued professional fees +236 +2 +Accrued compensation +469 +— +Accrued other +4 +25 +Total accrued expenses +$ +739 +$ +35 +Note 4. Commitments and Contingencies +In the normal course of business, the Company may from time to time be named as a party to various legal claims, actions and complaints, including matters involving employment, intellectual property, effects from the use of +F- 16 +Table of Contents +SEMNUR PHARMACEUTICALS, INC. +NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS +(unaudited) +therapeutics utilizing its technology, or others. It is impossible to predict with certainty whether any resulting liability would have a material adverse effect on the Company’s financial position, results of operations or cash flows. As of December 31, 2025 and 2024, the Company was not a party to any material legal proceedings with respect to itself or any of its material properties. +Legacy Semnur Merger Agreement +On March 18, 2019, Legacy Semnur was acquired by Scilex pursuant to an Agreement and Plan of Merger with Semnur (as amended, the “Legacy Semnur Merger Agreement”), Sigma Merger Sub, Inc., a wholly owned subsidiary of Scilex (“Sigma Merger Sub”), Fortis Advisors LLC, solely as representative of the holders of the Company’s equity, and for limited purposes, Sorrento Therapeutics, Inc. Pursuant to the Legacy Semnur Merger Agreement, Sigma Merger Sub merged with and into Legacy Semnur, and Legacy Semnur survived as Scilex’s wholly owned subsidiary. +Pursuant to the Legacy Semnur Merger Agreement, and upon the terms and subject to the conditions contained therein, Scilex agreed to pay the former holders of Legacy Semnur’s capital stock up to $ 280.0 million in aggregate contingent cash consideration based on the achievement of certain milestones (which amount is expected to be charged back to Semnur through an intercompany arrangement ), comprised of a $ 40.0 million payment that will be due upon obtaining the first approval of a new drug application of a Semnur product by the FDA and additional payments that will be due upon the achievement of certain amounts of net sales of Semnur products, as follows: (i) a $ 20.0 million payment upon the achievement of $ 100.0 million in cumulative net sales of a Semnur product, (ii) a $ 20.0 million payment upon the achievement of $ 250.0 million in cumulative net sales of a Semnur product, (iii) a $ 50.0 million payment upon the achievement of $ 500.0 million in cumulative net sales of a Semnur product, and (iv) a $ 150.0 million payment upon the achievement of $ 750.0 million in cumulative net sales of a Semnur product. To date, none of the foregoing payments have been triggered. +Shah Assignment Agreement +On August 6, 2013, Legacy Semnur entered into an Assignment Agreement (the “Shah Assignment Agreement”) with Shah Investor LP (“Shah Investor”). Pursuant to the Shah Assignment Agreement, Shah Investor assigned to Legacy Semnur the patents, know-how and other intellectual property related to pharmaceutical compositions of corticosteroids. +In consideration of the license and rights granted by Shah Investor, Legacy Semnur agreed to pay royalties (i) at the rate of 1.5 % of the Net Sales for Annual Net Sales (each as defined therein) up to $ 250.0 million and (ii) at the rate of 2.5 % of the Net Sales for Annual Net Sales of $ 250.0 million and above, subject to certain adjustments as set out in the Shah Assignment Agreement. Such royalties payment for a given calendar quarter shall be due and payable on the date the royalty report for such quarter is due under the Shah Assignment Agreement. To date, none of the foregoing payments have been triggered. +The Shah Assignment Agreement continues in full force and effect on a country-by-country and product-by-product basis until royalties are no longer due on such product under the agreement. The Shah Assignment Agreement contains customary reciprocal indemnification obligations for Shah Investor and Semnur. +Subsidiary Guarantee to Scilex-Oramed Note +On September 21, 2023, Scilex entered into, and consummated the transactions contemplated by, a Securities Purchase Agreement (the “Scilex-Oramed SPA”) with Oramed Pharmaceuticals Inc. (“Oramed”) and the Agent (as defined below), pursuant to which, among other things, Scilex issued to Oramed a senior secured promissory note in the principal amount of $ 101.9 million (the “Scilex-Oramed Note”). In connection with the Scilex-Oramed SPA, Scilex and each of its subsidiaries, including Legacy Semnur, (collectively, the “Guarantors”) entered into a subsidiary guarantee (as amended, the “Subsidiary Guarantee”) with Oramed and Acquiom Agency Services LLC, as the collateral agent for the holders of the Scilex-Oramed Note (the “Agent”), pursuant to which, the Guarantors have agreed to guarantee and act as surety for payment of the Scilex-Oramed Note and any additional notes issued by Scilex in full or partial substitution of the Scilex-Oramed Not e. Following the execution of the amended and restated security agreement with Oramed on October 8, 2024, and upon completion of the Business Combination, as of September 22, 2025, the Company was no longer a Guarantor under the Subsidiary Guarantee. +Note 5. Promissory Notes +F- 17 +Table of Contents +SEMNUR PHARMACEUTICALS, INC. +NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS +(unaudited) +Pursuant to the Business Combination, the Company assumed all liabilities of Denali including its existing promissory notes and its liability for its deferred underwriting costs associated with the IPO. Simultaneously upon Closing, the agreements for these existing liabilities were terminated and new promissory notes and discharge payment agreements were signed with the holders. +Immediately prior to the Closing, Denali, Sponsor and Scilex entered into a Satisfaction and Discharge of Indebtedness Agreement, pursuant to which the Sponsor received $ 1.1 million in cash and a promissory note for $ 0.8 million (the “Sponsor Note”). Per the terms of the note, the Sponsor Note is payable in six monthly installments of $ 134 thousand, starting on October 1, 2025 and ending on March 1, 2026. +Immediately prior to the Closing, Denali and FutureTech Capital LLC (“FutureTech”) entered into a Satisfaction and Discharge of Indebtedness Agreement, pursuant to which FutureTech received $ 340 thousand in cash and a promissory note for $ 1.0 million (the “FutureTech Note”). Per the terms of the note, the FutureTech Note is payable in six monthly installments of $ 170 thousand, starting on October 1, 2025 and ending on March 1, 2026. +At Closing, Denali and the Denali underwriters entered into a Satisfaction and Discharge of Indebtedness Agreements, pursuant to which the Denali underwriters received $ 350 thousand in cash and promissory notes for a total of $ 2.7 million (the “Denali Underwriter Notes”). Per the terms of the notes, the Denali Underwriter Notes are payable in nine monthly installments of $ 300 thousand, starting on October 1, 2025 and ending on June 1, 2026, with the last monthly payment being $ 250 thousand. +The following summarizes the new promissory notes as a result of the Business Combination: +New Agreements +Note +Original Issue Date +Existing Denali Balance +Note +Discharge +Sponsor Note +4/11/2023 , 7/10/2024 +$ +1,807 +$ +806 +$ +1,144 +FutureTech Note +7/11/2023 +1,363 +1,022 +340 +Denali Underwriter Notes +4/6/2022 +2,888 +2,650 +350 +Total promissory notes +$ +6,058 +$ +4,478 +$ +1,834 +As of December 31, 2025, the Company had total current promissory notes of $ 3.5 million , all of which are due in less than a year. +Notwithstanding the payment schedules in the Sponsor Note, the FutureTech Note and the Denali Underwriter Notes, the balance due on any notes (less any payments previously made to the holder thereunder) shall be accelerated and become immediately due and payable in the event the Company receives gross proceeds from any equity or debt financing (including any private placement offering or registered offering), in an amount equal to or greater than the then-outstanding principal of such note plus any accrued but unpaid interest due thereon. +In addition, in the case of an event of default, the Sponsor Note, the FutureTech Note and the Denali Underwriter Notes shall bear interest at a rate of 10 % per annum until such event of default is cured. The Sponsor Note, the FutureTech Note and the Denali Underwriter Notes shall become immediately due and payable (in accordance with the terms thereof), upon the Company’s failure to make payments thereunder when due (subject to a 14-day cure period) or certain other actions related to voluntary or involuntary bankruptcy proceedings (as more fully described therein). +Out of the outstanding promissory notes, the Company did not make certain scheduled installment payments during the fourth quarter of 2025 on the Sponsor Note (monthly installments of $ 134 thousand) and the Denali Underwriter Note for U.S. Tiger Securities, Inc. (monthly installments of $ 150 thousand). As of December 31, 2025, the Sponsor Note had an outstanding principal balance of $ 0.8 million and accrued interest of approximately $ 20 thousand at 10 % per annum (calculated monthly). The Company has not recorded the accrued interest as of December 31, 2025. The Company has not received a notice of default and expects to make the payments in March 2026. +Note 6. Capital Structure +As of December 31, 2025 , the Company was authorized to issue 785,000,000 shares, consisting of (i) 740,000,000 shares of Common Stock, and (ii) 45,000,000 shares of preferred stock, par value $ 0.0001 per share (“Preferred Stock”). Holders of the Common Stock are entitled to dividends if and when declared by the Company's +F- 18 +Table of Contents +SEMNUR PHARMACEUTICALS, INC. +NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS +(unaudited) +Board of Directors (the “Board of Directors”). The holder of each share of Common Stock is entitled to one vote. As of December 31, 2025 , no dividends were declared. +Common Stock Reserved +As of December 31, 2025, Common Stock reserved for future issuance, on an as converted basis, totaled 67,332,122 shares and includ es 7,432,122 share s to be issued upon conversion of outstanding Warrants, 50,000,000 shares to be issued upon exercise of outstanding stock options, 1,250,000 shares to be issued under the PIPE SPA, 6,250,000 shares to be issued under the Semnur/Biconomy SPA and 2,400,000 shares reserved under the 2025 Inducement Plan (as defined in Note 7). +Preferred Stock +As of December 31, 2025, the Company had 5,423,606 shares of Series A preferred stock (“Series A Preferred Stock”) issued and outstanding. The holders of Series A Preferred Stock have various rights and preferences as follows: +Rank +The Series A Preferred Stock shall rank (i) senior to all Common Stock, and to all other classes or series of capital stock of Semnur, except for any such other class or series, the terms of which expressly provide that it ranks on parity with the Series A Preferred Stock as to dividend rights and rights on liquidation, dissolution or winding-up of Semnur (“Junior Securities”); and (ii) on parity with each class or series of capital stock of Semnur, created specifically ranking by its terms on parity with the Series A Preferred Stock as to dividend rights and rights on liquidation, dissolution or winding-up of Semnur (“Parity Security”). +Dividend Rights +Holders of Series A Preferred Stock shall not be entitled to dividends unless Semnur pays dividends to holders of Common Stock and shall be entitled to receive, when, as and if declared by the Board of Directors, such dividends (whether in cash or other property) as are paid to holders of Common Stock to the same extent as if such holders of Series A Preferred Stock had been deemed to convert their shares of Series A Preferred Stock into Common Stock and had held such shares of Common Stock on the record date for such dividends and distributions. Such payments will be made concurrently with the dividend or distribution to the holders of the Common Stock. +Liquidation Preference +In the event of a change of control, liquidation, dissolution or winding-up of Semnur, whether voluntary or involuntary, before any payment or distribution of Semnur’s property or assets (whether capital or surplus) shall be made to or set apart for the holders of Junior Securities, the holders of Series A Preferred Stock shall be entitled to receive an amount per share of Series A Preferred Stock equal to the greater of (i) the sum of $ 10.00 (which amount shall be appropriately adjusted in the event of any stock split, stock combination or other similar recapitalization of the Series A Preferred Stock) and all accrued and unpaid dividends and (ii) the amount such share of Series A Preferred Stock would be entitled to receive pursuant to the change of control, liquidation, dissolution or winding-up of Semnur assuming that such share had been converted into shares of Common Stock in a Deemed Conversion (as defined below). If, in the event of a change of control, liquidation, dissolution or winding-up of Semnur, Semnur’s assets, or proceeds thereof, are insufficient to pay in full the aggregate amount of liquidation preference payable in respect of all outstanding shares of Series A Preferred Stock, such assets or the proceeds thereof will be distributed ratably in proportion to the respective amounts of the liquidation preference if paid in full. +Conversion and Redemption Rights +The shares of Series A Preferred Stock are not convertible into Common Stock or any other securities of Semnur and are not redeemable by Semnur; provided, however, a number of the rights, preferences and privileges of the Series A Preferred Stock set forth in the certificate of designations (the “Certificate of Designations”) will be determin ed based on an as-converted-to-Common Stock basis or otherwise assume that the shares of Series A Preferred Stock are converted into shares of Common Stock. Accordingly, the number of shares of Common Stock that each share of Series A Preferred Stock is deemed to be (or otherwise being treated as) converted into for the purpose of affecting the various rights, preferences and privileges of the Series A Preferred Stock set forth in the Certificate of Designations (a “Deemed Conversion”), whether in connection with a change of control or otherwise, shall be equal to the result obtained by dividing (i) stated value by (ii) $ 10.00 (subject to anti-dilution adjustments). +F- 19 +Table of Contents +SEMNUR PHARMACEUTICALS, INC. +NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS +(unaudited) +Voting and Other Preferred Rights +Except as otherwise required by law or as set forth in the Certificate of Designations, the holders of shares of Series A Preferred Stock are entitled to vote, together with the holders of shares of Common Stock and not separately as a class, on all matters upon which holders of shares of Common Stock have the right to vote. The holders of shares of Series A Preferred Stock are entitled to one vote for each share of Common Stock that such share of Series A Preferred Stock would otherwise be convertible into pursuant to a Deemed Conversion on the record date for the determination of the stockholders entitled to vote. +As long as any shares of Series A Preferred Stock are outstanding, Semnur shall not, without the affirmative vote of the holders of at least a majority of the outstanding shares of Series A Preferred Stock (a) change the Series A Preferred Stock (whether by merger, conversion, consolidation, reclassification or otherwise) into cash, securities or other property except in accordance with the terms of the Certificate of Designations; (b) create, authorize or issue any Parity Security or other equity security the terms of which provide that it ranks senior to the Series A Preferred Stock with respect to dividend rights or rights upon liquidation, dissolution or winding-up of Semnur, or increase the authorized amount of any such other class or series; or (c) amend its certificate of incorporation or the Certificate of Designations in any manner that adversely affects the holders of Series A Preferred Stock. +Consulting Agreements with Stock Remuneration +Consulting Services Agreement with 450W42ND MIMA, LLC +On August 25, 2024, Legacy Semnur entered into a consulting services agreement with 450W42ND MIMA, LLC who agreed to perform certain consulting and advisory services related to Legacy Semnur's business, financing, and mergers and acquisitions opportunities for a period of 12 months from the date of the agreement, for Common Stock. +On July 22, 2025, Legacy Semnur entered into an amendment to the foregoing consulting services agreement, pursuant to which Legacy Semnur instead agreed to issue 3,200,000 shares of Legacy Semnur common stock, subject to the satisfaction of the terms and conditions contained in the consulting services agreement, as amended. +In September 2025, the consulting agreement with 450W42ND MIMA, LLC was terminated and no shares were issued. +Consulting Services Agreement with Wise Orient Investments Limited +On August 26, 2024, Legacy Semnur entered into a consulting services agreement with Wise Orient Investments Limited (“Wise Orient”) who agreed to perform certain consulting and advisory services related to Legacy Semnur’s business, financing, and mergers and acquisitions opportunities for a period of 12 months from the date of the agreement, for Common Stock. +On July 22, 2025, Legacy Semnur entered into an amendment to the foregoing consulting services agreement, pursuant to which Legacy Semnur agreed to instead issue 3,200,000 shares of Legacy Semnur common stock, subject to the satisfaction of the terms and conditions contained in the consulting services agreement, as amended. +Upon Closing, 4,000,000 shares (i.e., the then-existing 3,200,000 shares of Legacy Semnur common stock multiplied by the Exchange ratio) of Common Stock were issued to Wise Orient and the associated expense was recognized as G&A expense on the consolidated statement of operations and comprehensive loss for the year ended December 31, 2025. +Consulting Services Agreement with JW Investment Management Company Limited +On June 12, 2025, Legacy Semnur entered into an advisory services agreement with JW Investment Management Company Limited (“JW”), pursuant to which JW agreed to perform certain consulting and advisory services related to Legacy Semnur's business, financing, and mergers and acquisitions opportunities for a period of 12 months from the date of the agreement. +In exchange for the services provided and subject to the terms and conditions contained in the consulting services agreement, Legacy Semnur agreed to issue JW 10,000,000 shares of Common Stock following the consummation of the Business Combination, as well as a cash financing service fee of 7 % of the received investment funds should JW successfully facilitate the signing of a PIPE contract on the Company’s behalf. +F- 20 +Table of Contents +SEMNUR PHARMACEUTICALS, INC. +NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS +(unaudited) +On July 22, 2025, Legacy Semnur entered into an amendment to the foregoing consulting services agreement, pursuant to which Legacy Semnur agreed to amend the share compensation and instead issue to JW 8,000,000 shares of Legacy Semnur common stock, subject to the satisfaction of the terms and conditions contained in the consulting services agreement, as amended. +Upon Closing, 10,000,000 shares (i.e., the then-existing 8,000,000 shares of Legacy common stock multiplied by the Exchange ratio) of Common Stock were issued to JW and the associated expense was recognized as G&A expense on the consolidated statement of operations and comprehensive loss for the year ended December 31, 2025. +On August 20, 2025, the Company entered into the PIPE SPA. As of December 31, 2025 , the PIPE transaction has not closed and therefore the cash financing service fee of 7 % is not a current obligation. +Retainer Shares +On July 22, 2025, Legacy Semnur entered into a stock issuance agreement with the law firm named therein pursuant to which the law firm was issued 10,000,000 shares of Legacy Semnur common stock as a retainer for legal services and payment for prior services. Upon Closing, the shares were exchanged for 12,500,000 shares (i.e., the then-existing 10,000,000 shares of Legacy common stock multiplied by the Exchange ratio) of Common Stock. +All such shares are held by the law firm as collateral for current and future outstanding legal fees due from the Company. At the option of the law firm, the retainer shares may be sold and the net proceeds may be applied against the outstanding legal fees. The retainer shares not applied against the outstanding legal fees due will be returned to the Company. As of December 31, 2025, it was not probable that any of the retainer shares would be applied against any outstanding legal fees. +Sponsor Support Agreement +Concurrently with the execution of the Merger Agreement, the Sponsor and each of the Company’s directors and executive officers entered into a sponsor support agreement with the Company and Semnur (the “Sponsor Support Agreement”), pursuant to which the Sponsor and each of Company’s directors and executive officers has agreed to, among other things: (i) vote in favor of the Parent Shareholder Approval Matters (as defined in the Merger Agreement) and in favor of any proposal in respect of an Extension Amendment (as such terms are defined in the Merger Agreement); (ii) vote against (or otherwise withhold written consent of, as applicable) any “Business Combination” (as such term is defined in Denali’s organizational documents) or any proposal relating thereto (in each case, other than as contemplated by the Merger Agreement); (iii) vote against (or otherwise withhold written consent of, as applicable) any merger agreement or merger, consolidation, combination, sale of substantial assets, reorganization, recapitalization, dissolution, liquidation or winding up of or by the Company (other than the Merger Agreement and the transactions contemplated thereby); (iv) vote against (or otherwise withhold written consent of, as applicable) any change in the business, management or Board of Directors (other than in connection with the Merger Agreement and the transactions contemplated thereby); and (v) vote against (or otherwise withhold written consent of, as applicable) any proposal, action or agreement that would (a) impede, frustrate, prevent or nullify any provision of the Sponsor Support Agreement or the Merger Agreement or any of the transactions contemplated thereby, (b) result in a breach in any respect of any covenant, representation, warranty or any other obligation or agreement of Denali or Merger Sub under the Merger Agreement, (c) result in any of the conditions set forth in Article VIII of the Merger Agreement not being fulfilled or (d) change in any manner the dividend policy or capitalization of, including the voting rights of any class of capital stock of, the Company. Under the terms of the Sponsor Support Agreement, the Sponsor also agreed to certain standstill provisions with respect to the ordinary shares and other equity securities of the Company held by the Sponsor. +Stockholder Support Agreement +Concurrently with the execution of the Merger Agreement, Legacy Semnur, Semnur and Scilex (as the then sole stockholder of Semnur) entered into a company stockholder support agreement (the “Stockholder Support Agreement”), pursuant to which Scilex agreed to, among other things: (i) appear at any meeting of Semnur’s stockholders related to the transactions contemplated by the Merger Agreement, or otherwise cause its shares of Semnur common stock to be counted as present thereat for the purpose of establishing a quorum; (ii) vote (or execute and return an action by written consent), or cause to be voted at any such meeting of Semnur’s stockholders (or validly execute and return and cause such consent to be granted with respect to), all of its shares of Semnur common stock in favor of the Merger Agreement and the Business Combination; (iii) authorize and approve any amendment to +F- 21 +Table of Contents +SEMNUR PHARMACEUTICALS, INC. +NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS +(unaudited) +Semnur’s certificate of incorporation or bylaws that is deemed necessary or advisable by Semnur for purposes of effecting the Business Combination; and (iv) vote (or execute and return an action by written consent), or cause to be voted at any such meeting of Semnur’s stockholders (or validly execute and return and cause such consent to be granted with respect to), all of its shares of Semnur common stock against any other action that would reasonably be expected to (a) impede, interfere with, frustrate, delay, postpone or adversely affect the Business Combination, (b) result in a breach of any covenant, representation or warranty or other obligation or agreement of Semnur under the Merger Agreement or (c) result in a breach of any covenant, representation or warranty or other obligation or agreement of Scilex contained in the Stockholder Support Agreement. +Scilex Stockholder Agreement +Concurrently with the execution of the Merger Agreement, the Company entered into a Stockholder Agreement with Scilex (the “Scilex Stockholder Agreement”). Pursuant to the Scilex Stockholder Agreement, from and after the effective time of the Business Combination, and for so long as Scilex beneficially owns any preferred stock, among other things, (i) Scilex shall have the right, but not the obligation, to designate each director to be nominated, elected or appointed to the Board of Directors (each, a “Stockholder Designee” and collectively, the “Stockholder Designees”), regardless of (i) whether such Stockholder Designee is to be elected to the Board of Directors at a meeting of stockholders called for the purpose of electing directors (or by consent in lieu of meeting) or appointed by the Board of Directors in order to fill any vacancy created by the departure of any director or increase in the authorized number of members of the Board of Directors, or (ii) the size of the Board of Directors, and the Company will be required to take all actions reasonably necessary, and not otherwise prohibited by applicable law, to cause each Stockholder Designee to be so nominated, elected or appointed to the Board of Directors as more fully described in the Scilex Stockholder Agreement. Scilex shall also have the right to designate a replacement director for any Stockholder Designee that has been removed from the Board of Directors and the right to appoint a representative of Scilex to attend all meetings of the committees of the Board of Directors. The Scilex Stockholder Agreement also provides that the Company will be prohibited from taking certain actions without the consent of Scilex. Such actions include, among other things, amendments to the Certificate of Designations, increases or decreases in the size of the Board of Directors, the incurrence of certain amounts of indebtedness and the payment of dividends on common stock. In addition, the Scilex Stockholder Agreement provides that the Company will be prohibited from taking certain actions without the consent of Oramed (but only until the date on which all payments under the Scilex-Oramed Note and all other obligations under the Scilex-Oramed Note have been paid in full in cash). The actions that require Oramed’s consent include, among other things, (i) amending certain agreements, including the Scilex Stockholder Agreement, the Merger Agreement, the Company's certificate of incorporation or bylaws, the 2024 Plan (as defined in Note 7), the Stockholder Support Agreement and the Debt Exchange Agreement (as defined in Note 8), in each case that adversely affect the rights of capital stock held by Scilex in the Company (ii) approval of the issuance of capital stock of the Company that would result in Scilex holding less than 55 % of the outstanding shares or voting power in the Company, (iii) forming any subsidiary that is not wholly owned and controlled by the Company, (iv) permitting any option grants to Scilex Insiders (as defined therein) pursuant to the 2024 Plan prior to the execution of the Merger Agreement to be exercisable and (v) permitting certain compensation payments to Scilex Insiders (as defined therein). +Note 7. Stock-Based Compensation +Prior to the Business Combination, the Company did not have any employees who were directly employed by the Company nor did it have its own stock-based compensation plans other than the Semnur Pharmaceuticals, Inc. 2024 Stock Option Plan (the “2024 Plan”) as described below. However, certain shared employees of Scilex support the Company and also participate in Scilex’s stock-based compensation plans that provide for the granting of stock options, non-qualified stock options (“NSOs”), stock appreciation rights, restricted stock, restricted stock units, and other awards. Such shared employees’ time and efforts are partially spent on activities attributable to the Company and partially spent on activities attributable to Scilex; Scilex did not have any employees whose activities are solely dedicated or solely attributable to the Company during the years ended December 31, 2025 and 2024. Total stock-based compensation recognized consists of an allocation of such shared employees’ stock-based compensation expense on the same basis as their salaries and benefits and expense for grants made to Wise Orient and JW (see Note 6 “ Capital Structure — Consulting Agreements with Stock Remuneration ”). +Scilex calculates the fair value of stock options granted to employees and nonemployees and employee stock purchase plan (“ESPP”) using the Black-Scholes option pricing method. The Black-Scholes option pricing method +F- 22 +Table of Contents +SEMNUR PHARMACEUTICALS, INC. +NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS +(unaudited) +requires the use of subjective assumptions. +The following assumptions were used by Scilex in the Black-Scholes option pricing model to estimate stock-based compensation on the date of grant for stock options granted and ESPP shares issued for the year s ended December 31, 2025 and 2024: +Year Ended December 31, +2025 +2024 +Stock options: +Expected dividend yield +0.0 % +0.0 % +Expected volatility +72.5 % - 99.1 % +72.0 % - 119.1 % +Risk-free interest rate +3.6 % - 4.2 % +3.8 % - 4.7 % +Term of options (in years) +6.3 +3.0 - 6.3 +Employee stock purchase plan: +Expected dividend yield +0.0 % +0.0 % +Expected volatility +112.9 % +129.3 % +Risk-free interest rate +4.3 % +5.4 % +Expected life (in years) +0.5 +0.5 +Total stock-based compensation expense recorded in the statements of operations was as follows (in thousands): +Year Ended December 31, +2025 +2024 +Research and development +$ +205 +$ +128 +General and administrative +142,230 +532 +Total stock-based compensation expense +$ +142,435 +$ +660 +As of December 31, 2025, there was approximately $ 7.0 million of total unrecognized stock-based compensation expense, which is expected to be recognized over an estimated weighted-average vesting term of 3.1 years. This amount is subject to change based on the actual amount of time certain Scilex employees will spend providing services attributable to the Company. +Equity Incentive Plans +2024 Plan +On August 30, 2024, the Company adopted the 2024 Plan, under which 40,000,000 shares of Common Stock were reserved for future issuance. On the same day, NSOs to purchase an aggregate of 40,000,000 shares of the Legacy Semnur common stock were granted to members of the Company’s executive team and certain Scilex employees who provide services to Semnur. The NSOs granted have an exercise price of $ 1.58 per share, a term of 10 years (unless earlier terminated in accordance with the terms of the option agreement) and vest 1/48th on a monthly basis over a period of four years from the vesting commencement date as set forth in the applicable option agreement (subject to the holder’s continuous service with the Company). Upon closing, t he NSO's were exchanged for 50,000,000 NSOs (i.e., the then-existing NSOs multiplied by the Exchange ratio) in Common Stock and the exercise price was adjusted to $ 1.26 per share (i.e., the then-existing exercise price divided by the Exchange ratio). +The NSOs are not exercisable until all payments and all obligations under the Scilex-Oramed Note have been paid in full). These NSOs are not considered to be granted under accounting rules as repayment of the Scilex-Oramed Note has not occurred as of December 31, 2025. As such, once the NSOs are considered granted, the total amount of stock-based compensation expense attributable to these NSOs would be determined based on their accounting grant-date fair value and to be recognized, on a tranche-by-tranche basis, over forty-eight equal monthly tranches. No expense was recorded in connection with the NSOs granted under the 2024 Plan as of December 31, 2025, as the vesting is contingent upon the repayment of the Scilex-Oramed Note. +As of December 31, 2025 , the 50,000,000 NSO's have an intrinsic value of $ 686.8 million and a remaining contractual term of 8.7 years. As of December 31, 2025 , no shares remained available for issuance under the 2024 +F- 23 +Table of Contents +SEMNUR PHARMACEUTICALS, INC. +NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS +(unaudited) +Plan. +2025 Plans +On November 17, 2025, the Board of Directors adopted the 2025 Equity Incentive Plan (the “2025 Plan”), the 2025 Employee Stock Purchase Plan (the “2025 ESPP”) and the 2025 Inducement Plan (the “2025 Inducement Plan”). The 2025 Plan and the 2025 ESPP are subject to stockholder approval and are not effective until such approval. The 2025 Inducement Plan does not require stockholder approval and is therefore effective upon adoption by the Board of Directors. +The 2025 Plan provides for the grant of equity-based awards including incentive stock options, nonstatutory stock options, restricted stock awards, restricted stock units, stock appreciation rights, performance awards, and other equity-based awards. The 2025 Plan initially reserves 45,948,195 shares of Common Stock for issuance. The share reserve is subject to an annual automatic increase beginning January 1, 2027 through January 1, 2036, equal to the lesser of (i) 5 % of the Company’s outstanding Common Stock as of the preceding December 31, (ii) 22,974,097 shares, or (iii) such lesser number as determined by the Board of Directors. The maximum number of shares issuable pursuant to incentive stock options under the 2025 Plan is 137,844,585 shares. Upon effectiveness of the 2025 Plan, no further grants will be made under the 2024 Plan; however, shares subject to awards granted under the 2024 Plan will continue to be governed by the 2024 Plan. +The 2025 ESPP permits eligible employees to purchase shares of Common Stock through payroll deductions at a purchase price generally equal to 85 % of the fair market value of Common Stock on the applicable offering or purchase date, as specified in the plan. The 2025 ESPP initially reserves 2,297,409 shares of Common Stock for issuance, subject to an annual automatic increase beginning January 1, 2027 through January 1, 2036 equal to the lesser of (i) 1 % of outstanding Common Stock as of the preceding December 31, (ii) 2,871,761 shares, or (iii) such lesser number as determined by the Board of Directors. +The 2025 Inducement Plan provides equity awards to newly hired employees as a material inducement to employment. The Inducement Plan provides for the grant of nonstatutory stock options, restricted stock awards, restricted stock units, and other equity-based awards. A total of 2,400,000 shares of Common Stock is reserved for issuance under the 2025 Inducement Plan. Awards under the 2025 Inducement Plan are approved by the Compensation Committee of the Board of Directors or a majority of the Company’s independent directors and do not require stockholder approval. +Note 8. Related Parties +Transactions entered into between the Company and Scilex are considered related party transactions. These transactions have been reflected as related party loans, a long-term liability, on the consolidated balance sheets. These amounts do not carry interest, and are not expected to be settled through transfer of cash or other assets by the Company. +The total loans received from Scilex were as follows (in thousands): +Year Ended December 31, +2025 +2024 +Loans to Scilex Holding Company — +stock-based compensation +$ +2,435 +$ +660 +Loans to Scilex Holding Company — +expenses paid by Scilex Holding Company +on behalf of the Company +14,472 +10,872 +Total loans from Scilex Holding Company +$ +16,907 +$ +11,532 +Debt Exchange Agreement +On August 30, 2024, the Company and Scilex entered into the Contribution and Satisfaction of Indebtedness Agreement (the “Debt Exchange Agreement”) with respect to certain amounts owed to Scilex by the Company, including accrued and unpaid interest thereon, if any, which amount may be updated pursuant to the terms thereof, for certain loans and other amounts provided by Scilex to the Company prior to the closing of the Business Combination +F- 24 +Table of Contents +SEMNUR PHARMACEUTICALS, INC. +NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS +(unaudited) +(the “Outstanding Indebtedness”). +At Closing, the Outstanding Indebtedness between the Company and Scilex totaling $ 54.2 million was converted into 5,423,606 shares of Series A Preferred Stock and 542,361 shares of Common Stock. T he Outstanding Indebtedness is considered to be extinguished in its entirety and shall be of no further force or effect and shall be deemed paid and satisfied in full and irrevocably and automatically discharged, terminated and released. +Transition Services Agreement +On September 22, 2025, in connection with the Closing, the Company entered into the Transition Services Agreement (the “Transition Services Agreement”) with Scilex, pursuant to which the Company can utilize certain employees and other service providers of Scilex to operate the business, including with respect to the following business functions: finance, human resources, information systems, legal and administrative, R&D support and commercialization support. Transition services provided by Scilex will be on a cost plus 10 % basis, provided that the service fees will not exceed $ 2.0 million per annum until all payments under the Scilex-Oramed Note have been paid in full in cash, and the Company will reimburse Scilex for its out of pocket fees, costs or expenses. During the transition period, the Company plans to engage and increase full time employees to support research and development, general administrative, manufacturing, regulatory and commercial functions as the Company enters the final stage of development and pre-launch commercialization planning. The term of the Transition Services Agreement is three years following the execution of such agreement, which the Company believes is sufficient time to develop commercial infrastructure and other business functions. +As of December 31, 2025, the Company had $ 0.3 million of service fees accrued under the Transition Services Agreement which is included in related party loan on the consolidated balance sheet. +Note 9. Income Taxes +For U.S. federal and state tax reporting purposes, the Company is a member of Scilex’s consolidated reporting group. The basis of presentation for these financial statements is on a separate standalone basis as if the Company were not a member of a consolidated group and was operating as an independent entity. Settlements of tax balances that differ from the separate entity computations are treated as either increases or decreases in equity. There were no settlements of tax balances between the entity and the Scilex during the periods presented. Total loss before income taxes for the years ended December 31, 2025 and 2024 did no t include a foreign component. There was no income tax expense for the years ended December 31, 2025 and 2024. +The reconciliation between U.S. federal income taxes at the statutory rate and the Company’s provision for income taxes are as follows: +December 31, +2025 +U.S. federal taxes at statutory rate +21.0 +% +State tax, net of federal tax benefit +1.0 +Nontaxable and nondeductible items: +Business Combination expenses +( 6.9 +) +Other +( 0.1 +) +Change in valuation allowance +( 15.0 +) +Effective income tax rate +— +% +December 31, +2024 +U.S. federal taxes at statutory rate +21.0 +% +Equity compensation +( 3.0 +) +Change in valuation allowance +( 18.0 +) +Effective income tax rate +— +% +The Company files its tax returns on a consolidated or combined basis with Scilex. For purposes of its financial +F- 25 +Table of Contents +SEMNUR PHARMACEUTICALS, INC. +NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS +(unaudited) +statements, the Company has calculated its income tax amounts, including net operating losses and credit carryforwards, using a separate return methodology and has presented these amounts as if it were a separate taxpayer from Scilex in each jurisdiction for each period the Company has presented. The Company has not determined the amount of tax attributes, including net operating losses and tax credit carryovers, which it would retain if it were to deconsolidate for tax purposes from Scilex. An analysis will be performed at a future date, if necessary. +Deferred Tax Assets and Liabilities +Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The components of the Company’s net deferred tax assets and related valuation allowance are as follows (in thousands): +December 31, +2025 +2024 +Deferred tax assets: +Net operating loss carryforwards +$ +38,350 +$ +14,517 +General business and other credit carryforwards +1,319 +1,319 +Capitalized research expenditures +619 +807 +Stock-based compensation +492 +— +Intangible assets +641 +720 +Total gross deferred tax assets +41,421 +17,363 +Valuation allowance +( 41,421 +) +( 17,363 +) +Total deferred tax assets +— +— +Deferred tax liabilities +— +— +Total net deferred tax assets +$ +— +$ +— +The Company has evaluated the available evidence supporting the realization of its gross deferred tax assets, including the amount and timing of future taxable income, and has determined that it is more likely than not that the deferred tax assets will not be realized. Due to such uncertainties surrounding the realization of the deferred tax assets, the Company maintains a full valuation allowance against its deferred tax assets as of December 31, 2025 and 2024. Realization of the deferred tax assets will be primarily dependent upon the Company’s ability to generate sufficient taxable income prior to the expiration of its net operating losses. The valuation allowance increased by $ 24.1 million during the year ended December 31, 2025, primarily due to an increase in the deferred tax asset on net operating losses. The valuation allowance increased by $ 0.8 million during the year ended December 31, 2024, primarily due to primarily due to an increase in the deferred tax asset on net operating losses +As of December 31, 2025, the Company had $ 166.2 million of U.S. federal net operating loss carryforwards, of which $ 10.2 million will begin to expire in 2033 for federal tax purposes and $ 156.0 million can be carried forward indefinitely. While these federal NOLs do not expire, the Tax Cuts & Jobs Act of 2017 limits the amount of federal net operating loss utilized each year after December 31, 2017, to 80 % of taxable income. As of December 31, 2025, the Company had $ 58.0 million of state net operating loss carryforwards that will begin to expire in 2033. +As of December 31, 2025 , the Company had federal research and development income tax credits of $ 1.2 million which will begin to expire in 2033. As of December 31, 2025 , the Company had California research and development income tax credits of $ 0.6 million that have indefinite life and will not expire. +Internal Revenue Code Section 382 (“Section 382”) rules apply to limit a corporation’s ability to utilize existing net operating loss and tax credit carryforwards once the corporation experiences an ownership change as defined in Section 382. For the years ended December 31, 2025 and 2024, a formal Section 382 analysis and computation have not been performed. Additionally, since there is a taxable loss in both years, the absence of the Section 382 limitation analysis does not have an impact for the periods presented and there was no impact of such limitations on the Company’s income tax provisions. +The Company is subject to taxation in U.S. federal and state tax jurisdictions. All of the Company’s tax years will remain open for three years for examination by the federal and state tax authorities from the date of utilizations of net operating loss. There are no active tax compliance audits as of December 31, 2025. +F- 26 +Table of Contents +SEMNUR PHARMACEUTICALS, INC. +NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS +(unaudited) +Uncertain Income Tax Positions +A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands): +December 31, +2025 +2024 +Balance at the beginning of the year +$ +354 +$ +354 +Balance at the end of the year +$ +354 +$ +354 +As of December 31, 2025 and 2024, the Company had $ 0.4 million in total unrecognized tax benefits, which have been reflected as a reduction in deferred tax assets. If these were to be recognized, they would affect the effective tax rate, however given the full valuation allowance in the jurisdiction in which the unrecognized tax benefits relate to, the impact on the effective tax rate would be nil. +The Company’s policy is to recognize interest and penalties related to income tax matters in income tax expense. No interest or penalties have been recognized as of and for the years ended December 31, 2025 and 2024. +The Company believes that no material amount of the liabilities for uncertain tax positions are expected to reverse within 12 months of December 31, 2025 . +Note 10. Net Loss Per Share +The following table sets forth the computation of the basic and diluted net loss per share (in thousands, except share and per share amounts): +Year Ended December 31, +2025 +2024 +Numerator: +Net loss +$ +( 160,416 +) +$ +( 4,690 +) +Denominator: +Weighted average shares of common +stock outstanding, basic and diluted +204,784,615 +200,000,000 +Net loss per share, basic and diluted +$ +( 0.78 +) +$ +( 0.02 +) +Basic net loss per share was the same as diluted net loss per share for all periods as the inclusion of potentially dilutive securities would have been anti-dilutive. Potentially dilutive securities that were not included in the diluted per share calculations were as follows: +Year Ended December 31, +2025 +2024 +Shares subject to outstanding common stock options +50,000,000 +50,000,000 +Shares subject to outstanding common stock warrants +7,432,122 +— +Retainer shares +12,500,000 +— +Total +69,932,122 +50,000,000 +F- 27 \ No newline at end of file diff --git a/raw/filings/0001913577/2025/0001193125-26-082642/filing_metadata.csv b/raw/filings/0001913577/2025/0001193125-26-082642/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..dee394fc34fcb5eaeb14ec2b42daee3777c9358c --- /dev/null +++ b/raw/filings/0001913577/2025/0001193125-26-082642/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001913577,SMNRW,"Semnur Pharmaceuticals, 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OF THE SECURITIES EXCHANGE ACT OF 1934 +For the transition period from _____________ to _______________ +Commission File Number: 000-56459 +VWF Bancorp, Inc. +(Exact Name of Registrant as Specified in its Charter) +​ +​ +​ +​ +Maryland +88-1256373 +(State or other jurisdiction of incorporation or organization) +​ +(I.R.S. Employer Identification Number) +​ +​ +​ +​ +​ +976 South Shannon Street , Van Wert , Ohio +45891 +(Address of principal executive offices) +​ +(Zip code) +​ +Registrant’s telephone n umber , including area c ode : ( 419 ) 238-9662 +Securities registered pursuant to Section 12(b) of the Act: None +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Title of Each Class +Trading Symbol(s) +Name of Each Exchange on Which Registered +​ +Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.01 per share +Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ◻ No ⌧ +Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ◻ No ⌧ +Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ No ◻ +Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit such files). Yes ⌧ No ◻ +Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. +​ +​ +​ +​ +Large accelerated filer ◻ +Accelerated filer ◻ +Non-accelerated filer ⌧ +Smaller reporting company ☒ +Emerging growth company ☒ +​ +​ +​ +​ +If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ +Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐ +If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐ +Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ +Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ⌧ +The aggregate market value of the voting common stock held by non-affiliates of the registrant, based upon the closing price of $14.00 for the common stock on December 31, 2023, was approximately $ 18.2 million. The registrant has no non-voting shares. For purposes of this calculation, shares of common stock held by directors, officers and 5 percent stockholders known to the registrant have been deeded to be owned by affiliates, but this should not be construed as an admission that any such person possesses the power, direct or indirect, to direct or cause the direction of the management or policies of the registrant or that such person is controlled by ore under common control with the registrant. +As of September 27, 2024, the Registrant had 1,951,765 shares of common stock issued, of which 1,914,965 are outstanding. +DOCUMENTS INCORPORATED BY REFERENCE +Portions of the Definitive Proxy Statement for the 2024 Annual Meeting of Stockholders are incorporated by reference in Part III of this Form 10-K. +​ +​ +​ +​ +​ +Table of Contents +TABLE OF CONTENTS +Page No. +PART I +​ +ITEM 1. +Business +1 +ITEM 1A. +Risk Factors +26 +ITEM 1B. +Unresolved Staff Comments +26 +ITEM 1C. +Cybersecurity +26 +ITEM 2. +Properties +27 +ITEM 3. +Legal Proceedings +27 +ITEM 4. +Mine Safety Disclosures +27 +PART II +​ +ITEM 5. +Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +27 +ITEM 6. +[Reserved] +28 +ITEM 7. +Management’s Discussion and Analysis of Financial Condition and Results of Operations +28 +ITEM 7A. +Quantitative and Qualitative Disclosures About Market Risk +40 +ITEM 8. +Consolidated Financial Statements and Supplementary Data +40 +ITEM 9. +Changes In and Disagreements With Accountants on Accounting and Financial Disclosure +79 +ITEM 9A. +Controls and Procedures +79 +ITEM 9B. +Other Information +80 +ITEM 9C. +Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +80 +PART III +​ +ITEM 10. +Directors, Executive Officers and Corporate Governance +80 +ITEM 11. +Executive Compensation +80 +ITEM 12. +Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +80 +ITEM 13. +Certain Relationships and Related Transactions, and Director Independence +81 +ITEM 14. +Principal Accountant Fees and Services +81 +PART IV +​ +​ +ITEM 15. +Exhibits and Financial Statement Schedules +82 +ITEM 16. +Form 10-K Summary +83 +SIGNATURES +84 +​ +​ +​ +​ +​ +Table of Contents +PART I +ITEM 1. Business +Forward Looking Statements +This annual report contains forward-looking statements, which can be identified by the use of words such as such “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect,” “will,” “would,” “should,” “could” or “may,” and words of similar meaning. These forward-looking statements include, but are not limited to: +● statements of our goals, intentions and expectations; +● statements regarding our business plans, prospects, growth and operating strategies; +● statements regarding the quality of our loan and investment portfolios; and +● estimates of our risks and future costs and benefits. +These forward-looking statements are based on current beliefs and expectations of our management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. Accordingly, you should not place undue reliance on such statements. We are under no duty to and do not take any obligation to update any forward-looking statements after the date of this annual report. +The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements: +● general economic conditions, either nationally or in our market areas, that are worse than expected; +● changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for credit losses; +● our ability to access cost-effective funding; +● fluctuations in real estate values and in the conditions of the residential real estate, commercial real estate, and agricultural real estate markets; +● demand for loans and deposits in our market area; +● our ability to implement and change our business strategies; +● competition among depository and other financial institutions; +● inflation and changes in the interest rate environment that reduce our margins and yields, the fair value of our financial instruments, or our level of loan originations, or increase the level of defaults, losses and prepayments within our loan portfolio; +● adverse changes in the securities markets; +● changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees, capital requirements and insurance premiums; +1 +Table of Contents +● changes in the quality or composition of our loan or investment portfolios; +● technological changes that may be more difficult or expensive than expected; +● the inability of third-party providers to perform as expected; +● a failure or breach of our operational or information security systems or infrastructure, including cyberattacks; +● our ability to manage market risk, credit risk and operational risk; +● our ability to enter new markets successfully and capitalize on growth opportunities; +● changes in consumer spending, borrowing and savings habits; +● changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission or the Public Company Accounting Oversight Board; +● our ability to retain key employees; +● material weakness or significant deficiency in our internal controls over financial reporting; and +● changes in the financial condition, results of operations or future prospects of issuers of securities that we own. +Because of these and a wide variety of other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements. +As used in this report, unless the context otherwise requires, the terms “we,” “our,” “us,” or the “Company” refer to VWF Bancorp, Inc., and the term the “Bank” refers to Van Wert Federal Savings Bank, the wholly owned subsidiary of the Company. In addition, unless the context otherwise requires, references to the operations of the Company include the operations of the Bank. +VWF Bancorp, Inc. +VWF Bancorp, Inc. was incorporated in February 2022 to become the holding company for Van Wert Federal Savings Bank upon the conversion of Van Wert Federal from the mutual form of organization to the stock form of organization (the “Conversion”). The Conversion was completed on July 13, 2022. In connection with the Conversion, the Company sold 1,922,924 shares of common stock at a price of $10.00 per share. +The Company is a registered savings and loan holding company subject to comprehensive regulation and examination by the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”). The Company conducts its operations primarily through its wholly owned subsidiary, Van Wert Federal Savings Bank, a federally-chartered savings bank. The Company’s principal office is located at 976 South Shannon Street, Van Wert, Ohio 45891, and our telephone number at that address is (419) 238-9662. Our website address is www.vanwertfederal.com . Information on our website is not and should not be considered a part of this annual report. +Van Wert Federal Savings Bank +Effective August 1, 2024, the Bank completed rebranding efforts and changed its name from Van Wert Federal Savings Bank to GreenWay Bank. The Bank is a federally-chartered savings bank headquartered in Van Wert, Ohio. The Bank currently conducts its business from its main offices in Van Wert, Ohio and Fort Wayne, Indiana. We are primarily +2 +Table of Contents +engaged in attracting deposits from the general public and using those funds to invest in loans and securities. Our principal sources of funds are customer deposits, repayments of loans, maturities of investments, brokered deposits, and funds borrowed from outside sources such as Federal Home Loan Bank (“FHLB”) of Cincinnati and the Federal Reserve Bank (“FRB”) of Cleveland under the Bank Term Funding Program (“BTFP”). These funds are primarily used for the origination of loans, including single-family residential first mortgage loans, commercial real estate mortgage loans, commercial and industrial loans, construction and land loans and other loans. Our primary revenue source is interest earned on loans and investment securities. Noninterest income is not a significant revenue source. Our primary expenses are compensation and benefits, interest expense on deposits and borrowings and other general operating expenses. +Historically, the Bank was a traditional thrift institution with an emphasis on long-term single-family residential first mortgage loans secured by residences located in our traditional market area centered in Van Wert, Ohio. Our business strategy is to enhance our products and services and embrace a full-service community bank model by re-focusing our efforts to attract a greater number of small to mid-sized businesses and business professionals in our market area and to increase our holdings of commercial real estate loans and commercial and industrial loans. Commercial real estate loans and commercial and industrial loans are deemed attractive due to their generally higher yields and shorter anticipated lives compared to single-family residential mortgage loans. +The Bank is subject to comprehensive regulation and examination by the Office of the Comptroller of the Currency (the “OCC”) and the Federal Deposit Insurance Corporation (the “FDIC”) and is a member of the Federal Home Loan Bank system. +Market Area and Competition +Historically, our business focus has centered on areas within a short drive from our banking headquarters in Van Wert County, located in northwest Ohio. We expanded our branch office network into Allen County, located in northeast Indiana by opening our Fort Wayne office branch in April 2024. In the future, we expect to increase our penetration in Allen County, Indiana with a focus on servicing small to mid-sized businesses and professionals. +Van Wert County is primarily rural, but it has a mix of manufacturing and agriculture. Major manufacturers include Tenneco, Inc. and Danfoss, which are major employers. Other major employers are Braun Industries, Central Mutual Insurance Company, Cooper Farms, Van Wert County Hospital, and local school districts. Agricultural production is primarily focused on corn, soybeans and wheat. Allen County has a strong history in manufacturing but has diversified into other key industries including specialty insurance, medical device and technology, healthcare, vehicles, design and craftsmanship, logistics and e-commerce, food and beverage and advanced materials. +We face significant competition in originating loans and attracting deposits. This competition stems primarily from large money center and regional banks, community banks and savings institutions, and credit unions. We also face competition for loans from mortgage banking firms, consumer finance companies, credit unions, and fintech companies and, with respect to deposits, from money market funds, brokerage firms, mutual funds and insurance companies. +Lending Activities +General. Our loan portfolio consists residential mortgage loans, commercial real estate loans, agricultural real estate loans, construction and land loans, commercial and industrial loans, home equity lines of credit, and consumer loans. We originate loans for retention in our portfolio and generally do not sell loans. In recent years, we have increased our focus on originating higher yielding commercial real estate loans and commercial and industrial loans. We offer both adjustable-rate and fixed-rate residential mortgage loans. However, historically a significant majority of the residential real estate loans which we have originated are long-term, fixed-rate loans that generally conform to secondary market guidelines. +Commercial real estate loans and commercial and industrial loans have not historically comprised a significant portion of our total loan portfolio. While we expect that one- to four-family residential real estate lending will continue to be an +3 +Table of Contents +emphasis of our lending operations, we intend to increase our emphasis on commercial real estate loans and commercial and industrial loans in an effort to increase the yield on our loan portfolio and diversify our loan portfolio. +Loan Portfolio Composition. The following table sets forth the composition of our loan portfolio by type of loan at the dates indicated. There were no loans held-for-sale at any date indicated. +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +At June 30, +​ +​ +2024 +​ +2023 +​ +Amount +Percent +Amount +Percent +​ +​ +(Dollars in thousands) +​ +Real estate loans: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Commercial real estate +​ +$ +19,725 +15.2 +% +$ +6,010 +6.2 +% +Residential real estate +​ +69,827 +53.9 +​ +65,857 +79.8 +​ +Multifamily +​ +​ +659 +​ +0.5 +​ +​ +688 +​ +0.9 +​ +Agricultural real estate +​ +4,214 +3.3 +​ +4,045 +4.2 +​ +Construction and land +​ +17,645 +13.6 +​ +8,567 +7.3 +​ +Home equity line of credit +​ +1,623 +1.3 +​ +355 +0.3 +​ +Commercial and industrial +​ +14,879 +11.5 +​ +3,399 +0.4 +​ +Consumer +​ +955 +0.7 +​ +801 +0.9 +​ +Total loans +​ +129,527 +100.00 +% +89,722 +100.00 +% +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Less: +​ +​ +​ +Undisbursed loans in process +​ +​ +2,223 +​ +​ +8,203 +​ +​ +Net deferred loan costs, premium and discounts +​ +​ +140 +​ +​ +48 +​ +​ +Allowance for credit losses +​ +​ +773 +​ +​ +263 +​ +​ +Total loans receivable, net +​ +$ +126,391 +​ +​ +$ +81,208 +​ +​ +​ +Contractual Maturities. The following table sets forth the contractual maturities of our total loan portfolio at June 30, 2024. Demand loans, loans having no stated repayment schedule or maturity, and overdraft loans are reported as being due in one year or less. Because the tables present contractual maturities and do not reflect repricing or the effect of prepayments, actual maturities may differ. +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Home +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Commercial +​ +Equity +​ +​ +​ +​ +​ +​ +​ +​ +Commercial +​ +Residential +​ +Multifamily +​ +Agricultural +​ +Construction +​ +and +​ +Lines of +​ +​ +​ +​ +​ +​ +​ +​ +Real Estate +​ +Real Estate +​ +Real Estate +​ +Real Estate +​ +and Land +​ +Industrial +​ +Credit +​ +Consumer +​ +Total +​ +​ +(In thousands) +Due During the Years Ending June 30, +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +2025 +​ +$ +1,608 +​ +$ +15 +​ +$ +— +​ +$ +— +​ +$ +628 +​ +$ +2,506 +​ +$ +— +​ +$ +8 +​ +$ +4,765 +2026 +​ +359 +​ +124 +​ +— +​ +— +​ +3,423 +​ +4,117 +​ +— +​ +31 +​ +8,054 +2027 +​ +​ +3,016 +​ +​ +229 +​ +​ +— +​ +​ +28 +​ +​ +347 +​ +​ +3,351 +​ +​ +— +​ +​ +133 +​ +​ +7,104 +2028 to 2029 +​ +7,400 +​ +1,513 +​ +— +​ +105 +​ +5,303 +​ +3,355 +​ +— +​ +277 +​ +17,953 +2030 to 2034 +​ +2,376 +​ +6,679 +​ +— +​ +152 +​ +3,441 +​ +1,183 +​ +— +​ +502 +​ +14,333 +2035 to 2039 +​ +3,219 +​ +15,888 +​ +659 +​ +384 +​ +2,133 +​ +367 +​ +121 +​ +— +​ +22,771 +2040 and beyond +​ +1,747 +​ +45,379 +​ +— +​ +3,545 +​ +2,370 +​ +— +​ +1,502 +​ +4 +​ +54,547 +Total +​ +$ +19,725 +​ +$ +69,827 +​ +$ +659 +​ +$ +4,214 +​ +$ +17,645 +​ +$ +14,879 +​ +$ +1,623 +​ +$ +955 +​ +$ +129,527 +​ +4 +Table of Contents +The following table sets forth our fixed and adjustable-rate loans at June 30, 2024 that are contractually due after June 30, 2024. +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Due After June 30, 2024 +​ +​ +​ +Fixed +​ +Adjustable +​ +Total +​ +​ +​ +(In thousands) +​ +Real estate loans: +​ +​ +​ +​ +​ +​ +​ +Commercial real estate +​ +$ +11,208 +​ +$ +8,517 +​ +$ +19,725 +​ +Residential real estate +57,741 +​ +12,086 +​ +69,827 +​ +Multifamily +​ +​ +659 +​ +​ +— +​ +​ +659 +​ +Agricultural real estate +20 +​ +4,194 +​ +4,214 +​ +Construction and land +8,994 +​ +8,651 +​ +17,645 +​ +Home equity lines of credit (HELOC) +— +​ +1,623 +​ +1,623 +​ +Commercial and industrial loans +9,766 +​ +5,113 +​ +14,879 +​ +Consumer loans +955 +​ +— +​ +955 +​ +Total loans +​ +$ +89,343 +​ +$ +40,184 +​ +$ +129,527 +​ +​ +Residential Mortgage Lending . At June 30, 2024 we had $69.8 million of loans secured by residential real estate, or 53.9% of total loans. The significant majority of our one- to four-family residential real estate loans are secured by properties located in our primary market area. At June 30, 2024, $1.3 million, or 1.0% of residential mortgage loans, were secured by non-owner occupied properties. +Our one- to four-family residential real estate loans are generally underwritten to secondary market guidelines. We offer both fixed-rate and adjustable rate residential mortgage loans for terms up to 30 years. Existing adjustable-rate loans originated prior to July 2023 are tied to the National Average Contract Mortgage Rate published by the Federal Housing Finance Agency. As of July 2023, adjustable-rate mortgages are tied to the Weekly Average Yield of the 1-year Constant Maturity Index published by HSH.com. For adjustable-rate loans, the interest rate is fixed for the initial terms of five, seven or 10 years, and then adjusts yearly thereafter with an adjustable-rate cap of 2% and a lifetime rate cap of 6%. We generally limit the loan-to-value ratios of our residential mortgage loans to 80% (90% for borrowers with a FICO credit score of 720 or higher and 97% with private mortgage insurance) of the purchase price or appraised value, whichever is lower. +We do not offer “interest only” residential mortgage loans, where the borrower pays interest for an initial period, after which the loan converts to a fully amortizing loan. We also do not offer loans that provide for negative amortization of principal, such as “Option ARM” loans, where the borrower can pay less than the interest owed on the loan, resulting in an increased principal balance during the life of the loan. We do not currently offer “subprime loans” on one- to four-family residential real estate loans ( i.e. , generally loans to borrowers with credit scores less than 620). At June 30, 2024, multi-family residential mortgage loans was an immaterial portion of our loan portfolio. +Commercial Real Estate Loans . At June 30, 2024, we had $19.7 million in commercial real estate loans, or 15.2% of total loans. Our commercial real estate loans are secured by owner-occupied properties including warehouses and offices, amongst others, and non-owner-occupied properties including investment 1-4 family properties and both single and multi-tenant buildings. We generally do not originate commercial loans secured by strip shopping malls or restaurants. We originate both fixed rate and variable rate commercial real estate loans. All interest rates, both fixed and variable, are generally tied to a like term United State Treasury Yield plus a margin. Commercial real estate loans generally have terms up to 20 years; however, rates are generally fixed no longer than 5 years at a time. We generally limit the loan-to-value ratios of our commercial mortgage loans to 80% of the purchase price or appraised value, whichever is lower. At June 30, 2024, our largest commercial real estate loan was for $2,500,000, which fully funded at origination. +5 +Table of Contents +We consider a number of factors in originating commercial real estate loans. We evaluate the qualifications and financial condition of the borrower, including credit history, profitability and expertise, as well as the value and condition of the property securing the loan. When evaluating the qualifications of the borrower, we consider the financial resources of the borrower, the borrower’s experience in owning or managing similar property and the borrower’s payment history with us and other financial institutions. In evaluating the property securing the loan, the factors we consider include the net operating income of the mortgaged property before debt service and depreciation, the ratio of the loan amount to the appraised value of the mortgaged property, and the debt service coverage ratio (the ratio of net operating income to debt service). Generally, we require that the debt service coverage ratio be at least 1.15x. The significant majority of our commercial real estate loans are appraised by outside independent appraisers approved by the board of directors. Personal guarantees are generally obtained from the principals of commercial real estate borrowers. +Agricultural Real Estate Loans . At June 30, 2024, we had $4.2 million in agricultural real estate loans, or 3.3% of total loans. These loans are secured by agricultural land. The interest rate is fixed for the initial term of five or seven years, and then adjusts yearly thereafter. Agricultural real estate loans generally have terms up to 25 years. We generally limit the loan-to-value ratios of our agricultural real estate loans to 75% of the purchase price or appraised value, whichever is lower. At June 30, 2024, our largest agricultural real estate loan was $624,000, of which $355,000 had been disbursed. At June 30, 2024, this loan was performing according to its original terms. +We consider a number of factors in originating agricultural real estate loans. We evaluate the qualifications and financial condition of the borrower, including credit history, profitability and expertise, as well as the value and condition of the property securing the loan. When evaluating the qualifications of the borrower, we consider the financial resources of the borrower, the borrower’s experience in agriculture and the borrower’s payment history with us and other financial institutions. In evaluating the property securing the loan, the factors we consider include the net operating income of the mortgaged property before debt service and depreciation, the ratio of the loan amount to the appraised value of the mortgaged property, and the debt service coverage ratio (the ratio of net operating income to debt service). Generally, we require that the debt service coverage ratio be at least 1.15x. The significant majority of our agricultural real estate loans are appraised by outside independent appraisers approved by the board of directors. Personal guarantees are generally obtained from the principals of agricultural real estate borrowers. +Construction and Land Loans. At June 30, 2024, we had $17.6 million in construction and land loans, or 13.6% of total loans. We make residential construction loans, primarily to individuals for the construction of their primary residences. Our residential construction loans are structured as construction/permanent loans where after a one-year construction period the loan converts to a permanent residential mortgage loan. Our residential construction loans are underwritten to the same guidelines for permanent residential mortgage loans. At June 30, 2024, our largest residential construction loan was $742,000, of which $31,000 has been disbursed. +We make commercial construction loans, which are generally structured as construction/permanent loans where after a construction period the loan converts to a permanent commercial mortgage loan. In some instances, the construction period will include a stabilization period to allow time for the property to stabilize post-construction before converting to a permanent commercial mortgage loan. Generally speaking, the construction/stabilization term does not exceed 24 months, except for extenuating circumstances. Included within the commercial construction loans are loans to contractors and homebuilders to build 1-4 family homes. We make a limited number of speculative residential construction loans, which are constructions loans to a builder where there is not a contract in place for the purchase of the home at the time the construction loan is originated. We have one facility to a homebuilder that allows for draws to construct speculative 1-4 family homes, in addition to pre-sold homes and lot purchases. The advance rate for speculative homes is lower than pre-sold homes. Our commercial construction loans are underwritten to the same guidelines for commercial mortgage loans. At June 30, 2024, our largest commercial construction loan commitment was for $4.5 million, of which $3.5 million has been disbursed. +Construction loans generally can be made with a maximum loan-to-value ratio of 90% (residential properties) and 80% (commercial properties) of the estimated appraised market value upon completion of the project. Before making a commitment to fund a construction loan, we require an appraisal of the property by an independent licensed appraiser. We also generally require inspections of the property before disbursements of funds during the term of the construction loan. +6 +Table of Contents +Commercial and Industrial Loans. At June 30, 2024, commercial and industrial loans amounted to $14.9 million, or 11.5% of total loans. Commercial and industrial loans include both term loans and lines of credit. Term loans are generally fixed rate, fully amortizing loans with 5-, 7-, or 10-year terms. Lines of credit are primarily based on 1M Term SOFR (Secured Overnight Financing Rate) or 30-day Average SOFR, however, some are based on the prime rate and with terms of 12 to 24 months. These loans are generally secured by business assets, such as equipment and accounts receivable. Depending on the collateral used to secure the loans, commercial advance rates generally include 80 percent of accounts receivable, 50 percent of inventory, and 80 percent of the forced liquidation value of equipment as determined by an independent appraisal engaged by the Bank. +When making commercial loans, we consider the financial statements of the borrower, our lending history with the borrower, the debt service capabilities and global cash flows of the borrower and other guarantors, the projected cash flows of the business and the value of the collateral, accounts receivable, inventory and equipment. +At June 30, 2024, our largest commercial and industrial loan totaled $4.5 million, $4.0 million of which is outstanding, and is a participation in a non-revolving draw down overline of credit (75% of participation interest). The loan is for the purpose of providing the borrower funds to purchase trucks and is secured by titles on the trucks purchased. At June 30, 2024, this loan was performing according to its original terms. +Home Equity Lines of Credit. At June 30, 2024, the outstanding balance of home equity lines of credit was $1.6 million, or 1.3% of total loans. The interest rate for home equity lines of credit are based on the prime rate. There is a 10 year draw period followed by a 10 year repayment period. The loan to value ratio is generally up to 90%, taking into account any superior mortgage on the collateral property. Generally, all applicants for a home equity line of credit are required to have a FICO credit score of at least 720. +Consumer Loans . At June 30, 2024, consumer loans were $955,000, or 0.7% of total loans. Our consumer loan portfolio generally consists of loans secured predominately by automobiles and trucks (new and used), trailers, and other consumer assets. Consumer loans have fixed interest rates and terms up to seven years, with loan to value ratios up to 100%. +Loan Underwriting Risks +Commercial Real Estate Loans and Agricultural Real Estate Loans. Loans secured by commercial real estate or agricultural real estate generally have larger balances and involve a greater degree of risk than one- to four-family residential real estate loans. The primary concern in commercial real estate lending and agricultural real estate lending is the borrower’s creditworthiness and the feasibility and cash flow potential of the underlying business. Payments on loans secured by income producing properties often depend on successful operation and management of the properties. As a result, repayment of such loans may be subject, to a greater extent than residential real estate loans, to adverse conditions in the real estate market or the economy. To monitor cash flows on income properties, we require borrowers and loan guarantors to provide quarterly, semi-annual or annual financial statements, depending on the size of the loan, on commercial real estate loans. In reaching a decision on whether to make a commercial real estate loan, we consider and review a global cash flow analysis of the borrower and consider the net operating income of the property, the borrower’s expertise, credit history and profitability and the value of the underlying property. We have generally required that the properties securing these real estate loans have an aggregate debt service ratio, including the guarantor’s cash flows and the borrower’s other projects, of at least 1.15x. An environmental phase one report is obtained when the possibility exists that hazardous materials may have existed on the site, or the site may have been impacted by adjoining properties that handled hazardous materials. +If we foreclose on a commercial real estate loan or an agricultural real estate loan, the marketing and liquidation period to convert the real estate asset to cash can be lengthy with substantial holding costs. In addition, vacancies, deferred maintenance, repairs and market stigma can result in prospective buyers expecting sale price concessions to offset their real or perceived economic losses for the time it takes them to return the property to profitability. Depending on the individual circumstances, initial charge-offs and subsequent losses on commercial real estate loans can be unpredictable and substantial. +7 +Table of Contents +Commercial and Industrial Loans. Unlike residential real estate loans, which generally are made on the basis of the borrower’s ability to make repayment from his or her employment or other income, and which are secured by real property whose value tends to be more easily ascertainable, commercial and industrial loans are of higher risk and typically are made on the basis of the borrower’s ability to make repayment from the cash flows of the borrower’s business, and the collateral securing these loans may fluctuate in value. Our commercial and industrial loans are originated primarily based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. Collateral for commercial and industrial loans typically consists of equipment, accounts receivable, or inventory. Credit support provided by the borrower for most of these loans is based on the liquidation of the pledged collateral and enforcement of a personal guarantee, if any. Further, any collateral securing such loans may depreciate over time, may be difficult to appraise and may fluctuate in value. As a result, the availability of funds for the repayment of commercial and industrial loans may depend substantially on the success of the business itself. +Construction and Land Loans. Our construction loans are based upon estimates of costs and values associated with the completed project. Underwriting is focused on the borrowers’ financial strength, credit history and demonstrated ability to produce a quality product and effectively market and manage their operations. +Construction lending involves additional risks when compared with permanent lending because funds are advanced upon the security of the project, which is of uncertain value before its completion. Because of the uncertainties inherent in estimating construction costs, as well as the market value of the completed project and the effects of governmental regulation of real property, it is relatively difficult to evaluate accurately the total funds required to complete a project and the related loan-to-value ratio. In addition, generally during the term of a construction loan, interest may be funded by the borrower or disbursed from an interest reserve set aside from the construction loan budget. These loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project and the ability of the borrower to sell or lease the property or obtain permanent take-out financing, rather than the ability of the borrower or guarantor to repay principal and interest. If the appraised value of a completed project proves to be overstated, we may have inadequate security for the repayment of the loan upon completion of construction of the project and may incur a loss. Land loans have substantially similar risks. +Balloon Loans. Although balloon mortgage loans may reduce to an extent our vulnerability to changes in market interest rates because they reprice at the end of the term, the ability of the borrower to renew or repay the loan and the marketability of the underlying collateral may be adversely affected if the value of the real estate or other collateral decline before the expiration of the term of the loan or if there is a rising interest rate environment. +Consumer Loans. Consumer loans may entail greater risk than residential real estate loans, particularly in the case of consumer loans that are unsecured or secured by assets that depreciate rapidly. Repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment for the outstanding loan and a small remaining deficiency often does not warrant further substantial collection efforts against the borrower. Consumer loan collections depend on the borrower’s continuing financial stability, and therefore are likely to be adversely affected by various factors, including job loss, divorce, illness or personal bankruptcy. Furthermore, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount that can be recovered on such loans. +Loan Originations, Purchases and Sales +We originate loans through employee marketing and advertising efforts, our existing customer base, walk-in customers and referrals from customers. +We generally do not sell the loans we originate, but retain them in our loan portfolio. +At June 30, 2024, our largest purchased participation consisted of 4 separate participation interests, each with a commitment amount of $4.5 million, representing 16.07%, 9.44%, 9.74%, and 20.93% interests in the deals. The deals consist of a market rate multi-family construction project in Lafayette, Indiana, a market rate multi-family construction project in Fort Wayne, Indiana, a market rate multi-family construction project in Noblesville, Indiana and a hotel +8 +Table of Contents +renovation project on a long-time downtown Indianapolis, Indiana hotel. The outstanding balances for each were $3.5 million, $137,000, $0, and $3.1 million as of June 30, 2024, respectively. +Loan Approval Procedures and Authority +Our lending is subject to written, non-discriminatory underwriting standards and origination procedures. Decisions on loan applications are made on the basis of detailed applications submitted by the prospective borrower and property valuations. Our policies require that for all real estate loans that we originate, property valuations must be performed by outside independent state-licensed appraisers approved by our board of directors. The loan applications are designed primarily to determine the borrower’s ability to repay the requested loan, and the more significant items on the application are verified through use of credit reports, financial statements and tax returns. +By law, the aggregate amount of loans that we are permitted to make to any one borrower or a group of related borrowers is generally limited to 15% of the Bank’s unimpaired capital and surplus (25% if the amount in excess of 15% is secured by “readily marketable collateral” or 30% for certain residential development loans). At June 30, 2024, our largest credit relationship to one borrower had an outstanding balance of $4.0 million and is a participation loan secured by titles to the vehicles purchased with the credit facility. At June 30, 2024, this loan was performing according to its original terms. +Generally, we require property and extended coverage casualty insurance in amounts at least equal to the principal amount of the loan or the value of improvements on the property, depending on the type of loan. In addition, we require an escrow for flood insurance (where appropriate) and generally require an escrow for required property taxes and insurance. On occasion, we allow borrowers to pay their own taxes and property and casualty insurance as long as proof of payment is provided. +The VP, Consumer and Mortgage Lending, may approve all non-commercial loans up to $500,000. All loans that exceed this limit require secondary approval by a Board Member. +We have a separate policy for commercial loans wherein loans up to $500,000 are approved with dual signature by the Lending Officer and either the Chief Banking Officer or Chief Risk Officer. Loans over $500,000 up to $2,000,000 are approved by the Commercial Loan Committee consisting of the President and CEO, Chief Risk Officer, Chief Banking Officer, and two outside loan committee members with over a combined 60 years of commercial lending experience. All commercial loans over $2.0 million are approved by the full board. +Delinquencies, Classified Assets and Nonperforming Assets +Delinquency Procedures. When a borrower fails to make a required monthly payment on a loan, we mail a notice to the borrower and attempt to contact the borrower by phone. All delinquent loans are reported to the board of directors each month. After 90 days delinquent the loan is transferred to the appropriate collections’ personnel. Our policies provide that a late notice be sent each month that the loan is past due. Once the loan is considered in default, generally at 90 days past due, a letter is generally sent to the borrower explaining that the entire balance of the loan is due and payable, the loan is placed on non-accrual status, and additional efforts are made to contact the borrower. If the borrower does not respond, we generally initiate foreclosure proceedings when the loan is 120 days past due. If the loan is reinstated, foreclosure proceedings will be discontinued and the borrower will be permitted to continue to make payments. In certain instances, we may modify the loan or grant a limited exemption from loan payments to allow the borrower to reorganize his or her financial affairs. +When we acquire real estate as a result of foreclosure or by deed in lieu of foreclosure, the real estate is classified as other real estate owned until it is sold. The real estate is recorded at estimated fair value at the date of acquisition, less estimated costs to sell, and any write-down resulting from the acquisition is charged to the allowance for credit losses. Subsequent decreases in the value of the property are charged to operations. After acquisition, all costs in maintaining the property are expensed as incurred. Costs relating to the development and improvement of the property, however, are capitalized to the extent of estimated fair value less estimated costs to sell. At June 30, 2024, we had no real estate acquired as a result of foreclosure or by deed in lieu of foreclosure. +9 +Table of Contents +Loan Modifications. We occasionally modify loans to extend the term or make other concessions to help a borrower stay current on his or her loan and to avoid foreclosure. We consider modifications only after analyzing the borrower’s current repayment capacity, evaluating the strength of any guarantors based on documented current financial information, and assessing the current value of any collateral pledged. We generally do not forgive principal or interest on loans, but may do so if it is in our best interest and increases the likelihood that we can collect the remaining principal balance. We may modify the terms of loans to lower interest rates (which may be at below market rates), to provide for fixed interest rates on loans where fixed rates are otherwise not available, to provide for longer amortization schedules, or to provide for interest-only terms. These modifications are made only when a workout plan has been agreed to by the borrower that we believe is reasonable and attainable and in our best interests. At June 30, 2024, loans with modifications for borrowers experiencing financial difficulty totaled $36,000. During the year ended June 30, 2024, the Company did not grant any loan modification to borrowers experiencing financial difficulty that resulted in a more than minor change in the timing or amount of contractual cash flows. +Delinquent Loans . The following table sets forth our loan delinquencies, including non-accrual loans, by type and amount at the dates indicated. +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +At June 30, +​ +​ +2024 +​ +2023 +​ +30-59 +60-89 +90 Days +30-59 +60-89 +90 Days +​ +​ +Days +​ +Days +​ +or More +​ +Days +​ +Days +​ +or More +​ +​ +Past Due +​ +Past Due +​ +Past Due +​ +Past Due +​ +Past Due +​ +Past Due +​ +​ +(In thousands) +Real estate loans: +​ +​ +​ +​ +​ +​ +Commercial real estate +​ +$ +— +​ +$ +— +​ +$ +— +​ +$ +— +​ +$ +— +​ +$ +— +Residential real estate +​ +559 +​ +88 +​ +​ +72 +​ +— +​ +616 +​ +​ +117 +Multifamily +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +Agricultural real estate +​ +— +​ +— +​ +— +​ +— +​ +— +​ +— +Construction and land +​ +36 +​ +— +​ +— +​ +— +​ +— +​ +— +Home equity lines of credit (HELOC) +​ +​ +— +​ +— +​ +— +​ +— +​ +— +​ +— +Commercial and industrial loans +​ +— +​ +— +​ +— +​ +— +​ +— +​ +— +Consumer loans +​ +2 +​ +4 +​ +— +​ +— +​ +— +​ +— +Total +​ +$ +597 +​ +$ +92 +​ +$ +72 +​ +$ +— +​ +$ +616 +​ +$ +117 +​ +​ +10 +Table of Contents +Non-Performing Assets. The following table sets forth information regarding our non-performing assets, which include non-accruing loans, accruing loans 90 days or more past due and foreclosed assets at the dates indicated. +​ +​ +​ +​ +​ +​ +​ +​ +​ +At June 30, +​ +2024 +2023 +​ +​ +(Dollars in thousands) +Non-accrual loans: +​ +​ +​ +Real estate loans: +​ +​ +​ +Commercial +​ +$ +— +​ +$ +— +​ +Residential +​ +502 +​ +304 +​ +Multifamily +​ +​ +— +​ +​ +— +​ +Agricultural +​ +— +​ +— +​ +Construction and land +​ +36 +​ +— +​ +Home equity lines of credit (HELOC) +​ +​ +— +​ +​ +— +​ +Commercial and industrial loans +​ +— +​ +— +​ +Consumer +​ +16 +​ +— +​ +Total non-accrual loans +​ +$ +554 +​ +$ +304 +​ +​ +​ +​ +​ +​ +​ +​ +​ +Accruing loans past due 90 days or more: +​ +​ +​ +Real estate loans: +​ +​ +​ +Commercial +​ +— +​ +— +​ +Residential +​ +— +​ +— +​ +Multifamily +​ +​ +— +​ +​ +— +​ +Agricultural +​ +— +​ +— +​ +Construction and land +​ +— +​ +— +​ +Home equity line of credit (HELOC) +​ +​ +— +​ +​ +— +​ +Commercial and industrial loans +​ +— +​ +— +​ +Consumer +​ +— +​ +— +​ +Total accruing loans past due 90 days or more +​ +— +​ +— +​ +Total nonperforming loans +​ +554 +​ +304 +​ +Real estate owned +​ +— +​ +— +​ +Other nonperforming assets +​ +— +​ +— +​ +Total non-performing assets +​ +$ +554 +​ +$ +304 +​ +​ +​ +​ +​ +​ +​ +​ +​ +Loan modifications (formerly troubled debt restructurings): +​ +​ +​ +Commercial +​ +$ +— +​ +$ +— +​ +Residential +​ +— +​ +— +​ +Multifamily +​ +​ +— +​ +​ +— +​ +Agricultural +​ +— +​ +— +​ +Construction and land +​ +36 +​ +38 +​ +Home equity lines of credit (HELOC) +​ +​ +— +​ +​ +— +​ +Commercial and industrial loans +​ +— +​ +— +​ +Consumer +​ +— +​ +— +​ +Total loan modifications +​ +$ +36 +​ +$ +38 +​ +​ +​ +​ +​ +​ +​ +​ +​ +Total non-performing loans to total loans +​ +0.43 +% +0.34 +% +Total non-performing loans to total assets +​ +0.18 +% +0.18 +% +Total non-performing assets to total assets +​ +0.18 +% +0.18 +% +Total non-performing loans and loan modifications to total loans +​ +0.46 +% +0.38 +% +Total non-performing loans and loan modifications to total assets +​ +0.19 +% +0.21 +% +​ +Classified Assets . Federal regulations provide that loans and other assets of lesser quality should be classified as “substandard,” “doubtful” or “loss.” An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. “Substandard” assets include those characterized by the “distinct possibility” that the insured institution will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard,” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly questionable and improbable.” Assets classified as “loss” are those considered “uncollectible” and of such little value that their continuance as assets without the establishment of a specific allowance for loan losses is not warranted. Assets that do not currently expose the insured institution to sufficient risk to warrant classification in one of the aforementioned categories but possess weaknesses are designated as “special mention.” +11 +Table of Contents +When an insured institution classifies problem assets as either substandard or doubtful, it may establish general allowances in an amount deemed prudent by management to cover losses that were both probable and reasonable to estimate. General allowances represent allowances which have been established to cover accrued losses associated with lending activities that were both probable and reasonable to estimate, but which, unlike specific allowances, have not been allocated to particular problem assets. When an insured institution classifies problem assets as “loss,” it is required either to establish a specific allowance for losses equal to 100% of that portion of the asset so classified or to charge-off such amount. An institution’s determination as to the classification of its assets and the amount of its valuation allowances is subject to review by the regulatory authorities, which may require the establishment of additional general or specific allowances. +In connection with the filing of our periodic regulatory reports and according to our classification of assets policy, we regularly review the problem loans in our portfolio to determine whether any loans require classification according to applicable regulations. If a problem loan deteriorates in asset quality, the classification is changed to “substandard,” “doubtful” or “loss” depending on the circumstances and the evaluation. Generally, loans 90 days or more past due are placed on nonaccrual status and classified “substandard.” +Our classified and special mention assets at the dates indicated were as follows: +​ +​ +​ +​ +​ +​ +​ +​ +At June 30, +​ +2024 +2023 +​ +​ +(In thousands) +Classified Assets: +​ +​ +​ +Substandard +​ +$ +64 +​ +$ +38 +Doubtful +​ +— +​ +29 +Loss +​ +— +​ +— +Total +​ +$ +64 +​ +$ +67 +Special mention +​ +$ +131 +​ +$ +38 +​ +Other Loans of Concern. At June 30, 2024, except for loans included in the above table, there were no other loans of concern for which we had information about possible credit problems of borrowers that caused us to have serious doubts about the ability of the borrowers to comply with present loan repayment terms and that may result in disclosure of such loans in the future. +Allowance for Credit Losses +On July 1, 2023, the Company adopted the guidance under ASU No. 2016-13, Financial Instruments – Credit Losses, Measurement of Credit Losses on Financial Instruments. The main provisions of the ASU have been codified by the FASB under ASC326. The amendments introduced an impairment model that is based on current expected credit losses (“CECL”), rather than incurred losses, to estimate credit losses on loans. For reporting periods beginning on or after July 1, 2023, the allowance for credit losses reflects management’s current estimate of expected credit losses over the remaining life of is loans as of the end of the reporting period. For reporting periods prior to July 1, 2023, the allowance for credit losses represented management’s estimate for probable and reasonably estimable loan losses, but which had not yet been realized as of the end of the reporting period. +Management’s periodic evaluation of the adequacy of the allowance is based on various factors, including, but not limited to, changes in the types and amount of loans in the loan portfolio, historical loss experience, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, estimated losses relating to specifically identified loans, current and future economic conditions, and forecasted information. This evaluation is inherently subjective as it requires material estimates including, among others, average historical loss experience, expected future loss rates, the amount and timing of expected future pay-downs on existing loans and fundings on unfunded commitments, and the value of underlying collateral. +While management uses the best information available to make loan loss allowance evaluations, adjustments to the allowance may be necessary based on changes in economic and other conditions or changes in accounting guidance. In addition, as an integral part of their examination process, the OCC will periodically review our allowance for credit +12 +Table of Contents +losses, and as a result of such reviews, we may determine to adjust our allowance for credit losses. However, the OCC is not directly involved in the process for establishing the allowance for credit losses as the process is our responsibility and any increase or decrease in the allowance is the responsibility of management. +The following table sets forth activity in our allowance for credit losses for the periods indicated. +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +At or For the Years Ended June 30, +​ +​ +2024 +2023 +​ +​ +(Dollars in thousands) +Allowance for credit losses - loans: +​ +​ +​ +​ +​ +​ +​ +Balance, beginning of year +​ +$ +263 +​ +$ +223 +​ +Impact of adoption of ASC 326 +​ +​ +47 +​ +​ +— +​ +Provision for (reversal of) loan losses +​ +463 +​ +40 +​ +Net loan recoveries (charge-offs): +​ +​ +​ +Real estate loans: +​ +​ +​ +Commercial +​ +— +​ +— +​ +Residential +​ +— +​ +— +​ +Multifamily +​ +​ +— +​ +​ +— +​ +Agricultural +​ +— +​ +— +​ +Construction and land +​ +— +​ +— +​ +Home equity lines of credit (HELOC) +​ +​ +— +​ +​ +— +​ +Commercial and industrial loans +​ +— +​ +— +​ +Consumer loans +​ +— +​ +— +​ +Total net recoveries (charge-offs) +​ +— +​ +— +​ +Balance, end of year +​ +$ +773 +​ +$ +263 +​ +​ +​ +​ +​ +​ +​ +​ +​ +Allowance for credit losses - unfuned loan commitments and letters of credit: +​ +​ +​ +​ +​ +​ +​ +Balance, beginning of year +​ +$ +— +​ +$ +— +​ +Impact of adoption of ASC 326 +​ +​ +21 +​ +​ +— +​ +Provision for (reversal of) credit losses on unfunded loan commitments and letters of credit +​ +​ +156 +​ +​ +— +​ +Balance, end of year +​ +$ +177 +​ +$ +— +​ +​ +​ +​ +​ +​ +​ +​ +​ +Total loans at end of year +​ +$ +129,527 +​ +$ +89,722 +​ +Total non-accrual loans at end of year +​ +​ +554 +​ +​ +304 +​ +Total non-performing loans at end of year +​ +​ +554 +​ +​ +304 +​ +Total average loans +​ +​ +109,625 +​ +​ +85,995 +​ +​ +​ +​ +​ +​ +​ +​ +​ +Allowance for credit losses to non-accrual loans at end of year +​ +​ +139.53 +% +​ +86.51 +% +Allowance for credit losses to non-performing loans at end of year +​ +139.53 +​ +86.51 +​ +Allowance for credit losses to total loans outstanding at end of year +​ +0.60 +​ +0.29 +​ +Net recoveries (charge-offs) to average loans outstanding during the year +​ +0.00 +​ +0.00 +​ +​ +Allocation of Allowance for Credit Losses. The following tables set forth the allowance for credit losses allocated by loan category and the percent of the allowance in each category to the total allocated allowance at the dates indicated. +13 +Table of Contents +The allowance for credit losses allocated to each category is not necessarily indicative of future losses in any particular category and does not restrict the use of the allowance to absorb losses in other categories. +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +At June 30, +​ +​ +2024 +​ +2023 +​ +​ +​ +​ +​ +Percent of +​ +Percent of +​ +​ +​ +​ +Percent of +​ +Percent of +​ +​ +​ +​ +​ +Allowance to +​ +Loans in +​ +​ +​ +​ +Allowance to +​ +Loans in +​ +​ +​ +​ +​ +Total +​ +Category to +​ +​ +​ +​ +Total +​ +Category to +​ +Amount +Allowance +Total Loans +Amount +Allowance +Total Loans +​ +(Dollars in thousands) +​ +Real estate loans: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Commercial +​ +$ +207 +26.8 +% +15.2 +% +$ +27 +10.3 +% +6.2 +% +Residential +​ +175 +22.6 +​ +53.9 +​ +168 +63.9 +​ +79.8 +​ +Multifamily +​ +​ +1 +​ +0.1 +​ +0.5 +​ +​ +2 +​ +0.8 +​ +0.9 +​ +Agricultural +​ +12 +1.6 +​ +3.3 +​ +17 +6.5 +​ +4.2 +​ +Construction and land +​ +191 +24.7 +​ +13.6 +​ +12 +4.6 +​ +7.3 +​ +Home equity lines of credit (HELOC) +​ +3 +0.4 +​ +1.3 +​ +35 +13.3 +​ +0.3 +​ +Commercial and industrial loans +​ +183 +23.7 +​ +11.5 +​ +1 +0.4 +​ +0.4 +​ +Consumer +​ +1 +0.1 +​ +0.7 +​ +1 +0.4 +​ +0.9 +​ +Total allocated allowance +​ +$ +773 +100 +% +100 +% +$ +263 +100 +% +100 +% +​ +Investment Activities +General . The goals of our investment policy is to maximize portfolio yield over the long term in a manner that is consistent with minimizing risk, meeting liquidity needs, meeting pledging requirements, and meeting asset/liability management and interest rate risk strategies. Subject to loan demand and our interest rate risk analysis, we expect to increase the balance of our investment securities portfolio when we have excess liquidity. +Our investment policy was adopted by the board of directors and is reviewed annually by the board of directors. All investment decisions are made by our Asset/Liability Committee according to board-approved policies. An investment schedule detailing the investment portfolio is reviewed at least monthly by the board of directors. +Our current investment policy permits, with certain limitations, investments in: U.S. Treasury securities; securities issued by the U.S. government and its agencies or government sponsored enterprises including mortgage-backed securities and collateralized mortgage obligations issued by Fannie Mae, Ginnie Mae, and Freddie Mac; corporate and municipal bonds; asset-backed securities; certificates of deposit in other financial institutions; federal funds and money market funds, among other investments. +At June 30, 2024, our investment portfolio consisted of securities and obligations issued by U.S. government-sponsored enterprises as well as state and municipal securities. At June 30, 2024, we also owned $1.9 million of Federal Home Loan Bank of Cincinnati stock and $268,000 of Federal Reserve Bank of Cleveland stock. As a member of Federal Home Loan Bank of Cincinnati and the Federal Reserve Bank of Cleveland, we are required to purchase stock, which is carried at cost and classified as a restricted investment. +At June 30, 2024, all of our investment securities are carried at fair value through accumulated other comprehensive income. +The adoption of ASC326 amended the guidance applicable to measuring and recognizing losses on available-for-sale securities. Under ASC326, expected credit related losses for available-for-sale debt securities are recorded through an allowance for credit losses, while no-credit related losses will continue to be recognized through other comprehensive income as unrealized holding gains and losses, net of tax. Under former GAAP, we assessed our investment securities for other-than-temporary impairment and any declines in fair value that were deemed other-than-temporary resulted in a direct write-down to the amortized cost basis of the related security. The allowance approach allows estimated expected credit losses to be adjusted from period-to-period, as opposed to a permanent write-down. +For additional information regarding our investment securities portfolio, see Note 3 to the notes to financial statements. +14 +Table of Contents +Sources of Funds +General. Deposits have traditionally been our primary source of funds for use in lending and investment activities. We may also use borrowings to supplement cash flow needs, lengthen the maturities of liabilities for interest rate risk purposes and to manage the cost of funds. In addition, we receive funds from scheduled loan payments, investment maturities, loan prepayments, retained earnings and income on earning assets. While scheduled loan payments and income on earning assets are relatively stable sources of funds, deposit inflows and outflows can vary widely and are influenced by prevailing interest rates, market conditions and levels of competition. +Deposits. Our deposits are generated primarily from our primary market area. We offer a selection of deposit accounts, including savings accounts, checking accounts, money market, certificates of deposit and individual retirement accounts. Deposit account terms vary, with the principal differences being the minimum balance required, the amount of time the funds must remain on deposit and the interest rate. +Interest rates paid, maturity terms, service fees and withdrawal penalties are established on a periodic basis. Deposit rates and terms are based primarily on current operating strategies and market rates, liquidity requirements, rates paid by competitors and growth goals. We rely upon personalized customer service, long-standing relationships with customers, and our favorable reputation in the community to attract and retain local deposits. We also seek to obtain deposits from our commercial loan customers. +The flow of deposits is influenced significantly by general economic conditions, changes in money market and other prevailing interest rates and competition. The variety of deposit accounts offered allows us to be competitive in obtaining funds and responding to changes in consumer demand. Based on experience, we believe that our deposits are relatively stable. However, the ability to attract and maintain deposits and the rates paid on these deposits, has been and will continue to be significantly affected by market conditions. +The Company also utilizes brokered certificates of deposit of differing terms, both callable and bullet features, to ensure appropriate liquidity and manage interest rate risk. These totaled $84.1 million at June 30, 2024. +The following table sets forth the distribution of total deposits, by account type, at the dates indicated. +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +At June 30, +​ +​ +2024 +​ +2023 +​ +​ +​ +​ +​ +​ +​ +Average +​ +​ +​ +​ +​ +​ +Average +​ +Amount +Percent +Rate +Amount +Percent +Rate +​ +(Dollars in thousands) +​ +Noninterest-bearing demand deposits +​ +$ +3,280 +1.6 +% +— +% +$ +3,247 +2.7 +% +— +% +Interest-bearing demand deposits +​ +23,213 +11.1 +​ +0.11 +​ +23,304 +19.4 +​ +0.99 +​ +Savings and money market deposits +​ +47,467 +22.7 +​ +1.52 +​ +42,020 +35.0 +​ +0.51 +​ +Certificates of deposit +​ +135,351 +64.7 +​ +4.55 +​ +51,420 +42.9 +​ +1.74 +​ +Total +​ +$ +209,311 +100.0 +% +3.30 +​ +$ +119,991 +100.0 +% +1.08 +% +​ +At June 30, 2024 and June 30, 2023, the aggregate amount of all uninsured deposits (deposits in excess of the Federal Deposit Insurance limit of $250,000 per account) was $23.8 million and $23.0 million, respectively. At June 30, 2024 and June 30, 2023, the aggregate amount of all uninsured certificates of deposit was $4.9 million and $5.7 million, respectively. At June 30, 2024 and June 30, 2023, we had no deposits that were uninsured for any reason other than being in excess of the Federal Deposit Insurance Corporation limit. +15 +Table of Contents +The following table sets forth the maturity of our uninsured certificates of deposit at June 30, 2024. +​ +​ +​ +​ +​ +At June 30, +​ +​ +2024 +​ +​ +(In thousands) +Maturity Period: +​ +​ +​ +Three months or less +​ +$ +3,357 +Over three months through six months +​ +596 +Over six months through 12 months +​ +908 +Over 12 months +​ +— +Total +​ +$ +4,861 +​ +Borrowings . We utilize advances from the FHLB as an alternative to retail and commercial deposits to fund operations as part of our operating strategy. These FHLB advances are collateralized by certain of our mortgage loans and secondarily by our investment in capital stock of FHLB. Such advances may be made under several different credit programs, each of which has its own interest rate and range of maturities. At June 30, 2024, we had outstanding advances of $38.5 million from the Federal Home Loan Bank of Cincinnati and access to an additional $3.9 of advances based on available pledged collateral. All borrowings were short-term (maturities of one year or less). $24.0 million of our outstanding advances were repaid on July 1, 2024. +We also participate in the Bank Term Funding Program created on March 12, 2023 by the Federal Reserve. Any amounts drawn can be refinanced at any time with a term of one year from the date of the initial draw or one year from the latest date of refinancing, whichever is later. The program ended on March 11, 2024. At June 30, 2024 we had outstanding borrowings of $23.5 million that mature on January 16, 2025. +Personnel and Human Capital Resources +As of June 30, 2024, we had 43 full-time employees. Our employees are not represented by any collective bargaining group. Management believes that we have good working relations with our employees. +We believe that our ability to attract and retain top quality employees will be key to the Company’s future success. During the calendar year ended December 31, 2023, we have made several hires, including but not limited to: a new President and Chief Executive Officer, a new Chief Financial Officer, a new Chief Risk Officer, a Chief Information Officer, a Chief Lending Officer and a commercial lending team. We expect to continue to assess our management and staffing needs and are likely to add personnel in the future to fully implement our business strategy. +Subsidiary Activities +Van Wert Federal is the wholly-owned subsidiary of VWF Bancorp. The Company has no other subsidiaries and the Bank has no subsidiaries. +REGULATION AND SUPERVISION +General +As a federal savings association (the term “savings association” includes a federal savings bank), the Bank is subject to examination and regulation by the OCC, and is also subject to examination by the FDIC. This regulation and supervision establishes a comprehensive framework of activities in which an institution may engage and is intended primarily for the protection of the FDIC’s deposit insurance fund and depositors, and not for the protection of security holders. The Bank also is a member of and owns stock in the Federal Home Loan Bank of Cincinnati, which is one of the 11 regional banks in the Federal Home Loan Bank System. +Under this system of regulation, the regulatory authorities have extensive discretion in connection with their supervisory, enforcement, rulemaking and examination activities and policies, including rules or policies that: establish minimum capital levels; restrict the timing and amount of dividend payments; govern the classification of assets; determine the +16 +Table of Contents +adequacy of loan loss reserves for regulatory purposes; and establish the timing and amounts of assessments and fees. Moreover, as part of their examination authority, the banking regulators assign numerical ratings to banks and savings institutions relating to capital, asset quality, management, liquidity, earnings and other factors. The receipt of a less than satisfactory rating in one or more categories may result in enforcement action by the banking regulators against a financial institution. A less than satisfactory rating may also prevent a financial institution, such as the Bank or its holding company, from obtaining necessary regulatory approvals to access the capital markets, pay dividends, acquire other financial institutions or establish new branches. +In addition, we must comply with significant anti-money laundering and anti-terrorism laws and regulations, Community Reinvestment Act laws and regulations, and fair lending laws and regulations. Government agencies have the authority to impose monetary penalties and other sanctions on institutions that fail to comply with these laws and regulations, which could significantly affect our business activities, including our ability to acquire other financial institutions or expand our branch network. +The Company is a savings and loan holding company subject to the rules and regulations of the Federal Reserve Board. It is required to file certain reports with the Federal Reserve Board and is subject to examination by the enforcement authority of the Federal Reserve Board. The Company is also subject to the rules and regulations of the Securities and Exchange Commission under the federal securities laws. Effective June 23, 2023, the Bank elected to operate as a “covered savings association” (CSA). A CSA has the same rights and privileges as a national bank that has its main office situated in the same location as the home office of the CSA and is subject to the same duties, restrictions, penalties, liabilities, conditions, and limitations that would apply to such a national bank. +Any change in applicable laws or regulations, whether by the OCC, the FDIC, the Federal Reserve Board or Congress, could have a material adverse impact on the operations and financial performance of The Company and the Bank. +Set forth below is a brief description of material regulatory requirements that are applicable to the Company and the Bank. The description is limited to certain material aspects of the statutes and regulations addressed, and is not intended to be a complete description of such statutes and regulations and their effects on the Company and the Bank. +Federal Banking Regulation +Business Activities. A federal association derives its lending and investment powers from the Home Owners’ Loan Act, as amended, and applicable federal regulations. Under these laws and regulations, the Bank may invest in mortgage loans secured by residential and commercial real estate, commercial business and consumer loans, certain types of debt securities and certain other assets, subject to applicable limits. The Bank may also establish subsidiaries that may engage in certain activities not otherwise permissible for the Bank to engage in directly, including real estate investment and securities and insurance brokerage. +Capital Requirements . Federal regulations require federally insured depository institutions to meet several minimum capital standards: a common equity Tier 1 capital to risk-weighted assets ratio of 4.5%, a Tier 1 capital to risk-weighted assets ratio of 6.0%, a total capital to risk-weighted assets of 8.0%, and a 4.0% Tier 1 capital to adjusted average total assets leverage ratio. +Common equity Tier 1 capital is generally defined as common stockholders’ equity and retained earnings. Tier 1 capital is generally defined as common equity Tier 1 and additional Tier 1 capital. Additional Tier 1 capital includes certain noncumulative perpetual preferred stock and related surplus and minority interests in equity accounts of consolidated subsidiaries. Total capital includes Tier 1 capital (common equity Tier 1 capital plus additional Tier 1 capital) and Tier 2 capital. Tier 2 capital is comprised of capital instruments and related surplus, meeting specified requirements, and may include cumulative preferred stock and long-term perpetual preferred stock, mandatory convertible securities, intermediate preferred stock and subordinated debt. Also included in Tier 2 capital is the allowance for loan losses limited to a maximum of 1.25% of risk-weighted assets and, for institutions that have exercised an opt-out election regarding the treatment of Accumulated Other Comprehensive Income (“AOCI”), up to 45% of net unrealized gains on available-for-sale equity securities with readily determinable fair market values. Institutions that have not exercised the AOCI opt-out have AOCI incorporated into common equity Tier 1 capital (including unrealized gains and losses on +17 +Table of Contents +available-for-sale-securities). The Bank exercised its AOCI opt-out election. Calculation of all types of regulatory capital is subject to deductions and adjustments specified in the regulations. +In determining the amount of risk-weighted assets for purposes of calculating risk-based capital ratios, all assets, including certain off-balance sheet assets ( e.g. , recourse obligations, direct credit substitutes, residual interests) are multiplied by a risk weight factor assigned by the regulations based on the risks believed inherent in the type of asset. Higher levels of capital are required for asset categories believed to present greater risk. For example, a risk weight of 0% is assigned to cash and U.S. government securities, a risk weight of 50% is generally assigned to prudently underwritten first lien one- to four-family residential real estate loans, a risk weight of 100% is assigned to commercial and consumer loans, a risk weight of 150% is assigned to certain past due loans and a risk weight of between 0% to 600% is assigned to permissible equity interests, depending on certain specified factors. +In addition to establishing the minimum regulatory capital requirements, the regulations limit capital distributions and certain discretionary bonus payments to management if the institution does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets above the amount necessary to meet its minimum risk-based capital requirements. The capital conservation buffer requirement was phased in beginning January 1, 2016 at 0.625% of risk-weighted assets and increasing each year until fully implemented at 2.5% of risk-weighted assets on January 1, 2019. +The federal banking agencies have developed a “Community Bank Leverage Ratio (CBLR)” (the ratio of Tier 1 capital to average total consolidated assets) for financial institutions with assets of less than $10 billion that meet certain qualifying criteria. A “qualifying community bank” that exceeds this ratio will be deemed compliant with all other capital requirements, including the capital requirements to be considered “well capitalized” under Prompt Corrective Action statutes. The federal banking agencies may consider a financial institution’s risk profile when evaluating whether it qualifies as a community bank for purposes of the capital ratio requirement. The federal banking agencies must set the minimum Community Bank Leverage Ratio at not less than 8% and not more than 10%, and as of January 1, 2023, it is set at 9%. The Bank has elected to be subject to the CBLR framework. At June 30, 2024, the Bank’s CBLR was 12.11%. +Loans-to-One Borrower. Generally, a federal savings association may not make a loan or extend credit to a single or related group of borrowers in excess of 15% of unimpaired capital and surplus. An additional amount may be loaned, equal to 10% of unimpaired capital and surplus, if the loan is secured by readily marketable collateral, which generally does not include real estate. At June 30, 2024, the Bank complied with the loans-to-one borrower limitations. +Capital Distributions. Federal regulations govern capital distributions by a federal savings association, which include cash dividends, stock repurchases and other transactions charged to its capital account. A federal savings association must file an application with the OCC for approval of a capital distribution if: +● the total capital distributions for the applicable calendar year exceed the sum of the savings association’s net income for that year to date plus its retained net income for the preceding two years; +● the savings association would not be at least adequately capitalized following the distribution; +● the distribution would violate any applicable statute, regulation, agreement or regulatory condition; or +● the savings association is not eligible for expedited treatment of its filings, generally due to an unsatisfactory CAMELS rating or being subject to a cease and desist order or formal written agreement that requires action to improve the institution’s financial condition. +Even if an application is not otherwise required, every savings association that is a subsidiary of a savings and loan holding company, such as the Bank, must still file a notice with the Federal Reserve Board at least 30 days before the board of directors declares a dividend or approves a capital distribution. +18 +Table of Contents +A notice or application related to a capital distribution may be disapproved if: +● the savings association would be undercapitalized following the distribution; +● the proposed capital distribution raises safety and soundness concerns; or +● the capital distribution would violate a prohibition contained in any statute, regulation or agreement. +In addition, an insured depository institution may not make any capital distribution if, after making such distribution, the institution would fail to meet any applicable regulatory capital requirement. A federal savings association also may not make a capital distribution that would reduce its regulatory capital below the amount required for the liquidation account established in connection with its conversion to stock form. +Community Reinvestment Act and Fair Lending Laws. All federal savings associations have a responsibility under the Community Reinvestment Act and related regulations to help meet the credit needs of their communities, including low- and moderate-income borrowers. In connection with its examination of a federal savings association, the OCC is required to assess the federal savings association’s record of compliance with the Community Reinvestment Act. A savings association’s failure to comply with the provisions of the Community Reinvestment Act could, at a minimum, result in denial of certain corporate applications such as branches or mergers, or in restrictions on its activities. In addition, the Equal Credit Opportunity Act and the Fair Housing Act prohibit lenders from discriminating in their lending practices on the basis of characteristics specified in those statutes. The failure to comply with the Equal Credit Opportunity Act and the Fair Housing Act could result in enforcement actions by the OCC, as well as other federal regulatory agencies and the Department of Justice. +The Community Reinvestment Act requires all institutions insured by the Federal Deposit Insurance Corporation to publicly disclose their rating. The Bank received a “satisfactory” Community Reinvestment Act rating in its most recent federal examination. +Transactions with Related Parties. A federal savings association’s authority to engage in transactions with its affiliates is limited by Sections 23A and 23B of the Federal Reserve Act and federal regulations. An affiliate is generally a company that controls, or is under common control with, an insured depository institution such as Van Wert Federal. VWF Bancorp is an affiliate of Van Wert Federal because of its control of Van Wert Federal. In general, transactions between an insured depository institution and its affiliates are subject to certain quantitative limits and collateral requirements. In addition, federal regulations prohibit a savings association from lending to any of its affiliates that are engaged in activities that are not permissible for bank holding companies and from purchasing the securities of any affiliate, other than a subsidiary. Finally, transactions with affiliates must be consistent with safe and sound banking practices, not involve the purchase of low-quality assets and be on terms that are as favorable to the institution as comparable transactions with non-affiliates. +The Bank’s authority to extend credit to its directors, executive officers and 10% stockholders, as well as to entities controlled by such persons, is currently governed by the requirements of Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O of the Federal Reserve Board. Among other things, these provisions generally require that extensions of credit to insiders: +● be made on terms that are substantially the same as, and follow credit underwriting procedures that are not less stringent than, those prevailing for comparable transactions with unaffiliated persons and that do not involve more than the normal risk of repayment or present other unfavorable features; and +● not exceed certain limitations on the amount of credit extended to such persons, individually and in the aggregate, which limits are based, in part, on the amount of the Bank’s capital. +In addition, extensions of credit in excess of certain limits must be approved by the Bank’s board of directors. Extensions of credit to executive officers are subject to additional limits based on the type of extension involved. +19 +Table of Contents +Enforcement. The OCC has primary enforcement responsibility over federal savings associations and has authority to bring enforcement action against all “institution-affiliated parties,” including directors, officers, stockholders, attorneys, appraisers and accountants who knowingly or recklessly participate in wrongful action likely to have an adverse effect on a federal savings association. Formal enforcement action by the OCC may range from the issuance of a capital directive or cease and desist order to removal of officers and/or directors of the institution and the appointment of a receiver or conservator. Civil penalties cover a wide range of violations and actions, and range up to $25,000 per day, unless a finding of reckless disregard is made, in which case penalties may be as high as $1 million per day. The FDIC also has the authority to terminate deposit insurance or recommend to the OCC that enforcement action be taken with respect to a particular savings association. If such action is not taken, the FDIC has authority to take the action under specified circumstances. +Standards for Safety and Soundness. Federal law requires each federal banking agency to prescribe certain standards for all insured depository institutions. These standards relate to, among other things, internal controls, information systems and audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, compensation and other operational and managerial standards as the agency deems appropriate. Interagency guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. If the appropriate federal banking agency determines that an institution fails to meet any standard prescribed by the guidelines, the agency may require the institution to submit to the agency an acceptable plan to achieve compliance with the standard. If an institution fails to meet these standards, the appropriate federal banking agency may require the institution to implement an acceptable compliance plan. Failure to implement such a plan can result in further enforcement action, including the issuance of a cease and desist order or the imposition of civil money penalties. +Interstate Banking and Branching. Federal law permits well capitalized and well managed holding companies to acquire banks in any state, subject to Federal Reserve Board approval, certain concentration limits and other specified conditions. Interstate mergers of banks are also authorized, subject to regulatory approval and other specified conditions. In addition, among other things, amendments made by the Dodd-Frank Act permit banks to establish de novo branches on an interstate basis provided that branching is authorized by the law of the host state for the banks chartered by that state. +Prompt Corrective Action. Federal law requires, among other things, that federal bank regulators take “prompt corrective action” with respect to institutions that do not meet minimum capital requirements. For this purpose, the law establishes five capital categories: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. Under the regulations, as amended effective January 1, 2015 to incorporate the previously mentioned amendments to the regulatory capital requirements, an institution is deemed to be “well capitalized” if it has a total risk-based capital ratio of 10.0% or greater, a Tier 1 risk-based capital ratio of 8.0% or greater, a leverage ratio of 5.0% or greater and a common equity Tier 1 ratio of 6.5% or greater. An institution is “adequately capitalized” if it has a total risk-based capital ratio of 8.0% or greater, a Tier 1 risk-based capital ratio of 6.0% or greater, a leverage ratio of 4.0% or greater and a common equity Tier 1 ratio of 4.5% or greater. An institution is “undercapitalized” if it has a total risk-based capital ratio of less than 8.0%, a Tier 1 risk-based capital ratio of less than 6.0%, a leverage ratio of less than 4.0% or a common equity Tier 1 ratio of less than 4.5%. An institution is deemed to be “significantly undercapitalized” if it has a total risk-based capital ratio of less than 6.0%, a Tier 1 risk-based capital ratio of less than 4.0%, a leverage ratio of less than 3.0% or a common equity Tier 1 ratio of less than 3.0%. An institution is considered to be “critically undercapitalized” if it has a ratio of tangible equity (as defined in the regulations) to total assets that is equal to or less than 2.0%. +Federal law and regulations also specify circumstances under which a federal banking agency may reclassify a well-capitalized institution as adequately capitalized and may require an institution classified as less than well capitalized to comply with supervisory actions as if it were in the next lower category. +The OCC may order savings associations that have insufficient capital to take corrective actions. For example, a savings association that is categorized as “undercapitalized” is subject to growth limitations and is required to submit a capital restoration plan, and a holding company that controls such a savings association is required to guarantee that the savings association complies with the restoration plan. A “significantly undercapitalized” savings association may be subject to +20 +Table of Contents +additional restrictions. Savings associations deemed by the OCC to be “critically undercapitalized” would be subject to the appointment of a receiver or conservator. +In addition, as set forth above, a “qualifying community bank,” such as Van Wert Federal, that exceeds the Community Bank Leverage Ratio is considered “well capitalized” under the Prompt Corrective Action statutes. The Bank has elected to be subject to the Community Bank Leverage Ratio framework. +At June 30, 2024, the Bank met the criteria for being considered “well capitalized.” +Insurance of Deposit Accounts. The Bank is a member of the Deposit Insurance Fund, which is administered by the FDIC. Its deposit accounts are insured by the FDIC, generally up to a maximum of $250,000 per depositor. +The FDIC imposes deposit insurance assessments against all insured depository institutions. An institution’s assessment rate depends upon the perceived risk of the institution to the Deposit Insurance Fund, with institutions deemed less risky paying lower rates. Currently, assessments for institutions of less than $10 billion of total assets are based on financial measures and supervisory ratings derived from statistical models estimating the probability of failure within three years. That system was effective July 1, 2016 and replaced a system under which each institution was assigned to a risk category. Assessment rates (inclusive of possible adjustments) currently range from 1.5 to 30 basis points of each institution’s total assets less tangible capital. The current scale, also effective July 1, 2016, is a reduction from the previous range of 2.5 to 45 basis points. The FDIC may increase or decrease the range of assessments uniformly, except that no adjustment can deviate more than two basis points from the base assessment rate without notice and comment rulemaking. The existing system represents a change, required by the Dodd-Frank Act, from the FDIC’s prior practice of basing the assessment on an institution’s aggregate deposits. +The FDIC has the authority to increase insurance assessments. A significant increase in insurance premiums would have an adverse effect on the operating expenses and results of operations of the Bank. We cannot predict what deposit insurance assessment rates will be in the future. +Insurance of deposits may be terminated by the FDIC upon a finding that an institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC. We do not know of any practice, condition or violation that might lead to termination of deposit insurance for the Bank. +Privacy Regulations. Federal regulations generally require that the Bank disclose its privacy policy, including identifying with whom it shares a customer’s “non-public personal information,” to customers at the time of establishing the customer relationship and annually thereafter. In addition, the Bank is required to provide its customers with the ability to “opt-out” of having their personal information shared with unaffiliated third parties and not to disclose account numbers or access codes to non-affiliated third parties for marketing purposes. The Bank has a privacy protection policy in place and believes that such policy is in compliance with the regulations. +USA Patriot Act. The Bank is subject to the USA PATRIOT Act, which gives federal agencies additional powers to address terrorist threats through enhanced domestic security measures, expanded surveillance powers, increased information sharing, and broadened anti-money laundering requirements. The USA PATRIOT Act contains provisions intended to encourage information sharing among bank regulatory agencies and law enforcement bodies and imposes affirmative obligations on financial institutions, such as enhanced recordkeeping and customer identification requirements. +Prohibitions Against Tying Arrangements . Federal savings associations are prohibited, subject to some exceptions, from extending credit to or offering any other service, or fixing or varying the consideration for such extension of credit or service, on the condition that the customer obtain some additional service from the institution or its affiliates or not obtain services of a competitor of the institution. +21 +Table of Contents +Other Regulations +Interest and other charges collected or contracted for by the Bank are subject to state usury laws and federal laws concerning interest rates. Loan operations are also subject to state and federal laws applicable to credit transactions, such as the: +● Home Mortgage Disclosure Act of 1975, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves; +● Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit; +● Fair Credit Reporting Act of 1978, governing the use and provision of information to credit reporting agencies; and +● Rules and regulations of the various federal and state agencies charged with the responsibility of implementing such federal and state laws. +The deposit operations of the Bank also are subject to, among others, the: +● Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records; +● Check Clearing for the 21st Century Act (also known as “Check 21”), which gives “substitute checks,” such as digital check images and copies made from that image, the same legal standing as the original paper check; and +● Electronic Funds Transfer Act and Regulation E promulgated thereunder, which govern automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services. +Federal Home Loan Bank System +The Bank is a member of the Federal Home Loan Bank of Cincinnati, which is one of 11 regional Federal Home Loan Banks in the Federal Home Loan Bank System. The Federal Home Loan Bank of Cincinnati provides a central credit facility primarily for its member institutions. Members of the Federal Home Loan Bank of Cincinnati are required to acquire and hold shares of capital stock in the Federal Home Loan Bank of Cincinnati. The Bank complied with this requirement at June 30, 2024. Based on redemption provisions of the Federal Home Loan Bank of Cincinnati, the stock has no quoted market value and is carried at cost. The Bank reviews for impairment, based on the ultimate recoverability, the cost basis of the Federal Home Loan Bank of Cincinnati stock. At June 30, 2024, no impairment has been recognized. +Holding Company Regulation +VWF Bancorp is a unitary savings and loan holding company subject to regulation and supervision by the Federal Reserve Board. The Federal Reserve Board has enforcement authority over VWF Bancorp and its non-savings institution subsidiaries. Among other things, this authority permits the Federal Reserve Board to restrict or prohibit activities that are determined to be a risk to the Bank. +As a savings and loan holding company, VWF Bancorp’s activities are limited to those activities permissible by law for financial holding companies (if VWF Bancorp makes an election to be treated as a financial holding company and meets the other requirements to be a financial holding company) or multiple savings and loan holding companies. VWF +22 +Table of Contents +Bancorp does not intend to make an election to be treated as a financial holding company. A financial holding company may engage in activities that are financial in nature, incidental to financial activities or complementary to a financial activity. Such activities include lending and other activities permitted for bank holding companies under Section 4(c)(8) of the Bank Holding Company Act, insurance and underwriting equity securities. Multiple savings and loan holding companies are authorized to engage in activities specified by federal regulation, including activities permitted for bank holding companies under Section 4(c)(8) of the Bank Holding Company Act. +Federal law prohibits a savings and loan holding company, directly or indirectly, or through one or more subsidiaries, from acquiring more than 5% of another savings institution or savings and loan holding company without prior written approval of the Federal Reserve Board, and from acquiring or retaining control of any depository institution not insured by the FDIC. In evaluating applications by holding companies to acquire savings institutions, the Federal Reserve Board must consider such things as the financial and managerial resources and future prospects of the company and institution involved, the effect of the acquisition on and the risk to the federal deposit insurance fund, the convenience and needs of the community and competitive factors. A savings and loan holding company may not acquire a savings institution in another state and hold the target institution as a separate subsidiary unless it is a supervisory acquisition under Section 13(k) of the Federal Deposit Insurance Act or the law of the state in which the target is located authorizes such acquisitions by out-of-state companies. +Savings and loan holding companies historically have not been subject to consolidated regulatory capital requirements. The Dodd-Frank Act requires the Federal Reserve Board to establish minimum consolidated capital requirements for all depository institution holding companies that are as stringent as those required for the insured depository subsidiaries. However, legislation was enacted in May 2018 that required the Federal Reserve Board to amend its “Small Bank Holding Company” exemption from consolidated holding company capital requirements to generally extend its applicability to bank and savings and loan holding companies of up to $3.0 billion in assets. Regulations implementing this amendment were effective in August 2018. Consequently, savings and loan holding companies of under $3.0 billion in consolidated assets remain exempt from consolidated regulatory capital requirements, unless the Federal Reserve determines otherwise in particular cases. +The Dodd-Frank Act extended the “source of strength” doctrine to savings and loan holding companies. The Federal Reserve Board has promulgated regulations implementing the “source of strength” policy that require holding companies to act as a source of strength to their subsidiary depository institutions by providing capital, liquidity and other support in times of financial stress. +The Federal Reserve Board has issued a policy statement regarding the payment of dividends and the repurchase of shares of common stock by bank holding companies and savings and loan holding companies. In general, the policy provides that dividends should be paid only out of current earnings and only if the prospective rate of earnings retention by the holding company appears consistent with the organization’s capital needs, asset quality and overall financial condition. Regulatory guidance provides for prior regulatory consultation with respect to capital distributions in certain circumstances such as where the company’s net income for the past four quarters, net of dividends previously paid over that period, is insufficient to fully fund the dividend or the company’s overall rate of earnings retention is inconsistent with the company’s capital needs and overall financial condition. The ability of a holding company to pay dividends may be restricted if a subsidiary bank becomes undercapitalized. The policy statement also states that a holding company should inform the Federal Reserve Board supervisory staff before redeeming or repurchasing common stock or perpetual preferred stock if the holding company is experiencing financial weaknesses or if the repurchase or redemption would result in a net reduction, at the end of a quarter, in the amount of such equity instruments outstanding compared with the beginning of the quarter in which the redemption or repurchase occurred. These regulatory policies may affect the ability of VWF Bancorp to pay dividends, repurchase shares of common stock or otherwise engage in capital distributions. +Federal Securities Laws +VWF Bancorp common stock is registered with the Securities and Exchange Commission. VWF Bancorp is subject to the information, proxy solicitation, insider trading restrictions and other requirements under the Securities Exchange Act of 1934, as amended. +23 +Table of Contents +Shares of common stock purchased by persons who are not affiliates of VWF Bancorp may be resold without registration under the Securities Act of 1933. Shares purchased by an affiliate of VWF Bancorp are subject to the resale restrictions of Rule 144 under the Securities Act of 1933. If VWF Bancorp meets the current public information requirements of Rule 144 under the Securities Act of 1933, each affiliate of VWF Bancorp that complies with the other conditions of Rule 144, including those that require the affiliate’s sale to be aggregated with those of other persons, would be able to sell in the public market, without registration, a number of shares not to exceed, in any three-month period, the greater of 1% of the outstanding shares of VWF Bancorp, or the average weekly volume of trading in the shares during the preceding four calendar weeks. +Sarbanes-Oxley Act of 2002 +The Sarbanes-Oxley Act of 2002 is intended to improve corporate responsibility, to provide for enhanced penalties for accounting and auditing improprieties at publicly traded companies and to protect investors by improving the accuracy and reliability of corporate disclosures required under the federal securities laws. We have policies, procedures and systems designed to comply with these regulations, and we review and document such policies, procedures and systems to ensure continued compliance with these regulations. +Change in Control Regulations +Under the Change in Bank Control Act, a federal statute, no person may acquire control of a savings and loan holding company such as VWF Bancorp unless the Federal Reserve Board has been given 60 days prior written notice and has not issued a notice disapproving the proposed acquisition, taking into consideration certain factors, including the financial and managerial resources of the acquirer and the competitive effects of the acquisition. Control, as defined under federal law, means ownership, control of or holding irrevocable proxies representing more than 25% of any class of voting stock, control in any manner of the election of a majority of the institution’s directors, or a determination by the regulator that the acquiror has the power, directly or indirectly, to exercise a controlling influence over the management or policies of the institution. Acquisition of more than 10% of any class of a savings and loan holding company’s voting stock constitutes a rebuttable determination of control under the regulations under certain circumstances including where, as is the case with VWF Bancorp, the issuer has registered securities under Section 12 of the Securities Exchange Act of 1934. +In addition, federal regulations provide that no company may acquire control of a savings and loan holding company without the prior approval of the Federal Reserve Board. Any company that acquires such control becomes a “savings and loan holding company” subject to registration, examination and regulation by the Federal Reserve Board. +Emerging Growth Company Status +VWF Bancorp is an emerging growth company. For as long as it qualifies as an emerging growth company, it may choose to take advantage of exemptions from various reporting requirements applicable to other public companies but not emerging growth companies, including, but not limited to, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation. As an emerging growth company, VWF Bancorp is not subject to Section 404(b) of the Sarbanes-Oxley Act of 2002, which would require that our independent auditors audit our internal control over financial reporting. In addition, as an emerging growth company, we have elected to take advantage of the extended transition periods for adopting new or revised financial accounting standards until the date they are required to be adopted by private companies (however, if any new or revised financial accounting standards would not apply to private companies, we would not be able to delay their adoption). Accordingly, our financial statements may not be comparable to those of public companies that adopt new or revised financial accounting standards as of an earlier date. Investors may find our common stock less attractive since we have chosen to rely on these exemptions. If some investors find our common stock less attractive as a result of any choices to reduce future disclosure, there may be a less active trading market for our common stock and the price of our common stock may be more volatile. +VWF Bancorp will cease to be an emerging growth company upon the earliest of: (i) the end of the fiscal year following the fifth anniversary of the completion of the conversion and offering; (ii) the first fiscal year after our annual gross +24 +Table of Contents +revenues are $1.07 billion (adjusted for inflation) or more; (iii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities; or (iv) the end of any fiscal year in which the market value of our common stock held by non-affiliates exceeded $700 million at the end of the second quarter of that fiscal year. We expect to lose our status as an emerging growth company effective June 30, 2028, which is the end of the fiscal year following the fifth anniversary of the completion date of the Conversion. +TAXATION +Federal Taxation +General. VWF Bancorp and Van Wert Federal are subject to federal income taxation in the same general manner as other corporations, with some exceptions discussed below. The following discussion of federal taxation is intended only to summarize material federal income tax matters and is not a comprehensive description of the tax rules applicable to VWF Bancorp and Van Wert Federal. +Method of Accounting. For federal income tax purposes, the Bank currently reports its income and expenses on the accrual method of accounting and uses a tax year ending December 31 for filing its federal income tax returns. The Small Business Protection Act of 1996 eliminated the use of the reserve method of accounting for bad debt reserves by savings institutions, effective for taxable years beginning after 1995. +Minimum Tax. The alternative minimum tax (“AMT”) for corporations has been repealed for tax years beginning after December 31, 2017. Any unused minimum tax credit of a corporation may be used to offset regular tax liability for any tax year. In addition, a portion of unused minimum tax credit was refundable in 2018 through 2021. The refundable portion is 100% for the tax years beginning after December 31, 2018 of the excess of the minimum tax credit for the year over any credit allowable against regular tax for that year. At June 30, 2024, the Bank had no minimum tax credit carryforward. +Net Operating Loss Carryovers. Generally, a corporation may carry forward net operating losses generated in tax years beginning after December 31, 2017 indefinitely and can offset up to 80% of taxable income. However, net operating losses generated in tax years beginning in 2018, 2019 and 2020 can be carried back five years and are 100% deductible for tax years ending in 2018, 2019 and 2020. At June 30, 2024 and 2023, the Bank generated an NOL that will be carried forward. +Capital Loss Carryovers. Generally, a corporation may carry back capital losses to the preceding three taxable years and forward to the succeeding five taxable years. Any capital loss carryback or carryover is treated as a short-term capital loss for the year to which it is carried. As such, it is grouped with any other capital losses for the year to which carried and is used to offset any capital gains. Any undeducted loss remaining after the five-year carryover period is not deductible. At June 30, 2024, the Bank had no capital loss carryovers. +Corporate Dividends. VWF Bancorp may generally exclude from our income 100% of dividends received from the Bank as a member of the same affiliated group of corporations. +Audit of Tax Returns. The Bank’s federal income tax returns have not been audited in the most recent five-year period. +State Taxation +The Bank is subject to Ohio taxation in the same general manner as other financial institutions. In particular, the Bank files a consolidated Ohio Financial Institutions Tax (“FIT”) return. The FIT is based upon the net worth of the consolidated group. For Ohio FIT purposes, savings institutions are currently taxed at a rate equal to 0.8% of taxable net worth, capped at 14% of the institution’s total assets. +As a Maryland business corporation, VWF Bancorp is required to file an annual report with and pay personal property taxes to the State of Maryland. +25 +Table of Contents +ITEM 1A. Risk Factors +Not applicable, as VWF Bancorp is a “smaller reporting company.” +​ +ITEM 1B. Unresolved Staff Comments +None. +​ +ITEM 1C. Cybersecurity +The Bank has implemented an information security program aimed at protecting our customers, the Bank, and our shareholders. The program addresses risks identified by the Bank, including cybersecurity risks. Protecting confidential customer information and maintaining the availability of banking services are the primary objectives of the information security program. +The board of directors is ultimately responsible for the oversight of the information security program. The status of the program is reported to the board throughout the year. Internally, the Bank’s Chief Information Officer (“CIO”) manages the status of the program and reports to the board. The CIO is a Certified Information Systems Security Professional (CISSP) since 2011 and has over 15 years of experience managing cybersecurity risks for financial institutions and healthcare organizations. The Technology Committee reviews and monitors the execution of the program. The Technology Committee consists of key stakeholders throughout the Bank, providing visibility into the risks posed to critical areas. +The foundation of the information security program is based on risk management principles. The Bank has established a risk management framework that identifies, assesses, and manages risks, including cybersecurity risks, that could have a material impact on its business, operations, or financial condition. The Bank identifies new risks to the confidentiality, integrity, and availability of its sensitive information and services during the assessment of new processes, services, vendors, or changes in the banking industry. The mitigating controls of identified risks collectively create the information security program. +The Bank’s cybersecurity strategy involves continuous monitoring of threats, maintaining updated defense mechanisms, and training employees on best practices in cybersecurity. The Bank engages with third-party experts and utilizes advanced cybersecurity tools to enhance defenses against emerging threats. The Bank also performs regular penetration testing, incident response planning, business continuity testing, and system audits to ensure the ongoing strength of its cybersecurity systems. The Bank utilizes a trusted third party to monitor for suspicious activity, including escalation procedures. The Bank also maintains cyber liability insurance that includes activation and escalation procedures should an incident occur. +A vendor management program ensures third-party vendors and service providers adhere to the Bank's security, compliance, and operational standards to mitigate risks. This program involves assessing potential risks associated with vendors, such as data breaches, compliance violations, or operational failures, by conducting thorough due diligence and regularly monitoring vendor performance. It includes setting performance expectations, performing ongoing audits, and ensuring vendors implement necessary safeguards to protect the organization’s sensitive data and maintain the availability of services. The goal is to ensure that third-party relationships do not introduce unacceptable levels of risk to the organization while maintaining business continuity and regulatory compliance. +26 +Table of Contents +As of this filing, no material cybersecurity incidents have occurred that would have a significant impact on the Bank’s business, operations, or financial results. The Bank continues to monitor for any potential breaches and enhance its security protocols to prevent future incidents. While the Bank does not believe a cybersecurity threat is likely to materially affect the operations or financial condition, there can be no guarantee that the Bank will not experience such an incident in the future. +The Bank recognizes that the cybersecurity landscape is constantly evolving and remains committed to adapting its risk management strategies to address new challenges. The Bank continues to invest in its cybersecurity infrastructure and strengthen controls to mitigate risks effectively. +​ +ITEM 2. Properties +At June 30, 2024, the net book value of our properties (including furniture, fixtures and equipment) was $2.3 million. We operate from our offices located at 976 South Shannon Street , Van Wert, Ohio, which we own, and 202 W. Berry Street, Fort Wayne, Indiana, which we lease. We are in the process of expanding into the second floor of the building on Berry Street which we currently lease in Fort Wayne, at which point, we would anticipate our facilities would be adequate to meet our present and foreseeable needs. We are also leasing additional temporary space in Fort Wayne, Indiana until the space on the second floor of the building at 202 W. Berry Street is ready to occupy. We also own vacant land in Van Wert which may be used for future expansion. We currently do not have any plans or understandings to expand our office network. +​ +​ +ITEM 3. Legal Proceedings +Periodically, we are involved in claims and lawsuits, such as claims to enforce liens, condemnation proceedings on properties in which we hold security interests, claims involving the making and servicing of real property loans and other issues incident to our business. At June 30, 2024, we were not a party to any pending legal proceedings that we believe would have a material adverse effect on our financial condition, results of operations or cash flows. +​ +ITEM 4. Mine Safety Disclosures +Not applicable. +​ +PART II +ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +VWF Bancorp’s common stock is quoted on the OTCQX Market operated by OTC Markets Group under the symbol “VWFB.” As of June 30, 2024, we had 254 stockholders of record (excluding the number of persons or entities holding stock in street name through various brokerage firms), and 1,914,965 shares of common stock outstanding. There is currently limited trading volume for VWF Bancorp’s common stock. +VWF Bancorp has not paid any cash dividends to our stockholders. The payment and amount of any dividend payments is subject to statutory and regulatory limitations, and depends upon a number of factors, including the following: regulatory capital requirements; our financial condition and results of operations; tax considerations; and general economic conditions. +There were no sales of unregistered securities during the year ended June 30, 2024. +27 +Table of Contents +On February 20, 2024, the Board of Directors of the Company authorized a share repurchase program of up to $600,000 of the Company’s common stock. Under the Company’s share repurchase program, purchases take place as and when determined by the Company in open market or private transactions, including transactions that may be affected pursuant to Rule 10b5-1 of the Securities Exchange Act of 1934, as amended. Pursuant to the program, purchases of shares of the Company’s common stock are made based upon the market price of the Company’s common stock, the nature of other investment and growth opportunities, expected free cash flow, and general economic conditions. The share repurchase program does not require the Company to acquire any specific number of shares and may be modified, suspended, extended or terminated by the Company at any time without prior notice. The Company repurchased 36,800 shares in February 2024 at a price of $16.25 per share, for a total cost of $598,000, excluding broker costs which were de minimus. The Company did not repurchase any shares during the three months ended June 30, 2024. As of June 30, 2024, the Company had $2,000 remaining available to repurchase under the share repurchase program. +​ +ITEM 6. [ Reserved] +​ +ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations +This discussion and analysis reflects our consolidated financial statements and other relevant statistical data, and is intended to enhance your understanding of our financial condition and results of operations. The information in this section has been derived from the consolidated financial statements, which appear elsewhere in this annual report. You should read the information in this section in conjunction with the other business and financial information provided in this annual report. +Overview +Our business consists primarily of taking deposits from the general public and investing those deposits, together with funds generated from operations, in residential real estate loans, commercial real estate loans, agricultural mortgage loans, construction loans, commercial and industrial loans, home equity lines of credit, and consumer loans. We also invest in securities, which have historically consisted primarily of mortgage-backed securities and obligations issued by U.S. government sponsored enterprises, state and municipal securities. We offer a variety of deposit accounts including checking accounts, savings accounts, money market and certificate of deposit accounts. The Bank is subject to comprehensive regulation and examination by the OCC. +Our results of operations depend primarily on our net interest income. Net interest income is the difference between the interest income we earn on our interest-earning assets and the interest we pay on our interest-bearing liabilities. Our results of operations also are affected by our provisions for loan losses, non-interest income and non-interest expense. Non-interest income currently consists primarily of service charges on deposit accounts, other service charges and fees, and income from bank owned life insurance. Non-interest expense currently consists primarily of expenses related to salaries and employee benefits, occupancy and equipment, data processing, contract services, director fees, and other expenses. +We invest in bank owned life insurance to provide us with a funding source to offset some costs of our benefit plan obligations. Bank owned life insurance provides us with non-interest income that is nontaxable. Federal regulations generally limit our investment in bank owned life insurance to 25% of our Tier 1 capital plus our allowance for loan losses. At June 30, 2024, our investment in bank owned life insurance was $5.4 million, which was within this investment limit. +Our results of operations also may be affected significantly by general and local economic and competitive conditions, changes in market interest rates, governmental policies and actions of regulatory authorities. +28 +Table of Contents +Business Strategy +Our business strategy is focused on embracing a relationship-oriented community bank model targeting small to mid-sized businesses and professionals in our market areas while continuing to serve our traditional customer base. Highlights of our current business strategy include: +● Grow the loan portfolio with greater diversification. Historically, our primary lending focus was the origination of one- to four-family residential mortgage loans. We have increased our commercial lending activities and we are focused on building full-service banking relationships with small- to mid-sized businesses and business professionals in our market areas. We believe that increased commercial lending offers an opportunity to enhance our profitability and our growth prospects. +● Grow our franchise organically through enhanced banking products and services. We have implemented a growth strategy that we believe will provide an opportunity to grow organically over the long term by focusing on building relationships with small- to mid-sized businesses and business professional in our market areas and by enhancing the products and services we offer. We will continue to enhance our staff capacity through training and hiring new employees as needed to facilitate our growth. Additionally, we continue to review our technology and infrastructure and will implement new and enhanced technology tools and on-line services preferred by many of our existing and prospective customers. +● Recruiting and retaining top talent and personnel. Since January 2023, the Company has made several personnel changes and additional new hires, including but not limited to a new President and Chief Executive Officer, a new Chief Financial Officer, a new Chief Risk Officer, a Chief Information Officer, a Chief Lending Officer and a commercial lending team. Recruiting and retaining talented individuals to guide us through the implementation of our business strategy is critical to our success. +● Maintain our strong asset quality through conservative loan underwriting. We intend to maintain strong asset quality through what we believe are our conservative underwriting standards and credit monitoring processes. At June 30, 2024, our nonperforming assets totaled $554,000, or 0.43% of total loans. +● Expand our franchise through possible acquisition of other financial institutions. In addition to organic growth, we may also consider expansion opportunities in our market area or in contiguous markets that we believe would enhance both our franchise value and stockholder returns. These opportunities may include acquiring other financial institutions and/or establishing loan production offices, establishing new, or de novo, branch offices and/or acquiring branch offices. We have no current plans or intentions regarding any such expansion activities. +● Rebranding our banking franchise. Van Wert Federal Savings Bank completed its re-branding efforts effective August 1, 2024, in which the name of the Bank changed from Van Wert Federal Savings Bank to GreenWay Bank. In addition to a new name, our re-branding efforts included new marketing campaigns, updated on-line and website materials and new signage and logos to capture and reflect the mission of the Bank. +We intend to continue to pursue these business strategies, subject to changes necessitated by future market conditions, regulatory restrictions and other factors. +Critical Accounting Policies and Use of Critical Accounting Estimates +The discussion and analysis of the financial condition and results of operations are based on our financial statements, which are prepared in conformity with GAAP. The preparation of these financial statements requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities, disclosure of contingent assets +29 +Table of Contents +and liabilities, and the reported amounts of income and expenses. We consider the accounting policies discussed below to be critical accounting policies. The estimates and assumptions that we use are based on historical experience and various other factors and are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions, resulting in a change that could have a material impact on the carrying value of our assets and liabilities and our results of operations. +The Jumpstart Our Business Startups Act of 2012 contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies. As an “emerging growth company” we may delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. We intend to take advantage of the benefits of this extended transition period. Accordingly, our financial statements may not be comparable to companies that comply with such new or revised accounting standards. +The following represent our critical accounting policies: +Allowance for Credit Losses. The allowance for credit losses is the estimated amount considered necessary to cover inherent, but unconfirmed, credit losses in the loan portfolio at the balance sheet date. On July 1, 2023, the Company adopted the guidance under ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Statements. The main provisions of the ASU have been codified by the FASB under ASC 326. The amendments introduced an impairment model that is based on current expected credit losses, rather than incurred losses, to estimated credit losses on loans. For reporting periods beginning on or after July 1, 2023, the allowance for credit losses reflects management’s current estimate of expected credit losses over the remaining life of its loans as of the end of the reporting period. For reporting periods prior to July 1, 2023, the allowance for credit losses represented management’s estimate for probable and reasonably estimable loan losses, but which had not yet been realized as of the end of the reporting period. Refer to Note 1 and Note 2 of the consolidated financial statements included in Item 8 of this Form 10-K for more information on the adoption of ASC 326. +The allowance for credit losses included the allowance for credit losses on loans, and the allowance for credit losses for unfunded lending commitments, which is recorded in other liabilities on the consolidated balance sheet. The allowance for credit losses is established through the provision for credit losses charged against income. In determining the allowance for credit losses, management makes significant estimates and has identified this policy as one of our most critical accounting policies. +Management’s estimate of the allowance for credit losses considers factors such as changes in the types and amount of loans in the loan portfolio, historical loss experience, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, estimated losses relating to specifically identified loans, current and future economic conditions, and forecasted information. This evaluation is inherently subjective as it requires material estimates including, among others, average historical loss experience, expected future loss rates, the amount and timing of expected future pay-downs on existing loans and fundings on unfunded commitments, and the value of underlying collateral. All of these estimates may be susceptible to significant changes as more information becomes available. +Deferred Tax Assets. We use the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion of the deferred tax asset will not be realized. We exercise significant judgment in evaluating the amount and timing of recognition of the resulting tax liabilities and assets. These judgments require us to make projections of future taxable income. The judgments and estimates we make in determining our deferred tax assets, which are inherently subjective, are reviewed on a continual basis as regulatory and business factors change. Determining the proper valuation allowance for deferred taxes is critical in properly valuing the deferred tax asset and the related recognition of income tax expense or benefit. Any reduction in estimated future taxable income may require us to record a valuation allowance against our deferred tax assets. +30 +Table of Contents +Fair Value Measurements . The fair value of a financial instrument is defined as the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. We estimate the fair value of a financial instrument and any related asset impairment using a variety of valuation methods. Where financial instruments are actively traded and have quoted market prices, quoted market prices are used for fair value. When the financial instruments are not actively traded, other observable market inputs, such as quoted prices of securities with similar characteristics, may be used, if available, to determine fair value. When observable market prices do not exist, we estimate fair value. These estimates are subjective in nature and imprecision in estimating these factors can impact the amount of gain or loss recorded. For a detailed description of the fair values measured at each level of the fair value hierarchy and the methodology we utilize, see note 14 of the notes to financial statements. +Selected Financial Data +The following selected consolidated financial data sets forth certain financial highlights of the Company and should be read in conjunction with the audited consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. +​ +​ +​ +​ +​ +​ +​ +​ +At June 30, +​ +​ +2024 +​ +2023 +​ +​ +(In thousands) +Selected Financial Condition Data: +​ +​ +Total assets +​ +$ +311,254 +​ +$ +165,969 +Cash and due from banks +​ +31,631 +​ +5,516 +Available-for-sale securities +​ +139,345 +​ +70,585 +Loans, net +​ +126,391 +​ +81,208 +Premises and equipment, net +​ +2,261 +​ +1,409 +Stock in correspondent banks +​ +2,196 +​ +397 +Bank owned life insurance +​ +5,351 +​ +5,223 +Total deposits +​ +209,310 +​ +119,992 +Total borrowings +​ +​ +62,000 +​ +​ +6,200 +Total equity +​ +36,548 +​ +38,498 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +For the Years Ended +​ +​ +June 30, +​ +2024 +2023 +​ +​ +(In thousands) +Selected Operating Data: +​ +​ +Interest income +​ +$ +12,024 +​ +$ +5,054 +Interest expense +​ +6,728 +​ +780 +Net interest income +​ +5,296 +​ +4,274 +Provision for credit losses - loans +​ +463 +​ +41 +Provision for credit losses - off balance sheet credit exposure +​ +​ +156 +​ +​ +— +Net interest income after provision for loan losses +​ +4,677 +​ +4,233 +Non-interest income +​ +230 +​ +208 +Non-interest expense +​ +7,477 +​ +5,170 +Loss before income taxes +​ +(2,570) +​ +(729) +Provision for income taxes (benefit) +​ +(550) +​ +(183) +Net loss +​ +$ +(2,020) +​ +$ +(546) +​ +31 +Table of Contents +​ +​ +​ +​ +​ +​ +​ +​ +At or For the Years Ended +​ +​ +​ +June 30, +​ +​ +2024 +2023 +Performance Ratios: +​ +Return on average assets +(0.86) +% +(0.36) +% +Return on average equity +(5.39) +% +(1.52) +% +Interest rate spread (1) +1.89 +% +2.87 +% +Net interest margin (2) +2.35 +% +3.03 +% +Non-interest expense to average assets +3.18 +% +3.42 +% +Efficiency ratio (3) +135.31 +% +115.35 +% +Net overhead ratio (4) +​ +3.09 +% +3.28 +% +Average interest-earning assets to average interest-bearing liabilities +115.52 +% +129.64 +% +​ +​ +​ +​ +​ +​ +Capital Ratios: +​ +Average equity to average assets +15.96 +% +23.71 +% +Tier 1 capital to risk-weighted assets (5) +12.51 +% +24.91 +% +​ +​ +​ +​ +​ +​ +Asset Quality Ratios: +​ +Allowance for credit losses as a percentage of total loans +0.60 +% +0.29 +% +Allowance for credit losses as a percentage of non-performing loans +139.53 +% +86.51 +% +Allowance for credit losses as a percentage of non-accrual loans +139.53 +% +86.51 +% +Non-accrual loans as a percentage of total loans +0.43 +% +0.34 +% +Net recoveries (charge-offs) as a percentage of average outstanding loans during the year +0.00 +% +0.00 +% +Non-performing loans as a percentage of total loans +0.43 +% +0.34 +% +Non-performing loans as a percentage of total assets +0.18 +% +0.18 +% +Total non-performing assets as a percentage of total assets +0.18 +% +0.18 +% +​ +​ +​ +​ +​ +​ +Other Data: +​ +Number of offices +2 +1 +​ +Number of full-time employees +43 +26 +​ +Number of part-time employees +— +1 +​ +(1) Represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities. +(2) Represents net interest income as a percentage of average interest-earning assets. +(3) Represents noninterest expenses divided by the sum of net interest income and noninterest income. +(4) Represents noninterest expenses less noninterest income divided by average total assets. +(5) The Bank has adopted the “community bank leverage ratio (CBLR)” framework for measuring regulatory capital adequacy, which became effective January 1, 2020. The CBLR is the ratio of Tier 1 capital to average assets. To be considered well capitalized under the CBLR framework, the Bank was required to have a CBLR ratio of at least 9.0% at June 30, 2024 and 2023, respectively. +Comparison of Financial Condition at June 30, 2024 and June 30, 2023 +Total Assets. Total assets increased $145.3 million, or 87.6%, to $311.3 million at June 30, 2024 from $166.0 million at June 30, 2023. The increase is part of the Company’s growth plans to more appropriately leverage capital and was largely concentrated to growth in available-for-sale debt securities and commercial loans, which were funded primarily with borrowings and brokered deposits. +Cash and Due from Banks. Cash and due from banks increased $26.1 million, or 473.5%, to $31.6 million at June 30, 2024 from $5.5 million at June 30, 2023. The increase was a result of the Bank testing its overnight Cash Management Advance (“CMA”) line with FHLB. This resulted in a corresponding increase in borrowings as noted below. +Investment Securities. Investment securities increased $68.8 million, or 97.4%, to $139.3 million at June 30, 2024 from $70.6 million at June 30, 2023. Aggregate securities purchases of $114.8 million during the year ended June 30, 2024, were funded through cash on hand, sales, calls, maturities and repayments of $44.3 million, and brokered deposits and wholesale funding from FHLB and FRB under the BTFP The increase in investment securities is part of a forward-looking investment strategy to increase the number of variable rate investments financed by fixed rate deposit +32 +Table of Contents +instruments, which will ultimately provide a more balanced interest rate risk profile. The increase is also part of an effort to more appropriately leverage the Company’s capital. +The $682,000 increase in the fair value of the investment securities was primarily attributable to declines in interest rates in the intermediate and long end of the yield curve. The unrealized gains are recorded to equity, net of tax, as management has determined that there are no credit quality concerns with the issuers of the securities and there is no intent to sell the securities and, as a result, the fair value is expected to recover as the securities approach their maturity dates. +The yield on our investment securities increased to 5.81% for the year ended June 30, 2024 from 3.22% for the year ended June 30, 2023. +Net Loans. Net loans increased by $45.2 million, or 55.6%, to $126.4 million at June 30, 2024 from $81.2 million at June 30, 2023. During the year ended June 30, 2024, loan originations totaled $53.9 million, comprised of $9.8 million of loans secured by one- to four-family residential real estate, $1.2 million of HELOCs, $494,000 of consumer loans, $628,000 of agricultural, $12.7 million of construction and land loans, and $29.0 million of commercial real estate and commercial and industrial loans. +During the year ended June 30, 2024, residential real estate loans increased $4.0 million, or 6.0%, to $69.8 million at June 30, 2024, construction and land loans increased $9.1 million, or 106.0%, to $17.6 million at June 30, 2024, commercial and industrial loans increased $11.5 million, or 337.7%, to $14.9 million at June 30, 2024, agricultural real estate loans increased $169,000, or 4.2%, to a total of $4.2 million at June 30, 2024, and commercial real estate loans increased $13.7 million, or 228.2% to $19.7 million at June 30, 2024. Increases in loan balances reflect our strategy to grow our loan portfolio, continuing to focus on owner-occupied one-to-four family residential real estate loans, while increasing our emphasis on commercial real estate loans and commercial and industrial loans. Management intends to continue to pursue growth in these loan segments in future periods. +Deposits. Deposits increased by $89.3 million, or 74.4%, to $209.3 million at June 30, 2024 from $120.0 million at June 30, 2023. Core deposits increased $15.3 million, or 13.8%, to $125.2 million at June 30, 2024. Brokered deposits increased $74.1 million, or 735.0% at June 30, 2024. The increase in the brokered deposits were used to fund higher earning assets and increase net interest income. The addition of these deposits was part of management’s strategy to fund variable rate investments with fixed rate funding. A portion of the brokered deposits have a callable feature that allows for interest rate risk protection in rates down environment. +During the year ended June 30, 2024, management continued its strategy of pursuing growth in demand accounts and other lower cost core deposits, in part by enhancing products and services offered, including mobile banking. Management intends to continue its efforts to increase core deposits, with an emphasis on growth in consumer and business demand deposits. +Borrowings. Borrowings increased $55.8 million, or 900%, to $62 million at June 30, 2024. The borrowings consisted of advances from FHLB and from the FRB under the Bank Term Funding Program. $24 million of the FHLB advances were repaid on July 1, 2024. These borrowings were short-term in nature (less than one year maturity) and are being used as part of management’s overall growth strategy. See note 7 within Item 8 for further discussion of borrowings. +Total Equity. Total equity decreased $2.0 million, or 5.1%, to $36.5 million at June 30, 2024 from $38.5 million at June 30, 2023. The decrease resulted net loss during the fiscal year, purchase of treasury stock, and was partially offset by a decrease in accumulated other comprehensive loss resulted from unrealized gains on our investment portfolio during the year. +Average Balances and Yields . The following table sets forth average balance sheets, average yields and costs, and certain other information for the years indicated. No tax-equivalent yield adjustments have been made, as the effects are immaterial. Average balances are calculated using month-end actual balances, rather than daily average balances. We believe the use of month-end actual balances is representative of our operations. Non-accrual loans are included in +33 +Table of Contents +average balances only. Average yields include the effect of deferred fees, discounts, and premiums that are amortized or accreted to interest income or interest expense. Deferred loan fees are immaterial. +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +For the Years Ended June 30, +​ +​ +​ +​ +2024 +​ +2023 +​ +​ +​ +Average +​ +​ +​ +​ +​ +​ +Average +​ +​ +​ +​ +​ +​ +​ +Outstanding +​ +​ +​ +​ +​ +​ +Outstanding +​ +​ +​ +​ +​ +​ +Balance +Interest +Yield/Rate +Balance +Interest +Yield/Rate +​ +​ +​ +​ +(Dollars in thousands) +​ +Interest-earning assets: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Loans +​ +$ +100,304 +​ +$ +4,844 +​ +4.83 +% +$ +79,393 +​ +$ +2,872 +​ +3.62 +% +Investment securities +​ +​ +113,817 +​ +​ +6,615 +​ +5.81 +​ +​ +46,107 +​ +​ +1,484 +​ +3.22 +​ +Interest-bearing deposits and other +​ +​ +11,205 +​ +​ +565 +​ +5.04 +​ +​ +15,329 +​ +​ +698 +​ +4.55 +​ +Total interest-earning assets. +​ +​ +225,326 +​ +​ +12,024 +​ +5.34 +​ +​ +140,829 +​ +​ +5,054 +​ +3.59 +​ +Non-interest earning assets +​ +9,968 +​ +​ +​ +​ +​ +​ +10,498 +​ +​ +​ +​ +​ +Allowance for loan losses +​ +(474) +​ +​ +​ +​ +​ +​ +(229) +​ +​ +​ +​ +​ +Total assets +$ +234,820 +​ +​ +​ +​ +$ +151,098 +​ +​ +​ +​ +Interest-bearing liabilities: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Demand +$ +25,242 +​ +276 +1.09 +% +$ +24,645 +​ +101 +0.41 +% +Savings and money market accounts +​ +42,979 +​ +603 +1.40 +​ +​ +45,921 +​ +65 +0.14 +​ +Certificates of deposit +​ +94,613 +​ +4,172 +4.41 +​ +​ +37,625 +​ +589 +1.57 +​ +Total deposits +​ +162,834 +​ +5,051 +3.10 +​ +​ +108,191 +​ +755 +0.70 +​ +Borrowings +​ +32,221 +​ +1,677 +5.20 +​ +​ +443 +​ +25 +5.64 +​ +Total interest-bearing liabilities +​ +195,055 +​ +6,728 +3.45 +​ +​ +108,634 +​ +780 +0.72 +​ +Noninterest-bearing liabilities +​ +2,276 +​ +​ +​ +​ +6,634 +​ +​ +​ +​ +Total liabilities +​ +197,331 +​ +​ +​ +​ +115,268 +​ +​ +​ +​ +Equity +​ +37,489 +​ +​ +​ +​ +35,830 +​ +​ +​ +​ +Total liabilities and equity +$ +234,820 +​ +​ +​ +$ +151,098 +​ +​ +​ +​ +Net interest income +​ +​ +$ +5,296 +​ +​ +​ +$ +4,274 +​ +Net interest rate spread (1) +​ +​ +​ +​ +1.89 +% +​ +​ +​ +​ +2.87 +% +Net interest-earning assets (2) +$ +30,271 +​ +​ +​ +$ +32,195 +​ +​ +​ +Net interest margin (3) +​ +​ +​ +​ +2.35 +% +​ +​ +​ +​ +3.03 +% +Average interest-earning assets to interest-bearing liabilities . +​ +115.52 +% +​ +​ +​ +​ +​ +129.64 +% +​ +​ +​ +​ +(1) Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate of interest-bearing liabilities. +(2) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities. +(3) Net interest margin represents net interest income divided by average total interest-earning assets. +Rate/Volume Analysis +The following table presents the effects of changing rates and volumes on our net interest income for the periods indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The total column represents the sum of the prior columns. For purposes of this table, changes attributable to both rate +34 +Table of Contents +and volume, which cannot be segregated, have been allocated proportionately based on the changes due to rate and the changes due to volume. There were no out-of-period items or adjustments required to be excluded from the table below. +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Year Ended June 30, 2024 vs. 2023 +​ +​ +Increase (Decrease) Due to +​ +Total +​ +​ +​ +​ +​ +​ +​ +​ +Increase +​ +Volume +Rate +(Decrease) +​ +​ +(In thousands) +Interest-earning assets: +​ +​ +​ +Loans +​ +$ +868 +​ +$ +1,104 +​ +$ +1,972 +Investment securities +​ +3,313 +​ +1,818 +​ +5,131 +Other interest-earning assets +​ +(221) +​ +88 +​ +(133) +Total interest-earning assets +​ +3,960 +​ +3,010 +​ +6,970 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Interest-bearing liabilities: +​ +​ +​ +Interest-bearing demand +​ +3 +​ +172 +​ +175 +Savings and money market accounts +​ +(4) +​ +542 +​ +538 +Certificates of deposit +​ +1,629 +​ +1,954 +​ +3,583 +Total deposits +​ +1,628 +​ +2,668 +​ +4,296 +Borrowings +​ +1,654 +​ +(2) +​ +1,652 +Total interest-bearing liabilities +​ +3,282 +​ +2,666 +​ +5,948 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Change in net interest income +​ +$ +678 +​ +$ +344 +​ +$ +1,022 +​ +Comparison of Operating Results for the Years Ended June 30, 2024 and June 30, 2023 +General. Net loss for the year ended June 30, 2024, was $2.0 million, an increase of $1.5 million, compared to net loss of $545,000 for the year ended June 30, 2023. The increase in net loss was primarily due to a $2.3 million increase in noninterest expenses, which included certain one-time expenses as noted in the noninterest expense section below, as well as a $1.4 million increase in salaries and employee benefits. +Interest Income. Interest income increased $7.0 million, or 137.9%, to $12.0 million for the year ended June 30, 2024, from $5.0 million for the year ended June 30, 2023. This increase was primarily attributable to a $5.1 million, or 345.7%, increase in interest on investment securities, a $2.0 million, or 68.7%, increase in interest on loans. +The average balance of loans during the year ended June 30, 2024, increased $20.9 million, or 26.3%, from the balance for the year ended June 30, 2023, and the average yield on loans increased by 1.21% to 3.83% for the year ended June 30, 2024 from 3.62% for the year ended June 30, 2023. +The average balance of investment securities increased $67.7 million, or 146.9%, to $113.8 million for the year ended June 30, 2024 from $46.1 million for the year ended June 30, 2023, while the average yield on investment securities increased by 2.59% to 5.81% for the year ended June 30, 2024 from 3.22% for the year ended June 30, 2023. The increase in average yield on securities resulted from the effects of management’s purchasing of higher yielding variable rate securities. +The average balance of other interest-bearing deposits, comprised primarily of certificates of deposit in other financial institutions, overnight deposits and stock in the Federal Home Loan Bank and Federal Reserve Bank, decreased $4.1 million, or -26.9%, for the year ended June 30, 2024, while the average yield increased 49 basis points, to 5.04% for the year ended June 30, 2024 from 4.55% for the year ended June 30, 2023, reflecting the elevated interest rate environment. +Interest Expense. Total interest expense increased $5.9 million, or 762.6%, to $6.7 million for the year ended June 30, 2024 from $780,000 for the year ended June 30, 2023. The increase was primarily due to an increase of 2.40% in the average cost of deposits to 3.10% for the year ended June 30, 2024, from 0.70% for the year ended June 30, 2023, +35 +Table of Contents +reflecting how management has had to increase the offered rates to be competitive in the current rising interest rate environment, as well as management’s strategic decision to leverage wholesale funding and brokered deposits. +Net Interest Income . Net interest income increased $1.0 million, or 23.9%, to $5.3 million for the year ended June 30, 2024 compared to $4.3 million for the year ended June 30, 2023. The increase is a reflection of the above noted factors and management’s decision to utilize wholesale funding and brokered deposits to invest in high yielding assets in an attempt to negate cost of funds pressure on core deposits and our historical fixed rate residential loan portfolio and mortgage backed securities. +Provision for Credit Losses. Based on an analysis of the factors described in “Critical Accounting Policies—Allowance for Credit Losses,” management concluded that a provision for credit losses of $578,000 was required for the year ended June 30, 2024, which included a provision of $463,000 for loan and a provision of $156,000 for unfunded loan commitments. The allowance for credit losses was $773,000 and $263,000 at June 30, 2024 and 2023, respectively, and represented 0.60% of total loans at June 30, 2024, and 0.29% of total loans at June 30, 2023. See Notes 1 and 2 within Item 8 for further discussion on the adoption of of ASC 326 during the year. +Total nonperforming loans were $554,000 at June 30, 2024, compared to $304,000 at June 30, 2023. Classified loans totaled $64,000 at June 30, 2024, compared to $67,000 at June 30, 2023, and total loans past due greater than 30 days were $761,000 and $733,000 at those respective dates. As a percentage of nonperforming loans, the allowance for loan losses was 139.5% at June 30, 2024 compared to 86.5% at June 30, 2023. +The allowance for credit losses reflects the estimate management believes to be appropriate to cover current expected credit losses which were inherent in the loan portfolio. While management believes the estimates and assumptions used in the determination of the adequacy of the allowance are reasonable, such estimates and assumptions could be proven incorrect in the future, and the actual amount of future provisions may exceed the amount of past provisions, and the increase in future provisions that may be required may adversely impact the Company’s financial condition and results of operations. In addition, bank regulatory agencies periodically review the allowance for loan losses and may require an increase in the provision for possible loan losses or the recognition of loan charge-offs, based on judgments different than those of management. +Non-Interest Income . Non-interest income totaled $230,000 for the year ended June 30, 2024, an increase of $22,000, or 10.6%, from $208,000 for the year ended June 30, 2023. The increase was primarily due to normal fluctuations in the volume of fees on loans and deposits. +Noninterest Expense. Noninterest expense increased $2.3 million, or 44.6%, to $7.5 million for the year ended June 30, 2024, compared to $5.2 million for the year ended June 30, 2023. The increase is driven from increases in salaries and employee benefits as we continue to add key positions vital to the expansion and growth of the Bank, data processing fees as we continue to add new products and modules for the benefit of customers, FDIC insurance premiums associated with our overall deposit growth, advertising and marketing expenses related to the rebranding of the Bank, as noted elsewhere in this form, and certain one-time expenses as noted below. +One-time Expenses Related to Conversion +At the time of the conversion on July 13, 2022, the Bank estimated that it would incur a one-time expense in the third quarter 2022 related to the termination of the defined benefit plan of approximately $3.1 million. Given the increase in interest rates since the time of the initial estimation, the actual cost of termination of the defined benefit plan is expected to be approximately $1.35 million, with over $1 million of those expenses occurring in fiscal year 2023. +In January 2023, the board of directors agreed to take the necessary steps to become a regional commercial bank, ultimately electing to become a Covered Savings Association (CSA) instead of remaining as a Qualified Thrift Lender (QTL). The board of directors, in conjunction with the decreased one-time expenses related to the termination of the defined benefit plan, approved $1.85 million of one-time expenses for, among other things, investments in products, services, software, operating system modules, branding, personnel, consulting fees and training related to obtaining the capabilities required of a regional commercial bank. +36 +Table of Contents +The following is management’s classification of these expenses for fiscal year 2023, fiscal year 2024, and combined fiscal year 2023 and fiscal year 2024: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Year Ended June 30, +​ +Total since +​ +​ +2023 +​ +2024 +​ +Conversion +Category +​ +​ +​ +​ +​ +​ +​ +​ +​ +Termination of defined benefit plan +​ +$ +1,052,000 +​ +$ +261,000 +​ +$ +1,313,000 +Contract termination and related personnel costs +​ +​ +256,000 +​ +​ +206,000 +​ +​ +462,000 +IT and software maintenance and related consulting fees +​ +​ +102,000 +​ +​ +154,000 +​ +​ +256,000 +Branding related costs +​ +​ +5,000 +​ +​ +385,000 +​ +​ +390,000 +Other costs +​ +​ +— +​ +​ +105,000 +​ +​ +105,000 +Total one-time expenses +​ +$ +1,415,000 +​ +$ +1,111,000 +​ +$ +2,526,000 +​ +Federal Income Taxes. Federal income taxes benefit increased by $367,000, or 201.0%, to a $550,000 benefit for the year ended June 30, 2024, compared to tax benefit of $183,000 for the year ended June 30, 2023, which was driven by the increase in pretax net loss of $1.8 million, or 252.9% +Management of Market Risk +General . Our most significant form of market risk is interest rate risk because, as a financial institution, the majority of our assets and liabilities are sensitive to changes in interest rates. Therefore, a principal part of our operations is to manage interest rate risk and limit the exposure of our financial condition and results of operations to changes in market interest rates. All directors participate in discussions during the regular board meetings evaluating the interest rate risk inherent in our assets and liabilities, and the level of risk that is appropriate. These discussions take into consideration our business strategy, operating environment, capital, liquidity and performance objectives consistent with the policy and guidelines approved by them. +Our asset/liability management strategy attempts to manage the impact of changes in interest rates on net interest income, our primary source of earnings. Among the techniques we are using to manage interest rate risk are: +● maintaining capital levels that exceed the thresholds for well-capitalized status under federal regulations; +● maintaining a high level of liquidity; +● growing our volume of core deposit accounts; +● managing our investment securities portfolio so as to reduce the average maturity and effective life of the portfolio; and +● continuing to diversify our loan portfolio by adding more commercial-related loans, which typically have shorter maturities and/or balloon payments. +By following these strategies, we believe that we are better positioned to react to increases and decreases in market interest rates. +We have not engaged in hedging activities, such as engaging in futures or options but are evaluating the use of these products in the future. +Economic Value of Equity . We also compute amounts by which the net present value of our assets and liabilities (economic value of equity or “EVE”) would change in the event of a range of assumed changes in market interest rates. This model uses a discounted cash flow analysis and an option-based pricing approach to measure the interest rate sensitivity of net portfolio value. The model estimates the economic value of each type of asset, liability and off-balance +37 +Table of Contents +sheet contract under the assumptions that the United States Treasury yield curve increases instantaneously by 100, 200, 300 and 400 basis point increments or decreases instantaneously by 100, 200, 300 and 400basis point increments, with changes in interest rates representing immediate and permanent, parallel shifts in the yield curve. +The following table sets forth, at June 30, 2024, the calculation of the estimated changes in our EVE that would result from the designated immediate changes in the United States Treasury yield curve. +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +At June 30, 2024 +​ +​ +​ +​ +​ +Estimated Increase (Decrease) in +​ +EVE as a Percentage of Present +​ +​ +​ +​ +​ +EVE +​ +Value of Assets (3) +Change in Interest +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Increase +Rates (basis points) +​ +Estimated +​ +​ +​ +​ +​ +​ +​ +​ +(Decrease) +(1) ​ +EVE (2) +Amount +Percent +EVE Ratio (4) +(basis points) +(Dollars in thousands) +400 +​ +$ +21,316 +​ +$ +(9,444) +(30.70) +% +7.70 +% +(252) +300 +​ +23,080 +​ +(7,680) +(24.97) +% +8.18 +% +(204) +200 +​ +25,130 +​ +(5,630) +(18.30) +% +8.73 +% +(149) +100 +​ +27,680 +​ +(3,080) +(10.01) +% +9.40 +% +(82) +— +​ +30,760 +​ +— +— +% +10.22 +% +— +(100) +​ +34,545 +​ +3,785 +12.30 +% +11.20 +% +98 +(200) +​ +38,366 +​ +7,606 +24.73 +% +12.15 +% +193 +(300) +​ +​ +42,298 +​ +​ +11,538 +​ +37.51 +% +13.07 +% +285 +(400) +​ +45,590 +​ +14,830 +48.21 +% +13.78 +% +356 +(1) Assumes an immediate uniform change in interest rates at all maturities. +(2) EVE is the discounted present value of expected cash flows from assets, liabilities and off-balance sheet contracts. +(3) Present value of assets represents the discounted present value of incoming cash flows on interest-earning assets. +(4) EVE Ratio represents EVE divided by the present value of assets. +The table above indicates that at June 30, 2024, we would have experienced a 18.30% decrease in EVE in the event of an instantaneous parallel 200 basis point increase in market interest rates and a 24.73% increase in EVE in the event of an instantaneous 200 basis point decrease in market interest rates. +Change in Net Interest Income. The following table sets forth, at June 30, 2024, the calculation of the estimated changes in our net interest income (“NII”) that would result from the designated immediate changes in the United States Treasury yield curve. +​ +​ +​ +​ +​ +​ +​ +At June 30, 2024 +​ +Change in Interest Rates +​ +​ +​ +​ +​ +(basis points) (1) +NII Year 1 Forecast +Year 1 Change from Level +(Dollars in thousands) ++400 +​ +$ +6,394 +2.57 +% ++300 +​ +6,335 +1.62 +% ++200 +​ +6,304 +1.12 +% ++100 +​ +6,284 +0.80 +% +Level +​ +6,234 +— +​ +(100) +​ +6,222 +(0.19) +% +(200) +​ +​ +6,287 +​ +0.85 +% +(300) +​ +​ +6,363 +​ +2.07 +% +(400) +​ +6,406 +2.76 +% +(1) Assumes an immediate uniform change in interest rates at all maturities. +The table above indicates that at June 30, 2024, we would have experienced an 1.12% increase in NII in the event of an instantaneous parallel 200 basis point increase in market interest rates and a 0.85% increase in NII in the event of an instantaneous 200 basis point decrease in market interest rates. +38 +Table of Contents +Certain shortcomings are inherent in the methodologies used in the above interest rate risk measurement. Modeling changes in EVE and NII require making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. For instance, the EVE and NII tables presented above assume that the composition of our interest-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. However, the shape of the yield curve changes constantly and the value and pricing of our assets and liabilities, including our deposits, may not closely correlate with changes in market interest rates. Accordingly, although the EVE and NII tables may provide an indication of our interest rate risk exposure at a particular point in time and in the context of a particular yield curve, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on EVE and NII and will differ from actual results. +EVE and net interest NII calculations also may not reflect the fair values of financial instruments. For example, decreases in market interest rates can increase the fair values of our loans, deposits and borrowings. +Liquidity and Capital Resources +Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. Our primary sources of funds are deposits, principal and interest payments on loans and securities, and proceeds from maturities of securities. We also have the ability to borrow from the Federal Home Loan Bank of Cincinnati and Federal Reserve Bank of Cleveland under the Bank Term Funding Program. At June 30, 2024, we had outstanding borrowings of $38.5 million from the Federal Home Loan Bank of Cincinnati and $23.5 million from the Federal Reserve Bank of Cleveland. At June 30, 2024, we had the capacity to borrow an additional $3.9 million from the Federal Home Loan Bank of Cincinnati. On July 1, 2024, $24.0 million of borrowings from FHLB were repaid. +While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. Our most liquid assets are cash and short-term investments. The levels of these assets are dependent on our operating, financing, lending, and investing activities during any given period. +Our cash flows are comprised of three primary classifications: cash flows from operating activities, cash flows from investing activities, and cash flows from financing activities. For further information, see the statements of cash flows contained in the financial statements appearing elsewhere in this annual report. +We are committed to maintaining a strong liquidity position. We monitor our liquidity position on a daily basis. We anticipate that we will have sufficient funds to meet our current funding commitments. Based on our deposit retention experience and current pricing strategy, we anticipate that a significant portion of maturing time deposits will be retained. +At June 30, 2024, the Bank’s Tier 1 leverage capital was $32.9 million, or 12.1% of adjusted assets. Accordingly, it was categorized as well-capitalized at June 30, 2024 under the “community bank leverage ratio” framework. Management is not aware of any conditions or events since the most recent notification that would change our category. For further information, see note 9 to the notes to financial statements. +Off-Balance Sheet Arrangements. At June 30, 2024, we had $33.1 million of outstanding commitments to originate loans. Certificates of deposit that are scheduled to mature in less than one year from June 30, 2024 totaled $46.1 million at June 30, 2024. Management expects that a substantial portion of the maturing certificates of deposit will be renewed. However, if a substantial portion of these deposits is not retained, we may utilize Federal Home Loan Bank of Cincinnati advances, pledge eligible securities to the FRB under the discount window, or raise interest rates on deposits to attract new accounts, which may result in higher levels of interest expense. +39 +Table of Contents +Recent Accounting Pronouncements +For a discussion of the impact of recent accounting pronouncements, see Note 2 of the notes to financial statements appearing elsewhere in this annual report. +Impact of Inflation and Changing Prices +The financial statements and related data presented in this report have been prepared according to GAAP which require the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation. The primary impact of inflation on our operations is reflected in increased operating costs. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates, generally, have a more significant impact on a financial institution’s performance than does inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services. +​ +ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk +The information regarding this Item is contained in Item 7 under the heading “Management of Market Risk.” +​ +ITEM 8. Financial Statements and Supplementary Data +​ +​ +​ +40 +Table of Contents +V WF Bancorp, Inc. +June 30, 2024 and 2023 +Contents +​ +​ +​ +Reports of Independent Registered Public Accounting Firm +42 +Financial Statements +​ +Consolidated Balance Sheets +43 +Consolidated Statements of Operations +44 +Consolidated Statements of Comprehensive Loss +45 +Consolidated Statements of Changes in Equity +46 +Consolidated Statements of Cash Flows +47 +Notes to Consolidated Financial Statements +48 +​ +​ +​ +​ +41 +Table of Contents +​ +​ +​ +​ +Report of Independent Registered Public Accounting Firm 0F +​ +To the Shareholders, Board of Directors, and Audit Committee +VWF Bancorp, Inc. +Van Wert, Ohio +​ +Opinion on the Consolidated Financial Statements +We have audited the accompanying consolidated balance sheets of VWF Bancorp, Inc. (the “Company”) as of June 30, 2024 and 2023, the related consolidated statements of operations, comprehensive loss, shareholders’ equity, and cash flows for each of the years then ended and the related notes (collectively referred to as the “financial statements”). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of June 30, 2024 and 2023, and the results of its cash flows for each of the years ended June 30, 2024 and 2023, in conformity with accounting principles generally accepted in the United States of America. +Change in Accounting Principle +As discussed in Note 1, Note 2, and Note 4 to the consolidated financial statements, in fiscal year 2024, the Company changed its method of accounting for credit losses on financial instruments due to the adoption of Accounting Standards Codification Topic 326: Financial Instruments – Credit Losses . +Basis for Opinion +These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. +We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. +Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. +We have served as the Company’s auditor since 2022. +/s/ Forvis Mazars, LLP +PCAOB ID 686 +Fort Wayne, Indiana +September 27, 2024 +42 +Table of Contents +VWF Bancorp, Inc. +Consolidated Balance Sheets +June 30, 2024 and 2023 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +June 30, +​ +2024 +2023 +Assets +​ +​ +​ +​ +​ +​ +Cash and due from banks +​ +$ +31,630,525 +​ +$ +5,515,728 +Available-for-sale debt securities +​ +139,344,952 +​ +70,585,194 +Loans, net of allowance for credit losses of $ 772,969 at June 30, 2024 and $ 263,422 June 30, 2023, respectively +​ +126,391,092 +​ +81,208,395 +Premises and equipment +​ +2,261,260 +​ +1,409,347 +Stock in correspondent banks +​ +2,195,900 +​ +396,800 +Bank owned life insurance +​ +5,351,048 +​ +5,223,496 +Accrued interest receivable +​ +961,856 +​ +498,807 +Right-of-use asset - operating lease +​ +​ +1,406,905 +​ +​ +— +Other assets +​ +1,710,583 +​ +1,131,536 +Total assets +​ +$ +311,254,121 +​ +$ +165,969,303 +​ +​ +​ +​ +​ +​ +​ +Liabilities and Shareholders' Equity +​ +​ +​ +​ +​ +​ +​ +​ +​ +Liabilities +​ +​ +Deposits +​ +​ +Demand +​ +$ +26,493,048 +​ +$ +26,551,336 +Savings and money market +​ +47,466,674 +​ +42,019,749 +Time +​ +135,350,608 +​ +51,420,496 +Total deposits +​ +209,310,330 +​ +119,991,581 +​ +​ +​ +​ +​ +​ +​ +Borrowings +​ +​ +62,000,000 +​ +​ +6,200,000 +Advances from borrowers +​ +137,722 +​ +628,795 +Operating lease liability +​ +​ +1,442,620 +​ +​ +— +Accrued interest payable and other liabilities +​ +1,815,617 +​ +650,927 +Total liabilities +​ +274,706,289 +​ +127,471,303 +​ +​ +​ +​ +​ +​ +​ +Commitments and Contingencies +​ +​ +​ +​ +​ +​ +​ +​ +​ +Shareholders' Equity +​ +​ +Preferred stock, $ 0.01 par value, 1,000,000 shares authorized, none issued +​ +​ +— +​ +​ +— +Common stock, $ 0.01 par value, 14,000,000 shares authorized, 1,914,965 and 1,922,924 issued and outstanding at June 30, 2024 and June 30, 2023, respectively +​ +​ +19,229 +​ +​ +19,229 +Additional paid-in capital +​ +​ +18,006,472 +​ +​ +17,875,071 +Treasury stock, 36,800 shares at June 30, 2024 and 0 shares at June 30, 2023 +​ +​ +( 598,000 ) +​ +​ +— +Unearned ESOP +​ +​ +( 1,346,047 ) +​ +​ +( 1,461,422 ) +Retained earnings +​ +22,843,782 +​ +24,916,481 +Accumulated other comprehensive loss +​ +( 2,377,604 ) +​ +( 2,851,359 ) +Total shareholders' equity +​ +36,547,832 +​ +38,498,000 +Total liabilities and shareholders' equity +​ +$ +311,254,121 +​ +$ +165,969,303 +​ +See Notes to Consolidated Financial Statements +​ +43 +Table of Contents +VWF Bancorp, Inc. +Consolidated Statements of Operations +Years Ended June 30, 2024 and 2023 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Year Ended +​ +​ +June 30, +​ +2024 +2023 +​ +​ +​ +​ +​ +​ +​ +Interest Income +​ +​ +​ +​ +​ +​ +Loans +​ +$ +4,844,465 +​ +$ +2,871,985 +Investment securities +​ +6,614,900 +​ +1,484,124 +Interest-bearing deposits and other +​ +565,032 +​ +698,147 +Total interest income +​ +12,024,397 +​ +5,054,256 +Interest Expense +​ +​ +Deposits +​ +5,051,364 +​ +755,095 +Borrowings +​ +​ +1,676,863 +​ +​ +25,180 +Total interest expense +​ +6,728,227 +​ +780,275 +Net Interest Income +​ +5,296,170 +​ +4,273,981 +​ +​ +​ +​ +​ +​ +​ +Provision for Credit Losses - Loans +​ +462,752 +​ +40,538 +Provision for Credit Losses - Off Balance Sheet Credit Exposure +​ +​ +155,850 +​ +​ +— +Credit Loss Expense +​ +​ +618,602 +​ +​ +40,538 +​ +​ +​ +​ +​ +​ +​ +Net Interest Income After Provision for Credit Losses +​ +4,677,568 +​ +4,233,443 +Noninterest Income +​ +​ +Bank owned life insurance +​ +127,552 +​ +111,413 +Gain on disposal of assets +​ +​ +2,866 +​ +​ +— +Other income +​ +99,760 +​ +96,785 +Total noninterest income +​ +230,178 +​ +208,198 +Noninterest Expense +​ +​ +Salaries and employee benefits +​ +3,497,585 +​ +2,137,516 +Pension plan withdrawal +​ +​ +262,927 +​ +​ +1,051,820 +Directors fees +​ +259,728 +​ +158,550 +Occupancy and equipment +​ +474,642 +​ +284,211 +Data processing fees +​ +558,158 +​ +259,984 +Franchise taxes +​ +219,155 +​ +160,040 +FDIC insurance premiums +​ +141,971 +​ +48,809 +Professional services +​ +658,175 +​ +519,617 +Advertising and marketing +​ +​ +455,117 +​ +​ +35,464 +Loss on sale of investment securities +​ +1,951 +​ +— +Foreclosed assets, net +​ +​ +436 +​ +​ +— +Other +​ +947,474 +​ +513,727 +Total noninterest expense +​ +7,477,319 +​ +5,169,738 +Loss before income taxes +​ +( 2,569,573 ) +​ +( 728,097 ) +Provision for income taxes (benefits) +​ +( 550,040 ) +​ +( 182,713 ) +Net Loss +​ +$ +( 2,019,533 ) +​ +$ +( 545,384 ) +​ +​ +​ +​ +​ +​ +​ +Basic Loss Per Share +​ +$ +( 1.14 ) +​ +$ +( 0.31 ) +Diluted Loss Per Share +​ +$ +( 1.14 ) +​ +$ +( 0.31 ) +​ +See Notes to Consolidated Financial Statements +​ +44 +Table of Contents +​ +VWF Bancorp, Inc. +Consolidated Statements of Comprehensive Loss +Years Ended June 30, 2024 and 2023 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Year Ended +​ +​ +June 30, +​ +2024 +2023 +​ +​ +​ +Net loss +​ +$ +( 2,019,533 ) +​ +$ +( 545,384 ) +Other comprehensive income (loss): +​ +​ +Net unrealized gains (losses) on available-for-sale securities +​ +682,023 +​ +( 1,040,054 ) +Change in funded status of defined benefit plan +​ +​ +— +​ +​ +82,233 +Reclassification adjustment for amortization of defined benefit pension actuarial gain +​ +​ +( 82,333 ) +​ +​ +— +Tax (expense) benefit +​ +( 125,935 ) +​ +201,221 +Other comprehensive income (loss) +​ +473,755 +​ +( 756,600 ) +Comprehensive loss +​ +$ +( 1,545,778 ) +​ +$ +( 1,301,984 ) +​ +See Notes to Consolidated Financial Statements +​ +​ +45 +Table of Contents +VWF Bancorp, Inc. +Consolidated Statements of Shareholders’ Equity +Years Ended June 30, 2024 and 2023 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Accumulated +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Unearned +​ +​ +​ +​ +​ +Other +​ +​ +​ +​ +​ +Common +​ +Additional +​ +ESOP +​ +Retained +​ +Treasury +​ +Comprehensive +​ +Shareholders' +​ +Stock +Paid-in Capital +Shares +Earnings +Stock, at Cost +​ +Loss +Equity +​ +​ +​ +Balance at July 1, 2022 +​ +$ +— +​ +$ +— +​ +$ +— +​ +$ +25,461,865 +​ +$ +— +​ +$ +( 2,094,759 ) +​ +$ +23,367,106 +Proceeds from issuance of shares +​ +​ +19,229 +​ +​ +17,845,597 +​ +​ +( 1,538,339 ) +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +16,326,487 +ESOP shares committed to be released +​ +​ +— +​ +​ +29,474 +​ +​ +76,917 +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +106,391 +Net loss +​ +— +​ +— +​ +— +​ +( 545,384 ) +​ +— +​ +— +​ +( 545,384 ) +Other comprehensive loss +​ +— +​ +— +​ +— +​ +— +​ +— +​ +( 756,600 ) +​ +( 756,600 ) +Balance at June 30, 2023 +​ +$ +19,229 +​ +$ +17,875,071 +​ +$ +( 1,461,422 ) +​ +$ +24,916,481 +​ +$ +— +​ +$ +( 2,851,359 ) +​ +$ +38,498,000 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Balance at July 1, 2023 +​ +$ +19,229 +​ +$ +17,875,071 +​ +$ +( 1,461,422 ) +​ +$ +24,916,481 +​ +$ +— +​ +$ +( 2,851,359 ) +​ +$ +38,498,000 +Cumulative-effect adjustment for adoption of ASU 2016-13 +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +( 53,166 ) +​ +​ +— +​ +​ +— +​ +​ +( 53,166 ) +Balance at July 1, 2023, as adjusted for change in accounting principle +​ +$ +19,229 +​ +$ +17,875,071 +​ +$ +( 1,461,422 ) +​ +$ +24,863,315 +​ +$ +— +​ +$ +( 2,851,359 ) +​ +$ +38,444,834 +ESOP shares committed to be released +​ +​ +— +​ +​ +58,251 +​ +​ +115,375 +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +173,626 +Net loss +​ +— +​ +— +​ +— +​ +( 2,019,533 ) +​ +— +​ +— +​ +( 2,019,533 ) +Other comprehensive income +​ +— +​ +— +​ +— +​ +— +​ +— +​ +473,755 +​ +473,755 +Purchase of treasury stock +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +( 598,000 ) +​ +​ +— +​ +​ +( 598,000 ) +Stock compensation expense +​ +​ +— +​ +​ +73,150 +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +73,150 +Balance at June 30, 2024 +​ +$ +19,229 +​ +$ +18,006,472 +​ +$ +( 1,346,047 ) +​ +$ +22,843,782 +​ +$ +( 598,000 ) +​ +$ +( 2,377,604 ) +​ +$ +36,547,832 +​ +See Notes to Consolidated Financial Statements +​ +​ +46 +Table of Contents +VWF Bancorp, Inc. +Consolidated Statements of Cash Flows +Years Ended June 30, 2024 and 2023 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Year Ended +​ +​ +June 30, +​ +2024 +2023 +Operating Activities +​ +​ +​ +​ +​ +​ +Net loss +​ +$ +( 2,019,533 ) +​ +$ +( 545,384 ) +Items not requiring (providing) cash: +​ +​ +​ +Depreciation and amortization +​ +175,348 +​ +66,412 +Amortization (accretion) of premiums and discounts, net +​ +( 362,596 ) +​ +51,449 +Deferred income taxes +​ +​ +( 554,628 ) +​ +​ +( 175,944 ) +Provision for credit losses +​ +618,602 +​ +40,538 +Loss on sale of investment securities +​ +1,951 +​ +— +Net losses on sale of foreclosed assets +​ +​ +436 +​ +​ +— +Interest capitalization on available-for-sale securities +​ +​ +( 252,187 ) +​ +​ +— +Gain on disposal of assets +​ +​ +( 2,866 ) +​ +​ +— +Increase in cash surrender value of bank-owned life insurance +​ +( 127,552 ) +​ +( 111,413 ) +Stock and ESOP compensation expense +​ +​ +246,776 +​ +​ +165,046 +Changes in: +​ +​ +​ +Accrued interest receivable +​ +( 463,049 ) +​ +( 279,612 ) +Operating lease liability +​ +​ +( 9,786 ) +​ +​ +— +Other assets and liabilities +​ +769,782 +​ +1,106,162 +Net cash (used in) provided by operating activities +​ +( 1,979,302 ) +​ +317,254 +Investing Activities +​ +​ +Net change in interest-bearing time deposits +​ +— +​ +1,470,000 +Purchases of available-for-sale securities +​ +( 114,767,266 ) +​ +( 51,735,943 ) +Proceeds from sales of available-for-sale securities +​ +2,989,041 +​ +— +Proceeds from calls, maturities and paydowns of available-for-sale securities +​ +44,313,322 +​ +4,553,656 +Proceeds from sales of foreclosed assets +​ +​ +97,303 +​ +​ +— +Purchase of other assets owned +​ +​ +( 26,796 ) +​ +​ +— +Net change in loans +​ +( 45,763,187 ) +​ +( 3,538,745 ) +Purchase of premises and equipment +​ +( 990,360 ) +​ +( 104,125 ) +Proceeds from sales of premises and equipment +​ +​ +11,466 +​ +​ +— +Purchase of correspondent bank stock +​ +​ +( 3,401,100 ) +​ +​ +— +Proceeds from redemption of correspondent bank stock +​ +​ +1,602,000 +​ +​ +616,100 +Net cash used in investing activities +​ +( 115,935,577 ) +​ +( 48,739,057 ) +Financing Activities +​ +​ +Net increase in deposit accounts +​ +89,318,749 +​ +10,001,372 +Proceeds from borrowings +​ +​ +136,500,000 +​ +​ +6,200,000 +Repayment of borrowings +​ +​ +( 80,700,000 ) +​ +​ +— +Purchase of treasury stock +​ +​ +( 598,000 ) +​ +​ +— +Net change in advances by borrowers +​ +( 491,073 ) +​ +13,060 +Proceeds from issuance of common stock +​ +​ +— +​ +​ +1,011,257 +Net cash provided by financing activities +​ +144,029,676 +​ +17,225,689 +​ +​ +​ +​ +​ +​ +​ +Increase (Decrease) in Cash and Cash Equivalents +​ +26,114,797 +​ +( 31,196,114 ) +Cash and Cash Equivalents, Beginning of Period +​ +5,515,728 +​ +36,711,842 +Cash and Cash Equivalents, End of Period +​ +$ +31,630,525 +​ +$ +5,515,728 +​ +​ +​ +​ +​ +​ +​ +Supplemental Disclosure of Cash Flow Information +​ +​ +Cash paid during the period for: +​ +​ +Interest on deposits and borrowings +​ +$ +6,005,063 +​ +$ +288,506 +​ +​ +​ +​ +​ +​ +​ +Supplemental Disclosure of Noncash Financing Activities +​ +​ +​ +​ +​ +​ +Transfers from stock subscriptions to common stock and additional paid-in capital +​ +$ +— +​ +$ +15,315,230 +ROU asset obtained in exchange for new operating lease liability +​ +​ +1,452,406 +​ +​ +— +Loans transferred to OREO +​ +​ +70,943 +​ +​ +— +​ +See Notes to Consolidated Financial Statements +​ +​ +​ +47 +Table of Contents +Note 1: Nature of Operations and Summary of Significant Accounting Policies +Principles of Consolidation +The consolidated financial statements as of and for the years ended June 30, 2024 and 2023 include the accounts of VWF Bancorp, Inc. (“VFW Bancorp” or the “Company”) and its wholly-owned subsidiary, Van Wert Federal Savings Bank (“Van Wert Federal” or the “Bank”) . All intercompany transactions and balances have been eliminated in consolidation. +Nature of Operations +VWF Bancorp, Inc., a Maryland corporation and registered savings and loan holding company, was incorporated on February 25, 2022, to serve as the savings and loan holding company for the Bank in connection with the Bank’s conversion from the mutual to the stock form of organization (the “Conversion”). The Conversion was completed on July 13, 2022. The Company’s shares began trading on the OTCQB under symbol VWFB on July 14, 2022. VWFB shares began trading on OTCQX on June 30, 2023. In connection with the Conversion, the Company acquired 100 % ownership of the Bank and the Company offered and sold 1,922,924 shares of its common stock at $ 10.00 per share, for gross offering proceeds of $ 19,229,000 . The cost of the conversion and issuance of common stock was approximately $ 1,364,000 , which was deducted from the gross offering proceeds. The Bank’s employee stock ownership plan purchased 153,834 shares of the common stock sold by the Company, which was 8 % of the 1,922,924 shares of common stock issued by the Company. The ESOP purchased the shares using a loan from the Company. The Company contributed $ 8,932,000 of the net proceeds from the offering to the Bank, loaned $ 1,538,000 of the net proceeds to the ESOP and retained approximately $ 7,394,000 of the net proceeds. +Following the Conversion, voting rights in the Company are held and exercised exclusively by the shareholders of the Company. Deposit account holders continue to be insured by the FDIC. The Bank may not pay a dividend on its capital stock if the effect thereof would cause retained earnings to be reduced below regulatory capital requirements. In addition, the Company is subject to certain regulations related to the payment of dividends and the repurchase of its capital stock. The Conversion was accounted for as a change in corporate form with the historic basis of the Bank’s assets, liabilities and equity unchanged as a result. +The Bank, which is the sole subsidiary of the Company, provides a variety of banking services to individuals and businesses within its principal market areas of Van Wert County, Ohio and Allen County, Indiana, as well as the surrounding areas. The Bank is a federal savings association subject to examination and regulation by the Office of the Comptroller of the Currency (“OCC”), and is also subject to examination by the FDIC as deposit insurer. Effective June 23, 2023, the Bank elected to be a “covered savings association” (“CSA”). A CSA has the same rights and privileges as a national bank that has its main offices situation in the same location as the home office of the CSA and is subject to the same duties, restrictions, penalties, liabilities, conditions, and limitations that would apply to such a national bank. The Bank is engaged primarily in the business of making residential mortgage loans, commercial loans and accepting deposits. Its operations are conducted through its offices located in Van Wert, Ohio and Fort Wayne, Indiana. The Bank faces competition from other financial institutions and is subject to the regulation of certain federal and state agencies and undergoes periodic examinations by those regulatory authorities. +Use of Estimates +The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. +Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for credit losses, valuation of deferred tax assets and fair values of financial instruments. +48 +Table of Contents +Cash and Cash Equivalents +Cash and cash equivalents include cash, interest-bearing deposits in other institutions, certificates of deposit purchased with original maturities of three months or less and highly liquid debt instruments with original maturities when purchased for three months or less. At June 30, 2024, the Company’s cash accounts at nonfederal government or nongovernmental agencies exceeded FDIC insurance limits by approximately $ 4,703,000 . +Debt Securities +Debt securities held by the Bank generally are classified and recorded in the consolidated financial statements as follows: +Classified as +​ +Description +​ +Recorded at +Held to maturity (HTM) +​ +Certain debt securities that management has the positive intent and ability to hold to maturity +​ +Amortized cost +​ +​ +​ +​ +​ +​ +​ +Trading +​ +Securities that are bought and held principally for the purpose of selling in the near term and, therefore, held for only a short period of time +​ +Fair value, with changes in fair value included in earnings +​ +​ +​ +​ +​ +​ +​ +Available for sale (AFS) +​ +Securities not classified as HTM or trading +​ +Fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income +​ +​ +Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities, identified as the call date as to premiums and maturity date as to discounts. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method. +Subsequent to adoption of ASC 326 on July 1, 2023: +Effective July 1, 2023, the Company uses a current expected credit loss ("CECL") model to estimate the allowance for credit losses on debt securities. For available-for-sale debt securities in an unrealized loss position, management first assesses whether it intends to sell, or it is more likely than not that it will be required to sell, the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security's amortized cost basis is written down to fair value through income. For available-for-sale debt securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. +If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any decline in fair value that +49 +Table of Contents +has not been recorded through an allowance for credit losses is recognized in other comprehensive income, net of applicable taxes. +Amortized cost excludes accrued interest receivable, which is included in Accrued Interest Receivable on the consolidated balance sheets. At June 30, 2024 and 2023, accrued interest receivable on available for sale securities was $ 467,000 and $ 300,000 , respectively, and is excluded from the estimate of credit losses. +​ +Prior to adoption of ASC 326 on July 1, 2023: +Prior to July 1, 2023, when the fair value of securities is below amortized cost, the Bank’s accounting treatment for an other-than-temporary impairment (OTTI) was as follows: +​ +​ +Accounting Treatment for OTTI +​ +​ +Components +​ +Circumstances of Impairment +Credit +Remaining +​ +Considerations +​ +Component +​ +Portion +​ +Not intended for sale and more likely than not that the Bank will not have to sell before recovery of cost basis +​ +Recognized in earnings +​ +Recognized in other comprehensive income +​ +​ +​ +​ +​ +​ +​ +Intended for sale or more likely than not that the Bank will be required to sell before recovery of cost basis +​ +Recognized in earnings +​ +​ +For held-to-maturity debt securities, the amount of OTTI recorded in other comprehensive income for the noncredit portion of a previous OTTI is amortized prospectively over the remaining life of the security on the basis of the timing of future estimated cash flows of the security. +When a credit loss component is separately recognized in earnings, the amount is identified as the total of principal cash flows not expected to be received over the remaining term of the security, as projected based on cash flow projections. +The Company recognized no other-than-temporary impairments on debt securities during the year ended June 30, 2023. +Loans +Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at their outstanding principal balances adjusted for unearned income, charge-offs, the allowance for credit losses and any unamortized deferred fees or costs on originated loans and unamortized premiums or discounts on purchased loans. For loans amortized at cost, interest income is accrued based on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, as well as premiums and discounts, are deferred and amortized as a level yield adjustment over the respective term of the loan. +Accrued interest receivable on the Company’s loans, which is included in Accrued Interest Receivable on the consolidated balance sheets at June 30, 2024 and 2023 was $ 457,000 and $ 200,000 , respectively, and is excluded from the estimate of credit losses. +The past due status of a loan is based on the contractual terms in the loan agreement. The accrual of interest on a loan is discontinued when the loan becomes 90 days delinquent or whenever management believes the borrower will be unable to make payments as they become due. When loans are placed on nonaccrual status or charged off, all unpaid accrued interest is reversed against interest income. The interest on these loans is subsequently accounted for on the cash basis if collection of the remaining recorded investment in the loan is still expected or using the cost-recovery method when collection of the remaining recorded investment is in doubt. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. +For loans amortized at cost, interest income is accrued based on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, as well as premiums and discounts, are deferred and amortized as a level yield adjustment over the respective term of the loan. +50 +Table of Contents +For all loan portfolio segments except residential and consumer loans, the Bank promptly charges-off loans, or portions thereof, when available information confirms that specific loans are uncollectible based on information that includes, but is not limited to, (1) the deteriorating financial condition of the borrower, (2) declining collateral values, and/or (3) legal action, including bankruptcy, that impairs the borrower’s ability to adequately meet its obligations. For impaired loans that are considered to be solely collateral dependent, a partial charge-off is recorded when a loss has been confirmed by an updated appraisal or other appropriate valuation of the collateral. +The Bank charges-off residential and consumer loans, or portions thereof, when the Bank reasonably determines the amount of the loss. The Bank adheres to delinquency thresholds established by applicable regulatory guidance to determine the charge-off timeframe for these loans. Loans at these delinquency thresholds for which the Bank can clearly document that the loan is both well-secured and in the process of collection, such that collection will occur regardless of delinquency status, need not be charged off. +For all classes, all interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income. The interest on these loans is accounted for on the cash basis or cost recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. Nonaccrual loans are returned to accrual status when, in the opinion of management, the financial position of the borrower indicates there is no longer any reasonable doubt as to the timely collection of interest or principal. The Bank requires a period of satisfactory performance of not less than six months before returning a nonaccrual loan to accrual status. +When cash payments are received on impaired loans in each loan class, the Bank records the payment as interest income unless collection of the remaining recorded principal amount is doubtful, at which time payments are used to reduce the principal balance of the loan. +Allowance for Credit Losses +The Company adopted ASU No. 2016-13 and began accounting for credit losses under ASC 326, Financial Instruments - Credit Losses, on July 1, 2023. The new standard significantly changed the impairment model for most financial assets that are measured at amortized cost, including off-balance sheet credit exposures, from an incurred loss impairment model to an expected credit loss model. Refer to Note 2 for more information on the impact to the consolidated financial statements. +The allowance for credit losses on loans is a valuation allowance that is deducted from the loans' amortized cost basis to present the net amount expected to be collected on the Company's loan portfolio. The allowance for credit losses on loans is established through provisions for credit losses charged against earnings. When available information confirms that specific loans, or portions thereof, are uncollectible, these amounts are charged against the allowance for credit losses on loans, and subsequent recoveries, if any, are credited to the allowance for credit losses on loans. +Subsequent to adoption of ASC 326 on July 1, 2023: +Effective July 1, 2023, the Company uses a current expected credit loss ("CECL") model to estimate the allowance for credit losses on loans. The CECL model considers historical loss rates and other qualitative adjustments, as well as a new forward-looking component that considers reasonable and supportable forecasts over the expected life of each loan. To develop the allowance for credit losses on loans estimate under the CECL model, the Company segments the loan portfolio into loan pools based on loan type and similar credit risk elements; performs an individual evaluation of certain collateral dependent and other credit-deteriorated loans; calculates the historical loss rates for the segmented loan pools; applies the loss rates over the calculated life of the collectively evaluated loan pools; adjusts for forecasted macro-level economic conditions and other anticipated changes in credit quality; and determines qualitative adjustments based on factors and conditions unique to the Company's loan portfolio. +Under the CECL model, loans that do not share similar risk characteristics with loans in their respective pools are individually evaluated for expected credit losses and are excluded from the collectively evaluated loan credit loss estimates. Management individually evaluates nonaccrual loans and other loans with evidence of credit deterioration. +51 +Table of Contents +For loans individually evaluated, a specific reserve is estimated based on either the fair value of collateral or the discounted value of expected future cash flows. +A loan is considered to be collateral dependent when, based upon management's assessment, the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. For collateral dependent loans, expected credit losses are based on the fair value of the collateral as of the date of the consolidated balance sheet, with consideration for estimated selling costs if satisfaction of the loan depends on the sale of the collateral. +Management evaluates all collectively evaluated loan pools using the weighted average remaining life ("WARM") methodology. The WARM methodology applies calculated quarterly net loss rates to collectively evaluated loan pools on a periodic basis based on the estimated remaining life of each pool. The estimated losses under the remaining life methodology are then adjusted for qualitative factors deemed appropriate by management. +The estimated remaining life of each pool is determined using annual, pool-based attrition measurements using the Company's loan-level historical data. The Company's historical call report data is utilized for historical loss rate calculations, and the lookback period for each collectively evaluated loan pool is determined by management based upon management’s evaluation of what historical data is most reflective indicator of expected losses. Forecasted historical loss rates are calculated using the Company's historical data based on the lookback, forecast, and reversion period inputs by management. Management elected to utilize an 8-quarter forecast period, with immediate reversion to historical losses after the forecast period. +The quantitative analysis described above is supplemented with other qualitative factors based on the risks present for each collectively evaluated loan pool. These qualitative factors include: changes in lending policies and practices; changes in international, national, regional, and local business conditions; changes in the nature and volume of the portfolio and in terms of loans; changes in lending staff; changes in the volume and severity of past due loans; changes in the quality of the Company’s loan review system; changes in the value of underlying collateral; existence and effect of any concentrations of credit risk and changes in the levels of concentrations; and the effect of other external factors such as competition. +In addition to the allowance for credit losses on loans, the Company maintains a reserve for unfunded loan commitments at a level that management believes is adequate to absorb estimated probable credit losses over the contractual terms of the Company's noncancellable loan commitments. The reserve for unfunded commitments, which is included in Accrued interest payable and other liabilities on the accompanying consolidated balance, is established through provisions for credit losses charged against earnings. +Unfunded loan commitments are segmented into the same pools used for estimating the allowance for credit losses on loans. Estimated credit losses on unfunded loan commitments are based on the same methodology, inputs, and assumptions used to estimate credit losses on collectively evaluated loans, adjusted for estimated funding probabilities. The estimated funding probabilities represent management's estimate of the amount of the current unfunded loan commitment that will be funded over the remaining contractual life of the commitment and is based on historical data, when available, or as determined by management when historical data is not available. +The Company may modify loans to borrowers experiencing financial difficulty and grant certain concessions that include principal forgiveness, a term extension, an other-than-insignificant payment delay, an interest rate reduction, or a combination of these concessions. An assessment of whether the borrower is experiencing financial difficulty is made at the time of the loan modification. Upon the Company's determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or portion of the loan) is written off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the allowance for credit losses is adjusted by the same amount. +52 +Table of Contents +Prior to adoption of ASC 326 on July 1, 2023: +Prior to July 1, 2023, the Company used an incurred loss impairment model to estimate the allowance for loan losses. This methodology assessed the overall appropriateness of the allowance for loan losses on loans and included allocations for specifically identified impaired loans and loss factors for all remaining loans, with a component primarily based on historical loss rates and another component primarily based on other qualitative factors. +Under the incurred loss impairment model, the allowance for loan losses was based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. When historical data was not available, management relied upon available peer data. +The allowance for loan losses under the incurred loss impairment model consisted of allocated and general components. The allocated component related to loans that were classified as impaired. For those loans that were classified as impaired, an allowance was established when the discounted cash flows (or collateral value or observable market price) of the impaired loan was lower than the carrying value of that loan. The general component covered nonimpaired loans and was based on historical charge-off experience by segment. The historical loss experience was determined by portfolio segment and was based on the actual loss history experienced by the Company over the prior three years. Other adjustments (qualitative/environmental considerations) for each segment were added to the allowance for each loan segment after an assessment of internal or external influences on credit quality that were not fully reflected in the historical loss or risk rating data. +Under the incurred loss impairment model, a loan was considered impaired when, based on current information and events, it was probable that the Company would be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment included payment status, collateral value and the probability of collecting scheduled principal and interest payments when due, based on the loan’s current payment status and the borrower’s financial condition, including available sources of cash flows. Loans that experience insignificant payment delays and payment shortfalls generally were not classified as impaired. Management determined the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment was measured on a loan-by-loan basis for non-homogenous type loans such as commercial, non-owner-occupied residential, multi-family, nonresidential and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of the collateral if the loan is collateral dependent. For impaired loans where the Company utilized the discounted cash flows to determine the level of impairment, the Company included the entire change in the present value of cash flows as bad debt expense. +The fair values of collateral dependent impaired loans were based on independent appraisals of the collateral. In general, the Company acquired an updated appraisal upon identification of impairment and annually thereafter for commercial, commercial real estate and multi-family loans. If the most recent appraisal was over a year old, and a new appraisal was not performed, due to lack of comparable values or other reasons, the existing appraisal is utilized and discounted based on the age of the appraisal, condition of the subject property and overall economic conditions. After determining the collateral value as described, the fair value was calculated based on the determined collateral value less selling expenses. The potential for outdated appraisal values was considered in the determination of the allowance for loan losses through analysis of various trends and conditions including the local economy, trends in charge-offs and delinquencies, etc. and the related qualitative adjustments assigned by the Company. +Under the incurred loss impairment model, segments of loans with similar risk characteristics were collectively evaluated for impairment based on the segment’s historical loss experience adjusted for changes in trends, conditions and other relevant factors that affect repayment of the loans. Accordingly, the Company did not separately identify individual consumer and residential loans for impairment measurements, unless such loans were the subject of a restructuring agreement due to financial difficulties of the borrower. +53 +Table of Contents +Prior to the adoption of ASU 2022-02, any loans that are modified were reviewed by the Company to identify if a troubled debt restructuring (TDR) had occurred, which was when, for economic or legal reasons related to a borrower’s financial difficulties, the Company granted a concession to the borrower that it would not otherwise consider. With regard to determination of the amount of the allowance for loan losses, troubled debt restructured loans were considered to be impaired. As a result, the determination of the amount of impaired loans for each portfolio segment within troubled debt restructurings was the same as detailed previously. +Premises and Equipment +Depreciable assets are stated at cost less accumulated depreciation. Depreciation is charged to expense using the straight-line method over the estimated useful lives of the assets. +Lease Commitments +The Company determines if an arrangement is a lease or contains a lease at inception. Leases result in the recognition of right-of-use (“ROU”) assets and lease liabilities on the Consolidated Balance Sheets. ROU assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease, measured on a discounted basis. The Company determines lease classification as operating or finance at the lease commencement date. +The Company combines lease and nonlease components, such as common area and other maintenance costs, in calculating the ROU assets and lease liabilities for its office building leases in Fort Wayne, Indiana. +At lease inception, the lease liability is measured at the present value of the lease payments over the lease term. The ROU asset equals the lease liability adjusted for any initial direct costs, prepaid or deferred rent, and lease incentives. The discount rate used in determining the lease liability and related ROU asset is based upon what would be obtained by the Company for similar loans as an incremental rate as of the date of origination or renewal. +The lease term may include options to extend or to terminate the lease that the Company is reasonably certain to exercise. Lease expense is generally recognized on a straight-line basis over the lease term. +The Company has elected not to record leases with an initial term of 12 months or less on the Consolidated Balance Sheets. Lease expense on such leases is recognized on a straight-line basis over the lease term. +Stock in Correspondent Banks +Federal Home Loan Bank (FHLB) Stock +The Bank is a member of the FHLB system. Members are required to own a certain amount of stock based on the level of borrowings and other factors and may invest in additional amounts. FHLB stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value. For the years ended June 30, 2024 and 2023, no impairment has been recognized. +Federal Reserve Bank (FRB) Stock +The Bank is a member of its regional Federal Reserve Bank. FRB stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment based on the ultimate recovery of par value. For the year ended June 30, 2024, no impairment has been recognized. The Bank did not own any FRB stock during the year ended June 30, 2023. +54 +Table of Contents +Bank Owned Life Insurance +The Company has purchased life insurance on certain employees. Bank owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement. +Foreclosed Assets Held for Sale +Foreclosed assets include real property and other assets that have been acquired as a result of foreclosure. At the time of foreclosure, foreclosed assets are recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at the lower of cost or fair value less estimated costs to sell. If fair value declines subsequent to foreclosure, a valuation allowance is recorded through expense. Operating costs after acquisition are expensed. At June 30, 2024 and 2023, there were no foreclosed assets recorded as a result of obtaining physical possession of the property. At June 30, 2024 and 2023, there were no loans for which formal foreclosure procedures were in process. +Income Taxes +The Company accounts for income taxes in accordance with income tax accounting guidance (ASC 740, Income Taxes ). The income tax accounting guidance results in two components of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues. The Company determines deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax basis of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur. +Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized. +Tax positions are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination. The term more likely than not means a likelihood of more than 50 percent; the terms examined and upon examination also include resolution of the related appeals or litigation processes, if any. A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances and information available at the reporting date and is subject to management’s judgment. +If necessary, the Company recognizes interest and penalties on income taxes as a component of income tax expense. +With a few exceptions, the Company is no longer subject to examination by tax authorities for calendar years before 2021. As of June 30, 2024, the Company had no material uncertain income tax positions. +Employee Stock Ownership Plan (ESOP) +The cost of shares issued to the Employee Stock Ownership Plan (“ESOP”), but not yet allocated to participants, is shown as a reduction of shareholders’ equity. Compensation expense is based on the average fair value of shares as they are committed to be released to participant accounts. +Stock-Based Compensation +Compensation cost is recognized for stock options and restricted stock awards issued to employees and directors based on the fair value of these awards at the date of grant. A Black-Scholes model is utilized to estimate the fair value of +55 +Table of Contents +stock options, while the market price of the Company’s common stock at the date of grant is used for restricted stock awards. Compensation cost is recognized over the required service period, generally defined as the vesting period. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award. The Company’s accounting policy is to recognize forfeitures as they occur. +Treasury Stock +Common stock shares repurchased are recorded at cost. Cost of shares retired or reissued is determined using the first-in, first-out method. +Earnings (Loss) Per Share +Basic earnings (loss) per share (“EPS”) represents income available or loss attributable to common shareholders divided by the weighted average number of common shares outstanding during the period. Unallocated common shares held by the ESOP are not included in the weighted average number of common shares outstanding for purposes of calculating EPS until they are committed to be released. Legally issued and outstanding unvested restricted shares are not included in the weighted average number of common shares outstanding for purposes of calculating basic EPS until the awards vest, however, these shares are included in the computation of the denominator of diluted EPS, if dilutive. Diluted EPS reflects additional common shares that would have been outstanding if dilutive potential common shares, in the form of stock options and restricted stock awards, had been issued, as well as any adjustment to income that would result from the assumed issuance and is calculated using the treasury stock method. Potentially dilutive common shares are excluded from the computation of diluted EPS in periods in which the effect would be anti-dilutive. +Comprehensive Income (Loss) +Accounting principles generally require that recognized revenue, expense, gains, and losses be included in net income. Certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities and changes in the funded status of the defined benefit pension plan, are reported as a separate component of the equity section of the consolidated balance sheets. Such items, along with net income (loss), are components of comprehensive income (loss). +Revenue Recognition +The Company accounts for revenue recognition in accordance with Accounting Standards Update (ASU) 2014-09 "Revenue from Contracts with Customers" (Accounting Standards Codification (ASC) 606). ASC 606 provides that an entity should recognize revenue to depict the transfer of promised goods and services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Interest income, net securities gains (losses) and income from bank-owned life insurance are not included within the scope of ASC 606. For the revenue streams in the scope of ASC 606, service charges on deposits and electronic banking fees, there are no significant judgments related to the amount and timing of revenue recognition. All of the Company’s in scope revenue from contracts with customers is recognized within other noninterest income. +Deposit Services. The Company generates revenues through fees charged to depositors related to deposit account maintenance fees, overdrafts, ATM fees, wire transfers and additional miscellaneous services provided at the request of the depositor. For deposit-related services, revenue is recognized when performance obligations are satisfied, which is, generally, at a point in time. +Note 2: Recent Accounting Pronouncements +Accounting Standards Adopted in 2024 +Measurement of Credit Losses on Financial Instruments: +The Company recently adopted the following Accounting Standards Updates (“ASU”) issued by the Financial Accounting Standards Board (“FASB”). +56 +Table of Contents +ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments – This standard significantly changes how financial assets measured at amortized cost are presented. Such assets, which include most loans, are presented at the net amount expected to be collected over their remaining contractual lives. Estimated credit losses are based on relevant information about historical experience, current conditions, and reasonable and supportable forecasts that affect the collectibility of the reported amounts. The standard also changes the accounting for credit losses related to available-for-sale securities. +The Company adopted ASU No. 2016-13 on July 1, 2023, using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures. Results for the year ended June 30, 2024, are presented under Accounting Standards Codification (“ASC”) 326 while prior period amounts continue to be reported in accordance with previously applicable accounting standards generally accepted in the United States (“US GAAP”). The transition adjustment for the adoption included an increase in the allowance for loan losses of $ 47,000 , an increase in the allowance for unfunded loan commitments and letters of credit of $ 21,000 , and a $ 53,000 decrease to retained earnings to reflect the cumulative effect of adopting the standard on the Company’s consolidated balance sheets. See Debt Securities, Loans, and Allowance for Credit Losses on Loans accounting policies in Note 1 and see Notes 3 and 4 for additional disclosures related to this new accounting pronouncement. +ASU No. 2022-02, Troubled Debt Restructurings and Vintage Disclosures, Topic 326 (Financial Instruments-Credit Losses) – This standard eliminates the recognition and measurement guidance for troubled debt restructurings by creditors under ASC Subtopic 310-40, Receivables-Troubled Debt Restructurings by Creditors, and, instead, requires the Company to evaluate (consistent with other loan modification accounting standards) whether a loan modification represents a new loan or a continuation of an existing loan. The amendments to the standard also enhance existing disclosure requirements, and introduce new requirements related to certain modifications of loans made to borrowers experiencing financial difficulty. The Company adopted ASU No. 2022-02 on July 1, 2023, on a prospective basis. See Note 4 for new disclosures related to the new accounting standard. +Accounting Standards Updates Issued, but Not Adopted +Income Taxes: In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures . The amendments in this ASU add specific requirements for income tax disclosures to improve transparency and decision usefulness. The guidance in ASU 2023-09 requires that public business entities disclose specific categories in the income tax rate reconciliation and provide additional qualitative information for reconciling items that meet a quantitative threshold. In addition, the amendments in ASU 2023-09 require that all entities disclose the amount of income taxes paid disaggregated by federal, state, and foreign taxes and disaggregated by individual jurisdictions. The ASU also includes other disclosure amendments related to the disaggregation of income tax expense between federal, state and foreign taxes. For public business entities, the amendments in this update are effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. The amendments in this update should be applied on a prospective basis and retrospective application is permitted. +Segment Reporting: In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures . These amendments require, among other things, that a public entity that has a single reportable segment provide all the disclosures required by the amendments in this ASU and all existing segment disclosures in Topic 208. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods withing fiscal years beginning after December 15, 2024. Early adoption is permitted. A public entity should apply the amendments retrospectively to all periods presented in the financial statements. +Note 3: Debt Securities +Debt securities held by the Company generally are classified and recorded in the consolidated financial statements as available for sale, with unrealized gains and losses excluded from earnings and reported in other comprehensive income (loss). +57 +Table of Contents +The amortized cost and fair values, together with gross unrealized gains and losses of securities are as follows: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Gross +​ +Gross +​ +​ +​ +​ +​ +Amortized +​ +Unrealized +​ +Unrealized +​ +Approximate +​ +Cost +Gains +Losses +Fair Value +Available-for-sale Securities: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +June 30, 2024 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +U.S. Government agencies +​ +$ +6,000,000 +​ +$ +— +​ +$ +285,910 +​ +$ +5,714,090 +Mortgage-backed Government +​ +​ +​ +​ +Sponsored Enterprises (GSEs) +​ +29,387,507 +​ +49,792 +​ +1,676,887 +​ +27,760,412 +Collateralized mortgage obligations (CMOs) +​ +​ +99,668,482 +​ +​ +293,565 +​ +​ +459,194 +​ +​ +99,502,853 +Subordinated debt +​ +​ +2,750,000 +​ +​ +— +​ +​ +212,045 +​ +​ +2,537,955 +State and political subdivisions +​ +4,548,588 +​ +— +​ +718,946 +​ +3,829,642 +​ +​ +$ +142,354,577 +​ +$ +343,357 +​ +$ +3,352,982 +​ +$ +139,344,952 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Gross +Gross +​ +​ +​ +​ +Amortized +​ +Unrealized +​ +Unrealized +​ +Approximate +​ +​ +Cost +​ +Gains +​ +Losses +​ +Fair Value +Available-for-sale Securities: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +June 30, 2023 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +U.S. Government agencies +​ +$ +7,000,000 +​ +$ +1,410 +​ +$ +471,900 +​ +$ +6,529,510 +Mortgage-backed Government +​ +​ +​ +​ +Sponsored Enterprises (GSEs) +​ +31,081,408 +​ +961 +​ +2,153,110 +​ +28,929,259 +Collateralized mortgage obligations (CMOs) +​ +​ +30,633,725 +​ +​ +12,253 +​ +​ +261,388 +​ +​ +30,384,590 +Subordinated debt +​ +​ +1,000,000 +​ +​ +— +​ +​ +139,530 +​ +​ +860,470 +State and political subdivisions +​ +4,561,709 +​ +— +​ +680,344 +​ +3,881,365 +​ +​ +$ +74,276,842 +​ +$ +14,624 +​ +$ +3,706,272 +​ +$ +70,585,194 +​ +The amortized cost and fair value of available-for-sale securities at June 30, 2024, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +June 30, 2024 +​ +​ +Available-for-sale +​ +​ +Amortized +​ +Fair +​ +Cost +Value +Within one year +​ +$ +1,000,000 +​ +$ +996,160 +One to five years +​ +5,937,973 +​ +5,557,166 +Five to ten years +​ +4,995,032 +​ +4,443,293 +After ten years +​ +1,365,583 +​ +1,085,068 +​ +​ +​ +13,298,588 +​ +​ +12,081,687 +Mortgage-backed GSE's and CMO's +​ +129,055,989 +​ +127,263,265 +Totals +​ +$ +142,354,577 +​ +$ +139,344,952 +​ +The carrying value of securities pledged as collateral, to secure public deposits and for other purposes, was $ 54,822,000 and $ 7,201,000 at June 30, 2024 and 2023, respectively. +Proceeds from sales of securities totaled $ 2,989,000 during the fiscal year ended June 30, 2024. Such sales resulted in realized losses of $ 2,000 . There were no sales of securities during the fiscal year ended June 30, 2023. +Certain investments in debt securities are reported in the financial statements at an amount less than their historical cost. Total fair value of these investments at June 30, 2024 and 2023, was $ 85,595,000 and $ 61,879,000 , which is approximately 61 percent and 88 percent, respectively, of the fair value of the Company’s total investment portfolio. Management believes that all unrealized losses at June 30, 2024 and June 30, 2023 resulted from temporary changes in interest rates and current market conditions and not a result of credit deterioration. +58 +Table of Contents +Information related to unrealized losses in the investment portfolio as of June 30, 2024 and June 30, 2023 is summarized as follows: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +June 30, 2024 +​ +​ +Less than 12 Months +12 Months or More +Total +​ +​ +Fair +Unrealized +​ +Fair +Unrealized +​ +Fair +Unrealized +Description of Securities +​ +Value +​ +Losses +​ +Value +​ +Losses +​ +Value +​ +Losses +U.S. Government agencies +​ +$ +— +​ +$ +— +​ +$ +5,714,090 +​ +$ +285,910 +​ +$ +5,714,090 +​ +$ +285,910 +Mortgage-backed Government +​ +​ +​ +​ +​ +​ +Sponsored Enterprises (GSEs) +​ +2,910,227 +​ +3,516 +​ +13,077,539 +​ +1,673,371 +​ +15,987,766 +​ +1,676,887 +Collateralized mortgage obligations +​ +​ +55,863,004 +​ +​ +418,582 +​ +​ +1,662,871 +​ +​ +40,612 +​ +​ +57,525,875 +​ +​ +459,194 +Subordinated debt +​ +​ +1,688,750 +​ +​ +61,250 +​ +​ +849,205 +​ +​ +150,795 +​ +​ +2,537,955 +​ +​ +212,045 +State and political subdivisions +​ +— +​ +— +​ +3,829,642 +​ +718,946 +​ +3,829,642 +​ +718,946 +Total available-for-sale securities +​ +$ +60,461,981 +​ +$ +483,348 +​ +$ +25,133,347 +​ +$ +2,869,634 +​ +$ +85,595,328 +​ +$ +3,352,982 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +June 30, 2023 +​ +​ +Less than 12 Months +12 Months or More +Total +​ +​ +Fair +Unrealized +​ +Fair +Unrealized +​ +Fair +Unrealized +Description of Securities +​ +Value +​ +Losses +​ +Value +​ +Losses +​ +Value +​ +Losses +U.S. Government agencies +​ +$ +— +​ +$ +— +​ +$ +5,528,100 +​ +$ +471,900 +​ +$ +5,528,100 +​ +$ +471,900 +Mortgage-backed Government +​ +​ +​ +​ +​ +​ +Sponsored Enterprises (GSEs) +​ +17,561,545 +​ +278,848 +​ +11,312,858 +​ +1,874,262 +​ +28,874,403 +​ +2,153,110 +Collateralized mortgage obligations +​ +​ +22,734,587 +​ +​ +261,388 +​ +​ +— +​ +​ +— +​ +​ +22,734,587 +​ +​ +261,388 +Subordinated debt +​ +​ +860,470 +​ +​ +139,530 +​ +​ +— +​ +​ +— +​ +​ +860,470 +​ +​ +139,530 +State and political subdivisions +​ +448,750 +​ +8,324 +​ +3,432,615 +​ +672,020 +​ +3,881,365 +​ +680,344 +Total available-for-sale securities +​ +$ +41,605,352 +​ +$ +688,090 +​ +$ +20,273,573 +​ +$ +3,018,182 +​ +$ +61,878,925 +​ +$ +3,706,272 +​ +U.S. Government Agencies and State and Political Subdivisions and Subordinated Debt +Unrealized losses on these securities have not been recognized into income because the issuers’ bonds are of high credit quality, values have only been impacted by changes in interest rates since the securities were purchased, and the Company has the intent and ability to hold the securities for the foreseeable future. The fair value is expected to recover as the bonds approach the maturity date. +Mortgage-backed GSE’s, Collateralized Mortgage Obligations +Unrealized losses on these securities have not been recognized into income because the unrealized losses were caused by changes in interest rates and illiquidity, and not credit quality. The Company has the intent and ability to hold the securities for the foreseeable future. The fair value is expected to recover as the bonds approach the maturity date and the Company expects to recover the amortized cost basis over the term of the securities . +​ +59 +Table of Contents +Note 4: Loans and Allowance for Credit Losses +Categories of loans at June 30, 2024 and June 30, 2023 include: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +June 30, +​ +2024 +2023 +Real estate loans: +​ +​ +​ +​ +​ +​ +Commercial +​ +$ +19,724,941 +​ +$ +6,009,615 +Residential +​ +69,826,726 +​ +65,857,446 +Multifamily +​ +659,257 +​ +688,393 +Agricultural +​ +4,213,660 +​ +4,044,648 +Construction and land +​ +17,644,710 +​ +8,567,060 +Home equity line of credit (HELOC) +​ +1,622,877 +​ +355,296 +Commercial and industrial +​ +​ +14,879,004 +​ +​ +3,398,557 +Consumer +​ +955,415 +​ +801,476 +Total loans +​ +129,526,590 +​ +89,722,491 +Less: +​ +​ +Undisbursed loans in process +​ +2,222,582 +​ +8,202,918 +Net deferred loan fees +​ +139,947 +​ +47,756 +Allowance for credit losses +​ +772,969 +​ +263,422 +Net loans +​ +$ +126,391,092 +​ +$ +81,208,395 +​ +The following tables present the activity in the allowance for credit losses based on portfolio segment for the years ended June 30, 2024 and 2023. +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Balance +​ +Adoption of +​ +Provision (credit) +​ +​ +​ +​ +​ +Balance +​ +​ +June 30, 2023 +ASC 326 +​ +for loan losses +Charge-offs +Recoveries +June 30, 2024 +Real estate loans: +​ +​ +​ +​ +​ +​ +​ +​ +Commercial +​ +$ +27,379 +​ +$ +( 2,203 ) +​ +$ +181,783 +​ +$ +​ +​ +$ +​ +​ +$ +206,959 +Residential +​ +167,714 +​ +41,930 +​ +( 35,031 ) +​ +— +​ +— +​ +174,613 +Multifamily +​ +1,786 +​ +( 9 ) +​ +( 502 ) +​ +— +​ +— +​ +1,275 +Agricultural +​ +17,091 +​ +( 1,196 ) +​ +( 3,734 ) +​ +— +​ +— +​ +12,161 +Construction and land +​ +​ +12,491 +​ +​ +10,144 +​ +167,959 +​ +— +​ +— +​ +190,594 +HELOC +​ +​ +34,779 +​ +​ +( 33,888 ) +​ +2,160 +​ +— +​ +— +​ +3,051 +Commercial and industrial +​ +​ +882 +​ +​ +31,562 +​ +150,567 +​ +— +​ +— +​ +183,011 +Consumer +​ +​ +1,300 +​ +​ +455 +​ +( 450 ) +​ +— +​ +— +​ +1,305 +Total +​ +$ +263,422 +​ +$ +46,795 +​ +$ +462,752 +​ +$ +— +​ +$ +— +​ +$ +772,969 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Unfunded loan commitments and letters of credit +​ +$ +— +​ +$ +20,503 +​ +$ +155,850 +​ +$ +— +​ +$ +— +​ +$ +176,353 +​ +The reserve for unfunded loan commitments as of June 30, 2024, is included in accrued interest payable and other liabilities on the accompanying consolidated balance sheet. There was no reserve for unfunded loan commitments as of June 30, 2023. +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Balance +​ +Provision (credit) +​ +​ +​ +​ +​ +Balance +​ +June 30, 2022 +for loan losses +Charge-offs +Recoveries +June 30, 2023 +Real estate loans: +​ +​ +​ +​ +​ +Commercial +​ +$ +20,643 +​ +$ +6,736 +​ +$ +— +​ +$ +— +​ +$ +27,379 +Residential +​ +177,830 +​ +( 10,116 ) +​ +— +​ +— +​ +167,714 +Multifamily +​ +1,926 +​ +( 140 ) +​ +— +​ +— +​ +1,786 +Agricultural +​ +​ +13,868 +​ +3,223 +​ +— +​ +— +​ +17,091 +Construction and land +​ +​ +5,477 +​ +7,014 +​ +— +​ +— +​ +12,491 +HELOC +​ +​ +1,306 +​ +33,473 +​ +— +​ +— +​ +34,779 +Commercial and industrial +​ +​ +709 +​ +173 +​ +— +​ +— +​ +882 +Consumer +​ +​ +1,125 +​ +175 +​ +— +​ +— +​ +1,300 +Total +​ +$ +222,884 +​ +$ +40,538 +​ +$ +— +​ +$ +— +​ +$ +263,422 +​ +60 +Table of Contents +The following tables present the balance in the allowance for credit losses and the recorded investment in loans based on portfolio segment as of June 30, 2023: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Allowance for credit losses +​ +Loans +​ +​ +Individually +Collectively +Individually +Collectively +June 30, 2023 +​ +​ +​ +​ +​ +Real estate loans: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Commercial +​ +$ +— +​ +$ +27,379 +​ +$ +— +​ +$ +6,009,615 +​ +Residential +​ +​ +7 +​ +167,707 +​ +304,096 +​ +65,553,350 +​ +Multifamily +​ +​ +— +​ +1,786 +​ +— +​ +688,393 +​ +Agricultural +​ +​ +— +​ +17,091 +​ +— +​ +4,044,648 +​ +Construction and land +​ +​ +— +​ +12,491 +​ +— +​ +8,567,060 +​ +HELOC +​ +​ +— +​ +34,779 +​ +— +​ +355,296 +​ +Commercial and industrial +​ +​ +— +​ +882 +​ +— +​ +3,398,557 +​ +Consumer +​ +​ +— +​ +1,300 +​ +— +​ +801,476 +​ +Total +​ +$ +7 +​ +$ +263,415 +​ +$ +304,096 +​ +$ +89,418,395 +​ +​ +The Company has adopted a standard loan grading system for all non-residential real estate loans. Loan grades are numbered 1 through 8. Grades 1 through 3 are considered satisfactory grades. The grade of 4, Monitor, represents loans requiring more than normal attention. The grade of 5, Special Mention, represents loans of lower quality and is considered criticized. The grades of 6, or Substandard, and 7, Doubtful, refer to loans that are classified. +Pass (1-3) Loans of reasonable credit strength and repayment ability providing a satisfactory credit risk. +Monitor (4) +Loans requiring more than normal attention resulting from underwriting weaknesses as to repayment terms, loan structure, financial and/or documentation exceptions. +Special Mention (5) +Loans which may include the characteristics of the Monitor classification, problems that need to be addresses by both the lender and the borrower. +Substandard (6) +Loans which may include the characteristics of the Special Mention classification, but also reflects financial and other problems that might result in some loss at a future date and/or reliance upon collateral for ultimate collection. +Doubtful (7) Loans for which some loss is anticipated, but the timing and amount of the loss is not definite. +Loss (8) Loans considered non-bankable assets which may or may not have some salvage value. +Internally prepared loan gradings for commercial loans are updated at least annually. Residential real estate and home equity lines of credit are generally evaluated based on whether or not the loan is performing according to the contractual terms of the loans as of the consolidated balance sheet date. +Risk characteristics of each loan portfolio segment are described as follows: +Commercial Real Estate +These loans include commercial real estate and residential real estate secured by property with five or more units. The main risks are changes in the value of the collateral, ability of borrowers to collect rents, vacancy and changes in the tenants’ employment status. Management specifically considers unemployment and changes in real estate values in the Company’s market area. +Residential Real Estate +These loans include first liens and junior liens on 1-4 family residential real estate (both owner and non-owner occupied). The main risks for these loans are changes in the value of the collateral and stability of the local economic +61 +Table of Contents +environment and its impact on the borrowers’ employment. Management specifically considers unemployment and changes in real estate values in the Company’s market area. +Multifamily +These loans include loans on residential real estate secured by property with five or more units. The main risks are changes in the value of collateral, ability of borrowers to collect rents, vacancy and changes in the tenants’ employment status. Management specifically considers unemployment and changes in real estate values in the Company’s market area. +Agriculture Real Estate +These loans include loans on farm ground, vacant land for development and loans on commercial real estate. The main risks are changes in the value of the collateral and changes in the economy or borrowers’ business operations. Management specifically considers unemployment and changes in real estate values in the Company’s market area. +Construction and Land Real Estate +These loans include construction loans for 1-4 family residential and commercial properties (both owner and non-owner occupied) and first liens on land. The main risks for construction loans include uncertainties in estimating costs of construction and in estimating the market value of the completed project. The main risks for land loans are changes in the value of the collateral and stability of the local economic environment. Management specifically considers unemployment and changes in real estate values in the Company's market area. +HELOC +These loans are generally secured by owner-occupied 1-4 family residences. The main risks for these loans are changes in the value of the collateral and stability of the local economic environment and its impact on the borrowers’ employment. Management specifically considers unemployment and changes in real estate values in the Company’s market area. +Commercial and Industrial +The commercial and industrial portfolio includes loans to commercial customers for use in financing working capital needs, equipment purchases and expansions. The loans in this category are repaid primarily from the cash flow of a borrower’s principal business operation. Credit risk in these loans is driven by creditworthiness of the borrower and the economic conditions that impact the cash flow stability from business operations. Commercial and industrial loans considered collateral dependent are primarily secured by accounts receivable, inventory, equipment and real estate. +Consumer Loans +These loans include vehicle loans, share loans and unsecured loans. The main risks for these loans are the depreciation of the collateral values (vehicles) and the financial condition of the borrowers. Major employment changes are specifically considered by management. Some consumer loans are unsecured and have no underlying collateral. +The following table reflects loan balances as of June 30, 2024 based on year of origination: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Revolving Loans +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Amortized +​ +​ +​ +​ +2024 +2023 +2022 +2021 +2020 +Prior +​ +Cost Basis +​ +Total +June 30, 2024 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Commercial +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Pass (1-3) +$ +14,580,611 +​ +$ +1,093,719 +​ +$ +1,456,599 +​ +$ +336,694 +​ +$ +295,178 +​ +$ +1,962,140 +​ +$ +— +​ +$ +19,724,941 +Monitor (4) +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +Special Mention (5) +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +62 +Table of Contents +Substandard (6) +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +Doubtful (7) +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +Total commercial +$ +14,580,611 +​ +$ +1,093,719 +​ +$ +1,456,599 +​ +$ +336,694 +​ +$ +295,178 +​ +$ +1,962,140 +​ +$ +— +​ +$ +19,724,941 +Gross charge-offs +$ +— +​ +$ +— +​ +$ +— +​ +$ +— +​ +$ +— +​ +$ +— +​ +$ +— +​ +$ +— +Multifamily +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Pass (1-3) +$ +— +​ +$ +— +​ +$ +659,257 +​ +$ +— +​ +$ +— +​ +$ +— +​ +$ +— +​ +$ +659,257 +Monitor (4) +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +Special Mention (5) +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +Substandard (6) +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +Doubtful (7) +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +Total multifamily +$ +— +​ +$ +— +​ +$ +659,257 +​ +$ +— +​ +$ +— +​ +$ +— +​ +$ +— +​ +$ +659,257 +Gross charge-offs +$ +— +​ +$ +— +​ +$ +— +​ +$ +— +​ +$ +— +​ +$ +— +​ +$ +— +​ +$ +— +Agricultural +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Pass (1-3) +$ +627,343 +​ +$ +1,087,542 +​ +$ +827,774 +​ +$ +615,048 +​ +$ +278,000 +​ +$ +566,671 +​ +$ +— +​ +$ +4,002,378 +Monitor (4) +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +211,282 +​ +​ +— +​ +​ +211,282 +Special Mention (5) +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +Substandard (6) +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +Doubtful (7) +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +Total agricultural +$ +627,343 +​ +$ +1,087,542 +​ +$ +827,774 +​ +$ +615,048 +​ +$ +278,000 +​ +$ +777,953 +​ +$ +— +​ +$ +4,213,660 +Gross charge-offs +$ +— +​ +$ +— +​ +$ +— +​ +$ +— +​ +$ +— +​ +$ +— +​ +$ +— +​ +$ +— +Construction and land +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Pass (1-3) +$ +12,732,392 +​ +$ +4,855,874 +​ +$ +20,212 +​ +$ +— +​ +$ +— +​ +$ +— +​ +$ +— +​ +$ +17,608,478 +Monitor (4) +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +Special Mention (5) +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +Substandard (6) +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +36,232 +​ +​ +— +​ +​ +36,232 +Doubtful (7) +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +Total construction and land +$ +12,732,392 +​ +$ +4,855,874 +​ +$ +20,212 +​ +$ +— +​ +$ +— +​ +$ +36,232 +​ +$ +— +​ +$ +17,644,710 +Gross charge-offs +$ +— +​ +$ +— +​ +$ +— +​ +$ +— +​ +$ +— +​ +$ +— +​ +$ +— +​ +$ +— +Commercial and industrial +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Pass (1-3) +$ +14,429,210 +​ +$ +161,367 +​ +$ +— +​ +$ +288,427 +​ +$ +— +​ +$ +— +​ +$ +— +​ +$ +14,879,004 +Monitor (4) +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +Special Mention (5) +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +Substandard (6) +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +Doubtful (7) +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +Total commercial and industrial +$ +14,429,210 +​ +$ +161,367 +​ +$ +— +​ +$ +288,427 +​ +$ +— +​ +$ +— +​ +$ +— +​ +$ +14,879,004 +Gross charge-offs +$ +— +​ +$ +— +​ +$ +— +​ +$ +— +​ +$ +— +​ +$ +— +​ +$ +— +​ +$ +— +Consumer +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Pass (1-3) +$ +493,671 +​ +$ +287,793 +​ +$ +132,845 +​ +$ +17,597 +​ +$ +11,714 +​ +$ +11,795 +​ +$ +— +​ +$ +955,415 +Monitor (4) +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +Special Mention (5) +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +Substandard (6) +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +Doubtful (7) +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +Total consumer +$ +493,671 +​ +$ +287,793 +​ +$ +132,845 +​ +$ +17,597 +​ +$ +11,714 +​ +$ +11,795 +​ +$ +— +​ +$ +955,415 +Gross charge-offs +$ +— +​ +$ +— +​ +$ +— +​ +$ +— +​ +$ +— +​ +$ +— +​ +$ +— +​ +$ +— +Residential +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Performing +$ +9,835,966 +​ +$ +5,704,514 +​ +$ +14,362,807 +​ +$ +16,673,325 +​ +$ +7,723,487 +​ +$ +14,614,432 +​ +$ +410,032 +​ +$ +69,324,563 +Nonperforming +​ +— +​ +​ +145,011 +​ +​ +46,674 +​ +​ +— +​ +​ +— +​ +​ +310,478 +​ +​ +— +​ +​ +502,163 +Total residential +$ +9,835,966 +​ +$ +5,849,525 +​ +$ +14,409,481 +​ +$ +16,673,325 +​ +$ +7,723,487 +​ +$ +14,924,910 +​ +$ +410,032 +​ +$ +69,826,726 +Gross charge-offs +$ +— +​ +$ +— +​ +$ +— +​ +$ +— +​ +$ +— +​ +$ +— +​ +$ +— +​ +$ +— +HELOC +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Performing +$ +1,231,286 +​ +$ +34,140 +​ +$ +145,393 +​ +$ +39,737 +​ +$ +51,479 +​ +$ +120,842 +​ +$ +— +​ +$ +1,622,877 +Nonperforming +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +Total HELOC +$ +1,231,286 +​ +$ +34,140 +​ +$ +145,393 +​ +$ +39,737 +​ +$ +51,479 +​ +$ +120,842 +​ +$ +— +​ +$ +1,622,877 +Gross charge-offs +$ +— +​ +$ +— +​ +$ +— +​ +$ +— +​ +$ +— +​ +$ +— +​ +$ +— +​ +$ +— +​ +​ +63 +Table of Contents +Information regarding the credit quality indicators most closely monitored for other than residential real estate loans by class as of June 30, 2023 follows: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Special +​ +​ +​ +​ +​ +​ +​ +​ +Pass +Monitor +Mention +Substandard +Doubtful +Total +June 30, 2023 +​ +​ +​ +​ +​ +​ +Real estate loans: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Commercial +​ +$ +5,868,689 +​ +$ +140,926 +​ +$ +— +​ +$ +— +​ +$ +— +​ +$ +6,009,615 +Multifamily +​ +​ +688,393 +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +688,393 +Agricultural +​ +3,822,067 +​ +222,581 +​ +— +​ +— +​ +— +​ +4,044,648 +Construction and land +​ +5,254,192 +​ +3,274,936 +​ +— +​ +37,932 +​ +— +​ +8,567,060 +Commercial and industrial +​ +3,398,557 +​ +— +​ +— +​ +— +​ +— +​ +3,398,557 +Consumer +​ +​ +801,476 +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +801,476 +Total loans +​ +$ +19,833,374 +​ +$ +3,638,443 +​ +$ +— +​ +$ +37,932 +​ +$ +— +​ +$ +23,509,749 +​ +​ +The following tables present the credit risk profile of the Company’s residential real estate loan portfolio based on internal rating category and payment activity as of June 30, 2023: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Performing +Nonperforming +Total +June 30, 2023 +​ +​ +​ +​ +​ +​ +​ +​ +​ +Real estate loans: +​ +​ +​ +​ +​ +​ +​ +​ +​ +Residential +​ +$ +65,553,350 +​ +$ +304,096 +​ +$ +65,857,446 +HELOC +​ +​ +355,296 +​ +— +​ +355,296 +Total +​ +$ +65,908,646 +​ +$ +304,096 +​ +$ +66,212,742 +​ +​ +The Company evaluates the loan risk grading system definitions and allowance for credit losses methodology on an ongoing basis. No significant changes were made to either during the past year. +​ +The following tables present the Company’s loan portfolio aging analysis of the recorded investment in loans as of June 30, 2024 and 2023: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +June 30, 2024 +​ +​ +​ +​ +​ +​ +​ +​ +Greater Than +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Total Loans > +​ +​ +30-59 Days +​ +60-89 Days +​ +90 Days +​ +Total +​ +​ +​ +​ +Total Loans +​ +90 Days & +​ +Past Due +Past Due +Past Due +Past Due +Current +Receivable +Accruing +Real estate loans: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Commercial +​ +$ +— +​ +$ +— +​ +$ +— +​ +$ +— +​ +$ +19,724,941 +​ +$ +19,724,941 +​ +$ +— +Residential +​ +559,332 +​ +87,754 +​ +71,729 +​ +718,815 +​ +69,107,911 +​ +69,826,726 +​ +— +Multifamily +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +659,257 +​ +​ +659,257 +​ +​ +— +Agricultural +​ +— +​ +— +​ +— +​ +— +​ +4,213,660 +​ +4,213,660 +​ +— +Construction and land +​ +36,232 +​ +— +​ +— +​ +36,232 +​ +17,608,478 +​ +17,644,710 +​ +— +HELOC +​ +— +​ +— +​ +— +​ +— +​ +1,622,877 +​ +1,622,877 +​ +— +Commercial and industrial +​ +— +​ +— +​ +— +​ +— +​ +14,879,004 +​ +14,879,004 +​ +— +Consumer +​ +1,528 +​ +3,522 +​ +— +​ +5,050 +​ +950,365 +​ +955,415 +​ +— +Total +​ +$ +597,092 +​ +$ +91,276 +​ +$ +71,729 +​ +$ +760,097 +​ +$ +128,766,493 +​ +$ +129,526,590 +​ +$ +— +​ +64 +Table of Contents +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +June 30, 2023 +​ +​ +​ +​ +​ +​ +​ +​ +Greater Than +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Total Loans > +​ +​ +30-59 Days +​ +60-89 Days +​ +90 Days +​ +Total +​ +​ +​ +​ +Total Loans +​ +90 Days & +​ +Past Due +Past Due +Past Due +Past Due +Current +Receivable +Accruing +Real estate loans: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Commercial +​ +$ +— +​ +$ +— +​ +$ +— +​ +$ +— +​ +$ +6,009,615 +​ +$ +6,009,615 +​ +$ +— +Residential +​ +— +​ +616,352 +​ +117,395 +​ +733,747 +​ +65,123,699 +​ +65,857,446 +​ +— +Multifamily +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +688,393 +​ +​ +688,393 +​ +​ +— +Agricultural +​ +— +​ +— +​ +— +​ +— +​ +4,044,648 +​ +4,044,648 +​ +— +Construction and land +​ +— +​ +— +​ +— +​ +— +​ +8,567,060 +​ +8,567,060 +​ +— +HELOC +​ +— +​ +— +​ +— +​ +— +​ +355,296 +​ +355,296 +​ +— +Commercial and industrial +​ +— +​ +— +​ +— +​ +— +​ +3,398,557 +​ +3,398,557 +​ +— +Consumer +​ +— +​ +— +​ +— +​ +— +​ +801,476 +​ +801,476 +​ +— +Total +​ +$ +— +​ +$ +616,352 +​ +$ +117,395 +​ +$ +733,747 +​ +$ +88,988,744 +​ +$ +89,722,491 +​ +$ +— +​ +The following table presents the amortized cost basis of collateral-dependent loans by class of loans and related allowance, if any, as of June 30, 2024: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +As of June 30, 2024 +​ +​ +​ +​ +​ +​ +​ +​ +​ +Related +​ +​ +Real Estate +​ +Other +​ +Total +​ +Allowance +Real estate +​ +​ +​ +​ +​ +​ +​ +​ +Commercial +​ +$ +— +​ +$ +— +​ +$ +— +​ +$ +— +Residential +​ +​ +502,163 +​ +​ +— +​ +​ +502,163 +​ +​ +— +Multifamily +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +Agricultural +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +Construction and land +​ +​ +36,232 +​ +​ +— +​ +​ +36,232 +​ +​ +— +Home equity line of credit (HELOC) +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +Commercial and industrial +​ +— +​ +— +​ +— +​ +— +Consumer +​ +— +​ +15,672 +​ +15,672 +​ +— +Totals +​ +$ +538,395 +​ +$ +15,672 +​ +$ +554,067 +​ +$ +— +​ +Information about impaired loans as of and for the year ended June 30, 2023 is as follows: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +As of and for the year ended June 30, 2023 +​ +​ +​ +​ +​ +Unpaid +​ +​ +​ +​ +Average Balance of +​ +Interest +​ +​ +Recorded +​ +Principal +​ +Specific +​ +Impaired +​ +Income +​ +Balance +Balance +Allowance +Loans +Recognized +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Loans without a specific valuation allowance: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Real estate +​ +​ +​ +​ +​ +Residential +​ +$ +243,764 +​ +$ +243,764 +​ +$ +— +​ +$ +248,057 +​ +$ +7,456 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Loans with a specific valuation allowance: +​ +​ +​ +​ +​ +Real estate +​ +​ +​ +​ +​ +Residential +​ +60,332 +​ +60,332 +​ +7 +​ +61,670 +​ +3,886 +Totals +​ +$ +304,096 +​ +$ +304,096 +​ +$ +7 +​ +$ +309,727 +​ +$ +11,342 +​ +65 +Table of Contents +Information regarding nonaccrual loans as of June 30, 2024 and 2023 is as follows: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Amortized Cost +​ +​ +Nonaccrual Loans +​ +Nonaccrual Loans +​ +​ +​ +​ +Total Nonaccrual +​ +Interest Income +​ +Basis of Loans 90+ +​ +​ +With No Allowance +​ +With an Allowance +​ +Total Nonaccrual +​ +Loans at Beginning +​ +Recognized on +​ +Days Past Due +​ +​ +for Credit Losses +​ +for Credit Losses +Loans +​ +of Year +​ +Nonaccrual Loans +​ +Not on Nonaccrual +June 30, 2024 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Real estate loans: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Commercial +​ +$ +— +​ +$ +— +​ +$ +— +​ +$ +— +​ +$ +— +​ +$ +— +Residential +​ +​ +502,163 +​ +​ +— +​ +​ +502,163 +​ +​ +304,096 +​ +​ +— +​ +​ +— +Multifamily +​ +— +​ +— +​ +— +​ +— +​ +— +​ +— +Agricultural +​ +— +​ +— +​ +— +​ +— +​ +— +​ +— +Construction and land +​ +36,232 +​ +— +​ +36,232 +​ +— +​ +— +​ +— +Home equity line of credit (HELOC) +​ +— +​ +— +​ +— +​ +— +​ +— +​ +— +Commercial and industrial +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +Consumer +​ +15,672 +​ +— +​ +15,672 +​ +— +​ +— +​ +— +Total +​ +$ +554,067 +​ +$ +— +​ +$ +554,067 +​ +$ +304,096 +​ +$ +— +​ +$ +— +​ +During the year ended June 30, 2024, there were no significant modifications of loans to borrowers who were experiencing financial difficulty. The company did not provide any modifications under these circumstances to borrowers. There were no significant loans modified in a troubled debt restructuring during the year ended June 30, 2023 and there were no troubled debt restructurings modified in the 12 months ended June 30, 2023 that subsequently defaulted. +​ +​ +Note 5: Premises and Equipment +Major classifications of premises and equipment, stated at cost, at June 30, 2024 and 2023, are as follows: +​ +​ +​ +​ +​ +​ +​ +​ +​ +June 30, +​ +2024 +2023 +Land +​ +$ +572,183 +​ +$ +572,183 +Buildings and improvements +​ +1,344,309 +​ +1,357,006 +Furniture and equipment +​ +996,000 +​ +1,099,722 +Leasehold improvements +​ +​ +220,822 +​ +​ +— +Software +​ +​ +72,614 +​ +​ +— +IT equipment and improvements +​ +98,758 +​ +65,741 +Construction in progress +​ +​ +309,078 +​ +​ +— +Total premises and equipment +​ +3,613,764 +​ +3,094,652 +Accumulated depreciation +​ +( 1,352,504 ) +​ +( 1,685,305 ) +Total premises and equipment, net +​ +$ +2,261,260 +​ +$ +1,409,347 +​ +​ +Note 6: Time Deposits +Time deposits in denominations of $250,000 or more were $ 10,361,000 and $ 5,716,000 at June 30, 2024 and 2023, respectively. +At June 30, 2024, the scheduled maturities of time deposits were as follows: +​ +​ +​ +​ +​ +Maturing year ending June 30, +​ +​ +​ +2025 +​ +$ +46,051,659 +2026 +​ +​ +41,636,458 +2027 +​ +19,135,762 +2028 +​ +11,246,711 +2029 +​ +17,280,018 +Thereafter +​ +— +​ +​ +$ +135,350,608 +​ +​ +66 +Table of Contents +Note 7: Borrowings +Borrowed funds at June 30, 2024 and 2023, are summarized as follows: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +June 30, +​ +​ +2024 +2023 +​ +​ +Rate +​ +Amount +​ +Rate +​ +Amount +Advances from Federal Home Loan Bank of Cincinnati +​ +5.46 % +​ +$ +38,500,000 +​ +5.19 % +​ +$ +6,200,000 +Advances from Federal Reserve Bank of Cleveland +​ +4.76 % +​ +23,500,000 +​ +​ +​ +— +Total borrowings +​ +​ +$ +62,000,000 +​ +​ +$ +6,200,000 +​ +All borrowings from the Federal Reserve Bank (“FRB”) of Cleveland under the Bank Term Funding Program (“BTFP”) and Federal Home Loan Bank (“FHLB”) of Cincinnati mature in fiscal year 2025. Interest payments are due at maturity for the advances from the FRB and are due monthly for FHLB advances. +​ +Based on collateral pledged, consisting of all shares of FHLB stock owned and a blanket pledge of approximately $ 65,848,000 and $ 63,155,000 of its qualifying mortgage loans as of June 30, 2024 and 2023, respectively, the Company was eligible to borrow up to an additional $ 3,945,000 as of June 30, 2024. +​ +Note 8: Leases +​ +The Company has two operating leases for office space for its Fort Wayne branch and executive offices. Both leases expire in 2034 and include two five-year renewal options. The Company did not include the renewal options in the lease term as it is not reasonably certain that those will be exercised. The Company also has a short term lease for temporary office space expiring in September 2024. +​ +The lease cost and other required information for the year ended June 30, 2024 is as follows: +​ +​ +​ +​ +​ +​ +​ +2024 +Lease cost +​ +​ +​ +Operating lease cost +​ +$ +77,187 +Short-term lease cost +​ +​ +39,655 +Variable lease cost +​ +​ +- +Total lease cost +​ +$ +116,842 +​ +​ +​ +​ +​ +​ +​ +2024 +Other information +​ +​ +​ +Cash paid for amounts included in the measurement of +​ +​ +​ +lease liabilities +​ +​ +​ +Operating cash flows from operating leases +​ +$ +63,066 +Right-of-use assets obtained in exchange for new +​ +​ +​ +operating lease liabilities +​ +​ +1,452,406 +Weighted-average remaining lease term +​ +​ +9.59 yrs +Weighted-average discount rate +​ +​ +5.1 % +​ +Future minimum lease payments and reconciliation to the consolidated balance sheet at June 30, 2024, are as follows: +​ +​ +​ +​ +​ +​ +​ +​ +Operating +​ +​ +​ +Leases +2025 +​ +$ +159,960 +2026 +​ +​ +178,307 +2027 +​ +​ +182,743 +2028 +​ +​ +187,316 +2029 +​ +​ +192,010 +Thereafter +​ +​ +942,680 +Total future undiscounted lease payments +​ +​ +1,843,016 +Less interest +​ +​ +( 400,396 ) +Lease liabilities +​ +$ +1,442,620 +​ +​ +67 +Table of Contents +​ +Note 9: Income Taxes +The provision for income taxes includes these components: +​ +​ +​ +​ +​ +​ +​ +​ +​ +2024 +2023 +Taxes currently payable +​ +$ +4,588 +​ +$ +( 6,769 ) +Deferred income taxes +​ +( 554,628 ) +​ +( 175,944 ) +Income tax expense (benefit) +​ +$ +( 550,040 ) +​ +$ +( 182,713 ) +​ +A reconciliation of the federal income tax expense (benefit) at the statutory rate to the Company’s actual income tax expense (benefit) is shown below: +​ +​ +​ +​ +​ +​ +​ +​ +​ +2024 +2023 +Computed at statutory rate ( 21 %) +​ +$ +( 539,610 ) +​ +$ +( 152,900 ) +Increase (decrease) resulting from: +​ +​ +​ +​ +Bank-owned life insurance +​ +( 26,786 ) +​ +( 23,397 ) +ESOP +​ +​ +8,516 +​ +​ +17,982 +Incentive stock options +​ +​ +950 +​ +​ +— +Nontaxable interest income on municipal securities +​ +​ +( 9,175 ) +​ +​ +( 9,070 ) +Other +​ +16,065 +​ +( 15,328 ) +Actual income tax benefit +​ +$ +( 550,040 ) +​ +$ +( 182,713 ) +​ +The composition of the Company’s net deferred tax asset at June 30, 2024 and 2023, is as follows: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +2024 +​ +2023 +Deferred tax assets +​ +​ +Allowance for credit losses +​ +$ +199,358 +​ +$ +55,319 +Unrealized losses on available-for-sale securities +​ +632,021 +​ +775,246 +Operating lease liability +​ +​ +302,950 +​ +​ +— +Net operating loss carryforward +​ +​ +372,397 +​ +​ +86,723 +Other +​ +124,485 +​ +70,283 +Deferred tax assets +​ +1,631,211 +​ +987,571 +​ +​ +​ +​ +​ +​ +​ +Deferred tax liabilities +​ +​ +Depreciation +​ +( 33,622 ) +​ +( 27,640 ) +Right of use asset - operating lease +​ +​ +( 295,450 ) +​ +​ +— +Federal Home Loan Bank stock dividends +​ +— +​ +( 83,328 ) +Defined benefit pension plan +​ +— +​ +( 17,290 ) +Deferred tax liabilities +​ +( 329,072 ) +​ +( 128,258 ) +​ +​ +​ +​ +​ +​ +​ +Net deferred tax asset +​ +$ +1,302,139 +​ +$ +859,313 +​ +Retained earnings at both June 30, 2024 and 2023, includes approximately $ 1.8 million for which no deferred federal income tax liability has been recognized. This amount represents an allocation of income to bad debt deductions for tax purposes only. Reduction of amounts so allocated for purposes other than tax bad debt losses or adjustments arising from carryback of net operating losses would create income for tax purposes only, which would be subject to the then-current corporate income tax rate. The deferred income tax liability on the preceding amount that would have been recorded if it was expected to reverse into taxable income in the foreseeable future was approximately $ 375,000 at June 30, 2024 and 2023. +​ +The Company has approximately $ 1,773,000 of net operating loss carryforwards at June 30, 2024 that do not expire. Realization of deferred tax assets associated with the net operating loss carryforwards is dependent upon generating sufficient taxable income. The Company’s net operating losses were generated after 2021 and have no expiration. Management believes it is more-likely-than-not that these will be realized through a reduction in future taxes payable and as such, no valuation allowance is deemed necessary. +​ +68 +Table of Contents +Note 10: Capital and Regulatory Matters +The Company is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Company’s assets, liabilities and certain off-balance-sheet items as calculated under U.S. GAAP reporting requirements and regulatory capital standards. The Company’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Furthermore, the Company’s regulators could require adjustments to regulatory capital not reflected in these financial statements. +On November 13, 2019, the federal regulators finalized and adopted a regulatory capital rule establishing a new community bank leverage ratio (CBLR), which became effective on January 1, 2020. The intent of the CBLR is to provide a simple alternative measure of capital adequacy for electing qualifying depository institutions and depository institution holding companies, as directed under the Economic Growth, Regulatory Relief, and Consumer Protection Act . If a qualifying depository institution, or depository institution holding company, elects to use such measure, such institution or holding company will be considered well capitalized if its ratio of Tier 1 capital to average total consolidated assets ( i.e. , leverage ratio) exceeds 9 percent, subject to a limited two quarter grace period, during which the leverage ratio cannot go 100 basis points below the then applicable threshold, and will not be required to calculate and report risk-based capital ratios. In April 2020, under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), the 9 percent leverage ratio threshold was temporarily reduced to 8 percent in response to the COVID-19 pandemic. The threshold increased to 8.5 percent in 2021 and returned to 9 percent in 2022. The Company elected to begin using the CBLR for the first quarter of 2020. The Company’s CBLR was 12.11 percent and 20.57 percent as of June 30, 2024 and 2023, respectively. Management believes, as of June 30, 2024, that the Company met all capital adequacy requirements to which it is subject. +Share Repurchase Program +On February 20, 2024, the board of directors of the Company authorized a share repurchase program of up to $ 600,000 of the Company’s common stock. The share repurchase program does not require the Company to acquire any specific number of shares and may be modified, suspended, extended or terminated by the Company at any time without prior notice. During the year ended June 30, 2024, the Company repurchased 36,800 shares of its common stock at an average cost per share of $ 16.25 . As of June 30, 2024, the Company had $ 2,000 remaining available to repurchase under the share repurchase program. +​ +Note 11: Related Party Transactions +The Company’s loans outstanding to certain of its executive officers, directors and their related interests, as of June 30, 2024 and 2023, and activity within those years, was as follows: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +2024 +​ +2023 +Balance at beginning of year +​ +$ +3,766,000 +​ +$ +4,151,000 +Loans disbursed +​ +1,500,000 +​ +60,000 +Repayments +​ +( 447,121 ) +​ +( 445,000 ) +Balance at end of year +​ +$ +4,818,879 +​ +$ +3,766,000 +​ +At June 30, 2024 and 2023, respectively, $ 0 and $ 997,000 , of the related party loan balance was committed and undispersed. In management’s opinion, such loans and other extensions of credit and deposits were made in the ordinary course of business and were made on substantially the same terms (including interest rates and collateral) as those prevailing at the time for comparable transactions with other persons. Further, in management’s opinion, these loans did not involve more than normal risk of collectability or present other unfavorable features. +69 +Table of Contents +Deposits from related parties held by the Company at June 30, 2024 and 2023, totaled approximately $ 3,408,000 and $ 2,405,000 , respectively. +​ +Note 12: Earnings (Loss) Per Share +​ +Loss per common share for the years ended June 30, 2024 and 2023 is as follows: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +2024 +​ +2023 +Basic +​ +​ +​ +​ +​ +​ +Net loss +​ +$ +( 2,019,533 ) +​ +$ +( 545,384 ) +​ +​ +​ +​ +​ +​ +​ +Shares outstanding for basic (loss) earnings per share: +​ +​ +​ +​ +​ +​ +Weighted-average common shares outstanding +​ +​ +1,909,423 +​ +​ +1,922,924 +Less average unearned ESOP shares +​ +​ +( 140,535 ) +​ +​ +( 149,868 ) +Weighted-average shares - basic +​ +​ +1,768,888 +​ +​ +1,773,056 +​ +​ +​ +​ +​ +​ +​ +Basic loss per share +​ +$ +( 1.14 ) +​ +$ +( 0.31 ) +​ +​ +​ +​ +​ +​ +​ +Diluted +​ +​ +​ +​ +​ +​ +Effect of dilutive stock-based awards +​ +​ +​ +​ +​ +​ +Weighted-average shares outstanding - basic +​ +​ +1,768,888 +​ +​ +1,773,056 +Stock options +​ +​ +— +​ +​ +— +Restricted stock +​ +​ +— +​ +​ +— +Weighted average shares - assuming dilution +​ +​ +1,768,888 +​ +​ +1,773,056 +​ +​ +​ +​ +​ +​ +​ +Diluted loss per share +​ +$ +( 1.14 ) +​ +$ +( 0.31 ) +​ +​ +Stock options and restricted stock awards for 10,000 and 28,841 shares of common stock, respectively, were not considered in computing diluted earnings per common share for the year ended June 30, 2024, because they were antidilutive. There were no stock options or restricted stock awards outstanding as of June 30, 2023. +​ +Note 13: Employee Benefits +Defined Benefit Pension Plan +The Company participated in a multi-employer defined benefit pension fund through Pentegra Retirement Services (Pentegra Plan) for periods through December 31, 2022. Effective January 1, 2023, the Company withdrew from the Plan. In connection with the withdrawal from the Pentegra Plan, the Company established the Van Wert Federal Savings Bank Defined Benefit Plan (“DB Plan”) as a qualified successor plan. The Company contributed $ 4,978,000 to the DB Plan and the DB Plan had benefit obligations of $ 5,008,000 at inception. As permitted under the DB Plan, the Company elected to terminate the DB Plan effective July 1, 2023. Pursuant to the DB Plan termination, all obligations due to the DB Plan participants were satisfied during the year ended June 30, 2024 and the DB Plan has since been terminated. +70 +Table of Contents +Information about the DB Plan’s funded status and pension cost as of and for the years ended June 30, 2024 and 2023 is as follows: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +2024 +​ +2023 +Change in benefit obligation: +​ +​ +​ +​ +​ +​ +Beginning of the year +​ +$ +4,894,847 +​ +$ +— +Benefit obligation upon transfer from Pentegra plan +​ +​ +— +​ +​ +5,007,614 +Service cost +​ +​ +16,000 +​ +​ +16,000 +Interest cost +​ +​ +137,961 +​ +​ +83,992 +Actuarial (gain)/loss +​ +​ +336,005 +​ +​ +( 86,514 ) +Benefits paid +​ +​ +( 332,557 ) +​ +​ +( 97,520 ) +Plan termination settlements +​ +​ +( 4,997,799 ) +​ +​ +— +Administrative expenses +​ +​ +( 54,457 ) +​ +​ +( 28,725 ) +End of the year +​ +​ +— +​ +​ +4,894,847 +​ +​ +​ +​ +​ +​ +​ +Change in plan assets: +​ +​ +​ +​ +​ +​ +Beginning of the year +​ +​ +4,929,288 +​ +​ +— +Transfer from Pentegra plan +​ +​ +— +​ +​ +4,977,837 +Actual return on assets +​ +​ +158,629 +​ +​ +77,696 +Employer contributions +​ +​ +296,896 +​ +​ +— +Administrative expenses +​ +​ +( 54,457 ) +​ +​ +( 28,725 ) +Benefits paid +​ +​ +( 332,557 ) +​ +​ +( 97,520 ) +Plan termination settlements +​ +​ +( 4,997,799 ) +​ +​ +— +End of the year +​ +​ +— +​ +​ +4,929,288 +​ +​ +​ +​ +​ +​ +​ +Funded status at end of the year +​ +$ +— +​ +$ +34,441 +​ +Amounts recognized in accumulated other comprehensive loss not yet recognized as components of net periodic benefit cost consist of the following: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +2024 +​ +2023 +Net gain +​ +$ +— +​ +$ +82,333 +Prior service cost +​ +​ +— +​ +​ +— +​ +​ +$ +— +​ +$ +82,333 +​ +Information for the pension plan with respect to benefit obligation and plan assets is as follows: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +2024 +​ +2023 +Projected benefit obligation +​ +$ +— +​ +$ +4,894,847 +Fair value of plan assets +​ +$ +— +​ +$ +4,929,288 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +2024 +​ +2023 +Components of net periodic benefit cost: +​ +​ +​ +​ +​ +​ +Service cost +​ +$ +16,000 +​ +$ +16,000 +Interest cost +​ +​ +137,961 +​ +​ +83,992 +Return on plan assets +​ +​ +( 120,254 ) +​ +​ +( 81,877 ) +Amortization of net gain +​ +​ +( 82,333 ) +​ +​ +— +Net periodic pension cost +​ +​ +( 48,626 ) +​ +​ +18,115 +Recognition of underfunded pension +​ +​ +​ +​ +​ +​ +benefit obligation at transition +​ +​ +— +​ +​ +29,777 +Settlement recognition of net loss +​ +​ +297,630 +​ +​ +— +Expense recognized +​ +$ +249,004 +​ +$ +47,892 +​ +Significant assumptions include the following: +​ +​ +​ +​ +​ +​ +​ +​ +Weighed-average assumptions used to determine benefit obligation: +​ +​ +​ +​ +​ +​ +Discount rate +​ +​ +N/A +​ +​ +5.80 % +​ +​ +​ +​ +​ +​ +​ +Weighted average assumptions used to determine benefit cost: +​ +​ +​ +​ +​ +​ +Discount rate +​ +​ +N/A +​ +​ +5.09 % +Expected return on plan assets +​ +​ +N/A +​ +​ +5.00 % +71 +Table of Contents +​ +401(k) Plan +The Company sponsors a 401(k) profit sharing plan covering substantially all employees. Employees are eligible to participate once they have reached age 21 and have completed 90 days of service. The Company will make matching contributions up to 6 percent of an employee’s compensation once the employee has completed 12 months of service. The Company’s expense relative to the plan totaled approximately $ 39,000 and $ 68,000 for the years ended June 30, 2024 and 2023, respectively. +Salary Continuation Plan +On August 1, 2016, the Company entered into a salary continuation plan with the Company’s former President to provide additional retirement benefits for the life of the former President, with a guaranteed payout period of 15 years . The plan is intended to be an unfunded, non-qualified deferred compensation plan. The Company’s expense (benefit) relative to the plan totaled approximately $( 7,100 ) and $( 9,000 ) for the years ended June 30, 2024 and 2023, respectively. The Company’s liability related to the plan totaled approximately $ 137,000 and $ 155,000 as of June 30, 2024 and 2023, respectively. +​ +Employee Stock Ownership Plan +In July 2022, the Company established an employee stock ownership plan (“ESOP”) for the benefit of all employees of the Company. Employees of the Company who have worked at least 1,000 hours in the first year of employment and who have attained the age of 18 are eligible to participate in the ESOP. The Company made a loan to the ESOP in the amount of $ 1.5 million, which the ESOP used to purchase 153,834 shares. It is anticipated that contributions will be made to the ESOP in amounts necessary to amortize the debt to the Company over a period of 20 years . +​ +The Company recognizes compensation cost equal to the fair value of the ESOP shares during the periods in which they are committed to be released. To the extent that the fair value of the Company’s ESOP shares differs from the cost of such shares, the differential is credited to shareholder’s equity. The Company receives a tax deduction equal to the cost of the shares released. As the loan is internally leveraged, the loan receivable from the ESOP to the Company is not reported as an asset nor is the debt of the ESOP shown as a Company liability. +​ +Compensation expense related to the ESOP totaled approximately $ 117,000 and $ 165,000 for the years ended June 30, 2024 and 2023, respectively. +​ +Shares held by the ESOP as of June 30, 2024 and 2023 is as follows: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +2024 +​ +2023 +Shares committed to be released to participants +​ +3,846 +​ +7,692 +Shares allocated to participants +​ +​ +15,383 +​ +​ +— +Unearned shares +​ +​ +134,605 +​ +​ +146,142 +Total ESOP shares +​ +​ +153,834 +​ +​ +153,834 +​ +​ +​ +​ +​ +​ +​ +Fair value of unearned shares +​ +$ +2,051,380 +​ +$ +1,899,846 +​ +Stock-based Compensation +​ +In November 2023, the Company’s shareholders approved the VWF Bancorp, Inc. 2023 Equity Incentive Plan (the “2023 Plan”). The 2023 Plan authorized the issuance or delivery to participants of up to 269,208 shares of the Company’s common stock pursuant to the grants of restricted stock awards, restricted stock unit awards, incentive stock options and non-qualified stock options. Of this number, the maximum number of shares of Company common stock that may be issued under the 2023 Plan pursuant to the exercise of stock options is 192,292 shares and the maximum number of shares of Company common stock that may be issued as restricted stock awards or restricted stock units is 76,916 . Shares subject to award under the 2023 Plan may be authorized but unissued shares or treasury shares. +​ +72 +Table of Contents +Awards may vest or become exercisable only upon the achievement of performance measures or based solely on the passage of time after award. Stock options and restricted stock awards provide for accelerated vesting if there is a change in control (as defined in the 2023 Plan). +​ +Stock Options +​ +The Company estimates the fair value of each option granted using the Black-Scholes option pricing model. The following key management assumptions were used to value the options granted during the year ended June 30, 2024: +​ +​ +​ +​ +​ +​ +​ +2024 +Expected volatility +​ +​ +20.27 % +Expected dividends +​ +​ +1.50 % +Expected term (in years) +​ +​ +6.50 +Risk-free rate +​ +​ +4.12 % +​ +The following table summarizes stock option activity for the periods indicated: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Weighted +​ +​ +​ +​ +​ +​ +​ +Weighted +​ +Weighted +​ +Average +​ +​ +​ +​ +​ +​ +​ +Average +​ +Average +​ +Remaining +​ +Aggregate +​ +​ +​ +​ +​ +Exercise +​ +Grant Date +​ +Contractual +​ +Intrinsic +​ +​ +Shares +​ +Price +​ +Fair Value +​ +Term +​ +Value +Outstanding, June 30, 2023 +​ +​ +— +​ +$ +— +​ +$ +— +​ +​ +— +​ +$ +— +Granted +​ +​ +10,000 +​ +​ +16.25 +​ +​ +4.07 +​ +​ +9.67 +​ +​ +— +Exercised +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +Forfeited or expired +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +Nonvested shares, June 30, 2024 +​ +​ +10,000 +​ +$ +16.25 +​ +$ +4.07 +​ +​ +9.67 +​ +$ +— +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Exercisable, June 30, 2024 +​ +​ +— +​ +$ +— +​ +$ +— +​ +​ +— +​ +$ +— +​ +Restricted Stock Awards +​ +The following table summarizes restricted stock award activity for the periods indicated: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Weighted +​ +​ +​ +​ +​ +Average +​ +​ +​ +​ +​ +Grant Date +​ +​ +Shares +​ +Fair Value +Nonvested shares, June 30, 2023 +​ +​ +— +​ +$ +— +Awarded +​ +​ +28,841 +​ +​ +16.39 +Vested +​ +​ +— +​ +​ +— +Forfeited +​ +​ +— +​ +​ +— +Nonvested shares, June 30, 2024 +​ +​ +28,841 +​ +$ +16.39 +​ +As of June 30, 2024, there was approximately $ 440,000 of total unrecognized compensation cost related to unvested share-based compensation arrangements granted under the 2023 Plan. That cost is expected to be recognized over a weighted-average period of 2.6 years. During the year ended June 30, 2024, the Company has recorded approximately $ 73,000 in award-based compensation expense, which is included in salaries and employee benefits and director fees. +​ +Note 14: Disclosures about Fair Value of Assets and Liabilities +Fair value is the exchange price that would be received to sell an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at +73 +Table of Contents +the measurement date. Fair value measurements must maximize the use of observable inputs and minimize the use of unobservable inputs. There is a hierarchy of three levels of inputs that may be used to measure fair value: +Level 1 +Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date. +Level 2 +Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. +Level 3 +Significant unobservable inputs that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. +Recurring Measurements +The following table presents the fair value measurements of assets recognized in the accompanying balance sheets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at June 30, 2024 and 2023: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Fair Value Measurements Using +​ +​ +​ +​ +​ +Quoted Prices in +​ +​ +​ +​ +Significant +​ +​ +​ +Active Markets for +Significant Other +Unobservable +​ +​ +Fair +Identical Assets +Observable Inputs +Inputs +​ +Value +(Level 1) +(Level 2) +(Level 3) +June 30, 2024 +​ +​ +​ +​ +U.S. Government agencies +​ +$ +5,714,090 +​ +$ +— +​ +$ +5,714,090 +​ +$ +— +Mortgage-backed GSEs +​ +27,760,412 +​ +— +​ +27,760,412 +​ +— +Collateralized mortgage obligations +​ +​ +99,502,853 +​ +​ +— +​ +​ +99,502,853 +​ +​ +— +Subordinated debt +​ +​ +2,537,955 +​ +​ +— +​ +​ +2,537,955 +​ +​ +— +State and political subdivisions +​ +3,829,642 +​ +— +​ +3,829,642 +​ +— +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +June 30, 2023 +​ +​ +​ +​ +U.S. Government agencies +​ +$ +6,529,510 +​ +$ +— +​ +$ +6,529,510 +​ +$ +— +Mortgage-backed GSEs +​ +28,929,259 +​ +— +​ +28,929,259 +​ +— +Collateralized mortgage obligations +​ +​ +30,384,590 +​ +​ +— +​ +​ +30,384,590 +​ +​ +— +Subordinated debt +​ +​ +860,470 +​ +​ +— +​ +​ +860,470 +​ +​ +— +State and political subdivisions +​ +3,881,365 +​ +— +​ +3,881,365 +​ +— +​ +Following is a description of the valuation methodologies used for assets measured at fair value on a recurring basis and recognized in the accompanying balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy. There are no liabilities measured at fair value on a recurring basis. There have been no significant changes in the valuation techniques during the year ended June 30, 2024. +Available-for-sale Securities +Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated by using quoted prices of securities with similar characteristics or independent asset pricing services and pricing models, the inputs of which are market-based or independently sourced market parameters, including, but not limited to, yield curves, interest rates, volatilities, prepayments, defaults, cumulative loss projections and cash flows. Such securities are classified in Level 2 of the valuation hierarchy. In certain cases where Level 1 or Level 2 are not available, securities are classified within Level 3 of the hierarchy. The Company had no Level 3 securities. +Nonrecurring Measurements +The Company had no assets or liabilities measured at fair value on a nonrecurring basis at June 30, 2024. At June 30, 2023, the Company had one loan measured at fair value with a carrying value of $ 60,000 , which is classified within +74 +Table of Contents +Level 3 of the fair value hierarchy. The fair value of the loan is estimated using third-party appraisals of the collateral, less estimated costs to sell. +​ +The estimated fair values of the Company’s financial instruments not carried at fair value on the consolidated balance sheets are as follows: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Carrying +Fair +Fair Value Measurements Using +​ +Value +Value +(Level 1) +(Level 2) +(Level 3) +June 30, 2024 (Unaudited) +​ +​ +​ +​ +​ +Financial assets: +​ +​ +​ +​ +​ +Cash and due from banks +​ +$ +31,630,525 +​ +$ +31,630,525 +​ +$ +31,630,525 +​ +$ +— +​ +$ +— +Loans, net +​ +126,391,092 +​ +115,890,092 +​ +— +​ +— +​ +115,890,092 +Stock in correspondent banks +​ +2,195,900 +​ +2,195,900 +​ +— +​ +2,195,900 +​ +— +Accrued interest receivable +​ +961,856 +​ +961,856 +​ +961,856 +​ +— +​ +— +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Financial liabilities: +​ +​ +​ +​ +​ +​ +​ +​ +Deposits +​ +209,310,330 +​ +209,243,722 +​ +73,959,722 +​ +— +​ +135,284,000 +Borrowings +​ +​ +62,000,000 +​ +​ +61,812,000 +​ +​ +— +​ +​ +— +​ +​ +61,812,000 +Accrued interest payable +​ +778,831 +​ +778,831 +​ +778,831 +​ +— +​ +— +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +June 30, 2023 +​ +​ +​ +​ +​ +Financial assets: +​ +​ +​ +​ +​ +Cash and due from banks +​ +$ +5,515,728 +​ +$ +5,515,728 +​ +$ +5,515,728 +​ +$ +— +​ +$ +— +Loans, net +​ +81,208,395 +​ +73,268,657 +​ +— +​ +— +​ +73,268,657 +Stock in correspondent banks +​ +396,800 +​ +396,800 +​ +— +​ +396,800 +​ +— +Accrued interest receivable +​ +498,807 +​ +498,807 +​ +498,807 +​ +— +​ +— +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Financial liabilities: +​ +​ +​ +​ +​ +​ +​ +​ +​ +Deposits +​ +119,991,581 +​ +120,415,085 +​ +68,571,085 +​ +— +​ +51,844,000 +Borrowings +​ +​ +6,200,000 +​ +​ +6,191,000 +​ +​ +— +​ +​ +— +​ +​ +6,191,000 +Accrued interest payable +​ +55,667 +​ +55,667 +​ +55,667 +​ +— +​ +— +​ +Limitations: Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Fair value estimates may not be realizable in an immediate settlement of the instrument. In some instances, there are no quoted market prices for the Company’s various financial instruments, in which case fair values may be based on estimates using present value or other valuation techniques, or based on judgments regarding future expected loss experience, current economic conditions, risk characteristic of the financial instruments, or other factors. Those techniques are significantly affected by the assumptions used, including the discount rate and estimate of future cash flows. Subsequent changes in assumptions could significantly affect the estimates. +​ +Note 15: Commitments and Credit Risks +Commitments to originate loans are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since a portion of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Each customer’s creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if deemed necessary, is based on management’s credit evaluation of the counterparty. Collateral held varies, but may include accounts receivable, inventory, property, plant and equipment, commercial real estate and residential real estate. +Lines of credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Lines of credit generally have fixed expiration dates. Since a portion of the line may expire without being drawn upon, the total unused lines do not necessarily represent future cash requirements. Each customer’s creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if deemed necessary, is based on management’s credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, commercial real estate and residential real estate. +75 +Table of Contents +Management uses the same credit policies in granting lines of credit as it does for on-balance-sheet instruments. +​ +Commitments outstanding at June 30, 2024 and 2023 were as follows: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +June 30, +​ +​ +2024 +2023 +Commitments to originate loans +​ +$ +2,766,266 +​ +$ +7,028,000 +Undisbursed balance of loans closed +​ +30,314,342 +​ +3,994,000 +Total +​ +$ +33,080,608 +​ +$ +11,022,000 +​ +​ +Note 16: Accumulated Other Comprehensive Loss +​ +The following table summarizes the changes in the balances of each component of accumulated other comprehensive income (loss), net of tax, as of June 30, 2024 and 2023: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Accumulated Other Comprehensive Income (Loss) +​ +​ +Unrealized Gains (Losses) on Securities Available for Sale +​ +Unrealized Gains (Losses) on Defined Benefit Plans +​ +Total +Balance at June 30, 2023 +​ +$ +( 2,916,402 ) +​ +$ +65,043 +​ +$ +( 2,851,359 ) +Other comprehensive income before reclassifications +​ +​ +538,798 +​ +​ +— +​ +​ +538,798 +Amounts reclassified from accumulated other comprehensive income (loss) +​ +​ +— +​ +​ +( 65,043 ) +​ +​ +( 65,043 ) +Period change +​ +​ +538,798 +​ +​ +( 65,043 ) +​ +​ +473,755 +Balance at June 30, 2024 +​ +$ +( 2,377,604 ) +​ +$ +— +​ +$ +( 2,377,604 ) +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Balance at June 30, 2022 +​ +$ +( 2,094,759 ) +​ +$ +— +​ +$ +( 2,094,759 ) +Other comprehensive income (loss) before reclassifications +​ +​ +( 821,643 ) +​ +​ +65,043 +​ +​ +( 756,600 ) +Amounts reclassified from accumulated other comprehensive income (loss) +​ +​ +— +​ +​ +— +​ +​ +— +Period change +​ +​ +( 821,643 ) +​ +​ +65,043 +​ +​ +( 756,600 ) +Balance at June 30, 2023 +​ +$ +( 2,916,402 ) +​ +$ +65,043 +​ +$ +( 2,851,359 ) +​ +The following are significant amounts reclassified out of accumulated other comprehensive income (loss) for the year ended June 30, 2024: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Amount Reclassified from Accumulated Other Comprehensive Income (Loss) For the Year Ended June 30, 2024 +​ +Affected Line Item in the Statements of Operations +Valuation gain on defined benefit plan +​ +$ +( 82,333 ) +​ +Pension plan withdrawal +Tax effect +​ +​ +17,290 +​ +Provision for income taxes (benefits) +Net of tax +​ +$ +( 65,043 ) +​ +​ +​ +​ +​ +There were no amounts reclassified out of accumulated other comprehensive income (loss) for the year ended June 30, 2023. +​ +​ +Note 17: Conversion to Stock Form +On March 3, 2022, the Board of Directors of the Bank adopted a plan of conversion. The plan of conversion was subject to the approval of the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency, and the approval by the affirmative vote of at least a majority of the total votes eligible to be cast by the voting members of the Bank at a special meeting. The plan of conversion provided for the Bank to convert into a stock savings bank structure with the establishment of a stock holding company (VWF Bancorp, Inc.), as parent of the Bank. The Bank converted to +76 +Table of Contents +the stock form of ownership, followed by the issuance of all of the Bank’s outstanding stock to VWF Bancorp, Inc. Pursuant to the plan of conversion, the Bank determined the total offering value and number of shares of common stock based upon an independent appraiser’s valuation. +VWF Bancorp, Inc. is organized as a corporation under the laws of the State of Maryland and owns all of the outstanding common stock of the Bank as of completion of the conversion. +At the completion of the conversion to stock form, the Bank established a liquidation account in the amount of retained earnings contained in the final prospectus. The liquidation account will be maintained for the benefit of eligible savings account holders who maintain deposit accounts in the Bank after conversion. +The conversion was accounted for as a change in corporate form with the historic basis of the Bank’s assets, liabilities and equity unchanged as a result. In accordance with OCC regulations, at the time of the conversion, the Bank established a liquidation account. The liquidation account must be maintained for the benefit of eligible account holders and supplemental eligible account holders who continue to maintain their accounts at the Bank after the conversion. The liquidation account will be reduced annually to the extent that eligible holders and supplemental eligible account holders have reduced their qualifying deposits. Subsequent increases will not restore an eligible account holder’s or supplemental eligible account holder’s interest in the liquidation account. In the event of a complete liquidation by the Bank, and only in such event, each eligible account holder and supplemental eligible account holder will be entitled to receive a distribution from the liquidation account in an amount proportionate to the adjusted qualifying account balances then held. The Bank may not pay dividends if those dividends would reduce equity capital below the required liquidation account amount. +​ +VWF Bancorp, Inc. is an emerging growth company, and, for as long as it continues to be an emerging growth company, it may choose to take advantage of exemptions from various reporting requirements applicable to other public companies but not to “emerging growth companies.” VWF Bancorp, Inc. uses the extended transition period to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. Accordingly, its financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards. +​ +​ +Note 18: Condensed Financial Information (Parent Company Only) +Presented below is condensed financial information as to financial condition, results of operations and cash flows of the Company: +​ +Condensed Balance Sheet +As of June 30, +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +2024 +​ +2023 +Assets +​ +​ +​ +​ +​ +​ +Cash and due from banks +​ +$ +5,446,073 +​ +$ +7,374,159 +Investment in Van Wert Federal Savings Bank +​ +30,992,252 +​ +31,202,165 +Other assets +​ +170,256 +​ +61,500 +Total assets +​ +​ +36,608,581 +​ +​ +38,637,824 +​ +​ +​ +​ +​ +​ +​ +Liabilities and Shareholders' Equity +​ +​ +​ +​ +​ +​ +​ +​ +​ +Liabilities +​ +​ +Accrued interest payable and other liabilities +​ +​ +60,749 +​ +​ +139,824 +​ +​ +​ +​ +​ +​ +​ +Shareholders' Equity +​ +​ +36,547,832 +​ +​ +38,498,000 +​ +​ +​ +​ +​ +​ +​ +Total liabilities and shareholders' equity +​ +$ +36,608,581 +​ +$ +38,637,824 +​ +77 +Table of Contents +Condensed Statement of Operations +For the Year Ended June 30, +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +2024 +​ +2023 +​ +​ +​ +​ +​ +​ +​ +Operating Income +​ +$ +— +​ +$ +— +​ +​ +​ +​ +​ +​ +​ +General, Adminstrative and Other Expenses +​ +​ +​ +​ +​ +​ +Salaries and employee benefits and director fees +​ +​ +223,348 +​ +​ +123,291 +Professional services +​ +257,113 +​ +142,840 +Total +​ +​ +480,461 +​ +​ +266,131 +​ +​ +​ +​ +​ +​ +​ +Loss before income tax benefit and equity in loss of subsidiary +​ +​ +( 480,461 ) +​ +​ +( 266,131 ) +​ +​ +​ +​ +​ +​ +​ +Income tax benefits +​ +​ +( 91,431 ) +​ +​ +( 61,500 ) +​ +​ +​ +​ +​ +​ +​ +Loss before equity in loss of subsidiary +​ +​ +( 389,030 ) +​ +​ +( 204,631 ) +​ +​ +​ +​ +​ +​ +​ +Equity in loss of Van Wert Federal Savings Bank +​ +​ +( 1,630,503 ) +​ +​ +( 340,753 ) +​ +​ +​ +​ +​ +​ +​ +Net Loss +​ +$ +( 2,019,533 ) +​ +$ +( 545,384 ) +​ +Condensed Statement of Cash Flows +For the Year Ended June 30, +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +2024 +​ +2023 +Operating Activities +​ +​ +​ +​ +​ +​ +Net loss +​ +$ +( 2,019,533 ) +​ +$ +( 545,384 ) +Items not requiring (providing) cash: +​ +​ +​ +​ +​ +​ +Equity in loss of subsidiary +​ +​ +1,630,503 +​ +​ +340,753 +Shares allocated to ESOP +​ +​ +173,626 +​ +​ +106,391 +Stock compensation expense +​ +​ +73,150 +​ +​ +— +Net change in other assets and liabilities +​ +​ +( 187,832 ) +​ +​ +78,325 +Net cash used in operating activities +​ +​ +( 330,086 ) +​ +​ +( 19,915 ) +​ +​ +​ +​ +​ +​ +​ +Investing Activities +​ +​ +​ +​ +​ +​ +Investment in subsidiary +​ +​ +( 1,000,000 ) +​ +​ +( 8,932,413 ) +​ +​ +​ +​ +​ +​ +​ +Financing Activities +​ +​ +​ +​ +​ +​ +Proceeds from issuance of common stock +​ +​ +— +​ +​ +16,326,487 +Purchase of treasury stock +​ +​ +( 598,000 ) +​ +​ +— +Net cash (used in) provided by financing activities +​ +​ +( 598,000 ) +​ +​ +16,326,487 +​ +​ +​ +​ +​ +​ +​ +Net change in cash and cash equivalents +​ +​ +( 1,928,086 ) +​ +​ +7,374,159 +​ +​ +​ +​ +​ +​ +​ +Cash and cash equivalents at beginning of year +​ +​ +7,374,159 +​ +​ +— +​ +​ +​ +​ +​ +​ +​ +Cash and cash equivalents at end of year +​ +$ +5,446,073 +​ +$ +7,374,159 +​ +​ +​ +Note 19: Subsequent Events +On July 1, 2024, the Company repaid $ 24 million of its outstanding advances from FHLB. On August 1, 2024, the Bank completed its rebranding efforts resulting in the legal name change of the Bank from Van Wert Federal Savings Bank to GreenWay Bank. +​ +​ +78 +Table of Contents +ITEM 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure +None. +​ +ITEM 9A. Controls and Procedures +Disclosure Controls and Procedures +An evaluation was performed under the supervision and with the participation of the Company’s management, including the President and Chief Executive Officer and the Chief Financial Officer and Treasurer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of June 30, 2024. These disclosure controls and procedures are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Securities and Exchange Act of 1934, as amended, such as this report, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures are also designed with the objective of ensuring that such information is accumulated and communicated to the Company’s management, including the President and Chief Executive Officer and the Chief Financial Officer, as appropriate, to allow timely decisions regarding the required disclosure. Based on that evaluation, the Company’s management, including the President and Chief Executive Officer and the Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were ineffective as of June 30, 2024. +Internal Controls Over Financial Reporting +Management’s Annual Report on Internal Control Over Financial Reporting +The Company’s management, including the President and Chief Executive Officer and the Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over the Company’s financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities and Exchange Act of 1934, as amended). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of the Company’s financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. +As of June 30, 2024, the Company’s management, including the Company’s principal executive officer and principal financial officer, has assessed the effectiveness of its internal control over financial reporting using the criteria set forth in the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework (2013). Based on the assessment using those criteria, management identified material weaknesses related to the Company’s internal control over financial reporting and, as such, concluded that the Company’s internal control over financial reporting was ineffective as of June 30, 2024. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements would not be prevented or detected on a timely basis. The following material weakness was identified in the Company’s internal control over financial reporting: +● The Company has failed to identify, design and maintain all applicable internal controls which has ultimately led to a level of precision on account reconciliations and review of financial statements that is less than what is required of an SEC filer. The material weakness did not result in a material misstatement. +Attestation Report of the Registered Public Accounting Firm +This report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s +79 +Table of Contents +independent registered public accounting firm pursuant to the rules of the SEC that permit the Company to provide only the management’s report in this report. +Changes in Internal Control Over Financial Reporting +During the year ended June 30, 2024, the Company made notable improvements in its internal controls over financial reporting. In addition to adding a new Chief Financial Officer and Corporate Controller in calendar year 2023, the Company added two additional accounting staff early in calendar year 2024, allowing for additional segregation of duties and more levels of review. Management has also engaged with a third party to begin work on a SOX gap analysis, internal control risk assessment, and regularly occurring internal audits. This work is scheduled to begin in September 2024 and will allow the Company to continue to develop and implement enhanced internal controls over financial reporting. +​ +ITEM 9B. Other Information +N o n e . +​ +ITEM 9C . D isclosure R egarding F oreign J urisdictions That P revent I nspections +Not applicable. +​ +PART III +ITEM 10. Directors, Executive Officers and Corporate Governance +The information relating to the directors and officers of the Company, information regarding compliance with Section 16(a) of the Exchange Act and information regarding the audit committee and audit committee financial expert is incorporated herein by reference to the Company’s Definitive Proxy Statement for the 2024 Annual Meeting of Stockholders (the “Proxy Statement”) under the captions “Proposal 1—Election of Directors,” “Executive Officers,” “Section 16(a) Beneficial Ownership Reporting Compliance,” “Nominating Committee Procedures—Procedures to be Followed by Stockholders,” “Corporate Governance—Committees of the Board of Directors” and “—Audit Committee” is incorporated herein by reference. +The Company has adopted a code of ethics that applies to its principal executive officer, the principal financial officer and principal accounting officer. The Code of Ethics is posted on the Bank’s Internet Web site. +ITEM 11. Executive Compensation +The information regarding executive compensation, compensation committee interlocks and insider participation is incorporated herein by reference to the Proxy Statement under the captions “Executive Officers—Executive Compensation” and “Director Compensation.” +​ +ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +(a) Securities Authorized for issuance under Stock-Based Compensation Plans +Information required by this item is incorporated herein by reference to the section captioned “Stock Ownership” in the Proxy Statement. +(b) Security Ownership of Certain Beneficial Owners +Information required by this item is incorporated herein by reference to the section captioned “Stock Ownership” in the Proxy Statement. +80 +Table of Contents +(c) Security Ownership of Management +Information required by this item is incorporated herein by reference to the section captioned “Stock Ownership” in the Proxy Statement. +(d) Changes in Control +Management of the Company knows of no arrangements, including any pledge by any person or securities of the Company, the operation of which may at a subsequent date result in a change in control of the registrant. +​ +ITEM 13. C ertain Relationships and R elated T ransactions , and D irector I ndependence +The information relating to certain relationships and related transactions and director independence is incorporated herein by reference to the Proxy Statement under the captions “Transactions with Related Persons” and “Proposal 1 — Election of Directors.” +​ +ITEM 14. Principal Accountant Fees and Services +The information relating to the principal accounting fees and expenses is incorporated herein by reference to the Proxy Statement under the captions “Proposal II—Ratification of Independent Registered Public Accounting Firm—Audit Fees” and “—Pre-Approval of Services by the Independent Registered Public Accounting Firm.” +​ +​ +81 +Table of Contents +PART IV +ITEM 15. Exhibits and Financial Statement Schedules +​ +3.1 +​ +Articles of Incorporation of VWF Bancorp, Inc. (incorporated by reference to Exhibit 3.1 of the Company’s Registration Statement on Form S-1 filed March 11, 2022) +3.2 +​ +Bylaws of VWF Bancorp, Inc. (incorporated by reference to Exhibit 3.2 of the Company’s Registration Statement on Form S-1 filed March 11, 2022) +4.1 +​ +Form of Common Stock Certificate of VWF Bancorp, Inc. (incorporated by reference to Exhibit 4 of the Company’s Registration Statement on Form S-1 filed March 11, 2022) +4.2 +​ +Description of Securities of VWF Bancorp, Inc. Registered Under Section 12 of the Securities Exchange Act of 1934 (incorporated by reference to Exhibit 4.2 of the Company’s Annual Report on Form 10-K filed September 28, 2022) +10.1 † +​ +Executive Agreement with Gary L. Clay (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed July 18, 2022) +10.2† +​ +Salary Continuation Agreement for Gary L. Clay (incorporated by reference to Exhibit 10.7 of the Company’s Registration Statement on Form S-1 filed March 11, 2022) +10.3† +​ +Van Wert Federal Savings Bank Split Dollar Life Insurance Plan (incorporated by reference to Exhibit 10.5 of the Company’s Registration Statement on Form S-1 filed March 11, 2022) +10.4† +​ +Form of Van Wert Federal Savings Bank Split Dollar Life Insurance Plan Participation Agreement for Certain Executive Officers and Directors (incorporated by reference to Exhibit 10.6 of the Company’s Registration Statement on Form S-1 filed March 11, 2022) +10.5† +​ +Employment Agreement with Michael D. Cahill (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed October 3, 2022) +10.6† +​ +Employment Agreement with Richard W. Brackin (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed April 21, 2023 ) +10.7† +​ +Change in Control Agreement with Andrew D. Holy (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed August 1, 2023) +10.8† +​ +VWF Bancorp, Inc. 2023 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 of the Company’s Registration Statement on Form S-8 filed December 21, 2023) +10.9† +​ +Form of Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.2 of the Company’s Registration Statement on Form S-8 filed December 21, 2023) +10.10† +​ +Form of Incentive Stock Option Award Agreement (incorporated by reference to Exhibit 10.3 of the Company’s Registration Statement on Form S-8 filed December 21, 2023) +10.11† +​ +Form of Non-Qualified Stock Option Award Agreement (incorporated by reference to Exhibit 10.4 of the Company’s Registration Statement on Form S-8 filed December 21, 2023) +21.1* +​ +Subsidiaries of VWF Bancorp, Inc. +31.1* +​ +Certification of President and Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 +31.2* +​ +Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 +32.1* +​ +Certification of President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 +32.2* +​ +Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 +101 +​ +The following materials from the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2023, formatted in XBRL: (i) Balance Sheets, (ii) Statements of Operations, (iii) Statements of Comprehensive Income (Loss), (iv) Changes in Stockholders’ Equity, (v) Statements of Cash Flows and (vi) Notes to the Financial Statements (embedded within the Inline XBRL document) +104 +​ +Cover Page Interactive Data File (embedded within the Inline XBRL document) +​ +* Filed concurrently herewith +† Indicates a management contract or compensatory plan or arrangement +82 +Table of Contents +​ +​ +ITEM 16 . Form 10-K Summary +None. +​ +83 +Table of Contents +SIGNATURES +Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. +VWF BANCORP, INC. +​ +​ +​ +​ +Date: September 27, 2024 +By: +/s/ Michael D. Cahill +Michael D. Cahill +President and Chief Executive Officer +(Duly Authorized Representative) +​ +Pursuant to the requirements of the Securities Exchange of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. +Signatures +Title +Date +​ +​ +​ +​ +​ +/s/ Michael D. Cahill +Director, President and Chief Executive Officer +(Principal Executive Officer) +​ +September 27, 2024 +Michael D. Cahill +/s/ Richard W. Brackin +EVP, Chief Financial Officer +(Principal Financial and Accounting Officer) +​ +September 27, 2024 +Richard W. Brackin +​ +​ +​ +​ +​ +/s/ Gary L. Clay +​ +Director (Chairman of the Board) +​ +September 27, 2024 +Gary L. Clay +​ +​ +​ +​ +​ +​ +​ +​ +​ +/s/ Jon Bagley +Director +September 27, 2024 +Jon Bagley +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +/s/ Charles F. Koch +Director +September 27, 2024 +Charles F. Koch +​ +​ +​ +​ +​ +/s/ Michael Keysor +​ +Director +​ +September 27, 2024 +Michael Keysor +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +/s/ Thomas Turnwald +Director +September 27, 2024 +Thomas Turnwald +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +84 \ No newline at end of file diff --git a/raw/filings/0001913838/2024/0001558370-24-013063/filing_metadata.csv b/raw/filings/0001913838/2024/0001558370-24-013063/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..918293f70ce6c3c24ee1713db70819f67bba861e --- /dev/null +++ b/raw/filings/0001913838/2024/0001558370-24-013063/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001913838,VWFB,"VWF Bancorp, Inc.",2024,10-K,2024-09-27,2024-06-30,2024-09-27T12:23:00.000Z,0001558370-24-013063,vwfb-20240630x10k.htm,10-K,20153555,1,1,https://www.sec.gov/Archives/edgar/data/1913838/000155837024013063/vwfb-20240630x10k.htm,https://www.sec.gov/Archives/edgar/data/1913838/000155837024013063/ diff --git a/raw/filings/0001913838/2024/0001558370-24-013063/item1.txt b/raw/filings/0001913838/2024/0001558370-24-013063/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..6d972b9213d742e8830679be4e7f244135f0aca4 --- /dev/null +++ b/raw/filings/0001913838/2024/0001558370-24-013063/item1.txt @@ -0,0 +1,2031 @@ +ITEM 1. Business +Forward Looking Statements +This annual report contains forward-looking statements, which can be identified by the use of words such as such “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect,” “will,” “would,” “should,” “could” or “may,” and words of similar meaning. These forward-looking statements include, but are not limited to: +● statements of our goals, intentions and expectations; +● statements regarding our business plans, prospects, growth and operating strategies; +● statements regarding the quality of our loan and investment portfolios; and +● estimates of our risks and future costs and benefits. +These forward-looking statements are based on current beliefs and expectations of our management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. Accordingly, you should not place undue reliance on such statements. We are under no duty to and do not take any obligation to update any forward-looking statements after the date of this annual report. +The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements: +● general economic conditions, either nationally or in our market areas, that are worse than expected; +● changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for credit losses; +● our ability to access cost-effective funding; +● fluctuations in real estate values and in the conditions of the residential real estate, commercial real estate, and agricultural real estate markets; +● demand for loans and deposits in our market area; +● our ability to implement and change our business strategies; +● competition among depository and other financial institutions; +● inflation and changes in the interest rate environment that reduce our margins and yields, the fair value of our financial instruments, or our level of loan originations, or increase the level of defaults, losses and prepayments within our loan portfolio; +● adverse changes in the securities markets; +● changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees, capital requirements and insurance premiums; +1 +Table of Contents +● changes in the quality or composition of our loan or investment portfolios; +● technological changes that may be more difficult or expensive than expected; +● the inability of third-party providers to perform as expected; +● a failure or breach of our operational or information security systems or infrastructure, including cyberattacks; +● our ability to manage market risk, credit risk and operational risk; +● our ability to enter new markets successfully and capitalize on growth opportunities; +● changes in consumer spending, borrowing and savings habits; +● changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission or the Public Company Accounting Oversight Board; +● our ability to retain key employees; +● material weakness or significant deficiency in our internal controls over financial reporting; and +● changes in the financial condition, results of operations or future prospects of issuers of securities that we own. +Because of these and a wide variety of other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements. +As used in this report, unless the context otherwise requires, the terms “we,” “our,” “us,” or the “Company” refer to VWF Bancorp, Inc., and the term the “Bank” refers to Van Wert Federal Savings Bank, the wholly owned subsidiary of the Company. In addition, unless the context otherwise requires, references to the operations of the Company include the operations of the Bank. +VWF Bancorp, Inc. +VWF Bancorp, Inc. was incorporated in February 2022 to become the holding company for Van Wert Federal Savings Bank upon the conversion of Van Wert Federal from the mutual form of organization to the stock form of organization (the “Conversion”). The Conversion was completed on July 13, 2022. In connection with the Conversion, the Company sold 1,922,924 shares of common stock at a price of $10.00 per share. +The Company is a registered savings and loan holding company subject to comprehensive regulation and examination by the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”). The Company conducts its operations primarily through its wholly owned subsidiary, Van Wert Federal Savings Bank, a federally-chartered savings bank. The Company’s principal office is located at 976 South Shannon Street, Van Wert, Ohio 45891, and our telephone number at that address is (419) 238-9662. Our website address is www.vanwertfederal.com . Information on our website is not and should not be considered a part of this annual report. +Van Wert Federal Savings Bank +Effective August 1, 2024, the Bank completed rebranding efforts and changed its name from Van Wert Federal Savings Bank to GreenWay Bank. The Bank is a federally-chartered savings bank headquartered in Van Wert, Ohio. The Bank currently conducts its business from its main offices in Van Wert, Ohio and Fort Wayne, Indiana. We are primarily +2 +Table of Contents +engaged in attracting deposits from the general public and using those funds to invest in loans and securities. Our principal sources of funds are customer deposits, repayments of loans, maturities of investments, brokered deposits, and funds borrowed from outside sources such as Federal Home Loan Bank (“FHLB”) of Cincinnati and the Federal Reserve Bank (“FRB”) of Cleveland under the Bank Term Funding Program (“BTFP”). These funds are primarily used for the origination of loans, including single-family residential first mortgage loans, commercial real estate mortgage loans, commercial and industrial loans, construction and land loans and other loans. Our primary revenue source is interest earned on loans and investment securities. Noninterest income is not a significant revenue source. Our primary expenses are compensation and benefits, interest expense on deposits and borrowings and other general operating expenses. +Historically, the Bank was a traditional thrift institution with an emphasis on long-term single-family residential first mortgage loans secured by residences located in our traditional market area centered in Van Wert, Ohio. Our business strategy is to enhance our products and services and embrace a full-service community bank model by re-focusing our efforts to attract a greater number of small to mid-sized businesses and business professionals in our market area and to increase our holdings of commercial real estate loans and commercial and industrial loans. Commercial real estate loans and commercial and industrial loans are deemed attractive due to their generally higher yields and shorter anticipated lives compared to single-family residential mortgage loans. +The Bank is subject to comprehensive regulation and examination by the Office of the Comptroller of the Currency (the “OCC”) and the Federal Deposit Insurance Corporation (the “FDIC”) and is a member of the Federal Home Loan Bank system. +Market Area and Competition +Historically, our business focus has centered on areas within a short drive from our banking headquarters in Van Wert County, located in northwest Ohio. We expanded our branch office network into Allen County, located in northeast Indiana by opening our Fort Wayne office branch in April 2024. In the future, we expect to increase our penetration in Allen County, Indiana with a focus on servicing small to mid-sized businesses and professionals. +Van Wert County is primarily rural, but it has a mix of manufacturing and agriculture. Major manufacturers include Tenneco, Inc. and Danfoss, which are major employers. Other major employers are Braun Industries, Central Mutual Insurance Company, Cooper Farms, Van Wert County Hospital, and local school districts. Agricultural production is primarily focused on corn, soybeans and wheat. Allen County has a strong history in manufacturing but has diversified into other key industries including specialty insurance, medical device and technology, healthcare, vehicles, design and craftsmanship, logistics and e-commerce, food and beverage and advanced materials. +We face significant competition in originating loans and attracting deposits. This competition stems primarily from large money center and regional banks, community banks and savings institutions, and credit unions. We also face competition for loans from mortgage banking firms, consumer finance companies, credit unions, and fintech companies and, with respect to deposits, from money market funds, brokerage firms, mutual funds and insurance companies. +Lending Activities +General. Our loan portfolio consists residential mortgage loans, commercial real estate loans, agricultural real estate loans, construction and land loans, commercial and industrial loans, home equity lines of credit, and consumer loans. We originate loans for retention in our portfolio and generally do not sell loans. In recent years, we have increased our focus on originating higher yielding commercial real estate loans and commercial and industrial loans. We offer both adjustable-rate and fixed-rate residential mortgage loans. However, historically a significant majority of the residential real estate loans which we have originated are long-term, fixed-rate loans that generally conform to secondary market guidelines. +Commercial real estate loans and commercial and industrial loans have not historically comprised a significant portion of our total loan portfolio. While we expect that one- to four-family residential real estate lending will continue to be an +3 +Table of Contents +emphasis of our lending operations, we intend to increase our emphasis on commercial real estate loans and commercial and industrial loans in an effort to increase the yield on our loan portfolio and diversify our loan portfolio. +Loan Portfolio Composition. The following table sets forth the composition of our loan portfolio by type of loan at the dates indicated. There were no loans held-for-sale at any date indicated. +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +At June 30, +​ +​ +2024 +​ +2023 +​ +Amount +Percent +Amount +Percent +​ +​ +(Dollars in thousands) +​ +Real estate loans: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Commercial real estate +​ +$ +19,725 +15.2 +% +$ +6,010 +6.2 +% +Residential real estate +​ +69,827 +53.9 +​ +65,857 +79.8 +​ +Multifamily +​ +​ +659 +​ +0.5 +​ +​ +688 +​ +0.9 +​ +Agricultural real estate +​ +4,214 +3.3 +​ +4,045 +4.2 +​ +Construction and land +​ +17,645 +13.6 +​ +8,567 +7.3 +​ +Home equity line of credit +​ +1,623 +1.3 +​ +355 +0.3 +​ +Commercial and industrial +​ +14,879 +11.5 +​ +3,399 +0.4 +​ +Consumer +​ +955 +0.7 +​ +801 +0.9 +​ +Total loans +​ +129,527 +100.00 +% +89,722 +100.00 +% +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Less: +​ +​ +​ +Undisbursed loans in process +​ +​ +2,223 +​ +​ +8,203 +​ +​ +Net deferred loan costs, premium and discounts +​ +​ +140 +​ +​ +48 +​ +​ +Allowance for credit losses +​ +​ +773 +​ +​ +263 +​ +​ +Total loans receivable, net +​ +$ +126,391 +​ +​ +$ +81,208 +​ +​ +​ +Contractual Maturities. The following table sets forth the contractual maturities of our total loan portfolio at June 30, 2024. Demand loans, loans having no stated repayment schedule or maturity, and overdraft loans are reported as being due in one year or less. Because the tables present contractual maturities and do not reflect repricing or the effect of prepayments, actual maturities may differ. +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Home +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Commercial +​ +Equity +​ +​ +​ +​ +​ +​ +​ +​ +Commercial +​ +Residential +​ +Multifamily +​ +Agricultural +​ +Construction +​ +and +​ +Lines of +​ +​ +​ +​ +​ +​ +​ +​ +Real Estate +​ +Real Estate +​ +Real Estate +​ +Real Estate +​ +and Land +​ +Industrial +​ +Credit +​ +Consumer +​ +Total +​ +​ +(In thousands) +Due During the Years Ending June 30, +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +2025 +​ +$ +1,608 +​ +$ +15 +​ +$ +— +​ +$ +— +​ +$ +628 +​ +$ +2,506 +​ +$ +— +​ +$ +8 +​ +$ +4,765 +2026 +​ +359 +​ +124 +​ +— +​ +— +​ +3,423 +​ +4,117 +​ +— +​ +31 +​ +8,054 +2027 +​ +​ +3,016 +​ +​ +229 +​ +​ +— +​ +​ +28 +​ +​ +347 +​ +​ +3,351 +​ +​ +— +​ +​ +133 +​ +​ +7,104 +2028 to 2029 +​ +7,400 +​ +1,513 +​ +— +​ +105 +​ +5,303 +​ +3,355 +​ +— +​ +277 +​ +17,953 +2030 to 2034 +​ +2,376 +​ +6,679 +​ +— +​ +152 +​ +3,441 +​ +1,183 +​ +— +​ +502 +​ +14,333 +2035 to 2039 +​ +3,219 +​ +15,888 +​ +659 +​ +384 +​ +2,133 +​ +367 +​ +121 +​ +— +​ +22,771 +2040 and beyond +​ +1,747 +​ +45,379 +​ +— +​ +3,545 +​ +2,370 +​ +— +​ +1,502 +​ +4 +​ +54,547 +Total +​ +$ +19,725 +​ +$ +69,827 +​ +$ +659 +​ +$ +4,214 +​ +$ +17,645 +​ +$ +14,879 +​ +$ +1,623 +​ +$ +955 +​ +$ +129,527 +​ +4 +Table of Contents +The following table sets forth our fixed and adjustable-rate loans at June 30, 2024 that are contractually due after June 30, 2024. +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Due After June 30, 2024 +​ +​ +​ +Fixed +​ +Adjustable +​ +Total +​ +​ +​ +(In thousands) +​ +Real estate loans: +​ +​ +​ +​ +​ +​ +​ +Commercial real estate +​ +$ +11,208 +​ +$ +8,517 +​ +$ +19,725 +​ +Residential real estate +57,741 +​ +12,086 +​ +69,827 +​ +Multifamily +​ +​ +659 +​ +​ +— +​ +​ +659 +​ +Agricultural real estate +20 +​ +4,194 +​ +4,214 +​ +Construction and land +8,994 +​ +8,651 +​ +17,645 +​ +Home equity lines of credit (HELOC) +— +​ +1,623 +​ +1,623 +​ +Commercial and industrial loans +9,766 +​ +5,113 +​ +14,879 +​ +Consumer loans +955 +​ +— +​ +955 +​ +Total loans +​ +$ +89,343 +​ +$ +40,184 +​ +$ +129,527 +​ +​ +Residential Mortgage Lending . At June 30, 2024 we had $69.8 million of loans secured by residential real estate, or 53.9% of total loans. The significant majority of our one- to four-family residential real estate loans are secured by properties located in our primary market area. At June 30, 2024, $1.3 million, or 1.0% of residential mortgage loans, were secured by non-owner occupied properties. +Our one- to four-family residential real estate loans are generally underwritten to secondary market guidelines. We offer both fixed-rate and adjustable rate residential mortgage loans for terms up to 30 years. Existing adjustable-rate loans originated prior to July 2023 are tied to the National Average Contract Mortgage Rate published by the Federal Housing Finance Agency. As of July 2023, adjustable-rate mortgages are tied to the Weekly Average Yield of the 1-year Constant Maturity Index published by HSH.com. For adjustable-rate loans, the interest rate is fixed for the initial terms of five, seven or 10 years, and then adjusts yearly thereafter with an adjustable-rate cap of 2% and a lifetime rate cap of 6%. We generally limit the loan-to-value ratios of our residential mortgage loans to 80% (90% for borrowers with a FICO credit score of 720 or higher and 97% with private mortgage insurance) of the purchase price or appraised value, whichever is lower. +We do not offer “interest only” residential mortgage loans, where the borrower pays interest for an initial period, after which the loan converts to a fully amortizing loan. We also do not offer loans that provide for negative amortization of principal, such as “Option ARM” loans, where the borrower can pay less than the interest owed on the loan, resulting in an increased principal balance during the life of the loan. We do not currently offer “subprime loans” on one- to four-family residential real estate loans ( i.e. , generally loans to borrowers with credit scores less than 620). At June 30, 2024, multi-family residential mortgage loans was an immaterial portion of our loan portfolio. +Commercial Real Estate Loans . At June 30, 2024, we had $19.7 million in commercial real estate loans, or 15.2% of total loans. Our commercial real estate loans are secured by owner-occupied properties including warehouses and offices, amongst others, and non-owner-occupied properties including investment 1-4 family properties and both single and multi-tenant buildings. We generally do not originate commercial loans secured by strip shopping malls or restaurants. We originate both fixed rate and variable rate commercial real estate loans. All interest rates, both fixed and variable, are generally tied to a like term United State Treasury Yield plus a margin. Commercial real estate loans generally have terms up to 20 years; however, rates are generally fixed no longer than 5 years at a time. We generally limit the loan-to-value ratios of our commercial mortgage loans to 80% of the purchase price or appraised value, whichever is lower. At June 30, 2024, our largest commercial real estate loan was for $2,500,000, which fully funded at origination. +5 +Table of Contents +We consider a number of factors in originating commercial real estate loans. We evaluate the qualifications and financial condition of the borrower, including credit history, profitability and expertise, as well as the value and condition of the property securing the loan. When evaluating the qualifications of the borrower, we consider the financial resources of the borrower, the borrower’s experience in owning or managing similar property and the borrower’s payment history with us and other financial institutions. In evaluating the property securing the loan, the factors we consider include the net operating income of the mortgaged property before debt service and depreciation, the ratio of the loan amount to the appraised value of the mortgaged property, and the debt service coverage ratio (the ratio of net operating income to debt service). Generally, we require that the debt service coverage ratio be at least 1.15x. The significant majority of our commercial real estate loans are appraised by outside independent appraisers approved by the board of directors. Personal guarantees are generally obtained from the principals of commercial real estate borrowers. +Agricultural Real Estate Loans . At June 30, 2024, we had $4.2 million in agricultural real estate loans, or 3.3% of total loans. These loans are secured by agricultural land. The interest rate is fixed for the initial term of five or seven years, and then adjusts yearly thereafter. Agricultural real estate loans generally have terms up to 25 years. We generally limit the loan-to-value ratios of our agricultural real estate loans to 75% of the purchase price or appraised value, whichever is lower. At June 30, 2024, our largest agricultural real estate loan was $624,000, of which $355,000 had been disbursed. At June 30, 2024, this loan was performing according to its original terms. +We consider a number of factors in originating agricultural real estate loans. We evaluate the qualifications and financial condition of the borrower, including credit history, profitability and expertise, as well as the value and condition of the property securing the loan. When evaluating the qualifications of the borrower, we consider the financial resources of the borrower, the borrower’s experience in agriculture and the borrower’s payment history with us and other financial institutions. In evaluating the property securing the loan, the factors we consider include the net operating income of the mortgaged property before debt service and depreciation, the ratio of the loan amount to the appraised value of the mortgaged property, and the debt service coverage ratio (the ratio of net operating income to debt service). Generally, we require that the debt service coverage ratio be at least 1.15x. The significant majority of our agricultural real estate loans are appraised by outside independent appraisers approved by the board of directors. Personal guarantees are generally obtained from the principals of agricultural real estate borrowers. +Construction and Land Loans. At June 30, 2024, we had $17.6 million in construction and land loans, or 13.6% of total loans. We make residential construction loans, primarily to individuals for the construction of their primary residences. Our residential construction loans are structured as construction/permanent loans where after a one-year construction period the loan converts to a permanent residential mortgage loan. Our residential construction loans are underwritten to the same guidelines for permanent residential mortgage loans. At June 30, 2024, our largest residential construction loan was $742,000, of which $31,000 has been disbursed. +We make commercial construction loans, which are generally structured as construction/permanent loans where after a construction period the loan converts to a permanent commercial mortgage loan. In some instances, the construction period will include a stabilization period to allow time for the property to stabilize post-construction before converting to a permanent commercial mortgage loan. Generally speaking, the construction/stabilization term does not exceed 24 months, except for extenuating circumstances. Included within the commercial construction loans are loans to contractors and homebuilders to build 1-4 family homes. We make a limited number of speculative residential construction loans, which are constructions loans to a builder where there is not a contract in place for the purchase of the home at the time the construction loan is originated. We have one facility to a homebuilder that allows for draws to construct speculative 1-4 family homes, in addition to pre-sold homes and lot purchases. The advance rate for speculative homes is lower than pre-sold homes. Our commercial construction loans are underwritten to the same guidelines for commercial mortgage loans. At June 30, 2024, our largest commercial construction loan commitment was for $4.5 million, of which $3.5 million has been disbursed. +Construction loans generally can be made with a maximum loan-to-value ratio of 90% (residential properties) and 80% (commercial properties) of the estimated appraised market value upon completion of the project. Before making a commitment to fund a construction loan, we require an appraisal of the property by an independent licensed appraiser. We also generally require inspections of the property before disbursements of funds during the term of the construction loan. +6 +Table of Contents +Commercial and Industrial Loans. At June 30, 2024, commercial and industrial loans amounted to $14.9 million, or 11.5% of total loans. Commercial and industrial loans include both term loans and lines of credit. Term loans are generally fixed rate, fully amortizing loans with 5-, 7-, or 10-year terms. Lines of credit are primarily based on 1M Term SOFR (Secured Overnight Financing Rate) or 30-day Average SOFR, however, some are based on the prime rate and with terms of 12 to 24 months. These loans are generally secured by business assets, such as equipment and accounts receivable. Depending on the collateral used to secure the loans, commercial advance rates generally include 80 percent of accounts receivable, 50 percent of inventory, and 80 percent of the forced liquidation value of equipment as determined by an independent appraisal engaged by the Bank. +When making commercial loans, we consider the financial statements of the borrower, our lending history with the borrower, the debt service capabilities and global cash flows of the borrower and other guarantors, the projected cash flows of the business and the value of the collateral, accounts receivable, inventory and equipment. +At June 30, 2024, our largest commercial and industrial loan totaled $4.5 million, $4.0 million of which is outstanding, and is a participation in a non-revolving draw down overline of credit (75% of participation interest). The loan is for the purpose of providing the borrower funds to purchase trucks and is secured by titles on the trucks purchased. At June 30, 2024, this loan was performing according to its original terms. +Home Equity Lines of Credit. At June 30, 2024, the outstanding balance of home equity lines of credit was $1.6 million, or 1.3% of total loans. The interest rate for home equity lines of credit are based on the prime rate. There is a 10 year draw period followed by a 10 year repayment period. The loan to value ratio is generally up to 90%, taking into account any superior mortgage on the collateral property. Generally, all applicants for a home equity line of credit are required to have a FICO credit score of at least 720. +Consumer Loans . At June 30, 2024, consumer loans were $955,000, or 0.7% of total loans. Our consumer loan portfolio generally consists of loans secured predominately by automobiles and trucks (new and used), trailers, and other consumer assets. Consumer loans have fixed interest rates and terms up to seven years, with loan to value ratios up to 100%. +Loan Underwriting Risks +Commercial Real Estate Loans and Agricultural Real Estate Loans. Loans secured by commercial real estate or agricultural real estate generally have larger balances and involve a greater degree of risk than one- to four-family residential real estate loans. The primary concern in commercial real estate lending and agricultural real estate lending is the borrower’s creditworthiness and the feasibility and cash flow potential of the underlying business. Payments on loans secured by income producing properties often depend on successful operation and management of the properties. As a result, repayment of such loans may be subject, to a greater extent than residential real estate loans, to adverse conditions in the real estate market or the economy. To monitor cash flows on income properties, we require borrowers and loan guarantors to provide quarterly, semi-annual or annual financial statements, depending on the size of the loan, on commercial real estate loans. In reaching a decision on whether to make a commercial real estate loan, we consider and review a global cash flow analysis of the borrower and consider the net operating income of the property, the borrower’s expertise, credit history and profitability and the value of the underlying property. We have generally required that the properties securing these real estate loans have an aggregate debt service ratio, including the guarantor’s cash flows and the borrower’s other projects, of at least 1.15x. An environmental phase one report is obtained when the possibility exists that hazardous materials may have existed on the site, or the site may have been impacted by adjoining properties that handled hazardous materials. +If we foreclose on a commercial real estate loan or an agricultural real estate loan, the marketing and liquidation period to convert the real estate asset to cash can be lengthy with substantial holding costs. In addition, vacancies, deferred maintenance, repairs and market stigma can result in prospective buyers expecting sale price concessions to offset their real or perceived economic losses for the time it takes them to return the property to profitability. Depending on the individual circumstances, initial charge-offs and subsequent losses on commercial real estate loans can be unpredictable and substantial. +7 +Table of Contents +Commercial and Industrial Loans. Unlike residential real estate loans, which generally are made on the basis of the borrower’s ability to make repayment from his or her employment or other income, and which are secured by real property whose value tends to be more easily ascertainable, commercial and industrial loans are of higher risk and typically are made on the basis of the borrower’s ability to make repayment from the cash flows of the borrower’s business, and the collateral securing these loans may fluctuate in value. Our commercial and industrial loans are originated primarily based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. Collateral for commercial and industrial loans typically consists of equipment, accounts receivable, or inventory. Credit support provided by the borrower for most of these loans is based on the liquidation of the pledged collateral and enforcement of a personal guarantee, if any. Further, any collateral securing such loans may depreciate over time, may be difficult to appraise and may fluctuate in value. As a result, the availability of funds for the repayment of commercial and industrial loans may depend substantially on the success of the business itself. +Construction and Land Loans. Our construction loans are based upon estimates of costs and values associated with the completed project. Underwriting is focused on the borrowers’ financial strength, credit history and demonstrated ability to produce a quality product and effectively market and manage their operations. +Construction lending involves additional risks when compared with permanent lending because funds are advanced upon the security of the project, which is of uncertain value before its completion. Because of the uncertainties inherent in estimating construction costs, as well as the market value of the completed project and the effects of governmental regulation of real property, it is relatively difficult to evaluate accurately the total funds required to complete a project and the related loan-to-value ratio. In addition, generally during the term of a construction loan, interest may be funded by the borrower or disbursed from an interest reserve set aside from the construction loan budget. These loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project and the ability of the borrower to sell or lease the property or obtain permanent take-out financing, rather than the ability of the borrower or guarantor to repay principal and interest. If the appraised value of a completed project proves to be overstated, we may have inadequate security for the repayment of the loan upon completion of construction of the project and may incur a loss. Land loans have substantially similar risks. +Balloon Loans. Although balloon mortgage loans may reduce to an extent our vulnerability to changes in market interest rates because they reprice at the end of the term, the ability of the borrower to renew or repay the loan and the marketability of the underlying collateral may be adversely affected if the value of the real estate or other collateral decline before the expiration of the term of the loan or if there is a rising interest rate environment. +Consumer Loans. Consumer loans may entail greater risk than residential real estate loans, particularly in the case of consumer loans that are unsecured or secured by assets that depreciate rapidly. Repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment for the outstanding loan and a small remaining deficiency often does not warrant further substantial collection efforts against the borrower. Consumer loan collections depend on the borrower’s continuing financial stability, and therefore are likely to be adversely affected by various factors, including job loss, divorce, illness or personal bankruptcy. Furthermore, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount that can be recovered on such loans. +Loan Originations, Purchases and Sales +We originate loans through employee marketing and advertising efforts, our existing customer base, walk-in customers and referrals from customers. +We generally do not sell the loans we originate, but retain them in our loan portfolio. +At June 30, 2024, our largest purchased participation consisted of 4 separate participation interests, each with a commitment amount of $4.5 million, representing 16.07%, 9.44%, 9.74%, and 20.93% interests in the deals. The deals consist of a market rate multi-family construction project in Lafayette, Indiana, a market rate multi-family construction project in Fort Wayne, Indiana, a market rate multi-family construction project in Noblesville, Indiana and a hotel +8 +Table of Contents +renovation project on a long-time downtown Indianapolis, Indiana hotel. The outstanding balances for each were $3.5 million, $137,000, $0, and $3.1 million as of June 30, 2024, respectively. +Loan Approval Procedures and Authority +Our lending is subject to written, non-discriminatory underwriting standards and origination procedures. Decisions on loan applications are made on the basis of detailed applications submitted by the prospective borrower and property valuations. Our policies require that for all real estate loans that we originate, property valuations must be performed by outside independent state-licensed appraisers approved by our board of directors. The loan applications are designed primarily to determine the borrower’s ability to repay the requested loan, and the more significant items on the application are verified through use of credit reports, financial statements and tax returns. +By law, the aggregate amount of loans that we are permitted to make to any one borrower or a group of related borrowers is generally limited to 15% of the Bank’s unimpaired capital and surplus (25% if the amount in excess of 15% is secured by “readily marketable collateral” or 30% for certain residential development loans). At June 30, 2024, our largest credit relationship to one borrower had an outstanding balance of $4.0 million and is a participation loan secured by titles to the vehicles purchased with the credit facility. At June 30, 2024, this loan was performing according to its original terms. +Generally, we require property and extended coverage casualty insurance in amounts at least equal to the principal amount of the loan or the value of improvements on the property, depending on the type of loan. In addition, we require an escrow for flood insurance (where appropriate) and generally require an escrow for required property taxes and insurance. On occasion, we allow borrowers to pay their own taxes and property and casualty insurance as long as proof of payment is provided. +The VP, Consumer and Mortgage Lending, may approve all non-commercial loans up to $500,000. All loans that exceed this limit require secondary approval by a Board Member. +We have a separate policy for commercial loans wherein loans up to $500,000 are approved with dual signature by the Lending Officer and either the Chief Banking Officer or Chief Risk Officer. Loans over $500,000 up to $2,000,000 are approved by the Commercial Loan Committee consisting of the President and CEO, Chief Risk Officer, Chief Banking Officer, and two outside loan committee members with over a combined 60 years of commercial lending experience. All commercial loans over $2.0 million are approved by the full board. +Delinquencies, Classified Assets and Nonperforming Assets +Delinquency Procedures. When a borrower fails to make a required monthly payment on a loan, we mail a notice to the borrower and attempt to contact the borrower by phone. All delinquent loans are reported to the board of directors each month. After 90 days delinquent the loan is transferred to the appropriate collections’ personnel. Our policies provide that a late notice be sent each month that the loan is past due. Once the loan is considered in default, generally at 90 days past due, a letter is generally sent to the borrower explaining that the entire balance of the loan is due and payable, the loan is placed on non-accrual status, and additional efforts are made to contact the borrower. If the borrower does not respond, we generally initiate foreclosure proceedings when the loan is 120 days past due. If the loan is reinstated, foreclosure proceedings will be discontinued and the borrower will be permitted to continue to make payments. In certain instances, we may modify the loan or grant a limited exemption from loan payments to allow the borrower to reorganize his or her financial affairs. +When we acquire real estate as a result of foreclosure or by deed in lieu of foreclosure, the real estate is classified as other real estate owned until it is sold. The real estate is recorded at estimated fair value at the date of acquisition, less estimated costs to sell, and any write-down resulting from the acquisition is charged to the allowance for credit losses. Subsequent decreases in the value of the property are charged to operations. After acquisition, all costs in maintaining the property are expensed as incurred. Costs relating to the development and improvement of the property, however, are capitalized to the extent of estimated fair value less estimated costs to sell. At June 30, 2024, we had no real estate acquired as a result of foreclosure or by deed in lieu of foreclosure. +9 +Table of Contents +Loan Modifications. We occasionally modify loans to extend the term or make other concessions to help a borrower stay current on his or her loan and to avoid foreclosure. We consider modifications only after analyzing the borrower’s current repayment capacity, evaluating the strength of any guarantors based on documented current financial information, and assessing the current value of any collateral pledged. We generally do not forgive principal or interest on loans, but may do so if it is in our best interest and increases the likelihood that we can collect the remaining principal balance. We may modify the terms of loans to lower interest rates (which may be at below market rates), to provide for fixed interest rates on loans where fixed rates are otherwise not available, to provide for longer amortization schedules, or to provide for interest-only terms. These modifications are made only when a workout plan has been agreed to by the borrower that we believe is reasonable and attainable and in our best interests. At June 30, 2024, loans with modifications for borrowers experiencing financial difficulty totaled $36,000. During the year ended June 30, 2024, the Company did not grant any loan modification to borrowers experiencing financial difficulty that resulted in a more than minor change in the timing or amount of contractual cash flows. +Delinquent Loans . The following table sets forth our loan delinquencies, including non-accrual loans, by type and amount at the dates indicated. +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +At June 30, +​ +​ +2024 +​ +2023 +​ +30-59 +60-89 +90 Days +30-59 +60-89 +90 Days +​ +​ +Days +​ +Days +​ +or More +​ +Days +​ +Days +​ +or More +​ +​ +Past Due +​ +Past Due +​ +Past Due +​ +Past Due +​ +Past Due +​ +Past Due +​ +​ +(In thousands) +Real estate loans: +​ +​ +​ +​ +​ +​ +Commercial real estate +​ +$ +— +​ +$ +— +​ +$ +— +​ +$ +— +​ +$ +— +​ +$ +— +Residential real estate +​ +559 +​ +88 +​ +​ +72 +​ +— +​ +616 +​ +​ +117 +Multifamily +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +Agricultural real estate +​ +— +​ +— +​ +— +​ +— +​ +— +​ +— +Construction and land +​ +36 +​ +— +​ +— +​ +— +​ +— +​ +— +Home equity lines of credit (HELOC) +​ +​ +— +​ +— +​ +— +​ +— +​ +— +​ +— +Commercial and industrial loans +​ +— +​ +— +​ +— +​ +— +​ +— +​ +— +Consumer loans +​ +2 +​ +4 +​ +— +​ +— +​ +— +​ +— +Total +​ +$ +597 +​ +$ +92 +​ +$ +72 +​ +$ +— +​ +$ +616 +​ +$ +117 +​ +​ +10 +Table of Contents +Non-Performing Assets. The following table sets forth information regarding our non-performing assets, which include non-accruing loans, accruing loans 90 days or more past due and foreclosed assets at the dates indicated. +​ +​ +​ +​ +​ +​ +​ +​ +​ +At June 30, +​ +2024 +2023 +​ +​ +(Dollars in thousands) +Non-accrual loans: +​ +​ +​ +Real estate loans: +​ +​ +​ +Commercial +​ +$ +— +​ +$ +— +​ +Residential +​ +502 +​ +304 +​ +Multifamily +​ +​ +— +​ +​ +— +​ +Agricultural +​ +— +​ +— +​ +Construction and land +​ +36 +​ +— +​ +Home equity lines of credit (HELOC) +​ +​ +— +​ +​ +— +​ +Commercial and industrial loans +​ +— +​ +— +​ +Consumer +​ +16 +​ +— +​ +Total non-accrual loans +​ +$ +554 +​ +$ +304 +​ +​ +​ +​ +​ +​ +​ +​ +​ +Accruing loans past due 90 days or more: +​ +​ +​ +Real estate loans: +​ +​ +​ +Commercial +​ +— +​ +— +​ +Residential +​ +— +​ +— +​ +Multifamily +​ +​ +— +​ +​ +— +​ +Agricultural +​ +— +​ +— +​ +Construction and land +​ +— +​ +— +​ +Home equity line of credit (HELOC) +​ +​ +— +​ +​ +— +​ +Commercial and industrial loans +​ +— +​ +— +​ +Consumer +​ +— +​ +— +​ +Total accruing loans past due 90 days or more +​ +— +​ +— +​ +Total nonperforming loans +​ +554 +​ +304 +​ +Real estate owned +​ +— +​ +— +​ +Other nonperforming assets +​ +— +​ +— +​ +Total non-performing assets +​ +$ +554 +​ +$ +304 +​ +​ +​ +​ +​ +​ +​ +​ +​ +Loan modifications (formerly troubled debt restructurings): +​ +​ +​ +Commercial +​ +$ +— +​ +$ +— +​ +Residential +​ +— +​ +— +​ +Multifamily +​ +​ +— +​ +​ +— +​ +Agricultural +​ +— +​ +— +​ +Construction and land +​ +36 +​ +38 +​ +Home equity lines of credit (HELOC) +​ +​ +— +​ +​ +— +​ +Commercial and industrial loans +​ +— +​ +— +​ +Consumer +​ +— +​ +— +​ +Total loan modifications +​ +$ +36 +​ +$ +38 +​ +​ +​ +​ +​ +​ +​ +​ +​ +Total non-performing loans to total loans +​ +0.43 +% +0.34 +% +Total non-performing loans to total assets +​ +0.18 +% +0.18 +% +Total non-performing assets to total assets +​ +0.18 +% +0.18 +% +Total non-performing loans and loan modifications to total loans +​ +0.46 +% +0.38 +% +Total non-performing loans and loan modifications to total assets +​ +0.19 +% +0.21 +% +​ +Classified Assets . Federal regulations provide that loans and other assets of lesser quality should be classified as “substandard,” “doubtful” or “loss.” An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. “Substandard” assets include those characterized by the “distinct possibility” that the insured institution will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard,” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly questionable and improbable.” Assets classified as “loss” are those considered “uncollectible” and of such little value that their continuance as assets without the establishment of a specific allowance for loan losses is not warranted. Assets that do not currently expose the insured institution to sufficient risk to warrant classification in one of the aforementioned categories but possess weaknesses are designated as “special mention.” +11 +Table of Contents +When an insured institution classifies problem assets as either substandard or doubtful, it may establish general allowances in an amount deemed prudent by management to cover losses that were both probable and reasonable to estimate. General allowances represent allowances which have been established to cover accrued losses associated with lending activities that were both probable and reasonable to estimate, but which, unlike specific allowances, have not been allocated to particular problem assets. When an insured institution classifies problem assets as “loss,” it is required either to establish a specific allowance for losses equal to 100% of that portion of the asset so classified or to charge-off such amount. An institution’s determination as to the classification of its assets and the amount of its valuation allowances is subject to review by the regulatory authorities, which may require the establishment of additional general or specific allowances. +In connection with the filing of our periodic regulatory reports and according to our classification of assets policy, we regularly review the problem loans in our portfolio to determine whether any loans require classification according to applicable regulations. If a problem loan deteriorates in asset quality, the classification is changed to “substandard,” “doubtful” or “loss” depending on the circumstances and the evaluation. Generally, loans 90 days or more past due are placed on nonaccrual status and classified “substandard.” +Our classified and special mention assets at the dates indicated were as follows: +​ +​ +​ +​ +​ +​ +​ +​ +At June 30, +​ +2024 +2023 +​ +​ +(In thousands) +Classified Assets: +​ +​ +​ +Substandard +​ +$ +64 +​ +$ +38 +Doubtful +​ +— +​ +29 +Loss +​ +— +​ +— +Total +​ +$ +64 +​ +$ +67 +Special mention +​ +$ +131 +​ +$ +38 +​ +Other Loans of Concern. At June 30, 2024, except for loans included in the above table, there were no other loans of concern for which we had information about possible credit problems of borrowers that caused us to have serious doubts about the ability of the borrowers to comply with present loan repayment terms and that may result in disclosure of such loans in the future. +Allowance for Credit Losses +On July 1, 2023, the Company adopted the guidance under ASU No. 2016-13, Financial Instruments – Credit Losses, Measurement of Credit Losses on Financial Instruments. The main provisions of the ASU have been codified by the FASB under ASC326. The amendments introduced an impairment model that is based on current expected credit losses (“CECL”), rather than incurred losses, to estimate credit losses on loans. For reporting periods beginning on or after July 1, 2023, the allowance for credit losses reflects management’s current estimate of expected credit losses over the remaining life of is loans as of the end of the reporting period. For reporting periods prior to July 1, 2023, the allowance for credit losses represented management’s estimate for probable and reasonably estimable loan losses, but which had not yet been realized as of the end of the reporting period. +Management’s periodic evaluation of the adequacy of the allowance is based on various factors, including, but not limited to, changes in the types and amount of loans in the loan portfolio, historical loss experience, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, estimated losses relating to specifically identified loans, current and future economic conditions, and forecasted information. This evaluation is inherently subjective as it requires material estimates including, among others, average historical loss experience, expected future loss rates, the amount and timing of expected future pay-downs on existing loans and fundings on unfunded commitments, and the value of underlying collateral. +While management uses the best information available to make loan loss allowance evaluations, adjustments to the allowance may be necessary based on changes in economic and other conditions or changes in accounting guidance. In addition, as an integral part of their examination process, the OCC will periodically review our allowance for credit +12 +Table of Contents +losses, and as a result of such reviews, we may determine to adjust our allowance for credit losses. However, the OCC is not directly involved in the process for establishing the allowance for credit losses as the process is our responsibility and any increase or decrease in the allowance is the responsibility of management. +The following table sets forth activity in our allowance for credit losses for the periods indicated. +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +At or For the Years Ended June 30, +​ +​ +2024 +2023 +​ +​ +(Dollars in thousands) +Allowance for credit losses - loans: +​ +​ +​ +​ +​ +​ +​ +Balance, beginning of year +​ +$ +263 +​ +$ +223 +​ +Impact of adoption of ASC 326 +​ +​ +47 +​ +​ +— +​ +Provision for (reversal of) loan losses +​ +463 +​ +40 +​ +Net loan recoveries (charge-offs): +​ +​ +​ +Real estate loans: +​ +​ +​ +Commercial +​ +— +​ +— +​ +Residential +​ +— +​ +— +​ +Multifamily +​ +​ +— +​ +​ +— +​ +Agricultural +​ +— +​ +— +​ +Construction and land +​ +— +​ +— +​ +Home equity lines of credit (HELOC) +​ +​ +— +​ +​ +— +​ +Commercial and industrial loans +​ +— +​ +— +​ +Consumer loans +​ +— +​ +— +​ +Total net recoveries (charge-offs) +​ +— +​ +— +​ +Balance, end of year +​ +$ +773 +​ +$ +263 +​ +​ +​ +​ +​ +​ +​ +​ +​ +Allowance for credit losses - unfuned loan commitments and letters of credit: +​ +​ +​ +​ +​ +​ +​ +Balance, beginning of year +​ +$ +— +​ +$ +— +​ +Impact of adoption of ASC 326 +​ +​ +21 +​ +​ +— +​ +Provision for (reversal of) credit losses on unfunded loan commitments and letters of credit +​ +​ +156 +​ +​ +— +​ +Balance, end of year +​ +$ +177 +​ +$ +— +​ +​ +​ +​ +​ +​ +​ +​ +​ +Total loans at end of year +​ +$ +129,527 +​ +$ +89,722 +​ +Total non-accrual loans at end of year +​ +​ +554 +​ +​ +304 +​ +Total non-performing loans at end of year +​ +​ +554 +​ +​ +304 +​ +Total average loans +​ +​ +109,625 +​ +​ +85,995 +​ +​ +​ +​ +​ +​ +​ +​ +​ +Allowance for credit losses to non-accrual loans at end of year +​ +​ +139.53 +% +​ +86.51 +% +Allowance for credit losses to non-performing loans at end of year +​ +139.53 +​ +86.51 +​ +Allowance for credit losses to total loans outstanding at end of year +​ +0.60 +​ +0.29 +​ +Net recoveries (charge-offs) to average loans outstanding during the year +​ +0.00 +​ +0.00 +​ +​ +Allocation of Allowance for Credit Losses. The following tables set forth the allowance for credit losses allocated by loan category and the percent of the allowance in each category to the total allocated allowance at the dates indicated. +13 +Table of Contents +The allowance for credit losses allocated to each category is not necessarily indicative of future losses in any particular category and does not restrict the use of the allowance to absorb losses in other categories. +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +At June 30, +​ +​ +2024 +​ +2023 +​ +​ +​ +​ +​ +Percent of +​ +Percent of +​ +​ +​ +​ +Percent of +​ +Percent of +​ +​ +​ +​ +​ +Allowance to +​ +Loans in +​ +​ +​ +​ +Allowance to +​ +Loans in +​ +​ +​ +​ +​ +Total +​ +Category to +​ +​ +​ +​ +Total +​ +Category to +​ +Amount +Allowance +Total Loans +Amount +Allowance +Total Loans +​ +(Dollars in thousands) +​ +Real estate loans: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Commercial +​ +$ +207 +26.8 +% +15.2 +% +$ +27 +10.3 +% +6.2 +% +Residential +​ +175 +22.6 +​ +53.9 +​ +168 +63.9 +​ +79.8 +​ +Multifamily +​ +​ +1 +​ +0.1 +​ +0.5 +​ +​ +2 +​ +0.8 +​ +0.9 +​ +Agricultural +​ +12 +1.6 +​ +3.3 +​ +17 +6.5 +​ +4.2 +​ +Construction and land +​ +191 +24.7 +​ +13.6 +​ +12 +4.6 +​ +7.3 +​ +Home equity lines of credit (HELOC) +​ +3 +0.4 +​ +1.3 +​ +35 +13.3 +​ +0.3 +​ +Commercial and industrial loans +​ +183 +23.7 +​ +11.5 +​ +1 +0.4 +​ +0.4 +​ +Consumer +​ +1 +0.1 +​ +0.7 +​ +1 +0.4 +​ +0.9 +​ +Total allocated allowance +​ +$ +773 +100 +% +100 +% +$ +263 +100 +% +100 +% +​ +Investment Activities +General . The goals of our investment policy is to maximize portfolio yield over the long term in a manner that is consistent with minimizing risk, meeting liquidity needs, meeting pledging requirements, and meeting asset/liability management and interest rate risk strategies. Subject to loan demand and our interest rate risk analysis, we expect to increase the balance of our investment securities portfolio when we have excess liquidity. +Our investment policy was adopted by the board of directors and is reviewed annually by the board of directors. All investment decisions are made by our Asset/Liability Committee according to board-approved policies. An investment schedule detailing the investment portfolio is reviewed at least monthly by the board of directors. +Our current investment policy permits, with certain limitations, investments in: U.S. Treasury securities; securities issued by the U.S. government and its agencies or government sponsored enterprises including mortgage-backed securities and collateralized mortgage obligations issued by Fannie Mae, Ginnie Mae, and Freddie Mac; corporate and municipal bonds; asset-backed securities; certificates of deposit in other financial institutions; federal funds and money market funds, among other investments. +At June 30, 2024, our investment portfolio consisted of securities and obligations issued by U.S. government-sponsored enterprises as well as state and municipal securities. At June 30, 2024, we also owned $1.9 million of Federal Home Loan Bank of Cincinnati stock and $268,000 of Federal Reserve Bank of Cleveland stock. As a member of Federal Home Loan Bank of Cincinnati and the Federal Reserve Bank of Cleveland, we are required to purchase stock, which is carried at cost and classified as a restricted investment. +At June 30, 2024, all of our investment securities are carried at fair value through accumulated other comprehensive income. +The adoption of ASC326 amended the guidance applicable to measuring and recognizing losses on available-for-sale securities. Under ASC326, expected credit related losses for available-for-sale debt securities are recorded through an allowance for credit losses, while no-credit related losses will continue to be recognized through other comprehensive income as unrealized holding gains and losses, net of tax. Under former GAAP, we assessed our investment securities for other-than-temporary impairment and any declines in fair value that were deemed other-than-temporary resulted in a direct write-down to the amortized cost basis of the related security. The allowance approach allows estimated expected credit losses to be adjusted from period-to-period, as opposed to a permanent write-down. +For additional information regarding our investment securities portfolio, see Note 3 to the notes to financial statements. +14 +Table of Contents +Sources of Funds +General. Deposits have traditionally been our primary source of funds for use in lending and investment activities. We may also use borrowings to supplement cash flow needs, lengthen the maturities of liabilities for interest rate risk purposes and to manage the cost of funds. In addition, we receive funds from scheduled loan payments, investment maturities, loan prepayments, retained earnings and income on earning assets. While scheduled loan payments and income on earning assets are relatively stable sources of funds, deposit inflows and outflows can vary widely and are influenced by prevailing interest rates, market conditions and levels of competition. +Deposits. Our deposits are generated primarily from our primary market area. We offer a selection of deposit accounts, including savings accounts, checking accounts, money market, certificates of deposit and individual retirement accounts. Deposit account terms vary, with the principal differences being the minimum balance required, the amount of time the funds must remain on deposit and the interest rate. +Interest rates paid, maturity terms, service fees and withdrawal penalties are established on a periodic basis. Deposit rates and terms are based primarily on current operating strategies and market rates, liquidity requirements, rates paid by competitors and growth goals. We rely upon personalized customer service, long-standing relationships with customers, and our favorable reputation in the community to attract and retain local deposits. We also seek to obtain deposits from our commercial loan customers. +The flow of deposits is influenced significantly by general economic conditions, changes in money market and other prevailing interest rates and competition. The variety of deposit accounts offered allows us to be competitive in obtaining funds and responding to changes in consumer demand. Based on experience, we believe that our deposits are relatively stable. However, the ability to attract and maintain deposits and the rates paid on these deposits, has been and will continue to be significantly affected by market conditions. +The Company also utilizes brokered certificates of deposit of differing terms, both callable and bullet features, to ensure appropriate liquidity and manage interest rate risk. These totaled $84.1 million at June 30, 2024. +The following table sets forth the distribution of total deposits, by account type, at the dates indicated. +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +At June 30, +​ +​ +2024 +​ +2023 +​ +​ +​ +​ +​ +​ +​ +Average +​ +​ +​ +​ +​ +​ +Average +​ +Amount +Percent +Rate +Amount +Percent +Rate +​ +(Dollars in thousands) +​ +Noninterest-bearing demand deposits +​ +$ +3,280 +1.6 +% +— +% +$ +3,247 +2.7 +% +— +% +Interest-bearing demand deposits +​ +23,213 +11.1 +​ +0.11 +​ +23,304 +19.4 +​ +0.99 +​ +Savings and money market deposits +​ +47,467 +22.7 +​ +1.52 +​ +42,020 +35.0 +​ +0.51 +​ +Certificates of deposit +​ +135,351 +64.7 +​ +4.55 +​ +51,420 +42.9 +​ +1.74 +​ +Total +​ +$ +209,311 +100.0 +% +3.30 +​ +$ +119,991 +100.0 +% +1.08 +% +​ +At June 30, 2024 and June 30, 2023, the aggregate amount of all uninsured deposits (deposits in excess of the Federal Deposit Insurance limit of $250,000 per account) was $23.8 million and $23.0 million, respectively. At June 30, 2024 and June 30, 2023, the aggregate amount of all uninsured certificates of deposit was $4.9 million and $5.7 million, respectively. At June 30, 2024 and June 30, 2023, we had no deposits that were uninsured for any reason other than being in excess of the Federal Deposit Insurance Corporation limit. +15 +Table of Contents +The following table sets forth the maturity of our uninsured certificates of deposit at June 30, 2024. +​ +​ +​ +​ +​ +At June 30, +​ +​ +2024 +​ +​ +(In thousands) +Maturity Period: +​ +​ +​ +Three months or less +​ +$ +3,357 +Over three months through six months +​ +596 +Over six months through 12 months +​ +908 +Over 12 months +​ +— +Total +​ +$ +4,861 +​ +Borrowings . We utilize advances from the FHLB as an alternative to retail and commercial deposits to fund operations as part of our operating strategy. These FHLB advances are collateralized by certain of our mortgage loans and secondarily by our investment in capital stock of FHLB. Such advances may be made under several different credit programs, each of which has its own interest rate and range of maturities. At June 30, 2024, we had outstanding advances of $38.5 million from the Federal Home Loan Bank of Cincinnati and access to an additional $3.9 of advances based on available pledged collateral. All borrowings were short-term (maturities of one year or less). $24.0 million of our outstanding advances were repaid on July 1, 2024. +We also participate in the Bank Term Funding Program created on March 12, 2023 by the Federal Reserve. Any amounts drawn can be refinanced at any time with a term of one year from the date of the initial draw or one year from the latest date of refinancing, whichever is later. The program ended on March 11, 2024. At June 30, 2024 we had outstanding borrowings of $23.5 million that mature on January 16, 2025. +Personnel and Human Capital Resources +As of June 30, 2024, we had 43 full-time employees. Our employees are not represented by any collective bargaining group. Management believes that we have good working relations with our employees. +We believe that our ability to attract and retain top quality employees will be key to the Company’s future success. During the calendar year ended December 31, 2023, we have made several hires, including but not limited to: a new President and Chief Executive Officer, a new Chief Financial Officer, a new Chief Risk Officer, a Chief Information Officer, a Chief Lending Officer and a commercial lending team. We expect to continue to assess our management and staffing needs and are likely to add personnel in the future to fully implement our business strategy. +Subsidiary Activities +Van Wert Federal is the wholly-owned subsidiary of VWF Bancorp. The Company has no other subsidiaries and the Bank has no subsidiaries. +REGULATION AND SUPERVISION +General +As a federal savings association (the term “savings association” includes a federal savings bank), the Bank is subject to examination and regulation by the OCC, and is also subject to examination by the FDIC. This regulation and supervision establishes a comprehensive framework of activities in which an institution may engage and is intended primarily for the protection of the FDIC’s deposit insurance fund and depositors, and not for the protection of security holders. The Bank also is a member of and owns stock in the Federal Home Loan Bank of Cincinnati, which is one of the 11 regional banks in the Federal Home Loan Bank System. +Under this system of regulation, the regulatory authorities have extensive discretion in connection with their supervisory, enforcement, rulemaking and examination activities and policies, including rules or policies that: establish minimum capital levels; restrict the timing and amount of dividend payments; govern the classification of assets; determine the +16 +Table of Contents +adequacy of loan loss reserves for regulatory purposes; and establish the timing and amounts of assessments and fees. Moreover, as part of their examination authority, the banking regulators assign numerical ratings to banks and savings institutions relating to capital, asset quality, management, liquidity, earnings and other factors. The receipt of a less than satisfactory rating in one or more categories may result in enforcement action by the banking regulators against a financial institution. A less than satisfactory rating may also prevent a financial institution, such as the Bank or its holding company, from obtaining necessary regulatory approvals to access the capital markets, pay dividends, acquire other financial institutions or establish new branches. +In addition, we must comply with significant anti-money laundering and anti-terrorism laws and regulations, Community Reinvestment Act laws and regulations, and fair lending laws and regulations. Government agencies have the authority to impose monetary penalties and other sanctions on institutions that fail to comply with these laws and regulations, which could significantly affect our business activities, including our ability to acquire other financial institutions or expand our branch network. +The Company is a savings and loan holding company subject to the rules and regulations of the Federal Reserve Board. It is required to file certain reports with the Federal Reserve Board and is subject to examination by the enforcement authority of the Federal Reserve Board. The Company is also subject to the rules and regulations of the Securities and Exchange Commission under the federal securities laws. Effective June 23, 2023, the Bank elected to operate as a “covered savings association” (CSA). A CSA has the same rights and privileges as a national bank that has its main office situated in the same location as the home office of the CSA and is subject to the same duties, restrictions, penalties, liabilities, conditions, and limitations that would apply to such a national bank. +Any change in applicable laws or regulations, whether by the OCC, the FDIC, the Federal Reserve Board or Congress, could have a material adverse impact on the operations and financial performance of The Company and the Bank. +Set forth below is a brief description of material regulatory requirements that are applicable to the Company and the Bank. The description is limited to certain material aspects of the statutes and regulations addressed, and is not intended to be a complete description of such statutes and regulations and their effects on the Company and the Bank. +Federal Banking Regulation +Business Activities. A federal association derives its lending and investment powers from the Home Owners’ Loan Act, as amended, and applicable federal regulations. Under these laws and regulations, the Bank may invest in mortgage loans secured by residential and commercial real estate, commercial business and consumer loans, certain types of debt securities and certain other assets, subject to applicable limits. The Bank may also establish subsidiaries that may engage in certain activities not otherwise permissible for the Bank to engage in directly, including real estate investment and securities and insurance brokerage. +Capital Requirements . Federal regulations require federally insured depository institutions to meet several minimum capital standards: a common equity Tier 1 capital to risk-weighted assets ratio of 4.5%, a Tier 1 capital to risk-weighted assets ratio of 6.0%, a total capital to risk-weighted assets of 8.0%, and a 4.0% Tier 1 capital to adjusted average total assets leverage ratio. +Common equity Tier 1 capital is generally defined as common stockholders’ equity and retained earnings. Tier 1 capital is generally defined as common equity Tier 1 and additional Tier 1 capital. Additional Tier 1 capital includes certain noncumulative perpetual preferred stock and related surplus and minority interests in equity accounts of consolidated subsidiaries. Total capital includes Tier 1 capital (common equity Tier 1 capital plus additional Tier 1 capital) and Tier 2 capital. Tier 2 capital is comprised of capital instruments and related surplus, meeting specified requirements, and may include cumulative preferred stock and long-term perpetual preferred stock, mandatory convertible securities, intermediate preferred stock and subordinated debt. Also included in Tier 2 capital is the allowance for loan losses limited to a maximum of 1.25% of risk-weighted assets and, for institutions that have exercised an opt-out election regarding the treatment of Accumulated Other Comprehensive Income (“AOCI”), up to 45% of net unrealized gains on available-for-sale equity securities with readily determinable fair market values. Institutions that have not exercised the AOCI opt-out have AOCI incorporated into common equity Tier 1 capital (including unrealized gains and losses on +17 +Table of Contents +available-for-sale-securities). The Bank exercised its AOCI opt-out election. Calculation of all types of regulatory capital is subject to deductions and adjustments specified in the regulations. +In determining the amount of risk-weighted assets for purposes of calculating risk-based capital ratios, all assets, including certain off-balance sheet assets ( e.g. , recourse obligations, direct credit substitutes, residual interests) are multiplied by a risk weight factor assigned by the regulations based on the risks believed inherent in the type of asset. Higher levels of capital are required for asset categories believed to present greater risk. For example, a risk weight of 0% is assigned to cash and U.S. government securities, a risk weight of 50% is generally assigned to prudently underwritten first lien one- to four-family residential real estate loans, a risk weight of 100% is assigned to commercial and consumer loans, a risk weight of 150% is assigned to certain past due loans and a risk weight of between 0% to 600% is assigned to permissible equity interests, depending on certain specified factors. +In addition to establishing the minimum regulatory capital requirements, the regulations limit capital distributions and certain discretionary bonus payments to management if the institution does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets above the amount necessary to meet its minimum risk-based capital requirements. The capital conservation buffer requirement was phased in beginning January 1, 2016 at 0.625% of risk-weighted assets and increasing each year until fully implemented at 2.5% of risk-weighted assets on January 1, 2019. +The federal banking agencies have developed a “Community Bank Leverage Ratio (CBLR)” (the ratio of Tier 1 capital to average total consolidated assets) for financial institutions with assets of less than $10 billion that meet certain qualifying criteria. A “qualifying community bank” that exceeds this ratio will be deemed compliant with all other capital requirements, including the capital requirements to be considered “well capitalized” under Prompt Corrective Action statutes. The federal banking agencies may consider a financial institution’s risk profile when evaluating whether it qualifies as a community bank for purposes of the capital ratio requirement. The federal banking agencies must set the minimum Community Bank Leverage Ratio at not less than 8% and not more than 10%, and as of January 1, 2023, it is set at 9%. The Bank has elected to be subject to the CBLR framework. At June 30, 2024, the Bank’s CBLR was 12.11%. +Loans-to-One Borrower. Generally, a federal savings association may not make a loan or extend credit to a single or related group of borrowers in excess of 15% of unimpaired capital and surplus. An additional amount may be loaned, equal to 10% of unimpaired capital and surplus, if the loan is secured by readily marketable collateral, which generally does not include real estate. At June 30, 2024, the Bank complied with the loans-to-one borrower limitations. +Capital Distributions. Federal regulations govern capital distributions by a federal savings association, which include cash dividends, stock repurchases and other transactions charged to its capital account. A federal savings association must file an application with the OCC for approval of a capital distribution if: +● the total capital distributions for the applicable calendar year exceed the sum of the savings association’s net income for that year to date plus its retained net income for the preceding two years; +● the savings association would not be at least adequately capitalized following the distribution; +● the distribution would violate any applicable statute, regulation, agreement or regulatory condition; or +● the savings association is not eligible for expedited treatment of its filings, generally due to an unsatisfactory CAMELS rating or being subject to a cease and desist order or formal written agreement that requires action to improve the institution’s financial condition. +Even if an application is not otherwise required, every savings association that is a subsidiary of a savings and loan holding company, such as the Bank, must still file a notice with the Federal Reserve Board at least 30 days before the board of directors declares a dividend or approves a capital distribution. +18 +Table of Contents +A notice or application related to a capital distribution may be disapproved if: +● the savings association would be undercapitalized following the distribution; +● the proposed capital distribution raises safety and soundness concerns; or +● the capital distribution would violate a prohibition contained in any statute, regulation or agreement. +In addition, an insured depository institution may not make any capital distribution if, after making such distribution, the institution would fail to meet any applicable regulatory capital requirement. A federal savings association also may not make a capital distribution that would reduce its regulatory capital below the amount required for the liquidation account established in connection with its conversion to stock form. +Community Reinvestment Act and Fair Lending Laws. All federal savings associations have a responsibility under the Community Reinvestment Act and related regulations to help meet the credit needs of their communities, including low- and moderate-income borrowers. In connection with its examination of a federal savings association, the OCC is required to assess the federal savings association’s record of compliance with the Community Reinvestment Act. A savings association’s failure to comply with the provisions of the Community Reinvestment Act could, at a minimum, result in denial of certain corporate applications such as branches or mergers, or in restrictions on its activities. In addition, the Equal Credit Opportunity Act and the Fair Housing Act prohibit lenders from discriminating in their lending practices on the basis of characteristics specified in those statutes. The failure to comply with the Equal Credit Opportunity Act and the Fair Housing Act could result in enforcement actions by the OCC, as well as other federal regulatory agencies and the Department of Justice. +The Community Reinvestment Act requires all institutions insured by the Federal Deposit Insurance Corporation to publicly disclose their rating. The Bank received a “satisfactory” Community Reinvestment Act rating in its most recent federal examination. +Transactions with Related Parties. A federal savings association’s authority to engage in transactions with its affiliates is limited by Sections 23A and 23B of the Federal Reserve Act and federal regulations. An affiliate is generally a company that controls, or is under common control with, an insured depository institution such as Van Wert Federal. VWF Bancorp is an affiliate of Van Wert Federal because of its control of Van Wert Federal. In general, transactions between an insured depository institution and its affiliates are subject to certain quantitative limits and collateral requirements. In addition, federal regulations prohibit a savings association from lending to any of its affiliates that are engaged in activities that are not permissible for bank holding companies and from purchasing the securities of any affiliate, other than a subsidiary. Finally, transactions with affiliates must be consistent with safe and sound banking practices, not involve the purchase of low-quality assets and be on terms that are as favorable to the institution as comparable transactions with non-affiliates. +The Bank’s authority to extend credit to its directors, executive officers and 10% stockholders, as well as to entities controlled by such persons, is currently governed by the requirements of Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O of the Federal Reserve Board. Among other things, these provisions generally require that extensions of credit to insiders: +● be made on terms that are substantially the same as, and follow credit underwriting procedures that are not less stringent than, those prevailing for comparable transactions with unaffiliated persons and that do not involve more than the normal risk of repayment or present other unfavorable features; and +● not exceed certain limitations on the amount of credit extended to such persons, individually and in the aggregate, which limits are based, in part, on the amount of the Bank’s capital. +In addition, extensions of credit in excess of certain limits must be approved by the Bank’s board of directors. Extensions of credit to executive officers are subject to additional limits based on the type of extension involved. +19 +Table of Contents +Enforcement. The OCC has primary enforcement responsibility over federal savings associations and has authority to bring enforcement action against all “institution-affiliated parties,” including directors, officers, stockholders, attorneys, appraisers and accountants who knowingly or recklessly participate in wrongful action likely to have an adverse effect on a federal savings association. Formal enforcement action by the OCC may range from the issuance of a capital directive or cease and desist order to removal of officers and/or directors of the institution and the appointment of a receiver or conservator. Civil penalties cover a wide range of violations and actions, and range up to $25,000 per day, unless a finding of reckless disregard is made, in which case penalties may be as high as $1 million per day. The FDIC also has the authority to terminate deposit insurance or recommend to the OCC that enforcement action be taken with respect to a particular savings association. If such action is not taken, the FDIC has authority to take the action under specified circumstances. +Standards for Safety and Soundness. Federal law requires each federal banking agency to prescribe certain standards for all insured depository institutions. These standards relate to, among other things, internal controls, information systems and audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, compensation and other operational and managerial standards as the agency deems appropriate. Interagency guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. If the appropriate federal banking agency determines that an institution fails to meet any standard prescribed by the guidelines, the agency may require the institution to submit to the agency an acceptable plan to achieve compliance with the standard. If an institution fails to meet these standards, the appropriate federal banking agency may require the institution to implement an acceptable compliance plan. Failure to implement such a plan can result in further enforcement action, including the issuance of a cease and desist order or the imposition of civil money penalties. +Interstate Banking and Branching. Federal law permits well capitalized and well managed holding companies to acquire banks in any state, subject to Federal Reserve Board approval, certain concentration limits and other specified conditions. Interstate mergers of banks are also authorized, subject to regulatory approval and other specified conditions. In addition, among other things, amendments made by the Dodd-Frank Act permit banks to establish de novo branches on an interstate basis provided that branching is authorized by the law of the host state for the banks chartered by that state. +Prompt Corrective Action. Federal law requires, among other things, that federal bank regulators take “prompt corrective action” with respect to institutions that do not meet minimum capital requirements. For this purpose, the law establishes five capital categories: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. Under the regulations, as amended effective January 1, 2015 to incorporate the previously mentioned amendments to the regulatory capital requirements, an institution is deemed to be “well capitalized” if it has a total risk-based capital ratio of 10.0% or greater, a Tier 1 risk-based capital ratio of 8.0% or greater, a leverage ratio of 5.0% or greater and a common equity Tier 1 ratio of 6.5% or greater. An institution is “adequately capitalized” if it has a total risk-based capital ratio of 8.0% or greater, a Tier 1 risk-based capital ratio of 6.0% or greater, a leverage ratio of 4.0% or greater and a common equity Tier 1 ratio of 4.5% or greater. An institution is “undercapitalized” if it has a total risk-based capital ratio of less than 8.0%, a Tier 1 risk-based capital ratio of less than 6.0%, a leverage ratio of less than 4.0% or a common equity Tier 1 ratio of less than 4.5%. An institution is deemed to be “significantly undercapitalized” if it has a total risk-based capital ratio of less than 6.0%, a Tier 1 risk-based capital ratio of less than 4.0%, a leverage ratio of less than 3.0% or a common equity Tier 1 ratio of less than 3.0%. An institution is considered to be “critically undercapitalized” if it has a ratio of tangible equity (as defined in the regulations) to total assets that is equal to or less than 2.0%. +Federal law and regulations also specify circumstances under which a federal banking agency may reclassify a well-capitalized institution as adequately capitalized and may require an institution classified as less than well capitalized to comply with supervisory actions as if it were in the next lower category. +The OCC may order savings associations that have insufficient capital to take corrective actions. For example, a savings association that is categorized as “undercapitalized” is subject to growth limitations and is required to submit a capital restoration plan, and a holding company that controls such a savings association is required to guarantee that the savings association complies with the restoration plan. A “significantly undercapitalized” savings association may be subject to +20 +Table of Contents +additional restrictions. Savings associations deemed by the OCC to be “critically undercapitalized” would be subject to the appointment of a receiver or conservator. +In addition, as set forth above, a “qualifying community bank,” such as Van Wert Federal, that exceeds the Community Bank Leverage Ratio is considered “well capitalized” under the Prompt Corrective Action statutes. The Bank has elected to be subject to the Community Bank Leverage Ratio framework. +At June 30, 2024, the Bank met the criteria for being considered “well capitalized.” +Insurance of Deposit Accounts. The Bank is a member of the Deposit Insurance Fund, which is administered by the FDIC. Its deposit accounts are insured by the FDIC, generally up to a maximum of $250,000 per depositor. +The FDIC imposes deposit insurance assessments against all insured depository institutions. An institution’s assessment rate depends upon the perceived risk of the institution to the Deposit Insurance Fund, with institutions deemed less risky paying lower rates. Currently, assessments for institutions of less than $10 billion of total assets are based on financial measures and supervisory ratings derived from statistical models estimating the probability of failure within three years. That system was effective July 1, 2016 and replaced a system under which each institution was assigned to a risk category. Assessment rates (inclusive of possible adjustments) currently range from 1.5 to 30 basis points of each institution’s total assets less tangible capital. The current scale, also effective July 1, 2016, is a reduction from the previous range of 2.5 to 45 basis points. The FDIC may increase or decrease the range of assessments uniformly, except that no adjustment can deviate more than two basis points from the base assessment rate without notice and comment rulemaking. The existing system represents a change, required by the Dodd-Frank Act, from the FDIC’s prior practice of basing the assessment on an institution’s aggregate deposits. +The FDIC has the authority to increase insurance assessments. A significant increase in insurance premiums would have an adverse effect on the operating expenses and results of operations of the Bank. We cannot predict what deposit insurance assessment rates will be in the future. +Insurance of deposits may be terminated by the FDIC upon a finding that an institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC. We do not know of any practice, condition or violation that might lead to termination of deposit insurance for the Bank. +Privacy Regulations. Federal regulations generally require that the Bank disclose its privacy policy, including identifying with whom it shares a customer’s “non-public personal information,” to customers at the time of establishing the customer relationship and annually thereafter. In addition, the Bank is required to provide its customers with the ability to “opt-out” of having their personal information shared with unaffiliated third parties and not to disclose account numbers or access codes to non-affiliated third parties for marketing purposes. The Bank has a privacy protection policy in place and believes that such policy is in compliance with the regulations. +USA Patriot Act. The Bank is subject to the USA PATRIOT Act, which gives federal agencies additional powers to address terrorist threats through enhanced domestic security measures, expanded surveillance powers, increased information sharing, and broadened anti-money laundering requirements. The USA PATRIOT Act contains provisions intended to encourage information sharing among bank regulatory agencies and law enforcement bodies and imposes affirmative obligations on financial institutions, such as enhanced recordkeeping and customer identification requirements. +Prohibitions Against Tying Arrangements . Federal savings associations are prohibited, subject to some exceptions, from extending credit to or offering any other service, or fixing or varying the consideration for such extension of credit or service, on the condition that the customer obtain some additional service from the institution or its affiliates or not obtain services of a competitor of the institution. +21 +Table of Contents +Other Regulations +Interest and other charges collected or contracted for by the Bank are subject to state usury laws and federal laws concerning interest rates. Loan operations are also subject to state and federal laws applicable to credit transactions, such as the: +● Home Mortgage Disclosure Act of 1975, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves; +● Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit; +● Fair Credit Reporting Act of 1978, governing the use and provision of information to credit reporting agencies; and +● Rules and regulations of the various federal and state agencies charged with the responsibility of implementing such federal and state laws. +The deposit operations of the Bank also are subject to, among others, the: +● Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records; +● Check Clearing for the 21st Century Act (also known as “Check 21”), which gives “substitute checks,” such as digital check images and copies made from that image, the same legal standing as the original paper check; and +● Electronic Funds Transfer Act and Regulation E promulgated thereunder, which govern automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services. +Federal Home Loan Bank System +The Bank is a member of the Federal Home Loan Bank of Cincinnati, which is one of 11 regional Federal Home Loan Banks in the Federal Home Loan Bank System. The Federal Home Loan Bank of Cincinnati provides a central credit facility primarily for its member institutions. Members of the Federal Home Loan Bank of Cincinnati are required to acquire and hold shares of capital stock in the Federal Home Loan Bank of Cincinnati. The Bank complied with this requirement at June 30, 2024. Based on redemption provisions of the Federal Home Loan Bank of Cincinnati, the stock has no quoted market value and is carried at cost. The Bank reviews for impairment, based on the ultimate recoverability, the cost basis of the Federal Home Loan Bank of Cincinnati stock. At June 30, 2024, no impairment has been recognized. +Holding Company Regulation +VWF Bancorp is a unitary savings and loan holding company subject to regulation and supervision by the Federal Reserve Board. The Federal Reserve Board has enforcement authority over VWF Bancorp and its non-savings institution subsidiaries. Among other things, this authority permits the Federal Reserve Board to restrict or prohibit activities that are determined to be a risk to the Bank. +As a savings and loan holding company, VWF Bancorp’s activities are limited to those activities permissible by law for financial holding companies (if VWF Bancorp makes an election to be treated as a financial holding company and meets the other requirements to be a financial holding company) or multiple savings and loan holding companies. VWF +22 +Table of Contents +Bancorp does not intend to make an election to be treated as a financial holding company. A financial holding company may engage in activities that are financial in nature, incidental to financial activities or complementary to a financial activity. Such activities include lending and other activities permitted for bank holding companies under Section 4(c)(8) of the Bank Holding Company Act, insurance and underwriting equity securities. Multiple savings and loan holding companies are authorized to engage in activities specified by federal regulation, including activities permitted for bank holding companies under Section 4(c)(8) of the Bank Holding Company Act. +Federal law prohibits a savings and loan holding company, directly or indirectly, or through one or more subsidiaries, from acquiring more than 5% of another savings institution or savings and loan holding company without prior written approval of the Federal Reserve Board, and from acquiring or retaining control of any depository institution not insured by the FDIC. In evaluating applications by holding companies to acquire savings institutions, the Federal Reserve Board must consider such things as the financial and managerial resources and future prospects of the company and institution involved, the effect of the acquisition on and the risk to the federal deposit insurance fund, the convenience and needs of the community and competitive factors. A savings and loan holding company may not acquire a savings institution in another state and hold the target institution as a separate subsidiary unless it is a supervisory acquisition under Section 13(k) of the Federal Deposit Insurance Act or the law of the state in which the target is located authorizes such acquisitions by out-of-state companies. +Savings and loan holding companies historically have not been subject to consolidated regulatory capital requirements. The Dodd-Frank Act requires the Federal Reserve Board to establish minimum consolidated capital requirements for all depository institution holding companies that are as stringent as those required for the insured depository subsidiaries. However, legislation was enacted in May 2018 that required the Federal Reserve Board to amend its “Small Bank Holding Company” exemption from consolidated holding company capital requirements to generally extend its applicability to bank and savings and loan holding companies of up to $3.0 billion in assets. Regulations implementing this amendment were effective in August 2018. Consequently, savings and loan holding companies of under $3.0 billion in consolidated assets remain exempt from consolidated regulatory capital requirements, unless the Federal Reserve determines otherwise in particular cases. +The Dodd-Frank Act extended the “source of strength” doctrine to savings and loan holding companies. The Federal Reserve Board has promulgated regulations implementing the “source of strength” policy that require holding companies to act as a source of strength to their subsidiary depository institutions by providing capital, liquidity and other support in times of financial stress. +The Federal Reserve Board has issued a policy statement regarding the payment of dividends and the repurchase of shares of common stock by bank holding companies and savings and loan holding companies. In general, the policy provides that dividends should be paid only out of current earnings and only if the prospective rate of earnings retention by the holding company appears consistent with the organization’s capital needs, asset quality and overall financial condition. Regulatory guidance provides for prior regulatory consultation with respect to capital distributions in certain circumstances such as where the company’s net income for the past four quarters, net of dividends previously paid over that period, is insufficient to fully fund the dividend or the company’s overall rate of earnings retention is inconsistent with the company’s capital needs and overall financial condition. The ability of a holding company to pay dividends may be restricted if a subsidiary bank becomes undercapitalized. The policy statement also states that a holding company should inform the Federal Reserve Board supervisory staff before redeeming or repurchasing common stock or perpetual preferred stock if the holding company is experiencing financial weaknesses or if the repurchase or redemption would result in a net reduction, at the end of a quarter, in the amount of such equity instruments outstanding compared with the beginning of the quarter in which the redemption or repurchase occurred. These regulatory policies may affect the ability of VWF Bancorp to pay dividends, repurchase shares of common stock or otherwise engage in capital distributions. +Federal Securities Laws +VWF Bancorp common stock is registered with the Securities and Exchange Commission. VWF Bancorp is subject to the information, proxy solicitation, insider trading restrictions and other requirements under the Securities Exchange Act of 1934, as amended. +23 +Table of Contents +Shares of common stock purchased by persons who are not affiliates of VWF Bancorp may be resold without registration under the Securities Act of 1933. Shares purchased by an affiliate of VWF Bancorp are subject to the resale restrictions of Rule 144 under the Securities Act of 1933. If VWF Bancorp meets the current public information requirements of Rule 144 under the Securities Act of 1933, each affiliate of VWF Bancorp that complies with the other conditions of Rule 144, including those that require the affiliate’s sale to be aggregated with those of other persons, would be able to sell in the public market, without registration, a number of shares not to exceed, in any three-month period, the greater of 1% of the outstanding shares of VWF Bancorp, or the average weekly volume of trading in the shares during the preceding four calendar weeks. +Sarbanes-Oxley Act of 2002 +The Sarbanes-Oxley Act of 2002 is intended to improve corporate responsibility, to provide for enhanced penalties for accounting and auditing improprieties at publicly traded companies and to protect investors by improving the accuracy and reliability of corporate disclosures required under the federal securities laws. We have policies, procedures and systems designed to comply with these regulations, and we review and document such policies, procedures and systems to ensure continued compliance with these regulations. +Change in Control Regulations +Under the Change in Bank Control Act, a federal statute, no person may acquire control of a savings and loan holding company such as VWF Bancorp unless the Federal Reserve Board has been given 60 days prior written notice and has not issued a notice disapproving the proposed acquisition, taking into consideration certain factors, including the financial and managerial resources of the acquirer and the competitive effects of the acquisition. Control, as defined under federal law, means ownership, control of or holding irrevocable proxies representing more than 25% of any class of voting stock, control in any manner of the election of a majority of the institution’s directors, or a determination by the regulator that the acquiror has the power, directly or indirectly, to exercise a controlling influence over the management or policies of the institution. Acquisition of more than 10% of any class of a savings and loan holding company’s voting stock constitutes a rebuttable determination of control under the regulations under certain circumstances including where, as is the case with VWF Bancorp, the issuer has registered securities under Section 12 of the Securities Exchange Act of 1934. +In addition, federal regulations provide that no company may acquire control of a savings and loan holding company without the prior approval of the Federal Reserve Board. Any company that acquires such control becomes a “savings and loan holding company” subject to registration, examination and regulation by the Federal Reserve Board. +Emerging Growth Company Status +VWF Bancorp is an emerging growth company. For as long as it qualifies as an emerging growth company, it may choose to take advantage of exemptions from various reporting requirements applicable to other public companies but not emerging growth companies, including, but not limited to, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation. As an emerging growth company, VWF Bancorp is not subject to Section 404(b) of the Sarbanes-Oxley Act of 2002, which would require that our independent auditors audit our internal control over financial reporting. In addition, as an emerging growth company, we have elected to take advantage of the extended transition periods for adopting new or revised financial accounting standards until the date they are required to be adopted by private companies (however, if any new or revised financial accounting standards would not apply to private companies, we would not be able to delay their adoption). Accordingly, our financial statements may not be comparable to those of public companies that adopt new or revised financial accounting standards as of an earlier date. Investors may find our common stock less attractive since we have chosen to rely on these exemptions. If some investors find our common stock less attractive as a result of any choices to reduce future disclosure, there may be a less active trading market for our common stock and the price of our common stock may be more volatile. +VWF Bancorp will cease to be an emerging growth company upon the earliest of: (i) the end of the fiscal year following the fifth anniversary of the completion of the conversion and offering; (ii) the first fiscal year after our annual gross +24 +Table of Contents +revenues are $1.07 billion (adjusted for inflation) or more; (iii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities; or (iv) the end of any fiscal year in which the market value of our common stock held by non-affiliates exceeded $700 million at the end of the second quarter of that fiscal year. We expect to lose our status as an emerging growth company effective June 30, 2028, which is the end of the fiscal year following the fifth anniversary of the completion date of the Conversion. +TAXATION +Federal Taxation +General. VWF Bancorp and Van Wert Federal are subject to federal income taxation in the same general manner as other corporations, with some exceptions discussed below. The following discussion of federal taxation is intended only to summarize material federal income tax matters and is not a comprehensive description of the tax rules applicable to VWF Bancorp and Van Wert Federal. +Method of Accounting. For federal income tax purposes, the Bank currently reports its income and expenses on the accrual method of accounting and uses a tax year ending December 31 for filing its federal income tax returns. The Small Business Protection Act of 1996 eliminated the use of the reserve method of accounting for bad debt reserves by savings institutions, effective for taxable years beginning after 1995. +Minimum Tax. The alternative minimum tax (“AMT”) for corporations has been repealed for tax years beginning after December 31, 2017. Any unused minimum tax credit of a corporation may be used to offset regular tax liability for any tax year. In addition, a portion of unused minimum tax credit was refundable in 2018 through 2021. The refundable portion is 100% for the tax years beginning after December 31, 2018 of the excess of the minimum tax credit for the year over any credit allowable against regular tax for that year. At June 30, 2024, the Bank had no minimum tax credit carryforward. +Net Operating Loss Carryovers. Generally, a corporation may carry forward net operating losses generated in tax years beginning after December 31, 2017 indefinitely and can offset up to 80% of taxable income. However, net operating losses generated in tax years beginning in 2018, 2019 and 2020 can be carried back five years and are 100% deductible for tax years ending in 2018, 2019 and 2020. At June 30, 2024 and 2023, the Bank generated an NOL that will be carried forward. +Capital Loss Carryovers. Generally, a corporation may carry back capital losses to the preceding three taxable years and forward to the succeeding five taxable years. Any capital loss carryback or carryover is treated as a short-term capital loss for the year to which it is carried. As such, it is grouped with any other capital losses for the year to which carried and is used to offset any capital gains. Any undeducted loss remaining after the five-year carryover period is not deductible. At June 30, 2024, the Bank had no capital loss carryovers. +Corporate Dividends. VWF Bancorp may generally exclude from our income 100% of dividends received from the Bank as a member of the same affiliated group of corporations. +Audit of Tax Returns. The Bank’s federal income tax returns have not been audited in the most recent five-year period. +State Taxation +The Bank is subject to Ohio taxation in the same general manner as other financial institutions. In particular, the Bank files a consolidated Ohio Financial Institutions Tax (“FIT”) return. The FIT is based upon the net worth of the consolidated group. For Ohio FIT purposes, savings institutions are currently taxed at a rate equal to 0.8% of taxable net worth, capped at 14% of the institution’s total assets. +As a Maryland business corporation, VWF Bancorp is required to file an annual report with and pay personal property taxes to the State of Maryland. +25 +Table of Contents \ No newline at end of file diff --git a/raw/filings/0001913838/2024/0001558370-24-013063/item13.txt b/raw/filings/0001913838/2024/0001558370-24-013063/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..0ccec8386e613c53ca28c431435292f697ce53f6 --- /dev/null +++ b/raw/filings/0001913838/2024/0001558370-24-013063/item13.txt @@ -0,0 +1,3 @@ +ITEM 13. +Certain Relationships and Related Transactions, and Director Independence +81 \ No newline at end of file diff --git a/raw/filings/0001913971/2024/0001193125-25-054907/filing.txt b/raw/filings/0001913971/2024/0001193125-25-054907/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..f3619817029d1b98eae6824254c1132a7341df67 --- /dev/null +++ b/raw/filings/0001913971/2024/0001193125-25-054907/filing.txt @@ -0,0 +1,6815 @@ +Form 10-K +Table of Contents +false FY 0001913971 Yes Yes No No Amounts are included in (loss) gain on call/sale of securities available-for-sale on the Consolidated Statements of Income as a separate element within total non-interest income. An income tax benefit of approximately $2,000 was realized for the year ended December 31, 2024, and an income tax expense of approximately $13,000 was realized for the year ended December 31, 2023. 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Fiscal Year Ended December 31 , 2024 +- OR - +☐ +TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the transition period from +to +Commission File Number: +001-41589 +PRINCETON BANCORP, INC. +(Exact name of Registrant as specified in its Charter) +Pennsylvania +88-4268702 +(State or other Jurisdiction of +Incorporation or Organization) +(I.R.S. Employer +Identification No.) +183 Bayard Lane , Princeton , NJ +08540 +(Address of Principal Executive Offices) +(Zip Code) +Registrant’s telephone number, including area code: ( 609 ) +921-1700 +Securities registered pursuant to Section 12(b) of the Act: +Title of each class +Trading +Symbol(s) +Name of each exchange +on which registered +Common stock, no par value +BPRN +The Nasdaq Global Select Market +Securities registered pursuant to Section 12(g) of the Act: +None +(Title of class) +Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ YES ☒  +NO +Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ YES ☒  +NO +Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒  +YES +☐ NO +Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation +S-T +during the preceding 12 months (or such shorter period that the registrant was required to submit such files). ☒  +YES +☐ NO +Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a +non-accelerated +filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule +12b-2 +of the Exchange Act. +Large accelerated filer +☐ +Accelerated filer +☒ +Non-accelerated +filer +☐ +Smaller reporting company +☒ +Emerging growth company +☐ +If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) the Exchange Act. ☐ +Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.  ☒ +If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.  ☐ +Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to § +240.10D-1(b). ☐ +Indicate by check mark whether the registrant is a shell company (as defined in Rule +12b-2 +of the Act). ☐ YES +☒  NO +The aggregate market value of the voting common stock held by +non-affiliates +at June 30, 2024 was $ 159.0 million. +As of March 1 +2 +, 202 +5 +, there were 6,915,086 shares of common stock outstanding. +DOCUMENTS INCORPORATED BY REFERENCE +The registrant intends to file a definitive Proxy Statement for the Annual Meeting of Shareholders scheduled to be held April 22, 2025. The information required by Part III of this Form +10-K +is incorporated by reference to such Proxy Statement. +Table of Contents +TABLE OF CONTENTS +PART I +Item 1 +Business +5 +Item 1A +Risk Factors +24 +Item 1B +Unresolved Staff Comments +39 +Item 1C +Cybersecurity +39 +Item 2 +Properties +40 +Item 3 +Legal Proceedings +42 +Item 4 +Mine Safety +42 +PART II +Item 5 +Market for the Registrant’s Common Equity, Related Stockholder Matters Issuer Purchase of Equity Securities +43 +Item 7 +Management’s Discussion and Analysis of Financial Condition and Results of Operation +46 +Item 7A +Quantitative and Qualitative Disclosure and Market Data +58 +Item 8 +Financial Statements and Supplementary Data +58 +Item 9 +Changes in and Disagreement with Accountants on Accounting and Financial Disclosure +109 +Item 9A +Controls and Procedures +109 +Item 9B +Other Information +109 +Item 9C +Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +109 +PART III +Item 10 +Directors, Executive Officers and Corporate Governance +110 +Item 11 +Executive Compensation +110 +Item 12 +Security Ownership of Certain Beneficial Owners and Management Related Stockholder Matters +110 +Item 13 +Certain Relationships and Related Transaction, and Directors Independence +110 +Item 14 +Principal Accounting Fees and Services +110 +PART IV +Item 15 +Exhibits: Financial Statement Schedules +111 +Item 16 +Form 10-K Summary +113 +Signatures +3 +Table of Contents +Glossary of Acronyms and Terms +The following listing provides a comprehensive reference of common acronyms and terms used throughout the document: +ACL +Allowance for Credit Losses +AFS +Available-for-sale +AI +Artificial Intelligence +ALCO +Asset-liability committee +AML +Anti-money laundering +ASC 326 +ASU 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments +ATM +Automated teller machines +ASU +Accounting Standards Update +BHCA +Bank Holding Company Act of 1956, as amended +CBT +Corporation Business Tax +CECL +ASU 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments +CFC +Cornerstone Financial Corporation and its wholly owned subsidiary Cornerstone Bank +CFPB +Consumer Financial Protection Bureau +CIO +Chief Information Officer +COSO 2013 +Committee of Sponsoring Organizations of the Treadway Commission +CRA +Community Reinvestment Act +DCF +Discounted Cash Flow Method +Department +New Jersey Department of Banking and Insurance +DIF +Deposit Insurance Fund of the FDIC +Dodd-Frank Act +Dodd-Frank Wall Street Reform and Consumer Protection Act +DRR +DIF Designated reserve (target) ratio +FDIC +Federal Deposit Insurance Corporation +Federal Reserve +Federal Reserve System +FHLB +Federal Home Loan Bank +GAAP +Accounting principles generally accepted in the United States of America +GAP Table +Table setting forth the amounts of our interest-earning assets and interest-bearing liabilities outstanding +HELOC +Home equity line of credit +HTM +Held-to-maturity +LTV +Loan to Value +NPV +Net portfolio value +SBIC +Small Business Investment Company +4 +Table of Contents +PRINCETON BANCORP, INC. +PART I +In this report, unless the context indicates otherwise, references to “we,” “us,” and “our” refer to the Company and the Bank. +Item 1. Business +General +Princeton Bancorp, Inc. is a Pennsylvania corporation formed in 2022 to be the holding company for The Bank of Princeton (the “Bank”). The Bank was incorporated on March 5, 2007 under the laws of the State of New Jersey and is a New Jersey state-chartered banking institution. The Bank was granted its bank charter on April 17, 2007, commenced operations on April 23, 2007 and is a full-service bank providing personal and business lending and deposit services. As a state-chartered bank, the Bank is subject to regulation by the New Jersey Department of Banking and Insurance and the FDIC. The area served by the Bank, through its 33 branches, is generally an area within an approximate 50-mile radius of Princeton, NJ, including parts of Burlington, Camden, Gloucester, Hunterdon, Mercer, Middlesex, Ocean, and Somerset Counties in New Jersey, and additional areas in portions of Philadelphia, Montgomery and Bucks Counties in Pennsylvania. The Bank also has two retail branches and conducts loan origination activities in select areas of the New York City metropolitan area. +The Bank offers traditional retail banking services, one-to-four-family residential mortgage loans, multi-family and commercial mortgage loans, construction loans, commercial business loans and consumer loans, including home equity loans and lines of credit. +From 2007 until January 2023, the Bank was a stand-alone bank. On January 10, 2023, the Bank caused the Company to acquire all the outstanding stock of the Bank in a corporate reorganization. As a result, the Bank became the sole direct subsidiary of the Company, the Company became the holding company for the Bank and the stockholders of the Bank became stockholders of the Company. As of December 31, 2024, the Company had 249 total employees and 247 full-time equivalent employees. +On May 19, 2023, the Company completed the acquisition of Noah Bank, a Pennsylvania chartered state bank headquartered in Elkins Park, Pennsylvania that primarily served the Philadelphia, North New Jersey and New York City markets. On that date the Company acquired 100% of the outstanding common stock, for cash, of Noah Bank and Noah Bank was merged with and into the Bank. +On August 23, 2024, the Company completed the acquisition of Cornerstone Financial Corporation (“CFC”), the holding company for Cornerstone Bank, a New Jersey chartered state bank headquartered in Mt. Laurel, New Jersey that primarily served the southern New Jersey market. The Company acquired 100% of the outstanding common stock of CFC in exchange for the Company’s stock, CFC was merged into the Company, and Cornerstone Bank was merged with and into the Bank. +Our headquarters and one of our branches are located at 183 Bayard Lane, Princeton, New Jersey 08540. Our telephone number is (609) 921-1700 and our website address is www.thebankofprinceton.com. +The Company has elected to prepare this Annual Report on Form 10- K and other annual and periodic reports as a “smaller reporting company” consistent with the rules of the SEC. +Competition +We have substantial competition in originating commercial and consumer loans in our market area. This competition comes principally from other banks, savings institutions, mortgage banking companies and other +5 +Table of Contents +lenders. Many of our competitors enjoy advantages over us, including greater financial resources and higher lending limits, more aggressive marketing campaigns, better brand recognition, a wider geographic presence, more accessible branch office locations, the ability to offer a wider array of services or more favorable pricing alternatives, as well as lower origination and operating costs. Among other things, this competition could reduce our interest income and net income by decreasing the number and size of loans that we originate and the interest rates we may charge on these loans. We compete for loans primarily on the basis of value and service by building customer relationships through addressing our customers’ entire suite of banking needs, demonstrating expertise, and providing convenience. We also consider the competitive pricing levels in each of our markets. +In attracting business and consumer deposits, we face substantial competition from other insured depository institutions such as banks, savings institutions and credit unions, as well as institutions offering uninsured investment alternatives, including money market funds. These competitors may offer higher interest rates on deposits, which could decrease the deposits that we attract, or require us to increase the rates we pay to retain existing deposits or attract new deposits. Deposit competition could adversely affect our net interest income and net income, and our ability to generate the funds we require for our lending or other operations. As a result, we may need to seek other sources of funds that may be more expensive to obtain and could increase our cost of funds. We compete for deposits similarly on the basis of value and service and by providing convenience through a banking network of branches and ATMs within our markets and our website at https://thebankofprinceton.com. +FinTechs continue to emerge in key areas of banking. In addition, larger established technology platform companies continue to evaluate, and in some cases, create businesses focused on banking products. We closely monitor activity in the marketplace to ensure that our products and services are technologically competitive. Our overall strategy involves seeking to identify partnership and possible investment opportunities in technology-driven companies that can augment our distribution and product capabilities. +Lending Activities +Our loan portfolio consists of variable-rate and fixed-rate loans with a significant concentration in commercial real estate lending. While most loans and other credit facilities are appropriately collateralized, major emphasis is placed upon the financial condition of the borrower and the borrower’s cash flow versus debt service requirements. +Loan growth is driven by customer demand, which in turn is influenced by individual and business indebtedness and consumer demand for goods. Loaning money will always entail some risk. Without loaning money, however, a bank cannot generate enough net interest income to be profitable. The risk involved in each loan must be carefully evaluated before the loan is made. The interest rate at which the loan is made should always reflect the risk factors involved, including the term of the loan, the value of collateral, if any, the reliability of the projected source of repayment, and the amount of the loan requested. Credit quality and repayment capacity are generally the most important factors in evaluating loan applications. +The majority of our loans are to borrowers in our immediate markets. We believe that no single borrower or group of borrowers presents a credit concentration whereby the borrowers’ loan default would have a material adverse effect on our financial condition or results of operations. +Commercial Real Estate and Multi-family. At December 31, 2024, commercial real estate and multi-family loans amounted in the aggregate to $1.39 billion, or 76.1% of the total loans receivable. Our commercial real estate portfolio has increased $242.2 million or 21.1% since December 31, 2023, when commercial real estate and multi-family loans amounted to $1.14 billion, or 73.8%, of our total portfolio. +The commercial real estate and multi-family loan portfolio consists primarily of loans secured by small office buildings, strip shopping centers, small apartment buildings and other properties used for commercial and multi-family purposes located in the Company’s market area. At December 31, 2024, the average commercial and multi-family real estate loan size was approximately $1.8 million. +6 +Table of Contents +Although terms for commercial real estate and multi-family loans vary, our underwriting standards generally allow for terms up to 7 years with loan-to-value ratios of not more than 75%. Most of the loans are structured with balloon payments of 5 years or less and amortization periods of up to 25 years. Interest rates are either fixed or adjustable, based upon designated market indices such as the Wall Street Journal prime rate plus a margin. +Commercial real estate and multi-family real estate lending involves different risks from single-family residential lending. These risks include larger loans to individual borrowers and loan payments that are dependent upon the successful operations of the project or the borrower’s business. These risks can be affected by supply and demand conditions in the project’s market area of rental housing units, office and retail space and other commercial space. We attempt to minimize these risks by limiting loans to proven businesses, only considering properties with existing operating performance which can be analyzed, using conservative debt coverage ratios in our underwriting, and periodically monitoring the operation of the business or project and the physical condition of the property. +Various aspects of commercial and multi-family loan transactions are evaluated in an effort to mitigate the additional risk in these types of loans. In our underwriting procedures, consideration is given to the stability of the property’s cash flow history, future operating projections, current and projected occupancy levels, location and physical condition. Generally, we impose a debt service ratio (the ratio of net cash flows from operations to debt service) of not less than 1.25 X. We also evaluate the credit and financial condition of the borrower, and if applicable, the guarantor. With respect to loan participation interests we purchase; we underwrite the loans as if we were the originating lender. Appraisal reports prepared by independent appraisers are reviewed by an outside third party prior to closing. +Set forth below is a brief description of our three largest commercial real estate or multi-family loans: +- +The largest commercial real estate loan is a $31 million loan (split between 2 loans $29 million and $2 million). The proceeds were used to refinance an existing loan, with cash out being escrowed and released in the future upon meeting certain requirements. The property is an eight-story mixed use property located in Brooklyn, NY with 69 residential units and one commercial unit with a LTV of 70%. The borrower is paying in accordance with the loan terms as of December 31, 2024. +- +The second largest commercial real estate loan is a $22.7 million loan. The proceeds were used to refinance an existing loan with cash out for future real estate investments. The property is an industrial warehouse located in East Windsor, NJ with a LTV of 55%. The borrower is paying in accordance with the loan terms as of December 31, 2024. +- +The third largest commercial real estate loan is a $20.7 million loan. The proceeds were used to refinance an existing loan. The property is an eight-story mixed use property located in Queens, NY with 49 residential units and two commercial units with a LTV of 56%. The borrower is paying in accordance with the loan terms as of December 31, 2024. +Commercial and Industrial Loans. At December 31, 2024, commercial and industrial loans amounted in the aggregate to $93.0 million, or 5.1%, of the total loan portfolio . Our commercial and industrial portfolio has increased $42.0 million, or 82.2%, since December 31, 2023, when commercial and industrial loans amounted to $51.0 million, or 3.3%, of our total loan portfolio. +Commercial business loans are made to small to mid-sized businesses in our market area primarily to provide working capital. Small business loans may have adjustable or fixed rates of interest and generally have terms of three years or less but may be as long as 15 years. Our commercial business loans have historically been underwritten based on the creditworthiness of the borrower and generally require a debt service coverage ratio of at least 1.25 X. In addition, we generally obtain personal guarantees from the principals of the borrower with respect to commercial business loans and frequently obtain real estate as additional collateral. +7 +Table of Contents +Set forth below is a brief description of our three largest commercial and industrial loans: +- +The largest commercial and industrial loan is a $9.4 million loan. The proceeds were used for business purposes and completion of capital improvements. The collateral is a lien on all business assets. The borrower is paying in accordance with the loan terms as of December 31, 2024. +- +The second largest commercial and industrial loan is a $9.4 million loan. The proceeds were used as a fully drawn business line of credit for general purposes. The loan is secured by real estate and cash collateral. The borrower is paying in accordance with the loan terms as of December 31, 2024. +- +The third largest commercial and industrial loan is a $7.6 million loan. The proceeds were used for working capital for future business opportunities. The loan is unsecured. The borrower is paying in accordance with the loan terms as of December 31, 2024. +Construction Loans. We originate various types of commercial loans, including construction loans, secured by collateral such as real estate, business assets and personal guarantees. The loans are solicited on a direct basis and through various professionals with whom we maintain contact and by referral from our directors, stockholders and customers. At December 31, 2024, our construction loans amounted to $257.2 million, or 14.1% of our total loans receivable. The average size of a construction loan was approximately $5.0 million at December 31, 2024. Our construction loans portfolio has decreased $53.0 million or 17.1% since December 31, 2023, when construction loans amounted to $310.2 million, or 20.0% of our total loans receivable. Construction lending represents a segment of our loan portfolio and is driven primarily by market conditions. Loans to finance construction of condominium projects or single-family homes and subdivisions are generally offered to experienced builders in our primary market area with whom we have an established relationship. The maximum loan-to-value limit applicable to these loans is 75% of the appraised post construction value and does not require amortization of the principal during the term of the loan. We often establish interest reserves and obtain personal and corporate guarantees as additional security on the construction loans. Interest reserves are used to pay monthly payments during the construction phases of the loan and are treated as an addition to the loan balance. Interest reserves pose an additional risk to the Bank if it does not become aware of deterioration in the borrower’s financial condition before the interest reserve is fully utilized. In order to mitigate risk, financial statements and tax returns are obtained from borrowers on an annual basis. Construction loan proceeds are disbursed periodically in increments as construction progresses and as inspection by approved appraisers or loan inspectors warrants. Construction loans are negotiated on an individual basis but typically have floating rates of interest based on a common index plus a stipulated margin. Additional fees may be charged as funds are disbursed. As units are completed and sold, we require that payments to reduce principal outstanding be made prior to them being released. We may permit a pre-determined limited number of model homes to be constructed on an unsold or “speculative” basis. Construction loans also include loans to acquire land and loans to develop the basic infrastructure, such as roads and sewers. The majority of the construction loans are secured by properties located in our primary areas. +Set forth below is a brief description of our three largest construction loans or loan relationships: +- +The largest construction loan is a $32.5 million participation loan. The Bank’s share is 76.9% of the total loan amount. The proceeds are being used to construct a 9-story residential building consisting of 89 residential units in Brooklyn, NY. The project is approximately 88% complete. The borrower is paying in accordance with the loan terms as of December 31, 2024. +- +The second largest construction loan is a $21.7 million loan to purchase and renovate a mixed-use property consisting of residential units and retail space in Newark NJ. The project is approximately 97% complete. The borrower is paying in accordance with the loan terms as of December 31, 2024. +- +The third largest construction loan is a $25.0 million loan to purchase land for future construction of a mixed-use property consisting of residential units and commercial/retail office space in Jersey City, NJ. The borrower is paying in accordance with the loan terms as of December 31, 2024. +8 +Table of Contents +Residential First-Lien Mortgage Loans. We offer a narrow range of prime residential first-lien mortgage loans at competitive rates. Our customers, stockholders and local real estate brokers are a significant source of these loans. We strive to process, approve and fund loans in a timeframe that meets the needs of our borrowers. Generally, we originate and retain non-conforming residential first-lien mortgage loans and refer conforming residential first-lien mortgage loans to a third party, whereby we may earn a fee. At December 31, 2024, our residential first-lien loans amounted to $68.0 million, or 3.7%, of our total portfolio. Our residential first-lien loan portfolio has increased $30.0 million, or 78.8%, since December 31, 2023, when residential first-lien loans amounted to $38.0 million, or 2.5%, of our total loan portfolio. This substantial increase was due to our acquisition of CFC in August 2024. +Home Equity Loans and Consumer Loans. We generate these loans and lines of credit primarily through direct marketing at our branch locations, referrals from local real estate brokers and, to a lesser extent, by targeted direct marketing programs such as mail and electronic mail. Consumer loans are solicited on a direct basis and upon referrals from our directors, stockholders and existing customers. +Loans Receivable, Net. Loans receivable, net increased from $1.55 billion at December 31, 2023, to $1.82 billion at December 31, 2024, an increase of $270.5 million, or 17.5%. The increase was attributable to an increase in commercial real estate loans of $242.2 million, an increase in commercial and industrial loans of $42.0 million and an increase in residential first-lien mortgage loans of $30.0, partially offset by a decrease of $53.0 million in construction loans. The acquisition of CFC in August 2024 resulted in an increase of $255.5 to the loan portfolio. +The following table details our loan maturities by loan segment and interest rate type: +December 31, 2024 +Due in one year +or less +Due after one +through five +years +Due after five +years through +fifteen years +Due after fifteen +years +Total +(Dollars in thousands) +Commercial real estate +$ +75,425 +$ +475,306 +$ +467,819 +$ +366,535 +$ +1,385,085 +Commercial and industrial +34,261 +19,976 +30,519 +8,101 +92,857 +Construction +208,382 +48,787 +—  +—  +257,169 +Residential first-lien mortgage +—  +16 +9,337 +58,677 +68,030 +Home equity/consumer +1 +375 +3,490 +14,267 +18,133 +Total loans +$ +318,069 +$ +544,460 +$ +511,165 +$ +447,580 +$ +1,821,274 +Amount due after one year +Fixed Rate +Variable Rate +(Dollars in thousands) +Commercial real estate +$ +394,551 +$ +915,109 +Commercial and industrial +33,493 +25,103 +Construction +—  +48,787 +Residential first-lien mortgage +40,380 +27,650 +Home equity/consumer +3,224 +14,908 +Total loans +$ +471,648 +$ +1,031,557 +The accrual of interest is discontinued when the contractual payment of principal or interest is 90 days past due or management has serious doubts about further collectability of the principal or interest, even if the loan is currently performing. +9 +Table of Contents +The following table sets forth certain information regarding our nonaccrual loans, accruing loans 90 days or more past-due, and other real estate owned.  +December 31, +2024 +2023 +(Dollars in thousands) +Commercial real estate +$ +26,101 +$ +4,485 +Commercial and industrial +627 +2,116 +Construction +—  +—  +Residential first-lien mortgage +113 +107 +Home equity/consumer +—  +—  +Total nonaccrual loans +26,841 +6,708 +Accruing loans 90 days or more past due +—  +—  +Total nonperforming loans +26,841 +6,708 +Other real estate owned +295 +—  +Total nonperforming assets +$ +27,136 +$ +6,708 +See Note 5 - “Loans Receivable” in the Notes to Consolidated Financial Statements within this Form 10-K for additional information regarding our loans not classified as nonperforming assets as of December 31, 2024 and for other information on our loan ratings of special mention, substandard and doubtful, all of which contain varying degrees of potential credit problems that could result in the loans being classified as nonaccrual, past-due 90 or more days or modifications to borrowers with financial difficulty in a future period. +Analysis of Allowance for Credit Losses. On January 1, 2023, the Company adopted Accounting Standard Update (“ASU”) 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“CECL” or “ASC 326”) , which requires the recognition of the allowance for credit losses be estimated using the CECL methodology. The measurement of expected credit losses under CECL methodology is applicable to financial measured assets at amortized cost, including loan receivables. Available-for-sale (“AFS”) debt securities are included and require credit losses to be presented as an allowance rather than as a write-down. It also applies to off-balance sheet credit exposure, such as unfunded loan commitments, standby letters of credit and other similar instruments. +The Company adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures. The Company recorded a net decrease of $284 thousand to retained earnings as of January 1, 2023 for the cumulative effect of adopting ASC 326, which included a net deferred asset of $110 thousand. The transition adjustment includes a $301 thousand decrease to the allowance for credit losses and the increase of $695 thousand in the allowance of credit losses on off-balance sheet credit-exposures. +The credit loss estimation process involves procedures to appropriately consider the unique characteristics of loan portfolio segments, which consist of commercial real estate loans, construction loans, commercial and industrial loans, residential loans and HELOC/consumer loans. These segments are further disaggregated into loan classes, the level at which credit risk is monitored. For each of these segments, the Company generates cash flow projections at the instrument level wherein payment expectations are adjusted for estimated prepayment speed, curtailments, time to recovery, probability of default and loss given default. The modeling of expected prepayment speeds, curtailment rates, and time to recovery are based on historical data. The quantitative component of the ACL on loans is model-based and utilizes a forward-looking macroeconomic forecast. The Company uses a discounted cash flow method, incorporating probability of default and loss given default forecasted based on statistically derived economic variable loss drivers, to estimate expected credit losses. This process includes estimates which involve modeling loss projections attributed to existing loan balances, and +10 +Table of Contents +considering historical experience, current conditions, and future expectations for segments of loans over a reasonable and supportable forecast period. The historical information used is that experienced by the Company or by a selection of peer banks, when appropriate. +Commercial real estate – Loans in this segment include owner-occupied commercial real estate, non-owner-occupied commercial real estate and multi-family dwellings within the Company’s market area. The underlying cash flows generated by the properties or operations can be adversely impacted by a downturn in the economy due to increased vacancy rates or diminished cash flows, which in turn, would have an effect on the credit quality in this segment. Management obtains financial information annually and monitors the cash flow of these loans. +Construction – Loans in this segment include primarily construction of condominium projects or single-family homes and subdivisions. Exposure to loans in this segment can come from construction delays, slow unit sales and insufficient interest reserves. The Company often requires personal and corporate guarantees as additional security on the loan. Management relies on progress reports and third-party experts prior to the release of additional funds. +Commercial and industrial loans – Loans in this segment are primarily for commercial business assets and/or purposes, which usually carry a personal guarantee from the business owners. Repayment is expected from the cash flow of the business. A weakened economy, and resultant decrease in consumer spending, will have an effect on quality in this segment. +Residential real estate loans – This portfolio segment consists of first lien secured by one-to-four family residential properties. The overall health of the economy, including unemployment rates and housing pricing, will have an effect on the credit quality in this segment. +Consumer/HELOC loans – Loans in this segment are substantially secured and repayment is dependent on the credit quality of the individual borrower and include junior-lien mortgages. +Credits with Similar Risk Characteristics. +The Company is using DCF in estimating the component of the allowance for credit losses for loans that share similar risk characteristics with other loans, such loans are segregated into loan segments. The model calculates an expected loss percentage for each segment by considering the probability of default, using life-of-loan analysis periods for all segments, and the historical severity of loss, based on the aggregate net lifetime losses incurred per loan segment. The default and severity factors used to calculate the allowance for credit losses for loans that share similar risk characteristics with other loans are adjusted for differences between historical period used to calculate historical severity of loss, based on the aggregate net lifetime losses incurred per loan segment. The default and severity factors used calculate the allowance for credit losses for loans that share similar risk characteristics with other loans adjusted for differences between the historical loss and severity rates and expected conditions over the remaining lives of the loans in the portfolio related to: a) lending policy and procedures; b) economic conditions; c) volume of the loan portfolio; d) experience and depth of lending management; e) level of delinquencies; f) quality of our loan review system; g) the value of underlying collateral for collateralized loans and h) level of concentration of a particular segment. +Individually Evaluated Financial Assets. +For a loan that does not share risk characteristics with other loans, expected credit loss is measured based on net realizable value. We generally consider these to be nonperforming loans. For these loans, we recognize expected credit loss equal to the amount by which the net realizable value of the loan is less than the amortized cost basis of the loan, except when the loan is collateral dependent, that is, when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the sale of the collateral. In these cases, expected credit loss is measured as the difference between amortized cost basis and the loan and the fair value of the collateral less disposal costs (such as sales costs, transfer taxes and unpaid real estate taxes). +11 +Table of Contents +Allowance for Credit Losses on Off-Balance Sheet Credit Exposures, Including Unfunded Loan Commitments. +The Company maintains a separate allowance for credit losses from off-balance-sheet credit exposures, including unfunded loan commitments, which are included in other liabilities on the consolidated statements of financial condition. Management estimates the amount of expected losses by calculating a commitment usage factor over the contractual period of exposure that are not unconditionally cancellable by the Company by applying the loss factors used in the ACL methodology to the result of the usage calculation to estimate the liability for credit losses related to unfunded commitments for each loan type. The allowance for credit losses on off-balance sheet credit exposures is adjusted as credit loss expense. +As of December 31, 2024, the allowance for credit losses on loans was $23.7 million as compared to $18.5 million as of December 31, 2023. The $5.2 million increase in the allowance for credit losses was attributed to a $2.3 million provision related to the Bank’s loan portfolio, $3.2 million associated with non-purchase credit deteriorated loans associated with loans acquired in the CFC acquisition, partially offset by $353 thousand of net-charge offs recorded during 2024. +At December 31, 2024, non-performing assets totaled $27.1 million, an increase of $20.4 million when compared to the amount at December 31, 2023. The increase was due to the delinquency of two commercial real estate loans totaling $25.4 million with collateral supporting each loan. The Company is a participant in these loans and is currently evaluating its options with the lead bank, including but not limited to placing the loans on the market for sale. +The following table presents a summary of our allowance for credit losses on loans and nonaccrual loans by total loans and a summary of net charge-offs by loan segments: +As of and for Year Ended +December 31, +2024 +2023 +(Dollars in thousands) +Allowance for credit losses to total loans outstanding: +1.30 +% +1.19 +% +Allowance for credit losses on loans +$ +23,657 +$ +18,492 +Total loans outstanding +$ +1,821,274 +$ +1,550,133 +Nonaccrual loans +$ +26,841 +$ +6,708 +Allowance for credit losses to nonaccrual loans +88.1 +% +275.7 +% +Nonaccrual loans to total loans outstanding +1.47 +% +0.43 +% +Net charge-offs (recoveries) during the period to average loans outstanding +Commercial real estate +0.01 +% +0.17 +% +Net charge-offs +$ +151 +$ +1,659 +Average amount outstanding +$ +1,252,464 +$ +986,974 +Commercial and industrial +0.39 +% +0.00 +% +Net charge-offs (recoveries) +$ +237 +$ +(2 +) +Average amount outstanding +$ +60,665 +$ +42,850 +Construction +-0.01 +% +0.04 +% +Net charge-offs (recoveries) +$ +(35 +) +$ +148 +Average amount outstanding +$ +289,851 +$ +371,037 +Residential first-lien +0.00 +% +0.00 +% +Net charge-offs +$ +—  +$ +2 +Average amount outstanding +$ +48,392 +$ +40,831 +Home equity/consumer +0.00 +% +0.00 +% +Net charge-offs +$ +—  +$ +—  +Average amount outstanding +$ +11,641 +$ +7,812 +Total loans +0.02 +% +0.12 +% +Net charge-offs +$ +353 +$ +1,807 +Average amount outstanding +$ +1,663,013 +$ +1,449,504 +12 +Table of Contents +The following table presents the allocation of the allowance for credit losses by portfolio segment for the years presented. The allocation of a portion of the allowance for credit losses to one category of loans does not preclude its availability to absorb losses in other categories. +(Dollars in thousands) +2024 +2023 +Amount +Loan +Balance +as % of +Total Loans +Amount +Loan +Balance +as % of +Total Loans +Commercial real estate +$ +20,821 +76.1 +% +$ +16,047 +73.7 +% +Commercial and industrial +1,173 +5.1 +% +488 +3.3 +% +Construction +609 +14.1 +% +1,145 +20.0 +% +Residential first-lien mortgage +893 +3.7 +% +725 +2.5 +% +Home equity/consumer +161 +1.0 +% +87 +0.5 +% +Total loans +$ +23,657 +100.0 +% +$ +18,492 +100.0 +% +See Note 5 – “Loans Receivable” in the Notes to Consolidated Financial Statements within this Form 10-K for additional information regarding our allowance for credit losses. +Investment Securities (available-for-sale and held-to-maturity) +We hold securities that are available to fund increased loan demand or deposit withdrawals and other liquidity needs, and which provide an additional source of interest income. Securities are classified as held-to-maturity (“HTM”) or available-for-sale (“AFS”) at the time of purchase. Securities are classified as HTM if we have the ability and intent to hold them until maturity. HTM securities are carried at cost, adjusted for unamortized purchase premiums and discounts. Securities that are classified as AFS are carried at fair value with unrealized gains and losses, net of income taxes, reported as a component of equity within accumulated other comprehensive income (loss). +Securities available-for-sale, which are carried at fair value, increased $155.8 million, or 170.6%, to $247.2 million at December 31, 2024 from $91.4 million at December 31, 2023. The increase was primarily due to $179.5 million in purchases of available-for-sale securities during 2024, the addition of $13.9 million from the CFC acquisition, partially offset by an increase of $2.5 million attributed to the unrealized losses associated with the available-for-sale portfolio, principal repayments of $34.5 million and $300 thousand of maturities or calls. +13 +Table of Contents +The following table summarizes the weighted-average yields based on maturity distribution schedule of the amortized cost of AFS debt securities at December 31, 2024. Interest income presented in this Form 10-K for tax-advantaged obligations of state and political subdivisions has not been adjusted to reflect fully taxable-equivalent interest income. Expected maturities may differ from contractual maturities because the securities may be called without any penalties. +One year or +less +After one +through five +years +After five +through ten +years +After ten +years +Total +(Dollars in thousands) +Mortgage-backed securities - U.S. Government Sponsored Enterprises (GSEs) +$ +14 +$ +2,155 +$ +893 +$ +187,483 +$ +190,545 +U.S. government agencies +—  +966 +6,704 +2,529 +10,199 +Obligations of state and political subdivisions +1,408 +5,831 +28,728 +3,763 +39,730 +Small business association (SBA) securities +—  +531 +627 +699 +1,857 +U.S. treasury securities +1,994 +2,846 +—  +—  +4,840 +Total +$ +3,416 +$ +12,329 +$ +36,952 +$ +194,474 +$ +247,171 +(Yield on securities) +Mortgage-backed securities - U.S. Government Sponsored Enterprises (GSEs) +3.56 +% +4.56 +% +2.52 +% +5.09 +% +5.07 +% +U.S. government agencies +—  +2.84 +% +4.24 +% +2.33 +% +3.64 +% +Obligations of state and political subdivisions +3.54 +% +2.96 +% +2.55 +% +2.34 +% +2.63 +% +Small business association (SBA) securities +—  +7.33 +% +4.57 +% +5.92 +% +5.87 +% +U.S. treasury securities +4.88 +% +3.93 +% +—  +—  +4.32 +% +Total +4.32 +% +3.64 +% +2.89 +% +5.00 +% +4.61 +% +At December 31, 2024, there were no security holdings of any one issuer in an amount greater than 10.0% of our total stockholders’ equity. See Note 4 – “Investment Securities” in the Notes to Consolidated Financial Statements within this Form 10-K for additional information regarding debt securities. +Cash and Due from Banks and Interest-earning Bank Balances +Cash and due from banks and interest-earning bank balances decreased from $34.5 million at December 31, 2023 to $33.6 million at December 31, 2024, a decrease of $888 thousand, or 2.6%. +Federal Funds Sold +Federal funds sold decreased from $116.0 million at December 31, 2023 to $83.7 million at December 31, 2024, a decrease of $32.3 million, or 27.9%. The decrease in federal funds sold was primarily due to increases in investment securities and in loans and partially offset by an increase in deposits. +Premises and Equipment +Premises and equipment, net increased $3.4 million from December 31, 2023 to December 31, 2024 resulting from $3.5 million in premises and equipment acquired in connection with the CFC acquisition, and $1.6 million in a combination of purchases of new equipment and improvements, partially offset by $1.7 million in depreciation and disposals. +Goodwill and Core Deposit Intangible +At December 31, 2024, the Company had $14.4 million of goodwill, an increase of $5.5 million when compared to December 31, 2023, related to the acquisition of CFC. At December 31, 2024 the Company had +14 +Table of Contents +$3.6 million in core deposit intangible assets, an increase of $2.2 million when compared to December 31, 2023. The remaining balance is comprised of $2.6 million from the CFC acquisition, $900 thousand from the WSFS branch acquisition that occurred in May 2019, and $73 thousand from the Noah acquisition.  +Operating Lease Right-of-Use Asset +Operating lease right-of-use asset decreased $1.5 million from $23.4 million at December 31, 2023 to $21.9 million at December 31, 2024 due to $1.3 million in leases acquired as part of the CFC acquisition, $1.8 million of new leases, offset by $4.6 million in amortization. +Equity Method Investments +The Company is a limited partner in a Small Business Investment Company (“SBIC”) and committed to contribute capital of $5.0 million to the partnership. At December 31, 2024, the SBIC had a book value of $3.3 million. The unfunded commitment to the partnership was $1.7 million at December 31, 2024. +The Company invested in a CRA eligible investment that acquires SBA loans within qualifying census tracts in which the Bank operates. The Company decides which loans are included in its investment. The Company had an outstanding commitment to fund up to $6.9 million and currently has $6.9 million funded. There is currently no unfunded commitment at December 31, 2024. +Accrued Interest Receivable and Other Assets +Accrued interest receivable increased $1.9 million from December 31, 2023 to December 31, 2024, primarily due to an increase in the outstanding principal balance of loans and investment securities at December 31, 2024. Deferred taxes increased $8.8 million from December 31, 2023 to December 31, 2024, primarily due to the CFC acquisition. Bank owned life insurance increased $13.3 million from December 31, 2023 to December 31, 2024, primarily due to $8.7 million acquired from CFC, $2.9 million in purchases and a $1.7 million increase in cash surrender value resulting from the increase in interest rates. Other assets increased $1.3 million from December 31, 2023 to December 31, 2024. +Deposits +Our deposit services are generally comprised of a traditional range of deposit products, including checking accounts, savings accounts, attorney trust accounts, money market accounts, and certificates of deposit. +We offer our customers access to ATMs and other services which increase customer convenience and encourage continued and additional banking relationships. +We endeavor to maintain competitive rates on deposit accounts, and actual rates are established at the time that they are offered, and subsequently, based on contractual terms, taking into consideration competitor offerings. Although from time to time we advertise in local newspapers, our primary source of deposit relationships is satisfied customers. We offer a range of direct deposit products ranging from social security and disability payments to direct deposit of payroll checks. +During normal business practices the Bank will utilize deposits originated by brokers to support the Bank’s funding needs. At December 31, 2024 the balance of brokered deposits was $44.6 million, a decrease of $42.6 million from the $87.2 million outstanding at December 31, 2023. +At December 31, 2024, there were no customers whose deposit balances individually exceeded 5% of total deposits. +15 +Table of Contents +The following table presents the average balance of our deposit accounts and the average cost of funds for each category of our deposits, total uninsured deposits, and amount of uninsured portion of time deposits by maturity. +2024 +2023 +Average +Amount +Average +Rate +Paid +Average +Amount +Average +Rate +Paid +(Dollars in thousands) +Non-interest-bearing checking +$ +264,418 +0.00 +% +$ +248,233 +0.00 +% +Demand interest-bearing +258,462 +1.91 +% +250,312 +1.46 +% +Money market +421,934 +3.79 +% +311,478 +3.07 +% +Savings deposits +157,538 +2.52 +% +159,175 +1.72 +% +Time deposits +724,060 +4.35 +% +538,343 +3.17 +% +$ +1,826,412 +3.09 +% +$ +1,507,541 +2.19 +% +Amount +Amount +Uninsured deposits +$ +573,727 +$ +427,384 +The following table represents the uninsured time deposits by maturity. +As of December 31, +2024 +2023 +Uninsured time deposits maturity +(Dollars in thousands) +Three months or less +$ +18,756 +$ +10,796 +Over three through six months +28,202 +22,609 +Over six through twelve months +40,150 +28,715 +Over twelve months +2,553 +6,678 +Total uninsured time deposits +$ +89,661 +$ +68,798 +The uninsured portion of deposits is any balance that exceeds the FDIC insurance limit of $250,000.  +See the liquidity discussion within Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations within this Form 10-K for more information regarding our available funds. +Total deposits increased from $1.64 billion at December 31, 2023 to $2.03 billion at December 31, 2024, an increase of $396.9 million, or 24.26%. Included in this increase was $282.8 million in deposits acquired from CFC. Non-interest-bearing deposits increased $51.7 million, or 20.7%, to $301.0 million at December 31, 2024. The Company acquired $67.6 million of non-interest-bearing deposits from CFC. Interest-bearing deposits increased $345.2 million, or 24.9%. Included in this increase was $215.2 million of interest-bearing deposits acquired from CFC. +Borrowings +The Company had no outstanding borrowings at December 31, 2024 or December 31, 2023. +Accrued Interest Payable, Lease Liabilities and Other Liabilities +Accrued interest payable increased $6.2 million from $9.2 million at December 31, 2023 to $15.4 million at December 31, 2024. The increase was primarily the result of the increase in interest rates offered on deposit accounts during 2024 as well as the increase in deposit balances due partially to the CFC acquisition. Lease liabilities increased $1.3 million, while other liabilities increased $123 thousand. +16 +Table of Contents +Stockholders’ Equity +Total stockholders’ equity at December 31, 2024, increased $21.8 million or 9.09% when compared to December 31, 2023. The increase was primarily due to the $21.6 million increase in paid-in capital which is primarily associated with the issuance of $20.0 million of common stock related to the acquisition of CFC, and an increase in retained earnings of $2.5 million, which consisted of $10.2 million in net income, partially offset by $7.7 million of cash dividends recorded during the period, which increases were partially offset by an increase in accumulated other comprehensive loss of $1.4 million. The ratio of equity to total assets at December 31, 2024 and at December 31, 2023 was 11.2% and 12.5%, respectively. The current period ratio decrease was primarily due to the CFC acquisition. +Other Services +To further attract and retain customer relationships, we provide a standard array of additional community banking services, which include the following: +Money orders +Direct deposit +Automated teller machines +Cashier’s checks +Safe deposit boxes +On-line banking +Wire transfers +Night depository +Remote deposit capture +Debit cards +Bank-by-mail +Automated telephone banking +We also offer, on a limited basis, payroll-related services and credit card and merchant credit card processing through third parties whereby we do not undertake credit or fraud risk. +Internet Banking +We advertise but do not actively solicit new deposits or loans through our website. We utilize a qualified and experienced internet service provider to furnish the following types of customer account services: +Full on-line statements +Transaction histories +On-line bill payment +Transaction details +Account inquiries +Account-to-account transfers +Mobile banking +Fee Income +Fee income is a component of our non-interest income. By charging non-customers fees for using our ATMs and charging customers for banking services such as money orders, cashier’s checks, wire transfers and check orders, as well as other deposit and loan-related fees, we earn fee income. Prudent fee income opportunities are sought to supplement net interest income but may be limited by our efforts to remain competitive and by regulatory constraints. +Staffing +As of December 31, 2024, we had approximately 247 full-time equivalent employees. +Supervision and Regulation +General. We are extensively regulated under both federal and state law. These laws restrict permissible activities and investments and require compliance with various consumer protection provisions applicable to lending, deposit, brokerage and fiduciary activities. They also impose capital adequacy requirements and conditions to our ability to repurchase stock or to pay dividends. The Company is a registered bank holding company and, as such is subject to the provisions of the Bank Holding Company Act of 1956, as amended (the “BHCA”) and to supervision and examination by the Board of Governors of the Federal Reserve System (the “Federal Reserve”). The Bank is also subject to the supervision and examination by the FDIC, as their primary +17 +Table of Contents +federal regulator and as the insurer of the Banks’ deposits. The Bank is also regulated and examined by the New Jersey Department of Banking and Insurance (the “Department”). These regulators have broad discretion to impose restrictions and limitations on our operations. This supervisory framework could materially impact the conduct and profitability of our activities. +To the extent that the following information describes statutory and regulatory provisions, it is qualified in its entirety by reference to the particular statutory and regulatory provisions. Proposals to change the laws and regulations governing the banking industry are frequently raised at both the state and federal levels. The likelihood and timing of any changes in these laws and regulations, and the impact such changes may have on us, is difficult to ascertain. Changes in applicable laws and regulations, or in the manner such laws or regulations are interpreted by regulatory agencies or courts, may have a material effect on our business, financial condition and results of operations. +We are subject to various requirements and restrictions under federal and state law, including requirements to maintain reserves against deposits, restrictions on the types, amount and terms and conditions of loans that may be originated, and limits on the type of other activities in which we may engage and the investments we may make. Banking regulations permit us to engage in certain additional activities, such as insurance sales and securities underwriting, through the formation of a “financial subsidiary.” In order to be eligible to establish or acquire a financial subsidiary, we must be “well capitalized” and “well managed” and may not have less than a “satisfactory” CRA rating. At this time, we do not engage in any activity which would require us to maintain a financial subsidiary. We are also subject to federal laws that limit the amount of transactions between us and any nonbank affiliates. Under these provisions, transactions, such as a loan or investment, by us with any nonbank affiliate are generally limited to 10% of our capital and surplus for all covered transactions with such affiliate or 20% percent of capital and surplus for all covered transactions with all affiliates. Any extensions of credit, with limited exceptions, must be secured by eligible collateral in specified amounts. We are also prohibited from purchasing any “low quality” assets from an affiliate. The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) significantly expands the coverage and scope of the limitations on affiliate transactions within a banking organization. +Holding Company. The Federal Reserve has issued regulations under the BHCA that require a bank holding company to serve as a source of financial and managerial strength to its subsidiary banks. As a result, the Federal Reserve, pursuant to such regulations, may require the Company to stand ready to use its resources to provide adequate capital funds to the Bank during periods of financial stress or adversity. The BHCA requires the Company to secure the prior approval of the Federal Reserve before it can acquire all or substantially all of the assets of any bank or acquire ownership or control of 5% or more of any voting shares of any bank. Such a transaction would also require approval of the Department. +A bank holding company is prohibited under the BHCA from engaging in, or acquiring direct or indirect control of, more than 5% of the voting shares of any company engaged in non-banking activities unless the Federal Reserve, by order or regulation, has found such activities to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. Under the BHCA, the Federal Reserve has the authority to require a bank holding company to terminate any activity or relinquish control of a non-bank subsidiary (other than a non-bank subsidiary of a bank) upon the Federal Reserve’s determination that such activity or control constitutes a serious risk to the financial soundness and stability of any bank subsidiary of the bank holding company. +As a public company with our securities listed for trading on the NASDAQ stock market, the Company is subject to the disclosure and regulatory requirements of the SEC, including under the Securities Act of 1933, as amended, and the Exchange Act, and the rules and listing standards of the NASDAQ stock market. +Pause on Major Federal Reserve Rulemakings. In January 2025, the Federal Reserve stated that Vice Chair for Supervision Michael Barr would step down from the position, effective, February 28, 2025. The +18 +Table of Contents +Federal Reserve stated that it will not issue any major rulemakings from the time of the announcement until a new vice chair for supervision is confirmed by the U.S. Senate. +Monetary Policy. Our business, financial condition and results of operations are and will be affected by domestic economic conditions and the monetary and fiscal policies of the United States government and its agencies. The monetary policies of the Federal Reserve have a significant effect upon the operating results of commercial banks such as ours. The Federal Reserve has a major effect upon the levels of bank loans, investments and deposits through its open market operations in United States government securities transactions and through its regulation of, among other things, the discount rate on borrowings of member banks and the reserve requirements against member banks’ deposits. It is not possible to predict the nature and impact of future changes in monetary and fiscal policies. +Deposit Insurance. The Bank’s deposits are insured up to applicable limits by the Deposit Insurance Fund of the FDIC (“DIF”). No institution may pay a dividend if in default of the federal deposit insurance assessment. +The DIF has a designated reserve (target) ratio (“DRR”) of 2.00% of the estimated insured deposits. When the reserve ratio was 1.30 percent as of June 30, 2020, the FDIC adopted a restoration plan to ensure that the DIF reserve ratio reaches 1.35 percent within 8 years. However, increased loss provisions associated with the failures of Silicon Valley Bank, Signature Bank and First Republic Bank in 2023 that reduced the DIF balance coupled with strong growth in uninsured deposits, resulted in the reserve ratio declining to 1.10 percent as of June 30, 2023. The reserve ratio increased to 1.21 percent as of June 30, 2024. The Restoration Plan maintains the current schedule of assessment rates for all insured depository institutions. Dividends are required to be paid to the industry should the DRR exceed 1.50%, but grants the FDIC sole discretion in determining whether to suspend or limit the declaration or payment of dividends. The assessment base for insured depository institutions is the average consolidated total assets during an assessment period less average tangible equity capital during that assessment period. +The limit for federal deposit insurance is $250,000 and the cash limit of Securities Investor Protection Corporation protection is also $250,000. +The FDIC has authority to increase insurance assessments. A significant increase in insurance assessments would likely have an adverse effect on our operating expenses and results of operations. Management cannot predict what insurance assessment rates will be in the future. +Deposit insurance may be terminated by the FDIC upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC. +Dividend Restrictions. Under the New Jersey Banking Act of 1948, as amended (the “Banking Act”), a bank may declare and pay cash dividends only if, after payment of the dividend, the capital stock of the bank will be unimpaired and either the bank will have a surplus of not less than 50% of its capital stock or the payment of the dividend will not reduce the bank’s surplus. The FDIC prohibits payment of cash dividends if, as a result, the institution would be undercapitalized, or the institution is in default with respect to any assessment due to the FDIC. +Under Pennsylvania law, the Company may not pay a dividend, if, after giving effect thereto, it would be unable to pay its debts as they become due in the usual course of business and, after giving effect to the dividend, the total assets of the Company would be less than the sum of its total liabilities plus the amount that would be needed, if the Company were to be dissolved at the time of distribution, to satisfy the preferential rights upon dissolution of shareholders whose rights are superior to those receiving the dividend. +It is also the policy of the Federal Reserve that a bank holding company generally may only pay dividends on common stock out of net income available to common shareholders over the past twelve months and only if +19 +Table of Contents +the prospective rate of earnings retention appears consistent with a bank holding company’s capital needs, asset quality, and overall financial condition. A bank holding company also should not maintain a dividend level that places undue pressure on the capital of such institution’s subsidiaries, or that may undermine the bank holding company’s ability to serve as a source of strength for such subsidiaries. +Regulatory Capital Requirements . Federally insured, state-chartered non-member banks are required to maintain minimum levels of regulatory capital. Current FDIC capital standards require these institutions to satisfy a common equity Tier 1 capital requirement, a leverage capital requirement and a risk-based capital requirement. +The common equity Tier 1 capital component generally consists of retained earnings and common stock instruments and must equal at least 4.5% of risk-weighted assets. +Leverage capital, also known as “core” capital, must equal at least 3.0% of adjusted total assets for the most highly rated state-chartered non-member banks. Core capital generally consists of common stockholders’ equity (including retained earnings). An additional cushion of at least 100 basis points is required for all other banking associations, which effectively increases their minimum Tier 1 leverage ratio to 4.0% or more. Under the FDIC’s regulations, the most highly-rated banks are those that the FDIC determines are strong banking organizations and are rated composite 1 under the Uniform Financial Institutions Rating System. +Under the risk-based capital requirements, “total” capital (a combination of core and “supplementary” capital) must equal at least 8.0% of “risk-weighted” assets. The FDIC also is authorized to impose capital requirements in excess of these standards on individual institutions on a case-by-case basis. +Capital rules require a common equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets, which is in addition to the other minimum risk-based capital standards described above. Institutions that do not maintain this required capital buffer become subject to progressively more stringent limitations on the percentage of earnings that can be paid out in dividends or used for stock repurchases and on the payment of discretionary bonuses to senior executive management. At December 31, 2023, the Bank met all capital adequacy requirements on a fully phased-in basis. +In determining compliance with the risk-based capital requirement, a banking organization is allowed to include both core capital and supplementary capital in its total capital, provided that the amount of supplementary capital included does not exceed the bank’s core capital. Supplementary capital generally consists of general allowances for loan losses up to a maximum of 1.25% of risk-weighted assets, together with certain other items. In determining the required amount of risk-based capital, total assets, including certain off-balance sheet items, are multiplied by a risk-weight based on the risks inherent in the type of assets. At December 31, 2024, the Bank exceeded all its regulatory capital requirements. +Any banking organization that fails any of the capital requirements is subject to possible enforcement action by the FDIC. Such action could include a capital directive, a cease-and-desist order, civil money penalties, the establishment of restrictions on the institution’s operations, termination of federal deposit insurance and the appointment of a conservator or receiver. The FDIC’s capital regulations provide that such actions, through enforcement proceedings or otherwise, could require one or more of a variety of corrective actions. +The Company qualifies as a “small bank holding company” with respect to the application of consolidated capital requirements because it has less than $3 billion of consolidated assets. “Small bank holding companies” are not subject to the consolidated capital requirements unless otherwise directed by the Federal Reserve. +Prompt Corrective Action. In addition to the required minimum capital levels described above, federal law establishes a system of “prompt corrective actions” that federal banking agencies are required to take, or have discretion to take, based upon the capital category into which a federally-regulated depository institution falls. Regulations set forth detailed procedures and criteria for implementing prompt corrective action in the case of +20 +Table of Contents +any institution which is not adequately capitalized. The following table shows the amount of capital associated with the different capital categories set forth in the prompt corrective action regulations. +Capital Category +Total +Risk-Based +Capital +Tier 1 +Risk-Based +Capital +Common Equity +Tier 1 +Capital +Tier 1 +Leverage +Capital +Well capitalized +10% or more +8% or more +6.5% or more +5% or more +Adequately capitalized +8% or more +6% or more +4.5% or more +4% or more +Undercapitalized +Less than 8% +Less than 6% +Less than 4.5% +Less than 4% +Significantly undercapitalized +Less than 6% +Less than 4% +Less than 3% +Less than 3% +In addition, a banking organization is “critically undercapitalized” if it has a ratio of tangible equity to total assets that is equal to or less than 2.0%. Under specified circumstances, a federal banking agency may reclassify a well-capitalized institution as adequately capitalized and may require an adequately capitalized institution or an undercapitalized institution to comply with supervisory actions as if it were in the next lower category (except that the FDIC may not reclassify a significantly undercapitalized institution as critically undercapitalized). +A banking organization generally must file a written capital restoration plan which meets specified requirements within 45 days of the date that the institution receives notice or is deemed to have notice that it is undercapitalized, significantly undercapitalized or critically undercapitalized. A federal banking agency must provide the institution with written notice of approval or disapproval within 60 days after receiving a capital restoration plan, subject to extensions by the agency. A banking organization which is required to submit a capital restoration plan must concurrently submit a performance guaranty by each company that controls the institution. In addition, undercapitalized organizations are subject to various regulatory restrictions, and the appropriate federal banking agency also may take any number of discretionary supervisory actions. At December 31, 2024, the Bank was not subject to any of the above mentioned restrictions. +Community Reinvestment Act. The Community Reinvestment Act (“CRA”) requires that banks meet the credit needs of all of their assessment area, as established for these purposes in accordance with applicable regulations based principally on the location of branch offices, including those of low-income areas and borrowers. The CRA also requires that the FDIC assess all financial institutions that it regulates to determine whether these institutions are meeting the credit needs of the community they serve. Under the CRA, institutions are assigned a rating of “outstanding,” “satisfactory,” “needs to improve” or “unsatisfactory.” Our record in meeting the requirements of the CRA is made publicly available and is taken into consideration in connection with any applications with federal regulators to engage in certain activities, including approval of a branch or other deposit facility, mergers and acquisitions, office relocations, or expansions into non-banking activities. As of December 31, 2024, we maintained a “satisfactory” CRA rating. On October 24, 2023, the FDIC, the Federal Reserve, and the Office of the Comptroller of the Currency issued a final rule to strengthen and modernize the CRA regulations. The rule materially revises the current CRA framework, including the assessment areas in which a bank is evaluated to include activities associated with online and mobile banking, the tests used to evaluate the Bank in its assessment areas, new methods of calculating credit for lending, investment, and service activities, and additional data collection and reporting requirements. Under the final rule, banks with assets of at least $600 million as of December 31 in both of the prior two calendar years and less than $2 billion as of December 31 in either of the prior two calendar years will be an “intermediate bank.” The agencies will evaluate intermediate banks under the Retail Lending Test and either the current community development test, referred to in the final rule as the Intermediate Bank Community Development Test, or, at the bank’s option, the Community Development Financing Test. The rule was expected to take effect on April 1, 2024, with most of its provisions becoming applicable on January 1, 2026, and additional requirements becoming applicable on January 1, 2027. Several banking industry groups filed a lawsuit seeking to invalidate the CRA final rule, in which they argued that the federal banking agencies exceeded their statutory authority in adopting the CRA final rule. In March 2024, a federal judge granted an injunction to extend the CRA final rule’s effective date, originally set for +21 +Table of Contents +April 1, 2024. The effective date will be extended each day the injunction remains in place, pending the resolution of the lawsuit. +Dodd-Frank Act. The Dodd-Frank Act became law on July 21, 2010. The Dodd-Frank Act implemented far-reaching changes across the financial regulatory landscape. Among other things, the Dodd-Frank Act created the Consumer Financial Protection Bureau (the “CFPB”), which is an independent bureau within the Federal Reserve System with broad authority to regulate the consumer finance industry, including regulated financial institutions such as us, as well as non-banks and others who are involved in the consumer finance industry. The CFPB has exclusive authority through formal rulemaking, as well as through the issuance of orders, policy statements, guidance and enforcement actions to administer and enforce federal consumer financial protection laws, to oversee non-federally regulated entities, to prevent practices that the CFPB deems unfair, deceptive or abusive. While the CFPB has these extensive powers to interpret, administer and enforce federal consumer financial protection laws, the Dodd-Frank Act provides that the FDIC continues to have examination and enforcement powers over us on matters otherwise falling within the CFPB’s jurisdiction because we have less than $10 billion in assets. The Dodd-Frank Act also gives state attorneys general the ability to enforce federal consumer protection laws. +Federal Home Loan Bank (“FHLB”) Membership. We are a member of the FHLB-NY. Each member of the FHLB-NY is required to maintain a minimum investment in capital stock of the FHLB-NY. The Board of Directors of the FHLB-NY can increase the minimum investment requirements in the event it has concluded that additional capital is required to allow it to meet its own regulatory capital requirements. Any increase in the minimum investment requirements outside of specified ranges requires the approval of the Federal Housing Finance Agency. Because the extent of any obligation to increase our investment in the FHLB-NY depends entirely upon the occurrence of a future event, potential payments to the FHLB-NY are not determinable. +Additionally, in the event that we fail, the right of the FHLB-NY to seek repayment of funds loaned to us will take priority over certain other creditors. +The Sarbanes-Oxley Act. As a public company, the Bank is subject to the Sarbanes-Oxley Act of 2002 which addresses, among other issues, corporate governance, auditing and accounting, executive compensation, and enhanced and timely disclosure of corporate information. As directed by the Sarbanes-Oxley Act, our principal executive officer and principal financial officer are required to certify that our quarterly and annual reports do not contain any untrue statement of a material fact. The rules adopted by the SEC under the Sarbanes-Oxley Act require these officers to certify that they are responsible for establishing, maintaining and regularly evaluating the effectiveness of our internal control over financial reporting; they have made certain disclosures to our auditors and the audit committee of the Board of Directors about our internal control over financial reporting; and they have included information in our quarterly and annual reports about their evaluation and whether there have been changes in our internal control over financial reporting or in other factors that could materially affect internal control over financial reporting. +Loans to One Borrower. New Jersey banking law limits the total loans and extensions of credit by a bank to one borrower at one time to 15% of the capital funds of the bank, or up to 25% of the capital funds of the bank if the additional 10% is fully secured by collateral having a market value (as determined by reliable and continuously available price quotations) at least equal to the amount of the loans and extensions of credit over the 15% limit. At December 31, 2024, the Bank’s lending limit to one borrower under regulatory guidelines was $40.6 million, but our Board of Directors has set an internal lending limit of approximately 75.0% of the legal lending limit or $30.5 million. +Concentration and Risk Guidance . The federal banking regulatory agencies promulgated joint interagency guidance regarding material direct and indirect asset and funding concentrations. The guidance defines a concentration as any of the following: (i) asset concentrations of 25% or more of Total Capital (loan related) or Tier 1 Capital (non-loan related) by individual borrower, small interrelated group of individuals, single repayment source or individual project; (ii) asset concentrations of 100% or more of Total Capital (loan related) +22 +Table of Contents +or Tier 1 Capital (non-loan related) by industry, product line, type of collateral, or short-term obligations of one financial institution or affiliated group; (iii) funding concentrations from a single source representing 10% or more of Total Assets; or (iv) potentially volatile funding sources that when combined represent 25% or more of Total Assets (these sources may include brokered, large, high-rate, uninsured, internet-listing-service deposits, Federal funds purchased or other potentially volatile deposits or borrowings). If a concentration is present, management must employ heightened risk management practices including board and management oversight and strategic planning, development of underwriting standards, risk assessment and monitoring through market analysis and stress testing, third party review and increasing capital requirements. The Bank adheres to the practices recommended in this guidance. +Restrictions on Transactions with Affiliates, Directors, and Officers. Under the Federal Reserve Act, the Bank may not lend funds or otherwise extend credit to its parent holding company or any other affiliate, except on specified types and amounts of collateral generally upon market terms and conditions. The Federal Reserve also has authority to define and limit the transactions between banks and their affiliates. The Federal Reserve’s Regulation W and relevant federal statutes and regulations, among other authorities, impose significant limitations on transactions in which the Bank may engage with us or with other affiliates, including per-affiliate and aggregate limits on affiliate transactions. +Federal Reserve Regulation O restricts loans to the Bank and its parent holding company’s insiders, which includes directors, certain officers, and principal shareholders and their respective related interests. All extensions of credit to the insiders and their related interests must be on the same terms as, and subject to the same loan underwriting requirements as, loans to persons who are not insiders. In addition, Regulation O imposes lending limits on loans to insiders and their related interests and imposes, in certain circumstances, requirements for prior approval of the loans by the Bank board of directors. +Changes in New Jersey Tax Laws. On September 29, 2020, New Jersey Governor Phil Murphy signed into law A.4721, extending through December 31, 2023, the 2.5% surtax imposed on Corporation Business Tax (CBT) filers with allocated taxable net income over $1 million. As originally enacted, the surtax rate was scheduled to decrease from 2.5% to 1.5% for privilege periods beginning on or after January 1, 2020 through December 31, 2021 and expire for privilege periods beginning on or after January 1, 2022. On June 28, 2024, New Jersey Gov. Phil Murphy signed legislation, A.B. 4704, which enacted a 2.5% surtax, termed the “Corporate Transit Fee,” on certain CBT taxpayers that have New Jersey allocated taxable net income over $10 million. The new surtax is in addition to the CBT and applies to privilege periods beginning on or after January, 1, 2024, through December, 31, 2028. +Cyber-security. Federal and state legislation and regulations contain extensive cybersecurity and data privacy provisions. Our regulatory agencies including the CFPB, FDIC, and Federal Reserve also have oversight over us with respect to cybersecurity and data privacy. We are subject to the rules and regulations promulgated under the authority of the CFPB and Federal Trade Commission, which regulates unfair or deceptive acts or practices, including with respect to cybersecurity and data privacy. In addition, effective April 1, 2022, the Federal Reserve and FDIC issued a rule that, among other things, requires a banking organization to notify its primary federal regulator as soon as possible and within 36 hours after identifying a “computer-security incident” that the banking organization believes in good faith could materially disrupt, degrade or impair its business or operations in a manner that would, among other things, jeopardize the viability of its operations, result in customers being unable to access their deposit and other accounts, result in a material loss of revenue, profit or franchise value, or pose a threat to the stability of the U.S. financial sector. +Federal regulators have issued two related statements regarding cyber-security. One statement indicates that financial institutions should design multiple layers of security controls to establish lines of defense and ensure their risk management processes also address the risk posed by compromised client credentials, including security measures to reliably authenticate clients accessing internet-based services of the financial institution. The other statement indicates that a financial institution’s management is expected to maintain sufficient +business continuity planning processes to ensure the rapid recovery, resumption, and maintenance of the +23 +Table of Contents +institution’s operations after a cyber-attack involving destructive malware. A financial institution is also expected to develop appropriate processes to enable recovery of data and business operations and address rebuilding network capabilities and restoring data if the institution or its critical service providers fall victim to this type of cyber-attack. If we fail to observe the regulatory guidance, we could be subject to various regulatory sanctions, including financial penalties. +In the ordinary course of business, we rely on electronic communications and information systems to conduct our operations and to store sensitive data. We employ a variety of preventative and detective controls and tools to monitor, block, and provide alerts regarding suspicious activity and to report on any suspected advanced persistent threats. We also offset cyber risk through internal training, testing of our employees, and we procure insurance to provide assistance on significant incidents and to offset potential liability. +We have not experienced a significant compromise, significant data loss, or any material financial losses related to cyber-security attacks. Risks and exposures related to cyber-security attacks are expected to remain high for the foreseeable future due to the rapidly evolving nature and sophistication of these threats, as well as due to the expanding use of third-party service providers, internet banking, mobile banking, and other technology-based products and services by us and our clients. +Compensation. The scope and content of compensation regulation in the financial industry are continuing to develop, and we expect that these regulations and resulting market practices will continue to evolve over a number of years. The federal bank regulatory agencies have issued joint guidance on executive compensation designed to ensure that the incentive compensation policies of banking organizations, such as the Company and the Bank, do not encourage imprudent risk taking and are consistent with the safety and soundness of the organization. The SEC has a rule that directs stock exchanges to require listed companies to implement clawback policies to recover incentive-based compensation from current or former executive officers in the event of certain financial restatements and requires companies to disclose their clawback policies and their actions under those policies. +Other Laws and Regulations. We are subject to a variety of laws and regulations which are not limited to banking organizations. For example, in lending to commercial and consumer borrowers, and in owning and operating our own property, we are subject to regulations and potential liabilities under state and federal environmental laws. +We are heavily regulated by regulatory agencies at the federal and state levels. As a result of events in the financial markets and the economy in recent years, we, like most of our competitors, have faced and expect to continue to face increased regulation and regulatory and political scrutiny, which creates significant uncertainty for us and the financial services industry in general. +Future Legislation and Regulation. Regulators have increased their focus on the regulation of the financial services industry in recent years. Proposals that could substantially intensify the regulation of the financial services industry have been and are expected to continue to be introduced in the U.S. Congress, in state legislatures and by applicable regulatory authorities. These proposals may change banking statutes and regulation and our operating environment in substantial and unpredictable ways. If enacted, these proposals could increase or decrease the cost of doing business, limit or expand permissible activities or affect the competitive balance among banks, savings associations, credit unions, and other financial institutions. We cannot predict whether any of these proposals will be enacted and, if enacted, the effects that such laws or any implementing regulations would have on our business, financial condition and results of operations. +Item 1A. Risk Factors +Our business and results of operations are subject to numerous risks and uncertainties, many of which are beyond our control. The material risks and uncertainties that management believes affect the Company are described below. Additional risks and uncertainties that management is not aware of or that management +24 +Table of Contents +currently deems immaterial may also impair the Bank’s business operations. This report is qualified in its entirety by these risk factors. If any of the following risks actually occur, our business, financial condition, and results of operations could be materially and adversely affected. +Our risk factors can be broadly summarized by the following categories: +• Credit and Interest Rate Risks +• Risks Related to the Bank’s Common Stock +• Economic Risks +• Operational Risks +• Strategic Risks +• Risks Related to the Regulation of our Industry +CREDIT AND INTEREST RATE RISKS +Our loan portfolio has a significant concentration in commercial real estate and commercial construction loans. +Our loan portfolio is made up largely of commercial real estate loans and commercial construction loans. At December 31, 2024, we had approximately $1.39 billion of commercial real estate loans, which represented 76.1% of our total loan portfolio. Our commercial real estate loans include loans secured by owner-occupied and non-owner-occupied tenanted properties for commercial uses and multi-family loans. The portfolio also consists of construction loans of approximately $257.2 million, or 14.1%, of our total loan portfolio as of December 31, 2024. In addition, we make both secured and unsecured commercial and industrial loans. At December 31, 2024, we had $92.9 million of commercial and industrial loans, which represented 5.1% of our total loan portfolio. +Commercial real estate loans generally expose a lender to a higher degree of credit risk of nonpayment and loss than other loans because of several factors, including dependence on the successful operation of a business or a project for repayment, the collateral securing these loans may not be sold as easily as for other loans, and loan terms may include a balloon payment rather than full amortization over the loan term. In addition, commercial real estate loans typically involve larger loan balances to single borrowers or groups of related borrowers. Underwriting and portfolio management activities cannot completely eliminate all risks related to these loans. Any significant failure to pay on time by our customers or a significant default by our customers could materially and adversely affect us. +Loans secured by owner-occupied real estate are reliant on the underlying operating businesses to provide cash flow to meet debt service obligations, and as a result they are more susceptible to the general impact on the economic environment affecting those operating companies as well as the real estate market. In general, construction and land lending involve additional risks because of the inherent difficulty in estimating a property’s value both before and at completion of the project as well as the estimated cost of the project and the time needed to sell the property at completion. Construction costs may exceed original estimates as a result of increased materials, labor or other costs. Because of the uncertainties inherent in estimating construction costs, as well as the market value of the completed project and the effects of governmental regulation on real property, it is relatively difficult to evaluate accurately the total funds required to complete a project and the related loan-to-value ratio. Changes in the demand, such as for new housing and higher than anticipated building costs may cause actual results to vary significantly from those estimated. For these reasons, this type of lending also typically involves higher loan principal amounts and is often concentrated with a small number of builders. A downturn in housing, or the real estate market, could increase loan delinquencies, defaults and foreclosures, and significantly impair the value of our collateral and our ability to sell the collateral upon foreclosure. Some of our builders have more than one loan outstanding with us and also have residential mortgage loans for rental properties with us. Consequently, an adverse development with respect to one loan or one credit relationship can expose us to a significantly greater risk of loss. +25 +Table of Contents +In addition, no payment from the borrower is required during the term of most of our construction loans since the accumulated interest is added to the principal of the loan through an interest reserve. As a result, construction loans often involve the disbursement of substantial funds with repayment dependent on the success of the ultimate project and the ability of the borrower to sell or lease the property or refinance the indebtedness, rather than the ability of the borrower or guarantor to repay principal and interest. If the appraisal of the value of the completed project proves to be overstated, we may have inadequate security for the repayment of the loan upon completion of construction of the project and may incur a loss. Because construction loans require active monitoring of the building process, including cost comparisons and on-site inspections, these loans are more difficult and costlier to monitor. Increases in market rates of interest may have a more pronounced effect on construction loans by rapidly increasing the end-purchasers’ borrowing costs, thereby reducing the overall demand for the project. Properties under construction are often difficult to sell and typically must be completed in order to be successfully sold which also complicates the process of working out problem construction loans. This may require us to advance additional funds and/or contract with another builder to complete construction. Further, in the case of speculative construction loans, there is added risk associated with identifying an end-purchaser for the finished project which poses a greater potential risk to us than construction loans to individuals on their personal residences. Loans on land under development or held for future construction as well as lot loans made to individuals for the future construction of a residence also pose additional risk because of the lack of income being produced by the property and the potential illiquid nature of the collateral. These risks can also be significantly impacted by supply and demand conditions. +Any recession in our local economy and commercial real estate market may make it more difficult for commercial real estate borrowers to repay their loans in a timely manner as commercial real estate borrowers’ ability to repay their loans frequently depends on the successful development of their properties. The deterioration of one or a few of our commercial real estate loans could cause a material increase in our level of nonperforming loans, which would result in a loss of revenue from these loans and could result in an increase in the provision for loan losses and/or an increase in charge offs, all of which could have a material adverse impact on our net income. We also may incur losses on commercial real estate loans due to declines in occupancy rates and rental rates, which could occur as a result of less need for office space due to more people working from home or other factors. This would decrease property values and may decrease the likelihood that a borrower may find permanent financing alternatives. Any weakening in the commercial real estate market will increase the likelihood of default on these loans, which could negatively impact our loan portfolio’s performance and asset quality. If we are required to liquidate the collateral securing a loan to satisfy the debt during a period of reduced real estate values, we could incur material losses. Any of these events could increase our costs, require management time and attention, and materially and adversely affect us. +Federal banking agencies have issued guidance regarding high concentrations of commercial real estate loans within bank loan portfolios. The guidance requires financial institutions that exceed certain levels of commercial real estate lending compared with their total capital to maintain heightened risk management practices that address the following key elements: board and management oversight and strategic planning, portfolio management, development of underwriting standards, risk assessment and monitoring through market analysis and stress testing, and maintenance of increased capital levels as needed to support the level of commercial real estate lending. If there is any deterioration in our commercial real estate portfolio or if our regulators conclude that we have not implemented appropriate risk management practices, it could adversely affect our business, and could result in the requirement to maintain increased capital levels or restrict our ability to originate new loans secured by commercial real estate. We can provide no assurance that capital would be available at that time. +The nature of our construction loan portfolio may expose us to increased lending risks. +A portion of our construction loans are unseasoned, meaning that they were originated relatively recently. Our limited time with these loans does not provide us with a significant payment history pattern with which to judge future collectability. As a result, it may be difficult to predict the future performance of our loan portfolio. +26 +Table of Contents +These loans may have delinquency or charge off levels above our expectations, which could negatively affect our performance. +The small to mid-sized businesses that we lend to may have fewer resources to weather a downturn in the economy, which may impair a borrower’s ability to repay a loan to us that could materially harm our operating results. +We target our business development and marketing strategy primarily to serve the banking and financial services needs of small to mid-sized businesses. These small to mid-sized businesses frequently have smaller market share than their competition, may be more vulnerable to economic downturns, often need substantial additional capital to expand or compete and may experience significant volatility in operating results. In addition, the success of a small to mid-sized business often depends on the management talents and efforts of one or two persons or a small group of persons, and the death, disability or resignation of one or more of these persons could have a material adverse impact on the business and its ability to repay a loan. Any economic downturns and other events that negatively impact our market areas could cause us to incur substantial credit losses that could negatively affect our results of operations and financial condition. +Our allowance for credit losses may not be adequate to cover actual losses. +Like all financial institutions, we maintain an allowance for credit losses to provide for loan defaults and nonperformance. The process for determining the amount of the allowance is critical to our financial results and condition. It requires difficult, subjective and complex judgments about external factors, including the impact of national and regional economic conditions on the ability of our borrowers to repay their loans. If our judgment proves to be incorrect, our allowance for credit losses may not be sufficient to cover losses inherent in our loan portfolio. Further, state and federal regulatory agencies, as an integral part of their examination process, review our loans and allowance for credit losses and may require an increase in our allowance for credit losses. Although we believe that our allowance for credit losses at December 31, 2024 is adequate to cover known and probable incurred losses included in the portfolio, we cannot provide assurances that we will not further increase the allowance for credit losses or that our regulators will not require us to increase this allowance. Either of these occurrences could adversely affect our earnings. +Increased interest rates have decreased the value of a portion of the Company’s securities portfolio, and the Company would realize losses if it were required to sell such securities to meet liquidity needs. +As a result of inflationary pressures and the resulting rapid increases in interest rates from early 2022 into 2023, the fair value of our securities classified as available for sale has declined. These securities make up a majority of the securities portfolio of the Company, resulting in unrealized losses embedded in other comprehensive income as a part of shareholders’ equity. If the Company were required to sell such securities to meet liquidity needs, including in the event of deposit outflows or slower deposit growth, it may incur losses, which could impair the Company’s capital, financial condition, and results of operations and require the Company to raise additional capital on unfavorable terms, thereby negatively impacting its profitability. While the Company has taken actions to maximize its funding sources, there is no guarantee that such actions will be successful or sufficient in the event of sudden liquidity needs. +The financial services industry is undergoing a period of great volatility and disruption. +Changes in interest rates, in the shape of the yield curve, or in valuations in the debt or equity markets or disruptions in the liquidity or other functioning of financial markets, most of which have occurred, could directly impact us in one or more of the following ways: +• +Net interest income, the difference between interest earned on interest-earning assets and interest paid on interest-bearing liabilities, represents a significant portion of our earnings. Both increases and decreases in the interest rate environment may reduce our profits. We expect that we will continue to +27 +Table of Contents +realize income from the spread between the interest we earn on loans, securities and other interest earning assets, and the interest we pay on deposits, and borrowings (when applicable). The net interest spread is affected by the differences between the maturity and repricing characteristics of our interest earning assets and interest-bearing liabilities. Our interest-earning assets may not reprice as slowly or rapidly as our interest-bearing liabilities. +• +The market value of our securities portfolio may decline and result in other than temporary impairment charges. The value of the securities in our portfolio is affected by factors that impact the U.S. securities markets in general as well as specific financial sector factors and entities. Uncertainty in the market regarding the financial sector has at times negatively impacted the value of securities within our portfolio. Further declines in these sectors may in future result in other than temporary impairment charges. +• +Asset quality may deteriorate as borrowers become unable to repay their loans. +Changes in interest rates may adversely affect our earnings and financial condition. +Our net income depends primarily upon our net interest income. The level of net interest income is primarily a function of the average balance of our interest-earning assets, the average balance of our interest-bearing liabilities, and the spread between the yield on such assets and the cost of such liabilities. These factors are influenced by both the pricing and mix of our interest earning assets and our interest-bearing liabilities which, in turn, are impacted by such external factors as the local economy, competition for loans and deposits, the monetary policy of the Federal Open Market Committee of the Federal Reserve, and market interest rates. +A sustained increase in market interest rates could adversely affect our earnings if our cost of funds increases more rapidly than our yield on our interest earning assets and compresses our net interest margin. In addition, the economic value of equity could decline if interest rates increase. Different types of assets and liabilities may react differently, and at different times, to changes in market interest rates. We expect that we will periodically experience gaps in the interest rate sensitivities of our assets and liabilities. That means either our interest-bearing liabilities will be more sensitive to changes in market interest rates than our interest-earning assets, or vice versa. When interest-bearing liabilities mature or re-price more quickly than interest earning assets, an increase in market rates of interest could reduce our net interest income. +Likewise, when interest earning assets mature or re-price more quickly than interest bearing liabilities, falling interest rates could reduce our net interest income. We are unable to predict changes in market interest rates, which are affected by many factors beyond our control, including inflation, deflation, recession, unemployment, money supply, domestic and international events and changes in the United States and other financial markets. +We also attempt to manage risk from changes in market interest rates, in part, by controlling the mix of interest rate sensitive assets and liabilities. However, interest rate risk management techniques are not exact. A rapid increase or decrease in interest rates could adversely affect our results of operations and financial performance. +RISKS RELATED TO THE BANK’S COMMON STOCK +The Holding Company’s ability to pay dividends depends primarily on receiving dividends from the Bank, which is subject to regulatory limits and the Bank’s performance. +The Company is a bank holding company and banking operations are conducted by its subsidiary, the Bank. The Company’s ability to pay dividends depends on its receipt of dividends from the Bank. Dividend payments from the Bank are subject to legal and regulatory limitations, generally based on net profits and retained earnings, imposed by the various banking regulatory agencies. The ability of the Bank to pay dividends is also +28 +Table of Contents +subject to its profitability, financial condition, capital expenditures, other cash flow requirements, and other factors deemed relevant by its Board of Directors. There is no assurance that the Bank will be able to pay dividends in the future, and if able, that the dividends will be at the same rate as 2024, or that the Company will generate adequate cash flow from the Bank to pay dividends in the future. The Company’s failure to pay dividends on its common stock could have a material adverse effect on the market price of its common stock. +Our stock price may reflect securities market conditions. +The effectiveness of governmental, fiscal and monetary policies, and regulatory responses to the market conditions affect the financial markets and the market prices for securities generally, and the market prices for bank stocks, including our common stock. The stock market’s gains due to a concentration of high growth companies has been adversely affected by inflation and higher interest rates and other national and international events. +ECONOMIC RISKS +Inflation can have an adverse impact on the Company’s business and its customers. +Inflation risk is the risk that the value of assets or income from investments will be worth less in the future as inflation decreases the value of money. Over the past year, in response to a pronounced rise in inflation, the Federal Reserve has raised certain benchmark interest rates to combat inflation. As discussed above under “CREDIT AND INTEREST RATE RISKS— Changes in interest rates may adversely affect our earnings and financial condition.”, as inflation increases and market interest rates rise, the value of the Company’s investment securities, particularly those with longer maturities, would decrease, although this effect can be less pronounced for floating rate instruments. In addition, inflation generally increases the cost of goods and services the Company uses in its business operations, such as electricity and other utilities, and also generally increases employee wages, any of which can increase the Company’s non-interest expenses. Furthermore, the Company’s customers are also affected by inflation and the rising costs of goods and services used in their households and businesses, which could have a negative impact on their ability to repay their loans with the Company. Sustained higher interest rates by the Federal Reserve to tame persistent inflationary price pressures could also push down asset prices and weaken economic activity. A deterioration in economic conditions in the United States and the Company’s markets could result in an increase in loan delinquencies and non-performing assets, decreases in loan collateral values and a decrease in demand for the Company’s products and services, all of which, in turn, would adversely affect the Company’s business, financial condition and results of operations. +We face risks related to health epidemics and other outbreaks, severe weather, power or telecommunications loss, and terrorism which could significantly disrupt our operations. +Business disruptions can occur due to forces beyond the Bank’s control such as severe weather, power or telecommunications loss, accidents, flooding, terrorism, health emergencies, the spread of infectious diseases or pandemics. Our business could be adversely impacted by the effects of any of these events to the extent that they harm the local or national economy. Any of these events may also impact our branches, our operations, our customers and/or our vendors, which may materially and adversely affect our business, financial condition and results of operations. These business disruptions may include temporary closure of our branches and/or the facilities of our customers or vendors and suspension of services, which may materially and adversely affect our business, financial condition and results of operations. +Market conditions and economic cyclicality may adversely affect our industry. +Market developments, including unemployment, price levels, stock and bond market volatility, and changes, including those resulting from world events, affect consumer confidence levels, economic activity and inflation. Changes in payment behaviors and payment rates may increase delinquencies and default rates, which could affect our earnings and credit quality. +29 +Table of Contents +Instability in global economic conditions and geopolitical matters could have a material adverse effect on our results of operations and financial condition. +Instability in global economic conditions and geopolitical matters could have a material adverse effect on our results of operations and financial condition. The macroeconomic environment in the U.S. is susceptible to global events and volatility in financial markets. For example, global conflicts (including the continuing conflicts involving Ukraine and the Russian Federation and those in the Middle East) or other similar events, as well as government actions of other restrictions in connection with such events, and trade negotiations between the U.S. and other nations could adversely impact economic and market conditions for the Company and its clients and counterparties. In addition, global supply chain disruptions may cause prolonged inflation, adversely impact consumer and business confidence, and adversely affect the economy as well as our financial condition and results. +OPERATIONAL RISKS +Further negative developments in the banking industry could adversely affect our business operations and our financial condition and results of operations. +The large bank failures during the first half of 2023 and related negative media attention generated significant market trading volatility among publicly traded bank holding companies and, in particular, regional, as well as community banks like the Company. Similar developments in the future could negatively impact customer confidence in regional and community banks, which could prompt customers to move their deposits to larger financial institutions. Further, competition for deposits has increased in recent periods, and the cost of funding has similarly increased, putting pressure on our net interest margin. If we were required to sell a portion of our securities portfolio to address liquidity needs, we may incur losses, including as a result of the negative impact of rising interest rates on the value of our securities portfolio, which could negatively affect our earnings and our capital. If we were required to raise additional capital in the current environment, any such capital raise may be on unfavorable terms, thereby negatively impacting book value and profitability. While we have taken actions to improve our funding, there is no guarantee that such actions will be successful or sufficient in the event of sudden liquidity needs. +There has also been increased regulatory scrutiny – in the course of routine examinations and otherwise – and new regulations directed towards banks of similar size to the Company, designed to address the negative developments in the banking industry in 2023, all of which may increase our costs of doing business and reduce our profitability. Among other things, there may be an increased focus by both regulators and investors on deposit composition, the level of uninsured deposits, losses embedded in the held-to-maturity portion of our securities portfolio, contingent liquidity, CRE composition and concentration, capital position and our general oversight and internal control structures regarding the foregoing. As a result, the Company could face increased scrutiny or be viewed as higher risk by regulators and the investor community. +Competition from other financial institutions in originating loans and attracting deposits may adversely affect our profitability. +We face substantial competition in originating loans. This competition comes principally from other banks, savings institutions, mortgage banking companies, credit unions and other lenders in our market area, which is generally an area within an approximate 100-mile radius of Princeton and dominated by large statewide, regional and interstate banking institutions. Many of our competitors enjoy advantages, such as greater financial resources and higher lending limits, a wider geographic presence, more accessible branch office locations, the ability to offer a wider array of services or more favorable pricing alternatives, as well as lower origination and operating costs. This competition could reduce our net income by decreasing the number and size of loans that we originate and the interest rates we may charge on these loans. +30 +Table of Contents +These competitors may offer higher interest rates on deposits than we do, which could decrease the deposits that we attract or require us to increase our interest rates on deposit accounts to retain existing deposits or attract new deposits. Increased deposit competition could adversely affect our ability to generate the funds necessary for lending operations and may increase our cost of funds. Additionally, these competitors may offer lower interest rates on loans than we do, which could decrease the amount of loans that we attract or require us to decrease our interest rates on loans to attract new loans. Increased loan competition could adversely affect our net interest margin. +We also compete with non-bank providers of financial services, such as brokerage firms, consumer finance companies, insurance companies and governmental organizations which may offer more favorable terms. Some of our non-bank competitors are not subject to the same extensive regulations that govern our operations. As a result, such non-bank competitors may have advantages over us in providing certain products and services. This competition may reduce or limit our margins on banking services, reduce our market share and adversely affect our results of operations and financial condition. +If deposit levels are not sufficient, it may be more expensive to fund loan originations. +Our deposits have been our primary funding source. In current market conditions, depositors may choose to redeploy their funds into higher yielding investments, the stock market or other investment alternatives, regardless of our effort to retain such depositors. If this occurs, it will hamper our ability to grow deposits and could result in a net outflow of deposits. Our average total deposits for the year ended December 31, 2024 of $1.83 billion were $318.9 million higher than the $1.51 billion for the year ended December 31, 2023, but a substantial portion of that deposit growth was due to the CFC acquisition. We will continue to focus on deposit growth, which we use to fund loan originations. However, if we are unable to sufficiently increase our deposit balances, we will be required to increase our use of alternative sources of funding, including FHLB advances, or to increase our deposit rates in order to attract additional deposits, each of which would increase our cost of funds. +We must maintain and follow high underwriting standards to grow safely. +Our ability to grow our assets safely depends on maintaining disciplined and prudent underwriting standards and ensuring that our relationship managers and lending personnel follow those standards. The weakening of these standards for any reason, such as to seek higher yielding loans, or a lack of discipline or diligence by our employees in underwriting and monitoring loans, may result in loan defaults, foreclosures and additional charge offs and may necessitate that we significantly increase our allowance for credit losses. As a result, our business, results of operations, financial condition or prospects could be adversely affected. +We are a community bank and our ability to maintain our reputation is critical to the success of our business and the failure to do so may materially adversely affect our performance. +We are a community bank, and our reputation is one of the most valuable components of our business. As such, we strive to conduct our business in a manner that enhances our reputation. This is done, in part, by recruiting, hiring and retaining employees who share our core values of being an integral part of the communities we serve, delivering superior service to our customers and caring about our customers and associates. If our reputation is negatively affected by the actions of our employees or otherwise, our business and, therefore, our operating results may be materially adversely affected. Additionally, damage to our reputation could undermine the confidence of our current and potential clients in our ability to provide financial services. Such damage could also impair the confidence of our counterparties and business partners, and ultimately affect our ability to effect transactions. Maintenance of our reputation depends not only on our success in maintaining our service-focused culture and controlling and mitigating the various risks described herein, but also on our success in identifying and appropriately addressing issues that may arise in areas such as potential conflicts of interest, anti-money laundering, client personal information and privacy issues, record-keeping, regulatory investigations and any +31 +Table of Contents +litigation that may arise from the failure or perceived failure of us to comply with legal and regulatory requirements. Maintaining our reputation also depends on our ability to successfully prevent third parties from infringing on the “The Bank of Princeton” brand and associated trademarks. Defense of our reputation, including through litigation, could result in costs adversely affecting our business, results of operations, financial condition or prospects. +Our internal control systems could fail to detect certain events. +We are subject to certain operational risks, including but not limited to data processing system failures and errors and customer or employee fraud. We maintain a system of internal controls to mitigate such occurrences which system recently had to be modified to cover the additional risks caused by the increase in the amount of time our employees are working remotely. We also maintain insurance coverage for such risks. However, should such an event occur that is not prevented or detected by our internal controls, is uninsured or in excess of applicable insurance limits, it could have a significant adverse effect on our business, results of operations, financial condition or prospects. +If we cannot favorably assess the effectiveness of our internal controls over financial reporting, we may be subject to additional regulatory scrutiny. +Like other banks of our size, our management is required to prepare a report that contains an assessment by management of the effectiveness of our internal control structure and procedures for financial reporting (including the Call Report that is submitted to the FDIC) as of the end of each fiscal year. The rules that must be met for management to assess our internal controls over financial reporting are complex and require significant documentation and testing and possible remediation of internal control weaknesses. The effort to comply with regulatory requirements relating to internal controls will likely cause us to incur increased expenses and will cause a diversion of management’s time and other internal resources. We also may encounter problems or delays in completing the implementation of any changes necessary to make a favorable assessment of our internal control over financial reporting. If we cannot favorably assess the effectiveness of our internal control over financial reporting, investor confidence and the price of our common stock could be adversely affected, and we may be subject to additional regulatory scrutiny. +We rely on third parties to provide key components of our business infrastructure, and the failure of these parties to fulfil their obligations to us could disrupt our operations. +Third parties provide key components of our business infrastructure such as data processing, internet connections, network access, core application processing, statement production and account analysis. Our business depends on the successful and uninterrupted functioning of our information technology and telecommunications systems and third- party servicers. The failure of these systems, or the termination of a third-party software license or service agreement on which any of these systems is based, could interrupt our operations. Because our information technology and telecommunications systems interface with and depend on third-party systems, we could experience service denials if demand for such services exceeds capacity, or such third-party systems fail or experience interruptions. Replacing vendors or addressing other issues with our third-party service providers could entail significant delay and expense. If we are unable to efficiently replace ineffective service providers, or if we experience a significant, sustained or repeated, system failure or service denial, it could compromise our ability to operate effectively, damage our reputation, result in a loss of customer business, and subject us to additional regulatory scrutiny and possible financial liability, any of which could have a material adverse effect on our business, financial condition, results of operations and future prospects. +32 +Table of Contents +We cannot predict how changes in technology will impact our business; increased use of technology may expose us to service interruptions. +The financial services market, including banking services, is increasingly affected by advances in technology, including developments in: +• +telecommunications; +• +data processing; +• +automation; +• +Internet banking, including mobile banking; +• +social media; +• +debit cards and so-called “smart cards”; and +• +remote deposit capture. +Our ability to compete successfully in the future will depend, to a certain extent, on whether we can anticipate and respond to technological changes. We offer electronic banking services for our consumer and business customers including Internet banking, mobile banking and electronic bill payment, as well as banking by phone. We also offer ATM and debit cards, wire transfers, and ACH transfers. The successful operation and further development of these and other new technologies will likely require additional capital investment in the future. In addition, increased use of electronic banking creates opportunities for interruptions in service which could expose us to claims by customers or other third parties. We can provide no assurance that we will have sufficient resources or access to the necessary technology to remain competitive in the future. +We use AI in connection with our business and operations, which exposes us to inherent risks that may expose us to material harm. +AI in the banking industry refers to the use of advanced algorithms, machine learning, and automation to enhance operational efficiency, improve customer experiences, strengthen security, and optimize financial decision-making. Banks leverage AI for fraud detection, risk assessment, predictive analytics, chatbots for customer service, personalized financial recommendations, and automated regulatory compliance. By analyzing vast amounts of data in real time, AI helps institutions reduce costs, mitigate risks, detect anomalies, and deliver more efficient and secure banking services. +The Bank does not utilize AI for decision-making processes or internal bot usage as any automation within the Bank is driven by macros and predefined rule-based workflows rather than AI-driven models. AI technology, however, is employed within select third-party solutions integrated into our operations. These include SentinelOne for advanced cybersecurity threat detection and response, Verafin for fraud detection and AML compliance, the Glia Chatbot for enhancing customer service interactions, and CATO Networks for AI-driven network security and optimization. These third-party tools that utilize a limited AI model support security, risk management, and operational efficiency but do not influence credit, lending, or other decision-making functions within the Bank. We do not believe that these products pose a material risk on the company’s business or financial results. +AI is complex and rapidly evolving, and the introduction of AI, a relatively new and emerging technology in the early stages of commercial use, into our business and operations may subject us to new or heightened legal, regulatory, ethical, operational, reputational, or other risks. The models underlying AI may be incorrectly or inadequately designed or implemented and trained on, or otherwise use, data or algorithms that are, and output that may be, incomplete, inadequate, misleading, biased, poor-quality or otherwise flawed, any of which may not be easily detectable. Further, inappropriate or controversial data practices by developers and end-users or other factors adversely affecting public opinion of AI could impair the acceptance of AI, including those incorporated +33 +Table of Contents +in our business and operations. If the AI that we use is deficient, inaccurate or controversial, we could incur operational inefficiencies, competitive harm, legal and regulatory action, brand or reputational harm, or other adverse impacts on our business and financial results. Further, there can be no assurance that our use of AI will be successful in enhancing our business or operations or otherwise result in our intended outcomes, and our competitors may incorporate AI into their businesses or operations more quickly or more successfully than us. +AI and the use thereof is also subject to a variety of existing laws and regulations, including fair lending, consumer protection, intellectual property, cybersecurity, data privacy, and equal opportunity, and is expected to be subject to new laws and regulations or new applications of existing laws and regulations. AI is the subject of evolving review by various governmental and regulatory agencies, and changes in laws and regulations governing AI may adversely affect our ability to use AI. Additionally, various federal, state and foreign governments and regulators have implemented, or are considering implementing, general legal and regulatory frameworks for the appropriate use of AI. It is possible that we will not be able to anticipate how to respond to these rapidly developing laws and regulations. Further, if we do not have sufficient rights to use the data or algorithms on which our AI solutions rely or the output generated thereby, we also may incur liability through the violation of applicable laws and regulations, such as fair lending laws and regulations, third-party intellectual property, privacy or other rights, or contracts to which we are a party. We may not be able to sufficiently mitigate or detect any of the foregoing risks or concerns given our and other market participants’ lack of experience with using AI, the pace of technological change, and rapid adoption of AI by our business partners and competitors. Any actual or perceived failure to address risks or concerns relating to the use of AI, whether unfounded or not, could adversely affect our business and operations. +We face risks from cyber-attacks and other information or security breaches, including denial of service attacks, hacking, social engineering attacks targeting our colleagues, contractors, and customers, malware intrusion or data corruption attempts, and identity theft that could result in the disclosure of confidential, proprietary, personal and other information, any of which could adversely affect our business or reputation, and create significant legal and financial exposure. +Our computer and data management systems and network infrastructure, and those of third parties on which we are highly dependent, are subject to cybersecurity risks and could be susceptible to cyber-attacks or other information or security breaches. Our business relies on the secure processing, transmission, storage, and retrieval of confidential, proprietary, personal, and other information in our computer and data management systems and network infrastructure, and in the computer and data management systems and network infrastructure of third parties. In addition, to access our network, products, and services, our customers and other third parties may use personal mobile devices or computing devices that are outside of our network environment and are subject to their own cybersecurity risks. +We, our customers, regulators, and other third parties, including other financial services institutions and companies engaged in data processing, have been subject to, and are likely to continue to be the target of, cyber-attacks or other information or security breaches. These cyber-attacks or other information or security breaches include computer viruses, denial of service attacks, hacking, social engineering attacks (including phishing and smishing attacks) targeting our colleagues, contractors, and customers, malware intrusion or data corruption attempts, ransomware, improper access by employees or contractors, identity theft, and other security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss, destruction, or other processing of confidential, proprietary, personal, and other information of ours, our employees, our customers, or of third parties, damage our systems and infrastructure or otherwise materially disrupt our, our customers’, or other third parties’ network access or business operations. As cyber-attacks or other information or security breaches continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any cybersecurity vulnerabilities or cyber-attacks or other information or security breaches. Despite efforts to ensure the integrity of our systems and implement controls, processes, policies, and other protective measures, we may not be able to anticipate all security breaches, nor may we be able to implement sufficient preventive measures against such cyber-attacks or other information or security breaches, which may result in material losses or consequences for us. +34 +Table of Contents +Cybersecurity risks for banking organizations have significantly increased in recent years in part because of the proliferation of new technologies, including AI, and the use of the internet and telecommunications technologies to conduct financial transactions. For example, cybersecurity risks may increase in the future as we continue to increase our mobile-payment and other internet-based product offerings and expand our internal usage of web-based products and applications. In addition, cybersecurity risks have significantly increased in recent years in part due to the increased sophistication and activities of cyber threat actors, such as organized crime affiliates, terrorist organizations, state-sponsored actors, hostile foreign governments, disgruntled employees or vendors, activists, and other external parties, including those involved in corporate espionage, any of whom may enhance their efforts through the use of AI. Even the most advanced internal control environment may be vulnerable to compromise. Due to increasing geopolitical tensions, nation state cyber-attacks and ransomware are both increasing in sophistication and prevalence. Targeted social engineering and email attacks (i.e., “spear phishing” attacks) are becoming more sophisticated and are extremely difficult to prevent. In such an attack, an attacker will attempt to fraudulently induce colleagues, contractors, customers, clients, or other users of our systems and infrastructure to disclose sensitive information in order to gain access to our, our customers’, or our clients’ systems and infrastructure, or the confidential, proprietary, personal, or other information stored or processed thereon. Persistent attackers may succeed in penetrating defenses given enough resources, time, and motive. The techniques used by cyber threat actors change frequently, may not be recognized until launched, and may not be recognized until well after a cyber-attack or other information or security breach has occurred. The speed at which new vulnerabilities are discovered and exploited, often before security patches are published, continues to rise. Remote work further increases the risk that we may experience cyber-attack or other information or security breaches as a result of our employees, colleagues, contractors, and other third parties with which we do business or upon which we rely working remotely on less secure systems and environments. +The risk of a security breach caused by a cyber-attack or other information security breach at a third party with which we do business or upon which we rely, or by unauthorized access by such third party, has also increased in recent years. Additionally, the existence of cyber-attacks or other information or security breaches at such third parties with access to our confidential, proprietary, personal, and other information may not be disclosed to us in a timely manner. Further, our ability to monitor such third parties’ cybersecurity practices is limited. Although we generally have agreements relating to cybersecurity and data privacy in place with third parties, we cannot guarantee that such agreements will prevent a cyber-attack or other information or security breach impacting our confidential, proprietary, personal, or other information, or enable us to obtain adequate or any reimbursement from such third parties in the event we should suffer any disruption, compromise, failure, liability, reputational harm, or other cost or expense. Due to applicable laws and regulations or contractual obligations, we may be held responsible for cyber-attacks or other information or security breaches attributed to such third parties as they relate to the information we share with them. +Cyber-attacks or other information or security breaches, whether directed at us or third parties, may result in a material loss or have material consequences. Furthermore, the public perception that a cyber-attack or other information or security breach on our systems or infrastructure has been successful, whether or not this perception is correct, may damage our reputation with customers, clients, and third parties with which we do business. Hacking of confidential, proprietary, personal, and other information and identity theft risks, in particular, could cause serious reputational harm. A successful penetration or circumvention of our cybersecurity measures could cause us serious negative consequences, including: loss of customers, clients, and business opportunities; costs associated with maintaining business relationships after a cyber-attack or other information or security breach; significant business disruption to our operations and business, misappropriation, exposure, or destruction of our confidential, proprietary, personal, and other information, intellectual property, funds, and/or those of our customers or clients; or damage to our, our customers’, our clients’, and/or third parties’ systems or infrastructure. The occurrence of any of these events could result in a violation of applicable data privacy laws and regulations and other laws and regulations, litigation exposure, regulatory fines, penalties or intervention, loss of confidence in our cybersecurity measures, reputational damage, reimbursement or other compensatory costs, additional compliance costs, and could adversely impact our results of operations, liquidity, and financial condition. In addition, we may not have adequate insurance coverage to compensate for losses from a major +35 +Table of Contents +cyber-attack or other information or security breach. We also cannot be sure that our existing insurance coverage will continue to be available on acceptable terms or at all or that our insurers will not deny coverage to any future claim. +The increasing use of social media platforms presents new risks and challenges and the inability or failure to recognize, respond to, and effectively manage the accelerated impact of social media could materially adversely impact the Bank’s business. +There has been a marked increase in the use of social media platforms, including weblogs (blogs), social media websites, and other forms of internet-based communications which allow individuals’ access to a broad audience of consumers and other interested persons. Social media practices in the banking industry are evolving, which creates uncertainty and risk of noncompliance with regulations applicable to the Bank’s business. Consumers value readily available information concerning businesses and their goods and services and often act on such information without further investigation and without regard to its accuracy. Many social media platforms immediately publish the content their subscribers and participants’ post, often without filters or checks on accuracy of the content posted. Information posted on such platforms at any time may be adverse to the Bank’s interests and/or may be inaccurate. The dissemination of information online could harm the Bank’s business, prospects, financial condition, and results of operations, regardless of the information’s accuracy. The harm may be immediate without affording the Bank an opportunity for redress or correction. +Other risks associated with the use of social media include improper disclosure of proprietary information, negative comments about the Bank’s business, exposure of personally identifiable information, fraud, out-of-date information, and improper use by employees, directors and customers. The inappropriate use of social media by the Bank’s customers, directors or employees could result in negative consequences such as remediation costs, remedial training for employees, additional regulatory scrutiny and possible regulatory penalties, litigation, or negative publicity that could damage the Bank’s reputation adversely affecting customer or investor confidence. +STRATEGIC RISKS +Our growth has substantially increased our expenses and impacted our results of operations. +Although we believe that our growth-oriented business strategy will support our long-term profitability and franchise value, the expense associated with our growth, including compensation expense for the employees needed to support this growth and leasehold and other expenses associated with our locations, has and may continue to negatively affect our results. In addition, in order for our existing branches to contribute to our long-term profitability, we will need to be successful in attracting and maintaining cost-efficient deposits at these locations. In order to successfully manage our growth, we need to effectively execute policies, procedures and controls to maintain our credit quality and oversee our operations. We can provide no assurance that we will be successful in this strategy. +Our growth-oriented business strategy could be adversely affected if we are not able to attract and retain skilled employees. +We may not be able to successfully manage our business as a result of the strain on our management and operations that may result from growth. Our ability to manage growth will depend upon our ability to continue to attract, hire and retain skilled employees, and we may need to adopt additional equity plans in order to do so. Our success will also depend on the ability of our officers and key employees to continue to implement and improve our operational and other systems, to manage multiple, concurrent customer relationships and to hire, train and manage our employees. +36 +Table of Contents +We depend on our executive officers and key personnel to continue the implementation of our long-term business strategy and could be harmed by the loss of their services. +We believe that our continued growth and future success will depend in large part on the skills of our management team and our ability to motivate and retain these individuals and other key personnel. The loss of service of one or more of our executive officers or key personnel could reduce our ability to successfully implement our long-term business strategy, our business could suffer, and the value of our stock could be materially adversely affected. Leadership changes will occur from time to time, and we cannot predict whether significant resignations will occur or whether we will be able to recruit additional qualified personnel. We believe our management team possesses valuable knowledge about the banking industry and that their knowledge and relationships would be very difficult to replicate. Our success also depends on the experience of our branch managers and lending officers and on their relationships with the customers and communities they serve. The loss of these key personnel could negatively impact our banking operations. The loss of key personnel could have an adverse effect on our business, financial condition, or operating results. +RISKS RELATED TO THE REGULATION OF OUR INDUSTRY +We are subject to significant government regulation, which could affect our business, financial condition and results of operations. +We are subject to extensive governmental supervision, regulation and control. The Company is subject to regulation and supervision by the Federal Reserve, and the Bank is subject to regulation and supervision by the FDIC and the New Jersey Department of Banking and Insurance. These laws and regulations are subject to change and may require substantial modifications to our operations or may cause us to incur substantial additional compliance costs. In addition, future legislation and government policy could adversely affect the commercial banking industry and our operations. Such governing laws can be anticipated to continue to be the subject of future modification. Our management cannot predict what effect any such future modifications will have on our operations. +Changes to laws and regulation applicable to the financial industry, may impact the profitability of our business activities and may change certain of our business practices, including the ability to offer new products, obtain financing, attract deposits, make loans, and achieve satisfactory interest spreads, and could expose us to additional costs, including increased compliance costs. These changes also may require us to invest significant management attention and resources to make any necessary changes to operations in order to comply and could therefore also materially and adversely affect our business, financial condition and results of operations. +The federal and state laws and regulations applicable to our operations give regulatory authorities extensive discretion in connection with their supervisory and enforcement responsibilities, and generally have been promulgated to protect depositors and the Deposit Insurance Fund and not for the purpose of protecting stockholders. Laws and regulations now affecting us may be changed at any time, and the interpretation of such laws and regulations by bank regulatory authorities is also subject to change. +The USA PATRIOT and Bank Secrecy Acts require financial institutions to develop programs to prevent financial institutions from being used for money laundering and terrorist activities. If such activities are detected, financial institutions are obligated to file suspicious activity reports with the U.S. Treasury’s Office of Financial Crimes Enforcement Network. These rules require financial institutions to establish procedures for identifying and verifying the identity of customers seeking to open new financial accounts. Failure to comply with these regulations could result in fines or sanctions, including restrictions on conducting acquisitions or establishing new branches. During the last year, several banking institutions have received large fines for non-compliance with these laws and regulations. While we have developed policies and procedures designed to assist in compliance with these laws and regulations, these policies and procedures may not be effective in preventing violations of these laws and regulations. +37 +Table of Contents +We can give no assurance that future changes in laws and regulations or changes in their interpretation will not adversely affect our business. Legislative and regulatory changes may increase our cost of doing business or otherwise adversely affect us and create competitive advantage for non-bank competitors. +Our lending limit may restrict our growth. +We are limited in the amount we can loan to a single borrower by the amount of our capital. Generally, under current law, we may lend up to 15% of our unimpaired capital and surplus, including capital notes, to any one borrower. Based upon our current capital levels, the amount we may lend is less than that of many of our larger competitors and may discourage potential borrowers who have credit needs in excess of our lending limit from doing business with us. We may accommodate larger loans by selling participations in those loans to other financial institutions, but this ability may not always be available. +The Federal Reserve may require the Company to commit capital resources to support the Bank. +Federal law requires that a holding company act as a source of financial and managerial strength to its subsidiary bank and to commit resources to support such subsidiary bank. Under the “source of strength” doctrine, the Federal Reserve may require a holding company to make capital injections into a troubled subsidiary bank and may charge the holding company with engaging in unsafe and unsound practices for failure to commit resources to a subsidiary bank. A capital injection may be required at times when the holding company may not have the resources to provide it and therefore may require the holding company to borrow the funds or raise capital. Thus, any borrowing or capital raised to make a capital injection becomes more difficult and expensive and could have an adverse effect on the Company’s business, financial condition, and results of operations. +We are subject to the Community Reinvestment Act and fair lending laws, and failure to comply with these laws could lead to material penalties. +The CRA, the Equal Credit Opportunity Act, the Fair Housing Act and other fair lending laws and regulations impose nondiscriminatory lending requirements on financial institutions. A successful regulatory challenge to an institution’s performance under the CRA or fair lending laws and regulations could result in a wide variety of sanctions, including the required payment of damages and civil money penalties, injunctive relief, imposition of restrictions on mergers and acquisitions activity and restrictions on expansion. Private parties may also have the ability to challenge an institution’s performance under fair lending laws in private class action litigation. Such actions could have a material adverse effect on our business, financial condition and results of operations. +Impairment of goodwill could require charges to earnings, which could result in a negative impact on our results of operations. +Our goodwill could become impaired in the future. If goodwill were to become impaired, it could limit the ability of the Bank to pay dividends to the Company, adversely impacting the Company’s liquidity and ability to pay dividends or repay debt. Assumptions affecting our goodwill impairment evaluation include earnings projections, the discount rates used in the income approach to measure fair value, and observed peer multiples used in estimating the fair value under the market approach. We are required to test goodwill for impairment at least annually or when impairment indicators are present. If an impairment determination is made in a future reporting period, our earnings and book value of goodwill will be reduced by the amount of the impairment. If an impairment loss is recorded, it will have little or no impact on the tangible book value of our common stock, or our regulatory capital levels, but such an impairment loss could significantly reduce the Bank’s earnings and thereby restrict the Bank’s ability to make dividend payments to us without prior regulatory approval, which in turn could impact our ability to pay dividends. At December 31, 2024, the book value of our goodwill was $14.4 million, all of which was recorded at the Bank. Any such write down of goodwill or other acquisition related intangibles will reduce the Company’s earnings, as well. +38 +Table of Contents +Item 1B. Unresolved Staff Comments +Not applicable. +Item 1C. Cybersecurity +We rely extensively on various information systems and other electronic +resources to operate our business +. In addition, nearly all our customers, service providers and other business partners on whom we depend, including the providers of our online banking, mobile banking, and accounting systems, use their own information systems and electronic resources. Any of these systems can be compromised, including through the employees, customers, and other individuals who are authorized to use them, and bad actors who use a sophisticated and constantly evolving set of software, tools, and strategies to do so. Moreover, the nature of our business as a financial services provider, and our relative size, make us and our business partners high-value targets for these bad actors to pursue. For additional information see “Item 1A. Risk Factors—Operational Risks.” +Accordingly, we have long devoted significant resources to assessing, identifying, and managing risks associated with cybersecurity threats, including: +• +an +in-house +team dedicated to information and cybersecurity, responsible for conducting regular evaluations of our information systems, existing controls, vulnerabilities, and potential enhancements; +• +tools for continuous monitoring capable of detecting and aiding in the response to cybersecurity threats in real-time; +• +conducting thorough due diligence on our third-party service providers, evaluating their cybersecurity practices, and requiring contractual commitments from them to implement specific cybersecurity measures; +• +collaboration with third-party cybersecurity experts who perform periodic penetration testing, vulnerability assessments, and other procedures to pinpoint potential weaknesses in our systems and processes; and +• +regular cybersecurity training sessions for our staff. +This information security program is a key part of our overall risk management system, which is administered by our Information Security +Officer +. The program includes administrative, technical and physical safeguards to help ensure the security and confidentiality of customer records and information. These security and privacy policies and procedures are in effect across all of our bu +sine +sses and geographic locations. +We face a number of cybersecurity risks in connection with our business. From +time-to-time, +we have identified cybersecurity threats and cybersecurity incidents that require us to make changes to our processes and to implement additional safeguards. While none of these identified threats or incidents have materially affected us , it is possible that threats and incidents we identify in the future could have a material adverse effect on our business strategy, results of operations, and financial condition. +Our management team is +responsible +for the +day-to-day +management of risks we face, including our CIO. Our CIO has been in the role since May 2021, and has 30 years of experience in technology risk management and cybersecurity, primarily within the financial services sector. +In additi +on +, our board of directors is responsible for the oversight of risk management. In that role, our board of directors, with support from our cybersecurity advisors, are responsible for ensuring that the risk management processes designed and implemented by management are adequate and functioning as designed. To carry out those duties, our board of directors receives quarterly reports from our management team regarding cybersecurity risks, and our efforts to prevent, detect, mitigate, and remediate any cybersecurity incidents. +39 +Table of Contents +Item 2. Properties +We conduct our operations from our headquarters and branch located at 183 Bayard Lane, Princeton, New Jersey, an operations center at 403 Wall Street, Princeton, New Jersey, and from 34 other branch locations in New Jersey, Pennsylvania and New York. The following table sets forth certain information regarding the Bank’s properties as of December 31, 2024: +Location +Leased or +Owned +Date of Lease +Expiration 1 +Corporate Headquarters and Branch +183 Bayard Lane +Princeton, NJ +Leased +October 31, 2028 +Operations Center +403 Wall Street +Princeton, NJ +Leased +February 28, 2026 +Hamilton Branch +339 Route 33 +Hamilton, NJ +Leased +October 30, 2025 +Pennington Branch +2 Route 31 +Pennington, NJ +Leased +April 30, 2027 +Montgomery Branch +1185 Route 206 North +Princeton, NJ +Leased +April 30, 2025 +Monroe Branch +1 Rossmoor Drive +Monroe Township, NJ +Leased +July 31, 2030 +Lambertville Branch +10-12 Bridge Street +Lambertville, NJ +Owned +N/A +Lawrenceville Branch +2999 Princeton Pike +Lawrenceville, NJ +Leased +October 30, 2025 +Nassau Street Branch +194 Nassau Street +Princeton, NJ +Leased +November 30, 2026 +New Brunswick Branch +1 Spring Street, Suite 102 +New Brunswick, NJ +Leased +March 31, 2027 +Cream Ridge Branch +403 Rt 539 +Cream Ridge, NJ +Leased +November 30, 2028 +Chesterfield Branch +305 Bordentown-Chesterfield Road +Chesterfield, NJ +Owned +N/A +Bordentown Branch +335 Farnsworth Avenue +Bordentown, NJ +Owned +N/A +40 +Table of Contents +Browns Mills Branch +101 Pemberton Browns Mills Road +Browns Mills, NJ +Owned +N/A +Deptford Branch +1893 Hurffville Road +Deptford, NJ +Owned +N/A +Sicklerville Branch +483 Cross Key Road +Sicklerville, NJ +Leased +January 31, 2026 +Princeton Junction Branch +11 Cranbury Road +Princeton Junction, NJ +Leased +October 10, 2029 +Quakerbridge Branch +3745 Quakerbridge Road +Hamilton, NJ +Leased +March 14, 2026 +Lakewood Branch +12 American Avenue, 7B +Lakewood, NJ +Leased +August 20, 2025 +Piscataway Branch +1642 Stelton Road, Suite 410 +Piscataway, NJ +Leased +August 14, 2026 +North Wales Branch +1222 Welsh Road +North Wales, PA +Leased +September 30, 2026 +Cheltenham Branch +470 West Cheltenham Avenue +Philadelphia, PA +Leased +January 26, 2026 +Chinatown Branch +921 Arch Street +Philadelphia, PA +Leased +September 30, 2027 +Chestnut Street Branch +1839 Chestnut Street +Philadelphia, PA +Leased +February 28, 2027 +Kingston Branch +4442 Route 27 +Kingston, NJ +Leased +March 1, 2028 +Fort Lee Branch +2337 Lemoine Ave +Fort Lee, NJ +Leased +November 30, 2027 +Palisades Park Branch +449 Broad Ave +Palisades Park, NJ +Leased +December 31, 2025 +Flushing Branch +15404 Northern Blvd +Flushing, NY +Leased +January 31, 2029 +41 +Table of Contents +Jericho Branch +350 N Broadway #352 +Jericho, NY +Leased +November 30, 2028 +Elkins Park Branch +7301 Old York Rd +Elkins Park, PA +Leased +May 31, 2041 +Cherry Hill Branch +1405 Route 70 East +Cherry Hill, NJ 08034 +Owned +N/A +Medford Branch +170 Himmelein Rd. +Medford, NJ 08055 +Leased +October 31, 2026 +Moorestown Branch +253 West Main Street +Moorestown, NJ 08057 +Owned +N/A +Burlington Branch +353 High Street +Burlington City, NJ 08016 +Leased +February 28, 2026 +Voorhees Branch +133 Route 73 +Voorhees, NJ 08043 +Owned +N/A +Woodbury Branch +1201 North Broad Street +Woodbury, NJ 08096 +Leased +April 1, 2032 +1 +The expiration date is based on the next upcoming maturity date and does not take into consideration any renewal/extensions dates. +Item 3. Legal Proceedings +From time to time the Company is a defendant in various legal proceedings arising in the ordinary course of our business. However, in the opinion of management of the Company, there are no proceedings pending to which the Company is a party or to which its property is subject, which, if determined adversely to the Company, would be material in relation to the Company’s profits or financial condition, nor are there any proceedings pending other than ordinary routine litigation incident to the business of the Company. In addition, no material proceedings are pending or are known to be threatened or contemplated against the Company by government authorities or others. +Item 4. Mine Safety Disclosures +Not applicable. +42 +Table of Contents +PART II +Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +Market Information +The Company’s common stock trades on the “NASDAQ Global Select Market” under the ticker symbol “BPRN.” As of March 7, 2025, there were approximately 1,268 holders of our common stock. +Recent Sales of Unregistered Sales of Equity Securities and Use of Proceeds +The Company did not repurchase any shares of its common stock during the three-month period ended December 31, 2024. +Dividends +The Company declared and paid cash dividends of $0.30 per share in each quarter for the year ended December 31, 2024. The payment of dividends to shareholders of the Company is dependent on the Bank paying dividends to the Company. The Bank may pay dividends as declared from time to time by the Board of Directors out of funds legally available, subject to certain restrictions. Under the New Jersey Banking Act of 1948, as amended, the Bank may not pay a cash dividend unless, following the payment, the Bank’s capital stock will be unimpaired and the Bank will have a surplus of no less than 50.0 percent of the Bank’s capital stock or, if not, the payment of the dividend will not reduce the surplus. In addition, the Bank cannot pay dividends in amounts that would reduce the Bank’s capital below regulatory imposed minimums. +Under Pennsylvania law, the Company may not pay a dividend, if, after giving effect thereto, it would be unable to pay its debts as they become due in the usual course of business and, after giving effect to the dividend, the total assets of the Company would be less than the sum of its total liabilities plus the amount that would be needed, if the Company were to be dissolved at the time of distribution, to satisfy the preferential rights upon dissolution of shareholders whose rights are superior to those receiving the dividend. +It is also the policy of the Federal Reserve that a bank holding company generally may only pay dividends on common stock out of net income available to common shareholders over the past twelve months and only if the prospective rate of earnings retention appears consistent with a bank holding company’s capital needs, asset quality, and overall financial condition. A bank holding company also should not maintain a dividend level that places undue pressure on the capital of such institution’s subsidiaries, or that may undermine the bank holding company’s ability to serve as a source of strength for such subsidiaries. +43 +Table of Contents +Performance Graph +The following graph demonstrates comparison of the cumulative total returns for the common stock of the Company, NASDAQ Composite Index, SNL Mid-Atlantic Bank Index, and Peer Group made up of banks and thrifts with total assets between $1.00 billion and $3.00 billion for the periods indicated. The graph below represents $100 invested in our Bank’s common stock at its closing price on December 31, 2019. +Period Ending +Index +12/31/19 +12/31/20 +12/31/21 +12/31/22 +12/31/23 +12/31/24 +Princeton Bancorp, Inc. +100.00 +75.69 +96.99 +108.41 +127.63 +126.92 +NASDAQ Composite Index +100.00 +144.92 +177.06 +119.45 +172.77 +223.87 +S&P U.S. BMI Banks - Mid-Atlantic Region Index +100.00 +90.39 +114.16 +96.42 +116.90 +162.46 +Peer Group +100.00 +86.22 +111.22 +108.54 +105.35 +121.91 +Peer group includes Banks and Thrifts with total assets between $1B – $3B +Source: S&P Global Market Intelligence +© 2025 +44 +Table of Contents +Securities Authorized for Issuance under Equity Compensation Plans +The following table summarizes our equity compensation plan information as of December 31, 2024. See Note 16 “Stock-Based Compensation” in the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for a description of the material features of each plan. +Plan Category +Number of +shares of +common stock +to be issued +upon exercise +of outstanding +options +Weighted- +average +exercise price +of outstanding +options +Number of +shares of +common stock +remaining +available for +future issuance +under +compensation +plans +Equity Compensation Plans approved by security holders +281,809 +$ +19.86 +215,025 +Equity Compensation Plans not approved by security holders +—  +—  +—  +Total +281,809 +$ +19.86 +215,025 +Item 6. +[Reserved] +45 +Table of Contents +Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations +Our Management’s Discussion and Analysis of Financial Condition and Results of Operations is presented in sections as follows: +• +Overview and Strategy +• +Comparison of Financial Condition at December 31, 2024 and December 31, 2023 +• +Comparison of Operating Results for the Years Ended December 31, 2024 and 2023 +• +Rate/Volume Analysis +• +Liquidity, Commitments and Capital Resources +• +Off-Balance Sheet Arrangements +• +Impact of Inflation +• +Exposure to Changes in Interest Rates +• +Critical Accounting Policies and Estimates +• +Recently Issued Accounting Standards +Overview and Strategy +We remain focused on establishing and retaining customer relationships by offering a broad range of traditional financial services and products, competitively priced and delivered in a responsive manner to small businesses, to professionals and individuals in our market area. As a community bank, we seek to provide superior customer service that is highly personalized, efficient and responsive to local needs. To better serve our customers, we endeavor to provide state-of-the-art delivery systems with ATMs, current operating software, timely reporting, online bill pay and other similar up-to-date products and services. We seek to deliver these products and services with the care and professionalism expected of a community bank and with a special dedication to personalized customer service. +Our primary business objectives are: +• +to provide local businesses, professionals and individuals with banking services responsive to and determined by their needs and local market conditions; +• +to attract deposits and loans through competitive pricing, responsiveness and service; and +• +to provide a reasonable return to stockholders on capital invested. +We also intend to continue pursuing a strategy that includes acquisitions. An acquisition strategy involves significant risks, including the following: finding suitable candidates for acquisition; attracting funding to support additional growth within acceptable risk tolerances; maintaining asset quality; retaining the target’s customers and key personnel; obtaining necessary regulatory approvals; conducting adequate due diligence and managing known and unknown risks and uncertainties; integrating acquired businesses; and maintaining adequate regulatory capital. The market for acquisition targets is highly competitive, which may adversely affect our ability to find acquisition candidates that fit our strategy and standards. +We strive to serve the financial needs of our customers while providing an appropriate return to our stockholders, consistent with safe and sound banking practices. We expect that a financial strategy that utilizes variable rates and matching assets and liabilities will enable us to increase our net interest margin, while managing interest rate risk. We also seek to generate fee income from various sources, subject to our desire to maintain competitive pricing within our market area. +46 +Table of Contents +Our recognition of, and commitment to, the needs of the local community, combined with highly personalized and responsive customer service, differentiates us from our competition. We continue to capitalize upon the personal contacts and relationships of our organizers, directors, stockholders and officers to establish and grow our customer base. +Comparison of Financial Condition at December 31, 2024 and December 31, 2023 +General. +Total assets were $2.34 billion at December 31, 2024, an increase of $423.7 million, or 22.11% when compared to $1.92 billion at the end of 2023. The primary reasons for the increase in total assets were the acquisition of CFC on August 23, 2024, which had approximately $303.5 million in assets at closing, and increases from existing core operations. +Cash and cash equivalents +Cash and cash equivalents decreased $33.2 million, or 22.06%, to $117.3 million at December 31, 2024 compared to December 31, 2023. +Investment securities +Total available-for-sale investment securities increased million $155.8, or 170.57%, to $247.2 million at December 31, 2024 compared to December 31, 2023. This increase was related to the purchase of mortgage-backed securities of U.S. government sponsored enterprises, and U.S government agency securities, along with $14.0 million in securities acquired in the CFC acquisition during the year ended December 31, 2024. +Loans +Loans, net of deferred loan fees and costs, increased $270.5 million, or 17.47%, to $1.82 billion at December 31, 2024 compared to December 31, 2023. The primary reasons for the increase in net loans were the $255.5 million in loans acquired from CFC and a $15.0 million increase from existing operations. The increase in the Company’s net loans consisted of increases of $242.2 million in commercial real estate loans, $41.9 million in commercial and industrial loans, $30.0 million in residential mortgages, and $10.1 in home equity and consumer loans, all partially offset by a decrease of $53.0 million in construction loans. +The Company’s CRE loan portfolio, which includes multi-family, land, owner-occupied and non-owner-occupied CRE loans, was $1.39 billion or 76.1% of total loans of $1.82 billion at December 31, 2024. There were 774 loans in the Company’s CRE portfolio with an average and median loan size of $1.8 million and $0.6 million, respectively. LTV estimates are less than 70% for $1.27 billion or 92.1% of the CRE portfolio and less than 80% for $1.37 billion or 99.3% of the CRE portfolio. +47 +Table of Contents +The following table presents the commercial real estate portfolio by property type along with the weighted average loan to value for the periods presented (dollars in thousands): +December 31, 2024 +December 31, 2023 +Commercial Real Estate +Balance +% of portfolio +Weighted Average +LTV +Balance +% of portfolio +Weighted Average +LTV +Multi Family +533,287 +38.6 +% +53.6 +% +403,779 +35.3 +% +55.7 +% +Owner Occupied +407,798 +29.4 +% +36.3 +% +347,734 +30.4 +% +33.0 +% +Land +25,241 +1.8 +% +73.9 +% +30,280 +2.6 +% +79.6 +% +Non Owner Occupied +Office Building +104,388 +7.5 +% +43.5 +% +91,968 +8.0 +% +42.9 +% +Retail +100,771 +7.3 +% +42.5 +% +67,862 +5.9 +% +40.7 +% +Industrial/Warehousing +73,417 +5.3 +% +44.9 +% +69,917 +6.1 +% +46.0 +% +Mixed Use +48,076 +3.5 +% +43.7 +% +48,684 +4.3 +% +42.9 +% +Restaurants +22,650 +1.6 +% +39.3 +% +15,361 +1.3 +% +33.3 +% +Healthcare +10,268 +0.7 +% +53.3 +% +11,448 +1.0 +% +48.7 +% +Other +59,189 +4.3 +% +45.6 +% +55,830 +4.9 +% +38.7 +% +Total non owner occupied +418,759 +30.2 +% +361,070 +31.6 +% +Total Commercial Real Estate +1,385,085 +100.0 +% +1,142,863 +100.0 +% +The following table presents the geographic markets of the commercial real estate portfolio for the periods presented (dollars in thousands): +December 31, 2024 +December 31, 2023 +Balance +% of portfolio +Balance +% of portfolio +Geographical Market +New York +639,994 +46.1 +% +533,991 +46.7 +% +New Jersey +540,896 +39.1 +% +408,368 +35.7 +% +Pennsylvania +184,084 +13.3 +% +172,848 +15.1 +% +Other +20,111 +1.5 +% +27,657 +2.5 +% +1,385,085 +100.00 +% +1,142,864 +100.00 +% +At December 31, 2024, non-performing assets totaled $27.1 million, an increase of $20.4 million when compared to the amount at December 31, 2023. The increase was due to the delinquency of two commercial real estate loans totaling $25.4 million with collateral supporting each loan. The Company is a participant in these loans and is currently evaluating its options with the lead bank, including but not limited to placing the loans on the market for sale. +Deposits +Total deposits on December 31, 2024, increased $396.9 million, or 24.26%, when compared to December 31, 2023. The primary reasons for the increase in total deposits were the $282.8 million in deposits acquired from CFC and an increase of $114.1 million from existing branch operations. The increase in the Company’s deposits consisted of increases in money market deposits of $136.5 million, certificates of deposit of $131.6 million, interest-bearing demand deposits of $52.6 million, non-interest-bearing deposits of $51.7 million, and savings deposits of $24.4 million. +Borrowings +The Company had no outstanding borrowings at December 31, 2024 or December 31, 2023. +48 +Table of Contents +Stockholders’ equity +Total stockholders’ equity at December 31, 2024, increased $21.8 million or 9.09% when compared to December 31, 2023. The increase was primarily due to the $21.6 million increase in paid-in capital which is primarily associated with the issuance of $20.0 million of common stock related to the acquisition of CFC, and an increase in retained earnings of $2.5 million, which consisted of $10.2 million in net income partially offset by $7.7 million of cash dividends recorded during the period, which increase was partially offset by an increase in accumulated other comprehensive loss of $1.4 million. The ratio of equity to total assets at December 31, 2024 and at December 31, 2023 was 11.2% and 12.5%, respectively. The current period ratio decrease was primarily due to the CFC acquisition. +We manage our balance sheet based on a number of interrelated criteria, such as changes in interest rates, fluctuations in certain asset and liability categories whose changes are not totally controlled by us, swings in deposit account balances driven by depositors’ needs, prepayments and issuer call options exercised on securities available for sale, early payoffs on loans, investment opportunities presented by market conditions, lending originations, capital provided by earnings, and active management of our overall liquidity positions. The management of these dynamic and interrelated elements of our balance sheet results in fluctuations in balance sheet items throughout the year. +Comparison of Operating Results for the Years Ended December 31, 2024, and 2023 +General. +For the year ended December 31, 2024, the Company recorded net income of $10.2 million, or $1.55 per diluted common share, compared to $25.8 million, or $4.03 per diluted common share, for the same period in 2023. This year-to-date decrease was primarily the result of a $9.7 bargain purchase gain which included a tax benefit of $2.0 million in 2023 from the Company’s acquisition of Noah Bank in May of 2023, and the purchase accounting adjustments recorded in 2024 related to the CFC acquisition, which included an increase of $1.5 million in the provision for credit losses when comparing both periods. +Net interest income. +Net interest income for the twelve-month period ended December 31, 2024, was $66.5 million, an increase of $1.5 million, or 2.3%, from 2023. The increase from the previous year was the result of an increase in interest income of $24.8 million, or 25.2%, partially offset by an increase in interest expense of $23.3 million, or 70.1%. +Total interest and dividend income. +Total interest and dividend income increased $24.8 million, or 25.2%, to $122.9 million for the year ended December 31, 2024, compared to $98.2 million for the prior year. The improvement in interest income resulted from an increase in the yield on earning assets of 31 basis points to 6.25% and an increase in average interest-earning assets of $315.2 million for the twelve-month period ended December 31, 2024. +Interest income and fees on loans increased $19.3 million, or 21.6%, to $108.6 million for the year ended December 31, 2024, compared to $89.3 million for the prior year. The increase was attributable to both a $213.5 million increase in the average balance and a 37 basis point increase in the year-over-year average yield on loans to 6.53%, due to rising interest rates over the period. +Interest income on securities increased approximately $3.6 million, or 144.43%, for the year ended December 31, 2024, compared to the prior year. The increase was attributable to both a $65.6 million increase in the average balance and a 110 basis point increase in the year-over-year average yield on investments to 4.06% +Other interest and dividends increased $1.9 million, or 29.1%, to $8.3 million for the year ended December 31, 2024, compared to $6.4 million for the prior year due to an increase of $26.9 million in the average balances of federal funds sold, partially offset by an 8 basis point decrease in the yield on fed funds sold. +49 +Table of Contents +Interest expense. +Total interest expense increased $23.3 million, or 70.1%, for the year ended December 31, 2024 compared to the prior year. This increase was the result of a 99 basis point increase in the cost of interest-bearing deposits and an increase of $302.7 million in average interest-bearing deposits. +Interest expense on borrowings was not significant for either period presented. +Provision for credit losses. +The provision for credit losses for the twelve months ended December 31, 2024, was $5.1 million compared with a provision of $3.1 million for the 2023 period. The $5.1 million provision for 2024 consists of a $5.5 million provision associated with the company’s loan portfolio, offset by a credit to the provision of $360 thousand associated with unfunded commitments. The provision for credit losses on loans includes $3.2 million related to non-purchased-credit-deteriorated loans acquired in the CFC acquisition. See the section above titled “Analysis of Allowance for Credit Losses” for a discussion of our allowance for credit losses methodology, including additional information regarding the determination of the provision for credit losses. +Non-interest income. +Total non-interest income for the year ended December 31, 2024, decreased $9.0 million, or by 52.4%, primarily due to the $9.7 million bargain purchase gain from the Noah Bank acquisition recorded in 2023, partially offset by a 2024 increase in other non-interest income of $646 thousand and an increase in income from bank owned life insurance of $380 thousand over the same period in 2023. +Non-interest expense. +For the year ended December 31, 2024, non-interest expense was $56.8 million, compared to $48.7 million for 2023. The increase of $8.0 million was primarily attributed to increases in salaries and employee benefits of $2.7 million, occupancy and equipment of $1.2 million, professional fees of $515 thousand, data processing and communications of $352 thousand, federal deposit insurance of $254 thousand and merger-related expenses of $2.2 million during 2024 over the same period in 2023. The CFC acquisition caused a significant portion of such increases. +Income tax expense. +For the year ended December 31, 2024, income tax expense was $2.6 million resulting in an effective tax rate of 20.1% compared to income tax expense of $4.6 million and an effective tax rate of 15.1% for the year ended December 31, 2023. This decrease was due to the income taxes on the $9.7 million bargain purchase gain from the Noah Bank acquisition, recorded in the year ended December 31, 2023, and an increase in 2024 merger related expenses of $2.2 million when comparing the years ended December 31, 2024 and 2023. +50 +Table of Contents +Average Balance Sheets. The following table sets forth average balance sheets, yields and costs, and certain other information for the years indicated. The average yields and costs of funds shown are derived by dividing income or expense by the daily average balance of assets or liabilities, respectively, for the periods presented. Net loan fees of $4.1 million and $2.8 million were recorded for the twelve months ended December 31, 2024 and 2023, respectively. Nonaccrual loans are included in the average balance of loans receivable, net for all periods presented. No tax-equivalent adjustments have been made as they were deemed insignificant. +Twelve Months Ended December 31, +2024 +2023 +Change 2024 vs 2023 +Average +Balances +Income/ +Expense +Yield +Rates +Average +Balances +Income/ +Expense +Yield +Rates +Average +Balances +Yield +Rates +(Dollars in thousands) +Interest-earning assets: +Loans receivable +$ +1,663,013 +$ +108,586 +6.53 +% +$ +1,449,504 +$ +89,278 +6.16 +% +$ +213,509 +0.37 +% +Securities +Taxable available-for-sale +109,145 +4,928 +4.51 +% +43,476 +1,339 +3.08 +% +65,669 +1.43 +% +Tax exempt available-for-sale +40,239 +1,142 +2.84 +% +40,264 +1,138 +2.83 +% +(25 +) +0.01 +% +Held-to-maturity +169 +9 +5.27 +% +197 +10 +5.28 +% +(28 +) +-0.01 +% +Federal funds sold +136,281 +7,188 +5.27 +% +109,441 +5,858 +5.35 +% +26,840 +-0.08 +% +Other interest earning-assets +19,337 +1,093 +5.65 +% +10,064 +557 +5.53 +% +9,273 +0.12 +% +Total interest-earning assets +1,968,184 +$ +122,946 +6.25 +% +1,652,946 +$ +98,180 +5.94 +% +315,239 +0.31 +% +Other non-earnings assets +151,600 +122,321 +29,369 +Total assets +$ +2,119,784 +$ +1,775,267 +$ +344,608 +Interest-bearing liabilities +Demand +$ +258,462 +$ +4,941 +1.91 +% +$ +250,312 +$ +3,654 +1.46 +% +$ +8,150 +0.45 +% +Savings +157,538 +3,974 +2.52 +% +159,175 +2,742 +1.72 +% +(1,637 +) +0.80 +% +Money markets +421,934 +15,971 +3.79 +% +311,478 +9,565 +3.07 +% +110,456 +0.72 +% +Certificates of deposit +724,060 +31,528 +4.35 +% +538,343 +17,085 +3.17 +% +185,717 +1.18 +% +Total deposit +1,561,994 +56,414 +3.61 +% +1,259,308 +33,046 +2.62 +% +302,686 +0.99 +% +Borrowings +—  +—  +0.00 +% +2,343 +118 +5.01 +% +(2,343 +) +-5.01 +% +Total interest-bearing liabilities +1,561,994 +$ +56,414 +3.61 +% +1,261,651 +$ +33,164 +2.63 +% +300,343 +0.98 +% +Non-interest-bearing deposits +264,418 +248,233 +16,185 +Other liabilities +43,955 +36,856 +7,099 +Total liabilities +1,870,367 +1,546,740 +323,627 +Stockholders’ equity +249,417 +228,527 +20,890 +Total liabilities and stockholder’s equity +$ +2,119,784 +$ +1,775,267 +$ +344,517 +Net interest-earnings assets +$ +406,189 +$ +391,295 +$ +14,894 +Net interest income; interest rate spread +2.64 +% +3.31 +% +-0.67 +% +Net interest margin +$ +66,532 +3.38 +% +$ +65,016 +3.93 +% +$ +1,516 +-0.55 +% +51 +Table of Contents +Rate/Volume Analysis +The following table reflects the sensitivity of our interest income and interest expense to changes in volume and in yields on interest-earning assets and costs of interest-bearing liabilities during the periods indicated. +Twelve Months Ended +December 31, 2024 vs . 2023 +Increase (Decrease) Due to +Rate +Volume +Net +(In thousands) +Interest and dividend income: +Loans receivable, including fees +$ +5,588 +$ +13,720 +$ +19,308 +Securities available-for-sale +—  +Taxable +842 +2,747 +3,589 +Tax-exempt +6 +(2 +) +4 +Securities held-to-maturity +—  +(1 +) +(1 +) +Federal funds sold +(82 +) +1,412 +1,330 +Other interest and dividend income +12 +524 +536 +Total interest and dividend income +$ +6,366 +$ +18,400 +$ +24,766 +Interest expense: +Demand +$ +1,164 +$ +123 +$ +1,287 +Savings +1,260 +(28 +) +1,232 +Money market +2,540 +3,866 +6,406 +Certificates of deposit +7,509 +6,934 +14,443 +Borrowings +(78 +) +(40 +) +(118 +) +Total interest expense +$ +12,395 +$ +10,855 +$ +23,250 +Change in net interest income +$ +(6,029 +) +$ +7,545 +$ +1,516 +Liquidity, Commitments and Capital Resources +Liquidity. Our liquidity, represented by cash and due from banks, is a product of our operating, investing and financing activities. Our primary sources of funds are deposits, principal repayments of securities and outstanding loans, and funds provided from operations. In addition, we invest excess funds in short-term interest-earnings assets such as overnight deposits or U.S. agency securities, which provide liquidity to meet lending requirements. While scheduled payments from the amortization of loans and securities and short-term investments are relatively predictable sources of funds, general interest rates, economic conditions and competition greatly influence deposit flows and repayments on loans and mortgage-backed securities. +We strive to maintain sufficient liquidity to fund operations, loan demand and to satisfy fluctuations in deposit levels. We are required to have enough investments that qualify as liquid assets in order to maintain sufficient liquidity to ensure safe and sound banking operations. Liquidity may increase or decrease depending upon the availability of funds and comparative yields on investments in relation to the return on loans. We attempt to maintain adequate but not excessive liquidity, and liquidity management is both a daily and long-term function of our business management. We manage our liquidity in accordance with a board of directors-approved asset-liability policy, which is administered by our asset-liability committee (“ALCO”). ALCO reports interest rate sensitivity, liquidity, capital and investment-related matters on a quarterly basis to our board of directors. +We review cash flow projections regularly and update them in order to maintain liquid assets at levels believed to meet the requirements of normal operations, including loan commitments and potential deposit outflows from maturing certificates of deposit and savings withdrawals. +52 +Table of Contents +While deposits are our primary source of funds, when needed we are also able to generate cash through borrowings from the FHLB-NY. At December 31, 2024, we had remaining available capacity with FHLB-NY, subject to certain collateral restrictions, of $554.8 million. +Additionally, we are a shareholder of Atlantic Community Bancshares, Inc., and as such, as of December 31, 2024, we had available capacity with its subsidiary, Atlantic Community Bankers Bank of $10.0 million to provide short-term liquidity generally for a period of not more than fourteen days. +Contractual Obligations. We have non-cancelable operating leases for branch offices and our operations center. The following table is a schedule of future payments under operating leases with initial terms longer than 12 months at December 31, 2024: +Amount +Years Ended December 31 +(in thousands) +2025 +$ +3,722 +2026 +3,498 +2027 +3,208 +2028 +3,093 +2029 +2,467 +Thereafter +14,541 +Total +$ +30,529 +The following table summarizes our contractual cash obligations relating to certificates of deposits: +Amount +Years Ended December 31 +(in thousands) +2025 +$ +727,528 +2026 +33,942 +2027 +4,581 +2028 +1,112 +2029 and thereafter +2,508 +Total +$ +769,671 +Capital Resources. Consistent with our goals to operate as a sound and profitable financial institution, we actively seek to maintain our status as a well-capitalized institution in accordance with regulatory standards. As of December 31, 2024, we met the capital requirements to be considered “well capitalized.” See Note 17 – “Regulatory Matters” in the Notes to Consolidated Financial Statements included within this Form 10-K for more information regarding our capital resources. +Off-Balance Sheet Arrangements +We are a party to financial instruments with off-balance sheet risk in the normal course of our business of investing in loans and securities as well as in the normal course of maintaining and improving our facilities. These financial instruments include significant purchase commitments, such as commitments related to capital expenditure plans and commitments to purchase investment securities or mortgage-backed securities, and commitments to extend credit to meet the financial needs of our customers. +Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the loan contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee by our customers. Our exposure to credit loss in the event of non-performance by the counterparty to the financial instrument for commitments to extend credit is +53 +Table of Contents +represented by the contractual notional amount of those instruments. We use the same credit policies in making commitments and conditional obligations as we do for on-balance-sheet instruments. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. +We had the following off-balance sheet financial instruments whose contract amounts represent credit risk at December 31: +2024 +2023 +(In thousands) +Performance and standby letters of credit +$ +700 +$ +1,010 +Undisbursed construction loans-in-process +62,007 +89,258 +Commitments to fund loans +51,075 +38,863 +Unfunded commitments under lines of credit +19,659 +4,697 +Total +$ +133,441 +$ +133,828 +For additional information regarding our outstanding lending commitments at December 31, 2024, see Note 9 – “Commitments and Contingencies” in the Notes to Consolidated Financial Statements contained in this Form 10-K. +Impact of Inflation +The financial statements included in this Form 10-K have been prepared in accordance with accounting principles generally accepted in the United States of America. These principles require the measurement of financial position and results of operations in terms of historical dollars, without considering changes in the relative purchasing power of money, over time, due to inflation. Our primary assets and liabilities are monetary in nature. As a result, interest rates have a more significant impact on our performance than the effects of general levels of inflation. Interest rates, however, do not necessarily move in the same direction or with the same magnitude as the price of goods and services, since such prices are affected by inflation. +Exposure to Changes in Interest Rates +Gap Analysis. The matching of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are “interest rate sensitive” and by monitoring the Bank’s interest rate sensitivity “gap.” An asset or liability is said to be interest rate sensitive within a specific time period if it will mature or reprice within that time period. The interest rate sensitivity gap is defined as the difference between the amount of interest-earning assets maturing or repricing within a specific time period and the amount of interest-bearing liabilities maturing or repricing within that same time period. A gap is considered positive when the amount of interest rate sensitive assets exceeds the amount of interest rate-sensitive liabilities. A gap is considered negative when the amount of interest rate sensitive liabilities exceeds the amount of interest rate sensitive assets. During a period of rising interest rates, a negative gap would tend to affect adversely net interest income while a positive gap would tend to result in an increase in net interest income. Conversely, during a period of falling interest rates, a negative gap would tend to result in an increase in net interest income while a positive gap would tend to affect adversely net interest income. +54 +Table of Contents +The table on the next page sets forth the amounts of our interest-earning assets and interest-bearing liabilities outstanding at December 31, 2024, which we expect, based upon certain assumptions, to reprice or mature in each of the future time periods shown. Except as stated below, the amounts of assets and liabilities shown which reprice or mature during a particular period were determined in accordance with the earlier of term to repricing or the contractual maturity of the asset or liability. The table sets forth an approximation of the projected repricing of assets and liabilities at December 31, 2024, on the basis of contractual maturities, anticipated prepayments, and scheduled rate adjustments period and subsequent selected time intervals. The loan amounts in the table reflect principal balances expected to be redeployed and/or repriced as a result of contractual amortization and anticipated prepayments of adjustable-rate loans and fixed-rate loans, and as a result of contractual rate adjustments on adjustable-rate loans. +3 Months or +Less +More than 3 +Months to 1 +Year +More than 1 +Year to 3 Years +More than 3 +Years to 5 +Years +More than 5 +Years +Non-Rate +Sensitive +Total Amount +(Dollars in thousands) +Interest-earning assets: (1) +Investment securities +$ +15,364 +$ +36,842 +$ +59,335 +$ +35,919 +$ +113,336 +$ +(13,464 +) +$ +247,332 +Loans receivable +443,443 +219,100 +541,988 +502,376 +103,380 +(15,069 +) +1,795,218 +Other interest-earnings +assets (2) +102,508 +—  +—  +—  +—  +—  +102,508 +Total interest-earning assets +$ +561,315 +$ +255,942 +$ +601,323 +$ +538,295 +$ +216,716 +$ +(28,533 +) +$ +2,145,058 +Interest-bearing liabilities: +Checking and savings accounts +$ +471,439 +$ +—  +$ +—  +$ +—  +$ +—  +$ +471,439 +Money market accounts +490,543 +—  +—  +—  +—  +—  +490,543 +Certificate accounts +145,858 +582,477 +38,162 +3,174 +—  +—  +769,671 +Borrowings +—  +—  +—  +—  +—  +—  +—  +Total interest-bearing liabilities +$ +1,107,840 +$ +582,477 +$ +38,162 +$ +3,174 +$ +—  +$ +—  +$ +1,731,653 +Interest-earning assets less interest-bearing liabilities +$ +(546,525 +) +$ +(326,535 +) +$ +563,161 +$ +535,121 +$ +216,716 +$ +(28,533 +) +$ +413,405 +Cumulative interest-rate sensitivity gap (3) +$ +(546,525 +) +$ +(873,060 +) +$ +(309,899 +) +$ +225,222 +$ +441,938 +Cumulative interest-rate gap as a percentage of total assets at December 31, 2024 +-23.35 +% +-37.31 +% +-13.24 +% +9.62 +% +18.88 +% +Cumulative interest-earning assets as a percentage of cumulative interest-bearing liabilities at December 31, 2024 +50.67 +% +48.35 +% +82.07 +% +113.01 +% +125.52 +% +(1) +Interest-earnings assets are included in the period in which the balances are expected to be redeployed and/or repriced as a result of anticipated prepayments, scheduled rate adjustments and contractual maturities. +(2) +Includes interest-bearing bank balances, FHLB Stock and Federal Funds Sold +(3) +Interest-rate sensitivity gap represents the difference between total interest-earning assets and total interest-bearing liabilities. +55 +Table of Contents +Certain shortcomings are inherent in the method of analysis presented in the foregoing table. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Additionally, certain assets, such as adjustable-rate loans, have features which restrict changes in interest rates both on a short-term basis and over the life of the asset. Further, in the event of a change in interest rates, prepayment and early withdrawal levels would likely deviate significantly from those assumed in calculating the table. Finally, the ability of many borrowers to service their adjustable-rate loans may decrease in the event of an interest rate increase. +Net Portfolio Value Analysis. Our interest rate sensitivity also is monitored by management through the use of a model which generates estimates of the changes in our net portfolio value (“NPV”) over a range of interest rate scenarios. NPV is the present value of expected cash flows from assets, liabilities and off-balance sheet contracts. The NPV ratio, under any interest rate scenario, is defined as the NPV in that scenario divided by the market value of assets in the same scenario. The following table sets forth our NPV as of December 31, 2024 and reflects the changes to NPV as a result of immediate and sustained changes in interest rates as indicated. +Change in +Interest Rates +Net Portfolio Value +NPV as % of Portfolio +Value of Assets +In Basis Points +(Rate Shock) +Amounts +$ Change +% Change +EVE/EVA 1 +Change +(Dollars in thousands) +300 +$ +307,333 +$ +(37,478 +) +-10.87 +% +14.05% +(0.81 +) +200 +$ +322,552 +$ +(22,259 +) +-6.46 +% +14.46% +(0.40 +) +100 +$ +334,236 +$ +(10,575 +) +-3.07 +% +14.69% +(0.17 +) +Static +$ +344,811 +$ +—  +14.86% +(100) +$ +357,192 +$ +12,381 +3.59 +% +15.12% +0.26 +(200) +$ +361,831 +$ +17,020 +4.94 +% +15.11% +0.25 +(300) +$ +352,480 +$ +7,669 +2.22 +% +14.55% +(0.31 +) +1 +Economic Value of Equity (EVE) divided by Economic Value of Assets (EVA) +As is the case with the GAP Table, certain shortcomings are inherent in the methodology used in the above interest rate risk measurements. Modeling changes in NPV require the making of certain assumptions which may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the models presented assume that the composition of our interest sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and also assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration to maturity or repricing of specific assets and liabilities. Accordingly, although the NPV model provides an indication of interest rate risk exposure at a particular point in time, such model is not intended to and does not provide a precise forecast of the effect of changes in market interest rates on net interest income and will differ from actual results. +Critical Accounting Policies and Estimates +In the preparation of our financial statements, we have adopted various accounting policies that govern the application of accounting principles generally accepted in the United States and in accordance with general practices within the banking industry. Our significant accounting policies are described in our financial statements under Note 1- “Summary of Significant Accounting Policies.” While all these policies are important to understanding the financial statements, certain accounting policies described below involve significant judgment and assumptions by management that have a material impact on the carrying value of certain assets and liabilities. We consider these accounting estimates to be critical accounting policies. The judgments and assumptions we use are based on historical experience and other factors, which we believe to be reasonable under +56 +Table of Contents +the circumstances. Because of the nature of the judgments and assumptions we make, actual results could differ from these judgments and assumptions that could have a material impact on the carrying values of our assets and liabilities and our results of operations. +Allowance for Credit Losses. The allowance for credit losses consists of the allowance for loan losses and the reserve for unfunded lending commitments. The allowance for loan losses represents our estimate of losses expected in the loan portfolio as of the balance sheet date and is recorded as a reduction to loans. The reserve for unfunded lending commitments represents our estimate of losses expected in our unfunded loan commitments and is recorded in other liabilities on the balance sheet. The allowance for credit losses is increased by the provision for credit losses and recoveries and decreased by charge-offs. Generally, loans deemed to be uncollectible are charged-off against the allowance for credit losses, and subsequent recoveries, if any, are credited to the allowance for loan losses. All, or part, of the principal balance of loans receivable are charged off to the allowance for credit losses when it is determined that the repayment of all, or part, of the principal balance is highly unlikely. +Goodwill and Core Deposit Intangible. For mergers and acquisitions, we are required to record the assets acquired, including identified intangible assets such as core deposit intangibles, and the liabilities assumed at their fair value. The difference between consideration and the net fair value of assets acquired is recorded as goodwill or a bargain purchase gain if the acquired net fair value of assets acquired exceeds the consideration. Management uses significant estimates and assumptions to value such items, including projected cash flows, repayment rates, default rates and losses assuming default, discount rates and realizable collateral values. The allowance for credit losses for PCD loans is recognized within acquisition accounting. The allowance for credit losses for non-PCD assets is recognized as provision for credit losses in the same reporting period as the merger or acquisition. Fair value adjustments are amortized or accreted into the income statement over the estimated life of the acquired assets or assumed liabilities. The purchase date valuations and any subsequent adjustments determine the amount of goodwill recognized in connection with the merger or acquisition. The use of different assumptions could produce significantly different valuation results, which could have material positive or negative effects on our results of operations. +Both goodwill and the core deposit intangible asset are reviewed for impairment annually or when events and circumstances indicate that an impairment may have occurred. Applicable accounting guidance requires an annual review of the fair value of a Reporting Unit that has goodwill in order to determine if it is more likely than not (that is, a likelihood of more than 50%) that the fair value of a Reporting Unit is less than its carrying amount, including goodwill. A qualitative factor test can be performed to determine whether it is necessary to perform a quantitative goodwill impairment test. If this qualitative test determines it is not more likely than not (less than 50% probability) that the fair value of the Reporting Unit is less than the Carrying Value, then the Company does not have to perform a quantitative test and goodwill can be considered not impaired. The Company performed its annual review at May 31, 2024 and determined that it was more than 50% probable the fair value of the Reporting Unit exceeds the then Carrying Value, therefore a quantitative test was not required as of May 31, 2024. +Recently Issued Accounting Standards +See Note 1- “Summary of Significant Accounting Policies” in the Notes to the Consolidated Financial Statements contained in this Annual Report on Form 10-K for a discussion of recently issued accounting standards. +Cautionary Note Regarding Forward-Looking Statements +The Company may from time to time make written or oral “forward-looking statements,” including statements contained in the Company’s filings with the SEC, in its reports to stockholders and in other communications by the Company (including this report), which are made in good faith by the Company pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 and Section 21E of the Exchange Act. +57 +Table of Contents +These forward-looking statements involve risks and uncertainties, such as statements of the Company’s plans, objectives, expectations, estimates and intentions that are subject to change based on various important factors (some of which are beyond the Company’s control). The following factors, among others, could cause the Company’s financial performance to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements: the extent of the adverse impact of any current or future pandemics or other natural disasters on our customers, prospects and business, including related supply chain shortage of goods; civil unrest, rioting, acts or threats of terrorism, or actions taken by the local, state and Federal governments in response to such events, which could impact business and economic conditions in our market area; the strength of the United States economy in general and the strength of the local economies in which the Company and the Bank conduct operations; the imposition of tariffs or other domestic or international governmental policies impacting the value of the products of our borrowers; the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System; inflation, interest rate, market and monetary fluctuations; market volatility; the value of the Bank’s products and services as perceived by actual and prospective customers, including the features, pricing and quality compared to competitors’ products and services; the willingness of customers to substitute competitors’ products and services for the Bank’s products and services; credit risk associated with the Bank’s lending activities; risks relating to the real estate market and the Bank’s real estate collateral; the impact of changes in applicable laws and regulations and requirements arising out of our supervision by banking regulators; other regulatory requirements applicable to the Company and the Bank; the timing and nature of the regulatory response to any applications filed by the Company and the Bank; technological changes; acquisitions and difficulties and delays in integrating the businesses of the acquired company, including CFC, and the Company fully realizing cost savings and other benefits of such acquisitions; changes in consumer spending and saving habits; those risks described in Item 1. “Business,” Item 1A. “Risk Factors” and Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this report; and the success of the Company at managing the risks involved in the foregoing. +The Company cautions that the foregoing list of important factors is not exclusive. The Company does not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of the Company, except as required by applicable law or regulation. +Item 7A. Quantitative and Qualitative Disclosures about Market Risk +Not applicable. +Item 8. Financial Statements and Supplementary Data +58 +Table of Contents +http://fasb.org/us-gaap/2024#UsefulLifeTermOfLeaseMember +PRINCETON +BAN +CORP, INC +INDEX TO +CONSOLIDATED FINANCIAL STATEMENTS +FOR THE YEARS ENDED DECEMBER 31, 2024 +AND 2 +023 +Page +Report of Independent Registered Public Accounting Firm for December 31, 2024 (PCAOB ID: 392 ) +60 +Consolidated Statements of Financial Condition +65 +Consolidated Statements of Income +66 +Consolidated Statements of Comprehensive Income +67 +Consolidated Statements of Changes in Stockholders’ Equity +68 +Consolidated Statements of Cash Flows +69 +Notes to Consolidated Financial Statements +71 +59 +Table of Contents +Report of Independent Registered Public Accounting Firm +To the Stockholders and the Board of Directors +Princeton Bancorp, Inc. +Opinion on the Financial Statements +We have audited the accompanying consolidated statements of financial condition of Princeton Bancorp, Inc. and its subsidiaries (the Company) as of December 31, 2024 and 2023, the related consolidated statements of income, comprehensive income, changes in stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2024, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America. +We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013 and our report dated March 14, 2025 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. +Basis for Opinion +These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. +Critical Audit Matters +The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. +60 +Table of Contents +Allowance for Credit Losses – Loans Evaluated on a Pooled Basis +Critical Audit Matter Description +As described in Notes 1 and 5 to the financial statements, the Company has recorded an allowance for credit losses (ACL) for its loan portfolio in the amount of $23.7 million as of December 31, 2024, representing management’s estimate of credit losses over the remaining expected life of the Company’s loan portfolio as of that date. Management determined the amounts, and corresponding provision for credit loss expense for the year, pursuant to the application of Accounting Standards Codification Topic 326, Financial Instruments – Credit Losses. +The Company’s methodology to determine its allowance for credit losses incorporates quantitative and qualitative assessments of historical loss data, current loan portfolio and economic conditions, the application of forecasted economic conditions, and related modeling. Management incorporates the use of third-party software to arrive at an expected +life-of-loan +loss amount based on discounted cash flow estimate at the loan level. The amount and timing of cash flows is determined using assumptions for probability of default and loss given default (PD/LGD); expected term; and forecasted economic factors. The results of these calculations are then qualitatively adjusted by management based on pool-specific attributes. We determined that performing procedures relating to these components of the Company’s methodology is a critical audit matter. +The principal considerations for our determination are (i) the application of significant judgment and estimation on the part of management, which in turn led to a high degree of auditor judgment and subjectivity in performing procedures and evaluating audit evidence obtained, and (ii) significant audit effort was necessary in evaluating management’s methodology, significant assumptions and calculations. +How the Critical Audit Matter Was Addressed in the Audit +Addressing the above matters involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included, among others, the following: +• +Reviewing the Company’s procedures to validate the model and ensure that the model was conceptually sound. +• +Evaluating the segmentation of loans into pools with similar risk characteristics. +• +Testing assumptions used in the calculation of discounted cash flows, including prepayment speeds and expected loan terms. +• +Testing management’s process for determining the qualitative reserve components. +• +Testing the completeness and accuracy of data used in the model. +Acquisition Method of Accounting – Valuation of Acquired Loan Portfolio +Critical Audit Matter Description +As described in Note 2 to the financial statements, on August 23, 2024, the Company completed its acquisition of Cornerstone Financial Corporation, the holding company for Cornerstone Bank, for total consideration of $20.0 million. The fair value of total assets acquired as a result of the merger totaled $303.5 million, with net loans totaling $255.5 million. Acquired loans were initially recorded at their acquisition-date fair value with the assistance of a management-engaged specialist. Fair values were based on a discounted cash flow methodology that involved assumptions and judgments regarding credit risk, market interest rates, collateral values, discount rates, prepayments assumptions and other market factors. In addition, a provision for credit loss of $3.2 million was recorded in the current period for acquired loans pursuant to applicable accounting guidance. We determined that performing procedures relating to these components of the Company’s methodology is a critical audit matter. +61 +Table of Contents +The principal considerations for our determination are (i) the application of significant judgment and estimation on the part of management, which in turn led to a high degree of auditor judgment and subjectivity in performing procedures and evaluating audit evidence obtained, and (ii) significant audit effort was necessary in evaluating management’s methodology and significant assumptions. +How the Critical Audit Matter Was Addressed in the Audit +To test management’s estimate of the fair value of the acquired loan portfolio, we performed audit procedures that included, among others, assessing the competence and objectivity of the management-engaged valuation specialist, testing the completeness and accuracy of the loan data, assessing the reasonableness of the valuation methodology, and testing the significant assumptions and the underlying data used by the Company in its market interest rate and credit analysis. We compared the significant assumptions used by management to current industry data and supporting credit documentation. +/s/ Wolf & Company, P.C. +Boston, Massachusetts +March 14, 2025 +62 +Table of Contents +Report of Independent Registered Public Accounting Firm +To the Stockholders and the Board of Directors +Princeton Bancorp, Inc. +Opinion on Internal Control Over Financial Reporting +We have audited Princeton Bancorp, Inc. and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2013. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control — Integrated Framework issued by the COSO in 2013. +We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements of the Company and our report dated March 14, 2025 expressed an unqualified opinion. +Basis for Opinion +The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. +63 +Table of Contents +Definition and Limitations of Internal Control Over Financial Reporting +A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements. +Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. +/s/ Wolf & Company, P.C. +Boston, Massachusetts +March 14, 2025 +64 +Table of Contents +PRINCETON BANCORP, INC. +CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION +(Dollars in thousands, except per share data) +December 31, +2024 +December 31, +2023 +ASSETS +Cash and due from banks +$ +16,915 +$ +17,156 +Interest-earning bank balances +16,729 +17,376 +Federal funds sold +83,704 +116,025 +Total cash and cash equivalents +117,348 +150,557 +Securities +available-for-sale, +at fair value +247,171 +91,352 +Securities +held-to-maturity +(fair value $ 162 and $ 192 , at December 31, 2024 and December 31, 2023, respectively) +161 +193 +Loans receivable, net of deferred fees and costs +1,818,875 +1,548,335 +Less: allowance for credit losses +( 23,657 +) +( 18,492 +) +Loan receivable, net +1,795,218 +1,529,843 +Bank-owned life insurance +72,111 +58,860 +Premises and equipment, net +17,804 +14,453 +Accrued interest receivable +7,975 +6,089 +Restricted investment in bank stock +2,075 +1,410 +Deferred taxes, net +20,276 +11,512 +Goodwill +14,381 +8,853 +Core deposit intangible +3,632 +1,422 +Other real estate owned +295 +—   +Operating lease +right-of-use +asset +21,903 +23,398 +Other assets +19,883 +18,555 +TOTAL ASSETS +$ +2,340,233 +$ +1,916,497 +LIABILITIES AND STOCKHOLDERS’ EQUITY +LIABILITIES +Deposits: +Non-interest-bearing +$ +300,972 +$ +249,282 +Interest-bearing +1,731,653 +1,386,459 +Total deposits +2,032,625 +1,635,741 +Accrued interest payable +15,401 +9,162 +Operating lease liability +22,941 +24,280 +Other liabilities +7,226 +7,103 +TOTAL LIABILITIES +2,078,193 +1,676,286 +STOCKHOLDERS’ EQUITY: +Preferred stock, no par value; 2,000,000 shares authorized and +none +outstanding at December 31, 2024 and none authorized at December 31, 2023 +—   +—   +Common stock, no par value; 15,000,000 shares authorized, 6,910,693 shares issued and 6,883,193 outstanding at December 31, 2024; 6,299,331 shares issued and outstanding at December 31, 2023 +—  +—  +Paid-in +capital +119,908 +98,291 +Treasury stock, at cost of 27,500 shares at December 31, 2024 +( 842 +) +—   +Retained earnings +151,915 +149,414 +Accumulated other comprehensive loss +( 8,941 +) +( 7,494 +) +TOTAL STOCKHOLDERS’ EQUITY +262,040 +240,211 +TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY +$ +2,340,233 +$ +1,916,497 +See notes to consolidated financial statements. +6 +5 +Table of Contents +PRINCETON BANCORP, INC. +CONSOLIDATED STATEMENTS OF INCOME +(Dollars in thousands, except per share data) +Year Ended +December 31, +2024 +2023 +INTEREST AND DIVIDEND INCOME +Loans receivable, including fees +$ +108,586 +$ +89,278 +Securities +available-for-sale: +Taxable +4,928 +1,339 +Tax-exempt +1,142 +1,138 +Securities +held-to-maturity +9 +10 +Other interest and dividend income +8,281 +6,415 +TOTAL INTEREST AND DIVIDEND INCOME +122,946 +98,180 +INTEREST EXPENSE +Deposits +56,414 +33,046 +Borrowings +—   +118 +TOTAL INTEREST EXPENSE +56,414 +33,164 +NET INTEREST INCOME +66,532 +65,016 +Provision for credit losses +5,109 +3,108 +NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES +61,423 +61,908 +NON-INTEREST +INCOME +(Loss) gain on call/sale of securities +available-for-sale +( 7 +) +39 +Income from bank-owned life insurance +1,673 +1,293 +Fees and service charges +1,945 +1,853 +Loan fees, including prepayment penalties +3,082 +3,221 +Gain on bargain purchase +—   +9,696 +Gain on sale of other real estate owned +—   +203 +Other +1,462 +816 +TOTAL +NON-INTEREST +INCOME +8,155 +17,121 +NON-INTEREST +EXPENSE +Salaries and employee benefits +26,037 +23,386 +Occupancy and equipment +8,207 +7,037 +Professional fees +2,575 +2,060 +Data processing and communications +5,378 +5,026 +Federal deposit insurance +1,145 +891 +Advertising and promotion +630 +504 +Office expense +621 +508 +Other real estate expenses +14 +1 +Core deposit intangible +602 +502 +Acquisition-related expenses +7,803 +5,635 +Other +3,750 +3,144 +TOTAL +NON-INTEREST +EXPENSE +56,762 +48,694 +INCOME BEFORE INCOME TAX EXPENSE +12,816 +30,335 +INCOME TAX EXPENSE +2,574 +4,570 +NET INCOME +$ +10,242 +$ +25,765 +Earnings per common share-basic +$ +1.57 +$ +4.10 +Earnings per common share-diluted +$ +1.55 +$ +4.03 +See notes to consolidated financial statements. +6 +6 +Table of Contents +PRINCETON BANCORP, INC. +CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME +(Dollars in thousands) +Year Ended +December 31, +2024 +2023 +NET INCOME +$ +10,242 +$ +25,765 +Other comprehensive income (loss) +Unrealized losses arising during period on securities +available-for-sale +( 2,511 +) +1,651 +Reclassification adjustment for losses (gains) realized in income +1 +7 +( 39 +) +Net unrealized (loss) income +( 2,504 +) +1,612 +Tax effect +1,057 +( 833 +) +Total other comprehensive (loss) income +( 1,447 +) +779 +COMPREHENSIVE INCOME +$ +8,795 +$ +26,544 +1 +Amounts are included in (loss) gain on call/sale of securities +available-for-sale +on the Consolidated Statements of Income as a separate element within total +non-interest +income. An income tax benefit of approximately $ 2,000 was realized for the year ended December 31, 2024, and an income tax expense of approximately $ 13,000 was realized for the year ended December 31, 2023. +See notes to consolidated financial statements. +6 +7 +Table of Contents +PRINCETON BANCORP, INC. +CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY +(Dollars in thousands, except share data) +Years Ended December 31, 2024 and 2023 +Common +stock +Paid-in +Capital +Treasury +Stock +Retained +Earnings +Accumulated +Other +Comprehensive +Loss +Total +Balance, January 1, 2023 +$ +34,547 +$ +81,291 +$ +( 19,452 +) +$ +131,488 +$ +( 8,273 +) +$ +219,601 +Net income +—  +—  +—  +25,765 +—  +25,765 +Other comprehensive loss +—  +—  +—  +—  +779 +779 +Change in accounting principle +—  +—  +—  +( 284 +) +—  +( 284 +) +Formation of Princeton Bancorp, Inc. +( 34,547 +) +15,095 +19,452 +—  +—  +—  +Stock options exercised ( 50,900 shares) +—  +989 +—  +—  +—  +989 +Dividends declared $ 1.20 per share +—  +—  +—  +( 7,446 +) +—  +( 7,446 +) +Dividend reinvestment plan ( 3,933 shares) +—  +109 +—  +( 109 +) +—  +—  +Stock-based compensation expense +—  +807 +—  +—  +—  +807 +Balance, December 31, 2023 +$ +—   +$ +98,291 +$ +—   +$ +149,414 +$ +( 7,494 +) +$ +240,211 +Balance, January 1, 2024 +$ +—   +$ +98,291 +$ +—   +$ +149,414 +$ +( 7,494 +) +$ +240,211 +Net income +—  +—  +—  +10,242 +—  +10,242 +Other comprehensive income +—  +—  +—  +—  +( 1,447 +) +( 1,447 +) +Treasury stock repurchases ( 27,500 shares) +—  +—  +( 842 +) +—  +( 842 +) +Stock options exercised ( 51,800 shares) +—  +685 +—  +—  +—  +685 +Share redemption for tax withholding on restricted stock vesting +—  +( 249 +) +—  +—  +—  +( 249 +) +Dividends declared $ 1.20 per share +—  +—  +—  +( 7,607 +) +—  +( 7,607 +) +Dividend reinvestment plan ( 4,016 shares) +—  +134 +—  +( 134 +) +—  +—  +Stock-based compensation expense +—  +1,014 +—  +—  +—  +1,014 +Acquisition of Cornerstone Financial Corporation ( 525,946 shares, $ 38.09 per share) +—  +20,033 +—  +—  +—  +20,033 +Balance, December 31, 2024 +$ +—   +$ +119,908 +$ +( 842 +) +$ +151,915 +$ +( 8,941 +) +$ +262,040 +See notes to consolidated financial statements. +6 +8 +Table of Contents +PRINCETON BANCORP, INC. +CONSOLIDATED STATEMENTS OF CASH FLOWS +(In thousands) +Year Ended December 31, +2024 +2023 +CASH FLOWS FROM OPERATING ACTIVITIES +Net income +$ +10,242 +$ +25,765 +Adjustments to reconcile net income to net cash provided by operating activities: +Provision for credit losses +5,109 +3,108 +Depreciation and amortization +1,681 +1,476 +Stock-based compensation expense +1,013 +807 +Amortization of premiums and accretion of discounts on securities, net +303 +26 +Accretion of net deferred loan fees and costs +( 4,146 +) +( 2,814 +) +Loss (gain) on call/sale of securities +available-for-sale +7 +( 39 +) +Increase in cash surrender value of bank-owned life insurance +( 1,673 +) +( 1,293 +) +Deferred income tax +( 807 +) +200 +Amortization of core deposit intangible +602 +502 +Bargain purchase gain +—   +( 9,696 +) +Write down on other real estate owned +—   +( 203 +) +Decrease in accrued interest receivable and other assets +3,936 +1,817 +Increase (decrease) in accrued interest payable and other liabilities +( 1,537 +) +3,456 +NET CASH PROVIDED BY OPERATING ACTIVITIES +14,730 +23,112 +CASH FLOWS FROM INVESTING ACTIVITIES +Purchases of +available-for-sale +securities +( 179,488 +) +( 8,439 +) +Maturities, calls and principal repayments of securities +available-for-sale +34,827 +6,505 +Maturities, calls and principal repayments of securities +held-to-maturity +32 +8 +Net (increase) decrease in loans +( 10,898 +) +10,738 +Cash paid for acquisition +—   +( 25,414 +) +Cash received from acquisition +7,866 +23,181 +Purchases of premises and equipment +( 1,525 +) +( 1,712 +) +Purchases of bank-owned life insurance +( 2,873 +) +( 4,950 +) +Purchases of equity method investments +( 1,675 +) +( 6,245 +) +Redemption (purchases) of restricted bank stock +( 319 +) +332 +Proceeds from other real estate owned +—   +236 +NET CASH (USED IN) INVESTMENT ACTIVITIES +( 154,053 +) +( 5,760 +) +CASH FLOWS FROM FINANCING ACTIVITIES +Net increase in deposits +114,127 +96,311 +Proceeds from overnight borrowings +—   +( 10,000 +) +Cash dividends +( 7,607 +) +( 7,446 +) +Share redemption for tax withholding on restricted stock vesting +( 249 +) +—   +Purchase of treasury stock +( 842 +) +—   +Proceeds from exercise of stock options +685 +989 +NET CASH PROVIDED BY FINANCING ACTIVITIES +106,114 +79,854 +NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS +( 33,209 +) +97,206 +CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD +150,557 +53,351 +CASH AND CASH EQUIVALENTS, END OF PERIOD +$ +117,348 +$ +150,557 +See notes to consolidated financial statements. +6 +9 +Table of Contents +PRINCETON BANCORP, INC. +CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) +(In thousands) +Year Ended December 31, +2024 +2023 +SUPPLEMENTARY CASH FLOWS INFORMATION: +Interest paid +$ +50,175 +$ +25,029 +Income taxes paid +$ +1,820 +$ +5,883 +Net assets acquired from Cornerstone Bank +1 +$ +303,476 +$ +—   +Net liabilities assumed from Cornerstone Bank +1 +$ +288,971 +$ +—   +Property transferred to other real estate owned +$ +295 +$ +—   +Net assets acquired from Noah Bank +1 +$ +—   +$ +239,451 +Net liabilities assumed from Noah Bank +1 +$ +—   +$ +204,341 +1 +For details of assets acquired and liabilities assumed—See Note 2. +See notes to consolidated financial statements. +70 +Table of Contents +Note 1 – Summary of Significant Accounting Policies +Organization and Nature of Operations +The Bank of Princeton (the “Bank”) was incorporated on March 5, 2007 under the laws of the State of New Jersey and is a New Jersey state-chartered banking institution. The Bank was granted its bank charter on April 17, 2007 , commenced operations on April 23, 2007 and is a full-service bank providing personal and business lending and deposit services. As a state-chartered bank, the Bank is subject to regulation by the New Jersey Department of Banking and Insurance and the FDIC. The area served by the Bank, through its 33 branches, is generally an area within an approximate +50-mile +radius of Princeton, NJ, including parts of Burlington, Camden, Gloucester, Hunterdon, Mercer, Middlesex, Ocean, and Somerset Counties in New Jersey, and additional areas in portions of Philadelphia, Montgomery and Bucks Counties in Pennsylvania. The Bank also has two retail branches and conducts loan origination activities in select areas of New York. +The Bank offers traditional retail banking services, +one-to-four-family +residential mortgage loans, multi-family and commercial mortgage loans, construction loans, commercial business loans and consumer loans, including home equity loans and lines of credit. +On January 10, 2023, Princeton Bancorp, Inc. (the “Company”), a Pennsylvania corporation formed by the Bank, acquired all the outstanding stock of the Bank in a corporate reorganization. As a result, the Bank became the sole direct subsidiary of the Company, the Company became the holding company for the Bank and the stockholders of the Bank became stockholders of the Company. As of December 31, 2024, the Company had 249 total employees and 247 full-time equivalent employees. +On May 19, 2023, the Company completed the acquisition of Noah Bank, a Pennsylvania chartered state bank headquartered in Elkins Park, Pennsylvania that primarily served the Philadelphia, North New Jersey and New York City markets. On that date the Company acquired 100 % of the outstanding common stock, for cash, of Noah Bank and Noah Bank was merged with and into the Bank. +On August 23, 2024, the Company completed the acquisition of Cornerstone Financial Corporation (“CFC”), the holding company for Cornerstone Bank, a New Jersey chartered state bank headquartered in Mt. Laurel, New Jersey that primarily served the South Jersey market. On that date, the Company acquired 100 % of the outstanding common stock of CFC in exchange for the Company’s stock, CFC was merged into the Company, and Cornerstone Bank was merged with and into the Bank. +Basis of Financial Statement Presentation +The consolidated financial statements include the accounts of the Company, the Bank and its wholly-owned subsidiaries: Bayard Lane, LLC, Bayard Properties, LLC, 112 Fifth Avenue, LLC, TBOP Delaware Investment Company and TBOP REIT, Inc. All significant inter-company accounts and transactions have been eliminated in consolidation. +The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). +Estimates +The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Because of uncertainties associated with estimating the amounts, timing and likelihood of possible outcomes, actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the valuation of net assets acquired in business combinations and evaluation of the potential impairment of goodwill. +7 +1 +Table of Contents +Note 1 – Summary of Significant Accounting Policies (Continued) +Management believes that the allowance for credit losses is adequate as of December 31, 2024 and 2023. While management uses current information to recognize losses on loans, future additions to the allowance for loan losses may be necessary based on changes in economic conditions in the market area or other factors. +In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for credit losses. Such agencies may require the Company to effect certain changes that result in addition to the allowance based on their judgments about information available to them at the time of their examinations. +Significant group concentrations of credit risk +Most of the Company’s activities are with customers located within Mercer County, New Jersey, and surrounding areas as well as the five boroughs of New York City and certain Philadelphia, Pennsylvania metropolitan areas. The Company does not have any portion of its business dependent on a single or limited number of customers or industries, the loss of which would have a material adverse effect on its business. No substantial portion of loans is concentrated within a single industry or group of related industries, except that a significant majority of commercial loans are secured by real estate. There are numerous risks associated with commercial and consumer lending that could impact the borrowers’ ability to repay on a timely basis. They include but are not limited to: the owner’s business expertise, changes in local, national, and in some cases international economies, competition, governmental regulation, and the general financial stability of the borrowing entity. +Transfers of financial assets +Transfers of financial assets, including loan and loan participation sales, are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right, free of conditions that constrain it from taking advantage of that right, to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity. The outstanding balance of loan participations sold was $ 107.0 million and $ 116.2 million as of December 31, 2024 and 2023, respectively. +Mortgage Servicing Rights +The Company services mortgage loans for others. Mortgage servicing assets are recognized as separate assets when rights are acquired through purchase or through sale of financial assets. Fair value is determined using prices for similar assets with similar characteristics, when available, or based upon discounted cash flows using market-based assumptions. The servicing rights subsequently are carried at fair value. The fair value of servicing rights is determined based on the present value of expected future cash flows, which are derived from the servicing fees, expected prepayment speeds, ancillary income, and the expected costs to service the loans. Changes in the fair value of MSRs are recognized in earnings in the period in which they occur, reflecting the market conditions and the performance of the underlying loans. +Cash and due from banks +Cash and due from banks include cash on hand, on deposit at other financial institutions and the Federal Reserve Bank of Philadelphia. +7 +2 +Table of Contents +Note 1 – Summary of Significant Accounting Policies (Continued) +Securities +The Company’s investment portfolio includes both +held-to-maturity +and +available-for-sale +securities: +Held-to-Maturity +- Investment securities that management has the positive intent and ability to hold until maturity are classified as +held-to-maturity +and carried at their remaining unpaid principal balance, net of unamortized premiums or unaccreted discounts. +Available-for-Sale +- Investment securities that will be held for indefinite periods of time, including securities that may be sold in response to changes in market interest or prepayment rates, needs for liquidity, and changes in the availability and the yield of alternative investments, are classified as +available-for-sale. +These assets are carried at their estimated fair value. Fair values are based on quoted prices for identical assets in active markets, quoted prices for similar assets in markets that are either actively or not actively traded, or in some cases where there is limited activity or less transparency around inputs, internally developed discounted cash flow models. Unrealized gains and losses are excluded from earnings and are reported net of tax in accumulated other comprehensive income (loss) on the consolidated statements of financial condition until realized, except as discussed below. +Premiums are amortized using the interest method to the earliest call date and discounts are accreted using the interest method over the estimated remaining term of the underlying security. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method. +The Company measures expected credit losses on +available-for-sale +securities based on the potential to incur credit impairment. For +available-for-sale +securities which the Company does not intend to sell, and it is not more likely than not that the Company will be required to sell before recovery of the Company’s amortized cost, the Company evaluates criteria to determine any expected loss. The Company’s +available-for-sale +securities consist of government-sponsored and U.S. government guaranteed securities and obligations of state and political subdivisions. In assessing the Company’s investments in government-sponsored and U.S. government securities the contractual cash flows are guaranteed by the government to ensure that the securities will not be settled at a price less than the par value of the investment. Obligations of state and political subdivisions which are guaranteed by the municipality with an investment grade rating or purchase credit support from a highly rated insurance carrier. The Company does have the ability to hold +available-for-sale +securities until the contractual maturity date. +Loans Receivable +Loans receivable that management has the intent and ability to hold until maturity or payoff are reported at their outstanding unpaid principal balances, adjusted by unamortized premiums and unearned discounts, deferred fees and costs associated with origination and the allowance for credit losses. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the yield on the related loans. Premiums and discounts on purchased loans are amortized as adjustments to interest income using the level-yield method. +The loan receivable portfolio is segmented into commercial real estate (includes multi-family), commercial and industrial, construction, residential first-lien mortgage and home equity/consumer loans. +For all segments of loans receivable, the accrual of interest is discontinued when the contractual payment of principal or interest is 90 days past due or management has serious doubts about further collectability of principal or interest, even though the loan is currently performing. A loan may remain on accrual status if it is in the process of collection and is either guaranteed or well-secured. When a loan is placed on nonaccrual status, unpaid interest credited to income in the current year is reversed and unpaid interest accrued in prior years is charged against the allowance for loan losses. Interest received on nonaccrual loans, generally is either applied against principal or reported as interest income, according to management’s judgment as to the collectability of principal. Generally, loans are restored to accrual status when the obligation is brought +7 +3 +Table of Contents +Note 1 – Summary of Significant Accounting Policies (Continued) +current, has performed in accordance with the contractual terms for a reasonable period of time (generally six months) and the ultimate collectability of the total contractual principal and interest is no longer in doubt. The past due status of all segments of loans receivable is determined on +contractual +due dates for loan payments. +Allowance for credit losses - loans +The Company adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized costs and +off-balance +sheet +credit exposures. Results for reporting periods beginning January 1, 2023 are presented under ASC 326. +The credit loss estimation process involves procedures to appropriately consider the unique characteristics of loan portfolio segments, which consist of commercial real estate loans, construction loans, commercial and industrial loans, residential loans and consumer/HELOC loans. These segments are further disaggregated into loan classes, the level at which credit risk is monitored. For each of these segments, the Company generates cash flow projections at the instrument level wherein payment expectations are adjusted for estimated prepayment speed, curtailments, time to recovery, probability of default and loss given default. The modeling of expected prepayment speeds, curtailment rates, and time to recovery are based on historical data. The quantitative component of the ACL on loans is model-based and utilizes a forward-looking macroeconomic forecast. The Company uses a discounted cash flow method, incorporating probability of default and loss given default forecasted based on statistically derived economic variable loss drivers, to estimate expected credit losses. This process includes estimates which involve modeling loss projections attributed to existing loan balances, and considering historical experience, current conditions, and future expectations for segments of loans over a reasonable and supportable forecast period. The historical information used is that experienced by the Company or by a selection of peer banks, when appropriate. +Commercial real estate - +Loans in this segment include owner-occupied commercial real estate, +non-owner +occupied commercial real estate and multi-family dwellings within the Company’s market area. The underlying cash flows generated by the properties or operations can be adversely impacted by a downturn in the economy due to increased vacancy rates or diminished cash flows, which in turn, would have an effect on the credit quality in this segment. Management obtains financial information annually and monitors the cash flow of these loans. +Construction +- Loans in this segment include primarily construction of condominium projects or single-family homes and subdivisions. Exposure to loans in this segment can come from construction delays, slow unit sales and insufficient interest reserves. The Company often requires personal and corporate guarantees as additional security on the loan. Management relies on progress reports and third-party experts prior to the release of additional funds. +Commercial and industrial loans +- Loans in this segment are primarily for commercial business assets and/or purposes, which usually carry a personal guarantee from the business owners. Repayment is expected from the cash flow of the business. A weakened economy, and resultant decrease in consumer spending, will have an effect on quality in this segment. +Residential real estate loans +- This portfolio segment consists of first lien mortgages secured by +one-to-four +family residential properties. The overall health of the economy, including unemployment rates and housing pricing, will have an effect on the credit quality in this segment. +Consumer/HELOC loans +- Loans in this segment are substantially all secured and repayment is dependent on the credit quality of the individual borrower and includes junior-lien mortgages. +There were no significant changes to the Company’s ACL methodology for the year ended December 31, 2024. +7 +4 +Table of Contents +Note 1 – Summary of Significant Accounting Policies (Continued) +Credits with Similar Risk Characteristics. +The Company is using DCF in estimating the component of the allowance for credit losses for loans that share similar risk characteristics (loan segments). The model calculates an expected loss percentage for each segment by considering the probability of default, using +life-of-loan +analysis periods for the segment, and the historical severity of loss, based on the aggregate net lifetime losses incurred per loan segment. The default and severity +factors used calculate the allowance for credit losses for each segment adjusted for differences between the historical loss and severity rates and expected conditions over the remaining lives of the loans in the portfolio related to: a) lending policy and procedures; b) economic conditions; c) volume of the loan portfolio; d) experience and depth of lending management; e) level of delinquencies; f) quality of our loan review system; g) the value of underlying collateral for collateralized loans and h) level of concentration of a particular segment. +Individually Evaluated Financial Assets. +For a loan that does not share risk characteristics with other loans, expected credit loss is measured based on net realizable value. We generally consider these to be nonperforming loans. For these loans, we recognize expected credit loss equal to the amount by which the net realizable value of the loan is less than the amortized cost basis of the loan, except when the loan is collateral dependent, that is, when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the sale or operation of the collateral. In these cases, expected credit loss is measured as the difference between amortized cost basis and the loan and the fair value of the collateral less disposal costs, as applicable (such as sales costs, transfer taxes and unpaid real estate taxes). +Allowance for Credit Losses on Off-Balance Sheet Credit Exposures, Including Unfunded Loan Commitments. +The Company maintains a separate allowance for credit losses from +off-balance-sheet +credit exposures, including unfunded loan commitments, which are included in other liabilities on the consolidated statements of condition. Management estimates the amount of expected losses by calculating a commitment usage factor over the contractual period of exposure that are not unconditionally cancellable by the Company by applying the loss factors used in the ACL methodology to the result of the usage calculation to estimate the liability for credit losses related to unfunded commitments for each loan type. The allowance for credit losses on +off-balance +sheet credit exposures is adjusted as credit loss expense. +Nonaccrual loans. +Nonaccrual loans are restored to accrual status if principal and interest payments, under the modified terms, are current for six consecutive months after modification and continued repayment is reasonably assured. +Credit Quality +Credit quality risk ratings include regulatory classifications of special mention, substandard, doubtful and loss. Loans classified special mention have potential weaknesses that deserve management’s close attention. If uncorrected, the potential weaknesses may result in deterioration of the repayment prospects. Loans rated special mention are starting to show signs of potential weakness and are being closely monitored by management. Loans classified substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They include loans that are inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified doubtful have all the weaknesses inherent in loans classified substandard with the added characteristic that collection or liquidation in full, on the basis of current conditions and facts, is highly +7 +5 +Table of Contents +Note 1 – Summary of Significant Accounting Policies (Continued) +improbable. +Loans +classified loss are considered uncollectible and are +charged-off +to the allowance for loan losses. Loans not classified are rated pass. +Bank-owned life insurance +The Bank is the beneficiary of insurance policies on the lives of certain +officers +of the Bank. This life insurance investment is accounted for using the cash surrender value method and is recorded at its net realizable value. Increase in cash surrender values are recorded as tax exempted +non-interest +income. +Other real estate owned +Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially +recorded +at fair value less cost to sell at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the assets are then recorded at the lower of carrying amount or fair value less cost to sell. Revenue and expenses from operations and write-downs are included in +non-interest +expense. +Business Combinations, Goodwill and Other Intangible Assets, Net +The Company accounts for business combinations using the acquisition method of accounting. The accounts of an acquired entity are included as of the date of merger or acquisition, and any excess of purchase price over the fair value of the net assets acquired is capitalized as goodwill. Alternatively, a gain is recorded if the fair value of the net assets acquired exceeds the purchase price. The Company’s intangible asset was derived from core deposits acquired that have a definitive life and are amortized over the estimated life. Both goodwill and the core deposit intangible asset are reviewed for impairment annually or when events and circumstances indicate that an impairment may have occurred. Accounting Standards Codification (“ASC”) Topic +350-20 +requires an at least annual review of the fair value of a Reporting Unit that has goodwill in order to determine if it is more likely than not (that is, a likelihood of more than 50%) that the fair value of a Reporting Unit is less than its carrying amount, including goodwill. A qualitative factor test can be performed to determine whether it is necessary to perform a quantitative goodwill impairment test. If this qualitative test determines it is not more likely than not (less than 50 % probability) that the fair value of the Reporting Unit exceeds the Carrying Value, then the Company does not have to perform a quantitative test and goodwill can be considered not impaired The Company performed its annual review at May 31, 2024 and determined that it was more than 50 % probable the fair value of the Reporting Unit exceeds the Carrying Value, therefore a quantitative test was not required as of May 31, 2024. +Employee Benefit Plans +The Company maintains a defined contribution Section 401(k) plan covering eligible employees. The Company may make discretionary matching contributions. The Company made matching contributions to employees of $ 270 thousand and $ 241 thousand, respectively, during the years ended December 31, 2024 and 2023. +The Company also maintains a defined benefit supplemental executive retirement plan for the benefit of the chief executive officer and chief operating officer. +Effective January 1, 2021 the Bank adopted an Employee Stock Ownership Plan (“ESOP”) enabling eligible employees to have a stock ownership interest in the Company. The Company intends to fund the plan on an annual basis. The ESOP is administered by a third-party trust. The Bank contributed $ 331 thousand to the ESOP for each of the years ended December 31, 2024 and 2023. The funding of the ESOP is at the discretion of the board of directors. +7 +6 +Table of Contents +Note 1 – Summary of Significant Accounting Policies (Continued) +Premises and equipment +Bank premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed on the straight-line method over the shorter of the lease term or estimated useful lives of the related assets. +Restricted Investment in Bank Stock +Federal law requires a member institution of the Federal Home Loan Bank (“FHLB”) system to hold restricted stock of its district FHLB according to a predetermined formula. Restricted stock in the amount of $ 1.9 million and $ 1.3 million is carried at cost at December 31, 2024 and 2023, respectively. +The Company also held $ 137 thousand of stock in Atlantic Community Bankers Bank (“ACBB”) at December 31, 2024 and 2023. +Management’s determination of whether these restricted investments are impaired is based on an assessment of the ultimate recoverability of their cost, rather than by recognizing temporary declines in value. The determination of whether a decline affects the ultimate recoverability of cost is influenced by criteria such as (1) the significance of the decline in net assets of the institution as compared to the capital stock amount for the institution and the length of time this situation has persisted, (2) commitments by the institution to make payments required by law or regulation and the level of such payments in relation to the operating performance of the institution and (3) the impact of legislative and regulatory changes on institutions and, accordingly, on the customer base of the institution. +Management believes no impairment charge is necessary related to the FHLB restricted stock or the ACBB restricted stock as of December 31, 2024 or 2023. +Reclassifications of Prior Year Presentation +Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of the prior year. +Income taxes +The Company accounts for income taxes in accordance with income tax accounting guidance contained in Financial Accounting Standards Board (“FASB”) ASC Topic 740, +Income Taxes +. This includes guidance related to accounting for uncertainty in income taxes, which sets out a consistent framework to determine the appropriate level of tax reserves to maintain for uncertain tax positions. The Company had no material unrecognized tax benefits or accrued interest and penalties as of and for the years ended December 31, 2024 and 2023. The Company’s policy is to account for interest and penalties as a component of other +non-interest +expense. The Company is subject to income taxes in the U. S. and various state and local jurisdictions. As of December 31, 2024, tax years after 2021 are subject to federal and state examination. Tax regulations are subject to interpretation of the related tax laws and regulations and require significant judgment to apply. +Federal and state income taxes have been provided on the basis of reported income or loss. The amounts reflected on the tax returns differ from these provisions due principally to temporary differences in the reporting of certain items for financial reporting and income tax reporting purposes. The tax effect of these temporary differences is accounted for as deferred taxes applicable to future periods. +Deferred income tax expense or benefit is determined by recognizing deferred tax liabilities and assets, respectively, for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets +7 +7 +Table of Contents +Note 1 – Summary of Significant Accounting Policies (Continued) +and liabilities of a change in tax rates is recognized in earnings in the period that includes the enactment date. The realization of deferred tax assets is assessed, and a valuation allowance provided for the full amount which is not more likely than not to be realized. +Stock compensation plans +The stock compensation accounting guidance set forth in FASB ASC Topic 718, +Compensation - Stock Compensation +, requires that compensation costs relating to share-based payment transactions be recognized in financial statements. That cost will be measured based on the grant date fair value of the equity or liability instruments issued. The stock compensation accounting guidance covers a wide range of share-based compensation arrangements including stock options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. +The stock compensation accounting guidance requires that compensation costs for all stock awards be calculated and recognized over the employees’ service period, generally defined as the vesting period. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award. A Black-Scholes model is used to estimate the fair value of stock options. An option is considered to be forfeited if the stock option was not exercised prior to vesting. At the date of grant, the Company estimates the forfeiture rate as part of its initial determination of the fair value of options granted and then adjusts forfeitures as they occur. +Earnings per share +Basic earnings per share amounts are calculated by dividing income available to common stockholders by the weighted average common shares outstanding during the period and exclude any dilutive effects of stock options and warrants. Diluted earnings per share amounts include the dilutive effects of stock options and warrants whose exercise price is less than the market price of the Company’s shares. Diluted earnings per share amounts are calculated by dividing income available to common stockholders by the weighted average common shares outstanding during the period if options and warrants were exercised and converted into common stock, using the treasury stock method. +Leases +The Company determines whether an arrangement is a lease at inception. Operating lease +right-of-use +(“ROU”) assets are included in other assets and operating lease liabilities are included in other liabilities in the consolidated statements of financial condition. The Company does not have any finance leases. +ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. Since our leases do not provide an implicit rate, we use our incremental borrowing rate, the Federal Home Loan Bank advance rate, based on the information available at the commencement date in determining the present value of lease payments. The operating lease ROU asset is net of lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense is recognized on a straight-line basis over the lease term. +We have lease agreements with lease and +non-lease +components, which are generally accounted for separately. We have not elected the practical expedient to account for lease and +non-lease +components as one lease component. +7 +8 +Table of Contents +Note 1 – Summary of Significant Accounting Policies (Continued) +Advertising costs +The Company charges the costs of advertising to expense as incurred. +Comprehensive income +Accounting principles generally require that recognized revenues, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on +available-for-sale +securities, are reported as a separate component of the equity section of the consolidated statements of financial condition, such items, along with net income, are components of comprehensive income. Accumulated other comprehensive income is comprised of net unrealized holding gains and losses, net of taxes, on +available-for-sale +securities. Realized gains or losses are reclassified out of accumulated other comprehensive income when the underlying security is sold, based upon the specific identification method. +Segment Reporting +The Company adopted ASU +2023-07 +“ +Segment Reporting (Topic 280) - Improvement to Reportable Segment Disclosures” +on January 1, 2024. The Company has determined that all of its banking divisions and subsidiaries meet the aggregation criteria of ASC 280, +Segment Reporting +, as its current operating model is structured whereby banking divisions and subsidiaries serve a similar customer base utilizing a company-wide offering of similar products and services managed through similar processes and platforms that are collectively reviewed by the Company’s Chief Executive Officer, who has been identified as the chief operating decision maker (“CODM”). +The CODM regularly assesses performance of the aggregated single operating and reporting segment and decides how to allocate resources based on net income calculated on the same basis as is net income reported in the Company’s consolidated statements of income and other comprehensive income. The CODM is also regularly provided with expense information at a level consistent with that disclosed in the Company’s consolidated statements of income and other comprehensive income. +Recent Accounting Pronouncements Not Yet Adopted +In December 2023, the FASB issued ASU +No. 2023-09, +“Income Taxes (Topic 740): Improvements to Income Tax Disclosures” +. The amendments in the ASU require improved annual income tax disclosures surrounding rate reconciliation, income taxes paid, and other disclosures. This update will be effective for financial statements issued for fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact of this standard on the consolidated financial statements. +ASU +2023-06, +“Disclosure improvements” amends disclosure or presentation requirements related to various subtopics in the FASB Accounting Standards Codification. The effective dates will depend, in part, on whether an entity is already subject to the SEC’s current disclosure requirements. This ASU is not expected to have a material impact on the Company’s consolidated financial statements. +Note 2 – Business Combinations +On August 23, 2024, the Company completed the acquisition of CFC, the holding company for Cornerstone Bank, a New Jersey chartered state bank headquartered in Mt. Laurel, New Jersey that primarily served the South Jersey market. On that date, the Company acquired 100 % of the outstanding common stock of CFC in exchange for the Company’s stock, CFC was merged into the Company, and Cornerstone Bank was merged with and into the Bank. +7 +9 +Table of Contents +Note 2 – Business Combinations (Continued) +In accordance with the terms of the acquisition agreement, the Company issued its common stock at an exchange ratio of 0.24 shares of Company common stock per share of Cornerstone’s common stock outstanding on the closing date, based on the $ 38.09 closing price of the Company’s common stock on August 23, 2024. +The acquisition of Cornerstone Bank was accounted for as a business combination using the acquisition method of accounting, and accordingly, the assets acquired, the liabilities assumed, and consideration transferred were recorded at their estimated fair value as of the acquisition. The $ 5.5 million total in the table below was recorded as “Goodwill” on the Consolidated Statement of Financial Condition. +The following table summarizes the purchase price calculation and goodwill resulting from acquisition: +Fair Value +(Dollars in thousands except per share data) +Purchase Price Consideration in Cash for Cornerstone Financial Corporation’s Outstanding Shares +Cornerstone Financial Corporation number of common shares outstanding +2,191,999 +Exchange ratio +0.240 +Princeton Bancorp, Inc shares issued +525,946 +Value assigned to Cornerstone Financial Corporation common shares +$ +38.09 +Purchase price assigned to Cornerstone Financial Corporation common shares exchanged for Princeton Bancorp, Inc common stock +$ +20,033 +Assets Acquired: +Cash and cash equivalents +$ +7,866 +Securities +available-for-sale +13,972 +Loans receivable, net of allowance +255,496 +Core deposit intangible +2,812 +Premises and equipment +3,507 +Operating leases +right-of-use +1,259 +Deferred tax assets +7,427 +Other assets +11,137 +Fair value of assets acquired +303,476 +Liabilities Assumed: +Deposits +282,757 +Operating lease liability +1,259 +Other liabilities assumed +4,955 +Fair value of liabilities assumed +288,971 +Total identifiable net assets +14,505 +Goodwill +$ +5,528 +The Company recorded merger-related expenses of $ 7.8 million, consisting of $ 3.2 million in severance payments, $ 1.5 million for termination of the corporate headquarters lease, $ 1.5 million related to termination of data processing contracts, $ 615 thousand for legal related expenses, $ 330 thousand for investment banker services, $ 416 thousand in other professional services provided and $ 305 thousand in +8 +0 +Table of Contents +Note 2 – Business Combinations (Continued) +other miscellaneous related expenses. In addition, the Company recorded a $ 3.2 million provision for credit loss for the purchased +non-credit +deteriorated loans and $ 154 thousand for purchase credit deteriorated loans in connection with the acquisition. +While the valuation of the acquired assets and liabilities is substantially complete, fair value estimates related to the assets and liabilities from Cornerstone Bank are subject to adjustment for up to one year after the closing date of the acquisition as additional information becomes available. Valuations subject to adjustment include, but are not limited to, investments, loans and deposits as management continues to review the estimated fair value and evaluate the assumed tax position. When the valuation is final, any changes to the preliminary valuation could result in adjustments of goodwill recorded. +The following is a description of the fair value methodologies used to estimate the fair values of major categories of assets acquired. +Cash and due from banks: The estimated fair values of cash and due from banks approximated their stated value. +Investment securities: The acquired portfolio had a fair value of $ 13.9 million, primarily consisting of mortgage-backed securities and treasury securities. +Loans: The Company recorded $ 255.5 million of acquired loans that were initially at their fair values as of the date of the acquisition. Fair values for loans were based on a discounted cash flow methodology that considered credit loss and prepayment expectations, market interest rates and other market factors, such as liquidity, from the perspective of a market participant. Loan cash flows were generated on an individual loan basis. The probability of default (“PD”), loss given default (“LGD”), exposure of default and prepayment assumptions are the key factors driving credit losses that are embedded in the estimated cash flows. The Company determined that $ 16.7 million of the acquired loans were purchased credit deteriorated (“PCD”) of which $ 13.8 million were performing and $ 2.8 million were +non-performing +at the time of the acquisition. +Allowance for credit losses: The acquisition resulted in the addition of $ 3.2 million in the allowance for credit losses on purchased +non-credit +deteriorated loans and a gross up of $ 154 thousand identified for PCD loans. +Other assets: The Company acquired $ 8.7 million of bank owned life insurance, $ 7.4 million of deferred tax assets, $ 3.5 million of premises and equipment, $ 2.8 million in core deposit intangible, and $ 1.3 million of operating lease +right-of-use +assets and recorded the assets at fair value. +Time deposits: Time deposits were valued at the account level based on their remaining maturity dates and comparing the contractual cost of the portfolio to similar instruments. The valuation adjustment of $ 252 thousand will be amortized to expense over a five-year period. +On May 19, 2023, the Company completed its acquisition of Noah Bank, a Pennsylvania chartered state bank headquartered in Elkins Park, Pennsylvania that primarily served the Philadelphia, North New Jersey and New York City markets. On that date the Company acquired 100 % of the outstanding common stock of Noah Bank and Noah Bank was merged with and into the Bank. +In accordance with the terms of the acquisition agreement, the Company paid $ 6.00 per share of Noah’s common stock outstanding on the closing date. +The acquisition of Noah Bank was accounted for as a business combination using the acquisition method of accounting, and accordingly, the assets acquired, the liabilities assumed, and consideration transferred were recorded at their estimated fair value as of the acquisition. The $ 9.7 million below was recorded as a “Bargain Purchase” in +non-interest +income on the Consolidated Statement of Income. This item was not taxable for the recording of income taxes on the Consolidated Statement of Income. +81 +Table of Contents +Note 2 – Business Combinations (Continued) +The following table summarizes the purchase price calculation and bargain purchase gain resulting from acquisition: +Fair Value +(Dollars in thousands except per share data) +Purchase Price Consideration in Cash for Noah Bank’s Outstanding Shares +Noah Bank number of common shares outstanding +4,235,666 +Purchase price per share assigned to cash consideration +$ +6.00 +Cash consideration +$ +25,414 +Assets Acquired: +Cash and cash equivalents +$ +23,181 +Securities +available-for-sale +6,454 +Loans receivable, net of allowance +185,891 +Core deposit intangible +99 +Premises and equipment +2,495 +Operating leases +right-of-use +10,523 +Deferred tax assets +4,308 +Other assets +6,500 +Fair value of assets acquired +239,451 +Liabilities Assumed: +Deposits +191,700 +Operating lease liability +10,523 +Other liabilities assumed +2,118 +Fair value of liabilities assumed +204,341 +Total identifiable net assets +35,110 +Bargain purchase gain +$ +( 9,696 +) +The Company recorded merger-related expenses of $ 5.6 million, consisting of $ 2.5 million for termination of a branch lease, $ 1.7 million related to termination of data processing contract, $ 287 thousand for legal related expenses, $ 243 thousand for investment banker services, $ 184 thousand in severance payments, $ 115 thousand in professional services provided and $ 619 thousand in other miscellaneous related expenses. In addition, the Company recorded a $ 1.7 million provision for the +non-purchase +credit deteriorated loans in connection with the acquisition. +The following is a description of the fair value methodologies used to estimate the fair values of major categories of assets acquired. +Cash and due from banks: +The estimated fair values of cash and due from banks approximated their state value. +Investment securities: +The acquired portfolio had a fair value of $ 6.5 million, primarily consisting of mortgage-backed securities and small business administration securities. +Loans: +The Company recorded $ 185.9 million of acquired loans that were recorded at their estimated fair values as of the date of the acquisition. Fair values for loans were based on a discounted cash flow methodology that considered credit loss and prepayment expectations, market interest rates and other market factors, such as liquidity, from the perspective of a market participant. Loan cash flows were generated on +8 +2 +Table of Contents +Note 2 – Business Combinations (Continued) +an individual loan basis. The probability of default (“PD”), loss given default (“LGD”), exposure of default and prepayment assumptions are the key factors driving credit losses that are embedded in the estimated cash flows. The Company determined that $ 37.3 million of the acquired loans were purchased credit deteriorated (“PCD”) of which $ 34.7 million were performing and $ 2.6 million were +non-performing +at the time of the acquisition. +Allowance for credit losses +: The acquisition resulted in the addition of $ 2.3 million in the allowance for credit losses, including $ 601 thousand identified for purchase credit deteriorated loans. +Other assets +: The Company acquired $ 2.5 million of premises and equipment and $ 10.5 million of operating lease +right-of-use +assets and recorded the assets at fair value. +Time deposits: +Time deposits were valued at the account level based on their remaining maturity dates and comparing the contractual cost of the portfolio to similar instruments. The valuation adjustment of $ 407 thousand will be accreted to expense over a five-year period. +Note 3 – Earnings Per Share +The following schedule presents earnings per share data: +Year ended December 31, +2024 +2023 +Net income applicable to common stock +$ +10,242 +$ +25,765 +Weighted average number of common shares outstanding +6,530 +6,281 +Basic earnings per share +$ +1.57 +$ +4.10 +Net income applicable to common stock +$ +10,242 +$ +25,765 +Weighted average number of common shares outstanding +6,530 +6,281 +Dilutive effect on common shares outstanding +90 +108 +Weighted average number of diluted common shares outstanding +6,620 +6,389 +Diluted earnings per share +$ +1.55 +$ +4.03 +Options to purchase 249,656 shares of common stock at a weighted average exercise price of $ 23.76 were included in the computation of diluted earnings per share for the year ended December 31, 2024. There were no antidilutive shares to be excluded from the computation of diluted earnings per share at December 31, 2024. +Options to purchase 215,210 shares of common stock at a weighted average exercise price of $ 17.26 were included in the computation of diluted earnings per share for the year ended December 31, 2023. Options to purchase 95,750 shares of common stock at a weighted average exercise price of $ 32.45 were not included in the computation of diluted earnings per share because the exercise price equaled or exceeded the fair value of our common stock at December 31, 2023. +8 +3 +Table of Contents +Note 4 – Investment Securities +The following tables summarize the amortized cost and estimated fair value of securities +available-for-sale +at December 31, 2024 and December 31, 2023 with gross unrealized gains and losses therein: +December 31, 2024 +Amortized +Cost +Gross +Unrealized +Gains +Gross +Unrealized +Losses +Fair Value +Available-for-sale +(In thousands) +Mortgage-backed securities - U.S. government sponsored enterprises (GSEs) +$ +197,792 +$ +422 +$ +( 7,669 +) +$ +190,545 +U.S. government agency securities +11,260 +17 +( 1,077 +) +10,200 +Obligations of state and political subdivisions +43,895 +1 +( 4,166 +) +39,730 +Small business association (SBA) securities +1,856 +5 +( 4 +) +1,857 +U.S. treasury securities +4,855 +1 +( 17 +) +4,839 +Total +$ +259,658 +$ +446 +$ +( 12,933 +) +$ +247,171 +December 31, 2023 +Amortized +Cost +Gross +Unrealized +Gains +Gross +Unrealized +Losses +Fair Value +Available-for-sale +(In thousands) +Mortgage-backed securities - U.S. government sponsored enterprises (GSEs) +$ +48,399 +$ +219 +$ +( 5,984 +) +$ +42,634 +U.S. government agency securities +6,260 +—   +( 969 +) +5,291 +Obligations of state and political subdivisions +44,059 +12 +( 3,262 +) +40,809 +Small business association (SBA) securities +2,617 +2 +( 1 +) +2,618 +Total +$ +101,335 +$ +233 +$ +( 10,216 +) +$ +91,352 +The unrealized losses, categorized by the length of time in a continuous loss position, and the fair value of related securities +available-for-sale +as of December 31, 2024 and December 31, 2023 are as follows: +Less than 12 Months +More than 12 Months +Total +Fair +Value +Unrealized +Losses +Fair +Value +Unrealized +Losses +Fair +Value +Unrealized +Losses +December 31, 2024 +(In thousands) +Mortgage-backed securities - U.S. government sponsored enterprises (GSEs) +$ +122,763 +$ +( 1,157 +) +$ +29,229 +$ +( 6,512 +) +$ +151,992 +$ +( 7,669 +) +U.S. government agency securities +129 +—   +5,183 +( 1,077 +) +5,312 +( 1,077 +) +Obligations of state and political subdivisions +3,664 +( 39 +) +34,320 +( 4,127 +) +37,984 +( 4,166 +) +Small business association (SBA) securities +447 +( 1 +) +449 +( 3 +) +897 +( 4 +) +U.S. Treasuries +2,846 +( 17 +) +—   +—   +2,846 +( 17 +) +Total +$ +129,849 +$ +( 1,214 +) +$ +69,182 +$ +( 11,719 +) +$ +199,031 +$ +( 12,933 +) +8 +4 +Table of Contents +Note 4 – Investment Securities (Continued) +Less than 12 Months +More than 12 Months +Total +Fair +Value +Unrealized +Losses +Fair +Value +Unrealized +Losses +Fair +Value +Unrealized +Losses +December 31, 2023 +(In thousands) +Mortgage-backed securities - U.S. government sponsored enterprises (GSEs) +$ +2,858 +$ +( 14 +) +$ +31,398 +$ +( 5,970 +) +$ +34,256 +$ +( 5,984 +) +U.S. government agency securities +—   +—   +5,291 +( 969 +) +5,291 +( 969 +) +Obligations of state and political subdivisions +5,117 +( 102 +) +30,646 +( 3,160 +) +35,763 +( 3,262 +) +Small business association (SBA) securities +723 +( 1 +) +—   +—   +723 +( 1 +) +$ +8,698 +$ +( 117 +) +$ +67,335 +$ +( 10,099 +) +$ +76,033 +$ +( 10,216 +) +Accrued interest receivable for investment securities was $ 1.3 million and $ 523 thousand at December 31, 2024 and 2023, respectively. Debt securities are placed on nonaccrual status and accrued interest is reversed at the time any principal or interest payments become 90 days delinquent. There were no past due securities at December 31, 2024 or 2023. +The Company uses a defined methodology for allowance for credit losses on its investment securities +available-for-sale. +The Company did no t record an allowance for credit losses associated with its investment portfolio during 2024. +The Company’s securities primarily consist of the following types of instruments; U.S. guaranteed mortgage-backed securities, U.S guaranteed agency bonds, state and political subdivision issued bonds, mortgage related securities guaranteed by the SBA and U.S. treasury notes. We believe it is reasonable to expect that the securities with a credit guarantee of the U.S. government will have a +zero-credit +loss. Therefore, no reserve was recorded for U.S. guaranteed securities or bonds at December 31, 2024. The state and political subdivision securities carry a minimum investment rating of A by either Moody’s or Standard and Poor. Some of the smaller municipalities also have insurance to cover the Company in the event of default. Therefore, the Company did not project a credit loss and no reserve was recorded as of December 31, 2024. +At December 31, 2024, the Company’s +available-for-sale +securities portfolio consisted of approximately 274 securities, of which 167 +available-for-sale +securities were in an unrealized loss position for more than twelve months and 58 +available-for-sale +securities were in a loss position for less than twelve months. The +available-for-sale +securities in a loss position for more than twelve months consisted of 106 municipal securities aggregating $ 34.3 million with a loss of $ 4.1 million, 53 mortgage-backed +securities-GSE +aggregating $ 29.2 million with a loss of $ 6.5 million, 4 agency securities aggregating $ 5.2 million with a loss of $ 1.1 million and 4 SBA securities aggregating $ 449 thousand with a loss of $ 2 thousand. The Company does not intend to sell these securities, and it is not more likely than not that we will be required to sell these securities before recovery of their amortized cost basis. Unrealized losses primarily relate to interest rate fluctuations and not credit concerns. +There are no securities pledged as of December 31, 2024, and December 31, 2023. +8 +5 +Table of Contents +Note 4 – Investment Securities (Continued) +The amortized cost and estimated fair value of securities +available-for-sale +at December 31, 2024 by contractual maturity are shown below. Expected maturities will differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without call or prepayment penalties: +Amortized +Cost +Fair Value +(In thousands) +Due in one year or less +$ +3,401 +$ +3,402 +Due after one year through five years +10,360 +10,174 +Due after five years through ten years +39,591 +36,059 +Due after ten years +8,514 +6,991 +Mortgage-backed securities (GSEs) +197,792 +190,545 +$ +259,658 +$ +247,171 +There were no sales of +available-for-sale +securities for the twelve months ended December 31, 2024. Proceeds from the calls and maturities of securities +available-for-sale +amounted to $ 1.3 million for the twelve months ended December 31, 2024, which included a loss of $ 7 thousand There were no sales of +available-for-sale +securities for the twelve months ended December 31, 2023. Proceeds from the calls and maturities of securities +available-for-sale +amounted to $ 1.6 million for the twelve months ended December 31, 2023, which included approximately $ 39 thousand in gross realized gains. +There were no securities pledged as collateral for NJ Governmental Unit Deposit Protection Act (“GUDPA”) deposits at December 31, 2024 or 2023. +Note 5 – Loans Receivable +Loans receivable, net at December 31, 2024 and December 31, 2023 were comprised of the following: +December 31, +2024 +December 31, +2023 +(In thousands) +Commercial real estate +$ +1,385,085 +$ +1,142,864 +Commercial and industrial +92,857 +50,961 +Construction +257,169 +310,187 +Residential first-lien mortgage +68,030 +38,040 +Home equity/consumer +18,133 +8,081 +Total loans +1,821,274 +1,550,133 +Deferred fees and costs +( 2,399 +) +( 1,798 +) +Loans, net +$ +1,818,875 +$ +1,548,335 +Except as discussed in Note 2 regarding the Cornerstone Bank and Noah Bank acquisitions, the Company did no t purchase any loans during the twelve months ended December 31, 2024 and 2023, respectively. +8 +6 +Table of Contents +Note 5 – Loans Receivable (Continued) +The following table presents the purchase of purchase credit deteriorated loans acquired on August 23, 2024. +PCD Accruing +August 23, 2024 +PCD Non- +Accruing +August 23, 2024 +Total +PCD Loans +August 23, 2024 +(In thousands) +Purchase price PCD Loans +$ +13,639 +$ +607 +$ +14,246 +Allowance for credit losses at acquisition +( 154 +) +—   +( 154 +) +Non-Credit +discount (premium) at acquisition +342 +2,222 +2,564 +Par value of acquired PCD Loans +$ +13,827 +$ +2,829 +$ +16,656 +The following table presents the purchase of purchase credit deteriorated loans acquired on May 19, 2023. +PCD Accruing +May 19, 2023 +PCD Non- +Accruing +May 19, 2023 +Total +PCD Loans +May 19, 2023 +(In thousands) +Purchase price PCD Loans +$ +34,574 +$ +2,155 +$ +36,729 +Allowance for credit losses at acquisition +( 550 +) +( 51 +) +( 601 +) +Non-Credit +discount (premium) at acquisition +665 +537 +1,202 +Par value of acquired PCD Loans +$ +34,689 +$ +2,641 +$ +37,330 +The following table presents nonaccrual loans by segment of the loan portfolio as of December 31, 2024 and December 31, 2023: +December 31, 2024 +December 31, 2023 +With a +Related +Allowance +Without a +Related +Allowance +With a +Related +Allowance +Without a +Related +Allowance +(In thousands) +Commercial real estate +$ +18,502 +$ +6,939 +$ +—   +$ +4,485 +Commercial and industrial +109 +$ +1,178 +—   +2,116 +Construction +—   +—   +—   +—   +Residential first-lien mortgage +—   +94 +—   +107 +Home equity/consumer +—   +19 +—   +—   +Total nonaccrual loans +$ +18,611 +$ +8,230 +$ +—   +$ +6,708 +The calculation of the allowance for credit losses does not include any accrued interest receivable. The Company’s policy is to write off any interest not collected after 90 days. During the year ended December 31, 2024, the Company wrote off $ 563 thousand in accrued interest receivable for loans, compared to $ 380 thousand for the year ended December 31, 2023. Accrued interest receivable related to loans, was $ 6.5 million and $ 5.5 million, at December 31, 2024 and 2023, respectively. The performance and credit quality of the loan portfolio is also monitored by analyzing the age of the loan receivables by the length of time a recorded payment is past due. +8 +7 +Table of Contents +Note 5 – Loans Receivable (Continued) +The following table presents the segments of the loan portfolio, summarized by the past due status as of December 31, 2024: +30-59 +Days +Past +Due +60-89 +Days +Past +Due +>90 +Days +Past +Due +Total +Past +Due +Current +Total +Loans +Receivable +Loans +Receivable +>90 Days +and +Accruing +(In thousands) +Commercial real estate +$ +—   +$ +—   +$ +25,441 +$ +25,441 +$ +1,359,644 +$ +1,385,085 +$ +—   +Commercial and industrial +36 +—   +421 +457 +92,400 +92,857 +32 +Construction +—   +—   +—   +—   +257,169 +257,169 +—   +Residential first-lien mortgage +700 +94 +—   +794 +67,236 +68,030 +—   +Home equity/consumer +—   +—   +—   +—   +18,133 +18,133 +—   +Total +$ +736 +$ +94 +$ +25,862 +$ +26,692 +$ +1,794,582 +$ +1,821,274 +$ +32 +The following table presents the segments of the loan portfolio summarized by the past due status as of December 31, 2023: +30-59 +Days +Past +Due +60-89 +Days +Past +Due +>90 +Days +Past +Due +Total +Past +Due +Current +Total +Loans +Receivable +Loans +Receivable +>90 Days +and +Accruing +(In thousands) +Commercial real estate +$ +159 +$ +—   +$ +4,485 +$ +4,644 +$ +1,138,220 +$ +1,142,864 +$ +—   +Commercial and industrial +303 +—   +2,116 +2,419 +48,542 +50,961 +—   +Construction +—   +—   +—   +—   +310,187 +310,187 +—   +Residential first-lien mortgage +—   +—   +107 +107 +37,933 +38,040 +—   +Home equity/consumer +29 +—   +—   +29 +8,052 +8,081 +—   +Total +$ +491 +$ +—   +$ +6,708 +$ +7,199 +$ +1,542,934 +$ +1,550,133 +$ +—   +The Company categorizes all loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation and current economic trends, among other factors. The Company evaluates risk ratings on an ongoing basis and assigns one of the following ratings: pass, special mention, substandard and doubtful. The Company engages a third party to review its assessment on a semiannual basis. The Company classifies residential and consumer loans as either performing or nonperforming based on payment status. +The following table summarizes total loans by year of origination, internally assigned credit grades and risk characteristics as of December 31, 2024. +8 +8 +Table of Contents +Note 5 – Loans Re +ceiv +able (Co +ntin +ued) +2024 +2023 +2022 +2021 +2020 +Prior +Revolving +Loans +Total +(Dollars in thousands) +Commercial real estate +Pass +$ +143,453 +$ +168,828 +$ +309,379 +$ +136,509 +$ +58,755 +$ +537,532 +$ +2,600 +$ +1,357,056 +Special mention +—   +—   +—   +—   +—   +2,588 +—   +2,588 +Substandard +—   +—   +—   +—   +6,938 +18,503 +—   +25,441 +Total commercial real estate +143,453 +168,828 +309,379 +136,509 +65,693 +558,623 +2,600 +1,385,085 +Current period gross charge-offs +236 +236 +Commercial and industrial +Pass +—   +3,022 +10,876 +11,183 +—   +16,440 +48,143 +89,664 +Special mention +—   +—   +—   +—   +—   +1,906 +—   +1,906 +Substandard +—   +—   +—   +—   +—   +1,287 +—   +1,287 +Total commercial and industrial +—   +3,022 +10,876 +11,183 +—   +19,633 +48,143 +92,857 +Current period gross charge-offs +516 +516 +Construction +Pass +17,765 +22,109 +46,558 +92,841 +16,431 +242 +61,223 +257,169 +Special mention +—   +—   +—   +—   +—   +—   +—   +—   +Substandard +—   +—   +—   +—   +—   +—   +—   +—   +Total construction +17,765 +22,109 +46,558 +92,841 +16,431 +242 +61,223 +257,169 +Current period gross charge-offs +—   +—   +Residential first-lien mortgage +Performing +596 +1,895 +6,789 +6,134 +2,860 +49,662 +—   +67,936 +Nonperforming +—   +—   +—   +—   +—   +94 +—   +94 +Total residential first-lien mortgage +596 +1,895 +6,789 +6,134 +2,860 +49,756 +—   +68,030 +Home equity/consumer +Performing +1,234 +967 +556 +—   +—   +—   +15,357 +18,114 +Nonperforming +—   +—   +19 +—   +—   +—   +—   +19 +Total home equity/consumer +1,234 +967 +575 +—   +—   +—   +15,357 +18,133 +Total +Pass +163,048 +196,821 +374,158 +246,667 +78,046 +603,876 +127,323 +1,789,938 +Special mention +—   +—   +—   +—   +—   +4,494 +—   +4,494 +Substandard +—   +—   +19 +—   +6,938 +19,884 +—   +26,842 +Total loans +$ +163,048 +$ +196,821 +$ +374,177 +$ +246,667 +$ +84,984 +$ +628,254 +$ +127,323 +$ +1,821,274 +8 +9 +Table of Contents +Note 5 – Loans Receivable (Continued) +The following table summarizes total loans by year of origination, internally assigned credit grades and risk characteristics as of December 31, 2023. +2023 +2022 +2021 +2020 +2019 +Prior +Revolving +Loans +Total +(Dollars in thousands) +Commercial real estate +Pass +$ +132,834 +$ +233,436 +$ +116,836 +$ +53,574 +$ +175,991 +$ +417,417 +$ +5,551 +$ +1,135,639 +Special mention +—   +—   +—   +—   +—   +2,740 +—   +2,740 +Substandard +—   +—   +—   +—   +—   +4,485 +—   +4,485 +Total commercial real estate +132,834 +233,436 +116,836 +53,574 +175,991 +424,642 +5,551 +1,142,864 +Current period gross charge-offs +1,718 +1,718 +Commercial and industrial +Pass +2,098 +2,304 +11,925 +1,962 +1,133 +13,954 +15,045 +48,421 +Special mention +—   +—   +—   +—   +—   +500 +—   +500 +Substandard +—   +—   +—   +—   +—   +2,040 +—   +2,040 +Total commercial and industrial +2,098 +2,304 +11,925 +1,962 +1,133 +16,494 +15,045 +50,961 +Current period gross charge-offs +55 +55 +Construction +Pass +5,832 +18,379 +91,774 +19,216 +—   +8,484 +166,502 +310,187 +Special mention +—   +—   +—   +—   +—   +—   +—   +—   +Substandard +—   +—   +—   +—   +—   +—   +—   +—   +Total construction +5,832 +18,379 +91,774 +19,216 +—   +8,484 +166,502 +310,187 +Current period gross charge-offs +148 +148 +Residential first-lien mortgage +Performing +—   +979 +4,792 +2,839 +1,545 +27,778 +—   +37,933 +Nonperforming +—   +—   +—   +—   +—   +107 +—   +107 +Total residential first-lien mortgage +—   +979 +4,792 +2,839 +1,545 +27,885 +—   +38,040 +Current period gross charge-offs +2 +2 +Home equity/consumer +Performing +1,153 +1,016 +1,172 +—   +—   +1,606 +3,134 +8,081 +Nonperforming +—   +—   +—   +—   +—   +—   +—   +—   +Total home equity/consumer +1,153 +1,016 +1,172 +—   +—   +1,606 +3,134 +8,081 +Total +Pass/performing +141,917 +256,114 +226,499 +77,591 +178,669 +469,239 +190,232 +1,540,261 +Special mention +—   +—   +—   +—   +—   +3,240 +—   +3,240 +Substandard /nonperforming +—   +—   +—   +—   +—   +6,632 +—   +6,632 +Total loans +$ +141,917 +$ +256,114 +$ +226,499 +$ +77,591 +$ +178,669 +$ +479,111 +$ +190,232 +$ +1,550,133 +90 +Table of Contents +Note 5 – Loans Receivable (Continued) +The following table presents the allowance for credit losses on loans receivable at and for the year ended December 31, 2024: +Commercial +real estate +Commercial +and +industrial +Construction +Residential +first-lien +mortgage +Home equity/ +consumer +Total +(In thousands) +Allowance for credit losses: +Beginning balance +$ +16,047 +$ +488 +$ +1,145 +$ +725 +$ +87 +$ +18,492 +Purchased +non-credit +deteriorated loans +1 +2,106 +15 +546 +271 +214 +3,152 +Purchased credit deteriorated loans +110 +4 +11 +13 +16 +154 +Provision (reversal) +1 +2,709 +903 +( 1,128 +) +( 116 +) +( 156 +) +2,212 +Charge-offs +( 236 +) +( 516 +) +—   +—   +—   +( 752 +) +Recoveries +85 +279 +35 +—   +—   +399 +Total +$ +20,821 +$ +1,173 +$ +609 +$ +893 +$ +161 +$ +23,657 +1 +The provision for credit losses on the Consolidated Statement of Income is $ 5.1 million comprising of an increase of $ 3.2 million related to purchased +non-credit +deteriorated loans acquired, $ 2.1 million increase to the allowance for loan loss and a $ 227 thousand reduction to the reserve for unfunded liabilities. +The following table presents the allowance for loan losses on loans receivables at and for the year ended December 31, 2023: +Commercial +real estate +Commercial +and +industrial +Construction +Residential +first-lien +mortgage +Home equity/ +consumer +Unallocated +Total +(In thousands) +Allowance for credit losses: +Beginning balance +$ +8,654 +$ +271 +$ +6,289 +$ +236 +$ +45 +$ +966 +$ +16,461 +CECL adoption +1,384 +( 73 +) +( 1,269 +) +428 +195 +( 966 +) +( 301 +) +Provision for acquired loans +1,586 +105 +—   +16 +—   +—   +1,707 +Purchased credit deteriorated loans +499 +102 +—   +—   +—   +601 +Provision +1 +5,583 +81 +( 3,727 +) +47 +( 153 +) +—   +1,831 +Charge-offs +( 1,718 +) +( 55 +) +( 148 +) +( 2 +) +—   +—   +( 1,923 +) +Recoveries +59 +57 +—   +—   +—   +—   +116 +Total +$ +16,047 +$ +488 +$ +1,145 +$ +725 +$ +87 +$ +—   +$ +18,492 +1 +The credit provision for credit losses on the Consolidated Statement of Income is a $ 3.1 million comprising $ 1.7 million related to +non-PCD +loans acquired, a $ 1.8 million record provision related to the Bank’s outstanding loan balance and net-charge offs, partially reduced by $ 430,000 related to the reserve for unfunded liabilities. +91 +Table of Contents +Note 5 – Loans Receivable (Continued) +The following table presents the components of the allowance for credit losses: +December 31, +2024 +December 31, +2023 +(In thousands) +Allowance for credit losses - loans +$ +( 23,657 +) +$ +( 18,492 +) +Allowance for credit losses - off balance sheet +( 361 +) +( 589 +) +$ +( 24,018 +) +$ +( 19,081 +) +As of December 31, 2024, the Company had nine loans totaling $ 26.8 million that were individually analyzed for potential credit loss. Eight of the loans aggregating $ 26.5 million have real estate as credit support and one loan for $ 306 thousand used future cash flows to determine if a write down was needed. +Occasionally, the Company will modify the contractual terms of loans to a borrower experiencing financial difficulties as a way to mitigate loss, proactively work with borrowers in financial difficulty, or to comply with regulations regarding the treatment of certain bankruptcy filing and discharge situations. Typically, such concessions may consist of a reduction in interest rate to a below market rate, taking into account the credit quality of the note, extension of additional credit based on receipt of adequate collateral, or a deferment or reduction of payments (principal or interest) which materially alters the Company’s position or significantly extends the note’s maturity date, such that the present value of cash flows to be received is materially less than those contractually established at the loan’s origination. When principal forgiveness is provided, the amount forgiven is charged off against the allowance for credit losses on loans. There were no modifications to borrowers with financial difficulties and no loans that defaulted for years ended December 31, 2024 or December 31, 2023. +Loans to Related Parties. +Included in total loans are loans due from directors and other related parties of $ 4.3 million and $ 4.6 million at December 31, 2024 and 2023, respectively. All loans made to directors have substantially the same terms and interest rates as other bank borrowers at their origination date. The Board of Directors confirms that collateral requirements, terms and rates are comparable to other borrowers and are in compliance with underwriting policies prior to approving loans to individual directors. The following presents the activity in amount due from directors and other related parties for the years ended December 31, 2024 and 2023. +2024 +2023 +(In thousands) +Outstanding related party loans at January 1 +$ +4,601 +$ +4,861 +New loans +—   +—   +Repayments +( 274 +) +( 260 +) +Outstanding related party loans at December 31 +$ +4,327 +$ +4,601 +9 +2 +Table of Contents +Note 6 – Premises and Equipment +The components of premises and equipment at December 31 for each year presented were as follows: +Estimated +useful lives +2024 +2023 +(In thousands) +Land +N/A +$ +2,703 +$ +1,468 +Buildings +40 Years +6,604 +4,161 +Leasehold improvements +Lesser of lease term or useful life +11,842 +11,338 +Furniture, fixtures and equipment +3 - 8 +Years +5,219 +4,270 +Construction in progress +24 +150 +Total before accumulated depreciation and amortization +26,392 +21,387 +Accumulated depreciation and amortization +( 8,588 +) +( 6,934 +) +Total +$ +17,804 +$ +14,453 +Note 7 – Deposits +The components of deposits were as follows: +December 31, +2024 +December 31, +2023 +(Dollars in thousands) +Demand, +non-interest-bearing +checking +$ +300,972 +14.81 +% +$ +249,282 +15.24 +% +Demand, interest-bearing checking +300,559 +14.79 +% +247,939 +15.16 +% +Savings +170,880 +8.41 +% +146,484 +8.96 +% +Money market +490,543 +24.13 +% +354,005 +21.64 +% +Time deposits, $250,000 and over +284,272 +13.99 +% +173,614 +10.61 +% +Time deposits, other +485,399 +23.88 +% +464,417 +28.39 +% +$ +2,032,625 +100.00 +% +$ +1,635,741 +100.00 +% +Money market accounts totaling $ 17.1 million and $ 19.0 million at December 31, 2024 and 2023, respectively, were originated through a reciprocal deposit relationship. +At December 31, 2024, the scheduled maturities of certificates of deposit were as follows: +Amount +Years Ended December 31 +(in thousands) +2025 +$ +727,544 +2026 +33,922 +2027 +4,581 +2028 +1,112 +2029 and thereafter +2,512 +Total +$ +769,671 +Approximately $ 44.6 million and $ 87.2 million at December 31, 2024 and 2023, respectively, were originated through brokers. +Related party deposits were approximately 28.1 million and $ 15.8 million at December 31, 2024 and 2023, respectively. +9 +3 +Table of Contents +Note 7 – Deposits (Continued) +Deposit overdrafts reclassified as loan balances were $ 175 thousand and $ 80 thousand at December 31, 2024 and 2023, respectively. +Note 8 – Borrowings +The Company periodically enters into +FHLB-NY +overnight and short-term advances. The Company utilizes federal funds purchased to meet short-term liquidity needs. The +FHLB-NY +has +non-specific +blanket collateral on the Bank’s loan portfolio as of December 31, 2024 and 2023. +At December 31, 2024, the Company had a maximum borrowing capacity with the +FHLB-NY, +subject to certain collateral restrictions, of $ 614.8 million, with $ 554.8 million available. The Bank is also a shareholder in Atlantic Community Bancshares, Inc., the holding company of ACBB. As of December 31, 2024, the Company had available borrowing capacity with ACBB of $ 10.0 million to provide short-term liquidity generally for a period of not more than fourteen days. +The Company had no outstanding borrowings at December 31, 2024 or December 31, 2023. +Note 9 – Commitments and Contingencies +Commitments to extend credit +The Company is a party to financial instruments with +off-balance-sheet +risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized on the balance sheet. The contract, or notional, amounts of these instruments reflect the extent of involvement the Company has in particular classes of financial instruments. +The Company’s exposure to credit loss in the event of nonperformance by the counterparty to the financial instrument for commitments to extend credit and standby letters of credit written is represented by the contractual notional amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as they do for +on-balance-sheet +instruments. +Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee by the counterparty. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. +The Company evaluates each customer’s creditworthiness on a +case-by-case +basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the counterparty. Collateral held varies, but primarily includes residential and income-producing real estate. +Standby letters of credit are written conditional commitments issued by the Company to guarantee the performance of a customer to a third party. The majority of these standby letters of credit expire within the next twelve months. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending other loan commitments. The Company requires collateral supporting these letters of credit as deemed necessary. Management believes that the proceeds obtained through a liquidation of such collateral should be sufficient to cover the maximum potential amount under the corresponding guarantees. +9 +4 +Table of Contents +Note 9 – Commitments and Contingencies (Continued) +The Company had the following +off-balance +sheet financial instruments whose contract amounts represent credit risk at December 31: +2024 +2023 +(In thousands) +Performance and standby letters of credit +$ +700 +$ +1,010 +Undisbursed construction +loans-in-process +61,223 +89,258 +Commitments to fund loans +51,883 +38,863 +Unfunded commitments under lines of credit +18,801 +4,697 +Total +$ +132,607 +$ +133,828 +The Company is a limited partner in a Small Business Investment Company (“SBIC”) and committed to contribute capital of $ 5.0 million to the partnership. At December 31, 2024, the SBIC had a book value of $ 3.3 million. The unfunded commitment to the partnership was $ 1.7 million at December 31, 2024. +The Company invested in a CRA eligible investment that acquires SBA loans within qualifying census tracts in which the Company operates. The Company decides which loans are included in its investment. The Company has an outstanding commitment to fund up to $ 6.9 million and currently has $ 6.9 million funded. There is currently no unfunded commitment at December 31, 2024. +Litigation +From time to time the Company is a defendant in various legal proceedings arising in the ordinary course of our business. However, in the opinion of management of the Company, there are no proceedings pending to which the Company is a party or to which its property is subject, which, if determined adversely to the Company, would be material in relation to the Company’s profits or financial condition, nor are there any proceedings pending other than ordinary routine litigation incident to the business of the Company. In addition, no material proceedings are pending or are known to be threatened or contemplated against the Company by government authorities or others. +Note 10 – Income Taxes +Income tax expense for the years ended December 31 is as follows: +2024 +2023 +(In thousands) +Current tax expense: +Federal +$ +2,688 +$ +2,943 +State +693 +1,427 +Total current +3,381 +4,370 +Deferred income tax benefit: +Federal +( 540 +) +341 +State +( 267 +) +( 141 +) +Total deferred +( 807 +) +200 +$ +2,574 +$ +4,570 +9 +5 +Table of Contents +Note 10 – Income Taxes (Continued) +The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows as of December 31: +2024 +2023 +(In thousands) +Deferred tax assets: +Allowance for credit losses +$ +6,724 +$ +5,252 +Net operating loss carry-forward +5,651 +2,406 +Other +1,279 +1,383 +Core deposit intangible +466 +460 +Acquisition accounting adjustments +5,728 +1,966 +Lease liability +6,520 +6,895 +SERP liability +418 +307 +Unrealized loss on securities +3,546 +3,007 +Total deferred tax assets +30,332 +21,676 +Deferred tax liabilities: +Depreciation +( 682 +) +( 1,455 +) +Deferred loan costs +( 975 +) +( 853 +) +ROU +( 6,225 +) +( 6,645 +) +Goodwill amortization +( 937 +) +( 768 +) +Other +( 1,237 +) +( 443 +) +Total deferred tax liabilities +( 10,056 +) +( 10,164 +) +Net deferred tax asset +$ +20,276 +$ +11,512 +Total income taxes differed from the amount computed by applying the statutory federal income tax rate to +pre-tax +income as follows: +2024 +2023 +Amount +Rate +Amount +Rate +(Dollars in thousands) +Federal income tax expense at statutory rate +$ +2,691 +21.0 +% +$ +6,370 +21.0 +% +Increase (reduction) in taxes resulting from: +State income taxes, net of federal benefit +337 +2.6 +% +1,016 +3.4 +% +Tax-exempt +income, net +( 402 +) +- 3.1 +% +( 413 +) +- 1.4 +% +Income from bank-owned life insurance +( 351 +) +- 2.7 +% +( 272 +) +- 0.9 +% +Non-deductible +expenses +236 +1.7 +% +107 +0.4 +% +Bargain purchase gain +—   +0.0 +% +( 2,036 +) +- 6.7 +% +Other +63 +0.6 +% +( 202 +) +- 0.7 +% +Total income taxes applicable to +pre-tax +income +$ +2,574 +20.1 +% +$ +4,570 +15.1 +% +The Company had available federal net operating loss carry-forwards of approximately $ 14.2 million and $ 3.8 million at December 31, 2024 and 2023, respectively, which begin to expire in 2028. The federal net operating loss carry-forwards are amounts that were generated by MoreBank, which the Bank acquired on September 30, 2010 and Noah Bank, which the Company acquired on May 19, 2023, and Cornerstone Financial, which the Bank acquired on August 23, 2024. These net operating losses are subject to an annual Internal Revenue Code Section 382 limitation of approximately $ 222 thousand for MoreBank net operating losses and $ 773 thousand for Noah Bank net operating losses, and $ 685 thousand for Cornerstone Financial net operating losses. +9 +6 +Table of Contents +Note 10 – Income Taxes (Continued) +The Company had available New Jersey net operating loss carry-forwards of approximately $ 18.6 million, New York state net operating loss carry-forwards of $ 13.8 million and New York City net operating loss carry-forwards of $ 6.2 million at December 31, 2024, which expire between 2035 and 2043. The state and city net operating loss carry-forwards are amount that were generated by Noah Bank, which the Bank acquired on May 19, 2023 and Cornerstone Financial acquired on August 23, 2024. +Based on projections of future taxable income over periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Company will realize the benefits of these deductible differences. +The Company follows applicable accounting guidance which prescribes a threshold for the financial statement recognition of income taxes and provides criteria for the measurement of tax positions taken or expected to be taken in a tax return. This also includes guidance on derecognition, classification, interest and penalties, accounting in interim periods, and disclosure of income taxes. The Company did not recognize or accrue any interest or penalties related to income taxes during the years ended December 31, 2024, or 2023. The Company does not have an accrual for uncertain tax positions as of December 31, 2024, or 2023, as deductions taken or benefits accrued are based on widely understood administrative practices and procedures and are based on clear and unambiguous tax law. Tax returns for all years 2021 and thereafter are subject to examination by tax authorities. +Note 11 – Revenue Recognition +The Company accounts for its applicable revenue in accordance with ASC Topic 606 - +Revenue from Contracts with Customers. +The core principle of Topic 606 is that an entity recognize at an amount that reflect the consideration to which the entity expects to be entitled in exchange for transferring goods or service to a customer. Topic 606 requires entities to exercise judgement when considering the terms of a contract. Topic 606 applies to all contracts with customers to provide goods or services in the ordinary course of business, except for contracts that are specifically excluded from its scope. +Topic 606 does not apply to revenue associated with financial instruments, including revenue from loans and securities. In addition, certain +non-interest +income streams such as fees associated with mortgage servicing rights, financial guarantees, derivatives, and certain credit card fees are also not in scope of the guidance. Topic 606 is applicable to +non-interest +revenue streams such as deposit related fees and interchange fees. However, the recognition of these revenue streams did not change significantly upon adoption of Topic 606. The majority of the Company’s revenue-generating transactions are not subject to ASC 606, including revenue generated from financial instruments, such as loans, investment securities, and revenue related to mortgage servicing activities, as these activities are subject to other GAAP. +Non-interest +revenue streams +in-scope +of Topic 606 are discussed below. +Service charges on deposit accounts consist of account analysis fees (i.e., net fees earned on analyzed business and public checking accounts), monthly service fees, check orders, and other deposit account related fees. The Company’s performance obligation for account analysis fees and monthly service fees is generally satisfied, and the related revenue recognized, over the period in which the service is provided. Check orders and other deposit account related fees are largely transactional based, and therefore, the Company’s performance obligation is satisfied, and related revenue recognized, at a point in time. Payment for service charges on deposit accounts is primarily received immediately or in the following month through a direct charge to customers’ accounts. +Fees, exchange, and other service charges are primarily comprised of debit and credit card income, ATM fees, merchant services income, and other service charges. Debit and credit card income is primarily comprised of net interchange fees earned whenever the Banks’s debit and credit cards are processed through card payment networks such as Visa. ATM fees are primarily generated when a cardholder uses a +non-Bank +9 +7 +Table of Contents +Note 11 – Revenue Recognition (Continued) +ATM or a +non-Bank +cardholder uses a Bank ATM. Merchant services income mainly represents fees charged to merchants to process their debit and credit card transactions, in addition to account management fees. Other service charges include revenue from processing wire transfers, bill pay service, cashier’s checks, and other services. The Bank’s performance obligation for fees, exchange, and other service charges are largely satisfied, and related revenue recognized, when the services are rendered or upon completion. Payment is typically received immediately or in the following month. +Note 12 – Leases +The Company records a right of use asset (“ROU”) and a lease liability for all leases with terms longer than 12 months. The Company has elected the short-term lease recognition exemption such that the Company will not recognize ROU or lease liabilities for leases with a term less than 12 months from the commencement date. The Company is obligated under 30 operating leases agreements for 28 branches and its corporate offices with terms extending through 2042. The Company’s lease agreements include options to renew at the Company’s discretion. The extensions are reasonably certain to be exercised, therefore they were considered in the calculations of the ROU asset and lease liability. +The following table represents the classification of the Company’s right of use and lease liabilities (Dollars in thousands): +Statement of Financial +Condition Location +December 31, 2024 +December 31, 2023 +(In thousands) +Operating Lease Right of Use Asset: +Gross carrying amount beginning of year +$ +23,398 +$ +16,026 +Increased asset from new leases +3,066 +9,799 +Accumulated amortization +( 4,561 +) +( 2,427 +) +Net book value end of year +Operating lease right-of-use asset +$ +21,903 +$ +23,398 +Operating Lease Liability: +Lease liability +Operating lease liability +$ +22,941 +$ +24,280 +For the year ended December 31, 2024, the weighted-average remaining lease terms for operating leases was 11.02 years and the weighted-average discount rate used in the measurement of operating lease liabilities was 3.53 %. The Company used current FHLB fixed rate advances at the time the lease was placed in service for the term most closely aligning with remaining lease term to determine the discount rate. +9 +8 +Table of Contents +Note 12 – Leases (Continued) +The following table presents total lease cost and cash paid for each year: +Twelve Months Ended +December 31, +2024  +2023  +(In thousands) +Lease cost: +Operating lease +$ +4,094 +$ +3,772 +Short-term lease cost +124 +105 +Total lease cost +$ +4,218 +$ +3,877 +Other information: +Cash paid for amounts included in the measurement of lease liabilities +$ +3,572 +$ +3,074 +Future minimum payments under operating leases with terms longer than 12 months are as follows at December 31, 2024: +Amount +Twelve months ended December 31, +(In thousands) +2025 +$ +3,722 +2026 +3,498 +2027 +3,208 +2028 +3,093 +2029 +2,467 +Thereafter +14,541 +Total future operating lease payment +30,529 +Amounts representing interest +( 7,588 +) +Present value of net future lease payments +$ +22,941 +The Company has an operating lease agreement with a member of the Company’s board of directors for a building containing the Company’s corporate headquarters and branch, which is included in the above lease schedule. At the lease initiation date, the lease terms were comparable to similarly outfitted office space in the Company’s market. Base rental payments of $ 275 thousand and $ 315 thousand were made to this related party in each of the years ended December 31, 2024 and 2023, respectively. Certain operating expenses, including real estate taxes, insurance, utilities, maintenance and repairs, related to this property are paid directly to the various service providers. +Note 13 – Directors Fee Plan +The Company adopted a +Non-Employee +Director Deferred Compensation Plan in April 2022, which allows directors to defer a portion of their compensation ranging from 0 % to 100 % for a period of two to five years, if elected. During 2024 certain directors elected to defer a total of approximately $ 200 thousand for which they receive phantom stock. Once they retire, the phantom stock can be taken either as stock or cash. +9 +9 +Table of Contents +Note 14 – Goodwill and Core Deposit Intangible +Goodwill and core deposit intangibles result from the Company’s prior acquisitions. The changes in the carrying amount of goodwill and core deposit intangible assets are summarized as follows: +Goodwill +Core Deposit +Intangible +(In thousands) +Balance at December 31, 2023 +$ +8,853 +$ +1,422 +Acquisition of Cornerstone Bank +$ +5,528 +$ +2,812 +Amortization expense +—  +( 602 +) +Balance at December 31, 2024 +$ +14,381 +$ +3,632 +Goodwill +Core Deposit +Intangible +(In thousands) +Balance at December 31, 2022 +$ +8,853 +$ +1,825 +Acquisition of Noah Bank +—   +99 +Amortization expense +—  +( 502 +) +Balance at December 31, 2023 +$ +8,853 +$ +1,422 +The core deposit intangible assets are being amortized over 10 years, using the sum of the year’s digits. As of December 31, 2024, the future fiscal periods amortization for the core deposit intangible is as follows: +Amount +(In thousands) +2025 +847 +2026 +717 +2027 +587 +2028 +457 +2029 +327 +Thereafter +697 +Total +$ +3,632 +Note 15 – Fair Value Measurements and Disclosure +The Company follows the guidance on fair value measurements codified as FASB ASC Topic 820, Fair Value Measurement (“Topic 820”). Fair value measurements are not adjusted for transaction costs. Topic 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. +Management uses its best judgment in estimating the fair value of the Company’s financial instruments, however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Company could have realized in sales transactions on the dates indicated. The estimated fair value amounts have been measured as of their respective +period-end +and have not been +re-evaluated +or updated for purposes of these consolidated financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each +period-end. +100 +Table of Contents +Note 15 – Fair Value Measurements and Disclosure (Continued) +The fair value measurement hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows: +Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. +Level 2: Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability. +Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported with little or no market activity). +An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. +For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at December 31, 2024 were as follows: +Description +(Level 1) +Quoted Price +in Active +Markets for +Identical +Assets +(Level 2) +Significant +Other +Observable +Inputs +(Level 3) +Significant +Unobservable +Inputs +Total Fair +Value +December 31, +2024 +(In thousands) +Mortgage-backed securities +-U.S. +government sponsored enterprise (GSEs) +$ +—  +$ +190,545 +$ +—   +$ +190,545 +U.S. government agency securities +—  +10,200 +—   +10,200 +Obligations of state and political subdivisions +—  +39,730 +—   +39,730 +Small Business Association (SBA) securities +—  +1,857 +—   +1,857 +U.S. treasury securities +4,839 +—   +—   +4,839 +Mortgage servicings rights +—   +1,060 +1,060 +Financial assets at fair value +$ +4,839 +$ +243,392 +$ +—   +$ +248,231 +For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at December 31, 2023 were as follows: +Description +(Level 1) +Quoted Price +in Active +Markets for +Identical +Assets +(Level 2) +Significant +Other +Observable +Inputs +(Level 3) +Significant +Unobservable +Inputs +Total Fair +Value +December 31, +2023 +(In thousands) +Mortgage-backed securities +-U.S. +government sponsored enterprise (GSEs) +$ +—  +$ +42,634 +$ +—   +$ +42,634 +U.S. government agency securities +5,291 +—   +5,291 +Obligations of state and political subdivisions +—  +40,809 +—   +40,809 +Small Business Association (SBA) securities +—  +2,618 +—   +2,618 +Mortgage servicings rights +—   +1,562 +1,562 +Financial assets at fair value +$ +—   +$ +92,914 +$ +—   +$ +92,914 +101 +Table of Contents +Note 15 – Fair Value Measurements and Disclosure (Continued) +For assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at December 31, 2024, were as follows: +Description +(Level 1) +Quoted Price +in Active +Markets for +Identical +Assets +(Level 2) +Significant +Other +Observable +Inputs +(Level 3) +Significant +Unobservable +Inputs +Total Fair +Value +December 31, +2024 +(In thousands) +Collateral dependent loan +$ +—   +$ +—   +$ +16,223 +$ +16,223 +Other real estate owned +1 +295 +295 +$ +—   +$ +—   +$ +16,518 +$ +16,518 +1 +The Bank charged off approximately $ 197,000 during the year ended December 31, 2024, prior to the property being transferred to other real estate owned. +For assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at December 31, 2023, were as follows: +Description +(Level 1) +Quoted +Price in +Active +Markets +for +Identical +Assets +(Level 2) +Significant +Other +Observable +Inputs +(Level 3) +Significant +Unobservable +Inputs +Total Fair +Value +December 31, +2023 +(In thousands) +Collateral dependent loan +$ +—   +$ +—   +$ +4,485 +$ +4,485 +$ +—   +$ +—   +$ +4,485 +$ +4,485 +The following table presents quantitative information with regards to Level 3 fair value measurements at December 31, 2024. +Description +December 31, +2024 +Valuation +Technique +Unobservable +Input +Range +(Weighted +Average) +(Dollars in thousands) +Collateral dependent loan +$ +16,223 +Collateral +1 +Discount +12.0 +% +adjustment +12.0 +% +Other real estate owned +2 +$ +295 +Collateral +1 +Discount +0.0 +% +adjustment +0.0 +% +1 +Fair value is generally determined through independent appraisal of the underlying collateral, primarily using comparable sales. +2 +The other real estate owned was written down to the estimated net realizable value. +The following table presents quantitative information with regards to Level 3 fair value measurements at December 31, 2023. +Description +December 31, +2023 +Valuation +Technique +Unobservable +Input +Range +(Weighted +Average) +(Dollars in thousands) +Discount +0.0 +% +Collateral dependent loan +$ +4,485 +Collateral +1 +adjustment +( 0.0 +%) +1 +Value based on third party offer to purchase note from the Bank. +10 +2 +Table of Contents +Note 15 – Fair Value Measurements and Disclosure (Continued) +There were no liabilities measured at fair value on a recurring or nonrecurring basis at December 31, 2024 or 2023. +The following methods and assumptions were used by the Company in estimating fair value disclosures: +Investment Securities +The fair value of securities +available-for-sale +(carried at fair value) and +held-to-maturity +(carried at amortized cost) are determined by obtaining quoted market prices on nationally recognized securities exchanges (Level 1), or matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices. Level 2 debt securities are valued by a third-party pricing service commonly used in the banking industry, and not adjusted by management. Level 2 fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. treasury yield curve, live trading levels, trade execution date, market consensus prepayment speeds, credit information and the security’s terms and conditions, among other things. +Individual evaluated loans (generally carried at fair value) +Individual loans carried at fair value are those loans in which the Company has measured for a reserve are generally based on the fair value of the related loan’s collateral. Fair value is generally determined based upon independent third-party appraisals of the properties, or discounted cash flows based upon the expected proceeds, discounted for estimated selling costs or other factors the Company determines will impact collection of proceeds. These assets are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements. +Loans Receivable, net +The fair value of loans receivable, net is based on discounted cash flow methodologies for which the determination of fair value may require significant management judgement. +Deposits +The fair value of demand deposits is considered to approximate fair value since they are due upon demand. The fair value of time deposits is based on discounted cash flow methodologies of observable market rate data. +Borrowings +Borrowings held by the Company that are overnight, the carrying value is deemed to be its approximate fair value. +Restricted investment in Company stock and accrued interest receivable and accrued interest payable +Fair value estimates are based on existing balance sheet financial instruments without attempting to estimate the value of anticipated future business. The fair value has not been estimated for assets and liabilities that are not considered financial instruments. +10 +3 +Table of Contents +Note 15 – Fair Value Measurements and Disclosure (Continued) +Mortgage Servicing Rights +The Company uses a third party to estimate the fair value of mortgage servicing rights and they are carried at fair value and included in other assets on the statement of financial condition. +The carrying amounts and estimated fair value of financial instruments are as follows: +December 31, 2024 +Carrying +Amount +Estimated +Fair Value +Level 1 +Level 2 +Level 3 +Financial Assets: +(In thousands) +Cash and cash equivalents +$ +117,348 +$ +117,348 +$ +117,348 +$ +—  +$ +—  +Securities +available-for-sale +at fair value +247,171 +247,171 +4,389 +242,782 +—  +Securities +held-to-maturity +161 +162 +—  +162 +—  +Loans receivable, net +1,795,218 +1,798,302 +—  +—  +1,798,302 +Restricted investments in bank stock +2,075 +2,075 +—  +2,075 +—  +Accrued interest receivable +7,975 +7,975 +—  +7,975 +—  +Equity method investments +11,160 +11,160 +—  +6,850 +4,310 +Mortgage servicing rights +1,060 +1,060 +—  +1,060 +—  +Financial Liabilities: +Deposits +$ +2,032,625 +1,934,884 +$ +—  +$ +1,934,884 +$ +—  +Accrued interest payable +15,401 +15,401 +—  +15,401 +—  +December 31, 2023 +Carrying +Amount +Estimated +Fair Value +Level 1 +Level 2 +Level 3 +Financial assets: +(In thousands) +Cash and cash equivalents +$ +150,557 +$ +150,557 +$ +150,557 +$ +—  +$ +—  +Securities +available-for-sale +at fair value +91,352 +91,352 +—  +91,352 +—  +Securities +held-to-maturity +193 +192 +—  +192 +—  +Loans receivable, net +1,529,843 +1,425,814 +—  +—  +1,425,814 +Restricted investments in bank stock +1,410 +1,410 +—  +1,410 +—  +Accrued interest receivable +6,089 +6,089 +—  +6,089 +—  +Equity method investments +8,296 +8,296 +—  +5,900 +2,396 +Mortgage servicing rights +1,562 +1,562 +—  +1,562 +—  +Financial liabilities: +Deposits +$ +1,635,741 +$ +1,581,762 +$ +—  +$ +1,581,762 +$ +—  +Accrued interest payable +9,162 +9,162 +—  +9,162 +—  +Limitations +The fair value estimates are made at a discrete point in time based on relevant market information and information about the financial instruments. Fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. +These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Further, the foregoing estimates may not reflect the actual amount that could be realized if all or substantially all of the financial instruments were offered for sale. This is due to the fact that no active market exists for a sizable portion of the loan, deposit and +off-balance +sheet instruments. +10 +4 +Table of Contents +Note 15 – Fair Value Measurements and Disclosure (Continued) +In addition, the fair value estimates are based on existing on and +off-balance +sheet financial instruments without attempting to value anticipated future business and the value of assets and liabilities that are not considered financial instruments. In addition, the tax ramifications related to the realization of unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of the estimates. +Finally, reasonable comparability between financial institutions may not be likely due to the wide range of permitted valuation techniques and numerous estimates which must be made given the absence of active secondary markets for many of the financial instruments. This lack of uniform valuation methodologies introduces a greater degree of subjectivity to these estimated fair values. +Note 16 – Stock-Based Compensation +In 2012, the Bank adopted The Bank of Princeton 2012 Equity Incentive Plan (the “2012 Plan”), which was approved by our board of directors in February 2012 and by our stockholders in May 2012. The 2012 Plan enabled the board of directors to grant stock options or restricted shares of common stock to employees, directors, consultants and other individuals who provide services to the Bank. The shares subject to or related to options under the 2012 Plan are authorized and unissued shares of the Bank. In 2013, the Bank’s board of directors and stockholders approved an amendment to the 2012 Plan that increased the maximum number of shares that may be subject to options under the 2012 Plan from 100,000 to 600,000 , all of which may be issued as Incentive Stock Options or as +Non-Qualified +Stock Options. Vesting periods range from immediate to four years from the date of grant. No incentive stock options may be granted under the 2012 Plan after April 30, 2023. +In 2014, the Bank adopted an amendment to each of the 2007 Plan and to the 2012 Plan, which amendments were approved by our Board of Directors, to provide that all outstanding options under the 2007 Plan and the 2012 Plan will become fully vested and exercisable upon a change in control of the Bank and to further specify the consideration that may be exchanged with respect to outstanding awards upon any such change in control. +In 2018, the Bank adopted The Bank of Princeton 2018 Equity Incentive Plan (the “2018 Plan”), which was approved by our board of directors in February 2018 and by our stockholders in May 2018. The 2018 Plan enabled the board of directors to grant stock options, restricted stock, or restricted stock units to employees, directors, consultants and other individuals who provide services to the Bank. At December 31, 2024 there were 215,025 shares remaining available for issuance under the 2018 Plan. +The expected life of stock options granted is generally derived from historical experience. Expected volatilities are general based on the average of three peers’ historical volatilities due to the limited liquidity of the Company’s stock in the Company market. The Company uses an estimated forfeiture rate due to limited historical data. At the time of the grant, the Company had not declared any cash dividend therefore no dividend yield was used. The risk-free rate for periods within the contractual term of the share option is based on the U.S. Treasury for a comparable term. +10 +5 +Table of Contents +Note 16 – Stock-Based Compensation (Continued) +The following is a summary of the status of the Company’s stock option activity and related information for the year ended December 31, 2024: +Number of +Stock +Options +Weighted +Average +Exercise Price +Weighted Avg. +Remaining +Contractual +Life +Aggregate +Intrinsic +Value +Balance at January 1, 2024 +279,750 +$ +22.83 +Granted +—   +—   +Exercised +( 51,800 +) +15.26 +Forfeited +—   +—   +Expired +—   +—   +Balance at December 31, 2024 +227,950 +$ +24.56 +1.63 Years +$ +2,250,316 +Exercisable at December 31, 2024 +227,950 +$ +24.56 +1.63 Years +$ +2,250,316 +The following is a summary of the status of the Bank’s stock option activity and related information for the year ended December 31, 2023: +Number of +Stock +Options +Weighted +Average +Exercise Price +Weighted Avg. +Remaining +Contractual +Life +Average +Intrinsic +Value +Balance at January 1, 2023 +330,650 +$ +21.45 +Granted +—   +—   +Exercised +( 50,900 +) +13.87 +Forfeited +—   +—   +Expired +—   +—   +Balance at December 31, 2023 +279,750 +$ +22.83 +2.25 Years +$ +3,654,453 +Exercisable at December 31, 2023 +279,750 +$ +22.83 +2.25 Years +$ +3,654,453 +The Company granted 31,858 restricted stock units (“RSU’s”) during 2024, with a fair value of $ 34.50 , which reflected the market value of the Company’s common stock on the date of the grant. Of the 31,858 RSU’s granted during 2024, 9,000 RSU’s have a vesting period of one year and the remaining 22,858 RSU’s vest over the next three years . At December 31, 2024, 53,859 RSU’s with a fair value of $ 33.40 granted to executive management have not vested. +The Company granted 30,661 restricted stock units (“RSU’s”) during 2023, with a fair value of $ 32.49 , which reflected the market value of the Company’s common stock on the date of the grant. Of the 30,661 RSU’s granted during 2023, 7,250 RSU’s have a vesting period of one year and the remaining 19,182 RSU’s vest over the next three years . At December 31, 2023, 48,887 RSU’s with a fair value of $ 30.64 granted to executive management have not vested. +Stock option expenses included in salaries and employee benefits expense in the consolidated statements of income were $ 706,000 and $ 575,000 (which consist of RSUs) for the years ended December 31, 2024 and 2023, respectively. A tax benefit was recognized of $ 198,000 and $ 161,000 for the years ended December 31, 2024 and 2023, respectively. Stock option expenses recorded within other expenses were $ 306,000 for the year ended December 31, 2024. Stock option expenses recorded within other expenses were $ 231,000 for the year ended December 31, 2023. A tax benefit was recognized of $ 64,000 for the year ended December 31, 2023. At December 31, 2024, there was approximately $ 1.8 million of unrecognized expenses related to outstanding stock options and RSU’s, which will be recognized over a period of approximately 1.67 years. +10 +6 +Table of Contents +Note 17 – Regulatory Matters +Regulatory Capital +Current FDIC capital standards require institutions to satisfy a common equity Tier 1 capital requirement, a leverage capital requirement and a risk-based capital requirement. The common equity Tier 1 capital component generally consists of retained earnings and common stock instruments and must equal at least 4.5 % of risk-weighted assets. Leverage capital, also known as “core” capital, must equal at least 3.0 % of adjusted total assets for the most highly rated state-chartered +non-member +banks. Core capital generally consists of common stockholders’ equity (including retained earnings). An additional cushion of at least 100 basis points is required for all other banking associations, which effectively increases their minimum Tier 1 leverage ratio to 4.0 % or more. Under the FDIC’s regulations, the most highly-rated banks are those that the FDIC determines are strong banking organizations and are rated composite 1 under the Uniform Financial Institutions Rating System. Under the risk-based capital requirements, Tier 1 Capital to risk-weighted assets ratio must equal at least 6.0 % (and 8.0 % for the Bank to be considered “well capitalized”) and total capital to risk-weighted assets ratio must equal at least 8.0 % ( 10.0 % to be considered “well capitalized”). The FDIC also is authorized to impose capital requirements in excess of these standards on individual institutions on a +case-by-case +basis. +The final capital rules introduced a requirement for a common equity Tier 1 capital conservation buffer of 2.5 % of risk-weighted assets which is in addition to the other minimum risk-based capital standards in the rule. Institutions that do not maintain this required capital buffer will become subject to progressively more stringent limitations on the percentage of earnings that can be paid out in dividends or used for stock repurchases and on the payment of discretionary bonuses to senior executive management. At December 31, 2024, the Bank met all capital adequacy requirements on a fully +phased-in +basis. +Any banking organization that fails any of the capital requirements is subject to possible enforcement action by the FDIC. Such action could include a capital directive, a +cease-and-desist +order, civil money penalties, the establishment of restrictions on the institution’s operations, termination of federal deposit insurance and the appointment of a conservator or receiver. The FDIC’s capital regulations provide that such actions, through enforcement proceedings or otherwise, could require one or more of a variety of corrective actions. +The Bank’s actual capital amounts and ratios at December 31, 2024 and 2023 are presented below: +Actual +For capital conservation +buffer requirement +To be well capitalized +under prompt corrective +action provision +Amount +Ratio +Amount   +Ratio   +Amount   +Ratio   +(Dollars in thousands) +December 31, 2024: +Total capital (to risk-weighted assets) +$ +270,633 +13.490 +% +$ +210,648 +10.500 +% +$ +200,617 +10.000 +% +Tier 1 capital (to risk-weighted assets) +$ +246,976 +12.311 +% +$ +170,524 +8.500 +% +$ +160,493 +8.000 +% +Common equity tier 1 capital (to risk-weighted assets) +$ +246,976 +12.311 +% +$ +140,432 +7.000 +% +$ +130,401 +6.500 +% +Tier 1 leverage capital (to average assets) +$ +246,976 +10.577 +% +$ +151,776 +6.500 +% +$ +116,750 +5.000 +% +December 31, 2023: +Total capital (to risk-weighted assets) +$ +254,030 +14.677 +% +$ +181,740 +10.500 +% +$ +173,086 +10.000 +% +Tier 1 capital (to risk-weighted assets) +$ +235,538 +13.608 +% +$ +147,123 +8.500 +% +$ +138,469 +8.000 +% +Common equity tier 1 capital (to risk-weighted assets) +$ +235,538 +13.608 +% +$ +121,160 +7.000 +% +$ +112,506 +6.500 +% +Tier 1 leverage capital (to average assets) +$ +235,538 +12.289 +% +$ +124,583 +6.500 +% +$ +95,833 +5.000 +% +The payment of dividends to shareholders of the Company is dependent on the Bank paying dividends to the Company. The Bank may pay dividends as declared from time to time by the Board of Directors out of funds legally available, subject to certain restrictions. Under the New Jersey Banking Act of 1948, as +10 +7 +Table of Contents +Note 17 – Regulatory Matters (Continued) +amended, the Bank may not pay a cash dividend unless, following the payment, the Bank’s capital stock will be unimpaired and the Bank will have a surplus of no less than 50.0 percent of the Bank’s capital stock or, if not, the payment of the dividend will not reduce the surplus. In addition, the Bank cannot pay dividends in amounts that would reduce the Bank’s capital below regulatory imposed minimums. +Under Pennsylvania law, the Company may not pay a dividend, if, after giving effect thereto, it would be unable to pay its debts as they become due in the usual course of business and, after giving effect to the dividend, the total assets of the Company would be less than the sum of its total liabilities plus the amount that would be needed, if the Company were to be dissolved at the time of distribution, to satisfy the preferential rights upon dissolution of shareholders whose rights are superior to those receiving the dividend. +It is also the policy of the Federal Reserve that a bank holding company generally may only pay dividends on common stock out of net income available to common shareholders over the past twelve months and only if the prospective rate of earnings retention appears consistent with a bank holding company’s capital needs, asset quality, and overall financial condition. A bank holding company also should not maintain a dividend level that places undue pressure on the capital of such institution’s subsidiaries, or that may undermine the bank holding company’s ability to serve as a source of strength for such subsidiaries. +The Company declared and paid cash dividends of $0.30 per share in each quarter for the year ended December 31, 2024. +Note 18 – Subsequent Events +On January 22, 2025, the Board of Directors declared a cash dividend of $ 0.30 per share of common stock. The dividend was paid on February 28, 2025 to shareholders of record at the close of business on February 5, 2025 . +10 +8 +Table of Contents +Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure +None. +Item 9A. Controls and Procedures +Management’s Annual Report on Internal Control Over Financial Reporting +Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in +Rules 13a-15(f) and +15d-15(f) of +the Exchange Act. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with accounting principles generally accepted in the United States, which is commonly referred to as GAAP. The effectiveness of any system of internal control over financial reporting is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating and evaluating the Company’s internal control over financial reporting. Because of these inherent limitations, internal control over financial reporting cannot provide absolute assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP and may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that our internal control over financial reporting may become inadequate because of changes in conditions or other factors, or that the degree of compliance with the policies or procedures may deteriorate. +Management, with the participation of the Bank’s President and Chief Financial Officer, evaluated the effectiveness of the Bank’s internal control over financial reporting as of December 31, 2024 using the criteria in “Internal Control—Integrated Framework (2013)” issued by COSO 2013. Based on this assessment, management determined that, as of December 31, 2024, the Bank’s internal control over financial reporting was effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. +Disclosure Controls and Procedures +Management, with the participation of the Bank’s President and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Bank’s disclosure controls and procedures (as defined in +Rule l3a-l5(e) +promulgated under the Exchange Act) as of December 31, 2024. Based on this evaluation, the Bank’s President and Chief Financial Officer have concluded that the Bank’s disclosure controls and procedures are effective as of December 31, 2024 to ensure that the information required to be disclosed by the Bank in the reports that the Bank filed or submitted, or the Company files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. +Changes in Internal Control Over Financial Reporting +There was no change in the Company’s internal control over financial reporting identified during the year ended December 31, 2024 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. +Item 9B. Other Information +None . +Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +Not applicable +10 +9 +Table of Contents +PART III +Item 10. Directors, Executive Officers and Corporate Governance +The information required by this Item is set forth under the headings, “MATTER NO. 1 ELECTION OF DIRECTORS,” “EXECUTIVE OFFICERS AND COMPENSATION – Executive Officers,” “DELINQUENT SECTION 16(a) REPORTS,” “CODE OF CONDUCT,” “BOARD OF DIRECTORS AND COMMITTEES – Board of Directors’ Committees – Audit Committee” in the Company’s definitive proxy statement to be filed with the SEC not later than 120 days after December 31, 2024 in connection with the solicitation of proxies for its 2025 Annual Meeting of Shareholders and incorporated by reference. +The Company has an insider trading policy governing the purchase, sale, and other disposition of the Company’s securities by directors, officers and employees, that the Company believes is reasonably designed to promote compliance with insider trading laws, rules and regulations, and the Nasdaq listing standards. +Item 11. Executive Compensation +The information required by this Item is set forth under the headings, “EXECUTIVE OFFICERS AND COMPENSATION – Executive Compensation,” “– Employment and Other Agreements,” and “– Equity Incentive Plans,” “– Management Incentive Plan,” “– Employee Stock Ownership Plan,” “– 401(k) Plan,” “– PAY VERSUS PERFORMANCE,” “EQUITY COMPENSATION PLAN INFORMATION – Outstanding Stock Option and Other Equity Awards at Fiscal Year End,” and “2024 Compensation of Directors” in the Company’s definitive proxy statement to be filed with the SEC not later than 120 days after December 31, 2024 in connection with its 2025 Annual Meeting of Shareholders and incorporated by reference. +Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +The information required by this Item is set forth under the headings, “EQUITY COMPENSATION PLAN INFORMATION,” and “SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT”, in the Company’s definitive proxy statement to be filed with the SEC not later than 120 days after December 31, 2024 in connection with its 2025 Annual Meeting of Shareholders and incorporated by reference. +Item 13. Certain Relationships and Related Transactions, and Director Independence +The information required by this Item is set forth under the headings, “CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,” and “BOARD OF DIRECTORS AND COMMITTEES – Director Independence,” in the Company’s definitive proxy statement to be filed with the SEC not later than 120 days after December 31, 2024 in connection with its 2025 Annual Meeting of Shareholders and incorporated by reference. +Item 14. Principal Accounting Fees and Services +The information required by this Item is set forth under the heading, “MATTER NO. 4 - RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS,” in the Company’s definitive proxy statement to be filed with the SEC not later than 120 days after December 31, 2024 in connection with its 2025 Annual Meeting of Shareholders and incorporated by reference. +Our independent registered public accounting firm is Wolf and Company, P.C. Boston, Massachusetts, Auditor Firm ID: 392. +1 +10 +Table of Contents +PART IV +Item 15. Exhibits, Financial Statement Schedules +(a) +The following portions of the Bank’s consolidated financial statements are set forth in Item 8 - “Financial Statements of Supplementary Data” of this Annual Report: +i. +Consolidated Statements of Financial Condition as of December 31, 2024 and 2023 +ii. +Consolidated Statements of Income for the years ended December 31, 2024 and 2023 +iii. +Consolidated Statements of Comprehensive Income for the years ended December 31, 2024 and 2023 +iv. +Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2024 and 2023 +v. +Consolidated Statements of Cash Flows for the years ended December 31, 2024 and 2023 +vi. +Notes to Consolidated Financial Statements +(b) +Financial Statement Schedules +All financial statement schedules are omitted as the information, if applicable, is presented in the consolidated financial statements or notes thereto. +(c) +Exhibits +Exhibit +No. +Description +3.1 +(A) +Articles of Incorporation. +3.2 +(B) +Bylaws +4.1 +(C) +Specimen form of stock certificate. +4.2 +(D) +Description of Capital Stock +10.1 +(E) +The Bank of Princeton Amended and Restated 2007 Stock Option Plan* +10.2 +(F) +The Bank of Princeton Amended and Restated 2012 Equity Incentive Plan* +10.3 +(G) +MoreBank 2004 Incentive Equity Compensation Plan* +10.4 +(H) +Princeton Bancorp, Inc. Amended and Restated Equity 2018 Equity Incentive Plan, as amended +10.5 +(I) +Amended and Restated Employment Agreement between the Company and the Bank and Edward J. Dietzler dated as of June 21, 2023* +10.6 +(J) +Amended and Restated Employment Agreement between the Company and the Bank and Daniel J. O’Donnell dated as of June 21, 2023* +10.7 +(K) +Amended and Restated Employment Agreement between the Company and the Bank and George S. Rapp dated as of June 21, 2023* +111 +Table of Contents +Exhibit +No. +Description +10.8 +(L) +Employment Agreement between the Bank and Stephanie Adkins dated January 25, 2019* +10.9 +(M) +Employment Agreement between the Bank and Christopher Tonkovich dated February 25, 2019* +10.10 +(N) +The Bank of Princeton 2018 Director Fee Plan* +10.11 +(O) +2020 Management Incentive Plan* +10.12 +(P) +Dividend Reinvestment and Stock Purchase Plan* +10.13 +(Q) +Supplemental Executive Retirement Plan dated July 30, 2021 for the benefit of Edward J. Dietzler and Daniel J. O’Donnell* +10.14 +(R) +The Bank of Princeton Non-Employee Directors Deferred Compensation Plan* +21.1 +Subsidiaries of the Registrant +23.1 +Consent of Independent Registered Public Accounting Firm +31.1 +Rule 13a-14(a) Certification of the Principal Executive Officer +31.2 +Rule 13a-14(a) Certification of the Principal Financial Officer +32.1 +Section 1350 Certifications +101.INS +Inline XBRL Instance Document. +101.SCH +Inline XBRL Taxonomy Extension Schema Document. +101.CAL +Inline XBRL Taxonomy Extension Calculation Linkbase Document. +101.DEF +Inline XBRL Taxonomy Extension Definition Linkbase Document. +101.LAB +Inline XBRL Taxonomy Extension Label Linkbase Document. +101.PRE +Inline XBRL Taxonomy Extension Presentation Linkbase Document. +104 +Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). +* +Management contract or compensatory plan, contract or arrangement. +Management contract or compensatory plan, contract or arrangement. +(A) +Incorporated by reference to Exhibit 3.1 to registrant’s Quarterly Report on Form 10-Q for the Quarter Ended June 30, 2024 filed with the SEC on August 12, 2024. +(B) +Incorporated by reference to Exhibit 3.1(ii) to registrant’s Registration Statement No. 333-263313 of Form S-4EF filed with the SEC on March 4, 2022. +(C) +Incorporated by reference to Exhibit 4.1 to registrant’s Registration Statement No. 333-263313 of Form S-4EF filed with the SEC on March 4, 2022 +(D) +Incorporated by reference to Exhibit 4.1 to registrant’s Current Report on Form 8-K12B, filed with the SEC on January 10, 2023. +(E) +Incorporated by reference to Exhibit 10.1 to registrant’s Registration Statement No. 333-263313 of Form S-4EF filed with the SEC on March 4, 2022. +(F) +Incorporated by reference to Exhibit 10.2 to registrant’s Registration Statement No. 333-263313 of Form S-4EF filed with the SEC on March 4, 2022. +(G) +Incorporated by reference to Exhibit 10.3 to registrant’s Registration Statement No. 333-263313 of Form S-4EF filed with the SEC on March 4, 2022. +(H) +Incorporated by reference to Exhibit 10.4 to registrant’s Registration Statement No. 333-263313 of Form S-4EF filed with the SEC on March 4, 2022. +(I) +Incorporated by reference to Exhibit 10.5 to registrant’s Registration Statement No. 333-263313 of Form S-4EF filed with the SEC on March 4, 2022. +(J) +Incorporated by reference to Exhibit 10.1 to registrant’s Quarterly Report on Form 10-Q, filed with the SEC on August 14, 2023. +112 +Table of Contents +(K) +Incorporated by reference to Exhibit 10.2 to registrant’s Quarterly Report on Form 10-Q, filed with the SEC on August 14, 2023. +(L) +Incorporated by reference to Exhibit 10.3 to registrant’s Quarterly Report on Form 10-Q, filed with the SEC on August 14, 2023. +(M) +Incorporated by reference to Exhibit 10.10 to registrant’s Registration Statement No. 333-263313 of Form S-4EF filed with the SEC on March 4, 2022. +(N) +Incorporated by reference to Exhibit 10.11 to registrant’s Registration Statement No. 333-263313 of Form S-4EF filed with the SEC on March 4, 2022. +(O) +Incorporated by reference to Exhibit 10.12 to registrant’s Registration Statement No. 333-263313 of Form S-4EF filed with the SEC on March 4, 2022. +(P) +Incorporated by reference to Exhibit 10.13 to registrant’s Registration Statement No. 333-263313 of Form S-4EF filed with the SEC on March 4, 2022. +(Q) +Incorporated by reference to Exhibit 10.14 to registrant’s Registration Statement No. 333-263313 of Form S-4EF filed with the SEC on March 4, 2022. +(R) +Incorporated by reference to Exhibit 10.15 to registrant’s Registration Statement No. 333-263313 of Form S-4EF filed with the SEC on March 4, 2022 +(S) +Incorporated by reference to Exhibit 10.1 to registrant’s Quarterly Report on Form 10-Q, filed with the SEC on May 11, 2023 +(T) +Incorporated by reference to Exhibit 10.4 to registrant’s Quarterly Report on Form 10-Q, filed with the SEC on August 14, 2023 +Item 16. Form 10-K Summary +None. +113 +Table of Contents +SIGNATURES +Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized as of March 14, 2025. +Princeton Bancorp, Inc. +/s/ Edward Dietzler +By: +Edward Dietzler +President and Chief Executive Officer +(Principal Executive Officer) +114 +Table of Contents +Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. +Signature +Capacity +Date +/s/ Richard Gillespie +Richard Gillespie +Chairman of the Board +March 14, 2025 +/s/ Stephen Distler +Stephen Distler +Vice Chairman of the Board +March 14, 2025 +/s/ Stephen Shueh +Stephen Shueh +Director +March 14, 2025 +/s/ Susan Barrett +Susan Barrett +Director +March 14, 2025 +/s/ Robert N. Ridolfi +Robert N. Ridolfi, Esq +Director +March 14, 2025 +/s/ Judith A. Giacin +Judith A. Giacin +Director +March 14, 2025 +/s/ Martin Tuchman +Martin Tuchman +Director +March 14, 2025 +/s/ Ross Wishnick +Ross Wishnick +Director, Vice Chairman +March 14, 2025 +/s/ Edward Dietzler +Edward Dietzler +President, Chief Executive Officer, Director (Principal Executive Officer) +March 14, 2025 +/s/ George S. Rapp +George S. Rapp +Executive Vice President, Chief Financial Officer (Principal Financial Officer) +March 14, 2025 +/s/ Jeffrey T. Hanuscin +Jeffrey T. Hanuscin +Senior Vice President, Treasurer and Chief Accounting Officer (Principal Accounting Officer) +March 14, 2025 +115 \ No newline at end of file diff --git a/raw/filings/0001913971/2024/0001193125-25-054907/filing_metadata.csv b/raw/filings/0001913971/2024/0001193125-25-054907/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..7d94200287df741d7c48e1312443ce7f3c438ad7 --- /dev/null +++ b/raw/filings/0001913971/2024/0001193125-25-054907/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001913971,BPRN,"Princeton Bancorp, Inc.",2024,10-K,2025-03-14,2024-12-31,2025-03-14T21:27:36.000Z,0001193125-25-054907,d885370d10k.htm,FORM 10-K,14631338,1,1,https://www.sec.gov/Archives/edgar/data/1913971/000119312525054907/d885370d10k.htm,https://www.sec.gov/Archives/edgar/data/1913971/000119312525054907/ diff --git a/raw/filings/0001913971/2024/0001193125-25-054907/item1.txt b/raw/filings/0001913971/2024/0001193125-25-054907/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..0155acd1ad5f6bb48641334fbff7980c08980d83 --- /dev/null +++ b/raw/filings/0001913971/2024/0001193125-25-054907/item1.txt @@ -0,0 +1,785 @@ +Item 1. Business +General +Princeton Bancorp, Inc. is a Pennsylvania corporation formed in 2022 to be the holding company for The Bank of Princeton (the “Bank”). The Bank was incorporated on March 5, 2007 under the laws of the State of New Jersey and is a New Jersey state-chartered banking institution. The Bank was granted its bank charter on April 17, 2007, commenced operations on April 23, 2007 and is a full-service bank providing personal and business lending and deposit services. As a state-chartered bank, the Bank is subject to regulation by the New Jersey Department of Banking and Insurance and the FDIC. The area served by the Bank, through its 33 branches, is generally an area within an approximate 50-mile radius of Princeton, NJ, including parts of Burlington, Camden, Gloucester, Hunterdon, Mercer, Middlesex, Ocean, and Somerset Counties in New Jersey, and additional areas in portions of Philadelphia, Montgomery and Bucks Counties in Pennsylvania. The Bank also has two retail branches and conducts loan origination activities in select areas of the New York City metropolitan area. +The Bank offers traditional retail banking services, one-to-four-family residential mortgage loans, multi-family and commercial mortgage loans, construction loans, commercial business loans and consumer loans, including home equity loans and lines of credit. +From 2007 until January 2023, the Bank was a stand-alone bank. On January 10, 2023, the Bank caused the Company to acquire all the outstanding stock of the Bank in a corporate reorganization. As a result, the Bank became the sole direct subsidiary of the Company, the Company became the holding company for the Bank and the stockholders of the Bank became stockholders of the Company. As of December 31, 2024, the Company had 249 total employees and 247 full-time equivalent employees. +On May 19, 2023, the Company completed the acquisition of Noah Bank, a Pennsylvania chartered state bank headquartered in Elkins Park, Pennsylvania that primarily served the Philadelphia, North New Jersey and New York City markets. On that date the Company acquired 100% of the outstanding common stock, for cash, of Noah Bank and Noah Bank was merged with and into the Bank. +On August 23, 2024, the Company completed the acquisition of Cornerstone Financial Corporation (“CFC”), the holding company for Cornerstone Bank, a New Jersey chartered state bank headquartered in Mt. Laurel, New Jersey that primarily served the southern New Jersey market. The Company acquired 100% of the outstanding common stock of CFC in exchange for the Company’s stock, CFC was merged into the Company, and Cornerstone Bank was merged with and into the Bank. +Our headquarters and one of our branches are located at 183 Bayard Lane, Princeton, New Jersey 08540. Our telephone number is (609) 921-1700 and our website address is www.thebankofprinceton.com. +The Company has elected to prepare this Annual Report on Form 10- K and other annual and periodic reports as a “smaller reporting company” consistent with the rules of the SEC. +Competition +We have substantial competition in originating commercial and consumer loans in our market area. This competition comes principally from other banks, savings institutions, mortgage banking companies and other +5 +Table of Contents +lenders. Many of our competitors enjoy advantages over us, including greater financial resources and higher lending limits, more aggressive marketing campaigns, better brand recognition, a wider geographic presence, more accessible branch office locations, the ability to offer a wider array of services or more favorable pricing alternatives, as well as lower origination and operating costs. Among other things, this competition could reduce our interest income and net income by decreasing the number and size of loans that we originate and the interest rates we may charge on these loans. We compete for loans primarily on the basis of value and service by building customer relationships through addressing our customers’ entire suite of banking needs, demonstrating expertise, and providing convenience. We also consider the competitive pricing levels in each of our markets. +In attracting business and consumer deposits, we face substantial competition from other insured depository institutions such as banks, savings institutions and credit unions, as well as institutions offering uninsured investment alternatives, including money market funds. These competitors may offer higher interest rates on deposits, which could decrease the deposits that we attract, or require us to increase the rates we pay to retain existing deposits or attract new deposits. Deposit competition could adversely affect our net interest income and net income, and our ability to generate the funds we require for our lending or other operations. As a result, we may need to seek other sources of funds that may be more expensive to obtain and could increase our cost of funds. We compete for deposits similarly on the basis of value and service and by providing convenience through a banking network of branches and ATMs within our markets and our website at https://thebankofprinceton.com. +FinTechs continue to emerge in key areas of banking. In addition, larger established technology platform companies continue to evaluate, and in some cases, create businesses focused on banking products. We closely monitor activity in the marketplace to ensure that our products and services are technologically competitive. Our overall strategy involves seeking to identify partnership and possible investment opportunities in technology-driven companies that can augment our distribution and product capabilities. +Lending Activities +Our loan portfolio consists of variable-rate and fixed-rate loans with a significant concentration in commercial real estate lending. While most loans and other credit facilities are appropriately collateralized, major emphasis is placed upon the financial condition of the borrower and the borrower’s cash flow versus debt service requirements. +Loan growth is driven by customer demand, which in turn is influenced by individual and business indebtedness and consumer demand for goods. Loaning money will always entail some risk. Without loaning money, however, a bank cannot generate enough net interest income to be profitable. The risk involved in each loan must be carefully evaluated before the loan is made. The interest rate at which the loan is made should always reflect the risk factors involved, including the term of the loan, the value of collateral, if any, the reliability of the projected source of repayment, and the amount of the loan requested. Credit quality and repayment capacity are generally the most important factors in evaluating loan applications. +The majority of our loans are to borrowers in our immediate markets. We believe that no single borrower or group of borrowers presents a credit concentration whereby the borrowers’ loan default would have a material adverse effect on our financial condition or results of operations. +Commercial Real Estate and Multi-family. At December 31, 2024, commercial real estate and multi-family loans amounted in the aggregate to $1.39 billion, or 76.1% of the total loans receivable. Our commercial real estate portfolio has increased $242.2 million or 21.1% since December 31, 2023, when commercial real estate and multi-family loans amounted to $1.14 billion, or 73.8%, of our total portfolio. +The commercial real estate and multi-family loan portfolio consists primarily of loans secured by small office buildings, strip shopping centers, small apartment buildings and other properties used for commercial and multi-family purposes located in the Company’s market area. At December 31, 2024, the average commercial and multi-family real estate loan size was approximately $1.8 million. +6 +Table of Contents +Although terms for commercial real estate and multi-family loans vary, our underwriting standards generally allow for terms up to 7 years with loan-to-value ratios of not more than 75%. Most of the loans are structured with balloon payments of 5 years or less and amortization periods of up to 25 years. Interest rates are either fixed or adjustable, based upon designated market indices such as the Wall Street Journal prime rate plus a margin. +Commercial real estate and multi-family real estate lending involves different risks from single-family residential lending. These risks include larger loans to individual borrowers and loan payments that are dependent upon the successful operations of the project or the borrower’s business. These risks can be affected by supply and demand conditions in the project’s market area of rental housing units, office and retail space and other commercial space. We attempt to minimize these risks by limiting loans to proven businesses, only considering properties with existing operating performance which can be analyzed, using conservative debt coverage ratios in our underwriting, and periodically monitoring the operation of the business or project and the physical condition of the property. +Various aspects of commercial and multi-family loan transactions are evaluated in an effort to mitigate the additional risk in these types of loans. In our underwriting procedures, consideration is given to the stability of the property’s cash flow history, future operating projections, current and projected occupancy levels, location and physical condition. Generally, we impose a debt service ratio (the ratio of net cash flows from operations to debt service) of not less than 1.25 X. We also evaluate the credit and financial condition of the borrower, and if applicable, the guarantor. With respect to loan participation interests we purchase; we underwrite the loans as if we were the originating lender. Appraisal reports prepared by independent appraisers are reviewed by an outside third party prior to closing. +Set forth below is a brief description of our three largest commercial real estate or multi-family loans: +- +The largest commercial real estate loan is a $31 million loan (split between 2 loans $29 million and $2 million). The proceeds were used to refinance an existing loan, with cash out being escrowed and released in the future upon meeting certain requirements. The property is an eight-story mixed use property located in Brooklyn, NY with 69 residential units and one commercial unit with a LTV of 70%. The borrower is paying in accordance with the loan terms as of December 31, 2024. +- +The second largest commercial real estate loan is a $22.7 million loan. The proceeds were used to refinance an existing loan with cash out for future real estate investments. The property is an industrial warehouse located in East Windsor, NJ with a LTV of 55%. The borrower is paying in accordance with the loan terms as of December 31, 2024. +- +The third largest commercial real estate loan is a $20.7 million loan. The proceeds were used to refinance an existing loan. The property is an eight-story mixed use property located in Queens, NY with 49 residential units and two commercial units with a LTV of 56%. The borrower is paying in accordance with the loan terms as of December 31, 2024. +Commercial and Industrial Loans. At December 31, 2024, commercial and industrial loans amounted in the aggregate to $93.0 million, or 5.1%, of the total loan portfolio . Our commercial and industrial portfolio has increased $42.0 million, or 82.2%, since December 31, 2023, when commercial and industrial loans amounted to $51.0 million, or 3.3%, of our total loan portfolio. +Commercial business loans are made to small to mid-sized businesses in our market area primarily to provide working capital. Small business loans may have adjustable or fixed rates of interest and generally have terms of three years or less but may be as long as 15 years. Our commercial business loans have historically been underwritten based on the creditworthiness of the borrower and generally require a debt service coverage ratio of at least 1.25 X. In addition, we generally obtain personal guarantees from the principals of the borrower with respect to commercial business loans and frequently obtain real estate as additional collateral. +7 +Table of Contents +Set forth below is a brief description of our three largest commercial and industrial loans: +- +The largest commercial and industrial loan is a $9.4 million loan. The proceeds were used for business purposes and completion of capital improvements. The collateral is a lien on all business assets. The borrower is paying in accordance with the loan terms as of December 31, 2024. +- +The second largest commercial and industrial loan is a $9.4 million loan. The proceeds were used as a fully drawn business line of credit for general purposes. The loan is secured by real estate and cash collateral. The borrower is paying in accordance with the loan terms as of December 31, 2024. +- +The third largest commercial and industrial loan is a $7.6 million loan. The proceeds were used for working capital for future business opportunities. The loan is unsecured. The borrower is paying in accordance with the loan terms as of December 31, 2024. +Construction Loans. We originate various types of commercial loans, including construction loans, secured by collateral such as real estate, business assets and personal guarantees. The loans are solicited on a direct basis and through various professionals with whom we maintain contact and by referral from our directors, stockholders and customers. At December 31, 2024, our construction loans amounted to $257.2 million, or 14.1% of our total loans receivable. The average size of a construction loan was approximately $5.0 million at December 31, 2024. Our construction loans portfolio has decreased $53.0 million or 17.1% since December 31, 2023, when construction loans amounted to $310.2 million, or 20.0% of our total loans receivable. Construction lending represents a segment of our loan portfolio and is driven primarily by market conditions. Loans to finance construction of condominium projects or single-family homes and subdivisions are generally offered to experienced builders in our primary market area with whom we have an established relationship. The maximum loan-to-value limit applicable to these loans is 75% of the appraised post construction value and does not require amortization of the principal during the term of the loan. We often establish interest reserves and obtain personal and corporate guarantees as additional security on the construction loans. Interest reserves are used to pay monthly payments during the construction phases of the loan and are treated as an addition to the loan balance. Interest reserves pose an additional risk to the Bank if it does not become aware of deterioration in the borrower’s financial condition before the interest reserve is fully utilized. In order to mitigate risk, financial statements and tax returns are obtained from borrowers on an annual basis. Construction loan proceeds are disbursed periodically in increments as construction progresses and as inspection by approved appraisers or loan inspectors warrants. Construction loans are negotiated on an individual basis but typically have floating rates of interest based on a common index plus a stipulated margin. Additional fees may be charged as funds are disbursed. As units are completed and sold, we require that payments to reduce principal outstanding be made prior to them being released. We may permit a pre-determined limited number of model homes to be constructed on an unsold or “speculative” basis. Construction loans also include loans to acquire land and loans to develop the basic infrastructure, such as roads and sewers. The majority of the construction loans are secured by properties located in our primary areas. +Set forth below is a brief description of our three largest construction loans or loan relationships: +- +The largest construction loan is a $32.5 million participation loan. The Bank’s share is 76.9% of the total loan amount. The proceeds are being used to construct a 9-story residential building consisting of 89 residential units in Brooklyn, NY. The project is approximately 88% complete. The borrower is paying in accordance with the loan terms as of December 31, 2024. +- +The second largest construction loan is a $21.7 million loan to purchase and renovate a mixed-use property consisting of residential units and retail space in Newark NJ. The project is approximately 97% complete. The borrower is paying in accordance with the loan terms as of December 31, 2024. +- +The third largest construction loan is a $25.0 million loan to purchase land for future construction of a mixed-use property consisting of residential units and commercial/retail office space in Jersey City, NJ. The borrower is paying in accordance with the loan terms as of December 31, 2024. +8 +Table of Contents +Residential First-Lien Mortgage Loans. We offer a narrow range of prime residential first-lien mortgage loans at competitive rates. Our customers, stockholders and local real estate brokers are a significant source of these loans. We strive to process, approve and fund loans in a timeframe that meets the needs of our borrowers. Generally, we originate and retain non-conforming residential first-lien mortgage loans and refer conforming residential first-lien mortgage loans to a third party, whereby we may earn a fee. At December 31, 2024, our residential first-lien loans amounted to $68.0 million, or 3.7%, of our total portfolio. Our residential first-lien loan portfolio has increased $30.0 million, or 78.8%, since December 31, 2023, when residential first-lien loans amounted to $38.0 million, or 2.5%, of our total loan portfolio. This substantial increase was due to our acquisition of CFC in August 2024. +Home Equity Loans and Consumer Loans. We generate these loans and lines of credit primarily through direct marketing at our branch locations, referrals from local real estate brokers and, to a lesser extent, by targeted direct marketing programs such as mail and electronic mail. Consumer loans are solicited on a direct basis and upon referrals from our directors, stockholders and existing customers. +Loans Receivable, Net. Loans receivable, net increased from $1.55 billion at December 31, 2023, to $1.82 billion at December 31, 2024, an increase of $270.5 million, or 17.5%. The increase was attributable to an increase in commercial real estate loans of $242.2 million, an increase in commercial and industrial loans of $42.0 million and an increase in residential first-lien mortgage loans of $30.0, partially offset by a decrease of $53.0 million in construction loans. The acquisition of CFC in August 2024 resulted in an increase of $255.5 to the loan portfolio. +The following table details our loan maturities by loan segment and interest rate type: +December 31, 2024 +Due in one year +or less +Due after one +through five +years +Due after five +years through +fifteen years +Due after fifteen +years +Total +(Dollars in thousands) +Commercial real estate +$ +75,425 +$ +475,306 +$ +467,819 +$ +366,535 +$ +1,385,085 +Commercial and industrial +34,261 +19,976 +30,519 +8,101 +92,857 +Construction +208,382 +48,787 +—  +—  +257,169 +Residential first-lien mortgage +—  +16 +9,337 +58,677 +68,030 +Home equity/consumer +1 +375 +3,490 +14,267 +18,133 +Total loans +$ +318,069 +$ +544,460 +$ +511,165 +$ +447,580 +$ +1,821,274 +Amount due after one year +Fixed Rate +Variable Rate +(Dollars in thousands) +Commercial real estate +$ +394,551 +$ +915,109 +Commercial and industrial +33,493 +25,103 +Construction +—  +48,787 +Residential first-lien mortgage +40,380 +27,650 +Home equity/consumer +3,224 +14,908 +Total loans +$ +471,648 +$ +1,031,557 +The accrual of interest is discontinued when the contractual payment of principal or interest is 90 days past due or management has serious doubts about further collectability of the principal or interest, even if the loan is currently performing. +9 +Table of Contents +The following table sets forth certain information regarding our nonaccrual loans, accruing loans 90 days or more past-due, and other real estate owned.  +December 31, +2024 +2023 +(Dollars in thousands) +Commercial real estate +$ +26,101 +$ +4,485 +Commercial and industrial +627 +2,116 +Construction +—  +—  +Residential first-lien mortgage +113 +107 +Home equity/consumer +—  +—  +Total nonaccrual loans +26,841 +6,708 +Accruing loans 90 days or more past due +—  +—  +Total nonperforming loans +26,841 +6,708 +Other real estate owned +295 +—  +Total nonperforming assets +$ +27,136 +$ +6,708 +See Note 5 - “Loans Receivable” in the Notes to Consolidated Financial Statements within this Form 10-K for additional information regarding our loans not classified as nonperforming assets as of December 31, 2024 and for other information on our loan ratings of special mention, substandard and doubtful, all of which contain varying degrees of potential credit problems that could result in the loans being classified as nonaccrual, past-due 90 or more days or modifications to borrowers with financial difficulty in a future period. +Analysis of Allowance for Credit Losses. On January 1, 2023, the Company adopted Accounting Standard Update (“ASU”) 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“CECL” or “ASC 326”) , which requires the recognition of the allowance for credit losses be estimated using the CECL methodology. The measurement of expected credit losses under CECL methodology is applicable to financial measured assets at amortized cost, including loan receivables. Available-for-sale (“AFS”) debt securities are included and require credit losses to be presented as an allowance rather than as a write-down. It also applies to off-balance sheet credit exposure, such as unfunded loan commitments, standby letters of credit and other similar instruments. +The Company adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures. The Company recorded a net decrease of $284 thousand to retained earnings as of January 1, 2023 for the cumulative effect of adopting ASC 326, which included a net deferred asset of $110 thousand. The transition adjustment includes a $301 thousand decrease to the allowance for credit losses and the increase of $695 thousand in the allowance of credit losses on off-balance sheet credit-exposures. +The credit loss estimation process involves procedures to appropriately consider the unique characteristics of loan portfolio segments, which consist of commercial real estate loans, construction loans, commercial and industrial loans, residential loans and HELOC/consumer loans. These segments are further disaggregated into loan classes, the level at which credit risk is monitored. For each of these segments, the Company generates cash flow projections at the instrument level wherein payment expectations are adjusted for estimated prepayment speed, curtailments, time to recovery, probability of default and loss given default. The modeling of expected prepayment speeds, curtailment rates, and time to recovery are based on historical data. The quantitative component of the ACL on loans is model-based and utilizes a forward-looking macroeconomic forecast. The Company uses a discounted cash flow method, incorporating probability of default and loss given default forecasted based on statistically derived economic variable loss drivers, to estimate expected credit losses. This process includes estimates which involve modeling loss projections attributed to existing loan balances, and +10 +Table of Contents +considering historical experience, current conditions, and future expectations for segments of loans over a reasonable and supportable forecast period. The historical information used is that experienced by the Company or by a selection of peer banks, when appropriate. +Commercial real estate – Loans in this segment include owner-occupied commercial real estate, non-owner-occupied commercial real estate and multi-family dwellings within the Company’s market area. The underlying cash flows generated by the properties or operations can be adversely impacted by a downturn in the economy due to increased vacancy rates or diminished cash flows, which in turn, would have an effect on the credit quality in this segment. Management obtains financial information annually and monitors the cash flow of these loans. +Construction – Loans in this segment include primarily construction of condominium projects or single-family homes and subdivisions. Exposure to loans in this segment can come from construction delays, slow unit sales and insufficient interest reserves. The Company often requires personal and corporate guarantees as additional security on the loan. Management relies on progress reports and third-party experts prior to the release of additional funds. +Commercial and industrial loans – Loans in this segment are primarily for commercial business assets and/or purposes, which usually carry a personal guarantee from the business owners. Repayment is expected from the cash flow of the business. A weakened economy, and resultant decrease in consumer spending, will have an effect on quality in this segment. +Residential real estate loans – This portfolio segment consists of first lien secured by one-to-four family residential properties. The overall health of the economy, including unemployment rates and housing pricing, will have an effect on the credit quality in this segment. +Consumer/HELOC loans – Loans in this segment are substantially secured and repayment is dependent on the credit quality of the individual borrower and include junior-lien mortgages. +Credits with Similar Risk Characteristics. +The Company is using DCF in estimating the component of the allowance for credit losses for loans that share similar risk characteristics with other loans, such loans are segregated into loan segments. The model calculates an expected loss percentage for each segment by considering the probability of default, using life-of-loan analysis periods for all segments, and the historical severity of loss, based on the aggregate net lifetime losses incurred per loan segment. The default and severity factors used to calculate the allowance for credit losses for loans that share similar risk characteristics with other loans are adjusted for differences between historical period used to calculate historical severity of loss, based on the aggregate net lifetime losses incurred per loan segment. The default and severity factors used calculate the allowance for credit losses for loans that share similar risk characteristics with other loans adjusted for differences between the historical loss and severity rates and expected conditions over the remaining lives of the loans in the portfolio related to: a) lending policy and procedures; b) economic conditions; c) volume of the loan portfolio; d) experience and depth of lending management; e) level of delinquencies; f) quality of our loan review system; g) the value of underlying collateral for collateralized loans and h) level of concentration of a particular segment. +Individually Evaluated Financial Assets. +For a loan that does not share risk characteristics with other loans, expected credit loss is measured based on net realizable value. We generally consider these to be nonperforming loans. For these loans, we recognize expected credit loss equal to the amount by which the net realizable value of the loan is less than the amortized cost basis of the loan, except when the loan is collateral dependent, that is, when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the sale of the collateral. In these cases, expected credit loss is measured as the difference between amortized cost basis and the loan and the fair value of the collateral less disposal costs (such as sales costs, transfer taxes and unpaid real estate taxes). +11 +Table of Contents +Allowance for Credit Losses on Off-Balance Sheet Credit Exposures, Including Unfunded Loan Commitments. +The Company maintains a separate allowance for credit losses from off-balance-sheet credit exposures, including unfunded loan commitments, which are included in other liabilities on the consolidated statements of financial condition. Management estimates the amount of expected losses by calculating a commitment usage factor over the contractual period of exposure that are not unconditionally cancellable by the Company by applying the loss factors used in the ACL methodology to the result of the usage calculation to estimate the liability for credit losses related to unfunded commitments for each loan type. The allowance for credit losses on off-balance sheet credit exposures is adjusted as credit loss expense. +As of December 31, 2024, the allowance for credit losses on loans was $23.7 million as compared to $18.5 million as of December 31, 2023. The $5.2 million increase in the allowance for credit losses was attributed to a $2.3 million provision related to the Bank’s loan portfolio, $3.2 million associated with non-purchase credit deteriorated loans associated with loans acquired in the CFC acquisition, partially offset by $353 thousand of net-charge offs recorded during 2024. +At December 31, 2024, non-performing assets totaled $27.1 million, an increase of $20.4 million when compared to the amount at December 31, 2023. The increase was due to the delinquency of two commercial real estate loans totaling $25.4 million with collateral supporting each loan. The Company is a participant in these loans and is currently evaluating its options with the lead bank, including but not limited to placing the loans on the market for sale. +The following table presents a summary of our allowance for credit losses on loans and nonaccrual loans by total loans and a summary of net charge-offs by loan segments: +As of and for Year Ended +December 31, +2024 +2023 +(Dollars in thousands) +Allowance for credit losses to total loans outstanding: +1.30 +% +1.19 +% +Allowance for credit losses on loans +$ +23,657 +$ +18,492 +Total loans outstanding +$ +1,821,274 +$ +1,550,133 +Nonaccrual loans +$ +26,841 +$ +6,708 +Allowance for credit losses to nonaccrual loans +88.1 +% +275.7 +% +Nonaccrual loans to total loans outstanding +1.47 +% +0.43 +% +Net charge-offs (recoveries) during the period to average loans outstanding +Commercial real estate +0.01 +% +0.17 +% +Net charge-offs +$ +151 +$ +1,659 +Average amount outstanding +$ +1,252,464 +$ +986,974 +Commercial and industrial +0.39 +% +0.00 +% +Net charge-offs (recoveries) +$ +237 +$ +(2 +) +Average amount outstanding +$ +60,665 +$ +42,850 +Construction +-0.01 +% +0.04 +% +Net charge-offs (recoveries) +$ +(35 +) +$ +148 +Average amount outstanding +$ +289,851 +$ +371,037 +Residential first-lien +0.00 +% +0.00 +% +Net charge-offs +$ +—  +$ +2 +Average amount outstanding +$ +48,392 +$ +40,831 +Home equity/consumer +0.00 +% +0.00 +% +Net charge-offs +$ +—  +$ +—  +Average amount outstanding +$ +11,641 +$ +7,812 +Total loans +0.02 +% +0.12 +% +Net charge-offs +$ +353 +$ +1,807 +Average amount outstanding +$ +1,663,013 +$ +1,449,504 +12 +Table of Contents +The following table presents the allocation of the allowance for credit losses by portfolio segment for the years presented. The allocation of a portion of the allowance for credit losses to one category of loans does not preclude its availability to absorb losses in other categories. +(Dollars in thousands) +2024 +2023 +Amount +Loan +Balance +as % of +Total Loans +Amount +Loan +Balance +as % of +Total Loans +Commercial real estate +$ +20,821 +76.1 +% +$ +16,047 +73.7 +% +Commercial and industrial +1,173 +5.1 +% +488 +3.3 +% +Construction +609 +14.1 +% +1,145 +20.0 +% +Residential first-lien mortgage +893 +3.7 +% +725 +2.5 +% +Home equity/consumer +161 +1.0 +% +87 +0.5 +% +Total loans +$ +23,657 +100.0 +% +$ +18,492 +100.0 +% +See Note 5 – “Loans Receivable” in the Notes to Consolidated Financial Statements within this Form 10-K for additional information regarding our allowance for credit losses. +Investment Securities (available-for-sale and held-to-maturity) +We hold securities that are available to fund increased loan demand or deposit withdrawals and other liquidity needs, and which provide an additional source of interest income. Securities are classified as held-to-maturity (“HTM”) or available-for-sale (“AFS”) at the time of purchase. Securities are classified as HTM if we have the ability and intent to hold them until maturity. HTM securities are carried at cost, adjusted for unamortized purchase premiums and discounts. Securities that are classified as AFS are carried at fair value with unrealized gains and losses, net of income taxes, reported as a component of equity within accumulated other comprehensive income (loss). +Securities available-for-sale, which are carried at fair value, increased $155.8 million, or 170.6%, to $247.2 million at December 31, 2024 from $91.4 million at December 31, 2023. The increase was primarily due to $179.5 million in purchases of available-for-sale securities during 2024, the addition of $13.9 million from the CFC acquisition, partially offset by an increase of $2.5 million attributed to the unrealized losses associated with the available-for-sale portfolio, principal repayments of $34.5 million and $300 thousand of maturities or calls. +13 +Table of Contents +The following table summarizes the weighted-average yields based on maturity distribution schedule of the amortized cost of AFS debt securities at December 31, 2024. Interest income presented in this Form 10-K for tax-advantaged obligations of state and political subdivisions has not been adjusted to reflect fully taxable-equivalent interest income. Expected maturities may differ from contractual maturities because the securities may be called without any penalties. +One year or +less +After one +through five +years +After five +through ten +years +After ten +years +Total +(Dollars in thousands) +Mortgage-backed securities - U.S. Government Sponsored Enterprises (GSEs) +$ +14 +$ +2,155 +$ +893 +$ +187,483 +$ +190,545 +U.S. government agencies +—  +966 +6,704 +2,529 +10,199 +Obligations of state and political subdivisions +1,408 +5,831 +28,728 +3,763 +39,730 +Small business association (SBA) securities +—  +531 +627 +699 +1,857 +U.S. treasury securities +1,994 +2,846 +—  +—  +4,840 +Total +$ +3,416 +$ +12,329 +$ +36,952 +$ +194,474 +$ +247,171 +(Yield on securities) +Mortgage-backed securities - U.S. Government Sponsored Enterprises (GSEs) +3.56 +% +4.56 +% +2.52 +% +5.09 +% +5.07 +% +U.S. government agencies +—  +2.84 +% +4.24 +% +2.33 +% +3.64 +% +Obligations of state and political subdivisions +3.54 +% +2.96 +% +2.55 +% +2.34 +% +2.63 +% +Small business association (SBA) securities +—  +7.33 +% +4.57 +% +5.92 +% +5.87 +% +U.S. treasury securities +4.88 +% +3.93 +% +—  +—  +4.32 +% +Total +4.32 +% +3.64 +% +2.89 +% +5.00 +% +4.61 +% +At December 31, 2024, there were no security holdings of any one issuer in an amount greater than 10.0% of our total stockholders’ equity. See Note 4 – “Investment Securities” in the Notes to Consolidated Financial Statements within this Form 10-K for additional information regarding debt securities. +Cash and Due from Banks and Interest-earning Bank Balances +Cash and due from banks and interest-earning bank balances decreased from $34.5 million at December 31, 2023 to $33.6 million at December 31, 2024, a decrease of $888 thousand, or 2.6%. +Federal Funds Sold +Federal funds sold decreased from $116.0 million at December 31, 2023 to $83.7 million at December 31, 2024, a decrease of $32.3 million, or 27.9%. The decrease in federal funds sold was primarily due to increases in investment securities and in loans and partially offset by an increase in deposits. +Premises and Equipment +Premises and equipment, net increased $3.4 million from December 31, 2023 to December 31, 2024 resulting from $3.5 million in premises and equipment acquired in connection with the CFC acquisition, and $1.6 million in a combination of purchases of new equipment and improvements, partially offset by $1.7 million in depreciation and disposals. +Goodwill and Core Deposit Intangible +At December 31, 2024, the Company had $14.4 million of goodwill, an increase of $5.5 million when compared to December 31, 2023, related to the acquisition of CFC. At December 31, 2024 the Company had +14 +Table of Contents +$3.6 million in core deposit intangible assets, an increase of $2.2 million when compared to December 31, 2023. The remaining balance is comprised of $2.6 million from the CFC acquisition, $900 thousand from the WSFS branch acquisition that occurred in May 2019, and $73 thousand from the Noah acquisition.  +Operating Lease Right-of-Use Asset +Operating lease right-of-use asset decreased $1.5 million from $23.4 million at December 31, 2023 to $21.9 million at December 31, 2024 due to $1.3 million in leases acquired as part of the CFC acquisition, $1.8 million of new leases, offset by $4.6 million in amortization. +Equity Method Investments +The Company is a limited partner in a Small Business Investment Company (“SBIC”) and committed to contribute capital of $5.0 million to the partnership. At December 31, 2024, the SBIC had a book value of $3.3 million. The unfunded commitment to the partnership was $1.7 million at December 31, 2024. +The Company invested in a CRA eligible investment that acquires SBA loans within qualifying census tracts in which the Bank operates. The Company decides which loans are included in its investment. The Company had an outstanding commitment to fund up to $6.9 million and currently has $6.9 million funded. There is currently no unfunded commitment at December 31, 2024. +Accrued Interest Receivable and Other Assets +Accrued interest receivable increased $1.9 million from December 31, 2023 to December 31, 2024, primarily due to an increase in the outstanding principal balance of loans and investment securities at December 31, 2024. Deferred taxes increased $8.8 million from December 31, 2023 to December 31, 2024, primarily due to the CFC acquisition. Bank owned life insurance increased $13.3 million from December 31, 2023 to December 31, 2024, primarily due to $8.7 million acquired from CFC, $2.9 million in purchases and a $1.7 million increase in cash surrender value resulting from the increase in interest rates. Other assets increased $1.3 million from December 31, 2023 to December 31, 2024. +Deposits +Our deposit services are generally comprised of a traditional range of deposit products, including checking accounts, savings accounts, attorney trust accounts, money market accounts, and certificates of deposit. +We offer our customers access to ATMs and other services which increase customer convenience and encourage continued and additional banking relationships. +We endeavor to maintain competitive rates on deposit accounts, and actual rates are established at the time that they are offered, and subsequently, based on contractual terms, taking into consideration competitor offerings. Although from time to time we advertise in local newspapers, our primary source of deposit relationships is satisfied customers. We offer a range of direct deposit products ranging from social security and disability payments to direct deposit of payroll checks. +During normal business practices the Bank will utilize deposits originated by brokers to support the Bank’s funding needs. At December 31, 2024 the balance of brokered deposits was $44.6 million, a decrease of $42.6 million from the $87.2 million outstanding at December 31, 2023. +At December 31, 2024, there were no customers whose deposit balances individually exceeded 5% of total deposits. +15 +Table of Contents +The following table presents the average balance of our deposit accounts and the average cost of funds for each category of our deposits, total uninsured deposits, and amount of uninsured portion of time deposits by maturity. +2024 +2023 +Average +Amount +Average +Rate +Paid +Average +Amount +Average +Rate +Paid +(Dollars in thousands) +Non-interest-bearing checking +$ +264,418 +0.00 +% +$ +248,233 +0.00 +% +Demand interest-bearing +258,462 +1.91 +% +250,312 +1.46 +% +Money market +421,934 +3.79 +% +311,478 +3.07 +% +Savings deposits +157,538 +2.52 +% +159,175 +1.72 +% +Time deposits +724,060 +4.35 +% +538,343 +3.17 +% +$ +1,826,412 +3.09 +% +$ +1,507,541 +2.19 +% +Amount +Amount +Uninsured deposits +$ +573,727 +$ +427,384 +The following table represents the uninsured time deposits by maturity. +As of December 31, +2024 +2023 +Uninsured time deposits maturity +(Dollars in thousands) +Three months or less +$ +18,756 +$ +10,796 +Over three through six months +28,202 +22,609 +Over six through twelve months +40,150 +28,715 +Over twelve months +2,553 +6,678 +Total uninsured time deposits +$ +89,661 +$ +68,798 +The uninsured portion of deposits is any balance that exceeds the FDIC insurance limit of $250,000.  +See the liquidity discussion within Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations within this Form 10-K for more information regarding our available funds. +Total deposits increased from $1.64 billion at December 31, 2023 to $2.03 billion at December 31, 2024, an increase of $396.9 million, or 24.26%. Included in this increase was $282.8 million in deposits acquired from CFC. Non-interest-bearing deposits increased $51.7 million, or 20.7%, to $301.0 million at December 31, 2024. The Company acquired $67.6 million of non-interest-bearing deposits from CFC. Interest-bearing deposits increased $345.2 million, or 24.9%. Included in this increase was $215.2 million of interest-bearing deposits acquired from CFC. +Borrowings +The Company had no outstanding borrowings at December 31, 2024 or December 31, 2023. +Accrued Interest Payable, Lease Liabilities and Other Liabilities +Accrued interest payable increased $6.2 million from $9.2 million at December 31, 2023 to $15.4 million at December 31, 2024. The increase was primarily the result of the increase in interest rates offered on deposit accounts during 2024 as well as the increase in deposit balances due partially to the CFC acquisition. Lease liabilities increased $1.3 million, while other liabilities increased $123 thousand. +16 +Table of Contents +Stockholders’ Equity +Total stockholders’ equity at December 31, 2024, increased $21.8 million or 9.09% when compared to December 31, 2023. The increase was primarily due to the $21.6 million increase in paid-in capital which is primarily associated with the issuance of $20.0 million of common stock related to the acquisition of CFC, and an increase in retained earnings of $2.5 million, which consisted of $10.2 million in net income, partially offset by $7.7 million of cash dividends recorded during the period, which increases were partially offset by an increase in accumulated other comprehensive loss of $1.4 million. The ratio of equity to total assets at December 31, 2024 and at December 31, 2023 was 11.2% and 12.5%, respectively. The current period ratio decrease was primarily due to the CFC acquisition. +Other Services +To further attract and retain customer relationships, we provide a standard array of additional community banking services, which include the following: +Money orders +Direct deposit +Automated teller machines +Cashier’s checks +Safe deposit boxes +On-line banking +Wire transfers +Night depository +Remote deposit capture +Debit cards +Bank-by-mail +Automated telephone banking +We also offer, on a limited basis, payroll-related services and credit card and merchant credit card processing through third parties whereby we do not undertake credit or fraud risk. +Internet Banking +We advertise but do not actively solicit new deposits or loans through our website. We utilize a qualified and experienced internet service provider to furnish the following types of customer account services: +Full on-line statements +Transaction histories +On-line bill payment +Transaction details +Account inquiries +Account-to-account transfers +Mobile banking +Fee Income +Fee income is a component of our non-interest income. By charging non-customers fees for using our ATMs and charging customers for banking services such as money orders, cashier’s checks, wire transfers and check orders, as well as other deposit and loan-related fees, we earn fee income. Prudent fee income opportunities are sought to supplement net interest income but may be limited by our efforts to remain competitive and by regulatory constraints. +Staffing +As of December 31, 2024, we had approximately 247 full-time equivalent employees. +Supervision and Regulation +General. We are extensively regulated under both federal and state law. These laws restrict permissible activities and investments and require compliance with various consumer protection provisions applicable to lending, deposit, brokerage and fiduciary activities. They also impose capital adequacy requirements and conditions to our ability to repurchase stock or to pay dividends. The Company is a registered bank holding company and, as such is subject to the provisions of the Bank Holding Company Act of 1956, as amended (the “BHCA”) and to supervision and examination by the Board of Governors of the Federal Reserve System (the “Federal Reserve”). The Bank is also subject to the supervision and examination by the FDIC, as their primary +17 +Table of Contents +federal regulator and as the insurer of the Banks’ deposits. The Bank is also regulated and examined by the New Jersey Department of Banking and Insurance (the “Department”). These regulators have broad discretion to impose restrictions and limitations on our operations. This supervisory framework could materially impact the conduct and profitability of our activities. +To the extent that the following information describes statutory and regulatory provisions, it is qualified in its entirety by reference to the particular statutory and regulatory provisions. Proposals to change the laws and regulations governing the banking industry are frequently raised at both the state and federal levels. The likelihood and timing of any changes in these laws and regulations, and the impact such changes may have on us, is difficult to ascertain. Changes in applicable laws and regulations, or in the manner such laws or regulations are interpreted by regulatory agencies or courts, may have a material effect on our business, financial condition and results of operations. +We are subject to various requirements and restrictions under federal and state law, including requirements to maintain reserves against deposits, restrictions on the types, amount and terms and conditions of loans that may be originated, and limits on the type of other activities in which we may engage and the investments we may make. Banking regulations permit us to engage in certain additional activities, such as insurance sales and securities underwriting, through the formation of a “financial subsidiary.” In order to be eligible to establish or acquire a financial subsidiary, we must be “well capitalized” and “well managed” and may not have less than a “satisfactory” CRA rating. At this time, we do not engage in any activity which would require us to maintain a financial subsidiary. We are also subject to federal laws that limit the amount of transactions between us and any nonbank affiliates. Under these provisions, transactions, such as a loan or investment, by us with any nonbank affiliate are generally limited to 10% of our capital and surplus for all covered transactions with such affiliate or 20% percent of capital and surplus for all covered transactions with all affiliates. Any extensions of credit, with limited exceptions, must be secured by eligible collateral in specified amounts. We are also prohibited from purchasing any “low quality” assets from an affiliate. The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) significantly expands the coverage and scope of the limitations on affiliate transactions within a banking organization. +Holding Company. The Federal Reserve has issued regulations under the BHCA that require a bank holding company to serve as a source of financial and managerial strength to its subsidiary banks. As a result, the Federal Reserve, pursuant to such regulations, may require the Company to stand ready to use its resources to provide adequate capital funds to the Bank during periods of financial stress or adversity. The BHCA requires the Company to secure the prior approval of the Federal Reserve before it can acquire all or substantially all of the assets of any bank or acquire ownership or control of 5% or more of any voting shares of any bank. Such a transaction would also require approval of the Department. +A bank holding company is prohibited under the BHCA from engaging in, or acquiring direct or indirect control of, more than 5% of the voting shares of any company engaged in non-banking activities unless the Federal Reserve, by order or regulation, has found such activities to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. Under the BHCA, the Federal Reserve has the authority to require a bank holding company to terminate any activity or relinquish control of a non-bank subsidiary (other than a non-bank subsidiary of a bank) upon the Federal Reserve’s determination that such activity or control constitutes a serious risk to the financial soundness and stability of any bank subsidiary of the bank holding company. +As a public company with our securities listed for trading on the NASDAQ stock market, the Company is subject to the disclosure and regulatory requirements of the SEC, including under the Securities Act of 1933, as amended, and the Exchange Act, and the rules and listing standards of the NASDAQ stock market. +Pause on Major Federal Reserve Rulemakings. In January 2025, the Federal Reserve stated that Vice Chair for Supervision Michael Barr would step down from the position, effective, February 28, 2025. The +18 +Table of Contents +Federal Reserve stated that it will not issue any major rulemakings from the time of the announcement until a new vice chair for supervision is confirmed by the U.S. Senate. +Monetary Policy. Our business, financial condition and results of operations are and will be affected by domestic economic conditions and the monetary and fiscal policies of the United States government and its agencies. The monetary policies of the Federal Reserve have a significant effect upon the operating results of commercial banks such as ours. The Federal Reserve has a major effect upon the levels of bank loans, investments and deposits through its open market operations in United States government securities transactions and through its regulation of, among other things, the discount rate on borrowings of member banks and the reserve requirements against member banks’ deposits. It is not possible to predict the nature and impact of future changes in monetary and fiscal policies. +Deposit Insurance. The Bank’s deposits are insured up to applicable limits by the Deposit Insurance Fund of the FDIC (“DIF”). No institution may pay a dividend if in default of the federal deposit insurance assessment. +The DIF has a designated reserve (target) ratio (“DRR”) of 2.00% of the estimated insured deposits. When the reserve ratio was 1.30 percent as of June 30, 2020, the FDIC adopted a restoration plan to ensure that the DIF reserve ratio reaches 1.35 percent within 8 years. However, increased loss provisions associated with the failures of Silicon Valley Bank, Signature Bank and First Republic Bank in 2023 that reduced the DIF balance coupled with strong growth in uninsured deposits, resulted in the reserve ratio declining to 1.10 percent as of June 30, 2023. The reserve ratio increased to 1.21 percent as of June 30, 2024. The Restoration Plan maintains the current schedule of assessment rates for all insured depository institutions. Dividends are required to be paid to the industry should the DRR exceed 1.50%, but grants the FDIC sole discretion in determining whether to suspend or limit the declaration or payment of dividends. The assessment base for insured depository institutions is the average consolidated total assets during an assessment period less average tangible equity capital during that assessment period. +The limit for federal deposit insurance is $250,000 and the cash limit of Securities Investor Protection Corporation protection is also $250,000. +The FDIC has authority to increase insurance assessments. A significant increase in insurance assessments would likely have an adverse effect on our operating expenses and results of operations. Management cannot predict what insurance assessment rates will be in the future. +Deposit insurance may be terminated by the FDIC upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC. +Dividend Restrictions. Under the New Jersey Banking Act of 1948, as amended (the “Banking Act”), a bank may declare and pay cash dividends only if, after payment of the dividend, the capital stock of the bank will be unimpaired and either the bank will have a surplus of not less than 50% of its capital stock or the payment of the dividend will not reduce the bank’s surplus. The FDIC prohibits payment of cash dividends if, as a result, the institution would be undercapitalized, or the institution is in default with respect to any assessment due to the FDIC. +Under Pennsylvania law, the Company may not pay a dividend, if, after giving effect thereto, it would be unable to pay its debts as they become due in the usual course of business and, after giving effect to the dividend, the total assets of the Company would be less than the sum of its total liabilities plus the amount that would be needed, if the Company were to be dissolved at the time of distribution, to satisfy the preferential rights upon dissolution of shareholders whose rights are superior to those receiving the dividend. +It is also the policy of the Federal Reserve that a bank holding company generally may only pay dividends on common stock out of net income available to common shareholders over the past twelve months and only if +19 +Table of Contents +the prospective rate of earnings retention appears consistent with a bank holding company’s capital needs, asset quality, and overall financial condition. A bank holding company also should not maintain a dividend level that places undue pressure on the capital of such institution’s subsidiaries, or that may undermine the bank holding company’s ability to serve as a source of strength for such subsidiaries. +Regulatory Capital Requirements . Federally insured, state-chartered non-member banks are required to maintain minimum levels of regulatory capital. Current FDIC capital standards require these institutions to satisfy a common equity Tier 1 capital requirement, a leverage capital requirement and a risk-based capital requirement. +The common equity Tier 1 capital component generally consists of retained earnings and common stock instruments and must equal at least 4.5% of risk-weighted assets. +Leverage capital, also known as “core” capital, must equal at least 3.0% of adjusted total assets for the most highly rated state-chartered non-member banks. Core capital generally consists of common stockholders’ equity (including retained earnings). An additional cushion of at least 100 basis points is required for all other banking associations, which effectively increases their minimum Tier 1 leverage ratio to 4.0% or more. Under the FDIC’s regulations, the most highly-rated banks are those that the FDIC determines are strong banking organizations and are rated composite 1 under the Uniform Financial Institutions Rating System. +Under the risk-based capital requirements, “total” capital (a combination of core and “supplementary” capital) must equal at least 8.0% of “risk-weighted” assets. The FDIC also is authorized to impose capital requirements in excess of these standards on individual institutions on a case-by-case basis. +Capital rules require a common equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets, which is in addition to the other minimum risk-based capital standards described above. Institutions that do not maintain this required capital buffer become subject to progressively more stringent limitations on the percentage of earnings that can be paid out in dividends or used for stock repurchases and on the payment of discretionary bonuses to senior executive management. At December 31, 2023, the Bank met all capital adequacy requirements on a fully phased-in basis. +In determining compliance with the risk-based capital requirement, a banking organization is allowed to include both core capital and supplementary capital in its total capital, provided that the amount of supplementary capital included does not exceed the bank’s core capital. Supplementary capital generally consists of general allowances for loan losses up to a maximum of 1.25% of risk-weighted assets, together with certain other items. In determining the required amount of risk-based capital, total assets, including certain off-balance sheet items, are multiplied by a risk-weight based on the risks inherent in the type of assets. At December 31, 2024, the Bank exceeded all its regulatory capital requirements. +Any banking organization that fails any of the capital requirements is subject to possible enforcement action by the FDIC. Such action could include a capital directive, a cease-and-desist order, civil money penalties, the establishment of restrictions on the institution’s operations, termination of federal deposit insurance and the appointment of a conservator or receiver. The FDIC’s capital regulations provide that such actions, through enforcement proceedings or otherwise, could require one or more of a variety of corrective actions. +The Company qualifies as a “small bank holding company” with respect to the application of consolidated capital requirements because it has less than $3 billion of consolidated assets. “Small bank holding companies” are not subject to the consolidated capital requirements unless otherwise directed by the Federal Reserve. +Prompt Corrective Action. In addition to the required minimum capital levels described above, federal law establishes a system of “prompt corrective actions” that federal banking agencies are required to take, or have discretion to take, based upon the capital category into which a federally-regulated depository institution falls. Regulations set forth detailed procedures and criteria for implementing prompt corrective action in the case of +20 +Table of Contents +any institution which is not adequately capitalized. The following table shows the amount of capital associated with the different capital categories set forth in the prompt corrective action regulations. +Capital Category +Total +Risk-Based +Capital +Tier 1 +Risk-Based +Capital +Common Equity +Tier 1 +Capital +Tier 1 +Leverage +Capital +Well capitalized +10% or more +8% or more +6.5% or more +5% or more +Adequately capitalized +8% or more +6% or more +4.5% or more +4% or more +Undercapitalized +Less than 8% +Less than 6% +Less than 4.5% +Less than 4% +Significantly undercapitalized +Less than 6% +Less than 4% +Less than 3% +Less than 3% +In addition, a banking organization is “critically undercapitalized” if it has a ratio of tangible equity to total assets that is equal to or less than 2.0%. Under specified circumstances, a federal banking agency may reclassify a well-capitalized institution as adequately capitalized and may require an adequately capitalized institution or an undercapitalized institution to comply with supervisory actions as if it were in the next lower category (except that the FDIC may not reclassify a significantly undercapitalized institution as critically undercapitalized). +A banking organization generally must file a written capital restoration plan which meets specified requirements within 45 days of the date that the institution receives notice or is deemed to have notice that it is undercapitalized, significantly undercapitalized or critically undercapitalized. A federal banking agency must provide the institution with written notice of approval or disapproval within 60 days after receiving a capital restoration plan, subject to extensions by the agency. A banking organization which is required to submit a capital restoration plan must concurrently submit a performance guaranty by each company that controls the institution. In addition, undercapitalized organizations are subject to various regulatory restrictions, and the appropriate federal banking agency also may take any number of discretionary supervisory actions. At December 31, 2024, the Bank was not subject to any of the above mentioned restrictions. +Community Reinvestment Act. The Community Reinvestment Act (“CRA”) requires that banks meet the credit needs of all of their assessment area, as established for these purposes in accordance with applicable regulations based principally on the location of branch offices, including those of low-income areas and borrowers. The CRA also requires that the FDIC assess all financial institutions that it regulates to determine whether these institutions are meeting the credit needs of the community they serve. Under the CRA, institutions are assigned a rating of “outstanding,” “satisfactory,” “needs to improve” or “unsatisfactory.” Our record in meeting the requirements of the CRA is made publicly available and is taken into consideration in connection with any applications with federal regulators to engage in certain activities, including approval of a branch or other deposit facility, mergers and acquisitions, office relocations, or expansions into non-banking activities. As of December 31, 2024, we maintained a “satisfactory” CRA rating. On October 24, 2023, the FDIC, the Federal Reserve, and the Office of the Comptroller of the Currency issued a final rule to strengthen and modernize the CRA regulations. The rule materially revises the current CRA framework, including the assessment areas in which a bank is evaluated to include activities associated with online and mobile banking, the tests used to evaluate the Bank in its assessment areas, new methods of calculating credit for lending, investment, and service activities, and additional data collection and reporting requirements. Under the final rule, banks with assets of at least $600 million as of December 31 in both of the prior two calendar years and less than $2 billion as of December 31 in either of the prior two calendar years will be an “intermediate bank.” The agencies will evaluate intermediate banks under the Retail Lending Test and either the current community development test, referred to in the final rule as the Intermediate Bank Community Development Test, or, at the bank’s option, the Community Development Financing Test. The rule was expected to take effect on April 1, 2024, with most of its provisions becoming applicable on January 1, 2026, and additional requirements becoming applicable on January 1, 2027. Several banking industry groups filed a lawsuit seeking to invalidate the CRA final rule, in which they argued that the federal banking agencies exceeded their statutory authority in adopting the CRA final rule. In March 2024, a federal judge granted an injunction to extend the CRA final rule’s effective date, originally set for +21 +Table of Contents +April 1, 2024. The effective date will be extended each day the injunction remains in place, pending the resolution of the lawsuit. +Dodd-Frank Act. The Dodd-Frank Act became law on July 21, 2010. The Dodd-Frank Act implemented far-reaching changes across the financial regulatory landscape. Among other things, the Dodd-Frank Act created the Consumer Financial Protection Bureau (the “CFPB”), which is an independent bureau within the Federal Reserve System with broad authority to regulate the consumer finance industry, including regulated financial institutions such as us, as well as non-banks and others who are involved in the consumer finance industry. The CFPB has exclusive authority through formal rulemaking, as well as through the issuance of orders, policy statements, guidance and enforcement actions to administer and enforce federal consumer financial protection laws, to oversee non-federally regulated entities, to prevent practices that the CFPB deems unfair, deceptive or abusive. While the CFPB has these extensive powers to interpret, administer and enforce federal consumer financial protection laws, the Dodd-Frank Act provides that the FDIC continues to have examination and enforcement powers over us on matters otherwise falling within the CFPB’s jurisdiction because we have less than $10 billion in assets. The Dodd-Frank Act also gives state attorneys general the ability to enforce federal consumer protection laws. +Federal Home Loan Bank (“FHLB”) Membership. We are a member of the FHLB-NY. Each member of the FHLB-NY is required to maintain a minimum investment in capital stock of the FHLB-NY. The Board of Directors of the FHLB-NY can increase the minimum investment requirements in the event it has concluded that additional capital is required to allow it to meet its own regulatory capital requirements. Any increase in the minimum investment requirements outside of specified ranges requires the approval of the Federal Housing Finance Agency. Because the extent of any obligation to increase our investment in the FHLB-NY depends entirely upon the occurrence of a future event, potential payments to the FHLB-NY are not determinable. +Additionally, in the event that we fail, the right of the FHLB-NY to seek repayment of funds loaned to us will take priority over certain other creditors. +The Sarbanes-Oxley Act. As a public company, the Bank is subject to the Sarbanes-Oxley Act of 2002 which addresses, among other issues, corporate governance, auditing and accounting, executive compensation, and enhanced and timely disclosure of corporate information. As directed by the Sarbanes-Oxley Act, our principal executive officer and principal financial officer are required to certify that our quarterly and annual reports do not contain any untrue statement of a material fact. The rules adopted by the SEC under the Sarbanes-Oxley Act require these officers to certify that they are responsible for establishing, maintaining and regularly evaluating the effectiveness of our internal control over financial reporting; they have made certain disclosures to our auditors and the audit committee of the Board of Directors about our internal control over financial reporting; and they have included information in our quarterly and annual reports about their evaluation and whether there have been changes in our internal control over financial reporting or in other factors that could materially affect internal control over financial reporting. +Loans to One Borrower. New Jersey banking law limits the total loans and extensions of credit by a bank to one borrower at one time to 15% of the capital funds of the bank, or up to 25% of the capital funds of the bank if the additional 10% is fully secured by collateral having a market value (as determined by reliable and continuously available price quotations) at least equal to the amount of the loans and extensions of credit over the 15% limit. At December 31, 2024, the Bank’s lending limit to one borrower under regulatory guidelines was $40.6 million, but our Board of Directors has set an internal lending limit of approximately 75.0% of the legal lending limit or $30.5 million. +Concentration and Risk Guidance . The federal banking regulatory agencies promulgated joint interagency guidance regarding material direct and indirect asset and funding concentrations. The guidance defines a concentration as any of the following: (i) asset concentrations of 25% or more of Total Capital (loan related) or Tier 1 Capital (non-loan related) by individual borrower, small interrelated group of individuals, single repayment source or individual project; (ii) asset concentrations of 100% or more of Total Capital (loan related) +22 +Table of Contents +or Tier 1 Capital (non-loan related) by industry, product line, type of collateral, or short-term obligations of one financial institution or affiliated group; (iii) funding concentrations from a single source representing 10% or more of Total Assets; or (iv) potentially volatile funding sources that when combined represent 25% or more of Total Assets (these sources may include brokered, large, high-rate, uninsured, internet-listing-service deposits, Federal funds purchased or other potentially volatile deposits or borrowings). If a concentration is present, management must employ heightened risk management practices including board and management oversight and strategic planning, development of underwriting standards, risk assessment and monitoring through market analysis and stress testing, third party review and increasing capital requirements. The Bank adheres to the practices recommended in this guidance. +Restrictions on Transactions with Affiliates, Directors, and Officers. Under the Federal Reserve Act, the Bank may not lend funds or otherwise extend credit to its parent holding company or any other affiliate, except on specified types and amounts of collateral generally upon market terms and conditions. The Federal Reserve also has authority to define and limit the transactions between banks and their affiliates. The Federal Reserve’s Regulation W and relevant federal statutes and regulations, among other authorities, impose significant limitations on transactions in which the Bank may engage with us or with other affiliates, including per-affiliate and aggregate limits on affiliate transactions. +Federal Reserve Regulation O restricts loans to the Bank and its parent holding company’s insiders, which includes directors, certain officers, and principal shareholders and their respective related interests. All extensions of credit to the insiders and their related interests must be on the same terms as, and subject to the same loan underwriting requirements as, loans to persons who are not insiders. In addition, Regulation O imposes lending limits on loans to insiders and their related interests and imposes, in certain circumstances, requirements for prior approval of the loans by the Bank board of directors. +Changes in New Jersey Tax Laws. On September 29, 2020, New Jersey Governor Phil Murphy signed into law A.4721, extending through December 31, 2023, the 2.5% surtax imposed on Corporation Business Tax (CBT) filers with allocated taxable net income over $1 million. As originally enacted, the surtax rate was scheduled to decrease from 2.5% to 1.5% for privilege periods beginning on or after January 1, 2020 through December 31, 2021 and expire for privilege periods beginning on or after January 1, 2022. On June 28, 2024, New Jersey Gov. Phil Murphy signed legislation, A.B. 4704, which enacted a 2.5% surtax, termed the “Corporate Transit Fee,” on certain CBT taxpayers that have New Jersey allocated taxable net income over $10 million. The new surtax is in addition to the CBT and applies to privilege periods beginning on or after January, 1, 2024, through December, 31, 2028. +Cyber-security. Federal and state legislation and regulations contain extensive cybersecurity and data privacy provisions. Our regulatory agencies including the CFPB, FDIC, and Federal Reserve also have oversight over us with respect to cybersecurity and data privacy. We are subject to the rules and regulations promulgated under the authority of the CFPB and Federal Trade Commission, which regulates unfair or deceptive acts or practices, including with respect to cybersecurity and data privacy. In addition, effective April 1, 2022, the Federal Reserve and FDIC issued a rule that, among other things, requires a banking organization to notify its primary federal regulator as soon as possible and within 36 hours after identifying a “computer-security incident” that the banking organization believes in good faith could materially disrupt, degrade or impair its business or operations in a manner that would, among other things, jeopardize the viability of its operations, result in customers being unable to access their deposit and other accounts, result in a material loss of revenue, profit or franchise value, or pose a threat to the stability of the U.S. financial sector. +Federal regulators have issued two related statements regarding cyber-security. One statement indicates that financial institutions should design multiple layers of security controls to establish lines of defense and ensure their risk management processes also address the risk posed by compromised client credentials, including security measures to reliably authenticate clients accessing internet-based services of the financial institution. The other statement indicates that a financial institution’s management is expected to maintain sufficient +business continuity planning processes to ensure the rapid recovery, resumption, and maintenance of the +23 +Table of Contents +institution’s operations after a cyber-attack involving destructive malware. A financial institution is also expected to develop appropriate processes to enable recovery of data and business operations and address rebuilding network capabilities and restoring data if the institution or its critical service providers fall victim to this type of cyber-attack. If we fail to observe the regulatory guidance, we could be subject to various regulatory sanctions, including financial penalties. +In the ordinary course of business, we rely on electronic communications and information systems to conduct our operations and to store sensitive data. We employ a variety of preventative and detective controls and tools to monitor, block, and provide alerts regarding suspicious activity and to report on any suspected advanced persistent threats. We also offset cyber risk through internal training, testing of our employees, and we procure insurance to provide assistance on significant incidents and to offset potential liability. +We have not experienced a significant compromise, significant data loss, or any material financial losses related to cyber-security attacks. Risks and exposures related to cyber-security attacks are expected to remain high for the foreseeable future due to the rapidly evolving nature and sophistication of these threats, as well as due to the expanding use of third-party service providers, internet banking, mobile banking, and other technology-based products and services by us and our clients. +Compensation. The scope and content of compensation regulation in the financial industry are continuing to develop, and we expect that these regulations and resulting market practices will continue to evolve over a number of years. The federal bank regulatory agencies have issued joint guidance on executive compensation designed to ensure that the incentive compensation policies of banking organizations, such as the Company and the Bank, do not encourage imprudent risk taking and are consistent with the safety and soundness of the organization. The SEC has a rule that directs stock exchanges to require listed companies to implement clawback policies to recover incentive-based compensation from current or former executive officers in the event of certain financial restatements and requires companies to disclose their clawback policies and their actions under those policies. +Other Laws and Regulations. We are subject to a variety of laws and regulations which are not limited to banking organizations. For example, in lending to commercial and consumer borrowers, and in owning and operating our own property, we are subject to regulations and potential liabilities under state and federal environmental laws. +We are heavily regulated by regulatory agencies at the federal and state levels. As a result of events in the financial markets and the economy in recent years, we, like most of our competitors, have faced and expect to continue to face increased regulation and regulatory and political scrutiny, which creates significant uncertainty for us and the financial services industry in general. +Future Legislation and Regulation. Regulators have increased their focus on the regulation of the financial services industry in recent years. Proposals that could substantially intensify the regulation of the financial services industry have been and are expected to continue to be introduced in the U.S. Congress, in state legislatures and by applicable regulatory authorities. These proposals may change banking statutes and regulation and our operating environment in substantial and unpredictable ways. If enacted, these proposals could increase or decrease the cost of doing business, limit or expand permissible activities or affect the competitive balance among banks, savings associations, credit unions, and other financial institutions. We cannot predict whether any of these proposals will be enacted and, if enacted, the effects that such laws or any implementing regulations would have on our business, financial condition and results of operations. \ No newline at end of file diff --git a/raw/filings/0001913971/2024/0001193125-25-054907/item13.txt b/raw/filings/0001913971/2024/0001193125-25-054907/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..695cd6c949e4c2789c26fb7e47348833c2dd5c98 --- /dev/null +++ b/raw/filings/0001913971/2024/0001193125-25-054907/item13.txt @@ -0,0 +1,3 @@ +Item 13 +Certain Relationships and Related Transaction, and Directors Independence +110 \ No newline at end of file diff --git a/raw/filings/0001913971/2025/0001193125-26-106151/filing.txt b/raw/filings/0001913971/2025/0001193125-26-106151/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..c567df6df9b27a66331c7252e087199f0fc31e29 --- /dev/null +++ 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us-gaap:LeaseholdImprovementsMember 2025-12-31 0001913971 bprn:MortgageServicingRightsMember us-gaap:FairValueMeasurementsRecurringMember 2025-12-31 xbrli:pure xbrli:shares bprn:Loan bprn:Securities iso4217:USD xbrli:shares bprn:Integer bprn:Branches iso4217:USD +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +FORM 10-K +(Mark One) +☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31 , 2025 +- OR - +☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the transition period from _________ to _________ +Commission File Number: 001-41589 +PRINCETON BANCORP, INC. +(Exact name of Registrant as specified in its Charter) +Pennsylvania +88-4268702 +(State or other Jurisdiction of +Incorporation or Organization) +(I.R.S. Employer +Identification No.) +183 Bayard Lane , Princeton , NJ +08540 +(Address of Principal Executive Offices) +(Zip Code) +Registrant’s telephone number, including area code: ( 609 ) 921-1700 +Securities registered pursuant to Section 12(b) of the Act: +Title of each class +Trading +Symbol(s) +Name of each exchange +on which registered +Common stock, no par value +BPRN +The Nasdaq Global Select Market +Securities registered pursuant to Section 12(g) of the Act: +None +(Title of class) +Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ YES ☒ NO +Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ YES ☒ NO +Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ YES ☐ NO +Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or such shorter period that the registrant was required to submit such files). ☒ YES ☐ NO +Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. +Large accelerated filer +☐ +Accelerated filer +☒ +Non-accelerated filer +☐ +Smaller reporting company +☒ +Emerging growth company +☐ +If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) the Exchange Act. ☐ +Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒ +If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐ +Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐ +Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ YES  ☒ NO +The aggregate market value of the voting common stock held by non-affiliates at June 30, 2025 was $ 164.0 million. +As of March 6, 2026, there were 6,788,551 shares of common stock outstanding. +DOCUMENTS INCORPORATED BY REFERENCE +The registrant intends to file a definitive Proxy Statement for the Annual Meeting of Shareholders scheduled to be held April 21, 2026. The information required by Part III of this Form 10-K is incorporated by reference to such Proxy Statement. +TABLE OF CONTENTS +PART I +Item 1 +Business +4 +Item 1A +Risk Factors +22 +Item 1B +Unresolved Staff Comments +35 +Item 1C +Cybersecurity +35 +Item 2 +Properties +36 +Item 3 +Legal Proceedings +39 +Item 4 +Mine Safety Disclosures +39 +PART II +Item 5 +Market for the Registrant’s Common Equity, Related Stockholder Matters Issuer Purchase of Equity Securities +40 +Item 6 +"Reserved" +42 +Item 7 +Management’s Discussion and Analysis of Financial Condition and Results of Operation +43 +Item 7A +Quantitative and Qualitative Disclosure about Market Risk +53 +Item 8 +Financial Statements and Supplementary Data +54 +Item 9 +Changes in and Disagreement with Accountants on Accounting and Financial Disclosure +95 +Item 9A +Controls and Procedures +95 +Item 9B +Other Information +96 +Item 9C +Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +96 +PART III +Item 10 +Directors, Executive Officers and Corporate Governance +97 +Item 11 +Executive Compensation +97 +Item 12 +Security Ownership of Certain Beneficial Owners and Management Related Stockholder Matters +97 +Item 13 +Certain Relationships and Related Transaction, and Directors Independence +97 +Item 14 +Principal Accounting Fees and Services +97 +PART IV +Item 15 +Exhibits, Financial Statement Schedules +98 +Item 16 +Form 10-K Summary +100 +Signatures +2 +Glossary of Acronyms and Terms +The following listing provides a comprehensive reference of common acronyms and terms used throughout the document: +ACL +Allowance for Credit Losses +AFS +Available-for-sale +AI +Artificial Intelligence +ALCO +Asset-liability committee +AML +Anti-money laundering +ASC 326 +ASU 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments +ATM +Automated teller machines +ASU +Accounting Standards Update +Bank +The Bank of Princeton +BHCA +Bank Holding Company Act of 1956, as amended +CBT +Corporation Business Tax +CECL +ASU 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments +CFC +Cornerstone Financial Corporation and its wholly owned subsidiary Cornerstone Bank +CFPB +Consumer Financial Protection Bureau +CIO +Chief Information Officer +Company +Princeton Bancorp, Inc. +COSO 2013 +Committee of Sponsoring Organizations of the Treadway Commission +CRA +Community Reinvestment Act +DCF +Discounted Cash Flow Method +Department +New Jersey Department of Banking and Insurance +DIF +Deposit Insurance Fund of the FDIC +Dodd-Frank Act +Dodd-Frank Wall Street Reform and Consumer Protection Act +DRR +DIF Designated reserve (target) ratio +FDIC +Federal Deposit Insurance Corporation +Federal Reserve +Federal Reserve System +FHLB +Federal Home Loan Bank +GAAP +Accounting principles generally accepted in the United States of America +GAP Table +Table setting forth the amounts of our interest-earning assets and interest-bearing liabilities outstanding +HELOC +Home equity line of credit +HTM +Held-to-maturity +LTV +Loan to Value +NPV +Net portfolio value +SBIC +Small Business Investment Company +3 +PRINCETON BANCORP, INC. +P ART I +In this report, unless the context indicates otherwise, references to “we,” “us,” and “our” refer to the Company and the Bank. +Ite m 1. Business +General and Market Area +Princeton Bancorp, Inc. is a Pennsylvania corporation formed in 2022 to be the holding company for The Bank of Princeton. The Bank was incorporated on March 5, 2007 under the laws of the State of New Jersey and is a New Jersey state-chartered banking institution. The Bank was granted its bank charter on April 17, 2007, commenced operations on April 23, 2007 and is a full-service bank providing personal and business lending and deposit services. As a state-chartered bank, the Bank is subject to regulation by the New Jersey Department of Banking and Insurance and the FDIC. The area served by the Bank, through its 33 branches, is generally an area within an approximate 50-mile radius of Princeton, NJ, including parts of Burlington, Camden, Gloucester, Hunterdon, Mercer, Middlesex, Ocean, and Somerset Counties in New Jersey, and additional areas in portions of Philadelphia, Montgomery and Bucks Counties in Pennsylvania. The Bank also has two retail branches and conducts loan origination activities in select areas of the New York City metropolitan area. +The Bank offers traditional retail banking services, one-to-four-family residential mortgage loans, multi-family and commercial mortgage loans, construction loans, commercial business loans and consumer loans, including home equity loans and lines of credit. +From 2007 until January 2023, the Bank was a stand-alone bank. On January 10, 2023, the Bank caused the Company to acquire all the outstanding stock of the Bank in a corporate reorganization. As a result, the Bank became the sole direct subsidiary of the Company, the Company became the holding company for the Bank and the stockholders of the Bank became stockholders of the Company. As of December 31, 2025, the Company had 241 total employees and 240 full-time equivalent employees. +On May 19, 2023, the Company completed the acquisition of Noah Bank, a Pennsylvania chartered state bank headquartered in Elkins Park, Pennsylvania that primarily served the Philadelphia, North New Jersey and New York City markets. On that date the Company acquired 100% of the outstanding common stock, for cash, of Noah Bank and Noah Bank was merged with and into the Bank. +On April 29, 2024, the Company amended its Articles of Incorporation to authorize 2,000,000 shares of preferred stock, par value $0.01 per share. The preferred stock may be issued in one or more series, and the Board of Directors is authorized, without further shareholder approval, to determine the designations, rights, preferences, privileges, and limitations of each series, including dividend rights, dividend rates, conversion rights, voting rights, redemption terms, and liquidation preferences. No shares of preferred stock were issued or outstanding as of December 31, 2025. +On August 23, 2024, the Company completed the acquisition of Cornerstone Financial Corporation (“CFC”), the holding company for Cornerstone Bank, a New Jersey chartered state bank headquartered in Mt. Laurel, New Jersey that primarily served the southern New Jersey market. The Company acquired 100% of the outstanding common stock of CFC in exchange for the Company’s stock, CFC was merged into the Company, and Cornerstone Bank was merged with and into the Bank. +Our headquarters and one of our branches are located at 183 Bayard Lane, Princeton, New Jersey 08540. Our telephone number is (609) 921-1700 and our website address is www.thebankofprinceton.com. +The Company has elected to prepare this Annual Report on Form 10- K and other annual and periodic reports as a “smaller reporting company” consistent with the rules of the SEC. +4 +Competition +We have substantial competition in originating commercial and consumer loans in our market area. This competition comes principally from other banks, savings institutions, mortgage banking companies and other lenders. Many of our competitors enjoy advantages over us, including greater financial resources and higher lending limits, more aggressive marketing campaigns, better brand recognition, a wider geographic presence, more accessible branch office locations, the ability to offer a wider array of services or more favorable pricing alternatives, as well as lower origination and operating costs. Among other things, this competition could reduce our interest income and net income by decreasing the number and size of loans that we originate and the interest rates we may charge on these loans. We compete for loans primarily on the basis of value and service by building customer relationships through addressing our customers’ entire suite of banking needs, demonstrating expertise, and providing convenience. We also consider the competitive pricing levels in each of our markets. +In attracting business and consumer deposits, we face substantial competition from other insured depository institutions such as banks, savings institutions and credit unions, as well as institutions offering uninsured investment alternatives, including money market funds. These competitors may offer higher interest rates on deposits, which could decrease the deposits that we attract, or require us to increase the rates we pay to retain existing deposits or attract new deposits. Deposit competition could adversely affect our net interest income and net income, and our ability to generate the funds we require for our lending or other operations. As a result, we may need to seek other sources of funds that may be more expensive to obtain and could increase our cost of funds. We compete for deposits similarly on the basis of value and service and by providing convenience through a banking network of branches and ATMs within our markets and our website at https://thebankofprinceton.com. +FinTechs continue to emerge in key areas of banking. In addition, larger established technology platform companies continue to evaluate, and in some cases, create businesses focused on banking products. We closely monitor activity in the marketplace to ensure that our products and services are technologically competitive. Our overall strategy involves seeking to identify partnership and possible investment opportunities in technology-driven companies that can augment our distribution and product capabilities. +Lending Activities +Our loan portfolio consists of variable-rate and fixed-rate loans with a significant concentration in commercial real estate lending. While most loans and other credit facilities are appropriately collateralized, major emphasis is placed upon the financial condition of the borrower and the borrower’s cash flow versus debt service requirements. +Loan growth is driven by customer demand, which in turn is influenced by individual and business indebtedness and consumer demand for goods. Loaning money will always entail some risk. Without loaning money, however, a bank cannot generate enough net interest income to be profitable. The risk involved in each loan must be carefully evaluated before the loan is made. The interest rate at which the loan is made should always reflect the risk factors involved, including the term of the loan, the value of collateral, if any, the reliability of the projected source of repayment, and the amount of the loan requested. Credit quality and repayment capacity are generally the most important factors in evaluating loan applications. +The majority of our loans are to borrowers in our immediate markets. We believe that no single borrower or group of borrowers presents a credit concentration whereby the borrowers’ loan default would have a material adverse effect on our financial condition or results of operations. +Commercial Real Estate and Multi-family. At December 31, 2025, commercial real estate and multi-family loans amounted in the aggregate to $1.34 billion, or 73.9% of the total loans receivable. Our commercial real estate portfolio has decreased $41.6 million or 3.0% since December 31, 2024, when commercial real estate and multi-family loans amounted to $1.39 billion, or 76.1%, of our total portfolio. +The commercial real estate and multi-family loan portfolio consists primarily of loans secured by small office buildings, strip shopping centers, small apartment buildings and other properties used for commercial and multi-family purposes located in the Company’s market area. At December 31, 2025, the average commercial and multi-family real estate loan size was approximately $1.8 million. +5 +Although terms for commercial real estate and multi-family loans vary, our underwriting standards generally allow for terms up to 7 years with loan-to-value ratios of not more than 75%. Most of the loans are structured with balloon payments of 5 years or less and amortization periods of up to 25 years. Interest rates are either fixed or adjustable, based upon designated market indices such as the Wall Street Journal prime rate plus a margin. +Commercial real estate and multi-family real estate lending involves different risks from single-family residential lending. These risks include larger loans to individual borrowers and loan payments that are dependent upon the successful operations of the project or the borrower’s business. These risks can be affected by supply and demand conditions in the project’s market area of rental housing units, office and retail space and other commercial space. We attempt to minimize these risks by limiting loans to proven businesses, only considering properties with existing operating performance which can be analyzed, using conservative debt coverage ratios in our underwriting, and periodically monitoring the operation of the business or project and the physical condition of the property. +Various aspects of commercial and multi-family loan transactions are evaluated in an effort to mitigate the additional risk in these types of loans. In our underwriting procedures, consideration is given to the stability of the property’s cash flow history, future operating projections, current and projected occupancy levels, location and physical condition. Generally, we impose a debt service ratio (the ratio of net cash flows from operations to debt service) of not less than 1.25 X. We also evaluate the credit and financial condition of the borrower, and if applicable, the guarantor. With respect to loan participation interests we purchase; we underwrite the loans as if we were the originating lender. Appraisal reports prepared by independent appraisers are reviewed by an outside third party prior to closing. +Set forth below is a brief description of our three largest commercial real estate or multi-family loans: +- +The largest commercial real estate loan is a $31 million loan (split between 2 loans $29 million and $2 million). The proceeds were used to refinance an existing loan, with cash out being escrowed and released in the future upon meeting certain requirements. The property is an eight-story mixed use property located in Brooklyn, NY with 69 residential units and one commercial unit with an estimated LTV of 70%. The borrower is paying in accordance with the loan terms as of December 31, 2025 +- +The second largest commercial real estate loan is a $22.7 million loan. The proceeds were used to refinance an existing loan with cash out for tenant improvements and future real estate investments. The property is an industrial warehouse located in East Windsor, NJ with an estimated LTV of 54% The borrower is paying in accordance with the loan terms as of December 31, 2025. +- +The third largest commercial real estate loan is a $20.4 million loan. The proceeds were used to refinance an existing loan. The property is an eight-story mixed use property located in Queens, NY with 49 residential units and two commercial units with an estimated LTV of 56%. The borrower is paying in accordance with the loan terms as of December 31, 2025. +Commercial and Industrial Loans. At December 31, 2025, commercial and industrial loans amounted in the aggregate to $76.6 million, or 4.2%, of the total loan portfolio . Our commercial and industrial portfolio has decreased $16.3 million, or 17.6%, since December 31, 2024, when commercial and industrial loans amounted to $93.0 million, or 5.1%, of our total loan portfolio. +Commercial business loans are made to small to mid-sized businesses in our market area primarily to provide working capital. Small business loans may have adjustable or fixed rates of interest and generally have terms of three years or less but may be as long as 15 years. Our commercial business loans have historically been underwritten based on the creditworthiness of the borrower and generally require a debt service coverage ratio of at least 1.25 X. In addition, we generally obtain personal guarantees from the principals of the borrower with respect to commercial business loans and frequently obtain real estate as additional collateral. +Set forth below is a brief description of our three largest commercial and industrial loans: +• +The largest commercial and industrial loan is a $9.6 million loan (split between 2 loans $8.8 million and $864 thousand). The proceeds were used for business purposes and completion of capital improvements. The collateral is a lien on all business assets. The borrower is paying in accordance with the loan terms as of December 31, 2025 +6 +• +The second largest commercial and industrial loan is a $8.3 million loan (split between 2 loans $5 million and $3.3 million). The proceeds were used for general business purposes. The loan is secured by real estate and cash collateral. The borrower is paying in accordance with the loan terms as of December 31, 2025 +• +The third largest commercial and industrial loan is a $4.3 million loan (split between 2 loans $3.9 million and $384 thousand). The proceeds were used for working capital The borrower is paying in accordance with the loan terms as of December 31, 2025. +Construction Loans. We originate various types of commercial loans, including construction loans, secured by collateral such as real estate, business assets and personal guarantees. The loans are solicited on a direct basis and through various professionals with whom we maintain contact and by referral from our directors, stockholders and customers. At December 31, 2025, our construction loans amounted to $209.5 million, or 11.5% of our total loans receivable. The average size of a construction loan was approximately $9.9 million at December 31, 2025. Our construction loans portfolio has decreased $47.7 million or 18.5% since December 31, 2024, when construction loans amounted to $257.2 million, or 14.1% of our total loans receivable. Construction lending represents a segment of our loan portfolio and is driven primarily by market conditions. Loans to finance construction of condominium projects or single-family homes and subdivisions are generally offered to experienced builders in our primary market area with whom we have an established relationship. The maximum loan-to-value limit applicable to these loans is 75% of the appraised post construction value and does not require amortization of the principal during the term of the loan. We often establish interest reserves and obtain personal and corporate guarantees as additional security on the construction loans. Interest reserves are used to pay monthly payments during the construction phases of the loan and are treated as an addition to the loan balance. Interest reserves pose an additional risk to the Bank if it does not become aware of deterioration in the borrower’s financial condition before the interest reserve is fully utilized. In order to mitigate risk, financial statements and tax returns are obtained from borrowers on an annual basis. Construction loan proceeds are disbursed periodically in increments as construction progresses and as inspection by approved appraisers or loan inspectors warrants. Construction loans are negotiated on an individual basis but typically have floating rates of interest based on a common index plus a stipulated margin. Additional fees may be charged as funds are disbursed. As units are completed and sold, we require that payments to reduce principal outstanding be made prior to them being released. We may permit a pre-determined limited number of model homes to be constructed on an unsold or “speculative” basis. Construction loans also include loans to acquire land and loans to develop the basic infrastructure, such as roads and sewers. The majority of the construction loans are secured by properties located in our primary areas. +Set forth below is a brief description of our three largest construction loans or loan relationships: +• +The largest construction loan is a $21.7 million loan. The proceeds are being used for the acquisition and renovation of an existing building into an 87-unit mixed-use investment property with 84 units and 3 retail units. The project is approximately 100% completed. The borrower is paying in accordance with the loan terms as of December 31, 2025. +• +The second largest construction loan is a $21.0 million loan to purchase and completion of site improvements, construction of four buildings comprised of 11 retail units Lower Markfield Township PA. The project is approximately 90% complete. The borrower is paying in accordance with the loan terms as of December 31, 2025. +• +The third largest construction loan is a $20.0 million loan to purchase land for future construction of a mixed-use property consisting of residential units and commercial/retail office space in Jersey City, NJ. The borrower is paying in accordance with the loan terms as of December 31, 2025. +Residential First-Lien Mortgage Loans. We offer a narrow range of prime residential first-lien mortgage loans at competitive rates. Our customers, stockholders and local real estate brokers are a significant source of these loans. We strive to process, approve and fund loans in a timeframe that meets the needs of our borrowers. Generally, we originate and retain non-conforming residential first-lien mortgage loans and refer conforming residential first-lien mortgage loans to a third party, whereby we may earn a fee. At December 31, 2025, our residential first-lien loans amounted to $163.8 million, or 9.0%, of our total portfolio. Our residential first-lien loan portfolio has increased $95.8 million, or 140.8%, since December 31, 2024, when residential first-lien loans amounted to $68.0 million, or 3.7%, of our total loan portfolio. This substantial increase was due to the purchase of such loans during 2025. +Home Equity Loans and Consumer Loans. We generate these loans and lines of credit primarily through direct marketing at our branch locations, referrals from local real estate brokers and, to a lesser extent, by targeted direct marketing +7 +programs such as mail and electronic mail. Consumer loans are solicited on a direct basis and upon referrals from our directors, stockholders and existing customers. +Loans Receivable, Net. Loans receivable, remained consistent at $1.82 billion for both periods December 31, 2024, and December 31, 2025. +The following table details our loan maturities by loan segment and interest rate type: +December 31, 2025 +Due in one +year +or less +Due after one +through five +years +Due after +five years +through +fifteen years +Due after +fifteen +years +Total +(Dollars in thousands) +Commercial real estate +$ +61,752 +$ +465,817 +$ +437,621 +$ +378,341 +$ +1,343,531 +Commercial and industrial +25,270 +21,900 +25,112 +4,275 +76,557 +Construction +141,949 +67,534 +— +— +209,483 +Residential first-lien mortgage +— +1,969 +7,946 +153,898 +163,813 +Home equity/consumer +6 +985 +11,610 +12,758 +25,359 +Total loans +$ +228,977 +$ +558,205 +$ +482,289 +$ +549,272 +$ +1,818,743 +Amount due after one year +Fixed Rate +Variable Rate +(Dollars in thousands) +Commercial real estate +$ +384,895 +$ +896,884 +Commercial and industrial +24,222 +27,065 +Construction +— +67,534 +Residential first-lien mortgage +121,688 +42,125 +Home equity/consumer +4,092 +21,261 +Total loans +$ +534,897 +$ +1,054,869 +The accrual of interest is discontinued when the contractual payment of principal or interest is 90 days past due or management has serious doubts about further collectability of the principal or interest, even if the loan is currently performing. +The following table sets forth certain information regarding our nonaccrual loans, accruing loans 90 days or more past-due, and other real estate owned.  +December 31, +2025 +2024 +(Dollars in thousands) +Commercial real estate +$ +15,229 +$ +25,441 +Commercial and industrial +1,257 +1,287 +Residential first-lien mortgage +92 +94 +Home equity/consumer +— +19 +Total nonaccrual loans +16,578 +26,841 +Accruing loans 90 days or more past due +— +32 +Total nonperforming loans +16,578 +26,873 +Other real estate owned +— +295 +Total nonperforming assets +$ +16,578 +$ +27,168 +See Note 5 - “Loans Receivable” in the Notes to Consolidated Financial Statements within this Form 10-K for additional information regarding our loans not classified as nonperforming assets as of December 31, 2025 and for other information on our loan ratings of special mention, substandard and doubtful, all of which contain varying degrees of potential credit problems that could result in the loans being classified as nonaccrual, past-due 90 or more days or modifications to borrowers with financial difficulty in a future period. +8 +Analysis of Allowance for Credit Losses. The Company follows Accounting Standard Update (“ASU”) 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“CECL” or “ASC 326”) , which requires the recognition of the allowance for credit losses be estimated using the CECL methodology. The measurement of expected credit losses under CECL methodology is applicable to financial measured assets at amortized cost, including loan receivables. Available-for-sale (“AFS”) debt securities are included and require credit losses to be presented as an allowance rather than as a write-down. It also applies to off-balance sheet credit exposure, such as unfunded loan commitments, standby letters of credit and other similar instruments. +The credit loss estimation process involves procedures to appropriately consider the unique characteristics of loan portfolio segments, which consist of commercial real estate loans, construction loans, commercial and industrial loans, residential loans and HELOC/consumer loans. These segments are further disaggregated into loan classes, the level at which credit risk is monitored. For each of these segments, the Company generates cash flow projections at the instrument level wherein payment expectations are adjusted for estimated prepayment speed, curtailments, time to recovery, probability of default and loss given default. The modeling of expected prepayment speeds, curtailment rates, and time to recovery are based on historical data. The quantitative component of the ACL on loans is model-based and utilizes a forward-looking macroeconomic forecast. The Company uses a discounted cash flow method, incorporating probability of default and loss given default forecasted based on statistically derived economic variable loss drivers, to estimate expected credit losses. This process includes estimates which involve modeling loss projections attributed to existing loan balances, and considering historical experience, current conditions, and future expectations for segments of loans over a reasonable and supportable forecast period. The historical information used is that experienced by the Company or by a selection of peer banks, when appropriate. +Commercial real estate – Loans in this segment include owner-occupied commercial real estate, non-owner-occupied commercial real estate and multi-family dwellings within the Company’s market area. The underlying cash flows generated by the properties or operations can be adversely impacted by a downturn in the economy due to increased vacancy rates or diminished cash flows, which in turn, would have an effect on the credit quality in this segment. Management obtains financial information annually and monitors the cash flow of these loans. +Construction – Loans in this segment include primarily construction of condominium projects or single-family homes and subdivisions. Exposure to loans in this segment can come from construction delays, slow unit sales and insufficient interest reserves. The Company often requires personal and corporate guarantees as additional security on the loan. Management relies on progress reports and third-party experts prior to the release of additional funds. +Commercial and industrial loans – Loans in this segment are primarily for commercial business assets and/or purposes, which usually carry a personal guarantee from the business owners. Repayment is expected from the cash flow of the business. A weakened economy, and resultant decrease in consumer spending, will have an effect on quality in this segment. +Residential real estate loans – This portfolio segment consists of first lien secured by one-to-four family residential properties. The overall health of the economy, including unemployment rates and housing pricing, will have an effect on the credit quality in this segment. +Consumer/HELOC loans – Loans in this segment are substantially secured and repayment is dependent on the credit quality of the individual borrower and include junior-lien mortgages. +Credits with Similar Risk Characteristics. +The Company is using DCF in estimating the component of the allowance for credit losses for loans that share similar risk characteristics with other loans, such loans are segregated into loan segments. The model calculates an expected loss percentage for each segment by considering the probability of default, using life-of-loan analysis periods for all segments, and the historical severity of loss, based on the aggregate net lifetime losses incurred per loan segment. The default and severity factors used to calculate the allowance for credit losses for loans that share similar risk characteristics with other loans are adjusted for differences between historical period used to calculate historical severity of loss, based on the aggregate net lifetime losses incurred per loan segment. The default and severity factors used calculate the allowance for credit losses for loans that share similar risk characteristics with other loans adjusted for differences between the historical loss and severity rates and expected conditions over the remaining lives of the loans in the portfolio related to: a) lending policy and procedures; b) economic conditions; c) volume of the loan portfolio; d) experience and depth of lending management; e) level of delinquencies; f) quality of our loan review system; g) the value of underlying collateral for collateralized loans and h) level of concentration of a particular segment. +9 +Individually Evaluated Financial Assets. +For a loan that does not share risk characteristics with other loans, expected credit loss is measured based on net realizable value. We generally consider these to be nonperforming loans. For these loans, we recognize expected credit loss equal to the amount by which the net realizable value of the loan is less than the amortized cost basis of the loan, except when the loan is collateral dependent, that is, when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the sale of the collateral. In these cases, expected credit loss is measured as the difference between amortized cost basis and the loan and the fair value of the collateral less disposal costs (such as sales costs, transfer taxes and unpaid real estate taxes). +Allowance for Credit Losses on Off-Balance Sheet Credit Exposures, Including Unfunded Loan Commitments. +The Company maintains a separate allowance for credit losses from off-balance-sheet credit exposures, including unfunded loan commitments, which are included in other liabilities on the consolidated statements of financial condition. Management estimates the amount of expected losses by calculating a commitment usage factor over the contractual period of exposure that are not unconditionally cancellable by the Company by applying the loss factors used in the ACL methodology to the result of the usage calculation to estimate the liability for credit losses related to unfunded commitments for each loan type. The allowance for credit losses on off-balance sheet credit exposures is adjusted as credit loss expense. +As of December 31, 2025, the allowance for credit losses on loans was $20.3 million as compared to $23.7 million as of December 31, 2024. The $3.3 million decrease in the allowance for credit losses was attributed to a $6.4 million provision related to the Bank’s loan portfolio, partially offset by $9.7 million of net-charge offs recorded during 2025. +At December 31, 2025, nonperforming assets totaled $16.6 million, a decrease of $10.6 million when compared to the amount at December 31, 2024. The decrease was due primarily the result of $10.0 million in charge-offs recorded during 2025, of which $9.9 million was recorded during the second quarter of 2025. +10 +The following table presents a summary of our allowance for credit losses on loans and nonaccrual loans by total loans and a summary of net charge-offs by loan segments: +As of and for Year Ended +December 31, +2025 +2024 +(Dollars in thousands) +Allowance for credit losses to total loans outstanding: +1.12 +% +1.30 +% +Allowance for credit losses on loans +$ +20,325 +$ +23,657 +Total loans outstanding +$ +1,818,743 +$ +1,821,274 +Nonaccrual loans +$ +16,578 +$ +26,841 +Allowance for credit losses to nonaccrual loans +122.6 +% +88.1 +% +Nonaccrual loans to total loans outstanding +0.91 +% +1.47 +% +Net charge-offs (recoveries) during the period to average loans outstanding +Commercial real estate +0.71 +% +0.01 +% +Net charge-offs +$ +10,096 +$ +151 +Average amount outstanding +$ +1,395,045 +$ +1,252,464 +Commercial and industrial +(0.25 +)% +0.39 +% +Net charge-offs (recoveries) +$ +(148 +) +$ +237 +Average amount outstanding +$ +59,786 +$ +60,665 +Construction +— +(0.01 +)% +Net charge-offs (recoveries) +$ +— +$ +(35 +) +Average amount outstanding +$ +242,802 +$ +289,851 +Residential first-lien +— +% +— +% +Net charge-offs +$ +— +$ +— +Average amount outstanding +$ +110,281 +$ +48,392 +Home equity/consumer +— +% +— +% +Net charge-offs +$ +— +$ +— +Average amount outstanding +$ +21,124 +$ +11,641 +Total loans +0.53 +% +0.02 +% +Net charge-offs +$ +9,948 +$ +353 +Average amount outstanding +$ +1,829,038 +$ +1,663,013 +The following table presents the allocation of the allowance for credit losses by portfolio segment for the years presented. The allocation of a portion of the allowance for credit losses to one category of loans does not preclude its availability to absorb losses in other categories. +2025 +2024 +(Dollars in thousands) +Amount +Loan +Balance +as % of +Total Loans +Amount +Loan +Balance +as % of +Total Loans +Commercial real estate +$ +16,848 +73.9 +% +$ +20,821 +76.1 +% +Commercial and industrial +900 +4.2 +% +1,173 +5.1 +% +Construction +376 +11.5 +% +609 +14.1 +% +Residential first-lien mortgage +2,004 +9.0 +% +893 +3.7 +% +Home equity/consumer +197 +1.4 +% +161 +1.0 +% +Total loans +$ +20,325 +100.0 +% +$ +23,657 +100.0 +% +See Note 5 – “Loans Receivable” in the Notes to Consolidated Financial Statements within this Form 10-K for additional information regarding our allowance for credit losses. +11 +Investment Securities (available-for-sale and held-to-maturity) +We hold securities that are available to fund increased loan demand or deposit withdrawals and other liquidity needs, and which provide an additional source of interest income. Securities are classified as held-to-maturity (“HTM”) or available-for-sale (“AFS”) at the time of purchase. Securities are classified as HTM if we have the ability and intent to hold them until maturity. HTM securities are carried at cost, adjusted for unamortized purchase premiums and discounts. Securities that are classified as AFS are carried at fair value with unrealized gains and losses, net of income taxes, reported as a component of equity within accumulated other comprehensive income (loss). +Securities available-for-sale, which are carried at fair value, decreased $64.6 million, or 26.1%, to $182.6 million at December 31, 2025 from $247.2 million at December 31, 2024. The decrease was primarily due to principal repayments of $77.7 million and $3.5 million of maturities or calls of available-for-sale securities during 2025, partially offset by purchases of available for sale securities in the amount of $11.6 million and a decrease of $5.1 million attributed to the unrealized losses associated with the available-for-sale portfolio. At December 31, 2025, held-to-maturity securities totaled $153 thousand and were carried at amortized cost +The following table summarizes the weighted-average yields based on maturity distribution schedule of the amortized cost of AFS debt securities at December 31, 2025. Interest income presented in this Form 10-K for tax-advantaged obligations of state and political subdivisions has not been adjusted to reflect fully taxable-equivalent interest income. Expected maturities may differ from contractual maturities because the securities may be called without any penalties. +One year +or less +After one +through +five years +After five +through +ten years +After ten +years +Total +(Dollars in thousands) +Mortgage-backed securities - U.S. Government +Sponsored Enterprises (GSEs) +$ +19 +$ +2,211 +$ +890 +$ +124,528 +$ +127,648 +U.S. government agencies +— +991 +8,481 +1,040 +10,512 +Obligations of state and political subdivisions +1,102 +8,723 +29,074 +1,298 +40,197 +Small business association (SBA) securities +— +351 +305 +603 +1,259 +U.S. treasury securities +2,953 +— +— +— +2,953 +Total +$ +4,074 +$ +12,276 +$ +38,750 +$ +127,469 +$ +182,569 +(Yield on securities) +Mortgage-backed securities - U.S. Government +Sponsored Enterprises (GSEs) +3.19 +% +4.49 +% +3.51 +% +4.87 +% +4.85 +% +U.S. government agencies +— +2.84 +% +3.81 +% +2.49 +% +3.59 +% +Obligations of state and political subdivisions +3.94 +% +2.81 +% +2.48 +% +2.87 +% +2.60 +% +Small business association (SBA) securities +— +6.50 +% +6.22 +% +5.93 +% +6.16 +% +U.S. treasury securities +3.94 +% +— +— +— +3.94 +% +Total +3.94 +% +3.22 +% +2.82 +% +4.84 +% +4.28 +% +At December 31, 2025, there were no security holdings of any one issuer in an amount greater than 10.0% of our total stockholders’ equity. See Note 4 – “Investment Securities” in the Notes to Consolidated Financial Statements within this Form 10-K for additional information regarding debt securities. +Cash and Due from Banks and Interest-earning Bank Balances +Cash and due from banks and interest-earning bank balances increased from $33.6 million at December 31, 2024 to $36.3 million at December 31, 2025, an increase of $2.7 million, or 8.0%. +Federal Funds Sold +Federal funds sold increased from $83.7 million at December 31, 2024 to $99.3 million at December 31, 2025, an increase of $15.6 million, or 18.7%. The increase in federal funds sold was primarily due to decreases in investment securities and in deposits. +12 +Premises and Equipment +Premises and equipment, net decreased $900 thousand from December 31, 2024 to December 31, 2025 resulting from $1.8 million in depreciation, partially offset by $900 thousand purchases of new equipment and improvements. +Goodwill and Core Deposit Intangible +At December 31, 2025, the Company had $14.4 million of goodwill. At December 31, 2025 the Company had $2.8 million in core deposit intangible assets, a decrease of $856 thousand when compared to December 31, 2024. The remaining core deposit intangible asset balance is comprised of $2.1 million from the CFC acquisition, $572 thousand from the WSFS branch acquisition that occurred in May 2019, and $57 thousand from the Noah acquisition. +Operating Lease Right-of-Use Asset +Operating lease right-of-use asset decreased $1.8 million from $21.9 million at December 31, 2024 to $20.1 million at December 31, 2025 due to $3.0 million in amortization, partially offset by $1.2 million of new leases. +Equity Method Investments +The Company is a limited partner in a Small Business Investment Company (“SBIC”) and committed to contribute capital of $5.0 million to the partnership. At December 31, 2025, the SBIC had a book value of $3.3 million. The unfunded commitment to the partnership was $1.7 million at December 31, 2025. +The Company invested in a CRA eligible investment that acquires SBA loans within qualifying census tracts in which the Bank operates. The Company decides which loans are included in its investment. The Company had an outstanding commitment to fund up to $7.5 million and currently has $7.5 million funded. There is currently no unfunded commitment at December 31, 2025. +Accrued Interest Receivable and Other Assets +Accrued interest receivable decreased $200 thousand from December 31, 2024 to December 31, 2025. Deferred taxes decreased $3.4 million from December 31, 2024 to December 31, 2025. Bank owned life insurance decreased $1.2 million from December 31, 2024 to December 31, 2025, primarily related to an exchange of $2.8 million, partially offset by a $1.5 million increase in cash surrender value. Other assets decreased $1.3 million from December 31, 2024 to December 31, 2025. +Deposits +Our deposit services are generally comprised of a traditional range of deposit products, including checking accounts, savings accounts, attorney trust accounts, money market accounts, and certificates of deposit. +We offer our customers access to ATMs and other services which increase customer convenience and encourage continued and additional banking relationships. +We endeavor to maintain competitive rates on deposit accounts, and actual rates are established at the time that they are offered, and subsequently, based on contractual terms, taking into consideration competitor offerings. Although from time to time we advertise in local newspapers, our primary source of deposit relationships is satisfied customers. We offer a range of direct deposit products ranging from social security and disability payments to direct deposit of payroll checks. +During normal business practices the Bank will utilize deposits originated by brokers to support the Bank’s funding needs. At December 31, 2025 the balance of brokered deposits was $18.6 million, a decrease of $26.0 million from the $44.6 million outstanding at December 31, 2024. +At December 31, 2025, there were no customers whose deposit balances individually exceeded 5% of total deposits. +The following table presents the average balance of our deposit accounts and the average cost of funds for each category of our deposits, and total uninsured deposits. +13 +2025 +2024 +Average +Amount +Average +Rate +Paid +Average +Amount +Average +Rate +Paid +(Dollars in thousands) +Non-interest-bearing checking +$ +291,084 +— +% +$ +264,418 +— +% +Demand interest-bearing +313,269 +2.01 +% +258,462 +1.91 +% +Money market +469,061 +3.12 +% +421,934 +3.79 +% +Savings deposits +169,486 +2.28 +% +157,538 +2.52 +% +Time deposits +735,427 +4.06 +% +724,060 +4.35 +% +$ +1,978,327 +2.76 +% +$ +1,826,412 +3.09 +% +2025 +2024 +Amount +Amount +Uninsured deposits +$ +598,966 +$ +573,727 +The following table represents the uninsured time deposits by maturity. +As of December 31, +2025 +2024 +Uninsured time deposits maturity +(Dollars in thousands) +Three months or less +$ +26,172 +$ +18,756 +Over three through six months +37,996 +28,202 +Over six through twelve months +32,267 +40,150 +Over twelve months +1,783 +2,553 +Total uninsured time deposits +$ +98,218 +$ +89,661 +The uninsured portion of deposits is any balance that exceeds the FDIC insurance limit of $250,000.  +See the liquidity discussion within Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations within this Form 10-K for more information regarding our available funds. +Total deposits decreased from $2.03 billion at December 31, 2024 to $1.98 billion at December 31, 2025, a decrease of $56.4 million, or 2.78%. The decrease in the Company’s deposits consisted primarily of decreases in certificates of deposit of $45.0 million, money market deposits of $26.3 million, non-interest-bearing demand deposits of $15.0 million, and savings deposits of $3.1 million, partially offset by an increase in interest-bearing demand deposits of $33.0 million. On balance sheet liquidity remains strong at December 31, 2025 with $135.7 million in cash and cash equivalents, as well as available for sale securities and borrowing capacity. +Borrowings +The Company had no outstanding borrowings at December 31, 2025 or December 31, 2024. +Accrued Interest Payable, Lease Liabilities and Other Liabilities +Accrued interest payable decreased $6.9 million from $15.4 million at December 31, 2024 to $8.5 million at December 31, 2025. The decrease was primarily the result of the decrease in interest rates offered on deposit accounts during 2025 as well as the decrease in total deposits of $56.4 million. Lease liabilities decreased $1.7 million, while other liabilities increased $1.3 million. +14 +Stockholders’ Equity +Total stockholders’ equity at December 31, 2025, increased $8.7 million or 3.31% when compared to December 31, 2024. The increase was primarily due to an increase in retained earnings of $9.8 million (which consisted of $18.6 million in net income, partially offset by $8.6 million of dividends recorded during the period), an increase in paid-in capital of $3.0 million primarily due to the exercise of stock options, and a decrease in accumulated other comprehensive loss of $3.7 million due to reductions in market interest rates and balances of investment securities, partially offset by a $7.9 million increase in treasury stock due to our stock repurchase program. The ratio of equity to total assets at December 31, 2025, and at December 31, 2024, was 11.9% and 11.2%, respectively. +Other Services +To further attract and retain customer relationships, we provide a standard array of additional community banking services, which include the following: +Money orders +Direct deposit +Automated teller machines +Cashier’s checks +Safe deposit boxes +On-line banking +Wire transfers +Night depository +Remote deposit capture +Debit cards +Bank-by-mail +Automated telephone banking +We also offer, on a limited basis, payroll-related services and credit card and merchant credit card processing through third parties whereby we do not undertake credit or fraud risk. +Internet Banking +We advertise but do not actively solicit new deposits or loans through our website. We utilize a qualified and experienced internet service provider to furnish the following types of customer account services: +Full on-line statements +Transaction histories +On-line bill payment +Transaction details +Account inquiries +Account-to-account transfers +Mobile banking +Fee Income +Fee income is a component of our non-interest income. By charging non-customers fees for using our ATMs and charging customers for banking services such as money orders, cashier’s checks, wire transfers and check orders, as well as other deposit and loan-related fees, we earn fee income. Prudent fee income opportunities are sought to supplement net interest income but may be limited by our efforts to remain competitive and by regulatory constraints. +Staffing +As of December 31, 2025, we had approximately 240 full-time equivalent employees. +Supervision and Regulation +General. We are extensively regulated under both federal and state law. These laws restrict permissible activities and investments and require compliance with various consumer protection provisions applicable to lending, deposit, brokerage and fiduciary activities. They also impose capital adequacy requirements and conditions to our ability to repurchase stock or to pay dividends. The Company is a registered bank holding company and, as such is subject to the provisions of the Bank Holding Company Act of 1956, as amended (the “BHCA”) and to supervision and examination by the Board of Governors of the Federal Reserve System (the “Federal Reserve”). The Bank is also subject to the supervision and examination by the FDIC, as their primary federal regulator and as the insurer of the Banks’ deposits. The Bank is also regulated and examined by the New Jersey Department of Banking and Insurance (the “Department”). These regulators have broad discretion to impose restrictions and limitations on our operations. This supervisory framework could materially impact the conduct and profitability of our activities. +15 +To the extent that the following information describes statutory and regulatory provisions, it is qualified in its entirety by reference to the particular statutory and regulatory provisions. Proposals to change the laws and regulations governing the banking industry are frequently raised at both the state and federal levels. The likelihood and timing of any changes in these laws and regulations, and the impact such changes may have on us, is difficult to ascertain. Changes in applicable laws and regulations, or in the manner such laws or regulations are interpreted by regulatory agencies or courts, may have a material effect on our business, financial condition and results of operations. +We are subject to various requirements and restrictions under federal and state law, including requirements to maintain reserves against deposits, restrictions on the types, amount and terms and conditions of loans that may be originated, and limits on the type of other activities in which we may engage and the investments we may make. Banking regulations permit us to engage in certain additional activities, such as insurance sales and securities underwriting, through the formation of a “financial subsidiary.” In order to be eligible to establish or acquire a financial subsidiary, we must be “well capitalized” and “well managed” and may not have less than a “satisfactory” CRA rating. At this time, we do not engage in any activity which would require us to maintain a financial subsidiary. We are also subject to federal laws that limit the amount of transactions between us and any nonbank affiliates. Under these provisions, transactions, such as a loan or investment, by us with any nonbank affiliate are generally limited to 10% of our capital and surplus for all covered transactions with such affiliate or 20% percent of capital and surplus for all covered transactions with all affiliates. Any extensions of credit, with limited exceptions, must be secured by eligible collateral in specified amounts. We are also prohibited from purchasing any “low quality” assets from an affiliate. The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) significantly expands the coverage and scope of the limitations on affiliate transactions within a banking organization. +Holding Company. The Federal Reserve has issued regulations under the BHCA that require a bank holding company to serve as a source of financial and managerial strength to its subsidiary banks. As a result, the Federal Reserve, pursuant to such regulations, may require the Company to stand ready to use its resources to provide adequate capital funds to the Bank during periods of financial stress or adversity. The BHCA requires the Company to secure the prior approval of the Federal Reserve before it can acquire all or substantially all of the assets of any bank or acquire ownership or control of 5% or more of any voting shares of any bank. Such a transaction would also require approval of the Department. +A bank holding company is prohibited under the BHCA from engaging in, or acquiring direct or indirect control of, more than 5% of the voting shares of any company engaged in non-banking activities unless the Federal Reserve, by order or regulation, has found such activities to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. Under the BHCA, the Federal Reserve has the authority to require a bank holding company to terminate any activity or relinquish control of a non-bank subsidiary (other than a non-bank subsidiary of a bank) upon the Federal Reserve’s determination that such activity or control constitutes a serious risk to the financial soundness and stability of any bank subsidiary of the bank holding company. +As a public company with our securities listed for trading on the NASDAQ stock market, the Company is subject to the disclosure and regulatory requirements of the SEC, including under the Securities Act of 1933, as amended, and the Exchange Act, and the rules and listing standards of the NASDAQ stock market. +Monetary Policy. Our business, financial condition and results of operations are and will be affected by domestic economic conditions and the monetary and fiscal policies of the United States government and its agencies. The monetary policies of the Federal Reserve have a significant effect upon the operating results of commercial banks such as ours. The Federal Reserve has a major effect upon the levels of bank loans, investments and deposits through its open market operations in United States government securities transactions and through its regulation of, among other things, the discount rate on borrowings of member banks and the reserve requirements against member banks’ deposits. It is not possible to predict the nature and impact of future changes in monetary and fiscal policies. +Deposit Insurance. The Bank’s deposits are insured up to applicable limits by the Deposit Insurance Fund of the FDIC (“DIF”). No institution may pay a dividend if in default of the federal deposit insurance assessment. +16 +The DIF has a designated reserve (target) ratio (“DRR”) of 2.00% of the estimated insured deposits. As of June 30, 2025, the reserve ratio exceeded the statutory minimum of 1.35% . Dividends are required to be paid to the industry should the DRR exceed 1.50%, but grants the FDIC sole discretion in determining whether to suspend or limit the declaration or payment of dividends. The assessment base for insured depository institutions is the average consolidated total assets during an assessment period less average tangible equity capital during that assessment period. +The limit for federal deposit insurance is $250,000 and the cash limit of Securities Investor Protection Corporation protection is also $250,000. +The FDIC has authority to increase insurance assessments. A significant increase in insurance assessments would likely have an adverse effect on our operating expenses and results of operations. Management cannot predict what insurance assessment rates will be in the future. +Deposit insurance may be terminated by the FDIC upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC. +Dividend Restrictions. Under the New Jersey Banking Act of 1948, as amended (the “Banking Act”), a bank may declare and pay cash dividends only if, after payment of the dividend, the capital stock of the bank will be unimpaired and either the bank will have a surplus of not less than 50% of its capital stock or the payment of the dividend will not reduce the bank’s surplus. The FDIC prohibits payment of cash dividends if, as a result, the institution would be undercapitalized, or the institution is in default with respect to any assessment due to the FDIC. +Under Pennsylvania law, the Company may not pay a dividend, if, after giving effect thereto, it would be unable to pay its debts as they become due in the usual course of business and, after giving effect to the dividend, the total assets of the Company would be less than the sum of its total liabilities plus the amount that would be needed, if the Company were to be dissolved at the time of distribution, to satisfy the preferential rights upon dissolution of shareholders whose rights are superior to those receiving the dividend. +It is also the policy of the Federal Reserve that a bank holding company generally may only pay dividends on common stock out of net income available to common shareholders over the past twelve months and only if the prospective rate of earnings retention appears consistent with a bank holding company’s capital needs, asset quality, and overall financial condition. A bank holding company also should not maintain a dividend level that places undue pressure on the capital of such institution’s subsidiaries, or that may undermine the bank holding company’s ability to serve as a source of strength for such subsidiaries. +Regulatory Capital Requirements . Federally insured, state-chartered non-member banks are required to maintain minimum levels of regulatory capital. Current FDIC capital standards require these institutions to satisfy a common equity Tier 1 capital requirement, a leverage capital requirement and a risk-based capital requirement. +The common equity Tier 1 capital component generally consists of retained earnings and common stock instruments and must equal at least 4.5% of risk-weighted assets. +Leverage capital, also known as “core” capital, must equal at least 3.0% of adjusted total assets for the most highly rated state-chartered non-member banks. Core capital generally consists of common stockholders’ equity (including retained earnings). An additional cushion of at least 100 basis points is required for all other banking associations, which effectively increases their minimum Tier 1 leverage ratio to 4.0% or more. Under the FDIC’s regulations, the most highly-rated banks are those that the FDIC determines are strong banking organizations and are rated composite 1 under the Uniform Financial Institutions Rating System. +Under the risk-based capital requirements, “total” capital (a combination of core and “supplementary” capital) must equal at least 8.0% of “risk-weighted” assets. The FDIC also is authorized to impose capital requirements in excess of these standards on individual institutions on a case-by-case basis. +Capital rules require a common equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets, which is in addition to the other minimum risk-based capital standards described above. Institutions that do not maintain this required capital buffer become subject to progressively more stringent limitations on the percentage of earnings that can be paid out in +17 +dividends or used for stock repurchases and on the payment of discretionary bonuses to senior executive management. At December 31, 2025, the Bank met all capital adequacy requirements on a fully phased-in basis. +In determining compliance with the risk-based capital requirement, a banking organization is allowed to include both core capital and supplementary capital in its total capital, provided that the amount of supplementary capital included does not exceed the bank’s core capital. Supplementary capital generally consists of general allowances for loan losses up to a maximum of 1.25% of risk-weighted assets, together with certain other items. In determining the required amount of risk-based capital, total assets, including certain off-balance sheet items, are multiplied by a risk-weight based on the risks inherent in the type of assets. At December 31, 2025, the Bank exceeded all its regulatory capital requirements. +Any banking organization that fails any of the capital requirements is subject to possible enforcement action by the FDIC. Such action could include a capital directive, a cease-and-desist order, civil money penalties, the establishment of restrictions on the institution’s operations, termination of federal deposit insurance and the appointment of a conservator or receiver. The FDIC’s capital regulations provide that such actions, through enforcement proceedings or otherwise, could require one or more of a variety of corrective actions. +The Company qualifies as a “small bank holding company” with respect to the application of consolidated capital requirements because it has less than $3 billion of consolidated assets. “Small bank holding companies” are not subject to the consolidated capital requirements unless otherwise directed by the Federal Reserve. +Prompt Corrective Action. In addition to the required minimum capital levels described above, federal law establishes a system of “prompt corrective actions” that federal banking agencies are required to take, or have discretion to take, based upon the capital category into which a federally-regulated depository institution falls. Regulations set forth detailed procedures and criteria for implementing prompt corrective action in the case of any institution which is not adequately capitalized. The following table shows the amount of capital associated with the different capital categories set forth in the prompt corrective action regulations. +Capital Category +Total +Risk-Based +Capital +Tier 1 +Risk-Based +Capital +Common Equity +Tier 1 +Capital +Tier 1 +Leverage +Capital +Well capitalized +10% or more +8% or more +6.5% or more +5% or more +Adequately capitalized +8% or more +6% or more +4.5% or more +4% or more +Undercapitalized +Less than 8% +Less than 6% +Less than 4.5% +Less than 4% +Significantly undercapitalized +Less than 6% +Less than 4% +Less than 3% +Less than 3% +In addition, a banking organization is “critically undercapitalized” if it has a ratio of tangible equity to total assets that is equal to or less than 2.0%. Under specified circumstances, a federal banking agency may reclassify a well-capitalized institution as adequately capitalized and may require an adequately capitalized institution or an undercapitalized institution to comply with supervisory actions as if it were in the next lower category (except that the FDIC may not reclassify a significantly undercapitalized institution as critically undercapitalized). +A banking organization generally must file a written capital restoration plan which meets specified requirements within 45 days of the date that the institution receives notice or is deemed to have notice that it is undercapitalized, significantly undercapitalized or critically undercapitalized. A federal banking agency must provide the institution with written notice of approval or disapproval within 60 days after receiving a capital restoration plan, subject to extensions by the agency. A banking organization which is required to submit a capital restoration plan must concurrently submit a performance guaranty by each company that controls the institution. In addition, undercapitalized organizations are subject to various regulatory restrictions, and the appropriate federal banking agency also may take any number of discretionary supervisory actions. At December 31, 2025, the Bank was not subject to any of the above mentioned restrictions. +Community Reinvestment Act. The Community Reinvestment Act (“CRA”) requires that banks meet the credit needs of all of their assessment area, as established for these purposes in accordance with applicable regulations based principally on the location of branch offices, including those of low-income areas and borrowers. The CRA also requires that the FDIC assess all financial institutions that it regulates to determine whether these institutions are meeting the credit needs of the community they serve. Under the CRA, institutions are assigned a rating of “outstanding,” “satisfactory,” “needs to improve” or “unsatisfactory.” Our record in meeting the requirements of the CRA is made publicly available and is taken into consideration in connection with any applications with federal regulators to engage in certain activities, including approval of a branch or other deposit facility, mergers and acquisitions, office relocations, or expansions into non-banking activities. As of December 31, 2025, we maintained a “satisfactory” CRA rating. In October 2023, the U.S. banking agencies issued a final +18 +rule to amend their regulations implementing the CRA. In July 2025, the federal banking agencies issued a notice of proposed rulemaking, which, if finalized, would rescind the CRA final rule issued in October 2023 and reinstate that CRA framework that existed prior to the issuance of that rule. Implementation of the October 2023 final rule, which was subject to an injunction and has not taken effect, would have materially changed the CRA framework, including imposing additional costs and changing how CRA performance would be assessed. +Dodd-Frank Act. The Dodd-Frank Act became law on July 21, 2010. The Dodd-Frank Act implemented far-reaching changes across the financial regulatory landscape. Among other things, the Dodd-Frank Act created the Consumer Financial Protection Bureau (the “CFPB”), which is an independent bureau within the Federal Reserve System with broad authority to regulate the consumer finance industry, including regulated financial institutions such as us, as well as non-banks and others who are involved in the consumer finance industry. The CFPB has exclusive authority through formal rulemaking, as well as through the issuance of orders, policy statements, guidance and enforcement actions to administer and enforce federal consumer financial protection laws, to oversee non-federally regulated entities, to prevent practices that the CFPB deems unfair, deceptive or abusive. While the CFPB has these extensive powers to interpret, administer and enforce federal consumer financial protection laws, the Dodd-Frank Act provides that the FDIC continues to have examination and enforcement powers over us on matters otherwise falling within the CFPB’s jurisdiction because we have less than $10 billion in assets. The Dodd-Frank Act also gives state attorneys general the ability to enforce federal consumer protection laws. +In May 2025, President Trump signed a Congressional Review Act resolution that overturned the CFPB’s December 2024 final rule, which would have taken effect October 1, 2025 and imposed certain requirements on overdraft fees, similar to those that apply to credit cards, unless the financial institution limited the amount of overdraft fees to the higher of the amount of costs and losses to provide overdraft services or $5.00. +Federal Home Loan Bank (“FHLB”) Membership. We are a member of the FHLB-NY. Each member of the FHLB-NY is required to maintain a minimum investment in capital stock of the FHLB-NY. The Board of Directors of the FHLB-NY can increase the minimum investment requirements in the event it has concluded that additional capital is required to allow it to meet its own regulatory capital requirements. Any increase in the minimum investment requirements outside of specified ranges requires the approval of the Federal Housing Finance Agency. Because the extent of any obligation to increase our investment in the FHLB-NY depends entirely upon the occurrence of a future event, potential payments to the FHLB-NY are not determinable. +Additionally, in the event that we fail, the right of the FHLB-NY to seek repayment of funds loaned to us will take priority over certain other creditors. +The Sarbanes-Oxley Act. As a public company, the Bank is subject to the Sarbanes-Oxley Act of 2002 which addresses, among other issues, corporate governance, auditing and accounting, executive compensation, and enhanced and timely disclosure of corporate information. As directed by the Sarbanes-Oxley Act, our principal executive officer and principal financial officer are required to certify that our quarterly and annual reports do not contain any untrue statement of a material fact. The rules adopted by the SEC under the Sarbanes-Oxley Act require these officers to certify that they are responsible for establishing, maintaining and regularly evaluating the effectiveness of our internal control over financial reporting; they have made certain disclosures to our auditors and the audit committee of the Board of Directors about our internal control over financial reporting; and they have included information in our quarterly and annual reports about their evaluation and whether there have been changes in our internal control over financial reporting or in other factors that could materially affect internal control over financial reporting. +Loans to One Borrower. New Jersey banking law limits the total loans and extensions of credit by a bank to one borrower at one time to 15% of the capital funds of the bank, or up to 25% of the capital funds of the bank if the additional 10% is fully secured by collateral having a market value (as determined by reliable and continuously available price quotations) at least equal to the amount of the loans and extensions of credit over the 15% limit. At December 31, 2025, the Bank’s lending limit to one borrower under regulatory guidelines was $40.6 million, but the Company's Board of Directors has set an internal lending limit of approximately 75.0% of the legal lending limit or $30.5 million. +Concentration and Risk Guidance . The federal banking regulatory agencies promulgated joint interagency guidance regarding material direct and indirect asset and funding concentrations. The guidance defines a concentration as any of the following: (i) asset concentrations of 25% or more of Total Capital (loan related) or Tier 1 Capital (non-loan related) by individual borrower, small interrelated group of individuals, single repayment source or individual project; (ii) asset concentrations of 100% or more of Total Capital (loan related) or Tier 1 Capital (non-loan related) by industry, product line, type of collateral, or short-term obligations of one financial institution or affiliated group; (iii) funding concentrations from a +19 +single source representing 10% or more of Total Assets; or (iv) potentially volatile funding sources that when combined represent 25% or more of Total Assets (these sources may include brokered, large, high-rate, uninsured, internet-listing-service deposits, Federal funds purchased or other potentially volatile deposits or borrowings). If a concentration is present, management must employ heightened risk management practices including board and management oversight and strategic planning, development of underwriting standards, risk assessment and monitoring through market analysis and stress testing, third party review and increasing capital requirements. The Bank adheres to the practices recommended in this guidance. +Restrictions on Transactions with Affiliates, Directors, and Officers. Under the Federal Reserve Act, the Bank may not lend funds or otherwise extend credit to its parent holding company or any other affiliate, except on specified types and amounts of collateral generally upon market terms and conditions. The Federal Reserve also has authority to define and limit the transactions between banks and their affiliates. The Federal Reserve’s Regulation W and relevant federal statutes and regulations, among other authorities, impose significant limitations on transactions in which the Bank may engage with us or with other affiliates, including per-affiliate and aggregate limits on affiliate transactions. +Federal Reserve Regulation O restricts loans to the Bank and its parent holding company’s insiders, which includes directors, certain officers, and principal shareholders and their respective related interests. All extensions of credit to the insiders and their related interests must be on the same terms as, and subject to the same loan underwriting requirements as, loans to persons who are not insiders. In addition, Regulation O imposes lending limits on loans to insiders and their related interests and imposes, in certain circumstances, requirements for prior approval of the loans by the Bank board of directors. +New Jersey Tax Laws On June 28, 2024, New Jersey Gov. Phil Murphy signed legislation, A.B. 4704, which enacted a 2.5% surtax, termed the “Corporate Transit Fee,” on certain CBT taxpayers that have New Jersey allocated taxable net income over $10 million. The new surtax is in addition to the CBT and applies to privilege periods beginning on or after January, 1, 2024, through December, 31, 2028. +Anti-Money Laundering. The Bank Secrecy Act, as amended by the Patriot Act and Anti-Money Laundering Act of 2020, contains anti-money laundering and financial transparency provisions intended to detect and prevent the use of the U.S. financial system for money laundering and terrorist financing activities. The Bank Secrecy Act requires financial institutions such as depository institutions to undertake activities, including maintaining an AML program, verifying the identity of customers, verifying the identity of certain beneficial owners for legal entity customers, monitoring for and reporting suspicious transactions, reporting on cash transactions exceeding specified thresholds, and responding to requests for information by regulatory authorities and law enforcement agencies. The Bank is subject to the Bank Secrecy Act and, therefore, is required to implement compliance policies, procedures, and internal controls, provide its employees with AML training, designate an AML compliance officer, and undergo periodic independent auditing and testing to assess the effectiveness of its AML program, among other requirements. The Bank has implemented an AML compliance program, including policies, procedures, and internal controls that are designed to comply with these AML requirements. Bank regulators continue to focus their examinations on AML compliance, and we will continue to monitor and augment, where necessary, our AML compliance programs, including the Bank’s. The federal banking agencies are required, when reviewing bank and BHC acquisition or merger applications, to take into account the effectiveness of the AML activities of the applicant. +The Anti-Money Laundering Act of 2020, enacted as part of the National Defense Authorization Act, requires the U.S. Treasury to issue National Anti-Money Laundering and Countering the Financing of Terrorism Priorities, and conduct studies and issue regulations that may, over the next few years, significantly alter some of the due diligence, recordkeeping, and reporting requirements that the Bank Secrecy Act imposes on banks. The Anti-Money Laundering Act of 2020 also contains provisions that promote increased information-sharing and use of technology and increases penalties for violations of the Bank Secrecy Act and includes whistleblower incentives, both of which could increase the prospect of regulatory enforcement. +OFAC Regulation. OFAC is the primary U.S. regulatory authority responsible for administering economic sanctions that affect transactions with designated foreign countries and territories, nationals, and others, as defined by various Executive Orders and in various legislation. OFAC-administered sanctions take many different forms. For example, sanctions may include: (1) restrictions on trade with or investment in a sanctioned country or territory, including prohibitions against direct or indirect imports from and exports to a sanctioned country or territory, and prohibitions on U.S. persons engaging in financial transactions relating to making investments in, or providing investment-related advice or assistance to, a sanctioned country or territory; and (2) a blocking of assets in which the government or “specially designated nationals” of the sanctioned country or territory, or other sanctioned individuals or entities, have an interest by prohibiting transfers of property subject to U.S. jurisdiction, including property in the possession or control of U.S. persons. OFAC also publishes +20 +lists of blocked or designated persons, organizations, and entities, including the Specially Designated Nationals and Blocked Persons List. Blocked assets, for example property and bank deposits, cannot be paid out, withdrawn, set off, or transferred in any manner without a license from OFAC. Failure to comply with these sanctions could have serious legal and reputational consequences. Other jurisdictions and multilateral bodies also administer and impose sanctions. +Cyber-security. Federal and state legislation and regulations contain extensive cybersecurity and data privacy provisions. Our regulatory agencies including the CFPB, FDIC, and Federal Reserve also have oversight over us with respect to cybersecurity and data privacy. We are subject to the rules and regulations promulgated under the authority of the CFPB and Federal Trade Commission, which regulates unfair or deceptive acts or practices, including with respect to cybersecurity and data privacy. In addition, effective April 1, 2022, the Federal Reserve and FDIC issued a rule that, among other things, requires a banking organization to notify its primary federal regulator as soon as possible and within 36 hours after identifying a “computer-security incident” that the banking organization believes in good faith could materially disrupt, degrade or impair its business or operations in a manner that would, among other things, jeopardize the viability of its operations, result in customers being unable to access their deposit and other accounts, result in a material loss of revenue, profit or franchise value, or pose a threat to the stability of the U.S. financial sector. +Federal regulators have issued two related statements regarding cyber-security. One statement indicates that financial institutions should design multiple layers of security controls to establish lines of defense and ensure their risk management processes also address the risk posed by compromised client credentials, including security measures to reliably authenticate clients accessing internet-based services of the financial institution. The other statement indicates that a financial institution’s management is expected to maintain sufficient business continuity planning processes to ensure the rapid recovery, resumption, and maintenance of the institution’s operations after a cyber-attack involving destructive malware. A financial institution is also expected to develop appropriate processes to enable recovery of data and business operations and address rebuilding network capabilities and restoring data if the institution or its critical service providers fall victim to this type of cyber-attack. If we fail to observe the regulatory guidance, we could be subject to various regulatory sanctions, including financial penalties. +In the ordinary course of business, we rely on electronic communications and information systems to conduct our operations and to store sensitive data. We employ a variety of preventative and detective controls and tools to monitor, block, and provide alerts regarding suspicious activity and to report on any suspected advanced persistent threats. We also offset cyber risk through internal training, testing of our employees, and we procure insurance to provide assistance on significant incidents and to offset potential liability. +We have not experienced a significant compromise, significant data loss, or any material financial losses related to cyber-security attacks. Risks and exposures related to cyber-security attacks are expected to remain high for the foreseeable future due to the rapidly evolving nature and sophistication of these threats, as well as due to the expanding use of third-party service providers, internet banking, mobile banking, and other technology-based products and services by us and our clients. +Compensation. The scope and content of compensation regulation in the financial industry are continuing to develop, and we expect that these regulations and resulting market practices will continue to evolve over a number of years. The federal bank regulatory agencies have issued joint guidance on executive compensation designed to ensure that the incentive compensation policies of banking organizations, such as the Company and the Bank, do not encourage imprudent risk taking and are consistent with the safety and soundness of the organization. The SEC has a rule that directs stock exchanges to require listed companies to implement claw back policies to recover incentive-based compensation from current or former executive officers in the event of certain financial restatements and requires companies to disclose their claw back policies and their actions under those policies. +Other Laws and Regulations. We are subject to a variety of laws and regulations which are not limited to banking organizations. For example, in lending to commercial and consumer borrowers, and in owning and operating our own property, we are subject to regulations and potential liabilities under state and federal environmental laws. +We are heavily regulated by regulatory agencies at the federal and state levels. As a result of events in the financial markets and the economy in recent years, we, like most of our competitors, have faced and expect to continue to face increased regulation and regulatory and political scrutiny, which creates significant uncertainty for us and the financial services industry in general. +Future Legislation and Regulation. Regulators have increased their focus on the regulation of the financial services industry in recent years. Proposals that could substantially intensify the regulation of the financial services industry have been +21 +and are expected to continue to be introduced in the U.S. Congress, in state legislatures and by applicable regulatory authorities. These proposals may change banking statutes and regulation and our operating environment in substantial and unpredictable ways. If enacted, these proposals could increase or decrease the cost of doing business, limit or expand permissible activities or affect the competitive balance among banks, savings associations, credit unions, and other financial institutions. We cannot predict whether any of these proposals will be enacted and, if enacted, the effects that such laws or any implementing regulations would have on our business, financial condition and results of operations. +Ite m 1A. Risk Factors +Our business and results of operations are subject to numerous risks and uncertainties, many of which are beyond our control. The material risks and uncertainties that management believes affect the Company are described below. Additional risks and uncertainties that management is not aware of or that management currently deems immaterial may also impair the Bank’s business operations. This report is qualified in its entirety by these risk factors. If any of the following risks actually occur, our business, financial condition, and results of operations could be materially and adversely affected. +Our risk factors can be broadly summarized by the following categories: +• +Credit and Interest Rate Risks +• +Risks Related to the Bank’s Common Stock +• +Economic Risks +• +Operational Risks +• +Strategic Risks +• +Risks Related to the Regulation of our Industry +CREDIT AND INTEREST RATE RISKS +Our loan portfolio has a significant concentration in commercial real estate and commercial construction loans. +Our loan portfolio is made up largely of commercial real estate loans and commercial construction loans. At December 31, 2025, we had approximately $1.34 billion of commercial real estate loans, which represented 73.9% of our total loan portfolio. Our commercial real estate loans include loans secured by owner-occupied and non-owner-occupied tenanted properties for commercial uses and multi-family loans. The portfolio also consists of construction loans of approximately $209.5 million, or 11.5%, of our total loan portfolio as of December 31, 2025. In addition, we make both secured and unsecured commercial and industrial loans. At December 31, 2025, we had $76.6 million of commercial and industrial loans, which represented 4.2% of our total loan portfolio. +Commercial real estate loans generally expose a lender to a higher degree of credit risk of nonpayment and loss than other loans because of several factors, including dependence on the successful operation of a business or a project for repayment, the collateral securing these loans may not be sold as easily as for other loans, and loan terms may include a balloon payment rather than full amortization over the loan term. In addition, commercial real estate loans typically involve larger loan balances to single borrowers or groups of related borrowers. Underwriting and portfolio management activities cannot completely eliminate all risks related to these loans. Any significant failure to pay on time by our customers or a significant default by our customers could materially and adversely affect us. +Loans secured by owner-occupied real estate are reliant on the underlying operating businesses to provide cash flow to meet debt service obligations, and as a result they are more susceptible to the general impact on the economic environment affecting those operating companies as well as the real estate market. In general, construction and land lending involve additional risks because of the inherent difficulty in estimating a property’s value both before and at completion of the project as well as the estimated cost of the project and the time needed to sell the property at completion. Construction costs may exceed original estimates as a result of increased materials, labor or other costs. Because of the uncertainties inherent in estimating construction costs, as well as the market value of the completed project and the effects of governmental regulation on real property, it is relatively difficult to evaluate accurately the total funds required to complete a project and the related loan-to-value ratio. Changes in the demand, such as for new housing and higher than anticipated building costs may cause actual results to vary significantly from those estimated. For these reasons, this type of lending also typically involves higher loan principal amounts and is often concentrated with a small number of builders. A downturn in housing, or the real estate market, could increase loan delinquencies, defaults and foreclosures, and significantly impair the value of our collateral and +22 +our ability to sell the collateral upon foreclosure. Some of our builders have more than one loan outstanding with us and also have residential mortgage loans for rental properties with us. Consequently, an adverse development with respect to one loan or one credit relationship can expose us to a significantly greater risk of loss. +In addition, no payment from the borrower is required during the term of most of our construction loans since the accumulated interest is added to the principal of the loan through an interest reserve. As a result, construction loans often involve the disbursement of substantial funds with repayment dependent on the success of the ultimate project and the ability of the borrower to sell or lease the property or refinance the indebtedness, rather than the ability of the borrower or guarantor to repay principal and interest. If the appraisal of the value of the completed project proves to be overstated, we may have inadequate security for the repayment of the loan upon completion of construction of the project and may incur a loss. Because construction loans require active monitoring of the building process, including cost comparisons and on-site inspections, these loans are more difficult and costlier to monitor. Increases in market rates of interest may have a more pronounced effect on construction loans by rapidly increasing the end-purchasers’ borrowing costs, thereby reducing the overall demand for the project. Properties under construction are often difficult to sell and typically must be completed in order to be successfully sold which also complicates the process of working out problem construction loans. This may require us to advance additional funds and/or contract with another builder to complete construction. Further, in the case of speculative construction loans, there is added risk associated with identifying an end-purchaser for the finished project which poses a greater potential risk to us than construction loans to individuals on their personal residences. Loans on land under development or held for future construction as well as lot loans made to individuals for the future construction of a residence also pose additional risk because of the lack of income being produced by the property and the potential illiquid nature of the collateral. These risks can also be significantly impacted by supply and demand conditions. +Any recession in our local economy and commercial real estate market may make it more difficult for commercial real estate borrowers to repay their loans in a timely manner as commercial real estate borrowers’ ability to repay their loans frequently depends on the successful development of their properties. The deterioration of one or a few of our commercial real estate loans could cause a material increase in our level of nonperforming loans, which would result in a loss of revenue from these loans and could result in an increase in the provision for loan losses and/or an increase in charge offs, all of which could have a material adverse impact on our net income. We also may incur losses on commercial real estate loans due to declines in occupancy rates and rental rates, which could occur as a result of less need for office space due to more people working from home or other factors. This would decrease property values and may decrease the likelihood that a borrower may find permanent financing alternatives. Any weakening in the commercial real estate market will increase the likelihood of default on these loans, which could negatively impact our loan portfolio’s performance and asset quality. If we are required to liquidate the collateral securing a loan to satisfy the debt during a period of reduced real estate values, we could incur material losses. Any of these events could increase our costs, require management time and attention, and materially and adversely affect us. +Federal banking agencies have issued guidance regarding high concentrations of commercial real estate loans within bank loan portfolios. The guidance requires financial institutions that exceed certain levels of commercial real estate lending compared with their total capital to maintain heightened risk management practices that address the following key elements: board and management oversight and strategic planning, portfolio management, development of underwriting standards, risk assessment and monitoring through market analysis and stress testing, and maintenance of increased capital levels as needed to support the level of commercial real estate lending. If there is any deterioration in our commercial real estate portfolio or if our regulators conclude that we have not implemented appropriate risk management practices, it could adversely affect our business, and could result in the requirement to maintain increased capital levels or restrict our ability to originate new loans secured by commercial real estate. We can provide no assurance that capital would be available at that time. +The nature of our construction loan portfolio may expose us to increased lending risks. +A portion of our construction loans are unseasoned, meaning that they were originated relatively recently. Our limited time with these loans does not provide us with a significant payment history pattern with which to judge future collectability. As a result, it may be difficult to predict the future performance of our loan portfolio. These loans may have delinquency or charge off levels above our expectations, which could negatively affect our performance. +The small to mid-sized businesses that we lend to may have fewer resources to weather a downturn in the economy, which may impair a borrower’s ability to repay a loan to us that could materially harm our operating results. +We target our business development and marketing strategy primarily to serve the banking and financial services needs of small to mid-sized businesses. These small to mid-sized businesses frequently have smaller market share than their +23 +competition, may be more vulnerable to economic downturns, often need substantial additional capital to expand or compete and may experience significant volatility in operating results. In addition, the success of a small to mid-sized business often depends on the management talents and efforts of one or two persons or a small group of persons, and the death, disability or resignation of one or more of these persons could have a material adverse impact on the business and its ability to repay a loan. Any economic downturns and other events that negatively impact our market areas could cause us to incur substantial credit losses that could negatively affect our results of operations and financial condition. +Our allowance for credit losses may not be adequate to cover actual losses. +Like all financial institutions, we maintain an allowance for credit losses to provide for loan defaults and nonperformance. The process for determining the amount of the allowance is critical to our financial results and condition. It requires difficult, subjective and complex judgments about external factors, including the impact of national and regional economic conditions on the ability of our borrowers to repay their loans. If our judgment proves to be incorrect, our allowance for credit losses may not be sufficient to cover losses inherent in our loan portfolio. Further, state and federal regulatory agencies, as an integral part of their examination process, review our loans and allowance for credit losses and may require an increase in our allowance for credit losses. Although we believe that our allowance for credit losses at December 31, 2025 is adequate to cover known and probable incurred losses included in the portfolio, we cannot provide assurances that we will not further increase the allowance for credit losses or that our regulators will not require us to increase this allowance. Either of these occurrences could adversely affect our earnings. +Increased interest rates have decreased the value of a portion of the Company’s securities portfolio, and the Company would realize losses if it were required to sell such securities to meet liquidity needs. +As a result of inflationary pressures and the resulting rapid increases in interest rates from early 2022 into 2023, the fair value of our securities classified as available for sale has declined. These securities make up a majority of the securities portfolio of the Company, resulting in unrealized losses embedded in other comprehensive income as a part of shareholders’ equity. If the Company were required to sell such securities to meet liquidity needs, including in the event of deposit outflows or slower deposit growth, it may incur losses, which could impair the Company’s capital, financial condition, and results of operations and require the Company to raise additional capital on unfavorable terms, thereby negatively impacting its profitability. While the Company has taken actions to maximize its funding sources, there is no guarantee that such actions will be successful or sufficient in the event of sudden liquidity needs. +The financial services industry is undergoing a period of great volatility and disruption. +Changes in interest rates, in the shape of the yield curve, or in valuations in the debt or equity markets or disruptions in the liquidity or other functioning of financial markets, most of which have occurred, could directly impact us in one or more of the following ways: +• +Net interest income, the difference between interest earned on interest-earning assets and interest paid on interest-bearing liabilities, represents a significant portion of our earnings. Both increases and decreases in the interest rate environment may reduce our profits. We expect that we will continue to realize income from the spread between the interest we earn on loans, securities and other interest earning assets, and the interest we pay on deposits, and borrowings (when applicable). The net interest spread is affected by the differences between the maturity and repricing characteristics of our interest earning assets and interest-bearing liabilities. Our interest-earning assets may not reprice as slowly or rapidly as our interest-bearing liabilities. +• +The market value of our securities portfolio may decline and result in other than temporary impairment charges. The value of the securities in our portfolio is affected by factors that impact the U.S. securities markets in general as well as specific financial sector factors and entities. Uncertainty in the market regarding the financial sector has at times negatively impacted the value of securities within our portfolio. Further declines in these sectors may in future result in other than temporary impairment charges. +• +Asset quality may deteriorate as borrowers become unable to repay their loans. +Changes in interest rates may adversely affect our earnings and financial condition. +Our net income depends primarily upon our net interest income. The level of net interest income is primarily a function of the average balance of our interest-earning assets, the average balance of our interest-bearing liabilities, and the spread between the yield on such assets and the cost of such liabilities. These factors are influenced by both the pricing and mix of +24 +our interest earning assets and our interest-bearing liabilities which, in turn, are impacted by such external factors as the local economy, competition for loans and deposits, the monetary policy of the Federal Open Market Committee of the Federal Reserve, and market interest rates. +A sustained increase in market interest rates could adversely affect our earnings if our cost of funds increases more rapidly than our yield on our interest earning assets and compresses our net interest margin. In addition, the economic value of equity could decline if interest rates increase. Different types of assets and liabilities may react differently, and at different times, to changes in market interest rates. We expect that we will periodically experience gaps in the interest rate sensitivities of our assets and liabilities. That means either our interest-bearing liabilities will be more sensitive to changes in market interest rates than our interest-earning assets, or vice versa. When interest-bearing liabilities mature or re-price more quickly than interest earning assets, an increase in market rates of interest could reduce our net interest income. +Likewise, when interest earning assets mature or re-price more quickly than interest bearing liabilities, falling interest rates could reduce our net interest income. We are unable to predict changes in market interest rates, which are affected by many factors beyond our control, including inflation, deflation, recession, unemployment, money supply, domestic and international events and changes in the United States and other financial markets. +We also attempt to manage risk from changes in market interest rates, in part, by controlling the mix of interest rate sensitive assets and liabilities. However, interest rate risk management techniques are not exact. A rapid increase or decrease in interest rates could adversely affect our results of operations and financial performance. +RISKS RELATED TO THE COMPANY'S COMMON STOCK +The Company’s ability to pay dividends depends primarily on receiving dividends from the Bank, which is subject to regulatory limits and the Bank’s performance. +The Company is a bank holding company and banking operations are conducted by its subsidiary, the Bank. The Company’s ability to pay dividends depends on its receipt of dividends from the Bank. Dividend payments from the Bank are subject to legal and regulatory limitations, generally based on net profits and retained earnings, imposed by the various banking regulatory agencies. The ability of the Bank to pay dividends is also subject to its profitability, financial condition, capital expenditures, other cash flow requirements, and other factors deemed relevant by its Board of Directors. There is no assurance that the Bank will be able to pay dividends in the future, and if able, that the dividends will be at the same rate as 2025, or that the Company will generate adequate cash flow from the Bank to pay dividends in the future. It is also the policy of the Federal Reserve that a bank holding company generally may only pay dividends on common stock out of net income available to common shareholders over the past twelve months and only if the prospective rate of earnings retention appears consistent with a bank holding company’s capital needs, asset quality, and overall financial condition. A bank holding company also should not maintain a dividend level that places undue pressure on the capital of such institution’s subsidiaries, or that may undermine the bank holding company’s ability to serve as a source of strength for such subsidiaries. The Company’s failure to pay dividends on its common stock could have a material adverse effect on the market price of its common stock. +Our stock price may reflect securities market conditions. +The effectiveness of governmental, fiscal and monetary policies, and regulatory responses to the market conditions affect the financial markets and the market prices for securities generally, and the market prices for bank stocks, including our common stock. The stock market’s gains due to a concentration of high growth companies has been adversely affected by inflation and higher interest rates and other national and international events. +Issuance of “blank‑check” preferred stock could adversely affect holders of our common stock. +Our Articles of Incorporation authorize 2,000,000 shares of preferred stock that may be issued in one or more series with terms established solely by the Company's Board of Directors and without further shareholder approval. The issuance of preferred stock could dilute the voting power of the common stock, reduce the likelihood of dividend payments on the common stock if preferred dividends are declared, and adversely affect the rights of common shareholders in the event of liquidation. In addition, the ability to issue preferred stock could be used as an anti‑takeover measure, which may discourage or prevent a transaction that holders of our common stock may consider desirable. No preferred shares are currently outstanding. +25 +ECONOMIC RISKS +Inflation can have an adverse impact on the Company’s business and its customers. +Inflation risk is the risk that the value of assets or income from investments will be worth less in the future as inflation decreases the value of money. As discussed above under “CREDIT AND INTEREST RATE RISKS— Changes in interest rates may adversely affect our earnings and financial condition.”, as inflation increases and market interest rates rise, the value of the Company’s investment securities, particularly those with longer maturities, would decrease, although this effect can be less pronounced for floating rate instruments. In addition, inflation generally increases the cost of goods and services the Company uses in its business operations, such as electricity and other utilities, and also generally increases employee wages, any of which can increase the Company’s non-interest expenses. Furthermore, the Company’s customers are also affected by inflation and the rising costs of goods and services used in their households and businesses, which could have a negative impact on their ability to repay their loans with the Company. Sustained higher interest rates by the Federal Reserve to tame persistent inflationary price pressures could also push down asset prices and weaken economic activity. A deterioration in economic conditions in the United States and the Company’s markets could result in an increase in loan delinquencies and non-performing assets, decreases in loan collateral values and a decrease in demand for the Company’s products and services, all of which, in turn, would adversely affect the Company’s business, financial condition and results of operations. +We face risks related to health epidemics and other outbreaks, severe weather, power or telecommunications loss, and terrorism which could significantly disrupt our operations. +Business disruptions can occur due to forces beyond the Bank’s control such as severe weather, power or telecommunications loss, accidents, flooding, terrorism, health emergencies, the spread of infectious diseases or pandemics. Our business could be adversely impacted by the effects of any of these events to the extent that they harm the local or national economy. Any of these events may also impact our branches, our operations, our customers and/or our vendors, which may materially and adversely affect our business, financial condition and results of operations. These business disruptions may include temporary closure of our branches and/or the facilities of our customers or vendors and suspension of services, which may materially and adversely affect our business, financial condition and results of operations. +Market conditions and economic cyclicality may adversely affect our industry. +Market developments, including unemployment, price levels, stock and bond market volatility, and changes, including those resulting from world events, affect consumer confidence levels, economic activity and inflation. Changes in payment behaviors and payment rates may increase delinquencies and default rates, which could affect our earnings and credit quality. +Instability in global economic conditions and geopolitical matters could have a material adverse effect on our results of operations and financial condition. +Instability in global economic conditions and geopolitical matters could have a material adverse effect on our results of operations and financial condition. The macroeconomic environment in the U.S. is susceptible to global events and volatility in financial markets. For example, global conflicts (including the continuing conflicts involving Ukraine and the Russian Federation and those in the Middle East) or other similar events, as well as government actions of other restrictions in connection with such events, and trade negotiations between the U.S. and other nations could adversely impact economic and market conditions for the Company and its clients and counterparties. In addition, global supply chain disruptions may cause prolonged inflation, adversely impact consumer and business confidence, and adversely affect the economy as well as our financial condition and results. +Interruption of our customers’ supply chains and federal funding could negatively impact their business and operations and impact their ability to repay their loans. +Any material interruption in our customers’ supply chains, such as a material interruption of the resources required to conduct their business, such as those resulting from interruptions in service by third-party providers, trade restrictions, such as increased tariffs or quotas, embargoes or customs restrictions, reductions in federal subsidies or grants, social or labor unrest, or political disputes and military conflicts, that cause a material disruption in our customers’ supply chains, could have a negative impact on their business and ability to repay their borrowings with us. In the event of disruptions in our customers’ supply chains, the labor and materials they rely on in the ordinary course of business may not be available at reasonable rates or at all. Additionally, changes in distribution of federal funds or freezing of federal funds, including +26 +Congressional federal budget impasses and reductions in federal workforce causing unemployment, could have an adverse effect on the ability of consumers and businesses to pay debts and/or affect the demand for loans and deposits. +OPERATIONAL RISKS +Further negative developments in the banking industry could adversely affect our business operations and our financial condition and results of operations. +The large bank failures during the first half of 2023 and related negative media attention generated significant market trading volatility among publicly traded bank holding companies and, in particular, regional, as well as community banks like the Company. Similar developments in the future could negatively impact customer confidence in regional and community banks, which could prompt customers to move their deposits to larger financial institutions. Further, if competition for deposits increases, the cost of funding will likely similarly increase, putting pressure on our net interest margin. If we were required to sell a portion of our securities portfolio to address liquidity needs, we may incur losses, including as a result of the negative impact of rising interest rates on the value of our securities portfolio, which could negatively affect our earnings and our capital. If we were required to raise additional capital in the current environment, any such capital raise may be on unfavorable terms, thereby negatively impacting book value and profitability. While we have taken actions to improve our funding, there is no guarantee that such actions will be successful or sufficient in the event of sudden liquidity needs. +There has also been increased regulatory scrutiny – in the course of routine examinations and otherwise – and new regulations directed towards banks of similar size to the Company, designed to address the negative developments in the banking industry in 2023, all of which may increase our costs of doing business and reduce our profitability. Among other things, there may be an increased focus by both regulators and investors on deposit composition, the level of uninsured deposits, losses embedded in the held-to-maturity portion of our securities portfolio, contingent liquidity, CRE composition and concentration, capital position and our general oversight and internal control structures regarding the foregoing. As a result, the Company could face increased scrutiny or be viewed as higher risk by regulators and the investor community. +Competition from other financial institutions in originating loans and attracting deposits may adversely affect our profitability. +We face substantial competition in originating loans. This competition comes principally from other banks, savings institutions, mortgage banking companies, credit unions and other lenders in our market area, which is generally an area within an approximate 100-mile radius of Princeton and dominated by large statewide, regional and interstate banking institutions. Many of our competitors enjoy advantages, such as greater financial resources and higher lending limits, a wider geographic presence, more accessible branch office locations, the ability to offer a wider array of services or more favorable pricing alternatives, as well as lower origination and operating costs. This competition could reduce our net income by decreasing the number and size of loans that we originate and the interest rates we may charge on these loans. +These competitors may offer higher interest rates on deposits than we do, which could decrease the deposits that we attract or require us to increase our interest rates on deposit accounts to retain existing deposits or attract new deposits. Increased deposit competition could adversely affect our ability to generate the funds necessary for lending operations and may increase our cost of funds. Additionally, these competitors may offer lower interest rates on loans than we do, which could decrease the amount of loans that we attract or require us to decrease our interest rates on loans to attract new loans. Increased loan competition could adversely affect our net interest margin. +We also compete with non-bank providers of financial services, such as brokerage firms, consumer finance companies, insurance companies and governmental organizations which may offer more favorable terms. Some of our non-bank competitors are not subject to the same extensive regulations that govern our operations. As a result, such non-bank competitors may have advantages over us in providing certain products and services. This competition may reduce or limit our margins on banking services, reduce our market share and adversely affect our results of operations and financial condition. +If deposit levels are not sufficient, it may be more expensive to fund loan originations. +Our deposits have been our primary funding source. In current market conditions, depositors may choose to redeploy their funds into higher yielding investments, the stock market or other investment alternatives, regardless of our effort to retain such depositors. If this occurs, it will hamper our ability to grow deposits and could result in a net outflow of deposits. +27 +Our average total deposits for the year ended December 31, 2025 of $1.98 billion were $151.9 million higher than the $1.83 billion for the year ended December 31, 2024. We will continue to focus on deposit growth, which we use to fund loan originations. However, if we are unable to sufficiently increase our deposit balances, we will be required to increase our use of alternative sources of funding, including FHLB advances, or to increase our deposit rates in order to attract additional deposits, each of which would increase our cost of funds. +We must maintain and follow high underwriting standards to grow safely. +Our ability to grow our assets safely depends on maintaining disciplined and prudent underwriting standards and ensuring that our relationship managers and lending personnel follow those standards. The weakening of these standards for any reason, such as to seek higher yielding loans, or a lack of discipline or diligence by our employees in underwriting and monitoring loans, may result in loan defaults, foreclosures and additional charge offs and may necessitate that we significantly increase our allowance for credit losses. As a result, our business, results of operations, financial condition or prospects could be adversely affected. +We are a community bank and our ability to maintain our reputation is critical to the success of our business and the failure to do so may materially adversely affect our performance. +We are a community bank, and our reputation is one of the most valuable components of our business. As such, we strive to conduct our business in a manner that enhances our reputation. This is done, in part, by recruiting, hiring and retaining employees who share our core values of being an integral part of the communities we serve, delivering superior service to our customers and caring about our customers and associates. If our reputation is negatively affected by the actions of our employees or otherwise, our business and, therefore, our operating results may be materially adversely affected. Additionally, damage to our reputation could undermine the confidence of our current and potential clients in our ability to provide financial services. Such damage could also impair the confidence of our counterparties and business partners, and ultimately affect our ability to effect transactions. Maintenance of our reputation depends not only on our success in maintaining our service-focused culture and controlling and mitigating the various risks described herein, but also on our success in identifying and appropriately addressing issues that may arise in areas such as potential conflicts of interest, anti-money laundering, client personal information and privacy issues, record-keeping, regulatory investigations and any litigation that may arise from the failure or perceived failure of us to comply with legal and regulatory requirements. Maintaining our reputation also depends on our ability to successfully prevent third parties from infringing on the “The Bank of Princeton” brand and associated trademarks. Defense of our reputation, including through litigation, could result in costs adversely affecting our business, results of operations, financial condition or prospects. +Our internal control systems could fail to detect certain events. +We are subject to certain operational risks, including but not limited to data processing system failures and errors and customer or employee fraud. We maintain a system of internal controls to mitigate such occurrences which system recently had to be modified to cover the additional risks caused by the increase in the amount of time our employees are working remotely. We also maintain insurance coverage for such risks. However, should such an event occur that is not prevented or detected by our internal controls, is uninsured or in excess of applicable insurance limits, it could have a significant adverse effect on our business, results of operations, financial condition or prospects. +If we cannot favorably assess the effectiveness of our internal controls over financial reporting, we may be subject to additional regulatory scrutiny. +Like other banks of our size, our management is required to prepare a report that contains an assessment by management of the effectiveness of our internal control structure and procedures for financial reporting (including the Call Report that is submitted to the FDIC) as of the end of each fiscal year. The rules that must be met for management to assess our internal controls over financial reporting are complex and require significant documentation and testing and possible remediation of internal control weaknesses. The effort to comply with regulatory requirements relating to internal controls will likely cause us to incur increased expenses and will cause a diversion of management’s time and other internal resources. We also may encounter problems or delays in completing the implementation of any changes necessary to make a favorable assessment of our internal control over financial reporting. If we cannot favorably assess the effectiveness of our internal control over financial reporting, investor confidence and the price of our common stock could be adversely affected, and we may be subject to additional regulatory scrutiny. +28 +We rely on third parties to provide key components of our business infrastructure, and the failure of these parties to fulfil their obligations to us could disrupt our operations. +Third parties provide key components of our business infrastructure such as data processing, internet connections, network access, core application processing, statement production and account analysis. Our business depends on the successful and uninterrupted functioning of our information technology and telecommunications systems and third- party servicers. The failure of these systems, or the termination of a third-party software license or service agreement on which any of these systems is based, could interrupt our operations. Because our information technology and telecommunications systems interface with and depend on third-party systems, we could experience service denials if demand for such services exceeds capacity, or such third-party systems fail or experience interruptions. Replacing vendors or addressing other issues with our third-party service providers could entail significant delay and expense. If we are unable to efficiently replace ineffective service providers, or if we experience a significant, sustained or repeated, system failure or service denial, it could compromise our ability to operate effectively, damage our reputation, result in a loss of customer business, and subject us to additional regulatory scrutiny and possible financial liability, any of which could have a material adverse effect on our business, financial condition, results of operations and future prospects. +We cannot predict how changes in technology will impact our business; increased use of technology may expose us to service interruptions. +The financial services market, including banking services, is increasingly affected by advances in technology, including developments in: +• +telecommunications; +• +data processing; +• +automation; +• +artificial intelligence; +• +digital assets; +• +Internet banking, including mobile banking; +• +social media; +• +debit cards and so-called “smart cards”; and +• +remote deposit capture. +Our ability to compete successfully in the future will depend, to a certain extent, on whether we can anticipate and respond to technological changes. We offer electronic banking services for our consumer and business customers including Internet banking, mobile banking and electronic bill payment, as well as banking by phone. We also offer ATM and debit cards, wire transfers, and ACH transfers. The successful operation and further development of these and other new technologies will likely require additional capital investment in the future. In addition, increased use of electronic banking creates opportunities for interruptions in service which could expose us to claims by customers or other third parties. We can provide no assurance that we will have sufficient resources or access to the necessary technology to remain competitive in the future. +Competition from alternative payment processing systems and lending platforms and digital asset service providers may reduce our revenue. +Technology and other changes are allowing consumers and businesses to complete financial transactions that historically have involved banks through alternative methods. For example, the wide acceptance of internet-based commerce has resulted in a number of alternative payment processing systems and lending platforms in which banks play only minor roles. Customers can also maintain funds in prepaid debit cards or digital currencies and pay bills and transfer funds directly without the direct assistance of banks. The diminishing role of banks as financial intermediaries has resulted and could continue to result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits. The loss of these revenue streams and the potential loss of lower cost deposits as a source of funds could have a material adverse effect on our business, financial condition and results of operations. +29 +While we do not offer products relating to digital assets, including cryptocurrencies, stablecoins and other similar assets, there has been a significant increase in digital asset adoption globally over the past several years. Certain characteristics of digital asset transactions, such as the speed with which such transactions can be conducted, the ability to transact without the involvement of regulated intermediaries, the ability to engage in transactions across multiple jurisdictions, and the anonymous nature of the transactions, are appealing to certain consumers notwithstanding the various risks posed by such transactions. Accordingly, digital asset service providers-which, at present are not subject to the same degree of scrutiny and oversight as banking organizations and other financial institutions-are becoming active competitors to more traditional financial institutions. The process of eliminating banks as intermediaries, known as "disintermediation," could result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits. The loss of these revenue streams and the lower cost of deposits as a source of funds could have a material adverse effect on our financial condition and results of operations. Potential partnerships with digital asset companies, moreover, could also entail significant investment. +We use AI in connection with our business and operations, which exposes us to inherent risks that may expose us to material harm. +AI in the banking industry refers to the use of advanced algorithms, machine learning, and automation to enhance operational efficiency, improve customer experiences, strengthen security, and optimize financial decision-making. Banks leverage AI for fraud detection, risk assessment, predictive analytics, chatbots for customer service, personalized financial recommendations, and automated regulatory compliance. By analyzing vast amounts of data in real time, AI helps institutions reduce costs, mitigate risks, detect anomalies, and deliver more efficient and secure banking services. +The Bank does not utilize AI for decision-making processes as any automation within the Bank is driven by macros and predefined rule-based workflows rather than AI-driven models. AI technology, however, is employed within select third-party solutions integrated into our operations. These include Sophos for advanced cybersecurity threat detection and response, Verafin for fraud detection and AML compliance, the Glia Chatbot for enhancing customer service interactions, and CATO Networks for AI-driven network security and optimization. These third-party tools that utilize a limited AI model support security, risk management, and operational efficiency but do not influence credit, lending, or other decision-making functions within the Bank. We do not believe that these products pose a material risk on the Company’s business or financial results. +AI is complex and rapidly evolving, and the introduction of AI, a relatively new and emerging technology in the early stages of commercial use, into our business and operations may subject us to new or heightened legal, regulatory, ethical, operational, reputational, or other risks. The models underlying AI may be incorrectly or inadequately designed or implemented and trained on, or otherwise use, data or algorithms that are, and output that may be, incomplete, inadequate, misleading, biased, poor-quality or otherwise flawed, any of which may not be easily detectable. Further, inappropriate or controversial data practices by developers and end-users or other factors adversely affecting public opinion of AI could impair the acceptance of AI, including those incorporated in our business and operations. If the AI that we use is deficient, inaccurate or controversial, we could incur operational inefficiencies, competitive harm, legal and regulatory action, brand or reputational harm, or other adverse impacts on our business and financial results. Further, there can be no assurance that our use of AI will be successful in enhancing our business or operations or otherwise result in our intended outcomes, and our competitors may incorporate AI into their businesses or operations more quickly or more successfully than us. +AI and the use thereof is also subject to a variety of existing laws and regulations, including fair lending, consumer protection, intellectual property, cybersecurity, data privacy, and equal opportunity, and is expected to be subject to new laws and regulations or new applications of existing laws and regulations. AI is the subject of evolving review by various governmental and regulatory agencies, and changes in laws and regulations governing AI may adversely affect our ability to use AI. Additionally, various federal, state and foreign governments and regulators have implemented, or are considering implementing, general legal and regulatory frameworks for the appropriate use of AI. It is possible that we will not be able to anticipate how to respond to these rapidly developing laws and regulations. Further, if we do not have sufficient rights to use the data or algorithms on which our AI solutions rely or the output generated thereby, we also may incur liability through the violation of applicable laws and regulations, such as fair lending laws and regulations, third-party intellectual property, privacy or other rights, or contracts to which we are a party. We may not be able to sufficiently mitigate or detect any of the foregoing risks or concerns given our and other market participants’ lack of experience with using AI, the pace of technological change, and rapid adoption of AI by our business partners and competitors. Any actual or perceived failure to address risks or concerns relating to the use of AI, whether unfounded or not, could adversely affect our business and operations. +30 +We face risks from cyber-attacks and other information or security breaches, including denial of service attacks, hacking, social engineering attacks targeting our colleagues, contractors, and customers, malware intrusion or data corruption attempts, and identity theft that could result in the disclosure of confidential, proprietary, personal and other information, any of which could adversely affect our business or reputation, and create significant legal and financial exposure. +Our computer and data management systems and network infrastructure, and those of third parties on which we are highly dependent, are subject to cybersecurity risks and could be susceptible to cyber-attacks or other information or security breaches. Our business relies on the secure processing, transmission, storage, and retrieval of confidential, proprietary, personal, and other information in our computer and data management systems and network infrastructure, and in the computer and data management systems and network infrastructure of third parties. In addition, to access our network, products, and services, our customers and other third parties may use personal mobile devices or computing devices that are outside of our network environment and are subject to their own cybersecurity risks. +We, our customers, regulators, and other third parties, including other financial services institutions and companies engaged in data processing, have been subject to, and are likely to continue to be the target of, cyber-attacks or other information or security breaches. These cyber-attacks or other information or security breaches include computer viruses, denial of service attacks, hacking, social engineering attacks (including phishing and smishing attacks) targeting our colleagues, contractors, and customers, malware intrusion or data corruption attempts, ransomware, improper access by employees or contractors, identity theft, and other security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss, destruction, or other processing of confidential, proprietary, personal, and other information of ours, our employees, our customers, or of third parties, damage our systems and infrastructure or otherwise materially disrupt our, our customers’, or other third parties’ network access or business operations. As cyber-attacks or other information or security breaches continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any cybersecurity vulnerabilities or cyber-attacks or other information or security breaches. Despite efforts to ensure the integrity of our systems and implement controls, processes, policies, and other protective measures, we may not be able to anticipate all security breaches, nor may we be able to implement sufficient preventive measures against such cyber-attacks or other information or security breaches, which may result in material losses or consequences for us. +Cybersecurity risks for banking organizations have significantly increased in recent years in part because of the proliferation of new technologies, including AI, and the use of the internet and telecommunications technologies to conduct financial transactions. For example, cybersecurity risks may increase in the future as we continue to increase our mobile-payment and other internet-based product offerings and expand our internal usage of web-based products and applications. In addition, cybersecurity risks have significantly increased in recent years in part due to the increased sophistication and activities of cyber threat actors, such as organized crime affiliates, terrorist organizations, state-sponsored actors, hostile foreign governments, disgruntled employees or vendors, activists, and other external parties, including those involved in corporate espionage, any of whom may enhance their efforts through the use of AI. Even the most advanced internal control environment may be vulnerable to compromise. Due to increasing geopolitical tensions, nation state cyber-attacks and ransomware are both increasing in sophistication and prevalence. Targeted social engineering and email attacks (i.e., “spear phishing” attacks) are becoming more sophisticated and are extremely difficult to prevent. In such an attack, an attacker will attempt to fraudulently induce colleagues, contractors, customers, clients, or other users of our systems and infrastructure to disclose sensitive information in order to gain access to our, our customers’, or our clients’ systems and infrastructure, or the confidential, proprietary, personal, or other information stored or processed thereon. Persistent attackers may succeed in penetrating defenses given enough resources, time, and motive. The techniques used by cyber threat actors change frequently, may not be recognized until launched, and may not be recognized until well after a cyber-attack or other information or security breach has occurred. The speed at which new vulnerabilities are discovered and exploited, often before security patches are published, continues to rise. Remote work further increases the risk that we may experience cyber-attack or other information or security breaches as a result of our employees, colleagues, contractors, and other third parties with which we do business or upon which we rely working remotely on less secure systems and environments. +The risk of a security breach caused by a cyber-attack or other information security breach at a third party with which we do business or upon which we rely, or by unauthorized access by such third party, has also increased in recent years. Additionally, the existence of cyber-attacks or other information or security breaches at such third parties with access to our confidential, proprietary, personal, and other information may not be disclosed to us in a timely manner. Further, our ability to monitor such third parties’ cybersecurity practices is limited. Although we generally have agreements relating to cybersecurity and data privacy in place with third parties, we cannot guarantee that such agreements will prevent a cyber-attack or other information or security breach impacting our confidential, proprietary, personal, or other information, or enable us to obtain adequate or any reimbursement from such third parties in the event we should suffer any disruption, compromise, failure, liability, reputational harm, or other cost or expense. Due to applicable laws and regulations or +31 +contractual obligations, we may be held responsible for cyber-attacks or other information or security breaches attributed to such third parties as they relate to the information we share with them. +Cyber-attacks or other information or security breaches, whether directed at us or third parties, may result in a material loss or have material consequences. Furthermore, the public perception that a cyber-attack or other information or security breach on our systems or infrastructure has been successful, whether or not this perception is correct, may damage our reputation with customers, clients, and third parties with which we do business. Hacking of confidential, proprietary, personal, and other information and identity theft risks, in particular, could cause serious reputational harm. A successful penetration or circumvention of our cybersecurity measures could cause us serious negative consequences, including: loss of customers, clients, and business opportunities; costs associated with maintaining business relationships after a cyber-attack or other information or security breach; significant business disruption to our operations and business, misappropriation, exposure, or destruction of our confidential, proprietary, personal, and other information, intellectual property, funds, and/or those of our customers or clients; or damage to our, our customers’, our clients’, and/or third parties’ systems or infrastructure. The occurrence of any of these events could result in a violation of applicable data privacy laws and regulations and other laws and regulations, litigation exposure, regulatory fines, penalties or intervention, loss of confidence in our cybersecurity measures, reputational damage, reimbursement or other compensatory costs, additional compliance costs, and could adversely impact our results of operations, liquidity, and financial condition. In addition, we may not have adequate insurance coverage to compensate for losses from a major cyber-attack or other information or security breach. We also cannot be sure that our existing insurance coverage will continue to be available on acceptable terms or at all or that our insurers will not deny coverage to any future claim. +The increasing use of social media platforms presents new risks and challenges and the inability or failure to recognize, respond to, and effectively manage the accelerated impact of social media could materially adversely impact the Bank’s business. +There has been a marked increase in the use of social media platforms, including weblogs (blogs), social media websites, and other forms of internet-based communications which allow individuals’ access to a broad audience of consumers and other interested persons. Social media practices in the banking industry are evolving, which creates uncertainty and risk of noncompliance with regulations applicable to the Bank’s business. Consumers value readily available information concerning businesses and their goods and services and often act on such information without further investigation and without regard to its accuracy. Many social media platforms immediately publish the content their subscribers and participants’ post, often without filters or checks on accuracy of the content posted. Information posted on such platforms at any time may be adverse to the Bank’s interests and/or may be inaccurate. The dissemination of information online could harm the Bank’s business, prospects, financial condition, and results of operations, regardless of the information’s accuracy. The harm may be immediate without affording the Bank an opportunity for redress or correction. +Other risks associated with the use of social media include improper disclosure of proprietary information, negative comments about the Bank’s business, exposure of personally identifiable information, fraud, out-of-date information, and improper use by employees, directors and customers. The inappropriate use of social media by the Bank’s customers, directors or employees could result in negative consequences such as remediation costs, remedial training for employees, additional regulatory scrutiny and possible regulatory penalties, litigation, or negative publicity that could damage the Bank’s reputation adversely affecting customer or investor confidence. +STRATEGIC RISKS +Our growth has substantially increased our expenses and impacted our results of operations. +Although we believe that our growth-oriented business strategy will support our long-term profitability and franchise value, the expense associated with our growth, including compensation expense for the employees needed to support this growth and leasehold and other expenses associated with our locations, has and may continue to negatively affect our results. In addition, in order for our existing branches to contribute to our long-term profitability, we will need to be successful in attracting and maintaining cost-efficient deposits at these locations. In order to successfully manage our growth, we need to effectively execute policies, procedures and controls to maintain our credit quality and oversee our operations. We can provide no assurance that we will be successful in this strategy. +32 +Our growth-oriented business strategy could be adversely affected if we are not able to attract and retain skilled employees. +We may not be able to successfully manage our business as a result of the strain on our management and operations that may result from growth. Our ability to manage growth will depend upon our ability to continue to attract, hire and retain skilled employees, and we may need to adopt additional equity plans in order to do so. Our success will also depend on the ability of our officers and key employees to continue to implement and improve our operational and other systems, to manage multiple, concurrent customer relationships and to hire, train and manage our employees. +We depend on our executive officers and key personnel to continue the implementation of our long-term business strategy and could be harmed by the loss of their services. +We believe that our continued growth and future success will depend in large part on the skills of our management team and our ability to motivate and retain these individuals and other key personnel. The loss of service of one or more of our executive officers or key personnel could reduce our ability to successfully implement our long-term business strategy, our business could suffer, and the value of our stock could be materially adversely affected. Leadership changes will occur from time to time, and we cannot predict whether significant resignations will occur or whether we will be able to recruit additional qualified personnel. We believe our management team possesses valuable knowledge about the banking industry and that their knowledge and relationships would be very difficult to replicate. Our success also depends on the experience of our branch managers and lending officers and on their relationships with the customers and communities they serve. The loss of these key personnel could negatively impact our banking operations. The loss of key personnel could have an adverse effect on our business, financial condition, or operating results. +We cannot guarantee that our allocation of capital to various alternatives will enhance long-term stockholder value. +Our business plan calls for us to execute a variety of strategies to allocate and deploy any excess capital including, but not limited to, continued organic balance sheet growth and diversification, stock repurchases, and payment of regular cash dividends. Additionally, we will carefully consider acquisition opportunities to further deploy capital when we expect such opportunities to significantly enhance long-term shareholder value. If we are unable to effectively and timely deploy capital through these strategies, it may constrain growth in earnings and return on equity and thereby diminish potential growth in stockholder value. +RISKS RELATED TO THE REGULATION OF OUR INDUSTRY +We are subject to significant government regulation, which could affect our business, financial condition and results of operations. +We are subject to extensive governmental supervision, regulation and control. The Company is subject to regulation and supervision by the Federal Reserve, and the Bank is subject to regulation and supervision by the FDIC and the New Jersey Department of Banking and Insurance. These laws and regulations are subject to change and may require substantial modifications to our operations or may cause us to incur substantial additional compliance costs. In addition, future legislation and government policy could adversely affect the commercial banking industry and our operations. Such governing laws can be anticipated to continue to be the subject of future modification. Our management cannot predict what effect any such future modifications will have on our operations. +Changes to laws and regulation applicable to the financial industry, may impact the profitability of our business activities and may change certain of our business practices, including the ability to offer new products, obtain financing, attract deposits, make loans, and achieve satisfactory interest spreads, and could expose us to additional costs, including increased compliance costs. These changes also may require us to invest significant management attention and resources to make any necessary changes to operations in order to comply and could therefore also materially and adversely affect our business, financial condition and results of operations. +The federal and state laws and regulations applicable to our operations give regulatory authorities extensive discretion in connection with their supervisory and enforcement responsibilities, and generally have been promulgated to protect depositors and the Deposit Insurance Fund and not for the purpose of protecting stockholders. Laws and regulations now affecting us may be changed at any time, and the interpretation of such laws and regulations by bank regulatory authorities is also subject to change. +33 +The USA PATRIOT and Bank Secrecy Acts require financial institutions to develop programs to prevent financial institutions from being used for money laundering and terrorist activities. If such activities are detected, financial institutions are obligated to file suspicious activity reports with the U.S. Treasury’s Office of Financial Crimes Enforcement Network. These rules require financial institutions to establish procedures for identifying and verifying the identity of customers seeking to open new financial accounts. Failure to comply with these regulations could result in fines or sanctions, including restrictions on conducting acquisitions or establishing new branches. During the last few years, several banking institutions have received large fines for non-compliance with these laws and regulations. While we have developed policies and procedures designed to assist in compliance with these laws and regulations, these policies and procedures may not be effective in preventing violations of these laws and regulations. +Under the supervision of the CFPB, our consumer and business banking products and services are subject to heightened regulatory oversight and scrutiny with respect to compliance with consumer laws and regulations. We may face a greater number or wider scope of investigations, enforcement actions, and litigation in the future related to consumer practices, thereby increasing costs associated with responding to or defending such actions. Also, federal and state regulators have been increasingly focused on sales practices of branch personnel, including taking regulatory action against other financial institutions. In addition, increased regulatory inquiries and investigations, as well as any additional legislative or regulatory developments affecting our consumer businesses, and any required changes to our business operations resulting from these developments, could result in significant loss of revenue, require remuneration to our customers, trigger fines or penalties, limit the products or services we offer, limit the fees we are able to charge, require us to increase our prices and, therefore, reduce demand for our products, impose additional compliance costs on us, increase the cost of collection, cause harm to our reputation, or otherwise adversely affect our consumer businesses. +We can give no assurance that future changes in laws and regulations or changes in their interpretation will not adversely affect our business. Legislative and regulatory changes may increase our cost of doing business or otherwise adversely affect us and create competitive advantage for non-bank competitors. +Changes to tax laws, regulations or interpretations could adversely affect our financial condition or results of operations. +Changes in tax laws, regulatory requirements and/or the interpretation or enforcement of such laws and regulations by state or federal tax regulators could occur. These changes in the law or interpretations may be retroactive to previous periods and as a result could negatively affect our current and future financial performance. An increase in our corporate tax rate or the imposition of any interest and penalties could have an unfavorable impact on our earnings and capital generation abilities. Similarly, the Bank’s clients could experience varying effects from changes in tax laws and such effects, whether positive or negative, may have a corresponding impact on our business and the economy as a whole. In addition, changes to regulatory requirements could increase our costs of regulatory compliance and may significantly affect the markets in which we do business, the markets for and value of our loans and investments, and our ongoing operations, costs and profitability. +Our lending limit may restrict our growth. +We are limited in the amount we can loan to a single borrower by the amount of our capital. Generally, under current law, we may lend up to 15% of our unimpaired capital and surplus, including capital notes, to any one borrower. See “Business – Supervision and Regulation - Loans to One Borrower.” Based upon our current capital levels, the amount we may lend is less than that of many of our larger competitors and may discourage potential borrowers who have credit needs in excess of our lending limit from doing business with us. We may accommodate larger loans by selling participations in those loans to other financial institutions, but this ability may not always be available. +The Federal Reserve may require the Company to commit capital resources to support the Bank. +Federal law requires that a holding company act as a source of financial and managerial strength to its subsidiary bank and to commit resources to support such subsidiary bank. Under the “source of strength” doctrine, the Federal Reserve may require a holding company to make capital injections into a troubled subsidiary bank and may charge the holding company with engaging in unsafe and unsound practices for failure to commit resources to a subsidiary bank. A capital injection may be required at times when the holding company may not have the resources to provide it and therefore may require the holding company to borrow the funds or raise capital. Thus, any borrowing or capital raised to make a capital injection becomes more difficult and expensive and could have an adverse effect on the Company’s business, financial condition, and results of operations. +34 +We are subject to the Community Reinvestment Act and fair lending laws, and failure to comply with these laws could lead to material penalties. +The CRA, the Equal Credit Opportunity Act, the Fair Housing Act and other fair lending laws and regulations impose nondiscriminatory lending requirements on financial institutions. A successful regulatory challenge to an institution’s performance under the CRA or fair lending laws and regulations could result in a wide variety of sanctions, including the required payment of damages and civil money penalties, injunctive relief, imposition of restrictions on mergers and acquisitions activity and restrictions on expansion. Private parties may also have the ability to challenge an institution’s performance under fair lending laws in private class action litigation. Such actions could have a material adverse effect on our business, financial condition and results of operations. +Impairment of goodwill could require charges to earnings, which could result in a negative impact on our results of operations. +Our goodwill could become impaired in the future. If goodwill were to become impaired, it could limit the ability of the Bank to pay dividends to the Company, adversely impacting the Company’s liquidity and ability to pay dividends or repay debt. Assumptions affecting our goodwill impairment evaluation include earnings projections, the discount rates used in the income approach to measure fair value, and observed peer multiples used in estimating the fair value under the market approach. We are required to test goodwill for impairment at least annually or when impairment indicators are present. If an impairment determination is made in a future reporting period, our earnings and book value of goodwill will be reduced by the amount of the impairment. If an impairment loss is recorded, it will have little or no impact on the tangible book value of our common stock, or our regulatory capital levels, but such an impairment loss could significantly reduce the Bank’s earnings and thereby restrict the Bank’s ability to make dividend payments to us without prior regulatory approval, which in turn could impact our ability to pay dividends. At December 31, 2025, the book value of our goodwill was $14.4 million, all of which was recorded at the Bank. Any such write down of goodwill or other acquisition related intangibles will reduce the Company’s earnings, as well. +Ite m 1B. Unresolved Staff Comments +Not applicable. +Ite m 1C. Cybersecurity +We rely extensively on various information systems and other electronic resources to operate our business . In addition, nearly all our customers, service providers and other business partners on whom we depend, including the providers of our online banking, mobile banking, and accounting systems, use their own information systems and electronic resources. Any of these systems can be compromised, including through the employees, customers, and other individuals who are authorized to use them, and bad actors who use a sophisticated and constantly evolving set of software, tools, and strategies to do so. Moreover, the nature of our business as a financial services provider, and our relative size, make us and our business partners high-value targets for these bad actors to pursue. For additional information see “Item 1A. Risk Factors—Operational Risks.” +Accordingly, we have long devoted significant resources to assessing, identifying, and managing risks associated with cybersecurity threats, including: +• +an in-house team dedicated to information and cybersecurity, responsible for conducting regular evaluations of our information systems, existing controls, vulnerabilities, and potential enhancements; +• +tools for continuous monitoring capable of detecting and aiding in the response to cybersecurity threats in real-time; +• +conducting thorough due diligence on our third-party service providers, evaluating their cybersecurity practices, and requiring contractual commitments from them to implement specific cybersecurity measures; +• +collaboration with third-party cybersecurity experts who perform periodic penetration testing, vulnerability assessments, and other procedures to pinpoint potential weaknesses in our systems and processes ; and +• +regular cybersecurity training sessions for our staff. +35 +This information security program is a key part of our overall risk management system, which is administered by our Information Security Officer. The program includes administrative, technical and physical safeguards to help ensure the security and confidentiality of customer records and information. These security and privacy policies and procedures are in effect across all of our businesses and geographic locations. +We face a number of cybersecurity risks in connection with our business. From time-to-time, we have identified cybersecurity threats and cybersecurity incidents that require us to make changes to our processes and to implement additional safeguards. While none of these identified threats or incidents have materially affected us , it is possible that threats and incidents we identify in the future could have a material adverse effect on our business strategy, results of operations, and financial condition. +Our management team is responsible for the day-to-day management of risks we face, including our CIO. Our CIO has been in the role since May 2021, and has over 30 years of experience in technology risk management and cybersecurity, primarily within the financial services sector. +In addition, the Company's board of directors is responsible for the oversight of risk management. In that role, the board of directors, with support from our cybersecurity advisors, are responsible for ensuring that the risk management processes designed and implemented by management are adequate and functioning as designed. To carry out those duties, the board of directors receives quarterly reports from our management team regarding cybersecurity risks, and our efforts to prevent, detect, mitigate, and remediate any cybersecurity incidents. +Ite m 2. Properties +We conduct our operations from our headquarters and branch located at 183 Bayard Lane, Princeton, New Jersey, an operations center at 403 Wall Street, Princeton, New Jersey, and from 34 other branch locations in New Jersey, Pennsylvania and New York. The following table sets forth certain information regarding the Bank’s properties as of December 31, 2025: +Location +Leased or +Owned +Date of Lease +Expiration 1 +Corporate Headquarters and Branch +183 Bayard Lane +Princeton, NJ +Leased +October 31, 2028 +Operations Center +403 Wall Street +Princeton, NJ +Leased +February 28, 2031 +Hamilton Branch +339 Route 33 +Hamilton, NJ +Leased +October 30, 2030 +Pennington Branch +2 Route 31 +Pennington, NJ +Leased +April 30, 2027 +Montgomery Branch +1185 Route 206 North +Princeton, NJ +Leased +April 30, 2030 +Monroe Branch +1 Rossmoor Drive +Monroe Township, NJ +Leased +July 31, 2030 +Lambertville Branch +10-12 Bridge Street +Lambertville, NJ +Owned +N/A +Lawrenceville Branch +2999 Princeton Pike +Lawrenceville, NJ +Leased +October 30, 2030 +36 +Location +Leased or +Owned +Date of Lease +Expiration 1 +Nassau Street Branch +194 Nassau Street +Princeton, NJ +Leased +November 30, 2026 +New Brunswick Branch +1 Spring Street, Suite 102 +New Brunswick, NJ +Leased +March 31, 2027 +Cream Ridge Branch +403 Rt 539 +Cream Ridge, NJ +Leased +November 30, 2028 +Chesterfield Branch +305 Bordentown-Chesterfield Road +Chesterfield, NJ +Owned +N/A +Bordentown Branch +335 Farnsworth Avenue +Bordentown, NJ +Owned +N/A +Browns Mills Branch +101 Pemberton Browns Mills Road +Browns Mills, NJ +Owned +N/A +Deptford Branch +1893 Hurffville Road +Deptford, NJ +Owned +N/A +Sicklerville Branch +483 Cross Key Road +Sicklerville, NJ +Leased +January 31, 2027 +Princeton Junction Branch +11 Cranbury Road +Princeton Junction, NJ +Leased +October 10, 2029 +Quakerbridge Branch +3745 Quakerbridge Road +Hamilton, NJ +Leased +March 14, 2031 +Lakewood Branch +12 American Avenue, 7B +Lakewood, NJ +Leased +August 20, 2030 +Piscataway Branch +1642 Stelton Road, Suite 410 +Piscataway, NJ +Leased +November 6, 2026 +North Wales Branch +1222 Welsh Road +North Wales, PA +Leased +September 30, 2026 +Cheltenham Branch +470 West Cheltenham Avenue +Philadelphia, PA +Leased +January 26, 2031 +Chinatown Branch +921 Arch Street +Philadelphia, PA +Leased +September 30, 2027 +Chestnut Street Branch +1839 Chestnut Street +Philadelphia, PA +Leased +February 28, 2027 +37 +Location +Leased or +Owned +Date of Lease +Expiration 1 +Kingston Branch +4442 Route 27 +Kingston, NJ +Leased +March 1, 2028 +Fort Lee Branch +2337 Lemoine Ave +Fort Lee, NJ +Leased +December 31, 2034 +Palisades Park Branch +449 Broad Ave +Palisades Park, NJ +Leased +December 31, 2030 +Flushing Branch +15404 Northern Blvd +Flushing, NY +Leased +January 31, 2029 +Jericho Branch +350 N Broadway #352 +Jericho, NY +Leased +November 30, 2028 +Elkins Park Branch +7301 Old York Rd +Elkins Park, PA +Leased +May 31, 2041 +Cherry Hill Branch +1405 Route 70 East +Cherry Hill, NJ 08034 +Owned +N/A +Medford Branch +170 Himmelein Rd. +Medford, NJ 08055 +Leased +January 14, 2027 +Moorestown Branch +253 West Main Street +Moorestown, NJ 08057 +Owned +N/A +Burlington Branch +353 High Street +Burlington City, NJ 08016 +Leased +November 30, 2030 +Voorhees Branch +133 Route 73 +Voorhees, NJ 08043 +Owned +N/A +Woodbury Branch +1201 North Broad Street +Woodbury, NJ 08096 +Leased +March 31, 2032 +1. +The expiration date is based on the next upcoming maturity date and does not take into consideration any renewal/extensions dates. +38 +Ite m 3. Legal Proceedings +From time to time the Company is a defendant in various legal proceedings arising in the ordinary course of our business. However, in the opinion of management of the Company, there are no proceedings pending to which the Company is a party or to which its property is subject, which, if determined adversely to the Company, would be material in relation to the Company’s profits or financial condition, nor are there any proceedings pending other than ordinary routine litigation incident to the business of the Company. In addition, no material proceedings are pending or are known to be threatened or contemplated against the Company by government authorities or others. +Ite m 4. Mine Safety Disclosures +Not applicable. +39 +PA RT II +Ite m 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +Market Information +The Company’s common stock trades on the “NASDAQ Global Select Market” under the ticker symbol “BPRN.” As of March 6, 2026, there were approximately 1,574 holders of our common stock. +Recent Sales of Unregistered Sales of Equity Securities and Use of Proceeds +The Company's repurchase of shares of common stock for the three-month period ended December 31, 2025 were as follows: +Total +Number of +Shares +Purchased +Average +Price +Paid Per +Share +Total Number of +Shares Purchased +as Part of Publicly +Announced Plans +or Program 1 +Maximum +Number +of Shares that May +Yet be Purchased +Under Plans or +Programs 1 +Period +September 30, 2025 +47,324 +October 1 - 31, 2025 +10,000 +$ +30.50 +10,000 +37,324 +November 1 - 30, 2025 +— +$ +— +— +37,324 +December 1 - 31, 2025 +— +$ +— +— +37,324 +10,000 +$ +30.50 +10,000 +Dividends +The Company declared and paid cash dividends of $1.25 per share for the twelve months ended December 31, 2025. The payment of dividends to shareholders of the Company is dependent on the Bank paying dividends to the Company. The Bank may pay dividends as declared from time to time by the Board of Directors out of funds legally available, subject to certain restrictions. Under the New Jersey Banking Act of 1948, as amended, the Bank may not pay a cash dividend unless, following the payment, the Bank’s capital stock will be unimpaired and the Bank will have a surplus of no less than 50.0 percent of the Bank’s capital stock or, if not, the payment of the dividend will not reduce the surplus. In addition, the Bank cannot pay dividends in amounts that would reduce the Bank’s capital below regulatory imposed minimums. +Under Pennsylvania law, the Company may not pay a dividend, if, after giving effect thereto, it would be unable to pay its debts as they become due in the usual course of business and, after giving effect to the dividend, the total assets of the Company would be less than the sum of its total liabilities plus the amount that would be needed, if the Company were to be dissolved at the time of distribution, to satisfy the preferential rights upon dissolution of shareholders whose rights are superior to those receiving the dividend. +It is also the policy of the Federal Reserve that a bank holding company generally may only pay dividends on common stock out of net income available to common shareholders over the past twelve months and only if the prospective rate of earnings retention appears consistent with a bank holding company’s capital needs, asset quality, and overall financial condition. A bank holding company also should not maintain a dividend level that places undue pressure on the capital of such institution’s subsidiaries, or that may undermine the bank holding company’s ability to serve as a source of strength for such subsidiaries. +Performance Graph +The following graph demonstrates comparison of the cumulative total returns for the common stock of the Company, NASDAQ Composite Index, SNL Mid-Atlantic Bank Index, and Peer Group made up of banks and thrifts with total assets between $1.00 billion and $3.00 billion for the periods indicated. The graph below represents $100 invested in our Bank’s common stock at its closing price on December 31, 2019. +40 +Period Ending +Index +12/31/20 +12/31/21 +12/31/22 +12/31/23 +12/31/24 +12/31/25 +Princeton Bancorp, Inc. +100.00 +128.14 +143.24 +168.62 +167.68 +175.74 +NASDAQ Composite Index +100.00 +122.18 +82.43 +119.22 +154.48 +187.14 +S&P U.S. BMI Banks - Mid-Atlantic Region +Index +100.00 +126.30 +106.67 +129.34 +179.73 +247.07 +Peer Group +100.00 +127.39 +122.22 +118.50 +136.46 +162.42 +Peer group includes nationally publicly traded Banks and Thrifts with total assets between $1B – $3B +Source: S&P Global Market Intelligence © 2025 +41 +Securities Authorized for Issuance under Equity Compensation Plans +The following table summarizes our equity compensation plan information as of December 31, 2025. See Note 15 “Stock-Based Compensation” in the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for a description of the material features of each plan. +Plan Category +Number of +shares of +common stock +to be issued +upon exercise +of outstanding +options +Weighted- +average +exercise price +of outstanding +options +Number of +shares of +common stock +remaining +available for +future issuance +under +compensation +plans +Equity Compensation Plans approved by security holders +182,095 +$ +26.99 +178,475 +Equity Compensation Plans not approved by security holders +— +— +— +Total +182,095 +$ +26.99 +178,475 +It em 6. +[Reserved] +42 +Item 7. Mana gement’s Discussion and Analysis of Financial Condition and Results of Operations +Our Management’s Discussion and Analysis of Financial Condition and Results of Operations is presented in sections as follows: +• +Overview and Strategy +• +Comparison of Financial Condition at December 31, 2025 and December 31, 2024 +• +Comparison of Operating Results for the Years Ended December 31, 2025 and 2024 +• +Rate/Volume Analysis +• +Liquidity, Commitments and Capital Resources +• +Off-Balance Sheet Arrangements +• +Impact of Inflation +• +Exposure to Changes in Interest Rates +• +Critical Accounting Policies and Estimates +• +Recently Issued Accounting Standards +Overview and Strategy +We remain focused on establishing and retaining customer relationships by offering a broad range of traditional financial services and products, competitively priced and delivered in a responsive manner to small businesses, to professionals and individuals in our market area. As a community bank, we seek to provide superior customer service that is highly personalized, efficient and responsive to local needs. To better serve our customers, we endeavor to provide advanced delivery systems with ATMs, current operating software, timely reporting, online bill pay and other similar up-to-date products and services. We seek to deliver these products and services with the care and professionalism expected of a community bank and with a special dedication to personalized customer service. +Our primary business objectives are: +• +to provide local businesses, professionals and individuals with banking services responsive to and determined by their needs and local market conditions; +• +to attract deposits and loans through competitive pricing, responsiveness and service; and +• +to provide a reasonable return to stockholders on capital invested. +We also intend to continue pursuing a strategy that includes acquisitions. An acquisition strategy involves significant risks, including the following: finding suitable candidates for acquisition; attracting funding to support additional growth within acceptable risk tolerances; maintaining asset quality; retaining the target’s customers and key personnel; obtaining necessary regulatory approvals; conducting adequate due diligence and managing known and unknown risks and uncertainties; integrating acquired businesses; and maintaining adequate regulatory capital. The market for acquisition targets is highly competitive, which may adversely affect our ability to find acquisition candidates that fit our strategy and standards. +We strive to serve the financial needs of our customers while providing an appropriate return to our stockholders, consistent with safe and sound banking practices. We expect that a financial strategy that utilizes variable rates and matching assets and liabilities will enable us to increase our net interest margin, while managing interest rate risk. We also seek to generate fee income from various sources, subject to our desire to maintain competitive pricing within our market area. +Our recognition of, and commitment to, the needs of the local community, combined with highly personalized and responsive customer service, differentiates us from our competition. We continue to capitalize upon the personal contacts and relationships of our organizers, directors, stockholders and officers to establish and grow our customer base. +43 +Comparison of Financial Condition at December 31, 2025 and December 31, 2024 +General. +Total assets were $2.29 billion at December 31, 2025, a decrease of $55.1 million, or 2.35% when compared to $2.34 billion at the end of 2024. The primary reason for the decrease in total assets was related to a decrease in investment securities of $64.6 million, partially offset by an increase in cash and cash equivalents of $18.3 million. +Cash and cash equivalents +Cash and cash equivalents increased $18.3 million, or 15.6%, to $135.7 million at December 31, 2025 compared to December 31, 2024. +Investment securities +Total available-for-sale investment securities decreased $64.6 million, or 26.1%, to $182.6 million at December 31, 2025 compared to December 31, 2024. The decrease was primarily due to principal repayments of $77.7 million and $3.5 million of maturities or calls of available-for-sale securities during 2025, partially offset by purchases of available for sale securities in the amount of $11.6 million and a decrease of $5.1 million attributed to the unrealized losses associated with the available-for-sale portfolio. +Loans +Loans, net of deferred loan fees and costs, decreased $2.5 million, or 0.1%, to $1.82 billion at December 31, 2025 compared to December 31, 2024. The decrease in net loans consisted of decreases of $47.7 million in construction loans, $41.6 million in commercial real estate loans, and $16.3 million in commercial and industrial loans, partially offset by increases of $95.8 million in residential mortgages, and $7.2 million in home equity and consumer loans. Commercial loan balances decreased due to increased selectivity in new loan originations and a continued focus on credit quality. +The Company’s CRE loan portfolio, which includes multi-family, land, owner-occupied and non-owner-occupied CRE loans, was $1.34 billion or 73.9% of total loans of $1.82 billion at December 31, 2025. There were 740 loans in the Company’s CRE portfolio with an average and median loan size of $1.8 million and $0.6 million, respectively. LTV estimates are less than 70% for $1.23 billion or 91.7% of the CRE portfolio and less than 80% for $1.33 billion or 99.3% of the CRE portfolio. +The following table presents the commercial real estate portfolio by property type along with the weighted average loan to value for the periods presented (dollars in thousands): +December 31, 2025 +December 31, 2024 +Commercial Real Estate +Balance +% of +portfolio +Weighted +Average +LTV +Balance +% of +portfolio +Weighted +Average +LTV +Multi Family +505,267 +37.6 +% +52.5 +% +533,287 +38.6 +% +53.6 +% +Owner Occupied +394,281 +29.3 +% +34.9 +% +407,798 +29.4 +% +36.3 +% +Land +27,514 +2.1 +% +70.7 +% +25,241 +1.8 +% +73.9 +% +Non Owner Occupied +Office Building +9,829 +0.7 +% +50.9 +% +104,388 +7.5 +% +43.5 +% +Retail +80,244 +6.0 +% +44.5 +% +100,771 +7.3 +% +42.5 +% +Industrial/Warehousing +44,198 +3.3 +% +41.4 +% +73,417 +5.3 +% +44.9 +% +Mixed Use +60,520 +4.5 +% +43.0 +% +48,076 +3.5 +% +43.7 +% +Restaurants +20,284 +1.5 +% +38.0 +% +22,650 +1.6 +% +39.3 +% +Healthcare +108,367 +8.1 +% +41.0 +% +10,268 +0.7 +% +53.3 +% +Other +93,027 +6.9 +% +42.4 +% +59,189 +4.3 +% +45.6 +% +Total non owner occupied +416,469 +31.0 +% +418,759 +30.2 +% +Total Commercial Real Estate +1,343,531 +100.0 +% +1,385,085 +100.0 +% +44 +The following table presents the geographic markets of the commercial real estate portfolio for the periods presented (dollars in thousands): +December 31, 2025 +December 31, 2024 +Balance +% of +portfolio +Balance +% of +portfolio +Geographical Market +New York +629,314 +46.8 +% +639,994 +46.1 +% +New Jersey +504,206 +37.5 +% +540,896 +39.1 +% +Pennsylvania +186,268 +13.9 +% +184,084 +13.3 +% +Other +23,743 +1.8 +% +20,111 +1.5 +% +1,343,531 +100.00 +% +1,385,085 +100.00 +% +At December 31, 2025, non-performing assets totaled $16.6 million, a decrease of $10.6 million when compared to the amount at December 31, 2024. The decrease was due primarily the result of $10.0 million in charge-offs recorded during 2025, of which $9.9 million was recorded during the second quarter of 2025. +Deposits +Total deposits on December 31, 2025, decreased $56.4 million, or 2.78%, when compared to December 31, 2024. The decrease in the Company’s deposits consisted primarily of decreases in certificates of deposit of $45.0 million, money market deposits of $26.3 million, non-interest-bearing demand deposits of $15.0 million, and savings deposits of $3.1 million, partially offset by an increase in interest-bearing demand deposits of $33.0 million. +Borrowings +The Company had no outstanding borrowings at December 31, 2025 or December 31, 2024. +Stockholders’ equity +Total stockholders’ equity at December 31, 2025, increased $8.7 million or 3.31% when compared to December 31, 2024. The increase was primarily due to an increase in retained earnings of $9.8 million (which consisted of $18.6 million in net income, partially offset by $8.6 million of dividends recorded during the period), an increase in paid-in capital of $3.0 million primarily due to the exercise of stock options, and a decrease in accumulated other comprehensive loss of $3.7 million due to reductions in market interest rates and in investment securities, partially offset by a $7.9 million increase in treasury stock due to our stock repurchase program. The ratio of equity to total assets at December 31, 2025, and at December 31, 2024, was 11.9% and 11.2%, respectively. +We manage our balance sheet based on a number of interrelated criteria, such as changes in interest rates, fluctuations in certain asset and liability categories whose changes are not totally controlled by us, changes in deposit account balances driven by depositors’ needs, prepayments and issuer call options exercised on securities available for sale, early payoffs on loans, investment opportunities presented by market conditions, lending originations, capital provided by earnings, and active management of our overall liquidity positions. The management of these dynamic and interrelated elements of our balance sheet results in fluctuations in balance sheet items throughout the year. +Comparison of Operating Results for the Years Ended December 31, 2025, and December 31, 2024 +General. +For the year ended December 31, 2025, the Company recorded net income of $18.6 million, or $2.71 per diluted common share, compared to $10.2 million, or $1.55 per diluted common share, for 2024. This increase was primarily the result of the purchase accounting adjustments recorded in 2024 reducing net income, which were related to the Cornerstone "CFC" acquisition, and included merger related expenses of $7.8 million. +45 +Net interest income. +Net interest income for the twelve-month period ended December 31, 2025, was $75.8 million, an increase of $9.3 million, or 14.0%, from 2024. The increase from the previous year was the result of an increase in interest income of $7.6 million, or 6.2%, and a decrease in interest expense of $1.7 million, or 3.0%. +Total interest and dividend income. +Total interest and dividend income increased $7.6 million, or 6.2%, to $130.6 million for the year ended December 31, 2025, compared to $122.9 million for the prior year. The improvement in interest income resulted from an increase in average interest-earning assets of $148.2 million, partially offset by a decrease in the yield on earning assets of 8 basis points to 6.17% for the twelve-month period ended December 31, 2025. +Interest income and fees on loans increased $9.2 million, or 8.5%, to $117.8 million for the year ended December 31, 2025, compared to $108.6 million for the prior year. The increase was attributable to a $166.0 million increase in the average balance, partially offset by a 9 basis point decrease in the year-over-year average yield on loans to 6.44%, due to declining interest rates over the period. +Interest income on securities increased approximately $4.0 million, or 65.3%, for the year ended December 31, 2025, compared to the prior year. The increase was attributable to both a $73.9 million increase in the average balance and a 44 basis point increase in the year-over-year average yield on investments to 4.50% +Other interest and dividends decreased $5.5 million, or 67%, to $2.7 million for the year ended December 31, 2025, compared to $8.3 million for the prior year due to a decrease of $88.2 million in the average balances Due from Federal Reserve Bank, and a 113 basis point decrease in the yield on respective funds. +Interest expense. +Total interest expense decreased $1.7 million, or 3.0%, for the year ended December 31, 2025 compared to the prior year. This decrease was the result of a 37 basis point decrease in the cost of interest-bearing deposits and partially offset by an increase of $125.2 million in average interest-bearing deposits. +Interest expense on borrowings was not significant for either period presented. +Provision for credit losses. +The provision for credit losses for the twelve months ended December 31, 2025, was $6.7 million compared with a provision of $5.1 million for the 2024 period. The $6.7 million provision for 2025 consists of a $6.6 million provision associated with the Company’s loan portfolio, and a provision of $38 thousand associated with unfunded commitments. See the section above titled “Analysis of Allowance for Credit Losses” for a discussion of our allowance for credit losses methodology, including additional information regarding the determination of the provision for credit losses. +Non-interest income. +Total non-interest income for the year ended December 31, 2025, increased $312 thousand, or by 3.8%, primarily due an increase in bank owned life insurance of $326 thousand, and in fees and service charges of $247 thousand, partially offset by a decrease in loan fees of $278 thousand. +Non-interest expense. +For the year ended December 31, 2025, non-interest expense was $53.9 million, compared to $56.8 million for 2024. The decrease of $2.8 million was primarily attributed to acquisition related expenses of $7.8 million recorded in 2024, partially offset by increases in salaries and employee benefits of $1.7 million, data processing and communications of $1.1 million, professional fees of $763 thousand, occupancy and equipment of $527 thousand, and federal deposit insurance of $448 thousand during 2025 over the same period in 2024. +46 +Income tax expense. +For the year ended December 31, 2025, income tax expense was $5.1 million resulting in an effective tax rate of 21.4% compared to income tax expense of $2.6 million and an effective tax rate of 20.1% for the year ended December 31, 2024. This increase in income taxes was due to the decrease in merger related expenses of $7.8 million when comparing the years ended December 31, 2025 and 2024. +Average Balance Sheets. The following table sets forth average balance sheets, yields and costs, and certain other information for the years indicated. The average yields and costs of funds shown are derived by dividing income or expense by the daily average balance of assets or liabilities, respectively, for the periods presented. Nonaccrual loans are included in the average balance of loans receivable, net for all periods presented. No tax-equivalent adjustments have been made as they were deemed insignificant. +Twelve Months Ended December 31, +2025 +2024 +Change 2025 vs 2024 +Average +Balances +Income/ +Expense +Yield +Rates +Average +Balances +Income/ +Expense +Yield +Rates +Average +Balances +Yield +Rates +(Dollars in thousands) +Interest-earning assets: +Loans receivable +$ +1,829,038 +$ +117,768 +6.44 +% +$ +1,663,013 +$ +108,586 +6.53 +% +$ +166,025 +(0.09 +)% +Securities +Taxable available-for-sale +183,722 +8,925 +4.86 +% +109,145 +4,928 +4.51 +% +74,577 +0.35 +% +Tax exempt available-for-sale +39,562 +1,117 +2.82 +% +40,239 +1,142 +2.84 +% +(677 +) +(0.02 +)% +Held-to-maturity +157 +8 +5.33 +% +169 +9 +5.27 +% +(12 +) +0.06 +% +Due from Federal Reserve Bank +47,855 +1,983 +4.14 +% +136,281 +7,188 +5.27 +% +(88,426 +) +(1.13 +)% +Other interest earning-assets +16,068 +751 +4.68 +% +19,337 +1,093 +5.65 +% +(3,269 +) +(0.97 +)% +Total interest-earning assets +2,116,402 +$ +130,552 +6.17 +% +1,968,184 +$ +122,946 +6.25 +% +148,218 +(0.08 +)% +Other non-earnings assets +168,805 +151,600 +17,205 +Total assets +$ +2,285,207 +$ +2,119,784 +$ +165,423 +Interest-bearing liabilities +Demand +$ +313,269 +$ +6,298 +2.01 +% +$ +258,462 +$ +4,941 +1.91 +% +$ +54,807 +0.10 +% +Savings +169,486 +3,857 +2.28 +% +157,538 +3,974 +2.52 +% +11,948 +(0.24 +)% +Money markets +469,061 +14,639 +3.12 +% +421,934 +15,971 +3.79 +% +47,127 +(0.67 +)% +Certificates of deposit +735,427 +29,884 +4.06 +% +724,060 +31,528 +4.35 +% +11,367 +(0.29 +)% +Total deposit +1,687,243 +54,678 +3.24 +% +1,561,994 +56,414 +3.61 +% +125,249 +(0.37 +)% +Borrowings +1,262 +58 +4.59 +% +— +— +— +1,262 +4.59 +% +Total interest-bearing liabilities +1,688,505 +$ +54,736 +3.24 +% +1,561,994 +$ +56,414 +3.61 +% +126,511 +(0.37 +)% +Non-interest-bearing deposits +291,084 +264,418 +26,666 +Other liabilities +40,619 +43,955 +(3,336 +) +Total liabilities +2,020,208 +1,870,367 +149,841 +Stockholders’ equity +264,999 +249,417 +15,582 +Total liabilities and stockholder’s +equity +$ +2,285,207 +$ +2,119,784 +$ +165,423 +Net interest-earnings assets +$ +427,897 +$ +406,189 +$ +21,708 +Net interest income; interest rate +spread +2.93 +% +2.64 +% +0.29 +% +Net interest margin +$ +75,816 +3.58 +% +$ +66,532 +3.38 +% +$ +— +0.20 +% +47 +Rate/Volume Analysis +The following table reflects the sensitivity of our interest income and interest expense to changes in volume and in yields on interest-earning assets and costs of interest-bearing liabilities during the periods indicated. +Twelve Months Ended +December 31, 2025 vs . 2024 +Increase (Decrease) Due to +Rate +Volume +Net +(In thousands) +Interest and dividend income: +Loans receivable, including fees +$ +(1,461 +) +$ +10,643 +$ +9,182 +Securities available-for-sale +Taxable +413 +3,584 +3,997 +Tax-exempt +(7 +) +(18 +) +(25 +) +Securities held-to-maturity +— +(1 +) +(1 +) +Due from Federal Reserve Bank +(1,296 +) +(3,909 +) +(5,205 +) +Other interest and dividend income +(172 +) +(170 +) +(342 +) +Total interest and dividend income +$ +(2,523 +) +$ +10,129 +$ +7,606 +Interest expense: +Demand +$ +265 +$ +1,092 +$ +1,357 +Savings +(552 +) +435 +(117 +) +Money market +(3,637 +) +2,305 +(1,332 +) +Certificates of deposit +(2,140 +) +496 +(1,644 +) +Borrowings +— +58 +58 +Total interest expense +$ +(6,064 +) +$ +4,386 +$ +(1,678 +) +Change in net interest income +$ +3,541 +$ +5,743 +$ +9,284 +Liquidity, Commitments and Capital Resources +Liquidity. Our liquidity, represented by cash and due from banks, is a product of our operating, investing and financing activities. Our primary sources of funds are deposits, principal repayments of securities and outstanding loans, and funds provided from operations. In addition, we invest excess funds in short-term interest-earnings assets such as overnight deposits or U.S. agency securities, which provide liquidity to meet lending requirements. While scheduled payments from the amortization of loans and securities and short-term investments are relatively predictable sources of funds, general interest rates, economic conditions and competition greatly influence deposit flows and repayments on loans and mortgage-backed securities. +We strive to maintain sufficient liquidity to fund operations, loan demand and to satisfy fluctuations in deposit levels. We are required to have enough investments that qualify as liquid assets in order to maintain sufficient liquidity to ensure safe and sound banking operations. Liquidity may increase or decrease depending upon the availability of funds and comparative yields on investments in relation to the return on loans. We attempt to maintain adequate but not excessive liquidity, and liquidity management is both a daily and long-term function of our business management. We manage our liquidity in accordance with a board of directors-approved asset-liability policy, which is administered by our asset-liability committee (“ALCO”). ALCO reports interest rate sensitivity, liquidity, capital and investment-related matters on a quarterly basis to the Company's board of directors. +We review cash flow projections regularly and update them in order to maintain liquid assets at levels believed to meet the requirements of normal operations, including loan commitments and potential deposit outflows from maturing certificates of deposit and savings withdrawals. +While deposits are our primary source of funds, when needed we are also able to generate cash through borrowings from the FHLB-NY. At December 31, 2025, we had remaining available capacity with FHLB-NY, subject to certain collateral restrictions, of $548.4 million. +48 +Additionally, we are a shareholder of Atlantic Community Bancshares, Inc., and as such, as of December 31, 2025, we had available capacity with its subsidiary, Atlantic Community Bankers Bank of $10.0 million to provide short-term liquidity generally for a period of not more than fourteen days. +Contractual Obligations. We have non-cancelable operating leases for branch offices and our operations center. The following table is a schedule of future payments under operating leases with initial terms longer than 12 months at December 31, 2025: +Amount +Years Ended December 31 +(in thousands) +2026 +$ +3,730 +2027 +3,463 +2028 +3,354 +2029 +2,733 +2030 +2,598 +Thereafter +12,113 +Total +$ +27,991 +The following table summarizes our contractual cash obligations relating to certificates of deposits: +Amount +Years Ended December 31 +(in thousands) +2026 +$ +687,049 +2027 +31,709 +2028 +2,436 +2029 +2,807 +2030 and thereafter +706 +Total +$ +724,707 +Capital Resources. Consistent with our goals to operate as a sound and profitable financial institution, we actively seek to maintain our status as a well-capitalized institution in accordance with regulatory standards. As of December 31, 2025, we met the capital requirements to be considered “well capitalized.” See Note 16 – “Regulatory Matters” in the Notes to Consolidated Financial Statements included within this Form 10-K for more information regarding our capital resources. +Off-Balance Sheet Arrangements +We are a party to financial instruments with off-balance sheet risk in the normal course of our business of investing in loans and securities as well as in the normal course of maintaining and improving our facilities. These financial instruments include significant purchase commitments, such as commitments related to capital expenditure plans and commitments to purchase investment securities or mortgage-backed securities, and commitments to extend credit to meet the financial needs of our customers. +Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the loan contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee by our customers. Our exposure to credit loss in the event of non-performance by the counterparty to the financial instrument for commitments to extend credit is represented by the contractual notional amount of those instruments. We use the same credit policies in making commitments and conditional obligations as we do for on-balance-sheet instruments. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. +49 +We had the following off-balance sheet financial instruments whose contract amounts represent credit risk at December 31, 2025: +2025 +2024 +(In thousands) +Performance and standby letters of credit +$ +590 +$ +700 +Undisbursed construction loans-in-process +100,639 +61,223 +Commitments to fund loans +69,619 +51,883 +Unfunded commitments under lines of credit +19,500 +18,801 +Total +$ +190,348 +$ +132,607 +For additional information regarding our outstanding lending commitments at December 31, 2025, see Note 9 – “Commitments and Contingencies” in the Notes to Consolidated Financial Statements contained in this Form 10-K. +Impact of Inflation +The financial statements included in this Form 10-K have been prepared in accordance with accounting principles generally accepted in the United States of America. These principles require the measurement of financial position and results of operations in terms of historical dollars, without considering changes in the relative purchasing power of money, over time, due to inflation. Our primary assets and liabilities are monetary in nature. As a result, interest rates have a more significant impact on our performance than the effects of general levels of inflation. Interest rates, however, do not necessarily move in the same direction or with the same magnitude as the price of goods and services, since such prices are affected by inflation. +Exposure to Changes in Interest Rates +Gap Analysis. The matching of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are “interest rate sensitive” and by monitoring the Bank’s interest rate sensitivity “gap.” An asset or liability is said to be interest rate sensitive within a specific time period if it will mature or reprice within that time period. The interest rate sensitivity gap is defined as the difference between the amount of interest-earning assets maturing or repricing within a specific time period and the amount of interest-bearing liabilities maturing or repricing within that same time period. A gap is considered positive when the amount of interest rate sensitive assets exceeds the amount of interest rate-sensitive liabilities. A gap is considered negative when the amount of interest rate sensitive liabilities exceeds the amount of interest rate sensitive assets. During a period of rising interest rates, a negative gap would tend to affect adversely net interest income while a positive gap would tend to result in an increase in net interest income. Conversely, during a period of falling interest rates, a negative gap would tend to result in an increase in net interest income while a positive gap would tend to affect adversely net interest income. +50 +The table on the next page sets forth the amounts of our interest-earning assets and interest-bearing liabilities outstanding at December 31, 2025, which we expect, based upon certain assumptions, to reprice or mature in each of the future time periods shown. Except as stated below, the amounts of assets and liabilities shown which reprice or mature during a particular period were determined in accordance with the earlier of term to repricing or the contractual maturity of the asset or liability. The table sets forth an approximation of the projected repricing of assets and liabilities at December 31, 2025, on the basis of contractual maturities, anticipated prepayments, and scheduled rate adjustments period and subsequent selected time intervals. The loan amounts in the table reflect principal balances expected to be redeployed and/or repriced as a result of contractual amortization and anticipated prepayments of adjustable-rate loans and fixed-rate loans, and as a result of contractual rate adjustments on adjustable-rate loans. +3 Months or +Less +More than 3 Months to 1 Year +More than 1 +Year to 3 Years +More than 3 Years to 5 Years +More than 5 +Years +Non-Rate +Sensitive +Total Amount +(Dollars in thousands) +Interest-earning assets: (1) +Investment securities +$ +31,049 +$ +38,467 +$ +35,353 +$ +23,105 +$ +54,595 +$ +— +$ +182,569 +Loans receivable +364,896 +263,016 +654,877 +416,104 +119,849 +(22,651 +) +1,796,091 +Other interest-earnings assets (2) +121,014 +— +— +— +— +— +121,014 +Total interest-earning assets +$ +516,959 +$ +301,483 +$ +690,230 +$ +439,209 +$ +174,444 +$ +(22,651 +) +$ +2,099,674 +Interest-bearing liabilities: +Checking and savings accounts +$ +501,268 +$ +— +$ +— +$ +— +$ +— +$ +501,268 +Money market accounts +464,205 +— +— +— +— +— +464,205 +Certificate accounts +307,642 +381,215 +32,337 +3,513 +— +— +724,707 +Borrowings +— +— +— +— +— +— +— +Total interest-bearing liabilities +$ +1,273,115 +$ +381,215 +$ +32,337 +$ +3,513 +$ +— +$ +— +$ +1,690,180 +Interest-earning assets less interest-bearing +liabilities +$ +(756,156 +) +$ +(79,732 +) +$ +657,893 +$ +435,696 +$ +174,444 +$ +(22,651 +) +$ +409,494 +Cumulative interest-rate sensitivity gap (3) +$ +(756,156 +) +$ +(835,888 +) +$ +(177,995 +) +$ +257,701 +$ +432,145 +Cumulative interest-rate gap as a percentage +of total assets at December 31, 2025 +(33.09 +)% +(36.58 +)% +(7.81 +)% +11.28 +% +18.92 +% +Cumulative interest-earning assets as a +percentage of cumulative interest-bearing +liabilities at December 31, 2025 +40.61 +% +49.47 +% +89.42 +% +115.25 +% +125.59 +% +(1) +Interest-earnings assets are included in the period in which the balances are expected to be redeployed and/or repriced as a result of anticipated prepayments, scheduled rate adjustments and contractual maturities. +(2) +Includes interest-bearing bank balances, FHLB Stock and Federal Funds Sold +(3) +Interest-rate sensitivity gap represents the difference between total interest-earning assets and total interest-bearing liabilities. +Certain shortcomings are inherent in the method of analysis presented in the foregoing table. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Additionally, certain assets, such as adjustable-rate loans, have features which restrict changes in interest rates both on a short-term basis and over the life of the asset. Further, in the event of a change in interest rates, prepayment and early withdrawal levels would likely deviate significantly from those assumed in calculating the table. Finally, the ability of many borrowers to service their adjustable-rate loans may decrease in the event of an interest rate increase. +51 +Net Portfolio Value Analysis. Our interest rate sensitivity also is monitored by management through the use of a model which generates estimates of the changes in our net portfolio value (“NPV”) over a range of interest rate scenarios. NPV is the present value of expected cash flows from assets, liabilities and off-balance sheet contracts. The NPV ratio, under any interest rate scenario, is defined as the NPV in that scenario divided by the market value of assets in the same scenario. The following table sets forth our NPV as of December 31, 2025 and reflects the changes to NPV as a result of immediate and sustained changes in interest rates as indicated. +Change in +Interest Rates +Net Portfolio Value +NPV as % of Portfolio +Value of Assets +In Basis Points +(Rate Shock) +Amounts +$ Change +% Change +EVE/EVA 1 +Change +(Dollars in thousands) +300 +$ +323,707 +$ +(29,733 +) +(8.41 +)% +14.89 +% +(0.47 +) +200 +$ +335,871 +$ +(17,569 +) +(4.97 +)% +15.17 +% +(0.19 +) +100 +$ +344,775 +$ +(8,665 +) +(2.45 +)% +15.28 +% +(0.08 +) +Static +$ +353,440 +$ +— +15.36 +% +(100) +$ +350,890 +$ +(2,550 +) +(0.72 +)% +15.00 +% +(0.36 +) +(200) +$ +335,285 +$ +(18,155 +) +(5.14 +)% +14.16 +% +(1.20 +) +(300) +$ +315,529 +$ +(37,911 +) +(10.73 +)% +13.16 +% +(2.20 +) +1. +Economic Value of Equity (EVE) divided by Economic Value of Assets (EVA) +As is the case with the GAP Table, certain shortcomings are inherent in the methodology used in the above interest rate risk measurements. Modeling changes in NPV require the making of certain assumptions which may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the models presented assume that the composition of our interest sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and also assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration to maturity or repricing of specific assets and liabilities. Accordingly, although the NPV model provides an indication of interest rate risk exposure at a particular point in time, such model is not intended to and does not provide a precise forecast of the effect of changes in market interest rates on net interest income and will differ from actual results. +Critical Accounting Policies and Estimates +In the preparation of our financial statements, we have adopted various accounting policies that govern the application of accounting principles generally accepted in the United States and in accordance with general practices within the banking industry. Our significant accounting policies are described in our financial statements under Note 1- “Summary of Significant Accounting Policies.” While all these policies are important to understanding the financial statements, certain accounting policies described below involve significant judgment and assumptions by management that have a material impact on the carrying value of certain assets and liabilities. We consider these accounting estimates to be critical accounting policies. The judgments and assumptions we use are based on historical experience and other factors, which we believe to be reasonable under the circumstances. Because of the nature of the judgments and assumptions we make, actual results could differ from these judgments and assumptions that could have a material impact on the carrying values of our assets and liabilities and our results of operations. +Allowance for Credit Losses. The allowance for credit losses consists of the allowance for loan losses and the reserve for unfunded lending commitments. The allowance for loan losses represents our estimate of losses expected in the loan portfolio as of the balance sheet date and is recorded as a reduction to loans. The reserve for unfunded lending commitments represents our estimate of losses expected in our unfunded loan commitments and is recorded in other liabilities on the balance sheet. The allowance for credit losses is increased by the provision for credit losses and recoveries and decreased by charge-offs. Generally, loans deemed to be uncollectible are charged-off against the allowance for credit losses, and subsequent recoveries, if any, are credited to the allowance for loan losses. All, or part, of the principal balance of loans receivable are charged off to the allowance for credit losses when it is determined that the repayment of all, or part, of the principal balance is highly unlikely. +52 +Recently Issued Accounting Standards +See Note 1- “Summary of Significant Accounting Policies” in the Notes to the Consolidated Financial Statements contained in this Annual Report on Form 10-K for a discussion of recently issued accounting standards. +Cautionary Note Regarding Forward-Looking Statements +The Company may from time to time make written or oral “forward-looking statements,” including statements contained in the Company’s filings with the SEC, in its reports to stockholders and in other communications by the Company (including this report), which are made in good faith by the Company pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 and Section 21E of the Exchange Act. +These forward-looking statements involve risks and uncertainties, such as statements of the Company’s plans, objectives, expectations, estimates and intentions that are subject to change based on various important factors (some of which are beyond the Company’s control). The most significant factors that could cause future results to differ materially from those anticipated by our forward-looking statements include the potential impact of partial government shutdown caused by budget stalemate in Congress, higher tariffs imposed by the Trump administration, higher inflation levels, and general economic concerns, all of which could impact economic growth and could cause an increase in loan delinquencies, a reduction in financial transactions and business activities including decreased deposits and reduced loan originations, difficulties in managing liquidity in a rapidly changing and unpredictable market, and supply chain disruptions. Other factors that could cause actual results to differ materially from those indicated by forward-looking statements include, but are not limited to, the following factors: the global impact of foreign military conflicts; the impact of any future pandemics or other natural disasters; civil unrest, rioting, acts or threats of terrorism, or actions taken by the local, state and Federal governments in response to such events, which could impact business and economic conditions in our market area; the strength of the United States economy in general and the strength of the local economies in which the Company and Bank conduct operations; the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System; market and monetary fluctuations; market volatility; the value of the Bank’s products and services as perceived by actual and prospective customers, including the features, pricing and quality compared to competitors’ products and services; the willingness of customers to substitute competitors’ products and services for the Bank’s products and services; credit risk associated with the Bank’s lending activities; risks relating to the real estate market and the Bank’s real estate collateral; the impact of changes in applicable laws and regulations and requirements arising out of our supervision by banking regulators; other regulatory requirements applicable to the Company and the Bank; and the timing and nature of the regulatory response to any applications filed by the Company and the Bank; technological changes; other acquisitions; changes in consumer spending and saving habits; those risks described in Item 1. “Business,” Item 1A. “Risk Factors” and Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this report; and the success of the Company at managing the risks involved in the foregoing. +The Company cautions that the foregoing list of important factors is not exclusive. The Company does not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of the Company, except as required by applicable law or regulation. +Item 7A. Q uantitative and Qualitative Disclosures About Market Risk +Not applicable. +53 +Item 8. Finan cial Statements and Supplementary Data +PRINCETON BANCORP, INC +INDEX TO +CONSOLIDATED FINANCIAL STATEMENTS +FOR THE YEARS ENDED December 31, 2025 AND 2024 +Page +Report of Independent Registered Public Accounting Firm for December 31, 2025 (PCAOB ID: 392 ) +55 +Consolidated Statements of Financial Condition +58 +Consolidated Statements of Income +59 +Consolidated Statements of Comprehensive Income +60 +Consolidated Statements of Changes in Stockholders’ Equity +61 +Consolidated Statements of Cash Flows +62 +Notes to Consolidated Financial Statements +64 +54 +Report of Independe nt Registered Public Accounting Firm +To the Stockholders and the Board of Directors +Princeton Bancorp, Inc. +Opinion on the Financial Statements +We have audited the accompanying consolidated statements of financial condition of Princeton Bancorp, Inc. and its subsidiaries (the Company) as of December 31, 2025 and 2024, the related consolidated statements of income, comprehensive income, changes in stockholders' equity and cash flows for each of the two years in the period ended December 31, 2025, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America. +We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013 and our report dated March 13, 2026 expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting. +Basis for Opinion +These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. +Critical Audit Matters +The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. +55 +Allowance for Credit Losses – Loans Evaluated on a Pooled Basis +Critical Audit Matter Description +As described in Notes 1 and 4 to the financial statements, the Company has recorded an allowance for credit losses (ACL) for its loan portfolio in the amount of $20.3 million as of December 31, 2025, representing management’s estimate of credit losses over the remaining expected life of the Company’s loan portfolio as of that date. Management determined the amounts, and corresponding provision for credit loss expense for the year, pursuant to the application of Accounting Standards Codification Topic 326, Financial Instruments – Credit Losses. +The Company’s methodology to determine its allowance for credit losses incorporates quantitative and qualitative assessments of historical loss data, current loan portfolio and economic conditions, the application of forecasted economic conditions, and related modeling. Management incorporates the use of third-party software to arrive at an expected life-of-loan loss amount based on discounted cash flow estimate at the loan level. The amount and timing of cash flows is determined using assumptions for probability of default and loss given default (PD/LGD); expected term; and forecasted economic factors. The results of these calculations are then qualitatively adjusted by management based on pool-specific attributes. We determined that performing procedures relating to these components of the Company’s methodology is a critical audit matter. +The principal considerations for our determination are (i) the application of significant judgment and estimation on the part of management, which in turn led to a high degree of auditor judgment and subjectivity in performing procedures and evaluating audit evidence obtained, and (ii) significant audit effort was necessary in evaluating management’s methodology, significant assumptions and calculations. +How the Critical Audit Matter Was Addressed in the Audit +Addressing the above matters involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. We evaluated the design and tested the operating effectiveness of certain internal controls and performed other testing related to the Company’s measurement of the ACL for loans evaluated on a pooled basis. +These procedures included, among others, the following: +• +Reviewing the Company’s procedures to validate the model and ensure that the model was conceptually sound. +• +Evaluating the segmentation of loans into pools with similar risk characteristics. +• +Testing assumptions used in the calculation of discounted cash flows, including prepayment speeds and expected loan terms. +• +Testing management’s process for determining the qualitative reserve components. +• +Testing the completeness and accuracy of data used in the model. +/s/ Wolf & Company, P.C. +Boston, Massachusetts +March 13, 2026 +56 +Report of Independent Registered Public Accounting Firm +To the Stockholders and the Board of Directors +Princeton Bancorp, Inc. +Opinion on Internal Control Over Financial Reporting +We have audited Princeton Bancorp, Inc. and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2013. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control — Integrated Framework issued by the COSO in 2013. +We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements of the Company and our report dated March 13, 2026 expressed an unqualified opinion. +Basis for Opinion +The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. +Definition and Limitations of Internal Control Over Financial Reporting +A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements. +Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. +/s/ Wolf & Company, P.C. +Boston, Massachusetts +March 13, 2026 +57 +PRINCETON BANCORP, INC. +CONSOLIDATED STA TEMENTS OF FINANCIAL CONDITION +(Dollars in thousands, except per share data) +December 31, +2025 +December 31, +2024 +ASSETS +Cash and due from banks +$ +17,038 +$ +16,915 +Interest-earning bank balances +19,309 +16,729 +Due from Federal Reserve Bank +99,339 +83,704 +Total cash and cash equivalents +135,686 +117,348 +Securities available-for-sale, at fair value (amortized cost $ 189,924 and $ 259,658 +at December 31, 2025 and December 31, 2024, respectively) +182,569 +247,171 +Securities held-to-maturity (fair value $ 154 and $ 162 , at December 31, 2025 and +December 31, 2024, respectively) +153 +161 +Loans receivable, net of deferred fees and costs +1,816,416 +1,818,875 +Less: allowance for credit losses +( 20,325 +) +( 23,657 +) +Loan receivable, net +1,796,091 +1,795,218 +Bank-owned life insurance +70,888 +72,111 +Premises and equipment, net +16,900 +17,804 +Accrued interest receivable +7,797 +7,975 +Restricted investment in bank stock +2,366 +2,075 +Deferred taxes, net +16,857 +20,276 +Goodwill +14,381 +14,381 +Core deposit intangible +2,776 +3,632 +Other real estate owned +— +295 +Operating lease right-of-use asset +20,121 +21,903 +Other assets +18,562 +19,883 +TOTAL ASSETS +$ +2,285,147 +$ +2,340,233 +LIABILITIES AND STOCKHOLDERS’ EQUITY +LIABILITIES +Deposits: +Non-interest-bearing +$ +286,013 +$ +300,972 +Interest-bearing +1,690,180 +1,731,653 +Total deposits +1,976,193 +2,032,625 +Accrued interest payable +8,529 +15,401 +Operating lease liability +21,194 +22,941 +Other liabilities +8,519 +7,226 +TOTAL LIABILITIES +2,014,435 +2,078,193 +STOCKHOLDERS’ EQUITY: +Preferred stock, no par value; 2,000,000 shares authorized and none outstanding +at December 31, 2025 and none authorized at December 31, 2024 +— +— +Common stock, no par value; 15,000,000 shares authorized, 7,042,206 shares +issued and 6,765,530 outstanding at December 31, 2025; 6,910,693 shares +issued and 6,883,193 outstanding at December 31, 2024 +— +— +Paid-in capital +122,904 +119,908 +Treasury stock, at cost of 276,676 shares at December 31, 2025 and 27,500 shares at +December 31, 2024 +( 8,707 +) +( 842 +) +Retained earnings +161,780 +151,915 +Accumulated other comprehensive loss +( 5,265 +) +( 8,941 +) +TOTAL STOCKHOLDERS’ EQUITY +270,712 +262,040 +TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY +$ +2,285,147 +$ +2,340,233 +See notes to consolidated financial statements. +58 +PRINCETON BANCORP, INC. +CONSOLIDATED STATEMENTS OF INCOME +(Dollars in thousands, except per share data) +Year Ended +December 31, +2025 +2024 +INTEREST AND DIVIDEND INCOME +Loans receivable, including fees +$ +117,768 +$ +108,586 +Securities available-for-sale: +Taxable +8,925 +4,928 +Tax-exempt +1,117 +1,142 +Securities held-to-maturity +8 +9 +Other interest and dividend income +2,734 +8,281 +TOTAL INTEREST AND DIVIDEND INCOME +130,552 +122,946 +INTEREST EXPENSE +Deposits +54,678 +56,414 +Borrowings +58 +— +TOTAL INTEREST EXPENSE +54,736 +56,414 +NET INTEREST INCOME +75,816 +66,532 +Provision for credit losses +6,654 +5,109 +NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES +69,162 +61,423 +NON-INTEREST INCOME +(Loss) gain on call/sale of securities available-for-sale +— +( 7 +) +Income from bank-owned life insurance +1,999 +1,673 +Fees and service charges +2,192 +1,945 +Loan fees, including prepayment penalties +2,804 +3,082 +Other +1,472 +1,462 +TOTAL NON-INTEREST INCOME +8,467 +8,155 +NON-INTEREST EXPENSE +Salaries and employee benefits +27,775 +26,037 +Occupancy and equipment +8,734 +8,207 +Professional fees +3,338 +2,575 +Data processing and communications +6,477 +5,378 +Federal deposit insurance +1,593 +1,145 +Advertising and promotion +695 +630 +Office expense +578 +621 +Other real estate expenses +27 +14 +Core deposit intangible +856 +602 +Acquisition-related expenses +— +7,803 +Other +3,874 +3,750 +TOTAL NON-INTEREST EXPENSE +53,947 +56,762 +INCOME BEFORE INCOME TAX EXPENSE +23,682 +12,816 +INCOME TAX EXPENSE +5,071 +2,574 +NET INCOME +$ +18,611 +$ +10,242 +Earnings per common share-basic +$ +2.73 +$ +1.57 +Earnings per common share-diluted +$ +2.71 +$ +1.55 +See notes to consolidated financial statements. +59 +PRINCETON BANCORP, INC. +CONSOLIDATED STATEME NTS OF COMPREHENSIVE INCOME +(Dollars in thousands) +Year Ended +December 31, +2025 +2024 +NET INCOME +$ +18,611 +$ +10,242 +Other comprehensive income (loss) +Unrealized losses arising during period on securities available-for-sale +5,132 +( 2,511 +) +Reclassification adjustment for losses (gains) realized in income 1 +— +7 +Net unrealized (loss) income +5,132 +( 2,504 +) +Tax effect +( 1,456 +) +1,057 +Total other comprehensive (loss) income +3,676 +( 1,447 +) +COMPREHENSIVE INCOME +$ +22,287 +$ +8,795 +1. +Amounts are included in (loss) gain on call/sale of securities available-for-sale on the Consolidated Statements of Income as a separate element within total non-interest income. No income tax benefit was realized for the year ended December 31, 2025 , and an income tax expense of approximately $ 2,000 was realized for the year ended December 31, 2024 . +See notes to consolidated financial statements. +60 +PRINCETON BANCORP, INC. +CONSOLIDATED STATEMENTS O F CHANGES IN STOCKHOLDERS’ EQUITY +(Dollars in thousands, except share data) +Years Ended December 31, 2025 and 2024 +Common +stock +Paid-in +Capital +Treasury +Stock +Retained +Earnings +Accumulated +Other +Comprehensive +Loss +Total +Balance, January 1, 2024 +$ +— +$ +98,291 +$ +— +$ +149,414 +$ +( 7,494 +) +$ +240,211 +Net income +— +— +— +10,242 +— +10,242 +Other comprehensive income +— +— +— +— +( 1,447 +) +( 1,447 +) +Treasury stock repurchases ( 27,500 +shares) +— +— +( 842 +) +— +( 842 +) +Stock options exercised ( 51,800 +shares) +— +685 +— +— +— +685 +Share redemption for tax withholding +on restricted stock vesting +— +( 249 +) +— +— +— +( 249 +) +Dividends declared $ 1.20 per share +— +— +— +( 7,607 +) +— +( 7,607 +) +Dividend reinvestment plan ( 4,016 +shares) +— +134 +— +( 134 +) +— +— +Stock-based compensation expense +— +1,014 +— +— +— +1,014 +Acquisition of Cornerstone Financial +Corporation ( 525,946 shares, +$ 38.09 per share) +— +20,033 +— +— +— +20,033 +Balance, December 31, 2024 +$ +— +$ +119,908 +$ +( 842 +) +$ +151,915 +$ +( 8,941 +) +$ +262,040 +Balance, January 1, 2025 +$ +— +$ +119,908 +$ +( 842 +) +$ +151,915 +$ +( 8,941 +) +$ +262,040 +Net income +— +— +— +18,611 +— +18,611 +Other comprehensive income +— +— +— +— +3,676 +3,676 +Treasury stock repurchases ( 249,176 +shares) +— +— +( 7,865 +) +— +( 7,865 +) +Stock options exercised ( 100,903 +shares) +— +1,779 +— +— +— +1,779 +Share redemption for tax withholding +on restricted stock vesting +— +( 228 +) +— +— +— +( 228 +) +Dividends declared $ 1.25 per share +— +— +— +( 8,615 +) +— +( 8,615 +) +Dividend reinvestment plan ( 4,070 +shares) +— +131 +— +( 131 +) +— +— +Stock-based compensation expense +— +1,314 +— +— +— +1,314 +Balance, December 31, 2025 +$ +— +$ +122,904 +$ +( 8,707 +) +$ +161,780 +$ +( 5,265 +) +$ +270,712 +See notes to consolidated financial statements. +61 +PRINCETON BANCORP, INC. +CONSOLIDATED STA TEMENTS OF CASH FLOWS +(In thousands) +Year Ended December 31, +2025 +2024 +CASH FLOWS FROM OPERATING ACTIVITIES +Net income +$ +18,611 +$ +10,242 +Adjustments to reconcile net income to net cash provided by operating activities: +Provision for credit losses +6,654 +5,109 +Depreciation and amortization +1,793 +1,681 +Stock-based compensation expense +1,314 +1,013 +Amortization of premiums and accretion of discounts on securities, net +191 +303 +Accretion of net deferred loan fees and costs, including premiums and discounts +( 5,400 +) +( 4,146 +) +Loss (gain) on call/sale of securities available-for-sale +— +7 +Increase in cash surrender value of bank-owned life insurance +( 1,496 +) +( 1,673 +) +Deferred income tax +1,963 +( 807 +) +Amortization of core deposit intangible +856 +602 +Decrease in accrued interest receivable and other assets +4,367 +3,936 +(Decrease) in accrued interest payable and other liabilities +( 7,363 +) +( 1,537 +) +NET CASH PROVIDED BY OPERATING ACTIVITIES +21,490 +14,730 +CASH FLOWS FROM INVESTING ACTIVITIES +Purchases of available-for-sale securities +( 11,591 +) +( 179,488 +) +Maturities, calls and principal repayments of securities available-for-sale +81,134 +34,827 +Maturities, calls and principal repayments of securities held-to-maturity +8 +32 +Net decrease in loans +( 2,090 +) +( 10,898 +) +Cash received from acquisition +— +7,866 +Purchases of premises and equipment +( 889 +) +( 1,525 +) +Purchases (redemption) of bank-owned life insurance +2,798 +( 2,873 +) +Purchases of equity method investments +( 870 +) +( 1,675 +) +Purchases of restricted bank stock +( 291 +) +( 319 +) +NET CASH PROVIDED BY (USED IN) INVESTMENT ACTIVITIES +68,209 +( 154,053 +) +CASH FLOWS FROM FINANCING ACTIVITIES +Net (decrease) increase in deposits +( 56,432 +) +114,127 +Cash dividends +( 8,665 +) +( 7,607 +) +Share redemption for tax withholding on restricted stock vesting +( 228 +) +( 249 +) +Purchase of treasury stock +( 7,865 +) +( 842 +) +Proceeds from exercise of stock options +1,829 +685 +NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES +( 71,361 +) +106,114 +NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS +18,338 +( 33,209 +) +CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD +117,348 +150,557 +CASH AND CASH EQUIVALENTS, END OF PERIOD +$ +135,686 +$ +117,348 +See notes to consolidated financial statements. +62 +PRINCETON BANCORP, INC. +CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) +(In thousands) +Year Ended December 31, +2025 +2024 +SUPPLEMENTARY CASH FLOWS INFORMATION: +Interest paid +$ +61,608 +$ +50,175 +Income taxes paid +2,252 +1,820 +Net assets acquired from Cornerstone Bank +- +303,476 +Net liabilities assumed from Cornerstone Bank +- +288,971 +Property transferred to other real estate owned +- +295 +See notes to consolidated financial statements. +63 +Note 1 – Su mmary of Significant Accounting Policies +Organization and Nature of Operations +The Bank of Princeton (the “Bank”) was incorporated on March 5, 2007 under the laws of the State of New Jersey and is a New Jersey state-chartered banking institution. The Bank was granted its bank charter on April 17, 2007 , commenced operations on April 23, 2007 and is a full-service bank providing personal and business lending and deposit services. As a state-chartered bank, the Bank is subject to regulation by the New Jersey Department of Banking and Insurance and the FDIC. The area served by the Bank, through its 33 branches, is generally an area within an approximate 50-mile radius of Princeton, NJ, including parts of Burlington, Camden, Gloucester, Hunterdon, Mercer, Middlesex, Ocean, and Somerset Counties in New Jersey, and additional areas in portions of Philadelphia, Montgomery and Bucks Counties in Pennsylvania. The Bank also has two retail branches and conducts loan origination activities in select areas of New York. +The Bank offers traditional retail banking services, one-to-four-family residential mortgage loans, multi-family and commercial mortgage loans, construction loans, commercial business loans and consumer loans, including home equity loans and lines of credit. +On January 10, 2023, Princeton Bancorp, Inc. (the “Company”), a Pennsylvania corporation formed by the Bank, acquired all the outstanding stock of the Bank in a corporate reorganization. As a result, the Bank became the sole direct subsidiary of the Company, the Company became the holding company for the Bank and the stockholders of the Bank became stockholders of the Company. As of December 31, 2025 , the Company had 241 total employees and 240 full-time equivalent employees. +On May 19, 2023, the Company completed the acquisition of Noah Bank, a Pennsylvania chartered state bank headquartered in Elkins Park, Pennsylvania that primarily served the Philadelphia, North New Jersey and New York City markets. On that date the Company acquired 100 % of the outstanding common stock, for cash, of Noah Bank and Noah Bank was merged with and into the Bank. +On August 23, 2024, the Company completed the acquisition of Cornerstone Financial Corporation (“CFC”), the holding company for Cornerstone Bank, a New Jersey chartered state bank headquartered in Mt. Laurel, New Jersey that primarily served the South Jersey market. On that date, the Company acquired 100 % of the outstanding common stock of CFC in exchange for the Company’s stock, CFC was merged into the Company, and Cornerstone Bank was merged with and into the Bank. +Basis of Financial Statement Presentation +The consolidated financial statements include the accounts of the Company, the Bank and its subsidiaries: Bayard Lane, LLC, Bayard Properties, LLC, 112 Fifth Avenue, LLC, TBOP Delaware Investment Company and TBOP REIT, Inc. All significant inter-company accounts and transactions have been eliminated in consolidation. +The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). +Estimates +The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Because of uncertainties associated with estimating the amounts, timing and likelihood of possible outcomes, actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses. +Management believes that the allowance for credit losses is adequate as of December 31, 2025 and December 31, 2024. While management uses current information to recognize losses on loans, future additions to the allowance for loan losses may be necessary based on changes in economic conditions in the market area or other factors. +In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for credit losses. Such agencies may require the Company to effect certain changes that result in +64 +addition to the allowance based on their judgments about information available to them at the time of their examinations. +Revenue Recognition +The Company accounts for its applicable revenue in accordance with ASC Topic 606 - Revenue from Contracts with Customers. The core principle of Topic 606 is that an entity recognize at an amount that reflect the consideration to which the entity expects to be entitled in exchange for transferring goods or service to a customer. Topic 606 requires entities to exercise judgement when considering the terms of a contract. Topic 606 applies to all contracts with customers to provide goods or services in the ordinary course of business, except for contracts that are specifically excluded from its scope. +Topic 606 does not apply to revenue associated with financial instruments, including revenue from loans and securities. In addition, certain non-interest income streams such as fees associated with mortgage servicing rights, financial guarantees, derivatives, and certain credit card fees are also not in scope of the guidance. Topic 606 is applicable to non-interest revenue streams such as deposit related fees and interchange fees. However, the recognition of these revenue streams did not change significantly upon adoption of Topic 606. The majority of the Company’s revenue-generating transactions are not subject to ASC 606, including revenue generated from financial instruments, such as loans, investment securities, and revenue related to mortgage servicing activities, as these activities are subject to other GAAP. Non-interest revenue streams in-scope of Topic 606 are discussed below. +Service charges on deposit accounts consist of account analysis fees (i.e., net fees earned on analyzed business and public checking accounts), monthly service fees, check orders, and other deposit account related fees. The Company’s performance obligation for account analysis fees and monthly service fees is generally satisfied, and the related revenue recognized, over the period in which the service is provided. Check orders and other deposit account related fees are largely transactional based, and therefore, the Company’s performance obligation is satisfied, and related revenue recognized, at a point in time. Payment for service charges on deposit accounts is primarily received immediately or in the following month through a direct charge to customers’ accounts. +Fees, exchange, and other service charges are primarily comprised of debit and credit card income, ATM fees, merchant services income, and other service charges. Debit and credit card income is primarily comprised of net interchange fees earned whenever the Banks’s debit and credit cards are processed through card payment networks such as Visa. ATM fees are primarily generated when a cardholder uses a non-Bank ATM or a non-Bank cardholder uses a Bank ATM. Merchant services income mainly represents fees charged to merchants to process their debit and credit card transactions, in addition to account management fees. Other service charges include revenue from processing wire transfers, bill pay service, cashier’s checks, and other services. The Bank’s performance obligation for fees, exchange, and other service charges are largely satisfied, and related revenue recognized, when the services are rendered or upon completion. Payment is typically received immediately or in the following month. +Significant group concentrations of credit risk +Most of the Company’s activities are with customers located within Mercer County, New Jersey, and surrounding areas as well as the five boroughs of New York City and certain Philadelphia, Pennsylvania metropolitan areas. The Company does not have any portion of its business dependent on a single or limited number of customers or industries, the loss of which would have a material adverse effect on its business. No substantial portion of loans is concentrated within a single industry or group of related industries, except that a significant majority of commercial loans are secured by real estate. There are numerous risks associated with commercial and consumer lending that could impact the borrowers’ ability to repay on a timely basis. They include but are not limited to: the owner’s business expertise, changes in local, national, and in some cases international economies, competition, governmental regulation, and the general financial stability of the borrowing entity. +Transfers of financial assets +Transfers of financial assets, including loan and loan participation sales, are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right, free of conditions that constrain it from taking advantage of that right, to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity. The outstanding +65 +balance of loan participations sold was $ 75.0 million and $ 107.0 million as of December 31, 2025 and December 31, 2024 , respectively. +Mortgage Servicing Rights +The Company services mortgage loans for others. Mortgage servicing assets are recognized as separate assets when rights are acquired through purchase or through sale of financial assets. Fair value is determined using prices for similar assets with similar characteristics, when available, or based upon discounted cash flows using market-based assumptions. The servicing rights subsequently are carried at fair value. The fair value of servicing rights is determined based on the present value of expected future cash flows, which are derived from the servicing fees, expected prepayment speeds, ancillary income, and the expected costs to service the loans. Changes in the fair value of MSRs are recognized in earnings in the period in which they occur, reflecting the market conditions and the performance of the underlying loans. +Cash and due from banks +Cash and due from banks include cash on hand, on deposit at other financial institutions and the Federal Reserve Bank of Philadelphia. +Securities +The Company’s investment portfolio includes both held-to-maturity and available-for-sale securities: +Held-to-Maturity - Investment securities that management has the positive intent and ability to hold until maturity are classified as held-to-maturity and carried at their remaining unpaid principal balance, net of unamortized premiums or unaccreted discounts. +Available-for-Sale - Investment securities that will be held for indefinite periods of time, including securities that may be sold in response to changes in market interest or prepayment rates, needs for liquidity, and changes in the availability and the yield of alternative investments, are classified as available-for-sale. These assets are carried at their estimated fair value. Fair values are based on quoted prices for identical assets in active markets, quoted prices for similar assets in markets that are either actively or not actively traded, or in some cases where there is limited activity or less transparency around inputs, internally developed discounted cash flow models. Unrealized gains and losses are excluded from earnings and are reported net of tax in accumulated other comprehensive income (loss) on the consolidated statements of financial condition until realized, except as discussed below. +Premiums are amortized using the interest method to the earliest call date and discounts are accreted using the interest method over the estimated remaining term of the underlying security. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method. +The Company measures expected credit losses on available-for-sale securities based on the potential to incur credit impairment. For available-for-sale securities which the Company does not intend to sell, and it is not more likely than not that the Company will be required to sell before recovery of the Company’s amortized cost, the Company evaluates criteria to determine any expected loss. The Company’s available-for-sale securities consist of government-sponsored and U.S. government guaranteed securities and obligations of state and political subdivisions. In assessing the Company’s investments in government-sponsored and U.S. government securities the contractual cash flows are guaranteed by the government to ensure that the securities will not be settled at a price less than the par value of the investment. Obligations of state and political subdivisions which are guaranteed by the municipality with an investment grade rating or purchase credit support from a highly rated insurance carrier. The Company does have the ability to hold available-for-sale securities until the contractual maturity date. +Loans Receivable +Loans receivable that management has the intent and ability to hold until maturity or payoff are reported at their outstanding unpaid principal balances, adjusted by unamortized premiums and unearned discounts, deferred fees and costs associated with origination and the allowance for credit losses. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the yield on the related loans. Premiums and discounts on purchased loans are amortized as adjustments to interest income using the level-yield method. +66 +The loan receivable portfolio is segmented into commercial real estate (includes multi-family), commercial and industrial, construction, residential first-lien mortgage and home equity/consumer loans. +For all segments of loans receivable, the accrual of interest is discontinued when the contractual payment of principal or interest is 90 days past due or management has serious doubts about further collectability of principal or interest, even though the loan is currently performing. A loan may remain on accrual status if it is in the process of collection and is either guaranteed or well-secured. When a loan is placed on nonaccrual status, unpaid interest credited to income in the current year is reversed and unpaid interest accrued in prior years is charged against the allowance for loan losses. Interest received on nonaccrual loans, generally is either applied against principal or reported as interest income, according to management’s judgment as to the collectability of principal. Generally, loans are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time (generally six months) and the ultimate collectability of the total contractual principal and interest is no longer in doubt. The past due status of all segments of loans receivable is determined on contractual due dates for loan payments. +Allowance for credit losses - loans +The Company adopted Accounting Standards Codification (ASC) 326 using the modified retrospective method for all financial assets measured at amortized costs and off-balance sheet credit exposures. The Company follows the guidance of ASC 326. +The credit loss estimation process involves procedures to appropriately consider the unique characteristics of loan portfolio segments, which consist of commercial real estate loans, construction loans, commercial and industrial loans, residential loans and consumer/HELOC loans. These segments are further disaggregated into loan classes, the level at which credit risk is monitored. For each of these segments, the Company generates cash flow projections at the instrument level wherein payment expectations are adjusted for estimated prepayment speed, curtailments, time to recovery, probability of default and loss given default. The modeling of expected prepayment speeds, curtailment rates, and time to recovery are based on historical data. The quantitative component of the ACL on loans is model-based and utilizes a forward-looking macroeconomic forecast. The Company uses a discounted cash flow method, incorporating probability of default and loss given default forecasted based on statistically derived economic variable loss drivers, to estimate expected credit losses. This process includes estimates which involve modeling loss projections attributed to existing loan balances, and considering historical experience, current conditions, and future expectations for segments of loans over a reasonable and supportable forecast period. The historical information used is that experienced by the Company or by a selection of peer banks, when appropriate. +Commercial real estate - Loans in this segment include owner-occupied commercial real estate, non-owner occupied commercial real estate and multi-family dwellings within the Company’s market area. The underlying cash flows generated by the properties or operations can be adversely impacted by a downturn in the economy due to increased vacancy rates or diminished cash flows, which in turn, would have an effect on the credit quality in this segment. Management obtains financial information annually and monitors the cash flow of these loans. +Construction - Loans in this segment include primarily construction of condominium projects or single-family homes and subdivisions. Exposure to loans in this segment can come from construction delays, slow unit sales and insufficient interest reserves. The Company often requires personal and corporate guarantees as additional security on the loan. Management relies on progress reports and third-party experts prior to the release of additional funds. +Commercial and industrial loans - Loans in this segment are primarily for commercial business assets and/or purposes, which usually carry a personal guarantee from the business owners. Repayment is expected from the cash flow of the business. A weakened economy, and resultant decrease in consumer spending, will have an effect on quality in this segment. +Residential real estate loans - This portfolio segment consists of first lien mortgages secured by one-to-four family residential properties. The overall health of the economy, including unemployment rates and housing pricing, will have an effect on the credit quality in this segment. +Consumer/HELOC loans - Loans in this segment are substantially all secured and repayment is dependent on the credit quality of the individual borrower and includes junior-lien mortgages. +67 +There were no significant changes to the Company’s ACL methodology for the year ended December 31, 2025. +Credits with Similar Risk Characteristics. +The Company uses DCF in estimating the component of the allowance for credit losses for loans that share similar risk characteristics (loan segments). The model calculates an expected loss percentage for each segment by considering the probability of default, using life-of-loan analysis periods for the segment, and the historical severity of loss, based on the aggregate net lifetime losses incurred per loan segment. The default and severity factors used calculate the allowance for credit losses for each segment adjusted for differences between the historical loss and severity rates and expected conditions over the remaining lives of the loans in the portfolio related to: a) lending policy and procedures; b) economic conditions; c) volume of the loan portfolio; d) experience and depth of lending management; e) level of delinquencies; f) quality of our loan review system; g) the value of underlying collateral for collateralized loans and h) level of concentration of a particular segment. +Individually Evaluated Financial Assets. +For a loan that does not share risk characteristics with other loans, expected credit loss is measured based on net realizable value. We generally consider these to be nonperforming loans. For these loans, we recognize expected credit loss equal to the amount by which the net realizable value of the loan is less than the amortized cost basis of the loan, except when the loan is collateral dependent, that is, when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the sale or operation of the collateral. In these cases, expected credit loss is measured as the difference between amortized cost basis and the loan and the fair value of the collateral less disposal costs, as applicable (such as sales costs, transfer taxes and unpaid real estate taxes). +Allowance for Credit Losses on Off-Balance Sheet Credit Exposures, Including Unfunded Loan Commitments. +The Company maintains a separate allowance for credit losses from off-balance-sheet credit exposures, including unfunded loan commitments, which are included in other liabilities on the consolidated statements of condition. Management estimates the amount of expected losses by calculating a commitment usage factor over the contractual period of exposure that are not unconditionally cancellable by the Company by applying the loss factors used in the ACL methodology to the result of the usage calculation to estimate the liability for credit losses related to unfunded commitments for each loan type. The allowance for credit losses on off-balance sheet credit exposures is adjusted as credit loss expense. +Nonaccrual loans. +Nonaccrual loans are restored to accrual status if principal and interest payments, under the modified terms, are current for six consecutive months after modification and continued repayment is reasonably assured. +Credit Quality +Credit quality risk ratings include regulatory classifications of special mention, substandard, doubtful and loss. Loans classified special mention have potential weaknesses that deserve management’s close attention. If uncorrected, the potential weaknesses may result in deterioration of the repayment prospects. Loans rated special mention are starting to show signs of potential weakness and are being closely monitored by management. Loans classified substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They include loans that are inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified doubtful have all the weaknesses inherent in loans classified substandard with the added characteristic that collection or liquidation in full, on the basis of current conditions and facts, is highly improbable. Loans classified loss are considered uncollectible and are charged-off to the allowance for loan losses. Loans not classified are rated pass. +Bank-owned life insurance +The Bank is the beneficiary of insurance policies on the lives of certain officers of the Bank. This life insurance investment is accounted for using the cash surrender value method and is recorded at its net realizable value. Increases in cash surrender values are recorded as tax exempted non-interest income. +68 +Other real estate owned +Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value less cost to sell at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the assets are then recorded at the lower of carrying amount or fair value less cost to sell. Revenue and expenses from operations and write-downs are included in non-interest expense. +Business Combinations, Goodwill and Other Intangible Assets, Net +The Company accounts for business combinations using the acquisition method of accounting. The accounts of an acquired entity are included as of the date of merger or acquisition, and any excess of purchase price over the fair value of the net assets acquired is capitalized as goodwill. Alternatively, a gain is recorded if the fair value of the net assets acquired exceeds the purchase price. The Company’s intangible asset was derived from core deposits acquired that have a definitive life and are amortized over the estimated life. Both goodwill and the core deposit intangible asset are reviewed for impairment annually or when events and circumstances indicate that an impairment may have occurred. ASC Topic 350-20 requires an at least annual review of the fair value of a Reporting Unit that has goodwill in order to determine if it is more likely than not (that is, a likelihood of more than 50%) that the fair value of a Reporting Unit is less than its carrying amount, including goodwill. A qualitative factor test can be performed to determine whether it is necessary to perform a quantitative goodwill impairment test. If this qualitative test determines it is not more likely than not (less than 50 % probability) that the fair value of the Reporting Unit is less than the Carrying Value, then the Company does not hav e to perform a quantitative test and goodwill can be considered not impaired. The Company performed its annual review at May 31, 2025 and determined that a quantitative test would be performed primarily due to the Company’s common stock trading at 80.0% of book value. The result of this quantitative test indicates that fair value is greater than book value and that no Reporting Unit goodwill impairment exists. +Employee Benefit Plans +The Company maintains a defined contribution Section 401(k) plan covering eligible employees. The Company may make discretionary matching contributions. The Company made matching contributions to employees of $ 316 thousand and $ 270 thousand, respectively, during the years ended December 31, 2025 and December 31, 2024. +The Company also maintains a defined benefit supplemental executive retirement plan for the benefit of the chief executive officer and chief operating officer. +Effective January 1, 2021 the Bank adopted an Employee Stock Ownership Plan (“ESOP”) enabling eligible employees to have a stock ownership interest in the Company. The Company intends to fund the plan on an annual basis. The ESOP is administered by a third-party trust. The Bank contributed $ 331 thousand to the ESOP for each of the years ended December 31, 2025 and December 31, 2024 . The funding of the ESOP is at the discretion of the board of directors. +Premises and equipment +Bank premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed on the straight-line method over the shorter of the lease term or estimated useful lives of the related assets. +Restricted Investment in Bank Stock +Federal law requires a member institution of the Federal Home Loan Bank (“FHLB”) system to hold restricted stock of its district FHLB according to a predetermined formula. Restricted stock in the amount of $ 2.2 million and $ 1.9 million is carried at cost at December 31, 2025 and December 31, 2024, respectively. +The Company also held $ 137 thousand of stock in Atlantic Community Bankers Bank (“ACBB”) at December 31, 2025 and December 31, 2024. +Management’s determination of whether these restricted investments are impaired is based on an assessment of the ultimate recoverability of their cost, rather than by recognizing temporary declines in value. The determination of whether a decline affects the ultimate recoverability of cost is influenced by criteria such as (1) the significance of the decline in net assets of the institution as compared to the capital stock amount for the institution and the length of time +69 +this situation has persisted, (2) commitments by the institution to make payments required by law or regulation and the level of such payments in relation to the operating performance of the institution and (3) the impact of legislative and regulatory changes on institutions and, accordingly, on the customer base of the institution. +Management believes no impairment charge is necessary related to the FHLB restricted stock or the ACBB restricted stock as of December 31, 2025 and December 31, 2024 . +Reclassifications of Prior Year Presentation +Certain prior year amounts are reclassified for consistency with the current year presentation. These reclassifications have no effect on the reported results of the prior year. +Income taxes +The Company adopted ASU No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” on January 1, 2025 . +The Company accounts for income taxes in accordance with income tax accounting guidance contained in Financial Accounting Standards Board (“FASB”) ASC Topic 740, Income Taxes . This includes guidance related to accounting for uncertainty in income taxes, which sets out a consistent framework to determine the appropriate level of tax reserves to maintain for uncertain tax positions. The Company had no material unrecognized tax benefits or accrued interest and penalties as of and for the years ended December 31, 2025 and December 31, 2024. The Company’s policy is to account for interest and penalties as a component of other non-interest expense. The Company is subject to income taxes in the U. S. and various state and local jurisdictions. As of December 31, 2025, tax years after 2022 are subject to federal and state examination. Tax regulations are subject to interpretation of the related tax laws and regulations and require significant judgment to apply. +Federal and state income taxes have been provided on the basis of reported income or loss. The amounts reflected on the tax returns differ from these provisions due principally to temporary differences in the reporting of certain items for financial reporting and income tax reporting purposes. The tax effect of these temporary differences is accounted for as deferred taxes applicable to future periods. +Deferred income tax expense or benefit is determined by recognizing deferred tax liabilities and assets, respectively, for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period that includes the enactment date. The realization of deferred tax assets is assessed, and a valuation allowance provided for the full amount which is not more likely than not to be realized . +Stock compensation plans +The stock compensation accounting guidance set forth in FASB ASC Topic 718, Compensation - Stock Compensation , requires that compensation costs relating to share-based payment transactions be recognized in financial statements. That cost will be measured based on the grant date fair value of the equity or liability instruments issued. The stock compensation accounting guidance covers a wide range of share-based compensation arrangements including stock options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. +The stock compensation accounting guidance requires that compensation costs for all stock awards be calculated and recognized over the employees’ service period, generally defined as the vesting period. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award. A Black-Scholes model is used to estimate the fair value of stock options. An option is considered to be forfeited if the stock option was not exercised prior to vesting. At the date of grant, the Company estimates the forfeiture rate as part of its initial determination of the fair value of options granted and then adjusts forfeitures as they occur. +70 +Earnings per share +Basic earnings per share amounts are calculated by dividing income available to common stockholders by the weighted average common shares outstanding during the period and exclude any dilutive effects of stock options and warrants. Diluted earnings per share amounts include the dilutive effects of stock options and warrants whose exercise price is less than the market price of the Company’s shares. Diluted earnings per share amounts are calculated by dividing income available to common stockholders by the weighted average common shares outstanding during the period if options and warrants were exercised and converted into common stock, using the treasury stock method. +Leases +The Company determines whether an arrangement is a lease at inception. Operating lease right-of-use (“ROU”) assets are included in other assets and operating lease liabilities are included in other liabilities in the consolidated statements of financial condition. The Company does not have any finance leases. +ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. Since our leases do not provide an implicit rate, we use our incremental borrowing rate, the Federal Home Loan Bank advance rate, based on the information available at the commencement date in determining the present value of lease payments. The operating lease ROU asset is net of lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense is recognized on a straight-line basis over the lease term. +We have lease agreements with lease and non-lease components, which are generally accounted for separately. We have not elected the practical expedient to account for lease and non-lease components as one lease component. +Advertising costs +The Company charges the costs of advertising to expense as incurred. +Comprehensive income +Accounting principles generally require that recognized revenues, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are reported as a separate component of the equity section of the consolidated statements of financial condition, such items, along with net income, are components of comprehensive income. Accumulated other comprehensive income is comprised of net unrealized holding gains and losses, net of taxes, on available-for-sale securities. Realized gains or losses are reclassified out of accumulated other comprehensive income when the underlying security is sold, based upon the specific identification method. +Segment Reporting +The Company has determined that all of its banking divisions and subsidiaries meet the aggregation criteria of ASC 280, Segment Reporting , as its current operating model is structured whereby banking divisions and subsidiaries serve a similar customer base utilizing a company-wide offering of similar products and services managed through similar processes and platforms that are collectively reviewed by the Company’s Chief Executive Officer, who has been identified as the chief operating decision maker (“CODM”). +The CODM regularly assesses performance of the aggregated single operating and reporting segment and decides how to allocate resources based on net income calculated on the same basis as is net income reported in the Company’s consolidated statements of income and other comprehensive income. The CODM is also regularly provided with expense information at a level consistent with that disclosed in the Company’s consolidated statements of income and other comprehensive income. +71 +Recent Accounting Pronouncements Not Yet Adopted +ASU 2023-06, “Disclosure improvements” amends disclosure or presentation requirements related to various subtopics in the FASB Accounting Standards Codification. The effective dates will depend, in part, on whether an entity is already subject to the SEC’s current disclosure requirements. This ASU is not expected to have a material impact on the Company’s consolidated financial statements. +ASU 2025-08, “Financial Instruments—Credit Losses: Purchased Loans,” expands the gross‑up approach for the allowance for credit losses to certain purchased seasoned loans. The amendments are effective for fiscal years beginning after December 15, 2026, are applied prospectively, and early adoption is permitted. The Company is currently evaluating the impact and does not expect adoption to have a material impact on its consolidated financial statements. +Note 2 – Business Combinations +On August 23, 2024, the Company completed the acquisition of CFC, the holding company for Cornerstone Bank, a New Jersey chartered state bank headquartered in Mt. Laurel, New Jersey that primarily served the South Jersey market. On that date, the Company acquired 100 % of the outstanding common stock of CFC in exchange for the Company’s stock, CFC was merged into the Company, and Cornerstone Bank was merged with and into the Bank. +In accordance with the terms of the acquisition agreement, the Company issued its common stock at an exchange ratio of 0.24 shares of Company common stock per share of Cornerstone’s common stock outstanding on the closing date, based on the $ 38.09 closing price of the Company’s common stock on August 23, 2024. +The acquisition of Cornerstone Bank was accounted for as a business combination using the acquisition method of accounting, and accordingly, the assets acquired, the liabilities assumed, and consideration transferred were recorded at their estimated fair value as of the acquisition. The $ 5.5 million total in the table below was recorded as “Goodwill” on the Consolidated Statement of Financial Condition. +72 +The following table summarizes the purchase price calculation and goodwill resulting from acquisition: +Fair Value +(Dollars in thousands except per share data) +Purchase Price Consideration in Cash for Cornerstone Financial +Corporation’s Outstanding Shares +Cornerstone Financial Corporation number of common shares outstanding +2,191,999 +Exchange ratio +0.240 +Princeton Bancorp, Inc shares issued +525,946 +Value assigned to Cornerstone Financial Corporation common shares +$ +38.09 +Purchase price assigned to Cornerstone Financial Corporation common +shares exchanged for Princeton Bancorp, Inc common stock +$ +20,033 +Assets Acquired: +Cash and cash equivalents +$ +7,866 +Securities available-for-sale +13,972 +Loans receivable, net of allowance +255,496 +Core deposit intangible +2,812 +Premises and equipment +3,507 +Operating leases right-of-use +1,259 +Deferred tax assets +7,427 +Other assets +11,137 +Fair value of assets acquired +303,476 +Liabilities Assumed: +Deposits +282,757 +Operating lease liability +1,259 +Other liabilities assumed +4,955 +Fair value of liabilities assumed +288,971 +Total identifiable net assets +14,505 +Goodwill +$ +5,528 +The Company recorded merger-related expenses of $ 7.8 million, consisting of $ 3.2 million in severance payments, $ 1.5 million for termination of the corporate headquarters lease, $ 1.5 million related to termination of data processing contracts, $ 615 thousand for legal related expenses, $ 330 thousand for investment banker services, $ 416 thousand in other professional services provided and $ 305 thousand in other miscellaneous related expenses. In addition, the Company recorded a $ 3.2 million provision for credit loss for the purchased non-credit deteriorated loans and $ 154 thousand for purchase credit deteriorated loans in connection with the acquisition. +The following is a description of the fair value methodologies used to estimate the fair values of major categories of assets acquired. +Cash and due from banks: The estimated fair values of cash and due from banks approximated their stated value. +Investment securities: The acquired portfolio had a fair value of $ 13.9 million, primarily consisting of mortgage-backed securities and treasury securities. +Loans: The Company recorded $ 255.5 million of acquired loans that were initially at their fair values as of the date of the acquisition. Fair values for loans were based on a discounted cash flow methodology that considered credit loss and prepayment expectations, market interest rates and other market factors, such as liquidity, from the perspective of a market participant. Loan cash flows were generated on an individual loan basis. The probability of default (“PD”), loss given default (“LGD”), exposure of default and prepayment assumptions are the key factors driving credit losses that are embedded in the estimated cash flows. The Company determined that $ 16.7 million of the acquired loans were purchased credit deteriorated (“PCD”) of which $ 13.8 million were performing and $ 2.8 million were non-performing at the time of the acquisition. +Allowance for credit losses: The acquisition resulted in the addition of $ 3.2 million in the allowance for credit losses on purchased non-credit deteriorated loans and a gross up of $ 154 thousand identified for PCD loans. +73 +Other assets: The Company acquired $ 8.7 million of bank owned life insurance, $ 7.4 million of deferred tax assets, $ 3.5 million of premises and equipment, $ 2.8 million in core deposit intangible, and $ 1.3 million of operating lease right-of-use assets and recorded the assets at fair value. +Time deposits: Time deposits were valued at the account level based on their remaining maturity dates and comparing the contractual cost of the portfolio to similar instruments. The valuation adjustment of $ 252 thousand will be amortized to expense over a five-year period. +Note 3 – Earnings Per Share +The following schedule presents earnings per share data: +Year ended December 31, +2025 +2024 +Net income applicable to common stock +$ +18,611 +$ +10,242 +Weighted average number of common shares outstanding +6,827 +6,530 +Basic earnings per share +$ +2.73 +$ +1.57 +Net income applicable to common stock +$ +18,611 +$ +10,242 +Weighted average number of common shares outstanding +6,827 +6,530 +Dilutive effect on common shares outstanding +32 +90 +Weighted average number of diluted common shares outstanding +6,859 +6,620 +Diluted earnings per share +$ +2.71 +$ +1.55 +Restricted stock units and options to purchase 182,095 shares of common stock at a weighted average exercise price of $ 26.99 were included in the comp utation of diluted earnings per share for the year ended December 31, 2025 . Certain restricted stock units for 95,750 shares were excluded from the diluted share calculations above as they were deemed to be antidilutive . +Restricted stock units and options to purchase 249,656 shares of common stock at a weighted average exercise price of $ 23.76 were included in the computation of diluted earnings per share for the year ended December 31, 2024 . There were no antidilutive shares to be excluded from the computation of diluted earnings per share at December 31, 2024 . +Note 4 – Investment Securities +The following tables summarize the amortized cost and estimated fair value of securities available-for-sale at December 31, 2025 and December 31, 2024 with gross unrealized gains and losses therein: +December 31, 2025 +Amortized +Cost +Gross +Unrealized +Gains +Gross +Unrealized +Losses +Fair Value +Available-for-sale +(In thousands) +Mortgage-backed securities - U.S. government +sponsored enterprises (GSEs) +$ +132,040 +$ +688 +$ +( 5,081 +) +$ +127,647 +U.S. government agency securities +11,260 +2 +( 750 +) +10,512 +Obligations of state and political subdivisions +42,423 +8 +( 2,233 +) +40,198 +Small business association (SBA) securities +1,254 +6 +( 1 +) +1,259 +U.S. treasury securities +2,947 +6 +— +2,953 +Total +$ +189,924 +$ +710 +$ +( 8,065 +) +$ +182,569 +74 +December 31, 2024 +Amortized +Cost +Gross +Unrealized +Gains +Gross +Unrealized +Losses +Fair Value +Available-for-sale +(In thousands) +Mortgage-backed securities - U.S. government +sponsored enterprises (GSEs) +$ +197,792 +$ +422 +$ +( 7,669 +) +$ +190,545 +U.S. government agency securities +11,260 +17 +( 1,077 +) +10,200 +Obligations of state and political subdivisions +43,895 +1 +( 4,166 +) +39,730 +Small business association (SBA) securities +1,856 +5 +( 4 +) +1,857 +U.S. treasury securities +4,855 +1 +( 17 +) +4,839 +Total +$ +259,658 +$ +446 +$ +( 12,933 +) +$ +247,171 +The unrealized losses, categorized by the length of time in a continuous loss position, and the fair value of related securities available-for-sale as of December 31, 2025 and December 31, 2024 are as follows: +Less than 12 Months +More than 12 Months +Total +Fair +Value +Unrealized +Losses +Fair +Value +Unrealized +Losses +Fair +Value +Unrealized +Losses +December 31, 2025 +(In thousands) +Mortgage-backed securities - U.S. government +sponsored enterprises (GSEs) +$ +22,206 +$ +( 52 +) +$ +29,492 +$ +( 5,029 +) +$ +51,698 +$ +( 5,081 +) +U.S. government agency securities +— +— +5,510 +( 750 +) +5,510 +( 750 +) +Obligations of state and political subdivisions +1,901 +( 3 +) +31,025 +( 2,230 +) +32,926 +( 2,233 +) +Small business association (SBA) securities +381 +— +223 +( 1 +) +604 +( 1 +) +Total +$ +24,488 +$ +( 55 +) +$ +66,250 +$ +( 8,010 +) +$ +90,738 +$ +( 8,065 +) +Less than 12 Months +More than 12 Months +Total +Fair +Value +Unrealized +Losses +Fair +Value +Unrealized +Losses +Fair +Value +Unrealized +Losses +December 31, 2024 +(In thousands) +Mortgage-backed securities - U.S. government +sponsored enterprises (GSEs) +$ +122,763 +$ +( 1,157 +) +$ +29,229 +$ +( 6,512 +) +$ +151,992 +$ +( 7,669 +) +U.S. government agency securities +129 +— +5,183 +( 1,077 +) +5,312 +( 1,077 +) +Obligations of state and political subdivisions +3,664 +( 39 +) +34,320 +( 4,127 +) +37,984 +( 4,166 +) +Small business association (SBA) securities +447 +( 1 +) +449 +( 3 +) +896 +( 4 +) +U.S. Treasuries +2,846 +( 17 +) +— +— +2,846 +( 17 +) +$ +129,849 +$ +( 1,214 +) +$ +69,181 +$ +( 11,719 +) +$ +199,030 +$ +( 12,933 +) +Accrued interest receivable for investment securities was $ 1.1 million and $ 1.3 million at December 31, 2025 and December 31, 2024, respectively. Debt securities are placed on nonaccrual status and accrued interest is reversed at the time any principal or interest payments become 90 days delinquent. There were no past due securities at December 31, 2025 or December 31, 2024. +The Company uses a defined methodology for allowance for credit losses on its investment securities available-for-sale. The Company did no t record an allowance for credit losses associated with its investment portfolio during 2024. +The Company’s securities primarily consist of the following types of instruments; U.S. guaranteed mortgage-backed securities, U.S guaranteed agency bonds, state and political subdivision issued bonds, mortgage related securities guaranteed by the SBA and U.S. treasury notes. We believe it is reasonable to expect that the securities with a credit guarantee of the U.S. government will have a zero-credit loss. Therefore, no reserve was recorded for U.S. guaranteed securities or bonds at December 31, 2025. The state and political subdivision securities carry a minimum investment rating of A by either Moody’s or Standard and Poor. Some of the smaller municipalities also have insurance to cover the Company in the event of default. Therefore, the Company did not project a credit loss and no reserve was recorded as of December 31, 2025. +75 +At December 31, 2025 , the Company’s available-for-sale securities portfolio consisted of approximately 264 securities, of which 151 available-for-sale securities were in an unrealized loss position for more than twelve months and 19 available-for-sale securities were in a loss position for less than twelve months. The available-for-sale securities in a loss position for more than twelve months consisted of 95 municipal securities aggregating $ 31.0 million with a loss of $ 2.2 million, 50 mortgage-backed securities-GSE aggregating $ 29.5 million with a loss of $ 5.0 million, 4 agency securities aggregating $ 5.5 million with a loss of $ 750 thousand and 2 SBA securities aggregating $ 223 thousand with a loss of $ 1 thousand. The Company does not intend to sell these securities, and it is not more likely than not that we will be required to sell these securities before recovery of their amortized cost basis. Unrealized losses primarily relate to interest rate fluctuations and not credit concerns. +There are no securities pledged as of December 31, 2025, and December 31, 2024. +The amortized cost and estimated fair value of securities available-for-sale at December 31, 2025 by contractual maturity are shown below. Expected maturities will differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without call or prepayment penalties: +Amortized +Cost +Fair Value +(In thousands) +Due in one year or less +$ +4,048 +$ +4,055 +Due after one year through five years +10,155 +10,065 +Due after five years through ten years +43,083 +37,860 +Due after ten years +598 +2,942 +Mortgage-backed securities (GSEs) +132,040 +127,647 +$ +189,924 +$ +182,569 +There were no sales of available-for-sale securities for the year ended December 31, 2025 . Proceeds from the calls and maturities of securities available-for-sale amounted to $ 3.5 million for the year ended December 31, 2025 . There were no sales of available-for-sale securities for the year ended December 31, 2024 . Proceeds from the calls and maturities of securities available-for-sale amounted to $ 1.3 million for the year ended December 31, 2024 , which included a loss of $ 7 thousand. +There were no securities pledged as collateral for NJ Governmental Unit Deposit Protection Act (“GUDPA”) deposits at December 31, 2025 or December 31, 2024 . +Note 5 – Loans Receivable +Loans receivable, net at December 31, 2025 and December 31, 2024 were comprised of the following: +December 31, +2025 +December 31, +2024 +(In thousands) +Commercial real estate +$ +1,343,531 +$ +1,385,085 +Commercial and industrial +76,557 +92,857 +Construction +209,483 +257,169 +Residential first-lien mortgage +163,813 +68,030 +Home equity/consumer +25,359 +18,133 +Total loans +1,818,743 +1,821,274 +Deferred fees and costs +( 2,327 +) +( 2,399 +) +Loans, net +$ +1,816,416 +$ +1,818,875 +The Company purchas ed approximately $ 108.2 million in residential loans and $ 8.7 m illion in consumer loans during the twelve months ended December 31, 2025 . Besides the loans acquired in the acquisition of Cornerstone Bank in the third quarter of 2024, the Company did no t purchase any loans during the year ended December 31, 2024. +76 +The following table presents the purchase of purchase credit deteriorated loans acquired on August 23, 2024. +PCD Accruing +August 23, 2024 +PCD Non- +Accruing +August 23, 2024 +Total +PCD Loans +August 23, 2024 +(In thousands) +Purchase price PCD Loans +$ +13,639 +$ +607 +$ +14,246 +Allowance for credit losses at acquisition +( 154 +) +— +( 154 +) +Non-Credit discount (premium) at acquisition +342 +2,222 +2,564 +Par value of acquired PCD Loans +$ +13,827 +$ +2,829 +$ +16,656 +The following table presents nonaccrual loans by segment of the loan portfolio as of December 31, 2025 and December 31, 2024: +December 31, 2025 +December 31, 2024 +With a +Related +Allowance +Without a +Related +Allowance +With a +Related +Allowance +Without a +Related +Allowance +(In thousands) +Commercial real estate +$ +— +$ +15,229 +$ +18,502 +$ +6,939 +Commercial and industrial +— +1,257 +109 +1,178 +Residential first-lien mortgage +— +92 +— +94 +Home equity/consumer +— +— +— +19 +Total nonaccrual loans +$ +— +$ +16,578 +$ +18,611 +$ +8,230 +The calculation of the allowance for credit losses does not include any accrued interest receivable. The Company’s policy is to write off any interest not collected after 90 days. During the year ended December 31, 2025 , the Company wrote off $ 1.19 million in accrued interest receivable for loans, compared to $ 563 thousand for the year ended December 31, 2024 . Accrued interest receivable related to loans, was $ 6.7 million and $ 6.5 million, at December 31, 2025 and 2024, respectively. The performance and credit quality of the loan portfolio is also monitored by analyzing the age of the loan receivables by the length of time a recorded payment is past due. +The following table presents the segments of the loan portfolio, summarized by the past due status as of December 31, 2025: +30-59 +Days +Past +Due +60-89 +Days +Past +Due +>90 +Days +Past +Due +Total +Past +Due +Current +Total +Loans +Receivable +Loans +Receivable +>90 Days +and +Accruing +(In thousands) +Commercial real estate +$ +7,523 +$ +— +$ +15,229 +$ +22,752 +$ +1,320,779 +$ +1,343,531 +$ +— +Commercial and industrial +15 +273 +302 +590 +75,967 +76,557 +— +Construction +— +— +— +— +209,483 +209,483 +— +Residential first-lien +mortgage +370 +— +18 +388 +163,425 +163,813 +— +Home equity/consumer +180 +— +— +180 +25,179 +25,359 +— +Total +$ +8,088 +$ +273 +$ +15,549 +$ +23,910 +$ +1,794,833 +$ +1,818,743 +$ +— +77 +The following table presents the segments of the loan portfolio summarized by the past due status as of December 31, 2024: +30-59 +Days +Past +Due +60-89 +Days +Past +Due +>90 +Days +Past +Due +Total +Past +Due +Current +Total +Loans +Receivable +Loans +Receivable +>90 Days +and +Accruing +(In thousands) +Commercial real estate +$ +— +$ +— +$ +25,441 +$ +25,441 +$ +1,359,644 +$ +1,385,085 +$ +— +Commercial and industrial +36 +— +421 +457 +92,400 +92,857 +32 +Construction +— +— +— +— +257,169 +257,169 +— +Residential first-lien +mortgage +700 +94 +— +794 +67,236 +68,030 +— +Home equity/consumer +— +— +— +— +18,133 +18,133 +— +Total +$ +736 +$ +94 +$ +25,862 +$ +26,692 +$ +1,794,582 +$ +1,821,274 +$ +32 +The Company categorizes all loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation and current economic trends, among other factors. The Company evaluates risk ratings on an ongoing basis and assigns one of the following ratings: pass, special mention, substandard and doubtful. The Company engages a third party to review its assessment on a semiannual basis. The Company classifies residential and consumer loans as either performing or nonperforming based on payment status, and includes non-performing loans in the substandard category of the totals below. +78 +The following table summarizes total loans by year of origination, internally assigned credit grades and risk characteristics as of December 31, 2025. +2025 +2024 +2023 +2022 +2021 +Prior +Revolving +Loans +Total +(Dollars in thousands) +Commercial real estate +Pass +$ +63,586 +$ +128,257 +$ +161,317 +$ +299,041 +$ +129,951 +$ +529,896 +$ +5,962 +$ +1,318,010 +Special mention +— +— +— +— +— +9,429 +— +9,429 +Substandard +— +— +— +— +— +16,092 +— +16,092 +Total commercial real +estate +63,586 +128,257 +161,317 +299,041 +129,951 +555,417 +5,962 +1,343,531 +Current period gross charge- +offs +— +— +— +— +— +10,181 +— +10,181 +Commercial and industrial +Pass +8,251 +1,077 +6,197 +8,958 +11,074 +15,706 +23,532 +74,795 +Special mention +— +— +— +— +— +505 +— +505 +Substandard +— +— +— +— +— +1,257 +— +1,257 +Total commercial and +industrial +8,251 +1,077 +6,197 +8,958 +11,074 +17,468 +23,532 +76,557 +Current period gross charge- +offs +— +— +— +— +— +99 +— +99 +Construction +Pass +5,000 +17,070 +— +9,290 +55,582 +— +122,541 +209,483 +Total construction +5,000 +17,070 +— +9,290 +55,582 +— +122,541 +209,483 +Residential first-lien mortgage +Performing +28,071 +58,909 +17,605 +6,408 +5,903 +46,825 +— +163,721 +Nonperforming +— +— +— +— +— +92 +— +92 +Total residential first-lien +mortgage +28,071 +58,909 +17,605 +6,408 +5,903 +46,917 +— +163,813 +Home equity/consumer +Performing +9,726 +1,045 +899 +1,203 +1,050 +442 +10,989 +25,354 +Nonperforming +— +— +0 +— +— +5 +— +5 +Total home +equity/consumer +9,726 +1,045 +899 +1,203 +1,050 +447 +10,989 +25,359 +Total +Pass +114,634 +206,358 +186,018 +324,900 +203,560 +592,869 +163,024 +1,791,363 +Special mention +— +— +— +— +— +9,934 +— +9,934 +Substandard +— +— +— +— +— +17,446 +— +17,446 +Total loans +$ +114,634 +$ +206,358 +$ +186,018 +$ +324,900 +$ +203,560 +$ +620,249 +$ +163,024 +$ +1,818,743 +79 +The following table summarizes total loans by year of origination, internally assigned credit grades and risk characteristics as of December 31, 2024. +2024 +2023 +2022 +2021 +2020 +Prior +Revolving +Loans +Total +(Dollars in thousands) +Commercial real estate +Pass +$ +143,453 +$ +168,828 +$ +309,379 +$ +136,509 +$ +58,755 +$ +537,532 +$ +2,600 +$ +1,357,056 +Special mention +— +— +— +— +— +2,588 +— +2,588 +Substandard +— +— +— +— +6,938 +18,503 +— +25,441 +Total commercial real +estate +143,453 +168,828 +309,379 +136,509 +65,693 +558,623 +2,600 +1,385,085 +Current period gross charge- +offs +236 +236 +Commercial and industrial +Pass +— +3,022 +10,876 +11,183 +— +16,440 +48,143 +89,664 +Special mention +— +— +— +— +— +1,906 +— +1,906 +Substandard +— +— +— +— +— +1,287 +— +1,287 +Total commercial and +industrial +— +3,022 +10,876 +11,183 +— +19,633 +48,143 +92,857 +Current period gross charge- +offs +516 +516 +Construction +Pass +17,765 +22,109 +46,558 +92,841 +16,431 +242 +61,223 +257,169 +Total construction +17,765 +22,109 +46,558 +92,841 +16,431 +242 +61,223 +257,169 +Current period gross charge- +offs +Residential first-lien mortgage +Performing +596 +1,895 +6,789 +6,134 +2,860 +49,662 +— +67,936 +Nonperforming +— +— +— +— +— +94 +— +94 +Total residential first-lien +mortgage +596 +1,895 +6,789 +6,134 +2,860 +49,756 +— +68,030 +Home equity/consumer +Performing +1,234 +967 +556 +— +— +— +15,357 +18,114 +Nonperforming +— +— +19 +— +— +— +— +19 +Total home +equity/consumer +1,234 +967 +575 +— +— +— +15,357 +18,133 +Total +Pass/performing +163,048 +196,821 +374,158 +246,667 +78,046 +603,876 +127,323 +1,789,939 +Special mention +— +— +— +— +— +4,494 +— +4,494 +Substandard /nonperforming +— +— +19 +— +6,938 +19,884 +— +26,841 +Total loans +$ +163,048 +$ +196,821 +$ +374,177 +$ +246,667 +$ +84,984 +$ +628,254 +$ +127,323 +$ +1,821,274 +80 +The following table presents the allowance for credit losses on loans receivable at and for the year ended December 31, 2025: +Commercial +real estate +Commercial +and +industrial +Construction +Residential +first-lien +mortgage +Home equity/ +consumer +Total +(In thousands) +Allowance for credit losses: +Beginning balance +$ +20,821 +$ +1,173 +$ +609 +$ +893 +$ +161 +$ +23,657 +Provision (reversal) 1 +6,123 +( 421 +) +( 233 +) +1,111 +36 +6,616 +Charge-offs +( 10,181 +) +( 99 +) +— +— +— +( 10,280 +) +Recoveries +85 +247 +— +— +— +332 +Total +$ +16,848 +$ +900 +$ +376 +$ +2,004 +$ +197 +$ +20,325 +1 The provision for credit losses on the Consolidated Statement of Income is $ 6.7 million comprising of a $ 6.6 million provision associated with the company’s loan portfolio, and a provision of $ 38 thousand associated with unfunded commitments. +The following table presents the components of the allowance for credit losses: +December 31, +2025 +December 31, +2024 +(In thousands) +Allowance for credit losses - loans +$ +( 20,325 +) +$ +( 23,657 +) +Allowance for credit losses - off balance sheet +( 399 +) +( 361 +) +$ +( 20,724 +) +$ +( 24,018 +) +The allowance for credit losses decreased to $ 20.3 million at December 31, 2025, from $ 23.7 million at December 31, 2024. The decline primarily reflects a charge off of $ 9.9 million, partially offset by provision expense driven by portfolio mix and credit factors, including lower balances in certain higher‑risk loan segments. +The following table presents the allowance for loan losses on loans receivables at and for the year ended December 31, 2024: +Commercial +real estate +Commercial +and +industrial +Construction +Residential +first-lien +mortgage +Home +equity/ +consumer +Total +(In thousands) +Allowance for credit losses: +Beginning balance +$ +16,047 +$ +488 +$ +1,145 +$ +725 +$ +87 +$ +18,492 +Purchased non-credit deteriorated loans 1 +2,106 +15 +546 +271 +214 +3,152 +Purchased credit deteriorated loans +110 +4 +11 +13 +16 +154 +Provision (reversal) 1 +2,709 +903 +( 1,128 +) +( 116 +) +( 156 +) +2,212 +Charge-offs +( 236 +) +( 516 +) +— +— +— +( 752 +) +Recoveries +85 +279 +35 +— +— +399 +Total +$ +20,821 +$ +1,173 +$ +609 +$ +893 +$ +161 +$ +23,657 +1 The provision for credit losses on the Consolidated Statement of Income is $ 5.1 million comprising of an increase of $ 3.2 million related to purchased non-credit deteriorated loans acquired, $ 2.1 million increase to the allowance for loan loss and a $ 227 thousand reduction to the reserve for unfunded liabilities. +As of December 31, 2025 , the Company had nine loans totaling $ 16.6 million that were individually analyzed for potential credit loss. Eight of the loans aggregating $ 16.2 million have real estate as credit support and one loan for $ 394 thousand used future cash flows to determine if a write down was needed. +81 +Occasionally, the Company will modify the contractual terms of loans to a borrower experiencing financial difficulties as a way to mitigate loss, proactively work with borrowers in financial difficulty, or to comply with regulations regarding the treatment of certain bankruptcy filing and discharge situations. Typically, such concessions may consist of a reduction in interest rate to a below market rate, taking into account the credit quality of the note, extension of additional credit based on receipt of adequate collateral, or a deferment or reduction of payments (principal or interest) which materially alters the Company’s position or significantly extends the note’s maturity date, such that the present value of cash flows to be received is materially less than those contractually established at the loan’s origination. When principal forgiveness is provided, the amount forgiven is charged off against the allowance for credit losses on loans. There were no modifications to borrowers with financial difficulties and no loans that defaulted for years ended December 31, 2025 or December 31, 2024. +Loans to Related Parties. Included in total loans are loans due from directors and other related parties. All loans made to directors have substantially the same terms and interest rates as other bank borrowers at their origination date. The Board of Directors confirms that collateral requirements, terms and rates are comparable to other borrowers and are in compliance with underwriting policies prior to approving loans to individual directors. The following presents the activity in amount due from directors and other related parties for the years ended December 31, 2025 and December 31, 2024. +December 31, +2025 +December 31, +2024 +(In thousands) +Outstanding related party loans at January 1 +$ +4,327 +$ +4,601 +New loans +— +— +Repayments +( 290 +) +( 274 +) +Outstanding related party loans at December 31 +$ +4,037 +$ +4,327 +Note 6 – Premises and Equipment +The components of premises and equipment were as follows: +Estimated +useful lives +December 31, +2025 +December 31, +2024 +(In thousands) +Land +N/A +$ +2,703 +$ +2,703 +Buildings +40 Years +6,884 +6,604 +Leasehold improvements +Lesser of lease term or useful life +12,052 +11,842 +Furniture, fixtures and equipment +3 - 8 Years +5,550 +5,219 +Construction in progress +86 +24 +Total before accumulated depreciation and amortization +27,275 +26,392 +Accumulated depreciation and amortization +( 10,375 +) +( 8,588 +) +Total +$ +16,900 +$ +17,804 +Note 7 – Deposits +The components of deposits were as follows: +December 31, +2025 +December 31, +2024 +(Dollars in thousands) +Demand, non-interest-bearing checking +$ +286,013 +14.47 +% +$ +300,972 +14.81 +% +Demand, interest-bearing checking +333,533 +16.88 +% +300,559 +14.79 +% +Savings +167,735 +8.49 +% +170,880 +8.41 +% +Money market +464,205 +23.49 +% +490,543 +24.13 +% +Time deposits, $250,000 and over +289,738 +14.66 +% +284,272 +13.99 +% +Time deposits, other +434,969 +22.01 +% +485,399 +23.88 +% +$ +1,976,193 +100.00 +% +$ +2,032,625 +100.00 +% +82 +Money market accounts totaling $ 16.1 million and $ 17.1 million at December 31, 2025 and December 31, 2024, respectively, were originated through a reciprocal deposit relationship. +At December 31, 2025, the scheduled maturities of certificates of deposit were as follows: +Amount +Years Ended December 31 +(in thousands) +2026 +$ +688,857 +2027 +29,901 +2028 +2,436 +2029 +2,807 +2030 and thereafter +706 +Total +$ +724,707 +Approximately $ 18.6 million and $ 44.6 million at December 31, 2025 and December 31, 2024, respectively, were originated through brokers. +Related party deposits were approximately $ 9.3 million and $ 8.4 million at December 31, 2025 and December 31, 2024, respectively. +Deposit overdrafts reclassified as loan balances were $ 99 thousand and $ 175 thousand at December 31, 2025 and December 31, 2024 , respectively. +Note 8 – Borrowings +The Company periodically enters into FHLB-NY overnight and short-term advances. The Company utilizes federal funds purchased to meet short-term liquidity needs. The FHLB-NY has non-specific blanket collateral on the Bank’s loan portfolio as of December 31, 2025 and December 31, 2024. +At December 31, 2025 , the Company had a maximum borrowing capacity with the FHLB-NY, subject to certain collateral restrictions, of $ 648.4 million, with $ 548.4 million available. The Bank is also a shareholder in Atlantic Community Bancshares, Inc., the holding company of ACBB. As of December 31, 2025 , the Company had available borrowing capacity with ACBB of $ 10.0 million to provide short-term liquidity generally for a period of not more than fourteen days. +The Company had no outstanding borrowings at December 31, 2025 or December 31, 2024 . +Note 9 – Commitments and Contingencies +Commitments to extend credit +The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized on the balance sheet. The contract, or notional, amounts of these instruments reflect the extent of involvement the Company has in particular classes of financial instruments. +The Company’s exposure to credit loss in the event of nonperformance by the counterparty to the financial instrument for commitments to extend credit and standby letters of credit written is represented by the contractual notional amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as they do for on-balance-sheet instruments. +Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee by the counterparty. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. +83 +The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the counterparty. Collateral held varies, but primarily includes residential and income-producing real estate. +Standby letters of credit are written conditional commitments issued by the Company to guarantee the performance of a customer to a third party. The majority of these standby letters of credit expire within the next twelve months. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending other loan commitments. The Company requires collateral supporting these letters of credit as deemed necessary. Management believes that the proceeds obtained through a liquidation of such collateral should be sufficient to cover the maximum potential amount under the corresponding guarantees. +The Company had the following off-balance sheet financial instruments whose contract amounts represent credit risk at December 31: +December 31, +2025 +December 31, +2024 +(In thousands) +Performance and standby letters of credit +$ +590 +$ +700 +Undisbursed construction loans-in-process +100,639 +61,223 +Commitments to fund loans +69,619 +51,883 +Unfunded commitments under lines of credit +19,500 +18,801 +Total +$ +190,348 +$ +132,607 +The Company is a limited partner in a Small Business Investment Company (“SBIC”) and committed to contribute capital of $ 5.0 million to the partnership. At December 31, 2025 , the SBIC had a book value of $ 3.3 million. The unfunded commitment to the partnership was $ 1.7 million at December 31, 2025. +The Company invested in a CRA eligible investment that acquires SBA loans within qualifying census tracts in which the Company operates. The Company decides which loans are included in its investment. The Company has an outstanding commitment to fund up to $ 7.5 million and currently has $ 7.5 million funded. There is currently no unfunded commitment at December 31, 2025. +Litigation +From time to time the Company is a defendant in various legal proceedings arising in the ordinary course of our business. However, in the opinion of management of the Company, there are no proceedings pending to which the Company is a party or to which its property is subject, which, if determined adversely to the Company, would be material in relation to the Company’s profits or financial condition, nor are there any proceedings pending other than ordinary routine litigation incident to the business of the Company. In addition, no material proceedings are pending or are known to be threatened or contemplated against the Company by government authorities or others. +84 +Note 10 – Income Taxes +Income tax expense for the years ended December 31 is as follows: +December 31, +2025 +December 31, +2024 +(In thousands) +Current tax provision (benefit): +Federal +$ +2,558 +$ +2,688 +State +550 +693 +Total current tax provision +3,108 +3,381 +Deferred income tax provision (benefit): +Federal +1,266 +( 540 +) +State +697 +( 267 +) +Total deferred tax provision (benefit) +1,963 +( 807 +) +Total tax provision (benefit) +$ +5,071 +$ +2,574 +The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows as of December 31: +December 31, +2025 +December 31, +2024 +(In thousands) +Deferred tax assets: +Allowance for credit losses +$ +5,854 +$ +6,724 +Net operating loss carry-forward +5,093 +5,651 +Other +1,164 +1,279 +Core deposit intangible +478 +466 +Acquisition accounting adjustments +5,060 +5,728 +Lease liability +6,104 +6,520 +SERP liability +438 +418 +Unrealized loss on securities +2,090 +3,546 +Total deferred tax assets +26,281 +30,332 +Deferred tax liabilities: +Depreciation +( 806 +) +( 682 +) +Deferred loan costs +( 770 +) +( 975 +) +ROU +( 5,795 +) +( 6,225 +) +Goodwill amortization +( 1,119 +) +( 937 +) +Other +( 934 +) +( 1,237 +) +Total deferred tax liabilities +( 9,424 +) +( 10,056 +) +Net deferred tax asset +$ +16,857 +$ +20,276 +Total income taxes differed from the amount computed by applying the statutory federal income tax rate to pre-tax income as follows: +December 31, 2025 +December 31, 2024 +Amount +Rate +Amount +Rate +(Dollars in thousands) +Federal income tax expense at statutory rate +$ +4,973 +21.0 +% +$ +2,691 +21.0 +% +Increase in taxes resulting from: +State income taxes, net of federal benefit +985 +4.2 +% +337 +2.6 +% +Nontaxable or nondeductible items: +Tax-exempt income, net +( 414 +) +( 1.7 +)% +( 402 +) +( 3.1 +)% +Income from bank-owned life insurance +( 255 +) +( 1.1 +)% +( 351 +) +( 2.7 +)% +Other +( 218 +) +( 1.0 +)% +299 +2.3 +% +Total income taxes applicable to pre-tax income +$ +5,071 +21.4 +% +$ +2,574 +20.1 +% +85 +Income taxes paid were as follows: +2025 +2024 +(In thousands) +Federal +$ +2,041 +$ +1,275 +State +New Jersey +75 +122 +New York +106 +207 +New York City +30 +216 +Total income taxes paid +$ +2,252 +$ +1,820 +The Company had available federal net operating loss carry-forwards of approximately $ 13.1 million and $ 14.2 million at December 31, 2025 and 2024 , respectively, which begin to expire in 2029. The federal net operating loss carry-forwards are amounts that were generated by MoreBank, which the Bank acquired on September 30, 2010 and Noah Bank, which the Company acquired on May 19, 2023, and Cornerstone Financial, which the Bank acquired on August 23, 2024. These net operating losses are subject to an annual Internal Revenue Code Section 382 limitation of approximately $ 222 thousand for MoreBank net operating losses and $ 773 thousand for Noah Bank net operating losses, and $ 846 thousand for Cornerstone Financial net operating losses. +The Company had available New Jersey net operating loss carry-forwards of approximately $ 14.2 million, New York state net operating loss carry-forwards of $ 13.8 million and New York City net operating loss carry-forwards of $ 6.2 million at December 31, 2025, which expire between 2034 and 2043. The state and city net operating loss carry-forwards are amount that were generated by Noah Bank, which the Bank acquired on May 19, 2023 and Cornerstone Financial acquired on August 23, 2024. +Based on projections of future taxable income over periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Company will realize the benefits of these deductible differences. +The Company follows applicable accounting guidance which prescribes a threshold for the financial statement recognition of income taxes and provides criteria for the measurement of tax positions taken or expected to be taken in a tax return. This also includes guidance on derecognition, classification, interest and penalties, accounting in interim periods, and disclosure of income taxes. The Company did not recognize or accrue any interest or penalties related to income taxes during the years ended December 31, 2025, or 2024. The Company does not have an accrual for uncertain tax positions as of December 31, 2025, or 2024 , as deductions taken or benefits accrued are based on widely understood administrative practices and procedures and are based on clear and unambiguous tax law. Generally, tax returns for all years 2022 and thereafter are subject to examination by tax authorities. The Company's New Jersey tax returns are currently under audit for tax years 2020 through 2023. +Note 11 – Leases +The Company records a right of use asset (“ROU”) and a lease liability for all leases with terms longer than 12 months. The Company has elected the short-term lease recognition exemption such that the Company will not recognize ROU or lease liabilities for leases with a term less than 12 months from the commencement date. The Company is obligated under 30 operating leases agreements for 28 branches and its corporate offices with terms extending through 2041. The Company’s lease agreements include options to renew at the Company’s discretion. The extensions are reasonably certain to be exercised, therefore they were considered in the calculations of the ROU asset and lease liability. +86 +The following table represents the classification of the Company’s right of use and lease liabilities (Dollars in thousands): +Statement of Financial +Condition Location +December 31, 2025 +December 31, 2024 +(In thousands) +Operating Lease Right of Use Asset: +Gross carrying amount beginning of year +$ +21,903 +$ +23,398 +Increased asset from new leases +1,165 +3,066 +Accumulated amortization +( 2,947 +) +( 4,561 +) +Net book value end of year +Operating lease right-of-use asset +$ +20,121 +$ +21,903 +Operating Lease Liability: +Lease liability +Operating lease liability +$ +21,194 +$ +22,941 +For the year ended December 31, 2025 , the weighted-average remaining lease terms for operating leases was 10.2 years and the weighted-average discount rate used in the measurement of operating lease liabilities was 3.54 %. The Company used current FHLB fixed rate advances at the time the lease was placed in service for the term most closely aligning with remaining lease term to determine the discount rate. +The following table presents total lease cost and cash paid for each year: +Twelve Months Ended +December 31, +2025 +2024 +(In thousands) +Lease cost: +Operating lease +$ +4,046 +$ +4,094 +Short-term lease cost +141 +124 +Total lease cost +$ +4,187 +$ +4,218 +Other information: +Cash paid for amounts included in the measurement of lease +liabilities +$ +3,792 +$ +3,572 +Future minimum payments under operating leases with terms longer than 12 months are as follows at December 31, 2025: +Amount +Twelve months ended December 31, +(In thousands) +2026 +$ +3,730 +2027 +3,463 +2028 +3,354 +2029 +2,733 +2030 +2,598 +Thereafter +12,113 +Total future operating lease payment +27,991 +Amounts representing interest +( 6,797 +) +Present value of net future lease payments +$ +21,194 +The Company has an operating lease agreement with a member of the Company’s board of directors for a building containing the Company’s corporate headquarters and branch, which is included in the above lease schedule. At the lease initiation date, the lease terms were comparable to similarly outfitted office space in the Company’s market. Base rental payments of $ 275 thousand and $ 275 thousand were made to this related party in each of the years ended December 31, 2025 and December 31, 2024 , respectively. Certain operating expenses, including real estate taxes, insurance, utilities, maintenance and repairs, related to this property are paid directly to the various service providers. +87 +Note 12 – Directors Fee Plan +The Company adopte d a Non-Employee Director Deferred Compensation Plan in April 2022, which allows directors to defer a portion of their compensation ranging from 0 % to 100 % for a period of two to five years, if elected. Certain directors elect to defer their compensation for which they receive phantom stock. Once they retire, the phantom stock can be taken either as stock or cash. A total of approximately $ 360 thousand and $ 200 thousand, was deferred as of December 31, 2025 and December 31, 2024 , respectively. +Note 13 – Goodwill and Core Deposit Intangible +Goodwill and core deposit intangibles result from the Company’s prior acquisitions. The changes in the carrying amount of goodwill and core deposit intangible assets are summarized as follows: +Goodwill +Core Deposit +Intangible +(In thousands) +Balance at January 1, 2025 +$ +14,381 +$ +3,632 +Amortization expense +— +( 856 +) +Balance at December 31, 2025 +$ +14,381 +$ +2,776 +Goodwill +Core Deposit +Intangible +(In thousands) +Balance at January 1, 2024 +$ +8,853 +$ +1,422 +Acquisition of Cornerstone Bank +5,528 +2,812 +Amortization expense +— +( 602 +) +Balance at December 31, 2024 +$ +14,381 +$ +3,632 +The core deposit intangible assets are being amortized over 10 years, using the sum of the year’s digits. As of December 31, 2025, the future fiscal periods amortization for the core deposit intangible is as follows: +Amount +(In thousands) +2026 +717 +2027 +587 +2028 +457 +2029 +320 +2030 +245 +Thereafter +450 +Total +$ +2,776 +Note 14 – Fair Value Measurements and Disclosure +The Company follows the guidance on fair value measurements codified as FASB ASC Topic 820, Fair Value Measurement (“Topic 820”). Fair value measurements are not adjusted for transaction costs. Topic 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. +Management uses its best judgment in estimating the fair value of the Company’s financial instruments, however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Company could have realized in sales transactions on the dates indicated. The estimated fair value amounts have been measured as of their respective period-end and have not been re-evaluated or updated for purposes of these consolidated financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each period-end. +88 +The fair value measurement hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows: +Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. +Level 2: Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability. +Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported with little or no market activity). +An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. +For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at December 31, 2025 were as follows: +Description +(Level 1) +Quoted Price +in Active +Markets for +Identical +Assets +(Level 2) +Significant +Other +Observable +Inputs +(Level 3) +Significant +Unobservable +Inputs +Total Fair +Value +December 31, +2025 +(In thousands) +Mortgage-backed securities -U.S. government sponsored +enterprise (GSEs) +$ +— +$ +127,647 +$ +— +$ +127,647 +U.S. government agency securities +— +10,512 +— +10,512 +Obligations of state and political subdivisions +— +40,198 +— +40,198 +Small Business Association (SBA) securities +— +1,259 +— +1,259 +U.S. treasury securities +2,953 +— +— +2,953 +Mortgage servicing rights +— +622 +— +622 +For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at December 31, 2024 were as follows: +Description +(Level 1) +Quoted Price +in Active +Markets for +Identical +Assets +(Level 2) +Significant +Other +Observable +Inputs +(Level 3) +Significant +Unobservable +Inputs +Total Fair +Value +December 31, +2024 +(In thousands) +Mortgage-backed securities -U.S. government sponsored +enterprise (GSEs) +$ +— +$ +190,545 +$ +— +$ +190,545 +U.S. government agency securities +— +10,200 +— +10,200 +Obligations of state and political subdivisions +— +39,730 +— +39,730 +Small Business Association (SBA) securities +— +1,857 +— +1,857 +U.S. treasury securities +4,839 +— +— +4,839 +Mortgage servicing rights +— +1,060 +— +1,060 +89 +There were no assets measured at fair value on a nonrecurring basis at December 31, 2025. +For assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at December 31, 2024, were as follows: +Description +(Level 1) +Quoted Price +in Active +Markets for +Identical +Assets +(Level 2) +Significant +Other +Observable +Inputs +(Level 3) +Significant +Unobservable +Inputs +Total Fair +Value +December 31, +2024 +(In thousands) +Collateral dependent loan +$ +— +$ +— +$ +16,223 +$ +16,223 +Other real estate owned +295 +295 +$ +— +$ +— +$ +16,518 +$ +16,518 +The following table presents quantitative information with regards to Level 3 fair value measurements at December 31, 2024. +Description +December 31, +2024 +Valuation +Technique +Unobservable +Input +Range +(Weighted +Average) +(Dollars in thousands) +Collateral dependent loan +$ +16,223 +Collateral 1 +Discount +12.0 +% +adjustment +12.0 +% +Other real estate owned 2 +$ +295 +Collateral 1 +Discount +0.0 +% +adjustment +0.0 +% +1. +Fair value is generally determined through independent appraisal of the underlying collateral, primarily using comparable sales. +2. +The other real estate owned was written down to the estimated net realizable value. +There were no liabilities measured at fair value on a recurring or nonrecurring basis at December 31, 2025 and December 31, 2024, respectively. +The following methods and assumptions were used by the Company in estimating fair value disclosures: +Investment Securities +The fair value of securities available-for-sale (carried at fair value) and held-to-maturity (carried at amortized cost) are determined by obtaining quoted market prices on nationally recognized securities exchanges (Level 1), or matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices. Level 2 debt securities are valued by a third-party pricing service commonly used in the banking industry, and not adjusted by management. Level 2 fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. treasury yield curve, live trading levels, trade execution date, market consensus prepayment speeds, credit information and the security’s terms and conditions, among other things. +Individual evaluated loans (generally carried at fair value) +Individual loans carried at fair value are those loans in which the Company has measured for a reserve are generally based on the fair value of the related loan’s collateral. Fair value is generally determined based upon independent third-party appraisals of the properties, or discounted cash flows based upon the expected proceeds, discounted for estimated selling costs or other factors the Company determines will impact collection of proceeds. These assets are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements. +90 +Loans Receivable, net +The fair value of loans receivable, net is based on discounted cash flow methodologies for which the determination of fair value may require significant management judgement. +Deposits +The fair value of demand deposits is considered to approximate fair value since they are due upon demand. The fair value of time deposits is based on discounted cash flow methodologies of observable market rate data. +Borrowings +Borrowings held by the Company that are overnight, the carrying value is deemed to be its approximate fair value. +Restricted investment in Company stock and accrued interest receivable and accrued interest payable +Fair value estimates are based on existing balance sheet financial instruments without attempting to estimate the value of anticipated future business. The fair value has not been estimated for assets and liabilities that are not considered financial instruments. +Equity Method Investments +The fair value of equity method investments are measured at the Company's carrying amount. +Mortgage Servicing Rights +The Company uses a third party to estimate the fair value of mortgage servicing rights and they are carried at fair value and included in other assets on the statement of financial condition. +The carrying amounts and estimated fair value of financial instruments are as follows: +December 31, 2025 +Carrying +Amount +Estimated +Fair Value +Level 1 +Level 2 +Level 3 +Financial Assets: +(In thousands) +Cash and cash equivalents +$ +135,686 +$ +135,686 +$ +135,686 +$ +— +$ +— +Securities available-for-sale at fair value +182,569 +182,569 +2,953 +179,616 +— +Securities held-to-maturity +153 +154 +— +154 +— +Loans receivable, net +1,796,091 +1,844,992 +— +— +1,844,992 +Restricted investments in bank stock +2,366 +2,366 +— +2,366 +— +Accrued interest receivable +7,797 +7,797 +— +7,797 +— +Equity method investments +11,832 +11,832 +— +7,520 +4,312 +Mortgage servicing rights +622 +622 +— +622 +— +Financial Liabilities: +Deposits +$ +1,976,193 +1,904,904 +$ +— +$ +1,904,904 +$ +— +Accrued interest payable +8,529 +8,529 +— +8,529 +— +91 +December 31, 2024 +Carrying +Amount +Estimated +Fair Value +Level 1 +Level 2 +Level 3 +Financial assets: +(In thousands) +Cash and cash equivalents +$ +117,348 +$ +117,348 +$ +117,348 +$ +— +$ +— +Securities available-for-sale at fair value +247,171 +247,171 +4,389 +242,782 +— +Securities held-to-maturity +161 +162 +— +162 +— +Loans receivable, net +1,795,218 +1,798,302 +— +— +1,798,302 +Restricted investments in bank stock +2,075 +2,075 +— +2,075 +— +Accrued interest receivable +7,975 +7,975 +— +7,975 +— +Equity method investments +11,160 +11,160 +— +6,850 +4,310 +Mortgage servicing rights +1,060 +1,060 +— +1,060 +— +Financial liabilities: +Deposits +$ +2,032,625 +$ +1,934,884 +$ +— +$ +1,934,884 +$ +— +Accrued interest payable +15,401 +15,401 +— +15,401 +— +Limitations +The fair value estimates are made at a discrete point in time based on relevant market information and information about the financial instruments. Fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. +These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Further, the foregoing estimates may not reflect the actual amount that could be realized if all or substantially all of the financial instruments were offered for sale. This is due to the fact that no active market exists for a sizable portion of the loan, deposit and off-balance sheet instruments. +In addition, the fair value estimates are based on existing on and off-balance sheet financial instruments without attempting to value anticipated future business and the value of assets and liabilities that are not considered financial instruments. In addition, the tax ramifications related to the realization of unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of the estimates. +Finally, reasonable comparability between financial institutions may not be likely due to the wide range of permitted valuation techniques and numerous estimates which must be made given the absence of active secondary markets for many of the financial instruments. This lack of uniform valuation methodologies introduces a greater degree of subjectivity to these estimated fair values. +Note 15 – Stock-Based Compensation +In 2012, the Bank adopted The Bank of Princeton 2012 Equity Incentive Plan (the “2012 Plan”), which was approved by the Company's board of directors in February 2012 and by our stockholders in May 2012. The 2012 Plan enabled the board of directors to grant stock options or restricted shares of common stock to employees, directors, consultants and other individuals who provide services to the Bank. The shares subject to or related to options under the 2012 Plan are authorized and unissued shares of the Bank. In 2013, the Bank’s board of directors and stockholders approved an amendment to the 2012 Plan that increased the maximum number of shares that may be subject to options under the 2012 Plan from 100,000 to 600,000 , all of which may be issued as Incentive Stock Options or as Non-Qualified Stock Options. Vesting periods range from immediate to four years from the date of grant. No incentive stock options may be granted under the 2012 Plan after April 30, 2023. +In 2014, the Bank adopted an amendment to each of the 2007 Plan and to the 2012 Plan, which amendments were approved by the Company's Board of Directors, to provide that all outstanding options under the 2007 Plan and the 2012 Plan will become fully vested and exercisable upon a change in control of the Bank and to further specify the consideration that may be exchanged with respect to outstanding awards upon any such change in control. +92 +In 2018, the Bank adopted The Bank of Princeton 2018 Equity Incentive Plan (the “2018 Plan”), which was approved by the Company's board of directors in February 2018 and by our stockholders in May 2018. The 2018 Plan enabled the board of directors to grant stock options, restricted stock, or restricted stock units to employees, directors, consultants and other individuals who provide services to the Bank. At December 31, 2025 there were 178,475 shares remaining available for issuance under the 2018 Plan. +The expected life of stock options granted is generally derived from historical experience. Expected volatilities are general based on the average of three peers’ historical volatilities due to the limited liquidity of the Company’s stock in the Company market. The Company uses an estimated forfeiture rate due to limited historical data. At the time of the grant, the Company had not declared any cash dividend therefore no dividend yield was used. The risk-free rate for periods within the contractual term of the share option is based on the U.S. Treasury for a comparable term. +The following is a summary of the status of the Company’s stock option activity and related information for the year ended December 31, 2025: +Number of +Stock +Options +Weighted +Average +Exercise Price +Weighted Avg. +Remaining +Contractual +Life +Aggregate +Intrinsic +Value +Balance at January 1, 2025 +227,950 +$ +24.56 +Granted +— +— +Exercised +( 100,903 +) +17.95 +Forfeited +— +— +Expired +( 5,400 +) +17.13 +Balance at December 31, 2025 +121,647 +$ +30.23 +1.63 Years +$ +542,989 +Exercisable at December 31, 2025 +121,647 +$ +30.23 +1.63 Years +$ +542,989 +The following is a summary of the status of the Bank’s stock option activity and related information for the year ended December 31, 2024: +Number of +Stock +Options +Weighted +Average +Exercise Price +Weighted Avg. +Remaining +Contractual +Life +Average +Intrinsic +Value +Balance at January 1, 2024 +279,750 +$ +22.83 +Granted +— +— +Exercised +( 51,800 +) +15.26 +Forfeited +— +— +Expired +— +— +Balance at December 31, 2024 +227,950 +$ +24.56 +1.63 Years +$ +2,250,316 +Exercisable at December 31, 2024 +227,950 +$ +24.56 +1.63 Years +$ +2,250,316 +Th e Company granted 40,042 restricted stock units (“RSU’s”) during 2025 , each with a fair value of $ 32.66 , which reflected the market value of the Company’s common stock on the date of the grant. Of the 40,042 RSU’s granted during 2025, 14,000 RSU’s have a vesting period of one year and the remaining 26,402 RSU’s vest over the next three years . At December 31, 2025, 47,877 RSU’s each with a fair value of $ 33.26 granted to executive management have not vested. +The Company granted 31,858 restricted stock units (“RSU’s”) during 2024 , each with a fair value of $ 34.50 , which reflected the market value of the Company’s common stock on the date of the grant. Of the 31,858 RSU’s granted during 2024 , 9,000 RSU’s had a vesting period of one year and the remaining 22,858 RSU’s vest over the three years ending in 2027. At December 31, 2024 , 53,859 RSU’s each with a fair value of $ 33.40 granted to executive management have not vested. +Stock option expenses included in salaries and employee benefits expense in the consolidated statements of income were $ 799,000 and $ 706,000 (which consist of RSUs) for the years ended December 31, 2025 and 2024 , respectively. A tax benefit was recognized of $ 198,000 and $ 198,000 for the years ended December 31, 2025 and 2024, respectively. Stock option expenses recorded within other expenses were $ 466,000 for the year ended December 31, +93 +2025 . Stock option expenses recorded within other expenses were $ 306,000 for the year ended December 31, 2024. At December 31, 2025 , there was approximately $ 913 thousand of unrecognized expenses related to outstanding stock options and RSU’s, which will be recognized over a period of approximately 1.66 years. +Note 16 – Regulatory Matters +Regulatory Capital +Current FDIC capital standards require institutions to satisfy a common equity Tier 1 capital requirement, a leverage capital requirement and a risk-based capital requirement. The common equity Tier 1 capital component generally consists of retained earnings and common stock instruments and must equal at least 4.5 % of risk-weighted assets. Leverage capital, also known as “core” capital, must equal at least 3.0 % of adjusted total assets for the most highly rated state-chartered non-member banks. Core capital generally consists of common stockholders’ equity (including retained earnings). An additional cushion of at least 100 basis points is required for all other banking associations, which effectively increases their minimum Tier 1 leverage ratio to 4.0 % or more. Under the FDIC’s regulations, the most highly-rated banks are those that the FDIC determines are strong banking organizations and are rated composite 1 under the Uniform Financial Institutions Rating System. Under the risk-based capital requirements, Tier 1 Capital to risk-weighted assets ratio must equal at least 6.0 % (and 8.0 % for the Bank to be considered “well capitalized”) and total capital to risk-weighted assets ratio must equal at least 8.0 % ( 10.0 % to be considered “well capitalized”). The FDIC also is authorized to impose capital requirements in excess of these standards on individual institutions on a case-by-case basis. +The capital rules require a common equity Tier 1 capital conservation buffer of 2.5 % of risk-weighted assets which is in addition to the other minimum risk-based capital standards in the rule. Institutions that do not maintain this required capital buffer will become subject to progressively more stringent limitations on the percentage of earnings that can be paid out in dividends or used for stock repurchases and on the payment of discretionary bonuses to senior executive management. At December 31, 2025, the Bank met all capital adequacy requirements on a fully phased-in basis. +Any banking organization that fails any of the capital requirements is subject to possible enforcement action by the FDIC. Such action could include a capital directive, a cease-and-desist order, civil money penalties, the establishment of restrictions on the institution’s operations, termination of federal deposit insurance and the appointment of a conservator or receiver. The FDIC’s capital regulations provide that such actions, through enforcement proceedings or otherwise, could require one or more of a variety of corrective actions. +94 +The Bank’s actual capital amounts and ratios at December 31, 2025 and December 31, 2024 are presented below: +Actual +For capital conservation +buffer requirement +To be well capitalized +under prompt corrective +action provision +Amount +Ratio +Amount +Ratio +Amount +Ratio +(Dollars in thousands) +December 31, 2025: +Total capital (to risk-weighted assets) +$ +271,337 +13.994 +% +$ +203,588 +10.500 +% +$ +193,894 +10.000 +% +Tier 1 capital (to risk-weighted +assets) +$ +251,012 +12.946 +% +$ +164,810 +8.500 +% +$ +155,115 +8.000 +% +Common equity tier 1 capital (to +risk-weighted assets) +$ +251,012 +12.946 +% +$ +135,726 +7.000 +% +$ +126,031 +6.500 +% +Tier 1 leverage capital (to average +assets) +$ +251,012 +11.126 +% +$ +146,646 +6.500 +% +$ +112,805 +5.000 +% +December 31, 2024: +Total capital (to risk-weighted assets) +$ +270,633 +13.490 +% +$ +210,648 +10.500 +% +$ +200,617 +10.000 +% +Tier 1 capital (to risk-weighted +assets) +$ +246,976 +12.311 +% +$ +170,524 +8.500 +% +$ +160,493 +8.000 +% +Common equity tier 1 capital (to +risk-weighted assets) +$ +246,976 +12.311 +% +$ +140,432 +7.000 +% +$ +130,401 +6.500 +% +Tier 1 leverage capital (to average +assets) +$ +246,976 +10.577 +% +$ +151,776 +6.500 +% +$ +116,750 +5.000 +% +The Company’s ability to pay dividends is substantially dependent on dividends received from the Bank. The Bank’s dividend payments are subject to the New Jersey Banking Act of 1948 and applicable federal regulations, which generally prohibit dividends that would impair capital, reduce required surplus, or cause the Bank to fall below regulatory capital minimums. +The Company is also subject to restrictions under Pennsylvania law, which prohibit dividends if, after payment, the Company would be unable to meet its obligations as they come due or if total assets would be less than total liabilities plus amounts required to satisfy preferential rights upon dissolution. +In addition, as a bank holding company, the Company is subject to the policies of the Board of Governors of the Federal Reserve System, which generally provide that dividends should be paid only from recent earnings and in a manner consistent with capital adequacy, financial condition, and the Company’s obligation to serve as a source of strength to the Bank. Regulatory authorities may restrict or prohibit dividend payments if deemed inconsistent with safety and soundness standards. +The Company declared and paid cash dividends totaling $ 1.25 per share for the twelve months ended December 31, 2025 . +Note 17 – Subsequent Events +On January 21, 2026, the Board of Directors declared a cash dividend of $ 0.35 per share of common stock. The dividend was paid on February 27, 2026 to shareholders of record at the close of business on February 4, 2026 . +Item 9. Change s in and Disagreements with Accountants on Accounting and Financial Disclosure +None. +Item 9A. Co ntrols and Procedures +Management’s Annual Report on Internal Control Over Financial Reporting +Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with accounting principles generally accepted in the United States, which is commonly referred to as GAAP. The +95 +effectiveness of any system of internal control over financial reporting is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating and evaluating the Company’s internal control over financial reporting. Because of these inherent limitations, internal control over financial reporting cannot provide absolute assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP and may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that our internal control over financial reporting may become inadequate because of changes in conditions or other factors, or that the degree of compliance with the policies or procedures may deteriorate. +Management, with the participation of the Company's President and Chief Financial Officer, evaluated the effectiveness of the Bank’s internal control over financial reporting as of December 31, 2025 using the criteria in “Internal Control—Integrated Framework (2013)” issued by COSO 2013. Based on this assessment, management determined that, as of December 31, 2025, the Company's internal control over financial reporting was effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. +Disclosure Controls and Procedures +Management, with the participation of the Company's President and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Bank’s disclosure controls and procedures (as defined in Rule l3a-l5(e) promulgated under the Exchange Act) as of December 31, 2025. Based on this evaluation, the Company's President and Chief Financial Officer have concluded that the Bank’s disclosure controls and procedures are effective as of December 31, 2025 to ensure that the information required to be disclosed by the Company in the reports that the Company filed or submitted, or the Company files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. +Changes in Internal Control Over Financial Reporting +There was no change in the Company’s internal control over financial reporting identified during the year ended December 31, 2025 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. +Item  9B. Other Information +None . +Ite m 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +Not applicable +96 +PA RT III +Item 10. Dir ectors, Executive Officers and Corporate Governance +The information required by this Item is set forth under the headings, “MATTER NO. 1 ELECTION OF DIRECTORS,” “EXECUTIVE OFFICERS AND COMPENSATION – Executive Officers,” “DELINQUENT SECTION 16(a) REPORTS,” “CODE OF CONDUCT,” “BOARD OF DIRECTORS AND COMMITTEES – Board of Directors’ Committees – Audit Committee” in the Company’s definitive proxy statement to be filed with the SEC not later than 120 days after December 31, 2025 in connection with the solicitation of proxies for its 2025 Annual Meeting of Shareholders and incorporated by reference. +The Company has an insider trading policy governing the purchase, sale, and other disposition of the Company’s securities by directors, officers and employees, that the Company believes is reasonably designed to promote compliance with insider trading laws, rules and regulations, and the Nasdaq listing standards. +Ite m 11. Executive Compensation +The information required by this Item is set forth under the headings, “EXECUTIVE OFFICERS AND COMPENSATION – Executive Compensation,” “– Employment and Other Agreements,” and “– Equity Incentive Plans,” “– Management Incentive Plan,” “– Employee Stock Ownership Plan,” "and" “– 401(k) Plan,” “– PAY VERSUS PERFORMANCE,” “EQUITY COMPENSATION PLAN INFORMATION – Outstanding Stock Option and Other Equity Awards at Fiscal Year End,” and “2025 Compensation of Directors” in the Company’s definitive proxy statement to be filed with the SEC not later than 120 days after December 31, 2025 in connection with its 2025 Annual Meeting of Shareholders and incorporated by reference. +Ite m 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +The information required by this Item is set forth under the headings, “EQUITY COMPENSATION PLAN INFORMATION,” and “SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT”, in the Company’s definitive proxy statement to be filed with the SEC not later than 120 days after December 31, 2025 in connection with its 2025 Annual Meeting of Shareholders and incorporated by reference. +Ite m 13. Certain Relationships and Related Transactions, and Director Independence +The information required by this Item is set forth under the headings, “CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,” and “BOARD OF DIRECTORS AND COMMITTEES – Director Independence,” in the Company’s definitive proxy statement to be filed with the SEC not later than 120 days after December 31, 2025 in connection with its 2025 Annual Meeting of Shareholders and incorporated by reference. +Ite m 14. Principal Accounting Fees and Services +The information required by this Item is set forth under the heading, “MATTER NO. 3 PROPOSAL TO RATIFY THE SELECTION OF WOLF & COMPANY, P.C. AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE YEAR ENDING DECEMBER 31, 2026,” in the Company’s definitive proxy statement to be filed with the SEC not later than 120 days after December 31, 2025 in connection with its 2025 Annual Meeting of Shareholders and incorporated by reference. +Our independent registered public accounting firm is Wolf and Company, P.C. Boston, Massachusetts, Auditor Firm ID: 392. +97 +PA RT IV +Ite m 15. Exhibits, Financial Statement Schedules +(a) +The following portions of the Bank’s consolidated financial statements are set forth in Item 8 - “Financial Statements of Supplementary Data” of this Annual Report: +i. +Consolidated Statements of Financial Condition as of December 31, 2025 and 2024 +ii. +Consolidated Statements of Income for the years ended December 31, 2025 and 2024 +iii. +Consolidated Statements of Comprehensive Income for the years ended December 31, 2025 and 2024 +iv. +Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2025 and 2024 +v. +Consolidated Statements of Cash Flows for the years ended December 31, 2025 and 2024 +vi. +Notes to Consolidated Financial Statements +(b) +Financial Statement Schedules +All financial statement schedules are omitted as the information, if applicable, is presented in the consolidated financial statements or notes thereto. +(c) +Exhibits +Exhibit +No. +Description +3.1 +(A) +Articles of Incorporation. +3.2 +(B) +Bylaws +4.1 +(C) +Specimen form of stock certificate. +4.2 +(D) +Description of Capital Stock +10.1 +(E) +The Bank of Princeton Amended and Restated 2007 Stock Option Plan* +10.2 +(F) +The Bank of Princeton Amended and Restated 2012 Equity Incentive Plan* +10.3 +(G) +MoreBank 2004 Incentive Equity Compensation Plan* +10.4 +(H) +Princeton Bancorp, Inc. Amended and Restated Equity 2018 Equity Incentive Plan, as amended +10.5 +(I) +Amended and Restated Employment Agreement between the Company and the Bank and Edward J. Dietzler dated as of June 21, 2023* +10.6 +(J) +Amended and Restated Employment Agreement between the Company and the Bank and Daniel J. O’Donnell dated as of June 21, 2023* +10.7 +(K) +Amended and Restated Employment Agreement between the Company and the Bank and George S. Rapp dated as of June 21, 2023* +10.8 +(L) +Employment Agreement between the Bank and Stephanie Adkins dated January 25, 2019* +10.9 +(M) +Consulting Agreement between the Bank and Christopher Tonkovich dated July 19, 2025* +10.10 +(N) +The Bank of Princeton 2018 Director Fee Plan* +10.11 +(O) +2020 Management Incentive Plan* +10.12 +(P) +Dividend Reinvestment and Stock Purchase Plan* +10.13 +(Q) +Supplemental Executive Retirement Plan dated July 30, 2021 for the benefit of Edward J. Dietzler and Daniel J. O’Donnell* +10.14 +(R) +The Bank of Princeton Deferred Compensation Plan* +98 +Exhibit +No. +Description +10.15 +(S) +Amended and Restated Change in Control Agreement Between Princeton Bancorp, Inc. and Jeffrey Hanuscin Dated June 2023 +10.16 +(T) +Amendment to the Employment Agreement dated January 22, 2025 between Edward Dietzler, the Company and the Bank* +10.17 +(U) +Amendment to the Employment Agreement dated January 22, 2025 between Daniel J. O’Donnell, the Company and the Bank* +10.18 +(V) +Amendment to the Employment Agreement dated January 22, 2025 between George S. Rapp, the Company and the Bank* +10.19 +(W) +Amendment to the Employment Agreement dated January 22, 2025 between Stephanie Adkins, the Company and the Bank* +19.1 +(X) +Princeton Bancorp, Inc. Insider Trading Policy +21.1 +Subsidiaries of the Registrant +23.1 +Consent of Independent Registered Public Accounting Firm +31.1 +Rule 13a-14(a) Certification of the Principal Executive Officer +31.2 +Rule 13a-14(a) Certification of the Principal Financial Officer +32.1 +Section 1350 Certifications +101.INS +Inline XBRL Instance Document–the instance document does not appear in the Interactive Data File as its XBRL tags are embedded within the Inline XBRL document +101.SCH +Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents +104 +Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). +* Management contract or compensatory plan, contract or arrangement. +Management contract or compensatory plan, contract or arrangement. +(A) +Incorporated by reference to Exhibit 3.1 to registrant’s Quarterly Report on Form 10-Q for the Quarter Ended June 30, 2024 filed with the SEC on August 12, 2024. +(B) +Incorporated by reference to Exhibit 3.1(ii) to registrant’s Registration Statement No. 333-263313 of Form S-4EF filed with the SEC on March 4, 2022. +(C) +Incorporated by reference to Exhibit 4.1 to registrant’s Registration Statement No. 333-263313 of Form S-4EF filed with the SEC on March 4, 2022 +(D) +Incorporated by reference to Exhibit 4.1 to registrant’s Current Report on Form 8-K12B, filed with the SEC on January 10, 2023. +(E) +Incorporated by reference to Exhibit 10.1 to registrant’s Registration Statement No. 333-263313 of Form S-4EF filed with the SEC on March 4, 2022. +(F) +Incorporated by reference to Exhibit 10.2 to registrant’s Registration Statement No. 333-263313 of Form S-4EF filed with the SEC on March 4, 2022. +(G) +Incorporated by reference to Exhibit 10.3 to registrant’s Registration Statement No. 333-263313 of Form S-4EF filed with the SEC on March 4, 2022. +(H) +Incorporated by reference to Exhibit 10.4 to registrant’s Registration Statement No. 333-263313 of Form S-4EF filed with the SEC on March 4, 2022. +(I) +Incorporated by reference to Exhibit 10.1 to registrant’s Quarterly Report on Form 10-Q, filed with the SEC on August 14, 2023. +(J) +Incorporated by reference to Exhibit 10.2 to registrant’s Quarterly Report on Form 10-Q, filed with the SEC on August 14, 2023. +99 +(K) +Incorporated by reference to Exhibit 10.3 to registrant’s Quarterly Report on Form 10-Q, filed with the SEC on August 14, 2023. +(L) +Incorporated by reference to Exhibit 10.10 to registrant’s Registration Statement No. 333-263313 of Form S-4EF filed with the SEC on March 4, 2022. +(M) +Incorporated by reference to Exhibit 10.10 to registrant’s Quarterly Report on Form 10-Q, filed with the SEC on November 7, 2025. +(N) +Incorporated by reference to Exhibit 10.12 to registrant’s Registration Statement No. 333-263313 of Form S-4EF filed with the SEC on March 4, 2022. +(O) +Incorporated by reference to Exhibit 10.13 to registrant’s Registration Statement No. 333-263313 of Form S-4EF filed with the SEC on March 4, 2022. +(P) +Incorporated by reference to Exhibit 10.14 to registrant’s Registration Statement No. 333-263313 of Form S-4EF filed with the SEC on March 4, 2022. +(Q) +Incorporated by reference to Exhibit 10.15 to registrant’s Registration Statement No. 333-263313 of Form S-4EF filed with the SEC on March 4, 2022 +(R) +Incorporated by reference to Exhibit 10.1 to registrant’s Current Report on Form 8-K, filed with the SEC on November 25, 2025 +(S) +Incorporated by reference to Exhibit 10.4 to registrant’s Quarterly Report on Form 10-Q, filed with the SEC on August 14, 2023 +(T) +Incorporated by reference to Exhibit 10.16 to the amendment to the registrant’s Annual Report on Form 10-K/A, filed with the SEC on April 15, 2025 +(u) +Incorporated by reference to Exhibit 10.17 to the amendment to the registrant’s Annual Report on Form 10-K/A, filed with the SEC on April 15, 2025. +(v) +Incorporated by reference to Exhibit 10.18 to the amendment to the registrant’s Annual Report on Form 10-K/A, filed with the SEC on April 15, 2025. +(w) +Incorporated by reference to Exhibit 10.19 to the amendment to the registrant’s Annual Report on Form 10-K/A, filed with the SEC on April 15, 2025. +(x) +Incorporated by reference to Exhibit 19.1 to the amendment to the registrant’s Annual Report on Form 10-K/A, filed with the SEC on April 15, 2025. +Ite m 16. Form 10-K Summary +None. +100 +SIG NATURES +Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized as of March 13, 2026. +Princeton Bancorp, Inc. +/s/ Edward Dietzler +By: +Edward Dietzler +President and Chief Executive Officer +(Principal Executive Officer) +101 +Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. +Signature +Capacity +Date +/s/ Richard Gillespie +Chairman of the Board +March 13, 2026 +Richard Gillespie +/s/ Stephen Distler +Vice Chairman of the Board +March 13, 2026 +Stephen Distler +/s/ Stephen Shueh +Director +March 13, 2026 +Stephen Shueh +/s/ Susan Barrett +Director +March 13, 2026 +Susan Barrett +/s/ Robert N. Ridolfi +Director +March 13, 2026 +Robert N. Ridolfi, Esq +/s/ Judith A. Giacin +Director +March 13, 2026 +Judith A. Giacin +/s/ Martin Tuchman +Director +March 13, 2026 +Martin Tuchman +/s/ Ross Wishnick +Director, Vice Chairman +March 13, 2026 +Ross Wishnick +/s/ Edward Dietzler +President, Chief Executive Officer, Director (Principal Executive Officer) +March 13, 2026 +Edward Dietzler +/s/ George S. Rapp +Executive Vice President, Chief Financial Officer (Principal Financial Officer) +March 13, 2026 +George S. Rapp +/s/ Jeffrey T. Hanuscin +Senior Vice President, Treasurer and Chief Accounting Officer (Principal Accounting Officer) +March 13, 2026 +Jeffrey T. 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0001914605 us-gaap:RealEstateLoanMember us-gaap:ResidentialPortfolioSegmentMember 2024-12-31 xbrli:pure ecbk:Holdings xbrli:shares ecbk:Grade ecbk:Segment ecbk:Security iso4217:USD xbrli:shares iso4217:USD +UNITED STATES SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +FORM 10-K +☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the year ended December 31 , 2024 . +OR +☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the transition period from _______________ to _______________. +Commission file number: 001-41456 +ECB BANCORP, INC . +(Exact name of registrant as specified in its charter) +Maryland +88-1502079 +(State or other jurisdiction of +incorporation or organization) +(I.R.S. Employer +Identification Number) +419 Broadway , Everett , MA 02149 +02149 +(Address of principal executive offices) +(Zip Code) +Registrant's telephone number, including area code: ( 617 ) 387-1110 +Securities registered pursuant to Section 12(b) of the Act: +Common stock, par value $0.01 per share +Trading Symbol(s) +The NASDAQ Stock Market, LLC +(Title of each class) +ECBK +(Name of each exchange on which is registered) +Securities registered pursuant to Section 12(g) of the Act: None +Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. +YES ☐ N o ☒ +Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. +YES ☐ N o ☒ +Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Y es ☒ NO ☐ +Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Y es ☒ NO ☐ +Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. +Large accelerated filer +☐ +Accelerated filer +☐ +Non-accelerated filer +☒ +Smaller reporting company +☒ +Emerging growth company +☒ +If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ +Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐ +If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐ +Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐ +Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). YES ☐ NO ☒ +The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, computed by reference to the last sale price on June 30, 2024 of $12.48, was approximate ly $ 94.3 million. +As of March 25, 2025, there we re 9,056,814 i ssued and outstanding shares of the Registrant’s Common Stock. +DOCUMENTS INCORPORATED BY REFERENCE: +Portions of the Proxy Statement for the 2025 Annual Meeting of Stockholders (Part III) +ECB Bancorp, Inc. +Form 10-K +TABLE OF CONTENTS +Part I +Item 1. +Business +1 +Item 1A. +Risk Factors +36 +Item 1B. +Unresolved Staff Comments +36 +Item 1C. +Cybersecurity +36 +Item 2. +Properties +39 +Item 3. +Legal Proceedings +39 +Item 4. +Mine Safety Disclosures +39 +Part II +Item 5. +Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities +40 +Item 6. +[Reserved] +41 +Item 7. +Management's Discussion and Analysis of Financial Condition and Results of Operations +42 +Item 7A. +Quantitative and Qualitative Disclosures about Market Risk +54 +Item 8. +Financial Statements and Supplementary Data +55 +Item 9. +Changes in and Disagreements with Accountants on Accounting and Financial Disclosure +102 +Item 9A. +Controls and Procedures +102 +Item 9B. +Other Information +102 +Item 9C +Disclosure Regarding Foreign Jurisdictions That Prevent Inspections +102 +Part III +Item 10. +Directors, Executive Officers and Corporate Governance +103 +Item 11. +Executive Compensation +104 +Item 12. +Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters +104 +Item 13. +Certain Relationships and Related Transactions and Director Independence +104 +Item 14. +Principal Accountant Fees and Services +104 +Part IV +Item 15. +Exhibits and Financial Statement Schedules +105 +Item 16. +Form 10-K Summary +107 +Signatures +108 +PART I +ITEM 1. Busin ess +FORWARD-LOOKING STATEMENTS +This Annual Report contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “assume,” “plan,” “seek,” “expect,” “will,” “may,” “should,” “indicate,” “would,” “believe,” “contemplate,” “continue,” “target” and words of similar meaning. These forward-looking statements include, but are not limited to: +• +statements of our goals, intentions and expectations; +• +statements regarding our business plans, prospects, growth and operating strategies; +• +statements regarding the asset quality of our loan and investment portfolios; and +• +estimates of our risks and future costs and benefits. +These forward-looking statements are based on our current beliefs and expectations and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. We are under no duty to and do not take any obligation to update any forward-looking statements after the date of this Annual Report. +The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements: +• +general economic conditions, either nationally or in our market areas, that are worse than expected including as a result of employment levels and labor shortages, and the effects of inflation, a potential recession or slowed economic growth caused by supply chain disruptions or otherwise; +• +the extent, severity or duration of a pandemic on us and on our customers, employees and third-party service providers; +• +changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for credit losses; +• +our ability to access cost-effective funding; +• +fluctuations in real estate values and both residential and commercial real estate market conditions; +• +demand for loans and deposits in our market area; +• +our ability to implement and change our business strategies; +• +competition among depository and other financial institutions; +• +inflation and changes in the interest rate environment that reduce our margins and yields, our mortgage banking revenues, the fair value of financial instruments, or our level of loan originations, or increase the level of defaults, losses and prepayments on loans we have made and make; +• +adverse changes in the securities or secondary mortgage markets; +• +changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees, capital requirements and insurance premiums; +• +changes in the quality or composition of our loan or investment portfolios; +• +technological changes that may be more difficult or expensive than expected; +• +the inability of third-party providers to perform as expected; +1 +• +a failure or breach of our operational or security systems or infrastructure, including cyberattacks; +• +our ability to manage market risk, credit risk and operational risk; +• +our ability to enter new markets successfully and capitalize on growth opportunities; +• +changes in consumer spending, borrowing and savings habits; +• +changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission or the Public Company Accounting Oversight Board; +• +our ability to attract and retain key employees; and +• +changes in the financial condition, results of operations or future prospects of issuers of securities that we own. +Because of these and a wide variety of other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements. +In this Annual Report the terms “we,” “our,” and “us” refer to ECB Bancorp, Inc. and Everett Co-operative Bank, unless the context indicates another meaning. In addition, we sometimes refer to ECB Bancorp, Inc. as “ECB Bancorp,” and to Everett Co-operative Bank as the “Bank.” +2 +BUSINESS OF ECB BANCORP +ECB Bancorp (sometimes herein, the “Company”) is a Maryland corporation that was incorporated in March 2022 for the purpose of becoming the registered bank holding company for Everett Co-operative Bank (the “Bank”) upon the consummation of the Bank’s mutual to stock conversion and initial stock offering which was completed on July 27, 2022. In connection with the conversion, the Company sold 8,915,247 shares of common stock, par value $0.01 per share, which included 734,020 shares sold to the Bank’s Employee Stock Ownership Plan, for gross offering proceeds (before deducting offering expenses) of approximately $89.2 million based on the offering price of $10.00 per share. The Company also contributed 260,000 shares of common stock and $600,000 in cash to the Everett Co-operative Bank Charitable Foundation, Inc. The shares of the Company’s common stock sold in the offering began trading on the Nasdaq Capital Market on July 28, 2022 under the symbol “ECBK.” +Since being incorporated, other than holding the common stock of Everett Co-operative Bank, engaging in share repurchases and making a loan to the Bank’s employee stock ownership plan, we have not engaged in any material business activities to date. +Our cash flow depends on earnings from the investment of the net proceeds we retained from our initial public stock offering that was consummated in July 2022, and any dividends we receive from Everett Co-operative Bank. We neither own nor lease any property, but pay a fee to Everett Co-operative Bank for the use of its premises, equipment and furniture. At the present time, we employ only persons who are officers of Everett Co-operative Bank who also serve as officers of ECB Bancorp. We use the support staff of Everett Co-operative Bank from time to time and pay a fee to Everett Co-operative Bank for the time devoted to ECB Bancorp by employees of Everett Co-operative Bank. However, these persons are not separately compensated by ECB Bancorp. ECB Bancorp may hire additional employees, as appropriate, to the extent it expands its business in the future. +Our executive offices are located at 419 Broadway, Everett, Massachusetts 02149. Our telephone number at this address is (617) 387-1110. Our website address is www.everettbank.com . Information on our website is not incorporated into this Annual Report on Form 10-K and should not be considered part of this Annual Report. +3 +BUSINESS OF EVERETT CO-OPERATIVE BANK +General +Everett Co-operative Bank is a Massachusetts-chartered stock cooperative bank headquartered in Everett, Massachusetts. The Bank completed its mutual to stock conversion on July 27, 2022 at which time it became the wholly owned subsidiary of ECB Bancorp. +Everett Co-operative Bank was organized in 1890 and has operated continuously in Everett, Massachusetts since this time. We conduct business from our three full-service banking offices located in Everett, Lynnfield and Woburn, Massachusetts, which are located in the greater Boston metropolitan area in Middlesex and Essex Counties. Everett is adjacent to Boston and is approximately three miles from Boston’s financial district, and Lynnfield is located approximately 10 miles to the north in Essex County. Our Woburn branch, opened in 2023, is located approximately 10 miles from Boston’s financial district in Middlesex County. We consider our deposit market area to be Middlesex, Essex and Suffolk Counties, Massachusetts and our primary lending area to be these Counties as well as Norfolk County, Massachusetts, which are located primarily within the Route 128 corridor outside of Boston. +Our business consists primarily of taking deposits from the general public and investing those deposits, together with funds generated from operations, in one-to-four family residential real estate loans, commercial real estate and multifamily real estate loans, construction and land loans and home equity lines of credit and loans. To a lesser extent we also originate commercial business loans and consumer loans. At December 31, 2024, $422.8 million, or 36.9%, of our total loan portfolio was comprised of one-to-four family residential real estate loans, $344.0 million, or 30.0%, of our total loan portfolio was comprised of multifamily real estate loans, $229.0 million, or 20.0%, of our total loan portfolio was comprised of commercial real estate loans, $90.9 million, or 7.9%, of our total loan portfolio was comprised of construction loans, $45.2 million, or 4.0%, of our total loan portfolio was comprised of home equity lines of credit and loans, $13.8 million, or 1.2% of our total loan portfolio was comprised of commercial business loans, and $141,000, or 0.01% of our total loan portfolio was comprised of consumer loans. We also invest in securities, consisting primarily of U.S. government and federal agency obligations, mortgage-backed securities and corporate bonds. We offer a variety of deposit accounts, including certificate of deposit accounts, IRAs, money market accounts, savings accounts and both interest-bearing and noninterest-bearing checking accounts. We historically have utilized advances from the Federal Home Loan Bank of Boston (the “FHLB”) to fund our operations and we had $234.0 million of FHLB advances outstanding at December 31, 2024. Additionally, in recent years, we have also accepted brokered deposits as a non-retail funding source to fund our operations. At December 31, 2024, we had $125.6 million of brokered deposits outstanding. +Business Strategy +One of the key features of our business strategy has been to grow our loan portfolio, primarily through an increased focus on growing our commercial real estate and multifamily lending operations. In order to execute ths growth strategy in an orderly and diligent manner, we enhanced our commercial real estate and multifamily lending infrastructure and engaged a group of experienced credit analysts. Consistent with our strategy to grow our commercial loan operations and the consequent commercial relationship opportunities, we have and will continue to upgrade our suite of deposit products and related services and have and will continue to upgrade our digital and mobile applications in order to accommodate business customers and thereby accelerate the growth in our core deposits. +Historically, given our size, capital position and lending team experience and capacity, we have originated for participation to other local banking institutions our larger commercial real estate and commercial loans. As we continue to enhance our commercial real estate team and infrastructure and with the increase in capital resulting from the conversion, we are able to selectively retain larger loans that we historically would have originated for participation with other local institutions. In this regard, we have revised our lending policies and loans to one borrower limitations to increase our lending limits and the type and size of loans we choose to hold in our portfolio. +We are similarly focused on enhancing our retail operations. To that end, the Company has developed new high yield consumer and business products as well as introducing an array of cash management services designed to attract new business relationships to the bank. In addition, in September of 2023, the Company opened a new branch in Woburn, MA, increasing our retail network to three branches. We will continue to attract and retain retail customers by +4 +emphasizing personal service, accessibility and flexibility in the face of mass market-oriented large, national and super-regional banks which maintain local branch networks in our market. +We believe that we have created, and will continue to enhance, the framework which will enable us to execute on our strategy to grow the Company through orderly and diligent loan growth, including competing for and underwriting larger individual loans and maintaining larger lending relationships. Similarly, we believe that we are well-positioned to execute on our retail growth strategy including our increased emphasis on retail sales marketing efforts by Company personnel. We have and expect to continue to invest in our personnel and information technology to support this balance sheet growth. +We believe we have been effective in competing against both larger regional banks and local community banks operating in our market. We compete against the larger banks through our responsive and personalized service, providing our customers with quicker decision making, customized products where appropriate and access to our senior managers. We believe our highly experienced commercial and residential bankers and a sophisticated product and service mix, including a suite of technology solutions and support, enable us to compete effectively against local community banks. We believe that recent consolidation of financial institutions in and around our market continues to create further opportunity for expansion in our market and hiring available personnel. We will continue to emphasize these core business principles as we focus on growing our balance sheet and will implement them with the larger banking relationships that we seek to originate and maintain. +Reflecting our focus on our community, in connection with our mutual to stock conversion and initial public offering which closed in July 2022, we established the Everett Co-operative Bank Charitable Foundation (the "Foundation") and funded it with $600,000 in cash and 260,000 shares of our common stock, for a total contribution of $3,200,000 based on the $10.00 per share offering price. The purpose of this foundation is to make contributions to support various charitable organizations operating in our community now and in the future. During the year ended December 31, 2024, the Foundation made $129,000 in contributions to local non-profit charities and organizations. +Everett Co-operative Bank is subject to comprehensive regulation and examination by the Massachusetts Commission of Banks ("Commissioner"), as its chartering agency, and the Federal Deposit Insurance Corporation (“FDIC”) as its primary federal regulator and primary insurer of its deposits. See “Supervision and Regulation.” Our executive offices are located at 419 Broadway, Everett, Massachusetts 02149. Our telephone number at this address is (617) 387-1110. Our website address is www.everettbank.com . Information on our website is not incorporated into this Annual Report on Form 10-K and should not be considered part of this Annual Report. +Market Area +We consider Middlesex, Essex and Suffolk Counties, Massachusetts as our primary market area for gathering deposits, and each of these Counties as well as Norfolk County, Massachusetts as our primary lending market area. Our main office and two additional branch offices are located in Middlesex and Essex Counties, all of which are located in the greater Boston metropolitan area. Everett is a suburb which is adjacent to Boston and approximately three miles from Boston’s financial district, Woburn where our new branch opened in 2023 is located is approximately ten miles from Boston's financial district, and Lynnfield where our additional branch office is located is approximately 10 miles north in Essex County. While we occasionally make loans secured by properties located outside of our primary lending market, these loans are generally to borrowers with whom we have an existing relationship and who have a presence within our primary lending market. +The Boston metropolitan area benefits from the presence of numerous institutions of higher learning, medical care and research centers and the corporate headquarters of several significant multinational corporations. Eastern Massachusetts also has many high technology companies employing personnel with specialized skills. These factors affect the demand for residential homes, multifamily apartments, office buildings, shopping centers, industrial warehouses and other commercial properties. +According to the United States Department of Labor, the Boston metropolitan area was one of the United States' twelve largest metropolitan statistical areas in June 2024. Located adjacent to major transportation corridors, the Boston +5 +metropolitan area provides a highly diversified economic base, with major employment sectors ranging from services, manufacturing and wholesale/retail trade, to finance, technology and medical care. According to the United States Department of Labor, in December 2024, the Boston-Cambridge-Newton, Massachusetts Statistical Area had an unemployment rate of 3.8%, compared to a Massachusetts state unemployment rate of 4.1% and the national unemployment rate of 4.1%. +Based on United States census estimates, from 2010 to 2023, the populations of Middlesex and Essex Counties increased 120,867 and 66,930, respectively. The United States census estimates that the median household income from 2019-2023 for Middlesex and Essex Counties were $126,779 and $99,431, respectively, compared to median household income of $94,755 for Boston the metropolitan area, $101,341 for the Commonwealth of Massachusetts and $78,538 for the United States. +Competition +We face significant competition within our market both in making loans and attracting deposits. Our market area has a high concentration of financial institutions, including large money center and regional banks, community banks, credit unions and other non-bank financial service providers. Some of our competitors offer products and services that we currently do not offer, such as trust services and private banking. +Our competition for loans comes primarily from the competitors referenced above and from other financial service providers, such as mortgage companies and mortgage brokers. Competition for loans also comes from the increasing number of non-depository financial service companies participating in the mortgage market, such as insurance companies, securities firms, financial technology companies, specialty finance firms and technology companies. +We expect competition to remain intense in the future as a result of legislative, regulatory and technological changes and the continuing trend toward consolidation of the financial services industry. Technological advances, for example, have lowered barriers to entry, which have allowed banks to expand their geographic reach by providing services over the internet and made it possible for non-depository institutions, including financial technology companies, to offer products and services that traditionally have been provided by banks. Competition for deposits and the origination of loans could limit our growth in the future. +We are a small community savings institution and as of June 30, 2024 (the latest date for which information is available), our market share was 0.89% of total FDIC-insured deposits in Middlesex County, Massachusetts making us the 25th largest out of 48 financial institutions in Middlesex County, and our market share was 0.68% of total FDIC-insured deposits in Essex County, Massachusetts making us the 22nd largest out of 36 financial institutions in Essex County. +Lending Activities +Our principal lending activity is originating one-to-four family residential real estate loans, commercial real estate and multifamily real estate loans, construction and land loans and home equity lines of credit and loans. To a much lesser extent, we also originate commercial business loans and consumer loans. Subject to market conditions and our asset-liability analysis, we expect to continue to grow our commercial real estate and multifamily loan portfolios as well as our one-to-four family residential real estate loan portfolio. We also originate for sale and sell a portion of the fixed-rate one-to-four family residential real estate loans that we originate that generally have terms of 15 years or greater, on a servicing-released, limited or no recourse basis, while retaining shorter-term fixed-rate and all adjustable-rate one-to-four family residential real estate loans in order to manage the duration and time to repricing of our loan portfolio. +Historically, given our size, capital position and lending team experience and capacity, we have originated for participation to other local banking institutions our larger commercial real estate and commercial loans. As we continue to enhance our commercial real estate team and infrastructure and with the increase in capital resulting from the conversion, we are able to selectively retain larger loans that we historically would have originated for participation with other local institutions. In this regard, we have revised our lending policies and loans to one borrower limitations to increase our lending limits and the type and size of loans we choose to hold in our portfolio. +6 +Loan Portfolio Composition. The following table sets forth the composition of our loan portfolio by type of loan at the dates indicated. We had no loans held for sale at December 31, 2024 and December 31, 2023. +At December 31, +At December 31, +2024 +2023 +Amount +Percent +Amount +Percent +(Dollars in thousands) +Real estate loans: +One-to-four family residential +$ +422,841 +36.9 +% +$ +410,131 +39.1 +% +Multi-family +343,970 +30.0 +287,361 +27.4 +Commercial +228,991 +20.0 +196,365 +18.7 +Home equity lines of credit and loans +45,154 +4.0 +33,357 +3.2 +Construction +90,894 +7.9 +112,000 +10.7 +Other loans: +Commercial loans +13,844 +1.2 +9,219 +0.9 +Consumer +141 +0.0 +173 +0.0 +1,145,835 +100.0 +% +1,048,606 +100.0 +% +Less: +Net deferred loan fees +(502 +) +(226 +) +Allowance for credit losses +(8,884 +) +(8,591 +) +Total loans, net +$ +1,136,449 +$ +1,039,789 +7 +Loan Portfolio Maturities. The following tables set forth the contractual maturities of our total loan portfolio at December 31, 2024. Demand loans, loans having no stated repayment schedule or maturity, and overdraft loans are reported as being due in one year or less. Because the tables present contractual maturities and do not reflect repricing or the effect of prepayments, actual maturities may differ. +One year or less +After one year through five years +After five years through 15 years +After 15 years +Total +(Dollars in thousands) +Real estate loans: +One-to-four family residential +$ +5,245 +$ +5,540 +$ +30,405 +$ +381,651 +$ +422,841 +Multi-family +18,188 +18,799 +12,236 +294,747 +343,970 +Commercial +2,165 +31,486 +27,657 +167,683 +228,991 +Home equity lines of credit and loans +- +1,619 +1,641 +41,894 +45,154 +Construction +21,871 +14,872 +10,592 +43,559 +90,894 +Other loans: +Commercial loans +29 +10,039 +3,085 +691 +13,844 +Consumer +29 +67 +- +45 +141 +Total loans +$ +47,527 +$ +82,422 +$ +85,616 +$ +930,270 +$ +1,145,835 +The following table sets forth our fixed- and adjustable-rate loans at December 31, 2024 that are due after December 31, 2025. +Due after December 31, 2025 +Fixed +Adjustable +Total +(Dollars in thousands) +Real estate loans: +One-to-four family residential +$ +105,715 +$ +311,881 +$ +417,596 +Multi-family +26,038 +299,744 +325,782 +Commercial +19,894 +206,932 +226,826 +Home equity lines of credit and loans +1,342 +43,812 +45,154 +Construction +16,357 +52,666 +69,023 +Other loans: +Commercial loans +12,973 +842 +13,815 +Consumer loans +45 +67 +112 +Total loans +$ +182,364 +$ +915,944 +$ +1,098,308 +One-to-Four Family Residential Real Estate Lending . The focus of our lending has long been the origination of long-term loans secured by mortgages on owner-occupied one-to-four family residences. At December 31, 2024, $422.8 million, or 36.9%, of our total loan portfolio, consisted of one-to-four family residential real estate loans. Included in this balance was $145.6 million of non-owner occupied loans. Loans for non-owner occupied properties purchased for investment purposes and where the property income is not the borrower’s primary source of income are generally underwritten to Fannie Mae guidelines. Loans for non-owner occupied properties purchased for investment purposes and where the property income is the primary source of income to the borrower are underwritten based on our commercial real estate underwriting guidelines. As of December 31, 2024, our average outstanding one-to-four family residential real estate loan balance was $439,000 and our largest outstanding loan secured by one-to-four family residential restate had a principal balance of $5.0 million, which, as of December 31, 2024, was performing in accordance with its repayment terms. The majority of the one-to-four family residential real estate loans that we originate are secured by properties located in our primary market area. See “ – Originations, Sales and Purchases of Loans.” +Our one-to-four family residential real estate loans are generally underwritten according to Fannie Mae guidelines, and we refer to loans that conform to such guidelines as “conforming loans.” We generally originate both fixed- and adjustable-rate one-to-four family residential real estate loans in amounts up to the maximum conforming loan limits as established by the Federal Housing Finance Agency (“FHFA”). We also originate loans above the FHFA limit, which are +8 +referred to as “jumbo loans.” We generally underwrite jumbo loans in a manner similar to conforming loans. During the year ended December 31, 2024, we originated $10.8 million of jumbo loans. +We originate both fixed-rate and adjustable-rate one-to-four family residential real estate loans with terms of up to 30 years. At December 31, 2024, $108.9 million, or 25.8%, of our one-to-four family residential real estate loans were fixed-rate loans. +We originate our adjustable-rate one-to-four family residential real estate loans with initial interest rate adjustment periods of three, five, seven and ten years, based on changes in a designated market index. These loans are limited to a 200-basis point initial increase in their interest rate, a 200-basis point increase in their interest rate annually after the initial adjustment, and a maximum upward adjustment of 600 basis points over the life of the loan. We determine whether a borrower qualifies for an adjustable-rate mortgage loan based on our lending policy. +We originate conventional one-to-four family residential mortgage loans with loan-to-value ratios of up to 80% without private mortgage insurance. Occasionally, we originate loans with loan-to-value ratios of up to 97% with private mortgage insurance and where the borrower’s debt generally does not exceed 45% of the borrower’s monthly cash-flow. +A portion of our one-to-four family residential real estate loans are for the financing of residential condominium units. Consistent with our risk analysis, we generally will not finance more than 20% of the units in any condominium project with more than four units. +Generally, we sell a portion of the fixed-rate one-to-four family residential real estate loans that we originate with terms that are generally greater than 15 years. We base the amount of fixed-rate loans that we sell on our liquidity needs, asset/liability mix, loan volume, portfolio size and other factors. Currently, the majority of loans that we sell are sold to the secondary market with servicing released. +We generally do not offer “interest-only” mortgage loans on one-to-four family residential real estate loans nor do we offer loans that provide for negative amortization of principal, such as “Option ARM” loans, where the borrower can pay less than the interest owed on his loan, resulting in an increased principal balance during the life of the loan. Additionally, we do not offer “subprime loans” (loans that are made to borrowers with weakened credit histories typically characterized by payment delinquencies, previous charge-offs, judgments, bankruptcies, or borrowers with questionable repayment capacity as evidenced by low credit scores or high debt-burden ratios) or Alt-A loans (defined as loans having less than full documentation). +We evaluate both the borrower’s ability to make principal, interest and escrow payments and the value of the property that will secure the loan. Our one-to-four family residential real estate loans generally do not currently include prepayment penalties, are non-assumable and do not produce negative amortization. Our one-to-four family residential mortgage loans customarily include “due-on-sale” clauses giving us the right to declare the loan immediately due and payable in the event that, among other things, the borrower sells the property subject to the mortgage. All borrowers are required to obtain title insurance for the benefit of Everett Co-operative Bank. We also require homeowner’s insurance and fire and casualty insurance and, where circumstances warrant, flood insurance on properties securing real estate loans. +We offer one-to-four family residential real estate loans secured by non-owner occupied properties. Generally, we will not make loans in excess of 75% loan to value on non-owner-occupied two-to-four family residential real estate properties or in excess of 80% on single family non-owner occupied residential real estate properties. +Commercial Real Estate and Multifamily Lending . Our commercial real estate loans are secured primarily by multifamily apartment buildings, retail and mixed-use properties, light industrial properties, manufacturing facilities and office buildings, almost all of which are located in our primary market area. We do not have any exposure to high rise office space in Boston, MA. Our office loans are secured by office space primarily outside of the city of Boston where demand for office space along with vacancy rates remain stable. Our multifamily loans are secured primarily by five or more-unit residential buildings. At December 31, 2024, we had $229.0 million in commercial real estate loans and $344.0 million in multifamily real estate loans, representing 20.0% and 30.0% of our total loan portfolio, respectively. +9 +The following table shows the diversification of the commercial real estate portfolio as of December 31, 2024: + +At December 31, 2024 + +Owner-Occupied +Non-Owner-Occupied +Balance +Percent + +(Dollars in thousands) +Mixed-Use +$ +5,855 +$ +88,938 +$ +94,793 +41.4 +% +Retail +8,183 +35,524 +43,707 +19.1 +% +Industrial +10,547 +26,072 +36,619 +16.0 +% +Office +5,943 +29,023 +34,966 +15.3 +% +Hospitality +5,375 +4,250 +9,625 +4.2 +% +Other +8,833 +448 +9,281 +4.0 +% +Total commercial real estate loans +$ +44,736 +$ +184,255 +$ +228,991 +100.0 +% +We generally originate adjustable-rate commercial real estate and multifamily real estate loans with maximum terms of up to 30 years. From time to time we will also originate fixed rate loans in these portfolios. We generally limit loan-to-value ratios to 75% of the lesser of the appraised value or purchase price. All of our commercial real estate and multifamily real estate loans are subject to our underwriting procedures and guidelines set by our Commercial Lending and General Lending Policies. +At December 31, 2024, our largest commercial real estate loan totaled $10.5 million and was secured by a warehouse distribution center located in our primary market area. At December 31, 2024, this loan was performing in accordance with its repayment terms. At December 31, 2024, our largest multifamily real estate loan totaled $20.0 million and was secured by five properties with a total of 118 residential units located in our primary market area. At December 31, 2024, this loan was performing in accordance with its repayment terms. +We consider a number of factors in originating commercial real estate and multifamily loans. We evaluate the character, qualifications and financial condition of the borrower (including credit history), profitability and expertise, as well as the value and condition of the mortgaged property securing the loan and market conditions. When evaluating the qualifications of the borrower, we consider the financial resources of the borrower, the borrower’s experience in owning and/or managing similar property and the borrower’s repayment history with us and other financial institutions. In evaluating the property securing the loan, among other factors, we consider the net operating income of the mortgaged property before debt service and depreciation, amortization and interest. The debt service coverage ratio (the ratio of net operating income to debt service) is calculated to ensure that, subject to certain exceptions, it is at least 1.20x. Our commercial real estate and multifamily loans are appraised by outside independent and qualified appraisers that are duly approved in accordance with Everett Co-operative Bank Appraisal policy. Personal guarantees are often obtained from commercial real estate borrowers if such individual has a greater than 20% ownership interest in the property. Each borrower’s financial information on such loans is monitored on an ongoing basis by requiring periodic financial statement updates which are reviewed when received. +Our loans-to-one borrower limit is 20% of the Bank’s capital, which limit was $29.1 million at December 31, 2024. At December 31, 2024, our average commercial real estate loan had a balance of $1.1 million and our average multifamily loan had a balance of $2.7 million. As we continue to enhance our commercial real estate team and infrastructure and with the increase in capital resulting from the conversion, we are now able to selectively retain larger loans that we historically would have originated for participation with other local financial institutions. In this regard, we have revised our lending policies and loans to one borrower limitations to increase our lending limits and the type and size of loans we choose to hold in our portfolio. +Construction and Land Loans . At December 31, 2024, we had $90.9 million in construction and land loans, or 7.9% of total loans. We make construction loans, primarily to developers, contractors and builders of apartment buildings, for single-family homes and condominiums and to individuals for the construction of their primary residences. We also generate a limited amount of land loans that will be used for residential or commercial development. Land loans also include loans secured by land purchased for investment purposes. At December 31, 2024, our construction loans included $3.4 million in lines of credit secured by land. +10 +While we may originate loans to builders whether or not the collateral property underlying the loan is under contract for sale, we consider each project carefully in light of current residential real estate market conditions. Generally, we will make construction loans for which there is no contract for sale for the underlying completed home at the time of origination, and which we refer to as speculative construction loans, only to well-known builders in our market area. We actively monitor the number of unsold homes in our construction loan portfolio and local housing markets to attempt to maintain an appropriate balance between home sales and new loan originations. We generally limit the maximum number of speculative units (units that are not pre-sold) approved for each builder, typically starting with one speculative loan per builder until we develop a relationship with the builder. At December 31, 2024, speculative construction loans totaled $28.1 million. +Our construction loans are fixed- and adjustable-rate, interest-only loans that provide for the payment of interest during the construction phase, which is usually up to 12 to 24 months or in some cases up to 36 months for more complex projects. At the end of the construction phase, the loan may convert to a permanent mortgage loan or may be paid in full. Depending on the complexity of the construction project, the term of an “interest-only” construction loan may be extended if circumstances warrant it up to an additional three to six months with a maximum interest only term of 36 months. At December 31, 2024, the additional unadvanced portions of these construction loans totaled $54.6 million. +Construction and land loans are generally limited to 80% (75% for investment properties) loan-to-completed-appraised-value ratio upon completion of the project. Before making a commitment to fund a construction loan, we require an appraisal of the property by an independent licensed appraiser. We also generally require inspections of the property before disbursements of funds during the term of the construction loan. Construction projects over $2 million require an approved construction consultant to review the construction budget, complete a feasibility analysis, monitor construction progress and manage construction draws. +At December 31, 2024, our largest construction loan was for $16.8 million and was for the construction of a mixed-use building in our market area. This loan was performing in accordance with its repayment terms at December 31, 2024. +Home Equity Loans and Lines of Credit . In addition to one-to-four family residential real estate loans, we offer home equity loans and lines of credit that are secured by the borrower’s primary, secondary residence or investment property. At December 31, 2024, we had $45.2 million, or 4.0%, of our total loan portfolio in home equity loans and lines of credit. At that date we also had $45.9 million of unused commitments related to home equity lines of credit. +Home equity loans and lines of credit are generally underwritten using the same criteria that we use to underwrite one-to-four family residential real estate loans. Home equity loans and lines of credit may be underwritten with a loan-to-value ratio of up to 70%, or 80% when combined with the principal balance of the existing first mortgage loan. Our home equity loans are primarily originated with fixed rates of interest with terms of up to 15 years. Our home equity lines of credit are originated with a variable rate based on the prime rate of interest plus or minus an applicable margin with a floor rate and require interest paid monthly. +Home equity loans and lines of credit are generally secured by junior mortgages and have greater risk than one-to-four family residential real estate loans secured by first mortgages. We face the risk that the collateral will be insufficient to compensate us for credit losses and costs of foreclosure, after repayment of the senior mortgages, if applicable. When customers default on their loans, we attempt to foreclose on the property and resell the property as soon as possible to minimize foreclosure and carrying costs. However, the value of the collateral may not be sufficient to compensate us for the amount of the unpaid loan and we may be unsuccessful in recovering the remaining balance from those customers. Particularly with respect to our home equity loans and lines of credit, decreases in real estate values could adversely affect our ability to fully recover the loan balance in the event of a default. +Commercial Loans. At December 31, 2024, commercial loans were $13.8 million, or 1.2% of total loans. +We make commercial loans and lines of credit primarily to small businesses in our market area. These loans and lines of credit are generally secured by business assets, such as equipment and accounts receivable. Commercial loans and lines of credit are made with both adjustable and fixed-interest rates and for terms generally up to 60 months or on +11 +demand. Depending on the collateral used to secure the loans, commercial loans are made in amounts of up to 80% of the value of the collateral securing the loan. +When making commercial loans, we consider the financial statements of the borrower, our lending history with the borrower, the debt service capabilities and global cash flows of the borrower and other guarantors, the projected cash flows of the business and the value of the collateral, accounts receivable, inventory and equipment. +At December 31, 2024, our largest commercial loan totaled $4.5 million and was secured by a security interest in a mortgage and note. At December 31, 2024, this loan was performing in accordance with its repayment terms. +Consumer Lending. To a much lesser extent, we offer a variety of consumer loans to individuals who reside or work in our market area, including new and used automobile loans, unsecured overdraft lines of credit and loans secured by savings accounts. At December 31, 2024, our consumer loan portfolio totaled $141,000, or 0.01%, of our total loan portfolio. +Consumer loans generally have shorter terms to maturity, which reduces our exposure to changes in interest rates. In addition, management believes that offering consumer loan products helps to expand and create stronger ties to our existing customer base by increasing the number of customer relationships and providing cross-marketing opportunities. +Loan Underwriting Risks +Adjustable-Rate Residential Real Estate Loans. Although adjustable-rate mortgage loans may reduce to an extent our vulnerability to changes in market interest rates because they periodically reprice, as interest rates increase, the required payments due from the borrower also increase (subject to rate caps), increasing the potential for default by the borrower. At the same time, the marketability of the underlying collateral may be adversely affected by higher interest rates. Upward adjustments of the contractual interest rate are also limited by the maximum periodic and lifetime rate adjustments permitted by our loan documents. +Commercial Real Estate Loans. Loans secured by commercial real estate generally have larger balances and involve a greater degree of risk than one- to four-family residential real estate loans. The primary concern in commercial real estate lending is the borrower’s creditworthiness, the feasibility and cash flow potential of the project. Repayments of loans secured by income properties often depend on successful operation and management of the properties. As a result, repayment of such loans may be subject, to a greater extent than residential real estate loans, to adverse conditions in the real estate market or the economy. To monitor cash flows on income properties, we require borrowers and guarantors to provide financial statements including and not limited to personal financial statements, tax returns and rent rolls on an annual basis at minimum. These documents are reviewed according to the commercial lending policy and general lending policy guidelines. In reaching a decision on whether to make a commercial real estate loan, we consider and review a global cash flow analysis of the borrower and consider the net operating income of the property, the borrower’s expertise, credit history and profitability and the value of the underlying property. We have generally required that the properties securing these real estate loans have an aggregate debt service ratio, including the guarantor’s cash flows and the borrower’s other projects, of at least 1.20x. We pull an environmental report with every new loan request. An environmental phase one report is obtained when the possibility exists that hazardous materials may have existed on the site, or the site may have been impacted by adjoining properties that handled hazardous materials. +If we foreclose on a commercial real estate loan, the marketing and liquidation period to convert the real estate asset to cash can be lengthy with substantial holding costs. In addition, vacancies, deferred maintenance, repairs and market stigma can result in prospective buyers expecting sale price concessions to offset their real or perceived economic losses for the time it takes them to return the property to profitability. Depending on the individual circumstances, initial charge-offs and subsequent losses on commercial real estate loans can be unpredictable and substantial. As of December 31, 2024, we maintained no “other real estate owned” as a result of foreclosures (or the acceptance of a deed in lieu of foreclosure). +Commercial Loans. Unlike residential real estate loans, which generally are made on the basis of the borrower’s ability to make repayment from his or her employment or other income streams, and which are secured by real property +12 +whose value tends to be more easily ascertainable, commercial loans are of higher risk and typically are made on the basis of the borrower’s ability to make repayment from the cash flows of the borrower’s business operation, and the collateral securing these loans may fluctuate in value. Our commercial loans are originated primarily based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. Collateral for commercial loans typically consists of accounts receivable, inventory or equipment. Credit support provided by the borrower for most of these loans is based on the liquidation of the pledged collateral and enforcement of a personal guarantee, if any. Further, any collateral securing such loans may depreciate over time, may be difficult to appraise and may fluctuate in value. As a result, the availability of funds for the repayment of commercial loans may depend substantially on the success of the business itself. +Construction and Land Loans. Our construction loans are based upon estimates of costs and values associated with the completed project. Underwriting is focused on the borrower's financial strength, credit history and demonstrated ability to produce a quality product, effectively market it and manage their operations effectively. +Construction lending involves additional risks when compared with permanent lending because funds are advanced upon the security of the project, which is of uncertain value before its completion. Because of the inherent uncertainties in estimating construction costs, as well as the market value of the completed project and the effects of governmental regulation of real property, it is relatively difficult to evaluate accurately the total funds required to complete a project and the related loan-to-value ratio. In addition, generally during the term of a construction loan, interest may be funded by the borrower or disbursed from an interest reserve set aside from the construction loan budget. These loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project and the ability of the borrower to sell or lease the property or obtain permanent take-out financing, rather than the ability of the borrower or guarantor to repay principal and interest. If the appraised value of a completed project proves to be overstated, we may have inadequate security for the repayment of the loan upon completion of construction of the project and may incur a loss. In addition, speculative construction loans, which are loans made to home builders who, at the time of loan origination, have not yet secured an end buyer for the home under construction, typically carry higher risks than those associated with traditional construction loans. These increased risks arise because of the risk that there will be inadequate demand to ensure the sale of the property within an acceptable time. As a result, in addition to the risks associated with traditional construction loans, speculative construction loans carry the added risk that the builder will have to pay the property taxes and other carrying costs of the property until an end buyer is found. Land loans have substantially similar risks to speculative construction loans. +Originations, Sales and Purchases of Loans +Our loan originations are generated by our loan personnel operating at our banking offices. All loans we originate are underwritten pursuant to our policies and procedures. While we originate both fixed-rate and adjustable-rate loans, our ability to generate each type of loan depends upon relative borrower demand and the pricing levels as set in the local marketplace by competing banks, thrifts, credit unions, and mortgage banking companies. Our volume of real estate loan originations is influenced significantly by market interest rates, and, accordingly, the volume of our real estate loan originations can vary from period to period. +Consistent with our interest rate risk management strategy, we originate for sale and sell a portion of the fixed-rate, one- to four-family residential real estate loans that we originate with terms of 15 years or greater, on a servicing-released, limited or no recourse basis, while retaining shorter-term fixed-rate and all adjustable-rate one- to four-family residential real estate loans in order to manage the duration and time to repricing of our loan portfolio. We consider our balance sheet as well as market conditions on an ongoing basis in making decisions as to whether to hold loans we originate for investment or to sell such loans to investors, choosing the strategy that is most advantageous to us from a profitability and risk management standpoint. During the year ended December 31, 2024, we sold $7.8 million of one-to-four family owner-occupied residential real estate loans. Subject to market and economic conditions, management intends to continue this sales activity in future periods to generate gain on sale income. +From time to time, we may purchase loan participations secured by properties within and outside of our primary market area in which we are not the lead lender. In these circumstances, we follow our customary loan underwriting and approval policies. At December 31, 2024, we had four loans in which we were not the lead lender totaling $26.1 million. +13 +In addition, during 2024, we purchased $3.2 million in whole one- to four- family residential real estate loans from correspondent loan originators. We may participate out portions of a loan that exceeded our loans-to-one borrower legal lending limit and for risk diversification. +At December 31, 2024, we did not have any loans held for sale. +Loan Approval Procedures and Authority +The maximum amount that we may lend to one borrower and the borrower’s related entities is generally limited, by statute, to 20% of the Bank's capital, which is defined under Massachusetts law as the sum of our surplus account, undivided profits and capital stock. Loans secured by a first mortgage on residential property occupied by the borrower are excluded from this limit. At December 31, 2024, our regulatory limit on loans-to-one borrower was $29.1 million. At December 31, 2024, our largest relationship at this date consisted of eight multifamily loans totaling $27.7 million secured by 17 multifamily properties and five residential buildings with a total of 119 residential units in our market area. This loan relationship was performing in accordance with its original repayment terms at December 31, 2024. Our second largest lending relationship consisted of eight loans, including one commercial real estate loans, five multifamily loans and three construction loan, totaling $25.9 million and was secured primarily by three mixed-used building, ten residential units and a single room occupancy building with 48 units. This loan relationship was performing in accordance with its original repayment terms at December 31, 2024. As a result of our stock offering which closed in July 2022, our regulatory loans-to-one borrower limit has increased and, as we continue to enhance our commercial real estate team and infrastructure and our increased capital position, we are now able to selectively retain larger loans that we historically would have originated for participation with other local financial institutions. In this regard, we have revised our lending policies and loans to one borrower limitations to increase our lending limits and the type and size of loans we choose to hold in our portfolio. +Our lending is subject to written underwriting standards and origination procedures. Decisions on loan applications are made on the basis of detailed applications submitted by the prospective borrower and property valuations (consistent with our appraisal policy) prepared by outside independent licensed or certified appraisers approved by our board of directors as well as internal evaluations, where permitted by regulations. The loan applications are designed primarily to determine the borrower’s ability to repay the requested loan, and the more significant items on the application are verified through use of credit reports, financial statements and tax returns. +The Board of Directors has overall responsibility for our lending policy, and the board reviews this policy at least annually. +Our Chief Executive Officer, Chief Operating Officer or Chief Lending Officer each have individual lending authority for up to $1.0 million for residential or commercial loans. Loans of between $1.0 million and $3.5 million require the approval of the Loan Committee, which is comprised of senior management of the Bank as well as the Chief Executive Officer, and loans or relationships in excess of $3.5 million require approval of the full Board of Directors. Additionally, our policies and loan approval limits which are established by the board of directors provide various lending approval authority for other designated individual officers or officers acting together. +Generally, we require title insurance on our mortgage loans as well as fire and extended coverage casualty insurance in amounts at least equal to the principal amount of the loan or the value of improvements on the property, depending on the type of loan. We also require flood insurance if the improved property is determined to be in a flood zone area. +Delinquencies and Non-Performing Assets +Delinquency Procedures. When a borrower fails to make required payments on a loan, we take a number of steps to induce the borrower to cure the delinquency and restore the loan to current status. We generally send a written notice of non-payment to the borrower 15, 30, 60 and 90 days after a loan is first past due. We will additionally try to contact the borrower by telephone after the 30 th day after the due date. +14 +Generally, when a loan becomes 90 days past due, the loan is turned over to our attorneys to ensure that further collection activities are conducted in accordance with applicable laws and regulations. All loans past due 90 days are put on non-accrual and reported to the board of directors monthly. If our attorneys do not receive a response from the borrower, or if the terms of any payment plan established are not followed, then foreclosure proceedings will be implemented. Management submits a delinquent loan report detailing loans 30 days or more past due to the board of directors on a monthly basis. +When we acquire real estate as a result of foreclosure or by deed in lieu of foreclosure, the real estate is classified as foreclosed real estate until it is sold. The real estate is recorded at estimated fair value at the date of acquisition less estimated costs to sell, and any write-down resulting from the acquisition is charged to the allowance for credit losses. Estimated fair value is based on an appraisal typically obtained before the foreclosure process is completed. Subsequent decreases in the value of the property are charged to operations. After acquisition, all costs incurred in maintaining the property are expensed. Costs relating to the development and improvement of the property, however, are capitalized to the extent of estimated fair value less estimated costs to sell. +From time to time, we may grant a concession to borrowers who are experiencing financial difficulties for economic or legal reasons related to the borrower’s financial difficulties. This usually includes a modification of loan terms, such as a reduction of the interest rate to below market terms, capitalizing past due interest or extending the maturity date and possibly a partial forgiveness of the principal amount due. Interest income on restructured loans is accrued after the borrower demonstrates the ability to pay under the restructured terms through a sustained period of repayment performance, which is generally six consecutive months. +Delinquent Loans . The following table sets forth our loan delinquencies, including non-accrual loans, by type and amount at the dates indicated. +At December 31, +2024 +2023 +30–59 Days +60–89 Days +90 Days +or More +30–59 Days +60–89 Days +90 Days +or More +(in thousands) +Real estate loans: +One-to-four family residential +$ +1,260 +$ +— +$ +1,077 +$ +722 +$ +225 +$ +809 +Multi-family +— +— +— +— +— +— +Commercial +— +— +— +— +— +— +Home equity lines of credit and loans +405 +— +85 +360 +— +8 +Construction +— +— +— +— +— +— +Other loans: +Commercial +— +— +— +— +— +— +Consumer +— +— +— +1 +— +— +Total +$ +1,665 +$ +— +$ +1,162 +$ +1,083 +$ +225 +$ +817 +15 +Non-Performing Assets. The following table sets forth information regarding our non-performing assets. +At December 31, +2024 +2023 +(in thousands) +Non-accrual loans: +Real estate loans: +One-to-four family residential +$ +1,872 +$ +1,191 +Multi-family +— +— +Commercial +— +— +Home equity lines of credit and loans +85 +22 +Construction +— +— +Commercial +— +— +Consumer +— +— +Total non-accrual loans +$ +1,957 +$ +1,213 +Accruing loans past due 90 days or more: +Real estate loans: +One-to-four family residential +$ +— +$ +— +Multi-family +— +— +Commercial +— +— +Home equity lines of credit and loans +— +— +Construction +— +— +Bank owned property held for sale +— +— +Total real estate owned +— +— +Total non-performing assets +$ +1,957 +$ +1,213 +Total non-performing loans to total loans +0.17 +% +0.12 +% +Total non-performing loans to total assets +0.14 +% +0.09 +% +Total non-performing assets to total assets +0.14 +% +0.09 +% +Classified Assets . Federal regulations provide that each insured savings institution classify its assets on a regular basis. In addition, in connection with examination of insured depository institutions, federal and Massachusetts banking regulators have authority to identify problem assets and, if appropriate, classify them. There are three classifications for problem assets: “substandard,” “doubtful” or “loss.” An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. “Substandard” assets include those characterized by the “distinct possibility” that the insured institution will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard,” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly questionable and improbable.” Assets classified as “loss” are those considered “uncollectible” and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted. Assets which do not currently expose the insured institution to sufficient risk to warrant classification in one of the aforementioned categories but possess weaknesses are designated as “special mention” by our management. +When an insured depository institution classifies problem assets as either substandard or doubtful, it may establish general allowances in an amount deemed prudent by management to cover probable expected losses. General allowances represent loss allowances which have been established to cover expected losses associated with lending activities, but which, unlike specific allowances, have not been allocated to particular problem assets. When an insured institution classifies problem assets as “loss,” it is required either to establish a specific allowance for losses equal to 100% of that portion of the asset so classified or to charge-off such amount. An institution’s determination as to the classification of its assets and the amount of its valuation allowances is subject to review by the regulatory agencies, which may require the establishment of additional general or specific loss allowances. +In connection with the filing of our quarterly reports with the FDIC and in accordance with our classification of assets policy, we regularly review the problem loans in our portfolio to determine whether any loans require classification in accordance with applicable regulations. +16 +On the basis of this review of our assets, our classified and special mention assets at the dates indicated were as follows: +At December 31, +2024 +2023 +(in thousands) +Substandard assets +$ +99 +$ +— +Doubtful assets +— +— +Loss assets +— +— +Total classified assets +$ +99 +$ +— +Special mention assets +$ +1,739 +$ +1,282 +Foreclosed real estate and other assets +$ +— +$ +— +Other Loans of Concern. There were no other loans at December 31, 2024 that are not already disclosed where there is information about possible credit problems of borrowers that caused management to have serious doubts about the ability of the borrowers to comply with present loan repayment terms and that may result in disclosure of such loans in the future. +Allowance for Credit Losses. On January 1, 2023, the Company adopted the ASU 2016-13 Current Expected Credit Loss (CECL) methodology for estimating the credit losses for loans and off-balance sheet commitments. This methodology replaced the previous incurred loss and impairment methodology with a methodology referred to as CECL. This methodology reflects expected credit losses and requires consideration of historical experience, current conditions, and reasonable and supportable forecasts of future economic conditions. Management uses forward-looking information to estimate the expected credit loss on a loan at the time of origination. The change from the incurred loss methodology to the CECL methodology was recognized through an adjustment to retained earnings. A provision for credit losses, which is a charge against earnings, is recorded to bring the allowance for credit losses to a level that, in management’s judgment, is adequate to absorb expected lifetime credit losses in the loan portfolio. Management’s evaluation process used to determine the appropriateness of the allowance for credit losses is subject to the use of estimates, assumptions, and judgment. The evaluation process involves gathering and interpreting many qualitative and quantitative factors which could affect expected credit losses. Because interpretation and analysis involves judgment, current economic or business conditions can change, and future events are inherently difficult to predict, the anticipated amount of estimated credit losses and therefore the appropriateness of the allowance for credit losses could change significantly. +As an integral part of their examination process, the Commissioner and the FDIC will periodically review our allowance for credit losses, and as a result of such reviews, we may determine to adjust our allowance for credit losses. However, regulatory agencies are not directly involved in the process for establishing the allowance for credit losses as the process is our responsibility and any increase or decrease in the allowance is the responsibility of management. +17 +The following table sets forth activity in our allowance for credit losses on loans for the years indicated: +At December 31, +2024 +2023 +(in thousands) +Allowance for credit losses on loans at beginning of year +$ +8,591 +$ +7,200 +Cumulative effect accounting adjustment +— +182 +Provision for credit losses +296 +1,210 +Charge-offs: +Real estate loans: +One-to-four family residential +— +— +Multi-family +— +— +Commercial +— +— +Home equity lines of credit and loans +— +— +Construction +— +— +Commercial +— +— +Consumer +(4 +) +(2 +) +Total charge-offs +$ +(4 +) +$ +(2 +) +Recoveries: +Real estate loans: +One-to-four family residential +— +— +Multi-family +— +— +Commercial +— +— +Home equity lines of credit and loans +— +— +Construction +— +— +Commercial +— +— +Consumer +1 +1 +Total recoveries +1 +1 +Net (charge-offs) recoveries +$ +(3 +) +$ +- +$ +(1 +) +Allowance for credit losses on loans at end of year +$ +8,884 +$ +- +$ +8,591 +Allowance for credit losses on loans to non-performing loans +453.96 +% +708.24 +% +Allowance for credit losses on loans to total loans outstanding +at end of year +0.78 +% +0.82 +% +Net (charge offs) recoveries to average loans +outstanding during the year +0.00 +% +0.00 +% +18 +Allocation of Allowance for Credit Losses on Loans. The following table sets forth the allowance for credit losses on loans allocated by loan category and the percent of loans in each category to total loans at the dates indicated. +At December 31, +2024 +2023 +Allowance for Credit Losses +Percent of Allowance in Each Category to Total Allocated Allowance +Percent of Loans in Each Category to Total Loans +Allowance for Credit Losses +Percent of Allowance in Each Category to Total Allocated Allowance +Percent of Loans in Each Category to Total Loans +(Dollars in thousands) +Real estate loans: +One-to-four family residential +$ +2,928 +33.0 +% +36.9 +% +$ +3,555 +41.4 +% +39.1 +% +Multi-family +2,422 +27.3 +30.0 +1,190 +13.9 +27.4 +Commercial +2,260 +25.4 +20.0 +1,636 +19.0 +18.7 +Home equity lines of credit and loans +118 +1.3 +4.0 +321 +3.7 +3.2 +Construction +1,036 +11.7 +7.9 +1,757 +20.5 +10.7 +Commercial loans +119 +1.3 +1.2 +131 +1.5 +0.9 +Consumer +1 +0.0 +0.0 +1 +0.0 +0.0 +Total +$ +8,884 +100.0 +% +100.0 +% +$ +8,591 +100.0 +% +100.0 +% +Investment Activities +General . Our investment policy is established by the Board of Directors. The objectives of the policy are to: (i) provide and maintain liquidity within the guidelines of the Massachusetts banking laws and regulations for loan demand and deposit fluctuations, and to allow us to alter our liquidity position to meet both day-to-day and long-term changes in assets and liabilities; (ii) manage interest rate risk in accordance with our interest rate risk policy; (iii) provide collateral for pledging requirements; (iv) maximize return on our investments; and (v) maintain a balance of high quality diversified investments to minimize risk. +We have legal authority to invest in various types of liquid assets, including U.S. Treasury obligations, securities of various government-sponsored enterprises and municipal governments, deposits at the Federal Home Loan Bank of Boston (the “FHLB”), certificates of deposit of federally insured institutions, investment grade corporate bonds and marketable equity securities. We also are required to maintain an investment in FHLB stock. While we have the authority under applicable law to invest in derivative securities, we have not invested in derivative securities. +At December 31, 2024, our investment portfolio consisted primarily of debt securities issued by the U.S. Treasury, U.S. government sponsored enterprises, mortgage-backed securities, collateralized mortgage obligations and corporate debt securities. +Our investment policy is reviewed annually by our Board of Directors and all policy changes recommended by management must be approved by the board. Authority to make investments under the approved guidelines are delegated to appropriate officers. While general investment strategies are developed and authorized by the board, the execution of specific actions with respect to securities held by Everett Co-operative Bank rests with the Chief Financial Officer within the scope of the established investment policy. +At the time of purchase, we designate a security as held-to-maturity, available-for-sale, or trading, depending on our ability and intent. Securities available-for-sale or trading are reported at fair value, while securities held-to-maturity are reported at amortized cost. Consistent with our overall business and asset/liability management plan, which focuses on sustaining adequate levels of core earnings, the base premise of our investment portfolio is that all securities purchased will be suitable to be held-to-maturity. At December 31, 2024, $73.2 million, or 91.8%, of our securities portfolio was comprised of held-to-maturity securities. +Some of our securities are callable by the issuer. Although these securities may have a yield somewhat higher than the yield of similar securities without such features, these securities are subject to the risk that they may be redeemed by +19 +the issuer prior to maturing in the event general interest rates decline. At December 31, 2024, we had $17.4 million of securities which were subject to redemption by the issuer prior to their stated maturity. +For available-for-sale debt securities with a fair value less than amortized cost basis, management will determine whether it has the intent to sell the debt security or whether it is more likely than not it will be required to sell the debt security before the recovery of its amortized cost basis. If either condition is met, management will recognized a write-down to fair value through a charge to earnings. For all other debt securities, management evaluates their expected credit losses over the remaining term. The majority of the Company’s debt securities consist of mortgage-backed securities, U.S. Treasury securities and debt securities issued by U.S. government-sponsored enterprises. These securities carry an explicit or implicit guarantee from the U.S. government, are highly rated by major rating agencies, and have a long history of no credit losses. Accordingly, the Company applies a zero-credit loss assumption and has not recorded any allowance for these securities. For corporate bonds classified as held-to-maturity, a probability of default and loss given default analysis is performed to determine the allowance for credit losses. We monitor the investment portfolio and credit performance on a quarterly basis to determine if any allowance is considered necessary. +At December 31, 2024, our corporate bond portfolio consisted of investment grade securities with maturities shorter than ten years. Our investment policy provides that we may invest up to 10% of our tier-one risk-based capital in corporate bonds from individual issuers which, at the time of purchase, are within the three highest investment-grade ratings from Standard & Poor’s or Moody’s. The maturity of these bonds generally may not exceed five years unless approved by the board of directors, and the aggregate limit is 50% of the investment portfolio for this security type. Bonds that subsequently experience a decline in credit rating below investment grade are monitored at least quarterly. +Bank-Owned Life Insurance. We invest in bank-owned life insurance to provide us with a funding source for our benefit plan obligations. Bank-owned life insurance also generally provides us noninterest income that is non-taxable. Applicable regulations generally limit our investment in bank-owned life insurance to 25% of our Tier 1 capital plus our allowance for credit losses. At December 31, 2024, we had $14.9 million in bank-owned life insurance. +Other Securities . We hold common stock of the FHLB in connection with our membership with the FHLB and our borrowing activities. The FHLB common stock is carried at cost and classified as restricted equity securities. It is not practicable to determine the fair value of FHLB common stock due to restrictions placed on its transferability. Under current FHLB rules, we will be required to purchase additional FHLB common stock if we increase borrowings in the future. +20 +Securities Portfolio. The following tables set forth the stated maturities and weighted average yields of our investment securities which are classified as held-to-maturity and available-for-sale at December 31, 2024. Certain securities have adjustable interest rates and will reprice periodically within the various maturity ranges. These repricing schedules are not reflected in the table below. Prepayments are not reflected in the table below. +One Year or Less +More than One +Year to Five Years +More than Five +Years to Ten Years +More than +Ten Years +Total +Weighted +Weighted +Weighted +Weighted +Weighted +Amortized +Average +Amortized +Average +Amortized +Average +Amortized +Average +Amortized +Fair +Average +Cost +Yield +Cost +Yield +Cost +Yield +Cost +Yield +Cost +Value +Yield +(Dollars in thousands) +Securities held-to-maturity: +Debt securities issued by U.S. +government-sponsored enterprises +$ +5,588 +0.40 +% +$ +— +— +$ +— +— +$ +— +— +$ +5,588 +$ +5,450 +0.40 +% +Mortgage-backed securities +7 +2.19 +% +6,886 +3.77 +% +1,998 +2.77 +% +35,370 +2.15 +% +44,261 +38,947 +2.43 +% +Corporate bonds +1,501 +2.29 +% +13,398 +4.59 +% +3,000 +7.50 +% +— +— +17,899 +17,620 +4.88 +% +U.S. Treasury securities +5,467 +4.99 +% +— +— +— +— +— +— +5,467 +5,488 +4.99 +% +Total +$ +12,563 +2.62 +% +$ +20,284 +4.31 +% +$ +4,998 +5.61 +% +$ +35,370 +2.15 +% +$ +73,215 +$ +67,505 +3.06 +% +One Year or Less +More than One +Year to Five Years +More than Five +Years to Ten Years +More than +Ten Years +Total +Weighted +Weighted +Weighted +Weighted +Weighted +Amortized +Average +Amortized +Average +Amortized +Average +Amortized +Average +Amortized +Fair +Average +Cost +Yield +Cost +Yield +Cost +Yield +Cost +Yield +Cost +Value +Yield +(Dollars in thousands) +Securities available-for-sale +Mortgage-backed securities +$ +2,009 +4.32 +% +$ +2,155 +3.62 +% +$ +— +— +$ +— +— +$ +4,164 +$ +4,126 +3.96 +% +Collateralized Mortgage Obligation +— +— +— +— +— +— +1,452 +3.78 +% +1,452 +1,438 +3.78 +% +Corporate bonds +— +— +— +— +1,000 +8.00 +% +— +— +1,000 +1,000 +8.00 +% +Total +$ +2,009 +4.32 +% +$ +2,155 +3.62 +% +$ +1,000 +8.00 +% +$ +1,452 +3.78 +% +$ +6,616 +$ +6,564 +4.53 +% +For additional information regarding our investment securities portfolio, see Note 3 of the consolidated financial statements. +21 +Sources of Funds +General. Deposits have traditionally been our primary source of funds for use in lending and investment activities. We also use borrowings to supplement cash flow needs, lengthen the maturities of liabilities for interest rate risk purposes and to manage the cost of funds. In addition, we receive funds from scheduled loan payments, investment maturities, loan prepayments, loan sales, retained earnings and income on earning assets. While scheduled loan payments and income on earning assets are relatively stable sources of funds, deposit inflows and outflows can vary widely and are influenced by prevailing interest rates, market conditions and levels of competition. +Deposits. Our deposits are generated primarily from residents within our primary market area. We offer a selection of deposit accounts, including noninterest-bearing and interest-bearing demand accounts, money market accounts, savings accounts and certificates of deposit. Deposit account terms vary, with the principal differences being the minimum balance required, the amount of time the funds must remain on deposit and the interest rate. In recent years, we have also accepted brokered deposits as non-retail funding source to fund our operations. These non-core funding sources are not relationship-based accounts and are generally more price-sensitive than our core deposits. Therefore, these deposits carry a greater risk of non-renewal than our core deposits. At December 31, 2024, our core deposits, which are deposits other than certificates of deposit and brokered deposits, were $393.0 million, representing 39.4% of total deposits. At December 31, 2024, our largest deposit relationship had $21.1 million in deposits. +We are focused on ensuring that our products, services and accessibility will continue to make Everett Co-operative Bank a competitive community bank, and will continue to attract and retain retail customers by emphasizing personal service, accessibility and flexibility. The Company has developed new high yield consumer and business products as well as introducing an array of cash management services designed to attract new business relationships to the bank. In addition, in September of 2023, the Company opened a new branch in Woburn, MA, increasing our retail network to three branches. We will continue to attract and retain retail customers by emphasizing personal service, accessibility and flexibility in the face of mass market-oriented large, national and super-regional banks which maintain local branch networks in our market. +Interest rates, maturity terms, service fees and withdrawal penalties are established on a periodic basis. Deposit rates and terms are based primarily on current operating strategies and market rates, liquidity requirements, rates paid by competitors and growth goals. The flow of deposits is influenced significantly by general economic conditions, changes in interest rates and competition. The variety of deposit accounts that we offer allows us to be competitive in generating deposits and to respond with flexibility to changes in our customers’ demands. Our ability to gather deposits is impacted by the competitive market in which we operate, which includes numerous financial institutions of varying sizes offering a wide range of products. We believe that deposits are a stable source of funds, but our ability to attract and maintain deposits at favorable rates will be affected by market conditions, including competition and prevailing interest rates. +22 +The following table sets forth the distribution of total deposits, by account type, at the dates indicated. +At December 31, +2024 +2023 +Amount +Percent +Average Rate +Amount +Percent +Average Rate +(Dollars in thousands) +Noninterest-bearing demand +deposits +$ +84,958 +8.5 +% +0.00 +% +$ +78,342 +9.0 +% +0.00 +% +Interest-bearing demand deposits +20,546 +2.1 +0.10 +% +22,158 +2.6 +0.09 +% +Regular savings deposits and +other deposits +102,933 +10.3 +2.10 +% +137,848 +15.9 +2.49 +% +Money market deposits +184,581 +18.5 +3.47 +% +131,363 +15.1 +3.16 +% +Certificates of deposit +605,515 +60.6 +4.38 +% +498,503 +57.4 +4.25 +% +Total +$ +998,533 +100.0 +% +$ +868,214 +100.0 +% +As of December 31, 2024 and 2023, the aggregate amount of deposits in amounts greater than $250,000, which is the maximum amount for federal deposit insurance, was $503.8 million and $419.9 million, respectively. As of December 31, 2024, the aggregate amount of all our certificates of deposit in excess of $250,000 was $258.7 million. +All of our deposits are fully insured due to the additional insurance provided to a Massachusetts cooperative bank, such as Everett Co-operative Bank, under the Depositors Insurance Fund, a private industry-sponsored insurance fund in Massachusetts that insures all deposits at Everett Co-operative Bank above FDIC limits. +Borrowings . At December 31, 2024, total borrowings were $234.0 million. Borrowings consist of both short-term and long-term FHLB advances. Borrowings provide us with one source of funding. Maintaining available borrowing capacity with the FHLB provides us with a contingent source of liquidity. Everett Co-operative Bank is a member of the FHLB of Boston. The primary reason for our FHLB membership is to gain access to a reliable source of wholesale funding, particularly term funding, as a tool to manage liquidity and interest rate risk. As a member of the FHLB, we are required to purchase shares in the FHLB. Accordingly, we had invested $10.0 million in shares of the FHLB at December 31, 2024. We had $328.5 million of borrowing capacity remaining with the FHLB at December 31, 2024. At December 31, 2024, we had $10.0 million of borrowing capacity with the Atlantic Community Bankers Bank and $15.1 million of borrowing capacity with the Federal Reserve Bank. +Subsidiary and Other Activities +Everett Co-operative Bank is the wholly owned subsidiary of ECB Bancorp. +Everett Co-operative Bank has one subsidiary, First Everett Securities Corporation, Inc. (“FESC, Inc.”), a Massachusetts corporation, which is engaged in the buying, selling and holding of investment securities. The income earned on FESC, Inc.’s securities is subject to a significantly lower rate of state tax than that assessed on income earned on securities maintained at Everett Co-operative Bank. At December 31, 2024, FESC, Inc. had total assets of $52.3 million, substantially all of which were in securities and cash to be invested. +Expense and Tax Allocation +Everett Co-operative Bank has entered into an agreement with ECB Bancorp to provide it with certain administrative support services for compensation not less than the fair market value of the services provided. In addition, Everett Co-operative Bank and ECB Bancorp have entered into an agreement to establish a method for allocating and for reimbursing the payment of their consolidated tax liability. +23 +Personnel +As of December 31, 2024, we had 64 full-time equivalent employees. Our employees are not represented by any collective bargaining group. Management believes that we have a good working relationship with our employees. +24 +SUPERVISION AND REGULATION +General +Everett Co-operative Bank is a Massachusetts-chartered stock cooperative bank and is the wholly owned subsidiary of ECB Bancorp, a Maryland corporation, which is a registered bank holding company. Everett Co-operative Bank’s deposits are insured up to applicable limits by the FDIC and by the Depositors Insurance Fund for amounts in excess of the FDIC insurance limits. Everett Co-operative Bank is subject to extensive regulation by the Commissioner, as its chartering agency, and by the FDIC, its primary federal regulator and deposit insurer. Everett Co-operative Bank is required to file reports with, and is periodically examined by, the FDIC and the Commissioner concerning its activities and financial condition and must obtain regulatory approvals prior to entering into certain transactions, including, but not limited to, mergers with or acquisitions of other financial institutions. As a registered bank holding company, ECB Bancorp is regulated by the Board of Governors of the Federal Reserve Board (the “Federal Reserve Board”). Everett Co-operative Bank also is a member of and owns stock in the Federal Home Loan Bank of Boston, which is one of the 11 regional banks in the Federal Home Loan Bank System. +Under this system of regulation, the regulatory authorities have extensive discretion in connection with their supervisory, enforcement, rulemaking and examination activities and policies, including rules or policies that: establish minimum capital levels; restrict the timing and amount of dividend payments; govern the classification of assets; provide oversight for the adequacy of credit loss reserves for regulatory purposes and the adequacy of its risk management framework; and establish the timing and amounts of assessments and fees imposed by the regulatory agencies. Moreover, as part of their examination authority, the banking regulators assign numerical ratings to banks and savings institutions relating to capital, asset quality, management, liquidity, earnings and other factors. These ratings rely on the supervisor’s judgment and the receipt of a less than satisfactory rating in one or more categories may result in enforcement action by the banking regulators against a financial institution. A less than satisfactory rating may also prevent a financial institution, such as Everett Co-operative Bank or its holding company, from obtaining necessary regulatory approvals to access the capital markets, pay dividends, acquire other financial institutions or establish new branches. +In addition, we must comply with significant anti-money laundering and anti-terrorism laws and regulations, Community Reinvestment Act laws and regulations, and fair lending laws and regulations. Everett Co-operative Bank must comply with consumer protection regulations issued by the Consumer Financial Protection Bureau, as enforced by the FDIC. Government agencies have the authority to impose monetary penalties and other sanctions on institutions that fail to comply with these laws and regulations, which could significantly affect our business activities, including our ability to acquire other financial institutions or expand our branch network. +As a bank holding company, ECB Bancorp is required to comply with the Bank Holding Company Act of 1956, as amended, and the rules and regulations of the Federal Reserve Board. It is required to file certain reports with the Federal Reserve Board and is subject to examination by and the enforcement authority of the Federal Reserve Board. Additionally, the Federal Reserve Board may directly examine the subsidiaries of a bank holding company, including Everett Co-operative Bank. ECB Bancorp is also subject to the rules and regulations of the Securities and Exchange Commission under the federal securities laws. +Any change in applicable laws or regulations, whether by the Massachusetts legislature, the Commissioner, the Consumer Financial Protection Bureau, the FDIC, the Federal Reserve Board, the Securities and Exchange Commission or Congress, could have a material adverse impact on the operations and financial performance of ECB Bancorp and Everett Co-operative Bank. +Set forth below is a brief description of material regulatory requirements that are applicable to Everett Co-operative Bank and ECB Bancorp. The description is limited to certain material aspects of the statutes and regulations addressed, and is not intended to be a complete description of such statutes and regulations and their effects on Everett Co-operative Bank and ECB Bancorp. +25 +Massachusetts Banking Laws and Supervision +General. As a Massachusetts-chartered cooperative bank, Everett Co-operative Bank is subject to supervision, regulation and examination by the Commissioner and to various Massachusetts statutes and regulations which govern, among other things, investment powers, lending and deposit-taking activities, borrowings, maintenance of surplus and reserve accounts, distribution of earnings and payment of dividends. In addition, Everett Co-operative Bank is subject to Massachusetts consumer protection, Community Reinvestment Act, civil rights laws and regulations. The approval of the Massachusetts Commissioner of Banks is required for a Massachusetts-chartered bank to establish or close branches, merge with other financial institutions, issue stock and undertake certain other activities. +Massachusetts regulations generally allow Massachusetts banks, with appropriate regulatory approvals, to engage in activities permissible for federally chartered banks or banks chartered by another state. The Commissioner also has adopted procedures reducing regulatory burdens and expense and expediting branching by well-capitalized and well-managed banks. +Dividends. A Massachusetts stock bank may declare cash dividends from net profits not more frequently than quarterly. Noncash dividends may be declared at any time. No dividends may be declared, credited or paid if the bank’s capital stock is impaired. The approval of the Commissioner is required if the total of all dividends declared in any calendar year exceeds the total of its net profits for that year combined with its retained net profits of the preceding two years. Dividends from ECB Bancorp may depend, in part, upon receipt of dividends from Everett Co-operative Bank. The payment of dividends from Everett Co-operative Bank would be restricted by federal law if the payment of such dividends resulted in Everett Co-operative Bank failing to meet regulatory capital requirements. +Loans to One Borrower Limitations. Massachusetts banking law grants broad lending authority. However, with certain limited exceptions, total obligations to one borrower may not exceed 20% of the total of an institution's capital stock (if any), surplus and undivided profits. The Commissioner applies the Office of the Comptroller of the Currency’s attribution rules to a borrower’s related interests. At December 31, 2024, Everett Co-operative Bank was in compliance with the loans-to-one borrower limitations. +Loans to a Bank’s Insiders. Under Massachusetts law, a Massachusetts-chartered bank must comply with Regulation O of the Federal Reserve Board, and the Commissioner retains examination and enforcement authority to ensure compliance. +Investment Activities. In general, Massachusetts-chartered banks may invest in preferred and common stock of any corporation organized under the laws of the United States or any state provided such investments do not involve control of any corporation and do not, in the aggregate, exceed 4% of the bank’s deposits. Federal law imposes additional restrictions on Everett Co-operative Bank’s investment activities. +Regulatory Enforcement Authority. Any Massachusetts bank that does not operate in accordance with the regulations, policies and directives of the Commissioner may be subject to sanctions for noncompliance, including revocation of its charter. The Commissioner may, under certain circumstances, suspend or remove officers or directors who have violated the law, conducted the bank’s business in an unsafe or unsound manner or contrary to the depositors’ interests or been negligent in the performance of their duties. Upon finding that a bank has engaged in an unfair or deceptive act or practice, the Commissioner may issue an order to cease and desist and impose a fine on the bank concerned. The Commissioner also has authority to take possession of a bank and appoint the FDIC as receiver under certain conditions such as an unsafe and unsound condition to transact business, the conduct of business in an unsafe or unauthorized manner or impaired capital. In addition, Massachusetts consumer protection and civil rights statutes applicable to Everett Co-operative Bank permit private individual and class action law suits and provide for the rescission of consumer transactions, including loans, and the recovery of statutory and punitive damages and attorneys’ fees in the case of certain violations of those statutes. +Excess Deposit Insurance Fund. All Massachusetts-chartered cooperative banks are members of the Depositors Insurance Fund, a private industry-sponsored insurance fund in Massachusetts that insures all deposits at Everett Co-operative Bank above FDIC limits. +26 +Protection of Personal Information. Massachusetts banking regulations contain requirements intended to protect personal information and are similar to federal laws such as the Gramm-Leach-Bliley Act, discussed below under “ – Federal Regulations – Other Regulations,” that require organizations to establish written information security programs to prevent identity theft. The Massachusetts regulation also contains technology system requirements, especially for the encryption of personal information sent over wireless or public networks or stored on portable devices. +Insurance Sales. Massachusetts banks may engage in insurance sales activities if the Commissioner has approved a plan of operation for insurance activities and the bank obtains a license from the Massachusetts Division of Insurance. A bank may be licensed directly or indirectly through an affiliate or a subsidiary corporation established for this purpose. Everett Co-operative Bank does not sell or refer insurance products, and has not sought approval for insurance sales activities. +Parity Regulation. A Massachusetts bank may exercise any power and engage in any activity that has been authorized for national banks, federal thrifts or state banks in a state other than Massachusetts, provided that the activity is permissible under applicable federal law and not specifically prohibited by Massachusetts law. Such powers and activities must be subject to the same limitations and restrictions imposed on the national bank, federal thrift or out-of-state bank that exercised the power or activity. +Massachusetts has other statutes or regulations that are similar to certain of the federal provisions discussed below. +Federal Regulations +Capital Requirements . Federal regulations require federally insured depository institutions to meet several minimum capital standards: a common equity Tier 1 capital to risk-based assets ratio of 4.5%, a Tier 1 capital to risk-based assets ratio of 6.0%, a total capital to risk-based assets ratio of 8.0%, and a 4.0% Tier 1 capital to total assets leverage ratio. +In determining the amount of risk-weighted assets for calculating risk-based capital ratios, all assets, including certain off-balance sheet assets ( e.g. , recourse obligations, direct credit substitutes, residual interests) are multiplied by a risk-weight factor assigned by the regulations based on the risks believed inherent in the type of asset. Higher levels of capital are required for asset categories believed to present greater risk. Common equity Tier 1 capital is generally defined as common shareholders’ equity and related surplus and retained earnings. Tier 1 capital is generally defined as common equity Tier 1 and additional Tier 1 capital. Additional Tier 1 capital includes certain non-cumulative perpetual preferred stock and related surplus and minority interests in equity accounts of consolidated subsidiaries. Total capital includes Tier 1 capital (common equity Tier 1 capital plus additional Tier 1 capital) and Tier 2 capital. Tier 2 capital is comprised of capital instruments and related surplus, meeting specified requirements, and may include cumulative preferred stock and long-term perpetual preferred stock, mandatory convertible securities, intermediate preferred stock and subordinated debt. Also included in Tier 2 capital is the allowance for credit losses limited to a maximum of 1.25% of risk-weighted assets. Calculation of all types of regulatory capital is subject to deductions and adjustments specified in the regulations. In assessing an institution’s capital adequacy, the FDIC takes into consideration not only these numeric factors, but qualitative factors as well, and has the authority to establish higher capital requirements for individual institutions where deemed necessary. +In addition to establishing the minimum regulatory capital requirements, the regulations limit capital distributions and certain discretionary bonus payments to management if the institution does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets above the amount necessary to meet its minimum risk-based capital requirements. +Federal law required the federal banking agencies, including the FDIC, to establish a “community bank leverage ratio” of between 8% and 10% for institutions with total consolidated assets of less than $10 billion. Institutions with capital complying with the ratio and otherwise meeting the specified requirements and electing the alternative framework are considered to comply with the applicable regulatory capital requirements, including the risk-based requirements. The community bank leverage ratio was established at 9% Tier 1 capital to total average assets, effective January 1, 2020. A qualifying institution may opt in and out of the community bank leverage ratio framework on its quarterly call report. An +27 +institution that temporarily ceases to meet any qualifying criteria is provided with a two-quarter grace period to regain compliance. Failure to meet the qualifying criteria within the grace period or maintain a leverage ratio of 8% or greater requires the institution to comply with the generally applicable regulatory capital requirements. +At December 31, 2024, Everett Co-operative Bank had not opted into the community bank leverage ratio framework and its capital ratios exceeded all applicable requirements. +Capital Distributions. The Federal Deposit Insurance Act generally provides that an insured depository institution may not make any capital distribution if, after making such distribution, the institution would fail to meet any applicable regulatory capital requirement. Unless the approval of the FDIC is obtained, Everett Co-operative Bank may not declare or pay a dividend if the total of all dividends declared during the calendar year, including the proposed dividend, exceeds the sum of its net income during the current calendar year and the retained net income, not previously used for dividents, of the prior two calendar years. +Community Reinvestment Act and Fair Lending Laws. All insured depository institutions have a responsibility under the Community Reinvestment Act and related regulations to help meet the credit needs of their communities, including low- and moderate-income borrowers. The FDIC is required to assess Everett Co-operative Bank’s record of compliance with the Community Reinvestment Act. An institution’s failure to comply with the provisions of the Community Reinvestment Act could, at a minimum, result in denial of certain corporate applications such as branches or mergers, or in restrictions on its activities. In addition, the Equal Credit Opportunity Act and the Fair Housing Act prohibit lenders from discriminating in their lending practices. The failure to comply with the Equal Credit Opportunity Act and the Fair Housing Act could result in enforcement actions by the FDIC, as well as other federal regulatory agencies and the Department of Justice. +The Community Reinvestment Act requires all institutions insured by the FDIC to publicly disclose their rating. Everett Co-operative Bank received a “Satisfactory” Community Reinvestment Act rating in its most recent federal examination. +Massachusetts has its own statutory counterpart to the CRA which is also applicable to Everett Co-operative Bank. The Massachusetts version is generally similar to the CRA but utilizes a five-tiered descriptive rating system. Massachusetts law requires the Commissioner to consider, but not be limited to, a bank’s record of performance under Massachusetts law in considering any application by the bank to establish a branch or other deposit-taking facility, to relocate an office or to merge or consolidate with or acquire the assets and assume the liabilities of any other banking institution. Everett Co-operative Bank’s most recent 2022 CRA performance rating under Massachusetts law was “Satisfactory.” +Transactions with Related Parties. An insured depository institution’s authority to engage in transactions with its affiliates is generally limited by Sections 23A and 23B of the Federal Reserve Act and federal regulation. An affiliate is generally a company that controls, or is under common control with, an insured depository institution such as Everett Co-operative Bank. ECB Bancorp is an affiliate of Everett Co-operative Bank because of its control of Everett Co-operative Bank. In general, transactions between an insured depository institution and its affiliates are subject to certain quantitative limits and collateral requirements. In addition, federal regulations prohibit a state-chartered bank from lending to any of its affiliates that are engaged in activities that are not permissible for bank holding companies and from purchasing the securities of any affiliate, other than a subsidiary. Finally, transactions with affiliates must be consistent with safe and sound banking practices, not involve the purchase of low-quality assets and be on terms that are as favorable to the institution as comparable transactions with non-affiliates. +Everett Co-operative Bank’s authority to extend credit to its directors, executive officers and 10% shareholders, as well as to entities controlled by such persons, is currently governed by the requirements of Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O of the Federal Reserve Board. Among other things, these provisions generally require that extensions of credit to insiders: +28 +• +be made on terms that are substantially the same as, and follow credit underwriting procedures that are not less stringent than, those prevailing for comparable transactions with unaffiliated persons and that do not involve more than the normal risk of repayment or present other unfavorable features; and +• +not exceed certain limitations on the amount of credit extended to such persons, individually and in the aggregate, which limits are based, in part, on the amount of Everett Co-operative Bank’s capital. +In addition, extensions of credit in excess of certain limits must be approved by Everett Co-operative Bank’s board of directors. Extensions of credit to executive officers are subject to additional limits based on the type of extension involved. +Enforcement. The FDIC has extensive enforcement authority over insured state banks, such as Everett Co-operative Bank, that are not members of the Federal Reserve System. The enforcement authority includes, among other things, the ability to assess civil money penalties, issue cease and desist orders, and remove directors and officers. In general, these enforcement actions may be initiated in response to violations of laws and regulations, breaches of fiduciary duty and unsafe or unsound practices. The FDIC is required, with certain exceptions, to appoint a receiver or conservator for an insured state non-member bank if that bank was “critically undercapitalized” on average during the calendar quarter beginning 270 days after the date on which the institution became “critically undercapitalized.” The FDIC may also appoint itself as conservator or receiver for an insured state non-member bank under specified circumstances, including: (1) insolvency; (2) substantial dissipation of assets or earnings through violations of law or unsafe or unsound practices; (3) existence of an unsafe or unsound condition to transact business; (4) insufficient capital; or (5) the incurrence of losses that will deplete substantially all of the institution’s capital with no reasonable prospect of replenishment without federal assistance. +Standards for Safety and Soundness. Federal law requires each federal banking agency to prescribe certain standards for the insured depository institutions they supervise. These standards relate to, among other things, internal controls, information systems and audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, asset quality, earnings, compensation and benefits, and other operational and managerial standards as the agency deems appropriate. Interagency guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. If the appropriate federal banking agency determines that an institution fails to meet any standard prescribed by the guidelines, the agency may require the institution to submit to the agency an acceptable plan to achieve compliance with the standard. If an institution fails to meet these standards, the appropriate federal banking agency may require the institution to implement an acceptable compliance plan. Failure to implement such a plan can result in further enforcement action, including the issuance of a cease and desist order and/or the imposition of civil money penalties. +Branching. Federal law permits insured state banks to engage in interstate branching if the laws of the state where the new banking office is to be established would permit the establishment of the banking office if it were chartered by a bank in such state. Under Massachusetts law, Everett Co-operative Bank can establish a branch in Massachusetts or in any other state. All branch applications require prior approval of the Commissioner and the FDIC. Finally, Everett Co-operative Bank may also establish banking offices in other states by merging with banks or by purchasing banking offices of other banks in other states, subject to certain restrictions. +Prompt Corrective Action. Federal law requires, among other things, that federal banking agencies take “prompt corrective action” with respect to institutions that do not meet minimum capital requirements. For this purpose, the FDIC’s regulations establish five capital categories: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. Under applicable regulations, an institution is deemed to be “well capitalized” if it has a total risk-based capital ratio of 10.0% or greater, a Tier 1 risk-based capital ratio of 8.0% or greater, a leverage ratio of 5.0% or greater and a common equity Tier 1 ratio of 6.5% or greater. An institution is “adequately capitalized” if it has a total risk-based capital ratio of 8.0% or greater, a Tier 1 risk-based capital ratio of 6.0% or greater, a leverage ratio of 4.0% or greater and a common equity Tier 1 ratio of 4.5% or greater. An institution is “undercapitalized” if it has a total risk-based capital ratio of less than 8.0%, a Tier 1 risk-based capital ratio of less than 6.0%, a leverage ratio of less than 4.0% or a common equity Tier 1 ratio of less than 4.5%. An institution is deemed to be “significantly undercapitalized” if it has a total risk-based capital ratio of less than 6.0%, a Tier 1 risk-based capital ratio +29 +of less than 4.0%, a leverage ratio of less than 3.0% or a common equity Tier 1 ratio of less than 3.0%. An institution is considered to be “critically undercapitalized” if it has a ratio of tangible equity (as defined in the regulations) to total assets that is equal to or less than 2.0%. +At each successive lower capital category, an insured depository institution is subject to more restrictions and prohibitions, including restrictions on growth, restrictions on interest rates paid on deposits, restrictions or prohibitions on the payment of dividends, and restrictions on the acceptance of brokered deposits. Furthermore, if an insured depository institution is classified in one of the undercapitalized categories, it is required to submit a capital restoration plan to the appropriate federal banking agency, and the holding company must guarantee the performance of that plan. Based upon its capital levels, a bank that is classified as well-capitalized, adequately capitalized, or undercapitalized may be treated as though it were in the next lower capital category if the appropriate federal banking agency, after notice and opportunity for hearing, determines that an unsafe or unsound condition, or an unsafe or unsound practice, warrants such treatment. An undercapitalized bank’s compliance with a capital restoration plan is required to be guaranteed by any company that controls the undercapitalized institution in an amount equal to the lesser of 5.0% of the institution’s total assets when deemed undercapitalized or the amount necessary to achieve the status of adequately capitalized. If an “undercapitalized” bank fails to submit an acceptable plan, it is treated as if it is “significantly undercapitalized.” “Significantly undercapitalized” banks must comply with one or more of a number of additional restrictions, including a regulatory order to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets, ceasing receipt of deposits from correspondent banks, dismissal of directors or officers, and restrictions on interest rates paid on deposits, compensation of executive officers and capital distributions by the parent holding company. “Critically undercapitalized” institutions are subject to additional measures including, subject to a narrow exception, the appointment of a receiver or conservator within 270 days after it obtains such status. +The previously referenced final rule establishing an elective “community bank leverage ratio” regulatory capital framework provides that a qualifying institution whose capital exceeds the community bank leverage ratio and opts to use that framework will be considered “well-capitalized” for purposes of prompt corrective action. +At December 31, 2024, Everett Co-operative Bank met the criteria for being considered “well capitalized.” +Insurance of Deposit Accounts. The Deposit Insurance Fund of the FDIC insures deposits at FDIC-insured financial institutions such as Everett Co-operative Bank, generally up to a maximum of $250,000 per separately insured depositor. The FDIC charges insured depository institutions premiums to maintain the Deposit Insurance Fund. +Under the FDIC’s risk-based assessment system, institutions deemed less risky of failure pay lower assessments. Assessments for institutions of less than $10 billion of assets are based on financial measures and supervisory ratings derived from statistical modeling estimating the probability of an institution's failure within three years. +The FDIC has authority to increase insurance assessments. Any significant increases would have an adverse effect on the operating expenses and results of operations of Everett Co-operative Bank. For 2024 the FDIC insurance expense for Everett Co-operative Bank was approximately $752,000. We cannot predict what assessment rates will be in the future. +Insurance of deposits may be terminated by the FDIC upon a finding that an institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC. Everett Co-operative Bank does not know of any practice, condition or violation that may lead to termination of its deposit insurance. +Brokered Deposits. Federal law and FDIC regulations generally limit the ability of an insured depository institution to accept, renew or roll over any brokered deposit unless the institution’s capital category is “well capitalized” or, with the FDIC’s approval, “adequately capitalized.” Depository institutions that have brokered deposits in excess of 10% of total assets may be subject to increased FDIC deposit insurance premium assessments. However, for institutions that are well capitalized and have a CAMELS composite rating of 1 or 2, reciprocal deposits are deducted from brokered deposits. The Economic Growth, Regulatory Relief, and Consumer Protection Act, enacted in 2018, amends the Federal Deposit +30 +Insurance Act to exempt a capped amount of reciprocal deposits from treatment as brokered deposits for certain insured depository institutions. +Privacy Regulations. Federal regulations generally require that Everett Co-operative Bank disclose its privacy policy, including identifying with whom it shares a customer’s “non-public personal information,” to customers at the time of establishing the customer relationship and annually thereafter. In addition, Everett Co-operative Bank is required to provide its customers with the ability to “opt-out” of having their personal information shared with unaffiliated third parties and not to disclose account numbers or access codes to non-affiliated third parties for marketing purposes. Everett Co-operative Bank currently has a privacy protection policy in place and believes that such policy is in compliance with the regulations. +Anti-Money Laundering - The Bank Secrecy Act. Under the Bank Secrecy Act (“BSA”), a financial institution is required to have systems in place to detect certain transactions, based on the size and nature of the transaction. Financial institutions are generally required to report to the U.S. Treasury any cash transactions involving at least $10,000. In addition, financial institutions are required to file suspicious activity reports for any transaction or series of transactions that involve more than $5,000 and which the financial institution knows, suspects or has reason to suspect involves illegal funds, is designed to evade the requirements of the BSA or has no lawful purpose. The USA PATRIOT Act, which amended the BSA, together with the implementing regulations of various federal regulatory agencies, has caused financial institutions, such as Everett Co-operative Bank, to adopt and implement additional policies or amend existing policies and procedures with respect to, among other things, anti-money laundering compliance, suspicious activity, currency transaction reporting, customer identity verification and customer risk analysis. In evaluating an application to acquire a bank or to merge banks or effect a purchase of assets and assumption of deposits and other liabilities, the applicable federal banking regulator must consider the anti-money laundering compliance record of both the applicant and the target. In addition, under the USA PATRIOT Act financial institutions are required to take steps to monitor their correspondent banking and private banking relationships as well as, if applicable, their relationships with “shell banks.” +Prohibitions Against Tying Arrangements . Everett Co-operative Bank is prohibited, subject to some exceptions, from extending credit to or offering any other service, or fixing or varying the consideration for such extension of credit or service, on the condition that the customer obtain some additional service from the institution or its affiliates or not obtain services of a competitor of the institution. +Other Regulations +Interest and other charges collected or contracted for by Everett Co-operative Bank are subject to state usury laws and federal laws concerning interest rates. Loan operations are also subject to state and federal laws applicable to credit transactions, such as the: +• +Home Mortgage Disclosure Act, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves; +• +Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit; +• +Fair Credit Reporting Act, governing the use and provision of information to credit reporting agencies; and +• +Rules and regulations of the various federal agencies charged with the responsibility of implementing such federal laws. +The deposit operations of Everett Co-operative Bank also are subject to, among others, the: +• +Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records; +• +Check Clearing for the 21st Century Act (also known as “Check 21”), which gives “substitute checks,” such as digital check images and copies made from that image, the same legal standing as the original paper check; and +31 +• +Electronic Funds Transfer Act and Regulation E promulgated thereunder, which govern automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services. +Federal Home Loan Bank System +Everett Co-operative Bank is a member of the Federal Home Loan Bank System, which consists of 11 regional Federal Home Loan Banks. The Federal Home Loan Banks provide central credit facilities primarily for member institutions. Members of a Federal Home Loan Bank are required to acquire and hold shares of capital stock in their Federal Home Loan Bank. Everett Co-operative Bank complied with this requirement at December 31, 2024. Based on redemption provisions of the Federal Home Loan Bank of Boston, the stock has no quoted market value and is carried at cost. The Company reviews its investment in capital stock of the FHLB for impairment based on the ultimate recoverability of the cost basis in the FHLB stock. At December 31, 2024, no impairment had been recognized. +Holding Company Regulation +ECB Bancorp is a bank holding company within the meaning of Bank Holding Company of 1956, as amended. As such, ECB Bancorp is registered with the Federal Reserve Board and is subject to regulations, examinations, supervision and reporting requirements applicable to bank holding companies. In addition, the Federal Reserve Board has enforcement authority over ECB Bancorp and its non-bank subsidiaries. Among other things, this authority permits the Federal Reserve Board to restrict or prohibit activities that are determined to be a serious risk to Everett Co-operative Bank. +A bank holding company is generally prohibited from engaging in non-banking activities, or acquiring direct or indirect control of more than 5% of the voting securities of any company engaged in non-banking activities. One of the principal exceptions to this prohibition is for activities found by the Federal Reserve Board to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. Some of the principal activities that the Federal Reserve Board has determined by regulation to be so closely related to banking are: (i) making or servicing loans; (ii) performing certain data processing services; (iii) providing discount brokerage services; (iv) acting as fiduciary, investment or financial advisor; (v) leasing personal or real property; (vi) making investments in corporations or projects designed primarily to promote community welfare; and (vii) acquiring a savings association whose direct and indirect activities are limited to those permitted for bank holding companies. +The Gramm-Leach-Bliley Act of 1999 authorized a bank holding company that meets specified conditions, including being “well capitalized” and “well managed,” to opt to become a “financial holding company” and thereby engage in a broader array of financial activities than previously permitted. Such activities can include insurance underwriting and investment banking. ECB Bancorp is not a financial holding company. +Bank holding companies with less than $3 billion in consolidated assets are exempt from consolidated regulatory capital requirements unless the Federal Reserve Board determines otherwise in particular cases. +By law, holding companies, including bank holding companies, must act as a source of strength to their subsidiary depository institutions by providing capital, liquidity and other support in times of financial stress. +The Federal Reserve Board has issued supervisory policies regarding the payment of dividends and the repurchase of shares of common stock by bank holding companies and savings and loan holding companies. In general, the policy provides that dividends should be paid only out of current earnings and only if the prospective rate of earnings retention by the holding company appears consistent with the organization’s capital needs, asset quality and overall financial condition. Regulatory guidance provides for prior regulatory consultation with respect to capital distributions in certain circumstances such as where the company’s net income for the past four quarters, net of capital distributions previously paid over that period, is insufficient to fully fund the dividend or the company’s overall rate of earnings retention is inconsistent with the company’s capital needs and overall financial condition. The ability of a holding company to pay dividends may be restricted if a subsidiary bank becomes undercapitalized. The policy statement also states that a holding company should inform the Federal Reserve Board supervisory staff before redeeming or repurchasing common stock or +32 +perpetual preferred stock if the holding company is experiencing financial weaknesses or if the repurchase or redemption would result in a net reduction, at the end of a quarter, in the amount of such equity instruments outstanding compared with the beginning of the quarter in which the redemption or repurchase occurred. These regulatory policies may affect the ability of ECB Bancorp to pay dividends, repurchase shares of common stock or otherwise engage in capital distributions. +Massachusetts Holding Company Regulation. Under Massachusetts banking laws, a company owning or controlling two or more banking institutions, including a cooperative bank, is regulated by the Commissioner as a bank holding company. Each such bank holding company: (i) must obtain the approval of the Massachusetts Board of Bank Incorporation before engaging in certain transactions, such as the acquisition of more than 5% of the voting stock of another banking institution; (ii) must register, and file reports, with the Commissioner; and (iii) is subject to examination by the Commissioner. ECB Bancorp would become a bank holding company regulated by the Commissioner if it acquires a second banking institution and holds and operates it separately from Everett Co-operative Bank. +Change in Control Regulations +Under the Change in Bank Control Act, no person or group of persons may acquire “control” of a bank holding company, such as ECB Bancorp, unless the Federal Reserve Board has been given 60 days’ prior written notice and has not issued a notice disapproving the proposed acquisition, taking into consideration certain factors, including the financial and managerial resources of the acquirer and the competitive effects of the acquisition. Control, as defined under federal law, means ownership, control of or holding irrevocable proxies representing more than 25% of any class of voting stock, control in any manner of the election of a majority of the institution’s directors, or a determination by the regulator that the acquirer has the power, directly or indirectly, to exercise a controlling influence over the management or policies of the institution. There is a presumption of control upon the acquisition of 10% or more of a class of voting stock if the holding company involved has its shares registered under the Securities Exchange Act of 1934, or, if the holding company involved does not have its shares registered under the Securities Exchange Act of 1934, if no other persons will own, control or hold the power to vote a greater percentage of that class of voting security after the acquisition. +Federal Securities Laws +The common stock of ECB Bancorp is registered with the Securities and Exchange Commission. ECB Bancorp is subject to the information, proxy solicitation, insider trading restrictions and other requirements under the Securities Exchange Act of 1934. +Sarbanes-Oxley Act of 2002 +The Sarbanes-Oxley Act of 2002 is intended to improve corporate responsibility, to provide for enhanced penalties for accounting and auditing improprieties at publicly traded companies and to protect investors by improving the accuracy and reliability of corporate disclosures pursuant to the securities laws. We have policies, procedures and systems designed to comply with these regulations, and we review and document such policies, procedures and systems to ensure continued compliance with these regulations. +Emerging Growth Company Status +ECB Bancorp is an emerging growth company. For as long as it continues to be an emerging growth company, it may choose to take advantage of exemptions from various reporting requirements applicable to public companies. These exemptions include, but are not limited to, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. As an emerging growth company, ECB Bancorp also is not subject to Section 404(b) of the Sarbanes-Oxley Act of 2002, which would require that our independent auditors audit our internal control over financial reporting. We have also elected to use the extended transition period to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. Such an election is irrevocable during the period a company is an emerging growth company. +33 +ECB Bancorp will cease to be an emerging growth company upon the earliest of: (i) the end of the fiscal year following the fifth anniversary of the completion of the conversion and offering; (ii) the first fiscal year after our annual gross revenues are $1.235 billion (adjusted for inflation) or more; (iii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities; or (iv) the end of any fiscal year in which the market value of our common stock held by non-affiliates exceeded $700 million at the end of the second quarter of that fiscal year. We expect to lose our status as an emerging growth company effective December 31, 2027, which is the end of the fifth year after the completion date of the conversion and offering. +34 +TAXATION +Federal Taxation +General. ECB Bancorp and Everett Co-operative Bank are subject to federal income taxation in the same general manner as other corporations, with some exceptions discussed below. The following discussion of federal taxation is intended only to summarize material federal income tax matters and is not a comprehensive description of the tax rules applicable to ECB Bancorp and Everett Co-operative Bank. +Method of Accounting. For federal income tax purposes, Everett Co-operative Bank currently reports its income and expenses on the accrual method of accounting and uses a tax year ending December 31 for filing its federal income tax returns. +Alternative Minimum Tax. The Internal Revenue Code imposes an alternative minimum tax at a rate of 20% on a base of regular taxable income plus certain tax preferences, less an exemption amount, referred to as “alternative minimum taxable income.” The alternative minimum tax is payable to the extent tax computed this way exceeds tax computed by applying the regular tax rates to regular taxable income. Net operating losses can, in general, offset no more than 90% of alternative minimum taxable income. Certain payments of alternative minimum tax may be used as credits against regular tax liabilities in future years. The Tax Cuts and Jobs Act repealed the alternative minimum tax for income generated after January 1, 2018. At December 31, 2024, Everett Co-operative Bank had no minimum tax credit carryovers. +Net Operating Loss Carryovers. As a result of the Tax Cuts and Jobs Act generally, a financial institution may carry federal net operating losses forward indefinitely. At December 31, 2024, Everett Co-operative Bank had no federal net operating loss carryforwards. +Charitable Contribution Carryovers. At December 31, 2024, the Company had a charitable contribution carryover of $1,356,000 which expires on December 31, 2027. +Capital Loss Carryovers. A corporation cannot recognize capital losses in excess of capital gains generated. Generally, a financial institution may carry back capital losses to the preceding three taxable years and forward to the succeeding five taxable years. Any capital loss carryback or carryover is treated as a short-term capital loss for the year to which it is carried. As such, it is grouped with any other capital losses for the year to which it is carried and is used to offset any capital gains. Any undeducted loss remaining after the five-year carryover period is not deductible. At December 31, 2024, Everett Co-operative Bank had no capital loss carryovers. +Corporate Dividends. ECB Bancorp may generally exclude from its income 100% of dividends received from Everett Co-operative Bank as a member of the same affiliated group of corporations. +Audit of Tax Returns. Everett Co-operative Bank’s federal income tax returns have not been audited in the most recent five-year period. +State Taxation +Financial institutions in Massachusetts file combined income tax returns with affiliated companies that are not security corporations. The Massachusetts excise tax rate for cooperative banks is currently 9.0% of federal taxable income, adjusted for certain items. Taxable income includes gross income as defined under the Internal Revenue Code, plus interest from bonds, notes and evidences of indebtedness of any state, including Massachusetts, less deductions, but not the credits, allowable under the provisions of the Internal Revenue Code, except for those deductions relating to dividends received and income or franchise taxes imposed by a state or political subdivision. Carryforwards and carrybacks of net operating losses and capital losses are not allowed. Everett Co-operative Bank’s state tax returns, as well as those of its subsidiaries, have not been audited in the most recent five-year period. +A financial institution or business corporation is generally entitled to special tax treatment as a “security corporation” under Massachusetts law provided that: (a) its activities are limited to buying, selling, dealing in or holding +35 +securities on its own behalf and not as a broker; and (b) it has applied for, and received, classification as a “security corporation” by the Commissioner of the Massachusetts Department of Revenue. A security corporation that is also a bank holding company under the Internal Revenue Code must pay a tax equal to 0.33% of its gross income. A security corporation that is not a bank holding company under the Internal Revenue Code must pay a tax equal to 1.32% of its gross income. Everett Co-operative Bank’s wholly owned subsidiary, First Everett Securities Corporation, which engages in securities transactions on its own behalf, is qualified as a security corporation. As such, it has received security corporation classification by the Massachusetts Department of Revenue and does not conduct any activities deemed impermissible under the governing statutes and the various regulations, directives, letter rulings and administrative pronouncements issued by the Massachusetts Department of Revenue. +As a Maryland corporation, ECB Bancorp is required to file an annual report with and pay franchise taxes to the state of Maryland. +Availability of Annual Report on Form 10-K +This Annual Report on Form 10-K is available on our website at www.everettbank.com . Information on the website is not incorporated into, and is not otherwise considered a part of, this Annual Report on Form 10-K. +ITEM 1A. Risk Factors +The presentation of Risk Factors is not required for smaller reporting companies like ECB Bancorp. +ITEM 1B. Unresolved S taff Comments +None. +ITEM 1C. Cybersecurity +Cybersecurity is a significant and integrated component of the Company’s risk management strategy. As a financial services company, cyber threats are present and growing, and the potential exists for a cybersecurity incident to occur, which could disrupt business operations or compromise sensitive data. To date, the Company has not, to its knowledge, experienced an incident materially affecting or reasonably likely to materially affect the Company. +To prepare and respond to incidents, the Company has implemented a multi-layered cybersecurity strategy, integrating people, technology, and processes. This includes employee training, the use of innovative technologies, and the implementation of policies and procedures in the areas of Information Security, Data Governance, Business Continuity and Disaster Recovery, Privacy, Third-Party Risk Management, and Incident Response. The Company engages third-party consultants and independent auditors to, among other things, conduct penetration tests and perform cybersecurity risk assessments and audits. +The Information Technology (“IT”) Department of the Company is primarily responsible for identifying, assessing and managing material risks from cybersecurity threats. The Information Technology Department is managed by the Chief Information Officer (the “CIO”) who reports directly to the Company’s Chief Operating Officer and Chief Financial Officer. The CIO has more than 38 years of relevant experience both with the Company and with other organizations in the IT field. The CIO also oversees the Company’s Information Security Program and manages a third-party consultant that is an expert in the Information Security field and acts as our Information Security Officer (“ISO”). The Information Security Program is governed by various information security and cybersecurity, systems development, change control, disaster recovery/business continuity and physical asset classification and control policies. The Information Security Program identifies data sources, threats and vulnerabilities and ensures awareness, accountability, and oversight for data protection throughout the Company and with trusted third parties to ensure that data is protected and able to be recovered in the event of a breach or failure (technical or other disaster). The IT Department conducts on-going technology and IT threat meetings to ensure the latest threats are addressed in addition to penetration, business continuity/ disaster recovery testing, and incident response plan testing. The CIO is a member of various management committees, chairs +36 +the Company’s management-level Information Technology and Information Security Committee (“IT/IS Committee”), and presents information security and cybersecurity updates on a monthly basis to the IT/IS Committee and periodically to the Board of Directors. +The IT/IS Committee provides oversight, from a risk perspective, of information systems security. As referenced above, the CIO and ISO provide information security updates to the IT/IS Committee at each IT/IS Committee meeting. Additional information security training for the committee is provided through targeted training overseen by the ISO. In addition, as discussed below, the Company has implemented an Incident Response Plan to provide a structured and systematic incident response process for information security incidents that affect any of the information technology systems, network, or data of the Company. The Incident Response Plan is implemented and maintained by the CIO and ISO and is subject to annual review and approval by the Board of Directors. At least annually, the ISO coordinates tabletop testing events where senior management participate in a coordinated response exercise to disastrous scenarios that could happen to the Company. Cybersecurity metrics are reported to the IT/IS Committee on a monthly basis. +The Board of Directors recognizes the importance of the Interagency Guidelines Establishing Standards for Safeguarding Customer Information and has incorporated those elements in its ongoing oversight of the Information Security Program. +Risk Assessment. On a periodic basis, but not less than annually, the CIO and ISO, in conjunction with the IT/IS Committee, identifies and documents internal and external vulnerabilities that could result in unauthorized disclosure, misuse, alteration, or destruction of customer information or customer records. Based on the results of the risk assessment, the Company’s Information Security Program may be revised to protect against any anticipated threats or hazards to the security or integrity of such information. The IT/IS Committee reviews changes to the program designed to monitor, measure, and respond to vulnerabilities identified. +Response to Security Vulnerabilities. In response to identified risks, management may take certain steps to correct and respond to security vulnerabilities, which may include: +• +Eliminating unwarranted risks by applying vendor-provided software fixes, commonly called patches. +• +Ensuring that changes to security configurations are documented, approved, and tested. +• +Ensuring that exploitable files and services are assessed and removed or disabled based upon known vulnerabilities and business needs. +• +Updating vulnerability scanning and intrusion detection tools to identify known vulnerabilities and related unauthorized activities. +• +Conducting subsequent penetration testing and vulnerability assessments, as warranted. +• +Reviewing performance with service providers to ensure security maintenance and reporting responsibilities are operating according to contract provisions and that service providers provide notification of system security breaches that may affect the Company. +Internal Controls, Audit, and Testing. Regular internal monitoring is integral to the Company’s risk assessment process, which includes regular testing of internal key controls, systems, and procedures. In addition, independent third-party penetration testing to test the effectiveness of security controls and preparedness measures is conducted at least annually or more often, if warranted by the risk assessment or other external factors. Management determines the scope and objectives of the penetration analysis. +Service Providers. Like many companies, the Company relies on third-party vendor solutions to support its operations. Many of these vendors, especially in the financial services industry, have access to sensitive and proprietary information. In order to mitigate the operational, informational and other risks associated with the use of vendors, the Company maintains a Third-Party Risk Management Program, which is implemented through a Third-Party Risk Management Policy and includes a detailed onboarding process and periodic reviews of vendors with access to sensitive +37 +Company data. The Third-Party Risk Management Policy applies to any business arrangement between the Company and another individual or entity, by contract or otherwise, in compliance with the Interagency Guidance on Third-Party Relationships: Risk Management. The Third-Party Risk Management Program is audited as part of the Company’s annual Internal Audit Risk Assessment. +Employees and Training. Employees are the first line of defense against cybersecurity measures. Each employee is responsible for protecting Company and customer information. Employees are provided training at initial onboarding and thereafter regarding information security and cybersecurity-related policies and procedures applicable to their respective roles within the organization. In addition, employees are subjected to monthly simulated phishing assessments, designed to sharpen threat detection and reporting capabilities. In addition to training, employees are supported with solutions designed to identify, prevent, detect, respond to, and recover from incidents. Notable technologies include firewalls, intrusion detection systems, security automation and response capabilities, user behavior analytics, multi-factor authentication, data backups to immutable storage and business continuity applications. Notable services include 24/7 security monitoring and response, continuous vulnerability scanning, third-party monitoring, and threat intelligence. +Board Reporting. At least annually, the CIO and ISO report to the Board, directly, the overall status of the Information Security Program and the Company’s compliance with the Interagency Guidelines for Safeguarding Customer Information. Any material findings related to the risk assessment, risk management and control decisions, service provider arrangements, results of testing, security breaches or violations are discussed as are management’s responses and any recommendations for program changes. +Program Adjustments . The CIO and ISO monitor, evaluate, and adjust the Information Security Program considering any relevant changes in technology, the sensitivity of its customer information, internal or external threats to information, and changing business arrangements, such as mergers and acquisitions, alliances and joint ventures, outsourcing arrangements, and changes to customer information systems. +Incident Response Plan . To ensure that information security incidents can be recovered from quickly and with the least impact to the Company and its customers, the Company maintains a structured and systematic incident response plan (the “IRP”) for all information security incidents that affect any of the IT systems, network, or data of the Company, including the Company’s data held, or IT services provided by third-party vendors or other service providers. The CIO and ISO are responsible for implementing and maintaining the IRP, which includes: +a) +Identifying the incident response team (“IRT”) and any appropriate sub-teams to address specific information security incidents, or categories of information security incidents. +b) +Coordinating IRT activities, including developing, maintaining, and following appropriate procedures to respond to and document identified information security incidents. +c) +Conducting post-incident reviews to gather feedback on information security incident response procedures and address any identified gaps in security measures. +d) +Providing training and conducting periodic exercises to promote employee and stakeholder preparedness and awareness of the IRP. +e) +Reviewing the IRP at least annually, or whenever there is a material change in the Company’s business practices that may reasonably affect its cyber incident response procedures. +38 +ITEM 2. Prop erties +We conduct our business through our main office located in Everett, Massachusetts, and our branch offices located in Lynnfield, Massachusetts, both of which we own, and through our branch office in Woburn, Massachusetts, which we lease. Additionally, we lease office space in Everett, Massachusetts which services back office and loan administration functions. At December 31, 2024 the total net book value of our land, buildings, leasehold improvements, furniture, fixtures and equipment was $3.5 million. +ITEM 3. Legal Proceedings +Among other things, the activities of Everett Co-operative Bank, including with respect to disclosures about and implementation of numerous consumer products, are subject to various laws and numerous regulations, including those related to unfair or deceptive acts or practices. If Everett Co-operative Bank is found to have violated one or more consumer protection laws, it may be required to pay restitution to certain affected customers in connection with certain of these practices. In addition, as a result of the extensive regulation, supervision and examination of our business described elsewhere in this Annual Report, we are also involved, from time to time, in other reviews, investigations and proceedings (both formal and informal) by governmental agencies regarding our business, certain of which may result in adverse judgments, settlements, fines, penalties, public or private censure, increased costs, required remediation, restriction on business activities or other impacts on us. +We are not involved in any pending legal proceedings as a plaintiff or defendant other than routine legal proceedings occurring in the ordinary course of business, and at December 31, 2024, we were not involved in any legal proceedings, the outcome of which would be material to our financial condition or results of operations. +ITEM 4. Mine Safet y Disclosures +Not applicable. +39 +PART II +ITEM 5. Market for Registrant’s Common E quity, Related Shareholder Matters and Issuer Purchases of Equity Securities +Market, Holder and Dividend Information. The Company’s common stock is listed on the NASDAQ Capital Market under the symbol “ECBK.” The approximate number of holders of record of ECB Bancorp common stock as of March 25, 2025 was 380. Certain shares of ECB Bancorp are held in “nominee” or “street” name and accordingly, the number of beneficial owners of such shares is not known or included in the foregoing number. +ECB Bancorp does not currently pay cash dividends on its common stock. Dividend payments by ECB Bancorp are dependent, in part, on dividends it receives from Everett Co-operative Bank, because ECB Bancorp has no source of income other than dividends from Everett Co-operative Bank, earnings from the investment of proceeds from the sale of shares of common stock in the stock offering which closed in July 2022 retained by ECB Bancorp and interest payments with respect to our loan to the Employee Stock Ownership Plan. See “Item 1. Business—Supervision and Regulation—Federal Banking Regulation—Capital Distributions.” +The Federal Reserve Board has issued supervisory policies providing that dividends should be paid only out of current earnings and only if our prospective rate of earnings retention is consistent with our capital needs, asset quality and overall financial condition. Federal Reserve Board guidance also provides for prior regulatory consultation with respect to capital distributions in certain circumstances such as where the holding company’s net income for the past four quarters, net of dividends previously paid over that period, is insufficient to fully fund the dividend or the holding company’s overall rate or earnings retention is inconsistent with its capital needs and overall financial condition. In addition, Everett Co-operative Bank’s ability to pay dividends will be limited if it does not have the capital conservation buffer required by the capital rules, which may limit our ability to pay dividends to shareholders. No assurances can be given that any dividends will be paid or that, if paid, will not be reduced or eliminated in the future. Special cash dividends, stock dividends or returns of capital, to the extent permitted by regulations and policies of the Federal Reserve Board and the Commissioner, may be paid in addition to, or in lieu of, regular cash dividends. +Stock-Based Compensation Plans. Information regarding stock-based compensation awards outstanding and available for future grants as of December 31, 2024 is presented in the table below. Additional information regarding stock-based compensation plans is presented in Note 10-Stock-Based Compensation in Item 8. +Plan Category +Number of Shares to be Issued Upon Exercise of Outstanding Awards +Weighted-Average Exercise Price of Outstanding Awards +Number of Shares Available for Future Grants +Plans approved by shareholders +758,137 +$ +10.49 +177,207 +Plans not approved by shareholders +— +— +— +Total +758,137 +$ +10.49 +177,207 +Other than the stock-based compensation awards, ECB Bancorp has an Employee Stock Ownership Plan. +Report of Offering of Securities and Use of Proceeds Therefrom. Not applicable. +Issuer Purchases of Equity Securities. On August 10, 2023, the Company announced the commencement of a stock repurchase program to acquire up to 458,762 shares, or 5% of the Company’s then outstanding common stock. Repurchases will be made from time to time depending on market conditions and other factors, and will be conducted through open market or private transactions, through block trades, and pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Securities and Exchange Commission. There is no guarantee as to the exact number of shares to be repurchased by the Company. The following table sets forth the information regarding the Company's common stock repurchase activities during the three months ended December 31, 2024: +40 +Total Number of Shares Purchased +Average Price Paid Per Share +Total Number of Shares Purchased as Part of Publicly Announced Program +Maximum Number of Shares That May Yet Be Purchased Under the Program +From October 1, 2024 to October 31, 2024 +32,082 +$ +14.40 +32,082 +96,756 +From November 1, 2024 to November 30, 2024 +10,462 +$ +14.92 +10,462 +86,294 +From December 1, 2024 to December 31, 2024 +18,142 +$ +15.06 +18,142 +68,152 +Total +60,686 +$ +14.70 +60,686 +ITEM 6. [Res erved] +41 +ITEM 7. Management’s Dis cussion and Analysis of Financial Condition and Results of Operations +This discussion and analysis reflects our financial statements and other relevant statistical data, and is intended to enhance your understanding of our financial condition and results of operations. The information in this section has been derived from the audited financial statements, which appear beginning on page 55 of this Annual Report on Form 10-K. +Overview +Our business consists primarily of taking deposits from the general public and investing those deposits, together with funds generated from operations, in one-to-four family residential real estate loans, commercial real estate loans, multifamily real estate loans, construction loans, home equity lines of credit and loans and commercial loans. At December 31, 2024, $422.8 million, or 36.9%, of our total loan portfolio was comprised of one-to-four family residential real estate loans, $344.0 million, or 30.0%, of our total loan portfolio was comprised of multifamily real estate loans, $229.0 million, or 20.0%, of our total loan portfolio was comprised of commercial real estate loans, $90.9 million, or 7.9%, of our total loan portfolio was comprised of construction loans, $45.2 million, or 4.0%, of our total loan portfolio was comprised of home equity lines of credit and loans and $13.8 million, or 1.2% of our total loan portfolio was comprised of commercial loans. We also invest in securities, consisting primarily of U.S. government and federal agency obligations, mortgage-backed securities and corporate bonds. We offer a variety of deposit accounts, including certificate of deposit accounts, individual retirement accounts, money market accounts, savings accounts and interest-bearing and noninterest-bearing checking accounts. In addition to customer deposits, in recent years, we have also accepted brokered deposits as a non-retail funding source to supplement our customer deposits and fund our operations. At December 31, 2024, we had $125.6 million of brokered deposits. We also have utilized advances from the Federal Home Loan Bank of Boston (the “FHLB”) as an additional funding source to fund our operations and we had $234.0 million of FHLB advances outstanding at December 31, 2024. +For the years ended December 31, 2024 and 2023, we had net income of $4.0 million and $4.5 million, respectively. Our current business strategy includes continuing to focus on originating and growing our commercial real estate, multifamily real estate and construction loan portfolios as well as the origination of one-to-four family residential real estate loans and home equity lines of credit and loans. To a lesser extent, we also originate other commercial loans and consumer loans. +Our results of operations depend primarily on our net interest income. Net interest income is the difference between the interest income we earn on our interest-earning assets and the interest we pay on our interest-bearing liabilities. Our results of operations also are affected by our provision for credit losses, noninterest income and noninterest expense. Noninterest income currently consists primarily of fees and service charges, gains on sales of loans and income on bank-owned life insurance. Noninterest expense currently consists primarily of expenses related to salary and employee benefits and director fees, occupancy and equipment, data processing, computer software and licensing fees, advertising, professional fees, FDIC deposit insurance and other general and administrative expenses. +Our results of operations also may be affected significantly by general and local economic and competitive conditions, changes in market interest rates, governmental policies and actions of regulatory authorities. +Business Strategy +Our principal objective is to build long-term value for our shareholders by operating a profitable community-oriented financial institution dedicated to meeting the banking needs of our customers. Highlights of our current business strategy include: +• +Continuing to focus on enhancing our commercial real estate and multifamily real estate lending. In order to increase the yield on our loan portfolio and reduce the term to maturity of our loan portfolio, we intend to continue our focus on growing the originations of commercial real estate loans and multifamily real estate loans while maintaining what we believe are prudent underwriting standards and we expect that these loan categories will comprise a greater percentage of our total loan portfolio. In order to execute on this strategy, in January 2022 we hired a new Chief Lending Officer as well as some additional commercial lending and credit analyst personnel throughout 2022 and 2023. The capital raised in the offering has and will continue to allow us to increase our +42 +commercial lending capacity by enabling us to originate and retain all or a greater portion of loans that we historically participated out to other local institutions. Given that our regulatory loans to one borrower limits have increased with our increase in capital, we have revised our lending policies and loans to one borrower limitations to increase our lending limits and the type and size of loans we choose to originate and hold in our portfolio. Our commercial real estate and multifamily real estate loan portfolios increased to $229.0 million and $344.0 million, respectively, at December 31, 2024 from $196.4 million and $287.4 million, respectively, at December 31, 2023. +• +Reduced emphasis on one-to-four family residential real estate lending. We have been, and will continue to be, a one-to-four family residential real estate lender for borrowers in our market area and such lending will remain a core focus, but we expect that our lending strategy will result in a decrease to one-to-four family residential loans as a percentage of our total loan portfolio as we increase our focus on commercial real estate and multifamily real estate lending. As of December 31, 2024, $422.8 million, or 36.9%, of our total loan portfolio, consisted of one-to-four family residential real estate loans and at that date an additional $45.2 million, or 4.0%, of our total loan portfolio, consisted of home equity lines of credit and loans. We expect that one-to-four family residential real estate lending will remain one of our primary lending activities. +• +Maintaining our strong asset quality through prudent loan underwriting. As we seek to grow our loan portfolio, we intend to maintain prudent loan underwriting and credit monitoring processes. At December 31, 2024 and 2023, non-performing assets totaled $2.0 million and $1.2 million, respectively, which represented 0.14% and 0.09% of total assets at those dates, respectively. +• +Continuing to attract and retain customers in our market area and build our “core” deposits consisting of interest-bearing and noninterest-bearing checking, savings and money market accounts. Our strategy to enhance and grow our commercial real estate and multifamily real estate lending in a diligent and orderly manner is also designed to encourage relationship banking and increase our core deposits, including noninterest-bearing transaction accounts, and decrease our dependence on certificates of deposit. We plan to leverage our increased focus on commercial real estate and commercial lending efforts to also increase our opportunities to develop commercial business deposit relationships. Additionally, we believe the recent hire of our Senior Vice President of Retail Operations, who brings 38 years of banking experience to our retail sales and administrative team, will be invaluable to the implementation of the added product delivery channels and technological services such as additional electronic and mobile banking applications and cash management services, which we believe will increase our core deposits. +• +Remaining a community-oriented institution and relying on high quality service to maintain and build a loyal local customer base . We were established in 1890 and have been operating continuously in and around Everett, Massachusetts since that time. By using our recognized brand name and the goodwill developed over years of providing timely, efficient banking services, we believe we have been able to attract a solid base of local retail customers on which to continue to build our banking business. Additionally, we believe that the establishment and funding of the charitable foundation will further promote our relationships and exposure in our market area through our support of charitable organizations operating in our local community now and in the future. +• +Expanding our banking franchise as opportunities arise through de novo branching and/or branch acquisitions. We historically operated from our two full-service banking offices in Everett, MA and Lynnfield, MA. During 2023 we successfully opened our third branch which is located in Woburn, MA. We believe there are branch expansion opportunities that exist within our primary market area. We intend to evaluate branch expansion opportunities, including through establishing one or more de novo branches and/or branch acquisitions as such opportunities arise. +Summary of Significant Accounting Policies +The discussion and analysis of the financial condition and results of operations are based on our consolidated financial statements, which are prepared in conformity with U.S. GAAP. The preparation of these consolidated financial statements requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the reported amounts of income and expenses. We consider the accounting policies discussed below to be significant accounting policies. The estimates and assumptions that we use are based on historical experience and various other factors and are believed to be reasonable under the circumstances. +43 +Actual results may differ from these estimates under different assumptions or conditions, resulting in a change that could have a material impact on the carrying value of our assets and liabilities and our results of operations. +The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies. As an “emerging growth company” we have elected to use the extended transition period to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. Accordingly, our consolidated financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards. +The following represent our significant accounting policies: +Allowance for Credit Losses . On January 1, 2023, the Company adopted the ASU 2016-13 Current Expected Credit Loss (CECL) methodology for estimating the credit losses for loans. This methodology replaced the incurred loss and impairment methodology. The CECL methodology reflects expected credit losses and requires consideration of historical experience, current conditions, and reasonable and supportable forecasts of future economic conditions. Management uses forward-looking information to estimate the expected credit loss on a loan at the time of origination. The change from the incurred loss methodology to the CECL methodology was recognized through an adjustment to retained earnings. +Actual credit losses, net of recoveries, are deducted from the allowance for credit losses. Loans are charged off when management believes that the collectability of the principal is unlikely. Subsequent recoveries, if any, are credited to the allowance for credit losses. A provision for credit losses, which is a charge against earnings, is recorded to bring the allowance for credit losses to a level that, in management’s judgment, is adequate to absorb expected lifetime credit losses in the loan portfolio. Management’s evaluation process used to determine the appropriateness of the allowance for credit losses is subject to the use of estimates, assumptions, and judgment. The evaluation process involves gathering and interpreting many qualitative and quantitative factors which could affect expected credit losses. Because interpretation and analysis involves judgment, current economic or business conditions can change, and future events are inherently difficult to predict, the anticipated amount of estimated credit losses and therefore the appropriateness of the allowance for credit losses could change significantly. +The allocation methodology applied by ECB Bancorp is designed to assess the appropriateness of the allowance for credit losses and includes allocations for individually evaluated loans and loss factor allocations for all remaining loans, with a quantitative model with an assessment of certain qualitative factors. The methodology includes evaluation and consideration of several factors, such as, but not limited to, management’s ongoing review and grading of loans, facts and issues related to specific loans, internal historical and industry loss experience, trends in past due and non-accrual loans, existing risk characteristics of specific loans or loan pools, the fair value of underlying collateral, current economic conditions and other qualitative and quantitative factors which could affect potential credit losses. While management uses the best information available to make its evaluation, future adjustments to the allowance may be necessary if there are significant changes in economic conditions or circumstances underlying the collectability of loans. Because each of the criteria used is subject to change, the allocation of the allowance for credit losses is made for analytical purposes and is not necessarily indicative of the trend of future credit losses in any particular loan category. The total allowance is available to absorb losses from any segment of the loan portfolio. Management believes the allowance for credit losses was adequate at December 31, 2024. The allowance analysis is reviewed by the board of directors on a quarterly basis in compliance with regulatory requirements. In addition, various regulatory agencies periodically review the allowance for credit losses. As a result of such reviews, we may choose to adjust our allowance for credit losses. However, regulatory agencies are not directly involved in the process of establishing the allowance for credit losses as the process is the responsibility of ECB Bancorp. and any increase or decrease in the allowance is the responsibility of management. +As noted above, we consider a number of variables in our evaluation of the adequacy of the allowance for credit losses, with one of the more significant variables being prepayment rates in the various segments of our loan portfolio. Based on our model, if all segments of our loan portfolio experienced a 50% decrease in estimated prepayment rates and curtailment rates, our allowance for credit losses as of December 31, 2024 would have increased $2.4 million to $11.3 million, holding all other variables constant. +44 +Income Taxes. We use the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion of the deferred tax asset will not be realized. We exercise significant judgment in evaluating the amount and timing of recognition of the resulting tax liabilities and assets. These judgments may require us to make projections of future taxable income and/or to carryback to taxable income in prior years. The judgments and estimates we make in determining our deferred tax assets, which are inherently subjective, are reviewed on a continual basis as regulatory and business factors change. Any reduction in estimated future taxable income may require us to record a valuation allowance against our deferred tax assets. +Securities Valuation and Allowance for Credit Losses . We classify our investments in debt securities as either held-to-maturity or available-for-sale. Securities classified as held-to-maturity are recorded at amortized cost. Available-for-sale securities are carried at fair value. We obtain our fair values from one or more third-party services. This service’s fair value calculations are based on quoted market prices when such prices are available. If quoted market prices are not available, estimates of fair value are computed using a variety of techniques, including extrapolation from the quoted prices of similar instruments or recent trades for thinly traded securities, fundamental analysis, or through obtaining purchase quotes. Due to the subjective nature of the valuation process, it is possible that the actual fair values of these investments could differ from the estimated amounts, thereby affecting our financial position, results of operations and cash flows. For available-for-sale debt securities with a fair value less than amortized cost basis, management will determine whether it has the intent to sell the debt security or whether it is more likely than not it will be required to sell the debt security before the recovery of its amortized cost basis. If either condition is met, management will recognize a write-down to fair value through a charge to earnings. For all other debt securities, management evaluates their expected credit losses over the remaining term. The majority of the Company’s debt securities consist of mortgage-backed securities, U.S. Treasury securities and debt securities issued by U.S. government-sponsored enterprises. These securities carry an explicit or implicit guarantee from the U.S. government, are highly rated by major rating agencies, and have a long history of no credit losses. Accordingly, the Company applies a zero-credit loss assumption and has not recorded any allowance for these securities. For corporate bonds classified as held-to-maturity, a probability of default and loss given default analysis is performed to determine the allowance for credit losses. We monitor the investment portfolio and credit performance on a quarterly basis to determine if any allowance is considered necessary. +Comparison of Financial Condition at December 31, 2024 and December 31, 2023 +Total Assets. Total assets increased $137.8 million, or 10.8%, to $1.42 billion at December 31, 2024 from $1.28 billion at December 31, 2023. The increase was primarily the result of increases in loans and cash and cash equivalents. +Cash and Cash Equivalents. Cash and cash equivalents increased $38.6 million, or 32.4%, to $157.6 million at December 31, 2024 from $119.0 million at December 31, 2023. Cash and cash equivalents increased primarily due to increases in deposits that were greater than our loan growth as we have focused on maintaining strong levels of liquidity. +Loans. Total gross loans increased $97.2 million, or 9.3%, to $1.15 billion at December 31, 2024 from $1.05 billion at December 31, 2023. +• +Multi-family real estate loans increased $56.6 million, or 19.7%, to $344.0 million at December 31, 2024, from $287.4 million at December 31, 2023. +• +Commercial real estate loans increased $32.6 million, or 16.6%, to $229.0 million at December 31, 2024, from $196.4 million at December 31, 2023. +• +Residential real estate loans increased $12.7 million, or 3.1%, to $422.8 million at December 31, 2024, from $410.1 million at December 31, 2023. +• +Home equity lines of credit increased $11.8 million, or 35.4%, to $45.2 million at December 31, 2024, from $33.4 million at December 31, 2023. +45 +• +Commercial loans increased $4.6 million, or 50.2%, to $13.8 million at December 31, 2024, from $9.2 million at December 31, 2023. +• +Construction loans decreased $21.1 million, or 18.8%, to $90.9 million at December 31, 2024, from $112.0 million at December 31, 2023. +The increase in these loan portfolios reflects our strategy to grow the balance sheet by continuing to diversify into higher-yielding commercial real estate and multi-family real estate loans to improve net margins and manage interest rate risk. +Federal Home Loan Bank stock. The Federal Home Loan Bank (FHLB) is a cooperative bank that provides services to its member banking institutions. The primary reason for our membership in the FHLB is to gain access to a reliable source of wholesale funding and as a tool to manage interest rate risk. The purchase of stock in the FHLB is a requirement for a member to gain access to funding. We purchase and/or are subject to redemption of FHLB stock proportional to the volume of funding received and view the holdings as a necessary long-term investment for the purpose of balance sheet liquidity and not for investment return. We held an investment in FHLB stock of $10.0 million and $9.9 million at December 31, 2024 and 2023, respectively. The amount of stock we are required to purchase is in proportion to our FHLB borrowings and level of total assets. +Bank-owned Life Insurance. We invest in bank-owned life insurance to help offset the costs of our employee benefit plan obligations. Bank-owned life insurance also generally provides noninterest income that is nontaxable. Bank-owned life insurance increased $473,000, or 3.3%, to $14.9 million at December 31, 2024 from $14.5 million at December 31, 2023. The increase was due to an increase in cash surrender value of our bank-owned life insurance portfolio during the year ended December 31, 2024. +Deposits. Deposits increased $130.3 million, or 15.0%, to $998.5 million at December 31, 2024 from $868.2 million at December 31, 2023. +• +Certificates of deposit increased $107.0 million, or 21.5%, to $605.5 million at December 31, 2024 from $498.5 million at December 31, 2023; +• +Money market deposit accounts increased $53.2 million, or 40.5%, to $184.6 million at December 31, 2024 from $131.4 million at December 31, 2023; +• +Demand deposit accounts increased $6.6 million, or 8.4%, to $85.0 million at December 31, 2024 from $78.3 million at December 31, 2023; +• +Savings accounts decreased $34.9 million, or 25.3%, to $102.9 million at December 31, 2024 from $137.8 million at December 31, 2023; and +• +Interest-bearing checking accounts decreased $1.6 million, or 7.3%, to $20.5 million at December 31, 2024 from $22.2 million at December 31, 2023. +Federal Home Loan Bank Advances. Advances from the Federal Home Loan Bank remained the same at $234.0 million at December 31, 2024 and December 31, 2023. +Shareholders’ Equity. Total shareholders’ equity increased $3.4 million, or 2.0%, to $168.3 million at December 31, 2024 from $164.9 million at December 31, 2023. This increase is primarily the result of net income of $4.0 million and a $1.5 million increase in additional paid-in capital related to stock-based compensation. Partially offsetting this was a decrease in additional paid-in capital of $2.7 million related to shares repurchased under our share repurchase plan. The book value per share increased $0.75 to $18.50 at December 31, 2024 from $17.75 at December 31, 2023. +Comparison of Operating Results for the Years Ended December 31, 2024 and December 31, 2023 +Net Income. Net income was $4.0 million for the year ended December 31, 2024, compared to net income of $4.5 million for the year ended December 31, 2023, a decrease of $465,000, or 10.4%. +Interest and Dividend Income. Interest and dividend income increased $12.3 million, or 22.4%, to $67.0 million for the year ended December 31, 2024 from $54.8 million for the year ended December 31, 2023 due to a $9.5 million increase in interest and fees on loans, a $485,000 increase in interest and dividends on securities and a $2.3 million +46 +increase in interest on short term investments. The increase in interest and fees on loans was driven by an increase of $109.5 million in the average balance of the loan portfolio to $1.10 billion for the year ended December 31, 2024 from $994.8 million for the year ended December 31, 2023, as well as an increase in the yield of 38 basis points to 5.24% during the year ended December 31, 2024 from 4.86% during the year ended December 31, 2023. The yield for the year ended December 31, 2024 benefited from new loans with higher rates as well as loans repricing higher. Interest and dividends on securities increased $485,000, or 18.0%, to $3.2 million for the year ended December 31, 2024 from $2.7 million for the year ended December 31, 2023. This increase was driven by an increase in the yield of investment securities of 39 basis points to 2.95% for the year ended December 31, 2024, from 2.56% for the year ended December 31, 2023 resulting from the higher market interest rate environment, partially offset by a decrease in the average balance of $1.2 million from $81.3 million during the year ended December 31, 2023 to $80.1 million during the year ended December 31, 2024. Interest on short term investments increased $2.3 million, or 60.4% to $6.0 million for the year ended December 31, 2024 from $3.7 million for the year ended December 31, 2023. This increase was driven by the average balance of short-term investments increasing $42.4 million to $114.3 million for the year ended December 31, 2024 from $71.9 million for the year ended December 31, 2023. +Average interest-earning assets increased $150.6 million to $1.30 billion for the year ended December 31, 2024 from $1.15 billion for the year ended December 31, 2023. The yield on interest earning-assets increased 38 basis points to 5.10% for the year ended December 31, 2024 from 4.72% for the year ended December 31, 2023. +Interest Expense. Total interest expense increased $12.1 million, or 40.3%, to $42.1 million for the year ended December 31, 2024 from $30.0 million for the year ended December 31, 2023. Interest expense on deposit accounts increased $12.0 million, or 56.1%, to $33.4 million for the year ended December 31, 2024 from $21.4 million for the year ended December 31, 2023, due to an increase in the average balance of interest-bearing deposits of $155.8 million, or 22.2%, to $858.4 million for the year ended December 31, 2024 from $702.5 million for the year ended December 31, 2023, as well as an increase in the weighted average rate on interest-bearing deposits of 85 basis points to 3.90% for the year ended December 31, 2024 from 3.05% for the year ended December 31, 2023. +Interest expense on Federal Home Loan Bank advances increased $49,000, or 0.57%, to $8.62 million for the year ended December 31, 2024 from $8.57 million for the year ended December 31, 2023. The average balance of Federal Home Loan Bank advances decreased $684,000, or 0.3%, to $217.1 million for the year ended December 31, 2024 from $217.8 million for the year ended December 31, 2023. For the year ended December 31, 2024, the weighted average cost of Federal Home Loan Bank Advances was 3.97%, as compared to 3.94% for the year ended December 31, 2023. +Net Interest and Dividend Income. Net interest and dividend income before provision for credit losses was $25.0 million for the year ended December 31, 2024, compared to $24.8 million for the year ended December 31, 2023, or an increase of $198,000, or 0.8%. The net interest margin for the year ended December 31, 2024 was 1.86% as compared to 2.11% for the year ended December 31, 2023. The decrease in the net interest margin was driven by increases in the cost of interest bearing liabilities that were higher than increases in yields on interest earning assets during 2024. +Provision for Credit Losses. Based on management’s analysis of the adequacy of the allowance for credit losses, a provision for credit losses of $174,000 was recorded for the year ended December 31, 2024 in accordance with the CECL standard, compared to a provision for credit losses of $803,000 for the year ended December 31, 2023. The $629,000, or 78.3%, decrease in the provision was driven by lower loan growth during the year ended December 31, 2024 as compared to the year ended December 31, 2023. +Noninterest Income. Noninterest income was $1.2 million for the year ended December 31, 2024, as compared to $1.1 million for the year ended December 31, 2023, or an increase of $174,000, or 16.5%. The increase was primarily due to increases in net gains on sales of loans. The table below sets forth our noninterest income for the years ended December 31, 2024 and 2023: +47 +Year Ended +December 31, +Change +2024 +2023 +Amount +Percent +(Dollars in thousands) +Customer service fees +$ +577 +$ +516 +$ +61 +11.8 +% +Income from bank-owned life insurance +473 +479 +(6 +) +(1.3 +) +Net gain on sales of loans +119 +21 +98 +466.7 +Other +57 +36 +21 +58.3 +Total noninterest income +$ +1,226 +$ +1,052 +$ +174 +16.5 +% +Noninterest Expense. Noninterest expense increased $1.6 million, or 8.5%, to $20.7 million for the year ended December 31, 2024 from $19.1 million for the year ended December 31, 2023. Significant changes are as follows: +• +Salaries and employee benefits increased $1.4 million, or 11.8%, driven by $974,000 in stock based compensation recorded during the year ended December 31, 2024, related to the 2023 Equity Incentive Plan, as compared to $165,000 in stock based compensation recorded during the year ended December 31, 2023. The employee stock awards were granted in the fourth quarter of 2023; +• +Director compensation increased $253,000, or 43.5%, driven by $332,000 in stock-based compensation recorded in the year ended December 31, 2024, as compared to $103,000 in stock-based compensation costs recorded during the year ended December 31, 2023. The director stock awards were granted at the end of the third quarter of 2023; and +• +Advertising and promotions decreased $243,000, or 30.6%, as we have streamlined our advertising efforts. +The table below sets forth our noninterest expense for the years ended December 31, 2024 and 2023: +Year Ended +December 31, +Change +2024 +2023 +Amount +Percent +(Dollars in thousands) +Salaries and employee benefits +$ +13,062 +$ +11,679 +$ +1,383 +11.8 +% +Director compensation +834 +581 +253 +43.5 +Occupancy and equipment +1,033 +941 +92 +9.8 +Data processing +1,198 +1,093 +105 +9.6 +Computer software and licensing fees +443 +375 +68 +18.1 +Advertising and promotions +551 +794 +(243 +) +(30.6 +) +Professional fees +1,258 +1,355 +(97 +) +(7.2 +) +Federal Deposit Insurance Corporation deposit insurance +752 +793 +(41 +) +(5.2 +) +Other expense +1,538 +1,443 +95 +6.6 +Total noninterest expense +$ +20,669 +$ +19,054 +$ +1,615 +8.5 +% +Income Tax Expense. Income tax expense decreased $149,000, or 9.7%, to $1.4 million for the year ended December 31, 2024 from $1.5 million for the year ended December 31, 2023. The effective tax rate was 25.7% and 25.5% for the years ended December 31, 2024 and 2023, respectively. +48 +Average Balances and Yields. The following table sets forth average balance sheets, average yields and costs, and certain other information for the years indicated. Average balances are daily average balances. The Company has no tax-equivalent yield adjustments. Non-accrual loans are included in average balances only. Average yields include the effect of deferred costs and fees, discounts, and premiums that are amortized or accreted to interest income or interest expense. +For the Year Ended December 31, +2024 +2023 +Average Outstanding Balance +Interest +Yield/ Rate +Average Outstanding Balance +Interest +Yield/ Rate +(Dollars in thousands) +Interest-earning assets: +Total loans +$ +1,104,288 +$ +57,852 +5.24 +% +$ +994,834 +$ +48,330 +4.86 +% +Securities (1) +80,057 +2,363 +2.95 +81,300 +2,079 +2.56 +Short term investments +114,295 +6,004 +5.25 +71,918 +3,745 +5.21 +Interest-bearing time deposits +64 +3 +5.44 +62 +— +0.70 +Total interest-earning assets +1,298,704 +66,222 +5.10 +% +1,148,114 +54,154 +4.72 +% +Non-interest-earning assets +34,056 +32,755 +Total assets +$ +1,332,760 +$ +1,180,869 +Interest-bearing liabilities: +Checking accounts +$ +18,891 +$ +14 +0.07 +% +$ +21,939 +$ +18 +0.08 +% +Savings accounts +111,858 +3,048 +2.72 +164,087 +4,074 +2.48 +Money market accounts +158,405 +5,669 +3.58 +105,793 +2,412 +2.28 +Certificates of deposit +569,199 +24,704 +4.34 +410,704 +14,909 +3.63 +Total interest-bearing deposits +858,353 +33,435 +3.90 +702,523 +21,413 +3.05 +Federal Home Loan Bank advances +217,087 +8,622 +3.97 +217,771 +8,573 +3.94 +Total interest-bearing liabilities +1,075,440 +42,057 +3.91 +% +920,294 +29,986 +3.26 +% +Non-interest-bearing demand deposits +77,721 +84,546 +Non-interest-bearing liabilities +12,661 +11,148 +Total liabilities +1,165,822 +1,015,988 +Shareholders' equity +166,938 +164,881 +Total liabilities and shareholders' equity +$ +1,332,760 +$ +1,180,869 +Net interest income +$ +24,165 +$ +24,168 +Net interest rate spread (2) +1.19 +% +1.46 +% +Net interest-earning assets (3) +$ +223,264 +$ +227,820 +Net interest margin (4) +1.86 +% +2.11 +% +Average interest-earning assets to interest- +bearing liabilities +120.76 +% +124.76 +% +(1) +Excludes interest and dividends on cost method investments of $823,000 and $622,000 for the years ended December 31, 2024 and 2023, respectively. +(2) +Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate of interest-bearing liabilities. +(3) +Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities. +(4) +Net interest margin represents net interest income divided by average total interest-earning assets. +49 +Rate/Volume Analysis. The following tables present the effects of changing rates and volumes on our net interest income for the periods indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior period volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The total column represents the sum of the prior columns. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately based on the changes due to rate and the changes due to volume. There were no out-of-period items or adjustments required to be excluded from the table below. +Years Ended December 31, 2024 vs. 2023 +Increase (Decrease) Due to +Total Increase +Volume +Rate +(Decrease) +(in thousands) +Interest-earning assets: +Loans +$ +5,561 +$ +3,961 +$ +9,522 +Securities +(33 +) +317 +284 +Short term investments +2,226 +33 +2,259 +Interest-bearing time deposits +- +3 +3 +Total interest-earning assets +$ +7,754 +$ +4,314 +$ +12,068 +Interest-bearing liabilities: +Checking accounts +$ +(2 +) +$ +(2 +) +$ +(4 +) +Savings accounts +(1,394 +) +368 +(1,026 +) +Money market deposits +1,518 +1,739 +3,257 +Certificates of deposit +6,500 +3,295 +9,795 +Total deposits +6,622 +5,400 +12,022 +Advances from the Federal Home Loan Bank +(27 +) +76 +49 +Total interest-bearing liabilities +$ +6,595 +$ +5,476 +$ +12,071 +Change in net interest income +$ +1,159 +$ +(1,162 +) +$ +(3 +) +Management of Market Risk +General . Our most significant form of market risk is interest rate risk because, as a financial institution, the majority of our assets and liabilities are sensitive to changes in interest rates. Therefore, a principal part of our operations is to manage interest rate risk and limit the exposure of our financial condition and results of operations to changes in market interest rates. Our chief financial officer is responsible for evaluating the interest rate risk inherent in our assets and liabilities, for determining the level of risk that is appropriate, given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the policy and guidelines approved by our board of directors. We currently utilize a third-party modeling program, prepared on a quarterly basis, to evaluate our sensitivity to changing interest rates, given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the guidelines approved by the board of directors. +We have sought to manage our interest rate risk in order to minimize the exposure of our earnings and capital to changes in interest rates. We have implemented the following strategies to manage our interest rate risk: +• +maintaining capital levels that exceed the thresholds for well-capitalized status under federal regulations; +• +maintaining a prudent level of liquidity; +• +growing our volume of core deposit accounts; +• +managing our investment securities portfolio to maintain a prudent balance between enhancing profitability and protecting the balance sheet against sensitivity to changes in interest rates; +• +managing our utilization of wholesale funding with borrowings from the Federal Home Loan Bank and brokered deposits in a prudent manner; +• +continuing to diversify our loan portfolio by adding more commercial-related loans, which typically have shorter maturities and/or balloon payments; and +50 +• +beginning in January of 2024 we began to utilize interest rate swaps to help manage our interest rate risk. +By following these strategies, we believe that we are better positioned to react to increases and decreases in market interest rates. +Net Interest Income. We analyze our sensitivity to changes in interest rates through a net interest income sensitivity model. Net interest income is the difference between the interest income we earn on our interest-earning assets, such as loans and securities, and the interest expense we pay on our interest-bearing liabilities, such as deposits and borrowings. We estimate what our net interest income would be for a 12-month period. We then calculate what the net interest income would be for the same period under the assumptions that the United States Treasury yield curve increases or decreases instantaneously by various basis point increments, with changes in interest rates representing immediate and permanent, parallel shifts in the yield curve. A basis point equals one-hundredth of one percent, and 100 basis points equals one percent. An increase in interest rates from 3% to 4% would mean, for example, a 100-basis point increase in the “Change in Interest Rates” column below. +The table below sets forth, as of December 31, 2024, the calculation of the estimated changes in our net interest income that would result from the designated immediate changes in the United States Treasury yield curve. +As of December 31, 2024 +Change in Interest Rates (basis points) (1) +Net Interest Income Year 1 Forecast +Year 1 Change from Level +(Dollars in thousands) ++400 +$ +26,718 +-8.7 +% ++300 +27,364 +-6.5 +% ++200 +28,037 +-4.2 +% ++100 +28,683 +-2.0 +% +Level +29,261 +0.0 +% +-100 +29,467 +0.7 +% +-200 +28,916 +-1.2 +% +-300 +28,257 +-3.4 +% +-400 +26,279 +-10.2 +% +____________________ +1. +Assumes an immediate uniform change in interest rates at all maturities. +The tables above indicate that at December 31, 2024, in the event of an instantaneous parallel 200 basis point increase in interest rates, we would experience a decrease in net interest income of 4.2%, and in the event of an instantaneous 200 basis point decrease in interest rates, we would experience a 1.2% decrease in net interest income. +Economic Value of Equity . We also compute amounts by which the net present value of our assets and liabilities (economic value of equity or “EVE”) would change in the event of a range of assumed changes in market interest rates. This model uses a discounted cash flow analysis and an option-based pricing approach to measure the interest rate sensitivity of net portfolio value. The model estimates the economic value of each type of asset, liability and off-balance sheet contract under the assumptions that the United States Treasury yield curve increases and decreases instantaneously by 100, 200, 300 and 400 basis point increments, with changes in interest rates representing immediate and permanent, parallel shifts in the yield curve. +51 +The table below sets forth, as of December 31, 2024, the calculation of the estimated changes in our EVE that would result from the designated immediate changes in the United States Treasury yield curve. +As of December 31, 2024 +Estimated Increase (Decrease) in EVE +EVE as a Percentage of Present Value of Assets (3) +Change in Interest Rates (basis points) (1) +Estimated EVE (2) +Amount +Percent +EVE Ratio (4) +Increase (Decrease) (basis points) +(Dollars in thousands) ++400 +$ +105,756 +$ +(58,357 +) +-35.6 +% +8.4 +% +(355 +) ++300 +119,094 +(45,019 +) +-27.4 +% +9.3 +% +(269 +) ++200 +133,497 +(30,616 +) +-18.7 +% +10.1 +% +(179 +) ++100 +148,957 +(15,156 +) +-9.2 +% +11.1 +% +(86 +) +— +164,113 +— +0.0 +% +11.9 +% +— +-100 +177,434 +13,321 +8.1 +% +12.6 +% +70 +-200 +186,368 +22,255 +13.6 +% +13.0 +% +108 +-300 +190,748 +26,635 +16.2 +% +13.1 +% +115 +-400 +189,593 +25,480 +15.5 +% +12.8 +% +89 +(1) +Assumes an immediate uniform change in interest rates at all maturities. +(2) +EVE is the discounted present value of expected cash flows from assets, liabilities and off-balance sheet contracts. +(3) +Present value of assets represents the discounted present value of incoming cash flows on interest-earning assets. +(4) +EVE Ratio represents EVE divided by the present value of assets. +The table above indicates that at December 31, 2024, in the event of an instantaneous parallel 200 basis point increase in interest rates, we would experience an 18.7% decrease in EVE, and in the event of an instantaneous 200 basis point decrease in interest rates, we would experience a 13.6% increase in EVE. +Certain shortcomings are inherent in the methodologies used in the above interest rate risk measurements. Modeling changes require making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. The net interest income and net economic value tables presented assume that the composition of our interest-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. Accordingly, although the tables provide an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates, and actual results may differ. +Interest rate risk calculations also may not reflect the fair values of financial instruments. For example, increases in market interest rates can decrease the fair values of our loans but increase the fair value of deposits and borrowings. +Liquidity and Capital Resources +Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. Our primary sources of funds are deposits, principal and interest payments on loans and securities, and proceeds from maturities of securities. We are also able to borrow from the Federal Home Loan Bank of Boston, the Federal Reserve Bank and the Atlantic Community Bankers Bank. At December 31, 2024, we had outstanding advances of $234.0 million from the Federal Home Loan Bank. At December 31, 2024, we had unused borrowing capacity of $328.5 million with the Federal Home Loan Bank, $15.1 million with Federal Reserve Bank and $10.0 million with the Atlantic Community Bankers Bank. +While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. Our most liquid assets are cash and short-term investments. The levels of these assets are dependent on our operating, financing, and investing activities during any given period. +52 +Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. +At December 31, 2024, we had $21.5 million in loan commitments outstanding. In addition to commitments to originate and purchase loans, we had $80.2 million in unused lines of credit to borrowers and $54.6 million in unadvanced construction loans. +Non brokered certificates of deposit due within one year of December 31, 2024 totaled $321.7 million, or 32.2%, of total deposits. If these deposits do not remain with us, we may be required to seek other sources of funds, including brokered deposits and FHLB advances. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates of deposit due on or before December 31, 2025, or on our savings and money market accounts. +We believe, however, based on historical experience and current market interest rates that we will retain upon maturity a large portion of our certificates of deposit with maturities of one year or less as of December 31, 2024. +Our primary investing activity is originating loans. During the years ended December 31, 2024 and 2023, we originated and purchased $160.4 million and $268.1 million of loans, respectively. +Financing activities consist primarily of activity in deposit accounts as well as FHLB advances. We experienced net increases in deposits of $130.3 million and $150.1 million for the years ended December 31, 2024 and 2023, respectively. Deposit flows are affected primarily by the overall level of interest rates and the interest rates and products offered by us and our competitors. At December 31, 2024 and 2023, the level of brokered time deposits was $125.6 million and $115.5 million, respectively. At December 31, 2024 and 2023 the level of FHLB advances was $234.0 million. +For additional information, see the consolidated statements of cash flows for the years ended December 31, 2024 and 2023 included as part of the consolidated financial statements appearing elsewhere in this 10-K. +We are committed to maintaining a strong liquidity position. We continuously monitor our liquidity position and adjustments are made to the balance between sources and uses of funds as deemed appropriate by management. Liquidity risk management is an important element in our asset/liability management process. We regularly model liquidity stress scenarios to assess potential liquidity outflows or funding problems resulting from economic disruptions, volatility in the financial markets, unexpected credit events or other significant occurrences deemed problematic by management. These scenarios are incorporated into our contingency funding planning process, which provides the basis for the identification of our liquidity needs. We anticipate that we will have sufficient funds to meet our current funding commitments. In addition, based on our deposit retention experience and current pricing strategy, we anticipate that a significant portion of maturing time deposits will be retained. +At December 31, 2024, Everett Co-operative Bank exceeded all of its regulatory capital requirements, and was categorized as well-capitalized at that date. Management is not aware of any conditions or events since the most recent notification of well-capitalized status that would change our category. See Note 16 of the notes to consolidated financial statements. +Off-Balance Sheet Arrangements and Aggregate Contractual Obligations +Commitments. As a financial services provider, we routinely are a party to various financial instruments with off-balance-sheet risks, such as commitments to extend credit and unused lines of credit. While these contractual obligations represent our future cash requirements, a significant portion of commitments to extend credit may expire without being drawn upon. Such commitments are subject to the same credit policies and approval process accorded to loans we make. At December 31, 2024, we had outstanding commitments to originate loans of $21.5 million. We anticipate that we will have sufficient funds available to meet our current lending commitments. Non brokered time deposits that are scheduled to mature in less than one year from December 31, 2024 totaled $321.7 million. Management expects that a substantial portion of these time deposits will be retained. However, if a substantial portion of these time deposits is not retained, we +53 +may utilize advances from the Federal Home Loan Bank, brokered deposits or raise interest rates on deposits to attract new accounts, which may result in higher levels of interest expense. +Contractual Obligations. In the ordinary course of our operations, we enter into certain contractual obligations. Such obligations include data processing services, operating leases for premises and equipment, agreements with respect to borrowed funds and deposit liabilities. +Recent Accounting Pronouncements +See Note 2 to the notes to the consolidated financial statements for a description of recent accounting pronouncements that may affect our financial condition and results of operations. +Impact of Inflation and Changing Price +The consolidated financial statements and related data presented in this 10-K have been prepared in accordance with U.S. GAAP, which requires the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation. The primary impact of inflation on our operations is reflected in increased operating costs. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates, generally, have a more significant impact on a financial institution’s performance than does inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services. +ITEM 7A. Quantitative and Qualitativ e Disclosures about Market Risk +For information regarding market risk, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations”. +54 +ITEM 8. Financial Statements and Supplementary Data +Financial Statements Table of Contents +Page +Report of Independent Registered Public Accounting Firm (PCAOB ID No. 392 ) +56 +Report of Independent Registered Public Accounting Firm (PCAOB ID No. 231 ) +57 +Consolidated Balance Sheets as of December 31, 2024 and December 31, 2023 +58 +Consolidated Statements of Income for the Years Ended December 31, 2024 and 2023 +59 +Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2024 and 2023 +60 +Consolidated Statements of Changes in Shareholders' Equity for the Years Ended December 31, 2024 and 2023 +61 +Consolidated Statements of Cash Flows for the Years Ended December 31, 2024 and 2023 +62 +Notes to Consolidated Financial Statements +63 +55 +REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +To the Stockholders and Board of Directors of ECB Bancorp, Inc.: +Opinion on the Consolidated Financial Statements +We have audited the accompanying consolidated balance sheet of ECB Bancorp, Inc. and Subsidiary (the Company) as of December 31, 2024, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for the year then ended and the related notes (collectively, “the financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. +Basis for Opinion +These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. +Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. +We have served as the Company's auditor since 2024. +/s/ Wolf & Company, P.C. +Boston, Massachusetts +March 26, 2025 +56 +REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +To the Shareholders and Board of Directors +ECB Bancorp, Inc. +Opinion on the Financial Statements +We have audited the accompanying consolidated balance sheet of ECB Bancorp, Inc., and Subsidiary (the Company) as of December 31, 2023, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows for the year then ended, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. +Basis for Opinion +These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. +Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. +/s/ Baker Newman & Noyes LLC +Boston, Massachusetts +March 29, 2024 +We served as the Company’s auditor from 2015 to 2024. +57 +ECB Bancorp, Inc. and Subsidiary +Consolidate d Balance Sheets +December 31, 2024 and December 31, 2023 +(Dollars in thousands) +December 31, 2024 +December 31, 2023 +ASSETS +Cash and due from banks +$ +5,828 +$ +3,786 +Short-term investments +151,789 +115,250 +Total cash and cash equivalents +157,617 +119,036 +Interest-bearing time deposits +100 +— +Investments in available-for-sale securities (at fair value) +6,564 +5,003 +Investments in held-to-maturity securities, at cost (fair values of $ 67,505 at +December 31, 2024 and $ 70,590 at December 31, 2023) +73,215 +76,979 +Loans, net of allowance for credit losses of $ 8,884 as of December 31, 2024 and +$ 8,591 as of December 31, 2023 +1,136,449 +1,039,789 +Federal Home Loan Bank stock, at cost +10,000 +9,892 +Premises and equipment, net +3,512 +3,754 +Accrued interest receivable +4,015 +3,766 +Deferred tax assets, net +4,914 +4,767 +Bank-owned life insurance +14,945 +14,472 +Other assets +6,822 +2,877 +Total assets +$ +1,418,153 +$ +1,280,335 +LIABILITIES AND SHAREHOLDERS' EQUITY +Deposits: +Noninterest-bearing +$ +84,958 +$ +78,342 +Interest-bearing +913,575 +789,872 +Total deposits +998,533 +868,214 +Federal Home Loan Bank advances +234,000 +234,000 +Other liabilities +17,352 +13,220 +Total liabilities +1,249,885 +1,115,434 +Shareholders' Equity: +Preferred Stock, par value $ 0.01 ; Authorized: 1,000,000 shares; Issued and outstanding: 0 shares and 0 shares, respectively +— +— +Common Stock, par value $ 0.01 ; Authorized: 30,000,000 shares; Issued and outstanding: 9,095,833 shares and 9,291,810 shares, respectively +91 +93 +Additional paid-in capital +86,189 +87,431 +Retained earnings +87,845 +83,854 +Accumulated other comprehensive income +382 +129 +Unallocated common shares held by the Employee Stock Ownership Plan +( 6,239 +) +( 6,606 +) +Total shareholders' equity +$ +168,268 +164,901 +Total liabilities and shareholders' equity +1,418,153 +$ +1,280,335 +The accompanying notes are an integral part of these consolidated financial statements. +58 +ECB Bancorp, Inc. and Subsidiary +Consolidated Statements of Income +Years Ended December 31, 2024 and 2023 +(Dollars in thousands, except share data) +Year Ended +December 31, +2024 +2023 +Interest and dividend income: +Interest and fees on loans +$ +57,852 +$ +48,330 +Interest and dividends on securities +3,186 +2,701 +Interest on short-term investments +6,004 +3,745 +Interest on interest-bearing time deposits +3 +— +Total interest and dividend income +67,045 +54,776 +Interest expense: +Interest on deposits +33,435 +21,413 +Interest on Federal Home Loan Bank advances +8,622 +8,573 +Total interest expense +42,057 +29,986 +Net interest and dividend income +24,988 +24,790 +Provision for credit losses +174 +803 +Net interest and dividend income after provision for credit losses +24,814 +23,987 +Noninterest income: +Customer service fees +577 +516 +Income from bank-owned life insurance +473 +479 +Net gain on sales of loans +119 +21 +Other income +57 +36 +Total noninterest income +1,226 +1,052 +Noninterest expense: +Salaries and employee benefits +13,062 +11,679 +Director compensation +834 +581 +Occupancy and equipment expense +1,033 +941 +Data processing +1,198 +1,093 +Computer software and licensing fees +443 +375 +Advertising and promotions +551 +794 +Professional fees +1,258 +1,355 +Federal Deposit Insurance Corporation deposit insurance +752 +793 +Other expense +1,538 +1,443 +Total noninterest expense +20,669 +19,054 +Income before income tax expense +5,371 +5,985 +Income tax expense +1,380 +1,529 +Net income +$ +3,991 +$ +4,456 +Share data: +Weighted average shares outstanding, basic +8,257,014 +8,466,021 +Weighted average shares outstanding, diluted +8,345,737 +8,523,705 +Basic earnings per share +$ +0.48 +$ +0.53 +Diluted earnings per share +$ +0.48 +$ +0.52 +The accompanying notes are an integral part of these consolidated financial statements. +59 +ECB Bancorp, Inc. and Subsidiary +Consolidated Statements of Com prehensive Income +Years Ended December 31, 2024 and 2023 +(Dollars in thousands) +Year Ended +December 31, +2024 +2023 +Net income +$ +3,991 +$ +4,456 +Other comprehensive income (loss), net of tax: +Net change in unrealized holding gain on securities available-for-sale +( 43 +) +( 6 +) +Net change in unrecognized postretirement benefit costs pertaining to supplemental executive retirement plan +14 +( 93 +) +Net change in unrecognized postretirement benefit costs pertaining to director fee continuation plan +5 +( 21 +) +Net change in fair value of cash flow hedges +277 +— +Other comprehensive income (loss), net of tax +253 +( 120 +) +Comprehensive income +$ +4,244 +$ +4,336 +The accompanying notes are an integral part of these consolidated financial statements. +60 +ECB Bancorp, Inc. and Subsidiary +Statements of Changes in Shareholders' Equity +For the Years Ended December 31, 2024 and 2023 +(Dollars in thousands) +Shares of Common Stock Outstanding +Common Stock +Additional Paid in Capital +Retained Earnings +Accumulated Other Comprehensive Income +Unallocated Common Stock Held by ESOP +Total +Balance at December 31, 2022 +9,175,247 +$ +92 +$ +89,286 +$ +80,076 +$ +249 +$ +( 6,973 +) +$ +162,730 +Cumulative Effect Accounting Adjustment for CECL Adoption +- +- +- +( 678 +) +- +- +( 678 +) +Net income +- +- +- +4,456 +- +- +4,456 +Other comprehensive loss, net of tax +- +- +- +- +( 120 +) +- +( 120 +) +ESOP shares allocated ( 36,701 shares) +- +- +103 +- +- +367 +470 +Shares repurchased under share repurchase plan +( 189,394 +) +( 2 +) +( 2,223 +) +- +- +- +( 2,225 +) +Restricted stock awards issued, net of awards surrendered +305,957 +3 +( 3 +) +- +- +- +- +Stock-based compensation +- +- +268 +- +- +- +268 +Balance at December 31, 2023 +9,291,810 +$ +93 +$ +87,431 +$ +83,854 +$ +129 +$ +( 6,606 +) +$ +164,901 +Net income +- +- +- +3,991 +- +- +3,991 +Other comprehensive income, net of tax +- +- +- +- +253 +- +253 +ESOP shares allocated ( 36,701 shares) +- +- +127 +- +- +367 +494 +Shares repurchased under share repurchase plan +( 201,216 +) +( 2 +) +( 2,720 +) +- +- +- +( 2,722 +) +Restricted stock awards issued, net of awards surrendered +( 593 +) +- +( 24 +) +- +- +- +( 24 +) +Stock-based compensation +- +- +1,306 +- +- +- +1,306 +Stock options exercised +5,832 +- +69 +- +- +- +69 +Balance at December 31, 2024 +9,095,833 +$ +91 +$ +86,189 +$ +87,845 +$ +382 +$ +( 6,239 +) +$ +168,268 +The accompanying notes are an integral part of these consolidated financial statements. +61 +ECB Bancorp, Inc. and Subsidiary +Consolidated Sta tements of Cash Flows +Years Ended December 31, 2024 and 2023 +(Dollars in thousands) +Year Ended +December 31, +2024 +2023 +Cash flows from operating activities: +Net income +$ +3,991 +$ +4,456 +Adjustments to reconcile net income to net cash provided by operating activities: +(Accretion) amortization of securities, net +( 63 +) +31 +Provision for credit losses +174 +803 +Change in deferred loan costs/fees +276 +( 32 +) +Gain on sales of loans, net +( 119 +) +( 21 +) +Proceeds from sales of loans +7,905 +367 +Loans originated for sale, net +( 7,786 +) +( 346 +) +Depreciation and amortization expense +302 +279 +Increase in accrued interest receivable +( 249 +) +( 1,134 +) +(Decrease) increase in accrued interest payable +( 16 +) +1,455 +Increase in bank-owned life insurance +( 473 +) +( 405 +) +Gain from life insurance policy death benefit +— +( 72 +) +Deferred income tax benefit +( 250 +) +( 111 +) +ESOP expense +494 +470 +Stock-based compensation expense +1,306 +268 +Stock options exercised +69 +— +Increase in other assets +( 3,388 +) +( 1,242 +) +Increase in other liabilities +4,124 +1,668 +Net cash provided by operating activities +6,297 +6,434 +Cash flows from investing activities: +Purchases of held-to-maturity securities +( 8,874 +) +( 8,292 +) +Proceeds from paydowns and maturities of held-to-maturity securities +12,684 +8,864 +Purchases of available-for-sale securities +( 6,628 +) +— +Proceeds from paydowns and maturities of available-for-sale securities +5,029 +— +Proceeds from life insurance policy death benefit +— +249 +Purchase of interest-bearing time deposits +( 200 +) +— +Proceeds from maturities of interest bearing time deposits +100 +300 +Purchase of Federal Home Loan Bank Stock +( 2,464 +) +( 3,525 +) +Redemption of Federal Home Loan Bank Stock +2,356 +926 +Loan originations and principal collections, net +( 89,058 +) +( 142,269 +) +Purchase of loans +( 8,175 +) +( 13,207 +) +Recoveries of loans previously charged off +1 +1 +Capital expenditures +( 60 +) +( 335 +) +Net cash used in investing activities +( 95,289 +) +( 157,288 +) +Cash flows from financing activities: +Net increase (decrease) in demand deposits, NOW and savings accounts +23,307 +( 28,590 +) +Net increase in time deposits +107,012 +178,655 +Proceeds from long-term Federal Home Loan Bank advances +55,000 +195,000 +Repayments of long-term Federal Home Loan Bank advances +( 70,000 +) +( 80,000 +) +Net change in short-term Federal Home Loan Bank advances +15,000 +( 55,000 +) +Restricted stock awards issued, net of awards surrendered +( 24 +) +— +Payments for shares repurchased under share repurchase plan +( 2,722 +) +( 2,225 +) +Net cash provided by financing activities +127,573 +207,840 +Net increase in cash and cash equivalents +38,581 +56,986 +Cash and cash equivalents at beginning of year +119,036 +62,050 +Cash and cash equivalents at end of period +$ +157,617 +$ +119,036 +Supplemental disclosures: +Interest paid +$ +42,041 +$ +28,531 +Income taxes paid +1,566 +2,259 +Noncash activities: +Effect of the adoption of ASU 2016-13 +Allowance for credit losses +— +182 +Deferred income taxes +— +266 +Other liabilities +— +762 +The accompanying notes are an integral part of these consolidated financial statements. +62 +ECB Bancorp, Inc. and Subsidiary +Notes to Consolidated Financial Statements +December 31, 2024 +Notes to Consolidated Finan cial Statements +NOTE 1 - NATURE OF OPERATIONS +CONVERSION +On March 9, 2022, the Board of Directors of Everett Co-operative Bank (the "Bank") adopted a Plan of Conversion under which the Bank would convert from a Massachusetts mutual co-operative bank into a Massachusetts stock co-operative bank and become the wholly-owned subsidiary of a newly chartered stock holding company, ECB Bancorp, Inc. (the “Holding Company”). The Plan of Conversion received the required approvals of various regulatory agencies and the Plan of Conversion was approved by the required vote of more than two-thirds of the Bank’s depositors present and voting at a special meeting of depositors held on May 5, 2022. The Bank’s mutual to stock conversion and the Company’s stock offering were consummated on July 27, 2022. In the offering, the Company sold 8,915,247 shares of common stock at a per share price of $ 10.00 for gross offering proceeds of $ 89.2 million. Additionally, the Company contributed 260,000 shares and $ 600,000 in cash to the Everett Co-operative Bank Charitable Foundation (the “Foundation”). +The Bank has established a Liquidation Account in an amount equal to the net worth of the Bank as of the date of the latest consolidated balance sheet contained in the final prospectus distributed in connection with the Company's stock conversion and stock offering. The function of the Liquidation Account is to establish a priority on liquidation of the Bank. The Liquidation Account will be maintained by the Bank for the benefit of the eligible account holders who continue to maintain deposit accounts with the Bank following the conversion. Each eligible account holder, with respect to each deposit account, holds a related inchoate interest in a portion of the Liquidation Account balance, in relation to each deposit account balance at the eligibility record date, or to such balance as it may be subsequently reduced, as hereinafter provided. The initial Liquidation Account balance will not be increased, and is subject to downward adjustment to the extent of any downward adjustment of any subaccount balance of any eligible account holder in accordance with the regulations of the Division of Banks of the Commonwealth of Massachusetts. +In the unlikely event of a complete liquidation of the Bank (and only in such event), following all liquidation payments to creditors (including those to depositors to the extent of their deposit accounts) each eligible account holder shall be entitled to receive a liquidating distribution from the Liquidation Account, in the amount of the then-adjusted subaccount balances for his or her deposit accounts then held, before any liquidating distribution may be made to any holder of the Bank’s capital stock. +The Bank may not declare or pay a cash dividend on its outstanding capital stock if the effect thereof would cause its regulatory capital to be reduced below the amount required to maintain the Liquidation Account and under FDIC rules and regulations. +NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES +ACCOUNTING POLICIES +The accounting and reporting policies of the Company and the Bank conform to accounting principles generally accepted in the United States of America (U.S. GAAP) and predominant practices within the banking industry. The consolidated financial statements are prepared using the accrual basis of accounting. The significant accounting policies are summarized below to assist the reader in better understanding the consolidated financial statements and other data contained herein. In the opinion of management, all adjustments necessary for a fair presentation are reflected in these consolidated financial statements, and all adjustments made are of a normal recurring nature. +63 +Principles of Consolidation +The consolidated financial statements of the Company include the balances and results of operations of its wholly-owned subsidiary Everett Co-operative Bank (the "Bank") as well as First Everett Securities Corporation, a wholly-owned subsidiary of the Bank. Intercompany transactions and balances have been eliminated in consolidation. +Use of Estimates +The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The allowance for credit losses is a significant estimate that is particularly susceptible to significant change in the near term. +Reclassification +Certain previously reported amounts have been reclassified to conform to the current period’s presentation. +Cash and Cash Equivalents +For purposes of reporting cash flows, cash and cash equivalents include cash on hand, cash items, due from banks and short-term investments. +The Company has historically been required to maintain certain vault cash and/or deposits with the Federal Reserve Bank of Boston. However, based on the COVID-19 pandemic, the Federal Reserve has reduced the reserve requirement ratio to zero percent across all deposit tiers as of March 26, 2020. +Securities +The Company classifies securities at the time of purchase into one of three categories: held-to-maturity (HTM), available-for-sale (AFS), or trading. These security classifications may be modified after acquisition only under certain specified conditions. In general, debt securities may be classified as held-to-maturity only if the Company has the positive intent and ability to hold them to maturity. Trading securities are defined as those bought and held principally for the purpose of selling them in the near term. All other debt securities must be classified as available-for-sale. +• +Held-to-maturity securities are measured at amortized cost on the consolidated balance sheets. Unrealized holding gains and losses are not included in earnings, or in a separate component of shareholders' equity; they are disclosed in the notes to the consolidated financial statements. +• +Available-for-sale securities are carried at fair value on the consolidated balance sheets. Unrealized holding gains and losses are not included in earnings but are reported in other comprehensive income, net of related taxes. +• +Trading securities are carried at fair value on the consolidated balance sheets. Unrealized holding gains and losses for trading securities are included in earnings. The Company had no securities classified as trading securities at December 31, 2024 and 2023. +Purchase premiums and discounts are recognized in interest income, using the interest method. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method. Such gains and losses are recognized within non-interest income within the consolidated statements of income. +For AFS securities in an unrealized loss position, management will first evaluate whether there is intent to sell a security, or if it is more likely than not that the Company will be required to sell a security prior to anticipated recovery of its amortized cost basis. If either of these criteria are met, the Company will record a write-down of the security’s amortized cost basis to fair value through income. For those AFS securities which do not meet the intent or requirement to sell criteria, management will evaluate whether the decline in fair value is a result of credit related matters or other factors. In performing this assessment, management considers the creditworthiness of the issuer including whether the security is +64 +guaranteed by the U.S. federal government or other government agency, the extent to which fair value is less than amortized cost, and changes in credit rating during the period, among other factors. If this assessment indicates the existence of credit losses, an allowance for credit losses will be established, as determined by a discounted cash flow analysis. To the extent the estimated cash flows do not support the amortized cost, the deficiency is considered to be due to credit loss and is recognized in earnings. +Changes in the allowance for credit losses are recorded as a provision for (or reversal of) credit loss expense. Losses are charged against the allowance when the security is determined to be uncollectible, or when either of the afore-mentioned criteria surrounding intent or requirement to sell have been met. No allowance for credit losses was recorded for AFS securities as of December 31, 2024 and 2023. +Debt securities are placed on non-accrual status at the time any principal or interest payments become 90 days delinquent. Interest accrued but not received for a security placed on non-accrual is reversed against current interest income. +Refer to Note 3, “Investments in Securities” for additional information regarding the measurement of impairment losses on AFS securities. +The Company measures expected credit losses on held to maturity securities on a collective basis by major security type. Management classifies the held-to maturity portfolio into the following major security types: U.S. Government Sponsored Enterprises, U.S. Treasury, Agency Mortgage-Backed Securities, and Corporate Bonds. +Refer to Note 3, “Investments in Securities” for additional information regarding the measurement of credit losses on HTM securities. +Federal Home Loan Bank Stock +The Bank, as a member of the Federal Home Loan Bank of Boston (FHLB), is required to maintain an investment in capital stock of the FHLB. Based on redemption provisions of the FHLB, the stock has no quoted market value and is carried at cost. The Company reviews its investment in capital stock of the FHLB for impairment based on the ultimate recoverability of the cost basis in the FHLB stock. +Loans Held-for-Sale +Loans held-for-sale are carried at the lower of amortized cost or estimated fair value in the aggregate. Net unrealized losses are recognized through a valuation allowance and recorded in noninterest income. Fair value is based on committed secondary market prices. No losses have been recorded during 2024 or 2023. Gains or losses on sales of mortgage loans are recognized in the Consolidated Statements of Income at the time of sale. Interest income is recognized on loans held for sale between the time the loan is funded and the loan is sold. Direct loan origination costs and fees are deferred upon origination and are recognized in the Consolidated Statements of Income on the date of sale. +Loans +Loans that the Company has the intent and ability to hold until maturity or payoff are carried at amortized cost (net of the allowance for credit losses). Amortized cost is the principal amount outstanding, adjusted by partial charge-offs and net of any deferred loan costs or fees. For originated loans, loan fees and certain direct origination costs are deferred and amortized into interest income over the contractual life of the loan using the level-yield method. When a loan is paid off, the unamortized portion is recognized in interest income. Interest income on loans is accrued based upon the daily principal amount outstanding except for loans on nonaccrual status. As a general rule, loans more than 90 days past due with respect to principal or interest are classified as nonaccrual loans, or sooner if management considers such action to be prudent. However, loans that are more than 90 days past due may be kept on an accruing status if the loan is well secured and in the process of collection. Income accruals are suspended on all nonaccrual loans in a timely manner and all previously accrued and uncollected interest is reversed against current income. A loan can be returned to accrual status when collectibility of principal and interest is reasonably assured and the loan has performed for a period of time, +65 +generally at least six months. When doubt exists as to the collectability of a loan, any payments received are applied to reduce the amortized cost of the loan to the extent necessary to eliminate such doubt. For all loan portfolios, a charge-off occurs when the Company determines that a specific loan, or portion thereof, is uncollectible. This determination is made based on management's review of specific facts and circumstances of the individual loan, including the expected cash flows to repay the loan, the value of the collateral and the ability and willingness of any guarantors to perform. +Allowance for Credit Losses +The allowance for credit losses is established based upon the Company's current estimate of expected lifetime credit losses on loans measured at amortized cost. Credit losses are charged against the allowance when management's assessments confirm that the Company will not collect the full amortized cost basis of a loan. Subsequent recoveries, if any, are credited to the allowance. Under the current expected credit loss methodology (CECL) methodology, the Company estimates credit losses for financial assets on a collective basis for loans sharing similar risk characteristics. The Company segments financial assets with similar risk characteristics and has elected to segment its loans based on Federal Call codes used for reporting loans to the Federal Deposit Insurance Corporation as part of the Call Report process. These segments are collectively evaluated for expected credit losses using a quantitative Discounted Cash Flow ("DCF") model combined with an assessment of certain qualitative factors designed to address forecast risk and model risk inherent in the quantitative model output. The Company has elected to use this approach because DCF models allow for effective incorporation of a reasonable and supportable forecast in a directionally consistent and objective manner and peer data is available for certain inputs such as the probability of default and the loss given default. The quantitative model utilizes a loss factor based approach to estimate expected credit losses, which are derived from internal historical and industry peer loss experience. The model estimates expected credit losses using loan level data over the estimated life of the exposure, considering the effect of prepayments. Economic forecasts are incorporated into the estimate over a reasonable and supportable forecast period, beyond which is a reversion to the historical long-run average using the straight-line reversion method. Management periodically evaluates a reasonable and supportable forecast period and a reversion period to be appropriate for purposes of estimating expected credit losses. The qualitative risk factors impacting the expected risk of loss within the portfolio include the following: +• +Lending policies and procedures +• +Economic and business conditions +• +Nature and volume of loans +• +Changes in management +• +Changes in credit quality +• +Changes in loan review system +• +Changes to underlying collateral values +• +Concentrations of credit risk +• +Other external factors +The qualitative factors are determined based on the various risk characteristics of each loan segment. Risk characteristics relevant to each loan segment are as follows: +One-to-four residential real estate and home equity lines of credit and loans : The Company generally does not originate loans with a loan-to-value ratio greater than 80 percent without requiring private mortgage insurance. Loans in these segments are collateralized primarily by owner-occupied residential real estate and repayment is dependent on the credit quality of the individual borrower. The overall health of the economy, including unemployment rates and housing prices, will have an effect on the credit quality in these segments. +Commercial real estate and multi-family residential : Loans in these segments are primarily income-producing properties throughout Massachusetts. The underlying cash flows generated by the properties are adversely impacted by a +66 +downturn in the economy as evidenced by increased vacancy rates which, in turn, will have an effect on the credit quality in these segments. Management periodically obtains rent rolls and continually monitors the cash flows of these loans. +Construction : The loans in this segment are residential and commercial construction-to-permanent loans collateralized by owner-occupied residential and commercial real estate and repayment is dependent on the credit quality of the individual borrower. The overall health of the economy, including unemployment rates and housing prices, will have an effect on the credit quality in this segment. +Commercial : Loans in this segment are made to businesses and are generally secured by assets of the business. Repayment is expected from the cash flows of the business. A weakened economy, and resultant decreased consumer spending, will have an effect on the credit quality in this segment. +Consumer : Loans in this segment are generally unsecured and repayment is dependent on the credit quality of the individual borrower. +Loans that do not share similar risk characteristics with any pools of assets are subject to individual evaluation and are removed from the collectively assessed pools to avoid double counting. This includes loans on non-accrual status and loans that are 90 days or greater past due. For the loans that will be individually evaluated, the Company will use either a discounted cash flow (“DCF”) approach or a fair value of collateral approach. The latter approach will be used for loans deemed to be collateral dependent or when foreclosure is probable. +Accrued interest receivable amounts are excluded from balances of loans held at amortized cost and are included within accrued interest receivable in the consolidated balance sheets. Management has elected not to measure an allowance for credit losses on these amounts as the Company employs a timely write-off policy. Consistent with the Company's policy for nonaccrual loans, accrued interest receivable is typically written off when loans reach 90 days past due and are placed on nonaccrual status. +In the ordinary course of business, the Company enters into commitments to extend credit. Such financial instruments are recorded in the financial statements when they are funded. The credit risk associated with these commitments is evaluated in a manner similar to the allowance for credit losses on loans with an additional assumption of probability of funding. The reserve for unfunded lending commitments is included in other liabilities in the consolidated balance sheets. +Bank Owned Life Insurance +The Company holds bank-owned life insurance on the lives of certain participating employees. The amount reported as an asset on the Consolidated Balance Sheets is the sum of the cash surrender values reported to the Company by the various insurance carriers. Increases in the cash surrender value of life insurance policies, as well as benefits received net of any cash surrender value, are recorded in other noninterest income, and are generally not subject to income taxes. The Company reviews the financial strength of the insurance carriers prior to the purchase of life insurance policies and no less than annually thereafter. Regulatory requirements limit the total amount of CSV to be held with any individual carrier to 15% of Tier 1 capital (as defined for regulatory purposes) and the total CSV of all life insurance policies is limited to 25% of Tier 1 capital. +Premises and Equipment +Land is carried at cost. Buildings, leasehold improvements and furniture and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets. Leasehold improvements are amortized over the shorter of the lease terms or the estimated lives of the improvements. Expected lease terms include lease options to the extent that the exercise of such options is reasonably assured. +67 +Leases +Leases are evaluated at inception to determine if leases should be classified as an operating or finance lease. Leases are recognized as right-of-use lease assets and lease liabilities. The discount rate used in determining the present value of lease payments is based on the Company’s incremental borrowing rate for borrowings with terms similar to each lease at commencement date. The Company recognizes lease expense for operating leases on a straight-line basis. +Other Real Estate Owned +Real estate properties and other assets, which have served as collateral to secure loans, are held for sale and are initially recorded at fair value less estimated costs to sell at the date control is established, resulting in a new cost basis. The amount by which the recorded investment in the loan exceeds the fair value (net of estimated costs to sell) of the foreclosed asset is charged to the allowance for credit losses. Subsequent declines in the fair value of the foreclosed asset below the new cost basis are recorded through the use of a valuation allowance. Subsequent increases in the fair value are recorded as reductions in the valuation allowance, but not below zero. Upon a sale of a foreclosed asset, any excess of the carrying value over the sale proceeds is recognized as a loss on sale. Any excess of sale proceeds over the carrying value of the foreclosed asset is first applied as a recovery to the valuation allowance, if any, with the remainder being recognized as a gain on sale. Operating expenses and changes in the valuation allowance relating to foreclosed assets are recorded in other noninterest expense. +Advertising +The Company directly expenses costs associated with advertising as they are incurred. +Stock-based Compensation +The Company recognizes stock-based compensation based on the grant-date fair value of the award with no adjustment for expected forfeitures, as forfeitures are recognized when they occur. For restricted stock awards, the Company recognizes compensation expense ratably over the vesting period for the fair value of the award, measured at the grant date. For stock option awards, the Company values awards granted using the Black-Scholes option-pricing model. The Company recognizes compensation expense for these awards on a straight-line basis over the requisite service period for the entire award (straight-line attribution method), ensuring that the amount of compensation cost recognized at any date at least equals the portion of the grant-date fair value of the award that is vested at that time. The Company recognizes excess tax benefits on certain stock compensation transactions. The excess tax benefits are recorded through earnings as a discrete item within the Company’s effective tax rate during the period of the transaction. +Income Taxes +Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. +Assets and liabilities are established for uncertain tax positions taken or positions expected to be taken in income tax returns when such positions are judged to not meet the “more-likely-than-not” threshold, based upon the technical merits of the position. Estimated interest and penalties, if applicable, related to uncertain tax positions are included as a component of income tax expense. +The Company has evaluated the positions taken on its tax returns filed and the potential impact on its tax status as of December 31, 2024. The Company has concluded no uncertain income tax positions exist at December 31, 2024 . The Company is subject to U.S. federal, state and local income tax examinations by tax authorities for the 2021 through 2023 tax years. +68 +Risks and Uncertainties +Most of the Company’s business activity is with customers located within the greater Boston area. The majority of the Company’s loan portfolio is comprised of loans collateralized by real estate located in the greater Boston area. +The Company invests in various investment securities. Investment securities are exposed to various risks, such as interest rate, market and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investments will occur in the near term and that such changes could materially affect the amounts reported in the consolidated balance sheet or statements of income. +Ineffective liquidity management could adversely affect the Company's financial results and condition. Effective liquidity management is essential for the operation of the business. The Company requires sufficient liquidity to meet customer loan requests, customer deposit maturities/withdrawals, payments on its debt obligations as they come due, and other cash commitments under both normal operating conditions and other unpredictable circumstances causing industry or general financial market stress. The Company's access to funding sources in amounts adequate to finance its activities on terms that are acceptable to the Company could be impaired by factors that affect the Company specifically, or the financial services industry or economy generally. Factors that could detrimentally impact the Company's access to liquidity sources include a downturn in the geographic markets in which our loans and operations are concentrated or difficult credit markets. The Company's access to deposits may also be affected by the liquidity needs of its depositors. In particular, a portion of the Company's liabilities are checking accounts and other liquid deposits, which are payable on demand or upon several days’ notice, while by comparison, a substantial majority of the Company's assets are loans, which cannot be called or sold in the same time frame. Although the Company has historically been able to replace maturing deposits and advances as necessary, it might not be able to replace such funds in the future, especially if a large number of the Company's depositors seek to withdraw their accounts, regardless of the reason. A failure to maintain adequate liquidity could materially and adversely affect the Company's business, results of operations, or financial condition. +Reven ue Recognition +The Company recognizes revenue in accordance with Accounting Standards Codification (ASC) Topic 606 : Revenue from Contracts with Customers . The Company’s principal revenue streams come from interest and dividend income and mortgage banking activities – which are specifically excluded from the scope of Topic 606. Revenue streams within the scope of Topic 606 such as customer service and account maintenance fees, deposit charges, ATM interchange and other transaction fees represent an immaterial percentage of total revenue and are recognized when the Company’s performance obligations have been satisfied. +Earnings Per Share +Basic earnings per share is calculated by dividing the income available to common shares by the weighted-average number of common shares outstanding during the period. Diluted earnings per share have been calculated in a manner similar to that of basic earnings per share except that the weighted-average number of common shares outstanding is increased to include the number of additional common shares that would have been outstanding if all potential dilutive common shares (such as those resulting from the exercise of stock options) were issued during the period, computed using the treasury stock method. Unallocated ESOP shares are not deemed outstanding for earnings per share calculations. +Common Share Repurchases +Shares repurchased by the Company under the Company’s share repurchase program have been classified as authorized but unissued shares. The cost of shares repurchased by the Company has been accounted for as a reduction to common stock and additional paid in capital balances. Under Maryland corporation law, repurchased shares are not classified as Treasury shares; but rather, are classified as authorized but unissued shares. U.S. GAAP states that the accounting for share repurchases shall conform to state law where applicable. +69 +Employee Stock Ownership Plan ("ESOP") +ESOP shares are shown as a reduction of equity and are presented in the consolidated statements of changes in shareholders’ equity as unallocated common stock held by ESOP. Compensation expense for the Company’s ESOP is recorded at an amount equal to the shares committed to be allocated by the ESOP multiplied by the average fair market value of the shares during the period. The Company recognizes compensation expense ratably over the period based upon the Company’s estimate of the number of shares committed to be allocated by the ESOP. When the shares are released, unallocated common stock held by ESOP is reduced by the cost of the ESOP shares released and the difference between the average fair market value and the cost of the shares committed to be allocated by the ESOP is recorded as an adjustment to additional paid-in capital. The loan receivable from the ESOP is not reported as an asset nor is the Company’s guarantee to fund the ESOP reported as a liability on the Company’s consolidated balance sheet. +Derivatives and Hedging +D erivative instruments are carried at fair value in the Company’s financial statements. The accounting for changes in the fair value of a derivative instrument is determined by whether it has been designated and qualifies as part of a hedging relationship, and further, by the type of hedging relationship. At the inception of a hedge, the Company documents certain items, including but not limited to the following: the relationship between hedging instruments and hedged items, the Company's risk management objectives, hedging strategies, and the evaluation of hedge transaction effectiveness. Documentation includes linking all derivatives designated as cash flow hedges to specific forecasted transactions. +The Company’s derivative instruments that are designated and qualify for hedge accounting are classified as cash flow hedges (i.e., hedging the exposure to variability in expected future cash flows associated with a recognized asset or liability, or a forecasted transaction). As such, changes in the fair value of the designated hedging instrument that is included in the assessment of hedge effectiveness are recorded in other comprehensive income and reclassified into net income in the same period or periods during which the hedged forecasted transaction affects net income. Such reclassifications are presented in the same income statement line item as the net income effect of the hedged item. If the hedging instrument is not highly effective at achieving offsetting cash flows attributable to the revised contractually specified interest rate(s), hedge accounting will be discontinued. At that time, accumulated other comprehensive income would be frozen and amortized, as long as the forecasted transactions are still probable of occurring. If a cash flow hedge is terminated, hedge accounting treatment would be retained, and accumulated other comprehensive income would be frozen and amortized, as long as the forecasted transactions are still probable of occurring +RECENT ACCOUNTING STANDARDS +The Company qualifies as an emerging growth company (“EGC”) under the Jumpstart Our Business Startups Act of 2012 and has elected to defer the adoption of new or revised accounting standards until the nonpublic company effective dates. As such, the Company will adopt standards on the nonpublic company effective dates until such time that we no longer qualify as an EGC. +The Company adopted Accounting Standards Update ("ASU") 2023-07, Segment Reporting (Topic 280) - Improvement to Reportable Segment Disclosures, on January 1, 2024 , which requires that information be reported about a company’s operating segments using a “management approach.” Reportable segments are identified in these standards as those revenue producing components for which separate financial information is produced internally and which are subject to evaluation by the chief operating decision maker (“CODM”). The Company has determined that its CODM is its Chief Executive Officer . The Company has one reportable segment: its banking business, which consists of a full range of lending and deposit offerings. The CODM regularly assesses performance of the aggregated single operating and reporting segment and decides how to allocate resources based on net income calculated on the same basis as is net income reported in the Company’s consolidated statements of income and other comprehensive income. The CODM is also regularly provided with expense information at a level consistent with that disclosed in the Company’s consolidated statements of income and other comprehensive income. +In December 2023, the Financial Accounting Standards Board ("FASB") issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. These amendments require that public business entities on an annual basis disclose specific categories in the rate reconciliation. ASU 2023-09 also requires entities to provide additional +70 +information for reconciling items that meet a quantitative threshold. As an emerging growth company, the amendments in ASU 2023-09 are effective for fiscal years beginning after December 15, 2025 with early adoption permitted. ASU 2023-09 is not expected to have a significant impact on our financial statements. +In November 2024, FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses , which requires disclosure in the notes to the financial statements of specified information about certain costs and expenses. The amendments are effective for fiscal years beginning after December 15, 2026, and for interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. The amendments should be applied eit her prospectively to financial statements issued for reporting periods after the effective date of this ASU or retrospectively to any or all prior periods presented in the financial statements. The Company is currently evaluating the new guidance to determine the impact it may have on its consolidated financial statements and related disclosures, but expects additional disclosures upon adoption. +NOTE 3 – INVESTMENTS IN SECURITIES +Held to Maturity Securities +Investments in securities have been classified in the consolidated balance sheets according to management’s intent. The following tables summarize the amortized cost, allowance for credit losses, and fair value of securities and their corresponding amounts of unrealized gains and losses at the dates indicated: +Gross +Gross +Allowance +Amortized +Unrealized +Unrealized +for Credit +Fair +Held-to-maturity: +Cost +Gains +Losses +Losses +Value +(in thousands) +As of December 31, 2024 +Debt securities issued by U.S. government-sponsored enterprises +$ +5,588 +$ +— +$ +( 138 +) +$ +— +$ +5,450 +Mortgage-backed securities +44,261 +20 +( 5,334 +) +— +38,947 +Corporate bonds +17,899 +192 +( 471 +) +— +17,620 +U.S. Treasury securities +5,467 +21 +— +— +5,488 +Total held-to-maturity securities +$ +73,215 +$ +233 +$ +( 5,943 +) +$ +— +$ +67,505 +As of December 31, 2023 +Debt securities issued by U.S. government-sponsored enterprises +$ +10,225 +$ +— +$ +( 381 +) +$ +— +$ +9,844 +Mortgage-backed securities +49,445 +36 +( 5,235 +) +— +44,246 +Corporate bonds +14,408 +— +( 779 +) +— +13,629 +U.S. Treasury securities +2,901 +— +( 30 +) +— +2,871 +Total held-to-maturity securities +$ +76,979 +$ +36 +$ +( 6,425 +) +$ +— +$ +70,590 +The Company measures expected credit losses on held to maturity securities on a collective basis by major security type. Management classifies the held-to maturity portfolio into the following major security types: U.S. Government Sponsored Enterprises, U.S. Treasury, Agency Mortgage-Backed Securities, and Corporate Bonds. +Held to maturity securities held by the Company are guaranteed by the U.S. federal government or other government sponsored agencies and have a long history of no credit losses. As a result, management has determined these securities to have a zero loss expectation and therefore the Company did no t record a provision for estimated credit losses on any held to maturity securities during the year ended December 31, 2024 and December 31, 2023 . The Company's investments in corporate bonds are deemed “investment grade” and (a) the Company does not intend to sell these securities before recovery and (b) it is more likely than not that the Company will not be required to sell these securities before recovery. Excluded from the table above is accrued interest on held to maturity securities of $ 378,000 and $ 310,000 at December 31, 2024 and 2023 . respectively, which is included within accrued interest receivable in the Consolidated Balance Sheets. Additionally, the Company did no t record any write-offs of accrued interest income on held to maturity +71 +securities for the year ended December 31, 2024 and December 31, 2023 . No securities held by the Company were delinquent on contractual payments at December 31, 2024 and December 31, 2023 , no r were any securities placed on non-accrual status for the year then ended. +Available-for-Sale Securities +Gross +Gross +Allowance +Amortized +Unrealized +Unrealized +for Credit +Fair +Available-for-sale +Cost +Gains +Losses +Losses +Value +(in thousands) +As of December 31, 2024 +Mortgage-backed securities +$ +4,164 +$ +— +$ +( 38 +) +$ +— +$ +4,126 +Collateralized mortgage obligation +1,452 +— +( 14 +) +— +1,438 +Corporate bonds +1,000 +— +— +— +1,000 +Total available-for-sale securities +$ +6,616 +$ +— +$ +( 52 +) +$ +— +$ +6,564 +As of December 31, 2023 +Corporate bonds +$ +5,000 +$ +4 +$ +( 1 +) +$ +— +$ +5,003 +Total available-for-sale securities +$ +5,000 +$ +4 +$ +( 1 +) +$ +— +$ +5,003 +The Company did no t record a provision for estimated credit losses on any available-for-sale securities for the year ended December 31, 2024 and December 31, 2023 . Excluded from the table above is accrued interest on available-for-sale securities of $ 16,000 and $ 58,000 at December 31, 2024 and 2023 , respectively, which is included within accrued interest receivable in the Consolidated Balance Sheets. Additionally, the Company did no t record any write-offs of accrued interest income on available for sale securities for the year ended December 31, 2024 and December 31, 2023 . No securities held by the Company were delinquent on contractual payments at December 31, 2024 and December 31, 2023 , no r were any securities placed on non-accrual status for the year then ended. +The aggregate fair value and unrealized losses of available-for-sale securities that have been in a continuous unrealized loss position for less than twelve months and for twelve months or more, and have no allowance for credit losses, are as follows as of December 31, 2024 and December 31, 2023: +Less than 12 Months +12 Months or Longer +Total +# of +Fair +Unrealized +Fair +Unrealized +Fair +Unrealized +Holdings +Value +Losses +Value +Losses +Value +Losses +(in thousands) +As of December 31, 2024 +Available for Sale: +Mortgage-backed securities +2 +$ +4,126 +$ +( 38 +) +$ +- +$ +- +$ +4,126 +$ +( 38 +) +Collateralized mortgage obligation +1 +1,438 +( 14 +) +- +- +1,438 +( 14 +) +Total temporarily impaired securities +3 +$ +5,564 +$ +( 52 +) +$ +- +$ +- +$ +5,564 +$ +( 52 +) +As of December 31, 2023 +Available for Sale: +Corporate bonds +1 +$ +2,500 +$ +( 1 +) +$ +- +$ +- +$ +2,500 +$ +( 1 +) +Total temporarily impaired securities +1 +$ +2,500 +$ +( 1 +) +$ +- +$ +- +$ +2,500 +$ +( 1 +) +Management evaluates securities for expected credit losses at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. +Held to Maturity and Available-for-Sale Securities +The actual maturities of certain available for sale or held to maturity securities may differ from the contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment +72 +penalties . A schedule of the contractual maturities of available for sale and held to maturity securities as of December 31, 2024 is presented below: +Available- +for-sale +Held-to-maturity +Fair +Amortized +Fair +Value +Cost Basis +Value +(in thousands) +Within 1 year +$ +2,003 +$ +12,563 +$ +12,444 +After 1 year through 5 years +2,123 +20,284 +20,068 +After 5 years through 10 years +1,000 +4,998 +4,760 +After 10 years +1,438 +35,370 +30,233 +Total +$ +6,564 +$ +73,215 +$ +67,505 +When securities are sold, the adjusted cost of the specific security sold is used to compute the gain or loss on the sale. There were no sales of securities during the years ended December 31, 2024 and 2023. +The carrying value of securities pledged to secure advances from the FHLB were $ 55.5 million and $ 62.6 million as of December 31, 2024 and December 31, 2023, respectively. +The carrying value of securities pledged to secure advances from the Federal Reserve Bank (“FRB”) was $ 16.0 million as of December 31, 2024 . There were no securities pledged to FRB at December 31, 2023 . +NOTE 4 – LOANS, ALLOWANCE FOR CREDIT LOSSES AND CREDIT QUALITY +Loans consisted of the following as of the dates indicated: +At December 31, +At December 31, +2024 +2023 +Amount +Percent +Amount +Percent +(Dollars in thousands) +Real estate loans: +One-to-four family residential +$ +422,841 +36.9 +% +$ +410,131 +39.1 +% +Multi-family +343,970 +30.0 +287,361 +27.4 +Commercial +228,991 +20.0 +196,365 +18.7 +Home equity lines of credit and loans +45,154 +4.0 +33,357 +3.2 +Construction +90,894 +7.9 +112,000 +10.7 +Other loans: +Commercial loans +13,844 +1.2 +9,219 +0.9 +Consumer +141 +0.0 +173 +0.0 +1,145,835 +100.0 +% +1,048,606 +100.0 +% +Less: +Net deferred loan fees +( 502 +) +( 226 +) +Allowance for credit losses +( 8,884 +) +( 8,591 +) +Total loans, net +$ +1,136,449 +$ +1,039,789 +The Company elected to exclude accrued interest receivable from the amortized cost basis of loans disclosed throughout this footnote. As of December 31, 2024 and 2023 , accrued interest receivable for loans totaled $ 3.5 million and $ 3.2 million, respectively, and is included in the "Accrued interest receivable" line item on the Company's Consolidated Balance Sheets. +The Company elected to exclude net deferred loan fees from the amortized cost basis of loans disclosed throughout this footnote. +The carrying value of loans pledged to secure advances from the FHLB was $ 744.6 million and $ 553.0 million as of December 31, 2024 and December 31, 2023, respectively. +73 +The following tables set forth information regarding the allowance for credit losses as of and for the year ended December 31, 2024 and December 31, 2023: +For the year ended December 31, 2024 +Beginning +Balance +Charge-offs +Recoveries +(Benefit) +provision +Ending +Balance (1) +(in thousands) +Real estate loans: +One-to-four family residential +$ +3,555 +$ +- +$ +- +$ +( 627 +) +$ +2,928 +Multi-family +1,190 +- +- +1,232 +2,422 +Commercial +1,636 +- +- +624 +2,260 +Home equity lines of credit and loans +321 +- +- +( 203 +) +118 +Construction +1,757 +- +- +( 721 +) +1,036 +Other loans: +Commercial loans +131 +- +- +( 12 +) +119 +Consumer +1 +( 4 +) +1 +3 +1 +Total +$ +8,591 +$ +( 4 +) +$ +1 +$ +296 +$ +8,884 +For the year ended December 31, 2023 +Beginning +Balance +Cumulative effect of accounting adjustment (2) +Charge-offs +Recoveries +Provision +(benefit) +Ending +Balance (1) +(in thousands) +Real estate loans: +One-to-four family residential +$ +1,703 +$ +130 +$ +- +$ +- +$ +1,722 +$ +3,555 +Multi-family +1,839 +77 +- +- +( 726 +) +1,190 +Commercial +1,797 +145 +- +- +( 306 +) +1,636 +Home equity lines of credit and loans +194 +( 20 +) +- +- +147 +321 +Construction +1,286 +136 +- +- +335 +1,757 +Other loans: +Commercial loans +60 +34 +- +- +37 +131 +Consumer +1 +- +( 2 +) +1 +1 +1 +Unallocated +320 +( 320 +) +- +- +- +- +Total +$ +7,200 +$ +182 +$ +( 2 +) +$ +1 +$ +1,210 +$ +8,591 +(1) Balances of accrued interest receivable excluded from amortized cost and the calculation of allowance for credit losses amounted to $ 3.5 million and $ 3.2 million as of December 31, 2024 and December 31, 2023 , respectively. +(2) Represents an adjustment needed to reflect the cumulative day one impact pursuant to the Company's adoption of Accounting Standards Update 2016-13. The adjustment for the year ended December 31, 2023 represents a $ 182,000 increase to the allowance attributable to the change in accounting methodology for estimating the allowance for credit losses on loans resulting from the Company's adoption of the standard. +74 +The following table shows the age analysis of past due loans as of the dates indicated: +30–59 Days +60–89 Days +90 Days +or More +Total +Past Due +Total +Current +Total +Loans +90 days +or more and accruing +Loans on +Non-accrual +(in thousands) +As of December 31, 2024 +Real estate loans: +One-to-four family residential +$ +1,260 +$ +— +$ +1,077 +$ +2,337 +$ +420,504 +$ +422,841 +$ +— +$ +1,872 +Multi-family +— +— +— +— +343,970 +343,970 +— +— +Commercial +— +— +— +— +228,991 +228,991 +— +— +Home equity lines of credit and loans +405 +— +85 +490 +44,664 +45,154 +— +85 +Construction +— +— +— +— +90,894 +90,894 +— +— +Other loans: +Commercial +— +— +— +— +13,844 +13,844 +— +— +Consumer +— +— +— +— +141 +141 +— +— +$ +1,665 +$ +— +$ +1,162 +$ +2,827 +$ +1,143,008 +$ +1,145,835 +$ +— +$ +1,957 +30–59 Days +60–89 Days +90 Days +or More +Total +Past Due +Total +Current +Total +Loans +90 days +or more and accruing +Loans on +Non-accrual +(in thousands) +As of December 31, 2023 +Real estate loans: +One-to-four family residential +$ +722 +$ +225 +$ +809 +$ +1,756 +$ +408,375 +$ +410,131 +$ +— +$ +1,191 +Multi-family +— +— +— +— +287,361 +287,361 +— +— +Commercial +— +— +— +— +196,365 +196,365 +— +— +Home equity lines of credit and loans +360 +— +8 +368 +32,989 +33,357 +— +22 +Construction +— +— +— +— +112,000 +112,000 +— +— +Other loans: +Commercial +— +— +— +— +9,219 +9,219 +— +— +Consumer +1 +— +— +1 +172 +173 +— +— +$ +1,083 +$ +225 +$ +817 +$ +2,125 +$ +1,046,481 +$ +1,048,606 +$ +— +$ +1,213 +75 +As of December 31, 2024, the Company's collateral-dependent non-accrual residential real estate loans and home equity line of credit loans had amortized cost bases of $ 1.9 million and $ 85,000 , respectively. These loans are secured by real estate with no related allowance for credit losses. +As of December 31, 2023, the Company's collateral-dependent non-accrual residential real estate loans and home equity line of credit loans had amortized cost bases of $ 1.2 million and $ 22,000 , respectively. These loans are secured by real estate with no related allowance for credit losses. +The following table shows information regarding nonaccrual loans as of the dates indicated: +As of December 31, 2024 +Year Ended December 31, 2024 +With an Allowance for Credit Losses +Without an Allowance for Credit Losses +Total +Interest Income Recognized +(in thousands) +December 31, 2024 +Real estate loans: +One-to-four family residential +$ +— +$ +1,872 +$ +1,872 +$ +53 +Home equity lines of credit and loans +— +85 +85 +1 +Total nonaccrual loans +$ +— +$ +1,957 +$ +1,957 +$ +54 +As of December 31, 2023 +Year Ended December 31, 2023 +With an Allowance for Credit Losses +Without an Allowance for Credit Losses +Total +Interest Income Recognized +(in thousands) +December 31, 2023 +Real estate loans: +One-to-four family residential +$ +— +$ +1,191 +$ +1,191 +$ +39 +Home equity lines of credit and loans +— +22 +22 +1 +Total nonaccrual loans +$ +— +$ +1,213 +$ +1,213 +$ +40 +Credit Quality Information +During the second quarter of 2024, the Company expanded its internal loan risk rating system from a seven grade system to a ten grade system. The new loan rating system for multi-family and commercial real estate, construction, commercial loans and certain residential and home equity lines of credit is as follows: +Loans rated 1 – 6: Loans in these categories are considered “pass” rated loans with low to average risk. +Loans rated 7: Loans in this category are considered “special mention.” These loans are starting to show signs of potential weakness and are being closely monitored by management. +Loans rated 8: Loans in this category are considered “substandard.” Generally, a loan is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligors and/or the collateral pledged. There is a distinct possibility that the Bank will sustain some loss if the weakness is not corrected. +Loans rated 9: Loans in this category are considered “doubtful.” Loans classified as doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, highly questionable and improbable. +Loans rated 10: Loans in this category are considered uncollectible (loss) and of such little value that their continuance as loans is not warranted. +The rating system as of December 31, 2023 was as follows: +76 +Loans rated 1 – 3: Loans in these categories are considered “pass” rated loans with low to average risk. +Loans rated 4: Loans in this category are considered “special mention.” These loans are starting to show signs of potential weakness and are being closely monitored by management. +Loans rated 5: Loans in this category are considered “substandard.” Generally, a loan is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligors and/or the collateral pledged. There is a distinct possibility that the Bank will sustain some loss if the weakness is not corrected. +Loans rated 6: Loans in this category are considered “doubtful.” Loans classified as doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, highly questionable and improbable. +Loans rated 7: Loans in this category are considered uncollectible (loss) and of such little value that their continuance as loans is not warranted. +On an annual basis, or more often if needed, the Company formally reviews the ratings on all commercial loans with aggregate potential outstanding balances of $ 500,000 or more, and all commercial real estate loans (including multi-family and construction loans as well as residential and home equity line of credit loans to commercial borrowers) with aggregate potential outstanding balances of $ 2.0 million or more. For loans that are not formally rated, the Company initially assesses credit quality based upon the borrower’s ability to pay and subsequently monitors these loans based on the borrower’s payment activity. +77 +The following table details the amortized cost balances of the Company's loan portfolios, presented by credit quality indicator and origination year as of December 31, 2024 and December 31, 2023: +Term Loans Amortized Cost Basis by Origination Year +Revolving Loans Amortized Cost Basis +Revolving Loans Converted to Term +Total +2024 +2023 +2022 +2021 +2020 +Prior +As of December 31, 2024 +(in thousands) +One-to-four family residential +Pass +$ +8,351 +$ +12,065 +$ +34,466 +$ +15,123 +$ +3,979 +$ +11,766 +$ +— +$ +— +$ +85,750 +Special Mention +— +— +— +— +636 +771 +— +— +1,407 +Substandard +— +— +— +— +— +— +— +— +— +Doubtful +— +— +— +— +— +— +— +— +— +Loans not formally rated (1) +30,905 +46,491 +84,245 +68,818 +48,728 +56,497 +— +— +335,684 +Total +$ +39,256 +$ +58,556 +$ +118,711 +$ +83,941 +$ +53,343 +$ +69,034 +$ +— +$ +— +$ +422,841 +Current-period gross charge-offs (2) +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +Multi-family +Pass +$ +24,006 +$ +55,612 +$ +201,562 +$ +35,315 +$ +8,611 +$ +8,792 +$ +10,072 +$ +— +$ +343,970 +Special Mention +— +— +— +— +— +— +— +— +— +Substandard +— +— +— +— +— +— +— +— +— +Doubtful +— +— +— +— +— +— +— +— +— +Loans not formally rated (1) +— +— +— +— +— +— +— +— +— +Total +$ +24,006 +$ +55,612 +$ +201,562 +$ +35,315 +$ +8,611 +$ +8,792 +$ +10,072 +$ +— +$ +343,970 +Current-period gross charge-offs +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +Commercial real estate +Pass +$ +28,614 +$ +40,935 +$ +82,054 +$ +25,215 +$ +15,447 +$ +32,071 +$ +4,655 +$ +— +$ +228,991 +Special Mention +— +— +— +— +— +— +— +— +— +Substandard +— +— +— +— +— +— +— +— +— +Doubtful +— +— +— +— +— +— +— +— +— +Loans not formally rated (1) +— +— +— +— +— +— +— +— +— +Total +$ +28,614 +$ +40,935 +$ +82,054 +$ +25,215 +$ +15,447 +$ +32,071 +$ +4,655 +$ +— +$ +228,991 +Current-period gross charge-offs +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +Home equity lines of credit and loans +Pass +$ +199 +$ +323 +$ +— +$ +— +$ +— +$ +— +$ +8,083 +$ +— +$ +8,605 +Special Mention +— +— +— +— +— +10 +322 +— +332 +Substandard +— +— +— +— +— +— +99 +— +99 +Doubtful +— +— +— +— +— +— +— +— +— +Loans not formally rated (1) +176 +382 +27 +7 +— +71 +34,618 +837 +36,118 +Total +$ +375 +$ +705 +$ +27 +$ +7 +$ +— +$ +81 +$ +43,122 +$ +837 +$ +45,154 +Current-period gross charge-offs +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +Construction +Pass +$ +30,986 +$ +19,398 +$ +32,483 +$ +2,493 +$ +— +$ +2,988 +$ +— +$ +— +$ +88,348 +Special Mention +— +— +— +— +— +— +— +— +— +Substandard +— +— +— +— +— +— +— +— +— +Doubtful +— +— +— +— +— +— +— +— +— +Loans not formally rated (1) +1,116 +1,430 +— +— +— +— +— +— +2,546 +Total +$ +32,102 +$ +20,828 +$ +32,483 +$ +2,493 +$ +— +$ +2,988 +$ +— +$ +— +$ +90,894 +Current-period gross charge-offs +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +Commercial loans +Pass +$ +4,501 +$ +4,410 +$ +2,597 +$ +340 +$ +— +$ +195 +$ +1,801 +$ +— +$ +13,844 +Special Mention +— +— +— +— +— +— +— +— +— +Substandard +— +— +— +— +— +— +— +— +— +Doubtful +— +— +— +— +— +— +— +— +— +Loans not formally rated (1) +— +— +— +— +— +— +— +— +— +Total +$ +4,501 +$ +4,410 +$ +2,597 +$ +340 +$ +— +$ +195 +$ +1,801 +$ +— +$ +13,844 +Current-period gross charge-offs +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +Consumer +Pass +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +Special Mention +— +— +— +— +— +— +— +— +— +Substandard +— +— +— +— +— +— +— +— +— +Doubtful +— +— +— +— +— +— +— +— +— +Loans not formally rated (1) +7 +16 +29 +39 +— +6 +44 +— +141 +Total +$ +7 +$ +16 +$ +29 +$ +39 +$ +— +$ +6 +$ +44 +$ +— +$ +141 +Current-period gross charge-offs +$ +4 +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +$ +4 +78 +Term Loans Amortized Cost Basis by Origination Year +Revolving Loans Amortized Cost Basis +Revolving Loans Converted to Term +Total +2023 +2022 +2021 +2020 +2019 +Prior +As of December 31, 2023 +(in thousands) +One-to-four family residential +Pass +$ +9,689 +$ +36,662 +$ +15,529 +$ +4,476 +$ +4,230 +$ +9,224 +$ +— +$ +— +$ +79,810 +Special Mention +— +— +— +809 +— +451 +— +— +1,260 +Substandard +— +— +— +— +— +— +— +— +— +Doubtful +— +— +— +— +— +— +— +— +— +Loans not formally rated (1) +48,688 +90,827 +72,463 +51,035 +7,129 +58,919 +— +— +329,061 +Total +$ +58,377 +$ +127,489 +$ +87,992 +$ +56,320 +$ +11,359 +$ +68,594 +$ +— +$ +— +$ +410,131 +Current-period gross charge-offs +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +Multi-family +Pass +$ +45,188 +$ +194,999 +$ +26,820 +$ +8,873 +$ +— +$ +9,798 +$ +1,683 +$ +— +$ +287,361 +Special Mention +— +— +— +— +— +— +— +— +— +Substandard +— +— +— +— +— +— +— +— +— +Doubtful +— +— +— +— +— +— +— +— +— +Loans not formally rated (1) +— +— +— +— +— +— +— +— +— +Total +$ +45,188 +$ +194,999 +$ +26,820 +$ +8,873 +$ +— +$ +9,798 +$ +1,683 +$ +— +$ +287,361 +Current-period gross charge-offs +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +Commercial real estate +Pass +$ +43,639 +$ +72,671 +$ +24,138 +$ +16,407 +$ +4,054 +$ +31,132 +$ +4,324 +$ +— +$ +196,365 +Special Mention +— +— +— +— +— +— +— +— +— +Substandard +— +— +— +— +— +— +— +— +— +Doubtful +— +— +— +— +— +— +— +— +— +Loans not formally rated (1) +— +— +— +— +— +— +— +— +— +Total +$ +43,639 +$ +72,671 +$ +24,138 +$ +16,407 +$ +4,054 +$ +31,132 +$ +4,324 +$ +— +$ +196,365 +Current-period gross charge-offs +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +Home equity lines of credit and loans +Pass +$ +326 +$ +— +$ +— +$ +— +$ +— +$ +— +$ +4,986 +$ +— +$ +5,312 +Special Mention +— +— +— +— +— +14 +8 +— +22 +Substandard +— +— +— +— +— +— +— +— +— +Doubtful +— +— +— +— +— +— +— +— +— +Loans not formally rated (1) +410 +36 +12 +— +65 +22 +26,970 +508 +28,023 +Total +$ +736 +$ +36 +$ +12 +$ +— +$ +65 +$ +36 +$ +31,964 +$ +508 +$ +33,357 +Current-period gross charge-offs +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +Construction +Pass +$ +33,707 +$ +55,170 +$ +17,228 +$ +— +$ +786 +$ +2,988 +$ +— +$ +— +$ +109,879 +Special Mention +— +— +— +— +— +— +— +— +— +Substandard +— +— +— +— +— +— +— +— +— +Doubtful +— +— +— +— +— +— +— +— +— +Loans not formally rated (1) +2,121 +— +— +— +— +— +— +— +2,121 +Total +$ +35,828 +$ +55,170 +$ +17,228 +$ +— +$ +786 +$ +2,988 +$ +— +$ +— +$ +112,000 +Current-period gross charge-offs +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +Commercial loans +Pass +$ +4,444 +$ +3,349 +$ +428 +$ +35 +$ +89 +$ +154 +$ +655 +$ +— +$ +9,154 +Special Mention +— +— +— +— +— +— +— +— +— +Substandard +— +— +— +— +— +— +— +— +— +Doubtful +— +— +— +— +— +— +— +— +— +Loans not formally rated (1) +— +— +65 +— +— +— +— +— +65 +Total +$ +4,444 +$ +3,349 +$ +493 +$ +35 +$ +89 +$ +154 +$ +655 +$ +— +$ +9,219 +Current-period gross charge-offs +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +Consumer +Pass +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +Special Mention +— +— +— +— +— +— +— +— +— +Substandard +— +— +— +— +— +— +— +— +— +Doubtful +— +— +— +— +— +— +— +— +— +Loans not formally rated (1) +31 +38 +45 +— +— +13 +46 +— +173 +Total +$ +31 +$ +38 +$ +45 +$ +— +$ +— +$ +13 +$ +46 +$ +— +$ +173 +Current-period gross charge-offs +$ +2 +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +$ +— +$ +2 +79 +(1) Non-accrual loans that were not formally rated amounted to $ 526,000 as of December 31, 2024. All loans no t formally rated were accruing as of December 31, 2023. +At December 31, 2024 , the Company had one consumer mortgage loans secured by residential real estate property in the process of foreclosure for $ 335,000 . At December 31, 2023 , the Company had no consumer mortgage loans secured by residential real estate property in the process of foreclosure. +For the year ended December 31, 2024 and December 31, 2023 , the Company did not provide loan modifications involving borrowers that are experiencing financial difficulty. An assessment of whether a borrower is experiencing financial difficulty is made on the date of a modification, if applicable. The Allowance for Credit Losses ("ACL") incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon origination. Because the effect of most modifications made to borrowers experiencing financial difficulty would already be included in the ACL as a result of the measurement methodologies used to estimate the allowance, a change in the ACL is generally not recorded upon modification. +NOTE 5 – PREMISES AND EQUIPMENT +The following is a summary of premises and equipment as of December 31: +2024 +2023 +(in thousands) +Banking premises and equipment: +Land +$ +594 +$ +594 +Buildings and improvements +5,696 +5,696 +Leasehold improvements +351 +345 +Furniture and equipment +1,754 +1,724 +Total cost +8,395 +8,359 +Accumulated depreciation and amortization +( 4,883 +) +( 4,605 +) +Net premises and equipment +$ +3,512 +$ +3,754 +Depreciation and amortization expense for the years ended December 31, 2024 and 2023 amounted to $ 302,000 and $ 279,000 , respectively. +NOTE 6 – LEASES +The Company has operating leases for office space and one of our branch locations. These leases have remaining lease terms of two years to three years and certain of these leases have options to extend the lease for up to ten years . The options to extend have been included in the lease term if it was determined that it was reasonably certain that the Company will exercise the option. +All of the Company's leases are classified as operating leases. The right-of-use assets and corresponding lease liabilities are classified within “other assets” and “other liabilities,” respectively, in the accompanying consolidated balance sheets. +As of the dates indicated, the Company had the following related to operating leases: +As of December 31, 2024 +As of December 31, 2023 +(Dollars in thousands) +Right-of-use assets +$ +1,149 +$ +1,295 +Lease liabilities +1,200 +1,336 +Lease expense for the years ended December 31, 2024 and December 31, 2023 amounted to $ 200,000 and $ 175,000 , respectively. +The calculated amount of the right-of-use assets and lease liabilities are impacted by the length of the lease term and the discount rate used to present value the minimum lease payments. The Company's lease agreements include options to renew at the Company's discretion. If at lease inception, the Company considers the exercising of a renewal option to be +80 +reasonably certain, the Company will include the extended term in the calculation of the right-of-use assets and lease liabilities. The weighted average remaining lease term for operating leases at December 31, 2024 and 2023 was 7.6 years and 8.5 years, respectively. The weighted average discount rate was 4.28 % and 4.21 % at December 31, 2024 and 2023, respectively. +The following table sets forth the remaining minimum rental payments related to operating leases outstanding as of December 31, 2024. +As of December 31, 2024 +Year +(in thousands) +2025 +$ +191 +2026 +198 +2027 +207 +2028 +161 +2029 +152 +Thereafter +519 +Total minimum lease payments +1,428 +Less: amount representing interest +228 +Present value of future minimum lease payments +$ +1,200 +NOTE 7 – DEPOSITS +The aggregate amount of time deposit accounts in denominations that meet or exceed the Federal Deposit Insurance Corporation (FDIC) insurance limit (currently $ 250,000 ) at December 31, 2024 and 2023 was $ 258.7 million and $ 196.8 million, respectively. +The aggregate amount of brokered time deposits at December 31, 2024 and 2023 was $ 125.6 million and $ 115.5 million, respectively. All brokered time deposits are in denominations less than $ 250,000 . +For time deposits as of December 31, 2024, the scheduled maturities for each of the following years ended December 31 are (in thousands): +2025 +$ +388,407 +2026 +148,448 +2027 +53,853 +2028 +9,614 +2029 +5,193 +Total +$ +605,515 +NOTE 8 – BORROWINGS +Borrowings consist of advances borrowed from the FHLB. +81 +Maturities of advances from the FHLB for the years ending after December 31, 2024 and December 31, 2023 are summarized as follows (dollars in thousands): +2024 +2023 +Stated Maturity +Total Outstanding +Weighted Average Contractual Rate +Stated Maturity +Total Outstanding +Weighted Average Contractual Rate +2025 +$ +25,000 +4.52 +% +2024 +$ +30,000 +4.37 +% +2026 +4,000 +0.82 +2025 +- +- +2027 +95,000 +3.95 +2026 +24,000 +3.57 +2028 +65,000 +4.20 +2027 +95,000 +3.95 +2029 +45,000 +3.58 +2028 +85,000 +4.09 +Total +$ +234,000 +3.96 +% +Total +$ +234,000 +4.02 +% +Borrowings from the FHLB are secured by a blanket lien on qualified collateral, consisting primarily of loans with first mortgages secured by one-to-four family, multifamily and commercial real estate properties and other qualified assets. +At December 31, 2024 and 2023, the interest rates on FHLB advances ranged from 0.82 % to 4.95 % a nd 0.82 % to 4.95 %, respectively. +At December 31, 2024 and 2023 , the Bank had a $ 2.2 million line of credit established with the FHLB. There were no advances on this line. The available borrowing capacity with the FHLB was $ 328.5 million as of December 31, 2024 and $ 200.8 million as of December 31, 2023. +At December 31, 2024 and 2023 , the Bank had a $ 10.0 million line of credit established with the Atlantic Community Bankers Bank. There were no advances on this line. +At December 31, 2024 , the Bank had a line of credit established with the FRB with unused borrowing capacity of $ 15.1 million. There were no advances on this line. The Bank had no line of credit with the FRB at December 31, 2023. +NOTE 9 – EMPLOYEE BENEFIT PLANS +Pension Plans +401(k) Plan +The Company has adopted a savings plan which qualifies under Section 401(k) of the Internal Revenue Code and provides for voluntary contributions by participating employees ranging from 1 % to 75 % of their compensation, subject to certain limitations based on federal tax laws. The Bank makes matching contributions equal to 100 % of each eligible employee’s voluntary contributions, up to 7 % of the employee’s eligible wages. +Total expense related to the 401(k) plan for the years ended December 31, 2024 and 2023 amounted to $ 473,000 and $ 450,000 , respectively. +Employee Incentive Plan +The Company provides an employee incentive plan which is approved annually by the Board of Directors, based on various factors. The employee incentive plan expense for the years ended December 31, 2024 and 2023 amounted to $ 1,557,000 and $ 1,356,000 , respectively. +82 +Supplemental Executive Retirement Plan (SERP) +The Bank formed a SERP for certain executive officers. The SERP provides nonfunded retirement benefits designed to supplement benefits available through the Bank’s other retirement plans for employees. The liability for the SERP amounted to $ 1,029,000 and $ 1,106,000 at December 31, 2024 and 2023, respectively. +Director Fee Continuation Plan (DFCP) +Effective January 1, 2017, the Bank established a DFCP which provides supplemental retirement benefits for directors. Under the DFCP, individuals who are directors as of the effective date of the DFCP are 100 % vested in their benefits. Individuals who become directors after the effective date become fully vested in their accounts after having served on the Board of Directors for twelve years. +The following tables set forth information about the SERP and DFCP as of December 31 and the years then ended: +2024 +2023 +SERP +DFCP +SERP +DFCP +(in thousands) +Change in projected benefit obligation: +Benefit obligation at beginning of year +$ +1,106 +$ +769 +$ +1,156 +$ +689 +Service cost +7 +94 +6 +79 +Interest cost +49 +34 +53 +32 +Actuarial (gain) loss +( 25 +) +( 23 +) +( 9 +) +9 +Benefits paid +( 108 +) +( 40 +) +( 100 +) +( 40 +) +Benefit obligation at end of year +1,029 +834 +1,106 +769 +Funded status +( 1,029 +) +( 834 +) +( 1,106 +) +( 769 +) +Amounts recognized in accumulated other comprehensive income as of December 31, 2024 and 2023, before tax effect, consist of: +2024 +2023 +SERP +DFCP +SERP +DFCP +(in thousands) +Net gain +$ +( 99 +) +$ +( 104 +) +$ +( 79 +) +$ +( 97 +) +The accumulated benefit obligation and unfunded status of the SERP was $ 1,029,000 and $ 1,106,000 at December 31, 2024 and 2023 , respectively, and is classified within “other liabilities” in the accompanying consolidated balance sheets. The accumulated benefit obligation and unfunded status of the DFCP was $ 834,000 and $ 769,000 at December 31, 2024 and 2023, respectively, and is classified within “other liabilities” in the accompanying consolidated balance sheets. +Assumptions used to determine the benefit obligation at December 31 are as follows: +2024 +2023 +SERP +DFCP +SERP +DFCP +Discount rate +5.27 +% +5.24 +% +4.66 +% +4.58 +% +83 +Components of net periodic cost (benefit) and other comprehensive loss (income) for the years ended December 31 are as follows: +2024 +2023 +SERP +DFCP +SERP +DFCP +(in thousands) +Components of net periodic cost +Service cost +$ +7 +$ +94 +$ +6 +$ +79 +Interest cost +49 +34 +53 +32 +Amortization of net actuarial gain +( 5 +) +( 16 +) +( 138 +) +( 21 +) +Net periodic cost (benefit) +51 +112 +( 79 +) +90 +Other changes in benefit obligations recognized as other comprehensive (income) loss: +Net actuarial (gain) loss +$ +( 25 +) +$ +( 23 +) +$ +( 9 +) +$ +9 +Amortization of net actuarial loss +5 +16 +138 +21 +Total other comprehensive (income) loss +( 20 +) +( 7 +) +129 +30 +Total net periodic cost and other comprehensive loss +$ +31 +$ +105 +$ +50 +$ +120 +The components of net periodic benefit cost attributable to service cost for the SERP and DFCP are included in the line items "salaries and employee benefits" and "director compensation," respectively. The components of net periodic benefit cost other than the service cost component are included in the line item “other expense” in the income statement. +Assumptions used to determine the net periodic cost for years ended December 31 are as follows: +2024 +2023 +SERP +DFCP +SERP +DFCP +Discount rate +4.66 +% +4.58 +% +4.86 +% +4.77 +% +Estimated future benefit payments, which reflect expected future service, as appropriate, as of December 31, 2024 are as follows: +SERP +DFCP +(in thousands) +2025 +$ +110 +$ +60 +2026 +110 +60 +2027 +107 +100 +2028 +106 +100 +2029 +105 +100 +Years 2030 through 2034 +430 +525 +Supplemental Executive Retirement Agreement +On January 1, 2018, the Company entered into a supplemental executive retirement agreement with an executive officer whereby the Company is obligated to provide post-retirement salary continuation benefits equal to 60 % of the executive officer’s final average compensation, as defined. Benefits are 100 % vested, commence upon retirement, and are payable based on a ten-year certain and life annuity. The liability for the Plan amounted to $ 3,385,000 and $ 3,200,000 as of December 31, 2024 and 2023, respectively. The expense recognized for the Plan for the years ended December 31, 2024 and 2023 amounted to $ 185,000 and $ 119,000 , respectively. +Executive Deferred Compensation Plans +In 2021 and 2023, the Company entered into deferred compensation plans with two executive officers that allow the Company to make contributions to an account for the executive officers each year, as of January 1, based on the prior year’s performance and the Company's intent is that the contribution equal 10 % of the executive officers' salaries and +84 +bonuses. The Company may make other contributions to the deferred compensation plans, at its discretion, at other times during the year. The expense recognized under the deferred compensation plans for the years ended December 31, 2024 and 2023 amounted to $ 94,000 and $ 83,000 , respectivel y. The liability for the Executive Deferred Compensation Plans amounted to $ 273,000 and $ 179,000 as of December 31, 2024 and 2023, respectively. +Deferred Compensation Plan for Directors +The Company maintains the Everett Co-operative Bank Deferred Compensation Plan for Directors (the “Director Deferred Compensation Plan”) to allow for certain tax planning opportunities and additional retirement income for directors of the Company. All non-employee directors are eligible to participate in the Director Deferred Compensation Plan. Under the Director Deferred Compensation Plan, directors may elect to defer the receipt of up to 100 % of their director fees. Participants are always 100 % vested in their deferred fees and any interest credited to those deferrals. Earnings are credited to a participant’s deferrals each year and are indexed annually to the highest certificate of deposit rate offered by the Bank on January 1st of each year. The liability for the Director Deferred Compensation Plan amounted to $ 748,000 and $ 698,000 as of December 31, 2024 and 2023, respectively. +Survivor Benefit Plan +The Company entered into Survivor Benefit Plan Participation Agreements with a group of employees whereby the Company is obligated to provide up to two years of recognized compensation, as defined, to the beneficiary if the participant dies while employed by the Company. There was no expense recognized during 2024 or 2023. +Employment and Change in Control Agreements +The Company entered into an employment agreement with the Chief Executive Officer and Change in Control agreements with certain executive officers, which provide severance payments in the event of the executive’s involuntary or constructive termination of employment, including upon a termination following a change in control as defined in the agreements. +Employee Stock Ownership Plan +As part of the Initial Public Offering ("IPO") completed on July 27, 2022, the Bank established a tax-qualified Employee Stock Ownership Plan ("ESOP") to provide eligible employees the opportunity to own Company shares. The ESOP borrowed $ 7.3 million from the Company to purchase 734,020 common shares during the IPO. The loan is payable in annual installments over 20 years at an interest rate of 4.75 %. As the loan is repaid to the Company, shares are released and allocated proportionally to eligible participants on the basis of each participant’s proportional share of compensation relative to the compensation of all participants. The unallocated ESOP shares are pledged as collateral on the loan. +The Company accounts for its ESOP in accordance with FASB ASC 718-40, Compensation – Stock Compensation . Under this guidance, unreleased shares are deducted from shareholders’ equity as unearned ESOP shares in the accompanying consolidated balance sheets. The Company recognizes compensation expense equal to the fair value of the ESOP shares during the periods in which they are committed to be released. To the extent that the fair value of the Company’s ESOP shares differs from the cost of such shares, the difference will be credited or debited to additional paid-in capital included within shareholders' equity. As the loan is internally leveraged, the loan receivable from the ESOP to the Company is not reported as an asset nor is the debt of the ESOP shown as a liability in the Company’s consolidated balance sheets. +Total compensation expense recognized in connection with the ESOP was $ 494,000 and $ 470,000 for the years ended December 31, 2024 and 2023 , respectively. Th e following table presents share information held by the ESOP: +85 +As of December 31, 2024 +As of December 31, 2023 +(Dollars in thousands) +Allocated shares +107,139 +72,017 +Shares committed to be released +- +- +Unallocated shares +623,917 +660,618 +Total shares +731,056 +732,635 +Fair value of unallocated shares +$ +9,259 +$ +8,297 +NOTE 10 – STOCK-BASED COMPENSATION +On September 7, 2023, the Company adopted the ECB Bancorp, Inc. 2023 Equity Incentive Plan ("2023 Equity Plan”). The 2023 Equity Plan authorizes 1,248,133 shares of common stock for equity based compensation awards including restricted stock awards, restricted stock units, stock options, and incentive stock options. As of December 31, 2024 , there were 177,207 shares available for future grants. +Stock-Based Compensation - Stock Options +On September 8, 2023, the Company granted 174,960 stock options to non-employee directors with a contractual term of 10 years. On October 31, 2023, the Company granted 589,009 stock options to employees with a contractual term of 10 years. The stock options vest in equal annual installments over a five-year period. The fair value of each option grant was estimated on the date of grant using the Black-Scholes option pricing model. There were no stock options granted for the year ended December 31, 2024. The following table sets forth information regarding the 2023 grants: +Date of grant +9/8/2023 +10/31/2023 +Options granted +174,960 +589,009 +Vesting period (years) +5 +5 +Expiration date +9/8/2033 +10/31/2033 +Expected volatility (1) +30.17 +% +30.02 +% +Expected term (years) (2) +6.50 +6.50 +Expected dividend yield (3) +0.00 +% +0.00 +% +Risk free rate of return (4) +4.31 +% +4.87 +% +Fair value per option +$ +4.74 +$ +4.19 +(1) Expected volatility is based on the standard deviation of the historical volatility of the daily adjusted closing price of a group of peers' shares. +(2) Expected term represents the period of time that the option is expected to be outstanding. The Company determined that expected life using the "Simplified Method." +(3) Expected dividend yield is determined based on management's expectations regarding issuing dividends in the foreseeable future. +(4) The risk-free rate of return is based on the U.S. Treasury yield curve in effect at the time of grant for a period equivalent to the expected term of the option. +The following table represents stock option activities for the periods indicated: +Year Ended December 31, 2024 +Outstanding and exercisable +Non-vested +Shares +Weighted-Average Exercise Price +Weighted-Average Remaining Contractual Term (years) +Aggregate Intrinsic Value ($1000) +Shares +Weighted-Average Exercise Price +Weighted-Average Remaining Contractual Term (years) +Aggregate Intrinsic Value ($1000) +Balance at beginning of period +- +$ +- +763,969 +$ +10.50 +Granted +- +- +- +- +Vested +152,794 +10.50 +( 152,794 +) +10.50 +Exercised +( 5,832 +) +11.80 +- +- +Forfeited or expired +- +- +- +- +Balance at end of period +146,962 +$ +10.45 +8.81 +$ +645 +611,175 +$ +10.50 +8.81 +$ +2,650 +86 +Year Ended December 31, 2023 +Outstanding and exercisable +Non-vested +Shares +Weighted-Average Exercise Price +Weighted-Average Remaining Contractual Term (years) +Aggregate Intrinsic Value ($1000) +Shares +Weighted-Average Exercise Price +Weighted-Average Remaining Contractual Term (years) +Aggregate Intrinsic Value ($1000) +Balance at beginning of period +- +$ +- +- +$ +- +Granted +- +- +763,969 +10.50 +Exercised +- +- +- +- +Vested +- +- +- +- +Forfeited or expired +- +- +- +- +Balance at end of period +- +$ +- +- +$ +- +763,969 +$ +10.50 +9.81 +$ +1,570 +The total intrinsic value is the amount by which the fair value of the underlying stock exceeds the exercise price of an option on the exercise date. +Stock-Based Compensation - Restricted Stock Awards +The restricted stock awards are measured based on grant-date fair value, which reflects the closing price of our stock on the date of grant. All of the restricted stock awards which have been granted to date vest over five years in equal portions beginning on the first anniversary date of the restricted stock award. +On September 8, 2023, the Company granted 69,984 restricted stock awards to non-employee directors. On October 31, 2023, the Company granted 235,973 restricted stock awards to employees. On August 6, 2024, the Company granted 1,000 restricted stock awards to employees. All restricted stock awards are vesting ratably over 5 years from grant date. The following table represents information regarding non-vested restricted stock award activities for the periods indicated: +Year Ended December 31, 2024 +Year Ended December 31, 2023 +Number of Shares +Weighted-Average Grant Date Fair Value Per Share +Number of Shares +Weighted-Average Grant Date Fair Value Per Share +Balance at beginning of period +305,957 +$ +10.50 +- +$ +- +Granted +1,000 +13.00 +305,957 +10.50 +Vested +( 61,191 +) +10.50 +- +- +Forfeited +- +- +- +- +Balance at end of period +245,766 +$ +10.51 +305,957 +$ +10.50 +The following table represents the compensation expense and income tax benefit recognized for stock options and restricted stock awards for the periods indicated: +Year Ended December 31, 2024 +Year Ended December 31, 2023 +(in thousands) +Stock-based compensation expense +Stock options +$ +661 +$ +135 +Restricted stock awards +645 +133 +Total stock-based compensation expense +$ +1,306 +$ +268 +Related tax benefits recognized in earnings +$ +280 +$ +47 +The following table sets forth the total compensation cost related to non-vested awards not yet recognized and the weighted average period (in years) over which it is expected to be recognized as of December 31, 2024 and December 31, 2023 (dollars in thousands): +87 +Year Ended December 31, 2024 +Year Ended December 31, 2023 +Amount +Weighted average period +Amount +Weighted average period +Stock options +$ +2,501 +3.80 +$ +3,162 +4.80 +Restricted stock awards +2,449 +3.80 +3,081 +4.80 +Total +$ +4,950 +$ +6,243 +NOTE 11 – INCOME TAXES +The components of income tax expense are as follows for the years ended December 31: +2024 +2023 +(in thousands) +Current: +Federal +$ +1,193 +$ +1,179 +State +437 +461 +1,630 +1,640 +Deferred: +Federal +( 185 +) +( 67 +) +State +( 65 +) +( 44 +) +( 250 +) +( 111 +) +Total income tax expense +$ +1,380 +$ +1,529 +The reasons for the differences between the statutory federal income tax rate and the effective tax rates are summarized as follows for the years ended December 31: +2024 +2023 +% of income +% of income +Statutory tax rates +21.0 +% +21.0 +% +Increase (decrease) in tax resulting from: +State tax, net of federal tax benefit +5.6 +5.5 +Bank-owned life insurance +( 1.8 +) +( 1.7 +) +Stock-based compensation +1.0 +0.5 +Other, net +( 0.1 +) +0.2 +Effective tax rates +25.7 +% +25.5 +% +88 +The Company had gross deferred tax assets and gross deferred tax liabilities as follows as of December 31: +2024 +2023 +(in thousands) +Deferred tax assets: +Allowance for credit losses +$ +2,676 +$ +2,628 +Employee benefit plans +2,375 +2,150 +ESOP +60 +25 +Lease liability +14 +12 +Net unrealized holding loss on available-for-sale securities +12 +— +Interest on non-performing loans +10 +4 +Charitable contribution carryover +391 +522 +Other +66 +— +Gross deferred tax assets +5,604 +5,341 +Deferred tax liabilities: +Depreciation +( 308 +) +( 300 +) +Unrecognized employee benefit costs under ASC 715-10 +( 57 +) +( 50 +) +Net deferred loan costs +( 184 +) +( 63 +) +Stock-based compensation +( 33 +) +( 160 +) +Net unrealized holding gain on available-for-sale securities +— +( 1 +) +Cash flow hedge +( 108 +) +— +Gross deferred tax liabilities +( 690 +) +( 574 +) +Net deferred tax asset +$ +4,914 +$ +4,767 +The federal income tax reserve for credit losses at the Company’s base year amounted to $ 1,876,000 as of December 31, 2024 and 2023 . If any portion of the reserve is used for purposes other than to absorb the losses for which it was established, approximately 150 % of the amount actually used (limited to the amount of the reserve) would be subject to taxation in the year it is used. As the Company intends to use the reserve only to absorb credit losses, a deferred income tax liability of approximately $ 527,000 has not been provided as of December 31, 2024 and 2023. +At December 31, 2024 , the Company had a charitable contribution carryover of $ 1,356,000 which expires on December 31, 2027. There is no valuation allowance recorded against the related deferred tax asset as the Company deems it probable that the deferred tax benefits will be fully realized. +NOTE 12 - RELATED PARTY TRANSACTIONS +During 2018, the Company entered into a lease agreement with a related party for office space. The initial lease term expired in February 2023 and contains a five year option to extend, as well as a cancellation clause permitting the Company to cancel the lease anytime during the initial term with sixty days’ notice. In February of 2022, the lease was amended to replace the five year option to extend with three options to extend the term of two years, two years and one year. In 2023, the Company executed the two year lease extension option. In August of 2024, the Company extended the lease through February 2027 . Annual rent is $ 48,000 , payable monthly, not including an annual tenant improvement credit of $ 18,000 . The Company is responsible for a portion of common area charges, as well as other customary leasehold costs. Net annual rental payments amounted to $ 30,000 for 2024 and 2023. +In addition, during February 2022, a new lease agreement was entered into with the related party for additional office space. The initial lease term expired in February 2023 and contains three options to extend the term of two years , two years and one year . The first two year option was exercised during 2022. In August of 2024, the Company extended the lease through February 2027 . Annual rent is $ 28,000 , payable monthly. The Company is responsible for a portion of common area charges, as well as other customary leasehold costs. Net annual rental payments amounted to $ 28,000 and $ 27,000 for 2024 and 2023, respectively. +89 +The Company utilizes the services of a law firm that is a related party for loan closings and related matters as well as general corporate legal matters. Fees for the years ended December 31, 2024 and December 31, 2023 were $ 117,000 and $ 116,000 , respectively. Fees paid by the Company amounted to $ 67,000 for 2024 and 2023. The other fees were paid by borrowers, or paid by the Company and then reimbursed by borrowers. +The Company utilizes the services of one of the members of the Board of Directors of the Company for loan closings and related matters. Fees for the years ended December 31, 2024 and December 31, 2023 were $ 162,000 and $ 182,000 , respectively. Fees paid by the Company for the years ended December 31, 2024 and December 31, 2023 were $ 8,000 and $ 9,000 , respectively. The other fees were paid by borrowers, or paid by the Company and then reimbursed by borrowers. +NOTE 13 - FAIR VALUE MEASUREMENTS +ASC 820-10, Fair Value Measurement – Overall , provides a framework for measuring fair value under U.S. GAAP. This guidance also allows an entity the irrevocable option to elect fair value for the initial and subsequent measurement for certain financial assets and liabilities on a contract-by-contract basis. +In accordance with ASC 820-10, the Company groups its financial assets and financial liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. +Level 1 – Valuations for assets and liabilities traded in active exchange markets, such as the New York Stock Exchange. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities. +Level 2 – Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from third party pricing services for identical or comparable assets or liabilities. +Level 3 – Valuations for assets and liabilities that are derived from other methodologies, including option pricing models, discounted cash flow models and similar techniques, and are not based on market exchange, dealer, or broker traded transactions. Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets and liabilities. +A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. +A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. These valuation methodologies were applied to all of the Company’s financial assets and financial liabilities carried at fair value for December 31, 2024 and December 31, 2023. +Cash and Cash Equivalents +For these financial instruments, which have original maturities of 90 days or less, their carrying amounts reported in the Consolidated Balance Sheets approximate fair value. +Available-for-Sale and Held-to-Maturity Securities +The Company’s investment in debt securities is generally classified within Level 2 of the fair value hierarchy. For those securities, the Company obtains fair value measurements from independent pricing services which are not adjusted by management. The fair value measurements consider observable data that considers standard input factors such as observable market data, benchmark yields, interest rate volatilities, broker/dealer quotes, credit spreads and new issue data. +90 +FHLB Stock +The fair value of FHLB stock approximates the carrying amount based on the redemption provisions of the FHLB. These assets were classified as Level 2. +Loans +The fair value of loans is measured on an exit price basis incorporating discounts for credit, liquidity and marketability factors. Loans were classified as Level 3 since the valuation methodology utilizes significant unobservable inputs. +Bank-Owned Life Insurance +The fair value of bank-owned life insurance was based upon quotations received from bank-owned life insurance dealers. These assets were classified as Level 2 given the use of observable inputs. +Accrued Interest Receivable +For these financial instruments, which have original maturities of 90 days or less, their carrying amounts reported in the Consolidated Balance Sheets approximate fair value. +Deposits +The fair value of deposits with no stated maturity, such as noninterest-bearing demand deposits, interest-bearing demand deposits, savings and money market accounts, was equal to their carrying amount. The fair value of certificates of deposits is valued using a replacement cost of funds approach, and discounted to the market rates and based on weighted remaining maturity. Deposits were classified as Level 2 given the use of observable market inputs. +Accrued Interest Payable +For these financial instruments, which have original maturities of 90 days or less, their carrying amounts reported in the Consolidated Balance Sheets approximate fair value. +Derivative Instruments +The fair value of interest rate swaps was determined using discounted cash flow analysis on the expected cash flows of the interest rate swaps. This analysis reflects the contractual terms of the interest rate swaps, including the period of maturity, and uses observable market-based inputs including interest rate curves. The inputs used to value the Company’s interest rate swaps fall within Level 2 of the fair value hierarchy and as a result, the interest rate swaps were categorized as Level 2 within the fair value hierarchy. +91 +As of December 31, 2024 and 2023, the following summarizes assets measured at fair value on a recurring basis: +Fair Value Measurements at Reporting Date Using +Total +Quoted Prices +Significant +Significant +in Active +Other +Unobservable +Markets for +Observable +Inputs +Identical Assets +Inputs +Level 3 +Level 1 +Level 2 +(in thousands) +As of December 31, 2024 +Assets: +Available-for-sale securities +Mortgage-backed securities +$ +4,126 +$ +— +$ +4,126 +$ +— +Collateralized mortgage obligation +1,438 +— +1,438 +— +Corporate bonds +1,000 +— +1,000 +— +Derivative instruments +557 +— +557 +— +Total assets measured at fair value on a recurring basis +$ +7,121 +$ +— +$ +7,121 +$ +— +Liabilities: +Derivative instruments +$ +173 +$ +— +$ +173 +$ +— +Total liabilities measured at fair value on a recurring basis +$ +173 +$ +— +$ +173 +$ +— +As of December 31, 2023 +Available-for-sale securities +Corporate bonds +$ +5,003 +$ +— +$ +5,003 +$ +— +Total assets measured at fair value on a recurring basis +$ +5,003 +$ +— +$ +5,003 +$ +— +Under certain circumstances, the Company makes fair value adjustments to its assets and liabilities although they are not measured at fair value on an ongoing basis. +As of December 31, 2024 and 2023 , the Bank had no assets or liabilities for which a nonrecurring change in fair value had been recorded. +ASC Topic 825, “Financial Instruments,” requires disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis. The methodologies for estimating the fair value are discussed above. The estimated fair values and related carrying amounts of assets and liabilities for which fair value is only disclosed are shown below at the dates indicated: +92 +December 31, 2024 +Carrying +Fair +Amount +Value +Level 1 +Level 2 +Level 3 +(in thousands) +Financial assets: +Cash and cash equivalents +$ +157,617 +$ +157,617 +$ +157,617 +$ +- +$ +- +Interest-bearing time deposits +100 +100 +- +100 +- +Held-to-maturity securities +73,215 +67,505 +- +67,505 +- +FHLB stock +10,000 +10,000 +- +10,000 +- +Loans, net +1,136,449 +1,079,916 +- +- +1,079,916 +Accrued interest receivable +4,015 +4,015 +4,015 +- +- +Bank-owned life insurance +14,945 +14,945 +- +14,945 +- +Financial liabilities: +Deposits, other than certificates of deposit +$ +393,018 +$ +393,018 +$ +- +$ +393,018 +$ +- +Certificates of deposit +605,515 +606,387 +- +606,387 +- +Federal Home Loan Bank advances +234,000 +232,027 +- +232,027 +- +Accrued interest payable +2,207 +2,207 +2,207 +- +- +December 31, 2023 +Carrying +Fair +Amount +Value +Level 1 +Level 2 +Level 3 +(in thousands) +Financial assets: +Cash and cash equivalents +$ +119,036 +$ +119,036 +$ +119,036 +$ +- +$ +- +Held-to-maturity securities +76,979 +70,590 +- +70,590 +- +FHLB stock +9,892 +9,892 +- +9,892 +- +Loans, net +1,039,789 +952,867 +- +- +952,867 +Accrued interest receivable +3,766 +3,766 +3,766 +- +- +Bank-owned life insurance +14,472 +14,472 +- +14,472 +- +Financial liabilities: +Deposits, other than certificates of deposit +$ +369,711 +$ +369,711 +$ +- +$ +369,711 +$ +- +Certificates of deposit +498,503 +495,551 +- +495,551 +- +Federal Home Loan Bank advances +234,000 +233,878 +- +233,878 +- +Accrued interest payable +2,191 +2,191 +2,191 +- +- +NOTE 14 – COMMITMENTS AND CONTINGENCIES +The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The contract or notional amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments. +The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual notional amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. +Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit +93 +evaluation of the borrower. Collateral held varies but usually includes income producing commercial properties or residential real estate. +Standby letters of credit are conditional commitments issued by the Company to guarantee the performance by a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. As of December 31, 2024 and 2023, the maximum potential amount of the Company’s obligation was $ 50,000 and $ 0 , respectively, for standby letters of credit. The Company’s outstanding letters of credit generally have a term of less than one year . If a letter of credit is drawn upon, the Company may seek recourse through the customer’s underlying line of credit. If the customer’s line of credit is also in default, the Company may take possession of the collateral, if any, securing the line of credit. +Amounts of financial instruments whose contract amounts represent off-balance sheet credit risk are as follows as of the dates indicated: +December 31, 2024 +December 31, 2023 +(in thousands) +Commitments to originate loans +$ +21,542 +$ +22,701 +Commitments to purchase loans +- +415 +Unadvanced funds on lines of credit +80,156 +78,378 +Unadvanced funds on construction loans +54,636 +53,013 +Letters of credit +50 +- +$ +156,384 +$ +154,507 +The Company accrues for credit losses related to off-balance sheet financial instruments. Expected losses on off-balance sheet loan commitments are estimated using the same risk factors used to determine the allowance for credit losses on loans, adjusted for the likelihood that funding will occur. The allowance for off-balance sheet commitments is recorded within other liabilities on the consolidated balance sheets and amounted to $ 634,000 and $ 756,000 as of December 31, 2024 and 2023 , respectively. Effective January 1, 2023 , the Company adopted ASC Topic 326 with a cumulative transition adjustment of a $ 762,000 increase in allowance for credit losses on off-balance sheet credit exposures. For the year ended December 31, 2024 and 2023 , a benefit of $ 122,000 and $ 407,000 was recorded to reflect a reduction in allowance for off-balance sheet commitments, respectively. +NOTE 15 – OTHER COMPREHENSIVE INCOME (LOSS) +Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities are reported as a separate component of the shareholders' equity section of the consolidated balance sheets, such items, along with net income, are components of comprehensive income. +The com ponents of other comprehensive income (loss) and related tax effects are as follows for the years ended December 31, 2024 and 2023: +94 +Year ended +December 31, +2024 +2023 +(in thousands) +Change in unrealized gains on securities: +Change in net unrealized holding gains on available-for-sale securities +$ +( 55 +) +$ +( 7 +) +Reclassification adjustment for realized gains in net income +— +— +Other comprehensive loss related to available-for-sale securities +( 55 +) +( 7 +) +Income tax benefit +12 +1 +Net-of-tax amount +( 43 +) +( 6 +) +Net actuarial gain on SERP +25 +9 +Reclassification adjustment for amortization of net actuarial gain (1) +( 5 +) +( 138 +) +Other comprehensive income (loss) related to SERP +20 +( 129 +) +Income tax (expense) benefit +( 6 +) +36 +Net-of-tax amount +14 +( 93 +) +Net actuarial gain (loss) on DFCP +23 +( 9 +) +Reclassification adjustment for amortization of net actuarial gain (2) +( 16 +) +( 21 +) +Other comprehensive income (loss) related to DFCP +7 +( 30 +) +Income tax (expense) benefit +( 2 +) +9 +Net-of-tax amount +5 +( 21 +) +Net change in fair value of cash flow hedges +1,129 +— +Reclassification adjustment for realized gains in net income (3) +( 745 +) +— +Other comprehensive income related to cash flow hedges +384 +— +Income tax expense +( 107 +) +— +Net-of-tax amount +277 +— +Other comprehensive income (loss), net of tax +$ +253 +$ +( 120 +) +(1) Reclassification adjustments are comprised of amortization of unrecognized SERP costs reclassified into other expense. +(2) Reclassification adjustments are comprised of amortization of unrecognized DFCP costs reclassified into other expense. +(2) Reclassification adjustments are comprised of realized gains on cash flow hedges reclassified into interest expense. +Accumulated other comprehensive income as of December 31, 2024 and 2023 consists of unrecognized benefit costs, net of taxes, unrealized holding gains on securities available for sale, net of tax, and fair value of cash flow hedges, net of tax, as follows: +As of December 31, 2024 +As of December 31, 2023 +(in thousands) +Net unrealized holding (losses) gains on securities available-for-sale, net of tax +$ +( 40 +) +$ +3 +Unrecognized SERP gain, net of tax +70 +56 +Unrecognized DFCP gain, net of tax +75 +70 +Fair value of cash flow hedges, net of tax +277 +— +Accumulated other comprehensive income +$ +382 +$ +129 +NOTE 16 – REGULATORY MATTERS +The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Capital adequacy guidelines and prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weighting and other factors. Failure to meet +95 +minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. +Management believes, as of December 31, 2024, that the Bank meets all capital adequacy requirements to which it is subject. +As of December 31, 2024, the most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier 1 risk-based, Common Equity Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table below. There are no conditions or events since that notification that management believes have changed the Bank’s category. +The Bank’s actual capital amounts and ratios are presented in the table as of the dates indicated: +Minimum For Capital +Minimum To Be Well +Adequacy Purposes +Capitalized Under +Plus Capital +Prompt Corrective +Actual +Conservation Buffer +Action Provisions +Amount +Ratio +Amount +Ratio +Amount +Ratio +(dollars in thousands) +As of December 31, 2024 +Total Capital (to Risk Weighted Assets) +$ +154,753 +16.58 % +$ +98,010 +10.50 % +$ +93,343 +10.00 % +Tier 1 Capital (to Risk Weighted Assets) +145,235 +15.56 % +79,342 +8.50 % +74,675 +8.00 % +Common Equity Tier 1 Capital (to Risk Weighted Assets) +145,235 +15.56 % +65,340 +7.00 % +60,673 +6.50 % +Tier 1 Capital (to Average Assets) +145,235 +10.47 % +55,479 +4.00 % +69,349 +5.00 % +As of December 31, 2023 +Total Capital (to Risk Weighted Assets) +$ +149,014 +17.30 % +$ +90,440 +10.50 % +$ +86,133 +10.00 % +Tier 1 Capital (to Risk Weighted Assets) +139,667 +16.22 % +73,213 +8.50 % +68,907 +8.00 % +Common Equity Tier 1 Capital (to Risk Weighted Assets) +139,667 +16.22 % +60,293 +7.00 % +55,987 +6.50 % +Tier 1 Capital (to Average Assets) +139,667 +11.31 % +49,406 +4.00 % +61,758 +5.00 % +In addition to the above minimum requirements, the Bank is subject to a Capital Conservation Buffer requirement of 2.5 %. The requirement limits capital distributions and certain discretionary bonus payments to management if the Bank does not maintain the minimum Capital Conservation Buffer. At December 31, 2024 , the Bank exceeded the minimum Capital Conservation Buffer. +96 +NOTE 17 - PARENT COMPANY FINANCIAL STATEMENTS +ECB BANCORP, INC. +BALANCE SHEETS +(Dollars in thousands) +December 31, +2024 +2023 +ASSETS +Cash +$ +15,896 +$ +17,712 +Investment in subsidiary +145,617 +139,796 +Loan to Everett Co-operative Bank ESOP +6,452 +6,696 +Deferred tax asset, net +391 +522 +Income taxes receivable +- +203 +Other assets +18 +13 +Total assets +$ +168,374 +$ +164,942 +LIABILITIES AND SHAREHOLDERS' EQUITY +Income taxes payable +$ +83 +$ +- +Other liabilities +23 +41 +Total liabilities +106 +41 +Shareholders' equity +168,268 +164,901 +Total liabilities and shareholders' equity +$ +168,374 +$ +164,942 +ECB BANCORP, INC. +STATEMENTS OF INCOME +(Dollars in thousands) +Year Ended +December 31, +2024 +2023 +Interest income +Interest on loan +$ +318 +$ +329 +Interest on cash +249 +356 +Total interest income +567 +685 +Noninterest expense +Other expense +257 +310 +Total noninterest expense +257 +310 +Income before income taxes and equity in undistributed income of subsidiaries +310 +375 +Income tax expense +87 +105 +Income of parent company +223 +270 +Equity in undistributed income of subsidiary +3,768 +4,186 +Net income +$ +3,991 +$ +4,456 +97 +ECB BANCORP, INC. +STATEMENTS OF CASH FLOWS +(Dollars in thousands) +Year Ended +December 31, +2024 +2023 +Cash flows from operating activities: +Net income +$ +3,991 +$ +4,456 +Adjustments to reconcile net income to net cash provided by operating activities: +Equity in undistributed earnings of subsidiary +( 3,768 +) +( 4,186 +) +Deferred income tax expense +131 +161 +Stock options exercised +69 +— +Net change in: +Other assets +( 5 +) +( 2 +) +Income taxes receivable +203 +( 54 +) +Income taxes payable +83 +— +Other liabilities +( 18 +) +36 +Net cash provided by operating activities +686 +411 +Cash flows from investing activities: +ESOP loan principal payments +244 +232 +Capital contribution to Everett Co-operative Bank +— +( 5,000 +) +Net cash provided by (used in) investing activities +244 +( 4,768 +) +Cash flows from financing activities: +Payments for shares repurchased under share repurchase plan +( 2,722 +) +( 2,225 +) +Restricted stock awards surrendered +( 24 +) +— +Net cash used in financing activities +( 2,746 +) +( 2,225 +) +Net decrease in cash and cash equivalents +( 1,816 +) +( 6,582 +) +Cash and cash equivalents at beginning of year +17,712 +24,294 +Cash and cash equivalents at end of year +$ +15,896 +$ +17,712 +98 +NOTE 18 - EARNINGS PER SHARE ("EPS") +Basic earnings per share is calculated by dividing the income available to common shares by the weighted-average number of common shares outstanding during the period. Diluted earnings per share have been calculated in a manner similar to that of basic earnings per share except that the weighted-average number of common shares outstanding is increased to include the number of additional common shares that would have been outstanding if all potential dilutive common shares (such as those resulting from the exercise of stock options) were issued during the period, computed using the treasury stock method. Unallocated ESOP shares are not deemed outstanding for earnings per share calculations. +Year ended December 31, +2024 +2023 +(dollars in thousands, except per share data) +Net income allocated to common stock +$ +3,991 +$ +4,456 +Weighted-average common shares outstanding used to calculate basic earnings per common share +8,257,014 +8,466,021 +Add: Dilutive effect of restricted stock awards +88,723 +57,684 +Weighted-average common shares outstanding used to calculate diluted earnings per common share +8,345,737 +8,523,705 +Earnings per common share +Basic +$ +0.48 +$ +0.53 +Diluted +$ +0.48 +$ +0.52 +For the year ended December 31, 2024 and 2023 , the shares that were anti-dilutive, and therefore excluded from the calculation of diluted earnings per share, included options to purchase 758,137 and 763,969 shares of common stock, respectively. +NOTE 19 - DERIVATIVE AND HEDGING ACTIVITIES +The Company uses derivative financial instruments to manage its interest rate risk resulting from the differences in the amount, timing, and duration of known or expected cash payments. The Company has entered into interest rate swaps to add stability to interest expense and manage exposure to interest rate movements as part of an overall risk management strategy. +An interest rate swap is an agreement whereby one party agrees to pay a floating rate of interest on a notional principal amount in exchange for receiving a fixed rate of interest on the same notional amount, for a predetermined period of time, from a second party. The amounts relating to the notional principal amount are not actually exchanged. The Company has entered into interest rate swaps in which it pays fixed and receives floating interest in order to manage its interest rate risk exposure to the variability in interest cash flows on certain floating-rate FHLB Advances and brokered certificates of deposit. The interest rate swaps effectively convert the floating rate payments made on the FHLB Advances and brokered certificates of deposit to a fixed rate and consequently reduce the Company’s exposure to variability in short-term interest rates. +Derivative instruments are carried at fair value in the Company’s Consolidated Financial Statements. The accounting for changes in the fair value of a derivative instrument is dependent upon whether or not the instrument qualifies as a hedge for accounting purposes, and further, by the type of hedging relationship. +The Company’s interest rate swaps have been designated as and are accounted for as cash flow hedges. The changes in fair value are included in other comprehensive income and reclassified into net income in the same period or periods during which the hedged forecasted transaction affects net income. +Cash flow hedges are initially assessed for effectiveness using regression analysis. Changes in the fair value of derivatives that are designated as and that qualify as cash flow hedges are recorded in OCI and are subsequently reclassified into earnings during the period in which the hedged forecasted transaction affects earnings. Quarterly, a +99 +quantitative analysis is performed to monitor the ongoing effectiveness of the hedging instrument. All derivative positions were initially, and continue to be, highly effective at December 31, 2024. +The following table reflects the Company's derivative position at the date indicated below for the interest rate swaps: +As of December 31, 2024 +(Dollars in thousands) +Notional amount +$ +60,000 +Weighted-average pay rate +3.80 +% +Weighted-average receive rate +4.49 +% +Weighted-average maturity in years +3.74 +The table below presents the fair value of the Company's derivative financial instruments, as well as their classification on the Consolidated Balance Sheets as of December 31, 2024: +Asset Derivatives +Liability Derivatives +Balance Sheet Location +Fair Value +Balance Sheet Location +Fair Value +(in thousands) +Derivatives designated as hedging instruments +Interest rate swaps +Other assets +$ +557 +Other liabilities +$ +( 173 +) +Total +$ +557 +$ +( 173 +) +For derivative instruments that are designated and qualify as cash flow hedging instruments, the effective portion of the gains or losses is reported as a component of other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The Company expects approximately $ 185,000 to be reclassified as a decrease to interest expense from OCI related to the Company’s cash flow hedges in the twelve months following December 31, 2024. This reclassification is due to anticipated payments that will be received on the swaps based upon the forward curve at December 31, 2024. +The maximum length of time over which the Company is currently hedging its exposure to the variability in future cash flows for forecasted transactions related to the payment of variable interest on existing financial instruments is 4.3 years. +The pre-tax effects of cash flow hedges on accumulated other comprehensive income and current earnings for the period indicated are as follows: +Year Ended +December 31, 2024 +(in thousands) +Interest rate swaps +Amount of gain recognized in OCI on derivatives +$ +384 +Gain reclassified from OCI into interest expense +$ +( 745 +) +By using derivatives, the Company is exposed to credit risk to the extent that counterparties to the derivative contracts do not perform as required. Should a counterparty fail to perform under the terms of a derivative contract, the Company’s credit exposure on interest rate swaps is limited to the net positive fair value and accrued interest of all swaps with each counterparty not secured by variation margin plus any initial margin collateral posted. The Company seeks to minimize counterparty credit risk through credit approvals, limits, monitoring procedures, and obtaining collateral, where appropriate. As such, management believes the risk of incurring credit losses on derivative contracts with those counterparties is remote. As of December 31, 2024 , the Company has pledged cash collateral to a derivative counterparty totaling $ 1,100,000 . As of December 31, 2024 , the Company has received cash collateral from a derivative counterparty totaling $ 570,000 . The Company may need to post additional collateral or may receive additional collateral in the future in proportion to potential changes in the overall unrealized gain or loss position. +100 +The Company had no derivatives as of December 31, 2023. There was no OCI or interest expense related to cash flow hedges recognized for the year ended December 31, 2023. +NOTE 20 - SUBSEQUENT EVENTS +Management has reviewed events occurring through March 26, 2025, the da te the consolidated financial statements were issued and determined that no subsequent events occurred requiring adjustment to or disclosure in these consolidated financial statements. +101 +ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure +None +ITEM 9A. Controls and Procedures +Evaluation of disclosure controls and procedures . Under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective. +Management's report on internal control over financial reporting. Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. +The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements. +Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. +Management, including the principal executive officer and principal financial officer, assessed the effectiveness of the Company’s internal control over financial reporting. As of December 31, 2024, based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in “Internal Control-Integrated Framework (2013).” Based on such assessment, management believes that, as of December 31, 2024, the Company’s internal control over financial reporting is effective, based on those criteria. +This Annual Report does not include an attestation report of the Company’s registered public accounting firm. +Internal control over financial reporting . During the quarter ended December 31, 2024, there have been no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. +This Annual Report does not include an attestation report of the independent registered public accounting firm regarding internal control over financial reporting because the Company is an emerging growth company. +ITEM 9B. Other Inf ormation +During the fourth quarter of 2024, none of our directors or officers adopted or terminated any contract, instruction or written plan for the purchase or sale of Company securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement,” as that term is used in SEC regulations. +ITEM 9C. Disclosure Regarding For eign Jurisdictions That Prevent Inspections +Not applicable. +102 +PART III +ITEM 10. Directors, Executi ve Officers and Corporate Governance +The information required herein is incorporated by reference from the Company’s definitive proxy statement relating to its 2025 Annual Meeting of Stockholders (the “Proxy Statement”) that will be filed with the SEC within 120 days following the fiscal year end December 31, 2024 under the headings “Corporate Governance,” “Proposal 1 – Election of Directors,” and “Stock Ownership.” +103 +ITEM 11. Executiv e Compensation +The information required herein is incorporated by reference from the Proxy Statement under the heading “Executive Compensation.” +ITEM 12. Security Ownership of Ce rtain Beneficial Owners and Management and Related Shareholder Matters +Except for the information concerning equity compensation plans, the information required herein is incorporated by reference from the Proxy Statement under the heading “Stock Ownership.” The following table sets forth information, as of December 31, 2024, about securities authorized for issuance under the Company’s 2023 Equity Incentive Plan, which has been approved by shareholders. +Plan Category +Number of Shares to be Issued Upon Exercise of Outstanding Awards +Weighted-Average Exercise Price of Outstanding Awards +Number of Shares Available for Future Grants +Plans approved by shareholders +758,137 +$ +10.49 +177,207 +Plans not approved by shareholders +— +— +— +Total +758,137 +$ +10.49 +177,207 +ITEM 13. Certain Relationships and R elated Transactions and Director Independence +The information required herein is incorporated by reference from the Proxy Statement under the headings “Proposal 1 – Election of Directors” and “Other Information – Transactions with Related Persons.” +ITEM 14. Principal Acco untant Fees and Services +The information required herein is incorporated by reference from the Proxy Statement under the heading “Proposal 2 – Ratification of Independent Registered Public Accounting Firm.” +104 +PART IV +ITEM15. Exhibits and F inancial Statement Schedules +(a)(1) +Financial Statements +The documents filed as a part of this Form 10-K are: +(A) +Report of Independent Registered Public Accounting Firm +(B) +Consolidated Balance Sheets as of December 31, 2024 and 2023 +(C) +Consolidated Statements of Income for the years ended December 31, 2024 and 2023 +(D) +Consolidated Statements of Comprehensive Income for the years ended December 31, 2024 and 2023 +(E) +Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 2024 and 2023 +(F) +Consolidated Statements of Cash Flows for the years ended December 31, 2024 and 2023 +(G) +Notes to Consolidated Financial Statements. +(a)(2) +Financial Statement Schedules +All financial statement schedules have been omitted as the required information is inapplicable or has been included in the Notes to Consolidated Financial Statements. +(a)(3) +Exhibits +3.1 +Amended and Restated Articles of Incorporation of ECB Bancorp, Inc. (1) +3.2 +Bylaws of ECB Bancorp (1) +4.1 +Form of Common Stock Certificate of ECB Bancorp (1) +4.2 +Description of ECB Bancorp, Inc. Securities (7) +10.1* +Employment Agreement by and between ECB Bancorp, Inc., Everett Co-operative Bank and Richard J. O’Neil, Jr., As Amended (2) +10.2* +Change in Control Agreement by and between Everett Co-operative Bank, ECB Bancorp, Inc. (as guarantor) and John Citrano (3) +10.3* +Change in Control Agreement by and between Everett Co-operative Bank, ECB Bancorp, Inc. (as guarantor) and John Migliozzi (3) +10.4* +Confidentiality and Non-Solicitation Agreement by and between Everett Co-operative Bank and John Migliozzi (3) +10.5* +Change in Control Agreement by and between Everett Co-operative Bank, ECB Bancorp, Inc. (as guarantor) and Brandon Lavertu (8) +10.6* +Everett Co-operative Bank Survivor Benefit Plan (4) +10.7* +Supplemental Executive Retirement Plan for Richard O’Neil (1) +10.8* +Non-Qualified Deferred Compensation Plan for John Citrano (1) +10.9* +Non-Qualified Deferred Compensation Plan for John Migliozzi (5) +105 +10.10* +Non-Qualified Deferred Compensation Plan for Brandon Lavertu +10.11* +Director Fee Continuation Plan (1) +10.12* +Director Deferred Compensation Plan (1) +10.13* +Form of Stock-Based Deferral Plan (1) +10.14* +Employee Incentive Plan (4) +10.15* +ECB Bancorp, Inc. 2023 Equity Incentive Plan (5) +19 +Insider Trading Policy +21 +Subsidiaries (1) +23.1 +Consent of Wolf & Company, P.C. +23.2 +Consent of Baker Newman & Noyes LLC +31.1 +Certification required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. +31.2 +Certification required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. +32 +Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. +97 +ECB Bancorp, Inc. Recoupment/Clawback Policy (7) +* Denotes management compensatory plan or arrangement +(1) +Incorporated by reference to the Registration Statement on Form S-1 (file no. 333-263449), filed March 10, 2022. +(2) +Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 2022 (file no. 001-41456), filed on March 30, 2023. +(3) +Incorporated by reference to the Current Report on Form 8-K (file no. 001-41456), filed December 22, 2022. +(4) +Incorporated by reference to the Pre-Effective Amendment No. 1 to the Registration Statement on Form S-1 (file no. 333-263449), filed May 2, 2022. +(5) +Incorporated by reference to the Current Report on Form 8-K (file no. 001-41456), filed July 19, 2023. +(6) +Incorporated by reference to Appendix A to the Proxy Statement for the 2024 Annual Meeting of Stockholders filed with the Securities and Exchange Commission on April 26, 2024 (file no. 001-41456) +(7) +Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 2023 (file no. 001-41456), filed on March 29, 2024. +(8) +Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ending June 30, 2024 (file no. 001-41456), filed on August 9, 2024. +101.INS +Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. +101.SCH +Inline XBRL Taxonomy Extension Schema Document +104 +Cover Page Interactive Data File (embedded within the Inline XBRL document) +106 +ITEM 16. For m 10-K Summary +None. +107 +Sig natures +Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. +ECB BANCORP, INC. +Date: March 26, 2025 +By: +/s/Richard J. O'Neil, Jr. +Richard J. O’Neil, Jr. +President and Chief Executive Officer +(Duly Authorized Representative) +Pursuant to the requirements of the Securities Exchange of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. +Signatures +Title +Date +/s/Richard J. O'Neil, Jr. +President, Chief Executive Officer +and Director (Principal Executive +March 26, 2025 +Richard J. O’Neil, Jr. +Officer) +/s/Brandon Lavertu +Executive Vice President and Chief Financial Officer (Principal Financial Officer & Principal Accounting Officer) +March 26, 2025 +Brandon Lavertu +/s/Dennis J. Leonard +Chairman of the Board +March 26, 2025 +Dennis J. Leonard +/s/Paul A. Delory +Director +March 26, 2025 +Paul A. Delory +/s/Elizabeth P. Jones +Director +March 26, 2025 +Elizabeth P. Jones +/s/Joseph Sachetta +Director +March 26, 2025 +Joseph Sachetta +/s/Susan Sgroi +Director +March 26, 2025 +Susan Sgroi +/s/Marjorie A. White +Director +March 26, 2025 +Marjorie A. White +108 \ No newline at end of file diff --git a/raw/filings/0001914605/2024/0000950170-25-045444/filing_metadata.csv b/raw/filings/0001914605/2024/0000950170-25-045444/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..b512cb561631c4b349ba7ff259b26dcd0ead2310 --- /dev/null +++ b/raw/filings/0001914605/2024/0000950170-25-045444/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001914605,ECBK,"ECB Bancorp, Inc. /MD/",2024,10-K,2025-03-26,2024-12-31,2025-03-26T21:17:13.000Z,0000950170-25-045444,ecbk-20241231.htm,10-K,36569887,1,1,https://www.sec.gov/Archives/edgar/data/1914605/000095017025045444/ecbk-20241231.htm,https://www.sec.gov/Archives/edgar/data/1914605/000095017025045444/ diff --git a/raw/filings/0001914605/2024/0000950170-25-045444/item1.txt b/raw/filings/0001914605/2024/0000950170-25-045444/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..3b98eba34400602613ab3b320200c49bf05ddc32 --- /dev/null +++ b/raw/filings/0001914605/2024/0000950170-25-045444/item1.txt @@ -0,0 +1,1259 @@ +ITEM 1. Busin ess +FORWARD-LOOKING STATEMENTS +This Annual Report contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “assume,” “plan,” “seek,” “expect,” “will,” “may,” “should,” “indicate,” “would,” “believe,” “contemplate,” “continue,” “target” and words of similar meaning. These forward-looking statements include, but are not limited to: +• +statements of our goals, intentions and expectations; +• +statements regarding our business plans, prospects, growth and operating strategies; +• +statements regarding the asset quality of our loan and investment portfolios; and +• +estimates of our risks and future costs and benefits. +These forward-looking statements are based on our current beliefs and expectations and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. We are under no duty to and do not take any obligation to update any forward-looking statements after the date of this Annual Report. +The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements: +• +general economic conditions, either nationally or in our market areas, that are worse than expected including as a result of employment levels and labor shortages, and the effects of inflation, a potential recession or slowed economic growth caused by supply chain disruptions or otherwise; +• +the extent, severity or duration of a pandemic on us and on our customers, employees and third-party service providers; +• +changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for credit losses; +• +our ability to access cost-effective funding; +• +fluctuations in real estate values and both residential and commercial real estate market conditions; +• +demand for loans and deposits in our market area; +• +our ability to implement and change our business strategies; +• +competition among depository and other financial institutions; +• +inflation and changes in the interest rate environment that reduce our margins and yields, our mortgage banking revenues, the fair value of financial instruments, or our level of loan originations, or increase the level of defaults, losses and prepayments on loans we have made and make; +• +adverse changes in the securities or secondary mortgage markets; +• +changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees, capital requirements and insurance premiums; +• +changes in the quality or composition of our loan or investment portfolios; +• +technological changes that may be more difficult or expensive than expected; +• +the inability of third-party providers to perform as expected; +1 +• +a failure or breach of our operational or security systems or infrastructure, including cyberattacks; +• +our ability to manage market risk, credit risk and operational risk; +• +our ability to enter new markets successfully and capitalize on growth opportunities; +• +changes in consumer spending, borrowing and savings habits; +• +changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission or the Public Company Accounting Oversight Board; +• +our ability to attract and retain key employees; and +• +changes in the financial condition, results of operations or future prospects of issuers of securities that we own. +Because of these and a wide variety of other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements. +In this Annual Report the terms “we,” “our,” and “us” refer to ECB Bancorp, Inc. and Everett Co-operative Bank, unless the context indicates another meaning. In addition, we sometimes refer to ECB Bancorp, Inc. as “ECB Bancorp,” and to Everett Co-operative Bank as the “Bank.” +2 +BUSINESS OF ECB BANCORP +ECB Bancorp (sometimes herein, the “Company”) is a Maryland corporation that was incorporated in March 2022 for the purpose of becoming the registered bank holding company for Everett Co-operative Bank (the “Bank”) upon the consummation of the Bank’s mutual to stock conversion and initial stock offering which was completed on July 27, 2022. In connection with the conversion, the Company sold 8,915,247 shares of common stock, par value $0.01 per share, which included 734,020 shares sold to the Bank’s Employee Stock Ownership Plan, for gross offering proceeds (before deducting offering expenses) of approximately $89.2 million based on the offering price of $10.00 per share. The Company also contributed 260,000 shares of common stock and $600,000 in cash to the Everett Co-operative Bank Charitable Foundation, Inc. The shares of the Company’s common stock sold in the offering began trading on the Nasdaq Capital Market on July 28, 2022 under the symbol “ECBK.” +Since being incorporated, other than holding the common stock of Everett Co-operative Bank, engaging in share repurchases and making a loan to the Bank’s employee stock ownership plan, we have not engaged in any material business activities to date. +Our cash flow depends on earnings from the investment of the net proceeds we retained from our initial public stock offering that was consummated in July 2022, and any dividends we receive from Everett Co-operative Bank. We neither own nor lease any property, but pay a fee to Everett Co-operative Bank for the use of its premises, equipment and furniture. At the present time, we employ only persons who are officers of Everett Co-operative Bank who also serve as officers of ECB Bancorp. We use the support staff of Everett Co-operative Bank from time to time and pay a fee to Everett Co-operative Bank for the time devoted to ECB Bancorp by employees of Everett Co-operative Bank. However, these persons are not separately compensated by ECB Bancorp. ECB Bancorp may hire additional employees, as appropriate, to the extent it expands its business in the future. +Our executive offices are located at 419 Broadway, Everett, Massachusetts 02149. Our telephone number at this address is (617) 387-1110. Our website address is www.everettbank.com . Information on our website is not incorporated into this Annual Report on Form 10-K and should not be considered part of this Annual Report. +3 +BUSINESS OF EVERETT CO-OPERATIVE BANK +General +Everett Co-operative Bank is a Massachusetts-chartered stock cooperative bank headquartered in Everett, Massachusetts. The Bank completed its mutual to stock conversion on July 27, 2022 at which time it became the wholly owned subsidiary of ECB Bancorp. +Everett Co-operative Bank was organized in 1890 and has operated continuously in Everett, Massachusetts since this time. We conduct business from our three full-service banking offices located in Everett, Lynnfield and Woburn, Massachusetts, which are located in the greater Boston metropolitan area in Middlesex and Essex Counties. Everett is adjacent to Boston and is approximately three miles from Boston’s financial district, and Lynnfield is located approximately 10 miles to the north in Essex County. Our Woburn branch, opened in 2023, is located approximately 10 miles from Boston’s financial district in Middlesex County. We consider our deposit market area to be Middlesex, Essex and Suffolk Counties, Massachusetts and our primary lending area to be these Counties as well as Norfolk County, Massachusetts, which are located primarily within the Route 128 corridor outside of Boston. +Our business consists primarily of taking deposits from the general public and investing those deposits, together with funds generated from operations, in one-to-four family residential real estate loans, commercial real estate and multifamily real estate loans, construction and land loans and home equity lines of credit and loans. To a lesser extent we also originate commercial business loans and consumer loans. At December 31, 2024, $422.8 million, or 36.9%, of our total loan portfolio was comprised of one-to-four family residential real estate loans, $344.0 million, or 30.0%, of our total loan portfolio was comprised of multifamily real estate loans, $229.0 million, or 20.0%, of our total loan portfolio was comprised of commercial real estate loans, $90.9 million, or 7.9%, of our total loan portfolio was comprised of construction loans, $45.2 million, or 4.0%, of our total loan portfolio was comprised of home equity lines of credit and loans, $13.8 million, or 1.2% of our total loan portfolio was comprised of commercial business loans, and $141,000, or 0.01% of our total loan portfolio was comprised of consumer loans. We also invest in securities, consisting primarily of U.S. government and federal agency obligations, mortgage-backed securities and corporate bonds. We offer a variety of deposit accounts, including certificate of deposit accounts, IRAs, money market accounts, savings accounts and both interest-bearing and noninterest-bearing checking accounts. We historically have utilized advances from the Federal Home Loan Bank of Boston (the “FHLB”) to fund our operations and we had $234.0 million of FHLB advances outstanding at December 31, 2024. Additionally, in recent years, we have also accepted brokered deposits as a non-retail funding source to fund our operations. At December 31, 2024, we had $125.6 million of brokered deposits outstanding. +Business Strategy +One of the key features of our business strategy has been to grow our loan portfolio, primarily through an increased focus on growing our commercial real estate and multifamily lending operations. In order to execute ths growth strategy in an orderly and diligent manner, we enhanced our commercial real estate and multifamily lending infrastructure and engaged a group of experienced credit analysts. Consistent with our strategy to grow our commercial loan operations and the consequent commercial relationship opportunities, we have and will continue to upgrade our suite of deposit products and related services and have and will continue to upgrade our digital and mobile applications in order to accommodate business customers and thereby accelerate the growth in our core deposits. +Historically, given our size, capital position and lending team experience and capacity, we have originated for participation to other local banking institutions our larger commercial real estate and commercial loans. As we continue to enhance our commercial real estate team and infrastructure and with the increase in capital resulting from the conversion, we are able to selectively retain larger loans that we historically would have originated for participation with other local institutions. In this regard, we have revised our lending policies and loans to one borrower limitations to increase our lending limits and the type and size of loans we choose to hold in our portfolio. +We are similarly focused on enhancing our retail operations. To that end, the Company has developed new high yield consumer and business products as well as introducing an array of cash management services designed to attract new business relationships to the bank. In addition, in September of 2023, the Company opened a new branch in Woburn, MA, increasing our retail network to three branches. We will continue to attract and retain retail customers by +4 +emphasizing personal service, accessibility and flexibility in the face of mass market-oriented large, national and super-regional banks which maintain local branch networks in our market. +We believe that we have created, and will continue to enhance, the framework which will enable us to execute on our strategy to grow the Company through orderly and diligent loan growth, including competing for and underwriting larger individual loans and maintaining larger lending relationships. Similarly, we believe that we are well-positioned to execute on our retail growth strategy including our increased emphasis on retail sales marketing efforts by Company personnel. We have and expect to continue to invest in our personnel and information technology to support this balance sheet growth. +We believe we have been effective in competing against both larger regional banks and local community banks operating in our market. We compete against the larger banks through our responsive and personalized service, providing our customers with quicker decision making, customized products where appropriate and access to our senior managers. We believe our highly experienced commercial and residential bankers and a sophisticated product and service mix, including a suite of technology solutions and support, enable us to compete effectively against local community banks. We believe that recent consolidation of financial institutions in and around our market continues to create further opportunity for expansion in our market and hiring available personnel. We will continue to emphasize these core business principles as we focus on growing our balance sheet and will implement them with the larger banking relationships that we seek to originate and maintain. +Reflecting our focus on our community, in connection with our mutual to stock conversion and initial public offering which closed in July 2022, we established the Everett Co-operative Bank Charitable Foundation (the "Foundation") and funded it with $600,000 in cash and 260,000 shares of our common stock, for a total contribution of $3,200,000 based on the $10.00 per share offering price. The purpose of this foundation is to make contributions to support various charitable organizations operating in our community now and in the future. During the year ended December 31, 2024, the Foundation made $129,000 in contributions to local non-profit charities and organizations. +Everett Co-operative Bank is subject to comprehensive regulation and examination by the Massachusetts Commission of Banks ("Commissioner"), as its chartering agency, and the Federal Deposit Insurance Corporation (“FDIC”) as its primary federal regulator and primary insurer of its deposits. See “Supervision and Regulation.” Our executive offices are located at 419 Broadway, Everett, Massachusetts 02149. Our telephone number at this address is (617) 387-1110. Our website address is www.everettbank.com . Information on our website is not incorporated into this Annual Report on Form 10-K and should not be considered part of this Annual Report. +Market Area +We consider Middlesex, Essex and Suffolk Counties, Massachusetts as our primary market area for gathering deposits, and each of these Counties as well as Norfolk County, Massachusetts as our primary lending market area. Our main office and two additional branch offices are located in Middlesex and Essex Counties, all of which are located in the greater Boston metropolitan area. Everett is a suburb which is adjacent to Boston and approximately three miles from Boston’s financial district, Woburn where our new branch opened in 2023 is located is approximately ten miles from Boston's financial district, and Lynnfield where our additional branch office is located is approximately 10 miles north in Essex County. While we occasionally make loans secured by properties located outside of our primary lending market, these loans are generally to borrowers with whom we have an existing relationship and who have a presence within our primary lending market. +The Boston metropolitan area benefits from the presence of numerous institutions of higher learning, medical care and research centers and the corporate headquarters of several significant multinational corporations. Eastern Massachusetts also has many high technology companies employing personnel with specialized skills. These factors affect the demand for residential homes, multifamily apartments, office buildings, shopping centers, industrial warehouses and other commercial properties. +According to the United States Department of Labor, the Boston metropolitan area was one of the United States' twelve largest metropolitan statistical areas in June 2024. Located adjacent to major transportation corridors, the Boston +5 +metropolitan area provides a highly diversified economic base, with major employment sectors ranging from services, manufacturing and wholesale/retail trade, to finance, technology and medical care. According to the United States Department of Labor, in December 2024, the Boston-Cambridge-Newton, Massachusetts Statistical Area had an unemployment rate of 3.8%, compared to a Massachusetts state unemployment rate of 4.1% and the national unemployment rate of 4.1%. +Based on United States census estimates, from 2010 to 2023, the populations of Middlesex and Essex Counties increased 120,867 and 66,930, respectively. The United States census estimates that the median household income from 2019-2023 for Middlesex and Essex Counties were $126,779 and $99,431, respectively, compared to median household income of $94,755 for Boston the metropolitan area, $101,341 for the Commonwealth of Massachusetts and $78,538 for the United States. +Competition +We face significant competition within our market both in making loans and attracting deposits. Our market area has a high concentration of financial institutions, including large money center and regional banks, community banks, credit unions and other non-bank financial service providers. Some of our competitors offer products and services that we currently do not offer, such as trust services and private banking. +Our competition for loans comes primarily from the competitors referenced above and from other financial service providers, such as mortgage companies and mortgage brokers. Competition for loans also comes from the increasing number of non-depository financial service companies participating in the mortgage market, such as insurance companies, securities firms, financial technology companies, specialty finance firms and technology companies. +We expect competition to remain intense in the future as a result of legislative, regulatory and technological changes and the continuing trend toward consolidation of the financial services industry. Technological advances, for example, have lowered barriers to entry, which have allowed banks to expand their geographic reach by providing services over the internet and made it possible for non-depository institutions, including financial technology companies, to offer products and services that traditionally have been provided by banks. Competition for deposits and the origination of loans could limit our growth in the future. +We are a small community savings institution and as of June 30, 2024 (the latest date for which information is available), our market share was 0.89% of total FDIC-insured deposits in Middlesex County, Massachusetts making us the 25th largest out of 48 financial institutions in Middlesex County, and our market share was 0.68% of total FDIC-insured deposits in Essex County, Massachusetts making us the 22nd largest out of 36 financial institutions in Essex County. +Lending Activities +Our principal lending activity is originating one-to-four family residential real estate loans, commercial real estate and multifamily real estate loans, construction and land loans and home equity lines of credit and loans. To a much lesser extent, we also originate commercial business loans and consumer loans. Subject to market conditions and our asset-liability analysis, we expect to continue to grow our commercial real estate and multifamily loan portfolios as well as our one-to-four family residential real estate loan portfolio. We also originate for sale and sell a portion of the fixed-rate one-to-four family residential real estate loans that we originate that generally have terms of 15 years or greater, on a servicing-released, limited or no recourse basis, while retaining shorter-term fixed-rate and all adjustable-rate one-to-four family residential real estate loans in order to manage the duration and time to repricing of our loan portfolio. +Historically, given our size, capital position and lending team experience and capacity, we have originated for participation to other local banking institutions our larger commercial real estate and commercial loans. As we continue to enhance our commercial real estate team and infrastructure and with the increase in capital resulting from the conversion, we are able to selectively retain larger loans that we historically would have originated for participation with other local institutions. In this regard, we have revised our lending policies and loans to one borrower limitations to increase our lending limits and the type and size of loans we choose to hold in our portfolio. +6 +Loan Portfolio Composition. The following table sets forth the composition of our loan portfolio by type of loan at the dates indicated. We had no loans held for sale at December 31, 2024 and December 31, 2023. +At December 31, +At December 31, +2024 +2023 +Amount +Percent +Amount +Percent +(Dollars in thousands) +Real estate loans: +One-to-four family residential +$ +422,841 +36.9 +% +$ +410,131 +39.1 +% +Multi-family +343,970 +30.0 +287,361 +27.4 +Commercial +228,991 +20.0 +196,365 +18.7 +Home equity lines of credit and loans +45,154 +4.0 +33,357 +3.2 +Construction +90,894 +7.9 +112,000 +10.7 +Other loans: +Commercial loans +13,844 +1.2 +9,219 +0.9 +Consumer +141 +0.0 +173 +0.0 +1,145,835 +100.0 +% +1,048,606 +100.0 +% +Less: +Net deferred loan fees +(502 +) +(226 +) +Allowance for credit losses +(8,884 +) +(8,591 +) +Total loans, net +$ +1,136,449 +$ +1,039,789 +7 +Loan Portfolio Maturities. The following tables set forth the contractual maturities of our total loan portfolio at December 31, 2024. Demand loans, loans having no stated repayment schedule or maturity, and overdraft loans are reported as being due in one year or less. Because the tables present contractual maturities and do not reflect repricing or the effect of prepayments, actual maturities may differ. +One year or less +After one year through five years +After five years through 15 years +After 15 years +Total +(Dollars in thousands) +Real estate loans: +One-to-four family residential +$ +5,245 +$ +5,540 +$ +30,405 +$ +381,651 +$ +422,841 +Multi-family +18,188 +18,799 +12,236 +294,747 +343,970 +Commercial +2,165 +31,486 +27,657 +167,683 +228,991 +Home equity lines of credit and loans +- +1,619 +1,641 +41,894 +45,154 +Construction +21,871 +14,872 +10,592 +43,559 +90,894 +Other loans: +Commercial loans +29 +10,039 +3,085 +691 +13,844 +Consumer +29 +67 +- +45 +141 +Total loans +$ +47,527 +$ +82,422 +$ +85,616 +$ +930,270 +$ +1,145,835 +The following table sets forth our fixed- and adjustable-rate loans at December 31, 2024 that are due after December 31, 2025. +Due after December 31, 2025 +Fixed +Adjustable +Total +(Dollars in thousands) +Real estate loans: +One-to-four family residential +$ +105,715 +$ +311,881 +$ +417,596 +Multi-family +26,038 +299,744 +325,782 +Commercial +19,894 +206,932 +226,826 +Home equity lines of credit and loans +1,342 +43,812 +45,154 +Construction +16,357 +52,666 +69,023 +Other loans: +Commercial loans +12,973 +842 +13,815 +Consumer loans +45 +67 +112 +Total loans +$ +182,364 +$ +915,944 +$ +1,098,308 +One-to-Four Family Residential Real Estate Lending . The focus of our lending has long been the origination of long-term loans secured by mortgages on owner-occupied one-to-four family residences. At December 31, 2024, $422.8 million, or 36.9%, of our total loan portfolio, consisted of one-to-four family residential real estate loans. Included in this balance was $145.6 million of non-owner occupied loans. Loans for non-owner occupied properties purchased for investment purposes and where the property income is not the borrower’s primary source of income are generally underwritten to Fannie Mae guidelines. Loans for non-owner occupied properties purchased for investment purposes and where the property income is the primary source of income to the borrower are underwritten based on our commercial real estate underwriting guidelines. As of December 31, 2024, our average outstanding one-to-four family residential real estate loan balance was $439,000 and our largest outstanding loan secured by one-to-four family residential restate had a principal balance of $5.0 million, which, as of December 31, 2024, was performing in accordance with its repayment terms. The majority of the one-to-four family residential real estate loans that we originate are secured by properties located in our primary market area. See “ – Originations, Sales and Purchases of Loans.” +Our one-to-four family residential real estate loans are generally underwritten according to Fannie Mae guidelines, and we refer to loans that conform to such guidelines as “conforming loans.” We generally originate both fixed- and adjustable-rate one-to-four family residential real estate loans in amounts up to the maximum conforming loan limits as established by the Federal Housing Finance Agency (“FHFA”). We also originate loans above the FHFA limit, which are +8 +referred to as “jumbo loans.” We generally underwrite jumbo loans in a manner similar to conforming loans. During the year ended December 31, 2024, we originated $10.8 million of jumbo loans. +We originate both fixed-rate and adjustable-rate one-to-four family residential real estate loans with terms of up to 30 years. At December 31, 2024, $108.9 million, or 25.8%, of our one-to-four family residential real estate loans were fixed-rate loans. +We originate our adjustable-rate one-to-four family residential real estate loans with initial interest rate adjustment periods of three, five, seven and ten years, based on changes in a designated market index. These loans are limited to a 200-basis point initial increase in their interest rate, a 200-basis point increase in their interest rate annually after the initial adjustment, and a maximum upward adjustment of 600 basis points over the life of the loan. We determine whether a borrower qualifies for an adjustable-rate mortgage loan based on our lending policy. +We originate conventional one-to-four family residential mortgage loans with loan-to-value ratios of up to 80% without private mortgage insurance. Occasionally, we originate loans with loan-to-value ratios of up to 97% with private mortgage insurance and where the borrower’s debt generally does not exceed 45% of the borrower’s monthly cash-flow. +A portion of our one-to-four family residential real estate loans are for the financing of residential condominium units. Consistent with our risk analysis, we generally will not finance more than 20% of the units in any condominium project with more than four units. +Generally, we sell a portion of the fixed-rate one-to-four family residential real estate loans that we originate with terms that are generally greater than 15 years. We base the amount of fixed-rate loans that we sell on our liquidity needs, asset/liability mix, loan volume, portfolio size and other factors. Currently, the majority of loans that we sell are sold to the secondary market with servicing released. +We generally do not offer “interest-only” mortgage loans on one-to-four family residential real estate loans nor do we offer loans that provide for negative amortization of principal, such as “Option ARM” loans, where the borrower can pay less than the interest owed on his loan, resulting in an increased principal balance during the life of the loan. Additionally, we do not offer “subprime loans” (loans that are made to borrowers with weakened credit histories typically characterized by payment delinquencies, previous charge-offs, judgments, bankruptcies, or borrowers with questionable repayment capacity as evidenced by low credit scores or high debt-burden ratios) or Alt-A loans (defined as loans having less than full documentation). +We evaluate both the borrower’s ability to make principal, interest and escrow payments and the value of the property that will secure the loan. Our one-to-four family residential real estate loans generally do not currently include prepayment penalties, are non-assumable and do not produce negative amortization. Our one-to-four family residential mortgage loans customarily include “due-on-sale” clauses giving us the right to declare the loan immediately due and payable in the event that, among other things, the borrower sells the property subject to the mortgage. All borrowers are required to obtain title insurance for the benefit of Everett Co-operative Bank. We also require homeowner’s insurance and fire and casualty insurance and, where circumstances warrant, flood insurance on properties securing real estate loans. +We offer one-to-four family residential real estate loans secured by non-owner occupied properties. Generally, we will not make loans in excess of 75% loan to value on non-owner-occupied two-to-four family residential real estate properties or in excess of 80% on single family non-owner occupied residential real estate properties. +Commercial Real Estate and Multifamily Lending . Our commercial real estate loans are secured primarily by multifamily apartment buildings, retail and mixed-use properties, light industrial properties, manufacturing facilities and office buildings, almost all of which are located in our primary market area. We do not have any exposure to high rise office space in Boston, MA. Our office loans are secured by office space primarily outside of the city of Boston where demand for office space along with vacancy rates remain stable. Our multifamily loans are secured primarily by five or more-unit residential buildings. At December 31, 2024, we had $229.0 million in commercial real estate loans and $344.0 million in multifamily real estate loans, representing 20.0% and 30.0% of our total loan portfolio, respectively. +9 +The following table shows the diversification of the commercial real estate portfolio as of December 31, 2024: + +At December 31, 2024 + +Owner-Occupied +Non-Owner-Occupied +Balance +Percent + +(Dollars in thousands) +Mixed-Use +$ +5,855 +$ +88,938 +$ +94,793 +41.4 +% +Retail +8,183 +35,524 +43,707 +19.1 +% +Industrial +10,547 +26,072 +36,619 +16.0 +% +Office +5,943 +29,023 +34,966 +15.3 +% +Hospitality +5,375 +4,250 +9,625 +4.2 +% +Other +8,833 +448 +9,281 +4.0 +% +Total commercial real estate loans +$ +44,736 +$ +184,255 +$ +228,991 +100.0 +% +We generally originate adjustable-rate commercial real estate and multifamily real estate loans with maximum terms of up to 30 years. From time to time we will also originate fixed rate loans in these portfolios. We generally limit loan-to-value ratios to 75% of the lesser of the appraised value or purchase price. All of our commercial real estate and multifamily real estate loans are subject to our underwriting procedures and guidelines set by our Commercial Lending and General Lending Policies. +At December 31, 2024, our largest commercial real estate loan totaled $10.5 million and was secured by a warehouse distribution center located in our primary market area. At December 31, 2024, this loan was performing in accordance with its repayment terms. At December 31, 2024, our largest multifamily real estate loan totaled $20.0 million and was secured by five properties with a total of 118 residential units located in our primary market area. At December 31, 2024, this loan was performing in accordance with its repayment terms. +We consider a number of factors in originating commercial real estate and multifamily loans. We evaluate the character, qualifications and financial condition of the borrower (including credit history), profitability and expertise, as well as the value and condition of the mortgaged property securing the loan and market conditions. When evaluating the qualifications of the borrower, we consider the financial resources of the borrower, the borrower’s experience in owning and/or managing similar property and the borrower’s repayment history with us and other financial institutions. In evaluating the property securing the loan, among other factors, we consider the net operating income of the mortgaged property before debt service and depreciation, amortization and interest. The debt service coverage ratio (the ratio of net operating income to debt service) is calculated to ensure that, subject to certain exceptions, it is at least 1.20x. Our commercial real estate and multifamily loans are appraised by outside independent and qualified appraisers that are duly approved in accordance with Everett Co-operative Bank Appraisal policy. Personal guarantees are often obtained from commercial real estate borrowers if such individual has a greater than 20% ownership interest in the property. Each borrower’s financial information on such loans is monitored on an ongoing basis by requiring periodic financial statement updates which are reviewed when received. +Our loans-to-one borrower limit is 20% of the Bank’s capital, which limit was $29.1 million at December 31, 2024. At December 31, 2024, our average commercial real estate loan had a balance of $1.1 million and our average multifamily loan had a balance of $2.7 million. As we continue to enhance our commercial real estate team and infrastructure and with the increase in capital resulting from the conversion, we are now able to selectively retain larger loans that we historically would have originated for participation with other local financial institutions. In this regard, we have revised our lending policies and loans to one borrower limitations to increase our lending limits and the type and size of loans we choose to hold in our portfolio. +Construction and Land Loans . At December 31, 2024, we had $90.9 million in construction and land loans, or 7.9% of total loans. We make construction loans, primarily to developers, contractors and builders of apartment buildings, for single-family homes and condominiums and to individuals for the construction of their primary residences. We also generate a limited amount of land loans that will be used for residential or commercial development. Land loans also include loans secured by land purchased for investment purposes. At December 31, 2024, our construction loans included $3.4 million in lines of credit secured by land. +10 +While we may originate loans to builders whether or not the collateral property underlying the loan is under contract for sale, we consider each project carefully in light of current residential real estate market conditions. Generally, we will make construction loans for which there is no contract for sale for the underlying completed home at the time of origination, and which we refer to as speculative construction loans, only to well-known builders in our market area. We actively monitor the number of unsold homes in our construction loan portfolio and local housing markets to attempt to maintain an appropriate balance between home sales and new loan originations. We generally limit the maximum number of speculative units (units that are not pre-sold) approved for each builder, typically starting with one speculative loan per builder until we develop a relationship with the builder. At December 31, 2024, speculative construction loans totaled $28.1 million. +Our construction loans are fixed- and adjustable-rate, interest-only loans that provide for the payment of interest during the construction phase, which is usually up to 12 to 24 months or in some cases up to 36 months for more complex projects. At the end of the construction phase, the loan may convert to a permanent mortgage loan or may be paid in full. Depending on the complexity of the construction project, the term of an “interest-only” construction loan may be extended if circumstances warrant it up to an additional three to six months with a maximum interest only term of 36 months. At December 31, 2024, the additional unadvanced portions of these construction loans totaled $54.6 million. +Construction and land loans are generally limited to 80% (75% for investment properties) loan-to-completed-appraised-value ratio upon completion of the project. Before making a commitment to fund a construction loan, we require an appraisal of the property by an independent licensed appraiser. We also generally require inspections of the property before disbursements of funds during the term of the construction loan. Construction projects over $2 million require an approved construction consultant to review the construction budget, complete a feasibility analysis, monitor construction progress and manage construction draws. +At December 31, 2024, our largest construction loan was for $16.8 million and was for the construction of a mixed-use building in our market area. This loan was performing in accordance with its repayment terms at December 31, 2024. +Home Equity Loans and Lines of Credit . In addition to one-to-four family residential real estate loans, we offer home equity loans and lines of credit that are secured by the borrower’s primary, secondary residence or investment property. At December 31, 2024, we had $45.2 million, or 4.0%, of our total loan portfolio in home equity loans and lines of credit. At that date we also had $45.9 million of unused commitments related to home equity lines of credit. +Home equity loans and lines of credit are generally underwritten using the same criteria that we use to underwrite one-to-four family residential real estate loans. Home equity loans and lines of credit may be underwritten with a loan-to-value ratio of up to 70%, or 80% when combined with the principal balance of the existing first mortgage loan. Our home equity loans are primarily originated with fixed rates of interest with terms of up to 15 years. Our home equity lines of credit are originated with a variable rate based on the prime rate of interest plus or minus an applicable margin with a floor rate and require interest paid monthly. +Home equity loans and lines of credit are generally secured by junior mortgages and have greater risk than one-to-four family residential real estate loans secured by first mortgages. We face the risk that the collateral will be insufficient to compensate us for credit losses and costs of foreclosure, after repayment of the senior mortgages, if applicable. When customers default on their loans, we attempt to foreclose on the property and resell the property as soon as possible to minimize foreclosure and carrying costs. However, the value of the collateral may not be sufficient to compensate us for the amount of the unpaid loan and we may be unsuccessful in recovering the remaining balance from those customers. Particularly with respect to our home equity loans and lines of credit, decreases in real estate values could adversely affect our ability to fully recover the loan balance in the event of a default. +Commercial Loans. At December 31, 2024, commercial loans were $13.8 million, or 1.2% of total loans. +We make commercial loans and lines of credit primarily to small businesses in our market area. These loans and lines of credit are generally secured by business assets, such as equipment and accounts receivable. Commercial loans and lines of credit are made with both adjustable and fixed-interest rates and for terms generally up to 60 months or on +11 +demand. Depending on the collateral used to secure the loans, commercial loans are made in amounts of up to 80% of the value of the collateral securing the loan. +When making commercial loans, we consider the financial statements of the borrower, our lending history with the borrower, the debt service capabilities and global cash flows of the borrower and other guarantors, the projected cash flows of the business and the value of the collateral, accounts receivable, inventory and equipment. +At December 31, 2024, our largest commercial loan totaled $4.5 million and was secured by a security interest in a mortgage and note. At December 31, 2024, this loan was performing in accordance with its repayment terms. +Consumer Lending. To a much lesser extent, we offer a variety of consumer loans to individuals who reside or work in our market area, including new and used automobile loans, unsecured overdraft lines of credit and loans secured by savings accounts. At December 31, 2024, our consumer loan portfolio totaled $141,000, or 0.01%, of our total loan portfolio. +Consumer loans generally have shorter terms to maturity, which reduces our exposure to changes in interest rates. In addition, management believes that offering consumer loan products helps to expand and create stronger ties to our existing customer base by increasing the number of customer relationships and providing cross-marketing opportunities. +Loan Underwriting Risks +Adjustable-Rate Residential Real Estate Loans. Although adjustable-rate mortgage loans may reduce to an extent our vulnerability to changes in market interest rates because they periodically reprice, as interest rates increase, the required payments due from the borrower also increase (subject to rate caps), increasing the potential for default by the borrower. At the same time, the marketability of the underlying collateral may be adversely affected by higher interest rates. Upward adjustments of the contractual interest rate are also limited by the maximum periodic and lifetime rate adjustments permitted by our loan documents. +Commercial Real Estate Loans. Loans secured by commercial real estate generally have larger balances and involve a greater degree of risk than one- to four-family residential real estate loans. The primary concern in commercial real estate lending is the borrower’s creditworthiness, the feasibility and cash flow potential of the project. Repayments of loans secured by income properties often depend on successful operation and management of the properties. As a result, repayment of such loans may be subject, to a greater extent than residential real estate loans, to adverse conditions in the real estate market or the economy. To monitor cash flows on income properties, we require borrowers and guarantors to provide financial statements including and not limited to personal financial statements, tax returns and rent rolls on an annual basis at minimum. These documents are reviewed according to the commercial lending policy and general lending policy guidelines. In reaching a decision on whether to make a commercial real estate loan, we consider and review a global cash flow analysis of the borrower and consider the net operating income of the property, the borrower’s expertise, credit history and profitability and the value of the underlying property. We have generally required that the properties securing these real estate loans have an aggregate debt service ratio, including the guarantor’s cash flows and the borrower’s other projects, of at least 1.20x. We pull an environmental report with every new loan request. An environmental phase one report is obtained when the possibility exists that hazardous materials may have existed on the site, or the site may have been impacted by adjoining properties that handled hazardous materials. +If we foreclose on a commercial real estate loan, the marketing and liquidation period to convert the real estate asset to cash can be lengthy with substantial holding costs. In addition, vacancies, deferred maintenance, repairs and market stigma can result in prospective buyers expecting sale price concessions to offset their real or perceived economic losses for the time it takes them to return the property to profitability. Depending on the individual circumstances, initial charge-offs and subsequent losses on commercial real estate loans can be unpredictable and substantial. As of December 31, 2024, we maintained no “other real estate owned” as a result of foreclosures (or the acceptance of a deed in lieu of foreclosure). +Commercial Loans. Unlike residential real estate loans, which generally are made on the basis of the borrower’s ability to make repayment from his or her employment or other income streams, and which are secured by real property +12 +whose value tends to be more easily ascertainable, commercial loans are of higher risk and typically are made on the basis of the borrower’s ability to make repayment from the cash flows of the borrower’s business operation, and the collateral securing these loans may fluctuate in value. Our commercial loans are originated primarily based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. Collateral for commercial loans typically consists of accounts receivable, inventory or equipment. Credit support provided by the borrower for most of these loans is based on the liquidation of the pledged collateral and enforcement of a personal guarantee, if any. Further, any collateral securing such loans may depreciate over time, may be difficult to appraise and may fluctuate in value. As a result, the availability of funds for the repayment of commercial loans may depend substantially on the success of the business itself. +Construction and Land Loans. Our construction loans are based upon estimates of costs and values associated with the completed project. Underwriting is focused on the borrower's financial strength, credit history and demonstrated ability to produce a quality product, effectively market it and manage their operations effectively. +Construction lending involves additional risks when compared with permanent lending because funds are advanced upon the security of the project, which is of uncertain value before its completion. Because of the inherent uncertainties in estimating construction costs, as well as the market value of the completed project and the effects of governmental regulation of real property, it is relatively difficult to evaluate accurately the total funds required to complete a project and the related loan-to-value ratio. In addition, generally during the term of a construction loan, interest may be funded by the borrower or disbursed from an interest reserve set aside from the construction loan budget. These loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project and the ability of the borrower to sell or lease the property or obtain permanent take-out financing, rather than the ability of the borrower or guarantor to repay principal and interest. If the appraised value of a completed project proves to be overstated, we may have inadequate security for the repayment of the loan upon completion of construction of the project and may incur a loss. In addition, speculative construction loans, which are loans made to home builders who, at the time of loan origination, have not yet secured an end buyer for the home under construction, typically carry higher risks than those associated with traditional construction loans. These increased risks arise because of the risk that there will be inadequate demand to ensure the sale of the property within an acceptable time. As a result, in addition to the risks associated with traditional construction loans, speculative construction loans carry the added risk that the builder will have to pay the property taxes and other carrying costs of the property until an end buyer is found. Land loans have substantially similar risks to speculative construction loans. +Originations, Sales and Purchases of Loans +Our loan originations are generated by our loan personnel operating at our banking offices. All loans we originate are underwritten pursuant to our policies and procedures. While we originate both fixed-rate and adjustable-rate loans, our ability to generate each type of loan depends upon relative borrower demand and the pricing levels as set in the local marketplace by competing banks, thrifts, credit unions, and mortgage banking companies. Our volume of real estate loan originations is influenced significantly by market interest rates, and, accordingly, the volume of our real estate loan originations can vary from period to period. +Consistent with our interest rate risk management strategy, we originate for sale and sell a portion of the fixed-rate, one- to four-family residential real estate loans that we originate with terms of 15 years or greater, on a servicing-released, limited or no recourse basis, while retaining shorter-term fixed-rate and all adjustable-rate one- to four-family residential real estate loans in order to manage the duration and time to repricing of our loan portfolio. We consider our balance sheet as well as market conditions on an ongoing basis in making decisions as to whether to hold loans we originate for investment or to sell such loans to investors, choosing the strategy that is most advantageous to us from a profitability and risk management standpoint. During the year ended December 31, 2024, we sold $7.8 million of one-to-four family owner-occupied residential real estate loans. Subject to market and economic conditions, management intends to continue this sales activity in future periods to generate gain on sale income. +From time to time, we may purchase loan participations secured by properties within and outside of our primary market area in which we are not the lead lender. In these circumstances, we follow our customary loan underwriting and approval policies. At December 31, 2024, we had four loans in which we were not the lead lender totaling $26.1 million. +13 +In addition, during 2024, we purchased $3.2 million in whole one- to four- family residential real estate loans from correspondent loan originators. We may participate out portions of a loan that exceeded our loans-to-one borrower legal lending limit and for risk diversification. +At December 31, 2024, we did not have any loans held for sale. +Loan Approval Procedures and Authority +The maximum amount that we may lend to one borrower and the borrower’s related entities is generally limited, by statute, to 20% of the Bank's capital, which is defined under Massachusetts law as the sum of our surplus account, undivided profits and capital stock. Loans secured by a first mortgage on residential property occupied by the borrower are excluded from this limit. At December 31, 2024, our regulatory limit on loans-to-one borrower was $29.1 million. At December 31, 2024, our largest relationship at this date consisted of eight multifamily loans totaling $27.7 million secured by 17 multifamily properties and five residential buildings with a total of 119 residential units in our market area. This loan relationship was performing in accordance with its original repayment terms at December 31, 2024. Our second largest lending relationship consisted of eight loans, including one commercial real estate loans, five multifamily loans and three construction loan, totaling $25.9 million and was secured primarily by three mixed-used building, ten residential units and a single room occupancy building with 48 units. This loan relationship was performing in accordance with its original repayment terms at December 31, 2024. As a result of our stock offering which closed in July 2022, our regulatory loans-to-one borrower limit has increased and, as we continue to enhance our commercial real estate team and infrastructure and our increased capital position, we are now able to selectively retain larger loans that we historically would have originated for participation with other local financial institutions. In this regard, we have revised our lending policies and loans to one borrower limitations to increase our lending limits and the type and size of loans we choose to hold in our portfolio. +Our lending is subject to written underwriting standards and origination procedures. Decisions on loan applications are made on the basis of detailed applications submitted by the prospective borrower and property valuations (consistent with our appraisal policy) prepared by outside independent licensed or certified appraisers approved by our board of directors as well as internal evaluations, where permitted by regulations. The loan applications are designed primarily to determine the borrower’s ability to repay the requested loan, and the more significant items on the application are verified through use of credit reports, financial statements and tax returns. +The Board of Directors has overall responsibility for our lending policy, and the board reviews this policy at least annually. +Our Chief Executive Officer, Chief Operating Officer or Chief Lending Officer each have individual lending authority for up to $1.0 million for residential or commercial loans. Loans of between $1.0 million and $3.5 million require the approval of the Loan Committee, which is comprised of senior management of the Bank as well as the Chief Executive Officer, and loans or relationships in excess of $3.5 million require approval of the full Board of Directors. Additionally, our policies and loan approval limits which are established by the board of directors provide various lending approval authority for other designated individual officers or officers acting together. +Generally, we require title insurance on our mortgage loans as well as fire and extended coverage casualty insurance in amounts at least equal to the principal amount of the loan or the value of improvements on the property, depending on the type of loan. We also require flood insurance if the improved property is determined to be in a flood zone area. +Delinquencies and Non-Performing Assets +Delinquency Procedures. When a borrower fails to make required payments on a loan, we take a number of steps to induce the borrower to cure the delinquency and restore the loan to current status. We generally send a written notice of non-payment to the borrower 15, 30, 60 and 90 days after a loan is first past due. We will additionally try to contact the borrower by telephone after the 30 th day after the due date. +14 +Generally, when a loan becomes 90 days past due, the loan is turned over to our attorneys to ensure that further collection activities are conducted in accordance with applicable laws and regulations. All loans past due 90 days are put on non-accrual and reported to the board of directors monthly. If our attorneys do not receive a response from the borrower, or if the terms of any payment plan established are not followed, then foreclosure proceedings will be implemented. Management submits a delinquent loan report detailing loans 30 days or more past due to the board of directors on a monthly basis. +When we acquire real estate as a result of foreclosure or by deed in lieu of foreclosure, the real estate is classified as foreclosed real estate until it is sold. The real estate is recorded at estimated fair value at the date of acquisition less estimated costs to sell, and any write-down resulting from the acquisition is charged to the allowance for credit losses. Estimated fair value is based on an appraisal typically obtained before the foreclosure process is completed. Subsequent decreases in the value of the property are charged to operations. After acquisition, all costs incurred in maintaining the property are expensed. Costs relating to the development and improvement of the property, however, are capitalized to the extent of estimated fair value less estimated costs to sell. +From time to time, we may grant a concession to borrowers who are experiencing financial difficulties for economic or legal reasons related to the borrower’s financial difficulties. This usually includes a modification of loan terms, such as a reduction of the interest rate to below market terms, capitalizing past due interest or extending the maturity date and possibly a partial forgiveness of the principal amount due. Interest income on restructured loans is accrued after the borrower demonstrates the ability to pay under the restructured terms through a sustained period of repayment performance, which is generally six consecutive months. +Delinquent Loans . The following table sets forth our loan delinquencies, including non-accrual loans, by type and amount at the dates indicated. +At December 31, +2024 +2023 +30–59 Days +60–89 Days +90 Days +or More +30–59 Days +60–89 Days +90 Days +or More +(in thousands) +Real estate loans: +One-to-four family residential +$ +1,260 +$ +— +$ +1,077 +$ +722 +$ +225 +$ +809 +Multi-family +— +— +— +— +— +— +Commercial +— +— +— +— +— +— +Home equity lines of credit and loans +405 +— +85 +360 +— +8 +Construction +— +— +— +— +— +— +Other loans: +Commercial +— +— +— +— +— +— +Consumer +— +— +— +1 +— +— +Total +$ +1,665 +$ +— +$ +1,162 +$ +1,083 +$ +225 +$ +817 +15 +Non-Performing Assets. The following table sets forth information regarding our non-performing assets. +At December 31, +2024 +2023 +(in thousands) +Non-accrual loans: +Real estate loans: +One-to-four family residential +$ +1,872 +$ +1,191 +Multi-family +— +— +Commercial +— +— +Home equity lines of credit and loans +85 +22 +Construction +— +— +Commercial +— +— +Consumer +— +— +Total non-accrual loans +$ +1,957 +$ +1,213 +Accruing loans past due 90 days or more: +Real estate loans: +One-to-four family residential +$ +— +$ +— +Multi-family +— +— +Commercial +— +— +Home equity lines of credit and loans +— +— +Construction +— +— +Bank owned property held for sale +— +— +Total real estate owned +— +— +Total non-performing assets +$ +1,957 +$ +1,213 +Total non-performing loans to total loans +0.17 +% +0.12 +% +Total non-performing loans to total assets +0.14 +% +0.09 +% +Total non-performing assets to total assets +0.14 +% +0.09 +% +Classified Assets . Federal regulations provide that each insured savings institution classify its assets on a regular basis. In addition, in connection with examination of insured depository institutions, federal and Massachusetts banking regulators have authority to identify problem assets and, if appropriate, classify them. There are three classifications for problem assets: “substandard,” “doubtful” or “loss.” An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. “Substandard” assets include those characterized by the “distinct possibility” that the insured institution will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard,” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly questionable and improbable.” Assets classified as “loss” are those considered “uncollectible” and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted. Assets which do not currently expose the insured institution to sufficient risk to warrant classification in one of the aforementioned categories but possess weaknesses are designated as “special mention” by our management. +When an insured depository institution classifies problem assets as either substandard or doubtful, it may establish general allowances in an amount deemed prudent by management to cover probable expected losses. General allowances represent loss allowances which have been established to cover expected losses associated with lending activities, but which, unlike specific allowances, have not been allocated to particular problem assets. When an insured institution classifies problem assets as “loss,” it is required either to establish a specific allowance for losses equal to 100% of that portion of the asset so classified or to charge-off such amount. An institution’s determination as to the classification of its assets and the amount of its valuation allowances is subject to review by the regulatory agencies, which may require the establishment of additional general or specific loss allowances. +In connection with the filing of our quarterly reports with the FDIC and in accordance with our classification of assets policy, we regularly review the problem loans in our portfolio to determine whether any loans require classification in accordance with applicable regulations. +16 +On the basis of this review of our assets, our classified and special mention assets at the dates indicated were as follows: +At December 31, +2024 +2023 +(in thousands) +Substandard assets +$ +99 +$ +— +Doubtful assets +— +— +Loss assets +— +— +Total classified assets +$ +99 +$ +— +Special mention assets +$ +1,739 +$ +1,282 +Foreclosed real estate and other assets +$ +— +$ +— +Other Loans of Concern. There were no other loans at December 31, 2024 that are not already disclosed where there is information about possible credit problems of borrowers that caused management to have serious doubts about the ability of the borrowers to comply with present loan repayment terms and that may result in disclosure of such loans in the future. +Allowance for Credit Losses. On January 1, 2023, the Company adopted the ASU 2016-13 Current Expected Credit Loss (CECL) methodology for estimating the credit losses for loans and off-balance sheet commitments. This methodology replaced the previous incurred loss and impairment methodology with a methodology referred to as CECL. This methodology reflects expected credit losses and requires consideration of historical experience, current conditions, and reasonable and supportable forecasts of future economic conditions. Management uses forward-looking information to estimate the expected credit loss on a loan at the time of origination. The change from the incurred loss methodology to the CECL methodology was recognized through an adjustment to retained earnings. A provision for credit losses, which is a charge against earnings, is recorded to bring the allowance for credit losses to a level that, in management’s judgment, is adequate to absorb expected lifetime credit losses in the loan portfolio. Management’s evaluation process used to determine the appropriateness of the allowance for credit losses is subject to the use of estimates, assumptions, and judgment. The evaluation process involves gathering and interpreting many qualitative and quantitative factors which could affect expected credit losses. Because interpretation and analysis involves judgment, current economic or business conditions can change, and future events are inherently difficult to predict, the anticipated amount of estimated credit losses and therefore the appropriateness of the allowance for credit losses could change significantly. +As an integral part of their examination process, the Commissioner and the FDIC will periodically review our allowance for credit losses, and as a result of such reviews, we may determine to adjust our allowance for credit losses. However, regulatory agencies are not directly involved in the process for establishing the allowance for credit losses as the process is our responsibility and any increase or decrease in the allowance is the responsibility of management. +17 +The following table sets forth activity in our allowance for credit losses on loans for the years indicated: +At December 31, +2024 +2023 +(in thousands) +Allowance for credit losses on loans at beginning of year +$ +8,591 +$ +7,200 +Cumulative effect accounting adjustment +— +182 +Provision for credit losses +296 +1,210 +Charge-offs: +Real estate loans: +One-to-four family residential +— +— +Multi-family +— +— +Commercial +— +— +Home equity lines of credit and loans +— +— +Construction +— +— +Commercial +— +— +Consumer +(4 +) +(2 +) +Total charge-offs +$ +(4 +) +$ +(2 +) +Recoveries: +Real estate loans: +One-to-four family residential +— +— +Multi-family +— +— +Commercial +— +— +Home equity lines of credit and loans +— +— +Construction +— +— +Commercial +— +— +Consumer +1 +1 +Total recoveries +1 +1 +Net (charge-offs) recoveries +$ +(3 +) +$ +- +$ +(1 +) +Allowance for credit losses on loans at end of year +$ +8,884 +$ +- +$ +8,591 +Allowance for credit losses on loans to non-performing loans +453.96 +% +708.24 +% +Allowance for credit losses on loans to total loans outstanding +at end of year +0.78 +% +0.82 +% +Net (charge offs) recoveries to average loans +outstanding during the year +0.00 +% +0.00 +% +18 +Allocation of Allowance for Credit Losses on Loans. The following table sets forth the allowance for credit losses on loans allocated by loan category and the percent of loans in each category to total loans at the dates indicated. +At December 31, +2024 +2023 +Allowance for Credit Losses +Percent of Allowance in Each Category to Total Allocated Allowance +Percent of Loans in Each Category to Total Loans +Allowance for Credit Losses +Percent of Allowance in Each Category to Total Allocated Allowance +Percent of Loans in Each Category to Total Loans +(Dollars in thousands) +Real estate loans: +One-to-four family residential +$ +2,928 +33.0 +% +36.9 +% +$ +3,555 +41.4 +% +39.1 +% +Multi-family +2,422 +27.3 +30.0 +1,190 +13.9 +27.4 +Commercial +2,260 +25.4 +20.0 +1,636 +19.0 +18.7 +Home equity lines of credit and loans +118 +1.3 +4.0 +321 +3.7 +3.2 +Construction +1,036 +11.7 +7.9 +1,757 +20.5 +10.7 +Commercial loans +119 +1.3 +1.2 +131 +1.5 +0.9 +Consumer +1 +0.0 +0.0 +1 +0.0 +0.0 +Total +$ +8,884 +100.0 +% +100.0 +% +$ +8,591 +100.0 +% +100.0 +% +Investment Activities +General . Our investment policy is established by the Board of Directors. The objectives of the policy are to: (i) provide and maintain liquidity within the guidelines of the Massachusetts banking laws and regulations for loan demand and deposit fluctuations, and to allow us to alter our liquidity position to meet both day-to-day and long-term changes in assets and liabilities; (ii) manage interest rate risk in accordance with our interest rate risk policy; (iii) provide collateral for pledging requirements; (iv) maximize return on our investments; and (v) maintain a balance of high quality diversified investments to minimize risk. +We have legal authority to invest in various types of liquid assets, including U.S. Treasury obligations, securities of various government-sponsored enterprises and municipal governments, deposits at the Federal Home Loan Bank of Boston (the “FHLB”), certificates of deposit of federally insured institutions, investment grade corporate bonds and marketable equity securities. We also are required to maintain an investment in FHLB stock. While we have the authority under applicable law to invest in derivative securities, we have not invested in derivative securities. +At December 31, 2024, our investment portfolio consisted primarily of debt securities issued by the U.S. Treasury, U.S. government sponsored enterprises, mortgage-backed securities, collateralized mortgage obligations and corporate debt securities. +Our investment policy is reviewed annually by our Board of Directors and all policy changes recommended by management must be approved by the board. Authority to make investments under the approved guidelines are delegated to appropriate officers. While general investment strategies are developed and authorized by the board, the execution of specific actions with respect to securities held by Everett Co-operative Bank rests with the Chief Financial Officer within the scope of the established investment policy. +At the time of purchase, we designate a security as held-to-maturity, available-for-sale, or trading, depending on our ability and intent. Securities available-for-sale or trading are reported at fair value, while securities held-to-maturity are reported at amortized cost. Consistent with our overall business and asset/liability management plan, which focuses on sustaining adequate levels of core earnings, the base premise of our investment portfolio is that all securities purchased will be suitable to be held-to-maturity. At December 31, 2024, $73.2 million, or 91.8%, of our securities portfolio was comprised of held-to-maturity securities. +Some of our securities are callable by the issuer. Although these securities may have a yield somewhat higher than the yield of similar securities without such features, these securities are subject to the risk that they may be redeemed by +19 +the issuer prior to maturing in the event general interest rates decline. At December 31, 2024, we had $17.4 million of securities which were subject to redemption by the issuer prior to their stated maturity. +For available-for-sale debt securities with a fair value less than amortized cost basis, management will determine whether it has the intent to sell the debt security or whether it is more likely than not it will be required to sell the debt security before the recovery of its amortized cost basis. If either condition is met, management will recognized a write-down to fair value through a charge to earnings. For all other debt securities, management evaluates their expected credit losses over the remaining term. The majority of the Company’s debt securities consist of mortgage-backed securities, U.S. Treasury securities and debt securities issued by U.S. government-sponsored enterprises. These securities carry an explicit or implicit guarantee from the U.S. government, are highly rated by major rating agencies, and have a long history of no credit losses. Accordingly, the Company applies a zero-credit loss assumption and has not recorded any allowance for these securities. For corporate bonds classified as held-to-maturity, a probability of default and loss given default analysis is performed to determine the allowance for credit losses. We monitor the investment portfolio and credit performance on a quarterly basis to determine if any allowance is considered necessary. +At December 31, 2024, our corporate bond portfolio consisted of investment grade securities with maturities shorter than ten years. Our investment policy provides that we may invest up to 10% of our tier-one risk-based capital in corporate bonds from individual issuers which, at the time of purchase, are within the three highest investment-grade ratings from Standard & Poor’s or Moody’s. The maturity of these bonds generally may not exceed five years unless approved by the board of directors, and the aggregate limit is 50% of the investment portfolio for this security type. Bonds that subsequently experience a decline in credit rating below investment grade are monitored at least quarterly. +Bank-Owned Life Insurance. We invest in bank-owned life insurance to provide us with a funding source for our benefit plan obligations. Bank-owned life insurance also generally provides us noninterest income that is non-taxable. Applicable regulations generally limit our investment in bank-owned life insurance to 25% of our Tier 1 capital plus our allowance for credit losses. At December 31, 2024, we had $14.9 million in bank-owned life insurance. +Other Securities . We hold common stock of the FHLB in connection with our membership with the FHLB and our borrowing activities. The FHLB common stock is carried at cost and classified as restricted equity securities. It is not practicable to determine the fair value of FHLB common stock due to restrictions placed on its transferability. Under current FHLB rules, we will be required to purchase additional FHLB common stock if we increase borrowings in the future. +20 +Securities Portfolio. The following tables set forth the stated maturities and weighted average yields of our investment securities which are classified as held-to-maturity and available-for-sale at December 31, 2024. Certain securities have adjustable interest rates and will reprice periodically within the various maturity ranges. These repricing schedules are not reflected in the table below. Prepayments are not reflected in the table below. +One Year or Less +More than One +Year to Five Years +More than Five +Years to Ten Years +More than +Ten Years +Total +Weighted +Weighted +Weighted +Weighted +Weighted +Amortized +Average +Amortized +Average +Amortized +Average +Amortized +Average +Amortized +Fair +Average +Cost +Yield +Cost +Yield +Cost +Yield +Cost +Yield +Cost +Value +Yield +(Dollars in thousands) +Securities held-to-maturity: +Debt securities issued by U.S. +government-sponsored enterprises +$ +5,588 +0.40 +% +$ +— +— +$ +— +— +$ +— +— +$ +5,588 +$ +5,450 +0.40 +% +Mortgage-backed securities +7 +2.19 +% +6,886 +3.77 +% +1,998 +2.77 +% +35,370 +2.15 +% +44,261 +38,947 +2.43 +% +Corporate bonds +1,501 +2.29 +% +13,398 +4.59 +% +3,000 +7.50 +% +— +— +17,899 +17,620 +4.88 +% +U.S. Treasury securities +5,467 +4.99 +% +— +— +— +— +— +— +5,467 +5,488 +4.99 +% +Total +$ +12,563 +2.62 +% +$ +20,284 +4.31 +% +$ +4,998 +5.61 +% +$ +35,370 +2.15 +% +$ +73,215 +$ +67,505 +3.06 +% +One Year or Less +More than One +Year to Five Years +More than Five +Years to Ten Years +More than +Ten Years +Total +Weighted +Weighted +Weighted +Weighted +Weighted +Amortized +Average +Amortized +Average +Amortized +Average +Amortized +Average +Amortized +Fair +Average +Cost +Yield +Cost +Yield +Cost +Yield +Cost +Yield +Cost +Value +Yield +(Dollars in thousands) +Securities available-for-sale +Mortgage-backed securities +$ +2,009 +4.32 +% +$ +2,155 +3.62 +% +$ +— +— +$ +— +— +$ +4,164 +$ +4,126 +3.96 +% +Collateralized Mortgage Obligation +— +— +— +— +— +— +1,452 +3.78 +% +1,452 +1,438 +3.78 +% +Corporate bonds +— +— +— +— +1,000 +8.00 +% +— +— +1,000 +1,000 +8.00 +% +Total +$ +2,009 +4.32 +% +$ +2,155 +3.62 +% +$ +1,000 +8.00 +% +$ +1,452 +3.78 +% +$ +6,616 +$ +6,564 +4.53 +% +For additional information regarding our investment securities portfolio, see Note 3 of the consolidated financial statements. +21 +Sources of Funds +General. Deposits have traditionally been our primary source of funds for use in lending and investment activities. We also use borrowings to supplement cash flow needs, lengthen the maturities of liabilities for interest rate risk purposes and to manage the cost of funds. In addition, we receive funds from scheduled loan payments, investment maturities, loan prepayments, loan sales, retained earnings and income on earning assets. While scheduled loan payments and income on earning assets are relatively stable sources of funds, deposit inflows and outflows can vary widely and are influenced by prevailing interest rates, market conditions and levels of competition. +Deposits. Our deposits are generated primarily from residents within our primary market area. We offer a selection of deposit accounts, including noninterest-bearing and interest-bearing demand accounts, money market accounts, savings accounts and certificates of deposit. Deposit account terms vary, with the principal differences being the minimum balance required, the amount of time the funds must remain on deposit and the interest rate. In recent years, we have also accepted brokered deposits as non-retail funding source to fund our operations. These non-core funding sources are not relationship-based accounts and are generally more price-sensitive than our core deposits. Therefore, these deposits carry a greater risk of non-renewal than our core deposits. At December 31, 2024, our core deposits, which are deposits other than certificates of deposit and brokered deposits, were $393.0 million, representing 39.4% of total deposits. At December 31, 2024, our largest deposit relationship had $21.1 million in deposits. +We are focused on ensuring that our products, services and accessibility will continue to make Everett Co-operative Bank a competitive community bank, and will continue to attract and retain retail customers by emphasizing personal service, accessibility and flexibility. The Company has developed new high yield consumer and business products as well as introducing an array of cash management services designed to attract new business relationships to the bank. In addition, in September of 2023, the Company opened a new branch in Woburn, MA, increasing our retail network to three branches. We will continue to attract and retain retail customers by emphasizing personal service, accessibility and flexibility in the face of mass market-oriented large, national and super-regional banks which maintain local branch networks in our market. +Interest rates, maturity terms, service fees and withdrawal penalties are established on a periodic basis. Deposit rates and terms are based primarily on current operating strategies and market rates, liquidity requirements, rates paid by competitors and growth goals. The flow of deposits is influenced significantly by general economic conditions, changes in interest rates and competition. The variety of deposit accounts that we offer allows us to be competitive in generating deposits and to respond with flexibility to changes in our customers’ demands. Our ability to gather deposits is impacted by the competitive market in which we operate, which includes numerous financial institutions of varying sizes offering a wide range of products. We believe that deposits are a stable source of funds, but our ability to attract and maintain deposits at favorable rates will be affected by market conditions, including competition and prevailing interest rates. +22 +The following table sets forth the distribution of total deposits, by account type, at the dates indicated. +At December 31, +2024 +2023 +Amount +Percent +Average Rate +Amount +Percent +Average Rate +(Dollars in thousands) +Noninterest-bearing demand +deposits +$ +84,958 +8.5 +% +0.00 +% +$ +78,342 +9.0 +% +0.00 +% +Interest-bearing demand deposits +20,546 +2.1 +0.10 +% +22,158 +2.6 +0.09 +% +Regular savings deposits and +other deposits +102,933 +10.3 +2.10 +% +137,848 +15.9 +2.49 +% +Money market deposits +184,581 +18.5 +3.47 +% +131,363 +15.1 +3.16 +% +Certificates of deposit +605,515 +60.6 +4.38 +% +498,503 +57.4 +4.25 +% +Total +$ +998,533 +100.0 +% +$ +868,214 +100.0 +% +As of December 31, 2024 and 2023, the aggregate amount of deposits in amounts greater than $250,000, which is the maximum amount for federal deposit insurance, was $503.8 million and $419.9 million, respectively. As of December 31, 2024, the aggregate amount of all our certificates of deposit in excess of $250,000 was $258.7 million. +All of our deposits are fully insured due to the additional insurance provided to a Massachusetts cooperative bank, such as Everett Co-operative Bank, under the Depositors Insurance Fund, a private industry-sponsored insurance fund in Massachusetts that insures all deposits at Everett Co-operative Bank above FDIC limits. +Borrowings . At December 31, 2024, total borrowings were $234.0 million. Borrowings consist of both short-term and long-term FHLB advances. Borrowings provide us with one source of funding. Maintaining available borrowing capacity with the FHLB provides us with a contingent source of liquidity. Everett Co-operative Bank is a member of the FHLB of Boston. The primary reason for our FHLB membership is to gain access to a reliable source of wholesale funding, particularly term funding, as a tool to manage liquidity and interest rate risk. As a member of the FHLB, we are required to purchase shares in the FHLB. Accordingly, we had invested $10.0 million in shares of the FHLB at December 31, 2024. We had $328.5 million of borrowing capacity remaining with the FHLB at December 31, 2024. At December 31, 2024, we had $10.0 million of borrowing capacity with the Atlantic Community Bankers Bank and $15.1 million of borrowing capacity with the Federal Reserve Bank. +Subsidiary and Other Activities +Everett Co-operative Bank is the wholly owned subsidiary of ECB Bancorp. +Everett Co-operative Bank has one subsidiary, First Everett Securities Corporation, Inc. (“FESC, Inc.”), a Massachusetts corporation, which is engaged in the buying, selling and holding of investment securities. The income earned on FESC, Inc.’s securities is subject to a significantly lower rate of state tax than that assessed on income earned on securities maintained at Everett Co-operative Bank. At December 31, 2024, FESC, Inc. had total assets of $52.3 million, substantially all of which were in securities and cash to be invested. +Expense and Tax Allocation +Everett Co-operative Bank has entered into an agreement with ECB Bancorp to provide it with certain administrative support services for compensation not less than the fair market value of the services provided. In addition, Everett Co-operative Bank and ECB Bancorp have entered into an agreement to establish a method for allocating and for reimbursing the payment of their consolidated tax liability. +23 +Personnel +As of December 31, 2024, we had 64 full-time equivalent employees. Our employees are not represented by any collective bargaining group. Management believes that we have a good working relationship with our employees. +24 +SUPERVISION AND REGULATION +General +Everett Co-operative Bank is a Massachusetts-chartered stock cooperative bank and is the wholly owned subsidiary of ECB Bancorp, a Maryland corporation, which is a registered bank holding company. Everett Co-operative Bank’s deposits are insured up to applicable limits by the FDIC and by the Depositors Insurance Fund for amounts in excess of the FDIC insurance limits. Everett Co-operative Bank is subject to extensive regulation by the Commissioner, as its chartering agency, and by the FDIC, its primary federal regulator and deposit insurer. Everett Co-operative Bank is required to file reports with, and is periodically examined by, the FDIC and the Commissioner concerning its activities and financial condition and must obtain regulatory approvals prior to entering into certain transactions, including, but not limited to, mergers with or acquisitions of other financial institutions. As a registered bank holding company, ECB Bancorp is regulated by the Board of Governors of the Federal Reserve Board (the “Federal Reserve Board”). Everett Co-operative Bank also is a member of and owns stock in the Federal Home Loan Bank of Boston, which is one of the 11 regional banks in the Federal Home Loan Bank System. +Under this system of regulation, the regulatory authorities have extensive discretion in connection with their supervisory, enforcement, rulemaking and examination activities and policies, including rules or policies that: establish minimum capital levels; restrict the timing and amount of dividend payments; govern the classification of assets; provide oversight for the adequacy of credit loss reserves for regulatory purposes and the adequacy of its risk management framework; and establish the timing and amounts of assessments and fees imposed by the regulatory agencies. Moreover, as part of their examination authority, the banking regulators assign numerical ratings to banks and savings institutions relating to capital, asset quality, management, liquidity, earnings and other factors. These ratings rely on the supervisor’s judgment and the receipt of a less than satisfactory rating in one or more categories may result in enforcement action by the banking regulators against a financial institution. A less than satisfactory rating may also prevent a financial institution, such as Everett Co-operative Bank or its holding company, from obtaining necessary regulatory approvals to access the capital markets, pay dividends, acquire other financial institutions or establish new branches. +In addition, we must comply with significant anti-money laundering and anti-terrorism laws and regulations, Community Reinvestment Act laws and regulations, and fair lending laws and regulations. Everett Co-operative Bank must comply with consumer protection regulations issued by the Consumer Financial Protection Bureau, as enforced by the FDIC. Government agencies have the authority to impose monetary penalties and other sanctions on institutions that fail to comply with these laws and regulations, which could significantly affect our business activities, including our ability to acquire other financial institutions or expand our branch network. +As a bank holding company, ECB Bancorp is required to comply with the Bank Holding Company Act of 1956, as amended, and the rules and regulations of the Federal Reserve Board. It is required to file certain reports with the Federal Reserve Board and is subject to examination by and the enforcement authority of the Federal Reserve Board. Additionally, the Federal Reserve Board may directly examine the subsidiaries of a bank holding company, including Everett Co-operative Bank. ECB Bancorp is also subject to the rules and regulations of the Securities and Exchange Commission under the federal securities laws. +Any change in applicable laws or regulations, whether by the Massachusetts legislature, the Commissioner, the Consumer Financial Protection Bureau, the FDIC, the Federal Reserve Board, the Securities and Exchange Commission or Congress, could have a material adverse impact on the operations and financial performance of ECB Bancorp and Everett Co-operative Bank. +Set forth below is a brief description of material regulatory requirements that are applicable to Everett Co-operative Bank and ECB Bancorp. The description is limited to certain material aspects of the statutes and regulations addressed, and is not intended to be a complete description of such statutes and regulations and their effects on Everett Co-operative Bank and ECB Bancorp. +25 +Massachusetts Banking Laws and Supervision +General. As a Massachusetts-chartered cooperative bank, Everett Co-operative Bank is subject to supervision, regulation and examination by the Commissioner and to various Massachusetts statutes and regulations which govern, among other things, investment powers, lending and deposit-taking activities, borrowings, maintenance of surplus and reserve accounts, distribution of earnings and payment of dividends. In addition, Everett Co-operative Bank is subject to Massachusetts consumer protection, Community Reinvestment Act, civil rights laws and regulations. The approval of the Massachusetts Commissioner of Banks is required for a Massachusetts-chartered bank to establish or close branches, merge with other financial institutions, issue stock and undertake certain other activities. +Massachusetts regulations generally allow Massachusetts banks, with appropriate regulatory approvals, to engage in activities permissible for federally chartered banks or banks chartered by another state. The Commissioner also has adopted procedures reducing regulatory burdens and expense and expediting branching by well-capitalized and well-managed banks. +Dividends. A Massachusetts stock bank may declare cash dividends from net profits not more frequently than quarterly. Noncash dividends may be declared at any time. No dividends may be declared, credited or paid if the bank’s capital stock is impaired. The approval of the Commissioner is required if the total of all dividends declared in any calendar year exceeds the total of its net profits for that year combined with its retained net profits of the preceding two years. Dividends from ECB Bancorp may depend, in part, upon receipt of dividends from Everett Co-operative Bank. The payment of dividends from Everett Co-operative Bank would be restricted by federal law if the payment of such dividends resulted in Everett Co-operative Bank failing to meet regulatory capital requirements. +Loans to One Borrower Limitations. Massachusetts banking law grants broad lending authority. However, with certain limited exceptions, total obligations to one borrower may not exceed 20% of the total of an institution's capital stock (if any), surplus and undivided profits. The Commissioner applies the Office of the Comptroller of the Currency’s attribution rules to a borrower’s related interests. At December 31, 2024, Everett Co-operative Bank was in compliance with the loans-to-one borrower limitations. +Loans to a Bank’s Insiders. Under Massachusetts law, a Massachusetts-chartered bank must comply with Regulation O of the Federal Reserve Board, and the Commissioner retains examination and enforcement authority to ensure compliance. +Investment Activities. In general, Massachusetts-chartered banks may invest in preferred and common stock of any corporation organized under the laws of the United States or any state provided such investments do not involve control of any corporation and do not, in the aggregate, exceed 4% of the bank’s deposits. Federal law imposes additional restrictions on Everett Co-operative Bank’s investment activities. +Regulatory Enforcement Authority. Any Massachusetts bank that does not operate in accordance with the regulations, policies and directives of the Commissioner may be subject to sanctions for noncompliance, including revocation of its charter. The Commissioner may, under certain circumstances, suspend or remove officers or directors who have violated the law, conducted the bank’s business in an unsafe or unsound manner or contrary to the depositors’ interests or been negligent in the performance of their duties. Upon finding that a bank has engaged in an unfair or deceptive act or practice, the Commissioner may issue an order to cease and desist and impose a fine on the bank concerned. The Commissioner also has authority to take possession of a bank and appoint the FDIC as receiver under certain conditions such as an unsafe and unsound condition to transact business, the conduct of business in an unsafe or unauthorized manner or impaired capital. In addition, Massachusetts consumer protection and civil rights statutes applicable to Everett Co-operative Bank permit private individual and class action law suits and provide for the rescission of consumer transactions, including loans, and the recovery of statutory and punitive damages and attorneys’ fees in the case of certain violations of those statutes. +Excess Deposit Insurance Fund. All Massachusetts-chartered cooperative banks are members of the Depositors Insurance Fund, a private industry-sponsored insurance fund in Massachusetts that insures all deposits at Everett Co-operative Bank above FDIC limits. +26 +Protection of Personal Information. Massachusetts banking regulations contain requirements intended to protect personal information and are similar to federal laws such as the Gramm-Leach-Bliley Act, discussed below under “ – Federal Regulations – Other Regulations,” that require organizations to establish written information security programs to prevent identity theft. The Massachusetts regulation also contains technology system requirements, especially for the encryption of personal information sent over wireless or public networks or stored on portable devices. +Insurance Sales. Massachusetts banks may engage in insurance sales activities if the Commissioner has approved a plan of operation for insurance activities and the bank obtains a license from the Massachusetts Division of Insurance. A bank may be licensed directly or indirectly through an affiliate or a subsidiary corporation established for this purpose. Everett Co-operative Bank does not sell or refer insurance products, and has not sought approval for insurance sales activities. +Parity Regulation. A Massachusetts bank may exercise any power and engage in any activity that has been authorized for national banks, federal thrifts or state banks in a state other than Massachusetts, provided that the activity is permissible under applicable federal law and not specifically prohibited by Massachusetts law. Such powers and activities must be subject to the same limitations and restrictions imposed on the national bank, federal thrift or out-of-state bank that exercised the power or activity. +Massachusetts has other statutes or regulations that are similar to certain of the federal provisions discussed below. +Federal Regulations +Capital Requirements . Federal regulations require federally insured depository institutions to meet several minimum capital standards: a common equity Tier 1 capital to risk-based assets ratio of 4.5%, a Tier 1 capital to risk-based assets ratio of 6.0%, a total capital to risk-based assets ratio of 8.0%, and a 4.0% Tier 1 capital to total assets leverage ratio. +In determining the amount of risk-weighted assets for calculating risk-based capital ratios, all assets, including certain off-balance sheet assets ( e.g. , recourse obligations, direct credit substitutes, residual interests) are multiplied by a risk-weight factor assigned by the regulations based on the risks believed inherent in the type of asset. Higher levels of capital are required for asset categories believed to present greater risk. Common equity Tier 1 capital is generally defined as common shareholders’ equity and related surplus and retained earnings. Tier 1 capital is generally defined as common equity Tier 1 and additional Tier 1 capital. Additional Tier 1 capital includes certain non-cumulative perpetual preferred stock and related surplus and minority interests in equity accounts of consolidated subsidiaries. Total capital includes Tier 1 capital (common equity Tier 1 capital plus additional Tier 1 capital) and Tier 2 capital. Tier 2 capital is comprised of capital instruments and related surplus, meeting specified requirements, and may include cumulative preferred stock and long-term perpetual preferred stock, mandatory convertible securities, intermediate preferred stock and subordinated debt. Also included in Tier 2 capital is the allowance for credit losses limited to a maximum of 1.25% of risk-weighted assets. Calculation of all types of regulatory capital is subject to deductions and adjustments specified in the regulations. In assessing an institution’s capital adequacy, the FDIC takes into consideration not only these numeric factors, but qualitative factors as well, and has the authority to establish higher capital requirements for individual institutions where deemed necessary. +In addition to establishing the minimum regulatory capital requirements, the regulations limit capital distributions and certain discretionary bonus payments to management if the institution does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets above the amount necessary to meet its minimum risk-based capital requirements. +Federal law required the federal banking agencies, including the FDIC, to establish a “community bank leverage ratio” of between 8% and 10% for institutions with total consolidated assets of less than $10 billion. Institutions with capital complying with the ratio and otherwise meeting the specified requirements and electing the alternative framework are considered to comply with the applicable regulatory capital requirements, including the risk-based requirements. The community bank leverage ratio was established at 9% Tier 1 capital to total average assets, effective January 1, 2020. A qualifying institution may opt in and out of the community bank leverage ratio framework on its quarterly call report. An +27 +institution that temporarily ceases to meet any qualifying criteria is provided with a two-quarter grace period to regain compliance. Failure to meet the qualifying criteria within the grace period or maintain a leverage ratio of 8% or greater requires the institution to comply with the generally applicable regulatory capital requirements. +At December 31, 2024, Everett Co-operative Bank had not opted into the community bank leverage ratio framework and its capital ratios exceeded all applicable requirements. +Capital Distributions. The Federal Deposit Insurance Act generally provides that an insured depository institution may not make any capital distribution if, after making such distribution, the institution would fail to meet any applicable regulatory capital requirement. Unless the approval of the FDIC is obtained, Everett Co-operative Bank may not declare or pay a dividend if the total of all dividends declared during the calendar year, including the proposed dividend, exceeds the sum of its net income during the current calendar year and the retained net income, not previously used for dividents, of the prior two calendar years. +Community Reinvestment Act and Fair Lending Laws. All insured depository institutions have a responsibility under the Community Reinvestment Act and related regulations to help meet the credit needs of their communities, including low- and moderate-income borrowers. The FDIC is required to assess Everett Co-operative Bank’s record of compliance with the Community Reinvestment Act. An institution’s failure to comply with the provisions of the Community Reinvestment Act could, at a minimum, result in denial of certain corporate applications such as branches or mergers, or in restrictions on its activities. In addition, the Equal Credit Opportunity Act and the Fair Housing Act prohibit lenders from discriminating in their lending practices. The failure to comply with the Equal Credit Opportunity Act and the Fair Housing Act could result in enforcement actions by the FDIC, as well as other federal regulatory agencies and the Department of Justice. +The Community Reinvestment Act requires all institutions insured by the FDIC to publicly disclose their rating. Everett Co-operative Bank received a “Satisfactory” Community Reinvestment Act rating in its most recent federal examination. +Massachusetts has its own statutory counterpart to the CRA which is also applicable to Everett Co-operative Bank. The Massachusetts version is generally similar to the CRA but utilizes a five-tiered descriptive rating system. Massachusetts law requires the Commissioner to consider, but not be limited to, a bank’s record of performance under Massachusetts law in considering any application by the bank to establish a branch or other deposit-taking facility, to relocate an office or to merge or consolidate with or acquire the assets and assume the liabilities of any other banking institution. Everett Co-operative Bank’s most recent 2022 CRA performance rating under Massachusetts law was “Satisfactory.” +Transactions with Related Parties. An insured depository institution’s authority to engage in transactions with its affiliates is generally limited by Sections 23A and 23B of the Federal Reserve Act and federal regulation. An affiliate is generally a company that controls, or is under common control with, an insured depository institution such as Everett Co-operative Bank. ECB Bancorp is an affiliate of Everett Co-operative Bank because of its control of Everett Co-operative Bank. In general, transactions between an insured depository institution and its affiliates are subject to certain quantitative limits and collateral requirements. In addition, federal regulations prohibit a state-chartered bank from lending to any of its affiliates that are engaged in activities that are not permissible for bank holding companies and from purchasing the securities of any affiliate, other than a subsidiary. Finally, transactions with affiliates must be consistent with safe and sound banking practices, not involve the purchase of low-quality assets and be on terms that are as favorable to the institution as comparable transactions with non-affiliates. +Everett Co-operative Bank’s authority to extend credit to its directors, executive officers and 10% shareholders, as well as to entities controlled by such persons, is currently governed by the requirements of Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O of the Federal Reserve Board. Among other things, these provisions generally require that extensions of credit to insiders: +28 +• +be made on terms that are substantially the same as, and follow credit underwriting procedures that are not less stringent than, those prevailing for comparable transactions with unaffiliated persons and that do not involve more than the normal risk of repayment or present other unfavorable features; and +• +not exceed certain limitations on the amount of credit extended to such persons, individually and in the aggregate, which limits are based, in part, on the amount of Everett Co-operative Bank’s capital. +In addition, extensions of credit in excess of certain limits must be approved by Everett Co-operative Bank’s board of directors. Extensions of credit to executive officers are subject to additional limits based on the type of extension involved. +Enforcement. The FDIC has extensive enforcement authority over insured state banks, such as Everett Co-operative Bank, that are not members of the Federal Reserve System. The enforcement authority includes, among other things, the ability to assess civil money penalties, issue cease and desist orders, and remove directors and officers. In general, these enforcement actions may be initiated in response to violations of laws and regulations, breaches of fiduciary duty and unsafe or unsound practices. The FDIC is required, with certain exceptions, to appoint a receiver or conservator for an insured state non-member bank if that bank was “critically undercapitalized” on average during the calendar quarter beginning 270 days after the date on which the institution became “critically undercapitalized.” The FDIC may also appoint itself as conservator or receiver for an insured state non-member bank under specified circumstances, including: (1) insolvency; (2) substantial dissipation of assets or earnings through violations of law or unsafe or unsound practices; (3) existence of an unsafe or unsound condition to transact business; (4) insufficient capital; or (5) the incurrence of losses that will deplete substantially all of the institution’s capital with no reasonable prospect of replenishment without federal assistance. +Standards for Safety and Soundness. Federal law requires each federal banking agency to prescribe certain standards for the insured depository institutions they supervise. These standards relate to, among other things, internal controls, information systems and audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, asset quality, earnings, compensation and benefits, and other operational and managerial standards as the agency deems appropriate. Interagency guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. If the appropriate federal banking agency determines that an institution fails to meet any standard prescribed by the guidelines, the agency may require the institution to submit to the agency an acceptable plan to achieve compliance with the standard. If an institution fails to meet these standards, the appropriate federal banking agency may require the institution to implement an acceptable compliance plan. Failure to implement such a plan can result in further enforcement action, including the issuance of a cease and desist order and/or the imposition of civil money penalties. +Branching. Federal law permits insured state banks to engage in interstate branching if the laws of the state where the new banking office is to be established would permit the establishment of the banking office if it were chartered by a bank in such state. Under Massachusetts law, Everett Co-operative Bank can establish a branch in Massachusetts or in any other state. All branch applications require prior approval of the Commissioner and the FDIC. Finally, Everett Co-operative Bank may also establish banking offices in other states by merging with banks or by purchasing banking offices of other banks in other states, subject to certain restrictions. +Prompt Corrective Action. Federal law requires, among other things, that federal banking agencies take “prompt corrective action” with respect to institutions that do not meet minimum capital requirements. For this purpose, the FDIC’s regulations establish five capital categories: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. Under applicable regulations, an institution is deemed to be “well capitalized” if it has a total risk-based capital ratio of 10.0% or greater, a Tier 1 risk-based capital ratio of 8.0% or greater, a leverage ratio of 5.0% or greater and a common equity Tier 1 ratio of 6.5% or greater. An institution is “adequately capitalized” if it has a total risk-based capital ratio of 8.0% or greater, a Tier 1 risk-based capital ratio of 6.0% or greater, a leverage ratio of 4.0% or greater and a common equity Tier 1 ratio of 4.5% or greater. An institution is “undercapitalized” if it has a total risk-based capital ratio of less than 8.0%, a Tier 1 risk-based capital ratio of less than 6.0%, a leverage ratio of less than 4.0% or a common equity Tier 1 ratio of less than 4.5%. An institution is deemed to be “significantly undercapitalized” if it has a total risk-based capital ratio of less than 6.0%, a Tier 1 risk-based capital ratio +29 +of less than 4.0%, a leverage ratio of less than 3.0% or a common equity Tier 1 ratio of less than 3.0%. An institution is considered to be “critically undercapitalized” if it has a ratio of tangible equity (as defined in the regulations) to total assets that is equal to or less than 2.0%. +At each successive lower capital category, an insured depository institution is subject to more restrictions and prohibitions, including restrictions on growth, restrictions on interest rates paid on deposits, restrictions or prohibitions on the payment of dividends, and restrictions on the acceptance of brokered deposits. Furthermore, if an insured depository institution is classified in one of the undercapitalized categories, it is required to submit a capital restoration plan to the appropriate federal banking agency, and the holding company must guarantee the performance of that plan. Based upon its capital levels, a bank that is classified as well-capitalized, adequately capitalized, or undercapitalized may be treated as though it were in the next lower capital category if the appropriate federal banking agency, after notice and opportunity for hearing, determines that an unsafe or unsound condition, or an unsafe or unsound practice, warrants such treatment. An undercapitalized bank’s compliance with a capital restoration plan is required to be guaranteed by any company that controls the undercapitalized institution in an amount equal to the lesser of 5.0% of the institution’s total assets when deemed undercapitalized or the amount necessary to achieve the status of adequately capitalized. If an “undercapitalized” bank fails to submit an acceptable plan, it is treated as if it is “significantly undercapitalized.” “Significantly undercapitalized” banks must comply with one or more of a number of additional restrictions, including a regulatory order to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets, ceasing receipt of deposits from correspondent banks, dismissal of directors or officers, and restrictions on interest rates paid on deposits, compensation of executive officers and capital distributions by the parent holding company. “Critically undercapitalized” institutions are subject to additional measures including, subject to a narrow exception, the appointment of a receiver or conservator within 270 days after it obtains such status. +The previously referenced final rule establishing an elective “community bank leverage ratio” regulatory capital framework provides that a qualifying institution whose capital exceeds the community bank leverage ratio and opts to use that framework will be considered “well-capitalized” for purposes of prompt corrective action. +At December 31, 2024, Everett Co-operative Bank met the criteria for being considered “well capitalized.” +Insurance of Deposit Accounts. The Deposit Insurance Fund of the FDIC insures deposits at FDIC-insured financial institutions such as Everett Co-operative Bank, generally up to a maximum of $250,000 per separately insured depositor. The FDIC charges insured depository institutions premiums to maintain the Deposit Insurance Fund. +Under the FDIC’s risk-based assessment system, institutions deemed less risky of failure pay lower assessments. Assessments for institutions of less than $10 billion of assets are based on financial measures and supervisory ratings derived from statistical modeling estimating the probability of an institution's failure within three years. +The FDIC has authority to increase insurance assessments. Any significant increases would have an adverse effect on the operating expenses and results of operations of Everett Co-operative Bank. For 2024 the FDIC insurance expense for Everett Co-operative Bank was approximately $752,000. We cannot predict what assessment rates will be in the future. +Insurance of deposits may be terminated by the FDIC upon a finding that an institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC. Everett Co-operative Bank does not know of any practice, condition or violation that may lead to termination of its deposit insurance. +Brokered Deposits. Federal law and FDIC regulations generally limit the ability of an insured depository institution to accept, renew or roll over any brokered deposit unless the institution’s capital category is “well capitalized” or, with the FDIC’s approval, “adequately capitalized.” Depository institutions that have brokered deposits in excess of 10% of total assets may be subject to increased FDIC deposit insurance premium assessments. However, for institutions that are well capitalized and have a CAMELS composite rating of 1 or 2, reciprocal deposits are deducted from brokered deposits. The Economic Growth, Regulatory Relief, and Consumer Protection Act, enacted in 2018, amends the Federal Deposit +30 +Insurance Act to exempt a capped amount of reciprocal deposits from treatment as brokered deposits for certain insured depository institutions. +Privacy Regulations. Federal regulations generally require that Everett Co-operative Bank disclose its privacy policy, including identifying with whom it shares a customer’s “non-public personal information,” to customers at the time of establishing the customer relationship and annually thereafter. In addition, Everett Co-operative Bank is required to provide its customers with the ability to “opt-out” of having their personal information shared with unaffiliated third parties and not to disclose account numbers or access codes to non-affiliated third parties for marketing purposes. Everett Co-operative Bank currently has a privacy protection policy in place and believes that such policy is in compliance with the regulations. +Anti-Money Laundering - The Bank Secrecy Act. Under the Bank Secrecy Act (“BSA”), a financial institution is required to have systems in place to detect certain transactions, based on the size and nature of the transaction. Financial institutions are generally required to report to the U.S. Treasury any cash transactions involving at least $10,000. In addition, financial institutions are required to file suspicious activity reports for any transaction or series of transactions that involve more than $5,000 and which the financial institution knows, suspects or has reason to suspect involves illegal funds, is designed to evade the requirements of the BSA or has no lawful purpose. The USA PATRIOT Act, which amended the BSA, together with the implementing regulations of various federal regulatory agencies, has caused financial institutions, such as Everett Co-operative Bank, to adopt and implement additional policies or amend existing policies and procedures with respect to, among other things, anti-money laundering compliance, suspicious activity, currency transaction reporting, customer identity verification and customer risk analysis. In evaluating an application to acquire a bank or to merge banks or effect a purchase of assets and assumption of deposits and other liabilities, the applicable federal banking regulator must consider the anti-money laundering compliance record of both the applicant and the target. In addition, under the USA PATRIOT Act financial institutions are required to take steps to monitor their correspondent banking and private banking relationships as well as, if applicable, their relationships with “shell banks.” +Prohibitions Against Tying Arrangements . Everett Co-operative Bank is prohibited, subject to some exceptions, from extending credit to or offering any other service, or fixing or varying the consideration for such extension of credit or service, on the condition that the customer obtain some additional service from the institution or its affiliates or not obtain services of a competitor of the institution. +Other Regulations +Interest and other charges collected or contracted for by Everett Co-operative Bank are subject to state usury laws and federal laws concerning interest rates. Loan operations are also subject to state and federal laws applicable to credit transactions, such as the: +• +Home Mortgage Disclosure Act, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves; +• +Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit; +• +Fair Credit Reporting Act, governing the use and provision of information to credit reporting agencies; and +• +Rules and regulations of the various federal agencies charged with the responsibility of implementing such federal laws. +The deposit operations of Everett Co-operative Bank also are subject to, among others, the: +• +Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records; +• +Check Clearing for the 21st Century Act (also known as “Check 21”), which gives “substitute checks,” such as digital check images and copies made from that image, the same legal standing as the original paper check; and +31 +• +Electronic Funds Transfer Act and Regulation E promulgated thereunder, which govern automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services. +Federal Home Loan Bank System +Everett Co-operative Bank is a member of the Federal Home Loan Bank System, which consists of 11 regional Federal Home Loan Banks. The Federal Home Loan Banks provide central credit facilities primarily for member institutions. Members of a Federal Home Loan Bank are required to acquire and hold shares of capital stock in their Federal Home Loan Bank. Everett Co-operative Bank complied with this requirement at December 31, 2024. Based on redemption provisions of the Federal Home Loan Bank of Boston, the stock has no quoted market value and is carried at cost. The Company reviews its investment in capital stock of the FHLB for impairment based on the ultimate recoverability of the cost basis in the FHLB stock. At December 31, 2024, no impairment had been recognized. +Holding Company Regulation +ECB Bancorp is a bank holding company within the meaning of Bank Holding Company of 1956, as amended. As such, ECB Bancorp is registered with the Federal Reserve Board and is subject to regulations, examinations, supervision and reporting requirements applicable to bank holding companies. In addition, the Federal Reserve Board has enforcement authority over ECB Bancorp and its non-bank subsidiaries. Among other things, this authority permits the Federal Reserve Board to restrict or prohibit activities that are determined to be a serious risk to Everett Co-operative Bank. +A bank holding company is generally prohibited from engaging in non-banking activities, or acquiring direct or indirect control of more than 5% of the voting securities of any company engaged in non-banking activities. One of the principal exceptions to this prohibition is for activities found by the Federal Reserve Board to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. Some of the principal activities that the Federal Reserve Board has determined by regulation to be so closely related to banking are: (i) making or servicing loans; (ii) performing certain data processing services; (iii) providing discount brokerage services; (iv) acting as fiduciary, investment or financial advisor; (v) leasing personal or real property; (vi) making investments in corporations or projects designed primarily to promote community welfare; and (vii) acquiring a savings association whose direct and indirect activities are limited to those permitted for bank holding companies. +The Gramm-Leach-Bliley Act of 1999 authorized a bank holding company that meets specified conditions, including being “well capitalized” and “well managed,” to opt to become a “financial holding company” and thereby engage in a broader array of financial activities than previously permitted. Such activities can include insurance underwriting and investment banking. ECB Bancorp is not a financial holding company. +Bank holding companies with less than $3 billion in consolidated assets are exempt from consolidated regulatory capital requirements unless the Federal Reserve Board determines otherwise in particular cases. +By law, holding companies, including bank holding companies, must act as a source of strength to their subsidiary depository institutions by providing capital, liquidity and other support in times of financial stress. +The Federal Reserve Board has issued supervisory policies regarding the payment of dividends and the repurchase of shares of common stock by bank holding companies and savings and loan holding companies. In general, the policy provides that dividends should be paid only out of current earnings and only if the prospective rate of earnings retention by the holding company appears consistent with the organization’s capital needs, asset quality and overall financial condition. Regulatory guidance provides for prior regulatory consultation with respect to capital distributions in certain circumstances such as where the company’s net income for the past four quarters, net of capital distributions previously paid over that period, is insufficient to fully fund the dividend or the company’s overall rate of earnings retention is inconsistent with the company’s capital needs and overall financial condition. The ability of a holding company to pay dividends may be restricted if a subsidiary bank becomes undercapitalized. The policy statement also states that a holding company should inform the Federal Reserve Board supervisory staff before redeeming or repurchasing common stock or +32 +perpetual preferred stock if the holding company is experiencing financial weaknesses or if the repurchase or redemption would result in a net reduction, at the end of a quarter, in the amount of such equity instruments outstanding compared with the beginning of the quarter in which the redemption or repurchase occurred. These regulatory policies may affect the ability of ECB Bancorp to pay dividends, repurchase shares of common stock or otherwise engage in capital distributions. +Massachusetts Holding Company Regulation. Under Massachusetts banking laws, a company owning or controlling two or more banking institutions, including a cooperative bank, is regulated by the Commissioner as a bank holding company. Each such bank holding company: (i) must obtain the approval of the Massachusetts Board of Bank Incorporation before engaging in certain transactions, such as the acquisition of more than 5% of the voting stock of another banking institution; (ii) must register, and file reports, with the Commissioner; and (iii) is subject to examination by the Commissioner. ECB Bancorp would become a bank holding company regulated by the Commissioner if it acquires a second banking institution and holds and operates it separately from Everett Co-operative Bank. +Change in Control Regulations +Under the Change in Bank Control Act, no person or group of persons may acquire “control” of a bank holding company, such as ECB Bancorp, unless the Federal Reserve Board has been given 60 days’ prior written notice and has not issued a notice disapproving the proposed acquisition, taking into consideration certain factors, including the financial and managerial resources of the acquirer and the competitive effects of the acquisition. Control, as defined under federal law, means ownership, control of or holding irrevocable proxies representing more than 25% of any class of voting stock, control in any manner of the election of a majority of the institution’s directors, or a determination by the regulator that the acquirer has the power, directly or indirectly, to exercise a controlling influence over the management or policies of the institution. There is a presumption of control upon the acquisition of 10% or more of a class of voting stock if the holding company involved has its shares registered under the Securities Exchange Act of 1934, or, if the holding company involved does not have its shares registered under the Securities Exchange Act of 1934, if no other persons will own, control or hold the power to vote a greater percentage of that class of voting security after the acquisition. +Federal Securities Laws +The common stock of ECB Bancorp is registered with the Securities and Exchange Commission. ECB Bancorp is subject to the information, proxy solicitation, insider trading restrictions and other requirements under the Securities Exchange Act of 1934. +Sarbanes-Oxley Act of 2002 +The Sarbanes-Oxley Act of 2002 is intended to improve corporate responsibility, to provide for enhanced penalties for accounting and auditing improprieties at publicly traded companies and to protect investors by improving the accuracy and reliability of corporate disclosures pursuant to the securities laws. We have policies, procedures and systems designed to comply with these regulations, and we review and document such policies, procedures and systems to ensure continued compliance with these regulations. +Emerging Growth Company Status +ECB Bancorp is an emerging growth company. For as long as it continues to be an emerging growth company, it may choose to take advantage of exemptions from various reporting requirements applicable to public companies. These exemptions include, but are not limited to, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. As an emerging growth company, ECB Bancorp also is not subject to Section 404(b) of the Sarbanes-Oxley Act of 2002, which would require that our independent auditors audit our internal control over financial reporting. We have also elected to use the extended transition period to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. Such an election is irrevocable during the period a company is an emerging growth company. +33 +ECB Bancorp will cease to be an emerging growth company upon the earliest of: (i) the end of the fiscal year following the fifth anniversary of the completion of the conversion and offering; (ii) the first fiscal year after our annual gross revenues are $1.235 billion (adjusted for inflation) or more; (iii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities; or (iv) the end of any fiscal year in which the market value of our common stock held by non-affiliates exceeded $700 million at the end of the second quarter of that fiscal year. We expect to lose our status as an emerging growth company effective December 31, 2027, which is the end of the fifth year after the completion date of the conversion and offering. +34 +TAXATION +Federal Taxation +General. ECB Bancorp and Everett Co-operative Bank are subject to federal income taxation in the same general manner as other corporations, with some exceptions discussed below. The following discussion of federal taxation is intended only to summarize material federal income tax matters and is not a comprehensive description of the tax rules applicable to ECB Bancorp and Everett Co-operative Bank. +Method of Accounting. For federal income tax purposes, Everett Co-operative Bank currently reports its income and expenses on the accrual method of accounting and uses a tax year ending December 31 for filing its federal income tax returns. +Alternative Minimum Tax. The Internal Revenue Code imposes an alternative minimum tax at a rate of 20% on a base of regular taxable income plus certain tax preferences, less an exemption amount, referred to as “alternative minimum taxable income.” The alternative minimum tax is payable to the extent tax computed this way exceeds tax computed by applying the regular tax rates to regular taxable income. Net operating losses can, in general, offset no more than 90% of alternative minimum taxable income. Certain payments of alternative minimum tax may be used as credits against regular tax liabilities in future years. The Tax Cuts and Jobs Act repealed the alternative minimum tax for income generated after January 1, 2018. At December 31, 2024, Everett Co-operative Bank had no minimum tax credit carryovers. +Net Operating Loss Carryovers. As a result of the Tax Cuts and Jobs Act generally, a financial institution may carry federal net operating losses forward indefinitely. At December 31, 2024, Everett Co-operative Bank had no federal net operating loss carryforwards. +Charitable Contribution Carryovers. At December 31, 2024, the Company had a charitable contribution carryover of $1,356,000 which expires on December 31, 2027. +Capital Loss Carryovers. A corporation cannot recognize capital losses in excess of capital gains generated. Generally, a financial institution may carry back capital losses to the preceding three taxable years and forward to the succeeding five taxable years. Any capital loss carryback or carryover is treated as a short-term capital loss for the year to which it is carried. As such, it is grouped with any other capital losses for the year to which it is carried and is used to offset any capital gains. Any undeducted loss remaining after the five-year carryover period is not deductible. At December 31, 2024, Everett Co-operative Bank had no capital loss carryovers. +Corporate Dividends. ECB Bancorp may generally exclude from its income 100% of dividends received from Everett Co-operative Bank as a member of the same affiliated group of corporations. +Audit of Tax Returns. Everett Co-operative Bank’s federal income tax returns have not been audited in the most recent five-year period. +State Taxation +Financial institutions in Massachusetts file combined income tax returns with affiliated companies that are not security corporations. The Massachusetts excise tax rate for cooperative banks is currently 9.0% of federal taxable income, adjusted for certain items. Taxable income includes gross income as defined under the Internal Revenue Code, plus interest from bonds, notes and evidences of indebtedness of any state, including Massachusetts, less deductions, but not the credits, allowable under the provisions of the Internal Revenue Code, except for those deductions relating to dividends received and income or franchise taxes imposed by a state or political subdivision. Carryforwards and carrybacks of net operating losses and capital losses are not allowed. Everett Co-operative Bank’s state tax returns, as well as those of its subsidiaries, have not been audited in the most recent five-year period. +A financial institution or business corporation is generally entitled to special tax treatment as a “security corporation” under Massachusetts law provided that: (a) its activities are limited to buying, selling, dealing in or holding +35 +securities on its own behalf and not as a broker; and (b) it has applied for, and received, classification as a “security corporation” by the Commissioner of the Massachusetts Department of Revenue. A security corporation that is also a bank holding company under the Internal Revenue Code must pay a tax equal to 0.33% of its gross income. A security corporation that is not a bank holding company under the Internal Revenue Code must pay a tax equal to 1.32% of its gross income. Everett Co-operative Bank’s wholly owned subsidiary, First Everett Securities Corporation, which engages in securities transactions on its own behalf, is qualified as a security corporation. As such, it has received security corporation classification by the Massachusetts Department of Revenue and does not conduct any activities deemed impermissible under the governing statutes and the various regulations, directives, letter rulings and administrative pronouncements issued by the Massachusetts Department of Revenue. +As a Maryland corporation, ECB Bancorp is required to file an annual report with and pay franchise taxes to the state of Maryland. +Availability of Annual Report on Form 10-K +This Annual Report on Form 10-K is available on our website at www.everettbank.com . 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Employer +Identification Number) +419 Broadway , Everett , MA 02149 +02149 +(Address of principal executive offices) +(Zip Code) +Registrant's telephone number, including area code: ( 617 ) 387-1110 +Securities registered pursuant to Section 12(b) of the Act: +Common stock, par value $0.01 per share +Trading Symbol(s) +The NASDAQ Stock Market, LLC +(Title of each class) +ECBK +(Name of each exchange on which is registered) +Securities registered pursuant to Section 12(g) of the Act: None +Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. +Yes ☐ No ☒ +Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. +Yes ☐ No ☒ +Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ +Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐ +Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. +Large accelerated filer +☐ +Accelerated filer +☐ +Non-accelerated filer +☒ +Smaller reporting company +☒ +Emerging growth company +☒ +If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ +Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐ +If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐ +Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐ +Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒ +The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, computed by reference to the last sale price on June 30, 2025 of $15.44, was approximately $ 112.6 million. +As of March 23, 2026, there were 8,778,585 issued and outstanding shares of the Registrant’s Common Stock. +DOCUMENTS INCORPORATED BY REFERENCE: +Portions of the Proxy Statement for the 2026 Annual Meeting of Stockholders (Part III) +Table of Contents +ECB Bancorp, Inc. +Form 10-K +TABLE OF CONTENTS +Part I +Item 1. +Business +1 +Item 1A. +Risk Factors +34 +Item 1B. +Unresolved Staff Comments +34 +Item 1C. +Cybersecurity +34 +Item 2. +Properties +37 +Item 3. +Legal Proceedings +37 +Item 4. +Mine Safety Disclosures +37 +Part II +Item 5. +Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities +38 +Item 6. +[Reserved] +39 +Item 7. +Management's Discussion and Analysis of Financial Condition and Results of Operations +40 +Item 7A. +Quantitative and Qualitative Disclosures about Market Risk +52 +Item 8. +Financial Statements and Supplementary Data +53 +Item 9. +Changes in and Disagreements with Accountants on Accounting and Financial Disclosure +97 +Item 9A. +Controls and Procedures +97 +Item 9B. +Other Information +97 +Item 9C +Disclosure Regarding Foreign Jurisdictions That Prevent Inspections +97 +Part III +Item 10. +Directors, Executive Officers and Corporate Governance +98 +Item 11. +Executive Compensation +98 +Item 12. +Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters +98 +Item 13. +Certain Relationships and Related Transactions and Director Independence +98 +Item 14. +Principal Accountant Fees and Services +98 +Part IV +Item 15. +Exhibits and Financial Statement Schedules +99 +Item 16. +Form 10-K Summary +100 +Signatures +101 +Table of Contents +PART I +ITEM 1. Business +FORWARD-LOOKING STATEMENTS +This Annual Report contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “assume,” “plan,” “seek,” “expect,” “will,” “may,” “should,” “indicate,” “would,” “believe,” “contemplate,” “continue,” “target” and words of similar meaning. These forward-looking statements include, but are not limited to: +• +statements of our goals, intentions and expectations; +• +statements regarding our business plans, prospects, growth and operating strategies; +• +statements regarding the asset quality of our loan and investment portfolios; and +• +estimates of our risks and future costs and benefits. +These forward-looking statements are based on our current beliefs and expectations and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. We are under no duty to and do not take any obligation to update any forward-looking statements after the date of this Annual Report. +The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements: +• +general economic conditions, either nationally or in our market areas, that are worse than expected including as a result of employment levels and labor shortages, and the effects of inflation, a potential recession or slowed economic growth caused by supply chain disruptions or otherwise; +• +the extent, severity or duration of a pandemic on us and on our customers, employees and third-party service providers; +• +changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for credit losses; +• +our ability to access cost-effective funding; +• +fluctuations in real estate values and both residential and commercial real estate market conditions; +• +demand for loans and deposits in our market area; +• +our ability to implement and change our business strategies; +• +competition among depository and other financial institutions; +• +inflation and changes in the interest rate environment that reduce our margins and yields, our mortgage banking revenues, the fair value of financial instruments, or our level of loan originations, or increase the level of defaults, losses and prepayments on loans we have made and make; +• +adverse changes in the securities or secondary mortgage markets; +• +changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees, capital requirements and insurance premiums; +• +changes in the quality or composition of our loan or investment portfolios; +• +technological changes that may be more difficult or expensive than expected; +• +the inability of third-party providers to perform as expected; +1 +Table of Contents +• +a failure or breach of our operational or security systems or infrastructure, including cyberattacks; +• +our ability to manage market risk, credit risk and operational risk; +• +our ability to enter new markets successfully and capitalize on growth opportunities; +• +changes in consumer spending, borrowing and savings habits; +• +changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission or the Public Company Accounting Oversight Board; +• +our ability to attract and retain key employees; and +• +changes in the financial condition, results of operations or future prospects of issuers of securities that we own. +Because of these and a wide variety of other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements. +In this Annual Report the terms “we,” “our,” and “us” refer to ECB Bancorp, Inc. and Everett Co-operative Bank, unless the context indicates another meaning. In addition, we sometimes refer to ECB Bancorp, Inc. as “ECB Bancorp,” and to Everett Co-operative Bank as the “Bank.” +2 +Table of Contents +BUSINESS OF ECB BANCORP +ECB Bancorp (sometimes herein, the “Company”) is a Maryland corporation that was incorporated in March 2022 for the purpose of becoming the registered bank holding company for Everett Co-operative Bank (the “Bank”) upon the consummation of the Bank’s mutual to stock conversion and initial stock offering which was completed on July 27, 2022. In connection with the conversion, the Company sold 8,915,247 shares of common stock, par value $0.01 per share, which included 734,020 shares sold to the Bank’s Employee Stock Ownership Plan, for gross offering proceeds (before deducting offering expenses) of approximately $89.2 million based on the offering price of $10.00 per share. The Company also contributed 260,000 shares of common stock and $600,000 in cash to the Everett Co-operative Bank Charitable Foundation, Inc. The shares of the Company’s common stock sold in the offering began trading on the Nasdaq Capital Market on July 28, 2022 under the symbol “ECBK.” +Since being incorporated, other than holding the common stock of Everett Co-operative Bank, engaging in share repurchases and making a loan to the Bank’s employee stock ownership plan, we have not engaged in any material business activities to date. +Our cash flow depends on earnings from the investment of the net proceeds we retained from our initial public stock offering that was consummated in July 2022, and any dividends we receive from Everett Co-operative Bank. We neither own nor lease any property, but pay a fee to Everett Co-operative Bank for the use of its premises, equipment and furniture. At the present time, we employ only persons who are officers of Everett Co-operative Bank who also serve as officers of ECB Bancorp. We use the support staff of Everett Co-operative Bank from time to time and pay a fee to Everett Co-operative Bank for the time devoted to ECB Bancorp by employees of Everett Co-operative Bank. However, these persons are not separately compensated by ECB Bancorp. ECB Bancorp may hire additional employees, as appropriate, to the extent it expands its business in the future. +Our executive offices are located at 419 Broadway, Everett, Massachusetts 02149. Our telephone number at this address is (617) 387-1110. Our website address is www.everettbank.com . Information on our website is not incorporated into this Annual Report on Form 10-K and should not be considered part of this Annual Report. +3 +Table of Contents +BUSINESS OF EVERETT CO-OPERATIVE BANK +General +Everett Co-operative Bank is a Massachusetts-chartered stock cooperative bank headquartered in Everett, Massachusetts. The Bank completed its mutual to stock conversion on July 27, 2022 at which time it became the wholly owned subsidiary of ECB Bancorp. +Everett Co-operative Bank was organized in 1890 and has operated continuously in Everett, Massachusetts since this time. We conduct business from our three full-service banking offices located in Everett, Lynnfield and Woburn, Massachusetts, which are located in the greater Boston metropolitan area in Middlesex and Essex Counties. Everett is adjacent to Boston and is approximately three miles from Boston’s financial district, and Lynnfield is located approximately 10 miles to the north in Essex County. Our Woburn branch, opened in 2023, is located approximately 10 miles from Boston’s financial district in Middlesex County. We consider our deposit market area to be Middlesex, Essex and Suffolk Counties, Massachusetts and our primary lending area to be these Counties as well as Norfolk County, Massachusetts, which are located primarily within the Route 128 corridor outside of Boston. +Our business consists primarily of taking deposits from the general public and investing those deposits, together with funds generated from operations, in one-to-four family residential real estate loans, commercial real estate and multifamily real estate loans, construction and land loans and home equity lines of credit and loans. To a lesser extent we also originate commercial business loans and consumer loans. At December 31, 2025, $473.4 million, or 34.2%, of our total loan portfolio was comprised of one-to-four family residential real estate loans, $425.4 million, or 30.8%, of our total loan portfolio was comprised of multifamily real estate loans, $336.4 million, or 24.3%, of our total loan portfolio was comprised of commercial real estate loans, $89.0 million, or 6.4%, of our total loan portfolio was comprised of construction loans, $49.9 million, or 3.6%, of our total loan portfolio was comprised of home equity lines of credit and loans, $7.9 million, or 0.6% of our total loan portfolio was comprised of commercial business loans, and $869,000, or 0.1% of our total loan portfolio was comprised of consumer loans. We also invest in securities, consisting primarily of U.S. government and federal agency obligations, mortgage-backed securities, collateralized mortgage obligations and corporate bonds. We offer a variety of deposit accounts, including certificate of deposit accounts, Individual Retirement Accounts ("IRAs"), money market accounts, savings accounts and both interest-bearing and noninterest-bearing checking accounts. We historically have utilized advances from the Federal Home Loan Bank of Boston (the “FHLB”) to fund our operations and we had $284.8 million of FHLB advances outstanding at December 31, 2025. Additionally, in recent years, we have also accepted brokered deposits as a non-retail funding source to fund our operations. At December 31, 2025, we had $134.0 million of brokered deposits outstanding. +Business Strategy +One of the key features of our business strategy has been to grow our loan portfolio, primarily through an increased focus on growing our commercial real estate and multifamily lending operations. In order to execute this growth strategy in an orderly and diligent manner, we enhanced our commercial real estate and multifamily lending infrastructure and engaged a group of experienced credit analysts. Consistent with our strategy to grow our commercial loan operations and the consequent commercial relationship opportunities, we have and will continue to upgrade our suite of deposit products and related services and have and will continue to upgrade our digital and mobile applications in order to accommodate business customers and thereby accelerate the growth in our core deposits. +Historically, given our size, capital position and lending team experience and capacity, we have originated for participation to other local banking institutions our larger commercial real estate and commercial loans. As we continue to enhance our commercial real estate team and infrastructure and with the increase in capital resulting from the conversion, we are able to selectively retain larger loans that we historically would have originated for participation with other local institutions. In this regard, we have revised our lending policies and loans to one borrower limitations to increase our lending limits and the type and size of loans we choose to hold in our portfolio. +We are similarly focused on enhancing our retail operations. To that end, the Company has developed new high yield consumer and business products as well as introducing an array of cash management services designed to attract new business relationships to the bank. In addition, in September of 2023, the Company opened a new branch in Woburn, MA, increasing our retail network to three branches. In January 2026, we announced that we are filing an application to establish a new branch office in Medford, MA. We will continue to attract and retain retail customers by emphasizing personal service, accessibility and flexibility in the face of mass market-oriented large, national and super-regional banks which maintain local branch networks in our market. +4 +Table of Contents +We believe that we have created, and will continue to enhance, the framework which will enable us to execute on our strategy to grow the Company through orderly and diligent loan growth, including competing for and underwriting larger individual loans and maintaining larger lending relationships. Similarly, we believe that we are well-positioned to execute on our retail growth strategy including our increased emphasis on retail sales marketing efforts by Company personnel. We have and expect to continue to invest in our personnel and information technology to support this balance sheet growth. +We believe we have been effective in competing against both larger regional banks and local community banks operating in our market. We compete against the larger banks through our responsive and personalized service, providing our customers with quicker decision making, certainty of execution and customized products where appropriate and access to our senior managers. We believe our highly experienced commercial and residential bankers and a sophisticated product and service mix, including a suite of technology solutions and support, enable us to compete effectively against local community banks. We believe that recent consolidation of financial institutions in and around our market continues to create further opportunity for expansion in our market and hiring available personnel. We will continue to emphasize these core business principles as we focus on growing our balance sheet and will implement them with the larger banking relationships that we seek to originate and maintain. +Reflecting our focus on our community, in connection with our mutual to stock conversion and initial public offering which closed in July 2022, we established the Everett Co-operative Bank Charitable Foundation (the "Foundation") and funded it with $600,000 in cash and 260,000 shares of our common stock, for a total contribution of $3,200,000 based on the $10.00 per share offering price. The purpose of this foundation is to make contributions to support various charitable organizations operating in our community now and in the future. During the year ended December 31, 2025, the Foundation made $113,000 in contributions to local non-profit charities and organizations. +Everett Co-operative Bank is subject to comprehensive regulation and examination by the Massachusetts Commissioner of the Division of Banks ("Commissioner"), as its chartering agency, and the Federal Deposit Insurance Corporation (“FDIC”) as its primary federal regulator and primary insurer of its deposits. See “Supervision and Regulation.” Our executive offices are located at 419 Broadway, Everett, Massachusetts 02149. Our telephone number at this address is (617) 387-1110. Our website address is www.everettbank.com. Information on our website is not incorporated into this Annual Report on Form 10-K and should not be considered part of this Annual Report. +Market Area +We consider Middlesex, Essex and Suffolk Counties, Massachusetts as our primary market area for gathering deposits, and each of these Counties as well as Norfolk County, Massachusetts as our primary lending market area. Our main office and two additional branch offices are located in Middlesex and Essex Counties, all of which are located in the greater Boston metropolitan area. Everett is a suburb which is adjacent to Boston and approximately three miles from Boston’s financial district, Woburn where our new branch opened in 2023 is located is approximately ten miles from Boston's financial district, and Lynnfield where our additional branch office is located is approximately 10 miles north in Essex County. While we occasionally make loans secured by properties located outside of our primary lending market, these loans are generally to borrowers with whom we have an existing relationship and who have a presence within our primary lending market. +The Boston metropolitan area benefits from the presence of numerous institutions of higher learning, medical care and research centers and the corporate headquarters of several significant multinational corporations. Eastern Massachusetts also has many high technology companies employing personnel with specialized skills. These factors affect the demand for residential homes, multifamily apartments, office buildings, shopping centers, industrial warehouses and other commercial properties. +According to the United States Department of Labor, the Boston metropolitan area was one of the United States' twelve largest metropolitan statistical areas in June 2025. Located adjacent to major transportation corridors, the Boston metropolitan area provides a highly diversified economic base, with major employment sectors ranging from services, manufacturing and wholesale/retail trade, to finance, technology and medical care. According to the United States Department of Labor, in December 2025, the Boston-Cambridge-Newton, Massachusetts Statistical Area had an unemployment rate of 4.3%, compared to a Massachusetts state unemployment rate of 4.8% and the national unemployment rate of 4.4%. +5 +Table of Contents +Based on United States census estimates, from 2010 to 2024, the populations of Middlesex and Essex Counties increased 165,871 and 80,779, respectively. The United States census estimates that the median household income from 2020-2024 for Middlesex and Essex Counties were $130,847 and $101,883, respectively, compared to median household income of $97,344 for Boston the metropolitan area, $103,960 for the Commonwealth of Massachusetts and $80,734 for the United States. +Competition +We face significant competition within our market both in making loans and attracting deposits. Our market area has a high concentration of financial institutions, including large money center and regional banks, community banks, credit unions and other non-bank financial service providers. Some of our competitors offer products and services that we currently do not offer, such as trust services and private banking. +Our competition for loans comes primarily from the competitors referenced above and from other financial service providers, such as mortgage companies and mortgage brokers. Competition for loans also comes from the increasing number of non-depository financial service companies participating in the mortgage market, such as insurance companies, securities firms, financial technology companies, specialty finance firms and technology companies. +We expect competition to remain intense in the future as a result of legislative, regulatory and technological changes and the continuing trend toward consolidation of the financial services industry. Technological advances, for example, have lowered barriers to entry, which have allowed banks to expand their geographic reach by providing services over the internet and made it possible for non-depository institutions, including financial technology companies, to offer products and services that traditionally have been provided by banks. Competition for deposits and the origination of loans could limit our growth in the future. +We are a small community savings institution and as of June 30, 2025 (the latest date for which information is available), our market share was 0.98% of total FDIC-insured deposits in Middlesex County, Massachusetts making us the 24th largest out of 47 financial institutions in Middlesex County, and our market share was 0.83% of total FDIC-insured deposits in Essex County, Massachusetts making us the 22nd largest out of 34 financial institutions in Essex County. +Lending Activities +Our principal lending activity is originating one-to-four family residential real estate loans, commercial real estate and multifamily real estate loans, construction and land loans and home equity lines of credit and loans. To a much lesser extent, we also originate commercial business loans and consumer loans. Subject to market conditions and our asset-liability analysis, we expect to continue to grow our commercial real estate and multifamily loan portfolios as well as our one-to-four family residential real estate loan portfolio. We also originate for sale and sell a portion of the fixed-rate one-to-four family residential real estate loans that we originate that generally have terms of 15 years or greater, on a servicing-released, limited or no recourse basis, while retaining shorter-term fixed-rate and all adjustable-rate one-to-four family residential real estate loans in order to manage the duration and time to repricing of our loan portfolio. +Historically, given our size, capital position and lending team experience and capacity, we have originated for participation to other local banking institutions our larger commercial real estate and commercial loans. As we continue to enhance our commercial real estate team and infrastructure and with the increase in capital resulting from the conversion, we are able to selectively retain larger loans that we historically would have originated for participation with other local institutions. In this regard, we have revised our lending policies and loans to one borrower limitations to increase our lending limits and the type and size of loans we choose to hold in our portfolio. +6 +Table of Contents +Loan Portfolio Composition. The following table sets forth the composition of our loan portfolio by type of loan at the dates indicated. We had loans held for sale of $357,000 and $0 at December 31, 2025 and December 31, 2024, respectively. +At December 31, +At December 31, +2025 +2024 +Amount +Percent +Amount +Percent +(Dollars in thousands) +Real estate loans: +One-to-four family residential +$ +473,394 +34.2 +% +$ +422,841 +36.9 +% +Multi-family +425,428 +30.8 +343,970 +30.0 +Commercial +336,412 +24.3 +228,991 +20.0 +Home equity lines of credit and loans +49,866 +3.6 +45,154 +4.0 +Construction +88,957 +6.4 +90,894 +7.9 +Other loans: +Commercial loans +7,938 +0.6 +13,844 +1.2 +Consumer +869 +0.1 +141 +0.0 +1,382,864 +100.0 +% +1,145,835 +100.0 +% +Less: +Net deferred loan fees +(790 +) +(502 +) +Allowance for credit losses +(10,255 +) +(8,884 +) +Total loans, net +$ +1,371,819 +$ +1,136,449 +7 +Table of Contents +Loan Portfolio Maturities. The following tables set forth the contractual maturities of our total loan portfolio at December 31, 2025. Demand loans, loans having no stated repayment schedule or maturity, and overdraft loans are reported as being due in one year or less. Because the tables present contractual maturities and do not reflect repricing or the effect of prepayments, actual maturities may differ. +One year +After one year +After five years +After +or less +through five years +through 15 years +15 years +Total +(Dollars in thousands) +Real estate loans: +One-to-four family residential +$ +2,203 +$ +14,664 +$ +36,619 +$ +419,908 +$ +473,394 +Multi-family +27,439 +19,053 +24,723 +354,213 +425,428 +Commercial +18,290 +32,426 +42,960 +242,736 +336,412 +Home equity lines of credit and loans +5,644 +1,546 +1,212 +41,464 +49,866 +Construction +28,287 +30,013 +5,209 +25,448 +88,957 +Other loans: +Commercial loans +359 +5,379 +2,194 +6 +7,938 +Consumer +96 +741 +— +32 +869 +Total loans +$ +82,318 +$ +103,822 +$ +112,917 +$ +1,083,807 +$ +1,382,864 +The following table sets forth our fixed- and adjustable-rate loans at December 31, 2025 that are due after December 31, 2026. +Due after December 31, 2026 +Fixed +Adjustable +Total +(Dollars in thousands) +Real estate loans: +One-to-four family residential +$ +99,585 +$ +371,607 +$ +471,192 +Multi-family +33,879 +364,110 +397,989 +Commercial +16,801 +301,320 +318,121 +Home equity lines of credit and loans +1,448 +42,774 +44,222 +Construction +23,552 +37,118 +60,670 +Other loans: +Commercial loans +7,446 +133 +7,579 +Consumer loans +32 +741 +773 +Total loans +$ +182,743 +$ +1,117,803 +$ +1,300,546 +One-to-Four Family Residential Real Estate Lending . The focus of our lending has long been the origination of long-term loans secured by mortgages on owner-occupied one-to-four family residences. At December 31, 2025, $473.4 million, or 34.2%, of our total loan portfolio, consisted of one-to-four family residential real estate loans. Included in this balance was $199.0 million of non-owner occupied loans. Loans for non-owner occupied properties purchased for investment purposes and where the property income is not the borrower’s primary source of income are generally underwritten to Fannie Mae guidelines. Loans for non-owner occupied properties purchased for investment purposes and where the property income is the primary source of income to the borrower are underwritten based on our commercial real estate underwriting guidelines. As of December 31, 2025, our average outstanding one-to-four family residential real estate loan balance was $481,000 and our largest outstanding loan secured by one-to-four family residential restate had a principal balance of $7.9 million, which, as of December 31, 2025, was performing in accordance with its repayment terms. The majority of the one-to-four family residential real estate loans that we originate are secured by properties located in our primary market area. See “ – Originations, Sales and Purchases of Loans.” +Our one-to-four family residential real estate loans are generally underwritten according to Fannie Mae guidelines, and we refer to loans that conform to such guidelines as “conforming loans.” We generally originate both fixed- and adjustable-rate one-to-four family residential real estate loans in amounts up to the maximum conforming loan limits as established by the Federal Housing Finance Agency (“FHFA”). We also originate loans above the FHFA limit, which are referred to as “jumbo loans.” We generally underwrite jumbo loans in a manner similar to conforming loans. During the year ended December 31, 2025, we originated $10.8 million of jumbo loans. +8 +Table of Contents +We originate both fixed-rate and adjustable-rate one-to-four family residential real estate loans with terms of up to 30 years. At December 31, 2025, $101.8 million, or 21.5%, of our one-to-four family residential real estate loans were fixed-rate loans. +We originate our adjustable-rate one-to-four family residential real estate loans with initial interest rate adjustment periods of three, five, seven and ten years, based on changes in a designated market index. These loans are limited to a 200-basis point initial increase in their interest rate, a 200-basis point increase in their interest rate annually after the initial adjustment, and a maximum upward adjustment of 600 basis points over the life of the loan. We determine whether a borrower qualifies for an adjustable-rate mortgage loan based on our lending policy. +We originate conventional one-to-four family residential mortgage loans with loan-to-value ratios of up to 80% without private mortgage insurance. Occasionally, we originate loans with loan-to-value ratios of up to 97% with private mortgage insurance and where the borrower’s debt generally does not exceed 45% of the borrower’s monthly cash-flow. +A portion of our one-to-four family residential real estate loans are for the financing of residential condominium units. Consistent with our risk analysis, we generally will not finance more than 20% of the units in any condominium project with more than four units. +Generally, we sell a portion of the fixed-rate one-to-four family residential real estate loans that we originate with terms that are generally greater than 15 years. We base the amount of fixed-rate loans that we sell on our liquidity needs, asset/liability mix, loan volume, portfolio size and other factors. Currently, the majority of loans that we sell are sold to the secondary market with servicing released. +We generally do not offer “interest-only” mortgage loans on one-to-four family residential real estate loans nor do we offer loans that provide for negative amortization of principal, such as “Option ARM” loans, where the borrower can pay less than the interest owed on the loan, resulting in an increased principal balance during the life of the loan. Additionally, we do not offer “subprime loans” (loans that are made to borrowers with weakened credit histories typically characterized by payment delinquencies, previous charge-offs, judgments, bankruptcies, or borrowers with questionable repayment capacity as evidenced by low credit scores or high debt-burden ratios) or Alt-A loans (defined as loans having less than full documentation). +We evaluate both the borrower’s ability to make principal, interest and escrow payments and the value of the property that will secure the loan. Our one-to-four family residential real estate loans generally do not currently include prepayment penalties, are non-assumable and do not produce negative amortization. Our one-to-four family residential mortgage loans customarily include “due-on-sale” clauses giving us the right to declare the loan immediately due and payable in the event that, among other things, the borrower sells the property subject to the mortgage. All borrowers are required to obtain title insurance for the benefit of Everett Co-operative Bank. We also require homeowner’s insurance and fire and casualty insurance and, where circumstances warrant, flood insurance on properties securing real estate loans. +We offer one-to-four family residential real estate loans secured by non-owner occupied properties. Generally, we will not make loans in excess of 75% loan to value on non-owner-occupied two-to-four family residential real estate properties or in excess of 80% on single family non-owner occupied residential real estate properties. +Commercial Real Estate and Multifamily Lending . Our commercial real estate loans are secured primarily by multifamily apartment buildings, retail and mixed-use properties, light industrial properties, manufacturing facilities and office buildings, almost all of which are located in our primary market area. We do not have any exposure to high rise office space in Boston, MA. Our office loans are secured by office space primarily outside of the city of Boston where demand for office space along with vacancy rates remain stable. Our multifamily loans are secured primarily by five or more-unit residential buildings. At December 31, 2025, we had $336.4 million in commercial real estate loans and $425.4 million in multifamily real estate loans, representing 24.3% and 30.8% of our total loan portfolio, respectively. +9 +Table of Contents +The following table shows the diversification of the commercial real estate portfolio as of December 31, 2025: +As of December 31, 2025 +Owner- +Non-Owner- +Occupied +Occupied +Balance +Percent +(Dollars in thousands) +Mixed-Use +$ +10,793 +$ +134,832 +$ +145,625 +43.3 +% +Retail +10,766 +46,481 +57,247 +17.0 +% +Industrial +19,849 +21,117 +40,966 +12.2 +% +Office +5,934 +36,815 +42,749 +12.7 +% +Hospitality +— +16,627 +16,627 +4.9 +% +Other +8,313 +24,885 +33,198 +9.9 +% +Total commercial real estate loans +$ +55,655 +$ +280,757 +$ +336,412 +100.0 +% +We generally originate adjustable-rate commercial real estate and multifamily real estate loans with maximum terms of up to 30 years. From time to time we will also originate fixed rate loans in these portfolios. We generally limit loan-to-value ratios to 75% of the lesser of the appraised value or purchase price. All of our commercial real estate and multifamily real estate loans are subject to our underwriting procedures and guidelines set by our Commercial Lending and General Lending Policies. +At December 31, 2025, our largest commercial real estate loan totaled $17.8 million and was secured by a parking lot located in our primary market area. At December 31, 2025, this loan was performing in accordance with its repayment terms. At December 31, 2025, our largest multifamily real estate loan totaled $20.0 million and was secured by five properties with a total of 118 residential units located in our primary market area. At December 31, 2025, this loan was performing in accordance with its repayment terms. +We consider a number of factors in originating commercial real estate and multifamily loans. We evaluate the character, qualifications and financial condition of the borrower (including credit history), profitability and expertise, as well as the value and condition of the mortgaged property securing the loan and market conditions. When evaluating the qualifications of the borrower, we consider the financial resources of the borrower, the borrower’s experience in owning and/or managing similar property and the borrower’s repayment history with us and other financial institutions. In evaluating the property securing the loan, among other factors, we consider the net operating income of the mortgaged property before debt service and depreciation, amortization and interest. The debt service coverage ratio (the ratio of net operating income to debt service) is calculated to ensure that, subject to certain exceptions, it is at least 1.20x. Our commercial real estate and multifamily loans are appraised by outside independent and qualified appraisers that are duly approved in accordance with Everett Co-operative Bank Appraisal policy. Personal guarantees are often obtained from commercial real estate borrowers if such individual has a greater than 20% ownership interest in the property. Each borrower’s financial information on such loans is monitored on an ongoing basis by requiring periodic financial statement updates which are reviewed when received. +Our loans-to-one borrower limit is 20% of the Bank’s capital, which limit was $30.9 million at December 31, 2025. At December 31, 2025, our average commercial real estate loan had a balance of $1.5 million and our average multifamily loan had a balance of $2.7 million. As we continue to enhance our commercial real estate team and infrastructure and with the increase in capital resulting from the conversion, we are now able to selectively retain larger loans that we historically would have originated for participation with other local financial institutions. In this regard, we have revised our lending policies and loans to one borrower limitations to increase our lending limits and the type and size of loans we choose to hold in our portfolio. +Construction and Land Loans . At December 31, 2025, we had $89.0 million in construction and land loans, or 6.4% of total loans. We make construction loans, primarily to developers, contractors and builders of apartment buildings, for single-family homes and condominiums and to individuals for the construction of their primary residences. We also generate a limited amount of land loans that will be used for residential or commercial development. Land loans also include loans secured by land purchased for investment purposes. At December 31, 2025, our construction loans included $10.0 million in lines of credit and loans secured by land. +10 +Table of Contents +While we may originate loans to builders whether or not the collateral property underlying the loan is under contract for sale, we consider each project carefully in light of current residential real estate market conditions. Generally, we will make construction loans for which there is no contract for sale for the underlying completed home at the time of origination, and which we refer to as speculative construction loans, only to well-known builders in our market area. We actively monitor the number of unsold homes in our construction loan portfolio and local housing markets to attempt to maintain an appropriate balance between home sales and new loan originations. We generally limit the maximum number of speculative units (units that are not pre-sold) approved for each builder, typically starting with one speculative loan per builder until we develop a relationship with the builder. At December 31, 2025, speculative construction loans totaled $39.1 million. +Our construction loans are fixed- and adjustable-rate, interest-only loans that provide for the payment of interest during the construction phase, which is usually up to 12 to 24 months or in some cases up to 36 months for more complex projects. At the end of the construction phase, the loan may convert to a permanent mortgage loan or may be paid in full. Depending on the complexity of the construction project, the term of an “interest-only” construction loan may be extended if circumstances warrant it up to an additional three to six months with a maximum interest only term of 36 months. At December 31, 2025, the additional unadvanced portions of these construction loans totaled $47.7 million. +Construction and land loans are generally limited to 80% (75% for investment properties) loan-to-completed-appraised-value ratio upon completion of the project. Before making a commitment to fund a construction loan, we require an appraisal of the property by an independent licensed appraiser. We also generally require inspections of the property before disbursements of funds during the term of the construction loan. Construction projects over $2 million require an approved construction consultant to review the construction budget, complete a feasibility analysis, monitor construction progress and manage construction draws. +At December 31, 2025, our largest construction loan was for $6.1 million and was for the construction of a mixed-use building in our market area. This loan was performing in accordance with its repayment terms at December 31, 2025. +Home Equity Loans and Lines of Credit . In addition to one-to-four family residential real estate loans, we offer home equity loans and lines of credit that are secured by the borrower’s primary residence, secondary residence or investment property. At December 31, 2025, we had $49.9 million, or 3.6%, of our total loan portfolio in home equity loans and lines of credit. At that date we also had $48.8 million of unused commitments related to home equity lines of credit. +Home equity loans and lines of credit are generally underwritten using the same criteria that we use to underwrite one-to-four family residential real estate loans. Home equity loans and lines of credit may be underwritten with a loan-to-value ratio of up to 70%, or 80% when combined with the principal balance of the existing first mortgage loan. Our home equity loans are primarily originated with fixed rates of interest with terms of up to 15 years. Our home equity lines of credit are originated with a variable rate based on the prime rate of interest plus or minus an applicable margin with a floor rate and require interest paid monthly. +Home equity loans and lines of credit are generally secured by junior mortgages and have greater risk than one-to-four family residential real estate loans secured by first mortgages. We face the risk that the collateral will be insufficient to compensate us for credit losses and costs of foreclosure, after repayment of the senior mortgages, if applicable. When customers default on their loans, we attempt to foreclose on the property and resell the property as soon as possible to minimize foreclosure and carrying costs. However, the value of the collateral may not be sufficient to compensate us for the amount of the unpaid loan and we may be unsuccessful in recovering the remaining balance from those customers. Particularly with respect to our home equity loans and lines of credit, decreases in real estate values could adversely affect our ability to fully recover the loan balance in the event of a default. +Commercial Loans. At December 31, 2025, commercial loans were $7.9 million, or 0.6% of total loans. +We make commercial loans and lines of credit primarily to small businesses in our market area. These loans and lines of credit are generally secured by business assets, such as equipment and accounts receivable. Commercial loans and lines of credit are made with both adjustable and fixed-interest rates and for terms generally up to 60 months or on demand. Depending on the collateral used to secure the loans, commercial loans are made in amounts of up to 80% of the value of the collateral securing the loan. +11 +Table of Contents +When making commercial loans, we consider the financial statements of the borrower, our lending history with the borrower, the debt service capabilities and global cash flows of the borrower and other guarantors, the projected cash flows of the business and the value of the collateral, accounts receivable, inventory and equipment. +At December 31, 2025, our largest commercial loan totaled $4.5 million and was secured by a security interest in a mortgage and note. At December 31, 2025, this loan was performing in accordance with its repayment terms. +Consumer Lending. To a much lesser extent, we offer a variety of consumer loans to individuals who reside or work in our market area, including unsecured overdraft lines of credit and loans secured by savings accounts. At December 31, 2025, our consumer loan portfolio totaled $869,000, or 0.1%, of our total loan portfolio. +Consumer loans generally have shorter terms to maturity, which reduces our exposure to changes in interest rates. In addition, management believes that offering consumer loan products helps to expand and create stronger ties to our existing customer base by increasing the number of customer relationships and providing cross-marketing opportunities. +Loan Underwriting Risks +Adjustable-Rate Residential Real Estate Loans. Although adjustable-rate mortgage loans may reduce to an extent our vulnerability to changes in market interest rates because they periodically reprice, as interest rates increase, the required payments due from the borrower also increase (subject to rate caps), increasing the potential for default by the borrower. At the same time, the marketability of the underlying collateral may be adversely affected by higher interest rates. Upward adjustments of the contractual interest rate are also limited by the maximum periodic and lifetime rate adjustments permitted by our loan documents. +Commercial Real Estate Loans. Loans secured by commercial real estate generally have larger balances and involve a greater degree of risk than one- to four-family residential real estate loans. The primary concern in commercial real estate lending is the borrower’s creditworthiness, the feasibility and cash flow potential of the project. Repayments of loans secured by income properties often depend on successful operation and management of the properties. As a result, repayment of such loans may be subject, to a greater extent than residential real estate loans, to adverse conditions in the real estate market or the economy. To monitor cash flows on income properties, we require borrowers and guarantors to provide financial statements including and not limited to personal financial statements, tax returns and rent rolls on an annual basis at minimum. These documents are reviewed according to the commercial lending policy and general lending policy guidelines. In reaching a decision on whether to make a commercial real estate loan, we consider and review a global cash flow analysis of the borrower and consider the net operating income of the property, the borrower’s expertise, credit history and profitability and the value of the underlying property. We have generally required that the properties securing these real estate loans have an aggregate debt service ratio, including the guarantor’s cash flows and the borrower’s other projects, of at least 1.20x. We obtain an environmental report with every new loan request. An environmental phase one report is obtained when the possibility exists that hazardous materials may have existed on the site, or the site may have been impacted by adjoining properties that handled hazardous materials. +If we foreclose on a commercial real estate loan, the marketing and liquidation period to convert the real estate asset to cash can be lengthy with substantial holding costs. In addition, vacancies, deferred maintenance, repairs and market stigma can result in prospective buyers expecting sale price concessions to offset their real or perceived economic losses for the time it takes them to return the property to profitability. Depending on the individual circumstances, initial charge-offs and subsequent losses on commercial real estate loans can be unpredictable and substantial. As of December 31, 2025, we maintained no “other real estate owned” as a result of foreclosures (or the acceptance of a deed in lieu of foreclosure). +12 +Table of Contents +Commercial Loans. Unlike residential real estate loans, which generally are made on the basis of the borrower’s ability to make repayment from his or her employment or other income streams, and which are secured by real property whose value tends to be more easily ascertainable, commercial loans are of higher risk and typically are made on the basis of the borrower’s ability to make repayment from the cash flows of the borrower’s business operation, and the collateral securing these loans may fluctuate in value. Our commercial loans are originated primarily based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. Collateral for commercial loans typically consists of accounts receivable, inventory or equipment. Credit support provided by the borrower for most of these loans is based on the liquidation of the pledged collateral and enforcement of a personal guarantee, if any. Further, any collateral securing such loans may depreciate over time, may be difficult to appraise and may fluctuate in value. As a result, the availability of funds for the repayment of commercial loans may depend substantially on the success of the business itself. +Construction and Land Loans. Our construction loans are based upon estimates of costs and values associated with the completed project. Underwriting is focused on the borrower's financial strength, credit history and demonstrated ability to produce a quality product, effectively market it and manage their operations effectively. +Construction lending involves additional risks when compared with permanent lending because funds are advanced upon the security of the project, which is of uncertain value before its completion. Because of the inherent uncertainties in estimating construction costs, as well as the market value of the completed project and the effects of governmental regulation of real property, it is relatively difficult to evaluate accurately the total funds required to complete a project and the related loan-to-value ratio. In addition, generally during the term of a construction loan, interest may be funded by the borrower or disbursed from an interest reserve set aside from the construction loan budget. These loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project and the ability of the borrower to sell or lease the property or obtain permanent take-out financing, rather than the ability of the borrower or guarantor to repay principal and interest. If the appraised value of a completed project proves to be overstated, we may have inadequate security for the repayment of the loan upon completion of construction of the project and may incur a loss. In addition, speculative construction loans, which are loans made to home builders who, at the time of loan origination, have not yet secured an end buyer for the home under construction, typically carry higher risks than those associated with traditional construction loans. These increased risks arise because of the risk that there will be inadequate demand to ensure the sale of the property within an acceptable time. As a result, in addition to the risks associated with traditional construction loans, speculative construction loans carry the added risk that the builder will have to pay the property taxes and other carrying costs of the property until an end buyer is found. Land loans have substantially similar risks to speculative construction loans. +Originations, Sales and Purchases of Loans +Our loan originations are generated by our loan personnel operating at our banking offices. All loans we originate are underwritten pursuant to our policies and procedures. While we originate both fixed-rate and adjustable-rate loans, our ability to generate each type of loan depends upon relative borrower demand and the pricing levels as set in the local marketplace by competing banks, thrifts, credit unions, and mortgage banking companies. Our volume of real estate loan originations is influenced significantly by market interest rates, and, accordingly, the volume of our real estate loan originations can vary from period to period. +Consistent with our interest rate risk management strategy, we originate for sale and sell a portion of the fixed-rate, one- to four-family residential real estate loans that we originate with terms of 15 years or greater, on a servicing-released, limited or no recourse basis, while retaining shorter-term fixed-rate and all adjustable-rate one- to four-family residential real estate loans in order to manage the duration and time to repricing of our loan portfolio. We consider our balance sheet as well as market conditions on an ongoing basis in making decisions as to whether to hold loans we originate for investment or to sell such loans to investors, choosing the strategy that is most advantageous to us from a profitability and risk management standpoint. During the year ended December 31, 2025, we sold $10.1 million of one-to-four family owner-occupied residential real estate loans. Subject to market and economic conditions, management intends to continue this sales activity in future periods to generate gain on sale income. At December 31, 2025, we had $357,000 loans held for sale. +From time to time, we may purchase loan participations secured by properties within and outside of our primary market area in which we are not the lead lender. In these circumstances, we follow our customary loan underwriting and approval policies. At December 31, 2025, we had four loans in which we were not the lead lender totaling $22.0 million. +13 +Table of Contents +In addition, during 2025, we purchased $806,000 in whole one- to four- family residential real estate loans from correspondent loan originators. We may participate out portions of a loan that exceeded our loans-to-one borrower legal lending limit and for risk diversification. At December 31, 2025, we had loans participated out to other lenders totaling $117.3 million. +Loan Approval Procedures and Authority +The maximum amount that we may lend to one borrower and the borrower’s related entities is generally limited, by statute, to 20% of the Bank's capital, which is defined under Massachusetts law as the sum of our surplus account, undivided profits and capital stock. Loans secured by a first mortgage on residential property occupied by the borrower are excluded from this limit. At December 31, 2025, our regulatory limit on loans-to-one borrower was $30.9 million. At December 31, 2025, our largest relationship at this date consisted of eight loans totaling $30.0 million secured by 14 multifamily properties, one mixed-used building and five one-to-four family residential real estate with a total of 242 residential units in our market area. This loan relationship was performing in accordance with its original repayment terms at December 31, 2025. Our second largest lending relationship consisted of five multifamily loans, eight one-to-four family real estate loans and three commercial real estate loans totaling $29.6 million secured by six multifamily properties, two mixed-used buildings and 14 one-to-four family residential real estate properties with a total of 91 residential units in our market area. This loan relationship was performing in accordance with its original repayment terms at December 31, 2025. As a result of our stock offering which closed in July 2022, our regulatory loans-to-one borrower limit has increased and, as we continue to enhance our commercial real estate team and infrastructure and with our increased capital position, we are now able to selectively retain larger loans that we historically would have originated for participation with other local financial institutions. In this regard, we have revised our lending policies and loans to one borrower limitations to increase our lending limits and the type and size of loans we choose to hold in our portfolio. +Our lending is subject to written underwriting standards and origination procedures. Decisions on loan applications are made on the basis of detailed applications submitted by the prospective borrower and property valuations (consistent with our appraisal policy) prepared by outside independent licensed or certified appraisers approved by our board of directors as well as internal evaluations, where permitted by regulations. The loan applications are designed primarily to determine the borrower’s ability to repay the requested loan, and the more significant items on the application are verified through use of credit reports, financial statements and tax returns. +The Board of Directors has overall responsibility for our lending policy, and the board reviews this policy at least annually. +Our Chief Executive Officer, Chief Operating Officer or Chief Lending Officer each have individual lending authority for up to $1.0 million for commercial loans. In addition, the Head of Residential Lending and Chief Lending Officer can approve residential real estate loans up to $1.0 million. Loans of between $1.0 million and $5.0 million require the approval of the Loan Committee, which is comprised of senior management of the Bank as well as the Chief Executive Officer, and loans or relationships in excess of $5.0 million require approval of the full Board of Directors. Additionally, our policies and loan approval limits which are established by the board of directors provide various lending approval authority for other designated individual officers or officers acting together. +Generally, we require title insurance on our mortgage loans as well as fire and extended coverage casualty insurance in amounts at least equal to the principal amount of the loan or the value of improvements on the property, depending on the type of loan. We also require flood insurance if the improved property is determined to be in a flood zone area. +Delinquencies and Non-Performing Assets +Delinquency Procedures. When a borrower fails to make required payments on a loan, we take a number of steps to induce the borrower to cure the delinquency and restore the loan to current status. We generally send a written notice of non-payment to the borrower 15, 30, 60 and 90 days after a loan is first past due. We will additionally try to contact the borrower by telephone after the 30 th day after the due date. +14 +Table of Contents +Generally, when a loan becomes 90 days past due, the loan is turned over to our attorneys to ensure that further collection activities are conducted in accordance with applicable laws and regulations. All loans past due 90 days are put on non-accrual and reported to the board of directors monthly. If our attorneys do not receive a response from the borrower, or if the terms of any payment plan established are not followed, then foreclosure proceedings will be implemented. Management submits a delinquent loan report detailing loans 30 days or more past due to the board of directors on a monthly basis. +When we acquire real estate as a result of foreclosure or by deed in lieu of foreclosure, the real estate is classified as foreclosed real estate until it is sold. The real estate is recorded at estimated fair value at the date of acquisition less estimated costs to sell, and any write-down resulting from the acquisition is charged to the allowance for credit losses. Estimated fair value is based on an appraisal typically obtained before the foreclosure process is completed. Subsequent decreases in the value of the property are charged to operations. After acquisition, all costs incurred in maintaining the property are expensed. Costs relating to the development and improvement of the property, however, are capitalized to the extent of estimated fair value less estimated costs to sell. +From time to time, we may grant a concession to borrowers who are experiencing financial difficulties for economic or legal reasons related to the borrower’s financial difficulties. This usually includes a modification of loan terms, such as a reduction of the interest rate to below market terms, capitalizing past due interest or extending the maturity date and possibly a partial forgiveness of the principal amount due. Interest income on restructured loans is accrued after the borrower demonstrates the ability to pay under the restructured terms through a sustained period of repayment performance, which is generally six consecutive months. +Delinquent Loans . The following table sets forth our loan delinquencies, including non-accrual loans, by type and amount at the dates indicated. +At December 31, +2025 +2024 +30–59 +60–89 +90 Days +30–59 +60–89 +90 Days +Days +Days +or More +Days +Days +or More +(in thousands) +Real estate loans: +One-to-four family residential +$ +519 +$ +104 +$ +— +$ +1,260 +$ +— +$ +1,077 +Multi-family +— +— +— +— +— +— +Commercial +246 +— +— +— +— +— +Home equity lines of credit and loans +370 +— +3 +405 +— +85 +Construction +— +— +— +— +— +— +Other loans: +Commercial +— +— +— +— +— +— +Consumer +— +— +— +— +— +— +Total +$ +1,135 +$ +104 +$ +3 +$ +1,665 +$ +— +$ +1,162 +15 +Table of Contents +Non-Performing Assets. The following table sets forth information regarding our non-performing assets. +At December 31, +2025 +2024 +(in thousands) +Non-accrual loans: +Real estate loans: +One-to-four family residential +$ +1,096 +$ +1,872 +Multi-family +— +— +Commercial +— +— +Home equity lines of credit and loans +43 +85 +Construction +— +— +Commercial +— +— +Consumer +— +— +Total non-accrual loans +$ +1,139 +$ +1,957 +Accruing loans past due 90 days or more: +Real estate loans: +One-to-four family residential +$ +— +$ +— +Multi-family +— +— +Commercial +— +— +Home equity lines of credit and loans +— +— +Construction +— +— +Bank owned property held for sale +— +— +Total real estate owned +— +— +Total non-performing assets +$ +1,139 +$ +1,957 +Total non-performing loans to total loans +0.08 +% +0.17 +% +Total non-performing loans to total assets +0.07 +% +0.14 +% +Total non-performing assets to total assets +0.07 +% +0.14 +% +Classified Assets . Federal regulations provide that each insured savings institution classify its assets on a regular basis. In addition, in connection with examination of insured depository institutions, federal and Massachusetts banking regulators have authority to identify problem assets and, if appropriate, classify them. There are three classifications for problem assets: “substandard,” “doubtful” or “loss.” An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. “Substandard” assets include those characterized by the “distinct possibility” that the insured institution will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard,” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly questionable and improbable.” Assets classified as “loss” are those considered “uncollectible” and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted. Assets which do not currently expose the insured institution to sufficient risk to warrant classification in one of the aforementioned categories but possess weaknesses are designated as “special mention” by our management. +When an insured depository institution classifies problem assets as either substandard or doubtful, it may establish general allowances in an amount deemed prudent by management to cover probable expected losses. General allowances represent loss allowances which have been established to cover expected losses associated with lending activities, but which, unlike specific allowances, have not been allocated to particular problem assets. When an insured institution classifies problem assets as “loss,” it is required either to establish a specific allowance for losses equal to 100% of that portion of the asset so classified or to charge-off such amount. An institution’s determination as to the classification of its assets and the amount of its valuation allowances is subject to review by the regulatory agencies, which may require the establishment of additional general or specific loss allowances. +In connection with the filing of our quarterly reports with the FDIC and in accordance with our classification of assets policy, we regularly review the problem loans in our portfolio to determine whether any loans require classification in accordance with applicable regulations. +16 +Table of Contents +On the basis of this review of our assets, our classified and special mention assets at the dates indicated were as follows: +At December 31, +2025 +2024 +(in thousands) +Substandard assets +$ +99 +$ +99 +Doubtful assets +— +— +Loss assets +— +— +Total classified assets +$ +99 +$ +99 +Special mention assets +$ +1,241 +$ +1,739 +Foreclosed real estate and other assets +$ +— +$ +— +Other Loans of Concern. There were no other loans at December 31, 2025 that are not already disclosed where there is information about possible credit problems of borrowers that caused management to have serious doubts about the ability of the borrowers to comply with present loan repayment terms and that may result in disclosure of such loans in the future. +Allowance for Credit Losses. On January 1, 2023, the Company adopted the ASU 2016-13 Current Expected Credit Loss (CECL) methodology for estimating the credit losses for loans and off-balance sheet commitments. This methodology replaced the previous incurred loss and impairment methodology with a methodology referred to as CECL. This methodology reflects expected credit losses and requires consideration of historical experience, current conditions, and reasonable and supportable forecasts of future economic conditions. Management uses forward-looking information to estimate the expected credit loss on a loan at the time of origination. The change from the incurred loss methodology to the CECL methodology was recognized through an adjustment to retained earnings. A provision for credit losses, which is a charge against earnings, is recorded to bring the allowance for credit losses to a level that, in management’s judgment, is adequate to absorb expected lifetime credit losses in the loan portfolio. Management’s evaluation process used to determine the appropriateness of the allowance for credit losses is subject to the use of estimates, assumptions, and judgment. The evaluation process involves gathering and interpreting many qualitative and quantitative factors which could affect expected credit losses. Because interpretation and analysis involves judgment, current economic or business conditions can change, and future events are inherently difficult to predict, the anticipated amount of estimated credit losses and therefore the appropriateness of the allowance for credit losses could change significantly. +As an integral part of their examination process, the Commissioner and the FDIC will periodically review our allowance for credit losses, and as a result of such reviews, we may determine to adjust our allowance for credit losses. However, regulatory agencies are not directly involved in the process for establishing the allowance for credit losses as the process is our responsibility and any increase or decrease in the allowance is the responsibility of management. +17 +Table of Contents +The following table sets forth activity in our allowance for credit losses on loans for the years indicated: +At December 31, +2025 +2024 +(in thousands) +Allowance for credit losses on loans at beginning of year +$ +8,884 +$ +8,591 +Provision for credit losses +1,457 +296 +Charge-offs: +Real estate loans: +One-to-four family residential +— +— +Multi-family +— +— +Commercial +— +— +Home equity lines of credit and loans +— +— +Construction +— +— +Commercial +(81 +) +— +Consumer +(6 +) +(4 +) +Total charge-offs +$ +(87 +) +$ +(4 +) +Recoveries: +Real estate loans: +One-to-four family residential +— +— +Multi-family +— +— +Commercial +— +— +Home equity lines of credit and loans +— +— +Construction +— +— +Commercial +— +— +Consumer +1 +1 +Total recoveries +1 +1 +Net charge-offs +$ +(86 +) +$ +(3 +) +Allowance for credit losses on loans at end of year +$ +10,255 +$ +8,884 +Allowance for credit losses on loans to non-performing loans +900.35 +% +453.96 +% +Allowance for credit losses on loans to total loans outstanding at end of year +0.74 +% +0.78 +% +Net charge offs to average loans outstanding during the year +0.01 +% +0.00 +% +18 +Table of Contents +Allocation of Allowance for Credit Losses on Loans. The following table sets forth the allowance for credit losses on loans allocated by loan category and the percent of loans in each category to total loans at the dates indicated. +At December 31, +2025 +2024 +Percent of Allowance +Percent of Allowance +in Each Category +Percent of Loans +in Each Category +Percent of Loans +Allowance for +to Total Allocated +in Each Category +Allowance for +to Total Allocated +in Each Category +Credit Losses +Allowance +to Total Loans +Credit Losses +Allowance +to Total Loans +(Dollars in thousands) +Real estate loans: +One-to-four family residential +$ +3,069 +29.9 +% +34.2 +% +$ +2,928 +33.0 +% +36.9 +% +Multi-family +2,260 +22.0 +30.8 +2,422 +27.3 +30.0 +Commercial +3,640 +35.6 +24.3 +2,260 +25.4 +20.0 +Home equity lines of credit and loans +170 +1.7 +3.6 +118 +1.3 +4.0 +Construction +1,009 +9.8 +6.4 +1,036 +11.7 +7.9 +Commercial loans +102 +1.0 +0.6 +119 +1.3 +1.2 +Consumer +5 +0.0 +0.1 +1 +0.0 +0.0 +Total +$ +10,255 +100.0 +% +100.0 +% +$ +8,884 +100.0 +% +100.0 +% +Investment Activities +General . Our investment policy is established by the Board of Directors. The objectives of the policy are to: (i) provide and maintain liquidity within the guidelines of the Massachusetts banking laws and regulations for loan demand and deposit fluctuations, and to allow us to alter our liquidity position to meet both day-to-day and long-term changes in assets and liabilities; (ii) manage interest rate risk in accordance with our interest rate risk policy; (iii) provide collateral for pledging requirements; (iv) maximize return on our investments; and (v) maintain a balance of high quality diversified investments to minimize risk. +We have legal authority to invest in various types of liquid assets, including U.S. Treasury obligations, securities of various government-sponsored enterprises and municipal governments, deposits at the Federal Home Loan Bank of Boston (the “FHLB”), certificates of deposit of federally insured institutions, investment grade corporate bonds and marketable equity securities. We also are required to maintain an investment in FHLB stock. While we have the authority under applicable law to invest in derivative securities, we have not invested in derivative securities. +At December 31, 2025, our investment portfolio consisted primarily of mortgage-backed securities, collateralized mortgage obligations and corporate debt securities. +Our investment policy is reviewed annually by our Board of Directors and all policy changes recommended by management must be approved by the board. Authority to make investments under the approved guidelines are delegated to appropriate officers. While general investment strategies are developed and authorized by the board, the execution of specific actions with respect to securities held by Everett Co-operative Bank rests with the Investment Committee within the scope of the established investment policy. The Investment Committee is comprised of members of senior management as well as the Security Committee of the Board of Directors. +At the time of purchase, we designate a security as held-to-maturity, available-for-sale, or trading, depending on our ability and intent. Securities available-for-sale or trading are reported at fair value, while securities held-to-maturity are reported at amortized cost. Consistent with our overall business and asset/liability management plan, which focuses on sustaining adequate levels of core earnings, the base premise of our investment portfolio is that all securities purchased will be suitable to be held-to-maturity. At December 31, 2025, $55.8 million, or 61.9%, of our securities portfolio was comprised of held-to-maturity securities and $34.3 million, or 38.1%, of our securities portfolio was comprised of available-for-sale securities. +Some of our securities are callable by the issuer. Although these securities may have a yield somewhat higher than the yield of similar securities without such features, these securities are subject to the risk that they may be redeemed by the issuer prior to maturing in the event general interest rates decline. At December 31, 2025, we had $34.3 million of securities which were subject to redemption by the issuer prior to their stated maturity. +19 +Table of Contents +For available-for-sale debt securities with a fair value less than amortized cost basis, management will determine whether it has the intent to sell the debt security or whether it is more likely than not it will be required to sell the debt security before the recovery of its amortized cost basis. If either condition is met, management will recognized a write-down to fair value through a charge to earnings. For all other debt securities, management evaluates their expected credit losses over the remaining term. The majority of the Company’s debt securities consist of mortgage-backed securities and collateralized mortgage obligations. These securities carry an explicit or implicit guarantee from the U.S. government, are highly rated by major rating agencies, and have a long history of no credit losses. Accordingly, the Company applies a zero-credit loss assumption and has not recorded any allowance for these securities. For corporate bonds, a probability of default and loss given default analysis is performed to determine the allowance for credit losses. We monitor the investment portfolio and credit performance on a quarterly basis to determine if any allowance is considered necessary. +At December 31, 2025, our corporate bond portfolio consisted of investment grade securities with maturities shorter than ten years. Our investment policy provides that we may invest up to 10% of our tier-one risk-based capital in corporate bonds from individual issuers which, at the time of purchase, are within the three highest investment-grade ratings from Standard & Poor’s or Moody’s. The maturity of these bonds generally may not exceed five years unless approved by the board of directors, and the aggregate limit is 50% of the investment portfolio for this security type. Bonds that subsequently experience a decline in credit rating below investment grade are monitored at least quarterly. +Bank-Owned Life Insurance. We invest in bank-owned life insurance to provide us with a funding source for our benefit plan obligations. Bank-owned life insurance also generally provides us noninterest income that is non-taxable. Applicable regulations generally limit our investment in bank-owned life insurance to 25% of our Tier 1 capital plus our allowance for credit losses. At December 31, 2025, we had $15.4 million in bank-owned life insurance. +Other Securities . We hold common stock of the FHLB in connection with our membership with the FHLB and our borrowing activities. The FHLB common stock is carried at cost and classified as restricted equity securities. It is not practicable to determine the fair value of FHLB common stock due to restrictions placed on its transferability. Under current FHLB rules, we will be required to purchase additional FHLB common stock if we increase borrowings in the future. +20 +Table of Contents +Securities Portfolio. The following tables set forth the stated maturities and weighted average yields of our investment securities which are classified as held-to-maturity and available-for-sale at December 31, 2025. Certain securities have adjustable interest rates and will reprice periodically within the various maturity ranges. These repricing schedules are not reflected in the table below. Prepayments are not reflected in the table below. +More than One +More than Five +More than +One Year or Less +Year to Five Years +Years to Ten Years +Ten Years +Total +Weighted +Weighted +Weighted +Weighted +Weighted +Amortized +Average +Amortized +Average +Amortized +Average +Amortized +Average +Amortized +Fair +Average +Cost +Yield +Cost +Yield +Cost +Yield +Cost +Yield +Cost +Value +Yield +(Dollars in thousands) +Securities held-to-maturity: +Mortgage-backed securities +$ +20 +1.65 +% +$ +3,722 +4.38 +% +$ +2,501 +2.49 +% +$ +30,402 +2.12 +% +$ +36,645 +$ +33,280 +2.37 +% +Corporate bonds +7,501 +2.13 +% +5,903 +7.16 +% +5,715 +6.94 +% +— +— +19,119 +19,046 +5.12 +% +Total +$ +7,521 +2.13 +% +$ +9,625 +6.09 +% +$ +8,216 +5.58 +% +$ +30,402 +2.12 +% +$ +55,764 +$ +52,326 +3.32 +% +More than One +More than Five +More than +One Year or Less +Year to Five Years +Years to Ten Years +Ten Years +Total +Weighted +Weighted +Weighted +Weighted +Weighted +Amortized +Average +Amortized +Average +Amortized +Average +Amortized +Average +Amortized +Fair +Average +Cost +Yield +Cost +Yield +Cost +Yield +Cost +Yield +Cost +Value +Yield +(Dollars in thousands) +Securities available-for-sale +Mortgage-backed securities +$ +1,365 +3.53 +% +$ +4,150 +4.40 +% +$ +— +— +$ +896 +5.41 +% +$ +6,411 +$ +6,459 +4.36 +% +Collateralized Mortgage Obligation +— +— +— +— +— +— +10,937 +4.80 +% +10,937 +10,948 +4.80 +% +Corporate bonds +— +— +5,543 +7.98 +% +11,189 +6.80 +% +— +— +16,732 +16,910 +7.19 +% +Total +$ +1,365 +3.53 +% +$ +9,693 +6.44 +% +$ +11,189 +6.80 +% +$ +11,833 +4.84 +% +$ +34,080 +$ +34,317 +5.89 +% +For additional information regarding our investment securities portfolio, see Note 3 of the consolidated financial statements. +21 +Table of Contents +Sources of Funds +General. Deposits have traditionally been our primary source of funds for use in lending and investment activities. We also use borrowings to supplement cash flow needs, lengthen the maturities of liabilities for interest rate risk purposes and to manage the cost of funds. In addition, we receive funds from scheduled loan payments, investment maturities, loan prepayments, loan sales, retained earnings and income on earning assets. While scheduled loan payments and income on earning assets are relatively stable sources of funds, deposit inflows and outflows can vary widely and are influenced by prevailing interest rates, market conditions and levels of competition. +Deposits. Our deposits are generated primarily from residents within our primary market area. We offer a selection of deposit accounts, including noninterest-bearing and interest-bearing demand accounts, money market accounts, savings accounts and certificates of deposit. Deposit account terms vary, with the principal differences being the minimum balance required, the amount of time the funds must remain on deposit and the interest rate. In recent years, we have also accepted brokered deposits as non-retail funding source to fund our operations. These funding sources are not relationship-based accounts and are generally more price-sensitive than our relationship based deposits and they carry a greater risk of non-renewal than our customer based deposits. At December 31, 2025, our largest deposit relationship had $25.8 million in deposits. +We are focused on ensuring that our products, services and accessibility will continue to make Everett Co-operative Bank a competitive community bank, and will continue to attract and retain retail customers by emphasizing personal service, accessibility and flexibility. The Company has developed new high yield consumer and business products as well as introducing an array of cash management services designed to attract new business relationships to the bank. In September of 2023, the Company opened a new branch in Woburn, MA, increasing our retail network to three branches and in January 2026, we announced that we are filing an application to establish a new branch office in Medford, MA. We will continue to attract and retain retail customers by emphasizing personal service, accessibility and flexibility in the face of mass market-oriented large, national and super-regional banks which maintain local branch networks in our market. +Interest rates, maturity terms, service fees and withdrawal penalties are established on a periodic basis. Deposit rates and terms are based primarily on current operating strategies and market rates, liquidity requirements, rates paid by competitors and growth goals. The flow of deposits is influenced significantly by general economic conditions, changes in interest rates and competition. The variety of deposit accounts that we offer allows us to be competitive in generating deposits and to respond with flexibility to changes in our customers’ demands. Our ability to gather deposits is impacted by the competitive market in which we operate, which includes numerous financial institutions of varying sizes offering a wide range of products. We believe that deposits are a stable source of funds, but our ability to attract and maintain deposits at favorable rates will be affected by market conditions, including competition and prevailing interest rates. +22 +Table of Contents +The following table sets forth the distribution of total deposits, by account type, at the dates indicated. +At December 31, +2025 +2024 +Amount +Percent +Average Rate +Amount +Percent +Average Rate +(Dollars in thousands) +Noninterest-bearing demand deposits +$ +81,497 +7.2 +% +0.00 +% +$ +84,958 +8.5 +% +0.00 +% +Interest-bearing demand deposits +19,381 +1.7 +0.09 +% +20,546 +2.1 +0.10 +% +Regular savings deposits and other deposits +91,383 +8.1 +1.62 +% +102,933 +10.3 +2.10 +% +Money market deposits +211,772 +18.7 +2.85 +% +184,581 +18.5 +3.47 +% +Certificates of deposit +728,311 +64.3 +3.97 +% +605,515 +60.6 +4.38 +% +Total +$ +1,132,344 +100.0 +% +$ +998,533 +100.0 +% +As of December 31, 2025 and 2024, the aggregate amount of deposits in amounts greater than $250,000, which is the maximum amount for federal deposit insurance, was $582.9 million and $503.8 million, respectively. As of December 31, 2025, the aggregate amount of all our certificates of deposit in excess of $250,000 was $334.8 million. +All of our deposits are fully insured due to the additional insurance provided to a Massachusetts cooperative bank, such as Everett Co-operative Bank, under the Depositors Insurance Fund, a private industry-sponsored insurance fund in Massachusetts that insures all deposits at Everett Co-operative Bank above FDIC limits. +Borrowings . At December 31, 2025, total borrowings were $284.8 million. Borrowings consist of both short-term and long-term FHLB advances. Borrowings provide us with one source of funding. Maintaining available borrowing capacity with the FHLB provides us with a contingent source of liquidity. Everett Co-operative Bank is a member of the FHLB of Boston. The primary reason for our FHLB membership is to gain access to a reliable source of wholesale funding, particularly term funding, as a tool to manage liquidity and interest rate risk. As a member of the FHLB, we are required to purchase shares in the FHLB. Accordingly, we had invested $11.9 million in shares of the FHLB at December 31, 2025. We had $395.4 million of borrowing capacity remaining with the FHLB at December 31, 2025. At December 31, 2025, we also had $15.0 million of borrowing capacity with the Atlantic Community Bankers Bank and $75.7 million of borrowing capacity with the Federal Reserve Bank. +Subsidiary and Other Activities +Everett Co-operative Bank is the wholly owned subsidiary of ECB Bancorp. +Everett Co-operative Bank has one subsidiary, First Everett Securities Corporation, Inc. (“FESC, Inc.”), a Massachusetts corporation, which is engaged in the buying, selling and holding of investment securities. The income earned on FESC, Inc.’s securities is subject to a significantly lower rate of state tax than that assessed on income earned on securities maintained at Everett Co-operative Bank. At December 31, 2025, FESC, Inc. had total assets of $53.7 million, substantially all of which were in securities and cash to be invested. +Expense and Tax Allocation +Everett Co-operative Bank has entered into an agreement with ECB Bancorp to provide it with certain administrative support services for compensation not less than the fair market value of the services provided. In addition, Everett Co-operative Bank and ECB Bancorp have entered into an agreement to establish a method for allocating and for reimbursing the payment of their consolidated tax liability. +Personnel +As of December 31, 2025, we had 64 full-time equivalent employees. Our employees are not represented by any collective bargaining group. Management believes that we have a good working relationship with our employees. +23 +Table of Contents +SUPERVISION AND REGULATION +General +Everett Co-operative Bank is a Massachusetts-chartered stock cooperative bank and is the wholly owned subsidiary of ECB Bancorp, a Maryland corporation, which is a registered bank holding company. Everett Co-operative Bank’s deposits are insured up to applicable limits by the FDIC and by the Depositors Insurance Fund for amounts in excess of the FDIC insurance limits. Everett Co-operative Bank is subject to extensive regulation by the Commissioner of the Massachusetts Division of Banks, as its chartering agency, and by the FDIC, its primary federal regulator and deposit insurer. Everett Co-operative Bank is required to file reports with, and is periodically examined by, the FDIC and the Commissioner concerning its activities and financial condition and must obtain regulatory approvals prior to entering into certain transactions, including, but not limited to, mergers with or acquisitions of other financial institutions. As a registered bank holding company, ECB Bancorp is regulated by the Board of Governors of the Federal Reserve Board (the “Federal Reserve Board”). Everett Co-operative Bank also is a member of and owns stock in the Federal Home Loan Bank of Boston, which is one of the 11 regional banks in the Federal Home Loan Bank System. +Under this system of regulation, the regulatory authorities have extensive discretion in connection with their supervisory, enforcement, rulemaking and examination activities and policies, including rules or policies that: establish minimum capital levels; restrict the timing and amount of dividend payments; govern the classification of assets; provide oversight for the adequacy of credit loss reserves for regulatory purposes and the adequacy of its risk management framework; and establish the timing and amounts of assessments and fees imposed by the regulatory agencies. Moreover, as part of their examination authority, the banking regulators assign numerical ratings to banks and savings institutions relating to capital, asset quality, management, liquidity, earnings and other factors. These ratings rely on the supervisor’s judgment and the receipt of a less than satisfactory rating in one or more categories may result in enforcement action by the banking regulators against a financial institution. A less than satisfactory rating may also prevent a financial institution, such as Everett Co-operative Bank or its holding company, from obtaining necessary regulatory approvals to access the capital markets, pay dividends, acquire other financial institutions or establish new branches. +In addition, we must comply with significant anti-money laundering and anti-terrorism laws and regulations, Community Reinvestment Act laws and regulations, and fair lending laws and regulations. Everett Co-operative Bank must comply with consumer protection regulations issued by the Consumer Financial Protection Bureau, as enforced by the FDIC. Government agencies have the authority to impose monetary penalties and other sanctions on institutions that fail to comply with these laws and regulations, which could significantly affect our business activities, including our ability to acquire other financial institutions or expand our branch network. +As a bank holding company, ECB Bancorp is required to comply with the Bank Holding Company Act of 1956, as amended, and the rules and regulations of the Federal Reserve Board. It is required to file certain reports with the Federal Reserve Board and is subject to examination by and the enforcement authority of the Federal Reserve Board. Additionally, the Federal Reserve Board may directly examine the subsidiaries of a bank holding company, including Everett Co-operative Bank. ECB Bancorp is also subject to the rules and regulations of the Securities and Exchange Commission under the federal securities laws. +Any change in applicable laws or regulations, whether by the Massachusetts legislature, the Commissioner, the Consumer Financial Protection Bureau, the FDIC, the Federal Reserve Board, the Securities and Exchange Commission or Congress, could have a material adverse impact on the operations and financial performance of ECB Bancorp and Everett Co-operative Bank. +Set forth below is a brief description of material regulatory requirements that are applicable to Everett Co-operative Bank and ECB Bancorp. The description is limited to certain material aspects of the statutes and regulations addressed, and is not intended to be a complete description of such statutes and regulations and their effects on Everett Co-operative Bank and ECB Bancorp. +24 +Table of Contents +Massachusetts Banking Laws and Supervision +General. As a Massachusetts-chartered cooperative bank, Everett Co-operative Bank is subject to supervision, regulation and examination by the Commissioner and to various Massachusetts statutes and regulations which govern, among other things, investment powers, lending and deposit-taking activities, borrowings, maintenance of surplus and reserve accounts, distribution of earnings and payment of dividends. In addition, Everett Co-operative Bank is subject to Massachusetts consumer protection, Community Reinvestment Act, civil rights laws and regulations. The approval of the Massachusetts Commissioner of Banks is required for a Massachusetts-chartered bank to establish or close branches, merge with other financial institutions, issue stock and undertake certain other activities. +Massachusetts regulations generally allow Massachusetts banks, with appropriate regulatory approvals, to engage in activities permissible for federally chartered banks or banks chartered by another state. The Commissioner also has adopted procedures reducing regulatory burdens and expense and expediting branching by well-capitalized and well-managed banks. +Dividends. A Massachusetts stock bank may declare cash dividends from net profits not more frequently than quarterly. Noncash dividends may be declared at any time. No dividends may be declared, credited or paid if the bank’s capital stock is impaired. The approval of the Commissioner is required if the total of all dividends declared in any calendar year exceeds the total of its net profits for that year combined with its retained net profits of the preceding two years. Dividends from ECB Bancorp may depend, in part, upon receipt of dividends from Everett Co-operative Bank. The payment of dividends from Everett Co-operative Bank would be restricted by federal law if the payment of such dividends resulted in Everett Co-operative Bank failing to meet regulatory capital requirements. +Loans to One Borrower Limitations. Massachusetts banking law grants broad lending authority. However, with certain limited exceptions, total obligations to one borrower may not exceed 20% of the total of an institution's capital stock (if any), surplus and undivided profits. The Commissioner applies the Office of the Comptroller of the Currency’s attribution rules to a borrower’s related interests. At December 31, 2025, Everett Co-operative Bank was in compliance with the loans-to-one borrower limitations. +Loans to a Bank ’ s Insiders. Under Massachusetts law, a Massachusetts-chartered bank must comply with Regulation O of the Federal Reserve Board, and the Commissioner retains examination and enforcement authority to ensure compliance. +Investment Activities. In general, Massachusetts-chartered banks may invest in preferred and common stock of any corporation organized under the laws of the United States or any state provided such investments do not involve control of any corporation and do not, in the aggregate, exceed 4% of the bank’s deposits. Federal law imposes additional restrictions on Everett Co-operative Bank’s investment activities. +Regulatory Enforcement Authority. Any Massachusetts bank that does not operate in accordance with the regulations, policies and directives of the Commissioner may be subject to sanctions for noncompliance, including revocation of its charter. The Commissioner may, under certain circumstances, suspend or remove officers or directors who have violated the law, conducted the bank’s business in an unsafe or unsound manner or contrary to the depositors’ interests or been negligent in the performance of their duties. Upon finding that a bank has engaged in an unfair or deceptive act or practice, the Commissioner may issue an order to cease and desist and impose a fine on the bank concerned. The Commissioner also has authority to take possession of a bank and appoint the FDIC as receiver under certain conditions such as an unsafe and unsound condition to transact business, the conduct of business in an unsafe or unauthorized manner or impaired capital. In addition, Massachusetts consumer protection and civil rights statutes applicable to Everett Co-operative Bank permit private individual and class action law suits and provide for the rescission of consumer transactions, including loans, and the recovery of statutory and punitive damages and attorneys’ fees in the case of certain violations of those statutes. +Excess Deposit Insurance Fund. All Massachusetts-chartered cooperative banks are members of the Depositors Insurance Fund, a private industry-sponsored insurance fund in Massachusetts that insures all deposits at Everett Co-operative Bank above FDIC limits. +25 +Table of Contents +Protection of Personal Information. Massachusetts banking regulations contain requirements intended to protect personal information and are similar to federal laws such as the Gramm-Leach-Bliley Act, discussed below under “ – Federal Regulations – Other Regulations,” that require organizations to establish written information security programs to prevent identity theft. The Massachusetts regulation also contains technology system requirements, especially for the encryption of personal information sent over wireless or public networks or stored on portable devices. +Insurance Sales. Massachusetts banks may engage in insurance sales activities if the Commissioner has approved a plan of operation for insurance activities and the bank obtains a license from the Massachusetts Division of Insurance. A bank may be licensed directly or indirectly through an affiliate or a subsidiary corporation established for this purpose. Everett Co-operative Bank does not sell or refer insurance products, and has not sought approval for insurance sales activities. +Parity Regulation. A Massachusetts bank may exercise any power and engage in any activity that has been authorized for national banks, federal thrifts or state banks in a state other than Massachusetts, provided that the activity is permissible under applicable federal law and not specifically prohibited by Massachusetts law. Such powers and activities must be subject to the same limitations and restrictions imposed on the national bank, federal thrift or out-of-state bank that exercised the power or activity. +Massachusetts has other statutes or regulations that are similar to certain of the federal provisions discussed below. +Federal Regulations +Capital Requirements . Federal regulations require federally insured depository institutions to meet several minimum capital standards: a common equity Tier 1 capital to risk-based assets ratio of 4.5%, a Tier 1 capital to risk-based assets ratio of 6.0%, a total capital to risk-based assets ratio of 8.0%, and a 4.0% Tier 1 capital to total assets leverage ratio. +In determining the amount of risk-weighted assets for calculating risk-based capital ratios, all assets, including certain off-balance sheet assets ( e.g. , recourse obligations, direct credit substitutes, residual interests) are multiplied by a risk-weight factor assigned by the regulations based on the risks believed inherent in the type of asset. Higher levels of capital are required for asset categories believed to present greater risk. Common equity Tier 1 capital is generally defined as common shareholders’ equity and related surplus and retained earnings. Tier 1 capital is generally defined as common equity Tier 1 and additional Tier 1 capital. Additional Tier 1 capital includes certain non-cumulative perpetual preferred stock and related surplus and minority interests in equity accounts of consolidated subsidiaries. Total capital includes Tier 1 capital (common equity Tier 1 capital plus additional Tier 1 capital) and Tier 2 capital. Tier 2 capital is comprised of capital instruments and related surplus, meeting specified requirements, and may include cumulative preferred stock and long-term perpetual preferred stock, mandatory convertible securities, intermediate preferred stock and subordinated debt. Also included in Tier 2 capital is the allowance for credit losses limited to a maximum of 1.25% of risk-weighted assets. Calculation of all types of regulatory capital is subject to deductions and adjustments specified in the regulations. In assessing an institution’s capital adequacy, the FDIC takes into consideration not only these numeric factors, but qualitative factors as well, and has the authority to establish higher capital requirements for individual institutions where deemed necessary. +In addition to establishing the minimum regulatory capital requirements, the regulations limit capital distributions and certain discretionary bonus payments to management if the institution does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets above the amount necessary to meet its minimum risk-based capital requirements. +Federal law required the federal banking agencies, including the FDIC, to establish a “community bank leverage ratio” of between 8% and 10% for institutions with total consolidated assets of less than $10 billion. Institutions with capital complying with the ratio and otherwise meeting the specified requirements and electing the alternative framework are considered to comply with the applicable regulatory capital requirements, including the risk-based requirements. The community bank leverage ratio was established at 9% Tier 1 capital to total average assets, effective January 1, 2020. A qualifying institution may opt in and out of the community bank leverage ratio framework on its quarterly call report. An institution that temporarily ceases to meet any qualifying criteria is provided with a two-quarter grace period to regain compliance. Failure to meet the qualifying criteria within the grace period or maintain a leverage ratio of 8% or greater requires the institution to comply with the generally applicable regulatory capital requirements. +26 +Table of Contents +At December 31, 2025, Everett Co-operative Bank had not opted into the community bank leverage ratio framework and its capital ratios exceeded all applicable requirements. +Capital Distributions. The Federal Deposit Insurance Act generally provides that an insured depository institution may not make any capital distribution if, after making such distribution, the institution would fail to meet any applicable regulatory capital requirement. Unless the approval of the FDIC is obtained, Everett Co-operative Bank may not declare or pay a dividend if the total of all dividends declared during the calendar year, including the proposed dividend, exceeds the sum of its net income during the current calendar year and the retained net income, not previously used for dividends, of the prior two calendar years. +Community Reinvestment Act and Fair Lending Laws. All insured depository institutions have a responsibility under the Community Reinvestment Act and related regulations to help meet the credit needs of their communities, including low- and moderate-income borrowers. The FDIC is required to assess Everett Co-operative Bank’s record of compliance with the Community Reinvestment Act. An institution’s failure to comply with the provisions of the Community Reinvestment Act could, at a minimum, result in denial of certain corporate applications such as branches or mergers, or in restrictions on its activities. In addition, the Equal Credit Opportunity Act and the Fair Housing Act prohibit lenders from discriminating in their lending practices. The failure to comply with the Equal Credit Opportunity Act and the Fair Housing Act could result in enforcement actions by the FDIC, as well as other federal regulatory agencies and the Department of Justice. +The Community Reinvestment Act requires all institutions insured by the FDIC to publicly disclose their rating. Everett Co-operative Bank received a “Satisfactory” Community Reinvestment Act rating in its most recent federal examination. +Massachusetts has its own statutory counterpart to the CRA which is also applicable to Everett Co-operative Bank. The Massachusetts version is generally similar to the CRA but utilizes a five-tiered descriptive rating system. Massachusetts law requires the Commissioner to consider, but not be limited to, a bank’s record of performance under Massachusetts law in considering any application by the bank to establish a branch or other deposit-taking facility, to relocate an office or to merge or consolidate with or acquire the assets and assume the liabilities of any other banking institution. Everett Co-operative Bank’s most recent 2025 CRA performance rating under Massachusetts law was “Satisfactory.” +Transactions with Related Parties. An insured depository institution’s authority to engage in transactions with its affiliates is generally limited by Sections 23A and 23B of the Federal Reserve Act and federal regulation. An affiliate is generally a company that controls, or is under common control with, an insured depository institution such as Everett Co-operative Bank. ECB Bancorp is an affiliate of Everett Co-operative Bank because of its control of Everett Co-operative Bank. In general, transactions between an insured depository institution and its affiliates are subject to certain quantitative limits and collateral requirements. In addition, federal regulations prohibit a state-chartered bank from lending to any of its affiliates that are engaged in activities that are not permissible for bank holding companies and from purchasing the securities of any affiliate, other than a subsidiary. Finally, transactions with affiliates must be consistent with safe and sound banking practices, not involve the purchase of low-quality assets and be on terms that are as favorable to the institution as comparable transactions with non-affiliates. +27 +Table of Contents +Everett Co-operative Bank’s authority to extend credit to its directors, executive officers and 10% shareholders, as well as to entities controlled by such persons, is currently governed by the requirements of Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O of the Federal Reserve Board. Among other things, these provisions generally require that extensions of credit to insiders: +• +be made on terms that are substantially the same as, and follow credit underwriting procedures that are not less stringent than, those prevailing for comparable transactions with unaffiliated persons and that do not involve more than the normal risk of repayment or present other unfavorable features; and +• +not exceed certain limitations on the amount of credit extended to such persons, individually and in the aggregate, which limits are based, in part, on the amount of Everett Co-operative Bank’s capital. +In addition, extensions of credit in excess of certain limits must be approved by Everett Co-operative Bank’s board of directors. Extensions of credit to executive officers are subject to additional limits based on the type of extension involved. +Enforcement. The FDIC has extensive enforcement authority over insured state banks, such as Everett Co-operative Bank, that are not members of the Federal Reserve System. The enforcement authority includes, among other things, the ability to assess civil money penalties, issue cease and desist orders, and remove directors and officers. In general, these enforcement actions may be initiated in response to violations of laws and regulations, breaches of fiduciary duty and unsafe or unsound practices. The FDIC is required, with certain exceptions, to appoint a receiver or conservator for an insured state non-member bank if that bank was “critically undercapitalized” on average during the calendar quarter beginning 270 days after the date on which the institution became “critically undercapitalized.” The FDIC may also appoint itself as conservator or receiver for an insured state non-member bank under specified circumstances, including: (1) insolvency; (2) substantial dissipation of assets or earnings through violations of law or unsafe or unsound practices; (3) existence of an unsafe or unsound condition to transact business; (4) insufficient capital; or (5) the incurrence of losses that will deplete substantially all of the institution’s capital with no reasonable prospect of replenishment without federal assistance. +Standards for Safety and Soundness. Federal law requires each federal banking agency to prescribe certain standards for the insured depository institutions they supervise. These standards relate to, among other things, internal controls, information systems and audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, asset quality, earnings, compensation and benefits, and other operational and managerial standards as the agency deems appropriate. Interagency guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. If the appropriate federal banking agency determines that an institution fails to meet any standard prescribed by the guidelines, the agency may require the institution to submit to the agency an acceptable plan to achieve compliance with the standard. If an institution fails to meet these standards, the appropriate federal banking agency may require the institution to implement an acceptable compliance plan. Failure to implement such a plan can result in further enforcement action, including the issuance of a cease and desist order and/or the imposition of civil money penalties. +Branching. Federal law permits insured state banks to engage in interstate branching if the laws of the state where the new banking office is to be established would permit the establishment of the banking office if it were chartered by a bank in such state. Under Massachusetts law, Everett Co-operative Bank can establish a branch in Massachusetts or in any other state. All branch applications require prior approval of the Commissioner and the FDIC. Finally, Everett Co-operative Bank may also establish banking offices in other states by merging with banks or by purchasing banking offices of other banks in other states, subject to certain restrictions. +Prompt Corrective Action. Federal law requires, among other things, that federal banking agencies take “prompt corrective action” with respect to institutions that do not meet minimum capital requirements. For this purpose, the FDIC’s regulations establish five capital categories: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. Under applicable regulations, an institution is deemed to be “well capitalized” if it has a total risk-based capital ratio of 10.0% or greater, a Tier 1 risk-based capital ratio of 8.0% or greater, a leverage ratio of 5.0% or greater and a common equity Tier 1 ratio of 6.5% or greater. An institution is “adequately capitalized” if it has a total risk-based capital ratio of 8.0% or greater, a Tier 1 risk-based capital ratio of 6.0% or greater, a leverage ratio of 4.0% or greater and a common equity Tier 1 ratio of 4.5% or greater. An institution is “undercapitalized” if it has a total risk-based capital ratio of less than 8.0%, a Tier 1 risk-based capital ratio of less than 6.0%, a leverage ratio of less than 4.0% or a common equity Tier 1 ratio of less than 4.5%. An institution is deemed to be “significantly undercapitalized” if it has a total risk-based capital ratio of less than 6.0%, a Tier 1 risk-based capital ratio of less than 4.0%, a leverage ratio of less than 3.0% or a common equity Tier 1 ratio of less than 3.0%. An institution is considered to be “critically undercapitalized” if it has a ratio of tangible equity (as defined in the regulations) to total assets that is equal to or less than 2.0%. +28 +Table of Contents +At each successive lower capital category, an insured depository institution is subject to more restrictions and prohibitions, including restrictions on growth, restrictions on interest rates paid on deposits, restrictions or prohibitions on the payment of dividends, and restrictions on the acceptance of brokered deposits. Furthermore, if an insured depository institution is classified in one of the undercapitalized categories, it is required to submit a capital restoration plan to the appropriate federal banking agency, and the holding company must guarantee the performance of that plan. Based upon its capital levels, a bank that is classified as well-capitalized, adequately capitalized, or undercapitalized may be treated as though it were in the next lower capital category if the appropriate federal banking agency, after notice and opportunity for hearing, determines that an unsafe or unsound condition, or an unsafe or unsound practice, warrants such treatment. An undercapitalized bank’s compliance with a capital restoration plan is required to be guaranteed by any company that controls the undercapitalized institution in an amount equal to the lesser of 5.0% of the institution’s total assets when deemed undercapitalized or the amount necessary to achieve the status of adequately capitalized. If an “undercapitalized” bank fails to submit an acceptable plan, it is treated as if it is “significantly undercapitalized.” “Significantly undercapitalized” banks must comply with one or more of a number of additional restrictions, including a regulatory order to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets, ceasing receipt of deposits from correspondent banks, dismissal of directors or officers, and restrictions on interest rates paid on deposits, compensation of executive officers and capital distributions by the parent holding company. “Critically undercapitalized” institutions are subject to additional measures including, subject to a narrow exception, the appointment of a receiver or conservator within 270 days after it obtains such status. +The previously referenced final rule establishing an elective “community bank leverage ratio” regulatory capital framework provides that a qualifying institution whose capital exceeds the community bank leverage ratio and opts to use that framework will be considered “well-capitalized” for purposes of prompt corrective action. +At December 31, 2025, Everett Co-operative Bank met the criteria for being considered “well capitalized.” +Insurance of Deposit Accounts. The Deposit Insurance Fund of the FDIC insures deposits at FDIC-insured financial institutions such as Everett Co-operative Bank, generally up to a maximum of $250,000 per separately insured depositor. The FDIC charges insured depository institutions premiums to maintain the Deposit Insurance Fund. +Under the FDIC’s risk-based assessment system, institutions deemed less risky of failure pay lower assessments. Assessments for institutions of less than $10 billion of assets are based on financial measures and supervisory ratings derived from statistical modeling estimating the probability of an institution's failure within three years. +The FDIC has authority to increase insurance assessments. Any significant increases would have an adverse effect on the operating expenses and results of operations of Everett Co-operative Bank. For 2025 the FDIC insurance expense for Everett Co-operative Bank was approximately $883,000. We cannot predict what assessment rates will be in the future. +Insurance of deposits may be terminated by the FDIC upon a finding that an institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC. Everett Co-operative Bank does not know of any practice, condition or violation that may lead to termination of its deposit insurance. +Brokered Deposits. Federal law and FDIC regulations generally limit the ability of an insured depository institution to accept, renew or roll over any brokered deposit unless the institution’s capital category is “well capitalized” or, with the FDIC’s approval, “adequately capitalized.” Depository institutions that have brokered deposits in excess of 10% of total assets may be subject to increased FDIC deposit insurance premium assessments. However, for institutions that are well capitalized and have a CAMELS composite rating of 1 or 2, reciprocal deposits are deducted from brokered deposits. The Economic Growth, Regulatory Relief, and Consumer Protection Act, enacted in 2018, amends the Federal Deposit Insurance Act to exempt a capped amount of reciprocal deposits from treatment as brokered deposits for certain insured depository institutions. +29 +Table of Contents +Privacy Regulations. Federal regulations generally require that Everett Co-operative Bank disclose its privacy policy, including identifying with whom it shares a customer’s “non-public personal information,” to customers at the time of establishing the customer relationship and annually thereafter. In addition, Everett Co-operative Bank is required to provide its customers with the ability to “opt-out” of having their personal information shared with unaffiliated third parties and not to disclose account numbers or access codes to non-affiliated third parties for marketing purposes. Everett Co-operative Bank currently has a privacy protection policy in place and believes that such policy is in compliance with the regulations. +Anti-Money Laundering - The Bank Secrecy Act. Under the Bank Secrecy Act (“BSA”), a financial institution is required to have systems in place to detect certain transactions, based on the size and nature of the transaction. Financial institutions are generally required to report to the U.S. Treasury any cash transactions involving at least $10,000. In addition, financial institutions are required to file suspicious activity reports for any transaction or series of transactions that involve more than $5,000 and which the financial institution knows, suspects or has reason to suspect involves illegal funds, is designed to evade the requirements of the BSA or has no lawful purpose. The USA PATRIOT Act, which amended the BSA, together with the implementing regulations of various federal regulatory agencies, has caused financial institutions, such as Everett Co-operative Bank, to adopt and implement additional policies or amend existing policies and procedures with respect to, among other things, anti-money laundering compliance, suspicious activity, currency transaction reporting, customer identity verification and customer risk analysis. In evaluating an application to acquire a bank or to merge banks or effect a purchase of assets and assumption of deposits and other liabilities, the applicable federal banking regulator must consider the anti-money laundering compliance record of both the applicant and the target. In addition, under the USA PATRIOT Act financial institutions are required to take steps to monitor their correspondent banking and private banking relationships as well as, if applicable, their relationships with “shell banks.” +Prohibitions Against Tying Arrangements . Everett Co-operative Bank is prohibited, subject to some exceptions, from extending credit to or offering any other service, or fixing or varying the consideration for such extension of credit or service, on the condition that the customer obtain some additional service from the institution or its affiliates or not obtain services of a competitor of the institution. +Other Regulations +Interest and other charges collected or contracted for by Everett Co-operative Bank are subject to state usury laws and federal laws concerning interest rates. Loan operations are also subject to state and federal laws applicable to credit transactions, such as the: +• +Home Mortgage Disclosure Act, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves; +• +Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit; +• +Fair Credit Reporting Act, governing the use and provision of information to credit reporting agencies; and +• +Rules and regulations of the various federal agencies charged with the responsibility of implementing such federal laws. +The deposit operations of Everett Co-operative Bank also are subject to, among others, the: +• +Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records; +• +Check Clearing for the 21st Century Act (also known as “Check 21”), which gives “substitute checks,” such as digital check images and copies made from that image, the same legal standing as the original paper check; and +• +Electronic Funds Transfer Act and Regulation E promulgated thereunder, which govern automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services. +30 +Table of Contents +Federal Home Loan Bank System +Everett Co-operative Bank is a member of the Federal Home Loan Bank System, which consists of 11 regional Federal Home Loan Banks. The Federal Home Loan Banks provide central credit facilities primarily for member institutions. Members of a Federal Home Loan Bank are required to acquire and hold shares of capital stock in their Federal Home Loan Bank. Everett Co-operative Bank complied with this requirement at December 31, 2025. Based on redemption provisions of the Federal Home Loan Bank of Boston, the stock has no quoted market value and is carried at cost. The Company reviews its investment in capital stock of the FHLB for impairment based on the ultimate recoverability of the cost basis in the FHLB stock. At December 31, 2025, no impairment had been recognized. +Holding Company Regulation +ECB Bancorp is a bank holding company within the meaning of Bank Holding Company of 1956, as amended. As such, ECB Bancorp is registered with the Federal Reserve Board and is subject to regulations, examinations, supervision and reporting requirements applicable to bank holding companies. In addition, the Federal Reserve Board has enforcement authority over ECB Bancorp and its non-bank subsidiaries. Among other things, this authority permits the Federal Reserve Board to restrict or prohibit activities that are determined to be a serious risk to Everett Co-operative Bank. +A bank holding company is generally prohibited from engaging in non-banking activities, or acquiring direct or indirect control of more than 5% of the voting securities of any company engaged in non-banking activities. One of the principal exceptions to this prohibition is for activities found by the Federal Reserve Board to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. Some of the principal activities that the Federal Reserve Board has determined by regulation to be so closely related to banking are: (i) making or servicing loans; (ii) performing certain data processing services; (iii) providing discount brokerage services; (iv) acting as fiduciary, investment or financial advisor; (v) leasing personal or real property; (vi) making investments in corporations or projects designed primarily to promote community welfare; and (vii) acquiring a savings association whose direct and indirect activities are limited to those permitted for bank holding companies. +The Gramm-Leach-Bliley Act of 1999 authorized a bank holding company that meets specified conditions, including being “well capitalized” and “well managed,” to opt to become a “financial holding company” and thereby engage in a broader array of financial activities than previously permitted. Such activities can include insurance underwriting and investment banking. ECB Bancorp is not a financial holding company. +Bank holding companies with less than $3 billion in consolidated assets are exempt from consolidated regulatory capital requirements unless the Federal Reserve Board determines otherwise in particular cases. +By law, holding companies, including bank holding companies, must act as a source of strength to their subsidiary depository institutions by providing capital, liquidity and other support in times of financial stress. +The Federal Reserve Board has issued supervisory policies regarding the payment of dividends and the repurchase of shares of common stock by bank holding companies and savings and loan holding companies. In general, the policy provides that dividends should be paid only out of current earnings and only if the prospective rate of earnings retention by the holding company appears consistent with the organization’s capital needs, asset quality and overall financial condition. Regulatory guidance provides for prior regulatory consultation with respect to capital distributions in certain circumstances such as where the company’s net income for the past four quarters, net of capital distributions previously paid over that period, is insufficient to fully fund the dividend or the company’s overall rate of earnings retention is inconsistent with the company’s capital needs and overall financial condition. The ability of a holding company to pay dividends may be restricted if a subsidiary bank becomes undercapitalized. The policy statement also states that a holding company should inform the Federal Reserve Board supervisory staff before redeeming or repurchasing common stock or perpetual preferred stock if the holding company is experiencing financial weaknesses or if the repurchase or redemption would result in a net reduction, at the end of a quarter, in the amount of such equity instruments outstanding compared with the beginning of the quarter in which the redemption or repurchase occurred. These regulatory policies may affect the ability of ECB Bancorp to pay dividends, repurchase shares of common stock or otherwise engage in capital distributions. +31 +Table of Contents +Massachusetts Holding Company Regulation. Under Massachusetts banking laws, a company owning or controlling two or more banking institutions, including a cooperative bank, is regulated by the Commissioner as a bank holding company. Each such bank holding company: (i) must obtain the approval of the Massachusetts Board of Bank Incorporation before engaging in certain transactions, such as the acquisition of more than 5% of the voting stock of another banking institution; (ii) must register, and file reports, with the Commissioner; and (iii) is subject to examination by the Commissioner. ECB Bancorp would become a bank holding company regulated by the Commissioner if it acquires a second banking institution and holds and operates it separately from Everett Co-operative Bank. +Change in Control Regulations +Under the Change in Bank Control Act, no person or group of persons may acquire “control” of a bank holding company, such as ECB Bancorp, unless the Federal Reserve Board has been given 60 days’ prior written notice and has not issued a notice disapproving the proposed acquisition, taking into consideration certain factors, including the financial and managerial resources of the acquirer and the competitive effects of the acquisition. Control, as defined under federal law, means ownership, control of or holding irrevocable proxies representing more than 25% of any class of voting stock, control in any manner of the election of a majority of the institution’s directors, or a determination by the regulator that the acquirer has the power, directly or indirectly, to exercise a controlling influence over the management or policies of the institution. There is a presumption of control upon the acquisition of 10% or more of a class of voting stock if the holding company involved has its shares registered under the Securities Exchange Act of 1934, or, if the holding company involved does not have its shares registered under the Securities Exchange Act of 1934, if no other persons will own, control or hold the power to vote a greater percentage of that class of voting security after the acquisition. +Federal Securities Laws +The common stock of ECB Bancorp is registered with the Securities and Exchange Commission. ECB Bancorp is subject to the information, proxy solicitation, insider trading restrictions and other requirements under the Securities Exchange Act of 1934. +Sarbanes-Oxley Act of 2002 +The Sarbanes-Oxley Act of 2002 is intended to improve corporate responsibility, to provide for enhanced penalties for accounting and auditing improprieties at publicly traded companies and to protect investors by improving the accuracy and reliability of corporate disclosures pursuant to the securities laws. We have policies, procedures and systems designed to comply with these regulations, and we review and document such policies, procedures and systems to ensure continued compliance with these regulations. +Emerging Growth Company Status +ECB Bancorp is an emerging growth company. For as long as it continues to be an emerging growth company, it may choose to take advantage of exemptions from various reporting requirements applicable to public companies. These exemptions include, but are not limited to, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. As an emerging growth company, ECB Bancorp also is not subject to Section 404(b) of the Sarbanes-Oxley Act of 2002, which would require that our independent auditors audit our internal control over financial reporting. We have also elected to use the extended transition period to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. Such an election is irrevocable during the period a company is an emerging growth company. +ECB Bancorp will cease to be an emerging growth company upon the earliest of: (i) the end of the fiscal year following the fifth anniversary of the completion of the conversion and offering; (ii) the first fiscal year after our annual gross revenues are $1.235 billion (adjusted for inflation) or more; (iii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities; or (iv) the end of any fiscal year in which the market value of our common stock held by non-affiliates exceeded $700 million at the end of the second quarter of that fiscal year. We expect to lose our status as an emerging growth company effective December 31, 2027, which is the end of the fifth year after the completion date of the conversion and offering. +32 +Table of Contents +TAXATION +Federal Taxation +General. ECB Bancorp and Everett Co-operative Bank are subject to federal income taxation in the same general manner as other corporations, with some exceptions discussed below. The following discussion of federal taxation is intended only to summarize material federal income tax matters and is not a comprehensive description of the tax rules applicable to ECB Bancorp and Everett Co-operative Bank. +Method of Accounting. For federal income tax purposes, Everett Co-operative Bank currently reports its income and expenses on the accrual method of accounting and uses a tax year ending December 31 for filing its federal income tax returns. +Alternative Minimum Tax. The Internal Revenue Code imposes an alternative minimum tax at a rate of 20% on a base of regular taxable income plus certain tax preferences, less an exemption amount, referred to as “alternative minimum taxable income.” The alternative minimum tax is payable to the extent tax computed this way exceeds tax computed by applying the regular tax rates to regular taxable income. Net operating losses can, in general, offset no more than 90% of alternative minimum taxable income. Certain payments of alternative minimum tax may be used as credits against regular tax liabilities in future years. The Tax Cuts and Jobs Act ("JOBs Act") repealed the alternative minimum tax for income generated after January 1, 2018. At December 31, 2025, Everett Co-operative Bank had no minimum tax credit carryovers. +Net Operating Loss Carryovers. As a result of the Tax Cuts and Jobs Act generally, a financial institution may carry federal net operating losses forward indefinitely. At December 31, 2025, Everett Co-operative Bank had no federal net operating loss carryforwards. +Charitable Contribution Carryovers. At December 31, 2025, the Company had a charitable contribution carryover of $160,000 which expires on December 31, 2027. +Capital Loss Carryovers. A corporation cannot recognize capital losses in excess of capital gains generated. Generally, a financial institution may carry back capital losses to the preceding three taxable years and forward to the succeeding five taxable years. Any capital loss carryback or carryover is treated as a short-term capital loss for the year to which it is carried. As such, it is grouped with any other capital losses for the year to which it is carried and is used to offset any capital gains. Any undeducted loss remaining after the five-year carryover period is not deductible. At December 31, 2025, Everett Co-operative Bank had no capital loss carryovers. +Corporate Dividends. ECB Bancorp may generally exclude from its income 100% of dividends received from Everett Co-operative Bank as a member of the same affiliated group of corporations. +Audit of Tax Returns. Everett Co-operative Bank’s federal income tax returns have not been audited in the most recent five-year period. +State Taxation +Financial institutions in Massachusetts file combined income tax returns with affiliated companies that are not security corporations. The Massachusetts excise tax rate for cooperative banks is currently 9.0% of federal taxable income, adjusted for certain items. Taxable income includes gross income as defined under the Internal Revenue Code, plus interest from bonds, notes and evidences of indebtedness of any state, including Massachusetts, less deductions, but not the credits, allowable under the provisions of the Internal Revenue Code, except for those deductions relating to dividends received and income or franchise taxes imposed by a state or political subdivision. Carryforwards and carrybacks of net operating losses and capital losses are not allowed. Everett Co-operative Bank’s state tax returns, as well as those of its subsidiaries, have not been audited in the most recent five-year period. +33 +Table of Contents +A financial institution or business corporation is generally entitled to special tax treatment as a “security corporation” under Massachusetts law provided that: (a) its activities are limited to buying, selling, dealing in or holding securities on its own behalf and not as a broker; and (b) it has applied for, and received, classification as a “security corporation” by the Commissioner of the Massachusetts Department of Revenue. A security corporation that is also a bank holding company under the Internal Revenue Code must pay a tax equal to 0.33% of its gross income. A security corporation that is not a bank holding company under the Internal Revenue Code must pay a tax equal to 1.32% of its gross income. Everett Co-operative Bank’s wholly owned subsidiary, First Everett Securities Corporation, which engages in securities transactions on its own behalf, is qualified as a security corporation. As such, it has received security corporation classification by the Massachusetts Department of Revenue and does not conduct any activities deemed impermissible under the governing statutes and the various regulations, directives, letter rulings and administrative pronouncements issued by the Massachusetts Department of Revenue. +As a Maryland corporation, ECB Bancorp is required to file an annual report with and pay franchise taxes to the state of Maryland. +Availability of Annual Report on Form 10-K +This Annual Report on Form 10-K is available on our website at www.everettbank.com. Information on the website is not incorporated into, and is not otherwise considered a part of, this Annual Report on Form 10-K. +ITEM 1A. Risk Factors +The presentation of Risk Factors is not required for smaller reporting companies like ECB Bancorp. +ITEM 1B. Unresolved Staff Comments +None. +ITEM 1C. Cybersecurity +Cybersecurity is a significant and integrated component of the Company’s risk management strategy. As a financial services company, cyber threats are present and growing, and the potential exists for a cybersecurity incident to occur, which could disrupt business operations or compromise sensitive data. To date, the Company has not, to its knowledge, experienced an incident materially affecting or reasonably likely to materially affect the Company. +To prepare and respond to incidents, the Company has implemented a multi-layered cybersecurity strategy, integrating people, technology, and processes. This includes employee training, the use of innovative technologies, and the implementation of policies and procedures in the areas of Information Security, Data Governance, Business Continuity and Disaster Recovery, Privacy, Third-Party Risk Management, and Incident Response. The Company engages third-party consultants and independent auditors to, among other things, conduct penetration tests and perform cybersecurity risk assessments and audits. +The Information Technology (“IT”) Department of the Company is primarily responsible for identifying, assessing and managing material risks from cybersecurity threats. The Information Technology Department is managed by the Chief Information Officer (the “CIO”) who reports directly to the Company’s Chief Operating Officer. The CIO has more than 38 years of relevant experience both with the Company and with other organizations in the IT field. The CIO also oversees the Company’s Information Security Program and manages a third-party consultant that is an expert in the Information Security field and acts as our Information Security Officer (“ISO”). The Information Security Program is governed by various information security and cybersecurity, systems development, change control, disaster recovery/business continuity and physical asset classification and control policies. The Information Security Program identifies data sources, threats and vulnerabilities and ensures awareness, accountability, and oversight for data protection throughout the Company and with trusted third parties to ensure that data is protected and able to be recovered in the event of a breach or failure (technical or other disaster). The IT Department conducts on-going technology and IT threat meetings to ensure the latest threats are addressed in addition to penetration, business continuity/ disaster recovery testing, and incident response plan testing. The CIO is a member of various management committees, chairs the Company’s management-level Information Technology and Information Security Committee (“IT/IS Committee”), and presents information security and cybersecurity updates on a monthly basis to the IT/IS Committee and periodically to the Board of Directors. +34 +Table of Contents +The IT/IS Committee provides oversight, from a risk perspective, of information systems security. As referenced above, the CIO and ISO provide information security updates to the IT/IS Committee at each IT/IS Committee meeting. Additional information security training for the committee is provided through targeted training overseen by the ISO. In addition, as discussed below, the Company has implemented an Incident Response Plan to provide a structured and systematic incident response process for information security incidents that affect any of the information technology systems, network, or data of the Company. The Incident Response Plan is implemented and maintained by the CIO and ISO and is subject to annual review and approval by the Board of Directors. At least annually, the ISO coordinates tabletop testing events where senior management participate in a coordinated response exercise to disastrous scenarios that could happen to the Company. Cybersecurity metrics are reported to the IT/IS Committee on a monthly basis. +The Board of Directors recognizes the importance of the Interagency Guidelines Establishing Standards for Safeguarding Customer Information and has incorporated those elements in its ongoing oversight of the Information Security Program. +Risk Assessment. On a periodic basis, but not less than annually, the CIO and ISO, in conjunction with the IT/IS Committee, identifies and documents internal and external vulnerabilities that could result in unauthorized disclosure, misuse, alteration, or destruction of customer information or customer records. Based on the results of the risk assessment, the Company’s Information Security Program may be revised to protect against any anticipated threats or hazards to the security or integrity of such information. The IT/IS Committee reviews changes to the program designed to monitor, measure, and respond to vulnerabilities identified. +Response to Security Vulnerabilities. In response to identified risks, management may take certain steps to correct and respond to security vulnerabilities, which may include: +• +Eliminating unwarranted risks by applying vendor-provided software fixes, commonly called patches. +• +Ensuring that changes to security configurations are documented, approved, and tested. +• +Ensuring that exploitable files and services are assessed and removed or disabled based upon known vulnerabilities and business needs. +• +Updating vulnerability scanning and intrusion detection tools to identify known vulnerabilities and related unauthorized activities. +• +Conducting subsequent penetration testing and vulnerability assessments, as warranted. +• +Reviewing performance with service providers to ensure security maintenance and reporting responsibilities are operating according to contract provisions and that service providers provide notification of system security breaches that may affect the Company. +Internal Controls, Audit, and Testing. Regular internal monitoring is integral to the Company’s risk assessment process, which includes regular testing of internal key controls, systems, and procedures. In addition, independent third -party penetration testing to test the effectiveness of security controls and preparedness measures is conducted at least annually or more often, if warranted by the risk assessment or other external factors. Management determines the scope and objectives of the penetration analysis. +Service Providers. Like many companies, the Company relies on third -party vendor solutions to support its operations. Many of these vendors, especially in the financial services industry, have access to sensitive and proprietary information. In order to mitigate the operational, informational and other risks associated with the use of vendors, the Company maintains a Third-Party Risk Management Program, which is implemented through a Third-Party Risk Management Policy and includes a detailed onboarding process and periodic reviews of vendors with access to sensitive Company data. The Third-Party Risk Management Policy applies to any business arrangement between the Company and another individual or entity, by contract or otherwise, in compliance with the Interagency Guidance on Third-Party Relationships: Risk Management. The Third-Party Risk Management Program is audited as part of the Company’s annual Internal Audit Risk Assessment. +35 +Table of Contents +Employees and Training. Employees are the first line of defense against cybersecurity measures. Each employee is responsible for protecting Company and customer information. Employees are provided training at initial onboarding and thereafter regarding information security and cybersecurity-related policies and procedures applicable to their respective roles within the organization. In addition, employees are subjected to monthly simulated phishing assessments, designed to sharpen threat detection and reporting capabilities. In addition to training, employees are supported with solutions designed to identify, prevent, detect, respond to, and recover from incidents. Notable technologies include firewalls, intrusion detection systems, security automation and response capabilities, user behavior analytics, multi-factor authentication, data backups to immutable storage and business continuity applications. Notable services include 24/7 security monitoring and response, continuous vulnerability scanning, third -party monitoring, and threat intelligence. +Board Reporting. At least annually, the CIO and ISO report to the Board, directly, the overall status of the Information Security Program and the Company’s compliance with the Interagency Guidelines for Safeguarding Customer Information. Any material findings related to the risk assessment, risk management and control decisions, service provider arrangements, results of testing, security breaches or violations are discussed as are management’s responses and any recommendations for program changes. +Program Adjustments. The CIO and ISO monitor, evaluate, and adjust the Information Security Program considering any relevant changes in technology, the sensitivity of its customer information, internal or external threats to information, and changing business arrangements, such as mergers and acquisitions, alliances and joint ventures, outsourcing arrangements, and changes to customer information systems. +Incident Response Plan . To ensure that information security incidents can be recovered from quickly and with the least impact to the Company and its customers, the Company maintains a structured and systematic incident response plan (the “IRP”) for all information security incidents that affect any of the IT systems, network, or data of the Company, including the Company’s data held, or IT services provided by third -party vendors or other service providers. The CIO and ISO are responsible for implementing and maintaining the IRP, which includes: +a) +Identifying the incident response team (“IRT”) and any appropriate sub-teams to address specific information security incidents, or categories of information security incidents. +b) +Coordinating IRT activities, including developing, maintaining, and following appropriate procedures to respond to and document identified information security incidents. +c) +Conducting post-incident reviews to gather feedback on information security incident response procedures and address any identified gaps in security measures. +d) +Providing training and conducting periodic exercises to promote employee and stakeholder preparedness and awareness of the IRP. +e) +Reviewing the IRP at least annually, or whenever there is a material change in the Company’s business practices that may reasonably affect its cyber incident response procedures. +36 +Table of Contents +ITEM 2. Properties +We conduct our business through our main office located in Everett, Massachusetts, and our branch offices located in Lynnfield, Massachusetts, both of which we own, and through our branch office in Woburn, Massachusetts, which we lease. Additionally, we lease office space in Everett, Massachusetts which services back office and loan administration functions. At December 31, 2025 the total net book value of our land, buildings, leasehold improvements, furniture, fixtures and equipment was $3.4 million. +ITEM 3. Legal Proceedings +Among other things, the activities of Everett Co-operative Bank, including with respect to disclosures about and implementation of numerous consumer products, are subject to various laws and numerous regulations, including those related to unfair or deceptive acts or practices. If Everett Co-operative Bank is found to have violated one or more consumer protection laws, it may be required to pay restitution to certain affected customers in connection with certain of these practices. In addition, as a result of the extensive regulation, supervision and examination of our business described elsewhere in this Annual Report, we are also involved, from time to time, in other reviews, investigations and proceedings (both formal and informal) by governmental agencies regarding our business, certain of which may result in adverse judgments, settlements, fines, penalties, public or private censure, increased costs, required remediation, restriction on business activities or other impacts on us. +We are not involved in any pending legal proceedings as a plaintiff or defendant other than routine legal proceedings occurring in the ordinary course of business, and at December 31, 2025, we were not involved in any legal proceedings, the outcome of which would be material to our financial condition or results of operations. +ITEM 4. Mine Safety Disclosures +Not applicable. +37 +Table of Contents +PART II +ITEM 5. Market for Registrant ’ s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities +Market, Holder and Dividend Information. The Company’s common stock is listed on the NASDAQ Capital Market under the symbol “ECBK.” The approximate number of holders of record of ECB Bancorp common stock as of March 23, 2026 was 369. Certain shares of ECB Bancorp are held in “nominee” or “street” name and accordingly, the number of beneficial owners of such shares is not known or included in the foregoing number. +ECB Bancorp does not currently pay cash dividends on its common stock. Dividend payments by ECB Bancorp are dependent, in part, on dividends it receives from Everett Co-operative Bank, because ECB Bancorp has no source of income other than dividends from Everett Co-operative Bank, earnings from the investment of proceeds from the sale of shares of common stock in the stock offering which closed in July 2022 retained by ECB Bancorp and interest payments with respect to our loan to the Employee Stock Ownership Plan. See “Item 1. Business—Supervision and Regulation—Federal Banking Regulation—Capital Distributions.” +The Federal Reserve Board has issued supervisory policies providing that dividends should be paid only out of current earnings and only if our prospective rate of earnings retention is consistent with our capital needs, asset quality and overall financial condition. Federal Reserve Board guidance also provides for prior regulatory consultation with respect to capital distributions in certain circumstances such as where the holding company’s net income for the past four quarters, net of dividends previously paid over that period, is insufficient to fully fund the dividend or the holding company’s overall rate or earnings retention is inconsistent with its capital needs and overall financial condition. In addition, Everett Co-operative Bank’s ability to pay dividends will be limited if it does not have the capital conservation buffer required by the capital rules, which may limit our ability to pay dividends to shareholders. No assurances can be given that any dividends will be paid or that, if paid, will not be reduced or eliminated in the future. Special cash dividends, stock dividends or returns of capital, to the extent permitted by regulations and policies of the Federal Reserve Board and the Commissioner, may be paid in addition to, or in lieu of, regular cash dividends. +Stock-Based Compensation Plans. Information regarding stock-based compensation awards outstanding and available for future grants as of December 31, 2025 is presented in the table below. Additional information regarding stock-based compensation plans is presented in Note 10-Stock-Based Compensation in Item 8. +Number of Shares +to be Issued Upon +Weighted-Average +Number of Shares +Exercise of +Exercise Price of +Available for +Plan Category +Outstanding Awards +Outstanding Awards +Future Grants +Plans approved by shareholders +728,977 +$ +10.44 +208,716 +Plans not approved by shareholders +— +— +— +Total +728,977 +$ +10.44 +208,716 +Other than the stock-based compensation awards, ECB Bancorp has an Employee Stock Ownership Plan. +38 +Table of Contents +Report of Offering of Securities and Use of Proceeds Therefrom. Not applicable. +Issuer Purchases of Equity Securities. On August 10, 2023, the Company announced the commencement of a stock repurchase program to acquire up to 458,762 shares, or 5% of the Company’s then outstanding common stock. On April 11, 2025, the Company completed the stock repurchase plan. On May 8, 2025, the Company announced an additional stock repurchase plan that authorizes the Company to repurchase up to 451,092 shares, or approximately 5%, of the Company's then outstanding common stock. Repurchases will be made from time to time depending on market conditions and other factors, and will be conducted through open market or private transactions, through block trades, and pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Securities and Exchange Commission. There is no guarantee as to the exact number of shares to be repurchased by the Company. The following table sets forth the information regarding the Company's common stock repurchase activities during the three months ended December 31, 2025: +Total Number of +Maximum Number of +Shares Purchased +Shares That May +Total Number of +Average Price +as Part of Publicly +Yet Be Purchased +Shares Purchased +Paid Per Share +Announced Program +Under the Program +From October 1, 2025 to October 31, 2025 +26,184 +$ +15.59 +26,184 +230,833 +From November 1, 2025 to November 30, 2025 +1,029 +$ +16.40 +1,029 +229,804 +From December 1, 2025 to December 31, 2025 +5,229 +$ +16.84 +5,229 +224,575 +Total +32,442 +$ +15.82 +32,442 +ITEM 6. [Reserved] +39 +Table of Contents +ITEM 7. Management ’ s Discussion and Analysis of Financial Condition and Results of Operations +This discussion and analysis reflects our financial statements and other relevant statistical data, and is intended to enhance your understanding of our financial condition and results of operations. The information in this section has been derived from the audited financial statements, which appear beginning on page 55 of this Annual Report on Form 10-K. +Overview +Our business consists primarily of taking deposits from the general public and investing those deposits, together with funds generated from operations, in one-to-four family residential real estate loans, commercial real estate loans, multifamily real estate loans, construction loans, home equity lines of credit and loans and commercial loans. At December 31, 2025, $473.4 million, or 34.2%, of our total loan portfolio was comprised of one-to-four family residential real estate loans, $425.4 million, or 30.8%, of our total loan portfolio was comprised of multifamily real estate loans, $336.4 million, or 24.3%, of our total loan portfolio was comprised of commercial real estate loans, $89.0 million, or 6.4%, of our total loan portfolio was comprised of construction loans, $49.9 million, or 3.6%, of our total loan portfolio was comprised of home equity lines of credit and loans and $7.9 million, or 0.6% of our total loan portfolio was comprised of commercial loans. We also invest in securities, consisting primarily of U.S. government and federal agency obligations, collateralized mortgage obligations, mortgage-backed securities and corporate bonds. We offer a variety of deposit accounts, including certificate of deposit accounts, individual retirement accounts, money market accounts, savings accounts and interest-bearing and noninterest-bearing checking accounts. At December 31, 2025, $728.3 million, or 64.3%, of our total deposit accounts was comprised of certificate of deposit accounts, $211.8 million, or 18.7%, of our total deposit accounts was comprised of money market accounts, $91.4 million, or 8.1%, of our total deposit accounts was comprised of savings accounts, $81.5 million, or 7.2% of our total deposit accounts was comprised of noninterest bearing demand deposit accounts and $19.4 million, or 1.7%, of our total deposit accounts was comprised of interest-bearing demand deposit accounts. In addition to customer deposits, in recent years, we have also accepted brokered deposits as a non-retail funding source to supplement our customer deposits and fund our operations. At December 31, 2025, we had $134.0 million of brokered deposits. We also have utilized advances from the Federal Home Loan Bank of Boston (the “FHLB”) as an additional funding source to fund our operations and we had $284.8 million of FHLB advances outstanding at December 31, 2025. +For the years ended December 31, 2025 and 2024, we had net income of $7.8 million and $4.0 million, respectively. Our current business strategy includes continuing to focus on originating and growing our commercial real estate, multifamily real estate and construction loan portfolios as well as the origination of one-to-four family residential real estate loans and home equity lines of credit and loans. To a lesser extent, we also originate other commercial loans and consumer loans. +Our results of operations depend primarily on our net interest income. Net interest income is the difference between the interest income we earn on our interest-earning assets and the interest we pay on our interest-bearing liabilities. Our results of operations also are affected by our provision for credit losses, noninterest income and noninterest expense. Noninterest income currently consists primarily of fees and service charges, gains on sales of loans and income on bank-owned life insurance. Noninterest expense currently consists primarily of expenses related to salary and employee benefits and director fees, occupancy and equipment, data processing, computer software and licensing fees, advertising, professional fees, FDIC deposit insurance and other general and administrative expenses. +Our results of operations also may be affected significantly by general and local economic and competitive conditions, changes in market interest rates, governmental policies and actions of regulatory authorities. +Business Strategy +Our principal objective is to build long-term value for our shareholders by operating a profitable community-oriented financial institution dedicated to meeting the banking needs of our customers. Highlights of our current business strategy include: +• +Continuing to focus on enhancing our commercial real estate and multifamily real estate lending. In order to increase the yield on our loan portfolio and maintain a reduced term to maturity of our loan portfolio, we intend to continue our focus on growing the originations of commercial real estate loans and multifamily real estate loans while maintaining what we believe are prudent underwriting standards and we expect that these loan categories will comprise a greater percentage of our total loan portfolio. In order to execute on this strategy, in January 2022 we hired a new Chief Lending Officer. Since then, we have continued to add some additional commercial lending and credit analyst personnel. The capital raised in the offering has allowed us to increase our commercial lending capacity by enabling us to originate and retain all or a greater portion of loans that we historically participated out to other local institutions. Given that our regulatory loans to one borrower limits have increased with our increase in capital, we have revised our lending policies and loans to one borrower limitations to increase our lending limits and the type and size of loans we choose to originate and hold in our portfolio. Our commercial real estate and multifamily real estate loan portfolios increased to $336.4 million and $425.4 million, respectively, at December 31, 2025 from $229.0 million and $344.0 million, respectively, at December 31, 2024. +40 +Table of Contents +• +Reduced emphasis on one-to-four family residential real estate lending. We have been, and will continue to be, a one-to-four family residential real estate lender for borrowers in our market area and such lending will remain a core focus, but we expect that our lending strategy will result in a decrease to one-to-four family residential loans as a percentage of our total loan portfolio as we increase our focus on commercial real estate and multifamily real estate lending. As of December 31, 2025, $473.4 million, or 34.2%, of our total loan portfolio, consisted of one-to-four family residential real estate loans and at that date an additional $49.9 million, or 3.6%, of our total loan portfolio, consisted of home equity lines of credit and loans. We expect that one-to-four family residential real estate lending will remain one of our primary lending activities. +• +Maintaining our strong asset quality through prudent loan underwriting. As we seek to grow our loan portfolio, we intend to maintain prudent loan underwriting and credit monitoring processes. At December 31, 2025 and 2024, non-performing assets totaled $1.1 million and $2.0 million, respectively, which represented 0.07% and 0.14% of total assets at those dates, respectively. +• +Continuing to attract and retain customers in our market area and increase our d eposits. Our strategy to enhance and grow our commercial real estate and multifamily real estate lending in a diligent and orderly manner is also designed to encourage relationship banking and increase operating deposit relationships, including noninterest-bearing transaction accounts, while maintaining a balanced and diversified funding base that includes certificates of deposit. We plan to leverage our increased focus on commercial real estate and commercial lending efforts to also increase our opportunities to develop commercial business deposit relationships. Additionally, we believe the recent hire of our Senior Vice President of Retail Operations, who brings 39 years of banking experience to our retail sales and administrative team, will be invaluable to the implementation of the added product delivery channels and technological services such as additional electronic and mobile banking applications and cash management services, which we believe will increase our core deposits. +• +Remaining a community-oriented institution and relying on high quality service to maintain and build a loyal local customer base . We were established in 1890 and have been operating continuously in and around Everett, Massachusetts since that time. By using our recognized brand name and the goodwill developed over years of providing timely, efficient banking services, we believe we have been able to attract a solid base of local retail customers on which to continue to build our banking business. Additionally, we believe that the establishment and funding of the charitable foundation will further promote our relationships and exposure in our market area through our support of charitable organizations operating in our local community now and in the future. +• +Expanding our banking franchise as opportunities arise through de novo branching and/or branch acquisitions. We historically operated from our two full-service banking offices in Everett, MA and Lynnfield, MA. During 2023 we successfully opened our third branch which is located in Woburn, MA. In January 2026, we announced that we are filing an application to establish a new branch office in Medford, MA. We believe there are branch expansion opportunities that exist within our primary market area. We intend to evaluate branch expansion opportunities, including through establishing one or more de novo branches and/or branch acquisitions as such opportunities arise. +Summary of Significant Accounting Policies +The discussion and analysis of the financial condition and results of operations are based on our consolidated financial statements, which are prepared in conformity with U.S. GAAP. The preparation of these consolidated financial statements requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the reported amounts of income and expenses. We consider the accounting policies discussed below to be significant accounting policies. The estimates and assumptions that we use are based on historical experience and various other factors and are believed to be reasonable under the circumstances. +41 +Table of Contents +Actual results may differ from these estimates under different assumptions or conditions, resulting in a change that could have a material impact on the carrying value of our assets and liabilities and our results of operations. +The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies. As an “emerging growth company” we have elected to use the extended transition period to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. Accordingly, our consolidated financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards. +The following represent our significant accounting policies: +Allowance for Credit Losses . On January 1, 2023, the Company adopted a Current Expected Credit Loss (CECL) methodology for estimating the credit losses for loans. This methodology replaced the incurred loss and impairment methodology. The CECL methodology reflects expected credit losses and requires consideration of historical experience, current conditions, and reasonable and supportable forecasts of future economic conditions. Management uses forward-looking information to estimate the expected credit loss on a loan at the time of origination. The change from the incurred loss methodology to the CECL methodology was recognized through an adjustment to retained earnings. +Actual credit losses, net of recoveries, are deducted from the allowance for credit losses. Loans are charged off when management believes that the collectability of the principal is unlikely. Subsequent recoveries, if any, are credited to the allowance for credit losses. A provision for credit losses, which is a charge against earnings, is recorded to bring the allowance for credit losses to a level that, in management’s judgment, is adequate to absorb expected lifetime credit losses in the loan portfolio. Management’s evaluation process used to determine the appropriateness of the allowance for credit losses is subject to the use of estimates, assumptions, and judgment. The evaluation process involves gathering and interpreting many qualitative and quantitative factors which could affect expected credit losses. Because interpretation and analysis involves judgment, current economic or business conditions can change, and future events are inherently difficult to predict, the anticipated amount of estimated credit losses and therefore the appropriateness of the allowance for credit losses could change significantly. +The allocation methodology applied by ECB Bancorp is designed to assess the appropriateness of the allowance for credit losses and includes allocations for individually evaluated loans and loss factor allocations for all remaining loans, with a quantitative model with an assessment of certain qualitative factors. The methodology includes evaluation and consideration of several factors, such as, but not limited to, management’s ongoing review and grading of loans, facts and issues related to specific loans, internal historical and industry loss experience, trends in past due and non-accrual loans, existing risk characteristics of specific loans or loan pools, the fair value of underlying collateral, current economic conditions and other qualitative and quantitative factors which could affect potential credit losses. While management uses the best information available to make its evaluation, future adjustments to the allowance may be necessary if there are significant changes in economic conditions or circumstances underlying the collectability of loans. Because each of the criteria used is subject to change, the allocation of the allowance for credit losses is made for analytical purposes and is not necessarily indicative of the trend of future credit losses in any particular loan category. The total allowance is available to absorb losses from any segment of the loan portfolio. Management believes the allowance for credit losses was adequate at December 31, 2025. The allowance analysis is reviewed by the board of directors on a quarterly basis in compliance with regulatory requirements. In addition, various regulatory agencies periodically review the allowance for credit losses. As a result of such reviews, we may choose to adjust our allowance for credit losses. However, regulatory agencies are not directly involved in the process of establishing the allowance for credit losses as the process is the responsibility of ECB Bancorp. and any increase or decrease in the allowance is the responsibility of management. +As noted above, we consider a number of variables in our evaluation of the adequacy of the allowance for credit losses, with one of the more significant variables being prepayment rates in the various segments of our loan portfolio. Based on our model, if all segments of our loan portfolio experienced a 50% decrease in estimated prepayment rates and curtailment rates, our allowance for credit losses as of December 31, 2025 would have increased $1.6 million to $11.8 million, holding all other variables constant. +42 +Table of Contents +Comparison of Financial Condition at December 31, 2025 and December 31, 2024 +Total Assets. Total assets increased $187.5 million, or 13.2%, to $1.61 billion at December 31, 2025 from $1.42 billion at December 31, 2024. The increase was primarily the result of increases in loans. +Cash and Cash Equivalents. Cash and cash equivalents decreased $70.7 million, or 44.9%, to $86.9 million at December 31, 2025 from $157.6 million at December 31, 2024. The decrease in cash and cash equivalents was driven by growth in both loans and investments that in aggregate was greater than our growth in deposits and borrowings. +Interest-Bearing Time Deposits. Interest-bearing time deposits were $8.0 million at December 31, 2025, as compared to $100,000 at December 31, 2024, or an increase of $7.9 million. This increase was due to purchases of new interest-bearing time deposits. +Investments in Securities Available for Sale. Investments in securities available for sale were $34.3 million at December 31, 2025, as compared to $6.6 million at December 31, 2024, or an increase of $27.8 million, or 422.8%. This increase was due to purchases of new securities. +Investments in Securities Held to Maturity. Investments in securities held to maturity were $55.8 million at December 31, 2025, as compared to $73.2 million at December 31, 2024, or a $17.5 million, or 23.8%, decrease. This decrease was due to maturities and principal paydowns of securities. +Loans. Total gross loans were $1.38 billion at December 31, 2025, as compared to $1.15 billion at December 31, 2024, or an increase of $237.0 million, or 20.7%. +• +Commercial real estate loans increased $107.4 million, or 46.9%, to $336.4 million at December 31, 2025, from $229.0 million at December 31, 2024. +• +Multi-family real estate loans increased $81.5 million, or 23.7%, to $425.4 million at December 31, 2025, from $344.0 million at December 31, 2024. +• +Residential real estate loans increased $50.6 million, or 12.0%, to $473.4 million at December 31, 2025, from $422.8 million at December 31, 2024. +• +Home equity lines of credit increased $4.7 million, or 10.4%, to $49.9 million at December 31, 2025, from $45.2 million at December 31, 2024. +43 +Table of Contents +• +Consumer loans increased $728,000, or 516.3%, to $869,000 at December 31, 2025, from $141,000 at December 31, 2024. +• +Construction loans decreased $1.9 million, or 2.1%, to $89.0 million at December 31, 2025, from $90.9 million at December 31, 2024. +• +Commercial loans decreased $5.9 million, or 42.7%, to $7.9 million at December 31, 2025, from $13.8 million at December 31, 2024. +The increase in these loan portfolios reflects our strategy to grow the balance sheet by continuing to diversify into higher-yielding commercial real estate and multi-family real estate loans to improve net margins and manage interest rate risk. +Federal Home Loan Bank stock. The Federal Home Loan Bank (FHLB) is a cooperative bank that provides services to its member banking institutions. The primary reason for our membership in the FHLB is to gain access to a reliable source of wholesale funding and as a tool to manage interest rate risk. The purchase of stock in the FHLB is a requirement for a member to gain access to funding. We purchase and/or are subject to redemption of FHLB stock proportional to the volume of funding received and view the holdings as a necessary long-term investment for the purpose of balance sheet liquidity and not for investment return. We held an investment in FHLB stock of $11.9 million and $10.0 million at December 31, 2025 and 2024, respectively. The amount of stock we are required to purchase is in proportion to our FHLB borrowings and level of total assets. +Bank-owned Life Insurance. We invest in bank-owned life insurance to help offset the costs of our employee benefit plan obligations. Bank-owned life insurance also generally provides noninterest income that is nontaxable. Bank-owned life insurance increased $475,000, or 3.2%, to $15.4 million at December 31, 2025 from $14.9 million at December 31, 2024. The increase was due to an increase in cash surrender value of our bank-owned life insurance portfolio during the year ended December 31, 2025. +Deposits. Total deposits were $1.13 billion at December 31, 2025, as compared to $998.5 million at December 31, 2024, or an increase of $133.8 million, or 13.4%. +• +Certificates of deposit increased $122.8 million, or 20.3%, to $728.3 million at December 31, 2025 from $605.5 million at December 31, 2024; +• +Money market deposit accounts increased $27.2 million, or 14.7%, to $211.8 million at December 31, 2025 from $184.6 million at December 31, 2024; +• +Interest-bearing checking accounts decreased $1.2 million, or 5.7%, to $19.4 million at December 31, 2025 from $20.5 million at December 31, 2024; +• +Demand deposit accounts decreased $3.5 million, or 4.1%, to $81.5 million at December 31, 2025 from $85.0 million at December 31, 2024; and +• +Savings accounts decreased $11.6 million, or 11.2%, to $91.4 million at December 31, 2025 from $102.9 million at December 31, 2024. +Federal Home Loan Bank Advances. FHLB advances increased $50.8 million, or 21.7%, to $284.8 million at December 31, 2025 from $234.0 million at December 31, 2024. The increase in FHLB advances was used primarily to fund loan growth. +Shareholders ’ Equity. Total shareholders' equity increased $3.7 million, or 2.2%, to $171.9 million as of December 31, 2025 from $168.3 million as of December 31, 2024. This increase is primarily the result of earnings of $7.8 million. Partially offsetting the increase from earnings were decreases in additional paid-in capital ("APIC") and accumulated other comprehensive income ("AOCI") of $3.2 million and $1.3 million, respectively. The decrease in APIC was driven by $4.6 million in shares repurchased under our share repurchase plan, partially offset by an increase in APIC of $1.5 million related to stock-based compensation and ESOP shares committed to be released. The decrease in AOCI was driven by a decrease in the fair value of cash flow hedges. Book value per share increased $1.05 to $19.55 at December 31, 2025 from $18.50 at December 31, 2024. +Comparison of Operating Results for the Years Ended December 31, 2025 and December 31, 2024 +Net Income. Net income was $7.8 million for the year ended December 31, 2025, compared to net income of $4.0 million for the year ended December 31, 2024, an increase of $3.8 million, or 94.7%. +44 +Table of Contents +Interest and Dividend Income. Interest and dividend income increased $11.1 million, or 16.6%, to $78.2 million for the year ended December 31, 2025 from $67.0 million for the year ended December 31, 2024 driven by an $11.2 million increase in interest and fees on loans, an $822,000 increase in interest and dividends on securities and a $114,000 increase in interest on interest-bearing time deposits, partially offset by a $1.0 million decrease in interest on short-term investments. The increase in interest and fees on loans was driven by an increase of $158.5 million in the average balance of the loan portfolio to $1.26 billion for the year ended December 31, 2025 from $1.10 billion for the year ended December 31, 2024, as well as an increase in the yield of 23 basis points to 5.47% during the year ended December 31, 2025 from 5.24% during the year ended December 31, 2024. The yield for the year ended December 31, 2025 benefited from new loans with higher rates as well as loans repricing higher. Interest and dividends on securities increased $822,000, or 25.8%, to $4.0 million for the year ended December 31, 2025 from $3.2 million for the year ended December 31, 2024. This increase was driven by an increase in the yield of investment securities of 82 basis points to 3.77% for the year ended December 31, 2025, from 2.95% for the year ended December 31, 2024 and an increase in the average balance of $6.2 million from $80.1 million during the year ended December 31, 2024 to $86.2 million during the year ended December 31, 2025. Interest on short term investments decreased $1.0 million, or 17.2%, to $5.0 million for the year ended December 31, 2025 from $6.0 million for the year ended December 31, 2024. This decrease was driven by the yield of short-term investments decreasing 92 basis points to 4.33% for the year ended December 31, 2025 from 5.25% for the year ended December 31, 2024. The increase in interest on interest-bearing time deposits was driven by an increase in the average balance of $2.6 million to $2.7 million for the year ended December 31, 2025, from $64,000 for the year ended December 31, 2024. +Average interest-earning assets increased $167.7 million to $1.47 billion for the year ended December 31, 2025 from $1.30 billion for the year ended December 31, 2024. The yield on interest earning-assets increased 18 basis points to 5.28% for the year ended December 31, 2025 from 5.10% for the year ended December 31, 2024. +Interest Expense. Total interest expense increased $4.2 million, or 10.0%, to $46.3 million for the year ended December 31, 2025 from $42.1 million for the year ended December 31, 2024. Interest expense on deposit accounts increased $3.6 million, or 10.8%, to $37.1 million for the year ended December 31, 2025 from $33.4 million for the year ended December 31, 2024, due to an increase in the average balance of interest-bearing deposits of $143.2 million, or 16.7%, to $1.0 billion for the year ended December 31, 2025 from $858.4 million for the year ended December 31, 2024, partially offset by a decrease in the weighted average rate on interest-bearing deposits of 20 basis points to 3.70% for the year ended December 31, 2025 from 3.90% for the year ended December 31, 2024. +Interest expense on Federal Home Loan Bank advances increased $580,000, or 6.7%, to $9.2 million for the year ended December 31, 2025 from $8.6 million for the year ended December 31, 2024. The average balance of Federal Home Loan Bank advances increased $16.5 million, or 7.6%, to $233.5 million for the year ended December 31, 2025 from $217.1 million for the year ended December 31, 2024. For the year ended December 31, 2025, the weighted average cost of Federal Home Loan Bank Advances was 3.94%, as compared to 3.97% for the year ended December 31, 2024. +Net Interest and Dividend Income. Net interest and dividend income before provision for credit losses was $31.9 million for the year ended December 31, 2025, as compared to $25.0 million for the year ended December 31, 2024, or an increase of $6.9 million, or 27.7%. This increase was primarily due to increases in the average balance and yields on loans as well as a decrease in the average cost of interest-bearing liabilities. The resulting net interest margin expanded 26 basis points to 2.12% for the year ended December 31, 2025 as compared to 1.86% for the year ended December 31, 2024. +Provision for Credit Losses. The provision for credit losses was $1.5 million for the year ended December 31, 2025, as compared to $174,000 for the year ended December 31, 2024. The increase in the provision was driven by higher loan growth during the year ended December 31, 2025 as compared to the year ended December 31, 2024. +45 +Table of Contents +Noninterest Income. Noninterest income was $1.3 million for the year ended December 31, 2025, as compared to $1.2 million for the year ended December 31, 2024, or an increase of $100,000, or 8.2%. The table below sets forth our noninterest income for the years ended December 31, 2025 and 2024: +Year Ended +December 31, +Change +2025 +2024 +Amount +Percent +(Dollars in thousands) +Customer service fees +$ +598 +$ +577 +$ +21 +3.6 +% +Income from bank-owned life insurance +475 +473 +2 +0.4 +Net gain on sales of loans +132 +119 +13 +10.9 +Other +121 +57 +64 +112.3 +Total noninterest income +$ +1,326 +$ +1,226 +$ +100 +8.2 +% +Noninterest Expense. Noninterest expense was $21.3 million for year ended December 31, 2025, as compared to $20.7 million for the year ended December 31, 2024, or an increase of $661,000, or 3.2%. The table below sets forth our noninterest expense for the years ended December 31, 2025 and 2024: +Year Ended +December 31, +Change +2025 +2024 +Amount +Percent +(Dollars in thousands) +Salaries and employee benefits +$ +13,188 +$ +13,062 +$ +126 +1.0 +% +Director compensation +797 +834 +(37 +) +(4.4 +) +Occupancy and equipment +1,102 +1,033 +69 +6.7 +Data processing +1,297 +1,198 +99 +8.3 +Computer software and licensing fees +441 +443 +(2 +) +(0.5 +) +Advertising and promotions +639 +551 +88 +16.0 +Professional fees +1,368 +1,258 +110 +8.7 +Federal Deposit Insurance Corporation deposit insurance +883 +752 +131 +17.4 +Other expense +1,615 +1,538 +77 +5.0 +Total noninterest expense +$ +21,330 +$ +20,669 +$ +661 +3.2 +% +Income Tax Expense. Income tax expense was $2.6 million for the year ended December 31, 2025, as compared to $1.4 million for the year ended December 31, 2024, reflecting effective tax rates of 25.1% and 25.7%, respectively. +46 +Table of Contents +Average Balances and Yields. The following table sets forth average balance sheets, average yields and costs, and certain other information for the years indicated. Average balances are daily average balances. The Company has no tax-equivalent yield adjustments. Non-accrual loans are included in average balances only. Average yields include the effect of deferred costs and fees, discounts, and premiums that are amortized or accreted to interest income or interest expense. +For the Year Ended December 31, +2025 +2024 +Average +Average +Outstanding +Outstanding +Balance +Interest +Yield/ Rate +Balance +Interest +Yield/ Rate +(Dollars in thousands) +Interest-earning assets: +Total loans +$ +1,262,768 +$ +69,085 +5.47 +% +$ +1,104,288 +$ +57,852 +5.24 +% +Securities (1) +86,237 +3,251 +3.77 +80,057 +2,363 +2.95 +Short term investments +114,707 +4,970 +4.33 +114,295 +6,004 +5.25 +Interest-bearing time deposits +2,693 +117 +4.34 +64 +3 +5.44 +Total interest-earning assets +1,466,405 +77,423 +5.28 +% +1,298,704 +66,222 +5.10 +% +Non-interest-earning assets +38,362 +34,056 +Total assets +$ +1,504,767 +$ +1,332,760 +Interest-bearing liabilities: +Checking accounts +$ +18,888 +$ +16 +0.08 +% +$ +18,891 +$ +14 +0.07 +% +Savings accounts +92,923 +1,888 +2.03 +111,858 +3,048 +2.72 +Money market accounts +208,732 +6,888 +3.30 +158,405 +5,669 +3.58 +Certificates of deposit +681,002 +28,269 +4.15 +569,199 +24,704 +4.34 +Total interest-bearing deposits +1,001,545 +37,061 +3.70 +858,353 +33,435 +3.90 +Federal Home Loan Bank advances +233,545 +9,202 +3.94 +217,087 +8,622 +3.97 +Total interest-bearing liabilities +1,235,090 +46,263 +3.75 +% +1,075,440 +42,057 +3.91 +% +Non-interest-bearing demand deposits +85,436 +77,721 +Non-interest-bearing liabilities +14,400 +12,661 +Total liabilities +1,334,926 +1,165,822 +Shareholders' equity +169,841 +166,938 +Total liabilities and shareholders' equity +$ +1,504,767 +$ +1,332,760 +Net interest income +$ +31,160 +$ +24,165 +Net interest rate spread (2) +1.53 +% +1.19 +% +Net interest-earning assets (3) +$ +231,315 +$ +223,264 +Net interest margin (4) +2.12 +% +1.86 +% +Average interest-earning assets to interest-bearing liabilities +118.73 +% +120.76 +% +(1) +Excludes interest and dividends on cost method investments of $757,000 and $823,000 for the years ended December 31, 2025 and 2024, respectively. +(2) +Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate of interest-bearing liabilities. +(3) +Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities. +(4) +Net interest margin represents net interest income divided by average total interest-earning assets. +47 +Table of Contents +Rate/Volume Analysis. The following tables present the effects of changing rates and volumes on our net interest income for the periods indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior period volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The total column represents the sum of the prior columns. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately based on the changes due to rate and the changes due to volume. There were no out-of-period items or adjustments required to be excluded from the table below. +Years Ended December 31, 2025 vs. 2024 +Increase (Decrease) Due to +Total Increase +Volume +Rate +(Decrease) +(in thousands) +Interest-earning assets: +Loans +$ +8,584 +$ +2,649 +$ +11,233 +Securities +193 +695 +888 +Short term investments +22 +(1,056 +) +(1,034 +) +Interest-bearing time deposits +115 +(1 +) +114 +Total interest-earning assets +$ +8,914 +$ +2,287 +$ +11,201 +Interest-bearing liabilities: +Checking accounts +$ +— +$ +2 +$ +2 +Savings accounts +(464 +) +(696 +) +(1,160 +) +Money market deposits +1,688 +(469 +) +1,219 +Certificates of deposit +4,679 +(1,114 +) +3,565 +Total deposits +5,903 +(2,277 +) +3,626 +Advances from the Federal Home Loan Bank +649 +(69 +) +580 +Total interest-bearing liabilities +$ +6,552 +$ +(2,346 +) +$ +4,206 +Change in net interest income +$ +2,362 +$ +4,633 +$ +6,995 +Management of Market Risk +General . Our most significant form of market risk is interest rate risk because, as a financial institution, the majority of our assets and liabilities are sensitive to changes in interest rates. Therefore, a principal part of our operations is to manage interest rate risk and limit the exposure of our financial condition and results of operations to changes in market interest rates. The Asset-Liability Management Committee is responsible for evaluating the interest rate risk inherent in our assets and liabilities, for determining the level of risk that is appropriate, given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the policy and guidelines approved by our board of directors. The Asset-Liability Management Committee meets at least quarterly and is comprised of senior management and a member of the Board of Directors and reports to the full Board of Directors on at least a quarterly basis. We currently utilize a third-party modeling program, prepared on a quarterly basis, to evaluate our sensitivity to changing interest rates, given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the guidelines approved by the Board of Directors. +We have sought to manage our interest rate risk in order to minimize the exposure of our earnings and capital to changes in interest rates. We have implemented the following strategies to manage our interest rate risk: +• +maintaining capital levels that exceed the thresholds for well-capitalized status under federal regulations; +• +maintaining a prudent level of liquidity; +• +growing our volume of deposit accounts; +• +managing our investment securities portfolio to maintain a prudent balance between enhancing profitability and protecting the balance sheet against sensitivity to changes in interest rates; +48 +Table of Contents +• +managing our utilization of wholesale funding with borrowings from the Federal Home Loan Bank and brokered deposits in a prudent manner; +• +continuing to diversify our loan portfolio by adding more commercial-related loans, which typically have shorter maturities and/or balloon payments; and +• +beginning in January of 2024 we began to utilize interest rate swaps to help manage our interest rate risk. +By following these strategies, we believe that we are better positioned to react to increases and decreases in market interest rates. +Net Interest Income. We analyze our sensitivity to changes in interest rates through a net interest income sensitivity model. Net interest income is the difference between the interest income we earn on our interest-earning assets, such as loans and securities, and the interest expense we pay on our interest-bearing liabilities, such as deposits and borrowings. We estimate what our net interest income would be for a 12-month period. We then calculate what the net interest income would be for the same period under the assumptions that the United States Treasury yield curve increases or decreases instantaneously by various basis point increments, with changes in interest rates representing immediate and permanent, parallel shifts in the yield curve. A basis point equals one-hundredth of one percent, and 100 basis points equals one percent. An increase in interest rates from 3% to 4% would mean, for example, a 100-basis point increase in the “Change in Interest Rates” column below. +The table below sets forth, as of December 31, 2025, the calculation of the estimated changes in our net interest income that would result from the designated immediate changes in the United States Treasury yield curve. +As of December 31, 2025 +Change in Interest Rates (basis points) (1) +Net Interest Income Year 1 Forecast +Year 1 Change from Level +(Dollars in thousands) ++400 +$ +32,063 +-19.0 +% ++300 +34,084 +-13.9 +% ++200 +36,105 +-8.8 +% ++100 +38,025 +-3.9 +% +Level +39,576 +0.0 +% +-100 +40,449 +2.2 +% +-200 +40,802 +3.1 +% +-300 +40,400 +2.1 +% +-400 +37,895 +-4.2 +% +(1) Assumes an immediate uniform change in interest rates at all maturities. +The tables above indicate that at December 31, 2025, in the event of an instantaneous parallel 200 basis point increase in interest rates, we would experience a decrease in net interest income of 8.8%, and in the event of an instantaneous 200 basis point decrease in interest rates, we would experience a 3.1% increase in net interest income. +Economic Value of Equity . We also compute amounts by which the net present value of our assets and liabilities (economic value of equity or “EVE”) would change in the event of a range of assumed changes in market interest rates. This model uses a discounted cash flow analysis and an option-based pricing approach to measure the interest rate sensitivity of net portfolio value. The model estimates the economic value of each type of asset, liability and off-balance sheet contract under the assumptions that the United States Treasury yield curve increases and decreases instantaneously by 100, 200, 300 and 400 basis point increments, with changes in interest rates representing immediate and permanent, parallel shifts in the yield curve. +49 +Table of Contents +The table below sets forth, as of December 31, 2025, the calculation of the estimated changes in our EVE that would result from the designated immediate changes in the United States Treasury yield curve. +As of December 31, 2025 +Estimated Increase (Decrease) in EVE +EVE as a Percentage of Present Value of Assets (3) +Change in Interest Rates +Increase (Decrease) +(basis points) (1) +Estimated EVE (2) +Amount +Percent +EVE Ratio (4) +(basis points) +(Dollars in thousands) ++400 +$ +113,955 +$ +(72,352 +) +-38.8 +% +7.7 +% +(393 +) ++300 +134,168 +(52,139 +) +-28.0 +% +8.9 +% +(275 +) ++200 +151,739 +(34,568 +) +-18.6 +% +9.9 +% +(179 +) ++100 +169,613 +(16,694 +) +-9.0 +% +10.8 +% +(84 +) +— +186,307 +— +0.0 +% +11.6 +% +— +-100 +198,922 +12,615 +6.8 +% +12.2 +% +57 +-200 +206,781 +20,474 +11.0 +% +12.5 +% +85 +-300 +208,372 +22,065 +11.8 +% +12.4 +% +79 +-400 +212,731 +26,424 +14.2 +% +12.6 +% +91 +(1) +Assumes an immediate uniform change in interest rates at all maturities. +(2) +EVE is the discounted present value of expected cash flows from assets, liabilities and off-balance sheet contracts. +(3) +Present value of assets represents the discounted present value of incoming cash flows on interest-earning assets. +(4) +EVE Ratio represents EVE divided by the present value of assets. +The table above indicates that at December 31, 2025, in the event of an instantaneous parallel 200 basis point increase in interest rates, we would experience an 18.6% decrease in EVE, and in the event of an instantaneous 200 basis point decrease in interest rates, we would experience an 11.0% increase in EVE. +Certain shortcomings are inherent in the methodologies used in the above interest rate risk measurements. Modeling changes require making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. The net interest income and net economic value tables presented assume that the composition of our interest-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. Accordingly, although the tables provide an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates, and actual results may differ. +Interest rate risk calculations also may not reflect the fair values of financial instruments. For example, increases in market interest rates can decrease the fair values of our loans but increase the fair value of deposits and borrowings. +Liquidity and Capital Resources +Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. Our primary sources of funds are deposits, principal and interest payments on loans and securities, and proceeds from maturities of securities. We are also able to borrow from the Federal Home Loan Bank of Boston, the Federal Reserve Bank and the Atlantic Community Bankers Bank. At December 31, 2025, we had outstanding advances of $284.8 million from the Federal Home Loan Bank. At December 31, 2025, we had unused borrowing capacity of $395.4 million with the Federal Home Loan Bank, $75.7 million with Federal Reserve Bank and $15.0 million with the Atlantic Community Bankers Bank. +While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. Our most liquid assets are cash and short-term investments. The levels of these assets are dependent on our operating, financing, and investing activities during any given period. +50 +Table of Contents +Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. +At December 31, 2025, we had $30.6 million in loan commitments outstanding. In addition to commitments to originate loans, we had $93.2 million in unused lines of credit to borrowers and $47.7 million in unadvanced construction loans. +Non brokered certificates of deposit due within one year of December 31, 2025 totaled $451.1 million, or 39.8%, of total deposits. If these deposits do not remain with us, we may be required to seek other sources of funds, including brokered deposits and FHLB advances. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates of deposit due on or before December 31, 2026, or on our savings and money market accounts. +We believe, however, based on historical experience and current market interest rates that we will retain upon maturity a large portion of our certificates of deposit with maturities of one year or less as of December 31, 2025. +Our primary investing activity is originating loans. During the years ended December 31, 2025 and 2024, we originated and purchased $429.6 million and $160.4 million of loans, respectively. +Financing activities consist primarily of activity in deposit accounts as well as FHLB advances. We experienced net increases in deposits of $133.8 million and $130.3 million for the years ended December 31, 2025 and 2024, respectively. Deposit flows are affected primarily by the overall level of interest rates and the interest rates and products offered by us and our competitors. At December 31, 2025 and 2024, the level of brokered time deposits was $134.0 million and $125.6 million, respectively. At December 31, 2025 and 2024 the level of FHLB advances was $284.8 and $234.0 million, respectively. +For additional information, see the consolidated statements of cash flows for the years ended December 31, 2025 and 2024 included as part of the consolidated financial statements appearing elsewhere in this 10-K. +We are committed to maintaining a strong liquidity position. We continuously monitor our liquidity position and adjustments are made to the balance between sources and uses of funds as deemed appropriate by management. Liquidity risk management is an important element in our asset/liability management process. We regularly model liquidity stress scenarios to assess potential liquidity outflows or funding problems resulting from economic disruptions, volatility in the financial markets, unexpected credit events or other significant occurrences deemed problematic by management. These scenarios are incorporated into our contingency funding planning process, which provides the basis for the identification of our liquidity needs. We anticipate that we will have sufficient funds to meet our current funding commitments. In addition, based on our deposit retention experience and current pricing strategy, we anticipate that a significant portion of maturing time deposits will be retained. +At December 31, 2025, Everett Co-operative Bank exceeded all of its regulatory capital requirements, and was categorized as well-capitalized at that date. Management is not aware of any conditions or events since the most recent notification of well-capitalized status that would change our category. See Note 16 of the notes to consolidated financial statements. +Off-Balance Sheet Arrangements and Aggregate Contractual Obligations +Commitments. As a financial services provider, we routinely are a party to various financial instruments with off-balance-sheet risks, such as commitments to extend credit and unused lines of credit. While these contractual obligations represent our future cash requirements, a significant portion of commitments to extend credit may expire without being drawn upon. Such commitments are subject to the same credit policies and approval process accorded to loans we make. At December 31, 2025, we had outstanding commitments to originate loans of $30.6 million. We anticipate that we will have sufficient funds available to meet our current lending commitments. Non brokered time deposits that are scheduled to mature in less than one year from December 31, 2025 totaled $451.1 million. Management expects that a substantial portion of these time deposits will be retained. However, if a substantial portion of these time deposits is not retained, we may utilize advances from the Federal Home Loan Bank, brokered deposits or raise interest rates on deposits to attract new accounts, which may result in higher levels of interest expense. +51 +Table of Contents +Contractual Obligations. In the ordinary course of our operations, we enter into certain contractual obligations. Such obligations include data processing services, operating leases for premises and equipment, agreements with respect to borrowed funds and deposit liabilities. +Recent Accounting Pronouncements +See Note 2 to the notes to the consolidated financial statements for a description of recent accounting pronouncements that may affect our financial condition and results of operations. +Impact of Inflation and Changing Price +The consolidated financial statements and related data presented in this 10-K have been prepared in accordance with U.S. GAAP, which requires the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation. The primary impact of inflation on our operations is reflected in increased operating costs. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates, generally, have a more significant impact on a financial institution’s performance than does inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services. +ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk +For information regarding market risk, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations”. +52 +Table of Contents +ITEM 8. Financial Statements and Supplementary Data +Financial Statements Table of Contents +Page +Report of Independent Registered Public Accounting Firm (PCAOB ID No. 392 ) +54 +Consolidated Balance Sheets as of December 31, 2025 and December 31, 2024 +55 +Consolidated Statements of Income for the Years Ended December 31, 2025 and 2024 +56 +Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2025 and 2024 +57 +Consolidated Statements of Changes in Shareholders' Equity for the Years Ended December 31, 2025 and 2024 +58 +Consolidated Statements of Cash Flows for the Years Ended December 31, 2025 and 2024 +59 +Notes to Consolidated Financial Statements +60 +53 +Table of Contents +REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +To the Stockholders and Board of Directors of ECB Bancorp, Inc.: +Opinion on the Consolidated Financial Statements +We have audited the accompanying consolidated balance sheet of ECB Bancorp, Inc. and Subsidiary (the Company) as of December 31, 2025 and 2024, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for the years then ended and the related notes (collectively, “the financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. +Basis for Opinion +These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. +Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. +We have served as the Company's auditor since 2024. +/s/ Wolf & Company, P.C. +Boston, Massachusetts +March 25, 2026 +54 +Table of Contents +ECB Bancorp, Inc. and Subsidiary +Consolidated Balance Sheets +December 31, 2025 and December 31, 2024 +(Dollars in thousands) +December 31, 2025 +December 31, 2024 +ASSETS +Cash and due from banks +$ 4,121 $ 5,828 +Short-term investments +82,801 151,789 +Total cash and cash equivalents +86,922 157,617 +Interest-bearing time deposits +7,998 100 +Investments in available-for-sale securities (at fair value) +34,317 6,564 +Investments in held-to-maturity securities, at cost (fair values of $ 52,326 at December 31, 2025 and $ 67,505 at December 31, 2024) +55,764 73,215 +Loans held-for-sale +357 — +Loans, net of allowance for credit losses of $ 10,255 as of December 31, 2025 and $ 8,884 as of December 31, 2024 +1,371,819 1,136,449 +Federal Home Loan Bank stock, at cost +11,852 10,000 +Premises and equipment, net +3,429 3,512 +Accrued interest receivable +5,214 4,015 +Deferred tax assets, net +5,667 4,914 +Bank-owned life insurance +15,420 14,945 +Other assets +6,894 6,822 +Total assets +$ 1,605,653 $ 1,418,153 +LIABILITIES AND SHAREHOLDERS' EQUITY +Deposits: +Noninterest-bearing +$ 81,497 $ 84,958 +Interest-bearing +1,050,847 913,575 +Total deposits +1,132,344 998,533 +Federal Home Loan Bank advances +284,815 234,000 +Other liabilities +16,560 17,352 +Total liabilities +1,433,719 1,249,885 +Commitments and contingencies (see Note 14) +— — +Shareholders' Equity: +Preferred Stock, par value $ 0.01 ; Authorized: 1,000,000 shares; No shares issued or outstanding +— — +Common Stock, par value $ 0.01 ; Authorized: 30,000,000 shares; Issued and outstanding: 8,792,719 shares and 9,095,833 shares, at December 31, 2025 and December 31, 2024, respectively +88 91 +Additional paid-in capital +82,997 86,189 +Retained earnings +95,617 87,845 +Accumulated other comprehensive (loss) income +( 896 ) 382 +Unallocated common shares held by the Employee Stock Ownership Plan +( 5,872 ) ( 6,239 ) +Total shareholders' equity +171,934 168,268 +Total liabilities and shareholders' equity +$ 1,605,653 $ 1,418,153 +The accompanying notes are an integral part of these consolidated financial statements. +55 +Table of Contents +ECB Bancorp, Inc. and Subsidiary +Consolidated Statements of Income +Years Ended December 31, 2025 and 2024 +(Dollars in thousands, except share data) +Year Ended +December 31, +2025 +2024 +Interest and dividend income: +Interest and fees on loans +$ 69,085 $ 57,852 +Interest and dividends on securities +4,008 3,186 +Interest on short-term investments +4,970 6,004 +Interest on interest-bearing time deposits +117 3 +Total interest and dividend income +78,180 67,045 +Interest expense: +Interest on deposits +37,061 33,435 +Interest on Federal Home Loan Bank advances +9,202 8,622 +Total interest expense +46,263 42,057 +Net interest and dividend income +31,917 24,988 +Provision for credit losses +1,534 174 +Net interest and dividend income after provision for credit losses +30,383 24,814 +Noninterest income: +Customer service fees +598 577 +Income from bank-owned life insurance +475 473 +Net gain on sales of loans +132 119 +Other income +121 57 +Total noninterest income +1,326 1,226 +Noninterest expense: +Salaries and employee benefits +13,188 13,062 +Director compensation +797 834 +Occupancy and equipment +1,102 1,033 +Data processing +1,297 1,198 +Computer software and licensing +441 443 +Advertising and promotions +639 551 +Professional fees +1,368 1,258 +Federal Deposit Insurance Corporation deposit insurance +883 752 +Other +1,615 1,538 +Total noninterest expense +21,330 20,669 +Income before income tax expense +10,379 5,371 +Income tax expense +2,607 1,380 +Net income +$ 7,772 $ 3,991 +Share data: +Weighted average shares outstanding, basic +8,100,328 8,257,014 +Weighted average shares outstanding, diluted +8,311,966 8,345,737 +Basic earnings per share +$ 0.96 $ 0.48 +Diluted earnings per share +$ 0.94 $ 0.48 +The accompanying notes are an integral part of these consolidated financial statements. +56 +Table of Contents +ECB Bancorp, Inc. and Subsidiary +Consolidated Statements of Comprehensive Income +Years Ended December 31, 2025 and 2024 +(Dollars in thousands) +Year Ended +December 31, +2025 +2024 +Net income +$ 7,772 $ 3,991 +Other comprehensive (loss) income, net of tax: +Net change in fair value of securities available-for-sale +213 ( 43 ) +Net change in unrecognized postretirement benefit costs pertaining to supplemental executive retirement plan +( 34 ) 14 +Net change in unrecognized postretirement benefit costs pertaining to director fee continuation plan +( 30 ) 5 +Net change in fair value of cash flow hedges +( 1,427 ) 277 +Other comprehensive (loss) income, net of tax +( 1,278 ) 253 +Comprehensive income +$ 6,494 $ 4,244 +The accompanying notes are an integral part of these consolidated financial statements. +57 +Table of Contents +ECB Bancorp, Inc. and Subsidiary +Statements of Changes in Shareholders' Equity +For the Years Ended December 31, 2025 and 2024 +(Dollars in thousands) +Accumulated +Shares of +Additional +Other +Unallocated +Common Stock +Common +Paid in +Retained +Comprehensive +Common Stock +Outstanding +Stock +Capital +Earnings +Income (Loss) +Held by ESOP +Total +Balance at December 31, 2023 +9,291,810 $ 93 $ 87,431 $ 83,854 $ 129 $ ( 6,606 ) $ 164,901 +Net income +— — — 3,991 — — 3,991 +Other comprehensive income, net of tax +— — — — 253 — 253 +ESOP shares committed to be released ( 36,701 shares) +— — 127 — — 367 494 +Shares repurchased under share repurchase plan +( 201,216 ) ( 2 ) ( 2,720 ) — — — ( 2,722 ) +Restricted stock awards issued, net of awards withheld to cover income taxes +( 593 ) — ( 24 ) — — — ( 24 ) +Stock-based compensation +— — 1,306 — — — 1,306 +Stock options exercised +5,832 — 69 — — — 69 +Balance at December 31, 2024 +9,095,833 $ 91 $ 86,189 $ 87,845 $ 382 $ ( 6,239 ) $ 168,268 +Net income +— — — 7,772 — — 7,772 +Other comprehensive loss, net of tax +— — — — ( 1,278 ) — ( 1,278 ) +ESOP shares committed to be released ( 36,701 shares) +— — 212 — — 367 579 +Shares repurchased under share repurchase plan +( 294,669 ) ( 3 ) ( 4,607 ) — — — ( 4,610 ) +Restricted stock awards issued, net of awards withheld to cover income taxes +( 726 ) — ( 30 ) — — — ( 30 ) +Restricted stock awards forfeited +( 9,331 ) — ( 35 ) — — — ( 35 ) +Stock-based compensation +— — 1,268 — — — 1,268 +Stock options exercised +1,612 — — — — — — +Balance at December 31, 2025 +8,792,719 $ 88 $ 82,997 $ 95,617 $ ( 896 ) $ ( 5,872 ) $ 171,934 +The accompanying notes are an integral part of these consolidated financial statements. +58 +Table of Contents +ECB Bancorp, Inc. and Subsidiary +Consolidated Statements of Cash Flows +Years Ended December 31, 2025 and 2024 +(Dollars in thousands) +Year Ended +December 31, +2025 +2024 +Cash flows from operating activities: +Net income +$ 7,772 $ 3,991 +Adjustments to reconcile net income to net cash provided by operating activities: +Accretion of securities, net +( 183 ) ( 63 ) +Provision for credit losses +1,534 174 +Change in deferred loan costs/fees +288 276 +Gain on sales of loans, net +( 132 ) ( 119 ) +Proceeds from sales of loans +10,205 7,905 +Loans originated for sale, net +( 10,430 ) ( 7,786 ) +Depreciation and amortization expense +297 302 +Increase in accrued interest receivable +( 1,199 ) ( 249 ) +Increase (decrease) in accrued interest payable +302 ( 16 ) +Increase in bank-owned life insurance +( 475 ) ( 473 ) +Deferred income tax benefit +( 246 ) ( 250 ) +ESOP expense +579 494 +Stock-based compensation expense +1,233 1,306 +Increase in other assets +( 627 ) ( 3,388 ) +Increase in other liabilities +302 4,124 +Net cash provided by operating activities +9,220 6,228 +Cash flows from investing activities: +Purchases of held-to-maturity securities +( 28,705 ) ( 8,874 ) +Proceeds from paydowns and maturities of held-to-maturity securities +46,191 12,684 +Purchases of available-for-sale securities +( 31,069 ) ( 6,628 ) +Proceeds from paydowns and maturities of available-for-sale securities +3,753 5,029 +Purchase of interest-bearing time deposits +( 7,998 ) ( 200 ) +Proceeds from maturities of interest bearing time deposits +100 100 +Investment in low-income housing tax credit funds +( 2,992 ) — +Purchase of Federal Home Loan Bank Stock +( 5,935 ) ( 2,464 ) +Redemption of Federal Home Loan Bank Stock +4,083 2,356 +Loan originations and principal collections, net +( 234,309 ) ( 89,057 ) +Purchase of loans +( 2,806 ) ( 8,175 ) +Capital expenditures +( 214 ) ( 60 ) +Net cash used in investing activities +( 259,901 ) ( 95,289 ) +Cash flows from financing activities: +Net increase in demand deposits, NOW and savings accounts +11,015 23,307 +Net increase in time deposits +122,796 107,012 +Proceeds from long-term Federal Home Loan Bank advances +30,815 55,000 +Repayments of long-term Federal Home Loan Bank advances +( 25,000 ) ( 70,000 ) +Net change in short-term Federal Home Loan Bank advances +45,000 15,000 +Restricted stock awards issued, net of awards surrendered +( 30 ) ( 24 ) +Stock options exercised +— 69 +Payments for shares repurchased under share repurchase plan +( 4,610 ) ( 2,722 ) +Net cash provided by financing activities +179,986 127,642 +Net (decrease) increase in cash and cash equivalents +( 70,695 ) 38,581 +Cash and cash equivalents at beginning of year +157,617 119,036 +Cash and cash equivalents at end of period +$ 86,922 $ 157,617 +Supplemental disclosures: +Interest paid +$ 46,565 $ 42,041 +Income taxes paid +Federal +$ 2,000 $ 1,095 +Massachusetts +$ 730 $ 467 +Jurisdictions below five percent of total income taxes paid +$ 25 $ 4 +The accompanying notes are an integral part of these consolidated financial statements. +59 +Table of Contents +ECB Bancorp, Inc. and Subsidiary +Notes to Consolidated Financial Statements +December 31, 2025 +Notes to Consolidated Financial Statements +NOTE 1 – NATURE OF OPERATIONS +ECB Bancorp, Inc., a Maryland corporation (the “Company”), is a bank holding company, the subsidiary of which is Everett Co-operative Bank (the “Bank”), a state chartered bank. The Bank was founded in 1890 and is headquartered in Everett, Massachusetts. The Bank operates its business from its main office, two branches and a separate administrative office, all located in eastern Massachusetts. The Bank is engaged principally in the business of attracting deposits from the general public and investing those deposits in one -to- four family residential real estate loans, commercial real estate and multifamily real estate loans, construction and land loans and home equity lines of credit and loans. To a lesser extent we also originate commercial business loans and consumer loans. +CONVERSION +On March 9, 2022, the Board of Directors of the Bank adopted a Plan of Conversion under which the Bank would convert from a Massachusetts mutual co-operative bank into a Massachusetts stock co-operative bank and become the wholly-owned subsidiary of a newly chartered stock holding company, the Company. The Plan of Conversion received the required approvals of various regulatory agencies and the Plan of Conversion was approved by the required vote of more than two -thirds of the Bank’s depositors present and voting at a special meeting of depositors held on May 5, 2022. The Bank’s mutual to stock conversion and the Company’s stock offering were consummated on July 27, 2022. In the offering, the Company sold 8,915,247 shares of common stock at a per share price of $ 10.00 for gross offering proceeds of $ 89.2 million. Additionally, the Company contributed 260,000 shares and $ 600,000 in cash to the Everett Co-operative Bank Charitable Foundation (the “Foundation”). +The Bank has established a Liquidation Account in an amount equal to the net worth of the Bank as of the date of the latest consolidated balance sheet contained in the final prospectus distributed in connection with the Company's stock conversion and stock offering. The function of the Liquidation Account is to establish a priority on liquidation of the Bank. The Liquidation Account will be maintained by the Bank for the benefit of the eligible account holders who continue to maintain deposit accounts with the Bank following the conversion. Each eligible account holder, with respect to each deposit account, holds a related inchoate interest in a portion of the Liquidation Account balance, in relation to each deposit account balance at the eligibility record date, or to such balance as it may be subsequently reduced, as hereinafter provided. The initial Liquidation Account balance will not be increased, and is subject to downward adjustment to the extent of any downward adjustment of any subaccount balance of any eligible account holder in accordance with the regulations of the Division of Banks of the Commonwealth of Massachusetts. +In the unlikely event of a complete liquidation of the Bank (and only in such event), following all liquidation payments to creditors (including those to depositors to the extent of their deposit accounts) each eligible account holder shall be entitled to receive a liquidating distribution from the Liquidation Account, in the amount of the then-adjusted subaccount balances for his or her deposit accounts then held, before any liquidating distribution may be made to any holder of the Bank’s capital stock. +The Bank may not declare or pay a cash dividend on its outstanding capital stock if the effect thereof would cause its regulatory capital to be reduced below the amount required to maintain the Liquidation Account and under FDIC rules and regulations. +NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES +ACCOUNTING POLICIES +The accounting and reporting policies of the Company and the Bank conform to accounting principles generally accepted in the United States of America (U.S. GAAP) and predominant practices within the banking industry. The consolidated financial statements are prepared using the accrual basis of accounting. The significant accounting policies are summarized below to assist the reader in better understanding the consolidated financial statements and other data contained herein. +60 +Table of Contents +Principles of Consolidation +The consolidated financial statements of the Company include the balances and results of operations of its wholly-owned subsidiary Everett Co-operative Bank (the "Bank") as well as First Everett Securities Corporation, a wholly-owned subsidiary of the Bank, engaged principally in the buying and holding of investment securities. Intercompany transactions and balances have been eliminated in consolidation. +Use of Estimates +The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The allowance for credit losses is a significant estimate that is particularly susceptible to significant change in the near term. +Reclassification +Certain previously reported amounts have been reclassified to conform to the current period’s presentation. +Cash and Cash Equivalents +For purposes of reporting cash flows, cash and cash equivalents include cash on hand, cash items, due from banks and short-term investments. +The Company has historically been required to maintain certain vault cash and/or deposits with the Federal Reserve Bank of Boston. However, no reserve is required at December 31, 2025 or 2024. +Securities +The Company classifies securities at the time of purchase into one of three categories: held-to-maturity (HTM), available-for-sale (AFS), or trading. These security classifications may be modified after acquisition only under certain specified conditions. In general, debt securities may be classified as held-to-maturity only if the Company has the positive intent and ability to hold them to maturity. Trading securities are defined as those bought and held principally for the purpose of selling them in the near term. All other debt securities must be classified as available-for-sale. +• +Held-to-maturity securities are measured at amortized cost on the consolidated balance sheets. Unrealized holding gains and losses are not included in earnings, or in a separate component of shareholders' equity; they are disclosed in the notes to the consolidated financial statements. +• +Available-for-sale securities are carried at fair value on the consolidated balance sheets. Unrealized holding gains and losses are not included in earnings but are reported in other comprehensive income, net of related taxes. +• +Trading securities are carried at fair value on the consolidated balance sheets. Unrealized holding gains and losses for trading securities are included in earnings. The Company had no securities classified as trading securities at December 31, 2025 and 2024 . +Purchase premiums and discounts are recognized in interest income, using the interest method. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method. Such gains and losses are recognized within non-interest income within the consolidated statements of income. +For AFS securities in an unrealized loss position, management will first evaluate whether there is intent to sell a security, or if it is more likely than not that the Company will be required to sell a security prior to anticipated recovery of its amortized cost basis. If either of these criteria are met, the Company will record a write-down of the security’s amortized cost basis to fair value through income. For those AFS securities which do not meet the intent or requirement to sell criteria, management will evaluate whether the decline in fair value is a result of credit related matters or other factors. In performing this assessment, management considers the creditworthiness of the issuer including whether the security is guaranteed by the U.S. federal government or other government agency, the extent to which fair value is less than amortized cost, and changes in credit rating during the period, among other factors. If this assessment indicates the existence of credit losses, an allowance for credit losses will be established, as determined by a discounted cash flow analysis. To the extent the estimated cash flows do not support the amortized cost, the deficiency is considered to be due to credit loss and is recognized in earnings. +61 +Table of Contents +Changes in the allowance for credit losses are recorded as a provision for (or reversal of) credit loss expense. Losses are charged against the allowance when the security is determined to be uncollectible, or when either of the afore-mentioned criteria surrounding intent or requirement to sell have been met. No allowance for credit losses was recorded for AFS securities as of December 31, 2025 and 2024 . +Debt securities are placed on non-accrual status at the time any principal or interest payments become 90 days delinquent. Interest accrued but not received for a security placed on non-accrual is reversed against current interest income. +Refer to Note 3, “Investments in Securities” for additional information regarding the measurement of impairment losses on AFS securities. +The Company measures expected credit losses on held to maturity securities on a collective basis by major security type. Management classifies the held-to maturity portfolio into the following major security types: U.S. Government Sponsored Enterprises, U.S. Treasury, Agency Mortgage-Backed Securities, and Corporate Bonds. +Refer to Note 3, “Investments in Securities” for additional information regarding the measurement of credit losses on HTM securities. +Federal Home Loan Bank Stock +The Bank, as a member of the Federal Home Loan Bank of Boston (FHLB), is required to maintain an investment in capital stock of the FHLB. Based on redemption provisions of the FHLB, the stock has no quoted market value and is carried at cost. The Company reviews its investment in capital stock of the FHLB for impairment based on the ultimate recoverability of the cost basis in the FHLB stock. +Loans Held-for-Sale +Loans held-for-sale are carried at the lower of amortized cost or estimated fair value in the aggregate. Net unrealized losses are recognized through a valuation allowance and recorded in noninterest income. Fair value is based on committed secondary market prices. No losses have been recorded during 2025 or 2024. Gains or losses on sales of mortgage loans are recognized in the Consolidated Statements of Income at the time of sale. Interest income is recognized on loans held for sale between the time the loan is funded and the loan is sold. Direct loan origination costs and fees are deferred upon origination and are recognized in the Consolidated Statements of Income on the date of sale. +Loans +Loans that the Company has the intent and ability to hold until maturity or payoff are carried at amortized cost (net of the allowance for credit losses). Amortized cost is the principal amount outstanding, adjusted by partial charge-offs and net of any deferred loan costs or fees. For originated loans, loan fees and certain direct origination costs are deferred and amortized into interest income over the contractual life of the loan using the level-yield method. When a loan is paid off, the unamortized portion is recognized in interest income. Interest income on loans is accrued based upon the daily principal amount outstanding except for loans on nonaccrual status. As a general rule, loans more than 90 days past due with respect to principal or interest are classified as nonaccrual loans, or sooner if management considers such action to be prudent. However, loans that are more than 90 days past due may be kept on an accruing status if the loan is well secured and in the process of collection. Income accruals are suspended on all nonaccrual loans in a timely manner and all previously accrued and uncollected interest is reversed against current income. A loan can be returned to accrual status when collectibility of principal and interest is reasonably assured and the loan has performed for a period of time, generally at least six months. When doubt exists as to the collectibility of a loan, any payments received are applied to reduce the amortized cost of the loan to the extent necessary to eliminate such doubt. For all loan portfolios, a charge-off occurs when the Company determines that a specific loan, or portion thereof, is uncollectible. This determination is made based on management's review of specific facts and circumstances of the individual loan, including the expected cash flows to repay the loan, the value of the collateral and the ability and willingness of any guarantors to perform. +62 +Table of Contents +Allowance for Credit Losses +The allowance for credit losses is established based upon the Company's current estimate of expected lifetime credit losses on loans measured at amortized cost. Credit losses are charged against the allowance when management's assessments confirm that the Company will not collect the full amortized cost basis of a loan. Subsequent recoveries, if any, are credited to the allowance. Under the current expected credit loss methodology (CECL) methodology, the Company estimates credit losses for financial assets on a collective basis for loans sharing similar risk characteristics. The Company segments financial assets with similar risk characteristics and has elected to segment its loans based on Federal Call codes used for reporting loans to the Federal Deposit Insurance Corporation as part of the Call Report process. These segments are collectively evaluated for expected credit losses using a quantitative Discounted Cash Flow ("DCF") model combined with an assessment of certain qualitative factors designed to address forecast risk and model risk inherent in the quantitative model output. The Company has elected to use this approach because DCF models allow for effective incorporation of a reasonable and supportable forecast in a directionally consistent and objective manner and peer data is available for certain inputs such as the probability of default and the loss given default. The quantitative model utilizes a loss factor based approach to estimate expected credit losses, which are derived from internal historical and industry peer loss experience. The model estimates expected credit losses using loan level data over the estimated life of the exposure, considering the effect of prepayments. Economic forecasts are incorporated into the estimate over a reasonable and supportable forecast period, beyond which is a reversion to the historical long-run average using the straight-line reversion method. Management periodically evaluates a reasonable and supportable forecast period and a reversion period to be appropriate for purposes of estimating expected credit losses. The qualitative risk factors impacting the expected risk of loss within the portfolio include the following: +• +Lending policies and procedures +• +Economic and business conditions +• +Nature and volume of loans +• +Changes in management +• +Changes in credit quality +• +Changes in loan review system +• +Changes to underlying collateral values +• +Concentrations of credit risk +• +Other external factors +The qualitative factors are determined based on the various risk characteristics of each loan segment. Risk characteristics relevant to each loan segment are as follows: +One-to- four residential real estate and home equity lines of credit and loans : The Company generally does not originate loans with a loan-to-value ratio greater than 80 percent without requiring private mortgage insurance. Loans in these segments are collateralized primarily by owner-occupied residential real estate and repayment is dependent on the credit quality of the individual borrower. The overall health of the economy, including unemployment rates and housing prices, will have an effect on the credit quality in these segments. +Commercial real estate and multi-family residential : Loans in these segments are primarily income-producing properties throughout Massachusetts. The underlying cash flows generated by the properties are adversely impacted by a downturn in the economy as evidenced by increased vacancy rates which, in turn, will have an effect on the credit quality in these segments. Management periodically obtains rent rolls and continually monitors the cash flows of these loans. +63 +Table of Contents +Construction : The loans in this segment are residential and commercial construction-to-permanent loans collateralized by owner-occupied residential and commercial real estate and repayment is dependent on the credit quality of the individual borrower. The overall health of the economy, including unemployment rates and housing prices, will have an effect on the credit quality in this segment. +Commercial : Loans in this segment are made to businesses and are generally secured by assets of the business. Repayment is expected from the cash flows of the business. A weakened economy, and resultant decreased consumer spending, will have an effect on the credit quality in this segment. +Consumer : Loans in this segment are generally unsecured and repayment is dependent on the credit quality of the individual borrower. +Loans that do not share similar risk characteristics with any pools of assets are subject to individual evaluation and are removed from the collectively assessed pools to avoid double counting. This generally includes loans on non-accrual status and loans that are 90 days or greater past due. For the loans that will be individually evaluated, the Company will use either a discounted cash flow (“DCF”) approach or a fair value of collateral approach. The latter approach will be used for loans deemed to be collateral dependent or when foreclosure is probable. +Accrued interest receivable amounts are excluded from balances of loans held at amortized cost and are included within accrued interest receivable in the consolidated balance sheets. Management has elected not to measure an allowance for credit losses on these amounts as the Company employs a timely write-off policy. Consistent with the Company's policy for nonaccrual loans, accrued interest receivable is typically written off when loans reach 90 days past due and are placed on nonaccrual status. +In the ordinary course of business, the Company enters into commitments to extend credit. Such financial instruments are recorded in the financial statements when they are funded. The credit risk associated with these commitments is evaluated in a manner similar to the allowance for credit losses on loans with an additional assumption of probability of funding. The reserve for unfunded lending commitments is included in other liabilities in the consolidated balance sheets. +Bank Owned Life Insurance +The Company holds bank-owned life insurance on the lives of certain participating employees. The amount reported as an asset on the Consolidated Balance Sheets is the sum of the cash surrender values ("CSV") reported to the Company by the various insurance carriers. Increases in the cash surrender value of life insurance policies, as well as benefits received net of any cash surrender value, are recorded in other noninterest income, and are generally not subject to income taxes. The Company reviews the financial strength of the insurance carriers prior to the purchase of life insurance policies and no less than annually thereafter. Regulatory requirements limit the total amount of CSV to be held with any individual carrier to 15% of Tier 1 capital (as defined for regulatory purposes) and the total CSV of all life insurance policies is limited to 25% of Tier 1 capital. +Premises and Equipment +Land is carried at cost. Buildings, leasehold improvements and furniture and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets. Leasehold improvements are amortized over the shorter of the lease terms or the estimated lives of the improvements. Expected lease terms include lease options to the extent that the exercise of such options is reasonably assured. +64 +Table of Contents +Leases +Leases are evaluated at inception to determine if leases should be classified as an operating or finance lease. Leases are recognized as right-of-use lease assets and lease liabilities. The discount rate used in determining the present value of lease payments is based on the Company’s incremental borrowing rate for borrowings with terms similar to each lease at commencement date. The Company recognizes lease expense for operating leases on a straight-line basis. +Other Real Estate Owned +Real estate properties and other assets, which have served as collateral to secure loans, are held for sale and are initially recorded at fair value less estimated costs to sell at the date control is established, resulting in a new cost basis. The amount by which the recorded investment in the loan exceeds the fair value (net of estimated costs to sell) of the foreclosed asset is charged to the allowance for credit losses. Subsequent declines in the fair value of the foreclosed asset below the new cost basis are recorded through the use of a valuation allowance. Subsequent increases in the fair value are recorded as reductions in the valuation allowance, but not below zero. Upon a sale of a foreclosed asset, any excess of the carrying value over the sale proceeds is recognized as a loss on sale. Any excess of sale proceeds over the carrying value of the foreclosed asset is first applied as a recovery to the valuation allowance, if any, with the remainder being recognized as a gain on sale. Operating expenses and changes in the valuation allowance relating to foreclosed assets are recorded in other noninterest expense. The Company held no other real estate owned as of December 31, 2025 and 2024. +Advertising +The Company directly expenses costs associated with advertising as they are incurred. +Stock-based Compensation +The Company recognizes stock-based compensation based on the grant-date fair value of the award with no adjustment for expected forfeitures, as forfeitures are recognized when they occur. For restricted stock awards, the Company recognizes compensation expense ratably over the vesting period for the fair value of the award, measured at the grant date. For stock option awards, the Company values awards granted using the Black-Scholes option-pricing model. The Company recognizes compensation expense for these awards on a straight-line basis over the requisite service period for the entire award (straight-line attribution method), ensuring that the amount of compensation cost recognized at any date at least equals the portion of the grant-date fair value of the award that is vested at that time. The Company recognizes excess tax benefits on certain stock compensation transactions. The excess tax benefits are recorded through earnings as a discrete item within the Company’s effective tax rate during the period of the transaction. +Income Taxes +Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. +Assets and liabilities are established for uncertain tax positions taken or positions expected to be taken in income tax returns when such positions are judged to not meet the “more-likely-than- not” threshold, based upon the technical merits of the position. Estimated interest and penalties, if applicable, related to uncertain tax positions are included as a component of income tax expense. +The Company has evaluated the positions taken on its tax returns filed and the potential impact on its tax status as of December 31, 2025 . The Company has concluded no uncertain income tax positions exist at December 31, 2025 . The Company is subject to U.S. federal, state and local income tax examinations by tax authorities for the 2022 through 2024 tax years. +65 +Table of Contents +Risks and Uncertainties +Most of the Company’s business activity is with customers located within the greater Boston area. The majority of the Company’s loan portfolio is comprised of loans collateralized by real estate located in the greater Boston area. +The Company invests in various investment securities. Investment securities are exposed to various risks, such as interest rate, market and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investments will occur in the near term and that such changes could materially affect the amounts reported in the consolidated balance sheet or statements of income. +Ineffective liquidity management could adversely affect the Company's financial results and condition. Effective liquidity management is essential for the operation of the business. The Company requires sufficient liquidity to meet customer loan requests, customer deposit maturities/withdrawals, payments on its debt obligations as they come due, and other cash commitments under both normal operating conditions and other unpredictable circumstances causing industry or general financial market stress. The Company's access to funding sources in amounts adequate to finance its activities on terms that are acceptable to the Company could be impaired by factors that affect the Company specifically, or the financial services industry or economy generally. Factors that could detrimentally impact the Company's access to liquidity sources include a downturn in the geographic markets in which our loans and operations are concentrated or difficult credit markets. The Company's access to deposits may also be affected by the liquidity needs of its depositors. In particular, a portion of the Company's liabilities are checking accounts and other liquid deposits, which are payable on demand or upon several days’ notice, while by comparison, a substantial majority of the Company's assets are loans, which cannot be called or sold in the same time frame. Although the Company has historically been able to replace maturing deposits and advances as necessary, it might not be able to replace such funds in the future, especially if a large number of the Company's depositors seek to withdraw their accounts, regardless of the reason. A failure to maintain adequate liquidity could materially and adversely affect the Company's business, results of operations, or financial condition. +Revenue Recognition +The Company recognizes revenue in accordance with Accounting Standards Codification (ASC) Topic 606 : Revenue from Contracts with Customers . The Company’s principal revenue streams come from interest and dividend income and mortgage banking activities – which are specifically excluded from the scope of Topic 606. Revenue streams within the scope of Topic 606 such as customer service and account maintenance fees, deposit charges, ATM interchange and other transaction fees represent an immaterial percentage of total revenue and are recognized when the Company’s performance obligations have been satisfied. +Earnings Per Share +Basic earnings per share is calculated by dividing the income available to common shares by the weighted-average number of common shares outstanding during the period. Diluted earnings per share have been calculated in a manner similar to that of basic earnings per share except that the weighted-average number of common shares outstanding is increased to include the number of additional common shares that would have been outstanding if all potential dilutive common shares (such as those resulting from the exercise of stock options) were issued during the period, computed using the treasury stock method. Unallocated ESOP shares are not deemed outstanding for earnings per share calculations. +Common Share Repurchases +Shares repurchased by the Company under the Company’s share repurchase program have been classified as authorized but unissued shares. The cost of shares repurchased by the Company has been accounted for as a reduction to common stock and additional paid in capital balances. Under Maryland corporation law, repurchased shares are not classified as Treasury shares; but rather, are classified as authorized but unissued shares. U.S. GAAP states that the accounting for share repurchases shall conform to state law where applicable. +66 +Table of Contents +Employee Stock Ownership Plan ("ESOP") +ESOP shares are shown as a reduction of equity and are presented in the consolidated statements of changes in shareholders’ equity as unallocated common stock held by ESOP. Compensation expense for the Company’s ESOP is recorded at an amount equal to the shares committed to be allocated by the ESOP multiplied by the average fair market value of the shares during the period. The Company recognizes compensation expense ratably over the period based upon the Company’s estimate of the number of shares committed to be allocated by the ESOP. When the shares are released, unallocated common stock held by ESOP is reduced by the cost of the ESOP shares released and the difference between the average fair market value and the cost of the shares committed to be allocated by the ESOP is recorded as an adjustment to additional paid-in capital. The loan receivable from the ESOP is not reported as an asset nor is the Company’s guarantee to fund the ESOP reported as a liability on the Company’s consolidated balance sheet. +Derivatives and Hedging +Derivative instruments are carried at fair value in the Company’s financial statements. The accounting for changes in the fair value of a derivative instrument is determined by whether it has been designated and qualifies as part of a hedging relationship, and further, by the type of hedging relationship. At the inception of a hedge, the Company documents certain items, including but not limited to the following: the relationship between hedging instruments and hedged items, the Company's risk management objectives, hedging strategies, and the evaluation of hedge transaction effectiveness. Documentation includes linking all derivatives designated as cash flow hedges to specific forecasted transactions. +The Company’s derivative instruments that are designated and qualify for hedge accounting are classified as cash flow hedges (i.e., hedging the exposure to variability in expected future cash flows associated with a recognized asset or liability, or a forecasted transaction). As such, changes in the fair value of the designated hedging instrument that is included in the assessment of hedge effectiveness are recorded in other comprehensive income and reclassified into net income in the same period or periods during which the hedged forecasted transaction affects net income. Such reclassifications are presented in the same income statement line item as the net income effect of the hedged item. If the hedging instrument is not highly effective at achieving offsetting cash flows attributable to the revised contractually specified interest rate(s), hedge accounting will be discontinued. At that time, accumulated other comprehensive income would be frozen and amortized, as long as the forecasted transactions are still probable of occurring. If a cash flow hedge is terminated, hedge accounting treatment would be retained, and accumulated other comprehensive income would be frozen and amortized, as long as the forecasted transactions are still probable of occurring +RECENT ACCOUNTING STANDARDS +The Company qualifies as an emerging growth company (“EGC”) under the Jumpstart Our Business Startups Act of 2012 and may elect to defer the adoption of new or revised accounting standards until the nonpublic company effective dates. +In December 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Updates ("ASU") 2023 - 09, Income Taxes (Topic 740 ): Improvements to Income Tax Disclosures. These amendments require that public business entities on an annual basis disclose specific categories in the rate reconciliation. ASU 2023 - 09 also requires entities to provide additional information for reconciling items that meet a quantitative threshold. The Company adopted ASU 2023 - 09 as of December 31, 2025 with no significant impact on our income tax disclosures. +In November 2024, FASB issued ASU 2024 - 03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220 - 40 ): Disaggregation of Income Statement Expenses , which requires disclosure in the notes to the financial statements of specified information about certain costs and expenses. The amendments are effective for fiscal years beginning after December 15, 2026, and for interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. The amendments should be applied either prospectively to financial statements issued for reporting periods after the effective date of this ASU or retrospectively to any or all prior periods presented in the financial statements. The Company is currently evaluating the new guidance to determine the impact it may have on its consolidated financial statements and related disclosures, but expects additional disclosures upon adoption. +67 +Table of Contents +NOTE 3 – INVESTMENTS IN SECURITIES +Available-for-Sale Securities +Investments in securities have been classified in the consolidated balance sheets according to management’s intent. The following tables summarize the amortized cost, allowance for credit losses, and fair value of securities and their corresponding amounts of unrealized gains and losses for available-for-sale at the dates indicated: +Gross +Gross +Allowance +Amortized +Unrealized +Unrealized +for Credit +Fair +Available-for-sale +Cost +Gains +Losses +Losses +Value +(in thousands) +As of December 31, 2025 +Mortgage-backed securities +$ 6,411 $ 51 $ ( 3 ) $ — $ 6,459 +Collateralized mortgage obligations +10,937 48 ( 37 ) — 10,948 +Corporate bonds +16,732 225 ( 47 ) — 16,910 +Total available-for-sale securities +$ 34,080 $ 324 $ ( 87 ) $ — $ 34,317 +As of December 31, 2024 +Mortgage-backed securities +$ 4,164 $ — $ ( 38 ) $ — $ 4,126 +Collateralized mortgage obligations +1,452 — ( 14 ) — 1,438 +Corporate bonds +1,000 — — — 1,000 +Total available-for-sale securities +$ 6,616 $ — $ ( 52 ) $ — $ 6,564 +The Company did not record a provision for estimated credit losses on any available-for-sale securities for the years ended December 31, 2025 or December 31, 2024 . Excluded from the table above is accrued interest on available-for-sale securities of $ 335,000 and $ 16,000 at December 31, 2025 and December 31, 2024, respectively, which is included within accrued interest receivable in the Consolidated Balance Sheets. Additionally, the Company did not record any write-offs of accrued interest income on available for sale securities for the years ended December 31, 2025 and December 31, 2024 . No securities held by the Company were delinquent on contractual payments at December 31, 2025 and December 31, 2024 , nor were any securities placed on non-accrual status for the year then ended. +The aggregate fair value and unrealized losses of available-for-sale securities that have been in a continuous unrealized loss position for less than twelve months and for twelve months or more, and have no allowance for credit losses, are as follows as of December 31, 2025 and December 31, 2024 : +Less than 12 Months +12 Months or Longer +Total +# of +Fair +Unrealized +Fair +Unrealized +Fair +Unrealized +Holdings +Value +Losses +Value +Losses +Value +Losses +(in thousands) +As of December 31, 2025 +Available-for-Sale: +Mortgage-backed securities +1 $ — $ — $ 1,362 $ ( 3 ) $ 1,362 $ ( 3 ) +Collateralized mortgage obligations +3 3,778 ( 15 ) 1,405 ( 22 ) 5,183 ( 37 ) +Corporate bonds +4 7,666 ( 47 ) — — 7,666 ( 47 ) +Total +8 $ 11,444 $ ( 62 ) $ 2,767 $ ( 25 ) $ 14,211 $ ( 87 ) +As of December 31, 2024 +Available-for-Sale: +Mortgage-backed securities +2 $ 4,126 $ ( 38 ) $ — $ — $ 4,126 $ ( 38 ) +Collateralized mortgage obligations +1 1,438 ( 14 ) — — 1,438 ( 14 ) +Total +3 $ 5,564 $ ( 52 ) $ — $ — $ 5,564 $ ( 52 ) +Management evaluates securities for expected credit losses at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. +68 +Table of Contents +Held-to-Maturity Securities +The following tables summarize the amortized cost, allowance for credit losses, and fair value of securities and their corresponding amounts of unrealized gains and losses for held-to-maturity at the dates indicated: +Gross +Gross +Allowance +Amortized +Unrealized +Unrealized +for Credit +Fair +Held-to-maturity: +Cost +Gains +Losses +Losses +Value +(in thousands) +As of December 31, 2025 +Mortgage-backed securities +$ 36,645 $ 88 $ ( 3,453 ) $ — $ 33,280 +Corporate bonds +19,119 262 ( 335 ) — 19,046 +Total held-to-maturity securities +$ 55,764 $ 350 $ ( 3,788 ) $ — $ 52,326 +As of December 31, 2024 +Debt securities issued by U.S. government-sponsored enterprises +$ 5,588 $ — $ ( 138 ) $ — $ 5,450 +Mortgage-backed securities +44,261 20 ( 5,334 ) — 38,947 +Corporate bonds +17,899 192 ( 471 ) — 17,620 +U.S. Treasury securities +5,467 21 — — 5,488 +Total held-to-maturity securities +$ 73,215 $ 233 $ ( 5,943 ) $ — $ 67,505 +The Company measures expected credit losses on held to maturity securities on a collective basis by major security type. Management classifies the held-to-maturity portfolio into the following major security types: U.S. Government Sponsored Enterprises, U.S. Treasury, Agency Mortgage-Backed Securities, and Corporate Bonds. +Debt securities issued by U.S. government-sponsored enterprises, U.S. Treasury securities and mortgage-backed securities are guaranteed by the U.S. federal government or other government sponsored agencies and have a long history of no credit losses. As a result, management has determined these securities to have a zero loss expectation. The Company's investments in corporate bonds are deemed “investment grade” and (a) the Company does not intend to sell these securities before recovery and (b) it is more likely than not that the Company will not be required to sell these securities before recovery. Therefore the Company did not record a provision for estimated credit losses on any held to maturity securities during the year ended December 31, 2025 and December 31, 2024 . Excluded from the table above is accrued interest on held to maturity securities of $ 237,000 and $ 378,000 at December 31, 2025 and 2024 . respectively, which is included within accrued interest receivable in the Consolidated Balance Sheets. Additionally, the Company did not record any write-offs of accrued interest income on held to maturity securities for the year ended December 31, 2025 and December 31, 2024 . No securities held by the Company were delinquent on contractual payments at December 31, 2025 or December 31, 2024 , nor were any securities placed on non-accrual status for the year then ended. +69 +Table of Contents +Held-to-Maturity and Available-for-Sale Securities +The actual maturities of certain available-for-sale or held-to-maturity securities may differ from the contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. A schedule of the contractual maturities of available-for-sale and held-to-maturity securities as of December 31, 2025 is presented below: +Available- +for-sale +Held-to-maturity +Fair +Amortized +Fair +Value +Cost Basis +Value +(in thousands) +Within 1 year +$ 1,362 $ 7,521 $ 7,479 +After 1 year through 5 years +9,773 9,625 9,737 +After 5 years through 10 years +11,330 8,216 7,941 +After 10 years +11,852 30,402 27,169 +Total +$ 34,317 $ 55,764 $ 52,326 +When securities are sold, the adjusted cost of the specific security sold is used to compute the gain or loss on the sale. There were no sales of securities during the years ended December 31, 2025 or 2024. +The carrying value of securities pledged to secure advances from the FHLB were $ 48.5 million and $ 55.5 million as of December 31, 2025 and December 31, 2024 , respectively. +The carrying value of securities pledged to secure advances from the Federal Reserve Bank (“FRB”) was $ 18.7 million and $ 16.0 million as of December 31, 2025 and December 31, 2024 , respectively. +NOTE 4 – LOANS, ALLOWANCE FOR CREDIT LOSSES AND CREDIT QUALITY +Loans consisted of the following as of the dates indicated: +At December 31, +At December 31, +2025 +2024 +Amount +Percent +Amount +Percent +(Dollars in thousands) +Real estate loans: +One-to-four family residential +$ 473,394 34.2 % $ 422,841 36.9 % +Multi-family +425,428 30.8 343,970 30.0 +Commercial +336,412 24.3 228,991 20.0 +Home equity lines of credit and loans +49,866 3.6 45,154 4.0 +Construction +88,957 6.4 90,894 7.9 +Other loans: +Commercial +7,938 0.6 13,844 1.2 +Consumer +869 0.1 141 0.0 +1,382,864 100.0 % 1,145,835 100.0 % +Less: +Net deferred loan fees +( 790 ) ( 502 ) +Allowance for credit losses +( 10,255 ) ( 8,884 ) +Total loans, net +$ 1,371,819 $ 1,136,449 +The Company elected to exclude accrued interest receivable from the amortized cost basis of loans disclosed throughout this footnote. As of December 31, 2025 and 2024 , accrued interest receivable for loans totaled $ 4.6 million and $ 3.5 million, respectively, and is included in the " Accrued interest receivable " line item on the Company's Consolidated Balance Sheets. +The Company elected to exclude net deferred loan fees from the amortized cost basis of loans disclosed throughout this footnote. +The carrying value of loans pledged to secure advances from the FHLB was $ 920.9 million and $ 744.6 million as of December 31, 2025 and December 31, 2024 , respectively. +The carrying value of loans pledged to secure advances from the FRB was $ 114.7 million as of December 31, 2025. There were no loans pledged to the FRB at December 31, 2024. +70 +Table of Contents +The following tables set forth information regarding the allowance for credit losses as of and for the years ended December 31, 2025 and December 31, 2024 : +For the year ended December 31, 2025 +Beginning +Provision +Ending +Balance +Charge-offs +Recoveries +(benefit) +Balance +(in thousands) +Real estate loans: +One-to-four family residential +$ 2,928 $ — $ — $ 141 $ 3,069 +Multi-family +2,422 — — ( 162 ) 2,260 +Commercial +2,260 — — 1,380 3,640 +Home equity lines of credit and loans +118 — — 52 170 +Construction +1,036 — — ( 27 ) 1,009 +Other loans: +Commercial +119 ( 81 ) — 64 102 +Consumer +1 ( 6 ) 1 9 5 +Total +$ 8,884 $ ( 87 ) $ 1 $ 1,457 $ 10,255 +For the year ended December 31, 2024 +Beginning +(Benefit) +Ending +Balance +Charge-offs +Recoveries +provision +Balance +(in thousands) +Real estate loans: +One-to-four family residential +$ 3,555 $ — $ — $ ( 627 ) $ 2,928 +Multi-family +1,190 — — 1,232 2,422 +Commercial +1,636 — — 624 2,260 +Home equity lines of credit and loans +321 — — ( 203 ) 118 +Construction +1,757 — — ( 721 ) 1,036 +Other loans: +Commercial +131 — — ( 12 ) 119 +Consumer +1 ( 4 ) 1 3 1 +Total +$ 8,591 $ ( 4 ) $ 1 $ 296 $ 8,884 +During the year ended December 31, 2025, the total provision for losses was $ 1,534,000 of which $ 1,457,000 relates to the provision for losses on loans while $ 77,000 relates to the provision for losses on off-balance sheet commitments. During the year ended December 31, 2024, the total provision for losses was $ 174,000 of which $ 296,000 relates to the provision for losses on loans while ($ 122,000 ) relates to a benefit for losses on off-balance sheet commitments. +71 +Table of Contents +The following table shows the age analysis of past due loans as of the dates indicated: +90 days +30–59 +60–89 +90 Days +Total +Total +Total +or more +Loans on +Days +Days +or More +Past Due +Current +Loans +and accruing +Non-accrual +(in thousands) +As of December 31, 2025 +Real estate loans: +One-to-four family residential +$ 519 $ 104 $ — $ 623 $ 472,771 $ 473,394 $ — $ 1,096 +Multi-family +— — — — 425,428 425,428 — — +Commercial +246 — — 246 336,166 336,412 — — +Home equity lines of credit and loans +370 — 3 373 49,493 49,866 — 43 +Construction +— — — — 88,957 88,957 — — +Other loans: +Commercial +— — — — 7,938 7,938 — — +Consumer +— — — — 869 869 — — +$ 1,135 $ 104 $ 3 $ 1,242 $ 1,381,622 $ 1,382,864 $ — $ 1,139 +90 days +30–59 +60–89 +90 Days +Total +Total +Total +or more +Loans on +Days +Days +or More +Past Due +Current +Loans +and accruing +Non-accrual +(in thousands) +As of December 31, 2024 +Real estate loans: +One-to-four family residential +$ 1,260 $ — $ 1,077 $ 2,337 $ 420,504 $ 422,841 $ — $ 1,872 +Multi-family +— — — — 343,970 343,970 — — +Commercial +— — — — 228,991 228,991 — — +Home equity lines of credit and loans +405 — 85 490 44,664 45,154 — 85 +Construction +— — — — 90,894 90,894 — — +Other loans: +Commercial +— — — — 13,844 13,844 — — +Consumer +— — — — 141 141 — — +$ 1,665 $ — $ 1,162 $ 2,827 $ 1,143,008 $ 1,145,835 $ — $ 1,957 +72 +Table of Contents +As of December 31, 2025 , the Company's collateral-dependent residential real estate loans and home equity lines of credit and loans had amortized cost bases of $ 1.1 million and $ 43,000 , respectively. These loans are secured by real estate with no related allowance for credit losses. +As of December 31, 2024 , the Company's collateral-dependent residential real estate loans and home equity lines of credit and loans had amortized cost bases of $ 1.9 million and $ 85,000 , respectively. These loans are secured by real estate with no related allowance for credit losses. +The following table shows information regarding nonaccrual loans as of the dates indicated: +As of December 31, 2025 +Year Ended December 31, 2025 +With an Allowance +Without an Allowance +Interest Income +for Credit Losses +for Credit Losses +Total +Recognized +(in thousands) +December 31, 2025 +Real estate loans: +One-to-four family residential +$ — $ 1,096 $ 1,096 $ 74 +Home equity lines of credit and loans +— 43 43 25 +Total nonaccrual loans +$ — $ 1,139 $ 1,139 $ 99 +As of December 31, 2024 +Year Ended December 31, 2024 +With an Allowance +Without an Allowance +Interest Income +for Credit Losses +for Credit Losses +Total +Recognized +(in thousands) +December 31, 2024 +Real estate loans: +One-to-four family residential +$ — $ 1,872 $ 1,872 $ 53 +Home equity lines of credit and loans +— 85 85 1 +Total nonaccrual loans +$ — $ 1,957 $ 1,957 $ 54 +Credit Quality Information +The Company's loan rating system for multi-family and commercial real estate, construction, commercial loans and certain residential and home equity lines of credit is as follows: +Loans rated 1 – 6: Loans in these categories are considered “pass” rated loans with low to average risk. +Loans rated 7: Loans in this category are considered “special mention.” These loans are starting to show signs of potential weakness and are being closely monitored by management. +Loans rated 8: Loans in this category are considered “substandard.” Generally, a loan is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligors and/or the collateral pledged. There is a distinct possibility that the Bank will sustain some loss if the weakness is not corrected. +Loans rated 9: Loans in this category are considered “doubtful.” Loans classified as doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, highly questionable and improbable. +Loans rated 10: Loans in this category are considered uncollectible (loss) and of such little value that their continuance as loans is not warranted. +On an annual basis, or more often if needed, the Company formally reviews the ratings on all commercial loans with aggregate potential outstanding balances of $ 500,000 or more, and all commercial real estate loans (including multi-family and construction loans as well as residential and home equity line of credit loans to commercial borrowers) with aggregate potential outstanding balances of $ 2.0 million or more. For loans that are not formally rated, the Company initially assesses credit quality based upon the borrower’s ability to pay and subsequently monitors these loans based on the borrower’s payment activity. +73 +Table of Contents +The following table details the amortized cost balances of the Company's loan portfolios, presented by credit quality indicator and origination year as of December 31, 2025 and December 31, 2024 : +Revolving Loans +Revolving Loans +Term Loans Amortized Cost Basis by Origination Year +Amortized Cost Basis +Converted to Term +Total +2025 +2024 +2023 +2022 +2021 +Prior +As of December 31, 2025 +(in thousands) +One-to-four family residential +Pass +$ 40,466 $ 9,290 $ 13,941 $ 33,430 $ 14,226 $ 14,488 $ — $ — $ 125,841 +Special Mention +— — 519 — — 629 — — 1,148 +Substandard +— — — — — — — — — +Doubtful +— — — — — — — — — +Loans not formally rated (1) +44,560 25,284 41,495 76,803 64,756 93,507 — — 346,405 +Total +$ 85,026 $ 34,574 $ 55,955 $ 110,233 $ 78,982 $ 108,624 $ — $ — $ 473,394 +Current-period gross charge-offs +$ — $ — $ — $ — $ — $ — $ — $ — $ — +Multi-family +Pass +$ 87,627 $ 26,358 $ 51,235 $ 207,128 $ 24,712 $ 16,769 $ 11,599 $ — $ 425,428 +Special Mention +— — — — — — — — — +Substandard +— — — — — — — — — +Doubtful +— — — — — — — — — +Loans not formally rated (1) +— — — — — — — — — +Total +$ 87,627 $ 26,358 $ 51,235 $ 207,128 $ 24,712 $ 16,769 $ 11,599 $ — $ 425,428 +Current-period gross charge-offs +$ — $ — $ — $ — $ — $ — $ — $ — $ — +Commercial real estate +Pass +$ 102,619 $ 24,301 $ 38,665 $ 96,593 $ 24,203 $ 41,656 $ 8,375 $ — $ 336,412 +Special Mention +— — — — — — — — — +Substandard +— — — — — — — — — +Doubtful +— — — — — — — — — +Loans not formally rated (1) +— — — — — — — — — +Total +$ 102,619 $ 24,301 $ 38,665 $ 96,593 $ 24,203 $ 41,656 $ 8,375 $ — $ 336,412 +Current-period gross charge-offs +$ — $ — $ — $ — $ — $ — $ — $ — $ — +Home equity lines of credit and loans +Pass +$ — $ 196 $ 319 $ — $ — $ — $ 7,099 $ — $ 7,614 +Special Mention +— — — — — 3 90 — 93 +Substandard +— — — — — — 99 — 99 +Doubtful +— — — — — — — — — +Loans not formally rated (1) +142 170 347 25 2 54 40,760 560 42,060 +Total +$ 142 $ 366 $ 666 $ 25 $ 2 $ 57 $ 48,048 $ 560 $ 49,866 +Current-period gross charge-offs +$ — $ — $ — $ — $ — $ — $ — $ — $ — +Construction +Pass +$ 39,339 $ 37,484 $ 7,603 $ — $ — $ 2,988 $ — $ — $ 87,414 +Special Mention +— — — — — — — — — +Substandard +— — — — — — — — — +Doubtful +— — — — — — — — — +Loans not formally rated (1) +790 753 — — — — — — 1,543 +Total +$ 40,129 $ 38,237 $ 7,603 $ — $ — $ 2,988 $ — $ — $ 88,957 +Current-period gross charge-offs +$ — $ — $ — $ — $ — $ — $ — $ — $ — +Commercial +Pass +$ 355 $ 4,500 $ 213 $ 2,091 $ 258 $ 159 $ 362 $ — $ 7,938 +Special Mention +— — — — — — — — — +Substandard +— — — — — — — — — +Doubtful +— — — — — — — — — +Loans not formally rated (1) +— — — — — — — — — +Total +$ 355 $ 4,500 $ 213 $ 2,091 $ 258 $ 159 $ 362 $ — $ 7,938 +Current-period gross charge-offs +$ — $ — $ — $ — $ — $ 16 $ 65 $ — $ 81 +Consumer +Pass +$ — $ — $ — $ — $ — $ — $ — $ — $ — +Special Mention +— — — — — — — — — +Substandard +— — — — — — — — — +Doubtful +— — — — — — — — — +Loans not formally rated (1) +705 6 8 20 31 4 95 — 869 +Total +$ 705 $ 6 $ 8 $ 20 $ 31 $ 4 $ 95 $ — $ 869 +Current-period gross charge-offs +$ 6 $ — $ — $ — $ — $ — $ — $ — $ 6 +74 +Table of Contents +Revolving Loans +Revolving Loans +Term Loans Amortized Cost Basis by Origination Year +Amortized Cost Basis +Converted to Term +Total +2024 +2023 +2022 +2021 +2020 +Prior +As of December 31, 2024 +(in thousands) +One-to-four family residential +Pass +$ 8,351 $ 12,065 $ 34,466 $ 15,123 $ 3,979 $ 11,766 $ — $ — $ 85,750 +Special Mention +— — — — 636 771 — — 1,407 +Substandard +— — — — — — — — — +Doubtful +— — — — — — — — — +Loans not formally rated (1) +30,905 46,491 84,245 68,818 48,728 56,497 — — 335,684 +Total +$ 39,256 $ 58,556 $ 118,711 $ 83,941 $ 53,343 $ 69,034 $ — $ — $ 422,841 +Current-period gross charge-offs +$ — $ — $ — $ — $ — $ — $ — $ — $ — +Multi-family +Pass +$ 24,006 $ 55,612 $ 201,562 $ 35,315 $ 8,611 $ 8,792 $ 10,072 $ — $ 343,970 +Special Mention +— — — — — — — — — +Substandard +— — — — — — — — — +Doubtful +— — — — — — — — — +Loans not formally rated (1) +— — — — — — — — — +Total +$ 24,006 $ 55,612 $ 201,562 $ 35,315 $ 8,611 $ 8,792 $ 10,072 $ — $ 343,970 +Current-period gross charge-offs +$ — $ — $ — $ — $ — $ — $ — $ — $ — +Commercial real estate +Pass +$ 28,614 $ 40,935 $ 82,054 $ 25,215 $ 15,447 $ 32,071 $ 4,655 $ — $ 228,991 +Special Mention +— — — — — — — — — +Substandard +— — — — — — — — — +Doubtful +— — — — — — — — — +Loans not formally rated (1) +— — — — — — — — — +Total +$ 28,614 $ 40,935 $ 82,054 $ 25,215 $ 15,447 $ 32,071 $ 4,655 $ — $ 228,991 +Current-period gross charge-offs +$ — $ — $ — $ — $ — $ — $ — $ — $ — +Home equity lines of credit and loans +Pass +$ 199 $ 323 $ — $ — $ — $ — $ 8,083 $ — $ 8,605 +Special Mention +— — — — — 10 322 — 332 +Substandard +— — — — — — 99 — 99 +Doubtful +— — — — — — — — — +Loans not formally rated (1) +176 382 27 7 — 71 34,618 837 36,118 +Total +$ 375 $ 705 $ 27 $ 7 $ — $ 81 $ 43,122 $ 837 $ 45,154 +Current-period gross charge-offs +$ — $ — $ — $ — $ — $ — $ — $ — $ — +Construction +Pass +$ 30,986 $ 19,398 $ 32,483 $ 2,493 $ — $ 2,988 $ — $ — $ 88,348 +Special Mention +— — — — — — — — — +Substandard +— — — — — — — — — +Doubtful +— — — — — — — — — +Loans not formally rated (1) +1,116 1,430 — — — — — — 2,546 +Total +$ 32,102 $ 20,828 $ 32,483 $ 2,493 $ — $ 2,988 $ — $ — $ 90,894 +Current-period gross charge-offs +$ — $ — $ — $ — $ — $ — $ — $ — $ — +Commercial +Pass +$ 4,501 $ 4,410 $ 2,597 $ 340 $ — $ 195 $ 1,801 $ — $ 13,844 +Special Mention +— — — — — — — — — +Substandard +— — — — — — — — — +Doubtful +— — — — — — — — — +Loans not formally rated (1) +— — — — — — — — — +Total +$ 4,501 $ 4,410 $ 2,597 $ 340 $ — $ 195 $ 1,801 $ — $ 13,844 +Current-period gross charge-offs +$ — $ — $ — $ — $ — $ — $ — $ — $ — +Consumer +Pass +$ — $ — $ — $ — $ — $ — $ — $ — $ — +Special Mention +— — — — — — — — — +Substandard +— — — — — — — — — +Doubtful +— — — — — — — — — +Loans not formally rated (1) +7 16 29 39 — 6 44 — 141 +Total +$ 7 $ 16 $ 29 $ 39 $ — $ 6 $ 44 $ — $ 141 +Current-period gross charge-offs +$ 4 $ — $ — $ — $ — $ — $ — $ — $ 4 +( 1 ) All loans not formally rated were accruing as of December 31, 2025 . Non-accrual loans that were not formally rated amounted to $ 526,000 as of December 31, 2024 . +75 +Table of Contents +At December 31, 2025 , the Company had no consumer mortgage loans secured by residential real estate property in the process of foreclosure. At December 31, 2024 , the Company had one consumer mortgage loan secured by residential real estate property in the process of foreclosure for $ 335,000 . +For the years ended December 31, 2025 and December 31, 2024 , the Company did not provide loan modifications involving borrowers that are experiencing financial difficulty. An assessment of whether a borrower is experiencing financial difficulty is made on the date of a modification, if applicable. The Allowance for Credit Losses ("ACL") incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon origination. Because the effect of most modifications made to borrowers experiencing financial difficulty would already be included in the ACL as a result of the measurement methodologies used to estimate the allowance, a change in the ACL is generally not recorded upon modification. +NOTE 5 – PREMISES AND EQUIPMENT +The following is a summary of premises and equipment as of December 31: +2025 +2024 +(in thousands) +Banking premises and equipment: +Land +$ 594 $ 594 +Buildings and improvements +5,715 5,696 +Leasehold improvements +351 351 +Furniture and equipment +1,822 1,754 +Total cost +8,482 8,395 +Accumulated depreciation and amortization +( 5,053 ) ( 4,883 ) +Net premises and equipment +$ 3,429 $ 3,512 +Depreciation and amortization expense for the years ended December 31, 2025 and 2024 amounted to $ 297,000 and $ 302,000 , respectively. +NOTE 6 – LEASES +The Company has operating leases for office space and two branch locations. These leases have remaining lease terms of one year to five years and certain of these leases have options to extend the lease for up to fifteen years. The options to extend have been included in the lease term if it was determined that it was reasonably certain that the Company will exercise the option. +All of the Company's leases are classified as operating leases. The right-of-use assets and corresponding lease liabilities are classified within “other assets” and “other liabilities,” respectively, in the accompanying consolidated balance sheets. +As of the dates indicated, the Company had the following related to operating leases: +As of December 31, 2025 +As of December 31, 2024 +(Dollars in thousands) +Right-of-use assets +$ 1,633 $ 1,149 +Lease liabilities +1,693 1,200 +Lease expense for the years ended December 31, 2025 and December 31, 2024 amounted to $ 203,000 and $ 200,000 , respectively. +The calculated amount of the right-of-use assets and lease liabilities are impacted by the length of the lease term and the discount rate used to present value the minimum lease payments. The Company's lease agreements include options to renew at the Company's discretion. If at lease inception, the Company considers the exercising of a renewal option to be reasonably certain, the Company will include the extended term in the calculation of the right-of-use assets and lease liabilities. The weighted average remaining lease term for operating leases at December 31, 2025 and 2024 was 10.0 years and 7.6 years, respectively. The weighted average discount rate was 4.58 % and 4.28 % at December 31, 2025 and 2024 , respectively. +76 +Table of Contents +The following table sets forth the remaining minimum rental payments related to operating leases outstanding as of December 31, 2025 . +As of December 31, 2025 +Year +(in thousands) +2026 +$ 237 +2027 +249 +2028 +213 +2029 +205 +2030 +208 +Thereafter +1,064 +Total minimum lease payments +2,176 +Less: amount representing interest +483 +Present value of future minimum lease payments +$ 1,693 +NOTE 7 – DEPOSITS +The aggregate amount of time deposit accounts in denominations that meet or exceed the Federal Deposit Insurance Corporation (FDIC) insurance limit (currently $250,000 ) at December 31, 2025 and 2024 was $ 334.8 million and $ 258.7 million, respectively. +The aggregate amount of brokered time deposits at December 31, 2025 and 2024 was $ 134.0 million and $ 125.6 million, respectively. All brokered time deposits are in denominations less than $250,000. +For time deposits as of December 31, 2025 , the scheduled maturities for each of the following years ended December 31 are (in thousands): +2026 +$ 542,786 +2027 +143,921 +2028 +28,170 +2029 +8,715 +2030 +4,719 +Total +$ 728,311 +77 +Table of Contents +NOTE 8 – BORROWINGS +Borrowings consist of advances borrowed from the FHLB. +Maturities of advances from the FHLB for the years ending after December 31, 2025 and December 31, 2024 are summarized as follows (dollars in thousands): +2025 +2024 +Weighted Average +Weighted Average +Stated Maturity +Total Outstanding +Contractual Rate +Stated Maturity +Total Outstanding +Contractual Rate +2026 +$ 79,815 3.69 % 2025 $ 25,000 4.52 % +2027 +95,000 3.95 2026 4,000 0.82 +2028 +65,000 4.20 2027 95,000 3.95 +2029 +20,000 3.79 2028 65,000 4.20 +2030 +25,000 3.38 2029 45,000 3.58 +Total +$ 284,815 3.87 % +Total +$ 234,000 3.96 % +Certain borrowings from the FHLB are callable by the FHLB prior to maturity. +Borrowings from the FHLB are secured by a blanket lien on qualified collateral, consisting primarily of loans with first mortgages secured by one -to- four family, multifamily and commercial real estate properties and other qualified assets. +At December 31, 2025 and 2024 , the interest rates on FHLB advances ranged from 0.82 % to 4.95 % and 0.82 % to 4.95 %, respectively. +At December 31, 2025 and 2024 , the Bank had a $ 2.2 million line of credit established with the FHLB. There were no advances on this line. The available borrowing capacity with the FHLB was $ 395.4 million as of December 31, 2025 and $ 328.5 million as of December 31, 2024 . +At December 31, 2025 and 2024 , the Bank had a $ 15.0 million and $ 10.0 million line of credit established with the Atlantic Community Bankers Bank, respectively. There were no advances on this line. +At December 31, 2025 and 2024, the Bank had a line of credit established with the FRB with unused borrowing capacity of $ 75.7 million and $ 15.1 million, respectively +NOTE 9 – EMPLOYEE BENEFIT PLANS +Pension Plans +401 (k) Plan +The Company has adopted a savings plan which qualifies under Section 401 (k) of the Internal Revenue Code and provides for voluntary contributions by participating employees ranging from 1% to 75% of their compensation, subject to certain limitations based on federal tax laws. The Bank makes matching contributions equal to 100 % of each eligible employee’s voluntary contributions, up to 7 % of the employee’s eligible wages. +Total expense related to the 401 (k) plan for the years ended December 31, 2025 and 2024 amounted to $ 551,000 and $ 473,000 , respectively. +Employee Incentive Plan +The Company provides an employee incentive plan which is approved annually by the Board of Directors, based on various factors. The employee incentive plan expense for the years ended December 31, 2025 and 2024 amounted to $ 1,708,000 and $ 1,557,000 , respectively. +78 +Table of Contents +Supplemental Executive Retirement Plan (SERP) +The Bank has a SERP for certain former executive officers. The SERP provides nonfunded retirement benefits designed to supplement benefits available through the Bank’s other retirement plans for employees. The liability for the SERP amounted to $ 1,012,000 and $ 1,029,000 at December 31, 2025 and 2024 , respectively. +Director Fee Continuation Plan (DFCP) +The Bank has established a DFCP which provides supplemental retirement benefits for directors. Under the DFCP, individuals who are directors as of the effective date of the DFCP are 100 % vested in their benefits. Individuals who become directors after the effective date become fully vested in their accounts after having served on the Board of Directors for twelve years. Effective December 2025, the plan was amended and frozen so that only directors serving on the Board of Directors as of the closing of the initial public offering are eligible to participate in the plan. +The following tables set forth information about the SERP and DFCP as of December 31 and the years then ended: +2025 +2024 +SERP +DFCP +SERP +DFCP +(in thousands) +Change in projected benefit obligation: +Benefit obligation at beginning of year +$ 1,029 $ 834 $ 1,106 $ 769 +Service cost +— 71 7 94 +Interest cost +51 42 49 34 +Actuarial loss (gain) +42 24 ( 25 ) ( 23 ) +Benefits paid +( 110 ) ( 60 ) ( 108 ) ( 40 ) +Benefit obligation at end of year +1,012 911 1,029 834 +Funded status +( 1,012 ) ( 911 ) ( 1,029 ) ( 834 ) +Amounts recognized in accumulated other comprehensive income as of December 31, 2025 and 2024 , before tax effect, consist of: +2025 +2024 +SERP +DFCP +SERP +DFCP +(in thousands) +Net gain +$ ( 50 ) $ ( 63 ) $ ( 99 ) $ ( 104 ) +The accumulated benefit obligation and unfunded status of the SERP was $ 1,012,000 and $ 1,029,000 at December 31, 2025 and 2024 , respectively, and is classified within “other liabilities” in the accompanying consolidated balance sheets. The accumulated benefit obligation and unfunded status of the DFCP was $ 911,000 and $ 834,000 at December 31, 2025 and 2024 , respectively, and is classified within “other liabilities” in the accompanying consolidated balance sheets. +Assumptions used to determine the benefit obligation at December 31 are as follows: +2025 +2024 +SERP +DFCP +SERP +DFCP +Discount rate +4.89 % 4.81 % 5.27 % 5.24 % +79 +Table of Contents +Components of net periodic cost (benefit) and other comprehensive loss (income) for the years ended December 31 are as follows: +2025 +2024 +SERP +DFCP +SERP +DFCP +(in thousands) +Components of net periodic cost +Service cost +$ — $ 71 $ 7 $ 94 +Interest cost +51 42 49 34 +Amortization of net actuarial gain +( 6 ) ( 17 ) ( 5 ) ( 16 ) +Net periodic cost +45 96 51 112 +Other changes in benefit obligations recognized as other comprehensive loss (income): +Net actuarial loss (gain) +$ 43 $ 24 $ ( 25 ) $ ( 23 ) +Amortization of net actuarial loss +6 17 5 16 +Total other comprehensive loss (income) +49 41 ( 20 ) ( 7 ) +Total net periodic cost and other comprehensive loss +$ 94 $ 137 $ 31 $ 105 +The components of net periodic benefit cost attributable to service cost for the SERP and DFCP are included in the line items "salaries and employee benefits" and "director compensation," respectively. The components of net periodic benefit cost other than the service cost component are included in the line item “other expense” in the income statement. +Assumptions used to determine the net periodic cost for years ended December 31 are as follows: +2025 +2024 +SERP +DFCP +SERP +DFCP +Discount rate +5.27 % 5.24 % 4.66 % 4.58 % +Estimated future benefit payments, which reflect expected future service, as appropriate, as of December 31, 2025 are as follows: +SERP +DFCP +(in thousands) +2026 +$ 110 $ 60 +2027 +110 100 +2028 +107 100 +2029 +106 100 +2030 +96 80 +Years 2031 through 2035 +417 558 +Supplemental Executive Retirement Agreement +On January 1, 2018, the Company entered into a supplemental executive retirement agreement with an executive officer whereby the Company is obligated to provide post-retirement salary continuation benefits equal to 60 % of the executive officer’s final average compensation, as defined. Benefits are 100% vested, commence upon retirement, and are payable based on a ten -year certain and life annuity. The liability for the Plan amounted to $ 3,507,000 and $ 3,385,000 as of December 31, 2025 and 2024 , respectively. The expense recognized for the Plan for the years ended December 31, 2025 and 2024 amounted to $ 122,000 and $ 185,000 , respectively. +Executive Deferred Compensation Plans +The Company has entered into deferred compensation plans with three executive officers that allow the Company to make contributions to an account for the executive officers each year, as of January 1, based on the prior year’s performance and the Company's intent is that the contribution equal 10 % of the executive officers' salaries and bonuses. The Company may make other contributions to the deferred compensation plans, at its discretion, at other times during the year. The expense recognized under the deferred compensation plans for the years ended December 31, 2025 and 2024 amounted to $ 137,000 and $ 94,000 , respectively. The liability for the Executive Deferred Compensation Plans amounted to $ 410,000 and $ 273,000 as of December 31, 2025 and 2024 , respectively. +80 +Table of Contents +Deferred Compensation Plan for Directors +The Company maintains the Everett Co-operative Bank Deferred Compensation Plan for Directors (the “Director Deferred Compensation Plan”) to allow for certain tax planning opportunities and additional retirement income for directors of the Company. All non-employee directors are eligible to participate in the Director Deferred Compensation Plan. Under the Director Deferred Compensation Plan, directors may elect to defer the receipt of up to 100 % of their director fees. Participants are always 100 % vested in their deferred fees and any interest credited to those deferrals. Earnings are credited to a participant’s deferrals each year and are indexed annually to the highest certificate of deposit rate offered by the Bank on January 1st of each year. The liability for the Director Deferred Compensation Plan amounted to $ 760,000 and $ 748,000 as of December 31, 2025 and 2024 , respectively. +Survivor Benefit Plan +The Company entered into Survivor Benefit Plan Participation Agreements with a group of employees whereby the Company is obligated to provide up to two years of recognized compensation, as defined, to the beneficiary if the participant dies while employed by the Company. There was no expense recognized during 2025 or 2024. +Employment and Change in Control Agreements +The Company entered into an employment agreement with the Chief Executive Officer and Change in Control agreements with certain executive officers, which provide severance payments in the event of the executive’s involuntary or constructive termination of employment, including upon a termination following a change in control as defined in the agreements. +Employee Stock Ownership Plan +As part of the Initial Public Offering ("IPO") completed on July 27, 2022, the Bank established a tax-qualified Employee Stock Ownership Plan ("ESOP") to provide eligible employees the opportunity to own Company shares. The ESOP borrowed $ 7.3 million from the Company to purchase 734,020 common shares during the IPO. The loan is payable in annual installments over 20 years at an interest rate of 4.75 %. As the loan is repaid to the Company, shares are released and allocated proportionally to eligible participants on the basis of each participant’s proportional share of compensation relative to the compensation of all participants. The unallocated ESOP shares are pledged as collateral on the loan. +The Company accounts for its ESOP in accordance with FASB ASC 718 - 40, Compensation – Stock Compensation . Under this guidance, unreleased shares are deducted from shareholders’ equity as unearned ESOP shares in the accompanying consolidated balance sheets. The Company recognizes compensation expense equal to the fair value of the ESOP shares during the periods in which they are committed to be released. To the extent that the fair value of the Company’s ESOP shares differs from the cost of such shares, the difference will be credited or debited to additional paid-in capital included within shareholders' equity. As the loan is internally leveraged, the loan receivable from the ESOP to the Company is not reported as an asset nor is the debt of the ESOP shown as a liability in the Company’s consolidated balance sheets. +81 +Table of Contents +Total compensation expense recognized in connection with the ESOP was $ 579,000 and $ 494,000 for the years ended December 31, 2025 and 2024 , respectively. The following table presents share information held by the ESOP: +As of December 31, 2025 +As of December 31, 2024 +(Dollars in thousands) +Allocated shares +138,301 107,139 +Shares committed to be released +— — +Unallocated shares +587,216 623,917 +Total shares +725,517 731,056 +Fair value of unallocated shares +$ 10,212 $ 9,259 +NOTE 10 – STOCK-BASED COMPENSATION +On September 7, 2023, the Company adopted the ECB Bancorp, Inc. 2023 Equity Incentive Plan ( "2023 Equity Plan”). The 2023 Equity Plan authorizes 1,248,133 shares of common stock for equity based compensation awards including restricted stock awards, restricted stock units, stock options, and incentive stock options. As of December 31, 2025 , there were 208,716 shares available for future grants. +Stock-Based Compensation - Stock Options +On September 8, 2023, the Company granted 174,960 stock options to non-employee directors with a contractual term of 10 years. On October 31, 2023, the Company granted 589,009 stock options to employees with a contractual term of 10 years. The stock options vest in equal annual installments over a five -year period. The fair value of each option grant was estimated on the date of grant using the Black-Scholes option pricing model. There were no stock options granted for the year ended December 31, 2025 or 2024. The following table represents stock option activities for the period indicated: +Year Ended December 31, 2025 +Outstanding and exercisable +Non-vested +Weighted-Average +Weighted-Average +Weighted-Average +Remaining Contractual +Aggregate +Weighted-Average +Remaining Contractual +Aggregate +Shares +Exercise Price +Term (years) +Intrinsic Value ($1000) +Shares +Exercise Price +Term (years) +Intrinsic Value ($1000) +Balance at beginning of period +146,962 $ 10.45 611,175 $ 10.50 +Granted +— — — — +Vested +146,962 10.45 ( 146,962 ) 10.45 +Exercised +( 5,832 ) 11.80 — — +Forfeited or expired +— — ( 23,328 ) 11.80 +Balance at end of period +288,092 $ 10.43 7.81 $ 2,006 440,885 $ 10.45 7.81 $ 3,058 +The total intrinsic value is the amount by which the fair value of the underlying stock exceeds the exercise price of an option on the exercise date. +82 +Table of Contents +Stock-Based Compensation - Restricted Stock Awards +The restricted stock awards are measured based on grant-date fair value, which reflects the closing price of our stock on the date of grant. All of the restricted stock awards which have been granted to date vest over five years in equal portions beginning on the first anniversary date of the restricted stock award, except the restricted stock awards granted in 2025 which vest in one year. +The following table represents information regarding non-vested restricted stock award activities for the periods indicated: +Year Ended December 31, 2025 +Year Ended December 31, 2024 +Weighted-Average +Weighted-Average +Grant Date Fair +Grant Date Fair +Number of Shares +Value Per Share +Number of Shares +Value Per Share +Balance at beginning of period +245,766 $ 10.51 305,957 $ 10.50 +Granted +1,150 17.39 1,000 13.00 +Vested +( 59,059 ) 10.46 ( 61,191 ) 10.50 +Forfeited +( 9,331 ) 11.80 — — +Balance at end of period +178,526 $ 10.51 245,766 $ 10.51 +The following table represents the compensation expense and income tax benefit recognized for stock options and restricted stock awards for the periods indicated: +Year Ended December 31, 2025 +Year Ended December 31, 2024 +(in thousands) +Stock-based compensation expense +Stock options +$ 623 $ 661 +Restricted stock awards, net of forfeitures +610 645 +Total stock-based compensation expense +$ 1,233 $ 1,306 +Related tax benefits recognized in earnings +$ 332 $ 280 +83 +Table of Contents +The following table sets forth the total compensation cost related to non-vested awards not yet recognized and the weighted average period (in years) over which it is expected to be recognized as of December 31, 2025 and December 31, 2024 (dollars in thousands): +Year Ended December 31, 2025 +Year Ended December 31, 2024 +Amount +Weighted average period +Amount +Weighted average period +Stock options +$ 1,767 2.8 $ 2,501 3.8 +Restricted stock awards +1,749 2.8 2,449 3.8 +Total +$ 3,516 $ 4,950 +NOTE 11 – INCOME TAXES +The components of income tax expense are as follows for the years ended December 31: +2025 +2024 +(in thousands) +Current: +Federal +$ 2,026 $ 1,193 +State +827 437 +2,853 1,630 +Deferred: +Federal +( 162 ) ( 185 ) +State +( 113 ) ( 65 ) +Change in valuation allowance +29 — +( 246 ) ( 250 ) +Total income tax expense +$ 2,607 $ 1,380 +The reasons for the differences between the statutory federal income tax rate and the effective tax rates are summarized as follows for the years ended December 31: +2025 +2024 +(dollars in thousands) +Statutory tax rates +$ 2,180 21.0 % $ 1,128 21.0 % +Increase (decrease) in tax resulting from: +State tax, net of federal tax benefit +564 5.4 300 5.6 +Bank-owned life insurance +( 100 ) ( 1.0 ) ( 99 ) ( 1.8 ) +Stock-based compensation +52 0.5 54 1.0 +Tax credits +( 131 ) ( 1.3 ) — — +Change in valuation allowance +29 0.3 — — +Other, net +13 0.2 ( 3 ) ( 0.1 ) +Effective tax rates +$ 2,607 25.1 % $ 1,380 25.7 % +84 +Table of Contents +The Company had gross deferred tax assets and gross deferred tax liabilities as follows as of December 31: +2025 +2024 +(in thousands) +Deferred tax assets: +Allowance for credit losses +$ 3,083 $ 2,676 +Employee benefit plans +2,504 2,375 +ESOP +91 60 +Lease liability +17 14 +Net unrealized holding loss on available-for-sale securities +— 12 +Interest on non-performing loans +4 10 +Charitable contribution carryover +79 391 +Stock-based compensation +82 — +Cash flow hedge +450 — +Other +— 66 +Valuation allowance +( 29 ) — +Gross deferred tax assets +6,281 5,604 +Deferred tax liabilities: +Depreciation +( 272 ) ( 308 ) +Unrecognized employee benefit costs under ASC 715-10 +( 32 ) ( 57 ) +Net deferred loan costs +( 246 ) ( 184 ) +Stock-based compensation +— ( 33 ) +Net unrealized holding gain on available-for-sale securities +( 64 ) — +Cash flow hedge +— ( 108 ) +Gross deferred tax liabilities +( 614 ) ( 690 ) +Net deferred tax asset +$ 5,667 $ 4,914 +The federal income tax reserve for credit losses at the Company’s base year amounted to $ 1,876,000 as of December 31, 2025 and 2024 . If any portion of the reserve is used for purposes other than to absorb the losses for which it was established, approximately 150 % of the amount actually used (limited to the amount of the reserve) would be subject to taxation in the year it is used. As the Company intends to use the reserve only to absorb credit losses, a deferred income tax liability of approximately $ 527,000 has not been provided as of December 31, 2025 and 2024 . +At December 31, 2025 and December 31, 2024, the Company had a charitable contribution carryover of $ 160,000 and $ 1,356,000 , respectively, which expires on December 31, 2027. Valuation allowance recorded against the related deferred tax assets was $ 29,000 for the year ended December 31, 2025. There was no valuation allowance recorded for the year ended December 31, 2024. +NOTE 12 – RELATED PARTY TRANSACTIONS +During 2018, the Company entered into a lease agreement with a related party for office space. The initial lease term expired in February 2023 and contains a five year option to extend, as well as a cancellation clause permitting the Company to cancel the lease anytime during the initial term with sixty days’ notice. In February of 2022, the lease was amended to replace the five year option to extend with three options to extend the term of two years, two years and one year. In 2023, the Company executed the two year lease extension option. In August of 2024, the Company extended the lease through February 2027. Annual rent is $ 48,000 , payable monthly, not including an annual tenant improvement credit of $ 18,000 . The Company is responsible for a portion of common area charges, as well as other customary leasehold costs. Net annual rental payments amounted to $ 32,000 and $ 30,000 for 2025 and 2024, respectively. +In addition, during February 2022, a new lease agreement was entered into with the related party for additional office space. The initial lease term expired in February 2023 and contains three options to extend the term of two years, two years and one year. The first two year option was exercised during 2022. In August of 2024, the Company extended the lease through February 2027. Annual rent is $ 28,000 , payable monthly. The Company is responsible for a portion of common area charges, as well as other customary leasehold costs. Net annual rental payments amounted to $ 29,000 and $ 28,000 for 2025 and 2024, respectively. +85 +Table of Contents +The Company utilizes the services of a law firm that is a related party for loan closings and related matters as well as general corporate legal matters. Fees for the years ended December 31, 2025 and December 31, 2024 were $ 119,000 and $ 117,000 , respectively. Fees paid by the Company amounted to $ 78,000 and $ 67,000 for 2025 and 2024, respectively. The other fees were paid by borrowers, or paid by the Company and then reimbursed by borrowers. +The Company utilizes the services of one of the members of the Board of Directors of the Company for loan closings and related matters. Fees for the years ended December 31, 2025 and December 31, 2024 were $ 202,000 and $ 162,000 , respectively. Fees paid by the Company for the years ended December 31, 2025 and December 31, 2024 were $ 7,000 and $ 8,000 , respectively. The other fees were paid by borrowers, or paid by the Company and then reimbursed by borrowers. +NOTE 13 – FAIR VALUE MEASUREMENTS +ASC 820 - 10, Fair Value Measurement – Overall , provides a framework for measuring fair value under U.S. GAAP. This guidance also allows an entity the irrevocable option to elect fair value for the initial and subsequent measurement for certain financial assets and liabilities on a contract-by-contract basis. +In accordance with ASC 820 - 10, the Company groups its financial assets and financial liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. +Level 1 – Valuations for assets and liabilities traded in active exchange markets, such as the New York Stock Exchange. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities. +Level 2 – Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from third party pricing services for identical or comparable assets or liabilities. +Level 3 – Valuations for assets and liabilities that are derived from other methodologies, including option pricing models, discounted cash flow models and similar techniques, and are not based on market exchange, dealer, or broker traded transactions. Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets and liabilities. +A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. +A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. These valuation methodologies were applied to all of the Company’s financial assets and financial liabilities carried at fair value for December 31, 2025 and December 31, 2024 . +Cash and Cash Equivalents +For these financial instruments, which have original maturities of 90 days or less, their carrying amounts reported in the Consolidated Balance Sheets approximate fair value. +Available-for-Sale and Held-to-Maturity Securities +The Company’s investment in debt securities is generally classified within Level 2 of the fair value hierarchy. For those securities, the Company obtains fair value measurements from independent pricing services which are not adjusted by management. The fair value measurements consider observable data that considers standard input factors such as observable market data, benchmark yields, interest rate volatilities, broker/dealer quotes, credit spreads and new issue data. +86 +Table of Contents +FHLB Stock +The fair value of FHLB stock approximates the carrying amount based on the redemption provisions of the FHLB. These assets were classified as Level 2. +Loans Held-for-Sale +The fair value of loans held for sale, whose carrying amounts approximate fair value, is based on committed secondary market prices. These assets were classified as Level 2 given the use of observable inputs. +Loans +The fair value of loans is measured on an exit price basis incorporating discounts for credit, liquidity and marketability factors. Loans were classified as Level 3 since the valuation methodology utilizes significant unobservable inputs. +Bank-Owned Life Insurance +The fair value of bank-owned life insurance was based upon quotations received from bank-owned life insurance dealers. These assets were classified as Level 2 given the use of observable inputs. +Accrued Interest Receivable +For these financial instruments, which have original maturities of 90 days or less, their carrying amounts reported in the Consolidated Balance Sheets approximate fair value. +Deposits +The fair value of deposits with no stated maturity, such as noninterest-bearing demand deposits, interest-bearing demand deposits, savings and money market accounts, was equal to their carrying amount. The fair value of certificates of deposits is valued using a replacement cost of funds approach, and discounted to the market rates and based on weighted remaining maturity. Deposits were classified as Level 2 given the use of observable market inputs. +Accrued Interest Payable +For these financial instruments, which have original maturities of 90 days or less, their carrying amounts reported in the Consolidated Balance Sheets approximate fair value. +Derivative Instruments +The fair value of interest rate swaps was determined using discounted cash flow analysis on the expected cash flows of the interest rate swaps. This analysis reflects the contractual terms of the interest rate swaps, including the period of maturity, and uses observable market-based inputs including interest rate curves. The inputs used to value the Company’s interest rate swaps fall within Level 2 of the fair value hierarchy and as a result, the interest rate swaps were categorized as Level 2 within the fair value hierarchy. +87 +Table of Contents +As of December 31, 2025 and 2024 , the following summarizes assets measured at fair value on a recurring basis: +Fair Value Measurements at Reporting Date Using +Quoted Prices +Significant +in Active +Other +Significant +Markets for +Observable +Unobservable +Identical Assets +Inputs +Inputs +Total +Level 1 +Level 2 +Level 3 +(in thousands) +As of December 31, 2025 +Assets: +Available-for-sale securities +Mortgage-backed securities +$ 6,459 $ — $ 6,459 $ — +Collateralized mortgage obligations +10,948 — 10,948 — +Corporate bonds +16,910 — 16,910 — +Loans held-for-sale +357 — 357 — +Derivative instruments +2 — 2 — +Total assets measured at fair value on a recurring basis +$ 34,676 $ — $ 34,676 $ — +Liabilities: +Derivative instruments +$ 1,603 $ — $ 1,603 $ — +Total liabilities measured at fair value on a recurring basis +$ 1,603 $ — $ 1,603 $ — +As of December 31, 2024 +Assets: +Available-for-sale securities +Mortgage-backed securities +$ 4,126 $ — $ 4,126 $ — +Collateralized mortgage obligations +1,438 — 1,438 — +Corporate bonds +1,000 — 1,000 — +Derivative instruments +557 — 557 — +Total assets measured at fair value on a recurring basis +$ 7,121 $ — $ 7,121 $ — +Liabilities: +Derivative instruments +$ 173 $ — $ 173 $ — +Total liabilities measured at fair value on a recurring basis +$ 173 $ — $ 173 $ — +Under certain circumstances, the Company makes fair value adjustments to its assets and liabilities although they are not measured at fair value on an ongoing basis. +As of December 31, 2025 and 2024 , the Bank had no assets or liabilities for which a nonrecurring change in fair value had been recorded. +88 +Table of Contents +ASC Topic 825, “Financial Instruments,” requires disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis. The methodologies for estimating the fair value are discussed above. The estimated fair values and related carrying amounts of assets and liabilities for which fair value is only disclosed are shown below at the dates indicated: +December 31, 2025 +Carrying +Fair +Amount +Value +Level 1 +Level 2 +Level 3 +(in thousands) +Financial assets: +Cash and cash equivalents +$ 86,922 $ 86,922 $ 86,922 $ — $ — +Interest-bearing time deposits +7,998 7,998 — 7,998 — +Held-to-maturity securities +55,764 52,326 — 52,326 — +FHLB stock +11,852 11,852 — 11,852 — +Loans, net +1,371,819 1,343,233 — — 1,343,233 +Accrued interest receivable +5,214 5,214 5,214 — — +Bank-owned life insurance +15,420 15,420 — 15,420 — +Financial liabilities: +Deposits, other than certificates of deposit +$ 404,033 $ 404,033 $ — $ 404,033 $ — +Certificates of deposit +728,311 730,175 — 730,175 — +Federal Home Loan Bank advances +284,815 286,754 — 286,754 — +Accrued interest payable +1,905 1,905 1,905 — — +December 31, 2024 +Carrying +Fair +Amount +Value +Level 1 +Level 2 +Level 3 +(in thousands) +Financial assets: +Cash and cash equivalents +$ 157,617 $ 157,617 $ 157,617 $ — $ — +Interest-bearing time deposits +100 100 — 100 — +Held-to-maturity securities +73,215 67,505 — 67,505 — +FHLB stock +10,000 10,000 — 10,000 — +Loans, net +1,136,449 1,079,916 — — 1,079,916 +Accrued interest receivable +4,015 4,015 4,015 — — +Bank-owned life insurance +14,945 14,945 — 14,945 — +Financial liabilities: +Deposits, other than certificates of deposit +$ 393,018 $ 393,018 $ — $ 393,018 $ — +Certificates of deposit +605,515 606,387 — 606,387 — +Federal Home Loan Bank advances +234,000 232,027 — 232,027 — +Accrued interest payable +2,207 2,207 2,207 — — +NOTE 14 – COMMITMENTS AND CONTINGENCIES +The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The contract or notional amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments. +The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual notional amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. +Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the borrower. Collateral held varies but usually includes income producing commercial properties or residential real estate. +89 +Table of Contents +Standby letters of credit are conditional commitments issued by the Company to guarantee the performance by a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. As of December 31, 2025 and 2024 , the maximum potential amount of the Company’s obligation was $ 50,000 for standby letters of credit. The Company’s outstanding letters of credit generally have a term of less than one year. If a letter of credit is drawn upon, the Company may seek recourse through the customer’s underlying line of credit. If the customer’s line of credit is also in default, the Company may take possession of the collateral, if any, securing the line of credit. +Amounts of financial instruments whose contract amounts represent off-balance sheet credit risk are as follows as of the dates indicated: +December 31, 2025 +December 31, 2024 +(in thousands) +Commitments to originate loans +$ 30,588 $ 21,542 +Unadvanced funds on lines of credit +93,241 80,156 +Unadvanced funds on construction loans +47,665 54,636 +Letters of credit +50 50 +$ 171,544 $ 156,384 +The Company accrues for credit losses related to off-balance sheet financial instruments. Expected losses on off-balance sheet loan commitments are estimated using the same risk factors used to determine the allowance for credit losses on loans, adjusted for the likelihood that funding will occur. The allowance for off-balance sheet commitments is recorded within other liabilities on the consolidated balance sheets and amounted to $ 711,000 and $ 634,000 as of December 31, 2025 and 2024 , respectively. For the year ended December 31, 2025, the provision recorded for off-balance sheet commitments was $ 77,000 . For the year ended December 31, 2024, a benefit of $ 122,000 was recorded to reflect a reduction in allowance for off-balance sheet commitments. +NOTE 15 – OTHER COMPREHENSIVE (LOSS) INCOME +Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities are reported as a separate component of the shareholders' equity section of the consolidated balance sheets, such items, along with net income, are components of comprehensive income. +90 +Table of Contents +The components of other comprehensive income (loss) and related tax effects are as follows for the years ended December 31, 2025 and 2024 : +Year ended +December 31, +2025 +2024 +(in thousands) +Change in fair value of available-for-sale securities +$ 289 $ ( 55 ) +Reclassification adjustment for realized gains in net income +— — +Total +289 ( 55 ) +Income tax (expense) benefit +( 76 ) 12 +Net-of-tax amount +213 ( 43 ) +Net actuarial (loss) gain on SERP +( 43 ) 25 +Reclassification adjustment for amortization of net actuarial gain (1) +( 6 ) ( 5 ) +Total +( 49 ) 20 +Income tax benefit (expense) +15 ( 6 ) +Net-of-tax amount +( 34 ) 14 +Net actuarial (loss) gain on DFCP +( 24 ) 23 +Reclassification adjustment for amortization of net actuarial gain (2) +( 17 ) ( 16 ) +Total +( 41 ) 7 +Income tax benefit (expense) +11 ( 2 ) +Net-of-tax amount +( 30 ) 5 +Net change in fair value of cash flow hedges +( 1,506 ) 1,129 +Reclassification adjustment for realized gains in net income (3) +( 478 ) ( 745 ) +Total +( 1,984 ) 384 +Income tax benefit (expense) +557 ( 107 ) +Net-of-tax amount +( 1,427 ) 277 +Other comprehensive (loss) income, net of tax +$ ( 1,278 ) $ 253 +( 1 ) Reclassification adjustments are comprised of amortization of unrecognized SERP costs reclassified into other expense. +( 2 ) Reclassification adjustments are comprised of amortization of unrecognized DFCP costs reclassified into other expense. +( 3 ) Reclassification adjustments are comprised of realized gains on cash flow hedges reclassified into interest expense. +Accumulated other comprehensive income as of December 31, 2025 and 2024 consists of unrecognized benefit costs, net of taxes, unrealized holding gains (losses) on securities available for sale, net of tax, and fair value of cash flow hedges, net of tax, as follows: +As of December 31, 2025 +As of December 31, 2024 +(in thousands) +Net unrealized holding gains (losses) on securities available-for-sale, net of tax +$ 173 $ ( 40 ) +Unrecognized SERP gain, net of tax +36 70 +Unrecognized DFCP gain, net of tax +45 75 +Fair value of cash flow hedges, net of tax +( 1,150 ) 277 +Accumulated other comprehensive (loss) income +$ ( 896 ) $ 382 +91 +Table of Contents +NOTE 16 – REGULATORY MATTERS +The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Capital adequacy guidelines and prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weighting and other factors. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. +Management believes, as of December 31, 2025 , that the Bank meets all capital adequacy requirements to which it is subject. +As of December 31, 2025 , the most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier 1 risk-based, Common Equity Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table below. There are no conditions or events since that notification that management believes have changed the Bank’s category. +The Bank’s actual capital amounts and ratios are presented in the table as of the dates indicated: +Minimum For Capital +Minimum To Be Well +Adequacy Purposes +Capitalized Under +Plus Capital +Prompt Corrective +Actual +Conservation Buffer +Action Provisions +Amount +Ratio +Amount +Ratio +Amount +Ratio +(dollars in thousands) +As of December 31, 2025 +Total Capital (to Risk Weighted Assets) +$ 165,616 14.29 % $ 121,710 10.50 % $ 115,914 10.00 % +Tier 1 Capital (to Risk Weighted Assets) +154,650 13.34 % 98,527 8.50 % 92,731 8.00 % +Common Equity Tier 1 Capital (to Risk Weighted Assets) +154,650 13.34 % 81,140 7.00 % 75,344 6.50 % +Tier 1 Capital (to Average Assets) +154,650 9.86 % 62,736 4.00 % 78,420 5.00 % +As of December 31, 2024 +Total Capital (to Risk Weighted Assets) +$ 154,753 16.58 % $ 98,010 10.50 % $ 93,343 10.00 % +Tier 1 Capital (to Risk Weighted Assets) +145,235 15.56 % 79,342 8.50 % 74,675 8.00 % +Common Equity Tier 1 Capital (to Risk Weighted Assets) +145,235 15.56 % 65,340 7.00 % 60,673 6.50 % +Tier 1 Capital (to Average Assets) +145,235 10.47 % 55,479 4.00 % 69,349 5.00 % +In addition to the above minimum requirements, the Bank is subject to a Capital Conservation Buffer requirement of 2.5 %. The requirement limits capital distributions and certain discretionary bonus payments to management if the Bank does not maintain the minimum Capital Conservation Buffer. At December 31, 2025 , the Bank exceeded the minimum Capital Conservation Buffer. +92 +Table of Contents +NOTE 17 – PARENT COMPANY FINANCIAL STATEMENTS +ECB BANCORP, INC. +BALANCE SHEETS +(Dollars in thousands) +December 31, +2025 +2024 +ASSETS +Cash +$ 11,714 $ 15,896 +Investment in subsidiary +153,754 145,617 +Loan to Everett Co-operative Bank ESOP +6,197 6,452 +Deferred tax asset, net +50 391 +Income taxes receivable +250 — +Other assets +— 18 +Total assets +$ 171,965 $ 168,374 +LIABILITIES AND SHAREHOLDERS' EQUITY +Income taxes payable +$ — $ 83 +Other liabilities +31 23 +Total liabilities +31 106 +Shareholders' equity +171,934 168,268 +Total liabilities and shareholders' equity +$ 171,965 $ 168,374 +ECB BANCORP, INC. +STATEMENTS OF INCOME +(Dollars in thousands) +Year Ended +December 31, +2025 +2024 +Interest income +Interest on loan +$ 307 $ 318 +Interest on cash +201 249 +Total interest income +508 567 +Noninterest expense +Other expense +232 257 +Total noninterest expense +232 257 +Income before income taxes and equity in undistributed income of subsidiaries +276 310 +Income tax expense +107 87 +Income of parent company +169 223 +Equity in undistributed income of subsidiary +7,603 3,768 +Net income +$ 7,772 $ 3,991 +93 +Table of Contents +ECB BANCORP, INC. +STATEMENTS OF CASH FLOWS +(Dollars in thousands) +Year Ended +December 31, +2025 +2024 +Cash flows from operating activities: +Net income +$ 7,772 $ 3,991 +Adjustments to reconcile net income to net cash provided by operating activities: +Equity in undistributed earnings of subsidiary +( 7,603 ) ( 3,768 ) +Deferred income tax expense +341 131 +Net change in: +Other assets +18 ( 5 ) +Income taxes receivable +( 250 ) 203 +Income taxes payable +( 83 ) 83 +Other liabilities +8 ( 18 ) +Net cash provided by operating activities +203 617 +Cash flows from investing activities: +ESOP loan principal payments +255 244 +Net cash provided by investing activities +255 244 +Cash flows from financing activities: +Payments for shares repurchased under share repurchase plan +( 4,610 ) ( 2,722 ) +Stock options exercised +— 69 +Restricted stock awards surrendered +( 30 ) ( 24 ) +Net cash used in financing activities +( 4,640 ) ( 2,677 ) +Net decrease in cash and cash equivalents +( 4,182 ) ( 1,816 ) +Cash and cash equivalents at beginning of year +15,896 17,712 +Cash and cash equivalents at end of year +$ 11,714 $ 15,896 +94 +Table of Contents +NOTE 18 – EARNINGS PER SHARE ("EPS") +Basic earnings per share is calculated by dividing the income available to common shares by the weighted-average number of common shares outstanding during the period. Diluted earnings per share have been calculated in a manner similar to that of basic earnings per share except that the weighted-average number of common shares outstanding is increased to include the number of additional common shares that would have been outstanding if all potential dilutive common shares (such as those resulting from the exercise of stock options) were issued during the period, computed using the treasury stock method. Unallocated ESOP shares are not deemed outstanding for earnings per share calculations. +Year ended December 31, +2025 +2024 +(dollars in thousands, except per share data) +Net income allocated to common stock +$ 7,772 $ 3,991 +Weighted-average common shares outstanding used to calculate basic earnings per common share +8,100,328 8,257,014 +Add: Dilutive effect of stock options +114,634 — +Add: Dilutive effect of restricted stock awards +97,004 88,723 +Weighted-average common shares outstanding used to calculate diluted earnings per common share +8,311,966 8,345,737 +Earnings per common share +Basic +$ 0.96 $ 0.48 +Diluted +$ 0.94 $ 0.48 +For the year ended December 31, 2025, there were no anti-dilutive shares. For the year ended December 31, 2024, the shares that were anti-dilutive, and therefore excluded from the calculation of diluted earnings per share, included options to purchase 758,137 shares of common stock. +NOTE 19 – DERIVATIVE AND HEDGING ACTIVITIES +The Company uses derivative financial instruments to manage its interest rate risk resulting from the differences in the amount, timing, and duration of known or expected cash payments. The Company has entered into interest rate swaps to add stability to interest expense and manage exposure to interest rate movements as part of an overall risk management strategy. +An interest rate swap is an agreement whereby one party agrees to pay a floating rate of interest on a notional principal amount in exchange for receiving a fixed rate of interest on the same notional amount, for a predetermined period of time, from a second party. The amounts relating to the notional principal amount are not actually exchanged. The Company has entered into interest rate swaps in which it pays fixed and receives floating interest in order to manage its interest rate risk exposure to the variability in interest cash flows on certain floating-rate FHLB Advances and brokered certificates of deposit. The interest rate swaps effectively convert the floating rate payments made on the FHLB Advances and brokered certificates of deposit to a fixed rate and consequently reduce the Company’s exposure to variability in short-term interest rates. +Derivative instruments are carried at fair value in the Company’s Consolidated Financial Statements. The accounting for changes in the fair value of a derivative instrument is dependent upon whether or not the instrument qualifies as a hedge for accounting purposes, and further, by the type of hedging relationship. +The Company’s interest rate swaps have been designated as and are accounted for as cash flow hedges. The changes in fair value are included in other comprehensive income and reclassified into net income in the same period or periods during which the hedged forecasted transaction affects net income. +Cash flow hedges are initially assessed for effectiveness using regression analysis. Changes in the fair value of derivatives that are designated as and that qualify as cash flow hedges are recorded in OCI and are subsequently reclassified into earnings during the period in which the hedged forecasted transaction affects earnings. Quarterly, a quantitative analysis is performed to monitor the ongoing effectiveness of the hedging instrument. All derivative positions were initially, and continue to be, highly effective at December 31, 2025 . +95 +Table of Contents +The following table reflects the Company's derivative position at the dates indicated below for the interest rate swaps: +December 31, 2025 +December 31, 2024 +(Dollars in thousands) +Notional amount +$ 120,000 $ 60,000 +Weighted-average pay rate +3.79 % 3.80 % +Weighted-average receive rate +3.80 % 4.49 % +Weighted-average maturity in years +3.24 3.74 +The table below presents the fair value of the Company's derivative financial instruments, as well as their classification on the Consolidated Balance Sheets as of December 31, 2025 and December 31, 2024: +Asset Derivatives +Liability Derivatives +Balance Sheet Location +Fair Value +Balance Sheet Location +Fair Value +(in thousands) +As of December 31, 2025 +Derivatives designated as hedging instruments +Interest rate swaps +Other assets +$ 2 +Other liabilities +$ ( 1,603 ) +Total +$ 2 $ ( 1,603 ) +As of December 31, 2024 +Derivatives designated as hedging instruments +Interest rate swaps +Other assets +$ 557 +Other liabilities +$ ( 173 ) +Total +$ 557 $ ( 173 ) +For derivative instruments that are designated and qualify as cash flow hedging instruments, the effective portion of the gains or losses is reported as a component of other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The Company expects approximately $ 457,000 to be reclassified as an increase to interest expense from OCI related to the Company’s cash flow hedges in the twelve months following December 31, 2025 . This reclassification is due to anticipated payments that will be paid to counterparty on the swaps based upon the forward curve at December 31, 2025 . +The maximum length of time over which the Company is currently hedging its exposure to the variability in future cash flows for forecasted transactions related to the payment of variable interest on existing financial instruments is 4.4 years. +The pre-tax effects of cash flow hedges on accumulated other comprehensive income and current earnings for the period indicated are as follows: +Year ended December 31, +2025 +2024 +(in thousands) +(in thousands) +Interest rate swaps +Amount of (loss) gain recognized in OCI on derivatives +$ ( 1,984 ) $ 384 +Gain reclassified from OCI into interest expense +$ ( 478 ) $ ( 745 ) +By using derivatives, the Company is exposed to credit risk to the extent that counterparties to the derivative contracts do not perform as required. Should a counterparty fail to perform under the terms of a derivative contract, the Company’s credit exposure on interest rate swaps is limited to the net positive fair value and accrued interest of all swaps with each counterparty not secured by variation margin plus any initial margin collateral posted. The Company seeks to minimize counterparty credit risk through credit approvals, limits, monitoring procedures, and obtaining collateral, where appropriate. As such, management believes the risk of incurring credit losses on derivative contracts with those counterparties is remote. As of December 31, 2025 , the Company has pledged cash collateral to a derivative counterparty totaling $ 3,390,000 . As of December 31, 2024, the Company has pledged cash collateral to a derivative counterparty totaling $ 1,100,000 . As of December 31, 2024, the Company has received cash collateral from a derivative counterparty totaling $ 570,000 . The Company may need to post additional collateral or may receive collateral in the future in proportion to potential changes in the overall unrealized gain or loss position. +96 +Table of Contents +ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure +None +ITEM 9A. Controls and Procedures +Evaluation of disclosure controls and procedures . Under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective. +Management's report on internal control over financial reporting. Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. +The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements. +Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. +Management, including the principal executive officer and principal financial officer, assessed the effectiveness of the Company’s internal control over financial reporting. As of December 31, 2025, based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in “Internal Control-Integrated Framework (2013).” Based on such assessment, management believes that, as of December 31, 2025, the Company’s internal control over financial reporting is effective, based on those criteria. +This Annual Report does not include an attestation report of the Company’s registered public accounting firm. +Internal control over financial reporting . During the quarter ended December 31, 2025, there have been no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. +This Annual Report does not include an attestation report of the independent registered public accounting firm regarding internal control over financial reporting because the Company is an emerging growth company. +ITEM 9B. Other Information +During the fourth quarter of 2025, none of our directors or officers adopted or terminated any contract, instruction or written plan for the purchase or sale of Company securities that was intended to satisfy the affirmative defense conditions of Rule 10b5 - 1 (c) or any “non-Rule 10b5 - 1 trading arrangement,” as that term is used in SEC regulations. +ITEM 9C. Disclosure Regarding Foreign Jurisdictions That Prevent Inspections +Not applicable. +97 +Table of Contents +PART III +ITEM 10. Directors, Executive Officers and Corporate Governance +The information required herein is incorporated by reference from the Company’s definitive proxy statement relating to its 2026 Annual Meeting of Stockholders (the “Proxy Statement”) that will be filed with the SEC within 120 days following the fiscal year end December 31, 2025 under the headings “Corporate Governance,” “Proposal 1 – Election of Directors,” and “Stock Ownership.” +ITEM 11. Executive Compensation +The information required herein is incorporated by reference from the Proxy Statement under the heading “Executive Compensation.” +ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters +Except for the information concerning equity compensation plans, the information required herein is incorporated by reference from the Proxy Statement under the heading “Stock Ownership.” The following table sets forth information, as of December 31, 2025, about securities authorized for issuance under the Company’s 2023 Equity Incentive Plan, which has been approved by shareholders. +Number of Shares +to be Issued Upon +Weighted-Average +Number of Shares +Exercise of +Exercise Price of +Available for +Plan Category +Outstanding Awards +Outstanding Awards +Future Grants +Plans approved by shareholders +728,977 +$ +10.44 +208,716 +Plans not approved by shareholders +— +— +— +Total +728,977 +$ +10.44 +208,716 +ITEM 13. Certain Relationships and Related Transactions and Director Independence +The information required herein is incorporated by reference from the Proxy Statement under the headings “Proposal 1 – Election of Directors” and “Other Information – Transactions with Related Persons.” +ITEM 14. Principal Accountant Fees and Services +The information required herein is incorporated by reference from the Proxy Statement under the heading “Proposal 2 – Ratification of Independent Registered Public Accounting Firm.” +98 +Table of Contents +PART IV +ITEM 15. Exhibits and Financial Statement Schedules +(a)(1) +Financial Statements +The documents filed as a part of this Form 10-K are: +(A) +Report of Independent Registered Public Accounting Firm +(B) +Consolidated Balance Sheets as of December 31, 2025 and 2024 +(C) +Consolidated Statements of Income for the years ended December 31, 2025 and 2024 +(D) +Consolidated Statements of Comprehensive Income for the years ended December 31, 2025 and 2024 +(E) +Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 2025 and 2024 +(F) +Consolidated Statements of Cash Flows for the years ended December 31, 2025 and 2024 +(G) +Notes to Consolidated Financial Statements. +(a)(2) +Financial Statement Schedules +All financial statement schedules have been omitted as the required information is inapplicable or has been included in the Notes to Consolidated Financial Statements. +(a)(3) +Exhibits +3.1 +Amended and Restated Articles of Incorporation of ECB Bancorp, Inc. (1) +3.2 +Bylaws of ECB Bancorp (1) +4.1 +Form of Common Stock Certificate of ECB Bancorp (1) +4.2 +Description of ECB Bancorp, Inc. Securities (7) +10.1* +Employment Agreement by and between ECB Bancorp, Inc., Everett Co-operative Bank and Richard J. O’ Neil, Jr., As Amended (2) +10.2* +Change in Control Agreement by and between Everett Co-operative Bank, ECB Bancorp, Inc. (as guarantor) and John Citrano (3) +10.3* +Change in Control Agreement by and between Everett Co-operative Bank, ECB Bancorp, Inc. (as guarantor) and John Migliozzi (3) +10.4* +Confidentiality and Non-Solicitation Agreement by and between Everett Co-operative Bank and John Migliozzi (3) +10.5* +Change in Control Agreement by and between Everett Co-operative Bank, ECB Bancorp, Inc. (as guarantor) and Brandon Lavertu (8) +10.6* +Everett Co-operative Bank Survivor Benefit Plan (4) +10.7* +Supplemental Executive Retirement Plan for Richard O’ Neil (1) +10.8* +Non-Qualified Deferred Compensation Plan for John Citrano (1) +10.9* +Non-Qualified Deferred Compensation Plan for John Migliozzi (5) +99 +Table of Contents +10.10* +Non-Qualified Deferred Compensation Plan for Brandon Lavertu (9) +10.11* +Director Fee Continuation Plan (1) +10.12* +Amendment to Director Fee Continuation Plan +10.13* +Director Deferred Compensation Plan (1) +10.14* +Form of Stock-Based Deferral Plan (1) +10.15* +Employee Incentive Plan +10.16* +ECB Bancorp, Inc. 2023 Equity Incentive Plan (5) +19 +Insider Trading Policy (9) +21 +Subsidiaries (1) +23.1 +Consent of Wolf & Company, P.C. +31.1 +Certification required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. +31.2 +Certification required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. +32 +Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. +97 +ECB Bancorp, Inc. Recoupment/Clawback Policy (7) +* Denotes management compensatory plan or arrangement +(1) +Incorporated by reference to the Registration Statement on Form S-1 (file no. 333-263449), filed March 10, 2022. +(2) +Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 2022 (file no. 001-41456), filed on March 30, 2023. +(3) +Incorporated by reference to the Current Report on Form 8-K (file no. 001-41456), filed December 22, 2022. +(4) +Incorporated by reference to the Pre-Effective Amendment No. 1 to the Registration Statement on Form S-1 (file no. 333-263449), filed May 2, 2022. +(5) +Incorporated by reference to the Current Report on Form 8-K (file no. 001-41456), filed July 19, 2023. +(6) +Incorporated by reference to Appendix A to the Proxy Statement for the 2024 Annual Meeting of Stockholders filed with the Securities and Exchange Commission on April 26, 2024 (file no. 001-41456) +(7) +Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 2023 (file no. 001-41456), filed on March 29, 2024. +(8) +Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ending June 30, 2024 (file no. 001-41456), filed on August 9, 2024. +(9) +Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 2024 (filed no. 001-41456), filed on March 26, 2025. +101.INS +Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. +101.SCH +Inline XBRL Taxonomy Extension Schema Document +104 +Cover Page Interactive Data File (embedded within the Inline XBRL document) +ITEM 16. Form 10-K Summary +None. +100 +Table of Contents +Signatures +Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. +ECB BANCORP, INC. +Date: March 25, 2026 +By: +/s/Richard J. O'Neil, Jr. +Richard J. O’Neil, Jr. +President and Chief Executive Officer +(Duly Authorized Representative) +Pursuant to the requirements of the Securities Exchange of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. +Signatures +Title +Date +/s/Richard J. O'Neil, Jr. +President, Chief Executive Officer +and Director (Principal Executive +March 25, 2026 +Richard J. O’Neil, Jr. +Officer) +/s/Brandon Lavertu +Executive Vice President and Chief Financial Officer +(Principal Financial Officer & +March 25, 2026 +Brandon Lavertu +Principal Accounting Officer) +/s/Dennis J. Leonard +Chairman of the Board +March 25, 2026 +Dennis J. Leonard +/s/Paul A. Delory +Director +March 25, 2026 +Paul A. Delory +/s/Elizabeth P. Jones +Director +March 25, 2026 +Elizabeth P. Jones +/s/Joseph Sachetta +Director +March 25, 2026 +Joseph Sachetta +/s/Susan Sgroi +Director +March 25, 2026 +Susan Sgroi +/s/Maura E. Sullivan +Director +March 25, 2026 +Maura E. Sullivan +101 \ No newline at end of file diff --git a/raw/filings/0001914605/2025/0001437749-26-009778/filing_metadata.csv b/raw/filings/0001914605/2025/0001437749-26-009778/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..b53731f2e080ab9dd10e0d48d930a5cbceb66696 --- /dev/null +++ b/raw/filings/0001914605/2025/0001437749-26-009778/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001914605,ECBK,"ECB Bancorp, Inc. /MD/",2025,10-K,2026-03-25,2025-12-31,2026-03-25T20:03:23.000Z,0001437749-26-009778,ecbk20251231_10k.htm,FORM 10-K,22215618,1,1,https://www.sec.gov/Archives/edgar/data/1914605/000143774926009778/ecbk20251231_10k.htm,https://www.sec.gov/Archives/edgar/data/1914605/000143774926009778/ diff --git a/raw/filings/0001914605/2025/0001437749-26-009778/item1.txt b/raw/filings/0001914605/2025/0001437749-26-009778/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..16c21a95d193506818a99d5393afb728bc164234 --- /dev/null +++ b/raw/filings/0001914605/2025/0001437749-26-009778/item1.txt @@ -0,0 +1,1260 @@ +ITEM 1. Business +FORWARD-LOOKING STATEMENTS +This Annual Report contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “assume,” “plan,” “seek,” “expect,” “will,” “may,” “should,” “indicate,” “would,” “believe,” “contemplate,” “continue,” “target” and words of similar meaning. These forward-looking statements include, but are not limited to: +• +statements of our goals, intentions and expectations; +• +statements regarding our business plans, prospects, growth and operating strategies; +• +statements regarding the asset quality of our loan and investment portfolios; and +• +estimates of our risks and future costs and benefits. +These forward-looking statements are based on our current beliefs and expectations and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. We are under no duty to and do not take any obligation to update any forward-looking statements after the date of this Annual Report. +The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements: +• +general economic conditions, either nationally or in our market areas, that are worse than expected including as a result of employment levels and labor shortages, and the effects of inflation, a potential recession or slowed economic growth caused by supply chain disruptions or otherwise; +• +the extent, severity or duration of a pandemic on us and on our customers, employees and third-party service providers; +• +changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for credit losses; +• +our ability to access cost-effective funding; +• +fluctuations in real estate values and both residential and commercial real estate market conditions; +• +demand for loans and deposits in our market area; +• +our ability to implement and change our business strategies; +• +competition among depository and other financial institutions; +• +inflation and changes in the interest rate environment that reduce our margins and yields, our mortgage banking revenues, the fair value of financial instruments, or our level of loan originations, or increase the level of defaults, losses and prepayments on loans we have made and make; +• +adverse changes in the securities or secondary mortgage markets; +• +changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees, capital requirements and insurance premiums; +• +changes in the quality or composition of our loan or investment portfolios; +• +technological changes that may be more difficult or expensive than expected; +• +the inability of third-party providers to perform as expected; +1 +Table of Contents +• +a failure or breach of our operational or security systems or infrastructure, including cyberattacks; +• +our ability to manage market risk, credit risk and operational risk; +• +our ability to enter new markets successfully and capitalize on growth opportunities; +• +changes in consumer spending, borrowing and savings habits; +• +changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission or the Public Company Accounting Oversight Board; +• +our ability to attract and retain key employees; and +• +changes in the financial condition, results of operations or future prospects of issuers of securities that we own. +Because of these and a wide variety of other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements. +In this Annual Report the terms “we,” “our,” and “us” refer to ECB Bancorp, Inc. and Everett Co-operative Bank, unless the context indicates another meaning. In addition, we sometimes refer to ECB Bancorp, Inc. as “ECB Bancorp,” and to Everett Co-operative Bank as the “Bank.” +2 +Table of Contents +BUSINESS OF ECB BANCORP +ECB Bancorp (sometimes herein, the “Company”) is a Maryland corporation that was incorporated in March 2022 for the purpose of becoming the registered bank holding company for Everett Co-operative Bank (the “Bank”) upon the consummation of the Bank’s mutual to stock conversion and initial stock offering which was completed on July 27, 2022. In connection with the conversion, the Company sold 8,915,247 shares of common stock, par value $0.01 per share, which included 734,020 shares sold to the Bank’s Employee Stock Ownership Plan, for gross offering proceeds (before deducting offering expenses) of approximately $89.2 million based on the offering price of $10.00 per share. The Company also contributed 260,000 shares of common stock and $600,000 in cash to the Everett Co-operative Bank Charitable Foundation, Inc. The shares of the Company’s common stock sold in the offering began trading on the Nasdaq Capital Market on July 28, 2022 under the symbol “ECBK.” +Since being incorporated, other than holding the common stock of Everett Co-operative Bank, engaging in share repurchases and making a loan to the Bank’s employee stock ownership plan, we have not engaged in any material business activities to date. +Our cash flow depends on earnings from the investment of the net proceeds we retained from our initial public stock offering that was consummated in July 2022, and any dividends we receive from Everett Co-operative Bank. We neither own nor lease any property, but pay a fee to Everett Co-operative Bank for the use of its premises, equipment and furniture. At the present time, we employ only persons who are officers of Everett Co-operative Bank who also serve as officers of ECB Bancorp. We use the support staff of Everett Co-operative Bank from time to time and pay a fee to Everett Co-operative Bank for the time devoted to ECB Bancorp by employees of Everett Co-operative Bank. However, these persons are not separately compensated by ECB Bancorp. ECB Bancorp may hire additional employees, as appropriate, to the extent it expands its business in the future. +Our executive offices are located at 419 Broadway, Everett, Massachusetts 02149. Our telephone number at this address is (617) 387-1110. Our website address is www.everettbank.com . Information on our website is not incorporated into this Annual Report on Form 10-K and should not be considered part of this Annual Report. +3 +Table of Contents +BUSINESS OF EVERETT CO-OPERATIVE BANK +General +Everett Co-operative Bank is a Massachusetts-chartered stock cooperative bank headquartered in Everett, Massachusetts. The Bank completed its mutual to stock conversion on July 27, 2022 at which time it became the wholly owned subsidiary of ECB Bancorp. +Everett Co-operative Bank was organized in 1890 and has operated continuously in Everett, Massachusetts since this time. We conduct business from our three full-service banking offices located in Everett, Lynnfield and Woburn, Massachusetts, which are located in the greater Boston metropolitan area in Middlesex and Essex Counties. Everett is adjacent to Boston and is approximately three miles from Boston’s financial district, and Lynnfield is located approximately 10 miles to the north in Essex County. Our Woburn branch, opened in 2023, is located approximately 10 miles from Boston’s financial district in Middlesex County. We consider our deposit market area to be Middlesex, Essex and Suffolk Counties, Massachusetts and our primary lending area to be these Counties as well as Norfolk County, Massachusetts, which are located primarily within the Route 128 corridor outside of Boston. +Our business consists primarily of taking deposits from the general public and investing those deposits, together with funds generated from operations, in one-to-four family residential real estate loans, commercial real estate and multifamily real estate loans, construction and land loans and home equity lines of credit and loans. To a lesser extent we also originate commercial business loans and consumer loans. At December 31, 2025, $473.4 million, or 34.2%, of our total loan portfolio was comprised of one-to-four family residential real estate loans, $425.4 million, or 30.8%, of our total loan portfolio was comprised of multifamily real estate loans, $336.4 million, or 24.3%, of our total loan portfolio was comprised of commercial real estate loans, $89.0 million, or 6.4%, of our total loan portfolio was comprised of construction loans, $49.9 million, or 3.6%, of our total loan portfolio was comprised of home equity lines of credit and loans, $7.9 million, or 0.6% of our total loan portfolio was comprised of commercial business loans, and $869,000, or 0.1% of our total loan portfolio was comprised of consumer loans. We also invest in securities, consisting primarily of U.S. government and federal agency obligations, mortgage-backed securities, collateralized mortgage obligations and corporate bonds. We offer a variety of deposit accounts, including certificate of deposit accounts, Individual Retirement Accounts ("IRAs"), money market accounts, savings accounts and both interest-bearing and noninterest-bearing checking accounts. We historically have utilized advances from the Federal Home Loan Bank of Boston (the “FHLB”) to fund our operations and we had $284.8 million of FHLB advances outstanding at December 31, 2025. Additionally, in recent years, we have also accepted brokered deposits as a non-retail funding source to fund our operations. At December 31, 2025, we had $134.0 million of brokered deposits outstanding. +Business Strategy +One of the key features of our business strategy has been to grow our loan portfolio, primarily through an increased focus on growing our commercial real estate and multifamily lending operations. In order to execute this growth strategy in an orderly and diligent manner, we enhanced our commercial real estate and multifamily lending infrastructure and engaged a group of experienced credit analysts. Consistent with our strategy to grow our commercial loan operations and the consequent commercial relationship opportunities, we have and will continue to upgrade our suite of deposit products and related services and have and will continue to upgrade our digital and mobile applications in order to accommodate business customers and thereby accelerate the growth in our core deposits. +Historically, given our size, capital position and lending team experience and capacity, we have originated for participation to other local banking institutions our larger commercial real estate and commercial loans. As we continue to enhance our commercial real estate team and infrastructure and with the increase in capital resulting from the conversion, we are able to selectively retain larger loans that we historically would have originated for participation with other local institutions. In this regard, we have revised our lending policies and loans to one borrower limitations to increase our lending limits and the type and size of loans we choose to hold in our portfolio. +We are similarly focused on enhancing our retail operations. To that end, the Company has developed new high yield consumer and business products as well as introducing an array of cash management services designed to attract new business relationships to the bank. In addition, in September of 2023, the Company opened a new branch in Woburn, MA, increasing our retail network to three branches. In January 2026, we announced that we are filing an application to establish a new branch office in Medford, MA. We will continue to attract and retain retail customers by emphasizing personal service, accessibility and flexibility in the face of mass market-oriented large, national and super-regional banks which maintain local branch networks in our market. +4 +Table of Contents +We believe that we have created, and will continue to enhance, the framework which will enable us to execute on our strategy to grow the Company through orderly and diligent loan growth, including competing for and underwriting larger individual loans and maintaining larger lending relationships. Similarly, we believe that we are well-positioned to execute on our retail growth strategy including our increased emphasis on retail sales marketing efforts by Company personnel. We have and expect to continue to invest in our personnel and information technology to support this balance sheet growth. +We believe we have been effective in competing against both larger regional banks and local community banks operating in our market. We compete against the larger banks through our responsive and personalized service, providing our customers with quicker decision making, certainty of execution and customized products where appropriate and access to our senior managers. We believe our highly experienced commercial and residential bankers and a sophisticated product and service mix, including a suite of technology solutions and support, enable us to compete effectively against local community banks. We believe that recent consolidation of financial institutions in and around our market continues to create further opportunity for expansion in our market and hiring available personnel. We will continue to emphasize these core business principles as we focus on growing our balance sheet and will implement them with the larger banking relationships that we seek to originate and maintain. +Reflecting our focus on our community, in connection with our mutual to stock conversion and initial public offering which closed in July 2022, we established the Everett Co-operative Bank Charitable Foundation (the "Foundation") and funded it with $600,000 in cash and 260,000 shares of our common stock, for a total contribution of $3,200,000 based on the $10.00 per share offering price. The purpose of this foundation is to make contributions to support various charitable organizations operating in our community now and in the future. During the year ended December 31, 2025, the Foundation made $113,000 in contributions to local non-profit charities and organizations. +Everett Co-operative Bank is subject to comprehensive regulation and examination by the Massachusetts Commissioner of the Division of Banks ("Commissioner"), as its chartering agency, and the Federal Deposit Insurance Corporation (“FDIC”) as its primary federal regulator and primary insurer of its deposits. See “Supervision and Regulation.” Our executive offices are located at 419 Broadway, Everett, Massachusetts 02149. Our telephone number at this address is (617) 387-1110. Our website address is www.everettbank.com. Information on our website is not incorporated into this Annual Report on Form 10-K and should not be considered part of this Annual Report. +Market Area +We consider Middlesex, Essex and Suffolk Counties, Massachusetts as our primary market area for gathering deposits, and each of these Counties as well as Norfolk County, Massachusetts as our primary lending market area. Our main office and two additional branch offices are located in Middlesex and Essex Counties, all of which are located in the greater Boston metropolitan area. Everett is a suburb which is adjacent to Boston and approximately three miles from Boston’s financial district, Woburn where our new branch opened in 2023 is located is approximately ten miles from Boston's financial district, and Lynnfield where our additional branch office is located is approximately 10 miles north in Essex County. While we occasionally make loans secured by properties located outside of our primary lending market, these loans are generally to borrowers with whom we have an existing relationship and who have a presence within our primary lending market. +The Boston metropolitan area benefits from the presence of numerous institutions of higher learning, medical care and research centers and the corporate headquarters of several significant multinational corporations. Eastern Massachusetts also has many high technology companies employing personnel with specialized skills. These factors affect the demand for residential homes, multifamily apartments, office buildings, shopping centers, industrial warehouses and other commercial properties. +According to the United States Department of Labor, the Boston metropolitan area was one of the United States' twelve largest metropolitan statistical areas in June 2025. Located adjacent to major transportation corridors, the Boston metropolitan area provides a highly diversified economic base, with major employment sectors ranging from services, manufacturing and wholesale/retail trade, to finance, technology and medical care. According to the United States Department of Labor, in December 2025, the Boston-Cambridge-Newton, Massachusetts Statistical Area had an unemployment rate of 4.3%, compared to a Massachusetts state unemployment rate of 4.8% and the national unemployment rate of 4.4%. +5 +Table of Contents +Based on United States census estimates, from 2010 to 2024, the populations of Middlesex and Essex Counties increased 165,871 and 80,779, respectively. The United States census estimates that the median household income from 2020-2024 for Middlesex and Essex Counties were $130,847 and $101,883, respectively, compared to median household income of $97,344 for Boston the metropolitan area, $103,960 for the Commonwealth of Massachusetts and $80,734 for the United States. +Competition +We face significant competition within our market both in making loans and attracting deposits. Our market area has a high concentration of financial institutions, including large money center and regional banks, community banks, credit unions and other non-bank financial service providers. Some of our competitors offer products and services that we currently do not offer, such as trust services and private banking. +Our competition for loans comes primarily from the competitors referenced above and from other financial service providers, such as mortgage companies and mortgage brokers. Competition for loans also comes from the increasing number of non-depository financial service companies participating in the mortgage market, such as insurance companies, securities firms, financial technology companies, specialty finance firms and technology companies. +We expect competition to remain intense in the future as a result of legislative, regulatory and technological changes and the continuing trend toward consolidation of the financial services industry. Technological advances, for example, have lowered barriers to entry, which have allowed banks to expand their geographic reach by providing services over the internet and made it possible for non-depository institutions, including financial technology companies, to offer products and services that traditionally have been provided by banks. Competition for deposits and the origination of loans could limit our growth in the future. +We are a small community savings institution and as of June 30, 2025 (the latest date for which information is available), our market share was 0.98% of total FDIC-insured deposits in Middlesex County, Massachusetts making us the 24th largest out of 47 financial institutions in Middlesex County, and our market share was 0.83% of total FDIC-insured deposits in Essex County, Massachusetts making us the 22nd largest out of 34 financial institutions in Essex County. +Lending Activities +Our principal lending activity is originating one-to-four family residential real estate loans, commercial real estate and multifamily real estate loans, construction and land loans and home equity lines of credit and loans. To a much lesser extent, we also originate commercial business loans and consumer loans. Subject to market conditions and our asset-liability analysis, we expect to continue to grow our commercial real estate and multifamily loan portfolios as well as our one-to-four family residential real estate loan portfolio. We also originate for sale and sell a portion of the fixed-rate one-to-four family residential real estate loans that we originate that generally have terms of 15 years or greater, on a servicing-released, limited or no recourse basis, while retaining shorter-term fixed-rate and all adjustable-rate one-to-four family residential real estate loans in order to manage the duration and time to repricing of our loan portfolio. +Historically, given our size, capital position and lending team experience and capacity, we have originated for participation to other local banking institutions our larger commercial real estate and commercial loans. As we continue to enhance our commercial real estate team and infrastructure and with the increase in capital resulting from the conversion, we are able to selectively retain larger loans that we historically would have originated for participation with other local institutions. In this regard, we have revised our lending policies and loans to one borrower limitations to increase our lending limits and the type and size of loans we choose to hold in our portfolio. +6 +Table of Contents +Loan Portfolio Composition. The following table sets forth the composition of our loan portfolio by type of loan at the dates indicated. We had loans held for sale of $357,000 and $0 at December 31, 2025 and December 31, 2024, respectively. +At December 31, +At December 31, +2025 +2024 +Amount +Percent +Amount +Percent +(Dollars in thousands) +Real estate loans: +One-to-four family residential +$ +473,394 +34.2 +% +$ +422,841 +36.9 +% +Multi-family +425,428 +30.8 +343,970 +30.0 +Commercial +336,412 +24.3 +228,991 +20.0 +Home equity lines of credit and loans +49,866 +3.6 +45,154 +4.0 +Construction +88,957 +6.4 +90,894 +7.9 +Other loans: +Commercial loans +7,938 +0.6 +13,844 +1.2 +Consumer +869 +0.1 +141 +0.0 +1,382,864 +100.0 +% +1,145,835 +100.0 +% +Less: +Net deferred loan fees +(790 +) +(502 +) +Allowance for credit losses +(10,255 +) +(8,884 +) +Total loans, net +$ +1,371,819 +$ +1,136,449 +7 +Table of Contents +Loan Portfolio Maturities. The following tables set forth the contractual maturities of our total loan portfolio at December 31, 2025. Demand loans, loans having no stated repayment schedule or maturity, and overdraft loans are reported as being due in one year or less. Because the tables present contractual maturities and do not reflect repricing or the effect of prepayments, actual maturities may differ. +One year +After one year +After five years +After +or less +through five years +through 15 years +15 years +Total +(Dollars in thousands) +Real estate loans: +One-to-four family residential +$ +2,203 +$ +14,664 +$ +36,619 +$ +419,908 +$ +473,394 +Multi-family +27,439 +19,053 +24,723 +354,213 +425,428 +Commercial +18,290 +32,426 +42,960 +242,736 +336,412 +Home equity lines of credit and loans +5,644 +1,546 +1,212 +41,464 +49,866 +Construction +28,287 +30,013 +5,209 +25,448 +88,957 +Other loans: +Commercial loans +359 +5,379 +2,194 +6 +7,938 +Consumer +96 +741 +— +32 +869 +Total loans +$ +82,318 +$ +103,822 +$ +112,917 +$ +1,083,807 +$ +1,382,864 +The following table sets forth our fixed- and adjustable-rate loans at December 31, 2025 that are due after December 31, 2026. +Due after December 31, 2026 +Fixed +Adjustable +Total +(Dollars in thousands) +Real estate loans: +One-to-four family residential +$ +99,585 +$ +371,607 +$ +471,192 +Multi-family +33,879 +364,110 +397,989 +Commercial +16,801 +301,320 +318,121 +Home equity lines of credit and loans +1,448 +42,774 +44,222 +Construction +23,552 +37,118 +60,670 +Other loans: +Commercial loans +7,446 +133 +7,579 +Consumer loans +32 +741 +773 +Total loans +$ +182,743 +$ +1,117,803 +$ +1,300,546 +One-to-Four Family Residential Real Estate Lending . The focus of our lending has long been the origination of long-term loans secured by mortgages on owner-occupied one-to-four family residences. At December 31, 2025, $473.4 million, or 34.2%, of our total loan portfolio, consisted of one-to-four family residential real estate loans. Included in this balance was $199.0 million of non-owner occupied loans. Loans for non-owner occupied properties purchased for investment purposes and where the property income is not the borrower’s primary source of income are generally underwritten to Fannie Mae guidelines. Loans for non-owner occupied properties purchased for investment purposes and where the property income is the primary source of income to the borrower are underwritten based on our commercial real estate underwriting guidelines. As of December 31, 2025, our average outstanding one-to-four family residential real estate loan balance was $481,000 and our largest outstanding loan secured by one-to-four family residential restate had a principal balance of $7.9 million, which, as of December 31, 2025, was performing in accordance with its repayment terms. The majority of the one-to-four family residential real estate loans that we originate are secured by properties located in our primary market area. See “ – Originations, Sales and Purchases of Loans.” +Our one-to-four family residential real estate loans are generally underwritten according to Fannie Mae guidelines, and we refer to loans that conform to such guidelines as “conforming loans.” We generally originate both fixed- and adjustable-rate one-to-four family residential real estate loans in amounts up to the maximum conforming loan limits as established by the Federal Housing Finance Agency (“FHFA”). We also originate loans above the FHFA limit, which are referred to as “jumbo loans.” We generally underwrite jumbo loans in a manner similar to conforming loans. During the year ended December 31, 2025, we originated $10.8 million of jumbo loans. +8 +Table of Contents +We originate both fixed-rate and adjustable-rate one-to-four family residential real estate loans with terms of up to 30 years. At December 31, 2025, $101.8 million, or 21.5%, of our one-to-four family residential real estate loans were fixed-rate loans. +We originate our adjustable-rate one-to-four family residential real estate loans with initial interest rate adjustment periods of three, five, seven and ten years, based on changes in a designated market index. These loans are limited to a 200-basis point initial increase in their interest rate, a 200-basis point increase in their interest rate annually after the initial adjustment, and a maximum upward adjustment of 600 basis points over the life of the loan. We determine whether a borrower qualifies for an adjustable-rate mortgage loan based on our lending policy. +We originate conventional one-to-four family residential mortgage loans with loan-to-value ratios of up to 80% without private mortgage insurance. Occasionally, we originate loans with loan-to-value ratios of up to 97% with private mortgage insurance and where the borrower’s debt generally does not exceed 45% of the borrower’s monthly cash-flow. +A portion of our one-to-four family residential real estate loans are for the financing of residential condominium units. Consistent with our risk analysis, we generally will not finance more than 20% of the units in any condominium project with more than four units. +Generally, we sell a portion of the fixed-rate one-to-four family residential real estate loans that we originate with terms that are generally greater than 15 years. We base the amount of fixed-rate loans that we sell on our liquidity needs, asset/liability mix, loan volume, portfolio size and other factors. Currently, the majority of loans that we sell are sold to the secondary market with servicing released. +We generally do not offer “interest-only” mortgage loans on one-to-four family residential real estate loans nor do we offer loans that provide for negative amortization of principal, such as “Option ARM” loans, where the borrower can pay less than the interest owed on the loan, resulting in an increased principal balance during the life of the loan. Additionally, we do not offer “subprime loans” (loans that are made to borrowers with weakened credit histories typically characterized by payment delinquencies, previous charge-offs, judgments, bankruptcies, or borrowers with questionable repayment capacity as evidenced by low credit scores or high debt-burden ratios) or Alt-A loans (defined as loans having less than full documentation). +We evaluate both the borrower’s ability to make principal, interest and escrow payments and the value of the property that will secure the loan. Our one-to-four family residential real estate loans generally do not currently include prepayment penalties, are non-assumable and do not produce negative amortization. Our one-to-four family residential mortgage loans customarily include “due-on-sale” clauses giving us the right to declare the loan immediately due and payable in the event that, among other things, the borrower sells the property subject to the mortgage. All borrowers are required to obtain title insurance for the benefit of Everett Co-operative Bank. We also require homeowner’s insurance and fire and casualty insurance and, where circumstances warrant, flood insurance on properties securing real estate loans. +We offer one-to-four family residential real estate loans secured by non-owner occupied properties. Generally, we will not make loans in excess of 75% loan to value on non-owner-occupied two-to-four family residential real estate properties or in excess of 80% on single family non-owner occupied residential real estate properties. +Commercial Real Estate and Multifamily Lending . Our commercial real estate loans are secured primarily by multifamily apartment buildings, retail and mixed-use properties, light industrial properties, manufacturing facilities and office buildings, almost all of which are located in our primary market area. We do not have any exposure to high rise office space in Boston, MA. Our office loans are secured by office space primarily outside of the city of Boston where demand for office space along with vacancy rates remain stable. Our multifamily loans are secured primarily by five or more-unit residential buildings. At December 31, 2025, we had $336.4 million in commercial real estate loans and $425.4 million in multifamily real estate loans, representing 24.3% and 30.8% of our total loan portfolio, respectively. +9 +Table of Contents +The following table shows the diversification of the commercial real estate portfolio as of December 31, 2025: +As of December 31, 2025 +Owner- +Non-Owner- +Occupied +Occupied +Balance +Percent +(Dollars in thousands) +Mixed-Use +$ +10,793 +$ +134,832 +$ +145,625 +43.3 +% +Retail +10,766 +46,481 +57,247 +17.0 +% +Industrial +19,849 +21,117 +40,966 +12.2 +% +Office +5,934 +36,815 +42,749 +12.7 +% +Hospitality +— +16,627 +16,627 +4.9 +% +Other +8,313 +24,885 +33,198 +9.9 +% +Total commercial real estate loans +$ +55,655 +$ +280,757 +$ +336,412 +100.0 +% +We generally originate adjustable-rate commercial real estate and multifamily real estate loans with maximum terms of up to 30 years. From time to time we will also originate fixed rate loans in these portfolios. We generally limit loan-to-value ratios to 75% of the lesser of the appraised value or purchase price. All of our commercial real estate and multifamily real estate loans are subject to our underwriting procedures and guidelines set by our Commercial Lending and General Lending Policies. +At December 31, 2025, our largest commercial real estate loan totaled $17.8 million and was secured by a parking lot located in our primary market area. At December 31, 2025, this loan was performing in accordance with its repayment terms. At December 31, 2025, our largest multifamily real estate loan totaled $20.0 million and was secured by five properties with a total of 118 residential units located in our primary market area. At December 31, 2025, this loan was performing in accordance with its repayment terms. +We consider a number of factors in originating commercial real estate and multifamily loans. We evaluate the character, qualifications and financial condition of the borrower (including credit history), profitability and expertise, as well as the value and condition of the mortgaged property securing the loan and market conditions. When evaluating the qualifications of the borrower, we consider the financial resources of the borrower, the borrower’s experience in owning and/or managing similar property and the borrower’s repayment history with us and other financial institutions. In evaluating the property securing the loan, among other factors, we consider the net operating income of the mortgaged property before debt service and depreciation, amortization and interest. The debt service coverage ratio (the ratio of net operating income to debt service) is calculated to ensure that, subject to certain exceptions, it is at least 1.20x. Our commercial real estate and multifamily loans are appraised by outside independent and qualified appraisers that are duly approved in accordance with Everett Co-operative Bank Appraisal policy. Personal guarantees are often obtained from commercial real estate borrowers if such individual has a greater than 20% ownership interest in the property. Each borrower’s financial information on such loans is monitored on an ongoing basis by requiring periodic financial statement updates which are reviewed when received. +Our loans-to-one borrower limit is 20% of the Bank’s capital, which limit was $30.9 million at December 31, 2025. At December 31, 2025, our average commercial real estate loan had a balance of $1.5 million and our average multifamily loan had a balance of $2.7 million. As we continue to enhance our commercial real estate team and infrastructure and with the increase in capital resulting from the conversion, we are now able to selectively retain larger loans that we historically would have originated for participation with other local financial institutions. In this regard, we have revised our lending policies and loans to one borrower limitations to increase our lending limits and the type and size of loans we choose to hold in our portfolio. +Construction and Land Loans . At December 31, 2025, we had $89.0 million in construction and land loans, or 6.4% of total loans. We make construction loans, primarily to developers, contractors and builders of apartment buildings, for single-family homes and condominiums and to individuals for the construction of their primary residences. We also generate a limited amount of land loans that will be used for residential or commercial development. Land loans also include loans secured by land purchased for investment purposes. At December 31, 2025, our construction loans included $10.0 million in lines of credit and loans secured by land. +10 +Table of Contents +While we may originate loans to builders whether or not the collateral property underlying the loan is under contract for sale, we consider each project carefully in light of current residential real estate market conditions. Generally, we will make construction loans for which there is no contract for sale for the underlying completed home at the time of origination, and which we refer to as speculative construction loans, only to well-known builders in our market area. We actively monitor the number of unsold homes in our construction loan portfolio and local housing markets to attempt to maintain an appropriate balance between home sales and new loan originations. We generally limit the maximum number of speculative units (units that are not pre-sold) approved for each builder, typically starting with one speculative loan per builder until we develop a relationship with the builder. At December 31, 2025, speculative construction loans totaled $39.1 million. +Our construction loans are fixed- and adjustable-rate, interest-only loans that provide for the payment of interest during the construction phase, which is usually up to 12 to 24 months or in some cases up to 36 months for more complex projects. At the end of the construction phase, the loan may convert to a permanent mortgage loan or may be paid in full. Depending on the complexity of the construction project, the term of an “interest-only” construction loan may be extended if circumstances warrant it up to an additional three to six months with a maximum interest only term of 36 months. At December 31, 2025, the additional unadvanced portions of these construction loans totaled $47.7 million. +Construction and land loans are generally limited to 80% (75% for investment properties) loan-to-completed-appraised-value ratio upon completion of the project. Before making a commitment to fund a construction loan, we require an appraisal of the property by an independent licensed appraiser. We also generally require inspections of the property before disbursements of funds during the term of the construction loan. Construction projects over $2 million require an approved construction consultant to review the construction budget, complete a feasibility analysis, monitor construction progress and manage construction draws. +At December 31, 2025, our largest construction loan was for $6.1 million and was for the construction of a mixed-use building in our market area. This loan was performing in accordance with its repayment terms at December 31, 2025. +Home Equity Loans and Lines of Credit . In addition to one-to-four family residential real estate loans, we offer home equity loans and lines of credit that are secured by the borrower’s primary residence, secondary residence or investment property. At December 31, 2025, we had $49.9 million, or 3.6%, of our total loan portfolio in home equity loans and lines of credit. At that date we also had $48.8 million of unused commitments related to home equity lines of credit. +Home equity loans and lines of credit are generally underwritten using the same criteria that we use to underwrite one-to-four family residential real estate loans. Home equity loans and lines of credit may be underwritten with a loan-to-value ratio of up to 70%, or 80% when combined with the principal balance of the existing first mortgage loan. Our home equity loans are primarily originated with fixed rates of interest with terms of up to 15 years. Our home equity lines of credit are originated with a variable rate based on the prime rate of interest plus or minus an applicable margin with a floor rate and require interest paid monthly. +Home equity loans and lines of credit are generally secured by junior mortgages and have greater risk than one-to-four family residential real estate loans secured by first mortgages. We face the risk that the collateral will be insufficient to compensate us for credit losses and costs of foreclosure, after repayment of the senior mortgages, if applicable. When customers default on their loans, we attempt to foreclose on the property and resell the property as soon as possible to minimize foreclosure and carrying costs. However, the value of the collateral may not be sufficient to compensate us for the amount of the unpaid loan and we may be unsuccessful in recovering the remaining balance from those customers. Particularly with respect to our home equity loans and lines of credit, decreases in real estate values could adversely affect our ability to fully recover the loan balance in the event of a default. +Commercial Loans. At December 31, 2025, commercial loans were $7.9 million, or 0.6% of total loans. +We make commercial loans and lines of credit primarily to small businesses in our market area. These loans and lines of credit are generally secured by business assets, such as equipment and accounts receivable. Commercial loans and lines of credit are made with both adjustable and fixed-interest rates and for terms generally up to 60 months or on demand. Depending on the collateral used to secure the loans, commercial loans are made in amounts of up to 80% of the value of the collateral securing the loan. +11 +Table of Contents +When making commercial loans, we consider the financial statements of the borrower, our lending history with the borrower, the debt service capabilities and global cash flows of the borrower and other guarantors, the projected cash flows of the business and the value of the collateral, accounts receivable, inventory and equipment. +At December 31, 2025, our largest commercial loan totaled $4.5 million and was secured by a security interest in a mortgage and note. At December 31, 2025, this loan was performing in accordance with its repayment terms. +Consumer Lending. To a much lesser extent, we offer a variety of consumer loans to individuals who reside or work in our market area, including unsecured overdraft lines of credit and loans secured by savings accounts. At December 31, 2025, our consumer loan portfolio totaled $869,000, or 0.1%, of our total loan portfolio. +Consumer loans generally have shorter terms to maturity, which reduces our exposure to changes in interest rates. In addition, management believes that offering consumer loan products helps to expand and create stronger ties to our existing customer base by increasing the number of customer relationships and providing cross-marketing opportunities. +Loan Underwriting Risks +Adjustable-Rate Residential Real Estate Loans. Although adjustable-rate mortgage loans may reduce to an extent our vulnerability to changes in market interest rates because they periodically reprice, as interest rates increase, the required payments due from the borrower also increase (subject to rate caps), increasing the potential for default by the borrower. At the same time, the marketability of the underlying collateral may be adversely affected by higher interest rates. Upward adjustments of the contractual interest rate are also limited by the maximum periodic and lifetime rate adjustments permitted by our loan documents. +Commercial Real Estate Loans. Loans secured by commercial real estate generally have larger balances and involve a greater degree of risk than one- to four-family residential real estate loans. The primary concern in commercial real estate lending is the borrower’s creditworthiness, the feasibility and cash flow potential of the project. Repayments of loans secured by income properties often depend on successful operation and management of the properties. As a result, repayment of such loans may be subject, to a greater extent than residential real estate loans, to adverse conditions in the real estate market or the economy. To monitor cash flows on income properties, we require borrowers and guarantors to provide financial statements including and not limited to personal financial statements, tax returns and rent rolls on an annual basis at minimum. These documents are reviewed according to the commercial lending policy and general lending policy guidelines. In reaching a decision on whether to make a commercial real estate loan, we consider and review a global cash flow analysis of the borrower and consider the net operating income of the property, the borrower’s expertise, credit history and profitability and the value of the underlying property. We have generally required that the properties securing these real estate loans have an aggregate debt service ratio, including the guarantor’s cash flows and the borrower’s other projects, of at least 1.20x. We obtain an environmental report with every new loan request. An environmental phase one report is obtained when the possibility exists that hazardous materials may have existed on the site, or the site may have been impacted by adjoining properties that handled hazardous materials. +If we foreclose on a commercial real estate loan, the marketing and liquidation period to convert the real estate asset to cash can be lengthy with substantial holding costs. In addition, vacancies, deferred maintenance, repairs and market stigma can result in prospective buyers expecting sale price concessions to offset their real or perceived economic losses for the time it takes them to return the property to profitability. Depending on the individual circumstances, initial charge-offs and subsequent losses on commercial real estate loans can be unpredictable and substantial. As of December 31, 2025, we maintained no “other real estate owned” as a result of foreclosures (or the acceptance of a deed in lieu of foreclosure). +12 +Table of Contents +Commercial Loans. Unlike residential real estate loans, which generally are made on the basis of the borrower’s ability to make repayment from his or her employment or other income streams, and which are secured by real property whose value tends to be more easily ascertainable, commercial loans are of higher risk and typically are made on the basis of the borrower’s ability to make repayment from the cash flows of the borrower’s business operation, and the collateral securing these loans may fluctuate in value. Our commercial loans are originated primarily based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. Collateral for commercial loans typically consists of accounts receivable, inventory or equipment. Credit support provided by the borrower for most of these loans is based on the liquidation of the pledged collateral and enforcement of a personal guarantee, if any. Further, any collateral securing such loans may depreciate over time, may be difficult to appraise and may fluctuate in value. As a result, the availability of funds for the repayment of commercial loans may depend substantially on the success of the business itself. +Construction and Land Loans. Our construction loans are based upon estimates of costs and values associated with the completed project. Underwriting is focused on the borrower's financial strength, credit history and demonstrated ability to produce a quality product, effectively market it and manage their operations effectively. +Construction lending involves additional risks when compared with permanent lending because funds are advanced upon the security of the project, which is of uncertain value before its completion. Because of the inherent uncertainties in estimating construction costs, as well as the market value of the completed project and the effects of governmental regulation of real property, it is relatively difficult to evaluate accurately the total funds required to complete a project and the related loan-to-value ratio. In addition, generally during the term of a construction loan, interest may be funded by the borrower or disbursed from an interest reserve set aside from the construction loan budget. These loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project and the ability of the borrower to sell or lease the property or obtain permanent take-out financing, rather than the ability of the borrower or guarantor to repay principal and interest. If the appraised value of a completed project proves to be overstated, we may have inadequate security for the repayment of the loan upon completion of construction of the project and may incur a loss. In addition, speculative construction loans, which are loans made to home builders who, at the time of loan origination, have not yet secured an end buyer for the home under construction, typically carry higher risks than those associated with traditional construction loans. These increased risks arise because of the risk that there will be inadequate demand to ensure the sale of the property within an acceptable time. As a result, in addition to the risks associated with traditional construction loans, speculative construction loans carry the added risk that the builder will have to pay the property taxes and other carrying costs of the property until an end buyer is found. Land loans have substantially similar risks to speculative construction loans. +Originations, Sales and Purchases of Loans +Our loan originations are generated by our loan personnel operating at our banking offices. All loans we originate are underwritten pursuant to our policies and procedures. While we originate both fixed-rate and adjustable-rate loans, our ability to generate each type of loan depends upon relative borrower demand and the pricing levels as set in the local marketplace by competing banks, thrifts, credit unions, and mortgage banking companies. Our volume of real estate loan originations is influenced significantly by market interest rates, and, accordingly, the volume of our real estate loan originations can vary from period to period. +Consistent with our interest rate risk management strategy, we originate for sale and sell a portion of the fixed-rate, one- to four-family residential real estate loans that we originate with terms of 15 years or greater, on a servicing-released, limited or no recourse basis, while retaining shorter-term fixed-rate and all adjustable-rate one- to four-family residential real estate loans in order to manage the duration and time to repricing of our loan portfolio. We consider our balance sheet as well as market conditions on an ongoing basis in making decisions as to whether to hold loans we originate for investment or to sell such loans to investors, choosing the strategy that is most advantageous to us from a profitability and risk management standpoint. During the year ended December 31, 2025, we sold $10.1 million of one-to-four family owner-occupied residential real estate loans. Subject to market and economic conditions, management intends to continue this sales activity in future periods to generate gain on sale income. At December 31, 2025, we had $357,000 loans held for sale. +From time to time, we may purchase loan participations secured by properties within and outside of our primary market area in which we are not the lead lender. In these circumstances, we follow our customary loan underwriting and approval policies. At December 31, 2025, we had four loans in which we were not the lead lender totaling $22.0 million. +13 +Table of Contents +In addition, during 2025, we purchased $806,000 in whole one- to four- family residential real estate loans from correspondent loan originators. We may participate out portions of a loan that exceeded our loans-to-one borrower legal lending limit and for risk diversification. At December 31, 2025, we had loans participated out to other lenders totaling $117.3 million. +Loan Approval Procedures and Authority +The maximum amount that we may lend to one borrower and the borrower’s related entities is generally limited, by statute, to 20% of the Bank's capital, which is defined under Massachusetts law as the sum of our surplus account, undivided profits and capital stock. Loans secured by a first mortgage on residential property occupied by the borrower are excluded from this limit. At December 31, 2025, our regulatory limit on loans-to-one borrower was $30.9 million. At December 31, 2025, our largest relationship at this date consisted of eight loans totaling $30.0 million secured by 14 multifamily properties, one mixed-used building and five one-to-four family residential real estate with a total of 242 residential units in our market area. This loan relationship was performing in accordance with its original repayment terms at December 31, 2025. Our second largest lending relationship consisted of five multifamily loans, eight one-to-four family real estate loans and three commercial real estate loans totaling $29.6 million secured by six multifamily properties, two mixed-used buildings and 14 one-to-four family residential real estate properties with a total of 91 residential units in our market area. This loan relationship was performing in accordance with its original repayment terms at December 31, 2025. As a result of our stock offering which closed in July 2022, our regulatory loans-to-one borrower limit has increased and, as we continue to enhance our commercial real estate team and infrastructure and with our increased capital position, we are now able to selectively retain larger loans that we historically would have originated for participation with other local financial institutions. In this regard, we have revised our lending policies and loans to one borrower limitations to increase our lending limits and the type and size of loans we choose to hold in our portfolio. +Our lending is subject to written underwriting standards and origination procedures. Decisions on loan applications are made on the basis of detailed applications submitted by the prospective borrower and property valuations (consistent with our appraisal policy) prepared by outside independent licensed or certified appraisers approved by our board of directors as well as internal evaluations, where permitted by regulations. The loan applications are designed primarily to determine the borrower’s ability to repay the requested loan, and the more significant items on the application are verified through use of credit reports, financial statements and tax returns. +The Board of Directors has overall responsibility for our lending policy, and the board reviews this policy at least annually. +Our Chief Executive Officer, Chief Operating Officer or Chief Lending Officer each have individual lending authority for up to $1.0 million for commercial loans. In addition, the Head of Residential Lending and Chief Lending Officer can approve residential real estate loans up to $1.0 million. Loans of between $1.0 million and $5.0 million require the approval of the Loan Committee, which is comprised of senior management of the Bank as well as the Chief Executive Officer, and loans or relationships in excess of $5.0 million require approval of the full Board of Directors. Additionally, our policies and loan approval limits which are established by the board of directors provide various lending approval authority for other designated individual officers or officers acting together. +Generally, we require title insurance on our mortgage loans as well as fire and extended coverage casualty insurance in amounts at least equal to the principal amount of the loan or the value of improvements on the property, depending on the type of loan. We also require flood insurance if the improved property is determined to be in a flood zone area. +Delinquencies and Non-Performing Assets +Delinquency Procedures. When a borrower fails to make required payments on a loan, we take a number of steps to induce the borrower to cure the delinquency and restore the loan to current status. We generally send a written notice of non-payment to the borrower 15, 30, 60 and 90 days after a loan is first past due. We will additionally try to contact the borrower by telephone after the 30 th day after the due date. +14 +Table of Contents +Generally, when a loan becomes 90 days past due, the loan is turned over to our attorneys to ensure that further collection activities are conducted in accordance with applicable laws and regulations. All loans past due 90 days are put on non-accrual and reported to the board of directors monthly. If our attorneys do not receive a response from the borrower, or if the terms of any payment plan established are not followed, then foreclosure proceedings will be implemented. Management submits a delinquent loan report detailing loans 30 days or more past due to the board of directors on a monthly basis. +When we acquire real estate as a result of foreclosure or by deed in lieu of foreclosure, the real estate is classified as foreclosed real estate until it is sold. The real estate is recorded at estimated fair value at the date of acquisition less estimated costs to sell, and any write-down resulting from the acquisition is charged to the allowance for credit losses. Estimated fair value is based on an appraisal typically obtained before the foreclosure process is completed. Subsequent decreases in the value of the property are charged to operations. After acquisition, all costs incurred in maintaining the property are expensed. Costs relating to the development and improvement of the property, however, are capitalized to the extent of estimated fair value less estimated costs to sell. +From time to time, we may grant a concession to borrowers who are experiencing financial difficulties for economic or legal reasons related to the borrower’s financial difficulties. This usually includes a modification of loan terms, such as a reduction of the interest rate to below market terms, capitalizing past due interest or extending the maturity date and possibly a partial forgiveness of the principal amount due. Interest income on restructured loans is accrued after the borrower demonstrates the ability to pay under the restructured terms through a sustained period of repayment performance, which is generally six consecutive months. +Delinquent Loans . The following table sets forth our loan delinquencies, including non-accrual loans, by type and amount at the dates indicated. +At December 31, +2025 +2024 +30–59 +60–89 +90 Days +30–59 +60–89 +90 Days +Days +Days +or More +Days +Days +or More +(in thousands) +Real estate loans: +One-to-four family residential +$ +519 +$ +104 +$ +— +$ +1,260 +$ +— +$ +1,077 +Multi-family +— +— +— +— +— +— +Commercial +246 +— +— +— +— +— +Home equity lines of credit and loans +370 +— +3 +405 +— +85 +Construction +— +— +— +— +— +— +Other loans: +Commercial +— +— +— +— +— +— +Consumer +— +— +— +— +— +— +Total +$ +1,135 +$ +104 +$ +3 +$ +1,665 +$ +— +$ +1,162 +15 +Table of Contents +Non-Performing Assets. The following table sets forth information regarding our non-performing assets. +At December 31, +2025 +2024 +(in thousands) +Non-accrual loans: +Real estate loans: +One-to-four family residential +$ +1,096 +$ +1,872 +Multi-family +— +— +Commercial +— +— +Home equity lines of credit and loans +43 +85 +Construction +— +— +Commercial +— +— +Consumer +— +— +Total non-accrual loans +$ +1,139 +$ +1,957 +Accruing loans past due 90 days or more: +Real estate loans: +One-to-four family residential +$ +— +$ +— +Multi-family +— +— +Commercial +— +— +Home equity lines of credit and loans +— +— +Construction +— +— +Bank owned property held for sale +— +— +Total real estate owned +— +— +Total non-performing assets +$ +1,139 +$ +1,957 +Total non-performing loans to total loans +0.08 +% +0.17 +% +Total non-performing loans to total assets +0.07 +% +0.14 +% +Total non-performing assets to total assets +0.07 +% +0.14 +% +Classified Assets . Federal regulations provide that each insured savings institution classify its assets on a regular basis. In addition, in connection with examination of insured depository institutions, federal and Massachusetts banking regulators have authority to identify problem assets and, if appropriate, classify them. There are three classifications for problem assets: “substandard,” “doubtful” or “loss.” An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. “Substandard” assets include those characterized by the “distinct possibility” that the insured institution will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard,” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly questionable and improbable.” Assets classified as “loss” are those considered “uncollectible” and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted. Assets which do not currently expose the insured institution to sufficient risk to warrant classification in one of the aforementioned categories but possess weaknesses are designated as “special mention” by our management. +When an insured depository institution classifies problem assets as either substandard or doubtful, it may establish general allowances in an amount deemed prudent by management to cover probable expected losses. General allowances represent loss allowances which have been established to cover expected losses associated with lending activities, but which, unlike specific allowances, have not been allocated to particular problem assets. When an insured institution classifies problem assets as “loss,” it is required either to establish a specific allowance for losses equal to 100% of that portion of the asset so classified or to charge-off such amount. An institution’s determination as to the classification of its assets and the amount of its valuation allowances is subject to review by the regulatory agencies, which may require the establishment of additional general or specific loss allowances. +In connection with the filing of our quarterly reports with the FDIC and in accordance with our classification of assets policy, we regularly review the problem loans in our portfolio to determine whether any loans require classification in accordance with applicable regulations. +16 +Table of Contents +On the basis of this review of our assets, our classified and special mention assets at the dates indicated were as follows: +At December 31, +2025 +2024 +(in thousands) +Substandard assets +$ +99 +$ +99 +Doubtful assets +— +— +Loss assets +— +— +Total classified assets +$ +99 +$ +99 +Special mention assets +$ +1,241 +$ +1,739 +Foreclosed real estate and other assets +$ +— +$ +— +Other Loans of Concern. There were no other loans at December 31, 2025 that are not already disclosed where there is information about possible credit problems of borrowers that caused management to have serious doubts about the ability of the borrowers to comply with present loan repayment terms and that may result in disclosure of such loans in the future. +Allowance for Credit Losses. On January 1, 2023, the Company adopted the ASU 2016-13 Current Expected Credit Loss (CECL) methodology for estimating the credit losses for loans and off-balance sheet commitments. This methodology replaced the previous incurred loss and impairment methodology with a methodology referred to as CECL. This methodology reflects expected credit losses and requires consideration of historical experience, current conditions, and reasonable and supportable forecasts of future economic conditions. Management uses forward-looking information to estimate the expected credit loss on a loan at the time of origination. The change from the incurred loss methodology to the CECL methodology was recognized through an adjustment to retained earnings. A provision for credit losses, which is a charge against earnings, is recorded to bring the allowance for credit losses to a level that, in management’s judgment, is adequate to absorb expected lifetime credit losses in the loan portfolio. Management’s evaluation process used to determine the appropriateness of the allowance for credit losses is subject to the use of estimates, assumptions, and judgment. The evaluation process involves gathering and interpreting many qualitative and quantitative factors which could affect expected credit losses. Because interpretation and analysis involves judgment, current economic or business conditions can change, and future events are inherently difficult to predict, the anticipated amount of estimated credit losses and therefore the appropriateness of the allowance for credit losses could change significantly. +As an integral part of their examination process, the Commissioner and the FDIC will periodically review our allowance for credit losses, and as a result of such reviews, we may determine to adjust our allowance for credit losses. However, regulatory agencies are not directly involved in the process for establishing the allowance for credit losses as the process is our responsibility and any increase or decrease in the allowance is the responsibility of management. +17 +Table of Contents +The following table sets forth activity in our allowance for credit losses on loans for the years indicated: +At December 31, +2025 +2024 +(in thousands) +Allowance for credit losses on loans at beginning of year +$ +8,884 +$ +8,591 +Provision for credit losses +1,457 +296 +Charge-offs: +Real estate loans: +One-to-four family residential +— +— +Multi-family +— +— +Commercial +— +— +Home equity lines of credit and loans +— +— +Construction +— +— +Commercial +(81 +) +— +Consumer +(6 +) +(4 +) +Total charge-offs +$ +(87 +) +$ +(4 +) +Recoveries: +Real estate loans: +One-to-four family residential +— +— +Multi-family +— +— +Commercial +— +— +Home equity lines of credit and loans +— +— +Construction +— +— +Commercial +— +— +Consumer +1 +1 +Total recoveries +1 +1 +Net charge-offs +$ +(86 +) +$ +(3 +) +Allowance for credit losses on loans at end of year +$ +10,255 +$ +8,884 +Allowance for credit losses on loans to non-performing loans +900.35 +% +453.96 +% +Allowance for credit losses on loans to total loans outstanding at end of year +0.74 +% +0.78 +% +Net charge offs to average loans outstanding during the year +0.01 +% +0.00 +% +18 +Table of Contents +Allocation of Allowance for Credit Losses on Loans. The following table sets forth the allowance for credit losses on loans allocated by loan category and the percent of loans in each category to total loans at the dates indicated. +At December 31, +2025 +2024 +Percent of Allowance +Percent of Allowance +in Each Category +Percent of Loans +in Each Category +Percent of Loans +Allowance for +to Total Allocated +in Each Category +Allowance for +to Total Allocated +in Each Category +Credit Losses +Allowance +to Total Loans +Credit Losses +Allowance +to Total Loans +(Dollars in thousands) +Real estate loans: +One-to-four family residential +$ +3,069 +29.9 +% +34.2 +% +$ +2,928 +33.0 +% +36.9 +% +Multi-family +2,260 +22.0 +30.8 +2,422 +27.3 +30.0 +Commercial +3,640 +35.6 +24.3 +2,260 +25.4 +20.0 +Home equity lines of credit and loans +170 +1.7 +3.6 +118 +1.3 +4.0 +Construction +1,009 +9.8 +6.4 +1,036 +11.7 +7.9 +Commercial loans +102 +1.0 +0.6 +119 +1.3 +1.2 +Consumer +5 +0.0 +0.1 +1 +0.0 +0.0 +Total +$ +10,255 +100.0 +% +100.0 +% +$ +8,884 +100.0 +% +100.0 +% +Investment Activities +General . Our investment policy is established by the Board of Directors. The objectives of the policy are to: (i) provide and maintain liquidity within the guidelines of the Massachusetts banking laws and regulations for loan demand and deposit fluctuations, and to allow us to alter our liquidity position to meet both day-to-day and long-term changes in assets and liabilities; (ii) manage interest rate risk in accordance with our interest rate risk policy; (iii) provide collateral for pledging requirements; (iv) maximize return on our investments; and (v) maintain a balance of high quality diversified investments to minimize risk. +We have legal authority to invest in various types of liquid assets, including U.S. Treasury obligations, securities of various government-sponsored enterprises and municipal governments, deposits at the Federal Home Loan Bank of Boston (the “FHLB”), certificates of deposit of federally insured institutions, investment grade corporate bonds and marketable equity securities. We also are required to maintain an investment in FHLB stock. While we have the authority under applicable law to invest in derivative securities, we have not invested in derivative securities. +At December 31, 2025, our investment portfolio consisted primarily of mortgage-backed securities, collateralized mortgage obligations and corporate debt securities. +Our investment policy is reviewed annually by our Board of Directors and all policy changes recommended by management must be approved by the board. Authority to make investments under the approved guidelines are delegated to appropriate officers. While general investment strategies are developed and authorized by the board, the execution of specific actions with respect to securities held by Everett Co-operative Bank rests with the Investment Committee within the scope of the established investment policy. The Investment Committee is comprised of members of senior management as well as the Security Committee of the Board of Directors. +At the time of purchase, we designate a security as held-to-maturity, available-for-sale, or trading, depending on our ability and intent. Securities available-for-sale or trading are reported at fair value, while securities held-to-maturity are reported at amortized cost. Consistent with our overall business and asset/liability management plan, which focuses on sustaining adequate levels of core earnings, the base premise of our investment portfolio is that all securities purchased will be suitable to be held-to-maturity. At December 31, 2025, $55.8 million, or 61.9%, of our securities portfolio was comprised of held-to-maturity securities and $34.3 million, or 38.1%, of our securities portfolio was comprised of available-for-sale securities. +Some of our securities are callable by the issuer. Although these securities may have a yield somewhat higher than the yield of similar securities without such features, these securities are subject to the risk that they may be redeemed by the issuer prior to maturing in the event general interest rates decline. At December 31, 2025, we had $34.3 million of securities which were subject to redemption by the issuer prior to their stated maturity. +19 +Table of Contents +For available-for-sale debt securities with a fair value less than amortized cost basis, management will determine whether it has the intent to sell the debt security or whether it is more likely than not it will be required to sell the debt security before the recovery of its amortized cost basis. If either condition is met, management will recognized a write-down to fair value through a charge to earnings. For all other debt securities, management evaluates their expected credit losses over the remaining term. The majority of the Company’s debt securities consist of mortgage-backed securities and collateralized mortgage obligations. These securities carry an explicit or implicit guarantee from the U.S. government, are highly rated by major rating agencies, and have a long history of no credit losses. Accordingly, the Company applies a zero-credit loss assumption and has not recorded any allowance for these securities. For corporate bonds, a probability of default and loss given default analysis is performed to determine the allowance for credit losses. We monitor the investment portfolio and credit performance on a quarterly basis to determine if any allowance is considered necessary. +At December 31, 2025, our corporate bond portfolio consisted of investment grade securities with maturities shorter than ten years. Our investment policy provides that we may invest up to 10% of our tier-one risk-based capital in corporate bonds from individual issuers which, at the time of purchase, are within the three highest investment-grade ratings from Standard & Poor’s or Moody’s. The maturity of these bonds generally may not exceed five years unless approved by the board of directors, and the aggregate limit is 50% of the investment portfolio for this security type. Bonds that subsequently experience a decline in credit rating below investment grade are monitored at least quarterly. +Bank-Owned Life Insurance. We invest in bank-owned life insurance to provide us with a funding source for our benefit plan obligations. Bank-owned life insurance also generally provides us noninterest income that is non-taxable. Applicable regulations generally limit our investment in bank-owned life insurance to 25% of our Tier 1 capital plus our allowance for credit losses. At December 31, 2025, we had $15.4 million in bank-owned life insurance. +Other Securities . We hold common stock of the FHLB in connection with our membership with the FHLB and our borrowing activities. The FHLB common stock is carried at cost and classified as restricted equity securities. It is not practicable to determine the fair value of FHLB common stock due to restrictions placed on its transferability. Under current FHLB rules, we will be required to purchase additional FHLB common stock if we increase borrowings in the future. +20 +Table of Contents +Securities Portfolio. The following tables set forth the stated maturities and weighted average yields of our investment securities which are classified as held-to-maturity and available-for-sale at December 31, 2025. Certain securities have adjustable interest rates and will reprice periodically within the various maturity ranges. These repricing schedules are not reflected in the table below. Prepayments are not reflected in the table below. +More than One +More than Five +More than +One Year or Less +Year to Five Years +Years to Ten Years +Ten Years +Total +Weighted +Weighted +Weighted +Weighted +Weighted +Amortized +Average +Amortized +Average +Amortized +Average +Amortized +Average +Amortized +Fair +Average +Cost +Yield +Cost +Yield +Cost +Yield +Cost +Yield +Cost +Value +Yield +(Dollars in thousands) +Securities held-to-maturity: +Mortgage-backed securities +$ +20 +1.65 +% +$ +3,722 +4.38 +% +$ +2,501 +2.49 +% +$ +30,402 +2.12 +% +$ +36,645 +$ +33,280 +2.37 +% +Corporate bonds +7,501 +2.13 +% +5,903 +7.16 +% +5,715 +6.94 +% +— +— +19,119 +19,046 +5.12 +% +Total +$ +7,521 +2.13 +% +$ +9,625 +6.09 +% +$ +8,216 +5.58 +% +$ +30,402 +2.12 +% +$ +55,764 +$ +52,326 +3.32 +% +More than One +More than Five +More than +One Year or Less +Year to Five Years +Years to Ten Years +Ten Years +Total +Weighted +Weighted +Weighted +Weighted +Weighted +Amortized +Average +Amortized +Average +Amortized +Average +Amortized +Average +Amortized +Fair +Average +Cost +Yield +Cost +Yield +Cost +Yield +Cost +Yield +Cost +Value +Yield +(Dollars in thousands) +Securities available-for-sale +Mortgage-backed securities +$ +1,365 +3.53 +% +$ +4,150 +4.40 +% +$ +— +— +$ +896 +5.41 +% +$ +6,411 +$ +6,459 +4.36 +% +Collateralized Mortgage Obligation +— +— +— +— +— +— +10,937 +4.80 +% +10,937 +10,948 +4.80 +% +Corporate bonds +— +— +5,543 +7.98 +% +11,189 +6.80 +% +— +— +16,732 +16,910 +7.19 +% +Total +$ +1,365 +3.53 +% +$ +9,693 +6.44 +% +$ +11,189 +6.80 +% +$ +11,833 +4.84 +% +$ +34,080 +$ +34,317 +5.89 +% +For additional information regarding our investment securities portfolio, see Note 3 of the consolidated financial statements. +21 +Table of Contents +Sources of Funds +General. Deposits have traditionally been our primary source of funds for use in lending and investment activities. We also use borrowings to supplement cash flow needs, lengthen the maturities of liabilities for interest rate risk purposes and to manage the cost of funds. In addition, we receive funds from scheduled loan payments, investment maturities, loan prepayments, loan sales, retained earnings and income on earning assets. While scheduled loan payments and income on earning assets are relatively stable sources of funds, deposit inflows and outflows can vary widely and are influenced by prevailing interest rates, market conditions and levels of competition. +Deposits. Our deposits are generated primarily from residents within our primary market area. We offer a selection of deposit accounts, including noninterest-bearing and interest-bearing demand accounts, money market accounts, savings accounts and certificates of deposit. Deposit account terms vary, with the principal differences being the minimum balance required, the amount of time the funds must remain on deposit and the interest rate. In recent years, we have also accepted brokered deposits as non-retail funding source to fund our operations. These funding sources are not relationship-based accounts and are generally more price-sensitive than our relationship based deposits and they carry a greater risk of non-renewal than our customer based deposits. At December 31, 2025, our largest deposit relationship had $25.8 million in deposits. +We are focused on ensuring that our products, services and accessibility will continue to make Everett Co-operative Bank a competitive community bank, and will continue to attract and retain retail customers by emphasizing personal service, accessibility and flexibility. The Company has developed new high yield consumer and business products as well as introducing an array of cash management services designed to attract new business relationships to the bank. In September of 2023, the Company opened a new branch in Woburn, MA, increasing our retail network to three branches and in January 2026, we announced that we are filing an application to establish a new branch office in Medford, MA. We will continue to attract and retain retail customers by emphasizing personal service, accessibility and flexibility in the face of mass market-oriented large, national and super-regional banks which maintain local branch networks in our market. +Interest rates, maturity terms, service fees and withdrawal penalties are established on a periodic basis. Deposit rates and terms are based primarily on current operating strategies and market rates, liquidity requirements, rates paid by competitors and growth goals. The flow of deposits is influenced significantly by general economic conditions, changes in interest rates and competition. The variety of deposit accounts that we offer allows us to be competitive in generating deposits and to respond with flexibility to changes in our customers’ demands. Our ability to gather deposits is impacted by the competitive market in which we operate, which includes numerous financial institutions of varying sizes offering a wide range of products. We believe that deposits are a stable source of funds, but our ability to attract and maintain deposits at favorable rates will be affected by market conditions, including competition and prevailing interest rates. +22 +Table of Contents +The following table sets forth the distribution of total deposits, by account type, at the dates indicated. +At December 31, +2025 +2024 +Amount +Percent +Average Rate +Amount +Percent +Average Rate +(Dollars in thousands) +Noninterest-bearing demand deposits +$ +81,497 +7.2 +% +0.00 +% +$ +84,958 +8.5 +% +0.00 +% +Interest-bearing demand deposits +19,381 +1.7 +0.09 +% +20,546 +2.1 +0.10 +% +Regular savings deposits and other deposits +91,383 +8.1 +1.62 +% +102,933 +10.3 +2.10 +% +Money market deposits +211,772 +18.7 +2.85 +% +184,581 +18.5 +3.47 +% +Certificates of deposit +728,311 +64.3 +3.97 +% +605,515 +60.6 +4.38 +% +Total +$ +1,132,344 +100.0 +% +$ +998,533 +100.0 +% +As of December 31, 2025 and 2024, the aggregate amount of deposits in amounts greater than $250,000, which is the maximum amount for federal deposit insurance, was $582.9 million and $503.8 million, respectively. As of December 31, 2025, the aggregate amount of all our certificates of deposit in excess of $250,000 was $334.8 million. +All of our deposits are fully insured due to the additional insurance provided to a Massachusetts cooperative bank, such as Everett Co-operative Bank, under the Depositors Insurance Fund, a private industry-sponsored insurance fund in Massachusetts that insures all deposits at Everett Co-operative Bank above FDIC limits. +Borrowings . At December 31, 2025, total borrowings were $284.8 million. Borrowings consist of both short-term and long-term FHLB advances. Borrowings provide us with one source of funding. Maintaining available borrowing capacity with the FHLB provides us with a contingent source of liquidity. Everett Co-operative Bank is a member of the FHLB of Boston. The primary reason for our FHLB membership is to gain access to a reliable source of wholesale funding, particularly term funding, as a tool to manage liquidity and interest rate risk. As a member of the FHLB, we are required to purchase shares in the FHLB. Accordingly, we had invested $11.9 million in shares of the FHLB at December 31, 2025. We had $395.4 million of borrowing capacity remaining with the FHLB at December 31, 2025. At December 31, 2025, we also had $15.0 million of borrowing capacity with the Atlantic Community Bankers Bank and $75.7 million of borrowing capacity with the Federal Reserve Bank. +Subsidiary and Other Activities +Everett Co-operative Bank is the wholly owned subsidiary of ECB Bancorp. +Everett Co-operative Bank has one subsidiary, First Everett Securities Corporation, Inc. (“FESC, Inc.”), a Massachusetts corporation, which is engaged in the buying, selling and holding of investment securities. The income earned on FESC, Inc.’s securities is subject to a significantly lower rate of state tax than that assessed on income earned on securities maintained at Everett Co-operative Bank. At December 31, 2025, FESC, Inc. had total assets of $53.7 million, substantially all of which were in securities and cash to be invested. +Expense and Tax Allocation +Everett Co-operative Bank has entered into an agreement with ECB Bancorp to provide it with certain administrative support services for compensation not less than the fair market value of the services provided. In addition, Everett Co-operative Bank and ECB Bancorp have entered into an agreement to establish a method for allocating and for reimbursing the payment of their consolidated tax liability. +Personnel +As of December 31, 2025, we had 64 full-time equivalent employees. Our employees are not represented by any collective bargaining group. Management believes that we have a good working relationship with our employees. +23 +Table of Contents +SUPERVISION AND REGULATION +General +Everett Co-operative Bank is a Massachusetts-chartered stock cooperative bank and is the wholly owned subsidiary of ECB Bancorp, a Maryland corporation, which is a registered bank holding company. Everett Co-operative Bank’s deposits are insured up to applicable limits by the FDIC and by the Depositors Insurance Fund for amounts in excess of the FDIC insurance limits. Everett Co-operative Bank is subject to extensive regulation by the Commissioner of the Massachusetts Division of Banks, as its chartering agency, and by the FDIC, its primary federal regulator and deposit insurer. Everett Co-operative Bank is required to file reports with, and is periodically examined by, the FDIC and the Commissioner concerning its activities and financial condition and must obtain regulatory approvals prior to entering into certain transactions, including, but not limited to, mergers with or acquisitions of other financial institutions. As a registered bank holding company, ECB Bancorp is regulated by the Board of Governors of the Federal Reserve Board (the “Federal Reserve Board”). Everett Co-operative Bank also is a member of and owns stock in the Federal Home Loan Bank of Boston, which is one of the 11 regional banks in the Federal Home Loan Bank System. +Under this system of regulation, the regulatory authorities have extensive discretion in connection with their supervisory, enforcement, rulemaking and examination activities and policies, including rules or policies that: establish minimum capital levels; restrict the timing and amount of dividend payments; govern the classification of assets; provide oversight for the adequacy of credit loss reserves for regulatory purposes and the adequacy of its risk management framework; and establish the timing and amounts of assessments and fees imposed by the regulatory agencies. Moreover, as part of their examination authority, the banking regulators assign numerical ratings to banks and savings institutions relating to capital, asset quality, management, liquidity, earnings and other factors. These ratings rely on the supervisor’s judgment and the receipt of a less than satisfactory rating in one or more categories may result in enforcement action by the banking regulators against a financial institution. A less than satisfactory rating may also prevent a financial institution, such as Everett Co-operative Bank or its holding company, from obtaining necessary regulatory approvals to access the capital markets, pay dividends, acquire other financial institutions or establish new branches. +In addition, we must comply with significant anti-money laundering and anti-terrorism laws and regulations, Community Reinvestment Act laws and regulations, and fair lending laws and regulations. Everett Co-operative Bank must comply with consumer protection regulations issued by the Consumer Financial Protection Bureau, as enforced by the FDIC. Government agencies have the authority to impose monetary penalties and other sanctions on institutions that fail to comply with these laws and regulations, which could significantly affect our business activities, including our ability to acquire other financial institutions or expand our branch network. +As a bank holding company, ECB Bancorp is required to comply with the Bank Holding Company Act of 1956, as amended, and the rules and regulations of the Federal Reserve Board. It is required to file certain reports with the Federal Reserve Board and is subject to examination by and the enforcement authority of the Federal Reserve Board. Additionally, the Federal Reserve Board may directly examine the subsidiaries of a bank holding company, including Everett Co-operative Bank. ECB Bancorp is also subject to the rules and regulations of the Securities and Exchange Commission under the federal securities laws. +Any change in applicable laws or regulations, whether by the Massachusetts legislature, the Commissioner, the Consumer Financial Protection Bureau, the FDIC, the Federal Reserve Board, the Securities and Exchange Commission or Congress, could have a material adverse impact on the operations and financial performance of ECB Bancorp and Everett Co-operative Bank. +Set forth below is a brief description of material regulatory requirements that are applicable to Everett Co-operative Bank and ECB Bancorp. The description is limited to certain material aspects of the statutes and regulations addressed, and is not intended to be a complete description of such statutes and regulations and their effects on Everett Co-operative Bank and ECB Bancorp. +24 +Table of Contents +Massachusetts Banking Laws and Supervision +General. As a Massachusetts-chartered cooperative bank, Everett Co-operative Bank is subject to supervision, regulation and examination by the Commissioner and to various Massachusetts statutes and regulations which govern, among other things, investment powers, lending and deposit-taking activities, borrowings, maintenance of surplus and reserve accounts, distribution of earnings and payment of dividends. In addition, Everett Co-operative Bank is subject to Massachusetts consumer protection, Community Reinvestment Act, civil rights laws and regulations. The approval of the Massachusetts Commissioner of Banks is required for a Massachusetts-chartered bank to establish or close branches, merge with other financial institutions, issue stock and undertake certain other activities. +Massachusetts regulations generally allow Massachusetts banks, with appropriate regulatory approvals, to engage in activities permissible for federally chartered banks or banks chartered by another state. The Commissioner also has adopted procedures reducing regulatory burdens and expense and expediting branching by well-capitalized and well-managed banks. +Dividends. A Massachusetts stock bank may declare cash dividends from net profits not more frequently than quarterly. Noncash dividends may be declared at any time. No dividends may be declared, credited or paid if the bank’s capital stock is impaired. The approval of the Commissioner is required if the total of all dividends declared in any calendar year exceeds the total of its net profits for that year combined with its retained net profits of the preceding two years. Dividends from ECB Bancorp may depend, in part, upon receipt of dividends from Everett Co-operative Bank. The payment of dividends from Everett Co-operative Bank would be restricted by federal law if the payment of such dividends resulted in Everett Co-operative Bank failing to meet regulatory capital requirements. +Loans to One Borrower Limitations. Massachusetts banking law grants broad lending authority. However, with certain limited exceptions, total obligations to one borrower may not exceed 20% of the total of an institution's capital stock (if any), surplus and undivided profits. The Commissioner applies the Office of the Comptroller of the Currency’s attribution rules to a borrower’s related interests. At December 31, 2025, Everett Co-operative Bank was in compliance with the loans-to-one borrower limitations. +Loans to a Bank ’ s Insiders. Under Massachusetts law, a Massachusetts-chartered bank must comply with Regulation O of the Federal Reserve Board, and the Commissioner retains examination and enforcement authority to ensure compliance. +Investment Activities. In general, Massachusetts-chartered banks may invest in preferred and common stock of any corporation organized under the laws of the United States or any state provided such investments do not involve control of any corporation and do not, in the aggregate, exceed 4% of the bank’s deposits. Federal law imposes additional restrictions on Everett Co-operative Bank’s investment activities. +Regulatory Enforcement Authority. Any Massachusetts bank that does not operate in accordance with the regulations, policies and directives of the Commissioner may be subject to sanctions for noncompliance, including revocation of its charter. The Commissioner may, under certain circumstances, suspend or remove officers or directors who have violated the law, conducted the bank’s business in an unsafe or unsound manner or contrary to the depositors’ interests or been negligent in the performance of their duties. Upon finding that a bank has engaged in an unfair or deceptive act or practice, the Commissioner may issue an order to cease and desist and impose a fine on the bank concerned. The Commissioner also has authority to take possession of a bank and appoint the FDIC as receiver under certain conditions such as an unsafe and unsound condition to transact business, the conduct of business in an unsafe or unauthorized manner or impaired capital. In addition, Massachusetts consumer protection and civil rights statutes applicable to Everett Co-operative Bank permit private individual and class action law suits and provide for the rescission of consumer transactions, including loans, and the recovery of statutory and punitive damages and attorneys’ fees in the case of certain violations of those statutes. +Excess Deposit Insurance Fund. All Massachusetts-chartered cooperative banks are members of the Depositors Insurance Fund, a private industry-sponsored insurance fund in Massachusetts that insures all deposits at Everett Co-operative Bank above FDIC limits. +25 +Table of Contents +Protection of Personal Information. Massachusetts banking regulations contain requirements intended to protect personal information and are similar to federal laws such as the Gramm-Leach-Bliley Act, discussed below under “ – Federal Regulations – Other Regulations,” that require organizations to establish written information security programs to prevent identity theft. The Massachusetts regulation also contains technology system requirements, especially for the encryption of personal information sent over wireless or public networks or stored on portable devices. +Insurance Sales. Massachusetts banks may engage in insurance sales activities if the Commissioner has approved a plan of operation for insurance activities and the bank obtains a license from the Massachusetts Division of Insurance. A bank may be licensed directly or indirectly through an affiliate or a subsidiary corporation established for this purpose. Everett Co-operative Bank does not sell or refer insurance products, and has not sought approval for insurance sales activities. +Parity Regulation. A Massachusetts bank may exercise any power and engage in any activity that has been authorized for national banks, federal thrifts or state banks in a state other than Massachusetts, provided that the activity is permissible under applicable federal law and not specifically prohibited by Massachusetts law. Such powers and activities must be subject to the same limitations and restrictions imposed on the national bank, federal thrift or out-of-state bank that exercised the power or activity. +Massachusetts has other statutes or regulations that are similar to certain of the federal provisions discussed below. +Federal Regulations +Capital Requirements . Federal regulations require federally insured depository institutions to meet several minimum capital standards: a common equity Tier 1 capital to risk-based assets ratio of 4.5%, a Tier 1 capital to risk-based assets ratio of 6.0%, a total capital to risk-based assets ratio of 8.0%, and a 4.0% Tier 1 capital to total assets leverage ratio. +In determining the amount of risk-weighted assets for calculating risk-based capital ratios, all assets, including certain off-balance sheet assets ( e.g. , recourse obligations, direct credit substitutes, residual interests) are multiplied by a risk-weight factor assigned by the regulations based on the risks believed inherent in the type of asset. Higher levels of capital are required for asset categories believed to present greater risk. Common equity Tier 1 capital is generally defined as common shareholders’ equity and related surplus and retained earnings. Tier 1 capital is generally defined as common equity Tier 1 and additional Tier 1 capital. Additional Tier 1 capital includes certain non-cumulative perpetual preferred stock and related surplus and minority interests in equity accounts of consolidated subsidiaries. Total capital includes Tier 1 capital (common equity Tier 1 capital plus additional Tier 1 capital) and Tier 2 capital. Tier 2 capital is comprised of capital instruments and related surplus, meeting specified requirements, and may include cumulative preferred stock and long-term perpetual preferred stock, mandatory convertible securities, intermediate preferred stock and subordinated debt. Also included in Tier 2 capital is the allowance for credit losses limited to a maximum of 1.25% of risk-weighted assets. Calculation of all types of regulatory capital is subject to deductions and adjustments specified in the regulations. In assessing an institution’s capital adequacy, the FDIC takes into consideration not only these numeric factors, but qualitative factors as well, and has the authority to establish higher capital requirements for individual institutions where deemed necessary. +In addition to establishing the minimum regulatory capital requirements, the regulations limit capital distributions and certain discretionary bonus payments to management if the institution does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets above the amount necessary to meet its minimum risk-based capital requirements. +Federal law required the federal banking agencies, including the FDIC, to establish a “community bank leverage ratio” of between 8% and 10% for institutions with total consolidated assets of less than $10 billion. Institutions with capital complying with the ratio and otherwise meeting the specified requirements and electing the alternative framework are considered to comply with the applicable regulatory capital requirements, including the risk-based requirements. The community bank leverage ratio was established at 9% Tier 1 capital to total average assets, effective January 1, 2020. A qualifying institution may opt in and out of the community bank leverage ratio framework on its quarterly call report. An institution that temporarily ceases to meet any qualifying criteria is provided with a two-quarter grace period to regain compliance. Failure to meet the qualifying criteria within the grace period or maintain a leverage ratio of 8% or greater requires the institution to comply with the generally applicable regulatory capital requirements. +26 +Table of Contents +At December 31, 2025, Everett Co-operative Bank had not opted into the community bank leverage ratio framework and its capital ratios exceeded all applicable requirements. +Capital Distributions. The Federal Deposit Insurance Act generally provides that an insured depository institution may not make any capital distribution if, after making such distribution, the institution would fail to meet any applicable regulatory capital requirement. Unless the approval of the FDIC is obtained, Everett Co-operative Bank may not declare or pay a dividend if the total of all dividends declared during the calendar year, including the proposed dividend, exceeds the sum of its net income during the current calendar year and the retained net income, not previously used for dividends, of the prior two calendar years. +Community Reinvestment Act and Fair Lending Laws. All insured depository institutions have a responsibility under the Community Reinvestment Act and related regulations to help meet the credit needs of their communities, including low- and moderate-income borrowers. The FDIC is required to assess Everett Co-operative Bank’s record of compliance with the Community Reinvestment Act. An institution’s failure to comply with the provisions of the Community Reinvestment Act could, at a minimum, result in denial of certain corporate applications such as branches or mergers, or in restrictions on its activities. In addition, the Equal Credit Opportunity Act and the Fair Housing Act prohibit lenders from discriminating in their lending practices. The failure to comply with the Equal Credit Opportunity Act and the Fair Housing Act could result in enforcement actions by the FDIC, as well as other federal regulatory agencies and the Department of Justice. +The Community Reinvestment Act requires all institutions insured by the FDIC to publicly disclose their rating. Everett Co-operative Bank received a “Satisfactory” Community Reinvestment Act rating in its most recent federal examination. +Massachusetts has its own statutory counterpart to the CRA which is also applicable to Everett Co-operative Bank. The Massachusetts version is generally similar to the CRA but utilizes a five-tiered descriptive rating system. Massachusetts law requires the Commissioner to consider, but not be limited to, a bank’s record of performance under Massachusetts law in considering any application by the bank to establish a branch or other deposit-taking facility, to relocate an office or to merge or consolidate with or acquire the assets and assume the liabilities of any other banking institution. Everett Co-operative Bank’s most recent 2025 CRA performance rating under Massachusetts law was “Satisfactory.” +Transactions with Related Parties. An insured depository institution’s authority to engage in transactions with its affiliates is generally limited by Sections 23A and 23B of the Federal Reserve Act and federal regulation. An affiliate is generally a company that controls, or is under common control with, an insured depository institution such as Everett Co-operative Bank. ECB Bancorp is an affiliate of Everett Co-operative Bank because of its control of Everett Co-operative Bank. In general, transactions between an insured depository institution and its affiliates are subject to certain quantitative limits and collateral requirements. In addition, federal regulations prohibit a state-chartered bank from lending to any of its affiliates that are engaged in activities that are not permissible for bank holding companies and from purchasing the securities of any affiliate, other than a subsidiary. Finally, transactions with affiliates must be consistent with safe and sound banking practices, not involve the purchase of low-quality assets and be on terms that are as favorable to the institution as comparable transactions with non-affiliates. +27 +Table of Contents +Everett Co-operative Bank’s authority to extend credit to its directors, executive officers and 10% shareholders, as well as to entities controlled by such persons, is currently governed by the requirements of Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O of the Federal Reserve Board. Among other things, these provisions generally require that extensions of credit to insiders: +• +be made on terms that are substantially the same as, and follow credit underwriting procedures that are not less stringent than, those prevailing for comparable transactions with unaffiliated persons and that do not involve more than the normal risk of repayment or present other unfavorable features; and +• +not exceed certain limitations on the amount of credit extended to such persons, individually and in the aggregate, which limits are based, in part, on the amount of Everett Co-operative Bank’s capital. +In addition, extensions of credit in excess of certain limits must be approved by Everett Co-operative Bank’s board of directors. Extensions of credit to executive officers are subject to additional limits based on the type of extension involved. +Enforcement. The FDIC has extensive enforcement authority over insured state banks, such as Everett Co-operative Bank, that are not members of the Federal Reserve System. The enforcement authority includes, among other things, the ability to assess civil money penalties, issue cease and desist orders, and remove directors and officers. In general, these enforcement actions may be initiated in response to violations of laws and regulations, breaches of fiduciary duty and unsafe or unsound practices. The FDIC is required, with certain exceptions, to appoint a receiver or conservator for an insured state non-member bank if that bank was “critically undercapitalized” on average during the calendar quarter beginning 270 days after the date on which the institution became “critically undercapitalized.” The FDIC may also appoint itself as conservator or receiver for an insured state non-member bank under specified circumstances, including: (1) insolvency; (2) substantial dissipation of assets or earnings through violations of law or unsafe or unsound practices; (3) existence of an unsafe or unsound condition to transact business; (4) insufficient capital; or (5) the incurrence of losses that will deplete substantially all of the institution’s capital with no reasonable prospect of replenishment without federal assistance. +Standards for Safety and Soundness. Federal law requires each federal banking agency to prescribe certain standards for the insured depository institutions they supervise. These standards relate to, among other things, internal controls, information systems and audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, asset quality, earnings, compensation and benefits, and other operational and managerial standards as the agency deems appropriate. Interagency guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. If the appropriate federal banking agency determines that an institution fails to meet any standard prescribed by the guidelines, the agency may require the institution to submit to the agency an acceptable plan to achieve compliance with the standard. If an institution fails to meet these standards, the appropriate federal banking agency may require the institution to implement an acceptable compliance plan. Failure to implement such a plan can result in further enforcement action, including the issuance of a cease and desist order and/or the imposition of civil money penalties. +Branching. Federal law permits insured state banks to engage in interstate branching if the laws of the state where the new banking office is to be established would permit the establishment of the banking office if it were chartered by a bank in such state. Under Massachusetts law, Everett Co-operative Bank can establish a branch in Massachusetts or in any other state. All branch applications require prior approval of the Commissioner and the FDIC. Finally, Everett Co-operative Bank may also establish banking offices in other states by merging with banks or by purchasing banking offices of other banks in other states, subject to certain restrictions. +Prompt Corrective Action. Federal law requires, among other things, that federal banking agencies take “prompt corrective action” with respect to institutions that do not meet minimum capital requirements. For this purpose, the FDIC’s regulations establish five capital categories: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. Under applicable regulations, an institution is deemed to be “well capitalized” if it has a total risk-based capital ratio of 10.0% or greater, a Tier 1 risk-based capital ratio of 8.0% or greater, a leverage ratio of 5.0% or greater and a common equity Tier 1 ratio of 6.5% or greater. An institution is “adequately capitalized” if it has a total risk-based capital ratio of 8.0% or greater, a Tier 1 risk-based capital ratio of 6.0% or greater, a leverage ratio of 4.0% or greater and a common equity Tier 1 ratio of 4.5% or greater. An institution is “undercapitalized” if it has a total risk-based capital ratio of less than 8.0%, a Tier 1 risk-based capital ratio of less than 6.0%, a leverage ratio of less than 4.0% or a common equity Tier 1 ratio of less than 4.5%. An institution is deemed to be “significantly undercapitalized” if it has a total risk-based capital ratio of less than 6.0%, a Tier 1 risk-based capital ratio of less than 4.0%, a leverage ratio of less than 3.0% or a common equity Tier 1 ratio of less than 3.0%. An institution is considered to be “critically undercapitalized” if it has a ratio of tangible equity (as defined in the regulations) to total assets that is equal to or less than 2.0%. +28 +Table of Contents +At each successive lower capital category, an insured depository institution is subject to more restrictions and prohibitions, including restrictions on growth, restrictions on interest rates paid on deposits, restrictions or prohibitions on the payment of dividends, and restrictions on the acceptance of brokered deposits. Furthermore, if an insured depository institution is classified in one of the undercapitalized categories, it is required to submit a capital restoration plan to the appropriate federal banking agency, and the holding company must guarantee the performance of that plan. Based upon its capital levels, a bank that is classified as well-capitalized, adequately capitalized, or undercapitalized may be treated as though it were in the next lower capital category if the appropriate federal banking agency, after notice and opportunity for hearing, determines that an unsafe or unsound condition, or an unsafe or unsound practice, warrants such treatment. An undercapitalized bank’s compliance with a capital restoration plan is required to be guaranteed by any company that controls the undercapitalized institution in an amount equal to the lesser of 5.0% of the institution’s total assets when deemed undercapitalized or the amount necessary to achieve the status of adequately capitalized. If an “undercapitalized” bank fails to submit an acceptable plan, it is treated as if it is “significantly undercapitalized.” “Significantly undercapitalized” banks must comply with one or more of a number of additional restrictions, including a regulatory order to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets, ceasing receipt of deposits from correspondent banks, dismissal of directors or officers, and restrictions on interest rates paid on deposits, compensation of executive officers and capital distributions by the parent holding company. “Critically undercapitalized” institutions are subject to additional measures including, subject to a narrow exception, the appointment of a receiver or conservator within 270 days after it obtains such status. +The previously referenced final rule establishing an elective “community bank leverage ratio” regulatory capital framework provides that a qualifying institution whose capital exceeds the community bank leverage ratio and opts to use that framework will be considered “well-capitalized” for purposes of prompt corrective action. +At December 31, 2025, Everett Co-operative Bank met the criteria for being considered “well capitalized.” +Insurance of Deposit Accounts. The Deposit Insurance Fund of the FDIC insures deposits at FDIC-insured financial institutions such as Everett Co-operative Bank, generally up to a maximum of $250,000 per separately insured depositor. The FDIC charges insured depository institutions premiums to maintain the Deposit Insurance Fund. +Under the FDIC’s risk-based assessment system, institutions deemed less risky of failure pay lower assessments. Assessments for institutions of less than $10 billion of assets are based on financial measures and supervisory ratings derived from statistical modeling estimating the probability of an institution's failure within three years. +The FDIC has authority to increase insurance assessments. Any significant increases would have an adverse effect on the operating expenses and results of operations of Everett Co-operative Bank. For 2025 the FDIC insurance expense for Everett Co-operative Bank was approximately $883,000. We cannot predict what assessment rates will be in the future. +Insurance of deposits may be terminated by the FDIC upon a finding that an institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC. Everett Co-operative Bank does not know of any practice, condition or violation that may lead to termination of its deposit insurance. +Brokered Deposits. Federal law and FDIC regulations generally limit the ability of an insured depository institution to accept, renew or roll over any brokered deposit unless the institution’s capital category is “well capitalized” or, with the FDIC’s approval, “adequately capitalized.” Depository institutions that have brokered deposits in excess of 10% of total assets may be subject to increased FDIC deposit insurance premium assessments. However, for institutions that are well capitalized and have a CAMELS composite rating of 1 or 2, reciprocal deposits are deducted from brokered deposits. The Economic Growth, Regulatory Relief, and Consumer Protection Act, enacted in 2018, amends the Federal Deposit Insurance Act to exempt a capped amount of reciprocal deposits from treatment as brokered deposits for certain insured depository institutions. +29 +Table of Contents +Privacy Regulations. Federal regulations generally require that Everett Co-operative Bank disclose its privacy policy, including identifying with whom it shares a customer’s “non-public personal information,” to customers at the time of establishing the customer relationship and annually thereafter. In addition, Everett Co-operative Bank is required to provide its customers with the ability to “opt-out” of having their personal information shared with unaffiliated third parties and not to disclose account numbers or access codes to non-affiliated third parties for marketing purposes. Everett Co-operative Bank currently has a privacy protection policy in place and believes that such policy is in compliance with the regulations. +Anti-Money Laundering - The Bank Secrecy Act. Under the Bank Secrecy Act (“BSA”), a financial institution is required to have systems in place to detect certain transactions, based on the size and nature of the transaction. Financial institutions are generally required to report to the U.S. Treasury any cash transactions involving at least $10,000. In addition, financial institutions are required to file suspicious activity reports for any transaction or series of transactions that involve more than $5,000 and which the financial institution knows, suspects or has reason to suspect involves illegal funds, is designed to evade the requirements of the BSA or has no lawful purpose. The USA PATRIOT Act, which amended the BSA, together with the implementing regulations of various federal regulatory agencies, has caused financial institutions, such as Everett Co-operative Bank, to adopt and implement additional policies or amend existing policies and procedures with respect to, among other things, anti-money laundering compliance, suspicious activity, currency transaction reporting, customer identity verification and customer risk analysis. In evaluating an application to acquire a bank or to merge banks or effect a purchase of assets and assumption of deposits and other liabilities, the applicable federal banking regulator must consider the anti-money laundering compliance record of both the applicant and the target. In addition, under the USA PATRIOT Act financial institutions are required to take steps to monitor their correspondent banking and private banking relationships as well as, if applicable, their relationships with “shell banks.” +Prohibitions Against Tying Arrangements . Everett Co-operative Bank is prohibited, subject to some exceptions, from extending credit to or offering any other service, or fixing or varying the consideration for such extension of credit or service, on the condition that the customer obtain some additional service from the institution or its affiliates or not obtain services of a competitor of the institution. +Other Regulations +Interest and other charges collected or contracted for by Everett Co-operative Bank are subject to state usury laws and federal laws concerning interest rates. Loan operations are also subject to state and federal laws applicable to credit transactions, such as the: +• +Home Mortgage Disclosure Act, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves; +• +Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit; +• +Fair Credit Reporting Act, governing the use and provision of information to credit reporting agencies; and +• +Rules and regulations of the various federal agencies charged with the responsibility of implementing such federal laws. +The deposit operations of Everett Co-operative Bank also are subject to, among others, the: +• +Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records; +• +Check Clearing for the 21st Century Act (also known as “Check 21”), which gives “substitute checks,” such as digital check images and copies made from that image, the same legal standing as the original paper check; and +• +Electronic Funds Transfer Act and Regulation E promulgated thereunder, which govern automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services. +30 +Table of Contents +Federal Home Loan Bank System +Everett Co-operative Bank is a member of the Federal Home Loan Bank System, which consists of 11 regional Federal Home Loan Banks. The Federal Home Loan Banks provide central credit facilities primarily for member institutions. Members of a Federal Home Loan Bank are required to acquire and hold shares of capital stock in their Federal Home Loan Bank. Everett Co-operative Bank complied with this requirement at December 31, 2025. Based on redemption provisions of the Federal Home Loan Bank of Boston, the stock has no quoted market value and is carried at cost. The Company reviews its investment in capital stock of the FHLB for impairment based on the ultimate recoverability of the cost basis in the FHLB stock. At December 31, 2025, no impairment had been recognized. +Holding Company Regulation +ECB Bancorp is a bank holding company within the meaning of Bank Holding Company of 1956, as amended. As such, ECB Bancorp is registered with the Federal Reserve Board and is subject to regulations, examinations, supervision and reporting requirements applicable to bank holding companies. In addition, the Federal Reserve Board has enforcement authority over ECB Bancorp and its non-bank subsidiaries. Among other things, this authority permits the Federal Reserve Board to restrict or prohibit activities that are determined to be a serious risk to Everett Co-operative Bank. +A bank holding company is generally prohibited from engaging in non-banking activities, or acquiring direct or indirect control of more than 5% of the voting securities of any company engaged in non-banking activities. One of the principal exceptions to this prohibition is for activities found by the Federal Reserve Board to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. Some of the principal activities that the Federal Reserve Board has determined by regulation to be so closely related to banking are: (i) making or servicing loans; (ii) performing certain data processing services; (iii) providing discount brokerage services; (iv) acting as fiduciary, investment or financial advisor; (v) leasing personal or real property; (vi) making investments in corporations or projects designed primarily to promote community welfare; and (vii) acquiring a savings association whose direct and indirect activities are limited to those permitted for bank holding companies. +The Gramm-Leach-Bliley Act of 1999 authorized a bank holding company that meets specified conditions, including being “well capitalized” and “well managed,” to opt to become a “financial holding company” and thereby engage in a broader array of financial activities than previously permitted. Such activities can include insurance underwriting and investment banking. ECB Bancorp is not a financial holding company. +Bank holding companies with less than $3 billion in consolidated assets are exempt from consolidated regulatory capital requirements unless the Federal Reserve Board determines otherwise in particular cases. +By law, holding companies, including bank holding companies, must act as a source of strength to their subsidiary depository institutions by providing capital, liquidity and other support in times of financial stress. +The Federal Reserve Board has issued supervisory policies regarding the payment of dividends and the repurchase of shares of common stock by bank holding companies and savings and loan holding companies. In general, the policy provides that dividends should be paid only out of current earnings and only if the prospective rate of earnings retention by the holding company appears consistent with the organization’s capital needs, asset quality and overall financial condition. Regulatory guidance provides for prior regulatory consultation with respect to capital distributions in certain circumstances such as where the company’s net income for the past four quarters, net of capital distributions previously paid over that period, is insufficient to fully fund the dividend or the company’s overall rate of earnings retention is inconsistent with the company’s capital needs and overall financial condition. The ability of a holding company to pay dividends may be restricted if a subsidiary bank becomes undercapitalized. The policy statement also states that a holding company should inform the Federal Reserve Board supervisory staff before redeeming or repurchasing common stock or perpetual preferred stock if the holding company is experiencing financial weaknesses or if the repurchase or redemption would result in a net reduction, at the end of a quarter, in the amount of such equity instruments outstanding compared with the beginning of the quarter in which the redemption or repurchase occurred. These regulatory policies may affect the ability of ECB Bancorp to pay dividends, repurchase shares of common stock or otherwise engage in capital distributions. +31 +Table of Contents +Massachusetts Holding Company Regulation. Under Massachusetts banking laws, a company owning or controlling two or more banking institutions, including a cooperative bank, is regulated by the Commissioner as a bank holding company. Each such bank holding company: (i) must obtain the approval of the Massachusetts Board of Bank Incorporation before engaging in certain transactions, such as the acquisition of more than 5% of the voting stock of another banking institution; (ii) must register, and file reports, with the Commissioner; and (iii) is subject to examination by the Commissioner. ECB Bancorp would become a bank holding company regulated by the Commissioner if it acquires a second banking institution and holds and operates it separately from Everett Co-operative Bank. +Change in Control Regulations +Under the Change in Bank Control Act, no person or group of persons may acquire “control” of a bank holding company, such as ECB Bancorp, unless the Federal Reserve Board has been given 60 days’ prior written notice and has not issued a notice disapproving the proposed acquisition, taking into consideration certain factors, including the financial and managerial resources of the acquirer and the competitive effects of the acquisition. Control, as defined under federal law, means ownership, control of or holding irrevocable proxies representing more than 25% of any class of voting stock, control in any manner of the election of a majority of the institution’s directors, or a determination by the regulator that the acquirer has the power, directly or indirectly, to exercise a controlling influence over the management or policies of the institution. There is a presumption of control upon the acquisition of 10% or more of a class of voting stock if the holding company involved has its shares registered under the Securities Exchange Act of 1934, or, if the holding company involved does not have its shares registered under the Securities Exchange Act of 1934, if no other persons will own, control or hold the power to vote a greater percentage of that class of voting security after the acquisition. +Federal Securities Laws +The common stock of ECB Bancorp is registered with the Securities and Exchange Commission. ECB Bancorp is subject to the information, proxy solicitation, insider trading restrictions and other requirements under the Securities Exchange Act of 1934. +Sarbanes-Oxley Act of 2002 +The Sarbanes-Oxley Act of 2002 is intended to improve corporate responsibility, to provide for enhanced penalties for accounting and auditing improprieties at publicly traded companies and to protect investors by improving the accuracy and reliability of corporate disclosures pursuant to the securities laws. We have policies, procedures and systems designed to comply with these regulations, and we review and document such policies, procedures and systems to ensure continued compliance with these regulations. +Emerging Growth Company Status +ECB Bancorp is an emerging growth company. For as long as it continues to be an emerging growth company, it may choose to take advantage of exemptions from various reporting requirements applicable to public companies. These exemptions include, but are not limited to, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. As an emerging growth company, ECB Bancorp also is not subject to Section 404(b) of the Sarbanes-Oxley Act of 2002, which would require that our independent auditors audit our internal control over financial reporting. We have also elected to use the extended transition period to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. Such an election is irrevocable during the period a company is an emerging growth company. +ECB Bancorp will cease to be an emerging growth company upon the earliest of: (i) the end of the fiscal year following the fifth anniversary of the completion of the conversion and offering; (ii) the first fiscal year after our annual gross revenues are $1.235 billion (adjusted for inflation) or more; (iii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities; or (iv) the end of any fiscal year in which the market value of our common stock held by non-affiliates exceeded $700 million at the end of the second quarter of that fiscal year. We expect to lose our status as an emerging growth company effective December 31, 2027, which is the end of the fifth year after the completion date of the conversion and offering. +32 +Table of Contents +TAXATION +Federal Taxation +General. ECB Bancorp and Everett Co-operative Bank are subject to federal income taxation in the same general manner as other corporations, with some exceptions discussed below. The following discussion of federal taxation is intended only to summarize material federal income tax matters and is not a comprehensive description of the tax rules applicable to ECB Bancorp and Everett Co-operative Bank. +Method of Accounting. For federal income tax purposes, Everett Co-operative Bank currently reports its income and expenses on the accrual method of accounting and uses a tax year ending December 31 for filing its federal income tax returns. +Alternative Minimum Tax. The Internal Revenue Code imposes an alternative minimum tax at a rate of 20% on a base of regular taxable income plus certain tax preferences, less an exemption amount, referred to as “alternative minimum taxable income.” The alternative minimum tax is payable to the extent tax computed this way exceeds tax computed by applying the regular tax rates to regular taxable income. Net operating losses can, in general, offset no more than 90% of alternative minimum taxable income. Certain payments of alternative minimum tax may be used as credits against regular tax liabilities in future years. The Tax Cuts and Jobs Act ("JOBs Act") repealed the alternative minimum tax for income generated after January 1, 2018. At December 31, 2025, Everett Co-operative Bank had no minimum tax credit carryovers. +Net Operating Loss Carryovers. As a result of the Tax Cuts and Jobs Act generally, a financial institution may carry federal net operating losses forward indefinitely. At December 31, 2025, Everett Co-operative Bank had no federal net operating loss carryforwards. +Charitable Contribution Carryovers. At December 31, 2025, the Company had a charitable contribution carryover of $160,000 which expires on December 31, 2027. +Capital Loss Carryovers. A corporation cannot recognize capital losses in excess of capital gains generated. Generally, a financial institution may carry back capital losses to the preceding three taxable years and forward to the succeeding five taxable years. Any capital loss carryback or carryover is treated as a short-term capital loss for the year to which it is carried. As such, it is grouped with any other capital losses for the year to which it is carried and is used to offset any capital gains. Any undeducted loss remaining after the five-year carryover period is not deductible. At December 31, 2025, Everett Co-operative Bank had no capital loss carryovers. +Corporate Dividends. ECB Bancorp may generally exclude from its income 100% of dividends received from Everett Co-operative Bank as a member of the same affiliated group of corporations. +Audit of Tax Returns. Everett Co-operative Bank’s federal income tax returns have not been audited in the most recent five-year period. +State Taxation +Financial institutions in Massachusetts file combined income tax returns with affiliated companies that are not security corporations. The Massachusetts excise tax rate for cooperative banks is currently 9.0% of federal taxable income, adjusted for certain items. Taxable income includes gross income as defined under the Internal Revenue Code, plus interest from bonds, notes and evidences of indebtedness of any state, including Massachusetts, less deductions, but not the credits, allowable under the provisions of the Internal Revenue Code, except for those deductions relating to dividends received and income or franchise taxes imposed by a state or political subdivision. Carryforwards and carrybacks of net operating losses and capital losses are not allowed. Everett Co-operative Bank’s state tax returns, as well as those of its subsidiaries, have not been audited in the most recent five-year period. +33 +Table of Contents +A financial institution or business corporation is generally entitled to special tax treatment as a “security corporation” under Massachusetts law provided that: (a) its activities are limited to buying, selling, dealing in or holding securities on its own behalf and not as a broker; and (b) it has applied for, and received, classification as a “security corporation” by the Commissioner of the Massachusetts Department of Revenue. A security corporation that is also a bank holding company under the Internal Revenue Code must pay a tax equal to 0.33% of its gross income. A security corporation that is not a bank holding company under the Internal Revenue Code must pay a tax equal to 1.32% of its gross income. Everett Co-operative Bank’s wholly owned subsidiary, First Everett Securities Corporation, which engages in securities transactions on its own behalf, is qualified as a security corporation. As such, it has received security corporation classification by the Massachusetts Department of Revenue and does not conduct any activities deemed impermissible under the governing statutes and the various regulations, directives, letter rulings and administrative pronouncements issued by the Massachusetts Department of Revenue. +As a Maryland corporation, ECB Bancorp is required to file an annual report with and pay franchise taxes to the state of Maryland. +Availability of Annual Report on Form 10-K +This Annual Report on Form 10-K is available on our website at www.everettbank.com. Information on the website is not incorporated into, and is not otherwise considered a part of, this Annual Report on Form 10-K. \ No newline at end of file diff --git a/raw/filings/0001914605/2025/0001437749-26-009778/item13.txt b/raw/filings/0001914605/2025/0001437749-26-009778/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..cedddc968f3542adce8c52fa3ebb25da9d8c91ad --- /dev/null +++ b/raw/filings/0001914605/2025/0001437749-26-009778/item13.txt @@ -0,0 +1,3 @@ +Item 13. +Certain Relationships and Related Transactions and Director Independence +98 \ No newline at end of file diff --git a/raw/filings/0001915328/2024/0001410578-25-000601/filing.txt b/raw/filings/0001915328/2024/0001410578-25-000601/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..4e66c761e7b68a6ae33f0ec7c608da1c1ea62fe2 --- /dev/null +++ b/raw/filings/0001915328/2024/0001410578-25-000601/filing.txt @@ -0,0 +1,3993 @@ +ISRAEL ACQUISITIONS CORP_December 31, 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+☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +Commission File Number 001-41593 +ISRAEL ACQUISITIONS CORP +(Exact name of registration as specified in its charter) +​ +​ +Cayman Islands +87-3587394 +(State or other jurisdiction of +incorporation or organization) +​ +(I.R.S. Employer +Identification No.) +​ +​ +12600 Hill Country Blvd, Building R , Suite 275 +​ +Bee Cave , Texas +78738 +(Address of principal executive offices) +(Zip Code) +​ +( 800 ) 508-1531 +(Registrant’s telephone number, including area code) +Securities registered pursuant to Section 12(b) of the Act: +​ +Title of each class +Trading +Symbol(s) +Name of each exchange on +which registered +Units, each consisting of one Class A ordinary share and one redeemable warrant +​ +ISRLU +​ +The Nasdaq Stock Market LLC +Class A ordinary shares, par value $0.0001 per share +​ +ISRL +​ +The Nasdaq Stock Market LLC +Redeemable warrants, each whole warrant exercisable for one Class A ordinary share, each at an exercise price of $11.50 per share +​ +ISRLW +​ +The Nasdaq Stock Market LLC +​ +Securities registered pursuant to Section 12(g) of the Act: NONE +​ +Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ +Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒ +Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ +Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (17 CFR §232.405) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ +Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one): +Large Accelerated filer +☐ +Accelerated filer +☐ +Non-accelerated filer +☒ +Smaller reporting company +☒ +Emerging growth company +☒ +​ +If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ +Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐ +If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐ +Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive- based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ +Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☒ No ☐ +The aggregate market value of the ordinary shares held by non-affiliates of the registrant, computed as of June 28, 2024 (the last business day of the registrant’s most recently completed second fiscal quarter), was $ 79,855,765 (based on the $11.00 closing sale price of the Registrant’s Class A ordinary shares on such date). +As of March 31, 2025, there were 1,560,432 Class A ordinary shares, par value $0.0001 per share issued and outstanding. +Documents incorporated by reference : NONE +​ +​ +​ +Table of Contents +TABLE OF CONTENTS +​ +​ +​ +​ +Page +Part I +​ +​ +5 +​ +Item 1. +Business +5 +​ +Item 1A. +Risk Factors +32 +​ +Item 1B. +Unresolved Staff Comments +70 +​ +Item 1C. +Cybersecurity +70 +​ +Item 2. +Properties +70 +​ +Item 3. +Legal Proceedings +70 +​ +Item 4. +Mine Safety Disclosures +70 +Part II +​ +​ +71 +​ +Item 5. +Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities +71 +​ +Item 6. +[Reserved] +72 +​ +Item 7. +Management’s Discussion and Analysis of Financial Condition and Results of Operations +72 +​ +Item 7A. +Quantitative and Qualitative Disclosures About Market Risk +77 +​ +Item 8. +Financial Statements and Supplementary Data +77 +​ +Item 9. +Changes in and Disagreements With Accountants on Accounting and Financial Disclosure +77 +​ +Item 9A. +Controls and Procedures +77 +​ +Item 9B. +Other Information +78 +​ +Item 9C +Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +78 +Part III +​ +​ +79 +​ +Item 10. +Directors, Executive Officers and Corporate Governance +79 +​ +Item 11. +Executive Compensation +87 +​ +Item 12. +Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters +88 +​ +Item 13. +Certain Relationships and Related Transactions, and Director Independence +89 +​ +Item 14. +Principal Accounting Fees and Services +93 +Part IV +​ +​ +94 +​ +Item 15. +Exhibit and Financial Statement Schedules +94 +​ +Item 16. +Form 10-K Summary +97 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +2 +Table of Contents +CERTAIN DEFINED TERMS +Unless otherwise stated or unless the context otherwise requires, the terms “we,” “us,” “our,” “IAC” or the “Company” refer to Israel Acquisitions Corp, an exempted limited company incorporated in the Cayman Islands. In this Annual Report on Form 10-K, unless the context otherwise requires, references to: +● “amended and restated memorandum and articles of association” are to the Fourth Amended and Restated Memorandum and Articles of Association that the company adopted by special resolution and at an extraordinary general meeting of the shareholders on January 6, 2025; +● “ Annual Report on Form 10-K” are to this Annual Report on Form 10-K for the fiscal year ended December 31, 2024; +● “BTIG” are to BTIG, LLC the representative of the underwriters; +● “Business Combination Agreement” are to that certain business combination agreement entered into on January 26, 2025 by and between the Company and Gadfin; +● “Class A ordinary shares” are to our Class A ordinary shares, par value $0.0001 per share; +● “Class B ordinary shares” are to our Class B Ordinary shares, par value $0.0001 per share; +● “Companies Act” are to the Companies Act (2022 Revision) of the Cayman Islands as the same may be amended from time to time; +● “founder shares” are to our Class B ordinary shares initially issued to the Sponsor in a private placement prior to the Initial Public Offering and the Class A ordinary shares that will be issued upon the automatic conversion of the Class B ordinary shares at the time of our initial business combination or earlier at the option of the holders thereof (for the avoidance of doubt, such Class A ordinary shares are not “public shares” ); +● “Gadfin” are to Gadfin Ltd., a company domiciled in Israel. +● “Initial Public Offering” are to our initial public offering of 14,375,000 units, at a price of $10.00 per unit, including the issuance of 1,875,000 units as a result of the underwriter’s exercise of its over-allotment option in full, which we consummated on January 18, 2023, generating gross proceeds to us of $143,750,000; +● “initial shareholders” are to our Sponsor and any other holders of our founder shares prior to the Initial Public Offering (or their permitted transferees); +● “Investment Company Act” are to the Investment Company Act of 1940, as amended; +● “management” or our “management team” are to our officers and directors; +● “ordinary shares” or “IAC ordinary shares” are to our Class A ordinary shares and our Class B ordinary shares; +● “private placement shares” are to the Class A ordinary shares sold as part of the private placement units; +● “Private Placement Units” are to the units issued to the Sponsor, BTIG, Exos Capital LLC, and Jones Trading Institutional Services LLC in a private placement simultaneously with the closing of the Initial Public Offering, which Private Placement Units are identical to the units sold in the Initial Public Offering, except that the Private Placement Units are subject to certain limited exceptions as described in this Annual Report on Form 10-K; +2 +Table of Contents +● “private placement warrants” are to the warrants sold as part of the Private Placement Units; +● “public shareholders” are to the holders of our public shares, including the Sponsor and management team to the extent the Sponsor and/or members of our management team purchase public shares, provided that the Sponsor’s and each member of our management team’s status as a “public shareholder” will only exist with respect to such public shares; +● “public shares” are to our Class A ordinary shares sold as part of the units in Initial Public Offering (whether they were purchased in the Initial Public Offering or thereafter in the open market); +● “public warrants” are to our redeemable warrants sold as part of the units in the Initial Public Offering (whether they were purchased in the Initial Public Offering or thereafter in the open market, including warrants that may have been acquired by the Sponsor or its affiliates in the Initial Public Offering or thereafter in the open market); +● “SPAC” means a special purpose acquisition company; +● “Sponsor” are to Israel Acquisitions Sponsor LLC, a Delaware limited liability company; +● “Team” are to our management team, directors, and advisors; +● “Trust Account” are to the U.S.-based trust account at J.P. Morgan Chase Bank, N.A. maintained by American Stock Transfer & Trust Company, acting as trustee, which will be invested in U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act, with a maturity of 180 days or less or in any open-ended investment company that holds itself out as a money market fund selected by the Company meeting the conditions of Rule 2a-7 of the Investment Company Act, as determined by the Company; +● “underwriters” are to BTIG, LLC, Exos Securities LLC and JonesTrading Institutional Services LLC, the underwriters in the Initial Public Offering; and +● “warrants” are to our public warrants and private placement warrants. +​ +3 +Table of Contents +CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS +This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Investors are cautioned that statements that are not strictly historical statements of fact constitute forward-looking statements, including, without limitation, statements under the captions “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business” and are identified by words like “believe,” “expect,” “may,” “will,” “should,” “seek,” “anticipate,” or “could” and similar expressions. Forward looking statements in this Annual Report on Form 10-K may include, for example, statements about: +● our ability to select an appropriate target business or businesses; +● our ability to complete our initial business combination; +● our expectations around the performance of the prospective target business or businesses; +● our success in retaining or recruiting, or changes required in, our officers, key employees or directors following our initial business combination; +● our officers and directors allocating their time to other businesses and potentially having conflicts of interest with our business or in approving our initial business combination, as a result of which they would then receive expense reimbursements; +● approving our initial business combination; +● our potential ability to obtain additional financing to complete our initial business combination; +● our pool of prospective target businesses; +● the ability of our officers and directors to generate a number of potential business combination opportunities; +● our public securities’ potential liquidity and trading; +● the lack of a market for our securities; +● the use of proceeds not held in the Trust Account (as described herein) or available to us from interest income on the Trust Account balance; +● the Trust Account not being subject to claims of third parties; or +● our financial performance. +Forward-looking statements are not assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those expressed or implied by forward-looking statements include those discussed elsewhere in this Annual Report on Form 10-K and in future Quarterly Reports on Form 10-Q or other reports filed with the Securities and Exchange Commission (“SEC”). +Any forward-looking statement made by us in this report is based only on information currently available to us and speaks only as of the date of this report. We undertake no obligation to publicly revise or update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law. +References to a fiscal year refer to our fiscal year ended December 31 of the specified year. +​ +4 +Table of Contents +PART I +ITEM 1. BUSINESS +General +We are a newly organized blank check company incorporated on August 24, 2021, as a Cayman Islands exempted company for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar combination with one or more businesses or assets, which we refer to throughout this Annual Report on Form 10-K as our initial business combination. We have generated no revenues to date, and we do not expect that we will generate operating revenues at the earliest until we consummate our initial business combination. While we may pursue an initial business combination target in any industry or sector, we intend to focus our search on high-growth technology companies that are domiciled in Israel, that carry out all or a substantial portion of their activities in Israel, or that have some other significant Israeli connection. +On January 26, 2025, we entered into the Business Combination Agreement with Gadfin Ltd., a company domiciled in Israel (“Gadfin”). Gadfin is a pioneering technology company revolutionizing the logistics and cargo delivery industry with its innovative hydrogen-powered drones. Specializing in long-range, heavy-duty, zero-emission aerial delivery, Gadfin provides cutting-edge solutions for time-critical, essential cargo transport, especially to less accessible areas. Gadfin’s proprietary technology is designed to address the evolving needs of sectors such as healthcare, logistics, and industrial supply chains, enabling efficient, sustainable, and reliable deliveries across urban and remote areas. +Overview +Our business strategy is focused on identifying Israeli technology companies that would benefit from our expertise and create long-term value, although our efforts to identify a prospective business combination target will not necessarily be limited to a particular industry, sector or region. +The technology industry as a whole experienced an unprecedented acceleration of its growth during the coronavirus (“COVID-19”) pandemic as more businesses adopted new and innovative ways of doing business and more consumers rapidly adopted digital platforms to consume products and services. +We believe that Israel holds numerous public-ready technology companies that are positioned for high-growth, as evidenced by the number of Israeli companies listed on Nasdaq and “Unicorns” (companies with a valuation of $1 billion or greater) that originated in Israel. For a country about the size of New Jersey, Israel has an outsized influence on the US stock market. More than 100 Israeli companies are listed on US exchanges, with a combined market cap of more than $150 billion – Israel has the fourth most companies listed on the Nasdaq after the United States, Canada and China (as of October 17, 2023). +In 2024, Israeli tech companies continued to attract major investment. According to IVC-LeumiTech’s report covered by Crowdfund Insider, Israeli companies managed to raise approximately $9.6 billion from investors through 453 different deals. We believe that Israel’s tech ecosystem remains strong and offers great opportunities for investors. The resilience and ongoing success of the Israeli tech market reflect the attractive opportunity for tech investment. +Our objective is to generate attractive returns and create value for our shareholders by capitalizing on the expertise of our Team. Our Team has an extensive track record of identifying and selecting successful targets, closing investments and merger and acquisition transactions, and increasing the value of companies post-investment or post-transaction. They have excellent access to the Israeli technology ecosystem, through personal relationships with “C” suite executives, venture capital and private equity directors and others involved with dozens of companies meeting our investment objectives and criteria. We intend to leverage their significant contacts and experience to identify, evaluate and acquire a target business. We maintain an Internet website at https://israelacquisitionscorp.com/ . +​ +​ +​ +5 +Table of Contents +Initial Public Offering +The SEC declared the registration statement for our Initial Public Offering effective on January 12, 2023. On January 18, 2023, we consummated our Initial Public Offering of 14,375,000 units, which included the full exercise the underwriters’ over-allotment option in the amount of 1,875,000 units, at $10.00 per unit, generating gross proceeds of $143,750,000. Each unit is comprised of one Class A ordinary share and one public warrant. +Simultaneously with the closing of the Initial Public Offering, we consummated the sale of (i) 637,500 Private Placement Units at a price of $10.00 per private placement unit in a private placement to the Sponsor, (ii) 75,000 Private Placement Units at price of $10.00 per private placement unit in a private placement to BTIG, LLC, (iii) 25,000 Private Placement Units at price of $10.00 per private placement unit in a private placement to Exos Capital LLC, and (iv) 25,000 Private Placement Units at price of $10.00 per private placement unit in a private placement to JonesTrading Institutional Services LLC. +Following the closing of our Initial Public Offering on January 18, 2023, an amount of $146,625,000 ($10.00 per unit sold in our Initial Public Offering) from the net proceeds of the sale of the units in the Initial Public Offering and the sale of the Private Placement Units was placed in a Trust Account, until the earlier of (i) the completion of our initial business combination and (ii) the distribution of the funds held in our Trust Account, as described below. +Business Combination Agreement – Proposed Business Combination with Gadfin +On January 26, 2025, the Company and Gadfin entered into the Business Combination Agreement, pursuant to which, among other things, and subject to the terms and conditions contained therein (i) Gadfin will cause a company organized under the laws of the State of Israel and wholly owned by a trustee (the “NewPubco”) to be formed, (ii) Gadfin will cause a company organized under the laws of the State of Israel and wholly owned, direct subsidiary of NewPubco (“Merger Sub 1”) to be formed, (iii) Gadfin will cause a Cayman Islands exempted company and wholly owned, direct subsidiary of NewPubco (“Merger Sub 2”) to be formed, (iv) Gadfin will cause NewPubco, Merger Sub 1 and Merger Sub 2 to become a party to the Business Combination Agreement by delivering a joinder to the Business Combination Agreement, (v) Gadfin will effect the Share Split, (vi) NewPubco, the shareholders of Gadfin and the holders of equity awards of Gadfin will effect the Acquisition Merger (as defined herein), (vii) Merger Sub 1 will merge with and into Gadfin, with Gadfin surviving the merger as a direct wholly owned subsidiary of NewPubco (the “Acquisition Merger”), and (viii) Merger Sub 2 will merge with and into the Company, with the Company surviving the merger as a direct wholly owned subsidiary of NewPubco (the “IAC Merger”, and together with the Acquisition Merger, the “Mergers”). The collective transactions referenced in (i)-(viii) are hereinafter referred to as the “Transactions”. The terms of the Business Combination Agreement, which contain customary representations and warranties, covenants, closing conditions, termination provisions, and other terms relating to the Transactions, are summarized below. Capitalized terms used but not defined herein shall have the meanings ascribed thereto in the Business Combination Agreement. +Share Split and Equity Exchange +Prior to the closing of the Transactions (the “Closing”), Gadfin will effect a share split under which each ordinary share and preferred share of Gadfin issued and outstanding will be split into a number of ordinary shares or preferred shares, as applicable, determined by multiplying each such ordinary share or preferred share of Gadfin, as applicable, by the Split Factor (the “Share Split”). +Under the Business Combination Agreement, holders of Gadfin equity interests are expected to receive approximately $200,000,000 (the “Gadfin Equity Value”) in aggregate consideration in the form of NewPubco Ordinary Shares, equal to the quotient obtained by dividing (a) the Gadfin Equity Value by (b) the fully diluted number of Gadfin ordinary shares and preferred shares (including ordinary shares issuable upon exercise, vesting and settlement of Gadfin options and Gadfin warrants and other convertible securities of Gadfin); provided however, in the event Gadfin does not record at least $4,500,000 in deferred revenue by the Closing Date, the Gadfin Equity Value shall be $150,000,000. +In addition, following the Closing and subject to the occurrence of the $12.50 Share Price Milestone and/or the $15.00 Share Price Milestone, NewPubco shall issue to each holder of Gadfin as of immediately prior to the Acquisition Merger Effective Time (as defined below), a certain number of Price Adjustment Earnout Shares, subject to the terms and conditions set forth therein. +Immediately after the Share Split, and at the effective time of the Acquisition Merger, Merger Sub 1 will be merged with and into Gadfin upon the terms and subject to the conditions set forth in the Business Combination Agreement, and in accordance with the applicable provisions of the Israeli Companies Law (“ICL”), whereupon the separate corporate existence of Merger Sub 1 will cease +6 +Table of Contents +and Gadfin will continue its existence under the ICL as the surviving corporation and become a wholly owned subsidiary of NewPubco (the “Acquisition Surviving Sub”), on the terms and subject to the conditions set forth in the Business Combination Agreement. From and after the effective time of the Acquisition Merger, Gadfin will possess all the rights, powers, privileges, properties and franchises and be subject to all of the obligations, liabilities and duties of Gadfin and Merger Sub 1, all as provided under the ICL. As soon as practicable after the determination of the date on which the Closing is to take place, each of Gadfin and Merger Sub 1 shall, in coordination with each other, deliver to the Israeli Register of Companies (the “Companies Registrar”) a notice of the contemplated Acquisition Merger, setting forth the proposed date of the Closing on which the Companies Registrar is requested to issue a certificate evidencing the Acquisition Merger in accordance with Section 323(5) of the ICL (the “Certificate of Merger”), after another notice that the Closing has occurred is served to the Companies Registrar, which the parties shall deliver as of the date of Closing Date. The Acquisition Merger will become effective upon the issuance by the Companies Registrar of the Certificate of Merger in accordance with Section 323(5) of the ICL (such time as the Acquisition Merger becomes effective being the “Acquisition Merger Effective Time”). +At the Acquisition Merger Effective Time, by virtue of the Acquisition Merger and without any action on the part of Gadfin, Merger Sub 1 or any holders of ordinary shares or preferred shares of Gadfin or shares of Merger Sub 1: (i) all ordinary shares or preferred shares of Gadfin that are owned by Gadfin or any wholly owned subsidiary of Gadfin, if any, shall be deemed to have been transferred to NewPubco and no consideration shall be delivered or deliverable in exchange therefor, (ii) each ordinary share of Gadfin issued and outstanding immediately prior to the Acquisition Merger Effective Time (except for treasury shares of Gadfin) will, by virtue of the Acquisition Merger and upon the terms and subject to the conditions set forth in the Business Combination Agreement, automatically be deemed to have been converted and represent only the right to receive a number of NewPubco Ordinary Shares equal to the Company Merger Ratio, (iii) each preferred share of Gadfin issued and outstanding immediately prior to the Acquisition Merger Effective Time (except for treasury shares of Gadfin) will, by virtue of the Acquisition Merger and upon the terms and subject to the conditions set forth in the Business Combination Agreement, automatically be deemed to have been converted and represent only the right to receive a number of NewPubco Ordinary Shares equal to the Company Merger Ratio, (iv) unless otherwise exercised prior to the Acquisition Merger Effective Time, each warrant of Gadfin issued and outstanding immediately prior to the Acquisition Merger Effective Time, will, by virtue of the Acquisition Merger and upon the terms and subject to the conditions set forth in the Business Combination Agreement, be converted and represent the right to receive a warrant to purchase NewPubco Ordinary Shares equal to the number of ordinary shares of Gadfin subject to such warrant, multiplied by (A) the Split Factor, and (B) the Company Merger Ratio, (v) immediately prior to the Acquisition Merger Effective Time and pursuant to the resolutions of the board of directors of Gadfin, all outstanding Company Options shall be assumed by NewPubco, (vi) each Company Option of Gadfin that is issued and outstanding prior to the Acquisition Merger Effective Time will automatically cease to represent a right to acquire an ordinary share of Gadfin and shall automatically be assumed by NewPubco and converted into an option to acquire such number of NewPubco Ordinary Shares equal to the number of ordinary shares of Gadfin subject to such option, multiplied by (A) the Split Factor, and (B) the Company Merger Ratio, and (vii) each ordinary share of Merger Sub 1 issued and outstanding immediately prior to the Acquisition Merger Effective Time will be converted into one ordinary share of the Acquisition Surviving Company, and all such ordinary shares shall constitute the only outstanding share capital of the Acquisition Surviving Company. +​ +IAC Merger and IAC Merger Consideration +Immediately after the Acquisition Merger Effective Time and on the terms and subject to the conditions set forth in the Business Combination Agreement and in accordance with the Companies Act (as revised) of the Cayman Islands (the “Cayman Companies Law”), the Company will consummate the IAC Merger (the date on which the IAC Merger occurs referred to herein as the “IAC Merger Closing Date”). On the IAC Merger Closing Date, the Company, NewPubco and Merger Sub 2 will (i) cause the a plan of merger, in such form as mutually agreed by the Company and Gadfin (the “Plan of Merger”) to be duly executed and filed with the Registrar of Companies of the Cayman Islands as provided by Section 233 of the Cayman Companies Law, and (ii) make any other filings, recordings or publications required to be made by the Company or Merger Sub 2 under the Cayman Companies Law in connection with the IAC Merger. The IAC Merger will become effective on the date as specified in the Plan of Merger in accordance with the Cayman Companies Law. The IAC Merger shall become effective on the date and time as specified in the Plan of Merger that has been registered by the Registrar of Companies of the Cayman Islands (such date and time is hereinafter referred as the “IAC Merger Effective Time”). Following the IAC Merger Effective Time, the (i) separate existence of Merger Sub 2 will cease, it will be struck off the Register of Companies in the Cayman Islands and the Company shall continue as the surviving company of the IAC Merger (“IAC Surviving Company”) and (ii) IAC will (A) become a direct, wholly owned subsidiary of NewPubco, (B) continue to be governed by the Laws of the Cayman Islands, and (C) succeed to and assume all of the rights, properties and obligations of Merger Sub 2 in accordance with the Cayman Companies Law, and the shareholders of the Company will be entitled to the IAC Merger Consideration (as defined below). +7 +Table of Contents +Under the Business Combination Agreement, at the IAC Merger Effective Time, (a) each IAC unit, consisting of one IAC Class A Share (as defined below) and one IAC Warrant (as defined below, and such units the “IAC Units”) issued and outstanding immediately prior to the IAC Merger Effective Time will be automatically detached and the holder will be deemed to hold one IAC Class A ordinary share, par value $0.0001 (the “IAC Class A Shares”) and one warrant entitling the holder to purchase one IAC Class A Share at a price of $11.50 (the “IAC Warrants”), (b) each Class B ordinary share of the Company, par value $0.0001 (the “IAC Class B Shares”) will automatically be converted into one IAC Class A Share and each IAC Class B Share will no longer be outstanding and will be automatically cancelled, (c) each IAC Class A Share issued and outstanding prior the IAC Merger Effective Time will automatically be cancelled in exchange for the right to receive one NewPubco Ordinary Share for each IAC Class A Share, (the “IAC Merger Consideration”), (d) each IAC Warrant that is outstanding and unexercised immediately prior to the IAC Merger Effective Time will cease to represent an IAC Warrant in respect of IAC Shares and will be assumed by NewPubco and automatically converted into a warrant to acquire NewPubco Ordinary Shares, (e) any IAC Share owned by the Company as treasury shares or by a subsidiary of the Company immediately prior to the IAC Merger Effective Time will be automatically cancelled and will cease to exist without any conversion or payment therefor, (f) each IAC share subject to redemption rights issued and outstanding immediately prior to the IAC Merger Effective Time will be automatically cancelled and cease to exist and will thereafter represent only the right to be paid a pro rata share of the redemption amount in accordance with the Company’s Articles of Association, (g) each IAC share issued and outstanding prior to the IAC Merger Effective Time for which any IAC shareholder had validly exercised their dissenters’ rights will not be exchanged for one NewPubco Ordinary Share and will be automatically cancelled and will thereafter represent only the right to be paid the fair value of such shares and any other rights granted by the Cayman Companies Law, and (h) each ordinary share of Merger Sub 2 issued and outstanding immediately prior to the IAC Merger Effective Time will be converted into one ordinary share of the IAC Surviving Company. +Representations and Warranties +The Business Combination Agreement contains representations and warranties of the parties thereto that are customary for transactions of this type, including representations and warranties relating to (a) entity organization, formation and authority, (b) capital structure, (c) authorization to enter into the Business Combination Agreement, (d) legal compliance and approvals, (e) financial statements and liabilities, (f) consents and requisite governmental approvals, (g) material contracts, (h) absence of changes, (i) litigation, (j) compliance with applicable laws, (k) labor matters and employees benefit plans, (l) environmental matters, (m) intellectual property and privacy, (n) insurance, (o) taxes, (p) real and personal property, and (q) transactions with affiliates, and with respect to the Company only, (i) public filings, (ii) the Investment Company Act and (iii) the Company’s Trust Account. +Non-Survival +None of the representations, warranties, covenants, obligations or other agreements in the Business Combination Agreement or in any certificate or instrument delivered pursuant to the Business Combination Agreement, including any rights arising out of any breach of such representations, warranties, covenants, agreements and other provisions, will survive the Acquisition Merger Effective Time and all such representations, warranties, covenants or other agreements will terminate and expire upon the occurrence of the Acquisition Merger Effective Time (and there will be no liability after the Acquisition Merger Effective Time in respect thereof), except for those covenants and agreements contained therein that by their terms expressly apply in whole or in part after the Acquisition Merger Effective Time and then only with respect to any breaches occurring after the Acquisition Merger Effective Time. +Conditions to Consummation of the Business Combination Agreement +Mutual Conditions to Closing +The consummation of the Transactions is conditioned upon, among other things, (a) the Registration Statement / Proxy Statement shall have become effective in accordance with the provisions of the Securities Act; (b) receipt of Gadfin’s shareholder approval, (c) the absence of any governmental order, statute, rule or regulation enjoining or prohibiting the consummation of the Transactions, (d) receipt of the Company’s shareholder approval, (e) receipt of the ISA Exemption, (f) receipt of the Israeli Tax Ruling, and (f) the expiration or termination of the waiting period under the Hart-Scott-Rodino Act. +IAC’s Conditions to Closing +The obligations of the Company to consummate the Transactions are conditioned upon, among other things, customary closing conditions, including no Gadfin Material Adverse Effect having occurred. +8 +Table of Contents +Gadfin’s Conditions to Closing +The obligations of Gadfin to consummate the Transactions are also conditioned upon, among other things, customary closing conditions, including, without limitation, (a) Aggregate Transaction Proceeds being greater than or equal to $15,000,000 (“Minimum Cash Condition”), (b) no Transaction Expenses Cap Excess, if any, shall have remained outstanding, (c) if applicable, the Company and Gadfin shall have reached an agreement on the terms of the Dilution Cap Breach Adjustment. +Termination +The Business Combination Agreement allows the parties to terminate the Business Combination Agreement if specified customary conditions described in the Business Combination Agreement are not satisfied, subject to certain limited exceptions, and also if the Transactions have not been consummated by December 31, 2025 (the “Termination Date”). +The Business Combination Agreement also allows the parties to terminate the Business Combination Agreement if (a) any Governmental Entity takes action prohibiting the Transactions, (b) if the Company Shareholder Approval is not obtained, (c) if Gadfin Shareholder Approval is not obtained, and (d) if Gadfin has not met the Threshold Raised Amount. +The Company may terminate the Business Combination Agreement if (a) the Company declares a PCAOB Related Default that remains uncured for ten (10) business days, and (b) if the representations and warranties of Gadfin are not true and correct or if Gadfin has materially breached any covenant or agreement as set forth in the Business Combination Agreement. +Gadfin may terminate the Business Combination Agreement, (a) at any time prior to the receipt of the Gadfin Shareholder Approval, in order to immediately enter into a written definitive agreement with respect to a Superior Proposal, and (b) if the representations and warranties of the Company are not true and correct or if the Company has materially breached any covenant or agreement as set forth in the Business Combination Agreement. In the event the Business Combination Agreement is terminated by Gadfin in order to accept a Superior Proposal, Gadfin will pay to the Company a termination fee of $10,000,000. In the event the Business Combination Agreement is terminated by Gadfin pursuant to clause (b) of this paragraph, the Company will pay to Gadfin a termination fee of $10,000,000. +In the event the Business Combination Agreement is terminated for any reason other than by Gadfin pursuant to Section 7.1(c) of the Business Combination Agreement, or by the Company or Gadfin the case may be, pursuant to Section 7.1(f) or Section 7.1(g), Gadfin shall pay to the Company an mount equity to five percent (5%) of any IAC Introduced Financing Amount from any source during the period beginning October 16 th , 2024 and extending through the twelve months immediately following the effective date of such termination. +If the Business Combination Agreement is validly terminated, none of the parties to the Business Combination Agreement will have any liability or any further obligation under the Business Combination Agreement, with the exception of (a) the confidentiality obligation set forth in Section 5.3(a) and Section 7.2 of the Business Combination Agreement and (b) the Confidentiality Agreement, respectively. +Agreements Entered Into in Connection with the Business Combination Agreement +Sponsor Support Agreement +Concurrently with the execution of the Business Combination Agreement, each of the Sponsor, the Company and Gadfin entered into a Sponsor Support Agreement (the “Sponsor Support Agreement”) whereby the Sponsor has agreed, among other things, (a) to vote in favor of the Business Combination Agreement and the Transactions on the terms and subject to the conditions set forth in the Sponsor Support Agreement, (b) in the event the Covered Shares represent more than 30% of NewPubco Ordinary Shares issued and outstanding immediately following Closing, Sponsor will irrevocably forfeit and surrender, immediately prior to Closing, for no consideration, a number of Sponsor Shares, up to a maximum of 1,429,000 Sponsor Shares, in order to reduce the Sponsor’s holding in NewPubco below the Dilution Cap, and (c) if, immediately prior to or at the Closing, the Company incurs a Transaction Expenses Cap Excess without obtaining the prior written consent of the Company to incur such Transaction Expenses Cap Excess, then at the election of Gadfin in its sole discretion, Sponsor shall either (x) irrevocably transfer to such Persons entitled to the respective Transaction Expenses Cap Excess such number of SPAC Shares or SPAC Warrants that will satisfy and settle such Transaction Expenses Cap Excess, reasonably acceptable to Gadfin or (y) pay directly to NewPubco any such Transaction Expenses Cap Excess, such that only Sponsor bears such Transaction Expenses Cap Excess. The Sponsor also agreed that it will not (a) transfer any of the Sponsor Shares or grant any security +9 +Table of Contents +interest in the Sponsor Shares pursuant to the Business Combination Agreement or to another shareholder of the Company, (b) deposit any Sponsor Shares into a voting trust or enter into a voting arrangement that is inconsistent with the Sponsor Support Agreement or (c) enter into any arrangement with respect to the acquisition or sale of any of the Sponsor Shares. The Sponsor has also agreed to waive its rights to the treatment of its Sponsor Shares and to not participate in any redemption by tendering or submitting any Company equity securities held by the Sponsor for redemption. Capitalized terms used but not defined herein shall have the meanings ascribed thereto in the Sponsor Support Agreement. +Transaction Support Agreement +Concurrently with the execution of the Business Combination Agreement, certain Gadfin shareholders entered into Transaction Support Agreements, pursuant to which, among other things, each of such Gadfin shareholders, separately and independently, has agreed to vote in favor of the approval of the proposals at the applicable Gadfin shareholders’ meetings. +Registration Rights and Lock-Up Agreement +At the Closing, NewPubco, the Company, specified Gadfin shareholders and the Sponsor will enter into a Registration Rights and Lock-Up Agreement (the “Registration Rights Agreement”), pursuant to which, among other things, the parties thereto will be granted customary demand and piggyback registration rights with respect to NewPubco Ordinary Shares at Closing and will have agreed to customary lock-up restrictions for a period of six (6) months following the Closing, with such shares being released from lock-up in twelve monthly increments following such six (6) month period, subject to earlier release if specified share price hurdles are achieved. +The form of the Registration Rights Agreement shall be mutually agreed by Gadfin and the Company prior to Closing, provided that such Registration Rights Agreement shall incorporate the key terms set forth in Annex II of the Business Combination Agreement. +Management Team +Ziv Elul serves as our Chief Executive Officer and a member of our board of directors. Mr. Elul has 16 years of industry and managerial experience with start-up and high-growth technology businesses operating globally, which includes two acquisition transactions and operational experience as the CEO of a publicly traded company. In 2007. Mr. Elul co-founded Inneractive, an independent automated mobile platform with marketplace exchange capabilities and focused on powering video ads. He served as CEO of Inneractive, leading it to outstanding profitability until its acquisition by Fyber N.V. (FSE:FBEN), a global provider of monetization platforms for mobile publishers, in July 2017. Following the acquisition, Mr. Elul continued to serve as CEO and led the integration of the businesses under one brand with a strong focus on cutting-edge technology. Under his leadership, Fyber N.V. reached profitability for the first time as a combined company. In May 2021, Fyber N.V. was acquired for $600 million by a multi-billion dollar media and advertising solutions company, Digital Turbine (Nasdaq:APPS), where he was appointed to serve as a strategic advisor supporting the integration. Prior to 2007, Mr. Elul served as a Lieutenant Colonel in Israel’s Reserves Corps. Mr. Elul is a member of the Israeli branch of the Young Presidents’ Organization (“YPO”), a global network of young chief executives, and is deeply involved in the Israeli high tech and startup ecosystem. Mr. Elul is an active investor in Israeli technology companies, with a portfolio of 18 company investments to-date (including several successful exits, such as Spotinst (acquired by Net App for $450 million)) and an investor in seven venture capital firms. He holds an Executive MBA from the Hebrew University which he graduated from with honors. +Sharon Barzik Cohen serves as our Chief Financial Officer and a member of our board of directors. In March 2021, Ms. Cohen joined Qumra Capital, a leading growth capital fund that invests in late stage technology-driven companies, as Partner and Chief Operating Officer. Before Qumra Capital, she was CFO of the Storage Division at Dell EMC in Israel, having previously served since 2011 as CFO of XtremIO, which developed all flash advanced storage solutions and was acquired by EMC in 2012 in one of the largest acquisitions in the Israeli tech market at the time. In this role Ms. Cohen oversaw global finance teams worldwide, and was a member of the Dell Israel leadership team. Prior to 2011, Ms. Cohen was CFO of N-trig, a developer of transparent electromagnetic digitizers for the mobile computers market, which was acquired by Microsoft in 2015. From 1996 to 2003, she served as CFO of RadioTel, a leading networking company offering next-generation SDH/Sonet network solutions. Ms. Cohen earned a BA in Psychology, summa cum laude, and an Executive MBA, cum laude, both from Tel Aviv University. +​ +​ +10 +Table of Contents +Izhar Shay serves as Chairman of our board of directors. Mr. Shay currently serves as a venture partner at Disruptive AI, an early stage venture capital firm focused on AI investments. He also is the Chairman of Kendago, a leading digital marketing household and is on the Board of Directors of Aquarius Engine (TASE: AQUA, Developer of a Two Sided Free Piston Linear Engine), Tastewise (an AI based consumer insights platform for food & beverage innovation) and Equinom (a food-tech company developing non-GMO plant-based ingredients). From 2020 to 2021, Mr. Shay was Israel’s Minister of Science and Technology. Prior to that Mr. Shay’s professional career included various management and business positions in the Israeli high-tech and venture capital sectors. Previously, he worked as a high-tech entrepreneur and managed a number of companies for nearly ten years in the United States. In 1998, he co-founded Business Layers, a developer of Identity Management software solutions, and served as the company’s CEO until its sale in 2003 to Netegrity (Nasdaq: NETE). From 2004-2005, Mr. Shay served as chairman and CEO of V-Secure Technologies, a developer of intrusion prevention products intended to block cyber-attacks, which he led through its sale to Radware (NASDAQ: RDWR). In 2006, he joined the international venture capital fund Canaan Partners as a partner and managed its investment activities in Israel until 2014. At that time, Canaan Partners had assets under management of approximately $2.0B. Together with his partner, Ehud Levy, he co-founded Canaan Partners Israel in 2014, which made investments in Israeli technology start-ups, focusing on investments in mobile, digital media, Internet, communications and software. He served as a director at LiveU (acquired by Francisco Partners), Viewbix (acquired by Algomizer), Rollout.io, Drupe, and RegulusX and served as a director at Prime Sense prior to its sale to Apple as well as at N-trig, which was sold to Microsoft. In 2015, Mr. Shay was selected by the Israeli media outlet Geektime to be on the list of the 100 most influential people in the Israeli high-tech. Mr. Shay was elected as a member of the Israeli parliament, where he served from 2019 to 2021. He was a member of the special Coronavirus Cabinet, which was formed by the Israeli government, where he helped lead the national efforts confronting the challenges of the COVID-19 pandemic. +Candice Beaumont serves as a member of our board of directors. Beginning in October 2020, Candice Beaumont began to serve as an advisor to Springwater Special Situations Corp. (Nasdaq: SWSSU), a special purpose acquisition company formed to effectuate a merger or similar transaction with one or more businesses, which completed its initial public offering on August 25, 2021 and is currently searching for an initial business combination with a well-positioned business with operational improvements in Europe or elsewhere. Ms. Beaumont is a member of the Board of Directors of Clean Earth Acquisition Corp. (Nasdaq: CLINU), a special purpose acquisition company that completed its initial public offering in February 2022 and entered into a business combination agreement on October 12, 2022 for the purposes of acquiring substantially all of the subsidiaries of Alternus Energy Group Plc, a public limited company incorporated under the laws of Ireland. Ms. Beaumont has served since 2016 as Chairman of the Salsano Group, a Panama based family office and conglomerate invested in private equity. From 2003 to present, Ms. Beaumont has served as Chief Investment Officer of L Investments, a single-family office invested in public and private equity. Ms. Beaumont speaks at numerous family office and investment conferences globally, including the Stanford University Graduate School of Business Global Investor’s Forum, is a NYU Stern Family Office Council member serving on the Steering Committee, and is an Advisory Board member of the Family Office Association. From 2012 to 2014, Ms. Beaumont was a member of the board of directors of I2BF Venture Fund II, a Dubai Financial Services Authority regulated clean tech venture capital firm with offices in Dubai, New York and London, as well as an Advisory Board member of The Luxury Fund. Ms. Beaumont remains committed to community and philanthropic causes and serves on the International Council of Advisors for Global Dignity, a charity founded by Crown Prince Haakon of Norway to foster global respect and dignity across all borders, genders, religions and races. Ms. Beaumont was part of the Milken Young Leaders Circle and is a member of the Milken Institute, as well as an active member of YPO. Ms. Beaumont started her career in Corporate Finance at Merrill Lynch in 1996 and worked as an investment banker at Lazard Frères from 1997 to 1999, during which time Ms. Beaumont executed over $20 billion of merger and acquisition advisory assignments. Ms. Beaumont also worked in private equity at Argonaut Capital from 1999 to 2001. Ms. Beaumont obtained a Bachelor in Business Administration from the University of Miami, graduating first in her class with a major of International Finance & Marketing. Ms. Beaumont was captain of the University of Miami varsity tennis team, where Ms. Beaumont earned Academic All-American honors, and is also a former world-ranked professional tennis player. Ms. Beaumont completed Global Leadership & Public Policy for the 21st Century at Harvard Kennedy School in 2015. Ms. Beaumont was honored by Trusted Insight as one of the Top 30 Family Office Chief Investment Officers in 2017 and as a Young Global Leader by the World Economic Forum in 2014. Ms. Beaumont has a broad network of relationships, including investors in private and public equity, leading venture capital firms with compelling pre-initial public offering companies and has expertise sourcing deals, evaluating private and public businesses, and conducting detailed due diligence and risk management. +Peter Cohen serves as a member of our board of directors. Mr. Cohen was an investment banker for approximately three decades, advising CEOs and boards of directors on mission critical strategic and financing transactions. Most recently, from 2015 to 2020, he was a Managing Director and Global Head of Media, Entertainment & Sports Investment Banking at Barclays. In this role, he led a team responsible for managing all client coverage efforts for the firm in these sectors globally. He primarily focused on the largest clients in the Diversified and New Media and Sports sub-sectors, specializing in mergers & acquisitions, as well as debt and equity capital raising efforts, on behalf of clients worldwide. From 2009 to 2015, he had similar responsibilities as a Senior Managing Director at Blackstone. +11 +Table of Contents +Mr. Cohen started his investment banking career at JP Morgan in 1993. Some of the more noted transactions he participated in over his thirty year career include: representing the Los Angeles Dodgers in their sale to Guggenheim Partners, the sale of the Chicago Cubs to the Ricketts family, representing Altice NV in its acquisition of Cablevision Systems Corp., representing Cineworld Group PLC on its acquisition of Regal Entertainment Group, and News Corporation on its acquisition of Dow Jones & Company. +Roy Zisapel serves as a member of our board of directors. Mr. Zisapel is a co-founder of Radware (NASDAQ: RDWR), a leader of cybersecurity and application delivery solutions for physical, cloud and software-defined data centers. Mr. Zisapel has served as President and Chief Executive Officer of Radware since the company’s inception in April 1997, and he is responsible for the overall direction and strategy of the company. Under his leadership, Radware has grown from a startup to a global, Nasdaq-listed industry leader with more than 35 offices and 1,100 employees worldwide. He was instrumental in raising over $200 million for Radware, which included two public offerings: an initial public offering in September 1999 — just two and a half years after the company’s inception — and a follow-on offering in January 2000. Radware’s growth has paralleled working with some of the most prominent brands in the world, including commercial banks, stock exchanges, retailers, telecom companies and mobile operators. Radware maintains strategic partnerships with Cisco, Checkpoint, IBM, Microsoft, Nokia, SAP and VMWare, among others. Mr. Zisapel has led Radware through several successful acquisitions, including V-Secure Technologies (2005), Covelight Systems (2007), Nortel’s application delivery business, Alteon (2009), and Strangeloop Networks in 2013. Most recently, he oversaw the acquisition of Seculert (2017) and ShieldSquare (2019). From 1996 to 1997, Mr. Zisapel was a team leader of research and development projects for RND Networks Ltd. From 1994 to 1996, Mr. Zisapel was employed as a software engineer for other companies in Israel. Mr. Zisapel graduated summa cum laude with a B.S. degree in mathematics and computer science from Tel Aviv University, where he was honored with the International Wolf Prize for research students. Mr. Zisapel holds several U.S. patents and patent applications in the areas of global load balancing, network proximity, traffic redirection and multi-homing. +Daniel S. Recanati serves as a member of our board of directors. Mr. Recanati is the founder & CEO of Rhodium, a privately-owned investment firm with a diverse portfolio including some of Israel’s most promising companies. Mr. Recanati founded and invested in numerous tech ventures from early stage to growth, across different sectors such as fintech, foodtech, cyber, AI, digital media, e-commerce, automotive, communication and mobile. Mr. Recanati is an early investor in successful Israeli companies such as Outbrain (NASDAQ:OB), eToro, Yotpo, Storedot, Celsius, Face.com (acquired by Facebook), Hopstop (acquired by Apple), Zooz (acquired by PayU), Rounds (acquired by Kik), Hexatier (acquired by Huawei), IMGN (acquired by WarnerMusic) and Compass (acquired by Sage). For over two decades, Mr. Recanati has been focusing on accelerating social impact through technology, by co-founding and being closely involved in a variety of community organizations. Mr. Recanati serves on the board of The Yahel Foundation, the Recanati family philanthropy foundation, which aims to narrow social gaps by driving social processes and supporting non-profit organizations that advance education, welfare and health. Mr. Recanati also serves on the board of MadaTech — The Israel National Museum of Science Technology and Space. Mr. Recanati co-founded and serves on the board of Apple Seeds Academy (“Tapuah”), an Israeli nonprofit organization that was founded with the aim of bridging between Israel’s growing tech sector and the digital peripheries. He also serves on the board of “Ogen”- A non-profit social lending enterprise, providing affordable credit to disadvantaged segments of the Israeli public. Mr. Recanati holds an LLB and BA from the Reichman University, Herzliya. +Our Advisory Board +Alex Greystoke serves as a member of our advisory board and is one of our founders. Mr. Greystoke is a successful serial entrepreneur with a breadth of skills in a diverse range of industries. He is a founder and member of the advisory board of Goal Acquisitions Corp. (Nasdaq: PUCKU), a SPAC that raised $258 million through its initial public offering in February 2021 and entered into a business combination agreement on November 17, 2022 for the purposes of acquiring Digital Virgo Group, a French corporation. Mr. Greystoke is also the founder and member of the advisory board of Clean Earth Acquisition Corp. (Nasdaq: CLINU), a SPAC that completed a $200 million initial public offering in February 2022 and entered into a business combination agreement on October 12, 2022 for the purposes of acquiring substantially all of the subsidiaries of Alternus Energy Group Plc, a public limited company incorporated under the laws of Ireland. Mr. Greystoke is also on the board of Springwater Special Situations Corp (Nasdaq: SWSSU), a SPAC that raised $168 million through its initial public offering in August 2021 and is seeking to merge with a well-positioned business with operational improvement opportunities in Europe or elsewhere. Mr. Greystoke is the founder of multiple AI technology companies including TripChamp, VacationChamp and TravelChamp. He is the inventor of three granted artificial intelligence patents, with eight pending patent applications. Mr. Greystoke also holds investments in real estate, food and beverage, technology and other sectors. Mr. Greystoke founded HSC, a boutique corporate finance business raising money for and helping emerging companies commercialize in a range of sectors including technology, energy, healthcare and consumer products utilizing his wide network of partners throughout Asia, Europe, the Middle East and the U.S. Mr. Greystoke has served as director to numerous companies in the education, technology, AI and renewable energy spaces, and has served as a Chairman to a U.K. listed Chinese manufacturing company. +12 +Table of Contents +Robert Pincas serves as a member of our advisory board and is one of our founders. Mr. Pincas is a successful investment manager and entrepreneur with over 20 years of experience in the Israeli ecosystem and international capital markets. Over the years, Mr. Pincas has developed a deep network with Israeli tech companies and a wide range of international investors. Currently, Mr. Pincas serves as the Small and Medium Businesses (“SMB”) partner for Fundit, a leading crowdfund platform in Israel, regulated by the Israeli Securities Authority. Between 2007 and 2020 Mr. Pincas was a Managing Director with MG Investment Capital, a venture capital fund investing in Israeli technology with a profitable return for investors. Mr. Pincas was the Accelerator Program Director (Jerusalem and the Plains) for Maof-Tech, for the Israeli Economy Ministry. Between 2014 and 2018 Mr. Pincas managed Maof Rishon LeZion (sponsored by the Israeli Economy Ministry), one of the largest consulting centers in Israel, servicing thousands of SMB businesses. Mr. Pincas served between 2003-2008 as Executive Director and Partner with MG Equity Partners Ltd., an investment bank focusing on cross border transactions between Israeli and European companies and the London capital markets, such as Domino’s Pizza Switzerland, Pepsi Romania and MTI Wireless, Mr. Pincas has volunteered with Paamonim, a nonprofit organization focusing on financial education for families. Mr. Pincas holds an MBA from Tel Aviv University and a BA in Economics from Ben Gurion University. +Eitan Efron serves as a member of our advisory board and is one of our founders. Mr. Efron has 30 years of experience in technology investments, technology and business management and high-tech entrepreneurship. Mr. Efron has a diverse entrepreneurial and management background. Mr. Efron is a founder of four technology startups, including Oversi Networks, which was acquired by Allot Communications (NASDAQ: ALLT) in 2009, and WiNetworks, which was acquired by Ruggedcom Inc in 2006 (and later acquired by Siemens). Between 2007 and 2019, Mr. Efron was a director with MG Investment Capital, a venture capital fund investing in Israeli technology with a profitable return for investors. Mr. Efron has deep contacts in Israeli tech ecosystem, including investors, companies’ executives, entrepreneurs and Israeli Innovation Authority. Mr. Efron has direct access to multiple multi-sector technology companies. +Ehud Levy serves as a member of our advisory board. Since 2014, Mr. Levy has been the Managing General Partner of Canaan Partners Israel, an Israeli venture capital fund. Since 2019, he has been a Venture Partner with Lenovo Capital heading its investment opportunities in Israel. Mr. Levy is also an active private investor in tech companies operating as a partner with a leading investment team, Kaedan Capital. From 2006 to 2014, Mr. Levy was a Managing Partner at Vertex VC. Among other successful investments, Mr. Levy identified Waze as a bright star from the start, leading the first investment round in the company and serving on its board of directors until its acquisition by Google for over US$1 billion. Previously, Mr. Levy co-founded and served as Chairman and CEO of Ki-Bi Mobile Technologies, a mass-market device specialist for mobile content distribution. He led the business from concept to commercial success, an initial public offering in London and eventual acquisition. Earlier, he served as COO and CFO of Telegate, a telecommunications company, where he was responsible for a restructuring plan leading to the acquisition of the company for over US$400 million. Prior to Telegate, Mr. Levy was an investment banker in New York and Tel Aviv, and served on the board of directors of several technology companies. Mr. Levy holds a BSc in Computer Engineering (with honors) from the Technion – Israel Institute of Technology and an MBA from Columbia Business School in New York. +Nir Ben Lavi serves as a member of our advisory board. Currently Mr. Ben Lavi is the CEO and co-founder of the Pangea Cup, the world’s first global competition and reality show for discovering the next big video game, and has served in that capacity since December 2019. Mr. Ben Lavi was appointed to his first managerial position at the age of 25, and combined it with intensive R&D work. This experience provided Mr. Ben Lavi with invaluable knowledge on innovation and led him to dedicate a lot of his time helping countries create their own start-up ecosystems. Mr. Ben Lavi is an active member of YPO Israel, and YPO Change Makers Club. Mr. Ben Lavi is an active investor deeply involved in the Israeli startup ecosystem. He is the former Managing Director of the NYU Blockchain Accelerator with which he served from October 2017 to October 2019, as well as head of the joint innovation program at Bosphorus University, Turkey. Mr. Ben Lavi is the author of three books and inventor of software solutions. Mr. Ben Lavi received his B.A. in Sociology, with honors, and his M.B.A. from the University of Tel Aviv. His Ph.D. research study in the field of Computerized Dispute Resolution led to the development of a first-of-its-kind dispute resolution software that was adopted by the United Nations as a managerial work tool. +Guy Kurlandski serves as a member of our advisory board. Mr. Kurlandski has more than 30 years’ experience as an entrepreneur and investor spanning diverse industries globally, from printing and real estate to spirits and technology. Today, Mr. Kurlandski’s primary position is as the Chief Evangelist Officer at Liquidity Group, an Israeli based global fintech and fund manager, which he has been with from 2019 to the present. He is also a Forbes Business Council member and an advisor to MUMA College of Business. He has been based in the United States since 2008 and was previously based in the United Kingdom. Mr. Kurlandski speaks both English and Hebrew and has strong ties to Israel. He has experience in scaling, managing and funding companies to reach their full potential. +13 +Table of Contents +Aaron Greenberg serves as a member of our advisory board. Mr. Greenberg has spent his career on Wall Street with experience across a variety of areas including investing, banking, trading, regulatory, risk, strategy and tax. Currently, Mr. Greenberg serves as the Chief Strategy Officer of Nayax (Nasdaq: NYAX), and is the managing partner of Tiberius Capital Markets, a division of Arcadia Securities (“Tiberius”), a strategic advisory and merger and acquisition (“M&A”) practice. Prior to Tiberius, Mr. Greenberg served on the investment team of Lucerne Capital Management, a 20-year-old hedge fund specializing in European mid-cap equities. Concurrently, Mr. Greenberg was Chief Strategy Officer of European Sustainable Growth Acquisition Corp., a U.S.-listed SPAC focused on ESG investing in Europe. Prior to this, Mr. Greenberg held various positions at Wells Fargo Bank and its affiliates, most recently as a portfolio manager evaluating operational inefficiencies and credit policy within the Corporate Investment Bank (CIB). Mr. Greenberg holds a Bachelor of Arts in Economics and History from Yale University. +Opportunity +The technology industry as a whole experienced an unprecedented acceleration of its growth during the COVID-19 pandemic as more businesses adopted new and innovative ways of doing business and more consumers rapidly adopted digital platforms to consume products and services. +The Israeli technology sector represents a concentration of value, with a large number of fast-growing companies. Israel is the leading country in R&D expenditure per GDP (Source: World Economic Forum 11 2020) with a mature high tech ecosystem including government incentives for early stage companies, a strong VC community, over 400 multinational corporations active in Israel and managing local R&D centers, and over 100 Israeli companies listed on Nasdaq. We believe that this ecosystem nurtures innovative products and services recognized world-wide. Technology leaders in Israel have global operations backed by a growing number of investments, which continue to propel the growth of leading technology companies. +The number of Israeli Unicorns has grown dramatically in recent years, representing 10% of Unicorns globally as of June 2021. Hundreds of additional growth-stage companies, backed by both local and global growth venture capital funds, have the potential to become the next Unicorns. We believe that this sector presents a significant opportunity concentrated in a specific small geography. Management teams with extensive networks and experience in this geography have a unique ability to locate and combine with such potential Unicorns. +We intend to tap into this opportunity by combining favorable Israeli market dynamics with a highly experienced and connected sponsor team, leveraging its network to source a potential business combination. Our Team has excellent investment, merger, acquisition and public company operational experience. Facing multiple targets in the disruptive Israeli market, our Team is positioned to identify and combine with high quality targets that have demonstrated exceptional metrics, and can effectively assist in bringing value to the target company following a business combination. +Favorable Market Dynamics +In recent years Israel’s technology sector has been going through a dramatic uplift and rapidly shifting from “Start-Up Nation” to the “Scale-Up Nation.” Many of growth-stage Israeli companies have emerged in recent years and are attracting billions of dollars in investments from foreign (primarily U.S.) investors, through mergers, acquisitions s and IPO’s. +In 2023, the Israeli high-tech sector navigated significant challenges but showed remarkable resilience. +With the proposed judicial reform mid-year causing domestic tension, the attack on October 7, 2023, and the ensuing war against Hamas - all against a background of global macroeconomic contraction - there have been obvious declines in venture capital investments. +Israel experienced both a sharper increase in private funding between 2018 and 2021 (+303%) and subsequently a sharper decrease between 2021 and 2023 (-73%) compared to other regions. In the U.S., for example, it was +134% / -51% respectively. Compared to 2018, Israel and the U.S. are up 9% and 14% respectively. +In 2024, M&A capital proceeds equaled $12.53 billion, despite the total number of deals being the second lowest in the past 10 years (99 transactions). This was mostly due to the M&As between $100 million and $500 million, which amounted to $6.052 billion this year. The most prominent transaction was the acquisition of Own Company by SalesForce for $1.9 billion. In 2024, six IPOs took +14 +Table of Contents +place: Upstream Bio, Gauzy and Polyrizon; two SPAC deals on NASDAQ; and TSG IT Advanced Systems on TASE. These IPOs represent a 50% growth from 2023 and raised $397 million. +In 2024, 40% of follow-on public offerings were in the life science sector. Follow-on activity was cut almost by half, with only 55 public offerings raising $675 million, and the lowest attracted capital since 2015. +Public Companies’ Performance +Given 2019 as a starting point, Israeli technology companies for the most part follow Nasdaq trends. Towards the end of 2020, Israeli companies started outperforming Nasdaq as the COVID-19 pandemic was contained faster. Their performance peaked in early 2021 when Israel became the first country to reopen after the pandemic. +In 2022, both the U.S. tech market and the Israeli tech market were negatively impacted by rising interest rates, high inflation, and recession fears, with Israeli companies experiencing a steeper decline. At the end of 2022, the U.S. tech market started to recover and the rise of generative artificial intelligence (“Gen AI”) started - and will continue to grow in 2023. Israel tech companies did not experience that recovery and remained mostly stable, likely due to local political turbulence. +In October 2023, both U.S. and Israel markets experienced a drop, which was more prominent in Israel, due to the war that started on October 7th between Israel and Hamas. +Multiple Targets +The Israeli tech sector has experienced significant scale-up in recent years across a wide range of sectors, from fintech, cloud, cyber and AI, to electric vehicles, and energytech, to biotech, genomics, quantum computing, spacetech and more. We believe some of these sectors present strong growth opportunities because Israeli companies in these sectors match global demand for solutions in the space and attract late-stage investments backing up growth. +We believe there are hundreds of pre-initial public offering Israeli tech companies that could be potential acquisition candidates today, and we believe the number will continue to grow. According to research firm IVC, 607 growth-stage Israeli tech companies raised over $15 billion of late-stage investments in 2019 and 2020 alone. According to Catalyst research there are hundreds of Israeli companies valued between $300 million to $3 billion. +Business Strategy and Competitive Strengths +Our business strategy is focused on identifying high-growth technology companies that would benefit from our Team’s expertise and creating long-term value for our shareholders through a business combination. Our strategy will be focused on companies that are domiciled in Israel, that carry out all or a substantial portion of their activities in Israel, or that have some other significant Israeli connection. +​ +15 +Table of Contents +Because we believe that certain technology sectors present particularly attractive growth opportunities, we intend to focus primarily on companies in the following technology sectors: +● Cloud computing; +● Cybersecurity; +● Deep or hard technology; +● E-commerce; +● EV technology; +● Energy technology; +● Financial Technology (“FinTech”); +● Food and agriculture technology; +● Gaming; +● Quantum computing; and +● Space and satellite technology. +We believe that our Team’s extensive experience in identifying high growth target companies, structuring and executing strategic investments and business combination transactions, and in adding value post-investment and post-transaction will support our business strategy. Our competitive strengths include: +Proven Track Record +Members of our Team have proven track records as officers, investors and board members of Israeli technology companies which reached growth-phase and global presence. Some of our Team members have gained experience as advisors of other SPACs, from IPO and listing through target acquisition. Our Team also has vast experience in international mergers and acquisition transactions and post-transaction integration. Furthermore, two of our Team members served as CEOs of public companies traded on Nasdaq and FSE stock exchange. We believe this wealth of experience and connections within the industry will position us to identify a high-quality target company and successfully complete a business combination transaction that creates value for our investors. +Value to Target Companies +We believe that our Team’s substantial management experience with growth companies will be recognized by target companies as a potential asset. Our Team members bring many years of experience taking companies public and successfully managing public companies. Additionally, we believe that our Team’s track record of leading companies through merger and acquisition transactions and managing them in the post-business combination stage could make us attractive to potential target companies. Our Team’s substantial experience operating public and private companies can assist in establishing a credible value-creation plan jointly with the target company’s management. Our Team has a considerable track record in running global public companies, merging companies to create substantially larger operations, bringing companies to profitability, communicating with the financial markets, and raising capital in various modes. We believe our Team’s experience presents a high value proposition to the target companies and investors. +Business Combination Criteria +Consistent with our business strategy, we have identified the following general criteria and guidelines that we believe are important in evaluating prospective target companies. We will use these criteria and guidelines in evaluating initial business combination +16 +Table of Contents +opportunities, but we may decide to enter into our initial business combination with a target company that does not meet these criteria and guidelines. +● Enterprise values of between $800 million and $1.5 billion  — The valuation will reflect a discount to the valuation of comparable public companies in the sector with similar metrics, such as revenues, EBITDA, market share and growth. +● High growth and strong pipeline  — We intend to focus on companies with double-digit growth in revenues per annum over a minimum 3-year period, featuring a disruptive technology, high market acceptance, and a large addressable market. +● International operations and global focus  — As the Israeli local market is a small one in most sectors, we are targeting a global player in the making, focusing on companies that already have a significant presence in global markets, with over 50% of revenue generated outside of Israel. +● Strong management team focused on growth  — We intend to pursue a business combination with a company that has a committed and strong leadership team with a proven track record of success in driving growth and profitability in the tech industry, impeccable reputation, and whom we know and trust through our Team’s network of relationships in Israel. +● Demonstrated ability to execute  — We are focused on target company management with a proven record of success, either from managing companies and bringing them to exceptional liquidity events for their investors or through operational success, such as growing companies from early stages to achieving competitive metrics in their sectors with regards to disruptive technology, sizable global markets, company growth, revenues, and profit. +● Ability to accelerate growth through increased access to public capital  — We intend to pursue an initial business combination with a company that has a solid business plan and the need for capital to support significant growth available through a business combination with us and access to broader capital markets as a public company. +These criteria are not intended to be exhaustive. Any evaluation relating to the merits of a particular initial business combination may be based, to the extent relevant, on these general guidelines as well as other considerations, factors and criteria that our management may deem relevant. In the event that we decide to enter into a business combination with a target company that does not meet the above criteria and guidelines, we will disclose that the target company does not meet the above named criteria in our shareholder communications related to our initial business combination, which, as discussed in this Annual Report on Form 10-K, would be in the form of proxy solicitation or tender offer materials, as applicable, that we would file with the SEC. In evaluating a prospective target company, we expect to conduct a due diligence review which may encompass, among other things, meetings with incumbent management and employees, document reviews, interviews of customers and suppliers, inspections of facilities, as well as reviewing financial and other information which will be made available to us. +Effecting Our Initial Business Combination +General +We are not presently engaged in, and we will not engage in, any operations for an indefinite period of time. We intend to effectuate our initial business combination using cash from the proceeds of the initial business combination and the sale of the Private Placement Units, the proceeds of the sale of our shares in connection with our initial business combination (pursuant to forward purchase agreements or backstop agreements we may enter into), shares issued to the owners of the target, debt issued to bank or other lenders or the owners of the target, or a combination of the foregoing or other sources. We may seek to complete our initial business combination with a company or business that may be financially unstable or in its early stages of development or growth, which would subject us to the numerous risks inherent in such companies and businesses. +If our initial business combination is paid for using equity or debt, or not all of the funds released from the Trust Account are used for payment of the consideration in connection with our initial business combination or used for redemptions of our Class A ordinary shares, we may apply the balance of the cash released to us from the Trust Account for general corporate purposes, including for maintenance or expansion of operations of the post-business combination company, the payment of principal or interest due on indebtedness incurred in completing our initial business combination, to fund the purchase of other companies or for working capital. +17 +Table of Contents +Although our management will assess the risks inherent in a particular target business with which we may combine in an initial business combination, we cannot assure you that this assessment will result in our identifying all risks that a target business may encounter. Furthermore, some of those risks may be outside of our control, meaning that we can do nothing to control or reduce the chances that those risks will adversely affect a target business. +So long as our securities are then listed on the Nasdaq, our initial business combination must occur with one or more target businesses that together have an aggregate fair market value of at least 80% of the net assets held in the Trust Account (excluding the amount of deferred underwriting commissions and taxes payable on the interest earned on the Trust Account) at the time of signing a definitive agreement in connection with our initial business combination. Additionally, so long as our securities are listed on Nasdaq, any initial business combination must be approved by a majority of our independent directors. If our board of directors is not able to independently determine the fair market value of the target business or businesses, we will obtain an opinion from an independent investment banking firm or an independent valuation or appraisal firm with respect to the satisfaction of such criteria. While we consider it unlikely that our board will not be able to make an independent determination of the fair market value of a target business or businesses, it may be unable to do so if the board is less familiar or experienced with the target company’s business, if there is a significant amount of uncertainty as to the value of the company’s assets or prospects, including if such company is at an early stage of development, operations or growth, or if the anticipated transaction involves a complex financial analysis or other specialized skills and the board determines that outside expertise would be helpful or necessary in conducting such analysis. Since any opinion, if obtained, would merely state that the fair market value of the target business meets the 80% of net assets threshold, unless such opinion includes material information regarding the valuation of a target business or the consideration to be provided, it is not anticipated that copies of such opinion would be distributed to our shareholders. However, if required under applicable law, any proxy statement that we deliver to shareholders and file with the SEC in connection with a proposed transaction will include such opinion. +We anticipate structuring our initial business combination so that the post-business combination company in which our public shareholders own shares will own or acquire 100% of the equity interests or assets of the target business or businesses. We may, however, structure our initial business combination such that the post-business combination company owns or acquires less than 100% of such interests or assets of the target business in order to meet certain objectives of the target management team or shareholders or for other reasons, but we will only complete such business combination if the post-business combination company owns or acquires 50% or more of the outstanding voting securities of the target or otherwise acquires a controlling interest in the target sufficient for it not to be required to register as an investment company under the Investment Company Act. Even if the post-business combination company owns or acquires 50% or more of the voting securities of the target, our shareholders prior to the business combination may collectively own a minority interest in the post-business combination company, depending on valuations ascribed to the target and us in the business combination. For example, we could pursue a transaction in which we issue a substantial number of new shares in exchange for all the outstanding capital stock of a target. In this case, we would acquire a 100% controlling interest in the target. However, as a result of the issuance of a substantial number of new shares, our shareholders immediately prior to our initial business combination could own less than a majority of our outstanding shares subsequent to our initial business combination. If less than 100% of the equity interests or assets of a target business or businesses are owned or acquired by the post-business combination company, the portion of such business or businesses that is owned or acquired is what will be valued for purposes of the 80% of net assets test. If the business combination involves more than one target business, the 80% of net assets test will be based on the aggregate value of all of the target businesses. If our securities are not then listed on the Nasdaq for whatever reason, we would no longer be required to meet the foregoing 80% of net asset test. +We may need to obtain additional financing to complete our initial business combination, either because the transaction requires more cash than is available from the proceeds held in our Trust Account, or because we become obligated to redeem a significant number of our public shares upon the completion of the business combination, in which case we may issue additional securities or incur debt in connection with such business combination (or enter into forward purchase agreements or backstop agreements with the Sponsor). There are no prohibitions on our ability to issue securities or incur debt in connection with our initial business combination. We are not currently a party to any arrangement or understanding with any third party with respect to raising any additional funds through the sale of securities, the incurrence of debt or otherwise. +Sources of Target Businesses +We anticipate that target business candidates will be brought to our attention from various unaffiliated sources, including investment market participants, private equity groups, investment banking firms, consultants, accounting firms and large business enterprises. Target businesses may be brought to our attention by such unaffiliated sources as a result of being solicited by us through calls or mailings. These sources may also introduce us to target businesses in which they think we may be interested on an unsolicited basis, since some +18 +Table of Contents +of these sources will have read this Annual Report on Form 10-K and know what types of businesses we are targeting. Our officers and directors, as well as their affiliates, may also bring to our attention target business candidates that they become aware of through their business contacts as a result of formal or informal inquiries or discussions they may have, as well as attending trade shows or conventions. In addition, we expect to receive a number of proprietary deal flow opportunities that would not otherwise necessarily be available to us as a result of the business relationships of our officers and directors. While we do not presently anticipate engaging the services of professional firms or other individuals that specialize in business acquisitions on any formal basis, we may engage these firms or other individuals in the future, in which event we may pay a finder’s fee, consulting fee or other compensation to be determined in an arm’s length negotiation based on the terms of the transaction. We will engage a finder only to the extent our management determines that the use of a finder may bring opportunities to us that may not otherwise be available to us or if finders approach us on an unsolicited basis with a potential transaction that our management determines is in our best interest to pursue. Payment of finder’s fees is customarily tied to completion of a transaction, in which case any such fee will be paid out of the funds held in the Trust Account. In no event, however, will the Sponsor or any of our existing officers or directors, or their respective affiliates be paid by us any finder’s fee or for any services they render in order to effectuate, the completion of our initial business combination (regardless of the type of transaction that it is). We have agreed to pay the Sponsor a total of $10,000 per month for office space, secretarial and administrative services and to reimburse the Sponsor for any out-of-pocket expenses related to identifying, investigating and completing an initial business combination. Some of our officers and directors may enter into employment or consulting agreements with the post-business combination company following our initial business combination. The presence or absence of any such fees or arrangements will not be used as a criterion in our selection process of an acquisition candidate. +We are not prohibited from pursuing an initial business combination with a company that is affiliated with the Sponsor or our officers or directors. In addition, in the event we seek to complete our initial business combination with a company that is affiliated with the Sponsor or any of our officers or directors, we, or a committee of independent directors, will obtain an opinion from an independent investment banking firm or another independent entity that commonly renders valuation opinions that such initial business combination is fair to our company from a financial point of view. We are not required to obtain such an opinion in any other context. +Each of our officers and directors presently has, and any of them in the future may have additional, fiduciary or contractual obligations to other entities, including entities that are affiliates of the Sponsor, pursuant to which such officer or director is or will be required to present a business combination opportunity to such entity. Accordingly, if any of our officers or directors becomes aware of a business combination opportunity that is suitable for an entity to which he or she has then-current fiduciary or contractual obligations, he or she will honor his or her fiduciary or contractual obligations to present such business combination opportunity to such entity, subject to their fiduciary duties under Cayman Islands law. See “ Item 10 - Directors, Executive Officers and Corporate Governance – Conflicts of Interest. ” +Evaluation of a Target Business and Structuring of Our Initial Business Combination +In evaluating a prospective target business, we expect to conduct an extensive due diligence review that may encompass, as applicable and among other things, meetings with incumbent management and employees, document reviews, interviews of customers and suppliers, inspection of facilities and a review of financial and other information about the target and its industry. We will also utilize our management team’s operational and capital planning experience. If we determine to move forward with a particular target, we will proceed to structure and negotiate the terms of the business combination transaction. +The time required to select and evaluate a target business and to structure and complete our initial business combination, and the costs associated with this process, are not currently ascertainable with any degree of certainty. Any costs incurred with respect to the identification and evaluation of, and negotiation with, a prospective target business with which our initial business combination is not ultimately completed will result in our incurring losses and will reduce the funds we can use to complete another business combination. In addition, we have agreed not to enter into a definitive agreement regarding an initial business combination without the prior consent of the Sponsor. +Lack of Business Diversification +For an indefinite period of time after the completion of our initial business combination, the prospects for our success may depend entirely on the future performance of a single business. Unlike other entities that have the resources to complete business combinations with multiple entities in one or several industries, it is probable that we will not have the resources to diversify our operations and +19 +Table of Contents +mitigate the risks of being in a single line of business. By completing our initial business combination with only a single entity, our lack of diversification may: +● subject us to negative economic, competitive and regulatory developments, any or all of which may have a substantial adverse impact on the particular industry in which we operate after our initial business combination; and +● cause us to depend on the marketing and sale of a single product or limited number of products or services. +Limited Ability to Evaluate the Target’s Management Team +Although we intend to closely scrutinize the management of a prospective target business when evaluating the desirability of effecting our initial business combination with that business, our assessment of the target business’s management may not prove to be correct. In addition, the future management may not have the necessary skills, qualifications or abilities to manage a public company. Furthermore, the future role of members of our management team, if any, in the target business cannot presently be stated with any certainty. The determination as to whether any of the members of our management team will remain with the combined company will be made at the time of our initial business combination. While it is possible that one or more of our directors will remain associated in some capacity with us following our initial business combination, it is unlikely that any of them will devote their full efforts to our affairs subsequent to our initial business combination. Moreover, we cannot assure you that members of our management team will have significant experience or knowledge relating to the operations of the particular target business. +We cannot assure you that any of our key personnel will remain in senior management or advisory positions with the combined company. The determination as to whether any of our key personnel will remain with the combined company will be made at the time of our initial business combination. +Following an initial business combination, we may seek to recruit additional managers to supplement the incumbent management of the target business. We cannot assure you that we will have the ability to recruit additional managers, or that additional managers will have the requisite skills, knowledge or experience necessary to enhance the incumbent management. +Shareholders May Not Have the Ability to Approve Our Initial Business Combination +We may conduct redemptions without a shareholder vote pursuant to the tender offer rules of the SEC, subject to the provisions of our amended and restated memorandum and articles of association. However, we will seek shareholder approval if it is required by applicable law or stock exchange listing requirement, or we may decide to seek shareholder approval for business or other reasons. +Under the Nasdaq’s listing rules, shareholder approval would typically be required for our initial business combination if, for example: +● We issue ordinary shares that will be equal to or in excess of 20% of the number of our ordinary shares then-outstanding (other than in a public offering); +● Any of our directors, officers or substantial security holder (as defined by the Nasdaq rules) has a 5% or greater interest, directly or indirectly, in the target business or assets to be acquired or otherwise and the present or potential issuance of ordinary shares could result in an increase in issued and outstanding ordinary shares or voting power of 1% or more (or 5% or more if the related party involved is classified as such solely because such person is a substantial security holder); +● the timing of the transaction, including in the event we determine shareholder approval would require additional time and there is either not enough time to seek shareholder approval or doing so would place the company at a disadvantage in the transaction or result in other additional burdens on the company; or +● The issuance or potential issuance of ordinary shares will result in our undergoing a change of control. +20 +Table of Contents +The decision as to whether we will seek shareholder approval of a proposed business combination in those instances in which shareholder approval is not required by law will be made by us, solely in our discretion, and will be based on business and reasons, which include a variety of factors, including, but not limited to: +● the expected cost of holding a shareholder vote; +● the risk that the shareholders would fail to approve the proposed business combination; +● other time and budget constraints of the company; and +● additional legal complexities of a proposed business combination that would be time-consuming and burdensome to present to shareholders. +Permitted Purchases and Other Transactions with Respect to Our Securities +If we seek shareholder approval of our initial business combination and we do not conduct redemptions in connection with our initial business combination pursuant to the tender offer rules, the Sponsor and our directors, officers, advisors or their affiliates may purchase public shares or warrants in privately negotiated transactions or in the open market either prior to or following the completion of our initial business combination. Additionally, at any time at or prior to our initial business combination, subject to applicable securities laws (including with respect to material nonpublic information), the Sponsor and our directors, executive officers, advisors or their affiliates may enter into transactions with investors and others to provide them with incentives to acquire public shares, vote their public shares in favor of our initial business combination or not redeem their public shares. However, they have no current commitments, plans or intentions to engage in such transactions and have not formulated any terms or conditions for any such transactions. None of the funds in the Trust Account will be used to purchase public shares or warrants in such transactions. If they engage in such transactions, they will be restricted from making any such purchases when they are in possession of any material non-public information not disclosed to the seller or if such purchases are prohibited by Regulation M under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). +In the event that the Sponsor or our directors, officers, advisors or their affiliates purchase shares in privately negotiated transactions from public shareholders who have already elected to exercise their redemption rights or submitted a proxy to vote against our initial business combination, such selling shareholders would be required to revoke their prior elections to redeem their shares and any proxy to vote against our initial business combination. We do not currently anticipate that such purchases, if any, would constitute a tender offer subject to the tender offer rules under the Exchange Act or a going-private transaction subject to the going-private rules under the Exchange Act; however, if the purchasers determine at the time of any such purchases that the purchases are subject to such rules, the purchasers will be required to comply with such rules. +See “ Business—Effecting Our Initial Business Combination—Permitted Purchases and Other Transactions with Respect to Our Securities ” for a description of how our Sponsor, directors, officers, advisors or their affiliates will select which shareholders to purchase securities from in any private transaction. The purpose of any such transaction could be to (i) increase the likelihood of closing the initial business combination, (ii) reduce the number of public warrants outstanding or vote such warrants on any matters submitted to the warrant holders for approval in connection with our initial business combination or (iii) satisfy a closing condition in an agreement with a target that requires us to have a minimum net worth or a certain amount of cash at the closing of our initial business combination, where it appears that such requirement would otherwise not be met. Any such purchases of our securities may result in the completion of our initial business combination that may not otherwise have been possible. +In addition, if such purchases are made, the public “float” of our Class A ordinary shares or public warrants may be reduced and the number of beneficial holders of our securities may be reduced, which may make it difficult to maintain or obtain the quotation, listing or trading of our securities on a national securities exchange. +The Sponsor and our officers, directors and/or their affiliates anticipate that they may identify the shareholders with whom the Sponsor and our officers, directors or their affiliates may pursue privately negotiated transactions by either the shareholders contacting us directly or by our receipt of redemption requests submitted by shareholders (in the case of Class A ordinary shares) following our mailing of tender offer or proxy materials in connection with our initial business combination. To the extent that the Sponsor or our officers, directors, advisors or their affiliates enter into a private transaction, they would identify and contact only potential selling or +21 +Table of Contents +redeeming shareholders who have expressed their election to redeem their shares for a pro rata share of the Trust Account or vote against our initial business combination, whether or not such shareholder has already submitted a proxy with respect to our initial business combination but only if such shares have not already been voted at the general meeting related to our initial business combination. The Sponsor and our executive officers, directors, advisors or their affiliates will select which shareholders to purchase shares from based on the negotiated price and number of shares and any other factors that they may deem relevant, and will be restricted from purchasing shares if such purchases do not comply with Regulation M under the Exchange Act and the other federal securities laws. +The Sponsor and our officers, directors and/or their affiliates will be restricted from making purchases of shares if the purchases would violate Section 9(a)(2) or Rule 10b-5 of the Exchange Act. We expect any such purchases would be reported by such person pursuant to Section 13 and Section 16 of the Exchange Act to the extent such purchasers are subject to such reporting requirements. +Redemption Rights for Public Shareholders upon the Completion of Our Initial Business Combination +We will provide our public shareholders with the opportunity to redeem all or a portion of their Class A ordinary shares upon the completion of our initial business combination at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account calculated as of two business days prior to the consummation of our initial business combination, including interest earned on the funds held in the Trust Account and not previously released to us to pay our taxes, if any, divided by the number of then-outstanding public shares, subject to the limitations described herein. The amount in the Trust Account is initially anticipated to be $10.20 per public share. The per-share amount we will distribute to investors who properly redeem their shares will not be reduced by the deferred underwriting commissions we will pay to the underwriters. The redemption rights will include the requirement that a beneficial holder must identify itself in order to validly redeem its shares. There will be no redemption rights upon the completion of our initial business combination with respect to our warrants. Further, we will not proceed with redeeming our public shares, even if a public shareholder has properly elected to redeem its shares, if an initial business combination does not close. The Sponsor and each member of our management team have entered into an agreement with us, pursuant to which they have agreed to waive their redemption rights with respect to any founder shares and public shares held by them in connection with (i) the completion of our initial business combination and (ii) a shareholder vote to approve an amendment to our amended and restated memorandum and articles of association (A) that would modify the substance or timing of our obligation to provide holders of our Class A ordinary shares the right to have their shares redeemed in connection with our initial business combination or to redeem 100% of our public shares if we do not complete our initial business combination by April 18, 2025 (or January 18, 2026, if we extend the time to complete a business combination as described in this Annual Report on Form 10-K) or (B) with respect to any other provision relating to the rights of holders of our Class A ordinary shares. +Limitations on Redemptions +Our amended and restated memorandum and articles of association provide that in no event will we redeem our public shares in an amount that would cause our net tangible assets to be less than $5,000,001 (so that we do not then become subject to the SEC’s “penny stock” rules). However, the proposed initial business combination may require: (i) cash consideration to be paid to the target or its owners, (ii) cash to be transferred to the target for working capital or other general corporate purposes or (iii) the retention of cash to satisfy other conditions in accordance with the terms of the proposed business combination. In the event the aggregate cash consideration we would be required to pay for all Class A ordinary shares that are validly submitted for redemption plus any amount required to satisfy cash conditions pursuant to the terms of the proposed business combination exceed the aggregate amount of cash available to us, we will not complete the business combination or redeem any shares, and all Class A ordinary shares submitted for redemption will be returned to the holders thereof. +Manner of Conducting Redemptions +We will provide our public shareholders with the opportunity to redeem all or a portion of their Class A ordinary shares upon the completion of our initial business combination either (i) in connection with a general meeting called to approve the business combination or (ii) by means of a tender offer. The decision as to whether we will seek shareholder approval of a proposed initial business combination or conduct a tender offer will be made by us, solely in our discretion, and will be based on a variety of factors such as the timing of the transaction and whether the terms of the transaction would require us to seek shareholder approval under applicable law or stock exchange listing requirement or whether we were deemed to be a foreign private issuer (which would require a tender offer rather than seeking shareholder approval under SEC rules). Asset acquisitions and share purchases would not typically require shareholder approval while direct mergers with our company where we do not survive and any transactions where we issue more than 20% of our issued and outstanding ordinary shares or seek to amend our amended and restated memorandum and articles of association would typically require +22 +Table of Contents +shareholder approval. We currently intend to conduct redemptions in connection with a shareholder vote unless shareholder approval is not required by applicable law or stock exchange listing requirement or we choose to conduct redemptions pursuant to the tender offer rules of the SEC for business or other reasons. So long as we maintain a listing for our securities on the Nasdaq, we will be required to comply with the Nasdaq rules. +If we hold a shareholder vote to approve our initial business combination, we will, pursuant to our amended and restated memorandum and articles of association: +● conduct the redemptions in conjunction with a proxy solicitation pursuant to Regulation 14A of the Exchange Act, which regulates the solicitation of proxies, and not pursuant to the tender offer rules; and +● file proxy materials with the SEC. +In the event that we seek shareholder approval of our initial business combination, we will distribute proxy materials and, in connection therewith, provide our public shareholders with the redemption rights described above upon the completion of our initial business combination. +If we seek shareholder approval, we will complete our initial business combination only if we obtain the approval of an ordinary resolution under Cayman Islands law, which requires the affirmative vote of a majority of the shareholders who attend and vote at a general meeting of the company. In such case, the Sponsor and each member of our management team have agreed to vote their founder shares and public shares in favor of our initial business combination. As a result, in addition to our initial purchaser’s founder shares, we would need 4,410,417 or approximately 31.6% (assuming all issued and outstanding shares are voted), or no additional shares (assuming only the minimum number of shares representing a quorum are voted), of the 14,375,000 public shares sold in the Initial Public Offering to be voted in favor of an initial business combination in order to have our initial business combination approved. Each public shareholder may elect to redeem their public shares irrespective of whether they vote for or against the proposed transaction or vote at all. In addition, the Sponsor and each member of our management team have entered into an agreement with us, pursuant to which they have agreed to waive their redemption rights with respect to any founder shares and public shares held by them in connection with (i) the completion of a business combination and (ii) a shareholder vote to approve an amendment to our amended and restated memorandum and articles of association (A) that would modify the substance or timing of our obligation to provide holders of our Class A ordinary shares the right to have their shares redeemed in connection with our initial business combination or to redeem 100% of our public shares if we do not complete our initial business combination by April 18, 2025 (or January 18, 2026, if we extend the time to complete a business combination as described in this Annual Report on Form 10-K) or (B) with respect to any other provision relating to the rights of holders of our Class A ordinary shares. +If we conduct redemptions pursuant to the tender offer rules of the SEC, we will, pursuant to our amended and restated memorandum and articles of association: +● conduct the redemptions pursuant to Rule 13e-4 and Regulation 14E of the Exchange Act, which regulate issuer tender offers; and +● file tender offer documents with the SEC prior to completing our initial business combination which contain substantially the same financial and other information about our initial business combination and the redemption rights as is required under Regulation 14A of the Exchange Act, which regulates the solicitation of proxies. +Upon the public announcement of our initial business combination, if we elect to conduct redemptions pursuant to the tender offer rules, we and the Sponsor will terminate any plan established in accordance with Rule 10b5-1 to purchase Class A ordinary shares in the open market, in order to comply with Rule 14e-5 under the Exchange Act. +In the event we conduct redemptions pursuant to the tender offer rules, our offer to redeem will remain open for at least 20 business days, in accordance with Rule 14e-1(a) under the Exchange Act, and we will not be permitted to complete our initial business combination until the expiration of the tender offer period. In addition, the tender offer will be conditioned on public shareholders not tendering more than the number of public shares we are permitted to redeem. If public shareholders tender more shares than we have offered to purchase, we will withdraw the tender offer and not complete such initial business combination. +23 +Table of Contents +Limitation on Redemption upon the Completion of Our Initial Business Combination if We Seek Shareholder Approval +If we seek shareholder approval of our initial business combination and we do not conduct redemptions in connection with our initial business combination pursuant to the tender offer rules, then, pursuant to our amended and restated memorandum and articles of association, a public shareholder, together with any affiliate of such shareholder or any other person with whom such shareholder is acting in concert or as a “group” (as defined under Section 13 of the Exchange Act), will be restricted from redeeming its shares with respect to more than an aggregate of 15% of the shares sold in the Initial Public Offering, which we refer to as “Excess Shares,” without our prior consent. We believe this restriction will discourage shareholders from accumulating large blocks of shares, and subsequent attempts by such holders to use their ability to exercise their redemption rights against a proposed business combination as a means to force us or our management to purchase their shares at a significant premium to the then-current market price or on other undesirable terms. Absent this provision, a public shareholder holding more than an aggregate of 15% of the shares sold in the Initial Public Offering could threaten to exercise its redemption rights if such holder’s shares are not purchased by us, the Sponsor or our management at a premium to the then-current market price or on other undesirable terms. By limiting our shareholders’ ability to redeem no more than 15% of the shares sold in the Initial Public Offering without our prior consent, we believe we will limit the ability of a small group of shareholders to unreasonably attempt to block our ability to complete our initial business combination, particularly in connection with a business combination with a target that requires as a closing condition that we have a minimum net worth or a certain amount of cash. +However, we would not be restricting our shareholders’ ability to vote all of their shares (including Excess Shares) for or against our initial business combination. +Tendering Share Certificates in Connection with a Tender Offer or Redemption Rights +Public shareholders seeking to exercise their redemption rights, whether they are record holders or hold their shares in “street name,” will be required to either tender their certificates (if any) to our transfer agent prior to the date set forth in the proxy solicitation or tender offer materials, as applicable, mailed to such holders, or to deliver their shares to the transfer agent electronically using The Depository Trust Company’s Deposit / Withdrawal At Custodian (“DWAC”) System, at the holder’s option, in each case up to two business days prior to the initially scheduled vote to approve the business combination. The proxy solicitation or tender offer materials, as applicable, that we will furnish to holders of our public shares in connection with our initial business combination will indicate the applicable delivery requirements, which will include the requirement that a beneficial holder must identify itself in order to validly redeem its shares. Accordingly, a public shareholder would have from the time we send out our tender offer materials until the close of the tender offer period, or up to two business days prior to the initially scheduled vote on the proposal to approve the business combination if we distribute proxy materials, as applicable, to tender its shares if it wishes to seek to exercise its redemption rights. Given the relatively short period in which to exercise redemption rights, it is advisable for shareholders to use electronic delivery of their public shares. +There is a nominal cost associated with the above-referenced tendering process and the act of certificating the shares or delivering them through the DWAC System. The transfer agent will typically charge the tendering broker a fee of approximately $80.00 and it would be up to the broker whether or not to pass this cost on to the redeeming holder. However, this fee would be incurred regardless of whether or not we require holders seeking to exercise redemption rights to tender their shares. The need to deliver shares is a requirement of exercising redemption rights regardless of the timing of when such delivery must be effectuated. +The foregoing is different from the procedures used by many blank check companies. In order to perfect redemption rights in connection with their business combinations, many blank check companies would distribute proxy materials for the shareholders’ vote on an initial business combination, and a holder could simply vote against a proposed business combination and check a box on the proxy card indicating such holder was seeking to exercise his or her redemption rights. After the business combination was approved, the company would contact such shareholder to arrange for him or her to deliver his or her certificate to verify ownership. As a result, the shareholder then had an “option window” after the completion of the business combination during which he or she could monitor the price of the company’s shares in the market. If the price rose above the redemption price, he or she could sell his or her shares in the open market before actually delivering his or her shares to the company for cancellation. As a result, the redemption rights, to which shareholders were aware they needed to commit before the general meeting, would become “option” rights surviving past the completion of the business combination until the redeeming holder delivered its certificate. The requirement for physical or electronic delivery prior to the meeting ensures that a redeeming shareholder’s election to redeem is irrevocable once the business combination is approved. +Any request to redeem such shares, once made, may be withdrawn at any time up to two business days prior to the initially scheduled vote on the proposal to approve the business combination, unless otherwise agreed to by us. Furthermore, if a holder of a public share delivered its certificate in connection with an election of redemption rights and subsequently decides prior to the applicable date not to +24 +Table of Contents +elect to exercise such rights, such holder may simply request that the transfer agent return the certificate (physically or electronically). It is anticipated that the funds to be distributed to holders of our public shares electing to redeem their shares will be distributed promptly after the completion of our initial business combination. +If our initial business combination is not approved or completed for any reason, then our public shareholders who elected to exercise their redemption rights would not be entitled to redeem their shares for the applicable pro rata share of the Trust Account. In such case, we will promptly return any certificates delivered by public holders who elected to redeem their shares. +If our initial business combination is not approved or completed for any reason, we may continue to try to complete a business combination with a different target until by April 18, 2025 (or January 18, 2026, if we extend the time to complete a business combination as described in this Annual Report on Form 10-K) (the “Combination Period”). +Redemption of Public Shares and Liquidation if No Initial Business Combination +Our fourth amended and restated memorandum and articles of association provide that we have 12 months from January 18, 2025 (January 18, 2026, if we extend the time to complete a business combination as described in this Annual Report on Form 10-K) to consummate an initial business combination. If we have not consummated an initial business combination within such period, we will: (i) cease all operations except for the purpose of winding up; (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem the public shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest earned on the funds held in the Trust Account and not previously released to us to pay our taxes, if any (less up to $100,000 of interest to pay dissolution expenses) divided by the number of the then-outstanding public shares, which redemption will completely extinguish public shareholders’ rights as shareholders (including the right to receive further liquidation distributions, if any); and (iii) as promptly as reasonably possible following such redemption, subject to the approval of our remaining shareholders and our board of directors, liquidate and dissolve, subject in each case to our obligations under Cayman Islands law to provide for claims of creditors and the requirements of other applicable law. There will be no redemption rights or liquidating distributions with respect to our rights or warrants, which will expire worthless if we fail to consummate an initial business combination by April 18, 2025 (or January 18, 2026, if we extend the time to complete a business combination as described in this Annual Report on Form 10-K). Our amended and restated memorandum and articles of association will provide that, if we wind up for any other reason prior to the consummation of our initial business combination, we will follow the foregoing procedures with respect to the liquidation of the Trust Account as promptly as reasonably possible but not more than ten business days thereafter, subject to applicable Cayman Islands law. +The Sponsor and each member of our management team have entered into an agreement with us, pursuant to which they have agreed to waive their rights to liquidating distributions from the Trust Account with respect to any founder shares they hold if we fail to consummate an initial business combination by April 18, 2025 (or January 18, 2026, if we extend the time to complete a business combination as described in this Annual Report on Form 10-K) (although they will be entitled to liquidating distributions from the Trust Account with respect to any public shares they hold if we fail to complete our initial business combination within the prescribed timeframe). +The Sponsor and our officers and directors have agreed, pursuant to a written agreement with us, that they will not propose any amendment to our amended and restated memorandum and articles of association (A) that would modify the substance or timing of our obligation to provide holders of our Class A ordinary shares the right to have their shares redeemed in connection with our initial business combination or to redeem 100% of our public shares if we do not complete our initial business combination by April 18, 2025 (or January 18, 2026, if we extend the time to complete a business combination as described in this Annual Report on Form 10-K) or (B) with respect to any other provision relating to the rights of holders of our Class A ordinary shares, unless we provide our public shareholders with the opportunity to redeem their Class A shares upon approval of any such amendment at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest earned on the funds held in the Trust Account and not previously released to us to pay our taxes, if any, divided by the number of the then-outstanding public shares, subject to the limitations described herein. However, we may not redeem our public shares in an amount that would cause our net tangible assets to be less than $5,000,001 (so that we do not then become subject to the SEC’s “penny stock” rules). If this optional redemption right is exercised with respect to an excessive number of public shares such that we cannot satisfy the net tangible asset requirement, we would not proceed with the amendment or the related redemption of our public shares at such time. This redemption right shall apply in the event of the approval of any such amendment, whether proposed by the Sponsor, any executive officer or director, or any other person. +We expect that all costs and expenses associated with implementing our plan of dissolution, as well as payments to any creditors, will be funded from amounts remaining out of the $1,450,000 held outside the Trust Account plus up to $100,000 of funds from the +25 +Table of Contents +Trust Account available to us to pay dissolution expenses, although we cannot assure you that there will be sufficient funds for such purpose. +If we were to expend all of the net proceeds of the Initial Public Offering and the sale of the Private Placement Units, other than the proceeds deposited in the Trust Account, and without taking into account interest, if any, earned on the Trust Account, the per-share redemption amount received by shareholders upon our dissolution would be $10.20. The proceeds deposited in the Trust Account could, however, become subject to the claims of our creditors which would have higher priority than the claims of our public shareholders. We cannot assure you that the actual per-share redemption amount received by shareholders will not be less than $10.20. While we intend to pay such amounts, if any, we cannot assure you that we will have funds sufficient to pay or provide for all creditors’ claims. +Although we will seek to have all vendors, service providers, prospective target businesses and other entities with which we do business execute agreements with us waiving any right, title, interest or claim of any kind in or to any monies held in the Trust Account for the benefit of our public shareholders, there is no guarantee that they will execute such agreements or even if they execute such agreements that they would be prevented from bringing claims against the Trust Account including, but not limited to, fraudulent inducement, breach of fiduciary responsibility or other similar claims, as well as claims challenging the enforceability of the waiver, in each case in order to gain an advantage with respect to a claim against our assets, including the funds held in the Trust Account. If any third party refuses to execute an agreement waiving such claims to the monies held in the Trust Account, our management will perform an analysis of the alternatives available to it and will only enter into an agreement with a third party that has not executed a waiver if management believes that such third party’s engagement would be significantly more beneficial to us than any alternative. Examples of possible instances where we may engage a third party that refuses to execute a waiver include the engagement of a third-party consultant whose particular expertise or skills are believed by management to be significantly superior to those of other consultants that would agree to execute a waiver or in cases where management is unable to find a service provider willing to execute a waiver. BTIG, the representative of the underwriters in the Initial Public Offering will not execute an agreement with us waiving such claims to the monies held in the Trust Account. In addition, there is no guarantee that such entities will agree to waive any claims they may have in the future as a result of, or arising out of, any negotiations, contracts or agreements with us and will not seek recourse against the Trust Account for any reason. In order to protect the amounts held in the Trust Account, the Sponsor has agreed that it will be liable to us if and to the extent any claims by a third party for services rendered or products sold to us (other than our independent registered public accounting firm), or a prospective target business with which we have discussed entering into a transaction agreement, reduce the amounts in the Trust Account to below the lesser of (i) $10.20 per public share and (ii) the actual amount per public share held in the Trust Account as of the date of the liquidation of the Trust Account if less than $10.20 per public share due to reductions in the value of the trust assets, in each case net of the interest that may be withdrawn to pay our tax obligations, provided that such liability will not apply to any claims by a third party or prospective target business that executed a waiver of any and all rights to seek access to the Trust Account nor will it apply to any claims under our indemnity of the underwriters of the Initial Public Offering against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the “Securities Act”). In the event that an executed waiver is deemed to be unenforceable against a third party, the Sponsor will not be responsible to the extent of any liability for such third-party claims. However, we have not asked the Sponsor to reserve for such indemnification obligations, nor have we independently verified whether the Sponsor has sufficient funds to satisfy its indemnity obligations and we believe that the Sponsor’s only assets are securities of our company. Therefore, we cannot assure you that the Sponsor would be able to satisfy those obligations. None of our officers or directors will indemnify us for claims by third parties including, without limitation, claims by vendors and prospective target businesses. +In the event that the proceeds in the Trust Account are reduced below the lesser of (i) $10.20 per public share and (ii) the actual amount per public share held in the Trust Account as of the date of the liquidation of the Trust Account if less than $10.20 per public share due to reductions in the value of the trust assets, in each case net of the amount of interest which may be withdrawn to pay our tax obligations, and the Sponsor asserts that it is unable to satisfy its indemnification obligations or that it has no indemnification obligations related to a particular claim, our independent directors would determine whether to take legal action against the Sponsor to enforce its indemnification obligations. While we currently expect that our independent directors would take legal action on our behalf against the Sponsor to enforce its indemnification obligations to us, it is possible that our independent directors in exercising their business judgment may choose not to do so in any particular instance. Accordingly, we cannot assure you that due to claims of creditors the actual value of the per-share redemption price will not be less than $10.20 per public share. +We will seek to reduce the possibility that the Sponsor will have to indemnify the Trust Account due to claims of creditors by endeavoring to have all vendors, service providers, prospective target businesses or other entities with which we do business execute agreements with us waiving any right, title, interest or claim of any kind in or to monies held in the Trust Account. The Sponsor will also not be liable as to any claims under our indemnity of the underwriters of the Initial Public Offering against certain liabilities, including liabilities under the Securities Act. We will have access to up to $1,450,000 following the Initial Public Offering and the sale +26 +Table of Contents +of the Private Placement Units with which to pay any such potential claims (including costs and expenses incurred in connection with our liquidation, currently estimated to be no more than approximately $100,000). In the event that we liquidate and it is subsequently determined that the reserve for claims and liabilities is insufficient, shareholders who received funds from our Trust Account could be liable for claims made by creditors, however such liability will not be greater than the amount of funds from our Trust Account received by any such shareholder. +If we file a bankruptcy or winding-up petition or an involuntary bankruptcy or winding-up petition is filed against us that is not dismissed, the proceeds held in the Trust Account could be subject to applicable bankruptcy or insolvency law, and may be included in our bankruptcy estate and subject to the claims of third parties with priority over the claims of our shareholders. To the extent any bankruptcy claims deplete the Trust Account, we cannot assure you we will be able to return $10.20 per public share to our public shareholders. Additionally, if we file a bankruptcy or winding-up petition or an involuntary bankruptcy or winding-up petition is filed against us that is not dismissed, any distributions received by shareholders could be viewed under applicable debtor/creditor and/or bankruptcy or insolvency laws as either a “preferential transfer” or a “fraudulent conveyance.” As a result, a bankruptcy or insolvency court could seek to recover some or all amounts received by our shareholders. Furthermore, our board of directors may be viewed as having breached its fiduciary duty to our creditors and/or may have acted in bad faith, and thereby exposing itself and our company to claims of punitive damages, by paying public shareholders from the Trust Account prior to addressing the claims of creditors. We cannot assure you that claims will not be brought against us for these reasons. +Our public shareholders will be entitled to receive funds from the Trust Account only (i) in the event of the redemption of our public shares if we do not complete our initial business combination by January 18, 2026, (ii) in connection with a shareholder vote to amend our amended and restated memorandum and articles of association (A) to modify the substance or timing of our obligation to provide holders of our Class A ordinary shares the right to have their shares redeemed in connection with our initial business combination or to redeem 100% of our public shares if we do not complete our initial business combination by January 18, 2026 or (B) with respect to any other provision relating to the rights of holders of our Class A ordinary shares, or (iii) if they redeem their respective shares for cash upon the completion of our initial business combination. Public shareholders who redeem their Class A ordinary shares in connection with a shareholder vote described in clause (ii) in the preceding sentence shall not be entitled to funds from the Trust Account upon the subsequent completion of an initial business combination or liquidation if we have not consummated an initial business combination by January 18, 2026, with respect to such Class A ordinary shares so redeemed. In no other circumstances will a shareholder have any right or interest of any kind to or in the Trust Account. In the event we seek shareholder approval in connection with our initial business combination, a shareholder’s voting in connection with the business combination alone will not result in a shareholder’s redeeming its shares to us for an applicable pro rata share of the Trust Account. Such shareholder must have also exercised its redemption rights described above. These provisions of our amended and restated memorandum and articles of association, like all provisions of our amended and restated memorandum and articles of association, may be amended with a shareholder vote. +​ +27 +Table of Contents +Comparison of Redemption or Purchase Prices in Connection with Our Initial Business Combination and If We Fail to Complete Our Initial Business Combination. +The following table compares the redemptions and other permitted purchases of public shares that may take place in connection with the completion of our initial business combination and if we have not consummated an initial business combination by January 18, 2026: +​ +Redemptions in Connection +with Our Initial Business +Combination +Other Permitted Purchases of +Public Shares by Our +Affiliates +Redemptions if We Fail to +Complete an Initial Business +Combination +Calculation of redemption price impact to remaining shareholders +Redemptions at the time of our initial business combination may be made pursuant to a tender offer or in connection with a shareholder vote. The redemption price will be the same whether we conduct redemptions pursuant to a tender offer or in connection with a shareholder vote. In either case, our public shareholders may redeem their public shares for cash equal to the aggregate amount then on deposit in the Trust Account calculated as of two business days prior to the consummation of our initial business combination (which is initially anticipated to be $10.20 per public share), including interest earned on the funds held in the Trust Account and not previously released to us to pay our taxes, if any, divided by the number of the then-outstanding public shares, subject to the limitation that no redemptions will take place if all of the redemptions would cause our net tangible assets to be less than $5,000,001 and any limitations (including, but not limited to, cash requirements) agreed to in connection with the negotiation of terms of a proposed business combination. +If we seek shareholder approval of our initial business combination, the Sponsor and our directors, officers, advisors or their affiliates may purchase shares in privately negotiated transactions or in the open market either prior to or following the completion of our initial business combination. There is no limit to the prices that the Sponsor or our directors, officers, advisors or their affiliates may pay in these transactions. If they engage in such transactions, they will be restricted from making any such purchases when they are in possession of any material nonpublic information not disclosed to the seller or if such purchases are prohibited by Regulation M under the Exchange Act. We do not currently anticipate that such purchases, if any, would constitute a tender offer subject to the tender offer rules under the Exchange Act or a going-private transaction subject to the going-private rules under the Exchange Act; however, if the purchasers determine at the time of any such purchases that the purchases are subject to such rules, the purchasers will be required to comply with such rules. +If we have not consummated an initial business combination by January 18, 2026, we will redeem all public shares at a per-share price, payable in cash, equal to the aggregate amount, then on deposit in the Trust Account (which is initially anticipated to be $10.20 per public share), including interest earned on the funds held in the Trust Account and not previously released to us to pay our taxes, if any (less up to $100,000 of interest to pay dissolution expenses) divided by the number of the then-outstanding public shares. +​ +​ +​ +​ +​ +​ +​ +The redemptions in connection with our initial business combination will reduce the book value per share for our remaining shareholders, who will bear the burden of the deferred underwriting commissions and taxes payable. +If the permitted purchases described above are made, there would be no impact to our remaining shareholders because the purchase price would not be paid by us. +The redemption of our public shares if we fail to complete our initial business combination will reduce the book value per share for the shares held by the Sponsor, who will be our only remaining shareholder after such redemptions. +28 +Table of Contents +Amended and Restated Memorandum and Articles of Association +Our amended and restated memorandum and articles of association contains provisions designed to provide certain rights and protections relating to our Initial Public Offering that will apply to us until the completion of our initial business combination. These provisions cannot be amended without a special resolution under Cayman Islands law. As a matter of Cayman Islands law, a resolution is deemed to be a special resolution where it has been approved by either (i) the affirmative vote of at least two-thirds (or any higher threshold specified in a company’s articles of association) of a company’s shareholders entitled to vote and so voting at a general meeting for which notice specifying the intention to propose the resolution as a special resolution has been given; or (ii) if so authorized by a company’s articles of association, by a unanimous written resolution of all of the company’s shareholders entitled to vote at a general meeting. Other than as described in our final prospectus filed with the SEC on December 23, 2025, our amended and restated memorandum and articles of association provide that special resolutions must be approved either by at least two-thirds of our shareholders who attend and vote at a general meeting of the company ( i.e. , the lowest threshold permissible under Cayman Islands law), or by a unanimous written resolution of all of our shareholders entitled to vote at a general meeting. +Competition +In identifying, evaluating and selecting a target business for our initial business combination, we may encounter intense competition from other entities having a business objective similar to ours, including other blank check companies, private equity groups and leveraged buyout funds, public companies and operating businesses seeking strategic acquisitions. Many of these entities are well established and have extensive experience identifying and effecting business combinations directly or through affiliates. Moreover, many of these competitors possess greater financial, technical, human, and other resources than us. Our ability to acquire larger target businesses will be limited by our available financial resources. This inherent limitation gives others an advantage in pursuing the acquisition of a target business. Furthermore, our obligation to pay cash in connection with our public shareholders who exercise their redemption rights may reduce the resources available to us for our initial business combination and our outstanding warrants, and the future dilution they potentially represent, may not be viewed favorably by certain target businesses. Either of these factors may place us at a competitive disadvantage in successfully negotiating an initial business combination. +Facilities +We currently maintain our executive offices at 12600 Hill Country Blvd, Building R, Suite 275, Bee Cave, TX 78738. The cost for our use of this space is included in the $10,000 per month fee we pay to the Sponsor for office space, administrative and support services pursuant to that certain administrative services agreement, dated January 12, 2023, by and between us and the Sponsor (the “Administrative Services Agreement”). We consider our current office space adequate for our current operations. +Employees +We currently have three executive officers. Members of our management team are not obligated to devote any specific number of hours to our matters but they intend to devote as much of their time as they deem necessary to our affairs until we have completed our initial business combination. The amount of time they will devote in any time period will vary based on whether a target business has been selected for our initial business combination and the stage of the business combination process we are in. We do not intend to have any full-time employees prior to the consummation of a business combination. +29 +Table of Contents +Periodic Reporting and Financial Information +Our units, Class A ordinary shares and warrants are registered under the Exchange Act and have reporting obligations, including the requirement that we file annual, quarterly and current reports with the SEC. In accordance with the requirements of the Exchange Act, our annual reports will contain financial statements audited and reported on by our independent registered public accountants. +We will provide shareholders with audited financial statements of the prospective target business as part of the proxy solicitation or tender offer materials, as applicable, sent to shareholders. These financial statements may be required to be prepared in accordance with, or reconciled to, GAAP, or IFRS, depending on the circumstances, and the historical financial statements may be required to be audited in accordance with the standards of the U.S. Public Company Accounting Oversight Board (“PCAOB”). These financial statement requirements may limit the pool of potential target businesses we may acquire because some targets may be unable to provide such statements in time for us to disclose such statements in accordance with federal proxy rules and complete our initial business combination within the prescribed timeframe. We cannot assure you that any particular target business identified by us as a potential acquisition candidate will have financial statements prepared in accordance with the requirements outlined above, or that the potential target business will be able to prepare its financial statements in accordance with the requirements outlined above. To the extent that these requirements cannot be met, we may not be able to acquire the proposed target business. While this may limit the pool of potential acquisition candidates, we do not believe that this limitation will be material. +We will be required to evaluate our internal control procedures for the fiscal year ending December 31, 2024 as required by the Sarbanes-Oxley Act. Only in the event we are deemed to be a large accelerated filer or an accelerated filer and no longer qualify as an emerging growth company will we be required to comply with the independent registered public accounting firm attestation requirement on our internal control over financial reporting. A target business may not be in compliance with the provisions of the Sarbanes-Oxley Act regarding the adequacy of their internal controls. +The development of the internal controls of any such entity to achieve compliance with the Sarbanes-Oxley Act may increase the time and costs necessary to complete any such acquisition. +We filed a registration statement on Form 8-A with the SEC to voluntarily register our securities under Section 12 of the Exchange Act. As a result, we are subject to the rules and regulations promulgated under the Exchange Act. We have no current intention of filing a Form 15 to suspend our reporting or other obligations under the Exchange Act prior or subsequent to the consummation of our initial business combination. +We are a Cayman Islands exempted company. Exempted companies are Cayman Islands companies conducting business mainly outside the Cayman Islands and, as such, are exempted from complying with certain provisions of the Companies Act. As an exempted company, we have applied for and received, a tax exemption undertaking from the Cayman Islands government that, in accordance with Section 6 of the Tax Concessions Act (2018 Revision) of the Cayman Islands, for a period of 20 years from the date of the undertaking, no law which is enacted in the Cayman Islands imposing any tax to be levied on profits, income, gains or appreciations will apply to us or our operations and, in addition, that no tax to be levied on profits, income, gains or appreciations or which is in the nature of estate duty or inheritance tax will be payable (i) on or in respect of our shares, debentures or other obligations or (ii) by way of the withholding in whole or in part of a payment of dividend or other distribution of income or capital by us to our shareholders or a payment of principal or interest or other sums due under a debenture or other obligation of us. +We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As such, we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies,” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and shareholder approval of any golden parachute payments not +30 +Table of Contents +previously approved. If some investors find our securities less attractive as a result, there may be a less active trading market for our securities and the prices of our securities may be more volatile. +In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We intend to take advantage of the benefits of this extended transition period. +We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of the Initial Public Offering, (b) in which we have total annual gross revenue of at least $1.235 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our Class A ordinary shares that are held by non-affiliates exceeds $700 million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period. +Additionally, we are a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We will remain a smaller reporting company until the last day of the fiscal year in which (1) the market value of our ordinary shares held by non-affiliates exceeds $250 million as of the prior June 30, or (2) our annual revenues exceeded $100 million during such completed fiscal year and the market value of our ordinary shares held by non-affiliates exceeds $700 million as of the prior June 30. +Legal Proceedings +There is no material litigation, arbitration or governmental proceeding currently pending against us or any members of our management team in their capacity as such. +​ +31 +Table of Contents +ITEM 1A. RISK FACTORS +RISK FACTORS +An investment in our securities involves a high degree of risk. You should consider carefully all of the risks described below, together with the other information contained in this Annual Report on Form 10-K, before making a decision to invest in our units. If any of the following events occur, our business, financial condition and operating results may be materially adversely affected. In that event, the trading price of our securities could decline, and you could lose all or part of your investment. +Summary Risk Factors +The following is a summary of the more significant risks facing our Company: +Risks Relating to our Search for, Consummation of, or Inability to Consummate, a Business Combination and Post-Business Combination Risks +● We are a recently incorporated company with no operating history and no revenues, and you have no basis on which to evaluate our ability to achieve our business objective. +● Management has determined there is substantial doubt as to our ability to continue as a going concern. +● Our public shareholders may not be afforded an opportunity to vote on our proposed initial business combination, which means we may complete our initial business combination even though a majority of our shareholders do not support such a combination. +● Our public shareholders may not be afforded an opportunity to vote on the option to extend the period of time to consummate our initial business combination. +● Your only opportunity to affect the investment decision regarding a potential business combination may be limited to the exercise of your right to redeem your shares from us for cash. +● If we seek shareholder approval of our initial business combination, the Sponsor and members of our management team have agreed to vote in favor of such initial business combination, regardless of how our public shareholders vote. +● The ability of our public shareholders to exercise redemption rights with respect to a large number of our shares could increase the probability that our initial business combination would be unsuccessful and that you would have to wait for liquidation in order to redeem your shares. +● Conditions in Israel may materially and adversely affect the business of our potential acquisition targets and our search for a business combination. +● We may not be able to consummate an initial business combination by April 18, 2025, in which case (unless such date is extended up to 24 months from the date of the IPO to January 18, 2026) we would cease all operations except for the purpose of winding up and we would redeem our public shares and liquidate. +● Nasdaq may delist our securities from trading on its exchange, which could limit investors’ ability to make transactions in our securities and subject us to additional trading restrictions. +​ +32 +Table of Contents +Risks Relating to our Securities +● The securities in which we invest the funds held in the Trust Account could bear a negative rate of interest, which could reduce the value of the assets held in trust such that the per-share redemption amount received by public shareholders may be less than $10.20 per share. +● If we are deemed to be an investment company under the Investment Company Act, we may be required to institute burdensome compliance requirements and our activities may be restricted, which may make it difficult for us to complete our initial business combination. +● The nominal purchase price paid by the Sponsor for the founder shares may result in significant dilution to the implied value of your public shares upon the consummation of our initial business combination. +● The value of the founder shares following completion of our initial business combination is likely to be substantially higher than the nominal price paid for them, even if the trading price of our ordinary shares at such time is substantially less than $10.00 per share. +● Unlike some other similarly structured blank check companies, the Sponsor will receive additional Class A ordinary shares if we issue shares to consummate an initial business combination. +● We may amend the terms of the warrants in a manner that may be adverse to holders of public warrants with the approval by the holders of at least 50% of the then-outstanding public warrants. As a result, the exercise price of your warrants could be increased, the exercise period could be shortened and the number of our Class A ordinary shares purchasable upon exercise of a warrant could be decreased, all without your approval. +Risks Relating to the Sponsor and Management Team +● Past performance by our management team or their respective affiliates may not be indicative of future performance of an investment in us. +● Our ability to successfully effect our initial business combination and to be successful thereafter will be totally dependent upon the efforts of our key personnel, some of whom may join us following our initial business combination. The loss of key personnel could negatively impact the operations and profitability of our post-combination business. +● The officers and directors of an acquisition candidate may resign upon the completion of our initial business combination. The loss of a business combination target’s key personnel could negatively impact the operations and profitability of our post-combination business. +● Our officers and directors presently have, and any of them in the future may have additional, fiduciary or contractual obligations to other entities, including another blank check company, and, accordingly, may have conflicts of interest in determining to which entity a particular business opportunity should be presented. +● Our executive officers, directors, security holders and their respective affiliates may have competitive pecuniary interests that conflict with our interests. +● Our management may not be able to maintain control of a target business after our initial business combination. Upon the loss of control of a target business, new management may not possess the skills, qualifications or abilities necessary to profitably operate such business. +33 +Table of Contents +Risks Associated with Acquiring and Operating a Business in Foreign Countries +● Our strategy is focused on pursuing an acquisition of Israeli technology companies. If we pursue a target company with operations or opportunities outside of the United States, including in Israel, for our initial business combination, we may face additional burdens in connection with investigating, agreeing to and completing such initial business combination, and if we effect such initial business combination, we would be subject to a variety of additional risks that may negatively impact our operations. +● After our initial business combination, substantially all of our assets may be located in a foreign country and substantially all of our revenue may be derived from our operations in any such country. Accordingly, our results of operations and prospects will be subject, to a significant extent, to the economic, political and social conditions and government policies, developments and conditions in the country in which we operate. +● We may face risks related to companies in the Israeli technology industry. +● If our management following our initial business combination is unfamiliar with United States securities laws, they may have to expend time and resources becoming familiar with such laws, which could lead to various regulatory issues. +● Exchange rate fluctuations and currency policies may diminish a target business’ ability to succeed in the international markets. +● Changes in laws or regulations, or a failure to comply with any laws and regulations, may adversely affect our business, including our ability to negotiate and complete our initial business combination, and results of operations. +Risks Relating to our Search for, Consummation of, or Inability to Consummate, a Business Combination and Post-Business Combination Risks +We are a recently incorporated company with no operating history and no revenues, and you have no basis on which to evaluate our ability to achieve our business objective. +We are a recently formed blank check company, incorporated under the laws of the Cayman Islands as an exempted limited company with no operating results, and we will not commence operations until obtaining funding through the Initial Public Offering. Because we lack an operating history, you have no basis upon which to evaluate our ability to achieve our business objective of completing our initial business combination with one or more target businesses. We have no plans, arrangements or understandings with any prospective target business concerning a business combination and may be unable to complete our initial business combination. If we fail to complete our initial business combination, we will never generate any operating revenues. +Management has determined there is substantial doubt as to our ability to continue as a going concern. +As of December 31, 2024, we had $21,257 in operating cash and a working capital deficit of $1,448,187. Further, we have incurred and expect to continue to incur significant costs in pursuit of an initial business combination. Management’s plans to address this need for capital are discussed in the section of this Annual Report on Form 10-K titled “ Management’s Discussion and Analysis of Financial Condition and Results of Operations .” We cannot assure you that our plans to raise capital or to consummate an initial business combination will be successful. These factors, among others, raise substantial doubt about our ability to continue as a going concern. The financial statements contained elsewhere in this Annual Report on Form 10-K do not include any adjustments that might result from our inability to continue as a going concern. +Our public shareholders may not be afforded an opportunity to vote on our proposed initial business combination, which means we may complete our initial business combination even though a majority of our shareholders do not support such a combination. +We may choose not to hold a shareholder vote before we complete our initial business combination if the business combination would not require shareholder approval under applicable law or stock exchange listing requirement. For instance, if we were seeking to acquire a target business where the consideration we were paying in the transaction was all cash, we would typically not be required to seek shareholder approval to complete such a transaction. Except for as required by applicable law or stock exchange listing requirement, +34 +Table of Contents +the decision as to whether we will seek shareholder approval of a proposed business combination or will allow shareholders to sell their shares to us in a tender offer will be made by us, solely in our discretion, and will be based on a variety of factors, such as the timing of the transaction and whether the terms of the transaction would otherwise require us to seek shareholder approval. Accordingly, we may complete our initial business combination even if holders of a majority of our issued and outstanding ordinary shares do not approve of the business combination we complete. +Please see the section entitled “ Business — Initial Business Combination ” for additional information. +Our public shareholders may not be afforded an opportunity to vote on the option to extend the period of time to consummate our initial business combination. +If we anticipate that we may not be able to consummate our initial business combination by April 18, 2025, we may, but are not obligated to, extend the period of time to consummate a business combination up to a total of twelve (12) times by an additional month each time (each such month a “Funded Extension Period”); so long as we provide five days’ advance notice to the Trustee prior to the applicable Extension and depositing into the Trust Account the lesser of (i) $35,000 or (ii) $0.035 per public share, multiplied by the number of public shares that remain outstanding by the end of the then-current extended period, by the date of such Extension pursuant to the terms of our amended and restated memorandum and articles of association and the Trust Agreement, as amended. Our public shareholders will not be entitled to vote or redeem their shares in connection with any such extension. As a result, we may effect such an extension even if a majority of our public shareholders do not support such an extension and none of our public shareholders will be able to redeem their shares in connection with such an extension. This feature is different than the traditional SPAC structure, in which any extension of the company’s period to complete a business combination would require a vote of the company’s shareholders, with such shareholders having the right to redeem their public shares in connection with such vote. We may also choose to pursue an extension of the time to complete our business combination without depositing additional funds into the Trust Account, which, consistent with a traditional SPAC structure, would require a vote of the company’s shareholders and in connection with which shareholders would have the right to redeem their public shares. +Your only opportunity to affect the investment decision regarding a potential business combination may be limited to the exercise of your right to redeem your shares from us for cash. +You will not be provided with an opportunity to evaluate the specific merits or risks of any target businesses. Since our board of directors may complete a business combination without seeking shareholder approval, public shareholders may not have the right or opportunity to vote on the business combination, unless we seek such shareholder approval. Accordingly, your only opportunity to affect the investment decision regarding a potential business combination may be limited to exercising your redemption rights within the period of time (which will be at least 20 business days) set forth in our tender offer documents mailed to our public shareholders in which we describe our initial business combination. +If we seek shareholder approval of our initial business combination, the Sponsor and members of our management team have agreed to vote in favor of such initial business combination, regardless of how our public shareholders vote. +The Sponsor owns, on an as-converted basis, 25% of our outstanding ordinary shares (excluding the private placement shares). In addition, the Sponsor owns 637,500 private placement shares. The Sponsor and members of our management team also may from time-to-time purchase Class A ordinary shares prior to our initial business combination. Our amended and restated memorandum and articles of association will provide that, if we seek shareholder approval, we will complete our initial business combination only if we obtain the approval of an ordinary resolution under Cayman Islands law, which requires either the affirmative vote of a majority of the shareholders who attend and vote at a general meeting of the company or, if no meeting is held, the unanimous written approval of all the shareholders who have the right to attend and vote at a general meeting of the company. In such case, the Sponsor and each member of our management team have agreed to vote their founder shares, private placement shares and public shares in favor of our initial business combination. As a result, in addition to the Sponsor’s founder shares and private placement shares, we would need 4,535,417 shares, or approximately 31.6% (assuming all issued and outstanding shares, excluding the private placement shares of the underwriters, are voted), or no additional shares (assuming only the minimum number of shares representing a quorum are voted), of the 14,375,000 public shares sold in the Initial Public Offering to be voted in favor of an initial business combination in order to have our initial business combination approved. Accordingly, if we seek shareholder approval of our initial business combination, the agreement by the Sponsor and each member of our management team to vote in favor of our initial business combination will increase the likelihood that we will receive the requisite shareholder approval for such initial business combination. +35 +Table of Contents +The ability of our public shareholders to redeem their shares for cash may make our financial condition unattractive to potential business combination targets, which may make it difficult for us to enter into a business combination with a target. +We may seek to enter into a business combination transaction agreement with a prospective target that requires as a closing condition that we have a minimum net worth or a certain amount of cash. If too many public shareholders exercise their redemption rights, we would not be able to meet such closing condition and, as a result, would not be able to proceed with the business combination. Furthermore, in no event will we redeem our public shares in an amount that would cause our net tangible assets to be less than $5,000,001 (so that we do not then become subject to the SEC’s “penny stock” rules). Consequently, if accepting all properly submitted redemption requests would cause our net tangible assets to be less than $5,000,001 or such greater amount necessary to satisfy a closing condition as described above, we would not proceed with such redemption and the related business combination and may instead search for an alternate business combination. Prospective targets will be aware of these risks and, thus, may be reluctant to enter into a business combination transaction with us. +The ability of our public shareholders to exercise redemption rights with respect to a large number of our shares may not allow us to complete the most desirable business combination or optimize our capital structure. +At the time we enter into an agreement for our initial business combination, we will not know how many shareholders may exercise their redemption rights, and therefore will need to structure the transaction based on our expectations as to the number of shares that will be submitted for redemption. If a large number of shares are submitted for redemption, we may need to restructure the transaction to reserve a greater portion of the cash in the Trust Account or arrange for additional third-party financing. Raising additional third-party financing may involve dilutive equity issuances or the incurrence of indebtedness at higher than desirable levels. The above considerations may limit our ability to complete the most desirable business combination available to us or optimize our capital structure. The amount of the deferred underwriting commissions payable to the underwriters will not be adjusted for any shares that are redeemed in connection with an initial business combination. The per-share amount we will distribute to shareholders who properly exercise their redemption rights will not be reduced by the deferred underwriting commission and, after such redemptions, the amount held in trust will continue to reflect our obligation to pay the entire deferred underwriting commissions. +The ability of our public shareholders to exercise redemption rights with respect to a large number of our shares could increase the probability that our initial business combination would be unsuccessful and that you would have to wait for liquidation in order to redeem your shares. +If our initial business combination agreement requires us to use a portion of the cash in the Trust Account to pay the purchase price, or requires us to have a minimum amount of cash at closing, the probability that our initial business combination would be unsuccessful is increased. If our initial business combination is unsuccessful, you would not receive your pro rata portion of the funds in the Trust Account until we liquidate the Trust Account. If you are in need of immediate liquidity, you could attempt to sell your shares in the open market; however, at such time our shares may trade at a discount to the pro rata amount per share in the Trust Account. In either situation, you may suffer a material loss on your investment or lose the benefit of funds expected in connection with our redemption until we liquidate or you are able to sell your shares in the open market. +The requirement that we consummate an initial business combination by April 18, 2025 (or up to January 18, 2026, if we extend the time to complete a business combination as described elsewhere in this Annual Report on Form 10-K) may give potential target businesses leverage over us in negotiating a business combination and may limit the time we have in which to conduct due diligence on potential business combination targets, in particular as we approach our dissolution deadline, which could undermine our ability to complete our initial business combination on terms that would produce value for our shareholders. +Any potential target business with which we enter into negotiations concerning a business combination will be aware that we must consummate an initial business combination by April 18, 2025 (or up to January 18, 2026, if we extend the time to complete a business combination as described elsewhere in this Annual Report on Form 10-K). Consequently, such target business may obtain leverage over us in negotiating a business combination, knowing that if we do not complete our initial business combination with that particular target business then we may be unable to complete our initial business combination with any target business. This risk will increase as we get closer to the timeframe described above. In addition, we may have limited time to conduct due diligence and may enter into our initial business combination on terms that we would have rejected upon a more comprehensive investigation. +36 +Table of Contents +Conditions in Israel may materially and adversely affect the business of our potential acquisition targets and our search for a business combination. +Our potential acquisition targets may have a significant number of employees located in Israel. As a result, political, economic and military conditions in Israel may directly affect the business of our potential acquisition targets. In October 2023, Hamas conducted several terrorist attacks in Israel resulting in ongoing war across the country, forcing the closure of many businesses in Israel for several days. In addition, there continue to be hostilities between Israel and Hezbollah in Lebanon and Hamas in the Gaza Strip, both of which resulted in rockets being fired into Israel, causing casualties and disruption of economic activities. In early 2023, there were a number of changes proposed to the political system in Israel by the current government which, if implemented as planned, could lead to large-scale protests and additional uncertainty, negatively impacting the operating environment in Israel. Uprisings in various countries in the Middle East over the last few years have also affected the political stability of those countries and have led to a decline in the regional security situation. Such instability may also lead to deterioration in the political and trade relationships that exist between Israel and these countries. Any armed conflicts, terrorist activities or political instability involving Israel or other countries in the region could adversely affect the business, results of operations, financial condition, cash flows and prospects of our potential acquisition targets and our search for a business combination. Although the Israeli Government currently covers the reinstatement value of direct damages that are caused by terrorist attacks or acts of war, we cannot ensure our stockholders that this coverage will be maintained or will be adequate in the event we submit a claim. +A number of countries, principally in the Middle East, still restrict doing business with Israel and Israeli companies, and additional countries may impose restrictions on doing business with Israel and Israeli companies if hostilities in Israel or political instability in the region continue or intensify. In addition, there have been increased efforts by activists to cause companies and consumers to boycott Israeli goods based on policies promulgated by the Israeli Government. Such boycotts, particularly if they become more widespread, may adversely impact the business of our potential acquisition targets. +The operations of our potential acquisition targets could also be disrupted by the absence for significant periods of one or more key employees or a significant number of other employees because of military service. Our potential acquisition targets’ employees in Israel may be obligated to perform military reserve duty, which generally accumulates over a period of three years, from several days to up to a maximum of 84 days (and up to 108 days, in special circumstances specified under applicable law). In certain emergency circumstances, employees may be called to immediate and unlimited active duty in the Israeli armed forces. In response to the terrorist attacks in October 2023, our potential acquisition targets’ employees in Israel may have been activated for military duty and additional employees may also be activated if the war in Israel continues. While our potential acquisition targets may have business continuity plans in place to address the military call-ups, any of these circumstances could have a material adverse effect on business, results of operations, financial condition, cash flows and prospects of our potential acquisition targets. +We may not be able to consummate an initial business by April 18, 2025, in which case (unless such date is extended up to 24 months from the date of the IPO to January 18, 2026 if we extend the time to complete an initial business combination as described elsewhere in this Annual Report on Form 10-K) we would cease all operations except for the purpose of winding up and we would redeem our public shares and liquidate. +We may not be able to find a suitable target business and consummate an initial business combination by April 18, 2025 (unless such date is extended up to January 18, 2026 if we extend the time to complete an initial business combination as described elsewhere in this Annual Report on Form 10-K) we would cease all operations except for the purpose of winding up and we would redeem our public shares and liquidate. Our ability to complete our initial business combination may be negatively impacted by general market conditions, volatility in the capital and debt markets and the other risks described herein. Additionally, the invasion of Ukraine by Russia, the increased rate of inflation in the United States and other events (such as terrorist attacks, natural disasters or a significant outbreak of other infectious diseases) may negatively impact businesses we may seek to acquire. If we have not consummated an initial business combination within such applicable time period, we will: (i) cease all operations except for the purpose of winding up; (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem public shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest earned on the funds held in the Trust Account and not previously released to us to pay our taxes, if any (less up to $100,000 of interest to pay dissolution expenses), divided by the number of the then-outstanding public shares, which redemption will completely extinguish public shareholders’ rights as shareholders (including the right to receive further liquidation distributions, if any); and (iii) as promptly as reasonably possible following such redemption, subject to the approval of our remaining shareholders and our board of directors, liquidate and dissolve, subject in each case to our obligations under Cayman Islands law to provide for claims of creditors and the requirements of other applicable law. Our amended and restated memorandum and articles of association will provide that, if we wind up for any other reason prior to the +37 +Table of Contents +consummation of our initial business combination, we will follow the foregoing procedures with respect to the liquidation of the Trust Account as promptly as reasonably possible but not more than ten business days thereafter, subject to applicable Cayman Islands law. In either such case, our public shareholders may receive only $10.20 per public share, or less than $10.20 per public share, on the redemption of their public shares, and our warrants will expire worthless. See “- If third parties bring claims against us, the proceeds held in the Trust Account could be reduced and the per-share redemption amount received by shareholders may be less than $10.20 per public share ” and other risk factors herein. +If we seek shareholder approval of our initial business combination, the Sponsor, initial shareholders, directors, officers, advisors and their affiliates may elect to purchase public shares or warrants, which may influence a vote on a proposed business combination and reduce the public “float” of our Class A ordinary shares or public warrants. +If we seek shareholder approval of our initial business combination and we do not conduct redemptions in connection with our initial business combination pursuant to the tender offer rules, the Sponsor, directors, officers, advisors or their affiliates may purchase public shares or warrants in privately negotiated transactions or in the open market either prior to or following the completion of our initial business combination, although they are under no obligation to do so. However, they have no current commitments, plans or intentions to engage in such transactions and have not formulated any terms or conditions for any such transactions. None of the funds in the Trust Account will be used to purchase public shares or warrants in such transactions. In the event that the Sponsor, directors, executive officers, advisors or their affiliates purchase shares in privately negotiated transactions from public shareholders who have already elected to exercise their redemption rights, such selling shareholders would be required to revoke their prior elections to redeem their shares. The purpose of any such transaction could be to (i) increase the likelihood of closing the business combination, (ii) reduce the number of public warrants outstanding or vote such warrants on any matters submitted to the warrant holders for approval in connection with our initial business combination or (iii) satisfy a closing condition in an agreement with a target that requires us to have a minimum net worth or a certain amount of cash at the closing of our initial business combination, where it appears that such requirement would otherwise not be met. Any such purchases of our securities may result in the completion of our initial business combination that may not otherwise have been possible. In addition, if such purchases are made, the public “float” of our Class A ordinary shares or public warrants may be reduced and the number of beneficial holders of our securities may be reduced, which may make it difficult to maintain or obtain the quotation, listing or trading of our securities on a national securities exchange. Any such purchases will be reported pursuant to Section 13 and Section 16 of the Exchange Act to the extent such purchasers are subject to such reporting requirements. See “ Business-Effecting Our Initial Business Combination-Permitted Purchases and Other Transactions with Respect to Our Securities ” for a description of how our Sponsor, directors, officers, advisors or their affiliates will select which shareholders to purchase securities from in any private transaction. +If a shareholder fails to receive notice of our offer to redeem our public shares in connection with our initial business combination, or fails to comply with the procedures for tendering its shares, such shares may not be redeemed. +We will comply with the proxy rules or tender offer rules, as applicable, when conducting redemptions in connection with our initial business combination. Despite our compliance with these rules, if a shareholder fails to receive our proxy solicitation or tender offer materials, as applicable, such shareholder may not become aware of the opportunity to redeem its shares. In addition, the proxy solicitation or tender offer materials, as applicable, that we will furnish to holders of our public shares in connection with our initial business combination will describe the various procedures that must be complied with in order to validly redeem or tender public shares. In the event that a shareholder fails to comply with these procedures, its shares may not be redeemed. See “ Proposed Business — Effecting Our Initial Business Combination — Tendering Share Certificates in Connection with a Tender Offer or Redemption Rights .” +You will not have any rights or interests in funds from the Trust Account, except under certain limited circumstances. Therefore, to liquidate your investment, you may be forced to sell your public shares or warrants, potentially at a loss. +Our public shareholders will be entitled to receive funds from the Trust Account only upon the earliest to occur of: (i) our completion of an initial business combination, and then only in connection with those Class A ordinary shares that such shareholder properly elected to redeem, subject to the limitations described herein, (ii) the redemption of any public shares properly tendered in connection with a shareholder vote to amend our amended and restated memorandum and articles of association (A) to modify the substance or timing of our obligation to provide holders of our Class A ordinary shares the right to have their shares redeemed in connection with our initial business combination or to redeem 100% of our public shares if we do not complete our initial business combination by April 18, 2025 (or up to January 18, 2026, if we extend the time to complete a business combination as described elsewhere in this Annual Report on Form 10-K) or (B) with respect to any other provision relating to the rights of holders of our Class A ordinary shares, and (iii) the redemption of our public shares if we have not consummated an initial business combination by April 18, 2025 (or up to January 18, +38 +Table of Contents +2026, if we extend the time to complete a business combination as described elsewhere in this Annual Report on Form 10-K), subject to applicable law and as further described herein. Public shareholders who redeem their Class A ordinary shares in connection with a shareholder vote described in clause (ii) in the preceding sentence shall not be entitled to funds from the Trust Account upon the subsequent completion of an initial business combination or liquidation if we have not consummated an initial business combination by April 18, 2025 (or up to January 18, 2026, if we extend the time to complete a business combination as described elsewhere in this Annual Report on Form 10-K), with respect to such Class A ordinary shares so redeemed. In no other circumstances will a public shareholder have any right or interest of any kind in the Trust Account. Holders of warrants also will not have any right to the proceeds held in the Trust Account with respect to the warrants. Accordingly, to liquidate your investment, you may be forced to sell your public shares or warrants, potentially at a loss. +Nasdaq may delist our securities from trading on its exchange, which could limit investors’ ability to make transactions in our securities and subject us to additional trading restrictions. +We were approved to list our units on the Nasdaq beginning on January 13, 2023 and our Class A ordinary shares and warrants on their date of separation, which was February 28, 2023. Although we meet, on a pro forma basis, the minimum initial listing standards set forth in the Nasdaq listing standards, we cannot assure you that our securities will be, or will continue to be, listed on the Nasdaq in the future or prior to our initial business combination. In order to continue listing our securities on the Nasdaq prior to our initial business combination, we must maintain certain financial, distribution and share price levels. Generally, we must maintain a minimum market capitalization (generally $50,000,000) and a minimum number of holders of our securities (generally 400 public holders). +Additionally, our units will not be traded after the completion of our initial business combination and, in connection with our initial business combination, we will be required to demonstrate compliance with the Nasdaq initial listing requirements, which are more rigorous than the Nasdaq continued listing requirements, in order to continue to maintain the listing of our securities on the Nasdaq. +For instance, our share price would generally be required to be at least $4.00 per share and we would be required to have a minimum of 400 round lot holders (with at least 50% of such round lot holding securities with a market value of at last $2,500) of our securities. We cannot assure you that we will be able to meet those listing requirements at that time. +If the Nasdaq delists any of our securities from trading on its exchange and we are not able to list such securities on another national securities exchange, we expect such securities could be quoted on an over-the-counter market. If this were to occur, we could face significant material adverse consequences, including: +● a limited availability of market quotations for our securities; +● reduced liquidity for our securities; +● a determination that our Class A ordinary shares are a “penny stock,” which will require brokers trading in our Class A ordinary shares to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities; +● a limited amount of news and analyst coverage; and +● a decreased ability to issue additional securities or obtain additional financing in the future. +The National Securities Markets Improvement Act of 1996, which is a federal statute, prevents or preempts the states from regulating the sale of certain securities, which are referred to as “covered securities.” Because our units, our Class A ordinary shares, and warrants are listed on the Nasdaq, our units, Class A ordinary shares and warrants qualify as covered securities under the statute. Although the states are preempted from regulating the sale of covered securities, the federal statute does allow the states to investigate companies if there is a suspicion of fraud, and, if there is a finding of fraudulent activity, then the states can regulate or bar the sale of covered securities in a particular case. While we are not aware of a state having used these powers to prohibit or restrict the sale of securities issued by blank check companies, other than the State of Idaho, certain state securities regulators view blank check companies unfavorably and might use these powers, or threaten to use these powers, to hinder the sale of securities of blank check companies in +39 +Table of Contents +their states. Further, if we were no longer listed on the Nasdaq, our securities would not qualify as covered securities under the statute and we would be subject to regulation in each state in which we offer our securities. +You will not be entitled to protections normally afforded to investors of many other blank check companies. +Since the net proceeds of the Initial Public Offering and the sale of the Private Placement Units are intended to be used to complete an initial business combination, we may be deemed to be a “blank check” company under the United States securities laws. However, because we have net tangible assets in excess of $5,000,000, as disclosed in our Current Report on Form 8-K filed with the SEC on January 24, 2023, which included an audited balance sheet demonstrating that fact, we are exempt from rules promulgated by the SEC to protect investors in blank check companies, such as Rule 419. Accordingly, you will not be afforded the benefits or protections of those rules. Among other things, this means our units were immediately tradable and we have a longer period to complete an initial business combination, than do companies subject to Rule 419. Moreover, if we were subject to Rule 419, that rule would prohibit the release of any interest earned on funds held in the Trust Account to us unless and until the funds in the Trust Account were released to us in connection with our completion of an initial business combination. +If we seek shareholder approval of our initial business combination and we do not conduct redemptions pursuant to the tender offer rules, and if you or a “group” of shareholders are deemed to hold in excess of 15% of our Class A ordinary shares, you will lose the ability to redeem all such shares in excess of 15% of our Class A ordinary shares. +If we seek shareholder approval of our initial business combination and we do not conduct redemptions in connection with our initial business combination pursuant to the tender offer rules, then, pursuant to our amended and restated memorandum and articles of association, a public shareholder, together with any affiliate of such shareholder or any other person with whom such shareholder is acting in concert or as a “group” (as defined under Section 13 of the Exchange Act), will be restricted from redeeming its shares with respect to more than an aggregate of 15% of the shares sold in the Initial Public Offering, which we refer to as the “Excess Shares,” without our prior consent. However, we would not be restricting our shareholders’ to vote all of their shares (including Excess Shares) for or against our initial business combination. Your inability to redeem the Excess Shares will reduce your influence over our ability to complete our initial business combination and you could suffer a material loss on your investment in us if you sell Excess Shares in open market transactions. Additionally, you will not receive redemption distributions with respect to the Excess Shares if we complete our initial business combination. And as a result, you will continue to hold that number of shares exceeding 15% and, in order to dispose of such shares, would be required to sell your shares in open market transactions, potentially at a loss. +Because of our limited resources and the significant competition for business combination opportunities, it may be more difficult for us to complete our initial business combination. If we have not consummated our initial business combination within the required time period, our public shareholders may receive only approximately $10.20 per public share, or less in certain circumstances, on the liquidation of our Trust Account and our warrants will expire worthless. +We expect to encounter intense competition from other entities having a business objective similar to ours, including private investors (which may be individuals or investment partnerships), other blank check companies and other entities, domestic and international, competing for the types of businesses we intend to acquire. Many of these individuals and entities are well established and have extensive experience in identifying and effecting, directly or indirectly, acquisitions of companies operating in or providing services to various industries. Many of these competitors possess greater technical, human and other resources or more local industry knowledge than we do and our financial resources will be relatively limited when contrasted with those of many of these competitors. While we believe there are numerous target businesses we could potentially acquire with the net proceeds of the Initial Public Offering and the sale of the Private Placement Units, our ability to compete with respect to the acquisition of certain target businesses that are sizable will be limited by our available financial resources. This inherent competitive limitation gives others an advantage in pursuing the acquisition of certain target businesses. Furthermore, we are obligated to offer holders of our public shares the right to redeem their shares for cash at the time of our initial business combination in conjunction with a shareholder vote or via a tender offer. Target companies will be aware that this may reduce the resources available to us for our initial business combination. Any of these obligations may place us at a competitive disadvantage in successfully negotiating a business combination. If we have not consummated our initial business combination within the required time period, our public shareholders may receive only approximately $10.20 per public share, or less in certain circumstances, on the liquidation of our Trust Account and our warrants will expire worthless. See “- If third parties bring claims against us, the proceeds held in the Trust Account could be reduced and the per-share redemption amount received by shareholders may be less than $10.20 per public share ” and other risk factors herein. +40 +Table of Contents +As the number of SPACs evaluating targets increases, attractive targets may become scarcer and there may be more competition for attractive targets. This could increase the cost of our initial business combination and could even result in our inability to find a target or to consummate an initial business combination. +In recent years, the number of SPACs that have been formed has increased substantially. Many potential targets for SPACs have already entered into an initial business combination, and there are still many SPACs seeking targets preparing for their initial business combination public offering, as well as many such companies currently in registration with the SEC. As a result, at times, fewer attractive targets may be available, and it may require more time, more effort and more resources to identify a suitable target and to consummate an initial business combination. +In addition, because there are more SPACs seeking to enter into an initial business combination with available targets, the competition for available targets with attractive fundamentals or business models may increase, which could cause targets companies to demand improved financial terms. Attractive deals could also become scarcer for other reasons, such as economic or industry sector downturns, geopolitical tensions, or increases in the cost of additional capital needed to close business combinations or operate targets post-business combination. This could increase the cost of, delay or otherwise complicate or frustrate our ability to find and consummate an initial business combination, and may result in our inability to consummate an initial business combination on terms favorable to our investors altogether. +If the net proceeds of the Initial Public Offering and the sale of the Private Placement Units not being held in the Trust Account are insufficient to allow us to operate until April 18, 2025 (or up to January 18, 2026, if we extend the time to complete a business combination), it could limit the amount available to fund our search for a target business or businesses and our ability to complete our initial business combination, and we will depend on loans from the Sponsor, its affiliates or members of our management team to fund our search and to complete our initial business combination. +Of the net proceeds of the Initial Public Offering and the sale of the Private Placement Units, only approximately $1,450,000 was available to us initially outside the Trust Account to fund our working capital requirements and as of December 31, 2024, we had $21,257 remaining available to us outside of the Trust Account. We believe that the funds available to us outside of the Trust Account, together with funds available from loans from the Sponsor, its affiliates or members of our management team, will be sufficient to allow us to operate until April 18, 2025 (or up to January 18, 2026, if we extend the time to complete a business combination); however, we cannot assure you that our estimate is accurate, and the Sponsor, its affiliates or members of our management team are under no obligation to advance funds to us in such circumstances. Of the funds available to us, we expect to use a portion of the funds available to us to pay fees to consultants to assist us with our search for a target business. We could also use a portion of the funds as a down payment or to fund a “no-shop” provision (a provision in letters of intent designed to keep target businesses from “shopping” around for transactions with other companies or investors on terms more favorable to such target businesses) with respect to a particular proposed business combination, although we do not have any current intention to do so. If we entered into a letter of intent where we paid for the right to receive exclusivity from a target business and were subsequently required to forfeit such funds (whether as a result of our breach or otherwise), we might not have sufficient funds to continue searching for, or conduct due diligence with respect to, a target business. +If we are required to seek additional capital, we would need to borrow funds from the Sponsor or its affiliates, members of our management team or other third parties to operate or may be forced to liquidate. None of the Sponsor, members of our management team or their affiliates is under any obligation to us in such circumstances. Any such advances may be repaid only from funds held outside the Trust Account or from funds released to us upon the completion of our initial business combination. Up to $1,500,000 of such loans may be convertible into private placement-equivalent units of the post-business combination entity at a price of $10.00 per private placement-equivalent unit at the option of the lender. Such units would be identical to the Private Placement Units. Prior to the completion of our initial business combination, we do not expect to seek loans from parties other than the Sponsor, its affiliates or members of our management team as we do not believe third parties will be willing to loan such funds and provide a waiver against any and all rights to seek access to funds in our Trust Account. If we have not consummated our initial business combination within the required time period because we do not have sufficient funds available to us, we will be forced to cease operations and liquidate the Trust Account. Consequently, our public shareholders may only receive an estimated $10.20 per public share, or possibly less, on our redemption of our public shares, and our warrants will expire worthless. See “- If third parties bring claims against us, the proceeds held in the Trust Account could be reduced and the per-share redemption amount received by shareholders may be less than $10.20 per public share ” and other risk factors herein. +41 +Table of Contents +Subsequent to our completion of our initial business combination, we may be required to take write-downs or write-offs, restructure our operations or incur impairment or other charges that could have a significant negative effect on our financial condition, results of operations and the price of our securities, which could cause you to lose some or all of your investment. +Even if we conduct extensive due diligence on a target business with which we combine, we cannot assure you that this diligence will identify all material issues with a particular target business, that it would be possible to uncover all material issues through a customary amount of due diligence, or that factors outside of the target business and outside of our control will not later arise. As a result of these factors, we may be forced to later write down or write off assets, restructure our operations, or incur impairment or other charges that could result in our reporting losses. Even if our due diligence successfully identifies certain risks, unexpected risks may arise and previously known risks may materialize in a manner not consistent with our preliminary risk analysis. Even though these charges may be non-cash items and not have an immediate impact on our liquidity, the fact that we report charges of this nature could contribute to negative market perceptions about us or our securities. In addition, charges of this nature may cause us to violate net worth or other covenants to which we may be subject as a result of assuming pre-existing debt held by a target business or by virtue of our obtaining post-combination debt financing. Accordingly, any holders who choose to retain their securities following the business combination could suffer a reduction in the value of their securities. Such holders are unlikely to have a remedy for such reduction in value. +If third parties bring claims against us, the proceeds held in the Trust Account could be reduced and the per-share redemption amount received by shareholders may be less than $10.20 per public share. +Our placing of funds in the Trust Account may not protect those funds from third-party claims against us. Although we will seek to have all vendors, service providers, prospective target businesses and other entities with which we do business execute agreements with us waiving any right, title, interest or claim of any kind in or to any monies held in the Trust Account for the benefit of our public shareholders, such parties may not execute such agreements, or even if they execute such agreements, they may not be prevented from bringing claims against the Trust Account, including, but not limited to, fraudulent inducement, breach of fiduciary responsibility or other similar claims, as well as claims challenging the enforceability of the waiver, in each case in order to gain advantage with respect to a claim against our assets, including the funds held in the Trust Account. If any third party refuses to execute an agreement waiving such claims to the monies held in the Trust Account, our management will perform an analysis of the alternatives available to it and will only enter into an agreement with a third party that has not executed a waiver if management believes that such third party’s engagement would be significantly more beneficial to us than any alternative. +Examples of possible instances where we may engage a third party that refuses to execute a waiver include the engagement of a third-party consultant whose particular expertise or skills are believed by management to be significantly superior to those of other consultants that would agree to execute a waiver or in cases where management is unable to find a service provider willing to execute a waiver. In addition, there is no guarantee that such entities will agree to waive any claims they may have in the future as a result of, or arising out of, any negotiations, contracts or agreements with us and will not seek recourse against the Trust Account for any reason. Upon redemption of our public shares, if we have not consummated an initial business combination by April 18, 2025 (or up to January 18, 2026, if we extend the time to complete a business combination as described elsewhere in this Annual Report on Form 10-K), or upon the exercise of a redemption right in connection with our initial business combination, we will be required to provide for payment of claims of creditors that were not waived that may be brought against us within the ten years following redemption. Accordingly, the per-share redemption amount received by public shareholders could be less than the $10.20 per public share initially held in the Trust Account, due to claims of such creditors. Pursuant to the Letter Agreement, the form of which is filed as an exhibit to the registration statement, the Sponsor has agreed that it will be liable to us if and to the extent any claims by a third party (other than our independent auditors) for services rendered or products sold to us, or a prospective target business with which we have discussed entering into a transaction agreement, reduce the amounts in the Trust Account to below the lesser of (i) $10.20 per public share and (ii) the actual amount per public share held in the Trust Account as of the date of the liquidation of the Trust Account if less than $10.20 per public share due to reductions in the value of the trust assets, in each case net of the interest that may be withdrawn to pay our tax obligations, provided that such liability will not apply to any claims by a third party or prospective target business that executed a waiver of any and all rights to seek access to the Trust Account nor will it apply to any claims under our indemnity of the underwriters of the Initial Public Offering against certain liabilities, including liabilities under the Securities Act. Moreover, in the event that an executed waiver is deemed to be unenforceable against a third party, the Sponsor will not be responsible to the extent of any liability for such third-party claims. +However, we have not asked the Sponsor to reserve for such indemnification obligations nor have we independently verified whether the Sponsor has sufficient funds to satisfy its indemnity obligations, and we believe that the Sponsor’s only assets are securities +42 +Table of Contents +of our company. Therefore, we cannot assure you that the Sponsor would be able to satisfy those obligations. As a result, if any such claims were successfully made against the Trust Account, the funds available for our initial business combination and redemptions could be reduced to less than $10.20 per public share. In such event, we may not be able to complete our initial business combination, and you would receive such lesser amount per share in connection with any redemption of your public shares. None of our officers or directors will indemnify us for claims by third parties including, without limitation, claims by vendors and prospective target businesses. +Our directors may decide not to enforce the indemnification obligations of the Sponsor, resulting in a reduction in the amount of funds in the Trust Account available for distribution to our public shareholders. +In the event that the proceeds in the Trust Account are reduced below the lesser of (i) $10.20 per public share and (ii) the actual amount per public share held in the Trust Account as of the date of the liquidation of the Trust Account if less than $10.20 per public share due to reductions in the value of the trust assets, in each case net of the interest that may be withdrawn to pay our tax obligations, and the Sponsor asserts that it is unable to satisfy its obligations or that it has no indemnification obligations related to a particular claim, our independent directors would determine whether to take legal action against the Sponsor to enforce its indemnification obligations. While we currently expect that our independent directors would take legal action on our behalf against the Sponsor to enforce its indemnification obligations to us, it is possible that our independent directors in exercising their business judgment and subject to their fiduciary duties may choose not to do so in any particular instance. If our independent directors choose not to enforce these indemnification obligations, the amount of funds in the Trust Account available for distribution to our public shareholders may be reduced below $10.20 per public share. +We may not have sufficient funds to satisfy indemnification claims of our directors and executive officers. +We have agreed to indemnify our officers and directors to the fullest extent permitted by law. However, our officers and directors have agreed to waive any right, title, interest or claim of any kind in or to any monies in the Trust Account and to not seek recourse against the Trust Account for any reason whatsoever (except to the extent they are entitled to funds from the Trust Account due to their ownership of public shares). Accordingly, any indemnification provided will be able to be satisfied by us only if (i) we have sufficient funds outside of the Trust Account or (ii) we consummate an initial business combination. Our obligation to indemnify our officers and directors may discourage shareholders from bringing a lawsuit against our officers or directors for breach of their fiduciary duty. These provisions also may have the effect of reducing the likelihood of derivative litigation against our officers and directors, even though such an action, if successful, might otherwise benefit us and our shareholders. Furthermore, a shareholder’s investment may be adversely affected to the extent we pay the costs of settlement and damage awards against our officers and directors pursuant to these indemnification provisions. Although we have purchased a directors’ and officers’ liability insurance policy, such policy may be insufficient to cover our indemnification obligations. Any such insufficiency could (i) deplete the Trust Account and affect our ability to consummate an initial business combination or (ii) negatively impact our profits and operations following an initial business combination. +Changes in the market for directors and officers liability insurance could make it more difficult and more expensive for us to negotiate and complete an initial business combination. +Recently, the market for directors and officers liability insurance for SPACs has changed in ways adverse to us and our management team. Fewer insurance companies are offering quotes for directors and officers liability coverage, the premiums charged for such policies have generally increased and the terms of such policies have generally become less favorable. These trends may continue into the future. +The increased cost and decreased availability of directors’ and officers’ liability insurance could make it more difficult and more expensive for us to negotiate an initial business combination. In order to obtain directors’ and officers’ liability insurance or modify its coverage as a result of becoming a public company, the post-business combination entity might need to incur greater expense, accept less favorable terms or both. However, any failure to obtain adequate directors’ and officers’ liability insurance could have an adverse impact on the post-business combination’s ability to attract and retain qualified officers and directors. +In addition, even after we were to complete an initial business combination, our directors and officers could still be subject to potential liability from claims arising from conduct alleged to have occurred prior our initial business combination. As a result, in order to protect our directors and officers, the post-business combination entity may need to purchase additional insurance with respect to any such claims (“run-off insurance”). The need for run-off insurance would be an added expense for the post-business combination entity, and could interfere with or frustrate our ability to consummate an initial business combination on terms favorable to our investors. +43 +Table of Contents +If, after we distribute the proceeds in the Trust Account to our public shareholders, we file a bankruptcy or winding-up petition or an involuntary bankruptcy or winding-up petition is filed against us that is not dismissed, a bankruptcy or insolvency court may seek to recover such proceeds, and the members of our board of directors may be viewed as having breached their fiduciary duties to our creditors, thereby exposing the members of our board of directors and us to claims of punitive damages. +If, after we distribute the proceeds in the Trust Account to our public shareholders, we file a bankruptcy or winding-up petition or an involuntary bankruptcy or winding-up petition is filed against us that is not dismissed, any distributions received by shareholders could be viewed under applicable debtor/creditor and/or bankruptcy or insolvency laws as either a “preferential transfer” or a “fraudulent conveyance.” As a result, a bankruptcy or insolvency court could seek to recover some or all amounts received by our shareholders. In addition, our board of directors may be viewed as having breached its fiduciary duty to our creditors and/or having acted in bad faith, thereby exposing itself and us to claims of punitive damages, by paying public shareholders from the Trust Account prior to addressing the claims of creditors. +If, before distributing the proceeds in the Trust Account to our public shareholders, we file a bankruptcy or winding-up petition or an involuntary bankruptcy or winding-up petition is filed against us that is not dismissed, the claims of creditors in such proceeding may have priority over the claims of our shareholders and the per-share amount that would otherwise be received by our shareholders in connection with our liquidation may be reduced. +If, before distributing the proceeds in the Trust Account to our public shareholders, we file a bankruptcy or winding-up petition or an involuntary bankruptcy or winding-up petition is filed against us that is not dismissed, the proceeds held in the Trust Account could be subject to applicable bankruptcy or insolvency law and may be included in our bankruptcy estate and subject to the claims of third parties with priority over the claims of our shareholders. To the extent any bankruptcy claims deplete the Trust Account, the per-share amount that would otherwise be received by our shareholders in connection with our liquidation may be reduced. +Our shareholders may be held liable for claims by third parties against us to the extent of distributions received by them upon redemption of their shares. +If we are forced to enter into an insolvent liquidation, any distributions received by shareholders could be viewed as an unlawful payment if it was proved that immediately following the date on which the distribution was made, we were unable to pay our debts as they fall due in the ordinary course of business. As a result, a liquidator could seek to recover some or all amounts received by our shareholders. Furthermore, our directors may be viewed as having breached their fiduciary duties to us or our creditors and/or may have acted in bad faith, thereby exposing themselves and our company to claims, by paying public shareholders from the Trust Account prior to addressing the claims of creditors. We cannot assure you that claims will not be brought against us for these reasons. We and our officers and directors who knowingly and willfully authorized or permitted any distribution to be paid out of our share premium account while we were unable to pay our debts as they fall due in the ordinary course of business would be guilty of an offence and may be liable for a fine of $18,292.68 and imprisonment for five years in the Cayman Islands. +We may not hold an annual general meeting until after the consummation of our initial business combination. +In accordance with the Nasdaq corporate governance requirements, we are not required to hold an annual general meeting until one year after our first fiscal year end following our listing on the Nasdaq. There is no requirement under the Companies Act for us to hold annual or extraordinary general meetings to appoint directors. Until we hold an annual general meeting, public shareholders may not be afforded the opportunity to appoint directors and to discuss company affairs with management. Our board of directors is divided into three classes with only one class of directors being appointed in each year and each class (except for those directors appointed prior to our first annual general meeting) serving a three-year term. In addition, as holders of our Class A ordinary shares, our public shareholders will not have the right to vote on the election of directors until after the consummation of our initial business combination. In addition, prior to our initial business combination, holders of a majority of our founder shares may remove a member of the board of directors for any reason. Accordingly, you may not have any say in the management of our company prior to the consummation of an initial business combination. +44 +Table of Contents +Because we are neither limited to evaluating a target business in a particular industry sector or geographical region nor have we selected any specific target businesses with which to pursue our initial business combination, you will be unable to ascertain the merits or risks of any particular target business’s operations. +We may pursue business combination opportunities in any sector or geographical region, except that we will not, under our amended and restated memorandum and articles of association, be permitted to effectuate our initial business combination solely with another blank check company or similar company with nominal operations. Because we have not yet identified or approached any specific target business with respect to a business combination, there is no basis to evaluate the possible merits or risks of any particular target business’s operations, results of operations, cash flows, liquidity, financial condition or prospects. To the extent we complete our initial business combination, we may be affected by numerous risks inherent in the business operations with which we combine. For example, if we combine with a financially unstable business or an entity lacking an established record of sales or earnings, we may be affected by the risks inherent in the business and operations of a financially unstable or a development stage entity. Although our officers and directors will endeavor to evaluate the risks inherent in a particular target business, we cannot assure you that we will properly ascertain or assess all of the significant risk factors or that we will have adequate time to complete due diligence. Furthermore, some of these risks may be outside of our control and leave us with no ability to control or reduce the chances that those risks will adversely impact a target business. We also cannot assure you that an investment in our units will ultimately prove to be more favorable to investors than a direct investment, if such opportunity were available, in a business combination target. Accordingly, any holders who choose to retain their securities following the business combination could suffer a reduction in the value of their securities. Such holders are unlikely to have a remedy for such reduction in value. +We may seek acquisition opportunities in industries or sectors which may or may not be outside of our management’s area of expertise. +We will consider a business combination outside of our management’s area of expertise if a business combination target is presented to us and we determine that such candidate offers an attractive acquisition opportunity for our company. Although our management will endeavor to evaluate the risks inherent in any particular business combination target, we cannot assure you that we will adequately ascertain or assess all of the significant risk factors. We also cannot assure you that an investment in our units will not ultimately prove to be less favorable than a direct investment, if an opportunity were available, in a business combination target. In the event we elect to pursue an acquisition outside of the areas of our management’s expertise, our management’s expertise may not be directly applicable to its evaluation or operation, and the information contained in this Annual Report on Form 10-K regarding the areas of our management’s expertise would not be relevant to an understanding of the business that we elect to acquire. As a result, our management may not be able to adequately ascertain or assess all of the significant risk factors. Accordingly, any holders who choose to retain their securities following the business combination could suffer a reduction in the value of their securities. Such holders are unlikely to have a remedy for such reduction in value. +Although we have identified general criteria and guidelines that we believe are important in evaluating prospective target businesses, we may enter into our initial business combination with a target that does not meet such criteria and guidelines, and as a result, the target business with which we enter into our initial business combination may not have attributes entirely consistent with our general criteria and guidelines. +Although we have identified general criteria and guidelines for evaluating prospective target businesses, it is possible that a target business with which we enter into our initial business combination will not have all of these positive attributes. If we complete our initial business combination with a target that does not meet some or all of these guidelines, such combination may not be as successful as a combination with a business that does meet all of our general criteria and guidelines. In addition, if we announce a prospective business combination with a target that does not meet our general criteria and guidelines, a greater number of shareholders may exercise their redemption rights, which may make it difficult for us to meet any closing condition with a target business that requires us to have a minimum net worth or a certain amount of cash. In addition, if shareholder approval of the transaction is required by applicable law or stock exchange listing requirements, or we decide to obtain shareholder approval for business or other reasons, it may be more difficult for us to attain shareholder approval of our initial business combination if the target business does not meet our general criteria and guidelines. If we have not consummated our initial business combination within the required time period, our public shareholders may receive only approximately $10.20 per public share, or less in certain circumstances, on the liquidation of our Trust Account and our warrants will expire worthless. +45 +Table of Contents +We may not be able to complete an initial business combination with a U.S. target company if such initial business combination is subject to U.S. foreign investment regulations and review by a U.S. government entity such as the Committee on Foreign Investment in the United States (“CFIUS”), or is ultimately prohibited. +We and the Sponsor have substantial ties with non-U.S. persons. We may therefore be considered a “foreign person” under regulations administered by CFIUS and could continue to be considered as such in the future so long as the Sponsor or other non-U.S. persons have the ability to exercise control over us for purposes of CFIUS’s regulations. While we are primarily targeting business combinations with Israeli technology companies, we are permitted to enter into business combinations with other companies, including U.S. businesses. As such, an initial business combination with a U.S. business is subject to CFIUS review, the scope of which was expanded by the Foreign Investment Risk Review Modernization Act of 2018 (“FIRRMA”), to include certain non-passive, non-controlling investments in sensitive U.S. businesses and certain acquisitions of real estate even with no underlying U.S. business. FIRRMA, and subsequent implementing regulations that are now in force, also subjects certain categories of investments to mandatory filings. If our potential initial business combination with a U.S. business falls within CFIUS’s jurisdiction, we may determine that we are required to make a mandatory filing or that we will submit a voluntary notice to CFIUS, or to proceed with our initial business combination without notifying CFIUS and risk CFIUS intervention, before or after closing our initial business combination. CFIUS may decide to block or delay our initial business combination, impose conditions to mitigate national security concerns with respect to such initial business combination or order us to divest all or a portion of a U.S. business of the combined company without first obtaining CFIUS clearance, which may limit the attractiveness of or prevent us from pursuing certain initial business combination opportunities that we believe would otherwise be beneficial to us and our shareholders. As a result, the pool of potential targets with which we could complete an initial business combination may be limited and we may be adversely affected in terms of competing with other special purpose acquisition companies which do not have similar foreign ownership issues. +Moreover, the process of government review, whether by the CFIUS or otherwise, could be lengthy and we have limited time to complete our initial business combination. If we cannot complete our initial business combination by April 18, 2025 (or up to January 18, 2026, if we extend the period of time to consummate our initial business combination as described elsewhere in this Annual Report on Form 10-K) because the review process drags on beyond such timeframe or because our initial business combination is ultimately prohibited by CFIUS or another U.S. government entity, we may be required to liquidate. If we liquidate, our public shareholders may only receive $10.20 per public share, or less than $10.20 per public share, on the liquidation of their shares, and our warrants will expire worthless. This will also cause our investors to lose the investment opportunity in a target company and the chance of realizing future gains on your investment through any price appreciation in the combined company. +We are not required to obtain an opinion from an independent accounting or investment banking firm, and, consequently, you may have no assurance from an independent source that the price we are paying for the business is fair to our shareholders from a financial point of view. +Unless we complete our initial business combination with an affiliated entity, we are not required to obtain an opinion from an independent investment banking firm or another independent entity commonly renders valuation opinions that the price we are paying is fair to our shareholders from a financial point of view. If no opinion is obtained, our shareholders will be relying on the judgment of our board of directors, who will determine fair market value based on standards generally accepted by the financial community. Such standards used will be disclosed in our proxy solicitation or tender offer materials, as applicable, related to our initial business combination. +Because we must furnish our shareholders with target business financial statements, we may lose the ability to complete an otherwise advantageous initial business combination with some prospective target businesses. +The U.S. federal securities laws require that a proxy statement with respect to a vote on a business combination meeting certain financial significance tests include historical and/or pro forma financial statement disclosure in periodic reports. We will include the same financial statement disclosure in connection with our tender offer documents, whether or not they are required under the tender offer rules. These financial statements may be required to be prepared in accordance with, or be reconciled to, accounting principles generally accepted in the United States of America, or GAAP, or international financial reporting standards as issued by the International Accounting Standards Board, or IFRS, depending on the circumstances and the historical financial statements may be required to be audited in accordance with the standards of the Public Company Accounting Oversight Board (United States), or PCAOB. These financial statement requirements may limit the pool of potential target businesses we may acquire because some targets may be unable to provide such statements in time for us to disclose such statements in accordance with federal proxy rules and complete our initial business combination within the prescribed timeframe. +46 +Table of Contents +Resources could be wasted in researching acquisitions that are not completed, which could materially adversely affect subsequent attempts to locate and acquire or merge with another business. If we have not consummated our initial business combination within the required time period, our public shareholders may receive only approximately $10.20 per public share, or less in certain circumstances, on the liquidation of our Trust Account and our warrants will expire worthless. +We anticipate that the investigation of each specific target business and the negotiation, drafting and execution of relevant agreements, disclosure documents and other instruments will require substantial management time and attention and substantial costs for accountants, attorneys and others. If we decide not to complete a specific initial business combination, the costs incurred up to that point for the proposed transaction likely would not be recoverable. Furthermore, if we reach an agreement relating to a specific target business, we may fail to complete our initial business combination for any number of reasons including those beyond our control. Any such event will result in a loss to us of the related costs incurred, which could materially adversely affect subsequent attempts to locate and acquire or merge with another business. If we have not consummated our initial business combination within the required time period, our public shareholders may receive only approximately $10.20 per public share, or less in certain circumstances, on the liquidation of our Trust Account and our warrants will expire worthless. +Compliance obligations under the Sarbanes-Oxley Act may make it more difficult for us to effectuate a business combination, require substantial financial and management resources, and increase the time and costs of completing an acquisition. +Section 404 of the Sarbanes-Oxley Act requires that we evaluate and report on our system of internal controls beginning with our Annual Report on Form 10-K for the year ending December 31, 2024. Only in the event we are deemed to be a large accelerated filer or an accelerated filer and no longer qualify as an emerging growth company will we be required to comply with the independent registered public accounting firm attestation requirement on our internal control over financial reporting. The fact that we are a blank check company makes compliance with the requirements of the Sarbanes-Oxley Act particularly burdensome on us as compared to other public companies because a target business with which we seek to complete our initial business combination may not be in compliance with the provisions of the Sarbanes-Oxley Act regarding adequacy of its internal controls. The development of the internal control of any such entity to achieve compliance with the Sarbanes-Oxley Act may increase the time and costs necessary to complete any such acquisition. +We do not have a specified maximum redemption threshold. The absence of such a redemption threshold may make it possible for us to complete our initial business combination with which a substantial majority of our shareholders do not agree. +Our amended and restated memorandum and articles of association will not provide a specified maximum redemption threshold, except that in no event will we redeem our public shares in an amount that would cause our net tangible assets to be less than $5,000,001 (so that we do not then become subject to the SEC’s “penny stock” rules). As a result, we may be able to complete our initial business combination even though a substantial majority of our public shareholders do not agree with the transaction and have redeemed their shares or, if we seek shareholder approval of our initial business combination and do not conduct redemptions in connection with our initial business combination pursuant to the tender offer rules, have entered into privately negotiated agreements to sell their shares to the Sponsor, officers, directors, advisors or their affiliates. In the event the aggregate cash consideration we would be required to pay for all Class A ordinary shares that are validly submitted for redemption plus any amount required to satisfy cash conditions pursuant to the terms of the proposed business combination exceed the aggregate amount of cash available to us, we will not complete the business combination or redeem any shares, all Class A ordinary shares submitted for redemption will be returned to the holders thereof, and we instead may search for an alternate business combination. +In order to effectuate an initial business combination, blank check companies have, in the recent past, amended various provisions of their charters and other governing instruments, including their warrant agreements. We cannot assure you that we will not seek to amend our amended and restated memorandum and articles of association or governing instruments in a manner that will make it easier for us to complete our initial business combination that our shareholders may not support. +In order to effectuate a business combination, blank check companies have, in the recent past, amended various provisions of their charters and governing instruments, including their warrant agreements. For example, blank check companies have amended the definition of business combination, increased redemption thresholds, extended the time to consummate an initial business combination and, with respect to their warrants, amended their warrant agreements to require the warrants to be exchanged for cash and/or other securities. +47 +Table of Contents +Further amending our amended and restated memorandum and articles of association will require at least a special resolution of our shareholders as a matter of Cayman Islands law, meaning the approval of holders of at least two-thirds of our ordinary shares who attend and vote at a general meeting of the company, or, if no meeting is held, the unanimous written approval of all the shareholders who have the right to attend and vote at a general meeting of the company. +Amending our warrant agreement will require a vote of holders of at least 50% of the public warrants and, solely with respect to any amendment to the terms of the private placement warrants or any provision of the warrant agreement with respect to the private placement warrants, 50% of the number of the then outstanding private placement warrants. For more information on how or when we may amend our warrant arrangement, see “ — We may amend the terms of the warrants in a manner that may be adverse to holders of public warrants with the approval by the holders of at least 50% of the then-outstanding public warrants. As a result, the exercise price of your warrants could be increased, the exercise period could be shortened and the number of our Class A ordinary shares purchasable upon exercise of a warrant could be decreased, all without your approval. ” +In addition, our amended and restated memorandum and articles of association will require us to provide our public shareholders with the opportunity to redeem their public shares for cash if we propose an amendment to our amended and restated memorandum and articles of association (A) that would modify the substance or timing of our obligation to provide holders of our Class A ordinary shares the right to have their shares redeemed in connection with our initial business combination or to redeem 100% of our public shares if we do not complete our initial business combination by April 18, 2025 (or up to January 18, 2026, if we extend the time to complete a business combination as described elsewhere in this Annual Report on Form 10-K) or (B) with respect to any other provision relating to the rights of holders of our Class A ordinary shares. To the extent any of such amendments would be deemed to fundamentally change the nature of any of the securities offered through the Registration Statement, we would register, or seek an exemption from registration for, the affected securities. +The provisions of our amended and restated memorandum and articles of association that relate to the rights of holders of our Class A ordinary shares (and corresponding provisions of the agreement governing the release of funds from our Trust Account) may be amended with the approval of a special resolution, which requires the approval of the holders of at least two-thirds of our ordinary shares who attend and vote at a general meeting of the company, which is a lower amendment threshold than that of some other blank check companies. It may be easier for us, therefore, to amend our amended and restated memorandum and articles of association to facilitate the completion of an initial business combination that some of our shareholders may not support. +Some other blank check companies have a provision in their charter that prohibits the amendment of certain of its provisions, including those which relate to the rights of a company’s shareholders, without approval by a certain percentage of the company’s shareholders. In those companies, amendment of these provisions typically requires approval by between 90% and 100% of the company’s shareholders. Our amended and restated memorandum and articles of association will provide that any of its provisions related to the rights of holders of our Class A ordinary shares (including the requirement to deposit proceeds of the Initial Public Offering and the private placement of units into the Trust Account and not release such amounts except in specified circumstances, and to provide redemption rights to public shareholders as described herein) may be amended if approved by special resolution, meaning holders of at least two-thirds of our ordinary shares who attend and vote at a general meeting of the company, and corresponding provisions of the trust agreement governing the release of funds from our Trust Account may be amended if approved by holders of at least 50% of our ordinary shares; provided that the provisions of our amended and restated memorandum and articles of association governing the appointment or removal of directors prior to our initial business combination may only be amended by a special resolution passed by not less than two-thirds of our ordinary shares who attend and vote at our general meeting which shall include the affirmative vote of a simple majority of our Class B ordinary shares. The Sponsor and its permitted transferees, if any, who collectively beneficially own, on an as-converted basis, 25% of our Class A ordinary shares upon the closing of the Initial Public Offering (assuming they do not purchase any units in the Initial Public Offering and excluding the private placement shares), will participate in any vote to amend our amended and restated memorandum and articles of association and/or trust agreement and will have the discretion to vote in any manner they choose. As a result, we may be able to amend the provisions of our amended and restated memorandum and articles of association which govern our pre-business combination behavior more easily than some other blank check companies, and this may increase our ability to complete a business combination with which you do not agree. Our shareholders may pursue remedies against us for any breach of our amended and restated memorandum and articles of association. +The Sponsor, officers and directors have agreed, pursuant to agreements with us, that they will not propose any amendment to our amended and restated memorandum and articles of association (A) that would modify the substance or timing of our obligation to provide holders of our Class A ordinary shares the right to have their shares redeemed in connection with our initial business combination or to redeem 100% of our public shares if we do not complete our initial business combination by January 18, 2026 or (B) with respect +48 +Table of Contents +to any other provision relating to the rights of holders of our Class A ordinary shares, unless we provide our public shareholders with the opportunity to redeem their Class A ordinary shares upon approval of any such amendment at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest earned on the funds held in the Trust Account and not previously released to us to pay our taxes, if any, divided by the number of the then-outstanding public shares, subject to the limitations described herein. Our shareholders are not parties to, or third-party beneficiaries of, these agreements and, as a result, will not have the ability to pursue remedies against the Sponsor, executive officers or directors for any breach of these agreements. As a result, in the event of a breach, our shareholders would need to pursue a shareholder derivative action, subject to applicable law. +We may be unable to obtain additional financing to complete our initial business combination or to fund the operations and growth of a target business, which could compel us to restructure or abandon a particular business combination. If we have not consummated our initial business combination within the required time period, our public shareholders may receive only approximately $10.20 per public share, or less in certain circumstances, on the liquidation of our Trust Account and our warrants will expire worthless. +Although we believe that the net proceeds of the Initial Public Offering and the sale of the Private Placement Units will be sufficient to allow us to complete our initial business combination, because we have not yet selected any prospective target business we cannot ascertain the capital requirements for any particular transaction. If the net proceeds of the Initial Public Offering and the sale of the Private Placement Units prove to be insufficient, either because of the size of our initial business combination, the depletion of the available net proceeds in search of a target business, the obligation to redeem for cash a significant number of shares from shareholders who elect redemption in connection with our initial business combination or the terms of negotiated transactions to purchase shares in connection with our initial business combination, we may be required to seek additional financing or to abandon the proposed business combination. We cannot assure you that such financing will be available on acceptable terms, if at all. The current economic environment may make it difficult for companies to obtain acquisition financing. To the extent that additional financing proves to be unavailable when needed to complete our initial business combination, we would be compelled to either restructure the transaction or abandon that particular business combination and seek an alternative target business candidate. If we have not consummated our initial business combination within the required time period, our public shareholders may receive only approximately $10.20 per public share, or less in certain circumstances, on the liquidation of our Trust Account and our warrants will expire worthless. In addition, even if we do not need additional financing to complete our initial business combination, we may require such financing to fund the operations or growth of the target business. The failure to secure additional financing could have a material adverse effect on the continued development or growth of the target business. None of the Sponsor, officers, directors or shareholders is required to provide any financing to us in connection with or after our initial business combination. +We may seek business combination opportunities with a high degree of complexity that require significant operational improvements, which could delay or prevent us from achieving our desired results. +We may seek business combination opportunities with large, highly complex companies that we believe would benefit from operational improvements. While we intend to implement such improvements, to the extent that our efforts are delayed or we are unable to achieve the desired improvements, the business combination may not be as successful as we anticipate. +To the extent we complete our initial business combination with a large, complex business or entity with a complex operating structure, we may also be affected by numerous risks inherent in the operations of the business with which we combine, which could delay or prevent us from implementing our strategy. Although our management team will endeavor to evaluate the risks inherent in a particular target business and its operations, we may not be able to properly ascertain or assess all of the significant risk factors until we complete our business combination. If we are not able to achieve our desired operational improvements, or the improvements take longer to implement than anticipated, we may not achieve the gains that we anticipate. Furthermore, some of these risks and complexities may be outside of our control and leave us with no ability to control or reduce the chances that those risks and complexities will adversely impact a target business. Such combination may not be as successful as a combination with a smaller, less complex organization. +We may have a limited ability to assess the management of a prospective target business and, as a result, may affect our initial business combination with a target business whose management may not have the skills, qualifications or abilities to manage a public company. +When evaluating the desirability of effecting our initial business combination with a prospective target business, our ability to assess the target business’s management may be limited due to a lack of time, resources or information. Our assessment of the capabilities of the target business’s management, therefore, may prove to be incorrect and such management may lack the skills, qualifications or +49 +Table of Contents +abilities we suspected. Should the target business’s management not possess the skills, qualifications or abilities necessary to manage a public company, the operations and profitability of the post-combination business may be negatively impacted. Accordingly, any holders who choose to retain their securities following the business combination could suffer a reduction in the value of their securities. Such holders are unlikely to have a remedy for such reduction in value. +We may issue notes or other debt securities, or otherwise incur substantial debt, to complete a business combination, which may adversely affect our leverage and financial condition and thus negatively impact the value of our shareholders’ investment in us. +Although we have no commitments as of the date of this Annual Report on Form 10-K to issue any notes or other debt securities, we may choose to incur substantial debt to complete our initial business combination. We and our officers and directors have agreed that we will not incur any indebtedness unless we have obtained from the lender a waiver of any right, title, interest or claim of any kind in or to the monies held in the Trust Account. As such, no issuance of debt will affect the per-share amount available for redemption from the Trust Account. Nevertheless, the incurrence of debt could have a variety of negative effects, including: +● default and foreclosure on our assets if our operating revenues after an initial business combination are insufficient to repay our debt obligations; +● acceleration of our obligations to repay the indebtedness even if we make all principal and interest payments when due if we breach certain covenants that require the maintenance of certain financial ratios or reserves without a waiver or renegotiation of that covenant; +● our immediate payment of all principal and accrued interest, if any, if the debt is payable on demand; +● our inability to obtain necessary additional financing if the debt contains covenants restricting our ability to obtain such financing while the debt is outstanding; +● our inability to pay dividends on our Class A ordinary shares; +● using a substantial portion of our cash flow to pay principal and interest on our debt, which will reduce the funds available for dividends on our Class A ordinary shares if declared, expenses, capital expenditures, acquisitions and other general corporate purposes; +● limitations on our flexibility in planning for and reacting to changes in our business and in the industry in which we operate; +● increased vulnerability to adverse changes in general economic, industry and competitive conditions and adverse changes in government regulation; and +● limitations on our ability to borrow additional amounts for expenses, capital expenditures, acquisitions, debt service requirements, execution of our strategy and other purposes and other disadvantages compared to our competitors who have less debt. +We may only be able to complete one business combination with the proceeds of the Initial Public Offering and the sale of the Private Placement Units, which will cause us to be solely dependent on a single business that may have a limited number of products or services. This lack of diversification may negatively impact our operations and profitability. +The net proceeds from the Initial Public Offering and the sale of the Private Placement Units provided us with $146,625,000 that we may use to complete our initial business combination. As of December 31, 2024, there was $82,604,083 remaining in the Trust Account to use to complete our initial business combination. +We may effectuate our initial business combination with a single-target business or multiple-target businesses simultaneously or within a short period of time. However, we may not be able to effectuate our initial business combination with more than one target business because of various factors, including the existence of complex accounting issues and the requirement that we prepare and file pro forma financial statements with the SEC that present operating results and the financial condition of several target businesses as if +50 +Table of Contents +they had been operated on a combined basis. By completing our initial business combination with only a single entity, our lack of diversification may subject us to numerous economic, competitive and regulatory developments. Further, we would not be able to diversify our operations or benefit from the possible spreading of risks or offsetting of losses, unlike other entities that may have the resources to complete several business combinations in different industries or different areas of a single industry. Accordingly, the prospects for our success may be: +● solely dependent upon the performance of a single business, property or asset; or +● dependent upon the development or market acceptance of a single or limited number of products, processes or services. +This lack of diversification may subject us to numerous economic, competitive and regulatory risks, any or all of which may have a substantial adverse impact upon the particular industry in which we may operate subsequent to our initial business combination. +We may attempt to simultaneously complete business combinations with multiple prospective targets, which may hinder our ability to complete our initial business combination and give rise to increased costs and risks that could negatively impact our operations and profitability. +If we determine to simultaneously acquire several businesses that are owned by different sellers, we will need for each of such sellers to agree that our purchase of its business is contingent on the simultaneous closings of the other business combinations, which may make it more difficult for us, and delay our ability, to complete our initial business combination. With multiple business combinations, we could also face additional risks, including additional burdens and costs with respect to possible multiple negotiations and due diligence (if there are multiple sellers) and the additional risks associated with the subsequent assimilation of the operations and services or products of the acquired companies in a single operating business. If we are unable to adequately address these risks, it could negatively impact our profitability and results of operations. +We may attempt to complete our initial business combination with a private company about which little information is available, which may result in a business combination with a company that is not as profitable as we suspected, if at all. +In pursuing our acquisition strategy, we may seek to effectuate our initial business combination with a privately held company. Very little public information generally exists about private companies, and we could be required to make our decision on whether to pursue a potential initial business combination on the basis of limited information, which may result in a business combination with a company that is not as profitable as we suspected, if at all. +Risks Relating to our Securities +The securities in which we invest the funds held in the Trust Account could bear a negative rate of interest, which could reduce the value of the assets held in trust such that the per-share redemption amount received by public shareholders may be less than $10.20 per share. +The proceeds held in the Trust Account are invested only in U.S. government treasury obligations with a maturity of 185 days or less or in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act, which invest only in direct U.S. government treasury obligations. While short-term U.S. government treasury obligations currently yield a positive rate of interest, they have briefly yielded negative interest rates in recent years. Central banks in Europe and Japan pursued interest rates below zero in recent years, and the Open Market Committee of the Federal Reserve has not ruled out the possibility that it may in the future adopt similar policies in the United States. In the event that we are unable to complete our initial business combination or make certain amendments to our amended and restated memorandum and articles of association, our public shareholders are entitled to receive their pro rata share of the proceeds held in the Trust Account, plus any interest income, net of taxes paid or payable (less, in the case we are unable to complete our initial business combination, $100,000 of interest). Negative interest rates could reduce the value of the assets held in trust such that the per-share redemption amount received by public shareholders may be less than $10.20 per share. +51 +Table of Contents +If we are deemed to be an investment company under the Investment Company Act, we may be required to institute burdensome compliance requirements and our activities may be restricted, which may make it difficult for us to complete our initial business combination. +If we are deemed to be an investment company under the Investment Company Act, our activities may be restricted, including restrictions on the nature of our investments and restrictions on the issuance of securities, each of which may make it difficult for us to complete our initial business combination. In addition, we may have imposed upon us burdensome requirements, including registration as an investment company with the SEC, adoption of a specific form of corporate structure, and reporting, record keeping, voting, proxy and disclosure requirements and other rules and regulations that we are currently not subject to. +In order not to be regulated as an investment company under the Investment Company Act, unless we can qualify for an exclusion, we must ensure that we are engaged primarily in a business other than investing, reinvesting or trading of securities and that our activities do not include investing, reinvesting, owning, holding or trading “investment securities” constituting more than 40% of our assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis. Our business will be to identify and complete a business combination and thereafter to operate the post-transaction business or assets for the long term. We do not plan to buy businesses or assets with a view to resale or profit from their resale. We do not plan to buy unrelated businesses or assets or to be a passive investor. +We do not believe that our principal activities will subject us to the Investment Company Act. To this end, the proceeds held in the Trust Account may only be invested in United States “government securities” within the meaning of Section 2(a)(16) of the Investment Company Act having a maturity of 185 days or less or in money market funds meeting certain conditions under Rule 2a-7 promulgated under the Investment Company Act that invest only in direct U.S. government treasury obligations. Pursuant to the trust agreement, the trustee is not permitted to invest in other securities or assets. By restricting the investment of the proceeds to these instruments, and by having a business plan targeted at acquiring and growing businesses for the long term (rather than on buying and selling businesses in the manner of a merchant bank or private equity fund), we intend to avoid being deemed an “investment company” within the meaning of the Investment Company Act. The Initial Public Offering was not intended for persons who are seeking a return on investments in government securities or investment securities. The Trust Account is intended as a holding place for funds pending the earliest to occur of either: (i) the completion of our initial business combination; (ii) the redemption of any public shares properly tendered in connection with a shareholder vote to amend our amended and restated memorandum and articles of association (A) to modify the substance or timing of our obligation to provide holders of our Class A ordinary shares the right to have their shares redeemed in connection with our initial business combination or to redeem 100% of our public shares if we do not complete our initial business combination by April 18, 2025 (or up to January 18, 2026, if we extend the time to complete a business combination as described elsewhere in this Annual Report on Form 10-K) or (B) with respect to any other provision relating to the rights of holders of our Class A ordinary shares; or (iii) absent our completing an initial business combination by April 18, 2025 (or up to January 18, 2026, if we extend the time to complete a business combination as described elsewhere in this Annual Report on Form 10-K), our return of the funds held in the Trust Account to our public shareholders as part of our redemption of the public shares. If we do not invest the proceeds as discussed above, we may be deemed to be subject to the Investment Company Act. If we were deemed to be subject to the Investment Company Act, compliance with these additional regulatory burdens would require additional expenses for which we have not allotted funds and may hinder our ability to complete a business combination. If we have not consummated our initial business combination within the required time period, our public shareholders may receive only approximately $10.20 per public share, or less in certain circumstances, on the liquidation of our Trust Account and our warrants will expire worthless. +You may experience substantial dilution of our Class A ordinary shares due to anti-dilution provisions in the founder shares. +The anti-dilution provisions of the founder shares may result in the issuance of Class A ordinary shares on a greater than one-to-one basis upon conversion of the founder shares at the time of our initial business combination and would become exacerbate dilution to the extent that public shareholders seek redemptions from the trust for their public shares. In addition, because of the anti-dilution protection in the founder shares, any equity or equity-linked securities issued in connection with our initial business combination would be disproportionately dilutive to our Class A ordinary shares. +The nominal purchase price paid by the Sponsor for the founder shares may result in significant dilution to the implied value of your public shares upon the consummation of our initial business combination. +We offered our units at an offering price of $10.00 per unit and the amount in our Trust Account is $10.20 per public share, implying an initial value of $10.20 per public share. However, prior to the Initial Public Offering, the Sponsor paid a nominal aggregate purchase price of $25,000 for the founder shares, or approximately $0.005 per share. As a result, the value of your public shares may be +52 +Table of Contents +significantly diluted upon the consummation of our initial business combination, when the founder shares are converted into public shares. For example, the following table shows the dilutive effect of the founder shares on the implied value of the public shares upon the consummation of our initial business combination, assuming that our equity value at that time is $148,295,756, which is the amount we have in the Trust Account for our initial business combination, assuming no interest is earned on the funds held in the Trust Account and no public shares are redeemed in connection with our initial business combination, and without taking into account any other potential impacts on our valuation at such time, such as the trading price of our public shares, the business combination transaction costs, any equity issued or cash paid to the target’s sellers or other third parties, or the target’s business itself, including its assets, liabilities, management and prospects, as well as the value of our public and private placement warrants. At such valuation, each of our ordinary shares would have an implied value of approximately $7.44 per share upon consummation of our initial business combination, which would be an approximately 27.1% decrease as compared to the initial implied value per public share of $10.20. +​ +​ +​ +​ +​ +Public shares +​ +14,375,000 +Founder shares +​ +4,791,667 +Private placement shares (included in Private Placement Units) +​ +762,500 +Total shares +​ +19,929,167 +Total funds in trust available for initial business combination (less deferred underwriter commissions) +​ +$ +148,295,756 +Initial implied value per public share +​ +$ +10.20 +Implied value per share upon consummation of initial business combination +​ +$ +7.44 +​ +The value of the founder shares following completion of our initial business combination is likely to be substantially higher than the nominal price paid for them, even if the trading price of our ordinary shares at such time is substantially less than $10.00 per share. +The Sponsor has invested in us an aggregate of $6,400,000 comprised of the $25,000 purchase price for the founder shares and the $6,375,000 purchase price for its Private Placement Units. Assuming a trading price of $10.00 per share upon consummation of our initial business combination, the founder shares and private placement shares held by the Sponsor would have an aggregate value of $54,291,670 (assuming no value is attributed to the private placement warrants). Even if the trading price of our ordinary shares was as low as approximately $1.17 per share, the value of the founder shares and private placement shares would be equal to the Sponsor’s initial investment in us. As a result, the Sponsor is likely to be able to recoup its investment in us and make a substantial profit on that investment, even if our public shares have lost significant value. Accordingly, our management team, which owns interests in the Sponsor, may have an economic incentive that differs from that of the public shareholders to pursue and consummate an initial business combination rather than to liquidate and to return all of the cash in the trust to the public shareholders, even if that business combination were with a riskier or less-established target business. For the foregoing reasons, you should consider our management team’s financial incentive to complete an initial business combination when evaluating whether to redeem your shares prior to or in connection with our initial business combination. +We may issue additional Class A ordinary shares or preference shares to complete our initial business combination or under an employee incentive plan after the completion of our initial business combination. We may also issue Class A ordinary shares upon the conversion of the founder shares at a ratio greater than one-to-one at the time of our initial business combination as a result of the anti-dilution provisions contained in our amended and restated memorandum and articles of association. Any such issuances would dilute the interest of our shareholders and likely present other risks. +Our amended and restated memorandum and articles of association authorize the issuance of up to 200,000,000 Class A ordinary shares, par value $0.0001 per share, 20,000,000 Class B ordinary shares, par value $0.0001 per share, and 2,000,000 preference shares, par value $0.0001 per share. There are 184,862,500 and 15,208,333 authorized but unissued Class A ordinary shares and Class B ordinary shares, respectively, available for issuance which amount does not take into account shares reserved for issuance upon exercise of outstanding warrants or shares issuable upon conversion of the Class B ordinary shares, if any. The Class B ordinary shares will automatically convert into Class A ordinary shares (which such Class A ordinary shares delivered upon conversion will not have any redemption rights or be entitled to liquidating distributions from the Trust Account if we fail to consummate an initial business combination) at the time of our initial business combination or earlier at the option of the holders thereof as described herein and in our amended and restated memorandum and articles of association. Immediately after the Initial Public Offering, there will be no preference shares issued and outstanding. +We may issue a substantial number of additional Class A ordinary shares or preference shares to complete our initial business combination or under an employee incentive plan after the completion of our initial business combination. We may also issue Class A +53 +Table of Contents +ordinary shares in connection with our redeeming the warrants as described in or upon conversion of the Class B ordinary shares at a ratio greater than one-to-one at the time of our initial business combination as a result of the anti-dilution provisions as set forth herein. +However, our amended and restated memorandum and articles of association will provide, among other things, that prior to or in connection with our initial business combination, we may not issue additional shares that would entitle the holders thereof to (i) receive funds from the Trust Account or (ii) vote on any initial business combination or on any other proposal presented to shareholders prior to or in connection with the completion of an initial business combination. These provisions of our amended and restated memorandum and articles of association, like all provisions of our amended and restated memorandum and articles of association, may be amended with a shareholder vote. The issuance of additional ordinary or preference shares: +● may significantly dilute the equity interest of investors in the Initial Public Offering, which dilution would increase if the anti-dilution provisions in the Class B ordinary shares resulted in the issuance of Class A ordinary shares on a greater than one-to-one basis upon conversion of the Class B ordinary shares; +● may subordinate the rights of holders of Class A ordinary shares if preference shares are issued with rights senior to those afforded our Class A ordinary shares; +● could cause a change in control if a substantial number of Class A ordinary shares are issued, which may affect, among other things, our ability to use our net operating loss carry forwards, if any, and could result in the resignation or removal of our present officers and directors; +● may have the effect of delaying or preventing a change of control of us by diluting the share ownership or voting rights of a person seeking to obtain control of us; +● may adversely affect prevailing market prices for our units, Class A ordinary shares and/or warrants; and +● may not result in adjustment to the exercise price of our warrants. +Unlike some other similarly structured blank check companies, the Sponsor will receive additional Class A ordinary shares if we issue shares to consummate an initial business combination. +The founder shares will automatically convert into Class A ordinary shares (which such Class A ordinary shares delivered upon conversion will not have any redemption rights or be entitled to liquidating distributions from the Trust Account if we fail to consummate an initial business combination) at the time of our initial business combination or earlier at the option of the holders thereof at a ratio such that the number of Class A ordinary shares issuable upon conversion of all founder shares will equal, in the aggregate, on an as-converted basis, 25% of the sum of (i) the total number of ordinary shares issued and outstanding upon the completion of the Initial Public Offering (excluding the private placement shares), plus (ii) the total number of Class A ordinary shares issued or deemed issued or issuable upon conversion or exercise of any equity-linked securities or rights issued or deemed issued, by the company in connection with or in relation to the consummation of our initial business combination, excluding any Class A ordinary shares or equity-linked securities exercisable for or convertible into Class A ordinary shares issued, deemed issued or to be issued to any seller in our initial business combination and any Private Placement Units issued to the Sponsor, its affiliates or any members of our management team upon conversion of working capital loans. In no event will the Class B ordinary shares convert into Class A ordinary shares at a rate of less than one-to-one. This is different than some other similarly structured blank check companies in which initial shareholders will only be issued an aggregate of 20% of the total number of shares to be outstanding prior to an initial business combination. +We are not registering the offer and sale of the Class A ordinary shares issuable upon exercise of the warrants under the Securities Act or any state securities laws at this time, and such registration may not be in place when an investor desires to exercise warrants, thus precluding such investor from being able to exercise its warrants except on a cashless basis and potentially causing such warrants to expire worthless. +We are not registering the offer and sale of the Class A ordinary shares issuable upon exercise of the warrants under the Securities Act or any state securities laws at this time. However, under the terms of that certain that certain Warrant Agreement, by and between the Company and Equiniti Trust Company, LLC (f/k/a American Stock Transfer & Trust Company), dated January 12, 2023 (the “Warrant Agreement”), we have agreed that, as soon as practicable, but in no event later than 15 business days after the closing of our +54 +Table of Contents +initial business combination, we will use our commercially reasonable efforts to file with the SEC a registration statement covering the issuance of such ordinary shares, and we will use our commercially reasonable efforts to cause the same to become effective within 60 business days after the closing of our initial business combination and to maintain the effectiveness of such registration statement and a current prospectus relating to those Class A ordinary shares until the warrants expire or are redeemed. We cannot assure you that we will be able to do so if, for example, any facts or events arise that represent a fundamental change in the information set forth in the registration statement or prospectus, the financial statements contained or incorporated by reference therein are not current, complete or correct or the SEC issues a stop order. If the offer and sale of the Class A ordinary shares issuable upon exercise of the warrants is not registered under the Securities Act in accordance with the above requirements, we will be required to permit holders to exercise their public warrants on a cashless basis. However, we will not be obligated to issue any Class A ordinary shares to holders seeking to exercise their public warrants, unless the issuance of the Class A ordinary shares upon such exercise is registered or qualified under the securities laws of the state of the exercising holder, or an exemption from registration is available. Notwithstanding the above, if our Class A ordinary shares are at the time of any exercise of a warrant not listed on a national securities exchange such that they satisfy the definition of a “covered security” under Section 18(b)(1) of the Securities Act, we may, at our option, require holders of public warrants who exercise their warrants to do so on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act and, in the event we so elect, we will not be required to file or maintain in effect a registration statement, but we will use our commercially reasonable efforts to register or qualify the offer and sale of the shares under applicable blue sky laws to the extent an exemption is not available. Additionally, if we call the public warrants for redemption, our management will have the option to require all holders that wish to exercise public warrants to do so on a cashless basis. In the event of an exercise of a warrant on a cashless basis, a holder would pay the warrant exercise price by surrendering the warrants for that number of Class A ordinary shares equal to the quotient obtained by dividing (x) the product of the number of Class A ordinary shares underlying the warrants, multiplied by the difference between the exercise price of the warrants and the “fair market value” (as defined in the next sentence) by (y) the fair market value. The “fair market value” is the volume-weighted average price of the Class A ordinary shares for the 10 trading days ending on the trading day prior to the date that notice of exercise is received by the warrant agent. Exercising the warrants on a cashless basis could have the effect of reducing the potential “upside” of the holder’s investment in our Company because the warrant holder will hold a smaller number of Class A ordinary shares upon a cashless exercise of the warrants they hold. In no event will we be required to net cash settle any warrant, or issue securities or other compensation in exchange for the warrants in the event that we are unable register or qualify the issuance of the Class A shares underlying the warrants under applicable state securities laws and no exemption is available. If the issuance of the Class A ordinary shares upon exercise of the warrants is not so registered or qualified or exempt from registration or qualification, the holder of such warrant shall not be entitled to exercise such warrant and such warrant may have no value and expire worthless. In such event, holders who acquired their warrants as part of a purchase of units will have paid the full unit purchase price solely for the Class A ordinary shares included in the units. There may be a circumstance where an exemption from registration exists for holders of our private placement warrants to exercise their private placement warrants while a corresponding exemption does not exist for holders of the public warrants included as part of units sold in the Initial Public Offering. In such an instance, the Sponsor and its permitted transferees (which may include our directors and officers) would be able to exercise their private placement warrants and sell the Class A ordinary shares underlying their private placement warrants while holders of our public warrants would not be able to exercise their warrants and sell the underlying Class A ordinary shares. If and when the warrants become redeemable by us, we may exercise our redemption right even if we are unable to register or qualify the underlying Class A ordinary shares for sale under all applicable state securities laws. As a result, we may redeem the warrants as set forth above even if the holders are otherwise unable to exercise their warrants. +We may amend the terms of the warrants in a manner that may be adverse to holders of public warrants with the approval by the holders of at least 50% of the then-outstanding public warrants. As a result, the exercise price of your warrants could be increased, the exercise period could be shortened and the number of our Class A ordinary shares purchasable upon exercise of a warrant could be decreased, all without your approval. +Our warrants are issued in registered form under a warrant agreement between Equiniti Trust Company, LLC (f/k/a American Stock Transfer & Trust Company), as warrant agent, and us. The warrant agreement provides that the terms of the warrants may be amended without the consent of any holder for the purpose of (i) curing any ambiguity or correcting any mistake, including to conform the provisions of the warrant agreement to the description of the terms of the warrants and the warrant agreement, or defective provision (ii) removing or reducing the Company’s ability to redeem the Public Warrants, or (iii) adding or changing any provisions with respect to matters or questions arising under the warrant agreement as the parties to the warrant agreement may deem necessary or desirable and that the parties deem to not adversely affect the rights of the registered holders of the warrants, provided that the approval by the holders of at least 50% of the then-outstanding public warrants is required to make any change that adversely affects the interests of the registered holders of public warrants. Accordingly, we may amend the terms of the public warrants in a manner adverse to a holder if holders of at least 50% of the then-outstanding public warrants approve of such amendment and, solely with respect to any amendment to the terms of the private placement warrants or any provision of the warrant agreement with respect to the private placement warrants, +55 +Table of Contents +50% of the number of the then outstanding private placement warrants. Although our ability to amend the terms of the public warrants with the consent of at least 50% of the then-outstanding public warrants is unlimited, examples of such amendments could be amendments to, among other things, increase the exercise price of the warrants, convert the warrants into cash, shorten the exercise period or decrease the number of Class A ordinary shares purchasable upon exercise of a warrant. +Our warrant agreement and rights agreement designate the courts of the State of New York or the United States District Court for the Southern District of New York as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by holders of our warrants, which could limit the ability of warrant holders to obtain a favorable judicial forum for disputes with our company. +Our warrant agreement and rights agreement provide that, subject to applicable law, (i) any action, proceeding or claim against us arising out of or relating in any way to the warrant agreement, including under the Securities Act, will be brought and enforced in the courts of the State of New York or the United States District Court for the Southern District of New York, and (ii) that we irrevocably submit to such jurisdiction, which jurisdiction shall be the exclusive forum for any such action, proceeding or claim. We will waive any objection to such exclusive jurisdiction and that such courts represent an inconvenient forum. +Notwithstanding the foregoing, these provisions of the warrant agreement will not apply to suits brought to enforce any liability or duty created by the Exchange Act or any other claim for which the federal district courts of the United States of America are the sole and exclusive forum. Accordingly, our exclusive forum provision will not relieve us of our duties to comply with the federal securities laws and the rules and regulations thereunder, and holders of our warrants will not be deemed to have waived our compliance with these laws, rules and regulations. Any person or entity purchasing or otherwise acquiring any interest in any of our warrants shall be deemed to have notice of and to have consented to the forum provisions in our warrant agreement and rights agreement. If any action, the subject matter of which is within the scope the forum provisions of the warrant agreement, is filed in a court other than a court of the State of New York or the United States District Court for the Southern District of New York (a “foreign action”) in the name of any holder of our warrants, such holder shall be deemed to have consented to: (x) the personal jurisdiction of the state and federal courts located in the State of New York in connection with any action brought in any such court to enforce the forum provisions (an “enforcement action”), and (y) having service of process made upon such warrant holder in any such enforcement action by service upon such warrant holder’s counsel in the foreign action as agent for such warrant holder. +This choice-of-forum provision may limit a warrant holder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with our company, which may discourage such lawsuits. Alternatively, if a court were to find this provision of our warrant agreement and rights agreement inapplicable or unenforceable with respect to one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could materially and adversely affect our business, financial condition and results of operations and result in a diversion of the time and resources of our management and board of directors. +We may redeem your unexpired warrants prior to their exercise at a time that is disadvantageous to you, thereby making your warrants worthless. +We have the ability to redeem the outstanding public warrants at any time after they become exercisable and prior to their expiration, but not earlier than ninety (90) days after the initial business combination, at a price of $0.01 per warrant, provided that the closing price of our Class A ordinary shares equals or exceeds $18.00 per share (as adjusted for adjustments to the number of shares issuable upon exercise or the exercise price of a warrant) for any 20 trading days within a 30 trading-day period ending on the third trading day prior to proper notice of such redemption and provided that certain other conditions are met. If and when the warrants become redeemable by us, we may exercise our redemption right even if we are unable to register or qualify the underlying securities for sale under all applicable state securities laws. As a result, we may redeem the warrants as set forth above even if the holders are otherwise unable to exercise the warrants. Redemption of the outstanding warrants could force you to (i) exercise your warrants and pay the exercise price therefor at a time when it may be disadvantageous for you to do so, (ii) sell your warrants at the then-current market price when you might otherwise wish to hold your warrants or (iii) accept the nominal redemption price which, at the time the outstanding warrants are called for redemption, we expect would be substantially less than the market value of your warrants. +None of the private placement warrants are redeemable by us. +56 +Table of Contents +Our warrants may have an adverse effect on the market price of our Class A ordinary shares and make it more difficult to effectuate our initial business combination. +We issued warrants representing the right to purchase 14,375,000 Class A ordinary shares as part of the units offered by the prospectus and, simultaneously with the closing of the Initial Public Offering, we issued 762,500 private placement warrants as part of the Private Placement Units we sold, with each private placement warrant representing the right to purchase one Class A ordinary share at $11.50 per share, subject to adjustment. In addition, if the Sponsor, its affiliates or a member of our management team makes any working capital loans, it may convert up to $1,500,000 of such loans into private placement-equivalent units of the post-business combination entity at a price of $10.00 per private placement-equivalent unit at the option of the lender. Such units would be identical to the Private Placement Units and could result in the issuance of up to 150,000 additional warrants, in the aggregate. +To the extent we issue ordinary shares for any reason, including to effectuate a business combination, the potential for the issuance of a substantial number of additional Class A ordinary shares upon exercise of these warrants or conversion of these rights could make us a less attractive acquisition vehicle to a business. Such warrants, when exercised or converted, will increase the number of issued and outstanding Class A ordinary shares and reduce the value of the Class A ordinary shares issued to complete the business transaction. Therefore, our warrants may make it more difficult to effectuate a business transaction or increase the cost of acquiring the target business. +A provision of our warrant agreement may make it more difficult for us to consummate an initial business combination. +Unlike most blank check companies, if (i) we issue additional Class A ordinary shares or equity-linked securities for capital raising purposes in connection with the closing of our initial business combination at an issue price of less than $9.20 per ordinary share (the “Newly Issued Price”), (ii) the aggregate gross proceeds from such issuances represent more than 60% of the total equity proceeds, and interest thereon, available for the funding of our initial business combination on the date of the consummation of our initial business combination (net of redemptions), and (iii) the market value is below $9.20 per share, then the exercise price of the warrants will be adjusted (to the nearest cent) to be equal to 115% of the higher of the market value and the Newly Issued Price, and the $18.00 per share redemption trigger prices will be adjusted (to the nearest cent) to be equal to 180% of the higher of the market value and the Newly Issued Price. This may make it more difficult for us to consummate an initial business combination with a target business. +We may issue our shares to investors in connection with our initial business combination at a price that is less than the prevailing market price of our shares at that time. +In connection with our initial business combination, we may issue shares to investors in private placement transactions (so-called PIPE transactions) at a price of $10.00 per share or which approximates the per-share amounts in our Trust Account at such time. The purpose of such issuances will be to enable us to provide sufficient liquidity to the post-business combination entity. The price of the shares we issue may therefore be less, and potentially significantly less, than the market price for our shares at such time. +Provisions in our amended and restated memorandum and articles of association may inhibit a takeover of us, which could limit the price investors might be willing to pay in the future for our Class A ordinary shares and could entrench management. +Our amended and restated memorandum and articles of association will contain provisions that may discourage unsolicited takeover proposals that shareholders may consider to be in their best interests. These provisions will include a staggered board of directors and the ability of the board of directors to designate the terms of and issue new series of preference shares, which may make more difficult the removal of management and may discourage transactions that otherwise could involve payment of a premium over prevailing market prices for our securities. +The U.S. federal income tax consequences of a cashless exercise of warrants included in the units we issued in the Initial Public Offering is unclear under current law. +The U.S. federal income tax consequences of a cashless exercise of warrants included in the units we issued in the Initial Public Offering is unclear under current law. Additionally, it is unclear whether the redemption rights with respect to our ordinary shares would suspend the running of a U.S. holder’s period for purposes of determining whether any gain or loss realized by such holder on the sale or exchange of Class A ordinary shares is long-term capital gain or loss and for determining whether any dividend we pay would be taxed at the long-term capital gains rate for U.S. federal income tax purposes. See the section titled “ Taxation — United States Federal Income Tax Considerations ” for a summary of the U.S. federal income tax considerations of an investment in our securities. Prospective +57 +Table of Contents +investors are urged to consult their tax advisors with respect to these and other tax consequences when purchasing, holding or disposing of our securities. +Because we are incorporated under the laws of the Cayman Islands, you may face difficulties in protecting your interests, and your ability to protect your rights through the U.S. federal courts may be limited. +We are an exempted limited company incorporated under the laws of the Cayman Islands. As a result, it may be difficult for investors to effect service of process within the United States upon our directors or executive officers, or enforce judgments obtained in the United States courts against our directors or officers. +Our corporate affairs will be governed by our amended and restated memorandum and articles of association, the Companies Act (as the same may be supplemented, revised or amended from time to time) and the common law of the Cayman Islands. We will also be subject to the federal securities laws of the United States. The rights of shareholders to take action against the directors, actions by minority shareholders and the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedents in the Cayman Islands as well as from English common law, the decisions of whose courts are of persuasive authority, but are not binding on a court in the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are different from what they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands has a different body of securities laws as compared to the United States, and certain states, such as Delaware, may have more fully developed and judicially interpreted bodies of corporate law. In addition, Cayman Islands companies may not have standing to initiate a shareholders derivative action in a federal court of the United States. +We have been advised by our Cayman Islands legal counsel that the courts of the Cayman Islands are unlikely (i) to recognize or enforce against us judgments of courts of the United States predicated upon the civil liability provisions of the federal securities laws of the United States or any state; and (ii) in original actions brought in the Cayman Islands, to impose liabilities against us predicated upon the civil liability provisions of the federal securities laws of the United States or any state, so far as the liabilities imposed by those provisions are penal in nature. In those circumstances, although there is no statutory enforcement in the Cayman Islands of judgments obtained in the United States, the courts of the Cayman Islands will recognize and enforce a foreign money judgment of a foreign court of competent jurisdiction without retrial on the merits based on the principle that a judgment of a competent foreign court imposes upon the judgment debtor an obligation to pay the sum for which judgment has been given provided certain conditions are met. For a foreign judgment to be enforced in the Cayman Islands, such judgment must be final and conclusive and for a liquidated sum, and must not be in respect of taxes or a fine or penalty, inconsistent with a Cayman Islands judgment in respect of the same matter, impeachable on the grounds of fraud or obtained in a manner, or be of a kind the enforcement of which is, contrary to natural justice or the public policy of the Cayman Islands (awards of punitive or multiple damages may well be held to be contrary to public policy). A Cayman Islands court may stay enforcement proceedings if concurrent proceedings are being brought elsewhere. +As a result of all of the above, public shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of the board of directors or controlling shareholders than they would as public shareholders of a United States company. +If we have not consummated an initial business combination by April 18, 2025 (or up to January 18, 2026, if we extend the time to complete a business combination as described elsewhere in this Annual Report on Form 10-K), our public shareholders may be forced to wait beyond such period before redemption from our Trust Account. +If we have not consummated an initial business combination by April 18, 2025 (or up to January 18, 2026, if we extend the time to complete a business combination as described elsewhere in this Annual Report on Form 10-K), the proceeds then on deposit in the Trust Account, including interest earned on the funds held in the Trust Account and not previously released to us to pay our taxes, if any (less up to $100,000 of interest to pay dissolution expenses), will be used to fund the redemption of our public shares, as further described herein. Any redemption of public shareholders from the Trust Account will be effected automatically by function of our amended and restated memorandum and articles of association prior to any voluntary winding up. If we are required to wind up, liquidate the Trust Account and distribute such amount therein, pro rata, to our public shareholders, as part of any liquidation process, such winding up, liquidation and distribution must comply with the applicable provisions of the Companies Act. In that case, investors may be forced to wait beyond April 18, 2025 (or up to January 18, 2026 if we extend the time to complete a business combination) before the redemption proceeds of our Trust Account become available to them and they can receive the return of their pro rata portion of the proceeds from our Trust Account. We have no obligation to return funds to investors prior to the date of our redemption or liquidation unless, prior +58 +Table of Contents +thereto, we consummate our initial business combination or amend certain provisions of our amended and restated memorandum and articles of association, and only then in cases where investors have sought to redeem their Class A ordinary shares. Only upon our redemption or any liquidation will public shareholders be entitled to distributions if we do not complete our initial business combination and do not amend certain provisions of our amended and restated memorandum and articles of association. Our amended and restated memorandum and articles of association will provide that, if we wind up for any other reason prior to the consummation of our initial business combination, we will follow the foregoing procedures with respect to the liquidation of the Trust Account as promptly as reasonably possible but not more than ten business days thereafter, subject to applicable Cayman Islands law. +The warrants may become exercisable and redeemable for a security other than the Class A ordinary shares, and you will not have any information regarding such other security at this time. +In certain situations, including if we are not the surviving entity in our initial business combination, the warrants may become exercisable for a security other than the Class A ordinary shares. As a result, if the surviving company redeems your warrants for securities pursuant to the warrant agreement, you may receive a security in a company of which you do not have information at this time. Pursuant to the warrant agreement, the surviving company will be required to use commercially reasonable efforts to register the issuance of the security underlying the warrants within 15 business days of the closing of an initial business combination. +The grant of registration rights to the Sponsor may make it more difficult to complete our initial business combination, and the future exercise of such rights may adversely affect the market price of our Class A ordinary shares. +Pursuant to that certain registration rights agreement entered into January 12, 2023, by and among our Company, the Sponsor, BTIG, Exos Capital LLC and JonesTrading Institutional Services LLC (the “Registration Rights Agreement”), the Sponsor and its permitted transferees can demand that we register the resale of the Class A ordinary shares into which founder shares are convertible, the private placement warrants and the Class A ordinary shares issuable upon exercise of the private placement warrants, and warrants that may be issued upon conversion of working capital loans and the Class A ordinary shares issuable upon conversion of such warrants. The registration rights will be exercisable with respect to the founder shares and the private placement warrants and the Class A ordinary shares issuable upon exercise of such private placement warrants. We will bear the costs of registering these securities. The registration and availability of such a significant number of securities for trading in the public market may have an adverse effect on the market price of our Class A ordinary shares. In addition, the existence of the registration rights may make our initial business combination more costly or difficult to conclude. This is because the shareholders of the target business may increase the equity stake they seek in the combined entity or ask for more cash consideration to offset the negative impact on the market price of our securities that is expected when the securities owned by the Sponsor or its permitted transferees are registered for resale. +We may reincorporate or become a tax resident in another jurisdiction in connection with our initial business combination and such reincorporation or change in tax residency may result in taxes imposed on shareholders and warrant holders. +We may, in connection with our initial business combination and subject to requisite shareholder approval under the Companies Act, reincorporate in the jurisdiction in which the target company or business is located or in another jurisdiction. Tax structuring considerations are complex, the relevant facts and law are uncertain and may change, and we may prioritize commercial and other considerations over tax considerations. The transaction may require a shareholder or warrant holder to recognize taxable income in the jurisdiction in which the shareholder or warrant holder is a tax resident or in which its members are resident if it is a tax transparent entity. We do not intend to make any cash distributions to shareholders or warrant holders to pay such taxes. Shareholders or warrant holders may be subject to withholding taxes or other taxes with respect to their ownership of us after the reincorporation. In addition, regardless of whether we reincorporate in another jurisdiction, we could be treated as tax resident in the jurisdiction in which the partner company or business is located, which could result in adverse tax consequences to us (e.g., taxation on our worldwide income in such jurisdiction) and to our shareholders or warrant holders (e.g., withholding taxes on dividends and taxation of disposition gains). +If we take advantage of Nasdaq’s controlled company standards, we would be exempt from various corporate governance requirements. +Nasdaq listing rules generally define a “Controlled Company” as any company of which more than 50% of the voting power for the election of directors is held by an individual, a group or another company. Prior to the vote on our initial business combination, only holders of the founder shares will have the right to vote on the election of directors; provided, however, that with respect to the election of directors in connection with a meeting of the shareholders of the Company in which a business combination is submitted to the shareholders of the Company for approval, holders of the Class A ordinary shares and holders of the Class B ordinary shares, voting +59 +Table of Contents +together as a single class, shall have the exclusive right to vote for the election of directors. Other than pursuant to the provision in the preceding sentence, holders of the Class A ordinary shares will not be entitled to vote on the election of directors prior to the consummation of our initial business combination. All of the founder shares will be held by the Sponsor. Accordingly, prior to the vote on our initial business combination, we would likely satisfy the definition of being a controlled company. As indicated herein, we will not use the related exemptions to Nasdaq’s governance rules under the controlled company standards. However, if we were to change our intentions and take advantage of the controlled company standards, we would be exempt from various corporate governance requirements such as the requirement to have a majority of independent directors and to have nominating/corporate governance and compensation committees comprised entirely of independent directors. +Risks Relating to the Sponsor and Management Team +Past performance by our management team or their respective affiliates may not be indicative of future performance of an investment in us. +Information regarding performance is presented for informational purposes only. Any past experience or performance of our Team or their respective affiliates is not a guarantee of either (i) our ability successfully identify and execute a transaction or (ii) success with respect to any business combination that we may consummate. You should not rely on the historical record of our Team or their respective affiliates as indicative of the future performance of an investment in us or the returns we will, or are likely to, generate going forward. Our Team has limited experience in operating SPACs. +Our ability to successfully effect our initial business combination and to be successful thereafter will be totally dependent upon the efforts of our key personnel, some of whom may join us following our initial business combination. The loss of key personnel could negatively impact the operations and profitability of our post-combination business. +Our ability to successfully effect our initial business combination is dependent upon the efforts of our key personnel. The role of our key personnel in the target business, however, cannot presently be ascertained. Although some of our key personnel may remain with the target business in senior management, director or advisory positions following our initial business combination, it is likely that some or all of the management of the target business will remain in place. While we intend to closely scrutinize any individuals we engage after our initial business combination, we cannot assure you that our assessment of these individuals will prove to be correct. These individuals may be unfamiliar with the requirements of operating a company regulated by the SEC, which could cause us to have to expend time and resources helping them become familiar with such requirements. +Our key personnel may negotiate employment or consulting agreements with a target business in connection with a particular business combination, and a particular business combination may be conditioned on the retention or resignation of such key personnel. These agreements may provide for them to receive compensation following our initial business combination and as a result, may cause them to have conflicts of interest in determining whether a particular business combination is the most advantageous. +Our key personnel may be able to remain with our company after the completion of our initial business combination only if they are able to negotiate employment or consulting agreements in connection with the business combination. Such negotiations would take place simultaneously with the negotiation of the business combination and could provide for such individuals to receive compensation in the form of cash payments and/or our securities for services they would render to us after the completion of the business combination. Such negotiations also could make such key personnel’s retention or resignation a condition to any such agreement. The personal and financial interests of such individuals may influence their motivation in identifying and selecting a target business. +The officers and directors of an acquisition candidate may resign upon the completion of our initial business combination. The loss of a business combination target’s key personnel could negatively impact the operations and profitability of our post-combination business. +The role of an acquisition candidate’s key personnel upon the completion of our initial business combination cannot be ascertained at this time. Although we contemplate that certain members of an acquisition candidate’s management team will remain associated with the acquisition candidate following our initial business combination, it is possible that members of the management of an acquisition candidate will not wish to remain in place. +60 +Table of Contents +Certain of our executive officers and directors may allocate their time to other businesses thereby causing conflicts of interest in their determination as to how much time to devote to our affairs. This conflict of interest could have a negative impact on our ability to complete our initial business combination. +Our executive officers and directors are not required to, and will not, commit their full time to our affairs, which may result in a conflict of interest in allocating their time between our operations and our search for a business combination and their other businesses. Our executive officers may be engaged in several other business endeavors for which he may be entitled to substantial compensation, and our executive officers are not obligated to contribute any specific number of hours per week to our affairs. Our independent directors also serve as officers and board members for other entities. If our executive officers’ and directors’ other business affairs require them to devote substantial amounts of time to such affairs in excess of their current commitment levels, it could limit their ability to devote time to our affairs which may have a negative impact on our ability to complete our initial business combination. For a complete discussion of our executive officers’ and directors’ other business affairs, please see “Item 10 - Directors, Executive Officers and Corporate Governance – Officers and Directors.” +Our officers and directors presently have, and any of them in the future may have additional, fiduciary or contractual obligations to other entities, including another blank check company, and, accordingly, may have conflicts of interest in determining to which entity a particular business opportunity should be presented. +Until we consummate our initial business combination, we intend to engage in the business of identifying and combining with one or more businesses or entities. Each of our officers and directors presently has, and any of them in the future may have additional, fiduciary or contractual obligations to other entities pursuant to which such officer or director is or will be required to present a business combination opportunity to such entity, subject to his or her fiduciary duties under Cayman Islands law. Accordingly, they may have conflicts of interest in determining to which entity a particular business opportunity should be presented. These conflicts may not be resolved in our favor and a potential target business may be presented to another entity prior to its presentation to us, subject to their fiduciary duties under Cayman Islands law. +In addition, the Sponsor, officers and directors may in the future become affiliated with other blank check companies that may have acquisition objectives that are similar to ours. Accordingly, they may have conflicts of interest in determining to which entity a particular business opportunity should be presented. These conflicts may not be resolved in our favor and a potential target business may be presented to such other blank check companies prior to its presentation to us, subject to our officers’ and directors’ fiduciary duties under Cayman Islands law. Our amended and restated memorandum and articles of association provide that, to the fullest extent permitted by applicable law: (i) no individual serving as a director or an officer shall have any duty, except and to the extent expressly assumed by contract, to refrain from engaging directly or indirectly in the same or similar business activities or lines of business as us; and (ii) we renounce any interest or expectancy in, or in being offered an opportunity to participate in, any potential transaction or matter which may be a corporate opportunity for any director or officer, on the one hand, and us, on the other, unless such opportunity is expressly offered to such person in their capacity as a director or officer of our company and the opportunity is one we are permitted to complete on a reasonable basis. +For a complete discussion of our executive officers’ and directors’ business affiliations and the potential conflicts of interest that you should be aware of, please see “Item 10 - Directors, Executive Officers and Corporate Governance – Officers and Directors,” “Item 10 - Directors, Executive Officers and Corporate Governance – Conflicts of Interest” and “ Certain Relationships and Related Party Transactions .” +Our advisors and members of our management team and board of directors have significant experience as founders, board members, officers, executives or employees of other companies. Certain of those persons may have been, may be, or may become, involved in litigation, investigations or other proceedings, including related to those companies or otherwise. The defense or prosecution of these matters could be time-consuming and could divert our advisors’ and our management’s attention, and may have an adverse effect on us, which may impede our ability to consummate an initial business combination. +During the course of their careers, our advisors and members of our management team and board of directors have had significant experience as founders, board members, officers, executives or employees of other companies. As a result of their involvement and positions in these companies, certain of those persons may have been, may be or may in the future become involved in litigation, investigations or other proceedings, including relating to the business affairs of such companies, transactions entered into by such companies, or otherwise. Our advisors and individual members of our management team and board of directors also may become involved in litigation, investigations or other proceedings involving claims or allegations related to or as a result of their personal +61 +Table of Contents +conduct, either in their capacity as an advisor, corporate officer or director or otherwise, and may be personally named in such actions and potentially subject to personal liability. Any such liability may or may not be covered by insurance and/or indemnification, depending on the facts and circumstances. The defense or prosecution of these matters could be time-consuming. Any litigation, investigations or other proceedings and the potential outcomes of such actions may divert the attention and resources of our advisors and our management team and board of directors away from identifying and selecting a target business or businesses for our initial business combination and may negatively affect our reputation, which may impede our ability to complete an initial business combination. +Our executive officers, directors, security holders and their respective affiliates may have competitive pecuniary interests that conflict with our interests. +We have not adopted a policy that expressly prohibits our directors, executive officers, security holders or affiliates from having a direct or indirect pecuniary or financial interest in any investment to be acquired or disposed of by us or in any transaction to which we are a party or have an interest. In fact, we may enter into a business combination with a target business that is affiliated with the Sponsor, our directors or executive officers. Nor do we have a policy that expressly prohibits any such persons from engaging for their own account in business activities of the types conducted by us. Accordingly, such persons or entities may have a conflict between their interests and ours. +The personal and financial interests of our officers and directors may influence their motivation in timely identifying and selecting a target business and completing a business combination. Consequently, our directors’ and officers’ discretion in identifying and selecting a suitable target business may result in a conflict of interest when determining whether the terms, conditions and timing of a particular business combination are appropriate and in our shareholders’ best interest. If this were the case, it would be a breach of their fiduciary duties to us as a matter of Cayman Islands law and we or our shareholders might have a claim against such individuals for infringing on our shareholders’ rights. However, we might not ultimately be successful in any claim we may make against them for such reason. +We may engage one or more of our underwriters or one of their respective affiliates to provide additional services to us, which may include acting as financial advisor in connection with an initial business combination or as placement agent in connection with a related financing transaction. Our underwriters are entitled to receive deferred underwriting commissions that will be released from the Trust Account only upon a completion of an initial business combination. These financial incentives may cause them to have potential conflicts of interest in rendering any such additional services to us, including, for example, in connection with the sourcing and consummation of an initial business combination. +We may engage one or more of our underwriters or one of their respective affiliates to provide additional services, including, for example, identifying potential targets, providing financial advisory services, acting as a placement agent in a private offering or arranging debt financing transactions. We may pay such underwriter or its affiliate fair and reasonable fees or other compensation that would be determined at that time in an arm’s length negotiation; provided that no agreement will be entered into with any of the underwriters or their respective affiliates and no fees or other compensation for such services will be paid to any of the underwriters or their respective affiliates prior to the date that is 60 days from the date of the prospectus, unless such payment would not be deemed underwriters’ compensation in connection with the Initial Public Offering. The underwriters are also entitled to receive deferred underwriting commissions that are conditioned on the completion of an initial business combination. The underwriters’ or their respective affiliates’ financial interests tied to the consummation of a business combination transaction may give rise to potential conflicts of interest in providing any such additional services to us, including potential conflicts of interest in connection with the sourcing and consummation of an initial business combination. +We may engage in a business combination with one or more target businesses that have relationships with entities that may be affiliated with the Sponsor, executive officers, directors or initial shareholders, which may raise potential conflicts of interest. +In light of the involvement of the Sponsor, executive officers and directors with other entities, we may decide to acquire one or more businesses affiliated with the Sponsor, executive officers, directors or initial shareholders. Our directors also serve as officers and board members for other entities, including, without limitation, those described under “Item 10 - Directors, Executive Officers and Corporate Governance – Conflicts of Interest.” The Sponsor, officers and directors may sponsor, form or participate in other blank check companies similar to ours during the period in which we are seeking an initial business combination. Such entities may compete with us for business combination opportunities. The Sponsor, officers and directors are not currently aware of any specific opportunities for us to complete our initial business combination with any entities with which they are affiliated, and there have been no substantive +62 +Table of Contents +discussions concerning a business combination with any such entity or entities. Although we will not be specifically focusing on, or targeting, any transaction with any affiliated entities, we would pursue such a transaction if we determined that such affiliated entity met our criteria and guidelines for a business combination as set forth in “ Business — Business Combination Criteria ” and such transaction was approved by a majority of our independent and disinterested directors. Despite our agreement to obtain an opinion from an independent investment banking firm or another independent entity that commonly renders valuation opinions regarding the fairness to our company from a financial point of view of a business combination with one or more domestic or international businesses affiliated with the Sponsor, executive officers, directors or initial shareholders, potential conflicts of interest still may exist and, as a result, the terms of the business combination may not be as advantageous to our public shareholders as they would be absent any conflicts of interest. +Since the Sponsor, executive officers and directors will lose their entire investment in us if our initial business combination is not completed (other than with respect to public shares they may acquire during or after the Initial Public Offering), a conflict of interest may arise in determining whether a particular business combination target is appropriate for our initial business combination. +On January 26, 2022, the Sponsor paid $25,000, or approximately $0.004 per share, in consideration of 5,750,000 Class B ordinary shares, par value $0.0001. On March 4, 2022, we effected a share capitalization with respect to our Class B ordinary shares of 1,150,000, resulting in our initial shareholders holding 6,900,000 founder shares. On August 18, 2022, the Sponsor surrendered for no consideration 1,150,000 Class B ordinary shares, resulting in our initial shareholders holding 5,750,000 founder shares. On November 17, 2022, the Sponsor surrendered for no consideration 958,333 Class B ordinary shares, resulting in our initial shareholders holding 4,791,667 founder shares. Prior to the initial investment in the company of $25,000 by the Sponsor, the Company had no assets, tangible or intangible. The per-share price of the founder shares was determined by dividing the amount contributed to the company by the number of founder shares issued. The founder shares will be worthless if we do not complete an initial business combination. In addition, the Sponsor and the underwriters purchased, pursuant to a written agreement, an aggregate of 762,500 Private Placement Units (637,500 Private Placement Units by the Sponsor and 125,000 Private Placement Units by the underwriters) at a price of $10.00 per unit ($7,625,000 in the aggregate), in a private placement that closed simultaneously with the closing of the Initial Public Offering. If we do not consummate an initial business by April 18, 2025 (or up to January 18, 2026, if we extend the time to complete a business combination as described elsewhere in this Annual Report on Form 10-K), the private placement warrants included in the Private Placement Units will expire worthless. In addition, our executive officers and directors will hold an indirect interest in the founder shares and the Private Placement Units owned by the Sponsor through their membership interests in the Sponsor. The personal and financial interests of our executive officers and directors may influence their motivation in identifying and selecting a target business combination, completing an initial business combination and influencing the operation of the business following our initial business combination. This risk may become more acute as the deadline to complete an initial business combination (which may be extended to up to 24 months from the anniversary of the Initial Public Offering) nears. +Our management may not be able to maintain control of a target business after our initial business combination. Upon the loss of control of a target business, new management may not possess the skills, qualifications or abilities necessary to profitably operate such business. +We may structure our initial business combination so that the post-business combination company in which our public shareholders own shares will own less than 100% of the equity interests or assets of a target business, but we will only complete such business combination if the post-business combination company owns or acquires 50% or more of the outstanding voting securities of the target or otherwise acquires a controlling interest in the target business sufficient for us not to be required to register as an investment company under the Investment Company Act. We will not consider any transaction that does not meet such criteria. Even if the post-business combination company owns 50% or more of the voting securities of the target, our shareholders prior to our initial business combination may collectively own a minority interest in the post-business combination company, depending on valuations ascribed to the target and us in the business combination. For example, we could pursue a transaction in which we issue a substantial number of new Class A ordinary shares in exchange for all of the outstanding capital stock, shares or other entity interests of a target. In this case, we would acquire a 100% interest in the target. However, as a result of the issuance of a substantial number of new Class A ordinary shares, our shareholders immediately prior to such transaction could own less than a majority of our outstanding Class A ordinary shares subsequent to such transaction. In addition, other minority shareholders may subsequently combine their holdings resulting in a single person or group obtaining a larger portion the company’s shares than we initially acquired. Accordingly, this may make it more likely that our management will not be able to maintain control of the target business. +63 +Table of Contents +The Sponsor controls a substantial interest in us and thus may exert a substantial influence on actions requiring a shareholder vote, potentially in a manner that you do not support. +The Sponsor owns, on an as-converted basis, 25% of our issued and outstanding ordinary shares (excluding the private placement shares). Accordingly, it may exert a substantial influence on actions requiring a shareholder vote, potentially in a manner that you do not support, including amendments to our amended and restated memorandum and articles of association. If the Sponsor purchases any units in the Initial Public Offering or if the Sponsor purchases any additional Class A ordinary shares in the aftermarket or in privately negotiated transactions, this would increase its control. Neither the Sponsor nor, to our knowledge, any of our officers or directors, have any current intention to purchase additional securities, other than as disclosed in this Annual Report on Form 10-K. Factors that would be considered in making such additional purchases would include consideration of the current trading price of our Class A ordinary shares. In addition, our board of directors, whose members were elected by the Sponsor, is and will be divided into three classes, each of which will generally serve for a term of three years with only one class of directors being appointed in each year. We may not hold an annual general meeting to appoint new directors prior to the completion of our initial business combination, in which case all of the current directors will continue in office until at least the completion of the business combination. If there is an annual general meeting, as a consequence of our “staggered” board of directors, only a minority of the board of directors will be considered for election. Accordingly, the Sponsor will continue to exert control at least until the completion of our initial business combination. In addition, we have agreed not to enter into a definitive agreement regarding an initial business combination without the prior consent of the Sponsor. +Holders of Class A ordinary shares will not be entitled to vote on the appointment of directors and certain other matters prior to our initial business combination. +As holders of our Class A ordinary shares, our public shareholders will not have the right to vote on the appointment of directors until after the consummation of our initial business combination. In addition, prior to our initial business combination, holders of a majority of our founder shares may remove a member of the board of directors for any reason. Accordingly, you may not have any say in the management of our company prior to the consummation of an initial business combination. In addition, prior to the closing of our initial business combination, only holders of Class B ordinary shares will have the right to vote on continuing the company in a jurisdiction outside of the Cayman Islands. +After our initial business combination, it is possible that a majority of our officers and directors will live outside the United States and all of our assets will be located outside the United States. Therefore, investors may not be able to enforce federal securities laws or their other legal rights. +It is possible that after our initial business combination, a majority of our officers and directors will reside outside of the United States and all of our assets will be located outside of the United States. As a result, it may be difficult, or in some cases not possible, for investors in the United States to enforce their legal rights, to effect service of process upon all of our directors or officers or to enforce judgments of United States courts predicated upon civil liabilities and criminal penalties on our officers and directors under United States laws. +We are dependent upon our executive officers and directors and their loss could adversely affect our ability to operate. +Our operations are dependent upon a relatively small group of individuals and, in particular, our executive officers and directors. We believe that our success depends on the continued service of our officers and directors, at least until we have completed our initial business combination. In addition, our executive officers and directors are not required to commit any specified amount of time to our affairs and, accordingly, will have conflicts of interest in allocating their time among various business activities, including identifying potential business combinations and monitoring the related due diligence. We do not have an employment agreement with, or key-man insurance on the life of, any of our directors or executive officers. +The unexpected loss of the services of one or more of our directors or executive officers could have a detrimental effect on us. +64 +Table of Contents +Risks Associated with Acquiring and Operating a Business in Foreign Countries +Our strategy is focused on pursuing an acquisition of Israeli technology companies. If we pursue a target company with operations or opportunities outside of the United States, including in Israel, for our initial business combination, we may face additional burdens in connection with investigating, agreeing to and completing such initial business combination, and if we effect such initial business combination, we would be subject to a variety of additional risks that may negatively impact our operations. +If we pursue a target company with operations or opportunities outside of the United States, including in Israel, for our initial business combination, we would be subject to risks associated with cross-border business combinations, including in connection with investigating, agreeing to and completing our initial business combination, conducting due diligence in a foreign jurisdiction, having such transaction approved by any local governments, regulators or agencies and changes in the purchase price based on fluctuations in foreign exchange rates. +If we effect our initial business combination with such a company, we would be subject to any special considerations or risks associated with companies operating in an international setting, including in Israel, including any of the following: +● costs and difficulties inherent in managing cross-border business operations; +● rules and regulations regarding currency redemption; +● complex withholding tax laws, including those relating to distributions or other payments; +● laws governing the manner in which future business combinations may be effected; +● exchange listing and/or delisting requirements; +● tariffs and trade barriers; +● regulations related to customs and import/export matters; +● local or regional economic policies and market conditions; +● transparency issues in general and, more specifically, the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act, and other anti-corruption compliance laws and issues; +● unexpected changes in regulatory requirements; +● longer payment cycles; +● tax issues, such as tax law changes and variations in tax laws as compared to the United States; +● currency fluctuations and exchange controls; +● rates of inflation; +● challenges in collecting accounts receivable; +● cultural and language differences; +● employment regulations; +● underdeveloped or unpredictable legal or regulatory systems; +65 +Table of Contents +● corruption; +● protection of intellectual property; +● social unrest, crime, strikes, riots and civil disturbances; +● regime changes and political upheaval; +● terrorist attacks, natural disasters and wars; and +● deterioration of political relations with the United States. +We may not be able to adequately address these additional risks. If we are unable to do so, we may be unable to complete such initial business combination, or, if we complete such combination, our operations might suffer, either of which may adversely impact our business, financial condition and results of operations. +We may face risks related to companies in the Israeli technology industry. +Business combinations with companies in the Israeli technology industry entail special considerations and risks. If we are successful in completing a business combination with such a target business, we may be subject to, and possibly adversely affected by, risks relating to the technology industry, which may be increased by the special considerations of operating a business in Israel, including the following: +● an inability to compete effectively in a highly competitive environment with many incumbents having substantially greater resources; +● an inability to manage rapid change, increasing consumer expectations and growth; +● an inability to build strong brand identity and improve subscriber or customer satisfaction and loyalty; +● a reliance on proprietary technology to provide services and to manage our operations, and the failure of this technology to operate effectively, or our failure to use such technology effectively; +● an inability to deal with our subscribers’ or customers’ privacy concerns; +● an inability to attract and retain subscribers or customers; +● an inability to license or enforce intellectual property rights on which our business may depend; +● any significant disruption in our computer systems or those of third parties that we would utilize in our operations; +● any significant disruption in our computer systems or those of third parties that we would utilize in our operations; +● an inability by us, or a refusal by third parties, to license content to us upon acceptable terms; +● potential liability for negligence, copyright, or trademark infringement or other claims based on the nature and content of materials that we may distribute; +● competition for advertising revenue; +● competition for the leisure and entertainment time and discretionary spending of subscribers or customers, which may intensify in part due to advances in technology and changes in consumer expectations and behavior; +66 +Table of Contents +● disruption or failure of our networks, systems or technology as a result of computer viruses, “cyber-attacks,” misappropriation of data or other malfeasance, as well as outages, natural disasters, terrorist attacks, accidental releases of information or similar events; +● an inability to obtain necessary hardware, software and operational support; and +● reliance on third-party vendors or service providers. +In addition, business combinations with Israeli technology companies could be affected by political conditions in Israel. Since the establishment of the State of Israel in 1948, a number of armed conflicts have occurred between Israel and its Arab neighbors, including the recent war with Hamas that began in October 2023. Any hostilities involving Israel, or the interruption or curtailment of trade between Israel and its present trading partners, could affect adversely our operations. Ongoing and revived hostilities or other Israeli political or economic factors could affect our ability to complete a business combination with an Israeli technology company or the operations of the post-combination business. Furthermore, several countries restrict business with Israel and Israeli companies. +Any of the foregoing could have an adverse impact on our operations following a business combination. However, our efforts in identifying prospective target businesses will not be limited to the Israeli technology industry. Accordingly, if we acquire a target business in another industry, these risks we will be subject to risks attendant with the specific industry in which we operate or target business which we acquire, which may or may not be different than those risks listed above. +If our management following our initial business combination is unfamiliar with United States securities laws, they may have to expend time and resources becoming familiar with such laws, which could lead to various regulatory issues. +Following our initial business combination, our management may resign from their positions as officers or directors of the company and the management of the target business at the time of the business combination will remain in place. Management of the target business may not be familiar with United States securities laws. If new management is unfamiliar with United States securities laws, they may have to expend time and resources becoming familiar with such laws. This could be expensive and time-consuming and could lead to various regulatory issues which may adversely affect our operations. +After our initial business combination, substantially all of our assets may be located in a foreign country and substantially all of our revenue may be derived from our operations in any such country. Accordingly, our results of operations and prospects will be subject, to a significant extent, to the economic, political and social conditions and government policies, developments and conditions in the country in which we operate. +Although our strategy is focused on the United States and Israel, we may pursue a target company operating in other countries. The economic, political and social conditions, as well as government policies, of the country in which our operations are located could affect our business. Economic growth could be uneven, both geographically and among various sectors of the economy and such growth may not be sustained in the future. If in the future such country’s economy experiences a downturn or grows at a slower rate than expected, there may be less demand for spending in certain industries. A decrease in demand for spending in certain industries could materially and adversely affect our ability to find an attractive target business with which to consummate our initial business combination and if we effect our initial business combination, the ability of that target business to become profitable. +Exchange rate fluctuations and currency policies may diminish a target business’ ability to succeed in the international markets. +In the event we acquire a non-U.S. target, such as an Israel-centered entity, as we are planning to do, a substantial portion of revenues and income would likely be received in a foreign currency, and the dollar equivalent of our net assets and distributions, if any, could be adversely affected by reductions in the value of the local currency. The value of the currency in our target region — Israel — fluctuates relative to the U.S. dollar and is affected by, among other things, changes in political and economic conditions. Any change in the relative value of that currency against our reporting currency may affect the attractiveness of any target business or, following consummation of our initial business combination, our financial condition and results of operations. Additionally, if a currency such as the Israeli currency (the New Israeli Shekel) appreciates in value against the U.S. dollar prior to the consummation of our initial business combination, the cost of a target business as measured in dollars will increase, which may make it less likely that we are able to consummate a transaction with that business. +67 +Table of Contents +We may reincorporate in another jurisdiction in connection with our initial business combination, and the laws of such jurisdiction may govern some or all of our future material agreements and we may not be able to enforce our legal rights. +In connection with our initial business combination, we may relocate the home jurisdiction of our business from the Cayman Islands to another jurisdiction. If we determine to do this, the laws of such jurisdiction may govern some or all of our future material agreements. The system of laws and the enforcement of existing laws in such jurisdiction may not be as certain in implementation and interpretation as in the United States. The inability to enforce or obtain a remedy under any of our future agreements could result in a significant loss of business, business opportunities or capital. +Changes in laws or regulations, or a failure to comply with any laws and regulations, may adversely affect our business, including our ability to negotiate and complete our initial business combination, and results of operations. +We are subject to laws and regulations enacted by national, regional and local governments. In particular, we will be required to comply with certain SEC and other legal requirements. Compliance with, and monitoring of, applicable laws and regulations may be difficult, time consuming and costly. Those laws and regulations and their interpretation and application may also change from time to time and those changes could have a material adverse effect on our business, investments and results of operations. In addition, a failure to comply with applicable laws or regulations, as interpreted and applied, could have a material adverse effect on our business, including our ability to negotiate and complete our initial business combination, and results of operations. +General Risk Factors +We are subject to changing laws and regulations regarding regulatory matters, corporate governance and public disclosure that have increased both our costs and the risk of non-compliance. +We are subject to rules and regulations by various governing bodies, including, for example, the SEC, which is charged with the protection of investors and the oversight of companies whose securities are publicly traded, and to new and evolving regulatory measures under applicable law. Our efforts to comply with new and changing laws and regulations have resulted in and are likely to continue to result in, increased general and administrative expenses and a diversion of management time and attention from seeking a business combination target. +Moreover, because these laws, regulations and standards are subject to varying interpretations, their application in practice may evolve over time as new guidance becomes available. This evolution may result in continuing uncertainty regarding compliance matters and additional costs necessitated by ongoing revisions to our disclosure and governance practices. If we fail to address and comply with these regulations and any subsequent changes, we may be subject to penalty and our business may be harmed. +On March 30, 2022, the SEC issued proposed rules relating to, among other items, enhancing disclosures in business combination transactions involving special purpose acquisition corporations and private operating companies and increasing the potential liability of certain participants in proposed business combination transactions. These rules, if adopted, whether in the form proposed or in revised form, may materially increase the costs and time required to negotiate and complete an initial business combination and could potentially impair our ability to complete an initial business combination. +We may be a passive foreign investment company, or “PFIC,” which could result in adverse U.S. federal income tax consequences to U.S. investors. +If we are a PFIC for any taxable year (or portion thereof) that is included in the holding period of a U.S. holder of our Class A ordinary shares or warrants, the U.S. holder may be subject to adverse U.S. federal income tax consequences and may be subject to additional reporting requirements. Our PFIC status for our current and subsequent taxable years may depend on the status of an acquired company pursuant to a business combination and whether we qualify for the PFIC start-up exception. Depending on the particular circumstances, the application of the start-up exception may be subject to uncertainty, and there cannot be any assurance that we will qualify for the start-up exception. Accordingly, there can be no assurances with respect to our status as a PFIC for our current taxable year or any subsequent taxable year. In addition, our actual PFIC status for any taxable year will not be determinable until after the end of such taxable year (and, in the case of the start-up exception, potentially not until after the end of the two taxable years following our current taxable year). If we determine we are a PFIC for any taxable year, upon written request, we will endeavor to provide to a U.S. holder such information as the Internal Revenue Service may require, including a PFIC Annual Information Statement, in order to enable the U.S. holder to make and maintain a “qualified electing fund” election, but there can be no assurance that we will timely provide such +68 +Table of Contents +required information, and such election would be unavailable with respect to our warrants in all cases. We urge U.S. holders to consult their tax advisors regarding the possible application of the PFIC rules. For a more detailed discussion of the tax consequences of PFIC classification to U.S. holders, see the section below titled “ ervi s.” +We are an emerging growth company and a smaller reporting company within the meaning of the Securities Act, and if we take advantage of certain exemptions from disclosure requirements available to “emerging growth companies” or “smaller reporting companies,” this could make our securities less attractive to investors and may make it more difficult to compare our performance with other public companies. +We are an “emerging growth company” within the meaning of the Securities Act, as modified by the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies,” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. As a result, our shareholders may not have access to certain information they may deem important. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of the Initial Public Offering, (b) in which we have total annual gross revenue of at least $1.235 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our Class A ordinary shares that are held by non-affiliates exceeds $700 million as of the prior June 30, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period. We cannot predict whether investors will find our securities less attractive because we will rely on these exemptions. If some investors find our securities less attractive as a result of our reliance on these exemptions, the trading prices of our securities may be lower than they otherwise would be, there may be a less active trading market for our securities and the trading prices of our securities may be more volatile. +Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. We have elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of our financial statements with another public company that is neither an emerging growth company nor an emerging growth company that has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used. +Additionally, we are a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We will remain a smaller reporting company until the last day of the fiscal year in which (1) the market value of our ordinary shares held by non-affiliates exceeds $250 million as of the prior June 30, or (2) our annual revenues exceeded $100 million during such completed fiscal year and the market value of our ordinary shares held by non-affiliates exceeds $700 million as of the prior June 30. To the extent we take advantage of such reduced disclosure obligations, it may also make comparison of our financial statements with other public companies difficult or impossible. +Recent increases in inflation in the United States and elsewhere could make it more difficult for us to consummate a business combination. +Recent increases in inflation in the United States and elsewhere may be leading to increased price volatility for publicly traded securities, including ours, and may lead to other national, regional and international economic disruptions, any of which could make it more difficult for us to consummate a business combination. +Military conflict in Ukraine could make it more difficult for us to consummate a business combination. +Military conflict in Ukraine may lead to increased price volatility for publicly traded securities, including ours, and to other national, regional and international economic disruptions and economic uncertainty, any of which could make it more difficult for us to identify a business combination partner and consummate a business combination on acceptable commercial terms or at all. +69 +Table of Contents +ITEM 1B. UNRESOLVED STAFF COMMENTS +The Company has not received any written comments from the staff of the SEC regarding its periodic or current reports under the Exchange Act that remain unresolved. +​ +ITEM 1C. CYBERSECURITY +We are a SPAC with no business operations. Since our IPO, our sole business activity has been identifying and evaluating suitable acquisition transaction candidates. Therefore, we do not consider that we face significant cybersecurity risk and have not adopted any cybersecurity risk management program or formal processes for assessing cybersecurity risk. Our board of directors is generally responsible for the oversight of risks from cybersecurity threats, if there is any. We have not encountered any material cybersecurity incidents since our IPO. +ITEM 2. PROPERTIES +We maintain our executive offices at 12600 Hill Country Blvd., Building R, Suite 275, Bee Cave, Texas 78738. The cost for our use of the office space is included in the $10,000 per month fee we pay to our Sponsor for office space, administrative and support services pursuant to the Administrative Services Agreement. Upon the completion of our initial business combination or our liquidation, we will cease paying these monthly fees. +​ +ITEM 3. LEGAL PROCEEDINGS +We may be a party to various claims and legal proceedings from time to time. We are not subject to any pending material legal proceedings, nor, to our knowledge, is any material legal proceeding threatened against us or any of our officers or directors in their capacity as such. +ITEM 4. MINE SAFETY DISCLOSURE +Not applicable. +​ +70 +Table of Contents +PART II +ITEM 5. MARKET FOR REGISTRANT’S UNITS, RELATED UNITHOLDER MATTERS AND ISSUER PURCHASES OF UNITS +Our units, Class A ordinary shares, and public warrants each trade on the Nasdaq Global Market under the symbols “ISRLU,” “ISRL” and “ISRLW,” respectively. Our units began trading on January 13, 2023, and our Class A ordinary shares and public warrants began separate public trading on February 28, 2023. Our Class B ordinary shares are not listed on any exchange. We do not have any preference shares outstanding. +Holders of Record +As of March 7, 2025, there were five holders of record of our units, one holder of record of our Class A ordinary shares, one holder of record of our Class B ordinary shares, and one holder of record of our warrants. There are no record holders of our preference shares. +Dividends +We have not paid any cash dividends on our ordinary shares to date and do not intend to pay cash dividends prior to the completion of an initial business combination. The payment of cash dividends in the future will be dependent upon our revenues and earnings, if any, capital requirements and general financial condition subsequent to completion of an initial business combination. The payment of any cash dividends subsequent to an initial business combination will be within the discretion of our board of directors at such time and we will only pay such dividend out of our profits or share premium (subject to solvency requirements) as permitted under applicable law. In addition, our board of directors is not currently contemplating and does not anticipate declaring any share capitalizations in the foreseeable future. Further, if we incur any indebtedness, our ability to declare dividends may be limited by restrictive covenants we may agree to in connection therewith. +Securities Authorized for Issuance under Equity Compensation Plans +None. +Performance Graph +Not Applicable. +Recent Sales of Unregistered Securities; Use of Proceeds from Registered Offerings +On January 18, 2023, we consummated our Initial Public Offering of 14,375,000 units. The units were sold at an offering price of $10.00 per unit, generating total gross proceeds of $143,750,000. BTIG, LLC was the representative of the underwriters and acted as the sole book-running manager of our Initial Public Offering. The offer and sale of the securities in the Initial Public Offering were registered under the Securities Act on registration statements on Form S-1 (No. 333-263658). The SEC declared the registration statement effective on January 12, 2021. +Simultaneously with the closing of the Initial Public Offering we completed the private sale of: +● an aggregate of 637,500 Private Placement Units to the Sponsor at a purchase price of $10.00 per private placement unit, generating gross proceeds to us of $6,375,000; +● an aggregate of 75,000 Private Placement Units to BTIG, LLC, at a purchase price of $10.00 per private placement unit, generating gross proceeds to us of $750,000; +● an aggregate of 25,000 Private Placement Units to Exos Capital LLC, at a purchase price of $10.00 per private placement unit, generating gross proceeds to us of $250,000; and +71 +Table of Contents +● an aggregate of 25,000 Private Placement Units to JonesTrading Institutional Services LLC, at a purchase price of $10.00 per private placement unit generating gross proceeds to the Company of $250,000. +The Private Placement Units are identical to the units sold in the Initial Public Offering, except that the private placement warrants, (i) are not redeemable by us, (ii) may not (including the Class A ordinary shares issuable upon exercise of these warrants), subject to certain limited exceptions, be transferred, assigned or sold by such holders until 30 days after the completion of our initial business combination, (iii) may be exercised the option of the holders on a cashless basis, and (iv) will be entitled to registration rights. No underwriting discounts or commissions were paid with respect to such sales of the Private Placement Units. The issuance of the Private Placement Units was made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act of 1933, as amended. +Of the gross proceeds received from the Initial Public Offering, including the exercise of the underwriters’ over-allotment option, and the sale of the Private Placement Units, an aggregate of $146,625,000 was placed in the Trust Account. +In connection with the Initial Public Offering, we incurred offering costs of approximately $8,642,960 (including deferred underwriting commissions of approximately $5,406,250). Other incurred offering costs consisted principally of preparation fees related to the Initial Public Offering. After deducting the underwriting discounts and commissions (excluding the deferred portion, which amount will be payable upon consummation of the initial business combination, if consummated) and the Initial Public Offering expenses, $146,625,000 million of the net proceeds from our Initial Public Offering and certain of the proceeds from the private placement of the Private Placement Units (or $10.00 per unit sold in the Initial Public Offering) was placed in the Trust Account. The net proceeds of the Initial Public Offering and certain proceeds from the sale of the Private Placement Units are held in the Trust Account and invested as described elsewhere in this Annual Report on Form 10-K. For a description of the use of the proceeds generated in our Initial Public Offering, see Part II, Item 7 of this Form 10-K. +ITEM 6. [RESERVED] +ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS +The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with our audited financial statements and the notes related thereto, which are included in “ Item 8. Financial Statements and Supplementary Data ” of this Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those set forth under “ Cautionary Note Regarding Forward-Looking Statements ,” “ Item 1A. Risk Factors, ” and elsewhere in this Annual Report on Form 10-K. +Overview +We are a blank check company formed under the laws of the Cayman Islands as an exempted limited company on August 24, 2021, for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization, or similar business combination with one or more businesses. We intend to effectuate an initial business combination using cash from the proceeds of our Initial Public Offering and the sale of the Private Placement Units, the proceeds of the sale of our securities in connection with an initial business combination (pursuant to forward purchase agreements or backstop agreements we may enter), securities issued to the owners of the target of an initial business combination, debt issued to bank or other lenders or the owners of the target of an initial business combination, or a combination of the foregoing or other sources. +We expect to continue to incur significant costs in the pursuit of its acquisition plans. We cannot assure you that its plans to complete an initial business combination will be successful. +On January 12, 2023, the SEC declared the Company’s registration statement for our Initial Public Offering effective. On January 18, 2023, we consummated our Initial Public Offering of 14,375,000 units, which included the full exercise the underwriters’ over-allotment option in the amount of 1,875,000 units, at $10.00 per unit, generating gross proceeds of $143,750,000. Each unit is comprised of one Class A ordinary share and one public warrant. +72 +Table of Contents +Simultaneously with the closing of the Initial Public Offering, we consummated the sale of (i) 637,500 private placement units (the “Private Placement Units”) at a price of $10.00 per Private Placement Unit in a private placement to the Sponsor, (ii) 75,000 Private Placement Units at price of $10.00 per Private Placement Unit in a private placement to BTIG, LLC, (iii) 25,000 Private Placement Units at price of $10.00 per Private Placement Unit in a private placement to Exos Capital LLC, and (iv) 25,000 Private Placement Units at price of $10.00 per Private Placement Unit in a private placement to JonesTrading Institutional Services LLC. +Following the closing of our Initial Public Offering on January 18, 2023, an amount of $146,625,000 ($10.00 per unit sold in our Initial Public Offering) from the net proceeds of the sale of the units in the Initial Public Offering and the sale of the Private Placement Units was placed in the Trust Account. +Effective April 30, 2023, Roy Zisapel resigned from his role as a member of and as Chairman of the audit committee of our board of directors (the “audit committee”). Pursuant to the audit committee charter, the audit committee must consist of at least three directors, one of which shall be the Chairman, and all of which must be “independent directors” in accordance with the rules of the Nasdaq Global Market and Rule 10A-3 of the Exchange Act. Simultaneously with Roy Zisapel’s resignation from the audit committee, the board of directors appointed Daniel Recanati as Chairman of the audit committee and appointed Peter Cohen as a member of the audit committee. +On January 2, 2024, the Company entered into the business combination agreement with Pomvom (the “Pomvom Business Combination Agreement”), pursuant to which, among other things and subject to the terms and conditions contained therein (i) Pomvom will cause a company organized under the laws of the State of Israel and wholly owned by a trustee (the “Pomvom NewPubco”) to be formed, (ii) Pomvom will cause a Cayman Islands exempted company and wholly owned, direct subsidiary of Pomvom NewPubco (“Merger Sub”) to be formed, (iii) Pomvom will cause Pomvom NewPubco and Merger Sub to become a party to the Pomvom Business Combination Agreement by delivering a joinder to the Pomvom Business Combination Agreement, (iv) Pomvom will effect the Share Split (as defined below), (v) Pomvom NewPubco, the shareholders of Pomvom and the holders of equity awards of Pomvom will effect the Equity Exchange (as defined below), and (vi) Merger Sub will merge with and into the Company, with the Company surviving the merger as a direct wholly owned subsidiary of Pomvom NewPubco (the “Merger”). +On January 8, 2024, by special resolution and at an extraordinary general meeting of shareholders, the Company (i) entered into an amendment (the “Trust Agreement Amendment”) to the Invest Management Trust Agreement dated as of January 12, 2023 (the “Trust Agreement”), with Equiniti Trust Company, LLC (f/k/a American Stock Transfer & Trust Company) (the “Trustee”) and (ii) amended the Company’s Second Amended and Restated Memorandum and Articles of Association, in its entirety, by adopting the Company’s Third Amended and Restated Memorandum and Articles of Association, pursuant to which the Company may extend the date by which the Company must consummate an initial business combination (the “Termination Date”) from 12 months from the closing of the Initial Public Offering (January 18, 2024) up to twelve (12) times (each, an “Extension”) to January 18, 2025, with each Extension comprised of one month. Pursuant to the Trust Agreement Amendment, the Company can extend the Termination Date by providing five days’ advance notice to the Trustee prior to the applicable Extension and depositing into the Trust Account the lesser of (i) $50,000 or (ii) $0.02 per Public Share, multiplied by the number of Public Shares that remain outstanding by the end of the then-current extended period, by the date of such Extension. +On January 18, 2024, the Company issued an unsecured promissory note to the Sponsor, to pay for up to twelve additional one-month extension payments (the “Extension Note”). On each of January 16, 2024, February 15, 2024, March 11, 2024, April 15, 2024, May 17, 2024, June 14, 2024, July 17, 2024, August 15, 2024, September 12, 2024, October 16, 2024, November 15, 2024, and December 17, 2024, the Company drew $50,000, $600,000 in the aggregate, against the Extension Note to pay for each additional one-month extension. The Extension Note bears no interest and is repayable in full (subject to amendment or waiver) upon the earlier of (a) the date of the consummation of the Company’s initial business combination, or (b) the date of the Company’s liquidation. As of December 31, 2024 and 2023, there was $600,000 and $0 outstanding under the Extension Note, respectively. +Additionally, on July 17, 2024, the Company issued an unsecured promissory note to the Sponsor (the “July Promissory Note”), pursuant to which the Company may borrow up to an aggregate principal amount of $1,500,000. The July Promissory Note bears no interest and is repayable in full (subject to amendment or waiver) upon the earlier of (i) the date of the consummation of the Company’s initial business combination, or (ii) the date of the Company’s liquidation. As of December 31, 2024 and 2023, there was $225,000 and $0 outstanding under the July Promissory Note, respectively. +On April 22, 2024, we entered into an amendment with Pomvom (the “Amendment”) to the Pomvom Business Combination Agreement. Pursuant to the Amendment, the we agreed with Pomvom to (i) extend the date by which all members of the board of directors of the post-combination company shall be agreed determined from April 30, 2024, to June 30, 2024, (ii) extend the date by +73 +Table of Contents +which an independent compensation consultant shall present a benchmark analysis of the compensation packages for officers and directors of public market companies that are comparable to Pomvom and recommendations for officer and director compensation packages to the Pomvom’s compensation committee and board of directors in connection with their review and approval of such packages from April 30, 2024, to June 30, 2024, and (iii) extend the Minimum Equity Financing Proceeds Termination Date (as defined in the Pomvom Business Combination Agreement) from June 30, 2024, to August 31, 2024. +On August 22, 2024, we entered into a mutual termination agreement with Pomvom (the “Mutual Termination Agreement”) pursuant to which the Pomvom Business Combination Agreement was terminated by the mutual consent of the Company and Pomvom, effective as of August 22, 2024. The Company and Pomvom agreed to waive any claim or demand on the part of any of either party against the other party, except in relation to a violation of the Mutual Termination Agreement or a violation of the confidentiality obligations stipulated in the Pomvom Business Combination Agreement. There are no early termination penalties incurred by the Company or Pomvom in connection with the termination of the Pomvom Business Combination Agreement. +On January 6, 2025, by special resolution and at an extraordinary general meeting of shareholders, the Company (i) entered into an amendment (the “Second Trust Agreement Amendment”) to the Trust Agreement and (ii) amended the Company’s Third Amended and Restated Memorandum and Articles of Association, in its entirety, by adopting the Company’s Fourth Amended and Restated Memorandum and Articles of Association, pursuant to which the Company may extend the Termination Date from January 18, 2025 up to twelve (12) times to January 18, 2026, with each such Extension comprised of one month. Pursuant to the Second Trust Agreement Amendment, the Company can extend the Termination Date by providing five days’ advance notice to the Trustee prior to the applicable Extended Date and depositing into the Trust Account the lesser of (i) $35,000 or (ii) $0.035 per Public Share, multiplied by the number of Public Shares that remain outstanding by the end of the then-current Extended Date, by the date of such Extension . +In connection with the shareholders’ vote, holders of 6,461,683 Class A ordinary shares of the Company exercised their right to redeem such shares (the “ Redemption ”) for a pro rata portion of the funds held in the Trust Account. As a result, $73,146,251.56 was removed from the Trust Account to pay such holders. Following the aforementioned Redemption, the Company has 6,352,099 ordinary shares of the Company (inclusive of the Class A ordinary shares underlying the private placement units of the Company) outstanding. +On January 17, 2025, the Company issued an unsecured promissory note to the Sponsor in the amount of $335,131 to pay for up to twelve additional one-month extension payments (the “2025 Extension Note”). On January 17, 2025, the Company drew $27,927 against the 2025 Extension Note to pay for an additional one-month extension. The 2025 Extension Note bears no interest and is repayable in full upon the earlier of (i) the date of the consummation of the Company’s initial business combination, or (ii) the date of the Company’s liquidation. +On January 26, 2025, the Company and Gadfin entered into the Business Combination Agreement, pursuant to which, among other things, and subject to the terms and conditions contained therein (i) Gadfin will cause a company organized under the laws of the State of Israel and wholly owned by a trustee (the “NewPubco”) to be formed, (ii) Gadfin will cause a company organized under the laws of the State of Israel and wholly owned, direct subsidiary of NewPubco (“Merger Sub 1”) to be formed, (iii) Gadfin will cause a Cayman Islands exempted company and wholly owned, direct subsidiary of NewPubco (“Merger Sub 2”) to be formed, (iv) Gadfin will cause NewPubco, Merger Sub 1 and Merger Sub 2 to become a party to the Business Combination Agreement by delivering a joinder to the Business Combination Agreement, (v) Gadfin will effect the Share Split, (vi) NewPubco, the shareholders of Gadfin and the holders of equity awards of Gadfin will effect the Acquisition Merger (as defined herein), (vii) Merger Sub 1 will merge with and into Gadfin, with Gadfin surviving the merger as a direct wholly owned subsidiary of NewPubco (the “Acquisition Merger”), and (viii) Merger Sub 2 will merge with and into the Company, with the Company surviving the merger as a direct wholly owned subsidiary of NewPubco (the “IAC Merger”, and together with the Acquisition Merger, the “Mergers”). The collective transactions referenced in (i)-(viii) are hereinafter referred to as the “Transactions”. The terms of the Business Combination Agreement, which contain customary representations and warranties, covenants, closing conditions, termination provisions, and other terms relating to the Transactions, are summarized below. Capitalized terms used but not defined herein shall have the meanings ascribed thereto in the Business Combination Agreement. +Under the Business Combination Agreement, holders of Gadfin equity interests are expected to receive approximately $200,000,000 (the “Gadfin Equity Value”) in aggregate consideration in the form of NewPubco Ordinary Shares, equal to the quotient obtained by dividing (a) the Gadfin Equity Value by (b) the fully diluted number of Gadfin ordinary shares and preferred shares (including ordinary shares issuable upon exercise, vesting and settlement of Gadfin options and Gadfin warrants and other convertible securities of Gadfin); provided however, in the event Gadfin does not record at least $4,500,000 in deferred revenue by the Closing Date, the Gadfin Equity Value shall be $150,000,000. +74 +Table of Contents +Gadfin may terminate the Business Combination Agreement, (a) at any time prior to the receipt of the Gadfin Shareholder Approval, in order to immediately enter into a written definitive agreement with respect to a Superior Proposal, and (b) if the representations and warranties of the Company are not true and correct or if the Company has materially breached any covenant or agreement as set forth in the Business Combination Agreement. In the event the Business Combination Agreement is terminated by Gadfin in order to accept a Superior Proposal, Gadfin will pay to the Company a termination fee of $10,000,000. In the event the Business Combination Agreement is terminated by Gadfin pursuant to clause (b) of this paragraph, the Company will pay to Gadfin a termination fee of $10,000,000. +Effective March 18, 2025, Daniel Recanati resigned from his role as Chairman of the audit committee. Simultaneously Daniel Recanati’s resignation as Chairman of the audit committee, the board of directors appointed Peter Cohen as Chairman of the audit committee. +Results of Operations +As of December 31, 2024, we had not commenced any operations. All activity from inception through December 31, 2024 relates to our formation and initial public offering (the “Initial Public Offering”), and, since the completion of the Initial Public Offering, our search for a target to consummate a business combination. We will not generate any operating revenues until after the completion of an initial business combination, at the earliest. We will generate non-operating income in the form of interest and dividend income from the proceeds derived from the Initial Public Offering and placed in a U.S.-based trust account (the “Trust Account”). We expect to incur increased expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses. +For the year ended December 31, 2024, we had net income of $2,820,574, which consisted of listing expenses of $194,954, administrative expenses of $136,862, legal and accounting expenses of $748,069, marketing and advertising expense of $350, dues and subscriptions expense of $89,700, and insurance expenses of $240,007, offset by dividend income on marketable securities held in the Trust Account of $4,223,235, and dividends and interest on cash and cash equivalents of $7,281. +For the year ended December 31, 2023, we had net income of $6,073,475, which consisted of listing expenses of $23,114, administrative expenses of $230,155, legal and accounting expenses of $533,565, marketing and advertising expense of $3,732, dues and subscriptions expense of $6,980, and insurance expense of $248,388, offset by realized gain and dividend income on marketable securities held in the Trust Account of $7,077,006 and dividends and interest on cash and cash equivalents of $42,403. +Liquidity, Capital Resources and Going Concern +As of December 31, 2024, we had $21,257 in cash and cash equivalents held outside of the Trust Account and working capital deficit of $1,448,187(excluding cash and marketable securities held in the Trust Account and the deferred underwriter fee payable). +Until the consummation of the Initial Public Offering, our only source of liquidity was from the $25,000 of proceeds from our Sponsor’s purchase of Class B ordinary shares, par value $0.0001 per share, and a loan of $237,234 from our Sponsor pursuant to a promissory note to cover certain expenses. The promissory note was repaid in full on January 18, 2023. +Following our Initial Public Offering and the sale of Private Placement Units (the “Private Units”) to the Sponsor, a total of $146,625,000 was placed in the Trust Account. +For the year ended December 31, 2024, net cash provided by operating activities was $3,347,864. Net income of $2,820,574 was adjusted by $527,290 changes in operating assets and liabilities. Net cash provided by investing activities was $71,097,923 related to proceeds from redemption of marketable securities held in Trust Account of $75,921,158, offset by the purchase of marketable securities held in Trust Account of $600,484, as well as dividends received from and reinvestment of marketable securities of $4,222,751. Net cash used in financing activities was $75,096,158 related to payment of redemptions on Class A ordinary shares subject to redemption of $75,921,158, offset by $825,000 of payments made by the Sponsor for Trust Account extension fees. +As of December 31, 2024, we had marketable securities held in the Trust Account of $82,604,083 (including approximately $4,223,235 of dividend income on marketable securities) consisting of securities held in a money market fund that invests in U.S. Treasury securities with a maturity of 185 days or less. We intend to use substantially all of the funds held in the Trust Account, including any amounts representing interest earned on the Trust Account (less deferred underwriting fees and income taxes payable), to complete +75 +Table of Contents +our initial business combination. To the extent that our capital shares or debt is used, in whole or in part, as consideration to complete our initial business combination, the remaining proceeds held in the Trust Account will be used as working capital to finance the operations of the target business or businesses, make other acquisitions and pursue our growth strategies. +As of December 31, 2024, we had cash and cash equivalents of $21,257 held outside the Trust Account. We intend to use the funds held outside the Trust Account primarily to identify and evaluate target businesses, perform business due diligence on prospective target businesses, travel to and from the offices, plants or similar locations of prospective target businesses or their representatives or owners, review corporate documents and material agreements of prospective target businesses, and structure, negotiate and complete a business combination. +To fund working capital deficiencies or finance transaction costs in connection with an initial business combination, the Sponsor or an affiliate of the Sponsor or certain of our officers and directors may, but are not obligated to, loan us funds as may be required. If we complete an initial business combination, we may repay such loaned amounts out of the proceeds of the trust account released to us. In the event that an initial business combination does not close, we may use a portion of the working capital held outside the Trust Account to repay such loaned amounts, but no proceeds from our Trust Account would be used for such repayment. Up to $1,500,000 of such loans may be convertible into private placement-equivalent units at a price of $10.00 per private placement-equivalent unit at the option of the lender. These units would be identical to the Private Placement Units. +We may need to obtain additional financing to complete our initial business combination, either because the transaction requires more cash than is available from the proceeds held in our Trust Account, or because we become obligated to redeem a significant number of our public shares upon completion of our initial business combination, in which case we may issue additional securities or incur debt in connection with such initial business combination. If we have not consummated our initial business combination within the Combination Period because we do not have sufficient funds available to us, we will be forced to cease operations and liquidate the Trust Account. +These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern one year from the date the financial statements are issued. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. +Contractual Obligations +We do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities as of December 31, 2024. +The underwriters are entitled to a deferred underwriting fee of $0.35 per unit, or $5,406,250 in the aggregate. The deferred underwriting fee was payable to the underwriter from the amounts held in the Trust Account solely in the event that IAC completes an initial business combination, subject to the terms of the underwriting agreement. +Critical Accounting Estimates +The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. We have not identified any critical accounting estimates as of December 31, 2024. +Recent Accounting Standards +In November 2023, the FASB issued Accounting Standard Update 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which is intended to improve reportable segment disclosure requirements, primarily through additional disclosures about significant segment expenses. The standard was effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. We adopted this ASU for the annual period ended December 31, 2024 and applied the provisions retrospectively to each period presented in the financial statements. Adoption of the new standard did not have a material impact on our financial statements. +76 +Table of Contents +In December 2023, the FASB issued Accounting Standards Update 2023-09, “Improvements to Income Tax Disclosures” (“ASU 2023-09”), which provides for additional disclosures primarily related to the income tax rate reconciliations and income taxes paid. ASU 2023-09 requires entities to annually disclose the income tax rate reconciliation using both amounts and percentages, considering several categories of reconciling items, including state and local income taxes, foreign tax effects, tax credits and nontaxable or nondeductible items, among others. Disclosure of the reconciling items is subject to a quantitative threshold and disaggregation by nature and jurisdiction. ASU 2023-09 also requires entities to disclose net income taxes paid or received to federal, state and foreign jurisdictions, as well as by individual jurisdiction, subject to a five percent quantitative threshold. ASU 2023-09 may be adopted on a prospective or retrospective basis and is effective for fiscal years beginning after December 15, 2024 with early adoption permitted. The Company is currently assessing the impact, if any, that ASU 2023-09 would have on its financial position, results of operations or cash flows. +The Company’s management does not believe that any other recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the accompanying financial statements. +ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK +We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this item. +ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA +This information appears following Item 15 of this Annual Report on Form 10-K and is incorporated herein by reference. +ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE +None. +ITEM 9A. CONTROL AND PROCEDURES +Evaluation of Disclosure Controls and Procedures +Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in company reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer (who serves as our Principal Executive Officer and Principal Financial and Accounting Officer), to allow timely decisions regarding required disclosure. +Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the fiscal year ended December 31, 2024, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that during the period covered by this report, our disclosure controls and procedures were effective as of December 31, 2024. +Remediation of Previously Identified Material Weakness +As previously disclosed in Part II, Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2023, we identified a material weakness related to the fact that we have not yet designed and maintained effective controls relating to the accounting for offering costs related to the Company’s Initial Public Offering. Specifically, certain accounting costs incurred through December 31, 2022, not directly or incrementally related to the Initial Public Offering were incorrectly recorded as deferred offering costs rather than expensed as incurred. During 2023, we implemented a remediation plan, including a control that our principal financial officer perform additional post-closing review procedures including consulting with subject matter experts related to the accounting for certain offering expenses. The Company completed testing over the design and operating effectiveness of the relevant control and concluded the material weakness was remediated as reported in the Company’s March 31, 2024, Form 10-Q. +77 +Table of Contents +Management’s Report on Internal Controls over Financial Reporting +Management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America. Our internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. +Any system of internal control, no matter how well designed, has inherent limitations, including the possibility that a control can be circumvented or overridden and misstatements due to error or fraud may occur and not be detected in a timely manner. Also, because of changes in conditions, internal control effectiveness may vary over time. Accordingly, even an effective system of internal control will provide only reasonable assurance with respect to financial statement preparation. +Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2024. In making this assessment, management used the criteria set forth in 2013 by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in “Internal Control-Integrated Framework.” Based on management’s assessment using the COSO criteria, management has concluded that our internal control over financial reporting was effective as of December 31, 2024. +This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to the rules of the SEC that permit us to provide only management’s report in this Annual Report. +Attestation Report of Independent Registered Public Accounting Firm +This Annual Report on Form 10-K does not include an attestation report of our registered public accounting firm on internal control over financial reporting due to an exemption established by the JOBS Act for “emerging growth companies.” +Changes in Internal Control over Financial Reporting +There were no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2024, covered by this Annual Report on Form 10-K that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. +ITEM 9B. OTHER INFORMATION +N o n e . +ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS +Not applicable. +​ +78 +Table of Contents +PART III +ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE +Name +Age +Titles +Ziv Elul +​ +49 +​ +Chief Executive Officer and Director +Sharon Barzik Cohen +​ +53 +​ +Chief Financial Officer and Director +Izhar Shay +​ +61 +​ +Director (Chairman) +Candice Beaumont +​ +51 +​ +Director +Peter Cohen +​ +58 +​ +Director +Roy Zisapel +​ +53 +​ +Director +Daniel Recanati +​ +48 +​ +Director +​ +Officers and Directors +Ziv Elul serves as our Chief Executive Officer and a member of our board of directors. Mr. Elul has 17 years of industry and managerial experience with start-up and high-growth technology businesses operating globally, which includes two acquisition transactions and operational experience as the CEO of a publicly traded company. In 2007, Mr. Elul co-founded Inneractive, an independent automated mobile platform with marketplace exchange capabilities and focused on powering video ads. He served as CEO of Inneractive, leading it to outstanding profitability until its acquisition by Fyber N.V. (FSE:FBEN) a global provider of monetization platforms for mobile publishers, in July 2017. Following the acquisition, Mr. Elul continued to serve as CEO and led the integration of the businesses under one brand with a strong focus on cutting-edge technology. Under his leadership, Fyber N.V. reached profitability for the first time as a combined company. In May 2021, Fyber N.V. was acquired for $600 million by a multi-billion dollar media and advertising solutions company, Digital Turbine (Nasdaq:APPS), where he was appointed to serve as a strategic advisor supporting the integration. Prior to 2007, Mr. Elul served as a Lieutenant Colonel in Israel’s Reserves Corps. Mr. Elul is a member of the Israeli branch of the Young Presidents’ Organization (“YPO”), a global network of young chief executives, and is deeply involved in the Israeli high tech and startup ecosystem. Mr. Elul is an active investor in Israeli technology companies, with a portfolio of 18 company investments to-date (including several successful exits, such as Spotinst (acquired by Net App for $450 million)) and an investor in seven venture capital firms. He holds an Executive MBA from the Hebrew University which he graduated from with honors. +Sharon Barzik Cohen serves as our Chief Financial Officer and a member of our board of directors. In May 2021, Ms. Cohen joined Qumra Capital, a leading growth capital fund that invests in late stage technology-driven companies, as Partner and Chief Operating Officer. Before Qumra Capital, she was CFO of the Storage Division at Dell EMC in Israel, having previously served since 2011 as CFO of XtremIO, which developed all flash advanced storage solutions and was acquired by EMC in 2012 for $430M, one of the largest acquisitions in the Israeli tech market at the time. In this role Ms. Cohen oversaw global finance teams worldwide, and was a member of the Dell Israel leadership team. Prior to 2011, Ms. Cohen was CFO of N-trig, a developer of transparent electromagnetic digitizers for the mobile computers market, which was acquired by Microsoft in 2015. From 1996 to 2003, she served as CFO of RadioTel, a leading networking company offering next-generation SDH/Sonet network solutions. Ms. Cohen earned a BA in Psychology, summa cum laude, and an Executive MBA, cum laude, both from Tel Aviv University. +​ +79 +Table of Contents +Izhar Shay serves as Chairman of our board of directors. Mr. Shay currently serves as a venture partner at Disruptive AI, an early stage venture capital firm focused on AI investments. He also is the Chairman of Kendago, a leading digital marketing household and is on the Board of Directors of Aquarius Engine (TASE: AQUA, Developer of a Two Sided Free Piston Linear Engine), Tastewise (an AI based consumer insights platform for food & beverage innovation) and Equinom (a food-tech company developing non-GMO plant-based ingredients). From 2020 to 2021, Mr. Shay was Israel’s Minister of Science and Technology. Prior to that Mr. Shay’s professional career included various management and business positions in the Israeli high-tech and venture capital sectors. Previously, he worked as a high-tech entrepreneur and managed a number of companies for nearly ten years in the United States. In 1998, he co-founded Business Layers, a developer of Identity Management software solutions, and served as the company’s CEO until its sale in 2003 to Netegrity (Nasdaq: NETE). From 2004-2005, Mr. Shay served as chairman and CEO of V-Secure Technologies, a developer of intrusion prevention products intended to block cyber-attacks, which he led through its sale to Radware (NASDAQ: RDWR). In 2006, he joined the international venture capital fund Canaan Partners as a partner and managed its investment activities in Israel until 2014. At that time, Canaan Partners had assets under management of approximately $2.0B. Together with his partner, Ehud Levy, he co-founded Canaan Partners Israel in 2014, which made investments in Israeli technology start-ups, focusing on investments in mobile, digital media, Internet, communications and software. He served as a director at LiveU (acquired by Francisco Partners), Viewbix (acquired by Algomizer), Rollout.io, Drupe, and RegulusX and served as a director at Prime Sense prior to its sale to Apple as well as at N-trig, which was sold to Microsoft. In 2015, Mr. Shay was selected by the Israeli media outlet Geektime to be on the list of the 100 most influential people in the Israeli high-tech. Mr. Shay was elected as a member of the Israeli parliament, where he served from 2019 to 2021. He was a member of the special Coronavirus Cabinet, which was formed by the Israeli government, where he helped lead the national efforts confronting the challenges of the COVID-19 pandemic. +Candice Beaumont serves as a member of our board of directors. Beginning in October 2020, Candice Beaumont began to serve as an advisor to Springwater Special Situations Corp. (Nasdaq: SWSSU), a special purpose acquisition company formed to effectuate a merger or similar transaction with one or more businesses, which completed its initial public offering on August 25, 2021 and is currently searching for an initial business combination with a well-positioned business with operational improvements in Europe or elsewhere. Ms. Beaumont is a member of the Board of Directors of Clean Earth Acquisition Corp. (Nasdaq: CLINU), a special purpose acquisition company that completed its initial public offering in February 2022 and entered into a business combination agreement on October 12, 2022 for the purposes of acquiring substantially all of the subsidiaries of Alternus Energy Group Plc, a public limited company incorporated under the laws of Ireland. Ms. Beaumont has served since 2016 as Chairman of the Salsano Group, a Panama based family office and conglomerate invested in private equity. From 2003 to present, Ms. Beaumont has served as Chief Investment Officer of L Investments, a single-family office invested in public and private equity. Ms. Beaumont speaks at numerous family office and investment conferences globally, including the Stanford University Graduate School of Business Global Investor’s Forum, is a NYU Stern Family Office Council member serving on the Steering Committee, and is an Advisory Board member of the Family Office Association. From 2012 to 2014, Ms. Beaumont was a member of the board of directors of I2BF Venture Fund II, a Dubai Financial Services Authority regulated clean tech venture capital firm with offices in Dubai, New York and London, as well as an Advisory Board member of The Luxury Fund. Ms. Beaumont remains committed to community and philanthropic causes and serves on the International Council of Advisors for Global Dignity, a charity founded by Crown Prince Haakon of Norway to foster global respect and dignity across all borders, genders, religions and races. Ms. Beaumont was part of the Milken Young Leaders Circle and is a member of the Milken Institute, as well as an active member of YPO. Ms. Beaumont started her career in Corporate Finance at Merrill Lynch in 1996 and worked as an investment banker at Lazard Frères from 1997 to 1999, during which time Ms. Beaumont executed over $20 billion of merger and acquisition advisory assignments. Ms. Beaumont also worked in private equity at Argonaut Capital from 1999 to 2001. Ms. Beaumont obtained a Bachelor in Business Administration from the University of Miami, graduating first in her class with a major of International Finance & Marketing. Ms. Beaumont was captain of the University of Miami varsity tennis team, where Ms. Beaumont earned Academic All-American honors, and is also a former world-ranked professional tennis player. Ms. Beaumont completed Global Leadership & Public Policy for the 21st Century at Harvard Kennedy School in 2015. Ms. Beaumont was honored by Trusted Insight as one of the Top 30 Family Office Chief Investment Officers in 2017 and as a Young Global Leader by the World Economic Forum in 2014. Ms. Beaumont has a broad network of relationships, including investors in private and public equity, leading venture capital firms with compelling pre-initial public offering companies and has expertise sourcing deals, evaluating private and public businesses, and conducting detailed due diligence and risk management. +Peter Cohen serves as a member of our board of directors. Mr. Cohen was an investment banker for approximately three decades, advising CEOs and boards of directors on mission critical strategic and financing transactions. Most recently, from 2015 to 2020, he was a Managing Director and Global Head of Media, Entertainment & Sports Investment Banking at Barclays. In this role, he led a team responsible for managing all client coverage efforts for the firm in these sectors globally. He primarily focused on the largest clients in the Diversified and New Media and Sports sub-sectors, specializing in mergers & acquisitions, as well as debt and equity capital raising efforts, on behalf of clients worldwide. From 2009 to 2015, he had similar responsibilities as a Senior Managing Director at Blackstone. +80 +Table of Contents +Mr. Cohen started his investment banking career at JP Morgan in 1993. Some of the more noted transactions he participated in over his thirty year career include: representing the Los Angeles Dodgers in their sale to Guggenheim Partners, the sale of the Chicago Cubs to the Ricketts family, representing Altice NV in its acquisition of Cablevision Systems Corp., representing Cineworld Group PLC on its acquisition of Regal Entertainment Group, and News Corporation on its acquisition of Dow Jones & Company. +Roy Zisapel serves as a member of our board of directors. Mr. Zisapel is a co-founder of Radware (NASDAQ: RDWR), a leader of cybersecurity and application delivery solutions for physical, cloud and software-defined data centers. Mr. Zisapel has served as President and Chief Executive Officer of Radware since the company’s inception in April 1997, and he is responsible for the overall direction and strategy of the company. Under his leadership, Radware has grown from a startup to a global, Nasdaq-listed industry leader with more than 35 offices and 1,100 employees worldwide. He was instrumental in raising over $200 million for Radware, which included two public offerings: an initial public offering in September 1999 — just two and a half years after the company’s inception — and a follow-on offering in January 2000. Radware’s growth has paralleled working with some of the most prominent brands in the world, including commercial banks, stock exchanges, retailers, telecom companies and mobile operators. Radware maintains strategic partnerships with Cisco, Checkpoint, IBM, Microsoft, Nokia, SAP and VMWare, among others. Mr. Zisapel has led Radware through several successful acquisitions, including V-Secure Technologies (2005), Covelight Systems (2007), Nortel’s application delivery business, Alteon (2009), and Strangeloop Networks in 2013. Most recently, he oversaw the acquisition of Seculert (2017) and ShieldSquare (2019). From 1996 to 1997, Mr. Zisapel was a team leader of research and development projects for RND Networks Ltd. From 1994 to 1996, Mr. Zisapel was employed as a software engineer for other companies in Israel. Mr. Zisapel graduated summa cum laude with a B.S. degree in mathematics and computer science from Tel Aviv University, where he was honored with the International Wolf Prize for research students. Mr. Zisapel holds several U.S. patents and patent applications in the areas of global load balancing, network proximity, traffic redirection and multi-homing. +Daniel S. Recanati serves as a member of our board of directors. Mr. Recanati is the founder & CEO of Rhodium, a privately-owned investment firm with a diverse portfolio including some of Israel’s most promising companies. Mr. Recanati founded and invested in numerous tech ventures from early stage to growth, across different sectors such as fintech, foodtech, cyber, AI, digital media, e-commerce, automotive, communication and mobile. Mr. Recanati is an early investor in successful Israeli companies such as Outbrain (NASDAQ:OB), eToro, Yotpo, Storedot, Celsius, Face.com (acquired by Facebook), Hopstop (acquired by Apple), Zooz (acquired by PayU), Rounds (acquired by Kik), Hexatier (acquired by Huawei), IMGN (acquired by WarnerMusic) and Compass (acquired by Sage). For over two decades, Mr. Recanati has been focusing on accelerating social impact through technology, by co-founding and being closely involved in a variety of community organizations. Mr. Recanati serves on the board of The Yahel Foundation, the Recanati family philanthropy foundation, which aims to narrow social gaps by driving social processes and supporting non-profit organizations that advance education, welfare and health. Mr. Recanati also serves on the board of MadaTech — The Israel National Museum of Science Technology and Space. Mr. Recanati co-founded and serves on the board of Apple Seeds Academy (“Tapuah”), an Israeli nonprofit organization that was founded with the aim of bridging between Israel’s growing tech sector and the digital peripheries. He also serves on the board of “Ogen”- a non-profit social lending enterprise, providing affordable credit to disadvantaged segments of the Israeli public. Mr. Recanati holds an LLB and BA from the Reichman University, Herzliya. +Advisory Board +We currently expect members of our advisory board to (i) assist us in sourcing, negotiating and consummating a potential business combination, (ii) provide their business insights when we assess potential business combination targets and (iii) upon our request, provide their business insights as we work to create additional value in the businesses that we acquire. However, they have no written advisory agreement with us. Additionally, these individuals own membership interests in us, but have no other employment or compensation arrangements with us. They will not serve on the board or any committee thereof, nor will they have any voting or decision making capacity on our behalf. They will also not be required to devote any specific amount of time to our efforts or be subject to the fiduciary requirements to which our board members are subject. Accordingly, if any of them become aware of a business combination opportunity which is suitable for us, they are under no obligation to introduce it to us before any other prospective acquiror. We may utilize additional advisors from time to time. +The following are the initial members of our advisory board: +Alex Greystoke serves as a member of our advisory board and is one of our founders. Mr. Greystoke is a successful serial entrepreneur with a breadth of skills in a diverse range of industries. He is a founder and member of the advisory board of Goal Acquisitions Corp. (Nasdaq: PUCKU), a SPAC, that raised $258 million through its initial public offering in February 2021 and entered into a business combination agreement on November 17, 2022 for the purposes of acquiring Digital Virgo Group, a French corporation. +81 +Table of Contents +Mr. Greystoke is also the founder and member of the advisory board of Clean Earth Acquisition Corp. (Nasdaq: CLINU), a SPAC that completed a $200 million initial public offering in February 2022 and entered into a business combination agreement on October 12, 2022 for the purposes of acquiring substantially all of the subsidiaries of Alternus Energy Group Plc, a public limited company incorporated under the laws of Ireland. Mr. Greystoke is also on the board of Springwater Special Situations Corp (Nasdaq: SWSSU), a SPAC that raised $168 million through its initial public offering in August 2021 and is seeking to merge with a well-positioned business with operational improvement opportunities in Europe or elsewhere. Mr. Greystoke is the founder of multiple AI technology companies including TripChamp, VacationChamp and TravelChamp. He is the inventor of three granted artificial intelligence patents, with eight pending patent applications. Mr. Greystoke also holds investments in real estate, food and beverage, technology and other sectors. Mr. Greystoke founded HSC, a boutique corporate finance business raising money for and helping emerging companies commercialize in a range of sectors including technology, energy, healthcare and consumer products utilizing his wide network of partners throughout Asia, Europe, the Middle East and the U.S. Mr. Greystoke has served as director to numerous companies in the education, technology, AI and renewable energy spaces, and has served as a Chairman to a U.K. listed Chinese manufacturing company. +Robert Pincas serves as a member of our advisory board and is one of our founders. Mr. Pincas is a successful investment manager and entrepreneur with over 20 years of experience in the Israeli ecosystem and international capital markets. Over the years, Mr. Pincas has developed a deep network with Israeli tech companies and a wide range of international investors. Currently, Mr. Pincas serves as the SMB partner for Fundit, a leading crowdfund platform in Israel, regulated by the Israeli Securities Authority. Between 2007 and 2020 Mr. Pincas was a Managing Director with MG Investment Capital, a venture capital fund investing in Israeli technology with a profitable return for investors. Mr. Pincas was the Accelerator Program Director (Jerusalem and the Plains) for Maof-Tech, for the Israeli Economy Ministry. Between 2014 and 2018 Mr. Pincas managed Maof Rishon LeZion (sponsored by the Israeli Economy Ministry), one of the largest consulting centers in Israel, servicing thousands of SMB businesses. Mr. Pincas served between 2003-2008 as Executive Director and Partner with MG Equity Partners Ltd., an investment bank focusing on cross border transactions between Israeli and European companies and the London capital markets, such as Domino’s Pizza Switzerland, Pepsi Romania and MTI Wireless. Mr. Pincas has volunteered with Paamonim, a nonprofit organization focusing on financial education for families. Mr. Pincas holds an MBA from Tel Aviv University and a BA in Economics from Ben Gurion University. +Eitan Efron serves as a member of our advisory board and is one of our founders. Mr. Efron has 30 years of experience in technology investments, technology and business management and high-tech entrepreneurship. Mr. Efron has a diverse entrepreneurial and management background. Mr. Efron is a founder of four technology startups, including Oversi Networks, which was acquired by Allot Communications (NASDAQ: ALLT) in 2009, and WiNetworks, which was acquired by Ruggedcom Inc. in 2006 (and later acquired by Siemens). Between 2007 and 2019, Mr. Efron was a director with MG Investment Capital, a venture capital fund investing in Israeli technology with a profitable return for investors. Mr. Efron has deep contacts in Israeli tech ecosystem, including investors, companies’ executives, entrepreneurs and Israeli Innovation Authority. Mr. Efron has direct access to multiple multi-sector technology companies. +Ehud Levy serves as a member of our advisory board. Since 2014, Mr. Levy has been the Managing General Partner of Canaan Partners Israel, an Israeli venture capital fund. Since 2019, he has been a Venture Partner with Lenovo Capital heading its investment opportunities in Israel. Mr. Levy is also an active private investor in tech companies operating as a partner with a leading investment team, Kaedan Capital. From 2006 to 2014, Mr. Levy was a Managing Partner at Vertex VC. Among other successful investments, Mr. Levy identified Waze as a bright star from the start, leading the first investment round in the company and serving on its board of directors until its acquisition by Google for over US$1 billion. Previously, Mr. Levy co-founded and served as Chairman and CEO of Ki-Bi Mobile Technologies, a mass-market device specialist for mobile content distribution. He led the business from concept to commercial success, an initial public offering in London and eventual acquisition. Earlier, he served as COO and CFO of Telegate, a telecommunications company, where he was responsible for a restructuring plan leading to the acquisition of the company for over US$400 million. Prior to Telegate, Mr. Levy was an investment banker in New York and Tel Aviv, and served on the board of directors of several technology companies. Mr. Levy holds a BSc in Computer Engineering (with honors) from the Technion – Israel Institute of Technology and an MBA from Columbia Business School in New York. +Nir Ben Lavi serves as a member of our advisory board. Currently Mr. Ben Lavi is the CEO and co-founder of the Pangea Cup, the world’s first global competition and reality show for discovering the next big video game, and has served in that capacity since December 2019. Mr. Ben Lavi was appointed to his first managerial position at the age of 25, and combined it with intensive R&D work. This experience provided Mr. Ben Lavi with invaluable knowledge on innovation and led him to dedicate a lot of his time helping countries create their own start-up ecosystems. Mr. Ben Lavi is an active member of YPO Israel, and YPO Change Makers Club. Mr. Ben Lavi is an active investor deeply involved in the Israeli startup ecosystem. He is the former Managing Director of the NYU Blockchain Accelerator which he served at from October 2017 to October 2019, as well as head of the joint innovation program at +82 +Table of Contents +Bosphorus University, Turkey. Mr. Ben Lavi is the author of three books and inventor of revolutionary software solutions. Mr. Ben Lavi received his B.A. in Sociology, with honors, and his M.B.A. from the University of Tel Aviv. His Ph.D. research study in the field of Computerized Dispute Resolution led to the development of a first-of-its-kind dispute resolution software that was adopted by the United Nations as a managerial work tool. +Guy Kurlandski serves as a member of our advisory board. Mr. Kurlandski has more than 30 years’ experience as an entrepreneur and investor spanning diverse industries globally, from printing and real estate to spirits and technology. Today, Mr. Kurlandski’s primary position is as the Chief Evangelist Officer at Liquidity Group, an Israeli based global fintech and fund manager, which he has been with from 2019 to the present. He is also a Forbes Business Council member and an advisor to MUMA College of Business. He has been based in the United States since 2008 and was previously based in the United Kingdom. Mr. Kurlandski speaks both English and Hebrew and has strong ties to Israel. He has experience in scaling, managing and funding companies to reach their full potential. +Aaron Greenberg serves as a member of our advisory board. Mr. Greenberg is a finance professional with substantial experience in foreign markets. Recently, Mr. Greenberg was Chief Strategy Officer and Project Manager of European Sustainable Growth Acquisition Corp. (NASDAQ: EUSG), which successfully merged with ADS-TEC Energy (NASDAQ: ADSE), a German energy storage and EV charging company. In this position, he played a significant role in the negotiation of the business combination agreement between the parties and in successfully raising $156 million in a private investment public equity transaction for EUSG’s contemplated business combination with ADSE. Concurrent to EUSG, Mr. Greenberg served on the investment team for Lucerne Capital Management, a European-focused investment management firm managing approximately $800 million in assets. Prior to joining Lucerne, Mr. Greenberg worked in various roles for Wells Fargo Bank and its affiliates, latest of which as a portfolio manager evaluating operational inefficiencies and credit policy within the Corporate Investment Bank. He holds a FINRA Series 7, FINRA Series 63, FINRA Series 79, and FINRA Series 99 Securities license. Prior to joining Wells Fargo Bank, Mr. Greenberg attended Yale University where he earned a B.A. in Economics and B.A. in History. +Number and Terms of Office of Officers and Directors +Our board consists of seven directors. Holders of our founder shares have the right to appoint all of our directors prior to the consummation of our initial business combination and holders of our public shares do not have the right to vote on the appointment of directors during such time. In addition, prior to the completion of an initial business combination, (i) any vacancy on our board of directors may be filled by a nominee chosen by holders of a majority of our founder shares and (ii) holders of a majority of our founder shares may remove a member of the board of directors for any reason. +Our board of directors is divided into three classes, with only one class of directors being appointed in each year, and with each class (except for those directors appointed prior to our first annual general meeting) serving a three-year term. In accordance with the Nasdaq corporate governance requirements, we are not required to hold an annual general meeting until one year after our first fiscal year end following our listing on the Nasdaq. The term of office of the first class of directors consisting of Roy Zisapel and Peter Cohen, will expire at our first annual general meeting. The term of office of the second class of directors, consisting of Daniel Recanati, Sharon Barzik Cohen and Candice Beaumont, will expire at our second annual general meeting. The term of office of the third class of directors, consisting of Ziv Elul and Izhar Shay, will expire at our third annual general meeting. Mr. Shay serves as chairman of our board of directors. +Our officers are appointed by the board of directors and serve at the discretion of the board of directors, rather than for specific terms of office. Our board of directors is authorized to appoint persons to the offices set forth in our amended and restated memorandum and articles of association as it deems appropriate. Our amended and restated memorandum and articles of association will provide that our officers may consist of, a chief executive officer, a president, a chief financial officer, vice presidents, a secretary, a treasurer and such other officers as may be determined by the board of directors. +Director Independence +Nasdaq listing standards require that a majority of our board of directors be independent. An “independent director” is defined generally as a person other than an officer or employee of the company or its subsidiaries or any other individual having a relationship which in the opinion of the company’s board of directors, would interfere with the director’s exercise of independent judgment in carrying out the responsibilities of a director. Our board of directors has determined that Peter Cohen, Roy Zisapel, Candice Beaumont and Daniel Recanati are “independent directors” as defined in the Nasdaq listing standards. Our independent directors have regularly scheduled meetings at which only independent directors are present. +83 +Table of Contents +Committees of the Board of Directors +Our board of directors has three standing committees: an audit committee, a nominating committee, and a compensation committee. Subject to phase-in rules and a limited exception, the rules of the Nasdaq and Rule 10A-3 of the Exchange Act require that the audit committee of a listed company be comprised solely of independent directors. Subject to phase-in rules and a limited exception, the rules of the Nasdaq require that the compensation committee and the nominating committee of a listed company be comprised solely of independent directors. +Audit Committee +Peter Cohen, Candice Beaumont and Daniel Recanati serve as the members of our audit committee, and Mr. Cohen chairs the audit committee. Each member of the audit committee meets the independent director standard under Nasdaq listing standards and under Rule 10-A-3(b)(1) of the Exchange Act. Each member of the audit committee is financially literate and our board of directors has determined that Mr. Zisapel qualifies as an “audit committee financial expert” as defined in applicable SEC rules. +The audit committee is responsible for: +● meeting with our independent registered public accounting firm regarding, among other issues, audits, and adequacy of our accounting and control systems; +● monitoring the independence of the independent registered public accounting firm; +● verifying the rotation of the lead (or coordinating) audit partner having primary responsibility for the audit and the audit partner responsible for reviewing the audit as required by law; +● inquiring and discussing with management our compliance with applicable laws and regulations; +● pre-approving all audit services and permitted non-audit services to be performed by our independent registered public accounting firm, including the fees and terms of the services to be performed; +● appointing or replacing the independent registered public accounting firm; +● determining the compensation and oversight of the work of the independent registered public accounting firm (including resolution of disagreements between management and the independent auditor regarding financial reporting) for the purpose of preparing or issuing an audit report or related work; +● establishing procedures for the receipt, retention and treatment of complaints received by us regarding accounting, internal accounting controls or reports which raise material issues regarding our financial statements or accounting policies; +● monitoring compliance on a quarterly basis with the terms of previous offerings and, if any noncompliance is identified, immediately taking all action necessary to rectify such noncompliance or otherwise causing compliance with the terms of previous offerings; and +● reviewing and approving all payments made to our existing shareholders, executive officers or directors and their respective affiliates. Any payments made to members of our audit committee will be reviewed and approved by our board of directors, with the interested director or directors abstaining from such review and approval. +The audit committee charter also provides that the audit committee shall have the authority, to the extent it deems necessary or appropriate, to retain independent legal, accounting, or other advisors. Our Company shall provide for appropriate funding, as determined by the audit committee, for payment of compensation to (i) the independent auditor for the purpose of rendering or issuing an audit report and (ii) any advisors employed by the audit committee. +84 +Table of Contents +Nominating Committee +Daniel Recanati, Peter Cohen, and Candice Beaumont serve as the members of our nominating committee and Ms. Beaumont chairs the nominating committee. Each member of the nominating committee meets the independent director standard under Nasdaq listing standards. +The nominating committee is responsible for: +● developing criteria and qualifications for membership on the board of directors; +● recruiting, reviewing, and nominating candidates for election to the board of directors or to fill vacancies on the board of directors; +● reviewing candidates proposed by shareholders and conducting appropriate inquiries into the background and qualifications of such candidates; +● establishing subcommittees for the purpose of evaluating special or unique matters; +● monitoring and making recommendations regarding committee functions, contributions, and composition; and +● evaluating, on an annual basis the nominating committee’s performance. +The nominating committee considers persons identified by its members, management, shareholders, investment bankers and others. +Guidelines for Selecting Director Nominees +The nominating committee will consider a number of qualifications relating to management and leadership experience, background and integrity and professionalism in evaluating a person’s candidacy for membership on the board of directors. The nominating committee may require certain skills or attributes, such as financial or accounting experience, to meet specific board needs that arise from time to time and will also consider the overall experience and makeup of its members to obtain a broad and diverse mix of board members. The nominating committee does not distinguish among nominees recommended by shareholders and other persons. +Our nominating committee’s charter provides that the nominating committee will consider and evaluate each director-candidate based upon its assessment of the following criteria: +● whether the candidate is independent pursuant to the requirements of Nasdaq; +● whether the candidate is accomplished in his or her field and has a reputation, both personal and professional, that is consistent with the image and reputation of our Company; +● whether the candidate has the ability to read and understand basic financial statements and satisfies the criteria for being an “audit committee financial expert,” as defined by the SEC; +● whether the candidate has relevant experience and expertise and would be able to provide insights and practical wisdom based upon that experience and expertise; +● whether the candidate has knowledge of our Company and issues affecting our Company; +● whether the candidate is committed to enhancing shareholder value; +● whether the candidate fully understands, or has the capacity to fully understand, the legal responsibilities of a director and the governance processes of a public company; +85 +Table of Contents +● whether the candidate is of high moral and ethical character and would be willing to apply sound, objective, and independent business judgment, and to assume broad fiduciary responsibility; +● whether the candidate has, and would be willing to commit, the required hours necessary to discharge the duties of board of directors membership; +● whether the candidate has any prohibitive interlocking relationships or conflicts of interest; +● whether the candidate is able to develop a good working relationship with other board of directors members and contribute to our board of director’s working relationship with the senior management of our Company; and +● whether the candidate is able to suggest business opportunities to our Company. +Shareholders who wish to recommend to the nominating committee, a candidate for election to the board of directors should send a written recommendation to our offices located at 12600 Hill Country Blvd, Building R, Suite 275, Bee Cave, Texas 78738, Attention: Nominating Committee. We will promptly forward all such letters to the members of the nominating committee. Shareholders must follow certain procedures to recommend to the nominating committee candidates for election as directors. In general, to provide sufficient time to enable the nominating committee to evaluate candidates recommended by shareholders in connection with selecting candidates for nomination in connection with our annual meeting of shareholders, we must receive the shareholder’s recommendation no later than 30 days after the end of our fiscal year. +Compensation Committee +Candice Beaumont, Peter Cohen, and Daniel Recanati serve as the members of our compensation committee and Mr. Recanati chairs the compensation committee. Each member of the compensation committee meets the independent director standard under Nasdaq listing standards. +The compensation committee is responsible for: +● reviewing and approving on an annual basis the corporate goals and objectives relevant to our Chief Executive Officer’s compensation evaluating our Chief Executive Officer’s performance in light of such goals and objectives and determining and approving the remuneration (if any) of our Chief Executive Officer based on such evaluation; +● reviewing and approving the compensation of all of our other executive officers; +● reviewing our executive compensation policies and plans; +● implementing and administering our incentive compensation equity-based remuneration plans; assisting management in complying with our proxy statement and annual report disclosure requirements; +● approving all special perquisites, special cash payments and other special compensation and benefit arrangements for our executive officers and employees; +● producing a report on executive compensation to be included in our annual proxy statement; and +● reviewing, evaluating and recommending changes, if appropriate, to the remuneration for directors. +The compensation committee charter also provides that the compensation committee shall have the authority, to the extent it deems necessary or appropriate, to retain legal counsel or other advisors. In retaining compensation consultants, outside counsel, and other advisors, the compensation committee must take into consideration factors specified in the Nasdaq listing rules. We will provide for appropriate funding, as determined by the compensation committee, for payment of any such investigations or studies and the compensation to any consulting firm, legal counsel, or other advisors retained by the compensation committee. +86 +Table of Contents +Compensation Committee Interlocks and Insider Participation +None of our executive officers currently serves, and in the past year has not served, as a member of the compensation committee of any entity that has one or more executive officers serving on our board of directors. +Code of Ethics +We have adopted a Code of Ethics applicable to our directors, officers and employees. The Code of Ethics is available at the governance documents section of our website at https://israelacquisitionscorp.com. A copy of the Code of Ethics will also be provided without charge upon request from us. Information contained on or accessible through the website is not a part of this Annual Report on Form 10-K, and the inclusion of the website address in this Annual Report on Form 10-K is an inactive textual reference only. Any amendments to the Code of Ethics, or any waivers of its requirements, are expected to be disclosed as required by SEC and Nasdaq rules. The reference to our website address does not constitute incorporation by reference of the information contained at or available through our website, and you should not consider it to be a part of this Annual Report on Form 10-K. +Insider Trading Policy +We have not adopted an insider trading policy or procedures governing the purchase, sale, and/or other dispositions of the Company’s securities by directors, officers and employees, or the Company itself, that are reasonably designed to promote compliance with insider trading laws, rules and regulations, and any listing standards applicable to the Company. We expect that such a policy will be adopted by the post-business combination company in connection with a business combination transaction. +ITEM 11. EXECUTIVE COMPENSATION +None of our executive officers or directors have received any cash compensation for services rendered to us. On January 13, 2023 and continuing through the earlier of consummation of our initial business combination and our liquidation, we began paying the Sponsor $10,000 per month in exchange office space, administrative and support services pursuant to the Administrative Services Agreement. In addition, the Sponsor and our executive officers and directors, or their respective affiliates will be reimbursed for any out-of-pocket expenses incurred in connection with activities on our behalf such as identifying potential target businesses and performing due diligence on suitable business combinations. Our audit committee will review on a quarterly basis all payments that were made by us to the Sponsor and our executive officers or directors, or their affiliates. Any such payments prior to an initial business combination will be made using funds held outside the Trust Account. Other than quarterly audit committee review of such reimbursements, we do not expect to have any additional controls in place governing our reimbursement payments to our directors and executive officers for their out-of-pocket expenses incurred in connection with our activities on our behalf in connection with identifying and consummating an initial business combination. Other than these payments and reimbursements, no compensation of any kind, including finder’s and consulting fees, will be paid by us to the Sponsor, our executive officers and directors, or their respective affiliates, prior to completion of our initial business combination. +After the completion of our initial business combination, directors or members of our management team who remain with us may be paid consulting or management fees from the combined company. All of these fees will be fully disclosed to shareholders, to the extent then known, in the proxy solicitation materials or tender offer materials furnished to our shareholders in connection with a proposed business combination. We have not established any limit on the amount of such fees that may be paid by the combined company to our directors or members of management. It is unlikely that the amount of such compensation will be known at the time of the proposed business combination, because the directors of the post-combination business will be responsible for determining executive officer and director compensation. Any compensation to be paid to our executive officers will be determined, or recommended to the board of directors for determination, either by a compensation committee constituted solely by independent directors or by a majority of the independent directors on our board of directors. +We do not intend to take any action to ensure that members of our management team maintain their positions with us after the consummation of our initial business combination, although it is possible that some or all of our executive officers and directors may negotiate employment or consulting arrangements to remain with us after our initial business combination. The existence or terms of any such employment or consulting arrangements to retain their positions with us may influence our management’s motivation in identifying or selecting a target business, but we do not believe that the ability of our management to remain with us after the consummation of our initial business combination will be a determining factor in our decision to proceed with any potential business +87 +Table of Contents +combination. We are not party to any agreements with our executive officers and directors that provide for benefits upon termination of employment. +ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED UNITHOLDER MATTERS +The following table sets forth information regarding the beneficial ownership of our ordinary shares as of March 31, 2025, by: +● each person known by us to be the beneficial owner of more than 5% of our issued and outstanding ordinary shares; +● each of our executive officers and directors that beneficially owns ordinary shares; and +● all our executive officers and directors as a group. +Unless otherwise indicated, we believe that all persons named in the table have sole voting and investment power with respect to all of our ordinary shares beneficially owned by them. The following table does not reflect record or beneficial ownership of the warrants as the warrants are not exercisable within 60 days of the date of this Annual Report on Form 10-K. +In the table below, percentage ownership is based on 6,352,009 ordinary shares, consisting of (i) 1,560,432 Class A ordinary shares and (ii) 4,791,667 Class B ordinary shares, issued and outstanding as of March 31, 2025. On all matters to be voted upon, except for the election of directors of the board, holders of Class A ordinary shares and Class B ordinary shares vote together as a single class. +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Class A Ordinary Shares +Class B Ordinary Shares +Approximate +​ +​ +Number of +​ +​ +​ +Number of +​ +​ +​ +Percentage of +​ +​ +​ +Shares +​ +Approximate +​ +Shares +​ +Approximate +​ +Outstanding +​ +​ +​ +Beneficially +​ +Percentage of +​ +Beneficially +​ +Percentage of +​ +Ordinary +​ +Name and Address of Beneficial Owner +​ +Owned +Class +​ +Owned +Class +​ +Shares +Directors and Named Executive Officers +​ +Ziv Elul(3) +— +— +% +— +— +% +— +% +Sharon Barzik Cohen(3) +— +— +— +— +— +​ +Izhar Shay(3) +— +— +— +— +— +​ +Candice Beaumont(3) +— +— +— +— +— +​ +Peter Cohen(3) +— +— +— +— +— +​ +Roy Zisapel(3) +— +— +— +— +— +​ +Daniel S. Recanati(3) +— +— +— +— +— +​ +All officers and directors as a group (7 individuals) +— +— +— +— +— +​ +5% or Greater Shareholders +​ +Israel Acquisitions Sponsor LLC(4) +637,500 +3.2 +% +4,696,167 +98.0 +% +23.6 +% +Charles Ecalle(4) +637,500 +3.2 +% +4,696,167 +98.0 +% +23.6 +% +Alexander Greystoke(4) +637,500 +3.2 +% +4,696,167 +98.0 +% +23.6 +% +*Less than one percent. +1) Unless otherwise noted, the business address of each of our shareholders is c/o Israel Acquisitions Corp, 12600 Hill Country Blvd, Building R, Suite 275, Bee Cave, TX 78738. +2) Interests shown consist solely of founder shares. Such founder shares will automatically convert into Class A Ordinary Shares at the time of our initial business combination or earlier at the option of the holders thereof. +3) Does not include any shares held by our Sponsor, of which each of our officers and directors is a member. This individual has an indirect economic interest in securities owned by our Sponsor. +4) Our Sponsor is the record holder of such securities. Charles Ecalle and Alexander Greystoke are the managers of our Sponsor and share voting and investment discretion with respect to the securities held by our Sponsor and as such may be deemed to have shared beneficial ownership of the securities held directly by our Sponsor. Each of Mr. Ecalle and Mr. Greystoke disclaims beneficial ownership of any securities held by our Sponsor other than to the extent of their respective pecuniary interests therein, directly or indirectly. +88 +Table of Contents +Our Sponsor beneficially owns 25% of the issued and outstanding ordinary shares (excluding private placement shares) and will have the right to elect all of our directors prior to our initial business combination. Holders of our public shares will not have the right to elect any directors to our board of directors prior to our initial business combination. Because of this ownership block, our Sponsor may be able to effectively influence the outcome of all other matters requiring approval by our shareholders, including amendments to our amended and restated memorandum and articles of association and approval of significant corporate transactions including our initial business combination. +Our Sponsor has agreed (a) to vote any founder shares and public shares held by it in favor of any proposed initial business combination and (b) not to redeem any founder shares or public shares held by it in connection with a shareholder vote to approve a proposed initial business combination. +ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE +On January 26, 2022, the Sponsor paid $25,000, or approximately $0.004 per share, to cover certain expenses on our behalf in consideration of 5,750,000 Class B ordinary shares, par value $0.0001. On March 4, 2022, we effected a share capitalization with respect to our Class B ordinary shares of 1,150,000, resulting in our initial shareholders holding 6,900,000 founder shares. On August 18, 2022, our Sponsor surrendered for no consideration 1,150,000 Class B ordinary shares, resulting in our initial shareholders holding 5,750,000 founder shares. On November 17, 2022, the Sponsor surrendered for no consideration 958,333 Class B ordinary shares, resulting in the Sponsor holding 4,791,667 founder shares. The founder shares (including the Class A ordinary shares issuable upon automatic conversion thereof) may not, subject to certain limited exceptions, be transferred, assigned or sold by the holder. Each of our officers and directors owns an indirect interests in a portion of the founder shares through a membership interest in the Sponsor. +On January 26, 2022, we issued an unsecured promissory note to the Sponsor, pursuant to which we could borrow up to an aggregate amount $300,000 (the “Promissory Note”) to be used for a portion of the expenses of our Initial Public Offering. The Promissory Note was non-interest bearing, unsecured, and payable upon the earlier of December 31, 2022 or the closing of our Initial Public Offering. In December 2022, we and the Sponsor agreed to extend the maturity of the Promissory Note to the earlier of December 31, 2023 or the consummation of our Initial Public Offering. On January 18, 2023 we consummated our Initial Public Offering and paid $245,540 to the Sponsor, resulting in an overpayment of $8,306. +In connection with our Initial Public Offering, our Sponsor, BTIG, Exos Capital LLC, and Jones Trading Institutional Services LLC purchased an aggregate of 762,500 Private Placement Units for a purchase price of $10.00 per private placement unit (our Sponsor purchased 637,500 Private Placement Units, BTIG purchased 75,000 Private Placement Units, Exos Capital LLC purchased 25,000 Private Placement Units, and JonesTrading Institutional Services LLC purchased 25,000 Private Placement Units) pursuant to Private Placement Units purchase agreements dated as of January 12, 2023. As such, our Sponsor’s interest in this transaction is valued at between $6,375,000. The Private Placement Units are identical to the units sold in connection with our Initial Public Offering, except that the private placement warrants underlying the Private Placement Units (i) are not be redeemable by us, (ii) may not (including the Class A ordinary shares issuable upon exercise of these private placement warrants), subject to certain limited exceptions, be transferred, assigned or sold by the holders until 30 days after the completion of our initial business combination, (iii) may be exercised by the holders on a cashless basis, and (iv) are entitled to registration rights. The Private Placement Units (including the private placement shares, private placement warrants and the Class A ordinary shares issuable upon exercise of the private placement warrants) may not, subject to certain limited exceptions, be transferred, assigned or sold by the holder. Each of our officers and directors own an indirect interests in a portion of the Private Placement Units through a membership interest in the Sponsor. +A portion of the proceeds from the sale of the Private Placement Units was added to the proceeds from the Initial Public Offering in the Trust Account such that at the time of the closing, $146,625,000 was held in the Trust Account. If we do not complete our initial business combination by February 1, 2023, the proceeds from the sale of the Private Placement Units held in the Trust Account will be used to fund the redemption of our public ordinary shares (subject to the requirements of applicable law), and the Private Placement Units (and the underlying securities) will be worthless. +If any of our officers or directors becomes aware of a business combination opportunity that falls within the line of business of any entity to which he or she has a then-current fiduciary or contractual obligation, he or she will honor his or her fiduciary or contractual obligation to present such opportunity to such entity. Our officers and directors currently have certain relevant fiduciary duties or contractual obligations that may take priority over their duties to us. +89 +Table of Contents +In connection with the Initial Public Offering, we entered into the Administrative Services Agreement, whereby our Sponsor agreed to make available, or cause to be made available directly or indirectly through any of its affiliates, with office space and secretary and administrative services in exchange for $10,000 per month fee until the closing of our initial business combination. Upon the completion of our initial business combination or our liquidation, we will cease paying these monthly fees. +Our Sponsor, our officers and directors, or any of their respective affiliates are entitled to reimbursement for any out-of-pocket expenses incurred in connection with activities on our behalf such as identifying potential target businesses and performing due diligence on suitable business combinations. Our audit committee will review on a quarterly basis all payments that were made to our Sponsor, officers, directors or our or their affiliates. There is no cap or ceiling on the reimbursement of out-of-pocket expenses incurred by such persons in connection with activities on our behalf. +In order to finance transaction costs in connection with an intended initial business combination, our Sponsor or an affiliate of our Sponsor or certain of our officers and directors may, but are not obligated to, loan us funds as may be required. If we complete an initial business combination, we may repay such loaned amounts out of the proceeds of the Trust Account released to us. In the event that our initial business combination does not close, we may use a portion of the working capital held outside the Trust Account to repay such loaned amounts, but no proceeds from our Trust Account would be used for such repayment. Up to $1,500,000 of such loans may be convertible into private placement-equivalent units of the post-business combination entity at a price of $10.00 per private placement-equivalent unit at the option of the lender. Such units would be identical to the Private Placement Units. Except for the foregoing, the terms of such working capital loans, if any, have not been determined and no written agreements exist with respect to such working capital loans. Prior to our initial business combination, we do not expect to seek loans from parties other than our Sponsor, its affiliates or our management team as we do not believe third parties will be willing to loan such funds and provide a waiver against any and all rights to seek access to funds in our Trust Account. +After our initial business combination, members of our management team who remain with us may be paid consulting, management or other fees from the combined company with any and all amounts being fully disclosed to our shareholders, to the extent then known, in the tender offer or proxy solicitation materials, as applicable, furnished to our shareholders. It is unlikely the amount of such compensation will be known at the time of distribution of such tender offer materials or at the time of a general meeting held to consider our initial business combination, as applicable, as it will be up to the directors of the post-combination business to determine executive and director compensation. +In connection with our Initial Public Offering, we entered into the Registration Rights Agreement with the Sponsor, BTIG, Exos Capital LLC and Jones Trading Institutional Services LLC. Pursuant to the Registration Rights Agreement, those parties are entitled to certain registration rights with respect to any founder shares, Private Placement Units, private placement shares, private placement warrants, the warrants issuable upon conversion of working capital loans (if any) and the Class A ordinary shares issuable upon conversion of the founder shares or exercise of the private placement warrants and working capital loans (if any) held by them. +In connection with our Initial Public Offering, the Sponsor, our executive officers and our directors entered into a letter agreement with us, dated January 12, 2023 (the “Letter Agreement”), pursuant to which each of them have agreed (i) that if we seek shareholder approval of an initial business combination, then it, she, or he, as applicable shall vote all founder shares and any public shares held by it, she or him, as applicable, in favor of such proposed initial business combination (including any proposals recommended by our board in connection therewith) (ii) to waive their redemption rights with respect to any founder shares and public shares held by it, she, or he in connection with (A) the completion of our initial business combination and (B) a shareholder vote to approve an amendment to our amended and restated memorandum and articles of association (1) that would modify the substance or timing of our obligation to provide holders of our public shares the right to have their shares redeemed in connection with our initial business combination or to redeem 100% of our public shares if we do not complete our initial business combination by April 18, 2025 (or up to January 18, 2026 if we extend the time to complete a business combination as described in this Annual Report on Form 10-K) or (2) with respect to any other provision relating to the rights of holders of our public shares (although the Sponsor, our executive officers, and our directors shall be entitled to liquidation rights with respect to any public shares they hold if we fail to consummate an initial business combination within the Combination Period). Additionally, the Sponsor, our executive officers and our directors have each agreed to waive their respective rights to liquidating distributions from the Trust Account with respect to its founder shares held by them in connection with any liquidation of our Company. +Pursuant to the Letter Agreement, the Sponsor and our officers and directors have agreed not to transfer, assign or sell any of their founder shares until the earliest of (A) one year after the completion of our initial business combination and (B) subsequent to our initial business combination, (x) if the closing price of our Class A ordinary shares equals or exceeds $12.00 per share (as adjusted for share +90 +Table of Contents +subdivisions, share capitalizations, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 150 days after our initial business combination, or (y) the date on which we complete a liquidation, merger, share exchange or other similar transaction that results in all of our public shareholders having the right to exchange their ordinary shares for cash, securities or other property. +In addition, under the Letter Agreement, the Sponsor and our officers and directors have agreed that, they shall not transfer any of the Private Placement Units, private placement shares, private placement shares, or ordinary shares underlying the private placement warrants until 30 days after the completion of an initial business combination. If we do not complete our initial business combination within the Combination Period, the private placement warrants will expire worthless. Because each of our executive officers and directors will own ordinary shares or warrants, directly or indirectly, they may have a conflict of interest in determining whether a particular target business is an appropriate business with which to effectuate our initial business combination. +We have entered into agreements to indemnify our directors, executive officers and other employees as determined by the board of directors. Under the terms of such indemnification agreements, we will be required to indemnify each of our directors and officers, to the fullest extent permitted by applicable law. We have agree to indemnify our officers and directors reasonable attorneys’ fees, retainers, court costs (including trial and appeals), transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, federal, state, local, or foreign taxes imposed as a result of the actual or deemed receipt of any payments under the indemnification agreement, and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, appealing, preparing to appeal, investigating, or being or preparing to be a witness in an action, suit, arbitration, alternate dispute resolution mechanism, investigation, administrative hearing or any other proceeding, whether conducted by or on behalf of the Company or any other party, whether civil, criminal, administrative or investigative, or establishing or enforcing a right to indemnification under the indemnification agreement. The indemnification agreements also require the Company, if so requested, to advance within 30 days of such request, all reasonable fees, expenses, charges and other costs that any of our directors incur, provided that such director will return any such advance if it is ultimately determined that such director is not entitled to indemnification by us. Any claims for indemnification by our directors and officers may reduce our available funds to satisfy successful third-party claims against us and may reduce the amount of money available to us. +Sponsor Support Agreement +Concurrently with the execution of the Business Combination Agreement, we entered into the Sponsor Support Agreement with the Sponsor and Gadfin, whereby the Sponsor has agreed, among other things, (a) to vote in favor of the Business Combination Agreement and the Business Combination on the terms and subject to the conditions set forth in the Sponsor Support Agreement, (b) in the event the Covered Shares represent more than 30% of NewPubco Ordinary Shares issued and outstanding immediately following Closing, Sponsor will irrevocably forfeit and surrender, immediately prior to Closing, for no consideration, a number of Sponsor Shares, up to a maximum of 1,429,000 Sponsor Shares, in order to reduce the Sponsor’s holding in NewPubco below the Dilution Cap, and (c) if, immediately prior to or at the Closing, SPAC incurs a Transaction Expenses Cap Excess without obtaining the prior written consent of Gadfin to incur such Transaction Expenses Cap Excess, then at the election of Gadfin in its sole discretion, Sponsor shall either (x) irrevocably transfer to such persons entitled to the respective Transaction Expenses Cap Excess such number of SPAC Shares or SPAC Warrants that will satisfy and settle such Transaction Expenses Cap Excess, reasonably acceptable to Gadfin or (y) pay directly to NewPubco any such Transaction Expenses Cap Excess, such that only Sponsor bears such Transaction Expenses Cap Excess. The Sponsor also agreed that it will not (a) transfer any of the Sponsor Shares or grant any security interest in the Sponsor Shares pursuant to the Business Combination Agreement or to another shareholder of the Company, (b) deposit any Sponsor Shares into a voting trust or enter into a voting arrangement that is inconsistent with the Sponsor Support Agreement or (c) enter into any arrangement with respect to the acquisition or sale of any of the Sponsor Shares. The Sponsor has also agreed to waive its rights to the treatment of its Sponsor Shares and to not participate in any redemption by tendering or submitting any IAC equity securities held by the Sponsor for redemption. Capitalized terms used but not defined herein shall have the meanings ascribed thereto in the Sponsor Support Agreement. +91 +Table of Contents +Promissory Notes +On January 18, 2024, the Company issued a promissory note in the amount of $600,000 to pay for up to twelve additional one-month extension payments (the “Extension Note”). On each of January 16, 2024, February 15, 2024, March 11, 2024, April 15, 2024, May 17, 2024, June 14, 2024, July 17, 2024, August 15, 2024, September 12, 2024, October 16, 2024, November 15, 2024, and December 17, 2024, the Company drew $50,000, $600,000 in the aggregate, against the Extension Note to pay for each additional one-month extension. The Extension Note bears no interest and is repayable in full (subject to amendment or waiver) upon the earlier of (i) the date of the consummation of the Company’s initial business combination, or (ii) the date of the Company’s liquidation. As of December 31, 2024, there was $600,000 outstanding under the Extension Note. +On July 17, 2024, the Company issued an unsecured promissory note to the Sponsor (the “July Promissory Note”), pursuant to which the Company may borrow up to an aggregate principal amount of $1,500,000. The July Promissory Note bears no interest and is repayable in full (subject to amendment or waiver) upon the earlier of (i) the date of the consummation of the Company’s initial business combination, or (ii) the date of the Company’s liquidation. As of December 31, 2024, there was $225,000 outstanding under the July Promissory Note. +On January 17, 2025, the Company issued an unsecured promissory note to the Sponsor in the amount of $335,131 to pay for up to twelve additional one-month extension payments (the “2025 Extension Note”). On January 17, 2025, the Company drew $27,927 against the 2025 Extension Note to pay for an additional one-month extension. The 2025 Extension Note bears no interest and is repayable in full (subject to amendment or waiver) upon the earlier of (i) the date of the consummation of the Company’s initial business combination, or (ii) the date of the Company’s liquidation. +Related Party Policy +Upon consummation of our Initial Public Offering, the audit committee of our board of directors adopted a charter, providing for the review, approval, or ratification of “related-party transactions,” which are those transactions required to be disclosed pursuant to Item 404 of Regulation S-K as promulgated by the SEC, by the audit committee. At its meetings, the audit committee shall be provided with the details of each new, existing, or proposed related party transaction, including the terms of the transaction, any contractual restriction that we have already committed to, the business purpose of such transaction, and the benefits of the transaction to us and to the relevant related party. Any member of the audit committee who has an interest in the related party transaction under review by the audit committee shall abstain from voting on the approval of the related party transaction, but may, if so requested by the chairman of the audit committee, participate in some or all of the audit committee’s discussions of the related party transaction. Upon the completion of its review of the related party transaction, the audit committee may determine to permit or to prohibit the related party transaction. +Director Independence +Nasdaq listing standards require that a majority of our board of directors be independent. An “independent director” is defined generally as a person other than an officer or employee of the company or its subsidiaries or any other individual having a relationship which in the opinion of the company’s board of directors, would interfere with the director’s exercise of independent judgment in carrying out the responsibilities of a director. Our board of directors has determined that Peter Cohen, Roy Zisapel, Candice Beaumont and Daniel Recanati are “independent directors” as defined in the Nasdaq listing standards. Our independent directors will have regularly scheduled meetings at which only independent directors are present. +​ +92 +Table of Contents +ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES +The following is a summary of fees paid or to be paid to BDO USA, P.C., or BDO, for services rendered. +Audit Fees . Audit fees consist of fees billed for professional services rendered for the audit of our year-end financial statements and services that are normally provided by BDO in connection with regulatory filings. The aggregate fees billed by BDO for professional services rendered for the audit of our annual financial statements, review of the financial information included in our Forms 10-Q for the respective periods and other required filings with the SEC for the year ended December 31, 2024 and for the year ended December 31, 2023 totaled approximately $157,230 and $154,144, respectively. The above amounts include interim procedures and audit fees, as well as attendance at audit committee meetings. +Audit-Related Fees. Audit-related services consist of fees billed for assurance and related services that are reasonably related to performance of the audit or review of our financial statements and are not reported under “Audit Fees.” These services include attest services that are not required by statute or regulation and consultations concerning financial accounting and reporting standards. We did not pay BDO for consultations concerning financial accounting and reporting standards for the year ended December 31, 2024 and for the year ended December 31, 2023. +Tax Fees . We did not pay BDO for tax planning and tax advice for the year ended December 31, 2024 and for the year ended December 31, 2023. +All Other Fees . We did not pay BDO for other services for the year ended December 31, 2024 and for the year ended December 31, 2023. +Pre-Approval Policy +Our audit committee was formed upon the consummation of our Initial Public Offering. As a result, the audit committee did not pre-approve all of the foregoing services, although any services rendered prior to the formation of our audit committee were approved by our board of directors. Since the formation of our audit committee, and on a going-forward basis, the audit committee has and will pre-approve all auditing services and permitted non-audit services to be performed for us by our auditors, including the fees and terms thereof (subject to the de minimis exceptions for non-audit services described in the Exchange Act which are approved by the audit committee prior to the completion of the audit). +​ +93 +Table of Contents +PART IV +ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES +(a) Documents filed as part of this report. +1. Financial Statements +See Index to Financial Statements as Item 8 herein. +2. Financial Statement Schedules +All schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. +3. Exhibits +94 +Table of Contents +​ +​ +​ +​ +​ +Incorporated by Reference +Exhibit +No. +Exhibit Description +Form +SEC File +No. +Exhibit +Filing +Date +1.1 +​ +Underwriting Agreement, dated January 12, 2023, by and among the Company and BTIG, LLC, as representative of the several underwriters. +​ +8-K +​ +001-41593 +​ +1.1 +​ +January 19, 2023 +2.1 +​ +Business Combination Agreement, dated as of January 2, 2024, by and between the Company and Pomvom Ltd. +​ +8-K +​ +001-41593 +​ +2.1 +​ +January 2, 2024 +2.2 +​ +Amendment No. 1 to the Business Combination Agreement, dated April 22, 2024, by and between Israel Acquisitions Corp and Pomvom Ltd. +​ +8-K +​ +001-41593 +​ +2.2 +​ +April 24, 2024 +2.3 +​ +Business Combination Agreement, dated as of January 26, 2025, by and among, Israel Acquisitions Corp and Gadfin Ltd. +​ +8-K +​ +001-41593 +​ +2.1 +​ +January 27, 2025 +3.1 +​ +Third Amended and Restated Memorandum and Articles of Association, dated January 8, 2024 +​ +8-K +​ +001-41593 +​ +3.1 +​ +January 11, 2024 +3.2 +​ +Fourth Amended and Restated Memorandum and Articles of Association, adopted on January 6, 2025. +​ +8-K +​ +001-41593 +​ +3.1 +​ +January 10, 2025 +4.1 +​ +Specimen Unit Certificate +​ +S-1 +​ +333-263658 +​ +4.1 +​ +August 31, 2022 +4.2 +​ +Specimen Class A Ordinary Share Certificate +​ +S-1 +​ +333-263658 +​ +4.2 +​ +August 31, 2022 +4.3 +​ +Specimen Warrant Certificate (included in Exhibit 4.4) +​ +S-1 +​ +333-263658 +​ +4.4 +​ +August 31, 2022 +4.4 +​ +Warrant Agreement, dated January 12, 2023, by and between the Company and American Stock Transfer & Trust Company, as warrant agent. +​ +8-K +​ +001-41593 +​ +4.1 +​ +January 19, 2023 +4.5 +​ +Description of Securities +​ +10-K +​ +001-41593 +​ +4.5 +​ +April 17, 2023 +10.1 +​ +Letter Agreement, dated January 12, 2023, by and among the Company, its executive officers, its directors and Israel Acquisitions Sponsor LLC. +​ +8-K +​ +001-41593 +​ +10.1 +​ +January 19, 2023 +10.2 +​ +Investment Management Trust Agreement, dated January 12, 2023, by and between the Company and American Stock Transfer & Trust Company, as trustee. +​ +8-K +​ +001-41593 +​ +10.2 +​ +January 19, 2023 +10.3 +​ +Registration Rights Agreement, dated January 12, 2023, by and among the Company, Israel Acquisitions Sponsor LLC, BTIG, LLC, Exos Capital LLC and JonesTrading Institutional Services LLC. +​ +8-K +​ +001-41593 +​ +10.3 +​ +January 19, 2023 +10.4 +​ +Private Placement Units Purchase Agreement, dated January 12, 2023, by and between the Company and Israel Acquisitions Sponsor LLC. +​ +8-K +​ +001-41593 +​ +10.4 +​ +January 19, 2023 +10.5 +​ +Private Placement Units Purchase Agreement, dated January 12, 2023, by and between the Company and BTIG, LLC. +​ +8-K +​ +001-41593 +​ +10.5 +​ +January 19, 2023 +10.6 +​ +Private Placement Units Purchase Agreement, dated January 12, 2023, by and between the Company and Exos Capital LLC. +​ +8-K +​ +001-41593 +​ +10.6 +​ +January 19, 2023 +10.7 +​ +Private Placement Units Purchase Agreement, dated January 12, 2023, by and between the Company and JonesTrading Institutional Services LLC. +​ +8-K +​ +001-41593 +​ +10.7 +​ +January 19, 2023 +10.8 +​ +Administrative Services Agreement, dated January 12, 2023, by and between the Company and Israel Acquisitions Sponsor LLC. +​ +8-K +​ +001-41593 +​ +10.8 +​ +January 19, 2023 +10.9 +​ +Form of Indemnity Agreement +​ +S-1 +​ +333-263658 +​ +10.5 +​ +August 31, 2022 +10.10 +​ +Promissory Note, dated January 26, 2022, issued to the Sponsor. +​ +S-1 +​ +333-263658 +​ +10.7 +​ +March 17, 2022 +10.11 +​ +Securities Subscription Agreement, dated January 26, 2022, between the Company and Israel Acquisitions Sponsor LLC. +​ +S-1 +​ +333-263658 +​ +10.8 +​ +March 17, 2022 +95 +Table of Contents +10.12 +​ +Sponsor Support Agreement, dated January 2, 2024, by and among the Company, Pomvom Ltd. and Israel Acquisitions Sponsor LLC. +​ +8-K +​ +001-41593 +​ +10.1 +​ +January 2, 2024 +10.13 +​ +Form of Transaction Support Agreement. +​ +8-K +​ +001-41593 +​ +10.2 +​ +January 2, 2024 +10.14 +​ +Form of Registration Rights and Lock-Up Agreement. +​ +8-K +​ +001-41593 +​ +10.3 +​ +January 2, 2024 +10.15 +​ +Amendment to the Investment Management Trust Agreement, dated January 8, 2024, by and between Israel Acquisitions Corp and Equiniti Trust Company, LLC. +​ +8-K +​ +001-41593 +​ +10.1 +​ +January 11, 2024 +10.16 +​ +Amended and Restated Sponsor Support Agreement, dated April 19, 2024, by and among the Company, Pomvom Ltd. and Israel Acquisitions Sponsor LLC. +​ +10-Q +​ +001-41593 +​ +10.1 +​ +May 15, 2024 +10.17 +​ +Promissory Note, dated January 18, 2024, by and between the Company and Israel Acquisitions Sponsor. +​ +10-Q +​ +001-41593 +​ +10.5 +​ +May 15, 2024 +10.18 +​ +Promissory Note, dated July 17, 2024, between the Company and Israel Acquisitions Sponsor LLC. +​ +10-Q +​ +001-41593 +​ +10.1 +​ +August 14, 2024 +10.19 +​ +Amendment to the Investment Management Trust Agreement, dated January 6, 2025, by and between Israel Acquisitions Corp and Equiniti Trust Company, LLC. +​ +8-K +​ +001-41593 +​ +10.1 +​ +January 10, 2025 +10.20 +​ +Promissory Note dated January 17, 2025, by and between the Company and the Sponsor +​ +8-K +​ +001-41593 +​ +10.1 +​ +January 22, 2025 +10.21 +​ +Form of Sponsor Support Agreement. +​ +8-K +​ +001-41593 +​ +10.1 +​ +January 27, 2025 +10.22 +​ +Form of Transaction Support Agreement. +​ +8-K +​ +001-41593 +​ +10.2 +​ +January 27, 2025 +31.1* +​ +Certification of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Security Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. +​ +​ +​ +​ +​ +​ +​ +​ +31.2* +​ +Certification of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Security Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. +​ +​ +​ +​ +​ +​ +​ +​ +32.1** +​ +Certification of Chief Executive Officer pursuant to Section 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. +​ +​ +​ +​ +​ +​ +​ +​ +32.2** +​ +Certification of Chief Financial Officer pursuant to Section 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +101.INS* +​ +XBRL Instance Document +​ +​ +​ +​ +​ +​ +​ +​ +101.SCH* +​ +XBRL Taxonomy Extension Schema Document +​ +​ +​ +​ +​ +​ +​ +​ +101.CAL* +​ +XBRL Taxonomy Extension Calculation Linkbase Document +​ +​ +​ +​ +​ +​ +​ +​ +101.DEF* +​ +XBRL Taxonomy Extension Definition Linkbase Document +​ +​ +​ +​ +​ +​ +​ +​ +101.LAB* +​ +XBRL Taxonomy Extension Labels Linkbase Document +​ +​ +​ +​ +​ +​ +​ +​ +101.PRE* +​ +XBRL Taxonomy Extension Presentation Linkbase Document +​ +​ +​ +​ +​ +​ +​ +​ +104 +​ +Cover Page Interactive Data File. Formatted in Inline XBRL and contained in exhibit 101. +​ +​ +​ +​ +​ +​ +​ +​ +* +Filed herewith. +96 +Table of Contents +** +These certifications are being furnished solely to accompany this annual report pursuant to 18 U.S.C. Section 1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934 and are not to be incorporated by reference into any filing of the registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing. +We hereby file as part of this Annual Report on Form 10-K the exhibits listed in the attached Exhibit Index, except for exhibits 32.1 and 32.2, which are hereby furnished. Exhibits which are incorporated herein by reference can be inspected and copied at the public reference facilities maintained by the SEC, 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Copies of such material can also be obtained from the Public Reference Section of the SEC, 100 F Street, N.E., Washington, D.C. 20549, at prescribed rates or on the SEC website at www.sec.gov. +​ +ITEM 16. FORM 10-K SUMMARY. +None. +​ +97 +Table of Contents +SIGNATURES +Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. +Dated: March 31, 2025 +​ +​ +ISRAEL ACQUISITIONS CORP +​ +By: +/s/ Ziv Elul +​ +​ +Name: +Ziv Elul +​ +​ +Title: +Chief Executive Officer and Director +​ +Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. +Name +​ +Position +​ +Date +By: +/s/ Ziv Elul +​ +Chief Executive Officer and Director +​ +March 31, 2025 +​ +Ziv Elul +​ +(Principal Executive Officer) +​ +​ +​ +​ +​ +​ +​ +​ +By: +/s/ Sharon Barzik Cohen +​ +Chief Financial Officer and Director +​ +March 31, 2025 +​ +Sharon Barzik Cohen +​ +(Principal Financial and Accounting Officer) +​ +​ +​ +​ +​ +​ +​ +​ +By: +/s/ Izhar Shay +​ +Director (Chairman) +​ +March 31, 2025 +​ +Izhar Shay +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +By: +/s/ Candice Beaumont +​ +Director +​ +March 31, 2025 +​ +Candice Beaumont +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +By: +/s/ Peter Cohen +​ +Director +​ +March 31, 2025 +​ +Peter Cohen +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +By: +/s/ Roy Zisapel +​ +Director +​ +March 31, 2025 +​ +Roy Zisapel +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +By: +/s/ Daniel Recanati +​ +Director +​ +March 31, 2025 +​ +Daniel Recanati +​ +​ +​ +​ +​ +​ +​ +98 +Table of Contents +ISRAEL ACQUISITIONS CORP +INDEX TO FINANCIAL STATEMENTS +​ +Report of Independent Registered Public Accounting Firm (BDO USA, P.C., New York, New York, PCAOB ID# 243 ) +F-2 +Financial Statements: +​ +Balance Sheets as of December 31, 2024 and 2023 +F-3 +Statements of Operations for the years ended December 31, 2024 and 2023 +F-4 +Statements of Changes in Ordinary Shares Subject to Possible Redemption and Shareholders’ Deficit for the year ended December 31, 2024 and 2023 +F-5 +Statements of Cash Flows for the year ended December 31, 2024 and 2023 +F-6 +Notes to Financial Statements +F-7 to F-22 +​ +​ +​ +​ +F-1 +Table of Contents +REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +​ +Shareholders and Board of Directors +Israel Acquisitions Corp +Bee Cave, Texas +Opinion on the Financial Statements +We have audited the accompanying balance sheets of Israel Acquisitions Corp. (the “Company”) as of December 31, 2024 and 2023, the related statements of operations, changes in ordinary shares subject to possible redemption and shareholders’ deficit, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2024 and 2023, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. +Going Concern Uncertainty +The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company does not have sufficient cash and working capital to sustain its operations, and the Company’s ability to execute its business plan is dependent upon its completion of an initial business combination as described in Note 1 to the financial statements. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. +Basis for Opinion +These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. +Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. +/s/ BDO USA, P.C. +We have served as the Company’s auditor since 2022. +New York, New York +March 31, 2025. +​ +​ +F-2 +Table of Contents +ISRAEL ACQUISITIONS CORP +BALANCE SHEETS +​ +​ +​ +​ +​ +​ +​ +​ +​ +December 31, +​ +2024 +2023 +ASSETS +​ +​ +​ +​ +​ +​ +Current assets: +​ +​ +Cash and cash equivalents +​ +$ +21,257 +​ +$ +671,628 +Prepaid expenses +​ +6,359 +​ +145,114 +Cash and Marketable Securities held in Trust Account +​ +82,604,083 +​ +153,702,006 +Total current assets +​ +82,631,699 +​ +154,518,748 +Total Assets +​ +$ +82,631,699 +​ +$ +154,518,748 +​ +​ +​ +​ +​ +​ +​ +LIABILITIES, CLASS A ORDINARY SHARES SUBJECT TO POSSIBLE REDEMPTION AND SHAREHOLDERS’ DEFICIT +​ +​ +​ +​ +​ +​ +Current liabilities: +​ +​ +Accrued expenses +​ +$ +224,964 +​ +$ +55,000 +Accounts payable +​ +305,839 +​ +91,139 +Due to related party +​ +​ +120,000 +​ +​ +116,129 +Promissory note - related party +​ +​ +825,000 +​ +​ +— +Deferred underwriting commissions +​ +​ +5,406,250 +​ +​ +5,406,250 +Total Current Liabilities +​ +​ +6,882,053 +​ +​ +5,668,518 +Total Liabilities +​ +6,882,053 +​ +5,668,518 +​ +​ +​ +​ +​ +​ +​ +Commitments and Contingencies (Note 5) +​ +​ +Class A Ordinary Shares Subject to Possible Redemption +​ +​ +​ +​ +​ +​ +Class A ordinary shares subject to possible redemption, $ 0.0001 par value; 7,259,615 and 14,375,000 shares issued and outstanding at redemption value at December 31, 2024 and 2023, respectively +​ +​ +82,604,083 +​ +​ +153,702,006 +​ +​ +​ +​ +​ +​ +​ +Shareholders’ Deficit: +​ +​ +Preference shares, $ 0.0001 par value; 2,000,000 shares authorized; none issued and outstanding +​ +— +​ +— +Class A ordinary shares, $ 0.0001 par value; 200,000,000 shares authorized; 762,500 shares issued and outstanding (excluding 7,259,615 and 14,375,000 shares subject to possible redemption) at December 31, 2024 and 2023, respectively +​ +76 +​ +76 +Class B ordinary shares, $ 0.0001 par value; 20,000,000 shares authorized; 4,791,667 shares issued and outstanding at December 31, 2024 and 2023 +​ +479 +​ +479 +Additional paid-in capital +​ +— +​ +— +Accumulated deficit +​ +( 6,854,992 ) +​ +( 4,852,331 ) +Total Shareholders’ Deficit +​ +( 6,854,437 ) +​ +( 4,851,776 ) +TOTAL LIABILITIES, CLASS A ORDINARY SHARES SUBJECT TO POSSIBLE REDEMPTION AND SHAREHOLDERS’ DEFICIT +​ +$ +82,631,699 +​ +$ +154,518,748 +​ +The accompanying notes are an integral part of these financial statements. +​ +F-3 +Table of Contents +ISRAEL ACQUISITIONS CORP +STATEMENTS OF OPERATIONS +​ +​ +​ +​ +​ +​ +​ +​ +​ +For the +​ +For the +​ +​ +Year Ended +​ +Year Ended +​ +​ +December 31, +​ +December 31, +​ +2024 +2023 +Marketing and advertising expense +​ +$ +350 +​ +$ +3,732 +Administrative expense +​ +​ +16,862 +​ +​ +114,026 +Administrative expense - related party +​ +​ +120,000 +​ +​ +116,129 +Legal and accounting expense +​ +​ +748,069 +​ +​ +533,565 +Dues and subscriptions expense +​ +​ +89,700 +​ +​ +6,980 +Listing fee expense +​ +​ +194,954 +​ +​ +23,114 +Insurance expense +​ +​ +240,007 +​ +​ +248,388 +Loss from operations +​ +​ +( 1,409,942 ) +​ +​ +( 1,045,934 ) +​ +​ +​ +​ +​ +​ +​ +Other income: +​ +​ +​ +​ +​ +​ +Dividend income on marketable securities held in Trust Account +​ +​ +4,223,235 +​ +​ +498,927 +Realized gain on marketable securities held in Trust Account +​ +​ +— +​ +​ +6,578,079 +Dividend income +​ +​ +7,278 +​ +​ +40,445 +Interest income +​ +​ +3 +​ +​ +1,958 +Other income, net +​ +​ +4,230,516 +​ +​ +7,119,409 +Net income +​ +$ +2,820,574 +​ +$ +6,073,475 +​ +​ +​ +​ +​ +​ +​ +Basic and diluted weighted average shares outstanding, Class A ordinary shares subject to possible redemption +​ +7,415,143 +​ +13,705,479 +​ +​ +​ +​ +​ +​ +​ +Basic and diluted net income per share, Class A ordinary shares subject to possible redemption +​ +$ +0.50 +​ +$ +0.71 +​ +​ +​ +​ +​ +​ +​ +Basic and diluted weighted average shares outstanding, non-redeemable Class A ordinary shares +​ +​ +762,500 +​ +​ +726,986 +​ +​ +​ +​ +​ +​ +​ +Basic and diluted net loss per share, non-redeemable Class A ordinary shares +​ +$ +( 0.16 ) +​ +$ +( 0.68 ) +​ +​ +​ +​ +​ +​ +​ +Basic and diluted weighted average shares outstanding, non-redeemable Class B ordinary shares +​ +​ +4,791,667 +​ +​ +4,791,667 +​ +​ +​ +​ +​ +​ +​ +Basic and diluted net loss per share, non-redeemable Class B ordinary shares +​ +$ +( 0.16 ) +​ +$ +( 0.65 ) +​ +The accompanying notes are an integral part of these financial statements. +​ +F-4 +Table of Contents +ISRAEL ACQUISITIONS CORP +STATEMENTS OF CHANGES IN ORDINARY SHARES SUBJECT TO POSSIBLE REDEMPTION AND SHAREHOLDERS’ DEFICIT +For the Year Ended December 31, 2024 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Class A +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Ordinary Shares Subject to Possible +​ +​ +Class A +​ +Class B +​ +Additional +​ +​ +​ +​ +Total +​ +​ +Redemption +​ +​ +Ordinary Shares +​ +Ordinary Shares +​ +Paid-in +​ +Accumulated +​ +Shareholders’ +​ +Shares +Amount +Shares +Amount +Shares +Amount +Capital +Deficit +Deficit +Balance – December 31, 2023 +14,375,000 +​ +​ +153,702,006 +​ +762,500 +​ +$ +76 +4,791,667 +​ +$ +479 +​ +$ +— +​ +$ +( 4,852,331 ) +​ +$ +( 4,851,776 ) +Remeasurement of Class A ordinary shares to redemption value +​ +— +​ +​ +4,823,235 +​ +​ +— +​ +​ +— +​ +— +​ +​ +— +​ +​ +— +​ +​ +( 4,823,235 ) +​ +​ +( 4,823,235 ) +Redemption of Class A ordinary shares +​ +( 7,115,385 ) +​ +​ +( 75,921,158 ) +​ +​ +— +​ +​ +— +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +Net income +— +​ +— +​ +— +​ +— +— +​ +— +​ +— +​ +2,820,574 +​ +2,820,574 +Balance - December 31, 2024 +7,259,615 +​ +​ +82,604,083 +​ +​ +762,500 +​ +$ +76 +​ +4,791,667 +​ +$ +479 +​ +$ +— +​ +$ +( 6,854,992 ) +​ +$ +( 6,854,437 ) +​ +For the Year Ended December 31, 2023 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Class A +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Ordinary Shares Subject to Possible +​ +​ +Class A +​ +Class B +​ +Additional +​ +​ +​ +​ +Total +​ +​ +Redemption +​ +​ +Ordinary Shares +​ +Ordinary Shares +​ +Paid-in +​ +Accumulated +​ +Shareholders’ +​ +Shares +Amount +Shares +Amount +Shares +Amount +Capital +Deficit +Deficit +Balance – December 31, 2022 +— +​ +$ +— +​ +— +​ +$ +— +4,791,667 +​ +$ +479 +​ +$ +24,521 +​ +$ +( 77,000 ) +​ +$ +( 52,000 ) +Issuance of Class A ordinary shares in initial public offering +​ +14,375,000 +​ +​ +134,753,406 +​ +​ +— +​ +​ +— +​ +— +​ +​ +— +​ +​ +354,359 +​ +​ +— +​ +​ +354,359 +Sale of private placement units +​ +— +​ +​ +— +​ +​ +762,500 +​ +​ +76 +​ +— +​ +​ +— +​ +​ +7,624,924 +​ +​ +— +​ +​ +7,625,000 +Transfer of Founder Shares +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +— +​ +​ +— +​ +​ +95,990 +​ +​ +— +​ +​ +95,990 +Remeasurement of Class A ordinary shares to redemption value +​ +— +​ +​ +18,948,600 +​ +​ +— +​ +​ +— +​ +— +​ +​ +— +​ +​ +( 8,099,794 ) +​ +​ +( 10,848,806 ) +​ +​ +( 18,948,600 ) +Net income +— +​ +— +​ +— +​ +— +— +​ +— +​ +— +​ +6,073,475 +​ +6,073,475 +Balance - December 31, 2023 +​ +14,375,000 +​ +​ +153,702,006 +​ +​ +762,500 +​ +$ +76 +​ +4,791,667 +​ +$ +479 +​ +$ +— +​ +$ +( 4,852,331 ) +​ +$ +( 4,851,776 ) +​ +The accompanying notes are an integral part of these financial statements. +​ +F-5 +Table of Contents +ISRAEL ACQUISITIONS CORP +STATEMENTS OF CASH FLOWS +​ +​ +​ +​ +​ +​ +​ +​ +​ +For the +​ +For the +​ +​ +Year Ended +​ +Year Ended +​ +​ +December 31, +​ +December 31, +​ +2024 +2023 +Cash Flows from Operating Activities: +​ +​ +Net income +​ +$ +2,820,574 +​ +$ +6,073,475 +Adjustments to reconcile net income to net cash used in operating activities: +​ +​ +​ +​ +Realized gain on marketable securities held in Trust Account +​ +​ +— +​ +​ +( 6,578,079 ) +Excess fair value on transfer of Founder Shares +​ +​ +— +​ +​ +95,990 +Changes in operating assets and liabilities: +​ +​ +​ +​ +Prepaid expenses +​ +138,755 +​ +( 145,114 ) +Due to related party +​ +​ +3,871 +​ +​ +116,129 +Accounts payable +​ +​ +214,700 +​ +​ +91,139 +Accrued expenses +​ +​ +169,964 +​ +​ +( 16,655 ) +Net cash provided by (used in) operating activities +​ +3,347,864 +​ +( 363,115 ) +​ +​ +​ +​ +​ +​ +​ +Cash Flows from Investing Activities: +​ +​ +​ +​ +​ +​ +Purchase of marketable securities held in Trust Account +​ +​ +( 4,823,235 ) +​ +​ +( 602,213,927 ) +Proceeds from redemption of marketable securities held in Trust Account +​ +​ +75,921,158 +​ +​ +455,090,000 +Net cash provided by (used in) investing activities +​ +​ +71,097,923 +​ +​ +( 147,123,927 ) +​ +​ +​ +​ +​ +​ +​ +Cash Flows from Financing Activities: +​ +​ +​ +Proceeds from issuance of ordinary shares +​ +— +​ +141,250,000 +Proceeds from sale of private placement units +​ +— +​ +7,625,000 +Payment of offering costs +​ +​ +— +​ +​ +( 487,401 ) +Payment of promissory note – related party +​ +​ +— +​ +​ +( 237,234 ) +Proceeds from promissory note – related party +​ +​ +825,000 +​ +​ +— +Redemption of Class A ordinary shares subject to redemption +​ +​ +( 75,921,158 ) +​ +​ +( 487,401 ) +Net cash (used in) provided by financing activities +​ +( 75,096,158 ) +​ +148,150,365 +​ +​ +​ +​ +​ +​ +​ +Net Change in Cash and Cash Equivalents +​ +( 650,371 ) +​ +663,323 +Cash and Cash Equivalents - Beginning +​ +671,628 +​ +8,305 +Cash and Cash Equivalents - Ending +​ +$ +21,257 +​ +$ +671,628 +​ +​ +​ +​ +​ +​ +​ +Non-Cash Investing and Financing Activities: +​ +​ +​ +​ +Remeasurement of Class A ordinary shares subject to possible redemption +​ +$ +4,823,235 +​ +$ +18,948,600 +Deferred underwriter fee payable +​ +$ +— +​ +$ +5,406,250 +​ +The accompanying notes are an integral part of these financial statements. +​ +​ +F-6 +Table of Contents +ISRAEL ACQUISITIONS CORP +NOTES TO THE FINANCIALS STATEMENTS +Note 1 — Description of Organization and Business Operations +Israel Acquisitions Corp (the “Company”) was incorporated as a blank check company in the Cayman Islands as an exempted limited company on August 24, 2021. The Company was formed for the purpose of effecting a merger, capital share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses (an “initial business combination”). The Company is an emerging growth company and is subject to all of the risks associated with emerging growth companies. +As of December 31, 2024, the Company had not commenced any operations. All activity for the period from August 24, 2021 (inception) through December 31, 2024 relates to the Company’s formation and the initial public offering (the “Initial Public Offering”), and, since the completion of the Initial Public Offering, a search for a target to consummate a Business Combination. The Company will not generate any operating revenues until after the completion of its initial business combination, at the earliest. The Company will generate non-operating income in the form of gains on marketable securities held in the Trust Account, as well as interest and dividend income on cash and cash equivalents from the proceeds derived from the Initial Public Offering. +The registration statement for the Company’s Initial Public Offering was declared effective on January 12, 2023 (the “Registration Statement”). On January 18, 2023, the Company consummated its Initial Public Offering of 14,375,000 units (each a “Public Unit” and the “Public Units”) at $ 10.00 per Public Unit (including the issuance of 1,875,000 Public Units as a result of the underwriters’ exercise of heir over-allotment option in full), generating gross proceeds of $ 143,750,000 , which is discussed in Note 3. Each Public Unit is comprised of one Class A ordinary share, par value $ 0.001 per share (each, a “Public Share” and the “Public Shares”) and one redeemable warrant evidencing the right to purchase one Class A ordinary share at a purchase price of $ 11.50 per Class A ordinary share (each a “Public Warrant” and the “Public Warrants”). Simultaneously with the closing of the Initial Public Offering, the Company consummated the sale of 762,500 private placement units (each, a “Private Unit” and the “Private Units”) to Israel Acquisitions Sponsor LLC (the “Sponsor”), BTIG, LLC, Exos Capital LLC, and JonesTrading Institutional Services LLC, in a private placement at a purchase price of $ 10.00 per Private Unit, for an aggregate of $ 7,625,000 . Each Private Unit is comprised of one Class A ordinary share, par value $ 0.001 per share (each, a “Private Share” and the “Private Shares”) and one redeemable warrant evidencing the right to purchase one Class A ordinary share, par value $ 0.0001 per share, at a purchase price of $ 11.50 (each, a “Private Warrant” and the “Private Warrants”). +Following the closing of the Initial Public Offering on January 18, 2023, $ 146,625,000 ($ 10.20 per Public Unit) from the net proceeds of the sale of the Public Units in the Initial Public Offering and the sale of the Private Units was placed in a trust account (“Trust Account”), located in the United States which will be invested in U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act, with a maturity of 180 days or less or in any open-ended investment company that holds itself out as a money market fund selected by the Company meeting the conditions of Rule 2a-7 of the Investment Company Act, as determined by the Company, until the earlier of: (i) the completion of the Company’s initial business combination; (ii) the redemption of any Public Shares properly submitted in connection with a shareholder vote to amend the Company’s amended and restated memorandum and articles of association, adopted on November 17, 2022 (the “Amended and Restated Memorandum and Articles of Association”), and (iii) the redemption of the Company’s Public Shares if the Company is unable to complete an initial business combination by January 18, 2024 (or up to July 18, 2024, if the Company extends the time to complete an initial business combination) (the “Combination Period”). +On January 8, 2024, by special resolution and at an extraordinary general meeting of shareholders, the Company (i) entered into an amendment (the “Trust Agreement Amendment”) to the Invest Management Trust Agreement dated as of January 12, 2023 (the “Trust Agreement”), with Equiniti Trust Company, LLC (f/k/a American Stock Transfer & Trust Company) (the “Trustee”) and (ii) amended the Company’s Second Amended and Restated Memorandum and Articles of Association, in its entirety, by adopting the Company’s Third Amended and Restated Memorandum and Articles of Association, pursuant to which the Company may extend the date by which the Company must consummate an initial business combination (the “Termination Date”) from 12 months from the closing of the Initial Public Offering (January 18, 2024) up to twelve ( 12 ) times (each, an “Extension”) to January 18, 2025, with each Extension comprised of one month . Pursuant to the Trust Agreement Amendment, the Company can extend the Termination Date by providing five days ’ advance notice to the Trustee prior to the applicable Extension and depositing into the Trust Account the lesser of (i) $ 50,000 or (ii) $ 0.02 per Public Share, multiplied by the number of Public Shares that remain outstanding by the end of the then-current extended period, by the date of such Extension. +F-7 +Table of Contents +On January 6, 2025, by special resolution and at an extraordinary general meeting of shareholders, the Company has extended the date by which it has to complete an initial business combination from January 18, 2025 (the “ Termination Date ”) up to twelve ( 12 ) times, with each extension comprised of one month (each an “ Extension ”), from the Termination Date to January 18, 2026, by providing five days ’ advance notice to the Trustee prior to the applicable Extended Date and depositing into the Trust Account the lesser of (i) $ 35,000 or (ii) $ 0.035 per Public Share, multiplied by the number of Public Shares that remain outstanding by the end of the then-current Extended Date, by the date of such Extension up until January 18, 2026 (assuming an initial business combination has not occurred), in exchange for a non-interest bearing, unsecured promissory note payable upon the consummation of an initial business combination. +The Company’s management has broad discretion with respect to the specific application of the net proceeds of the Initial Public Offering and the sale of the Private Units, although substantially all of the net proceeds are intended to be applied generally toward consummating an initial business combination. There is no assurance that the Company will be able to complete an initial business combination successfully. The Company must complete an initial business combination having an aggregate fair market value of at least 80 % of the assets held in the Trust Account (excluding taxes payable on income earned on the Trust Account) at the time of the agreement to enter into an initial business combination. The Company will only complete an initial business combination if the post-transaction company owns or acquires 50 % or more of the outstanding voting securities of the target or otherwise acquires a controlling interest in the target sufficient for it not to be required to register as an investment company under the Investment Company Act of 1940, as amended (the “Investment Company Act”). +The Company will provide its holders of the outstanding Public Shares (the “public shareholders”) with the opportunity to redeem all or a portion of their Public Shares upon the completion of an initial business combination either (i) in connection with a shareholder meeting called to approve the initial business combination or (ii) by means of a tender offer. Except as required by law or the rules of Nasdaq, the decision as to whether the Company will seek shareholder approval of an initial business combination or conduct a tender offer will be made by the Company, solely in its discretion. The public shareholders will be entitled to redeem their Public Shares for a pro rata portion of the amount then in the Trust Account. There will be no redemption rights upon the completion of an initial business combination with respect to the Company’s warrants. +The Company will proceed with an initial business combination if the Company has net tangible assets of at least $ 5,000,001 immediately prior to or upon such consummation of an initial business combination and, if the Company seeks shareholder approval, a majority of the ordinary shares voted are voted in favor of the initial business combination. If a shareholder vote is not required by law and the Company does not decide to hold a shareholder vote for business or other legal reasons, the Company will, pursuant to its Amended and Restated Memorandum and Articles of Association, conduct the redemptions pursuant to the tender offer rules of the U.S. Securities and Exchange Commission (“SEC”) and file tender offer documents with the SEC containing substantially the same information as would be included in a proxy statement prior to completing an initial business combination. If, however, shareholder approval of the transaction is required by law, or the Company decides to obtain shareholder approval for business or legal reasons, the Company will offer to redeem the Public Shares in conjunction with a proxy solicitation pursuant to the proxy rules and not pursuant to the tender offer rules. If the Company seeks shareholder approval in connection with an initial business combination, the Sponsor and our executive officers and directors have agreed (a) to vote their Founder Shares (as defined in this Note 1), Private Shares, and any Public Shares purchased during or after the Initial Public Offering in favor of approving an initial business combination and (b) not to convert any Founder Shares, Private Shares, or any Public Shares held by them in connection with a shareholder vote to approve an initial business combination or sell any such shares to the Company in a tender offer in connection with an initial business combination. Additionally, each public shareholder may elect to redeem their Public Shares irrespective of whether they vote for or against the proposed transaction or do not vote at all. +The Sponsor and our executive officers and directors have agreed (a) to waive their respective redemption rights with respect to any Founder Shares, Private Shares, or Public Shares held by them in connection with the completion of an initial business combination, (b) to waive their rights to liquidating distributions from the Trust Account with respect to any Founder Shares and Private Shares if the Company fails to consummate an initial business combination, and (c) not to propose an amendment to the Amended and Restated Memorandum and Articles of Association that would affect a public shareholders’ ability to convert or sell their Public Shares to the Company in connection with an initial business combination or affect the substance or timing of the Company’s obligation to redeem 100 % of its Public Shares if the Company does not complete an initial business combination, unless the Company provides the public shareholders with the opportunity to redeem their Public Shares in conjunction with any such amendment. +If the Company is unable to complete an initial business combination within the Combination Period, the Company will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than 10 business days thereafter, redeem the Public Shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account +F-8 +Table of Contents +including interest earned on the funds held in the Trust Account and not previously released to the Company to pay taxes, divided by the number of then outstanding Public Shares, which redemption will completely extinguish public shareholders’ rights as shareholders (including the right to receive further liquidating distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the Company’s remaining shareholders and the Company’s board of directors (the “Board”), dissolve and liquidate, subject in each case to the Company’s obligations under Cayman Islands law to provide for claims of creditors and the requirements of other applicable law. There will be no redemption rights or liquidating distributions with respect to the Company’s Public Warrants or Private Warrants, which will expire worthless if the Company fails to complete an initial business combination within the Combination Period. +In order to protect the amounts held in the Trust Account, the Sponsor has agreed to be liable to the Company if and to the extent any claims by a vendor for services rendered or products sold to the Company, or a prospective target business with which the Company has discussed entering into a transaction agreement, reduce the amount of funds in the Trust Account to below $ 10.20 per Public Share, except as to any claims by a third party that executed a valid and enforceable agreement with the Company waiving any right, title, interest or claim of any kind they may have in or to any monies held in the Trust Account and except as to any claims under the Company’s indemnity of the underwriters of Initial Public Offering against certain liabilities, including liabilities under the Securities Act. Moreover, in the event that an executed waiver is deemed to be unenforceable against a third party, the Sponsor will not be responsible to the extent of any liability for such third-party claims. The Company will seek to reduce the possibility that Sponsor will have to indemnify the Trust Account due to claims of creditors by endeavoring to have all vendors, service providers, prospective target businesses or other entities with which the Company does business, execute agreements with the Company waiving any right, title, interest or claim of any kind in or to monies held in the Trust Account. +Business Combination Agreement +On January 2, 2024, the Company entered into a business combination agreement with Pomvom Ltd., a company organized under the laws of Israel (“Pomvom,” and such agreement, the “Pomvom Business Combination Agreement”), pursuant to which, among other things and subject to the terms and conditions contained therein (i) Pomvom will cause a company organized under the laws of the State of Israel and wholly owned by a trustee (the “Pomvom NewPubCo”) to be formed, (ii) Pomvom will cause a Cayman Islands exempted company and wholly owned, direct subsidiary of Pomvom NewPubco (“Merger Sub”) to be formed, (iii) Pomvom will cause Pomvom NewPubCo and Merger Sub to become a party to the Pomvom Business Combination Agreement by delivering a joinder to the Pomvom Business Combination Agreement, (iv) Pomvom will effect the Share Split (as defined therein), (v) Pomvom NewPubco, the shareholders of Pomvom and the holders of equity awards of Pomvom will effect the Equity Exchange (as defined therein), and (vi) Merger Sub will merge with and into the Company, with the Company surviving the merger as a direct wholly owned subsidiary of Pomvom NewPubCo (the “Merger”). +On April 22, 2024, the Company entered into an amendment with Pomvom (the “Amendment”) to the Pomvom Business Combination Agreement. Pursuant to the Amendment, the we agreed with Pomvom to (i) extend the date by which all members of the board of directors of the post-combination company shall be agreed determined from April 30, 2024, to June 30, 2024, (ii) extend the date by which an independent compensation consultant shall present a benchmark analysis of the compensation packages for officers and directors of public market companies that are comparable to Pomvom and recommendations for officer and director compensation packages to the Pomvom’s compensation committee and board of directors in connection with their review and approval of such packages from April 30, 2024, to June 30, 2024, and (iii) extend the Minimum Equity Financing Proceeds Termination Date (as defined in the Pomvom Business Combination Agreement) from June 30, 2024, to August 31, 2024. +On August 22, 2024, the Company entered into a mutual termination agreement with Pomvom (the “Mutual Termination Agreement”) pursuant to which the Pomvom Business Combination Agreement was terminated by the mutual consent of the Company and Pomvom, effective as of August 22, 2024. The Company and Pomvom agreed to waive any claim or demand on the part of any of either party against the other party, except in relation to a violation of the Mutual Termination Agreement or a violation of the confidentiality obligations stipulated in the Pomvom Business Combination Agreement. There are no early termination penalties incurred by the Company or Pomvom in connection with the termination of the Pomvom Business Combination Agreement. +On January 26, 2025, the Company and Gadfin Ltd. (“Gadfin”) entered into the Business Combination Agreement, pursuant to which, among other things, and subject to the terms and conditions contained therein (i) Gadfin will cause a company organized under the laws of the State of Israel and wholly owned by a trustee (the “NewPubco”) to be formed, (ii) Gadfin will cause a company organized under the laws of the State of Israel and wholly owned, direct subsidiary of NewPubco (“Merger Sub 1”) to be formed, (iii) Gadfin will cause a Cayman Islands exempted company and wholly owned, direct subsidiary of NewPubco (“Merger Sub 2”) to be formed, (iv) Gadfin +F-9 +Table of Contents +will cause NewPubco, Merger Sub 1 and Merger Sub 2 to become a party to the Business Combination Agreement by delivering a joinder to the Business Combination Agreement, (v) Gadfin will effect the Share Split, (vi) NewPubco, the shareholders of Gadfin and the holders of equity awards of Gadfin will effect the Acquisition Merger (as defined herein), (vii) Merger Sub 1 will merge with and into Gadfin, with Gadfin surviving the merger as a direct wholly owned subsidiary of NewPubCo (the “ Acquisition Merger ”), and (viii) Merger Sub 2 will merge with and into the Company, with the Company surviving the merger as a direct wholly owned subsidiary of NewPubco (the “IAC Merger”, and together with the Acquisition Merger, the “Mergers”). The collective transactions referenced in (i)-(viii) are hereinafter referred to as the “Transactions”. The terms of the Business Combination Agreement, which contain customary representations and warranties, covenants, closing conditions, termination provisions, and other terms relating to the Transactions, are summarized below. +Under the Business Combination Agreement, holders of Gadfin equity interests are expected to receive approximately $ 200,000,000 (the “Gadfin Equity Value”) in aggregate consideration in the form of NewPubco Ordinary Shares, equal to the quotient obtained by dividing (a) the Gadfin Equity Value by (b) the fully diluted number of Gadfin ordinary shares and preferred shares (including ordinary shares issuable upon exercise, vesting and settlement of Gadfin options and Gadfin warrants and other convertible securities of Gadfin); provided however, in the event Gadfin does not record at least $ 4,500,000 in deferred revenue by the Closing Date, the Gadfin Equity Value shall be $ 150,000,000 . +Gadfin may terminate the Business Combination Agreement, (a) at any time prior to the receipt of the Gadfin Shareholder Approval, in order to immediately enter into a written definitive agreement with respect to a Superior Proposal, and (b) if the representations and warranties of the Company are not true and correct or if the Company has materially breached any covenant or agreement as set forth in the Business Combination Agreement. In the event the Business Combination Agreement is terminated by Gadfin in order to accept a Superior Proposal, Gadfin will pay to the Company a termination fee of $ 10,000,000 . In the event the Business Combination Agreement is terminated by Gadfin pursuant to clause (b) of this paragraph, the Company will pay to Gadfin a termination fee of $ 10,000,000 . +Liquidity Capital Resources and Going Concern +As of December 31, 2024, the Company had $ 21,257 in its operating bank account and a working capital deficit of $ 1,448,187 (excluding cash and marketable securities held in the Trust Account and the deferred underwriter fee payable) compared to $ 671,628 in its operating bank account and working capital of $ 554,474 (excluding cash and marketable securities held in the Trust Account and the deferred underwriter fee payable) as of December 31, 2023. +The Company’s liquidity needs through December 31, 2024 had been satisfied through a payment from the Sponsor of $ 25,000 for Class B ordinary shares, par value $ 0.0001 per share (the “Class B ordinary shares” or the “Founder Shares”), the Initial Public Offering and the issuance of the Private Units (see Note 3 and Note 4). Additionally, the Company drew on the Promissory Note (as defined below) to pay certain offering costs (see Note 4). +The Company has incurred and expects to continue to incur significant costs in pursuit of its financing and acquisition plans. The Company lacks the financial resources it needs to sustain operations for a reasonable period of time, which is considered to be one year from the issuance date of the financial statements. Although no formal agreement exists, the Sponsor is committed to extend Working Capital Loans as needed (defined in Note 4 below). Accordingly, the Company may not be able to obtain additional financing. If the Company is unable to raise additional capital, it may be required to take additional measures to conserve liquidity, which could include, but not necessarily be limited to, curtailing operations, suspending the pursuit of a potential transaction, and reducing overhead expenses. The Company cannot provide any assurance that (i) new financing will be available to it on commercially acceptable terms, if at all, or (ii) that its plans to consummate an initial business combination will be successful. In addition, management continues to evaluate the impact of the Ukraine-Russia conflict, the Israeli-Hamas conflict, the increased rate of inflation in the United States and other events (such as terrorist attacks, natural disasters or a significant outbreak of other infectious diseases) on the industry and its effect on the Company’s financial position, results of its operations and/or search for a target company. +We may need to obtain additional financing to complete our initial business combination, either because the transaction requires more cash than is available from the proceeds held in our trust account, or because we become obligated to redeem a significant number of our public shares upon completion of our initial business combination, in which case we may issue additional securities or incur debt in connection with such initial business combination. If we have not consummated our initial business combination within the Combination Period because we do not have sufficient funds available to us, we will be forced to cease operations and liquidate the trust account. +F-10 +Table of Contents +These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern one year from the date the financial statements are issued. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. +Risks and Uncertainties +The United States and global markets are experiencing volatility and disruption following the geopolitical instability resulting from the ongoing Russia-Ukraine conflict and the recent escalation of the Israel-Hamas conflict. In response to the ongoing Russia-Ukraine conflict, the North Atlantic Treaty Organization (“NATO”) deployed additional military forces to eastern Europe, and the United States, the United Kingdom, the European Union and other countries have announced various sanctions and restrictive actions against Russia, Belarus and related individuals and entities, including the removal of certain financial institutions from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) payment system. Certain countries, including the United States, have also provided and may continue to provide military aid or other assistance to Ukraine and to Israel, increasing geopolitical tensions among a number of nations. The invasion of Ukraine by Russia and the escalation of the Israel-Hamas conflict and the resulting measures that have been taken, and could be taken in the future, by NATO, the United States, the United Kingdom, the European Union, Israel and its neighboring states and other countries have created global security concerns that could have a lasting impact on regional and global economies. Although the length and impact of the ongoing conflicts are highly unpredictable, they could lead to market disruptions, including significant volatility in commodity prices, credit and capital markets, as well as supply chain interruptions and increased cyber-attacks against U.S. companies. Additionally, any resulting sanctions could adversely affect the global economy and financial markets and lead to instability and lack of liquidity in capital markets. +The financial statements do not include any adjustments that might result from the outcome of these uncertainties. +Note 2 - Significant Accounting Policies +Basis of Presentation +The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and in accordance with the rules and regulations of the SEC. +Emerging Growth Company +The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. +The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used. +Use of Estimates +The preparation of financial statement in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statement and the reported amounts of expenses during the reporting period. +Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from those estimates. +F-11 +Table of Contents +Cash and Cash Equivalents +The Company considers all short-term investments with an original maturity of three months or less when purchased to be cash and cash equivalents. As of December 31, 2024 and 2023, the Company had $ 21,257 and $ 671,628 in cash and cash equivalents, respectively. +Cash and Marketable Securities held in Trust Account +Following the closing of the Initial Public Offering on January 18, 2023, an amount of $ 146,625,000 from the net proceeds of the sale of the Units in the Initial Public Offering and the sale of the Private Units were placed in the Trust Account and may be invested only in U.S. government securities with a maturity of 185 days or less or in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act which invest only in direct U.S. government treasury obligations. The Trust Account is intended as a holding place for funds pending the earliest to occur of: (i) the completion of the initial Business Combination; (ii) the redemption of any public shares properly submitted in connection with a shareholder vote to amend the Company’s amended and restated certificate of incorporation (A) to modify the substance or timing of the Company’s obligation to redeem 100 % of the public shares if the Company does not complete the initial Business Combination within 12 months from the closing of the Initial Public Offering or (B) with respect to any other provision relating to shareholders’ rights or pre-initial Business Combination activity; or (iii) absent an initial Business Combination within 12 months from the closing of the Initial Public Offering, the return of the funds held in the Trust Account to the public shareholders as part of redemption of the public shares. +Concentration of Credit Risk +Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash accounts in a financial institution, which, at times, may exceed the Federal Depository Insurance Coverage of $250,000. At December 31, 2024 and 2023, the Company has not experienced losses on these accounts and management believes the Company is not exposed to significant risks on such accounts. +Class A Ordinary Shares Subject to Possible Redemption +The Company accounts for its Class A ordinary shares subject to possible redemption in accordance with the guidance in ASC 480 “Distinguishing Liabilities from Equity.” Ordinary shares subject to mandatory redemption (if any) is classified as a liability instrument and is measured at fair value. Conditionally redeemable ordinary shares (including ordinary shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) is classified as temporary equity. At all other times, ordinary shares are classified as shareholders’ equity. The Company’s ordinary shares feature certain redemption rights that are considered to be outside of the Company’s control and subject to the occurrence of uncertain future events. Accordingly, at December 31, 2024, 7,259,615 Class A ordinary shares subject to possible redemption are presented as temporary equity, at redemption value, as temporary equity, outside of the shareholders’ deficit section of the Company’s balance sheet. +The Company recognizes changes in redemption value immediately as they occur and adjusts the carrying value of redeemable Class A ordinary shares to equal the redemption value at the end of each reporting period. Such changes are reflected in additional paid-in capital, or in the absence of additional paid-in capital, in accumulated deficit. +The Class A ordinary shares subject to possible redemption is reflected on the balance sheet at December 31, 2024 as follows: +​ +​ +​ +​ +​ +Gross proceeds from initial public offering +$ +143,750,000 +Less: +​ +​ +Proceeds allocated to public warrants +​ +( 354,359 ) +Offering costs allocated to Class A ordinary shares subject to possible redemption +​ +( 8,642,235 ) +Plus: +​ +​ +Accretion of Class A ordinary shares subject to possible redemption +​ +18,948,600 +Class A ordinary shares subject to possible redemption at December 31, 2023 +​ +$ +153,702,006 +Redemption of Class A ordinary shares +​ +​ +( 75,921,158 ) +Re-measurement of Class A ordinary shares subject to possible redemption +​ +​ +4,823,235 +Class A ordinary shares subject to possible redemption at December 31, 2024 +​ +$ +82,604,083 +​ +F-12 +Table of Contents +Offering Costs associated with the Initial Public Offering +The Company complies with the requirements of the ASC 340-10-S99-1 and SEC Staff Accounting Bulletin (“SAB”) Topic 5A – “Expenses of Offering”. Offering costs consist principally of professional and registration fees that are related to the Initial Public Offering. The Company incurred offering costs from the Initial Public Offering of $ 8,642,235 , consisting of $ 2,500,000 of underwriting fee, $ 5,406,250 of deferred underwriting fee, $ 735,985 of other offering costs. These amounts were recorded to additional paid-in capital as a reduction to the net proceeds from the offering. +Fair Value Measurements +The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820, “Fair Value Measurements and Disclosures” (“ASC 820”), defines fair value as the amount that would be received to sell an asset or paid to transfer a liability, in an orderly transaction between market participants. Fair value measurements are classified on a three-tier hierarchy as follows: +● Level 1, defined as observable inputs such as quoted prices (unadjusted) for identical instruments in active markets; +● Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and +● Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. In some circumstances, the inputs used to measure fair value might be categorized within different levels of the fair value hierarchy. ln those instances, the fair value measurement is categorized in its entirety in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement. +The fair value of the Company’s assets and liabilities that qualify as financial instruments under ASC 820 approximates the carrying amounts represented in the accompanying balance sheet, primarily due to their short-term nature. +Financial Instruments +The fair value of the Company’s assets and liabilities which qualify as financial instruments under ASC 820 approximates the carrying amounts represented in the accompanying balance sheet, primarily due to their short-term nature. +Derivative Financial Instruments +The Company accounts for derivative financial instruments in accordance with ASC Topic 815, “Derivatives and Hedging.” For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value upon issuance and remeasured at each reporting date, with changes in the fair value reported in the statements of operations. The classification of derivative financial instruments is evaluated at the end of each reporting period. There were no derivative financial instruments accounted for as liabilities as of December 31, 2024 and December 31, 2023. +Warrants +The Company accounts for the public and private warrants as either equity-classified or liability-classified instruments based on an assessment of the instruments’ specific terms and applicable authoritative guidance in FASB ASC Topic 480, “Distinguishing Liabilities from Equity” (“ASC 480”) and FASB ASC Topic 815, “Derivatives and Hedging” (“ASC 815”). Pursuant to the Company’s evaluation, the Company concluded that the public and private warrants do not meet the criteria to be accounted for as liability under ASC 480. The Company further evaluated the public and private warrants under “ASC 815-40, Derivatives and Hedging — Contracts in Entity’s Own Equity” (“ASC 815-40”) and concluded that the public warrants, private placement warrants are indexed to the Company’s own stock and meet the criteria to be classified in shareholders’ equity. +F-13 +Table of Contents +Income Taxes +The Company complies with the accounting and reporting requirements of ASC Topic 740, “Income Taxes,” (“ASC 740”) which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. +ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. There were no unrecognized tax benefits as of December 31, 2024 and 2023. The Company’s management determined that the Cayman Islands is the Company’s only major tax jurisdiction. The Company is not currently aware of any issues under review that could result in significant payments, accruals, or material deviation from its position. The Company is subject to tax examinations by major taxing authorities since inception. There is currently no taxation imposed by the government of the Cayman Islands. In accordance with Cayman income tax regulations, income taxes are not levied on the Company. Consequently, income taxes are not reflected in the Company’s financial statements. The Company’s management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months. +There is currently no taxation imposed by the government of the Cayman Islands. The Company has no connection to any other taxable jurisdiction and is presently not subject to income taxes or income tax filing requirements in the Cayman Islands or the United States. Consequently, income taxes are not reflected in the Company’s financial statement. +Net Income (Loss) Per Ordinary Share +The statement of operations includes a presentation of income (loss) per Class A redeemable ordinary share and income (loss) per non-redeemable ordinary share following the two-class method of income per ordinary share. In order to determine the net income (loss) attributable to both the Class A redeemable ordinary shares and non-redeemable ordinary shares, the Company first considered the total net income (loss) allocable to both sets of shares. This is calculated using the total net income (loss) less any dividends paid. For purposes of calculating net income (loss) per share, any remeasurement of the Class A ordinary shares subject to possible redemption was treated as dividends paid to the public shareholders. +Net income (loss) per ordinary share is computed by dividing net income (loss) by class by the weighted average number of ordinary shares outstanding during the period. The Company has not considered the effect of the 14,375,000 Public Warrants in the calculation of diluted net income (loss) per share, since the exercise of such warrants are contingent upon the occurrence of future events and the inclusion of such warrants would be anti-dilutive. +​ +F-14 +Table of Contents +The following tables reflect the calculation of basic and diluted net income (loss) per ordinary share for the year ended December 31, 2024 (in dollars, except share amounts): +​ +​ +​ +​ +​ +​ +Year Ended +​ +​ +December 31, 2024 +Net income +​ +$ +2,820,574 +Accretion of temporary equity to redemption value +​ +( 4,823,235 ) +Net loss including accretion of temporary equity to redemption value +​ +$ +( 2,002,661 ) +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Year Ended +​ +​ +December 31, 2024 +​ +​ +​ +​ +​ +​ +​ +​ +Class B Non- +​ +Class A Redeemable +Class A Non-redeemable +redeemable +Basic and diluted net income (loss) per share: +​ +​ +​ +​ +​ +​ +​ +​ +​ +Numerator: +​ +​ +​ +​ +​ +​ +​ +​ +​ +Allocation of net income by class +​ +$ +1,597,989 +​ +$ +167,842 +​ +$ +1,054,743 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Less: Accretion allocation based on ownership percentage +​ +$ +( 2,732,591 ) +​ +$ +( 287,013 ) +​ +( 1,803,631 ) +Allocation of accretion of temporary equity to redeemable shares +​ +4,823,235 +​ +— +​ +— +Total net income (loss) by class +​ +$ +3,688,633 +​ +$ +( 119,171 ) +​ +( 748,888 ) +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Denominator: +​ +​ +​ +​ +​ +​ +​ +​ +​ +Weighted average shares outstanding +​ +7,415,143 +​ +762,500 +​ +4,791,667 +Basic and diluted net income (loss) per share +​ +$ +0.50 +​ +$ +( 0.16 ) +​ +( 0.16 ) +​ +The following tables reflect the calculation of basic and diluted net income (loss) per ordinary share for the year ended December 31, 2023 (in dollars, except share amounts): +​ +​ +​ +​ +​ +​ +Year Ended +​ +​ +December 31, 2023 +Net loss from beginning on the year to date of initial public offering +​ +$ +( 6,646 ) +Net income from date of initial public offering to period end +​ +6,080,121 +Total net income for the year ended December 31, 2023 +​ +6,073,475 +Accretion of temporary equity to redemption value +​ +( 18,948,600 ) +Net loss including accretion of temporary equity to redemption value +​ +$ +( 12,875,125 ) +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Year Ended +​ +​ +December 31, 2023 +​ +​ +​ +​ +​ +​ +​ +​ +Class B Non- +​ +Class A Redeemable +Class A Non-redeemable +redeemable +Basic and diluted net income (loss) per share: +​ +​ +​ +Numerator: +​ +​ +​ +Allocation of net income by class +​ +$ +4,385,620 +​ +$ +232,628 +​ +$ +1,455,227 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Less: Accretion allocation based on ownership percentage +​ +$ +( 13,667,712 ) +​ +$ +( 724,983 ) +​ +( 4,555,905 ) +Allocation of accretion of temporary equity to redeemable shares +​ +18,948,600 +​ +— +​ +— +Total net income (loss) by class +​ +$ +9,666,508 +​ +$ +( 492,355 ) +​ +( 3,100,678 ) +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Denominator: +​ +​ +​ +​ +​ +​ +Weighted average shares outstanding +​ +13,705,479 +​ +726,986 +​ +4,791,667 +Basic and diluted net income (loss) per share +​ +$ +0.71 +​ +$ +( 0.68 ) +​ +( 0.65 ) +​ +F-15 +Table of Contents +Recent Accounting Pronouncements +In November 2023, the FASB issued Accounting Standard Update 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which is intended to improve reportable segment disclosure requirements, primarily through additional disclosures about significant segment expenses. The standard was effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. We adopted this ASU for the annual period ended December 31, 2024 and applied the provisions retrospectively to each period presented in the financial statements. Adoption of the new standard did not have a material impact on our financial statements. +In December 2023, the FASB issued Accounting Standards Update 2023-09, “Improvements to Income Tax Disclosures” (“ASU 2023-09”), which provides for additional disclosures primarily related to the income tax rate reconciliations and income taxes paid. ASU 2023-09 requires entities to annually disclose the income tax rate reconciliation using both amounts and percentages, considering several categories of reconciling items, including state and local income taxes, foreign tax effects, tax credits and nontaxable or nondeductible items, among others. Disclosure of the reconciling items is subject to a quantitative threshold and disaggregation by nature and jurisdiction. ASU 2023-09 also requires entities to disclose net income taxes paid or received to federal, state and foreign jurisdictions, as well as by individual jurisdiction, subject to a five percent quantitative threshold. ASU 2023-09 may be adopted on a prospective or retrospective basis and is effective for fiscal years beginning after December 15, 2024 with early adoption permitted. The Company is currently assessing the impact, if any, that ASU 2023-09 would have on its financial position, results of operations or cash flows. +The Company’s management does not believe that any other recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the accompanying financial statements. +Note 3 - Initial Public Offering +On January 18, 2023 the Company sold 14,375,000 Units at a price of $ 10.00 per Unit. Each Unit consists of one share of Class A ordinary share and one warrant (“Public Warrant”). Each whole Public Warrant entitles the holder to purchase one share of Class A ordinary shares at a price of $ 11.50 per share (see Note 6). +An aggregate of $ 10.20 per Unit sold in the Initial Public Offering was deposited in the Trust Account and invested in U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act, with a maturity of 185 days or less or in any open-ended investment company that holds itself out as a money market fund meeting the conditions of Rule 2a-7 of the Investment Company Act, as determined by the Company. As of December 31, 2024, $ 82,604,083 was held in the Trust Account. In addition,as of December 31, 2024, $ 21,257 of operating cash is not held in the Trust Account and is available for working capital purposes. +Note 4 - Related Party Transactions +Founder Shares +On January 26, 2022, the Sponsor purchased 5,750,000 shares (the “Founder Shares”) of the Company’s Class B ordinary shares, par value $ 0.0001 (“Class B ordinary shares”) for an aggregate price of $ 25,000 . +On March 4, 2022, the Company effected a share capitalization with respect to our Class B ordinary shares of 1,150,000 , resulting in our initial shareholders holding 6,900,000 shares. On August 18, 2022, the Sponsor surrendered for no consideration 1,150,000 shares, resulting in a decrease in the total number of Class B shares outstanding to 5,750,000 . On November 17, 2022 the Sponsor surrendered for no consideration 958,333 shares, resulting in a decrease in the total number of Class B shares outstanding to 4,791,667 . All share and per-share amounts have been retroactively restated. +On May 7, 2023, the Sponsor transferred 95,500 of its Founder Shares to our special advisor for consulting services. The consulting services offered were considered a benefit that the Company realized as a result of the Sponsors transaction with the special advisor. The fair value of the consulting services was determined to be a financing expense in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 718. +The Founder Shares will automatically convert into Class A ordinary shares at the time of the Company’s initial Business Combination and are subject to certain transfer restrictions, as described in Note 6. Holders of Founder Shares may also elect to convert their Class B ordinary shares into an equal number of Class A ordinary shares, subject to adjustment, at any time. +F-16 +Table of Contents +Private Placement +The Sponsor, BTIG, LLC, Exos Capital LLC, and JonesTrading Institutional Services LLC purchased an aggregate of 762,500 Private Units at a price of $ 10.00 per Private Unit for an aggregate purchase price of $ 7,625,000 in a private placement that occurred simultaneously with the closing of the Initial Public Offering, the proceeds of which were recorded in additional paid in capital. Each Private Unit consists of one share of Class A ordinary share (“Private Share”) and one warrant (“Private Warrant”). Each Private Warrant entitles the holder to purchase one share of Class A ordinary shares at a price of $ 11.50 per full share, subject to adjustment. The proceeds from the Private Units were added to the proceeds from the Initial Public Offering held in the Trust Account. If the Company does not complete a Business Combination within the Combination Period, the proceeds from the sale of the Private Units will be used to fund the redemption of the Public Shares (subject to the requirements of applicable law). +Related Party Loans +In addition, to finance transaction costs in connection with an initial business combination, the initial shareholders, or certain of the Company’s officers and directors or their affiliates may, but are not obligated to, loan the Company funds as may be required (“Working Capital Loans”). If the Company completes an initial business combination, the Company would repay the Working Capital Loans out of the proceeds of the Trust Account released to the Company. Otherwise, the Working Capital Loans would be repaid only out of funds held outside the Trust Account. In the event that an initial business combination does not close, the Company may use a portion of proceeds held outside the Trust Account to repay the Working Capital Loans, but no proceeds held in the Trust Account would be used to repay the Working Capital Loans. Except for the foregoing, the terms of such Working Capital Loans, if any, have not been determined and no written agreements exist with respect to such loans. The Working Capital Loans would either be repaid upon consummation of an initial business combination, without interest, or, at the lender’s discretion, up to $ 1,500,000 of such Working Capital Loans may be convertible into private placement-equivalent units of the post initial business combination entity at a price of $ 10.00 per private placement-equivalent unit. These units would be identical to the Private Units. As of December 31, 2024 and 2023, the Company had no outstanding Working Capital Loans. +Promissory Note – Related Party +On January 26, 2022, the Company issued an unsecured promissory note to the Sponsor (the “Promissory Note”), pursuant to which the Company may borrow up to an aggregate principal amount of $ 300,000 . As of January 18, 2023, the Company had borrowed $ 237,234 under the Promissory Note. On January 18, 2023 the Company paid $ 245,540 to the Sponsor, resulting in an overpayment of $ 8,306 that was recorded as a related party receivable, which was subsequently refunded to the Company prior to December 31, 2023. The Promissory Note was non-interest bearing. As of December 31, 2024 and 2023, the outstanding balance under the Promissory Note was $ 0 . +On January 18, 2024, the Company issued a promissory note in the amount of $ 600,000 to pay for up to twelve additional one-month extension payments (the “Extension Note”). On each of January 16, 2024, February 15, 2024, March 11, 2024, April 15, 2024, May 17, 2024, June 14, 2024, July 17, 2024, August 15, 2024, September 12, 2024, October 16, 2024, November 15, 2024, and December 17, 2024, the Company drew $ 50,000 , $ 600,000 in the aggregate, against the Extension Note to pay for each additional one-month extension. The Extension Note bears no interest and is repayable in full (subject to amendment or waiver) upon the earlier of (i) the date of the consummation of the Company’s initial business combination, or (ii) the date of the Company’s liquidation. As of December 31, 2024 and 2023, there was $ 600,000 and $ 0 outstanding under the Extension Note, respectively. +Additionally, on July 17, 2024, the Company issued an unsecured promissory note to the Sponsor (the “July Promissory Note”), pursuant to which the Company may borrow up to an aggregate principal amount of $ 1,500,000 . The July Promissory Note bears no interest and is repayable in full (subject to amendment or waiver) upon the earlier of (i) the date of the consummation of the Company’s initial business combination, or (ii) the date of the Company’s liquidation. As of December 31, 2024 and 2023, there was $ 225,000 and $ 0 outstanding under the July Promissory Note, respectively. +Administrative Services Agreement +The Company entered into an Administrative Services Agreement with the Sponsor commencing on the date the securities of the Company are first listed on the Nasdaq Global Market, pursuant to a Registration Statement on Form S-1 filed by the Company with the SEC and continuing until the earlier of the consummation by the Company of an initial business combination or the Company’s liquidation. The Company will pay $ 10,000 per month to the Sponsor for certain office space, utilities and secretarial and administrative +F-17 +Table of Contents +services as may be reasonably required from time to time. As of December 31, 2024 and 2023, there is $ 120,000 and $ 116,129 , respectively, in due to related party related to the agreement. The Company incurred 120,000 and $ 116,129 , respectively for the year ended December 31, 2024 and 2023. Amounts have been included in administrative expense - related party in the statements of operations. +Note 5 – Commitments & Contingencies +Registration and Shareholder Rights +The holders of the Founder Shares, as well as the holders of the Private Units (and the underlying securities) and any units that may be issued in payment of Working Capital Loans made to Company, will be entitled to registration rights. The holders of a majority of these securities are entitled to make up to two demands that the Company register such securities. The holders of a majority of the Private Units (and the underlying securities) and units issued in payment of Working Capital Loans (or underlying securities) can elect to exercise these registration rights at any time after the Company consummates a business combination. The Company will bear the expenses incurred in connection with the filing of any such registration statements. +Underwriting Agreement +The Company granted the underwriters a 45 -day option from the date of Initial Public Offering to purchase up to 1,875,000 additional Public Units to cover overallotments, if any, at the Initial Public Offering price less the underwriting discounts and commissions. The underwriters exercised the option in full on January 18, 2023. The underwriters were entitled to a cash underwriting discount of $ 2,500,000 , which was paid upon the closing of the Initial Public Offering. The underwriters are also entitled to a deferred cash underwriting discount of 3.50 % of the gross proceeds of the Initial Public Offering and 5.50 % of the gross proceeds from the sale of the Public Units sold pursuant to the over-allotment option, or $ 5,406,250 , payable to the underwriters for deferred underwriting commissions. The full amount of the deferred cash underwriting discount was placed in the Trust Account and will be released to the underwriters only on, and concurrently with, the completion of an initial business combination. +Note 6 — Shareholders’ Equity (Deficit) +Preference shares - The Company is authorized to issue 2,000,000 preference shares with a par value of $ 0.0001 per preference share and with such designations, voting and other rights and preferences as may be determined from time to time by the Board. As of December 31, 2024 and 2023, there were no preference shares issued or outstanding. +Class A ordinary shares - The Company is authorized to issue 200,000,000 Class A ordinary shares with a par value of $ 0.0001 per Class A ordinary share. In connection with the shareholders’ vote at an extraordinary general meeting of shareholders held on January 8, 2024 (the “Meeting”), holders of 7,115,385 Class A ordinary shares of the Company exercised their right to redeem such shares. Accordingly, as of December 31, 2024 and 2023, there were 762,500 Class A ordinary shares issued or outstanding , excluding 7,259,615 and 14,375,000 shares of Class A ordinary shares issued and outstanding subject to possible redemption, respectively. +Class B ordinary shares - The Company is authorized to issue 20,000,000 Class B ordinary shares with a par value of $ 0.0001 per Class B ordinary share. Holders are entitled to one vote for each Class B ordinary share. As of December 31, 2024 and 2023, there were 4,791,667 Class B ordinary shares issued and outstanding. +On March 4, 2022, the Company effected a share capitalization with respect to our Class B ordinary shares of 1,150,000 , resulting in our initial shareholders holding 6,900,000 . On August 18, 2022, the Sponsor surrendered for no consideration 1,150,000 shares, resulting in a decrease in the total number of Class B shares outstanding to 5,750,000 . On November 17, 2022 the Sponsor surrendered for no consideration 958,333 shares, resulting in a decrease in the total number of Class B shares outstanding to 4,791,667 . All share amounts and related information have been retroactively restated in the financial statements to reflect the share capitalization and subsequent surrender. +Only holders of the Class B ordinary shares will have the right to vote on the election of directors prior to the Business Combination. Holders of Class A ordinary shares and holders of Class B ordinary shares will vote together as a single class on all other matters submitted to a vote of the Company’s shareholders except as otherwise required by law. +F-18 +Table of Contents +The Class B ordinary shares will automatically convert into Class A ordinary shares at the time of the initial Business Combination on a one -for-one basis, subject to adjustment. In the case that additional Class A ordinary shares, or equity-linked securities, are issued or deemed issued in excess of the amounts offered in the Proposed Public Offering and related to the closing of the initial Business Combination, the ratio at which Class B ordinary shares shall convert into Class A ordinary shares will be adjusted (unless the holders of a majority of the outstanding Class B ordinary shares agree to waive such adjustment with respect to any such issuance or deemed issuance) so that the number of Class A ordinary shares issuable upon conversion of all Class B ordinary shares will equal, in the aggregate, on an as-converted basis, 25 % of the sum of the total number of all shares of ordinary shares outstanding upon the completion of the Proposed Public Offering plus all Class A ordinary shares and equity-linked securities issued or deemed issued in connection with the initial Business Combination (excluding any private placement shares, any shares or equity-linked securities issued, or to be issued, to any seller in the initial Business Combination and any private placement-equivalent warrants issued to the Sponsor or its affiliates upon conversion of loans made to the Company). Holders of Founder Shares may also elect to convert their Class B ordinary shares into an equal number of Class A ordinary shares, subject to adjustment as provided above, at any time. +Warrants - Each whole redeemable warrant entitles the registered holder to purchase one whole Class A ordinary share at a price of $ 11.50 per Class A ordinary share, subject to adjustment, at any time commencing 30 days after the completion of our initial business combination. The warrants will expire five years after the completion of the initial business combination, at 5:00 p.m., New York City time, or earlier upon the Company’s redemption or liquidation. +The Company agrees that as soon as practicable, but in no event later than 15 Business Days after the closing of its initial business combination, it shall use its commercially reasonable efforts to file with the SEC a registration statement (which may be, at the election of the Company, a post-effective amendment to the Registration Statement) for the registration, under the Securities Act, of the offer and sale of the ordinary shares issuable upon exercise of the warrants. The Company shall use its commercially reasonable efforts to cause the same to become effective and to maintain the effectiveness of such registration statement, and a current prospectus relating thereto, until the expiration or redemption of the warrants in accordance with the provisions of that certain Warrant Agreement, by and between the Company and American Stock Transfer & Trust Company (“Warrant Agent”), dated January 12, 2023 (the “Warrant Agreement”). If any such registration statement has not been declared effective by the 60 th Business Day following the closing of the initial business combination, holders of the Public Warrants shall have the right, during the period beginning on the 61 st Business Day after the closing of the initial business combination and ending upon such registration statement being declared effective by the SEC, and during any other period when the Company shall fail to have maintained an effective registration statement, and current prospectus relating thereto, covering the offer and sale of the issuance of the ordinary shares issuable upon exercise of the Public Warrants, to exercise such Public Warrants on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act or another exemption for that number of shares of ordinary shares equal to the quotient obtained by dividing (x) the product of the number of shares of ordinary shares underlying the Public Warrants, multiplied by the excess of the Fair Market Value (as defined below) less the Warrant Price (as defined in the Warrant Agreement) by (y) the Fair Market Value. The “Fair Market Value” shall mean the volume-weighted average price of the shares of ordinary shares as reported during the 10-trading-day period ending on the trading day prior to the date that notice of exercise is received by the Warrant Agent from the holder of such Warrants or its securities broker or intermediary. The date that notice of “cashless exercise” is received by the Warrant Agent shall be conclusively determined by the Warrant Agent. +Redemption of Warrants when the Price per Class A Ordinary Share Equals or Exceeds $ 18.00 . +Once the warrants become exercisable, the Company may redeem all, but not less than all, of the Public Warrants: +● Not earlier than 90 days after the completion of the initial business combination; +● in whole and not in part; +● at a price of $ 0.01 per warrant; +● provided that the last reported sale price of the Class A ordinary shares for any 20 days within the 30-trading day period ending on the third trading date prior to the date on which notice of the redemption is given equals or exceeds $ 18.00 per Class A ordinary shares; and +● either there is an effective registration statement covering the offer and sale of the issuance of the ordinary shares issuable upon exercise of the Public Warrants, and a current prospectus relating thereto, available throughout the 30 -day redemption period; or +F-19 +Table of Contents +● the Company has elected to require the exercise of the Public Warrants on a “cashless basis.” +If (x) the Company issues additional ordinary shares or equity-linked securities for capital raising purposes in connection with the closing of its initial business combination at an issue price or effective issue price of less than $ 9.20 per ordinary shares (with such issue price or effective issue price to be determined in good faith by the Board and, in the case of any such issuance to the Sponsor or its affiliates, without taking into account any Class B ordinary shares held by the Sponsor or such affiliates, as applicable, prior to such issuance) (the “Newly Issued Price”), (y) the aggregate gross proceeds from such issuances represent more than 60 % of the total equity proceeds, and interest thereon, available for the funding of the Company’s initial business combination on the date of the completion of the Company’s initial business combination (net of redemptions), and (z) the volume-weighted average trading price of shares of Class A ordinary shares during the 20 -trading-day period starting on the trading day prior to the day on which the Company consummates its initial business combination (such price, the “Market Value”) is below $ 9.20 per share, the Warrant Price shall be adjusted (to the nearest cent) to be equal to 115 % of the higher of the Market Value and the Newly Issued Price, and the $ 18.00 per share redemption trigger price described under “Redemption of warrants for cash” shall be adjusted (to the nearest cent) to be equal to 180 % of the higher of the Market Value and the Newly Issued Price. If the adjustment in the immediately preceding sentence would otherwise result in an increase in the Warrant Price (as adjusted for share splits, share dividends, recapitalizations, extraordinary dividends and similar events) hereunder, no adjustment shall be made. +The Private Warrants are identical to the Public Warrants underlying the Public Units, except that the Private Warrants may be exercised for cash or on a “cashless basis,” the Private Warrants and the Class A ordinary shares issuable upon exercise of the Private Warrants may be subject to certain transfer restrictions, and the Private Warrants are not redeemable at the option of the Company. The Private Warrants shall not become Public Warrants as a result of any transfer of the Private Warrants, regardless of the transferee. +If a tender offer, exchange or redemption offer shall have been made to and accepted by the holders of the Class A ordinary shares and upon completion of such offer, the offeror owns beneficially more than 50 % aggregate voting power, including the power to vote on the election of directors of the Company, of the issued and outstanding equity securities of the Company, the holder of a warrant shall be entitled to receive the highest amount of cash, securities or other property to which such holder would actually have been entitled as a shareholder if such warrant had been exercised, accepted such offer and all of the Class A ordinary shares held by such holder had been purchased pursuant to the offer. If less than 70 % of the consideration receivable by the holders of the Class A ordinary shares in the applicable event is payable in the form of common equity in the successor entity that is listed on a national securities exchange or is quoted in an established over-the-counter market, and if the holder of a warrant properly exercises such warrant within 30 days following the public disclosure of the consummation of the applicable event by the Company, the Warrant Price shall be reduced by an amount equal to the difference (but in no event less than zero) of (i) the Warrant Price in effect prior to such reduction minus (ii) (A) the Per Share Consideration (as defined in the warrant agreement) minus (B) the value of the warrant based on the Black-Scholes Warrant Value for a Capped American Call for Public Warrants and Uncapped American Call for Private Warrants on Bloomberg Financial Markets. +Note 7 — Fair Value Measurements +At December 31, 2024 and 2023, the Company’s cash and marketable securities held in the Trust Account were valued at $ 82,604,083 and $ 153,702,006 , respectively. The cash and marketable securities held in the Trust Account must be recorded on the balance sheet at fair value and are subject to re-measurement at each balance sheet date. With each re-measurement, the valuations will be adjusted to fair value, with the change in fair value recognized in the Company’s statement of operations. +The following table presents the fair value information, as of December 31, 2024 and 2023, of the Company’s financial assets that were accounted for at fair value on a recurring basis and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value. The Company’s cash and marketable securities held in the Trust Account are based on dividend income and market fluctuations in the value of invested marketable securities, which are considered observable. The fair value of the marketable securities held in trust is classified within Level 1 of the fair value hierarchy. +​ +F-20 +Table of Contents +The following table sets forth by level within the fair value hierarchy the Company’s assets and liabilities that were accounted for at fair value on a recurring basis: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +December 31, 2024 +​ +(Level 1) +(Level 2) +(Level 3) +Assets +​ +​ +​ +Cash and marketable securities held in trust account (2) +​ +$ +82,604,083 +​ +$ +— +​ +$ +— +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +December 31, 2023 +​ +(Level 1) +(Level 2) +(Level 3) +Assets +​ +​ +​ +Cash equivalents (1) +​ +$ +671,628 +​ +$ +— +​ +$ +— +Cash and marketable securities held in trust account (2) +​ +$ +153,702,006 +​ +$ +— +​ +$ +— +(1) The fair value of money market funds have been measured on a recurring basis using Level 1 inputs, which are based on unadjusted quoted market prices within active markets. +(2) The fair value of the marketable securities held in the Trust Account approximates the carrying amount primarily due to their short-term nature. +Measurement +The Company established the initial fair value for the cash and marketable securities held in the Trust Account on January 18, 2023, the date of the consummation of the Company’s Initial Public Offering. As the cash was transferred to the Trust Account on January 18, 2023, the value at that date is the value of the cash transferred. Changes in fair value will result from dividend and interest income and market fluctuations in the value of invested marketable securities which will be reflected on each month end bank statement. +​ +​ +Note 8 — Segment Information +ASC Topic 280, “Segment Reporting,” establishes standards for companies to report in their financial statement information about operating segments, products, services, geographic areas, and major customers. Operating segments are defined as components of an enterprise that engage in business activities from which it may recognize revenues and incur expenses, and for which separate financial information is available that is regularly evaluated by the Company’s chief operating decision maker, or group, in deciding how to allocate resources and assess performance. +​ +The Company’s CODM has been identified as the Chief Financial Officer, who reviews the assets, operating results, and financial metrics for the Company as a whole to make decisions about allocating resources and assessing financial performance. Accordingly, management has determined that there is only one reportable segment. +​ +The CODM assesses performance for the single segment and decides how to allocate resources based on net income or loss that also is reported on the statements of operations as net income or loss. The CODM uses net income or loss to manage the business and forecasts to ensure enough capital is available to complete a business combination or similar transaction within the business combination period. The CODM also reviews significant expenses, which are consistent with those reported on the statements of operations, to manage, maintain, and enforce contractual agreements to ensure costs are aligned with agreements and the budget. The measure of segment assets is reported on the balance sheets as total assets. All segment items included in net income or loss are reported on the statements of operations and described within their respective disclosures. +​ +Note 9 — Subsequent Events +On January 6, 2025, by special resolution and at an extraordinary general meeting of shareholders, the Company has extended the date by which it has to complete an initial business combination from January 18, 2025 (the “ Termination Date ”) up to twelve ( 12 ) times, with each extension comprised of one month (each an “ Extension ”), from the Termination Date to January 18, 2026, by providing five days ’ advance notice to the Trustee prior to the applicable Extended Date and depositing into the Trust Account the lesser of (i) $ 35,000 or (ii) $ 0.035 per Public Share, multiplied by the number of Public Shares that remain outstanding by the end of the then-current Extended Date, by the date of such Extension up until January 18, 2026 (assuming an initial business combination has not occurred), in exchange for a non-interest bearing, unsecured promissory note payable upon the consummation of an initial business combination. +F-21 +Table of Contents +​ +In connection with the shareholders’ vote, holders of 6,461,683 Class A ordinary shares of the Company exercised their right to redeem such shares (the “ Redemption ”) for a pro rata portion of the funds held in the Trust Account. As a result, $ 73,146,251 was removed from the Trust Account to pay such holders. Following the aforementioned Redemption, the Company has 6,352,099 ordinary shares of the Company (inclusive of the Class A ordinary shares underlying the private placement units of the Company) outstanding. +​ +On January 17, 2025, the Company issued an unsecured promissory note to the Sponsor in the amount of $ 335,131 to pay for up to twelve additional one-month extension payments (the “2025 Extension Note”). On January 17, 2025, February 18, 2025, and March 18, 2025, the Company drew $ 27,927 against the 2025 Extension Note to pay for an additional one-month extensions. The 2025 Extension Note bears no interest and is repayable in full upon the earlier of (i) the date of the consummation of the Company’s initial business combination, or (ii) the date of the Company’s liquidation. +​ +On January 26, 2025, the Company entered into the Business Combination Agreement with Gadfin Ltd., a company domiciled in Israel (“Gadfin”). Gadfin is a pioneering technology company revolutionizing the logistics and cargo delivery industry with its innovative hydrogen-powered drones. Specializing in long-range, heavy-duty, zero-emission aerial delivery, Gadfin provides cutting-edge solutions for time-critical, essential cargo transport, especially to less accessible areas. Gadfin’s proprietary technology is designed to address the evolving needs of sectors such as healthcare, logistics, and industrial supply chains, enabling efficient, sustainable, and reliable deliveries across urban and remote areas. +​ +Under the Business Combination Agreement, holders of Gadfin equity interests are expected to receive approximately $ 200,000,000 (the “Gadfin Equity Value”) in aggregate consideration in the form of NewPubco Ordinary Shares, equal to the quotient obtained by dividing (a) the Gadfin Equity Value by (b) the fully diluted number of Gadfin ordinary shares and preferred shares (including ordinary shares issuable upon exercise, vesting and settlement of Gadfin options and Gadfin warrants and other convertible securities of Gadfin); provided however, in the event Gadfin does not record at least $ 4,500,000 in deferred revenue by the Closing Date, the Gadfin Equity Value shall be $ 150,000,000 . +Gadfin may terminate the Business Combination Agreement, (a) at any time prior to the receipt of the Gadfin Shareholder Approval, in order to immediately enter into a written definitive agreement with respect to a Superior Proposal, and (b) if the representations and warranties of the Company are not true and correct or if the Company has materially breached any covenant or agreement as set forth in the Business Combination Agreement. In the event the Business Combination Agreement is terminated by Gadfin in order to accept a Superior Proposal, Gadfin will pay to the Company a termination fee of $ 10,000,000 . In the event the Business Combination Agreement is terminated by Gadfin pursuant to clause (b) of this paragraph, the Company will pay to Gadfin a termination fee of $ 10,000,000 . +​ +Effective March 18, 2025, Daniel Recanati resigned from his role as Chairman of the audit committee. Simultaneously Daniel Recanati’s resignation as Chairman of the audit committee, the board of directors appointed Peter Cohen as Chairman of the audit committee. +​ +​ +F-22 \ No newline at end of file diff --git a/raw/filings/0001915328/2024/0001410578-25-000601/filing_metadata.csv b/raw/filings/0001915328/2024/0001410578-25-000601/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..804252f2297de09992211101cd0c0621272051af --- /dev/null +++ b/raw/filings/0001915328/2024/0001410578-25-000601/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001915328,ISRLF,Israel Acquisitions Corp,2024,10-K,2025-03-31,2024-12-31,2025-03-31T21:24:38.000Z,0001410578-25-000601,isrlu-20241231x10k.htm,10-K,6754918,1,1,https://www.sec.gov/Archives/edgar/data/1915328/000141057825000601/isrlu-20241231x10k.htm,https://www.sec.gov/Archives/edgar/data/1915328/000141057825000601/ diff --git a/raw/filings/0001915328/2024/0001410578-25-000601/item1.txt b/raw/filings/0001915328/2024/0001410578-25-000601/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..c6d8242c6d1a093c5621ad13a35bbd6d2589d340 --- /dev/null +++ b/raw/filings/0001915328/2024/0001410578-25-000601/item1.txt @@ -0,0 +1,316 @@ +ITEM 1. BUSINESS +General +We are a newly organized blank check company incorporated on August 24, 2021, as a Cayman Islands exempted company for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar combination with one or more businesses or assets, which we refer to throughout this Annual Report on Form 10-K as our initial business combination. We have generated no revenues to date, and we do not expect that we will generate operating revenues at the earliest until we consummate our initial business combination. While we may pursue an initial business combination target in any industry or sector, we intend to focus our search on high-growth technology companies that are domiciled in Israel, that carry out all or a substantial portion of their activities in Israel, or that have some other significant Israeli connection. +On January 26, 2025, we entered into the Business Combination Agreement with Gadfin Ltd., a company domiciled in Israel (“Gadfin”). Gadfin is a pioneering technology company revolutionizing the logistics and cargo delivery industry with its innovative hydrogen-powered drones. Specializing in long-range, heavy-duty, zero-emission aerial delivery, Gadfin provides cutting-edge solutions for time-critical, essential cargo transport, especially to less accessible areas. Gadfin’s proprietary technology is designed to address the evolving needs of sectors such as healthcare, logistics, and industrial supply chains, enabling efficient, sustainable, and reliable deliveries across urban and remote areas. +Overview +Our business strategy is focused on identifying Israeli technology companies that would benefit from our expertise and create long-term value, although our efforts to identify a prospective business combination target will not necessarily be limited to a particular industry, sector or region. +The technology industry as a whole experienced an unprecedented acceleration of its growth during the coronavirus (“COVID-19”) pandemic as more businesses adopted new and innovative ways of doing business and more consumers rapidly adopted digital platforms to consume products and services. +We believe that Israel holds numerous public-ready technology companies that are positioned for high-growth, as evidenced by the number of Israeli companies listed on Nasdaq and “Unicorns” (companies with a valuation of $1 billion or greater) that originated in Israel. For a country about the size of New Jersey, Israel has an outsized influence on the US stock market. More than 100 Israeli companies are listed on US exchanges, with a combined market cap of more than $150 billion – Israel has the fourth most companies listed on the Nasdaq after the United States, Canada and China (as of October 17, 2023). +In 2024, Israeli tech companies continued to attract major investment. According to IVC-LeumiTech’s report covered by Crowdfund Insider, Israeli companies managed to raise approximately $9.6 billion from investors through 453 different deals. We believe that Israel’s tech ecosystem remains strong and offers great opportunities for investors. The resilience and ongoing success of the Israeli tech market reflect the attractive opportunity for tech investment. +Our objective is to generate attractive returns and create value for our shareholders by capitalizing on the expertise of our Team. Our Team has an extensive track record of identifying and selecting successful targets, closing investments and merger and acquisition transactions, and increasing the value of companies post-investment or post-transaction. They have excellent access to the Israeli technology ecosystem, through personal relationships with “C” suite executives, venture capital and private equity directors and others involved with dozens of companies meeting our investment objectives and criteria. We intend to leverage their significant contacts and experience to identify, evaluate and acquire a target business. We maintain an Internet website at https://israelacquisitionscorp.com/ . +​ +​ +​ +5 +Table of Contents +Initial Public Offering +The SEC declared the registration statement for our Initial Public Offering effective on January 12, 2023. On January 18, 2023, we consummated our Initial Public Offering of 14,375,000 units, which included the full exercise the underwriters’ over-allotment option in the amount of 1,875,000 units, at $10.00 per unit, generating gross proceeds of $143,750,000. Each unit is comprised of one Class A ordinary share and one public warrant. +Simultaneously with the closing of the Initial Public Offering, we consummated the sale of (i) 637,500 Private Placement Units at a price of $10.00 per private placement unit in a private placement to the Sponsor, (ii) 75,000 Private Placement Units at price of $10.00 per private placement unit in a private placement to BTIG, LLC, (iii) 25,000 Private Placement Units at price of $10.00 per private placement unit in a private placement to Exos Capital LLC, and (iv) 25,000 Private Placement Units at price of $10.00 per private placement unit in a private placement to JonesTrading Institutional Services LLC. +Following the closing of our Initial Public Offering on January 18, 2023, an amount of $146,625,000 ($10.00 per unit sold in our Initial Public Offering) from the net proceeds of the sale of the units in the Initial Public Offering and the sale of the Private Placement Units was placed in a Trust Account, until the earlier of (i) the completion of our initial business combination and (ii) the distribution of the funds held in our Trust Account, as described below. +Business Combination Agreement – Proposed Business Combination with Gadfin +On January 26, 2025, the Company and Gadfin entered into the Business Combination Agreement, pursuant to which, among other things, and subject to the terms and conditions contained therein (i) Gadfin will cause a company organized under the laws of the State of Israel and wholly owned by a trustee (the “NewPubco”) to be formed, (ii) Gadfin will cause a company organized under the laws of the State of Israel and wholly owned, direct subsidiary of NewPubco (“Merger Sub 1”) to be formed, (iii) Gadfin will cause a Cayman Islands exempted company and wholly owned, direct subsidiary of NewPubco (“Merger Sub 2”) to be formed, (iv) Gadfin will cause NewPubco, Merger Sub 1 and Merger Sub 2 to become a party to the Business Combination Agreement by delivering a joinder to the Business Combination Agreement, (v) Gadfin will effect the Share Split, (vi) NewPubco, the shareholders of Gadfin and the holders of equity awards of Gadfin will effect the Acquisition Merger (as defined herein), (vii) Merger Sub 1 will merge with and into Gadfin, with Gadfin surviving the merger as a direct wholly owned subsidiary of NewPubco (the “Acquisition Merger”), and (viii) Merger Sub 2 will merge with and into the Company, with the Company surviving the merger as a direct wholly owned subsidiary of NewPubco (the “IAC Merger”, and together with the Acquisition Merger, the “Mergers”). The collective transactions referenced in (i)-(viii) are hereinafter referred to as the “Transactions”. The terms of the Business Combination Agreement, which contain customary representations and warranties, covenants, closing conditions, termination provisions, and other terms relating to the Transactions, are summarized below. Capitalized terms used but not defined herein shall have the meanings ascribed thereto in the Business Combination Agreement. +Share Split and Equity Exchange +Prior to the closing of the Transactions (the “Closing”), Gadfin will effect a share split under which each ordinary share and preferred share of Gadfin issued and outstanding will be split into a number of ordinary shares or preferred shares, as applicable, determined by multiplying each such ordinary share or preferred share of Gadfin, as applicable, by the Split Factor (the “Share Split”). +Under the Business Combination Agreement, holders of Gadfin equity interests are expected to receive approximately $200,000,000 (the “Gadfin Equity Value”) in aggregate consideration in the form of NewPubco Ordinary Shares, equal to the quotient obtained by dividing (a) the Gadfin Equity Value by (b) the fully diluted number of Gadfin ordinary shares and preferred shares (including ordinary shares issuable upon exercise, vesting and settlement of Gadfin options and Gadfin warrants and other convertible securities of Gadfin); provided however, in the event Gadfin does not record at least $4,500,000 in deferred revenue by the Closing Date, the Gadfin Equity Value shall be $150,000,000. +In addition, following the Closing and subject to the occurrence of the $12.50 Share Price Milestone and/or the $15.00 Share Price Milestone, NewPubco shall issue to each holder of Gadfin as of immediately prior to the Acquisition Merger Effective Time (as defined below), a certain number of Price Adjustment Earnout Shares, subject to the terms and conditions set forth therein. +Immediately after the Share Split, and at the effective time of the Acquisition Merger, Merger Sub 1 will be merged with and into Gadfin upon the terms and subject to the conditions set forth in the Business Combination Agreement, and in accordance with the applicable provisions of the Israeli Companies Law (“ICL”), whereupon the separate corporate existence of Merger Sub 1 will cease +6 +Table of Contents +and Gadfin will continue its existence under the ICL as the surviving corporation and become a wholly owned subsidiary of NewPubco (the “Acquisition Surviving Sub”), on the terms and subject to the conditions set forth in the Business Combination Agreement. From and after the effective time of the Acquisition Merger, Gadfin will possess all the rights, powers, privileges, properties and franchises and be subject to all of the obligations, liabilities and duties of Gadfin and Merger Sub 1, all as provided under the ICL. As soon as practicable after the determination of the date on which the Closing is to take place, each of Gadfin and Merger Sub 1 shall, in coordination with each other, deliver to the Israeli Register of Companies (the “Companies Registrar”) a notice of the contemplated Acquisition Merger, setting forth the proposed date of the Closing on which the Companies Registrar is requested to issue a certificate evidencing the Acquisition Merger in accordance with Section 323(5) of the ICL (the “Certificate of Merger”), after another notice that the Closing has occurred is served to the Companies Registrar, which the parties shall deliver as of the date of Closing Date. The Acquisition Merger will become effective upon the issuance by the Companies Registrar of the Certificate of Merger in accordance with Section 323(5) of the ICL (such time as the Acquisition Merger becomes effective being the “Acquisition Merger Effective Time”). +At the Acquisition Merger Effective Time, by virtue of the Acquisition Merger and without any action on the part of Gadfin, Merger Sub 1 or any holders of ordinary shares or preferred shares of Gadfin or shares of Merger Sub 1: (i) all ordinary shares or preferred shares of Gadfin that are owned by Gadfin or any wholly owned subsidiary of Gadfin, if any, shall be deemed to have been transferred to NewPubco and no consideration shall be delivered or deliverable in exchange therefor, (ii) each ordinary share of Gadfin issued and outstanding immediately prior to the Acquisition Merger Effective Time (except for treasury shares of Gadfin) will, by virtue of the Acquisition Merger and upon the terms and subject to the conditions set forth in the Business Combination Agreement, automatically be deemed to have been converted and represent only the right to receive a number of NewPubco Ordinary Shares equal to the Company Merger Ratio, (iii) each preferred share of Gadfin issued and outstanding immediately prior to the Acquisition Merger Effective Time (except for treasury shares of Gadfin) will, by virtue of the Acquisition Merger and upon the terms and subject to the conditions set forth in the Business Combination Agreement, automatically be deemed to have been converted and represent only the right to receive a number of NewPubco Ordinary Shares equal to the Company Merger Ratio, (iv) unless otherwise exercised prior to the Acquisition Merger Effective Time, each warrant of Gadfin issued and outstanding immediately prior to the Acquisition Merger Effective Time, will, by virtue of the Acquisition Merger and upon the terms and subject to the conditions set forth in the Business Combination Agreement, be converted and represent the right to receive a warrant to purchase NewPubco Ordinary Shares equal to the number of ordinary shares of Gadfin subject to such warrant, multiplied by (A) the Split Factor, and (B) the Company Merger Ratio, (v) immediately prior to the Acquisition Merger Effective Time and pursuant to the resolutions of the board of directors of Gadfin, all outstanding Company Options shall be assumed by NewPubco, (vi) each Company Option of Gadfin that is issued and outstanding prior to the Acquisition Merger Effective Time will automatically cease to represent a right to acquire an ordinary share of Gadfin and shall automatically be assumed by NewPubco and converted into an option to acquire such number of NewPubco Ordinary Shares equal to the number of ordinary shares of Gadfin subject to such option, multiplied by (A) the Split Factor, and (B) the Company Merger Ratio, and (vii) each ordinary share of Merger Sub 1 issued and outstanding immediately prior to the Acquisition Merger Effective Time will be converted into one ordinary share of the Acquisition Surviving Company, and all such ordinary shares shall constitute the only outstanding share capital of the Acquisition Surviving Company. +​ +IAC Merger and IAC Merger Consideration +Immediately after the Acquisition Merger Effective Time and on the terms and subject to the conditions set forth in the Business Combination Agreement and in accordance with the Companies Act (as revised) of the Cayman Islands (the “Cayman Companies Law”), the Company will consummate the IAC Merger (the date on which the IAC Merger occurs referred to herein as the “IAC Merger Closing Date”). On the IAC Merger Closing Date, the Company, NewPubco and Merger Sub 2 will (i) cause the a plan of merger, in such form as mutually agreed by the Company and Gadfin (the “Plan of Merger”) to be duly executed and filed with the Registrar of Companies of the Cayman Islands as provided by Section 233 of the Cayman Companies Law, and (ii) make any other filings, recordings or publications required to be made by the Company or Merger Sub 2 under the Cayman Companies Law in connection with the IAC Merger. The IAC Merger will become effective on the date as specified in the Plan of Merger in accordance with the Cayman Companies Law. The IAC Merger shall become effective on the date and time as specified in the Plan of Merger that has been registered by the Registrar of Companies of the Cayman Islands (such date and time is hereinafter referred as the “IAC Merger Effective Time”). Following the IAC Merger Effective Time, the (i) separate existence of Merger Sub 2 will cease, it will be struck off the Register of Companies in the Cayman Islands and the Company shall continue as the surviving company of the IAC Merger (“IAC Surviving Company”) and (ii) IAC will (A) become a direct, wholly owned subsidiary of NewPubco, (B) continue to be governed by the Laws of the Cayman Islands, and (C) succeed to and assume all of the rights, properties and obligations of Merger Sub 2 in accordance with the Cayman Companies Law, and the shareholders of the Company will be entitled to the IAC Merger Consideration (as defined below). +7 +Table of Contents +Under the Business Combination Agreement, at the IAC Merger Effective Time, (a) each IAC unit, consisting of one IAC Class A Share (as defined below) and one IAC Warrant (as defined below, and such units the “IAC Units”) issued and outstanding immediately prior to the IAC Merger Effective Time will be automatically detached and the holder will be deemed to hold one IAC Class A ordinary share, par value $0.0001 (the “IAC Class A Shares”) and one warrant entitling the holder to purchase one IAC Class A Share at a price of $11.50 (the “IAC Warrants”), (b) each Class B ordinary share of the Company, par value $0.0001 (the “IAC Class B Shares”) will automatically be converted into one IAC Class A Share and each IAC Class B Share will no longer be outstanding and will be automatically cancelled, (c) each IAC Class A Share issued and outstanding prior the IAC Merger Effective Time will automatically be cancelled in exchange for the right to receive one NewPubco Ordinary Share for each IAC Class A Share, (the “IAC Merger Consideration”), (d) each IAC Warrant that is outstanding and unexercised immediately prior to the IAC Merger Effective Time will cease to represent an IAC Warrant in respect of IAC Shares and will be assumed by NewPubco and automatically converted into a warrant to acquire NewPubco Ordinary Shares, (e) any IAC Share owned by the Company as treasury shares or by a subsidiary of the Company immediately prior to the IAC Merger Effective Time will be automatically cancelled and will cease to exist without any conversion or payment therefor, (f) each IAC share subject to redemption rights issued and outstanding immediately prior to the IAC Merger Effective Time will be automatically cancelled and cease to exist and will thereafter represent only the right to be paid a pro rata share of the redemption amount in accordance with the Company’s Articles of Association, (g) each IAC share issued and outstanding prior to the IAC Merger Effective Time for which any IAC shareholder had validly exercised their dissenters’ rights will not be exchanged for one NewPubco Ordinary Share and will be automatically cancelled and will thereafter represent only the right to be paid the fair value of such shares and any other rights granted by the Cayman Companies Law, and (h) each ordinary share of Merger Sub 2 issued and outstanding immediately prior to the IAC Merger Effective Time will be converted into one ordinary share of the IAC Surviving Company. +Representations and Warranties +The Business Combination Agreement contains representations and warranties of the parties thereto that are customary for transactions of this type, including representations and warranties relating to (a) entity organization, formation and authority, (b) capital structure, (c) authorization to enter into the Business Combination Agreement, (d) legal compliance and approvals, (e) financial statements and liabilities, (f) consents and requisite governmental approvals, (g) material contracts, (h) absence of changes, (i) litigation, (j) compliance with applicable laws, (k) labor matters and employees benefit plans, (l) environmental matters, (m) intellectual property and privacy, (n) insurance, (o) taxes, (p) real and personal property, and (q) transactions with affiliates, and with respect to the Company only, (i) public filings, (ii) the Investment Company Act and (iii) the Company’s Trust Account. +Non-Survival +None of the representations, warranties, covenants, obligations or other agreements in the Business Combination Agreement or in any certificate or instrument delivered pursuant to the Business Combination Agreement, including any rights arising out of any breach of such representations, warranties, covenants, agreements and other provisions, will survive the Acquisition Merger Effective Time and all such representations, warranties, covenants or other agreements will terminate and expire upon the occurrence of the Acquisition Merger Effective Time (and there will be no liability after the Acquisition Merger Effective Time in respect thereof), except for those covenants and agreements contained therein that by their terms expressly apply in whole or in part after the Acquisition Merger Effective Time and then only with respect to any breaches occurring after the Acquisition Merger Effective Time. +Conditions to Consummation of the Business Combination Agreement +Mutual Conditions to Closing +The consummation of the Transactions is conditioned upon, among other things, (a) the Registration Statement / Proxy Statement shall have become effective in accordance with the provisions of the Securities Act; (b) receipt of Gadfin’s shareholder approval, (c) the absence of any governmental order, statute, rule or regulation enjoining or prohibiting the consummation of the Transactions, (d) receipt of the Company’s shareholder approval, (e) receipt of the ISA Exemption, (f) receipt of the Israeli Tax Ruling, and (f) the expiration or termination of the waiting period under the Hart-Scott-Rodino Act. +IAC’s Conditions to Closing +The obligations of the Company to consummate the Transactions are conditioned upon, among other things, customary closing conditions, including no Gadfin Material Adverse Effect having occurred. +8 +Table of Contents +Gadfin’s Conditions to Closing +The obligations of Gadfin to consummate the Transactions are also conditioned upon, among other things, customary closing conditions, including, without limitation, (a) Aggregate Transaction Proceeds being greater than or equal to $15,000,000 (“Minimum Cash Condition”), (b) no Transaction Expenses Cap Excess, if any, shall have remained outstanding, (c) if applicable, the Company and Gadfin shall have reached an agreement on the terms of the Dilution Cap Breach Adjustment. +Termination +The Business Combination Agreement allows the parties to terminate the Business Combination Agreement if specified customary conditions described in the Business Combination Agreement are not satisfied, subject to certain limited exceptions, and also if the Transactions have not been consummated by December 31, 2025 (the “Termination Date”). +The Business Combination Agreement also allows the parties to terminate the Business Combination Agreement if (a) any Governmental Entity takes action prohibiting the Transactions, (b) if the Company Shareholder Approval is not obtained, (c) if Gadfin Shareholder Approval is not obtained, and (d) if Gadfin has not met the Threshold Raised Amount. +The Company may terminate the Business Combination Agreement if (a) the Company declares a PCAOB Related Default that remains uncured for ten (10) business days, and (b) if the representations and warranties of Gadfin are not true and correct or if Gadfin has materially breached any covenant or agreement as set forth in the Business Combination Agreement. +Gadfin may terminate the Business Combination Agreement, (a) at any time prior to the receipt of the Gadfin Shareholder Approval, in order to immediately enter into a written definitive agreement with respect to a Superior Proposal, and (b) if the representations and warranties of the Company are not true and correct or if the Company has materially breached any covenant or agreement as set forth in the Business Combination Agreement. In the event the Business Combination Agreement is terminated by Gadfin in order to accept a Superior Proposal, Gadfin will pay to the Company a termination fee of $10,000,000. In the event the Business Combination Agreement is terminated by Gadfin pursuant to clause (b) of this paragraph, the Company will pay to Gadfin a termination fee of $10,000,000. +In the event the Business Combination Agreement is terminated for any reason other than by Gadfin pursuant to Section 7.1(c) of the Business Combination Agreement, or by the Company or Gadfin the case may be, pursuant to Section 7.1(f) or Section 7.1(g), Gadfin shall pay to the Company an mount equity to five percent (5%) of any IAC Introduced Financing Amount from any source during the period beginning October 16 th , 2024 and extending through the twelve months immediately following the effective date of such termination. +If the Business Combination Agreement is validly terminated, none of the parties to the Business Combination Agreement will have any liability or any further obligation under the Business Combination Agreement, with the exception of (a) the confidentiality obligation set forth in Section 5.3(a) and Section 7.2 of the Business Combination Agreement and (b) the Confidentiality Agreement, respectively. +Agreements Entered Into in Connection with the Business Combination Agreement +Sponsor Support Agreement +Concurrently with the execution of the Business Combination Agreement, each of the Sponsor, the Company and Gadfin entered into a Sponsor Support Agreement (the “Sponsor Support Agreement”) whereby the Sponsor has agreed, among other things, (a) to vote in favor of the Business Combination Agreement and the Transactions on the terms and subject to the conditions set forth in the Sponsor Support Agreement, (b) in the event the Covered Shares represent more than 30% of NewPubco Ordinary Shares issued and outstanding immediately following Closing, Sponsor will irrevocably forfeit and surrender, immediately prior to Closing, for no consideration, a number of Sponsor Shares, up to a maximum of 1,429,000 Sponsor Shares, in order to reduce the Sponsor’s holding in NewPubco below the Dilution Cap, and (c) if, immediately prior to or at the Closing, the Company incurs a Transaction Expenses Cap Excess without obtaining the prior written consent of the Company to incur such Transaction Expenses Cap Excess, then at the election of Gadfin in its sole discretion, Sponsor shall either (x) irrevocably transfer to such Persons entitled to the respective Transaction Expenses Cap Excess such number of SPAC Shares or SPAC Warrants that will satisfy and settle such Transaction Expenses Cap Excess, reasonably acceptable to Gadfin or (y) pay directly to NewPubco any such Transaction Expenses Cap Excess, such that only Sponsor bears such Transaction Expenses Cap Excess. The Sponsor also agreed that it will not (a) transfer any of the Sponsor Shares or grant any security +9 +Table of Contents +interest in the Sponsor Shares pursuant to the Business Combination Agreement or to another shareholder of the Company, (b) deposit any Sponsor Shares into a voting trust or enter into a voting arrangement that is inconsistent with the Sponsor Support Agreement or (c) enter into any arrangement with respect to the acquisition or sale of any of the Sponsor Shares. The Sponsor has also agreed to waive its rights to the treatment of its Sponsor Shares and to not participate in any redemption by tendering or submitting any Company equity securities held by the Sponsor for redemption. Capitalized terms used but not defined herein shall have the meanings ascribed thereto in the Sponsor Support Agreement. +Transaction Support Agreement +Concurrently with the execution of the Business Combination Agreement, certain Gadfin shareholders entered into Transaction Support Agreements, pursuant to which, among other things, each of such Gadfin shareholders, separately and independently, has agreed to vote in favor of the approval of the proposals at the applicable Gadfin shareholders’ meetings. +Registration Rights and Lock-Up Agreement +At the Closing, NewPubco, the Company, specified Gadfin shareholders and the Sponsor will enter into a Registration Rights and Lock-Up Agreement (the “Registration Rights Agreement”), pursuant to which, among other things, the parties thereto will be granted customary demand and piggyback registration rights with respect to NewPubco Ordinary Shares at Closing and will have agreed to customary lock-up restrictions for a period of six (6) months following the Closing, with such shares being released from lock-up in twelve monthly increments following such six (6) month period, subject to earlier release if specified share price hurdles are achieved. +The form of the Registration Rights Agreement shall be mutually agreed by Gadfin and the Company prior to Closing, provided that such Registration Rights Agreement shall incorporate the key terms set forth in Annex II of the Business Combination Agreement. +Management Team +Ziv Elul serves as our Chief Executive Officer and a member of our board of directors. Mr. Elul has 16 years of industry and managerial experience with start-up and high-growth technology businesses operating globally, which includes two acquisition transactions and operational experience as the CEO of a publicly traded company. In 2007. Mr. Elul co-founded Inneractive, an independent automated mobile platform with marketplace exchange capabilities and focused on powering video ads. He served as CEO of Inneractive, leading it to outstanding profitability until its acquisition by Fyber N.V. (FSE:FBEN), a global provider of monetization platforms for mobile publishers, in July 2017. Following the acquisition, Mr. Elul continued to serve as CEO and led the integration of the businesses under one brand with a strong focus on cutting-edge technology. Under his leadership, Fyber N.V. reached profitability for the first time as a combined company. In May 2021, Fyber N.V. was acquired for $600 million by a multi-billion dollar media and advertising solutions company, Digital Turbine (Nasdaq:APPS), where he was appointed to serve as a strategic advisor supporting the integration. Prior to 2007, Mr. Elul served as a Lieutenant Colonel in Israel’s Reserves Corps. Mr. Elul is a member of the Israeli branch of the Young Presidents’ Organization (“YPO”), a global network of young chief executives, and is deeply involved in the Israeli high tech and startup ecosystem. Mr. Elul is an active investor in Israeli technology companies, with a portfolio of 18 company investments to-date (including several successful exits, such as Spotinst (acquired by Net App for $450 million)) and an investor in seven venture capital firms. He holds an Executive MBA from the Hebrew University which he graduated from with honors. +Sharon Barzik Cohen serves as our Chief Financial Officer and a member of our board of directors. In March 2021, Ms. Cohen joined Qumra Capital, a leading growth capital fund that invests in late stage technology-driven companies, as Partner and Chief Operating Officer. Before Qumra Capital, she was CFO of the Storage Division at Dell EMC in Israel, having previously served since 2011 as CFO of XtremIO, which developed all flash advanced storage solutions and was acquired by EMC in 2012 in one of the largest acquisitions in the Israeli tech market at the time. In this role Ms. Cohen oversaw global finance teams worldwide, and was a member of the Dell Israel leadership team. Prior to 2011, Ms. Cohen was CFO of N-trig, a developer of transparent electromagnetic digitizers for the mobile computers market, which was acquired by Microsoft in 2015. From 1996 to 2003, she served as CFO of RadioTel, a leading networking company offering next-generation SDH/Sonet network solutions. Ms. Cohen earned a BA in Psychology, summa cum laude, and an Executive MBA, cum laude, both from Tel Aviv University. +​ +​ +10 +Table of Contents +Izhar Shay serves as Chairman of our board of directors. Mr. Shay currently serves as a venture partner at Disruptive AI, an early stage venture capital firm focused on AI investments. He also is the Chairman of Kendago, a leading digital marketing household and is on the Board of Directors of Aquarius Engine (TASE: AQUA, Developer of a Two Sided Free Piston Linear Engine), Tastewise (an AI based consumer insights platform for food & beverage innovation) and Equinom (a food-tech company developing non-GMO plant-based ingredients). From 2020 to 2021, Mr. Shay was Israel’s Minister of Science and Technology. Prior to that Mr. Shay’s professional career included various management and business positions in the Israeli high-tech and venture capital sectors. Previously, he worked as a high-tech entrepreneur and managed a number of companies for nearly ten years in the United States. In 1998, he co-founded Business Layers, a developer of Identity Management software solutions, and served as the company’s CEO until its sale in 2003 to Netegrity (Nasdaq: NETE). From 2004-2005, Mr. Shay served as chairman and CEO of V-Secure Technologies, a developer of intrusion prevention products intended to block cyber-attacks, which he led through its sale to Radware (NASDAQ: RDWR). In 2006, he joined the international venture capital fund Canaan Partners as a partner and managed its investment activities in Israel until 2014. At that time, Canaan Partners had assets under management of approximately $2.0B. Together with his partner, Ehud Levy, he co-founded Canaan Partners Israel in 2014, which made investments in Israeli technology start-ups, focusing on investments in mobile, digital media, Internet, communications and software. He served as a director at LiveU (acquired by Francisco Partners), Viewbix (acquired by Algomizer), Rollout.io, Drupe, and RegulusX and served as a director at Prime Sense prior to its sale to Apple as well as at N-trig, which was sold to Microsoft. In 2015, Mr. Shay was selected by the Israeli media outlet Geektime to be on the list of the 100 most influential people in the Israeli high-tech. Mr. Shay was elected as a member of the Israeli parliament, where he served from 2019 to 2021. He was a member of the special Coronavirus Cabinet, which was formed by the Israeli government, where he helped lead the national efforts confronting the challenges of the COVID-19 pandemic. +Candice Beaumont serves as a member of our board of directors. Beginning in October 2020, Candice Beaumont began to serve as an advisor to Springwater Special Situations Corp. (Nasdaq: SWSSU), a special purpose acquisition company formed to effectuate a merger or similar transaction with one or more businesses, which completed its initial public offering on August 25, 2021 and is currently searching for an initial business combination with a well-positioned business with operational improvements in Europe or elsewhere. Ms. Beaumont is a member of the Board of Directors of Clean Earth Acquisition Corp. (Nasdaq: CLINU), a special purpose acquisition company that completed its initial public offering in February 2022 and entered into a business combination agreement on October 12, 2022 for the purposes of acquiring substantially all of the subsidiaries of Alternus Energy Group Plc, a public limited company incorporated under the laws of Ireland. Ms. Beaumont has served since 2016 as Chairman of the Salsano Group, a Panama based family office and conglomerate invested in private equity. From 2003 to present, Ms. Beaumont has served as Chief Investment Officer of L Investments, a single-family office invested in public and private equity. Ms. Beaumont speaks at numerous family office and investment conferences globally, including the Stanford University Graduate School of Business Global Investor’s Forum, is a NYU Stern Family Office Council member serving on the Steering Committee, and is an Advisory Board member of the Family Office Association. From 2012 to 2014, Ms. Beaumont was a member of the board of directors of I2BF Venture Fund II, a Dubai Financial Services Authority regulated clean tech venture capital firm with offices in Dubai, New York and London, as well as an Advisory Board member of The Luxury Fund. Ms. Beaumont remains committed to community and philanthropic causes and serves on the International Council of Advisors for Global Dignity, a charity founded by Crown Prince Haakon of Norway to foster global respect and dignity across all borders, genders, religions and races. Ms. Beaumont was part of the Milken Young Leaders Circle and is a member of the Milken Institute, as well as an active member of YPO. Ms. Beaumont started her career in Corporate Finance at Merrill Lynch in 1996 and worked as an investment banker at Lazard Frères from 1997 to 1999, during which time Ms. Beaumont executed over $20 billion of merger and acquisition advisory assignments. Ms. Beaumont also worked in private equity at Argonaut Capital from 1999 to 2001. Ms. Beaumont obtained a Bachelor in Business Administration from the University of Miami, graduating first in her class with a major of International Finance & Marketing. Ms. Beaumont was captain of the University of Miami varsity tennis team, where Ms. Beaumont earned Academic All-American honors, and is also a former world-ranked professional tennis player. Ms. Beaumont completed Global Leadership & Public Policy for the 21st Century at Harvard Kennedy School in 2015. Ms. Beaumont was honored by Trusted Insight as one of the Top 30 Family Office Chief Investment Officers in 2017 and as a Young Global Leader by the World Economic Forum in 2014. Ms. Beaumont has a broad network of relationships, including investors in private and public equity, leading venture capital firms with compelling pre-initial public offering companies and has expertise sourcing deals, evaluating private and public businesses, and conducting detailed due diligence and risk management. +Peter Cohen serves as a member of our board of directors. Mr. Cohen was an investment banker for approximately three decades, advising CEOs and boards of directors on mission critical strategic and financing transactions. Most recently, from 2015 to 2020, he was a Managing Director and Global Head of Media, Entertainment & Sports Investment Banking at Barclays. In this role, he led a team responsible for managing all client coverage efforts for the firm in these sectors globally. He primarily focused on the largest clients in the Diversified and New Media and Sports sub-sectors, specializing in mergers & acquisitions, as well as debt and equity capital raising efforts, on behalf of clients worldwide. From 2009 to 2015, he had similar responsibilities as a Senior Managing Director at Blackstone. +11 +Table of Contents +Mr. Cohen started his investment banking career at JP Morgan in 1993. Some of the more noted transactions he participated in over his thirty year career include: representing the Los Angeles Dodgers in their sale to Guggenheim Partners, the sale of the Chicago Cubs to the Ricketts family, representing Altice NV in its acquisition of Cablevision Systems Corp., representing Cineworld Group PLC on its acquisition of Regal Entertainment Group, and News Corporation on its acquisition of Dow Jones & Company. +Roy Zisapel serves as a member of our board of directors. Mr. Zisapel is a co-founder of Radware (NASDAQ: RDWR), a leader of cybersecurity and application delivery solutions for physical, cloud and software-defined data centers. Mr. Zisapel has served as President and Chief Executive Officer of Radware since the company’s inception in April 1997, and he is responsible for the overall direction and strategy of the company. Under his leadership, Radware has grown from a startup to a global, Nasdaq-listed industry leader with more than 35 offices and 1,100 employees worldwide. He was instrumental in raising over $200 million for Radware, which included two public offerings: an initial public offering in September 1999 — just two and a half years after the company’s inception — and a follow-on offering in January 2000. Radware’s growth has paralleled working with some of the most prominent brands in the world, including commercial banks, stock exchanges, retailers, telecom companies and mobile operators. Radware maintains strategic partnerships with Cisco, Checkpoint, IBM, Microsoft, Nokia, SAP and VMWare, among others. Mr. Zisapel has led Radware through several successful acquisitions, including V-Secure Technologies (2005), Covelight Systems (2007), Nortel’s application delivery business, Alteon (2009), and Strangeloop Networks in 2013. Most recently, he oversaw the acquisition of Seculert (2017) and ShieldSquare (2019). From 1996 to 1997, Mr. Zisapel was a team leader of research and development projects for RND Networks Ltd. From 1994 to 1996, Mr. Zisapel was employed as a software engineer for other companies in Israel. Mr. Zisapel graduated summa cum laude with a B.S. degree in mathematics and computer science from Tel Aviv University, where he was honored with the International Wolf Prize for research students. Mr. Zisapel holds several U.S. patents and patent applications in the areas of global load balancing, network proximity, traffic redirection and multi-homing. +Daniel S. Recanati serves as a member of our board of directors. Mr. Recanati is the founder & CEO of Rhodium, a privately-owned investment firm with a diverse portfolio including some of Israel’s most promising companies. Mr. Recanati founded and invested in numerous tech ventures from early stage to growth, across different sectors such as fintech, foodtech, cyber, AI, digital media, e-commerce, automotive, communication and mobile. Mr. Recanati is an early investor in successful Israeli companies such as Outbrain (NASDAQ:OB), eToro, Yotpo, Storedot, Celsius, Face.com (acquired by Facebook), Hopstop (acquired by Apple), Zooz (acquired by PayU), Rounds (acquired by Kik), Hexatier (acquired by Huawei), IMGN (acquired by WarnerMusic) and Compass (acquired by Sage). For over two decades, Mr. Recanati has been focusing on accelerating social impact through technology, by co-founding and being closely involved in a variety of community organizations. Mr. Recanati serves on the board of The Yahel Foundation, the Recanati family philanthropy foundation, which aims to narrow social gaps by driving social processes and supporting non-profit organizations that advance education, welfare and health. Mr. Recanati also serves on the board of MadaTech — The Israel National Museum of Science Technology and Space. Mr. Recanati co-founded and serves on the board of Apple Seeds Academy (“Tapuah”), an Israeli nonprofit organization that was founded with the aim of bridging between Israel’s growing tech sector and the digital peripheries. He also serves on the board of “Ogen”- A non-profit social lending enterprise, providing affordable credit to disadvantaged segments of the Israeli public. Mr. Recanati holds an LLB and BA from the Reichman University, Herzliya. +Our Advisory Board +Alex Greystoke serves as a member of our advisory board and is one of our founders. Mr. Greystoke is a successful serial entrepreneur with a breadth of skills in a diverse range of industries. He is a founder and member of the advisory board of Goal Acquisitions Corp. (Nasdaq: PUCKU), a SPAC that raised $258 million through its initial public offering in February 2021 and entered into a business combination agreement on November 17, 2022 for the purposes of acquiring Digital Virgo Group, a French corporation. Mr. Greystoke is also the founder and member of the advisory board of Clean Earth Acquisition Corp. (Nasdaq: CLINU), a SPAC that completed a $200 million initial public offering in February 2022 and entered into a business combination agreement on October 12, 2022 for the purposes of acquiring substantially all of the subsidiaries of Alternus Energy Group Plc, a public limited company incorporated under the laws of Ireland. Mr. Greystoke is also on the board of Springwater Special Situations Corp (Nasdaq: SWSSU), a SPAC that raised $168 million through its initial public offering in August 2021 and is seeking to merge with a well-positioned business with operational improvement opportunities in Europe or elsewhere. Mr. Greystoke is the founder of multiple AI technology companies including TripChamp, VacationChamp and TravelChamp. He is the inventor of three granted artificial intelligence patents, with eight pending patent applications. Mr. Greystoke also holds investments in real estate, food and beverage, technology and other sectors. Mr. Greystoke founded HSC, a boutique corporate finance business raising money for and helping emerging companies commercialize in a range of sectors including technology, energy, healthcare and consumer products utilizing his wide network of partners throughout Asia, Europe, the Middle East and the U.S. Mr. Greystoke has served as director to numerous companies in the education, technology, AI and renewable energy spaces, and has served as a Chairman to a U.K. listed Chinese manufacturing company. +12 +Table of Contents +Robert Pincas serves as a member of our advisory board and is one of our founders. Mr. Pincas is a successful investment manager and entrepreneur with over 20 years of experience in the Israeli ecosystem and international capital markets. Over the years, Mr. Pincas has developed a deep network with Israeli tech companies and a wide range of international investors. Currently, Mr. Pincas serves as the Small and Medium Businesses (“SMB”) partner for Fundit, a leading crowdfund platform in Israel, regulated by the Israeli Securities Authority. Between 2007 and 2020 Mr. Pincas was a Managing Director with MG Investment Capital, a venture capital fund investing in Israeli technology with a profitable return for investors. Mr. Pincas was the Accelerator Program Director (Jerusalem and the Plains) for Maof-Tech, for the Israeli Economy Ministry. Between 2014 and 2018 Mr. Pincas managed Maof Rishon LeZion (sponsored by the Israeli Economy Ministry), one of the largest consulting centers in Israel, servicing thousands of SMB businesses. Mr. Pincas served between 2003-2008 as Executive Director and Partner with MG Equity Partners Ltd., an investment bank focusing on cross border transactions between Israeli and European companies and the London capital markets, such as Domino’s Pizza Switzerland, Pepsi Romania and MTI Wireless, Mr. Pincas has volunteered with Paamonim, a nonprofit organization focusing on financial education for families. Mr. Pincas holds an MBA from Tel Aviv University and a BA in Economics from Ben Gurion University. +Eitan Efron serves as a member of our advisory board and is one of our founders. Mr. Efron has 30 years of experience in technology investments, technology and business management and high-tech entrepreneurship. Mr. Efron has a diverse entrepreneurial and management background. Mr. Efron is a founder of four technology startups, including Oversi Networks, which was acquired by Allot Communications (NASDAQ: ALLT) in 2009, and WiNetworks, which was acquired by Ruggedcom Inc in 2006 (and later acquired by Siemens). Between 2007 and 2019, Mr. Efron was a director with MG Investment Capital, a venture capital fund investing in Israeli technology with a profitable return for investors. Mr. Efron has deep contacts in Israeli tech ecosystem, including investors, companies’ executives, entrepreneurs and Israeli Innovation Authority. Mr. Efron has direct access to multiple multi-sector technology companies. +Ehud Levy serves as a member of our advisory board. Since 2014, Mr. Levy has been the Managing General Partner of Canaan Partners Israel, an Israeli venture capital fund. Since 2019, he has been a Venture Partner with Lenovo Capital heading its investment opportunities in Israel. Mr. Levy is also an active private investor in tech companies operating as a partner with a leading investment team, Kaedan Capital. From 2006 to 2014, Mr. Levy was a Managing Partner at Vertex VC. Among other successful investments, Mr. Levy identified Waze as a bright star from the start, leading the first investment round in the company and serving on its board of directors until its acquisition by Google for over US$1 billion. Previously, Mr. Levy co-founded and served as Chairman and CEO of Ki-Bi Mobile Technologies, a mass-market device specialist for mobile content distribution. He led the business from concept to commercial success, an initial public offering in London and eventual acquisition. Earlier, he served as COO and CFO of Telegate, a telecommunications company, where he was responsible for a restructuring plan leading to the acquisition of the company for over US$400 million. Prior to Telegate, Mr. Levy was an investment banker in New York and Tel Aviv, and served on the board of directors of several technology companies. Mr. Levy holds a BSc in Computer Engineering (with honors) from the Technion – Israel Institute of Technology and an MBA from Columbia Business School in New York. +Nir Ben Lavi serves as a member of our advisory board. Currently Mr. Ben Lavi is the CEO and co-founder of the Pangea Cup, the world’s first global competition and reality show for discovering the next big video game, and has served in that capacity since December 2019. Mr. Ben Lavi was appointed to his first managerial position at the age of 25, and combined it with intensive R&D work. This experience provided Mr. Ben Lavi with invaluable knowledge on innovation and led him to dedicate a lot of his time helping countries create their own start-up ecosystems. Mr. Ben Lavi is an active member of YPO Israel, and YPO Change Makers Club. Mr. Ben Lavi is an active investor deeply involved in the Israeli startup ecosystem. He is the former Managing Director of the NYU Blockchain Accelerator with which he served from October 2017 to October 2019, as well as head of the joint innovation program at Bosphorus University, Turkey. Mr. Ben Lavi is the author of three books and inventor of software solutions. Mr. Ben Lavi received his B.A. in Sociology, with honors, and his M.B.A. from the University of Tel Aviv. His Ph.D. research study in the field of Computerized Dispute Resolution led to the development of a first-of-its-kind dispute resolution software that was adopted by the United Nations as a managerial work tool. +Guy Kurlandski serves as a member of our advisory board. Mr. Kurlandski has more than 30 years’ experience as an entrepreneur and investor spanning diverse industries globally, from printing and real estate to spirits and technology. Today, Mr. Kurlandski’s primary position is as the Chief Evangelist Officer at Liquidity Group, an Israeli based global fintech and fund manager, which he has been with from 2019 to the present. He is also a Forbes Business Council member and an advisor to MUMA College of Business. He has been based in the United States since 2008 and was previously based in the United Kingdom. Mr. Kurlandski speaks both English and Hebrew and has strong ties to Israel. He has experience in scaling, managing and funding companies to reach their full potential. +13 +Table of Contents +Aaron Greenberg serves as a member of our advisory board. Mr. Greenberg has spent his career on Wall Street with experience across a variety of areas including investing, banking, trading, regulatory, risk, strategy and tax. Currently, Mr. Greenberg serves as the Chief Strategy Officer of Nayax (Nasdaq: NYAX), and is the managing partner of Tiberius Capital Markets, a division of Arcadia Securities (“Tiberius”), a strategic advisory and merger and acquisition (“M&A”) practice. Prior to Tiberius, Mr. Greenberg served on the investment team of Lucerne Capital Management, a 20-year-old hedge fund specializing in European mid-cap equities. Concurrently, Mr. Greenberg was Chief Strategy Officer of European Sustainable Growth Acquisition Corp., a U.S.-listed SPAC focused on ESG investing in Europe. Prior to this, Mr. Greenberg held various positions at Wells Fargo Bank and its affiliates, most recently as a portfolio manager evaluating operational inefficiencies and credit policy within the Corporate Investment Bank (CIB). Mr. Greenberg holds a Bachelor of Arts in Economics and History from Yale University. +Opportunity +The technology industry as a whole experienced an unprecedented acceleration of its growth during the COVID-19 pandemic as more businesses adopted new and innovative ways of doing business and more consumers rapidly adopted digital platforms to consume products and services. +The Israeli technology sector represents a concentration of value, with a large number of fast-growing companies. Israel is the leading country in R&D expenditure per GDP (Source: World Economic Forum 11 2020) with a mature high tech ecosystem including government incentives for early stage companies, a strong VC community, over 400 multinational corporations active in Israel and managing local R&D centers, and over 100 Israeli companies listed on Nasdaq. We believe that this ecosystem nurtures innovative products and services recognized world-wide. Technology leaders in Israel have global operations backed by a growing number of investments, which continue to propel the growth of leading technology companies. +The number of Israeli Unicorns has grown dramatically in recent years, representing 10% of Unicorns globally as of June 2021. Hundreds of additional growth-stage companies, backed by both local and global growth venture capital funds, have the potential to become the next Unicorns. We believe that this sector presents a significant opportunity concentrated in a specific small geography. Management teams with extensive networks and experience in this geography have a unique ability to locate and combine with such potential Unicorns. +We intend to tap into this opportunity by combining favorable Israeli market dynamics with a highly experienced and connected sponsor team, leveraging its network to source a potential business combination. Our Team has excellent investment, merger, acquisition and public company operational experience. Facing multiple targets in the disruptive Israeli market, our Team is positioned to identify and combine with high quality targets that have demonstrated exceptional metrics, and can effectively assist in bringing value to the target company following a business combination. +Favorable Market Dynamics +In recent years Israel’s technology sector has been going through a dramatic uplift and rapidly shifting from “Start-Up Nation” to the “Scale-Up Nation.” Many of growth-stage Israeli companies have emerged in recent years and are attracting billions of dollars in investments from foreign (primarily U.S.) investors, through mergers, acquisitions s and IPO’s. +In 2023, the Israeli high-tech sector navigated significant challenges but showed remarkable resilience. +With the proposed judicial reform mid-year causing domestic tension, the attack on October 7, 2023, and the ensuing war against Hamas - all against a background of global macroeconomic contraction - there have been obvious declines in venture capital investments. +Israel experienced both a sharper increase in private funding between 2018 and 2021 (+303%) and subsequently a sharper decrease between 2021 and 2023 (-73%) compared to other regions. In the U.S., for example, it was +134% / -51% respectively. Compared to 2018, Israel and the U.S. are up 9% and 14% respectively. +In 2024, M&A capital proceeds equaled $12.53 billion, despite the total number of deals being the second lowest in the past 10 years (99 transactions). This was mostly due to the M&As between $100 million and $500 million, which amounted to $6.052 billion this year. The most prominent transaction was the acquisition of Own Company by SalesForce for $1.9 billion. In 2024, six IPOs took +14 +Table of Contents +place: Upstream Bio, Gauzy and Polyrizon; two SPAC deals on NASDAQ; and TSG IT Advanced Systems on TASE. These IPOs represent a 50% growth from 2023 and raised $397 million. +In 2024, 40% of follow-on public offerings were in the life science sector. Follow-on activity was cut almost by half, with only 55 public offerings raising $675 million, and the lowest attracted capital since 2015. +Public Companies’ Performance +Given 2019 as a starting point, Israeli technology companies for the most part follow Nasdaq trends. Towards the end of 2020, Israeli companies started outperforming Nasdaq as the COVID-19 pandemic was contained faster. Their performance peaked in early 2021 when Israel became the first country to reopen after the pandemic. +In 2022, both the U.S. tech market and the Israeli tech market were negatively impacted by rising interest rates, high inflation, and recession fears, with Israeli companies experiencing a steeper decline. At the end of 2022, the U.S. tech market started to recover and the rise of generative artificial intelligence (“Gen AI”) started - and will continue to grow in 2023. Israel tech companies did not experience that recovery and remained mostly stable, likely due to local political turbulence. +In October 2023, both U.S. and Israel markets experienced a drop, which was more prominent in Israel, due to the war that started on October 7th between Israel and Hamas. +Multiple Targets +The Israeli tech sector has experienced significant scale-up in recent years across a wide range of sectors, from fintech, cloud, cyber and AI, to electric vehicles, and energytech, to biotech, genomics, quantum computing, spacetech and more. We believe some of these sectors present strong growth opportunities because Israeli companies in these sectors match global demand for solutions in the space and attract late-stage investments backing up growth. +We believe there are hundreds of pre-initial public offering Israeli tech companies that could be potential acquisition candidates today, and we believe the number will continue to grow. According to research firm IVC, 607 growth-stage Israeli tech companies raised over $15 billion of late-stage investments in 2019 and 2020 alone. According to Catalyst research there are hundreds of Israeli companies valued between $300 million to $3 billion. +Business Strategy and Competitive Strengths +Our business strategy is focused on identifying high-growth technology companies that would benefit from our Team’s expertise and creating long-term value for our shareholders through a business combination. Our strategy will be focused on companies that are domiciled in Israel, that carry out all or a substantial portion of their activities in Israel, or that have some other significant Israeli connection. +​ +15 +Table of Contents +Because we believe that certain technology sectors present particularly attractive growth opportunities, we intend to focus primarily on companies in the following technology sectors: +● Cloud computing; +● Cybersecurity; +● Deep or hard technology; +● E-commerce; +● EV technology; +● Energy technology; +● Financial Technology (“FinTech”); +● Food and agriculture technology; +● Gaming; +● Quantum computing; and +● Space and satellite technology. +We believe that our Team’s extensive experience in identifying high growth target companies, structuring and executing strategic investments and business combination transactions, and in adding value post-investment and post-transaction will support our business strategy. Our competitive strengths include: +Proven Track Record +Members of our Team have proven track records as officers, investors and board members of Israeli technology companies which reached growth-phase and global presence. Some of our Team members have gained experience as advisors of other SPACs, from IPO and listing through target acquisition. Our Team also has vast experience in international mergers and acquisition transactions and post-transaction integration. Furthermore, two of our Team members served as CEOs of public companies traded on Nasdaq and FSE stock exchange. We believe this wealth of experience and connections within the industry will position us to identify a high-quality target company and successfully complete a business combination transaction that creates value for our investors. +Value to Target Companies +We believe that our Team’s substantial management experience with growth companies will be recognized by target companies as a potential asset. Our Team members bring many years of experience taking companies public and successfully managing public companies. Additionally, we believe that our Team’s track record of leading companies through merger and acquisition transactions and managing them in the post-business combination stage could make us attractive to potential target companies. Our Team’s substantial experience operating public and private companies can assist in establishing a credible value-creation plan jointly with the target company’s management. Our Team has a considerable track record in running global public companies, merging companies to create substantially larger operations, bringing companies to profitability, communicating with the financial markets, and raising capital in various modes. We believe our Team’s experience presents a high value proposition to the target companies and investors. +Business Combination Criteria +Consistent with our business strategy, we have identified the following general criteria and guidelines that we believe are important in evaluating prospective target companies. We will use these criteria and guidelines in evaluating initial business combination +16 +Table of Contents +opportunities, but we may decide to enter into our initial business combination with a target company that does not meet these criteria and guidelines. +● Enterprise values of between $800 million and $1.5 billion  — The valuation will reflect a discount to the valuation of comparable public companies in the sector with similar metrics, such as revenues, EBITDA, market share and growth. +● High growth and strong pipeline  — We intend to focus on companies with double-digit growth in revenues per annum over a minimum 3-year period, featuring a disruptive technology, high market acceptance, and a large addressable market. +● International operations and global focus  — As the Israeli local market is a small one in most sectors, we are targeting a global player in the making, focusing on companies that already have a significant presence in global markets, with over 50% of revenue generated outside of Israel. +● Strong management team focused on growth  — We intend to pursue a business combination with a company that has a committed and strong leadership team with a proven track record of success in driving growth and profitability in the tech industry, impeccable reputation, and whom we know and trust through our Team’s network of relationships in Israel. +● Demonstrated ability to execute  — We are focused on target company management with a proven record of success, either from managing companies and bringing them to exceptional liquidity events for their investors or through operational success, such as growing companies from early stages to achieving competitive metrics in their sectors with regards to disruptive technology, sizable global markets, company growth, revenues, and profit. +● Ability to accelerate growth through increased access to public capital  — We intend to pursue an initial business combination with a company that has a solid business plan and the need for capital to support significant growth available through a business combination with us and access to broader capital markets as a public company. +These criteria are not intended to be exhaustive. Any evaluation relating to the merits of a particular initial business combination may be based, to the extent relevant, on these general guidelines as well as other considerations, factors and criteria that our management may deem relevant. In the event that we decide to enter into a business combination with a target company that does not meet the above criteria and guidelines, we will disclose that the target company does not meet the above named criteria in our shareholder communications related to our initial business combination, which, as discussed in this Annual Report on Form 10-K, would be in the form of proxy solicitation or tender offer materials, as applicable, that we would file with the SEC. In evaluating a prospective target company, we expect to conduct a due diligence review which may encompass, among other things, meetings with incumbent management and employees, document reviews, interviews of customers and suppliers, inspections of facilities, as well as reviewing financial and other information which will be made available to us. +Effecting Our Initial Business Combination +General +We are not presently engaged in, and we will not engage in, any operations for an indefinite period of time. We intend to effectuate our initial business combination using cash from the proceeds of the initial business combination and the sale of the Private Placement Units, the proceeds of the sale of our shares in connection with our initial business combination (pursuant to forward purchase agreements or backstop agreements we may enter into), shares issued to the owners of the target, debt issued to bank or other lenders or the owners of the target, or a combination of the foregoing or other sources. We may seek to complete our initial business combination with a company or business that may be financially unstable or in its early stages of development or growth, which would subject us to the numerous risks inherent in such companies and businesses. +If our initial business combination is paid for using equity or debt, or not all of the funds released from the Trust Account are used for payment of the consideration in connection with our initial business combination or used for redemptions of our Class A ordinary shares, we may apply the balance of the cash released to us from the Trust Account for general corporate purposes, including for maintenance or expansion of operations of the post-business combination company, the payment of principal or interest due on indebtedness incurred in completing our initial business combination, to fund the purchase of other companies or for working capital. +17 +Table of Contents +Although our management will assess the risks inherent in a particular target business with which we may combine in an initial business combination, we cannot assure you that this assessment will result in our identifying all risks that a target business may encounter. Furthermore, some of those risks may be outside of our control, meaning that we can do nothing to control or reduce the chances that those risks will adversely affect a target business. +So long as our securities are then listed on the Nasdaq, our initial business combination must occur with one or more target businesses that together have an aggregate fair market value of at least 80% of the net assets held in the Trust Account (excluding the amount of deferred underwriting commissions and taxes payable on the interest earned on the Trust Account) at the time of signing a definitive agreement in connection with our initial business combination. Additionally, so long as our securities are listed on Nasdaq, any initial business combination must be approved by a majority of our independent directors. If our board of directors is not able to independently determine the fair market value of the target business or businesses, we will obtain an opinion from an independent investment banking firm or an independent valuation or appraisal firm with respect to the satisfaction of such criteria. While we consider it unlikely that our board will not be able to make an independent determination of the fair market value of a target business or businesses, it may be unable to do so if the board is less familiar or experienced with the target company’s business, if there is a significant amount of uncertainty as to the value of the company’s assets or prospects, including if such company is at an early stage of development, operations or growth, or if the anticipated transaction involves a complex financial analysis or other specialized skills and the board determines that outside expertise would be helpful or necessary in conducting such analysis. Since any opinion, if obtained, would merely state that the fair market value of the target business meets the 80% of net assets threshold, unless such opinion includes material information regarding the valuation of a target business or the consideration to be provided, it is not anticipated that copies of such opinion would be distributed to our shareholders. However, if required under applicable law, any proxy statement that we deliver to shareholders and file with the SEC in connection with a proposed transaction will include such opinion. +We anticipate structuring our initial business combination so that the post-business combination company in which our public shareholders own shares will own or acquire 100% of the equity interests or assets of the target business or businesses. We may, however, structure our initial business combination such that the post-business combination company owns or acquires less than 100% of such interests or assets of the target business in order to meet certain objectives of the target management team or shareholders or for other reasons, but we will only complete such business combination if the post-business combination company owns or acquires 50% or more of the outstanding voting securities of the target or otherwise acquires a controlling interest in the target sufficient for it not to be required to register as an investment company under the Investment Company Act. Even if the post-business combination company owns or acquires 50% or more of the voting securities of the target, our shareholders prior to the business combination may collectively own a minority interest in the post-business combination company, depending on valuations ascribed to the target and us in the business combination. For example, we could pursue a transaction in which we issue a substantial number of new shares in exchange for all the outstanding capital stock of a target. In this case, we would acquire a 100% controlling interest in the target. However, as a result of the issuance of a substantial number of new shares, our shareholders immediately prior to our initial business combination could own less than a majority of our outstanding shares subsequent to our initial business combination. If less than 100% of the equity interests or assets of a target business or businesses are owned or acquired by the post-business combination company, the portion of such business or businesses that is owned or acquired is what will be valued for purposes of the 80% of net assets test. If the business combination involves more than one target business, the 80% of net assets test will be based on the aggregate value of all of the target businesses. If our securities are not then listed on the Nasdaq for whatever reason, we would no longer be required to meet the foregoing 80% of net asset test. +We may need to obtain additional financing to complete our initial business combination, either because the transaction requires more cash than is available from the proceeds held in our Trust Account, or because we become obligated to redeem a significant number of our public shares upon the completion of the business combination, in which case we may issue additional securities or incur debt in connection with such business combination (or enter into forward purchase agreements or backstop agreements with the Sponsor). There are no prohibitions on our ability to issue securities or incur debt in connection with our initial business combination. We are not currently a party to any arrangement or understanding with any third party with respect to raising any additional funds through the sale of securities, the incurrence of debt or otherwise. +Sources of Target Businesses +We anticipate that target business candidates will be brought to our attention from various unaffiliated sources, including investment market participants, private equity groups, investment banking firms, consultants, accounting firms and large business enterprises. Target businesses may be brought to our attention by such unaffiliated sources as a result of being solicited by us through calls or mailings. These sources may also introduce us to target businesses in which they think we may be interested on an unsolicited basis, since some +18 +Table of Contents +of these sources will have read this Annual Report on Form 10-K and know what types of businesses we are targeting. Our officers and directors, as well as their affiliates, may also bring to our attention target business candidates that they become aware of through their business contacts as a result of formal or informal inquiries or discussions they may have, as well as attending trade shows or conventions. In addition, we expect to receive a number of proprietary deal flow opportunities that would not otherwise necessarily be available to us as a result of the business relationships of our officers and directors. While we do not presently anticipate engaging the services of professional firms or other individuals that specialize in business acquisitions on any formal basis, we may engage these firms or other individuals in the future, in which event we may pay a finder’s fee, consulting fee or other compensation to be determined in an arm’s length negotiation based on the terms of the transaction. We will engage a finder only to the extent our management determines that the use of a finder may bring opportunities to us that may not otherwise be available to us or if finders approach us on an unsolicited basis with a potential transaction that our management determines is in our best interest to pursue. Payment of finder’s fees is customarily tied to completion of a transaction, in which case any such fee will be paid out of the funds held in the Trust Account. In no event, however, will the Sponsor or any of our existing officers or directors, or their respective affiliates be paid by us any finder’s fee or for any services they render in order to effectuate, the completion of our initial business combination (regardless of the type of transaction that it is). We have agreed to pay the Sponsor a total of $10,000 per month for office space, secretarial and administrative services and to reimburse the Sponsor for any out-of-pocket expenses related to identifying, investigating and completing an initial business combination. Some of our officers and directors may enter into employment or consulting agreements with the post-business combination company following our initial business combination. The presence or absence of any such fees or arrangements will not be used as a criterion in our selection process of an acquisition candidate. +We are not prohibited from pursuing an initial business combination with a company that is affiliated with the Sponsor or our officers or directors. In addition, in the event we seek to complete our initial business combination with a company that is affiliated with the Sponsor or any of our officers or directors, we, or a committee of independent directors, will obtain an opinion from an independent investment banking firm or another independent entity that commonly renders valuation opinions that such initial business combination is fair to our company from a financial point of view. We are not required to obtain such an opinion in any other context. +Each of our officers and directors presently has, and any of them in the future may have additional, fiduciary or contractual obligations to other entities, including entities that are affiliates of the Sponsor, pursuant to which such officer or director is or will be required to present a business combination opportunity to such entity. Accordingly, if any of our officers or directors becomes aware of a business combination opportunity that is suitable for an entity to which he or she has then-current fiduciary or contractual obligations, he or she will honor his or her fiduciary or contractual obligations to present such business combination opportunity to such entity, subject to their fiduciary duties under Cayman Islands law. See “ Item 10 - Directors, Executive Officers and Corporate Governance – Conflicts of Interest. ” +Evaluation of a Target Business and Structuring of Our Initial Business Combination +In evaluating a prospective target business, we expect to conduct an extensive due diligence review that may encompass, as applicable and among other things, meetings with incumbent management and employees, document reviews, interviews of customers and suppliers, inspection of facilities and a review of financial and other information about the target and its industry. We will also utilize our management team’s operational and capital planning experience. If we determine to move forward with a particular target, we will proceed to structure and negotiate the terms of the business combination transaction. +The time required to select and evaluate a target business and to structure and complete our initial business combination, and the costs associated with this process, are not currently ascertainable with any degree of certainty. Any costs incurred with respect to the identification and evaluation of, and negotiation with, a prospective target business with which our initial business combination is not ultimately completed will result in our incurring losses and will reduce the funds we can use to complete another business combination. In addition, we have agreed not to enter into a definitive agreement regarding an initial business combination without the prior consent of the Sponsor. +Lack of Business Diversification +For an indefinite period of time after the completion of our initial business combination, the prospects for our success may depend entirely on the future performance of a single business. Unlike other entities that have the resources to complete business combinations with multiple entities in one or several industries, it is probable that we will not have the resources to diversify our operations and +19 +Table of Contents +mitigate the risks of being in a single line of business. By completing our initial business combination with only a single entity, our lack of diversification may: +● subject us to negative economic, competitive and regulatory developments, any or all of which may have a substantial adverse impact on the particular industry in which we operate after our initial business combination; and +● cause us to depend on the marketing and sale of a single product or limited number of products or services. +Limited Ability to Evaluate the Target’s Management Team +Although we intend to closely scrutinize the management of a prospective target business when evaluating the desirability of effecting our initial business combination with that business, our assessment of the target business’s management may not prove to be correct. In addition, the future management may not have the necessary skills, qualifications or abilities to manage a public company. Furthermore, the future role of members of our management team, if any, in the target business cannot presently be stated with any certainty. The determination as to whether any of the members of our management team will remain with the combined company will be made at the time of our initial business combination. While it is possible that one or more of our directors will remain associated in some capacity with us following our initial business combination, it is unlikely that any of them will devote their full efforts to our affairs subsequent to our initial business combination. Moreover, we cannot assure you that members of our management team will have significant experience or knowledge relating to the operations of the particular target business. +We cannot assure you that any of our key personnel will remain in senior management or advisory positions with the combined company. The determination as to whether any of our key personnel will remain with the combined company will be made at the time of our initial business combination. +Following an initial business combination, we may seek to recruit additional managers to supplement the incumbent management of the target business. We cannot assure you that we will have the ability to recruit additional managers, or that additional managers will have the requisite skills, knowledge or experience necessary to enhance the incumbent management. +Shareholders May Not Have the Ability to Approve Our Initial Business Combination +We may conduct redemptions without a shareholder vote pursuant to the tender offer rules of the SEC, subject to the provisions of our amended and restated memorandum and articles of association. However, we will seek shareholder approval if it is required by applicable law or stock exchange listing requirement, or we may decide to seek shareholder approval for business or other reasons. +Under the Nasdaq’s listing rules, shareholder approval would typically be required for our initial business combination if, for example: +● We issue ordinary shares that will be equal to or in excess of 20% of the number of our ordinary shares then-outstanding (other than in a public offering); +● Any of our directors, officers or substantial security holder (as defined by the Nasdaq rules) has a 5% or greater interest, directly or indirectly, in the target business or assets to be acquired or otherwise and the present or potential issuance of ordinary shares could result in an increase in issued and outstanding ordinary shares or voting power of 1% or more (or 5% or more if the related party involved is classified as such solely because such person is a substantial security holder); +● the timing of the transaction, including in the event we determine shareholder approval would require additional time and there is either not enough time to seek shareholder approval or doing so would place the company at a disadvantage in the transaction or result in other additional burdens on the company; or +● The issuance or potential issuance of ordinary shares will result in our undergoing a change of control. +20 +Table of Contents +The decision as to whether we will seek shareholder approval of a proposed business combination in those instances in which shareholder approval is not required by law will be made by us, solely in our discretion, and will be based on business and reasons, which include a variety of factors, including, but not limited to: +● the expected cost of holding a shareholder vote; +● the risk that the shareholders would fail to approve the proposed business combination; +● other time and budget constraints of the company; and +● additional legal complexities of a proposed business combination that would be time-consuming and burdensome to present to shareholders. +Permitted Purchases and Other Transactions with Respect to Our Securities +If we seek shareholder approval of our initial business combination and we do not conduct redemptions in connection with our initial business combination pursuant to the tender offer rules, the Sponsor and our directors, officers, advisors or their affiliates may purchase public shares or warrants in privately negotiated transactions or in the open market either prior to or following the completion of our initial business combination. Additionally, at any time at or prior to our initial business combination, subject to applicable securities laws (including with respect to material nonpublic information), the Sponsor and our directors, executive officers, advisors or their affiliates may enter into transactions with investors and others to provide them with incentives to acquire public shares, vote their public shares in favor of our initial business combination or not redeem their public shares. However, they have no current commitments, plans or intentions to engage in such transactions and have not formulated any terms or conditions for any such transactions. None of the funds in the Trust Account will be used to purchase public shares or warrants in such transactions. If they engage in such transactions, they will be restricted from making any such purchases when they are in possession of any material non-public information not disclosed to the seller or if such purchases are prohibited by Regulation M under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). +In the event that the Sponsor or our directors, officers, advisors or their affiliates purchase shares in privately negotiated transactions from public shareholders who have already elected to exercise their redemption rights or submitted a proxy to vote against our initial business combination, such selling shareholders would be required to revoke their prior elections to redeem their shares and any proxy to vote against our initial business combination. We do not currently anticipate that such purchases, if any, would constitute a tender offer subject to the tender offer rules under the Exchange Act or a going-private transaction subject to the going-private rules under the Exchange Act; however, if the purchasers determine at the time of any such purchases that the purchases are subject to such rules, the purchasers will be required to comply with such rules. +See “ Business—Effecting Our Initial Business Combination—Permitted Purchases and Other Transactions with Respect to Our Securities ” for a description of how our Sponsor, directors, officers, advisors or their affiliates will select which shareholders to purchase securities from in any private transaction. The purpose of any such transaction could be to (i) increase the likelihood of closing the initial business combination, (ii) reduce the number of public warrants outstanding or vote such warrants on any matters submitted to the warrant holders for approval in connection with our initial business combination or (iii) satisfy a closing condition in an agreement with a target that requires us to have a minimum net worth or a certain amount of cash at the closing of our initial business combination, where it appears that such requirement would otherwise not be met. Any such purchases of our securities may result in the completion of our initial business combination that may not otherwise have been possible. +In addition, if such purchases are made, the public “float” of our Class A ordinary shares or public warrants may be reduced and the number of beneficial holders of our securities may be reduced, which may make it difficult to maintain or obtain the quotation, listing or trading of our securities on a national securities exchange. +The Sponsor and our officers, directors and/or their affiliates anticipate that they may identify the shareholders with whom the Sponsor and our officers, directors or their affiliates may pursue privately negotiated transactions by either the shareholders contacting us directly or by our receipt of redemption requests submitted by shareholders (in the case of Class A ordinary shares) following our mailing of tender offer or proxy materials in connection with our initial business combination. To the extent that the Sponsor or our officers, directors, advisors or their affiliates enter into a private transaction, they would identify and contact only potential selling or +21 +Table of Contents +redeeming shareholders who have expressed their election to redeem their shares for a pro rata share of the Trust Account or vote against our initial business combination, whether or not such shareholder has already submitted a proxy with respect to our initial business combination but only if such shares have not already been voted at the general meeting related to our initial business combination. The Sponsor and our executive officers, directors, advisors or their affiliates will select which shareholders to purchase shares from based on the negotiated price and number of shares and any other factors that they may deem relevant, and will be restricted from purchasing shares if such purchases do not comply with Regulation M under the Exchange Act and the other federal securities laws. +The Sponsor and our officers, directors and/or their affiliates will be restricted from making purchases of shares if the purchases would violate Section 9(a)(2) or Rule 10b-5 of the Exchange Act. We expect any such purchases would be reported by such person pursuant to Section 13 and Section 16 of the Exchange Act to the extent such purchasers are subject to such reporting requirements. +Redemption Rights for Public Shareholders upon the Completion of Our Initial Business Combination +We will provide our public shareholders with the opportunity to redeem all or a portion of their Class A ordinary shares upon the completion of our initial business combination at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account calculated as of two business days prior to the consummation of our initial business combination, including interest earned on the funds held in the Trust Account and not previously released to us to pay our taxes, if any, divided by the number of then-outstanding public shares, subject to the limitations described herein. The amount in the Trust Account is initially anticipated to be $10.20 per public share. The per-share amount we will distribute to investors who properly redeem their shares will not be reduced by the deferred underwriting commissions we will pay to the underwriters. The redemption rights will include the requirement that a beneficial holder must identify itself in order to validly redeem its shares. There will be no redemption rights upon the completion of our initial business combination with respect to our warrants. Further, we will not proceed with redeeming our public shares, even if a public shareholder has properly elected to redeem its shares, if an initial business combination does not close. The Sponsor and each member of our management team have entered into an agreement with us, pursuant to which they have agreed to waive their redemption rights with respect to any founder shares and public shares held by them in connection with (i) the completion of our initial business combination and (ii) a shareholder vote to approve an amendment to our amended and restated memorandum and articles of association (A) that would modify the substance or timing of our obligation to provide holders of our Class A ordinary shares the right to have their shares redeemed in connection with our initial business combination or to redeem 100% of our public shares if we do not complete our initial business combination by April 18, 2025 (or January 18, 2026, if we extend the time to complete a business combination as described in this Annual Report on Form 10-K) or (B) with respect to any other provision relating to the rights of holders of our Class A ordinary shares. +Limitations on Redemptions +Our amended and restated memorandum and articles of association provide that in no event will we redeem our public shares in an amount that would cause our net tangible assets to be less than $5,000,001 (so that we do not then become subject to the SEC’s “penny stock” rules). However, the proposed initial business combination may require: (i) cash consideration to be paid to the target or its owners, (ii) cash to be transferred to the target for working capital or other general corporate purposes or (iii) the retention of cash to satisfy other conditions in accordance with the terms of the proposed business combination. In the event the aggregate cash consideration we would be required to pay for all Class A ordinary shares that are validly submitted for redemption plus any amount required to satisfy cash conditions pursuant to the terms of the proposed business combination exceed the aggregate amount of cash available to us, we will not complete the business combination or redeem any shares, and all Class A ordinary shares submitted for redemption will be returned to the holders thereof. +Manner of Conducting Redemptions +We will provide our public shareholders with the opportunity to redeem all or a portion of their Class A ordinary shares upon the completion of our initial business combination either (i) in connection with a general meeting called to approve the business combination or (ii) by means of a tender offer. The decision as to whether we will seek shareholder approval of a proposed initial business combination or conduct a tender offer will be made by us, solely in our discretion, and will be based on a variety of factors such as the timing of the transaction and whether the terms of the transaction would require us to seek shareholder approval under applicable law or stock exchange listing requirement or whether we were deemed to be a foreign private issuer (which would require a tender offer rather than seeking shareholder approval under SEC rules). Asset acquisitions and share purchases would not typically require shareholder approval while direct mergers with our company where we do not survive and any transactions where we issue more than 20% of our issued and outstanding ordinary shares or seek to amend our amended and restated memorandum and articles of association would typically require +22 +Table of Contents +shareholder approval. We currently intend to conduct redemptions in connection with a shareholder vote unless shareholder approval is not required by applicable law or stock exchange listing requirement or we choose to conduct redemptions pursuant to the tender offer rules of the SEC for business or other reasons. So long as we maintain a listing for our securities on the Nasdaq, we will be required to comply with the Nasdaq rules. +If we hold a shareholder vote to approve our initial business combination, we will, pursuant to our amended and restated memorandum and articles of association: +● conduct the redemptions in conjunction with a proxy solicitation pursuant to Regulation 14A of the Exchange Act, which regulates the solicitation of proxies, and not pursuant to the tender offer rules; and +● file proxy materials with the SEC. +In the event that we seek shareholder approval of our initial business combination, we will distribute proxy materials and, in connection therewith, provide our public shareholders with the redemption rights described above upon the completion of our initial business combination. +If we seek shareholder approval, we will complete our initial business combination only if we obtain the approval of an ordinary resolution under Cayman Islands law, which requires the affirmative vote of a majority of the shareholders who attend and vote at a general meeting of the company. In such case, the Sponsor and each member of our management team have agreed to vote their founder shares and public shares in favor of our initial business combination. As a result, in addition to our initial purchaser’s founder shares, we would need 4,410,417 or approximately 31.6% (assuming all issued and outstanding shares are voted), or no additional shares (assuming only the minimum number of shares representing a quorum are voted), of the 14,375,000 public shares sold in the Initial Public Offering to be voted in favor of an initial business combination in order to have our initial business combination approved. Each public shareholder may elect to redeem their public shares irrespective of whether they vote for or against the proposed transaction or vote at all. In addition, the Sponsor and each member of our management team have entered into an agreement with us, pursuant to which they have agreed to waive their redemption rights with respect to any founder shares and public shares held by them in connection with (i) the completion of a business combination and (ii) a shareholder vote to approve an amendment to our amended and restated memorandum and articles of association (A) that would modify the substance or timing of our obligation to provide holders of our Class A ordinary shares the right to have their shares redeemed in connection with our initial business combination or to redeem 100% of our public shares if we do not complete our initial business combination by April 18, 2025 (or January 18, 2026, if we extend the time to complete a business combination as described in this Annual Report on Form 10-K) or (B) with respect to any other provision relating to the rights of holders of our Class A ordinary shares. +If we conduct redemptions pursuant to the tender offer rules of the SEC, we will, pursuant to our amended and restated memorandum and articles of association: +● conduct the redemptions pursuant to Rule 13e-4 and Regulation 14E of the Exchange Act, which regulate issuer tender offers; and +● file tender offer documents with the SEC prior to completing our initial business combination which contain substantially the same financial and other information about our initial business combination and the redemption rights as is required under Regulation 14A of the Exchange Act, which regulates the solicitation of proxies. +Upon the public announcement of our initial business combination, if we elect to conduct redemptions pursuant to the tender offer rules, we and the Sponsor will terminate any plan established in accordance with Rule 10b5-1 to purchase Class A ordinary shares in the open market, in order to comply with Rule 14e-5 under the Exchange Act. +In the event we conduct redemptions pursuant to the tender offer rules, our offer to redeem will remain open for at least 20 business days, in accordance with Rule 14e-1(a) under the Exchange Act, and we will not be permitted to complete our initial business combination until the expiration of the tender offer period. In addition, the tender offer will be conditioned on public shareholders not tendering more than the number of public shares we are permitted to redeem. If public shareholders tender more shares than we have offered to purchase, we will withdraw the tender offer and not complete such initial business combination. +23 +Table of Contents +Limitation on Redemption upon the Completion of Our Initial Business Combination if We Seek Shareholder Approval +If we seek shareholder approval of our initial business combination and we do not conduct redemptions in connection with our initial business combination pursuant to the tender offer rules, then, pursuant to our amended and restated memorandum and articles of association, a public shareholder, together with any affiliate of such shareholder or any other person with whom such shareholder is acting in concert or as a “group” (as defined under Section 13 of the Exchange Act), will be restricted from redeeming its shares with respect to more than an aggregate of 15% of the shares sold in the Initial Public Offering, which we refer to as “Excess Shares,” without our prior consent. We believe this restriction will discourage shareholders from accumulating large blocks of shares, and subsequent attempts by such holders to use their ability to exercise their redemption rights against a proposed business combination as a means to force us or our management to purchase their shares at a significant premium to the then-current market price or on other undesirable terms. Absent this provision, a public shareholder holding more than an aggregate of 15% of the shares sold in the Initial Public Offering could threaten to exercise its redemption rights if such holder’s shares are not purchased by us, the Sponsor or our management at a premium to the then-current market price or on other undesirable terms. By limiting our shareholders’ ability to redeem no more than 15% of the shares sold in the Initial Public Offering without our prior consent, we believe we will limit the ability of a small group of shareholders to unreasonably attempt to block our ability to complete our initial business combination, particularly in connection with a business combination with a target that requires as a closing condition that we have a minimum net worth or a certain amount of cash. +However, we would not be restricting our shareholders’ ability to vote all of their shares (including Excess Shares) for or against our initial business combination. +Tendering Share Certificates in Connection with a Tender Offer or Redemption Rights +Public shareholders seeking to exercise their redemption rights, whether they are record holders or hold their shares in “street name,” will be required to either tender their certificates (if any) to our transfer agent prior to the date set forth in the proxy solicitation or tender offer materials, as applicable, mailed to such holders, or to deliver their shares to the transfer agent electronically using The Depository Trust Company’s Deposit / Withdrawal At Custodian (“DWAC”) System, at the holder’s option, in each case up to two business days prior to the initially scheduled vote to approve the business combination. The proxy solicitation or tender offer materials, as applicable, that we will furnish to holders of our public shares in connection with our initial business combination will indicate the applicable delivery requirements, which will include the requirement that a beneficial holder must identify itself in order to validly redeem its shares. Accordingly, a public shareholder would have from the time we send out our tender offer materials until the close of the tender offer period, or up to two business days prior to the initially scheduled vote on the proposal to approve the business combination if we distribute proxy materials, as applicable, to tender its shares if it wishes to seek to exercise its redemption rights. Given the relatively short period in which to exercise redemption rights, it is advisable for shareholders to use electronic delivery of their public shares. +There is a nominal cost associated with the above-referenced tendering process and the act of certificating the shares or delivering them through the DWAC System. The transfer agent will typically charge the tendering broker a fee of approximately $80.00 and it would be up to the broker whether or not to pass this cost on to the redeeming holder. However, this fee would be incurred regardless of whether or not we require holders seeking to exercise redemption rights to tender their shares. The need to deliver shares is a requirement of exercising redemption rights regardless of the timing of when such delivery must be effectuated. +The foregoing is different from the procedures used by many blank check companies. In order to perfect redemption rights in connection with their business combinations, many blank check companies would distribute proxy materials for the shareholders’ vote on an initial business combination, and a holder could simply vote against a proposed business combination and check a box on the proxy card indicating such holder was seeking to exercise his or her redemption rights. After the business combination was approved, the company would contact such shareholder to arrange for him or her to deliver his or her certificate to verify ownership. As a result, the shareholder then had an “option window” after the completion of the business combination during which he or she could monitor the price of the company’s shares in the market. If the price rose above the redemption price, he or she could sell his or her shares in the open market before actually delivering his or her shares to the company for cancellation. As a result, the redemption rights, to which shareholders were aware they needed to commit before the general meeting, would become “option” rights surviving past the completion of the business combination until the redeeming holder delivered its certificate. The requirement for physical or electronic delivery prior to the meeting ensures that a redeeming shareholder’s election to redeem is irrevocable once the business combination is approved. +Any request to redeem such shares, once made, may be withdrawn at any time up to two business days prior to the initially scheduled vote on the proposal to approve the business combination, unless otherwise agreed to by us. Furthermore, if a holder of a public share delivered its certificate in connection with an election of redemption rights and subsequently decides prior to the applicable date not to +24 +Table of Contents +elect to exercise such rights, such holder may simply request that the transfer agent return the certificate (physically or electronically). It is anticipated that the funds to be distributed to holders of our public shares electing to redeem their shares will be distributed promptly after the completion of our initial business combination. +If our initial business combination is not approved or completed for any reason, then our public shareholders who elected to exercise their redemption rights would not be entitled to redeem their shares for the applicable pro rata share of the Trust Account. In such case, we will promptly return any certificates delivered by public holders who elected to redeem their shares. +If our initial business combination is not approved or completed for any reason, we may continue to try to complete a business combination with a different target until by April 18, 2025 (or January 18, 2026, if we extend the time to complete a business combination as described in this Annual Report on Form 10-K) (the “Combination Period”). +Redemption of Public Shares and Liquidation if No Initial Business Combination +Our fourth amended and restated memorandum and articles of association provide that we have 12 months from January 18, 2025 (January 18, 2026, if we extend the time to complete a business combination as described in this Annual Report on Form 10-K) to consummate an initial business combination. If we have not consummated an initial business combination within such period, we will: (i) cease all operations except for the purpose of winding up; (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem the public shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest earned on the funds held in the Trust Account and not previously released to us to pay our taxes, if any (less up to $100,000 of interest to pay dissolution expenses) divided by the number of the then-outstanding public shares, which redemption will completely extinguish public shareholders’ rights as shareholders (including the right to receive further liquidation distributions, if any); and (iii) as promptly as reasonably possible following such redemption, subject to the approval of our remaining shareholders and our board of directors, liquidate and dissolve, subject in each case to our obligations under Cayman Islands law to provide for claims of creditors and the requirements of other applicable law. There will be no redemption rights or liquidating distributions with respect to our rights or warrants, which will expire worthless if we fail to consummate an initial business combination by April 18, 2025 (or January 18, 2026, if we extend the time to complete a business combination as described in this Annual Report on Form 10-K). Our amended and restated memorandum and articles of association will provide that, if we wind up for any other reason prior to the consummation of our initial business combination, we will follow the foregoing procedures with respect to the liquidation of the Trust Account as promptly as reasonably possible but not more than ten business days thereafter, subject to applicable Cayman Islands law. +The Sponsor and each member of our management team have entered into an agreement with us, pursuant to which they have agreed to waive their rights to liquidating distributions from the Trust Account with respect to any founder shares they hold if we fail to consummate an initial business combination by April 18, 2025 (or January 18, 2026, if we extend the time to complete a business combination as described in this Annual Report on Form 10-K) (although they will be entitled to liquidating distributions from the Trust Account with respect to any public shares they hold if we fail to complete our initial business combination within the prescribed timeframe). +The Sponsor and our officers and directors have agreed, pursuant to a written agreement with us, that they will not propose any amendment to our amended and restated memorandum and articles of association (A) that would modify the substance or timing of our obligation to provide holders of our Class A ordinary shares the right to have their shares redeemed in connection with our initial business combination or to redeem 100% of our public shares if we do not complete our initial business combination by April 18, 2025 (or January 18, 2026, if we extend the time to complete a business combination as described in this Annual Report on Form 10-K) or (B) with respect to any other provision relating to the rights of holders of our Class A ordinary shares, unless we provide our public shareholders with the opportunity to redeem their Class A shares upon approval of any such amendment at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest earned on the funds held in the Trust Account and not previously released to us to pay our taxes, if any, divided by the number of the then-outstanding public shares, subject to the limitations described herein. However, we may not redeem our public shares in an amount that would cause our net tangible assets to be less than $5,000,001 (so that we do not then become subject to the SEC’s “penny stock” rules). If this optional redemption right is exercised with respect to an excessive number of public shares such that we cannot satisfy the net tangible asset requirement, we would not proceed with the amendment or the related redemption of our public shares at such time. This redemption right shall apply in the event of the approval of any such amendment, whether proposed by the Sponsor, any executive officer or director, or any other person. +We expect that all costs and expenses associated with implementing our plan of dissolution, as well as payments to any creditors, will be funded from amounts remaining out of the $1,450,000 held outside the Trust Account plus up to $100,000 of funds from the +25 +Table of Contents +Trust Account available to us to pay dissolution expenses, although we cannot assure you that there will be sufficient funds for such purpose. +If we were to expend all of the net proceeds of the Initial Public Offering and the sale of the Private Placement Units, other than the proceeds deposited in the Trust Account, and without taking into account interest, if any, earned on the Trust Account, the per-share redemption amount received by shareholders upon our dissolution would be $10.20. The proceeds deposited in the Trust Account could, however, become subject to the claims of our creditors which would have higher priority than the claims of our public shareholders. We cannot assure you that the actual per-share redemption amount received by shareholders will not be less than $10.20. While we intend to pay such amounts, if any, we cannot assure you that we will have funds sufficient to pay or provide for all creditors’ claims. +Although we will seek to have all vendors, service providers, prospective target businesses and other entities with which we do business execute agreements with us waiving any right, title, interest or claim of any kind in or to any monies held in the Trust Account for the benefit of our public shareholders, there is no guarantee that they will execute such agreements or even if they execute such agreements that they would be prevented from bringing claims against the Trust Account including, but not limited to, fraudulent inducement, breach of fiduciary responsibility or other similar claims, as well as claims challenging the enforceability of the waiver, in each case in order to gain an advantage with respect to a claim against our assets, including the funds held in the Trust Account. If any third party refuses to execute an agreement waiving such claims to the monies held in the Trust Account, our management will perform an analysis of the alternatives available to it and will only enter into an agreement with a third party that has not executed a waiver if management believes that such third party’s engagement would be significantly more beneficial to us than any alternative. Examples of possible instances where we may engage a third party that refuses to execute a waiver include the engagement of a third-party consultant whose particular expertise or skills are believed by management to be significantly superior to those of other consultants that would agree to execute a waiver or in cases where management is unable to find a service provider willing to execute a waiver. BTIG, the representative of the underwriters in the Initial Public Offering will not execute an agreement with us waiving such claims to the monies held in the Trust Account. In addition, there is no guarantee that such entities will agree to waive any claims they may have in the future as a result of, or arising out of, any negotiations, contracts or agreements with us and will not seek recourse against the Trust Account for any reason. In order to protect the amounts held in the Trust Account, the Sponsor has agreed that it will be liable to us if and to the extent any claims by a third party for services rendered or products sold to us (other than our independent registered public accounting firm), or a prospective target business with which we have discussed entering into a transaction agreement, reduce the amounts in the Trust Account to below the lesser of (i) $10.20 per public share and (ii) the actual amount per public share held in the Trust Account as of the date of the liquidation of the Trust Account if less than $10.20 per public share due to reductions in the value of the trust assets, in each case net of the interest that may be withdrawn to pay our tax obligations, provided that such liability will not apply to any claims by a third party or prospective target business that executed a waiver of any and all rights to seek access to the Trust Account nor will it apply to any claims under our indemnity of the underwriters of the Initial Public Offering against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the “Securities Act”). In the event that an executed waiver is deemed to be unenforceable against a third party, the Sponsor will not be responsible to the extent of any liability for such third-party claims. However, we have not asked the Sponsor to reserve for such indemnification obligations, nor have we independently verified whether the Sponsor has sufficient funds to satisfy its indemnity obligations and we believe that the Sponsor’s only assets are securities of our company. Therefore, we cannot assure you that the Sponsor would be able to satisfy those obligations. None of our officers or directors will indemnify us for claims by third parties including, without limitation, claims by vendors and prospective target businesses. +In the event that the proceeds in the Trust Account are reduced below the lesser of (i) $10.20 per public share and (ii) the actual amount per public share held in the Trust Account as of the date of the liquidation of the Trust Account if less than $10.20 per public share due to reductions in the value of the trust assets, in each case net of the amount of interest which may be withdrawn to pay our tax obligations, and the Sponsor asserts that it is unable to satisfy its indemnification obligations or that it has no indemnification obligations related to a particular claim, our independent directors would determine whether to take legal action against the Sponsor to enforce its indemnification obligations. While we currently expect that our independent directors would take legal action on our behalf against the Sponsor to enforce its indemnification obligations to us, it is possible that our independent directors in exercising their business judgment may choose not to do so in any particular instance. Accordingly, we cannot assure you that due to claims of creditors the actual value of the per-share redemption price will not be less than $10.20 per public share. +We will seek to reduce the possibility that the Sponsor will have to indemnify the Trust Account due to claims of creditors by endeavoring to have all vendors, service providers, prospective target businesses or other entities with which we do business execute agreements with us waiving any right, title, interest or claim of any kind in or to monies held in the Trust Account. The Sponsor will also not be liable as to any claims under our indemnity of the underwriters of the Initial Public Offering against certain liabilities, including liabilities under the Securities Act. We will have access to up to $1,450,000 following the Initial Public Offering and the sale +26 +Table of Contents +of the Private Placement Units with which to pay any such potential claims (including costs and expenses incurred in connection with our liquidation, currently estimated to be no more than approximately $100,000). In the event that we liquidate and it is subsequently determined that the reserve for claims and liabilities is insufficient, shareholders who received funds from our Trust Account could be liable for claims made by creditors, however such liability will not be greater than the amount of funds from our Trust Account received by any such shareholder. +If we file a bankruptcy or winding-up petition or an involuntary bankruptcy or winding-up petition is filed against us that is not dismissed, the proceeds held in the Trust Account could be subject to applicable bankruptcy or insolvency law, and may be included in our bankruptcy estate and subject to the claims of third parties with priority over the claims of our shareholders. To the extent any bankruptcy claims deplete the Trust Account, we cannot assure you we will be able to return $10.20 per public share to our public shareholders. Additionally, if we file a bankruptcy or winding-up petition or an involuntary bankruptcy or winding-up petition is filed against us that is not dismissed, any distributions received by shareholders could be viewed under applicable debtor/creditor and/or bankruptcy or insolvency laws as either a “preferential transfer” or a “fraudulent conveyance.” As a result, a bankruptcy or insolvency court could seek to recover some or all amounts received by our shareholders. Furthermore, our board of directors may be viewed as having breached its fiduciary duty to our creditors and/or may have acted in bad faith, and thereby exposing itself and our company to claims of punitive damages, by paying public shareholders from the Trust Account prior to addressing the claims of creditors. We cannot assure you that claims will not be brought against us for these reasons. +Our public shareholders will be entitled to receive funds from the Trust Account only (i) in the event of the redemption of our public shares if we do not complete our initial business combination by January 18, 2026, (ii) in connection with a shareholder vote to amend our amended and restated memorandum and articles of association (A) to modify the substance or timing of our obligation to provide holders of our Class A ordinary shares the right to have their shares redeemed in connection with our initial business combination or to redeem 100% of our public shares if we do not complete our initial business combination by January 18, 2026 or (B) with respect to any other provision relating to the rights of holders of our Class A ordinary shares, or (iii) if they redeem their respective shares for cash upon the completion of our initial business combination. Public shareholders who redeem their Class A ordinary shares in connection with a shareholder vote described in clause (ii) in the preceding sentence shall not be entitled to funds from the Trust Account upon the subsequent completion of an initial business combination or liquidation if we have not consummated an initial business combination by January 18, 2026, with respect to such Class A ordinary shares so redeemed. In no other circumstances will a shareholder have any right or interest of any kind to or in the Trust Account. In the event we seek shareholder approval in connection with our initial business combination, a shareholder’s voting in connection with the business combination alone will not result in a shareholder’s redeeming its shares to us for an applicable pro rata share of the Trust Account. Such shareholder must have also exercised its redemption rights described above. These provisions of our amended and restated memorandum and articles of association, like all provisions of our amended and restated memorandum and articles of association, may be amended with a shareholder vote. +​ +27 +Table of Contents +Comparison of Redemption or Purchase Prices in Connection with Our Initial Business Combination and If We Fail to Complete Our Initial Business Combination. +The following table compares the redemptions and other permitted purchases of public shares that may take place in connection with the completion of our initial business combination and if we have not consummated an initial business combination by January 18, 2026: +​ +Redemptions in Connection +with Our Initial Business +Combination +Other Permitted Purchases of +Public Shares by Our +Affiliates +Redemptions if We Fail to +Complete an Initial Business +Combination +Calculation of redemption price impact to remaining shareholders +Redemptions at the time of our initial business combination may be made pursuant to a tender offer or in connection with a shareholder vote. The redemption price will be the same whether we conduct redemptions pursuant to a tender offer or in connection with a shareholder vote. In either case, our public shareholders may redeem their public shares for cash equal to the aggregate amount then on deposit in the Trust Account calculated as of two business days prior to the consummation of our initial business combination (which is initially anticipated to be $10.20 per public share), including interest earned on the funds held in the Trust Account and not previously released to us to pay our taxes, if any, divided by the number of the then-outstanding public shares, subject to the limitation that no redemptions will take place if all of the redemptions would cause our net tangible assets to be less than $5,000,001 and any limitations (including, but not limited to, cash requirements) agreed to in connection with the negotiation of terms of a proposed business combination. +If we seek shareholder approval of our initial business combination, the Sponsor and our directors, officers, advisors or their affiliates may purchase shares in privately negotiated transactions or in the open market either prior to or following the completion of our initial business combination. There is no limit to the prices that the Sponsor or our directors, officers, advisors or their affiliates may pay in these transactions. If they engage in such transactions, they will be restricted from making any such purchases when they are in possession of any material nonpublic information not disclosed to the seller or if such purchases are prohibited by Regulation M under the Exchange Act. We do not currently anticipate that such purchases, if any, would constitute a tender offer subject to the tender offer rules under the Exchange Act or a going-private transaction subject to the going-private rules under the Exchange Act; however, if the purchasers determine at the time of any such purchases that the purchases are subject to such rules, the purchasers will be required to comply with such rules. +If we have not consummated an initial business combination by January 18, 2026, we will redeem all public shares at a per-share price, payable in cash, equal to the aggregate amount, then on deposit in the Trust Account (which is initially anticipated to be $10.20 per public share), including interest earned on the funds held in the Trust Account and not previously released to us to pay our taxes, if any (less up to $100,000 of interest to pay dissolution expenses) divided by the number of the then-outstanding public shares. +​ +​ +​ +​ +​ +​ +​ +The redemptions in connection with our initial business combination will reduce the book value per share for our remaining shareholders, who will bear the burden of the deferred underwriting commissions and taxes payable. +If the permitted purchases described above are made, there would be no impact to our remaining shareholders because the purchase price would not be paid by us. +The redemption of our public shares if we fail to complete our initial business combination will reduce the book value per share for the shares held by the Sponsor, who will be our only remaining shareholder after such redemptions. +28 +Table of Contents +Amended and Restated Memorandum and Articles of Association +Our amended and restated memorandum and articles of association contains provisions designed to provide certain rights and protections relating to our Initial Public Offering that will apply to us until the completion of our initial business combination. These provisions cannot be amended without a special resolution under Cayman Islands law. As a matter of Cayman Islands law, a resolution is deemed to be a special resolution where it has been approved by either (i) the affirmative vote of at least two-thirds (or any higher threshold specified in a company’s articles of association) of a company’s shareholders entitled to vote and so voting at a general meeting for which notice specifying the intention to propose the resolution as a special resolution has been given; or (ii) if so authorized by a company’s articles of association, by a unanimous written resolution of all of the company’s shareholders entitled to vote at a general meeting. Other than as described in our final prospectus filed with the SEC on December 23, 2025, our amended and restated memorandum and articles of association provide that special resolutions must be approved either by at least two-thirds of our shareholders who attend and vote at a general meeting of the company ( i.e. , the lowest threshold permissible under Cayman Islands law), or by a unanimous written resolution of all of our shareholders entitled to vote at a general meeting. +Competition +In identifying, evaluating and selecting a target business for our initial business combination, we may encounter intense competition from other entities having a business objective similar to ours, including other blank check companies, private equity groups and leveraged buyout funds, public companies and operating businesses seeking strategic acquisitions. Many of these entities are well established and have extensive experience identifying and effecting business combinations directly or through affiliates. Moreover, many of these competitors possess greater financial, technical, human, and other resources than us. Our ability to acquire larger target businesses will be limited by our available financial resources. This inherent limitation gives others an advantage in pursuing the acquisition of a target business. Furthermore, our obligation to pay cash in connection with our public shareholders who exercise their redemption rights may reduce the resources available to us for our initial business combination and our outstanding warrants, and the future dilution they potentially represent, may not be viewed favorably by certain target businesses. Either of these factors may place us at a competitive disadvantage in successfully negotiating an initial business combination. +Facilities +We currently maintain our executive offices at 12600 Hill Country Blvd, Building R, Suite 275, Bee Cave, TX 78738. The cost for our use of this space is included in the $10,000 per month fee we pay to the Sponsor for office space, administrative and support services pursuant to that certain administrative services agreement, dated January 12, 2023, by and between us and the Sponsor (the “Administrative Services Agreement”). We consider our current office space adequate for our current operations. +Employees +We currently have three executive officers. Members of our management team are not obligated to devote any specific number of hours to our matters but they intend to devote as much of their time as they deem necessary to our affairs until we have completed our initial business combination. The amount of time they will devote in any time period will vary based on whether a target business has been selected for our initial business combination and the stage of the business combination process we are in. We do not intend to have any full-time employees prior to the consummation of a business combination. +29 +Table of Contents +Periodic Reporting and Financial Information +Our units, Class A ordinary shares and warrants are registered under the Exchange Act and have reporting obligations, including the requirement that we file annual, quarterly and current reports with the SEC. In accordance with the requirements of the Exchange Act, our annual reports will contain financial statements audited and reported on by our independent registered public accountants. +We will provide shareholders with audited financial statements of the prospective target business as part of the proxy solicitation or tender offer materials, as applicable, sent to shareholders. These financial statements may be required to be prepared in accordance with, or reconciled to, GAAP, or IFRS, depending on the circumstances, and the historical financial statements may be required to be audited in accordance with the standards of the U.S. Public Company Accounting Oversight Board (“PCAOB”). These financial statement requirements may limit the pool of potential target businesses we may acquire because some targets may be unable to provide such statements in time for us to disclose such statements in accordance with federal proxy rules and complete our initial business combination within the prescribed timeframe. We cannot assure you that any particular target business identified by us as a potential acquisition candidate will have financial statements prepared in accordance with the requirements outlined above, or that the potential target business will be able to prepare its financial statements in accordance with the requirements outlined above. To the extent that these requirements cannot be met, we may not be able to acquire the proposed target business. While this may limit the pool of potential acquisition candidates, we do not believe that this limitation will be material. +We will be required to evaluate our internal control procedures for the fiscal year ending December 31, 2024 as required by the Sarbanes-Oxley Act. Only in the event we are deemed to be a large accelerated filer or an accelerated filer and no longer qualify as an emerging growth company will we be required to comply with the independent registered public accounting firm attestation requirement on our internal control over financial reporting. A target business may not be in compliance with the provisions of the Sarbanes-Oxley Act regarding the adequacy of their internal controls. +The development of the internal controls of any such entity to achieve compliance with the Sarbanes-Oxley Act may increase the time and costs necessary to complete any such acquisition. +We filed a registration statement on Form 8-A with the SEC to voluntarily register our securities under Section 12 of the Exchange Act. As a result, we are subject to the rules and regulations promulgated under the Exchange Act. We have no current intention of filing a Form 15 to suspend our reporting or other obligations under the Exchange Act prior or subsequent to the consummation of our initial business combination. +We are a Cayman Islands exempted company. Exempted companies are Cayman Islands companies conducting business mainly outside the Cayman Islands and, as such, are exempted from complying with certain provisions of the Companies Act. As an exempted company, we have applied for and received, a tax exemption undertaking from the Cayman Islands government that, in accordance with Section 6 of the Tax Concessions Act (2018 Revision) of the Cayman Islands, for a period of 20 years from the date of the undertaking, no law which is enacted in the Cayman Islands imposing any tax to be levied on profits, income, gains or appreciations will apply to us or our operations and, in addition, that no tax to be levied on profits, income, gains or appreciations or which is in the nature of estate duty or inheritance tax will be payable (i) on or in respect of our shares, debentures or other obligations or (ii) by way of the withholding in whole or in part of a payment of dividend or other distribution of income or capital by us to our shareholders or a payment of principal or interest or other sums due under a debenture or other obligation of us. +We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As such, we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies,” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and shareholder approval of any golden parachute payments not +30 +Table of Contents +previously approved. If some investors find our securities less attractive as a result, there may be a less active trading market for our securities and the prices of our securities may be more volatile. +In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We intend to take advantage of the benefits of this extended transition period. +We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of the Initial Public Offering, (b) in which we have total annual gross revenue of at least $1.235 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our Class A ordinary shares that are held by non-affiliates exceeds $700 million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period. +Additionally, we are a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We will remain a smaller reporting company until the last day of the fiscal year in which (1) the market value of our ordinary shares held by non-affiliates exceeds $250 million as of the prior June 30, or (2) our annual revenues exceeded $100 million during such completed fiscal year and the market value of our ordinary shares held by non-affiliates exceeds $700 million as of the prior June 30. +Legal Proceedings +There is no material litigation, arbitration or governmental proceeding currently pending against us or any members of our management team in their capacity as such. +​ +31 +Table of Contents \ No newline at end of file diff --git a/raw/filings/0001915328/2024/0001410578-25-000601/item13.txt b/raw/filings/0001915328/2024/0001410578-25-000601/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..0485816d6092ad5a2af8a08728c15ce25c6dc144 --- /dev/null +++ b/raw/filings/0001915328/2024/0001410578-25-000601/item13.txt @@ -0,0 +1,4 @@ +Item 13. +Certain 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Number 001-41593 +ISRAEL ACQUISITIONS CORP +(Exact name of registration as specified in its charter) +​ +​ +Cayman Islands +​ ​ ​ +87-3587394 +(State or other jurisdiction of +incorporation or organization) +​ +(I.R.S. Employer +Identification No.) +​ +​ +12600 Hill Country Blvd, Building R , Suite 275 +​ +Bee Cave , Texas +78738 +(Address of principal executive offices) +(Zip Code) +​ +( 800 ) 508-1531 +(Registrant’s telephone number, including area code) +Securities registered pursuant to Section 12(b) of the Act: +​ +Title of each class +​ ​ ​ +Trading +Symbol(s) +​ ​ ​ +Name of each exchange on +which registered +Units, each consisting of one Class A ordinary share and one redeemable warrant +​ +ISRLU +​ +The Nasdaq Stock Market LLC +Class A ordinary shares, par value $0.0001 per share +​ +ISRL +​ +The Nasdaq Stock Market LLC +Redeemable warrants, each whole warrant exercisable for one Class A ordinary share, each at an exercise price of $11.50 per share +​ +ISRLW +​ +The Nasdaq Stock Market LLC +​ +Securities registered pursuant to Section 12(g) of the Act: NONE +​ +Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ +Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒ +Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ +Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (17 CFR §232.405) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ +Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one): +Large Accelerated filer +☐ +Accelerated filer +☐ +Non-accelerated filer +☒ +Smaller reporting company +☒ +Emerging growth company +☒ +​ +If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ +Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐ +If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐ +Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive- based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ +Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☒ No ☐ +The aggregate market value of the ordinary shares held by non-affiliates of the registrant, computed as of June 30, 2025 (the last business day of the registrant’s most recently completed second fiscal quarter), was $ 10,133,736 (based on the $12.70 closing sale price of the Registrant’s Class A ordinary shares on such date). +As of March 31, 2026, there were 1,264,572 Class A ordinary shares, par value $0.0001 per share issued and outstanding. +Documents incorporated by reference : NONE +​ +​ +​ +Table of Contents +TABLE OF CONTENTS +​ +​ +​ +Page +Part I +​ +​ +6 +​ +Item 1. +Business +6 +​ +Item 1A. +Risk Factors +34 +​ +Item 1B. +Unresolved Staff Comments +73 +​ +Item 1C. +Cybersecurity +73 +​ +Item 2. +Properties +73 +​ +Item 3. +Legal Proceedings +73 +​ +Item 4. +Mine Safety Disclosures +73 +Part II +​ +​ +74 +​ +Item 5. +Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities +74 +​ +Item 6. +[Reserved] +75 +​ +Item 7. +Management’s Discussion and Analysis of Financial Condition and Results of Operations +75 +​ +Item 7A. +Quantitative and Qualitative Disclosures About Market Risk +81 +​ +Item 8. +Financial Statements and Supplementary Data +81 +​ +Item 9. +Changes in and Disagreements With Accountants on Accounting and Financial Disclosure +81 +​ +Item 9A. +Controls and Procedures +81 +​ +Item 9B. +Other Information +82 +​ +Item 9C +Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +82 +Part III +​ +​ +83 +​ +Item 10. +Directors, Executive Officers and Corporate Governance +83 +​ +Item 11. +Executive Compensation +91 +​ +Item 12. +Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters +92 +​ +Item 13. +Certain Relationships and Related Transactions, and Director Independence +93 +​ +Item 14. +Principal Accounting Fees and Services +97 +Part IV +​ +​ +98 +​ +Item 15. +Exhibit and Financial Statement Schedules +98 +​ +Item 16. +Form 10-K Summary +102 +​ +​ +​ +​ +​ +2 +Table of Contents +CERTAIN DEFINED TERMS +Unless otherwise stated or unless the context otherwise requires, the terms “we,” “us,” “our,” “IAC” or the “Company” refer to Israel Acquisitions Corp, an exempted limited company incorporated in the Cayman Islands. In this Annual Report on Form 10-K, unless the context otherwise requires, references to: +● “amended and restated memorandum and articles of association” are to the Fifth Amended and Restated Memorandum and Articles of Association that the company adopted by special resolution and at an extraordinary general meeting of the shareholders on January 16, 2026; +● “ Annual Report on Form 10-K” are to this Annual Report on Form 10-K for the fiscal year ended December 31, 2025; +● “BTIG” are to BTIG, LLC the representative of the underwriters; +● “Business Combination Agreement” are to that certain business combination agreement entered into on January 26, 2025 by and between the Company and Gadfin; +● “Class A ordinary shares” are to our Class A ordinary shares, par value $0.0001 per share; +● “Class B ordinary shares” are to our Class B ordinary shares, par value $0.0001 per share; +● “Companies Act” are to the Companies Act (2022 Revision) of the Cayman Islands as the same may be amended from time to time; +● “founder shares” are to our Class B ordinary shares initially issued to the Sponsor in a private placement prior to the Initial Public Offering and the Class A ordinary shares that will be issued upon the automatic conversion of the Class B ordinary shares at the time of our initial business combination or earlier at the option of the holders thereof (for the avoidance of doubt, such Class A ordinary shares are not “public shares” ); +● “Gadfin” are to Gadfin Ltd., a company domiciled in Israel; +● “Initial Public Offering” are to our initial public offering of 14,375,000 units, at a price of $10.00 per unit, including the issuance of 1,875,000 units as a result of the underwriter’s exercise of its over-allotment option in full, which we consummated on January 18, 2023, generating gross proceeds to us of $143,750,000; +● “initial shareholders” are to our Sponsor and any other holders of our founder shares prior to the Initial Public Offering (or their permitted transferees); +● “Investment Company Act” are to the Investment Company Act of 1940, as amended; +● “management” or our “management team” are to our officers and directors; +● “ordinary shares” or “IAC ordinary shares” are to our Class A ordinary shares and our Class B ordinary shares; +● “private placement shares” are to the Class A ordinary shares sold as part of the private placement units; +● “Private Placement Units” are to the units issued to the Sponsor, BTIG, Exos Capital LLC, and Jones Trading Institutional Services LLC in a private placement simultaneously with the closing of the Initial Public Offering, which Private Placement Units are identical to the units sold in the Initial Public Offering, except that the Private Placement Units are subject to certain limited exceptions as described in this Annual Report on Form 10-K; +3 +Table of Contents +● “private placement warrants” are to the warrants sold as part of the Private Placement Units; +● “public shareholders” are to the holders of our public shares, including the Sponsor and management team to the extent the Sponsor and/or members of our management team purchase public shares, provided that the Sponsor’s and each member of our management team’s status as a “public shareholder” will only exist with respect to such public shares; +● “public shares” are to our Class A ordinary shares sold as part of the units in Initial Public Offering (whether they were purchased in the Initial Public Offering or thereafter in the open market); +● “public warrants” are to our redeemable warrants sold as part of the units in the Initial Public Offering (whether they were purchased in the Initial Public Offering or thereafter in the open market, including warrants that may have been acquired by the Sponsor or its affiliates in the Initial Public Offering or thereafter in the open market); +● “SPAC” means a special purpose acquisition company; +● “Sponsor” are to Israel Acquisitions Sponsor LLC, a Delaware limited liability company; +● “Team” are to our management team, directors, and advisors; +● “Trust Account” are to the U.S.-based trust account at J.P. Morgan Chase Bank, N.A. maintained by American Stock Transfer & Trust Company, acting as trustee, which will be invested in U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act, with a maturity of 180 days or less or in any open-ended investment company that holds itself out as a money market fund selected by the Company meeting the conditions of Rule 2a-7 of the Investment Company Act, as determined by the Company; +● “underwriters” are to BTIG, LLC, Exos Securities LLC and JonesTrading Institutional Services LLC, the underwriters in the Initial Public Offering; and +● “warrants” are to our public warrants and private placement warrants. +​ +4 +Table of Contents +CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS +This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Investors are cautioned that statements that are not strictly historical statements of fact constitute forward-looking statements, including, without limitation, statements under the captions “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business” and are identified by words like “believe,” “expect,” “may,” “will,” “should,” “seek,” “anticipate,” or “could” and similar expressions. Forward looking statements in this Annual Report on Form 10-K may include, for example, statements about: +● our ability to select an appropriate target business or businesses; +● our ability to complete our initial business combination; +● our expectations around the performance of the prospective target business or businesses; +● our success in retaining or recruiting, or changes required in, our officers, key employees or directors following our initial business combination; +● our officers and directors allocating their time to other businesses and potentially having conflicts of interest with our business or in approving our initial business combination, as a result of which they would then receive expense reimbursements; +● approving our initial business combination; +● our potential ability to obtain additional financing to complete our initial business combination; +● our pool of prospective target businesses; +● the ability of our officers and directors to generate a number of potential business combination opportunities; +● our public securities’ potential liquidity and trading; +● the lack of a market for our securities; +● the use of proceeds not held in the Trust Account (as described herein) or available to us from interest income on the Trust Account balance; +● the Trust Account not being subject to claims of third parties; or +● our financial performance. +Forward-looking statements are not assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those expressed or implied by forward-looking statements include those discussed elsewhere in this Annual Report on Form 10-K and in future Quarterly Reports on Form 10-Q or other reports filed with the Securities and Exchange Commission (“SEC”). +Any forward-looking statement made by us in this report is based only on information currently available to us and speaks only as of the date of this report. We undertake no obligation to publicly revise or update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law. +References to a fiscal year refer to our fiscal year ended December 31 of the specified year. +​ +5 +Table of Contents +PART I +ITEM 1. BUSINESS +General +We are a newly organized blank check company incorporated on August 24, 2021, as a Cayman Islands exempted company for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar combination with one or more businesses or assets, which we refer to throughout this Annual Report on Form 10-K as our initial business combination. We have generated no revenues to date, and we do not expect that we will generate operating revenues at the earliest until we consummate our initial business combination. While we may pursue an initial business combination target in any industry or sector, we intend to focus our search on high-growth technology companies that are domiciled in Israel, that carry out all or a substantial portion of their activities in Israel, or that have some other significant Israeli connection. +On January 26, 2025, we entered into the Business Combination Agreement with Gadfin Ltd., a company domiciled in Israel (“Gadfin”). Gadfin is a pioneering technology company revolutionizing the logistics and cargo delivery industry with its innovative hydrogen-powered drones. Specializing in long-range, heavy-duty, zero-emission aerial delivery, Gadfin provides cutting-edge solutions for time-critical, essential cargo transport, especially to less accessible areas. Gadfin’s proprietary technology is designed to address the evolving needs of sectors such as healthcare, logistics, and industrial supply chains, enabling efficient, sustainable, and reliable deliveries across urban and remote areas. +On May 28, 2025, Company received a deficiency letter (the “MVLS Notice”) from the Listing Qualifications Department of Nasdaq notifying the Company that, based on the market value of listed securities for the previous 30 consecutive business days, the listing of the Company’s securities was not in compliance with Nasdaq Listing Rule 5450(b)(2)(A) to maintain a minimum market value of listed securities of at least $50 million (the “MVLS Requirement”). In accordance with Listing Rule 5810(c)(3)(C), the Company was provided 180 calendar days (or until November 24, 2025) to regain compliance with the Rule. The Company did not regain compliance with the MVLS Requirement. As a result, on November 25, 2025, the Company received a delist determination letter from the Listing Qualifications Department advising the Company that its securities would be delisted. On January 13, 2026, Nasdaq announced its intention to delist the Company’s Class A ordinary shares, units and warrants, followed by a Form 25 filed with the SEC on January 21, 2026 to complete the delisting. The Company’s Class A ordinary shares, units and warrants now trade on the Pink Current tier of the OTC Markets under symbols “ISLUF,” “ISRLF” and “ISLWF,” respectively. +Overview +Our business strategy is focused on identifying Israeli technology companies that would benefit from our expertise and create long-term value, although our efforts to identify a prospective business combination target will not necessarily be limited to a particular industry, sector or region. +The technology industry as a whole experienced an unprecedented acceleration of its growth during the coronavirus (“COVID-19”) pandemic as more businesses adopted new and innovative ways of doing business and more consumers rapidly adopted digital platforms to consume products and services. +We believe that Israel holds numerous public-ready technology companies that are positioned for high-growth, as evidenced by the number of Israeli companies listed on Nasdaq and “Unicorns” (companies with a valuation of $1 billion or greater) that originated in Israel. For a country about the size of New Jersey, Israel has an outsized influence on the US stock market. As of 2025, approximately 135 Israeli companies are listed on the Nasdaq alone, with over 250 Israeli IPOs completed on the exchange to date — Israel has the fourth most companies listed on the Nasdaq after the United States, Canada and China. These listings span cybersecurity, software, biotechnology, semiconductors and medical devices, and collectively represent a significant share of the country’s economic output. Israel is also home to approximately 39 tech unicorns as of year-end 2025, according to data from the Israel Innovation Authority, ranking it sixth globally in total unicorn creation. +Israeli tech companies continued to attract major investment in 2024 and 2025. According to Startup Nation Central, Israeli startups and tech firms raised an estimated $15.6 billion in private capital in 2025, a 24% increase over 2024 and a 68% leap compared to 2023. IVC-LeumiTech data separately estimated $11.1 billion across 418 disclosed funding rounds, representing a 15% increase year-over-year. Cybersecurity and generative AI dominated the funding landscape, together accounting for roughly 70% of all capital raised during 2025. While the total number of funding rounds declined to 717 — the lowest in a decade — median deal sizes reached a record $10 +6 +Table of Contents +million, reflecting a shift toward larger, higher-conviction investments. On the M&A side, 2025 was a record year: total exit value reached $74.3 billion across 150 transactions, headlined by Google’s $32 billion acquisition of Wiz and Palo Alto Networks’ approximately $25 billion acquisition of CyberArk. Foreign investors continued to play a dominant role, accounting for 60% of total investors, led by major US funds. We believe Israel’s tech ecosystem remains among the strongest and most dynamic in the world, offering compelling opportunities for investors seeking exposure to category-defining companies. +Our objective is to generate attractive returns and create value for our shareholders by capitalizing on the expertise of our Team. Our Team has an extensive track record of identifying and selecting successful targets, closing investments and merger and acquisition transactions, and increasing the value of companies post-investment or post-transaction. They have excellent access to the Israeli technology ecosystem, through personal relationships with “C” suite executives, venture capital and private equity directors and others involved with dozens of companies meeting our investment objectives and criteria. We intend to leverage their significant contacts and experience to identify, evaluate and acquire a target business. We maintain an Internet website at https://israelacquisitionscorp.com/. +Initial Public Offering +The SEC declared the registration statement for our Initial Public Offering effective on January 12, 2023. On January 18, 2023, we consummated our Initial Public Offering of 14,375,000 units, which included the full exercise of the underwriters’ over-allotment option in the amount of 1,875,000 units, at $10.00 per unit, generating gross proceeds of $143,750,000. Each unit is comprised of one Class A ordinary share and one public warrant. +Simultaneously with the closing of the Initial Public Offering, we consummated the sale of (i) 637,500 Private Placement Units at a price of $10.00 per private placement unit in a private placement to the Sponsor, (ii) 75,000 Private Placement Units at price of $10.00 per private placement unit in a private placement to BTIG, LLC, (iii) 25,000 Private Placement Units at price of $10.00 per private placement unit in a private placement to Exos Capital LLC, and (iv) 25,000 Private Placement Units at price of $10.00 per private placement unit in a private placement to JonesTrading Institutional Services LLC. +Following the closing of our Initial Public Offering on January 18, 2023, an amount of $146,625,000 ($10.00 per unit sold in our Initial Public Offering) from the net proceeds of the sale of the units in the Initial Public Offering and the sale of the Private Placement Units was placed in a Trust Account, until the earlier of (i) the completion of our initial business combination and (ii) the distribution of the funds held in our Trust Account, as described below. +Business Combination Agreement – Proposed Business Combination with Gadfin +On January 26, 2025, the Company and Gadfin entered into the Business Combination Agreement, pursuant to which, among other things, and subject to the terms and conditions contained therein (i) Gadfin will cause a company organized under the laws of the State of Israel and wholly owned by a trustee (the “NewPubco”) to be formed, (ii) Gadfin will cause a company organized under the laws of the State of Israel and wholly owned, direct subsidiary of NewPubco (“Merger Sub 1”) to be formed, (iii) Gadfin will cause a Cayman Islands exempted company and wholly owned, direct subsidiary of NewPubco (“Merger Sub 2”) to be formed, (iv) Gadfin will cause NewPubco, Merger Sub 1 and Merger Sub 2 to become a party to the Business Combination Agreement by delivering a joinder to the Business Combination Agreement, (v) Gadfin will effect the Share Split, (vi) NewPubco, the shareholders of Gadfin and the holders of equity awards of Gadfin will effect the Acquisition Merger (as defined herein), (vii) Merger Sub 1 will merge with and into Gadfin, with Gadfin surviving the merger as a direct wholly owned subsidiary of NewPubco (the “Acquisition Merger”), and (viii) Merger Sub 2 will merge with and into the Company, with the Company surviving the merger as a direct wholly owned subsidiary of NewPubco (the “IAC Merger”, and together with the Acquisition Merger, the “Mergers”). The collective transactions referenced in (i)-(viii) are hereinafter referred to as the “Transactions”. The terms of the Business Combination Agreement, which contain customary representations and warranties, covenants, closing conditions, termination provisions, and other terms relating to the Transactions, are summarized below. Capitalized terms used but not defined herein shall have the meanings ascribed thereto in the Business Combination Agreement. +7 +Table of Contents +On July 2, 2025, the Company, Gadfin, and NewPubco entered into an amendment to the Business Combination Agreement (the “First Amendment”). Pursuant to the First Amendment, the Company and Gadfin agreed to (i) remove the requirement for the Company to liquidate immediately following the Mergers (as defined in the Business Combination Agreement), (ii) revise the Company Equity Value (as defined in the Business Combination Agreement) to $180,000,000, (iii) remove the PCAOB Related Default (as defined in the Business Combination Agreement) and related provisions, (iv) remove the Threshold Raised Amount (as defined in the Business Combination Agreement) and related provisions, (v) clarify the maximum dilution calculation, (v) extend the deadline for the Benchmark Analysis (as defined in the Business Combination Agreement) to September 30, 2025, (vi) add a termination right for Gadfin, without penalty, in the event the Company does not, within 30 days of the Amendment, receive a full cash waiver from underwriters of the deferred underwriting fees currently owed and outstanding by the Company, and (vii) act as a joinder agreement pursuant to which NewPubco, Gadfin Regev Holdings Ltd., a company domiciled in Israel, became a party to the Business Combination Agreement. +On December 31, 2025, the Company, Gadfin, and NewPubco entered into an amendment to the Business Combination Agreement (the “Second Amendment”). Pursuant to the Second Amendment, the Company and Gadfin agreed to extend the Termination Date (as defined in the Business Combination Agreement) to March 16, 2026 and removed the automatic extensions of the Termination Date. +On March 13, 2026, the Company, Gadfin, and NewPubco entered into a third amendment to the BCA (the “Third Amendment”). Pursuant to the Third Amendment, the Company and Gadfin agreed to revise Section 7.1(d) to extend the termination date to April 15, 2026. +Share Split and Equity Exchange +Prior to the closing of the Transactions (the “Closing”), Gadfin will effect a share split under which each ordinary share and preferred share of Gadfin issued and outstanding will be split into a number of ordinary shares or preferred shares, as applicable, determined by multiplying each such ordinary share or preferred share of Gadfin, as applicable, by the Split Factor (the “Share Split”). +Under the Business Combination Agreement, as amended, holders of Gadfin equity interests are expected to receive approximately $180,000,000 (the “Gadfin Equity Value”) in aggregate consideration in the form of NewPubco Ordinary Shares, equal to the quotient obtained by dividing (a) the Gadfin Equity Value by (b) the fully diluted number of Gadfin ordinary shares and preferred shares (including ordinary shares issuable upon exercise, vesting and settlement of Gadfin options and Gadfin warrants and other convertible securities of Gadfin). +In addition, following the Closing and subject to the occurrence of the $12.50 Share Price Milestone and/or the $15.00 Share Price Milestone, NewPubco shall issue to each holder of Gadfin as of immediately prior to the Acquisition Merger Effective Time (as defined below), a certain number of Price Adjustment Earnout Shares, subject to the terms and conditions set forth therein. +Immediately after the Share Split, and at the effective time of the Acquisition Merger, Merger Sub 1 will be merged with and into Gadfin upon the terms and subject to the conditions set forth in the Business Combination Agreement, and in accordance with the applicable provisions of the Israeli Companies Law (“ICL”), whereupon the separate corporate existence of Merger Sub 1 will cease and Gadfin will continue its existence under the ICL as the surviving corporation and become a wholly owned subsidiary of NewPubco (the “Acquisition Surviving Company”), on the terms and subject to the conditions set forth in the Business Combination Agreement. From and after the effective time of the Acquisition Merger, Gadfin will possess all the rights, powers, privileges, properties and franchises and be subject to all of the obligations, liabilities and duties of Gadfin and Merger Sub 1, all as provided under the ICL. As soon as practicable after the determination of the date on which the Closing is to take place, each of Gadfin and Merger Sub 1 shall, in coordination with each other, deliver to the Israeli Register of Companies (the “Companies Registrar”) a notice of the contemplated Acquisition Merger, setting forth the proposed date of the Closing on which the Companies Registrar is requested to issue a certificate evidencing the Acquisition Merger in accordance with Section 323(5) of the ICL (the “Certificate of Merger”), after another notice that the Closing has occurred is served to the Companies Registrar, which the parties shall deliver as of the date of Closing Date. The Acquisition Merger will become effective upon the issuance by the Companies Registrar of the Certificate of Merger in accordance with Section 323(5) of the ICL (such time as the Acquisition Merger becomes effective being the “Acquisition Merger Effective Time”). +At the Acquisition Merger Effective Time, by virtue of the Acquisition Merger and without any action on the part of Gadfin, Merger Sub 1 or any holders of ordinary shares or preferred shares of Gadfin or shares of Merger Sub 1: (i) all ordinary shares or preferred shares of Gadfin that are owned by Gadfin or any wholly owned subsidiary of Gadfin, if any, shall be deemed to have been transferred to NewPubco and no consideration shall be delivered or deliverable in exchange therefor, (ii) each ordinary share of Gadfin issued and +8 +Table of Contents +outstanding immediately prior to the Acquisition Merger Effective Time (except for treasury shares of Gadfin) will, by virtue of the Acquisition Merger and upon the terms and subject to the conditions set forth in the Business Combination Agreement, automatically be deemed to have been converted and represent only the right to receive a number of NewPubco Ordinary Shares equal to the Company Merger Ratio, (iii) each preferred share of Gadfin issued and outstanding immediately prior to the Acquisition Merger Effective Time (except for treasury shares of Gadfin) will, by virtue of the Acquisition Merger and upon the terms and subject to the conditions set forth in the Business Combination Agreement, automatically be deemed to have been converted and represent only the right to receive a number of NewPubco Ordinary Shares equal to the Company Merger Ratio, (iv) unless otherwise exercised prior to the Acquisition Merger Effective Time, each warrant of Gadfin issued and outstanding immediately prior to the Acquisition Merger Effective Time, will, by virtue of the Acquisition Merger and upon the terms and subject to the conditions set forth in the Business Combination Agreement, be converted and represent the right to receive a warrant to purchase NewPubco Ordinary Shares equal to the number of ordinary shares of Gadfin subject to such warrant, multiplied by (A) the Split Factor, and (B) the Company Merger Ratio, (v) immediately prior to the Acquisition Merger Effective Time and pursuant to the resolutions of the board of directors of Gadfin, all outstanding Company Options shall be assumed by NewPubco, (vi) each Company Option of Gadfin that is issued and outstanding prior to the Acquisition Merger Effective Time will automatically cease to represent a right to acquire an ordinary share of Gadfin and shall automatically be assumed by NewPubco and converted into an option to acquire such number of NewPubco Ordinary Shares equal to the number of ordinary shares of Gadfin subject to such option, multiplied by (A) the Split Factor, and (B) the Company Merger Ratio, and (vii) each ordinary share of Merger Sub 1 issued and outstanding immediately prior to the Acquisition Merger Effective Time will be converted into one ordinary share of the Acquisition Surviving Company, and all such ordinary shares shall constitute the only outstanding share capital of the Acquisition Surviving Company. +​ +IAC Merger and IAC Merger Consideration +Immediately after the Acquisition Merger Effective Time and on the terms and subject to the conditions set forth in the Business Combination Agreement and in accordance with the Companies Act (as revised) of the Cayman Islands (the “Cayman Companies Law”), the Company will consummate the IAC Merger (the date on which the IAC Merger occurs referred to herein as the “IAC Merger Closing Date”). On the IAC Merger Closing Date, the Company, NewPubco and Merger Sub 2 will (i) cause the a plan of merger, in such form as mutually agreed by the Company and Gadfin (the “Plan of Merger”) to be duly executed and filed with the Registrar of Companies of the Cayman Islands as provided by Section 233 of the Cayman Companies Law, and (ii) make any other filings, recordings or publications required to be made by the Company or Merger Sub 2 under the Cayman Companies Law in connection with the IAC Merger. The IAC Merger will become effective on the date as specified in the Plan of Merger in accordance with the Cayman Companies Law. The IAC Merger shall become effective on the date and time as specified in the Plan of Merger that has been registered by the Registrar of Companies of the Cayman Islands (such date and time is hereinafter referred as the “IAC Merger Effective Time”). Following the IAC Merger Effective Time, the (i) separate existence of Merger Sub 2 will cease, it will be struck off the Register of Companies in the Cayman Islands and the Company shall continue as the surviving company of the IAC Merger (“IAC Surviving Company”) and (ii) IAC will (A) become a direct, wholly owned subsidiary of NewPubco, (B) continue to be governed by the Laws of the Cayman Islands, and (C) succeed to and assume all of the rights, properties and obligations of Merger Sub 2 in accordance with the Cayman Companies Law, and the shareholders of the Company will be entitled to the IAC Merger Consideration (as defined below). +Under the Business Combination Agreement, at the IAC Merger Effective Time, (a) each IAC unit, consisting of one IAC Class A Share (as defined below) and one IAC Warrant (as defined below, and such units the “IAC Units”) issued and outstanding immediately prior to the IAC Merger Effective Time will be automatically detached and the holder will be deemed to hold one IAC Class A ordinary share, par value $0.0001 (the “IAC Class A Shares”) and one warrant entitling the holder to purchase one IAC Class A Share at a price of $11.50 (the “IAC Warrants”), (b) each Class B ordinary share of the Company, par value $0.0001 (the “IAC Class B Shares”) will automatically be converted into one IAC Class A Share and each IAC Class B Share will no longer be outstanding and will be automatically cancelled, (c) each IAC Class A Share issued and outstanding prior the IAC Merger Effective Time will automatically be cancelled in exchange for the right to receive one NewPubco Ordinary Share for each IAC Class A Share, (the “IAC Merger Consideration”), (d) each IAC Warrant that is outstanding and unexercised immediately prior to the IAC Merger Effective Time will cease to represent an IAC Warrant in respect of IAC Shares and will be assumed by NewPubco and automatically converted into a warrant to acquire NewPubco Ordinary Shares, (e) any IAC Share owned by the Company as treasury shares or by a subsidiary of the Company immediately prior to the IAC Merger Effective Time will be automatically cancelled and will cease to exist without any conversion or payment therefor, (f) each IAC share subject to redemption rights issued and outstanding immediately prior to the IAC Merger Effective Time will be automatically cancelled and cease to exist and will thereafter represent only the right to be paid a pro rata share of the redemption amount in accordance with the Company’s Articles of Association, (g) each IAC share issued and outstanding prior to the IAC Merger Effective Time for which any IAC shareholder had validly exercised their dissenters’ rights will not be exchanged for one NewPubco Ordinary Share and will be automatically cancelled and will thereafter represent only the right to be paid +9 +Table of Contents +the fair value of such shares and any other rights granted by the Cayman Companies Law, and (h) each ordinary share of Merger Sub 2 issued and outstanding immediately prior to the IAC Merger Effective Time will be converted into one ordinary share of the IAC Surviving Company. +Representations and Warranties +The Business Combination Agreement contains representations and warranties of the parties thereto that are customary for transactions of this type, including representations and warranties relating to (a) entity organization, formation and authority, (b) capital structure, (c) authorization to enter into the Business Combination Agreement, (d) legal compliance and approvals, (e) financial statements and liabilities, (f) consents and requisite governmental approvals, (g) material contracts, (h) absence of changes, (i) litigation, (j) compliance with applicable laws, (k) labor matters and employees benefit plans, (l) environmental matters, (m) intellectual property and privacy, (n) insurance, (o) taxes, (p) real and personal property, and (q) transactions with affiliates, and with respect to the Company only, (i) public filings, (ii) the Investment Company Act and (iii) the Company’s Trust Account. +Non-Survival +None of the representations, warranties, covenants, obligations or other agreements in the Business Combination Agreement or in any certificate or instrument delivered pursuant to the Business Combination Agreement, including any rights arising out of any breach of such representations, warranties, covenants, agreements and other provisions, will survive the Acquisition Merger Effective Time and all such representations, warranties, covenants or other agreements will terminate and expire upon the occurrence of the Acquisition Merger Effective Time (and there will be no liability after the Acquisition Merger Effective Time in respect thereof), except for those covenants and agreements contained therein that by their terms expressly apply in whole or in part after the Acquisition Merger Effective Time and then only with respect to any breaches occurring after the Acquisition Merger Effective Time. +Conditions to Consummation of the Business Combination Agreement +Mutual Conditions to Closing +The consummation of the Transactions is conditioned upon, among other things, (a) the Registration Statement / Proxy Statement shall have become effective in accordance with the provisions of the Securities Act; (b) receipt of Gadfin’s shareholder approval, (c) the absence of any governmental order, statute, rule or regulation enjoining or prohibiting the consummation of the Transactions, (d) receipt of the Company’s shareholder approval, (e) receipt of the ISA Exemption, (f) receipt of the Israeli Tax Ruling, and (f) the expiration or termination of the waiting period under the Hart-Scott-Rodino Act. +IAC’s Conditions to Closing +The obligations of the Company to consummate the Transactions are conditioned upon, among other things, customary closing conditions, including no Gadfin Material Adverse Effect having occurred. +Gadfin’s Conditions to Closing +The obligations of Gadfin to consummate the Transactions are also conditioned upon, among other things, customary closing conditions, including, without limitation, (a) Aggregate Transaction Proceeds being greater than or equal to $15,000,000 (“Minimum Cash Condition”), (b) no Transaction Expenses Cap Excess, if any, shall have remained outstanding, (c) if applicable, the Company and Gadfin shall have reached an agreement on the terms of the Dilution Cap Breach Adjustment. +Termination +The Business Combination Agreement, as amended, allows the parties to terminate the Business Combination Agreement if specified customary conditions described in the Business Combination Agreement are not satisfied, subject to certain limited exceptions, and also if the Transactions have not been consummated by April 15, 2026 (the “Termination Date”). +The Business Combination Agreement, as amended, also allows the parties to terminate the Business Combination Agreement if (a) any Governmental Entity takes action prohibiting the Transactions, (b) if the Company Shareholder Approval is not obtained, and (c) if Gadfin Shareholder Approval is not obtained. +10 +Table of Contents +The Company may terminate the Business Combination Agreement if the representations and warranties of Gadfin are not true and correct or if Gadfin has materially breached any covenant or agreement as set forth in the Business Combination Agreement. +Gadfin may terminate the Business Combination Agreement, (a) at any time prior to the receipt of the Gadfin Shareholder Approval, in order to immediately enter into a written definitive agreement with respect to a Superior Proposal, (b) if the representations and warranties of the Company are not true and correct or if the Company has materially breached any covenant or agreement as set forth in the Business Combination Agreement and (c) in the event the Company did not receive a full waiver of the cash payment of any deferred underwriting fees currently owed and outstanding by the Company within thirty (30) days of July 2, 2025. In the event the Business Combination Agreement is terminated by Gadfin in order to accept a Superior Proposal, Gadfin will pay to the Company a termination fee of $10,000,000. In the event the Business Combination Agreement is terminated by Gadfin pursuant to clause (b) of this paragraph, the Company will pay to Gadfin a termination fee of $10,000,000. On October 14, 2025, Company entered into a Letter Agreement, pursuant to which (i) BTIG, LLC waived its right to the deferred underwriting commissions and (ii) Gadfin waived its related termination right under the Business Combination Agreement. +In the event the Business Combination Agreement is terminated for any reason other than by Gadfin pursuant to Section 7.1(c) of the Business Combination Agreement, or by the Company or Gadfin the case may be, pursuant to Section 7.1(f) or Section 7.1(g), Gadfin shall pay to the Company an amount equal to five percent (5%) of any IAC Introduced Financing Amount from any source during the period beginning October 16 th , 2024 and extending through the twelve months immediately following the effective date of such termination. +If the Business Combination Agreement is validly terminated, none of the parties to the Business Combination Agreement will have any liability or any further obligation under the Business Combination Agreement, with the exception of (a) the confidentiality obligation set forth in Section 5.3(a) and Section 7.2 of the Business Combination Agreement and (b) the Confidentiality Agreement, respectively. +Agreements Entered Into in Connection with the Business Combination Agreement +Sponsor Support Agreement +Concurrently with the execution of the Business Combination Agreement, each of the Sponsor, the Company and Gadfin entered into a Sponsor Support Agreement (the “Sponsor Support Agreement”) whereby the Sponsor has agreed, among other things, (a) to vote in favor of the Business Combination Agreement and the Transactions on the terms and subject to the conditions set forth in the Sponsor Support Agreement, (b) in the event the Covered Shares represent more than 30% of NewPubco Ordinary Shares issued and outstanding immediately following Closing, Sponsor will irrevocably forfeit and surrender, immediately prior to Closing, for no consideration, a number of Sponsor Shares, up to a maximum of 1,429,000 Sponsor Shares, in order to reduce the Sponsor’s holding in NewPubco below the Dilution Cap, and (c) if, immediately prior to or at the Closing, the Company incurs a Transaction Expenses Cap Excess without obtaining the prior written consent of the Company to incur such Transaction Expenses Cap Excess, then at the election of Gadfin in its sole discretion, Sponsor shall either (x) irrevocably transfer to such Persons entitled to the respective Transaction Expenses Cap Excess such number of SPAC Shares or SPAC Warrants that will satisfy and settle such Transaction Expenses Cap Excess, reasonably acceptable to Gadfin or (y) pay directly to NewPubco any such Transaction Expenses Cap Excess, such that only Sponsor bears such Transaction Expenses Cap Excess. The Sponsor also agreed that it will not (a) transfer any of the Sponsor Shares or grant any security interest in the Sponsor Shares pursuant to the Business Combination Agreement or to another shareholder of the Company, (b) deposit any Sponsor Shares into a voting trust or enter into a voting arrangement that is inconsistent with the Sponsor Support Agreement or (c) enter into any arrangement with respect to the acquisition or sale of any of the Sponsor Shares. The Sponsor has also agreed to waive its rights to the treatment of its Sponsor Shares and to not participate in any redemption by tendering or submitting any Company equity securities held by the Sponsor for redemption. Capitalized terms used but not defined herein shall have the meanings ascribed thereto in the Sponsor Support Agreement. +​ +11 +Table of Contents +Transaction Support Agreement +Concurrently with the execution of the Business Combination Agreement, certain Gadfin shareholders entered into Transaction Support Agreements, pursuant to which, among other things, each of such Gadfin shareholders, separately and independently, has agreed to vote in favor of the approval of the proposals at the applicable Gadfin shareholders’ meetings. +Registration Rights and Lock-Up Agreement +At the Closing, NewPubco, the Company, specified Gadfin shareholders and the Sponsor will enter into a Registration Rights and Lock-Up Agreement (the “Registration Rights Agreement”), pursuant to which, among other things, the parties thereto will be granted customary demand and piggyback registration rights with respect to NewPubco Ordinary Shares at Closing and will have agreed to customary lock-up restrictions for a period of six (6) months following the Closing, with such shares being released from lock-up in twelve monthly increments following such six (6) month period, subject to earlier release if specified share price hurdles are achieved. The form of the Registration Rights Agreement shall be mutually agreed by Gadfin and the Company prior to Closing, provided that such Registration Rights Agreement shall incorporate the key terms set forth in Annex II of the Business Combination Agreement. +Management Team +Ziv Elul serves as our Chief Executive Officer and a member of our board of directors. Mr. Elul has 16 years of industry and managerial experience with start-up and high-growth technology businesses operating globally, which includes two acquisition transactions and operational experience as the CEO of a publicly traded company. In 2007. Mr. Elul co-founded Inneractive, an independent automated mobile platform with marketplace exchange capabilities and focused on powering video ads. He served as CEO of Inneractive, leading it to outstanding profitability until its acquisition by Fyber N.V. (FSE:FBEN), a global provider of monetization platforms for mobile publishers, in July 2017. Following the acquisition, Mr. Elul continued to serve as CEO and led the integration of the businesses under one brand with a strong focus on cutting-edge technology. Under his leadership, Fyber N.V. reached profitability for the first time as a combined company. In May 2021, Fyber N.V. was acquired for $600 million by a multi-billion dollar media and advertising solutions company, Digital Turbine (Nasdaq:APPS), where he was appointed to serve as a strategic advisor supporting the integration. Prior to 2007, Mr. Elul served as a Lieutenant Colonel in Israel’s Reserves Corps. Mr. Elul is a member of the Israeli branch of the Young Presidents’ Organization (“YPO”), a global network of young chief executives, and is deeply involved in the Israeli high tech and startup ecosystem. Mr. Elul is an active investor in Israeli technology companies, with a portfolio of 18 company investments to-date (including several successful exits, such as Spotinst (acquired by Net App for $450 million)) and an investor in seven venture capital firms. He holds an Executive MBA from the Hebrew University which he graduated from with honors. +Sharon Barzik Cohen serves as our Chief Financial Officer and a member of our board of directors. In March 2021, Ms. Cohen joined Qumra Capital, a leading growth capital fund that invests in late stage technology-driven companies, as Partner and Chief Operating Officer. Before Qumra Capital, she was CFO of the Storage Division at Dell EMC in Israel, having previously served since 2011 as CFO of XtremIO, which developed all flash advanced storage solutions and was acquired by EMC in 2012 in one of the largest acquisitions in the Israeli tech market at the time. In this role Ms. Cohen oversaw global finance teams worldwide, and was a member of the Dell Israel leadership team. Prior to 2011, Ms. Cohen was CFO of N-trig, a developer of transparent electromagnetic digitizers for the mobile computers market, which was acquired by Microsoft in 2015. From 1996 to 2003, she served as CFO of RadioTel, a leading networking company offering next-generation SDH/Sonet network solutions. Ms. Cohen earned a BA in Psychology, summa cum laude, and an Executive MBA, cum laude, both from Tel Aviv University. +​ +12 +Table of Contents +Izhar Shay serves as Chairman of our board of directors. Mr. Shay currently serves as a venture partner at Disruptive AI, an early stage venture capital firm focused on AI investments. He also is the Chairman of Kendago ( a leading digital marketing group) and Group 107 Ltd. (a technology and fintech company that provides software solutions and IT services) and is on the Board of Directors of Spritt.io Ltd. (an AI-driven, no-code software platform that enables startups to build full-scale applications) and Tastewise (an AI based consumer insights platform for food & beverage innovation). From 2020 to 2021, Mr. Shay was Israel’s Minister of Science and Technology. Prior to that Mr. Shay’s professional career included various management and business positions in the Israeli high-tech and venture capital sectors. Previously, he worked as a high-tech entrepreneur and managed a number of companies for nearly ten years in the United States. In 1998, he co-founded Business Layers, a developer of Identity Management software solutions, and served as the company’s CEO until its sale in 2003 to Netegrity (Nasdaq: NETE). From 2004-2005, Mr. Shay served as chairman and CEO of V-Secure Technologies, a developer of intrusion prevention products intended to block cyber-attacks, which he led through its sale to Radware (NASDAQ: RDWR). In 2006, he joined the international venture capital fund Canaan Partners as a partner and managed its investment activities in Israel until 2014. At that time, Canaan Partners had assets under management of approximately $2.0B. Together with his partner, Ehud Levy, he co-founded Canaan Partners Israel in 2014, which made investments in Israeli technology start-ups, focusing on investments in mobile, digital media, Internet, communications and software. He served as a director at LiveU (acquired by Francisco Partners), Viewbix (acquired by Algomizer), Rollout.io, Drupe, and RegulusX and served as a director at Prime Sense prior to its sale to Apple as well as at N-trig, which was sold to Microsoft. In 2015, Mr. Shay was selected by the Israeli media outlet Geektime to be on the list of the 100 most influential people in the Israeli high-tech. Mr. Shay was elected as a member of the Israeli parliament, where he served from 2019 to 2021. He was a member of the special Coronavirus Cabinet, which was formed by the Israeli government, where he helped lead the national efforts confronting the challenges of the COVID-19 pandemic. +Candice Beaumont serves as a member of our board of directors. Beginning in October 2020, Candice Beaumont began to serve as an advisor to Springwater Special Situations Corp. (Nasdaq: SWSSU), a special purpose acquisition company formed to effectuate a merger or similar transaction with one or more businesses, which completed its initial public offering on August 25, 2021 and is currently searching for an initial business combination with a well-positioned business with operational improvements in Europe or elsewhere. Ms. Beaumont is a member of the Board of Directors of Clean Earth Acquisition Corp. (Nasdaq: CLINU), a special purpose acquisition company that completed its initial public offering in February 2022 and entered into a business combination agreement on October 12, 2022 for the purposes of acquiring substantially all of the subsidiaries of Alternus Energy Group Plc, a public limited company incorporated under the laws of Ireland. Ms. Beaumont has served since 2016 as Chairman of the Salsano Group, a Panama based family office and conglomerate invested in private equity. From 2003 to present, Ms. Beaumont has served as Chief Investment Officer of L Investments, a single-family office invested in public and private equity. Ms. Beaumont speaks at numerous family office and investment conferences globally, including the Stanford University Graduate School of Business Global Investor’s Forum, is a NYU Stern Family Office Council member serving on the Steering Committee, and is an Advisory Board member of the Family Office Association. From 2012 to 2014, Ms. Beaumont was a member of the board of directors of I2BF Venture Fund II, a Dubai Financial Services Authority regulated clean tech venture capital firm with offices in Dubai, New York and London, as well as an Advisory Board member of The Luxury Fund. Ms. Beaumont remains committed to community and philanthropic causes and serves on the International Council of Advisors for Global Dignity, a charity founded by Crown Prince Haakon of Norway to foster global respect and dignity across all borders, genders, religions and races. Ms. Beaumont was part of the Milken Young Leaders Circle and is a member of the Milken Institute, as well as an active member of YPO. Ms. Beaumont started her career in Corporate Finance at Merrill Lynch in 1996 and worked as an investment banker at Lazard Frères from 1997 to 1999, during which time Ms. Beaumont executed over $20 billion of merger and acquisition advisory assignments. Ms. Beaumont also worked in private equity at Argonaut Capital from 1999 to 2001. Ms. Beaumont obtained a Bachelor in Business Administration from the University of Miami, graduating first in her class with a major of International Finance & Marketing. Ms. Beaumont was captain of the University of Miami varsity tennis team, where Ms. Beaumont earned Academic All-American honors, and is also a former world-ranked professional tennis player. Ms. Beaumont completed Global Leadership & Public Policy for the 21st Century at Harvard Kennedy School in 2015. Ms. Beaumont was honored by Trusted Insight as one of the Top 30 Family Office Chief Investment Officers in 2017 and as a Young Global Leader by the World Economic Forum in 2014. Ms. Beaumont has a broad network of relationships, including investors in private and public equity, leading venture capital firms with compelling pre-initial public offering companies and has expertise sourcing deals, evaluating private and public businesses, and conducting detailed due diligence and risk management. +13 +Table of Contents +Peter Cohen serves as a member of our board of directors. Mr. Cohen was an investment banker for approximately three decades, advising CEOs and boards of directors on mission critical strategic and financing transactions. Most recently, from 2015 to 2020, he was a Managing Director and Global Head of Media, Entertainment & Sports Investment Banking at Barclays. In this role, he led a team responsible for managing all client coverage efforts for the firm in these sectors globally. He primarily focused on the largest clients in the Diversified and New Media and Sports sub-sectors, specializing in mergers & acquisitions, as well as debt and equity capital raising efforts, on behalf of clients worldwide. From 2009 to 2015, he had similar responsibilities as a Senior Managing Director at Blackstone. Mr. Cohen started his investment banking career at JP Morgan in 1993. +Roy Zisapel serves as a member of our board of directors. Mr. Zisapel is a co-founder of Radware (NASDAQ: RDWR), a leader of cybersecurity and application delivery solutions for physical, cloud and software-defined data centers. Mr. Zisapel has served as President and Chief Executive Officer of Radware since the company’s inception in April 1997, and he is responsible for the overall direction and strategy of the company. Under his leadership, Radware has grown from a startup to a global, Nasdaq-listed industry leader with more than 35 offices and 1,100 employees worldwide. He was instrumental in raising over $200 million for Radware, which included two public offerings: an initial public offering in September 1999 — just two and a half years after the company’s inception — and a follow-on offering in January 2000. Radware’s growth has paralleled working with some of the most prominent brands in the world, including commercial banks, stock exchanges, retailers, telecom companies and mobile operators. Radware maintains strategic partnerships with Cisco, Checkpoint, IBM, Microsoft, Nokia, SAP and VMWare, among others. Mr. Zisapel has led Radware through several successful acquisitions, including V-Secure Technologies (2005), Covelight Systems (2007), Nortel’s application delivery business, Alteon (2009), and Strangeloop Networks in 2013. Most recently, he oversaw the acquisition of Seculert (2017) and ShieldSquare (2019). From 1996 to 1997, Mr. Zisapel was a team leader of research and development projects for RND Networks Ltd. From 1994 to 1996, Mr. Zisapel was employed as a software engineer for other companies in Israel. Mr. Zisapel graduated summa cum laude with a B.S. degree in mathematics and computer science from Tel Aviv University, where he was honored with the International Wolf Prize for research students. Mr. Zisapel holds several U.S. patents and patent applications in the areas of global load balancing, network proximity, traffic redirection and multi-homing. +Daniel S. Recanati serves as a member of our board of directors. Mr. Recanati is the founder & CEO of Rhodium, a privately-owned investment firm with a diverse portfolio including some of Israel’s most promising companies. Mr. Recanati founded and invested in numerous tech ventures from early stage to growth, across different sectors such as deeptech, fintech, foodtech, cyber, AI, digital media, e-commerce, automotive, communication and mobile. Mr. Recanati is an early investor in successful Israeli companies such as Teads Holding Co (NASDAQ:TEAD), eToro Group (NASDAQ:ETOR), Yotpo, Storedot, Earth & Beyond Ventures (Founder and GP), Face.com (acquired by Facebook), Hopstop (acquired by Apple), Zooz (acquired by PayU), Rounds (acquired by Kik), Hexatier (acquired by Huawei), IMGN (acquired by WarnerMusic) and Compass (acquired by Sage). For over two decades, Mr. Recanati has been focusing on accelerating social impact through technology, by co-founding and being closely involved in a variety of community organizations. Mr. Recanati serves on the board of The Yahel Foundation, the Recanati family philanthropy foundation, which aims to narrow social gaps by driving social processes and supporting non-profit organizations that advance education, welfare and health. Mr. Recanati also serves on the board of MadaTech — The Israel National Museum of Science Technology and Space. Mr. Recanati co-founded and serves on the board of Apple Seeds Academy (“Tapuah”), an Israeli nonprofit organization that was founded with the aim of bridging between Israel’s growing tech sector and the digital peripheries. He also serves on the board of “Ogen”- a non-profit social lending enterprise, providing affordable credit to disadvantaged segments of the Israeli public. Mr. Recanati holds an LLB and BA from the Reichman University, Herzliya. +Our Advisory Board +Alex Greystoke serves as a member of our advisory board and is one of our founders. Mr. Greystoke is a successful serial entrepreneur with a breadth of skills in a diverse range of industries. He is a founder and member of the advisory board of Goal Acquisitions Corp. (Nasdaq: PUCKU), a SPAC that raised $258 million through its initial public offering in February 2021 and entered into a business combination agreement on November 17, 2022 for the purposes of acquiring Digital Virgo Group, a French corporation. Mr. Greystoke is also the founder and member of the advisory board of Clean Earth Acquisition Corp. (Nasdaq: CLINU), a SPAC that completed a $200 million initial public offering in February 2022 and entered into a business combination agreement on October 12, 2022 for the purposes of acquiring substantially all of the subsidiaries of Alternus Energy Group Plc, a public limited company incorporated under the laws of Ireland. Mr. Greystoke is also on the board of Springwater Special Situations Corp (Nasdaq: SWSSU), a SPAC that raised $168 million through its initial public offering in August 2021 and is seeking to merge with a well-positioned business with operational improvement opportunities in Europe or elsewhere. Mr. Greystoke is the founder of multiple AI technology companies including TripChamp, VacationChamp and TravelChamp. He is the inventor of three granted artificial intelligence patents, with eight pending patent applications. Mr. Greystoke also holds investments in real estate, food and beverage, technology and other +14 +Table of Contents +sectors. Mr. Greystoke founded HSC, a boutique corporate finance business raising money for and helping emerging companies commercialize in a range of sectors including technology, energy, healthcare and consumer products utilizing his wide network of partners throughout Asia, Europe, the Middle East and the U.S. Mr. Greystoke has served as director to numerous companies in the education, technology, AI and renewable energy spaces, and has served as a Chairman to a U.K. listed Chinese manufacturing company. +Robert Pincas serves as a member of our advisory board and is one of our founders. Mr. Pincas is a successful investment manager and entrepreneur with over 20 years of experience in the Israeli ecosystem and international capital markets. Over the years, Mr. Pincas has developed a deep network with Israeli tech companies and a wide range of international investors. Currently, Mr. Pincas serves as the Small and Medium Businesses (“SMB”) partner for Fundit, a leading crowdfund platform in Israel, regulated by the Israeli Securities Authority. Between 2007 and 2020 Mr. Pincas was a Managing Director with MG Investment Capital, a venture capital fund investing in Israeli technology with a profitable return for investors. Mr. Pincas was the Accelerator Program Director (Jerusalem and the Plains) for Maof-Tech, for the Israeli Economy Ministry. Between 2014 and 2018 Mr. Pincas managed Maof Rishon LeZion (sponsored by the Israeli Economy Ministry), one of the largest consulting centers in Israel, servicing thousands of SMB businesses. Mr. Pincas served between 2003-2008 as Executive Director and Partner with MG Equity Partners Ltd., an investment bank focusing on cross border transactions between Israeli and European companies and the London capital markets, such as Domino’s Pizza Switzerland, Pepsi Romania and MTI Wireless, Mr. Pincas has volunteered with Paamonim, a nonprofit organization focusing on financial education for families. Mr. Pincas holds an MBA from Tel Aviv University and a BA in Economics from Ben Gurion University. +Eitan Efron serves as a member of our advisory board and is one of our founders. Mr. Efron has 30 years of experience in technology investments, technology and business management and high-tech entrepreneurship. Mr. Efron has a diverse entrepreneurial and management background. Mr. Efron is a founder of four technology startups, including Oversi Networks, which was acquired by Allot Communications (NASDAQ: ALLT) in 2009, and WiNetworks, which was acquired by Ruggedcom Inc in 2006 (and later acquired by Siemens). Between 2007 and 2019, Mr. Efron was a director with MG Investment Capital, a venture capital fund investing in Israeli technology with a profitable return for investors. Mr. Efron has deep contacts in Israeli tech ecosystem, including investors, companies’ executives, entrepreneurs and Israeli Innovation Authority. Mr. Efron has direct access to multiple multi-sector technology companies. +Ehud Levy serves as a member of our advisory board. Since 2014, Mr. Levy has been the Managing General Partner of Canaan Partners Israel, an Israeli venture capital fund. Since 2019, he has been a Venture Partner with Lenovo Capital heading its investment opportunities in Israel. Mr. Levy is also an active private investor in tech companies operating as a partner with a leading investment team, Kaedan Capital. From 2006 to 2014, Mr. Levy was a Managing Partner at Vertex VC. Among other successful investments, Mr. Levy identified Waze as a bright star from the start, leading the first investment round in the company and serving on its board of directors until its acquisition by Google for over US$1 billion. Previously, Mr. Levy co-founded and served as Chairman and CEO of Ki-Bi Mobile Technologies, a mass-market device specialist for mobile content distribution. He led the business from concept to commercial success, an initial public offering in London and eventual acquisition. Earlier, he served as COO and CFO of Telegate, a telecommunications company, where he was responsible for a restructuring plan leading to the acquisition of the company for over US$400 million. Prior to Telegate, Mr. Levy was an investment banker in New York and Tel Aviv, and served on the board of directors of several technology companies. Mr. Levy holds a BSc in Computer Engineering (with honors) from the Technion – Israel Institute of Technology and an MBA from Columbia Business School in New York. +Nir Ben Lavi serves as a member of our advisory board. Currently Mr. Ben Lavi is the CEO and co-founder of the Pangea Cup, the world’s first global competition and reality show for discovering the next big video game, and has served in that capacity since December 2019. Mr. Ben Lavi was appointed to his first managerial position at the age of 25, and combined it with intensive R&D work. This experience provided Mr. Ben Lavi with invaluable knowledge on innovation and led him to dedicate a lot of his time helping countries create their own start-up ecosystems. Mr. Ben Lavi is an active member of YPO Israel, and YPO Change Makers Club. Mr. Ben Lavi is an active investor deeply involved in the Israeli startup ecosystem. He is the former Managing Director of the NYU Blockchain Accelerator with which he served from October 2017 to October 2019, as well as head of the joint innovation program at Bosphorus University, Turkey. Mr. Ben Lavi is the author of three books and inventor of software solutions. Mr. Ben Lavi received his B.A. in Sociology, with honors, and his M.B.A. from the University of Tel Aviv. His Ph.D. research study in the field of Computerized Dispute Resolution led to the development of a first-of-its-kind dispute resolution software that was adopted by the United Nations as a managerial work tool. +Guy Kurlandski serves as a member of our advisory board. Mr. Kurlandski has more than 30 years’ experience as an entrepreneur and investor spanning diverse industries globally, from printing and real estate to spirits and technology. Today, Mr. Kurlandski’s primary position is as the Chief Evangelist Officer at Liquidity Group, an Israeli based global fintech and fund manager, which he has +15 +Table of Contents +been with from 2019 to the present. He is also a Forbes Business Council member and an advisor to MUMA College of Business. He has been based in the United States since 2008 and was previously based in the United Kingdom. Mr. Kurlandski speaks both English and Hebrew and has strong ties to Israel. He has experience in scaling, managing and funding companies to reach their full potential. +Aaron Greenberg serves as a member of our advisory board. Mr. Greenberg has spent his career on Wall Street with experience across a variety of areas including investing, banking, trading, regulatory, risk, strategy and tax. Currently, Mr. Greenberg serves as the Chief Strategy Officer of Nayax (Nasdaq: NYAX), and is the managing partner of Tiberius Capital Markets, a division of Arcadia Securities (“Tiberius”), a strategic advisory and merger and acquisition (“M&A”) practice. Prior to Tiberius, Mr. Greenberg served on the investment team of Lucerne Capital Management, a 20-year-old hedge fund specializing in European mid-cap equities. Concurrently, Mr. Greenberg was Chief Strategy Officer of European Sustainable Growth Acquisition Corp., a U.S.-listed SPAC focused on ESG investing in Europe. Prior to this, Mr. Greenberg held various positions at Wells Fargo Bank and its affiliates, most recently as a portfolio manager evaluating operational inefficiencies and credit policy within the Corporate Investment Bank (CIB). Mr. Greenberg holds a Bachelor of Arts in Economics and History from Yale University. +Opportunity +The technology industry as a whole experienced an unprecedented acceleration of its growth during the COVID-19 pandemic as more businesses adopted new and innovative ways of doing business and more consumers rapidly adopted digital platforms to consume products and services. +The Israeli technology sector represents a concentration of value, with a large number of fast-growing companies. Israel is the leading country in R&D expenditure per GDP (Source: World Economic Forum 11 2020) with a mature high tech ecosystem including government incentives for early stage companies, a strong VC community, over 400 multinational corporations active in Israel and managing local R&D centers, and over 100 Israeli companies listed on Nasdaq. We believe that this ecosystem nurtures innovative products and services recognized world-wide. Technology leaders in Israel have global operations backed by a growing number of investments, which continue to propel the growth of leading technology companies. +The number of Israeli Unicorns has grown dramatically in recent years, representing 10% of Unicorns globally as of June 2021. Hundreds of additional growth-stage companies, backed by both local and global growth venture capital funds, have the potential to become the next Unicorns. We believe that this sector presents a significant opportunity concentrated in a specific small geography. Management teams with extensive networks and experience in this geography have a unique ability to locate and combine with such potential Unicorns. +We intend to tap into this opportunity by combining favorable Israeli market dynamics with a highly experienced and connected sponsor team, leveraging its network to source a potential business combination. Our Team has excellent investment, merger, acquisition and public company operational experience. Facing multiple targets in the disruptive Israeli market, our Team is positioned to identify and combine with high quality targets that have demonstrated exceptional metrics, and can effectively assist in bringing value to the target company following a business combination. +Favorable Market Dynamics +In recent years Israel’s technology sector has been going through a dramatic uplift and rapidly shifting from “Start-Up Nation” to the “Scale-Up Nation.” Many of growth-stage Israeli companies have emerged in recent years and are attracting billions of dollars in investments from foreign (primarily U.S.) investors, through mergers, acquisitions, and IPOs. +In 2024 and 2025, the Israeli high-tech sector continued to navigate geopolitical and macroeconomic challenges but demonstrated resilience and renewed investment activity. +With the proposed judicial reform mid-year causing domestic tension, the attack on October 7, 2023, and the ensuing war against Hamas - all against a background of global macroeconomic contraction - there have been obvious declines in venture capital activity in 2023 followed by a recovery in 2024 and 2025. +Israel experienced both a sharper increase in private funding between 2018 and 2021 (+303%) and subsequently a sharper decrease between 2021 and 2023 (-73%) compared to other regions. In the U.S., for example, it was +134% / -51% respectively. Compared to 2018, Israel and the U.S. are up 9% and 14% respectively. +16 +Table of Contents +According to the 2025 Israeli Tech Review published by IVC Research Center and LeumiTech, Israeli technology companies raised approximately $9.6 billion in private funding in 2024, representing a significant increase from 2023 levels, and funding increased further to approximately $15.6 billion in 2025, reflecting larger financing rounds despite a lower number of transactions. +In 2024, M&A capital proceeds equaled $12.53 billion, despite the total number of deals being the second lowest in the past 10 years (99 transactions). This was mostly due to the M&As between $100 million and $500 million, which amounted to $6.052 billion this year. The most prominent transaction was the acquisition of Own Company by SalesForce for $1.9 billion. More recent reports indicate that strategic acquisitions by large technology companies continued to represent a significant portion of exit activity in 2025. In 2024, six IPOs took place: Upstream Bio, Gauzy and Polyrizon; two SPAC deals on NASDAQ; and TSG IT Advanced Systems on TASE. These IPOs represent a 50% growth from 2023 and raised $397 million. Public market activity remained relatively limited compared to prior peak years, although select Israeli technology companies continued to access U.S. and Israeli capital markets. +In 2024, 40% of follow-on public offerings were in the life science sector. Follow-on activity was cut almost by half, with only 55 public offerings raising $675 million, and the lowest attracted capital since 2015. Public market activity remained relatively limited compared to prior peak years, although select Israeli technology companies continued to access U.S. and Israeli capital markets. +Public Companies’ Performance +Given 2019 as a starting point, Israeli technology companies for the most part follow Nasdaq trends. Towards the end of 2020, Israeli companies started outperforming Nasdaq as the COVID-19 pandemic was contained faster. Their performance peaked in early 2021 when Israel became the first country to reopen after the pandemic. +In 2022, both the U.S. tech market and the Israeli tech market were negatively impacted by rising interest rates, high inflation, and recession fears, with Israeli companies experiencing a steeper decline. At the end of 2022, the U.S. tech market started to recover and the rise of generative artificial intelligence (“Gen AI”) started - and will continue to grow in 2023. Israel tech companies did not experience that recovery and remained mostly stable, likely due to local political turbulence. +In October 2023, both U.S. and Israel markets experienced a drop, which was more prominent in Israel, due to the war that started on October 7th. The conflict subsequently expanded to include hostilities with Hezbollah in Lebanon and direct attacks from Iran, creating additional volatility in Israeli markets through 2024 and into 2025. +Multiple Targets +The Israeli tech sector has experienced significant scale-up in recent years across a wide range of sectors, from fintech, cloud, cyber and AI, to electric vehicles, and energytech, to biotech, genomics, quantum computing, spacetech and more. We believe some of these sectors present strong growth opportunities because Israeli companies in these sectors match global demand for solutions in the space and attract late-stage investments backing up growth. +We believe there are hundreds of pre-initial public offering Israeli tech companies that could be potential acquisition candidates today, and we believe the number will continue to grow. According to research firm IVC, 607 growth-stage Israeli tech companies raised over $15 billion of late-stage investments in 2019 and 2020 alone. According to Catalyst research there are hundreds of Israeli companies valued between $300 million to $3 billion. +Business Strategy and Competitive Strengths +Our business strategy is focused on identifying high-growth technology companies that would benefit from our Team’s expertise and creating long-term value for our shareholders through a business combination. Our strategy will be focused on companies that are domiciled in Israel, that carry out all or a substantial portion of their activities in Israel, or that have some other significant Israeli connection. +​ +17 +Table of Contents +Because we believe that certain technology sectors present particularly attractive growth opportunities, we intend to focus primarily on companies in the following technology sectors: +● Cloud computing; +● Cybersecurity; +● Deep or hard technology; +● E-commerce; +● EV technology; +● Energy technology; +● Financial Technology (“FinTech”); +● Food and agriculture technology; +● Gaming; +● Quantum computing; and +● Space and satellite technology. +We believe that our Team’s extensive experience in identifying high growth target companies, structuring and executing strategic investments and business combination transactions, and in adding value post-investment and post-transaction will support our business strategy. Our competitive strengths include: +Proven Track Record +Members of our Team have proven track records as officers, investors and board members of Israeli technology companies which reached growth-phase and global presence. Some of our Team members have gained experience as advisors of other SPACs, from IPO and listing through target acquisition. Our Team also has vast experience in international mergers and acquisition transactions and post-transaction integration. Furthermore, two of our Team members served as CEOs of public companies traded on Nasdaq and FSE stock exchange. We believe this wealth of experience and connections within the industry will position us to identify a high-quality target company and successfully complete a business combination transaction that creates value for our investors. +Value to Target Companies +We believe that our Team’s substantial management experience with growth companies will be recognized by target companies as a potential asset. Our Team members bring many years of experience taking companies public and successfully managing public companies. Additionally, we believe that our Team’s track record of leading companies through merger and acquisition transactions and managing them in the post-business combination stage could make us attractive to potential target companies. Our Team’s substantial experience operating public and private companies can assist in establishing a credible value-creation plan jointly with the target company’s management. Our Team has a considerable track record in running global public companies, merging companies to create substantially larger operations, bringing companies to profitability, communicating with the financial markets, and raising capital in various modes. We believe our Team’s experience presents a high value proposition to the target companies and investors. +18 +Table of Contents +Business Combination Criteria +Consistent with our business strategy, we have identified the following general criteria and guidelines that we believe are important in evaluating prospective target companies. We will use these criteria and guidelines in evaluating initial business combination opportunities, but we may decide to enter into our initial business combination with a target company that does not meet these criteria and guidelines. +● Enterprise values of between $800 million and $1.5 billion  — The valuation will reflect a discount to the valuation of comparable public companies in the sector with similar metrics, such as revenues, EBITDA, market share and growth. +● High growth and strong pipeline  — We intend to focus on companies with double-digit growth in revenues per annum over a minimum 3-year period, featuring a disruptive technology, high market acceptance, and a large addressable market. +● International operations and global focus  — As the Israeli local market is a small one in most sectors, we are targeting a global player in the making, focusing on companies that already have a significant presence in global markets, with over 50% of revenue generated outside of Israel. +● Strong management team focused on growth  — We intend to pursue a business combination with a company that has a committed and strong leadership team with a proven track record of success in driving growth and profitability in the tech industry, impeccable reputation, and whom we know and trust through our Team’s network of relationships in Israel. +● Demonstrated ability to execute  — We are focused on target company management with a proven record of success, either from managing companies and bringing them to exceptional liquidity events for their investors or through operational success, such as growing companies from early stages to achieving competitive metrics in their sectors with regards to disruptive technology, sizable global markets, company growth, revenues, and profit. +● Ability to accelerate growth through increased access to public capital  — We intend to pursue an initial business combination with a company that has a solid business plan and the need for capital to support significant growth available through a business combination with us and access to broader capital markets as a public company. +These criteria are not intended to be exhaustive. Any evaluation relating to the merits of a particular initial business combination may be based, to the extent relevant, on these general guidelines as well as other considerations, factors and criteria that our management may deem relevant. In the event that we decide to enter into a business combination with a target company that does not meet the above criteria and guidelines, we will disclose that the target company does not meet the above named criteria in our shareholder communications related to our initial business combination, which, as discussed in this Annual Report on Form 10-K, would be in the form of proxy solicitation or tender offer materials, as applicable, that we would file with the SEC. In evaluating a prospective target company, we expect to conduct a due diligence review which may encompass, among other things, meetings with incumbent management and employees, document reviews, interviews of customers and suppliers, inspections of facilities, as well as reviewing financial and other information which will be made available to us. +Effecting Our Initial Business Combination +General +We are not presently engaged in, and we will not engage in, any operations for an indefinite period of time. We intend to effectuate our initial business combination using cash from the proceeds of the initial business combination and the sale of the Private Placement Units, the proceeds of the sale of our shares in connection with our initial business combination (pursuant to forward purchase agreements or backstop agreements we may enter into), shares issued to the owners of the target, debt issued to bank or other lenders or the owners of the target, or a combination of the foregoing or other sources. We may seek to complete our initial business combination with a company or business that may be financially unstable or in its early stages of development or growth, which would subject us to the numerous risks inherent in such companies and businesses. +19 +Table of Contents +If our initial business combination is paid for using equity or debt, or not all of the funds released from the Trust Account are used for payment of the consideration in connection with our initial business combination or used for redemptions of our Class A ordinary shares, we may apply the balance of the cash released to us from the Trust Account for general corporate purposes, including for maintenance or expansion of operations of the post-business combination company, the payment of principal or interest due on indebtedness incurred in completing our initial business combination, to fund the purchase of other companies or for working capital. +Although our management will assess the risks inherent in a particular target business with which we may combine in an initial business combination, we cannot assure you that this assessment will result in our identifying all risks that a target business may encounter. Furthermore, some of those risks may be outside of our control, meaning that we can do nothing to control or reduce the chances that those risks will adversely affect a target business. +So long as our securities are then listed on the Nasdaq, our initial business combination must occur with one or more target businesses that together have an aggregate fair market value of at least 80% of the net assets held in the Trust Account (excluding the amount of deferred underwriting commissions and taxes payable on the interest earned on the Trust Account) at the time of signing a definitive agreement in connection with our initial business combination. Additionally, so long as our securities are listed on Nasdaq, any initial business combination must be approved by a majority of our independent directors. If our board of directors is not able to independently determine the fair market value of the target business or businesses, we will obtain an opinion from an independent investment banking firm or an independent valuation or appraisal firm with respect to the satisfaction of such criteria. While we consider it unlikely that our board will not be able to make an independent determination of the fair market value of a target business or businesses, it may be unable to do so if the board is less familiar or experienced with the target company’s business, if there is a significant amount of uncertainty as to the value of the company’s assets or prospects, including if such company is at an early stage of development, operations or growth, or if the anticipated transaction involves a complex financial analysis or other specialized skills and the board determines that outside expertise would be helpful or necessary in conducting such analysis. Since any opinion, if obtained, would merely state that the fair market value of the target business meets the 80% of net assets threshold, unless such opinion includes material information regarding the valuation of a target business or the consideration to be provided, it is not anticipated that copies of such opinion would be distributed to our shareholders. However, if required under applicable law, any proxy statement that we deliver to shareholders and file with the SEC in connection with a proposed transaction will include such opinion. +We anticipate structuring our initial business combination so that the post-business combination company in which our public shareholders own shares will own or acquire 100% of the equity interests or assets of the target business or businesses. We may, however, structure our initial business combination such that the post-business combination company owns or acquires less than 100% of such interests or assets of the target business in order to meet certain objectives of the target management team or shareholders or for other reasons, but we will only complete such business combination if the post-business combination company owns or acquires 50% or more of the outstanding voting securities of the target or otherwise acquires a controlling interest in the target sufficient for it not to be required to register as an investment company under the Investment Company Act. Even if the post-business combination company owns or acquires 50% or more of the voting securities of the target, our shareholders prior to the business combination may collectively own a minority interest in the post-business combination company, depending on valuations ascribed to the target and us in the business combination. For example, we could pursue a transaction in which we issue a substantial number of new shares in exchange for all the outstanding capital stock of a target. In this case, we would acquire a 100% controlling interest in the target. However, as a result of the issuance of a substantial number of new shares, our shareholders immediately prior to our initial business combination could own less than a majority of our outstanding shares subsequent to our initial business combination. If less than 100% of the equity interests or assets of a target business or businesses are owned or acquired by the post-business combination company, the portion of such business or businesses that is owned or acquired is what will be valued for purposes of the 80% of net assets test. If the business combination involves more than one target business, the 80% of net assets test will be based on the aggregate value of all of the target businesses. If our securities are not then listed on the Nasdaq for whatever reason, we would no longer be required to meet the foregoing 80% of net asset test. +We may need to obtain additional financing to complete our initial business combination, either because the transaction requires more cash than is available from the proceeds held in our Trust Account, or because we become obligated to redeem a significant number of our public shares upon the completion of the business combination, in which case we may issue additional securities or incur debt in connection with such business combination (or enter into forward purchase agreements or backstop agreements with the Sponsor). There are no prohibitions on our ability to issue securities or incur debt in connection with our initial business combination. We are not currently a party to any arrangement or understanding with any third party with respect to raising any additional funds through the sale of securities, the incurrence of debt or otherwise. +20 +Table of Contents +Sources of Target Businesses +We anticipate that target business candidates will be brought to our attention from various unaffiliated sources, including investment market participants, private equity groups, investment banking firms, consultants, accounting firms and large business enterprises. Target businesses may be brought to our attention by such unaffiliated sources as a result of being solicited by us through calls or mailings. These sources may also introduce us to target businesses in which they think we may be interested on an unsolicited basis, since some of these sources will have read this Annual Report on Form 10-K and know what types of businesses we are targeting. Our officers and directors, as well as their affiliates, may also bring to our attention target business candidates that they become aware of through their business contacts as a result of formal or informal inquiries or discussions they may have, as well as attending trade shows or conventions. In addition, we expect to receive a number of proprietary deal flow opportunities that would not otherwise necessarily be available to us as a result of the business relationships of our officers and directors. While we do not presently anticipate engaging the services of professional firms or other individuals that specialize in business acquisitions on any formal basis, we may engage these firms or other individuals in the future, in which event we may pay a finder’s fee, consulting fee or other compensation to be determined in an arm’s length negotiation based on the terms of the transaction. We will engage a finder only to the extent our management determines that the use of a finder may bring opportunities to us that may not otherwise be available to us or if finders approach us on an unsolicited basis with a potential transaction that our management determines is in our best interest to pursue. Payment of finder’s fees is customarily tied to completion of a transaction, in which case any such fee will be paid out of the funds held in the Trust Account. In no event, however, will the Sponsor or any of our existing officers or directors, or their respective affiliates be paid by us any finder’s fee or for any services they render in order to effectuate, the completion of our initial business combination (regardless of the type of transaction that it is). We have agreed to pay the Sponsor a total of $10,000 per month for office space, secretarial and administrative services and to reimburse the Sponsor for any out-of-pocket expenses related to identifying, investigating and completing an initial business combination. Some of our officers and directors may enter into employment or consulting agreements with the post-business combination company following our initial business combination. The presence or absence of any such fees or arrangements will not be used as a criterion in our selection process of an acquisition candidate. +We are not prohibited from pursuing an initial business combination with a company that is affiliated with the Sponsor or our officers or directors. In addition, in the event we seek to complete our initial business combination with a company that is affiliated with the Sponsor or any of our officers or directors, we, or a committee of independent directors, will obtain an opinion from an independent investment banking firm or another independent entity that commonly renders valuation opinions that such initial business combination is fair to our company from a financial point of view. We are not required to obtain such an opinion in any other context. +Each of our officers and directors presently has, and any of them in the future may have additional, fiduciary or contractual obligations to other entities, including entities that are affiliates of the Sponsor, pursuant to which such officer or director is or will be required to present a business combination opportunity to such entity. Accordingly, if any of our officers or directors becomes aware of a business combination opportunity that is suitable for an entity to which he or she has then-current fiduciary or contractual obligations, he or she will honor his or her fiduciary or contractual obligations to present such business combination opportunity to such entity, subject to their fiduciary duties under Cayman Islands law. See “ Item 10 - Directors, Executive Officers and Corporate Governance – Conflicts of Interest. ” +Evaluation of a Target Business and Structuring of Our Initial Business Combination +In evaluating a prospective target business, we expect to conduct an extensive due diligence review that may encompass, as applicable and among other things, meetings with incumbent management and employees, document reviews, interviews of customers and suppliers, inspection of facilities and a review of financial and other information about the target and its industry. We will also utilize our management team’s operational and capital planning experience. If we determine to move forward with a particular target, we will proceed to structure and negotiate the terms of the business combination transaction. +The time required to select and evaluate a target business and to structure and complete our initial business combination, and the costs associated with this process, are not currently ascertainable with any degree of certainty. Any costs incurred with respect to the identification and evaluation of, and negotiation with, a prospective target business with which our initial business combination is not ultimately completed will result in our incurring losses and will reduce the funds we can use to complete another business combination. In addition, we have agreed not to enter into a definitive agreement regarding an initial business combination without the prior consent of the Sponsor. +21 +Table of Contents +Lack of Business Diversification +For an indefinite period of time after the completion of our initial business combination, the prospects for our success may depend entirely on the future performance of a single business. Unlike other entities that have the resources to complete business combinations with multiple entities in one or several industries, it is probable that we will not have the resources to diversify our operations and mitigate the risks of being in a single line of business. By completing our initial business combination with only a single entity, our lack of diversification may: +● subject us to negative economic, competitive and regulatory developments, any or all of which may have a substantial adverse impact on the particular industry in which we operate after our initial business combination; and +● cause us to depend on the marketing and sale of a single product or limited number of products or services. +Limited Ability to Evaluate the Target’s Management Team +Although we intend to closely scrutinize the management of a prospective target business when evaluating the desirability of effecting our initial business combination with that business, our assessment of the target business’s management may not prove to be correct. In addition, the future management may not have the necessary skills, qualifications or abilities to manage a public company. Furthermore, the future role of members of our management team, if any, in the target business cannot presently be stated with any certainty. The determination as to whether any of the members of our management team will remain with the combined company will be made at the time of our initial business combination. While it is possible that one or more of our directors will remain associated in some capacity with us following our initial business combination, it is unlikely that any of them will devote their full efforts to our affairs subsequent to our initial business combination. Moreover, we cannot assure you that members of our management team will have significant experience or knowledge relating to the operations of the particular target business. +We cannot assure you that any of our key personnel will remain in senior management or advisory positions with the combined company. The determination as to whether any of our key personnel will remain with the combined company will be made at the time of our initial business combination. +Following an initial business combination, we may seek to recruit additional managers to supplement the incumbent management of the target business. We cannot assure you that we will have the ability to recruit additional managers, or that additional managers will have the requisite skills, knowledge or experience necessary to enhance the incumbent management. +Shareholders May Not Have the Ability to Approve Our Initial Business Combination +We may conduct redemptions without a shareholder vote pursuant to the tender offer rules of the SEC, subject to the provisions of our amended and restated memorandum and articles of association. However, we will seek shareholder approval if it is required by applicable law or stock exchange listing requirement, or we may decide to seek shareholder approval for business or other reasons. +Under the Nasdaq’s listing rules, shareholder approval would typically be required for our initial business combination if, for example: +● We issue ordinary shares that will be equal to or in excess of 20% of the number of our ordinary shares then-outstanding (other than in a public offering); +● Any of our directors, officers or substantial security holder (as defined by the Nasdaq rules) has a 5% or greater interest, directly or indirectly, in the target business or assets to be acquired or otherwise and the present or potential issuance of ordinary shares could result in an increase in issued and outstanding ordinary shares or voting power of 1% or more (or 5% or more if the related party involved is classified as such solely because such person is a substantial security holder); +● the timing of the transaction, including in the event we determine shareholder approval would require additional time and there is either not enough time to seek shareholder approval or doing so would place the company at a disadvantage in the transaction or result in other additional burdens on the company; or +● The issuance or potential issuance of ordinary shares will result in our undergoing a change of control. +22 +Table of Contents +The decision as to whether we will seek shareholder approval of a proposed business combination in those instances in which shareholder approval is not required by law will be made by us, solely in our discretion, and will be based on business and reasons, which include a variety of factors, including, but not limited to: +● the expected cost of holding a shareholder vote; +● the risk that the shareholders would fail to approve the proposed business combination; +● other time and budget constraints of the company; and +● additional legal complexities of a proposed business combination that would be time-consuming and burdensome to present to shareholders. +Permitted Purchases and Other Transactions with Respect to Our Securities +If we seek shareholder approval of our initial business combination and we do not conduct redemptions in connection with our initial business combination pursuant to the tender offer rules, the Sponsor and our directors, officers, advisors or their affiliates may purchase public shares or warrants in privately negotiated transactions or in the open market either prior to or following the completion of our initial business combination. Additionally, at any time at or prior to our initial business combination, subject to applicable securities laws (including with respect to material nonpublic information), the Sponsor and our directors, executive officers, advisors or their affiliates may enter into transactions with investors and others to provide them with incentives to acquire public shares, vote their public shares in favor of our initial business combination or not redeem their public shares. However, they have no current commitments, plans or intentions to engage in such transactions and have not formulated any terms or conditions for any such transactions. None of the funds in the Trust Account will be used to purchase public shares or warrants in such transactions. If they engage in such transactions, they will be restricted from making any such purchases when they are in possession of any material non-public information not disclosed to the seller or if such purchases are prohibited by Regulation M under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). +In the event that the Sponsor or our directors, officers, advisors or their affiliates purchase shares in privately negotiated transactions from public shareholders who have already elected to exercise their redemption rights or submitted a proxy to vote against our initial business combination, such selling shareholders would be required to revoke their prior elections to redeem their shares and any proxy to vote against our initial business combination. We do not currently anticipate that such purchases, if any, would constitute a tender offer subject to the tender offer rules under the Exchange Act or a going-private transaction subject to the going-private rules under the Exchange Act; however, if the purchasers determine at the time of any such purchases that the purchases are subject to such rules, the purchasers will be required to comply with such rules. +See “ Business—Effecting Our Initial Business Combination—Permitted Purchases and Other Transactions with Respect to Our Securities ” for a description of how our Sponsor, directors, officers, advisors or their affiliates will select which shareholders to purchase securities from in any private transaction. The purpose of any such transaction could be to (i) increase the likelihood of closing the initial business combination, (ii) reduce the number of public warrants outstanding or vote such warrants on any matters submitted to the warrant holders for approval in connection with our initial business combination or (iii) satisfy a closing condition in an agreement with a target that requires us to have a minimum net worth or a certain amount of cash at the closing of our initial business combination, where it appears that such requirement would otherwise not be met. Any such purchases of our securities may result in the completion of our initial business combination that may not otherwise have been possible. +In addition, if such purchases are made, the public “float” of our Class A ordinary shares or public warrants may be reduced and the number of beneficial holders of our securities may be reduced, which may make it difficult to maintain or obtain the quotation, listing or trading of our securities on a national securities exchange. +23 +Table of Contents +The Sponsor and our officers, directors and/or their affiliates anticipate that they may identify the shareholders with whom the Sponsor and our officers, directors or their affiliates may pursue privately negotiated transactions by either the shareholders contacting us directly or by our receipt of redemption requests submitted by shareholders (in the case of Class A ordinary shares) following our mailing of tender offer or proxy materials in connection with our initial business combination. To the extent that the Sponsor or our officers, directors, advisors or their affiliates enter into a private transaction, they would identify and contact only potential selling or redeeming shareholders who have expressed their election to redeem their shares for a pro rata share of the Trust Account or vote against our initial business combination, whether or not such shareholder has already submitted a proxy with respect to our initial business combination but only if such shares have not already been voted at the general meeting related to our initial business combination. The Sponsor and our executive officers, directors, advisors or their affiliates will select which shareholders to purchase shares from based on the negotiated price and number of shares and any other factors that they may deem relevant, and will be restricted from purchasing shares if such purchases do not comply with Regulation M under the Exchange Act and the other federal securities laws. +The Sponsor and our officers, directors and/or their affiliates will be restricted from making purchases of shares if the purchases would violate Section 9(a)(2) or Rule 10b-5 of the Exchange Act. We expect any such purchases would be reported by such person pursuant to Section 13 and Section 16 of the Exchange Act to the extent such purchasers are subject to such reporting requirements. +Redemption Rights for Public Shareholders upon the Completion of Our Initial Business Combination +We will provide our public shareholders with the opportunity to redeem all or a portion of their Class A ordinary shares upon the completion of our initial business combination at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account calculated as of two business days prior to the consummation of our initial business combination, including interest earned on the funds held in the Trust Account and not previously released to us to pay our taxes, if any, divided by the number of then-outstanding public shares, subject to the limitations described herein. The amount in the Trust Account is initially anticipated to be $10.20 per public share. The per-share amount we will distribute to investors who properly redeem their shares will not be reduced by the deferred underwriting commissions we will pay to the underwriters. The redemption rights will include the requirement that a beneficial holder must identify itself in order to validly redeem its shares. There will be no redemption rights upon the completion of our initial business combination with respect to our warrants. Further, we will not proceed with redeeming our public shares, even if a public shareholder has properly elected to redeem its shares, if an initial business combination does not close. The Sponsor and each member of our management team have entered into an agreement with us, pursuant to which they have agreed to waive their redemption rights with respect to any founder shares and public shares held by them in connection with (i) the completion of our initial business combination and (ii) a shareholder vote to approve an amendment to our amended and restated memorandum and articles of association (A) that would modify the substance or timing of our obligation to provide holders of our Class A ordinary shares the right to have their shares redeemed in connection with our initial business combination or to redeem 100% of our public shares if we do not complete our initial business combination by April 18, 2026 (or January 18, 2027, if we extend the time to complete a business combination as described in this Annual Report on Form 10-K) or (B) with respect to any other provision relating to the rights of holders of our Class A ordinary shares. +Limitations on Redemptions +Our amended and restated memorandum and articles of association provide that in no event will we redeem our public shares in an amount that would cause our net tangible assets to be less than $5,000,001 (so that we do not then become subject to the SEC’s “penny stock” rules). However, the proposed initial business combination may require: (i) cash consideration to be paid to the target or its owners, (ii) cash to be transferred to the target for working capital or other general corporate purposes or (iii) the retention of cash to satisfy other conditions in accordance with the terms of the proposed business combination. In the event the aggregate cash consideration we would be required to pay for all Class A ordinary shares that are validly submitted for redemption plus any amount required to satisfy cash conditions pursuant to the terms of the proposed business combination exceed the aggregate amount of cash available to us, we will not complete the business combination or redeem any shares, and all Class A ordinary shares submitted for redemption will be returned to the holders thereof. +24 +Table of Contents +Manner of Conducting Redemptions +We will provide our public shareholders with the opportunity to redeem all or a portion of their Class A ordinary shares upon the completion of our initial business combination either (i) in connection with a general meeting called to approve the business combination or (ii) by means of a tender offer. The decision as to whether we will seek shareholder approval of a proposed initial business combination or conduct a tender offer will be made by us, solely in our discretion, and will be based on a variety of factors such as the timing of the transaction and whether the terms of the transaction would require us to seek shareholder approval under applicable law or stock exchange listing requirement or whether we were deemed to be a foreign private issuer (which would require a tender offer rather than seeking shareholder approval under SEC rules). Asset acquisitions and share purchases would not typically require shareholder approval while direct mergers with our company where we do not survive and any transactions where we issue more than 20% of our issued and outstanding ordinary shares or seek to amend our amended and restated memorandum and articles of association would typically require shareholder approval. We currently intend to conduct redemptions in connection with a shareholder vote unless shareholder approval is not required by applicable law or stock exchange listing requirement or we choose to conduct redemptions pursuant to the tender offer rules of the SEC for business or other reasons. So long as we maintain a listing for our securities on the Nasdaq, we will be required to comply with the Nasdaq rules. +If we hold a shareholder vote to approve our initial business combination, we will, pursuant to our amended and restated memorandum and articles of association: +● conduct the redemptions in conjunction with a proxy solicitation pursuant to Regulation 14A of the Exchange Act, which regulates the solicitation of proxies, and not pursuant to the tender offer rules; and +● file proxy materials with the SEC. +In the event that we seek shareholder approval of our initial business combination, we will distribute proxy materials and, in connection therewith, provide our public shareholders with the redemption rights described above upon the completion of our initial business combination. +If we seek shareholder approval, we will complete our initial business combination only if we obtain the approval of an ordinary resolution under Cayman Islands law, which requires the affirmative vote of a majority of the shareholders who attend and vote at a general meeting of the company. In such case, the Sponsor and each member of our management team have agreed to vote their founder shares and public shares in favor of our initial business combination. As a result, in addition to our initial purchaser’s founder shares, we would need 4,410,417 or approximately 31.6% (assuming all issued and outstanding shares are voted), or no additional shares (assuming only the minimum number of shares representing a quorum are voted), of the 14,375,000 public shares sold in the Initial Public Offering to be voted in favor of an initial business combination in order to have our initial business combination approved. Each public shareholder may elect to redeem their public shares irrespective of whether they vote for or against the proposed transaction or vote at all. In addition, the Sponsor and each member of our management team have entered into an agreement with us, pursuant to which they have agreed to waive their redemption rights with respect to any founder shares and public shares held by them in connection with (i) the completion of a business combination and (ii) a shareholder vote to approve an amendment to our amended and restated memorandum and articles of association (A) that would modify the substance or timing of our obligation to provide holders of our Class A ordinary shares the right to have their shares redeemed in connection with our initial business combination or to redeem 100% of our public shares if we do not complete our initial business combination by April 18, 2026 (or January 18, 2027, if we extend the time to complete a business combination as described in this Annual Report on Form 10-K) or (B) with respect to any other provision relating to the rights of holders of our Class A ordinary shares. +If we conduct redemptions pursuant to the tender offer rules of the SEC, we will, pursuant to our amended and restated memorandum and articles of association: +● conduct the redemptions pursuant to Rule 13e-4 and Regulation 14E of the Exchange Act, which regulate issuer tender offers; and +● file tender offer documents with the SEC prior to completing our initial business combination which contain substantially the same financial and other information about our initial business combination and the redemption rights as is required under Regulation 14A of the Exchange Act, which regulates the solicitation of proxies. +25 +Table of Contents +Upon the public announcement of our initial business combination, if we elect to conduct redemptions pursuant to the tender offer rules, we and the Sponsor will terminate any plan established in accordance with Rule 10b5-1 to purchase Class A ordinary shares in the open market, in order to comply with Rule 14e-5 under the Exchange Act. +In the event we conduct redemptions pursuant to the tender offer rules, our offer to redeem will remain open for at least 20 business days, in accordance with Rule 14e-1(a) under the Exchange Act, and we will not be permitted to complete our initial business combination until the expiration of the tender offer period. In addition, the tender offer will be conditioned on public shareholders not tendering more than the number of public shares we are permitted to redeem. If public shareholders tender more shares than we have offered to purchase, we will withdraw the tender offer and not complete such initial business combination. +Limitation on Redemption upon the Completion of Our Initial Business Combination if We Seek Shareholder Approval +If we seek shareholder approval of our initial business combination and we do not conduct redemptions in connection with our initial business combination pursuant to the tender offer rules, then, pursuant to our amended and restated memorandum and articles of association, a public shareholder, together with any affiliate of such shareholder or any other person with whom such shareholder is acting in concert or as a “group” (as defined under Section 13 of the Exchange Act), will be restricted from redeeming its shares with respect to more than an aggregate of 15% of the shares sold in the Initial Public Offering, which we refer to as “Excess Shares,” without our prior consent. We believe this restriction will discourage shareholders from accumulating large blocks of shares, and subsequent attempts by such holders to use their ability to exercise their redemption rights against a proposed business combination as a means to force us or our management to purchase their shares at a significant premium to the then-current market price or on other undesirable terms. Absent this provision, a public shareholder holding more than an aggregate of 15% of the shares sold in the Initial Public Offering could threaten to exercise its redemption rights if such holder’s shares are not purchased by us, the Sponsor or our management at a premium to the then-current market price or on other undesirable terms. By limiting our shareholders’ ability to redeem no more than 15% of the shares sold in the Initial Public Offering without our prior consent, we believe we will limit the ability of a small group of shareholders to unreasonably attempt to block our ability to complete our initial business combination, particularly in connection with a business combination with a target that requires as a closing condition that we have a minimum net worth or a certain amount of cash. +However, we would not be restricting our shareholders’ ability to vote all of their shares (including Excess Shares) for or against our initial business combination. +Tendering Share Certificates in Connection with a Tender Offer or Redemption Rights +Public shareholders seeking to exercise their redemption rights, whether they are record holders or hold their shares in “street name,” will be required to either tender their certificates (if any) to our transfer agent prior to the date set forth in the proxy solicitation or tender offer materials, as applicable, mailed to such holders, or to deliver their shares to the transfer agent electronically using The Depository Trust Company’s Deposit / Withdrawal At Custodian (“DWAC”) System, at the holder’s option, in each case up to two business days prior to the initially scheduled vote to approve the business combination. The proxy solicitation or tender offer materials, as applicable, that we will furnish to holders of our public shares in connection with our initial business combination will indicate the applicable delivery requirements, which will include the requirement that a beneficial holder must identify itself in order to validly redeem its shares. Accordingly, a public shareholder would have from the time we send out our tender offer materials until the close of the tender offer period, or up to two business days prior to the initially scheduled vote on the proposal to approve the business combination if we distribute proxy materials, as applicable, to tender its shares if it wishes to seek to exercise its redemption rights. Given the relatively short period in which to exercise redemption rights, it is advisable for shareholders to use electronic delivery of their public shares. +There is a nominal cost associated with the above-referenced tendering process and the act of certificating the shares or delivering them through the DWAC System. The transfer agent will typically charge the tendering broker a fee of approximately $80.00 and it would be up to the broker whether or not to pass this cost on to the redeeming holder. However, this fee would be incurred regardless of whether or not we require holders seeking to exercise redemption rights to tender their shares. The need to deliver shares is a requirement of exercising redemption rights regardless of the timing of when such delivery must be effectuated. +The foregoing is different from the procedures used by many blank check companies. In order to perfect redemption rights in connection with their business combinations, many blank check companies would distribute proxy materials for the shareholders’ vote on an initial business combination, and a holder could simply vote against a proposed business combination and check a box on the proxy card indicating such holder was seeking to exercise his or her redemption rights. After the business combination was approved, the company would contact such shareholder to arrange for him or her to deliver his or her certificate to verify ownership. As a result, +26 +Table of Contents +the shareholder then had an “option window” after the completion of the business combination during which he or she could monitor the price of the company’s shares in the market. If the price rose above the redemption price, he or she could sell his or her shares in the open market before actually delivering his or her shares to the company for cancellation. As a result, the redemption rights, to which shareholders were aware they needed to commit before the general meeting, would become “option” rights surviving past the completion of the business combination until the redeeming holder delivered its certificate. The requirement for physical or electronic delivery prior to the meeting ensures that a redeeming shareholder’s election to redeem is irrevocable once the business combination is approved. +Any request to redeem such shares, once made, may be withdrawn at any time up to two business days prior to the initially scheduled vote on the proposal to approve the business combination, unless otherwise agreed to by us. Furthermore, if a holder of a public share delivered its certificate in connection with an election of redemption rights and subsequently decides prior to the applicable date not to elect to exercise such rights, such holder may simply request that the transfer agent return the certificate (physically or electronically). It is anticipated that the funds to be distributed to holders of our public shares electing to redeem their shares will be distributed promptly after the completion of our initial business combination. +If our initial business combination is not approved or completed for any reason, then our public shareholders who elected to exercise their redemption rights would not be entitled to redeem their shares for the applicable pro rata share of the Trust Account. In such case, we will promptly return any certificates delivered by public holders who elected to redeem their shares. +If our initial business combination is not approved or completed for any reason, we may continue to try to complete a business combination with a different target until by April 18, 2026 (or January 18, 2027, if we extend the time to complete a business combination as described in this Annual Report on Form 10-K) (the “Combination Period”). +Redemption of Public Shares and Liquidation if No Initial Business Combination +Our fifth amended and restated memorandum and articles of association provide that we have 12 months from January 18, 2026 (January 18, 2027, if we extend the time to complete a business combination as described in this Annual Report on Form 10-K) to consummate an initial business combination. If we have not consummated an initial business combination within such period, we will: (i) cease all operations except for the purpose of winding up; (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem the public shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest earned on the funds held in the Trust Account and not previously released to us to pay our taxes, if any (less up to $100,000 of interest to pay dissolution expenses) divided by the number of the then-outstanding public shares, which redemption will completely extinguish public shareholders’ rights as shareholders (including the right to receive further liquidation distributions, if any); and (iii) as promptly as reasonably possible following such redemption, subject to the approval of our remaining shareholders and our board of directors, liquidate and dissolve, subject in each case to our obligations under Cayman Islands law to provide for claims of creditors and the requirements of other applicable law. There will be no redemption rights or liquidating distributions with respect to our rights or warrants, which will expire worthless if we fail to consummate an initial business combination by April 18, 2026 (or January 18, 2027, if we extend the time to complete a business combination as described in this Annual Report on Form 10-K). Our amended and restated memorandum and articles of association will provide that, if we wind up for any other reason prior to the consummation of our initial business combination, we will follow the foregoing procedures with respect to the liquidation of the Trust Account as promptly as reasonably possible but not more than ten business days thereafter, subject to applicable Cayman Islands law. +The Sponsor and each member of our management team have entered into an agreement with us, pursuant to which they have agreed to waive their rights to liquidating distributions from the Trust Account with respect to any founder shares they hold if we fail to consummate an initial business combination by April 18, 2026 (or January 18, 2027, if we extend the time to complete a business combination as described in this Annual Report on Form 10-K) (although they will be entitled to liquidating distributions from the Trust Account with respect to any public shares they hold if we fail to complete our initial business combination within the prescribed timeframe). +The Sponsor and our officers and directors have agreed, pursuant to a written agreement with us, that they will not propose any amendment to our amended and restated memorandum and articles of association (A) that would modify the substance or timing of our obligation to provide holders of our Class A ordinary shares the right to have their shares redeemed in connection with our initial business combination or to redeem 100% of our public shares if we do not complete our initial business combination by April 18, 2026 (or January 18, 2027, if we extend the time to complete a business combination as described in this Annual Report on Form 10-K) or (B) with respect to any other provision relating to the rights of holders of our Class A ordinary shares, unless we provide our public shareholders with the opportunity to redeem their Class A shares upon approval of any such amendment at a per-share price, payable in +27 +Table of Contents +cash, equal to the aggregate amount then on deposit in the Trust Account, including interest earned on the funds held in the Trust Account and not previously released to us to pay our taxes, if any, divided by the number of the then-outstanding public shares, subject to the limitations described herein. However, we may not redeem our public shares in an amount that would cause our net tangible assets to be less than $5,000,001 (so that we do not then become subject to the SEC’s “penny stock” rules). If this optional redemption right is exercised with respect to an excessive number of public shares such that we cannot satisfy the net tangible asset requirement, we would not proceed with the amendment or the related redemption of our public shares at such time. This redemption right shall apply in the event of the approval of any such amendment, whether proposed by the Sponsor, any executive officer or director, or any other person. +We expect that all costs and expenses associated with implementing our plan of dissolution, as well as payments to any creditors, will be funded from amounts remaining out of the $1,450,000 held outside the Trust Account plus up to $100,000 of funds from the Trust Account available to us to pay dissolution expenses, although we cannot assure you that there will be sufficient funds for such purpose. +If we were to expend all of the net proceeds of the Initial Public Offering and the sale of the Private Placement Units, other than the proceeds deposited in the Trust Account, and without taking into account interest, if any, earned on the Trust Account, the per-share redemption amount received by shareholders upon our dissolution would be $10.20. The proceeds deposited in the Trust Account could, however, become subject to the claims of our creditors which would have higher priority than the claims of our public shareholders. We cannot assure you that the actual per-share redemption amount received by shareholders will not be less than $10.20. While we intend to pay such amounts, if any, we cannot assure you that we will have funds sufficient to pay or provide for all creditors’ claims. +Although we will seek to have all vendors, service providers, prospective target businesses and other entities with which we do business execute agreements with us waiving any right, title, interest or claim of any kind in or to any monies held in the Trust Account for the benefit of our public shareholders, there is no guarantee that they will execute such agreements or even if they execute such agreements that they would be prevented from bringing claims against the Trust Account including, but not limited to, fraudulent inducement, breach of fiduciary responsibility or other similar claims, as well as claims challenging the enforceability of the waiver, in each case in order to gain an advantage with respect to a claim against our assets, including the funds held in the Trust Account. If any third party refuses to execute an agreement waiving such claims to the monies held in the Trust Account, our management will perform an analysis of the alternatives available to it and will only enter into an agreement with a third party that has not executed a waiver if management believes that such third party’s engagement would be significantly more beneficial to us than any alternative. Examples of possible instances where we may engage a third party that refuses to execute a waiver include the engagement of a third-party consultant whose particular expertise or skills are believed by management to be significantly superior to those of other consultants that would agree to execute a waiver or in cases where management is unable to find a service provider willing to execute a waiver. BTIG, the representative of the underwriters in the Initial Public Offering will not execute an agreement with us waiving such claims to the monies held in the Trust Account. In addition, there is no guarantee that such entities will agree to waive any claims they may have in the future as a result of, or arising out of, any negotiations, contracts or agreements with us and will not seek recourse against the Trust Account for any reason. In order to protect the amounts held in the Trust Account, the Sponsor has agreed that it will be liable to us if and to the extent any claims by a third party for services rendered or products sold to us (other than our independent registered public accounting firm), or a prospective target business with which we have discussed entering into a transaction agreement, reduce the amounts in the Trust Account to below the lesser of (i) $10.20 per public share and (ii) the actual amount per public share held in the Trust Account as of the date of the liquidation of the Trust Account if less than $10.20 per public share due to reductions in the value of the trust assets, in each case net of the interest that may be withdrawn to pay our tax obligations, provided that such liability will not apply to any claims by a third party or prospective target business that executed a waiver of any and all rights to seek access to the Trust Account nor will it apply to any claims under our indemnity of the underwriters of the Initial Public Offering against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the “Securities Act”). In the event that an executed waiver is deemed to be unenforceable against a third party, the Sponsor will not be responsible to the extent of any liability for such third-party claims. However, we have not asked the Sponsor to reserve for such indemnification obligations, nor have we independently verified whether the Sponsor has sufficient funds to satisfy its indemnity obligations and we believe that the Sponsor’s only assets are securities of our company. Therefore, we cannot assure you that the Sponsor would be able to satisfy those obligations. None of our officers or directors will indemnify us for claims by third parties including, without limitation, claims by vendors and prospective target businesses. +In the event that the proceeds in the Trust Account are reduced below the lesser of (i) $10.20 per public share and (ii) the actual amount per public share held in the Trust Account as of the date of the liquidation of the Trust Account if less than $10.20 per public share due to reductions in the value of the trust assets, in each case net of the amount of interest which may be withdrawn to pay our tax obligations, and the Sponsor asserts that it is unable to satisfy its indemnification obligations or that it has no indemnification obligations related to a particular claim, our independent directors would determine whether to take legal action against the Sponsor to enforce its +28 +Table of Contents +indemnification obligations. While we currently expect that our independent directors would take legal action on our behalf against the Sponsor to enforce its indemnification obligations to us, it is possible that our independent directors in exercising their business judgment may choose not to do so in any particular instance. Accordingly, we cannot assure you that due to claims of creditors the actual value of the per-share redemption price will not be less than $10.20 per public share. +We will seek to reduce the possibility that the Sponsor will have to indemnify the Trust Account due to claims of creditors by endeavoring to have all vendors, service providers, prospective target businesses or other entities with which we do business execute agreements with us waiving any right, title, interest or claim of any kind in or to monies held in the Trust Account. The Sponsor will also not be liable as to any claims under our indemnity of the underwriters of the Initial Public Offering against certain liabilities, including liabilities under the Securities Act. We will have access to up to $1,450,000 following the Initial Public Offering and the sale of the Private Placement Units with which to pay any such potential claims (including costs and expenses incurred in connection with our liquidation, currently estimated to be no more than approximately $100,000). In the event that we liquidate and it is subsequently determined that the reserve for claims and liabilities is insufficient, shareholders who received funds from our Trust Account could be liable for claims made by creditors, however such liability will not be greater than the amount of funds from our Trust Account received by any such shareholder. +If we file a bankruptcy or winding-up petition or an involuntary bankruptcy or winding-up petition is filed against us that is not dismissed, the proceeds held in the Trust Account could be subject to applicable bankruptcy or insolvency law, and may be included in our bankruptcy estate and subject to the claims of third parties with priority over the claims of our shareholders. To the extent any bankruptcy claims deplete the Trust Account, we cannot assure you we will be able to return $10.20 per public share to our public shareholders. Additionally, if we file a bankruptcy or winding-up petition or an involuntary bankruptcy or winding-up petition is filed against us that is not dismissed, any distributions received by shareholders could be viewed under applicable debtor/creditor and/or bankruptcy or insolvency laws as either a “preferential transfer” or a “fraudulent conveyance.” As a result, a bankruptcy or insolvency court could seek to recover some or all amounts received by our shareholders. Furthermore, our board of directors may be viewed as having breached its fiduciary duty to our creditors and/or may have acted in bad faith, and thereby exposing itself and our company to claims of punitive damages, by paying public shareholders from the Trust Account prior to addressing the claims of creditors. We cannot assure you that claims will not be brought against us for these reasons. +Our public shareholders will be entitled to receive funds from the Trust Account only (i) in the event of the redemption of our public shares if we do not complete our initial business combination by January 18, 2027, (ii) in connection with a shareholder vote to amend our amended and restated memorandum and articles of association (A) to modify the substance or timing of our obligation to provide holders of our Class A ordinary shares the right to have their shares redeemed in connection with our initial business combination or to redeem 100% of our public shares if we do not complete our initial business combination by January 18, 2027 or (B) with respect to any other provision relating to the rights of holders of our Class A ordinary shares, or (iii) if they redeem their respective shares for cash upon the completion of our initial business combination. Public shareholders who redeem their Class A ordinary shares in connection with a shareholder vote described in clause (ii) in the preceding sentence shall not be entitled to funds from the Trust Account upon the subsequent completion of an initial business combination or liquidation if we have not consummated an initial business combination by January 18, 2027, with respect to such Class A ordinary shares so redeemed. In no other circumstances will a shareholder have any right or interest of any kind to or in the Trust Account. In the event we seek shareholder approval in connection with our initial business combination, a shareholder’s voting in connection with the business combination alone will not result in a shareholder’s redeeming its shares to us for an applicable pro rata share of the Trust Account. Such shareholder must have also exercised its redemption rights described above. These provisions of our amended and restated memorandum and articles of association, like all provisions of our amended and restated memorandum and articles of association, may be amended with a shareholder vote.”’ +​ +29 +Table of Contents +Comparison of Redemption or Purchase Prices in Connection with Our Initial Business Combination and If We Fail to Complete Our Initial Business Combination. +The following table compares the redemptions and other permitted purchases of public shares that may take place in connection with the completion of our initial business combination and if we have not consummated an initial business combination by January 18, 2027: +​ +​ ​ ​ +Redemptions in Connection +with Our Initial Business +Combination +​ ​ +Other Permitted Purchases of +Public Shares by Our +Affiliates +​ ​ ​ +Redemptions if We Fail to +Complete an Initial Business +Combination +Calculation of redemption price impact to remaining shareholders +Redemptions at the time of our initial business combination may be made pursuant to a tender offer or in connection with a shareholder vote. The redemption price will be the same whether we conduct redemptions pursuant to a tender offer or in connection with a shareholder vote. In either case, our public shareholders may redeem their public shares for cash equal to the aggregate amount then on deposit in the Trust Account calculated as of two business days prior to the consummation of our initial business combination (which is initially anticipated to be $10.20 per public share), including interest earned on the funds held in the Trust Account and not previously released to us to pay our taxes, if any, divided by the number of the then-outstanding public shares, subject to the limitation that no redemptions will take place if all of the redemptions would cause our net tangible assets to be less than $5,000,001 and any limitations (including, but not limited to, cash requirements) agreed to in connection with the negotiation of terms of a proposed business combination. +If we seek shareholder approval of our initial business combination, the Sponsor and our directors, officers, advisors or their affiliates may purchase shares in privately negotiated transactions or in the open market either prior to or following the completion of our initial business combination. There is no limit to the prices that the Sponsor or our directors, officers, advisors or their affiliates may pay in these transactions. If they engage in such transactions, they will be restricted from making any such purchases when they are in possession of any material nonpublic information not disclosed to the seller or if such purchases are prohibited by Regulation M under the Exchange Act. We do not currently anticipate that such purchases, if any, would constitute a tender offer subject to the tender offer rules under the Exchange Act or a going-private transaction subject to the going-private rules under the Exchange Act; however, if the purchasers determine at the time of any such purchases that the purchases are subject to such rules, the purchasers will be required to comply with such rules. +If we have not consummated an initial business combination by January 18, 2027, we will redeem all public shares at a per-share price, payable in cash, equal to the aggregate amount, then on deposit in the Trust Account (which is initially anticipated to be $10.20 per public share), including interest earned on the funds held in the Trust Account and not previously released to us to pay our taxes, if any (less up to $100,000 of interest to pay dissolution expenses) divided by the number of the then-outstanding public shares. +​ +​ +​ +​ +​ +​ +​ +The redemptions in connection with our initial business combination will reduce the book value per share for our remaining shareholders, who will bear the burden of the deferred underwriting commissions and taxes payable. +If the permitted purchases described above are made, there would be no impact to our remaining shareholders because the purchase price would not be paid by us. +The redemption of our public shares if we fail to complete our initial business combination will reduce the book value per share for the shares held by the Sponsor, who will be our only remaining shareholder after such redemptions. +​ +30 +Table of Contents +Amended and Restated Memorandum and Articles of Association +Our amended and restated memorandum and articles of association contains provisions designed to provide certain rights and protections relating to our Initial Public Offering that will apply to us until the completion of our initial business combination. These provisions cannot be amended without a special resolution under Cayman Islands law. As a matter of Cayman Islands law, a resolution is deemed to be a special resolution where it has been approved by either (i) the affirmative vote of at least two-thirds (or any higher threshold specified in a company’s articles of association) of a company’s shareholders entitled to vote and so voting at a general meeting for which notice specifying the intention to propose the resolution as a special resolution has been given; or (ii) if so authorized by a company’s articles of association, by a unanimous written resolution of all of the company’s shareholders entitled to vote at a general meeting. Other than as described in our final prospectus filed with the SEC on December 23, 2025, our amended and restated memorandum and articles of association provide that special resolutions must be approved either by at least two-thirds of our shareholders who attend and vote at a general meeting of the company ( i.e. , the lowest threshold permissible under Cayman Islands law), or by a unanimous written resolution of all of our shareholders entitled to vote at a general meeting. +Competition +In identifying, evaluating and selecting a target business for our initial business combination, we may encounter intense competition from other entities having a business objective similar to ours, including other blank check companies, private equity groups and leveraged buyout funds, public companies and operating businesses seeking strategic acquisitions. Many of these entities are well established and have extensive experience identifying and effecting business combinations directly or through affiliates. Moreover, many of these competitors possess greater financial, technical, human, and other resources than us. Our ability to acquire larger target businesses will be limited by our available financial resources. This inherent limitation gives others an advantage in pursuing the acquisition of a target business. Furthermore, our obligation to pay cash in connection with our public shareholders who exercise their redemption rights may reduce the resources available to us for our initial business combination and our outstanding warrants, and the future dilution they potentially represent, may not be viewed favorably by certain target businesses. Either of these factors may place us at a competitive disadvantage in successfully negotiating an initial business combination. +Facilities +We currently maintain our executive offices at 12600 Hill Country Blvd, Building R, Suite 275, Bee Cave, TX 78738. The cost for our use of this space is included in the $10,000 per month fee we pay to the Sponsor for office space, administrative and support services pursuant to that certain administrative services agreement, dated January 12, 2023, by and between us and the Sponsor (the “Administrative Services Agreement”). We consider our current office space adequate for our current operations. +On December 31, 2025, the Parties entered into a waiver to the Administrative Services Agreement (the “Administrative Services Waiver”) whereby the Parties agreed to waive the administrative fees due under the Administrative Services Agreement. Pursuant to the Administrative Services Waiver, the waived administrative fees include (i) the $10,000 per month owed to the Sponsor until the consummation by the Company of an initial business combination or the Company’s liquidation, and (ii) the $240,000 accrued fees at December 31, 2025. +Employees +We currently have three executive officers. Members of our management team are not obligated to devote any specific number of hours to our matters but they intend to devote as much of their time as they deem necessary to our affairs until we have completed our initial business combination. The amount of time they will devote in any time period will vary based on whether a target business has been selected for our initial business combination and the stage of the business combination process we are in. We do not intend to have any full-time employees prior to the consummation of a business combination. +​ +31 +Table of Contents +Periodic Reporting and Financial Information +Our units, Class A ordinary shares and warrants are registered under the Exchange Act and have reporting obligations, including the requirement that we file annual, quarterly and current reports with the SEC. In accordance with the requirements of the Exchange Act, our annual reports will contain financial statements audited and reported on by our independent registered public accountants. +We will provide shareholders with audited financial statements of the prospective target business as part of the proxy solicitation or tender offer materials, as applicable, sent to shareholders. These financial statements may be required to be prepared in accordance with, or reconciled to, GAAP, or IFRS, depending on the circumstances, and the historical financial statements may be required to be audited in accordance with the standards of the U.S. Public Company Accounting Oversight Board (“PCAOB”). These financial statement requirements may limit the pool of potential target businesses we may acquire because some targets may be unable to provide such statements in time for us to disclose such statements in accordance with federal proxy rules and complete our initial business combination within the prescribed timeframe. We cannot assure you that any particular target business identified by us as a potential acquisition candidate will have financial statements prepared in accordance with the requirements outlined above, or that the potential target business will be able to prepare its financial statements in accordance with the requirements outlined above. To the extent that these requirements cannot be met, we may not be able to acquire the proposed target business. While this may limit the pool of potential acquisition candidates, we do not believe that this limitation will be material. +We will be required to evaluate our internal control procedures for the fiscal year ending December 31, 2025 as required by the Sarbanes-Oxley Act. Only in the event we are deemed to be a large accelerated filer or an accelerated filer and no longer qualify as an emerging growth company will we be required to comply with the independent registered public accounting firm attestation requirement on our internal control over financial reporting. A target business may not be in compliance with the provisions of the Sarbanes-Oxley Act regarding the adequacy of their internal controls. +The development of the internal controls of any such entity to achieve compliance with the Sarbanes-Oxley Act may increase the time and costs necessary to complete any such acquisition. +We filed a registration statement on Form 8-A with the SEC to voluntarily register our securities under Section 12 of the Exchange Act. As a result, we are subject to the rules and regulations promulgated under the Exchange Act. We have no current intention of filing a Form 15 to suspend our reporting or other obligations under the Exchange Act prior or subsequent to the consummation of our initial business combination. +We are a Cayman Islands exempted company. Exempted companies are Cayman Islands companies conducting business mainly outside the Cayman Islands and, as such, are exempted from complying with certain provisions of the Companies Act. As an exempted company, we have applied for and received, a tax exemption undertaking from the Cayman Islands government that, in accordance with Section 6 of the Tax Concessions Act (2018 Revision) of the Cayman Islands, for a period of 20 years from the date of the undertaking, no law which is enacted in the Cayman Islands imposing any tax to be levied on profits, income, gains or appreciations will apply to us or our operations and, in addition, that no tax to be levied on profits, income, gains or appreciations or which is in the nature of estate duty or inheritance tax will be payable (i) on or in respect of our shares, debentures or other obligations or (ii) by way of the withholding in whole or in part of a payment of dividend or other distribution of income or capital by us to our shareholders or a payment of principal or interest or other sums due under a debenture or other obligation of us. +​ +32 +Table of Contents +We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As such, we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies,” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. If some investors find our securities less attractive as a result, there may be a less active trading market for our securities and the prices of our securities may be more volatile. +In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We intend to take advantage of the benefits of this extended transition period. +We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of the Initial Public Offering, (b) in which we have total annual gross revenue of at least $1.235 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our Class A ordinary shares that are held by non-affiliates exceeds $700 million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period. +Additionally, we are a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We will remain a smaller reporting company until the last day of the fiscal year in which (1) the market value of our ordinary shares held by non-affiliates exceeds $250 million as of the prior June 30, or (2) our annual revenues exceeded $100 million during such completed fiscal year and the market value of our ordinary shares held by non-affiliates exceeds $700 million as of the prior June 30. +Legal Proceedings +There is no material litigation, arbitration or governmental proceeding currently pending against us or any members of our management team in their capacity as such. +​ +33 +Table of Contents +ITEM 1A. RISK FACTORS +RISK FACTORS +An investment in our securities involves a high degree of risk. You should consider carefully all of the risks described below, together with the other information contained in this Annual Report on Form 10-K, before making a decision to invest in our units. If any of the following events occur, our business, financial condition and operating results may be materially adversely affected. In that event, the trading price of our securities could decline, and you could lose all or part of your investment. +Summary Risk Factors +The following is a summary of the more significant risks facing our Company: +Risks Relating to our Search for, Consummation of, or Inability to Consummate, a Business Combination and Post-Business Combination Risks +● We are a recently incorporated company with no operating history and no revenues, and you have no basis on which to evaluate our ability to achieve our business objective. +● Management has determined there is substantial doubt as to our ability to continue as a going concern. +● Our public shareholders may not be afforded an opportunity to vote on our proposed initial business combination, which means we may complete our initial business combination even though a majority of our shareholders do not support such a combination. +● Our public shareholders may not be afforded an opportunity to vote on the option to extend the period of time to consummate our initial business combination. +● Your only opportunity to affect the investment decision regarding a potential business combination may be limited to the exercise of your right to redeem your shares from us for cash. +● If we seek shareholder approval of our initial business combination, the Sponsor and members of our management team have agreed to vote in favor of such initial business combination, regardless of how our public shareholders vote. +● The ability of our public shareholders to exercise redemption rights with respect to a large number of our shares could increase the probability that our initial business combination would be unsuccessful and that you would have to wait for liquidation in order to redeem your shares. +● Conditions in Israel, including the ongoing multi-front conflict, may materially and adversely affect the business of our potential acquisition targets and our search for a business combination. +● We may not be able to consummate an initial business combination by April 18, 2025, in which case (unless such date is extended up to 36 months from the date of the IPO to January 18, 2027) we would cease all operations except for the purpose of winding up and we would redeem our public shares and liquidate. +● Nasdaq may delist our securities from trading on its exchange, which could limit investors’ ability to make transactions in our securities and subject us to additional trading restrictions. +​ +34 +Table of Contents +Risks Relating to our Securities +● The securities in which we invest the funds held in the Trust Account could bear a negative rate of interest, which could reduce the value of the assets held in trust such that the per-share redemption amount received by public shareholders may be less than $10.20 per share. +● If we are deemed to be an investment company under the Investment Company Act, we may be required to institute burdensome compliance requirements and our activities may be restricted, which may make it difficult for us to complete our initial business combination. +● The nominal purchase price paid by the Sponsor for the founder shares may result in significant dilution to the implied value of your public shares upon the consummation of our initial business combination. +● The value of the founder shares following completion of our initial business combination is likely to be substantially higher than the nominal price paid for them, even if the trading price of our ordinary shares at such time is substantially less than $10.00 per share. +● Unlike some other similarly structured blank check companies, the Sponsor will receive additional Class A ordinary shares if we issue shares to consummate an initial business combination. +● We may amend the terms of the warrants in a manner that may be adverse to holders of public warrants with the approval by the holders of at least 50% of the then-outstanding public warrants. As a result, the exercise price of your warrants could be increased, the exercise period could be shortened and the number of our Class A ordinary shares purchasable upon exercise of a warrant could be decreased, all without your approval. +Risks Relating to the Sponsor and Management Team +● Past performance by our management team or their respective affiliates may not be indicative of future performance of an investment in us. +● Our ability to successfully effect our initial business combination and to be successful thereafter will be totally dependent upon the efforts of our key personnel, some of whom may join us following our initial business combination. The loss of key personnel could negatively impact the operations and profitability of our post-combination business. +● The officers and directors of an acquisition candidate may resign upon the completion of our initial business combination. The loss of a business combination target’s key personnel could negatively impact the operations and profitability of our post-combination business. +● Our officers and directors presently have, and any of them in the future may have additional, fiduciary or contractual obligations to other entities, including another blank check company, and, accordingly, may have conflicts of interest in determining to which entity a particular business opportunity should be presented. +● Our executive officers, directors, security holders and their respective affiliates may have competitive pecuniary interests that conflict with our interests. +● Our management may not be able to maintain control of a target business after our initial business combination. Upon the loss of control of a target business, new management may not possess the skills, qualifications or abilities necessary to profitably operate such business. +35 +Table of Contents +Risks Associated with Acquiring and Operating a Business in Foreign Countries +● Our strategy is focused on pursuing an acquisition of Israeli technology companies. If we pursue a target company with operations or opportunities outside of the United States, including in Israel, for our initial business combination, we may face additional burdens in connection with investigating, agreeing to and completing such initial business combination, and if we effect such initial business combination, we would be subject to a variety of additional risks that may negatively impact our operations. +● After our initial business combination, substantially all of our assets may be located in a foreign country and substantially all of our revenue may be derived from our operations in any such country. Accordingly, our results of operations and prospects will be subject, to a significant extent, to the economic, political and social conditions and government policies, developments and conditions in the country in which we operate. +● We may face risks related to companies in the Israeli technology industry. +● If our management following our initial business combination is unfamiliar with United States securities laws, they may have to expend time and resources becoming familiar with such laws, which could lead to various regulatory issues. +● Exchange rate fluctuations and currency policies may diminish a target business’ ability to succeed in the international markets. +● Changes in laws or regulations, or a failure to comply with any laws and regulations, may adversely affect our business, including our ability to negotiate and complete our initial business combination, and results of operations. +Risks Relating to our Search for, Consummation of, or Inability to Consummate, a Business Combination and Post-Business Combination Risks +We are a recently incorporated company with no operating history and no revenues, and you have no basis on which to evaluate our ability to achieve our business objective. +We are a recently formed blank check company, incorporated under the laws of the Cayman Islands as an exempted limited company with no operating results, and we will not commence operations until obtaining funding through the Initial Public Offering. Because we lack an operating history, you have no basis upon which to evaluate our ability to achieve our business objective of completing our initial business combination with one or more target businesses. We have no plans, arrangements or understandings with any prospective target business concerning a business combination and may be unable to complete our initial business combination. If we fail to complete our initial business combination, we will never generate any operating revenues. +Management has determined there is substantial doubt as to our ability to continue as a going concern. +As of December 31, 2025, we had $6,938 in operating cash and a working capital deficit of $2,581,616. Further, we have incurred and expect to continue to incur significant costs in pursuit of an initial business combination. Management’s plans to address this need for capital are discussed in the section of this Annual Report on Form 10-K titled “ Management’s Discussion and Analysis of Financial Condition and Results of Operations .” We cannot assure you that our plans to raise capital or to consummate an initial business combination will be successful. These factors, among others, raise substantial doubt about our ability to continue as a going concern. The financial statements contained elsewhere in this Annual Report on Form 10-K do not include any adjustments that might result from our inability to continue as a going concern. +36 +Table of Contents +Our public shareholders may not be afforded an opportunity to vote on our proposed initial business combination, which means we may complete our initial business combination even though a majority of our shareholders do not support such a combination. +We may choose not to hold a shareholder vote before we complete our initial business combination if the business combination would not require shareholder approval under applicable law or stock exchange listing requirement. For instance, if we were seeking to acquire a target business where the consideration we were paying in the transaction was all cash, we would typically not be required to seek shareholder approval to complete such a transaction. Except for as required by applicable law or stock exchange listing requirement, the decision as to whether we will seek shareholder approval of a proposed business combination or will allow shareholders to sell their shares to us in a tender offer will be made by us, solely in our discretion, and will be based on a variety of factors, such as the timing of the transaction and whether the terms of the transaction would otherwise require us to seek shareholder approval. Accordingly, we may complete our initial business combination even if holders of a majority of our issued and outstanding ordinary shares do not approve of the business combination we complete. +Please see the section entitled “ Business — Initial Business Combination ” for additional information. +Our public shareholders may not be afforded an opportunity to vote on the option to extend the period of time to consummate our initial business combination. +If we anticipate that we may not be able to consummate our initial business combination by April 18, 2025, we may, but are not obligated to, extend the period of time to consummate a business combination up to a total of twelve (12) times by an additional month each time (each such month a “Funded Extension Period”); so long as we provide five days’ advance notice to the Trustee prior to the applicable Extension and depositing into the Trust Account the lesser of (i) $35,000 or (ii) $0.035 per public share, multiplied by the number of public shares that remain outstanding by the end of the then-current extended period, by the date of such Extension pursuant to the terms of our amended and restated memorandum and articles of association and the Trust Agreement, as amended. Our public shareholders will not be entitled to vote or redeem their shares in connection with any such extension. As a result, we may effect such an extension even if a majority of our public shareholders do not support such an extension and none of our public shareholders will be able to redeem their shares in connection with such an extension. This feature is different than the traditional SPAC structure, in which any extension of the company’s period to complete a business combination would require a vote of the company’s shareholders, with such shareholders having the right to redeem their public shares in connection with such vote. We may also choose to pursue an extension of the time to complete our business combination without depositing additional funds into the Trust Account, which, consistent with a traditional SPAC structure, would require a vote of the company’s shareholders and in connection with which shareholders would have the right to redeem their public shares. +Your only opportunity to affect the investment decision regarding a potential business combination may be limited to the exercise of your right to redeem your shares from us for cash. +You will not be provided with an opportunity to evaluate the specific merits or risks of any target businesses. Since our board of directors may complete a business combination without seeking shareholder approval, public shareholders may not have the right or opportunity to vote on the business combination, unless we seek such shareholder approval. Accordingly, your only opportunity to affect the investment decision regarding a potential business combination may be limited to exercising your redemption rights within the period of time (which will be at least 20 business days) set forth in our tender offer documents mailed to our public shareholders in which we describe our initial business combination. +If we seek shareholder approval of our initial business combination, the Sponsor and members of our management team have agreed to vote in favor of such initial business combination, regardless of how our public shareholders vote. +The Sponsor owns, on an as-converted basis, 25% of our outstanding ordinary shares (excluding the private placement shares). In addition, the Sponsor owns 637,500 private placement shares. The Sponsor and members of our management team also may from time-to-time purchase Class A ordinary shares prior to our initial business combination. Our amended and restated memorandum and articles of association will provide that, if we seek shareholder approval, we will complete our initial business combination only if we obtain the approval of an ordinary resolution under Cayman Islands law, which requires either the affirmative vote of a majority of the shareholders who attend and vote at a general meeting of the company or, if no meeting is held, the unanimous written approval of all the shareholders who have the right to attend and vote at a general meeting of the company. In such case, the Sponsor and each member of our management team have agreed to vote their founder shares, private placement shares and public shares in favor of our initial business combination. As a result, in addition to the Sponsor’s founder shares and private placement shares, we would need 4,535,417 +37 +Table of Contents +shares, or approximately 31.6% (assuming all issued and outstanding shares, excluding the private placement shares of the underwriters, are voted), or no additional shares (assuming only the minimum number of shares representing a quorum are voted), of the 14,375,000 public shares sold in the Initial Public Offering to be voted in favor of an initial business combination in order to have our initial business combination approved. Accordingly, if we seek shareholder approval of our initial business combination, the agreement by the Sponsor and each member of our management team to vote in favor of our initial business combination will increase the likelihood that we will receive the requisite shareholder approval for such initial business combination. +The ability of our public shareholders to redeem their shares for cash may make our financial condition unattractive to potential business combination targets, which may make it difficult for us to enter into a business combination with a target. +We may seek to enter into a business combination transaction agreement with a prospective target that requires as a closing condition that we have a minimum net worth or a certain amount of cash. If too many public shareholders exercise their redemption rights, we would not be able to meet such closing condition and, as a result, would not be able to proceed with the business combination. Furthermore, in no event will we redeem our public shares in an amount that would cause our net tangible assets to be less than $5,000,001 (so that we do not then become subject to the SEC’s “penny stock” rules). Consequently, if accepting all properly submitted redemption requests would cause our net tangible assets to be less than $5,000,001 or such greater amount necessary to satisfy a closing condition as described above, we would not proceed with such redemption and the related business combination and may instead search for an alternate business combination. Prospective targets will be aware of these risks and, thus, may be reluctant to enter into a business combination transaction with us. +The ability of our public shareholders to exercise redemption rights with respect to a large number of our shares may not allow us to complete the most desirable business combination or optimize our capital structure. +At the time we enter into an agreement for our initial business combination, we will not know how many shareholders may exercise their redemption rights, and therefore will need to structure the transaction based on our expectations as to the number of shares that will be submitted for redemption. If a large number of shares are submitted for redemption, we may need to restructure the transaction to reserve a greater portion of the cash in the Trust Account or arrange for additional third-party financing. Raising additional third-party financing may involve dilutive equity issuances or the incurrence of indebtedness at higher than desirable levels. The above considerations may limit our ability to complete the most desirable business combination available to us or optimize our capital structure. The amount of the deferred underwriting commissions payable to the underwriters will not be adjusted for any shares that are redeemed in connection with an initial business combination. The per-share amount we will distribute to shareholders who properly exercise their redemption rights will not be reduced by the deferred underwriting commission and, after such redemptions, the amount held in trust will continue to reflect our obligation to pay the entire deferred underwriting commissions. +The ability of our public shareholders to exercise redemption rights with respect to a large number of our shares could increase the probability that our initial business combination would be unsuccessful and that you would have to wait for liquidation in order to redeem your shares. +If our initial business combination agreement requires us to use a portion of the cash in the Trust Account to pay the purchase price, or requires us to have a minimum amount of cash at closing, the probability that our initial business combination would be unsuccessful is increased. If our initial business combination is unsuccessful, you would not receive your pro rata portion of the funds in the Trust Account until we liquidate the Trust Account. If you are in need of immediate liquidity, you could attempt to sell your shares in the open market; however, at such time our shares may trade at a discount to the pro rata amount per share in the Trust Account. In either situation, you may suffer a material loss on your investment or lose the benefit of funds expected in connection with our redemption until we liquidate or you are able to sell your shares in the open market. +38 +Table of Contents +The requirement that we consummate an initial business combination by April 18, 2026 (or January 18, 2027, if we extend the time to complete a business combination as described elsewhere in this Annual Report on Form 10-K) may give potential target businesses leverage over us in negotiating a business combination and may limit the time we have in which to conduct due diligence on potential business combination targets, in particular as we approach our dissolution deadline, which could undermine our ability to complete our initial business combination on terms that would produce value for our shareholders. +Any potential target business with which we enter into negotiations concerning a business combination will be aware that we must consummate an initial business combination by April 18, 2026 (or January 18, 2027, if we extend the time to complete a business combination as described elsewhere in this Annual Report on Form 10-K). Consequently, such target business may obtain leverage over us in negotiating a business combination, knowing that if we do not complete our initial business combination with that particular target business then we may be unable to complete our initial business combination with any target business. This risk will increase as we get closer to the timeframe described above. In addition, we may have limited time to conduct due diligence and may enter into our initial business combination on terms that we would have rejected upon a more comprehensive investigation. +Conditions in Israel, including the ongoing multi-front conflict and the recent escalation of conflict in the Middle East and Southwest Asia, may materially and adversely affect the business of our potential acquisition targets and our search for a business combination. +Our potential acquisition targets may have a significant number of employees located in Israel. As a result, political, economic and military conditions in Israel may directly affect the business of our potential acquisition targets. In October 2023, Hamas conducted terrorist attacks in Israel resulting in a large-scale conflict. Israel subsequently engaged in military operations in Gaza, and in late 2023 and 2024, hostilities expanded to include conflict with Hezbollah in Lebanon. In addition, Iran launched direct missile and drone attacks against Israel, marking an escalation in regional tensions. These conflicts have resulted in casualties, damage to infrastructure, disruption of economic activities, and the displacement of citizens from certain regions. While ceasefire agreements have been reached with certain adversaries at various times, the regional security situation remains volatile. In early 2023, there were a number of changes proposed to the political system in Israel by the government which, if implemented as planned, could lead to large-scale protests and additional uncertainty, negatively impacting the operating environment in Israel. Broader instability in the Middle East, including the recent escalation of conflict in Iran and its regional proxies, has affected the political stability of the region and led to a decline in regional security. Such instability may lead to deterioration in the political and trade relationships that exist between Israel and other countries. Any armed conflicts, terrorist activities or political instability involving Israel or other countries in the region could adversely affect the business, results of operations, financial condition, cash flows and prospects of our potential acquisition targets and our search for a business combination. Although the Israeli Government currently covers the reinstatement value of direct damages that are caused by terrorist attacks or acts of war, we cannot ensure our stockholders that this coverage will be maintained or will be adequate in the event we submit a claim. +A number of countries, principally in the Middle East, still restrict doing business with Israel and Israeli companies, and additional countries may impose restrictions on doing business with Israel and Israeli companies if hostilities in Israel or political instability in the region continue or intensify, including the recent escalation of hostilities in Iran. The ongoing conflicts have heightened scrutiny of companies with Israeli operations and may affect relationships with business partners in certain jurisdictions. In addition, there have been increased efforts by activists to cause companies and consumers to boycott Israeli goods based on policies promulgated by the Israeli Government. Such boycotts, particularly if they become more widespread, may adversely impact the business of our potential acquisition targets. +The operations of our potential acquisition targets could also be disrupted by the absence for significant periods of one or more key employees or a significant number of other employees because of military service. Our potential acquisition targets’ employees in Israel may be obligated to perform military reserve duty, which generally accumulates over a period of three years, from several days to up to a maximum of 84 days (and up to 108 days, in special circumstances specified under applicable law). In certain emergency circumstances, employees may be called to immediate and unlimited active duty in the Israeli armed forces. Since the terrorist attacks in October 2023 and the ensuing multi-front conflict involving Gaza, Lebanon, and Iran, many Israeli employees have been activated for military duty for extended periods, and additional employees may continue to be activated for reserve or emergency duty as the security situation evolves. While our potential acquisition targets may have business continuity plans in place to address the military call-ups, the prolonged nature of the current conflict has placed significant strain on workforce availability for Israeli businesses. Any of these circumstances could have a material adverse effect on business, results of operations, financial condition, cash flows and prospects of our potential acquisition targets. +39 +Table of Contents +We may not be able to consummate an initial business by April 18, 2026, in which case (unless such date is extended up to January 18, 2027 if we extend the time to complete an initial business combination as described elsewhere in this Annual Report on Form 10-K) we would cease all operations except for the purpose of winding up and we would redeem our public shares and liquidate. +We may not be able to find a suitable target business and consummate an initial business combination by April 18, 2025 (unless such date is extended up to January 18, 2027 if we extend the time to complete an initial business combination as described elsewhere in this Annual Report on Form 10-K) we would cease all operations except for the purpose of winding up and we would redeem our public shares and liquidate. Our ability to complete our initial business combination may be negatively impacted by general market conditions, volatility in the capital and debt markets and the other risks described herein. Additionally, the invasion of Ukraine by Russia, the increased rate of inflation in the United States and other events (such as terrorist attacks, natural disasters or a significant outbreak of other infectious diseases) may negatively impact businesses we may seek to acquire. If we have not consummated an initial business combination within such applicable time period, we will: (i) cease all operations except for the purpose of winding up; (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem public shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest earned on the funds held in the Trust Account and not previously released to us to pay our taxes, if any (less up to $100,000 of interest to pay dissolution expenses), divided by the number of the then-outstanding public shares, which redemption will completely extinguish public shareholders’ rights as shareholders (including the right to receive further liquidation distributions, if any); and (iii) as promptly as reasonably possible following such redemption, subject to the approval of our remaining shareholders and our board of directors, liquidate and dissolve, subject in each case to our obligations under Cayman Islands law to provide for claims of creditors and the requirements of other applicable law. Our amended and restated memorandum and articles of association will provide that, if we wind up for any other reason prior to the consummation of our initial business combination, we will follow the foregoing procedures with respect to the liquidation of the Trust Account as promptly as reasonably possible but not more than ten business days thereafter, subject to applicable Cayman Islands law. In either such case, our public shareholders may receive only $10.20 per public share, or less than $10.20 per public share, on the redemption of their public shares, and our warrants will expire worthless. See “- If third parties bring claims against us, the proceeds held in the Trust Account could be reduced and the per-share redemption amount received by shareholders may be less than $10.20 per public share ” and other risk factors herein. +If we seek shareholder approval of our initial business combination, the Sponsor, initial shareholders, directors, officers, advisors and their affiliates may elect to purchase public shares or warrants, which may influence a vote on a proposed business combination and reduce the public “float” of our Class A ordinary shares or public warrants. +If we seek shareholder approval of our initial business combination and we do not conduct redemptions in connection with our initial business combination pursuant to the tender offer rules, the Sponsor, directors, officers, advisors or their affiliates may purchase public shares or warrants in privately negotiated transactions or in the open market either prior to or following the completion of our initial business combination, although they are under no obligation to do so. However, they have no current commitments, plans or intentions to engage in such transactions and have not formulated any terms or conditions for any such transactions. None of the funds in the Trust Account will be used to purchase public shares or warrants in such transactions. In the event that the Sponsor, directors, executive officers, advisors or their affiliates purchase shares in privately negotiated transactions from public shareholders who have already elected to exercise their redemption rights, such selling shareholders would be required to revoke their prior elections to redeem their shares. The purpose of any such transaction could be to (i) increase the likelihood of closing the business combination, (ii) reduce the number of public warrants outstanding or vote such warrants on any matters submitted to the warrant holders for approval in connection with our initial business combination or (iii) satisfy a closing condition in an agreement with a target that requires us to have a minimum net worth or a certain amount of cash at the closing of our initial business combination, where it appears that such requirement would otherwise not be met. Any such purchases of our securities may result in the completion of our initial business combination that may not otherwise have been possible. In addition, if such purchases are made, the public “float” of our Class A ordinary shares or public warrants may be reduced and the number of beneficial holders of our securities may be reduced, which may make it difficult to maintain or obtain the quotation, listing or trading of our securities on a national securities exchange. Any such purchases will be reported pursuant to Section 13 and Section 16 of the Exchange Act to the extent such purchasers are subject to such reporting requirements. See “ Business-Effecting Our Initial Business Combination-Permitted Purchases and Other Transactions with Respect to Our Securities ” for a description of how our Sponsor, directors, officers, advisors or their affiliates will select which shareholders to purchase securities from in any private transaction. +40 +Table of Contents +If a shareholder fails to receive notice of our offer to redeem our public shares in connection with our initial business combination, or fails to comply with the procedures for tendering its shares, such shares may not be redeemed. +We will comply with the proxy rules or tender offer rules, as applicable, when conducting redemptions in connection with our initial business combination. Despite our compliance with these rules, if a shareholder fails to receive our proxy solicitation or tender offer materials, as applicable, such shareholder may not become aware of the opportunity to redeem its shares. In addition, the proxy solicitation or tender offer materials, as applicable, that we will furnish to holders of our public shares in connection with our initial business combination will describe the various procedures that must be complied with in order to validly redeem or tender public shares. In the event that a shareholder fails to comply with these procedures, its shares may not be redeemed. See “ Proposed Business — Effecting Our Initial Business Combination — Tendering Share Certificates in Connection with a Tender Offer or Redemption Rights .” +You will not have any rights or interests in funds from the Trust Account, except under certain limited circumstances. Therefore, to liquidate your investment, you may be forced to sell your public shares or warrants, potentially at a loss. +Our public shareholders will be entitled to receive funds from the Trust Account only upon the earliest to occur of: (i) our completion of an initial business combination, and then only in connection with those Class A ordinary shares that such shareholder properly elected to redeem, subject to the limitations described herein, (ii) the redemption of any public shares properly tendered in connection with a shareholder vote to amend our amended and restated memorandum and articles of association (A) to modify the substance or timing of our obligation to provide holders of our Class A ordinary shares the right to have their shares redeemed in connection with our initial business combination or to redeem 100% of our public shares if we do not complete our initial business combination by April 18, 2026 (or up to January 18, 2027, if we extend the time to complete a business combination as described elsewhere in this Annual Report on Form 10-K) or (B) with respect to any other provision relating to the rights of holders of our Class A ordinary shares, and (iii) the redemption of our public shares if we have not consummated an initial business combination by April 18, 2026 (or up to January 18, 2027, if we extend the time to complete a business combination as described elsewhere in this Annual Report on Form 10-K), subject to applicable law and as further described herein. Public shareholders who redeem their Class A ordinary shares in connection with a shareholder vote described in clause (ii) in the preceding sentence shall not be entitled to funds from the Trust Account upon the subsequent completion of an initial business combination or liquidation if we have not consummated an initial business combination by April 18, 2026 (or up to January 18, 2027, if we extend the time to complete a business combination as described elsewhere in this Annual Report on Form 10-K), with respect to such Class A ordinary shares so redeemed. In no other circumstances will a public shareholder have any right or interest of any kind in the Trust Account. Holders of warrants also will not have any right to the proceeds held in the Trust Account with respect to the warrants. Accordingly, to liquidate your investment, you may be forced to sell your public shares or warrants, potentially at a loss. +Our securities have been delisted from trading on Nasdaq and trade on OTC Markets, which could limit investors’ ability to make transactions in our securities and make it more difficult to consummate a Business Combination. +We were approved to list our units on the Nasdaq beginning on January 13, 2023 and our Class A ordinary shares and warrants on their date of separation, which was February 28, 2023. On January 13, 2026, Nasdaq announced its intension to delist our Class A ordinary shares, units and warrants, followed by a Form 25 filed with the SEC on January 21, 2026 to complete the delisting. The delisting became ten days after the Form 25 was filed. Our Class A ordinary shares, units and warrants now trade on the Pink Current tier of the OTC Markets under symbols “ISRLF”, “ISLUF” and “ISLWF”, respectively. +As a result of being traded on over-the-counter market, we could face significant material adverse consequences, including: +● a limited availability of market quotations for our securities; +● reduced liquidity for our securities; +● a determination that our Class A ordinary shares are a “penny stock,” which will require brokers trading in our Class A ordinary shares to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities; +● a limited amount of news and analyst coverage; and +● a decreased ability to issue additional securities or obtain additional financing in the future. +41 +Table of Contents +The National Securities Markets Improvement Act of 1996, which is a federal statute, prevents or preempts the states from regulating the sale of certain securities, which are referred to as “covered securities.” Because our securities are no longer listed on a national securities exchange, they are not considered covered securities. As a result, our securities are subject to regulation in each state in which we offer our securities. However, since the Business Combination is structured such that NewPubco is issuing its securities, rather than us, and NewPubco’s securities are expected to be listed on Nasdaq upon the closing of the Business Combination, it is not expected that such designation will have a negative impact on the parties’ ability to consummate the Business Combination. Nevertheless, there is no assurance that a state could not seek to hinder or delay the Business Combination, which could possibly lead to us being forced to dissolve and liquidate. While we are not aware of a state having used these powers to prohibit or restrict the sale of securities issued by SPACs, certain state securities regulators view blank check companies unfavorably and might use these powers, or threaten to use these powers, to hinder the sale of securities of blank check companies in their states. +If we fail to meet criteria set forth in Rule 15c2-11 (the “Rule”) under the Exchange Act (for example, by failing to file periodic reports as required by the Exchange Act), various practice requirements are imposed on broker-dealers who sell securities governed by the Rule to persons other than established customers and accredited investors. For these types of transactions, the broker-dealer must make a special suitability determination for the purchaser and have received the purchaser’s written consent to the transactions prior to sale. Consequently, the Rule may have a material adverse effect on the ability of broker-dealers to sell our securities, which may materially affect the ability of investors to sell the securities in the secondary market. Not being listed on a national securities exchange makes trading our securities difficult for investors, potentially leading to a decline in the share price. It may also make it more difficult for us to raise additional capital. +You will not be entitled to protections normally afforded to investors of many other blank check companies. +Since the net proceeds of the Initial Public Offering and the sale of the Private Placement Units are intended to be used to complete an initial business combination, we may be deemed to be a “blank check” company under the United States securities laws. However, because we have net tangible assets in excess of $5,000,000, as disclosed in our Current Report on Form 8-K filed with the SEC on January 24, 2023, which included an audited balance sheet demonstrating that fact, we are exempt from rules promulgated by the SEC to protect investors in blank check companies, such as Rule 419. Accordingly, you will not be afforded the benefits or protections of those rules. Among other things, this means our units were immediately tradable and we have a longer period to complete an initial business combination, than do companies subject to Rule 419. Moreover, if we were subject to Rule 419, that rule would prohibit the release of any interest earned on funds held in the Trust Account to us unless and until the funds in the Trust Account were released to us in connection with our completion of an initial business combination. +If we seek shareholder approval of our initial business combination and we do not conduct redemptions pursuant to the tender offer rules, and if you or a “group” of shareholders are deemed to hold in excess of 15% of our Class A ordinary shares, you will lose the ability to redeem all such shares in excess of 15% of our Class A ordinary shares. +If we seek shareholder approval of our initial business combination and we do not conduct redemptions in connection with our initial business combination pursuant to the tender offer rules, then, pursuant to our amended and restated memorandum and articles of association, a public shareholder, together with any affiliate of such shareholder or any other person with whom such shareholder is acting in concert or as a “group” (as defined under Section 13 of the Exchange Act), will be restricted from redeeming its shares with respect to more than an aggregate of 15% of the shares sold in the Initial Public Offering, which we refer to as the “Excess Shares,” without our prior consent. However, we would not be restricting our shareholders’ to vote all of their shares (including Excess Shares) for or against our initial business combination. Your inability to redeem the Excess Shares will reduce your influence over our ability to complete our initial business combination and you could suffer a material loss on your investment in us if you sell Excess Shares in open market transactions. Additionally, you will not receive redemption distributions with respect to the Excess Shares if we complete our initial business combination. And as a result, you will continue to hold that number of shares exceeding 15% and, in order to dispose of such shares, would be required to sell your shares in open market transactions, potentially at a loss. +42 +Table of Contents +Because of our limited resources and the significant competition for business combination opportunities, it may be more difficult for us to complete our initial business combination. If we have not consummated our initial business combination within the required time period, our public shareholders may receive only approximately $10.20 per public share, or less in certain circumstances, on the liquidation of our Trust Account and our warrants will expire worthless. +We expect to encounter intense competition from other entities having a business objective similar to ours, including private investors (which may be individuals or investment partnerships), other blank check companies and other entities, domestic and international, competing for the types of businesses we intend to acquire. Many of these individuals and entities are well established and have extensive experience in identifying and effecting, directly or indirectly, acquisitions of companies operating in or providing services to various industries. Many of these competitors possess greater technical, human and other resources or more local industry knowledge than we do and our financial resources will be relatively limited when contrasted with those of many of these competitors. While we believe there are numerous target businesses we could potentially acquire with the net proceeds of the Initial Public Offering and the sale of the Private Placement Units, our ability to compete with respect to the acquisition of certain target businesses that are sizable will be limited by our available financial resources. This inherent competitive limitation gives others an advantage in pursuing the acquisition of certain target businesses. Furthermore, we are obligated to offer holders of our public shares the right to redeem their shares for cash at the time of our initial business combination in conjunction with a shareholder vote or via a tender offer. Target companies will be aware that this may reduce the resources available to us for our initial business combination. Any of these obligations may place us at a competitive disadvantage in successfully negotiating a business combination. If we have not consummated our initial business combination within the required time period, our public shareholders may receive only approximately $10.20 per public share, or less in certain circumstances, on the liquidation of our Trust Account and our warrants will expire worthless. See “- If third parties bring claims against us, the proceeds held in the Trust Account could be reduced and the per-share redemption amount received by shareholders may be less than $10.20 per public share ” and other risk factors herein. +As the number of SPACs evaluating targets increases, attractive targets may become scarcer and there may be more competition for attractive targets. This could increase the cost of our initial business combination and could even result in our inability to find a target or to consummate an initial business combination. +In recent years, the number of SPACs that have been formed has increased substantially. Many potential targets for SPACs have already entered into an initial business combination, and there are still many SPACs seeking targets preparing for their initial business combination public offering, as well as many such companies currently in registration with the SEC. As a result, at times, fewer attractive targets may be available, and it may require more time, more effort and more resources to identify a suitable target and to consummate an initial business combination. +In addition, because there are more SPACs seeking to enter into an initial business combination with available targets, the competition for available targets with attractive fundamentals or business models may increase, which could cause targets companies to demand improved financial terms. Attractive deals could also become scarcer for other reasons, such as economic or industry sector downturns, geopolitical tensions, or increases in the cost of additional capital needed to close business combinations or operate targets post-business combination. This could increase the cost of, delay or otherwise complicate or frustrate our ability to find and consummate an initial business combination, and may result in our inability to consummate an initial business combination on terms favorable to our investors altogether. +If the net proceeds of the Initial Public Offering and the sale of the Private Placement Units not being held in the Trust Account are insufficient to allow us to operate until April 18, 2026 (or up to January 18, 2027, if we extend the time to complete a business combination), it could limit the amount available to fund our search for a target business or businesses and our ability to complete our initial business combination, and we will depend on loans from the Sponsor, its affiliates or members of our management team to fund our search and to complete our initial business combination. +Of the net proceeds of the Initial Public Offering and the sale of the Private Placement Units, only approximately $1,450,000 was available to us initially outside the Trust Account to fund our working capital requirements and as of December 31, 2025, we had $6,938 remaining available to us outside of the Trust Account. We believe that the funds available to us outside of the Trust Account, together with funds available from loans from the Sponsor, its affiliates or members of our management team, will be sufficient to allow us to operate until April 18, 2026 (or up to January 18, 2027, if we extend the time to complete a business combination); however, we cannot assure you that our estimate is accurate, and the Sponsor, its affiliates or members of our management team are under no obligation to advance funds to us in such circumstances. Of the funds available to us, we expect to use a portion of the funds available to us to pay fees to consultants to assist us with our search for a target business. We could also use a portion of the funds as a down payment or to +43 +Table of Contents +fund a “no-shop” provision (a provision in letters of intent designed to keep target businesses from “shopping” around for transactions with other companies or investors on terms more favorable to such target businesses) with respect to a particular proposed business combination, although we do not have any current intention to do so. If we entered into a letter of intent where we paid for the right to receive exclusivity from a target business and were subsequently required to forfeit such funds (whether as a result of our breach or otherwise), we might not have sufficient funds to continue searching for, or conduct due diligence with respect to, a target business. +If we are required to seek additional capital, we would need to borrow funds from the Sponsor or its affiliates, members of our management team or other third parties to operate or may be forced to liquidate. None of the Sponsor, members of our management team or their affiliates is under any obligation to us in such circumstances. Any such advances may be repaid only from funds held outside the Trust Account or from funds released to us upon the completion of our initial business combination. Up to $1,500,000 of such loans may be convertible into private placement-equivalent units of the post-business combination entity at a price of $10.00 per private placement-equivalent unit at the option of the lender. Such units would be identical to the Private Placement Units. Prior to the completion of our initial business combination, we do not expect to seek loans from parties other than the Sponsor, its affiliates or members of our management team as we do not believe third parties will be willing to loan such funds and provide a waiver against any and all rights to seek access to funds in our Trust Account. If we have not consummated our initial business combination within the required time period because we do not have sufficient funds available to us, we will be forced to cease operations and liquidate the Trust Account. Consequently, our public shareholders may only receive an estimated $10.20 per public share, or possibly less, on our redemption of our public shares, and our warrants will expire worthless. See “- If third parties bring claims against us, the proceeds held in the Trust Account could be reduced and the per-share redemption amount received by shareholders may be less than $10.20 per public share ” and other risk factors herein. +Subsequent to our completion of our initial business combination, we may be required to take write-downs or write-offs, restructure our operations or incur impairment or other charges that could have a significant negative effect on our financial condition, results of operations and the price of our securities, which could cause you to lose some or all of your investment. +Even if we conduct extensive due diligence on a target business with which we combine, we cannot assure you that this diligence will identify all material issues with a particular target business, that it would be possible to uncover all material issues through a customary amount of due diligence, or that factors outside of the target business and outside of our control will not later arise. As a result of these factors, we may be forced to later write down or write off assets, restructure our operations, or incur impairment or other charges that could result in our reporting losses. Even if our due diligence successfully identifies certain risks, unexpected risks may arise and previously known risks may materialize in a manner not consistent with our preliminary risk analysis. Even though these charges may be non-cash items and not have an immediate impact on our liquidity, the fact that we report charges of this nature could contribute to negative market perceptions about us or our securities. In addition, charges of this nature may cause us to violate net worth or other covenants to which we may be subject as a result of assuming pre-existing debt held by a target business or by virtue of our obtaining post-combination debt financing. Accordingly, any holders who choose to retain their securities following the business combination could suffer a reduction in the value of their securities. Such holders are unlikely to have a remedy for such reduction in value. +If third parties bring claims against us, the proceeds held in the Trust Account could be reduced and the per-share redemption amount received by shareholders may be less than $10.20 per public share. +Our placing of funds in the Trust Account may not protect those funds from third-party claims against us. Although we will seek to have all vendors, service providers, prospective target businesses and other entities with which we do business execute agreements with us waiving any right, title, interest or claim of any kind in or to any monies held in the Trust Account for the benefit of our public shareholders, such parties may not execute such agreements, or even if they execute such agreements, they may not be prevented from bringing claims against the Trust Account, including, but not limited to, fraudulent inducement, breach of fiduciary responsibility or other similar claims, as well as claims challenging the enforceability of the waiver, in each case in order to gain advantage with respect to a claim against our assets, including the funds held in the Trust Account. If any third party refuses to execute an agreement waiving such claims to the monies held in the Trust Account, our management will perform an analysis of the alternatives available to it and will only enter into an agreement with a third party that has not executed a waiver if management believes that such third party’s engagement would be significantly more beneficial to us than any alternative. +44 +Table of Contents +Examples of possible instances where we may engage a third party that refuses to execute a waiver include the engagement of a third-party consultant whose particular expertise or skills are believed by management to be significantly superior to those of other consultants that would agree to execute a waiver or in cases where management is unable to find a service provider willing to execute a waiver. In addition, there is no guarantee that such entities will agree to waive any claims they may have in the future as a result of, or arising out of, any negotiations, contracts or agreements with us and will not seek recourse against the Trust Account for any reason. Upon redemption of our public shares, if we have not consummated an initial business combination by April 18, 2026 (or up to January 18, 2027, if we extend the time to complete a business combination as described elsewhere in this Annual Report on Form 10-K), or upon the exercise of a redemption right in connection with our initial business combination, we will be required to provide for payment of claims of creditors that were not waived that may be brought against us within the ten years following redemption. Accordingly, the per-share redemption amount received by public shareholders could be less than the $10.20 per public share initially held in the Trust Account, due to claims of such creditors. Pursuant to the Letter Agreement, the form of which is filed as an exhibit to the registration statement, the Sponsor has agreed that it will be liable to us if and to the extent any claims by a third party (other than our independent auditors) for services rendered or products sold to us, or a prospective target business with which we have discussed entering into a transaction agreement, reduce the amounts in the Trust Account to below the lesser of (i) $10.20 per public share and (ii) the actual amount per public share held in the Trust Account as of the date of the liquidation of the Trust Account if less than $10.20 per public share due to reductions in the value of the trust assets, in each case net of the interest that may be withdrawn to pay our tax obligations, provided that such liability will not apply to any claims by a third party or prospective target business that executed a waiver of any and all rights to seek access to the Trust Account nor will it apply to any claims under our indemnity of the underwriters of the Initial Public Offering against certain liabilities, including liabilities under the Securities Act. Moreover, in the event that an executed waiver is deemed to be unenforceable against a third party, the Sponsor will not be responsible to the extent of any liability for such third-party claims. +However, we have not asked the Sponsor to reserve for such indemnification obligations nor have we independently verified whether the Sponsor has sufficient funds to satisfy its indemnity obligations, and we believe that the Sponsor’s only assets are securities of our company. Therefore, we cannot assure you that the Sponsor would be able to satisfy those obligations. As a result, if any such claims were successfully made against the Trust Account, the funds available for our initial business combination and redemptions could be reduced to less than $10.20 per public share. In such event, we may not be able to complete our initial business combination, and you would receive such lesser amount per share in connection with any redemption of your public shares. None of our officers or directors will indemnify us for claims by third parties including, without limitation, claims by vendors and prospective target businesses. +Our directors may decide not to enforce the indemnification obligations of the Sponsor, resulting in a reduction in the amount of funds in the Trust Account available for distribution to our public shareholders. +In the event that the proceeds in the Trust Account are reduced below the lesser of (i) $10.20 per public share and (ii) the actual amount per public share held in the Trust Account as of the date of the liquidation of the Trust Account if less than $10.20 per public share due to reductions in the value of the trust assets, in each case net of the interest that may be withdrawn to pay our tax obligations, and the Sponsor asserts that it is unable to satisfy its obligations or that it has no indemnification obligations related to a particular claim, our independent directors would determine whether to take legal action against the Sponsor to enforce its indemnification obligations. While we currently expect that our independent directors would take legal action on our behalf against the Sponsor to enforce its indemnification obligations to us, it is possible that our independent directors in exercising their business judgment and subject to their fiduciary duties may choose not to do so in any particular instance. If our independent directors choose not to enforce these indemnification obligations, the amount of funds in the Trust Account available for distribution to our public shareholders may be reduced below $10.20 per public share. +We may not have sufficient funds to satisfy indemnification claims of our directors and executive officers. +We have agreed to indemnify our officers and directors to the fullest extent permitted by law. However, our officers and directors have agreed to waive any right, title, interest or claim of any kind in or to any monies in the Trust Account and to not seek recourse against the Trust Account for any reason whatsoever (except to the extent they are entitled to funds from the Trust Account due to their ownership of public shares). Accordingly, any indemnification provided will be able to be satisfied by us only if (i) we have sufficient funds outside of the Trust Account or (ii) we consummate an initial business combination. Our obligation to indemnify our officers and directors may discourage shareholders from bringing a lawsuit against our officers or directors for breach of their fiduciary duty. These provisions also may have the effect of reducing the likelihood of derivative litigation against our officers and directors, even though such an action, if successful, might otherwise benefit us and our shareholders. Furthermore, a shareholder’s investment may be adversely affected to the extent we pay the costs of settlement and damage awards against our officers and directors pursuant to these +45 +Table of Contents +indemnification provisions. Although we have purchased a directors’ and officers’ liability insurance policy, such policy may be insufficient to cover our indemnification obligations. Any such insufficiency could (i) deplete the Trust Account and affect our ability to consummate an initial business combination or (ii) negatively impact our profits and operations following an initial business combination. +Changes in the market for directors and officers liability insurance could make it more difficult and more expensive for us to negotiate and complete an initial business combination. +Recently, the market for directors and officers liability insurance for SPACs has changed in ways adverse to us and our management team. Fewer insurance companies are offering quotes for directors and officers liability coverage, the premiums charged for such policies have generally increased and the terms of such policies have generally become less favorable. These trends may continue into the future. +The increased cost and decreased availability of directors’ and officers’ liability insurance could make it more difficult and more expensive for us to negotiate an initial business combination. In order to obtain directors’ and officers’ liability insurance or modify its coverage as a result of becoming a public company, the post-business combination entity might need to incur greater expense, accept less favorable terms or both. However, any failure to obtain adequate directors’ and officers’ liability insurance could have an adverse impact on the post-business combination’s ability to attract and retain qualified officers and directors. +In addition, even after we were to complete an initial business combination, our directors and officers could still be subject to potential liability from claims arising from conduct alleged to have occurred prior our initial business combination. As a result, in order to protect our directors and officers, the post-business combination entity may need to purchase additional insurance with respect to any such claims (“run-off insurance”). The need for run-off insurance would be an added expense for the post-business combination entity, and could interfere with or frustrate our ability to consummate an initial business combination on terms favorable to our investors. +If, after we distribute the proceeds in the Trust Account to our public shareholders, we file a bankruptcy or winding-up petition or an involuntary bankruptcy or winding-up petition is filed against us that is not dismissed, a bankruptcy or insolvency court may seek to recover such proceeds, and the members of our board of directors may be viewed as having breached their fiduciary duties to our creditors, thereby exposing the members of our board of directors and us to claims of punitive damages. +If, after we distribute the proceeds in the Trust Account to our public shareholders, we file a bankruptcy or winding-up petition or an involuntary bankruptcy or winding-up petition is filed against us that is not dismissed, any distributions received by shareholders could be viewed under applicable debtor/creditor and/or bankruptcy or insolvency laws as either a “preferential transfer” or a “fraudulent conveyance.” As a result, a bankruptcy or insolvency court could seek to recover some or all amounts received by our shareholders. In addition, our board of directors may be viewed as having breached its fiduciary duty to our creditors and/or having acted in bad faith, thereby exposing itself and us to claims of punitive damages, by paying public shareholders from the Trust Account prior to addressing the claims of creditors. +If, before distributing the proceeds in the Trust Account to our public shareholders, we file a bankruptcy or winding-up petition or an involuntary bankruptcy or winding-up petition is filed against us that is not dismissed, the claims of creditors in such proceeding may have priority over the claims of our shareholders and the per-share amount that would otherwise be received by our shareholders in connection with our liquidation may be reduced. +If, before distributing the proceeds in the Trust Account to our public shareholders, we file a bankruptcy or winding-up petition or an involuntary bankruptcy or winding-up petition is filed against us that is not dismissed, the proceeds held in the Trust Account could be subject to applicable bankruptcy or insolvency law and may be included in our bankruptcy estate and subject to the claims of third parties with priority over the claims of our shareholders. To the extent any bankruptcy claims deplete the Trust Account, the per-share amount that would otherwise be received by our shareholders in connection with our liquidation may be reduced. +46 +Table of Contents +Our shareholders may be held liable for claims by third parties against us to the extent of distributions received by them upon redemption of their shares. +If we are forced to enter into an insolvent liquidation, any distributions received by shareholders could be viewed as an unlawful payment if it was proved that immediately following the date on which the distribution was made, we were unable to pay our debts as they fall due in the ordinary course of business. As a result, a liquidator could seek to recover some or all amounts received by our shareholders. Furthermore, our directors may be viewed as having breached their fiduciary duties to us or our creditors and/or may have acted in bad faith, thereby exposing themselves and our company to claims, by paying public shareholders from the Trust Account prior to addressing the claims of creditors. We cannot assure you that claims will not be brought against us for these reasons. We and our officers and directors who knowingly and willfully authorized or permitted any distribution to be paid out of our share premium account while we were unable to pay our debts as they fall due in the ordinary course of business would be guilty of an offence and may be liable for a fine of $18,292.68 and imprisonment for five years in the Cayman Islands. +We may not hold an annual general meeting until after the consummation of our initial business combination. +In accordance with the Nasdaq corporate governance requirements, we are not required to hold an annual general meeting until one year after our first fiscal year end following our listing on the Nasdaq. There is no requirement under the Companies Act for us to hold annual or extraordinary general meetings to appoint directors. Until we hold an annual general meeting, public shareholders may not be afforded the opportunity to appoint directors and to discuss company affairs with management. Our board of directors is divided into three classes with only one class of directors being appointed in each year and each class (except for those directors appointed prior to our first annual general meeting) serving a three-year term. In addition, as holders of our Class A ordinary shares, our public shareholders will not have the right to vote on the election of directors until after the consummation of our initial business combination. In addition, prior to our initial business combination, holders of a majority of our founder shares may remove a member of the board of directors for any reason. Accordingly, you may not have any say in the management of our company prior to the consummation of an initial business combination. +Because we are neither limited to evaluating a target business in a particular industry sector or geographical region nor have we selected any specific target businesses with which to pursue our initial business combination, you will be unable to ascertain the merits or risks of any particular target business’s operations. +We may pursue business combination opportunities in any sector or geographical region, except that we will not, under our amended and restated memorandum and articles of association, be permitted to effectuate our initial business combination solely with another blank check company or similar company with nominal operations. Because we have not yet identified or approached any specific target business with respect to a business combination, there is no basis to evaluate the possible merits or risks of any particular target business’s operations, results of operations, cash flows, liquidity, financial condition or prospects. To the extent we complete our initial business combination, we may be affected by numerous risks inherent in the business operations with which we combine. For example, if we combine with a financially unstable business or an entity lacking an established record of sales or earnings, we may be affected by the risks inherent in the business and operations of a financially unstable or a development stage entity. Although our officers and directors will endeavor to evaluate the risks inherent in a particular target business, we cannot assure you that we will properly ascertain or assess all of the significant risk factors or that we will have adequate time to complete due diligence. Furthermore, some of these risks may be outside of our control and leave us with no ability to control or reduce the chances that those risks will adversely impact a target business. We also cannot assure you that an investment in our units will ultimately prove to be more favorable to investors than a direct investment, if such opportunity were available, in a business combination target. Accordingly, any holders who choose to retain their securities following the business combination could suffer a reduction in the value of their securities. Such holders are unlikely to have a remedy for such reduction in value. +We may seek acquisition opportunities in industries or sectors which may or may not be outside of our management’s area of expertise. +We will consider a business combination outside of our management’s area of expertise if a business combination target is presented to us and we determine that such candidate offers an attractive acquisition opportunity for our company. Although our management will endeavor to evaluate the risks inherent in any particular business combination target, we cannot assure you that we will adequately ascertain or assess all of the significant risk factors. We also cannot assure you that an investment in our units will not ultimately prove to be less favorable than a direct investment, if an opportunity were available, in a business combination target. In the event we elect to pursue an acquisition outside of the areas of our management’s expertise, our management’s expertise may not be directly applicable to +47 +Table of Contents +its evaluation or operation, and the information contained in this Annual Report on Form 10-K regarding the areas of our management’s expertise would not be relevant to an understanding of the business that we elect to acquire. As a result, our management may not be able to adequately ascertain or assess all of the significant risk factors. Accordingly, any holders who choose to retain their securities following the business combination could suffer a reduction in the value of their securities. Such holders are unlikely to have a remedy for such reduction in value. +Although we have identified general criteria and guidelines that we believe are important in evaluating prospective target businesses, we may enter into our initial business combination with a target that does not meet such criteria and guidelines, and as a result, the target business with which we enter into our initial business combination may not have attributes entirely consistent with our general criteria and guidelines. +Although we have identified general criteria and guidelines for evaluating prospective target businesses, it is possible that a target business with which we enter into our initial business combination will not have all of these positive attributes. If we complete our initial business combination with a target that does not meet some or all of these guidelines, such combination may not be as successful as a combination with a business that does meet all of our general criteria and guidelines. In addition, if we announce a prospective business combination with a target that does not meet our general criteria and guidelines, a greater number of shareholders may exercise their redemption rights, which may make it difficult for us to meet any closing condition with a target business that requires us to have a minimum net worth or a certain amount of cash. In addition, if shareholder approval of the transaction is required by applicable law or stock exchange listing requirements, or we decide to obtain shareholder approval for business or other reasons, it may be more difficult for us to attain shareholder approval of our initial business combination if the target business does not meet our general criteria and guidelines. If we have not consummated our initial business combination within the required time period, our public shareholders may receive only approximately $10.20 per public share, or less in certain circumstances, on the liquidation of our Trust Account and our warrants will expire worthless. +We may not be able to complete an initial business combination with a U.S. target company if such initial business combination is subject to U.S. foreign investment regulations and review by a U.S. government entity such as the Committee on Foreign Investment in the United States (“CFIUS”), or is ultimately prohibited. +We and the Sponsor have substantial ties with non-U.S. persons. We may therefore be considered a “foreign person” under regulations administered by CFIUS and could continue to be considered as such in the future so long as the Sponsor or other non-U.S. persons have the ability to exercise control over us for purposes of CFIUS’s regulations. While we are primarily targeting business combinations with Israeli technology companies, we are permitted to enter into business combinations with other companies, including U.S. businesses. As such, an initial business combination with a U.S. business is subject to CFIUS review, the scope of which was expanded by the Foreign Investment Risk Review Modernization Act of 2018 (“FIRRMA”), to include certain non-passive, non-controlling investments in sensitive U.S. businesses and certain acquisitions of real estate even with no underlying U.S. business. FIRRMA, and subsequent implementing regulations that are now in force, also subjects certain categories of investments to mandatory filings. If our potential initial business combination with a U.S. business falls within CFIUS’s jurisdiction, we may determine that we are required to make a mandatory filing or that we will submit a voluntary notice to CFIUS, or to proceed with our initial business combination without notifying CFIUS and risk CFIUS intervention, before or after closing our initial business combination. CFIUS may decide to block or delay our initial business combination, impose conditions to mitigate national security concerns with respect to such initial business combination or order us to divest all or a portion of a U.S. business of the combined company without first obtaining CFIUS clearance, which may limit the attractiveness of or prevent us from pursuing certain initial business combination opportunities that we believe would otherwise be beneficial to us and our shareholders. As a result, the pool of potential targets with which we could complete an initial business combination may be limited and we may be adversely affected in terms of competing with other special purpose acquisition companies which do not have similar foreign ownership issues. +Moreover, the process of government review, whether by the CFIUS or otherwise, could be lengthy and we have limited time to complete our initial business combination. If we cannot complete our initial business combination by April 18, 2026 (or up to January 18, 2027, if we extend the period of time to consummate our initial business combination as described elsewhere in this Annual Report on Form 10-K) because the review process drags on beyond such timeframe or because our initial business combination is ultimately prohibited by CFIUS or another U.S. government entity, we may be required to liquidate. If we liquidate, our public shareholders may only receive $10.20 per public share, or less than $10.20 per public share, on the liquidation of their shares, and our warrants will expire worthless. This will also cause our investors to lose the investment opportunity in a target company and the chance of realizing future gains on your investment through any price appreciation in the combined company. +48 +Table of Contents +We are not required to obtain an opinion from an independent accounting or investment banking firm, and, consequently, you may have no assurance from an independent source that the price we are paying for the business is fair to our shareholders from a financial point of view. +Unless we complete our initial business combination with an affiliated entity, we are not required to obtain an opinion from an independent investment banking firm or another independent entity commonly renders valuation opinions that the price we are paying is fair to our shareholders from a financial point of view. If no opinion is obtained, our shareholders will be relying on the judgment of our board of directors, who will determine fair market value based on standards generally accepted by the financial community. Such standards used will be disclosed in our proxy solicitation or tender offer materials, as applicable, related to our initial business combination. +Because we must furnish our shareholders with target business financial statements, we may lose the ability to complete an otherwise advantageous initial business combination with some prospective target businesses. +The U.S. federal securities laws require that a proxy statement with respect to a vote on a business combination meeting certain financial significance tests include historical and/or pro forma financial statement disclosure in periodic reports. We will include the same financial statement disclosure in connection with our tender offer documents, whether or not they are required under the tender offer rules. These financial statements may be required to be prepared in accordance with, or be reconciled to, accounting principles generally accepted in the United States of America, or GAAP, or international financial reporting standards as issued by the International Accounting Standards Board, or IFRS, depending on the circumstances and the historical financial statements may be required to be audited in accordance with the standards of the Public Company Accounting Oversight Board (United States), or PCAOB. These financial statement requirements may limit the pool of potential target businesses we may acquire because some targets may be unable to provide such statements in time for us to disclose such statements in accordance with federal proxy rules and complete our initial business combination within the prescribed timeframe. +Resources could be wasted in researching acquisitions that are not completed, which could materially adversely affect subsequent attempts to locate and acquire or merge with another business. If we have not consummated our initial business combination within the required time period, our public shareholders may receive only approximately $10.20 per public share, or less in certain circumstances, on the liquidation of our Trust Account and our warrants will expire worthless. +We anticipate that the investigation of each specific target business and the negotiation, drafting and execution of relevant agreements, disclosure documents and other instruments will require substantial management time and attention and substantial costs for accountants, attorneys and others. If we decide not to complete a specific initial business combination, the costs incurred up to that point for the proposed transaction likely would not be recoverable. Furthermore, if we reach an agreement relating to a specific target business, we may fail to complete our initial business combination for any number of reasons including those beyond our control. Any such event will result in a loss to us of the related costs incurred, which could materially adversely affect subsequent attempts to locate and acquire or merge with another business. If we have not consummated our initial business combination within the required time period, our public shareholders may receive only approximately $10.20 per public share, or less in certain circumstances, on the liquidation of our Trust Account and our warrants will expire worthless. +Compliance obligations under the Sarbanes-Oxley Act may make it more difficult for us to effectuate a business combination, require substantial financial and management resources, and increase the time and costs of completing an acquisition. +Section 404 of the Sarbanes-Oxley Act requires that we evaluate and report on our system of internal controls beginning with our Annual Report on Form 10-K for the year ending December 31, 2025. Only in the event we are deemed to be a large accelerated filer or an accelerated filer and no longer qualify as an emerging growth company will we be required to comply with the independent registered public accounting firm attestation requirement on our internal control over financial reporting. The fact that we are a blank check company makes compliance with the requirements of the Sarbanes-Oxley Act particularly burdensome on us as compared to other public companies because a target business with which we seek to complete our initial business combination may not be in compliance with the provisions of the Sarbanes-Oxley Act regarding adequacy of its internal controls. The development of the internal control of any such entity to achieve compliance with the Sarbanes-Oxley Act may increase the time and costs necessary to complete any such acquisition. +49 +Table of Contents +We do not have a specified maximum redemption threshold. The absence of such a redemption threshold may make it possible for us to complete our initial business combination with which a substantial majority of our shareholders do not agree. +Our amended and restated memorandum and articles of association will not provide a specified maximum redemption threshold, except that in no event will we redeem our public shares in an amount that would cause our net tangible assets to be less than $5,000,001 (so that we do not then become subject to the SEC’s “penny stock” rules). As a result, we may be able to complete our initial business combination even though a substantial majority of our public shareholders do not agree with the transaction and have redeemed their shares or, if we seek shareholder approval of our initial business combination and do not conduct redemptions in connection with our initial business combination pursuant to the tender offer rules, have entered into privately negotiated agreements to sell their shares to the Sponsor, officers, directors, advisors or their affiliates. In the event the aggregate cash consideration we would be required to pay for all Class A ordinary shares that are validly submitted for redemption plus any amount required to satisfy cash conditions pursuant to the terms of the proposed business combination exceed the aggregate amount of cash available to us, we will not complete the business combination or redeem any shares, all Class A ordinary shares submitted for redemption will be returned to the holders thereof, and we instead may search for an alternate business combination. +In order to effectuate an initial business combination, blank check companies have, in the recent past, amended various provisions of their charters and other governing instruments, including their warrant agreements. We cannot assure you that we will not seek to amend our amended and restated memorandum and articles of association or governing instruments in a manner that will make it easier for us to complete our initial business combination that our shareholders may not support. +In order to effectuate a business combination, blank check companies have, in the recent past, amended various provisions of their charters and governing instruments, including their warrant agreements. For example, blank check companies have amended the definition of business combination, increased redemption thresholds, extended the time to consummate an initial business combination and, with respect to their warrants, amended their warrant agreements to require the warrants to be exchanged for cash and/or other securities. +Further amending our amended and restated memorandum and articles of association will require at least a special resolution of our shareholders as a matter of Cayman Islands law, meaning the approval of holders of at least two-thirds of our ordinary shares who attend and vote at a general meeting of the company, or, if no meeting is held, the unanimous written approval of all the shareholders who have the right to attend and vote at a general meeting of the company. +Amending our warrant agreement will require a vote of holders of at least 50% of the public warrants and, solely with respect to any amendment to the terms of the private placement warrants or any provision of the warrant agreement with respect to the private placement warrants, 50% of the number of the then outstanding private placement warrants. For more information on how or when we may amend our warrant arrangement, see “ — We may amend the terms of the warrants in a manner that may be adverse to holders of public warrants with the approval by the holders of at least 50% of the then-outstanding public warrants. As a result, the exercise price of your warrants could be increased, the exercise period could be shortened and the number of our Class A ordinary shares purchasable upon exercise of a warrant could be decreased, all without your approval. ” +In addition, our amended and restated memorandum and articles of association will require us to provide our public shareholders with the opportunity to redeem their public shares for cash if we propose an amendment to our amended and restated memorandum and articles of association (A) that would modify the substance or timing of our obligation to provide holders of our Class A ordinary shares the right to have their shares redeemed in connection with our initial business combination or to redeem 100% of our public shares if we do not complete our initial business combination by April 18, 2026 (or up to January 18, 2027, if we extend the time to complete a business combination as described elsewhere in this Annual Report on Form 10-K) or (B) with respect to any other provision relating to the rights of holders of our Class A ordinary shares. To the extent any of such amendments would be deemed to fundamentally change the nature of any of the securities offered through the Registration Statement, we would register, or seek an exemption from registration for, the affected securities. +50 +Table of Contents +The provisions of our amended and restated memorandum and articles of association that relate to the rights of holders of our Class A ordinary shares (and corresponding provisions of the agreement governing the release of funds from our Trust Account) may be amended with the approval of a special resolution, which requires the approval of the holders of at least two-thirds of our ordinary shares who attend and vote at a general meeting of the company, which is a lower amendment threshold than that of some other blank check companies. It may be easier for us, therefore, to amend our amended and restated memorandum and articles of association to facilitate the completion of an initial business combination that some of our shareholders may not support. +Some other blank check companies have a provision in their charter that prohibits the amendment of certain of its provisions, including those which relate to the rights of a company’s shareholders, without approval by a certain percentage of the company’s shareholders. In those companies, amendment of these provisions typically requires approval by between 90% and 100% of the company’s shareholders. Our amended and restated memorandum and articles of association will provide that any of its provisions related to the rights of holders of our Class A ordinary shares (including the requirement to deposit proceeds of the Initial Public Offering and the private placement of units into the Trust Account and not release such amounts except in specified circumstances, and to provide redemption rights to public shareholders as described herein) may be amended if approved by special resolution, meaning holders of at least two-thirds of our ordinary shares who attend and vote at a general meeting of the company, and corresponding provisions of the trust agreement governing the release of funds from our Trust Account may be amended if approved by holders of at least 50% of our ordinary shares; provided that the provisions of our amended and restated memorandum and articles of association governing the appointment or removal of directors prior to our initial business combination may only be amended by a special resolution passed by not less than two-thirds of our ordinary shares who attend and vote at our general meeting which shall include the affirmative vote of a simple majority of our Class B ordinary shares. The Sponsor and its permitted transferees, if any, who collectively beneficially own, on an as-converted basis, 25% of our Class A ordinary shares upon the closing of the Initial Public Offering (assuming they do not purchase any units in the Initial Public Offering and excluding the private placement shares), will participate in any vote to amend our amended and restated memorandum and articles of association and/or trust agreement and will have the discretion to vote in any manner they choose. As a result, we may be able to amend the provisions of our amended and restated memorandum and articles of association which govern our pre-business combination behavior more easily than some other blank check companies, and this may increase our ability to complete a business combination with which you do not agree. Our shareholders may pursue remedies against us for any breach of our amended and restated memorandum and articles of association. +The Sponsor, officers and directors have agreed, pursuant to agreements with us, that they will not propose any amendment to our amended and restated memorandum and articles of association (A) that would modify the substance or timing of our obligation to provide holders of our Class A ordinary shares the right to have their shares redeemed in connection with our initial business combination or to redeem 100% of our public shares if we do not complete our initial business combination by January 18, 2027 or (B) with respect to any other provision relating to the rights of holders of our Class A ordinary shares, unless we provide our public shareholders with the opportunity to redeem their Class A ordinary shares upon approval of any such amendment at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest earned on the funds held in the Trust Account and not previously released to us to pay our taxes, if any, divided by the number of the then-outstanding public shares, subject to the limitations described herein. Our shareholders are not parties to, or third-party beneficiaries of, these agreements and, as a result, will not have the ability to pursue remedies against the Sponsor, executive officers or directors for any breach of these agreements. As a result, in the event of a breach, our shareholders would need to pursue a shareholder derivative action, subject to applicable law. +We may be unable to obtain additional financing to complete our initial business combination or to fund the operations and growth of a target business, which could compel us to restructure or abandon a particular business combination. If we have not consummated our initial business combination within the required time period, our public shareholders may receive only approximately $10.20 per public share, or less in certain circumstances, on the liquidation of our Trust Account and our warrants will expire worthless. +Although we believe that the net proceeds of the Initial Public Offering and the sale of the Private Placement Units will be sufficient to allow us to complete our initial business combination, because we have not yet selected any prospective target business we cannot ascertain the capital requirements for any particular transaction. If the net proceeds of the Initial Public Offering and the sale of the Private Placement Units prove to be insufficient, either because of the size of our initial business combination, the depletion of the available net proceeds in search of a target business, the obligation to redeem for cash a significant number of shares from shareholders who elect redemption in connection with our initial business combination or the terms of negotiated transactions to purchase shares in connection with our initial business combination, we may be required to seek additional financing or to abandon the proposed business combination. We cannot assure you that such financing will be available on acceptable terms, if at all. The current economic environment may make it difficult for companies to obtain acquisition financing. To the extent that additional financing proves to be unavailable +51 +Table of Contents +when needed to complete our initial business combination, we would be compelled to either restructure the transaction or abandon that particular business combination and seek an alternative target business candidate. If we have not consummated our initial business combination within the required time period, our public shareholders may receive only approximately $10.20 per public share, or less in certain circumstances, on the liquidation of our Trust Account and our warrants will expire worthless. In addition, even if we do not need additional financing to complete our initial business combination, we may require such financing to fund the operations or growth of the target business. The failure to secure additional financing could have a material adverse effect on the continued development or growth of the target business. None of the Sponsor, officers, directors or shareholders is required to provide any financing to us in connection with or after our initial business combination. +We may seek business combination opportunities with a high degree of complexity that require significant operational improvements, which could delay or prevent us from achieving our desired results. +We may seek business combination opportunities with large, highly complex companies that we believe would benefit from operational improvements. While we intend to implement such improvements, to the extent that our efforts are delayed or we are unable to achieve the desired improvements, the business combination may not be as successful as we anticipate. +To the extent we complete our initial business combination with a large, complex business or entity with a complex operating structure, we may also be affected by numerous risks inherent in the operations of the business with which we combine, which could delay or prevent us from implementing our strategy. Although our management team will endeavor to evaluate the risks inherent in a particular target business and its operations, we may not be able to properly ascertain or assess all of the significant risk factors until we complete our business combination. If we are not able to achieve our desired operational improvements, or the improvements take longer to implement than anticipated, we may not achieve the gains that we anticipate. Furthermore, some of these risks and complexities may be outside of our control and leave us with no ability to control or reduce the chances that those risks and complexities will adversely impact a target business. Such combination may not be as successful as a combination with a smaller, less complex organization. +We may have a limited ability to assess the management of a prospective target business and, as a result, may affect our initial business combination with a target business whose management may not have the skills, qualifications or abilities to manage a public company. +When evaluating the desirability of effecting our initial business combination with a prospective target business, our ability to assess the target business’s management may be limited due to a lack of time, resources or information. Our assessment of the capabilities of the target business’s management, therefore, may prove to be incorrect and such management may lack the skills, qualifications or abilities we suspected. Should the target business’s management not possess the skills, qualifications or abilities necessary to manage a public company, the operations and profitability of the post-combination business may be negatively impacted. Accordingly, any holders who choose to retain their securities following the business combination could suffer a reduction in the value of their securities. Such holders are unlikely to have a remedy for such reduction in value. +We may issue notes or other debt securities, or otherwise incur substantial debt, to complete a business combination, which may adversely affect our leverage and financial condition and thus negatively impact the value of our shareholders’ investment in us. +Although we have no commitments as of the date of this Annual Report on Form 10-K to issue any notes or other debt securities, we may choose to incur substantial debt to complete our initial business combination. We and our officers and directors have agreed that we will not incur any indebtedness unless we have obtained from the lender a waiver of any right, title, interest or claim of any kind in or to the monies held in the Trust Account. As such, no issuance of debt will affect the per-share amount available for redemption from the Trust Account. Nevertheless, the incurrence of debt could have a variety of negative effects, including: +● default and foreclosure on our assets if our operating revenues after an initial business combination are insufficient to repay our debt obligations; +● acceleration of our obligations to repay the indebtedness even if we make all principal and interest payments when due if we breach certain covenants that require the maintenance of certain financial ratios or reserves without a waiver or renegotiation of that covenant; +● our immediate payment of all principal and accrued interest, if any, if the debt is payable on demand; +52 +Table of Contents +● our inability to obtain necessary additional financing if the debt contains covenants restricting our ability to obtain such financing while the debt is outstanding; +● our inability to pay dividends on our Class A ordinary shares; +● using a substantial portion of our cash flow to pay principal and interest on our debt, which will reduce the funds available for dividends on our Class A ordinary shares if declared, expenses, capital expenditures, acquisitions and other general corporate purposes; +● limitations on our flexibility in planning for and reacting to changes in our business and in the industry in which we operate; +● increased vulnerability to adverse changes in general economic, industry and competitive conditions and adverse changes in government regulation; and +● limitations on our ability to borrow additional amounts for expenses, capital expenditures, acquisitions, debt service requirements, execution of our strategy and other purposes and other disadvantages compared to our competitors who have less debt. +We may only be able to complete one business combination with the proceeds of the Initial Public Offering and the sale of the Private Placement Units, which will cause us to be solely dependent on a single business that may have a limited number of products or services. This lack of diversification may negatively impact our operations and profitability. +The net proceeds from the Initial Public Offering and the sale of the Private Placement Units provided us with $146,625,000 that we may use to complete our initial business combination. As of December 31, 2025, there was $9,933,329 remaining in the Trust Account to use to complete our initial business combination. +We may effectuate our initial business combination with a single-target business or multiple-target businesses simultaneously or within a short period of time. However, we may not be able to effectuate our initial business combination with more than one target business because of various factors, including the existence of complex accounting issues and the requirement that we prepare and file pro forma financial statements with the SEC that present operating results and the financial condition of several target businesses as if they had been operated on a combined basis. By completing our initial business combination with only a single entity, our lack of diversification may subject us to numerous economic, competitive and regulatory developments. Further, we would not be able to diversify our operations or benefit from the possible spreading of risks or offsetting of losses, unlike other entities that may have the resources to complete several business combinations in different industries or different areas of a single industry. Accordingly, the prospects for our success may be: +● solely dependent upon the performance of a single business, property or asset; or +● dependent upon the development or market acceptance of a single or limited number of products, processes or services. +This lack of diversification may subject us to numerous economic, competitive and regulatory risks, any or all of which may have a substantial adverse impact upon the particular industry in which we may operate subsequent to our initial business combination. +We may attempt to simultaneously complete business combinations with multiple prospective targets, which may hinder our ability to complete our initial business combination and give rise to increased costs and risks that could negatively impact our operations and profitability. +If we determine to simultaneously acquire several businesses that are owned by different sellers, we will need for each of such sellers to agree that our purchase of its business is contingent on the simultaneous closings of the other business combinations, which may make it more difficult for us, and delay our ability, to complete our initial business combination. With multiple business combinations, we could also face additional risks, including additional burdens and costs with respect to possible multiple negotiations and due diligence (if there are multiple sellers) and the additional risks associated with the subsequent assimilation of the operations and +53 +Table of Contents +services or products of the acquired companies in a single operating business. If we are unable to adequately address these risks, it could negatively impact our profitability and results of operations. +We may attempt to complete our initial business combination with a private company about which little information is available, which may result in a business combination with a company that is not as profitable as we suspected, if at all. +In pursuing our acquisition strategy, we may seek to effectuate our initial business combination with a privately held company. Very little public information generally exists about private companies, and we could be required to make our decision on whether to pursue a potential initial business combination on the basis of limited information, which may result in a business combination with a company that is not as profitable as we suspected, if at all. +Risks Relating to our Securities +The securities in which we invest the funds held in the Trust Account could bear a negative rate of interest, which could reduce the value of the assets held in trust such that the per-share redemption amount received by public shareholders may be less than $10.20 per share. +The proceeds held in the Trust Account are invested only in U.S. government treasury obligations with a maturity of 185 days or less or in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act, which invest only in direct U.S. government treasury obligations. While short-term U.S. government treasury obligations currently yield a positive rate of interest, they have briefly yielded negative interest rates in recent years. Central banks in Europe and Japan pursued interest rates below zero in recent years, and the Open Market Committee of the Federal Reserve has not ruled out the possibility that it may in the future adopt similar policies in the United States. In the event that we are unable to complete our initial business combination or make certain amendments to our amended and restated memorandum and articles of association, our public shareholders are entitled to receive their pro rata share of the proceeds held in the Trust Account, plus any interest income, net of taxes paid or payable (less, in the case we are unable to complete our initial business combination, $100,000 of interest). Negative interest rates could reduce the value of the assets held in trust such that the per-share redemption amount received by public shareholders may be less than $10.20 per share. +If we are deemed to be an investment company under the Investment Company Act, we may be required to institute burdensome compliance requirements and our activities may be restricted, which may make it difficult for us to complete our initial business combination. +If we are deemed to be an investment company under the Investment Company Act, our activities may be restricted, including restrictions on the nature of our investments and restrictions on the issuance of securities, each of which may make it difficult for us to complete our initial business combination. In addition, we may have imposed upon us burdensome requirements, including registration as an investment company with the SEC, adoption of a specific form of corporate structure, and reporting, record keeping, voting, proxy and disclosure requirements and other rules and regulations that we are currently not subject to. +In order not to be regulated as an investment company under the Investment Company Act, unless we can qualify for an exclusion, we must ensure that we are engaged primarily in a business other than investing, reinvesting or trading of securities and that our activities do not include investing, reinvesting, owning, holding or trading “investment securities” constituting more than 40% of our assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis. Our business will be to identify and complete a business combination and thereafter to operate the post-transaction business or assets for the long term. We do not plan to buy businesses or assets with a view to resale or profit from their resale. We do not plan to buy unrelated businesses or assets or to be a passive investor. +We do not believe that our principal activities will subject us to the Investment Company Act. To this end, the proceeds held in the Trust Account may only be invested in United States “government securities” within the meaning of Section 2(a)(16) of the Investment Company Act having a maturity of 185 days or less or in money market funds meeting certain conditions under Rule 2a-7 promulgated under the Investment Company Act that invest only in direct U.S. government treasury obligations. Pursuant to the trust agreement, the trustee is not permitted to invest in other securities or assets. By restricting the investment of the proceeds to these instruments, and by having a business plan targeted at acquiring and growing businesses for the long term (rather than on buying and selling businesses in the manner of a merchant bank or private equity fund), we intend to avoid being deemed an “investment company” within the meaning of the Investment Company Act. The Initial Public Offering was not intended for persons who are seeking a return on investments in government securities or investment securities. The Trust Account is intended as a holding place for funds pending the earliest to occur of either: (i) the completion of our initial business combination; (ii) the redemption of any public shares properly tendered in connection +54 +Table of Contents +with a shareholder vote to amend our amended and restated memorandum and articles of association (A) to modify the substance or timing of our obligation to provide holders of our Class A ordinary shares the right to have their shares redeemed in connection with our initial business combination or to redeem 100% of our public shares if we do not complete our initial business combination by April 18, 2026 (or up to January 18, 2027, if we extend the time to complete a business combination as described elsewhere in this Annual Report on Form 10-K) or (B) with respect to any other provision relating to the rights of holders of our Class A ordinary shares; or (iii) absent our completing an initial business combination by April 18, 2026 (or up to January 18, 2027, if we extend the time to complete a business combination as described elsewhere in this Annual Report on Form 10-K), our return of the funds held in the Trust Account to our public shareholders as part of our redemption of the public shares. If we do not invest the proceeds as discussed above, we may be deemed to be subject to the Investment Company Act. If we were deemed to be subject to the Investment Company Act, compliance with these additional regulatory burdens would require additional expenses for which we have not allotted funds and may hinder our ability to complete a business combination. If we have not consummated our initial business combination within the required time period, our public shareholders may receive only approximately $10.20 per public share, or less in certain circumstances, on the liquidation of our Trust Account and our warrants will expire worthless. +You may experience substantial dilution of our Class A ordinary shares due to anti-dilution provisions in the founder shares. +The anti-dilution provisions of the founder shares may result in the issuance of Class A ordinary shares on a greater than one-to-one basis upon conversion of the founder shares at the time of our initial business combination and would become exacerbate dilution to the extent that public shareholders seek redemptions from the trust for their public shares. In addition, because of the anti-dilution protection in the founder shares, any equity or equity-linked securities issued in connection with our initial business combination would be disproportionately dilutive to our Class A ordinary shares. +The nominal purchase price paid by the Sponsor for the founder shares may result in significant dilution to the implied value of your public shares upon the consummation of our initial business combination. +We offered our units at an offering price of $10.00 per unit and the amount in our Trust Account is $10.20 per public share, implying an initial value of $10.20 per public share. However, prior to the Initial Public Offering, the Sponsor paid a nominal aggregate purchase price of $25,000 for the founder shares, or approximately $0.005 per share. As a result, the value of your public shares may be significantly diluted upon the consummation of our initial business combination, when the founder shares are converted into public shares. For example, the following table shows the dilutive effect of the founder shares on the implied value of the public shares upon the consummation of our initial business combination, assuming that our equity value at that time is $148,295,756, which is the amount we have in the Trust Account for our initial business combination, assuming no interest is earned on the funds held in the Trust Account and no public shares are redeemed in connection with our initial business combination, and without taking into account any other potential impacts on our valuation at such time, such as the trading price of our public shares, the business combination transaction costs, any equity issued or cash paid to the target’s sellers or other third parties, or the target’s business itself, including its assets, liabilities, management and prospects, as well as the value of our public and private placement warrants. At such valuation, each of our ordinary shares would have an implied value of approximately $7.44 per share upon consummation of our initial business combination, which would be an approximately 27.1% decrease as compared to the initial implied value per public share of $10.20. +​ +​ +​ +​ +​ +Public shares +​ ​ ​ +​ +14,375,000 +Founder shares +​ +4,791,667 +Private placement shares (included in Private Placement Units) +​ +762,500 +Total shares +​ +19,929,167 +Total funds in trust available for initial business combination (less deferred underwriter commissions) +​ +$ +148,295,756 +Initial implied value per public share +​ +$ +10.20 +Implied value per share upon consummation of initial business combination +​ +$ +7.44 +​ +The value of the founder shares following completion of our initial business combination is likely to be substantially higher than the nominal price paid for them, even if the trading price of our ordinary shares at such time is substantially less than $10.00 per share. +The Sponsor has invested in us an aggregate of $6,400,000 comprised of the $25,000 purchase price for the founder shares and the $6,375,000 purchase price for its Private Placement Units. Assuming a trading price of $10.00 per share upon consummation of our initial business combination, the founder shares and private placement shares held by the Sponsor would have an aggregate value of $54,291,670 (assuming no value is attributed to the private placement warrants). Even if the trading price of our ordinary shares was as low as approximately $1.17 per share, the value of the founder shares and private placement shares would be equal to the Sponsor’s +55 +Table of Contents +initial investment in us. As a result, the Sponsor is likely to be able to recoup its investment in us and make a substantial profit on that investment, even if our public shares have lost significant value. Accordingly, our management team, which owns interests in the Sponsor, may have an economic incentive that differs from that of the public shareholders to pursue and consummate an initial business combination rather than to liquidate and to return all of the cash in the trust to the public shareholders, even if that business combination were with a riskier or less-established target business. For the foregoing reasons, you should consider our management team’s financial incentive to complete an initial business combination when evaluating whether to redeem your shares prior to or in connection with our initial business combination. +We may issue additional Class A ordinary shares or preference shares to complete our initial business combination or under an employee incentive plan after the completion of our initial business combination. We may also issue Class A ordinary shares upon the conversion of the founder shares at a ratio greater than one-to-one at the time of our initial business combination as a result of the anti-dilution provisions contained in our amended and restated memorandum and articles of association. Any such issuances would dilute the interest of our shareholders and likely present other risks. +Our amended and restated memorandum and articles of association authorize the issuance of up to 200,000,000 Class A ordinary shares, par value $0.0001 per share, 20,000,000 Class B ordinary shares, par value $0.0001 per share, and 2,000,000 preference shares, par value $0.0001 per share. There are 184,862,500 and 15,208,333 authorized but unissued Class A ordinary shares and Class B ordinary shares, respectively, available for issuance which amount does not take into account shares reserved for issuance upon exercise of outstanding warrants or shares issuable upon conversion of the Class B ordinary shares, if any. The Class B ordinary shares will automatically convert into Class A ordinary shares (which such Class A ordinary shares delivered upon conversion will not have any redemption rights or be entitled to liquidating distributions from the Trust Account if we fail to consummate an initial business combination) at the time of our initial business combination or earlier at the option of the holders thereof as described herein and in our amended and restated memorandum and articles of association. Immediately after the Initial Public Offering, there will be no preference shares issued and outstanding. +We may issue a substantial number of additional Class A ordinary shares or preference shares to complete our initial business combination or under an employee incentive plan after the completion of our initial business combination. We may also issue Class A ordinary shares in connection with our redeeming the warrants as described in or upon conversion of the Class B ordinary shares at a ratio greater than one-to-one at the time of our initial business combination as a result of the anti-dilution provisions as set forth herein. +However, our amended and restated memorandum and articles of association will provide, among other things, that prior to or in connection with our initial business combination, we may not issue additional shares that would entitle the holders thereof to (i) receive funds from the Trust Account or (ii) vote on any initial business combination or on any other proposal presented to shareholders prior to or in connection with the completion of an initial business combination. These provisions of our amended and restated memorandum and articles of association, like all provisions of our amended and restated memorandum and articles of association, may be amended with a shareholder vote. The issuance of additional ordinary or preference shares: +● may significantly dilute the equity interest of investors in the Initial Public Offering, which dilution would increase if the anti-dilution provisions in the Class B ordinary shares resulted in the issuance of Class A ordinary shares on a greater than one-to-one basis upon conversion of the Class B ordinary shares; +● may subordinate the rights of holders of Class A ordinary shares if preference shares are issued with rights senior to those afforded our Class A ordinary shares; +● could cause a change in control if a substantial number of Class A ordinary shares are issued, which may affect, among other things, our ability to use our net operating loss carry forwards, if any, and could result in the resignation or removal of our present officers and directors; +● may have the effect of delaying or preventing a change of control of us by diluting the share ownership or voting rights of a person seeking to obtain control of us; +● may adversely affect prevailing market prices for our units, Class A ordinary shares and/or warrants; and +● may not result in adjustment to the exercise price of our warrants. +56 +Table of Contents +Unlike some other similarly structured blank check companies, the Sponsor will receive additional Class A ordinary shares if we issue shares to consummate an initial business combination. +The founder shares will automatically convert into Class A ordinary shares (which such Class A ordinary shares delivered upon conversion will not have any redemption rights or be entitled to liquidating distributions from the Trust Account if we fail to consummate an initial business combination) at the time of our initial business combination or earlier at the option of the holders thereof at a ratio such that the number of Class A ordinary shares issuable upon conversion of all founder shares will equal, in the aggregate, on an as-converted basis, 25% of the sum of (i) the total number of ordinary shares issued and outstanding upon the completion of the Initial Public Offering (excluding the private placement shares), plus (ii) the total number of Class A ordinary shares issued or deemed issued or issuable upon conversion or exercise of any equity-linked securities or rights issued or deemed issued, by the company in connection with or in relation to the consummation of our initial business combination, excluding any Class A ordinary shares or equity-linked securities exercisable for or convertible into Class A ordinary shares issued, deemed issued or to be issued to any seller in our initial business combination and any Private Placement Units issued to the Sponsor, its affiliates or any members of our management team upon conversion of working capital loans. In no event will the Class B ordinary shares convert into Class A ordinary shares at a rate of less than one-to-one. This is different than some other similarly structured blank check companies in which initial shareholders will only be issued an aggregate of 20% of the total number of shares to be outstanding prior to an initial business combination. +We are not registering the offer and sale of the Class A ordinary shares issuable upon exercise of the warrants under the Securities Act or any state securities laws at this time, and such registration may not be in place when an investor desires to exercise warrants, thus precluding such investor from being able to exercise its warrants except on a cashless basis and potentially causing such warrants to expire worthless. +We are not registering the offer and sale of the Class A ordinary shares issuable upon exercise of the warrants under the Securities Act or any state securities laws at this time. However, under the terms of that certain Warrant Agreement, by and between the Company and Equiniti Trust Company, LLC (f/k/a American Stock Transfer & Trust Company), dated January 12, 2023 (the “Warrant Agreement”), we have agreed that, as soon as practicable, but in no event later than 15 business days after the closing of our initial business combination, we will use our commercially reasonable efforts to file with the SEC a registration statement covering the issuance of such ordinary shares, and we will use our commercially reasonable efforts to cause the same to become effective within 60 business days after the closing of our initial business combination and to maintain the effectiveness of such registration statement and a current prospectus relating to those Class A ordinary shares until the warrants expire or are redeemed. We cannot assure you that we will be able to do so if, for example, any facts or events arise that represent a fundamental change in the information set forth in the registration statement or prospectus, the financial statements contained or incorporated by reference therein are not current, complete or correct or the SEC issues a stop order. If the offer and sale of the Class A ordinary shares issuable upon exercise of the warrants is not registered under the Securities Act in accordance with the above requirements, we will be required to permit holders to exercise their public warrants on a cashless basis. However, we will not be obligated to issue any Class A ordinary shares to holders seeking to exercise their public warrants, unless the issuance of the Class A ordinary shares upon such exercise is registered or qualified under the securities laws of the state of the exercising holder, or an exemption from registration is available. Notwithstanding the above, if our Class A ordinary shares are at the time of any exercise of a warrant not listed on a national securities exchange such that they satisfy the definition of a “covered security” under Section 18(b)(1) of the Securities Act, we may, at our option, require holders of public warrants who exercise their warrants to do so on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act and, in the event we so elect, we will not be required to file or maintain in effect a registration statement, but we will use our commercially reasonable efforts to register or qualify the offer and sale of the shares under applicable blue sky laws to the extent an exemption is not available. Additionally, if we call the public warrants for redemption, our management will have the option to require all holders that wish to exercise public warrants to do so on a cashless basis. In the event of an exercise of a warrant on a cashless basis, a holder would pay the warrant exercise price by surrendering the warrants for that number of Class A ordinary shares equal to the quotient obtained by dividing (x) the product of the number of Class A ordinary shares underlying the warrants, multiplied by the difference between the exercise price of the warrants and the “fair market value” (as defined in the next sentence) by (y) the fair market value. The “fair market value” is the volume-weighted average price of the Class A ordinary shares for the 10 trading days ending on the trading day prior to the date that notice of exercise is received by the warrant agent. Exercising the warrants on a cashless basis could have the effect of reducing the potential “upside” of the holder’s investment in our Company because the warrant holder will hold a smaller number of Class A ordinary shares upon a cashless exercise of the warrants they hold. In no event will we be required to net cash settle any warrant, or issue securities or other compensation in exchange for the warrants in the event that we are unable register or qualify the issuance of the Class A shares underlying the warrants under applicable state securities laws and no exemption is available. If the issuance of the Class A ordinary shares upon exercise of the warrants is not so registered or qualified or exempt from registration or qualification, the holder of such warrant shall not be entitled to exercise such warrant and such warrant may have no value and expire worthless. In such event, holders +57 +Table of Contents +who acquired their warrants as part of a purchase of units will have paid the full unit purchase price solely for the Class A ordinary shares included in the units. There may be a circumstance where an exemption from registration exists for holders of our private placement warrants to exercise their private placement warrants while a corresponding exemption does not exist for holders of the public warrants included as part of units sold in the Initial Public Offering. In such an instance, the Sponsor and its permitted transferees (which may include our directors and officers) would be able to exercise their private placement warrants and sell the Class A ordinary shares underlying their private placement warrants while holders of our public warrants would not be able to exercise their warrants and sell the underlying Class A ordinary shares. If and when the warrants become redeemable by us, we may exercise our redemption right even if we are unable to register or qualify the underlying Class A ordinary shares for sale under all applicable state securities laws. As a result, we may redeem the warrants as set forth above even if the holders are otherwise unable to exercise their warrants. +We may amend the terms of the warrants in a manner that may be adverse to holders of public warrants with the approval by the holders of at least 50% of the then-outstanding public warrants. As a result, the exercise price of your warrants could be increased, the exercise period could be shortened and the number of our Class A ordinary shares purchasable upon exercise of a warrant could be decreased, all without your approval. +Our warrants are issued in registered form under a warrant agreement between Equiniti Trust Company, LLC (f/k/a American Stock Transfer & Trust Company), as warrant agent, and us. The warrant agreement provides that the terms of the warrants may be amended without the consent of any holder for the purpose of (i) curing any ambiguity or correcting any mistake, including to conform the provisions of the warrant agreement to the description of the terms of the warrants and the warrant agreement, or defective provision (ii) removing or reducing the Company’s ability to redeem the Public Warrants, or (iii) adding or changing any provisions with respect to matters or questions arising under the warrant agreement as the parties to the warrant agreement may deem necessary or desirable and that the parties deem to not adversely affect the rights of the registered holders of the warrants, provided that the approval by the holders of at least 50% of the then-outstanding public warrants is required to make any change that adversely affects the interests of the registered holders of public warrants. Accordingly, we may amend the terms of the public warrants in a manner adverse to a holder if holders of at least 50% of the then-outstanding public warrants approve of such amendment and, solely with respect to any amendment to the terms of the private placement warrants or any provision of the warrant agreement with respect to the private placement warrants, 50% of the number of the then outstanding private placement warrants. Although our ability to amend the terms of the public warrants with the consent of at least 50% of the then-outstanding public warrants is unlimited, examples of such amendments could be amendments to, among other things, increase the exercise price of the warrants, convert the warrants into cash, shorten the exercise period or decrease the number of Class A ordinary shares purchasable upon exercise of a warrant. +Our warrant agreement and rights agreement designate the courts of the State of New York or the United States District Court for the Southern District of New York as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by holders of our warrants, which could limit the ability of warrant holders to obtain a favorable judicial forum for disputes with our company. +Our warrant agreement and rights agreement provide that, subject to applicable law, (i) any action, proceeding or claim against us arising out of or relating in any way to the warrant agreement, including under the Securities Act, will be brought and enforced in the courts of the State of New York or the United States District Court for the Southern District of New York, and (ii) that we irrevocably submit to such jurisdiction, which jurisdiction shall be the exclusive forum for any such action, proceeding or claim. We will waive any objection to such exclusive jurisdiction and that such courts represent an inconvenient forum. +Notwithstanding the foregoing, these provisions of the warrant agreement will not apply to suits brought to enforce any liability or duty created by the Exchange Act or any other claim for which the federal district courts of the United States of America are the sole and exclusive forum. Accordingly, our exclusive forum provision will not relieve us of our duties to comply with the federal securities laws and the rules and regulations thereunder, and holders of our warrants will not be deemed to have waived our compliance with these laws, rules and regulations. Any person or entity purchasing or otherwise acquiring any interest in any of our warrants shall be deemed to have notice of and to have consented to the forum provisions in our warrant agreement and rights agreement. If any action, the subject matter of which is within the scope the forum provisions of the warrant agreement, is filed in a court other than a court of the State of New York or the United States District Court for the Southern District of New York (a “foreign action”) in the name of any holder of our warrants, such holder shall be deemed to have consented to: (x) the personal jurisdiction of the state and federal courts located in the State of New York in connection with any action brought in any such court to enforce the forum provisions (an “enforcement action”), and (y) having service of process made upon such warrant holder in any such enforcement action by service upon such warrant holder’s counsel in the foreign action as agent for such warrant holder. +58 +Table of Contents +This choice-of-forum provision may limit a warrant holder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with our company, which may discourage such lawsuits. Alternatively, if a court were to find this provision of our warrant agreement and rights agreement inapplicable or unenforceable with respect to one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could materially and adversely affect our business, financial condition and results of operations and result in a diversion of the time and resources of our management and board of directors. +We may redeem your unexpired warrants prior to their exercise at a time that is disadvantageous to you, thereby making your warrants worthless. +We have the ability to redeem the outstanding public warrants at any time after they become exercisable and prior to their expiration, but not earlier than ninety (90) days after the initial business combination, at a price of $0.01 per warrant, provided that the closing price of our Class A ordinary shares equals or exceeds $18.00 per share (as adjusted for adjustments to the number of shares issuable upon exercise or the exercise price of a warrant) for any 20 trading days within a 30 trading-day period ending on the third trading day prior to proper notice of such redemption and provided that certain other conditions are met. If and when the warrants become redeemable by us, we may exercise our redemption right even if we are unable to register or qualify the underlying securities for sale under all applicable state securities laws. As a result, we may redeem the warrants as set forth above even if the holders are otherwise unable to exercise the warrants. Redemption of the outstanding warrants could force you to (i) exercise your warrants and pay the exercise price therefor at a time when it may be disadvantageous for you to do so, (ii) sell your warrants at the then-current market price when you might otherwise wish to hold your warrants or (iii) accept the nominal redemption price which, at the time the outstanding warrants are called for redemption, we expect would be substantially less than the market value of your warrants. +None of the private placement warrants are redeemable by us. +Our warrants may have an adverse effect on the market price of our Class A ordinary shares and make it more difficult to effectuate our initial business combination. +We issued warrants representing the right to purchase 14,375,000 Class A ordinary shares as part of the units offered by the prospectus and, simultaneously with the closing of the Initial Public Offering, we issued 762,500 private placement warrants as part of the Private Placement Units we sold, with each private placement warrant representing the right to purchase one Class A ordinary share at $11.50 per share, subject to adjustment. In addition, if the Sponsor, its affiliates or a member of our management team makes any working capital loans, it may convert up to $1,500,000 of such loans into private placement-equivalent units of the post-business combination entity at a price of $10.00 per private placement-equivalent unit at the option of the lender. Such units would be identical to the Private Placement Units and could result in the issuance of up to 150,000 additional warrants, in the aggregate. +To the extent we issue ordinary shares for any reason, including to effectuate a business combination, the potential for the issuance of a substantial number of additional Class A ordinary shares upon exercise of these warrants or conversion of these rights could make us a less attractive acquisition vehicle to a business. Such warrants, when exercised or converted, will increase the number of issued and outstanding Class A ordinary shares and reduce the value of the Class A ordinary shares issued to complete the business transaction. Therefore, our warrants may make it more difficult to effectuate a business transaction or increase the cost of acquiring the target business. +A provision of our warrant agreement may make it more difficult for us to consummate an initial business combination. +Unlike most blank check companies, if (i) we issue additional Class A ordinary shares or equity-linked securities for capital raising purposes in connection with the closing of our initial business combination at an issue price of less than $9.20 per ordinary share (the “Newly Issued Price”), (ii) the aggregate gross proceeds from such issuances represent more than 60% of the total equity proceeds, and interest thereon, available for the funding of our initial business combination on the date of the consummation of our initial business combination (net of redemptions), and (iii) the market value is below $9.20 per share, then the exercise price of the warrants will be adjusted (to the nearest cent) to be equal to 115% of the higher of the market value and the Newly Issued Price, and the $18.00 per share redemption trigger prices will be adjusted (to the nearest cent) to be equal to 180% of the higher of the market value and the Newly Issued Price. This may make it more difficult for us to consummate an initial business combination with a target business. +59 +Table of Contents +We may issue our shares to investors in connection with our initial business combination at a price that is less than the prevailing market price of our shares at that time. +In connection with our initial business combination, we may issue shares to investors in private placement transactions (so-called PIPE transactions) at a price of $10.00 per share or which approximates the per-share amounts in our Trust Account at such time. The purpose of such issuances will be to enable us to provide sufficient liquidity to the post-business combination entity. The price of the shares we issue may therefore be less, and potentially significantly less, than the market price for our shares at such time. +Provisions in our amended and restated memorandum and articles of association may inhibit a takeover of us, which could limit the price investors might be willing to pay in the future for our Class A ordinary shares and could entrench management. +Our amended and restated memorandum and articles of association will contain provisions that may discourage unsolicited takeover proposals that shareholders may consider to be in their best interests. These provisions will include a staggered board of directors and the ability of the board of directors to designate the terms of and issue new series of preference shares, which may make more difficult the removal of management and may discourage transactions that otherwise could involve payment of a premium over prevailing market prices for our securities. +The U.S. federal income tax consequences of a cashless exercise of warrants included in the units we issued in the Initial Public Offering is unclear under current law. +The U.S. federal income tax consequences of a cashless exercise of warrants included in the units we issued in the Initial Public Offering is unclear under current law. Additionally, it is unclear whether the redemption rights with respect to our ordinary shares would suspend the running of a U.S. holder’s period for purposes of determining whether any gain or loss realized by such holder on the sale or exchange of Class A ordinary shares is long-term capital gain or loss and for determining whether any dividend we pay would be taxed at the long-term capital gains rate for U.S. federal income tax purposes. See the section titled “ Taxation — United States Federal Income Tax Considerations ” for a summary of the U.S. federal income tax considerations of an investment in our securities. Prospective investors are urged to consult their tax advisors with respect to these and other tax consequences when purchasing, holding or disposing of our securities. +Because we are incorporated under the laws of the Cayman Islands, you may face difficulties in protecting your interests, and your ability to protect your rights through the U.S. federal courts may be limited. +We are an exempted limited company incorporated under the laws of the Cayman Islands. As a result, it may be difficult for investors to effect service of process within the United States upon our directors or executive officers, or enforce judgments obtained in the United States courts against our directors or officers. +Our corporate affairs will be governed by our amended and restated memorandum and articles of association, the Companies Act (as the same may be supplemented, revised or amended from time to time) and the common law of the Cayman Islands. We will also be subject to the federal securities laws of the United States. The rights of shareholders to take action against the directors, actions by minority shareholders and the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedents in the Cayman Islands as well as from English common law, the decisions of whose courts are of persuasive authority, but are not binding on a court in the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are different from what they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands has a different body of securities laws as compared to the United States, and certain states, such as Delaware, may have more fully developed and judicially interpreted bodies of corporate law. In addition, Cayman Islands companies may not have standing to initiate a shareholders derivative action in a federal court of the United States. +We have been advised by our Cayman Islands legal counsel that the courts of the Cayman Islands are unlikely (i) to recognize or enforce against us judgments of courts of the United States predicated upon the civil liability provisions of the federal securities laws of the United States or any state; and (ii) in original actions brought in the Cayman Islands, to impose liabilities against us predicated upon the civil liability provisions of the federal securities laws of the United States or any state, so far as the liabilities imposed by those provisions are penal in nature. In those circumstances, although there is no statutory enforcement in the Cayman Islands of judgments obtained in the United States, the courts of the Cayman Islands will recognize and enforce a foreign money judgment of a foreign court of competent jurisdiction without retrial on the merits based on the principle that a judgment of a competent foreign court imposes upon +60 +Table of Contents +the judgment debtor an obligation to pay the sum for which judgment has been given provided certain conditions are met. For a foreign judgment to be enforced in the Cayman Islands, such judgment must be final and conclusive and for a liquidated sum, and must not be in respect of taxes or a fine or penalty, inconsistent with a Cayman Islands judgment in respect of the same matter, impeachable on the grounds of fraud or obtained in a manner, or be of a kind the enforcement of which is, contrary to natural justice or the public policy of the Cayman Islands (awards of punitive or multiple damages may well be held to be contrary to public policy). A Cayman Islands court may stay enforcement proceedings if concurrent proceedings are being brought elsewhere. +As a result of all of the above, public shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of the board of directors or controlling shareholders than they would as public shareholders of a United States company. +If we have not consummated an initial business combination by April 18, 2026 (or up to January 18, 2027, if we extend the time to complete a business combination as described elsewhere in this Annual Report on Form 10-K), our public shareholders may be forced to wait beyond such period before redemption from our Trust Account. +If we have not consummated an initial business combination by April 18, 2026 (or up to January 18, 2027, if we extend the time to complete a business combination as described elsewhere in this Annual Report on Form 10-K), the proceeds then on deposit in the Trust Account, including interest earned on the funds held in the Trust Account and not previously released to us to pay our taxes, if any (less up to $100,000 of interest to pay dissolution expenses), will be used to fund the redemption of our public shares, as further described herein. Any redemption of public shareholders from the Trust Account will be effected automatically by function of our amended and restated memorandum and articles of association prior to any voluntary winding up. If we are required to wind up, liquidate the Trust Account and distribute such amount therein, pro rata, to our public shareholders, as part of any liquidation process, such winding up, liquidation and distribution must comply with the applicable provisions of the Companies Act. In that case, investors may be forced to wait beyond April 18, 2026 (or up to January 18, 2027 if we extend the time to complete a business combination) before the redemption proceeds of our Trust Account become available to them and they can receive the return of their pro rata portion of the proceeds from our Trust Account. We have no obligation to return funds to investors prior to the date of our redemption or liquidation unless, prior thereto, we consummate our initial business combination or amend certain provisions of our amended and restated memorandum and articles of association, and only then in cases where investors have sought to redeem their Class A ordinary shares. Only upon our redemption or any liquidation will public shareholders be entitled to distributions if we do not complete our initial business combination and do not amend certain provisions of our amended and restated memorandum and articles of association. Our amended and restated memorandum and articles of association will provide that, if we wind up for any other reason prior to the consummation of our initial business combination, we will follow the foregoing procedures with respect to the liquidation of the Trust Account as promptly as reasonably possible but not more than ten business days thereafter, subject to applicable Cayman Islands law. +The warrants may become exercisable and redeemable for a security other than the Class A ordinary shares, and you will not have any information regarding such other security at this time. +In certain situations, including if we are not the surviving entity in our initial business combination, the warrants may become exercisable for a security other than the Class A ordinary shares. As a result, if the surviving company redeems your warrants for securities pursuant to the warrant agreement, you may receive a security in a company of which you do not have information at this time. Pursuant to the warrant agreement, the surviving company will be required to use commercially reasonable efforts to register the issuance of the security underlying the warrants within 15 business days of the closing of an initial business combination. +The grant of registration rights to the Sponsor may make it more difficult to complete our initial business combination, and the future exercise of such rights may adversely affect the market price of our Class A ordinary shares. +Pursuant to that certain registration rights agreement entered into January 12, 2023, by and among our Company, the Sponsor, BTIG, Exos Capital LLC and JonesTrading Institutional Services LLC (the “Registration Rights Agreement”), the Sponsor and its permitted transferees can demand that we register the resale of the Class A ordinary shares into which founder shares are convertible, the private placement warrants and the Class A ordinary shares issuable upon exercise of the private placement warrants, and warrants that may be issued upon conversion of working capital loans and the Class A ordinary shares issuable upon conversion of such warrants. The registration rights will be exercisable with respect to the founder shares and the private placement warrants and the Class A ordinary shares issuable upon exercise of such private placement warrants. We will bear the costs of registering these securities. The registration and availability of such a significant number of securities for trading in the public market may have an adverse effect on the market price of our Class A ordinary shares. In addition, the existence of the registration rights may make our initial business combination more +61 +Table of Contents +costly or difficult to conclude. This is because the shareholders of the target business may increase the equity stake they seek in the combined entity or ask for more cash consideration to offset the negative impact on the market price of our securities that is expected when the securities owned by the Sponsor or its permitted transferees are registered for resale. +We may reincorporate or become a tax resident in another jurisdiction in connection with our initial business combination and such reincorporation or change in tax residency may result in taxes imposed on shareholders and warrant holders. +We may, in connection with our initial business combination and subject to requisite shareholder approval under the Companies Act, reincorporate in the jurisdiction in which the target company or business is located or in another jurisdiction. Tax structuring considerations are complex, the relevant facts and law are uncertain and may change, and we may prioritize commercial and other considerations over tax considerations. The transaction may require a shareholder or warrant holder to recognize taxable income in the jurisdiction in which the shareholder or warrant holder is a tax resident or in which its members are resident if it is a tax transparent entity. We do not intend to make any cash distributions to shareholders or warrant holders to pay such taxes. Shareholders or warrant holders may be subject to withholding taxes or other taxes with respect to their ownership of us after the reincorporation. In addition, regardless of whether we reincorporate in another jurisdiction, we could be treated as tax resident in the jurisdiction in which the partner company or business is located, which could result in adverse tax consequences to us (e.g., taxation on our worldwide income in such jurisdiction) and to our shareholders or warrant holders (e.g., withholding taxes on dividends and taxation of disposition gains). +If we take advantage of Nasdaq’s controlled company standards, we would be exempt from various corporate governance requirements. +Nasdaq listing rules generally define a “Controlled Company” as any company of which more than 50% of the voting power for the election of directors is held by an individual, a group or another company. Prior to the vote on our initial business combination, only holders of the founder shares will have the right to vote on the election of directors; provided, however, that with respect to the election of directors in connection with a meeting of the shareholders of the Company in which a business combination is submitted to the shareholders of the Company for approval, holders of the Class A ordinary shares and holders of the Class B ordinary shares, voting together as a single class, shall have the exclusive right to vote for the election of directors. Other than pursuant to the provision in the preceding sentence, holders of the Class A ordinary shares will not be entitled to vote on the election of directors prior to the consummation of our initial business combination. All of the founder shares will be held by the Sponsor. Accordingly, prior to the vote on our initial business combination, we would likely satisfy the definition of being a controlled company. As indicated herein, we will not use the related exemptions to Nasdaq’s governance rules under the controlled company standards. However, if we were to change our intentions and take advantage of the controlled company standards, we would be exempt from various corporate governance requirements such as the requirement to have a majority of independent directors and to have nominating/corporate governance and compensation committees comprised entirely of independent directors. +The Company did not regain compliance with the MVLS Requirement. As a result, on November 25, 2025, the Company received a delist determination letter from the Listing Qualifications Department advising the Company that its securities would be delisted. On January 13, 2026, Nasdaq announced its intention to delist the Company’s Class A ordinary shares, units and warrants, followed by a Form 25 filed with the SEC on January 21, 2026 to complete the delisting. The Company’s Class A ordinary shares, units and warrants now trade on the Pink Current tier of the OTC Markets under symbols “ISRLF,” “ISLUF” and “ISLWF”, respectively. +Risks Relating to the Sponsor and Management Team +Past performance by our management team or their respective affiliates may not be indicative of future performance of an investment in us. +Information regarding performance is presented for informational purposes only. Any past experience or performance of our Team or their respective affiliates is not a guarantee of either (i) our ability successfully identify and execute a transaction or (ii) success with respect to any business combination that we may consummate. You should not rely on the historical record of our Team or their respective affiliates as indicative of the future performance of an investment in us or the returns we will, or are likely to, generate going forward. Our Team has limited experience in operating SPACs. +62 +Table of Contents +Our ability to successfully effect our initial business combination and to be successful thereafter will be totally dependent upon the efforts of our key personnel, some of whom may join us following our initial business combination. The loss of key personnel could negatively impact the operations and profitability of our post-combination business. +Our ability to successfully effect our initial business combination is dependent upon the efforts of our key personnel. The role of our key personnel in the target business, however, cannot presently be ascertained. Although some of our key personnel may remain with the target business in senior management, director or advisory positions following our initial business combination, it is likely that some or all of the management of the target business will remain in place. While we intend to closely scrutinize any individuals we engage after our initial business combination, we cannot assure you that our assessment of these individuals will prove to be correct. These individuals may be unfamiliar with the requirements of operating a company regulated by the SEC, which could cause us to have to expend time and resources helping them become familiar with such requirements. +Our key personnel may negotiate employment or consulting agreements with a target business in connection with a particular business combination, and a particular business combination may be conditioned on the retention or resignation of such key personnel. These agreements may provide for them to receive compensation following our initial business combination and as a result, may cause them to have conflicts of interest in determining whether a particular business combination is the most advantageous. +Our key personnel may be able to remain with our company after the completion of our initial business combination only if they are able to negotiate employment or consulting agreements in connection with the business combination. Such negotiations would take place simultaneously with the negotiation of the business combination and could provide for such individuals to receive compensation in the form of cash payments and/or our securities for services they would render to us after the completion of the business combination. Such negotiations also could make such key personnel’s retention or resignation a condition to any such agreement. The personal and financial interests of such individuals may influence their motivation in identifying and selecting a target business. +The officers and directors of an acquisition candidate may resign upon the completion of our initial business combination. The loss of a business combination target’s key personnel could negatively impact the operations and profitability of our post-combination business. +The role of an acquisition candidate’s key personnel upon the completion of our initial business combination cannot be ascertained at this time. Although we contemplate that certain members of an acquisition candidate’s management team will remain associated with the acquisition candidate following our initial business combination, it is possible that members of the management of an acquisition candidate will not wish to remain in place. +Certain of our executive officers and directors may allocate their time to other businesses thereby causing conflicts of interest in their determination as to how much time to devote to our affairs. This conflict of interest could have a negative impact on our ability to complete our initial business combination. +Our executive officers and directors are not required to, and will not, commit their full time to our affairs, which may result in a conflict of interest in allocating their time between our operations and our search for a business combination and their other businesses. Our executive officers may be engaged in several other business endeavors for which he may be entitled to substantial compensation, and our executive officers are not obligated to contribute any specific number of hours per week to our affairs. Our independent directors also serve as officers and board members for other entities. If our executive officers’ and directors’ other business affairs require them to devote substantial amounts of time to such affairs in excess of their current commitment levels, it could limit their ability to devote time to our affairs which may have a negative impact on our ability to complete our initial business combination. For a complete discussion of our executive officers’ and directors’ other business affairs, please see “Item 10 - Directors, Executive Officers and Corporate Governance – Officers and Directors.” +Our officers and directors presently have, and any of them in the future may have additional, fiduciary or contractual obligations to other entities, including another blank check company, and, accordingly, may have conflicts of interest in determining to which entity a particular business opportunity should be presented. +Until we consummate our initial business combination, we intend to engage in the business of identifying and combining with one or more businesses or entities. Each of our officers and directors presently has, and any of them in the future may have additional, fiduciary or contractual obligations to other entities pursuant to which such officer or director is or will be required to present a business +63 +Table of Contents +combination opportunity to such entity, subject to his or her fiduciary duties under Cayman Islands law. Accordingly, they may have conflicts of interest in determining to which entity a particular business opportunity should be presented. These conflicts may not be resolved in our favor and a potential target business may be presented to another entity prior to its presentation to us, subject to their fiduciary duties under Cayman Islands law. +In addition, the Sponsor, officers and directors may in the future become affiliated with other blank check companies that may have acquisition objectives that are similar to ours. Accordingly, they may have conflicts of interest in determining to which entity a particular business opportunity should be presented. These conflicts may not be resolved in our favor and a potential target business may be presented to such other blank check companies prior to its presentation to us, subject to our officers’ and directors’ fiduciary duties under Cayman Islands law. Our amended and restated memorandum and articles of association provide that, to the fullest extent permitted by applicable law: (i) no individual serving as a director or an officer shall have any duty, except and to the extent expressly assumed by contract, to refrain from engaging directly or indirectly in the same or similar business activities or lines of business as us; and (ii) we renounce any interest or expectancy in, or in being offered an opportunity to participate in, any potential transaction or matter which may be a corporate opportunity for any director or officer, on the one hand, and us, on the other, unless such opportunity is expressly offered to such person in their capacity as a director or officer of our company and the opportunity is one we are permitted to complete on a reasonable basis. +For a complete discussion of our executive officers’ and directors’ business affiliations and the potential conflicts of interest that you should be aware of, please see “Item 10 - Directors, Executive Officers and Corporate Governance – Officers and Directors,” “Item 10 - Directors, Executive Officers and Corporate Governance – Conflicts of Interest” and “ Certain Relationships and Related Party Transactions .” +Our advisors and members of our management team and board of directors have significant experience as founders, board members, officers, executives or employees of other companies. Certain of those persons may have been, may be, or may become, involved in litigation, investigations or other proceedings, including related to those companies or otherwise. The defense or prosecution of these matters could be time-consuming and could divert our advisors’ and our management’s attention, and may have an adverse effect on us, which may impede our ability to consummate an initial business combination. +During the course of their careers, our advisors and members of our management team and board of directors have had significant experience as founders, board members, officers, executives or employees of other companies. As a result of their involvement and positions in these companies, certain of those persons may have been, may be or may in the future become involved in litigation, investigations or other proceedings, including relating to the business affairs of such companies, transactions entered into by such companies, or otherwise. Our advisors and individual members of our management team and board of directors also may become involved in litigation, investigations or other proceedings involving claims or allegations related to or as a result of their personal conduct, either in their capacity as an advisor, corporate officer or director or otherwise, and may be personally named in such actions and potentially subject to personal liability. Any such liability may or may not be covered by insurance and/or indemnification, depending on the facts and circumstances. The defense or prosecution of these matters could be time-consuming. Any litigation, investigations or other proceedings and the potential outcomes of such actions may divert the attention and resources of our advisors and our management team and board of directors away from identifying and selecting a target business or businesses for our initial business combination and may negatively affect our reputation, which may impede our ability to complete an initial business combination. +Our executive officers, directors, security holders and their respective affiliates may have competitive pecuniary interests that conflict with our interests. +We have not adopted a policy that expressly prohibits our directors, executive officers, security holders or affiliates from having a direct or indirect pecuniary or financial interest in any investment to be acquired or disposed of by us or in any transaction to which we are a party or have an interest. In fact, we may enter into a business combination with a target business that is affiliated with the Sponsor, our directors or executive officers. Nor do we have a policy that expressly prohibits any such persons from engaging for their own account in business activities of the types conducted by us. Accordingly, such persons or entities may have a conflict between their interests and ours. +The personal and financial interests of our officers and directors may influence their motivation in timely identifying and selecting a target business and completing a business combination. Consequently, our directors’ and officers’ discretion in identifying and selecting a suitable target business may result in a conflict of interest when determining whether the terms, conditions and timing of a +64 +Table of Contents +particular business combination are appropriate and in our shareholders’ best interest. If this were the case, it would be a breach of their fiduciary duties to us as a matter of Cayman Islands law and we or our shareholders might have a claim against such individuals for infringing on our shareholders’ rights. However, we might not ultimately be successful in any claim we may make against them for such reason. +We may engage one or more of our underwriters or one of their respective affiliates to provide additional services to us, which may include acting as financial advisor in connection with an initial business combination or as placement agent in connection with a related financing transaction. Our underwriters are entitled to receive deferred underwriting commissions that will be released from the Trust Account only upon a completion of an initial business combination. These financial incentives may cause them to have potential conflicts of interest in rendering any such additional services to us, including, for example, in connection with the sourcing and consummation of an initial business combination. +We may engage one or more of our underwriters or one of their respective affiliates to provide additional services, including, for example, identifying potential targets, providing financial advisory services, acting as a placement agent in a private offering or arranging debt financing transactions. We may pay such underwriter or its affiliate fair and reasonable fees or other compensation that would be determined at that time in an arm’s length negotiation; provided that no agreement will be entered into with any of the underwriters or their respective affiliates and no fees or other compensation for such services will be paid to any of the underwriters or their respective affiliates prior to the date that is 60 days from the date of the prospectus, unless such payment would not be deemed underwriters’ compensation in connection with the Initial Public Offering. The underwriters are also entitled to receive deferred underwriting commissions that are conditioned on the completion of an initial business combination. The underwriters’ or their respective affiliates’ financial interests tied to the consummation of a business combination transaction may give rise to potential conflicts of interest in providing any such additional services to us, including potential conflicts of interest in connection with the sourcing and consummation of an initial business combination. +We may engage in a business combination with one or more target businesses that have relationships with entities that may be affiliated with the Sponsor, executive officers, directors or initial shareholders, which may raise potential conflicts of interest. +In light of the involvement of the Sponsor, executive officers and directors with other entities, we may decide to acquire one or more businesses affiliated with the Sponsor, executive officers, directors or initial shareholders. Our directors also serve as officers and board members for other entities, including, without limitation, those described under “Item 10 - Directors, Executive Officers and Corporate Governance – Conflicts of Interest.” The Sponsor, officers and directors may sponsor, form or participate in other blank check companies similar to ours during the period in which we are seeking an initial business combination. Such entities may compete with us for business combination opportunities. The Sponsor, officers and directors are not currently aware of any specific opportunities for us to complete our initial business combination with any entities with which they are affiliated, and there have been no substantive discussions concerning a business combination with any such entity or entities. Although we will not be specifically focusing on, or targeting, any transaction with any affiliated entities, we would pursue such a transaction if we determined that such affiliated entity met our criteria and guidelines for a business combination as set forth in “ Business — Business Combination Criteria ” and such transaction was approved by a majority of our independent and disinterested directors. Despite our agreement to obtain an opinion from an independent investment banking firm or another independent entity that commonly renders valuation opinions regarding the fairness to our company from a financial point of view of a business combination with one or more domestic or international businesses affiliated with the Sponsor, executive officers, directors or initial shareholders, potential conflicts of interest still may exist and, as a result, the terms of the business combination may not be as advantageous to our public shareholders as they would be absent any conflicts of interest. +65 +Table of Contents +Since the Sponsor, executive officers and directors will lose their entire investment in us if our initial business combination is not completed (other than with respect to public shares they may acquire during or after the Initial Public Offering), a conflict of interest may arise in determining whether a particular business combination target is appropriate for our initial business combination. +On January 26, 2022, the Sponsor paid $25,000, or approximately $0.004 per share, in consideration of 5,750,000 Class B ordinary shares, par value $0.0001. On March 4, 2022, we effected a share capitalization with respect to our Class B ordinary shares of 1,150,000, resulting in our initial shareholders holding 6,900,000 founder shares. On August 18, 2022, the Sponsor surrendered for no consideration 1,150,000 Class B ordinary shares, resulting in our initial shareholders holding 5,750,000 founder shares. On November 17, 2022, the Sponsor surrendered for no consideration 958,333 Class B ordinary shares, resulting in our initial shareholders holding 4,791,667 founder shares. Prior to the initial investment in the company of $25,000 by the Sponsor, the Company had no assets, tangible or intangible. The per-share price of the founder shares was determined by dividing the amount contributed to the company by the number of founder shares issued. The founder shares will be worthless if we do not complete an initial business combination. In addition, the Sponsor and the underwriters purchased, pursuant to a written agreement, an aggregate of 762,500 Private Placement Units (637,500 Private Placement Units by the Sponsor and 125,000 Private Placement Units by the underwriters) at a price of $10.00 per unit ($7,625,000 in the aggregate), in a private placement that closed simultaneously with the closing of the Initial Public Offering. If we do not consummate an initial business by April 18, 2026 (or up to January 18, 2027, if we extend the time to complete a business combination as described elsewhere in this Annual Report on Form 10-K), the private placement warrants included in the Private Placement Units will expire worthless. In addition, our executive officers and directors will hold an indirect interest in the founder shares and the Private Placement Units owned by the Sponsor through their membership interests in the Sponsor. The personal and financial interests of our executive officers and directors may influence their motivation in identifying and selecting a target business combination, completing an initial business combination and influencing the operation of the business following our initial business combination. This risk may become more acute as the deadline to complete an initial business combination (which may be extended to up to 24 months from the anniversary of the Initial Public Offering) nears. +Our management may not be able to maintain control of a target business after our initial business combination. Upon the loss of control of a target business, new management may not possess the skills, qualifications or abilities necessary to profitably operate such business. +We may structure our initial business combination so that the post-business combination company in which our public shareholders own shares will own less than 100% of the equity interests or assets of a target business, but we will only complete such business combination if the post-business combination company owns or acquires 50% or more of the outstanding voting securities of the target or otherwise acquires a controlling interest in the target business sufficient for us not to be required to register as an investment company under the Investment Company Act. We will not consider any transaction that does not meet such criteria. Even if the post-business combination company owns 50% or more of the voting securities of the target, our shareholders prior to our initial business combination may collectively own a minority interest in the post-business combination company, depending on valuations ascribed to the target and us in the business combination. For example, we could pursue a transaction in which we issue a substantial number of new Class A ordinary shares in exchange for all of the outstanding capital stock, shares or other entity interests of a target. In this case, we would acquire a 100% interest in the target. However, as a result of the issuance of a substantial number of new Class A ordinary shares, our shareholders immediately prior to such transaction could own less than a majority of our outstanding Class A ordinary shares subsequent to such transaction. In addition, other minority shareholders may subsequently combine their holdings resulting in a single person or group obtaining a larger portion the company’s shares than we initially acquired. Accordingly, this may make it more likely that our management will not be able to maintain control of the target business. +The Sponsor controls a substantial interest in us and thus may exert a substantial influence on actions requiring a shareholder vote, potentially in a manner that you do not support. +The Sponsor owns, on an as-converted basis, 25% of our issued and outstanding ordinary shares (excluding the private placement shares). Accordingly, it may exert a substantial influence on actions requiring a shareholder vote, potentially in a manner that you do not support, including amendments to our amended and restated memorandum and articles of association. If the Sponsor purchases any units in the Initial Public Offering or if the Sponsor purchases any additional Class A ordinary shares in the aftermarket or in privately negotiated transactions, this would increase its control. Neither the Sponsor nor, to our knowledge, any of our officers or directors, have any current intention to purchase additional securities, other than as disclosed in this Annual Report on Form 10-K. Factors that would be considered in making such additional purchases would include consideration of the current trading price of our Class A ordinary shares. In addition, our board of directors, whose members were elected by the Sponsor, is and will be divided into three classes, each of which will generally serve for a term of three years with only one class of directors being appointed in each year. We may not hold +66 +Table of Contents +an annual general meeting to appoint new directors prior to the completion of our initial business combination, in which case all of the current directors will continue in office until at least the completion of the business combination. If there is an annual general meeting, as a consequence of our “staggered” board of directors, only a minority of the board of directors will be considered for election. Accordingly, the Sponsor will continue to exert control at least until the completion of our initial business combination. In addition, we have agreed not to enter into a definitive agreement regarding an initial business combination without the prior consent of the Sponsor. +Holders of Class A ordinary shares will not be entitled to vote on the appointment of directors and certain other matters prior to our initial business combination. +As holders of our Class A ordinary shares, our public shareholders will not have the right to vote on the appointment of directors until after the consummation of our initial business combination. In addition, prior to our initial business combination, holders of a majority of our founder shares may remove a member of the board of directors for any reason. Accordingly, you may not have any say in the management of our company prior to the consummation of an initial business combination. In addition, prior to the closing of our initial business combination, only holders of Class B ordinary shares will have the right to vote on continuing the company in a jurisdiction outside of the Cayman Islands. +After our initial business combination, it is possible that a majority of our officers and directors will live outside the United States and all of our assets will be located outside the United States. Therefore, investors may not be able to enforce federal securities laws or their other legal rights. +It is possible that after our initial business combination, a majority of our officers and directors will reside outside of the United States and all of our assets will be located outside of the United States. As a result, it may be difficult, or in some cases not possible, for investors in the United States to enforce their legal rights, to effect service of process upon all of our directors or officers or to enforce judgments of United States courts predicated upon civil liabilities and criminal penalties on our officers and directors under United States laws. +We are dependent upon our executive officers and directors and their loss could adversely affect our ability to operate. +Our operations are dependent upon a relatively small group of individuals and, in particular, our executive officers and directors. We believe that our success depends on the continued service of our officers and directors, at least until we have completed our initial business combination. In addition, our executive officers and directors are not required to commit any specified amount of time to our affairs and, accordingly, will have conflicts of interest in allocating their time among various business activities, including identifying potential business combinations and monitoring the related due diligence. We do not have an employment agreement with, or key-man insurance on the life of, any of our directors or executive officers. +The unexpected loss of the services of one or more of our directors or executive officers could have a detrimental effect on us. +Risks Associated with Acquiring and Operating a Business in Foreign Countries +Our strategy is focused on pursuing an acquisition of Israeli technology companies. If we pursue a target company with operations or opportunities outside of the United States, including in Israel, for our initial business combination, we may face additional burdens in connection with investigating, agreeing to and completing such initial business combination, and if we effect such initial business combination, we would be subject to a variety of additional risks that may negatively impact our operations. +If we pursue a target company with operations or opportunities outside of the United States, including in Israel, for our initial business combination, we would be subject to risks associated with cross-border business combinations, including in connection with investigating, agreeing to and completing our initial business combination, conducting due diligence in a foreign jurisdiction, having such transaction approved by any local governments, regulators or agencies and changes in the purchase price based on fluctuations in foreign exchange rates. +​ +67 +Table of Contents +If we effect our initial business combination with such a company, we would be subject to any special considerations or risks associated with companies operating in an international setting, including in Israel, including any of the following: +● costs and difficulties inherent in managing cross-border business operations; +● rules and regulations regarding currency redemption; +● complex withholding tax laws, including those relating to distributions or other payments; +● laws governing the manner in which future business combinations may be effected; +● exchange listing and/or delisting requirements; +● tariffs and trade barriers; +● regulations related to customs and import/export matters; +● local or regional economic policies and market conditions; +● transparency issues in general and, more specifically, the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act, and other anti-corruption compliance laws and issues; +● unexpected changes in regulatory requirements; +● longer payment cycles; +● tax issues, such as tax law changes and variations in tax laws as compared to the United States; +● currency fluctuations and exchange controls; +● rates of inflation; +● challenges in collecting accounts receivable; +● cultural and language differences; +● employment regulations; +● underdeveloped or unpredictable legal or regulatory systems; +● corruption; +● protection of intellectual property; +● social unrest, crime, strikes, riots and civil disturbances; +● regime changes and political upheaval; +● terrorist attacks, natural disasters and wars; and +● deterioration of political relations with the United States. +68 +Table of Contents +We may not be able to adequately address these additional risks. If we are unable to do so, we may be unable to complete such initial business combination, or, if we complete such combination, our operations might suffer, either of which may adversely impact our business, financial condition and results of operations. +We may face risks related to companies in the Israeli technology industry. +Business combinations with companies in the Israeli technology industry entail special considerations and risks. If we are successful in completing a business combination with such a target business, we may be subject to, and possibly adversely affected by, risks relating to the technology industry, which may be increased by the special considerations of operating a business in Israel, including the following: +● an inability to compete effectively in a highly competitive environment with many incumbents having substantially greater resources; +● an inability to manage rapid change, increasing consumer expectations and growth; +● an inability to build strong brand identity and improve subscriber or customer satisfaction and loyalty; +● a reliance on proprietary technology to provide services and to manage our operations, and the failure of this technology to operate effectively, or our failure to use such technology effectively; +● an inability to deal with our subscribers’ or customers’ privacy concerns; +● an inability to attract and retain subscribers or customers; +● an inability to license or enforce intellectual property rights on which our business may depend; +● any significant disruption in our computer systems or those of third parties that we would utilize in our operations; +● any significant disruption in our computer systems or those of third parties that we would utilize in our operations; +● an inability by us, or a refusal by third parties, to license content to us upon acceptable terms; +● potential liability for negligence, copyright, or trademark infringement or other claims based on the nature and content of materials that we may distribute; +● competition for advertising revenue; +● competition for the leisure and entertainment time and discretionary spending of subscribers or customers, which may intensify in part due to advances in technology and changes in consumer expectations and behavior; +● disruption or failure of our networks, systems or technology as a result of computer viruses, “cyber-attacks,” misappropriation of data or other malfeasance, as well as outages, natural disasters, terrorist attacks, accidental releases of information or similar events; +● an inability to obtain necessary hardware, software and operational support; and +● reliance on third-party vendors or service providers. +In addition, business combinations with Israeli technology companies could be affected by political conditions in Israel. Since the establishment of the State of Israel in 1948, a number of armed conflicts have occurred between Israel and its Arab neighbors, including the recent war with Hamas that began in October 2023. Any hostilities involving Israel, or the interruption or curtailment of trade +69 +Table of Contents +between Israel and its present trading partners, could affect adversely our operations. Ongoing and revived hostilities or other Israeli political or economic factors could affect our ability to complete a business combination with an Israeli technology company or the operations of the post-combination business. Furthermore, several countries restrict business with Israel and Israeli companies. +Any of the foregoing could have an adverse impact on our operations following a business combination. However, our efforts in identifying prospective target businesses will not be limited to the Israeli technology industry. Accordingly, if we acquire a target business in another industry, these risks we will be subject to risks attendant with the specific industry in which we operate or target business which we acquire, which may or may not be different than those risks listed above. +If our management following our initial business combination is unfamiliar with United States securities laws, they may have to expend time and resources becoming familiar with such laws, which could lead to various regulatory issues. +Following our initial business combination, our management may resign from their positions as officers or directors of the company and the management of the target business at the time of the business combination will remain in place. Management of the target business may not be familiar with United States securities laws. If new management is unfamiliar with United States securities laws, they may have to expend time and resources becoming familiar with such laws. This could be expensive and time-consuming and could lead to various regulatory issues which may adversely affect our operations. +After our initial business combination, substantially all of our assets may be located in a foreign country and substantially all of our revenue may be derived from our operations in any such country. Accordingly, our results of operations and prospects will be subject, to a significant extent, to the economic, political and social conditions and government policies, developments and conditions in the country in which we operate. +Although our strategy is focused on the United States and Israel, we may pursue a target company operating in other countries. The economic, political and social conditions, as well as government policies, of the country in which our operations are located could affect our business. Economic growth could be uneven, both geographically and among various sectors of the economy and such growth may not be sustained in the future. If in the future such country’s economy experiences a downturn or grows at a slower rate than expected, there may be less demand for spending in certain industries. A decrease in demand for spending in certain industries could materially and adversely affect our ability to find an attractive target business with which to consummate our initial business combination and if we effect our initial business combination, the ability of that target business to become profitable. +Exchange rate fluctuations and currency policies may diminish a target business’ ability to succeed in the international markets. +In the event we acquire a non-U.S. target, such as an Israel-centered entity, as we are planning to do, a substantial portion of revenues and income would likely be received in a foreign currency, and the dollar equivalent of our net assets and distributions, if any, could be adversely affected by reductions in the value of the local currency. The value of the currency in our target region — Israel — fluctuates relative to the U.S. dollar and is affected by, among other things, changes in political and economic conditions. Any change in the relative value of that currency against our reporting currency may affect the attractiveness of any target business or, following consummation of our initial business combination, our financial condition and results of operations. Additionally, if a currency such as the Israeli currency (the New Israeli Shekel) appreciates in value against the U.S. dollar prior to the consummation of our initial business combination, the cost of a target business as measured in dollars will increase, which may make it less likely that we are able to consummate a transaction with that business. +We may reincorporate in another jurisdiction in connection with our initial business combination, and the laws of such jurisdiction may govern some or all of our future material agreements and we may not be able to enforce our legal rights. +In connection with our initial business combination, we may relocate the home jurisdiction of our business from the Cayman Islands to another jurisdiction. If we determine to do this, the laws of such jurisdiction may govern some or all of our future material agreements. The system of laws and the enforcement of existing laws in such jurisdiction may not be as certain in implementation and interpretation as in the United States. The inability to enforce or obtain a remedy under any of our future agreements could result in a significant loss of business, business opportunities or capital. +70 +Table of Contents +Changes in laws or regulations, or a failure to comply with any laws and regulations, may adversely affect our business, including our ability to negotiate and complete our initial business combination, and results of operations. +We are subject to laws and regulations enacted by national, regional and local governments. In particular, we will be required to comply with certain SEC and other legal requirements. Compliance with, and monitoring of, applicable laws and regulations may be difficult, time consuming and costly. Those laws and regulations and their interpretation and application may also change from time to time and those changes could have a material adverse effect on our business, investments and results of operations. In addition, a failure to comply with applicable laws or regulations, as interpreted and applied, could have a material adverse effect on our business, including our ability to negotiate and complete our initial business combination, and results of operations. +General Risk Factors +We are subject to changing laws and regulations regarding regulatory matters, corporate governance and public disclosure that have increased both our costs and the risk of non-compliance. +We are subject to rules and regulations by various governing bodies, including, for example, the SEC, which is charged with the protection of investors and the oversight of companies whose securities are publicly traded, and to new and evolving regulatory measures under applicable law. Our efforts to comply with new and changing laws and regulations have resulted in and are likely to continue to result in, increased general and administrative expenses and a diversion of management time and attention from seeking a business combination target. +Moreover, because these laws, regulations and standards are subject to varying interpretations, their application in practice may evolve over time as new guidance becomes available. This evolution may result in continuing uncertainty regarding compliance matters and additional costs necessitated by ongoing revisions to our disclosure and governance practices. If we fail to address and comply with these regulations and any subsequent changes, we may be subject to penalty and our business may be harmed. +On March 30, 2022, the SEC issued proposed rules relating to, among other items, enhancing disclosures in business combination transactions involving special purpose acquisition corporations and private operating companies and increasing the potential liability of certain participants in proposed business combination transactions. These rules, if adopted, whether in the form proposed or in revised form, may materially increase the costs and time required to negotiate and complete an initial business combination and could potentially impair our ability to complete an initial business combination. +We may be a passive foreign investment company, or “PFIC,” which could result in adverse U.S. federal income tax consequences to U.S. investors. +If we are a PFIC for any taxable year (or portion thereof) that is included in the holding period of a U.S. holder of our Class A ordinary shares or warrants, the U.S. holder may be subject to adverse U.S. federal income tax consequences and may be subject to additional reporting requirements. Our PFIC status for our current and subsequent taxable years may depend on the status of an acquired company pursuant to a business combination and whether we qualify for the PFIC start-up exception. Depending on the particular circumstances, the application of the start-up exception may be subject to uncertainty, and there cannot be any assurance that we will qualify for the start-up exception. Accordingly, there can be no assurances with respect to our status as a PFIC for our current taxable year or any subsequent taxable year. In addition, our actual PFIC status for any taxable year will not be determinable until after the end of such taxable year (and, in the case of the start-up exception, potentially not until after the end of the two taxable years following our current taxable year). If we determine we are a PFIC for any taxable year, upon written request, we will endeavor to provide to a U.S. holder such information as the Internal Revenue Service may require, including a PFIC Annual Information Statement, in order to enable the U.S. holder to make and maintain a “qualified electing fund” election, but there can be no assurance that we will timely provide such required information, and such election would be unavailable with respect to our warrants in all cases. We urge U.S. holders to consult their tax advisors regarding the possible application of the PFIC rules. For a more detailed discussion of the tax consequences of PFIC classification to U.S. holders, see the section below titled “ ervi s.” +71 +Table of Contents +We are an emerging growth company and a smaller reporting company within the meaning of the Securities Act, and if we take advantage of certain exemptions from disclosure requirements available to “emerging growth companies” or “smaller reporting companies,” this could make our securities less attractive to investors and may make it more difficult to compare our performance with other public companies. +We are an “emerging growth company” within the meaning of the Securities Act, as modified by the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies,” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. As a result, our shareholders may not have access to certain information they may deem important. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of the Initial Public Offering, (b) in which we have total annual gross revenue of at least $1.235 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our Class A ordinary shares that are held by non-affiliates exceeds $700 million as of the prior June 30, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period. We cannot predict whether investors will find our securities less attractive because we will rely on these exemptions. If some investors find our securities less attractive as a result of our reliance on these exemptions, the trading prices of our securities may be lower than they otherwise would be, there may be a less active trading market for our securities and the trading prices of our securities may be more volatile. +Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. We have elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of our financial statements with another public company that is neither an emerging growth company nor an emerging growth company that has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used. +Additionally, we are a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We will remain a smaller reporting company until the last day of the fiscal year in which (1) the market value of our ordinary shares held by non-affiliates exceeds $250 million as of the prior June 30, or (2) our annual revenues exceeded $100 million during such completed fiscal year and the market value of our ordinary shares held by non-affiliates exceeds $700 million as of the prior June 30. To the extent we take advantage of such reduced disclosure obligations, it may also make comparison of our financial statements with other public companies difficult or impossible. +Recent increases in inflation in the United States and elsewhere could make it more difficult for us to consummate a business combination. +Recent increases in inflation in the United States and elsewhere may be leading to increased price volatility for publicly traded securities, including ours, and may lead to other national, regional and international economic disruptions, any of which could make it more difficult for us to consummate a business combination. +Military conflict in Ukraine, Iran and Israel could make it more difficult for us to consummate a business combination. +Military conflict and geopolitical events, including the ongoing wars in Ukraine, Iran and Israel, including any resulting sanctions, export controls or other restrictive actions, have caused volatility and disruptions in the capital markets in recent years. This may lead to increased price volatility for publicly traded securities, including ours, and to other national, regional and international economic disruptions and economic uncertainty, any of which could make it more difficult for us to identify a business combination partner and consummate a business combination on acceptable commercial terms or at all. +72 +Table of Contents +ITEM 1B. UNRESOLVED STAFF COMMENTS +The Company has not received any written comments from the staff of the SEC regarding its periodic or current reports under the Exchange Act that remain unresolved. +​ +ITEM 1C. CYBERSECURITY +We are a SPAC with no business operations. Since our IPO, our sole business activity has been identifying and evaluating suitable acquisition transaction candidates. Therefore, we do not consider that we face significant cybersecurity risk and have not adopted any cybersecurity risk management program or formal processes for assessing cybersecurity risk. Our board of directors is generally responsible for the oversight of risks from cybersecurity threats, if there is any. We have not encountered any material cybersecurity incidents since our IPO. +ITEM 2. PROPERTIES +We maintain our executive offices at 12600 Hill Country Blvd., Building R, Suite 275, Bee Cave, Texas 78738. The cost for our use of the office space wass included in the $10,000 per month fee we pay to our Sponsor for office space, administrative and support services pursuant to the Administrative Services Agreement. +On December 31, 2025, the Parties entered into the Administrative Services Waiver whereby the Parties agreed to waive the administrative fees due under the Administrative Services Agreement. Pursuant to the Administrative Services Waiver, the waived administrative fees include (i) the $10,000 per month owed to the Sponsor until the consummation by the Company of an initial business combination or the Company’s liquidation, and (ii) the $240,000 accrued fees to date. +​ +ITEM 3. LEGAL PROCEEDINGS +We may be a party to various claims and legal proceedings from time to time. We are not subject to any pending material legal proceedings, nor, to our knowledge, is any material legal proceeding threatened against us or any of our officers or directors in their capacity as such. +ITEM 4. MINE SAFETY DISCLOSURE +Not applicable. +​ +73 +Table of Contents +PART II +ITEM 5. MARKET FOR REGISTRANT’S UNITS, RELATED UNITHOLDER MATTERS AND ISSUER PURCHASES OF UNITS +Our units, Class A ordinary shares, and public warrants each trade on the Nasdaq Global Market under the symbols “ISRLU,” “ISRL” and “ISRLW,” respectively. Our units began trading on January 13, 2023, and our Class A ordinary shares and public warrants began separate public trading on February 28, 2023. Our Class B ordinary shares are not listed on any exchange. We do not have any preference shares outstanding. +Holders of Record +As of March 31, 2026, there were five holders of record of our units, one holder of record of our Class A ordinary shares, one holder of record of our Class B ordinary shares, and one holder of record of our warrants. There are no record holders of our preference shares. +Dividends +We have not paid any cash dividends on our ordinary shares to date and do not intend to pay cash dividends prior to the completion of an initial business combination. The payment of cash dividends in the future will be dependent upon our revenues and earnings, if any, capital requirements and general financial condition subsequent to completion of an initial business combination. The payment of any cash dividends subsequent to an initial business combination will be within the discretion of our board of directors at such time and we will only pay such dividend out of our profits or share premium (subject to solvency requirements) as permitted under applicable law. In addition, our board of directors is not currently contemplating and does not anticipate declaring any share capitalizations in the foreseeable future. Further, if we incur any indebtedness, our ability to declare dividends may be limited by restrictive covenants we may agree to in connection therewith. +Securities Authorized for Issuance under Equity Compensation Plans +None. +Performance Graph +Not Applicable. +Recent Sales of Unregistered Securities; Use of Proceeds from Registered Offerings +On January 18, 2023, we consummated our Initial Public Offering of 14,375,000 units. The units were sold at an offering price of $10.00 per unit, generating total gross proceeds of $143,750,000. BTIG, LLC was the representative of the underwriters and acted as the sole book-running manager of our Initial Public Offering. The offer and sale of the securities in the Initial Public Offering were registered under the Securities Act on registration statements on Form S-1 (No. 333-263658). The SEC declared the registration statement effective on January 12, 2021. +Simultaneously with the closing of the Initial Public Offering we completed the private sale of: +● an aggregate of 637,500 Private Placement Units to the Sponsor at a purchase price of $10.00 per private placement unit, generating gross proceeds to us of $6,375,000; +● an aggregate of 75,000 Private Placement Units to BTIG, LLC, at a purchase price of $10.00 per private placement unit, generating gross proceeds to us of $750,000; +● an aggregate of 25,000 Private Placement Units to Exos Capital LLC, at a purchase price of $10.00 per private placement unit, generating gross proceeds to us of $250,000; and +74 +Table of Contents +● an aggregate of 25,000 Private Placement Units to JonesTrading Institutional Services LLC, at a purchase price of $10.00 per private placement unit generating gross proceeds to the Company of $250,000. +The Private Placement Units are identical to the units sold in the Initial Public Offering, except that the private placement warrants, (i) are not redeemable by us, (ii) may not (including the Class A ordinary shares issuable upon exercise of these warrants), subject to certain limited exceptions, be transferred, assigned or sold by such holders until 30 days after the completion of our initial business combination, (iii) may be exercised the option of the holders on a cashless basis, and (iv) will be entitled to registration rights. No underwriting discounts or commissions were paid with respect to such sales of the Private Placement Units. The issuance of the Private Placement Units was made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act of 1933, as amended. +Of the gross proceeds received from the Initial Public Offering, including the exercise of the underwriters’ over-allotment option, and the sale of the Private Placement Units, an aggregate of $146,625,000 was placed in the Trust Account. +In connection with the Initial Public Offering, we incurred offering costs of approximately $8,642,960 (including deferred underwriting commissions of approximately $5,406,250). Other incurred offering costs consisted principally of preparation fees related to the Initial Public Offering. After deducting the underwriting discounts and commissions (excluding the deferred portion, which amount will be payable upon consummation of the initial business combination, if consummated) and the Initial Public Offering expenses, $146,625,000 million of the net proceeds from our Initial Public Offering and certain of the proceeds from the private placement of the Private Placement Units (or $10.00 per unit sold in the Initial Public Offering) was placed in the Trust Account. The net proceeds of the Initial Public Offering and certain proceeds from the sale of the Private Placement Units are held in the Trust Account and invested as described elsewhere in this Annual Report on Form 10-K. For a description of the use of the proceeds generated in our Initial Public Offering, see Part II, Item 7 of this Form 10-K. +ITEM 6. [RESERVED] +ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS +The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with our audited financial statements and the notes related thereto, which are included in “ Item 8. Financial Statements and Supplementary Data ” of this Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those set forth under “ Cautionary Note Regarding Forward-Looking Statements ,” “ Item 1A. Risk Factors, ” and elsewhere in this Annual Report on Form 10-K. +Overview +We are a blank check company formed under the laws of the Cayman Islands as an exempted limited company on August 24, 2021, for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization, or similar business combination with one or more businesses. We intend to effectuate an initial business combination using cash from the proceeds of our Initial Public Offering and the sale of the Private Placement Units, the proceeds of the sale of our securities in connection with an initial business combination (pursuant to forward purchase agreements or backstop agreements we may enter), securities issued to the owners of the target of an initial business combination, debt issued to bank or other lenders or the owners of the target of an initial business combination, or a combination of the foregoing or other sources. +We expect to continue to incur significant costs in the pursuit of our acquisition plans. We cannot assure you that our plans to complete an initial business combination will be successful. +On January 12, 2023, the SEC declared the Company’s registration statement for our Initial Public Offering effective. On January 18, 2023, we consummated our Initial Public Offering of 14,375,000 units, which included the full exercise of the underwriters’ over-allotment option in the amount of 1,875,000 units, at $10.00 per unit, generating gross proceeds of $143,750,000. Each unit is comprised of one Class A ordinary share and one public warrant. +75 +Table of Contents +Simultaneously with the closing of the Initial Public Offering, we consummated the sale of (i) 637,500 private placement units (the “Private Placement Units”) at a price of $10.00 per Private Placement Unit in a private placement to the Sponsor, (ii) 75,000 Private Placement Units at price of $10.00 per Private Placement Unit in a private placement to BTIG, LLC, (iii) 25,000 Private Placement Units at price of $10.00 per Private Placement Unit in a private placement to Exos Capital LLC, and (iv) 25,000 Private Placement Units at price of $10.00 per Private Placement Unit in a private placement to JonesTrading Institutional Services LLC. +Following the closing of our Initial Public Offering on January 18, 2023, an amount of $146,625,000 ($10.00 per unit sold in our Initial Public Offering) from the net proceeds of the sale of the units in the Initial Public Offering and the sale of the Private Placement Units was placed in the Trust Account. +Effective April 30, 2023, Roy Zisapel resigned from his role as a member of and as Chairman of the audit committee of our board of directors (the “audit committee”). Pursuant to the audit committee charter, the audit committee must consist of at least three directors, one of which shall be the Chairman, and all of which must be “independent directors” in accordance with the rules of the Nasdaq Global Market and Rule 10A-3 of the Exchange Act. Simultaneously with Roy Zisapel’s resignation from the audit committee, the board of directors appointed Daniel Recanati as Chairman of the audit committee and appointed Peter Cohen as a member of the audit committee. +On January 2, 2024, the Company entered into the business combination agreement with Pomvom (the “Pomvom Business Combination Agreement”), pursuant to which, among other things and subject to the terms and conditions contained therein (i) Pomvom will cause a company organized under the laws of the State of Israel and wholly owned by a trustee (the “Pomvom NewPubco”) to be formed, (ii) Pomvom will cause a Cayman Islands exempted company and wholly owned, direct subsidiary of Pomvom NewPubco (“Merger Sub”) to be formed, (iii) Pomvom will cause Pomvom NewPubco and Merger Sub to become a party to the Pomvom Business Combination Agreement by delivering a joinder to the Pomvom Business Combination Agreement, (iv) Pomvom will effect the Share Split (as defined below), (v) Pomvom NewPubco, the shareholders of Pomvom and the holders of equity awards of Pomvom will effect the Equity Exchange (as defined below), and (vi) Merger Sub will merge with and into the Company, with the Company surviving the merger as a direct wholly owned subsidiary of Pomvom NewPubco (the “Merger”). +On January 8, 2024, by special resolution and at an extraordinary general meeting of shareholders, the Company (i) entered into an amendment (the “Trust Agreement Amendment”) to the Investment Management Trust Agreement dated as of January 12, 2023 (the “Trust Agreement”), with Equiniti Trust Company, LLC (f/k/a American Stock Transfer & Trust Company) (the “Trustee”) and (ii) amended the Company’s Second Amended and Restated Memorandum and Articles of Association, in its entirety, by adopting the Company’s Third Amended and Restated Memorandum and Articles of Association, pursuant to which the Company may extend the date by which the Company must consummate an initial business combination (the “Termination Date”) from 12 months from the closing of the Initial Public Offering (January 18, 2024) up to twelve (12) times (each, an “Extension”) to January 18, 2025, with each Extension comprised of one month. Pursuant to the Trust Agreement Amendment, the Company can extend the Termination Date by providing five days’ advance notice to the Trustee prior to the applicable Extension and depositing into the Trust Account the lesser of (i) $50,000 or (ii) $0.02 per Public Share, multiplied by the number of Public Shares that remain outstanding by the end of the then-current extended period, by the date of such Extension. +On January 18, 2024, the Company issued an unsecured promissory note to the Sponsor, to pay for up to twelve additional one-month extension payments (the “Extension Note”). On each of January 16, 2024, February 15, 2024, March 11, 2024, April 15, 2024, May 17, 2024, June 14, 2024, July 17, 2024, August 15, 2024, September 12, 2024, October 16, 2024, November 15, 2024, and December 17, 2024, the Company drew $50,000, $600,000 in the aggregate, against the Extension Note to pay for each additional one-month extension. The Extension Note bears no interest and is repayable in full (subject to amendment or waiver) upon the earlier of (a) the date of the consummation of the Company’s initial business combination, or (b) the date of the Company’s liquidation. As of December 31, 2024 and 2023, there was $600,000 and $0 outstanding under the Extension Note, respectively. +Additionally, on July 17, 2024, the Company issued an unsecured promissory note to the Sponsor (the “July Promissory Note”), pursuant to which the Company may borrow up to an aggregate principal amount of $1,500,000. The July Promissory Note bears no interest and is repayable in full (subject to amendment or waiver) upon the earlier of (i) the date of the consummation of the Company’s initial business combination, or (ii) the date of the Company’s liquidation. As of December 31, 2024 and 2023, there was $225,000 and $0 outstanding under the July Promissory Note, respectively. +On April 22, 2024, we entered into an amendment with Pomvom (the “Amendment”) to the Pomvom Business Combination Agreement. Pursuant to the Amendment, the we agreed with Pomvom to (i) extend the date by which all members of the board of directors of the post-combination company shall be determined from April 30, 2024, to June 30, 2024, (ii) extend the date by which an +76 +Table of Contents +independent compensation consultant shall present a benchmark analysis of the compensation packages for officers and directors of public market companies that are comparable to Pomvom and recommendations for officer and director compensation packages to the Pomvom’s compensation committee and board of directors in connection with their review and approval of such packages from April 30, 2024, to June 30, 2024, and (iii) extend the Minimum Equity Financing Proceeds Termination Date (as defined in the Pomvom Business Combination Agreement) from June 30, 2024, to August 31, 2024. +On August 22, 2024, we entered into a mutual termination agreement with Pomvom (the “Mutual Termination Agreement”) pursuant to which the Pomvom Business Combination Agreement was terminated by the mutual consent of the Company and Pomvom, effective as of August 22, 2024. The Company and Pomvom agreed to waive any claim or demand on the part of any of either party against the other party, except in relation to a violation of the Mutual Termination Agreement or a violation of the confidentiality obligations stipulated in the Pomvom Business Combination Agreement. There are no early termination penalties incurred by the Company or Pomvom in connection with the termination of the Pomvom Business Combination Agreement. +On January 6, 2025, by special resolution and at an extraordinary general meeting of shareholders, the Company (i) entered into an amendment (the “Second Trust Agreement Amendment”) to the Trust Agreement and (ii) amended the Company’s Third Amended and Restated Memorandum and Articles of Association, in its entirety, by adopting the Company’s Fourth Amended and Restated Memorandum and Articles of Association, pursuant to which the Company may extend the Termination Date from January 18, 2025 up to twelve (12) times to January 18, 2026, with each such Extension comprised of one month. Pursuant to the Second Trust Agreement Amendment, the Company can extend the Termination Date by providing five days’ advance notice to the Trustee prior to the applicable Extended Date and depositing into the Trust Account the lesser of (i) $35,000 or (ii) $0.035 per Public Share, multiplied by the number of Public Shares that remain outstanding by the end of the then-current Extended Date, by the date of such Extension . +In connection with the shareholders’ vote, holders of 6,461,683 Class A ordinary shares of the Company exercised their right to redeem such shares (the “ Redemption ”) for a pro rata portion of the funds held in the Trust Account. As a result, $73,146,251.56 was removed from the Trust Account to pay such holders. Following the aforementioned Redemption, the Company has 6,352,099 ordinary shares of the Company (inclusive of the Class A ordinary shares underlying the private placement units of the Company) outstanding. +On January 17, 2025, the Company issued an unsecured promissory note to the Sponsor in the amount of $335,131 to pay for up to twelve additional one-month extension payments (the “2025 Extension Note”). On each of January 17, 2025, February 18, 2025, March 18, 2025, May 19, 2025, June 18, 2025, July 18, 2025, August 18, 2025, September 18, 2025, October 17, 2025, November 18, 2025, and December 19, 2025, the Company drew $27,927 each month against the 2025 Extension Note to pay for an additional one-month extension. The 2025 Extension Note bears no interest and is repayable in full upon the earlier of (i) the date of the consummation of the Company’s initial business combination, or (ii) the date of the Company’s liquidation. +On January 26, 2025, the Company and Gadfin entered into the Business Combination Agreement, pursuant to which, among other things, and subject to the terms and conditions contained therein (i) Gadfin will cause a company organized under the laws of the State of Israel and wholly owned by a trustee (the “NewPubco”) to be formed, (ii) Gadfin will cause a company organized under the laws of the State of Israel and wholly owned, direct subsidiary of NewPubco (“Merger Sub 1”) to be formed, (iii) Gadfin will cause a Cayman Islands exempted company and wholly owned, direct subsidiary of NewPubco (“Merger Sub 2”) to be formed, (iv) Gadfin will cause NewPubco, Merger Sub 1 and Merger Sub 2 to become a party to the Business Combination Agreement by delivering a joinder to the Business Combination Agreement, (v) Gadfin will effect the Share Split, (vi) NewPubco, the shareholders of Gadfin and the holders of equity awards of Gadfin will effect the Acquisition Merger (as defined herein), (vii) Merger Sub 1 will merge with and into Gadfin, with Gadfin surviving the merger as a direct wholly owned subsidiary of NewPubco (the “Acquisition Merger”), and (viii) Merger Sub 2 will merge with and into the Company, with the Company surviving the merger as a direct wholly owned subsidiary of NewPubco (the “IAC Merger”, and together with the Acquisition Merger, the “Mergers”). The collective transactions referenced in (i)-(viii) are hereinafter referred to as the “Transactions”. The terms of the Business Combination Agreement, which contain customary representations and warranties, covenants, closing conditions, termination provisions, and other terms relating to the Transactions, are summarized below. Capitalized terms used but not defined herein shall have the meanings ascribed thereto in the Business Combination Agreement. +Under the Business Combination Agreement, as amended, holders of Gadfin equity interests are expected to receive approximately $180,000,000 (the “Gadfin Equity Value”) in aggregate consideration in the form of NewPubco Ordinary Shares, equal to the quotient obtained by dividing (a) the Gadfin Equity Value by (b) the fully diluted number of Gadfin ordinary shares and preferred shares (including ordinary shares issuable upon exercise, vesting and settlement of Gadfin options and Gadfin warrants and other convertible securities of Gadfin). +77 +Table of Contents +On July 2, 2025, the Company, Gadfin, and NewPubco entered into the First Amendment. Pursuant to the First Amendment, the Company and Gadfin agreed to (i) remove the requirement for the Company to liquidate immediately following the Mergers (as defined in the Business Combination Agreement), (ii) revise the Company Equity Value (as defined in the Business Combination Agreement) to $180,000,000, (iii) remove the PCAOB Related Default (as defined in the Business Combination Agreement) and related provisions, (iv) remove the Threshold Raised Amount (as defined in the Business Combination Agreement) and related provisions, (v) clarify the maximum dilution calculation, (v) extend the deadline for the Benchmark Analysis (as defined in the Business Combination Agreement) to September 30, 2025, (vi) add a termination right for Gadfin, without penalty, in the event the Company does not, within 30 days of the Amendment, receive a full cash waiver from underwriters of the deferred underwriting fees currently owed and outstanding by the Company, and (vii) act as a joinder agreement pursuant to which NewPubco, Gadfin Regev Holdings Ltd., a company domiciled in Israel, became a party to the Business Combination Agreement. +On December 31, 2025, the Company, Gadfin, and NewPubco entered into the Second Amendment. Pursuant to the Second Amendment, the Company and Gadfin agreed to extend the Termination Date (as defined in the Business Combination Agreement) to March 16, 2026 and removed the automatic extensions of the Termination Date. +On March 13, 2026, the Company, Gadfin, and NewPubco entered into the Third Amendment. Pursuant to the Third Amendment, the Company and Gadfin agreed to revise Section 7.1(d) to extend the termination date to April 15, 2026. +Gadfin may terminate the Business Combination Agreement, (a) at any time prior to the receipt of the Gadfin Shareholder Approval, in order to immediately enter into a written definitive agreement with respect to a Superior Proposal, and (b) if the representations and warranties of the Company are not true and correct or if the Company has materially breached any covenant or agreement as set forth in the Business Combination Agreement. In the event the Business Combination Agreement is terminated by Gadfin in order to accept a Superior Proposal, Gadfin will pay to the Company a termination fee of $10,000,000. In the event the Business Combination Agreement is terminated by Gadfin pursuant to clause (b) of this paragraph, the Company will pay to Gadfin a termination fee of $10,000,000. +Effective March 18, 2025, Daniel Recanati resigned from his role as Chairman of the audit committee. Simultaneously with Daniel Recanati’s resignation as Chairman of the audit committee, the board of directors appointed Peter Cohen as Chairman of the audit committee. +On May 28, 2025, the Company received the MVLS Notice from the Listing Qualifications Department (the “Staff”) of Nasdaq notifying the Company that, based on the market value of listed securities for the previous 30 consecutive business days, the listing of the Company’s securities was not in compliance with the MVLS Requirement. In accordance with Listing Rule 5810(c)(3)(C), the Company was provided 180 calendar days, or until November 24, 2025, to regain compliance with the Rule. +The Company did not regain compliance with the MVLS Requirement. As a result, on November 25, 2025, the Company received a delist determination letter from the Staff (the “Nasdaq Notice”) advising the Company that its securities would be delisted. On January 13, 2026, Nasdaq announced its intention to delist the Company’s Class A ordinary shares, units and warrants, followed by a Form 25 filed with the SEC on January 21, 2026 to complete the delisting. The delisting became effective ten days after the Form 25 was filed. +The Company’s Class A ordinary shares, units and warrants now trade on the Pink Current tier of the OTC Markets under symbols “ISRLF”, “ISLUF” and “ISLWF”, respectively. +As a result of being traded on over-the-counter market, there may be a very limited market in which the Company’s securities are traded, and the trading price of the Company’s securities may be adversely affected. The Company can provide no assurance that its securities will continue to trade on this market, whether broker-dealers will continue to provide public quotes of its securities on this market, or whether the trading volume of its securities will be sufficient to provide for an efficient trading market for existing and potential holders of its securities. +On October 14, 2025, the Company entered into the Advisory Agreement, effective October 10, 2025, pursuant to which BTIG agreed to provide strategic and capital markets advisory services to the Company in connection with its business activities, including the Business Combination. Under the Advisory Agreement, BTIG will advise the Company on market conditions and capital markets strategy, but will not act as a financial advisor or participate in the offering or solicitation of securities for the Business Combination. As compensation for such services, BTIG will receive an advisory fee of $500,000 in cash (payable from the trust account) and 100,000 Class A ordinary shares, par value $0.0001 per share, of the Company immediately prior to closing of the Business Combination (the +78 +Table of Contents +“Advisory Fee”), which will be exchanged for 100,000 ordinary shares of NewPubco, valued at $10.00 per share, upon consummation of the Business Combination. In exchange, BTIG waived its right to the Deferred Underwriting Commission, conditioned upon payment of the Advisory Fee and closing of the Business Combination. The Advisory Agreement also provides BTIG with a three-year exclusive right of first refusal to act as lead underwriter for the next special purpose acquisition company initial public offering undertaken by the Company or the Sponsor under certain conditions and indemnification protections. The Advisory Agreement is governed by New York law and allows BTIG to terminate at any time, in which case it forfeits both the Advisory Fee and the Deferred Underwriting Commission. +On January 16, 2026, by special resolution and at an extraordinary general meeting of shareholders, the Company (i) entered into an amendment (the “Third Trust Agreement Amendment”) to the Trust Agreement and (ii) amended the Company’s Fourth Amended and Restated Memorandum and Articles of Association, in its entirety, by adopting the Company’s Fifth Amended and Restated Memorandum and Articles of Association, pursuant to which the Company may extend the Termination Date from January 18, 2026 up to twelve (12) times to January 18, 2027, with each such Extension comprised of one month. Pursuant to the Third Trust Agreement Amendment, the Company can extend the Termination Date by providing five days’ advance notice to the Trustee prior to the applicable Extended Date and depositing into the Trust Account the lesser of (i) $5,000 or (ii) $0.05 per Public Share, multiplied by the number of Public Shares that remain outstanding by the end of the then-current Extended Date, by the date of such Extension. +In connection with the shareholders’ vote, holders of 295,860 Class A ordinary shares of the Company exercised their right to redeem such shares (the “ Redemption ”) for a pro rata portion of the funds held in the Trust Account. As a result, $3,683,115.04 was removed from the Trust Account to pay such holders. Following the aforementioned Redemption, the Company has 6,056,239 ordinary shares of the Company (inclusive of the Class A ordinary shares underlying the private placement units of the Company) outstanding. +On March 13, 2026, the Company, Gadfin, and Gadfin Regev Holdings Ltd., a company domiciled in Israel entered into the Third Amendment. Pursuant to the Third Amendment, the Company and Gadfin agreed to revise Section 7.1(d) to extend the termination date to April 15, 2026. +Results of Operations +As of December 31, 2025, we had not commenced any operations. All activity from inception through December 31, 2025 relates to our formation and initial public offering (the “Initial Public Offering”), and, since the completion of the Initial Public Offering, our search for a target to consummate a business combination. We will not generate any operating revenues until after the completion of an initial business combination, at the earliest. We will generate non-operating income in the form of interest and dividend income from the proceeds derived from the Initial Public Offering and placed in a U.S.-based trust account (the “Trust Account”). We expect to incur increased expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses. +For the year ended December 31, 2025, we had net loss of $510,230, which consisted of listing expenses of $131,778, administrative expenses of $128,872, legal and accounting expenses of $629,789, marketing and advertising expense of $750, dues and subscriptions expense of $145,135, and insurance expenses of $127,942, offset by dividend income on marketable securities held in the Trust Account of $528,065, gain on extinguishment of liability of $125,669, and dividends and interest on cash and cash equivalents of $302. +For the year ended December 31, 2024, we had net income of $2,820,574, which consisted of listing expenses of $194,954, administrative expenses of $136,862, legal and accounting expenses of $748,069, marketing and advertising expense of $350, dues and subscriptions expense of $89,700, and insurance expenses of $240,007, offset by dividend income on marketable securities held in the Trust Account of $4,223,235, and dividends and interest on cash and cash equivalents of $7,281. +Liquidity, Capital Resources and Going Concern +As of December 31, 2025, we had $6,938 in cash and cash equivalents held outside of the Trust Account and working capital deficit of $2,581,616 (excluding cash and marketable securities held in the Trust Account and the deferred underwriter fee payable). +Until the consummation of the Initial Public Offering, our only source of liquidity was from the $25,000 of proceeds from our Sponsor’s purchase of Class B ordinary shares, par value $0.0001 per share, and a loan of $237,234 from our Sponsor pursuant to a promissory note to cover certain expenses. The promissory note was repaid in full on January 18, 2023. +79 +Table of Contents +Following our Initial Public Offering and the sale of Private Placement Units (the “Private Units”) to the Sponsor, a total of $146,625,000 was placed in the Trust Account. +For the year ended December 31, 2025, net cash used in operating activities was $258,324. Net loss of $510,230 was adjusted by $240,000 related to the Administrative Services fee waived by Sponsor and $11,906 changes in operating assets and liabilities. Net cash provided by investing activities was $72,670,754 related to proceeds from redemption of marketable securities held in Trust Account of $73,533,953, offset by the purchase of marketable securities held in Trust Account of $335,422, as well as dividends received from and reinvestment of marketable securities of $527,777. Net cash used in financing activities was $72,426,749 related to payment of redemptions on Class A ordinary shares subject to redemption of $73,533,953, offset by $1,107,204 proceeds from drawdowns on the promissory notes with the Sponsor for Trust extension fees and working capital needs. +As of December 31, 2025, we had marketable securities held in the Trust Account of $9,933,329 (including approximately $528,065 of dividend income on marketable securities) consisting of securities held in a money market fund that invests in U.S. Treasury securities with a maturity of 185 days or less. We intend to use substantially all of the funds held in the Trust Account, including any amounts representing interest earned on the Trust Account (less deferred underwriting fees and income taxes payable), to complete our initial business combination. To the extent that our capital shares or debt is used, in whole or in part, as consideration to complete our initial business combination, the remaining proceeds held in the Trust Account will be used as working capital to finance the operations of the target business or businesses, make other acquisitions and pursue our growth strategies. +As of December 31, 2025, we had cash and cash equivalents of $6,938 held outside the Trust Account. We intend to use the funds held outside the Trust Account primarily to identify and evaluate target businesses, perform business due diligence on prospective target businesses, travel to and from the offices, plants or similar locations of prospective target businesses or their representatives or owners, review corporate documents and material agreements of prospective target businesses, and structure, negotiate and complete a business combination. +To fund working capital deficiencies or finance transaction costs in connection with an initial business combination, the Sponsor or an affiliate of the Sponsor or certain of our officers and directors may, but are not obligated to, loan us funds as may be required. If we complete an initial business combination, we may repay such loaned amounts out of the proceeds of the trust account released to us. In the event that an initial business combination does not close, we may use a portion of the working capital held outside the Trust Account to repay such loaned amounts, but no proceeds from our Trust Account would be used for such repayment. Up to $1,500,000 of such loans may be convertible into private placement-equivalent units at a price of $10.00 per private placement-equivalent unit at the option of the lender. These units would be identical to the Private Placement Units. +We may need to obtain additional financing to complete our initial business combination, either because the transaction requires more cash than is available from the proceeds held in our Trust Account, or because we become obligated to redeem a significant number of our public shares upon completion of our initial business combination, in which case we may issue additional securities or incur debt in connection with such initial business combination. If we have not consummated our initial business combination within the Combination Period because we do not have sufficient funds available to us, we will be forced to cease operations and liquidate the Trust Account. +These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern one year from the date the financial statements are issued. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. +Contractual Obligations +We do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities as of December 31, 2025. +The underwriters are entitled to a deferred underwriting fee of $0.35 per unit, or $5,406,250 in the aggregate. The deferred underwriting fee was payable to the underwriter from the amounts held in the Trust Account solely in the event that IAC completes an initial business combination, subject to the terms of the underwriting agreement. +80 +Table of Contents +Critical Accounting Estimates +The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. We have not identified any critical accounting estimates as of December 31, 2025. +Recent Accounting Standards +In December 2023, the FASB issued Accounting Standards Update 2023-09, “Improvements to Income Tax Disclosures” (“ASU 2023-09”), which provides for additional disclosures primarily related to the income tax rate reconciliations and income taxes paid. ASU 2023-09 requires entities to annually disclose the income tax rate reconciliation using both amounts and percentages, considering several categories of reconciling items, including state and local income taxes, foreign tax effects, tax credits and nontaxable or nondeductible items, among others. Disclosure of the reconciling items is subject to a quantitative threshold and disaggregation by nature and jurisdiction. ASU 2023-09 also requires entities to disclose net income taxes paid or received to federal, state and foreign jurisdictions, as well as by individual jurisdiction, subject to a five percent quantitative threshold. ASU 2023-09 may be adopted on a prospective or retrospective basis and is effective for fiscal years beginning after December 15, 2024 with early adoption permitted. The Company adopted this standard effective January 1, 2025 and determined there is no material impact on its financial position, results of operations or cash flows. +In December 2025, the FASB issued Accounting Standards Update 2025-11 “Interim Reporting (Topic 270): Narrow-Scope Improvements” (“ASU 2025-11”). ASU 2025-11 clarifies current interim disclosure requirements and provides a comprehensive list of required interim disclosures. The guidance also incorporates a disclosure principle that requires entities to disclose events since the end of the last annual reporting period that have a material impact on the entity. The amendments in this ASU are required to be adopted for interim reporting periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. The amendments can be applied on a prospective or retrospective basis. The Company is currently assessing the impact, if any, that ASU 2025-11 would have on its financial position, results of operations or cash flows. +The Company’s management does not believe that any other recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the accompanying financial statements. +ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK +We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this item. +ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA +This information appears following Item 15 of this Annual Report on Form 10-K and is incorporated herein by reference. +ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE +None. +ITEM 9A. CONTROL AND PROCEDURES +Evaluation of Disclosure Controls and Procedures +Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in company reports filed or submitted under the Exchange Act is +81 +Table of Contents +accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer (who serves as our Principal Executive Officer and Principal Financial and Accounting Officer), to allow timely decisions regarding required disclosure. +Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the fiscal year ended December 31, 2025, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that during the period covered by this report, our disclosure controls and procedures were effective as of December 31, 2025. +Management’s Report on Internal Controls over Financial Reporting +Management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America. Our internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. +Any system of internal control, no matter how well designed, has inherent limitations, including the possibility that a control can be circumvented or overridden and misstatements due to error or fraud may occur and not be detected in a timely manner. Also, because of changes in conditions, internal control effectiveness may vary over time. Accordingly, even an effective system of internal control will provide only reasonable assurance with respect to financial statement preparation. +Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2025. In making this assessment, management used the criteria set forth in 2013 by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in “Internal Control-Integrated Framework.” Based on management’s assessment using the COSO criteria, management has concluded that our internal control over financial reporting was effective as of December 31, 2025. +This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to the rules of the SEC that permit us to provide only management’s report in this Annual Report. +Attestation Report of Independent Registered Public Accounting Firm +This Annual Report on Form 10-K does not include an attestation report of our registered public accounting firm on internal control over financial reporting due to an exemption established by the JOBS Act for “emerging growth companies.” +Changes in Internal Control over Financial Reporting +There were no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2025, covered by this Annual Report on Form 10-K that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. +ITEM 9B. OTHER INFORMATION +N o n e . +ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS +Not applicable. +​ +82 +Table of Contents +PART III +ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANC E +Name +Age +Titles +Ziv Elul +​ +50 +​ +Chief Executive Officer and Director +Sharon Barzik Cohen +​ +54 +​ +Chief Financial Officer and Director +Izhar Shay +​ +62 +​ +Director (Chairman) +Candice Beaumont +​ +52 +​ +Director +Peter Cohen +​ +59 +​ +Director +Roy Zisapel +​ +54 +​ +Director +Daniel Recanati +​ +49 +​ +Director +​ +Officers and Directors +Ziv Elul serves as our Chief Executive Officer and a member of our board of directors. Mr. Elul has 17 years of industry and managerial experience with start-up and high-growth technology businesses operating globally, which includes two acquisition transactions and operational experience as the CEO of a publicly traded company. In 2007, Mr. Elul co-founded Inneractive, an independent automated mobile platform with marketplace exchange capabilities and focused on powering video ads. He served as CEO of Inneractive, leading it to outstanding profitability until its acquisition by Fyber N.V. (FSE:FBEN) a global provider of monetization platforms for mobile publishers, in July 2017. Following the acquisition, Mr. Elul continued to serve as CEO and led the integration of the businesses under one brand with a strong focus on cutting-edge technology. Under his leadership, Fyber N.V. reached profitability for the first time as a combined company. In May 2021, Fyber N.V. was acquired for $600 million by a multi-billion dollar media and advertising solutions company, Digital Turbine (Nasdaq:APPS), where he was appointed to serve as a strategic advisor supporting the integration. Prior to 2007, Mr. Elul served as a Lieutenant Colonel in Israel’s Reserves Corps. Mr. Elul is a member of the Israeli branch of the Young Presidents’ Organization (“YPO”), a global network of young chief executives, and is deeply involved in the Israeli high tech and startup ecosystem. Mr. Elul is an active investor in Israeli technology companies, with a portfolio of 18 company investments to-date (including several successful exits, such as Spotinst (acquired by Net App for $450 million)) and an investor in seven venture capital firms. He holds an Executive MBA from the Hebrew University which he graduated from with honors. +Sharon Barzik Cohen serves as our Chief Financial Officer and a member of our board of directors. In May 2021, Ms. Cohen joined Qumra Capital, a leading growth capital fund that invests in late stage technology-driven companies, as Partner and Chief Operating Officer. Before Qumra Capital, she was CFO of the Storage Division at Dell EMC in Israel, having previously served since 2011 as CFO of XtremIO, which developed all flash advanced storage solutions and was acquired by EMC in 2012 for $430M, one of the largest acquisitions in the Israeli tech market at the time. In this role Ms. Cohen oversaw global finance teams worldwide, and was a member of the Dell Israel leadership team. Prior to 2011, Ms. Cohen was CFO of N-trig, a developer of transparent electromagnetic digitizers for the mobile computers market, which was acquired by Microsoft in 2015. From 1996 to 2003, she served as CFO of RadioTel, a leading networking company offering next-generation SDH/Sonet network solutions. Ms. Cohen earned a BA in Psychology, summa cum laude, and an Executive MBA, cum laude, both from Tel Aviv University. +​ +83 +Table of Contents +Izhar Shay serves as Chairman of our board of directors. Mr. Shay currently serves as a venture partner at Disruptive AI, an early stage venture capital firm focused on AI investments. He also is the Chairman of Kendago ( a leading digital marketing group) and Group 107 Ltd. (a technology and fintech company that provides software solutions and IT services) and is on the Board of Directors of Spritt.io Ltd. (an AI-driven, no-code software platform that enables startups to build full-scale applications) and Tastewise (an AI based consumer insights platform for food & beverage innovation). From 2020 to 2021, Mr. Shay was Israel’s Minister of Science and Technology. Prior to that Mr. Shay’s professional career included various management and business positions in the Israeli high-tech and venture capital sectors. Previously, he worked as a high-tech entrepreneur and managed a number of companies for nearly ten years in the United States. In 1998, he co-founded Business Layers, a developer of Identity Management software solutions, and served as the company’s CEO until its sale in 2003 to Netegrity (Nasdaq: NETE). From 2004-2005, Mr. Shay served as chairman and CEO of V-Secure Technologies, a developer of intrusion prevention products intended to block cyber-attacks, which he led through its sale to Radware (NASDAQ: RDWR). In 2006, he joined the international venture capital fund Canaan Partners as a partner and managed its investment activities in Israel until 2014. At that time, Canaan Partners had assets under management of approximately $2.0B. Together with his partner, Ehud Levy, he co-founded Canaan Partners Israel in 2014, which made investments in Israeli technology start-ups, focusing on investments in mobile, digital media, Internet, communications and software. He served as a director at LiveU (acquired by Francisco Partners), Viewbix (acquired by Algomizer), Rollout.io, Drupe, and RegulusX and served as a director at Prime Sense prior to its sale to Apple as well as at N-trig, which was sold to Microsoft. In 2015, Mr. Shay was selected by the Israeli media outlet Geektime to be on the list of the 100 most influential people in the Israeli high-tech. Mr. Shay was elected as a member of the Israeli parliament, where he served from 2019 to 2021. He was a member of the special Coronavirus Cabinet, which was formed by the Israeli government, where he helped lead the national efforts confronting the challenges of the COVID-19 pandemic. +Candice Beaumont serves as a member of our board of directors. Beginning in October 2020, Candice Beaumont began to serve as an advisor to Springwater Special Situations Corp. (Nasdaq: SWSSU), a special purpose acquisition company formed to effectuate a merger or similar transaction with one or more businesses, which completed its initial public offering on August 25, 2021 and is currently searching for an initial business combination with a well-positioned business with operational improvements in Europe or elsewhere. Ms. Beaumont is a member of the Board of Directors of Clean Earth Acquisition Corp. (Nasdaq: CLINU), a special purpose acquisition company that completed its initial public offering in February 2022 and entered into a business combination agreement on October 12, 2022 for the purposes of acquiring substantially all of the subsidiaries of Alternus Energy Group Plc, a public limited company incorporated under the laws of Ireland. Ms. Beaumont has served since 2016 as Chairman of the Salsano Group, a Panama based family office and conglomerate invested in private equity. From 2003 to present, Ms. Beaumont has served as Chief Investment Officer of L Investments, a single-family office invested in public and private equity. Ms. Beaumont speaks at numerous family office and investment conferences globally, including the Stanford University Graduate School of Business Global Investor’s Forum, is a NYU Stern Family Office Council member serving on the Steering Committee, and is an Advisory Board member of the Family Office Association. From 2012 to 2014, Ms. Beaumont was a member of the board of directors of I2BF Venture Fund II, a Dubai Financial Services Authority regulated clean tech venture capital firm with offices in Dubai, New York and London, as well as an Advisory Board member of The Luxury Fund. Ms. Beaumont remains committed to community and philanthropic causes and serves on the International Council of Advisors for Global Dignity, a charity founded by Crown Prince Haakon of Norway to foster global respect and dignity across all borders, genders, religions and races. Ms. Beaumont was part of the Milken Young Leaders Circle and is a member of the Milken Institute, as well as an active member of YPO. Ms. Beaumont started her career in Corporate Finance at Merrill Lynch in 1996 and worked as an investment banker at Lazard Frères from 1997 to 1999, during which time Ms. Beaumont executed over $20 billion of merger and acquisition advisory assignments. Ms. Beaumont also worked in private equity at Argonaut Capital from 1999 to 2001. Ms. Beaumont obtained a Bachelor in Business Administration from the University of Miami, graduating first in her class with a major of International Finance & Marketing. Ms. Beaumont was captain of the University of Miami varsity tennis team, where Ms. Beaumont earned Academic All-American honors, and is also a former world-ranked professional tennis player. Ms. Beaumont completed Global Leadership & Public Policy for the 21st Century at Harvard Kennedy School in 2015. Ms. Beaumont was honored by Trusted Insight as one of the Top 30 Family Office Chief Investment Officers in 2017 and as a Young Global Leader by the World Economic Forum in 2014. Ms. Beaumont has a broad network of relationships, including investors in private and public equity, leading venture capital firms with compelling pre-initial public offering companies and has expertise sourcing deals, evaluating private and public businesses, and conducting detailed due diligence and risk management. +Peter Cohen serves as a member of our board of directors. Mr. Cohen was an investment banker for approximately three decades, advising CEOs and boards of directors on mission critical strategic and financing transactions. Most recently, from 2015 to 2020, he was a Managing Director and Global Head of Media, Entertainment & Sports Investment Banking at Barclays. In this role, he led a team responsible for managing all client coverage efforts for the firm in these sectors globally. He primarily focused on the largest clients in the Diversified and New Media and Sports sub-sectors, specializing in mergers & acquisitions, as well as debt and equity capital raising +84 +Table of Contents +efforts, on behalf of clients worldwide. From 2009 to 2015, he had similar responsibilities as a Senior Managing Director at Blackstone. Mr. Cohen started his investment banking career at JP Morgan in 1993. +Roy Zisapel serves as a member of our board of directors. Mr. Zisapel is a co-founder of Radware (NASDAQ: RDWR), a leader of cybersecurity and application delivery solutions for physical, cloud and software-defined data centers. Mr. Zisapel has served as President and Chief Executive Officer of Radware since the company’s inception in April 1997, and he is responsible for the overall direction and strategy of the company. Under his leadership, Radware has grown from a startup to a global, Nasdaq-listed industry leader with more than 35 offices and 1,100 employees worldwide. He was instrumental in raising over $200 million for Radware, which included two public offerings: an initial public offering in September 1999 — just two and a half years after the company’s inception — and a follow-on offering in January 2000. Radware’s growth has paralleled working with some of the most prominent brands in the world, including commercial banks, stock exchanges, retailers, telecom companies and mobile operators. Radware maintains strategic partnerships with Cisco, Checkpoint, IBM, Microsoft, Nokia, SAP and VMWare, among others. Mr. Zisapel has led Radware through several successful acquisitions, including V-Secure Technologies (2005), Covelight Systems (2007), Nortel’s application delivery business, Alteon (2009), and Strangeloop Networks in 2013. Most recently, he oversaw the acquisition of Seculert (2017) and ShieldSquare (2019). From 1996 to 1997, Mr. Zisapel was a team leader of research and development projects for RND Networks Ltd. From 1994 to 1996, Mr. Zisapel was employed as a software engineer for other companies in Israel. Mr. Zisapel graduated summa cum laude with a B.S. degree in mathematics and computer science from Tel Aviv University, where he was honored with the International Wolf Prize for research students. Mr. Zisapel holds several U.S. patents and patent applications in the areas of global load balancing, network proximity, traffic redirection and multi-homing. +Daniel S. Recanati serves as a member of our board of directors. Mr. Recanati is the founder & CEO of Rhodium, a privately-owned investment firm with a diverse portfolio including some of Israel’s most promising companies. Mr. Recanati founded and invested in numerous tech ventures from early stage to growth, across different sectors such as deeptech, fintech, foodtech, cyber, AI, digital media, e-commerce, automotive, communication and mobile. Mr. Recanati is an early investor in successful Israeli companies such as Teads Holding Co (NASDAQ:TEAD), eToro Group (NASDAQ:ETOR), Yotpo, Storedot, Earth & Beyond Ventures (Founder and GP), Face.com (acquired by Facebook), Hopstop (acquired by Apple), Zooz (acquired by PayU), Rounds (acquired by Kik), Hexatier (acquired by Huawei), IMGN (acquired by WarnerMusic) and Compass (acquired by Sage). For over two decades, Mr. Recanati has been focusing on accelerating social impact through technology, by co-founding and being closely involved in a variety of community organizations. Mr. Recanati serves on the board of The Yahel Foundation, the Recanati family philanthropy foundation, which aims to narrow social gaps by driving social processes and supporting non-profit organizations that advance education, welfare and health. Mr. Recanati also serves on the board of MadaTech — The Israel National Museum of Science Technology and Space. Mr. Recanati co-founded and serves on the board of Apple Seeds Academy (“Tapuah”), an Israeli nonprofit organization that was founded with the aim of bridging between Israel’s growing tech sector and the digital peripheries. He also serves on the board of “Ogen”- a non-profit social lending enterprise, providing affordable credit to disadvantaged segments of the Israeli public. Mr. Recanati holds an LLB and BA from the Reichman University, Herzliya. +Advisory Board +We currently expect members of our advisory board to (i) assist us in sourcing, negotiating and consummating a potential business combination, (ii) provide their business insights when we assess potential business combination targets and (iii) upon our request, provide their business insights as we work to create additional value in the businesses that we acquire. However, they have no written advisory agreement with us. Additionally, these individuals own membership interests in us, but have no other employment or compensation arrangements with us. They will not serve on the board or any committee thereof, nor will they have any voting or decision making capacity on our behalf. They will also not be required to devote any specific amount of time to our efforts or be subject to the fiduciary requirements to which our board members are subject. Accordingly, if any of them become aware of a business combination opportunity which is suitable for us, they are under no obligation to introduce it to us before any other prospective acquiror. We may utilize additional advisors from time to time. +The following are the initial members of our advisory board: +Alex Greystoke serves as a member of our advisory board and is one of our founders. Mr. Greystoke is a successful serial entrepreneur with a breadth of skills in a diverse range of industries. He is a founder and member of the advisory board of Goal Acquisitions Corp. (Nasdaq: PUCKU), a SPAC, that raised $258 million through its initial public offering in February 2021 and entered into a business combination agreement on November 17, 2022 for the purposes of acquiring Digital Virgo Group, a French corporation. Mr. Greystoke is also the founder and member of the advisory board of Clean Earth Acquisition Corp. (Nasdaq: CLINU), a SPAC that +85 +Table of Contents +completed a $200 million initial public offering in February 2022 and entered into a business combination agreement on October 12, 2022 for the purposes of acquiring substantially all of the subsidiaries of Alternus Energy Group Plc, a public limited company incorporated under the laws of Ireland. Mr. Greystoke is also on the board of Springwater Special Situations Corp (Nasdaq: SWSSU), a SPAC that raised $168 million through its initial public offering in August 2021 and is seeking to merge with a well-positioned business with operational improvement opportunities in Europe or elsewhere. Mr. Greystoke is the founder of multiple AI technology companies including TripChamp, VacationChamp and TravelChamp. He is the inventor of three granted artificial intelligence patents, with eight pending patent applications. Mr. Greystoke also holds investments in real estate, food and beverage, technology and other sectors. Mr. Greystoke founded HSC, a boutique corporate finance business raising money for and helping emerging companies commercialize in a range of sectors including technology, energy, healthcare and consumer products utilizing his wide network of partners throughout Asia, Europe, the Middle East and the U.S. Mr. Greystoke has served as director to numerous companies in the education, technology, AI and renewable energy spaces, and has served as a Chairman to a U.K. listed Chinese manufacturing company. +Robert Pincas serves as a member of our advisory board and is one of our founders. Mr. Pincas is a successful investment manager and entrepreneur with over 20 years of experience in the Israeli ecosystem and international capital markets. Over the years, Mr. Pincas has developed a deep network with Israeli tech companies and a wide range of international investors. Currently, Mr. Pincas serves as the SMB partner for Fundit, a leading crowdfund platform in Israel, regulated by the Israeli Securities Authority. Between 2007 and 2020 Mr. Pincas was a Managing Director with MG Investment Capital, a venture capital fund investing in Israeli technology with a profitable return for investors. Mr. Pincas was the Accelerator Program Director (Jerusalem and the Plains) for Maof-Tech, for the Israeli Economy Ministry. Between 2014 and 2018 Mr. Pincas managed Maof Rishon LeZion (sponsored by the Israeli Economy Ministry), one of the largest consulting centers in Israel, servicing thousands of SMB businesses. Mr. Pincas served between 2003-2008 as Executive Director and Partner with MG Equity Partners Ltd., an investment bank focusing on cross border transactions between Israeli and European companies and the London capital markets, such as Domino’s Pizza Switzerland, Pepsi Romania and MTI Wireless. Mr. Pincas has volunteered with Paamonim, a nonprofit organization focusing on financial education for families. Mr. Pincas holds an MBA from Tel Aviv University and a BA in Economics from Ben Gurion University. +Eitan Efron serves as a member of our advisory board and is one of our founders. Mr. Efron has 30 years of experience in technology investments, technology and business management and high-tech entrepreneurship. Mr. Efron has a diverse entrepreneurial and management background. Mr. Efron is a founder of four technology startups, including Oversi Networks, which was acquired by Allot Communications (NASDAQ: ALLT) in 2009, and WiNetworks, which was acquired by Ruggedcom Inc. in 2006 (and later acquired by Siemens). Between 2007 and 2019, Mr. Efron was a director with MG Investment Capital, a venture capital fund investing in Israeli technology with a profitable return for investors. Mr. Efron has deep contacts in Israeli tech ecosystem, including investors, companies’ executives, entrepreneurs and Israeli Innovation Authority. Mr. Efron has direct access to multiple multi-sector technology companies. +Ehud Levy serves as a member of our advisory board. Since 2014, Mr. Levy has been the Managing General Partner of Canaan Partners Israel, an Israeli venture capital fund. Since 2019, he has been a Venture Partner with Lenovo Capital heading its investment opportunities in Israel. Mr. Levy is also an active private investor in tech companies operating as a partner with a leading investment team, Kaedan Capital. From 2006 to 2014, Mr. Levy was a Managing Partner at Vertex VC. Among other successful investments, Mr. Levy identified Waze as a bright star from the start, leading the first investment round in the company and serving on its board of directors until its acquisition by Google for over US$1 billion. Previously, Mr. Levy co-founded and served as Chairman and CEO of Ki-Bi Mobile Technologies, a mass-market device specialist for mobile content distribution. He led the business from concept to commercial success, an initial public offering in London and eventual acquisition. Earlier, he served as COO and CFO of Telegate, a telecommunications company, where he was responsible for a restructuring plan leading to the acquisition of the company for over US$400 million. Prior to Telegate, Mr. Levy was an investment banker in New York and Tel Aviv, and served on the board of directors of several technology companies. Mr. Levy holds a BSc in Computer Engineering (with honors) from the Technion – Israel Institute of Technology and an MBA from Columbia Business School in New York. +Nir Ben Lavi serves as a member of our advisory board. Currently Mr. Ben Lavi is the CEO and co-founder of the Pangea Cup, the world’s first global competition and reality show for discovering the next big video game, and has served in that capacity since December 2019. Mr. Ben Lavi was appointed to his first managerial position at the age of 25, and combined it with intensive R&D work. This experience provided Mr. Ben Lavi with invaluable knowledge on innovation and led him to dedicate a lot of his time helping countries create their own start-up ecosystems. Mr. Ben Lavi is an active member of YPO Israel, and YPO Change Makers Club. Mr. Ben Lavi is an active investor deeply involved in the Israeli startup ecosystem. He is the former Managing Director of the NYU Blockchain Accelerator which he served at from October 2017 to October 2019, as well as head of the joint innovation program at Bosphorus University, Turkey. Mr. Ben Lavi is the author of three books and inventor of revolutionary software solutions. Mr. Ben Lavi +86 +Table of Contents +received his B.A. in Sociology, with honors, and his M.B.A. from the University of Tel Aviv. His Ph.D. research study in the field of Computerized Dispute Resolution led to the development of a first-of-its-kind dispute resolution software that was adopted by the United Nations as a managerial work tool. +Guy Kurlandski serves as a member of our advisory board. Mr. Kurlandski has more than 30 years’ experience as an entrepreneur and investor spanning diverse industries globally, from printing and real estate to spirits and technology. Today, Mr. Kurlandski’s primary position is as the Chief Evangelist Officer at Liquidity Group, an Israeli based global fintech and fund manager, which he has been with from 2019 to the present. He is also a Forbes Business Council member and an advisor to MUMA College of Business. He has been based in the United States since 2008 and was previously based in the United Kingdom. Mr. Kurlandski speaks both English and Hebrew and has strong ties to Israel. He has experience in scaling, managing and funding companies to reach their full potential. +Aaron Greenberg serves as a member of our advisory board. Mr. Greenberg is a finance professional with substantial experience in foreign markets. Recently, Mr. Greenberg was Chief Strategy Officer and Project Manager of European Sustainable Growth Acquisition Corp. (NASDAQ: EUSG), which successfully merged with ADS-TEC Energy (NASDAQ: ADSE), a German energy storage and EV charging company. In this position, he played a significant role in the negotiation of the business combination agreement between the parties and in successfully raising $156 million in a private investment public equity transaction for EUSG’s contemplated business combination with ADSE. Concurrent to EUSG, Mr. Greenberg served on the investment team for Lucerne Capital Management, a European-focused investment management firm managing approximately $800 million in assets. Prior to joining Lucerne, Mr. Greenberg worked in various roles for Wells Fargo Bank and its affiliates, latest of which as a portfolio manager evaluating operational inefficiencies and credit policy within the Corporate Investment Bank. He holds a FINRA Series 7, FINRA Series 63, FINRA Series 79, and FINRA Series 99 Securities license. Prior to joining Wells Fargo Bank, Mr. Greenberg attended Yale University where he earned a B.A. in Economics and B.A. in History. +Number and Terms of Office of Officers and Directors +Our board consists of seven directors. Holders of our founder shares have the right to appoint all of our directors prior to the consummation of our initial business combination and holders of our public shares do not have the right to vote on the appointment of directors during such time. In addition, prior to the completion of an initial business combination, (i) any vacancy on our board of directors may be filled by a nominee chosen by holders of a majority of our founder shares and (ii) holders of a majority of our founder shares may remove a member of the board of directors for any reason. +Our board of directors is divided into three classes, with only one class of directors being appointed in each year, and with each class (except for those directors appointed prior to our first annual general meeting) serving a three-year term. In accordance with the Nasdaq corporate governance requirements, we are not required to hold an annual general meeting until one year after our first fiscal year end following our listing on the Nasdaq. The term of office of the first class of directors consisting of Roy Zisapel and Peter Cohen, will expire at our first annual general meeting. The term of office of the second class of directors, consisting of Daniel Recanati, Sharon Barzik Cohen and Candice Beaumont, will expire at our second annual general meeting. The term of office of the third class of directors, consisting of Ziv Elul and Izhar Shay, will expire at our third annual general meeting. Mr. Shay serves as chairman of our board of directors. +Our officers are appointed by the board of directors and serve at the discretion of the board of directors, rather than for specific terms of office. Our board of directors is authorized to appoint persons to the offices set forth in our amended and restated memorandum and articles of association as it deems appropriate. Our amended and restated memorandum and articles of association will provide that our officers may consist of, a chief executive officer, a president, a chief financial officer, vice presidents, a secretary, a treasurer and such other officers as may be determined by the board of directors. +Director Independence +Nasdaq listing standards require that a majority of our board of directors be independent. An “independent director” is defined generally as a person other than an officer or employee of the company or its subsidiaries or any other individual having a relationship which in the opinion of the company’s board of directors, would interfere with the director’s exercise of independent judgment in carrying out the responsibilities of a director. Our board of directors has determined that Peter Cohen, Roy Zisapel, Candice Beaumont and Daniel Recanati are “independent directors” as defined in the Nasdaq listing standards. Our independent directors have regularly scheduled meetings at which only independent directors are present. +87 +Table of Contents +Committees of the Board of Directors +Our board of directors has three standing committees: an audit committee, a nominating committee, and a compensation committee. Subject to phase-in rules and a limited exception, the rules of the Nasdaq and Rule 10A-3 of the Exchange Act require that the audit committee of a listed company be comprised solely of independent directors. Subject to phase-in rules and a limited exception, the rules of the Nasdaq require that the compensation committee and the nominating committee of a listed company be comprised solely of independent directors. +Audit Committee +Peter Cohen, Candice Beaumont and Daniel Recanati serve as the members of our audit committee, and Mr. Cohen chairs the audit committee. Each member of the audit committee meets the independent director standard under Nasdaq listing standards and under Rule 10-A-3(b)(1) of the Exchange Act. Each member of the audit committee is financially literate and our board of directors has determined that Mr. Zisapel qualifies as an “audit committee financial expert” as defined in applicable SEC rules. +The audit committee is responsible for: +● meeting with our independent registered public accounting firm regarding, among other issues, audits, and adequacy of our accounting and control systems; +● monitoring the independence of the independent registered public accounting firm; +● verifying the rotation of the lead (or coordinating) audit partner having primary responsibility for the audit and the audit partner responsible for reviewing the audit as required by law; +● inquiring and discussing with management our compliance with applicable laws and regulations; +● pre-approving all audit services and permitted non-audit services to be performed by our independent registered public accounting firm, including the fees and terms of the services to be performed; +● appointing or replacing the independent registered public accounting firm; +● determining the compensation and oversight of the work of the independent registered public accounting firm (including resolution of disagreements between management and the independent auditor regarding financial reporting) for the purpose of preparing or issuing an audit report or related work; +● establishing procedures for the receipt, retention and treatment of complaints received by us regarding accounting, internal accounting controls or reports which raise material issues regarding our financial statements or accounting policies; +● monitoring compliance on a quarterly basis with the terms of previous offerings and, if any noncompliance is identified, immediately taking all action necessary to rectify such noncompliance or otherwise causing compliance with the terms of previous offerings; and +● reviewing and approving all payments made to our existing shareholders, executive officers or directors and their respective affiliates. Any payments made to members of our audit committee will be reviewed and approved by our board of directors, with the interested director or directors abstaining from such review and approval. +The audit committee charter also provides that the audit committee shall have the authority, to the extent it deems necessary or appropriate, to retain independent legal, accounting, or other advisors. Our Company shall provide for appropriate funding, as determined by the audit committee, for payment of compensation to (i) the independent auditor for the purpose of rendering or issuing an audit report and (ii) any advisors employed by the audit committee. +88 +Table of Contents +Nominating Committee +Daniel Recanati, Peter Cohen, and Candice Beaumont serve as the members of our nominating committee and Ms. Beaumont chairs the nominating committee. Each member of the nominating committee meets the independent director standard under Nasdaq listing standards. +The nominating committee is responsible for: +● developing criteria and qualifications for membership on the board of directors; +● recruiting, reviewing, and nominating candidates for election to the board of directors or to fill vacancies on the board of directors; +● reviewing candidates proposed by shareholders and conducting appropriate inquiries into the background and qualifications of such candidates; +● establishing subcommittees for the purpose of evaluating special or unique matters; +● monitoring and making recommendations regarding committee functions, contributions, and composition; and +● evaluating, on an annual basis the nominating committee’s performance. +The nominating committee considers persons identified by its members, management, shareholders, investment bankers and others. +Guidelines for Selecting Director Nominees +The nominating committee will consider a number of qualifications relating to management and leadership experience, background and integrity and professionalism in evaluating a person’s candidacy for membership on the board of directors. The nominating committee may require certain skills or attributes, such as financial or accounting experience, to meet specific board needs that arise from time to time and will also consider the overall experience and makeup of its members to obtain a broad and diverse mix of board members. The nominating committee does not distinguish among nominees recommended by shareholders and other persons. +Our nominating committee’s charter provides that the nominating committee will consider and evaluate each director-candidate based upon its assessment of the following criteria: +● whether the candidate is independent pursuant to the requirements of Nasdaq; +● whether the candidate is accomplished in his or her field and has a reputation, both personal and professional, that is consistent with the image and reputation of our Company; +● whether the candidate has the ability to read and understand basic financial statements and satisfies the criteria for being an “audit committee financial expert,” as defined by the SEC; +● whether the candidate has relevant experience and expertise and would be able to provide insights and practical wisdom based upon that experience and expertise; +● whether the candidate has knowledge of our Company and issues affecting our Company; +● whether the candidate is committed to enhancing shareholder value; +● whether the candidate fully understands, or has the capacity to fully understand, the legal responsibilities of a director and the governance processes of a public company; +89 +Table of Contents +● whether the candidate is of high moral and ethical character and would be willing to apply sound, objective, and independent business judgment, and to assume broad fiduciary responsibility; +● whether the candidate has, and would be willing to commit, the required hours necessary to discharge the duties of board of directors membership; +● whether the candidate has any prohibitive interlocking relationships or conflicts of interest; +● whether the candidate is able to develop a good working relationship with other board of directors members and contribute to our board of director’s working relationship with the senior management of our Company; and +● whether the candidate is able to suggest business opportunities to our Company. +Shareholders who wish to recommend to the nominating committee, a candidate for election to the board of directors should send a written recommendation to our offices located at 12600 Hill Country Blvd, Building R, Suite 275, Bee Cave, Texas 78738, Attention: Nominating Committee. We will promptly forward all such letters to the members of the nominating committee. Shareholders must follow certain procedures to recommend to the nominating committee candidates for election as directors. In general, to provide sufficient time to enable the nominating committee to evaluate candidates recommended by shareholders in connection with selecting candidates for nomination in connection with our annual meeting of shareholders, we must receive the shareholder’s recommendation no later than 30 days after the end of our fiscal year. +Compensation Committee +Candice Beaumont, Peter Cohen, and Daniel Recanati serve as the members of our compensation committee and Mr. Recanati chairs the compensation committee. Each member of the compensation committee meets the independent director standard under Nasdaq listing standards. +The compensation committee is responsible for: +● reviewing and approving on an annual basis the corporate goals and objectives relevant to our Chief Executive Officer’s compensation evaluating our Chief Executive Officer’s performance in light of such goals and objectives and determining and approving the remuneration (if any) of our Chief Executive Officer based on such evaluation; +● reviewing and approving the compensation of all of our other executive officers; +● reviewing our executive compensation policies and plans; +● implementing and administering our incentive compensation equity-based remuneration plans; assisting management in complying with our proxy statement and annual report disclosure requirements; +● approving all special perquisites, special cash payments and other special compensation and benefit arrangements for our executive officers and employees; +● producing a report on executive compensation to be included in our annual proxy statement; and +● reviewing, evaluating and recommending changes, if appropriate, to the remuneration for directors. +The compensation committee charter also provides that the compensation committee shall have the authority, to the extent it deems necessary or appropriate, to retain legal counsel or other advisors. In retaining compensation consultants, outside counsel, and other advisors, the compensation committee must take into consideration factors specified in the Nasdaq listing rules. We will provide for appropriate funding, as determined by the compensation committee, for payment of any such investigations or studies and the compensation to any consulting firm, legal counsel, or other advisors retained by the compensation committee. +90 +Table of Contents +Compensation Committee Interlocks and Insider Participation +None of our executive officers currently serves, and in the past year has not served, as a member of the compensation committee of any entity that has one or more executive officers serving on our board of directors. +Code of Ethics +We have adopted a Code of Ethics applicable to our directors, officers and employees. The Code of Ethics is available at the governance documents section of our website at https://israelacquisitionscorp.com. A copy of the Code of Ethics will also be provided without charge upon request from us. Information contained on or accessible through the website is not a part of this Annual Report on Form 10-K, and the inclusion of the website address in this Annual Report on Form 10-K is an inactive textual reference only. Any amendments to the Code of Ethics, or any waivers of its requirements, are expected to be disclosed as required by SEC and Nasdaq rules. The reference to our website address does not constitute incorporation by reference of the information contained at or available through our website, and you should not consider it to be a part of this Annual Report on Form 10-K. +Insider Trading Policy +We have not adopted an insider trading policy or procedures governing the purchase, sale, and/or other dispositions of the Company’s securities by directors, officers and employees, or the Company itself, that are reasonably designed to promote compliance with insider trading laws, rules and regulations, and any listing standards applicable to the Company. We expect that such a policy will be adopted by the post-business combination company in connection with a business combination transaction. +ITEM 11. EXECUTIVE COMPENSATION +None of our executive officers or directors have received any cash compensation for services rendered to us. On January 13, 2023 and continuing through the earlier of consummation of our initial business combination and our liquidation, we began paying the Sponsor $10,000 per month in exchange office space, administrative and support services pursuant to the Administrative Services Agreement. On December 31, 2025, the Parties entered into the Administrative Services Waiver whereby the Parties agreed to waive the administrative fees due under the Administrative Services Agreement. Pursuant to the Administrative Services Waiver, the waived administrative fees include (i) the $10,000 per month owed to the Sponsor until the consummation by the Company of an initial business combination or the Company’s liquidation, and (ii) the $240,000 accrued fees to date. In addition, the Sponsor and our executive officers and directors, or their respective affiliates will be reimbursed for any out-of-pocket expenses incurred in connection with activities on our behalf such as identifying potential target businesses and performing due diligence on suitable business combinations. Our audit committee will review on a quarterly basis all payments that were made by us to the Sponsor and our executive officers or directors, or their affiliates. Any such payments prior to an initial business combination will be made using funds held outside the Trust Account. Other than quarterly audit committee review of such reimbursements, we do not expect to have any additional controls in place governing our reimbursement payments to our directors and executive officers for their out-of-pocket expenses incurred in connection with our activities on our behalf in connection with identifying and consummating an initial business combination. Other than these payments and reimbursements, no compensation of any kind, including finder’s and consulting fees, will be paid by us to the Sponsor, our executive officers and directors, or their respective affiliates, prior to completion of our initial business combination. +After the completion of our initial business combination, directors or members of our management team who remain with us may be paid consulting or management fees from the combined company. All of these fees will be fully disclosed to shareholders, to the extent then known, in the proxy solicitation materials or tender offer materials furnished to our shareholders in connection with a proposed business combination. We have not established any limit on the amount of such fees that may be paid by the combined company to our directors or members of management. It is unlikely that the amount of such compensation will be known at the time of the proposed business combination, because the directors of the post-combination business will be responsible for determining executive officer and director compensation. Any compensation to be paid to our executive officers will be determined, or recommended to the board of directors for determination, either by a compensation committee constituted solely by independent directors or by a majority of the independent directors on our board of directors. +91 +Table of Contents +We do not intend to take any action to ensure that members of our management team maintain their positions with us after the consummation of our initial business combination, although it is possible that some or all of our executive officers and directors may negotiate employment or consulting arrangements to remain with us after our initial business combination. The existence or terms of any such employment or consulting arrangements to retain their positions with us may influence our management’s motivation in identifying or selecting a target business, but we do not believe that the ability of our management to remain with us after the consummation of our initial business combination will be a determining factor in our decision to proceed with any potential business combination. We are not party to any agreements with our executive officers and directors that provide for benefits upon termination of employment. +ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED UNITHOLDER MATTERS +The following table sets forth information regarding the beneficial ownership of our ordinary shares as of March 31, 2026, by: +● each person known by us to be the beneficial owner of more than 5% of our issued and outstanding ordinary shares; +● each of our executive officers and directors that beneficially owns ordinary shares; and +● all our executive officers and directors as a group. +Unless otherwise indicated, we believe that all persons named in the table have sole voting and investment power with respect to all of our ordinary shares beneficially owned by them. The following table does not reflect record or beneficial ownership of the warrants as the warrants are not exercisable within 60 days of the date of this Annual Report on Form 10-K. +In the table below, percentage ownership is based on 6,056,239 ordinary shares, consisting of (i) 1,264,572 Class A ordinary shares and (ii) 4,791,667 Class B ordinary shares, issued and outstanding as of March 31, 2026. On all matters to be voted upon, except for the election of directors of the board, holders of Class A ordinary shares and Class B ordinary shares vote together as a single class. +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +Class A Ordinary Shares +​ ​ ​ +Class B Ordinary Shares +​ ​ ​ +Approximate +​ +​ +Number of +​ +​ +​ +Number of +​ +​ +​ +Percentage of +​ +​ +​ +Shares +​ +Approximate +​ +Shares +​ +Approximate +​ +Outstanding +​ +​ +​ +Beneficially +​ +Percentage of +​ +Beneficially +​ +Percentage of +​ +Ordinary +​ +Name and Address of Beneficial Owner +​ +Owned +​ ​ ​ +Class +​ +Owned +​ ​ ​ +Class +​ +Shares +Directors and Named Executive Officers +​ +​ +​ +​ +​ +​ +Ziv Elul(3) +— +— +% +— +— +% +— +% +Sharon Barzik Cohen(3) +— +— +— +— +— +​ +Izhar Shay(3) +— +— +— +— +— +​ +Candice Beaumont(3) +— +— +— +— +— +​ +Peter Cohen(3) +— +— +— +— +— +​ +Roy Zisapel(3) +— +— +— +— +— +​ +Daniel S. Recanati(3) +— +— +— +— +— +​ +All officers and directors as a group (7 individuals) +— +— +— +— +— +​ +5% or Greater Shareholders +​ +​ +​ +​ +​ +​ +Israel Acquisitions Sponsor LLC(4) +637,500 +50.4 +% +4,696,167 +98.0 +% +88.1 +% +Charles Ecalle(4) +637,500 +50.4 +% +4,696,167 +98.0 +% +88.1 +% +Alexander Greystoke(4) +637,500 +50.4 +% +4,696,167 +98.0 +% +88.1 +% +*Less than one percent. +1) Unless otherwise noted, the business address of each of our shareholders is c/o Israel Acquisitions Corp, 12600 Hill Country Blvd, Building R, Suite 275, Bee Cave, TX 78738. +2) Interests shown consist solely of founder shares. Such founder shares will automatically convert into Class A Ordinary Shares at the time of our initial business combination or earlier at the option of the holders thereof. +3) Does not include any shares held by our Sponsor, of which each of our officers and directors is a member. This individual has an indirect economic interest in securities owned by our Sponsor. +92 +Table of Contents +4) Our Sponsor is the record holder of such securities. Charles Ecalle and Alexander Greystoke are the managers of our Sponsor and share voting and investment discretion with respect to the securities held by our Sponsor and as such may be deemed to have shared beneficial ownership of the securities held directly by our Sponsor. Each of Mr. Ecalle and Mr. Greystoke disclaims beneficial ownership of any securities held by our Sponsor other than to the extent of their respective pecuniary interests therein, directly or indirectly. +Our Sponsor beneficially owns 25% of the issued and outstanding ordinary shares (excluding private placement shares) and will have the right to elect all of our directors prior to our initial business combination. Holders of our public shares will not have the right to elect any directors to our board of directors prior to our initial business combination. Because of this ownership block, our Sponsor may be able to effectively influence the outcome of all other matters requiring approval by our shareholders, including amendments to our amended and restated memorandum and articles of association and approval of significant corporate transactions including our initial business combination. +Our Sponsor has agreed (a) to vote any founder shares and public shares held by it in favor of any proposed initial business combination and (b) not to redeem any founder shares or public shares held by it in connection with a shareholder vote to approve a proposed initial business combination. +ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE +On January 26, 2022, the Sponsor paid $25,000, or approximately $0.004 per share, to cover certain expenses on our behalf in consideration of 5,750,000 Class B ordinary shares, par value $0.0001. On March 4, 2022, we effected a share capitalization with respect to our Class B ordinary shares of 1,150,000, resulting in our initial shareholders holding 6,900,000 founder shares. On August 18, 2022, our Sponsor surrendered for no consideration 1,150,000 Class B ordinary shares, resulting in our initial shareholders holding 5,750,000 founder shares. On November 17, 2022, the Sponsor surrendered for no consideration 958,333 Class B ordinary shares, resulting in the Sponsor holding 4,791,667 founder shares. The founder shares (including the Class A ordinary shares issuable upon automatic conversion thereof) may not, subject to certain limited exceptions, be transferred, assigned or sold by the holder. Each of our officers and directors owns an indirect interests in a portion of the founder shares through a membership interest in the Sponsor. +On January 26, 2022, we issued an unsecured promissory note to the Sponsor, pursuant to which we could borrow up to an aggregate amount $300,000 (the “Promissory Note”) to be used for a portion of the expenses of our Initial Public Offering. The Promissory Note was non-interest bearing, unsecured, and payable upon the earlier of December 31, 2022 or the closing of our Initial Public Offering. In December 2022, we and the Sponsor agreed to extend the maturity of the Promissory Note to the earlier of December 31, 2023 or the consummation of our Initial Public Offering. On January 18, 2023 we consummated our Initial Public Offering and paid $245,540 to the Sponsor, resulting in an overpayment of $8,306. +In connection with our Initial Public Offering, our Sponsor, BTIG, Exos Capital LLC, and Jones Trading Institutional Services LLC purchased an aggregate of 762,500 Private Placement Units for a purchase price of $10.00 per private placement unit (our Sponsor purchased 637,500 Private Placement Units, BTIG purchased 75,000 Private Placement Units, Exos Capital LLC purchased 25,000 Private Placement Units, and JonesTrading Institutional Services LLC purchased 25,000 Private Placement Units) pursuant to Private Placement Units purchase agreements dated as of January 12, 2023. As such, our Sponsor’s interest in this transaction is valued at between $6,375,000. The Private Placement Units are identical to the units sold in connection with our Initial Public Offering, except that the private placement warrants underlying the Private Placement Units (i) are not be redeemable by us, (ii) may not (including the Class A ordinary shares issuable upon exercise of these private placement warrants), subject to certain limited exceptions, be transferred, assigned or sold by the holders until 30 days after the completion of our initial business combination, (iii) may be exercised by the holders on a cashless basis, and (iv) are entitled to registration rights. The Private Placement Units (including the private placement shares, private placement warrants and the Class A ordinary shares issuable upon exercise of the private placement warrants) may not, subject to certain limited exceptions, be transferred, assigned or sold by the holder. Each of our officers and directors own an indirect interests in a portion of the Private Placement Units through a membership interest in the Sponsor. +A portion of the proceeds from the sale of the Private Placement Units was added to the proceeds from the Initial Public Offering in the Trust Account such that at the time of the closing, $146,625,000 was held in the Trust Account. If we do not complete our initial business combination by February 1, 2023, the proceeds from the sale of the Private Placement Units held in the Trust Account will be used to fund the redemption of our public ordinary shares (subject to the requirements of applicable law), and the Private Placement Units (and the underlying securities) will be worthless. +93 +Table of Contents +If any of our officers or directors becomes aware of a business combination opportunity that falls within the line of business of any entity to which he or she has a then-current fiduciary or contractual obligation, he or she will honor his or her fiduciary or contractual obligation to present such opportunity to such entity. Our officers and directors currently have certain relevant fiduciary duties or contractual obligations that may take priority over their duties to us. +In connection with the Initial Public Offering, we entered into the Administrative Services Agreement, whereby our Sponsor agreed to make available, or cause to be made available directly or indirectly through any of its affiliates, with office space and secretary and administrative services in exchange for $10,000 per month fee until the closing of our initial business combination. On December 31, 2025, the Parties entered into the Administrative Services Waiver whereby the Parties agreed to waive the administrative fees due under the Administrative Services Agreement. Pursuant to the Administrative Services Waiver, the waived administrative fees include (i) the $10,000 per month owed to the Sponsor until the consummation by the Company of an initial business combination or the Company’s liquidation, and (ii) the $240,000 accrued fees to date. +Our Sponsor, our officers and directors, or any of their respective affiliates are entitled to reimbursement for any out-of-pocket expenses incurred in connection with activities on our behalf such as identifying potential target businesses and performing due diligence on suitable business combinations. Our audit committee will review on a quarterly basis all payments that were made to our Sponsor, officers, directors or our or their affiliates. There is no cap or ceiling on the reimbursement of out-of-pocket expenses incurred by such persons in connection with activities on our behalf. +In order to finance transaction costs in connection with an intended initial business combination, our Sponsor or an affiliate of our Sponsor or certain of our officers and directors may, but are not obligated to, loan us funds as may be required. If we complete an initial business combination, we may repay such loaned amounts out of the proceeds of the Trust Account released to us. In the event that our initial business combination does not close, we may use a portion of the working capital held outside the Trust Account to repay such loaned amounts, but no proceeds from our Trust Account would be used for such repayment. Up to $1,500,000 of such loans may be convertible into private placement-equivalent units of the post-business combination entity at a price of $10.00 per private placement-equivalent unit at the option of the lender. Such units would be identical to the Private Placement Units. Except for the foregoing, the terms of such working capital loans, if any, have not been determined and no written agreements exist with respect to such working capital loans. Prior to our initial business combination, we do not expect to seek loans from parties other than our Sponsor, its affiliates or our management team as we do not believe third parties will be willing to loan such funds and provide a waiver against any and all rights to seek access to funds in our Trust Account. +After our initial business combination, members of our management team who remain with us may be paid consulting, management or other fees from the combined company with any and all amounts being fully disclosed to our shareholders, to the extent then known, in the tender offer or proxy solicitation materials, as applicable, furnished to our shareholders. It is unlikely the amount of such compensation will be known at the time of distribution of such tender offer materials or at the time of a general meeting held to consider our initial business combination, as applicable, as it will be up to the directors of the post-combination business to determine executive and director compensation. +In connection with our Initial Public Offering, we entered into the Registration Rights Agreement with the Sponsor, BTIG, Exos Capital LLC and Jones Trading Institutional Services LLC. Pursuant to the Registration Rights Agreement, those parties are entitled to certain registration rights with respect to any founder shares, Private Placement Units, private placement shares, private placement warrants, the warrants issuable upon conversion of working capital loans (if any) and the Class A ordinary shares issuable upon conversion of the founder shares or exercise of the private placement warrants and working capital loans (if any) held by them. +In connection with our Initial Public Offering, the Sponsor, our executive officers and our directors entered into a letter agreement with us, dated January 12, 2023 (the “Letter Agreement”), pursuant to which each of them have agreed (i) that if we seek shareholder approval of an initial business combination, then it, she, or he, as applicable shall vote all founder shares and any public shares held by it, she or him, as applicable, in favor of such proposed initial business combination (including any proposals recommended by our board in connection therewith) (ii) to waive their redemption rights with respect to any founder shares and public shares held by it, she, or he in connection with (A) the completion of our initial business combination and (B) a shareholder vote to approve an amendment to our amended and restated memorandum and articles of association (1) that would modify the substance or timing of our obligation to provide holders of our public shares the right to have their shares redeemed in connection with our initial business combination or to redeem 100% of our public shares if we do not complete our initial business combination by April 18, 2026 (or up to January 18, 2027 if we extend the time to complete a business combination as described in this Annual Report on Form 10-K) or (2) with respect to any other provision relating to the rights of holders of our public shares (although the Sponsor, our executive officers, and our directors shall be +94 +Table of Contents +entitled to liquidation rights with respect to any public shares they hold if we fail to consummate an initial business combination within the Combination Period). Additionally, the Sponsor, our executive officers and our directors have each agreed to waive their respective rights to liquidating distributions from the Trust Account with respect to its founder shares held by them in connection with any liquidation of our Company. +Pursuant to the Letter Agreement, the Sponsor and our officers and directors have agreed not to transfer, assign or sell any of their founder shares until the earliest of (A) one year after the completion of our initial business combination and (B) subsequent to our initial business combination, (x) if the closing price of our Class A ordinary shares equals or exceeds $12.00 per share (as adjusted for share subdivisions, share capitalizations, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 150 days after our initial business combination, or (y) the date on which we complete a liquidation, merger, share exchange or other similar transaction that results in all of our public shareholders having the right to exchange their ordinary shares for cash, securities or other property. +In addition, under the Letter Agreement, the Sponsor and our officers and directors have agreed that, they shall not transfer any of the Private Placement Units, private placement shares, private placement shares, or ordinary shares underlying the private placement warrants until 30 days after the completion of an initial business combination. If we do not complete our initial business combination within the Combination Period, the private placement warrants will expire worthless. Because each of our executive officers and directors will own ordinary shares or warrants, directly or indirectly, they may have a conflict of interest in determining whether a particular target business is an appropriate business with which to effectuate our initial business combination. +We have entered into agreements to indemnify our directors, executive officers and other employees as determined by the board of directors. Under the terms of such indemnification agreements, we will be required to indemnify each of our directors and officers, to the fullest extent permitted by applicable law. We have agree to indemnify our officers and directors reasonable attorneys’ fees, retainers, court costs (including trial and appeals), transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, federal, state, local, or foreign taxes imposed as a result of the actual or deemed receipt of any payments under the indemnification agreement, and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, appealing, preparing to appeal, investigating, or being or preparing to be a witness in an action, suit, arbitration, alternate dispute resolution mechanism, investigation, administrative hearing or any other proceeding, whether conducted by or on behalf of the Company or any other party, whether civil, criminal, administrative or investigative, or establishing or enforcing a right to indemnification under the indemnification agreement. The indemnification agreements also require the Company, if so requested, to advance within 30 days of such request, all reasonable fees, expenses, charges and other costs that any of our directors incur, provided that such director will return any such advance if it is ultimately determined that such director is not entitled to indemnification by us. Any claims for indemnification by our directors and officers may reduce our available funds to satisfy successful third-party claims against us and may reduce the amount of money available to us. +Sponsor Support Agreement +Concurrently with the execution of the Business Combination Agreement, we entered into the Sponsor Support Agreement with the Sponsor and Gadfin, whereby the Sponsor has agreed, among other things, (a) to vote in favor of the Business Combination Agreement and the Business Combination on the terms and subject to the conditions set forth in the Sponsor Support Agreement, (b) in the event the Covered Shares represent more than 30% of NewPubco Ordinary Shares issued and outstanding immediately following Closing, Sponsor will irrevocably forfeit and surrender, immediately prior to Closing, for no consideration, a number of Sponsor Shares, up to a maximum of 1,429,000 Sponsor Shares, in order to reduce the Sponsor’s holding in NewPubco below the Dilution Cap, and (c) if, immediately prior to or at the Closing, SPAC incurs a Transaction Expenses Cap Excess without obtaining the prior written consent of Gadfin to incur such Transaction Expenses Cap Excess, then at the election of Gadfin in its sole discretion, Sponsor shall either (x) irrevocably transfer to such persons entitled to the respective Transaction Expenses Cap Excess such number of SPAC Shares or SPAC Warrants that will satisfy and settle such Transaction Expenses Cap Excess, reasonably acceptable to Gadfin or (y) pay directly to NewPubco any such Transaction Expenses Cap Excess, such that only Sponsor bears such Transaction Expenses Cap Excess. The Sponsor also agreed that it will not (a) transfer any of the Sponsor Shares or grant any security interest in the Sponsor Shares pursuant to the Business Combination Agreement or to another shareholder of the Company, (b) deposit any Sponsor Shares into a voting trust or enter into a voting arrangement that is inconsistent with the Sponsor Support Agreement or (c) enter into any arrangement with respect to the acquisition or sale of any of the Sponsor Shares. The Sponsor has also agreed to waive its rights to the treatment of its Sponsor Shares and to not participate in any redemption by tendering or submitting any IAC equity securities held by the Sponsor for redemption. Capitalized terms used but not defined herein shall have the meanings ascribed thereto in the Sponsor Support Agreement. +95 +Table of Contents +Promissory Notes +On January 18, 2024, the Company issued a promissory note in the amount of $600,000 to pay for up to twelve additional one-month extension payments (the “Extension Note”). On each of January 16, 2024, February 15, 2024, March 11, 2024, April 15, 2024, May 17, 2024, June 14, 2024, July 17, 2024, August 15, 2024, September 12, 2024, October 16, 2024, November 15, 2024, and December 17, 2024, the Company drew $50,000, $600,000 in the aggregate, against the Extension Note to pay for each additional one-month extension. The Extension Note bears no interest and is repayable in full (subject to amendment or waiver) upon the earlier of (i) the date of the consummation of the Company’s initial business combination, or (ii) the date of the Company’s liquidation. As of December 31, 2024, there was $600,000 outstanding under the Extension Note. +On July 17, 2024, the Company issued an unsecured promissory note to the Sponsor (the “July Promissory Note”), pursuant to which the Company may borrow up to an aggregate principal amount of $1,500,000. The July Promissory Note bears no interest and is repayable in full (subject to amendment or waiver) upon the earlier of (i) the date of the consummation of the Company’s initial business combination, or (ii) the date of the Company’s liquidation. As of December 31, 2024, there was $225,000 outstanding under the July Promissory Note. +On January 17, 2025, the Company issued an unsecured promissory note to the Sponsor in the amount of $335,131 to pay for up to twelve additional one-month extension payments (the “2025 Extension Note”). On each of January 17, 2025, February 18, 2025, March 18, 2025, May 19, 2025, June 18, 2025, July 18, 2025, August 18, 2025, September 18, 2025, October 17, 2025, November 18, 2025 and December 19, 2025, the Company drew $27,927 each month against the 2025 Extension Note to pay for an additional one-month extension. The 2025 Extension Note bears no interest and is repayable in full (subject to amendment or waiver) upon the earlier of (i) the date of the consummation of the Company’s initial business combination, or (ii) the date of the Company’s liquidation. +Related Party Policy +Upon consummation of our Initial Public Offering, the audit committee of our board of directors adopted a charter, providing for the review, approval, or ratification of “related-party transactions,” which are those transactions required to be disclosed pursuant to Item 404 of Regulation S-K as promulgated by the SEC, by the audit committee. At its meetings, the audit committee shall be provided with the details of each new, existing, or proposed related party transaction, including the terms of the transaction, any contractual restriction that we have already committed to, the business purpose of such transaction, and the benefits of the transaction to us and to the relevant related party. Any member of the audit committee who has an interest in the related party transaction under review by the audit committee shall abstain from voting on the approval of the related party transaction, but may, if so requested by the chairman of the audit committee, participate in some or all of the audit committee’s discussions of the related party transaction. Upon the completion of its review of the related party transaction, the audit committee may determine to permit or to prohibit the related party transaction. +Director Independence +Nasdaq listing standards require that a majority of our board of directors be independent. An “independent director” is defined generally as a person other than an officer or employee of the company or its subsidiaries or any other individual having a relationship which in the opinion of the company’s board of directors, would interfere with the director’s exercise of independent judgment in carrying out the responsibilities of a director. Our board of directors has determined that Peter Cohen, Roy Zisapel, Candice Beaumont and Daniel Recanati are “independent directors” as defined in the Nasdaq listing standards. Our independent directors will have regularly scheduled meetings at which only independent directors are present. +​ +96 +Table of Contents +ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES +The following is a summary of fees paid or to be paid to BDO USA, P.C., or BDO, for services rendered. +Audit Fees . Audit fees consist of fees billed for professional services rendered for the audit of our year-end financial statements and services that are normally provided by BDO in connection with regulatory filings. The aggregate fees billed by BDO for professional services rendered for the audit of our annual financial statements, review of the financial information included in our Forms 10-Q for the respective periods and other required filings with the SEC for the year ended December 31, 2025 and for the year ended December 31, 2024 totaled approximately $218,064 and $164,158, respectively. The above amounts include interim procedures and audit fees, as well as attendance at audit committee meetings. +Audit-Related Fees. Audit-related services consist of fees billed for assurance and related services that are reasonably related to performance of the audit or review of our financial statements and are not reported under “Audit Fees.” These services include attest services that are not required by statute or regulation and consultations concerning financial accounting and reporting standards. We did not pay BDO for consultations concerning financial accounting and reporting standards for the year ended December 31, 2025 and for the year ended December 31, 2024. +Tax Fees . We did not pay BDO for tax planning and tax advice for the year ended December 31, 2025 and for the year ended December 31, 2024. +All Other Fees . We did not pay BDO for other services for the year ended December 31, 2025 and for the year ended December 31, 2024. +Pre-Approval Policy +Our audit committee was formed upon the consummation of our Initial Public Offering. As a result, the audit committee did not pre-approve all of the foregoing services, although any services rendered prior to the formation of our audit committee were approved by our board of directors. Since the formation of our audit committee, and on a going-forward basis, the audit committee has and will pre-approve all auditing services and permitted non-audit services to be performed for us by our auditors, including the fees and terms thereof (subject to the de minimis exceptions for non-audit services described in the Exchange Act which are approved by the audit committee prior to the completion of the audit). +​ +97 +Table of Contents +PART IV +ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES +(a) Documents filed as part of this report. +1. Financial Statements +See Index to Financial Statements as Item 8 herein. +2. Financial Statement Schedules +All schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. +3. Exhibits +98 +Table of Contents +​ +​ +​ +​ +​ +Incorporated by Reference +Exhibit +No. +​ ​ +Exhibit Description +​ ​ +Form +​ ​ +SEC File +No. +​ ​ +Exhibit +​ ​ +Filing +Date +1.1 +​ +Underwriting Agreement, dated January 12, 2023, by and among the Company and BTIG, LLC, as representative of the several underwriters. +​ +8-K +​ +001-41593 +​ +1.1 +​ +January 19, 2023 +2.1 +​ +Business Combination Agreement, dated as of January 2, 2024, by and between the Company and Pomvom Ltd. +​ +8-K +​ +001-41593 +​ +2.1 +​ +January 2, 2024 +2.2 +​ +Amendment No. 1 to the Business Combination Agreement, dated April 22, 2024, by and between Israel Acquisitions Corp and Pomvom Ltd. +​ +8-K +​ +001-41593 +​ +2.2 +​ +April 24, 2024 +2.3 +​ +Business Combination Agreement, dated as of January 26, 2025, by and among, Israel Acquisitions Corp and Gadfin Ltd. +​ +8-K +​ +001-41593 +​ +2.1 +​ +January 27, 2025 +2.4 +​ +Amendment No. 1 to the Business Combination Agreement, dated July 2, 2025, by and between Israel Acquisitions Corp and Gadfin Ltd. +​ +8-K +​ +000-41593 +​ +2.2 +​ +July 3, 2025 +2.5 +​ +Amendment No. 2 to the Business Combination Agreement, dated December 31, 2025, by and between Israel Acquisitions Corp and Gadfin Ltd. +​ +8-K +​ +000-41593 +​ +2.3 +​ +March 9, 2026 +2.6 +​ +Amendment No. 3 to the Business Combination Agreement, dated December 31, 2025, by and between Israel Acquisitions Corp and Gadfin Ltd. +​ +8-K +​ +000-41593 +​ +2.4 +​ +March 17, 2026 +3.1 +​ +Third Amended and Restated Memorandum and Articles of Association, dated January 8, 2024 +​ +8-K +​ +001-41593 +​ +3.1 +​ +January 11, 2024 +3.2 +​ +Fourth Amended and Restated Memorandum and Articles of Association, adopted on January 6, 2025. +​ +8-K +​ +001-41593 +​ +3.1 +​ +January 10, 2025 +3.3 +​ +Fifth Amended and Restated Memorandum and Articles of Association, adopted on January 6, 2025. +​ +8-K +​ +001-41593 +​ +3.1 +​ +January 22, 2026 +4.1 +​ +Specimen Unit Certificate +​ +S-1 +​ +333-263658 +​ +4.1 +​ +August 31, 2022 +4.2 +​ +Specimen Class A Ordinary Share Certificate +​ +S-1 +​ +333-263658 +​ +4.2 +​ +August 31, 2022 +4.3 +​ +Specimen Warrant Certificate (included in Exhibit 4.4) +​ +S-1 +​ +333-263658 +​ +4.4 +​ +August 31, 2022 +4.4 +​ +Warrant Agreement, dated January 12, 2023, by and between the Company and American Stock Transfer & Trust Company, as warrant agent. +​ +8-K +​ +001-41593 +​ +4.1 +​ +January 19, 2023 +4.5 +​ +Description of Securities +​ +10-K +​ +001-41593 +​ +4.5 +​ +April 17, 2023 +10.1 +​ +Letter Agreement, dated January 12, 2023, by and among the Company, its executive officers, its directors and Israel Acquisitions Sponsor LLC. +​ +8-K +​ +001-41593 +​ +10.1 +​ +January 19, 2023 +10.2 +​ +Investment Management Trust Agreement, dated January 12, 2023, by and between the Company and American Stock Transfer & Trust Company, as trustee. +​ +8-K +​ +001-41593 +​ +10.2 +​ +January 19, 2023 +99 +Table of Contents +10.3 +​ +Registration Rights Agreement, dated January 12, 2023, by and among the Company, Israel Acquisitions Sponsor LLC, BTIG, LLC, Exos Capital LLC and JonesTrading Institutional Services LLC. +​ +8-K +​ +001-41593 +​ +10.3 +​ +January 19, 2023 +10.4 +​ +Private Placement Units Purchase Agreement, dated January 12, 2023, by and between the Company and Israel Acquisitions Sponsor LLC. +​ +8-K +​ +001-41593 +​ +10.4 +​ +January 19, 2023 +10.5 +​ +Private Placement Units Purchase Agreement, dated January 12, 2023, by and between the Company and BTIG, LLC. +​ +8-K +​ +001-41593 +​ +10.5 +​ +January 19, 2023 +10.6 +​ +Private Placement Units Purchase Agreement, dated January 12, 2023, by and between the Company and Exos Capital LLC. +​ +8-K +​ +001-41593 +​ +10.6 +​ +January 19, 2023 +10.7 +​ +Private Placement Units Purchase Agreement, dated January 12, 2023, by and between the Company and JonesTrading Institutional Services LLC. +​ +8-K +​ +001-41593 +​ +10.7 +​ +January 19, 2023 +10.8 +​ +Administrative Services Agreement, dated January 12, 2023, by and between the Company and Israel Acquisitions Sponsor LLC. +​ +8-K +​ +001-41593 +​ +10.8 +​ +January 19, 2023 +10.9 +​ +Form of Indemnity Agreement +​ +S-1 +​ +333-263658 +​ +10.5 +​ +August 31, 2022 +10.10 +​ +Promissory Note, dated January 26, 2022, issued to the Sponsor. +​ +S-1 +​ +333-263658 +​ +10.7 +​ +March 17, 2022 +10.11 +​ +Securities Subscription Agreement, dated January 26, 2022, between the Company and Israel Acquisitions Sponsor LLC. +​ +S-1 +​ +333-263658 +​ +10.8 +​ +March 17, 2022 +10.12 +​ +Sponsor Support Agreement, dated January 2, 2024, by and among the Company, Pomvom Ltd. and Israel Acquisitions Sponsor LLC. +​ +8-K +​ +001-41593 +​ +10.1 +​ +January 2, 2024 +10.13 +​ +Form of Transaction Support Agreement. +​ +8-K +​ +001-41593 +​ +10.2 +​ +January 2, 2024 +10.14 +​ +Form of Registration Rights and Lock-Up Agreement. +​ +8-K +​ +001-41593 +​ +10.3 +​ +January 2, 2024 +10.15 +​ +Amendment to the Investment Management Trust Agreement, dated January 8, 2024, by and between Israel Acquisitions Corp and Equiniti Trust Company, LLC. +​ +8-K +​ +001-41593 +​ +10.1 +​ +January 11, 2024 +10.16 +​ +Amended and Restated Sponsor Support Agreement, dated April 19, 2024, by and among the Company, Pomvom Ltd. and Israel Acquisitions Sponsor LLC. +​ +10-Q +​ +001-41593 +​ +10.1 +​ +May 15, 2024 +10.17 +​ +Promissory Note, dated January 18, 2024, by and between the Company and Israel Acquisitions Sponsor. +​ +10-Q +​ +001-41593 +​ +10.5 +​ +May 15, 2024 +10.18 +​ +Promissory Note, dated July 17, 2024, between the Company and Israel Acquisitions Sponsor LLC. +​ +10-Q +​ +001-41593 +​ +10.1 +​ +August 14, 2024 +10.19 +​ +Amendment to the Investment Management Trust Agreement, dated January 6, 2025, by and between Israel Acquisitions Corp and Equiniti Trust Company, LLC. +​ +8-K +​ +001-41593 +​ +10.1 +​ +January 10, 2025 +100 +Table of Contents +10.20 +​ +Promissory Note dated January 17, 2025, by and between the Company and the Sponsor +​ +8-K +​ +001-41593 +​ +10.1 +​ +January 22, 2025 +10.21 +​ +Form of Sponsor Support Agreement. +​ +8-K +​ +001-41593 +​ +10.1 +​ +January 27, 2025 +10.22 +​ +Form of Transaction Support Agreement. +​ +8-K +​ +001-41593 +​ +10.2 +​ +January 27, 2025 +10.23 +​ +Letter Agreement, dated as of October 14, 2025, by and among, ISRL, the Sponsor, and Gadfin Ltd. +​ +8-K +​ +001-41593 +​ +10.1 +​ +October 16, 2025 +10.24 +​ +Advisory Agreement, dated as of October 14, 2025, by and among ISRL, the Sponsor, and BTIG. +​ +8-K +​ +001-41593 +​ +10.2 +​ +October 16, 2025 +10.25 +​ +Waiver to the Administrative Services Agreement, dated December 31, 2025 by and among the Company and the Sponsor +​ +8-K +​ +001-41593 +​ +10.1 +​ +January 2, 2026 +10.26 +​ +Amendment to the Investment Management Trust Agreement, dated January 16, 2026, by and between Israel Acquisitions Corp and Equiniti Trust Company, LLC. +​ +8-K +​ +001-41593 +​ +10.1 +​ +January 22, 2026 +31.1* +​ +Certification of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Security Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. +​ +​ +​ +​ +​ +​ +​ +​ +31.2* +​ +Certification of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Security Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. +​ +​ +​ +​ +​ +​ +​ +​ +32.1** +​ +Certification of Chief Executive Officer pursuant to Section 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. +​ +​ +​ +​ +​ +​ +​ +​ +32.2** +​ +Certification of Chief Financial Officer pursuant to Section 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. +​ +​ +​ +​ +​ +​ +​ +​ +97.1 +​ +Clawback Policy +​ +10-K/A +​ +001-41593 +​ +97.1 +​ +June 23, 2025 +101.INS* +​ +XBRL Instance Document +​ +​ +​ +​ +​ +​ +​ +​ +101.SCH* +​ +XBRL Taxonomy Extension Schema Document +​ +​ +​ +​ +​ +​ +​ +​ +101.CAL* +​ +XBRL Taxonomy Extension Calculation Linkbase Document +​ +​ +​ +​ +​ +​ +​ +​ +101.DEF* +​ +XBRL Taxonomy Extension Definition Linkbase Document +​ +​ +​ +​ +​ +​ +​ +​ +101.LAB* +​ +XBRL Taxonomy Extension Labels Linkbase Document +​ +​ +​ +​ +​ +​ +​ +​ +101.PRE* +​ +XBRL Taxonomy Extension Presentation Linkbase Document +​ +​ +​ +​ +​ +​ +​ +​ +104 +​ +Cover Page Interactive Data File. Formatted in Inline XBRL and contained in exhibit 101. +​ +​ +​ +​ +​ +​ +​ +​ +* +Filed herewith. +101 +Table of Contents +** +These certifications are being furnished solely to accompany this annual report pursuant to 18 U.S.C. Section 1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934 and are not to be incorporated by reference into any filing of the registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing. +We hereby file as part of this Annual Report on Form 10-K the exhibits listed in the attached Exhibit Index, except for exhibits 32.1 and 32.2, which are hereby furnished. Exhibits which are incorporated herein by reference can be inspected and copied at the public reference facilities maintained by the SEC, 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Copies of such material can also be obtained from the Public Reference Section of the SEC, 100 F Street, N.E., Washington, D.C. 20549, at prescribed rates or on the SEC website at www.sec.gov. +​ +ITEM 16. FORM 10-K SUMMARY. +None. +​ +102 +Table of Contents +SIGNATURES +Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. +Dated: March 31, 2026 +​ +​ +ISRAEL ACQUISITIONS CORP +​ +By: +/s/ Ziv Elul +​ +​ +Name: +Ziv Elul +​ +​ +Title: +Chief Executive Officer and Director +​ +Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. +Name +​ ​ ​ +Position +​ ​ ​ +Date +By: +/s/ Ziv Elul +​ +Chief Executive Officer and Director +​ +March 31, 2026 +​ +Ziv Elul +​ +(Principal Executive Officer) +​ +​ +​ +​ +​ +​ +​ +​ +By: +/s/ Sharon Barzik Cohen +​ +Chief Financial Officer and Director +​ +March 31, 2026 +​ +Sharon Barzik Cohen +​ +(Principal Financial and Accounting Officer) +​ +​ +​ +​ +​ +​ +​ +​ +By: +/s/ Izhar Shay +​ +Director (Chairman) +​ +March 31, 2026 +​ +Izhar Shay +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +By: +/s/ Candice Beaumont +​ +Director +​ +March 31, 2026 +​ +Candice Beaumont +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +By: +/s/ Peter Cohen +​ +Director +​ +March 31, 2026 +​ +Peter Cohen +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +By: +/s/ Roy Zisapel +​ +Director +​ +March 31, 2026 +​ +Roy Zisapel +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +By: +/s/ Daniel Recanati +​ +Director +​ +March 31, 2026 +​ +Daniel Recanati +​ +​ +​ +​ +​ +​ +​ +103 +Table of Contents +​ +ISRAEL ACQUISITIONS CORP +INDEX TO FINANCIAL STATEMENTS +Report of Independent Registered Public Accounting Firm (BDO USA, P.C., New York, New York, PCAOB ID# 243 ) +F-2 +Financial Statements: +​ +Balance Sheets as of December 31, 2025 and 2024 +F-3 +Statements of Operations for the years ended December 31, 2025 and 2024 +F-4 +Statements of Changes in Ordinary Shares Subject to Possible Redemption and Shareholders’ Deficit for the year ended December 31, 2025 and 2024 +F-5 +Statements of Cash Flows for the year ended December 31, 2025 and 2024 +F-6 +Notes to Financial Statements +F-7 to F-25 +​ +​ +​ +F-1 +Table of Contents +REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +​ +Shareholders and Board of Directors +Israel Acquisitions Corp +Bee Cave, Texas +Opinion on the Financial Statements +We have audited the accompanying balance sheets of Israel Acquisitions Corp (the “Company”) as of December 31, 2025 and 2024, the related statements of operations, changes in ordinary shares subject to possible redemption and shareholders’ deficit, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2025 and 2024, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. +Going Concern Uncertainty +The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company lacks the financial resources, including cash and working capital, it needs to sustain its operations, and the Company’s ability to execute its business plan is dependent upon its completion of an initial business combination as described in Note 1 to the financial statements. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. +Basis for Opinion +These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. +Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. +/s/ BDO USA, P.C. +We have served as the Company’s auditor since 2022. +New York, New York +March 31, 2026. +​ +​ +F-2 +Table of Contents +ISRAEL ACQUISITIONS CORP +​ +BALANCE SHEETS +​ +​ +​ +​ +​ +​ +​ +​ +​ +December 31, +​ +December 31, +​ +​ ​ ​ +2025 +​ ​ ​ +2024 +ASSETS +​ +​ +​ +​ +​ +​ +Current assets: +​ +​ +​ +​ +Cash and cash equivalents +​ +$ +6,938 +​ +$ +21,257 +Prepaid expenses +​ +31,167 +​ +6,359 +Cash and Marketable Securities held in Trust Account +​ +9,933,329 +​ +82,604,083 +Total Current Assets +​ +9,971,434 +​ +82,631,699 +Total Assets +​ +$ +9,971,434 +​ +$ +82,631,699 +​ +​ +​ +​ +​ +​ +​ +LIABILITIES, CLASS A ORDINARY SHARES SUBJECT TO POSSIBLE REDEMPTION AND SHAREHOLDERS’ DEFICIT +​ +​ +​ +​ +​ +​ +Current liabilities: +​ +​ +​ +​ +Accrued expenses +​ +$ +447,344 +​ +$ +224,964 +Accounts payable +​ +235,158 +​ +305,839 +Due to related party +​ +​ +5,015 +​ +​ +120,000 +Promissory note - related party +​ +​ +1,932,204 +​ +​ +825,000 +Deferred underwriting commissions +​ +​ +5,406,250 +​ +​ +5,406,250 +Total Current Liabilities +​ +​ +8,025,971 +​ +​ +6,882,053 +Total Liabilities +​ +8,025,971 +​ +6,882,053 +​ +​ +​ +​ +​ +​ +​ +Commitments and Contingencies (Note 5) +​ +​ +​ +​ +Class A ordinary shares subject to possible redemption, $ 0.0001 par value; 797,932 and 7,259,615 shares issued and outstanding at redemption value at December 31, 2025 and December 31, 2024, respectively +​ +​ +9,933,329 +​ +​ +82,604,083 +​ +​ +​ +​ +​ +​ +​ +Shareholders’ Deficit +​ +​ +​ +​ +Preference shares, $ 0.0001 par value; 2,000,000 shares authorized; none issued and outstanding +​ +— +​ +— +Class A ordinary shares, $ 0.0001 par value, 200,000,000 shares authorized; 762,500 shares issued and outstanding (excluding 797,932 and 7,259,615 shares subject to possible redemption) at December 31, 2025 and December 31, 2024, respectively +​ +76 +​ +76 +Class B ordinary shares, $ 0.0001 par value, 20,000,000 shares authorized; 4,791,667 shares issued and outstanding at December 31, 2025 and December 31, 2024 +​ +479 +​ +479 +Additional paid-in capital +​ +145,521 +​ +— +Accumulated deficit +​ +( 8,133,942 ) +​ +( 6,854,992 ) +Total Shareholders’ Deficit +​ +( 7,987,866 ) +​ +( 6,854,437 ) +TOTAL LIABILITIES, CLASS A ORDINARY SHARES SUBJECT TO POSSIBLE REDEMPTION AND SHAREHOLDERS’ DEFICIT +​ +$ +9,971,434 +​ +$ +82,631,699 +​ +The accompanying notes are an integral part of these financial statements. +​ +F-3 +Table of Contents +ISRAEL ACQUISITIONS CORP +​ +STATEMENTS OF OPERATIONS +​ +​ +​ +​ +​ +​ +​ +​ +​ +For the +​ +For the +​ +​ +Year Ended +​ +Year Ended +​ +​ +December 31, +​ +December 31, +​ +​ ​ ​ +2025 +​ ​ ​ +2024 +Marketing and advertising expense +​ +$ +750 +​ +$ +350 +Administrative expense +​ +​ +8,872 +​ +​ +16,862 +Administrative expense - related party +​ +​ +120,000 +​ +​ +120,000 +Legal and accounting expense +​ +​ +629,789 +​ +​ +748,069 +Dues and subscriptions expense +​ +​ +145,135 +​ +​ +89,700 +Listing fee expense +​ +​ +131,778 +​ +​ +194,954 +Insurance expense +​ +​ +127,942 +​ +​ +240,007 +Loss from operations +​ +​ +( 1,164,266 ) +​ +​ +( 1,409,942 ) +​ +​ +​ +​ +​ +​ +​ +Other income: +​ +​ +​ +​ +​ +​ +Gain on extinguishment of liability +​ +​ +125,669 +​ +​ +— +Dividend income on marketable securities held in Trust Account +​ +​ +528,065 +​ +​ +4,223,235 +Dividend income on cash equivalents held in money market account +​ +​ +298 +​ +​ +7,278 +Interest income +​ +​ +4 +​ +​ +3 +Other income, net +​ +​ +654,036 +​ +​ +4,230,516 +Net (loss) income +​ +$ +( 510,230 ) +​ +$ +2,820,574 +​ +​ +​ +​ +​ +​ +​ +Basic and diluted weighted average shares outstanding, Class A ordinary shares subject to possible redemption +​ +1,081,184 +​ +7,415,143 +​ +​ +​ +​ +​ +​ +​ +Basic and diluted net income per share, Class A ordinary shares subject to possible redemption +​ +$ +0.64 +​ +$ +0.50 +​ +​ +​ +​ +​ +​ +​ +Basic and diluted weighted average shares outstanding, non-redeemable Class A ordinary shares +​ +​ +762,500 +​ +​ +762,500 +​ +​ +​ +​ +​ +​ +​ +Basic and diluted net loss per share, non-redeemable Class A ordinary shares +​ +$ +( 0.22 ) +​ +$ +( 0.16 ) +​ +​ +​ +​ +​ +​ +​ +Basic and diluted weighted average shares outstanding, non-redeemable Class B ordinary shares +​ +​ +4,791,667 +​ +​ +4,791,667 +​ +​ +​ +​ +​ +​ +​ +Basic and diluted net loss per share, non-redeemable Class B ordinary shares +​ +$ +( 0.22 ) +​ +$ +( 0.16 ) +​ +The accompanying notes are an integral part of these financial statements. +​ +F-4 +Table of Contents +ISRAEL ACQUISITIONS CORP +​ +STATEMENTS OF CHANGES IN ORDINARY SHARES SUBJECT TO POSSIBLE REDEMPTION AND SHAREHOLDERS’ DEFICIT +For the Year Ended December 31, 2025 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Class A +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +​ +​ +​ +​ +​ +Ordinary Shares Subject to Possible +​ +​ +Class A +​ +Class B +​ +Additional +​ +​ +​ +​ +Total +​ +​ +Redemption +​ +​ +Ordinary Shares +​ +Ordinary Shares +​ +Paid-in +​ +Accumulated +​ +Shareholders’ +​ +​ ​ ​ +Shares +​ ​ ​ +Amount +​ +​ +Shares +​ ​ ​ +Amount +​ ​ ​ +Shares +​ ​ ​ +Amount +​ ​ ​ +Capital +​ ​ ​ +Deficit +​ ​ ​ +Deficit +Balance – December 31, 2024 +7,259,615 +​ +$ +82,604,083 +​ +​ +762,500 +​ +$ +76 +​ +4,791,667 +​ +$ +479 +​ +$ +— +​ +$ +( 6,854,992 ) +​ +$ +( 6,854,437 ) +Capital Contribution by Sponsor through waiver of Administrative fee +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +— +​ +​ +— +​ +​ +240,000 +​ +​ +— +​ +​ +240,000 +Remeasurement of Class A ordinary shares to redemption value +​ +— +​ +​ +863,199 +​ +​ +— +​ +​ +— +​ +— +​ +​ +— +​ +​ +( 94,479 ) +​ +​ +( 768,720 ) +​ +​ +( 863,199 ) +Redemption of Class A ordinary shares +​ +( 6,461,683 ) +​ +​ +( 73,533,953 ) +​ +​ +— +​ +​ +— +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +Net loss +— +​ +— +​ +— +​ +— +— +​ +— +​ +— +​ +( 510,230 ) +​ +( 510,230 ) +Balance – December 31, 2025 +797,932 +​ +​ +9,933,329 +​ +​ +762,500 +​ +$ +76 +​ +4,791,667 +​ +$ +479 +​ +$ +145,521 +​ +$ +( 8,133,942 ) +​ +$ +( 7,987,866 ) +​ +For the Year Ended December 31, 2024 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Class A +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +​ +​ +​ +​ +​ +Ordinary Shares Subject to Possible +​ +​ +Class A +​ +Class B +​ +Additional +​ +​ +​ +​ +Total +​ +​ +Redemption +​ +​ +Ordinary Shares +​ +Ordinary Shares +​ +Paid-in +​ +Accumulated +​ +Shareholders’ +​ +​ ​ ​ +Shares +​ ​ ​ +Amount +​ +​ +Shares +​ ​ ​ +Amount +​ ​ ​ +Shares +​ ​ ​ +Amount +​ ​ ​ +Capital +​ ​ ​ +Deficit +​ ​ ​ +Deficit +Balance – December 31, 2023 +14,375,000 +​ +$ +153,702,006 +​ +762,500 +​ +$ +76 +4,791,667 +​ +$ +479 +​ +$ +— +​ +$ +( 4,852,331 ) +​ +$ +( 4,851,776 ) +Remeasurement of Class A ordinary shares to redemption value +​ +— +​ +​ +4,823,235 +​ +​ +— +​ +​ +— +​ +— +​ +​ +— +​ +​ +— +​ +​ +( 4,823,235 ) +​ +​ +( 4,823,235 ) +Redemption of Class A ordinary shares +​ +( 7,115,385 ) +​ +​ +( 75,921,158 ) +​ +​ +— +​ +​ +— +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +​ +​ +— +Net income +— +​ +— +​ +— +​ +— +— +​ +— +​ +— +​ +2,820,574 +​ +2,820,574 +Balance – December 31, 2024 +​ +7,259,615 +​ +​ +82,604,083 +​ +​ +762,500 +​ +$ +76 +​ +4,791,667 +​ +$ +479 +​ +$ +— +​ +$ +( 6,854,992 ) +​ +$ +( 6,854,437 ) +​ +The accompanying notes are an integral part of these financial statements. +​ +F-5 +Table of Contents +ISRAEL ACQUISITIONS CORP +​ +STATEMENTS OF CASH FLOWS +​ +​ +​ +​ +​ +​ +​ +​ +​ +Year Ended +​ +Year Ended +​ +​ +December 31, +​ +December 31, +​ +​ ​ ​ +2025 +​ ​ ​ +2024 +Cash Flows from Operating Activities: +​ +​ +​ +​ +Net (loss) income +​ +$ +( 510,230 ) +​ +$ +2,820,574 +Adjustments to reconcile net income (loss) to net cash used in operating activities: +​ +​ +​ +​ +Administrative Services fee waived by Sponsor +​ +​ +240,000 +​ +​ +— +Changes in operating assets and liabilities: +​ +​ +​ +​ +Prepaid expenses +​ +( 24,808 ) +​ +138,755 +Due to related party +​ +​ +( 114,985 ) +​ +​ +3,871 +Accounts payable +​ +​ +( 70,681 ) +​ +​ +214,700 +Accrued expenses +​ +​ +222,380 +​ +​ +169,964 +Net cash (used in) provided by operating activities +​ +( 258,324 ) +​ +3,347,864 +​ +​ +​ +​ +​ +​ +​ +Cash Flows from Investing Activities: +​ +​ +​ +​ +​ +​ +Purchase and reinvestment of marketable securities held in Trust Account +​ +​ +( 863,199 ) +​ +​ +( 4,823,235 ) +Proceeds from redemption of marketable securities held in Trust Account +​ +​ +73,533,953 +​ +​ +75,921,158 +Net cash provided by investing activities +​ +​ +72,670,754 +​ +​ +71,097,923 +​ +​ +​ +​ +​ +​ +​ +Cash Flows from Financing Activities: +​ +​ +​ +​ +Proceeds from promissory note – related party +​ +​ +1,107,204 +​ +​ +825,000 +Redemptions of Class A ordinary shares subject to redemption +​ +​ +( 73,533,953 ) +​ +​ +( 75,921,158 ) +Net cash (used in) financing activities +​ +( 72,426,749 ) +​ +( 75,096,158 ) +​ +​ +​ +​ +​ +​ +​ +Net Change in Cash and Cash Equivalents +​ +( 14,319 ) +​ +( 650,371 ) +Cash and Cash Equivalents - Beginning +​ +21,257 +​ +671,628 +Cash and Cash Equivalents - Ending +​ +$ +6,938 +​ +$ +21,257 +​ +​ +​ +​ +​ +​ +​ +Non-Cash Investing and Financing Activities: +​ +​ +​ +​ +Remeasurement of Class A ordinary shares subject to possible redemption +​ +$ +863,199 +​ +$ +4,823,235 +​ +The accompanying notes are an integral part of these financial statements. +​ +​ +F-6 +Table of Contents +ISRAEL ACQUISITIONS CORP +​ +NOTES TO FINANCIAL STATEMENTS +Note 1 — Description of Organization, Business Operations and Liquidity and Capital Resources +Israel Acquisitions Corp (the “Company”) was incorporated as a blank check company in the Cayman Islands on August 24, 2021. The Company was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses (the “Business Combination”). The Company is an emerging growth company and is subject to all of the risks associated with emerging growth companies. +As of December 31, 2025, the Company had not commenced any operations. All activity for the period from August 24, 2021 (inception) through December 31, 2025 relates to the Company’s formation and the initial public offering (the “Initial Public Offering”), and, since the completion of the Initial Public Offering, a search for a target to consummate a Business Combination. The Company will not generate any operating revenues until after the completion of its initial business combination, at the earliest. The Company will generate non-operating income in the form of gains on marketable securities held in the Trust Account, as well as interest and dividend income on cash and cash equivalents from the proceeds derived from the Initial Public Offering. +The registration statement for the Company’s Initial Public Offering was declared effective on January 12, 2023 (the “Registration Statement”). On January 18, 2023, the Company consummated its Initial Public Offering of 14,375,000 units (each a “Public Unit” and the “Public Units”) at $ 10.00 per Public Unit (including the issuance of 1,875,000 Public Units as a result of the underwriters’ exercise of heir over-allotment option in full), generating gross proceeds of $ 143,750,000 , which is discussed in Note 3. Each Public Unit is comprised of one Class A ordinary share, par value $ 0.001 per share (each, a “Public Share” and the “Public Shares”) and one redeemable warrant evidencing the right to purchase one Class A ordinary share at a purchase price of $ 11.50 per Class A ordinary share (each a “Public Warrant” and the “Public Warrants”). Simultaneously with the closing of the Initial Public Offering, the Company consummated the sale of 762,500 private placement units (each, a “Private Unit” and the “Private Units”) to Israel Acquisitions Sponsor LLC (the “Sponsor”), BTIG, LLC, Exos Capital LLC, and JonesTrading Institutional Services LLC, in a private placement at a purchase price of $ 10.00 per Private Unit, for an aggregate of $ 7,625,000 . Each Private Unit is comprised of one Class A ordinary share, par value $ 0.001 per share (each, a “Private Share” and the “Private Shares”) and one redeemable warrant evidencing the right to purchase one Class A ordinary share, par value $ 0.0001 per share, at a purchase price of $ 11.50 (each, a “Private Warrant” and the “Private Warrants”). +Following the closing of the Initial Public Offering on January 18, 2023, $ 146,625,000 ($ 10.20 per Public Unit) from the net proceeds of the sale of the Public Units in the Initial Public Offering and the sale of the Private Units was placed in a trust account (“Trust Account”), located in the United States which will be invested in U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act, with a maturity of 180 days or less or in any open-ended investment company that holds itself out as a money market fund selected by the Company meeting the conditions of Rule 2a-7 of the Investment Company Act, as determined by the Company, until the earlier of: (i) the completion of the Company’s initial business combination; (ii) the redemption of any Public Shares properly submitted in connection with a shareholder vote to amend the Company’s amended and restated memorandum and articles of association, adopted on November 17, 2022 (the “Amended and Restated Memorandum and Articles of Association”), and (iii) the redemption of the Company’s Public Shares if the Company is unable to complete an initial business combination by January 18, 2024 (or up to July 18, 2024, if the Company extends the time to complete an initial business combination) (the “Combination Period”). +On January 8, 2024, by special resolution and at an extraordinary general meeting of shareholders, the Company (i) entered into an amendment (the “Trust Agreement Amendment”) to the Investment Management Trust Agreement dated as of January 12, 2023 (the “Trust Agreement”), with Equiniti Trust Company, LLC (f/k/a American Stock Transfer & Trust Company) (the “Trustee”) and (ii) amended the Company’s Second Amended and Restated Memorandum and Articles of Association, in its entirety, by adopting the Company’s Third Amended and Restated Memorandum and Articles of Association, pursuant to which the Company may extend the date by which the Company must consummate an initial business combination (the “Termination Date”) from 12 months from the closing of the Initial Public Offering (January 18, 2024) up to twelve ( 12 ) times (each, an “Extension”) to January 18, 2025, with each Extension comprised of one month . Pursuant to the Trust Agreement Amendment, the Company can extend the Termination Date by providing five days ’ advance notice to the Trustee prior to the applicable Extension and depositing into the Trust Account the lesser of (i) $ 50,000 or (ii) $ 0.02 per Public Share, multiplied by the number of Public Shares that remain outstanding by the end of the then-current extended period, by the date of such Extension. +F-7 +Table of Contents +On January 6, 2025, by special resolution and at an extraordinary general meeting of shareholders, the Company has extended the date by which it has to complete an initial business combination from January 18, 2025 (the “Termination Date”) up to twelve ( 12 ) times, with each extension comprised of one month (each an “Extension”), from the Termination Date to January 18, 2026, by providing five days ’ advance notice to the Trustee prior to the applicable Extended Date and depositing into the Trust Account the lesser of (i) $ 35,000 or (ii) $ 0.035 per Public Share, multiplied by the number of Public Shares that remain outstanding by the end of the then-current Extended Date, by the date of such Extension up until January 18, 2026 (assuming an initial business combination has not occurred), in exchange for a non-interest bearing, unsecured promissory note payable upon the consummation of an initial business combination. +On January 16, 2026, by special resolution and at an extraordinary general meeting of shareholders, the Company (i) entered into an amendment (the “Third Trust Agreement Amendment”) to the Trust Agreement and (ii) amended the Company’s Fourth Amended and Restated Memorandum and Articles of Association, in its entirety, by adopting the Company’s Fifth Amended and Restated Memorandum and Articles of Association, pursuant to which the Company may extend the Termination Date from January 18, 2026 up to twelve ( 12 ) times to January 18, 2027, with each such Extension comprised of one month . Pursuant to the Third Trust Agreement Amendment, the Company can extend the Termination Date by providing five days ’ advance notice to the Trustee prior to the applicable Extended Date and depositing into the Trust Account the lesser of (i) $ 5,000 or (ii) $ 0.05 per Public Share, multiplied by the number of Public Shares that remain outstanding by the end of the then-current Extended Date, by the date of such Extension. +In connection with the shareholders’ vote, holders of 295,860 Class A ordinary shares of the Company exercised their right to redeem such shares (the “ Redemption ”) for a pro rata portion of the funds held in the Trust Account. As a result, $ 3,683,115.04 was removed from the Trust Account to pay such holders. Following the aforementioned Redemption, the Company has 6,056,239 ordinary shares of the Company (inclusive of the Class A ordinary shares underlying the private placement units of the Company) outstanding. +The Company’s management has broad discretion with respect to the specific application of the net proceeds of the Initial Public Offering and the sale of the Private Units, although substantially all of the net proceeds are intended to be applied generally toward consummating an initial business combination. There is no assurance that the Company will be able to complete an initial business combination successfully. The Company must complete an initial business combination having an aggregate fair market value of at least 80 % of the assets held in the Trust Account (excluding taxes payable on income earned on the Trust Account) at the time of the agreement to enter into an initial business combination. The Company will only complete an initial business combination if the post-transaction company owns or acquires 50 % or more of the outstanding voting securities of the target or otherwise acquires a controlling interest in the target sufficient for it not to be required to register as an investment company under the Investment Company Act of 1940, as amended (the “Investment Company Act”). +The Company will provide its holders of the outstanding Public Shares (the “public shareholders”) with the opportunity to redeem all or a portion of their Public Shares upon the completion of an initial business combination either (i) in connection with a shareholder meeting called to approve the initial business combination or (ii) by means of a tender offer. Except as required by law or the rules of Nasdaq, the decision as to whether the Company will seek shareholder approval of an initial business combination or conduct a tender offer will be made by the Company, solely in its discretion. The public shareholders will be entitled to redeem their Public Shares for a pro rata portion of the amount then in the Trust Account. There will be no redemption rights upon the completion of an initial business combination with respect to the Company’s warrants. +The Company will proceed with an initial business combination if the Company has net tangible assets of at least $ 5,000,001 immediately prior to or upon such consummation of an initial business combination and, if the Company seeks shareholder approval, a majority of the ordinary shares voted are voted in favor of the initial business combination. If a shareholder vote is not required by law and the Company does not decide to hold a shareholder vote for business or other legal reasons, the Company will, pursuant to its Amended and Restated Memorandum and Articles of Association, conduct the redemptions pursuant to the tender offer rules of the U.S. Securities and Exchange Commission (“SEC”) and file tender offer documents with the SEC containing substantially the same information as would be included in a proxy statement prior to completing an initial business combination. If, however, shareholder approval of the transaction is required by law, or the Company decides to obtain shareholder approval for business or legal reasons, the Company will offer to redeem the Public Shares in conjunction with a proxy solicitation pursuant to the proxy rules and not pursuant to the tender offer rules. If the Company seeks shareholder approval in connection with an initial business combination, the Sponsor and our executive officers and directors have agreed (a) to vote their Founder Shares (as defined in this Note 1), Private Shares, and any Public Shares purchased during or after the Initial Public Offering in favor of approving an initial business combination and (b) not to convert any Founder Shares, Private Shares, or any Public Shares held by them in connection with a shareholder vote to approve an initial business combination or sell any such shares to the Company in a tender offer in connection with an initial business combination. +F-8 +Table of Contents +Additionally, each public shareholder may elect to redeem their Public Shares irrespective of whether they vote for or against the proposed transaction or do not vote at all. +The Sponsor and our executive officers and directors have agreed (a) to waive their respective redemption rights with respect to any Founder Shares, Private Shares, or Public Shares held by them in connection with the completion of an initial business combination, (b) to waive their rights to liquidating distributions from the Trust Account with respect to any Founder Shares and Private Shares if the Company fails to consummate an initial business combination, and (c) not to propose an amendment to the Amended and Restated Memorandum and Articles of Association that would affect a public shareholders’ ability to convert or sell their Public Shares to the Company in connection with an initial business combination or affect the substance or timing of the Company’s obligation to redeem 100 % of its Public Shares if the Company does not complete an initial business combination, unless the Company provides the public shareholders with the opportunity to redeem their Public Shares in conjunction with any such amendment. +If the Company is unable to complete an initial business combination within the Combination Period, the Company will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than 10 business days thereafter, redeem the Public Shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account including interest earned on the funds held in the Trust Account and not previously released to the Company to pay taxes, divided by the number of then outstanding Public Shares, which redemption will completely extinguish public shareholders’ rights as shareholders (including the right to receive further liquidating distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the Company’s remaining shareholders and the Company’s board of directors (the “Board”), dissolve and liquidate, subject in each case to the Company’s obligations under Cayman Islands law to provide for claims of creditors and the requirements of other applicable law. There will be no redemption rights or liquidating distributions with respect to the Company’s Public Warrants or Private Warrants, which will expire worthless if the Company fails to complete an initial business combination within the Combination Period. +In order to protect the amounts held in the Trust Account, the Sponsor has agreed to be liable to the Company if and to the extent any claims by a vendor for services rendered or products sold to the Company, or a prospective target business with which the Company has discussed entering into a transaction agreement, reduce the amount of funds in the Trust Account to below $ 10.20 per Public Share, except as to any claims by a third party that executed a valid and enforceable agreement with the Company waiving any right, title, interest or claim of any kind they may have in or to any monies held in the Trust Account and except as to any claims under the Company’s indemnity of the underwriters of Initial Public Offering against certain liabilities, including liabilities under the Securities Act. Moreover, in the event that an executed waiver is deemed to be unenforceable against a third party, the Sponsor will not be responsible to the extent of any liability for such third-party claims. The Company will seek to reduce the possibility that Sponsor will have to indemnify the Trust Account due to claims of creditors by endeavoring to have all vendors, service providers, prospective target businesses or other entities with which the Company does business, execute agreements with the Company waiving any right, title, interest or claim of any kind in or to monies held in the Trust Account. +Business Combination Agreement +In January 2024, the Company entered into a business combination agreement with Pomvom Ltd., a company organized under the laws of Israel (“Pomvom,” and such agreement, the “Pomvom Business Combination Agreement”). In August 2024, the Company entered into a mutual termination agreement with Pomvom (the “Mutual Termination Agreement”). There are no early termination penalties incurred by the Company or Pomvom in connection with the termination of the Pomvom Business Combination Agreement. +On January 26, 2025, the Company and Gadfin Ltd. (“Gadfin”) entered into the Business Combination Agreement, pursuant to which, among other things, and subject to the terms and conditions contained therein (i) Gadfin will cause a company organized under the laws of the State of Israel and wholly owned by a trustee (the “NewPubco”) to be formed, (ii) Gadfin will cause a company organized under the laws of the State of Israel and wholly owned, direct subsidiary of NewPubco (“Merger Sub 1”) to be formed, (iii) Gadfin will cause a Cayman Islands exempted company and wholly owned, direct subsidiary of NewPubco (“Merger Sub 2”) to be formed, (iv) Gadfin will cause NewPubco, Merger Sub 1 and Merger Sub 2 to become a party to the Business Combination Agreement by delivering a joinder to the Business Combination Agreement, (v) Gadfin will effect the Share Split, (vi) NewPubco, the shareholders of Gadfin and the holders of equity awards of Gadfin will effect the Acquisition Merger (as defined herein), (vii) Merger Sub 1 will merge with and into Gadfin, with Gadfin surviving the merger as a direct wholly owned subsidiary of NewPubco (the “Acquisition Merger”), and (viii) Merger Sub 2 will merge with and into the Company, with the Company surviving the merger as a direct wholly owned subsidiary of NewPubco (the “IAC Merger”, and together with the Acquisition Merger, the “Mergers”). The collective transactions referenced in (i)-(viii) are hereinafter referred to as the “Transactions”. The terms of the Business Combination Agreement, which contain customary +F-9 +Table of Contents +representations and warranties, covenants, closing conditions, termination provisions, and other terms relating to the Transactions, are summarized below. +Prior to the closing of the Transactions (the “Closing”), Gadfin will effect a share split under which each ordinary share and preferred share of Gadfin issued and outstanding will be split into a number of ordinary shares or preferred shares, as applicable, determined by multiplying each such ordinary share or preferred share of Gadfin, as applicable, by the Split Factor (the “Share Split”). +Under the Business Combination Agreement, as amended, holders of Gadfin equity interests are expected to receive approximately $ 180,000,000 (the “Gadfin Equity Value”) in aggregate consideration in the form of NewPubco Ordinary Shares, equal to the quotient obtained by dividing (a) the Gadfin Equity Value by (b) the fully diluted number of Gadfin ordinary shares and preferred shares (including ordinary shares issuable upon exercise, vesting and settlement of Gadfin options and Gadfin warrants and other convertible securities of Gadfin). +In addition, following the closing of the Business Combination and subject to the occurrence of the $ 12.50 Share Price Milestone and/or the $ 15.00 Share Price Milestone, NewPubco shall issue to each holder of Gadfin as of immediately prior to the Acquisition Merger Effective Time (as defined below), a certain number of Price Adjustment Earnout Shares, subject to the terms and conditions set forth therein. +Immediately after the Share Split, and at the effective time of the Acquisition Merger, Merger Sub 1 will be merged with and into Gadfin upon the terms and subject to the conditions set forth in the Business Combination Agreement, and in accordance with the applicable provisions of the Israeli Companies Law (“ICL”), whereupon the separate corporate existence of Merger Sub 1 will cease and Gadfin will continue its existence under the ICL as the surviving corporation and become a wholly owned subsidiary of NewPubco (the “Acquisition Surviving Company”), on the terms and subject to the conditions set forth in the Business Combination Agreement. From and after the effective time of the Acquisition Merger, Gadfin will possess all the rights, powers, privileges, properties and franchises and be subject to all of the obligations, liabilities and duties of Gadfin and Merger Sub 1, all as provided under the ICL. As soon as practicable after the determination of the date on which the Closing is to take place, each of Gadfin and Merger Sub 1 shall, in coordination with each other, deliver to the Israeli Register of Companies (the “Companies Registrar”) a notice of the contemplated Acquisition Merger, setting forth the proposed date of the Closing on which the Companies Registrar is requested to issue a certificate evidencing the Acquisition Merger in accordance with Section 323(5) of the ICL (the “Certificate of Merger”), after another notice that the Closing has occurred is served to the Companies Registrar, which the parties shall deliver as of the date of Closing Date. The Acquisition Merger will become effective upon the issuance by the Companies Registrar of the Certificate of Merger in accordance with Section 323(5) of the ICL (such time as the Acquisition Merger becomes effective being the “Acquisition Merger Effective Time”). +On July 2, 2025, the Company, Gadfin, and NewPubco entered into an amendment to the Business Combination Agreement (the “Amendment”). Pursuant to the Amendment, the Company and Gadfin agreed to (i) remove the requirement for the Company to liquidate immediately following the Mergers (as defined in the Business Combination Agreement), (ii) revise the Company Equity Value (as defined in the Business Combination Agreement) to $ 180,000,000 , (iii) remove the PCAOB Related Default (as defined in the Business Combination Agreement) and related provisions, (iv) remove the Threshold Raised Amount (as defined in the Business Combination Agreement) and related provisions, (v) clarify the maximum dilution calculation, (v) extend the deadline for the Benchmark Analysis (as defined in the Business Combination Agreement) to September 30, 2025, (vi) add a termination right for Gadfin, without penalty, in the event the Company does not, within 30 days of the Amendment, receive a full cash waiver from underwriters of the deferred underwriting fees currently owed and outstanding by the Company, and (vii) act as a joinder agreement pursuant to which NewPubco became a party to the Business Combination Agreement. +On October 14, 2025, Company entered into a Letter Agreement (the “Letter Agreement”) with Gadfin, pursuant to which (i) Gadfin consented to the Company entering into an advisory agreement (the “Advisory Agreement”) by and among ISRL, the Sponsor and BTIG, LLC (“BTIG”), under which BTIG will serve as capital markets advisor and waive its right to the deferred underwriting commission (the “Deferred Underwriting Commission”) pursuant to the underwriting agreement between BTIG and the Company dated January 12, 2023 in exchange for the Advisory Fee (as defined below) upon closing of the Business Combination, (ii) Gadfin agreed that the Advisory Agreement satisfied the requirement under the Business Combination Agreement, pursuant to which Gadfin had the right to terminate the Business Combination Agreement if the Company did not receive a waiver of the Deferred Underwriting Commission within thirty ( 30 ) days of July 2, 2025, and waived its related termination right under the Business Combination Agreement, (iii) the Sponsor agreed to forfeit an additional number of ordinary shares of the Company equal to the number of ordinary shares to be issued to BTIG under the Advisory Agreement and (iv) Gadfin and the Company agreed that prior to closing NewPubco shall arrange a Public Offering of Securities Insurance policy to cover any indemnification claims brought by BTIG against NewPubco or the Company. +F-10 +Table of Contents +The Letter Agreement is governed by New York law, and constitutes the entire agreement between the parties with respect to its subject matter. +On October 14, 2025, the Company entered into the Advisory Agreement, effective October 10, 2025, pursuant to which BTIG agreed to provide strategic and capital markets advisory services to the Company in connection with its business activities, including the Business Combination. Under the Advisory Agreement, BTIG will advise the Company on market conditions and capital markets strategy, but will not act as a financial advisor or participate in the offering or solicitation of securities for the Business Combination. As compensation for such services, BTIG will receive an advisory fee of $ 500,000 in cash (payable from the trust account) and 100,000 Class A ordinary shares, par value $ 0.0001 per share, of the Company immediately prior to closing of the Business Combination (the “Advisory Fee”), which will be exchanged for 100,000 ordinary shares of NewPubco, valued at $ 10.00 per share, upon consummation of the Business Combination. In exchange, BTIG waived its right to the Deferred Underwriting Commission, conditioned upon payment of the Advisory Fee and closing of the Business Combination. The Advisory Agreement also provides BTIG with a three - year exclusive right of first refusal to act as lead underwriter for the next special purpose acquisition company initial public offering undertaken by the Company or the Sponsor under certain conditions and indemnification protections. The Advisory Agreement is governed by New York law and allows BTIG to terminate at any time, in which case it forfeits both the Advisory Fee and the Deferred Underwriting Commission. +On December 31, 2025, the Company, Gadfin, and NewPubco entered into an amendment to the Business Combination Agreement (the “Second Amendment”). Pursuant to the Second Amendment, the Company and Gadfin agreed to extend the Termination Date (as defined in the Business Combination Agreement) to March 16, 2026 and removed the automatic extensions of the Termination Date. +On January 16, 2026, by special resolution and at an extraordinary general meeting of shareholders, the Company (i) entered into an amendment (the “Third Trust Agreement Amendment”) to the Trust Agreement and (ii) amended the Company’s Fourth Amended and Restated Memorandum and Articles of Association, in its entirety, by adopting the Company’s Fifth Amended and Restated Memorandum and Articles of Association, pursuant to which the Company may extend the Termination Date from January 18, 2026 up to twelve ( 12 ) times to January 18, 2027, with each such Extension comprised of one month . Pursuant to the Third Trust Agreement Amendment, the Company can extend the Termination Date by providing five days ’ advance notice to the Trustee prior to the applicable Extended Date and depositing into the Trust Account the lesser of (i) $ 5,000 or (ii) $ 0.05 per Public Share, multiplied by the number of Public Shares that remain outstanding by the end of the then-current Extended Date, by the date of such Extension. +In connection with the shareholders’ vote, holders of 295,860 Class A ordinary shares of the Company exercised their right to redeem such shares (the “ Redemption ”) for a pro rata portion of the funds held in the Trust Account. As a result, $ 3,683,115.04 was removed from the Trust Account to pay such holders. Following the aforementioned Redemption, the Company has 6,056,239 ordinary shares of the Company (inclusive of the Class A ordinary shares underlying the private placement units of the Company) outstanding. +On March 13, 2026, the Company, Gadfin, and Gadfin Regev Holdings Ltd., a company domiciled in Israel entered into the Third Amendment. Pursuant to the Third Amendment, the Company and Gadfin agreed to revise Section 7.1(d) to extend the termination date to April 15, 2026. +The Company may terminate the Business Combination Agreement if the representations and warranties of Gadfin are not true and correct or if Gadfin has materially breached any covenant or agreement as set forth in the Business Combination Agreement. +Gadfin may terminate the Business Combination Agreement, (a) at any time prior to the receipt of the Gadfin Shareholder Approval, in order to immediately enter into a written definitive agreement with respect to a Superior Proposal, and (b) if the representations and warranties of the Company are not true and correct or if the Company has materially breached any covenant or agreement as set forth in the Business Combination Agreement. In the event the Business Combination Agreement is terminated by Gadfin in order to accept a Superior Proposal, Gadfin will pay to the Company a termination fee of $ 10,000,000 . In the event the Business Combination Agreement is terminated by Gadfin pursuant to clause (b) of this paragraph, the Company will pay to Gadfin a termination fee of $ 10,000,000 . +Deficiency Letter +On May 28, 2025, Company received a deficiency letter (the “MVLS Notice”) from the Listing Qualifications Department of Nasdaq notifying the Company that, based on the market value of listed securities for the previous 30 consecutive business days, the listing of the Company’s securities was not in compliance with Nasdaq Listing Rule 5450(b)(2)(A) to maintain a minimum market value of listed +F-11 +Table of Contents +securities of at least $50 million (the “MVLS Requirement”). In accordance with Listing Rule 5810(c)(3)(C), the Company was provided 180 calendar days (or until November 24, 2025) to regain compliance with the Rule. The Company did not regain compliance with the MVLS Requirement. As a result, on November 25, 2025, the Company received a delist determination letter from the Listing Qualifications Department advising the Company that its securities would be delisted. On January 13, 2026, Nasdaq announced its intention to delist the Company’s Class A ordinary shares, units and warrants, followed by a Form 25 filed with the SEC on January 21, 2026 to complete the delisting. The Company’s Class A ordinary shares, units and warrants now trade on the Pink Current tier of the OTC Markets under symbols “ISLUF”, “ISRLF” and “ISLWF,” respectively. +Liquidity Capital Resources and Going Concern +As of December 31, 2025, the Company had $ 6,938 in its operating bank account and a working capital deficit of $ 2,581,616 (excluding cash and marketable securities held in the Trust Account and the deferred underwriter fee payable) compared to $ 21,257 in its operating bank account and a working capital deficit of $ 1,448,187 (excluding cash and marketable securities held in the Trust Account and the deferred underwriter fee payable) as of December 31, 2024. +The Company’s liquidity needs through December 31, 2025 had been satisfied through a payment from the Sponsor of $ 25,000 for Class B ordinary shares, par value $ 0.0001 per share (the “Class B ordinary shares” or the “Founder Shares”), the Initial Public Offering and the issuance of the Private Units (see Note 3 and Note 4). Additionally, the Company drew on the Promissory Note (as defined below) to pay certain offering costs (see Note 4). +The Company has incurred and expects to continue to incur significant costs in pursuit of its financing and acquisition plans. The Company lacks the financial resources, including cash and working capital, it needs to sustain operations for a reasonable period of time, which is considered to be one year from the issuance date of the financial statements. Although no formal agreement exists, the Sponsor is committed to extend Working Capital Loans as needed (defined in Note 4 below). Accordingly, the Company may not be able to obtain additional financing. If the Company is unable to raise additional capital, it may be required to take additional measures to conserve liquidity, which could include, but not necessarily be limited to, curtailing operations, suspending the pursuit of a potential transaction, and reducing overhead expenses. The Company cannot provide any assurance that (i) new financing will be available to it on commercially acceptable terms, if at all, or (ii) that its plans to consummate an initial business combination will be successful. In addition, management is currently evaluating the impact of the continued Russia-Ukraine conflict, the Israel-Hamas conflict and the expanded regional conflict involving Hezbollah and Iran, the increased rate of inflation in the United States, the effect of recent tariffs imposed by the United States and other events (such as terrorist attacks, natural disasters or a significant outbreak of other infectious diseases) on the industry and its effect on the Company’s financial position and results of its operations. +We may need to obtain additional financing to complete our initial business combination, either because the transaction requires more cash than is available from the proceeds held in our Trust Account, or because we become obligated to redeem a significant number of our public shares upon completion of our initial business combination, in which case we may issue additional securities or incur debt in connection with such initial business combination. If we have not consummated our initial business combination within the Combination Period because we do not have sufficient funds available to us, we will be forced to cease operations and liquidate the Trust Account. +These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern one year from the date the financial statements are issued. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. +Risks and Uncertainties +Various macroeconomic, geopolitical and regulatory uncertainties and challenges pose risks to economic conditions in the U.S. and globally, including, among others, any resurgence in inflation, changes to trade and tariffs, immigration, energy and other policies resulting from the new U.S. administration, changes in interest rate policies, economic conditions and tensions involving China, U.S. federal government shutdowns and geopolitical instability resulting from the ongoing wars between Russia and Ukraine and between Israel and Hamas, Iran and its proxies in certain of the neighboring countries in the Middle East. In response to the ongoing war between Russia and Ukraine, the North Atlantic Treaty Organization (“NATO”) deployed additional military forces to eastern Europe, and the United States, the United Kingdom, the European Union and other countries have announced various sanctions and restrictive actions against Russia, Belarus and related individuals and entities, including the removal of certain financial institutions from the Society for Worldwide Interbank Financial Telecommunication (“SWIFT”) payment system. Certain countries, including the United States, have also provided and may continue to provide military aid or other assistance to Ukraine and to Israel, increasing geopolitical tensions +F-12 +Table of Contents +among a number of nations. The ongoing wars between Russia and Ukraine and between Israel and Hamas, Iran and its proxies in certain of the neighboring countries in the Middle East and the resulting measures that have been taken, and could be taken in the future, by NATO, the United States, the United Kingdom, the European Union, Israel and its neighboring states and other countries have created global security concerns that could have a lasting impact on regional and global economies. Although the length and impact of the ongoing conflicts are highly unpredictable, they could lead to market disruptions, including significant volatility in commodity prices, credit and capital markets, as well as supply chain interruptions and increased cyber-attacks against U.S. companies. Additionally, any resulting sanctions could adversely affect the global economy and financial markets and lead to instability and lack of liquidity in capital markets. +The financial statements do not include any adjustments that might result from the outcome of these uncertainties. +Note 2 — Significant Accounting Policies +Basis of Presentation +The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and in accordance with the rules and regulations of the SEC. +Emerging Growth Company +The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. +The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used. +Use of Estimates +The preparation of financial statement in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statement and the reported amounts of expenses during the reporting period. +Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from those estimates. +Cash and Cash Equivalents +The Company considers all short-term investments with an original maturity of three months or less when purchased to be cash and cash equivalents. As of December 31, 2025 and December 31, 2024, the Company had $ 6,938 and $ 21,257 in cash and cash equivalents, respectively. +Cash and Marketable Securities held in Trust Account +Following the closing of the Initial Public Offering on January 18, 2023, an amount of $ 146,625,000 from the net proceeds of the sale of the Units in the Initial Public Offering and the sale of the Private Units were placed in the Trust Account and may be invested only in U.S. government securities with a maturity of 185 days or less or in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act which invest only in direct U.S. government treasury obligations. The Trust Account is intended as +F-13 +Table of Contents +a holding place for funds pending the earliest to occur of: (i) the completion of the initial Business Combination; (ii) the redemption of any public shares properly submitted in connection with a shareholder vote to amend the Company’s amended and restated certificate of incorporation (A) to modify the substance or timing of the Company’s obligation to redeem 100 % of the public shares if the Company does not complete the initial Business Combination within 12 months from the closing of the Initial Public Offering or (B) with respect to any other provision relating to shareholders’ rights or pre-initial Business Combination activity; or (iii) absent an initial Business Combination within 12 months from the closing of the Initial Public Offering, the return of the funds held in the Trust Account to the public shareholders as part of redemption of the public shares (see Note 4). +Concentration of Credit Risk +Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash accounts in a financial institution, which, at times, may exceed the Federal Depository Insurance Coverage of $250,000. At December 31, 2025 and December 31, 2024, the Company has not experienced losses on these accounts and management believes the Company is not exposed to significant risks on such accounts. +Class A Ordinary Shares Subject to Possible Redemption +The Company accounts for its Class A ordinary shares subject to possible redemption in accordance with the guidance in ASC 480 “Distinguishing Liabilities from Equity.” Ordinary shares subject to mandatory redemption (if any) is classified as a liability instrument and is measured at fair value. Conditionally redeemable ordinary shares (including ordinary shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) is classified as temporary equity. At all other times, ordinary shares are classified as shareholders’ equity. The Company’s ordinary shares feature certain redemption rights that are considered to be outside of the Company’s control and subject to the occurrence of uncertain future events. Accordingly, at December 31, 2025, 797,932 Class A ordinary shares subject to possible redemption are presented as temporary equity, at redemption value, as temporary equity, outside of the shareholders’ deficit section of the Company’s balance sheet. +The Company recognizes changes in redemption value immediately as they occur and adjusts the carrying value of redeemable Class A ordinary shares to equal the redemption value at the end of each reporting period. Such changes are reflected in additional paid-in capital, or in the absence of additional paid-in capital, in accumulated deficit. +The Class A ordinary shares subject to possible redemption is reflected on the balance sheet at December 31, 2025 as follows: +​ +​ +​ +​ +​ +Gross proceeds from Initial Public Offering +​ ​ ​ +$ +143,750,000 +Less: +​ +​ +Proceeds allocated to public warrants +​ +( 354,359 ) +Offering costs allocated to Class A ordinary shares subject to possible redemption +​ +( 8,642,235 ) +Plus: +​ +​ +Accretion of Class A ordinary shares subject to possible redemption +​ +18,948,600 +Class A ordinary shares subject to possible redemption at December 31, 2023 +​ +​ +153,702,006 +Redemption of Class A ordinary shares +​ +​ +( 75,921,158 ) +Re-measurement of Class A ordinary shares subject to possible redemption +​ +​ +4,823,235 +Class A ordinary shares subject to possible redemption at December 31, 2024 +​ +​ +82,604,083 +Redemption of Class A ordinary shares +​ +​ +( 73,533,953 ) +Re-measurement of Class A ordinary shares subject to possible redemption +​ +​ +863,199 +Class A ordinary shares subject to possible redemption at December 31, 2025 +​ +$ +9,933,329 +​ +F-14 +Table of Contents +Offering Costs associated with the Initial Public Offering +The Company complies with the requirements of the ASC 340-10-S99-1 and SEC Staff Accounting Bulletin (“SAB”) Topic 5A – “Expenses of Offering”. Offering costs consist principally of professional and registration fees that are related to the Initial Public Offering. The Company incurred offering costs from the Initial Public Offering of $ 8,642,235 , consisting of $ 2,500,000 of underwriting fee, $ 5,406,250 of deferred underwriting fee, $ 735,985 of actual offering costs. These amounts were recorded to additional paid-in capital as a reduction to the net proceeds from the offering. +Fair Value Measurements +The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820, “Fair Value Measurements and Disclosures” (“ASC 820”), defines fair value as the amount that would be received to sell an asset or paid to transfer a liability, in an orderly transaction between market participants. Fair value measurements are classified on a three-tier hierarchy as follows: +● Level 1, defined as observable inputs such as quoted prices (unadjusted) for identical instruments in active markets; +● Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and +● Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. In some circumstances, the inputs used to measure fair value might be categorized within different levels of the fair value hierarchy. ln those instances, the fair value measurement is categorized in its entirety in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement. +The fair value of the Company’s assets and liabilities that qualify as financial instruments under ASC 820 approximates the carrying amounts represented in the accompanying balance sheet, primarily due to their short-term nature. +Financial Instruments +The fair value of the Company’s assets and liabilities which qualify as financial instruments under ASC 820 approximates the carrying amounts represented in the accompanying balance sheet, primarily due to their short-term nature. +Warrants +The Company accounts for the public and private warrants as either equity-classified or liability-classified instruments based on an assessment of the instruments’ specific terms and applicable authoritative guidance in FASB ASC Topic 480, “Distinguishing Liabilities from Equity” (“ASC 480”) and FASB ASC Topic 815, “Derivatives and Hedging” (“ASC 815”). Pursuant to the Company’s evaluation, the Company concluded that the public and private do not meet the criteria to be accounted for as liability under ASC 480. The Company further evaluated the public and private warrants and rights under “ASC 815-40, Derivatives and Hedging — Contracts in Entity’s Own Equity” (“ASC 815-40”) and concluded that the public warrants, private placement warrants are indexed to the Company’s own stock and meet the criteria to be classified in shareholders’ equity. +Income Taxes +The Company complies with the accounting and reporting requirements of ASC Topic 740, “Income Taxes,” (“ASC 740”) which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. +ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not +F-15 +Table of Contents +to be sustained upon examination by taxing authorities. There were no unrecognized tax benefits as of December 31, 2025 and December 31, 2024. The Company’s management determined that the Cayman Islands is the Company’s only major tax jurisdiction. The Company is not currently aware of any issues under review that could result in significant payments, accruals, or material deviation from its position. The Company is subject to tax examinations by major taxing authorities since inception. There is currently no taxation imposed by the government of the Cayman Islands. In accordance with Cayman income tax regulations, income taxes are not levied on the Company. Consequently, income taxes are not reflected in the Company’s financial statements. The Company’s management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months. +There is currently no taxation imposed on income by the Government of the Cayman Islands. In accordance with Cayman income tax regulations, income taxes are not levied on the Company. U.S. taxation could be imposed if the Company is engaged in a U.S. trade or business. The Company is not expected to be treated as engaged in a U.S. trade or business at this time. Additionally, given the nature of the investment income generated from the funds held in the trust account, it is not subject to tax withholdings in the U.S. Moreover, the Company determined that no income tax liability would arise from any other jurisdictions outside of the Cayman Islands. Consequently, income taxes are not reflected in the Company’s financial statements. +On July 4, 2025, President Trump signed into law the One Big Beautiful Bill Act (“OBBA”). ASC 740, “Income Taxes”, requires the effects of changes in tax laws to be recognized in the period in which the legislation is enacted. The Company evaluated the impact of the new law and determined none of the tax provisions are expected to have a significant impact on the Company’s financial statements. +F-16 +Table of Contents +Net Income (Loss) Per Ordinary Share +The statement of operations includes a presentation of income (loss) per Class A redeemable ordinary share and income (loss) per non-redeemable ordinary share following the two-class method of income per ordinary share. In order to determine the net income (loss) attributable to both the Class A redeemable ordinary shares and non-redeemable ordinary shares, the Company first considered the total net income (loss) allocable to both sets of shares. This is calculated using the total net income (loss) less any dividends paid. For purposes of calculating net income (loss) per share, any remeasurement of the Class A ordinary shares subject to possible redemption was treated as dividends paid to the public shareholders. +Net income (loss) per ordinary share is computed by dividing net income (loss) by class by the weighted average number of ordinary shares outstanding during the period. The Company has not considered the effect of the 14,375,000 Public Warrants in the calculation of diluted net income (loss) per share, since the exercise of such warrants are contingent upon the occurrence of future events and the inclusion of such warrants would be anti-dilutive. +The following tables reflect the calculation of basic and diluted net income (loss) per ordinary share for the year ended December 31, 2025 (in dollars, except share amounts): +​ +​ +​ +​ +​ +​ +​ ​ ​ +Year Ended +​ +​ +December 31, 2025 +Net loss +​ +$ +( 510,230 ) +Accretion of temporary equity to redemption value +​ +( 863,199 ) +Net loss including accretion of temporary equity to redemption value +​ +$ +( 1,373,429 ) +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Year Ended +​ +​ +December 31, 2025 +​ +​ +​ +​ +​ +​ +​ +​ +Class B Non- +​ +​ ​ ​ +Class A Redeemable +​ ​ ​ +Class A Non-redeemable +​ ​ ​ +redeemable +Basic and diluted net income (loss) per share: +​ +​ +​ +​ +​ +​ +​ +​ +​ +Numerator: +​ +​ +​ +​ +​ +​ +​ +​ +​ +Allocation of net loss by class +​ +$ +( 64,093 ) +​ +$ +( 61,248 ) +​ +$ +( 384,889 ) +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Less: Accretion allocation based on ownership percentage +​ +$ +( 108,432 ) +​ +$ +( 103,618 ) +​ +( 651,149 ) +Allocation of accretion of temporary equity to redeemable shares +​ +863,199 +​ +— +​ +— +Total net income (loss) by class +​ +$ +690,674 +​ +$ +( 164,866 ) +​ +( 1,036,038 ) +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Denominator: +​ +​ +​ +​ +​ +​ +​ +​ +​ +Weighted average shares outstanding +​ +1,081,184 +​ +762,500 +​ +4,791,667 +Basic and diluted net income (loss) per share +​ +$ +0.64 +​ +$ +( 0.22 ) +​ +( 0.22 ) +​ +The following tables reflect the calculation of basic and diluted net income (loss) per ordinary share for the year ended December 31, 2024 (in dollars, except share amounts): +​ +​ +​ +​ +​ +​ +​ ​ ​ +Year Ended +​ +​ +December 31, 2024 +Net income +​ +$ +2,820,574 +Accretion of temporary equity to redemption value +​ +( 4,823,235 ) +Net loss including accretion of temporary equity to redemption value +​ +$ +( 2,002,661 ) +F-17 +Table of Contents +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Year Ended +​ +​ +December 31, 2024 +​ +​ +​ +​ +​ +​ +​ +​ +Class B Non- +​ +​ ​ ​ +Class A Redeemable +​ ​ ​ +Class A Non-redeemable +​ ​ ​ +redeemable +Basic and diluted net income (loss) per share: +​ +​ +​ +​ +​ +​ +Numerator: +​ +​ +​ +​ +​ +​ +Allocation of net income by class +​ +$ +1,597,989 +​ +$ +167,842 +​ +$ +1,054,743 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Less: Accretion allocation based on ownership percentage +​ +$ +( 2,732,591 ) +​ +$ +( 287,013 ) +​ +( 1,803,631 ) +Allocation of accretion of temporary equity to redeemable shares +​ +4,823,235 +​ +— +​ +— +Total net income (loss) by class +​ +$ +3,688,633 +​ +$ +( 119,171 ) +​ +( 748,888 ) +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Denominator: +​ +​ +​ +​ +​ +​ +Weighted average shares outstanding +​ +7,415,143 +​ +762,500 +​ +4,791,667 +Basic and diluted net income (loss) per share +​ +$ +0.50 +​ +$ +( 0.16 ) +​ +( 0.16 ) +​ +Gain on Extinguishment of Liability +The Company renegotiated amounts due to a vendor. The Company recorded a gain of $ 125,669 and $ 0 , respectively, for the year ended December 31, 2025 and December 31, 2024. Amounts have been included in gain on extinguishment of liability in the statements of operations. +Recent Accounting Pronouncements +In December 2023, the FASB issued Accounting Standards Update 2023-09, “Improvements to Income Tax Disclosures” (“ASU 2023-09”), which provides for additional disclosures primarily related to the income tax rate reconciliations and income taxes paid. ASU 2023-09 requires entities to annually disclose the income tax rate reconciliation using both amounts and percentages, considering several categories of reconciling items, including state and local income taxes, foreign tax effects, tax credits and nontaxable or nondeductible items, among others. Disclosure of the reconciling items is subject to a quantitative threshold and disaggregation by nature and jurisdiction. ASU 2023-09 also requires entities to disclose net income taxes paid or received to federal, state and foreign jurisdictions, as well as by individual jurisdiction, subject to a five percent quantitative threshold. ASU 2023-09 may be adopted on a prospective or retrospective basis and is effective for fiscal years beginning after December 15, 2024 with early adoption permitted. The Company adopted this standard effective January 1, 2025 and determined there is no material impact on its financial position, results of operations or cash flows. +In December 2025, the FASB issued Accounting Standards Update 2025-11 “Interim Reporting (Topic 270): Narrow-Scope Improvements” (“ASU 2025-11”). ASU 2025-11 clarifies current interim disclosure requirements and provides a comprehensive list of required interim disclosures. The guidance also incorporates a disclosure principle that requires entities to disclose events since the end of the last annual reporting period that have a material impact on the entity. The amendments in this ASU are required to be adopted for interim reporting periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. The amendments can be applied on a prospective or retrospective basis. The Company is currently assessing the impact, if any, that ASU 2025-11 would have on its financial position, results of operations or cash flows. +The Company’s management does not believe that any other recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the accompanying financial statements. +Note 3 — Initial Public Offering +On January 18, 2023 the Company sold 14,375,000 Units at a price of $ 10.00 per Unit. Each Unit consists of one share of Class A ordinary share and one warrant (“Public Warrant”). Each whole Public Warrant entitles the holder to purchase one share of Class A ordinary shares at a price of $ 11.50 per share (see Note 6). +An aggregate of $ 10.20 per Unit sold in the Initial Public Offering was deposited in the Trust Account and invested in U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act, with a maturity of 185 days or less or in any open-ended investment company that holds itself out as a money market fund meeting the conditions of Rule 2a-7 of the Investment +F-18 +Table of Contents +Company Act, as determined by the Company. As of December 31, 2025, $ 9,933,329 was held in the Trust Account. In addition, $ 6,938 of operating cash is not held in the Trust Account and is available for working capital purposes. +Note 4 — Related Party Transactions +Founder Shares +On January 26, 2022, the Sponsor purchased 5,750,000 shares (the “Founder Shares”) of the Company’s Class B ordinary shares, par value $ 0.0001 (“Class B ordinary shares”) for an aggregate price of $ 25,000 . +On March 4, 2022, the Company effected a share capitalization with respect to our Class B ordinary shares of 1,150,000 , resulting in our initial shareholders holding 6,900,000 shares. On August 18, 2022, the Sponsor surrendered for no consideration 1,150,000 shares, resulting in a decrease in the total number of Class B shares outstanding to 5,750,000 . On November 17, 2022 the Sponsor surrendered for no consideration 958,333 shares, resulting in a decrease in the total number of Class B shares outstanding to 4,791,667 . All share and per-share amounts have been retroactively restated. +On May 7, 2023, the Sponsor transferred 95,500 of its Founder Shares to our special advisor for consulting services. The consulting services offered were considered a benefit that the Company realized as a result of the Sponsors transaction with the special advisor. The fair value of the consulting services was determined to be a financing expense in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 718. +The Founder Shares will automatically convert into Class A ordinary shares at the time of the Company’s initial Business Combination and are subject to certain transfer restrictions, as described in Note 6. Holders of Founder Shares may also elect to convert their Class B ordinary shares into an equal number of Class A ordinary shares, subject to adjustment, at any time. +Private Placement +The Sponsor, BTIG, LLC, Exos Capital LLC, and JonesTrading Institutional Services LLC purchased an aggregate of 762,500 Private Units at a price of $ 10.00 per Private Unit for an aggregate purchase price of $ 7,625,000 in a private placement that occurred simultaneously with the closing of the Initial Public Offering, the proceeds of which were recorded in additional paid in capital. Each Private Unit consists of one share of Class A ordinary share (“Private Share”) and one warrant (“Private Warrant”). Each Private Warrant entitles the holder to purchase one share of Class A ordinary shares at a price of $ 11.50 per full share, subject to adjustment. The proceeds from the Private Units were added to the proceeds from the Initial Public Offering held in the Trust Account. If the Company does not complete a Business Combination within the Combination Period, the proceeds from the sale of the Private Units will be used to fund the redemption of the Public Shares (subject to the requirements of applicable law). +Related Party Loans +In addition, to finance transaction costs in connection with an initial business combination, the initial shareholders, or certain of the Company’s officers and directors or their affiliates may, but are not obligated to, loan the Company funds as may be required (“Working Capital Loans”). If the Company completes an initial business combination, the Company would repay the Working Capital Loans out of the proceeds of the Trust Account released to the Company. Otherwise, the Working Capital Loans would be repaid only out of funds held outside the Trust Account. In the event that an initial business combination does not close, the Company may use a portion of proceeds held outside the Trust Account to repay the Working Capital Loans, but no proceeds held in the Trust Account would be used to repay the Working Capital Loans. Except for the foregoing, the terms of such Working Capital Loans, if any, have not been determined and no written agreements exist with respect to such loans. The Working Capital Loans would either be repaid upon consummation of an initial business combination, without interest, or, at the lender’s discretion, up to $ 1,500,000 of such Working Capital Loans may be convertible into private placement-equivalent units of the post initial business combination entity at a price of $ 10.00 per private placement-equivalent unit. These units would be identical to the Private Units. As of December 31, 2025 and December 31, 2024, the Company had no outstanding Working Capital Loans. +F-19 +Table of Contents +Promissory Note – Related Party +On January 26, 2022, the Company issued an unsecured promissory note to the Sponsor (the “Promissory Note”), pursuant to which the Company may borrow up to an aggregate principal amount of $ 300,000 . As of January 18, 2023, the Company had borrowed $ 237,234 under the Promissory Note. On January 18, 2023 the Company paid $ 245,540 to the Sponsor, resulting in an overpayment of $ 8,306 that was recorded as a related party receivable, which was subsequently refunded to the Company prior to December 31, 2023. The Promissory Note was non-interest bearing. As of December 31, 2025 and December 31, 2024, the outstanding balance under the Promissory Note was $ 0 . +On January 18, 2024, the Company issued a promissory note in the amount of $ 600,000 to pay for up to twelve additional one-month extension payments (the “Extension Note”). On each of January 16, 2024, February 15, 2024, March 11, 2024, April 15, 2024, May 17, 2024, June 14, 2024, July 17, 2024, August 15, 2024, September 12, 2024, October 16, 2024, November 15, 2024, and December 17, 2024, the Company drew $ 50,000 , $ 600,000 in the aggregate, against the Extension Note to pay for each additional one-month extension. The Extension Note bears no interest and is repayable in full (subject to amendment or waiver) upon the earlier of (i) the date of the consummation of the Company’s initial business combination, or (ii) the date of the Company’s liquidation. As of December 31, 2025 and December 31, 2024, there was $ 600,000 outstanding under the Extension Note. +Additionally, on July 17, 2024, the Company issued an unsecured promissory note to the Sponsor (the “July Promissory Note”), pursuant to which the Company may borrow up to an aggregate principal amount of $ 1,500,000 . The July Promissory Note bears no interest and is repayable in full (subject to amendment or waiver) upon the earlier of (i) the date of the consummation of the Company’s initial business combination, or (ii) the date of the Company’s liquidation. As of December 31, 2025 and December 31, 2024, there was $ 1,025,000 and $ 225,000 outstanding under the July Promissory Note, respectively. +On January 17, 2025, the Company issued an unsecured promissory note to the Sponsor in the amount of $ 335,131 to pay for up to twelve additional one-month extension payments (the “2025 Extension Note”). On January 17, 2025, February 18, 2025, March 18, 2025, May 19, 2025, June 18, 2025, July 18, 2025, August 18, 2025, September 18, 2025, October 17, 2025, November 18, 2025, and December 19, 2025, the Company drew $ 27,927 each month against the 2025 Extension Note to pay for an additional one-month extension. The 2025 Extension Note bears no interest and is repayable in full upon the earlier of (i) the date of the consummation of the Company’s initial business combination, or (ii) the date of the Company’s liquidation. As of December 31, 2025, there was $ 307,204 outstanding under the 2025 Extension Note. +Due to Related Party +A related party has paid for an invoice on behalf of the Company. As of December 31, 2025 and 2024, $ 5,015 and $ 0 , respectively, is outstanding and recorded under due to related party in the balance sheets related to this invoice. +The Company entered into an Administrative Services Agreement with the Sponsor commencing on the date the securities of the Company are first listed on the Nasdaq Global Market, pursuant to a Registration Statement on Form S-1 filed by the Company with the SEC and continuing until the earlier of the consummation by the Company of an initial business combination or the Company’s liquidation. The Company will pay $ 10,000 per month to the Sponsor for certain office space, utilities and secretarial and administrative services as may be reasonably required from time to time. +On December 31, 2025, the Company and the Sponsor entered into a waiver to the Agreement (the “ Waiver ”) whereby the Parties agreed to waive the administrative fees due under the Agreement. Pursuant to the Waiver, the waived administrative fees include (i) the $ 10,000 per month owed to the Sponsor until the consummation by the Company of an initial business combination or the Company’s liquidation, and (ii) the $ 240,000 accrued fees to date. +As such, as of December 31, 2025 and December 31, 2024, there is $ 0 and $ 120,000 , respectively, in due to related party related to the agreement. The Company incurred $ 120,000 , respectively, for the year ended December 31, 2025 and 2024. Amounts have been included in administrative expense - related party in the statements of operations and as a capital contribution within the statements of changes in ordinary shares subject to possible redemption and shareholders’ deficit . +F-20 +Table of Contents +Note 5 — Commitments & Contingencies +Registration and Shareholder Rights +The holders of the Founder Shares, as well as the holders of the Private Units (and the underlying securities) and any units that may be issued in payment of Working Capital Loans made to Company, will be entitled to registration rights. The holders of a majority of these securities are entitled to make up to two demands that the Company register such securities. The holders of a majority of the Private Units (and the underlying securities) and units issued in payment of Working Capital Loans (or underlying securities) can elect to exercise these registration rights at any time after the Company consummates a business combination. The Company will bear the expenses incurred in connection with the filing of any such registration statements. +Underwriting Agreement +The Company granted the underwriters a 45 -day option from the date of Initial Public Offering to purchase up to 1,875,000 additional Public Units to cover overallotments, if any, at the Initial Public Offering price less the underwriting discounts and commissions. The underwriters exercised the option in full on January 18, 2023. The underwriters were entitled to a cash underwriting discount of $ 2,500,000 , which was paid upon the closing of the Initial Public Offering. The underwriters are also entitled to a deferred cash underwriting discount of 3.50 % of the gross proceeds of the Initial Public Offering and 5.50 % of the gross proceeds from the sale of the Public Units sold pursuant to the over-allotment option, or $ 5,406,250 , payable to the underwriters for deferred underwriting commissions. The full amount of the deferred cash underwriting discount was placed in the Trust Account and will be released to the underwriters only on, and concurrently with, the completion of an initial business combination. +Note 6 — Shareholders’ Equity (Deficit) +Preference shares - The Company is authorized to issue 2,000,000 preference shares with a par value of $ 0.0001 per preference share and with such designations, voting and other rights and preferences as may be determined from time to time by the Board. As of December 31, 2025 and December 31, 2024, there were no preference shares issued or outstanding. +Class A ordinary shares - The Company is authorized to issue 200,000,000 Class A ordinary shares with a par value of $ 0.0001 per Class A ordinary share. In connection with the shareholders’ vote at an extraordinary general meeting of shareholders held on January 8, 2024, holders of 7,115,385 Class A ordinary shares of the Company exercised their right to redeem such shares. Additionally, in connection with the shareholders’ vote at an extraordinary general meeting of shareholders held on January 6, 2025, holders of 6,461,683 Class A ordinary shares of the Company exercised their right to redeem such shares. Accordingly, as of December 31, 2025 and December 31, 2024, there were 762,500 Class A ordinary shares issued or outstanding, excluding 797,932 and 7,259,615 shares of Class A ordinary shares issued and outstanding subject to possible redemption, respectively. +Class B ordinary shares - The Company is authorized to issue 20,000,000 Class B ordinary shares with a par value of $ 0.0001 per Class B ordinary share. Holders are entitled to one vote for each Class B ordinary share. As of December 31, 2025 and December 31, 2024, there were 4,791,667 Class B ordinary shares issued and outstanding. +On March 4, 2022, the Company effected a share capitalization with respect to our Class B ordinary shares of 1,150,000 , resulting in our initial shareholders holding 6,900,000 . On August 18, 2022, the Sponsor surrendered for no consideration 1,150,000 shares, resulting in a decrease in the total number of Class B shares outstanding to 5,750,000 . On November 17, 2022 the Sponsor surrendered for no consideration 958,333 shares, resulting in a decrease in the total number of Class B shares outstanding to 4,791,667 . All share amounts and related information have been retroactively restated in the financial statements to reflect the share capitalization and subsequent surrender. +Only holders of the Class B ordinary shares will have the right to vote on the election of directors prior to the Business Combination. Holders of Class A ordinary shares and holders of Class B ordinary shares will vote together as a single class on all other matters submitted to a vote of the Company’s shareholders except as otherwise required by law. +The Class B ordinary shares will automatically convert into Class A ordinary shares at the time of the initial Business Combination on a one -for-one basis, subject to adjustment. In the case that additional Class A ordinary shares, or equity-linked securities, are issued or deemed issued in excess of the amounts offered in the Proposed Public Offering and related to the closing of the initial Business Combination, the ratio at which Class B ordinary shares shall convert into Class A ordinary shares will be adjusted (unless the holders +F-21 +Table of Contents +of a majority of the outstanding Class B ordinary shares agree to waive such adjustment with respect to any such issuance or deemed issuance) so that the number of Class A ordinary shares issuable upon conversion of all Class B ordinary shares will equal, in the aggregate, on an as-converted basis, 25 % of the sum of the total number of all shares of ordinary shares outstanding upon the completion of the Proposed Public Offering plus all Class A ordinary shares and equity-linked securities issued or deemed issued in connection with the initial Business Combination (excluding any private placement shares, any shares or equity-linked securities issued, or to be issued, to any seller in the initial Business Combination and any private placement-equivalent warrants issued to the Sponsor or its affiliates upon conversion of loans made to the Company). Holders of Founder Shares may also elect to convert their Class B ordinary shares into an equal number of Class A ordinary shares, subject to adjustment as provided above, at any time. +Warrants - Each whole redeemable warrant entitles the registered holder to purchase one whole Class A ordinary share at a price of $ 11.50 per Class A ordinary share, subject to adjustment, at any time commencing 30 days after the completion of our initial business combination. The warrants will expire five years after the completion of the initial business combination, at 5:00 p.m., New York City time, or earlier upon the Company’s redemption or liquidation. +The Company agrees that as soon as practicable, but in no event later than 15 Business Days after the closing of its initial business combination, it shall use its commercially reasonable efforts to file with the SEC a registration statement (which may be, at the election of the Company, a post-effective amendment to the Registration Statement) for the registration, under the Securities Act, of the offer and sale of the ordinary shares issuable upon exercise of the warrants. The Company shall use its commercially reasonable efforts to cause the same to become effective and to maintain the effectiveness of such registration statement, and a current prospectus relating thereto, until the expiration or redemption of the warrants in accordance with the provisions of that certain Warrant Agreement, by and between the Company and American Stock Transfer & Trust Company (“Warrant Agent”), dated January 12, 2023 (the “Warrant Agreement”). If any such registration statement has not been declared effective by the 60 th Business Day following the closing of the initial business combination, holders of the Public Warrants shall have the right, during the period beginning on the 61 st Business Day after the closing of the initial business combination and ending upon such registration statement being declared effective by the SEC, and during any other period when the Company shall fail to have maintained an effective registration statement, and current prospectus relating thereto, covering the offer and sale of the issuance of the ordinary shares issuable upon exercise of the Public Warrants, to exercise such Public Warrants on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act or another exemption for that number of shares of ordinary shares equal to the quotient obtained by dividing (x) the product of the number of shares of ordinary shares underlying the Public Warrants, multiplied by the excess of the Fair Market Value (as defined below) less the Warrant Price (as defined in the Warrant Agreement) by (y) the Fair Market Value. The “Fair Market Value” shall mean the volume-weighted average price of the shares of ordinary shares as reported during the 10-trading-day period ending on the trading day prior to the date that notice of exercise is received by the Warrant Agent from the holder of such Warrants or its securities broker or intermediary. The date that notice of “cashless exercise” is received by the Warrant Agent shall be conclusively determined by the Warrant Agent. +Redemption of Warrants when the Price per Class A Ordinary Share Equals or Exceeds $ 18.00 . +Once the warrants become exercisable, the Company may redeem all, but not less than all, of the Public Warrants: +● Not earlier than 90 days after the completion of the initial business combination; +● in whole and not in part; +● at a price of $ 0.01 per warrant; +● provided that the last reported sale price of the Class A ordinary shares for any 20 days within the 30-trading day period ending on the third trading date prior to the date on which notice of the redemption is given equals or exceeds $ 18.00 per Class A ordinary shares; and +● either there is an effective registration statement covering the offer and sale of the issuance of the ordinary shares issuable upon exercise of the Public Warrants, and a current prospectus relating thereto, available throughout the 30 -day redemption period; or +● the Company has elected to require the exercise of the Public Warrants on a “cashless basis.” +F-22 +Table of Contents +If (x) the Company issues additional ordinary shares or equity-linked securities for capital raising purposes in connection with the closing of its initial business combination at an issue price or effective issue price of less than $ 9.20 per ordinary shares (with such issue price or effective issue price to be determined in good faith by the Board and, in the case of any such issuance to the Sponsor or its affiliates, without taking into account any Class B ordinary shares held by the Sponsor or such affiliates, as applicable, prior to such issuance) (the “Newly Issued Price”), (y) the aggregate gross proceeds from such issuances represent more than 60 % of the total equity proceeds, and interest thereon, available for the funding of the Company’s initial business combination on the date of the completion of the Company’s initial business combination (net of redemptions), and (z) the volume-weighted average trading price of shares of Class A ordinary shares during the 20 -trading-day period starting on the trading day prior to the day on which the Company consummates its initial business combination (such price, the “Market Value”) is below $ 9.20 per share, the Warrant Price shall be adjusted (to the nearest cent) to be equal to 115 % of the higher of the Market Value and the Newly Issued Price, and the $ 18.00 per share redemption trigger price described under “Redemption of warrants for cash” shall be adjusted (to the nearest cent) to be equal to 180 % of the higher of the Market Value and the Newly Issued Price. If the adjustment in the immediately preceding sentence would otherwise result in an increase in the Warrant Price (as adjusted for share splits, share dividends, recapitalizations, extraordinary dividends and similar events) hereunder, no adjustment shall be made. +The Private Warrants are identical to the Public Warrants underlying the Public Units, except that the Private Warrants may be exercised for cash or on a “cashless basis,” the Private Warrants and the Class A ordinary shares issuable upon exercise of the Private Warrants may be subject to certain transfer restrictions, and the Private Warrants are not redeemable at the option of the Company. The Private Warrants shall not become Public Warrants as a result of any transfer of the Private Warrants, regardless of the transferee. +If a tender offer, exchange or redemption offer shall have been made to and accepted by the holders of the Class A ordinary shares and upon completion of such offer, the offeror owns beneficially more than 50 % aggregate voting power, including the power to vote on the election of directors of the Company, of the issued and outstanding equity securities of the Company, the holder of a warrant shall be entitled to receive the highest amount of cash, securities or other property to which such holder would actually have been entitled as a shareholder if such warrant had been exercised, accepted such offer and all of the Class A ordinary shares held by such holder had been purchased pursuant to the offer. If less than 70 % of the consideration receivable by the holders of the Class A ordinary shares in the applicable event is payable in the form of common equity in the successor entity that is listed on a national securities exchange or is quoted in an established over-the-counter market, and if the holder of a warrant properly exercises such warrant within 30 days following the public disclosure of the consummation of the applicable event by the Company, the Warrant Price shall be reduced by an amount equal to the difference (but in no event less than zero) of (i) the Warrant Price in effect prior to such reduction minus (ii) (A) the Per Share Consideration (as defined in the Warrant Agreement) minus (B) the value of the warrant based on the Black-Scholes Warrant Value for a Capped American Call for Public Warrants and Uncapped American Call for Private Warrants on Bloomberg Financial Markets. +Note 7 — Fair Value Measurements +At December 31, 2025 and December 31, 2024, the Company’s cash and marketable securities held in the Trust Account were valued at $ 9,933,329 and $ 82,604,083 , respectively. The cash and marketable securities held in the Trust Account must be recorded on the balance sheet at fair value and are subject to re-measurement at each balance sheet date. With each re-measurement, the valuations will be adjusted to fair value, with the change in fair value recognized in the Company’s statement of operations. +The following table presents the fair value information, as of December 31, 2025 and December 31 2024, of the Company’s financial assets that were accounted for at fair value on a recurring basis and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value. The Company’s cash and marketable securities held in the Trust Account are based on dividend and interest income and market fluctuations in the value of invested marketable securities, which are considered observable. The fair value of the marketable securities held in trust is classified within Level 1 of the fair value hierarchy. +​ +F-23 +Table of Contents +The following table sets forth by level within the fair value hierarchy the Company’s assets and liabilities that were accounted for at fair value on a recurring basis: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +December 31, 2025 +​ +​ ​ ​ +(Level 1) +​ ​ ​ +(Level 2) +​ ​ ​ +(Level 3) +Assets +​ +​ +​ +​ +​ +​ +Cash equivalents (1) +​ +$ +6,898 +​ +$ +— +​ +$ +— +Cash and marketable securities held in Trust Account +​ +$ +9,933,329 +​ +$ +— +​ +$ +— +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +December 31, 2024 +​ +​ ​ ​ +(Level 1) +​ ​ ​ +(Level 2) +​ ​ ​ +(Level 3) +Assets +​ +​ +​ +​ +​ +​ +Cash and marketable securities held in Trust Account +​ +$ +82,604,083 +​ +$ +— +​ +$ +— +(1) The fair value of money market funds have been measured on a recurring basis using Level 1 inputs, which are based on unadjusted quoted market prices within active markets. +Measurement +The Company established the initial fair value for the cash and marketable securities held in the Trust Account on January 18, 2023, the date of the consummation of the Company’s Initial Public Offering. As the cash was transferred to the Trust Account on January 18, 2023, the value at that date is the value of the cash transferred. Changes in fair value will result from dividend and interest income and market fluctuations in the value of invested marketable securities which will be reflected on each month end bank statement. +​ +​ +Note 8 — Segment Information +ASC Topic 280, “Segment Reporting,” establishes standards for companies to report in their financial statement information about operating segments, products, services, geographic areas, and major customers. Operating segments are defined as components of an enterprise that engage in business activities from which it may recognize revenues and incur expenses, and for which separate financial information is available that is regularly evaluated by the Company’s chief operating decision maker (“CODM”), or group, in deciding how to allocate resources and assess performance. +The Company’s CODM has been identified as the Chief Financial Officer, who reviews the assets, operating results, and financial metrics for the Company as a whole to make decisions about allocating resources and assessing financial performance. Accordingly, management has determined that there is only one reportable segment. +The CODM assesses performance for the single segment and decides how to allocate resources based on net income or loss that also is reported on the statements of operations as net income or loss. The CODM uses net income or loss to manage the business and forecasts to ensure enough capital is available to complete a business combination or similar transaction within the business combination period. The CODM also reviews significant expenses, which are consistent with those reported on the statements of operations, to manage, maintain, and enforce contractual agreements to ensure costs are aligned with agreements and the budget. The measure of segment assets is reported on the balance sheets as total assets. All segment items included in net income or loss are reported on the statements of operations and described within their respective disclosures. +​ +F-24 +Table of Contents +Note 9 — Subsequent Events +On January 13, 2026, Nasdaq announced its intension to delist our Class A ordinary shares, units and warrants, followed by a Form 25 filed with the SEC on January 21, 2026 to complete the delisting. The delisting became ten days after the Form 25 was filed. Our Class A ordinary shares, units and warrants now trade on the Pink Current tier of the OTC Markets under symbols “ISRLF”, “ISLUF” and “ISLWF”, respectively. +On January 16, 2026, by special resolution and at an extraordinary general meeting of shareholders, the Company (i) entered into an amendment (the “Third Trust Agreement Amendment”) to the Trust Agreement and (ii) amended the Company’s Fourth Amended and Restated Memorandum and Articles of Association, in its entirety, by adopting the Company’s Fifth Amended and Restated Memorandum and Articles of Association, pursuant to which the Company may extend the Termination Date from January 18, 2026 up to twelve ( 12 ) times to January 18, 2027, with each such Extension comprised of one month . Pursuant to the Third Trust Agreement Amendment, the Company can extend the Termination Date by providing five days ’ advance notice to the Trustee prior to the applicable Extended Date and depositing into the Trust Account the lesser of (i) $ 5,000 or (ii) $ 0.05 per Public Share, multiplied by the number of Public Shares that remain outstanding by the end of the then-current Extended Date, by the date of such Extension. +In connection with the shareholders’ vote, holders of 295,860 Class A ordinary shares of the Company exercised their right to redeem such shares (the “ Redemption ”) for a pro rata portion of the funds held in the Trust Account. As a result, $ 3,683,115.04 was removed from the Trust Account to pay such holders. Following the aforementioned Redemption, the Company has 6,056,239 ordinary shares of the Company (inclusive of the Class A ordinary shares underlying the private placement units of the Company) outstanding. +On January 18, 2026, the Company drew an additional $ 5,000 against the Amended Extension Note to extend the Termination Date to February 18, 2026. +On February 18, 2026, the Company drew an additional $ 5,000 against the Amended Extension Note to extend the Termination Date to March 18, 2026. +On March 13, 2026, the Company, Gadfin, and Gadfin Regev Holdings Ltd., a company domiciled in Israel entered into the Third Amendment. Pursuant to the Third Amendment, the Company and Gadfin agreed to revise Section 7.1(d) to extend the termination date to April 15, 2026. +On March 18, 2026, the Company drew an additional $ 5,000 against the Amended Extension Note to extend the Termination Date to April 18, 2026 +​ +​ +F-25 \ No newline at end of file diff --git a/raw/filings/0001915328/2025/0001104659-26-037809/filing_metadata.csv b/raw/filings/0001915328/2025/0001104659-26-037809/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..976e74a2ac485c19837cae401c6366ae9681b3aa --- /dev/null +++ b/raw/filings/0001915328/2025/0001104659-26-037809/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001915328,ISRLF,Israel Acquisitions Corp,2025,10-K,2026-03-31,2025-12-31,2026-03-31T20:31:31.000Z,0001104659-26-037809,isrlu-20251231x10k.htm,10-K,6838144,1,1,https://www.sec.gov/Archives/edgar/data/1915328/000110465926037809/isrlu-20251231x10k.htm,https://www.sec.gov/Archives/edgar/data/1915328/000110465926037809/ diff --git a/raw/filings/0001915328/2025/0001104659-26-037809/item1.txt b/raw/filings/0001915328/2025/0001104659-26-037809/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..504d28a5975ee4f82593b99540876567aa7a584c --- /dev/null +++ b/raw/filings/0001915328/2025/0001104659-26-037809/item1.txt @@ -0,0 +1,321 @@ +ITEM 1. BUSINESS +General +We are a newly organized blank check company incorporated on August 24, 2021, as a Cayman Islands exempted company for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar combination with one or more businesses or assets, which we refer to throughout this Annual Report on Form 10-K as our initial business combination. We have generated no revenues to date, and we do not expect that we will generate operating revenues at the earliest until we consummate our initial business combination. While we may pursue an initial business combination target in any industry or sector, we intend to focus our search on high-growth technology companies that are domiciled in Israel, that carry out all or a substantial portion of their activities in Israel, or that have some other significant Israeli connection. +On January 26, 2025, we entered into the Business Combination Agreement with Gadfin Ltd., a company domiciled in Israel (“Gadfin”). Gadfin is a pioneering technology company revolutionizing the logistics and cargo delivery industry with its innovative hydrogen-powered drones. Specializing in long-range, heavy-duty, zero-emission aerial delivery, Gadfin provides cutting-edge solutions for time-critical, essential cargo transport, especially to less accessible areas. Gadfin’s proprietary technology is designed to address the evolving needs of sectors such as healthcare, logistics, and industrial supply chains, enabling efficient, sustainable, and reliable deliveries across urban and remote areas. +On May 28, 2025, Company received a deficiency letter (the “MVLS Notice”) from the Listing Qualifications Department of Nasdaq notifying the Company that, based on the market value of listed securities for the previous 30 consecutive business days, the listing of the Company’s securities was not in compliance with Nasdaq Listing Rule 5450(b)(2)(A) to maintain a minimum market value of listed securities of at least $50 million (the “MVLS Requirement”). In accordance with Listing Rule 5810(c)(3)(C), the Company was provided 180 calendar days (or until November 24, 2025) to regain compliance with the Rule. The Company did not regain compliance with the MVLS Requirement. As a result, on November 25, 2025, the Company received a delist determination letter from the Listing Qualifications Department advising the Company that its securities would be delisted. On January 13, 2026, Nasdaq announced its intention to delist the Company’s Class A ordinary shares, units and warrants, followed by a Form 25 filed with the SEC on January 21, 2026 to complete the delisting. The Company’s Class A ordinary shares, units and warrants now trade on the Pink Current tier of the OTC Markets under symbols “ISLUF,” “ISRLF” and “ISLWF,” respectively. +Overview +Our business strategy is focused on identifying Israeli technology companies that would benefit from our expertise and create long-term value, although our efforts to identify a prospective business combination target will not necessarily be limited to a particular industry, sector or region. +The technology industry as a whole experienced an unprecedented acceleration of its growth during the coronavirus (“COVID-19”) pandemic as more businesses adopted new and innovative ways of doing business and more consumers rapidly adopted digital platforms to consume products and services. +We believe that Israel holds numerous public-ready technology companies that are positioned for high-growth, as evidenced by the number of Israeli companies listed on Nasdaq and “Unicorns” (companies with a valuation of $1 billion or greater) that originated in Israel. For a country about the size of New Jersey, Israel has an outsized influence on the US stock market. As of 2025, approximately 135 Israeli companies are listed on the Nasdaq alone, with over 250 Israeli IPOs completed on the exchange to date — Israel has the fourth most companies listed on the Nasdaq after the United States, Canada and China. These listings span cybersecurity, software, biotechnology, semiconductors and medical devices, and collectively represent a significant share of the country’s economic output. Israel is also home to approximately 39 tech unicorns as of year-end 2025, according to data from the Israel Innovation Authority, ranking it sixth globally in total unicorn creation. +Israeli tech companies continued to attract major investment in 2024 and 2025. According to Startup Nation Central, Israeli startups and tech firms raised an estimated $15.6 billion in private capital in 2025, a 24% increase over 2024 and a 68% leap compared to 2023. IVC-LeumiTech data separately estimated $11.1 billion across 418 disclosed funding rounds, representing a 15% increase year-over-year. Cybersecurity and generative AI dominated the funding landscape, together accounting for roughly 70% of all capital raised during 2025. While the total number of funding rounds declined to 717 — the lowest in a decade — median deal sizes reached a record $10 +6 +Table of Contents +million, reflecting a shift toward larger, higher-conviction investments. On the M&A side, 2025 was a record year: total exit value reached $74.3 billion across 150 transactions, headlined by Google’s $32 billion acquisition of Wiz and Palo Alto Networks’ approximately $25 billion acquisition of CyberArk. Foreign investors continued to play a dominant role, accounting for 60% of total investors, led by major US funds. We believe Israel’s tech ecosystem remains among the strongest and most dynamic in the world, offering compelling opportunities for investors seeking exposure to category-defining companies. +Our objective is to generate attractive returns and create value for our shareholders by capitalizing on the expertise of our Team. Our Team has an extensive track record of identifying and selecting successful targets, closing investments and merger and acquisition transactions, and increasing the value of companies post-investment or post-transaction. They have excellent access to the Israeli technology ecosystem, through personal relationships with “C” suite executives, venture capital and private equity directors and others involved with dozens of companies meeting our investment objectives and criteria. We intend to leverage their significant contacts and experience to identify, evaluate and acquire a target business. We maintain an Internet website at https://israelacquisitionscorp.com/. +Initial Public Offering +The SEC declared the registration statement for our Initial Public Offering effective on January 12, 2023. On January 18, 2023, we consummated our Initial Public Offering of 14,375,000 units, which included the full exercise of the underwriters’ over-allotment option in the amount of 1,875,000 units, at $10.00 per unit, generating gross proceeds of $143,750,000. Each unit is comprised of one Class A ordinary share and one public warrant. +Simultaneously with the closing of the Initial Public Offering, we consummated the sale of (i) 637,500 Private Placement Units at a price of $10.00 per private placement unit in a private placement to the Sponsor, (ii) 75,000 Private Placement Units at price of $10.00 per private placement unit in a private placement to BTIG, LLC, (iii) 25,000 Private Placement Units at price of $10.00 per private placement unit in a private placement to Exos Capital LLC, and (iv) 25,000 Private Placement Units at price of $10.00 per private placement unit in a private placement to JonesTrading Institutional Services LLC. +Following the closing of our Initial Public Offering on January 18, 2023, an amount of $146,625,000 ($10.00 per unit sold in our Initial Public Offering) from the net proceeds of the sale of the units in the Initial Public Offering and the sale of the Private Placement Units was placed in a Trust Account, until the earlier of (i) the completion of our initial business combination and (ii) the distribution of the funds held in our Trust Account, as described below. +Business Combination Agreement – Proposed Business Combination with Gadfin +On January 26, 2025, the Company and Gadfin entered into the Business Combination Agreement, pursuant to which, among other things, and subject to the terms and conditions contained therein (i) Gadfin will cause a company organized under the laws of the State of Israel and wholly owned by a trustee (the “NewPubco”) to be formed, (ii) Gadfin will cause a company organized under the laws of the State of Israel and wholly owned, direct subsidiary of NewPubco (“Merger Sub 1”) to be formed, (iii) Gadfin will cause a Cayman Islands exempted company and wholly owned, direct subsidiary of NewPubco (“Merger Sub 2”) to be formed, (iv) Gadfin will cause NewPubco, Merger Sub 1 and Merger Sub 2 to become a party to the Business Combination Agreement by delivering a joinder to the Business Combination Agreement, (v) Gadfin will effect the Share Split, (vi) NewPubco, the shareholders of Gadfin and the holders of equity awards of Gadfin will effect the Acquisition Merger (as defined herein), (vii) Merger Sub 1 will merge with and into Gadfin, with Gadfin surviving the merger as a direct wholly owned subsidiary of NewPubco (the “Acquisition Merger”), and (viii) Merger Sub 2 will merge with and into the Company, with the Company surviving the merger as a direct wholly owned subsidiary of NewPubco (the “IAC Merger”, and together with the Acquisition Merger, the “Mergers”). The collective transactions referenced in (i)-(viii) are hereinafter referred to as the “Transactions”. The terms of the Business Combination Agreement, which contain customary representations and warranties, covenants, closing conditions, termination provisions, and other terms relating to the Transactions, are summarized below. Capitalized terms used but not defined herein shall have the meanings ascribed thereto in the Business Combination Agreement. +7 +Table of Contents +On July 2, 2025, the Company, Gadfin, and NewPubco entered into an amendment to the Business Combination Agreement (the “First Amendment”). Pursuant to the First Amendment, the Company and Gadfin agreed to (i) remove the requirement for the Company to liquidate immediately following the Mergers (as defined in the Business Combination Agreement), (ii) revise the Company Equity Value (as defined in the Business Combination Agreement) to $180,000,000, (iii) remove the PCAOB Related Default (as defined in the Business Combination Agreement) and related provisions, (iv) remove the Threshold Raised Amount (as defined in the Business Combination Agreement) and related provisions, (v) clarify the maximum dilution calculation, (v) extend the deadline for the Benchmark Analysis (as defined in the Business Combination Agreement) to September 30, 2025, (vi) add a termination right for Gadfin, without penalty, in the event the Company does not, within 30 days of the Amendment, receive a full cash waiver from underwriters of the deferred underwriting fees currently owed and outstanding by the Company, and (vii) act as a joinder agreement pursuant to which NewPubco, Gadfin Regev Holdings Ltd., a company domiciled in Israel, became a party to the Business Combination Agreement. +On December 31, 2025, the Company, Gadfin, and NewPubco entered into an amendment to the Business Combination Agreement (the “Second Amendment”). Pursuant to the Second Amendment, the Company and Gadfin agreed to extend the Termination Date (as defined in the Business Combination Agreement) to March 16, 2026 and removed the automatic extensions of the Termination Date. +On March 13, 2026, the Company, Gadfin, and NewPubco entered into a third amendment to the BCA (the “Third Amendment”). Pursuant to the Third Amendment, the Company and Gadfin agreed to revise Section 7.1(d) to extend the termination date to April 15, 2026. +Share Split and Equity Exchange +Prior to the closing of the Transactions (the “Closing”), Gadfin will effect a share split under which each ordinary share and preferred share of Gadfin issued and outstanding will be split into a number of ordinary shares or preferred shares, as applicable, determined by multiplying each such ordinary share or preferred share of Gadfin, as applicable, by the Split Factor (the “Share Split”). +Under the Business Combination Agreement, as amended, holders of Gadfin equity interests are expected to receive approximately $180,000,000 (the “Gadfin Equity Value”) in aggregate consideration in the form of NewPubco Ordinary Shares, equal to the quotient obtained by dividing (a) the Gadfin Equity Value by (b) the fully diluted number of Gadfin ordinary shares and preferred shares (including ordinary shares issuable upon exercise, vesting and settlement of Gadfin options and Gadfin warrants and other convertible securities of Gadfin). +In addition, following the Closing and subject to the occurrence of the $12.50 Share Price Milestone and/or the $15.00 Share Price Milestone, NewPubco shall issue to each holder of Gadfin as of immediately prior to the Acquisition Merger Effective Time (as defined below), a certain number of Price Adjustment Earnout Shares, subject to the terms and conditions set forth therein. +Immediately after the Share Split, and at the effective time of the Acquisition Merger, Merger Sub 1 will be merged with and into Gadfin upon the terms and subject to the conditions set forth in the Business Combination Agreement, and in accordance with the applicable provisions of the Israeli Companies Law (“ICL”), whereupon the separate corporate existence of Merger Sub 1 will cease and Gadfin will continue its existence under the ICL as the surviving corporation and become a wholly owned subsidiary of NewPubco (the “Acquisition Surviving Company”), on the terms and subject to the conditions set forth in the Business Combination Agreement. From and after the effective time of the Acquisition Merger, Gadfin will possess all the rights, powers, privileges, properties and franchises and be subject to all of the obligations, liabilities and duties of Gadfin and Merger Sub 1, all as provided under the ICL. As soon as practicable after the determination of the date on which the Closing is to take place, each of Gadfin and Merger Sub 1 shall, in coordination with each other, deliver to the Israeli Register of Companies (the “Companies Registrar”) a notice of the contemplated Acquisition Merger, setting forth the proposed date of the Closing on which the Companies Registrar is requested to issue a certificate evidencing the Acquisition Merger in accordance with Section 323(5) of the ICL (the “Certificate of Merger”), after another notice that the Closing has occurred is served to the Companies Registrar, which the parties shall deliver as of the date of Closing Date. The Acquisition Merger will become effective upon the issuance by the Companies Registrar of the Certificate of Merger in accordance with Section 323(5) of the ICL (such time as the Acquisition Merger becomes effective being the “Acquisition Merger Effective Time”). +At the Acquisition Merger Effective Time, by virtue of the Acquisition Merger and without any action on the part of Gadfin, Merger Sub 1 or any holders of ordinary shares or preferred shares of Gadfin or shares of Merger Sub 1: (i) all ordinary shares or preferred shares of Gadfin that are owned by Gadfin or any wholly owned subsidiary of Gadfin, if any, shall be deemed to have been transferred to NewPubco and no consideration shall be delivered or deliverable in exchange therefor, (ii) each ordinary share of Gadfin issued and +8 +Table of Contents +outstanding immediately prior to the Acquisition Merger Effective Time (except for treasury shares of Gadfin) will, by virtue of the Acquisition Merger and upon the terms and subject to the conditions set forth in the Business Combination Agreement, automatically be deemed to have been converted and represent only the right to receive a number of NewPubco Ordinary Shares equal to the Company Merger Ratio, (iii) each preferred share of Gadfin issued and outstanding immediately prior to the Acquisition Merger Effective Time (except for treasury shares of Gadfin) will, by virtue of the Acquisition Merger and upon the terms and subject to the conditions set forth in the Business Combination Agreement, automatically be deemed to have been converted and represent only the right to receive a number of NewPubco Ordinary Shares equal to the Company Merger Ratio, (iv) unless otherwise exercised prior to the Acquisition Merger Effective Time, each warrant of Gadfin issued and outstanding immediately prior to the Acquisition Merger Effective Time, will, by virtue of the Acquisition Merger and upon the terms and subject to the conditions set forth in the Business Combination Agreement, be converted and represent the right to receive a warrant to purchase NewPubco Ordinary Shares equal to the number of ordinary shares of Gadfin subject to such warrant, multiplied by (A) the Split Factor, and (B) the Company Merger Ratio, (v) immediately prior to the Acquisition Merger Effective Time and pursuant to the resolutions of the board of directors of Gadfin, all outstanding Company Options shall be assumed by NewPubco, (vi) each Company Option of Gadfin that is issued and outstanding prior to the Acquisition Merger Effective Time will automatically cease to represent a right to acquire an ordinary share of Gadfin and shall automatically be assumed by NewPubco and converted into an option to acquire such number of NewPubco Ordinary Shares equal to the number of ordinary shares of Gadfin subject to such option, multiplied by (A) the Split Factor, and (B) the Company Merger Ratio, and (vii) each ordinary share of Merger Sub 1 issued and outstanding immediately prior to the Acquisition Merger Effective Time will be converted into one ordinary share of the Acquisition Surviving Company, and all such ordinary shares shall constitute the only outstanding share capital of the Acquisition Surviving Company. +​ +IAC Merger and IAC Merger Consideration +Immediately after the Acquisition Merger Effective Time and on the terms and subject to the conditions set forth in the Business Combination Agreement and in accordance with the Companies Act (as revised) of the Cayman Islands (the “Cayman Companies Law”), the Company will consummate the IAC Merger (the date on which the IAC Merger occurs referred to herein as the “IAC Merger Closing Date”). On the IAC Merger Closing Date, the Company, NewPubco and Merger Sub 2 will (i) cause the a plan of merger, in such form as mutually agreed by the Company and Gadfin (the “Plan of Merger”) to be duly executed and filed with the Registrar of Companies of the Cayman Islands as provided by Section 233 of the Cayman Companies Law, and (ii) make any other filings, recordings or publications required to be made by the Company or Merger Sub 2 under the Cayman Companies Law in connection with the IAC Merger. The IAC Merger will become effective on the date as specified in the Plan of Merger in accordance with the Cayman Companies Law. The IAC Merger shall become effective on the date and time as specified in the Plan of Merger that has been registered by the Registrar of Companies of the Cayman Islands (such date and time is hereinafter referred as the “IAC Merger Effective Time”). Following the IAC Merger Effective Time, the (i) separate existence of Merger Sub 2 will cease, it will be struck off the Register of Companies in the Cayman Islands and the Company shall continue as the surviving company of the IAC Merger (“IAC Surviving Company”) and (ii) IAC will (A) become a direct, wholly owned subsidiary of NewPubco, (B) continue to be governed by the Laws of the Cayman Islands, and (C) succeed to and assume all of the rights, properties and obligations of Merger Sub 2 in accordance with the Cayman Companies Law, and the shareholders of the Company will be entitled to the IAC Merger Consideration (as defined below). +Under the Business Combination Agreement, at the IAC Merger Effective Time, (a) each IAC unit, consisting of one IAC Class A Share (as defined below) and one IAC Warrant (as defined below, and such units the “IAC Units”) issued and outstanding immediately prior to the IAC Merger Effective Time will be automatically detached and the holder will be deemed to hold one IAC Class A ordinary share, par value $0.0001 (the “IAC Class A Shares”) and one warrant entitling the holder to purchase one IAC Class A Share at a price of $11.50 (the “IAC Warrants”), (b) each Class B ordinary share of the Company, par value $0.0001 (the “IAC Class B Shares”) will automatically be converted into one IAC Class A Share and each IAC Class B Share will no longer be outstanding and will be automatically cancelled, (c) each IAC Class A Share issued and outstanding prior the IAC Merger Effective Time will automatically be cancelled in exchange for the right to receive one NewPubco Ordinary Share for each IAC Class A Share, (the “IAC Merger Consideration”), (d) each IAC Warrant that is outstanding and unexercised immediately prior to the IAC Merger Effective Time will cease to represent an IAC Warrant in respect of IAC Shares and will be assumed by NewPubco and automatically converted into a warrant to acquire NewPubco Ordinary Shares, (e) any IAC Share owned by the Company as treasury shares or by a subsidiary of the Company immediately prior to the IAC Merger Effective Time will be automatically cancelled and will cease to exist without any conversion or payment therefor, (f) each IAC share subject to redemption rights issued and outstanding immediately prior to the IAC Merger Effective Time will be automatically cancelled and cease to exist and will thereafter represent only the right to be paid a pro rata share of the redemption amount in accordance with the Company’s Articles of Association, (g) each IAC share issued and outstanding prior to the IAC Merger Effective Time for which any IAC shareholder had validly exercised their dissenters’ rights will not be exchanged for one NewPubco Ordinary Share and will be automatically cancelled and will thereafter represent only the right to be paid +9 +Table of Contents +the fair value of such shares and any other rights granted by the Cayman Companies Law, and (h) each ordinary share of Merger Sub 2 issued and outstanding immediately prior to the IAC Merger Effective Time will be converted into one ordinary share of the IAC Surviving Company. +Representations and Warranties +The Business Combination Agreement contains representations and warranties of the parties thereto that are customary for transactions of this type, including representations and warranties relating to (a) entity organization, formation and authority, (b) capital structure, (c) authorization to enter into the Business Combination Agreement, (d) legal compliance and approvals, (e) financial statements and liabilities, (f) consents and requisite governmental approvals, (g) material contracts, (h) absence of changes, (i) litigation, (j) compliance with applicable laws, (k) labor matters and employees benefit plans, (l) environmental matters, (m) intellectual property and privacy, (n) insurance, (o) taxes, (p) real and personal property, and (q) transactions with affiliates, and with respect to the Company only, (i) public filings, (ii) the Investment Company Act and (iii) the Company’s Trust Account. +Non-Survival +None of the representations, warranties, covenants, obligations or other agreements in the Business Combination Agreement or in any certificate or instrument delivered pursuant to the Business Combination Agreement, including any rights arising out of any breach of such representations, warranties, covenants, agreements and other provisions, will survive the Acquisition Merger Effective Time and all such representations, warranties, covenants or other agreements will terminate and expire upon the occurrence of the Acquisition Merger Effective Time (and there will be no liability after the Acquisition Merger Effective Time in respect thereof), except for those covenants and agreements contained therein that by their terms expressly apply in whole or in part after the Acquisition Merger Effective Time and then only with respect to any breaches occurring after the Acquisition Merger Effective Time. +Conditions to Consummation of the Business Combination Agreement +Mutual Conditions to Closing +The consummation of the Transactions is conditioned upon, among other things, (a) the Registration Statement / Proxy Statement shall have become effective in accordance with the provisions of the Securities Act; (b) receipt of Gadfin’s shareholder approval, (c) the absence of any governmental order, statute, rule or regulation enjoining or prohibiting the consummation of the Transactions, (d) receipt of the Company’s shareholder approval, (e) receipt of the ISA Exemption, (f) receipt of the Israeli Tax Ruling, and (f) the expiration or termination of the waiting period under the Hart-Scott-Rodino Act. +IAC’s Conditions to Closing +The obligations of the Company to consummate the Transactions are conditioned upon, among other things, customary closing conditions, including no Gadfin Material Adverse Effect having occurred. +Gadfin’s Conditions to Closing +The obligations of Gadfin to consummate the Transactions are also conditioned upon, among other things, customary closing conditions, including, without limitation, (a) Aggregate Transaction Proceeds being greater than or equal to $15,000,000 (“Minimum Cash Condition”), (b) no Transaction Expenses Cap Excess, if any, shall have remained outstanding, (c) if applicable, the Company and Gadfin shall have reached an agreement on the terms of the Dilution Cap Breach Adjustment. +Termination +The Business Combination Agreement, as amended, allows the parties to terminate the Business Combination Agreement if specified customary conditions described in the Business Combination Agreement are not satisfied, subject to certain limited exceptions, and also if the Transactions have not been consummated by April 15, 2026 (the “Termination Date”). +The Business Combination Agreement, as amended, also allows the parties to terminate the Business Combination Agreement if (a) any Governmental Entity takes action prohibiting the Transactions, (b) if the Company Shareholder Approval is not obtained, and (c) if Gadfin Shareholder Approval is not obtained. +10 +Table of Contents +The Company may terminate the Business Combination Agreement if the representations and warranties of Gadfin are not true and correct or if Gadfin has materially breached any covenant or agreement as set forth in the Business Combination Agreement. +Gadfin may terminate the Business Combination Agreement, (a) at any time prior to the receipt of the Gadfin Shareholder Approval, in order to immediately enter into a written definitive agreement with respect to a Superior Proposal, (b) if the representations and warranties of the Company are not true and correct or if the Company has materially breached any covenant or agreement as set forth in the Business Combination Agreement and (c) in the event the Company did not receive a full waiver of the cash payment of any deferred underwriting fees currently owed and outstanding by the Company within thirty (30) days of July 2, 2025. In the event the Business Combination Agreement is terminated by Gadfin in order to accept a Superior Proposal, Gadfin will pay to the Company a termination fee of $10,000,000. In the event the Business Combination Agreement is terminated by Gadfin pursuant to clause (b) of this paragraph, the Company will pay to Gadfin a termination fee of $10,000,000. On October 14, 2025, Company entered into a Letter Agreement, pursuant to which (i) BTIG, LLC waived its right to the deferred underwriting commissions and (ii) Gadfin waived its related termination right under the Business Combination Agreement. +In the event the Business Combination Agreement is terminated for any reason other than by Gadfin pursuant to Section 7.1(c) of the Business Combination Agreement, or by the Company or Gadfin the case may be, pursuant to Section 7.1(f) or Section 7.1(g), Gadfin shall pay to the Company an amount equal to five percent (5%) of any IAC Introduced Financing Amount from any source during the period beginning October 16 th , 2024 and extending through the twelve months immediately following the effective date of such termination. +If the Business Combination Agreement is validly terminated, none of the parties to the Business Combination Agreement will have any liability or any further obligation under the Business Combination Agreement, with the exception of (a) the confidentiality obligation set forth in Section 5.3(a) and Section 7.2 of the Business Combination Agreement and (b) the Confidentiality Agreement, respectively. +Agreements Entered Into in Connection with the Business Combination Agreement +Sponsor Support Agreement +Concurrently with the execution of the Business Combination Agreement, each of the Sponsor, the Company and Gadfin entered into a Sponsor Support Agreement (the “Sponsor Support Agreement”) whereby the Sponsor has agreed, among other things, (a) to vote in favor of the Business Combination Agreement and the Transactions on the terms and subject to the conditions set forth in the Sponsor Support Agreement, (b) in the event the Covered Shares represent more than 30% of NewPubco Ordinary Shares issued and outstanding immediately following Closing, Sponsor will irrevocably forfeit and surrender, immediately prior to Closing, for no consideration, a number of Sponsor Shares, up to a maximum of 1,429,000 Sponsor Shares, in order to reduce the Sponsor’s holding in NewPubco below the Dilution Cap, and (c) if, immediately prior to or at the Closing, the Company incurs a Transaction Expenses Cap Excess without obtaining the prior written consent of the Company to incur such Transaction Expenses Cap Excess, then at the election of Gadfin in its sole discretion, Sponsor shall either (x) irrevocably transfer to such Persons entitled to the respective Transaction Expenses Cap Excess such number of SPAC Shares or SPAC Warrants that will satisfy and settle such Transaction Expenses Cap Excess, reasonably acceptable to Gadfin or (y) pay directly to NewPubco any such Transaction Expenses Cap Excess, such that only Sponsor bears such Transaction Expenses Cap Excess. The Sponsor also agreed that it will not (a) transfer any of the Sponsor Shares or grant any security interest in the Sponsor Shares pursuant to the Business Combination Agreement or to another shareholder of the Company, (b) deposit any Sponsor Shares into a voting trust or enter into a voting arrangement that is inconsistent with the Sponsor Support Agreement or (c) enter into any arrangement with respect to the acquisition or sale of any of the Sponsor Shares. The Sponsor has also agreed to waive its rights to the treatment of its Sponsor Shares and to not participate in any redemption by tendering or submitting any Company equity securities held by the Sponsor for redemption. Capitalized terms used but not defined herein shall have the meanings ascribed thereto in the Sponsor Support Agreement. +​ +11 +Table of Contents +Transaction Support Agreement +Concurrently with the execution of the Business Combination Agreement, certain Gadfin shareholders entered into Transaction Support Agreements, pursuant to which, among other things, each of such Gadfin shareholders, separately and independently, has agreed to vote in favor of the approval of the proposals at the applicable Gadfin shareholders’ meetings. +Registration Rights and Lock-Up Agreement +At the Closing, NewPubco, the Company, specified Gadfin shareholders and the Sponsor will enter into a Registration Rights and Lock-Up Agreement (the “Registration Rights Agreement”), pursuant to which, among other things, the parties thereto will be granted customary demand and piggyback registration rights with respect to NewPubco Ordinary Shares at Closing and will have agreed to customary lock-up restrictions for a period of six (6) months following the Closing, with such shares being released from lock-up in twelve monthly increments following such six (6) month period, subject to earlier release if specified share price hurdles are achieved. The form of the Registration Rights Agreement shall be mutually agreed by Gadfin and the Company prior to Closing, provided that such Registration Rights Agreement shall incorporate the key terms set forth in Annex II of the Business Combination Agreement. +Management Team +Ziv Elul serves as our Chief Executive Officer and a member of our board of directors. Mr. Elul has 16 years of industry and managerial experience with start-up and high-growth technology businesses operating globally, which includes two acquisition transactions and operational experience as the CEO of a publicly traded company. In 2007. Mr. Elul co-founded Inneractive, an independent automated mobile platform with marketplace exchange capabilities and focused on powering video ads. He served as CEO of Inneractive, leading it to outstanding profitability until its acquisition by Fyber N.V. (FSE:FBEN), a global provider of monetization platforms for mobile publishers, in July 2017. Following the acquisition, Mr. Elul continued to serve as CEO and led the integration of the businesses under one brand with a strong focus on cutting-edge technology. Under his leadership, Fyber N.V. reached profitability for the first time as a combined company. In May 2021, Fyber N.V. was acquired for $600 million by a multi-billion dollar media and advertising solutions company, Digital Turbine (Nasdaq:APPS), where he was appointed to serve as a strategic advisor supporting the integration. Prior to 2007, Mr. Elul served as a Lieutenant Colonel in Israel’s Reserves Corps. Mr. Elul is a member of the Israeli branch of the Young Presidents’ Organization (“YPO”), a global network of young chief executives, and is deeply involved in the Israeli high tech and startup ecosystem. Mr. Elul is an active investor in Israeli technology companies, with a portfolio of 18 company investments to-date (including several successful exits, such as Spotinst (acquired by Net App for $450 million)) and an investor in seven venture capital firms. He holds an Executive MBA from the Hebrew University which he graduated from with honors. +Sharon Barzik Cohen serves as our Chief Financial Officer and a member of our board of directors. In March 2021, Ms. Cohen joined Qumra Capital, a leading growth capital fund that invests in late stage technology-driven companies, as Partner and Chief Operating Officer. Before Qumra Capital, she was CFO of the Storage Division at Dell EMC in Israel, having previously served since 2011 as CFO of XtremIO, which developed all flash advanced storage solutions and was acquired by EMC in 2012 in one of the largest acquisitions in the Israeli tech market at the time. In this role Ms. Cohen oversaw global finance teams worldwide, and was a member of the Dell Israel leadership team. Prior to 2011, Ms. Cohen was CFO of N-trig, a developer of transparent electromagnetic digitizers for the mobile computers market, which was acquired by Microsoft in 2015. From 1996 to 2003, she served as CFO of RadioTel, a leading networking company offering next-generation SDH/Sonet network solutions. Ms. Cohen earned a BA in Psychology, summa cum laude, and an Executive MBA, cum laude, both from Tel Aviv University. +​ +12 +Table of Contents +Izhar Shay serves as Chairman of our board of directors. Mr. Shay currently serves as a venture partner at Disruptive AI, an early stage venture capital firm focused on AI investments. He also is the Chairman of Kendago ( a leading digital marketing group) and Group 107 Ltd. (a technology and fintech company that provides software solutions and IT services) and is on the Board of Directors of Spritt.io Ltd. (an AI-driven, no-code software platform that enables startups to build full-scale applications) and Tastewise (an AI based consumer insights platform for food & beverage innovation). From 2020 to 2021, Mr. Shay was Israel’s Minister of Science and Technology. Prior to that Mr. Shay’s professional career included various management and business positions in the Israeli high-tech and venture capital sectors. Previously, he worked as a high-tech entrepreneur and managed a number of companies for nearly ten years in the United States. In 1998, he co-founded Business Layers, a developer of Identity Management software solutions, and served as the company’s CEO until its sale in 2003 to Netegrity (Nasdaq: NETE). From 2004-2005, Mr. Shay served as chairman and CEO of V-Secure Technologies, a developer of intrusion prevention products intended to block cyber-attacks, which he led through its sale to Radware (NASDAQ: RDWR). In 2006, he joined the international venture capital fund Canaan Partners as a partner and managed its investment activities in Israel until 2014. At that time, Canaan Partners had assets under management of approximately $2.0B. Together with his partner, Ehud Levy, he co-founded Canaan Partners Israel in 2014, which made investments in Israeli technology start-ups, focusing on investments in mobile, digital media, Internet, communications and software. He served as a director at LiveU (acquired by Francisco Partners), Viewbix (acquired by Algomizer), Rollout.io, Drupe, and RegulusX and served as a director at Prime Sense prior to its sale to Apple as well as at N-trig, which was sold to Microsoft. In 2015, Mr. Shay was selected by the Israeli media outlet Geektime to be on the list of the 100 most influential people in the Israeli high-tech. Mr. Shay was elected as a member of the Israeli parliament, where he served from 2019 to 2021. He was a member of the special Coronavirus Cabinet, which was formed by the Israeli government, where he helped lead the national efforts confronting the challenges of the COVID-19 pandemic. +Candice Beaumont serves as a member of our board of directors. Beginning in October 2020, Candice Beaumont began to serve as an advisor to Springwater Special Situations Corp. (Nasdaq: SWSSU), a special purpose acquisition company formed to effectuate a merger or similar transaction with one or more businesses, which completed its initial public offering on August 25, 2021 and is currently searching for an initial business combination with a well-positioned business with operational improvements in Europe or elsewhere. Ms. Beaumont is a member of the Board of Directors of Clean Earth Acquisition Corp. (Nasdaq: CLINU), a special purpose acquisition company that completed its initial public offering in February 2022 and entered into a business combination agreement on October 12, 2022 for the purposes of acquiring substantially all of the subsidiaries of Alternus Energy Group Plc, a public limited company incorporated under the laws of Ireland. Ms. Beaumont has served since 2016 as Chairman of the Salsano Group, a Panama based family office and conglomerate invested in private equity. From 2003 to present, Ms. Beaumont has served as Chief Investment Officer of L Investments, a single-family office invested in public and private equity. Ms. Beaumont speaks at numerous family office and investment conferences globally, including the Stanford University Graduate School of Business Global Investor’s Forum, is a NYU Stern Family Office Council member serving on the Steering Committee, and is an Advisory Board member of the Family Office Association. From 2012 to 2014, Ms. Beaumont was a member of the board of directors of I2BF Venture Fund II, a Dubai Financial Services Authority regulated clean tech venture capital firm with offices in Dubai, New York and London, as well as an Advisory Board member of The Luxury Fund. Ms. Beaumont remains committed to community and philanthropic causes and serves on the International Council of Advisors for Global Dignity, a charity founded by Crown Prince Haakon of Norway to foster global respect and dignity across all borders, genders, religions and races. Ms. Beaumont was part of the Milken Young Leaders Circle and is a member of the Milken Institute, as well as an active member of YPO. Ms. Beaumont started her career in Corporate Finance at Merrill Lynch in 1996 and worked as an investment banker at Lazard Frères from 1997 to 1999, during which time Ms. Beaumont executed over $20 billion of merger and acquisition advisory assignments. Ms. Beaumont also worked in private equity at Argonaut Capital from 1999 to 2001. Ms. Beaumont obtained a Bachelor in Business Administration from the University of Miami, graduating first in her class with a major of International Finance & Marketing. Ms. Beaumont was captain of the University of Miami varsity tennis team, where Ms. Beaumont earned Academic All-American honors, and is also a former world-ranked professional tennis player. Ms. Beaumont completed Global Leadership & Public Policy for the 21st Century at Harvard Kennedy School in 2015. Ms. Beaumont was honored by Trusted Insight as one of the Top 30 Family Office Chief Investment Officers in 2017 and as a Young Global Leader by the World Economic Forum in 2014. Ms. Beaumont has a broad network of relationships, including investors in private and public equity, leading venture capital firms with compelling pre-initial public offering companies and has expertise sourcing deals, evaluating private and public businesses, and conducting detailed due diligence and risk management. +13 +Table of Contents +Peter Cohen serves as a member of our board of directors. Mr. Cohen was an investment banker for approximately three decades, advising CEOs and boards of directors on mission critical strategic and financing transactions. Most recently, from 2015 to 2020, he was a Managing Director and Global Head of Media, Entertainment & Sports Investment Banking at Barclays. In this role, he led a team responsible for managing all client coverage efforts for the firm in these sectors globally. He primarily focused on the largest clients in the Diversified and New Media and Sports sub-sectors, specializing in mergers & acquisitions, as well as debt and equity capital raising efforts, on behalf of clients worldwide. From 2009 to 2015, he had similar responsibilities as a Senior Managing Director at Blackstone. Mr. Cohen started his investment banking career at JP Morgan in 1993. +Roy Zisapel serves as a member of our board of directors. Mr. Zisapel is a co-founder of Radware (NASDAQ: RDWR), a leader of cybersecurity and application delivery solutions for physical, cloud and software-defined data centers. Mr. Zisapel has served as President and Chief Executive Officer of Radware since the company’s inception in April 1997, and he is responsible for the overall direction and strategy of the company. Under his leadership, Radware has grown from a startup to a global, Nasdaq-listed industry leader with more than 35 offices and 1,100 employees worldwide. He was instrumental in raising over $200 million for Radware, which included two public offerings: an initial public offering in September 1999 — just two and a half years after the company’s inception — and a follow-on offering in January 2000. Radware’s growth has paralleled working with some of the most prominent brands in the world, including commercial banks, stock exchanges, retailers, telecom companies and mobile operators. Radware maintains strategic partnerships with Cisco, Checkpoint, IBM, Microsoft, Nokia, SAP and VMWare, among others. Mr. Zisapel has led Radware through several successful acquisitions, including V-Secure Technologies (2005), Covelight Systems (2007), Nortel’s application delivery business, Alteon (2009), and Strangeloop Networks in 2013. Most recently, he oversaw the acquisition of Seculert (2017) and ShieldSquare (2019). From 1996 to 1997, Mr. Zisapel was a team leader of research and development projects for RND Networks Ltd. From 1994 to 1996, Mr. Zisapel was employed as a software engineer for other companies in Israel. Mr. Zisapel graduated summa cum laude with a B.S. degree in mathematics and computer science from Tel Aviv University, where he was honored with the International Wolf Prize for research students. Mr. Zisapel holds several U.S. patents and patent applications in the areas of global load balancing, network proximity, traffic redirection and multi-homing. +Daniel S. Recanati serves as a member of our board of directors. Mr. Recanati is the founder & CEO of Rhodium, a privately-owned investment firm with a diverse portfolio including some of Israel’s most promising companies. Mr. Recanati founded and invested in numerous tech ventures from early stage to growth, across different sectors such as deeptech, fintech, foodtech, cyber, AI, digital media, e-commerce, automotive, communication and mobile. Mr. Recanati is an early investor in successful Israeli companies such as Teads Holding Co (NASDAQ:TEAD), eToro Group (NASDAQ:ETOR), Yotpo, Storedot, Earth & Beyond Ventures (Founder and GP), Face.com (acquired by Facebook), Hopstop (acquired by Apple), Zooz (acquired by PayU), Rounds (acquired by Kik), Hexatier (acquired by Huawei), IMGN (acquired by WarnerMusic) and Compass (acquired by Sage). For over two decades, Mr. Recanati has been focusing on accelerating social impact through technology, by co-founding and being closely involved in a variety of community organizations. Mr. Recanati serves on the board of The Yahel Foundation, the Recanati family philanthropy foundation, which aims to narrow social gaps by driving social processes and supporting non-profit organizations that advance education, welfare and health. Mr. Recanati also serves on the board of MadaTech — The Israel National Museum of Science Technology and Space. Mr. Recanati co-founded and serves on the board of Apple Seeds Academy (“Tapuah”), an Israeli nonprofit organization that was founded with the aim of bridging between Israel’s growing tech sector and the digital peripheries. He also serves on the board of “Ogen”- a non-profit social lending enterprise, providing affordable credit to disadvantaged segments of the Israeli public. Mr. Recanati holds an LLB and BA from the Reichman University, Herzliya. +Our Advisory Board +Alex Greystoke serves as a member of our advisory board and is one of our founders. Mr. Greystoke is a successful serial entrepreneur with a breadth of skills in a diverse range of industries. He is a founder and member of the advisory board of Goal Acquisitions Corp. (Nasdaq: PUCKU), a SPAC that raised $258 million through its initial public offering in February 2021 and entered into a business combination agreement on November 17, 2022 for the purposes of acquiring Digital Virgo Group, a French corporation. Mr. Greystoke is also the founder and member of the advisory board of Clean Earth Acquisition Corp. (Nasdaq: CLINU), a SPAC that completed a $200 million initial public offering in February 2022 and entered into a business combination agreement on October 12, 2022 for the purposes of acquiring substantially all of the subsidiaries of Alternus Energy Group Plc, a public limited company incorporated under the laws of Ireland. Mr. Greystoke is also on the board of Springwater Special Situations Corp (Nasdaq: SWSSU), a SPAC that raised $168 million through its initial public offering in August 2021 and is seeking to merge with a well-positioned business with operational improvement opportunities in Europe or elsewhere. Mr. Greystoke is the founder of multiple AI technology companies including TripChamp, VacationChamp and TravelChamp. He is the inventor of three granted artificial intelligence patents, with eight pending patent applications. Mr. Greystoke also holds investments in real estate, food and beverage, technology and other +14 +Table of Contents +sectors. Mr. Greystoke founded HSC, a boutique corporate finance business raising money for and helping emerging companies commercialize in a range of sectors including technology, energy, healthcare and consumer products utilizing his wide network of partners throughout Asia, Europe, the Middle East and the U.S. Mr. Greystoke has served as director to numerous companies in the education, technology, AI and renewable energy spaces, and has served as a Chairman to a U.K. listed Chinese manufacturing company. +Robert Pincas serves as a member of our advisory board and is one of our founders. Mr. Pincas is a successful investment manager and entrepreneur with over 20 years of experience in the Israeli ecosystem and international capital markets. Over the years, Mr. Pincas has developed a deep network with Israeli tech companies and a wide range of international investors. Currently, Mr. Pincas serves as the Small and Medium Businesses (“SMB”) partner for Fundit, a leading crowdfund platform in Israel, regulated by the Israeli Securities Authority. Between 2007 and 2020 Mr. Pincas was a Managing Director with MG Investment Capital, a venture capital fund investing in Israeli technology with a profitable return for investors. Mr. Pincas was the Accelerator Program Director (Jerusalem and the Plains) for Maof-Tech, for the Israeli Economy Ministry. Between 2014 and 2018 Mr. Pincas managed Maof Rishon LeZion (sponsored by the Israeli Economy Ministry), one of the largest consulting centers in Israel, servicing thousands of SMB businesses. Mr. Pincas served between 2003-2008 as Executive Director and Partner with MG Equity Partners Ltd., an investment bank focusing on cross border transactions between Israeli and European companies and the London capital markets, such as Domino’s Pizza Switzerland, Pepsi Romania and MTI Wireless, Mr. Pincas has volunteered with Paamonim, a nonprofit organization focusing on financial education for families. Mr. Pincas holds an MBA from Tel Aviv University and a BA in Economics from Ben Gurion University. +Eitan Efron serves as a member of our advisory board and is one of our founders. Mr. Efron has 30 years of experience in technology investments, technology and business management and high-tech entrepreneurship. Mr. Efron has a diverse entrepreneurial and management background. Mr. Efron is a founder of four technology startups, including Oversi Networks, which was acquired by Allot Communications (NASDAQ: ALLT) in 2009, and WiNetworks, which was acquired by Ruggedcom Inc in 2006 (and later acquired by Siemens). Between 2007 and 2019, Mr. Efron was a director with MG Investment Capital, a venture capital fund investing in Israeli technology with a profitable return for investors. Mr. Efron has deep contacts in Israeli tech ecosystem, including investors, companies’ executives, entrepreneurs and Israeli Innovation Authority. Mr. Efron has direct access to multiple multi-sector technology companies. +Ehud Levy serves as a member of our advisory board. Since 2014, Mr. Levy has been the Managing General Partner of Canaan Partners Israel, an Israeli venture capital fund. Since 2019, he has been a Venture Partner with Lenovo Capital heading its investment opportunities in Israel. Mr. Levy is also an active private investor in tech companies operating as a partner with a leading investment team, Kaedan Capital. From 2006 to 2014, Mr. Levy was a Managing Partner at Vertex VC. Among other successful investments, Mr. Levy identified Waze as a bright star from the start, leading the first investment round in the company and serving on its board of directors until its acquisition by Google for over US$1 billion. Previously, Mr. Levy co-founded and served as Chairman and CEO of Ki-Bi Mobile Technologies, a mass-market device specialist for mobile content distribution. He led the business from concept to commercial success, an initial public offering in London and eventual acquisition. Earlier, he served as COO and CFO of Telegate, a telecommunications company, where he was responsible for a restructuring plan leading to the acquisition of the company for over US$400 million. Prior to Telegate, Mr. Levy was an investment banker in New York and Tel Aviv, and served on the board of directors of several technology companies. Mr. Levy holds a BSc in Computer Engineering (with honors) from the Technion – Israel Institute of Technology and an MBA from Columbia Business School in New York. +Nir Ben Lavi serves as a member of our advisory board. Currently Mr. Ben Lavi is the CEO and co-founder of the Pangea Cup, the world’s first global competition and reality show for discovering the next big video game, and has served in that capacity since December 2019. Mr. Ben Lavi was appointed to his first managerial position at the age of 25, and combined it with intensive R&D work. This experience provided Mr. Ben Lavi with invaluable knowledge on innovation and led him to dedicate a lot of his time helping countries create their own start-up ecosystems. Mr. Ben Lavi is an active member of YPO Israel, and YPO Change Makers Club. Mr. Ben Lavi is an active investor deeply involved in the Israeli startup ecosystem. He is the former Managing Director of the NYU Blockchain Accelerator with which he served from October 2017 to October 2019, as well as head of the joint innovation program at Bosphorus University, Turkey. Mr. Ben Lavi is the author of three books and inventor of software solutions. Mr. Ben Lavi received his B.A. in Sociology, with honors, and his M.B.A. from the University of Tel Aviv. His Ph.D. research study in the field of Computerized Dispute Resolution led to the development of a first-of-its-kind dispute resolution software that was adopted by the United Nations as a managerial work tool. +Guy Kurlandski serves as a member of our advisory board. Mr. Kurlandski has more than 30 years’ experience as an entrepreneur and investor spanning diverse industries globally, from printing and real estate to spirits and technology. Today, Mr. Kurlandski’s primary position is as the Chief Evangelist Officer at Liquidity Group, an Israeli based global fintech and fund manager, which he has +15 +Table of Contents +been with from 2019 to the present. He is also a Forbes Business Council member and an advisor to MUMA College of Business. He has been based in the United States since 2008 and was previously based in the United Kingdom. Mr. Kurlandski speaks both English and Hebrew and has strong ties to Israel. He has experience in scaling, managing and funding companies to reach their full potential. +Aaron Greenberg serves as a member of our advisory board. Mr. Greenberg has spent his career on Wall Street with experience across a variety of areas including investing, banking, trading, regulatory, risk, strategy and tax. Currently, Mr. Greenberg serves as the Chief Strategy Officer of Nayax (Nasdaq: NYAX), and is the managing partner of Tiberius Capital Markets, a division of Arcadia Securities (“Tiberius”), a strategic advisory and merger and acquisition (“M&A”) practice. Prior to Tiberius, Mr. Greenberg served on the investment team of Lucerne Capital Management, a 20-year-old hedge fund specializing in European mid-cap equities. Concurrently, Mr. Greenberg was Chief Strategy Officer of European Sustainable Growth Acquisition Corp., a U.S.-listed SPAC focused on ESG investing in Europe. Prior to this, Mr. Greenberg held various positions at Wells Fargo Bank and its affiliates, most recently as a portfolio manager evaluating operational inefficiencies and credit policy within the Corporate Investment Bank (CIB). Mr. Greenberg holds a Bachelor of Arts in Economics and History from Yale University. +Opportunity +The technology industry as a whole experienced an unprecedented acceleration of its growth during the COVID-19 pandemic as more businesses adopted new and innovative ways of doing business and more consumers rapidly adopted digital platforms to consume products and services. +The Israeli technology sector represents a concentration of value, with a large number of fast-growing companies. Israel is the leading country in R&D expenditure per GDP (Source: World Economic Forum 11 2020) with a mature high tech ecosystem including government incentives for early stage companies, a strong VC community, over 400 multinational corporations active in Israel and managing local R&D centers, and over 100 Israeli companies listed on Nasdaq. We believe that this ecosystem nurtures innovative products and services recognized world-wide. Technology leaders in Israel have global operations backed by a growing number of investments, which continue to propel the growth of leading technology companies. +The number of Israeli Unicorns has grown dramatically in recent years, representing 10% of Unicorns globally as of June 2021. Hundreds of additional growth-stage companies, backed by both local and global growth venture capital funds, have the potential to become the next Unicorns. We believe that this sector presents a significant opportunity concentrated in a specific small geography. Management teams with extensive networks and experience in this geography have a unique ability to locate and combine with such potential Unicorns. +We intend to tap into this opportunity by combining favorable Israeli market dynamics with a highly experienced and connected sponsor team, leveraging its network to source a potential business combination. Our Team has excellent investment, merger, acquisition and public company operational experience. Facing multiple targets in the disruptive Israeli market, our Team is positioned to identify and combine with high quality targets that have demonstrated exceptional metrics, and can effectively assist in bringing value to the target company following a business combination. +Favorable Market Dynamics +In recent years Israel’s technology sector has been going through a dramatic uplift and rapidly shifting from “Start-Up Nation” to the “Scale-Up Nation.” Many of growth-stage Israeli companies have emerged in recent years and are attracting billions of dollars in investments from foreign (primarily U.S.) investors, through mergers, acquisitions, and IPOs. +In 2024 and 2025, the Israeli high-tech sector continued to navigate geopolitical and macroeconomic challenges but demonstrated resilience and renewed investment activity. +With the proposed judicial reform mid-year causing domestic tension, the attack on October 7, 2023, and the ensuing war against Hamas - all against a background of global macroeconomic contraction - there have been obvious declines in venture capital activity in 2023 followed by a recovery in 2024 and 2025. +Israel experienced both a sharper increase in private funding between 2018 and 2021 (+303%) and subsequently a sharper decrease between 2021 and 2023 (-73%) compared to other regions. In the U.S., for example, it was +134% / -51% respectively. Compared to 2018, Israel and the U.S. are up 9% and 14% respectively. +16 +Table of Contents +According to the 2025 Israeli Tech Review published by IVC Research Center and LeumiTech, Israeli technology companies raised approximately $9.6 billion in private funding in 2024, representing a significant increase from 2023 levels, and funding increased further to approximately $15.6 billion in 2025, reflecting larger financing rounds despite a lower number of transactions. +In 2024, M&A capital proceeds equaled $12.53 billion, despite the total number of deals being the second lowest in the past 10 years (99 transactions). This was mostly due to the M&As between $100 million and $500 million, which amounted to $6.052 billion this year. The most prominent transaction was the acquisition of Own Company by SalesForce for $1.9 billion. More recent reports indicate that strategic acquisitions by large technology companies continued to represent a significant portion of exit activity in 2025. In 2024, six IPOs took place: Upstream Bio, Gauzy and Polyrizon; two SPAC deals on NASDAQ; and TSG IT Advanced Systems on TASE. These IPOs represent a 50% growth from 2023 and raised $397 million. Public market activity remained relatively limited compared to prior peak years, although select Israeli technology companies continued to access U.S. and Israeli capital markets. +In 2024, 40% of follow-on public offerings were in the life science sector. Follow-on activity was cut almost by half, with only 55 public offerings raising $675 million, and the lowest attracted capital since 2015. Public market activity remained relatively limited compared to prior peak years, although select Israeli technology companies continued to access U.S. and Israeli capital markets. +Public Companies’ Performance +Given 2019 as a starting point, Israeli technology companies for the most part follow Nasdaq trends. Towards the end of 2020, Israeli companies started outperforming Nasdaq as the COVID-19 pandemic was contained faster. Their performance peaked in early 2021 when Israel became the first country to reopen after the pandemic. +In 2022, both the U.S. tech market and the Israeli tech market were negatively impacted by rising interest rates, high inflation, and recession fears, with Israeli companies experiencing a steeper decline. At the end of 2022, the U.S. tech market started to recover and the rise of generative artificial intelligence (“Gen AI”) started - and will continue to grow in 2023. Israel tech companies did not experience that recovery and remained mostly stable, likely due to local political turbulence. +In October 2023, both U.S. and Israel markets experienced a drop, which was more prominent in Israel, due to the war that started on October 7th. The conflict subsequently expanded to include hostilities with Hezbollah in Lebanon and direct attacks from Iran, creating additional volatility in Israeli markets through 2024 and into 2025. +Multiple Targets +The Israeli tech sector has experienced significant scale-up in recent years across a wide range of sectors, from fintech, cloud, cyber and AI, to electric vehicles, and energytech, to biotech, genomics, quantum computing, spacetech and more. We believe some of these sectors present strong growth opportunities because Israeli companies in these sectors match global demand for solutions in the space and attract late-stage investments backing up growth. +We believe there are hundreds of pre-initial public offering Israeli tech companies that could be potential acquisition candidates today, and we believe the number will continue to grow. According to research firm IVC, 607 growth-stage Israeli tech companies raised over $15 billion of late-stage investments in 2019 and 2020 alone. According to Catalyst research there are hundreds of Israeli companies valued between $300 million to $3 billion. +Business Strategy and Competitive Strengths +Our business strategy is focused on identifying high-growth technology companies that would benefit from our Team’s expertise and creating long-term value for our shareholders through a business combination. Our strategy will be focused on companies that are domiciled in Israel, that carry out all or a substantial portion of their activities in Israel, or that have some other significant Israeli connection. +​ +17 +Table of Contents +Because we believe that certain technology sectors present particularly attractive growth opportunities, we intend to focus primarily on companies in the following technology sectors: +● Cloud computing; +● Cybersecurity; +● Deep or hard technology; +● E-commerce; +● EV technology; +● Energy technology; +● Financial Technology (“FinTech”); +● Food and agriculture technology; +● Gaming; +● Quantum computing; and +● Space and satellite technology. +We believe that our Team’s extensive experience in identifying high growth target companies, structuring and executing strategic investments and business combination transactions, and in adding value post-investment and post-transaction will support our business strategy. Our competitive strengths include: +Proven Track Record +Members of our Team have proven track records as officers, investors and board members of Israeli technology companies which reached growth-phase and global presence. Some of our Team members have gained experience as advisors of other SPACs, from IPO and listing through target acquisition. Our Team also has vast experience in international mergers and acquisition transactions and post-transaction integration. Furthermore, two of our Team members served as CEOs of public companies traded on Nasdaq and FSE stock exchange. We believe this wealth of experience and connections within the industry will position us to identify a high-quality target company and successfully complete a business combination transaction that creates value for our investors. +Value to Target Companies +We believe that our Team’s substantial management experience with growth companies will be recognized by target companies as a potential asset. Our Team members bring many years of experience taking companies public and successfully managing public companies. Additionally, we believe that our Team’s track record of leading companies through merger and acquisition transactions and managing them in the post-business combination stage could make us attractive to potential target companies. Our Team’s substantial experience operating public and private companies can assist in establishing a credible value-creation plan jointly with the target company’s management. Our Team has a considerable track record in running global public companies, merging companies to create substantially larger operations, bringing companies to profitability, communicating with the financial markets, and raising capital in various modes. We believe our Team’s experience presents a high value proposition to the target companies and investors. +18 +Table of Contents +Business Combination Criteria +Consistent with our business strategy, we have identified the following general criteria and guidelines that we believe are important in evaluating prospective target companies. We will use these criteria and guidelines in evaluating initial business combination opportunities, but we may decide to enter into our initial business combination with a target company that does not meet these criteria and guidelines. +● Enterprise values of between $800 million and $1.5 billion  — The valuation will reflect a discount to the valuation of comparable public companies in the sector with similar metrics, such as revenues, EBITDA, market share and growth. +● High growth and strong pipeline  — We intend to focus on companies with double-digit growth in revenues per annum over a minimum 3-year period, featuring a disruptive technology, high market acceptance, and a large addressable market. +● International operations and global focus  — As the Israeli local market is a small one in most sectors, we are targeting a global player in the making, focusing on companies that already have a significant presence in global markets, with over 50% of revenue generated outside of Israel. +● Strong management team focused on growth  — We intend to pursue a business combination with a company that has a committed and strong leadership team with a proven track record of success in driving growth and profitability in the tech industry, impeccable reputation, and whom we know and trust through our Team’s network of relationships in Israel. +● Demonstrated ability to execute  — We are focused on target company management with a proven record of success, either from managing companies and bringing them to exceptional liquidity events for their investors or through operational success, such as growing companies from early stages to achieving competitive metrics in their sectors with regards to disruptive technology, sizable global markets, company growth, revenues, and profit. +● Ability to accelerate growth through increased access to public capital  — We intend to pursue an initial business combination with a company that has a solid business plan and the need for capital to support significant growth available through a business combination with us and access to broader capital markets as a public company. +These criteria are not intended to be exhaustive. Any evaluation relating to the merits of a particular initial business combination may be based, to the extent relevant, on these general guidelines as well as other considerations, factors and criteria that our management may deem relevant. In the event that we decide to enter into a business combination with a target company that does not meet the above criteria and guidelines, we will disclose that the target company does not meet the above named criteria in our shareholder communications related to our initial business combination, which, as discussed in this Annual Report on Form 10-K, would be in the form of proxy solicitation or tender offer materials, as applicable, that we would file with the SEC. In evaluating a prospective target company, we expect to conduct a due diligence review which may encompass, among other things, meetings with incumbent management and employees, document reviews, interviews of customers and suppliers, inspections of facilities, as well as reviewing financial and other information which will be made available to us. +Effecting Our Initial Business Combination +General +We are not presently engaged in, and we will not engage in, any operations for an indefinite period of time. We intend to effectuate our initial business combination using cash from the proceeds of the initial business combination and the sale of the Private Placement Units, the proceeds of the sale of our shares in connection with our initial business combination (pursuant to forward purchase agreements or backstop agreements we may enter into), shares issued to the owners of the target, debt issued to bank or other lenders or the owners of the target, or a combination of the foregoing or other sources. We may seek to complete our initial business combination with a company or business that may be financially unstable or in its early stages of development or growth, which would subject us to the numerous risks inherent in such companies and businesses. +19 +Table of Contents +If our initial business combination is paid for using equity or debt, or not all of the funds released from the Trust Account are used for payment of the consideration in connection with our initial business combination or used for redemptions of our Class A ordinary shares, we may apply the balance of the cash released to us from the Trust Account for general corporate purposes, including for maintenance or expansion of operations of the post-business combination company, the payment of principal or interest due on indebtedness incurred in completing our initial business combination, to fund the purchase of other companies or for working capital. +Although our management will assess the risks inherent in a particular target business with which we may combine in an initial business combination, we cannot assure you that this assessment will result in our identifying all risks that a target business may encounter. Furthermore, some of those risks may be outside of our control, meaning that we can do nothing to control or reduce the chances that those risks will adversely affect a target business. +So long as our securities are then listed on the Nasdaq, our initial business combination must occur with one or more target businesses that together have an aggregate fair market value of at least 80% of the net assets held in the Trust Account (excluding the amount of deferred underwriting commissions and taxes payable on the interest earned on the Trust Account) at the time of signing a definitive agreement in connection with our initial business combination. Additionally, so long as our securities are listed on Nasdaq, any initial business combination must be approved by a majority of our independent directors. If our board of directors is not able to independently determine the fair market value of the target business or businesses, we will obtain an opinion from an independent investment banking firm or an independent valuation or appraisal firm with respect to the satisfaction of such criteria. While we consider it unlikely that our board will not be able to make an independent determination of the fair market value of a target business or businesses, it may be unable to do so if the board is less familiar or experienced with the target company’s business, if there is a significant amount of uncertainty as to the value of the company’s assets or prospects, including if such company is at an early stage of development, operations or growth, or if the anticipated transaction involves a complex financial analysis or other specialized skills and the board determines that outside expertise would be helpful or necessary in conducting such analysis. Since any opinion, if obtained, would merely state that the fair market value of the target business meets the 80% of net assets threshold, unless such opinion includes material information regarding the valuation of a target business or the consideration to be provided, it is not anticipated that copies of such opinion would be distributed to our shareholders. However, if required under applicable law, any proxy statement that we deliver to shareholders and file with the SEC in connection with a proposed transaction will include such opinion. +We anticipate structuring our initial business combination so that the post-business combination company in which our public shareholders own shares will own or acquire 100% of the equity interests or assets of the target business or businesses. We may, however, structure our initial business combination such that the post-business combination company owns or acquires less than 100% of such interests or assets of the target business in order to meet certain objectives of the target management team or shareholders or for other reasons, but we will only complete such business combination if the post-business combination company owns or acquires 50% or more of the outstanding voting securities of the target or otherwise acquires a controlling interest in the target sufficient for it not to be required to register as an investment company under the Investment Company Act. Even if the post-business combination company owns or acquires 50% or more of the voting securities of the target, our shareholders prior to the business combination may collectively own a minority interest in the post-business combination company, depending on valuations ascribed to the target and us in the business combination. For example, we could pursue a transaction in which we issue a substantial number of new shares in exchange for all the outstanding capital stock of a target. In this case, we would acquire a 100% controlling interest in the target. However, as a result of the issuance of a substantial number of new shares, our shareholders immediately prior to our initial business combination could own less than a majority of our outstanding shares subsequent to our initial business combination. If less than 100% of the equity interests or assets of a target business or businesses are owned or acquired by the post-business combination company, the portion of such business or businesses that is owned or acquired is what will be valued for purposes of the 80% of net assets test. If the business combination involves more than one target business, the 80% of net assets test will be based on the aggregate value of all of the target businesses. If our securities are not then listed on the Nasdaq for whatever reason, we would no longer be required to meet the foregoing 80% of net asset test. +We may need to obtain additional financing to complete our initial business combination, either because the transaction requires more cash than is available from the proceeds held in our Trust Account, or because we become obligated to redeem a significant number of our public shares upon the completion of the business combination, in which case we may issue additional securities or incur debt in connection with such business combination (or enter into forward purchase agreements or backstop agreements with the Sponsor). There are no prohibitions on our ability to issue securities or incur debt in connection with our initial business combination. We are not currently a party to any arrangement or understanding with any third party with respect to raising any additional funds through the sale of securities, the incurrence of debt or otherwise. +20 +Table of Contents +Sources of Target Businesses +We anticipate that target business candidates will be brought to our attention from various unaffiliated sources, including investment market participants, private equity groups, investment banking firms, consultants, accounting firms and large business enterprises. Target businesses may be brought to our attention by such unaffiliated sources as a result of being solicited by us through calls or mailings. These sources may also introduce us to target businesses in which they think we may be interested on an unsolicited basis, since some of these sources will have read this Annual Report on Form 10-K and know what types of businesses we are targeting. Our officers and directors, as well as their affiliates, may also bring to our attention target business candidates that they become aware of through their business contacts as a result of formal or informal inquiries or discussions they may have, as well as attending trade shows or conventions. In addition, we expect to receive a number of proprietary deal flow opportunities that would not otherwise necessarily be available to us as a result of the business relationships of our officers and directors. While we do not presently anticipate engaging the services of professional firms or other individuals that specialize in business acquisitions on any formal basis, we may engage these firms or other individuals in the future, in which event we may pay a finder’s fee, consulting fee or other compensation to be determined in an arm’s length negotiation based on the terms of the transaction. We will engage a finder only to the extent our management determines that the use of a finder may bring opportunities to us that may not otherwise be available to us or if finders approach us on an unsolicited basis with a potential transaction that our management determines is in our best interest to pursue. Payment of finder’s fees is customarily tied to completion of a transaction, in which case any such fee will be paid out of the funds held in the Trust Account. In no event, however, will the Sponsor or any of our existing officers or directors, or their respective affiliates be paid by us any finder’s fee or for any services they render in order to effectuate, the completion of our initial business combination (regardless of the type of transaction that it is). We have agreed to pay the Sponsor a total of $10,000 per month for office space, secretarial and administrative services and to reimburse the Sponsor for any out-of-pocket expenses related to identifying, investigating and completing an initial business combination. Some of our officers and directors may enter into employment or consulting agreements with the post-business combination company following our initial business combination. The presence or absence of any such fees or arrangements will not be used as a criterion in our selection process of an acquisition candidate. +We are not prohibited from pursuing an initial business combination with a company that is affiliated with the Sponsor or our officers or directors. In addition, in the event we seek to complete our initial business combination with a company that is affiliated with the Sponsor or any of our officers or directors, we, or a committee of independent directors, will obtain an opinion from an independent investment banking firm or another independent entity that commonly renders valuation opinions that such initial business combination is fair to our company from a financial point of view. We are not required to obtain such an opinion in any other context. +Each of our officers and directors presently has, and any of them in the future may have additional, fiduciary or contractual obligations to other entities, including entities that are affiliates of the Sponsor, pursuant to which such officer or director is or will be required to present a business combination opportunity to such entity. Accordingly, if any of our officers or directors becomes aware of a business combination opportunity that is suitable for an entity to which he or she has then-current fiduciary or contractual obligations, he or she will honor his or her fiduciary or contractual obligations to present such business combination opportunity to such entity, subject to their fiduciary duties under Cayman Islands law. See “ Item 10 - Directors, Executive Officers and Corporate Governance – Conflicts of Interest. ” +Evaluation of a Target Business and Structuring of Our Initial Business Combination +In evaluating a prospective target business, we expect to conduct an extensive due diligence review that may encompass, as applicable and among other things, meetings with incumbent management and employees, document reviews, interviews of customers and suppliers, inspection of facilities and a review of financial and other information about the target and its industry. We will also utilize our management team’s operational and capital planning experience. If we determine to move forward with a particular target, we will proceed to structure and negotiate the terms of the business combination transaction. +The time required to select and evaluate a target business and to structure and complete our initial business combination, and the costs associated with this process, are not currently ascertainable with any degree of certainty. Any costs incurred with respect to the identification and evaluation of, and negotiation with, a prospective target business with which our initial business combination is not ultimately completed will result in our incurring losses and will reduce the funds we can use to complete another business combination. In addition, we have agreed not to enter into a definitive agreement regarding an initial business combination without the prior consent of the Sponsor. +21 +Table of Contents +Lack of Business Diversification +For an indefinite period of time after the completion of our initial business combination, the prospects for our success may depend entirely on the future performance of a single business. Unlike other entities that have the resources to complete business combinations with multiple entities in one or several industries, it is probable that we will not have the resources to diversify our operations and mitigate the risks of being in a single line of business. By completing our initial business combination with only a single entity, our lack of diversification may: +● subject us to negative economic, competitive and regulatory developments, any or all of which may have a substantial adverse impact on the particular industry in which we operate after our initial business combination; and +● cause us to depend on the marketing and sale of a single product or limited number of products or services. +Limited Ability to Evaluate the Target’s Management Team +Although we intend to closely scrutinize the management of a prospective target business when evaluating the desirability of effecting our initial business combination with that business, our assessment of the target business’s management may not prove to be correct. In addition, the future management may not have the necessary skills, qualifications or abilities to manage a public company. Furthermore, the future role of members of our management team, if any, in the target business cannot presently be stated with any certainty. The determination as to whether any of the members of our management team will remain with the combined company will be made at the time of our initial business combination. While it is possible that one or more of our directors will remain associated in some capacity with us following our initial business combination, it is unlikely that any of them will devote their full efforts to our affairs subsequent to our initial business combination. Moreover, we cannot assure you that members of our management team will have significant experience or knowledge relating to the operations of the particular target business. +We cannot assure you that any of our key personnel will remain in senior management or advisory positions with the combined company. The determination as to whether any of our key personnel will remain with the combined company will be made at the time of our initial business combination. +Following an initial business combination, we may seek to recruit additional managers to supplement the incumbent management of the target business. We cannot assure you that we will have the ability to recruit additional managers, or that additional managers will have the requisite skills, knowledge or experience necessary to enhance the incumbent management. +Shareholders May Not Have the Ability to Approve Our Initial Business Combination +We may conduct redemptions without a shareholder vote pursuant to the tender offer rules of the SEC, subject to the provisions of our amended and restated memorandum and articles of association. However, we will seek shareholder approval if it is required by applicable law or stock exchange listing requirement, or we may decide to seek shareholder approval for business or other reasons. +Under the Nasdaq’s listing rules, shareholder approval would typically be required for our initial business combination if, for example: +● We issue ordinary shares that will be equal to or in excess of 20% of the number of our ordinary shares then-outstanding (other than in a public offering); +● Any of our directors, officers or substantial security holder (as defined by the Nasdaq rules) has a 5% or greater interest, directly or indirectly, in the target business or assets to be acquired or otherwise and the present or potential issuance of ordinary shares could result in an increase in issued and outstanding ordinary shares or voting power of 1% or more (or 5% or more if the related party involved is classified as such solely because such person is a substantial security holder); +● the timing of the transaction, including in the event we determine shareholder approval would require additional time and there is either not enough time to seek shareholder approval or doing so would place the company at a disadvantage in the transaction or result in other additional burdens on the company; or +● The issuance or potential issuance of ordinary shares will result in our undergoing a change of control. +22 +Table of Contents +The decision as to whether we will seek shareholder approval of a proposed business combination in those instances in which shareholder approval is not required by law will be made by us, solely in our discretion, and will be based on business and reasons, which include a variety of factors, including, but not limited to: +● the expected cost of holding a shareholder vote; +● the risk that the shareholders would fail to approve the proposed business combination; +● other time and budget constraints of the company; and +● additional legal complexities of a proposed business combination that would be time-consuming and burdensome to present to shareholders. +Permitted Purchases and Other Transactions with Respect to Our Securities +If we seek shareholder approval of our initial business combination and we do not conduct redemptions in connection with our initial business combination pursuant to the tender offer rules, the Sponsor and our directors, officers, advisors or their affiliates may purchase public shares or warrants in privately negotiated transactions or in the open market either prior to or following the completion of our initial business combination. Additionally, at any time at or prior to our initial business combination, subject to applicable securities laws (including with respect to material nonpublic information), the Sponsor and our directors, executive officers, advisors or their affiliates may enter into transactions with investors and others to provide them with incentives to acquire public shares, vote their public shares in favor of our initial business combination or not redeem their public shares. However, they have no current commitments, plans or intentions to engage in such transactions and have not formulated any terms or conditions for any such transactions. None of the funds in the Trust Account will be used to purchase public shares or warrants in such transactions. If they engage in such transactions, they will be restricted from making any such purchases when they are in possession of any material non-public information not disclosed to the seller or if such purchases are prohibited by Regulation M under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). +In the event that the Sponsor or our directors, officers, advisors or their affiliates purchase shares in privately negotiated transactions from public shareholders who have already elected to exercise their redemption rights or submitted a proxy to vote against our initial business combination, such selling shareholders would be required to revoke their prior elections to redeem their shares and any proxy to vote against our initial business combination. We do not currently anticipate that such purchases, if any, would constitute a tender offer subject to the tender offer rules under the Exchange Act or a going-private transaction subject to the going-private rules under the Exchange Act; however, if the purchasers determine at the time of any such purchases that the purchases are subject to such rules, the purchasers will be required to comply with such rules. +See “ Business—Effecting Our Initial Business Combination—Permitted Purchases and Other Transactions with Respect to Our Securities ” for a description of how our Sponsor, directors, officers, advisors or their affiliates will select which shareholders to purchase securities from in any private transaction. The purpose of any such transaction could be to (i) increase the likelihood of closing the initial business combination, (ii) reduce the number of public warrants outstanding or vote such warrants on any matters submitted to the warrant holders for approval in connection with our initial business combination or (iii) satisfy a closing condition in an agreement with a target that requires us to have a minimum net worth or a certain amount of cash at the closing of our initial business combination, where it appears that such requirement would otherwise not be met. Any such purchases of our securities may result in the completion of our initial business combination that may not otherwise have been possible. +In addition, if such purchases are made, the public “float” of our Class A ordinary shares or public warrants may be reduced and the number of beneficial holders of our securities may be reduced, which may make it difficult to maintain or obtain the quotation, listing or trading of our securities on a national securities exchange. +23 +Table of Contents +The Sponsor and our officers, directors and/or their affiliates anticipate that they may identify the shareholders with whom the Sponsor and our officers, directors or their affiliates may pursue privately negotiated transactions by either the shareholders contacting us directly or by our receipt of redemption requests submitted by shareholders (in the case of Class A ordinary shares) following our mailing of tender offer or proxy materials in connection with our initial business combination. To the extent that the Sponsor or our officers, directors, advisors or their affiliates enter into a private transaction, they would identify and contact only potential selling or redeeming shareholders who have expressed their election to redeem their shares for a pro rata share of the Trust Account or vote against our initial business combination, whether or not such shareholder has already submitted a proxy with respect to our initial business combination but only if such shares have not already been voted at the general meeting related to our initial business combination. The Sponsor and our executive officers, directors, advisors or their affiliates will select which shareholders to purchase shares from based on the negotiated price and number of shares and any other factors that they may deem relevant, and will be restricted from purchasing shares if such purchases do not comply with Regulation M under the Exchange Act and the other federal securities laws. +The Sponsor and our officers, directors and/or their affiliates will be restricted from making purchases of shares if the purchases would violate Section 9(a)(2) or Rule 10b-5 of the Exchange Act. We expect any such purchases would be reported by such person pursuant to Section 13 and Section 16 of the Exchange Act to the extent such purchasers are subject to such reporting requirements. +Redemption Rights for Public Shareholders upon the Completion of Our Initial Business Combination +We will provide our public shareholders with the opportunity to redeem all or a portion of their Class A ordinary shares upon the completion of our initial business combination at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account calculated as of two business days prior to the consummation of our initial business combination, including interest earned on the funds held in the Trust Account and not previously released to us to pay our taxes, if any, divided by the number of then-outstanding public shares, subject to the limitations described herein. The amount in the Trust Account is initially anticipated to be $10.20 per public share. The per-share amount we will distribute to investors who properly redeem their shares will not be reduced by the deferred underwriting commissions we will pay to the underwriters. The redemption rights will include the requirement that a beneficial holder must identify itself in order to validly redeem its shares. There will be no redemption rights upon the completion of our initial business combination with respect to our warrants. Further, we will not proceed with redeeming our public shares, even if a public shareholder has properly elected to redeem its shares, if an initial business combination does not close. The Sponsor and each member of our management team have entered into an agreement with us, pursuant to which they have agreed to waive their redemption rights with respect to any founder shares and public shares held by them in connection with (i) the completion of our initial business combination and (ii) a shareholder vote to approve an amendment to our amended and restated memorandum and articles of association (A) that would modify the substance or timing of our obligation to provide holders of our Class A ordinary shares the right to have their shares redeemed in connection with our initial business combination or to redeem 100% of our public shares if we do not complete our initial business combination by April 18, 2026 (or January 18, 2027, if we extend the time to complete a business combination as described in this Annual Report on Form 10-K) or (B) with respect to any other provision relating to the rights of holders of our Class A ordinary shares. +Limitations on Redemptions +Our amended and restated memorandum and articles of association provide that in no event will we redeem our public shares in an amount that would cause our net tangible assets to be less than $5,000,001 (so that we do not then become subject to the SEC’s “penny stock” rules). However, the proposed initial business combination may require: (i) cash consideration to be paid to the target or its owners, (ii) cash to be transferred to the target for working capital or other general corporate purposes or (iii) the retention of cash to satisfy other conditions in accordance with the terms of the proposed business combination. In the event the aggregate cash consideration we would be required to pay for all Class A ordinary shares that are validly submitted for redemption plus any amount required to satisfy cash conditions pursuant to the terms of the proposed business combination exceed the aggregate amount of cash available to us, we will not complete the business combination or redeem any shares, and all Class A ordinary shares submitted for redemption will be returned to the holders thereof. +24 +Table of Contents +Manner of Conducting Redemptions +We will provide our public shareholders with the opportunity to redeem all or a portion of their Class A ordinary shares upon the completion of our initial business combination either (i) in connection with a general meeting called to approve the business combination or (ii) by means of a tender offer. The decision as to whether we will seek shareholder approval of a proposed initial business combination or conduct a tender offer will be made by us, solely in our discretion, and will be based on a variety of factors such as the timing of the transaction and whether the terms of the transaction would require us to seek shareholder approval under applicable law or stock exchange listing requirement or whether we were deemed to be a foreign private issuer (which would require a tender offer rather than seeking shareholder approval under SEC rules). Asset acquisitions and share purchases would not typically require shareholder approval while direct mergers with our company where we do not survive and any transactions where we issue more than 20% of our issued and outstanding ordinary shares or seek to amend our amended and restated memorandum and articles of association would typically require shareholder approval. We currently intend to conduct redemptions in connection with a shareholder vote unless shareholder approval is not required by applicable law or stock exchange listing requirement or we choose to conduct redemptions pursuant to the tender offer rules of the SEC for business or other reasons. So long as we maintain a listing for our securities on the Nasdaq, we will be required to comply with the Nasdaq rules. +If we hold a shareholder vote to approve our initial business combination, we will, pursuant to our amended and restated memorandum and articles of association: +● conduct the redemptions in conjunction with a proxy solicitation pursuant to Regulation 14A of the Exchange Act, which regulates the solicitation of proxies, and not pursuant to the tender offer rules; and +● file proxy materials with the SEC. +In the event that we seek shareholder approval of our initial business combination, we will distribute proxy materials and, in connection therewith, provide our public shareholders with the redemption rights described above upon the completion of our initial business combination. +If we seek shareholder approval, we will complete our initial business combination only if we obtain the approval of an ordinary resolution under Cayman Islands law, which requires the affirmative vote of a majority of the shareholders who attend and vote at a general meeting of the company. In such case, the Sponsor and each member of our management team have agreed to vote their founder shares and public shares in favor of our initial business combination. As a result, in addition to our initial purchaser’s founder shares, we would need 4,410,417 or approximately 31.6% (assuming all issued and outstanding shares are voted), or no additional shares (assuming only the minimum number of shares representing a quorum are voted), of the 14,375,000 public shares sold in the Initial Public Offering to be voted in favor of an initial business combination in order to have our initial business combination approved. Each public shareholder may elect to redeem their public shares irrespective of whether they vote for or against the proposed transaction or vote at all. In addition, the Sponsor and each member of our management team have entered into an agreement with us, pursuant to which they have agreed to waive their redemption rights with respect to any founder shares and public shares held by them in connection with (i) the completion of a business combination and (ii) a shareholder vote to approve an amendment to our amended and restated memorandum and articles of association (A) that would modify the substance or timing of our obligation to provide holders of our Class A ordinary shares the right to have their shares redeemed in connection with our initial business combination or to redeem 100% of our public shares if we do not complete our initial business combination by April 18, 2026 (or January 18, 2027, if we extend the time to complete a business combination as described in this Annual Report on Form 10-K) or (B) with respect to any other provision relating to the rights of holders of our Class A ordinary shares. +If we conduct redemptions pursuant to the tender offer rules of the SEC, we will, pursuant to our amended and restated memorandum and articles of association: +● conduct the redemptions pursuant to Rule 13e-4 and Regulation 14E of the Exchange Act, which regulate issuer tender offers; and +● file tender offer documents with the SEC prior to completing our initial business combination which contain substantially the same financial and other information about our initial business combination and the redemption rights as is required under Regulation 14A of the Exchange Act, which regulates the solicitation of proxies. +25 +Table of Contents +Upon the public announcement of our initial business combination, if we elect to conduct redemptions pursuant to the tender offer rules, we and the Sponsor will terminate any plan established in accordance with Rule 10b5-1 to purchase Class A ordinary shares in the open market, in order to comply with Rule 14e-5 under the Exchange Act. +In the event we conduct redemptions pursuant to the tender offer rules, our offer to redeem will remain open for at least 20 business days, in accordance with Rule 14e-1(a) under the Exchange Act, and we will not be permitted to complete our initial business combination until the expiration of the tender offer period. In addition, the tender offer will be conditioned on public shareholders not tendering more than the number of public shares we are permitted to redeem. If public shareholders tender more shares than we have offered to purchase, we will withdraw the tender offer and not complete such initial business combination. +Limitation on Redemption upon the Completion of Our Initial Business Combination if We Seek Shareholder Approval +If we seek shareholder approval of our initial business combination and we do not conduct redemptions in connection with our initial business combination pursuant to the tender offer rules, then, pursuant to our amended and restated memorandum and articles of association, a public shareholder, together with any affiliate of such shareholder or any other person with whom such shareholder is acting in concert or as a “group” (as defined under Section 13 of the Exchange Act), will be restricted from redeeming its shares with respect to more than an aggregate of 15% of the shares sold in the Initial Public Offering, which we refer to as “Excess Shares,” without our prior consent. We believe this restriction will discourage shareholders from accumulating large blocks of shares, and subsequent attempts by such holders to use their ability to exercise their redemption rights against a proposed business combination as a means to force us or our management to purchase their shares at a significant premium to the then-current market price or on other undesirable terms. Absent this provision, a public shareholder holding more than an aggregate of 15% of the shares sold in the Initial Public Offering could threaten to exercise its redemption rights if such holder’s shares are not purchased by us, the Sponsor or our management at a premium to the then-current market price or on other undesirable terms. By limiting our shareholders’ ability to redeem no more than 15% of the shares sold in the Initial Public Offering without our prior consent, we believe we will limit the ability of a small group of shareholders to unreasonably attempt to block our ability to complete our initial business combination, particularly in connection with a business combination with a target that requires as a closing condition that we have a minimum net worth or a certain amount of cash. +However, we would not be restricting our shareholders’ ability to vote all of their shares (including Excess Shares) for or against our initial business combination. +Tendering Share Certificates in Connection with a Tender Offer or Redemption Rights +Public shareholders seeking to exercise their redemption rights, whether they are record holders or hold their shares in “street name,” will be required to either tender their certificates (if any) to our transfer agent prior to the date set forth in the proxy solicitation or tender offer materials, as applicable, mailed to such holders, or to deliver their shares to the transfer agent electronically using The Depository Trust Company’s Deposit / Withdrawal At Custodian (“DWAC”) System, at the holder’s option, in each case up to two business days prior to the initially scheduled vote to approve the business combination. The proxy solicitation or tender offer materials, as applicable, that we will furnish to holders of our public shares in connection with our initial business combination will indicate the applicable delivery requirements, which will include the requirement that a beneficial holder must identify itself in order to validly redeem its shares. Accordingly, a public shareholder would have from the time we send out our tender offer materials until the close of the tender offer period, or up to two business days prior to the initially scheduled vote on the proposal to approve the business combination if we distribute proxy materials, as applicable, to tender its shares if it wishes to seek to exercise its redemption rights. Given the relatively short period in which to exercise redemption rights, it is advisable for shareholders to use electronic delivery of their public shares. +There is a nominal cost associated with the above-referenced tendering process and the act of certificating the shares or delivering them through the DWAC System. The transfer agent will typically charge the tendering broker a fee of approximately $80.00 and it would be up to the broker whether or not to pass this cost on to the redeeming holder. However, this fee would be incurred regardless of whether or not we require holders seeking to exercise redemption rights to tender their shares. The need to deliver shares is a requirement of exercising redemption rights regardless of the timing of when such delivery must be effectuated. +The foregoing is different from the procedures used by many blank check companies. In order to perfect redemption rights in connection with their business combinations, many blank check companies would distribute proxy materials for the shareholders’ vote on an initial business combination, and a holder could simply vote against a proposed business combination and check a box on the proxy card indicating such holder was seeking to exercise his or her redemption rights. After the business combination was approved, the company would contact such shareholder to arrange for him or her to deliver his or her certificate to verify ownership. As a result, +26 +Table of Contents +the shareholder then had an “option window” after the completion of the business combination during which he or she could monitor the price of the company’s shares in the market. If the price rose above the redemption price, he or she could sell his or her shares in the open market before actually delivering his or her shares to the company for cancellation. As a result, the redemption rights, to which shareholders were aware they needed to commit before the general meeting, would become “option” rights surviving past the completion of the business combination until the redeeming holder delivered its certificate. The requirement for physical or electronic delivery prior to the meeting ensures that a redeeming shareholder’s election to redeem is irrevocable once the business combination is approved. +Any request to redeem such shares, once made, may be withdrawn at any time up to two business days prior to the initially scheduled vote on the proposal to approve the business combination, unless otherwise agreed to by us. Furthermore, if a holder of a public share delivered its certificate in connection with an election of redemption rights and subsequently decides prior to the applicable date not to elect to exercise such rights, such holder may simply request that the transfer agent return the certificate (physically or electronically). It is anticipated that the funds to be distributed to holders of our public shares electing to redeem their shares will be distributed promptly after the completion of our initial business combination. +If our initial business combination is not approved or completed for any reason, then our public shareholders who elected to exercise their redemption rights would not be entitled to redeem their shares for the applicable pro rata share of the Trust Account. In such case, we will promptly return any certificates delivered by public holders who elected to redeem their shares. +If our initial business combination is not approved or completed for any reason, we may continue to try to complete a business combination with a different target until by April 18, 2026 (or January 18, 2027, if we extend the time to complete a business combination as described in this Annual Report on Form 10-K) (the “Combination Period”). +Redemption of Public Shares and Liquidation if No Initial Business Combination +Our fifth amended and restated memorandum and articles of association provide that we have 12 months from January 18, 2026 (January 18, 2027, if we extend the time to complete a business combination as described in this Annual Report on Form 10-K) to consummate an initial business combination. If we have not consummated an initial business combination within such period, we will: (i) cease all operations except for the purpose of winding up; (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem the public shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest earned on the funds held in the Trust Account and not previously released to us to pay our taxes, if any (less up to $100,000 of interest to pay dissolution expenses) divided by the number of the then-outstanding public shares, which redemption will completely extinguish public shareholders’ rights as shareholders (including the right to receive further liquidation distributions, if any); and (iii) as promptly as reasonably possible following such redemption, subject to the approval of our remaining shareholders and our board of directors, liquidate and dissolve, subject in each case to our obligations under Cayman Islands law to provide for claims of creditors and the requirements of other applicable law. There will be no redemption rights or liquidating distributions with respect to our rights or warrants, which will expire worthless if we fail to consummate an initial business combination by April 18, 2026 (or January 18, 2027, if we extend the time to complete a business combination as described in this Annual Report on Form 10-K). Our amended and restated memorandum and articles of association will provide that, if we wind up for any other reason prior to the consummation of our initial business combination, we will follow the foregoing procedures with respect to the liquidation of the Trust Account as promptly as reasonably possible but not more than ten business days thereafter, subject to applicable Cayman Islands law. +The Sponsor and each member of our management team have entered into an agreement with us, pursuant to which they have agreed to waive their rights to liquidating distributions from the Trust Account with respect to any founder shares they hold if we fail to consummate an initial business combination by April 18, 2026 (or January 18, 2027, if we extend the time to complete a business combination as described in this Annual Report on Form 10-K) (although they will be entitled to liquidating distributions from the Trust Account with respect to any public shares they hold if we fail to complete our initial business combination within the prescribed timeframe). +The Sponsor and our officers and directors have agreed, pursuant to a written agreement with us, that they will not propose any amendment to our amended and restated memorandum and articles of association (A) that would modify the substance or timing of our obligation to provide holders of our Class A ordinary shares the right to have their shares redeemed in connection with our initial business combination or to redeem 100% of our public shares if we do not complete our initial business combination by April 18, 2026 (or January 18, 2027, if we extend the time to complete a business combination as described in this Annual Report on Form 10-K) or (B) with respect to any other provision relating to the rights of holders of our Class A ordinary shares, unless we provide our public shareholders with the opportunity to redeem their Class A shares upon approval of any such amendment at a per-share price, payable in +27 +Table of Contents +cash, equal to the aggregate amount then on deposit in the Trust Account, including interest earned on the funds held in the Trust Account and not previously released to us to pay our taxes, if any, divided by the number of the then-outstanding public shares, subject to the limitations described herein. However, we may not redeem our public shares in an amount that would cause our net tangible assets to be less than $5,000,001 (so that we do not then become subject to the SEC’s “penny stock” rules). If this optional redemption right is exercised with respect to an excessive number of public shares such that we cannot satisfy the net tangible asset requirement, we would not proceed with the amendment or the related redemption of our public shares at such time. This redemption right shall apply in the event of the approval of any such amendment, whether proposed by the Sponsor, any executive officer or director, or any other person. +We expect that all costs and expenses associated with implementing our plan of dissolution, as well as payments to any creditors, will be funded from amounts remaining out of the $1,450,000 held outside the Trust Account plus up to $100,000 of funds from the Trust Account available to us to pay dissolution expenses, although we cannot assure you that there will be sufficient funds for such purpose. +If we were to expend all of the net proceeds of the Initial Public Offering and the sale of the Private Placement Units, other than the proceeds deposited in the Trust Account, and without taking into account interest, if any, earned on the Trust Account, the per-share redemption amount received by shareholders upon our dissolution would be $10.20. The proceeds deposited in the Trust Account could, however, become subject to the claims of our creditors which would have higher priority than the claims of our public shareholders. We cannot assure you that the actual per-share redemption amount received by shareholders will not be less than $10.20. While we intend to pay such amounts, if any, we cannot assure you that we will have funds sufficient to pay or provide for all creditors’ claims. +Although we will seek to have all vendors, service providers, prospective target businesses and other entities with which we do business execute agreements with us waiving any right, title, interest or claim of any kind in or to any monies held in the Trust Account for the benefit of our public shareholders, there is no guarantee that they will execute such agreements or even if they execute such agreements that they would be prevented from bringing claims against the Trust Account including, but not limited to, fraudulent inducement, breach of fiduciary responsibility or other similar claims, as well as claims challenging the enforceability of the waiver, in each case in order to gain an advantage with respect to a claim against our assets, including the funds held in the Trust Account. If any third party refuses to execute an agreement waiving such claims to the monies held in the Trust Account, our management will perform an analysis of the alternatives available to it and will only enter into an agreement with a third party that has not executed a waiver if management believes that such third party’s engagement would be significantly more beneficial to us than any alternative. Examples of possible instances where we may engage a third party that refuses to execute a waiver include the engagement of a third-party consultant whose particular expertise or skills are believed by management to be significantly superior to those of other consultants that would agree to execute a waiver or in cases where management is unable to find a service provider willing to execute a waiver. BTIG, the representative of the underwriters in the Initial Public Offering will not execute an agreement with us waiving such claims to the monies held in the Trust Account. In addition, there is no guarantee that such entities will agree to waive any claims they may have in the future as a result of, or arising out of, any negotiations, contracts or agreements with us and will not seek recourse against the Trust Account for any reason. In order to protect the amounts held in the Trust Account, the Sponsor has agreed that it will be liable to us if and to the extent any claims by a third party for services rendered or products sold to us (other than our independent registered public accounting firm), or a prospective target business with which we have discussed entering into a transaction agreement, reduce the amounts in the Trust Account to below the lesser of (i) $10.20 per public share and (ii) the actual amount per public share held in the Trust Account as of the date of the liquidation of the Trust Account if less than $10.20 per public share due to reductions in the value of the trust assets, in each case net of the interest that may be withdrawn to pay our tax obligations, provided that such liability will not apply to any claims by a third party or prospective target business that executed a waiver of any and all rights to seek access to the Trust Account nor will it apply to any claims under our indemnity of the underwriters of the Initial Public Offering against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the “Securities Act”). In the event that an executed waiver is deemed to be unenforceable against a third party, the Sponsor will not be responsible to the extent of any liability for such third-party claims. However, we have not asked the Sponsor to reserve for such indemnification obligations, nor have we independently verified whether the Sponsor has sufficient funds to satisfy its indemnity obligations and we believe that the Sponsor’s only assets are securities of our company. Therefore, we cannot assure you that the Sponsor would be able to satisfy those obligations. None of our officers or directors will indemnify us for claims by third parties including, without limitation, claims by vendors and prospective target businesses. +In the event that the proceeds in the Trust Account are reduced below the lesser of (i) $10.20 per public share and (ii) the actual amount per public share held in the Trust Account as of the date of the liquidation of the Trust Account if less than $10.20 per public share due to reductions in the value of the trust assets, in each case net of the amount of interest which may be withdrawn to pay our tax obligations, and the Sponsor asserts that it is unable to satisfy its indemnification obligations or that it has no indemnification obligations related to a particular claim, our independent directors would determine whether to take legal action against the Sponsor to enforce its +28 +Table of Contents +indemnification obligations. While we currently expect that our independent directors would take legal action on our behalf against the Sponsor to enforce its indemnification obligations to us, it is possible that our independent directors in exercising their business judgment may choose not to do so in any particular instance. Accordingly, we cannot assure you that due to claims of creditors the actual value of the per-share redemption price will not be less than $10.20 per public share. +We will seek to reduce the possibility that the Sponsor will have to indemnify the Trust Account due to claims of creditors by endeavoring to have all vendors, service providers, prospective target businesses or other entities with which we do business execute agreements with us waiving any right, title, interest or claim of any kind in or to monies held in the Trust Account. The Sponsor will also not be liable as to any claims under our indemnity of the underwriters of the Initial Public Offering against certain liabilities, including liabilities under the Securities Act. We will have access to up to $1,450,000 following the Initial Public Offering and the sale of the Private Placement Units with which to pay any such potential claims (including costs and expenses incurred in connection with our liquidation, currently estimated to be no more than approximately $100,000). In the event that we liquidate and it is subsequently determined that the reserve for claims and liabilities is insufficient, shareholders who received funds from our Trust Account could be liable for claims made by creditors, however such liability will not be greater than the amount of funds from our Trust Account received by any such shareholder. +If we file a bankruptcy or winding-up petition or an involuntary bankruptcy or winding-up petition is filed against us that is not dismissed, the proceeds held in the Trust Account could be subject to applicable bankruptcy or insolvency law, and may be included in our bankruptcy estate and subject to the claims of third parties with priority over the claims of our shareholders. To the extent any bankruptcy claims deplete the Trust Account, we cannot assure you we will be able to return $10.20 per public share to our public shareholders. Additionally, if we file a bankruptcy or winding-up petition or an involuntary bankruptcy or winding-up petition is filed against us that is not dismissed, any distributions received by shareholders could be viewed under applicable debtor/creditor and/or bankruptcy or insolvency laws as either a “preferential transfer” or a “fraudulent conveyance.” As a result, a bankruptcy or insolvency court could seek to recover some or all amounts received by our shareholders. Furthermore, our board of directors may be viewed as having breached its fiduciary duty to our creditors and/or may have acted in bad faith, and thereby exposing itself and our company to claims of punitive damages, by paying public shareholders from the Trust Account prior to addressing the claims of creditors. We cannot assure you that claims will not be brought against us for these reasons. +Our public shareholders will be entitled to receive funds from the Trust Account only (i) in the event of the redemption of our public shares if we do not complete our initial business combination by January 18, 2027, (ii) in connection with a shareholder vote to amend our amended and restated memorandum and articles of association (A) to modify the substance or timing of our obligation to provide holders of our Class A ordinary shares the right to have their shares redeemed in connection with our initial business combination or to redeem 100% of our public shares if we do not complete our initial business combination by January 18, 2027 or (B) with respect to any other provision relating to the rights of holders of our Class A ordinary shares, or (iii) if they redeem their respective shares for cash upon the completion of our initial business combination. Public shareholders who redeem their Class A ordinary shares in connection with a shareholder vote described in clause (ii) in the preceding sentence shall not be entitled to funds from the Trust Account upon the subsequent completion of an initial business combination or liquidation if we have not consummated an initial business combination by January 18, 2027, with respect to such Class A ordinary shares so redeemed. In no other circumstances will a shareholder have any right or interest of any kind to or in the Trust Account. In the event we seek shareholder approval in connection with our initial business combination, a shareholder’s voting in connection with the business combination alone will not result in a shareholder’s redeeming its shares to us for an applicable pro rata share of the Trust Account. Such shareholder must have also exercised its redemption rights described above. These provisions of our amended and restated memorandum and articles of association, like all provisions of our amended and restated memorandum and articles of association, may be amended with a shareholder vote.”’ +​ +29 +Table of Contents +Comparison of Redemption or Purchase Prices in Connection with Our Initial Business Combination and If We Fail to Complete Our Initial Business Combination. +The following table compares the redemptions and other permitted purchases of public shares that may take place in connection with the completion of our initial business combination and if we have not consummated an initial business combination by January 18, 2027: +​ +​ ​ ​ +Redemptions in Connection +with Our Initial Business +Combination +​ ​ +Other Permitted Purchases of +Public Shares by Our +Affiliates +​ ​ ​ +Redemptions if We Fail to +Complete an Initial Business +Combination +Calculation of redemption price impact to remaining shareholders +Redemptions at the time of our initial business combination may be made pursuant to a tender offer or in connection with a shareholder vote. The redemption price will be the same whether we conduct redemptions pursuant to a tender offer or in connection with a shareholder vote. In either case, our public shareholders may redeem their public shares for cash equal to the aggregate amount then on deposit in the Trust Account calculated as of two business days prior to the consummation of our initial business combination (which is initially anticipated to be $10.20 per public share), including interest earned on the funds held in the Trust Account and not previously released to us to pay our taxes, if any, divided by the number of the then-outstanding public shares, subject to the limitation that no redemptions will take place if all of the redemptions would cause our net tangible assets to be less than $5,000,001 and any limitations (including, but not limited to, cash requirements) agreed to in connection with the negotiation of terms of a proposed business combination. +If we seek shareholder approval of our initial business combination, the Sponsor and our directors, officers, advisors or their affiliates may purchase shares in privately negotiated transactions or in the open market either prior to or following the completion of our initial business combination. There is no limit to the prices that the Sponsor or our directors, officers, advisors or their affiliates may pay in these transactions. If they engage in such transactions, they will be restricted from making any such purchases when they are in possession of any material nonpublic information not disclosed to the seller or if such purchases are prohibited by Regulation M under the Exchange Act. We do not currently anticipate that such purchases, if any, would constitute a tender offer subject to the tender offer rules under the Exchange Act or a going-private transaction subject to the going-private rules under the Exchange Act; however, if the purchasers determine at the time of any such purchases that the purchases are subject to such rules, the purchasers will be required to comply with such rules. +If we have not consummated an initial business combination by January 18, 2027, we will redeem all public shares at a per-share price, payable in cash, equal to the aggregate amount, then on deposit in the Trust Account (which is initially anticipated to be $10.20 per public share), including interest earned on the funds held in the Trust Account and not previously released to us to pay our taxes, if any (less up to $100,000 of interest to pay dissolution expenses) divided by the number of the then-outstanding public shares. +​ +​ +​ +​ +​ +​ +​ +The redemptions in connection with our initial business combination will reduce the book value per share for our remaining shareholders, who will bear the burden of the deferred underwriting commissions and taxes payable. +If the permitted purchases described above are made, there would be no impact to our remaining shareholders because the purchase price would not be paid by us. +The redemption of our public shares if we fail to complete our initial business combination will reduce the book value per share for the shares held by the Sponsor, who will be our only remaining shareholder after such redemptions. +​ +30 +Table of Contents +Amended and Restated Memorandum and Articles of Association +Our amended and restated memorandum and articles of association contains provisions designed to provide certain rights and protections relating to our Initial Public Offering that will apply to us until the completion of our initial business combination. These provisions cannot be amended without a special resolution under Cayman Islands law. As a matter of Cayman Islands law, a resolution is deemed to be a special resolution where it has been approved by either (i) the affirmative vote of at least two-thirds (or any higher threshold specified in a company’s articles of association) of a company’s shareholders entitled to vote and so voting at a general meeting for which notice specifying the intention to propose the resolution as a special resolution has been given; or (ii) if so authorized by a company’s articles of association, by a unanimous written resolution of all of the company’s shareholders entitled to vote at a general meeting. Other than as described in our final prospectus filed with the SEC on December 23, 2025, our amended and restated memorandum and articles of association provide that special resolutions must be approved either by at least two-thirds of our shareholders who attend and vote at a general meeting of the company ( i.e. , the lowest threshold permissible under Cayman Islands law), or by a unanimous written resolution of all of our shareholders entitled to vote at a general meeting. +Competition +In identifying, evaluating and selecting a target business for our initial business combination, we may encounter intense competition from other entities having a business objective similar to ours, including other blank check companies, private equity groups and leveraged buyout funds, public companies and operating businesses seeking strategic acquisitions. Many of these entities are well established and have extensive experience identifying and effecting business combinations directly or through affiliates. Moreover, many of these competitors possess greater financial, technical, human, and other resources than us. Our ability to acquire larger target businesses will be limited by our available financial resources. This inherent limitation gives others an advantage in pursuing the acquisition of a target business. Furthermore, our obligation to pay cash in connection with our public shareholders who exercise their redemption rights may reduce the resources available to us for our initial business combination and our outstanding warrants, and the future dilution they potentially represent, may not be viewed favorably by certain target businesses. Either of these factors may place us at a competitive disadvantage in successfully negotiating an initial business combination. +Facilities +We currently maintain our executive offices at 12600 Hill Country Blvd, Building R, Suite 275, Bee Cave, TX 78738. The cost for our use of this space is included in the $10,000 per month fee we pay to the Sponsor for office space, administrative and support services pursuant to that certain administrative services agreement, dated January 12, 2023, by and between us and the Sponsor (the “Administrative Services Agreement”). We consider our current office space adequate for our current operations. +On December 31, 2025, the Parties entered into a waiver to the Administrative Services Agreement (the “Administrative Services Waiver”) whereby the Parties agreed to waive the administrative fees due under the Administrative Services Agreement. Pursuant to the Administrative Services Waiver, the waived administrative fees include (i) the $10,000 per month owed to the Sponsor until the consummation by the Company of an initial business combination or the Company’s liquidation, and (ii) the $240,000 accrued fees at December 31, 2025. +Employees +We currently have three executive officers. Members of our management team are not obligated to devote any specific number of hours to our matters but they intend to devote as much of their time as they deem necessary to our affairs until we have completed our initial business combination. The amount of time they will devote in any time period will vary based on whether a target business has been selected for our initial business combination and the stage of the business combination process we are in. We do not intend to have any full-time employees prior to the consummation of a business combination. +​ +31 +Table of Contents +Periodic Reporting and Financial Information +Our units, Class A ordinary shares and warrants are registered under the Exchange Act and have reporting obligations, including the requirement that we file annual, quarterly and current reports with the SEC. In accordance with the requirements of the Exchange Act, our annual reports will contain financial statements audited and reported on by our independent registered public accountants. +We will provide shareholders with audited financial statements of the prospective target business as part of the proxy solicitation or tender offer materials, as applicable, sent to shareholders. These financial statements may be required to be prepared in accordance with, or reconciled to, GAAP, or IFRS, depending on the circumstances, and the historical financial statements may be required to be audited in accordance with the standards of the U.S. Public Company Accounting Oversight Board (“PCAOB”). These financial statement requirements may limit the pool of potential target businesses we may acquire because some targets may be unable to provide such statements in time for us to disclose such statements in accordance with federal proxy rules and complete our initial business combination within the prescribed timeframe. We cannot assure you that any particular target business identified by us as a potential acquisition candidate will have financial statements prepared in accordance with the requirements outlined above, or that the potential target business will be able to prepare its financial statements in accordance with the requirements outlined above. To the extent that these requirements cannot be met, we may not be able to acquire the proposed target business. While this may limit the pool of potential acquisition candidates, we do not believe that this limitation will be material. +We will be required to evaluate our internal control procedures for the fiscal year ending December 31, 2025 as required by the Sarbanes-Oxley Act. Only in the event we are deemed to be a large accelerated filer or an accelerated filer and no longer qualify as an emerging growth company will we be required to comply with the independent registered public accounting firm attestation requirement on our internal control over financial reporting. A target business may not be in compliance with the provisions of the Sarbanes-Oxley Act regarding the adequacy of their internal controls. +The development of the internal controls of any such entity to achieve compliance with the Sarbanes-Oxley Act may increase the time and costs necessary to complete any such acquisition. +We filed a registration statement on Form 8-A with the SEC to voluntarily register our securities under Section 12 of the Exchange Act. As a result, we are subject to the rules and regulations promulgated under the Exchange Act. We have no current intention of filing a Form 15 to suspend our reporting or other obligations under the Exchange Act prior or subsequent to the consummation of our initial business combination. +We are a Cayman Islands exempted company. Exempted companies are Cayman Islands companies conducting business mainly outside the Cayman Islands and, as such, are exempted from complying with certain provisions of the Companies Act. As an exempted company, we have applied for and received, a tax exemption undertaking from the Cayman Islands government that, in accordance with Section 6 of the Tax Concessions Act (2018 Revision) of the Cayman Islands, for a period of 20 years from the date of the undertaking, no law which is enacted in the Cayman Islands imposing any tax to be levied on profits, income, gains or appreciations will apply to us or our operations and, in addition, that no tax to be levied on profits, income, gains or appreciations or which is in the nature of estate duty or inheritance tax will be payable (i) on or in respect of our shares, debentures or other obligations or (ii) by way of the withholding in whole or in part of a payment of dividend or other distribution of income or capital by us to our shareholders or a payment of principal or interest or other sums due under a debenture or other obligation of us. +​ +32 +Table of Contents +We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As such, we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies,” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. If some investors find our securities less attractive as a result, there may be a less active trading market for our securities and the prices of our securities may be more volatile. +In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We intend to take advantage of the benefits of this extended transition period. +We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of the Initial Public Offering, (b) in which we have total annual gross revenue of at least $1.235 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our Class A ordinary shares that are held by non-affiliates exceeds $700 million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period. +Additionally, we are a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We will remain a smaller reporting company until the last day of the fiscal year in which (1) the market value of our ordinary shares held by non-affiliates exceeds $250 million as of the prior June 30, or (2) our annual revenues exceeded $100 million during such completed fiscal year and the market value of our ordinary shares held by non-affiliates exceeds $700 million as of the prior June 30. +Legal Proceedings +There is no material litigation, arbitration or governmental proceeding currently pending against us or any members of our management team in their capacity as such. +​ +33 +Table of Contents \ No newline at end of file diff --git a/raw/filings/0001915328/2025/0001104659-26-037809/item13.txt b/raw/filings/0001915328/2025/0001104659-26-037809/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..f71939dd5150aeb66ce790c25fb37f06f499719e --- /dev/null +++ b/raw/filings/0001915328/2025/0001104659-26-037809/item13.txt @@ -0,0 +1,4 @@ +Item 13. +Certain 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COMMISSION +Washington, D.C. 20549 +_________________________________________________________________ +FORM 10-K +_________________________________________________________________ +(Mark One) +☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the Fiscal Year Ended December 31 , 2024 +or +☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the transition period from _____________ to ______________ +Commission File Number 00 1-41325 +HF SINCLAIR CORPORATION +(Exact name of registrant as specified in its charter) +Delaware 87-2092143 +(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) +2323 Victory Avenue , Suite 1400 +Dallas , Texas +75219 +(Address of principal executive offices) (Zip Code) +Registrant’s telephone number, including area code: ( 214 ) 871-3555 +------------------------------------------------------------------- +Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934: +Title of each class Trading Symbol(s) Name of each exchange on which registered +Common Stock $0.01 par value DINO New York Stock Exchange +Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐ +Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No ☒ +Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ +Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ +Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. +Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ +Emerging growth company ☐ +If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ +Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒ +If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐ +Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐ +Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ +On June 30, 2024, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the Common Stock, par value $0.01 per share, held by non-affiliates of the registrant was approximately $ 9.3 billion, based upon the closing price on the New York Stock Exchange on such date. (This is not deemed an admission that any person whose shares were not included in the computation of the amount set forth in the preceding sentence necessarily is an “affiliate” of the registrant.) +188,407,343 shares of Common Stock, par value $0.01 per share, were outstanding on February 14, 2025. +DOCUMENTS INCORPORATED BY REFERENCE +Portions of the registrant’s proxy statement for its 2025 annual meeting of stockholders, which proxy statement will be filed with the Securities and Exchange Commission within 120 days after December 31, 2024, are incorporated by reference in Part III. +Table of Content s +TABLE OF CONTENTS +PAGE +PART I +Forward-Looking Statements +3 +Definitions +5 +Item 1 and 2. +Business and Properties +7 +C ompany Overview +7 +R efinery Operations +8 +R enewables Ope rations +12 +M arketing Operations +12 +L ubricants and Specialties Operations +12 +M idstream Operations +13 +A dditional Ope rations and Other Information +15 +Item 1A. +Risk Factors +27 +Item 1B. +Unresolved Staff Comments +53 +Item 1C. +Cybersecurity +54 +Item 3. +Legal Proceedings +55 +Item 4. +Mine Safety Disclosures +57 +PART II +Item 5. +Market for Registrant ’ s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +58 +Item 6. +[Reserved] +58 +Item 7. +Management ’ s Discussion and Analysis of Financial Condition and Results of Operations +58 +O verview +58 +R esults of Operations +61 +Liquidity and Capital Resources +70 +C ritical Accounting Policies and Estimates +75 +R isk Management +76 +R econciliations to Amou nts Reported Under Generally Accept ed Accounting Principles +77 +Item 7A. +Quantitative and Qualitative Disclosures about Market Risk +80 +Item 8. +Financial Statements and Supplementary Data +81 +Item 9. +Changes in and Disagreements with Accountants on Accounting and Financial Disclosure +126 +Item 9A. +Controls and Procedures +126 +Item 9B. +Other Information +126 +Item 9C. +Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +126 +PART III +Item 10. +Directors, Executive Officers and Corporate Governance +127 +Item 11. +Executive Compensation +127 +Item 12. +Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +127 +Item 13. +Certain Relationships and Related Transactions, and Director Independence +127 +Item 14. +Principal Accounting Fees and Services +127 +PART IV +Item 15. +Exhibit and Financial Statement Schedules +127 +Index to Exhibits +129 +Signatures +133 +2 +Table of Content s +PART I +FORWARD-LOOKING STATEMENTS +References herein to HF Sinclair Corporation (“HF Sinclair”) include HF Sinclair and its consolidated subsidiaries. In this document, the words “we,” “our,” “ours” and “us” refer only to HF Sinclair and its consolidated subsidiaries or to HF Sinclair or an individual subsidiary and not to any other person, with certain exceptions. References herein to Holly Energy Partners, L.P. (“HEP”) with respect to time periods prior to completion of the merger of HEP with a wholly owned subsidiary of HF Sinclair on December 1, 2023 refer to HEP and its consolidated subsidiaries. +This Annual Report on Form 10‑K contains certain “forward-looking statements” within the meaning of the federal securities laws. All statements, other than statements of historical fact included in this Annual Report on Form 10-K, including, but not limited to, those under “Business and Properties” in Items 1 and 2, “Risk Factors” in Item 1A, “Legal Proceedings” in Item 3 and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7, are forward-looking statements. Forward-looking statements use words such as “anticipate,” “project,” “will,” “expect,” “plan,” “goal,” “forecast,” “strategy,” “intend,” “should,” “would,” “could,” “believe,” “may,” and similar expressions and statements regarding our plans and objectives for future operations. These statements are based on management’s beliefs and assumptions using currently available information and expectations as of the date hereof, are not guarantees of future performance and involve certain risks and uncertainties. All statements concerning our expectations for future results of operations are based on forecasts for our existing operations and do not include the potential impact of any future acquisitions. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that our expectations will prove to be correct. Therefore, actual outcomes and results could materially differ from what is expressed, implied or forecast in these statements. Any differences could be caused by a number of factors including, but not limited to: +• the demand for and supply of feedstocks, crude oil and refined products, including uncertainty regarding the increasing societal expectations that companies address climate change and greenhouse gas emissions; +• risks and uncertainties with respect to the actions of actual or potential competitive suppliers and transporters of refined petroleum products or lubricant and specialty products in our markets; +• the spread between market prices for refined products and market prices for crude oil; +• the possibility of constraints on the transportation of crude oil, refined products or lubricant and specialty products; +• the possibility of inefficiencies, curtailments or shutdowns in refinery operations or pipelines, whether due to reductions in demand, accidents, unexpected leaks or spills, unscheduled shutdowns, infection in the workforce, weather events, global health events, civil unrest, expropriation of assets, and other economic, diplomatic, legislative, or political events or developments, terrorism, cyberattacks, vandalism or other catastrophes or disruptions affecting our operations, production facilities, machinery, pipelines and other logistics assets, equipment, or information systems, or any of the foregoing at our suppliers, customers, or third-party providers, and any potential asset impairments resulting from, or the failure to have adequate insurance coverage for or receive insurance recoveries from, such actions; +• the effects of current and/or future governmental and environmental regulations and policies, including compliance with existing, new and changing environmental, health and safety laws and regulations, related reporting requirements and pipeline integrity programs; +• the availability and cost of our financing; +• the effectiveness of our capital investments and marketing strategies; +• our efficiency in carrying out and consummating construction projects, including our ability to complete announced capital projects on time and within capital guidance; +• our ability to timely obtain or maintain permits, including those necessary for operations or capital projects; +• our ability to acquire complementary assets or businesses to our existing assets and businesses on acceptable terms and to integrate any existing or future acquired operations and realize the expected synergies of any such transaction on the expected timeline; +• the possibility of vandalism or other disruptive activity, or terrorist or cyberattacks, and the consequences of any such activities or attacks; +• uncertainty regarding the effects and duration of global hostilities, including shipping disruptions in the Red Sea, the Israel-Gaza and Hezbollah conflict, the Russia-Ukraine war, and any associated military campaigns which may disrupt crude oil supplies and markets for our refined products and create instability in the financial markets that could restrict our ability to raise capital; +3 +Table of Content s +• general economic conditions, including uncertainties regarding trade policies, such as the imposition of tariffs, or economic slowdowns caused by a local or national recession or other adverse economic conditions, such as periods of increased or prolonged inflation; +• limitations on our ability to make future dividend payments or effectuate share repurchases due to market conditions and corporate, tax, regulatory and other considerations; and +• other business, financial, operational and legal risks and uncertainties detailed from time to time in our Securities and Exchange Commission filings. +Cautionary statements identifying important factors that could cause actual results to differ materially from our expectations are set forth in this Annual Report on Form 10-K, including, without limitation, the forward-looking statements that are referred to above. You should not put any undue reliance on any forward-looking statements. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements set forth in this Annual Report on Form 10-K under “Business and Properties” in Items 1 and 2, “Risk Factors” in Item 1A and in conjunction with the discussion in this Annual Report on Form 10-K in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the headings “Overview” and “Liquidity and Capital Resources.” All forward-looking statements included in this Annual Report on Form 10-K and all subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. The forward-looking statements speak only as of the date made and, other than as required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. +4 +Table of Content s +DEFINITIONS +Within this report, the following terms have these specific meanings: +“ Adjusted refinery gross margin per produced barrel sold ” is total Refining segment gross margin plus Lower of cost or market inventory valuation adjustments , Depreciation and amortization and Operating expenses , divided by sales volumes of produced refined products. This margin measure does not include the non-cash effects of Lower of cost or market inventory valuation adjustments , which relate to volumes in inventory at the end of the period. +“ Alkylation ” means the reaction of propylene or butylene (olefins) with isobutane to form an iso-paraffinic gasoline (inverse of cracking). +“ Aromatics Recovery ” is the process of purifying feedstock by separating and recovering aromatic compounds from the production process. These aromatic compounds are valuable due to their use in producing a range of chemicals and products like solvents, plastics, and synthetic materials. +“ Base oil ” is a lubricant grade oil initially produced from refining crude oil or through chemical synthesis that is used in producing lubricant products such as lubricating greases, motor oil and metal processing fluids. +“ Biodiesel ” means a clean alternative fuel produced from renewable biological resources. +“ BPD ” means the number of barrels per calendar day of crude oil or petroleum products. +“ BPSD ” means the number of barrels per stream day (barrels of capacity in a 24 hour period) of crude oil or petroleum products. +“ Catalytic reforming ” means a refinery process which uses a precious metal (such as platinum) based catalyst to convert low octane naphtha to high octane gasoline blendstock and hydrogen. The hydrogen produced from the reforming process is used to desulfurize other refinery oils and is a primary source of hydrogen for the refinery. +“ Crack spread ” is a common measure in the industry and is the difference between market prices for refined products and crude oil. +“ Cracking ” means the process of breaking down larger, heavier and more complex hydrocarbon molecules into simpler and lighter molecules. +“ Crude oil distillation ” means the process of distilling vapor from liquid crudes, usually by heating, and condensing the vapor slightly above atmospheric pressure turning it back to liquid in order to purify, fractionate or form the desired products. +“ Ethanol ” means a high octane gasoline blend stock that is used to make various grades of gasoline. +“ FCC ” or fluid catalytic cracking, means a refinery process that breaks down large complex hydrocarbon molecules into smaller more useful ones using a circulating bed of catalyst at relatively high temperatures. +“ Gas oil ” is a group of petroleum distillation products having boiling points between kerosene and lubricating oil and is used as fuel in construction and agricultural machinery. +“ Heavy crude oil ” means a relatively inexpensive crude oil with a low API gravity characterized by high relative density and viscosity. Heavy crude oils require greater levels of processing to produce high-value products such as gasoline and diesel. +“ HF alkylation ” or hydrofluoric alkylation, means a refinery process which combines isobutane and C3/C4 olefins using hydrofluoric acid as a catalyst to make high octane gasoline blend stock. +“ Hydrodesulfurization ” means to remove sulfur and nitrogen compounds from oil or gas in the presence of hydrogen and a catalyst at relatively high temperatures. +“ Hydrogen plant ” means a refinery unit that converts natural gas and steam to high purity hydrogen, which is then used in the hydrodesulfurization, hydrocracking and isomerization processes. +“ Isomerization ” means a refinery process for rearranging the structure of C5/C6 molecules without changing their size or chemical composition and is used to improve the octane of C5/C6 gasoline blendstocks. +“ LCFS ” means Low Carbon Fuel Standard. +5 +Table of Content s +“ Light crude oil ” means a relatively expensive crude oil with a high API gravity characterized by low relative density and viscosity. Light crude oils require lower levels of processing to produce high-value products such as gasoline and diesel. +“ LPG ” means liquid petroleum gases. +“ Lubricant ” or “ lube ” means a solvent neutral paraffinic product used in commercial heavy duty engine oils, passenger car oils and specialty products for industrial applications such as heat transfer, metalworking, rubber and other general process oil. +“ MEK ” means a lube process that separates waxy oil from non-waxy oils using methyl ethyl ketone as a solvent. +“ MMBTU ” means one million British thermal units. +“ MSAT2 ” means Control of Hazardous Air Pollutants from Mobile Sources, a rule issued by the U.S. Environmental Protection Agency (the “EPA”) to reduce hazardous emissions from motor vehicles and motor vehicle fuels. +“ Natural gasoline ” means a low octane gasoline blend stock that is purchased and used to blend with other high octane stocks produced to make various grades of gasoline. +“ Reforming ” means the process of converting gasoline type molecules into aromatic, higher octane gasoline blend stocks while producing hydrogen in the process. +“ Renewable diesel ” means a diesel fuel derived from renewable feedstock such as vegetable oil or animal fats that is produced through various processes, most commonly through hydrotreating, reacting the feedstock with hydrogen under temperatures and pressure in the presence of a catalyst. +“ RINs ” means renewable identification numbers and refers to serial numbers assigned to credits generated from renewable fuel production under the Environmental Protection Agency’s EPA’s Renewable Fuel Standard regulations, which require blending renewable fuels into the nation’s fuel supply. In lieu of blending, refiners may purchase these transferable credits in order to comply with the regulations. +“ RMP ” refers to the EPA’s CAA Risk Management Plan regulations, which is designed to prevent or minimize chemical accidents and any resulting releases of toxic, reactive, flammable or explosive chemicals. +“ Roofing flux ” is produced from the bottom cut of crude oil and is the base oil used to make roofing shingles for the housing industry. +“ ROSE ” or “ Solvent deasphalter / residuum oil supercritical extraction ” means a refinery unit that uses a light hydrocarbon like propane or butane to extract non-asphaltene heavy oils from asphalt or atmospheric reduced crude. These deasphalted oils are then further converted to gasoline and diesel in the FCC process. The remaining asphaltenes are either sold, blended to fuel oil or blended with other asphalt as a hardener. +“ Scanfiner ” is a refinery unit that removes sulfur from gasoline to produce low sulfur gasoline blendstock. +“ Sour crude oil ” means crude oil containing quantities of sulfur greater than 0.4 percent by weight, while “ sweet crude oil ” means crude oil containing quantities of sulfur equal to or less than 0.4 percent by weight. +“ Vacuum distillation ” means the process of distilling vapor from liquid crudes, usually by heating, and condensing the vapor below atmospheric pressure turning it back to a liquid in order to purify, fractionate or form the desired products. +“ Wax crude oil ” is a low sulfur, low gravity crude oil produced in the Uinta Basin in Eastern Utah that has certain characteristics that require specific facilities to transport, store and refine into transportation fuels. +“ White oil ” is an extremely pure, highly-refined petroleum product that has a wide variety of applications ranging from pharmaceutical to cosmetic products. +“ WTI ” means West Texas Intermediate and is a grade of crude oil used as a common benchmark in oil pricing. WTI is a sweet crude oil and has a relatively low density. +6 +Table of Content s +Items 1 and 2. Business and Properties +COMPANY OVERVIEW +References herein to HF Sinclair Corporation (“HF Sinclair” or the “Company”) include HF Sinclair and its consolidated subsidiaries. In this document, the words “we,” “our,” “ours” and “us” refer only to HF Sinclair and its consolidated subsidiaries or to HF Sinclair or an individual subsidiary and not to any other person, with certain exceptions. References herein to Holly Energy Partners, L.P. (“HEP”) with respect to time periods prior to the HEP Merger Transaction (as defined below) refers to HEP and its consolidated subsidiaries. +We are an independent energy company that produces and markets high-value light products such as gasoline, diesel fuel, jet fuel, renewable diesel and other specialty products. We were incorporated in Delaware in 1947 and maintain our principal corporate offices at 2323 Victory Avenue, Suite 1400, Dallas, Texas 75219. Our telephone number is 214-871-3555, and our internet website address is www.hfsinclair.com . We use our website and social media accounts, including LinkedIn (@HF Sinclair) and Facebook (@HF Sinclair), as a means of disclosing information about us and our services, which information may be deemed material. Except as specifically noted, the information found on our website and social media accounts are not incorporated by reference into, and do not constitute part of, this Annual Report on Form 10-K or any other report filed with or furnished to the Securities and Exchange Commission (“SEC”). A print copy of this Annual Report on Form 10-K will be provided without charge upon written request to the Vice President, Investor Relations at the above address. A direct link to our SEC filings is available on our website under the Investor Relations tab. Also available on our website are copies of our Corporate Governance Guidelines, Audit Committee Charter, Compensation Committee Charter, Nominating, Governance and Social Responsibility Committee Charter, Finance Committee Charter, Environmental, Health, Safety, and Public Policy Committee Charter and Code of Business Conduct and Ethics, all of which will be provided without charge upon written request to the Vice President, Investor Relations at the above address. Our Code of Business Conduct and Ethics applies to all of our officers, employees and directors, including our principal executive officer, principal financial officer and principal accounting officer. Our common stock is traded on the New York Stock Exchange under the trading symbol “DINO.” +HEP Merger Transaction +On December 1, 2023, pursuant to that certain Agreement and Plan of Merger, dated as of August 15, 2023 (the “Merger Agreement”), by and among HEP, HF Sinclair, Navajo Pipeline Co., L.P., a Delaware limited partnership and an indirect wholly owned subsidiary of HF Sinclair (“HoldCo”), Holly Apple Holdings LLC, a Delaware limited liability company and a wholly owned subsidiary of HoldCo (“Merger Sub”), HEP Logistics Holdings, L.P., a Delaware limited partnership and the general partner of HEP (“HLH”), and Holly Logistic Services, L.L.C., a Delaware limited liability company and the general partner of HLH, Merger Sub merged with and into HEP, with HEP surviving as an indirect, wholly owned subsidiary of HF Sinclair (the “HEP Merger Transaction”). +Under the terms of the Merger Agreement, each outstanding common unit representing a limited partner interest in HEP (an “HEP common unit”), other than the HEP common units already owned by HF Sinclair and its subsidiaries, was converted into the right to receive 0.315 shares of HF Sinclair common stock and $4.00 in cash, without interest. The Merger Agreement consideration totaled $268 million in cash and resulted in the issuance of 21,072,326 shares of HF Sinclair common stock from treasury stock. +Sinclair Acquisition +On March 14, 2022, HollyFrontier Corporation (“HollyFrontier”) and HEP announced the establishment of HF Sinclair as the new parent holding company of HollyFrontier and HEP and their subsidiaries, and the completion of their respective acquisitions (the “Sinclair Transactions”) of Sinclair Oil Corporation (now known as Sinclair Oil LLC, “Sinclair Oil”) and Sinclair Transportation Company LLC (“STC”) from The Sinclair Companies (now known as REH Company, LLC (“REH Company”) and together with its affiliate REH Advisors Inc., “REH”). +7 +Table of Content s +HF Sinclair acquired REH Company’s refining, branded marketing, renewables, and midstream businesses. At the time of closing, the Sinclair branded marketing business supplied high-quality fuels to more than 1,300 Sinclair branded stations and licensed the use of the Sinclair brand at more than 300 additional locations throughout the United States. The renewables business included the operation of a renewable diesel unit located in Sinclair, Wyoming. The refining business included two Rocky Mountains-based refineries located in Casper, Wyoming and Sinclair, Wyoming. Under the terms of the Contribution Agreement, HEP acquired STC, REH Company’s integrated crude and refined products pipelines and terminal assets, including approximately 1,200 miles of integrated crude and refined product pipeline supporting the Sinclair refineries and third parties, eight product terminals and two crude terminals with approximately 5 million barrels of operated storage. In addition, HEP acquired STC’s interests in three pipeline joint ventures for crude gathering and product offtake including: Saddle Butte Pipeline III, LLC (at the time of closing, 25.06%, and currently, a 26.08% non-operated interest); Pioneer Investments Corp. (49.995% non-operated interest); and UNEV Pipeline, LLC (“UNEV”) (the 25% non-operated interest not already owned by HEP, resulting in UNEV becoming a wholly owned subsidiary of HEP). +As of December 31, 2024, we: +• owned and operated a refinery in El Dorado, Kansas (the “El Dorado Refinery”), two refinery facilities located in Tulsa, Oklahoma (collectively, the “Tulsa Refineries”), the Puget Sound refinery in Anacortes, Washington (the “Puget Sound Refinery”), a refinery in Artesia, New Mexico that is operated in conjunction with crude oil distillation and vacuum distillation and other facilities situated 65 miles away in Lovington, New Mexico (collectively, the “Navajo Refinery”), a refinery in West Bountiful, Utah (the “Woods Cross Refinery”), a refinery in Sinclair, Wyoming (the “Parco Refinery,”) and a refinery in Casper, Wyoming (the “Casper Refinery”); +• owned and operated a renewable diesel unit (“RDU”) in Artesia, New Mexico (the “Artesia RDU”), an RDU in Cheyenne, Wyoming (the “Cheyenne RDU”) and an RDU in Sinclair, Wyoming (the “Sinclair RDU”) and a pre-treatment unit (“PTU”) in Artesia, New Mexico (the “Artesia PTU”); +• owned and operated a manufacturing facility in Mississauga, Ontario, which produces base oils and other specialized lubricant products for our Petro-Canada Lubricants business; +• owned and operated manufacturing facilities in Petrolia, Pennsylvania and the Netherlands, which produce specialty lubricant products for our Sonneborn business, such as white oils, petrolatums and waxes; +• owned and operated Red Giant Oil Company LLC (“Red Giant Oil”), which supplies locomotive engine oil and has blending, storage, packaging capabilities, and distribution facilities in Iowa and Texas; +• owned and operated HF Sinclair Asphalt Company LLC (“Asphalt”), which operates various asphalt terminals in Arizona, New Mexico and Oklahoma; and +• owned and operated logistics and refinery assets consisting of petroleum product and crude oil pipelines, terminals, tankage, loading rack facilities and refinery processing units that principally support our refining operations in the Mid-Continent, Southwest and Rocky Mountains geographic regions of the United States. +As of December 31, 2024, our operations were organized into five reportable segments, Refining, Renewables, Marketing, Lubricants & Specialties and Midstream. The Refining segment includes the operations of our El Dorado, Tulsa, Puget Sound, Navajo, Woods Cross, Parco and Casper Refineries and Asphalt. The Renewables segment includes the operations of the Artesia, Cheyenne and Sinclair RDUs and the Artesia PTU. The Marketing segment includes branded fuel sales. The Lubricants & Specialties segment, which was previously referred to as our Lubricant and Specialty Products segment, includes the operations of our Petro-Canada Lubricants, Red Giant Oil and Sonneborn businesses in addition to specialty lubricant products produced at our Tulsa West refinery. The Midstream segment includes petroleum product and crude pipelines, and terminal, tankage and loading rack facilities that primarily support our refining operations. See Note 20 “Segment Information” in the Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K for additional information on our reportable segments. +REFINERY OPERATIONS +Our refinery operations serve the Mid-Continent, Southwest and Rocky Mountains extending into the Pacific Northwest geographic regions of the United States. We own and operate seven complex refineries having a combined crude oil processing capacity of 678,000 BPSD. Each of our refineries has the complexity to convert discounted, heavy or sour crude oils into a high percentage of gasoline, diesel and other high-value refined products. +Products and Customers +Light products are shipped to customers via product pipelines or are available for loading at our refinery truck facilities and terminals. Light products are also made available to customers at various other locations via exchange with other parties. +8 +Table of Content s +Our principal customers for gasoline include other refiners, branded sites, convenience store chains, independent marketers and retailers. Diesel fuel is sold to other refiners, branded sites, truck stop chains, wholesalers and railroads. Jet fuel is sold for commercial airline use. Base oils are intercompany sales to our Lubricants & Specialties segment. LPG’s are sold to LPG wholesalers and LPG retailers. We produce and purchase asphalt products that are sold to governmental entities, paving contractors or manufacturers. Asphalt is also blended into fuel oil and is either sold locally or is shipped to the Gulf Coast. For the years ended December 31, 2024, 2023 and 2022, we had one customer, Shell, together with certain of its affiliates, that accounted for 10% or more of our total annual revenues at approximately 11%, 12% and 15%, respectively. See Note 4 “Revenues” in the Notes to Consolidated Financial Statements for additional information on our customers revenues. +Mid-Continent Region +Facilities +The El Dorado Refinery is a high-complexity coking refinery with a 135,000 BPSD processing capacity and the ability to process significant volumes of heavy and sour crudes. The integrated refining processes at the Tulsa West and East refinery facilities provide us with a highly complex refining operation having a combined crude processing rate of approximately 125,000 BPSD. +The El Dorado Refinery is located on 1,100 acres south of El Dorado, Kansas and is a fully integrated refinery. The principal processing units at the El Dorado Refinery consist of crude and vacuum distillation; hydrodesulfurization of naphtha, kerosene, diesel, and gas oil streams; naphtha fractionation; isomerization; catalytic reforming; aromatics recovery; catalytic cracking; alkylation; delayed coking; hydrogen production; hydrogen generation; and sulfur recovery. +The Tulsa West facility is located on a 750-acre site in Tulsa, Oklahoma. The principal processing units at the Tulsa West facility consist of crude and vacuum distillation (with light ends recovery), naphtha hydrodesulfurization, propane de-asphalting, lubes extraction, MEK dewaxing, delayed coker and butane splitter units. +The Tulsa East facility is located on a 466-acre site also in Tulsa, Oklahoma. The principal processing units at the Tulsa East facility consist of crude and vacuum distillation, naphtha hydrodesulfurization, FCC, isomerization, catalytic reforming, alkylation, scanfiner, diesel hydrodesulfurization and sulfur units. +Crude Oil and Feedstock Supplies +Both of our Mid-Continent refineries are connected via pipeline to Cushing, Oklahoma, a significant crude oil pipeline trading and storage hub. The El Dorado Refinery and the Tulsa Refineries are located approximately 125 miles and 50 miles, respectively, from Cushing, Oklahoma. Local pipelines provide direct access to regional Oklahoma crude production as well as access to United States onshore and Canadian crudes. The proximity of the refineries to the Cushing pipeline and storage hub provides the flexibility to optimize their crude slate with a wide variety of crude oil supply options. Additionally, we have transportation service agreements to transport Canadian crude oil on the Spearhead and Keystone Pipelines, enabling us to transport Canadian crude oil to Cushing for subsequent shipment to either of our Mid-Continent refineries. +We also purchase isobutane, natural gasoline, butane and other feedstocks for processing at our Mid-Continent refineries. The El Dorado Refinery is connected to Conway, Kansas, a major gas liquids trading and storage hub, via the Oneok Pipeline. From time to time, other feedstocks such gas oil, naphtha and light cycle oil are purchased from other refiners for use at our refineries. +Markets and Competition +The El Dorado Refinery primarily serves Colorado and the Plains states, which include the Kansas City metropolitan area. The gasoline, diesel and jet fuel produced by the El Dorado Refinery are primarily shipped via pipeline to terminals for distribution by truck or rail. We ship product via the NuStar Pipeline Operating Partnership L.P. pipeline to the northern Plains states, via the Magellan Pipeline Company, L.P. (“Magellan”) mountain pipeline to Denver, Colorado, and on the Magellan mid-continent pipeline to the Plains states. Additionally, our midstream operations’ on -site truck and rail racks facilitate access to local refined product markets. +The El Dorado Refinery faces competition from other Plains states and Mid-Continent refiners, but the principal competitors for the El Dorado Refinery are Gulf Coast refiners. The Gulf Coast refiners typically have lower production costs due to greater economies of scale; however, they incur higher refined product transportation costs, which allows the El Dorado Refinery to compete effectively in the Plains states and Rocky Mountains region. +9 +Table of Content s +The Tulsa Refineries serve the Mid-Continent geographic region of the United States. Distillates and gasolines are primarily delivered from the Tulsa Refineries to market via pipelines owned and operated by Magellan. These pipelines connect the refinery to distribution channels throughout Colorado, Oklahoma, Kansas, Missouri, Illinois, Iowa, Minnesota, Nebraska and Arkansas. Additionally, our midstream operations’ on-site truck and rail racks facilitate geographic refined product distribution within the Mid-Continent region. +The Tulsa Refineries’ principal customers for conventional gasoline include other refiners, branded sites, convenience store chains, independent marketers and retailers. Truck stop operators and railroads are the primary diesel customers. Jet fuel is sold primarily for commercial use. The Tulsa Refineries’ asphalt and roofing flux products are sold via truck or railcar directly from the refineries or to customers throughout the Mid-Continent geographic region primarily to paving contractors and manufacturers of roofing products. +West Region +Facilities +The Navajo Refinery has a crude oil processing capacity of 100,000 BPSD and has the ability to process sour crude oils into high-value light products such as gasoline, diesel fuel and jet fuel. The Woods Cross Refinery has a crude oil processing capacity of 45,000 BPSD and processes regional sweet and wax crude oil into high-value light products. The Puget Sound Refinery, which is a complex refinery with a 149,000 BPSD processing capacity, has the ability to process a variety of light, medium, heavy sweet and sour crudes. On March 14, 2022, we acquired the Parco Refinery, which has a crude oil processing capacity of 94,000 BPSD and has the ability to process heavy and sweet crudes, and the Casper Refinery, which has a crude oil processing capacity of 30,000 BPSD and processes regional sweet crude into high-value light products. +The Navajo Refinery’s Artesia, New Mexico facility is located on a 561-acre site and is a fully integrated refinery with crude oil distillation, vacuum distillation, FCC, ROSE (solvent deasphalter), HF alkylation, catalytic reforming, hydrodesulfurization, mild hydrocracking, isomerization, sulfur recovery and product blending units. +The Artesia facility is operated in conjunction with a refining facility located in Lovington, New Mexico, approximately 65 miles east of Artesia. The principal equipment at the Lovington facility consists of a crude oil distillation unit and associated vacuum distillation units. The Lovington facility processes crude oil into intermediate products that are transported to Artesia by three of our midstream operations’ intermediate pipelines. These products are then upgraded into finished products at the Artesia facility. The combined crude oil capacity of the Navajo Refinery facilities is 100,000 BPSD and it typically processes or blends an additional 10,000 BPSD of natural gasoline, butane, gas oil and naphtha. +The Woods Cross Refinery facility is located on a 200-acre site in West Bountiful, Utah and is a fully integrated refinery with crude oil distillation, solvent deasphalter, FCC, HF alkylation, catalytic reforming, hydrodesulfurization, isomerization, polymerization, sulfur recovery and product blending units. In addition, our Woods Cross Refinery includes a crude unit, which is primarily an atmospheric distillation tower, a desalter and heat exchanger. The facility typically processes or blends an additional 2,000 BPSD of natural gasoline, butane and gas oil over its 45,000 BPSD capacity. +The Puget Sound Refinery facility is located on approximately 850 acres in Anacortes, Washington and is a fully integrated refinery. The principal processing units at the Puget Sound Refinery consist of crude and vacuum distillation, FCC, delayed coking, sulfuric alkylation, catalytic reforming, hydrodesulfurization, isomerization, sulfur recovery, cogeneration and product blending. In addition to refining assets and an on-site cogeneration facility, the Puget Sound Refinery also includes a deep-water marine dock, a light product loading rack, a rail terminal and storage tanks with approximately 5.8 million barrels of crude, product and other hydrocarbon storage capacity. +The Parco Refinery facility is located on approximately 420 acres in Sinclair, Wyoming and is a fully integrated refinery. The principal processing units at the Parco Refinery consist of gas oil hydrocracking, gas oil hydrotreating, delayed coking units and associated hydrogen generation. +The Casper Refinery facility is located on approximately 250 acres in Casper, Wyoming and is a fully integrated refinery. The principal processing units at the Casper Refinery consist of crude oil distillation, FCC, catalytic reforming, hydrodesulfurization, sulfur recovery and product blending. In addition to refining assets, the Casper Refinery also includes a light product loading rack, a heavy oil rail terminal and crude and product storage tanks. +10 +Table of Content s +Crude Oil and Feedstock Supplies +The Navajo Refinery is situated near the Permian Basin, an area that has historically, and continues to have, abundant supplies of crude oil available both for regional users and for export to other areas. We purchase crude oil from independent producers in southeastern New Mexico and west Texas as well as from major oil companies. The crude oil is gathered through our midstream operations’ pipelines and through third-party tank trucks and crude oil pipeline systems for delivery to the Navajo Refinery. +We also purchase volumes of isobutane, natural gasoline and other feedstocks to supply the Navajo Refinery from sources in Texas and the Mid-Continent area that are delivered to this region on a common carrier pipeline owned by Enterprise Products, L.P. Ultimately all volumes of these products are shipped to the Artesia refining facilities on our midstream operations’ intermediate pipelines running from Lovington to Artesia. From time to time, we purchase gas oil, naphtha and light cycle oil from other refiners for use as feedstock. +The Woods Cross Refinery currently obtains crude oil from suppliers in Canada, Wyoming and Utah as delivered via common carrier pipelines, including the SLC Pipeline and Frontier Pipeline. Supplies of wax crude oil are shipped via truck. +The Puget Sound Refinery is well positioned geographically and logistically to source advantaged Canadian and Alaskan North Slope crudes. The Canadian crudes are sourced from Edmonton, Alberta and are supplied directly to the Puget Sound Refinery by the Trans Mountain pipeline system. The Alaskan North Slope crudes are supplied by oil tankers that load the crude from Valdez, Alaska and offload at the Puget Sound Refinery’s marine dock. The dock also allows the refinery to receive other crude oil via marine transport. +The Parco Refinery and Casper Refinery purchase much of their crude oil from inland domestic sources, primarily in areas of Wyoming, North Dakota and Colorado, as well as crude oil delivered via pipeline from other regions, including Canada. A long-term agreement with the Express Pipeline allows delivery of up to 40,000 BPD of crude oil from Canada directly to these refineries and affords the optionality between Western Canadian Select and Syncrude. +Markets and Competition +The Navajo Refinery primarily serves the southwestern United States, including the metropolitan areas of El Paso, Texas; Albuquerque, Moriarty and Bloomfield, New Mexico; Phoenix and Tucson, Arizona; and portions of northern Mexico. Our products are shipped through our midstream operations’ pipelines from Artesia, New Mexico to El Paso, Texas and from El Paso to Albuquerque and to Mexico via products pipeline systems owned by Magellan and from El Paso to Tucson and Phoenix via a products pipeline system owned by SFPP, L.P. (“SFPP”). In addition, petroleum products from the Navajo Refinery are transported to northwest New Mexico, to Moriarty, New Mexico, near Albuquerque, via our pipelines running from Artesia to San Juan County, New Mexico, and to Bloomfield, New Mexico. We have refined product storage through our midstream operations at terminals in Artesia and Moriarty, New Mexico. +The Woods Cross Refinery primarily serves Utah, which is currently supplied by a number of local refiners and the Pioneer Pipeline. It also supplies a small percentage of the refined products consumed in Idaho, Wyoming, eastern Washington and Nevada. Our Woods Cross Refinery ships refined products over a common carrier pipeline system owned by Tesoro Logistics Northwest Pipelines LLC to numerous terminals, including our terminal at Spokane, Washington and third-party terminals at Pocatello and Boise, Idaho and Pasco, Washington as well as to Cedar City, Utah and Las Vegas, Nevada via the UNEV Pipeline. +The Puget Sound Refinery primarily serves the Pacific Northwest, including Washington, Oregon and British Columbia. It supplies jet fuel for the Seattle-Tacoma, Washington, Portland, Oregon and Vancouver, British Columbia airports. Products are shipped to Seattle, Tacoma, and Portland terminals by the common carrier Olympic Pipeline. Additionally, products are loaded across the Puget Sound Refinery’s marine dock to deliver to the same locations in the Pacific Northwest and to expanded locations in California and Alaska. The Puget Sound Refinery can also load products for export sales across its marine dock. +The Parco Refinery’s products are primarily distributed by major direct pipelines to Denver, Colorado and to Salt Lake City, Utah connecting to pipelines owned by us, our joint ventures or third parties, serving an extensive network of terminals or by exchange. The Parco Refinery’s customers are located in Colorado, Utah, Arizona, Idaho, Nebraska, Nevada, Oregon, South Dakota, Washington and Wyoming. +The Casper Refinery’s products are primarily distributed by major direct pipelines serving the Rocky Mountain region and western South Dakota through an extensive network of terminals or by exchange. The Casper Refinery’s customers are located in Colorado, Utah, South Dakota and Wyoming. +11 +Table of Content s +HF Sinclair Asphalt Company +We manufacture commodity and modified asphalt products at our manufacturing facilities located in Glendale, Arizona; Albuquerque, New Mexico; Artesia, New Mexico and Catoosa, Oklahoma. Our Albuquerque and Artesia facilities manufacture commodity and modified hot asphalt products as well as commodity and modified asphalt emulsions from base asphalt materials provided by our refineries and third-party suppliers. Our Glendale facility manufactures commodity, modified and specialty modified hot asphalt products from base asphalt materials provided by our refineries and third-party suppliers. Our Catoosa facility manufactures commodity, modified and specialty modified hot asphalt products and commodity asphalt products from base asphalts supplied by our refineries. We primarily sell our finished asphalt products in Arizona, California, Colorado, New Mexico, Oklahoma, Kansas, Missouri, Texas, Arkansas and northern Mexico. Our products are shipped via third-party trucking companies to commercial customers that provide asphalt based materials for private, commercial and government agency projects. +RENEWABLES OPERATIONS +Our renewables business includes the operations of the Cheyenne RDU, the Artesia RDU and the Sinclair RDU, which we acquired from REH Company in the Sinclair Transactions. Our Cheyenne RDU was mechanically complete in the fourth quarter of 2021 and operational in the first quarter of 2022 and has a production capacity of approximately 90 million gallons a year. Our Artesia RDU, co-located with the Navajo Refinery, was completed and operational in the second quarter of 2022. The Artesia RDU facility also includes rail infrastructure and storage tanks and has a production capacity of approximately 135 million gallons a year. Our Artesia PTU, co-located with the Navajo Refinery, was completed and operational in the first quarter of 2022. The Artesia PTU provides feedstock flexibility for both our Cheyenne RDU and Artesia RDU. On March 14, 2022, we acquired the Sinclair RDU, co-located with the Parco Refinery. The Sinclair RDU has been operational since 2018 and produces approximately 153 million gallons a year. The Artesia RDU and Sinclair RDU are dependent upon and share certain infrastructure, including a hydrogen plant, with the refineries where they are co-located, respectively. +Our RDUs allow us to process soybean oil and other renewable feedstocks into renewable diesel. Renewable diesel is a cleaner burning fuel with 50% to 80% (results dependent on the feedstock) lower lifecycle greenhouse gas (“GHG”) emissions than conventional diesel. The renewable diesel produced by the RDUs is sold to customers in California, Oregon, Utah and Canada. +MARKETING OPERATIONS +Our marketing operations include branded fuel sales to mor e than 1,600 bra nded sites in t he United States and licensing fees for the use of the Sinclair brand at more than 300 additional locations throughout the United States. Our marketing operations also include revenues from branded gasoline, diesel and other marketing activities. Our branded sites are located in several states across the United States with the highest concentration of the sites located in our West and Mid-Continent regions. +LUBRICANTS & SPECIALTIES OPERATIONS +Our lubricants and specialties operations consist of our Petro-Canada Lubricants, Red Giant Oil, Sonneborn and the Tulsa lubricants businesses. +Our Petro-Canada Lubricants business produces automotive, industrial and food grade lubricants and greases, base and process oils and specialty fluids. It is one of the leading manufacturers of high margin Group III base oils in North America. Products are marketed in over 80 countries worldwide to a diverse customer base through a global sales force and distributor network. +Our Red Giant Oil business provides high quality lubricants to the railroad industry. +Our Sonneborn business produces specialty products such as white oils, petrolatums and waxes for the personal care, cosmetic, pharmaceutical and food processing industries. Combined with Petro-Canada Lubricants, it is one of the world’s leading producers of pharmaceutical white oils. +Our Tulsa Refinery produces high quality base oils, process oils, waxes, horticultural oils and asphalt performance products. Products are marketed worldwide through strategically located terminals in the United States and selected distributors internationally. +12 +Table of Content s +Petro-Canada Lubricants Inc. (“PCLI”) owns and operates a production facility located in Mississauga, Ontario having lubricant production capacity of 15,600 BPD and has the flexibility to match unique lubricant product formulations. The primary operating units are high-pressure hydrotreating and hydrofinishing, solvent dewaxing and catalytic dewaxing. In addition, the facility operates a hydrogen plant, naphtha hydrotreater and catalytic reformer, along with other utility units to support production. The Mississauga plant also includes packaging facilities and has extensive distribution capabilities with marine, truck and rail access. +Red Giant Oil owns and operates blending and distribution facilities in Council Bluffs, Iowa, and Joshua, Texas. +Sonneborn has manufacturing facilities in Petrolia, Pennsylvania and the Netherlands. The Sonneborn Petrolia site has a production capacity of 6,000 BPD with flexibility to produce a full range of finished specialty products. The primary operating unit is a high-pressure hydrotreater with hydrofinishing. In addition, the facility operates a hydrogen plant along with other utility units to support production. The Petrolia plant also includes packaging facilities with distribution capabilities through rail and trucking. The Sonneborn Netherlands site is located in Amsterdam and has a production capacity of approximately 1,500 BPD. The primary operating units include base oil acid treating, percolation filtration, and bleaching & steaming operations. The Netherlands sites include packaging facilities with distribution capabilities through truck and marine. +MIDSTREAM OPERATIONS +Our midstream operations are comprised of logistic assets consisting of petroleum product and crude oil pipelines, and terminals, tankage, and loading rack facilities that principally support our refining operations, as well as other third-party refineries, in the Mid-Continent, Southwest and Rocky Mountains geographic regions of the United States. Additionally, we own a 50% ownership interest in each of Osage Pipe Line Company, LLC, the owner of a pipeline running from Cushing, Oklahoma to El Dorado, Kansas (the “Osage Pipeline”), Cheyenne Pipeline, LLC, the owner of a pipeline running from Fort Laramie, Wyoming to Cheyenne, Wyoming (the “Cheyenne Pipeline”) and Cushing Connect Pipeline & Terminal LLC (“Cushing Connect”), the owner of a crude oil storage terminal in Cushing, Oklahoma and a pipeline that runs from Cushing, Oklahoma to our Tulsa Refineries; a 26.08% ownership interest in Saddle Butte Pipeline III, LLC, the owner of a pipeline from the Powder River Basin to Casper, Wyoming (the “Saddle Butte Pipeline”); and a 49.995% ownership interest in Pioneer Investments Corp., the owner of a pipeline from Sinclair, Wyoming to the North Salt Lake City, Utah Terminal (the “Pioneer Pipeline”). +Our midstream operations generate revenues by charging tariffs for transporting petroleum products and crude oil through its pipelines, by charging fees for terminalling refined products and other hydrocarbons and, by storing and providing other services at its storage tanks and terminals. Our midstream operations do not take ownership of products that it transports, terminals, stores or refines; therefore, it is not directly exposed to changes in commodity prices. +As of December 31, 2024, our midstream assets included: +Pipelines +• approximately 660 miles of refined product pipelines, including 340 miles of leased pipelines, that transport gasoline, diesel and jet fuel principally from our Navajo Refinery in New Mexico to our customers in the metropolitan and rural areas of Texas, New Mexico, Arizona, Colorado, Utah and northern Mexico; +• one 205-mile pipeline that transports refined product from our Parco Refinery in Wyoming to our customers in Colorado; +• one 114-mile bi-directional products pipeline that transports finished and intermediate products between our Parco and Casper Refineries in Wyoming; +• approximately 510 miles of refined product pipelines that transport refined products from Delek US Holding, Inc.’s (“Delek”) Big Spring refinery in Texas to its customers in Texas and Oklahoma; +• two 65-mile pipelines that transport intermediate feedstocks and crude oil from our Navajo Refinery crude oil distillation and vacuum facilities in Lovington, New Mexico to our petroleum refinery facilities in Artesia, New Mexico; +• one 65-mile intermediate pipeline that is used for the shipment of crude oil from the gathering systems in Barnsdall and Beeson, New Mexico to our Navajo Refinery; +• the SLC Pipeline, a 95-mile intrastate crude oil pipeline system that transports crude oil into the Salt Lake City, Utah area from the Utah terminus of the Frontier Pipeline, as well as crude oil flowing from Wyoming and Utah via the Marathon Wamsutter system; +13 +Table of Content s +• the Frontier Pipeline, a 289-mile crude oil pipeline running from Casper, Wyoming to Frontier Station, Utah through a connection to the SLC Pipeline; +• approximately 990 miles of crude oil trunk, gathering and connection pipelines located in west Texas, New Mexico and Oklahoma that primarily deliver crude oil to our Navajo Refinery; +• approximately 535 miles of crude oil trunk, gathering and connection pipelines in Wyoming that primarily deliver crude oil to our Parco and Casper Refineries; +• approximately 10 miles of refined product pipelines that support our Woods Cross Refinery located near Salt Lake City, Utah; +• gasoline and diesel connecting pipelines that support our Tulsa East facility; +• five intermediate product and gas pipelines between our Tulsa East and Tulsa West facilities; +• feedstock receiving assets located at our Cheyenne facility; +• the UNEV Pipeline, which is a 427-mile, 12-inch refined products pipeline running from Woods Cross, Utah to Las Vegas, Nevada and Cedar City, Utah; +• a 50% interest in the Osage Pipeline, a 135-mile pipeline that transports crude oil from Cushing, Oklahoma to our El Dorado Refinery and also has a connection to the Jayhawk pipeline that services the CHS refinery in McPherson, Kansas; +• a 50% interest in the Cheyenne Pipeline, an 87-mile crude oil pipeline running from Fort Laramie, Wyoming to Cheyenne, Wyoming; +• a 50% interest in the Cushing Connect Pipeline, a 50-mile crude oil pipeline running from Cushing, Oklahoma to our Tulsa Refineries; +• a 49.995% interest in the Pioneer Pipeline, a 312-mile refined product pipeline running from Sinclair Station in Wyoming to the terminal in North Salt Lake City, Utah. Through connections, this pipeline is also able to deliver refined products to the UNEV refined products pipeline, and +• a 26.08% interest in the Saddle Butte Pipeline, a crude oil pipeline that collects crude oil from the Powder River Basin in Wyoming and primarily delivers into our crude oil pipeline system that supplies our Parco and Casper Refineries. +Refined Product Terminals and Refinery Tankage +• two refined product terminals located in Orla, Texas and Moriarty, New Mexico, with an aggregate capacity of approximately 240,000 barrels, that are integrated with our refined product pipeline system that serves our Navajo Refinery; +• one refined product terminal located in Spokane, Washington, with a capacity of approximately 430,000 barrels, that serves third-party common carrier pipelines; +• one refined product terminal near Mountain Home, Idaho, with a capacity of approximately 120,000 barrels, that serves a nearby United States Air Force Base; +• two refined product terminals, located in Wichita Falls and Abilene, Texas, and one tank farm in Orla, Texas with aggregate capacity of approximately 560,000 barrels, that are integrated with our refined product pipelines that serve Delek’s Big Spring, Texas refinery; +• a refined product terminal in Catoosa, Oklahoma with a capacity of approximately 70,000 barrels that stores specialty lubricant products and is utilized by our Tulsa Refineries; +• a refined product loading rack facility at each of our El Dorado, Tulsa, Navajo and Woods Cross Refineries, heavy product / asphalt loading rack facilities at our Tulsa East facility, Lovington facility and Cheyenne facility, LPG loading rack facilities at our El Dorado Refinery, Tulsa West facility and Cheyenne facility, lube oil loading racks at our Tulsa West facility and crude oil Leased Automatic Custody Transfer units located at our Cheyenne facility; +• refined product storage capacity at our Parco and Casper Refineries as well as at seven refined product terminals in Colorado, Idaho and Wyoming serving our Parco and Casper Refineries with a capacity of approximately 1,960,000 barrels; +• one refined product terminal in Kansas City, Missouri having an aggregate storage capacity of approximately 380,000 barrels; +• on-site crude oil tankage at our Tulsa, Navajo and Woods Cross Refineries and Cheyenne facility having an aggregate storage capacity of approximately 1,440,000 barrels; +• on-site refined and intermediate product tankage at our El Dorado, Tulsa, Navajo and Woods Cross Refineries and Cheyenne facility having an aggregate storage capacity of approximately 8,280,000 barrels; +• eleven crude oil tanks adjacent to our El Dorado Refinery with a capacity of approximately 1,040,000 barrels that primarily serve our El Dorado Refinery; +14 +Table of Content s +• crude oil tankage at five crude oil terminals with a capacity of approximately 1,790,000 barrels that primarily serve our Parco and Casper Refineries; +• crude oil tankage with an aggregate storage capacity of approximately 450,000 barrels that primarily serve our Navajo Refinery; +• SLC Pipeline and Frontier Pipeline’s tankage with an aggregate capacity of approximately 380,000 barrels; +• the UNEV Pipeline’s product terminals near Cedar City, Utah and Las Vegas, Nevada with an aggregate capacity of approximately 650,000 barrels; +• a 50% interest in Cushing Connect Terminal with a capacity of approximately 1,500,000 barrels of crude oil storage in Cushing, Oklahoma; +• a 26.08% interest in Saddle Butte Pipeline III, LLC, which has approximately 160,000 barrels of crude oil storage in Wyoming, and +• a 49.995% ownership interest in Pioneer Investments Corp., which has approximately 655,000 barrels of refined product storage in Utah. +ADDITIONAL OPERATIONS AND OTHER INFORMATION +Corporate Offices +Our principal corporate offices are leased and located in Dallas, Texas. Functions performed in our Dallas office include overall corporate and segment management, planning and strategy, corporate finance, crude acquisition, logistics, contract administration, marketing, investor relations, governmental affairs, accounting, tax, treasury, information technology, legal and human resources support functions. +Human Capital +Our People +Our people differentiate us from our peers. Our “One HF Sinclair Culture” focuses on five key values – safety, integrity, teamwork, ownership and inclusion. These values influence our decisions, shape our behaviors and provide the opportunity for our employees to thrive. Safety is our first priority. We care about our people and have implemented policies and procedures designed to help them return home safely every day. We focus on integrity and doing the right thing. We champion a culture of teamwork and ownership by supporting each other and empowering employees to take action where they see a need or opportunity. Inclusion reflects our desire to foster a work environment in which employees feel valued and included in decisions, opportunities and challenges. +As of December 31, 2024, we had 5,297 employees located in the following geographies: 4,428 employees in the United States, 665 employees in Canada and 204 employees in Europe. As of December 31, 2024, 1,433 employees were covered by collective bargaining agreements. The current collective bargaining agreements have various expiration dates ranging between 2025 and 2030. We have experienced no material interruptions of operations due to disputes with our employees and management maintains positive working relationships with our local unions and their members. +Oversight +Our board of directors (the “Board of Directors”) and Board of Directors committees provide oversight on our strategies and policies related to human capital management. Our Compensation Committee is responsible for periodically reviewing HF Sinclair’s strategies, policies and practices regarding the promotion of employee diversity, equity and inclusion, talent and performance management, pay equity and employee engagement, as well as our executive succession planning. Our Nominating, Governance and Social Responsibility Committee oversees our policies and practices regarding human rights in our operations and supply chain. This process is designed to provide oversight of our strategies related to attracting, retaining and developing a workforce that aligns with our values and strategies. +Diversity & Inclusion +Our leadership is committed to attracting, retaining and developing a highly engaged, high-performing, multifaceted workforce and cultivating an inclusive workplace where all employees feel valued and have a sense of belonging. HF Sinclair is an equal opportunity employer and prohibits all forms of unlawful discrimination. Of our total employees as of December 31, 2024, approximately 18% identified as female and approximately 82% identified as male. Approximately 25% of our total employees identified as Hispanic or Latino, Black or African American, Asian, American Indian or Alaskan Native, Native Hawaiian or Other Pacific Islander, or as two or more races or ethnicities. Veterans and reservists of the U.S. armed forces also represented approximately 6.4% of our U.S. workforce as of December 31, 2024. +15 +Table of Content s +Our university recruiting team works to expand our presence in the marketplace to attract diverse talent by partnering with various university-based diversity and inclusion-focused groups in order to reach a diverse population of candidates from student and alumni bases. We held leadership workshops focused on our value of inclusion throughout 2024 for frontline, senior and executive leadership roles. In addition, to help foster a culture of inclusion, we have five voluntary and employee-led employee resource groups (“ERGs”), which are open to all employees: Women in Energy, Veterans in Energy, Family Caregivers in Energy, Toastmasters in Energy and Cultural Awareness in Energy. Each of the ERGs focuses on developing talent at HF Sinclair by fostering relationships through education, networking and leadership development opportunities. +Health & Safety +The safety of our employees, contractors and communities is an overarching priority and fundamental to our operational success. We are grounded by our “Goal Zero” vision, which reflects our belief that safe production can be achieved each and every day. Our commitment to safety is embedded throughout our organization, from frontline employees and contractors to our executive leadership and Board of Directors. Our Operational Excellence Management System provides the framework through which we identify, monitor and reduce risks. Our Environmental, Health and Safety (“EHS”) Leadership Council, comprised of company executives, including our CEO, business unit leaders and corporate EHS specialists, sets EHS strategy and reviews performance. The Environmental, Health, Safety and Public Policy Committee of our Board of Directors provides board-level oversight of our strategies and performance in these areas. +In an effort to achieve Goal Zero, our employee and contractor safety education and training programs are conducted on an ongoing basis. We set specific goals for workplace safety and measure attainment of those goals. Over the past five years ended December 31, 2024, our Occupational Safety and Health Administration (“OSHA”) combined total recordable incident rate declined by 60%. +Total Rewards & Development +We believe that the health of our company is linked to the performance and health of our people. We want to inspire and empower our employees to feel confident in their long-term well-being and are committed to offering a comprehensive and competitive total rewards programs for our employees, as benchmarked against our peers. While our benefit offerings vary depending on each country’s market practices, they are designed to support employee health, financial and emotional needs. Our offered benefits include comprehensive coverage for health care, a competitive retirement savings benefit, vacation and holiday time and other income protection and work life benefits. We also provide tools to help recognize and reward employee performance consistent with our One HF Sinclair Culture. +Consistent with our culture of ownership and growth, we offer training, development and engagement programs across every level of our organization to provide employees the opportunity to develop their career by enhancing skills and capabilities consistent with the needs of the business. Our suite of programs include: Accelerate and LinkedIn Learning, a curated collection of on-demand e-learning for all employees; Refine, interactive, instructor-led workshops focusing on professional development at any career level; Front Line Leadership Development, a series of leadership trainings for new and existing supervisors; Catalyst, a guided cohort of new leaders learning about leadership styles and executive presenc e; and Leading the HF Sinclair Way, a deep-dive for our senior leaders on leading through our cultural values and business objectives. We inv ested $13 million i n ou r employee training and development programs in fiscal year 2024. +Community Outreach / Volunteerism +Being a good neighbor and engaged member of the communities in which we operate is important to us. In addition to supporting charitable organizations through financial contributions, throughout 2024, we were equally pleased to support our communities through in-kind giving. From filling backpacks with school essentials to helping prepare meals to planting trees, our employees showed up for their communities and dedicated volunteer efforts to a variety of organizations. +Governmental Regulation +Our operations are subject to international, federal, state, provincial and local laws and regulations regarding, among other things, the generation, storage, handling, use, transportation and distribution of petroleum and hazardous materials by pipeline, truck, rail, ship and barge, the emission and discharge of materials into the environment, waste management, characteristics and composition of gasoline and diesel fuels, and other matters otherwise relating to the protection of human health and the environment. Permits or other authorizations are required under these laws and regulations for the operation of our refineries, pipelines and other facilities, and these permits and authorizations are subject to revocation, modification and renewal, which may or may not be granted, or may require operational changes, which may involve significant costs. Our operations are also subject to various international and domestic laws and regulations relating to health and safety, and failure to appropriately manage health and safety risks associated with our business could adversely impact our employees, communities, stakeholders, reputation and results of operations. +16 +Table of Content s +A violation of permit conditions or a failure to comply with applicable laws and regulations may result in the assessment of sanctions, including administrative, civil and criminal penalties; the imposition of investigatory, remedial or corrective action obligations or the incurrence of capital expenditures; the occurrence of delays in the permitting, development or expansion of projects or facilities; the issuance of injunctive relief limiting or prohibiting certain operations; and reputational harm. There is also the potential for liability for spill response and remediation, natural resource damage claims, and personal and property damage claims if there were to be an oil spill at a facility located near federal, state or provincial waters or a release of hazardous or other substances into the environment. +Compliance with applicable environmental laws, regulations and permits or other authorizations and health and safety laws and regulations will continue to have an impact on our operations, the results of our operations and our capital expenditures. +Our capital expenditures attributable to compliance with government regulations, including environmental regulations, did not have a material effect on our cash flows in 2024. While we currently do not expect that compliance with government regulations, including environmental regulations, will have a material effect on our cash flows in 2025, we expect to incur capital expenditures of $50 million related to the implementation of injunctive relief and mitigation measures at our Navajo Refinery as a result of a settlement agreement reached with the EPA, the DOJ and the New Mexico Environment Department (the “2025 Consent Decree”), which are included in the 2025 capital expenditure guidance discussed under “– Cash Flows – Investing Activities and Planned Capital Expenditures” in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” For additional information regarding the 2025 Consent Decree, see Item 3, “Legal Proceedings.” +Federal Transportation Rate Regulation - Some of our existing pipelines provide interstate transportation services subject to regulation by the Federal Energy Regulatory Commission (the “FERC”) pursuant to the Interstate Commerce Act (the “ICA”). The ICA requires that the rates charged by these pipelines (referred to as “interstate liquids pipelines”) must be just and reasonable. The ICA also prohibits interstate liquids pipelines from providing services in a manner that unduly discriminates against or confers undue preference upon any shipper. The ICA permits interested persons to challenge newly proposed or changed rates or rules and authorizes the FERC to suspend the effectiveness of such proposed rates or rules for a period of up to seven months, during which the FERC may investigate whether the proposed rate or rules are just and reasonable. Upon completion of an investigation, the FERC may require the interstate liquids pipeline to refund the revenues collected during the pendency of the investigation that are in excess of the amount the FERC determines to be just and reasonable, together with interest. The FERC also may investigate, upon complaint or on its own motion, rates that are already in effect and may order an interstate liquids pipeline to change its rates prospectively. Upon an appropriate showing, a shipper may obtain reparations (including interest) for damages sustained during the two years prior to the filing of a complaint. +As a general matter, interstate liquids pipelines may change their rates within prescribed ceiling levels that are tied to an inflation index that the FERC reviews every five years. Cost-of-service ratemaking, market-based rates and settlement rates are alternatives to the indexing approach and may be used in certain specified circumstances to change rates. When an interstate liquids pipeline adjusts its rates using the index methodology, shippers may challenge rate increases made within the ceiling levels. The FERC’s regulations provide that a protest against an index rate increase must allege “reasonable grounds” that the index rate increase is “so substantially in excess of the actual cost increases incurred by the carrier that the rate is unjust and unreasonable.” +In response to requests for rehearing of its December 2020 price index proposal, on January 20, 2022, the FERC established a revised price index for the five-year period commencing July 1, 2021 and ending June 30, 2026, in which interstate liquids pipelines charging indexed rates were permitted to adjust their index ceilings annually by a multiplier set at the annual change in the Producer Price Index for Finished Goods (“PPI-FG”) minus 0.21% (a decrease from the PPI-FG plus 0.78% proposed in December 2020). In early 2022, industry participants petitioned the United States Court of appeals for the District of Columbia (the “D.C. Circuit”) in Liquid Energy Pipeline Association v. FERC to review the FERC’s orders setting the price index, and in July 2024 the D.C. Circuit agreed with those petitioners and ordered FERC to reinstate the previous PPI-FG plus 0.78% multiplier. Pipelines were permitted to raise their index-based rates to the new ceiling immediately after that order was implemented by FERC in September 2024. However, in October 2024, FERC issued a Supplemental Notice of Proposed Rulemaking to reinstate the PPI-FG minus 0.21% multiplier. That rulemaking proceeding remains pending and could result in a further change to the index and impact our rates set using the PPI-FG plus 0.78% price index. The proceeding could also impact FERC’s setting of a new multiplier for the next five-year period, which it must set for the five-year period beginning July 1, 2026. +17 +Table of Content s +We believe the transportation rates currently charged by our interstate liquids pipelines are in accordance with the ICA and applicable FERC regulations. However, due to the complexity of rate making, the lawfulness of any rate is never assured. Adverse decisions by the FERC related to our rates could adversely affect our revenue, financial position, results of operations, and cash flows. In addition, if any of our pipelines were found to have provided services or otherwise operated in violation of the ICA, this could result in the imposition of administrative and criminal remedies and civil penalties, as well as a requirement to disgorge charges collected for such services in excess of the rate established by the FERC. Any of the foregoing could adversely affect revenues and cash flow related to the affected assets. +State Transportation Rate Regulation - While the FERC regulates the rates for interstate shipments on our interstate liquids pipelines, the New Mexico Public Regulation Commission regulates the rates for intrastate shipments on our pipelines in New Mexico, the Texas Railroad Commission regulates the rates for intrastate shipments on our pipelines in Texas and the Oklahoma Corporation Commission regulates the rates for intrastate shipments on our pipelines in Oklahoma. Generally, these state agencies have not investigated the rates or practices of intrastate pipelines subject to their jurisdiction in the absence of shipper complaints. However, a state regulatory commission could investigate our rates if such a challenge were filed and any adverse decisions could adversely affect our revenue, financial position, results of operations, and cash flows. +Commodity Regulation - The Federal Trade Commission, the FERC, and the Commodity Futures Trading Commission hold statutory authority to monitor certain segments of the physical and futures energy commodities markets. These agencies have imposed broad regulations prohibiting fraud and manipulation of such markets. With regard to our physical sales of oil or other energy commodities, and any related hedging activities that we undertake, we are required to observe the market-related regulations enforced by these agencies, which hold substantial enforcement authority. Failure to comply with such regulations, as interpreted and enforced, could have a material adverse effect on our business, results of operations and financial condition. +Pipeline Safety and Maintenance - Many of our pipelines are subject to regulation by the Pipeline and Hazardous Materials Safety Administration (“PHMSA”) of the Department of Transportation (“DOT”). PHMSA has promulgated regulations governing, among other things, maximum operating pressures, pipeline patrols and leak surveys, control room management, valve spacing and rupture mitigation, spill response and emergency procedures, as well as other matters intended to prevent accidents and failures. Additionally, PHMSA has promulgated regulations requiring pipeline operators to develop and implement integrity management programs for certain pipelines that, in the event of a pipeline leak or rupture, could affect “high consequence areas”, which are areas where a release could have the most significant adverse consequences, including certain population areas, certain drinking water sources and unusually sensitive ecological areas. +In addition, many states have adopted regulations similar to, or which go above and beyond, existing PHMSA regulations, for certain intrastate pipelines. For example, Texas has developed regulatory programs that largely parallel the federal regulatory scheme and impose additional requirements for certain pipelines. Furthermore, other related federal and state programs, such as the EPA’s Risk Management Program and the OSHA’s Process Safety Management (“PSM”) standard or European equivalents (post-Seveso legislation) apply to some of our terminals and associated facilities. +We perform preventive and normal maintenance on all of our pipeline and terminal systems and make repairs and replacements when necessary or appropriate. We also conduct routine and required inspections of our pipelines and other assets as required by regulations. Corrosion inhibitors, external coatings and impressed current cathodic protection systems are used to protect against internal and external corrosion. We regularly monitor, test and record the effectiveness of these corrosion-control systems. We monitor the structural integrity of covered segments of our pipeline systems through a program of periodic internal inspections using electronic “smart pigs”, hydrostatic testing, or other measures. We follow these inspections with a review of the data, and we make repairs as necessary to maintain the integrity of the pipeline. We have initiated a risk-based approach to prioritizing the pipeline segments for future smart pig runs or other appropriate integrity testing methods. This approach is intended to allow the pipelines that have the greatest risk potential to receive the highest priority in being scheduled for inspections or pressure tests for integrity. Nonetheless, the adoption of new or amended regulations or the reinterpretation of existing laws and regulations by PHMSA or states that result in more stringent or costly pipeline integrity management or safety standards could possibly have a substantial effect on us and similarly situated midstream operators. +Maintenance facilities containing equipment for pipe repairs, spare parts, and trained response personnel are located along the pipelines. Employees participate in simulated spill response exercises on a regular basis. They also participate in actual spill response boom deployment exercises in planned spill scenarios in accordance with Oil Pollution Act of 1990 requirements. +At our terminals, tanks designed for gasoline storage are equipped with internal or external floating roofs that minimize emissions and prevent potentially flammable vapor accumulation between fluid levels and the roof of the tank. Our terminal facilities have facility response plans, spill prevention and control plans, and other plans and programs to respond to emergencies. +18 +Table of Content s +Many of our terminal loading racks are protected with water deluge systems activated by either heat sensors or an emergency switch. Several of our terminals are also protected by foam systems that are activated in case of fire. All of our terminals participate in a comprehensive environmental management program to assure compliance with applicable air, solid waste and wastewater regulations. +For further information on pipeline safety and regulatory requirements related to maintenance, see the discussion under our risk factor “ We may incur significant costs and liabilities resulting from performance of pipeline integrity programs and related repairs ” in Item 1A – “Risk Factors.” +Air Regulations - Our operations are subject to certain requirements of the federal Clean Air Act (“CAA”) as well as related state and local laws and regulations, and similar laws in Canada and the Netherlands. Certain CAA regulatory programs (and similar programs in Canada and the Netherlands) applicable to our facilities require capital expenditures for the installation of certain air pollution control devices, operational procedures and expenditures to minimize emissions and to prevent accidental releases of air pollutants, and monitoring and reporting of emissions. For example, implementation of the revised National Ambient Air Quality Standards (“NAAQS”) for ozone and particulate matter, could result in stricter permitting requirements, a delay in or the inability to obtain such permits, and increased expenditures for pollution control equipment, the costs of which could be significant. Moreover, an EPA rule became effective in January 2018 that requires, among other things, benzene monitoring at the refinery fence line and submittal of fence line monitoring data to the EPA on a quarterly basis; upgraded storage tank controls requirements, including new applicability thresholds; enhanced performance requirements for flares, continuous monitoring of flares and pressure release devices, and analysis and remedy of flare release events; compliance with emissions standards for delayed coking units; and requirements related to air emissions resulting from startup, shutdown and maintenance events. In September 2023, the EPA Office of Inspector General published a report recommending that the EPA increase oversight related to these fence line monitoring requirements. Most recently, in October 2024, the EPA finalized updates to its volatile organic liquid storage tank emission standards, which establish more protective standards for various types of vessels, including floating roof storage vessels and storage vessels that utilize closed vent systems and controls. These rules, as well as other rules under the CAA or similar laws in all jurisdictions in which we operate, or new agency interpretations of existing laws and regulations, may necessitate additional expenditures in future years and result in increased costs on our operations. +Fuel Quality Regulations - We are subject to the EPA’s regulations governing fuels and fuel additives used in motor vehicles, non-road equipment and airplanes. The EPA has the authority under the CAA to modify the formulation of the refined transportation fuel products we manufacture in order to limit the emissions associated with their final use. In February 2007, the EPA finalized MSAT2 regulations that impose reductions in the benzene content of our produced gasoline. In addition to reducing benzene concentration in our gasoline, our refineries currently purchase benzene credits to meet these requirements. If economically justified or otherwise determined to be beneficial, we may implement additional benzene reduction projects to eliminate or reduce the need to purchase benzene credits. Additionally, in April 2014, the EPA finalized the Tier 3 Motor Vehicle Emission and Fuel Standards, which require a reduction in annual average gasoline sulfur content from 30 parts per million (“ppm”) to 10 ppm. These requirements, other CAA requirements, and other presently existing or future environmental regulations may cause us to make substantial capital expenditures and purchase sulfur credits at significant cost to enable our refineries to produce fuels that meet the applicable requirements. In December 2020, the EPA streamlined and consolidated its existing fuel quality regulations that apply across all gasoline and diesel fuel programs, also known as the EPA’s Fuels Regulatory Streamlining Rule at 40 CFR Part 1090. Most recently, in December 2024, the EPA issued another final rule, the Fuels Regulatory Streamlining Amendments, to provide clarity and flexibility to provisions that govern how fuel, fuel additives, and regulated blendstocks are sampled and tested to demonstrate compliance. +Pricing and Profits Reporting and Regulation - Some state governments have considered legislation that would require companies in the petroleum industry to report detailed market information (including supply, pricing and profit information) and would potentially impose penalties for profits deemed to be excessive. For example, in January 2024, Washington, House Bill 2232 (“HB 2232”) was introduced in the legislature, and as proposed, would establish extensive reporting requirements for companies, including refiners, seeking information such as volume, price, type, feedstock inputs, origin of petroleum receipts, imports and exports of finished petroleum products, blendstocks and ethanol, refinery outputs and refinery stocks, and finished product supply and distribution, among others. Additionally, HB 2232 would create a new division within the Washington Utilities and Transportation Commission charged with providing independent oversight and analysis of petroleum fuel markets. Although HB 2232 was not adopted by the Washington legislature, whether HB 2232 or similar legislation will be introduced and enacted in the future is unknown at this time. If legislation similar to HB 2232 is passed into law, such legislation could result in increased compliance costs and affect the results of our operations and financial position. Such laws and similar regulations could also increase our litigation risks or may increase risks related to our reputation or goodwill as we cannot predict how additional reporting under this law may be perceived or interpreted by our customers and stakeholders. +19 +Table of Content s +Renewable Fuel Standard - Pursuant to the Energy Independence and Security Act of 2007, and the EPA’s corresponding Renewable Fuel Standard (“RFS”) regulations, most refiners are required to blend increasing amounts of biofuels with refined products or purchase RINs in lieu of blending. Under the RFS, the percentage of renewable fuels that refineries are obligated to blend into their finished petroleum products is adjusted annually. In June 2023, the EPA finalized the RFS targets for 2023 through 2025, which set the annual renewable volume obligations (“RVOs”) for conventional (i.e., corn ethanol) renewable fuel, biomass-based diesel, advanced biofuels and cellulosic biofuel. The targets increase RVOs in each of the concurrent years. +The EPA’s implementation of the RFS has historically been subject to numerous court challenges. Lawsuits have been filed by the renewable fuel industry and refining industry challenging the EPA’s decisions on small refinery exemptions. For example, in 2022, the EPA denied all pending small refinery exemption petitions on the belief that small refineries are able to pass through compliance costs to customers. This decision was challenged and, in August 2024, nearly all of the waiver denials were vacated by the U.S. Court of Appeals for the D.C. Circuit. Several exemption petitions from 2023 and 2024 are pending before the EPA. There is uncertainty related to the EPA’s approach to evaluating exemption petitions, and whether the EPA is likely to grant such exemptions is unknown. For additional information regarding risks relating to our small refinery exemptions, see the discussion under our risk factor “Compliance with, or developments with respect to, renewable and low carbon fuel blending programs, and other regulations, policies, and standards impacting the demand for low-carbon fuels could have an adverse effect on our financial condition and results of operations” in Item 1A – “Risk Factors.” We cannot predict the outcome of these matters or whether they may result in increased RFS compliance costs. There also continues to be a shortage of advanced and cellulosic biofuel production resulting in increased difficulties meeting RFS mandates. As a result, we may be unable to blend sufficient quantities of renewable fuel to meet our requirements and, therefore, may have to purchase an increasing number of RINs. It is not possible at this time to predict with certainty what those volumes or costs may be, but given the potential increase in volumes and the volatile price of RINs, increases in RVOs could have an adverse impact on our results of operations. +Finally, while there is no current regulatory standard that authenticates RINs that may be purchased on the open market from third parties, we believe that the RINs we purchase are from reputable sources, are valid and serve to demonstrate compliance with applicable RFS requirements. However, if any of the RINs purchased by us on the open market are subsequently found by the EPA to be invalid, we could incur significant costs, penalties, or other liabilities in connection with replacing any invalid RINs and resolving any enforcement action brought by the EPA. +California Low Carbon Fuel Standard - Under California’s Global Warming Solutions Act of 2006, the California Air Resources Board was required to undertake a statewide effort to reduce GHG emissions. One of the programs designed to help achieve those reductions is the LCFS program. The LCFS program is designed to reduce GHG emissions by decreasing the carbon intensity (“CI”) of transportation fuels consumed in the state. Under this program, each fuel is assigned a CI value, which is intended to represent the GHG emissions associated with the feedstocks from which the fuel was produced, the fuel production and distribution activities, and the use of the finished fuel. Each producer or importer of fuel must demonstrate that the overall mix of fuels it supplies for use in California meets the CI benchmarks for each compliance period. A producer or importer with a fuel mix that is above the CI benchmark must purchase LCFS credits sufficient to meet the CI benchmark. Fuels produced by our Renewables segment have CI scores that are lower than traditional petroleum-based transportation fuels, and we benefit from the demand from other regulated entities for these low-carbon transportation fuels. In November 2024, the California Air Resources Board (“CARB”) adopted amendments to the LCFS program, including strengthening CI targets from a 20% reduction to a 30% reduction by 2030, adding a 90% reduction target by 2045, and adding a 9% CI benchmark stringency increase for 2025. On February 18, 2025, the amendments were disapproved by the California Office of Administrative Law (“OAL”). CARB stated that it plans to address the concerns raised by OAL and has 120 days from the issuance of OAL’s written decision to revise and resubmit the amendments to OAL for further review. +Oregon Clean Fuels Program - The Clean Fuels Program (“CFP”) became effective in 2016 with the intended goal of reducing the CI of Oregon’s transportation fuels by establishing annual standards that decrease over time. The baseline year for the program is 2015, and the standard for that year represents 10% ethanol blended with gasoline and 5% biodiesel blended with diesel. The CFP requires a 10% reduction in average CI from 2015 levels by 2025, followed by a 20% reduction by 2030, and a 37% reduction by 2035. Businesses that create fuels with a lower CI than the annual limit generate credits, while higher CI fuels create deficits. Credits and deficits are measured in metric tons of GHG emissions. CFP credits began to trade at the end of 2016, and the credit market has grown steadily in the subsequent years. We import transportation fuels produced at our Puget Sound Refinery into Oregon, and are thereby subject to the CFP, including, among other things, the requirement to purchase and retire CFP credits to offset the deficit created through our sale of gasoline and diesel fuel into Oregon. +20 +Table of Content s +Washington Clean Fuel Standard - The Clean Fuel Standard (“CFS”) became effective on January 1, 2023, and, similar to the low carbon fuel programs in California and Oregon, it is designed to decrease the CI of Washington’s transportation fuels. The CFS requires a 20% reduction in average CI from 2017 levels by 2034. The CFS functions similar to its sister programs in California and Oregon. We sell gasoline and diesel fuel produced at our Puget Sound Refinery in Washington, and are thereby subject to the CFS, including, among other things, the requirement to purchase and retire CFS credits to offset the deficit created through our sale of gasoline and diesel fuel in Washington. +New Mexico Clean Transportation Fuel Standard - Most recently, in March 2024, the New Mexico legislature passed HB 41, establishing a Clean Transportation Fuel Standard (“CTFS”), based on similar programs established in California, Oregon, and Washington. The CTFS requires a 20% reduction in CI from the 2018 baseline by 2030, followed by a 30% reduction in CI by 2040. The CTFS is also intended to create a marketplace to buy, trade, and sell credits based on whether fuels are above or below that standard. HB 41 directs the New Mexico Environmental Improvement Board to finalize rules for the implementation of the CTFS by July 1, 2026. We sell gasoline and diesel fuel produced at our Navajo Refinery in New Mexico and will therefore be subject to CTFS upon promulgation of the implementing regulations, including, among other things, the requirement to purchase and retire CTFS credits to offset the deficit created through our sale of gasoline and diesel fuel in New Mexico. +Other Low Carbon Fuel Standards - Many international, federal, state, provincial and local governments, have issued, or are considering issuing, low carbon fuel regulations, policies, and standards to reduce GHG emissions and increase the percentage of low-carbon fuels in the transportation fuel mix. While these regulations result in additional costs to our refining business, they have created opportunities to develop our renewables business, and should continue to help drive demand for our renewable diesel products. We believe that our ability to supply low-carbon fuels can play an important role in helping achieve GHG emissions reduction targets. +Blender’s and Producer’s Tax Credit Incentives - The U.S. federal government has enacted tax incentives to encourage the production of low-carbon fuels and/or reduce GHG emissions. For example, Section 6426 of the Internal Revenue Code of 1986, as amended (the “Code”), provided a tax credit (generally referred to as the blender’s tax credit) to blenders of certain renewable fuels to encourage the production and blending of those fuels with traditional petroleum-based transportation fuels. The renewable diesel produced by our Renewables segment is a liquid fuel derived from biomass that meets the EPA’s fuel registration requirements; therefore, renewable diesel that we produce and blend qualified for this refundable tax credit of one dollar per gallon. The Inflation Reduction Act of 2022 (“IRA 2022”) extended this credit through December 31, 2024, when it expired. The IRA 2022 also created a new tax credit, the 45Z Clean Fuel Production Credit (“45Z Credit”), which provides a per-gallon (or gallon-equivalent) tax credit for producers, not blenders or compressors, of clean transportation fuels based on the CI of production. On January 10, 2025, the Department of the Treasury and the Internal Revenue Service issued guidance for the interpretation of the implementation of the IRA 2022 provisions creating the 45Z Credit and included a notice of intent to propose regulations. The 45Z Credit became available on January 1, 2025, and was authorized through December 31, 2027, unless otherwise revised or extended. The U.S. Congress, however, may take actions to repeal or revise the IRA 2022, including with respect to the 45Z Credit, which timing or outcome similarly cannot be predicted. +Oregon and Washington Carbon Cap & Trade Programs - In March 2020, the Governor of Oregon signed Executive Order 20-04 (the “Executive Order”), directing state agencies to take actions to reduce and regulate GHG emissions and consider climate change in agency planning. The Executive Order directed the Oregon Environmental Quality Commission (“OEQC”) and the Oregon Department of Environmental Quality (“ODEQ”) to take a variety of actions, including the development of a new program to limit GHG emissions from large stationary sources, transportation fuels, and other liquid and gaseous fuels. The OEQC considered and adopted final rules in December 2021, which became effective January 1, 2022, setting the emissions cap and reduction rules for the Climate Protection Program (the “CPP”). Using a 1990 baseline, the CPP includes GHG reduction goals of 50% by 2035 and 90% by 2050. Our subsidiary, HF Sinclair Refining & Marketing LLC, presumably became subject to the CPP rules in the second quarter of 2022 due to its sale of transportation fuel over the rack in Oregon primarily from the Puget Sound Refinery. As a presumed covered fuel supplier under the CPP rules at that time, HF Sinclair Refining & Marketing LLC submitted a CPP permit application to ODEQ in February 2023 and is purportedly required to acquire, and then surrender, compliance instruments (corresponding to each metric ton of CO2 equivalents imported/sold into Oregon) starting in calendar year 2025 (i.e., at the end of the first three-year compliance period, which runs from 2022 to 2024), and for each three-year compliance period thereafter to demonstrate compliance with the CPP rules. Further, the CPP rules were amended in November 2023 to provide, among other changes, a one-year lookback for purposes of calculating compliance instrument obligations. However, the authority of OEQC to adopt the CPP rules was challenged in litigation, including in a lawsuit filed in March 2022 by the Western States Petroleum Association and others. In December 2023, the Court of Appeals of Oregon issued an order in that lawsuit declaring the 2021 CPP rules “invalid” (based on OEQC’s failure to strictly follow administrative notice requirements at the time of rule adoption). The OEQC did not appeal the Court of Appeals of Oregon’s decision, but instead proceeded with a new rulemaking to re-adopt the CPP rules. +21 +Table of Content s +In November 2024, the OEQC adopted new rules to establish the CPP, which is applicable to fuel suppliers and in-state fuel producers. The new CPP rules adopted the same reduction goals as the original CPP rules but include changes, such as coordination with the Oregon Public Utility Commission to monitor natural gas rates and an adjustment to the compliance periods. The initial compliance period began on January 1, 2025, and extends for three years. Legal challenges to the new CPP rule are expected, including additional challenges to the underlying authority of OEQC to adopt such rules. Accordingly, we will closely monitor the Oregon CPP rulemaking process to determine the impact of compliance obligations. In 2021, the State of Washington enacted its own Climate Commitment Act (“CCA”), which establishes a comprehensive cap-and-invest program that provides an overall limit for GHG emissions from major sources in the state that began on January 1, 2023 and declines yearly to 95% below 1990 levels by 2050. As the operator of the Puget Sound Refinery, our subsidiary HF Sinclair Puget Sound Refining LLC, and as a covered fuel supplier, our subsidiary HF Sinclair Refining & Marketing LLC, must obtain an allowance for each ton of covered CO2e emissions. An initiative to repeal the CCA was placed on the November 2024 ballot, but the ballot initiative failed. Entities covered under the CCA, including our two subsidiaries noted above, were required to surrender compliance instruments for the first time in November 2024 to comply with the 2023 annual compliance obligation. +Climate Change - In recent years, various legislative and regulatory measures to address climate change and GHG emissions (including carbon dioxide, methane and nitrous oxides) have been discussed or implemented. They include proposed and enacted federal regulation and state actions to develop statewide, regional or nationwide programs designed to control and reduce GHG emissions from stationary sources, such as our refineries, as well as power plants, mobile transportation sources and fuels. Similar regulatory measures are also adopted in the EU. Measures to date have included but are not limited to cap and trade programs, carbon taxes, vehicle efficiency standards, electric vehicle mandates, combustion engine phaseouts, LCFS and renewable fuel requirements. Although it is not possible to predict the requirements of any GHG legislation that may be enacted, any laws or regulations that may be adopted to restrict or reduce GHG emissions will likely require us to incur increased operating and capital costs. +The EPA has previously issued two rules (the “Clean Power Plan” and the “Affordable Clean Energy Rule”) to reduce carbon dioxide emissions from coal-fired power plants, both of which have been invalidated by courts. In May 2024, the EPA finalized a replacement rule that would (1) convert to natural gas co-firing by January 1, 2030 and then retire by 2039, (2) install by 2032 carbon capture and sequestration technology capable of capturing 90% of all CO2 emissions, or (3) cease operations by 2032. The May 2024 rule was challenged in the U.S. Circuit Court of Appeals, but the U.S. Supreme Court denied the challenger’s request to stay implementation of the rule pending the outcome of the litigation. Further, the EPA partially denied several petitions for reconsideration of the rule in January 2025. Although, we cannot predict what action the current administration may take with respect to the May 2024 rule, we do not expect the rule will directly affect our operations. However, to the extent the EPA fully implements rules that imposes higher costs on electricity generating units, it could result in increased power costs for our refineries in future years. Furthermore, the EPA could propose to apply similar regulations to other facilities, including refineries, in the future. +EPA rules require us to report GHG emissions from our refinery operations and consumer use of fuel products produced at our refineries on an annual basis. While the cost of compliance with the reporting rule is not material, data gathered under these rules may be used in the future to support additional regulation of GHG emissions. Moreover, the EPA directly regulates GHG emissions from refineries and other major sources through the Prevention of Significant Deterioration (“PSD”) and Federal Operating Permit programs and may require Best Available Control Technology (“BACT”) for GHG emissions above a certain threshold if emissions of other pollutants would otherwise require PSD permitting. While this does not impose any limits or controls on GHG emissions from current operations, future projects or operational changes that increase GHG emissions, such as capacity increases, may be subject to emission limits or technological requirements pertaining to GHG emissions, such as BACT. +22 +Table of Content s +In March 2024, the SEC adopted a rule that requires public companies to include certain climate-related disclosures in their registration statements and periodic reports, including information about climate-related risks, climate-related financial statement metrics, and GHG emissions. That final rule is being challenged in the U.S. Court of Appeals for the Eighth Circuit and the implementation of the rule has been voluntarily stayed by the SEC pending the outcome of the legal challenge; moreover, the current administration has requested that the court not schedule the case for argument while the SEC considers its position in the litigation, though we cannot predict whether or how such action would occur or its timing. Additionally, states are also considering their own climate accounting and risk and disclosure rules, independent of the SEC. For example, in October 2023, the Governor of California signed the Climate Corporate Data Accountability Act (“CCDAA”) and Climate-Related Financial Risk Act (“CRFRA”) into law. The CCDAA requires both public and private U.S. companies that are “doing business in California” and that have a total annual revenue of $1 billion to publicly disclose and verify, on an annual basis, Scope 1, 2, and 3 GHG emissions. The CRFRA requires the disclosure of a climate-related financial risk report (in line with the Task Force on the Climate-Related Financial Disclosures recommendations or equivalent disclosure requirements under the International Sustainability Standards Board’s climate-related disclosure standards) every other year for public and private companies “doing business in California” with a total annual revenue of $500 million. Although both laws are subject to litigation, reporting under both laws is expected to begin in 2026. +Stakeholder concerns about climate change could also adversely affect demand for the refined petroleum products that we produce. Recently, certain financial institutions, funds and other sources of capital have made pledges to reduce GHGs in their lending portfolios, leading some to restrict or eliminate their investment in oil and natural gas activities. There is also a risk that future government regulations could require financial institutions to adopt policies that have the effect of reducing the funding provided to or investments in the fossil fuel sector altogether or unless certain climate-related standards are met. Ultimately, this could make it more difficult or costly to secure funding for exploration and production activities and result in decreased production of oil, which indirectly could have an adverse impact on our operations. +Climatic events in the areas in which we operate, whether from climate change or otherwise, can cause disruptions and in some cases delays in our production activities or ability to deliver our products to our customers. These events, including, but not limited to, drought, winter storms, wildfire, extreme temperatures, tornados, extreme precipitation or flooding, may become more intense or more frequent as a result of climate change and could have an adverse effect on our continued operations as well as the operations of our suppliers and customers. Additionally, changing meteorological conditions, particularly temperature, may result in changes to demand for our products. Our customers or suppliers may also be subject to similar risks, any of which may adversely impact our business, financial condition, or operations. +The prior administration adopted an “all of government” approach to climate change in which the federal government would use not only its regulatory and enforcement authority but also its policy and purchasing power to encourage investment and use of renewable energy sources and to otherwise impede and reduce fossil fuel use and GHG emissions. However, the President recently revoked the prior administration’s climate change Executive Orders, including withdrawal from the Paris Agreement, directing federal agencies to cease using the Social Cost of Greenhouse Gases, and disbanding the Interagency Working Group that created it. In December 2023, the EPA announced the promulgation of a final rule that significantly limits methane and other emissions from certain oil and natural gas operations. Although this rule is currently subject to challenge and could be repealed or revised, to the extent it is implemented as promulgated, the new rule could increase the cost of domestic crude oil and natural gas. In addition, the EPA, together with the DOT, implemented GHG emission and corporate average fuel economy standards for vehicles manufactured in the United States, which standards have been revised from time-to-time to impose increasingly stringent requirements for emissions reductions. The DOT finalized new vehicle fuel economy standards in June 2024, which increase fuel economy 2% per year for model years 2027-2031 for passenger cars, 2% per year for model years 2029-2031 for light trucks, 10% per year for model years 2030-2032 for heavy-duty pickup trucks, and 8% per year for model years 2033-2035 for vans. Some of these standards are subject to ongoing legal challenge. The future of these various actions, however, is uncertain given the change in administration, and ongoing legal challenges. We cannot predict when, how, or whether any of these actions will be revised or revisited. +23 +Table of Content s +Internationally, the United Nations-sponsored Paris Agreement requires member countries to submit non-binding, individually determined emissions reduction goals every five years after 2020. The United States initially joined and then withdrew from such agreement in 2020. In 2021, the United States rejoined the Paris Agreement and issued its corresponding “nationally determined contribution” (“NDC”) to reduce economy-wide net GHG emissions to 50-52% below 2005 levels by 2030. The current administration, however, announced its intent to re-withdraw from the Paris Agreement, a process which could take a year. Initiatives already taken pursuant to the Paris Agreement are subject to ongoing litigation, and the future of these laws and orders under the current administration, and the terms of any legislation or regulation to implement the United States’ commitment under the Paris Agreement, remain unclear at this time. In regards to legislation, in November 2021, the United States enacted a nearly $1 trillion bipartisan infrastructure law, which provided significant funding for electric vehicles and clean energy technologies, and in August 2022 the United States enacted the Inflation Reduction Act of 2022, which allocated $369 billion to climate change and environmental initiatives, including transportation electrification, fees on and greater regulation of methane emissions, and support for green energy manufacturing programs. +In the Netherlands and Canada, increased attention to climate change has led to changes in laws and to new laws, such as the Climate Act (Netherlands) and the Canadian Net-Zero Emissions Accountability Act, and has also led to increased frequency of climate change lawsuits. Additionally, the EU has promulgated environmental, social and governance (“ESG”) reporting requirements under the EU’s Corporate Sustainability Reporting Directive (“CSRD”), which requires in-scope companies to report extensive audited sustainability information, including risks and opportunities arising from environmental and social matters, and the impact of their business on people and the environment. Certain of our subsidiaries are expected to have to begin reporting from 2026 onward for financial years beginning on January 1, 2025. Ultimate parent companies that are not incorporated in the EU, such as HF Sinclair, may be required to report under CSRD from 2029 onward for financial years beginning on or after January 1, 2028. +Furthermore, on July 25, 2024, the EU’s Corporate Sustainability Due Diligence Directive (“CSDDD”) became effective. The aim of CSDDD is to foster sustainable and responsible corporate behavior in companies’ operations and across their global chains. It requires companies to conduct risk-based due diligence on human rights and environmental impacts, and aims to ensure that in-scope companies identify, prevent and address adverse human rights and environmental impacts of their actions inside and outside Europe. The CSDDD also requires in-scope companies to adopt and put into effect a transition plan for climate change mitigation which aims to ensure that the business model and strategy of the applicable company are compatible with the transition to a sustainable economy and with the limiting of global warming to 1.5°C, including its intermediate and 2050 climate neutrality targets, and where relevant, the exposure of the company to coal-, oil- and gas-related activities. The EU Member States were granted a period of two years (until July 26, 2026) to adopt and publish the laws, regulations and administrative provisions necessary to comply with the CSDDD. The obligations under the CSDDD for in-scope companies will come into force gradually based on thresholds as of 2026. CSRD, CSDDD and similar laws and regulations could result in increased compliance costs and affect the results of our operations and financial position. Such laws and similar regulations could also increase our litigation risks or may increase risks related to our reputation or goodwill as we cannot predict how additional reporting under these laws may be perceived or interpreted by our customers and stakeholders. +Water Discharges - Our operations are also subject to the Federal Clean Water Act (“CWA”), the Federal Safe Drinking Water Act (“SDWA”) and comparable state and local requirements, as well as similar laws in Canada and the Netherlands. The CWA, the SDWA and analogous laws prohibit any discharge into surface waters, ground waters, injection wells and publicly-owned treatment works except in conformance with legal authorization, such as pre-treatment permits and National Pollutant Discharge Elimination System (“NPDES”) permits, issued by federal, state and local governmental agencies. The EPA commenced a study from 2015-2017 related to the discharges of metals and dioxin from petroleum refining operations and wastewater discharges from refineries in connection with the consideration of new effluent limitation guidelines that would be incorporated into refinery sector NPDES permits. To date, the EPA has not proposed any new effluent limitation guidelines applicable to our operations, but future rulemakings related to this issue could require us to incur increased costs related to the treatment of wastewater resulting from our operations. +The CWA also regulates filling or discharges to wetlands and other “waters of the United States.” The previous administration issued a new rule effective in March 2023 that significantly expanded CWA jurisdiction relative to a prior June 2020 rule, both of which were subject to substantial litigation. Shortly after the the previous administration issued the new rule, the United States Supreme Court issued a decision in Sackett v. Environmental Protection Agency that reduced the scope of waters and wetlands subject to federal jurisdiction. In September 2023, the EPA and the U.S. Army Corps of Engineers revised the regulatory definition of “waters of the United States” to incorporate the Supreme Court’s Sackett decision. Due to an injunction blocking implementation of the September 2023 rule in certain states, the implementation of the rule, and the applicable definition of “waters of the United States,” currently varies by state. Further, some states either have changed or are contemplating changes to their own laws in order to regulate waters and wetlands that were previously subject to federal regulation. +24 +Table of Content s +Hazardous Substances and Wastes - We generate wastes that may be subject to the Resource Conservation and Recovery Act and comparable state and local requirements, as well as similar laws in Canada and the Netherlands. The EPA and various state agencies have limited the approved methods of disposal for certain hazardous and non-hazardous wastes. Although the EPA is currently working on several rulemakings that could impact how our refineries manage various waste streams, it does not appear that these rules will significantly impact our refineries. +The Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), also known as “Superfund,” imposes strict, and under certain circumstances, joint and several liability on certain classes of persons who are considered to be responsible for the cost of cleaning up hazardous substances that have been released into the environment and for damages to natural resources. These persons include current and former owners or operators of property where a release has occurred, and any persons who disposed of, or arranged for the transport or disposal of, hazardous substances at the property. In the course of our historical operations, as well as in our current operations, we have generated waste, some of which falls within the statutory definition of a “hazardous substance” and some of which may have been disposed of at sites that may be subject to cleanup and cost recovery actions under CERCLA in the future. Similarly, locations now owned or operated by us, where third parties have disposed such hazardous substances in the past, may also be subject to cleanup and cost recovery actions under CERCLA. Some states have enacted laws similar to CERCLA which impose similar responsibilities and liabilities on responsible parties. It is also not uncommon for neighboring landowners and other third parties to file claims under state law for personal injury and property damage allegedly caused by hazardous substances or other pollutants released into the environment. Many states also have similar liability regimes that impose strict and potentially joint and several liability for releases into the environment. +Emerging Contaminants - Various regulators are considering regulation of so-called emerging contaminants, including for example, a final rule adopted by the EPA in May 2024 to list two per- and polyfluoroalkyl substances (“PFAS”) as CERCLA hazardous substances. In 2023, the EPA undertook several other regulatory actions related to PFAS chemicals, including, among others, updates to the EPA’s Toxics Release Inventory (“TRI”) program to remove an exemption for reporting PFAS and included PFAS exposure as a new enforcement priority for fiscal years 2024-2027. In addition to the seven individual PFAS that the EPA added to the list of chemicals covered by TRI reporting, in October 2024, the EPA proposed a rule to add an additional 16 individual PFAS and 15 PFAS categories representing over 100 individual PFAS to the TRI. We cannot predict whether that rule will be finalized as proposed or the impact of future regulation of presently unregulated substances, but the prospect of such regulation creates additional uncertainty. Additionally, in December 2024, EPA initiated a process under the Toxic Substances Control Act (“TSCA”) to prioritize the risk evaluation of several substances including certain constituents of crude oil, intermediates, and/or finished petroleum products, including benzene and ethylbenzene. That process includes a December 2024 rule under TSCA requiring petroleum refiners and others to submit information to EPA related to the priority chemicals. +On September 19, 2024, the European Commission adopted new measures under the REACH Regulation to protect human health and the environment by restricting the use of undecafluorohexanoic acid (“PFHxA”) and PFHxA‑related substances. These sub-groups of PFAS are very persistent and mobile in water, and their use in certain products poses an unacceptable risk to human health and the environment. We cannot yet predict the outcome of these regulatory actions and their potential impact on our operations, if any. +Oil Pollution Liability - The Oil Pollution Act of 1990 (“OPA”) and regulations thereunder generally subject owners and operators of facilities to strict, joint and several liability for all containment and cleanup costs, natural resource damages, and potential governmental oversight costs arising from oil spills into the waters of the U.S. The OPA also imposes ongoing requirements on a responsible party, including the preparation of oil spill response plans and proof of financial responsibility to cover environmental cleanup and restoration costs that could be incurred in connection with an oil spill. Likewise, the CWA contains provisions that also impose similar liabilities for oil spills, and regulations under the CWA imposed prevention and response planning requirements applicable to many of our facilities. These liability regimes, as well as the rules under the OPA and CWA, or new agency interpretations of existing laws and regulations, may necessitate additional expenditures in future years and result in increased costs of our operations. +Other Environmental Regulations - Our Canadian assets and operations are also required to comply with various Canadian federal, provincial and municipal regulations. The regulations are in many cases conceptually similar to those described above for our U.S. operations. The principal legislation affecting our Canadian operations is the Canadian Environmental Protection Act, the Fisheries Act, the Greenhouse Gas Pollution Pricing Act and their regulations at a federal level and various provincial statutes and regulations such as the Ontario Environmental Protection Act, the Ontario Occupational Health and Safety Act and the Ontario Water Resources Act. All these laws contain broad prohibitions against causing harm to air, land, water, people or any other living organism and in many cases contain detailed prescriptive rules governing many aspects of our operations. Regulatory trends towards more stringent emission requirements and operating controls are expected to continue at federal, provincial and local levels. +25 +Table of Content s +Additionally, our assets and operations in the Netherlands are required to comply with Dutch regulations that are similar to, and in some cases more stringent than, those described above for our U.S. operations. The statutes to which our Dutch assets and operations are subject include the Environmental Protection Act, the Climate Act, the Environment and Planning Act, and other subordinate decrees and regulations relative to environmental control, permitting and enforcement. The Environment and Planning Act entered into effect on January 1, 2024, and has led to the integration of a majority of Dutch environmental laws. With the Environment and Planning Act, new subordinate decrees and regulations entered into effect, such as the Environment Decree, the Environment Regulation and the Environmental Activities Decree. Transitional law is applicable for running matters under the Environment and Planning Act, which means that the old regulations still apply in certain matters. The Netherlands also participates in certain broader European legal initiatives, including GHG cap and trade programs. Additionally, in December 2019, the High Council of the Netherlands upheld a court order for the government of the Netherlands to reduce the country’s GHG emissions by 25% (compared to 1990) by 2020, and in January 2020, the Climate Act came into effect, with (on the basis of the latest amendments following European law) the goal of significantly reducing GHG emissions by 55% (compared to 1990) by 2030, achieving climate neutrality by 2050 and striving for negative GHG emissions after 2050. Furthermore, the target is that 100% of the electricity production will be CO 2 neutral in 2050. +Enforcement and Litigation Proceedings - We are and have been the subject of various local, state, provincial, federal and private proceedings and inquiries relating to compliance with environmental laws and regulations and conditions. These matters include statutory and regulatory programs related to soil and water discharges and contamination, air pollution, pipeline safety and integrity, and GHG emissions, as well as personal injury and property damage allegedly caused by substances that we manufactured, handled, used, released or disposed. We currently have environmental remediation projects that relate to recovery, treatment and monitoring activities resulting from past releases of refined product and crude oil into the environment. As of December 31, 2024, we had an accrual of $190 million related to such environmental liabilities. +Compliance with current and future environmental regulations is expected to require additional expenditures, including expenditures for investigation and remediation, which may be significant. To the extent that future expenditures for these purposes are material and can be reasonably determined, these costs are disclosed and accrued, if applicable. +Occupational Safety, Health, and Accident Prevention - Our operations are subject to various laws and regulations relating to health and safety, including the Occupational Safety and Health Administration (“OSHA”), comparable state statutes, Canadian regulations applicable to our operations in Canada and Dutch regulations, including the Health and Safety Act and other subordinate decrees and regulations, applicable to our operations in the Netherlands. We maintain a comprehensive safety program, including mechanical integrity and safety-related maintenance programs and training, to comply with all applicable laws and regulations to protect the safety of our workers and the public. Some of our operations are also subject to OSHA Process Safety Management (“PSM”) regulations and the EPA’s CAA RMP regulations, both of which are designed to prevent or minimize chemical accidents and any resulting releases of toxic, reactive, flammable or explosive chemicals. In January 2017, the EPA revised the RMP requirements for incident investigation and accident history reporting, emergency preparedness, and the performance of process hazard analyses and third-party compliance audits. However, some of the revised requirements were paused and never became effective, and other requirements were rescinded by the EPA in a December 2019 final rule. That rescission was challenged in court, but the case has not proceeded because the EPA proposed a further RMP amendment in August 2022, which was finalized in March 2024, and the final rule became effective on May 10, 2024 (the “2024 RMP Rule”). The 2024 RMP Rule reverses much of the 2019 rescission, with some modifications, and adds provisions for employee participation, community engagement, and additional accident prevention requirements. For example, the 2024 RMP Rule requires refineries with HF alkylation processes to perform a “safer technology and alternatives analysis” as part of the process hazard analysis to consider and document the practicality of inherently safer technologies and other risk management measures. However, the 2024 RMP Rule was challenged by industry groups and states, and that case is currently pending. Also in January 2017, OSHA announced changes to its National Emphasis Program, which specifically identified oil refineries as facilities for increased inspections and instructed inspectors to use data gathered from EPA RMP inspections to identify refiners for additional PSM inspections. Further, in December 2024, the Washington Department of Labor and Industries’ new PSM Rule for petroleum refineries became effective, which applies stringent worker safety requirements to petroleum refineries, including performance of regular reviews to identify hazards, root cause analyses after significant accidents, and regular review of processes that are likely to damage or wear down equipment. Compliance with applicable state and federal health and safety laws and regulations, as well as environmental regulations, has required, and continues to require, substantial expenditures. +26 +Table of Content s +Environmental, health and safety legislation, regulations and regulatory programs change frequently. We cannot predict what additional environmental, health and safety legislation or regulations will be enacted or become effective in the future or how existing or future laws or regulations will be administered or interpreted with respect to our operations. Compliance with more stringent laws or regulations or adverse changes in the interpretation of existing laws or regulations by government agencies could have an adverse effect on our financial position and the results of our operations and could require substantial expenditures for the installation and operation of systems and equipment that we do not currently possess. +Insurance +Our operations are subject to hazards of operations, including fire, explosion and weather-related perils. We maintain various insurance coverages, including business interruption insurance, subject to certain deductibles. We are not fully insured against certain risks because such risks are not fully insurable, coverage is unavailable, or premium costs, in our judgment, do not justify such expenditures. +We have a risk management oversight committee consisting of members from our senior management. This committee oversees our risk enterprise program, monitors our risk environment and provides direction for activities to mitigate identified risks that may adversely affect the achievement of our goals. +Item 1A. Risk Factors +Risk Factor Summary +Investing in us involves a degree of risk. You should carefully consider all information in this Annual Report on Form 10-K, including the Management’s Discussion & Analysis section and the financial statements and related notes, prior to investing in our common stock. These risks and uncertainties include, but are not limited to, the following: +Risks Related to our Business/Industry +• The prices of crude oil, renewable feedstocks and refined, finished lubricant and renewable diesel products materially affect our operating results, and are dependent upon many factors that are beyond our control. +• Our operations are subject to catastrophic losses, operational hazards and unforeseen interruptions and other disruptive risks for which we may not be adequately insured. +• A disruption to or proration of the product distribution systems or manufacturing facilities we utilize could negatively impact our profitability. +• A material decrease in the supply, or a material increase in the price, of crude oil, renewable feedstocks or other raw materials or equipment available to our refineries and other facilities could significantly reduce our production levels and negatively affect our operations. +• To successfully operate our facilities, we are required to expend significant amounts for capital outlays and operating expenditures. If we are unable to complete capital projects at their expected costs or in a timely manner, our financial condition, results of operations, or cash flows could be materially and adversely affected. +• The refining and marketing industry and the lubricants and specialties industry are highly competitive, and an increase in competition could adversely affect our earnings and profitability. +• Our business is subject to the risks of international operations. +• Negative publicity or an erosion of our business reputation could have a material adverse effect on our earnings, cash flows and financial condition. +• Potential product, service or other related liability claims and litigation could adversely affect our business, reputation and results of operations. +• Terrorist attacks, and the threat of terrorist attacks or vandalism, have resulted in increased costs to our business. Continued global hostilities or other sustained military campaigns may adversely impact our results of operations. +• Our business may suffer due to a change in the composition of our Board of Directors, or the departure of any of our key executives or other key employees. A shortage of skilled labor may make it difficult for us to maintain labor productivity. +• A portion of our workforce is unionized, and any disruptions in our labor force or adverse employee relations could adversely affect our business. +• Acquisitions involve numerous risks, any of which could adversely affect us. +• Certain of our facilities, pipelines and assets are located on or adjacent to Native American tribal lands or on other lands which we do not own. Our operations are subject to potentially disruptive activity by those concerned with our industry. +27 +Table of Content s +• General economic conditions may adversely affect our business, operating results and financial condition. +• An impairment of our goodwill or assets could reduce our earnings or negatively impact our financial condition and results of operations. +• We sell many of our lubricants and specialties products through distributors, which presents risks that could adversely affect our operating results. +• The market price of our common stock may fluctuate significantly, and the value of a stockholder’s investment could be impacted. +• REH Company became a significant holder of our common stock following the completion of the Sinclair Transactions. +Risks Related to Government Regulation +• We are subject to significant regulation and oversight by governmental agencies. +• We incur significant costs and liabilities, and expect to incur additional costs and liabilities in the future, resulting from compliance with existing, new and changing environmental, health and safety laws and regulations, and face potential exposure for environmental matters. +• We may incur significant costs and liabilities resulting from performance of pipeline integrity programs and related repairs. +• There are various risks associated with GHGs and climate change that could result in increased operating costs, compliance costs and litigation and reduced demand for the refined products we produce and investment in our industry. +• Increasing attention to ESG matters may adversely impact our business, financial results, stock price or price of debt securities. +• Compliance with, or developments with respect to, renewable and low carbon fuel blending programs, and other regulations, policies, and standards impacting the demand for low-carbon fuels could have an adverse effect on our financial condition and results of operations. +• Increases in required fuel economy and regulation of GHG emissions from motor vehicles may reduce demand for petroleum-based transportation fuels. +• State regulation of petroleum product markets and reporting requirements could adversely impact our business, costs of operation and financial results. +• Physical or transitional risks of climate change could have an adverse effect on our financial condition and results of operations. +• Compliance with and changes in tax laws could materially and adversely impact our financial condition, results of operations and cash flows. +Risks Related to Cybersecurity, Data Security and Privacy, Information Technology and Intellectual Property +• Our information technology systems, operational systems, security systems, infrastructure, communications networks, software integrated in our manufacturing and administrative processes, and customer data processed by us, third-party vendors or suppliers are subject to risks presented by cyber events, including incidents or breaches of security. +• We may be subject to information technology system failures, communications network disruptions and data breaches that are generally beyond our control. +• Our business is subject to complex and evolving global laws, regulations and security standards regarding data privacy, cybersecurity and data protection, which could result in claims or increased cost of operations, or other harm to our business. +• We may be unable to adequately maintain, enforce and protect our intellectual property and may not be able to prevent third parties from unauthorized access or use of our intellectual property, which may increase our cost of doing business or otherwise hurt our ability to compete in the market. +• If we fail to comply with our obligations under license or technology agreements with third parties or are unable to license rights to use technologies on reasonable terms or at all, we may be required to pay damages or could potentially lose license rights that are critical to our business. +28 +Table of Content s +Risks Related to Liquidity, Financial Instruments and Credit +• Changes in our credit profile, or a significant increase in the price of crude oil, may affect our relationship with our suppliers, which could have a material adverse effect on our liquidity and limit our ability to purchase sufficient quantities of crude oil to operate our refineries at desired capacity. +• We may not be able to obtain funding on acceptable terms or at all because of volatility and uncertainty in the credit and capital markets. This may hinder or prevent us from meeting our future capital needs. +• We are exposed to the credit risks, and certain other risks, of our key customers and vendors. +• Our credit facilities contain certain covenants and restrictions that may constrain our business and financing activities. +• Our hedging transactions may limit our gains and expose us to other risks. +• We may be unable to pay future dividends. +Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our business operations. If any of the following risks were to actually occur, our business, financial condition, results of operations could be materially and adversely affected. The headings provided in this Item 1A. are for convenience and reference purposes only and shall not affect or limit the extent or interpretation of the risk factors. +RISKS RELATED TO OUR BUSINESS/INDUSTRY +The prices of crude oil, renewable feedstocks and refined, finished lubricant and renewable diesel products materially affect our operating results, and are dependent upon many factors that are beyond our control, including general market demand and economic conditions, seasonal and weather-related factors, regional and grade differentials and governmental regulations and policies. +Among these factors is the demand for crude oil, renewable feedstocks (such as soybean oil), refined, finished lubricant and renewable diesel products, which can vary by type and class or product and is largely driven by the conditions of local and worldwide economies, as well as by weather patterns, changes in consumer preferences and the taxation of these products relative to other energy sources. Governmental regulations and policies, particularly in the areas of taxation, trade, energy and the environment, also have a significant impact on demand and pricing. Other factors affecting pricing and demand, and ultimately our operating results, include changes in product and crude pipeline capacities, crude oil differentials (including regional and grade differentials), the price and availability of renewable feedstocks, changes in transportation costs, accidents or interruptions in transportation, competition in the particular geographic areas that we serve, global market conditions, actions by foreign nations and factors that are specific to us, such as the success of particular marketing programs and the efficiency of our refinery and facility operations. Developments in the global oil markets, such as actual or potential hostilities or other conflicts in oil producing areas, including shipping disruptions in the Red Sea, the Israel-Gaza and Hezbollah conflict and the Russia-Ukraine war, and worldwide demand for crude oil, particularly in developing countries, can affect the prices of crude oil and result in inflated energy prices. The demand for crude oil and refined and finished lubricant products can also be reduced due to a local or national recession or other adverse economic condition, higher gasoline prices, a shift by consumers to more fuel-efficient vehicles or alternative fuel vehicles (such as ethanol or wider adoption of electric, gas/electric hybrid or hydrogen-powered vehicles), or an increase in vehicle fuel economy, whether as a result of technological advances by manufacturers, legislation mandating or encouraging higher fuel economy or the use of alternative fuel. +We do not produce crude oil or our renewable feedstocks and must purchase nearly all of the feedstocks we process, the price of which fluctuates based upon worldwide and local market conditions, including due to adverse weather events and regulatory interventions. The profitability of our Refining, Lubricants & Specialties and Marketing segments depends largely on the spread between market prices for refined petroleum products and crude oil prices. The profitability of our Renewables segment depends largely on the spread between market prices for renewable diesel plus state and federal low carbon fuel incentives and renewable feedstocks, such as soybean oil. This margin is continually changing and may fluctuate significantly from time to time. Crude oil and refined and renewable products are commodities whose price levels are determined by market forces beyond our control. For example, the reversal of certain existing pipelines or the construction of certain new pipelines transporting additional crude oil or refined products to markets that serve competing refineries could affect the market dynamic that has allowed us to take advantage of favorable pricing. In addition, the volume of renewable diesel produced by our competitors is expected to increase going forward, and as the market becomes more competitive, or if there are changes in the regulations, policies, and standards affecting the demand for low-carbon fuels or our ability to obtain approved fuel pathways, our Renewables segment may experience increased volatility in product margins. A deterioration of crack spreads or price differentials between domestic and foreign crude oils or renewable diesel product margins could have a material adverse effect on our business, financial condition, results of operations and cash flows. +29 +Table of Content s +Additionally, due to the seasonality of refined and renewable products markets and refinery maintenance schedules, results of operations for any particular quarter of a fiscal year are not necessarily indicative of results for the full year and can vary year to year in the event of unseasonably cool weather in the summer months and/or unseasonably warm weather in the winter months in the markets in which we sell our products. The effect of changes in crude oil or renewable feedstock prices on operating results, depends in part on how quickly refined product or renewable diesel prices adjust to reflect these changes. A substantial or prolonged increase in crude oil or renewable feedstock prices without a corresponding increase in refined product or renewable diesel prices, a substantial or prolonged decrease in refined product or renewable diesel prices without a corresponding decrease in crude oil or renewable feedstock prices, or a substantial or prolonged decrease in demand for refined products or renewable diesel could have a significant negative effect on our earnings and cash flow. +Finally, our crude oil and refined and renewable diesel product inventories are valued at the lower of cost or market under the last-in, first-out (“LIFO”) inventory valuation methodology. If the market value of our inventory were to decline to an amount less than our LIFO cost, we would record a write-down of inventory and a non-cash charge to Cost of materials and other even when there is no underlying economic impact at that point in time. Continued volatility in crude oil and refined product or renewable diesel prices could result in lower of cost or market inventory charges in the future, or in reversals reducing Cost of materials and other in subsequent periods should prices recover. +Our operations are subject to catastrophic losses, operational hazards and unforeseen interruptions and other disruptive risks for which we may not be adequately insured. +Our operations are subject to catastrophic losses, operational hazards, unforeseen interruptions and other disruptive risks such as natural disasters, adverse weather, accidents, maritime disasters or casualties (including those involving marine vessels/terminals), fires, explosions, hazardous materials releases or spills (such as the release of crude oil on the Osage Pipeline in July 2022), terror or cyberattacks, vandalism, power failures, mechanical failures and other events beyond our control, and we have experienced certain of these events in the past. These events could result in an injury or loss of life, and have in the past and could in the future result in property damage or destruction, or curtailment or an interruption in our operations and may affect our ability to meet customer commitments. For example, historic spills along our existing pipelines and terminals as a result of past operations have resulted in contamination of the environment, including soils and groundwater. Additionally, third-party damage, mechanical malfunctions, undetected leaks in pipelines, faulty measurement or other errors may result in significant costs or lost revenues. Further, the consequences of any operational incident (including as a result of a maritime disaster or casualty) at our marine terminal facilities may be even more significant as a result of the complexities involved in addressing releases or spills occurring in U.S. federal and/or state waters (or in waters of other jurisdictions in which we operate) and/or the repair of marine terminal facilities. +We may not be able to maintain or obtain insurance of the type and amount we desire at commercially reasonable rates and exclusions from coverage may limit our ability to recover the amount of the full loss in all situations. As a result of market conditions, premiums and deductibles for certain of our insurance policies and insurance policies for our joint ventures are increasing. In some instances, certain insurance has become unavailable or has become available only for reduced amounts of coverage or at a significantly increased cost. We cannot assure you that our insurers will renew our insurance coverage on acceptable terms, if at all, or that we will be able to arrange for adequate alternative coverage in the event of non-renewal. Further, our underwriters could have credit issues that affect their ability to pay claims. +There can be no assurance that insurance will cover all or any damages and losses resulting from these types of hazards. We are not fully insured against all risks to our business and therefore, we self-insure certain risks. If any of our facilities were to experience an interruption in operations, our earnings could be materially adversely affected (to the extent not recoverable through insurance) because of lost production and repair costs. +If a significant accident or event occurs that is self-insured or not fully insured, it could have a material adverse effect on our business, financial condition and results of operations. +30 +Table of Content s +A disruption to or proration of the product distribution systems or manufacturing facilities we utilize could negatively impact our profitability. +We utilize various third party pipeline systems to deliver our products from our refineries and renewables facilities to market. The key third party pipeline systems utilized by the Casper, El Dorado, Navajo, Parco, Puget Sound, Woods Cross, and Tulsa Refineries and Cheyenne renewables facility are Magellan (RMPS), NuStar Energy Magellan (Mid-Con), SFPP, Pioneer, Olympic, MPLX, Magellan (Mid-Con) and Pioneer, respectively. Our refineries also utilize systems owned by our Midstream segment. If these key pipelines or their associated tanks and terminals become inoperative or decrease the capacity available to us due to testing, line repair, reduced operating pressures, catastrophic events, terror or cyberattacks, vandalism or other causes, we may not be able to sell our product, or we may be required to hold our product in inventory or supply products to our customers through an alternative pipeline or by rail or additional tanker trucks from the refinery, all of which could increase our costs and result in a decline in profitability. +Additionally, our Refining, Lubricants & Specialties and Renewables segments depend on rail and marine transportation for the delivery of feedstocks used in the production of our products and to deliver products to market, the availability of which is subject to various risks, including those associated with rail or marine strikes, equipment shortages, operating hazards and transportation regulations. If rail or marine transportation is disrupted, we may be unable to produce and/or deliver our products in a competitive or profitable manner and, if such disruption were to occur over an extended period of time, it could have a material adverse effect on our business, financial condition and results of operations. +We have manufacturing facilities in foreign countries that support the Lubricants & Specialties segment. If one of our facilities is damaged or disrupted, resulting in production being halted for an extended period, we may not be able to timely supply our customers. We take steps to mitigate this risk, including business continuity and contingency planning and procuring property insurance (including resulting business interruption) and casualty insurance. Nevertheless, the loss of sales in any one region over an extended period of time could have a material adverse effect on our business, financial condition and results of operations. +A material decrease in the supply, or a material increase in the price, of crude oil, renewable feedstocks or other raw materials or equipment available to our refineries and other facilities could significantly reduce our production levels and negatively affect our operations. +To maintain or increase production levels at our refineries and facilities, we must continually contract for crude oil and renewable feedstock supplies from third parties. There are a limited number of crude oil and renewable feedstock suppliers in certain geographic regions, and in such cases, we may be required to source from a single third party supplier. If we are unable to maintain or extend our existing contracts with any such crude oil or renewable feedstock suppliers, or enter into new agreements on similar terms, the supply of crude oil or renewable feedstocks could be adversely impacted, or we may incur a higher cost. A material decrease in crude oil production from the fields that supply our refineries, as a result of depressed commodity prices, decreased demand, lack of drilling activity, natural production declines, governmental regulations, including travel bans and restrictions, quarantines, shelter in place orders, and shutdowns, catastrophic events or otherwise, could result in a decline in the volume of crude oil available to our refineries. As the volume of renewable diesel produced increases, competition for renewable feedstocks may also increase and result in an increase in feedstock costs and a decrease in renewable diesel margins. In addition, any prolonged disruption of a significant pipeline that is used in supplying crude oil to our refineries or the potential operation of a new, converted or expanded crude oil pipeline that transports crude oil to other markets could result in a decline in the volume of crude oil available to our refineries. Such an event could result in an overall decline in volumes of refined products processed at our refineries and therefore a corresponding reduction in our cash flow. In addition, the future growth of our operations will depend in part upon whether we can contract for additional supplies of crude oil or renewable feedstocks at a greater rate than the rate of natural decline in our currently connected supplies. If we are unable to secure additional crude oil supplies or renewable feedstocks of sufficient quality or crude pipeline expansion to our refineries, we will be unable to take full advantage of current and future expansion of our refineries’ and renewable facilities’ production capacities. +For certain raw materials used by our refineries and other facilities, there are a limited number of suppliers and, in some cases, we source from a single supplier and/or suppliers in economies that have experienced instability or the supplies are specific to the particular geographic region in which a facility is located. Any significant disruption in supply could affect our ability to obtain raw materials, or increase the cost of such raw materials, which could significantly reduce our production levels or have a material adverse effect on our business, financial condition and results of operations. In addition, certain raw materials that we use are subject to various regulatory laws, and a change in the ability to legally use such raw materials may impact our liquidity, financial position and results of operations. +31 +Table of Content s +It is also common in the refining industry for a facility to have a sole, dedicated source for its utilities, such as steam, electricity, hydrogen, water and gas. Having a sole or limited number of suppliers may limit our negotiating power, particularly in the case of rising raw material costs. Any new supply agreements we enter into may not have terms as favorable as those contained in our current supply agreements. Additionally, there is growing concern over the reliability of water sources. The decreased availability or less favorable pricing for water as a result of population growth, drought or regulation could negatively impact our operations. +Our Artesia RDU and Sinclair RDU are co-located with the Navajo Refinery and Parco Refinery, respectively, and their operations are dependent upon certain shared infrastructure at the co-located facilities. For example, the hydrogen plants at the Navajo Refinery and Parco Refinery support both refinery and renewable diesel operations. As a result, any disruption that negatively impacts, or causes a shut down of, shared infrastructure at the co-located facilities could result in lost production and have a material adverse effect on earnings for both refinery and renewable diesel operations at the co-located facility. In addition, in the event equipment or raw materials at the co-located facilities are constrained, we may not have adequate inputs to support both refinery and renewable diesel operations and have in the past made, and may in the future have to make, commercial decisions that prioritize the continuing operation of one segment over the other in order to maximize earnings of our consolidated business. +If our raw material, utility, gas, hydrogen or water supplies or access to the equipment necessary to operate our facilities were disrupted, our businesses may incur increased costs to procure alternative supplies or equipment or incur excessive downtime, which would have a direct negative impact on our operations. +To successfully operate our facilities, we are required to expend significant amounts for capital outlays and operating expenditures. If we are unable to complete capital projects at their expected costs or in a timely manner, or if the market conditions assumed in our project economics deteriorate, our financial condition, results of operations, or cash flows could be materially and adversely affected. +Our facilities consist of many processing units, a number of which have been in operation for many years. One or more of the units may require unscheduled downtime for unanticipated maintenance or repairs that are more frequent than our scheduled turnaround for such units. Scheduled and unscheduled maintenance could reduce our revenues during the period of time that the units are not operating. The installation and redesign of key equipment at our facilities involves significant uncertainties, including the following: our upgraded equipment may not perform at expected levels; operating costs of the upgraded equipment may be higher than expected; and the yield and product quality of new equipment may differ from design and/or specifications and redesign, modification or replacement of the equipment may be required to correct equipment that does not perform as expected, which could require facility shutdowns until the equipment has been redesigned or modified. Any of these risks associated with new equipment, redesigned older equipment, or repaired equipment could lead to lower revenues or higher costs or otherwise have a negative impact on our future financial condition and results of operations. For example, in the third quarter of 2020, we ceased refining operations at our Cheyenne Refinery due, in part, to uncompetitive operating and maintenance costs for the refinery. +One of the ways we may grow our business is through the construction of new refinery processing units (or the purchase and refurbishment of used units from another refinery), pipelines and terminals and the conversion or expansion of existing ones, such as the conversion of the Cheyenne Refinery to renewable diesel production and the connection of a new renewable diesel and a pre-treatment unit in Artesia, New Mexico. The construction process involves numerous regulatory, environmental, political, and legal uncertainties, most of which are not fully within our control, including: +• third party challenges to, denials, or delays with respect to the issuance of requisite regulatory approvals and/or obtaining or renewing permits, licenses, registrations and other authorizations; +• societal and political pressures and other forms of opposition; +• compliance with or liability under environmental or pipeline safety regulations; +• unplanned increases in the cost of construction materials or labor; +• disruptions in transportation of modular components and/or construction materials; +• shortages of sufficiently skilled labor, or labor disagreements resulting in unplanned work stoppages; +• market-related increases in a project’s debt or equity financing costs; and/or +• nonperformance or force majeure by, or disputes with, vendors, suppliers, contractors, or sub-contractors involved with a project. +32 +Table of Content s +If we are unable to complete capital projects at their expected costs or in a timely manner, our financial condition, results of operations, or cash flows could be materially and adversely affected. Delays in making required changes or upgrades to our facilities could subject us to fines or penalties as well as affect our ability to supply certain products we make. Moreover, we may construct facilities to capture anticipated future growth in demand for refined products or renewable diesel in a region in which such growth does not materialize. As a result, new capital investments may not achieve our expected investment return, which could adversely affect our financial condition or results of operations. +In addition, we expect to execute turnarounds at a number of our refineries in 2025, which involve numerous risks and uncertainties, including delays and incurrence of additional and unforeseen costs. The turnarounds allow us to perform maintenance, upgrades, overhaul and repair of process equipment and materials, during which time all or a portion of the refinery will be under scheduled downtime. +Our forecasted internal rates of return are also based upon our projections of future market fundamentals which are not within our control, including changes in general economic conditions, available alternative supply, global market conditions, actions by foreign nations and customer demand. +Competition in the refining and marketing industry is intense, and an increase in competition in the markets in which we sell our products could adversely affect our earnings and profitability. +We compete with a broad range of refining and marketing companies, including certain multinational oil companies. Because of their geographic diversity, larger and more complex refineries, integrated operations and greater resources, some of our competitors may be better able to withstand volatile market conditions, to obtain crude oil in times of shortage and to bear the economic risks inherent in all areas of the refining industry. +We are not engaged in petroleum exploration and production activities and do not produce any of the crude oil feedstocks used at our refineries. Though we license our brand, we do not currently own or operate retail outlets at this time and therefore are dependent upon others for outlets for our refined products. Certain of our competitors, however, obtain a portion of their feedstocks from company-owned production and have retail outlets. Competitors that have their own production or extensive retail outlets, with brand-name recognition, are at times able to offset losses from refining operations with profits from producing or retailing operations, and may be better positioned to withstand periods of depressed refining margins or feedstock shortages. +In recent years there have been several refining and marketing consolidations or acquisitions between entities competing in the geographies where we operate. These transactions could increase the future competitive pressures on us. +We compete with other industries that provide alternative means to satisfy the energy and fuel requirements of our industrial, commercial and individual consumers. The more successful these alternatives become as a result of governmental regulations, technological advances, consumer demand, improved pricing or otherwise, the greater the impact on pricing and demand for our products and our profitability. There are governmental and consumer pressures to increase the use of alternative fuels in the United States. +The market for our Lubricants & Specialties segment is highly competitive and requires us to continuously develop and introduce new products and product enhancements. +Our ability to grow our Lubricants & Specialties segment depends, in part, on our ability to continuously develop, manufacture and introduce new products and product enhancements on a timely and cost-effective basis, in response to customers’ demands for higher performance process lubricants, coatings, greases and other product offerings. Our competitors may develop new products or enhancements to their products that offer performance, features and lower prices that may render our products less competitive or obsolete, and, as a consequence, we may lose business and/or significant market share. Our efforts to respond to changes in consumer demand in a timely and cost-efficient manner to drive growth could be adversely affected by unfavorable margins or difficulties or delays in product development and service innovation, including the inability to identify viable new products, successfully complete research and development, obtain regulatory approvals, obtain intellectual property protection or gain market acceptance of new products or service techniques. The development and commercialization of new products require significant expenditures over an extended period of time, and some products that we seek to develop may never become profitable, and we could be required to write-off our investments related to a new product that does not reach commercial viability. +33 +Table of Content s +Our business is subject to the risks of international operations. +We derive a portion of our revenue and earnings from international operations. Our acquisitions of the Petro-Canada Lubricants and Sonneborn businesses expanded our operations and sales to over 80 countries and increased our exposure to foreign exchange risks. Any significant change in the value of the currencies of the countries in which we do business against the U.S. dollar could affect our revenue, competitiveness and cost of doing business, which could have a material adverse effect on our business, financial condition and results of operations. +In addition, compliance with applicable U.S. and foreign laws and regulations, such as import and export requirements, economic or trade sanctions, anti-corruption laws, data privacy regulations and foreign exchange controls and cash repatriation restrictions, environmental laws, labor laws and anti-competition regulations, increase the cost of doing business in foreign jurisdictions. Although we have implemented policies and procedures to comply with these laws and regulations, a violation by any of our employees, contractors, distributors or agents could nevertheless occur. In some cases, compliance with the laws and regulations of one country could violate the laws and regulations of another country. Violations of these laws and regulations could materially adversely affect our company’s brand, reputation, international growth efforts and business. +In addition, global market risks, actions by foreign nations and other international conditions, particularly in a time of increasing political, economic and global instability, may have a material adverse effect on our results and operations. The consequences of such uncertainty cannot be anticipated or quantified. +Negative publicity or an erosion of our business reputation could have a material adverse effect on our earnings, cash flows and financial condition . +Our reputation and our brands, including, without limitation, our existing Sinclair, HollyFrontier Specialty Products, Petro-Canada Lubricants, Red Giant Oil and Sonneborn brands, and any brands we may acquire or establish in the future, are an important corporate asset. Factors that could have a negative impact on our reputation and our brands include, by way of example and not limitation, an operating incident or significant cybersecurity disruption; changes in consumer views concerning our products; a perception by investors or others that we are making insufficient progress with respect to our carbon emission reduction goals, or that pursuit of this ambition may result in allocation of capital to investments with reduced returns; and other adverse events such as those described in this Item 1A. Negative impacts on our reputation and our brands could in turn make it more difficult for us to compete successfully for new opportunities, obtain necessary regulatory approvals, obtain financing, attract talent, or could reduce consumer demand for our branded products. Our reputation may also be harmed by events which negatively affect the image of our industry as a whole. The materialization of risks discussed in this section could negatively affect our reputation and could have a material adverse effect on our earnings, cash flows and financial condition. +Potential product, service or other related liability claims and litigation could adversely affect our business, reputation and results of operations. +A significant portion of our operating responsibility on refined product pipelines is to maintain the quality and purity of the products loaded at our loading racks. If our quality control measures were to fail, we may have contaminated or off-specification commingled pipelines and storage tanks or off-specification product could be sent to public gasoline stations. The development, manufacture and sale of renewable diesel and specialty lubricant products also involves an inherent risk of exposure to potential product liability claims. These types of incidents could result in product liability claims from our customers. Our products could also be subject to false advertising claims, product recalls, workplace exposure, product seizures and related adverse publicity. +Any of these incidents is a significant commercial risk. Substantial damage awards have been made in certain jurisdictions against manufacturers and resellers based upon claims for injuries caused by the use of or exposure to various products. While we have received and resolved immaterial product liability claims in the past, there can be no assurance that future product liability claims against us would not have a material adverse effect on our business, reputation or results of operations or our ability to maintain existing customers or retain new customers. Although we maintain product and other general liability insurance, there can be no assurance that the types or levels of coverage maintained are adequate to cover these potential risks, or that we will be able to continue to maintain existing insurance or obtain comparable insurance at a reasonable cost, if at all. +34 +Table of Content s +Terrorist attacks, and the threat of terrorist attacks or vandalism, have resulted in increased costs to our business. Continued global hostilities or other sustained military campaigns may adversely impact our results of operations. +The long-term impacts of terrorist attacks and the threat of future terrorist attacks and vandalism on the energy transportation industry in general, and on us in particular, are unknown. Any attack on our facilities, those of our customers or suppliers and, in some cases, those of other pipelines, could have a material adverse effect on our business. Increased security measures taken by us as a precaution against possible terrorist attacks or domestic vandalism have resulted in increased costs to our business. +The U.S. government has issued public warnings that indicate that pipelines and other assets could be specific targets of terrorist organizations. These potential targets may include our pipeline systems or operating systems and might affect our ability to operate or control our pipeline assets or our operations could be disrupted. The occurrence of one of these events could cause a substantial decrease in revenues, increased costs to respond or other financial loss, damage to reputation, increased regulation or litigation and or inaccurate information reported from our operations, and, depending on their ultimate magnitude, could have a material adverse effect on our business, financial condition and results of operations. +Uncertainty surrounding continued global hostilities or other sustained military campaigns, and the possibility that infrastructure facilities could be direct targets of, or indirect casualties of, an act of terror, may affect our operations in unpredictable ways, including disruptions of crude oil supplies and markets for refined products. In addition, disruption or significant increases in energy prices could result in government-imposed price controls. Any one of, or a combination of, these occurrences could have a material adverse effect on our business, financial condition and results of operations. +Our business may suffer due to a change in the composition of our Board of Directors, or the departure of any of our key executives or other key employees. A shortage of skilled labor may make it difficult for us to maintain labor productivity. +Our future performance depends to a significant degree upon the continued contributions of our Board of Directors, our senior management team and key technical personnel. We do not currently maintain key person life insurance, or employment agreements with respect to any member of our senior management team. The loss or unavailability to us of any member of our senior management team or a key technical employee could significantly harm us. We face competition for these professionals from our competitors, our customers and other companies operating in our industry. To the extent that the services of members of our senior management team and key technical personnel would be unavailable to us for any reason, we may be required to hire other personnel to manage and operate our company. We may not be able to locate or employ such qualified personnel on acceptable terms, or at all. +Furthermore, our operations require skilled and experienced laborers with proficiency in multiple tasks. A shortage of trained workers due to retirements, an increase in labor costs as a result of inflation or otherwise could have an adverse impact on productivity and costs and our ability to expand production in the event there is an increase in the demand for our products and services, which could adversely affect our operations. +A portion of our workforce is unionized, and any disruptions in our labor force or adverse employee relations could adversely affect our business. +We depend on unionized labor for the operation of many of our facilities. As of December 31, 2024, approximately 31% of our employees were represented by a labor union or works council under collective bargaining or labor agreements with various expiration dates. In addition, employees who are not currently represented by a labor union or works council may seek representation in the future. We may not be able to renegotiate our collective bargaining or labor agreements when they expire on satisfactory terms or at all. If we are unable to renegotiate our collective bargaining or labor agreements when they expire, any work stoppages or other labor disturbances at these facilities could have an adverse effect on our business, impact our ability to pay dividends to our stockholders and make payments on our debt obligations, and increase our costs. In addition, our existing labor agreements may not prevent a strike or work stoppage or other adverse employee relations event at any of our facilities in the future, and any work stoppage could negatively affect our results of operations and financial condition. +35 +Table of Content s +Acquisitions involve numerous risks, any of which could adversely affect us. +An additional component of our growth strategy is to selectively acquire complementary assets or businesses for our existing assets and businesses in order to increase earnings and cash flow. Recent acquisitions include our acquisition of all of the remaining outstanding HEP common units, the Sinclair refining, renewables, midstream and marketing assets and the Puget Sound Refinery. Our ability to do so will be dependent upon a number of factors, including our ability to identify attractive acquisition candidates, consummate acquisitions on favorable terms, successfully integrate acquired assets and obtain financing to fund acquisitions and to support our growth, and other factors beyond our control. Risks associated with acquisitions include those relating to: +• diversion of significant management time and attention from our existing business; +• challenges in managing the increased scope, geographic diversity and complexity of operations and inefficiencies that may result therefrom; +• difficulties in integrating the financial, technological and management standards, processes, procedures and controls of an acquired business with those of our existing operations; +• the inability to integrate multiple acquisitions simultaneously or within a short timeframe of each other; +• difficulties integrating personnel from the acquired business while maintaining focus on providing consistent, high-quality products and services or the loss of key employees; +• difficulties integrating relationships with customers, vendors and business partners; +• liability for known or unknown environmental conditions or other contingent liabilities not covered by indemnification or insurance or potential unknown and unforeseen expenses, delays or regulatory conditions associated with such acquisitions; +• greater than anticipated expenditures required for compliance with environmental or other regulatory standards or for investments to improve operating results; +• difficulties or delays in achieving anticipated operational improvements or benefits or inaccurate assumptions about future synergies or revenues; +• incurrence of additional indebtedness to finance acquisitions or capital expenditures relating to acquired assets; +• issuance of additional equity, which could result in further dilution of the ownership interest of existing stockholders; +• disruption of, or the loss of momentum in, ongoing business or inconsistencies in standards, controls, procedures and policies; +• incurrence of substantial, nonrecurring transaction-related expenses; and +• potential securities class action and derivative lawsuits, which could result in substantial costs. +Any acquisitions that we do consummate may have adverse effects on our business and operating results. +Delays or difficulties in the integration process could adversely affect our business, financial results, financial condition and stock price. Even if we are able to integrate our business operations successfully, there can be no assurance that this integration will result in the realization of the full benefits of synergies, cost savings, innovation and operational efficiencies that we currently expect or have communicated from this integration or that these benefits will be achieved within the anticipated time frame. +Certain of our facilities, pipelines and assets are located on or adjacent to Native American tribal lands or on other lands which we do not own. Our operations are subject to potentially disruptive activity by those concerned with our industry. +Certain of our facilities, pipelines and other assets are located on or adjacent to Native American tribal lands. Various federal agencies, along with each Native American tribe, promulgate and enforce regulations, including environmental standards, regarding operations on Native American tribal lands. In addition, each Native American tribe is a sovereign nation having the right to enforce laws and regulations (including various taxes, fees, and other requirements and conditions) and to grant approvals independent from federal, state and local statutes and regulations. Furthermore, our operations may be disrupted by restrictions on our access to railways and waterways on or adjacent to tribal lands, including, for example, through restrictions on the number of trains permitted to cross certain reservations. These factors may increase our cost of doing business on Native American tribal lands. +36 +Table of Content s +We do not own all of the land on which our pipeline systems and other assets are located, and we are, therefore, subject to the risk of increased costs or more burdensome terms to maintain necessary land use. We obtain the right to construct and operate pipelines and other assets on land owned by third parties and government agencies for specified periods. If we were to lose these rights through an inability to renew leases, right-of-way contracts or similar agreements, we may be required to relocate our pipelines or other assets and our business could be adversely affected. Additionally, it may become more expensive for us to obtain new rights-of-way or leases or to renew existing rights-of-way or leases. If the cost of obtaining or renewing such agreements increases, it may adversely affect our operations and cash flows. +The adoption or amendment of laws and regulations that limit or eliminate a state’s ability to exercise eminent domain over private property in a state in which we operate could make it more difficult or costly for us to secure rights-of-way for future pipeline construction and other projects. +In addition, our industry is subject to potentially disruptive activities by those concerned with the possible environmental impacts of crude oil and refined products. Activists, non-governmental organizations and others may seek to restrict our operations or the transportation of crude oil and refined products by exerting social or political pressure. This interference could have a material adverse effect on our business, financial condition and results of operations. +General economic conditions may adversely affect our business, operating results and financial condition. +Economic slowdowns may have serious negative consequences for our business and operating results because our performance is subject to domestic economic conditions and their impact on levels of consumer spending. Some of the factors affecting consumer spending include general economic conditions, unemployment, consumer debt, inflation, reductions in net worth based on declines in equity markets and residential real estate values, adverse developments in mortgage markets, taxation, energy prices, interest rates, consumer confidence and other macroeconomic factors. Political instability and global health crises, such as the COVID-19 pandemic, can also impact the global economy and decrease worldwide demand for oil and refined products. Increased volatility in the global oil markets, including the prices our customers or our joint ventures’ customers pay for crude oil and other raw materials, has, and may continue to, materially adversely affect our business, financial condition, results of operations and/or cash flows. +Adverse developments in the global economy or in regional economies could also negatively impact our customers and suppliers, and therefore have a negative impact on our business or financial condition. In the event of adverse developments or stagnation in the economy or financial markets, our customers and suppliers may experience deterioration of their businesses, reduced demand for their products, cash flow shortages and difficulty obtaining financing. As a result, existing or potential customers might delay or cancel plans to use our services and may not be able to fulfill their obligations to us in a timely fashion. Further, suppliers may experience similar conditions, which could impact their ability to fulfill their obligations to us. Moreover, a financial market crisis may have a material adverse impact on financial institutions and limit access to capital and credit. This could, among other things, make it more difficult for us to obtain (or increase our cost of obtaining) capital and financing for our operations. Our access to additional capital may not be available on terms acceptable to us or at all. +Changes in trade policies, including the imposition of tariffs, could negatively impact our business, financial condition and results of operations. The U.S. administration may propose or take action with respect to major changes to trade policies, such as the imposition of tariffs on imported products and the withdrawal from or renegotiation of certain trade agreements. In February 2025, the U.S. administration announced tariffs on Canada, Mexico and China, including a 10% tariff on Canadian crude oil. Such changes could result in additional retaliatory action by trade partners of the U.S. Given that we procure crude oil and other products directly or indirectly from outside of the United States, the imposition of tariffs and other potential changes in U.S. trade policy could impact the cost structure of feedstocks and other materials and supplies at our business units, or limit the availability of such materials, which could harm our competitive position and adversely impact our business, financial condition and results of operations. In addition, we sell products to customers outside of the U.S. Retaliatory actions by other countries could result in increases in the price of our products, which could limit demand for such products, hurt our global competitive position and have a material adverse effect on our business, financial condition and results of operations. +37 +Table of Content s +Inflation has the potential to adversely affect our liquidity, business, financial condition and results of operations by increasing our overall cost structure, particularly if we are unable to achieve commensurate increases in the prices we charge our customers. Current and future inflationary pressures may be driven by, among other things, supply chain disruptions and governmental stimulus or fiscal policies. Continuing increases in inflation could affect the U.S. economy generally, the overall demand for our products and services, our costs for labor, material and services and our operating margins, all of which could have an adverse effect on our business, financial position, results of operations and cash flows. As a result of inflation, we have experienced and may continue to experience, cost increases. Although we may take measures to mitigate the impact of this inflation, if these measures are not effective our business, financial condition, results of operations and liquidity could be materially adversely affected. Even if such measures are effective, there could be a difference between the timing of when these beneficial actions impact our results of operations and when the cost inflation is incurred. +An impairment of our goodwill or asset impairments could reduce our earnings or negatively impact our financial condition and results of operations. +An impairment of our goodwill or asset impairments could reduce our earnings or negatively impact our results of operations and financial condition. We continually monitor our business, the business environment and the performance of our operations to determine if an event has occurred that indicates that our goodwill or assets may be impaired. If a triggering event occurs, which is a determination that involves judgment, we may be required to utilize cash flow projections to assess our ability to recover the carrying value based on the ability to generate future cash flows. We may also conduct impairment testing based on both the guideline public company and guideline transaction methods. Our goodwill and asset impairment analyses are sensitive to changes in key assumptions used in our analysis, estimates of future crack spreads, forecasted production levels, operating costs and capital expenditures. If the assumptions used in our analysis are not realized, it is possible a material impairment charge may need to be recorded in the future. We cannot accurately predict the amount and timing of any additional impairments of goodwill or asset impairments in the future. +As market prices for refined products and market prices for crude oil continue to fluctuate, we will need to continue to evaluate the carrying value of our refinery reporting units. During the year ended December 31, 2024, we recorded asset impairment charges of $17 million, primarily related to certain logistic assets in our Midstream segment and other assets in our Refining segment. A reasonable expectation exists that a deterioration in our operating results or overall economic conditions could result in an impairment of goodwill and/or additional asset impairments at some point in the future. Future impairment charges could be material to our results of operations and financial condition. +We sell many of our lubricants and specialties products through distributors, which presents risks that could adversely affect our operating results. +A large portion of our lubricants and specialties product sales, both in domestic and international markets, occur through distributors. As a result, we are dependent on these distributors to promote and create demand for our products. We cannot assure you that we will be successful in maintaining and strengthening our relationships with our distributors or establishing relationships with new distributors who have the ability to market, sell and support our products effectively. We may rely on one or more key distributors for a product or a region, and the loss of these distributors could reduce our revenue. The sales, business practices and reputation of our distributors may affect our business and our reputation. The consolidation of distributors, loss of a relationship with a distributor, significant disagreement with a distributor, or significant deterioration in the financial condition of a distributor could also have an adverse effect on our operating results and may also result in increased competition in the applicable jurisdiction. +The market price of our common stock may fluctuate significantly, and the value of a stockholder’s investment could be impacted. +The market price of our common stock may be influenced by many factors, some of which are beyond our control, including: +• our quarterly or annual earnings or those of other companies in our industry; +• changes in accounting standards, policies, guidance, interpretations or principles; +• general economic, industry global and stock market conditions; +• the failure of securities analysts to cover our common stock or changes in financial estimates by analysts; +• future sales of our common stock; +• announcements by us or our competitors of significant contracts or acquisitions; +• sales of common stock by us, our senior officers, our affiliates or REH Company; and/or +• the other factors described in these Risk Factors. +38 +Table of Content s +In recent years, the stock market has experienced extreme price and volume fluctuations. This volatility has had a significant impact on the market price of securities issued by many companies, including companies in our industry. The price of our common stock could fluctuate based upon factors that have little or nothing to do with our company, and these fluctuations could materially reduce our stock price. +RISKS RELATED TO GOVERNMENT REGULATION +We are subject to significant regulation and oversight by governmental agencies. +Regulation affects almost every part of our business. For instance, we are subject to laws and regulations related to working conditions, health and safety, equal employment opportunity, employee benefit and other labor and employment matters, and competition and antitrust matters. Our facilities, pipelines, and other operations are subject to regulation and oversight by international, federal, state, provincial and local regulatory authorities, including the FERC, Commodities Futures Trading Commission, EPA, PHMSA, OSHA, the SEC and the United States Department of Justice, and similar authorities in Canada and the Netherlands, each of which may impose significant civil and criminal penalties or other enforcement actions to ensure compliance with its requirements. Any such regulatory violations could have a material adverse effect on our financial operating results including earnings, cash flow and liquidity. Further, our financial results may be materially affected by the adoption of new or amended financial accounting standards, and regulatory or outside auditor guidance or interpretations. +New laws, policies, regulations, rulemaking and oversight, unexpected policy changes or interpretations of existing laws or regulations as well as changes to those currently in effect, could adversely impact our earnings, cash flows and operations. Legislative changes, as well as regulatory actions taken by these agencies, have the potential to adversely affect our profitability. These risks are heightened during periods of regulatory upheaval, such as during U.S. presidential and congressional transitions, and as a result of conflicting or potentially conflicting requirements in different jurisdictions. Furthermore, we could incur additional costs to comply with such statutes, rules, regulations and orders. Should we fail to comply with any applicable statutes, rules, regulations, and orders of regulatory authorities, we could be subject to substantial penalties and fines and withdrawal or denial of permits to operate. +We incur significant costs and liabilities, and expect to incur additional costs and liabilities in the future, resulting from compliance with existing, new and changing environmental, health and safety laws and regulations, and face potential exposure for environmental matters. +Operations of our facilities, pipelines and distribution operations are subject to international, federal, state, provincial and local laws and regulations regarding, among other things, the manufacture, storage, handling, use, transportation and distribution of petroleum and hazardous substances by pipeline, truck, rail, ship and barge, the emission and discharge of materials into the environment, waste management, and characteristics and composition of gasoline and diesel fuels, and other matters otherwise relating to the protection of human health and the environment, including climate change. Permits or other authorizations are required under these laws and regulations for the operation of our facilities, pipelines and other operations, and these permits and authorizations are subject to revocation, modification and renewal or may require operational changes, which may involve significant costs. A violation of permit conditions or a failure to comply with applicable laws and regulations may result in the assessment of sanctions, including administrative, civil and criminal penalties; the imposition of investigatory, remedial or corrective action obligations and the incurrence of capital expenditures; the occurrence of delays in the permitting or the denial of permits, development or expansion of projects; the issuance of injunctive relief limiting or prohibiting certain operations; and reputational harm. There is also the potential for liability for spill response and remediation, natural resource damage claims, and personal and property damage claims in the event of an oil or other refined product spill at a facility located near federal, state or provincial waters or a release of hazardous or other substances into the environment. +39 +Table of Content s +Changes in laws or regulations could require major modifications of our operations, including expensive upgrades to our existing pollution control equipment, which could have a material adverse effect on our business, financial condition, or results of operations. For example, implementation of revised NAAQS for ozone and particulate matter, could result in stricter permitting requirements, a delay in or inability to obtain required permits, and increased expenditures for pollution control equipment, the costs of which could be significant. Also, an EPA rule became effective in January 2018 that requires, among other things, benzene monitoring at refinery fence lines and submittal of fence line monitoring data to the EPA on a quarterly basis; upgraded storage tank controls requirements, including new applicability thresholds; enhanced performance requirements for flares, continuous monitoring of flares and pressure release devices, and analysis and remedy of flare release events; compliance with emissions standards for delayed coking units; and requirements related to air emissions resulting from startup, shutdown and maintenance events. In September 2023, the EPA Office of Inspector General published a report recommending that the EPA increase oversight related to these fence line monitoring requirements. In March 2024, the EPA finalized an amendment to the RMP rules that, among other provisions, requires refineries with HF Alkylation process (including three of our refineries) to perform a “safer technology and alternatives analysis” as part of the process hazard analysis to consider and document the practicality of inherently safer technologies and other risk management measures. The final RMP rule was challenged by industry groups and states. Although the rule is subject to litigation and compliance with the rule is not yet required, the analysis of our HF Alkylation processes under such a rule may lead to capital expenditures in future years or otherwise constrain our operations. Most recently, in October 2024, the EPA finalized updates to its volatile organic liquid storage tank emission standards, which establish more protective standards for various types of vessels, including floating roof storage vessels and storage vessels that utilize closed vent systems and controls. These rules, which are currently challenged in court, as well as subsequent rulemaking under the CAA or similar laws, or new agency interpretations of existing laws and regulations, may necessitate additional expenditures in future years and result in increased costs on our operations. Updated or new determinations under the Endangered Species Act and comparable international, federal, state, provincial and local laws and regulations could also impact our operations or those of our suppliers. Our operations and those of our suppliers could also be impacted by new or revised federal restrictions or laws pertaining to oil and gas operations on federal lands, which could include pauses on leasing, enhanced environmental reviews, and emissions regulations. Compliance with new international and domestic environmental laws, regulations and interpretations will continue to have an adverse impact on our operations, results of our operations and capital requirements. +Various regulators are considering regulation of the so-called emerging contaminants, including for example, a final rule adopted by the EPA in May 2024 to list PFAS as CERCLA hazardous substances. In 2023, the EPA undertook several other regulatory actions related to PFAS chemicals, including, among others, updates to the EPA’s TRI program to remove an exemption for reporting PFAS, and included PFAS exposure as a new enforcement priority for fiscal years 2024-2027. In addition to the seven individual PFAS that the EPA added to the list of chemicals covered by TRI reporting, in October 2024, the EPA proposed a rule to add an additional 16 individual PFAS and 15 PFAS categories representing over 100 individual PFAS to the TRI. We cannot predict whether that rule will be finalized as proposed or the impact of future regulation of presently unregulated substances, but the prospect of such regulation creates additional uncertainty. +As is the case with all companies engaged in industries similar to ours, we face potential exposure to future claims and lawsuits involving environmental matters. The matters include, but are not limited to, soil, groundwater and water discharges and contamination, air pollution, accident prevention and personal injury and property damage allegedly caused by substances which we processed, manufactured, handled, used, transported, stored, released or disposed and climate change. +We are, and have been, the subject of various local, state, provincial, federal, international and private proceedings relating to environmental regulations, conditions and inquiries. Instances of non-compliance with environmental regulations could require additional expenditures, including expenditures for investigation and remediation, which could be significant. +Our operations are also subject to various international, federal, state, and local domestic laws and regulations relating to health and safety, such as chemical accident prevention. For example, in December 2024, the Washington Department of Labor and Industries’ new Process Safety Management Rule for petroleum refineries became effective, which applies stringent worker safety requirements to petroleum refineries, including performance of regular reviews to identify hazards, root cause analyses after significant accidents, and regular review of processes that are likely to damage or wear down equipment. We maintain safety, training and maintenance programs as part of our ongoing efforts to comply with applicable laws and regulations but cannot guarantee that these efforts will always be successful. Compliance with applicable health and safety laws and regulations has required and continues to require substantial expenditures. Failure to appropriately manage health and safety risks associated with our business could also adversely impact our employees, communities, stakeholders, reputation and results of operations. +40 +Table of Content s +The costs of environmental, health and safety regulations are already significant and compliance with more stringent laws or regulations or adverse changes in the interpretation of existing regulations by government agencies or courts could have an adverse effect on the financial position and the results of our operations and could require substantial expenditures for the installation and operation of systems and equipment that we do not currently possess. +We are also subject to existing, and may in the future be subject to new or changing, domestic and international energy policy legislation. For example, in the United States, the Energy Independence and Security Act mandates annually increasing levels for the use of renewable fuels such as ethanol and increasing energy efficiency goals, among other steps. Dutch policy also aims to increase the share of renewable energy used in transportation and reduce GHG emissions from transportation fuels. In Canada, fuel content legislation exists at the federal and provincial level. These statutory mandates may have the impact over time of offsetting projected increases in the demand for refined petroleum products, particularly gasoline, in certain markets. In the near term, the increasing RFS obligations, as discussed in our Risk Factor titled “Compliance with, or developments with respect to, renewable and low carbon fuel blending programs, and other regulations, policies and standards impacting the demand for low-carbon fuels could have an adverse effect on our financial condition and results of operations” below, present ethanol production and logistics challenges for both the ethanol and refining industries and may require additional capital expenditures or expenses by us to accommodate increased ethanol use. Other legislative changes may similarly alter the expected demand and supply projections for refined petroleum products in ways that cannot be predicted. +For additional information on regulations and related liabilities or potential liabilities affecting our business, see “Regulation” under Items 1 and 2, “Business and Properties,” and Item 3, “Legal Proceedings.” +We may incur significant costs and liabilities resulting from performance of pipeline integrity programs and related repairs . +We are regulated under federal pipeline safety statutes by DOT through PHMSA. PHMSA sets and enforces pipeline safety regulations. Failure to comply with PHMSA or comparable state pipeline safety regulations could result in a number of consequences which may have a materially adverse effect on our operations. PHMSA’s enforcement authority includes the ability to assess civil penalties for violations of pipeline safety regulations, issue orders directing compliance, and issue orders directing corrective action to abate hazardous conditions. Among other things, pipeline safety laws and regulations require pipeline operators to develop integrity management programs, including more frequent inspections and other measures for pipelines located in “high consequence areas,” which are areas where a release could have the most significant adverse consequences, including certain population areas, certain drinking water sources and unusually sensitive ecological areas. These regulations require operators of covered pipelines to perform a variety of heightened assessments, analysis, prevention, mitigation and repair activities on the segments of pipe located within high consequence areas. Routine assessments under the integrity management program may result in findings that require repairs or other actions. +Moreover, changes to pipeline safety laws by Congress and regulations by PHMSA or states that result in more stringent or costly pipeline integrity management or safety standards could possibly have a substantial effect on us and similarly situated midstream operators. Congress is currently considering potential amendments to the Pipeline Safety Act, as it does approximately every four years. Should amendments be introduced and later become law, this could affect our operations and result in additional compliance, maintenance and other obligations. Additionally, PHMSA adopted new regulations related to Valve Installation and Minimum Rupture Detection Standards, which became effective on October 5, 2022. These regulations expand PHMSA’s regulation of the safety of hazardous liquid pipelines by establishing certain new procedural and notification requirements for managing rupture events and requiring the installation of rupture-mitigation valves on new or certain replaced pipelines. This final rule has and may continue to result in additional capital and operations and maintenance costs in the coming years. Furthermore, where PHMSA has not issued any legal requirements, state agencies, to the extent authorized, could enact regulatory standards for certain pipelines. +We perform preventive and normal maintenance on all of our pipeline and terminal systems and make repairs and replacements when necessary or appropriate. We also conduct routine and required inspections of our pipelines and other assets as required by regulations. Corrosion inhibitors, external coatings and impressed current cathodic protection systems are used to protect against internal and external corrosion. We regularly monitor, test and record the effectiveness of these corrosion-control systems. We monitor the structural integrity of covered segments of our pipeline systems through a program of periodic internal inspections using electronic “smart pigs,” hydrostatic testing, and other measures. We follow these inspections with a review of the data, and we make repairs as necessary to maintain the integrity of the pipeline. We have initiated a risk-based approach to prioritizing the pipeline segments for future smart pig runs or other appropriate integrity testing methods. This approach is intended to allow the pipelines that have the greatest risk potential to receive the highest priority in being scheduled for inspections or pressure tests for integrity. Nonetheless, the adoption of new or amended regulations or the reinterpretation of existing laws and regulations by PHMSA or states that result in more stringent or costly pipeline integrity management or safety standards could possibly have a substantial effect on us and similarly situated midstream operators. +41 +Table of Content s +There are various risks associated with GHGs and climate change that could result in increased operating costs, compliance costs and litigation and reduced demand for the refined products we produce and investment in our industry. +Climate change continues to attract considerable attention in the United States, Canada, Europe, and other regions. Numerous proposals have been made and could continue to be made at the international, national, regional and state levels of government to monitor and limit existing emissions of GHGs, to limit or eliminate future emissions, and to require or incentivize the use of lower carbon or renewable alternatives, including through accounting and risk disclosures. As a result, our operations, and those of our customers, are subject to a series of regulatory, political, litigation, and financial risks associated with the refining, transportation and use of petroleum products and emission of GHGs. +The EPA has adopted rules that, among other things, establish construction and operating permit reviews for GHG emissions from certain large stationary sources, require the monitoring and annual reporting of GHG emissions from certain petroleum and natural gas sources in the United States or require control or reduction of emissions of GHGs, including methane, from such sources. Agency regulations related to GHG emissions and climate change are often dependent on the goals of the current presidential administration, so the transition to a new administration may lead to increased uncertainty relating to the regulatory risks associated with climate change. +In 2021, the previous administration issued several executive orders that committed to substantial action on climate change, released “The Long-Term Strategy of the United States: Pathways to Net-Zero Greenhouse Gas Emissions by 2050”, which established a roadmap to net zero emissions in the United States by 2050 and called for, among other things, improving energy efficiency, decarbonizing energy sources, the increased use of zero-emission vehicles by the federal government, the elimination of subsidies provided to the fossil fuel industry, and increased emphasis on climate-related risks across governmental agencies and economic sectors. However, the 2050 roadmap and other climate change related executive orders were recently revoked, federal agencies have been directed to stop using the Social Cost of GHG emissions in rulemaking and other activities and the Interagency Working Group on the Social Cost of Greenhouse Gases has been disbanded. The previous administration’s executive orders prioritizing the reduction of GHG emissions have been rescinded and the EPA’s GHG “Endangerment Finding”, which underpins the majority of the EPA’s GHG regulations, is under review. We are unable to predict the impact of these changes. In 2023, the EPA finalized a rule to further reduce GHGs and other emissions primarily from oil production and natural gas production, transmission and storage that could increase the cost of domestic crude oil and natural gas. The EPA finalized rules in 2024 to regulate GHG emissions from power plants that could increase the cost of electricity use by our facilities. +Various states and groups of states have adopted or are considering adopting legislation, regulations or other regulatory initiatives that are focused on such areas as GHG cap and trade programs, carbon taxes, reporting and tracking programs, restriction of emissions, electric vehicle mandates and combustion engine phaseouts. See also “ Compliance with, or developments with respect to, renewable and low carbon fuel blending programs, and other regulations, policies, and standards impacting the demand for low carbon fuels could have an adverse effect on our financial condition and results of operations ” below for more information on how these programs may impact us. State efforts may increase in response to decreased federal enforcement efforts. +In March 2024, the SEC adopted a final rule that requires public companies to include certain climate-related disclosures in their registration statements and periodic reports, including information about climate-related risks, climate-related financial statement metrics, and greenhouse gas emissions. Implementation of the final rule is currently stayed pending litigation. At the state level, in October 2023, the Governor of California signed the Climate Corporate Data Accountability Act (“CCDAA”) and Climate-Related Financial Risk Act (“CRFRA”) into law. The CCDAA requires both public and private U.S. companies that are “doing business in California” and that have a total annual revenue of $1 billion to publicly disclose and verify, on an annual basis, Scope 1, 2, and 3 GHG emissions. The CRFRA requires the disclosure of a climate-related financial risk report (in line with the Task Force on the Climate-Related Financial Disclosures recommendations or equivalent disclosure requirements under the International Sustainability Standards Board’s climate-related disclosure standards) every other year for public and private companies “doing business in California” with a total annual revenue of $500 million. Although both laws are subject to litigation, reporting under both laws is expected to begin in 2026. Non-compliance with these new laws may result in the imposition of substantial fines or penalties. Additionally, other states are considering similar laws. Any new laws or regulations imposing more stringent requirements on our business related to the disclosure of climate-related risks may result in (i) reputational harms among certain stakeholders if they disapprove of our reported GHG emissions data or disagree with our approach to mitigating climate-related risks, (ii) increased compliance costs resulting from the development of any such disclosures, and (iii) increased costs of and restrictions on access to capital to the extent that we do not meet any climate-related expectations or requirements of financial institutions. Additionally, similar climate reporting legislation is being considered in other states, and if any such new laws come into effect, may pose similar risks and costs to our business. +42 +Table of Content s +Similar regulations exist at the provincial and federal levels in Canada, including a nation-wide GHG pricing initiative and regulations related to the control of GHGs from vehicles as well as industrial facilities and either cap and trade programs or carbon taxes at both federal and provincial levels. Canada’s 2030 Emissions Reduction Plan (“ERP”) issued pursuant to the Canadian Net-Zero Emissions Accountability Act, includes a projected contribution from the oil and gas sector of emissions reductions to 31% below 2005 levels in 2030 (or to 42% below 2019 levels) with an ultimate goal of achieving net zero emissions by 2050. The Government of Canada has proposed and may continue to propose regulations in furtherance of its ERP goals, such as the regulations proposed in December 2023, to reduce upstream oil and gas methane emissions. At this time, the applicability of the ERP, and any regulations adopted in furtherance of it, to, and impact on, if any, our Canadian operations is not clear. +The Netherlands also participates in European legal initiatives, including GHG cap and trade programs. Furthermore, the Climate Act has come into effect with the goal of reducing GHG emissions by 55% (compared to 1990) by 2030 and to be climate neutral by 2050. The Climate Act also establishes that the government must prepare a Climate Plan. This plan contains, among others, the principles by which the Dutch government intends to achieve the goals set out in the Climate Act. The first Climate Plan of the Dutch government was adopted in 2019 and covers the period from 2021-2030. +At the international level, the United Nations-sponsored “Paris Agreement” requires member nations to limit their GHG emissions through nationally-determined reduction goals reevaluated every five years after 2020. The United States initially joined and then withdrew from such agreement in 2020. The United States rejoined the Paris Agreement in 2021 and issued its corresponding NDC to reduce economy-wide net GHG emissions to 50-52% below 2005 levels by 2030. While the NDC does not identify specific actions necessary to achieve these reductions, it lists several sectors as pathways for reductions, including the power, transportation, building, industrial, and agricultural sectors. The administration has acknowledged that a combination of regulatory actions and legislation will be necessary to achieve the U.S. NDC. European Union (“EU”) member states have agreed to reduce GHG emissions by at least 55% reduction by 2030. They have also agreed to be climate neutral and climate sustainable by 2050 (net zero). Moreover, following the United States’ reentry into Paris Agreement, the United States, the EU and other partner countries have announced further pledges and agreements at several United Nations Climate Change Conference of Parties, including a pledge to reduce global methane emissions by 30% from 2020 to 2030 and a commitment to develop international standards for monitoring and reporting on methane emissions. On June 13, 2024, the EU Regulation on Methane Emissions Reduction was adopted by the EU and became effective on August 4, 2024. This regulation aims to stop the avoidable release of methane into the atmosphere, both in the EU and in global supply chains, and to minimize leaks of methane by fossil energy companies operating in the EU. The regulation applies to the production of crude oil, natural gas and coal. These sectors must now report their methane emissions to a regulator and take measures to minimize methane emissions during their operations. At the 28th Conference of the Parties (COP28), participants agreed to transition “away from fossil fuels in energy systems in a just, orderly, and equitable manner” and increase renewable energy capacity so as to achieve net zero by 2050, although no timeline for doing so was set. Such international pledges and treaties may cause signatory nations to increase regulations, taxes or restrictions, or subsidize competitive industries, which could have a detrimental impact on our industry in general and our business in particular. Recently, the President announced his intention to re-withdraw the U.S. from the Paris Agreement, which could take up to a year, and revoked most of the previous administration’s climate-related executive orders, and may take further action to rescind certain climate-related regulations. We are not able to predict the outcome of these actions or their impact on us at this time. +The adoption of legislation or regulatory programs to reduce emissions of GHGs could require us to incur increased operating costs, such as costs to purchase and operate emissions control systems and electricity, to acquire emissions allowances or comply with new regulatory or reporting and disclosure requirements or otherwise result in decreased demand for the petroleum products we refine and produce. For example, in November 2021, the United States enacted a nearly $1 trillion bipartisan infrastructure law, which provided significant funding for electric vehicles and clean energy technologies, and in August 2022 the United States enacted the Inflation Reduction Act of 2022, which allocated $369 billion to climate change and environmental initiatives, including transportation electrification, fees on and greater regulation of methane emissions, and financial incentives for low or zero-carbon forms of energy, products, or processes, which could result in changes in consumer preferences or otherwise increase competition within our industry. In addition, several states have also taken steps to incentivize the production of electric vehicles or otherwise limit the sale of gasoline or diesel-powered vehicles. These and any future legislation or regulatory programs could increase the cost of consuming or otherwise reduce demand for, the refined petroleum products that we produce and transport. Additionally, political, litigation and financial risks may result in curtailed refinery activity, increased liability, or other adverse effects on our business, financial condition and results of operations. +43 +Table of Content s +There are also increasing risks of litigation related to climate change effects. Governments and third-parties have brought suit against some fossil fuel companies alleging, among other things, that such companies created public and private nuisances by producing fuels that contributed to climate change, such as rising sea levels, and therefore are responsible for resulting roadway and infrastructure damages, or alleging that the companies have been aware of the adverse effects of climate change for some time but defrauded their investors or customers by failing to adequately disclose those impacts. In 2022, the EPA announced an ongoing enforcement initiative targeting GHG compliance, which was included as one of six national enforcement and compliance initiatives for fiscal years 2024 - 2027. Due to recent changes in priorities, it is not clear if the EPA will continue viewing GHG compliance as an enforcement priority. In the Netherlands, The Hague District Court has ordered Royal Dutch Shell (“RDS”) to reduce the CO2 emissions of the RDS group by net 45% by 2030, compared to 2019 levels, through the RDS group’s corporate policy. On November 12, 2024, the Court of Appeal of The Hague ruled that RDS has indeed a duty of care to reduce its GHG emissions. Despite this duty of care, the court ruled that it could not impose the specific reduction on RDS. However, other environmental organizations may bring similar cases against other parties. In Canada, in March 2023, Greenpeace filed a complaint with the Competition Bureau of Canada alleging that Pathways Alliance, a coalition of six of Canada’s largest oil sand producers, made false and misleading claims that they are actively reducing emissions and helping Canada achieve its climate targets. Although the Competition Bureau has not yet made a determination, the remedies being sought include a fine in the amount of the greater of CAN 10 million or 3% of worldwide gross revenues. In October 2024, the Ontario Court of Appeal ruled in Mathur v. Ontario that the Ontario government by passing legislation that set emissions reduction targets was required to do so in way that did not jeopardize the plaintiffs’ rights to Life, Liberty and Security of the Person or Equality under the Canadian Charter of Rights and Freedoms. The case was remitted back to the trial court for a determination of the constitutionality of the legislation based on this ruling. While we are not party to such suits at this time, we may become subject to or impacted by similar litigation in the future. Such cases could also adversely impact public perception and the demand for fossil fuels and petroleum products, or result in additional regulatory requirements, which could subsequently result in decreased demand for our services and refined products and a drop in our stock price. +In addition, increasing societal expectations for companies to address environmental issues, including climate change, and increased consumer use of substitutes to energy commodities may result in increased costs, reduced demand for our products and our services, reduced profits, increased investigations and litigation, and negative impacts on our stock price and costs of and access to capital markets. To the extent that societal pressures or political or other factors are involved, it is possible that such liability could be imposed on us without regard to our causation of or contribution to the asserted damage, or to other mitigating factors. +Furthermore, our stock price could be adversely impacted if existing stockholders, including institutional investors, elect in the future to shift some or all of their investments into renewable energy or non-energy related sectors. Additionally, there is the possibility that financial institutions may be pressured or required to adopt policies that limit funding for fossil fuel energy companies. For example, the Glasgow Financial Alliance for Net Zero announced commitments from over 500 firms around the world, resulting in over $100 trillion in capital committed to net zero goals. More recently, in October 2023, the Federal Reserve, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. released a finalized set of principles guiding financial institutions with $100 billion or more in assets on the management of physical and transition risks associated with climate change. Moreover, institutional lenders have been lobbied intensively, and often publicly, by environmental activists, advocates of international climate change treaties and agreements, proponents of the international Paris Agreement, and foreign citizenry concerned about climate change not to provide funding for fossil fuel energy companies. Accordingly, limitation of investments in and financings for fossil fuel energy companies or subsidies or other governmental support for competitive technologies or industries could result in the direct or indirect restriction, delay or cancellation of drilling programs or development or production activities, could result in a reduction of available capital funding for potential development projects and could also adversely affect demand for our services and refined petroleum products, all of which could adversely impact our future financial results. +44 +Table of Content s +Increasing attention to ESG matters may adversely impact our business, financial results, stock price or price of debt securities. +In recent years the investment community has become more attentive to ESG and sustainability related practices and has been lobbied intensively, and often publicly, by environmental activists concerned about climate change to limit or curtail activities with fossil fuel energy companies. Certain investors, funds, financial institutions and other capital markets participants may screen companies such as ours for ESG performance based on various factors like ESG ratings or proxy advisor recommendations, before investing in our common stock or debt securities, or lending to us or have imposed restrictions upon or otherwise limited lending to, investing in, or providing insurance coverage for, companies that operate in industries with higher perceived environmental exposure, such as the energy industry. If we are unable to meet the ESG standards or investment, lending, ratings, or voting criteria and policies set by these parties, we may lose investors, investors may allocate a portion of their capital away from us, we may become a target for ESG-focused activism, we may face increased costs of or limitations on access to capital or insurance necessary to sustain or grow our business, the price of our common stock or debt securities may be adversely impacted, demand for our services and refined petroleum products may be adversely impacted, and our reputation may be adversely affected, all of which could adversely impact our future financial results. Furthermore, there has recently been backlash from certain governments and investors against ESG funds and investment practices, which has resulted in increased scrutiny and withdrawals from such funds. Such backlash has also resulted in “anti-ESG” focused activism and investment funds as well as social media and public relations campaigns. If we are unable to meet the often conflicting ESG standards or investment, lending, ratings, or voting criteria and policies set by these parties, we may lose investors, investors may allocate a portion of their capital away from us, we may face increased ESG- or anti-ESG-focused activism, our cost of capital may increase, and our reputation may also be negatively affected. +In recent years, members of the investment community have also increased their focus on ESG practices and disclosures, including those related to climate change, GHG emissions targets, business resilience under the assumptions of demand-constrained scenarios, and net-zero ambitions in the energy industry in particular, as well as diversity, equity, and inclusion initiatives, political activities, and governance standards among companies more generally. Furthermore, certain public statements with respect to ESG matters, such as emissions reduction goals or progress, other environmental targets or other commitments addressing certain social issues, are becoming increasingly subject to heightened scrutiny from public and governmental authorities related to the risk of potential “greenwashing,” i.e., misleading information or false claims overstating potential ESG benefits. As a result, we may face increasing pressure or negative publicity regarding our ESG practices and disclosures and demands for ESG-focused engagement from investors, stakeholders, and other interested parties. This could result in higher costs, disruption and diversion of management attention, an increased strain on our resources, and the implementation of certain ESG practices or disclosures that may present a heightened level of legal and regulatory risk, or that threaten our credibility with other investors and stakeholders. +Investors, stakeholders and other interested parties are also increasingly focusing on issues related to environmental justice. This may result in increased scrutiny, protests, and negative publicity with respect to our business and operations, and those of our counterparties, which could in turn result in the cancellation or delay of projects, the revocation or delay of permits, termination of contracts, lawsuits, regulatory action, and policy change that may adversely affect our business strategy, increase our costs, adversely affect our reputation and financial performance, and impact our ability to attract and retain employees. +Certain undertakings that are incorporated in the EU (including EU-incorporated subsidiaries of non-EU incorporated parent entities) will be subject to ESG reporting requirements under the EU’s CSRD, which requires in-scope companies to report extensive audited sustainability information, including disclosing risks and opportunities arising from environmental and social matters, and the impact of their business on people and the environment. Certain of our subsidiaries are expected to have to begin reporting from 2026 onward for financial years beginning on January 1, 2025. Ultimate parent companies that are not incorporated in the EU, such as HF Sinclair, may be required to report under CSRD from 2029 onward for financial years beginning on or after January 1, 2028. CSRD and similar laws and regulations, such as the CCDAA and the CFRA in California, could result in increased compliance costs and affect the results of our operations and financial position. Such laws and similar regulations could also increase our litigation risks or may increase risks related to our reputation or goodwill as we cannot predict how additional reporting under these laws may be perceived or interpreted by our customers and stakeholders. +45 +Table of Content s +Compliance with, or developments with respect to, renewable and low carbon fuel blending programs, and other regulations, policies, and standards impacting the demand for low-carbon fuels could have an adverse effect on our financial condition and results of operations. +As described under Items 1 and 2. “Business and Properties – Additional Operations and Other Information – Governmental Regulation,” many international, federal, state, provincial and local governments have issued, or are considering issuing, low carbon fuel regulations, policies, and standards to help reduce GHG emissions and increase the percentage of low-carbon fuels in the transportation fuel mix. +Pursuant to the 2007 Energy Independence and Security Act, the EPA promulgated the RFS regulations reflecting the increased volume of renewable fuels mandated to be blended into the nation’s fuel supply. The regulations, in part, require refiners to add annually increasing amounts of “renewable fuels” to their petroleum products or purchase credits, known as RINs, in lieu of such blending. We currently purchase RINs for some fuel categories on the open market in order to comply with the quantity of renewable fuels we are required to blend under the RFS regulations. Since the EPA first began mandating biofuels in excess of the “blend wall” (the 10% ethanol limit prescribed by most automobile warranties), the price of RINs has been extremely volatile. While we cannot predict the future prices of RINs, the costs to obtain the necessary number of RINs could be material. If we are unable to pass the costs of compliance with the RFS regulations on to our customers, if sufficient RINs are unavailable for purchase, if we have to pay a significantly higher price for RINs or if we are otherwise unable to meet the RFS mandates, our financial condition and results of operations could be adversely affected. +In the past, we have received small refinery exemptions under the RFS program for certain of our refineries. However, there is no assurance that such an exemption will be obtained for any of our refineries in future years. For example, in 2022, the EPA denied all pending small refinery exemption petitions on the belief that small refineries are able to pass through compliance costs to customers. This decision was challenged and, in August 2024, nearly all of the waiver denials were vacated by the U.S. Court of Appeals for the D.C. Circuit. Several exemption petitions from 2023 and 2024 are currently pending before the EPA. There is uncertainty related to the EPA’s approach to evaluating exemption petitions and whether the EPA is likely to grant such exemptions is unknown. +In addition, the RFS regulations are highly complex and evolving, requiring us to periodically update our compliance systems. In July 2023, the EPA published RFS regulations that establish annual RVOs and percentage standards for 2023 through 2025 for cellulosic biofuel, biomass-based diesel, advanced biofuel, and total renewable fuel. The biofuel blending percentages increase in each of the three years and are higher than previous years. Higher blending percentages may increase the cost of compliance because the future cost of RINs is difficult to estimate. Moreover, in addition to increased price volatility in the RINs market, there have been multiple instances of RINs fraud occurring in the marketplace over the past several years. The EPA has initiated several enforcement actions against refiners who purchase fraudulent RINs, resulting in substantial costs to the refiner. We cannot predict with certainty our exposure to increased RINs costs in the future, nor can we predict the extent by which costs associated with RFS regulations will impact our future results of operations. +We strategically market our low-carbon fuels based on regional policies, feedstock preferences, CI scores, and our ability to obtain fuel pathways. A significant portion of our low-carbon fuels are sold in California and Canada. We are exposed to the volatility in the market price of LCFS program credits. We cannot predict the future prices of LCFS program credits. Prices for LCFS program credits are dependent upon a variety of factors, including, as applicable, changes in regulations, the availability of LCFS program credits for purchase, transportation fuel production levels, which can vary significantly each quarter, approved CI pathways, and CI scores. If an insufficient number of LCFS program credits are available for purchase, if we have to pay significantly higher prices for them, or if we are otherwise unable to meet other obligations under the LCFS programs, our business, financial condition, results of operations, and liquidity could be adversely affected. +46 +Table of Content s +In addition to state LCFS (e.g., California LCFS, Oregon CFP and Washington CFS), and certain carbon cap and trade programs (e.g., Washington CAA and Oregon CPP, which, we note, is in current legal limbo due to a December 2023 court decision striking down the ODEQ’s 2021 CPP rules and the ODEQ’s adoption of revised CPP rules in November 2024, which may be subject to legal challenge, we do business in multiple jurisdictions that have issued, or are considering issuing, similar low-carbon fuel regulations, policies, and standards. The LCFS, carbon cap and trade programs and similar U.S. state and international low carbon fuel regulations, policies, and standards are extremely complex, often have different or conflicting requirements or methodologies, and are frequently evolving, requiring us to periodically update our systems and controls to maintain compliance, which could require significant expenditures, and presents an increased risk of administrative error. Our Refining segment could be materially and adversely affected if (i) we are unable to comply with these programs in the states where we sell our petroleum products or we incur a significant cost to comply or (ii) we are unable to continue to sell our products in markets where we currently sell our products. While these regulations, policies and standards may materially and adversely impact our Refining segment, they do create opportunity for our Renewables segment. As a result, our Renewables segment could be materially and adversely affected if (i) these regulations, policies, and standards are adversely changed, not enforced, or discontinued, (ii) the benefits therefrom are reduced (such as the blender’s tax credit and other incentives), (iii) any of the products we produce are deemed not to qualify for compliance therewith, or (iv) we are unable to satisfy or maintain any approved pathways. Such changes could also negatively impact the economic assumptions and projections with respect to many of our Renewables segment investments and could have a material adverse impact on the returns achieved from those investments. +Increases in required fuel economy and regulation of GHG emissions from motor vehicles may reduce demand for petroleum-based transportation fuels. +The EPA and the National Highway Traffic Safety Administration (“NHTSA”) are required to promulgate requirements regarding the Corporate Average Fuel Economy (“CAFE”) of the nation’s passenger fleet. The EPA and NHTSA previously adopted such standards, which were most recently revised in 2024 to impose more stringent requirements for emissions reductions, although the newly revised standards are currently subject to litigation in the U.S. Circuit Court for the Sixth Circuit. The final rule was challenged by 26 states, various agricultural associations, oil and gas and automotive industry groups and was also challenged by a variety of parties seeking even stricter GHG and CAFE standards to increase fuel economy. Furthermore, California adopted Advanced Clean Cars I and Advanced Clean Cars II (“ACC II”) in 2012 and 2022, respectively, which are intended to scale down the use of internal combustion engines and instead require an increased number of zero emission vehicles. ACC II mandates that, by 2035, all new passenger cars, trucks and SUVs sold in California will be zero emission vehicles. In October 2023, California announced a new effort to consider amendments to ACC II, including more stringent GHG emissions standards. Although states besides California are not permitted to develop their own emissions standards, Section 177 of the Clean Air Act authorizes other states to choose to adopt California’s standards in lieu of federal requirements. Several states, including, for example, New Mexico and Colorado, have adopted or are seeking to adopt the California standards, in whole or in part, and promote zero emission vehicles and mandate the transition away from internal combustion engines. Any further increases in fuel economy standards, along with mandated increases in use of renewable fuels discussed above, as well as electric vehicle mandates or internal combustion engine bans, could result in decreasing demand for petroleum-based transportation fuels. Decreasing demand for petroleum-based transportation fuels could have a material adverse effect on our financial condition and results of operation. +47 +Table of Content s +State regulation of petroleum product markets and reporting requirements could adversely impact our business, costs of operation, and financial results. +In recent years, high gasoline prices have raised questions about the operation of petroleum product markets and company profits. As a result, we may become subject to state regulation of petroleum product markets and reporting requirements relating to the petroleum industry. For example, California recently enacted legislation (SB 1322 and SBx 1-2), which greatly expanded reporting requirements for the petroleum industry and authorized the California Energy Commission to establish a maximum gross gasoline refining margin, impose financial penalties for profits exceeding the established maximum margin, and regulate refinery turnaround and maintenance activities that may affect fuel supply and pricing. Although we are not subject to these California statutes, other states could adopt similar regulations or reporting requirements. For example, the Washington legislature introduced HB 2232, which although it was not ultimately adopted, proposed to establish extensive petroleum industry reporting requirements (including the reporting of supply, pricing and profit information) and create a new division within the Washington Utilities and Transportation Commission charged with providing independent oversight and analysis of petroleum fuel markets. If HB 2232 or similar legislation is enacted, it could result in increased compliance costs and affect the results of our operations and financial position. Such laws and similar regulations could also increase our litigation risks or may increase risks related to our reputation or goodwill as we cannot predict how additional reporting under this law may be perceived or interpreted by our customers and stakeholders. +Physical or transitional risks of climate change could have an adverse effect on our financial condition and results of operations. +Scientists have noted that changes occurring in the environment may produce changes to the climate, which have significant effects on the weather. These events, including, but not limited to, drought, winter storms, wildfire, tornados, extreme temperatures, extreme precipitation or flooding, may be more intense or more frequent as a result of climate change and could have an adverse effect on our continued operations as well as the operations of our suppliers and customers. Additionally, changing meteorological conditions, particularly temperature, may result in changes to demand for our products. Our suppliers or customers may also be subject to similar risks, any of which may adversely impact our business, financial condition, or operations. +Compliance with and changes in tax laws could materially and adversely impact our financial condition, results of operations and cash flows. +We are subject to extensive tax liabilities, including federal and state income taxes and transactional taxes such as excise, sales and use, payroll, franchise, withholding and property taxes. In addition, many tax liabilities are subject to periodic audits by taxing authorities, and such audits could subject us to interest and penalties. New tax laws and regulations and changes in existing tax laws and regulations could result in increased expenditures by us for tax liabilities in the future and could materially and adversely impact our financial condition, results of operations and cash flows. +Additionally, U.S. federal tax law provides various tax credits to producers of qualifying renewable fuels. These tax credits have the effect of making the production of qualifying renewable fuels more competitive by offsetting a portion of the production costs or by supplementing a portion of the revenue, but may be repealed by governmental action at any time. Alternatively, the types of renewable fuels to which these tax credits apply, as well as the applicable value, duration, and requirements, may be modified or amended by governmental action in a form where the types of fuel mixtures we produce are not eligible for the tax credits or are eligible for relatively less benefits than we anticipated. As a result, a loss of, or reduction in, U.S. federal tax credits for producers of qualifying renewable fuels could increase our production costs or decrease our revenues which, in turn, could adversely impact the financial condition, results of operations and cash flows of our renewables business. +48 +Table of Content s +RISKS RELATED TO CYBERSECURITY, DATA SECURITY AND PRIVACY, INFORMATION TECHNOLOGY AND INTELLECTUAL PROPERTY +Our information technology systems, operational systems, security systems, infrastructure, communications networks, software integrated in our manufacturing and administrative processes, and customer data processed by us, third-party vendors or suppliers are subject to risks presented by cyber events, including incidents or breaches of security, any of which could prevent us or third parties we rely on from effectively operating our business, and could harm our reputation or materially adversely affect our company’s assets, growth efforts, operations, facilities, business reputation or financial condition. +Our business is dependent upon increasingly complex information technology systems and other digital technologies for controlling our plants and pipelines, processing transactions and summarizing and reporting results of operations. The secure collection, processing, maintenance, storage, and transmission of information is critical to our operations. We are at risk for interruptions, outages and breaches of operational systems, owned by us or our third-party vendors or suppliers; or third-party data that we process or our third-party partners process on our behalf. Such cyber incidents could materially disrupt or shut down operational systems; result in loss of, unauthorized access to, or copying or transfer of intellectual property assets, trade secrets or other proprietary or competitively sensitive information; compromise certain information of customers, employees, suppliers or others; and jeopardize the security of our facilities. We and vendors on our behalf monitor our information technology systems on a 24/7 basis in an effort to detect cyberattacks, security breaches or unauthorized access. Preventative and detective measures we utilize include independent cybersecurity audits and penetration tests. We implemented these efforts along with other risk mitigation procedures designed to detect and address unauthorized and damaging activity on our network, stay abreast of the increasing cybersecurity threat landscape and improve our cybersecurity posture, but there is no guarantee that such measures will be adequate to detect, prevent or mitigate cyber incidents. We also have limited ability to force third parties, including our partners, suppliers and service providers (including providers of cloud-hosting services for our data or applications), to implement strong cybersecurity controls and are exposed to potential harm from cybersecurity events that may affect their operations. Any implementation, maintenance, segregation and improvement of our systems may require significant management time, support and cost and may not be effective or adequate. These efforts may come at the potential cost of revenues and human resources that could be utilized to continue to enhance our product offerings, and such increased costs and diversion of resources may adversely affect operating margins. +A cyber incident could be caused by disasters, insiders (through inadvertence or with malicious intent) or malicious third parties (including nation-states or nation-state supported actors) using sophisticated, targeted methods to circumvent firewalls, encryption and other security defenses, including hacking, fraud, trickery or other forms of deception that are generally beyond our control despite our implementation of protective measures. Emerging artificial intelligence (“AI”) technologies may improve or expand the capabilities of malicious third parties in a way we cannot predict at this time, including being used to develop new hacking tools, exploit vulnerabilities, using phishing to trick employees into making payments or granting access to internal systems, obscure malicious activities, and increase the difficulty of detecting threats. Our service providers and vendors are also increasingly using and offering platforms powered by AI. While we advise our employees and contractors to refrain from providing confidential or sensitive information to any AI models or AI-powered platforms and limit our vendors’ processing of any confidential or sensitive information in an AI model, we cannot predict how an AI model will process our data or if it will inadvertently provide our data to a third party in its outputs. Any input of our confidential or sensitive data into an AI model for development or use purposes could result in inadvertent disclosure of this data at any time to an unknown third party, which could subject us to litigation or regulatory actions or cause us to breach our contractual obligations. Strategic targets, such as energy-related assets, may be at greater risk of future attacks from hackers, nation-sponsored groups or other nefarious actors than other targets in the United States, especially during times of war with nations with a history of funding cyberattacks. While there have been immaterial incidents of unauthorized access to our information technology systems, we have not experienced any material impact on our business or operations from these attacks; however, there is no assurance that other such incidents have not already occurred and we are unaware of it, and that we will not suffer such a loss in the future. In addition, information technology system failures, communications network disruptions, and security breaches could still impact equipment and software used to control plants and pipelines, resulting in improper operation of our assets or delays in the delivery or availability of our customers’ products, contamination or degradation of the products we transport, store or distribute, or releases of hydrocarbon products and other damage to our facilities for which we could be held liable. These information technology system failures, communications network disruptions, and security breaches could also cause us to breach our contractual arrangements with other parties, subject us to regulatory actions or litigation and harm our brand and business relationships as well as our financial condition. +49 +Table of Content s +Furthermore, we collect and store sensitive data in the ordinary course of our business, including personally identifiable information of our employees as well as our proprietary business information and that of our customers, suppliers, contractors, investors and other stakeholders. Additionally, new laws and regulations governing cybersecurity, data privacy and unauthorized disclosure of confidential information, including international comprehensive data privacy regulations and recent U.S. state legislation in Iowa and Utah, among others, pose increasingly complex compliance challenges and could potentially elevate our costs over time. Our efforts to improve security and protect data may result in increased distraction to management and capital and operating costs to modify, upgrade or enhance our security measures that are designed to protect against such cyberattacks and we may face difficulties in fully anticipating or implementing adequate security measures or mitigating potential harm. Moreover, as technologies evolve and cyberattacks become increasingly sophisticated, we may not be able to anticipate, detect or prevent cyberattacks or security breaches, particularly because the methodologies used by attackers change frequently or may not be recognized until after such attack is launched, and because attackers are increasingly using technologies specifically designed to circumvent cybersecurity measures and avoid detection. Even with insurance coverage for cyberattacks, data breaches or unauthorized access of our or a third-party partner’s information technology systems, a claim could be denied or coverage delayed. Moreover, it is increasingly difficult to buy sufficient cyber insurance coverages as the insurance market has been limiting both liability under cyber policies and the issuance of said policies, generally. A cyberattack or security breach could result in liability under data privacy laws, regulatory penalties, damage to our reputation or a loss of confidence in our products and services, or additional costs for remediation and modification or enhancement of our information systems to prevent future occurrences, all of which could have a material and adverse effect on our business, financial condition or results of operations. +We may be subject to information technology system failures, communications network disruptions and data breaches that are generally beyond our control. +We depend on the efficient and uninterrupted operation of third-party hardware and software systems and infrastructure, including our operating, communications and financial reporting systems. These systems are critical in meeting customer expectations, effectively tracking, maintaining and operating our equipment, directing and compensating our employees, and interfacing with our financial reporting system. We have implemented safeguards and other preventative measures designed to protect our systems and confidential and proprietary data, including sophisticated network security and internal control measures; however, our information technology systems and communications network, and those of our information technology and communication service providers, remain vulnerable to interruption by natural disasters, power loss, telecommunications failure, terrorist attacks, internet failures, computer malware, ransomware, cyberattacks, data breaches and other events unforeseen or generally beyond our control. The increase in companies and individuals working remotely has increased the risk of cyberattacks and potential cybersecurity incidents, both deliberate attacks and unintentional events. Any of these events could cause system interruptions, delays, and loss of critical data, and could prevent us from developing or manufacturing products or providing services on a timely basis, which could make our business and services less attractive and subject us to liability. Any of these events could damage our reputation and be expensive to remedy. +Our business is subject to complex and evolving global laws, regulations and security standards regarding data privacy, cybersecurity and data protection (“data protection obligations”). Many of these data protection obligations are subject to change and uncertain interpretation, and any real or perceived failure to comply with such obligations could result in claims, increased cost of operations, or other harm to our business. +The constantly evolving global regulatory and legislative environment surrounding data privacy and protection poses increasingly complex compliance challenges, and complying with such data protection obligations could increase the costs and complexity of compliance and enforcement risks. These laws also are not uniform, as certain laws may be more stringent or broader in scope, or offer greater individual rights, with respect to sensitive and personal information, and such laws may differ from each other, which may complicate compliance efforts. Our data protection obligations may also change as the regulatory environment governing use and development of AI technologies changes. We, and our third-party service providers, collect some personal information from consumers, including credit card data, and we have personal information from our employees, job applicants and some business partners, such as customers, contractors and distributors. Any failure, whether real or perceived, by us to comply with applicable data protection obligations could result in proceedings or actions against us by governmental entities or others, subject us to significant fines, penalties, judgments, and negative publicity, require us to change our business practices, increase the costs and complexity of compliance, and adversely affect our business. Our compliance with current laws such as the General Data Protection Regulation and other similar current and upcoming data privacy/security laws, as well as any associated inquiries or investigations or any other government actions related to these laws, may increase our operating costs or subject us to legal and reputational risks, including significant fines, civil or criminal penalties or judgments, proceedings or litigation by governmental agencies or customers, class action privacy litigation in certain jurisdictions and negative publicity. +50 +Table of Content s +Our pipeline operations are subject to the Department of Homeland Security’s (“DHS”) Transportation Security Administration (“TSA”) security directives. These directives require us to comply with mandatory reporting measures, including, among other things, to appoint personnel, report confirmed and potential cybersecurity incidents to the DHS Cybersecurity and Infrastructure Security Agency (“CISA”) and provide vulnerability assessments. As legislation continues to develop and cyber incidents continue to evolve, we may be required to expend significant additional resources to respond to cyberattacks, to continue to modify or enhance our protective measures, or to detect, assess, investigate and remediate any security vulnerabilities and report any cyber incidents to the applicable regulatory authorities. Any failure to maintain compliance with these evolving government regulations may result in enforcement actions which may then result in significant time, support and cost and have a material adverse effect on our business and operations. +We may be unable to adequately maintain, enforce and protect our intellectual property and may not be able to prevent third parties from unauthorized access or use of our intellectual property, which may increase our cost of doing business or otherwise hurt our ability to compete in the market. +We develop and use intellectual property in the ordinary course of our business, including trademarks, trade secrets, copyrighted work and innovations, some of which are material to our business. We take measures designed to identify and protect our intellectual property through practices appropriate for securing and protecting exclusive rights in and to our intellectual property, including applying for registrations in the United States and in various foreign jurisdictions. Despite our efforts to protect such intellectual property, unauthorized third parties from time to time have, and may continue to, illegally obtain, copy, use or disclose our trademarks (or other marks likely to cause confusion among our consumers), technologies, products and processes or seek court declarations that they do not infringe, misappropriate, dilute, or otherwise violate our intellectual property. In addition, the laws and/or judicial systems and enforcement mechanisms of foreign jurisdictions in which we create, market and sell our products may afford little or no effective protection of our intellectual property. We may also be subject to infringement, misappropriation, dilution, or other violation complaints from others challenging our use of a valid technology or intellectual property right. We cannot guarantee that our efforts to enforce our intellectual property rights against unauthorized use and appropriation, or our efforts to defend against third party claims of infringement would be successful. These potential risks to our intellectual property and any failure to adequately maintain, enforce and protect our intellectual property could subject us to increased competition and potentially result in the loss of our competitive advantage, key technology and resources, and customer trust, and negatively impact our brand. These risks could also lead to a decrease in our revenue which would negatively impact our business, prospects, liquidity, financial position and results of operations. +If we fail to comply with our obligations under license or technology agreements with third parties or are unable to license rights to use technologies on reasonable terms or at all, we may be required to pay damages or could potentially lose license rights that are critical to our business. +We obtain rights and licenses to certain intellectual property, including technologies, data, content and software from third parties, that are important to our business, and in the future we may enter into additional agreements that provide us with rights or licenses to valuable intellectual property or technology. If a licensor alleges that we failed to comply with any of the obligations under our license agreements, we may be required to pay damages, enter costly litigation, and the licensor may have the right to terminate part of or all of the license. Termination by the licensor would cause us to lose valuable rights that may be difficult to acquire elsewhere, and could prevent us from using, selling, marketing, manufacturing, importing or producing our products and services, or inhibit our ability to commercialize future products and services. Our business could suffer if any current or future licenses are limited or terminated, if the licensors fail to abide by the terms of the license, if the licensed intellectual property rights are found to be invalid or unenforceable, if the licensed technology is found to infringe, misappropriate, dilute, or otherwise violate the rights of a third party, or if we are unable to enter into necessary licenses on acceptable terms or at all. Moreover, our licensors may own or control intellectual property that has not been licensed to us and, as a result, we may be subject to claims, regardless of their merit, that we are infringing, misappropriating, diluting, or otherwise violating the licensor’s or another party’s rights. +51 +Table of Content s +In the future, we may identify additional third-party intellectual property that we believe is useful or necessary to engage in our business. However, such licenses may not be available on acceptable terms or at all. The licensing or acquisition of third-party intellectual property rights is a competitive area, and several companies may pursue strategies to license or acquire third-party intellectual property rights that we may consider attractive or necessary. In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. Even if such licenses are available, we may be required to pay the licensor substantial license fees or royalties based on sales of our products and services. Such fees and royalties are a component of the cost of our products and services and may affect the attractiveness of and the margins on our products and services. In addition, such licenses may be non-exclusive, which could give our competitors access to the same intellectual property licensed to us, and sometimes at a cheaper cost. Any of the foregoing could have a material adverse effect on our competitive position, business, financial condition, results of operations and on our ability to prevent others from interfering with our goodwill and commercialization of our products and services. +RISKS RELATED TO LIQUIDITY, FINANCIAL INSTRUMENTS AND CREDIT +Changes in our credit profile, or a significant increase in the price of crude oil, may affect our relationship with our suppliers, which could have a material adverse effect on our liquidity and limit our ability to purchase sufficient quantities of crude oil to operate our refineries at desired capacity. +An unfavorable credit profile, or a significant increase in the price of crude oil, could affect the way crude oil suppliers view our ability to make payments and induce them to shorten the payment terms of their invoices with us or require credit enhancement. Due to the large dollar amounts and volume of our crude oil and other feedstock purchases, any imposition by our suppliers of more burdensome payment terms or credit enhancement requirements on us may have a material adverse effect on our liquidity and our ability to make payments to our suppliers. This in turn could cause us to be unable to operate our refineries at desired capacity and could adversely affect our profitability and cash flow. +We may not be able to obtain funding on acceptable terms or at all because of volatility and uncertainty in the credit and capital markets. This may hinder or prevent us from meeting our future capital needs. +The domestic and global financial markets and economic conditions are disrupted and volatile from time to time due to a variety of factors, including low consumer confidence, high unemployment, geoeconomic and geopolitical issues, weak economic conditions and uncertainty in the financial services sector. In addition, the fixed-income markets have experienced periods of extreme volatility, which negatively impacted market liquidity conditions. As a result, the cost of raising money in the debt and equity capital markets has increased substantially at times while the availability of funds from these markets diminished significantly. In particular, as a result of concerns about the stability of financial markets generally and the solvency of lending counterparties specifically, the cost of obtaining money from the credit markets may increase as many lenders and institutional investors increase interest rates, enact tighter lending standards, refuse to refinance existing debt on similar terms or at all and reduce, or in some cases cease to provide, funding to borrowers. We use both fixed and variable rate debt, and we are exposed to market risk due to the floating interest rates on our credit facilities. In addition, lending counterparties under any existing revolving credit facility and other debt instruments may be unwilling or unable to meet their funding obligations, or we may experience a decrease in our capacity to issue debt or obtain commercial credit or a deterioration in our credit profile, including a rating agency lowering or withdrawing our credit ratings if, in its judgment, the circumstances warrant. Due to these factors, we cannot be certain that new debt or equity financing will be available on acceptable terms. If funding is not available when needed, or is available only on unfavorable terms, we may be unable to meet our obligations as they come due or we may be required to sell assets. Moreover, without adequate funding, we may be unable to execute our growth strategy, complete future acquisitions or construction projects, take advantage of other business opportunities or respond to competitive pressures, comply with regulatory requirements, or meet our short-term or long-term working capital requirements, any of which could have a material adverse effect on our revenues and results of operations. Failure to comply with regulatory requirements in a timely manner or meet our short-term or long-term working capital requirements could subject us to regulatory action. +We are exposed to the credit risks, and certain other risks, of our key customers and vendors. +We are subject to risks of loss resulting from nonpayment or nonperformance by our customers. We derive a significant portion of our revenues from contracts with key customers. Additionally, certain key customers of our Puget Sound Refinery contribute significantly to the cash flows and profitability of that facility. Any default or delay in payment by, or disputes with, those customers, such delays or disputes which have occurred in the past and may occur in the future, could have an adverse impact on our financial results. +52 +Table of Content s +Any such default or delay in payment by our customers could negatively affect our operating results in the periods in which they occur, and, if significant, could materially or adversely affect our business, financial condition, results of operations, and cash flows. In addition, nonperformance by vendors who have committed to provide us with products or services could result in higher costs or interfere with our ability to successfully conduct our business. +Our credit facilities contain certain covenants and restrictions that may constrain our business and financing activities. +The operating and financial restrictions and covenants in our credit facility, HEP’s credit facility and any future financing agreements could adversely affect our ability to finance future operations or capital needs or to engage, expand or pursue our business activities. For example, each of our revolving credit facility and HEP’s revolving credit facility imposes usual and customary requirements for this type of credit facility, including: (A) for us and HEP, (i) limitations on liens and indebtedness, (ii) a prohibition on changes in control, and (iii) restrictions on engaging in mergers and consolidations, and (B) for HEP, (i) limitations on asset sales, (ii) limitations on investments, and (iii) limitations on restricted payments, including certain debt prepayments. If we fail to satisfy the covenants set forth in the credit facilities or another event of default occurs under the credit facilities, the maturity of the loans could be accelerated or we could be prohibited from borrowing for our future working capital needs and issuing letters of credit. We might not have, or be able to obtain, sufficient funds to make these immediate payments. If we desire to undertake a transaction that is prohibited by the covenants in our credit facility or HEP’s credit facility, as applicable, we will need to obtain consent under our credit facility or HEP’s credit facility, as applicable. Such refinancing may not be possible or may not be available on commercially acceptable terms. +Our leverage may adversely affect our ability to fund future working capital, capital expenditures and other corporate purposes, future acquisitions, construction or development activities, or to otherwise realize fully the value of our assets and opportunities because of the need to dedicate a significant portion of our cash flow from operations to payments on our indebtedness or to comply with any restrictive terms of our indebtedness. Our leverage also may make our results of operations more susceptible to adverse economic and industry conditions by limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate and may place us at a competitive disadvantage as compared to our competitors that have less debt. +Our hedging transactions may limit our gains and expose us to other risks. +We periodically enter into derivative transactions as it relates to inventory levels and/or future production to manage the risks from changes in the prices of crude oil, refined products and other feedstocks. These transactions limit our potential gains if commodity prices move above or below the certain price levels established by our hedging instruments. We hedge price risk on inventories above our target levels to minimize the impact these price fluctuations have on our earnings and cash flows. Consequently, our hedging results may fluctuate significantly from one reporting period to the next depending on commodity price fluctuations and our relative physical inventory positions. These transactions may also expose us to risks of financial losses; for example, if our production is less than we anticipated at the time we entered into a hedge agreement or if a counterparty to our hedge agreements fails to perform its obligations under the agreements. +We may be unable to pay future dividends. +We will only be able to pay dividends from our available cash on hand, cash from operations or borrowings under our credit agreement. The declaration of future dividends on our common stock is evaluated quarterly and will be at the discretion of our Board of Directors and will depend upon many factors, including our results of operations, financial condition, earnings, capital requirements, and restrictions in our debt agreements and legal requirements. We cannot assure you that any dividends will be paid or the frequency or amounts of such payments. +Item 1B. Unresolved Staff Comments +We do not have any unresolved staff comments. +53 +Table of Content s +Item 1C. Cybersecurity +Description of Processes for Assessing, Identifying, and Managing Cybersecurity Risks +We are focusing on cybersecurity risk, particularly as our operations become increasingly dependent on digital technologies for controlling our plants and pipelines, processing transactions and summarizing and reporting results of operations. Globally, as cybersecurity incidents are occurring more often and using increasingly sophisticated methods, we are at risk for interruptions, outages and breaches of operational systems, including business, financial, accounting, product development, data processing or manufacturing processes, owned by us or our third-party vendors or suppliers, or data that we process or that our third-party service providers process on our behalf. Any such cyber incidents have the potential to materially disrupt or shut down operational systems; result in loss of, unauthorized access to, or copying or transfer of intellectual property assets, trade secrets or other proprietary or competitively sensitive information; compromise certain information of customers, employees, suppliers or others; and/or jeopardize the security of our facilities. We collect and store sensitive data in the ordinary course of our business, including certain personally identifiable information and proprietary business information for our business and our customers, suppliers, contractors, investors and other stakeholders. We also work with third-party service providers that may in the course of their business relationship with us collect, store, process and transmit such data on our behalf. +As further described in Item 1A. “Risk Factors – Risks Related to Cybersecurity, Data Security, and Privacy, Information Technology and Intellectual Property,” the Department of Homeland Security’s (“DHS”) Transportation Safety Administration has issued a series of security directives that require us to take a number of actions, including among other things, to appoint personnel, report confirmed and potential cybersecurity incidents to the DHS Cybersecurity and Infrastructure Security Agency and provide vulnerability assessments. We have adopted a cybersecurity program, which uses technology and processes designed to help mitigate cybersecurity risks, with our information technology (“IT”) and operational technology (“OT”) teams working together to protect, identify, detect, mitigate and respond to potential cybersecurity incidents that threaten our Company. Our cybersecurity program includes a process for overseeing and identifying cybersecurity risks associated with our third-party service providers. +We have made efforts to implement the National Institute of Standards and Technology (NIST) Cybersecurity Framework as well as supplemental guidance for information and operational technologies. We seek to follow federal and state statutory and regulatory guidance and have adopted internal policies and standards designed to align with these requirements. +We regularly engage independent third-party security consultants to help assess and monitor our IT and OT environments for vulnerabilities, to conduct penetration testing and to recommend mitigation strategies. In addition, we use third-party tools for vulnerability scans to identify external and internal risks. +Each employee’s and contractor’s ability to recognize and report cybersecurity threats is an important component of our cybersecurity program. On an annual basis, all Company employees are required to complete cybersecurity training. In addition, we regularly utilize employee exercises and communications designed to reinforce key cybersecurity training messages. +The above cybersecurity risk management processes are integrated into our overall risk management program. In addition to our efforts to continually evaluate our cybersecurity program and cybersecurity risks based upon emerging threats as a part of our risk management processes, cybersecurity risks to the Company are evaluated periodically through internal audits and annually by independent consultants, and we seek to incorporate learnings into our overall risk matrices. +We continue to make investments in new cybersecurity technologies to protect our facilities, users, and stakeholders, and to protect the personally identifiable information we maintain. +Board of Directors’ Oversight of Risks from Cybersecurity Risks +Cybersecurity risks are overseen by our full Board of Directors with input from the Audit Committee, which reviews the results of internal audit assessments and tests related to cybersecurity. As part of this oversight, the Board of Directors and the Audit Committee meet regularly to discuss the progress of ongoing initiatives and to seek coordination between enterprise stakeholders. At these meetings, our Chief Information Officer (“CIO”), who oversees the Company’s cybersecurity program, along with the Chief Information Security Officer (“CISO”) and key subject matter experts, as necessary, review current and emerging cybersecurity-related threats as well as key performance indicators for cybersecurity process maturity, operational performance, and enterprise performance in countering these threats. Based on the information provided through these various processes, our Board of Directors evaluates the risks facing us and provides guidance to management on our risk management strategy. +54 +Table of Content s +Management’s Role in Assessing and Managing Cybersecurity Risks +The CIO, in collaboration with our CISO, and other key leaders across HF Sinclair operations, are primarily responsible for assessing and managing our material risks from cybersecurity threats, monitoring the effectiveness of our cybersecurity detection and response processes in countering current threats and providing updates to our executive team. +The CIO has over 25 years of Information Technology experience, 20 of those years leading large programs within the Oil & Gas industry, including mergers and acquisitions, cybersecurity, digital transformation. The CISO also brings over 30 years of Information Technology experience, with almost 20 years of Oil & Gas experience which includes IT & OT Cybersecurity and technology infrastructure. +The CIO serves as Chair of the Company’s management level Cyber Risk Committee, which provides oversight over the Company’s strategy and controls to identify, manage and mitigate risks related to cybersecurity and incident response and resiliency associated with the Company’s IT and OT environments, and is comprised of representatives from compliance, IT and OT cybersecurity, internal audit, legal and risk. The Chair of the Cyber Risk Committee reports to the Company’s management level Risk Management Oversight Committee on a regular basis and both the Chair of the Cyber Risk Committee and the CISO report to the Board of Directors on a regular basis. +The Company has adopted multiple incident response plans that establish guidelines for responding to incidents that may compromise the confidentiality, integrity and availability of Company information and systems, including referring matters to the Company’s Incident Response Team and, as appropriate, to the Chief Executive Officer and the Board of Directors for additional evaluation and oversight. +As of the date of this Annual Report on Form 10-K, though the Company and our service providers have experienced certain cybersecurity incidents, we are not aware of any previous cybersecurity threats that have materially affected or are reasonably likely to materially affect our Company. However, we acknowledge that cybersecurity threats are continually evolving, and the possibility of future cybersecurity incidents remains. Despite the implementation of our cybersecurity processes, our security measures cannot guarantee that a significant cybersecurity attack will not occur. While we devote resources to our security measures designed to protect our systems and information, no security measure is infallible. See Item 1A. “Risk Factors – Risks Related to Cybersecurity, Data Security, and Privacy, Information Technology and Intellectual Property” for additional information about the risks to our business associated with a breach or compromise to our IT systems. +Item 3. Legal Proceedings +Commitment and Contingency Reserves +In the ordinary course of business, we may become party to legal, regulatory or administrative proceedings or governmental investigations, including environmental and other matters. Damages or penalties may be sought from us in some matters and certain matters may require years to resolve. While the outcome and impact of these proceedings and investigations on us cannot be predicted with certainty, based on advice of counsel and information currently available to us, management believes that the resolution of these proceedings and investigations through settlement or adverse judgment will not either individually or in the aggregate have a material adverse effect on our financial condition, results of operations or cash flows. +The environmental proceedings are reported to comply with SEC regulations which require us to disclose proceedings arising under provisions regulating the discharge of materials into the environment or protecting the environment when a governmental authority is party to the proceedings and such proceedings involve potential monetary sanctions that we reasonably believe could exceed $1 million or more. +55 +Table of Content s +Environmental Matters +Navajo +HF Sinclair Navajo Refining LLC (“HFS Navajo”) has been engaged in discussions with, and has responded to document requests from, the EPA, the DOJ and the New Mexico Environment Department (“NMED”) (collectively, the “Navajo Matter Government Agencies”) regarding HFS Navajo’s compliance with the Clean Air Act (“CAA”) and underlying regulations, and similar New Mexico laws and regulations, at its Artesia and Lovington, New Mexico refineries. The discussions have included the following topics: (a) alleged noncompliance with CAA’s National Emission Standards for Hazardous Air Pollutants (“NESHAP”) and New Source Performance Standards (“NSPS”) at the Artesia refinery, which were set forth in a Notice of Violation (“May 2020 NOV”) issued by the EPA in May 2020; (b) a Post Inspection Notice issued in June 2020 by the NMED, alleging noncompliance issues similar to those alleged by the EPA in its May 2020 NOV as well as alleged noncompliance with the State Implementation Plan (“SIP”) and the Title V permit operating programs; (c) an information request issued in September 2020 by the EPA, pursuant to CAA Section 114, related to benzene fenceline monitoring, flare fuel gas, leak detection and repair, storage vessels and tanks, and other information regarding the Artesia refinery; (d) an information request issued by the EPA in May 2021, pursuant to CAA Section 114, requesting additional information and testing related to certain tanks at the Artesia refinery; and (e) informal information requests related to, among other things, the Artesia refinery’s wastewater treatment plant, oil water separators and heat exchangers. In April 2022, June 2023 and August 2023, the EPA alleged additional CAA noncompliance at the Artesia refinery beyond the allegations in the May 2020 NOV, including alleged noncompliance with NESHAP, NSPS, SIP, Title V and other requirements. +Beginning in the spring of 2021, HFS Navajo and the Navajo Matter Government Agencies began monthly meetings to discuss potential injunctive relief measures to address the alleged noncompliance at the Artesia refinery. In September 2021 and August 2023, the EPA presented to HFS Navajo potential claims for alleged noncompliance with a 2002 consent decree. In September 2024, the Navajo Matter Government Agencies presented to HFS Navajo a proposed penalty demand for the alleged noncompliance at the Artesia refinery. +On January 17, 2025, HFS Navajo reached a settlement agreement with the EPA, DOJ, and the NMED, and a new consent decree was lodged with the U.S. District Court for the District of New Mexico (the “2025 Consent Decree”) to resolve alleged CAA and New Mexico Air Quality Control Act violations as well as alleged violations of the 2002 consent decree at the Artesia refinery. The 2025 Consent Decree is subject to a 30-day public comment period and will not become effective until it is approved by the U.S. District Court. +Under the 2025 Consent Decree, HFS Navajo must pay the sum of $34 million as a civil penalty to the United States and the State of New Mexico according to the following schedule: (1) $10 million to the United States, and $10 million to the State of New Mexico within 30 days after the effective date of the 2025 Consent Decree; and (2) $7 million to the United States and $7 million to the State of New Mexico by January 31, 2026. Separately, under the 2002 consent decree, HFS Navajo must pay stipulated penalties in the amount of $1 million, divided equally between the United States and the State of New Mexico, by March 22, 2025. On January 29, 2025, HFS Navajo submitted these stipulated penalty payments to the United States and the State of New Mexico under the 2002 consent decree. Finally, HFS Navajo must implement injunctive relief and mitigation measures at an estimated cost of $137 million, including capital investments, at the Artesia refinery, certain of which measures have already been implemented as of the date of filing this Annual Report on Form 10-K and the remainder of which must be completed by various deadlines, ending in 2031. +56 +Table of Content s +Puget Sound +HF Sinclair Puget Sound Refining LLC (“HFS Puget Sound”) has been engaged in discussions with, and has responded to document requests from, the Northwest Clean Air Agency (“NWCAA”), the EPA and the DOJ (collectively, the “PSR Matter Government Agencies”) regarding HFS Puget Sound’s compliance with the CAA, Emergency Planning and Community Right-to-Know Act (“EPCRA”) and related regulations, and similar Washington laws and regulations, at its Puget Sound Refinery. HFS Puget Sound acquired the Puget Sound Refinery from Equilon Enterprises LLC dba Shell Oil Products US (“SOPUS”) on November 1, 2021. The discussions with the PSR Matter Government Agencies have included the following topics: (a) an information request issued in March 2022 by the EPA, pursuant to CAA Section 114, covering periods of ownership of the Puget Sound Refinery by both HFS Puget Sound and SOPUS; (b) a Notice of Violation issued by the EPA to SOPUS and HFS Puget Sound on September 29, 2023, alleging violations of the CAA, EPCRA and the Pollution Prevention Act; and (c) the PSR Matter Government Agencies’ proposed injunctive relief terms presented to SOPUS and HFS Puget Sound on June 28 and July 15, 2024, covering various process units at Puget Sound Refinery to address the alleged noncompliance. On October 31, 2024, HFS Puget Sound presented its counteroffer to the PSR Matter Government Agencies’ proposed injunctive relief terms. HFS Puget Sound believes that it is entitled to indemnification for certain of the matters described above. +HFS Puget Sound continues to work with the PSR Matter Government Agencies to resolve these issues. +At this time, no penalties have been demanded, and it is too early to predict the outcome of this matter. +Renewable Fuel Standard +On April 7, 2022, the EPA issued a decision reversing the grant of small refinery exemptions for our Woods Cross and Cheyenne refineries for the 2018 compliance year. On June 3, 2022, the EPA issued a decision reversing the grant of small refinery exemptions for our Woods Cross and Cheyenne refineries for the 2016 compliance year and denying small refinery exemption petitions for our Woods Cross and Cheyenne refineries for the 2019 and 2020 compliance years. +Various subsidiaries of HollyFrontier pursued legal challenges to the EPA’s decisions to deny small refinery exemptions for the 2016, 2018, 2019 and 2020 compliance years. The first lawsuit, filed against the EPA on May 6, 2022, before the U.S. Court of Appeals for the DC Circuit (the “DC Circuit”), sought to have the EPA’s reversal of our 2018 small refinery exemption petitions overturned. The second lawsuit, filed against the EPA on August 5, 2022 before the DC Circuit, sought to have the EPA’s reversal of our 2016 small refinery exemption petitions overturned and to have the EPA’s denial of our 2019 and 2020 small refinery exemption petitions reversed. +In addition, for both the 2016 and 2018 compliance years, pursuant to the June 2022 and April 2022 decisions, the EPA established an alternative compliance demonstration for small refineries pursuant to which the EPA is not imposing any obligations for the small refineries whose exemptions were reversed. On June 24, 2022, Growth Energy filed two lawsuits in the DC Circuit against the EPA challenging the alternative compliance demonstration for the 2016 and 2018 compliance years. On July 25, 2022, various subsidiaries of HollyFrontier intervened on behalf of the EPA to aid the defense of the EPA’s alternative compliance demonstration decision. +On July 26, 2024, the DC Circuit issued a favorable decision vacating the EPA’s denial of all of our small refinery exemption petitions, finding the denial to be unlawful. The DC Circuit remanded the small refinery exemption petitions to the EPA for new determination. The DC Circuit also upheld the alternative compliance demonstration and denied Growth Energy’s challenge. +It is too early to determine the final impact of the DC Circuit’s decisions. +Other +We are a party to various other litigation and proceedings that we believe, based on the advice of counsel, will not either individually or in the aggregate have a materially adverse impact on our financial condition, results of operations or cash flows. +Item 4. Mine Safety Disclosures +Not Applicable. +57 +Table of Content s +PART II +Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +Our common stock is traded on the New York Stock Exchange under the trading symbol “DINO.” +On May 7, 2024, our Board of Directors approved a $1.0 billion share repurchase program, which replaced all existing share repurchase programs (the “May 2024 Share Repurchase Program”). This share repurchase program authorizes us to repurchase common stock in the open market or through privately negotiated transactions. Privately negotiated repurchases from REH Company, LLC (formerly known as The Sinclair Companies) (and together with its affiliate REH Advisors Inc., “REH”) are also authorized under this share repurchase program, subject to REH’s interest in selling its shares and other limitations. The timing and amount of share repurchases, including those from REH Company, will depend on market conditions and corporate, tax, regulatory and other relevant considerations. This share repurchase program may be discontinued at any time by our Board of Directors. In addition, we are authorized by our Board of Directors to repurchase shares in an amount sufficient to offset shares issued under our compensation programs. +During the fourth quarter of 2024, we made no common stock purchases under the May 2024 Share Repurchase Program. As of December 31, 2024, $799 million remained available for share repurchases under the May 2024 Share Repurchase Program. +As of February 14, 2025, we had approximately 1,529 registered holders of our common stock. A substantially greater number of holders of our common stock are “street name” or beneficial holders, whose shares of record are held by banks, brokers and other financial institutions. +The declaration and payment of dividends remains at the full discretion of the Board of Directors and will depend on our financial results, cash requirements, future prospects and other factors deemed relevant by the Board of Directors. +Item 6. [ Reserved] +Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations +This Item 7 contains “forward-looking” statements. See “Forward-Looking Statements” at the beginning of this Annual Report on Form 10-K. In this document, the words “we,” “our,” “ours” and “us” refer only to HF Sinclair and its consolidated subsidiaries or to HF Sinclair or an individual subsidiary and not to any other person with certain exceptions. References herein to HEP with respect to time periods prior to the closing of the HEP Merger Transaction on December 1, 2023 refers to HEP and its consolidated subsidiaries. +We use certain non-GAAP financial measures in our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”). For a detailed description of each of the non-GAAP measures used in this MD&A, please refer to the discussion under Reconciliations to Amounts Reported Under GAAP. This item should be read in conjunction with our Consolidated Financial Statements and the notes thereto included in this annual report. +OVERVIEW +We are an independent energy company that produces and markets high-value light products such as gasoline, diesel fuel, jet fuel, renewable diesel and lubricants and specialty products. We own and operate refineries located in Kansas, Oklahoma, New Mexico, Wyoming, Washington and Utah. We provide petroleum product and crude oil transportation, terminalling, storage and throughput services to our refineries and the petroleum industry. We market our refined products principally in the Southwest United States, the Rocky Mountains extending into the Pacific Northwest and in other neighboring Plains states, and we supply high-quality fuels to more than 1,600 brand ed stations and license the use of the Sinclair brand at more than 300 a d ditional locations throughout the country. We produce renewable diesel at two of our facilities in Wyoming and our facility in New Mexico. In addition, our subsidiaries produce and market base oils and other specialized lubricants in the United States, Canada and the Netherlands, and export products to more than 80 countries. +58 +Table of Content s +Market Developments +For the year ended December 31, 2024, Net income attributable to HF Sinclair stockholders was $177 million compared to $1,590 million and $2,923 million for the years ended December 31, 2023, and 2022, respectively. Adjusted refinery gross margin per produced barrel sold in our Refining segment for 2024 decreased 50% over the year ended December 31, 2023. +In the Refining segment, we saw lower refining margins in the Mid-Continent and West regions in 2024, principally as a result of high global supply of transportation fuels across the industry that continued to weigh on product margins. Additionally, our results were impacted by the planned turnarounds at our Puget Sound, Parco and El Dorado refineries that were completed during 2024. For the first quarter of 2025, we expect to run between 580,000-620,000 barrels per day of crude oil, which reflects the planned turnaround at our Tulsa refinery. +In the Renewables segment, we saw increased sales volumes and feedstock optimization despite ongoing weakness in RINs and Low Carbon Fuel Standard (“LCFS”) prices in 2024. Our 2024 results were also impacted by the drawdown of higher priced inventory resulting in a $20 million increase to cost of sales. For the first quarter of 2025, we expect continued weakness in RINs and LCFS prices along with uncertainty around the Blender’s Tax Credit and implementation of the Producer’s Tax Credit legislation to impact renewable diesel margins. +In the Marketing segment, we saw strong value in the Sinclair branded sites during 2024 as the marketing business continued to provide a consistent sales channel with margin uplift for our produced fuels. We expect to grow the number of branded sites by approximately 10% annually. +In the Lubricants & Specialties segment, we saw strong performance (excluding first-in, first out (“FIFO”) impacts), driven by increased sales volumes, sales mix optimization and base oil integration across our portfolio during 2024. +In the Midstream segment, our results continued to benefit from increased volumes and higher tariffs and lower selling, general and administrative expenses in 2024. +We continue to adjust our operational plans to evolving market conditions. If implemented, the recently announced tariffs by the US Government on Canada, Mexico and China could impact the cost structure of feedstocks and other materials and supplies at our business units. The tariffs will also likely affect the costs of our products to our customers and our results of operations in the future. The extent to which our future results are affected by volatile regional and global economic conditions will depend on various factors and consequences beyond our control. +In August 2023, our Board of Directors authorized a $1.0 billion share repurchase program, and we continued to repurchase shares in the first and second quarter of 2024 under this program. On May 7, 2024, our Board of Directors authorized a new $1.0 billion share repurchase program (the “May 2024 Share Repurchase Program”). The timing and amount of share repurchases under the May 2024 Share Repurchase Program, including those from REH, will depend on market conditions and corporate, tax, regulatory and other relevant conditions. We repurchased 11,944,177 shares for $664 million for the year ended December 31, 2024, under open market and privately negotiated purchases. On February 20, 2025, our Board of Directors announced that it declared a regular quarterly dividend in the amount of $0.50 per share. The dividend is payable on March 20, 2025 to holders of record of common stock on March 6, 2025. +HEP Merger Transaction +On December 1, 2023, pursuant to that certain Agreement and Plan of Merger, dated as of August 15, 2023 (the “Merger Agreement”), by and among HEP, HF Sinclair, Navajo Pipeline Co., L.P., a Delaware limited partnership and an indirect wholly owned subsidiary of HF Sinclair (“HoldCo”), Holly Apple Holdings LLC, a Delaware limited liability company and a wholly owned subsidiary of HoldCo (“Merger Sub”), HEP Logistics Holdings, L.P., a Delaware limited partnership and the general partner of HEP (“HLH”), and Holly Logistic Services, L.L.C., a Delaware limited liability company and the general partner of HLH, Merger Sub merged with and into HEP, with HEP surviving as an indirect, wholly owned subsidiary of HF Sinclair (the “HEP Merger Transaction”). +Under the terms of the Merger Agreement, each outstanding common unit representing a limited partner interest in HEP (an “HEP common unit”), other than the HEP common units already owned by HF Sinclair and its subsidiaries, was converted into the right to receive 0.315 shares of HF Sinclair common stock and $4.00 in cash, without interest. The Merger Agreement consideration totaled $268 million in cash and resulted in the issuance of 21,072,326 shares of HF Sinclair common stock from treasury stock. +For a description of our existing indebtedness, as well as the changes thereto associated with the HEP Merger Transaction, see Note 14 “Debt” in the Notes to Consolidated Financial Statements. +59 +Table of Content s +Sinclair Acquisition +On March 14, 2022, HollyFrontier Corporation (“HollyFrontier”) and HEP announced the establishment of HF Sinclair as the new parent holding company of HollyFrontier and HEP and their subsidiaries, and the completion of their respective acquisitions (the “Sinclair Transactions”) of Sinclair Oil Corporation (now known as Sinclair Oil LLC, “Sinclair Oil”) and Sinclair Transportation Company LLC (“STC”) from The Sinclair Companies (now known as REH Company). +HF Sinclair acquired REH Company’s refining, branded marketing, renewables, and midstream businesses. The branded marketing business supplies high-quality fuels to Sinclair branded stations and licenses the use of the Sinclair brand to additional locations throughout the United States. The renewables business includes the operation of a renewable diesel unit located in Sinclair, Wyoming. The refining business includes two Rocky Mountains-based refineries located in Casper, Wyoming and Sinclair, Wyoming. Under the terms of the Contribution Agreement as amended on March 14, 2022, HEP acquired STC, REH Company’s integrated crude and refined products pipelines and terminal assets, including approximately 1,200 miles of integrated crude and refined product pipeline supporting the Sinclair refineries and third parties, eight product terminals and two crude terminals with approximately 4.5 million barrels of operated storage. In addition, HEP acquired STC’s interests in three pipeline joint ventures for crude gathering and product offtake including: Saddle Butte Pipeline III, LLC (at the time of closing, 25.06% and currently, a 26.08% non-operated interest); Pioneer Investments Corp. (49.995% non-operated interest) ; and UNEV Pipeline, LLC (“UNEV”) (the 25% non-operated interest not already owned by HEP, resulting in UNEV becoming a wholly owned subsidiary of HEP). +Renewable Fuel Standard Regulations +Pursuant to the 2007 Energy Independence and Security Act, the EPA promulgated the Renewable Fuel Standard (“RFS”) regulations, which increased the volume of renewable fuels mandated to be blended into the nation’s fuel supply. The regulations, in part, require refiners to add annually increasing amounts of “renewable fuels” to their petroleum products or purchase credits, known as RINs, in lieu of such blending. Compliance with RFS regulations significantly increases our Cost of materials and other , with RINs costs totaling $446 million for the year ended December 31, 2024. +Under the RFS regulations, the EPA is required to set annual volume targets of renewable fuels that obligated parties, such as us, must blend into petroleum-based transportation fuels consumed in the United States. These volume requirements are used to determine an obligated party’s renewable volume obligation (“RVO”). The EPA released a final rule on June 3, 2022 that, among other things, reduced the volume targets for 2020 and established targets for 2021 and 2022. In 2020, we recognized the cost of the RVO using the 2020 volume targets set by the EPA at that time, and in 2021 and the three months ended March 31, 2022, we recognized the cost of the RVO using our estimates. As a result of the final rule released by the EPA on June 3, 2022 as noted above, we recognized a benefit of $72 million in the year ended December 31, 2022 related to the modification of the 2020 and 2021 volume targets. In June 2023, the EPA established the targets for 2023 through 2025, which increase RVOs in each of the concurrent years. +A more detailed discussion of our financial and operating results for the years ended December 31, 2024 to 2023 and December 31, 2023 to 2022 is presented in the following sections. +60 +Table of Content s +RESULTS OF OPERATIONS +Financial Data +Years Ended December 31, +2024 2023 2022 +(In millions, except share and per share data) +Sales and other revenues $ 28,580 $ 31,964 $ 38,205 +Operating costs and expenses: +Cost of sales: (1) +Cost of materials and other (2) +24,582 25,784 30,680 +Lower of cost or market inventory valuation adjustments (43) 271 52 +Operating expenses +2,484 2,438 2,335 +27,023 28,493 33,067 +Selling, general and administrative expenses (1) +447 497 427 +Depreciation and amortization 832 771 657 +Asset impairments 17 — — +Total operating costs and expenses 28,319 29,761 34,151 +Income from operations 261 2,203 4,054 +Other income (expense): +Earnings of equity method investments 32 17 — +Interest income 75 94 30 +Interest expense (165) (191) (176) +Other income, net +15 30 28 +(43) (50) (118) +Income before income taxes 218 2,153 3,936 +Income tax expense: +Current 83 249 842 +Deferred (49) 193 53 +34 442 895 +Net income 184 1,711 3,041 +Less: net income attributable to noncontrolling interest 7 121 118 +Net income attributable to HF Sinclair stockholders $ 177 $ 1,590 $ 2,923 +Earnings per share attributable to HF Sinclair stockholders: +Basic $ 0.91 $ 8.29 $ 14.28 +Diluted $ 0.91 $ 8.29 $ 14.28 +Average number of common shares outstanding (in thousands): +Basic 192,073 190,035 202,566 +Diluted 192,073 190,035 202,566 +(1) Exclusive of Depreciation and amortization . +(2) Exclusive of Lower of cost or market inventory valuation adjustments. +61 +Table of Content s +Other Financial Data +Years Ended December 31, +2024 2023 2022 +(In millions) +Net cash provided by operating activities $ 1,110 $ 2,297 $ 3,777 +Net cash used for investing activities $ (468) $ (371) $ (774) +Net cash used for financing activities $ (1,182) $ (2,244) $ (1,561) +Capital expenditures $ 470 $ 385 $ 524 +EBITDA (1) +$ 1,133 $ 2,900 $ 4,621 +(1) Earnings before interest, taxes, depreciation and amortization, which we refer to as “EBITDA,” is calculated as Net income attributable to HF Sinclair stockholders plus (i) Income tax expense (benefit) , (ii) Interest expense , net of Interest income and (iii) Depreciation and amortization . EBITDA is not a calculation provided for under GAAP; however, the amounts included in the EBITDA calculation are derived from amounts included on our consolidated financial statements. EBITDA should not be considered as an alternative to net income or operating income as an indication of our operating performance or as an alternative to operating cash flow as a measure of liquidity. EBITDA is not necessarily comparable to similarly titled measures of other companies. EBITDA is presented here because it is a financial indicator widely used by investors and analysts to measure performance. EBITDA is also used by our management for internal analysis and as a basis for financial covenants. EBITDA presented above is reconciled to net income under “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” within Item 7 of Part II of this Annual Report on Form 10-K. +Supplemental Segment Operating Data +Our operations are organized into five reportable segments, Refining, Renewables, Marketing, Lubricants & Specialties and Midstream. See Note 20 “Segment Information” in the Notes to Consolidated Financial Statements for additional information on our reportable segments. +Refining Segment Operating Data +The disaggregation of our refining geographic operating data is presented in two regions, Mid-Continent and West, to best reflect the economic drivers of our refining operations. The Mid-Continent region is comprised of the El Dorado and Tulsa Refineries. The West region is comprised of the Puget Sound, Navajo, Woods Cross, Parco and Casper Refineries. In addition, the refinery operations of the Parco and Casper Refineries are included for the period March 14, 2022 (date of acquisition) through December 31, 2024. The following tables set forth information, including non-GAAP performance measures, about our consolidated refinery operations. Adjusted refinery gross margin per produced barrel sold is total Refining segment gross margin plus Lower of cost or market inventory valuation adjustments, Depreciation and amortization and O perating expenses, divided by sales volumes of produced refined products. This margin measure does not include the non-cash effects of Lower of cost or market inventory valuation adjustments , which relates to inventory held at the end of the period. Reconciliations to amounts reported under GAAP are provided under “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” following Item 7 of Part II of this Annual Report on Form 10-K. +Years Ended December 31, +2024 2023 2022 +Mid-Continent Region +Crude charge (BPD) (1) +251,650 237,510 283,160 +Refinery throughput (BPD) (2) +267,200 256,810 299,380 +Sales of produced refined products (BPD) (3) +267,130 248,330 280,800 +Refinery utilization (4) +96.8 % 91.4 % 108.9 % +Average per produced barrel sold (5) +Gross margin (6) +$ (0.27) $ 6.65 $ 13.92 +Operating expenses (7) +6.65 6.92 6.10 +Adjusted refinery gross margin (8) +$ 8.21 $ 17.31 $ 21.82 +Less: adjusted refinery operating expenses (9) +6.65 6.92 6.10 +Adjusted refinery gross margin, less adjusted refinery operating expenses +$ 1.56 $ 10.39 $ 15.72 +Operating expenses per throughput barrel (10) +$ 6.65 $ 6.69 $ 5.72 +Adjusted refinery operating expenses per throughput barrel (9) (11) +$ 6.65 $ 6.69 $ 5.72 +62 +Table of Content s +Years Ended December 31, +2024 2023 2022 +Mid-Continent Region +Feedstocks: +Sweet crude oil 54 % 56 % 58 % +Sour crude oil 23 % 20 % 20 % +Heavy sour crude oil 17 % 16 % 16 % +Other feedstocks and blends 6 % 8 % 6 % +Total 100 % 100 % 100 % +Sales of refined products: +Gasolines 52 % 51 % 51 % +Diesel fuels 31 % 30 % 33 % +Jet fuels 6 % 6 % 6 % +Fuel oil 1 % 1 % 1 % +Asphalt 4 % 4 % 3 % +Base oils 4 % 4 % 4 % +LPG and other 2 % 4 % 2 % +Total 100 % 100 % 100 % +West Region +Crude charge (BPD) (1) +350,430 330,030 323,820 +Refinery throughput (BPD) (2) +376,050 360,200 347,590 +Sales of produced refined products (BPD) (3) +370,040 353,950 347,540 +Refinery utilization (4) +83.8 % 79.0 % 81.4 % +Average per produced barrel sold (5) +Gross margin (6) +$ 0.61 $ 11.34 $ 19.52 +Operating expenses (7) +9.32 9.69 8.96 +Adjusted refinery gross margin (8) +$ 12.04 $ 23.69 $ 30.16 +Less: adjusted refinery operating expenses (9) +9.06 9.69 8.96 +Adjusted refinery gross margin, less adjusted refinery operating expenses +$ 2.98 $ 14.00 $ 21.20 +Operating expenses per throughput barrel (10) +$ 9.17 $ 9.53 $ 8.96 +Adjusted refinery operating expenses per throughput barrel (9) (11) +$ 8.92 $ 9.53 $ 8.96 +Feedstocks: +Sweet crude oil 34 % 30 % 28 % +Sour crude oil 43 % 45 % 50 % +Heavy sour crude oil 10 % 11 % 10 % +Wax crude oil 6 % 6 % 5 % +Other feedstocks and blends 7 % 8 % 7 % +Total 100 % 100 % 100 % +Sales of refined products: +Gasolines 52 % 54 % 53 % +Diesel fuels 32 % 31 % 32 % +Jet fuels 6 % 6 % 5 % +Fuel oil 2 % 2 % 3 % +Asphalt 2 % 2 % 3 % +LPG and other 6 % 5 % 4 % +Total 100 % 100 % 100 % +63 +Table of Content s +Years Ended December 31, +2024 2023 2022 +Consolidated +Crude charge (BPD) (1) +602,080 567,540 606,980 +Refinery throughput (BPD) (2) +643,250 617,010 646,970 +Sales of produced refined products (BPD) (3) +637,170 602,280 628,340 +Refinery utilization (4) +88.8 % 83.7 % 92.3 % +Average per produced barrel sold (5) +Gross margin (6) +$ 0.24 $ 9.41 $ 17.02 +Operating expenses (7) +8.20 8.55 7.68 +Adjusted refinery gross margin (8) +$ 10.43 $ 21.06 $ 26.43 +Less: adjusted refinery operating expenses (9) +8.05 8.55 7.68 +Adjusted refinery gross margin, less adjusted refinery operating expenses $ 2.38 $ 12.51 $ 18.75 +Operating expenses per throughput barrel (10) +$ 8.12 $ 8.35 $ 7.46 +Adjusted refinery operating expenses per throughput barrel (9) (11) +$ 7.98 $ 8.35 $ 7.46 +Feedstocks: +Sweet crude oil 42 % 42 % 42 % +Sour crude oil 35 % 34 % 36 % +Heavy sour crude oil 13 % 13 % 13 % +Wax crude oil 4 % 3 % 3 % +Other feedstocks and blends 6 % 8 % 6 % +Total 100 % 100 % 100 % +Sales of refined products: +Gasolines 53 % 53 % 52 % +Diesel fuels 31 % 30 % 32 % +Jet fuels 6 % 6 % 6 % +Fuel oil 1 % 1 % 2 % +Asphalt 3 % 3 % 3 % +Base oils 2 % 2 % 2 % +LPG and other 4 % 5 % 3 % +Total 100 % 100 % 100 % +(1) Crude charge represents the barrels per day of crude oil processed at our refineries. +(2) Refinery throughput represents the barrels per day of crude and other refinery feedstocks input to the crude units and other conversion units at our refineries. +(3) Represents barrels sold of refined products produced at our refineries (including Asphalt and intersegment sales) and does not include volumes of refined products purchased for resale or volumes of excess crude oil sold. +(4) Represents crude charge divided by total crude capacity (BPSD). Our consolidated crude capacity i s 678,000 BPSD. +(5) Represents the average amount per produced barrel sold, which is a non-GAAP measure. Reconciliations to amounts reported under GAAP are provided under “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” following Item 7 of Part II of this Annual Report on Form 10-K. +(6) Gross margin represents total Refining segment Sales and other revenues less Cost of materials and other , Lower of cost or market inventory valuation adjustments , Operating expenses and Depreciation and amortization , divided by sales volumes of produced refined products. +(7) Represents total Refining segment Operating expenses , exclusive of Depreciation and amortization , divided by sales volumes of produced refined products. +(8) Adjusted refinery gross margin is a non-GAAP measure. Reconciliations to amounts reported under GAAP are provided under “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” in Item 7 of Part II of this Annual Report on Form 10-K. +(9) Adjusted refinery operating expenses is a non-GAAP measure. Reconciliations to amounts reported under GAAP are provided under “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” in Item 7 of Part II of this Annual Report on Form 10-K. +(10) Represents total Refining segment operating expenses, exclusive of Depreciation and amortization , divided by Refinery throughput. +(11) Represents total Refining segment adjusted refinery operating expenses, exclusive of Depreciation and amortization , divided by Refinery throughput. +64 +Table of Content s +Renewables Segment Operating Data +The following table sets forth information, including non-GAAP performance measures, about our renewables operations. Adjusted renewables gross margin per produced gallon sold is total Renewables segment gross margin plus Lower of cost or market inventory valuation adjustments , Depreciation and amortization and Operating expenses , divided by sales volumes of produced renewables products. This margin measure does not include the non-cash effects of Lower of cost or market inventory valuation adjustments , which relate to volumes in inventory at the end of the period. Reconciliations to amounts reported under GAAP are provided under “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” following Item 7 of Part II of this Annual Report on Form 10-K. +Years Ended December 31, +2024 2023 2022 +Renewables +Sales of produced renewables products (in thousand gallons) +255,639 215,510 136,204 +Average per produced gallon sold: (1) +Gross margin (2) +$ (0.33) $ (0.59) $ (1.29) +Adjusted renewables gross margin (3) +$ 0.33 $ 0.50 $ 0.30 +Less: operating expenses (4) +0.39 0.51 0.82 +Adjusted renewables gross margin, less operating expenses $ (0.06) $ (0.01) $ (0.52) +(1) Represents the average amount per produced gallon sold, which is a non-GAAP measure. Reconciliations to amounts reported under GAAP are provided under “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” following Item 7 of Part II of this Annual Report on Form 10-K. +(2) Gross margin represents total Renewables segment Sales and other revenues less Cost of materials and other , Lower of cost or market inventory valuation adjustments , Operating expenses and Depreciation and amortization , divided by sales volumes of produced renewables products. +(3) Adjusted renewables gross margin is a non-GAAP measure. Reconciliations to amounts reported under GAAP are provided under “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” following Item 7 of Part II of this Annual Report on Form 10-K. +(4) Represents total Renewables segment Operating expenses , exclusive of Depreciation and amortization , divided by sales volumes of produced renewables products. +65 +Table of Content s +Marketing Segment Operating Data +The following table sets forth information, including non-GAAP performance measures, about our marketing operations and includes our Sinclair branded fuel business. Adjusted marketing gross margin per gallon sold is total Marketing segment gross margin plus Depreciation and amortization , divided by sales volumes of marketing products. Reconciliations to amounts reported under GAAP are provided under “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” following Item 7 of Part II of this Annual Report on Form 10-K. +Years Ended December 31, +2024 2023 2022 +Marketing +Number of branded sites at period end (1) +1,627 1,540 1,513 +Sales of refined products (in thousand gallons) +1,376,291 1,441,607 1,118,444 +Average per gallon sold: (2) +Gross margin (3) +$ 0.06 $ 0.05 $ 0.04 +Adjusted marketing gross margin (4) +$ 0.08 $ 0.07 $ 0.06 +(1) Includes certain non-Sinclair branded sites. +(2) Represents the average amount per gallon sold, which is a non-GAAP measure. Reconciliations to amounts reported under GAAP are provided under “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” following Item 7 of Part II of this Annual Report on Form 10-K. +(3) Gross margin represents total Marketing segment Sales and other revenues less Cost of materials and other and Depreciation and amortization , divided by sales volumes of marketing products. +(4) Adjusted marketing gross margin is a non-GAAP measure. Reconciliations to amounts reported under GAAP are provided under “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” following Item 7 of Part II of this Annual Report on Form 10-K. +Lubricants & Specialties Segment Operating Data +The following table sets forth information about our lubricants and specialties operations. +Years Ended December 31, +2024 2023 2022 +Lubricants & Specialties +Sales of produced refined products (BPD) 32,100 30,210 32,530 +Sales of produced refined products: +Finished products 48 % 50 % 51 % +Base oils 26 % 27 % 28 % +Other 26 % 23 % 21 % +Total 100 % 100 % 100 % +66 +Table of Content s +Midstream Segment Operating Data +The following table sets forth information about our midstream operations. +Years Ended December 31, +2024 2023 2022 +Midstream +Volumes (BPD) +Pipelines: +Affiliates—refined product pipelines 166,722 152,462 143,303 +Affiliates—intermediate pipelines 146,643 110,720 129,295 +Affiliates—crude pipelines 453,606 437,586 456,797 +766,971 700,768 729,395 +Third parties—refined product pipelines 39,721 38,834 38,000 +Third parties—crude pipelines 204,202 197,659 144,478 +1,010,894 937,261 911,873 +Terminals and loading racks: (1) +Affiliates +988,566 930,264 798,100 +Third parties 37,728 42,567 46,997 +1,026,294 972,831 845,097 +Total for pipelines and terminals assets (BPD) 2,037,188 1,910,092 1,756,970 +(1) Certain volumetric non-financial information has been recast to conform to current year presentation. +Results of Operations - Year Ended December 31, 2024 Compared to Year Ended December 31, 2023 +Summary +Net income attributable to HF Sinclair stockholders for the year ended December 31, 2024 was $177 million ($0.91 per basic and diluted share), a $1,413 million decrease compared to net income of $1,590 million ($8.29 per basic and diluted share) for the year ended December 31, 2023. The decrease in N et income attributable to HF Sinclair stockholders was principally driven by lower adjusted refinery gross margins, partially offset by higher refined product sales volumes. Lower of cost or market inventory valuation adjustments increased pre-tax earnings by $43 million for the year ended December 31, 2024 and decreased pre-tax earnings by $271 million for the year ended December 31, 2023. Adjusted refinery gross margins for the year ended December 31, 2024 decreased to $10.43 per produced barrel sold from $21.06 for the year ended December 31, 2023. +Sales and Other Revenues +Sales and other revenues decreased 11% from $31,964 million for the year ended December 31, 2023 to $28,580 million for the year ended December 31, 2024, principally due to decreased refined product sales prices and lower excess crude oil sales volumes as a result of fewer planned maintenance activities in 2024, partially offset by higher refined product sales volumes. Sales and other revenues included $644 million, $3,428 million, $2,700 million, and $107 million in unaffiliated revenues related to our Renewables, Marketing, Lubricants & Specialties, and Midstream segments, respectively, for the year ended December 31, 2024. Sales and other revenues included $781 million, $4,146 million, $2,762 million, and $118 million in unaffiliated revenues related to our Renewables, Marketing, Lubricants & Specialties, and Midstream segments, respectively, for the year ended December 31, 2023. +Cost of Materials and Other +Cost of materials and other , exclusive of Lower of cost or market inventory valuation adjustments , decreased 5% from $25,784 million for the year ended December 31, 2023 to $24,582 million for the year ended December 31, 2024, principally due to lower purchased refined product and excess crude oil sales volumes as a result of fewer planned maintenance activities in 2024, partially offset by higher refined product sales volumes. Within our Lubricants & Specialties segment, FIFO impact was a charge of $45 million and $13 million for the years ended December 31, 2024 and 2023, respectively. +During the year ended December 31, 2024, we recognized a lower of cost or market inventory valuation adjustment benefit of $43 million compared to a charge of $271 million for the year ended December 31, 2023, respectively. +67 +Table of Content s +Adjusted Refinery Gross Margins +Adjusted refinery gross margin per barrel sold decreased 50% from $21.06 for the year ended December 31, 2023 compared to $10.43 for the year ended December 31, 2024. The decrease was due to lower average per barrel sold sales prices, partially offset by lower crude oil and feedstock prices. Adjusted refinery gross margin per barrel does not include the non-cash effects of Lower of cost or market inventory valuation adjustments or Depreciation and amortization . Reconciliations to amounts reported under GAAP are provided under “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” following Item 7 of Part II of this Annual Report on Form 10-K. +Operating Expenses +Operating expenses increased 2% from $2,438 million for the year ended December 31, 2023 to $2,484 million for the year ended December 31, 2024, primarily due to a regulatory charge related to the 2025 Consent Decree, higher people costs and other miscellaneous costs, partially offset by lower natural gas costs. +Selling, General and Administrative Expenses +Selling, general and administrative expenses decreased 10% from $497 million for the year ended December 31, 2023 to $447 million for the year ended December 31, 2024, primarily due to a decrease in acquisition integration and regulatory costs, lower incentive compensation and other professional costs. We incurred $2 million and $39 million in acquisition integration and regulatory costs during the years ended December 31, 2024 and December 31, 2023, respectively. +Depreciation and Amortization Expenses +Depreciation and amortization increased 8% from $771 million for the year ended December 31, 2023 to $832 million for the year ended December 31, 2024. This increase was principally due to additional capitalized refinery turnaround costs and capitalized improvement projects as compared to the prior period. +Asset Impairments +For the year ended December 31, 2024, we recorded impairments totaling $17 million, which related to assets in our Midstream, Refining, and Lubricants & Specialties segments. +Earnings of Equity Method Investments +For the year ended December 31, 2024, we recorded net earnings of $32 million compared to net earnings of $17 million for the year ended December 31, 2023. This increase is primarily due to improved performance in our Pioneer Pipeline and Osage Pipeline investments. +Interest Income +Interest income wa s $75 million for the year ended December 31, 2024 compared to $94 million for the year ended December 31, 2023. The decrease in interest income was primarily due to the decrease in average cash balance. +Interest Expense +Interest expense was $165 million for the year ended December 31, 2024 compared to $191 million for the year ended December 31, 2023. This decrease was primarily due to a reduction in total debt outstanding as compared to the prior period. +Other income, net +Other income, net was $15 million for the year ended December 31, 2024 compared to $30 million for the year ended December 31, 2023. This decrease was primarily due to a $15 million gain from the settlement of a preservation of property claim related to winter storm Uri that was recognized during the year ended December 31, 2023. +Income Taxes +For the year ended December 31, 2024, we recorded income tax expense of $34 million compared to $442 million for the year ended December 31, 2023. This decrease was principally due to lower pre-tax income during the year ended December 31, 2024 compared to the year ended December 31, 2023. Our effective tax rates were 15.6% and 20.5% for the years ended December 31, 2024 and 2023, respectively. The difference between the effective tax rate and the statutory rate for the year ended December 31, 2024 is principally due to the relationship between pre-tax earnings and benefits attributable to nontaxable permanent differences, offset by an increase in state income taxes and unrecognized tax benefits. The difference between the U.S. federal statutory rate and the effective tax rate for the twelve months ended December 31, 2023 is primarily due to the relationship between pre-tax results and benefits attributable to non-taxable permanent differences and the earnings attributable to the noncontrolling interest that is not included in income for tax purposes. +68 +Table of Content s +Results of Operations - Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 +Summary +Net income attributable to HF Sinclair stockholders for the year ended December 31, 2023 was $1,590 million ($8.29 per basic and diluted share), a $1,333 million decrease compared to net income of $2,923 million ($14.28 per basic and diluted share) for the year ended December 31, 2022. The decrease in Net income attributable to HF Sinclair stockholders was principally driven by lower adjusted refinery gross margins and lower refined product sales volumes. Lower of cost or market inventory valuation adjustments decreased pre-tax earnings by $271 million and $52 million for the years ended December 31, 2023 and 2022, respectively. Adjusted refinery gross margins for the year ended December 31, 2023 decreased to $21.06 per produced barrel sold from $26.43 for the year ended December 31, 2022. +Sales and Other Revenues +Sales and other revenues decreased 16% from $38,205 million for the year ended December 31, 2022 to $31,964 million for the year ended December 31, 2023, principally due to decreased refined product sales prices and lower refined product sales volumes. Sales and other revenues included $781 million, $4,146 million, $2,762 million and $118 million in unaffiliated revenues related to our Renewables, Marketing, Lubricants & Specialties, and Midstream segments, respectively, for the year ended December 31, 2023. Sales and other revenues included $654 million, $3,912 million, $3,150 million and $109 million in unaffiliated revenues related to our Renewables, Marketing, Lubricants & Specialties and Midstream segments, respectively, for the year ended December 31, 2022. +Cost of Materials and Other +Cost of materials and other , exclusive of Lower of cost or market inventory valuation adjustments , decreased 15% from $30,680 million for the year ended December 31, 2022 to $25,784 million for the year ended December 31, 2023, principally due to lower crude oil costs and lower refined product sales volumes. Within our Lubricants & Specialties segment, FIFO impact was a charge of $13 million for the year ended December 31, 2023 and a benefit of $78 million for the year ended December 31, 2022. +During the years ended December 31, 2023 and 2022, we recognized a Lower of cost or market inventory valuation adjustments charge of $271 million and $52 million, respectively. +Adjusted Refinery Gross Margins +Adjusted refinery gross refinery margin per barrel sold decreased 20% from $26.43 for the year ended December 31, 2022 to $21.06 for the year ended December 31, 2023. The decrease was due to lower average per barrel sold sales prices, partially offset by lower crude oil and feedstock prices. Adjusted refinery g ross margin per barrel does not include the non-cash effects of Lower of cost or market inventory valuation adjustments or Depreciation and amortization . Reconciliations to amounts reported under GAAP are provided under “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” following Item 7 of Part II of this Annual Report on Form 10-K. +Operating Expenses +Operating expenses increased 4% from $2,335 million for the year ended December 31, 2022 to $2,438 million for the year ended December 31, 2023, primarily due to increased maintenance activities and our acquisition of the Acquired Sinclair Businesses, partially offset by lower natural gas costs. +Selling, General and Administrative Expenses +Selling, general and administrative expenses increased 16% from $427 million for the year ended December 31, 2022 to $497 million for the year ended December 31, 2023, primarily due to higher costs related to information technology, other professional services and employee costs as compared to the prior period and our acquisition of the Acquired Sinclair Businesses, partially offset by a decrease in acquisition integration and regulatory costs. We incurred $39 million and $53 million in acquisition integration and regulatory costs during the years ended December 31, 2023 and 2022, respectively. +Depreciation and Amortization Expenses +Depreciation and amortization increased 17% from $657 million for the year ended December 31, 2022 to $771 million for the year ended December 31, 2023. This increase was principally due to depreciation and amortization attributable to capitalized turnaround costs, capitalized improvement projects and the Acquired Sinclair Businesses. +69 +Table of Content s +Earnings (Loss) of Equity Method Investments +For the year ended December 31, 2023 , we recorded net earnings of $17 million of equity method investments as compared to a net loss of $0.3 million for the year ended December 31, 2022 . Net loss during the year ended December 31, 2022 was primarily due to HEP’s 50% share of incurred and estimated environmental remediation and recovery expenses, net of insurance proceeds received to date, for the Osage Pipeline. I n July 2022, the Osage Pipeline, which carries crude oil from Cushing, Oklahoma to El Dorado, Kansas, suffered a release of crude oil. The pipeline resumed operations during the third quarter of 2022. +Interest Income +Interest income wa s $94 million f or the year ended December 31, 2023 compared to $30 million for the year ended December 31, 2022. The increase in interest income was primarily due to the increase in the average cash balance and higher interest rates on cash investments. +Interest Expense +Interest expense was $191 million for the year ended December 31, 2023 compared to $176 million for the year ended December 31, 2022. This increase was primarily due to the April 2022 issuance of $400 million in aggregate principal amount of 6.375% senior notes maturing in April 2027 and higher market interest rates on HEP ’ s revolving credit facility during the year ended December 31, 2023. +Other income, net +Other income, net was $30 million for the year ended December 31, 2023 compared to $28 million for the year ended December 31, 2022. For the year ended December 31, 2023, we recorded a $15 million gain from the settlement of a preservation of property claim and during the year ended December 31, 2022, we recorded a gain of $15 million from a settlement of our business interruption claim, both related to winter storm Uri that occurred in the first quarter of 2021. +Income Taxes +For the year ended December 31, 2023, we recorded an income tax expense of $442 million compared to $895 million for the year ended December 31, 2022. This decrease was principally due to lower pre-tax income during the year ended December 31, 2023 compared to the year ended December 31, 2022. Our effective tax rates were 20.5% and 22.7% for the years ended December 31, 2023 and 2022, respectively. The difference between the U.S. federal statutory rate and the effective tax rate for the twelve months ended December 31, 2023, is primarily due to the relationship between pre-tax results, benefits attributable to non-taxable permanent differences and the earnings attributable to the noncontrolling interest that is not included in income for tax purposes. The difference between the U.S. federal statutory rate and the effective tax rate for the twelve months ended December 31, 2022 is primarily due to the relationship between pre-tax results and benefits attributable to non-taxable permanent differences, earnings attributable to the noncontrolling interest that is not included in income for tax purposes, and the decrease in the state tax rate applied to our deferred tax assets and liabilities as a result of the Sinclair Transactions. +LIQUIDITY AND CAPITAL RESOURCES +We have a disciplined capital allocation strategy of maintaining financial flexibility to execute our capital priorities and generate long-term value for our stockholders. Consistent with that strategy, we aim to self-fund development projects and make strategic investments focused on profitable growth, while reducing our debt and returning cash to stockholders through dividends and share repurchases. +Credit Agreements +We have a $1.65 billion senior unsecured revolving credit facility maturing in April 2026 (the “HF Sinclair Credit Agreement”). The HF Sinclair Credit Agreement may be used for revolving credit loans and letters of credit from time to time and is available to fund general corporate purposes. At December 31, 2024, we were in compliance with all covenants, had no outstanding borrowings and had outstanding letters of credit totaling a nominal amount under the HF Sinclair Credit Agreement. +Additionally, our wholly owned subsidiary, HEP, has a $1.2 billion senior secured revolving credit facility maturing in July 2025 (the “HEP Credit Agreement” and, together with the HF Sinclair Credit Agreement, the “Credit Agreements”). The HEP Credit Agreement is available to fund capital expenditures, investments, acquisitions, distribution payments, working capital and for general corporate purposes. It is also available to fund letters of credit up to a $50 million sub-limit and has an accordion feature that allows us to increase the commitments under the HEP Credit Agreement up to a maximum amount of $1.7 billion. At December 31, 2024, we were in compliance with all of its covenants, had outstanding borrowings of $350 million and no outstanding letters of credit under the HEP Credit Agreement. +70 +Table of Content s +Indebtedness under the Credit Agreements bears interest, at our option, for borrowings in U.S. dollars at either (a) a base rate equal to the sum of (1) the highest of (i) the prime rate (as publicly announced from time to time by the applicable administrative agent), (ii) the Federal Funds Effective Rate (as defined in the HF Sinclair Credit Agreement and as defined as the “Federal Funds Rate” in the HEP Credit Agreement) plus 0.5%, and (iii) Spread Adjusted Term SOFR (as defined in the HF Sinclair Credit Agreement and as defined as “Adjusted Term SOFR” in the HEP Credit Agreement) for a one-month interest period plus 1%, plus (2) an applicable margin for base rate loans ranging from 0.25% to 1.125%, or (b) the sum of (1) Spread Adjusted Term SOFR (as defined in the HF Sinclair Credit Agreement and as defined as “Adjusted Term SOFR” in the HEP Credit Agreement) for the applicable interest period, plus (2) an applicable margin for term SOFR loans ranging from 1.25% to 2.125%. The HF Sinclair Credit Agreement allows for borrowings in Sterling and Euros with similar interest rates. In each case and each Credit Agreement, the applicable margin is based on HF Sinclair’s debt rating assigned by Standard & Poor’s Rating Services and Moody’s Investors Service, Inc. The weighted average interest rate in effect under the HEP Credit Agreement on our borrowings wa s 6.17% as of December 31, 2024. +HF Sinclair Senior Notes Exchange +On December 4, 2023, we completed our offers to exchange any and all outstanding HEP 5.000% senior notes maturing February 2028 (the “HEP 5.000% Senior Notes”) and HEP 6.375% senior notes maturing April 2027 (the “HEP 6.375% Senior Notes” and, together with the HEP 5.000% Senior Notes, the “HEP Senior Notes”) for HF Sinclair 5.000% senior notes maturing February 2028 (the “HF Sinclair 5.000% Senior Notes”) and HF Sinclair 6.375% senior notes maturing April 2027 (the “HF Sinclair 6.375% Senior Notes” and, together with the HF Sinclair 5.000% Senior Notes, the “Restricted HF Sinclair Senior Notes”) to be issued by HF Sinclair with registration rights and cash. In connection with the exchange offers, we amended the indenture governing the HEP Senior Notes to eliminate (i) substantially all of the restrictive covenants, (ii) certain of the events which may lead to an “Event of Default,” (iii) the SEC reporting covenant and (iv) the requirement of HEP to offer to purchase the HEP Senior Notes upon a change of control. The Restricted HF Sinclair Senior Notes were issued in exchange for the HEP Senior Notes pursuant to a private exchange offer exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”). This exchange was part of a broader corporate strategy, including the HEP Merger Transaction. +On May 10, 2024, HF Sinclair filed a registration statement, as amended, which was declared effective on August 5, 2024, to exchange the Restricted HF Sinclair Senior Notes for an equal principal amount of each respective series of the Restricted HF Sinclair Senior Notes (such notes offered in exchange, the “Registered HF Sinclair Senior Notes”). The Registered HF Sinclair Senior Notes are substantially identical to the Restricted HF Sinclair Senior Notes in all material respects except the Registered HF Sinclair Senior Notes are registered under the Securities Act and are not subject to restrictions on transfer or to any increase in annual interest rate for failure to comply with the Registration Rights Agreement, dated December 4, 2023, and do not have the registration rights applicable to the Restricted HF Sinclair Senior Notes. On September 5, 2024, HF Sinclair completed its offers to exchange the Restricted HF Sinclair Senior Notes for the Registered HF Sinclair Senior Notes. +The Registered HF Sinclair Senior Notes are unsecured and unsubordinated obligations of ours and rank equally with all our other existing and future unsecured and unsubordinated indebtedness. Each series of the Registered HF Sinclair Senior Notes has the same interest rate, interest payment dates, maturity date and redemption terms as the corresponding series of Restricted HF Sinclair Senior Notes. +2025 Senior Notes Offering, Tender Offer and Redemption +On January 23, 2025, HF Sinclair issued an aggregate principal amount of $1.4 billion of senior notes consisting of $650 million aggregate principal amount of 5.750% Senior Notes due 2031 (the “HF Sinclair 5.750% Senior Notes”) and $750 million aggregate principal amount of 6.250% Senior Notes due 2035 (the “HF Sinclair 6.250% Senior Notes,” together with the “HF Sinclair 5.750% Senior Notes”, the “New HFS Notes”) for net proceeds of approximately $1.38 billion, after deducting the underwriters’ discount and commissions and estimated offering expenses. The New HFS Notes are unsecured and unsubordinated obligations of ours and rank equally with all our other existing and future unsecured and unsubordinated indebtedness. +We used the net proceeds from the notes offering to repay $350 million in outstanding borrowings under the HEP Credit Agreement, to fund the concurrent Tender Offer (as defined below) and to fund the redemption of HollyFrontier’s 5.875% Senior Notes due 2026. +71 +Table of Content s +On January 28, 2025, we completed a cash tender offer for $646 million in aggregate principal amount (the “Tender Offer”) as follows: +Maturity Date +Issuer +Aggregate Principal Amount Accepted +Purchase Price +Accrued Interest Paid at Closing +April 2027 HF Sinclair $ 150 $ 153 $ 3 +April 2026 HF Sinclair $ 448 $ 452 $ 9 +April 2026 HollyFrontier $ 48 $ 49 $ 1 +Total +$ 646 $ 654 $ 13 +On February 18, 2025, we redeemed the remaining aggregate principal amount of HollyFrontier’s 5.875% Senior Notes due 2026 at a redemption cost of $156 million. The redemptions were funded with the net proceeds of the offering of New HFS Notes. We recognized an early extinguishment loss as a result of the Tender Offer and February 16, 2025 redemptions. +Additionally, we announced our intent to redeem $195 million aggregate principal amount of HF Sinclair 5.875% Senior Notes due 2026 which is expected to close on February 21, 2025. The final redemption cost will be determined at closing and will be funded with the net proceeds of the offering of New HFS Notes. +HF Sinclair Financing Arrangements +Certain of our wholly owned subsidiaries entered into financing arrangements whereby such subsidiaries sold a portion of their precious metals catalyst to a financial institution in exchange for cash and then financed the use of the precious metals catalyst for a term not to exceed one year. The volume of the precious metals catalyst and the interest rate are fixed over the term of each agreement, and the payments are recorded as Interest expense . Upon maturity of the financing arrangement, we must either satisfy the obligation at fair market value or refinance to extend the maturity. +HF Sinclair may, from time to time, issue letters of credit pursuant to uncommitted letters of credit facilities with its lenders. At December 31, 2024, there were no letters of credit outstanding under such facilities. +See Note 14 “Debt” in the Notes to Consolidated Financial Statements for additional information on our debt instruments. +Liquidity +We believe our current Cash and cash equivalents , along with future internally generated cash flow and funds available under our credit facilities, will provide sufficient resources to fund currently planned capital projects and our liquidity needs for the foreseeable future. We expect that, to the extent necessary, we can raise additional funds from time to time through equity or debt financings in the public and private capital markets. Further, we may from time to time seek to retire some or all of our outstanding debt agreements through cash purchases, and/or exchanges, open market purchases, privately negotiated transactions, tender offers or otherwise. Such transactions, if any, may be material and will depend on prevailing market conditions, our liquidity requirements and other factors. In addition, components of our long-term growth strategy include the optimization of existing units at our facilities and selective acquisition of complementary assets for our operations intended to increase earnings and cash flow. We also expect to use cash for payment of cash dividends, which are at the discretion of our Board of Directors, and for the repurchase of common stock under the May 2024 Share Repurchase Program. +Our liquidity was approximately $3.3 billion at December 31, 2024, consisting of C ash and cash equivalents of $800 million, an undrawn $1.65 billion credit facility under the HF Sinclair Credit Agreement and $850 million remaining availability under the HEP Credit Agreement. +We consider all highly liquid instruments with a maturity of three months or less at the time of purchase to be cash equivalents. These primarily consist of investments in conservative, highly rated instruments issued by financial institutions, government and corporate entities with strong credit standings and money market funds. Cash equivalents are stated at cost, which approximates market value. +On August 15, 2023, our Board of Directors approved a $1.0 billion share repurchase program (the “ August 2023 Share Repurchase Program”), which replaced all existing share repurchase programs, including the $5 million remaining authorization under our preexisting share repurchase program dating from September 2022. The August 2023 Share Repurchase Program authorized us to repurchase common stock in the open market or through privately negotiated transactions. Privately negotiated repurchases from REH were also authorized under the August 2023 Share Repurchase Program, subject to REH’s interest in selling its shares and other limitations. +72 +Table of Content s +On May 7, 2024, our Board of Directors approved the May 2024 Share Repurchase Program, which replaced all existing share repurchase programs, including the approximately $214 million remaining under the August 2023 Share Repurchase Program. The May 2024 Share Repurchase Program authorizes us to repurchase common stock in the open market or through privately negotiated transactions. Privately negotiated repurchases from REH are also authorized under the May 2024 Share Repurchase Program, subject to REH’s interest in selling its shares and other limitations. The timing and amount of share repurchases, including those from REH, will depend on market conditions and corporate, tax, regulatory and other relevant considerations. In addition, we are authorized by our Board of Directors to repurchase shares in an amount sufficient to offset shares issued under our compensation programs. The May 2024 Share Repurchase Program may be discontinued at any time by our Board of Directors. +During the year ended December 31, 2024, we made open market and privately negotiated purchases of 11,944,177 shares for $664 million under our share repurchase programs, of which 7,864,761 shares were repurchased for $456 million pursuant to privately negotiated repurchases from REH. As of December 31, 2024, we had remaining authorization to repurchase up to $799 million under the May 2024 Share Repurchase Program. +Cash Flows – Operating Activities +Year Ended December 31, 2024 Compared to Year Ended December 31, 2023 +Net cash flows provided by operating activities w ere $1,110 million for the year ended December 31, 2024 compared to $2,297 million for the year ended December 31, 2023, a decrease of $1,187 million primarily driven by lower income from operations during the year ended December 31, 2024. Changes in working capital increased operating cash flows by $554 million and decreased operating cash flows by $120 million for the years ended December 31, 2024 and 2023, respectively. Additionally, for the year ended December 31, 2024, turnaround expenditures were $413 million compared to $556 million for the year ended December 31, 2023. +Cash Flows – Investing Activities and Planned Capital Expenditures +Year Ended December 31, 2024 Compared to Year Ended December 31, 2023 +For the year ended December 31, 2024, our Net cash flows used for investing activities were $468 million. Cash expenditures for Properties, plants and equipment for the year ended December 31, 2024 were $470 million. +For the year ended December 31, 2023, our Net cash flows used for investing activities were $371 million. Cash expenditures for Properties, plants and equipment for the year ended December 31, 2023 were $385 million. +Each year our Board of Directors approves our annual capital budget which includes specific projects that management is authorized to undertake. When conditions warrant or as new opportunities arise, additional projects may be approved. The funds appropriated for a particular capital project may be expended over a period of several years, depending on the time required to complete the project. Therefore, our planned capital expenditures for a given year consist of expenditures appropriated in that year’s capital budget plus expenditures for projects appropriated in prior years which have not yet been completed. Refinery turnaround spending is amortized over the useful life of the turnaround. +The refining industry is capital intensive and requires on-going investments to sustain our refining operations. This includes replacement of, or rebuilding, refinery units and components that extend the useful life. We also invest in projects that improve operational reliability and profitability via enhancements that improve refinery processing capabilities as well as production yield and flexibility. Our capital expenditures also include projects related to renewable diesel, environmental, health and safety compliance and include initiatives as a result of federal and state mandates. +Our refinery operations and related emissions are highly regulated at both federal and state levels, and we invest in our facilities as needed to remain in compliance with these standards. Additionally, when faced with new emissions or fuels standards, we seek to execute projects that facilitate compliance and also improve the operating costs and/or yields of associated refining processes. +73 +Table of Content s +Expected capital and turnaround cash spending for 2025 is as follows: +HF Sinclair Capital Expenditures Expected Cash Spending +(In millions) +Sustaining capital investments: +Refining $ 240 +Renewables 5 +Marketing 30 +Lubricants & Specialties 40 +Midstream 30 +Corporate 20 +Turnarounds and catalyst 410 +Total sustaining $ 775 +Growth capital investments 100 +Total capital $ 875 +Cash Flows – Financing Activities +Year Ended December 31, 2024 Compared to Year Ended December 31, 2023 +For the year ended December 31, 2024 , our Net cash flows used for financing activities were $1,182 million. During the year ended December 31, 2024, we repurchased $672 million of our Common Stock , paid $386 million in Dividends , and had net repayments of $106 million under the HEP Credit Agreement. +For the year ended December 31, 2023, our Net cash flows used for financing activities were $2,244 million. During the year ended December 31, 2023, we repurchased $999 million of our Common Stock , paid $341 million in Dividends , paid $308 million upon the maturity of the HF Sinclair 2.625% Senior Notes and HollyFrontier 2.625% Senior Notes, paid $268 million as cash consideration in connection with the HEP Merger Transaction and had net repayments of $213 million under the HEP Credit Agreement. +Contractual Obligations and Commitments +The following table presents our long-term contractual obligations as of December 31, 2024 in total and by period due beginning in 2025. +Payments Due by Period +Contractual Obligations and Commitments Total 2025 2026 & 2027 2028 & 2029 Thereafter +(In millions) +Long-term debt - principal (1) +$ 2,650 $ 350 $ 1,400 $ 500 $ 400 +Long-term debt - interest (1) +325 140 133 38 14 +Financing arrangements (2) +31 31 — — — +Supply agreements (3) +371 349 16 5 1 +Transportation and storage agreements (4) +1,997 250 424 429 894 +Operating and finance leases (5) +600 106 155 92 247 +Other long-term obligations 282 121 150 6 5 +Total $ 6,256 $ 1,347 $ 2,278 $ 1,070 $ 1,561 +(1) See Note 14 “Debt” in the Notes to Consolidated Financial Statements for a description of our outstanding debt. +(2) We have financing arrangements related to the sale and subsequent lease-back of certain of our precious metals. +(3) We have long-term supply agreements to secure certain quantities of crude oil, feedstock and other resources used in the production process at market prices. We have estimated future payments under these fixed-quantity agreements expiring between 2025 and 2031 using current market rates. +(4) Consists of contractual obligations under agreements with third parties for the transportation of crude oil, natural gas and feedstocks to our refineries and for terminal and storage services under contracts expiring between 2025 and 2038. +(5) Operating and finance lease obligations include options to extend terms that are reasonably certain of being exercised. +74 +Table of Content s +CRITICAL ACCOUNTING POLICIES AND ESTIMATES +Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities as of the date of the financial statements. Actual results may differ from these estimates under different assumptions or conditions. We consider the following policies to be the most critical to understanding the judgments that are involved and the uncertainties that could impact our results of operations, financial condition and cash flows. For additional information, see Note 1 “Description of Business and Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements. Certain critical accounting policies that materially affect the amounts recorded in our consolidated financial statements include assessing the possible impairment of certain Assets and Goodwill and assessing contingent liabilities for probable losses. +Goodwill and Long-lived Assets +As of December 31, 2024, our Goodwill balance was $3.0 billion, with go odwill assigned to our Refining, Renewables, Marketing, Lubricants & Specialties and Midstream segments. Goodwill represents the excess of the cost of an acquired entity over the fair value of the assets acquired and liabilities assumed. Goodwill is not subject to amortization and is tested annually or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Our goodwill impairment testing first entails either a quantitative assessment or an optional qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If we determine that based on the qualitative factors that it is more likely than not that the carrying value of the reporting unit is greater than its fair value, a quantitative test is performed in which we estimate the fair value of the related reporting unit. If the carrying amount of a reporting unit exceeds its fair value, the goodwill of that reporting unit is impaired, and we measure goodwill impairment as the excess of the carrying amount of reporting unit over the related fair value. +We performed our annual goodwill impairment testing quantitatively as of July 1, 2024 and determined there was no impairment of goodwill attributable to our reporting units. The estimated fair values of our reporting units were derived using a combination of income and market approaches. The income approach reflects expected future cash flows based on estimated forecasted production levels, selling prices, gross margins, operating costs and capital expenditures. Our market approaches include both the guideline public company and guideline transaction methods. Both methods utilize pricing multiples derived from historical market transactions and other market data of other like-kind assets. The fair values of the reporting units over their respective carrying values exceeded 10%. Increasing the discount rate by 1.0% or reducing the terminal cash flow growth rate by 1.0% would not have changed the results of our annual goodwill testing. +In performing our impairment test of goodwill, we developed cash flow forecasts for each of our reporting units. Significant judgment is involved in performing these fair value estimates since the results are based on forecasted financial information. The cash flow forecasts include significant assumptions such as planned utilization, end-user demand, selling prices, gross margins, operating costs and capital expenditures. Other key assumptions applied to these forecasts to determine the fair value of a reporting unit are the discount rate and terminal cash flow growth rate. The discount rate is intended to reflect the weighted average cost of capital for a market participant and the risks associated with the realization of the estimated future cash flows. Our fair value estimates are based on projected cash flows, which we believe to be reasonable. +We continually monitor and evaluate various factors for potential indicators of goodwill and asset impairments. A reasonable expectation exists that sustained deterioration in our operating results or overall economic conditions could lead to goodwill and/or asset impairments at some point in the future. Future impairment charges could be material to our results of operations and financial condition. +Contingencies +We are subject to proceedings, lawsuits and other claims related to environmental, labor, product and other matters. We are required to assess the likelihood of any adverse judgments or outcomes to these matters as well as potential ranges of probable losses. A determination of the amount of reserves required, if any, for these contingencies is made after careful analysis of each individual issue. The required reserves may change in the future due to new developments in each matter or changes in approach, such as a change in settlement strategy when dealing with these matters. +75 +Table of Content s +RISK MANAGEMENT +We use certain strategies to reduce some commodity price and operational risks. We do not attempt to eliminate all market risk exposures when we believe that the exposure relating to such risk would not be significant to our future earnings, financial position, capital resources or liquidity or that the cost of eliminating the exposure would outweigh the benefit. +Commodity Price Risk Management +Our primary market risk is commodity price risk. We are exposed to market risks related to the volatility in crude oil and refined products, as well as volatility in the price of natural gas used in our refining operations. We periodically enter into derivative contracts in the form of commodity price swaps, collar contracts, forward purchase and sales and futures contracts to mitigate price exposure with respect to our inventory positions, natural gas purchases, sales prices of refined products and crude oil costs. +Foreign Currency Risk Management +We are exposed to market risk related to the volatility in foreign currency exchange rates. We periodically enter into derivative contracts in the form of foreign exchange forward contracts to mitigate the exposure associated with fluctuations on intercompany notes with our foreign subsidiaries that are not denominated in the U.S. dollar. +As of December 31, 2024, we have the following notional contract volumes related to all outstanding derivative contracts used to mitigate commodity price and foreign currency risk (all maturing in 2025): +Contract Description Total Outstanding Notional Unit of Measure +NYMEX futures (WTI) - short 570,000 Barrels +Forward gasoline and diesel contracts - long 450,000 Barrels +Foreign currency forward contracts 383,222,096 U.S. dollar +Forward commodity contracts (platinum) (1) +34,628 Troy ounces +(1) Represents an embedded derivative within our catalyst financing arrangements, which may be refinanced or require repayment under certain conditions. See Note 14 “Debt” in the Notes to Consolidated Financial Statements for additional information on these financing arrangements. +The following sensitivity analysis provides the hypothetical effects of market price fluctuations in commodity prices for our open commodity derivative contracts at December 31, 2024 and 2023: +December 31, +Derivative Fair Value Gain (Loss) 2024 2023 +(In millions) +10% increase in underlying commodity prices $ (4) $ (5) +10% decrease in underlying commodity prices $ 4 $ 5 +Interest Rate Risk Management +The market risk inherent in our fixed-rate debt is the potential change arising from increases or decreases in interest rates as discussed below. +For the fixed rate HollyFrontier Corporation, HF Sinclair and HEP Senior Notes (each as defined in Note 14 “Debt” in the Notes to Consolidated Financial Statements), changes in interest rates will generally affect fair value of the debt, but not earnings or cash flows. The outstanding principal, estimated fair value and estimated change in fair value (assuming a hypothetical 10% change in the yield-to-maturity rates) for this debt as of December 31, 2024 is presented below: +Outstanding +Principal Estimated +Fair Value Estimated +Change in +Fair Value +(In millions) +HollyFrontier Corporation, HF Sinclair and HEP Senior Notes $ 2,300 $ 2,284 $ 29 +76 +Table of Content s +For the variable rate HEP Credit Agreement, changes in interest rates would affect cash flows, but not the fair value. At December 31, 2024, outstanding borrowings under the HEP Credit Agreement we re $350 million. A hypothetical 10% change in interest rates applicable to the HEP Credit Agreement would not materially affect cash flows. +Our operations are subject to catastrophic losses, operational hazards and unforeseen interruptions, including but not limited to fire, explosion, releases or spills, cyberattacks, weather-related perils, vandalism, power failures, mechanical failures and other events beyond our control. We maintain various insurance coverages, including general liability, property damage, business interruption and cyber insurance, subject to certain deductibles and insurance policy terms and conditions. We are not fully insured against certain risks because such risks are not fully insurable, coverage is unavailable, or premium costs, in our judgment, do not justify such expenditures. +Financial information is reviewed on the counterparties in order to review and monitor their financial stability and assess their ongoing ability to honor their commitments under the derivative contracts. We have not experienced, nor do we expect to experience, any difficulty in the counterparties honoring their commitments. +We have a risk management oversight committee consisting of members from our senior management. This committee oversees our risk enterprise program, monitors our risk environment and provides direction for activities to mitigate identified risks that may adversely affect the achievement of our goals. +Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles +Reconciliations of earnings before interest, taxes, depreciation and amortization (“EBITDA”) to amounts reported under generally accepted accounting principles in financial statements. +Earnings before interest, taxes, depreciation and amortization, which we refer to as EBITDA, is calculated as Net income attributable to HF Sinclair stockholders plus (i) Income tax expense (benefit) , (ii) Interest expense , net of Interest income and (iii) Depreciation and amortization . EBITDA is not a calculation provided for under GAAP; however, the amounts included in the EBITDA calculation are derived from amounts included on our consolidated financial statements. EBITDA should not be considered as an alternative to Net income or Income from operations as an indication of our operating performance or as an alternative to operating cash flow as a measure of liquidity. EBITDA is not necessarily comparable to similarly titled measures of other companies. EBITDA is presented here because it is a widely used financial indicator used by investors and analysts to measure our operating performance. EBITDA is also used by our management for internal analysis and as a basis for financial covenants. +Set forth below is our calculation of EBITDA: +Years Ended December 31, +2024 2023 2022 +(In millions) +Net income attributable to HF Sinclair stockholders $ 177 $ 1,590 $ 2,923 +Add: interest expense 165 191 176 +Less: interest income (75) (94) (30) +Add: income tax expense 34 442 895 +Add: depreciation and amortization 832 771 657 +EBITDA $ 1,133 $ 2,900 $ 4,621 +77 +Table of Content s +Reconciliations of refinery operating information (non-GAAP performance measures) to amounts reported under generally accepted accounting principles in financial statements. +Adjusted refinery gross margin is a non-GAAP performance measure that is used by our management and others to compare our refining performance to that of other companies in our industry. We believe this margin measure is helpful to investors in evaluating our refining performance on a relative and absolute basis, including against publicly available crack spread data. Adjusted refinery gross margin per produced barrel sold is total Refining segment gross margin plus Lower of cost or market inventory valuation adjustments , Depreciation and amortization and Operating expenses , divided by sales volumes of produced refined products. This margin measure does not include the non-cash effects of Lower of cost or market inventory valuation adjustments , which relate to inventory held at the end of the period. Adjusted refinery gross margin is a non-GAAP performance measure and should not be considered in isolation or as a substitute for Refining segment gross margin. The GAAP measure most directly comparable to adjusted refinery gross margin is Refining segment gross margin. Other companies in our industry may not calculate these performance measures in the same manner. Due to rounding of reported numbers, some amounts may not calculate exactly. +Reconciliation of Refining segment gross margin to adjusted refinery gross margin to adjusted refinery gross margin per produced barrel sold and adjusted refinery gross margin, less operating expenses per produced barrel sold +Years Ended December 31, +2024 2023 2022 +(In millions, except barrel and per barrel amounts) +Refining segment +Sales and other revenues $ 25,340 $ 28,673 $ 34,413 +Cost of sales (1) +24,787 26,142 30,112 +Depreciation and amortization 495 461 397 +Gross margin 58 2,070 3,904 +Add: lower of cost or market inventory valuation adjustments +(32) 221 — +Add: operating expenses 1,912 1,879 1,761 +Add: depreciation and amortization 495 461 397 +Adjusted refinery gross margin $ 2,433 $ 4,631 $ 6,062 +Operating expenses $ 1,912 $ 1,879 $ 1,761 +Less: regulatory charge (2) +35 — — +Adjusted refinery operating expenses $ 1,877 $ 1,879 $ 1,761 +Sales of produced refined products (BPD) (3) +637,170 602,280 628,340 +Average per produced barrel sold: +Gross margin $ 0.24 $ 9.41 $ 17.02 +Add: lower of cost or market inventory valuation adjustments +(0.14) 1.00 — +Add: operating expenses 8.20 8.55 7.68 +Add: depreciation and amortization 2.13 2.10 1.73 +Adjusted refinery gross margin $ 10.43 $ 21.06 $ 26.43 +Operating expenses 8.20 8.55 7.68 +Less: regulatory charge (2) +0.15 — — +Adjusted refinery operating expenses 8.05 8.55 7.68 +Adjusted refinery gross margin, less adjusted refinery operating expenses +$ 2.38 $ 12.51 $ 18.75 +(1) Exclusive of Depreciation and amortization. +(2) Regulatory charges represent a one-time penalty of $35 million related to the 2025 Consent Decree. Refer to Note 19 for further information. +(3) Represents barrels sold of refined products produced at our refineries (including Asphalt and intersegment sales) and does not include volumes of refined products purchased for resale or volumes of excess crude oil sold. +78 +Table of Content s +Reconciliation of renewables operating information (non-GAAP performance measures) to amounts reported under generally accepted accounting principles in financial statements. +Adjusted renewables gross margin is a non-GAAP performance measure that is used by our management and others to compare our renewables performance to that of other companies in our industry. We believe this margin measure is helpful to investors in evaluating our renewables performance on a relative and absolute basis. Adjusted renewables gross margin per produced gallon sold is total Renewables segment gross margin plus Lower of cost or market inventory valuation adjustments , Depreciation and amortization and Operating expenses , divided by sales volumes of produced renewables products. This margin measure does not include the non-cash effects of Lower of cost or market inventory valuation adjustments , which relate to volumes in inventory at the end of the period. Adjusted renewables gross margin is not a calculation provided for under GAAP and should not be considered in isolation or as a substitute for Renewables segment gross margin. The GAAP measure most directly comparable to adjusted renewables gross margin is Renewables segment gross margin. Other companies in our industry may not calculate these performance measures in the same manner. Due to rounding of reported numbers, some amounts may not calculate exactly. +Reconciliation of Renewables segment gross margin to adjusted renewables gross margin to adjusted renewables gross margin per produced gallon sold and adjusted renewables gross margin, less operating expenses per produced gallon sold +Years Ended December 31, +2024 2023 2022 +(In millions, except gallon and per gallon amounts) +Renewables segment +Sales and other revenues $ 991 $ 1,189 $ 1,015 +Costs of sales (1) +999 1,240 1,138 +Depreciation and amortization 78 77 53 +Gross margin (86) (128) (176) +Add: lower of cost or market inventory valuation adjustments +(11) 50 52 +Add: operating expenses 100 109 112 +Add: depreciation and amortization 78 77 53 +Adjusted renewables gross margin $ 81 $ 108 $ 41 +Sales of produced renewables products (in thousand gallons) 255,639 215,510 136,204 +Average per produced gallon sold: +Gross margin $ (0.33) $ (0.59) $ (1.29) +Add: lower of cost or market inventory valuation adjustments +(0.04) 0.22 0.38 +Add: operating expenses 0.39 0.51 0.82 +Add: depreciation and amortization 0.31 0.36 0.39 +Adjusted renewables gross margin $ 0.33 $ 0.50 $ 0.30 +Less: operating expenses 0.39 0.51 0.82 +Adjusted renewables gross margin, less operating expenses $ (0.06) $ (0.01) $ (0.52) +(1) Exclusive of Depreciation and amortization. +79 +Table of Content s +Reconciliation of marketing operating information (non-GAAP performance measures) to amounts reported under generally accepted accounting principles in financial statements. +Adjusted marketing gross margin is a non-GAAP performance measure that is used by our management and others to compare our marketing performance to that of other companies in our industry. We believe this margin measure is helpful to investors in evaluating our marketing performance on a relative and absolute basis. Adjusted marketing gross margin per gallon sold is total Marketing segment gross margin plus Depreciation and amortization , divided by sales volumes of marketing products. Adjusted marketing gross margin is not a calculation provided for under GAAP and should not be considered in isolation or as a substitute for Marketing segment gross margin. The GAAP measure most directly comparable to adjusted marketing gross margin is Marketing segment gross margin. Other companies in our industry may not calculate these performance measures in the same manner. Due to rounding of reported numbers, some amounts may not calculate exactly. +Reconciliation of Marketing segment gross margin to adjusted marketing gross margin to adjusted marketing gross margin per gallon sold +Years Ended December 31, +2024 2023 +2022 +(In millions, except gallon and per gallon amounts) +Marketing segment +Sales and other revenues $ 3,428 $ 4,146 $ 3,912 +Costs of sales (1) +3,319 4,051 3,846 +Depreciation and amortization 27 24 18 +Gross margin $ 82 $ 71 $ 48 +Add: depreciation and amortization 27 24 18 +Adjusted marketing gross margin $ 109 $ 95 $ 66 +Sales of refined products (in thousand gallons) 1,376,291 1,441,607 1,118,444 +Average per gallon sold: +Gross margin $ 0.06 $ 0.05 $ 0.04 +Add: depreciation and amortization 0.02 0.02 0.02 +Adjusted marketing gross margin $ 0.08 $ 0.07 $ 0.06 +(1) Exclusive of Depreciation and amortization. +Item 7A. Quantitative and Qualitative Disclosures About Market Risk +See “Risk Management” under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” +80 +Table of Content s +Item 8. Financial Statements and Supplementary Data +HF SINCLAIR CORPORATION +INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS +PAGE +Report of Independent Registered Public Accounting Firm: Opinion on the Financial Statements (PCAOB ID: 42 ) +82 +Report of Independent Registered Public Accounting Firm: Opinion on Internal Control over Financial Reporting (PCAOB ID: 42 ) +84 +Consolidated Financial Statements: +Consolidated Balance Sheets +85 +Consolidated Statements of Income +86 +Consolidated Statements of Comprehensive Income +87 +Consolidated Statements of Cash Flows +88 +Consolidated Statements of Equity +89 +Notes to Consolidated Financial Statements: +Note 1 Description of Business and Summary of Significant Accounting Policies +90 +Note 2 Leases +97 +Note 3 Cushing Connect Joint Venture +100 +Note 4 Revenues +101 +Note 5 Other I ncome, N et +102 +Note 6 Fair Value Measurements +102 +Note 7 Earnings Per Share +104 +Note 8 Stock-Based Compensation +104 +Note 9 Inventories +106 +Note 10 Properties, Plants and Equipment +107 +Note 11 Goodwill, Intangibles and Long-lived Assets +108 +Note 12 Accrued Liabilities and Other Long-Term Liabilities +109 +Note 13 Environmental +110 +Note 14 Debt +110 +Note 15 Derivative Instruments and Hedging Activities +113 +Note 16 Income Taxes +116 +Note 17 Stockholders’ Equity +118 +Note 18 Other Comprehensive Income (Loss) +119 +Note 19 Commitments and Contingencies +120 +Note 20 Segment Information +122 +81 +REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +To the Stockholders and the Board of Directors of HF Sinclair Corporation +Opinion on the Financial Statements +We have audited the accompanying consolidated balance sheets of HF Sinclair Corporation (the Company) as of December 31, 2024 and 2023, the related consolidated statements of income, comprehensive income, cash flows and equity for each of the three years in the period ended December 31, 2024, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with U.S. generally accepted accounting principles. +We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 20, 2025 expressed an unqualified opinion thereon. +Basis for Opinion +These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. +Critical Audit Matter +The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates. +82 +Valuation of Goodwill +Description of the Matter +At December 31, 2024, the Company’s goodwill was $2,977 million, including goodwill assigned to the Refining, Renewables, Marketing, Lubricants & Specialties, and Midstream segments of $1,977 million, $159 million, $164 million, $245 million, and $432 million, respectively. As described in Note 1 and Note 11 of the consolidated financial statements, goodwill is tested for impairment at least annually on July 1 at the reporting unit level or more frequently if events or changes in circumstances indicate the asset might be impaired. +Auditing management’s goodwill impairment testing was complex and highly judgmental for the Company’s El Dorado Refinery reporting unit due to the significant estimation required to determine the fair value of this reporting unit. In particular, the fair value estimate was sensitive to significant assumptions, such as revenue, gross margin, EBITDA, and discount rate, which are affected by expectations about future market or economic conditions. These assumptions have a significant effect on the fair value estimates. +How We Addressed the Matter in Our Audit +We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s goodwill impairment testing process. For example, we tested controls over management’s review of the significant inputs and assumptions used in determining the reporting unit fair value. +To test the estimated fair value of the Company’s El Dorado Refinery reporting unit, we performed audit procedures with the support of a valuation specialist that included, among others, assessing the methodologies used and testing the significant assumptions discussed above and the underlying data used by the Company in its analysis. We compared the significant assumptions used by management to relevant industry and economic trends, published forward prices, historical operating results and other relevant factors. We performed sensitivity analyses on significant assumptions to evaluate the changes in the fair value of the reporting unit that would result from changes in the assumptions. +/s/ Ernst & Young LLP +We have served as the Company’s auditor since 1977. +Dallas, Texas +February 20, 2025 +83 +REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +To the Stockholders and the Board of Directors of HF Sinclair Corporation +Opinion on Internal Control over Financial Reporting +We have audited HF Sinclair Corporation’s internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, HF Sinclair Corporation (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024, based on the COSO criteria. +We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2024 and 2023, the related consolidated statements of income, comprehensive income, cash flows and equity for each of the three years in the period ended December 31, 2024, and the related notes and our report dated February 20, 2025 expressed an unqualified opinion thereon. +Basis for Opinion +The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. +Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. +Definition and Limitations of Internal Control Over Financial Reporting +A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. +Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. +/s/ Ernst & Young LLP +Dallas, Texas +February 20, 2025 +84 +Table of Content s +HF SINCLAIR CORPORATION +CONSOLIDATED BALANCE SHEETS +(In millions, except share data) +December 31, +2024 2023 +ASSETS +Current assets: +Cash and cash equivalents $ 800 $ 1,354 +Accounts receivable, net: Product and transportation +1,074 1,528 +Crude oil resales 177 197 +1,251 1,725 +Inventories: Crude oil and refined products (Note 9) +2,495 2,646 +Materials, supplies and other +303 276 +2,798 2,922 +Income taxes receivable (Note 16) +70 56 +Prepayments and other 95 89 +Total current assets 5,014 6,146 +Properties, plants and equipment, at cost (Note 10) +10,931 10,534 +Less: accumulated depreciation ( 4,373 ) ( 3,907 ) +6,558 6,627 +Operating lease right-of-use assets (Note 2) +355 348 +Other assets: Turnaround costs +777 645 +Goodwill (Note 11) +2,977 2,978 +Intangibles and other (Note 11) +962 972 +4,716 4,595 +Total assets $ 16,643 $ 17,716 +LIABILITIES AND EQUITY +Current liabilities: +Accounts payable $ 2,236 $ 2,206 +Income taxes payable (Note 16) +3 9 +Operating lease liabilities (Note 2) +77 107 +Current debt (Note 14) +350 — +Accrued liabilities (Note 12) +377 453 +Total current liabilities 3,043 2,775 +Long-term debt (Note 14) +2,288 2,739 +Noncurrent operating lease liabilities (Note 2) +301 249 +Deferred income taxes (Note 16) +1,224 1,297 +Other long-term liabilities (Note 12) +441 419 +Total liabilities 7,297 7,479 +Commitments and contingencies (Note 19) +Equity: +HF Sinclair stockholders’ equity (Note 17): +Preferred stock, $ 1.00 par value – 5,000,000 shares authorized; none issued +— — +Common stock, $ 0.01 par value – 320,000,000 shares authorized; 223,231,546 shares issued as of December 31, 2024 and December 31, 2023 +2 2 +Additional capital 5,998 5,994 +Retained earnings 5,170 5,379 +Accumulated other comprehensive loss (Note 18) +( 47 ) ( 12 ) +Common stock held in treasury, at cost - 34,826,009 and 23,235,599 shares as of December 31, 2024 and December 31, 2023, respectively +( 1,845 ) ( 1,194 ) +Total HF Sinclair stockholders’ equity 9,278 10,169 +Noncontrolling interest 68 68 +Total equity 9,346 10,237 +Total liabilities and equity $ 16,643 $ 17,716 +See accompanying notes. +85 +Table of Content s +HF SINCLAIR CORPORATION +CONSOLIDATED STATEMENTS OF INCOME +(In millions, except share and per share data) +Years Ended December 31, +2024 2023 2022 +Sales and other revenues (Note 4) +$ 28,580 $ 31,964 $ 38,205 +Operating costs and expenses: +Cost of sales: (1) +Cost of materials and other (2) +24,582 25,784 30,680 +Lower of cost or market inventory valuation adjustments (Note 9) +( 43 ) 271 52 +Operating expenses 2,484 2,438 2,335 +27,023 28,493 33,067 +Selling, general and administrative expenses (1) +447 497 427 +Depreciation and amortization 832 771 657 +Asset impairments 17 — — +Total operating costs and expenses 28,319 29,761 34,151 +Income from operations 261 2,203 4,054 +Other income (expense): +Earnings of equity method investments +32 17 — +Interest income 75 94 30 +Interest expense ( 165 ) ( 191 ) ( 176 ) +Other income, net (Note 5) +15 30 28 +( 43 ) ( 50 ) ( 118 ) +Income before income taxes 218 2,153 3,936 +Income tax expense (benefit) (Note 16): +Current 83 249 842 +Deferred ( 49 ) 193 53 +34 442 895 +Net income 184 1,711 3,041 +Less: net income attributable to noncontrolling interest 7 121 118 +Net income attributable to HF Sinclair stockholders $ 177 $ 1,590 $ 2,923 +Earnings per share attributable to HF Sinclair stockholders: +Basic $ 0.91 $ 8.29 $ 14.28 +Diluted $ 0.91 $ 8.29 $ 14.28 +Average number of common shares outstanding (in thousands): +Basic 192,073 190,035 202,566 +Diluted 192,073 190,035 202,566 +(1) Exclusive of Depreciation and amortization . +(2) Exclusive of Lower of cost or market inventory valuation adjustments. +See accompanying notes. +86 +Table of Content s +HF SINCLAIR CORPORATION +CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME +(In millions) +Years Ended December 31, +2024 2023 2022 +Net income $ 184 $ 1,711 $ 3,041 +Other comprehensive income (loss): +Foreign currency translation adjustments ( 42 ) 13 ( 32 ) +Hedging instruments: +Change in fair value of cash flow hedging instruments ( 5 ) ( 3 ) ( 5 ) +Loss reclassified to net income on settlement of cash flow hedging instruments 5 3 5 +Net unrealized gain on hedging instruments — — — +Pension and other post-retirement benefit obligations: +Actuarial (gain) loss on pension plans +— 2 ( 4 ) +Pension plans (gain) loss reclassified to net income +( 1 ) 1 — +Actuarial loss on post-retirement healthcare plans +— 1 8 +Post-retirement healthcare plans gain reclassified to net income ( 2 ) ( 4 ) ( 3 ) +Net change in pension and other post-retirement benefit obligations ( 3 ) — 1 +Other comprehensive income (loss) before income taxes ( 45 ) 13 ( 31 ) +Income tax expense (benefit) ( 10 ) 3 ( 6 ) +Other comprehensive income (loss) ( 35 ) 10 ( 25 ) +Total comprehensive income 149 1,721 3,016 +Less: noncontrolling interest in comprehensive income 7 121 118 +Comprehensive income attributable to HF Sinclair stockholders $ 142 $ 1,600 $ 2,898 +See accompanying notes. +87 +Table of Content s +HF SINCLAIR CORPORATION +CONSOLIDATED STATEMENTS OF CASH FLOWS +(In millions) +Years Ended December 31, +2024 2023 2022 +Cash flows from operating activities: +Net income $ 184 $ 1,711 $ 3,041 +Adjustments to reconcile net income to net cash provided by operating activities: +Depreciation and amortization 832 771 657 +Asset impairments 17 — — +Lower of cost or market inventory valuation adjustments ( 43 ) 271 52 +Earnings of equity method investments, net of distributions 1 8 20 +Gain on early extinguishment of debt — — ( 1 ) +Gain on sale of assets ( 2 ) ( 7 ) ( 2 ) +Deferred income tax expense (benefit) ( 49 ) 193 53 +Equity-based compensation expense 23 41 31 +Change in fair value – derivative instruments ( 34 ) 17 10 +(Increase) decrease in current assets: +Accounts receivable 463 ( 17 ) ( 4 ) +Inventories 138 30 ( 224 ) +Income taxes receivable ( 14 ) ( 3 ) 43 +Prepayments and other 11 8 ( 41 ) +Increase (decrease) in current liabilities: +Accounts payable 25 ( 109 ) 194 +Income taxes payable ( 6 ) 1 ( 17 ) +Accrued liabilities ( 63 ) ( 30 ) 78 +Turnaround expenditures ( 413 ) ( 556 ) ( 145 ) +Other, net 40 ( 32 ) 32 +Net cash provided by operating activities 1,110 2,297 3,777 +Cash flows from investing activities: +Additions to properties, plants and equipment ( 470 ) ( 385 ) ( 524 ) +Acquisitions, net of cash acquired — — ( 251 ) +Proceeds from sale of assets 4 17 3 +HEP investment in Osage Pipe Line Company, LLC ( 8 ) ( 7 ) ( 13 ) +Distributions in excess of equity in earnings of equity investments 6 4 11 +Net cash used for investing activities ( 468 ) ( 371 ) ( 774 ) +Cash flows from financing activities: +Borrowings under credit agreements — 60 510 +Repayments under credit agreements ( 106 ) ( 273 ) ( 682 ) +Proceeds from issuance of senior notes — — 400 +Redemption of senior notes — ( 308 ) ( 41 ) +Purchase of treasury stock ( 672 ) ( 999 ) ( 1,372 ) +Dividends ( 386 ) ( 341 ) ( 256 ) +Distributions to noncontrolling interest ( 7 ) ( 102 ) ( 96 ) +Payments on finance leases ( 11 ) ( 12 ) ( 12 ) +HEP Merger Transaction consideration — ( 268 ) — +Deferred financing costs — ( 1 ) ( 9 ) +Other, net — — ( 3 ) +Net cash used for financing activities ( 1,182 ) ( 2,244 ) ( 1,561 ) +Effect of exchange rate on cash flow ( 14 ) 7 ( 11 ) +Cash and cash equivalents: +Net change for the period ( 554 ) ( 311 ) 1,431 +Cash and cash equivalents at beginning of period 1,354 1,665 234 +Cash and cash equivalents at end of period $ 800 $ 1,354 $ 1,665 +Supplemental disclosure of cash flow information: +Cash paid during the period for: +Interest $ ( 164 ) $ ( 203 ) $ ( 160 ) +Income taxes, net $ ( 110 ) $ ( 251 ) $ ( 816 ) +Decrease in accrued and unpaid capital expenditures $ ( 1 ) $ ( 6 ) $ ( 32 ) +See accompanying notes. +88 +Table of Content s +HF SINCLAIR CORPORATION +CONSOLIDATED STATEMENTS OF EQUITY +(In millions, except share and per share data) +HF Sinclair Stockholders ’ Equity +Common Stock Additional Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Non-controlling Interest Total Equity +Shares (1) +Amount +Shares (1) +Amount +Balance at December 31, 2021 256,046 $ 2 $ 4,220 $ 4,414 $ 3 93,045 $ ( 2,951 ) $ 607 $ 6,295 +Net income — — — 2,923 — — — 118 3,041 +Dividends ($ 1.20 declared per common share) +— — — ( 256 ) — — — — ( 256 ) +Other comprehensive loss, net of tax — — — — ( 25 ) — — — ( 25 ) +Issuance of common shares for HFC Transactions 60,230 1 2,148 — — — — — 2,149 +Issuance of common shares under incentive compensation plans — — ( 43 ) — — ( 849 ) 43 — — +Equity-based compensation — — 29 — — — — 2 31 +Purchase of treasury stock — — — — — 27,001 ( 1,378 ) — ( 1,378 ) +Retirement of treasury stock ( 93,045 ) ( 1 ) — ( 2,951 ) — ( 93,045 ) 2,951 — ( 1 ) +Distributions to noncontrolling interests — — — — — — — ( 96 ) ( 96 ) +Purchase of HEP units for equity grants — — — — — — — ( 2 ) ( 2 ) +Equity attributable to HEP common unit issuance, net of tax — — 95 — — — — 223 318 +Acquisition of remaining UNEV interests — — 20 — — — — ( 78 ) ( 58 ) +Balance at December 31, 2022 223,231 $ 2 $ 6,469 $ 4,130 $ ( 22 ) 26,152 $ ( 1,335 ) $ 774 $ 10,018 +Net income — — — 1,590 — — — 121 1,711 +Dividends ($ 1.80 declared per common share) +— — — ( 341 ) — — — — ( 341 ) +Other comprehensive income, net of tax — — — — 10 — — — 10 +HEP Merger Transaction — — ( 466 ) — — ( 21,072 ) 1,085 ( 725 ) ( 106 ) +Issuance of common shares under incentive compensation plans — — ( 49 ) — — ( 957 ) 49 — — +Equity-based compensation — — 40 — — — — 1 41 +Purchase of treasury stock, inclusive of excise tax — — — — — 19,113 ( 993 ) — ( 993 ) +Distributions to noncontrolling interest holders — — — — — — — ( 102 ) ( 102 ) +Purchase of HEP units for equity grants — — — — — — — ( 1 ) ( 1 ) +Balance at December 31, 2023 223,231 $ 2 $ 5,994 $ 5,379 $ ( 12 ) 23,236 $ ( 1,194 ) $ 68 $ 10,237 +Net income — — — 177 — — — 7 184 +Dividends ($ 2.00 declared per common share) +— — — ( 386 ) — — — — ( 386 ) +Other comprehensive loss, net of tax +— — — — ( 35 ) — — — ( 35 ) +Issuance of common shares under incentive compensation plans — — ( 28 ) — — ( 536 ) 28 — — +Equity-based compensation — — 23 — — — — — 23 +Purchase of treasury stock, inclusive of excise tax — — — — — 12,126 ( 679 ) — ( 679 ) +Distributions to noncontrolling interest holders — — — — — — — ( 7 ) ( 7 ) +Other — — 9 — — — — — 9 +Balance at December 31, 2024 223,231 $ 2 $ 5,998 $ 5,170 $ ( 47 ) 34,826 $ ( 1,845 ) $ 68 $ 9,346 +(1) In thousands. +See accompanying notes. +89 +Table of Content s +HF SINCLAIR CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +NOTE 1: Description of Business and Summary of Significant Accounting Policies +Description of Business: References herein to HF Sinclair Corporation (“HF Sinclair” or the “Company”) include HF Sinclair and its consolidated subsidiaries. In these financial statements, the words “we,” “our,” “ours” and “us” refer only to HF Sinclair and its consolidated subsidiaries or to HF Sinclair or an individual subsidiary and not to any other person, with certain exceptions. References herein to Holly Energy Partners, L.P. (“HEP”) with respect to time periods prior to the HEP Merger Transaction (as defined below) refers to HEP and its consolidated subsidiaries. +We are an independent energy company that produces and markets high-value light products such as gasoline, diesel fuel, jet fuel, renewable diesel and lubricants and specialty products. We own and operate refineries located in Kansas, Oklahoma, New Mexico, Wyoming, Washington and Utah. We provide petroleum product and crude oil transportation, terminalling, storage and throughput services to our refineries and the petroleum industry. We market our refined products principally in the Southwest United States, the Rocky Mountains extending into the Pacific Northwest and in other neighboring Plains states, and we supply high-quality fuels to more than 1,600 brand ed stations and license the use of the Sinclair brand at more than 300 a d ditional locations throughout the country. We produce renewable diesel at two of our facilities in Wyoming and our facility in New Mexico. In addition, our subsidiaries produce and market base oils and other specialized lubricants in the United States, Canada and the Netherlands, and export products to more than 80 countries. +On December 1, 2023, pursuant to the Agreement and Plan of Merger dated as of August 15, 2023 (the “Merger Agreement”) by and among HEP, HF Sinclair, Navajo Pipeline Co., L.P., a Delaware limited partnership and an indirect wholly owned subsidiary of HF Sinclair (“HoldCo”), Holly Apple Holdings LLC, a Delaware limited liability company and a wholly owned subsidiary of HoldCo (“Merger Sub”), HEP Logistics Holdings, L.P., a Delaware limited partnership and the general partner of HEP (“HLH”), and Holly Logistic Services, L.L.C., a Delaware limited liability company and the general partner of HLH, Merger Sub merged with and into HEP, with HEP surviving as an indirect, wholly owned subsidiary of HF Sinclair (the “HEP Merger Transaction”). +Under the terms of the Merger Agreement, each outstanding common unit representing a limited partner interest in HEP (an “HEP common unit”), other than the HEP common units already owned by HF Sinclair and its subsidiaries, was converted into the right to receive 0.315 shares of HF Sinclair common stock and $ 4.00 in cash, without interest. The Merger Agreement consideration totaled $ 268 million in cash and resulted in the issuance of 21,072,326 shares of HF Sinclair common stock from treasury stock. +The HEP Merger Transaction was accounted for in accordance with Financial Accounting Standards Board Accounting Standards Codification ( “ ASC ” ) 810, “ Consolidation. ” Since we controlled HEP both before and after the HEP Merger Transaction, the changes in our ownership interest in HEP resulting from the HEP Merger Transaction were accounted for as an equity transaction, and no gain or loss was recognized in our consolidated statements of income. The tax effects of the HEP Merger Transaction were recorded as adjustments to Deferred income taxes and Additional capital consistent with ASC 740, “ Income Taxes. ” +For a description of our existing indebtednes s, as well as associ ated changes in connection with the HEP Merger Transaction, see Note 14. +In connection with the HEP Merger Transaction, for the year ended December 31, 2023, we incurred $ 24 million in incremental direct acquisition and integration costs that principally relate to legal, advisory and other professional fees and are presented as Selling, general and administrative expenses in our consolidated statements of income. +90 +Table of Conten ts +HF SINCLAIR CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Continued) +On March 14, 2022, HollyFrontier Corporation (“HollyFrontier”) and HEP announced the establishment of HF Sinclair as the new parent holding company of HollyFrontier and HEP and their subsidiaries, and the completion of their respective acquisitions (the “Sinclair Transactions”) of Sinclair Oil Corporation (now known as Sinclair Oil LLC, “Sinclair Oil”) and Sinclair Transportation Company LLC (“STC”) from The Sinclair Companies (now known as REH Company and referred to herein as “REH Company”). +HF Sinclair issued 60,230,036 shares of HF Sinclair common stock, par value $ 0.01 per share, to REH Company, at a value of approximately $ 2,149 million (the “HFC Transaction”). Additionally, REH Company made a $ 78 million cash payment to HF Sinclair, inclusive of final working capital adjustments, which reduced the aggregate transaction value to approximately $ 2,072 million. Additionally, on March 14, 2022, and immediately prior to the consummation of the HFC Transactions, HEP completed its acquisition of STC, REH Company’s integrated crude and refined products midstream business, and issued 21,000,000 HEP common units and paid cash consideration of $ 329 million, inclusive of final working capital adjustments, to REH Company in exchange for all the outstanding equity interests of STC (the “HEP Transaction” and together with the HFC Transactions, the “Sinclair Transactions”). +Basis of Accounting and Use of Estimates: The consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). The preparation of our consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. +For the year ended December 31, 2024, we have changed our presentation from thousands to millions, as applicable, and as a result, any necessary rounding adjustments have been made to prior year disclosed amounts. +Principles of Consolidation: Our consolidated financial statements include our accounts and the accounts of partnerships and joint ventures that we control through an ownership interest greater than 50% or if we are the primary beneficiary of a variable interest entity. All significant intercompany transactions and balances have been eliminated. +Risks and Uncertainties: The prices of crude oil, feedstocks and refined products materially affect our operating results, and are dependent upon many factors that are beyond our control. If implemented, the recently announced tariffs by the US Government on Canada, Mexico and China could impact the cost structure of feedstocks and other materials and supplies at our business units. The tariffs will also likely affect the costs of our products to our customers and our results of operations in the future. +Variable Interest Entities: A variable interest entity ( “ VIE ” ) is a legal entity whose equity owners do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support or, as a group, the equity holders lack the power, through voting rights, to direct the activities that most significantly impact the entity’s financial performance, the obligation to absorb the entity’s expected losses or rights to expected residual returns. See Note 3 for additional information. +Cash Equivalents: We consider all highly liquid instruments with a maturity of three months or less at the date of purchase to be cash equivalents. Cash equivalents are stated at cost, which approximates market value and are primarily invested in liquid highly-rated instruments issued by government or municipal entities with strong credit standings. +Balance Sheet Offsetting: We purchase and sell inventories of crude oil with certain same-parties that are net settled in accordance with contractual net settlement provisions. Our policy is to present such balances on a net basis since it presents our accounts receivables and payables consistent with our contractual settlement provisions. +Accounts Receivable: Our accounts receivable primarily consist of amounts due from customers that are primarily from sales of refined products and renewable diesel. Credit is extended based on our evaluation of the customer’s financial condition, and in certain circumstances, collateral, such as letters of credit or guarantees, is required. We reserve for expected credit losses based on our historical loss experience as well as expected credit losses from current economic conditions and management’s expectations of future economic conditions. Credit losses are charged to the allowance for expected credit losses when an account is deemed uncollectible. Our allowance for expected credit losses was $ 4 million at December 31, 2024 and $ 3 million at December 31, 2023. +91 +Table of Conten ts +HF SINCLAIR CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Continued) +Accounts receivable attributable to crude oil resales generally represent the sale of excess crude oil to other purchasers and/or users in cases when our crude oil supplies are in excess of our immediate needs as well as certain reciprocal buy/sell exchanges of crude oil. At times we enter into such buy/sell exchanges to facilitate the delivery of quantities to certain locations. In many cases, we enter into net settlement agreements relating to the buy/sell arrangements, which may mitigate credit risk. +Inventories: Inventories related to our refining operations are stated at the lower of cost, using the last-in, first-out (“LIFO”) method for crude oil and unfinished and finished refined products, or market. Inventories related to our renewable business are stated at the lower of cost, using the LIFO method for feedstock and unfinished and finished renewable products, or market. Cost, consisting of raw material, transportation and conversion costs, is determined using the LIFO inventory valuation methodology and market is determined using current replacement costs. Under the LIFO method, the most recently incurred costs are charged to cost of sales and inventories are valued at the earliest acquisition costs. In periods of rapidly declining prices, LIFO inventories may have to be written down to market value due to the higher costs assigned to LIFO layers in prior periods. In addition, the use of the LIFO inventory method may result in increases or decreases to cost of sales in years that inventory volumes decline as the result of charging cost of sales with LIFO inventory costs generated in prior periods. An actual valuation of inventory under the LIFO method is made at the end of each year based on the inventory levels at that time. Accordingly, interim LIFO calculations are based on management’s estimates of expected year-end inventory levels and are subject to the final year-end LIFO inventory valuation. +Inventories of our Petro-Canada Lubricants and Sonneborn businesses are stated at the lower of cost, using the first-in, first-out method, or net realizable value. +Inventories consisting of process chemicals, materials and maintenance supplies and RINs are stated at the lower of weighted-average cost or net realizable value. +Leasee Accounting: At inception, we determine if an arrangement is or contains a lease. Right-of-use (“ROU”) assets represent our right to use an underlying asset for the lease term and lease liabilities represent our payment obligation under the leasing arrangement. ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. We use our estimated incremental borrowing rate (“IBR”) to determine the present value of lease payments as most of our leases do not contain an implicit rate. Our IBR represents the interest rate that we would pay to borrow, on a collateralized basis, an amount equal to the lease payments over a similar term in a similar economic environment. We use the implicit rate when readily determinable. +Operating leases are recorded in Operating lease right-of-use assets and current and noncurrent Operating lease liabilities on our consolidated balance sheets. Finance leases are included in Properties, plants and equipment, at cost and Accrued liabilities and Other long-term liabilities on our consolidated balance sheets. +Our lease term includes an option to extend the lease when it is reasonably certain that we will exercise that option. Leases with a term of 12 months or less are not recorded on our consolidated balance sheets. For certain equipment leases, we apply a portfolio approach for the operating lease ROU assets and liabilities. Also, as a lessee, we separate non-lease components that are identifiable and exclude them from the determination of net present value of lease payment obligations. +Lessor Accounting: Customer contracts that contain leases are generally classified as either operating leases, direct finance leases or sales-type leases. We consider inputs such as the lease term, fair value of the underlying asset and residual value of the underlying assets when assessing the classification. As a lessor, we do not separate the non-lease (service) component in contracts in which the lease component is the dominant component. We treat these combined components as an operating lease. We bifurcate the consideration received for sales-type lease contracts between lease and service revenue, with the service component accounted for within the scope of ASC 606, “Revenue from Contracts with Customers.” +Derivative Instruments: All derivative instruments are recognized as either assets or liabilities on our consolidated balance sheets and are measured at fair value. Changes in the derivative instrument’s fair value are recognized in earnings unless specific hedge accounting criteria are met. Cash flows from all our derivative activity are reported in the operating section on our consolidated statements of cash flows. See Note 15 for additional information. +92 +Table of Conten ts +HF SINCLAIR CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Continued) +Properties, Plants and Equipment: Properties, plants and equipment are stated at cost. Depreciation is provided by the straight-line method over the estimated useful lives of the assets, primarily 15 to 32 years for refining, pipeline and terminal facilities, 10 to 40 years for buildings and improvements, 5 to 30 years for other fixed assets and 5 years for vehicles. +Asset Retirement Obligations: We record legal obligations associated with the retirement of assets that result from the acquisition, construction, development and/or the normal operation of assets. The fair value of the estimated cost to retire a tangible asset is recorded as a liability with the associated retirement costs capitalized as part of the asset’s carrying amount in the period in which it is incurred and when a reasonable estimate of the fair value of the liability can be made. If a reasonable estimate cannot be made at the time the liability is incurred, we record the liability when sufficient information is available to estimate the liability’s fair value. Certain of our refining assets have no recorded liability for asset retirement obligations since the timing of any retirement and related costs are currently indeterminable. +Our asset retirement obligations were $ 66 million and $ 65 million at December 31, 2024 and 2023, respectively, which are included in Other long-term liabilities on our consolidated balance sheets. Accretion expense was insignificant for the years ended December 31, 2024, 2023 and 2022. +Goodwill, Intangibles and Long-lived Assets: Intangible assets are assets (other than financial assets) that lack physical substance, and goodwill represents the excess of the cost of an acquired entity over the fair value of the assets acquired and liabilities assumed. Goodwill acquired in a business combination and intangibles with indefinite useful lives are not amortized, whereas intangible assets with finite useful lives are amortized on a straight-line basis. Goodwill and intangible assets that are not subject to amortization are tested for impairment annually or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Our goodwill impairment testing first entails either a quantitative assessment or an optional qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If we determine that based on the qualitative factors that it is more likely than not that the carrying amount of the reporting unit is greater than its fair value, a quantitative test is performed in which we estimate the fair value of the related reporting unit. If the carrying amount of a reporting unit exceeds its fair value, the goodwill of that reporting unit is impaired, and we measure goodwill impairment as the excess of the carrying amount of the reporting unit over the related fair value. The carrying amount of our intangible assets and goodwill may fluctuate from period to period due to the effects of foreign currency translation adjustments on goodwill and intangible assets assigned to our Lubricants & Specialties segment. +For purposes of asset impairment evaluation, we group our assets as follows: (i) our refinery asset groups, which include certain logistics assets, (ii) our renewables products asset groups, (iii) our Lubricants & Specialties asset groups, (iv) our Marketing assets and (v) our Midstream asset groups, which is comprised of logistics assets not included in our refinery asset groups. These asset groups represent the lowest level for which independent cash flows can be identified. Our assets are evaluated for impairment by identifying whether indicators of impairment exist and, if so, assessing whether such assets are recoverable from estimated future undiscounted cash flows. The actual amount of impairment loss measured, if any, is equal to the amount by which the asset group’s carrying value exceeds its fair value. +See Note 11 for additional information regarding goodwill and intangible assets. +Equity Method Investments: We account for investments in which we have a noncontrolling interest, yet have significant influence over the entity, using the equity method of accounting, whereby we record our pro-rata share of earnings of these companies and contributions to and distributions from the joint ventures as adjustments to our investment balance. +93 +Table of Conten ts +HF SINCLAIR CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Continued) +The following tables summarizes our recorded investment compared to its share of underlying equity for each of its investee. The differences are being amortized as adjustments to our pro-rata share of earnings in the joint ventures. +Balance at December 31, 2024 +Equity Method Investments Underlying Equity Recorded Investment Balance Difference +(In millions) +Osage Pipe Line Company, LLC $ 7 $ 32 $ ( 25 ) +Cheyenne Pipeline, LLC 28 39 ( 11 ) +Cushing Connect Terminal Holdings LLC 46 30 16 +Pioneer Investments Corp. 26 132 ( 106 ) +Saddle Butte Pipeline III, LLC 65 32 33 +Total $ 172 $ 265 $ ( 93 ) +Balance at December 31, 2023 +Equity Method Investments Underlying Equity Recorded Investment Balance Difference +(In millions) +Osage Pipe Line Company, LLC $ 1 $ 27 $ ( 26 ) +Cheyenne Pipeline, LLC 31 42 ( 11 ) +Cushing Connect Terminal Holdings LLC 48 33 15 +Pioneer Investments Corp. 24 131 ( 107 ) +Saddle Butte Pipeline III, LLC 66 33 33 +Total $ 170 $ 266 $ ( 96 ) +Equity method investments are assessed for impairment whenever changes in the facts and circumstances indicate a loss in value has occurred. When indicators exist, the fair value is estimated and compared to the investment carrying value. If any impairment is determined to be other than temporary, the carrying value of the investment is written down to fair value. The fair value of the impaired investment is determined based on quoted market prices, if available, or upon the present value of expected future cash flows using discount rates and other assumptions believed to be consistent with those used by principal market participants and observed market earnings multiples of comparable companies. +Revenue Recognition: Revenues on refined products and excess crude oil sales are recognized when delivered (via pipeline, in-tank or rack) and the customer obtains control of such inventory, which is typically when title passes and the customer is billed. All revenues are reported inclusive of shipping and handling costs billed and exclusive of any taxes billed to customers. Shipping and handling costs incurred are reported in Cost of materials and other . +Our Lubricants & Specialties business has sales agreements with marketers and distributors that provide certain rights of return or provisions for the repurchase of products previously sold to them. Under these agreements, revenues and cost of revenues are deferred until the products have been sold to end customers. Our Lubricants & Specialties business also has agreements that create an obligation to deliver products at a future date for which consideration has already been received and recorded as deferred revenue. This revenue is recognized when the products are delivered to the customer. +94 +Table of Conten ts +HF SINCLAIR CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Continued) +Our Midstream business recognizes revenues as products are shipped through its pipelines and terminals and as other services are rendered. Additionally, we have certain throughput agreements that specify minimum volume requirements, whereby we bill a customer for a minimum level of shipments in the event a customer ships below their contractual requirements. If there are no future performance obligations, we recognize these deficiency payments as revenue. In certain of these throughput agreements, a customer may later utilize such shortfall billings as credit towards future volume shipments in excess of its minimum levels within its respective contractual shortfall make-up period. Such amounts represent an obligation to perform future services, which may be initially deferred and later recognized as revenue based on estimated future shipping levels, including the likelihood of a customer’s ability to utilize such amounts prior to the end of the contractual shortfall make-up period. We recognize the service portion of these deficiency payments as revenue when we do not expect it will be required to satisfy these performance obligations in the future based on the pattern of rights exercised by the customer. Payment terms under our contracts with customers are consistent with industry norms and are typically payable within 30 days of the date of invoice. +Cost Classifications: Costs of products sold include the cost of crude oil, other feedstocks, blendstocks and purchased finished products, inclusive of transportation costs. We purchase crude oil that at times exceeds the supply needs of our refineries. Quantities in excess of our needs are sold at market prices to purchasers of crude oil that are recorded on a gross basis with the sales price recorded as revenues and the corresponding acquisition cost as Cost of materials and other . Additionally, we enter into buy / sell exchanges of crude oil with certain parties to facilitate the delivery of quantities to certain locations that are netted at cost. Operating expenses include direct costs of labor, maintenance materials and services, utilities and other direct operating costs. Selling, general and administrative expenses include compensation, professional services and other support costs. +Deferred Maintenance Costs: Our refinery units require regular major maintenance and repairs which are commonly referred to as “turnarounds.” Catalysts used in certain refinery processes also require regular “change-outs.” The required frequency of the maintenance varies by unit and by catalyst, but generally occurs no less than once every five years . Turnaround costs are deferred and amortized over the period until the next scheduled turnaround. Other repairs and maintenance costs are expensed when incurred. Deferred turnaround and catalyst amortization expense was $ 264 million, $ 239 million and $ 159 million for the years ended December 31, 2024, 2023 and 2022, respectively. +Environmental Costs: Environmental costs are charged to Operating expenses if they relate to an existing condition caused by past operations and do not contribute to current or future revenue generation. We have ongoing investigations of environmental matters at various locations and routinely assess our recorded environmental obligations, if any, with respect to such matters. Liabilities are recorded when site restoration and environmental remediation, cleanup and other obligations are either known or considered probable and can be reasonably estimated. Such estimates are undiscounted and require judgment with respect to costs, time frame and extent of required remedial and clean-up activities and are subject to periodic adjustments based on currently available information. Recoveries of environmental costs through insurance, indemnification arrangements or other sources are included in Other assets to the extent such recoveries are considered probable. +Defined Contribution Plans: We have defined contribution plans that cover substantially all qualified employees in the U.S., Canada and the Netherlands. Our contributions are based on an employee’s eligible compensation and years of service. We also partially match our employees’ contributions. We expensed $ 86 million, $ 81 million and $ 74 million for the years ended December 31, 2024, 2023 and 2022, respectively, in connection with these plans. +Contingencies: We are subject to proceedings, lawsuits and other claims related to environmental, labor, product and other matters. We are required to assess the likelihood of any adverse judgments or outcomes to these matters as well as potential ranges of probable losses. We accrue for contingencies when it is probable that a loss has occurred and when the amount of that loss is reasonably estimable. A determination of the amount of reserves required, if any, for these contingencies is made after careful analysis of each individual issue. The required reserves may change in the future due to new developments in each matter or changes in approach such as a change in settlement strategy in dealing with these matters. +Foreign Currency Translation: Assets and liabilities recorded in foreign currencies are translated into U.S. dollars using exchange rates in effect as of the balance sheet date. Revenue and expense accounts are translated using the weighted-average exchange rates during the period presented. Foreign currency translation adjustments are recorded as a component of accumulated other comprehensive income. +95 +Table of Conten ts +HF SINCLAIR CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Continued) +We have intercompany notes that were issued to fund certain of our foreign businesses. Remeasurement adjustments resulting from the conversion of such intercompany financing amounts to functional currencies are recorded as gains or losses as a component of Other income (expense) on our consolidated statements of income. Such adjustments are not recorded in the Lubricants & Specialties segment operations, but to Corporate and Other. See Note 20 for additional information on our segments. +Income Taxes: Provisions for income taxes include deferred taxes resulting from temporary differences in income for financial and tax purposes, using the liability method of accounting for income taxes. The liability method requires the effect of tax rate changes on deferred income taxes to be reflected in the period in which the rate change was enacted. The liability method also requires that deferred tax assets be reduced by a valuation allowance unless it is more likely than not that the assets will be realized. We account for U.S. tax on global intangible low-taxed income in the period in which it is incurred. +Potential interest and penalties related to income tax matters are recognized in income tax expense. We believe we have the appropriate support for the income tax positions taken and to be taken on our income tax returns and that our accruals for tax liabilities are adequate for all open years based on an assessment of many factors, including past experience and interpretations of tax law applied to the facts of each matter. +Inventory Repurchase Obligations: We periodically enter into same-party sell / buy transactions, whereby we sell certain refined product inventory and subsequently repurchase the inventory in order to facilitate delivery to certain locations. Such sell / buy transactions are accounted for as inventory repurchase obligations under which proceeds received under the initial sell is recognized as inventory repurchase obligations that are subsequently reversed when the inventories are repurchased. For the years ended December 31, 2024, 2023 and 2022, we received proceeds of $ 26 million, $ 26 million and $ 42 million, respectively, and subsequently repaid $ 27 million, $ 27 million and $ 43 million, respectively, under these sell / buy transactions. +Accounting Pronouncements - Recently Adopted +In November 2023, ASU 2023-07, “Improvements to Reportable Segment Disclosures” was issued. ASU 2023-07 requires, among other updates, enhanced disclosures about significant segment expenses that are regularly provided to the chief operating decision maker, as well as the aggregate amount of other segment items included in the reported measure of segment profit or loss. The purpose of the ASU 2023-07 is to enable investors to better understand the entity’s overall performance and assess potential future cash flows. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and requires retrospective adoption. We adopted this standard for annual periods beginning with our fiscal year ending December 31, 2024 and for interim periods thereafter. +Accounting Pronouncements - Not Yet Adopted +In December 2023, ASU 2023-09, “Improvements to Income Tax Disclosures” was issued. ASU 2023-09 requires enhanced annual disclosures regarding the rate reconciliation and income taxes paid by jurisdiction. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024 and may be adopted on a prospective or retrospective basis. Early adoption is permitted. We expect to adopt this ASU for the fiscal year beginning January 1, 2025. The adoption will not affect our financial position or our results of operations, but will result in additional disclosures. +In November 2024, ASU 2024-03, “Disaggregation of Income Statement Expenses” was issued. ASU 2024-03 requires companies to disclose additional information about specific expense categories in the notes to the financial statements on an interim and annual basis. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026 and for interim periods beginning after December 15, 2027 with early adoption is permitted. We are currently evaluating the impact of adopting this guidance. +96 +Table of Conten ts +HF SINCLAIR CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Continued) +NOTE 2: Leases +Lessee +We have operating and finance leases for land, buildings, pipelines, storage tanks, transportation and other equipment for our operations. Our leases have remaining terms of one to 55 years, some of which include options to extend the leases for up to 10 years. Certain of our leases for pipeline assets include provisions for variable payments which are based on a measure of throughput and also contain a provision for the lessor to adjust the rate per barrel periodically over the life of the lease. These variable costs are not included in the initial measurement of ROU assets and lease liabilities. +The following table presents the amounts and balance sheet locations of our operating and financing leases recorded on our consolidated balance sheets: +December 31, +2024 2023 +(In millions) +Operating leases: +Operating lease right-of-use assets $ 355 $ 348 +Operating lease liabilities 77 107 +Noncurrent operating lease liabilities 301 249 +Total operating lease liabilities $ 378 $ 356 +Finance leases: +Properties, plants and equipment, at cost $ 115 $ 109 +Less: accumulated amortization ( 37 ) ( 25 ) +Properties, plants and equipment, net $ 78 $ 84 +Accrued liabilities $ 11 $ 11 +Other long-term liabilities 71 75 +Total finance lease liabilities $ 82 $ 86 +Supplemental balance sheet information related to our leases was as follows: +December 31, +2024 2023 +Weighted average remaining lease term (in years): +Operating leases 9.2 7.9 +Finance leases 8.1 8.7 +Weighted average discount rate: +Operating leases 5.6 % 5.0 % +Finance leases 6.1 % 5.8 % +97 +Table of Conten ts +HF SINCLAIR CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Continued) +The components of lease expense were as follows: +Years Ended December 31, +2024 2023 2022 +(In millions) +Operating lease expense $ 131 $ 121 $ 117 +Finance lease expense: +Amortization of right-of-use assets 12 13 13 +Interest on lease liabilities 5 3 3 +Variable lease cost 13 13 4 +Total lease expense $ 161 $ 150 $ 137 +Supplemental cash flow information related to leases was as follows: +Years Ended December 31, +2024 2023 2022 +(In millions) +Cash paid for amounts included in the measurement of lease liabilities: +Operating cash flows from operating leases $ 130 $ 128 $ 126 +Operating cash flows from finance leases $ 5 $ 3 $ 3 +Financing cash flows from finance leases $ 11 $ 12 $ 12 +Right-of-use assets obtained in exchange for lease obligations: +Operating leases $ 126 $ 103 $ 61 +Finance leases $ 8 $ 38 $ 6 +As of December 31, 2024, minimum future lease payments of our operating and finance lease obligations were as follows: +Operating Finance +(In millions) +2025 $ 90 $ 16 +2026 75 14 +2027 53 13 +2028 38 13 +2029 30 11 +Thereafter 211 36 +Future minimum lease payments 497 103 +Less: imputed interest ( 119 ) ( 21 ) +Total lease obligations 378 82 +Less: current obligations ( 77 ) ( 11 ) +Long-term lease obligations $ 301 $ 71 +As of December 31, 2024, we have entered into certain leases that have not yet commenced. Such leases include a six-year lease for tank storage in Dordrecht, Netherlands, with estimated future undiscounted lease payments of $ 12.8 million, expected to commence in the first quarter of 2025. +98 +Table of Conten ts +HF SINCLAIR CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Continued) +Lessor +Our consolidated statements of income reflect lease revenue recognized by our midstream operations for contracts with third parties in which we are the lessor. +Substantially all of the assets supporting contracts meeting the definition of a lease have long useful lives, and we believe these assets will continue to have value when the current agreements expire due to our risk management strategy for protecting the residual fair value of the underlying assets by performing ongoing maintenance during the lease term. +Lease income recognized was as follows: +Years Ended December 31, +2024 2023 2022 +(In millions) +Operating lease revenues $ 17 $ 17 $ 14 +Sales-type lease interest income $ 2 $ 2 $ 3 +Lease revenues relating to variable lease payments not included in measurement of the sales-type lease receivable $ 2 $ 1 $ 2 +For our third-party sales-type leases, we included customer obligations related to minimum volume requirements in guaranteed minimum lease payments. Portions of our minimum guaranteed pipeline tariffs for assets subject to sales-type lease accounting are recorded as interest income with the remaining amounts recorded as a reduction in net investment in leases. We recognized any billings for throughput volumes in excess of minimum volume requirements as variable lease payments, and these variable lease payments were recorded in lease revenues. +Annual minimum undiscounted lease payments in which we are a lessor to third-party contracts as of December 31, 2024 were as follows: +Operating Sales-Type +(In millions) +2025 $ 3 $ 2 +2026 — 2 +2027 — 2 +2028 — 2 +2029 — 2 +Thereafter — 12 +Total lease payment receipts $ 3 22 +Less: imputed interest ( 5 ) +Lease receivables +$ 17 +Net investment in sales-type leases, which is recorded in Intangibles and other on our consolidated balance sheets, was composed of the following: +December 31, +2024 2023 +(In millions) +Lease receivables $ 17 $ 19 +Unguaranteed residual assets 16 15 +Net investment in leases $ 33 $ 34 +99 +Table of Conten ts +HF SINCLAIR CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Continued) +NOTE 3: Cushing Connect Joint Venture +We, through our wholly owned subsidiary HEP Cushing LLC, own a 50/50 joint venture interest in Cushing Connect Pipelines & Terminal LLC (“Cushing Connect”) with Plains Marketing, L.P., a wholly owned subsidiary of Plains All American Pipeline, L.P. (“Plains”). Cushing Connect consists of (i) a 160,000 barrel per day common carrier crude oil pipeline (the “Cushing Connect Pipeline”) that connects the Cushing, Oklahoma crude oil hub to our Tulsa refineries and (ii) the ownership and operation of 1.5 million barrels of crude oil storage in Cushing, Oklahoma (the “Cushing Connect Terminal”). +Cushing Connect entered into a contract with an affiliate of HEP, now a subsidiary of HF Sinclair, to manage the operation of the Cushing Connect Pipeline and with an affiliate of Plains to manage the operation of the Cushing Connect Terminal. The total investment in Cushing Connect was generally shared proportionately among the partners. +Cushing Connect and its two subsidiaries, Cushing Connect Pipeline and Cushing Connect Terminal (the “Cushing Connect Entities”) are VIEs as defined under GAAP. The Cushing Connect Entities are VIEs because they were deemed to not have sufficient equity at risk to finance their activities without additional financial support. We are the primary beneficiary of two of these entities as HEP constructed and operates the Cushing Connect Pipeline, and we have the ability to direct the activities that most significantly impact the financial performance of Cushing Connect and the Cushing Connect Pipeline. Therefore, we consolidate Cushing Connect and the related Cushing Connect Pipeline subsidiary. We are not the primary beneficiary of the Cushing Connect Terminal, which we account for using the equity method of accounting. Our maximum exposure to loss as a result of our involvement with Cushing Connect Terminal is not expected to be material due to the long-term terminalling agreements in place to support operations. +With the exception of the assets of HEP Cushing LLC, creditors of the Cushing Connect Entities have no recourse to our assets. Any recourse to HEP Cushing would be limited to the extent of HEP Cushing’s assets, which other than its investment in Cushing Connect, are not significant. Furthermore, our creditors have no recourse to the assets of the Cushing Connect Entities. The most significant assets of Cushing Connect and the Cushing Connect Pipeline that are available to settle only their obligations, along with their most significant liabilities for which their creditors do not have recourse to our general credit, were: +December 31, +2024 2023 +(In millions) +Cash and cash equivalents $ 5 $ 2 +Properties, plants and equipment, at cost $ 103 $ 103 +Accumulated depreciation $ ( 12 ) $ ( 8 ) +Intangibles and other $ 30 $ 32 +100 +Table of Conten ts +HF SINCLAIR CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Continued) +NOTE 4: Revenues +Substantially all revenue-generating activities relate to sales of refined product, lubricants and specialty products and excess crude oil inventories that are sold at market prices (variable consideration) under contracts with customers. Additionally, we have revenues attributable to logistics services provided under petroleum product and crude oil pipeline transportation, processing, storage and terminalling agreements with third parties. +Disaggregated revenues were as follows: +Years Ended December 31, +2024 2023 2022 +(In millions) +Revenues by type: (1) +Refined product revenues: +Transportation fuels (2) +$ 22,235 $ 24,582 $ 30,251 +Lubricants and specialty products (3) +2,429 2,521 2,826 +Asphalt, fuel oil and other products (4) +1,932 2,167 2,148 +Total refined product revenues 26,596 29,270 35,225 +Excess crude oil revenues (5) +1,570 2,147 2,342 +Transportation and logistic services 107 118 109 +Other revenues (6) +307 429 529 +Total sales and other revenues $ 28,580 $ 31,964 $ 38,205 +Years Ended December 31, +2024 2023 2022 +(In millions) +Refined product revenues by market: (1) +United States: +Mid-Continent $ 9,710 $ 10,756 $ 14,097 +Southwest 4,213 4,056 5,104 +Rocky Mountains 5,781 6,916 7,520 +Northwest 4,746 5,296 6,058 +Northeast 836 959 1,038 +Canada 1,047 1,022 1,064 +Europe, Asia and Latin America 263 265 344 +Total refined product revenues $ 26,596 $ 29,270 $ 35,225 +(1) Prior period amounts have been reclassified to conform with the current period presentation, where applicable. +(2) Transportation fuels revenues are attributable to our: (i) Refining segment wholesale gasoline, diesel and jet fuel, (ii) Marketing segment branded gasoline and diesel, and (iii) Renewables segment renewable diesel fuel. +(3) Lubricant and specialty products consist of base oil, waxes, finished lubricants and other specialty fluids. +(4) Asphalt, fuel oil and other products revenue are attributable to the Refining and Lubricants & Specialties segments. +(5) Excess crude oil revenues represent sales of purchased crude oil inventory that at times exceeds the supply needs of our refineries. +(6) Other revenues are principally attributable to our Refining segment. +101 +Table of Conten ts +HF SINCLAIR CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Continued) +As of December 31, 2024, we have long-term contracts with customers that specify minimum volumes of gasoline, diesel, and lubricants and specialty products to be sold ratably at market prices through 2034. Future prices are subject to market fluctuations and therefore, we have elected the exemption to exclude variable consideration under these contracts under ASC 606-10-50-14A. Aggregate minimum volumes expected to be sold (future performance obligations) under our long-term product sales contracts with customers are as follows, which include branded sales volumes assumed upon our acquisition of certain entities in the Sinclair Transactions: +Contractual Minimum 2025 2026 2027 Thereafter Total +(In millions) +Refined product sales volumes (barrels) 29 21 16 34 100 +Additionally, we have long-term contracts with third-party customers that specify minimum volumes of product to be transported through our pipelines and terminals that result in fixed-minimum annual reven ues throu gh 2033. Annua l minimum revenues attributable to our third-party contracts as of December 31, 2024 are presented below: +Contractual Minimum 2025 2026 2027 Thereafter Total +(In millions) +Midstream operations revenues $ 11 $ 8 $ 8 $ 36 $ 63 +For the years ended December 31, 2024, 2023 and 2022, we had one customer, Shell, together with certain of its affiliates, that accounted for 10% or more of our total annual revenues at approximately 11 % , 12 % and 15 %, respectively, which were primarily generated through our Refining segment operations. +NOTE 5: Other Income, Net +Other income, net consists of the following: +Years Ended December 31, +2024 2023 2022 +(In millions) +Gain on business interruption insurance settlement +$ — $ — $ 15 +Gain on early extinguishment of debt — — 1 +Gain (loss) on foreign currency transactions — 3 ( 2 ) +Gain on sale of assets and other 15 27 14 +Other income, net $ 15 $ 30 $ 28 +NOTE 6: Fair Value Measurements +Fair value measurements are derived using inputs (assumptions that market participants would use in pricing an asset or liability, including assumptions about risk). GAAP categorizes inputs used in fair value measurements into three broad levels as follows: +Level 1: Quoted prices in active markets for identical assets or liabilities. +Level 2: Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, similar assets and liabilities in markets that are not active or can be corroborated by observable market data. +Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes valuation techniques that involve significant unobservable inputs. +102 +Table of Conten ts +HF SINCLAIR CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Continued) +The carrying amounts of derivative instruments and environmental credit obligations at December 31, 2024 and 2023 were as follows: +Carrying Amount Fair Value by Input Level +Level 1 Level 2 Level 3 +(In millions) +December 31, 2024 +Assets: +Commodity forward contracts $ 1 $ — $ 1 $ — +Foreign currency forward contracts 18 — 18 — +Total assets $ 19 $ — $ 19 $ — +Liabilities: +NYMEX futures contracts $ 1 $ 1 $ — $ — +Commodity forward contracts 1 — 1 — +Environmental credit obligations +10 — 10 — +Total liabilities $ 12 $ 1 $ 11 $ — +Carrying Amount Fair Value by Input Level +Level 1 Level 2 Level 3 +(In millions) +December 31, 2023 +Assets: +NYMEX futures contracts $ 1 $ 1 $ — $ — +Commodity forward contracts 3 — 3 — +Total assets $ 4 $ 1 $ 3 $ — +Liabilities: +Commodity price swaps $ 8 $ — $ 8 $ — +Commodity forward contracts 2 — 2 — +Foreign currency forward contracts 8 — 8 — +Total liabilities $ 18 $ — $ 18 $ — +Level 1 Fair Value Measurements +Our New York Mercantile Exchange (“NYMEX”) futures contracts are exchange traded and are measured and recorded at fair value using quoted market prices, a Level 1 input. +Level 2 Fair Value Measurements +Derivative instruments consisting of foreign currency forward contracts, commodity price swaps and forward sales and purchase contracts are measured and recorded at fair value using Level 2 inputs. The fair value of the commodity price swap contracts is based on the net present value of expected future cash flows related to both variable and fixed rate legs of the respective swap agreements. The measurements are computed using market-based observable input and quoted forward commodity prices with respect to our commodity price swaps. The fair value of the forward sales and purchase contracts is computed using quoted forward commodity prices. The fair value of foreign currency forward contracts is based on values provided by a third party, which were derived using market quotes for similar type instruments, a Level 2 input. Environmental credit obligations are valued based on quoted prices from an independent pricing service. +103 +Table of Conten ts +HF SINCLAIR CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Continued) +NOTE 7: Earnings Per Share +Basic earnings per share is calculated as Net income attributable to HF Sinclair stockholders , adjusted for participating securities’ share in earnings divided by the average number of shares of common stock outstanding. Diluted earnings per share includes the incremental shares resulting from certain share-based awards. +The following is a reconciliation of the denominators of the basic and diluted per share computations for net income attributable to HF Sinclair stockholders: +Years Ended December 31, +2024 2023 2022 +(In millions, except share and per share data) +Net income attributable to HF Sinclair stockholders $ 177 $ 1,590 $ 2,923 +Less: participating securities’ share in earnings (1) +( 2 ) ( 14 ) ( 30 ) +Net income attributable to common shares $ 175 $ 1,576 $ 2,893 +Average number of common shares outstanding (in thousands): +Basic +192,073 190,035 202,566 +Diluted +192,073 190,035 202,566 +Basic earnings per share $ 0.91 $ 8.29 $ 14.28 +Diluted earnings per share $ 0.91 $ 8.29 $ 14.28 +(1) Unvested restricted stock unit awards and unvested performance share units that settle in HF Sinclair common stock represent participating securities because they participate in nonforfeitable dividends or distributions with the common stockholders of HF Sinclair. Participating earnings represent the distributed and undistributed earnings of HF Sinclair attributable to the participating securities. Unvested restricted stock unit awards and performance share units do not participate in undistributed net losses as they are not contractually obligated to do so. +NOTE 8: Stock-Based Compensation +We have a principal share-based compensation plan, the HF Sinclair Corporation Amended and Restated 2020 Long Term Incentive Plan (the “2020 Plan”). The 2020 Plan provides for the grant of unrestricted and restricted stock, restricted stock units, other stock-based awards, stock options, performance awards, substitute awards, cash awards and stock appreciation rights. Subject to adjustment for certain events, an aggregate of 6,368,930 of these awards may be issued pursuant to awards granted under the 2020 Plan. We also have a stock compensation deferral plan that allows non-employee directors to defer settlement of vested stock granted under our share-based compensation plan. Our accounting policy for the recognition of compensation expense for awards with pro-rata vesting is to expense the costs ratably over the vesting periods. Share-based awards paid in cash upon vesting are accounted for as liability awards and recorded at fair value at the end of each reporting period with a mark-to-mark adjustment recognized in earnings. +The stock-based compensation expense and associated tax benefit were as follows: +Years Ended December 31, +2024 2023 2022 +(In millions) +Compensation expense: +Restricted stock units $ 18 $ 30 $ 27 +Performance stock units 4 12 9 +Total compensation expense $ 22 $ 42 $ 36 +Tax benefit recognized on compensation expense $ 5 $ 10 $ 9 +104 +Table of Conten ts +HF SINCLAIR CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Continued) +Restricted Stock Units +Under the 2020 Plan, we grant certain officers and other key employees restricted stock unit awards, which are payable in stock or cash and generally vest over a period of one to three years . Restricted stock unit award recipients have the right to receive dividends, however, restricted stock units do not have any other rights of absolute ownership. Upon vesting, restrictions on the restricted stock units lapse at which time they convert to common shares or cash. In addition, we grant non-employee directors restricted stock unit awards, which typically vest over a period of one year and are payable in stock. The fair value of each restricted stock unit award is measured based on the grant date market price of our common shares and is amortized over the respective vesting period. We account for forfeitures on an estimated basis. +A summary of restricted stock units activity during the year ended December 31, 2024 is presented below: +Restricted Stock Units Grants Weighted Average Grant Date Fair Value +Outstanding at January 1, 2024 1,102,755 $ 50.71 +Granted 585,455 $ 42.36 +Vested ( 486,126 ) $ 33.47 +Forfeited ( 250,394 ) $ 51.27 +Outstanding at December 31, 2024 951,690 $ 54.23 +As of December 31, 2024, there was $ 29 million of total unrecognized compensation cost related to non-vested restricted stock unit grants. That cost is expected to be recognized over a weighted-average period of 1.6 years. +The following table reflects activity related to our restricted stock units: +Years Ended December 31, +Restricted Stock Unit Activity 2024 2023 2022 +Grant date fair value of vested units (in millions) $ 16 $ 21 $ 26 +Weighted average grant date fair value per granted unit +$ 42.36 $ 52.59 $ 59.41 +Cash paid for settlement of awards on vesting date (in millions) $ 1 $ 4 $ 6 +Restricted stock units settled in cash +24,065 71,589 96,005 +Performance Share Units +Under the 2020 Plan, we grant certain officers and other key employees performance share units, which are payable in stock or cash upon meeting certain criteria over the service period, and generally vest at the end of a three year period. Under the terms of our performance share unit grants, awards are subject to “financial performance” and “market performance” criteria. Financial performance is based on our financial performance compared to a peer group of independent refining companies, while market performance is based on the relative standing of total stockholder return achieved by HF Sinclair compared to peer group companies. The number of shares ultimately issued or cash paid under these awards can range from zero to 200 % of target award amounts. Holders of performance share units have the right to receive dividend equivalents and other distributions with respect to such performance share units based on the target level of payout. +105 +Table of Conten ts +HF SINCLAIR CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Continued) +A summary of performance share units activity during the year ended December 31, 2024 is presented below: +Performance Share Units Grants Weighted Average Grant Date Fair Value +Outstanding at January 1, 2024 485,531 $ 61.66 +Granted 309,397 $ 49.90 +Vested ( 75,886 ) $ 38.70 +Forfeited ( 96,615 ) $ 55.30 +Outstanding at December 31, 2024 622,427 $ 59.60 +For the year ended December 31, 2024, we issued 73,162 shares of common stock, representing a payout at 100 % on vested performance share units. As of December 31, 2024, there was $ 21 million of total unrecognized compensation cost related to non-vested performance share units. That cost is expected to be recognized over a weighted-average period of 2.3 years. +The following table reflects activity related to our performance share units: +Years Ended December 31, +Performance Share Units Activity 2024 2023 2022 +Grant date fair value of vested units (in millions) $ 3 $ 7 $ 6 +Weighted average grant date fair value per granted unit +$ 49.90 $ 67.73 $ 72.04 +Cash paid for settlement of awards on vesting date (in millions) $ — $ 1 $ 1 +Performance stock units settled in cash +2,724 23,587 12,108 +NOTE 9: Inventories +Inventories consist of the following components: +December 31, +2024 2023 +(In millions) +Crude oil $ 799 $ 858 +Other raw materials and unfinished products (1) +656 683 +Finished products (2) +1,329 1,437 +Lower of cost or market reserve ( 289 ) ( 332 ) +Crude oil and refined products 2,495 2,646 +Process chemicals (3) +43 51 +Repairs and maintenance supplies and other (4) +260 225 +Materials, supplies and other 303 276 +Total inventories $ 2,798 $ 2,922 +(1) Other raw materials and unfinished products include feedstocks and blendstocks, other than crude. +(2) Finished products include gasolines, jet fuels, diesels, renewable diesels, lubricants, asphalts, LPG’s and residual fuels. +(3) Process chemicals include additives and other chemicals. +(4) Includes environmental credits. +106 +Table of Conten ts +HF SINCLAIR CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Continued) +Our Refining and Renewables segment inventories are valued at the lower of LIFO cost or market based on market conditions at that time. The following table is a summary of the lower of cost or market reserve activity: +Lower of Cost or Market Reserve Activity Summary: Refining Renewables Total +(In millions) +Balance at December 31, 2021 $ — $ 9 $ 9 +Lower of cost or market inventory valuation adjustments +— 52 52 +Balance at December 31, 2022 (1) +$ — $ 61 $ 61 +Lower of cost or market inventory valuation adjustments 221 50 271 +Balance at December 31, 2023 $ 221 $ 111 $ 332 +Lower of cost or market inventory valuation adjustments +( 32 ) ( 11 ) ( 43 ) +Balance at December 31, 2024 $ 189 $ 100 $ 289 +(1) The excess replacement cost over the LIFO value of our Refining segment inventories was $ 39 million at December 31, 2022. +NOTE 10: Properties, Plants and Equipment +The components of properties, plants and equipment are as follows: +December 31, +2024 2023 +(In millions) +Land, buildings and improvements $ 790 $ 766 +Refining facilities 6,793 6,594 +Pipelines and terminals 2,356 2,301 +Transportation vehicles 42 38 +Other fixed assets 640 544 +Construction in progress 310 291 +Properties, plants and equipment, at cost 10,931 10,534 +Less: accumulated depreciation ( 4,373 ) ( 3,907 ) +Properties, plants and equipment, net $ 6,558 $ 6,627 +We capitalized interest attributable to construction projects of $ 4 million, $ 4 million and $ 6 million for the years ended December 31, 2024, 2023 and 2022, respectively. +Depreciation expense was $ 509 million, $ 474 million and $ 442 million for the years ended December 31, 2024, 2023 and 2022, respectively. +107 +Table of Conten ts +HF SINCLAIR CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Continued) +NOTE 11: Goodwill, Intangibles and Long-lived Assets +Goodwill +As of December 31, 2024, our goodwill balance was $ 3.0 billion. The carrying amount of our goodwill may fluctuate from period to period due to the effects of foreign currency translation adjustments on goodwill assigned to our Lubricants & Specialties segment. +The following is a summary of our goodwill balance by segment: +Refining +Renewables Marketing +Lubricants & Specialties +Midstream Total +(In millions) +Balance at December 31, 2022 +$ 1,977 $ 159 $ 164 $ 246 $ 432 $ 2,978 +Goodwill disposal and other changes — — — ( 1 ) — ( 1 ) +Foreign currency translation adjustment — — — 1 — 1 +Balance at December 31, 2023 +$ 1,977 $ 159 $ 164 $ 246 $ 432 $ 2,978 +Foreign currency translation adjustment — — — ( 1 ) — ( 1 ) +Balance at December 31, 2024 +$ 1,977 $ 159 $ 164 $ 245 $ 432 $ 2,977 +The following consists of goodwill gross amounts and accumulated impairment charges as of December 31, 2024 : +Refining Renewables Marketing Lubricants & Specialties Midstream Total +Balance at December 31, 2024 (In millions) +Goodwill $ 2,286 $ 159 $ 164 $ 480 $ 432 $ 3,521 +Accumulated impairment losses ( 309 ) — — ( 235 ) — ( 544 ) +Total Goodwill $ 1,977 $ 159 $ 164 $ 245 $ 432 $ 2,977 +We performed our annual goodwill impairment testing quantitatively as of July 1, 2024 and determined there was no impairment of goodwill attributable to our reporting units. Furthermore, there was no impairment of goodwill during the years ended December 31, 2024 and 2023. +Intangibles +The carrying amounts of our intangible assets presented in Intangibles and other on our consolidated balance sheets are as follows: +December 31 +Useful Life 2024 2023 +(In millions) +Customer relationships +4 - 20 years +$ 345 $ 348 +Transportation agreements +30 years +60 60 +Trademarks, patents and other +6 - 20 years +257 264 +662 672 +Less: accumulated amortization ( 311 ) ( 261 ) +Total intangibles, net $ 351 $ 411 +108 +Table of Conten ts +HF SINCLAIR CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Continued) +Amortization expense was $ 55 million, $ 55 million and $ 51 million for the years ended December 31, 2024, 2023 and 2022, respectively. Estimated future amortization expense related to the intangible assets at December 31, 2024 is as follows: +Estimated Future Amortization Expense for Year Ended December 31: (In millions) +2025 $ 55 +2026 47 +2027 41 +2028 34 +2029 34 +Thereafter 140 +Total $ 351 +Long-lived Assets +Long-lived assets, defined as properties, plants, and equipment, net, equity method investments, turnaround and catalyst costs and net investment in leases by geographic location are as follows: +December 31, +2024 2023 +(In millions) +United States +$ 7,301 $ 7,173 +Canada +319 355 +Europe and Asia +157 162 +Total long-lived assets +$ 7,777 $ 7,690 +During the year ended December 31, 2024 , we incurred long-lived asset impairment charges totaling $ 17 million, primarily related to certain logistic assets in our Midstream segment and other assets in our Refining segment. +NOTE 12: Accrued Liabilities and Other Long-Term Liabilities +Accrued liabilities consist of the following: +December 31, +2024 2023 +(In millions) +Accrued interest expense $ 38 $ 38 +Accrued taxes other than income 28 29 +Derivatives 2 18 +Environmental liabilities 27 34 +Precious metal financing 32 37 +ROU financing lease liabilities 11 11 +Wage and other employee-related liabilities 85 85 +Environmental credit obligations 17 6 +Other 137 195 +Total accrued liabilities $ 377 $ 453 +109 +Table of Conten ts +HF SINCLAIR CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Continued) +Other long-term liabilities consist of the following: +December 31, +2024 2023 +(In millions) +Environmental liabilities $ 163 $ 161 +ROU financing lease liabilities 71 75 +Asset retirement obligation +66 65 +Other 141 118 +Total other long-term liabilities $ 441 $ 419 +NOTE 13: Environmental +These accruals include remediation and monitoring costs expected to be incurred over an extended period of time. Estimated liabilities could increase in the future when the results of ongoing investigations become known, are considered probable and can be reasonably estimated. +The table below presents the expenses incurred for environmental remediation obligations: +Years Ended December 31, +Environmental Remediation +2024 2023 2022 +(in millions) +Environmental remediation expense $ 14 $ 27 $ 13 +The table below presents the accrued environmental liabilities reflected on the consolidated balance sheets: +December 31, +Environmental Remediation +Balance Sheet Classification 2024 2023 2022 +(in millions) +Current portion Accrued Liabilities $ 27 $ 34 $ 22 +Long-term portion Other long-term liabilities 163 161 170 +Total accrued environmental liability $ 190 $ 195 $ 192 +NOTE 14: Debt +Credit Agreements +We have a $ 1.65 billion senior unsecured revolving credit facility maturing in April 2026 (the “HF Sinclair Credit Agreement”). The HF Sinclair Credit Agreement may be used for revolving credit loans and letters of credit from time to time and is available to fund general corporate purposes. At December 31, 2024, we were in compliance with all covenants, had no outstanding borrowings and had outstanding letters of credit totaling a nominal amount under the HF Sinclair Credit Agreement. +Additionally, our wholly owned subsidiary, HEP, has a $ 1.2 billion senior secured revolving credit facility maturing in July 2025 (the “HEP Credit Agreement” and, together with the HF Sinclair Credit Agreement, the “Credit Agreements”). The HEP Credit Agreement is available to fund capital expenditures, investments, acquisitions, distribution payments, working capital and for general corporate purposes. It is also available to fund letters of credit up to a $ 50 million sub-limit and has an accordion feature that allows us to increase the commitments under the HEP Credit Agreement up to a maximum amount of $ 1.7 billion. At December 31, 2024, we were in compliance with all of its covenants, had outstanding borrowings of $ 350 million and no outstanding letters of credit under the HEP Credit Agreement. +110 +Table of Conten ts +HF SINCLAIR CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Continued) +Indebtedness under the Credit Agreements bears interest, at our option, for borrowings in U.S. dollars at either (a) a base rate equal to the sum of (1) the highest of (i) the prime rate (as publicly announced from time to time by the applicable administrative agent), (ii) the Federal Funds Effective Rate (as defined in the HF Sinclair Credit Agreement and as defined as the “Federal Funds Rate” in the HEP Credit Agreement) plus 0.5 %, and (iii) Spread Adjusted Term SOFR (as defined in the HF Sinclair Credit Agreement and as defined as “Adjusted Term SOFR” in the HEP Credit Agreement) for a one-month interest period plus 1 %, plus (2) an applicable margin for base rate loans ranging from 0.25 % to 1.125 %, or (b) the sum of (1) Spread Adjusted Term SOFR (as defined in the HF Sinclair Credit Agreement and as defined as “Adjusted Term SOFR” in the HEP Credit Agreement) for the applicable interest period, plus (2) an applicable margin for term SOFR loans ranging from 1.25 % to 2.125 %. The HF Sinclair Credit Agreement allows for borrowings in Sterling and Euros with similar interest rates. In each case and each Credit Agreement, the applicable margin is based on HF Sinclair’s debt rating assigned by Standard & Poor’s Rating Services and Moody’s Investors Service, Inc. The weighted average interest rate in effect under the HEP Credit Agreement on our borrowings was 6.17 % and 7.08 % as of December 31, 2024 and December 31, 2023, respectively. +HF Sinclair S enior Notes Exchange +On December 4, 2023, we completed our offers to exchange any and all outstanding HEP 5.000 % senior notes maturing February 2028 (the “HEP 5.000 % Senior Notes”) and HEP 6.375 % senior notes maturing April 2027 (the “HEP 6.375 % Senior Notes” and, together with the HEP 5.000 % Senior Notes, the “HEP Senior Notes”) for HF Sinclair 5.000 % senior notes maturing February 2028 (the “HF Sinclair 5.000 % Senior Notes”) and HF Sinclair 6.375 % senior notes maturing April 2027 (the “HF Sinclair 6.375 % Senior Notes” and, together with the HF Sinclair 5.000 % Senior Notes, the “Restricted HF Sinclair Senior Notes”) to be issued by HF Sinclair with registration rights and cash. In connection with the exchange offers, we amended the indenture governing the HEP Senior Notes to eliminate (i) substantially all of the restrictive covenants, (ii) certain of the events which may lead to an “Event of Default,” (iii) the SEC reporting covenant and (iv) the requirement of HEP to offer to purchase the HEP Senior Notes upon a change of control. The Restricted HF Sinclair Senior Notes were issued in exchange for the HEP Senior Notes pursuant to a private exchange offer exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”). This exchange was part of a broader corporate strategy, including the HEP Merger Transaction. +On May 10, 2024, HF Sinclair filed a registration statement, as amended, which was declared effective on August 5, 2024, to exchange the Restricted HF Sinclair Senior Notes for an equal principal amount of each respective series of the Restricted HF Sinclair Senior Notes (such notes offered in exchange, the “Registered HF Sinclair Senior Notes”). The Registered HF Sinclair Senior Notes are substantially identical to the Restricted HF Sinclair Senior Notes in all material respects except the Registered HF Sinclair Senior Notes are registered under the Securities Act and are not subject to restrictions on transfer or to any increase in annual interest rate for failure to comply with the Registration Rights Agreement, dated December 4, 2023, and do not have the registration rights applicable to the Restricted HF Sinclair Senior Notes. On September 5, 2024, HF Sinclair completed its offers to exchange the Restricted HF Sinclair Senior Notes for the Registered HF Sinclair Senior Notes. +The Registered HF Sinclair Senior Notes are unsecured and unsubordinated obligations of ours and rank equally with all our other existing and future unsecured and unsubordinated indebtedness. Each series of the Registered HF Sinclair Senior Notes has the same interest rate, interest payment dates, maturity date and redemption terms as the corresponding series of Restricted HF Sinclair Senior Notes. +Senior Notes +Our unsecured senior notes and unsubordinated obligations (as set forth in the table below under “HF Sinclair Financing Arrangements”) rank equally with all future unsecured and unsubordinated indebtedness. +We may, from time to time, seek to retire some or all of our outstanding debt agreements through cash purchases, and/or exchanges, open market purchases, privately negotiated transactions, tender offers or otherwise. Such transactions, if any, may be material and will depend on prevailing market conditions, our liquidity requirements and other factors. +111 +Table of Conten ts +HF SINCLAIR CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Continued) +HF Sinclair Financing Arrangements +Certain of our wholly owned subsidiaries entered into financing arrangements whereby such subsidiaries sold a portion of their precious metals catalyst to a financial institution in exchange for cash and then financed the use of the precious metals catalyst for a term not to exceed one year. The volume of the precious metals catalyst and the interest rate are fixed over the term of each agreement, and the payments are recorded as Interest expense . Upon maturity of the financing arrangement, we must either satisfy the obligation at fair market value or refinance to extend the maturity. These financing arrangements are recorded at a Level 2 fair value totaling $ 31 million and $ 37 million at December 31, 2024 and 2023, respectively, and are included in Accrued liabilities on our consolidated balance sheets. See Note 6 for additional information on Level 2 inputs. +We may, from time to time, issue letters of credit pursuant to uncommitted letters of credit facilities with its lenders. At December 31, 2024, there were no l etters of credit outstanding under such credit facilities. +The principal and carrying amounts of Long-term debt are as follows: +Carrying Amount (1) +Maturity Date December 31, 2024 December 31, 2023 +(In millions) +HollyFrontier Corporation Senior Notes: +5.875 % Senior Notes +April 2026 $ 203 $ 203 +4.500 % Senior Notes +October 2030 75 75 +278 278 +HF Sinclair Senior Notes: +5.875 % Senior Notes +April 2026 797 797 +6.375 % Senior Notes +April 2027 400 400 +5.000 % Senior Notes +February 2028 499 499 +4.500 % Senior Notes +October 2030 325 325 +2,021 2,021 +HEP Senior Notes: +6.375 % Senior Notes +April 2027 — — +5.000 % Senior Notes +February 2028 1 1 +1 1 +Total Senior Notes 2,300 2,300 +HEP Credit Agreement July 2025 350 456 +HF Sinclair Credit Agreement April 2026 — — +Total Credit Agreements 350 456 +Less: current debt (2) +( 350 ) — +Unamortized discount and debt issuance costs ( 12 ) ( 17 ) +Total long-term debt, net +$ 2,288 $ 2,739 +(1) As of December 31, 2024 and 2023, the carrying amounts of our Senior Notes equaled the principal amounts. +(2) The HEP Credit Agreement matures in July 2025 and is classified as Current debt on our consolidated balance sheets as of December 31, 2024. +The fair values of the senior notes are as follows: +December 31, +2024 2023 +(In millions) +HollyFrontier Corporation, HF Sinclair and HEP Senior Notes $ 2,284 $ 2,272 +These fair values are based on a Level 2 input. See Note 6 for additional information on Level 2 inputs. +112 +Table of Conten ts +HF SINCLAIR CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Continued) +Principal maturities of outstanding debt as of December 31, 2024 are as follows: +Years Ending December 31: (In millions) +2025 $ 350 +2026 1,000 +2027 400 +2028 500 +2029 — +Thereafter 400 +Total $ 2,650 +2025 Senior Notes Offering, Tender Offer and Redemption +On January 23, 2025, HF Sinclair issued an aggregate principal amount of $ 1.4 billion of senior notes consisting of $ 650 million aggregate principal amount of 5.750 % Senior Notes due 2031 (the “HF Sinclair 5.750 % Senior Notes”) and $ 750 million aggregate principal amount of 6.250 % Senior Notes due 2035 (the “HF Sinclair 6.250 % Senior Notes,” together with the “HF Sinclair 5.750 % Senior Notes”, the “New HFS Notes”) for net proceeds of approximately $ 1.38 billion, after deducting the underwriters’ discount and commissions and estimated offering expenses. The New HFS Notes are unsecured and unsubordinated obligations of ours and rank equally with all our other existing and future unsecured and unsubordinated indebtedness. +We used the net proceeds from the notes offering to repay $ 350 million in outstanding borrowings under the HEP Credit Agreement, to fund the concurrent Tender Offer (as defined below) and to fund the redemption of HollyFrontier’s 5.875 % Senior Notes due 2026. +On January 28, 2025, we completed a cash tender offer for $ 646 million in aggregate principal amount (the “Tender Offer”) as follows: +Maturity Date +Issuer +Aggregate Principal Amount Accepted +Purchase Price +Accrued Interest Paid at Closing +April 2027 HF Sinclair $ 150 $ 153 $ 3 +April 2026 HF Sinclair $ 448 $ 452 $ 9 +April 2026 HollyFrontier $ 48 $ 49 $ 1 +Total +$ 646 $ 654 $ 13 +On February 18, 2025, we redeemed the remaining aggregate principal amount of HollyFrontier’s 5.875 % Senior Notes due 2026 at a redemption cost of $ 156 million. The redemptions were funded with the net proceeds of the offering of New HFS Notes. We recognized an early extinguishment loss as a result of the Tender Offer and February 16, 2025 redemptions. +Additionally, we announced our intent to redeem $ 195 million aggregate principal amount of HF Sinclair 5.875 % Senior Notes due 2026 which is expected to close on February 21, 2025. The final redemption cost will be determined at closing and will be funded with the net proceeds of the offering of New HFS Notes. +NOTE 15: Derivative Instruments and Hedging Activities +Commodity Price Risk Management +Our primary market risk is commodity price risk. We are exposed to market risks related to the volatility in the price of crude oil and refined products, as well as volatility in the price of natural gas used in our refining operations. We periodically enter into derivative contracts in the form of commodity price swaps, collar contracts, forward contracts and futures contracts to mitigate price exposure with respect to our inventory positions, natural gas purchases, sales prices of refined products and crude oil costs. +113 +Table of Conten ts +HF SINCLAIR CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Continued) +Foreign Currency Risk Management +We are exposed to market risk related to the volatility in foreign currency exchange rates. We periodically enter into derivative contracts in the form of foreign exchange forward contracts to mitigate the exposure associated with fluctuations on intercompany notes with our foreign subsidiaries that are not denominated in the U.S. dollar. +Accounting Hedges +We periodically have swap contracts to lock in basis spread differentials on forecasted purchases of crude oil and forward sales contracts that lock in the prices of future sales of crude oil and refined product. These contracts have been designated as accounting hedges and are measured at fair value with offsetting adjustments (gains/losses) recorded directly to other comprehensive income (“OCI”). These fair value adjustments are later reclassified to earnings as the hedging instruments mature. +We did not have any effective cash flow hedges in place as of December 31, 2024 and 2023. +The following table presents the realized loss reclassified from accumulated other comprehensive income into earnings due to fair value adjustments and maturities of hedging instruments under hedge accounting: +Statement of Income Classification Years Ended December 31, +2024 2023 2022 +(In millions) +Derivatives designated as cash flow hedging instruments: +Commodity contracts Sales and other revenues $ ( 5 ) $ ( 3 ) $ ( 5 ) +Economic Hedges +We periodically have commodity contracts including NYMEX futures contracts to lock in prices on forecasted purchases and sales of inventory and basis swap contracts to mitigate exposure to natural gas price volatility and forward purchase and sell contracts of refined products, as well as periodically have contracts to lock in basis spread differentials on forecasted purchases of crude oil and collar contracts to mitigate exposure to natural gas price volatility, that serve as economic hedges (derivatives used for risk management, but not designated as accounting hedges). We also have forward currency contracts to fix the rate of foreign currency. In addition, our catalyst financing arrangements discussed in Note 15 could require repayment under certain conditions based on the future pricing of platinum, which is an embedded derivative. These contracts are measured at fair value with offsetting adjustments (gains/losses) recorded directly to earnings. +The following table presents the pre-tax effect on earnings due to maturities and fair value adjustments of our economic hedges: +Statement of Income Classification Years Ended December 31, +2024 2023 2022 +(In millions) +Derivatives not designated as hedging instruments: +Commodity contracts Cost of materials and other $ ( 8 ) $ 10 $ ( 17 ) +Operating expenses ( 4 ) ( 21 ) ( 14 ) +Interest expense 3 2 ( 5 ) +Foreign currency contracts Gain (loss) on foreign currency transactions 33 ( 7 ) 28 +Total $ 24 $ ( 16 ) $ ( 8 ) +114 +Table of Conten ts +HF SINCLAIR CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Continued) +As of December 31, 2024, we have the following notional contract volumes related to outstanding derivative instruments (all maturing in 2025): +Total Outstanding Notional Unit of Measure +Derivatives not designated as hedging instruments: +NYMEX futures (WTI) - short 570,000 Barrels +Forward gasoline and diesel contracts - long 450,000 Barrels +Foreign currency forward contracts 383,222,096 U. S. dollar +Forward commodity contracts (platinum) 34,628 Troy ounces +The following tables presents the fair value and the locations of our outstanding derivative instruments in the consolidated balance sheet. These amounts are presented on a gross basis with offsetting balances that reconcile to a net asset or liability position on our consolidated balance sheets. We present on a net basis to reflect the net settlement of these positions in accordance with provisions of our master netting arrangements. +Derivatives in Net Asset Position Derivatives in Net Liability Position +Gross Assets Gross Liabilities Offset in Balance Sheet Net Assets Recognized in Balance Sheet Gross Liabilities Gross Assets Offset in Balance Sheet Net Liabilities Recognized in Balance Sheet +(In millions) +December 31, 2024 +Derivatives not designated as cash flow hedging instruments: +NYMEX futures contracts $ — $ — $ — $ 1 $ — $ 1 +Commodity forward contracts 1 — 1 1 — 1 +Foreign currency forward contracts 18 — 18 — — — +$ 19 $ — $ 19 $ 2 $ — $ 2 +Total net balance $ 19 $ 2 +Balance sheet classification: Prepayments and other $ 19 Accrued liabilities $ 2 +Derivatives in Net Asset Position Derivatives in Net Liability Position +Gross Assets Gross Liabilities Offset in Balance Sheet Net Assets Recognized in Balance Sheet Gross Liabilities Gross Assets Offset in Balance Sheet Net Liabilities Recognized in Balance Sheet +(In millions) +December 31, 2023 +Derivatives not designated as cash flow hedging instruments: +NYMEX futures contracts $ 1 $ — $ 1 $ — $ — $ — +Commodity price swap contracts — — — 8 — 8 +Commodity forward contracts 3 — 3 2 — 2 +Foreign currency forward contracts — — — 8 — 8 +$ 4 $ — $ 4 $ 18 $ — $ 18 +Total net balance $ 4 $ 18 +Balance sheet classification: Prepayments and other $ 4 Accrued liabilities $ 18 +115 +Table of Conten ts +HF SINCLAIR CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Continued) +NOTE 16: Income Taxes +The provision for income taxes is comprised of the following: +Years Ended December 31, +2024 2023 2022 +(In millions) +Current: +Federal $ 26 $ 180 $ 675 +State 12 24 109 +Foreign 45 45 58 +Deferred: +Federal ( 34 ) 155 39 +State ( 8 ) 31 21 +Foreign ( 7 ) 7 ( 7 ) +Total income tax expense $ 34 $ 442 $ 895 +The statutory federal income tax rate applied to pre-tax book income reconciles to income tax expense as follows: +Years Ended December 31, +2024 2023 2022 +(In millions) +Tax computed at statutory rate $ 46 $ 452 $ 827 +State income taxes, net of federal tax benefit ( 5 ) 56 123 +Less: noncontrolling interest in net income ( 2 ) ( 29 ) ( 29 ) +Effect of change in state rate 8 — ( 16 ) +Less: nontaxable permanent differences ( 51 ) ( 49 ) — +Foreign rate differential 1 6 7 +Uncertain tax positions 20 — — +Change in valuation allowance 5 — — +Fines and penalties 8 — — +Less: tax benefit on equity investment dividends received +( 3 ) — — +Less: federal tax credits — ( 5 ) ( 24 ) +U.S. tax on non-U.S. operations +2 7 13 +Other 5 4 ( 6 ) +Total income tax expense $ 34 $ 442 $ 895 +116 +Table of Conten ts +HF SINCLAIR CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Continued) +Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Our deferred income tax assets and liabilities as of December 31, 2024 and 2023 are as follows: +December 31, 2024 +Assets Liabilities Total +(In millions) +Deferred income taxes: +Properties, plants, equipment and intangibles (due primarily to tax in excess of book depreciation) $ — $ ( 1,174 ) $ ( 1,174 ) +Lease obligation 114 — 114 +Accrued employee benefits 22 — 22 +Accrued post-retirement benefits 10 — 10 +Accrued environmental costs 41 — 41 +Inventory differences — ( 159 ) ( 159 ) +Deferred turnaround costs — ( 185 ) ( 185 ) +Net operating loss and tax credit carryforwards 116 — 116 +Interest Limitation under 163(j) +19 — 19 +Other — ( 14 ) ( 14 ) +Valuation allowance ( 14 ) — ( 14 ) +Total $ 308 $ ( 1,532 ) $ ( 1,224 ) +December 31, 2023 +Assets Liabilities Total +(In millions) +Deferred income taxes: +Properties, plants, equipment and intangibles (due primarily to tax in excess of book depreciation) $ — $ ( 1,172 ) $ ( 1,172 ) +Lease obligation 106 — 106 +Accrued employee benefits 20 — 20 +Accrued post-retirement benefits 10 — 10 +Accrued environmental costs 43 — 43 +Hedging instruments 2 — 2 +Inventory differences — ( 164 ) ( 164 ) +Deferred turnaround costs — ( 156 ) ( 156 ) +Net operating loss and tax credit carryforwards 35 — 35 +Other — ( 10 ) ( 10 ) +Valuation allowance ( 11 ) — ( 11 ) +Total $ 205 $ ( 1,502 ) $ ( 1,297 ) +We have tax benefits attributable to net operating losses of $ 45 million in the United States that can be carried forward indefinitely, and tax benefits of $ 10 million in state and local jurisdictions that can generally be carried forward at least 20 years. Additionally, we have tax benefits attributable to net operating losses of $ 14 million in the Netherlands that can be carried forward indefinitely, tax benefits attributable to net operating losses in China of $ 4 million that can be carried forward five years, and tax benefits attributable to net operating losses in Luxembourg of $ 11 million that can be carried forward 17 years and begin expiring in 2036. We have reflected a valuation allowance of $ 14 million in 2024 and $ 11 million in 2023 with respect to net operating carryforwards that primarily relate to losses in the Netherlands, China, and Luxembourg. +117 +Table of Conten ts +HF SINCLAIR CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Continued) +A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows: +Years Ended December 31, +2024 2023 2022 +(In millions) +Balance at January 1 $ 1 $ 1 $ 55 +Additions for tax positions related to prior years 23 — — +Reductions for tax positions of prior years — — ( 54 ) +Balance at December 31 $ 24 $ 1 $ 1 +At December 31, 2024, 2023 and 2022, there were $ 24 million, $ 1 million, and $ 1 million, respectively, of unrecognized tax benefits that, if recognized, would affect our effective tax rate. Unrecognized tax benefits are adjusted in the period in which new information about a tax position becomes available or the final outcome differs from the amount recorded. +We are subject to U.S. and Canadian federal income tax, Oklahoma, Missouri, Oregon, Kansas, New Mexico, Iowa, Arizona, Utah, Colorado and Nebraska income tax and to income tax of multiple other state and local jurisdictions. The Company is currently under audit with the Internal Revenue Service for the tax years 2020 and 2021, and under audit with the Canada Revenue Agency for the tax years 2018, 2019, and 2020. For the year ended December 31, 2024 , we have recorded $ 5 million of penalties and interest as an element of tax expense. +NOTE 17: Stockholders ’ Equity +On August 15, 2023, our Board of Directors approved a $ 1.0 billion share repurchase program (the “ August 2023 Share Repurchase Program”), which replaced all existing share repurchase programs, including the $ 5 million remaining authorization under our preexisting share repurchase program dating from September 2022. The August 2023 Share Repurchase Program authorized us to repurchase common stock in the open market or through privately negotiated transactions. Privately negotiated repurchases from REH were also authorized under the August 2023 Share Repurchase Program, subject to REH’s interest in selling its shares and other limitations. +On May 7, 2024, our Board of Directors approved a new $ 1.0 billion share repurchase program (the “May 2024 Share Repurchase Program”), which replaced all existing share repurchase programs, including the approximately $ 214 million remaining under the August 2023 Share Repurchase Program. The May 2024 Share Repurchase Program authorizes us to repurchase common stock in the open market or through privately negotiated transactions. Privately negotiated repurchases from REH are also authorized under the May 2024 Share Repurchase Program, subject to REH’s interest in selling its shares and other limitations. The timing and amount of share repurchases, including those from REH, will depend on market conditions and corporate, tax, regulatory and other relevant considerations. In addition, we are authorized by our Board of Directors to repurchase shares in an amount sufficient to offset shares issued under our compensation programs. The May 2024 Share Repurchase Program may be discontinued at any time by our Board of Directors. +The following table presents total open market and privately negotiated purchases of shares under our share repurchase programs for the years ended December 31, 2024 and 2023. +Years Ended December 31, +2024 2023 +(In millions, except share data) +Number of shares repurchased (1) +11,944,177 18,779,880 +Cash paid for shares repurchased $ 664 $ 975 +(1) During the years ended December 31, 2024 and 2023, 7,864,761 and 15,515,302 shares, respectively, were repurchased for $ 456 million and $ 811 million, respectively, pursuant to privately negotiated repurchases from REH Company. +118 +Table of Conten ts +HF SINCLAIR CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Continued) +During the years ended December 31, 2024, 2023 and 2022, we withheld 181,841 , 332,741 , and 278,025 shares, respectively, of our common stock from certain employees in the amounts of $ 9 million, $ 18 million and $ 17 million, respectively. These withholdings were made under the terms of restricted stock unit and performance share unit agreements upon vesting, at which time, we concurrently made cash payments to fund payroll and income taxes on behalf of officers and employees who elected to have shares withheld from vested amounts to pay such taxes. +On February 20, 2025, our Board of Directors announced that it declared a regular quarterly dividend in the amount of $ 0.50 per share, payable on March 20, 2025 to holders of record of common stock on March 6, 2025. +NOTE 18: Other Comprehensive Income (Loss) +The components and allocated tax effects of other comprehensive income (loss) are as fo llows: +Before-Tax Tax Expense +(Benefit) After-Tax +(In millions) +Year Ended December 31, 2024 +Net change in foreign currency translation adjustment $ ( 42 ) $ ( 9 ) $ ( 33 ) +Net change in pension and other post-retirement benefit obligations ( 3 ) ( 1 ) ( 2 ) +Other comprehensive loss attributable to HF Sinclair stockholders +$ ( 45 ) $ ( 10 ) $ ( 35 ) +Year Ended December 31, 2023 +Net change in foreign currency translation adjustment $ 13 $ 3 $ 10 +Other comprehensive income attributable to HF Sinclair stockholders $ 13 $ 3 $ 10 +Year Ended December 31, 2022 +Net change in foreign currency translation adjustment $ ( 32 ) $ ( 6 ) $ ( 26 ) +Net change in pension and other post-retirement benefit obligations 1 — 1 +Other comprehensive loss attributable to HF Sinclair stockholders $ ( 31 ) $ ( 6 ) $ ( 25 ) +119 +Table of Conten ts +HF SINCLAIR CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Continued) +The following table presents the line item effects for reclassifications out of accumulated other comprehensive income (“AOCI”) and into the consolidated statements of income: +Years Ended December 31, +2024 2023 2022 +AOCI Component Gain (Loss) Reclassified From AOCI Statement of Income Classification +(In millions) +Hedging instruments: +Commodity price swaps $ ( 5 ) $ ( 3 ) $ ( 5 ) Sales and other revenues +( 1 ) — ( 1 ) Income tax benefit +( 4 ) ( 3 ) ( 4 ) Net of tax +Other post-retirement benefit obligations: +Pension obligations 1 ( 1 ) — Other, net +— — — Income tax expense (benefit) +1 ( 1 ) — Net of tax +Post-retirement healthcare obligations 2 4 3 Other, net +1 1 — Income tax expense +1 3 3 Net of tax +Total reclassifications for the period $ ( 2 ) $ ( 1 ) $ ( 1 ) +Accumulated other comprehensive loss in the equity section of our consolidated balance sheets includes: +Years Ended December 31, +2024 2023 +(In millions) +Foreign currency translation adjustment $ ( 57 ) $ ( 24 ) +Unrealized gain on pension obligations +— 1 +Unrealized gain on post-retirement benefit obligations +10 11 +Accumulated other comprehensive loss $ ( 47 ) $ ( 12 ) +NOTE 19: Commitments and Contingencies +We are a party to various litigation and legal proceedings which we believe, based on advice of counsel, will not either individually or in the aggregate have a materially adverse effect on our financial condition, results of operations or cash flows. +During 2017 and 2019, the EPA granted the Cheyenne Refinery and the refinery in Woods Cross, Utah (the “Woods Cross Refinery”) each a one-year small refinery exemption from the Renewable Fuel Standard (“RFS”) program requirements for the 2016 and 2018 compliance years. As a result, the Cheyenne Refinery’s and Woods Cross Refinery’s gasoline and diesel production were not subject to the Renewable Volume Obligation for the respective years. Upon each exemption granted, we increased our inventory of RINs and reduced our Cost of sales . On April 7, 2022, the EPA issued a decision reversing the grant of small refinery exemptions for our Woods Cross Refinery and Cheyenne Refinery for the 2018 compliance year. On June 3, 2022, the EPA issued a decision reversing the grant of small refinery exemptions for our Woods Cross Refinery and Cheyenne Refinery for the 2016 compliance year and denying small refinery exemption petitions for our Woods Cross Refinery and Cheyenne Refinery for the 2019 and 2020 compliance years. +120 +Table of Conten ts +HF SINCLAIR CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Continued) +Certain of our subsidiaries pursued legal challenges to the EPA’s decisions to deny small refinery exemptions for the 2016, 2018, 2019 and 2020 compliance years. The first lawsuit, filed against the EPA on May 6, 2022 before the U.S. Court of Appeals for the DC Circuit (the “DC Circuit”), sought to have the EPA’s reversal of our 2018 small refinery exemption petitions overturned. The second lawsuit, filed against the EPA on August 5, 2022 before the DC Circuit, sought to have the EPA’s reversal of our 2016 small refinery exemption petitions overturned and to have the EPA’s denial of our 2019 and 2020 small refinery exemption petitions reversed. +In addition, pursuant to the June 2022 and April 2022 decisions, respectively, the EPA established an alternative compliance demonstration to not impose any obligations on small refineries that had exemptions reversed for the 2016 and 2018 compliance years. On June 24, 2022, Growth Energy filed two lawsuits in the DC Circuit against the EPA, challenging the alternative compliance demonstration for the 2016 and 2018 compliance years. On July 25, 2022, certain of our subsidiaries intervened on behalf of the EPA to aid the defense of the EPA’s alternative compliance demonstration decision. It is too early to predict the outcome of these matters. +On July 26, 2024, the DC Circuit issued a favorable decision vacating the EPA’s denial of all of our small refinery exemption petitions, finding the denial to be unlawful. The DC Circuit remanded the small refinery exemption petitions to the EPA for new determination. The DC Circuit also upheld the alternative compliance demonstration and denied Growth Energy’s challenge. +It is too early to determine the final impact of the DC Circuit’s decisions. We are unable to estimate the costs we may incur, if any, at this time. +Navajo +HF Sinclair Navajo Refining LLC (“HFS Navajo”) has been engaged in discussions with, and has responded to document requests from, the EPA, the DOJ and the New Mexico Environment Department (“NMED”) (collectively, the “Navajo Matter Government Agencies”) regarding HFS Navajo’s compliance with the Clean Air Act (“CAA”) and underlying regulations, and similar New Mexico laws and regulations, at its Artesia and Lovington, New Mexico refineries. The discussions have included the following topics: (a) alleged noncompliance with CAA’s National Emission Standards for Hazardous Air Pollutants (“NESHAP”) and New Source Performance Standards (“NSPS”) at the Artesia refinery, which were set forth in a Notice of Violation (“May 2020 NOV”) issued by the EPA in May 2020; (b) a Post Inspection Notice issued in June 2020 by the NMED, alleging noncompliance issues similar to those alleged by the EPA in its May 2020 NOV as well as alleged noncompliance with the State Implementation Plan (“SIP”) and the Title V permit operating programs; (c) an information request issued in September 2020 by the EPA, pursuant to CAA Section 114, related to benzene fenceline monitoring, flare fuel gas, leak detection and repair, storage vessels and tanks, and other information regarding the Artesia refinery; (d) an information request issued by the EPA in May 2021, pursuant to CAA Section 114, requesting additional information and testing related to certain tanks at the Artesia refinery; and (e) informal information requests related to, among other things, the Artesia refinery’s wastewater treatment plant, oil water separators and heat exchangers. In April 2022, June 2023 and August 2023, the EPA alleged additional CAA noncompliance at the Artesia refinery beyond the allegations in the May 2020 NOV, including alleged noncompliance with NESHAP, NSPS, SIP, Title V and other requirements. +Beginning in the spring of 2021, HFS Navajo and the Navajo Matter Government Agencies began monthly meetings to discuss potential injunctive relief measures to address the alleged noncompliance at the Artesia refinery. In September 2021 and August 2023, the EPA presented to HFS Navajo potential claims for alleged noncompliance with a 2002 consent decree. In September 2024, the Navajo Matter Government Agencies presented to HFS Navajo a proposed penalty demand for the alleged noncompliance at the Artesia refinery. +On January 17, 2025, HFS Navajo reached a settlement agreement with the EPA, DOJ, and the NMED, and a new consent decree was lodged with the U.S. District Court for the District of New Mexico (the “2025 Consent Decree”) to resolve alleged CAA and New Mexico Air Quality Control Act violations as well as alleged violations of the 2002 consent decree at the Artesia refinery. The 2025 Consent Decree is subject to a 30-day public comment period and will not become effective until it is approved by the U.S. District Court. +121 +Table of Conten ts +HF SINCLAIR CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Continued) +Under the 2025 Consent Decree, HFS Navajo must pay the sum of $ 34 million as a civil penalty to the United States and the State of New Mexico according to the following schedule: (1) $ 10 million to the United States, and $ 10 million to the State of New Mexico within 30 days after the effective date of the 2025 Consent Decree; and (2) $ 7 million to the United States and $ 7 million to the State of New Mexico by January 31, 2026. Separately, under the 2002 consent decree, HFS Navajo must pay stipulated penalties in the amount of $ 1 million, divided equally between the United States and the State of New Mexico, by March 22, 2025. On January 29, 2025, HFS Navajo submitted these stipulated penalty payments to the United States and the State of New Mexico under the 2002 consent decree. Finally, HFS Navajo must implement injunctive relief and mitigation measures at an estimated cost of $ 137 million, including capital investments, at the Artesia refinery, certain of which measures have already been implemented as of the date of filing this Annual Report on Form 10-K and the remainder of which must be completed by various deadlines, ending in 2031. +Contractual Commitments +We have various long-term agreements (entered in the normal course of business) to purchase crude oil, natural gas, feedstocks and other resources to ensure we have adequate supplies to operate our refineries. The substantial majority of our purchase obligations are based on market prices or rates. These contracts expire i n 2024 thro ugh 2031. +We also have long-term agreements with third parties for the transportation and storage of crude oil, natural gas and feedstocks to our refineries and for terminal and storage services that expire in 2024 through 2038. At December 31, 2024 , the minimum future transportation and storage fees under transportation agreements having terms in excess of one year are as follows: +Minimum Future Transportation and Storage Fees for the Year Ended December 31: +(In millions) +2025 $ 250 +2026 212 +2027 212 +2028 217 +2029 212 +Thereafter 894 +Total $ 1,997 +Transportation and storage costs incurred under these agreements totaled $ 238 million, $ 201 million and $ 180 million for the years ended December 31, 2024, 2023 and 2022, respectively. +NOTE 20: Segment Information +Our operations are organized into five reportable segments: Refining, Renewables, Marketing, Lubricants & Specialties and Midstream. Our operations that are not included in one of these five reportable segments are included in Corporate and Other. Intersegment transactions are eliminated in our consolidated financial statements and are included in Eliminations. Corporate and Other and Eliminations are aggregated and presented under the Corporate, Other and Eliminations column. +The Refining segment represents the operations of our El Dorado, Tulsa, Navajo, Woods Cross, Puget Sound, Parco and Casper refineries and HF Sinclair Asphalt Company LLC (“Asphalt”). Refining activities involve the purchase and refining of crude oil and wholesale marketing of refined products, such as gasoline, diesel fuel and jet fuel. These petroleum products are primarily marketed in the Mid-Continent, Southwest and Rocky Mountains extending into the Pacific Northwest geographic regions of the United States. Asphalt operates various asphalt terminals in Arizona, New Mexico and Oklahoma. +The Renewables segment represents the operations of our Cheyenne renewable diesel unit (“RDU”), Artesia RDU, Sinclair RDU and the pre-treatment unit at our Artesia, New Mexico facility. +The Marketing segment represents branded fuel sales to Sinclair branded sites in the United States and licensing fees for the use of the Sinclair brand at additional locations throughout the country. The Marketing segment also includes branded fuel sales to non-Sinclair branded sites and revenues from other marketing activities. Our branded sites are located in several states across the United States with the highest concentration of the sites located in our West and Mid-Continent regions. +122 +Table of Conten ts +HF SINCLAIR CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Continued) +The Lubricants & Specialties segment represents Petro-Canada Lubricants Inc.’s production operations, located in Mississauga, Ontario, which includes lubricant products such as base oils, white oils, specialty products and finished lubricants, and the operations of our Petro-Canada Lubricants Inc.’s business that includes the marketing of products to both retail and wholesale outlets through a global sales network with locations in Canada, the United States and Europe. Additionally, the Lubricants & Specialties segment includes specialty lubricant products produced at our Tulsa refineries that are marketed throughout North America and are distributed in Central and South America and the operations of Red Giant Oil Company LLC, one of the leading suppliers of locomotive engine oil in North America. Also, the Lubricants & Specialties segment includes Sonneborn, a producer of specialty hydrocarbon chemicals such as white oils, petrolatums and waxes with manufacturing facilities in the United States and Europe. +The Midstream segment includes all of the operations of HEP, which owns and operates logistics and refinery assets consisting of petroleum product and crude oil pipelines, and terminals, tankage and loading rack facilities in the Mid-Continent, Southwest and Rocky Mountains geographic regions of the United States. The Midstream segment also includes 50 % ownership interests in each of Osage Pipeline Company, LLC, the owner of a pipeline running from Cushing, Oklahoma to El Dorado, Kansas, Cheyenne Pipeline, LLC, the owner of a pipeline running from Fort Laramie, Wyoming to Cheyenne, Wyoming, and Cushing Connect Pipeline & Terminal LLC, the owner of a pipeline running from Cushing, Oklahoma to Tulsa, Oklahoma, a 26.08 % ownership interest in Saddle Butte Pipeline III, LLC, the owner of a pipeline running from the Powder River Basin to Casper, Wyoming, and a 49.995 % ownership interest in Pioneer Investments Corp., the owner of a pipeline running from Sinclair, Wyoming to the North Salt Lake City, Utah Terminal. Revenues and other income from the Midstream segment are earned through transactions with unaffiliated parties for pipeline transportation, rental and terminalling operations as well as revenues relating to pipeline transportation, terminalling operations and tankage facilities provided for our refining operations. +Our chief operating decision maker (“CODM”), who is our Chief Executive Officer, evaluates the performance of our segments using segment Income from operations . Amounts included in Income before income taxes in our consolidated statements of income and excluded from our performance measure, Income from operations , include Other income (expense) . Other income (expense) includes Earnings (loss) of equity method investments , Interest income , Interest expense and other items believed to be non-operating and non-recurring in nature. Assets by segment are not a measure used to assess our performance by the CODM and thus are not reported in our disclosures. Intersegment sales are generally derived from transactions made at prevailing market rates. +The accounting policies for our segments are the same as those described in the summary of significant accounting policies (see Note 1). +The following is a summary of the financial information of our reportable segments reconciled to the amounts reported in the consolidated financial statements. +123 +Table of Conten ts +HF SINCLAIR CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Continued) +Refining Renewables Marketing Lubricants & Specialties Midstream Corporate, Other and Eliminations Consolidated +Total +(In millions) +Year Ended December 31, 2024 +Sales and other revenues: +Revenues from external customers $ 21,701 $ 644 $ 3,428 $ 2,700 $ 107 $ — $ 28,580 +Intersegment revenues and other (1) +3,639 347 — 12 537 ( 4,535 ) — +25,340 991 3,428 2,712 644 ( 4,535 ) 28,580 +Cost of sales: (2) +Cost of materials and other (3) +22,907 910 3,319 1,977 — ( 4,531 ) 24,582 +Lower of cost or market inventory valuation adjustments ( 32 ) ( 11 ) — — — — ( 43 ) +Operating expenses 1,912 100 — 254 214 4 2,484 +24,787 999 3,319 2,231 214 ( 4,527 ) 27,023 +Selling, general and administrative expenses (2) +219 5 34 150 11 28 447 +Depreciation and amortization 495 78 27 90 72 70 832 +Asset impairments 6 — — 1 10 — 17 +Income (loss) from operations ( 167 ) ( 91 ) 48 240 337 ( 106 ) 261 +Earnings of equity method investments — — — — 29 3 32 +Interest income — 2 — 9 11 53 75 +Interest expense — ( 6 ) — ( 2 ) ( 33 ) ( 124 ) ( 165 ) +Other income (expense), net — — — ( 1 ) — 16 15 +Income (loss) before income taxes $ ( 167 ) $ ( 95 ) $ 48 $ 246 $ 344 $ ( 158 ) $ 218 +Capital expenditures $ 268 $ 9 $ 52 $ 42 $ 48 $ 51 $ 470 +Refining Renewables Marketing Lubricants & Specialties Midstream Corporate, Other and Eliminations Consolidated +Total +(In millions) +Year Ended December 31, 2023 +Sales and other revenues: +Revenues from external customers $ 24,157 $ 781 $ 4,146 $ 2,762 $ 118 $ — $ 31,964 +Intersegment revenues and other (1) +4,516 408 — 13 466 ( 5,403 ) — +28,673 1,189 4,146 2,775 584 ( 5,403 ) 31,964 +Cost of sales: (2) +Cost of materials and other (3) +24,042 1,081 4,051 2,009 — ( 5,399 ) 25,784 +Lower of cost or market inventory valuation adjustments 221 50 — — — — 271 +Operating expenses 1,879 109 — 259 189 2 2,438 +26,142 1,240 4,051 2,268 189 ( 5,397 ) 28,493 +Selling, general and administrative expenses (2) +200 5 34 164 27 67 497 +Depreciation and amortization 461 77 24 85 82 42 771 +Income (loss) from operations 1,870 ( 133 ) 37 258 286 ( 115 ) 2,203 +Earnings of equity method investments — — — — 17 — 17 +Interest income — — — 8 4 82 94 +Interest expense — ( 7 ) — ( 4 ) ( 101 ) ( 79 ) ( 191 ) +Other income, net +4 — — — 3 23 30 +Income (loss) before income taxes $ 1,874 $ ( 140 ) $ 37 $ 262 $ 209 $ ( 89 ) $ 2,153 +Capital expenditures $ 223 $ 18 $ 28 $ 37 $ 32 $ 47 $ 385 +124 +Table of Conten ts +HF SINCLAIR CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Continued) +Refining Renewables Marketing Lubricants & Specialties Midstream Corporate, Other and Eliminations Consolidated +Total +(In millions) +Year Ended December 31, 2022 +Sales and other revenues: +Revenues from external customers $ 30,380 $ 654 $ 3,912 $ 3,150 $ 109 $ — $ 38,205 +Intersegment revenues and other (1) +4,033 361 — 9 431 ( 4,834 ) — +34,413 1,015 3,912 3,159 540 ( 4,834 ) 38,205 +Cost of sales: (2) +Cost of materials and other (3) +28,351 974 3,846 2,339 — ( 4,830 ) 30,680 +Lower of cost or market inventory valuation adjustments — 52 — — — — 52 +Operating expenses 1,761 112 — 278 171 13 2,335 +30,112 1,138 3,846 2,617 171 ( 4,817 ) 33,067 +Selling, general and administrative expenses (2) +147 4 3 168 17 88 427 +Depreciation and amortization 397 53 18 81 77 31 657 +Income (loss) from operations 3,757 ( 180 ) 45 293 275 ( 136 ) 4,054 +Interest income — — — 1 5 24 30 +Interest expense — ( 6 ) — ( 5 ) ( 83 ) ( 82 ) ( 176 ) +Other income (expense), net +( 1 ) — — 3 1 25 28 +Income (loss) before income taxes $ 3,756 $ ( 186 ) $ 45 $ 292 $ 198 $ ( 169 ) $ 3,936 +Capital expenditures $ 168 $ 225 $ 9 $ 35 $ 33 $ 54 $ 524 +(1) Refining segment intersegment revenues relate to transportation fuels sold to the Marketing segment. Midstream segment revenues relate to pipeline and terminalling services provided primarily to the Refining segment, including leases. These transactions eliminate in consolidation. +(2) Exclusive of Depreciation and amortization . +(3) Exclusive of Lower of cost or market inventory valuation adjustments. +125 +Table of Content s +Item 9 . Changes in and Disagreements with Accountants on Accounting and Financial Disclosure +We have had no change in, or disagreement with, our independent registered public accountants on matters involving accounting and financial disclosure. +Item 9A. Controls and Procedures +Evaluation of Disclosure Controls and Procedures +The Company’s management, with the participation of the principal executive officer and principal financial officer of the Company, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of December 31, 2024, the end of the period covered by this report. Based on such evaluation, the Company’s principal executive officer and principal financial officer have concluded that, as of December 31, 2024, the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the required time periods and are designed to ensure that information required to be disclosed in its reports is accumulated and communicated to the Company’s management, including the principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. +Management’s Report on Internal Control over Financial Reporting +The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed by, or under the supervision of, the Company’s principal executive officer and principal financial officer and effected by the Company’s Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. All internal control systems, no matter how well designed, have inherent limitations that may not prevent or detect all misstatements. Also, projections of any evaluation of effectiveness in future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. +The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting at December 31, 2024. In making this assessment, the Company’s management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework 2013. Based upon its assessment, management concluded that, at December 31, 2024, the Company’s internal control over financial reporting was effective. +Ernst & Young LLP, an independent registered public accounting firm that audited the Company’s Consolidated Financial Statements at December 31, 2024 and the year then ended included in this Form 10-K, has issued an attestation report on the Company’s internal control over financial reporting, at December 31, 2024, which is included herein. +Changes in Internal Controls +Subject to the above, there were no changes in the Company’s internal control over financial reporting that occurred during the quarter ended December 31, 2024, that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. +See Item 8 for “Report of the Independent Registered Public Accounting Firm.” +Item 9B. Other Information +There have been no events that occurred in the fourth quarter of 2024 that would need to be reported on Form 8-K that have not previously been reported. +Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +Not applicable +126 +Table of Content s +PART III +Item 10. Directors, Executive Officers and Corporate Governance +The information required by Items 401, 405, 406, 407(c)(3), (d)(4) and (d)(5) and 408(b) of Regulation S-K in response to this item will be set forth in our definitive proxy statement for the 2024 annual meeting of stockholders and is incorporated herein by reference. +Item 11. Executive Compensation +The information required by Items 402 and 407(e)(4) and (e)(5) of Regulation S-K in response to this item will be set forth in our definitive proxy statement for the 2024 annual meeting of stockholders and is incorporated herein by reference. +Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +The equity compensation plan information required by Item 201(d) and the information required by Item 403 of Regulation S-K in response to this item will be set forth in our definitive proxy statement for the 2024 annual meeting of stockholders and is incorporated herein by reference. +Item 13. Certain Relationships and Related Transactions, and Director Independence +The information required by Items 404 and 407(a) of Regulation S-K in response to this item will be set forth in our definitive proxy statement for the 2024 annual meeting of stockholders and is incorporated herein by reference. +Item 14. Principal Accounting Fees and Services +The information required by Item 9(e) of Schedule 14A in response to this item will be set forth in our definitive proxy statement for the 2024 annual meeting of stockholders and is incorporated herein by reference. +PART IV +Item 15. Exhibit and Financial Statement Schedules +Documents filed as part of this report: +(a) Financial Statements: +(1) The consolidated financial statements, together with the reports of the independent auditors thereon dated February 20, 2025, are included as part of Item 8, Financial Statements and Supplementary Data. +Page in Form 10-K +Report of Independent Registered Public Accounting Firm +82 +Consolidated Balance Sheets +85 +Consolidated Statements of Income +86 +Consolidated Statements of Comprehensive Income +87 +Consolidated Statements of Cash Flows +88 +Consolidated Statements of Equity +89 +Notes to Consolidated Financial Statements +89 +127 +Table of Content s +(2) Financial Statements Schedules: +All schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements or notes thereto. +(3) Exhibits: +Exhibits filed or furnished, as applicable, as part of this Annual Report on Form 10-K are listed in the Index to Exhibits. +128 +Table of Content s +HF SINCLAIR CORPORATION +INDEX TO EXHIBITS +Exhibits are numbered to correspond to the exhibit table +in Item 601 of Regulation S-K +Exhibit Number Description +2.1† +Sale and Purchase Agreement, dated as of May 4, 2021, by and between Equilon Enterprises LLC d/b/a Shell Oil Products US and HollyFrontier Puget Sound Refining LLC (incorporated by reference to Exhibit 2.1 of HollyFrontier Corporation ’ s Current Report on Form 8-K filed May 4, 2021, File No. 1-03876). +2.2† +Waiver and Amendment to Sale and Purchase Agreement, dated as of October 31, 2021, by and among HollyFrontier Puget Sound Refining LLC and Equilon Enterprises LLC d/b/a Shell Oil Products US (incorporated by reference to Exhibit 2.2 of HollyFrontier Corporation’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2021, File No. 1-03876). +2.3† +Business Combination Agreement, dated as of August 2, 2021, by and among HollyFrontier Corporation, Hippo Parent Corporation, Hippo Merger Sub, Inc., The Sinclair Companies, and Hippo Holding LLC (incorporated by reference to Exhibit 2.1 of HollyFrontier Corporation ’ s Current Report on Form 8-K filed August 3, 2021, File No. 1-03876). +2.4† +Amendment to Business Combination Agreement, dated as of March 14, 2022, by and among HollyFrontier Corporation, Hippo Parent Corporation, Hippo Merger Sub, Inc., The Sinclair Companies and Hippo Holding LLC (incorporated by reference to Exhibit 2.1 of Registrant ’ s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022, File No. 1-41325). +2.5 +Contribution Agreement, dated as of August 2, 2021, by and among Holly Energy Partners, L.P., The Sinclair Companies, and Sinclair Transportation Company (incorporated by reference to Exhibit 2.1 of Holly Energy Partners, L.P.’s Current Report on Form 8-K dated August 3, 2021, File No. 1-32225). +2.6 +Amendment to Contribution Agreement, dated as of March 14, 2022, by and among Holly Energy Partners, L.P., The Sinclair Companies, and Sinclair Transportation Company (incorporated by reference to Exhibit 2.1 of Holly Energy Partners, L.P.’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022, File No. 1-32225). +2.7† +Agreement and Plan of Merger, dated August 15, 2023, by and among HF Sinclair Corporation, Navajo Pipeline Co., L.P., Holly Apple Holdings LLC, Holly Energy Partners, L.P., HEP Logistics Holdings, L.P., and Holly Logistic Services, L.L.C. (incorporated by reference to Exhibit 2.1 of Registrant’s Current Report on Form 8-K filed August 16, 2023, File No. 1-41325). +3.1 +Amended and Restated Certificate of Incorporation of HF Sinclair Corporation (incorporated by reference to Exhibit 3.1 of Registrant’s Current Report on Form 8-K12B filed March 14, 2022, File No. 1-41325). +3.2 +Amended and Restated By-Laws of HF Sinclair Corporation (incorporated by reference to Exhibit 3.1 of Registrant’s Current Report on Form 8-K filed February 6 , 2024, File No. 1-41325). +4.1 +Indenture, dated March 22, 2016, between HollyFrontier Corporation and Wells Fargo Bank, National Association (incorporated by reference to Exhibit 4.1 of HollyFrontier Corporation ’ s Current Report on Form 8-K filed March 22, 2016, File No. 1-03876). +4.2 +Second Supplemental Indenture, dated as of September 28, 2020, between HollyFrontier Corporation and Wells Fargo Bank, National Association (incorporated by reference to Exhibit 4.2 of HollyFrontier Corporation’s Current Report on Form 8-K dated September 28, 2020, File No. 1-03876). +4.3 +Third Supplemental Indenture, dated April 8, 2022, among HollyFrontier Corporation and Computershare Trust Company, N.A., as agent for Wells Fargo, Bank National Association (incorporated by reference to Exhibit 4.1 of Registrant’s Current Report on Form 8-K filed April 8, 2022, File No. 1-41325). +4.4 +Indenture, dated February 4, 2020, by and among Holly Energy Partners, L.P., Holly Energy Finance Corp., each of the Guarantors party thereto and U.S. Bank National Association (incorporated by reference to Exhibit 4.1 of Holly Energy Partners, L.P.’s Current Report on Form 8-K filed February 4, 2020, File No. 1-32225). +4.5 +Indenture, dated April 8, 2022, by and among Holly Energy Partners, L.P., Holly Energy Finance Corp., each of the Guarantors party thereto and U.S. Bank National Association (incorporated by reference to Exhibit 4.1 of Holly Energy Partners, L.P.’s Current Report on Form 8-K filed April 8, 2022, File No. 1-32225). +4.6 +First Supplemental Indenture, dated as of May 22, 2022, among UNEV Pipeline, LLC, Holly Energy Partners, L.P. and Holly Energy Finance Corp. and the other Guarantors party thereto and U.S. Bank Trust Company, National Association, as trustee, related to Holly Energy Partners, L.P.’s 6.375% Senior Notes due 2027 (incorporated by reference to Exhibit 4.9 of Holly Energy Partner, L.P.’s Registration Statement on Form S-3 filed May 23, 2022, File No. 333-265154). +129 +Table of Content s +HF SINCLAIR CORPORATION +INDEX TO EXHIBITS +Exhibit Number Description +4.7 +Second Supplemental Indenture, dated as of November 10, 2023, among Holly Energy Partners, L.P., Holly Energy Finance Corp., the other Guarantors party thereto and U.S. Bank Trust Company, National Association, as trustee, related to Holly Energy Partners, L.P.’s and Holly Energy Finance Corp.’s 6.375% Senior Notes due 2027 (incorporated by reference to Exhibit 4.1 of Registrant’s Current Report on Form 8-K filed November 14, 2023, File No. 1-41325). +4.8 +First Supplemental Indenture, dated as of March 14, 2022, among Sinclair Transportation Company LLC, Sinclair Logistics LLC, Sinclair Pipeline Company LLC, Holly Energy Partners, L.P. and Holly Energy Finance Corp. and the other Guarantors party thereto and U.S. Bank Trust Company, National Association, as trustee, related to Holly Energy Partners, L.P.’s 5.000% Senior Notes due 2028 (incorporated by reference to Exhibit 4.2 of Holly Energy Partners, L.P.’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022, File No. 1-32225). +4.9 +Second Supplemental Indenture, dated as of May 22, 2022, among UNEV Pipeline, LLC, Holly Energy Partners, L.P. and Holly Energy Finance Corp. and the other Guarantors party thereto and U.S. Bank Trust Company, National Association, as trustee, related to Holly Energy Partners, L.P.’s 5.000% Senior Notes due 2028 (incorporated by reference to Exhibit 4.7 of Holly Energy Partner, L.P. ’ s Registration Statement on Form S-3 filed May 23, 2022, File No. 333-265154). +4.10 +Third Supplemental Indenture, dated as of November 10, 2023, among Holly Energy Partners, L.P., Holly Energy Finance Corp., the other Guarantors party thereto and U.S. Bank Trust Company, National Association, as trustee, related to Holly Energy Partners, L.P.’s and Holly Energy Finance Corp.’s 5.000% Senior Notes due 2028 (incorporated by reference to Exhibit 4.2 of Registrant’s Current Report on Form 8-K filed November 14, 2023, File No. 1-41325). +4.11 +Indenture, dated as of April 27, 2022, among HF Sinclair Corporation and Computershare Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.1 of Registrant’s Current Report on Form 8-K filed April 27, 2022, File No. 1-41325). +4.12 +First Supplemental Indenture, dated as of April 27, 2022, among HF Sinclair Corporation and Computershare Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.2 of Registrant’s Current Report on Form 8-K filed April 27, 2022, File No. 1-41325). +4.13 +Second Supplemental Indenture, dated as of December 4, 2023, among HF Sinclair Corporation and Computershare Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.1 of Registrant’s Current Report on Form 8-K filed December 4, 2023, File No. 1-41325). +4.14 +Third Supplemental Indenture, dated as of January 23, 2025, among HF Sinclair Corporation and Computershare Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.2 of Registrant’s Current Report on Form 8-K filed January 23 , 2025, File No. 1-41325). +4.15 +Description of Common Stock (incorporated by reference to Exhibit 4.16 of Registrant’s Annual Report on Form 10-K for its fiscal year ended December 31, 2023, File No. 1-41325). +10.1† +Senior Unsecured Multi-Year Revolving Credit Agreement, dated as of April 27, 2022, among HF Sinclair Corporation, as borrower, MUFG Bank, Ltd., as administrative agent, and each of the financial institutions party thereto as lenders (incorporated by reference to Exhibit 10.1 of Registrant’s Current Report on Form 8-K filed April 27, 2022, File No. 1-41325). +10.2 +Third Amended and Restated Credit Agreement, dated July 27, 2017, among Holly Energy Partners, L.P. as borrower, Wells Fargo Bank, National Association, as administrative agent, an issuing bank and a lender, and certain other lenders party thereto (incorporated by reference to Exhibit 10.1 of Holly Energy Partners, L.P.’s Current Report on Form 8-K dated July 31, 2017, File No. 1-32225). +10.3¥ +Amendment No. 1 to Third Amended and Restated Credit Agreement, dated April 30, 2021, among Holly Energy Partners, L.P., as borrower, certain of its affiliates, as guarantors, Wells Fargo Bank, National Association, as administrative agent, an issuing bank and a lender, and certain other lenders party thereto (incorporated by reference to Exhibit 10.1 of Holly Energy Partners, L.P.’s Current Report on Form 8-K dated May 3, 2021, File No. 1-32225). +10.4¥ +Amendment No. 2 to Third Amended and Restated Credit Agreement, dated August 15, 2022, among Holly Energy Partners, L.P., as borrower, certain of its affiliates, as guarantors, Wells Fargo Bank, National Association, as administrative agent, an issuing bank and a lender, and certain other lenders party thereto (incorporated by reference to Exhibit 10.1 of Holly Energy Partners, L.P.’s Current Report on Form 10-Q for the quarterly period ended September 30, 2022, File No. 1-32225). +10.5¥ +Amendment No. 3 to Third Amended and Restated Credit Agreement, dated as of December 1, 2023, by and among Holly Energy Partners, LP., as borrower, HF Sinclair Corporation, as parent guarantor, Wells Fargo Bank, National Association, as administrative agent and an issuing bank, and the financial institutions party thereto as lenders (incorporated by reference to Exhibit 10.1 of Registrant’s Current Report on Form 8-K filed December 1, 2023, File No. 1-41325). +130 +Table of Content s +HF SINCLAIR CORPORATION +INDEX TO EXHIBITS +Exhibit Number Description +10.6 +Parent Guaranty Agreement, dated December 1, 2023, by and among HF Sinclair Corporation, as guarantor, in favor of Wells Fargo Bank, National Association, in its capacity as administrative agent (incorporated by reference to Exhibit 10.2 of Registrant’s Current Report on Form 8-K filed December 1, 2023, File No. 1-41325). +10.7† +Stockholders Agreement, dated as of August 2, 2021, by and among Hippo Parent Corporation, The Sinclair Companies, and the stockholders set forth on Schedule I thereto, as may be amended from time to time (incorporated by reference to Exhibit 10.1 of HollyFrontier Corporation ’ s Current Report on Form 8-K filed August 3, 2021, File No. 1-03876). +10.8 +Stock Purchase Agreement, dated as of January 3, 2024, by and among HF Sinclair Corporation and REH Company (incorporated by reference to Exhibit 10.1 of Registrant’s Current Report on Form 8-K filed January 4, 2024, File No. 1-41325). +10.9 +Stock Purchase Agreement, dated as of February 8, 2024, by and among HF Sinclair Corporation and REH Company (incorporated by reference to Exhibit 10.1 of Registrant’s Current Report on Form 8-K filed February 9, 2024, File No. 1-41325). +10.10 +Stock Purchase Agreement, dated as of April 1, 2024, by and among HF Sinclair and REH Company (incorporated by reference to Exhibit 10.1 of Registrant’s Current Report on Form 8-K filed April 2, 2024, File No. 1-41325). +10.11 +Stock Purchase Agreement, dated as of May 14, 2024, by and among HF Sinclair Corporation and REH Company (incorporated by reference to Exhibit 10.1 of Registrant’s Current Report on Form 8-K filed May 16, 2024, File No. 1-41325). +10.12 +Assignment and Assumption Agreement entered into and effective as of March 14, 2022, by and between HollyFrontier Corporation and HF Sinclair Corporation (incorporated by reference to Exhibit 10.4 of Registrant’s Current Report on Form 8-K12B filed March 14, 2022, File No. 1-41325). +10.13+ +HF Sinclair Corporation Amended and Restated 2020 Long Term Incentive Plan (formerly named the HollyFrontier Corporation 2020 Long Term Incentive Plan) (incorporated by reference to Exhibit 99.1 of Registrant’s Registration Statement on Form S-8 filed March 21, 2022, File No. 333-263721). +10.14+ +Amendment No. 1 to the HF Sinclair Corporation Amended and Restated 2020 Long Term Incentive Plan (incorporated by reference to Exhibit 4.4 of Registrant’s Registration Statement on Form S-8 filed December 4, 2023, File No. 333-275877). +10.15+ +HF Sinclair Corporation 2020 Long-Term Incentive Plan Sub-Plan for UK Employees (formerly named the HollyFrontier Corporation 2020 Long-Term Incentive Plan Sub-Plan for UK Employees) (incorporated by reference to Exhibit 10.12 of Registrant ’ s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022, File No. 1-41325). +10.16+ +HF Sinclair Corporation Employee Form of Change in Control Agreement (incorporated by reference to Exhibit 10.2 of Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022, File No. 1-41325). +10.17+ +Form of Performance Share Unit Agreement (incorporated by reference to Exhibit 10.13 of Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022, File No. 1-41325). +10.18+ +Form of Performance Share Unit Agreement. (incorporated by reference to Exhibit 10.59 of Registrant’s Annual Report on Form 10-K for its fiscal year ended December 31, 2022, File No. 1-41325). +10.19+ +Form of Restricted Stock Unit Agreem ent (for employees) (incorporated by reference to Exhibit 10.16 of Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022, File No. 1-41325). +10.20+ +Form of Notice of Grant of Restricted Stock Units (for employees) (incorporated by reference to Exhibit 10.17 of Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022, File No. 1-41325). +10.21+ +Form of Restricted Stock Unit Agreement (for employees) (incorporated by reference to Exhibit 10.67 of Registrant’s Annual Report on Form 10-K for its fiscal year ended December 31, 2022, File No. 1-41325). +10.22+ +Form of Notice of Grant of Restricted Stock Units (for employees) (incorporated by reference to Exhibit 10.68 of Registrant’s Annual Report on Form 10-K for its fiscal year ended December 31, 2022, File No. 1-41325). +10.23+ +HF Sinclair Corporation Executive Nonqualified Deferred Compensation Plan (formerly the HollyFrontier Corporation Executive Nonqualified Deferred Compensation Plan) (incorporated by reference to Exhibit 10.71 of Registrant’s Annual Report on Form 10-K for its fiscal year ended December 31, 2022, File No. 1-41325). +131 +Table of Content s +HF SINCLAIR CORPORATION +INDEX TO EXHIBITS +Exhibit Number Description +10.24+ +HF Sinclair Corporation Director’s Stock Compensation Deferral Plan (formerly the HollyFrontier Corporation Director ’ s Stock Compensation Deferral Plan) (incorporated by reference to Exhibit 10.72 of Registrant’s Annual Report on Form 10-K for its fiscal year ended December 31, 2022, File No. 1-41325). +10.25+ +HF Sinclair Corporation Form of Indemnification Agreement to be entered into with officers and directors of HF Sinclair Corporation and its subsidiaries (incorporated by reference to Exhibit 10.1 of Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022, File No. 1-41325). +10.26 +HF Sinclair Corporation Severance Pay Plan and Summary Plan Description and Form of Participation Agreement, dated as of November 8, 2022 (incorporated by reference to Exhibit 10.1 of Registrant’s Current Report on Form 8-K filed November 9, 2022, File No. 1-41325). +10.27+* +Form of Notice of Grant of Restricted Stock Units and Restricted Stock Un it Agreement (for employee s ). +10.28+* +Form of Notice of Grant of Restricted Stock Units and Restricted Stock Unit Agreement (for non-employee directors). +10.29+* +Form of Performance Share Unit Agreement. +19.1* +HF Sinclair Corporation Insider Trading Policy ( for a ll employees ). +19.2* +HF Sinclair Corporation Insider Trading Policy (for directors , officers and certain employ ees). +21.1* +Subsidiaries of Registrant . +23.1* +Consent of Independent Registered Public Accounting Firm . +31.1* +Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002. +31.2* +Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002. +32.1** +Certification of Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act of 2002. +32.2** +Certification of Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002. +97.1 +HF Sinclair Corporation Mandatory Clawback Policy, adopted as of December 1, 2023 (incorporated by reference to Exhibit 97.1 of Regist rant ’ s Annu al Report on Form 10-K for its fiscal year ended December 31, 2023, File No. 1-41325) . +101++ +The following financial information from Registrant’s Annual Report on Form 10-K for its fiscal year ended December 31, 2024, formatted as inline XBRL (Inline Extensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Cash Flows, (v) Consolidated Statements of Equity, and (vi) Notes to the Consolidated Financial Statements. The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document. +104++ Cover page Interactive Data File (formatted as inline XBRL and contained in exhibit 101). +* Filed herewith. +** Furnished herewith. ++ Constitutes management contracts or compensatory plans or arrangements. +++ Filed electronically herewith. +† Schedules and certain exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The registrant agrees to furnish supplementally a copy of the omitted schedules and exhibits to the SEC upon request. +¥ Schedules and certain exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The registrant agrees to furnish supplementally a copy of the omitted schedules and exhibits to the SEC upon request. +132 +Table of Content s +HF SINCLAIR CORPORATION +SIGNATURES +Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. +HF SINCLAIR CORPORATION +(Registrant) +Date: February 20, 2025 +/s/ +Timothy Go +Timothy Go +Chief Executive Officer and President +Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and as of the date indicated. +Signature Capacity Date +/s/ +Timothy Go +Chief Executive Officer, February 20, 2025 +Timothy Go President and Director +/s/ +Atanas H. Atanasov +Executive Vice President and February 20, 2025 +Atanas H. Atanasov Chief Financial Officer +(Principal Financial Officer) +/s/ +Vivek Garg +Vice President, Chief Accounting Officer +February 20, 2025 +Vivek Garg +and Controller +(Principal Accounting Officer) +/s/ +Franklin Myers +Chairman of the Board February 20, 2025 +Franklin Myers +/s/ +Anne-Marie N. Ainsworth +Director February 20, 2025 +Anne-Marie N. Ainsworth +/s/ +Anna C. Catalano +Director February 20, 2025 +Anna C. Catalano +/s/ +Leldon Echols +Director February 20, 2025 +Leldon Echols +/s/ +Manuel J. Fernandez +Director February 20, 2025 +Manuel J. Fernandez +/s/ +Rhoman J. Hardy +Director February 20, 2025 +Rhoman J. Hardy +/s/ +Jeanne M. Johns +Director February 20, 2025 +Jeanne M. Johns +/s/ +R. Craig Knocke +Director February 20, 2025 +R. Craig Knocke +/s/ +Robert J. Kostelnik +Director February 20, 2025 +Robert J. Kostelnik +/s/ +Ross B. Matthews +Director February 20, 2025 +Ross B. Matthews +133 \ No newline at end of file diff --git a/raw/filings/0001915657/2024/0001915657-25-000019/filing_metadata.csv b/raw/filings/0001915657/2024/0001915657-25-000019/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..bb326b1643b72d77e9e333fc1326bead89f98b5c --- /dev/null +++ b/raw/filings/0001915657/2024/0001915657-25-000019/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001915657,DINO,HF Sinclair Corp,2024,10-K,2025-02-20,2024-12-31,2025-02-20T19:43:59.000Z,0001915657-25-000019,dino-20241231.htm,10-K,18619066,1,1,https://www.sec.gov/Archives/edgar/data/1915657/000191565725000019/dino-20241231.htm,https://www.sec.gov/Archives/edgar/data/1915657/000191565725000019/ diff --git a/raw/filings/0001915657/2024/0001915657-25-000019/item1.txt b/raw/filings/0001915657/2024/0001915657-25-000019/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..bbe677306d529c0f801e2cd6561b9cea1d129144 --- /dev/null +++ b/raw/filings/0001915657/2024/0001915657-25-000019/item1.txt @@ -0,0 +1,17 @@ +Item 1 and 2. +Business and Properties +7 +C ompany Overview +7 +R efinery Operations +8 +R enewables Ope rations +12 +M arketing Operations +12 +L ubricants and Specialties Operations +12 +M idstream Operations +13 +A dditional Ope rations and Other Information +15 \ No newline at end of file diff --git a/raw/filings/0001915657/2024/0001915657-25-000019/item13.txt b/raw/filings/0001915657/2024/0001915657-25-000019/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..723121b972f87278cdd3163cc523f9f92f6e31f6 --- /dev/null +++ b/raw/filings/0001915657/2024/0001915657-25-000019/item13.txt @@ -0,0 +1,3 @@ +Item 13. +Certain Relationships and Related Transactions, and Director Independence +127 \ No newline at end of file diff --git a/raw/filings/0001915657/2025/0001915657-26-000016/filing.txt b/raw/filings/0001915657/2025/0001915657-26-000016/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..7821ef4af479fdaeb256b4ac0e0c3077dfd6b7a3 --- /dev/null +++ b/raw/filings/0001915657/2025/0001915657-26-000016/filing.txt @@ -0,0 +1,3217 @@ +dino-20251231 +0001915657 12/31 2025 FY false Chicago Stock Exchange, Inc. 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OF THE SECURITIES EXCHANGE ACT OF 1934 +For the Fiscal Year Ended December 31 , 2025 +or +☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the transition period from _____________ to ______________ +Commission File Number 00 1-41325 +HF SINCLAIR CORPORATION +(Exact name of registrant as specified in its charter) +Delaware 87-2092143 +(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) +2323 Victory Avenue , Suite 1400 +Dallas , Texas +75219 +(Address of principal executive offices) (Zip Code) +Registrant’s telephone number, including area code: ( 214 ) 871-3555 +------------------------------------------------------------------- +Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934: +Title of each class Trading Symbol(s) Name of each exchange on which registered +Common Stock $0.01 par value DINO New York Stock Exchange +NYSE Texas, Inc. +Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐ +Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No ☒ +Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ +Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ +Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. +Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ +Emerging growth company ☐ +If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ +Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒ +If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐ +Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐ +Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ +On June 30, 2025, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the Common Stock, par value $0.01 per share, held by non-affiliates of the registrant was approximately $ 7.7 billion, based upon the closing price on the New York Stock Exchange on such date. (This is not deemed an admission that any person whose shares were not included in the computation of the amount set forth in the preceding sentence necessarily is an “affiliate” of the registrant.) +180,273,187 shares of Common Stock, par value $0.01 per share, were outstanding on February 20, 2026. +DOCUMENTS INCORPORATED BY REFERENCE +Portions of the registrant’s proxy statement for its 2026 annual meeting of stockholders, which proxy statement will be filed with the Securities and Exchange Commission within 120 days after December 31, 2025, are incorporated by reference in Part III. +Table of Content s +TABLE OF CONTENTS +PAGE +PART I +Forward-Looking Statements +3 +Definitions +5 +Item 1 and 2. +Business and Properties +7 +Company Overview +7 +Refinery Operations +8 +Renewables Operations +11 +Marketing Operations +11 +Lubricants and Specialties Operations +12 +Midstream Operations +12 +Additional Operations and Other Information +14 +Item 1A. +Risk Factors +28 +Item 1B. +Unresolved Staff Comments +55 +Item 1C. +Cybersecurity +55 +Item 3. +Legal Proceedings +57 +Item 4. +Mine Safety Disclosures +58 +PART II +Item 5. +Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +59 +Item 6. +[Reserved] +59 +Item 7. +Management’s Discussion and Analysis of Financial Condition and Results of Operations +59 +Overview +60 +Results of Operations +62 +Liquidity and Capital Resources +70 +Critical Accounting Policies and Estimates +74 +Risk Management +75 +Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles +77 +Item 7A. +Quantitative and Qualitative Disclosures about Market Risk +80 +Item 8. +Financial Statements and Supplementary Data +81 +Item 9. +Changes in and Disagreements with Accountants on Accounting and Financial Disclosure +125 +Item 9A. +Controls and Procedures +125 +Item 9B. +Other Information +126 +Item 9C. +Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +126 +PART III +Item 10. +Directors, Executive Officers and Corporate Governance +126 +Item 11. +Executive Compensation +126 +Item 12. +Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +127 +Item 13. +Certain Relationships and Related Transactions, and Director Independence +127 +Item 14. +Principal Accounting Fees and Services +127 +PART IV +Item 15. +Exhibit and Financial Statement Schedules +127 +Index to Exhibits +128 +Signatures +132 +2 +Table of Content s +PART I +FORWARD-LOOKING STATEMENTS +References herein to HF Sinclair Corporation (“HF Sinclair”) include HF Sinclair and its consolidated subsidiaries. In this document, the words “we,” “our,” “ours” and “us” refer only to HF Sinclair and its consolidated subsidiaries or to HF Sinclair or an individual subsidiary and not to any other person, with certain exceptions. +This Annual Report on Form 10‑K contains certain “forward-looking statements” within the meaning of the federal securities laws. All statements, other than statements of historical fact included in this Annual Report on Form 10-K, including, but not limited to, those under “Business and Properties” in Items 1 and 2, “Risk Factors” in Item 1A, “Legal Proceedings” in Item 3 and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7, are forward-looking statements. Forward-looking statements use words such as “anticipate,” “project,” “will,” “expect,” “plan,” “goal,” “forecast,” “strategy,” “intend,” “should,” “would,” “could,” “believe,” “may,” and similar expressions and statements regarding our plans and objectives for future operations. These statements are based on management’s beliefs and assumptions using currently available information and expectations as of the date hereof, are not guarantees of future performance and involve certain risks and uncertainties. All statements concerning our expectations for future results of operations are based on forecasts for our existing operations and do not include the potential impact of any future acquisitions. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that our expectations will prove to be correct. Therefore, actual outcomes and results could materially differ from what is expressed, implied or forecast in these statements. Any differences could be caused by a number of factors including, but not limited to: +• the demand for and supply of feedstocks, crude oil and refined products, including uncertainty regarding societal expectations that companies address climate impacts and greenhouse gas emissions; +• risks and uncertainties with respect to the actions of actual or potential competitive suppliers and transporters of refined petroleum products or lubricant and specialty products in our markets; +• the spread between market prices for refined products and market prices for crude oil; +• the possibility of constraints on the transportation of crude oil, refined products or lubricant and specialty products; +• the possibility of inefficiencies, curtailments or shutdowns in refinery operations or pipelines, whether due to reductions in demand, accidents, unexpected leaks or spills, unscheduled shutdowns, infection in the workforce, weather events, global health events, civil unrest, expropriation of assets, and other economic, diplomatic, legislative, or political events or developments, terrorism, cyberattacks, vandalism or other catastrophes or disruptions affecting our operations, production facilities, machinery, pipelines and other logistics assets, equipment, or information systems, or any of the foregoing at our suppliers, customers, or third-party providers, and any potential asset impairments resulting from, or the failure to have adequate insurance coverage for or receive insurance recoveries from, such actions; +• the effects of current and/or future governmental and environmental regulations and policies, including compliance with, or exemptions from, existing, new and changing environmental, health and safety laws and regulations, related reporting requirements and pipeline integrity programs; +• the availability and cost of our financing; +• the effectiveness of our capital investments and marketing strategies; +• our efficiency in carrying out and consummating construction projects, including our ability to complete announced capital projects on time and within capital guidance; +• our ability to timely obtain or maintain permits, including those necessary for operations or capital projects; +• our ability to acquire complementary assets or businesses to our existing assets and businesses on acceptable terms and to integrate any existing or future acquired operations and realize the expected synergies of any such transaction on the expected timeline; +• the possibility of vandalism or other disruptive activity, or terrorist or cyberattacks, and the consequences of any such activities or attacks; +• uncertainty regarding the effects and duration of global hostilities, including uncertainty regarding the effects and duration of global hostilities, war or any associated military campaigns, including those in oil producing regions, which may disrupt crude oil supplies and markets for our refined products and create instability in the financial markets that could restrict our ability to raise capital; +• general economic conditions, including uncertainties regarding trade policies, such as the imposition or implementation of tariffs, or economic slowdowns caused by a local or national recession or other adverse economic conditions, such as periods of increased or prolonged inflation; +• limitations on our ability to make future dividend payments or effectuate share repurchases due to market conditions and corporate, tax, regulatory and other considerations; and +• other business, financial, operational and legal risks and uncertainties detailed from time to time in our Securities and Exchange Commission filings. +3 +Table of Content s +Cautionary statements identifying important factors that could cause actual results to differ materially from our expectations are set forth in this Annual Report on Form 10-K, including, without limitation, the forward-looking statements that are referred to above. You should not put any undue reliance on any forward-looking statements. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements set forth in this Annual Report on Form 10-K under “Business and Properties” in Items 1 and 2, “Risk Factors” in Item 1A and in conjunction with the discussion in this Annual Report on Form 10-K in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the headings “Overview” and “Liquidity and Capital Resources.” All forward-looking statements included in this Annual Report on Form 10-K and all subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. The forward-looking statements speak only as of the date made and, other than as required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. +4 +Table of Content s +DEFINITIONS +Within this report, the following terms have these specific meanings: +“ Adjusted refinery gross margin per produced barrel sold ” is total Refining segment gross margin plus Lower of cost or market inventory valuation adjustments , Depreciation and amortization and Operating expenses , divided by sales volumes of produced refined products. This margin measure excludes the non-cash effects of Lower of cost or market inventory valuation adjustments , which relate to volumes in inventory at the end of the period. +“ Alkylation ” means the reaction of propylene or butylene (olefins) with isobutane to form an iso-paraffinic gasoline (inverse of cracking). +“ Aromatics Recovery ” is the process of purifying feedstock by separating and recovering aromatic compounds from the production process. These aromatic compounds are valuable due to their use in producing a range of chemicals and products like solvents, plastics, and synthetic materials. +“ Base oil ” is a lubricant grade oil initially produced from refining crude oil or through chemical synthesis that is used in producing lubricant products such as lubricating greases, motor oil and metal processing fluids. +“ Biodiesel ” means a clean alternative fuel produced from renewable biological resources. +“ BPD ” means the number of barrels per calendar day of crude oil or petroleum products. +“ BPSD ” means the number of barrels per stream day (barrels of capacity in a 24 hour period) of crude oil or petroleum products. +“ Catalytic reforming ” means a refinery process which uses a precious metal (such as platinum) based catalyst to convert low octane naphtha to high-octane gasoline blendstock and hydrogen. The hydrogen produced from the reforming process is used to desulfurize other refinery oils and is a primary source of hydrogen for the refinery. +“ Crack spread ” is a common measure in the industry and is the difference between market prices for refined products and crude oil. +“ Cracking ” means the process of breaking down larger, heavier and more complex hydrocarbon molecules into simpler and lighter molecules. +“ Crude oil distillation ” means the process of distilling vapor from liquid crudes, usually by heating, and condensing the vapor slightly above atmospheric pressure turning it back to liquid in order to purify, fractionate or form the desired products. +“ EPA ” means the U.S. Environmental Protection Agency. +“ Ethanol ” means a high-octane gasoline blend stock that is used to make various grades of gasoline. +“ FCC ” or fluid catalytic cracking, means a refinery process that breaks down large complex hydrocarbon molecules into smaller more useful ones using a circulating bed of catalyst at relatively high temperatures. +“ Gas oil ” is a group of petroleum distillation products having boiling points between kerosene and lubricating oil and is used as fuel in construction and agricultural machinery. +“ Heavy crude oil ” means a relatively inexpensive crude oil with a low API gravity characterized by high relative density and viscosity. Heavy crude oils require greater levels of processing to produce high-value products such as gasoline and diesel. +“ HF alkylation ” or hydrofluoric alkylation, means a refinery process which combines isobutane and C3/C4 olefins using hydrofluoric acid as a catalyst to make high-octane gasoline blend stock. +“ Hydrodesulfurization ” means to remove sulfur and nitrogen compounds from oil or gas in the presence of hydrogen and a catalyst at relatively high temperatures. +“ Hydrogen plant ” means a refinery unit that converts natural gas and steam to high-purity hydrogen, which is then used in the hydrodesulfurization, hydrocracking and isomerization processes. +“ Isomerization ” means a refinery process for rearranging the structure of C5/C6 molecules without changing their size or chemical composition and is used to improve the octane of C5/C6 gasoline blendstocks. +5 +Table of Content s +“ LCFS ” means Low Carbon Fuel Standard. +“ Light crude oil ” means a relatively expensive crude oil with a high API gravity characterized by low relative density and viscosity. Light crude oils require lower levels of processing to produce high-value products such as gasoline and diesel. +“ LPG ” means liquefied petroleum gases. +“ Lubricant ” or “ lube ” means a solvent neutral paraffinic product used in commercial heavy duty engine oils, passenger car oils and specialty products for industrial applications such as heat transfer, metalworking, rubber and other general process oil. +“ MEK ” means a lube process that separates waxy oil from non-waxy oils using methyl ethyl ketone as a solvent. +“ MMBTU ” means one million British thermal units. +“ MSAT2 ” means Control of Hazardous Air Pollutants from Mobile Sources, a rule issued by the EPA to reduce hazardous emissions from motor vehicles and motor vehicle fuels. +“ Natural gasoline ” means a low octane gasoline blend stock that is purchased and used to blend with other high-octane stocks produced to make various grades of gasoline. +“ RDU ” means renewable diesel unit. +“ Reforming ” means the process of converting gasoline type molecules into aromatic, higher octane gasoline blend stocks while producing hydrogen in the process. +“ Renewable diesel ” means a diesel fuel derived from renewable feedstock such as vegetable oil or animal fats that is produced through various processes, most commonly through hydrotreating, reacting the feedstock with hydrogen under temperatures and pressure in the presence of a catalyst. +“ RINs ” means renewable identification numbers and refers to serial numbers assigned to credits generated from renewable fuel production under the EPA’s Renewable Fuel Standard regulations, which require blending renewable fuels into the nation’s fuel supply. In lieu of blending, refiners may purchase these transferable credits in order to comply with the regulations. +“ RMP ” refers to the EPA’s CAA Risk Management Plan regulations, which is designed to prevent or minimize chemical accidents and any resulting releases of toxic, reactive, flammable or explosive chemicals. +“ Roofing flux ” is produced from the bottom cut of crude oil and is the base oil used to make roofing shingles for the housing industry. +“ ROSE ” or “ Solvent deasphalter / residuum oil supercritical extraction ” means a refinery unit that uses a light hydrocarbon like propane or butane to extract non-asphaltene heavy oils from asphalt or atmospheric reduced crude. These deasphalted oils are then further converted to gasoline and diesel in the FCC process. The remaining asphaltenes are either sold, blended to fuel oil or blended with other asphalt as a hardener. +“ Scanfiner ” is a refinery unit that removes sulfur from gasoline to produce low sulfur gasoline blendstock. +“ Sour crude oil ” means crude oil containing quantities of sulfur greater than 0.4 percent by weight, while “ sweet crude oil ” means crude oil containing quantities of sulfur equal to or less than 0.4 percent by weight. +“ Vacuum distillation ” means the process of distilling vapor from liquid crudes, usually by heating, and condensing the vapor below atmospheric pressure turning it back to a liquid in order to purify, fractionate or form the desired products. +“ Wax crude oil ” is a low sulfur, low gravity crude oil produced in the Uinta Basin in Eastern Utah that has certain characteristics that require specific facilities to transport, store and refine into transportation fuels. +“ White oil ” is an extremely pure, highly-refined petroleum product that has a wide variety of applications ranging from pharmaceutical to cosmetic products. +“ WTI ” means West Texas Intermediate and is a grade of crude oil used as a common benchmark in oil pricing. WTI is a sweet crude oil and has a relatively low density. +6 +Table of Content s +Items 1 and 2. Business and Properties +COMPANY OVERVIEW +References herein to HF Sinclair Corporation (“HF Sinclair” or the “Company”) include HF Sinclair and its consolidated subsidiaries. In this document, the words “we,” “our,” “ours” and “us” refer only to HF Sinclair and its consolidated subsidiaries or, in certain contexts, to HF Sinclair or an individual consolidated subsidiary and not to any other person, with certain exceptions. References herein to Holly Energy Partners, L.P. (“HEP”) with respect to time periods prior to the HEP Merger Transaction (as defined below) refer to HEP and its consolidated subsidiaries. +We are an independent energy company that produces and markets high-value light products such as gasoline, diesel fuel, jet fuel, renewable diesel and other specialty products. We were incorporated in Delaware in 1947 and maintain our principal corporate offices at 2323 Victory Avenue, Suite 1400, Dallas, Texas 75219. Our telephone number is 214-871-3555, and our internet website address is www.hfsinclair.com. We use our website and social media accounts, including LinkedIn (@HF Sinclair) and Facebook (@HF Sinclair), as a means of disclosing information about us and our services, which information may be deemed material. Except as specifically noted, the information found on our website and social media accounts is not incorporated by reference into, and do not constitute part of, this Annual Report on Form 10-K or any other report filed with or furnished to the Securities and Exchange Commission (“SEC”). A print copy of this Annual Report on Form 10-K will be provided without charge upon written request to the Vice President, Investor Relations at the above address. A direct link to our SEC filings is available on our website under the Investor Relations tab. Also available on our website are copies of our Corporate Governance Guidelines, Audit Committee Charter, Compensation Committee Charter, Nominating, Governance and Social Responsibility Committee Charter, Finance Committee Charter, Environmental, Health, Safety, and Public Policy Committee Charter and Code of Business Conduct and Ethics, all of which will be provided without charge upon written request to the Vice President, Investor Relations at the above address. Our Code of Business Conduct and Ethics applies to all of our officers, employees and directors, including our principal executive officer, principal financial officer and principal accounting officer. Our common stock is traded on the New York Stock Exchange and NYSE Texas, Inc. under the trading symbol “DINO.” +HEP Merger Transaction +On December 1, 2023, we completed the merger of HEP into an indirect wholly owned subsidiary of HF Sinclair pursuant to an Agreement and Plan of Merger dated August 15, 2023 (the “HEP Merger Transaction”). Consideration paid in connection with the merger included cash and shares of HF Sinclair common stock. +Operations Overview +As of December 31, 2025, we: +• owned and operated a refinery in El Dorado, Kansas (the “El Dorado Refinery”), two refinery facilities located in Tulsa, Oklahoma (collectively, the “Tulsa Refineries”), the Puget Sound refinery in Anacortes, Washington (the “Puget Sound Refinery”), a refinery in Artesia, New Mexico and a refinery in Lovington, New Mexico (collectively, the “Navajo Refineries”), a refinery in West Bountiful, Utah (the “Woods Cross Refinery”), a refinery in Sinclair, Wyoming (the “Parco Refinery”) and a refinery in Casper, Wyoming (the “Casper Refinery”); +• owned and operated an RDU in Artesia, New Mexico (the “Artesia RDU”), an RDU in Cheyenne, Wyoming (the “Cheyenne RDU”) and an RDU in Sinclair, Wyoming (the “Sinclair RDU”), and a pre-treatment unit (“PTU”) in Artesia, New Mexico (the “Artesia PTU”); +• owned and operated a manufacturing facility in Mississauga, Ontario, which produces base oils and other specialized lubricant products for our Petro-Canada Lubricants business; +• owned and operated manufacturing facilities in Petrolia, Pennsylvania and the Netherlands, which produce specialty lubricant products for our Sonneborn business, such as white oils, petrolatums and waxes; +• owned and operated Red Giant Oil Company LLC (“Red Giant Oil”), which supplies locomotive engine oil and has blending, storage and packaging capabilities, and distribution facilities in Iowa and Texas; +• owned and operated HF Sinclair Asphalt Company LLC (“Asphalt”), which operates various asphalt terminals in Arizona, New Mexico and Oklahoma; and +• owned and operated logistics and refinery assets consisting of petroleum product and crude oil pipelines, terminals, tankage, loading rack facilities and refinery processing units that principally support our refining operations in the Mid-Continent, Southwest and Rocky Mountains geographic regions of the United States. +7 +Table of Content s +As of December 31, 2025, our operations were organized into five reportable segments: Refining, Renewables, Marketing, Lubricants & Specialties and Midstream. The Refining segment includes the operations of our El Dorado, Tulsa, Puget Sound, Navajo, Woods Cross, Parco and Casper refineries and Asphalt. The Renewables segment includes the operations of the Artesia, Cheyenne and Sinclair RDUs and the Artesia PTU. The Marketing segment includes branded fuel sales. The Lubricants & Specialties segment includes the operations of our Petro-Canada Lubricants, Red Giant Oil and Sonneborn businesses in addition to specialty lubricant products produced at our Tulsa West refinery. The Midstream segment includes petroleum product and crude pipelines, and terminal, tankage and loading rack facilities that primarily support our refining operations. See Note 19 “Segment Information” in the Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K for additional information on our reportable segments. +REFINERY OPERATIONS +Our refinery operations serve the Mid-Continent, Southwest and Rocky Mountains extending into the Pacific Northwest geographic regions of the United States. We own and operate seven complex refineries having a combined crude oil processing capacity of 678,000 BPSD. Each of our refineries has the complexity to convert discounted, heavy or sour crude oils into a high percentage of gasoline, diesel and other high-value refined products. +Products and Customers +Light products are shipped to customers via product pipelines or are available for loading at our refinery truck facilities, marine dock and terminals. Light products are also made available to customers at various other locations via exchange with other parties. +Our principal customers for gasoline include other refiners, branded sites, convenience store chains, independent marketers and retailers. Diesel fuel is sold to other refiners, branded sites, truck stop chains, wholesalers and railroads. Jet fuel is sold for commercial airline use. Base oils are sold to our Lubricants & Specialties segment through intercompany transactions. LPG’s are sold to LPG wholesalers and LPG retailers. We produce and purchase asphalt products that are sold to governmental entities, paving contractors or manufacturers. Asphalt is also blended into fuel oil and is either sold locally or is shipped to the Gulf Coast. For the year ended December 31, 2025 , no customers accounted for 10% or more of our total annual revenues. For the years ended December 31, 2024 and 2023, we had one customer, Shell, together with certain of its affiliates, that accounted for 10% or more of our total annual revenues at approximately 11% and 12%, respectively. See Note 4 “Revenues” in the Notes to Consolidated Financial Statements for additional information on our revenues. +Mid-Continent Region +Facilities +The El Dorado Refinery is a high-complexity coking refinery with a 135,000 BPSD processing capacity and the ability to process significant volumes of heavy and sour crudes. The integrated refining processes at the Tulsa West and East refinery facilities provide us with a highly complex refining operation having a combined crude processing rate of approximately 125,000 BPSD. +The El Dorado Refinery is located on 1,100 acres south of El Dorado, Kansas and is a fully integrated refinery. The principal processing units at the El Dorado Refinery consist of crude and vacuum distillation; hydrodesulfurization of naphtha, kerosene, diesel, and gas oil streams; naphtha fractionation; isomerization; catalytic reforming; aromatics recovery; catalytic cracking; alkylation; delayed coking; hydrogen production; hydrogen generation; and sulfur recovery. +The Tulsa West facility is located on a 750-acre site in Tulsa, Oklahoma. The principal processing units at the Tulsa West facility consist of crude and vacuum distillation (with light ends recovery), naphtha hydrodesulfurization, propane de-asphalting, lubes extraction, MEK dewaxing, delayed coker and butane splitter units. +The Tulsa East facility is located on a 466-acre site also in Tulsa, Oklahoma. The principal processing units at the Tulsa East facility consist of crude and vacuum distillation, naphtha hydrodesulfurization, FCC, isomerization, catalytic reforming, alkylation, scanfiner, diesel hydrodesulfurization and sulfur units. +8 +Table of Content s +Crude Oil and Feedstock Supplies +Both of our Mid-Continent refineries are connected via pipeline to Cushing, Oklahoma, a significant crude oil pipeline trading and storage hub. The El Dorado Refinery and the Tulsa Refineries are located approximately 125 miles and 50 miles, respectively, from Cushing, Oklahoma. Local pipelines provide direct access to regional Oklahoma crude production as well as access to United States onshore and Canadian crudes. The proximity of the refineries to the Cushing pipeline and storage hub provides the flexibility to optimize their crude slate with a wide variety of crude oil supply options. Additionally, we have transportation service agreements to transport Canadian crude oil on the Spearhead and Keystone Pipelines, enabling us to transport Canadian crude oil to Cushing for subsequent shipment to either of our Mid-Continent refineries. +We also purchase isobutane, natural gasoline, butane and other feedstocks for processing at our Mid-Continent refineries. The El Dorado Refinery is connected to Conway, Kansas, a major gas liquids trading and storage hub, via the ONEOK, Inc. (“ONEOK”) Pipeline. From time to time, other feedstocks, such as gas oil, naphtha and light cycle oil, are purchased from other refiners for use at our refineries. +Markets and Competition +The El Dorado Refinery primarily serves Colorado and the Plains states, which includes the Kansas City metropolitan area. The gasoline, diesel and jet fuel produced by the El Dorado Refinery are primarily shipped via pipeline to terminals for distribution by truck or rail. We ship product via the NuStar Pipeline Operating Partnership L.P. pipeline to the northern Plains states, via the ONEOK mountain pipeline to Denver, Colorado, and on the ONEOK mid-continent pipeline to the Plains states. Additionally, our midstream operations’ on -site truck and rail racks facilitate access to local refined product markets. +The El Dorado Refinery faces competition from other Plains states and Mid-Continent refiners, but the principal competitors for the El Dorado Refinery are Gulf Coast refiners. The Gulf Coast refiners typically have lower production costs due to greater economies of scale; however, they incur higher refined product transportation costs, which allows the El Dorado Refinery to compete effectively in the Plains states and Rocky Mountains region. +The Tulsa Refineries serve the Mid-Continent geographic region of the United States. Distillates and gasolines are primarily delivered from the Tulsa Refineries to market via pipelines owned and operated by ONEOK. These pipelines connect the refinery to distribution channels throughout Colorado, Oklahoma, Kansas, Missouri, Illinois, Iowa, Minnesota, Nebraska and Arkansas. Additionally, our midstream operations’ on-site truck and rail racks facilitate geographic refined product distribution within the Mid-Continent region. +West Region +Facilities +The Navajo Refineries have a crude oil processing capacity of 100,000 BPSD and have the ability to process sour crude oils into high-value light products such as gasoline, diesel fuel and jet fuel. The Woods Cross Refinery has a crude oil processing capacity of 45,000 BPSD and processes regional sweet and wax crude oil into high-value light products. The Puget Sound Refinery, which is a complex refinery with a 149,000 BPSD processing capacity, has the ability to process a variety of light, medium, heavy sweet and sour crudes. The Parco Refinery, which has a crude oil processing capacity of 94,000 BPSD, has the ability to process heavy and sweet crudes. The Casper Refinery has a crude oil processing capacity of 30,000 BPSD and processes regional sweet crude into high-value light products. +The Artesia facility is located on a 561-acre site in Artesia, New Mexico, and is a fully integrated refinery with crude oil distillation, vacuum distillation, FCC, ROSE (solvent deasphalter), HF alkylation, catalytic reforming, hydrodesulfurization, mild hydrocracking, isomerization, sulfur recovery and product blending units. +The Lovington facility is located in Lovington, New Mexico, approximately 65 miles east of Artesia. The principal equipment at the Lovington facility consists of a crude oil distillation unit and associated vacuum distillation units. The Lovington facility processes crude oil into intermediate products that are transported to Artesia by three of our midstream operations’ intermediate pipelines. These products are then upgraded into finished products at the Artesia facility. In addition to crude oil throughput, the Navajo Refineries typically processes or blends an additional 10,000 BPSD of natural gasoline, butane, gas oil and naphtha. +The Woods Cross Refinery facility is located on a 200-acre site in West Bountiful, Utah and is a fully integrated refinery with crude oil distillation, solvent deasphalter, FCC, HF alkylation, catalytic reforming, hydrodesulfurization, isomerization, polymerization, sulfur recovery and product blending units. In addition, our Woods Cross Refinery includes a crude unit, which is primarily an atmospheric distillation tower, a desalter and heat exchanger. The facility typically processes or blends an additional 2,000 BPSD of natural gasoline, butane and gas oil over its crude oil throughput. +9 +Table of Content s +The Puget Sound Refinery facility is located on approximately 850 acres in Anacortes, Washington and is a fully integrated refinery. The principal processing units at the Puget Sound Refinery consist of crude and vacuum distillation, FCC, delayed coking, sulfuric alkylation, catalytic reforming, hydrodesulfurization, isomerization, sulfur recovery, cogeneration and product blending. In addition to refining assets and an on-site cogeneration facility, the Puget Sound Refinery also includes a deep-water marine dock, a light product loading rack, a rail terminal and storage tanks with approximately 5.8 million barrels of crude, product and other hydrocarbon storage capacity. +The Parco Refinery facility is located on approximately 420 acres in Sinclair, Wyoming and is a fully integrated refinery. The principal processing units at the Parco Refinery consist of gas oil hydrocracking, gas oil hydrotreating, delayed coking units and associated hydrogen generation. +The Casper Refinery facility is located on approximately 250 acres in Casper, Wyoming and is a fully integrated refinery. The principal processing units at the Casper Refinery consist of crude oil distillation, FCC, catalytic reforming, hydrodesulfurization, sulfur recovery and product blending. In addition to refining assets, the Casper Refinery also includes a light product loading rack, a heavy oil rail terminal and crude and product storage tanks. +Crude Oil and Feedstock Supplies +The Navajo Refineries are situated near the Permian Basin, an area that has historically, and continues to have, abundant supplies of crude oil available both for regional users and for export to other areas. We purchase crude oil from independent producers in southeastern New Mexico and west Texas as well as from major oil companies. The crude oil is gathered through our midstream operations’ pipelines and through third-party tank trucks and crude oil pipeline systems for delivery to the Navajo Refineries. +We also purchase volumes of isobutane, natural gasoline and other feedstocks to supply the Navajo Refineries from sources in Texas and the Mid-Continent area that are delivered to this region on a common carrier pipeline owned by Enterprise Products, L.P. Ultimately all volumes of these products are shipped to the Artesia refining facilities on our midstream operations’ intermediate pipelines running from Lovington to Artesia. From time to time, we purchase gas oil, naphtha and light cycle oil from other refiners for use as feedstock. +The Woods Cross Refinery currently obtains crude oil from suppliers in Canada, Wyoming and Utah as delivered via common carrier pipelines, including the SLC Pipeline and Frontier Pipeline. Supplies of wax crude oil are shipped via truck. +The Puget Sound Refinery is well positioned geographically and logistically to source advantaged Canadian and Alaskan North Slope crudes, as well as other crudes accessible by marine transport. The Canadian crudes are sourced from Edmonton, Alberta and are supplied directly to the Puget Sound Refinery by the Trans Mountain pipeline system. The Alaskan North Slope crudes are supplied by oil tankers that load the crude from Valdez, Alaska and offload at the Puget Sound Refinery’s marine dock. The dock also allows the refinery to receive other crude oil via marine transport. +The Parco Refinery and Casper Refinery purchase much of their crude oil from inland domestic sources, primarily in areas of Wyoming, North Dakota and Colorado, as well as crude oil delivered via pipeline from other regions, including Canada. A long-term agreement with the Express Pipeline allows delivery of crude oil from Canada directly to these refineries and affords the optionality between light and heavy crude oils. +Markets and Competition +The Navajo Refineries primarily serve the southwestern United States, including the metropolitan areas of El Paso, Texas; Albuquerque, Moriarty and Bloomfield, New Mexico; Phoenix and Tucson, Arizona; and portions of northern Mexico. Our products are shipped through our midstream operations’ pipelines from Artesia, New Mexico to El Paso, Texas and from El Paso to Albuquerque and to Mexico via products pipeline systems owned by ONEOK and from El Paso to Tucson and Phoenix via a products pipeline system owned by SFPP, L.P. (“SFPP”). In addition, petroleum products from the Navajo Refineries are transported to northwest New Mexico, to Moriarty, New Mexico, near Albuquerque, via our pipelines running from Artesia to San Juan County, New Mexico, and to Bloomfield, New Mexico. We have refined product storage through our midstream operations at terminals in Artesia and Moriarty, New Mexico. +The Woods Cross Refinery primarily serves Utah, which is currently supplied by a number of local refiners and the Pioneer Pipeline. It also supplies a small percentage of the refined products consumed in Idaho, Wyoming, eastern Washington and Nevada. Our Woods Cross Refinery ships refined products over a common carrier pipeline system owned by Tesoro Logistics Northwest Pipelines LLC to numerous terminals, including our terminal at Spokane, Washington and third-party terminals at Pocatello and Boise, Idaho and Pasco, Washington as well as to Cedar City, Utah and Las Vegas, Nevada via the UNEV Pipeline, LLC’s (“UNEV”) Pipeline. +10 +Table of Content s +The Puget Sound Refinery primarily serves the Pacific Northwest, including Washington, Oregon and British Columbia. It supplies jet fuel for the Seattle-Tacoma, Washington; Portland, Oregon and Vancouver, British Columbia airports. Products are shipped to Seattle, Tacoma and Portland terminals by the common carrier Olympic Pipeline. Additionally, products are loaded across the Puget Sound Refinery’s marine dock to deliver to the same locations in the Pacific Northwest and to expanded locations in California and Alaska. The Puget Sound Refinery can also load products for export sales across its marine dock. +The Parco Refinery’s products are primarily distributed by major direct pipelines to Denver, Colorado and to Salt Lake City, Utah connecting to pipelines owned by us, our joint ventures or third parties, serving an extensive network of terminals or by exchange. The Parco Refinery’s customers are located in Colorado, Utah, Arizona, Idaho, Nebraska, Nevada, Oregon, South Dakota, Washington and Wyoming. +The Casper Refinery’s products are primarily distributed by major direct pipelines serving the Rocky Mountain region and western South Dakota through an extensive network of terminals or by exchange. The Casper Refinery’s customers are located in Colorado, Utah, South Dakota and Wyoming. +HF Sinclair Asphalt Company +We manufacture commodity and modified asphalt products at our manufacturing facilities located in Glendale, Arizona; Albuquerque, New Mexico; Artesia, New Mexico and Catoosa, Oklahoma. Our Albuquerque and Artesia facilities manufacture commodity and modified hot asphalt products as well as commodity and modified asphalt emulsions from base asphalt materials provided by our refineries and third-party suppliers. Our Glendale facility manufactures commodity, modified and specialty modified hot asphalt products from base asphalt materials provided by our refineries and third-party suppliers. Our Catoosa facility manufactures commodity, modified and specialty modified hot asphalt products and commodity asphalt products from base asphalts supplied by our refineries. We primarily sell our finished asphalt products in Arizona, California, Colorado, New Mexico, Oklahoma, Kansas, Missouri, Texas, Arkansas and northern Mexico. Our products are shipped via multi-modal transportation to commercial customers that provide asphalt-based materials for private, commercial and government agency projects. +RENEWABLES OPERATIONS +Our renewables business includes the operations of the Cheyenne RDU, the Artesia RDU and the Sinclair RDU. Our Cheyenne RDU has a production capacity of approximately 90 million gallons a year. Our Artesia RDU, co-located with the Navajo Refineries, includes our Artesia PTU, rail infrastructure and storage tanks and has a production capacity of approximately 135 million gallons a year. Our Artesia PTU provides feedstock flexibility for the Cheyenne, Artesia and Sinclair RDUs. The Sinclair RDU, co-located with the Parco Refinery, has a production capacity of approximately 153 million gallons a year. The Artesia RDU and Sinclair RDU are dependent upon and share certain infrastructure, including a hydrogen plant, with the refineries where they are co-located. +Our RDUs allow us to process soybean oil and other renewable feedstocks into renewable diesel. Renewable diesel is a cleaner burning fuel with 50% to 80% (results dependent on the feedstock) lower lifecycle greenhouse gas (“GHG”) emissions than conventional diesel. The renewable diesel produced by the RDUs is sold to customers in California, Oregon, Utah and Canada. +MARKETING OPERATIONS +Our marketing operations include branded fuel sales to mor e than 1,700 bra nded sites in t he United States and licensing fees for the use of the Sinclair brand to more than 350 additional locations throughout the United States. Our marketing operations also include revenues from branded gasoline, diesel and other marketing activities. Our branded sites are located in several states across the United States with the highest concentration of the sites located in our West and Mid-Continent regions. +11 +Table of Content s +LUBRICANTS & SPECIALTIES OPERATIONS +Our lubricants and specialties operations consist of our Petro-Canada Lubricants, Red Giant Oil, Sonneborn and our Tulsa lubricants businesses. +Our Petro-Canada Lubricants business produces base oils, automotive, industrial and food-grade lubricants and greases, process oils and specialty fluids. It is one of the leading manufacturers of Group III base oils in North America. Products are marketed in over 80 countries worldwide to a diverse customer base through a global sales force and distributor network. Petro-Canada Lubricants Inc. (“PCLI”) owns and operates a production facility located in Mississauga, Ontario, which has a lubricant production capacity of 15,600 BPD and the flexibility to match unique lubricant product formulations. The primary operating units are high-pressure hydrotreating and hydrofinishing, solvent dewaxing and catalytic dewaxing. In addition, the facility operates a hydrogen plant, naphtha hydrotreater and catalytic reformer, along with other utility units to support production. The Mississauga plant also includes packaging facilities and has extensive distribution capabilities with marine, truck and rail access. +Our Red Giant Oil business provides high-quality lubricants to the railroad industry. Red Giant Oil owns and operates blending and distribution facilities in Council Bluffs, Iowa, and Joshua, Texas. +Our Sonneborn business produces specialty products such as white oils, petrolatums and waxes for the personal care, cosmetic, pharmaceutical and food processing industries. Combined with Petro-Canada Lubricants, it is one of the world’s leading producers of pharmaceutical white oils. Sonneborn has manufacturing facilities in Petrolia, Pennsylvania and the Netherlands. The Sonneborn Petrolia site has a production capacity of 6,000 BPD with flexibility to produce a full range of finished specialty products. The primary operating unit is a high-pressure hydrotreater with hydrofinishing. In addition, the facility operates a hydrogen plant along with other utility units to support production. The Petrolia plant also includes packaging facilities with distribution capabilities through rail and trucking. The Sonneborn Netherlands site is located in Amsterdam and has a production capacity of approximately 1,500 BPD. The primary operating units include base oil acid treating, percolation filtration, and bleaching & steaming operations. The Netherlands site includes packaging facilities with distribution capabilities through truck and marine. +Our Tulsa West facility produces high-quality base oils, process oils, waxes, horticultural oils, asphalt and rubber performance products. Products are marketed worldwide through strategically located terminals in the United States and selected distributors internationally. +In January 2026, we acquired Industrial Oils Unlimited, a producer of high-quality lubricants and specialty fluids with blending facilities in Tulsa, Oklahoma; Shreveport, Louisiana; and Little Rock and Fort Smith, Arkansas, as well as warehousing and terminal facilities in Pampa and Midland, Texas. +MIDSTREAM OPERATIONS +Our midstream operations are composed of logistics assets consisting of petroleum product and crude oil pipelines, terminals, tankage, and loading rack facilities that principally support our refining operations, as well as operations for other third-party refineries, in the Mid-Continent, Southwest and Rocky Mountains geographic regions of the United States. Additionally, we own a 50% ownership interest in each of Osage Pipe Line Company, LLC, the owner of a pipeline running from Cushing, Oklahoma to El Dorado, Kansas (the “Osage Pipeline”), and Cushing Connect Pipeline & Terminal LLC (“Cushing Connect”), the owner of a crude oil storage terminal in Cushing, Oklahoma and a pipeline that runs from Cushing, Oklahoma to our Tulsa Refineries; a 26.08% ownership interest in Saddle Butte Pipeline III, LLC, the owner of a pipeline from the Powder River Basin to Casper, Wyoming (the “Saddle Butte Pipeline”); and a 49.995% ownership interest in Pioneer Investments Corp., the owner of a pipeline from Sinclair, Wyoming to the North Salt Lake City, Utah Terminal (the “Pioneer Pipeline”). +Our midstream operations generate revenues by charging tariffs for transporting petroleum products and crude oil through their pipelines, by charging fees for terminalling refined products and other hydrocarbons and by storing and providing other services at their storage tanks and terminals. Our midstream operations do not take ownership of products that they transport, terminal, store or refine; therefore, they are not directly exposed to changes in commodity prices. +12 +Table of Content s +As of December 31, 2025, our midstream assets included: +Pipelines +• approximately 660 miles of refined product pipelines, including 340 miles of leased pipelines, used to transport gasoline, diesel and jet fuel principally from our Navajo Refineries in New Mexico to our customers in the metropolitan and rural areas of Texas, New Mexico, Arizona, Colorado, Utah and northern Mexico; +• one 205-mile pipeline that transports refined product from our Parco Refinery in Wyoming to our customers in Colorado; +• one 114-mile bi-directional products pipeline that transports finished and intermediate products between our Parco and Casper refineries in Wyoming; +• approximately 510 miles of refined product pipelines used to transport refined products from a refinery in Big Spring, Texas to other destinations in Texas; +• two 65-mile pipelines that transport intermediate feedstocks and crude oil from our crude oil distillation and vacuum facilities at our Lovington facility to our petroleum refinery facilities in Artesia, New Mexico; +• one 65-mile intermediate pipeline that is used for the shipment of crude oil from the gathering systems in Barnsdall and Beeson, New Mexico to our Navajo Refineries; +• the SLC Pipeline, a 95-mile intrastate crude oil pipeline system that transports crude oil into the Salt Lake City, Utah area from the Utah terminus of the Frontier Pipeline, as well as crude oil flowing from Wyoming and Utah via the Marathon Wamsutter system; +• the Frontier Pipeline, a 289-mile crude oil pipeline running from Casper, Wyoming to Frontier Station, Utah through a connection to the SLC Pipeline; +• approximately 990 miles of crude oil trunk, gathering and connection pipelines located in west Texas and New Mexico that primarily deliver crude oil to our Navajo Refineries; +• approximately 535 miles of crude oil trunk, gathering and connection pipelines in Wyoming that primarily deliver crude oil to our Parco and Casper refineries; +• approximately 10 miles of refined product pipelines that support our Woods Cross Refinery located near Salt Lake City, Utah; +• five intermediate product and gas pipelines between our Tulsa East and Tulsa West facilities; +• feedstock receiving assets located at our Cheyenne facility; +• the UNEV Pipeline, which is a 427-mile, 12-inch refined products pipeline running from Woods Cross, Utah to Las Vegas, Nevada and Cedar City, Utah; +• a 50% interest in the Osage Pipeline, a 135-mile pipeline that transports crude oil from Cushing, Oklahoma to our El Dorado Refinery and also has a connection to the Jayhawk pipeline that further connects to a refinery in McPherson, Kansas; +• a 50% interest in the Cushing Connect Pipeline, a 50-mile crude oil pipeline running from Cushing, Oklahoma to our Tulsa Refineries; +• a 49.995% interest in the Pioneer Pipeline, a 312-mile refined product pipeline running from Sinclair Station in Wyoming to the terminal in North Salt Lake City, Utah. Through connections, this pipeline is also able to deliver refined products to the UNEV Pipeline; and +• a 26.08% interest in the Saddle Butte Pipeline, a crude oil pipeline that collects crude oil from the Powder River Basin in Wyoming and primarily delivers into our crude oil pipeline system that supplies our Parco and Casper refineries. +Refined Product Terminals and Refinery Tankage +• two refined product terminals located in Orla, Texas and Moriarty, New Mexico, with an aggregate capacity of approximately 200,000 barrels, that are integrated with our refined product pipeline system that serves our Navajo Refineries; +• two refined product terminals, located in Wichita Falls and Abilene, Texas, and one tank farm in Orla, Texas with an aggregate capacity of approximately 560,000 barrels, that are integrated with our refined product pipelines that serve shipments originating in Big Spring, Texas; +• a refined product terminal in Catoosa, Oklahoma, with a capacity of approximately 60,000 barrels that stores specialty lubricant products and is utilized by our Tulsa Refineries; +• a refined product loading rack facility at each of our El Dorado, Tulsa, Navajo and Woods Cross refineries, heavy product/asphalt loading rack facilities at our Tulsa East and Lovington facilities, LPG loading rack facilities at our El Dorado Refinery and Tulsa West facility and base oil loading racks at our Tulsa West facility; +• refined product storage capacity at our Parco and Casper refineries as well as at seven refined product terminals in Colorado, Idaho, Wyoming and Washington serving our Parco, Casper and Woods Cross refineries with a capacity of approximately 2,510,000 barrels; +• one refined product terminal in Kansas City, Missouri having an aggregate storage capacity of approximately 340,000 barrels; +13 +Table of Content s +• on-site crude oil tankage at our Tulsa, Navajo and Woods Cross refineries and Cheyenne facility having an aggregate storage capacity of approximately 1,440,000 barrels; +• on-site refined and intermediate product tankage at our El Dorado, Tulsa, Navajo and Woods Cross refineries and Cheyenne facility having an aggregate storage capacity of approximately 8,250,000 barrels; +• eleven crude oil tanks adjacent to our El Dorado Refinery with a capacity of approximately 1,040,000 barrels that primarily serve our El Dorado Refinery; +• crude oil tankage at five crude oil terminals with a capacity of approximately 1,790,000 barrels that primarily serve our Parco and Casper refineries; +• crude oil tankage with an aggregate storage capacity of approximately 510,000 barrels that primarily serve our Navajo Refineries; +• SLC Pipeline’s and Frontier Pipeline’s tankage with an aggregate capacity of approximately 380,000 barrels; +• the UNEV Pipeline’s product terminals near Cedar City, Utah and Las Vegas, Nevada with an aggregate capacity of approximately 650,000 barrels; +• a 50% interest in the Cushing Connect terminal with a capacity of approximately 1,500,000 barrels of crude oil storage in Cushing, Oklahoma; +• a 26.08% interest in Saddle Butte Pipeline III, LLC, which has approximately 160,000 barrels of crude oil storage in Wyoming; and +• a 49.995% ownership interest in Pioneer Investments Corp., which has approximately 655,000 barrels of refined product storage in Utah. +ADDITIONAL OPERATIONS AND OTHER INFORMATION +Corporate Offices +Our principal corporate offices are leased and located in Dallas, Texas. Functions performed in our Dallas office include overall corporate and segment management, planning and strategy, corporate finance, crude acquisition, logistics, contract administration, marketing, investor relations, governmental affairs, accounting, tax, treasury, information technology, legal and human resources support functions. +Human Capital +Our People +Our people differentiate us from our peers. Our “One HF Sinclair Culture” focuses on five key values – safety, integrity, teamwork, ownership and inclusion. These values influence our decisions, shape our behaviors and provide the opportunity for our employees to thrive. Safety is our first priority. We care about our people and have implemented policies and procedures designed to help them return home safely every day. We focus on integrity and doing the right thing. We champion a culture of teamwork and ownership by supporting each other and empowering employees to take action where they see a need or opportunity. Inclusion reflects our desire to foster a work environment in which employees feel valued and included in decisions, opportunities and challenges. +As of December 31, 2025, we had 5,165 employees located in the following geographies: 4,301 employees in the United States, 656 employees in Canada and 208 employees in Europe. As of December 31, 2025, 1,588 employees were covered by collective bargaining agreements. The current collective bargaining agreements have various expiration dates ranging between 2026 and 2030. We have experienced no material interruptions of operations due to disputes with our employees and management maintains positive working relationships with our local unions and their members. +Oversight +Our board of directors (the “Board of Directors”) and Board of Directors committees provide oversight on our strategies and policies related to human capital management. Our Compensation Committee is responsible for periodically reviewing HF Sinclair’s strategies, policies and practices regarding the promotion of equal employment opportunity, talent and performance management, pay equity and employee engagement, as well as our executive succession planning. Our Nominating, Governance and Social Responsibility Committee oversees our policies and practices regarding human rights in our operations and supply chain. This process is designed to provide oversight of our strategies related to attracting, retaining and developing a workforce that aligns with our values and strategies. +Equal Employment Opportunity +Our leadership is committed to attracting, retaining and developing a highly engaged, high-performing, multifaceted workforce and cultivating an inclusive workplace where all employees feel valued and have a sense of belonging. HF Sinclair is an equal opportunity employer and prohibits all forms of unlawful discrimination. +14 +Table of Content s +Our university recruiting team works to expand our presence in the marketplace to attract diverse talent by partnering with various university-based groups in order to reach a diverse population of candidates for its recruitment pool from student and alumni bases. In addition, to help foster a culture of inclusion, we have four voluntary and employee-led employee resource groups (“ERGs”), which are open to all employees: Women in Energy, Veterans in Energy, Family Caregivers in Energy and Cultural Awareness in Energy. Each of the ERGs focuses on developing talent at HF Sinclair by fostering relationships through education, networking and leadership development opportunities. +Health & Safety +The safety of our employees, contractors and communities is an overarching priority and fundamental to our operational success. We are grounded by our “Goal Zero” vision, which reflects our belief that safe production can be achieved each and every day. Our commitment to safety is embedded throughout our organization, from frontline employees and contractors to our executive leadership and Board of Directors. Our Operational Excellence Management System provides the framework through which we identify, monitor and reduce risks. Our Environmental, Health and Safety (“EHS”) Leadership Council, comprised of company executives, including our CEO, business unit leaders and corporate EHS specialists, sets EHS strategy and reviews performance. The Environmental, Health, Safety and Public Policy Committee of our Board of Directors provides board-level oversight of our strategies and performance in these areas. +In an effort to achieve Goal Zero, our employee and contractor safety education and training programs are conducted on an ongoing basis. We set specific goals for workplace safety and measure attainment of those goals. Over the past five years ended December 31, 2025, our Occupational Safety and Health Administration (“OSHA”) combined total recordable incident rate declined by 39%. +Total Rewards & Development +We believe that the health of our company is linked to the performance and health of our people. We want to inspire and empower our employees to feel confident in their long-term well-being and are committed to offering a comprehensive and competitive total rewards programs for our employees, as benchmarked against our peers. While our benefit offerings vary depending on each country’s market practices, they are designed to support employee health, financial and emotional needs. Our offered benefits include comprehensive coverage for health care, a competitive retirement savings benefit, vacation and holiday time and other income protection and work-life benefits. We also provide tools to help recognize and reward employee performance consistent with our One HF Sinclair Culture. +Consistent with our culture of ownership and growth, we offer training, development and engagement programs across every level of our organization to provide employees the opportunity to develop their careers by enhancing skills and capabilities consistent with the needs of the business. Our suite of programs includes: Accelerate and LinkedIn Learning, a curated collection of on-demand e-learning for all employees; Refine, interactive instructor-led workshops focusing on professional development at any career level; Front Line Leadership Development, a series of leadership trainings for new and existing supervisors; Catalyst, a guided cohort of new leaders learning about leadership styles and executive presenc e; and Leading the HF Sinclair Way, a deep-dive for our senior leaders on leading through our cultural values and business objectives. +Community Outreach / Volunteerism +Being a good neighbor and engaged member of the communities in which we operate is important to us. In addition to supporting charitable organizations through financial contributions, throughout 2025, we were equally pleased to support our communities through in-kind giving. From filling backpacks with school essentials to helping prepare meals and planting trees, our employees showed up for their communities and dedicated volunteer efforts to a variety of organizations. +Governmental Regulation +Our operations are subject to international, federal, state, provincial and local laws and regulations regarding, among other things, the generation, storage, handling, use, transportation and distribution of petroleum and hazardous materials by pipeline, truck, rail, ship and barge, the emission and discharge of materials into the environment, waste management, energy efficiency, characteristics and composition of gasoline and diesel fuels, and other matters otherwise relating to the protection of human health and the environment. Permits or other authorizations are required under these laws and regulations for the operation of our refineries, pipelines and other facilities, and these permits and authorizations are subject to revocation, modification and renewal, any of which may or may not be granted, or may require operational changes, that may involve significant costs. Our operations are also subject to various international and domestic laws and regulations relating to health and safety, and failure to appropriately manage health and safety risks associated with our business could adversely impact our employees, communities, stakeholders, reputation and results of operations. +15 +Table of Content s +A violation of permit conditions or a failure to comply with applicable laws and regulations may result in the assessment of sanctions, including administrative, civil and criminal penalties; the imposition of investigatory, remedial or corrective action obligations and the incurrence of capital expenditures; the denial or withdrawal of permits or the occurrence of delays in the permitting, development or expansion of projects or facilities; the issuance of injunctive relief limiting or prohibiting certain operations; and reputational harm. There is also the potential for liability for spill response and remediation, natural resource damage claims, and personal and property damage claims if there were to be an oil spill at a facility located near federal, state or provincial waters or a release of hazardous or other substances into the environment. +Compliance with applicable environmental laws, regulations and permits or other authorizations and health and safety laws and regulations will continue to have an impact on our operations, the results of our operations and our capital expenditures. Environmental, health and safety legislation, regulations and regulatory programs change frequently. We cannot predict what additional environmental, health and safety legislation or regulations will be enacted or become effective in the future or how existing or future laws or regulations will be administered or interpreted with respect to our operations. Compliance with more stringent laws or regulations or adverse changes in the interpretation of existing laws or regulations by government agencies could have an adverse effect on our financial position and the results of our operations and could require substantial expenditures for the installation and operation of systems and equipment that we do not currently possess. +Our capital expenditures attributable to compliance with government regulations, including environmental regulations, did not have a material effect on our cash flows in 2025. While we currently do not expect that compliance with government regulations, including environmental regulations, will have a material effect on our cash flows in 2026, we expect to incur capital expenditures of $30 million related to the implementation of injunctive relief and mitigation measures at our Navajo Refineries as a result of a settlement agreement reached with the EPA, the Department of Justice (“DOJ”) and the New Mexico Environment Department (the “2025 Consent Decree”), which are included in the 2026 capital expenditure guidance discussed under “Cash Flows – Investing Activities and Planned Capital Expenditures” in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” +Federal Transportation Rate Regulation - Some of our existing pipelines provide interstate transportation services subject to regulation by the Federal Energy Regulatory Commission (the “FERC”) pursuant to the Interstate Commerce Act (the “ICA”). The ICA requires that the rates charged by these pipelines (referred to as “interstate liquids pipelines”) must be just and reasonable. The ICA also prohibits interstate liquids pipelines from providing services in a manner that unduly discriminates against or confers undue preference upon any shipper. The ICA permits interested persons to challenge newly proposed or changed rates or rules and authorizes the FERC to suspend the effectiveness of such proposed rates or rules for a period of up to seven months, during which the FERC may investigate whether the proposed rates or rules are just and reasonable. Upon completion of an investigation, the FERC may require the interstate liquids pipeline to refund the revenues collected during the pendency of the investigation that are in excess of the amount the FERC determines to be just and reasonable, together with interest. The FERC also may investigate, upon complaint or on its own motion, rates that are already in effect and may order an interstate liquids pipeline to change its rates prospectively. Upon an appropriate showing, a shipper may obtain reparations (including interest) for damages sustained during the two years prior to the filing of a complaint. +As a general matter, interstate liquids pipelines may change their rates within prescribed ceiling levels that are tied to an inflation index that the FERC reviews every five years. Cost-of-service ratemaking, market-based rates and settlement rates are alternatives to the indexing approach and may be used in certain specified circumstances to change rates. When an interstate liquids pipeline adjusts its rates using the index methodology, shippers may challenge rate increases made within the ceiling levels. The FERC’s regulations provide that a protest against an index rate increase must allege “reasonable grounds” that the index rate increase is “so substantially in excess of the actual cost increases incurred by the carrier that the rate is unjust and unreasonable.” +16 +Table of Content s +In response to requests for rehearing of its December 2020 price index proposal, on January 20, 2022, the FERC established a revised price index for the five-year period commencing July 1, 2021 and ending June 30, 2026, in which interstate liquids pipelines charging indexed rates were permitted to adjust their index ceilings annually by a multiplier set at the annual change in the Producer Price Index for Finished Goods (“PPI-FG”) minus 0.21% (a decrease from the PPI-FG plus 0.78% proposed in December 2020). In early 2022, industry participants petitioned the United States Court of Appeals for the District of Columbia (the “DC Circuit”) in Liquid Energy Pipeline Association v. FERC to review the FERC’s orders setting the price index, and in July 2024 the DC Circuit agreed with those petitioners and ordered FERC to reinstate the previous PPI-FG plus 0.78% multiplier. Pipelines were permitted to raise their index-based rates to the new ceiling immediately after that order was implemented by FERC in September 2024. However, in October 2024, FERC issued a Supplemental Notice of Proposed Rulemaking to reinstate the PPI-FG minus 0.21% multiplier (the “Vacated Index”). In November 2025, FERC ruled that it would not reinstate the Vacated Index and permitted pipelines to recover, with some exceptions, revenues lost during the time when the Vacated Index was in effect. That rulemaking proceeding remains pending on rehearing and/or clarification and could result in a further change to the index and impact our rates set using the PPI-FG plus 0.78% price index. Additionally, in November 2025, FERC initiated a Notice of Proposed Rulemaking to determine the price index for the five-year period commencing July 1, 2026, proposing an index of PPI-FG minus 1.42%. That proceeding is ongoing, and the outcome could impact our rates for the next five-year period. +We believe the transportation rates currently charged by our interstate liquids pipelines are in accordance with the ICA and applicable FERC regulations. However, due to the complexity of ratemaking, the lawfulness of any rate is never assured. Adverse decisions by the FERC related to our rates could adversely affect our revenue, financial position, results of operations, and cash flows. In addition, if any of our pipelines were found to have provided services or otherwise operated in violation of the ICA, this could result in the imposition of administrative and criminal remedies and civil penalties, as well as a requirement to disgorge charges collected for such services in excess of the rate established by the FERC. Any of the foregoing could adversely affect revenues and cash flow related to the affected assets. +State Transportation Rate Regulation - While the FERC regulates the rates for interstate shipments on our interstate liquids pipelines, the New Mexico Public Regulation Commission regulates the rates for intrastate shipments on our pipelines in New Mexico, the Texas Railroad Commission regulates the rates for intrastate shipments on our pipelines in Texas and the Oklahoma Corporation Commission regulates the rates for intrastate shipments on our pipelines in Oklahoma. Generally, these state agencies have not investigated the rates or practices of intrastate pipelines subject to their jurisdiction in the absence of shipper complaints. However, a state regulatory commission could investigate our rates if such a challenge were filed and any adverse decisions could adversely affect our revenue, financial position, results of operations and cash flows. +Commodity Regulation - The Federal Trade Commission, the FERC, and the Commodity Futures Trading Commission hold statutory authority to monitor certain segments of the physical and futures energy commodities markets. These agencies have imposed broad regulations prohibiting fraud and manipulation of such markets. With regard to our physical sales of oil or other energy commodities, and any related hedging activities that we undertake, we are required to observe the market-related regulations enforced by these agencies, which hold substantial enforcement authority. Failure to comply with such regulations, as interpreted and enforced, could have a material adverse effect on our business, results of operations and financial condition. +Pipeline Safety and Maintenance - Many of our pipelines are subject to regulation by the Pipeline and Hazardous Materials Safety Administration (“PHMSA”) of the Department of Transportation (“DOT”). PHMSA has promulgated regulations governing, among other things, maximum operating pressures, pipeline patrols and leak surveys, control room management, valve spacing and rupture mitigation, spill response and emergency procedures, as well as other matters intended to prevent accidents and failures. Additionally, PHMSA has promulgated regulations requiring pipeline operators to develop and implement integrity management programs for certain pipelines that, in the event of a pipeline leak or rupture, could affect “high-consequence areas,” which are areas where a release could have the most significant adverse consequences, including certain population areas, certain drinking water sources and unusually sensitive ecological areas. +In addition, many states have adopted regulations similar to, or which go above and beyond, existing PHMSA regulations, for certain intrastate pipelines. For example, Texas has developed regulatory programs that largely parallel the federal regulatory scheme and impose additional requirements for certain pipelines. Furthermore, other related federal and state programs, such as the EPA’s Risk Management Program (“RMP”) and OSHA’s Process Safety Management (“PSM”) standard or European equivalents (post-Seveso legislation) apply to some of our terminals and associated facilities. +17 +Table of Content s +We perform preventive and normal maintenance on all of our pipeline and terminal systems and make repairs and replacements when necessary or appropriate. We also conduct routine and required inspections of our pipelines and other assets as required by regulations. Corrosion inhibitors, external coatings and impressed current cathodic protection systems are used to protect against internal and external corrosion. We regularly monitor, test and record the effectiveness of these corrosion-control systems. We monitor the structural integrity of covered segments of our pipeline systems through a program of periodic internal inspections using electronic “smart pigs,” hydrostatic testing or other measures. We follow these inspections with a review of the data, and we make repairs as necessary to maintain the integrity of the pipeline. We have initiated a risk-based approach to prioritizing the pipeline segments for future smart pig runs or other appropriate integrity testing methods. This approach is intended to allow the pipelines that have the greatest risk potential to receive the highest priority in being scheduled for inspections or pressure tests for integrity. Nonetheless, the adoption of new or amended regulations or the reinterpretation of existing laws and regulations by PHMSA or states that result in more stringent or costly pipeline integrity management or safety standards could possibly have a substantial effect on us and similarly situated midstream operators. +Maintenance facilities containing equipment for pipe repairs, spare parts and trained response personnel are located along the pipelines. Employees participate in simulated spill response exercises on a regular basis. They also participate in actual spill response boom deployment exercises in planned spill scenarios in accordance with Oil Pollution Act of 1990 (“OPA”) requirements. +At our terminals, tanks designed for gasoline storage are equipped with internal or external floating roofs that minimize emissions and prevent potentially flammable vapor accumulation between fluid levels and the roof of the tank. Our terminal facilities have facility response plans, spill prevention and control plans, and other plans and programs to respond to emergencies. +Many of our terminal loading racks are protected with water deluge systems activated by either heat sensors or an emergency switch. Several of our terminals are also protected by foam systems that are activated in case of fire. All of our terminals participate in a comprehensive environmental management program to assure compliance with applicable air, solid waste and wastewater regulations. +For further information on pipeline safety and regulatory requirements related to maintenance, see the discussion under our risk factor “ We may incur significant costs and liabilities resulting from performance of pipeline integrity programs and related repairs ” in Item 1A “Risk Factors.” +Air Regulations - Our operations are subject to certain requirements of the federal Clean Air Act (“CAA”) as well as related state and local laws and regulations, and similar laws in Canada and the Netherlands. Certain CAA regulatory programs (and similar programs in Canada and the Netherlands) applicable to our facilities require capital expenditures for the installation of certain air pollution control devices, operational procedures and expenditures to minimize emissions and to prevent accidental releases of air pollutants, and monitoring and reporting of emissions. For example, implementation of the revised National Ambient Air Quality Standards (“NAAQS”) for ozone and particulate matter could result in stricter permitting requirements, a delay in or the inability to obtain such permits, and increased expenditures for pollution control equipment, the costs of which could be significant; however, the EPA has announced that it is reconsidering the 2024 particulate matter NAAQS, which is also subject to legal challenge. Moreover, an EPA rule became effective in January 2018 that requires, among other things, benzene monitoring at the refinery fence line and submittal of fence line monitoring data to the EPA on a quarterly basis; upgraded storage tank controls requirements, including new applicability thresholds; enhanced performance requirements for flares, continuous monitoring of flares and pressure release devices, and analysis and remedy of flare release events; compliance with emissions standards for delayed coking units; and requirements related to air emissions resulting from startup, shutdown and maintenance events. In September 2023, the EPA Office of Inspector General published a report recommending that the EPA increase oversight related to these fence line monitoring requirements. In response to the Inspector General report, in September 2025, the EPA issued a Benzene Enforcement Alert, highlighting benzene fence line monitoring at petroleum refineries as an enforcement priority. Additionally, in October 2024, the EPA finalized updates to its volatile organic liquid storage tank emission standards, which establish more protective standards for various types of vessels, including floating roof storage vessels and storage vessels that utilize closed vent systems and controls. These rules, as well as other rules under the CAA or similar laws in all jurisdictions in which we operate, or new agency interpretations of existing laws and regulations, may necessitate additional expenditures in future years and result in increased costs on our operations. +18 +Table of Content s +Fuel Quality Regulations - We are subject to the EPA’s regulations governing fuels and fuel additives used in motor vehicles, non-road equipment and airplanes. The EPA has the authority under the CAA to modify the formulation of the refined transportation fuel products we manufacture in order to limit the emissions associated with their final use. In February 2007, the EPA finalized MSAT2 regulations that impose reductions in the benzene content of our produced gasoline. In addition to reducing benzene concentration in our gasoline, our refineries currently purchase benzene credits to meet these requirements. If economically justified or otherwise determined to be beneficial, we may implement additional benzene reduction projects to eliminate or reduce the need to purchase benzene credits. Additionally, in April 2014, the EPA finalized the Tier 3 Motor Vehicle Emission and Fuel Standards, which require a reduction in annual average gasoline sulfur content from 30 parts per million (“ppm”) to 10 ppm. These requirements, other CAA requirements, and other presently existing or future environmental regulations, may cause us to make substantial capital expenditures and purchase sulfur credits at significant cost to enable our refineries to produce fuels that meet the applicable requirements. In December 2020, the EPA streamlined and consolidated its existing fuel quality regulations that apply across all gasoline and diesel fuel programs, also known as the EPA’s Fuels Regulatory Streamlining Rule at 40 CFR Part 1090. Most recently, in December 2024, the EPA issued another final rule, the Fuels Regulatory Streamlining Amendments, to provide clarity and flexibility to provisions that govern how fuel, fuel additives, and regulated blendstocks are sampled and tested to demonstrate compliance. +Pricing and Profits Reporting and Regulation - Some state governments have considered legislation that would require companies in the petroleum industry to report detailed market information (including supply, pricing and profit information) and would potentially impose penalties for profits deemed to be excessive. For example, in January 2024, House Bill 2232 (“HB 2232”) was introduced by the Washington legislature, and as proposed would have established extensive reporting requirements for companies, including refiners, seeking information such as volume, price, type, feedstock inputs, origin of petroleum receipts, imports and exports of finished petroleum products, blendstocks and ethanol, refinery outputs and refinery stocks, and finished product supply and distribution, among others. Additionally, HB 2232 would have created a new division within the Washington Utilities and Transportation Commission charged with providing independent oversight and analysis of petroleum fuel markets. Although HB 2232 was not adopted by the Washington legislature, whether HB 2232 or similar legislation will be introduced and enacted in the future is unknown at this time. If legislation similar to HB 2232 is passed into law, such legislation could result in increased compliance costs and affect the results of our operations and financial position. Such laws and similar regulations could also increase our litigation risks or may increase risks related to our reputation or goodwill as we cannot predict how additional reporting under this law may be perceived or interpreted by our customers and stakeholders. +Renewable Fuel Standard - Pursuant to the Energy Independence and Security Act of 2007, and the EPA’s corresponding Renewable Fuel Standard (“RFS”) regulations, most refiners are required to blend increasing amounts of biofuels with refined products or purchase RINs in lieu of blending. Under the RFS, the percentage of renewable fuels that refineries are obligated to blend into their finished petroleum products is adjusted annually. In June 2023, the EPA finalized the RFS targets for 2023 through 2025, which set the annual renewable volume obligations (“RVOs”) for conventional (i.e., corn ethanol) renewable fuel, biomass-based diesel, advanced biofuels and cellulosic biofuel. The EPA has proposed revisions to the 2025 RVO, as well as RVOs for 2026 and 2027, but has yet to finalize these proposals. The targets, if finalized as proposed, increase RVOs in each of the concurrent years. +The EPA’s implementation of the RFS has historically been subject to numerous court challenges. Lawsuits have been filed by the renewable fuel industry and the refining industry challenging the EPA’s decisions on small refinery exemptions. For example, in 2022, the EPA denied all pending small refinery exemption petitions on the belief that small refineries are able to pass through compliance costs to customers. This decision was challenged and, in August 2024, nearly all of the small refinery exemption petition denials were vacated by the DC Circuit. Following the DC Circuit’s decision, the EPA issued decisions on a backlog of pending small refinery exemption petitions in August and November 2025, resulting in the partial or full grant of petitions. A number of entities from the renewable fuel industry and the refining industry have challenged the EPA’s decisions to issue both partial and full exemptions. There is uncertainty as to when and how this litigation will be resolved. For additional information regarding risks relating to our small refinery exemptions, see the discussion under our risk factor “Compliance with, or developments with respect to, renewable and low-carbon fuel blending programs, and other regulations, policies and standards impacting the demand for low-carbon fuels could have an adverse effect on our financial condition and results of operations” in Item 1A “Risk Factors.” We cannot predict the outcome of these matters or whether they may result in increased RFS compliance costs. There also continues to be a shortage of advanced and cellulosic biofuel production resulting in increased difficulties meeting RFS mandates. As a result, we may be unable to blend sufficient quantities of renewable fuel to meet our requirements and, therefore, may have to purchase an increasing number of RINs. It is not possible at this time to predict with certainty what those volumes or costs may be, but given the potential increase in volumes and the volatile price of RINs, increases in RVOs could have an adverse impact on our results of operations. +19 +Table of Content s +While there is no current regulatory standard that authenticates RINs that may be purchased on the open market from third parties, we believe that the RINs we purchase are from reputable sources, are valid and serve to demonstrate compliance with applicable RFS requirements. However, if any of the RINs purchased on the open market are subsequently found by the EPA to be invalid, we could incur significant costs, penalties or other liabilities in connection with replacing any invalid RINs and resolving any enforcement action brought by the EPA. +Finally, we are aware of legislative efforts to amend RFS to remove eligibility for small refinery exemptions for our small refineries. Although it is not possible to predict the outcome of any RFS legislation that may be enacted, any laws or regulations that may be adopted to eliminate or further restrict small refinery exemptions may increase our operating costs and have an adverse impact on our results of operations. +California Low Carbon Fuel Standard - Under California’s Global Warming Solutions Act of 2006, the California Air Resources Board (“CARB”) was required to undertake a statewide effort to reduce GHG emissions. One of the programs designed to help achieve those reductions is the LCFS program. The LCFS program is designed to reduce GHG emissions by decreasing the carbon intensity (“CI”) of transportation fuels consumed in the state. Under this program, each fuel is assigned a CI value, which is intended to represent the GHG emissions associated with the feedstocks from which the fuel was produced, the fuel production and distribution activities, and the use of the finished fuel. Each producer or importer of fuel must demonstrate that the overall mix of fuels it supplies for use in California meets the CI benchmarks for each compliance period. A producer or importer with a fuel mix that is above the CI benchmark must purchase LCFS credits sufficient to meet the CI benchmark. Fuels produced by our Renewables segment have CI scores that are lower than traditional petroleum-based transportation fuels, and we benefit from the demand from other regulated entities for these low-carbon transportation fuels. In November 2024, CARB adopted amendments to the LCFS program, including strengthening CI targets from a 20% reduction to a 30% reduction by 2030, adding a 90% reduction target by 2045 and adding a 9% CI benchmark stringency increase for 2025. On February 18, 2025, the amendments were disapproved by the California Office of Administrative Law (“OAL”). CARB addressed the concerns raised by OAL and, on June 27, 2025, OAL approved the rulemaking. The LCFS amendments went into effect on July 1, 2025. +Oregon Clean Fuels Program - The Clean Fuels Program (“CFP”) became effective in 2016 with the intended goal of reducing the CI of Oregon’s transportation fuels by establishing annual standards that decrease over time. The baseline year for the program is 2015, and the standard for that year represents 10% ethanol blended with gasoline and 5% biodiesel blended with diesel. The CFP requires a 10% reduction in average CI from 2015 levels by 2025, followed by a 20% reduction by 2030 and a 37% reduction by 2035. Businesses that create fuels with a lower CI than the annual limit generate credits, while higher CI fuels create deficits. Credits and deficits are measured in metric tons of GHG emissions. CFP credits began to trade at the end of 2016, and the credit market has grown steadily in the subsequent years. We import transportation fuels produced at our Puget Sound Refinery into Oregon, and are thereby subject to the CFP, including, among other things, the requirement to purchase and retire CFP credits to offset the deficit created through our sale of gasoline and diesel fuel into Oregon. +Washington Clean Fuel Standard - The Clean Fuel Standard (“CFS”) became effective on January 1, 2023, and, similar to the low-carbon fuel programs in California and Oregon, it is designed to decrease the CI of Washington’s transportation fuels. The CFS initially required a 20% reduction in average CI from 2017 levels by 2034. In 2025, the Washington legislature passed HB 1409, which accelerates GHG emission reduction targets to a 45% reduction by 2038, with the option to reduce as much as 55% by 2038 if certain conditions are met. The CFS functions similarly to its sister programs in California and Oregon. We sell gasoline and diesel fuel produced at our Puget Sound Refinery in Washington, and are thereby subject to the CFS, including, among other things, the requirement to purchase and retire CFS credits to offset the deficit created through our sale of gasoline and diesel fuel in Washington. +New Mexico Clean Transportation Fuel Standard - In March 2024, the New Mexico legislature passed HB 41, establishing a Clean Transportation Fuel Standard (the “CTFS”), based on similar programs established in California, Oregon, and Washington. The CTFS requires a 20% reduction in CI from the 2018 baseline by 2030, followed by a 30% reduction in CI by 2040. The CTFS is also intended to create a marketplace to buy, trade and sell credits based on whether fuels are above or below that standard. On January 22, 2026, the New Mexico Environmental Improvement Board adopted regulations establishing the CTFS and setting April 1, 2026 as the program’s implementation date. We sell gasoline and diesel fuel produced at our Navajo Refineries in New Mexico and will therefore be subject to the CTFS upon promulgation of the implementing regulations, including, among other things, the requirement to purchase and retire CTFS credits to offset the deficit created through our sale of gasoline and diesel fuel in New Mexico. +20 +Table of Content s +Other Low Carbon Fuel Standards - Many international, federal, state, provincial and local governments have issued, or are considering issuing, low-carbon fuel regulations, policies and standards to reduce GHG emissions and increase the percentage of low-carbon fuels in the transportation fuel mix. While these regulations result in additional costs to our refining business, they have created opportunities to develop our renewables business, and should continue to help drive demand for our renewable diesel products. We believe that our ability to supply low-carbon fuels can play an important role in helping achieve GHG emissions reduction targets. +Blender’s and Producer’s Tax Credit Incentives - The U.S. federal government has enacted tax incentives to encourage the production of low-carbon fuels and/or reduce GHG emissions. For example, Section 6426 of the Internal Revenue Code of 1986, as amended (the “Code”), provided a tax credit (generally referred to as the blender’s tax credit) to blenders of certain renewable fuels to encourage the production and blending of those fuels with traditional petroleum-based transportation fuels. The renewable diesel produced by our Renewables segment is a liquid fuel derived from biomass that meets the EPA’s fuel registration requirements; therefore, renewable diesel that we produce and blend qualified for this refundable tax credit of one dollar per gallon. The Inflation Reduction Act of 2022 (the “IRA 2022”) extended this credit through December 31, 2024, when it expired. The IRA 2022 also created a new tax credit, the 45Z Clean Fuel Production Credit (“45Z Credit”), which provides a per-gallon (or gallon-equivalent) tax credit for producers, not blenders or compressors, of clean transportation fuels based on the CI of production. On January 10, 2025, the Department of the Treasury and the Internal Revenue Service issued guidance for the interpretation of the implementation of the IRA 2022 provisions creating the 45Z Credit and included a notice of intent to propose regulations. Such regulations were proposed on February 3, 2026, and include guidance for producers to determine eligibility and a methodology to calculate the 45Z Credit. The 45Z Credit became available on January 1, 2025, and was authorized through December 31, 2027. The 45Z Credit was further extended in July 2025 under the One Big Beautiful Bill Act (“OBBBA”) until December 31, 2029. The U.S. Congress, however, may take actions to repeal or revise the IRA 2022, including with respect to the 45Z Credit, for which the timing or outcome similarly cannot be predicted. +Oregon and Washington Carbon Cap & Trade Programs - In March 2020, the Governor of Oregon signed Executive Order 20-04 (the “Executive Order”), directing state agencies to take actions to reduce and regulate GHG emissions and consider climate change in agency planning. The Executive Order directed the Oregon Environmental Quality Commission (“OEQC”) and the Oregon Department of Environmental Quality (“ODEQ”) to take a variety of actions, including the development of a new program to limit GHG emissions from large stationary sources, transportation fuels, and other liquid and gaseous fuels. The OEQC considered and adopted final rules in December 2021, which became effective January 1, 2022, setting the emissions cap and reduction rules for the Climate Protection Program (the “CPP”). Using a 2017-2019 baseline of average emissions, the CPP includes GHG reduction goals of 50% by 2035 and 90% by 2050. A subsidiary of ours presumably became subject to the CPP rules in the second quarter of 2022 due to its sale of transportation fuel over the rack in Oregon primarily from the Puget Sound Refinery. As a presumed covered fuel supplier under the CPP rules at that time, the subsidiary submitted a CPP permit application to ODEQ in February 2023 and is purportedly required to acquire, and then surrender, compliance instruments (corresponding to each metric ton of CO2 equivalent imported/sold into Oregon) starting in calendar year 2025 (i.e., at the end of the first three-year compliance period, which runs from 2022 to 2024), and for each three-year compliance period thereafter to demonstrate compliance with the CPP rules. Further, the CPP rules were amended in November 2023 to provide, among other changes, a one-year lookback for purposes of calculating compliance instrument obligations. However, the authority of OEQC to adopt the CPP rules was challenged in litigation, including in a lawsuit filed in March 2022 by the Western States Petroleum Association and others. In December 2023, the Court of Appeals of Oregon issued an order in that lawsuit declaring the 2021 CPP rules “invalid” (based on OEQC’s failure to strictly follow administrative notice requirements at the time of rule adoption). The OEQC did not appeal the Court of Appeals of Oregon’s decision, but instead proceeded with a new rulemaking to re-adopt the CPP rules. +In November 2024, the OEQC adopted new rules to establish the CPP, which is applicable to fuel suppliers and in-state fuel producers. The new CPP rules adopted the same reduction goals as the original CPP rules but include changes, such as coordination with the Oregon Public Utility Commission to monitor natural gas rates and an adjustment to the compliance periods. The initial compliance period began on January 1, 2025, and extends for three years. Legal challenges to the new CPP rule are expected, including additional challenges to the underlying authority of OEQC to adopt such rules. Accordingly, we will closely monitor the Oregon CPP rulemaking process to determine the impact of compliance obligations. +21 +Table of Content s +In 2021, the State of Washington enacted its own Climate Commitment Act (“CCA”), which establishes a comprehensive cap-and-invest program that provides an overall limit for GHG emissions from major sources in the state that began on January 1, 2023 and is designed to achieve a reduction to 45% below 1990 levels by 2030, 70% below 1990 levels by 2040, and 95% below 1990 levels and net-zero carbon emissions by 2050. As the operator of the Puget Sound Refinery and as a covered fuel supplier, we must obtain an allowance for each ton of covered CO2e emissions. An initiative to repeal the CCA was placed on the November 2024 ballot, but the ballot initiative failed. Entities covered under the CCA were required to surrender compliance instruments for the first time in November 2024 to comply with the 2023 annual compliance obligation. Washington State Department of Ecology is currently conducting a rulemaking to amend the cap-and-invest program, which is anticipated to be completed in the summer of 2026, and could affect how we comply with the CCA, including (but not limited to) our GHG reporting obligations, how we use allowances, and the linkage of Washington’s carbon market with California-Québec carbon market. +Climate Change - In recent years, various legislative and regulatory measures to address climate change and GHG emissions (including carbon dioxide, methane and nitrous oxide) have been discussed or implemented. They include proposed and enacted federal regulation and state actions to develop statewide, regional or nationwide programs designed to control and reduce GHG emissions from stationary sources, such as our refineries, as well as power plants, mobile transportation sources and fuels. Similar regulatory measures have also been adopted in the EU. Measures to date have included but are not limited to cap and trade programs, carbon taxes, vehicle efficiency standards, electric vehicle mandates, combustion engine phaseouts, LCFS and renewable fuel requirements. Although it is not possible to predict the requirements of any GHG legislation that may be enacted, any laws or regulations that may be adopted to restrict or reduce GHG emissions will likely require us to incur increased operating and capital costs. +The EPA has previously issued two rules (the “Clean Power Plan” and the “Affordable Clean Energy Rule”) to reduce carbon dioxide emissions from coal-fired power plants, both of which have been invalidated by courts. In May 2024, the EPA finalized a replacement rule that would (1) convert coal plants to natural gas co-firing by January 1, 2030 and then retire by 2039, (2) install by 2032 carbon capture and sequestration technology capable of capturing 90% of all CO2 emissions, or (3) cease operations by 2032. The May 2024 rule was challenged in the U.S. Circuit Court of Appeals, but the U.S. Supreme Court denied the challenger’s request to stay implementation of the rule pending the outcome of the litigation. In June 2025, the EPA proposed to repeal the 2024 rule, as well as the 2015 standards for new fossil fuel-fired power plants, effectively proposing to repeal all greenhouse gas emissions standards for the power sector. The EPA has yet to finalize the repeal rule. Further, the EPA partially denied several petitions for reconsideration of the rule in January 2025. However, to the extent that the EPA implements rules that impose higher costs on electricity generating units, it could result in increased power costs for our refineries in future years. The EPA could propose to apply similar regulations to other facilities, including refineries, in the future. +EPA rules require us to report GHG emissions from our refinery operations and consumer use of fuel products produced at our refineries on an annual basis. While the cost of compliance with the reporting rule is not material, data gathered under these rules may be used in the future to support additional regulation of GHG emissions. However, in September 2025, the EPA proposed a rule to remove GHG reporting obligations for petroleum refineries. If finalized, we would no longer have to submit annual GHG emissions reports to the EPA. Moreover, the EPA directly regulates GHG emissions from refineries and other major sources through the Prevention of Significant Deterioration (“PSD”) and Federal Operating Permit programs and may require Best Available Control Technology (“BACT”) for GHG emissions above a certain threshold if emissions of other pollutants would otherwise require PSD permitting. While this does not impose any limits or controls on GHG emissions from current operations, future projects or operational changes that increase GHG emissions, such as capacity increases, may be subject to emission limits or technological requirements pertaining to GHG emissions, such as BACT. +22 +Table of Content s +In March 2024, the SEC adopted a rule that would have required public companies to include certain climate-related disclosures in their registration statements and periodic reports, including information about climate-related risks, climate-related financial statement metrics and GHG emissions. Multiple lawsuits challenged the rule, and, in March 2025, the SEC voted to end its defense of the rule in court. As a result of the SEC’s stay of the rule pending the outcome of legal challenge, and this withdrawal of defense, the rule has never gone into effect or been implemented, and its future remains uncertain. However, certain states are also considering their own climate accounting, and risk and disclosure rules, independent of the SEC. For example, in October 2023, the Governor of California signed the Climate Corporate Data Accountability Act (“CCDAA”) and Climate-Related Financial Risk Act (“CRFRA”) into law. The CCDAA requires both public and private U.S. companies that are “doing business in California” and that have a total annual revenue of $1 billion to publicly disclose and verify, on an annual basis, Scope 1, 2 and 3 GHG emissions. The CRFRA requires the disclosure of a climate-related financial risk report (in line with the Task Force on the Climate-Related Financial Disclosures recommendations or equivalent disclosure requirements under the International Sustainability Standards Board’s climate-related disclosure standards) every other year for public and private companies “doing business in California” with a total annual revenue of $500 million. Both laws are subject to litigation, and the U.S. Court of Appeals for the Ninth Circuit issued an injunction prohibiting CRFRA from taking effect in November 2025, and the Ninth Circuit is also considering whether any relief should extend to the CCDAA. The outcome of this litigation is uncertain. +Stakeholder concerns about climate change could also adversely affect demand for the refined petroleum products that we produce. Recently, certain financial institutions, funds and other sources of capital have made pledges to reduce GHGs in their lending portfolios, leading some to restrict or eliminate their investment in oil and natural gas activities. There is also a risk that future government regulations could require financial institutions to adopt policies that have the effect of reducing the funding provided to or investments in the fossil fuel sector altogether or unless certain climate-related standards are met. Ultimately, this could make it more difficult or costly to secure funding for exploration and production activities and result in decreased production of oil, which indirectly could have an adverse impact on our operations. +Climatic events in the areas in which we operate, whether from climate change or otherwise, can cause disruptions and in some cases delays in our production activities or ability to deliver our products to our customers. These events, including, but not limited to, drought, winter storms, wildfires, extreme temperatures, tornados, extreme precipitation or flooding, may become more intense or more frequent as a result of climate change and could have an adverse effect on our continued operations as well as the operations of our suppliers and customers. Additionally, changing meteorological conditions, particularly temperature, may result in changes to demand for our products. Our customers or suppliers may also be subject to similar risks, any of which may adversely impact our business, financial condition or operations. +The prior administration adopted an “all of government” approach to climate change in which the federal government would use not only its regulatory and enforcement authority but also its policy and purchasing power to encourage investment and use of renewable energy sources and to otherwise impede and reduce fossil fuel use and GHG emissions. However, in early 2025, the President revoked the prior administration’s climate change Executive Orders, including withdrawal from the Paris Agreement, directing federal agencies to cease using the Social Cost of Greenhouse Gases, and disbanding the Interagency Working Group that created it. In December 2023, the EPA announced the promulgation of a final rule that significantly limits methane and other emissions from certain oil and natural gas operations. The EPA extended several compliance deadlines for this rule in November 2025. Although this rule is currently subject to challenge and is being reconsidered by the EPA, to the extent it is implemented as promulgated, the new rule could increase the cost of domestic crude oil and natural gas. In addition, the EPA, together with the DOT, implemented GHG emission and corporate average fuel economy standards for vehicles manufactured in the United States, which standards have been revised from time to time to impose increasingly stringent requirements for emissions reductions. The DOT finalized new vehicle fuel economy standards in June 2024, which increase fuel economy 2% per year for model years 2027-2031 for passenger cars, 2% per year for model years 2029-2031 for light trucks, 10% per year for model years 2030-2032 for heavy-duty pickup trucks and 8% per year for model years 2033-2035 for vans. Some of these standards are subject to ongoing legal challenge. However, in July 2025, the EPA proposal to repeal the 2009 GHG Endangerment Finding, which determined that GHG emissions endanger public health and welfare, a move that—if finalized—would remove the legal foundation and effectively repeal GHG emissions standards for motor vehicles and engines under the CAA. In December 2025, the DOT issued a proposed rule to reduce the stringency of the standards for light-duty vehicles through model year 2031 and to exclude electric vehicles from compliance calculations. +The future of these various actions, however, is uncertain given the change in administration and ongoing legal challenges. We cannot predict when, how or whether any of these actions will be revised or revisited. +23 +Table of Content s +Internationally, the United Nations-sponsored Paris Agreement requires member countries to submit non-binding, individually determined emissions reduction goals every five years after 2020. The United States initially joined and then withdrew from the agreement in 2020. In 2021, the United States rejoined the Paris Agreement and issued its corresponding “nationally determined contribution” (“NDC”) to reduce economy-wide net GHG emissions to 50-52% below 2005 levels by 2030. However, the current administration withdrew from the Paris Agreement effective January 2026. In January 2026, the President also announced that the United States would withdraw from the United Nations Framework Convention on Climate Change (“UNFCCC”), a process that could take over a year. Initiatives already taken pursuant to the Paris Agreement and UNFCCC are subject to ongoing litigation, and the future of these laws and orders under the current administration, and the terms of any legislation or regulation to implement the United States’ commitment under the Paris Agreement and UNFCCC, remain unclear at this time. With regard to legislation, in November 2021, the United States enacted a nearly $1 trillion Bipartisan Infrastructure Law, which provided significant funding for electric vehicles and clean energy technologies, and in August 2022 the United States enacted the IRA 2022, which allocated $369 billion to climate change and environmental initiatives, including transportation electrification, fees on and greater regulation of methane emissions, and support for green energy manufacturing programs. In July 2025, the OBBBA largely curtailed the electric vehicle, clean energy and green energy manufacturing programs established under the Bipartisan Infrastructure Law and the IRA 2022 by phasing out or restricting tax credits, rescinding or limiting grant funding and imposing tighter eligibility and supply-chain requirements. +In the Netherlands and Canada, increased attention to climate change has led to changes in laws and to new laws, such as the Climate Act (Netherlands) and the Canadian Net-Zero Emissions Accountability Act, and has also led to increased frequency of climate change lawsuits. Additionally, the EU has promulgated environmental, social and governance (“ESG”) reporting requirements under the EU’s Corporate Sustainability Reporting Directive (“CSRD”), which requires in-scope companies to report extensive audited sustainability information, including risks and opportunities arising from environmental and social matters, and the impact of their business on people and the environment. Ultimate parent companies that are not incorporated in the EU, such as HF Sinclair, may be required to report under CSRD from 2029 onward for financial years beginning on or after January 1, 2028. +Furthermore, on July 25, 2024, the EU’s Corporate Sustainability Due Diligence Directive (“CSDDD”) became effective. The aim of CSDDD is to foster sustainable and responsible corporate behavior in companies’ operations and across their global chains. It requires companies to conduct risk-based due diligence on human rights and environmental impacts, and aims to ensure that in-scope companies identify, prevent and address adverse human rights and environmental impacts of their actions inside and outside Europe. The CSDDD also requires in-scope companies to adopt and put into effect a transition plan for climate change mitigation which aims to ensure that the business model and strategy of the applicable company are compatible with the transition to a sustainable economy and with the limiting of global warming to 1.5°C, including its intermediate and 2050 climate neutrality targets, and where relevant, the exposure of the company to coal-, oil- and gas-related activities. Following the recent Omnibus Package I, proposed by the European Parliament to delay the application of CSRD and CSDDD, on top of the ‘stop-the-clock’ directive adopted in April 2025 which delayed the reporting obligations by one year, the obligations for in-scope companies will most likely become effective from July 2029. The EU Member States were granted a period of two years (until July 26, 2028) to adopt and publish the laws, regulations and administrative provisions necessary to comply with the CSDDD. The obligations under the CSDDD for in-scope companies will come into force gradually based on various thresholds. CSRD, CSDDD and similar laws and regulations could result in increased compliance costs and affect the results of our operations and financial position. Such laws and similar regulations could also increase our litigation risks or may increase risks related to our reputation or goodwill as we cannot predict how additional reporting under these laws may be perceived or interpreted by our customers and stakeholders. +Water Discharges - Our operations are also subject to the Federal Clean Water Act (“CWA”), the Federal Safe Drinking Water Act (“SDWA”) and comparable state and local requirements, as well as similar laws in Canada and the Netherlands. The CWA, the SDWA and analogous laws prohibit any discharge into surface waters, groundwaters, injection wells and publicly owned treatment works except in conformance with legal authorization, such as pre-treatment permits and National Pollutant Discharge Elimination System (“NPDES”) permits, issued by federal, state and local governmental agencies. The EPA commenced a study from 2015 to 2017 related to the discharges of metals and dioxin from petroleum refining operations and wastewater discharges from refineries in connection with the consideration of new effluent limitation guidelines that would be incorporated into refinery sector NPDES permits. To date, the EPA has not proposed any new effluent limitation guidelines applicable to our operations, but future rulemakings related to this issue could require us to incur increased costs related to the treatment of wastewater resulting from our operations. +24 +Table of Content s +The CWA also regulates filling or discharges to wetlands and other “waters of the United States.” The previous administration issued a new rule effective in March 2023 that significantly expanded CWA jurisdiction relative to a prior June 2020 rule, both of which were subject to substantial litigation. Shortly after the previous administration issued the new rule, the United States Supreme Court issued a decision in Sackett v. Environmental Protection Agency that reduced the scope of waters and wetlands subject to federal jurisdiction. In September 2023, the EPA and the U.S. Army Corps of Engineers revised the regulatory definition of “waters of the United States” to incorporate the Supreme Court’s Sackett decision. Due to an injunction blocking implementation of the September 2023 rule in certain states, the implementation of the rule, and the applicable definition of “waters of the United States,” currently varies by state. Further, some states either have changed or are contemplating changes to their own laws in order to regulate waters and wetlands that were previously subject to federal regulation. In November 2025, the EPA and U.S. Department of the Army announced a proposed rule updating the definition of “waters of the United States” to fully implement the decision in Sackett . If finalized, this EPA rule could affect the scope of waters and wetlands subject to CWA jurisdiction and, in turn, the permitting, mitigation, timing and costs of certain projects at our facilities. +Hazardous Substances and Wastes - We generate wastes that may be subject to the Resource Conservation and Recovery Act (“RCRA”) and comparable state and local requirements, as well as similar laws in Canada and the Netherlands. The EPA and various state agencies have limited the approved methods of disposal for certain hazardous and non-hazardous wastes. Although the EPA is currently working on several rulemakings that could impact how our refineries manage various waste streams, it does not appear that these rules will significantly impact our refineries. +The Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), also known as “Superfund,” imposes strict, and under certain circumstances, joint and several liability on certain classes of persons who are considered to be responsible for the cost of cleaning up hazardous substances that have been released into the environment and for damages to natural resources. These persons include current and former owners or operators of property where a release has occurred, and any persons who disposed of, or arranged for the transport or disposal of, hazardous substances at the property. In the course of our historical operations, as well as in our current operations, we have generated waste, some of which falls within the statutory definition of a “hazardous substance” and some of which may have been disposed of at sites that may be subject to cleanup and cost recovery actions under CERCLA in the future. Similarly, locations now owned or operated by us, where third parties have disposed of such hazardous substances in the past, may also be subject to cleanup and cost recovery actions under CERCLA. Some states have enacted laws similar to CERCLA which impose similar responsibilities and liabilities on responsible parties. It is also not uncommon for neighboring landowners and other third parties to file claims under state law for personal injury and property damage allegedly caused by hazardous substances or other pollutants released into the environment. Many states also have similar liability regimes that impose strict and potentially joint and several liability for releases into the environment. +Chemicals and Emerging Contaminants - Various regulators are considering regulation of so-called emerging contaminants, including, for example, a final rule adopted by the EPA in May 2024 to list two per- and polyfluoroalkyl substances (“PFAS”) as CERCLA hazardous substances, which is subject to ongoing legal challenges. In 2023, the EPA undertook several other regulatory actions related to PFAS chemicals, including, among others, updates to the EPA’s Toxics Release Inventory (“TRI”) program to remove an exemption for reporting PFAS and to include PFAS exposure as a new enforcement priority for fiscal years 2024-2027. In addition to the seven individual PFAS that the EPA added to the list of chemicals covered by TRI reporting, in October 2024, the EPA proposed a rule to add an additional 16 individual PFAS and 15 PFAS categories representing over 100 individual PFAS to the TRI. We cannot predict whether that rule will be finalized as proposed or the impact of future regulation of presently unregulated substances, but the prospect of such regulation creates additional uncertainty. In February 2024, the EPA proposed to list nine PFAS as “hazardous constituents” under RCRA, with projected final action in 2026, though the precise timing and scope of any final rule remain uncertain. Finally, in December 2024, the EPA initiated a process under the Toxic Substances Control Act (“TSCA”) to prioritize the risk evaluation of several substances including certain constituents of crude oil, intermediates, and/or finished petroleum products, including benzene and ethylbenzene. That process includes a rule under TSCA requiring petroleum refiners and others to submit information to the EPA related to the priority chemicals. +Several environmental groups filed a petition under TSCA, in February 2025, requesting that the EPA promulgate a Section 6(a) rule to prohibit the use of hydrogen fluoride (“HF”) in domestic oil refining, citing unreasonable risks to public health and the environment from refinery alkylation and associated transport of HF. Several of our refineries utilize HF in their alkylation process. In May 2025, the EPA denied the petition, concluding petitioners did not meet their burden under TSCA to establish that a Section 6(a) rule is necessary. Petitioners subsequently filed a lawsuit challenging EPA’s denial, and that litigation is pending and we cannot predict the outcome. +25 +Table of Content s +On September 19, 2024, the European Commission adopted new measures under the REACH Regulation to protect human health and the environment by restricting the use of undecafluorohexanoic acid (“PFHxA”) and PFHxA‑related substances. These sub-groups of PFAS are very persistent and mobile in water, and their use in certain products poses an unacceptable risk to human health and the environment. A final legislative proposal for a comprehensive revision of the REACH Regulation is expected in 2026, with the aim of simplifying the regulation for the chemical industry, while implementing expedited procedures to address the most hazardous substances. Additionally, the European Chemicals Agency plans to launch a consultation on the draft opinion of its Committee for Socio-economic Analysis (“SEAC”) regarding the proposed EU-wide restriction of PFAS. After reviewing the consultation feedback, SEAC is expected to adopt its final opinion by the end of 2026. We cannot yet predict the outcome of these regulatory actions and their potential impact on our operations, if any. +Oil Pollution Liability - The OPA and regulations thereunder generally subject owners and operators of facilities to strict, joint and several liability for all containment and cleanup costs, natural resource damages, and potential governmental oversight costs arising from oil spills into the waters of the U.S. The OPA also imposes ongoing requirements on a responsible party, including the preparation of oil spill response plans and proof of financial responsibility to cover environmental cleanup and restoration costs that could be incurred in connection with an oil spill. Likewise, the CWA contains provisions that also impose similar liabilities for oil spills, and regulations under the CWA impose prevention and response planning requirements applicable to many of our facilities. These liability regimes, as well as the rules under the OPA and CWA, or new agency interpretations of existing laws and regulations, may necessitate additional expenditures in future years and result in increased costs of our operations. +Other Environmental Regulations - Our Canadian assets and operations are also required to comply with various Canadian federal, provincial and municipal regulations. The regulations are in many cases conceptually similar to those described above for our U.S. operations. The principal legislation affecting our Canadian operations is the Canadian Environmental Protection Act, the Fisheries Act, the Greenhouse Gas Pollution Pricing Act and their regulations at a federal level and various provincial statutes and regulations such as the Ontario Environmental Protection Act, the Ontario Occupational Health and Safety Act and the Ontario Water Resources Act. All these laws contain broad prohibitions against causing harm to air, land, water, people or any other living organism and in many cases contain detailed prescriptive rules governing many aspects of our operations. Regulatory trends towards more stringent emission requirements and operating controls are expected to continue at federal, provincial and local levels. +Additionally, our assets and operations in the Netherlands are required to comply with Dutch regulations that are similar to, and in some cases more stringent than, those described above for our U.S. operations. The statutes to which our Dutch assets and operations are subject include the Environmental Protection Act, the Climate Act, the Environment and Planning Act, and other subordinate decrees and regulations relating to environmental control, permitting and enforcement. The Environment and Planning Act entered into effect on January 1, 2024, and has led to the integration of a majority of Dutch environmental laws. With the Environment and Planning Act, new subordinate decrees and regulations entered into effect, such as the Environment Decree, the Environment Regulation and the Environmental Activities Decree. Transitional law is applicable for running matters under the Environment and Planning Act, which means that the old regulations still apply in certain matters. The Netherlands also participates in certain broader European legal initiatives, including GHG cap and trade programs. Additionally, in December 2019, the High Council of the Netherlands upheld a court order for the government of the Netherlands to reduce the country’s GHG emissions by 25% (compared to 1990) by 2020, and in January 2020, the Climate Act came into effect, with (on the basis of the latest amendments following European law) the goal of significantly reducing GHG emissions by 55% (compared to 1990) by 2030, achieving climate neutrality by 2050 and striving for negative GHG emissions after 2050. Furthermore, the target is that 100% of the electricity production will be CO 2 neutral in 2050. +Enforcement and Litigation Proceedings - We are and have been the subject of various local, state, provincial, federal and private proceedings and inquiries relating to compliance with environmental laws and regulations and conditions. These matters include statutory and regulatory programs related to soil and water discharges and contamination, air pollution, pipeline safety and integrity, and GHG emissions, as well as personal injury and property damage allegedly caused by substances that we manufactured, handled, used, released or disposed. We currently have environmental remediation projects that relate to recovery, treatment and monitoring activities resulting from past releases of refined product and crude oil into the environment. As of December 31, 2025, we had an accrual of $189 million related to such environmental liabilities. +Compliance with current and future environmental regulations is expected to require additional expenditures, including expenditures for investigation and remediation, which may be significant. To the extent that future expenditures for these purposes are material and can be reasonably determined, these costs are disclosed and accrued, if applicable. +26 +Table of Content s +Environmental, Health, and Safety - Our operations are subject to various laws and regulations relating to environment, health and safety, including OSHA regulations, comparable state statutes, Canadian regulations applicable to our operations in Canada and Dutch regulations, including the Health and Safety Act and other subordinate decrees and regulations, applicable to our operations in the Netherlands. We maintain a comprehensive safety program, including mechanical integrity and safety-related maintenance programs and training, to comply with all applicable laws and regulations to protect the safety of our workers and the public. Some of our operations are also subject to OSHA’s PSM regulations or the European equivalent and the EPA’s CAA RMP regulations, which are designed to prevent or minimize chemical accidents and any resulting releases of toxic, reactive, flammable or explosive chemicals. In January 2017, the EPA revised the RMP requirements for incident investigation and accident history reporting, emergency preparedness, and the performance of process hazard analyses and third-party compliance audits. However, some of the revised requirements were paused and never became effective, and other requirements were rescinded by the EPA in a December 2019 final rule. That rescission was challenged in court, but the case has not proceeded because the EPA proposed a further RMP amendment in August 2022, which was finalized in March 2024, and the final rule became effective on May 10, 2024 (the “2024 RMP Rule”). The 2024 RMP Rule reverses much of the 2019 rescission, with some modifications, and adds provisions for employee participation, community engagement and additional accident prevention requirements. For example, the 2024 RMP Rule requires refineries with HF alkylation processes to perform a “safer technology and alternatives analysis” as part of the process hazard analysis to consider and document the practicability of inherently safer technologies and other risk management measures. However, the 2024 RMP Rule was challenged by industry groups and states, and that case is currently pending. Finally, in March 2025, the EPA initiated formal reconsideration of the 2024 RMP Rule, which is ongoing. Also in January 2017, OSHA announced changes to its National Emphasis Program, which specifically identified oil refineries as facilities for increased inspections and instructed inspectors to use data gathered from the EPA RMP inspections to identify refiners for additional PSM inspections. Further, in December 2024, the Washington Department of Labor and Industries’ new PSM Rule for petroleum refineries became effective, which applies stringent worker safety requirements to petroleum refineries, including performance of regular reviews to identify hazards, root cause analyses after significant accidents, and regular review of processes that are likely to damage or wear down equipment. Compliance with applicable state and federal health and safety laws and regulations, as well as environmental regulations, has required, and continues to require, substantial expenditures. +Insurance +Our operations are subject to hazards of operations, including fire, explosion and weather-related perils. We maintain various insurance coverages, including business interruption insurance, subject to certain deductibles. We are not fully insured against certain risks because such risks are not fully insurable, coverage is unavailable, or premium costs, in our judgment, do not justify such expenditures. +We have a risk management oversight committee consisting of members from our senior management. This committee oversees our risk enterprise program, monitors our risk environment and provides direction for activities to mitigate identified risks that may adversely affect the achievement of our goals. +27 +Table of Content s +Item 1A. Risk Factors +Risk Factor Summary +Investing in us involves a degree of risk. You should carefully consider all information in this Annual Report on Form 10-K, including the Management’s Discussion and Analysis section and the financial statements and related notes, prior to investing in our common stock. These risks and uncertainties include, but are not limited to, the following: +Risks Related to our Business/Industry +• The prices of crude oil, renewable feedstocks, refined, finished lubricant and renewable diesel products materially affect our operating results and are dependent upon many factors that are beyond our control. +• Our operations are subject to catastrophic losses, operational hazards, unforeseen interruptions and other disruptive risks for which we may not be adequately insured. +• A disruption to or proration of the product distribution systems or manufacturing facilities we utilize could negatively impact our profitability. +• A material decrease in the supply, or a material increase in the price, of crude oil, renewable feedstocks or other raw materials or equipment available to our refineries and other facilities could significantly reduce our production levels and negatively affect our operations. +• To successfully operate our facilities, we are required to expend significant amounts for capital outlays and operating expenditures. If we are unable to complete capital projects at their expected costs or in a timely manner, our financial condition, results of operations or cash flows could be materially and adversely affected. +• The refining and marketing industry and the lubricants and specialties industry are highly competitive, and an increase in competition could adversely affect our earnings and profitability. +• Our business is subject to the risks of international operations. +• Negative publicity or an erosion of our business reputation could have a material adverse effect on our earnings, cash flows and financial condition. +• Potential product, service or other related liability claims and litigation could adversely affect our business, reputation and results of operations. +• Terrorist attacks, and the threat of terrorist attacks or vandalism, have resulted in increased costs to our business. Continued global hostilities or other sustained military campaigns may adversely impact our results of operations. +• Our business may suffer due to a change in the composition of our Board of Directors, or the departure of any of our key executives or other key employees. A shortage of skilled labor may make it difficult for us to maintain labor productivity. +• In the most recent reporting cycle, we reviewed certain issues relating to our disclosure processes that had the potential to impair our ability to make appropriate and timely disclosure decisions. In the event of any failure of the Company to accurately report our financial results or to maintain effective internal control over financial reporting or disclosure controls and procedures, investors could lose confidence in our financial and other public reporting, which could have a material adverse effect. +• A portion of our workforce is unionized, and any disruptions in our labor force or adverse employee relations could adversely affect our business. +• Acquisitions involve numerous risks, any of which could adversely affect us. +• Certain of our facilities, pipelines and assets are located on or adjacent to Native American tribal lands or on other lands that we do not own. Our operations are subject to potentially disruptive activity by those concerned with our industry. +• General economic conditions may adversely affect our business, operating results and financial condition. +• An impairment of our goodwill or assets could reduce our earnings or negatively impact our financial condition and results of operations. +• We sell many of our lubricants and specialties products through distributors, which presents risks that could adversely affect our operating results. +• The market price of our common stock may fluctuate significantly, and the value of a stockholder’s investment could be impacted. +28 +Table of Content s +Risks Related to Government Regulation +• We are subject to significant regulation and oversight by governmental agencies. +• We incur significant costs and liabilities, and expect to incur additional costs and liabilities in the future, resulting from compliance with existing, new and changing environmental, health and safety laws and regulations, and we face potential exposure for environmental matters. +• We may incur significant costs and liabilities resulting from the performance of pipeline integrity programs and related repairs. +• There are various risks associated with GHGs and climate change that could result in increased operating and compliance costs, increased litigation and reduced demand for the refined products we produce and investment in our industry. +• Evolving attention to ESG matters may adversely impact our business, financial results, stock price or price of debt securities. +• Compliance with, or developments with respect to, renewable and low-carbon fuel blending programs, and other regulations, policies, and standards impacting the demand for low-carbon fuels could have an adverse effect on our financial condition and results of operations. +• Increases in required fuel economy and regulation of GHG emissions from motor vehicles may reduce demand for petroleum-based transportation fuels. +• State regulation of petroleum product markets and reporting requirements could adversely impact our business, costs of operation and financial results. +• Physical or transitional risks of climate change could have an adverse effect on our financial condition and results of operations. +• Compliance with and changes in tax laws could materially and adversely impact our financial condition, results of operations and cash flows. +Risks Related to Cybersecurity, Data Security and Privacy, Information Technology and Intellectual Property +• Our information technology systems, operational systems, security systems, infrastructure, communications networks, software integrated in our manufacturing and administrative processes, and customer data processed by us, third-party vendors or suppliers are subject to risks presented by cyber events, including incidents or breaches of security. +• We may be subject to information and operational technology system failures, communications network disruptions and data breaches that are generally beyond our control. +• Our business is subject to complex and evolving global laws, regulations and security standards regarding data privacy, cybersecurity and data protection, which could result in claims or increased costs of operations, or other harm to our business. +• We may be unable to adequately maintain, enforce and protect our intellectual property and may not be able to prevent third parties from unauthorized access or use of our intellectual property, which may increase our cost of doing business or otherwise hurt our ability to compete in the market. +• If we fail to comply with our obligations under license or technology agreements with third parties or are unable to license rights to use technologies on reasonable terms or at all, we may be required to pay damages or could potentially lose license rights that are critical to our business. +Risks Related to Liquidity, Financial Instruments and Credit +• Changes in our credit profile, or a significant increase in the price of crude oil, may affect our relationship with our suppliers, which could have a material adverse effect on our liquidity and limit our ability to purchase sufficient quantities of crude oil to operate our refineries at desired capacity. +• We may not be able to obtain funding on acceptable terms or at all because of volatility and uncertainty in the credit and capital markets. This may hinder or prevent us from meeting our future capital needs. +• We are exposed to the credit risks and certain other risks of our key customers and vendors. +• Our credit facilities contain certain covenants and restrictions that may constrain our business and financing activities. +• Our hedging transactions may limit our gains and expose us to other risks. +• We may be unable to pay future dividends. +Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our business operations. If any of the following risks were to actually occur, our business, financial condition and results of operations could be materially and adversely affected. The headings provided in this Item 1A are for convenience and reference purposes only and shall not affect or limit the extent or interpretation of the risk factors. +29 +Table of Content s +RISKS RELATED TO OUR BUSINESS/INDUSTRY +The prices of crude oil, renewable feedstocks, refined, finished lubricant and renewable diesel products materially affect our operating results and are dependent upon many factors that are beyond our control, including general market demand and economic conditions, seasonal and weather-related factors, regional and grade differentials and governmental regulations and policies. +Among these factors is the demand for crude oil, renewable feedstocks (such as soybean oil), refined, finished lubricant and renewable diesel products, which can vary by type and class or product and is largely driven by the conditions of local and worldwide economies, as well as by weather patterns, changes in consumer preferences and the taxation of these products relative to other energy sources. Governmental regulations and policies, particularly in the areas of taxation, trade, energy and the environment, also have a significant impact on demand and pricing. Other factors affecting pricing and demand, and ultimately our operating results, include changes in product and crude pipeline capacities, crude oil differentials (including regional and grade differentials), the price and availability of renewable feedstocks, changes in transportation costs, accidents or interruptions in transportation, competition in the particular geographic areas that we serve, global market conditions, actions by foreign nations and factors that are specific to us, such as the success of particular marketing programs and the efficiency of our refinery and facility operations. Developments in the global oil markets, such as actual or potential hostilities or other conflicts in oil producing areas, including uncertainty regarding the effects and durations of global hostilities, war or any associated military campaigns, and worldwide demand for crude oil, particularly in developing countries, can affect the prices of crude oil and result in inflated energy prices. The demand for crude oil and refined and finished lubricant products can also be reduced due to a local or national recession or other adverse economic condition, higher gasoline prices, a shift by consumers to more fuel-efficient vehicles or alternative fuel vehicles (such as ethanol or wider adoption of electric, gas/electric hybrid or hydrogen-powered vehicles), or an increase in vehicle fuel economy, whether as a result of technological advances by manufacturers, legislation mandating or encouraging higher fuel economy or the use of alternative fuel. +We do not produce crude oil or our renewable feedstocks and must purchase nearly all of the feedstocks we process, the price of which fluctuates based upon worldwide and local market conditions, including due to adverse weather events and regulatory interventions. The profitability of our Refining, Lubricants & Specialties and Marketing segments depends largely on the spread between market prices for refined petroleum products and crude oil prices. The profitability of our Renewables segment depends largely on the spread between market prices for renewable diesel plus state and federal low-carbon fuel incentives and renewable feedstocks, such as soybean oil. This margin is continually changing and may fluctuate significantly from time to time. Crude oil and refined and renewable products are commodities whose price levels are determined by market forces beyond our control. For example, the reversal of certain existing pipelines or the construction of certain new pipelines transporting additional crude oil or refined products to markets that serve competing refineries could affect the market dynamic that has allowed us to take advantage of favorable pricing. In addition, the volume of renewable diesel produced by our competitors is expected to increase going forward, and as the market becomes more competitive, or if there are changes in the regulations, policies, and standards affecting the demand for low-carbon fuels or our ability to obtain approved fuel pathways, our Renewables segment may experience increased volatility in product margins. A deterioration of crack spreads or price differentials between domestic and foreign crude oils or renewable diesel product margins could have a material adverse effect on our business, financial condition, results of operations and cash flows. +Additionally, due to the seasonality of refined and renewable products markets and refinery maintenance schedules, results of operations for any particular quarter of a fiscal year are not necessarily indicative of results for the full year and can vary year to year in the event of unseasonably cool weather in the summer months and/or unseasonably warm weather in the winter months in the markets in which we sell our products. The effect of changes in crude oil or renewable feedstock prices on operating results depends in part on how quickly refined product or renewable diesel prices adjust to reflect these changes. A substantial or prolonged increase in crude oil or renewable feedstock prices without a corresponding increase in refined product or renewable diesel prices, a substantial or prolonged decrease in refined product or renewable diesel prices without a corresponding decrease in crude oil or renewable feedstock prices, or a substantial or prolonged decrease in demand for refined products or renewable diesel could have a significant negative effect on our earnings and cash flow. +Finally, our crude oil and refined and renewable diesel product inventories are valued at the lower of cost or market under the last-in, first-out (“LIFO”) inventory valuation methodology. If the market value of our inventory were to decline to an amount less than our LIFO cost, we would record a write-down of inventory and a non-cash charge to Cost of materials and other even when there is no underlying economic impact at that point in time. Continued volatility in crude oil and refined product or renewable diesel prices could result in lower of cost or market inventory charges in the future, or in reversals reducing Cost of materials and other in subsequent periods should prices recover. +30 +Table of Content s +Our operations are subject to catastrophic losses, operational hazards, unforeseen interruptions and other disruptive risks for which we may not be adequately insured. +Our operations are subject to catastrophic losses, operational hazards, unforeseen interruptions and other disruptive risks such as natural disasters, adverse weather, accidents, maritime disasters or casualties (including those involving marine vessels/terminals), fires, explosions, hazardous materials releases or spills, terrorist attacks or cyberattacks, vandalism, power failures, mechanical failures and other events beyond our control, and we have experienced certain of these events in the past. These events could result in an injury or loss of life, and have in the past and could in the future result in property damage or destruction, or curtailment of or an interruption in our operations and may affect our ability to meet customer commitments. For example, historic spills along our existing pipelines and terminals as a result of past operations have resulted in contamination of the environment, including soils and groundwater. Additionally, third-party damage, mechanical malfunctions, undetected leaks in pipelines, faulty measurement or other errors may result in significant costs or lost revenues. Further, the consequences of any operational incident (including as a result of a maritime disaster or casualty) at our marine terminal facilities may be even more significant as a result of the complexities involved in addressing releases or spills occurring in U.S. federal and/or state waters (or in waters of other jurisdictions in which we operate) and/or the repair of marine terminal facilities. +We may not be able to maintain or obtain insurance of the type and amount we desire at commercially reasonable rates and exclusions from coverage may limit our ability to recover the amount of the full loss in all situations. As a result of market conditions, premiums and deductibles for certain of our insurance policies and insurance policies for our joint ventures are increasing. In some instances, certain insurance has become unavailable or has become available only for reduced amounts of coverage or at a significantly increased cost. We cannot assure you that our insurers will renew our insurance coverage on acceptable terms, if at all, or that we will be able to arrange for adequate alternative coverage in the event of non-renewal. Further, our underwriters could have credit issues that affect their ability to pay claims. +There can be no assurance that insurance will cover all or any damages, losses or expenses resulting from these types of hazards. We are not fully insured against all risks to our business and therefore, we self-insure certain risks. If any of our facilities were to experience an interruption in operations, our earnings could be materially adversely affected (to the extent not recoverable through insurance). +If a significant accident or event occurs that is self-insured or not fully insured, it could have a material adverse effect on our business, financial condition and results of operations. +A disruption to or proration of the product distribution systems or manufacturing facilities we utilize could negatively impact our profitability. +We utilize various third-party pipeline systems to deliver our products from our refineries and renewables facilities to market. The key third-party pipeline systems utilized by the Casper, El Dorado, Navajo, Parco, Puget Sound, Woods Cross, and Tulsa refineries and Cheyenne renewables facility are ONEOK (RMPS), NuStar Energy ONEOK, SFPP, Pioneer, Olympic, MPLX, ONEOK and Pioneer, respectively. Our refineries also utilize systems owned by our Midstream segment. If these key pipelines or their associated tanks and terminals become inoperative or decrease the capacity available to us due to testing, line repair, reduced operating pressures, catastrophic events, terrorist attacks or cyberattacks, vandalism or other causes, we may not be able to sell our product, or we may be required to hold our product in inventory or supply products to our customers through an alternative pipeline or by rail or additional tanker trucks from the refinery, all of which could increase our costs and result in a decline in profitability. +Additionally, our Refining, Lubricants & Specialties and Renewables segments depend on rail and marine transportation for the delivery of feedstocks used in the production of our products and to deliver products to market, the availability of which is subject to various risks, including those associated with rail or marine strikes, equipment shortages, operating hazards and transportation regulations. If rail or marine transportation is disrupted, we may be unable to produce and/or deliver our products in a competitive or profitable manner and, if such disruption were to occur over an extended period of time, it could have a material adverse effect on our business, financial condition and results of operations. +We have manufacturing facilities in foreign countries that support the Lubricants & Specialties segment. If one of our facilities is damaged or disrupted, resulting in production being halted for an extended period, we may not be able to timely supply our customers. We take steps to mitigate this risk, including through business continuity and contingency planning and procuring property insurance (including resulting business interruption) and casualty insurance. Nevertheless, the loss of sales in any one region over an extended period of time could have a material adverse effect on our business, financial condition and results of operations. +31 +Table of Content s +A material decrease in the supply, or a material increase in the price, of crude oil, renewable feedstocks or other raw materials or equipment available to our refineries and other facilities could significantly reduce our production levels and negatively affect our operations. +To maintain or increase production levels at our refineries and facilities, we must continually contract for crude oil and renewable feedstock supplies from third parties. There are a limited number of crude oil and renewable feedstock suppliers in certain geographic regions, and in such cases, we may be required to source from a single third-party supplier. If we are unable to maintain or extend our existing contracts with any such crude oil or renewable feedstock suppliers, or enter into new agreements on similar terms, the supply of crude oil or renewable feedstocks could be adversely impacted, or we may incur a higher cost. A material decrease in crude oil production from the fields that supply our refineries, as a result of depressed commodity prices, decreased demand, lack of drilling activity, natural production declines, governmental regulations, including travel bans and restrictions, quarantines, shelter-in-place orders, and shutdowns, catastrophic events or other factors, could result in a decline in the volume of crude oil available to our refineries. As the volume of renewable diesel produced increases, competition for renewable feedstocks may also increase and result in an increase in feedstock costs and a decrease in renewable diesel margins. In addition, any prolonged disruption of a significant pipeline that is used in supplying crude oil to our refineries or the potential operation of a new, converted or expanded crude oil pipeline that transports crude oil to other markets could result in a decline in the volume of crude oil available to our refineries. Such an event could result in an overall decline in volumes of refined products processed at our refineries and therefore a corresponding reduction in our cash flow. In addition, the future growth of our operations will depend in part upon whether we can contract for additional supplies of crude oil or renewable feedstocks at a greater rate than the rate of natural decline in our currently connected supplies. If we are unable to secure additional crude oil supplies or renewable feedstocks of sufficient quality or crude pipeline expansion to our refineries, we will be unable to take full advantage of current and future expansion of our refineries’ and renewable facilities’ production capacities. +For certain raw materials used by our refineries and other facilities, there are a limited number of suppliers and, in some cases, we source from a single supplier and/or suppliers in economies that have experienced instability or the supplies are specific to the particular geographic region in which a facility is located. Any significant disruption in supply could affect our ability to obtain raw materials, or increase the cost of such raw materials, which could significantly reduce our production levels or have a material adverse effect on our business, financial condition and results of operations. In addition, certain raw materials that we use are subject to various regulatory laws, and a change in the ability to legally use such raw materials may impact our liquidity, financial position and results of operations. +It is also common in the refining industry for a facility to have a sole, dedicated source for its utilities, such as steam, electricity, hydrogen, water and gas. Having a sole or limited number of suppliers may limit our negotiating power, particularly in the case of rising raw material costs. Any new supply agreements we enter into may not have terms as favorable as those contained in our current supply agreements. Additionally, there is growing concern over the reliability of water sources. The decreased availability or less favorable pricing for water as a result of population growth, drought or regulation could negatively impact our operations. +Our Artesia RDU and Sinclair RDU are co-located with the Navajo Refineries and Parco Refinery, respectively, and their operations are dependent upon certain shared infrastructure at the co-located facilities. For example, the hydrogen plants at the Navajo Refineries and Parco Refinery support both refinery and renewable diesel operations. As a result, any disruption that negatively impacts, or causes a shutdown of, shared infrastructure at the co-located facilities could result in lost production and have a material adverse effect on earnings for both refinery and renewable diesel operations at the co-located facility. In addition, in the event equipment or raw materials at the co-located facilities are constrained, we may not have adequate inputs to support both refinery and renewable diesel operations and have in the past made, and may in the future have to make, commercial decisions that prioritize the continuing operation of one segment over the other in order to maximize earnings of our consolidated business. +If our raw material, utility, gas, hydrogen or water supplies or access to the equipment necessary to operate our facilities were disrupted, our businesses may incur increased costs to procure alternative supplies or equipment or incur excessive downtime, which would have a direct negative impact on our operations. +32 +Table of Content s +To successfully operate our facilities, we are required to expend significant amounts for capital outlays and operating expenditures. If we are unable to complete capital projects at their expected costs or in a timely manner, or if the market conditions assumed in our project economics deteriorate, our financial condition, results of operations, or cash flows could be materially and adversely affected. +Our facilities consist of many processing units, a number of which have been in operation for many years. One or more of the units may require unscheduled downtime for unanticipated maintenance or repairs that are more frequent than our scheduled turnarounds for such units. Scheduled and unscheduled maintenance could reduce our revenues during the period of time that the units are not operating. The installation and redesign of key equipment at our facilities involves significant uncertainties, including the following: our upgraded equipment may not perform at expected levels; operating costs of the upgraded equipment may be higher than expected; and the yield and product quality of new equipment may differ from design and/or specifications and redesign, modification or replacement of the equipment may be required to correct equipment that does not perform as expected, which could require facility shutdowns until the equipment has been redesigned or modified. Any of these risks associated with new equipment, redesigned older equipment, or repaired equipment could lead to lower revenues or higher costs or otherwise have a negative impact on our future financial condition and results of operations. For example, in the third quarter of 2020, we ceased refining operations at the Cheyenne, Wyoming refinery (the “Cheyenne Refinery”) due, in part, to uncompetitive operating and maintenance costs for the refinery. +One of the ways we may grow our business is through the construction of new refinery processing units (or the purchase and refurbishment of used units from another refinery), pipelines and terminals and the conversion or expansion of existing ones, such as the conversion of the Cheyenne Refinery to renewable diesel production and the connection of a new renewable diesel and a pre-treatment unit in Artesia, New Mexico. The construction process involves numerous regulatory, environmental, political, and legal uncertainties, most of which are not fully within our control, including: +• third-party challenges to, denials, adverse modification, or delays with respect to the issuance of requisite regulatory approvals and/or obtaining or renewing permits, licenses, registrations and other authorizations; +• societal and political pressures and other forms of opposition; +• compliance with or liability under environmental or pipeline safety regulations; +• unplanned increases in the cost of construction materials or labor; +• disruptions in transportation of modular components and/or construction materials; +• shortages of sufficiently skilled labor, or labor disagreements resulting in unplanned work stoppages; +• market-related increases in a project’s debt or equity financing costs; and/or +• nonperformance or force majeure by, or disputes with, vendors, suppliers, contractors, or subcontractors involved with a project. +If we are unable to complete capital projects at their expected costs or in a timely manner, our financial condition, results of operations, or cash flows could be materially and adversely affected. Delays in making required changes or upgrades to our facilities could subject us to fines or penalties as well as affect our ability to supply certain products we make. Moreover, we may construct facilities to capture anticipated future growth in demand for refined products or renewable diesel in a region in which such growth does not materialize. As a result, new capital investments may not achieve our expected investment return, which could adversely affect our financial condition or results of operations. +In addition, we expect to execute turnarounds at a number of our refineries in 2026, which involve numerous risks and uncertainties, including delays and incurrence of additional and unforeseen costs. The turnarounds allow us to perform maintenance, upgrades, overhaul and repair of process equipment and materials, during which time all or a portion of the refinery will be under scheduled downtime. +Our forecasted internal rates of return are also based upon our projections of future market fundamentals which are not within our control, including changes in general economic conditions, available alternative supply, global market conditions, actions by foreign nations and customer demand. +Competition in the refining and marketing industry is intense, and an increase in competition in the markets in which we sell our products could adversely affect our earnings and profitability. +We compete with a broad range of refining and marketing companies, including certain multinational oil companies. Because of their geographic diversity, larger and more complex refineries, integrated operations and greater resources, some of our competitors may be better able to withstand volatile market conditions, obtain crude oil in times of shortage, transition to upgraded systems and bear the economic risks inherent in all areas of the refining industry. +33 +Table of Content s +We are not engaged in petroleum exploration and production activities and do not produce any of the crude oil feedstocks used at our refineries. Though we license our brand, as of December 31, 2025, we do not currently own or operate retail outlets and therefore are dependent upon others for outlets for our refined products. Certain of our competitors, however, obtain a portion of their feedstocks from company-owned production and have retail outlets. Competitors that have their own production or extensive retail outlets, with brand-name recognition, are at times able to offset losses from refining operations with profits from producing or retailing operations, and may be better positioned to withstand periods of depressed refining margins or feedstock shortages. +In recent years there have been several refining and marketing consolidations or acquisitions between entities competing in the geographies where we operate. These transactions could increase the future competitive pressures on us. +We compete with other industries that provide alternative means to satisfy the energy and fuel requirements of our industrial, commercial and individual consumers. The more successful these alternatives become as a result of governmental regulations, technological advances, consumer demand, improved pricing or otherwise, the greater the impact on pricing and demand for our products and our profitability. There are governmental and consumer pressures to increase the use of alternative fuels in the United States. +The market for our Lubricants & Specialties segment is highly competitive and requires us to continuously develop and introduce new products and product enhancements. +Our ability to grow our Lubricants & Specialties segment depends, in part, on our ability to continuously develop, manufacture and introduce new products and product enhancements on a timely and cost-effective basis, in response to customers’ demands for higher performance process lubricants, coatings, greases and other product offerings. Our competitors may develop new products or enhancements to their products that offer performance, features and lower prices that may render our products less competitive or obsolete and, as a consequence, we may lose business and/or significant market share. Our efforts to respond to changes in consumer demand in a timely and cost-efficient manner to drive growth could be adversely affected by unfavorable margins or difficulties or delays in product development or service innovation, including the inability to identify viable new products, successfully complete research and development, obtain regulatory approvals, obtain intellectual property protection or gain market acceptance of new products or service techniques. The development and commercialization of new products require significant expenditures over an extended period of time, and some products that we seek to develop may never become profitable, and we could be required to write-off our investments related to a new product that does not reach commercial viability. +Our business is subject to the risks of international operations. +We derive a portion of our revenue and earnings from international operations. Our Petro-Canada Lubricants and Sonneborn businesses expanded our operations and product exports to over 80 countries and increased our exposure to foreign exchange risks. Any significant change in the value of the currencies of the countries in which we do business against the U.S. dollar could affect our revenue, competitiveness and cost of doing business, which could have a material adverse effect on our business, financial condition and results of operations. +In addition, compliance with applicable U.S. and foreign laws and regulations, such as import and export requirements, tariffs, economic or trade sanctions, anti-corruption laws, data privacy regulations and foreign exchange controls and cash repatriation restrictions, environmental laws, labor laws and anti-competition regulations, increase the cost of doing business in foreign jurisdictions. Although we have implemented policies and procedures to comply with these laws and regulations, a violation by any of our employees, contractors, distributors or agents could nevertheless occur. In some cases, compliance with the laws and regulations of one country could violate the laws and regulations of another country. Violations of these laws and regulations could materially adversely affect our brand, reputation, international growth efforts and business. +In addition, global market risks, actions by foreign nations and other international conditions, particularly in a time of increasing political, economic and global instability, may have a material adverse effect on our results and operations. The consequences of such uncertainty cannot be fully anticipated or quantified. +34 +Table of Content s +Negative publicity or an erosion of our business reputation could have a material adverse effect on our earnings, cash flows and financial condition . +Our reputation and our brands, including, without limitation, our existing Sinclair, HollyFrontier Specialty Products, Petro-Canada Lubricants, Red Giant Oil and Sonneborn brands, and any brands we may acquire or establish in the future, are important corporate assets. Factors that could have a negative impact on our reputation and our brands include, by way of example and not limitation, an operating incident or significant cybersecurity disruption; changes in consumer views concerning our products; a perception by investors or others that we are making insufficient progress with respect to our carbon emission reduction goals, or that pursuit of this ambition may result in allocation of capital to investments with reduced returns; and other adverse events such as those described in this Item 1A. Negative impacts on our reputation and our brands could in turn make it more difficult for us to compete successfully for new opportunities, obtain necessary regulatory approvals, obtain financing, attract talent, or could reduce consumer demand for our branded products. Our reputation may also be harmed by events which negatively affect the image of our industry as a whole. The materialization of risks discussed in this section could negatively affect our reputation and could have a material adverse effect on our earnings, cash flows and financial condition. +Potential product, service or other related liability claims and litigation could adversely affect our business, reputation and results of operations. +A significant portion of our operating responsibility on refined product pipelines is to maintain the quality and purity of the products loaded at our loading racks. If our quality control measures were to fail, we may have contaminated or off-specification commingled pipelines and storage tanks or off-specification product could be sent to public gasoline stations. These types of incidents have resulted in or could result in product liability or other related claims from our customers or third parties. The development, manufacture and sale of renewable diesel and specialty lubricant products also involves an inherent risk of exposure to potential product liability claims. Our products could also be subject to false advertising or consumer protection claims, product recalls, workplace exposure, product seizures and related adverse publicity. +The occurrence of any of these incidents is a significant commercial risk. Substantial damage awards have been made in certain jurisdictions against manufacturers and resellers based upon claims for injuries caused by the use of or exposure to various products. While we have received and resolved immaterial product liability claims in the past, there can be no assurance that future product liability or other related claims against us would not have a material adverse effect on our business, reputation or results of operations or our ability to maintain existing customers or retain new customers. Although we maintain product and other general liability insurance, there can be no assurance that the types or levels of coverage maintained are adequate to cover these potential risks, or that we will be able to continue to maintain existing insurance or obtain comparable insurance at a reasonable cost, if at all. +Terrorist attacks, and the threat of terrorist attacks or vandalism, have resulted in increased costs to our business. Continued global hostilities or other sustained military campaigns may adversely impact our results of operations. +The long-term impacts of terrorist attacks and the threat of future terrorist attacks and vandalism on the energy transportation industry in general, and on us in particular, are unknown. Any attack on our facilities, those of our customers or suppliers and, in some cases, those of other pipelines, could have a material adverse effect on our business. Increased security measures taken by us as a precaution against possible terrorist attacks or domestic vandalism have resulted in increased costs to our business. +The U.S. government has issued public warnings that indicate that pipelines and other assets could be specific targets of terrorist organizations. These potential targets may include our pipeline systems or operating systems and might affect our ability to operate or control our pipeline assets or our operations could be disrupted. The occurrence of one of these events could cause a substantial decrease in revenues, increased costs to respond or other financial loss, damage to reputation, increased regulation or litigation and/or inaccurate information reported from our operations, and, depending on their ultimate magnitude, could have a material adverse effect on our business, financial condition and results of operations. +Uncertainty surrounding continued global hostilities or other sustained military campaigns, and the possibility that infrastructure facilities could be direct targets of, or indirect casualties of, an act of terror, may affect our operations in unpredictable ways, including disruptions of crude oil supplies and markets for refined products. In addition, disruption or significant increases in energy prices could result in government-imposed price controls. Any one of, or a combination of, these occurrences could have a material adverse effect on our business, financial condition and results of operations. +35 +Table of Content s +Our business may suffer due to a change in the composition of our Board of Directors, or the departure of any of our key executives or other key employees. A shortage of skilled labor may make it difficult for us to maintain labor productivity. +Our future performance depends to a significant degree upon the continued contributions of our Board of Directors, our senior management team and key technical personnel. We do not currently maintain key person life insurance, or employment agreements with respect to any member of our senior management team. The loss or unavailability to us of any member of our senior management team or a key technical employee could significantly harm us. As previously announced, on February 17, 2026, the Board of Directors received and accepted a request from Mr. Tim Go, the Company’s Chief Executive Officer and President, and a member of the Board of Directors, to take a voluntary leave of absence from his duties. In addition, on February 24, 2026, the Board of Directors received and accepted a request from Mr. Atanas Atanasov, the Company’s Executive Vice President and Chief Financial Officer, to take a voluntary leave of absence from his duties. As a result, the services of both these senior executive officers are currently not available to the Company. For additional information, please see the information set forth below under “HF Sinclair Management and Audit Committee Process” in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of Part II of this Annual Report on Form 10-K. +On February 17, 2026, the Board of Directors appointed Mr. Franklin Myers as Chief Executive Officer and President on a temporary basis. In addition, on February 24, 2026, the Board of Directors appointed Mr. Vivek Garg, the Company’s Vice President, Chief Accounting Officer and Controller, as acting Chief Financial Officer of the Company, effective as of such date. Both Mr. Myers and Mr. Garg have significant experience in their respective areas of responsibility but will face the challenges associated with any transition in senior executive management. +We face competition for our professionals from our competitors, our customers and other companies operating in our industry. While the services of members of our senior management team and key technical personnel are or may be unavailable to us for any reason, we may be required to hire other personnel to manage and operate our company. We may not be able to locate or employ such qualified personnel on acceptable terms, or at all. +Furthermore, our operations require skilled and experienced laborers with proficiency in multiple tasks. A shortage of trained workers due to retirements, an increase in labor costs as a result of inflation or otherwise could have an adverse impact on productivity and costs and on our ability to expand production in the event there is an increase in the demand for our products and services, which could adversely affect our operations. +In the most recent reporting cycle, we reviewed certain issues relating to our disclosure processes that had the potential to impair our ability to make appropriate and timely disclosure decisions. In the event of any failure of the Company to accurately report our financial results or to maintain effective internal control over financial reporting or disclosure controls and procedures, investors could lose confidence in our financial and other public reporting, which could have a material adverse effect. +Our internal control over financial reporting and disclosure controls and procedures may not prevent or detect misstatements because of its inherent limitations, including the possibility of human error, failure or interruption of information technology systems, the circumvention or overriding of controls, or fraud. Even effective internal control over financial reporting can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. +As described below under “HF Sinclair Management and Audit Committee Process” in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of Part II of this Annual Report on Form 10-K, in the most recent reporting cycle, we reviewed certain issues relating to our disclosure processes that had the potential to impair our ability to make appropriate and timely disclosure decisions. Upon completion of their reviews, both the Company’s management and the Audit Committee, with the support of external legal counsel, determined that the concerns identified did not impair the Company’s ability to make appropriate and timely decisions regarding required disclosures. In addition, they have both determined that the Company’s internal control over financial reporting was effective. +If we fail to maintain the adequacy of our internal control over financial reporting or disclosure controls and procedures, including any failure to implement required new or improved controls, or if we experience difficulties in their implementation, our business and operating results could be harmed, we could fail to meet our financial reporting obligations, the material accuracy and timeliness of our public disclosures could be impaired, and we could suffer a material adverse effect. Among other things, any such failure could cause investors to lose confidence in the accuracy and completeness of our public disclosures, including our financial statements. +36 +Table of Content s +A portion of our workforce is unionized, and any disruptions in our labor force or adverse employee relations could adversely affect our business. +We depend on unionized labor for the operation of many of our facilities. As of December 31, 2025, approximately 31% of our employees were represented by a labor union or works council under collective bargaining or labor agreements with various expiration dates. In addition, employees who are not currently represented by a labor union or works council may seek representation in the future. We may not be able to renegotiate our collective bargaining or labor agreements when they expire on satisfactory terms or at all. If we are unable to renegotiate our collective bargaining or labor agreements when they expire, any work stoppages or other labor disturbances at these facilities could have an adverse effect on our business, impact our ability to pay dividends to our stockholders and make payments on our debt obligations, and increase our costs. In addition, our existing labor agreements may not prevent a strike or work stoppage or other adverse employee relations event at any of our facilities in the future, and any work stoppage could negatively affect our results of operations and financial condition. +Acquisitions involve numerous risks, any of which could adversely affect us. +An additional component of our growth strategy is to selectively acquire complementary assets or businesses to complement our existing assets and businesses in order to increase earnings and cash flow. Recent acquisitions include our acquisition of Industrial Oils Unlimited, LLC, all of the remaining outstanding HEP common units, the Sinclair refining, renewables, midstream and marketing assets and the Puget Sound Refinery. Our ability to do so will be dependent upon a number of factors, including our ability to identify attractive acquisition candidates, consummate acquisitions on favorable terms, successfully integrate acquired assets and obtain financing to fund acquisitions and to support our growth, and other factors beyond our control. Risks associated with acquisitions include those relating to: +• diversion of significant management time and attention from our existing business; +• challenges in managing the increased scope, geographic diversity and complexity of operations and inefficiencies that may result therefrom; +• difficulties in integrating the financial, technological and management standards, processes, procedures and controls of an acquired business with those of our existing operations; +• the inability to integrate multiple acquisitions simultaneously or within a short timeframe of each other; +• difficulties integrating personnel from the acquired business while maintaining focus on providing consistent, high-quality products and services or the loss of key employees; +• difficulties integrating relationships with customers, vendors and business partners; +• liability for known or unknown environmental conditions or other contingent liabilities not covered by indemnification or insurance or potential unknown and unforeseen expenses, delays or regulatory conditions associated with such acquisitions; +• greater than anticipated expenditures required for compliance with environmental or other regulatory standards or for investments to improve operating results; +• difficulties or delays in achieving anticipated operational improvements or benefits or inaccurate assumptions about future synergies or revenues; +• incurrence of additional indebtedness to finance acquisitions or capital expenditures relating to acquired assets; +• issuance of additional equity, which could result in further dilution of the ownership interest of existing stockholders; +• disruption of, or the loss of momentum in, ongoing business or inconsistencies in standards, controls, procedures and policies; +• incurrence of substantial, nonrecurring transaction-related expenses; and +• potential securities class action and derivative lawsuits, which could result in substantial costs. +Any acquisitions that we do consummate may have adverse effects on our business and operating results. +Delays or difficulties in the integration process could adversely affect our business, financial results, financial condition and stock price. Even if we are able to integrate our business operations successfully, there can be no assurance that this integration will result in the realization of the full benefits of synergies, cost savings, innovation and operational efficiencies that we currently expect or have communicated from this integration or that these benefits will be achieved within the anticipated time frame. +37 +Table of Content s +Certain of our facilities, pipelines and assets are located on or adjacent to Native American tribal lands or on other lands that we do not own. Our operations are subject to potentially disruptive activity by those concerned with our industry. +Certain of our facilities, pipelines and other assets are located on or adjacent to Native American tribal lands. Various federal agencies, along with each Native American tribe, promulgate and enforce regulations, including environmental standards, regarding operations on Native American tribal lands. In addition, each Native American tribe is a sovereign nation having the right to enforce laws and regulations (including various taxes, fees and other requirements and conditions) and grant approvals independent from federal, state and local statutes and regulations. Furthermore, our operations may be disrupted by restrictions on our access to railways and waterways on or adjacent to tribal lands, including, for example, through limitations upon the number of trains permitted to cross certain reservations in a specified time period. These factors may increase our cost of doing business on Native American tribal lands. +We do not own all of the land on which our pipeline systems and other assets are located, and we are, therefore, subject to the risk of increased costs or more burdensome terms to maintain necessary land use. We obtain the right to construct and operate pipelines and other assets on land owned by third parties and government agencies for specified periods. If we were to lose these rights through an inability to renew leases, right-of-way contracts or similar agreements, we may be required to relocate our pipelines or other assets and our business could be adversely affected. Additionally, it may become more expensive for us to obtain new rights-of-way or leases or to renew existing rights-of-way or leases. If the cost of obtaining or renewing such agreements increases, it may adversely affect our operations and cash flows. +The adoption or amendment of laws and regulations that limit or eliminate a state’s ability to exercise eminent domain over private property in a state in which we operate could make it more difficult or costly for us to secure rights-of-way for future pipeline construction and other projects. +In addition, our industry is subject to potentially disruptive activities by those concerned with the possible environmental impacts of crude oil and refined products. Activists, non-governmental organizations and others may seek to restrict our operations or the transportation of crude oil and refined products by exerting social, legal or political pressure. This interference could have a material adverse effect on our business, financial condition and results of operations. +General economic conditions may adversely affect our business, operating results and financial condition. +Economic slowdowns may have serious negative consequences for our business and operating results because our performance is subject to domestic economic conditions and their impact on levels of consumer spending. Some of the factors affecting consumer spending include general economic conditions, unemployment, consumer debt, inflation, reductions in net worth based on declines in equity markets and residential real estate values, adverse developments in mortgage markets, taxation, energy prices, interest rates, consumer confidence and other macroeconomic factors. Political instability and global health crises, such as the COVID-19 pandemic, can also impact the global economy and decrease worldwide demand for oil and refined products. Increased volatility in the global oil markets, including the prices our customers or our joint ventures’ customers pay for crude oil and other raw materials, has and may continue to materially adversely affect our business, financial condition, results of operations and/or cash flows. +Adverse developments in the global economy or in regional economies could also negatively impact our customers and suppliers, and therefore have a negative impact on our business or financial condition. In the event of adverse developments or stagnation in the economy or financial markets, our customers and suppliers may experience deterioration of their businesses, reduced demand for their products, cash flow shortages and difficulty obtaining financing. As a result, existing or potential customers might delay or cancel plans to use our services and may not be able to fulfill their obligations to us in a timely fashion. Further, suppliers may experience similar conditions, which could impact their ability to fulfill their obligations to us. Moreover, a financial market crisis may have a material adverse impact on financial institutions and limit access to capital and credit. This could, among other things, make it more difficult for us to obtain (or increase our cost of obtaining) capital and financing for our operations. Our access to additional capital may not be available on terms acceptable to us or at all. +38 +Table of Content s +Changes in trade policies, including the imposition of tariffs, could negatively impact our business, financial condition and results of operations. The U.S. administration may propose or take action with respect to major changes to trade policies, such as the imposition of tariffs on imported products and the withdrawal from or renegotiation of certain trade agreements. For example, in February 2025, the U.S. administration announced tariffs on Canada, Mexico and China, including a 10% tariff on Canadian crude oil, which is subject to potential exemption under the United States-Mexico-Canada Agreement (“USMCA”) preference. The USMCA is subject to review in 2026 and the outcome is uncertain. Any changes to trade policies could result in additional retaliatory action by trade partners of the U.S. Given that we procure crude oil and other products directly or indirectly from outside of the U.S., the imposition of tariffs and other potential changes in U.S. trade policy could impact the cost structure of feedstocks and other materials and supplies at our business units, or limit the availability of such materials, which could harm our competitive position and adversely impact our business, financial condition and results of operations. In addition, we sell products to customers outside of the U.S. Retaliatory actions by other countries could result in increases in the price of our products, which could limit demand for such products, hurt our global competitive position and have a material adverse effect on our business, financial condition and results of operations. +Inflation has the potential to adversely affect our liquidity, business, financial condition and results of operations by increasing our overall cost structure, particularly if we are unable to achieve commensurate increases in the prices we charge our customers. Current and future inflationary pressures may be driven by, among other things, supply chain disruptions and governmental stimulus or fiscal policies. Continuing increases in inflation could affect the U.S. economy generally, the overall demand for our products and services, our costs for labor, material and services and our operating margins, all of which could have an adverse effect on our business, financial position, results of operations and cash flows. As a result of inflation, we have experienced and may continue to experience, cost increases. Although we may take measures to mitigate the impact of this inflation, if these measures are not effective our business, financial condition, results of operations and liquidity could be materially adversely affected. Even if such measures are effective, there could be a difference between the timing of when these beneficial actions impact our results of operations and when the cost inflation is incurred. +An impairment of our goodwill or assets could reduce our earnings or negatively impact our financial condition and results of operations. +An impairment of our goodwill or assets could reduce our earnings or negatively impact our results of operations and financial condition. We continually monitor our business, the business environment and the performance of our operations to determine if an event has occurred that indicates that our goodwill or assets may be impaired. If a triggering event occurs, which is a determination that involves judgment, we may be required to utilize cash flow projections to assess our ability to recover the carrying value based on the ability to generate future cash flows. We may also conduct impairment testing based on both the guideline public company and guideline transaction methods. Our goodwill and asset impairment analyses are sensitive to changes in key assumptions used in our analysis, estimates of future crack spreads, forecasted production levels, operating costs and capital expenditures. If the assumptions used in our analysis are not realized, it is possible a material impairment charge may need to be recorded in the future. We cannot accurately predict the amount and timing of any additional impairments of goodwill or assets in the future. +As market prices for refined products and market prices for crude oil continue to fluctuate, we will need to continue to evaluate the carrying value of our reporting units. During the years ended December 31, 2025 and 2024 , asset impairment charges were $3 million and $17 million, respectively. No impairment charges were recorded for the year ended December 31, 2023 . A reasonable expectation exists that a deterioration in our operating results or overall economic conditions could result in an impairment of goodwill and/or additional asset impairments at some point in the future. Future impairment charges could be material to our results of operation s and financial condition. +We sell many of our lubricants and specialties products through distributors, which presents risks that could adversely affect our operating results. +A large portion of our lubricants and specialties product sales, both in domestic and international markets, occur through distributors. As a result, we are dependent on these distributors to promote and create demand for our products. We cannot assure you that we will be successful in maintaining and strengthening our relationships with our distributors or establishing relationships with new distributors who have the ability to market, sell and support our products effectively. We may rely on one or more key distributors for a product or a region, and the loss of these distributors could reduce our revenue. The sales, business practices and reputation of our distributors may affect our business and our reputation. The consolidation of distributors, loss of a relationship with a distributor, significant disagreement with a distributor, or significant deterioration in the financial condition of a distributor could also have an adverse effect on our operating results and may also result in increased competition in the applicable jurisdiction. +39 +Table of Content s +The market price of our common stock may fluctuate significantly, and the value of a stockholder’s investment could be impacted. +The market price of our common stock may be influenced by many factors, some of which are beyond our control, including: +• our quarterly or annual earnings or those of other companies in our industry; +• changes in accounting standards, policies, guidance, interpretations or principles; +• general economic, industry, global and stock market conditions; +• the failure of securities analysts to cover our common stock or changes in financial estimates by analysts; +• future sales of our common stock; +• announcements by us or our competitors of significant contracts or acquisitions; +• sales of common stock by us, our senior officers, our affiliates or certain related parties such as REH Advisors Inc.; and/or +• the other factors described in these Risk Factors. +In recent years, the stock market has experienced extreme price and volume fluctuations. This volatility has had a significant impact on the market price of securities issued by many companies, including companies in our industry. The price of our common stock could fluctuate based upon factors that have little or nothing to do with our company, and these fluctuations could materially reduce our stock price. +RISKS RELATED TO GOVERNMENT REGULATION +We are subject to significant regulation and oversight by governmental agencies. +Regulation affects almost every part of our business. For instance, we are subject to laws and regulations related to working conditions, environment, health and safety, equal employment opportunity, employee benefits and other labor and employment matters, and competition and antitrust matters. Our facilities, pipelines, and other operations are subject to regulation and oversight by international, federal, state, provincial and local regulatory authorities, including the FERC, Commodities Futures Trading Commission, EPA, PHMSA, OSHA, the SEC and the DOJ, and similar authorities in Canada and the Netherlands, each of which may impose significant civil and criminal penalties or other enforcement actions to ensure compliance with its requirements. Any regulatory violations could have a material adverse effect on our results of operations and financial condition, including earnings, cash flow and liquidity. Further, our financial results may be materially affected by the adoption of new or amended financial accounting standards, and regulatory or outside auditor guidance or interpretations. +New laws, policies, regulations, rulemaking and oversight, unexpected policy changes or interpretations of existing laws or regulations as well as changes to those currently in effect, could adversely impact our earnings, cash flows and operations. Actions taken and regulatory or legislative changes adopted by the U.S. government or the governments of other jurisdictions in which we operate, have the potential to adversely affect our profitability. These risks are heightened during periods of regulatory upheaval, such as during U.S. presidential and congressional transitions, and as a result of conflicting or potentially conflicting requirements in different jurisdictions. Furthermore, we could incur additional costs to comply with such statutes, rules, regulations and orders. Should we fail to comply with any applicable statutes, rules, regulations, and orders of regulatory authorities, we could be subject to substantial penalties and fines and withdrawal or denial of permits to operate. +40 +Table of Content s +We incur significant costs and liabilities, and expect to incur additional costs and liabilities in the future, resulting from compliance with existing, new and changing environmental, health and safety laws and regulations, and we face potential exposure for environmental matters. +Our facilities, pipelines and distribution operations are subject to international, federal, state, provincial and local laws and regulations regarding, among other things, the manufacture, storage, handling, use, transportation and distribution of petroleum and hazardous substances by pipeline, truck, rail, ship and barge, the emission and discharge of materials into the environment, waste management, and characteristics and composition of gasoline and diesel fuels, and other matters otherwise relating to the protection of human health and the environment, including climate change. Permits or other authorizations are required under these laws and regulations for the operation of our facilities, pipelines and other operations, and these permits and authorizations are subject to revocation, adverse modification and renewal or may require operational changes, which may involve significant costs. A violation of permit conditions or a failure to comply with applicable laws and regulations may result in the assessment of sanctions, including administrative, civil and criminal penalties; the imposition of investigatory, remedial or corrective action obligations and the incurrence of capital expenditures; the occurrence of delays in permitting or the denial of permits, required for the development or expansion of projects; the issuance of injunctive relief limiting or prohibiting certain operations; and reputational harm. There is also the potential for liability for spill response and remediation, natural resource damage claims, and personal and property damage claims in the event of an oil or other refined product spill at a facility located near federal, state or provincial waters or a release of hazardous or other substances into the environment. +Changes in laws or regulations could require major modifications of our operations, including expensive upgrades to our existing pollution control equipment, which could have a material adverse effect on our business, financial condition, or results of operations. For example, implementation of revised NAAQS for ozone and particulate matter, could result in stricter permitting requirements, a delay in or inability to obtain required permits, and increased expenditures for pollution control equipment, the costs of which could be significant. Also, the EPA’s amendments to the RMP rules, which are subject to ongoing litigation and reconsideration by the current administration, could require refineries with HF Alkylation process (including three of our refineries) to perform a “safer technology and alternatives analysis” as part of the process hazard analysis to consider and document the practicability of inherently safer technologies and other risk management measures and could lead to capital expenditures in future years or otherwise constrain our operations. Likewise, the EPA’s 2024 updates to its volatile organic liquid storage tank emission standards, which are subject to ongoing litigation and potential repeal by the current administration, establish more protective standards for various types of vessels, including floating roof storage vessels and storage vessels that utilize closed vent systems and controls that could necessitate additional expenditures in future years and result in increased costs on our operations. Updated or new determinations under the Endangered Species Act and comparable international, federal, state, provincial and local laws and regulations could also impact our operations or those of our suppliers. Our operations and those of our suppliers could also be impacted by new or revised federal restrictions or laws pertaining to oil and gas operations on federal lands, which could include pauses on leasing, enhanced environmental reviews, and emissions regulations. Compliance with new international and domestic environmental laws, regulations and interpretations will continue to have an adverse impact on our operations, results of our operations and capital requirements. +Various regulators are considering regulation of the emerging contaminants, including for example, a final rule adopted by the EPA in May 2024 to list certain PFAS as CERCLA hazardous substances. More recently, in September 2025, the EPA announced its intention to develop a “Framework Rule” to guide future hazardous substance designations, including the consideration of costs to manufacturers, passive receivers of PFAS, consumers, and the economy. In 2023, the EPA undertook several other regulatory actions related to PFAS chemicals, including, among others, updates to the EPA’s TRI program to remove an exemption for reporting PFAS, and included PFAS exposure as a National Enforcement and Compliance Initiative for fiscal years 2024-2027. Further, in accordance with the National Defense Authorization Act, the EPA added seven individual PFAS to the list of chemicals covered by TRI reporting and an additional nine PFAS in 2025. Moreover, certain states are also taking action to regulate PFAS with regard to reporting, remediation, and product safety. The EU has applied a step-wise ban and restrictions on certain PFAS products. PFOS and PFOA are banned in the EU for a number of years already, apart from some exemptions. Further bans and restrictions are planned for 2026 and 2027 with transitory rules for sale and use. We cannot predict the impact of future regulation of presently unregulated substances, but the prospect of such regulation creates additional uncertainty. +Several environmental groups filed a petition under TSCA, in February 2025, requesting that the EPA promulgate a Section 6(a) rule to prohibit the use of HF in domestic oil refining, citing unreasonable risks to public health and the environment from refinery alkylation and associated transport of HF. Several of our refineries utilize HF in their alkylation process. In May 2025, the EPA denied the petition, concluding petitioners did not meet their burden under TSCA to establish that a Section 6(a) rule is necessary. Petitioners subsequently filed a lawsuit challenging EPA’s denial, and that litigation is pending and we cannot predict the outcome. +41 +Table of Content s +As is the case with all companies engaged in industries similar to ours, we face potential exposure to future claims and lawsuits involving environmental matters. The matters include, but are not limited to, soil, groundwater and water discharges and contamination, air pollution, accident prevention, personal injury and property damage allegedly caused by substances which we processed, manufactured, handled, used, transported, stored, released or disposed and climate change. +We are, and have been, the subject of various local, state, provincial, federal, international and private proceedings relating to environmental regulations, conditions and inquiries. Instances of non-compliance with environmental regulations could require additional expenditures, including expenditures for investigation and remediation, which could be significant. +Our operations are also subject to various international, federal, state, and local domestic laws and regulations relating to health and safety, such as chemical accident prevention. For example, in December 2024, the Washington Department of Labor and Industries’ new Process Safety Management Rule for petroleum refineries became effective, which applies stringent worker safety requirements to petroleum refineries, including performance of regular reviews to identify hazards, root cause analyses after significant accidents, and regular review of processes that are likely to damage or wear down equipment. We maintain safety, training and maintenance programs as part of our ongoing efforts to comply with applicable laws and regulations but cannot guarantee that these efforts will always be successful. Compliance with applicable health and safety laws and regulations has required and continues to require substantial expenditures. Failure to appropriately manage health and safety risks associated with our business could also adversely impact our employees, communities, stakeholders, reputation and results of operations. +The costs of environmental, health and safety regulations are already significant and compliance with more stringent laws or regulations or adverse changes in the interpretation of existing regulations by government agencies or courts could have an adverse effect on the financial position and the results of our operations and could require substantial expenditures for the installation and operation of systems and equipment that we do not currently possess. +We are also subject to existing, and may in the future be subject to, new or changing, domestic and international energy policy legislation. For example, in the United States, the Energy Independence and Security Act and the EPA’s RFS regulations mandate annually increasing levels for the use of renewable fuels such as ethanol and increasing energy efficiency goals, among other steps. Dutch and European policies also aim to increase the share of renewable energy used in transportation and reduce GHG emissions from transportation fuels. In Canada, fuel content legislation exists at the federal and provincial level. These statutory mandates may have the long-term impact of offsetting projected increases in the demand for refined petroleum products, particularly gasoline, in certain markets. In the near term, the increasing RFS obligations, as discussed in our Risk Factor titled “Compliance with, or developments with respect to, renewable and low-carbon fuel blending programs, and other regulations, policies and standards impacting the demand for low-carbon fuels could have an adverse effect on our financial condition and results of operations” below, present ethanol production and logistics challenges for both the ethanol and refining industries and may require additional capital expenditures or expenses by us to accommodate increased ethanol use. Other legislative changes may similarly alter the expected demand and supply projections for refined petroleum products in ways that cannot be predicted. +For additional information on regulations and related liabilities or potential liabilities affecting our business, see “Regulation” in Items 1 and 2, “Business and Properties,” and Item 3, “Legal Proceedings.” +We may incur significant costs and liabilities resulting from the performance of pipeline integrity programs and related repairs . +We are regulated under federal pipeline safety statutes by DOT through PHMSA. PHMSA sets and enforces pipeline safety regulations. Failure to comply with PHMSA or comparable state pipeline safety regulations could result in a number of consequences which may have a materially adverse effect on our operations. PHMSA’s enforcement authority includes the ability to assess civil penalties for violations of pipeline safety regulations, issue orders directing compliance, and issue orders directing corrective action to abate hazardous conditions. Among other things, pipeline safety laws and regulations require pipeline operators to develop integrity management programs, including more frequent inspections and other measures for pipelines located in “high-consequence areas,” which are areas where a release could have the most significant adverse consequences, including certain population areas, certain drinking water sources and unusually sensitive ecological areas. These regulations require operators of covered pipelines to perform a variety of heightened assessments, analysis, prevention, mitigation and repair activities on the segments of pipe located within high-consequence areas. Routine assessments under the integrity management program may result in findings that require repairs or other actions. +42 +Table of Content s +Moreover, changes to pipeline safety laws by Congress and regulations by PHMSA or states that result in more stringent or costly pipeline integrity management or safety standards could possibly have a substantial effect on us and similarly situated midstream operators. Congress is currently considering potential amendments to the Pipeline Safety Act, as it does approximately every four years. Should amendments be introduced and later become law, this could affect our operations and result in additional compliance, maintenance and other obligations. Additionally, effective in October 2022, PHMSA’s Valve Installation and Minimum Rupture Detection Standards, expanded regulation of the safety of hazardous liquid pipelines by establishing certain new procedural and notification requirements for managing rupture events and requiring the installation of rupture-mitigation valves on new or certain replaced pipelines. These standards have and may continue to result in additional capital and operations and maintenance costs in the coming years. Furthermore, where PHMSA has not issued any legal requirements, state agencies, to the extent authorized, could enact regulatory standards for certain pipelines. +We perform preventive and normal maintenance on all of our pipeline and terminal systems and make repairs and replacements when necessary or appropriate. We also conduct routine and required inspections of our pipelines and other assets as required by regulations. Corrosion inhibitors, external coatings and impressed current cathodic protection systems are used to protect against internal and external corrosion. We regularly monitor, test and record the effectiveness of these corrosion-control systems. We monitor the structural integrity of covered segments of our pipeline systems through a program of periodic internal inspections using electronic “smart pigs,” hydrostatic testing, and other measures. We follow these inspections with a review of the data, and we make repairs as necessary to maintain the integrity of the pipeline. We have initiated a risk-based approach to prioritizing the pipeline segments for future smart pig runs or other appropriate integrity testing methods. This approach is intended to allow the pipelines that have the greatest risk potential to receive the highest priority in being scheduled for inspections or pressure tests for integrity. Nonetheless, the adoption of new or amended regulations or the reinterpretation of existing laws and regulations by PHMSA or states that result in more stringent or costly pipeline integrity management or safety standards could possibly have a substantial effect on us and similarly situated midstream operators. +There are various risks associated with GHGs and climate change that could result in increased operating and compliance costs, increased litigation and reduced demand for the refined products we produce and investment in our industry. +Climate change continues to attract considerable attention in the United States, Canada, Europe, and other regions. Numerous rules have been adopted and proposals have been made and could continue to be made at the international, national, regional and state levels of government to monitor and limit existing emissions of GHGs, to limit or eliminate future emissions, and to require or incentivize the use of lower carbon or renewable alternatives, including through accounting and risk disclosures. As a result, our operations, and those of our customers, are subject to a series of regulatory, political, litigation-related and financial risks associated with the refining, transportation and use of petroleum products and emission of GHGs. +The EPA has adopted rules that, among other things, establish construction and operating permit reviews for GHG emissions from certain large stationary sources, require the monitoring and annual reporting of GHG emissions from certain petroleum and natural gas sources in the United States or require control or reduction of emissions of GHGs, including methane, from such sources. However, following the change in U.S. presidential administrations, proposals have been made to repeal or otherwise modify these requirements and the EPA’s GHG “Endangerment Finding,” which underpins the majority of the EPA’s GHG regulations. We cannot predict whether such efforts will ultimately be successful. +Various states and groups of states have adopted or are considering adopting legislation, regulations or other regulatory initiatives that are focused on such areas as GHG cap and trade programs, carbon taxes, reporting and tracking programs, restriction of emissions, electric vehicle mandates and combustion engine phaseouts. See also “Compliance with, or developments with respect to, renewable and low-carbon fuel blending programs, and other regulations, policies, and standards impacting the demand for low-carbon fuels could have an adverse effect on our financial condition and results of operations” below for more information on how these programs may impact us. State efforts may increase in response to decreased federal enforcement efforts. +43 +Table of Content s +Relatedly, in October 2023, the Governor of California signed the CCDAA and CRFRA into law. The CCDAA requires both public and private U.S. companies that are “doing business in California” and that have annual revenues of $1 billion to publicly disclose and verify, on an annual basis, Scope 1, 2 and 3 GHG emissions. The CRFRA requires the disclosure of a climate-related financial risk report (in line with the Task Force on the Climate-Related Financial Disclosures recommendations or equivalent disclosure requirements under the International Sustainability Standards Board’s climate-related disclosure standards) every other year for public and private companies “doing business in California” with a total annual revenue of $500 million. Both laws are subject to litigation, and the U.S. Court of Appeals for the Ninth Circuit issued an injunction prohibiting CRFRA from taking effect in November 2025, and the Ninth Circuit is also considering whether any relief should extend to the CCDAA. While the outcome of this litigation is uncertain, non-compliance with these laws may result in the imposition of substantial fines or penalties. Additionally, other states are considering similar laws. Any new laws or regulations imposing more stringent requirements on our business related to the disclosure of climate-related risks may result in (i) reputational harms among certain stakeholders if they disapprove of our reported GHG emissions data or disagree with our approach to mitigating climate-related risks, (ii) increased compliance costs resulting from the development of any such disclosures, and (iii) increased costs of and restrictions on access to capital to the extent that we do not meet any climate-related expectations or requirements of financial institutions. +Similar regulations exist at the provincial and federal levels in Canada, including a nation-wide GHG pricing initiative and regulations related to the control of GHGs from vehicles as well as industrial facilities and either cap and trade programs or carbon taxes at both federal and provincial levels. Canada’s 2030 Emissions Reduction Plan (“ERP”) issued pursuant to the Canadian Net-Zero Emissions Accountability Act, includes a projected contribution from the oil and gas sector of emissions reductions to 31% below 2005 levels in 2030 (or to 42% below 2019 levels) with an ultimate goal of achieving net zero emissions by 2050. The Government of Canada has proposed and may continue to propose regulations in furtherance of its ERP goals. At this time, the applicability of the ERP, and any regulations adopted in furtherance of it, to, and impact on, if any, our Canadian operations is not clear. +Furthermore, the Province of Ontario implemented SO2 regulations which target industrial emissions from refineries aimed at reducing acid rain precursors and improving local air quality. The regulations impose emission limits and monitoring obligations on petroleum facilities, such as our Mississauga facility, requiring them to install Continuous Emission Monitoring Systems and report certain incidents. +The Netherlands also participates in European legal initiatives, including GHG cap and trade programs. The Netherlands Climate Act, adopted in 2019 and updated in 2023, establishes the goal of reducing GHG emissions by 55% (compared to 1990) by 2030 and to be climate neutral by 2050. The Climate Act also establishes that the government must prepare a Climate Plan at least once every five years, covering a ten-year period. This plan contains, among others, the principles by which the Dutch government intends to achieve the goals set out in the Climate Act. The current Climate Plan of the Dutch government addresses the strategy for climate neutrality by 2050 for the period from 2025-2035. +The United Nations-sponsored “Paris Agreement” requires member nations to limit their GHG emissions through nationally-determined reduction goals reevaluated every five years after 2020. While previously a party to the Paris Agreement, the President announced the United States’ intent to re-withdrawal from the Paris Agreement, with the withdrawal expected to take effect in 2026. In January 2026, the President further announced that the United States would withdraw from the UNFCCC, a process that could take over a year. European Union (“EU”) member states have agreed to reduce GHG emissions by at least 55% reduction by 2030. They have also agreed to be climate neutral and climate sustainable by 2050 (net zero). On June 13, 2024, the EU Regulation on Methane Emissions Reduction was adopted by the EU and became effective on August 4, 2024. This regulation aims to stop the avoidable release of methane into the atmosphere, both in the EU and in global supply chains, and to minimize leaks of methane by fossil energy companies operating in the EU. The regulation applies to the production of crude oil, natural gas and coal. These sectors must now report their methane emissions to a regulator and take measures to minimize methane emissions during their operations. Notwithstanding the U.S.’s withdrawal from the Paris Agreement and UNFCCC, various state and local governments remain committed to the Paris Agreement and UNFCCC and, while these agreements and commitments are non-binding, they could result in increased pressure among financial institutions and various stakeholders to reduce or otherwise impose more stringent limitations on funding for and increased potential opposition to the energy sector and the industry in which we operate. +44 +Table of Content s +The adoption of legislation or regulatory programs to reduce emissions of GHGs could require us to incur increased operating costs, such as costs to purchase and operate emissions control systems and electricity, to acquire emissions allowances or comply with new regulatory or reporting and disclosure requirements or otherwise result in decreased demand for the petroleum products we refine and produce. In addition, several states have also taken steps to incentivize the production of electric vehicles or otherwise limit the sale of gasoline or diesel-powered vehicles. These and any future legislation or regulatory programs could increase the cost of consuming or otherwise reduce demand for, the refined petroleum products that we produce and transport. In July 2025, the United States enacted the OBBBA that may impact our Renewables segment as it largely curtailed the electric vehicle, clean energy and green energy manufacturing programs established under the Bipartisan Infrastructure Law and the IRA 2022. Additionally, political, litigation and financial risks may result in curtailed refinery activity, increased liability, or other adverse effects on our business, financial condition and results of operations. +There are also increasing risks of litigation related to climate change effects. Governments and third-parties have brought suit against some fossil fuel companies alleging, among other things, that such companies created public and private nuisances by producing fuels that contributed to climate change, such as rising sea levels, and therefore are responsible for resulting roadway and infrastructure damages, or alleging that the companies have been aware of the adverse effects of climate change for some time but defrauded their investors or customers by failing to adequately disclose those impacts. While the United States government has intervened in a number of these cases seeking their dismissal on federal preemption and national security grounds, we cannot predict how these cases may ultimately be decided. Separately, in the Netherlands, The Hague District Court has ordered Royal Dutch Shell (“RDS”) to reduce the CO2 emissions of the RDS group by net 45% by 2030, compared to 2019 levels, through the RDS group’s corporate policy. On November 12, 2024, the Court of Appeal of The Hague ruled that RDS has indeed a duty of care to reduce its GHG emissions. Despite this duty of care, the court ruled that it could not impose the specific reduction on RDS. These matters increase the risk that similar climate-related litigation will be brought against other corporate entities. In Canada, in March 2023, Greenpeace filed a complaint with the Competition Bureau of Canada alleging that Pathways Alliance, a coalition of six of Canada’s largest oil sand producers, made false and misleading claims that they are actively reducing emissions and helping Canada achieve its climate targets. Although the Competition Bureau has not yet made a determination, the remedies being sought include a fine in the amount of the greater of CAN 10 million or 3% of worldwide gross revenues. In October 2024, the Ontario Court of Appeal ruled in Mathur v. Ontario that the Ontario government by passing legislation that set emissions reduction targets was required to do so in way that did not jeopardize the plaintiffs’ rights to Life, Liberty and Security of the Person or Equality under the Canadian Charter of Rights and Freedoms. The case was remitted back to the trial court for a determination of the constitutionality of the legislation based on this ruling. While we are not party to any climate change suits at this time, we may become subject to or impacted by similar litigation in the future. Such cases could also adversely impact public perception and the demand for fossil fuels and petroleum products, or result in additional regulatory requirements, which could subsequently result in decreased demand for our services and refined products and a drop in our stock price. +In addition, evolving and sometimes conflicting societal expectations, as well as expectations among stakeholder groups such as investors, proxy advisors and other standard-setters, for companies to address environmental issues, including climate change, and increased consumer use of substitutes to energy commodities may result in increased costs, reduced demand for our products and our services, reduced profits, increased investigations and litigation, and negative impacts on our stock price and costs of and access to capital markets. To the extent that societal pressures or political or other factors are involved, it is possible that such liability could be imposed on us without regard to our causation of or contribution to the asserted damage, or to other mitigating factors. +Furthermore, our stock price could be adversely impacted if existing stockholders, including institutional investors, elect in the future to shift some or all of their investments into renewable energy or non-energy related sectors. Additionally, there is the possibility that financial institutions may be pressured or required to adopt policies that limit funding for fossil fuel energy companies. Moreover, institutional lenders have been lobbied intensively, and often publicly, by environmental activists, advocates of international climate change treaties and agreements, proponents of the international Paris Agreement, and citizen groups concerned about climate change not to provide funding for fossil fuel energy companies. Accordingly, limitation of investments in and financings for fossil fuel energy companies or subsidies or other governmental support for competitive technologies or industries could result in the direct or indirect restriction, delay or cancellation of drilling programs or development or production activities, could result in a reduction of available capital funding for potential development projects and could also adversely affect demand for our services and refined petroleum products, all of which could adversely impact our future financial results. +45 +Table of Content s +Evolving attention to ESG matters may adversely impact our business, financial results, stock price or price of debt securities. +Certain members of the investment community have become more attentive to ESG and sustainability-related practices, and the community as a whole has been lobbied intensively, and often publicly, by environmental activists concerned about climate change to limit or curtail activities with fossil fuel energy companies. Certain investors, funds, financial institutions and other capital markets participants may screen companies such as ours for ESG performance based on various factors such as ESG ratings or proxy advisor recommendations, before investing in our common stock or debt securities, or lending to us, or have imposed restrictions on or otherwise limited lending to, investing in, or providing insurance coverage for, companies that operate in industries with higher perceived environmental exposure, such as the energy industry. Furthermore, there has recently been backlash from certain governments and investors against ESG funds and investment practices, which has resulted in increased scrutiny and withdrawals from such funds. Such backlash has also resulted in “anti-ESG” focused activism and investment funds as well as social media and public relations campaigns. If we are unable to meet the often conflicting ESG standards or investment, lending, ratings, or voting criteria and policies set by these parties, we may lose investors, investors may allocate a portion of their capital away from us, we may face increased ESG or anti-ESG-focused activism, our cost of capital or insurance may increase, our common stock or debt securities may be adversely impacted, demand for our services and refined petroleum products may decline, and our reputation may be adversely affected, all of which could adversely affect our future financial results. +In recent years, members of the investment community and related parties have increased their focus on ESG practices and disclosures, including those related to climate change, GHG emissions targets, business resilience under the assumptions of demand-constrained scenarios, and net-zero ambitions in the energy industry in particular, as well as diversity, equity, and inclusion initiatives, political activities, and governance standards among companies more generally. Furthermore, certain public statements with respect to ESG matters, such as emissions reduction goals or progress, other environmental targets or other commitments addressing certain social issues, are becoming increasingly subject to heightened scrutiny from public and governmental authorities related to the risk of potential “greenwashing,” i.e., misleading information or false claims overstating potential ESG benefits. Certain regulators, such as the SEC and various state agencies, as well as non-governmental organizations and other private actors, have also filed lawsuits under various securities and consumer protection laws alleging that certain ESG-related emission reduction claims, approaches to accounting for GHG emissions reductions, or other ESG and sustainability-related goals or standards were misleading, false, or otherwise deceptive. Any alleged claims of greenwashing against us or others in our industry may lead to further negative sentiment and diversion of investments. As a result, we may face increasing pressure or negative publicity regarding our ESG practices and disclosures and demands for ESG-focused engagement from investors, stakeholders, and other interested parties. This could result in higher costs, disruption and diversion of management attention, an increased strain on our resources, and the implementation of certain ESG practices or disclosures that may present a heightened level of legal and regulatory risk, or that threaten our credibility with other investors and stakeholders. +Certain investors, stakeholders and other interested parties have in the past focused on issues related to environmental justice, despite shifting sentiment toward environmental justice at the federal level. This may result in increased scrutiny, protests, and negative publicity with respect to our business and operations, and those of our counterparties, which could in turn result in the cancellation or delay of projects, the revocation or delay of permits, termination of contracts, lawsuits, regulatory action, and policy change that may adversely affect our business strategy, increase our costs, adversely affect our reputation and financial performance, and impact our ability to attract and retain employees. +Certain undertakings that are incorporated in the EU (including EU-incorporated subsidiaries of non-EU incorporated parent entities) may be subject to ESG reporting requirements under the EU’s CSRD, which requires in-scope companies to report extensive audited sustainability information, including disclosing risks and opportunities arising from environmental and social matters, and the impact of their business on people and the environment. The compliance requirements under the CSRD are currently in flux with the recent proposal package by the European Commission to simplify, delay or change certain aspects of the CSRD (the “Omnibus Package I”). While the status of the Omnibus Package I and the implications on the CSRD are not yet certain, it is possible that we, or a portion of our business, may be required to report under this regime in future years. Additionally, similar laws and regulations, such as the CCDAA and the CRFRA in California, could result in increased compliance costs and affect the results of our operations and financial position. Such laws and similar regulations could also increase our litigation risks or may increase risks related to our reputation or goodwill as we cannot predict how additional reporting under these laws may be perceived or interpreted by our customers and stakeholders. +46 +Table of Content s +Additionally, certain employment practices and social initiatives are the subject of scrutiny by both those calling for the continued advancement of such policies, as well as those who believe they should be curbed, including government actors, and the complex regulatory and legal frameworks applicable to such initiatives continue to evolve. We cannot be certain of the impact of such regulatory, legal and other developments on our business. More recent political developments could mean that we face increasing criticism or litigation risks from certain “anti-ESG” parties, including various governmental agencies. Such sentiment may focus on our Renewables segment, environmental commitments or our pursuit of certain employment practices or social initiatives that are alleged to be political or polarizing in nature or are alleged to violate laws based, in part, on changing priorities of, or interpretations by, federal agencies or state governments. Consideration of ESG-related factors in our decision making could be subject to increasing scrutiny and objection from such anti-ESG parties. As a result, we may face increased litigation risks from private parties and governmental authorities related to our efforts. +Compliance with, or developments with respect to, renewable and low-carbon fuel blending programs, and other regulations, policies, and standards impacting the demand for low-carbon fuels could have an adverse effect on our financial condition and results of operations. +As described in Items 1 and 2, “Business and Properties – Additional Operations and Other Information – Governmental Regulation,” many international, federal, state, provincial and local governments have issued, or are considering issuing, low-carbon fuel regulations, policies, and standards to help reduce GHG emissions and increase the percentage of low-carbon fuels in the transportation fuel mix. +Pursuant to the 2007 Energy Independence and Security Act, the EPA promulgated the RFS regulations reflecting the increased volume of renewable fuels mandated to be blended into the nation’s fuel supply. The regulations, in part, require refiners to add annually increasing amounts of “renewable fuels” to their petroleum products or purchase credits, known as RINs, in lieu of such blending. We currently purchase RINs for some fuel categories on the open market in order to comply with the quantity of renewable fuels we are required to blend under the RFS regulations. Since the EPA first began mandating biofuels in excess of the “blend wall” (the 10% ethanol limit prescribed by most automobile warranties), the price of RINs has been extremely volatile. While we cannot predict the future prices of RINs, the costs to obtain the necessary number of RINs could be material. If we are unable to pass the costs of compliance with the RFS regulations on to our customers, if sufficient RINs are unavailable for purchase, if we have to pay a significantly higher price for RINs or if we are otherwise unable to meet the RFS mandates, our financial condition and results of operations could be adversely affected. +In the past, we have received small refinery exemptions under the RFS program for certain of our refineries. However, there is no assurance that such an exemption will be obtained for any of our refineries in future years. For example, in 2022, the EPA denied all pending small refinery exemption petitions on the belief that small refineries are able to pass through compliance costs to customers. This decision was challenged and, in August 2024, nearly all of the waiver denials were vacated by the DC Circuit. In August 2025, the EPA announced decisions on 175 small refinery exemption petitions, including granting 63 full exemptions and 77 partial exemptions. Additionally, on November 7, 2025, the EPA announced its decisions on 16 small refinery exemption petitions, including granting 2 full exemptions and 12 partial exemptions. We were granted a number of small refinery exemption petitions, in full or in part, for each decision period by the EPA in August and November 2025. Although the EPA’s August and November 2025 decisions provided an updated framework for evaluation of future small refinery exemption petitions, which may ultimately include reallocating waived volumes to other obligated parties, the EPA’s decisions were challenged by parties in the renewable fuel industry and the refining industry and this litigation is ongoing. We cannot predict the extent to which these challenges may impact the EPA’s timeliness in responding to future small refinery exemption petitions. Moreover, even if the new approach survives these legal challenges, we cannot guarantee that we will continue to receive full or partial exemptions, or that Congress will not enact changes to the RFS program that removes eligibility for small refinery exemptions for our small refineries, which could result in increased costs and adversely impact future results of operations and our business strategy. +In addition, the RFS regulations are highly complex and evolving, requiring us to periodically update our compliance systems. In June 2025, the EPA proposed volume requirements for 2026 and 2027 that continue to build on the increasing volume requirements established in July 2023. Higher blending percentages may increase the cost of compliance because the future cost of RINs is difficult to estimate. In addition to increased price volatility in the RINs market, there have been multiple instances of RINs fraud in the marketplace. The EPA has initiated several enforcement actions against refiners who purchase fraudulent RINs, resulting in substantial costs to the refiner. We cannot predict our exposure to increased RINs costs in the future, nor can we predict the extent by which costs associated with RFS regulations will impact our future results of operations. +47 +Table of Content s +We strategically market our low-carbon fuels based on regional policies, feedstock preferences, CI scores, and our ability to obtain fuel pathways. A significant portion of our low-carbon fuels are sold in California and Canada. We are exposed to the volatility in the market price of LCFS program credits. We cannot predict the future prices of LCFS program credits. Prices for LCFS program credits are dependent upon a variety of factors, including, as applicable, changes in regulations, the availability of LCFS program credits for purchase, transportation fuel production levels, which can vary significantly each quarter, approved CI pathways, and CI scores. If an insufficient number of LCFS program credits are available for purchase, if we have to pay significantly higher prices for them, or if we are otherwise unable to meet other obligations under the LCFS programs, our business, financial condition, results of operations, and liquidity could be adversely affected. +In addition to state LCFS (e.g., California LCFS, New Mexico CTFS, Oregon CFP and Washington CFS), and certain carbon cap and trade programs (e.g., Washington CCA and Oregon CPP), we do business in multiple jurisdictions that have issued, or are considering issuing, similar low-carbon fuel regulations, policies, and standards. The LCFS, carbon cap and trade programs and similar U.S. state and international low-carbon fuel regulations, policies, and standards are extremely complex, often have different or conflicting requirements or methodologies, and are frequently evolving, requiring us to periodically update our systems and controls to maintain compliance, which could require significant expenditures, and presents an increased risk of administrative error. Our Refining segment could be materially and adversely affected if (i) we are unable to comply with these programs in the states where we sell our petroleum products or we incur a significant cost to comply or (ii) we are unable to continue to sell our products in markets where we currently sell our products. While these regulations, policies and standards may materially and adversely impact our Refining segment, they do create opportunity for our Renewables segment. As a result, our Renewables segment could be materially and adversely affected if (i) these regulations, policies, and standards are adversely changed, not enforced, or discontinued, (ii) the benefits therefrom (such as the blender’s tax credit and other incentives) are reduced, (iii) any of the products we produce are deemed not to qualify for compliance therewith, or (iv) we are unable to satisfy or maintain any approved pathways. Such changes could also negatively impact the economic assumptions and projections with respect to many of our Renewables segment investments and could have a material adverse impact on the returns achieved from those investments. +Increases in required fuel economy and regulation of GHG emissions from motor vehicles may reduce demand for petroleum-based transportation fuels. +The EPA and the National Highway Traffic Safety Administration (“NHTSA”) are required to promulgate requirements regarding the Corporate Average Fuel Economy (“CAFE”) of the nation’s passenger fleet. The EPA and NHTSA previously adopted such standards, which were most recently revised in 2024 to impose more stringent requirements for emissions reductions, although the newly revised standards are currently subject to litigation in the U.S. Circuit Court for the Sixth Circuit. The final rule was challenged by 26 states, various agricultural associations, oil and gas and automotive industry groups and was also challenged by a variety of parties seeking even stricter GHG and CAFE standards to increase fuel economy. Litigation challenging this rule was held in abeyance in February 2025 after the DOT announced NHTSA would review and reconsider all existing fuel economy standards applicable to motor vehicles produced from 2022 forward, including the CAFE standards. To guide the agency’s rulemaking process for such replacement standards, NHTSA issued an interpretative rule that sets forth the agency’s interpretation of the factors the agency is prohibited by law from considering when setting maximum feasible fuel economy standards. In December 2025, DOT issued a proposed rule to reduce the stringency of the standards for light-duty vehicles through model year 2031 and to exclude electric vehicles from compliance calculations. Additionally, in July 2025, the EPA proposed to repeal the 2009 GHG Endangerment Finding, which determined that GHG emissions endanger public health and welfare, a move that—if finalized—would remove the legal foundation and effectively repeal GHG emissions standards for motor vehicles and engines under the CAA. Furthermore, California adopted Advanced Clean Cars I and Advanced Clean Cars II (“ACC II”) in 2012 and 2022, respectively, which are intended to scale down the use of internal combustion engines and instead require an increased number of zero emission vehicles. ACC II mandates that, by 2035, all new passenger cars, trucks and SUVs sold in California will be zero emission vehicles. Although states besides California are not permitted to develop their own emissions standards, Section 177 of the Clean Air Act authorizes other states to choose to adopt California’s standards in lieu of federal requirements. In June 2025, however, the President signed three congressional resolutions that, among other things, prevent states from adopting California’s ACC II motor vehicle standards, including the 2035 zero-emission mandate. These congressional resolutions were challenged by California and ten other states and the outcome of such litigation is uncertain. Although the future of California’s fuel economy standards are uncertain, any further increases in fuel economy standards, along with mandated increases in use of renewable fuels discussed above, as well as electric vehicle mandates or internal combustion engine bans, could result in decreasing demand for petroleum-based transportation fuels. Decreasing demand for petroleum-based transportation fuels could have a material adverse effect on our financial condition and results of operations. +48 +Table of Content s +State regulation of petroleum product markets and reporting requirements could adversely impact our business, costs of operation and financial results. +In recent years, high gasoline prices have raised questions about the operation of petroleum product markets and company profits. As a result, we may become subject to state regulation of petroleum product markets and reporting requirements relating to the petroleum industry. For example, California enacted legislation (SB 1322 and SBx 1-2) that greatly expanded reporting requirements for the petroleum industry and authorized the California Energy Commission to establish a maximum gross gasoline refining margin, impose financial penalties for profits exceeding the established maximum margin, and regulate refinery turnaround and maintenance activities that may affect fuel supply and pricing. Although we are not subject to these California statutes, other states could adopt similar regulations or reporting requirements. For example, in 2024, the Washington legislature introduced HB 2232, which, although it was not ultimately adopted, proposed to establish extensive petroleum industry reporting requirements (including the reporting of supply, pricing and profit information) and create a new division within the Washington Utilities and Transportation Commission charged with providing independent oversight and analysis of petroleum fuel markets. If HB 2232 or similar legislation is enacted, it could result in increased compliance costs and affect our results of operations and financial position. Such laws and similar regulations could also increase our litigation risks or may increase risks related to our reputation or goodwill as we cannot predict how additional reporting under such laws may be perceived or interpreted by our customers and stakeholders. +Physical or transitional risks of climate change could have an adverse effect on our financial condition and results of operations. +Scientists have noted that changes occurring in the environment may produce changes to the climate, which have significant effects on the weather. These events, including, but not limited to, drought, winter storms, wildfires, tornados, extreme temperatures, extreme precipitation or flooding, may be more intense or more frequent as a result of climate change and could have an adverse effect on our continued operations as well as the operations of our suppliers and customers. Additionally, changing meteorological conditions, particularly temperature, may result in changes to demand for our products. Our suppliers or customers may also be subject to similar risks, any of which may adversely impact our business, financial condition or operations. +Compliance with and changes in tax laws could materially and adversely impact our financial condition, results of operations and cash flows. +We are subject to extensive tax liabilities, including federal and state income taxes and transactional taxes such as excise, sales and use, payroll, franchise, withholding and property taxes. In addition, many tax liabilities are subject to periodic audits by taxing authorities, and such audits could subject us to interest and penalties. New tax laws and regulations and changes in existing tax laws and regulations could result in increased expenditures by us for tax liabilities in the future and could materially and adversely impact our financial condition, results of operations and cash flows. +Additionally, U.S. federal tax law provides various tax credits to producers of qualifying renewable fuels. These tax credits have the effect of making the production of qualifying renewable fuels more competitive by offsetting a portion of the production costs or by supplementing a portion of the revenue, but may be repealed by governmental action at any time. Alternatively, the types of renewable fuels to which these tax credits apply, as well as the applicable value, duration, and requirements, may be modified or amended by governmental action in a form where the types of fuel mixtures we produce are not eligible for the tax credits or are eligible for relatively less benefits than we anticipated, or that such credits may be phased out. As a result, a loss of, reduction in, or phased out of U.S. federal tax credits for producers of qualifying renewable fuels could increase our production costs or decrease our revenues which, in turn, could adversely impact the financial condition, results of operations and cash flows of our renewables business. +49 +Table of Content s +RISKS RELATED TO CYBERSECURITY, DATA SECURITY AND PRIVACY, INFORMATION TECHNOLOGY AND INTELLECTUAL PROPERTY +Our information technology systems, operational systems, security systems, infrastructure, communications networks, software integrated in our manufacturing and administrative processes, and customer data processed by us, third-party vendors or suppliers are subject to risks presented by cyber events, including incidents or breaches of security, any of which could prevent us or third parties we rely on from effectively operating our business, and could harm our reputation or materially adversely affect our company’s assets, growth efforts, operations, facilities, business reputation or financial condition. +Our business is dependent upon increasingly complex information and operational technology systems and other digital technologies for controlling our plants and pipelines, processing transactions and summarizing and reporting results of operations. The secure collection, processing, maintenance, storage and transmission of information is critical to our operations. We are at risk for interruptions, outages and breaches of information technology or operational systems, owned by us or our third-party vendors or suppliers; or third-party data that we process or our third-party partners process on our behalf. Such cyber incidents could materially disrupt or shutdown operational systems; result in loss of, unauthorized access to, or copying or transfer of intellectual property assets, trade secrets or other proprietary or competitively sensitive information; compromise certain information of customers, employees, suppliers or others; and jeopardize the security of our facilities. We and vendors on our behalf monitor our information and operational technology systems on a continuous basis in an effort to detect cyberattacks, security breaches or unauthorized access. Preventative and detective measures we utilize include independent cybersecurity audits and penetration tests. We have implemented these efforts along with other risk mitigation procedures designed to detect and address unauthorized and damaging activity on our network, stay abreast of the increasing cybersecurity threat landscape and improve our cybersecurity posture, but there is no guarantee that such measures will be adequate to detect, prevent or mitigate cyber incidents. We also have limited ability to force third parties, including our partners, suppliers and service providers (including providers of cloud-hosting services for our data or applications), to implement strong cybersecurity controls and are exposed to potential harm from cybersecurity events that may affect their operations. Any implementation, maintenance, segregation and improvement of our systems may require significant management time, support and cost and may not be effective or adequate. These efforts may come at the potential cost of revenues and human resources that could be utilized to continue to enhance our product offerings, and such increased costs and diversion of resources may adversely affect operating margins. +A cyber incident could be caused by disasters, insiders (through inadvertence or with malicious intent) or malicious third parties (including nation-states or nation-state supported actors) using sophisticated, targeted methods to circumvent firewalls, encryption and other security defenses, including hacking, fraud, trickery or other forms of deception that are generally beyond our control despite our implementation of protective measures. Emerging artificial intelligence (“AI”) technologies may improve or expand the capabilities of malicious third parties in a way we cannot predict at this time, including being used to develop new hacking tools, exploit vulnerabilities, use phishing to trick employees into making payments or granting access to internal systems, obscure malicious activities, and increase the difficulty of detecting threats. Our service providers and vendors are also increasingly using and offering platforms powered by AI. While we advise our employees and contractors to refrain from providing confidential or sensitive information to any AI models or AI-powered platforms and endeavor to limit our vendors’ processing of any confidential or sensitive information in an AI model, we cannot predict how an AI model will process our data or if it will inadvertently provide our data to a third-party in its outputs. Any input of our confidential or sensitive data into an AI model could result in inadvertent disclosure of this data at any time to an unknown third-party, which could subject us to litigation or regulatory actions or cause us to breach our contractual obligations. Strategic targets, such as energy-related assets, may be at greater risk of future attacks from hackers, nation-sponsored groups or other nefarious actors than other targets in the United States, especially during times of war with nations with a history of funding cyberattacks. While there have been immaterial incidents of unauthorized access to our information and operational technology systems, as of the date of this Annual Report on Form 10-K, we have not experienced any material impact on our business or operations from these attacks; however, there is no assurance that other such incidents have not already occurred and we are unaware of them, and that we will not suffer such a loss in the future. In addition, information technology system failures, communications network disruptions, and security breaches could still impact equipment and software used to control plants and pipelines, resulting in improper operation of our assets or delays in the delivery or availability of our customers’ products, contamination or degradation of the products we transport, store or distribute, or releases of hydrocarbon products and other damage to our facilities for which we could be held liable. Information and operational technology system failures, communications network disruptions, and security breaches could also cause us to breach our contractual arrangements with other parties, subject us to regulatory actions or litigation and harm our brand and business relationships as well as our financial condition. +50 +Table of Content s +Furthermore, we collect and store sensitive data in the ordinary course of our business, including personally identifiable information of our employees as well as our proprietary business information and that of our customers, suppliers, contractors, investors and other stakeholders. Additionally, new laws and regulations governing cybersecurity, data privacy and unauthorized disclosure of confidential information, including international comprehensive data privacy regulations and recent U.S. state legislation in Iowa and Utah, among others, pose increasingly complex compliance challenges and could potentially elevate our costs over time. Our efforts to improve security and protect data may result in increased distraction to management and capital and operating costs to modify, upgrade or enhance our security measures that are designed to protect against such cyberattacks and we may face difficulties in fully anticipating or implementing adequate security measures or mitigating potential harm. Moreover, as technologies evolve and cyberattacks become increasingly sophisticated, we may not be able to anticipate, detect or prevent cyberattacks or security breaches, particularly because the methodologies used by attackers change frequently or may not be recognized until after such attack is launched, and because attackers are increasingly using technologies specifically designed to circumvent cybersecurity measures and avoid detection. We cannot ensure that our insurance coverage will be sufficient to cover all the losses or expenses we may experience as a result of such cyberattacks. Even with insurance coverage for cyberattacks, data breaches or unauthorized access of our or a third-party partner’s information technology systems, a claim could be denied or coverage delayed. Moreover, it is increasingly difficult to buy sufficient cyber insurance coverage as the insurance market has been limiting both liability under cyber policies and the issuance of such policies, generally. A cyberattack or security breach could result in liability under data privacy or securities laws, regulatory penalties, damage to our reputation or a loss of confidence in our products and services, or additional costs for remediation and modification or enhancement of our information and operational systems to prevent future occurrences, all of which could have a material and adverse effect on our business, financial condition or results of operations. +We may be subject to information and operational technology system failures, communications network disruptions and data breaches that are generally beyond our control. +We depend on the efficient and uninterrupted operation of third-party hardware and software systems and infrastructure, including our operating systems, communications systems and financial reporting systems. These systems are critical in meeting customer expectations, effectively tracking, maintaining and operating our equipment, directing and compensating our employees, and interfacing with our financial reporting system. We have implemented safeguards and other preventative measures designed to protect our systems and confidential and proprietary data, including sophisticated network security and internal control measures. However, our information and operational technology systems and communications network, and those of our information and operational technology and communication service providers, remain vulnerable to interruption by natural disasters, power loss, telecommunications failure, terrorist attacks, internet failures, computer malware, ransomware, cyberattacks, data breaches, unsuccessful transition to upgraded or replacement systems and other events unforeseen or generally beyond our control. The increase in companies and individuals working remotely has increased the risk of cyberattacks and potential cybersecurity incidents, both deliberate attacks and unintentional events. Any of these events could cause system interruptions, delays and loss of critical data, and could prevent us from developing or manufacturing products or providing services on a timely basis, which could make our business and services less attractive and subject us to liability. Any of these events could damage our reputation and be expensive to remedy. +51 +Table of Content s +Our business is subject to complex and evolving global laws, regulations and security standards regarding data privacy, cybersecurity and data protection (“data protection obligations”). Many of these data protection obligations are subject to change and uncertain interpretation, and any real or perceived failure to comply with such obligations could result in claims, increased costs of operations, or other harm to our business. +The constantly evolving global regulatory and legislative environment surrounding data privacy and protection poses increasingly complex compliance challenges, and complying with such data protection obligations could increase the costs and complexity of compliance and enforcement risks. These laws also are not uniform, as certain laws may be more stringent or broader in scope, or offer greater individual rights, with respect to sensitive and personal information, and such laws may differ from each other, which may complicate compliance efforts. Our data protection obligations may also change as the regulatory environment governing use and development of AI technologies changes. We, and our third-party service providers, collect some personal information from consumers, including credit card data, and we have personal information from our employees, job applicants and some business partners, such as customers, contractors and distributors. Any failure, whether real or perceived, by us to comply with applicable data protection obligations could result in proceedings or actions against us by governmental entities or others, subject us to significant fines, penalties, judgments, and negative publicity, require us to change our business practices, increase the costs and complexity of compliance, and adversely affect our business. Our compliance with current laws such as the General Data Protection Regulation and other similar current and upcoming data privacy/security laws, as well as any associated inquiries or investigations or any other government actions related to these laws, may increase our operating costs or subject us to legal and reputational risks, including significant fines, civil or criminal penalties or judgments, proceedings or litigation by governmental agencies or customers, class action privacy litigation in certain jurisdictions and negative publicity. +Our pipeline operations are subject to the Department of Homeland Security’s (“DHS”) Transportation Security Administration security directives. These directives require us to comply with mandatory reporting measures, including, among other things, to appoint personnel, report confirmed and potential cybersecurity incidents to the DHS Cybersecurity and Infrastructure Security Agency (“CISA”) and provide vulnerability assessments. As legislation continues to develop and cyber incidents continue to evolve, we may be required to expend significant additional resources to respond to cyberattacks, to continue to modify or enhance our protective measures, or to detect, assess, investigate and remediate any security vulnerabilities and report any cyber incidents to the applicable regulatory authorities. Any failure to maintain compliance with these evolving government regulations may result in enforcement actions which may then result in significant time, support and cost and have a material adverse effect on our business and operations. +We may be unable to adequately maintain, enforce and protect our intellectual property and may not be able to prevent third parties from unauthorized access or use of our intellectual property, which may increase our cost of doing business or otherwise hurt our ability to compete in the market. +We develop and use intellectual property in the ordinary course of our business, including trademarks, trade secrets, copyrighted works and innovations, some of which are material to our business. We take measures designed to identify and protect our intellectual property through practices appropriate for securing and protecting exclusive rights in and to our intellectual property, including applying for registrations in the United States and in various foreign jurisdictions. Despite our efforts to protect such intellectual property, unauthorized third parties from time to time have, and may continue to, illegally obtain, copy, use or disclose our trademarks (or other marks likely to cause confusion among our consumers), technologies, products and processes or seek court declarations that they do not infringe, misappropriate, dilute, or otherwise violate our intellectual property. In addition, the laws and/or judicial systems and enforcement mechanisms of foreign jurisdictions in which we create, market and sell our products may afford little or no effective protection of our intellectual property. We may also be subject to infringement, misappropriation, dilution, or other violation complaints from others challenging our use of a valid technology or intellectual property right. We cannot guarantee that our efforts to enforce our intellectual property rights against unauthorized use and appropriation, or our efforts to defend against third-party claims of infringement would be successful. These potential risks to our intellectual property and any failure to adequately maintain, enforce and protect our intellectual property could subject us to increased competition and potentially result in the loss of our competitive advantage, key technology and resources, and customer trust, and negatively impact our brand. These risks could also lead to a decrease in our revenue which would negatively impact our business, prospects, liquidity, financial position and results of operations. +52 +Table of Content s +If we fail to comply with our obligations under license or technology agreements with third parties or are unable to license rights to use technologies on reasonable terms or at all, we may be required to pay damages or could potentially lose license rights that are critical to our business. +We obtain rights and licenses to certain intellectual property, including technologies, data, content and software from third parties, that are important to our business, and in the future we may enter into additional agreements that provide us with rights or licenses to valuable intellectual property or technology. If a licensor alleges that we failed to comply with any of the obligations under our license agreements, we may be required to pay damages, enter costly litigation, and the licensor may have the right to terminate some or all of the license. Termination by the licensor would cause us to lose valuable rights that may be difficult to acquire elsewhere, and could prevent us from using, selling, marketing, manufacturing, importing or producing our products and services, or inhibit our ability to commercialize future products and services. Our business could suffer if any current or future licenses are limited or terminated, if the licensors fail to abide by the terms of the license, if the licensed intellectual property rights are found to be invalid or unenforceable, if the licensed technology is found to infringe, misappropriate, dilute, or otherwise violate the rights of a third-party, or if we are unable to enter into necessary licenses on acceptable terms or at all. Moreover, our licensors may own or control intellectual property that has not been licensed to us and, as a result, we may be subject to claims, regardless of their merit, that we are infringing, misappropriating, diluting, or otherwise violating the licensor’s or another party’s rights. +In the future, we may identify additional third-party intellectual property that we believe is useful or necessary to engage in our business. However, such licenses may not be available on acceptable terms or at all. The licensing or acquisition of third-party intellectual property rights is a competitive area, and several companies may pursue strategies to license or acquire third-party intellectual property rights that we may consider attractive or necessary. In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. Even if such licenses are available, we may be required to pay the licensor substantial license fees or royalties based on sales of our products and services. Such fees and royalties are a component of the cost of our products and services and may affect the attractiveness of and the margins on our products and services. In addition, such licenses may be non-exclusive, which could give our competitors access to the same intellectual property licensed to us, and sometimes at a cheaper cost. Any of the foregoing could have a material adverse effect on our competitive position, business, financial condition, results of operations and on our ability to prevent others from interfering with our goodwill or the commercialization of our products and services. +RISKS RELATED TO LIQUIDITY, FINANCIAL INSTRUMENTS AND CREDIT +Changes in our credit profile, or a significant increase in the price of crude oil, may affect our relationship with our suppliers, which could have a material adverse effect on our liquidity and limit our ability to purchase sufficient quantities of crude oil to operate our refineries at desired capacity. +An unfavorable credit profile, or a significant increase in the price of crude oil, could affect the way crude oil suppliers view our ability to make payments and induce them to shorten the payment terms of their invoices with us or require credit enhancement. Due to the large dollar amounts and volume of our crude oil and other feedstock purchases, any imposition by our suppliers of more burdensome payment terms or credit enhancement requirements on us may have a material adverse effect on our liquidity and our ability to make payments to our suppliers. This in turn could cause us to be unable to operate our refineries at desired capacity and could adversely affect our profitability and cash flow. +53 +Table of Content s +We may not be able to obtain funding on acceptable terms or at all because of volatility and uncertainty in the credit and capital markets. This may hinder or prevent us from meeting our future capital needs. +The domestic and global financial markets and economic conditions are subject to disruption and volatility from time to time due to a variety of factors, including low consumer confidence, high unemployment, geoeconomic and geopolitical issues, weak economic conditions and uncertainty in the financial services sector. In addition, the fixed-income markets have experienced periods of extreme volatility, which has negatively impacted market liquidity conditions. As a result, the cost of raising money in the debt and equity capital markets has increased substantially at times while the availability of funds from these markets diminished significantly. In particular, as a result of concerns about the stability of financial markets generally and the solvency of lending counterparties specifically, the cost of obtaining money from the credit markets may increase as many lenders and institutional investors increase interest rates, enact tighter lending standards, refuse to refinance existing debt on similar terms or at all and reduce, or in some cases cease to provide, funding to borrowers. We use both fixed and variable rate debt, and we are exposed to market risk due to the floating interest rates on our credit facilities. In addition, lending counterparties under any existing revolving credit facility and other debt instruments may be unwilling or unable to meet their funding obligations, or we may experience a decrease in our capacity to issue debt or obtain commercial credit or a deterioration in our credit profile, including a rating agency lowering or withdrawing our credit ratings if, in its judgment, the circumstances warrant. Due to these factors, we cannot be certain that new debt or equity financing will be available on acceptable terms. If funding is not available when needed, or is available only on unfavorable terms, we may be unable to meet our obligations as they come due or we may be required to sell assets. Moreover, without adequate funding, we may be unable to execute our growth strategy, complete future acquisitions or construction projects, take advantage of other business opportunities or respond to competitive pressures, comply with regulatory requirements, or meet our short-term or long-term working capital requirements, any of which could have a material adverse effect on our revenues and results of operations. Failure to comply with regulatory requirements in a timely manner or meet our short-term or long-term working capital requirements could subject us to regulatory action. +We are exposed to the credit risks and certain other risks of our key customers and vendors. +We are subject to risks of loss resulting from nonpayment or nonperformance by our customers. We derive a significant portion of our revenues from contracts with key customers. Additionally, certain key customers of our Puget Sound Refinery contribute significantly to the cash flows and profitability of that facility. Any default or delay in payment by, or disputes with, those customers, which have occurred in the past and may occur in the future, could have an adverse impact on our financial results. +Any such default or delay in payment by our customers could negatively affect our operating results in the periods in which they occur, and, if significant, could materially or adversely affect our business, financial condition, results of operations, and cash flows. In addition, nonperformance by vendors who have committed to provide us with products or services could result in higher costs or interfere with our ability to successfully conduct our business. +Our credit facilities contain certain covenants and restrictions that may constrain our business and financing activities. +The operating and financial restrictions and covenants in our credit facility and any future financing agreements could adversely affect our ability to finance future operations or capital needs or to engage, expand or pursue our business activities. For example, our revolving credit facility imposes usual and customary requirements for this type of credit facility, including certain limitations on: (i) liens and indebtedness, (ii) changes in control, and (iii) engaging in mergers and consolidations. If we fail to satisfy the covenants set forth in our credit facility or another event of default occurs under our credit facility, the maturity of the loans could be accelerated or we could be prohibited from borrowing for our future working capital needs and issuing letters of credit. We might not have, or be able to obtain, sufficient funds to make these immediate payments. If we desire to undertake a transaction that is prohibited by the covenants in our credit facility we will need to obtain consent under our credit facility. Such consent may not be possible or may not be available on commercially acceptable terms. +Our leverage may adversely affect our ability to fund future working capital, capital expenditures and other corporate purposes, future acquisitions, construction or development activities, or to otherwise realize fully the value of our assets and opportunities because of the need to dedicate a significant portion of our cash flow from operations to payments on our indebtedness or to comply with any restrictive terms of our indebtedness. Our leverage also may make our results of operations more susceptible to adverse economic and industry conditions by limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate and may place us at a competitive disadvantage as compared to our competitors that have less debt. +54 +Table of Content s +Our hedging transactions may limit our gains and expose us to other risks. +We periodically enter into derivative transactions as it relates to inventory levels and/or future production to manage the risks from changes in the prices of crude oil, refined products and other feedstocks. These transactions limit our potential gains if commodity prices move above or below certain price levels established by our hedging instruments. We hedge price risk on inventories above our target levels to minimize the impact these price fluctuations have on our earnings and cash flows. Consequently, our hedging results may fluctuate significantly from one reporting period to the next depending on commodity price fluctuations and our relative physical inventory positions. These transactions may also expose us to risks of financial losses; for example, if our production is less than we anticipated at the time we entered into a hedge agreement or if a counterparty to our hedge agreements fails to perform its obligations under the agreements. +We may be unable to pay future dividends. +We will only be able to pay dividends from our available cash on hand, cash from operations or borrowings under our credit agreement. The declaration of future dividends on our common stock is evaluated quarterly and will be at the discretion of our Board of Directors and will depend upon many factors, including our results of operations, financial condition, earnings, capital requirements, and restrictions in our debt agreements and legal requirements. We cannot assure you that any dividends will be paid or the frequency or amounts of such payments. +Item 1B. Unresolved Staff Comments +We do not have any unresolved staff comments. +Item 1C. Cybersecurity +Description of Processes for Assessing, Identifying, and Managing Cybersecurity Risks +We focus on cybersecurity risk, particularly as our operations become increasingly dependent on digital technologies for managing our plants and pipelines, processing transactions and summarizing and reporting results of operations. Globally, as cybersecurity incidents are occurring more often and are being perpetrated using increasingly sophisticated methods, we are at risk for interruptions, outages and breaches of operational systems, including business, financial, accounting, product development, data processing or manufacturing processes, owned by us or our third-party vendors or suppliers, or data that we process or that our third-party service providers process on our behalf. Any such cyber incidents have the potential to materially disrupt or shutdown operational systems; result in loss of, unauthorized access to, or copying or transfer of intellectual property assets, trade secrets or other proprietary or competitively sensitive information; compromise certain information of customers, employees, suppliers or others; and/or jeopardize the security of our facilities. We collect and store sensitive data in the ordinary course of our business, including certain personally identifiable information and proprietary business information for our business and our customers, suppliers, contractors, investors and other stakeholders. We also work with third-party service providers that may in the course of their business relationship with us collect, store, process and transmit such data on our behalf. +As further described in Item 1A “Risk Factors – Risks Related to Cybersecurity, Data Security, and Privacy, Information Technology and Intellectual Property,” the DHS’s Transportation Security Administration has issued a series of security directives that require us to take a number of actions, including among other things, appointing personnel, reporting confirmed and potential cybersecurity incidents to the DHS Cybersecurity and Infrastructure Security Agency and providing vulnerability assessments. We have adopted a cybersecurity program, which uses technology and processes designed to help mitigate cybersecurity risks, with our information technology (“IT”) and operational technology (“OT”) teams working together to protect, identify, detect, mitigate and respond to potential cybersecurity incidents that threaten our Company. Our cybersecurity program includes a process for overseeing and identifying cybersecurity risks associated with our third-party service providers. +We have made efforts to implement the National Institute of Standards and Technology (NIST) Cybersecurity Framework as well as supplemental guidance for information and operational technologies. We seek to follow federal and state statutory and regulatory guidance and have adopted internal policies and standards designed to align with these requirements. +We regularly engage independent third-party security consultants to help assess and monitor our IT and OT environments for vulnerabilities, to conduct penetration testing and to recommend mitigation strategies. In addition, we use third-party tools for vulnerability scans to identify external and internal risks. +55 +Table of Content s +Employees’ and contractors’ abilities to recognize and report cybersecurity threats is an important component of our cybersecurity program. On an annual basis, all Company employees are required to complete cybersecurity training. In addition, we regularly utilize employee exercises and communications designed to reinforce key cybersecurity training messages. +The above cybersecurity risk management processes are integrated into our overall risk management program. In addition to our efforts to continually evaluate our cybersecurity program and cybersecurity risks based upon emerging threats as part of our risk management processes, cybersecurity risks to the Company are evaluated periodically through internal audits and annually by independent consultants, and we seek to incorporate learnings into our overall risk matrices. +We continue to make investments in new cybersecurity technologies to protect our facilities, users, and stakeholders, and to protect the personally identifiable information we maintain. +Board of Directors’ Oversight of Cybersecurity Risks +Cybersecurity risks are overseen by our full Board of Directors, while our Audit Committee also receives and reviews updates on the results of internal audit assessments and tests related to cybersecurity, data privacy and IT matters. As part of this oversight, the Board of Directors meets regularly to discuss the progress of ongoing initiatives and to seek coordination between enterprise stakeholders. At these meetings, our Chief Information Officer (“CIO”), who oversees the Company’s cybersecurity program, along with the Chief Information Security Officer (“CISO”) and key subject matter experts, as necessary, review current and emerging cybersecurity-related threats as well as key performance indicators for cybersecurity process maturity, operational performance, and enterprise performance in countering these threats. Based on the information provided through these various processes, our Board of Directors evaluates the risks facing us and provides guidance to management on our risk management strategy. +Management’s Role in Assessing and Managing Cybersecurity Risks +The CIO, in collaboration with our CISO, and other key leaders across HF Sinclair operations, are primarily responsible for assessing and managing our material risks from cybersecurity threats, monitoring the effectiveness of our cybersecurity detection and response processes in countering current threats and providing updates to our executive team. +The CIO has over 25 years of Information Technology experience, 20 of those years leading large programs within the Oil & Gas industry, including mergers and acquisitions, cybersecurity, digital transformation. The CISO also brings over 30 years of Information Technology experience, with almost 20 years of Oil & Gas experience that includes IT & OT Cybersecurity and technology infrastructure. +The CIO serves as Executive Sponsor, and the CISO serves as Managing Chair, of the Company’s management level Cybersecurity Risk and Controls Review Committee, which provides oversight over the Company’s strategy and controls to identify, manage and mitigate risks related to cybersecurity and incident response and resiliency associated with the Company’s IT and OT environments, and is comprised of representatives from compliance, IT and OT cybersecurity, internal audit, legal and risk. The Sponsor of the Cybersecurity Risk and Controls Review Committee reports to the Company’s management level Risk Management Oversight Committee on a regular basis. Both the Executive Sponsor and Managing Chair of the Cybersecurity Risk and Controls Review Committee report to the Board of Directors on a regular basis. +The Company has adopted an integrated Cybersecurity Incident Response Plan that establishes guidelines for responding to incidents that may compromise the confidentiality, integrity and availability of Company information and systems, including referring matters to the Company’s Crisis Management Team and, as appropriate, to the Chief Executive Officer and the Board of Directors for additional evaluation and oversight. +As of the date of this Annual Report on Form 10-K, while the Company and our service providers have experienced certain cybersecurity incidents, we are not aware of any previous cybersecurity threats that have materially affected or are reasonably likely to materially affect the Company. However, we acknowledge that cybersecurity threats are continually evolving, and the possibility of future cybersecurity incidents remains. Despite the implementation of our cybersecurity processes, our security measures cannot guarantee that a significant cybersecurity attack will not occur. While we devote resources to our security measures designed to protect our systems and information, no security measure is infallible. See Item 1A “Risk Factors – Risks Related to Cybersecurity, Data Security, and Privacy, Information Technology and Intellectual Property” for additional information about the risks to our business associated with a breach or compromise to our IT systems. +56 +Table of Content s +Item 3. Legal Proceedings +Commitment and Contingency Reserves +In the ordinary course of business, we may become party to legal, regulatory or administrative proceedings or governmental investigations, including environmental and other matters. Damages or penalties may be sought from us in some matters and certain matters may require years to resolve. While the outcome and impact of these proceedings and investigations on us cannot be predicted with certainty, based on advice of counsel and information currently available to us, management believes that the resolution of these proceedings and investigations through settlement or adverse judgment will not either individually or in the aggregate have a material adverse effect on our financial condition, results of operations or cash flows. +The environmental proceedings are reported to comply with SEC regulations which require us to disclose proceedings arising under provisions regulating the discharge of materials into the environment or protecting the environment when a governmental authority is party to the proceedings and such proceedings involve potential monetary sanctions that we reasonably believe could exceed $1 million or more. +Environmental Matters +Puget Sound +HF Sinclair Puget Sound Refining LLC (“HFS Puget Sound”) has been engaged in discussions with, and has responded to document requests from, the Northwest Clean Air Agency, the EPA and the DOJ (collectively, the “PSR Matter Government Agencies”) regarding HFS Puget Sound’s compliance with the CAA, Emergency Planning and Community Right-to-Know Act (“EPCRA”) and related regulations, and similar Washington laws and regulations, at its Puget Sound Refinery. HFS Puget Sound acquired the Puget Sound Refinery from Equilon Enterprises LLC dba Shell Oil Products US (“SOPUS”) on November 1, 2021. The discussions with the PSR Matter Government Agencies have included the following topics: (a) an information request issued in March 2022 by the EPA, pursuant to CAA Section 114, covering periods of ownership of the Puget Sound Refinery by both HFS Puget Sound and SOPUS; (b) a Notice of Violation issued by the EPA to SOPUS and HFS Puget Sound on September 29, 2023, alleging violations of the CAA, EPCRA and the Pollution Prevention Act; and (c) the PSR Matter Government Agencies’ proposed injunctive relief terms presented to SOPUS and HFS Puget Sound on June 28 and July 15, 2024, covering various process units at Puget Sound Refinery to address the alleged noncompliance. On October 31, 2024, HFS Puget Sound presented its counteroffer to the PSR Matter Government Agencies’ proposed injunctive relief terms. HFS Puget Sound is awaiting a response from the PSR Matter Government Agencies to its October 31, 2024 counteroffer to resolve these issues. HFS Puget Sound believes that it is entitled to indemnification for certain of the matters described above. +At this time, no penalties have been demanded, and it is too early to predict the outcome of this matter. +Renewable Fuel Standard +On April 7, 2022, the EPA issued a decision reversing the grant of small refinery exemptions for our Woods Cross Refinery and Cheyenne Refinery for the 2018 compliance year. On June 3, 2022, the EPA issued a decision reversing the grant of small refinery exemptions for our Woods Cross Refinery and Cheyenne Refinery for the 2016 compliance year and denying small refinery exemption petitions for our Woods Cross Refinery and Cheyenne Refinery for the 2019 and 2020 compliance years. +Certain of our subsidiaries pursued legal challenges to the EPA’s decisions to deny small refinery exemptions for the 2016, 2018, 2019 and 2020 compliance years. The first lawsuit, filed against the EPA on May 6, 2022, before the DC Circuit, sought to have the EPA’s reversal of our 2018 small refinery exemption petitions overturned. The second lawsuit, filed against the EPA on August 5, 2022, before the DC Circuit, sought to have the EPA’s reversal of our 2016 small refinery exemption petitions overturned and to have the EPA’s denial of our 2019 and 2020 small refinery exemption petitions reversed. +In addition, for both the 2016 and 2018 compliance years, pursuant to the June 2022 and April 2022 decisions, the EPA established an alternative compliance demonstration for small refineries pursuant to which the EPA is not imposing any obligations for the small refineries whose exemptions were reversed. On June 24, 2022, Growth Energy filed two lawsuits in the DC Circuit against the EPA, challenging the alternative compliance demonstration for the 2016 and 2018 compliance years. On July 25, 2022, certain of our subsidiaries intervened on behalf of the EPA to aid the defense of the EPA’s alternative compliance demonstration. +57 +Table of Content s +On July 26, 2024, the DC Circuit issued a favorable decision vacating the EPA’s denial of all of our small refinery exemption petitions, finding the denial to be unlawful. The DC Circuit remanded the small refinery exemption petitions to the EPA for new determination. The DC Circuit also upheld the alternative compliance demonstration and denied Growth Energy’s challenge. +On August 22, 2025, the EPA granted, in whole or in part, small refinery exemption petitions for the Woods Cross Refinery, Cheyenne Refinery, Casper Refinery and Parco Refinery for various compliance years from 2019 to 2024. The EPA also denied, in whole or in part, small refinery exemption petitions for the Cheyenne Refinery, Woods Cross Refinery, Casper Refinery, and Parco Refinery for various compliance years from 2019 to 2024. +In October 2025, certain of our subsidiaries filed lawsuits in the DC Circuit to overturn the EPA’s August 2025 denials and other actions. +On November 7, 2025, the EPA granted in whole small refinery exemption petitions for our refinery at our Tulsa East facility for compliance years 2023 and 2024. The EPA also granted partial exemptions for 12 small refinery exemption petitions from other refining companies and denied two petitions. On December 11, 2025, the Renewable Fuels Association filed a lawsuit in the DC Circuit to overturn the EPA’s November 2025 grants. On January 8, 2026, the DC Circuit consolidated the Renewable Fuels Association’s lawsuit with ours and other petitioners’ lawsuits regarding the EPA’s August 2025 exemption decisions. On January 12, 2026, certain of our subsidiaries filed a motion to intervene in the lawsuit to defend the EPA’s grant of our small refinery exemption petitions. +These lawsuits remain pending, and we are unable to estimate the costs we may incur, if any, at this time. +Other +We are a party to various other litigation and proceedings that we believe, based on the advice of counsel, will not either individually or in the aggregate have a materially adverse impact on our financial condition, results of operations or cash flows. +Item 4. Mine Safety Disclosures +Not Applicable. +58 +Table of Content s +PART II +Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +Our common stock is traded on the New York Stock Exchange and NYSE Texas, Inc. under the trading symbol “DINO.” +In May 2024, our Board of Directors approved a $1.0 billion share repurchase program (the “2024 Share Repurchase Program”), which replaced all existing share repurchase programs. The 2024 Share Repurchase Program authorizes us to repurchase common stock in the open market or through privately negotiated transactions. Privately negotiated repurchases from REH Advisors Inc. (“REH”) are also authorized under the 2024 Share Repurchase Program, subject to REH’s interest in selling its shares and other limitations. The timing and amount of share repurchases, including those from REH, will depend on market conditions and corporate, tax, regulatory and other relevant considerations. In addition, we are authorized by our Board of Directors to repurchase shares in an amount sufficient to offset shares issued under our compensation programs. The 2024 Share Repurchase Program may be discontinued at any time by our Board of Directors. +The following table includes repurchases made under this program during the fourth quarter of 2025: +Period Total Number of +Shares Purchased Average Price +Paid per Share Total Number +of Shares Purchased as +Part of Publicly Announced Plans or Programs +Maximum Dollar Value +of Shares that May Yet +Be Purchased Under the +Plans or Programs +(In millions, except share and per share data) +October 2025 +— $ — — $ 589 +November 2025 +2,094,492 $ 53.42 2,094,492 $ 477 +December 2025 +350,000 $ 51.07 350,000 $ 459 +Total for October to December 2025 +2,444,492 2,444,492 +As of December 31, 2025, $459 million remained available for share repurchases under the 2024 Share Repurchase Program. For more information on our repurchases, see Note 16 “Stockholders’ Equity” in the Notes to the Consolidated Financial Statements. +As of February 20, 2026, we had approximately 1,427 registered holders of our common stock. A substantially greater number of holders of our common stock are “street name” or beneficial holders, whose shares of record are held by banks, brokers and other financial institutions. +The declaration and payment of dividends remain at the full discretion of the Board of Directors and depends on our financial results, cash requirements, future prospects and other factors deemed relevant by the Board of Directors. +Item 6. [ Reserved] +Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations +This Item 7 contains “forward-looking” statements. See “Forward-Looking Statements” at the beginning of this Annual Report on Form 10-K. In this document, the words “we,” “our,” “ours” and “us” refer only to HF Sinclair and its consolidated subsidiaries or to HF Sinclair or an individual subsidiary and not to any other person with certain exceptions. +We use certain non-GAAP financial measures in our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”). For a description of each of the non-GAAP measures used in this MD&A, please refer to the discussion under “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” in Item 7 of Part II of this Annual Report on Form 10-K. This item should be read in conjunction with our Consolidated Financial Statements and the notes thereto included in this Annual Report. +The comparison between the years ended December 31, 2024 and 2023 have been omitted from this Annual Report on Form 10-K for the year ended December 31, 2025, as such information can be found in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2024, which was filed on February 20, 2025. +59 +Table of Content s +OVERVIEW +We are an independent energy company that produces and markets high-value light products such as gasoline, diesel fuel, jet fuel, renewable diesel and lubricants and specialty products. We own and operate refineries located in Kansas, Oklahoma, New Mexico, Wyoming, Washington and Utah. We provide petroleum product and crude oil transportation, terminalling, storage and throughput services to our refineries and the petroleum industry. We market our refined products principally in the Southwest United States, the Rocky Mountains extending into the Pacific Northwest and in other neighboring Plains states, and we supply high-quality fuels to more than 1,700 brand ed stations and license the use of the Sinclair brand to more than 350 a d ditional locations throughout the country. We produce renewable diesel at two of our facilities in Wyoming and one facility in New Mexico. In addition, our subsidiaries produce and market base oils and other specialized lubricants in the United States, Canada and the Netherlands, and export products to more than 80 countries. +Market Developments +For the year ended December 31, 2025, Net income attributable to HF Sinclair stockholders was $579 million compared to $177 million for the year ended December 31, 2024. Adjusted refinery gross margin per produced barrel sold in our Refining segment for 2025 increased 47% over the year ended December 31, 2024. +In the Refining segment, we saw improved refining margins in the Mid-Continent and West regions in 2025. Small refinery RINs waivers granted by the EPA increased adjusted refinery gross margins by $485 million. Additionally, our results were impacted by planned turnarounds at our Parco, Puget Sound and Tulsa refineries that were completed during 2025. For the first quarter of 2026, we expect to run between 585,000-615,000 barrels per day of crude oil, which reflects the planned turnarounds at our Puget Sound and Woods Cross refineries. +In the Renewables segment, we saw lower volumes and margins. Margins were negatively impacted by the lower value of benefit from the recognition of the Producer’s Tax Credit (“PTC”) in 2025 compared to the Blender’s Tax Credit in 2024. Margins were also impacted by volatility in feedstock costs, RINs and LCFS prices. For the first quarter of 2026, we expect continued volatility in RINs and LCFS prices and to capture incrementally more value from the PTC. +In the Marketing segment, we saw strong value in the Sinclair branded sites during 2025 as the marketing business provided a consistent sales channel with margin uplift for our produced fuels. We expect to grow the number of branded sites by approximately 10% annually. In February 2026, we announced the formation of Green Trail Fuels, LLC, a new joint venture in which we will hold a 50% non-operating economic interest. The joint venture will include retail sites across Colorado and New Mexico and will be supplied fuel by our refineries, strengthening our branded marketing footprint in the Rocky Mountain and Southwest regions. +In the Lubricants & Specialties segment, we continued to improve our sales mix optimization and base oil integration across our portfolio during 2025. Our results were impacted by the planned turnaround at our Mississauga facility and headwinds related to base oil margins. In the first quarter of 2026, we completed our acquisition of Industrial Oils Unlimited, LLC for $38 million, which will enable us to continue improving our sales mix optimization and base oil integration efforts across our portfolio. +In the Midstream segment, our results benefited from higher third-party pipeline revenues and lower operating expenses in 2025. +We continue to adjust our operational plans to evolving market conditions. The extent to which our future results are affected by volatile regional and global economic conditions, including ongoing tariff and trade negotiations, will depend on various factors and consequences beyond our control. +On May 7, 2024, our Board of Directors authorized a $1.0 billion share repurchase program (the “2024 Share Repurchase Program”). The timing and amount of share repurchases under the 2024 Share Repurchase Program, including those from REH Advisors Inc. (“REH”), will depend on market conditions and corporate, tax, regulatory and other relevant conditions. We repurchased 6,908,293 shares for $340 million for the year ended December 31, 2025, under open market and privately negotiated purchases. +On February 18, 2026, our Board of Directors announced that it declared a regular quarterly dividend in the amount of $0.50 per share. The dividend is payable on March 12, 2026 to holders of record of common stock on March 2, 2026. +60 +Table of Content s +One Big Beautiful Bill Act +On July 4, 2025, the President signed the One Big Beautiful Bill Act (“OBBBA”) into law. Among other things, OBBBA extends the PTC under Section 45Z through the end of 2029, indefinitely extends the first-year depreciation allowance on qualified property placed in service after January 19, 2025, and extends and enhances many of the provisions enacted under the 2017 Tax Cuts and Jobs Act. The enactment of OBBBA did not materially impact our results of operations but did reduce cash taxes paid. +Renewable Fuel Standard Regulations +Pursuant to the 2007 Energy Independence and Security Act, the EPA promulgated the Renewable Fuel Standard (“RFS”) regulations, which increased the volume of renewable fuels mandated to be blended into the nation’s fuel supply. The regulations, in part, require refiners to annually increase amounts of “renewable fuels” relative to their petroleum products or purchase credits, known as RINs, in lieu of such blending. Compliance with RFS regulations significantly increases our Cost of materials and other , with RINs costs totaling $475 million for the year ended December 31, 2025. Small refinery RINs waivers granted by the EPA increased pre-tax earnings by $485 million, of which $203 million was recognized in Cost of materials and other and $282 million was recognized in Sales and other revenues . At December 31, 2025, our open RINs credit obligations were $43 million. +HF Sinclair Management and Audit Committee Process +As previously disclosed, the Audit Committee of our Board of Directors engaged in an assessment of certain matters relating to the Company’s disclosure processes in relation to the reporting of the Company’s financial results for the fourth quarter of 2025 and full-year 2025. That assessment began in January 2026 after Mr. Atanas Atanasov, the Company’s Executive Vice President and Chief Financial Officer, raised concerns that certain actions taken by Mr. Tim Go, Chief Executive Officer and President, created an unfavorable “tone at the top” in relation to the 2025 disclosure processes. The Company’s management and the Audit Committee, with the support of external legal counsel, reviewed the concerns and other relevant information. In the course of these reviews, the Board of Directors developed separate concerns about the approach taken by Mr. Go in some communications made to management during the 2025 disclosure processes. Also, as previously discussed, on February 17, 2026, the Board of Directors received a request from Mr. Go to take a voluntary leave of absence from his duties as an officer and director of the Company. The Board of Directors accepted Mr. Go’s request, and his leave commenced on such date. +On February 17, 2026, the Board of Directors also appointed the current Chairperson of the Board of Directors, Mr. Franklin Myers, as Chief Executive Officer and President of the Company on a temporary basis. +Also, during the latter stages of this review, a separate concern developed relating to certain actions taken by Mr. Atanasov bearing upon the review process conducted by the Company’s management and the Audit Committee and the viability of his future working relationships with other members of the Company’s management team. After discussion of these concerns, on February 24, 2026, the Board of Directors received a request from Mr. Atanasov to take a voluntary leave of absence from his duties. The Board of Directors accepted Mr. Atanasov’s request, and his leave commenced on such date. Also on February 24, 2026, the Board of Directors appointed Mr. Vivek Garg, the Company’s Vice President, Chief Accounting Officer and Controller, as acting Chief Financial Officer of the Company, effective as of such date. See Item 9B “Other Information.” +The Company currently expects to negotiate a mutually agreeable separation arrangement with each of Mr. Go and Mr. Atanasov. +The Audit Committee has completed its review and has concluded that the certain actions referenced above did not create an unfavorable “tone at the top” in relation to the 2025 disclosure processes and that the Company’s disclosure controls and procedures are effective. See Item 9A “Controls and Procedures.” +A more detailed discussion of our financial and operating results for the years ended December 31, 2025 and 2024 is presented in the following sections. +61 +Table of Content s +RESULTS OF OPERATIONS +Financial Data +Years Ended December 31, +2025 2024 2023 +(In millions, except share and per share data) +Sales and other revenues $ 26,869 $ 28,580 $ 31,964 +Operating costs and expenses: +Cost of sales: (1) +Cost of materials and other (2) +21,760 24,582 25,784 +Lower of cost or market inventory valuation adjustments 417 (43) 271 +Operating expenses 2,391 2,484 2,438 +24,568 27,023 28,493 +Selling, general and administrative expenses (1) +456 447 497 +Depreciation and amortization 909 832 771 +Other operating expenses, net 9 17 — +Total operating costs and expenses 25,942 28,319 29,761 +Income from operations 927 261 2,203 +Other income (expense): +Earnings of equity method investments 33 32 17 +Interest income 42 75 94 +Interest expense (217) (165) (191) +Other income (expense), net +(53) 15 30 +(195) (43) (50) +Income before income taxes 732 218 2,153 +Income tax expense (benefit): +Current 139 83 249 +Deferred 7 (49) 193 +146 34 442 +Net income 586 184 1,711 +Less: net income attributable to noncontrolling interest 7 7 121 +Net income attributable to HF Sinclair stockholders $ 579 $ 177 $ 1,590 +Earnings per share attributable to HF Sinclair stockholders: +Basic $ 3.08 $ 0.91 $ 8.29 +Diluted $ 3.08 $ 0.91 $ 8.29 +Average number of common shares outstanding (in thousands): +Basic 186,465 192,073 190,035 +Diluted 186,465 192,073 190,035 +(1) Exclusive of Depreciation and amortization . +(2) Exclusive of Lower of cost or market inventory valuation adjustments. +62 +Table of Content s +Other Financial Data +Years Ended December 31, +2025 2024 2023 +(In millions) +Net cash provided by operating activities $ 1,315 $ 1,110 $ 2,297 +Net cash used for investing activities $ (516) $ (468) $ (371) +Net cash used for financing activities $ (631) $ (1,182) $ (2,244) +Capital expenditures $ 449 $ 470 $ 385 +EBITDA (1) +$ 1,809 $ 1,133 $ 2,900 +(1) Earnings before interest, taxes, depreciation and amortization, which we refer to as “EBITDA,” is calculated as Net income attributable to HF Sinclair stockholders plus (i) Income tax expense (benefit) , (ii) Interest expense , net of Interest income and (iii) Depreciation and amortization . EBITDA is not a calculation provided for under GAAP; however, the amounts included in the EBITDA calculation are derived from amounts included in our consolidated financial statements. EBITDA should not be considered as an alternative to Net income or Income from operations as an indication of our operating performance or as an alternative to operating cash flow as a measure of liquidity. EBITDA is not necessarily comparable to similarly titled measures of other companies. EBITDA is presented here because it is a financial indicator widely used by investors and analysts to measure performance. EBITDA is also used by our management for internal analysis and as a basis for financial covenants. EBITDA presented above is reconciled to Net income under “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” in Item 7 of Part II of this Annual Report on Form 10-K. +Supplemental Segment Operating Data +Our operations are organized into five reportable segments, Refining, Renewables, Marketing, Lubricants & Specialties and Midstream. See Note 19 “Segment Information” in the Notes to Consolidated Financial Statements for additional information on our reportable segments. +Refining Segment Operating Data +The disaggregation of our refining geographic operating data is presented in two regions, Mid-Continent and West, to best reflect the economic drivers of our refining operations. The Mid-Continent region is comprised of the El Dorado and Tulsa refineries. The West region is comprised of the Puget Sound, Navajo, Woods Cross, Parco and Casper refineries. The following tables set forth information, including non-GAAP performance measures, about our consolidated refinery operations. Adjusted refinery gross margin per produced barrel sold is total Refining segment gross margin plus Lower of cost or market inventory valuation adjustments, Depreciation and amortization and Operating expenses, divided by sales volumes of produced refined products. This margin measure does not include the non-cash effects of Lower of cost or market inventory valuation adjustments , which relate to inventory held at the end of the period. Reconciliations to amounts reported under GAAP are provided under “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” in Item 7 of Part II of this Annual Report on Form 10-K. +Years Ended December 31, +2025 2024 2023 +Mid-Continent Region +Crude charge (BPD) (1) +267,030 251,650 237,510 +Refinery throughput (BPD) (2) +284,620 267,200 256,810 +Sales of produced refined products (BPD) (3) +270,920 267,130 248,330 +Refinery utilization (4) +102.7 % 96.8 % 91.4 % +Average per produced barrel sold: (5) +Gross margin (6) +$ 3.45 $ (0.27) $ 6.65 +Operating expenses (7) +6.48 6.65 6.92 +Adjusted refinery gross margin (8) +$ 14.38 $ 8.21 $ 17.31 +Less: adjusted refinery operating expenses (9) +6.48 6.65 6.92 +Adjusted refinery gross margin, less adjusted refinery operating expenses $ 7.90 $ 1.56 $ 10.39 +Operating expenses per throughput barrel (10) +$ 6.16 $ 6.65 $ 6.69 +Adjusted refinery operating expenses per throughput barrel (9) (11) +$ 6.16 $ 6.65 $ 6.69 +63 +Table of Content s +Years Ended December 31, +2025 2024 2023 +Mid-Continent Region +Feedstocks: +Sweet crude oil 51 % 54 % 56 % +Sour crude oil 26 % 23 % 20 % +Heavy sour crude oil 17 % 17 % 16 % +Other feedstocks and blends 6 % 6 % 8 % +Total 100 % 100 % 100 % +Sales of produced refined products: +Gasolines 52 % 52 % 51 % +Diesel fuels 31 % 31 % 30 % +Jet fuels 7 % 6 % 6 % +Fuel oil 1 % 1 % 1 % +Asphalt 3 % 4 % 4 % +Base oils 4 % 4 % 4 % +LPG and other 2 % 2 % 4 % +Total +100 % 100 % 100 % +West Region +Crude charge (BPD) (1) +337,320 350,430 330,030 +Refinery throughput (BPD) (2) +367,460 376,050 360,200 +Sales of produced refined products (BPD) (3) +367,160 370,040 353,950 +Refinery utilization (4) +80.7 % 83.8 % 79.0 % +Average per produced barrel sold: (5) +Gross margin (6) +$ 3.35 $ 0.61 $ 11.34 +Operating expenses (7) +8.84 9.32 9.69 +Adjusted refinery gross margin (8) +$ 16.10 $ 12.04 $ 23.69 +Less: adjusted refinery operating expenses (9) +8.84 9.06 9.69 +Adjusted refinery gross margin, less adjusted refinery operating expenses $ 7.26 $ 2.98 $ 14.00 +Operating expenses per throughput barrel (10) +$ 8.83 $ 9.17 $ 9.53 +Adjusted refinery operating expenses per throughput barrel (9) (11) +$ 8.83 $ 8.92 $ 9.53 +Feedstocks: +Sweet crude oil 32 % 34 % 30 % +Sour crude oil 44 % 43 % 45 % +Heavy sour crude oil 11 % 10 % 11 % +Wax crude oil 5 % 6 % 6 % +Other feedstocks and blends 8 % 7 % 8 % +Total 100 % 100 % 100 % +Sales of produced refined products: +Gasolines 54 % 52 % 54 % +Diesel fuels 32 % 32 % 31 % +Jet fuels 5 % 6 % 6 % +Fuel oil 2 % 2 % 2 % +Asphalt 2 % 2 % 2 % +LPG and other 5 % 6 % 5 % +Total 100 % 100 % 100 % +64 +Table of Content s +Years Ended December 31, +2025 2024 2023 +Consolidated +Crude charge (BPD) (1) +604,350 602,080 567,540 +Refinery throughput (BPD) (2) +652,080 643,250 617,010 +Sales of produced refined products (BPD) (3) +638,080 637,170 602,280 +Refinery utilization (4) +89.1 % 88.8 % 83.7 % +Average per produced barrel sold: (5) +Gross margin (6) +$ 3.39 $ 0.24 $ 9.41 +Operating expenses (7) +7.84 8.20 8.55 +Adjusted refinery gross margin (8) +$ 15.37 $ 10.43 $ 21.06 +Less: adjusted refinery operating expenses (9) +7.84 8.05 8.55 +Adjusted refinery gross margin, less adjusted refinery operating expenses $ 7.53 $ 2.38 $ 12.51 +Operating expenses per throughput barrel (10) +$ 7.67 $ 8.12 $ 8.35 +Adjusted refinery operating expenses per throughput barrel (9) (11) +$ 7.67 $ 7.98 $ 8.35 +Feedstocks: +Sweet crude oil 40 % 42 % 42 % +Sour crude oil 36 % 35 % 34 % +Heavy sour crude oil 14 % 13 % 13 % +Wax crude oil 3 % 4 % 3 % +Other feedstocks and blends 7 % 6 % 8 % +Total 100 % 100 % 100 % +Sales of produced refined products: +Gasolines 53 % 53 % 53 % +Diesel fuels 31 % 31 % 30 % +Jet fuels 6 % 6 % 6 % +Fuel oil 2 % 1 % 1 % +Asphalt 2 % 3 % 3 % +Base oils 2 % 2 % 2 % +LPG and other 4 % 4 % 5 % +Total 100 % 100 % 100 % +(1) Crude charge represents the barrels per day of crude oil processed at our refineries. +(2) Refinery throughput represents the barrels per day of crude and other refinery feedstocks input to the crude units and other conversion units at our refineries. +(3) Represents barrels sold of refined products produced at our refineries (including Asphalt and intersegment sales) and does not include volumes of refined products purchased for resale or volumes of excess crude oil sold. +(4) Represents crude charge divided by total crude capacity (BPSD). Our consolidated crude capacity i s 678,000 BPSD. +(5) Represents the average amount per produced barrel sold, which is a non-GAAP measure. Reconciliations to amounts reported under GAAP are provided under “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” in Item 7 of Part II of this Annual Report on Form 10-K. +(6) Gross margin represents total Refining segment Sales and other revenues less Cost of materials and other , Lower of cost or market inventory valuation adjustments , Operating expenses and Depreciation and amortization , divided by sales volumes of produced refined products. +(7) Represents total Refining segment Operating expenses , exclusive of Depreciation and amortization , divided by sales volumes of produced refined products. +(8) Adjusted refinery gross margin is a non-GAAP measure. Reconciliations to amounts reported under GAAP are provided under “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” in Item 7 of Part II of this Annual Report on Form 10-K. +(9) Adjusted refinery operating expenses is a non-GAAP measure. Reconciliations to amounts reported under GAAP are provided under “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” in Item 7 of Part II of this Annual Report on Form 10-K. +(10) Represents total Refining segment Operating expenses , exclusive of Depreciation and amortization , divided by refinery throughput. +(11) Represents total Refining segment adjusted refinery operating expense s , exclusive of Depreciation and amortization , divided by refinery throughput. +65 +Table of Content s +Renewables Segment Operating Data +The following table sets forth information, including non-GAAP performance measures, about our renewables operations. Adjusted renewables gross margin per produced gallon sold is total Renewables segment gross margin plus Lower of cost or market inventory valuation adjustments , Depreciation and amortization and Operating expenses , divided by sales volumes of produced renewables products. This margin measure does not include the non-cash effects of Lower of cost or market inventory valuation adjustments , which relate to volumes in inventory at the end of the period. Reconciliations to amounts reported under GAAP are provided under “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” in Item 7 of Part II of this Annual Report on Form 10-K. +Years Ended December 31, +2025 2024 2023 +Renewables +Sales of produced renewables products (in thousand gallons) +213,713 255,639 215,510 +Average per produced gallon sold: (1) +Gross margin (2) +$ (0.60) $ (0.33) $ (0.59) +Adjusted renewables gross margin (3) +$ 0.26 $ 0.33 $ 0.50 +Less: operating expenses (4) +0.42 0.39 0.51 +Adjusted renewables gross margin, less operating expenses $ (0.16) $ (0.06) $ (0.01) +(1) Represents the average amount per produced gallon sold, which is a non-GAAP measure. Reconciliations to amounts reported under GAAP are provided under “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” in Item 7 of Part II of this Annual Report on Form 10-K. +(2) Gross margin represents total Renewables segment Sales and other revenues less Cost of materials and other , Lower of cost or market inventory valuation adjustments , Operating expenses and Depreciation and amortization , divided by sales volumes of produced renewables products. +(3) Adjusted renewables gross margin is a non-GAAP measure. Reconciliations to amounts reported under GAAP are provided under “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” in Item 7 of Part II of this Annual Report on Form 10-K. +(4) Represents total Renewables segment Operating expenses , exclusive of Depreciation and amortization , divided by sales volumes of produced renewables products. +66 +Table of Content s +Marketing Segment Operating Data +The following table sets forth information, including non-GAAP performance measures, about our marketing operations and includes our Sinclair branded fuel business. Adjusted marketing gross margin per gallon sold is total Marketing segment gross margin plus Depreciation and amortization , divided by sales volumes of marketing products. Reconciliations to amounts reported under GAAP are provided under “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” in Item 7 of Part II of this Annual Report on Form 10-K. +Years Ended December 31, +2025 2024 2023 +Marketing +Number of branded sites at period end (1) +1,744 1,627 1,540 +Sales of refined products (in thousand gallons) +1,328,006 1,376,291 1,441,607 +Average per gallon sold: (2) +Gross margin (3) +$ 0.08 $ 0.06 $ 0.05 +Adjusted marketing gross margin (4) +$ 0.11 $ 0.08 $ 0.07 +(1) Includes certain non-Sinclair branded sites. +(2) Represents the average amount per gallon sold, which is a non-GAAP measure. Reconciliations to amounts reported under GAAP are provided under “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” in Item 7 of Part II of this Annual Report on Form 10-K. +(3) Gross margin represents total Marketing segment Sales and other revenues less Cost of materials and other and Depreciation and amortization , divided by sales volumes of marketing products. +(4) Adjusted marketing gross margin is a non-GAAP measure. Reconciliations to amounts reported under GAAP are provided under “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” in Item 7 of Part II of this Annual Report on Form 10-K. +Lubricants & Specialties Segment Operating Data +The following table sets forth information about our lubricants and specialties operations. +Years Ended December 31, +2025 2024 2023 +Lubricants & Specialties +Sales of produced refined products (BPD) 30,733 32,100 30,210 +Sales of produced refined products: +Finished products 50 % 48 % 50 % +Base oils 26 % 26 % 27 % +Other 24 % 26 % 23 % +Total 100 % 100 % 100 % +67 +Table of Content s +Midstream Segment Operating Data +The following table sets forth information about our midstream operations. +Years Ended December 31, +2025 2024 2023 +Midstream +Volumes (BPD) +Pipelines: +Affiliates—refined product pipelines 151,879 166,722 152,462 +Affiliates—intermediate pipelines 139,563 146,643 110,720 +Affiliates—crude pipelines 437,281 453,606 437,586 +728,723 766,971 700,768 +Third parties—refined product pipelines 38,995 39,721 38,834 +Third parties—crude pipelines 188,347 204,202 197,659 +956,065 1,010,894 937,261 +Terminals and loading racks: +Affiliates +1,014,900 988,566 930,264 +Third parties 37,524 37,728 42,567 +1,052,424 1,026,294 972,831 +Total for pipelines and terminal assets (BPD) 2,008,489 2,037,188 1,910,092 +Results of Operations - Year Ended December 31, 2025 Compared to Year Ended December 31, 2024 +Summary +Net income attributable to HF Sinclair stockholders for the year ended December 31, 2025 was $579 million ($3.08 per basic and diluted share), a $402 million increase compared to net income of $177 million ($0.91 per basic and diluted share) for the year ended December 31, 2024. The increase in N et income attributable to HF Sinclair stockholders was principally driven by higher adjusted refinery gross margins. Adjusted refinery gross margin for the year ended December 31, 2025 increased to $15.37 per produced barrel sold from $10.43 for the year ended December 31, 2024, primarily due to lower crude oil and feedstock prices and the grant of small refinery RINs waivers, partially offset by lower average sales prices per barrel. Small refinery RINs waivers increased adjusted refinery gross margins by $485 million, of which $203 million was recognized in Cost of materials and other and $282 million was recognized in Sales and other revenues . Lower of cost or market inventory valuation adjustments decreased pre-tax earnings by $417 million for the year ended December 31, 2025 and increased pre-tax earnings by $43 million for the year ended December 31, 2024. +Sales and Other Revenues +Sales and other revenues decreased 6% from $28,580 million for the year ended December 31, 2024 to $26,869 million for the year ended December 31, 2025, principally due to decreased refined product sales prices. Sales and other revenues included $551 million, $3,142 million, $2,519 million and $121 million in unaffiliated revenues related to our Renewables, Marketing, Lubricants & Specialties and Midstream segments, respectively, for the year ended December 31, 2025. Sales and other revenues included $644 million, $3,428 million, $2,700 million and $107 million in unaffiliated revenues related to our Renewables, Marketing, Lubricants & Specialties and Midstream segments, respectively, for the year ended December 31, 2024. +Cost of Materials and Other +Cost of materials and other , exclusive of Lower of cost or market inventory valuation adjustments , decreased 11% from $24,582 million for the year ended December 31, 2024 to $21,760 million for the year ended December 31, 2025, principally due to lower crude oil and feedstock prices . Within our Lubricants & Specialties segment, FIFO impact was a charge of $8 million and $45 million for the years ended December 31, 2025 and 2024, respectively. +During the year ended December 31, 2025, we recognized a lower of cost or market inventory valuation adjustment charge of $417 million compared to a benefit of $43 million for the year ended December 31, 2024. +68 +Table of Content s +Adjusted Refinery Gross Margins +Adjusted refinery gross margin per barrel sold increased 47% from $10.43 for the year ended December 31, 2024 to $15.37 for the year ended December 31, 2025. The increase was primarily due to lower crude oil and feedstock prices and the grant of small refinery RINs waivers, partially offset by lower average sales prices per barrel. Adjusted refinery gross margin per barrel excludes the non-cash effects of Lower of cost or market inventory valuation adjustments and Depreciation and amortization . Reconciliations to amounts reported under GAAP are provided under “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” in Item 7 of Part II of this Annual Report on Form 10-K. +Operating Expenses +Operating expenses decreased 4% from $2,484 million for the year ended December 31, 2024 to $2,391 million for the year ended December 31, 2025, primarily due to lower maintenance, regulatory and other miscellaneous costs, partially offset by higher natural gas costs. +Selling, General and Administrative Expenses +Selling, general and administrative expenses increased 2% from $447 million for the year ended December 31, 2024 to $456 million for the year ended December 31, 2025, primarily due to higher compensation and benefit costs and foreign currency transaction losses, partially offset by lower professional service costs. +Depreciation and Amortization Expenses +Depreciation and amortization increased 9% from $832 million for the year ended December 31, 2024 to $909 million for the year ended December 31, 2025. This increase was principally due to additional capitalized refinery turnaround costs and capitalized improvement projects as compared to the prior period. +Other Operating Expenses, Net +During the year ended December 31, 2025, we incurred decommissioning and closure costs of $8 million, other miscellaneous costs of $9 million and asset impairments of $3 million. These costs were partially offset by a gain of $11 million from a legal settlement related to winter storm Uri, which occurred in the first quarter of 2021. During the year ended December 31, 2024 , we incurred asset impairment charges totaling $17 million , primarily related to certain logistics assets in our Midstream segment and other assets in our Refining segment. +Earnings of Equity Method Investments +For the year ended December 31, 2025, we recorded net earnings of $33 million compared to net earnings of $32 million for the year ended December 31, 2024 . This increase is primarily due to improved performance in our Pioneer Pipeline and Osage Pipeline investments, partially offset by the assignment of our ownership interest in certain of our joint venture investments. +Interest Income +Interest income wa s $42 million for the year ended December 31, 2025 compared to $75 million for the year ended December 31, 2024. The decrease in interest income was primarily due to the decrease in average cash balance. +Interest Expense +Interest expense was $217 million for the year ended December 31, 2025 compared to $165 million for the year ended December 31, 2024. This increase was primarily due to unrealized losses on precious metals financing arrangements during the period. +Other Income (Expense), Net +Other income (expense), net was $(53) million for the year ended December 31, 2025 compared to $15 million for the year ended December 31, 2024. During the year ended December 31, 2025, we assigned certain of our equity ownership interests to other parties, resulting in a loss on sale of equity method investments of $47 million. Additionally, during the year ended December 31, 2025, we recognized a $24 million loss on early extinguishment of debt, inclusive of unamortized discount and debt issuance costs, as a result of the tender and redemption of certain debt, and the termination of certain credit agreements (see Note 13 “Debt” in the Notes to the Consolidated Financial Statements for additional information). +69 +Table of Content s +Income Taxes +For the year ended December 31, 2025, we recorded income tax expense of $146 million compared to $34 million for the year ended December 31, 2024. This increase was principally due to higher pre-tax earnings during the year ended December 31, 2025 compared to the year ended December 31, 2024. Our effective tax rates were 19.9% and 15.6% for the years ended December 31, 2025 and 2024, respectively. The difference between the U.S federal statutory rate and the effective tax rate for the year ended December 31, 2025 was primarily due to the relationship between pre-tax earnings and the benefits of nontaxable renewable fuel incentives and foreign tax effects, partially offset by state taxes and other nondeductible items. The difference between the U.S. federal statutory rate and the effective tax rate for the year ended December 31, 2024 was primarily due to the relationship between pre-tax earnings and benefits attributable to nontaxable renewable fuel incentives offset by an increase in state income taxes and unrecognized tax benefits. +LIQUIDITY AND CAPITAL RESOURCES +We have a disciplined capital allocation strategy of maintaining financial flexibility to execute our capital priorities and generate long-term value for our stockholders. Consistent with that strategy, we aim to self-fund development projects and make strategic investments focused on profitable growth, while reducing our debt and returning cash to stockholders through dividends and share repurchases. +Credit Agreements +On April 3, 2025, we terminated our $1.65 billion senior unsecured revolving credit facility maturing in April 2026 (the “Terminated HF Sinclair Credit Agreement”) and the $1.2 billion senior secured revolving credit facility maturing in July 2025 of our wholly owned subsidiary Holly Energy Partners, L.P. (the “Terminated HEP Credit Agreement”). Contemporaneously, we entered into a new $2.0 billion senior unsecured revolving credit facility maturing in April 2030 (the “HF Sinclair Credit Agreement”), which contains an extension feature that allows us to extend the term of the commitment from time to time in increments of up to one year subject to the terms and conditions set forth in the HF Sinclair Credit Agreement. The HF Sinclair Credit Agreement includes an accordion feature that allows us to increase such commitments to an aggregate principal amount of up to $2.75 billion. In addition, HF Sinclair was released from its obligations under the Parent Guaranty Agreement, dated as of December 1, 2023, as guarantor, in favor of Wells Fargo Bank, National Association, in its capacity as administrative agent (the “Guaranty”), and the Guaranty was terminated. We did not pay any prepayment penalties in connection with the termination of the Terminated HF Sinclair Credit Agreement or the Terminated HEP Credit Agreement. We recognized an early extinguishment loss of $1 million, inclusive of unamortized debt issuance costs. +Indebtedness under the HF Sinclair Credit Agreement bears interest, at our option, at either (a) the greater of (i) the prime rate (as publicly announced from time to time by the administrative agent), (ii) a base rate equal to the highest of the Federal Funds Effective Rate (as defined in the HF Sinclair Credit Agreement) plus 0.5%, and (iii) Spread Adjusted Term SOFR (as defined in the HF Sinclair Credit Agreement) for a one-month interest period plus 1%, as applicable, plus an applicable margin (ranging from 0.125% to 1.000%), or (b) at a rate equal to the Spread Adjusted Term SOFR (as defined in the HF Sinclair Credit Agreement) for the applicable interest period plus an applicable margin (ranging from 1.125% to 2.000%). The applicable margin is based on HF Sinclair’s debt rating assigned by Standard & Poor’s Rating Services, Fitch Ratings, Ltd. and Moody’s Investors Service, Inc. +As of December 31, 2025, we were in compliance with all covenants and had no outstanding borrowings or letters of credit under the HF Sinclair Credit Agreement. +Senior Notes Offering, Tender Offers and Redemptions +On January 23, 2025, HF Sinclair issued an aggregate principal amount of $1.4 billion of senior notes consisting of $650 million aggregate principal amount of 5.750% Senior Notes due 2031 (the “HF Sinclair 5.750% Senior Notes”) and $750 million aggregate principal amount of 6.250% Senior Notes due 2035 (the “HF Sinclair 6.250% Senior Notes” and together with the HF Sinclair 5.750% Senior Notes, the “January HFS Notes”) for net proceeds of approximately $1.38 billion, after deducting the underwriters’ discount and commissions and offering expenses. The January HFS Notes are unsecured and unsubordinated obligations of ours and rank equally with all our other existing and future unsecured and unsubordinated indebtedness. +70 +Table of Content s +We used a portion of the funds from the January HFS Notes to complete the early settlement of cash tender offers and redemptions for $996 million in aggregate principal amount as follows: +Maturity Date +Aggregate Principal Amount Accepted +Purchase Price Including Premium +(In millions) +HF Sinclair Senior Notes: +5.875% Senior Notes +April 2026 $ 643 $ 650 +6.375% Senior Notes +April 2027 150 153 +793 803 +HollyFrontier Senior Notes: +5.875% Senior Notes +April 2026 203 205 +Total $ 996 $ 1,008 +Additionally, we used a portion of the net proceeds from the January HFS Notes offering to repay the $350 million under the Terminated HEP Credit Agreement due 2025. +On August 18, 2025, HF Sinclair issued an aggregate principal amount of $500 million of 5.500% Senior Notes due 2032 (the “HF Sinclair 5.500% Senior Notes”) for net proceeds of approximately $491 million, after deducting the underwriters’ discount and commissions and offering expenses. The HF Sinclair 5.500% Senior Notes are unsecured and unsubordinated obligations of ours and rank equally with all our other existing and future unsecured and unsubordinated indebtedness. +We used a portion of the funds from the HF Sinclair 5.500% Senior Notes to complete the early settlement of cash tender offers and redemptions for $404 million in aggregate principal amount as follows: +Maturity Date +Aggregate Principal Amount Accepted +Purchase Price Including Premium +(In millions) +HF Sinclair Senior Notes: +5.875% Senior Notes +April 2026 $ 154 $ 155 +6.375% Senior Notes +April 2027 250 253 +Total $ 404 $ 408 +We recognized an early extinguishment loss of $23 million, inclusive of unamortized discount and debt issuance costs, as a result of the tender offers and redemptions for the year ended December 31, 2025. +HF Sinclair Financing Arrangements +Certain of our wholly owned subsidiaries entered into financing arrangements whereby such subsidiaries sold a portion of their precious metals catalyst to a financial institution in exchange for cash and then financed the use of the precious metals catalyst for a term not to exceed one year. During the year ended December 31, 2025, we received proceeds of $30 million and made principal payments of $6 million related to such arrangements. The volume of the precious metals catalyst and the interest rate are fixed over the term of each agreement, and the payments are recorded as Interest expense . Upon maturity of the financing arrangements, we must either extend the maturity or satisfy the obligation at fair market value, which is considered an embedded derivative. +Certain inventory buy/sell arrangements in which we have a repurchase obligation are recognized as financing arrangements. During the year ended December 31, 2025, we received cash proceeds and made principal payments of $103 million related to these financing arrangements. +We may, from time to time, issue letters of credit pursuant to uncommitted letters of credit facilities, which are unrelated to the HF Sinclair Credit Agreement. At December 31, 2025, we had letters of credit totaling a nominal amount under such credit facilities. +See Note 13 “Debt” in the Notes to Consolidated Financial Statements for additional information on our debt instruments. +71 +Table of Content s +Liquidity +We believe our current Cash and cash equivalents , along with future internally generated cash flow and funds available under our credit facilities, will provide sufficient resources to fund currently planned capital projects and our current liquidity needs. We expect that, to the extent necessary, we can raise additional funds from time to time through equity or debt financings in the public and private capital markets. Further, from time to time we may seek to retire some or all of our outstanding debt agreements through cash purchases, and/or exchanges, open market purchases, privately negotiated transactions, tender offers or otherwise. Such transactions, if any, may be material and depends on prevailing market conditions, our liquidity requirements and other factors. In addition, components of our long-term growth strategy include the optimization of existing units at our facilities, expansion of our Midstream footprint and selective acquisition of complementary assets for our operations intended to capture synergies and increase earnings and cash flow. We also expect to use cash for payment of cash dividends, which are at the discretion of our Board of Directors, and for the repurchase of common stock under the 2024 Share Repurchase Program. +Our liquidity was approximately $3.0 billion at December 31, 2025 , consisting of C ash and cash equivalents of $978 million and $2.0 billion available under the HF Sinclair Credit Agreement. +We consider all highly liquid instruments with a maturity of three months or less at the time of purchase to be cash equivalents. These primarily consist of investments in liquid, highly rated instruments issued by financial institutions, government and corporate entities with strong credit standings and money market funds. Cash equivalents are stated at cost, which approximates market value. +In May 2024, our Board of Directors approved the 2024 Share Repurchase Program, which replaced all existing share repurchase programs. The 2024 Share Repurchase Program authorizes us to repurchase common stock in the open market or through privately negotiated transactions. Privately negotiated repurchases from REH are also authorized under the 2024 Share Repurchase Program, subject to REH’s interest in selling its shares and other limitations. The timing and amount of share repurchases, including those from REH, will depend on market conditions and corporate, tax, regulatory and other relevant considerations. In addition, we are authorized by our Board of Directors to repurchase shares in an amount sufficient to offset shares issued under our compensation programs. The 2024 Share Repurchase Program may be discontinued at any time by our Board of Directors. +During the year ended December 31, 2025, we made open market and privately negotiated purchases of 6,908,293 shares for $340 million under our 2024 Share Repurchase Program, of which 3,345,857 shares were repurchased for $174 million pursuant to privately negotiated repurchases from REH. As of December 31, 2025, we had remaining authorization to repurchase up to $459 million under the 2024 Share Repurchase Program. +Cash Flows – Operating Activities +Year Ended December 31, 2025 Compared to Year Ended December 31, 2024 +Net cash flows provided by operating activities w ere $1,315 million for the year ended December 31, 2025 compared to $1,110 million for the year ended December 31, 2024 , an increase of $205 million primarily driven by higher income from operations, excluding non-cash impacts reflected in the reconciliation to net cash provided by operating activities, partially offset by changes in working capital and an increase in turnaround expenditures. Changes in working capital decreased operating cash flows by $303 million and increased operating cash flows by $554 million for the years ended December 31, 2025 and 2024, respectively . Additionally, for the year ended December 31, 2025 , turnaround expenditures were $437 million compared to $413 million for the year ended December 31, 2024 . +Cash Flows – Investing Activities and Planned Capital Expenditures +Year Ended December 31, 2025 Compared to Year Ended December 31, 2024 +For the year ended December 31, 2025 , our Net cash flows used for investing activities were $516 million, primarily comprising cash expenditures for Properties, plants and equipment and precious metals of $449 million and $72 million, respectively . +For the year ended December 31, 2024 , our Net cash flows used for investing activities were $468 million, primarily comprising cash expenditures for Properties, plants and equipment of $470 million . +72 +Table of Content s +Each year our Board of Directors approves our annual capital budget which includes specific projects that management is authorized to undertake. When conditions warrant or as new opportunities arise, additional projects may be approved. The funds appropriated for a particular capital project may be expended over a period of several years, depending on the time required to complete the project. Therefore, our planned capital expenditures for a given year consist of expenditures appropriated in that year’s capital budget plus expenditures for projects appropriated in prior years which have not yet been completed. Refinery turnaround spending is amortized over the useful life of the turnaround. +The refining industry is capital-intensive and requires ongoing investments to sustain our refining operations. This includes replacement of, or rebuilding, refinery units and components that extend their useful lives. We also invest in projects that improve operational reliability and profitability via enhancements that improve refinery processing capabilities as well as production yield and flexibility. Our capital expenditures also include projects related to renewable diesel, environmental, health and safety compliance and include initiatives as a result of federal and state mandates. +Our refinery operations and related emissions are highly regulated at both federal and state levels, and we invest in our facilities as needed to remain in compliance with these standards. Additionally, when faced with new emissions or fuels standards, we seek to execute projects that facilitate compliance and also improve the operating costs and/or yields of associated refining processes. +Expected capital and turnaround cash spending for 2026 is as follows: +Expected Cash Spending +(In millions) +Capital Expenditures: +Refining $ 225 +Renewables 6 +Marketing 30 +Lubricants & Specialties 25 +Midstream 30 +Corporate 9 +Turnarounds and catalyst 325 +Total sustaining $ 650 +Growth capital +125 +Total +$ 775 +Cash Flows – Financing Activities +Year Ended December 31, 2025 Compared to Year Ended December 31, 2024 +For the year ended December 31, 2025 , our Net cash flows used for financing activities were $631 million . During the year ended December 31, 2025 , we paid $376 million in Dividends, repurchased $354 million of our Common Stock , repaid $350 million under the Terminated HEP Credit Agreement and had net proceeds from the issuance, tender and redemption of certain senior notes of $449 million . +For the year ended December 31, 2024 , our Net cash flows used for financing activities were $1,182 million . During the year ended December 31, 2024 , we repurchased $672 million of our Common Stock , paid $386 million in Dividends and had net repayments of $106 million under the Terminated HEP Credit Agreement. +73 +Table of Content s +Contractual Obligations and Commitments +The following table presents our long-term contractual obligations as of December 31, 2025 that are expected to be paid within the next year and thereafter: +Total +Current +Noncurrent +(In millions) +Long-term debt - principal (1) +$ 2,800 $ — $ 2,800 +Long-term debt - interest (1) +930 155 775 +Financing arrangements (2) +94 94 — +Supply agreements (3) +514 370 144 +Transportation and storage agreements (4) +1,691 212 1,479 +Operating and finance leases (5) +609 118 491 +Other long-term obligations 174 114 60 +Total $ 6,812 $ 1,063 $ 5,749 +(1) See Note 13 “Debt” in the Notes to Consolidated Financial Statements for a description of our outstanding debt. +(2) We have financing arrangements related to the sale and subsequent leaseback of certain of our precious metals. +(3) We have long-term supply agreements to secure certain quantities of crude oil, feedstock and other resources used in the production process at market prices. We have estimated future payments under these fixed-quantity agreements expiring between 2026 and 2031 using current market rates. +(4) Consists of contractual obligations under agreements with third parties for the transportation of crude oil, natural gas and feedstocks to our refineries and for terminal and storage services under contracts expiring between 2026 and 2038. +(5) Operating and finance lease obligations include options to extend terms that are reasonably certain of being exercised. +CRITICAL ACCOUNTING POLICIES AND ESTIMATES +Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities as of the date of the financial statements. Actual results may differ from these estimates under different assumptions or conditions. We consider the following policies to be the most critical to understanding the judgments that are involved and the uncertainties that could impact our results of operations, financial condition and cash flows. For additional information, see Note 1 “Description of Business and Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements. Certain critical accounting policies that materially affect the amounts recorded in our consolidated financial statements include assessing the possible impairment of certain assets and goodwill and assessing contingent liabilities for probable losses. +Goodwill and Long-lived Assets +As of December 31, 2025, our Goodwill balance was $2,978 million , with go odwill assigned to reporting units in our Refining, Renewables, Marketing, Lubricants & Specialties and Midstream segments. Goodwill represents the excess of the purchase price of an acquired business over the fair value of the assets acquired and liabilities assumed. Goodwill is not subject to amortization and is tested annually or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Our goodwill impairment testing entails either a quantitative assessment or an optional qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. With our qualitative assessment, if we determine based on the qualitative factors that it is more likely than not that a reporting unit’s carrying value is greater than its fair value, a quantitative test is performed in which we estimate the fair value of the related reporting unit. If the carrying amount of a reporting unit exceeds its fair value, the goodwill of that reporting unit is impaired, and we measure goodwill impairment as the excess of the carrying amount of the reporting unit over the related fair value. +74 +Table of Content s +During the year ended December 31, 2025, we elected to change our annual goodwill impairment testing date from July 1 to October 1 to better align the timing of our goodwill impairment assessment with our annual budgeting processes. The change in annual goodwill impairment testing date constitutes a voluntary change in accounting principle. This change does not delay, accelerate, or avoid an impairment charge and has been applied prospectively as retrospective application was impracticable due to the inability to objectively determine the assumptions and significant estimates used in prior periods without the benefit of hindsight. Prior to the goodwill impairment test performed as of October 1, 2025, the most recent annual goodwill impairment test was performed as of July 1, 2025. For the test performed on July 1, 2025, one reporting unit within each of the Refining, Renewables and Lubricants & Specialties segments was tested for impairment using a quantitative approach, and all other reporting units were assessed for impairment using a qualitative approach. For the test performed as of October 1, 2025, all reporting units were assessed for impairment using a qualitative approach. No impairment was identified in 2025. +In performing our quantitative goodwill impairment tests, the estimated fair values of our reporting units were derived using a combination of income and market approaches. The income approach reflects expected future cash flows based on estimated forecasted production levels, selling prices, gross margins, operating costs and capital expenditures. Our market approaches include both the guideline public company and guideline transaction methods. Both methods utilize pricing multiples derived from historical market transactions and other market data for like-kind assets. The fair values of the reporting units tested quantitatively on July 1, 2025 exceeded their respective carrying values by more than 10%. Increasing the discount rate by 1.0% or reducing the terminal cash flow growth rate by 1.0% would not have changed the results of our annual assessment. +In performing our quantitative impairment test of goodwill, we developed cash flow forecasts for each of our reporting units. Significant judgment is involved in performing these fair value estimates since the results are based on forecasted financial information. The cash flow forecasts include significant assumptions such as planned utilization, end-user demand, selling prices, gross margins, operating costs and capital expenditures. Other key assumptions applied to these forecasts to determine the fair value of a reporting unit are the discount rate and terminal cash flow growth rate. The discount rate is intended to reflect the weighted-average cost of capital for a market participant and the risks associated with the realization of the estimated future cash flows. Our fair value estimates are based on projected cash flows, which we believe to be reasonable. +In performing the qualitative goodwill impairment assessment as of October 1, 2025, management evaluated whether events or changes in circumstances occurring subsequent to the July 1, 2025 impairment tests indicated that it was more likely than not that the fair value of any reporting unit was less than its carrying amount. Factors considered included changes in forecasted operating results, commodity price assumptions, discount rates, market capitalization, overall macroeconomic conditions, regulatory developments and other entity-specific and reporting unit-specific events. Based on this evaluation, management concluded that no reporting unit met the criteria requiring a quantitative goodwill impairment test as of October 1, 2025. +We continually monitor and evaluate various factors for potential indicators of goodwill and asset impairments. A reasonable expectation exists that sustained deterioration in our operating results or overall economic conditions could lead to goodwill and/or asset impairments at some point in the future. Future impairment charges could be material to our results of operations and financial condition. +Contingencies +We are subject to proceedings, lawsuits and other claims related to environmental, labor, product and other matters. We are required to assess the likelihood of any adverse judgments or outcomes of these matters as well as potential ranges of probable losses. A determination of the amount of reserves required, if any, for these contingencies is made after careful analysis of each individual issue. The required reserves may change in the future due to new developments in each matter or changes in approach, such as a change in settlement strategy when dealing with these matters. +RISK MANAGEMENT +We use certain strategies to reduce some commodity price and operational risks. We do not attempt to eliminate all market risk exposures when we believe that the exposure relating to such risk would not be significant to our future earnings, financial position, capital resources or liquidity or that the cost of eliminating the exposure would outweigh the benefit. +Commodity Price Risk Management +Our primary market risk is commodity price risk. We are exposed to market risks related to the volatility in the price of crude oil and refined products, as well as volatility in the price of natural gas used in our refining operations. We periodically enter into derivative contracts in the form of commodity price swaps, collar contracts, forward contracts and futures contracts to mitigate price exposure with respect to our inventory positions, natural gas purchases, sales prices of refined products and crude oil costs. +75 +Table of Content s +Foreign Currency Risk Management +We are exposed to market risk related to the volatility in foreign currency exchange rates. We periodically enter into derivative contracts in the form of foreign exchange forward contracts to mitigate the exposure associated with fluctuations on intercompany notes with our foreign subsidiaries that are not denominated in the U.S. dollar. +As of December 31, 2025, we have the following notional amounts related to all outstanding derivative instruments used to mitigate commodity price and foreign currency risk (all maturing in 2026): +Contract Description Total Outstanding Notional Unit of Measure +NYMEX futures (WTI) - short 979,000 Barrels +Commodity forward contracts - long +1,371,000 Barrels +Commodity forward contracts - short +1,191,000 Barrels +Foreign currency forward contracts 522,000,000 +Canadian dollar +Forward platinum contracts (1) +46,549 Troy ounces +(1) Represents an embedded derivative within our precious metals catalyst financing arrangements, which may be refinanced or require repayment under certain conditions. See Note 13 “Debt” in the Notes to Consolidated Financial Statements for additional information on these financing arrangements. +The following sensitivity analysis provides the hypothetical effects of market price fluctuations to the commodity hedged under our derivative contracts at December 31, 2025 and 2024: +December 31, +Derivative Fair Value Gain (Loss) 2025 2024 +(In millions) +10% increase in underlying commodity prices $ (6) $ (4) +10% decrease in underlying commodity prices $ 6 $ 4 +Interest Rate Risk Management +The market risk inherent in our fixed-rate debt is the potential change arising from increases or decreases in interest rates, as discussed below. +For the fixed rate HF Sinclair, HollyFrontier and HEP Senior Notes (each as demarcated in Note 13 “Debt” in the Notes to Consolidated Financial Statements), changes in interest rates will generally affect the fair value of the debt, but not earnings or cash flows. +The outstanding principal, estimated fair value and estimated change in fair value (assuming a hypothetical 10% change in the yield-to-maturity rates) for this debt as of December 31, 2025 is presented below: +Outstanding +Principal Estimated +Fair Value +Estimated Change in +Fair Value +(In millions) +HF Sinclair, HollyFrontier and HEP Senior Notes +$ 2,800 $ 2,858 $ 74 +For the variable rate under the HF Sinclair Credit Agreement, changes in interest rates would affect cash flows, but not the fair value. At December 31, 2025, there were no amounts outstanding under the HF Sinclair Credit Agreement . A hypothetical 10% change in interest rates applicable to the HF Sinclair Credit Agreement would not materially affect cash flows. +Operational Interruption Risk Management +Our operations are subject to catastrophic losses, operational hazards and unforeseen interruptions, including but not limited to fire, explosion, releases or spills, cyberattacks, weather-related perils, vandalism, power failures, mechanical failures and other events beyond our control. We maintain various insurance coverages, including general liability, property damage, business interruption and cyber insurance, subject to certain deductibles and insurance policy terms and conditions. We are not fully insured against certain risks because such risks are not fully insurable, coverage is unavailable, or premium costs, in our judgment, do not justify such expenditures. +Financial information is reviewed for the counterparties in order to monitor their financial stability and assess their ongoing ability to honor their commitments under the derivative contracts. We have not experienced, nor do we expect to experience, any difficulty in counterparties honoring their commitments. +76 +Table of Content s +We have a risk management oversight committee consisting of members from our senior management. This committee oversees our risk enterprise program, monitors our risk environment and provides direction for activities to mitigate identified risks that may adversely affect the achievement of our goals. +Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles +Reconciliations of earnings before interest, taxes, depreciation and amortization (“EBITDA”) to amounts reported under generally accepted accounting principles in the financial statements. +Earnings before interest, taxes, depreciation and amortization, referred to as EBITDA, is calculated as Net income attributable to HF Sinclair stockholders plus (i) Interest expense , net of Interest income , (ii) Income tax expense and (iii) Depreciation and amortization . EBITDA is not a calculation provided for under GAAP; however, the amounts included in the EBITDA calculation are derived from amounts included in our consolidated financial statements. EBITDA should not be considered as an alternative to Net income or Income from operations as an indication of our operating performance or as an alternative to operating cash flow as a measure of liquidity. EBITDA is not necessarily comparable to similarly titled measures of other companies. EBITDA is presented here because it is a financial indicator widely used by investors and analysts to measure our operating performance. EBITDA is also used by our management for internal analysis and as a basis for financial covenants. +Set forth below is our calculation of EBITDA: +Years Ended December 31, +2025 2024 2023 +(In millions) +Net income attributable to HF Sinclair stockholders $ 579 $ 177 $ 1,590 +Add: interest expense 217 165 191 +Less: interest income (42) (75) (94) +Add: income tax expense 146 34 442 +Add: depreciation and amortization 909 832 771 +EBITDA $ 1,809 $ 1,133 $ 2,900 +77 +Table of Content s +Reconciliations of refinery operating information (non-GAAP performance measures) to amounts reported under generally accepted accounting principles in the financial statements. +Adjusted refinery gross margin is a non-GAAP performance measure that is used by our management and others to compare our refining performance to that of other companies in our industry. We believe this margin measure is helpful to investors in evaluating our refining performance on a relative and absolute basis, including against publicly available crack spread data. Adjusted refinery gross margin per produced barrel sold is total Refining segment gross margin plus Lower of cost or market inventory valuation adjustments , Operating expenses and Depreciation and amortization , divided by sales volumes of produced refined products. This margin measure excludes the non-cash effects of Lower of cost or market inventory valuation adjustments , which relate to inventory held at the end of the period. Adjusted refinery gross margin is a non-GAAP performance measure and should not be considered in isolation or as a substitute for Refining segment gross margin. The GAAP measure most directly comparable to adjusted refinery gross margin is Refining segment gross margin. Other companies in our industry may not calculate these performance measures in the same manner. Due to rounding of reported numbers, some amounts may not calculate exactly. +Reconciliation of Refining segment gross margin to adjusted refinery gross margin to adjusted refinery gross margin per produced barrel sold and adjusted refinery gross margin less operating expenses per produced barrel sold +Years Ended December 31, +2025 2024 2023 +(In millions, except barrel and per barrel amounts) +Refining segment +Sales and other revenues $ 23,822 $ 25,340 $ 28,673 +Cost of sales (1) +22,484 24,787 26,142 +Depreciation and amortization 548 495 461 +Gross margin $ 790 $ 58 $ 2,070 +Add: lower of cost or market inventory valuation adjustments +415 (32) 221 +Add: operating expenses 1,825 1,912 1,879 +Add: depreciation and amortization 548 495 461 +Adjusted refinery gross margin $ 3,578 $ 2,433 $ 4,631 +Operating expenses $ 1,825 $ 1,912 $ 1,879 +Less: regulatory charge (2) +— 35 — +Adjusted refinery operating expenses $ 1,825 $ 1,877 $ 1,879 +Sales of produced refined products (BPD) (3) +638,080 637,170 602,280 +Average per produced barrel sold: +Gross margin $ 3.39 $ 0.24 $ 9.41 +Add: lower of cost or market inventory valuation adjustments +1.78 (0.14) 1.00 +Add: operating expenses 7.84 8.20 8.55 +Add: depreciation and amortization 2.36 2.13 2.10 +Adjusted refinery gross margin $ 15.37 $ 10.43 $ 21.06 +Operating expenses 7.84 8.20 8.55 +Less: regulatory charge (2) +— 0.15 — +Adjusted refinery operating expenses 7.84 8.05 8.55 +Adjusted refinery gross margin, less adjusted refinery operating expenses $ 7.53 $ 2.38 $ 12.51 +(1) Exclusive of Depreciation and amortization. +(2) Regulatory charges represent a one-time penalty of $35 million related to the 2025 Consent Decree. Refer to Note 18 for further information. +(3) Represents barrels sold of refined products produced at our refineries (including Asphalt and intersegment sales) and excludes volumes of refined products purchased for resale or volumes of excess crude oil sold. +78 +Table of Content s +Reconciliation of renewables operating information (non-GAAP performance measures) to amounts reported under generally accepted accounting principles in the financial statements. +Adjusted renewables gross margin is a non-GAAP performance measure that is used by our management and others to compare our renewables performance to that of other companies in our industry. We believe this margin measure is helpful to investors in evaluating our renewables performance on a relative and absolute basis. Adjusted renewables gross margin per produced gallon sold is total Renewables segment gross margin plus Lower of cost or market inventory valuation adjustments , Operating expenses and Depreciation and amortization , divided by sales volumes of produced renewables products. This margin measure excludes the non-cash effects of Lower of cost or market inventory valuation adjustments , which relate to volumes in inventory at the end of the period. Adjusted renewables gross margin is not a calculation provided for under GAAP and should not be considered in isolation or as a substitute for Renewables segment gross margin. The GAAP measure most directly comparable to adjusted renewables gross margin is Renewables segment gross margin. Other companies in our industry may not calculate these performance measures in the same manner. Due to rounding of reported numbers, some amounts may not calculate exactly. +Reconciliation of Renewables segment gross margin to adjusted renewables gross margin to adjusted renewables gross margin per produced gallon sold and adjusted renewables gross margin, less operating expenses per produced gallon sold +Years Ended December 31, +2025 2024 2023 +(In millions, except gallon and per gallon amounts) +Renewables segment +Sales and other revenues $ 991 $ 991 $ 1,189 +Cost of sales (1) +1,027 999 1,240 +Depreciation and amortization 93 78 77 +Gross margin $ (129) $ (86) $ (128) +Add: lower of cost or market inventory valuation adjustments +2 (11) 50 +Add: operating expenses 90 100 109 +Add: depreciation and amortization 93 78 77 +Adjusted renewables gross margin $ 56 $ 81 $ 108 +Sales of produced renewables products (in thousand gallons) 213,713 255,639 215,510 +Average per produced gallon sold: +Gross margin $ (0.60) $ (0.33) $ (0.59) +Add: lower of cost or market inventory valuation adjustments +0.01 (0.04) 0.22 +Add: operating expenses 0.42 0.39 0.51 +Add: depreciation and amortization 0.43 0.31 0.36 +Adjusted renewables gross margin $ 0.26 $ 0.33 $ 0.50 +Less: operating expenses 0.42 0.39 0.51 +Adjusted renewables gross margin, less operating expenses $ (0.16) $ (0.06) $ (0.01) +(1) Exclusive of Depreciation and amortization. +79 +Table of Content s +Reconciliation of marketing operating information (non-GAAP performance measures) to amounts reported under generally accepted accounting principles in the financial statements. +Adjusted marketing gross margin is a non-GAAP performance measure that is used by our management and others to compare our marketing performance to that of other companies in our industry. We believe this margin measure is helpful to investors in evaluating our marketing performance on a relative and absolute basis. Adjusted marketing gross margin per gallon sold is total Marketing segment gross margin plus Depreciation and amortization , divided by sales volumes of marketing products. Adjusted marketing gross margin is not a calculation provided for under GAAP and should not be considered in isolation or as a substitute for Marketing segment gross margin. The GAAP measure most directly comparable to adjusted marketing gross margin is Marketing segment gross margin. Other companies in our industry may not calculate these performance measures in the same manner. Due to rounding of reported numbers, some amounts may not calculate exactly. +Reconciliation of Marketing segment gross margin to adjusted marketing gross margin to adjusted marketing gross margin per gallon sold +Years Ended December 31, +2025 2024 2023 +(In millions, except gallon and per gallon amounts) +Marketing segment +Sales and other revenues $ 3,142 $ 3,428 $ 4,146 +Cost of sales (1) +3,000 3,319 4,051 +Depreciation and amortization 29 27 24 +Gross margin $ 113 $ 82 $ 71 +Add: depreciation and amortization 29 27 24 +Adjusted marketing gross margin $ 142 $ 109 $ 95 +Sales of refined products (in thousand gallons) 1,328,006 1,376,291 1,441,607 +Average per gallon sold: +Gross margin $ 0.08 $ 0.06 $ 0.05 +Add: depreciation and amortization 0.03 0.02 0.02 +Adjusted marketing gross margin $ 0.11 $ 0.08 $ 0.07 +(1) Exclusive of Depreciation and amortization. +Item 7A. Quantitative and Qualitative Disclosures About Market Risk +See “Risk Management” under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” +80 +Table of Content s +Item 8. Financial Statements and Supplementary Data +HF SINCLAIR CORPORATION +INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS +PAGE +Report of Independent Registered Public Accounting Firm: Opinion on the Financial Statements (PCAOB ID: 42 ) +82 +Report of Independent Registered Public Accounting Firm: Opinion on Internal Control over Financial Reporting (PCAOB ID: 42 ) +84 +Consolidated Financial Statements: +Consolidated Balance Sheets +85 +Consolidated Statements of Income +86 +Consolidated Statements of Comprehensive Income +87 +Consolidated Statements of Cash Flows +88 +Consolidated Statements of Equity +89 +Notes to Consolidated Financial Statements: +Note 1 Description of Business and Summary of Significant Accounting Policies +90 +Note 2 Leases +96 +Note 3 Cushing Connect Joint Venture +99 +Note 4 Revenues +100 +Note 5 Other Income (Expense ) , Net +102 +Note 6 Fair Value Measurements +102 +Note 7 Earnings Per Share +104 +Note 8 Stock-Based Compensation +104 +Note 9 Inventories +106 +Note 10 Properties, Plants and Equipment +107 +Note 11 Goodwill , Intangibles a nd Long-lived Assets +107 +Note 12 Accrued Liabilities and Other Long-Term Liabilities +109 +Note 13 Debt +110 +Note 1 4 Derivative Instruments and Hedging Activities +113 +Note 1 5 Income Taxes +115 +Note 1 6 Stockholders’ Equity +118 +Note 1 7 Other Comprehensive Income (Loss) +119 +Note 1 8 Commitments and Contingencies +119 +Note 19 Segment Information +121 +81 +REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +To the Stockholders and the Board of Directors of HF Sinclair Corporation +Opinion on the Financial Statements +We have audited the accompanying consolidated balance sheets of HF Sinclair Corporation (the Company) as of December 31, 2025 and 2024, the related consolidated statements of income, comprehensive income, equity and cash flows for each of the three years in the period ended December 31, 2025, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2025, in conformity with U.S. generally accepted accounting principles. +We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 27, 2026 expressed an unqualified opinion thereon. +Basis for Opinion +These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. +Critical Audit Matter +The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates. +82 +Valuation of Goodwill +Description of the Matter +At December 31, 2025, the Company’s goodwill was $2,978 million, including goodwill assigned to the Refining, Renewables, Marketing, Lubricants & Specialties, and Midstream segments of $1,977 million, $159 million, $164 million, $246 million, and $432 million, respectively. As described in Note 1 and Note 11 of the consolidated financial statements, goodwill is tested for impairment at least annually at the reporting unit level or more frequently if events or changes in circumstances indicate the asset might be impaired. +Auditing management’s goodwill impairment testing was complex and highly judgmental for the Company’s El Dorado Refinery reporting unit due to the significant estimation required to determine the fair value of this reporting unit. In particular, the fair value estimate was sensitive to significant assumptions, such as revenue, gross margin, EBITDA, and discount rate, which are affected by expectations about future market or economic conditions. These assumptions have a significant effect on the fair value estimates. +How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s goodwill impairment testing process. For example, we tested controls over management’s review of the significant inputs and assumptions used in determining the reporting unit fair value. +To test the estimated fair value of the Company’s El Dorado Refinery reporting unit, we performed audit procedures with the support of a valuation specialist that included, among others, assessing the methodologies used and testing the significant assumptions discussed above and the underlying data used by the Company in its analysis. We compared the significant assumptions used by management to relevant industry and economic trends, published forward prices, historical operating results and other relevant factors. We performed sensitivity analyses on significant assumptions to evaluate the changes in the fair value of the reporting unit that would result from changes in the assumptions. +/s/ Ernst & Young LLP +We have served as the Company’s auditor since 1977. +Dallas, Texas +February 27, 2026 +83 +REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +To the Stockholders and the Board of Directors of HF Sinclair Corporation +Opinion on Internal Control over Financial Reporting +We have audited HF Sinclair Corporation’s internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, HF Sinclair Corporation (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2025, based on the COSO criteria. +We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2025 and 2024, the related consolidated statements of income, comprehensive income, equity and cash flows for each of the three years in the period ended December 31, 2025, and the related notes and our report dated February 27, 2026 expressed an unqualified opinion thereon. +Basis for Opinion +The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. +Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. +Definition and Limitations of Internal Control Over Financial Reporting +A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. +Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. +/s/ Ernst & Young LLP +Dallas, Texas +February 27, 2026 +84 +Table of Content s +HF SINCLAIR CORPORATION +CONSOLIDATED BALANCE SHEETS +(In millions, except share data) +December 31, +2025 2024 +ASSETS +Current assets: +Cash and cash equivalents $ 978 $ 800 +Accounts receivable, net: Product and transportation +1,033 1,074 +Crude oil resales 103 177 +1,136 1,251 +Inventories: Crude oil and refined products (Note 9) +2,214 2,495 +Materials, supplies and other +359 303 +2,573 2,798 +Income taxes receivable (Note 15) +47 70 +Prepayments and other 78 95 +Total current assets 4,812 5,014 +Properties, plants and equipment, at cost (Note 10) +11,392 10,931 +Less: accumulated depreciation ( 4,859 ) ( 4,373 ) +6,533 6,558 +Operating lease right-of-use assets (Note 2) +349 355 +Other assets: Turnaround costs +883 777 +Goodwill (Note 11) +2,978 2,977 +Intangibles and other (Note 11) +955 962 +4,816 4,716 +Total assets $ 16,510 $ 16,643 +LIABILITIES AND EQUITY +Current liabilities: +Accounts payable $ 1,902 $ 2,236 +Income taxes payable (Note 15) +5 3 +Operating lease liabilities (Note 2) +85 77 +Current debt (Note 13) +— 350 +Accrued liabilities (Note 12) +493 377 +Total current liabilities 2,485 3,043 +Long-term debt (Note 13) +2,769 2,288 +Noncurrent operating lease liabilities (Note 2) +289 301 +Deferred income taxes (Note 15) +1,240 1,224 +Other long-term liabilities (Note 12) +478 441 +Total liabilities 7,261 7,297 +Commitments and contingencies (Note 18) +Equity: +HF Sinclair stockholders’ equity (Note 16): +Preferred stock, $ 1.00 par value – 5,000,000 shares authorized; none issued +— — +Common stock, $ 0.01 par value – 320,000,000 shares authorized; 223,231,546 shares issued as of December 31, 2025 and December 31, 2024 +2 2 +Additional capital 6,008 5,998 +Retained earnings 5,373 5,170 +Accumulated other comprehensive loss (Note 17) +( 26 ) ( 47 ) +Common stock held in treasury, at cost - 41,443,642 and 34,826,009 shares as of December 31, 2025 and December 31, 2024 +( 2,173 ) ( 1,845 ) +Total HF Sinclair stockholders’ equity 9,184 9,278 +Noncontrolling interest 65 68 +Total equity 9,249 9,346 +Total liabilities and equity $ 16,510 $ 16,643 +See accompanying notes. +85 +Table of Content s +HF SINCLAIR CORPORATION +CONSOLIDATED STATEMENTS OF INCOME +(In millions, except share and per share data) +Years Ended December 31, +2025 2024 2023 +Sales and other revenues (Note 4) +$ 26,869 $ 28,580 $ 31,964 +Operating costs and expenses: +Cost of sales: (1) +Cost of materials and other (2) +21,760 24,582 25,784 +Lower of cost or market inventory valuation adjustments (Note 9) +417 ( 43 ) 271 +Operating expenses 2,391 2,484 2,438 +24,568 27,023 28,493 +Selling, general and administrative expenses (1) +456 447 497 +Depreciation and amortization 909 832 771 +Other operating expenses, net +9 17 — +Total operating costs and expenses 25,942 28,319 29,761 +Income from operations 927 261 2,203 +Other income (expense): +Earnings of equity method investments +33 32 17 +Interest income 42 75 94 +Interest expense ( 217 ) ( 165 ) ( 191 ) +Other income (expense), net (Note 5) +( 53 ) 15 30 +( 195 ) ( 43 ) ( 50 ) +Income before income taxes 732 218 2,153 +Income tax expense (benefit) (Note 15): +Current 139 83 249 +Deferred 7 ( 49 ) 193 +146 34 442 +Net income 586 184 1,711 +Less: net income attributable to noncontrolling interest 7 7 121 +Net income attributable to HF Sinclair stockholders $ 579 $ 177 $ 1,590 +Earnings per share attributable to HF Sinclair stockholders: +Basic $ 3.08 $ 0.91 $ 8.29 +Diluted $ 3.08 $ 0.91 $ 8.29 +Average number of common shares outstanding (in thousands): +Basic 186,465 192,073 190,035 +Diluted 186,465 192,073 190,035 +(1) Exclusive of Depreciation and amortization . +(2) Exclusive of Lower of cost or market inventory valuation adjustments. +See accompanying notes. +86 +Table of Content s +HF SINCLAIR CORPORATION +CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME +(In millions) +Years Ended December 31, +2025 2024 2023 +Net income $ 586 $ 184 $ 1,711 +Other comprehensive income (loss): +Foreign currency translation adjustments 34 ( 42 ) 13 +Cash flow hedging instruments: +Change in fair value +— ( 5 ) ( 3 ) +Reclassifications to net income +— 5 3 +Net unrealized gain on hedging instruments +— — — +Pension and other post-retirement benefit obligations: +Actuarial loss on pension plans +— — 2 +Pension plans gain (loss) reclassified to net income +— ( 1 ) 1 +Actuarial loss on post-retirement healthcare plans +— — 1 +Post-retirement healthcare plans gain reclassified to net income +( 7 ) ( 2 ) ( 4 ) +Net change in pension and other post-retirement benefit obligations ( 7 ) ( 3 ) — +Other comprehensive income (loss) before income taxes 27 ( 45 ) 13 +Income tax expense (benefit) 6 ( 10 ) 3 +Other comprehensive income (loss) 21 ( 35 ) 10 +Total comprehensive income 607 149 1,721 +Less: noncontrolling interest in comprehensive income 7 7 121 +Comprehensive income attributable to HF Sinclair stockholders $ 600 $ 142 $ 1,600 +See accompanying notes. +87 +Table of Content s +HF SINCLAIR CORPORATION +CONSOLIDATED STATEMENTS OF CASH FLOWS +(In millions) +Years Ended December 31, +2025 2024 2023 +Cash flows from operating activities: +Net income $ 586 $ 184 $ 1,711 +Adjustments to reconcile net income to net cash provided by operating activities: +Depreciation and amortization 909 832 771 +Asset impairments +3 17 — +Lower of cost or market inventory valuation adjustments 417 ( 43 ) 271 +Earnings of equity method investments, net of distributions ( 1 ) 1 8 +Loss on early extinguishment of debt 24 — — +Gain on sale of assets ( 2 ) ( 2 ) ( 7 ) +Loss on sale of equity method investment 47 — — +Deferred income tax expense (benefit) 7 ( 49 ) 193 +Equity-based compensation expense 33 23 41 +Change in fair value of derivative instruments +64 ( 34 ) 17 +(Increase) decrease in current assets: +Accounts receivable 123 463 ( 17 ) +Inventories ( 171 ) 138 30 +Income taxes receivable 24 ( 14 ) ( 3 ) +Prepayments and other 2 11 8 +Increase (decrease) in current liabilities: +Accounts payable ( 345 ) 25 ( 109 ) +Income taxes payable 2 ( 6 ) 1 +Accrued liabilities 62 ( 63 ) ( 30 ) +Turnaround expenditures ( 437 ) ( 413 ) ( 556 ) +Other, net ( 32 ) 40 ( 32 ) +Net cash provided by operating activities 1,315 1,110 2,297 +Cash flows from investing activities: +Additions to properties, plants and equipment ( 449 ) ( 470 ) ( 385 ) +Purchase of precious metals +( 72 ) — — +Proceeds from sale of assets 6 4 17 +Other, net +( 1 ) ( 2 ) ( 3 ) +Net cash used for investing activities ( 516 ) ( 468 ) ( 371 ) +Cash flows from financing activities: +Borrowings under credit agreements — — 60 +Repayments under credit agreements ( 350 ) ( 106 ) ( 273 ) +Proceeds from issuance of senior notes 1,890 — — +Redemption of senior notes ( 1,416 ) — ( 308 ) +Purchase of treasury stock, inclusive of excise tax +( 354 ) ( 672 ) ( 999 ) +Dividends ( 376 ) ( 386 ) ( 341 ) +Distributions to noncontrolling interest ( 10 ) ( 7 ) ( 102 ) +Proceeds from financing arrangements +133 — — +Payments on financing arrangements +( 109 ) — — +Payments on finance leases ( 11 ) ( 11 ) ( 12 ) +HEP Merger Transaction consideration — — ( 268 ) +Deferred financing costs ( 25 ) — ( 1 ) +Other, net ( 3 ) — — +Net cash used for financing activities ( 631 ) ( 1,182 ) ( 2,244 ) +Effect of exchange rate on cash flow 10 ( 14 ) 7 +Cash and cash equivalents: +Net change for the period 178 ( 554 ) ( 311 ) +Cash and cash equivalents at beginning of period 800 1,354 1,665 +Cash and cash equivalents at end of period $ 978 $ 800 $ 1,354 +Supplemental information: +Cash paid for interest +$ ( 139 ) $ ( 164 ) $ ( 203 ) +Increase (decrease) in accrued and unpaid capital expenditures +$ 16 $ ( 1 ) $ ( 6 ) +See accompanying notes. +88 +Table of Content s +HF SINCLAIR CORPORATION +CONSOLIDATED STATEMENTS OF EQUITY +(In millions, except share and per share data) +HF Sinclair Stockholders ’ Equity +Common Stock Additional Capital Retained Earnings +Accumulated Other Comprehensive Loss +Treasury Stock Non-controlling Interest Total Equity +Shares (1) +Amount +Shares (1) +Amount +Balance at December 31, 2022 +223,231 $ 2 $ 6,469 $ 4,130 $ ( 22 ) 26,152 $ ( 1,335 ) $ 774 $ 10,018 +Net income — — — 1,590 — — — 121 1,711 +Dividends ($ 1.80 declared per common share) +— — — ( 341 ) — — — — ( 341 ) +Other comprehensive income, net of tax +— — — — 10 — — — 10 +HEP Merger Transaction +— — ( 466 ) — — ( 21,072 ) 1,085 ( 725 ) ( 106 ) +Issuance of common shares under incentive compensation plans — — ( 49 ) — — ( 957 ) 49 — — +Equity-based compensation +— — 40 — — — — 1 41 +Treasury stock acquired and excise tax +— — — — — 19,113 ( 993 ) — ( 993 ) +Distributions to noncontrolling interests — — — — — — — ( 102 ) ( 102 ) +Purchase of HEP units for equity grants — — — — — — — ( 1 ) ( 1 ) +Balance at December 31, 2023 +223,231 $ 2 $ 5,994 $ 5,379 $ ( 12 ) 23,236 $ ( 1,194 ) $ 68 $ 10,237 +Net income — — — 177 — — — 7 184 +Dividends ($ 2.00 declared per common share) +— — — ( 386 ) — — — — ( 386 ) +Other comprehensive loss, net of tax +— — — — ( 35 ) — — — ( 35 ) +Issuance of common shares under incentive compensation plans — — ( 28 ) — — ( 536 ) 28 — — +Equity-based compensation — — 23 — — — — — 23 +Treasury stock acquired and excise tax +— — — — — 12,126 ( 679 ) — ( 679 ) +Distributions to noncontrolling interest holders — — — — — — — ( 7 ) ( 7 ) +Other — — 9 — — — — — 9 +Balance at December 31, 2024 +223,231 $ 2 $ 5,998 $ 5,170 $ ( 47 ) 34,826 $ ( 1,845 ) $ 68 $ 9,346 +Net income — — — 579 — — — 7 586 +Dividends ($ 2.00 declared per common share) +— — — ( 376 ) — — — — ( 376 ) +Other comprehensive income, net of tax — — — — 21 — — — 21 +Issuance of common shares under incentive compensation plans — — ( 23 ) — — ( 436 ) 23 — — +Equity-based compensation — — 33 — — — — — 33 +Treasury stock acquired and excise tax +— — — — — 7,054 ( 351 ) — ( 351 ) +Distributions to noncontrolling interest holders — — — — — — — ( 10 ) ( 10 ) +Balance at December 31, 2025 +223,231 $ 2 $ 6,008 $ 5,373 $ ( 26 ) 41,444 $ ( 2,173 ) $ 65 $ 9,249 +(1) In thousands. +See accompanying notes. +89 +Table of Content s +HF SINCLAIR CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +NOTE 1: Description of Business and Summary of Significant Accounting Policies +Description of Business: References herein to HF Sinclair Corporation (“HF Sinclair” or the “Company”) include HF Sinclair and its consolidated subsidiaries. In these financial statements, the words “we,” “our,” “ours” and “us” refer only to HF Sinclair and its consolidated subsidiaries or, in certain contexts, to HF Sinclair or an individual consolidated subsidiary and not to any other person, with certain exceptions. References herein to Holly Energy Partners, L.P. (“HEP”) with respect to time periods prior to the HEP Merger Transaction (as defined below) refer to HEP and its consolidated subsidiaries. +We are an independent energy company that produces and markets high-value light products such as gasoline, diesel fuel, jet fuel, renewable diesel and lubricants and specialty products. We own and operate refineries located in Kansas, Oklahoma, New Mexico, Wyoming, Washington and Utah. We provide petroleum product and crude oil transportation, terminalling, storage and throughput services to our refineries and the petroleum industry. We market our refined products principally in the Southwest United States, the Rocky Mountains extending into the Pacific Northwest and in other neighboring Plains states, and we supply high-quality fuels to more than 1,700 brand ed stations and license the use of the Sinclair brand to more than 350 a d ditional locations throughout the country. We produce renewable diesel at two of our facilities in Wyoming and at our facility in New Mexico. In addition, our subsidiaries produce and market base oils and other specialized lubricants in the United States, Canada and the Netherlands, and export products to more than 80 countries. +On December 1, 2023, we completed the merger of HEP into an indirect wholly owned subsidiary of HF Sinclair pursuant to an Agreement and Plan of Merger dated August 15, 2023 (the “HEP Merger Transaction”). Consideration paid in connection with the merger included cash and shares of HF Sinclair common stock. Since we controlled HEP both before and after the HEP Merger Transaction, the changes in our ownership interest in HEP resulting from the HEP Merger Transaction were accounted for as an equity transaction, and no gain or loss was recognized in our consolidated statements of income. The tax effects of the HEP Merger Transaction were recorded as adjustments to Deferred income taxes and Additional capital consistent with ASC 740, “ Income Taxes. ” In connection with the HEP Merger Transaction, for the year ended December 31, 2023, we incurred $ 24 million in incremental direct acquisition and integration costs that principally relate to legal, advisory and other professional fees and are presented as Selling, general and administrative expenses in our consolidated statements of income. +Basis of Accounting and Use of Estimates: The consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). The preparation of our consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. +Principles of Consolidation: Our consolidated financial statements include our accounts and the accounts of partnerships and joint ventures that we control through an ownership interest greater than 50% or if we are the primary beneficiary of a variable interest entity (“VIE”). A VIE is a legal entity whose equity owners do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support or, as a group, the equity holders lack the power, through voting rights, to direct the activities that most significantly impact the entity’s financial performance, and the obligation to absorb the entity’s expected losses or rights to expected residual returns. Intercompany transactions and balances have been eliminated. See Note 3 for additional information regarding VIEs. +Cash Equivalents: We consider all highly liquid instruments with a maturity of three months or less at the date of purchase to be cash equivalents. Cash equivalents are stated at cost plus accrued interest, which approximates market value, and are primarily invested in liquid highly-rated instruments issued by government or municipal entities with strong credit standings. +Balance Sheet Offsetting: We purchase and sell inventories of crude oil from and to certain counterparties that are net settled in accordance with contractual net settlement provisions. We present accounts receivable and payable balances on a net basis, consistent with our contractual settlement provisions. +90 +Table of Contents +HF SINCLAIR CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Continued) +Accounts Receivable: Our accounts receivable primarily consist of amounts due from customers for sales of refined products and renewable diesel. Credit is extended based on our evaluation of the customer’s financial condition, and in certain circumstances, collateral, such as letters of credit or guarantees, is required. We reserve for expected credit losses based on our historical loss experience as well as expected credit losses from current economic conditions and management’s expectations of future economic conditions. Credit losses are charged to the allowance for expected credit losses when an account is deemed uncollectible. Our allowance for expected credit losses was $ 4 million for both of the years ended December 31, 2025 and 2024. +Accounts receivable attributable to crude oil resales generally represent the sale of excess crude oil to other purchasers and/or users in cases when our crude oil supplies are in excess of our immediate needs as well as certain reciprocal buy/sell exchanges of crude oil. At times we enter into such buy/sell exchanges to facilitate the delivery of quantities to certain locations. In many cases, we enter into net settlement agreements relating to the buy/sell arrangements, which may mitigate credit risk. +Inventories: Inventories related to our refining operations are stated at the lower of cost, using the last-in, first-out (“LIFO”) method for crude oil and unfinished and finished refined products, or market. Inventories related to our renewable business are stated at the lower of cost, using the LIFO method for feedstock and unfinished and finished renewable products, or market. Cost, consisting of raw material, transportation and conversion costs, is determined using the LIFO inventory valuation methodology and market is determined using current replacement costs. Under the LIFO method, the most recently incurred costs are charged to cost of sales and inventories are valued at the earliest acquisition costs. In periods of rapidly declining prices, LIFO inventories may have to be written down to market value due to the higher costs assigned to LIFO layers in prior periods. In addition, the use of the LIFO inventory method may result in increases or decreases to cost of sales in years that inventory volumes decline as a result of charging cost of sales with LIFO inventory costs generated in prior periods. An actual valuation of inventory under the LIFO method is made at the end of each year based on the inventory levels at that time. Accordingly, interim LIFO calculations are based on management’s estimates of expected year-end inventory levels and are subject to the final year-end LIFO inventory valuation. +Inventories of our Petro-Canada Lubricants and Sonneborn businesses are stated at the lower of cost, using the first-in, first-out method, or net realizable value. +Inventories consisting of process chemicals, materials and maintenance supplies and RINs are stated at the lower of weighted-average cost or net realizable value. +Lessee Accounting: At inception, we determine if an arrangement is or contains a lease. Right-of-use (“ROU”) assets represent our right to use an underlying asset for the lease term and lease liabilities represent our payment obligation under the leasing arrangement. ROU assets and lease liabilities are recognized on the commencement date based on the present value of lease payments over the lease term. We use our estimated incremental borrowing rate (“IBR”) to determine the present value of lease payments as most of our leases do not contain an implicit rate. Our IBR represents the interest rate that we would pay to borrow, on a collateralized basis, an amount equal to the lease payments over a similar term in a similar economic environment. We use the implicit rate when readily determinable. +Operating leases are recorded in Operating lease right-of-use assets and current and noncurrent Operating lease liabilities on our consolidated balance sheets. Finance leases are included in Properties, plants and equipment, at cost, and Accrued liabilities and Other long-term liabilities on our consolidated balance sheets. +Our lease terms include an option to extend the lease when it is reasonably certain that we will exercise that option. Leases with a term of 12 months or less are not recorded on our consolidated balance sheets. For certain equipment leases, we apply a portfolio approach for the operating lease ROU assets and liabilities. Also, as a lessee, we separate non-lease components that are identifiable and exclude them from the determination of net present value of lease payment obligations. +91 +Table of Contents +HF SINCLAIR CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Continued) +Lessor Accounting: Customer contracts that contain leases are generally classified as either operating leases, direct financing leases or sales-type leases. We consider inputs such as the lease term, fair value and residual value of the underlying asset when assessing the classification. As a lessor, we do not separate the non-lease (service) component in contracts in which the lease component is the dominant component. We treat these combined components as an operating lease. We bifurcate the consideration received for sales-type lease contracts between lease and service revenue, with the service component accounted for within the scope of ASC 606, “Revenue from Contracts with Customers.” +Derivative Instruments: All derivative instruments are recognized as either assets or liabilities on our consolidated balance sheets and are measured at fair value. Changes in the derivative instrument’s fair value are recognized in earnings unless we apply hedge accounting. Cash flows from all our derivative activity are reported in the operating section on our consolidated statements of cash flows. See Note 14 for additional information. +Properties, Plants and Equipment: Properties, plants and equipment are stated at cost. Depreciation is recognized using the straight-line method over the estimated useful lives of the assets, primarily 15 to 32 years for refining, pipeline and terminal facilities, 10 to 40 years for buildings and improvements, 5 to 30 years for other fixed assets and 5 years for vehicles. +Asset Retirement Obligations: We record legal obligations associated with the retirement of assets that result from the acquisition, construction, development and/or the normal operation of assets. The fair value of the estimated cost to retire a tangible asset is recorded as a liability with the associated retirement costs capitalized as part of the asset’s carrying amount in the period in which the obligation is incurred and when a reasonable estimate of the fair value of the liability can be made. If a reasonable estimate cannot be made at the time the liability is incurred, we record the liability when sufficient information is available to estimate the liability’s fair value. Certain of our refining assets have no recorded liability for asset retirement obligations because the timing of any retirement and related costs are currently indeterminable. +Our asset retirement obligations were $ 68 million and $ 66 million at December 31, 2025 and 2024, respectively, and are included in Other long-term liabilities on our consolidated balance sheets. Accretion expense was insignificant for the years ended December 31, 2025 , 2024 and 2023. +Goodwill, Intangible Assets and Long-lived Assets: Goodwill represents the excess of the cost of an acquired entity over the fair value of the assets acquired and liabilities assumed, and intangible assets are non-financial assets that lack physical substance. Goodwill and indefinite-lived intangible assets are not amortized, whereas finite-lived intangible assets are amortized on a straight-line basis. +Goodwill and other indefinite-lived intangible assets are tested for impairment annually. To evaluate goodwill and other indefinite-lived intangible assets for impairment, we may use qualitative assessments to determine whether it is more likely than not that the fair value of a reporting unit, including goodwill, or an indefinite-lived intangible asset is less than its carrying amount. The qualitative assessments consider multiple factors, including the current operating environment, historical and future financial performance and industry and market conditions. If an initial qualitative assessment indicates that it is more likely than not that the carrying amount of a reporting unit exceeds its estimated fair value, additional quantitative testing is performed. We may elect to bypass the qualitative assessment and instead perform a quantitative impairment test by comparing the fair value of the reporting unit to its carrying amount. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to the excess of the carrying amount over the fair value of the reporting unit, not to exceed the goodwill balance for that reporting unit. +During the year ended December 31, 2025, we elected to change our annual goodwill impairment testing date from July 1 to October 1 to better align the timing of our goodwill impairment assessment with our annual budgeting processes. The change in annual goodwill impairment testing date constitutes a voluntary change in accounting principle. This change does not delay, accelerate, or avoid an impairment charge, and has been applied prospectively as retrospective application was impracticable due to the inability to objectively determine the assumptions and significant estimates used in prior periods without the benefit of hindsight. Prior to the goodwill impairment test performed as of October 1, 2025, the most recent annual goodwill impairment test was performed as of July 1, 2025. No impairment was identified in either the July 1, 2025 or October 1, 2025 impairment assessments. +The carrying amount of our intangible assets and goodwill may fluctuate from period to period due to the effects of foreign currency translation adjustments on goodwill and intangible assets assigned to our Lubricants & Specialties segment. +92 +Table of Contents +HF SINCLAIR CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Continued) +For purposes of long-lived asset impairment evaluation, we group our assets as follows: (i) our refinery asset groups, which include certain logistics assets, (ii) our renewables products asset groups, (iii) our lubricants and specialties asset groups, (iv) our marketing assets and (v) our midstream asset groups, which are comprised of logistics assets not included in our refinery asset groups. These asset groups represent the lowest level for which independent cash flows can be identified. Our asset groups are evaluated for impairment when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. An impairment loss is measured and recorded based on the estimated fair value of the asset group being tested for impairment relative to its carrying amount. Fair value is typically determined using an income approach that incorporates estimates of discounted pre-tax future cash flows or a market approach that considers recent transaction activity for comparable assets. These approaches are considered Level 3 fair value measurements. Occasionally, such as when an asset is held for sale, market prices are used. +See Note 11 for additional information regarding goodwill and intangible assets. +Equity Method Investments: We account for investments in which we have a significant influence over the entity using the equity method of accounting, whereby we record our pro-rata share of earnings of these companies and contributions to and distributions from the joint ventures as adjustments to our investment balance. Equity method investments are recorded in Intangibles and other on our consolidated balance sheets. +The following tables summarize our recorded investment compared to our share of underlying equity for each investee. Acquisition-date differences between these amounts are amortized as adjustments to our pro-rata share of earnings in the joint ventures. +Balance at December 31, 2025 +Equity Method Investments (1) +Underlying Equity Recorded Investment Balance Difference +(In millions) +Osage Pipe Line Company, LLC $ 12 $ 37 $ ( 25 ) +Cushing Connect Terminal Holdings LLC +44 28 16 +Pioneer Investments Corp. 25 129 ( 104 ) +Saddle Butte Pipeline III, LLC 64 32 32 +Total $ 145 $ 226 $ ( 81 ) +(1) During the year ended December 31, 2025, we assigned certain of our equity ownership interests to other parties, including our 50 % ownership interest in Cheyenne Pipeline, LLC to our joint venture partner in exchange for the termination of certain future commitments. See Note 5 for additional information. +Balance at December 31, 2024 +Equity Method Investments Underlying Equity Recorded Investment Balance Difference +(In millions) +Osage Pipe Line Company, LLC $ 7 $ 32 $ ( 25 ) +Cheyenne Pipeline, LLC 28 39 ( 11 ) +Cushing Connect Terminal Holdings LLC 46 30 16 +Pioneer Investments Corp. 26 132 ( 106 ) +Saddle Butte Pipeline III, LLC 65 32 33 +Total $ 172 $ 265 $ ( 93 ) +93 +Table of Contents +HF SINCLAIR CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Continued) +Equity method investments are assessed for impairment whenever changes in the facts and circumstances indicate that the carrying value may exceed the fair value of the investment. When indicators exist, the fair value is estimated and compared to the investment’s carrying value. If any impairment is determined to be other-than-temporary, the carrying value of the investment is written down to fair value. The fair value of the impaired investment is determined based on quoted market prices, if available, or upon the present value of expected future cash flows using discount rates and other assumptions believed to be consistent with those used by principal market participants and observed market earnings multiples of comparable companies. +Revenue Recognition: Revenues from refined products, excess crude oil and RINs sales are recognized when delivered (via pipeline, in-tank or rack), and the customer obtains control of such inventory, which is typically when title passes and the customer is billed. All revenues are reported inclusive of shipping and handling costs billed and exclusive of any taxes billed to customers. Shipping and handling costs incurred are reported in Cost of materials and other . +Our Lubricants & Specialties segment has sales agreements with marketers and distributors that provide certain rights of return or provisions for the repurchase of products previously sold to them. Under these agreements, revenues and cost of revenues are deferred until the products have been sold to end customers. Our Lubricants & Specialties segment also has agreements that create an obligation to deliver products at a future date for which consideration has already been received and recorded as deferred revenue. This revenue is recognized when the products are delivered to the customer. +Our Midstream segment recognizes revenues as products are shipped through its pipelines and terminals and as other services are rendered. Additionally, we have certain throughput agreements that specify minimum volume requirements, whereby we bill a customer for a minimum level of shipments in the event a customer ships below its contractual requirements. If there are no future performance obligations, we recognize these deficiency payments as revenue. In certain of these throughput agreements, a customer may later utilize such shortfall billings as credit towards future volume shipments in excess of its minimum levels within its respective contractual shortfall make-up period. Such amounts represent an obligation to perform future services, which may be initially deferred and later recognized as revenue based on estimated future shipping levels, including the likelihood of a customer’s ability to utilize such amounts prior to the end of the contractual shortfall make-up period. We recognize the service portion of these deficiency payments as revenue when we do not expect that we will be required to satisfy these performance obligations in the future based on the pattern of rights exercised by the customer. Payment terms under our contracts with customers are consistent with industry norms and are typically payable within 30 days of the date of invoice. +Cost Classifications: Costs of products sold include the cost of crude oil, other feedstocks, blendstocks and purchased finished products, inclusive of transportation costs and environmental credit obligations. We purchase crude oil that at times exceeds the supply needs of our refineries. Quantities in excess of our needs are sold at market prices to purchasers of crude oil that are recorded on a gross basis with the sales price recorded as revenues and the corresponding acquisition cost as Cost of materials and other. Additionally, we enter into buy/sell exchanges of crude oil with certain parties to facilitate the delivery of quantities to certain locations, with such transactions being recorded as costs on a net basis. Operating expenses include direct costs of labor, maintenance materials and services, utilities and other direct operating costs. Selling, general and administrative expenses include compensation, professional services and other support costs. +Deferred Maintenance Costs: Our refinery units require regular major maintenance and repairs, which are commonly referred to as “turnarounds.” Catalysts used in certain refinery processes also require regular “change-outs.” The required frequency of the maintenance varies by unit and by catalyst, but generally occurs no less than once every five years . Turnaround costs are deferred and amortized over the period until the next scheduled turnaround. Other repairs and maintenance costs are expensed when incurred. Deferred turnaround and catalyst amortization expense was $ 334 million, $ 264 million and $ 239 million for the years ended December 31, 2025 , 2024 and 2023, respectively. +94 +Table of Contents +HF SINCLAIR CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Continued) +Environmental Costs: Environmental costs are charged to Operating expenses if they relate to an existing condition caused by past operations and do not contribute to current or future revenue generation. We have ongoing investigations of environmental matters at various locations and routinely assess our recorded environmental obligations, if any, with respect to such matters. Liabilities are recorded when site restoration, environmental remediation, cleanup and other obligations are either known or considered probable and can be reasonably estimated. Such estimates are undiscounted and require judgment with respect to costs, time frame and extent of required remedial and cleanup activities and are subject to periodic adjustments based on currently available information. Recoveries of environmental costs through insurance, indemnification arrangements or other sources are included in Other assets to the extent such recoveries are considered probable. +Defined Contribution Plans: We have defined contribution plans that cover substantially all qualified employees in the U.S., Canada and the Netherlands. Our contributions are based on an employee’s eligible compensation and years of service. We also partially match our employees’ contributions. We expensed $ 92 million, $ 86 million and $ 81 million for the years ended December 31, 2025 , 2024 and 2023, respectively, in connection with these plans. +Contingencies: We are subject to proceedings, lawsuits and other claims related to environmental, labor, product and other matters. We are required to assess the likelihood of any adverse judgments or outcomes of these matters as well as potential ranges of probable losses. We accrue for contingencies when it is probable that a loss has occurred and when the amount of that loss is reasonably estimable. A determination of the amount of reserves required, if any, for these contingencies is made after careful analysis of each individual issue. The required reserves may change in the future due to new developments in each matter or changes in approach such as a change in settlement strategy in dealing with these matters. +Foreign Currency Translation: Assets and liabilities recorded in foreign currencies are translated into U.S. dollars using exchange rates as of the balance sheet date. Revenue and expense accounts are translated using the weighted-average exchange rates during the period presented. Foreign currency translation adjustments are recorded as a component of Accumulated other comprehensive loss. +We have intercompany notes that were issued to fund certain of our foreign businesses. Remeasurement adjustments resulting from the conversion of such intercompany financing amounts into functional currencies are recorded as gains or losses as a component of Other income (expense), net on our consolidated statements of income. Such adjustments are recorded in Corporate and Other rather than a reportable segment. See Note 19 for additional information on our segments. +Income Taxes: Provisions for income taxes include deferred taxes resulting from temporary differences between income for financial and tax purposes, using the liability method of accounting for income taxes. The liability method requires the effect of tax rate changes on deferred income taxes to be reflected in the period in which the rate change was enacted. The liability method also requires that deferred tax assets be reduced by a valuation allowance unless it is more likely than not that the assets will be realized. We account for U.S. tax on global intangible low-taxed income in the period in which it is incurred. +Potential interest and penalties related to income tax matters are recognized in Income tax expense (benefit) . We believe we have the appropriate support for the income tax positions taken and to be taken on our income tax returns and that our accruals for tax liabilities are adequate for all open years based on an assessment of many factors, including past experience and interpretations of tax law applied to the facts of each matter. +Income tax effects that are held in Accumulated other comprehensive loss are released into Retained earnings , when applicable, on an individual item basis as those items are reclassified into income. +Inventory Repurchase Obligations: We periodically enter into same-party sell/buy transactions, whereby we sell certain refined product and RINs inventory and subsequently repurchase the inventory in order to facilitate delivery to certain locations and manage our compliance obligations. Such sell/buy transactions are accounted for as inventory repurchase obligations and are financing arrangements, with proceeds received under the initial sale recognized as inventory repurchase obligations that are subsequently reversed when the inventory is repurchased. For the years ended December 31, 2025 , 2024 and 2023, we received proceeds of $ 129 million, $ 26 million and $ 26 million, respectively, and subsequently repaid $ 131 million, $ 27 million and $ 27 million, respectively, under these sell/buy transactions. +95 +Table of Contents +HF SINCLAIR CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Continued) +Accounting Pronouncements (Recently Adopted): In December 2023, Accounting Standards Update (“ASU”) 2023-09, “Improvements to Income Tax Disclosures” was issued. ASU 2023-09 requires enhanced annual disclosures regarding the rate reconciliation and income taxes paid by jurisdiction. We adopted this standard effective January 1, 2025. The adoption resulted in additional disclosures in Note 15 but did not affect our financial position or our results of operations. +Accounting Pronouncements (Not Yet Adopted): In November 2024, ASU 2024-03, “Disaggregation of Income Statement Expenses” was issued. ASU 2024-03 requires companies to disclose additional information about specific expense categories in the notes to the financial statements on an interim and annual basis. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026 and for interim periods beginning after December 15, 2027, and may be adopted on a prospective or retrospective basis. Early adoption is permitted. The adoption will not affect our financial position or our results of operations, but will result in additional disclosures. +In July 2025, ASU 2025-05, “Measurement of Credit Losses for Accounts Receivable and Contract Assets” was issued offering a new optional practical expedient related to the estimation of future expected credit losses on accounts receivable. ASU 2025-05 is effective for fiscal years beginning after December 15, 2025, with early adoption permitted. we do not expect this ASU to have a material impact on our consolidated financial statements and disclosures +In September 2025, ASU 2025-06, “Internal-Use Software” was issued amending guidance related to the accounting for internal-use software development costs. ASU 2025-06 is effective for fiscal years beginning after December 15, 2027, with early adoption permitted. We are currently assessing the impact of this guidance on the consolidated financial statements. +NOTE 2: Leases +Lessee +We have operating and finance leases for land, buildings, pipelines, storage tanks, transportation and other equipment for our operations. Our leases have remaining terms of one to 54 years, some of which include options to extend the leases for up to 10 years. Certain of our leases for pipeline assets include provisions for variable payments that are based on a measure of throughput and provisions that allow the lessor to adjust the rate per barrel periodically over the life of the lease. These variable costs are not included in the initial measurement of ROU assets and lease liabilities. +The following table presents the amounts and locations of our operating and finance leases recorded on our consolidated balance sheets: +December 31, +2025 2024 +(In millions) +Operating leases: +Operating lease right-of-use assets +$ 349 $ 355 +Operating lease liabilities +85 77 +Noncurrent operating lease liabilities 289 301 +Total operating lease liabilities $ 374 $ 378 +Finance leases: +Properties, plants and equipment, at cost $ 124 $ 115 +Less: accumulated amortization ( 41 ) ( 37 ) +Properties, plants and equipment, net $ 83 $ 78 +Accrued liabilities $ 14 $ 11 +Other long-term liabilities 75 71 +Total finance lease liabilities $ 89 $ 82 +96 +Table of Contents +HF SINCLAIR CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Continued) +Supplemental balance sheet information related to our leases was as follows: +December 31, +2025 2024 +Weighted-average remaining lease term (in years): +Operating leases 8.6 9.2 +Finance leases 7.3 8.1 +Weighted-average discount rate: +Operating leases 5.6 % 5.6 % +Finance leases 6.3 % 6.1 % +The components of lease expense were as follows: +Years Ended December 31, +2025 2024 2023 +(In millions) +Operating lease expense $ 109 $ 131 $ 121 +Finance lease expense: +Amortization of ROU assets +14 12 13 +Interest on lease liabilities 5 5 3 +Variable lease cost 4 13 13 +Total lease expense $ 132 $ 161 $ 150 +Supplemental cash flow information related to leases was as follows: +Years Ended December 31, +2025 2024 2023 +(In millions) +Cash paid for amounts included in the measurement of lease liabilities: +Operating cash flows from operating leases $ 106 $ 130 $ 128 +Operating cash flows from finance leases $ 5 $ 5 $ 3 +Financing cash flows from finance leases $ 11 $ 11 $ 12 +Right-of-use assets obtained in exchange for lease obligations: +Operating leases $ 84 $ 126 $ 103 +Finance leases $ 19 $ 8 $ 38 +97 +Table of Contents +HF SINCLAIR CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Continued) +As of December 31, 2025, minimum future lease payments of our operating and finance lease obligations were as follows: +Operating Finance +(In millions) +2026 $ 100 $ 18 +2027 77 16 +2028 51 16 +2029 38 14 +2030 33 12 +Thereafter 199 35 +Future minimum lease payments 498 111 +Less: imputed interest ( 124 ) ( 22 ) +Total lease obligations 374 89 +Less: current obligations ( 85 ) ( 14 ) +Long-term lease obligations $ 289 $ 75 +Lessor +Our consolidated statements of income reflect lease revenue recognized by our midstream operations for contracts with third parties in which we are the lessor. +Substantially all of the assets supporting contracts that meet the definition of a lease have long useful lives, and we believe these assets will continue to have value when the current agreements expire as a result of our risk management strategy to protect the residual fair value of the underlying assets by performing ongoing maintenance during the lease term. +Lease income recognized was as follows: +Years Ended December 31, +2025 2024 2023 +(In millions) +Operating lease revenues $ 17 $ 17 $ 17 +Sales-type lease interest income $ 2 $ 2 $ 2 +Lease revenues relating to variable lease payments not included in measurement of the sales-type lease receivable $ 1 $ 2 $ 1 +For our third-party sales-type leases, we included customer obligations related to minimum volume requirements in guaranteed minimum lease payments. Portions of our minimum guaranteed pipeline tariffs for assets subject to sales-type lease accounting are recorded as interest income with the remaining amounts recorded as a reduction in net investment in leases. We recognized any billings for throughput volumes in excess of minimum volume requirements as variable lease payments, and these variable lease payments were recorded in lease revenues. +98 +Table of Contents +HF SINCLAIR CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Continued) +Annual minimum undiscounted lease payments for third-party contracts for which we were the lessor as of December 31, 2025, were as follows: +Operating Sales-Type +(In millions) +2026 $ 14 $ 2 +2027 14 2 +2028 13 2 +2029 13 2 +2030 2 2 +Thereafter — 10 +Total lease payment receipts $ 56 20 +Less: imputed interest ( 4 ) +Lease receivables $ 16 +Net investment in sales-type leases, which is recorded in Intangibles and other on our consolidated balance sheets, was composed of the following: +December 31, +2025 2024 +(In millions) +Lease receivables $ 16 $ 17 +Unguaranteed residual assets 16 16 +Net investment in leases $ 32 $ 33 +NOTE 3: Cushing Connect Joint Venture +We, through our wholly owned subsidiary HEP Cushing LLC (“HEP Cushing”), own a 50 % interest in Cushing Connect Pipeline & Terminal LLC (“Cushing Connect”), a joint venture with Plains Marketing, L.P., a wholly owned subsidiary of Plains All American Pipeline, L.P. (“Plains”). Cushing Connect consists of (i) a 160,000 barrels per day common carrier crude oil pipeline (the “Cushing Connect Pipeline”) that connects the Cushing, Oklahoma crude oil hub to our Tulsa Refineries, and (ii) the ownership and operation of 1.5 million barrels of crude oil storage in Cushing, Oklahoma (the “Cushing Connect Terminal”). +Cushing Connect entered into contracts with an affiliate of HEP, a subsidiary of HF Sinclair, to manage the operation of the Cushing Connect Pipeline and with an affiliate of Plains to manage the operation of the Cushing Connect Terminal. The total investment in Cushing Connect was generally shared proportionately among the partners. +Cushing Connect and its two subsidiaries (the “Cushing Connect Entities”) are VIEs under GAAP because they lack sufficient equity at risk to finance their activities without additional financial support. We are the primary beneficiary of two of these entities as HEP constructed and operates the Cushing Connect Pipeline, and we have the ability to direct the activities that most significantly impact the financial performance of Cushing Connect and the Cushing Connect Pipeline. Therefore, we consolidate Cushing Connect and the related Cushing Connect Pipeline subsidiary. We are not the primary beneficiary of the Cushing Connect Terminal, which we account for using the equity method of accounting. Our maximum exposure to loss as a result of our involvement with Cushing Connect Terminal is not expected to be material due to the long-term terminalling agreements in place to support operations. +99 +Table of Contents +HF SINCLAIR CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Continued) +With the exception of the assets of HEP Cushing, creditors of the Cushing Connect Entities have no recourse to our assets. Any recourse to HEP Cushing would be limited to the extent of HEP Cushing’s assets, which, other than its investment in Cushing Connect, are not significant. Furthermore, our creditors have no recourse to the assets of the Cushing Connect Entities. The most significant assets of Cushing Connect and the Cushing Connect Pipeline that are available to settle only their obligations, and their most significant liabilities, for which creditors do not have recourse to our general credit, were as follows: +December 31, +2025 2024 +(In millions) +Cash and cash equivalents $ 1 $ 5 +Properties, plants and equipment, at cost 103 103 +Less: accumulated depreciation ( 15 ) ( 12 ) +88 91 +Intangibles and other 28 30 +NOTE 4: Revenues +Substantially all revenue-generating activities relate to sales of refined products and excess crude oil inventories at market prices (variable consideration) under contracts with customers. Additionally, we have revenues attributable to our logistics services provided under petroleum product and crude oil pipeline transportation, processing, storage and terminalling agreements with third parties. +Disaggregated revenues were as follows: +Years Ended December 31, +2025 2024 2023 +(In millions) +Revenues by type: +Refined product revenues: +Transportation fuels (1) +$ 20,934 $ 22,235 $ 24,582 +Lubricants and specialty products (2) +2,307 2,429 2,521 +Asphalt, fuel oil and other products (3) +1,426 1,932 2,167 +Total refined product revenues 24,667 26,596 29,270 +Excess crude oil revenues (4) +1,335 1,570 2,147 +Transportation and logistic services 121 107 118 +Other revenues (5) +746 307 429 +Total sales and other revenues $ 26,869 $ 28,580 $ 31,964 +100 +Table of Contents +HF SINCLAIR CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Continued) +Years Ended December 31, +2025 2024 2023 +(In millions) +Refined product revenues by market: (6) +United States: +Mid-Continent $ 8,999 $ 9,710 $ 10,756 +Southwest 3,536 4,213 4,056 +Rocky Mountains 5,314 5,781 6,916 +Northwest 4,768 4,746 5,296 +Northeast 820 836 959 +Canada 964 1,047 1,022 +Other +266 263 265 +Total refined product revenues $ 24,667 $ 26,596 $ 29,270 +(1) Transportation fuels revenues are attributable to our: (i) Refining segment wholesale gasoline, diesel and jet fuel, (ii) Marketing segment branded gasoline and diesel fuel and (iii) Renewables segment renewable diesel fuel. +(2) Lubricant and specialty products consist of finished lubricants, specialty fluids, waxes, base oils, and other by-products. +(3) Asphalt, fuel oil and other products revenues are attributable to the Refining and Lubricants & Specialties segments. +(4) Excess crude oil revenues represent sales of purchased crude oil inventory that occasionally exceed our refineries’ supply needs. +(5) Other revenues are principally attributable to our Refining, Marketing and Lubricants & Specialties segments. During the year ended December 31, 2025, other revenues included $ 430 million in RIN sales. +(6) Revenues are allocated to markets based on the location where the sale originated. +As of December 31, 2025, we have long-term contracts with customers that specify minimum volumes of gasoline, diesel and lubricants and specialty products to be sold ratably at market prices through 2035. Future prices are subject to market fluctuations and therefore, we have elected the exemption to exclude variable consideration under these contracts. Aggregate minimum volumes expected to be sold (future performance obligations) under our long-term product sales contracts with customers are as follows: +Contractual Minimum 2026 2027 2028 Thereafter Total +(In millions) +Refined product sales volumes (barrels) 36 29 21 10 96 +Additionally, we have long-term contracts with third-party customers that specify minimum volumes of product to be transported through our pipelines and terminals, resulting in fixed-minimum annual reven ues throu gh 2033. Annua l minimum revenues attributable to our third-party contracts as of December 31, 2025 are presented below: +Contractual Minimum 2026 2027 2028 Thereafter Total +(In millions) +Midstream operations revenues $ 22 $ 22 $ 22 $ 43 $ 109 +For the year ended December 31, 2025 , no customers accounted for 10% or more of our total annual revenues. For the years ended December 31, 2024 and 2023, we had one customer, Shell, together with certain of its affiliates, that accounted for 10% or more of our total annual revenues at approximately 11 % and 12 %, respectively, which were primarily generated through our Refining segment operations. +101 +Table of Contents +HF SINCLAIR CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Continued) +NOTE 5: Other Income (Expense), Net +Other income (expense), net consists of the following: +Years Ended December 31, +2025 2024 2023 +(In millions) +Loss on sale of equity method investment (1) +$ ( 47 ) $ — $ — +Loss on early extinguishment of debt ( 24 ) — — +Gain on foreign currency transactions 5 — 3 +Gain on sale of assets and other 13 15 27 +Other income (expense), net $ ( 53 ) $ 15 $ 30 +(1) During the year ended December 31, 2025, we assigned certain of our equity ownership interests to other parties, including our 50 % ownership interest in Cheyenne Pipeline, LLC to our joint venture partner in exchange for the termination of certain future commitments. +NOTE 6: Fair Value Measurements +Fair value measurements are derived using inputs (assumptions that market participants would use in pricing an asset or liability, including assumptions about risk). GAAP categorizes inputs used in fair value measurements into three broad levels as follows: +Level 1: +Quoted prices in active markets for identical assets or liabilities. +Level 2: +Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, similar assets and liabilities in markets that are not active or can be corroborated by observable market data. +Level 3: +Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes valuation techniques that involve significant unobservable inputs. +The carrying amounts of derivative instruments, certain financing arrangements and environmental credit obligations as of December 31, 2025 and 2024 were as follows: +Carrying Amount Fair Value by Input Level +Level 1 Level 2 Level 3 +(In millions) +December 31, 2025 +Assets: +Commodity forward contracts $ 5 $ — $ 5 $ — +Total assets $ 5 $ — $ 5 $ — +Liabilities: +Commodity forward contracts $ 5 $ — $ 5 $ — +Financing arrangements - precious metals +94 — 96 — +Foreign currency forward contracts 6 — 6 — +Environmental credit obligations 46 — 46 — +Total liabilities $ 151 $ — $ 153 $ — +102 +Table of Contents +HF SINCLAIR CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Continued) +Carrying Amount Fair Value by Input Level +Level 1 Level 2 Level 3 +(In millions) +December 31, 2024 +Assets: +Commodity forward contracts $ 1 $ — $ 1 $ — +Foreign currency forward contracts 18 — 18 — +Total assets $ 19 $ — $ 19 $ — +Liabilities: +NYMEX futures contracts $ 1 $ 1 $ — $ — +Commodity forward contracts 1 — 1 — +Financing arrangements - precious metals +31 — 31 — +Environmental credit obligations +10 — 10 — +Total liabilities $ 43 $ 1 $ 42 $ — +Level 1 Fair Value Measurements: Our futures contracts based on New York Mercantile Exchange (“NYMEX”) pricing are measured and recorded at fair value using quoted market prices, a Level 1 input. +Level 2 Fair Value Measurements: Derivative instruments consisting of foreign currency forward contracts, commodity price swaps and forward sales and purchase contracts are measured and recorded at fair value using Level 2 inputs. The fair value of the commodity price swap contracts is based on the net present value of expected future cash flows related to both variable and fixed rate legs of the respective swap agreements. The measurements are computed using market-based observable inputs and quoted forward commodity prices with respect to our commodity price swaps. The fair value of the forward sales and purchase contracts is computed using quoted forward commodity prices. The fair value of our precious metals catalyst financing arrangements discussed in Note 13 is computed using quoted forward commodity prices, a Level 2 input. The fair value of foreign currency forward contracts is derived using market quotes for similar types of instruments, a Level 2 input. Environmental credit obligations are valued based on quoted prices from an independent pricing service. +See Note 14 for additional information on derivative instruments and hedging activities. +103 +Table of Contents +HF SINCLAIR CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Continued) +NOTE 7: Earnings Per Share +Basic earnings per share is calculated as Net income attributable to HF Sinclair stockholders , adjusted for participating securities’ share in earnings divided by the weighted-average number of shares of common stock outstanding. Diluted earnings per share reflects the dilutive effect of the incremental shares resulting from certain share-based awards. Anti-dilutive shares were immaterial for all periods presented. +The following is a reconciliation of the denominators of the basic and diluted per share computations for Net income attributable to HF Sinclair stockholders : +Years Ended December 31, +2025 2024 2023 +(In millions, except share and per share data) +Net income attributable to HF Sinclair stockholders $ 579 $ 177 $ 1,590 +Less: participating securities’ share in earnings (1) +( 5 ) ( 2 ) ( 14 ) +Net income attributable to common shares $ 574 $ 175 $ 1,576 +Average number of common shares outstanding (in thousands): +Basic 186,465 192,073 190,035 +Diluted 186,465 192,073 190,035 +Basic earnings per share $ 3.08 $ 0.91 $ 8.29 +Diluted earnings per share $ 3.08 $ 0.91 $ 8.29 +(1) Unvested restricted stock unit awards and unvested performance share units that settle in HF Sinclair common stock represent participating securities because they participate in nonforfeitable dividends or distributions with the common stockholders of HF Sinclair. Participating earnings represent the distributed and undistributed earnings of HF Sinclair attributable to the participating securities. Unvested restricted stock unit awards and performance share units do not participate in undistributed net losses as they are not contractually obligated to do so. +NOTE 8: Stock-Based Compensation +We have a principal share-based compensation plan, the HF Sinclair Corporation Amended and Restated 2020 Long Term Incentive Plan (the “2020 Plan”). The 2020 Plan provides for the grant of unrestricted and restricted stock, restricted stock units, other stock-based awards, stock options, performance awards, substitute awards, cash awards and stock appreciation rights. An aggregate of 6,368,930 of these awards may be issued pursuant to awards granted under the 2020 Plan. We also have a stock compensation deferral plan that allows non-employee directors to defer settlement of vested stock granted under our share-based compensation plan. Our accounting policy for the recognition of compensation expense for awards with pro-rata vesting is to expense the costs ratably over the vesting periods. Share-based awards paid in cash upon vesting are accounted for as liability awards and recorded at fair value at the end of each reporting period with a mark-to-mark adjustment recognized in earnings. +The stock-based compensation expense and associated tax benefit were as follows: +Years Ended December 31, +2025 2024 2023 +(In millions) +Compensation expense: +Restricted stock units $ 22 $ 18 $ 30 +Performance stock units 12 4 12 +Total compensation expense $ 34 $ 22 $ 42 +Tax benefit recognized on compensation expense $ 8 $ 5 $ 10 +104 +Table of Contents +HF SINCLAIR CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Continued) +Restricted Stock Units +Under the 2020 Plan, we grant certain officers and other key employees restricted stock unit awards, which are payable in stock or cash and generally vest over a period of three years . Restricted stock unit award recipients have the right to receive dividends; however, restricted stock units do not have any other rights of absolute ownership. Upon vesting, restrictions on the restricted stock units lapse at which time they convert to common shares or cash. In addition, we grant non-employee directors restricted stock unit awards, which typically vest over a period of one year and are payable in stock. The fair value of each restricted stock unit award is measured based on the grant date market price of our common shares and is amortized over the respective vesting period. We account for forfeitures on an estimated basis. +A summary of restricted stock units activity during the year ended December 31, 2025 is presented below: +Restricted Stock Units Grants +Weighted-Average Grant Date Fair Value +Outstanding at January 1, 2025 +951,690 $ 54.23 +Granted 460,866 $ 54.84 +Vested ( 396,474 ) $ 39.03 +Forfeited ( 38,582 ) $ 48.40 +Outstanding at December 31, 2025 +977,500 $ 60.91 +As of December 31, 2025, there was $ 31 million of total unrecognized compensation cost related to unvested restricted stock unit grants. That cost is expected to be recognized over a weighted-average period of 1.5 years. +The following table reflects activity related to our restricted stock units: +Years Ended December 31, +Restricted Stock Unit Activity 2025 2024 2023 +Grant date fair value of vested units (in millions) $ 15 $ 16 $ 21 +Weighted-average grant date fair value per granted unit +$ 54.84 $ 42.36 $ 52.59 +Cash paid for settlement of awards on vesting date (in millions) $ 1 $ 1 $ 4 +Restricted stock units settled in cash +22,607 24,065 71,589 +Performance Share Units +Under the 2020 Plan, we grant certain officers and other key employees performance share units, which are payable in stock or cash upon meeting certain criteria over the service period, and generally vest at the end of a three year period. Under the terms of our performance share unit grants, awards are subject to “financial performance” and “market performance” criteria. Financial performance is based on our financial performance compared to a peer group of independent refining companies, while market performance is based on the relative standing of total stockholder return achieved by HF Sinclair compared to peer group companies. The number of shares ultimately issued or cash paid under these awards can range from zero to 200 % of target award amounts. Holders of performance share units have the right to receive dividend equivalents and other distributions with respect to such performance share units based on the target level of payout. Awards subject to financial performance are amortized over the vesting period and are reevaluated periodically based on the probability of achievement of the performance conditions. The grant date fair value of awards subject to market performance are estimated based on a Monte Carlo simulation model and are amortized over the vesting period. +A summary of performance share units activity during the year ended December 31, 2025 is presented below: +Performance Share Units Grants Weighted Average Grant Date Fair Value +Outstanding at January 1, 2025 +622,427 $ 59.60 +Granted 258,235 $ 59.90 +Vested ( 125,146 ) $ 73.27 +Outstanding at December 31, 2025 755,516 $ 57.44 +105 +Table of Contents +HF SINCLAIR CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Continued) +As of December 31, 2025, there was $ 24 million of total unrecognized compensation cost related to non-vested performance share units. That cost is expected to be recognized over a weighted-average period of 2.0 years. +The following table reflects activity related to our performance share units: +Years Ended December 31, +Performance Share Units Activity 2025 2024 2023 +Grant date fair value of vested units (in millions) $ 9 $ 3 $ 7 +Weighted-average grant date fair value per granted unit +$ 59.90 $ 49.90 $ 67.73 +Cash paid for settlement of awards on vesting date (in millions) $ — $ — $ 1 +Performance stock units settled in cash +— 2,724 23,587 +NOTE 9: Inventories +Inventories consist of the following components: +December 31, +2025 2024 +(In millions) +Crude oil $ 874 $ 799 +Other raw materials and unfinished products (1) +709 656 +Finished products (2) +1,337 1,329 +Lower of cost or market reserve ( 706 ) ( 289 ) +Crude oil and refined products 2,214 2,495 +Process chemicals (3) +54 43 +Repairs and maintenance supplies and other (4) +305 260 +Materials, supplies and other 359 303 +Total inventories $ 2,573 $ 2,798 +(1) Other raw materials and unfinished products include feedstocks and blendstocks, other than crude oil. +(2) Finished products include gasolines, jet fuels, diesels, renewable diesels, lubricants, asphalts, LPGs and residual fuels. +(3) Process chemicals include additives and other chemicals. +(4) Repairs and maintenance supplies and other include environmental credits. +Our Refining and Renewables segment inventories are valued at the lower of LIFO cost or market based on market conditions at that time. The following table summarizes the lower of cost or market reserve activity: +Lower of Cost or Market Reserve Activity Summary: Refining Renewables Total +(In millions) +Balance at December 31, 2022 +$ — $ 61 $ 61 +Lower of cost or market inventory valuation adjustments 221 50 271 +Balance at December 31, 2023 $ 221 $ 111 $ 332 +Lower of cost or market inventory valuation adjustments +( 32 ) ( 11 ) ( 43 ) +Balance at December 31, 2024 $ 189 $ 100 $ 289 +Lower of cost or market inventory valuation adjustments +415 2 417 +Balance at December 31, 2025 $ 604 $ 102 $ 706 +106 +Table of Contents +HF SINCLAIR CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Continued) +NOTE 10: Properties, Plants and Equipment +The components of properties, plants and equipment are as follows: +December 31, +2025 2024 +(In millions) +Land, buildings and improvements $ 814 $ 790 +Refining facilities 7,041 6,793 +Pipelines and terminals 2,402 2,356 +Transportation vehicles 44 42 +Other fixed assets 690 640 +Construction in progress 401 310 +Properties, plants and equipment, at cost 11,392 10,931 +Less: accumulated depreciation ( 4,859 ) ( 4,373 ) +Properties, plants and equipment, net $ 6,533 $ 6,558 +We capitalized interest attributable to construction projects of $ 5 million for the year ended December 31, 2025, and $ 4 million for both of the years ended December 31, 2024 and 2023. +Depreciation expense was $ 515 million, $ 509 million and $ 474 million for the years ended December 31, 2025 , 2024 and 2023, respectively. +NOTE 11: Goodwill, Intangibles and Long-lived Assets +Goodwill +As of December 31, 2025 , our goodwill balance was $ 2,978 million. The carrying amount of our goodwill may fluctuate from period to period due to the effects of foreign currency translation adjustments on goodwill assigned to our Lubricants & Specialties segment. +The following is a summary of our goodwill balance by segment: +Refining +Renewables Marketing +Lubricants & Specialties +Midstream Total +(In millions) +Balance at December 31, 2023 +$ 1,977 $ 159 $ 164 $ 246 $ 432 $ 2,978 +Foreign currency translation adjustment — — — ( 1 ) — ( 1 ) +Balance at December 31, 2024 +$ 1,977 $ 159 $ 164 $ 245 $ 432 $ 2,977 +Foreign currency translation adjustment — — — 1 — 1 +Balance at December 31, 2025 $ 1,977 $ 159 $ 164 $ 246 $ 432 $ 2,978 +The following consists of goodwill gross amounts and accumulated impairment charges as of December 31, 2025 : +Refining Renewables Marketing Lubricants & Specialties Midstream Total +Balance at December 31, 2025 (In millions) +Goodwill $ 2,286 $ 159 $ 164 $ 481 $ 432 $ 3,522 +Accumulated impairment losses ( 309 ) — — ( 235 ) — ( 544 ) +Total Goodwill $ 1,977 $ 159 $ 164 $ 246 $ 432 $ 2,978 +No impairment of goodwill was recognized during the years ended December 31, 2025 and 2024, respectively. +107 +Table of Contents +HF SINCLAIR CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Continued) +Intangibles +The carrying amounts of our intangible assets presented in Intangibles and other on our consolidated balance sheets are as follows: +December 31, +Useful Life 2025 2024 +(In millions) +Customer relationships +4 - 20 years +$ 349 $ 345 +Transportation agreements 30 years 60 60 +Trademarks, patents and other +6 - 20 years +262 257 +671 662 +Less: accumulated amortization ( 370 ) ( 311 ) +Total intangibles, net $ 301 $ 351 +Amortization expense was $ 55 million for each of the years ended December 31, 2025, 2024 and 2023. +Estimated future amortization expense related to intangible assets at December 31, 2025 is as follows: +Estimated Future Amortization Expense for Year Ended December 31: (In millions) +2026 $ 47 +2027 41 +2028 34 +2029 34 +2030 34 +Thereafter 111 +Total $ 301 +Long-lived Assets +Long-lived assets, defined as properties, plants, and equipment, net, Operating lease right-of-use assets , Turnaround costs and other tangible assets, are primarily located in the United States. Total long-lived assets were $ 8,155 million and $ 8,131 million as of December 31, 2025 and 2024, respectively. As of December 31, 2025 and 2024, 93 % of our long-lived assets were located in the United States. Long-lived assets located outside of the United States were immaterial and no individual foreign country represented a material portion of our long-lived assets. +Asset impairments were $ 3 million during the year ended December 31, 2025. During the year ended December 31, 2024 , we incurred asset impairment charges totaling $ 17 million , primarily related to certain logistics assets in our Midstream segment and other assets in our Refining segment. No impairment charges were recorded for the year ended December 31, 2023. +108 +Table of Contents +HF SINCLAIR CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Continued) +NOTE 12: Accrued Liabilities and Other Long-Term Liabilities +Accrued liabilities consist of the following: +December 31, +2025 2024 +(In millions) +Precious metal financing $ 94 $ 32 +Wage and other employee-related liabilities 88 85 +Accrued interest expense 65 38 +Environmental credit obligations 64 17 +Accrued taxes other than income 27 28 +Environmental liabilities (1) +22 27 +ROU financing lease liabilities +14 11 +Derivatives 11 2 +Other 108 137 +Total accrued liabilities $ 493 $ 377 +Other long-term liabilities consist of the following: +December 31, +2025 2024 +(In millions) +Environmental liabilities (1) +$ 167 $ 163 +ROU financing lease liabilities +75 71 +Asset retirement obligations +68 66 +Other 168 141 +Total other long-term liabilities $ 478 $ 441 +(1) Environmental liability accruals include remediation and monitoring costs expected to be incurred over an extended period of time. Environmental liabilities are recorded when a loss is considered probable and can be reasonably estimated, and may be adjusted as additional information becomes available. Environmental remediation expenses were $ 14 million, $ 14 million and $ 27 million for the years ended December 31, 2025, 2024 and 2023, respectively. +109 +Table of Contents +HF SINCLAIR CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Continued) +NOTE 13: Debt +Credit Agreements +On April 3, 2025, we terminated our $ 1.65 billion senior unsecured revolving credit facility maturing in April 2026 (the “Terminated HF Sinclair Credit Agreement”) and the $ 1.2 billion senior secured revolving credit facility maturing in July 2025 of our wholly owned subsidiary HEP (the “Terminated HEP Credit Agreement”). Contemporaneously, we entered into a new $ 2.0 billion senior unsecured revolving credit facility maturing in April 2030 (the “HF Sinclair Credit Agreement”), which contains an extension feature that allows us to extend the term of the commitment from time to time in increments of up to one year subject to the terms and conditions set forth in the HF Sinclair Credit Agreement. The HF Sinclair Credit Agreement includes an accordion feature that allows us to increase such commitments to an aggregate principal amount of up to $ 2.75 billion. In addition, HF Sinclair was released from its obligations under the Parent Guaranty Agreement, dated as of December 1, 2023, as guarantor, in favor of Wells Fargo Bank, National Association, in its capacity as administrative agent (the “Guaranty”), and the Guaranty was terminated. We did not pay any prepayment penalties in connection with the termination of the Terminated HF Sinclair Credit Agreement or the Terminated HEP Credit Agreement. We recognized an early extinguishment loss of $ 1 million, inclusive of unamortized debt issuance costs. +Indebtedness under the HF Sinclair Credit Agreement bears interest, at our option, at either (a) the greater of (i) the prime rate (as publicly announced from time to time by the administrative agent), (ii) a base rate equal to the highest of the Federal Funds Effective Rate (as defined in the HF Sinclair Credit Agreement) plus 0.5 %, and (iii) Spread Adjusted Term SOFR (as defined in the HF Sinclair Credit Agreement) for a one-month interest period plus 1 %, as applicable, plus an applicable margin (ranging from 0.125 % to 1.000 %), or (b) at a rate equal to the Spread Adjusted Term SOFR (as defined in the HF Sinclair Credit Agreement) for the applicable interest period plus an applicable margin (ranging from 1.125 % to 2.000 %). The applicable margin is based on HF Sinclair’s debt rating assigned by Standard & Poor’s Rating Services, Fitch Ratings, Ltd. and Moody’s Investors Service, Inc. +As of December 31, 2025, we were in compliance with all covenants and had no outstanding borrowings or letters of credit under the HF Sinclair Credit Agreement. +Senior Notes Offering, Tender Offers and Redemptions +On January 23, 2025, HF Sinclair issued an aggregate principal amount of $ 1.4 billion of senior notes consisting of $ 650 million aggregate principal amount of 5.750 % Senior Notes due 2031 (the “HF Sinclair 5.750 % Senior Notes”) and $ 750 million aggregate principal amount of 6.250 % Senior Notes due 2035 (the “HF Sinclair 6.250 % Senior Notes” and together with the HF Sinclair 5.750 % Senior Notes, the “January HFS Notes”) for net proceeds of approximately $ 1.38 billion, after deducting the underwriters’ discount and commissions and offering expenses. The January HFS Notes are unsecured and unsubordinated obligations of ours and rank equally with all our other existing and future unsecured and unsubordinated indebtedness. +We used a portion of the funds from the January HFS Notes to complete the early settlement of cash tender offers and redemptions for $ 996 million in aggregate principal amount as follows: +Maturity Date +Aggregate Principal Amount Accepted +Purchase Price Including Premium +(In millions) +HF Sinclair Senior Notes: +5.875 % Senior Notes +April 2026 $ 643 $ 650 +6.375 % Senior Notes +April 2027 150 153 +793 803 +HollyFrontier Senior Notes: +5.875 % Senior Notes +April 2026 203 205 +Total +$ 996 $ 1,008 +Additionally, we used a portion of the net proceeds from the January HFS Notes offering to repay the $ 350 million under the Terminated HEP Credit Agreement due 2025. +110 +Table of Contents +HF SINCLAIR CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Continued) +On August 18, 2025, HF Sinclair issued an aggregate principal amount of $ 500 million of 5.500 % Senior Notes due 2032 (the “HF Sinclair 5.500 % Senior Notes”) for net proceeds of approximately $ 491 million, after deducting the underwriters’ discount and commissions and offering expenses. The HF Sinclair 5.500 % Senior Notes are unsecured and unsubordinated obligations of ours and rank equally with all our other existing and future unsecured and unsubordinated indebtedness. +We used a portion of the funds from the HF Sinclair 5.500 % Senior Notes to complete the early settlement of cash tender offers and redemptions for $ 404 million in aggregate principal amount as follows: +Maturity Date +Aggregate Principal Amount Accepted +Purchase Price Including Premium +(In millions) +HF Sinclair Senior Notes: +5.875 % Senior Notes +April 2026 $ 154 $ 155 +6.375 % Senior Notes +April 2027 250 253 +Total +$ 404 $ 408 +We recognized an early extinguishment loss of $ 23 million, inclusive of unamortized discount and debt issuance costs, as a result of the tender offers and redemptions for the year ended December 31, 2025. +Senior Notes +Our unsecured senior notes and unsubordinated obligations rank equally with all future unsecured and unsubordinated indebtedness. +We may, from time to time, seek to retire some or all of our outstanding debt agreements through cash purchases, and/or exchanges, open market purchases, privately negotiated transactions, tender offers or otherwise. Such transactions, if any, may be material and depends on prevailing market conditions, our liquidity requirements and other factors. +HF Sinclair Financing Arrangements +Certain of our wholly owned subsidiaries entered into financing arrangements whereby such subsidiaries sold a portion of their precious metals catalyst to a financial institution in exchange for cash and then financed the use of the precious metals catalyst for a term not to exceed one year. During the year ended December 31, 2025, we received proceeds of $ 30 million and made principal payments of $ 6 million related to such arrangements. The volume of the precious metals catalyst and the interest rate are fixed over the term of each agreement, and the payments are recorded as Interest expense . Upon maturity of the financing arrangements, we must either extend the maturity or satisfy the obligation at fair market value, which is considered an embedded derivative as discussed in Note 14. These financing arrangements are measured at fair value and are included in Accrued liabilities on our consolidated balance sheets. See Note 6 for additional information. +Certain inventory buy/sell arrangements in which we have a repurchase obligation are recognized as financing arrangements. During the year ended December 31, 2025, we received cash proceeds and made principal payments of $ 103 million related to these financing arrangements. +We may, from time to time, issue letters of credit pursuant to uncommitted letters of credit facilities, which are unrelated to the HF Sinclair Credit Agreement. At December 31, 2025, we had letters of credit totaling a nominal amount under such credit facilities. +111 +Table of Contents +HF SINCLAIR CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Continued) +The principal and carrying amounts of Long-term debt are as follows: +Carrying Amount (1) +Maturity Date December 31, 2025 December 31, 2024 +(In millions) +HF Sinclair Senior Notes: +5.875 % Senior Notes +April 2026 $ — $ 797 +6.375 % Senior Notes +April 2027 — 400 +5.000 % Senior Notes +February 2028 499 499 +4.500 % Senior Notes +October 2030 325 325 +5.750 % Senior Notes +January 2031 650 — +5.500 % Senior Notes +September 2032 500 — +6.250 % Senior Notes +January 2035 750 — +2,724 2,021 +HollyFrontier Senior Notes: +5.875 % Senior Notes +April 2026 — 203 +4.500 % Senior Notes +October 2030 75 75 +75 278 +HEP Senior Notes: +5.000 % Senior Notes +February 2028 1 1 +1 1 +Total Senior Notes 2,800 2,300 +Terminated HEP Credit Agreement +July 2025 — 350 +Terminated HF Sinclair Credit Agreement +April 2026 — — +HF Sinclair Credit Agreement +April 2030 — — +Total Credit Agreements — 350 +Total debt at face value 2,800 2,650 +Unamortized discount and debt issuance costs ( 31 ) ( 12 ) +Total debt 2,769 2,638 +Current debt +— ( 350 ) +Long-term debt $ 2,769 $ 2,288 +(1) As of December 31, 2025 and 2024, the carrying amounts of our Senior Notes equaled the principal amounts. +The fair values of the senior notes are as follows: +December 31, +2025 2024 +(In millions) +HF Sinclair, HollyFrontier and HEP Senior Notes +$ 2,858 $ 2,284 +These fair values are based on a Level 2 inputs. See Note 6 for additional information on Level 2 inputs. +112 +Table of Contents +HF SINCLAIR CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Continued) +Principal maturities of outstanding debt as of December 31, 2025 are as follows: +Years Ending December 31: (In millions) +2026 $ — +2027 — +2028 500 +2029 — +2030 400 +Thereafter 1,900 +Total $ 2,800 +NOTE 14: Derivative Instruments and Hedging Activities +Commodity Price Risk Management +Our primary market risk is commodity price risk. We are exposed to market risks related to the volatility in the price of crude oil and refined products, as well as volatility in the price of natural gas used in our refining operations. We periodically enter into derivative contracts in the form of commodity price swaps, collar contracts, forward contracts and futures contracts to mitigate price exposure with respect to our inventory positions, natural gas purchases, sales prices of refined products and crude oil costs. +Foreign Currency Risk Management +We are exposed to market risk related to the volatility in foreign currency exchange rates. We periodically enter into derivative contracts in the form of foreign exchange forward contracts to mitigate the exposure associated with fluctuations in intercompany notes with our foreign subsidiaries that are not denominated in the U.S. dollar. +Accounting Hedges +We periodically have swap contracts to lock in basis spread differentials on forecasted purchases of crude oil and forward sales of refined products that lock in the prices of future purchases of crude oil and sales of refined products. These contracts have been designated as accounting hedges and are measured at fair value with offsetting adjustments (gains/losses) recorded directly to other comprehensive income. These fair value adjustments are later reclassified to earnings as the hedging instruments mature. +We did not have any effective cash flow hedges in place or any unrealized gains/losses recognized in Accumulated other comprehensive loss as of December 31, 2025 and 2024. +Realized gains and losses reclassified from accumulated other comprehensive loss into earnings due to settlements and maturities of hedging instruments under hedge accounting were nominal for the years ended December 31, 2025, 2024 and 2023. +Economic Hedges +We periodically enter into commodity contracts, including certain futures contracts based on NYMEX pricing, to lock in prices on forecasted inventory purchases and sales. We periodically enter into basis swap contracts to mitigate exposure to natural gas price volatility. We periodically enter into forward purchase and sale contracts to lock in basis spread differentials on forecasted crude oil purchases and refined product sales, and forward purchase or sale price of crude oil and refined products. We periodically use collar contracts to mitigate exposure to natural gas price volatility; these contracts serve as economic hedges (derivatives used for risk management but not designated as accounting hedges). We also have forward currency contracts to fix the rate of foreign currency. In addition, our precious metals catalyst financing arrangements discussed in Note 13 could require repayment under certain conditions based on the maturity date pricing of the precious metals, resulting in an embedded derivative. These contracts are measured at fair value with offsetting adjustments (gains/losses) recorded directly to earnings. +113 +Table of Contents +HF SINCLAIR CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Continued) +The following table presents the pre-tax effect on Net income due to maturities and fair value adjustments of our economic hedges: +Gain (Loss) Recognized in Net Income +Statements of Income Classification +Years Ended December 31, +2025 2024 2023 +(In millions) +Derivatives not designated as hedging instruments: +Commodity contracts Cost of materials and other $ 12 $ ( 8 ) $ 10 +Operating expenses — ( 4 ) ( 21 ) +Interest expense ( 44 ) 3 2 +Foreign currency contracts +Other income (expense), net +( 12 ) 33 ( 7 ) +Total $ ( 44 ) $ 24 $ ( 16 ) +As of December 31, 2025, we have the following notional amounts related to outstanding derivative instruments (all maturing in 2026): +Total Outstanding Notional Unit of Measure +Derivatives not designated as cash flow hedging instruments: +NYMEX futures (WTI) - short 979,000 Barrels +Commodity forward contracts - long +1,371,000 Barrels +Commodity forward contracts - short +1,191,000 Barrels +Foreign currency forward contracts 522,000,000 +Canadian dollar +Forward platinum contracts (1) +46,549 Troy ounces +(1) Represents an embedded derivative within our precious metals catalyst financing arrangements, which may be refinanced or require repayment under certain conditions. See Note 13 for additional information on these financing arrangements. +The following tables present the fair value and the locations of our outstanding derivative instruments in the consolidated balance sheets. These amounts are presented on a gross basis with offsetting balances that reconcile to a net asset or liability position on our consolidated balance sheets. We present on a net basis to reflect the net settlement of these positions in accordance with provisions of our master netting arrangements. +Derivatives in Net Asset Position Derivatives in Net Liability Position +Gross Assets Gross Liabilities Offset in Balance Sheet Net Assets Recognized in Balance Sheet Gross Liabilities Gross Assets Offset in Balance Sheet Net Liabilities Recognized in Balance Sheet +(In millions) +December 31, 2025 +Derivatives not designated as cash flow hedging instruments: +Commodity forward contracts - long +$ 3 $ — $ 3 $ 2 $ — $ 2 +Commodity forward contracts - short +2 — 2 3 — 3 +Financing arrangements - precious metals embedded derivative +— — — 33 — 33 +Foreign currency forward contracts — — — 6 — 6 +$ 5 $ — $ 5 $ 44 $ — $ 44 +Total net balance $ 5 $ 44 +Balance sheet classification: Prepayments and other $ 5 Accrued liabilities $ 44 +114 +Table of Contents +HF SINCLAIR CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Continued) +Derivatives in Net Asset Position Derivatives in Net Liability Position +Gross Assets Gross Liabilities Offset in Balance Sheet Net Assets Recognized in Balance Sheet Gross Liabilities Gross Assets Offset in Balance Sheet Net Liabilities Recognized in Balance Sheet +(In millions) +December 31, 2024 +Derivatives not designated as cash flow hedging instruments: +NYMEX futures contracts $ — $ — $ — $ 1 $ — $ 1 +Commodity forward contracts - long +— — — 1 — 1 +Commodity forward contracts - short +1 — 1 — — — +Financing arrangements - precious metals embedded derivative +— — — — ( 8 ) ( 8 ) +Foreign currency forward contracts 18 — 18 — — — +$ 19 $ — $ 19 $ 2 $ ( 8 ) $ ( 6 ) +Total net balance $ 19 $ ( 6 ) +Balance sheet classification: Prepayments and other $ 19 Accrued liabilities $ ( 6 ) +NOTE 15: Income Taxes +The U.S. and foreign components of Income before income tax expense are as follows: +Years Ended December 31, +2025 2024 2023 +(In millions) +U.S. +$ 686 $ 129 $ 1,968 +Foreign +46 89 185 +Total +$ 732 $ 218 $ 2,153 +The provision for Income tax expense (benefit) is comprised of the following: +Years Ended December 31, +2025 2024 2023 +(In millions) +Current: +Federal $ 123 $ 26 $ 180 +State 17 12 24 +Foreign ( 1 ) 45 45 +Deferred: +Federal 14 ( 34 ) 155 +State ( 10 ) ( 8 ) 31 +Foreign 3 ( 7 ) 7 +Total income tax expense $ 146 $ 34 $ 442 +115 +Table of Contents +HF SINCLAIR CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Continued) +The statutory federal income tax rate applied to pre-tax book income reconciles to income tax expense as follows: +Years Ended December 31, +2025 2024 2023 +Amount +Percent (2) +Amount +Percent (2) +Amount +Percent (2) +(In millions) +Tax computed at statutory rate $ 154 21.0 % $ 46 21.0 % $ 452 21.0 % +State income taxes, net of federal tax benefit (1) +5 0.7 3 1.4 44 2.0 +Foreign tax effects: +Canada: +Statutory tax rate difference between Canada and U.S. +— — ( 5 ) ( 2.3 ) ( 11 ) ( 0.5 ) +Canadian withholding taxes +5 0.7 5 2.3 5 0.2 +Provincial taxes +( 1 ) ( 0.1 ) 10 4.6 21 1.0 +Cyprus: +Statutory tax rate difference between Cyprus and U.S. +( 3 ) ( 0.4 ) ( 3 ) ( 1.4 ) ( 3 ) ( 0.1 ) +Foreign tax credit +( 4 ) ( 0.5 ) ( 4 ) ( 1.8 ) ( 4 ) ( 0.2 ) +Netherlands: +Changes in valuation allowances +3 0.4 4 1.8 1 — +Other foreign jurisdictions +( 9 ) ( 1.2 ) 1 0.5 4 0.2 +Effect of cross-border tax laws +— — 1 0.5 2 0.1 +Nontaxable or nondeductible items: +Nontaxable renewable fuel incentives +( 7 ) ( 1.0 ) ( 51 ) ( 23.4 ) ( 43 ) ( 2.0 ) +Fines and penalties +— — 8 3.7 — — +Tax benefit on equity investment dividends received ( 4 ) ( 0.5 ) ( 3 ) ( 1.4 ) ( 2 ) ( 0.1 ) +Other 9 1.1 4 1.8 1 0.1 +Noncontrolling interest in net income ( 2 ) ( 0.3 ) ( 2 ) ( 0.9 ) ( 25 ) ( 1.2 ) +Changes in unrecognized tax benefits +— — 20 9.2 — — +Income tax expense +$ 146 19.9 % $ 34 15.6 % $ 442 20.5 % +(1) State income taxes, net of federal tax benefit largely consists of expense from New Mexico, Kansas, Oklahoma and Colorado. +(2) Due to rounding of reported numbers, some amounts may not calculate exactly. +Income taxes paid, net of refunds consist of the following: +Years Ended December 31, +2025 2024 2023 +(In millions) +Federal $ 43 $ 86 $ 175 +State and local: +Oregon +* +10 +* +Kansas +( 5 ) ( 12 ) +* +Other +4 ( 3 ) 47 +Total state and local +$ ( 1 ) $ ( 5 ) $ 47 +Foreign: +Canada +11 31 28 +Other +( 2 ) ( 2 ) 1 +Total foreign +$ 9 $ 29 $ 29 +Income taxes paid, net of refunds +$ 51 $ 110 $ 251 +* Income taxes paid, net of refunds does not meet disaggregation threshold. +116 +Table of Contents +HF SINCLAIR CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Continued) +Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Our deferred income tax assets and liabilities as of December 31, 2025 and 2024 are as follows: +December 31, 2025 +Assets Liabilities Total +(In millions) +Deferred income taxes: +Properties, plants, equipment and intangibles (due primarily to tax in excess of book depreciation) $ — $ ( 1,183 ) $ ( 1,183 ) +Lease obligation 112 — 112 +Accrued employee benefits 23 — 23 +Accrued post-retirement benefits 11 — 11 +Accrued environmental costs 41 — 41 +Inventory differences — ( 59 ) ( 59 ) +Deferred turnaround costs — ( 208 ) ( 208 ) +Net operating loss and tax credit carryforwards 42 — 42 +Valuation allowance ( 10 ) — ( 10 ) +Other — ( 9 ) ( 9 ) +Total $ 219 $ ( 1,459 ) $ ( 1,240 ) +December 31, 2024 +Assets Liabilities Total +(In millions) +Deferred income taxes: +Properties, plants, equipment and intangibles (due primarily to tax in excess of book depreciation) $ — $ ( 1,174 ) $ ( 1,174 ) +Lease obligation 114 — 114 +Accrued employee benefits 22 — 22 +Accrued post-retirement benefits 10 — 10 +Accrued environmental costs 41 — 41 +Inventory differences — ( 159 ) ( 159 ) +Deferred turnaround costs — ( 185 ) ( 185 ) +Net operating loss and tax credit carryforwards 116 — 116 +Interest Limitation under 163(j) 19 — 19 +Valuation allowance ( 14 ) — ( 14 ) +Other — ( 14 ) ( 14 ) +Total $ 308 $ ( 1,532 ) $ ( 1,224 ) +We have tax benefits attributable to net operating losses of $ 18 million in the Netherlands that can be carried forward indefinitely and tax benefits attributable to net operating losses in Luxembourg of $ 14 million that can be carried forward 17 years and begin expiring in 2036. We have reflected a valuation allowance of $ 10 million in 2025 and $ 14 million in 2024 with respect to net operating carryforwards that primarily relate to losses in the Netherlands, China and Luxembourg. Additionally we have state income tax credits of $ 6 million that will begin expiring in 16 years. +117 +Table of Contents +HF SINCLAIR CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Continued) +A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows: +Years Ended December 31, +2025 2024 2023 +(In millions) +Balance at January 1 $ 24 $ 1 $ 1 +Additions for tax positions related to prior years — 23 — +Reductions for tax positions related to prior years +( 2 ) — — +Balance at December 31 $ 22 $ 24 $ 1 +At December 31, 2025, 2024 and 2023, there were $ 23 million, $ 24 million and $ 1 million, respectively, of unrecognized tax benefits that, if recognized, would affect our effective tax rate. Unrecognized tax benefits are adjusted in the period in which new information about a tax position becomes available or the final outcome differs from the amount recorded. +We are subject to U.S. and Canadian federal income tax as well as multiple other state and local jurisdictions. The Company is currently under audit with the Internal Revenue Service for the tax years 2020 and 2021, and under audit with the Canada Revenue Agency for the tax years 2018, 2019, 2020 and 2021. +NOTE 16: Stockholders ’ Equity +On May 7, 2024, our Board of Directors approved a $ 1.0 billion share repurchase program (the “2024 Share Repurchase Program”), which replaced all existing share repurchase programs. The 2024 Share Repurchase Program authorizes us to repurchase common stock in the open market or through privately negotiated transactions. Privately negotiated repurchases from REH Company, LLC and its affiliate REH Advisors Inc. (together, “REH”) are also authorized under the 2024 Share Repurchase Program, subject to REH’s interest in selling its shares and other limitations. The timing and amount of share repurchases, including those from REH, will depend on market conditions and corporate, tax, regulatory and other relevant considerations. In addition, we are authorized by our Board of Directors to repurchase shares in an amount sufficient to offset shares issued under our compensation programs. The 2024 Share Repurchase Program may be discontinued at any time by our Board of Directors. +The following table presents total open market and privately negotiated purchases of shares under our share repurchase programs for the years ended December 31, 2025 and 2024. +Years Ended December 31, +2025 2024 +(In millions, except share data) +Number of shares repurchased (1) +6,908,293 11,944,177 +Cash paid for shares repurchased $ 340 $ 664 +(1) During the years ended December 31, 2025 and 2024, 3,345,857 and 7,864,761 shares, respectively, were repurchased for $ 174 million and $ 456 million, respectively, pursuant to privately negotiated repurchases from REH. +During the years ended December 31, 2025, 2024 and 2023, we withheld 145,776 , 181,841 and 332,741 shares, respectively, of our common stock from certain employees in the amounts of $ 8 million, $ 9 million and $ 18 million, respectively. These withholdings were made under the terms of restricted stock unit and performance share unit agreements upon vesting, at which time we concurrently made cash payments to fund payroll and income taxes on behalf of officers and employees who elected to have shares withheld from vested amounts to pay such taxes. +On February 18, 2026, our Board of Directors announced that it declared a regular quarterly dividend in the amount of $ 0.50 per share, payable on March 12, 2026, to holders of record of common stock on March 2, 2026. +118 +Table of Contents +HF SINCLAIR CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Continued) +NOTE 17: Other Comprehensive Income (Loss) +The components and allocated tax effects of other comprehensive income (loss) are as fo llows: +Before-Tax Tax Expense +(Benefit) After-Tax +(In millions) +Year Ended December 31, 2025 +Net change in foreign currency translation adjustment $ 34 $ 7 $ 27 +Net change in pension and other post-retirement benefit obligations ( 7 ) ( 1 ) ( 6 ) +Other comprehensive income attributable to HF Sinclair stockholders +$ 27 $ 6 $ 21 +Year Ended December 31, 2024 +Net change in foreign currency translation adjustment $ ( 42 ) $ ( 9 ) $ ( 33 ) +Net change in pension and other post-retirement benefit obligations ( 3 ) ( 1 ) ( 2 ) +Other comprehensive loss attributable to HF Sinclair stockholders +$ ( 45 ) $ ( 10 ) $ ( 35 ) +Year Ended December 31, 2023 +Net change in foreign currency translation adjustment $ 13 $ 3 $ 10 +Other comprehensive income attributable to HF Sinclair stockholders +$ 13 $ 3 $ 10 +Reclassifications out of accumulated other comprehensive loss and into the consolidated statements of income were nominal for the years ended December 31, 2025, 2024 and 2023. +Accumulated other comprehensive loss in the equity section of our consolidated balance sheets includes: +Years Ended December 31, +2025 2024 +(In millions) +Foreign currency translation adjustment $ ( 30 ) $ ( 57 ) +Unrealized gain on post-retirement benefit obligations +4 10 +Accumulated other comprehensive loss +$ ( 26 ) $ ( 47 ) +NOTE 18: Commitments and Contingencies +We are a party to various litigation and legal proceedings in the ordinary course of business that we believe, based on advice of counsel, will not either individually or in the aggregate have a material adverse effect on our financial condition, results of operations or cash flows. +During 2017 and 2019, the EPA granted the Cheyenne, Wyoming refinery (the “Cheyenne Refinery”) and the refinery in Woods Cross, Utah (the “Woods Cross Refinery”) each a one-year small refinery exemption from the Renewable Fuel Standard (“RFS”) program requirements for the 2016 and 2018 compliance years. As a result, the Cheyenne Refinery’s and Woods Cross Refinery’s gasoline and diesel production were not subject to the renewable volume obligation for the respective years. Upon each exemption granted, we increased our inventory of RINs and reduced our Cost of sales . On April 7, 2022, the EPA issued a decision reversing the grant of small refinery exemptions for our Woods Cross Refinery and Cheyenne Refinery for the 2018 compliance year. On June 3, 2022, the EPA issued a decision reversing the grant of small refinery exemptions for our Woods Cross Refinery and Cheyenne Refinery for the 2016 compliance year and denying small refinery exemption petitions for our Woods Cross Refinery and Cheyenne Refinery for the 2019 and 2020 compliance years. +119 +Table of Contents +HF SINCLAIR CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Continued) +Certain of our subsidiaries pursued legal challenges to the EPA’s decisions to deny small refinery exemptions for the 2016, 2018, 2019 and 2020 compliance years. The first lawsuit, filed against the EPA on May 6, 2022, before the U.S. Court of Appeals for the DC Circuit (the “DC Circuit”), sought to have the EPA’s reversal of our 2018 small refinery exemption petitions overturned. The second lawsuit, filed against the EPA on August 5, 2022, before the DC Circuit, sought to have the EPA’s reversal of our 2016 small refinery exemption petitions overturned and to have the EPA’s denial of our 2019 and 2020 small refinery exemption petitions reversed. +In addition, for both the 2016 and 2018 compliance years, pursuant to the June 2022 and April 2022 decisions, the EPA established an alternative compliance demonstration for small refineries pursuant to which the EPA is not imposing any obligations for the small refineries whose exemptions were reversed. On June 24, 2022, Growth Energy filed two lawsuits in the DC Circuit against the EPA, challenging the alternative compliance demonstration for the 2016 and 2018 compliance years. On July 25, 2022, certain of our subsidiaries intervened on behalf of the EPA to aid the defense of the EPA’s alternative compliance demonstration. +On July 26, 2024, the DC Circuit issued a favorable decision vacating the EPA’s denial of all of our small refinery exemption petitions, finding the denial to be unlawful. The DC Circuit remanded the small refinery exemption petitions to the EPA for new determination. The DC Circuit also upheld the alternative compliance demonstration and denied Growth Energy’s challenge. +On August 22, 2025, the EPA granted, in whole or in part, small refinery exemption petitions for our Woods Cross Refinery, our Cheyenne Refinery, our refinery in Casper, Wyoming (the “Casper Refinery”), and our refinery in Sinclair, Wyoming (the “Parco Refinery”) for various compliance years from 2019 to 2024. The EPA also denied, in whole or in part, small refinery exemption petitions for the Cheyenne Refinery, the Woods Cross Refinery, the Casper Refinery, and the Parco Refinery for various compliance years from 2019 to 2024. +In October 2025, certain of our subsidiaries filed lawsuits in the DC Circuit to overturn the EPA’s August 2025 denials and other actions. +On November 7, 2025, the EPA granted in whole small refinery exemption petitions for our refinery in Tulsa, Oklahoma (the “Tulsa East Refinery”) for compliance years 2023 and 2024. The EPA also granted partial exemptions for 12 small refinery exemption petitions from other refining companies and denied two petitions. On December 11, 2025, the Renewable Fuels Association filed a lawsuit in the DC Circuit to overturn the EPA’s November 2025 grants. On January 8, 2026, the DC Circuit consolidated the Renewable Fuels Association’s lawsuit with ours and other petitioners’ lawsuits regarding the EPA’s August 2025 exemption decisions. On January 12, 2026, certain of our subsidiaries filed a motion to intervene in the lawsuit to defend the EPA’s grant of our small refinery exemption petitions. +These lawsuits remain pending, and we are unable to estimate the costs we may incur, if any, at this time. +In January 2026, a fuel‑contamination incident at one of our product terminals in Colorado impacted certain of our branded and unbranded customers. We are currently unable to estimate the costs we may incur related to this incident at this time. +Contractual Commitments +We have various long-term agreements entered into in the normal course of business to purchase crude oil, natural gas, feedstocks and other resources to ensure we have adequate supplies to operate our refineries. The substantial majority of our purchase obligations are based on market prices or rates. These contracts expire between 2026 and 2031. +We also have long-term agreements with third parties for the transportation and storage of crude oil, natural gas and feedstocks to our refineries and for terminal and storage services that expire through 2038 . Transportation and storage fees incurred under these agreements totaled $ 255 million, $ 238 million and $ 201 million for the years ended December 31, 2025, 2024 and 2023, respectively. +The obligations described above are not associated with suppliers’ financing arrangements and are not reflected as liabilities. +120 +Table of Contents +HF SINCLAIR CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Continued) +NOTE 19: Segment Information +Our operations are organized into five reportable segments: Refining, Renewables, Marketing, Lubricants & Specialties and Midstream. Our operations that are not included in one of these five reportable segments are included in Corporate and Other. Intersegment transactions are eliminated in our consolidated financial statements and are included in Eliminations. Corporate and Other and Eliminations are aggregated and presented under the Corporate, Other and Eliminations column. +The Refining segment represents the operations of our El Dorado, Tulsa, Navajo, Woods Cross, Puget Sound, Parco and Casper refineries and HF Sinclair Asphalt Company LLC (“Asphalt”). Refining activities involve the purchase and refining of crude oil and wholesale marketing of refined products, such as gasoline, diesel fuel and jet fuel. These petroleum products are primarily marketed in the Mid-Continent, Southwest and Rocky Mountains extending into the Pacific Northwest geographic regions of the United States. Asphalt operates various asphalt terminals in Arizona, New Mexico and Oklahoma. +The Renewables segment represents the operations of our Cheyenne RDU, Artesia RDU, Sinclair RDU and the pre-treatment unit at our Artesia, New Mexico facility. +The Marketing segment represents branded fuel sales to Sinclair branded sites in the United States and licensing fees for the use of the Sinclair brand at additional locations throughout the country. The Marketing segment also includes branded fuel sales to non-Sinclair branded sites and revenues from other marketing activities. Our branded sites are located in several states across the United States with the highest concentration of the sites located in our West and Mid-Continent regions. +The Lubricants & Specialties segment includes Petro-Canada Lubricants’ production operations, located in Mississauga, Ontario, which produces lubricant products such as base oils, white oils, specialty products and finished lubricants, and the operations of our Petro-Canada Lubricants business that includes the marketing of products to both retail and wholesale outlets through a global sales network with locations in Canada, the United States and Europe. Additionally, the Lubricants & Specialties segment includes specialty lubricant products produced at our Tulsa Refineries that are marketed throughout North America and are distributed in Central and South America, and the operations of Red Giant Oil, one of the leading suppliers of locomotive engine oil in North America. Also, the Lubricants & Specialties segment includes Sonneborn, a producer of specialty hydrocarbon chemicals such as white oils, petrolatums and waxes with manufacturing facilities in the United States and Europe. +The Midstream segment includes all of the operations of HEP, which owns and operates logistics and refinery assets consisting of petroleum product and crude oil pipelines, terminals, tankage and loading rack facilities in the Mid-Continent, Southwest and Rocky Mountains geographic regions of the United States. The Midstream segment also includes 50 % ownership interests in each of Osage Pipeline Company, LLC, the owner of a pipeline running from Cushing, Oklahoma to El Dorado, Kansas, and Cushing Connect Pipeline & Terminal LLC, the owner of a pipeline running from Cushing, Oklahoma to Tulsa, Oklahoma, a 26.08 % ownership interest in Saddle Butte Pipeline III, LLC, the owner of a pipeline running from the Powder River Basin to Casper, Wyoming, and a 49.995 % ownership interest in Pioneer Investments Corp., the owner of a pipeline running from Sinclair, Wyoming to the North Salt Lake City, Utah terminal. Revenues and other income from the Midstream segment are earned through transactions with unaffiliated parties for pipeline transportation, rental and terminalling operations as well as revenues relating to pipeline transportation, terminalling operations and tankage facilities provided for our refining operations. +Our chief operating decision maker (“CODM”), who is also our Chief Executive Officer, evaluates the performance of our segments using segment Income from operations . The CODM uses segment Income from operations to allocate resources to each segment predominantly in the annual budgeting and forecasting process. Amounts included in Income before income taxes in our consolidated statements of income and excluded from our performance measure, Income from operations , include Other income (expense), net . Other income (expense), net includes Earnings of equity method investments , Interest income , Interest expense and other items believed to be non-operating and/or non-recurring in nature. Assets by segment are not a measure used to assess our performance by the CODM and thus are not reported in our disclosures. Intersegment sales are generally derived from transactions made at prevailing market rates. +The accounting policies for our segments are the same as those described in the summary of significant accounting policies (see Note 1). +121 +Table of Contents +HF SINCLAIR CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Continued) +The following is a summary of the financial information of our reportable segments reconciled to the amounts reported in the consolidated financial statements. +Refining Renewables Marketing Lubricants & Specialties Midstream Corporate, Other and Eliminations Consolidated +Total +(In millions) +Year Ended December 31, 2025 +Sales and other revenues: +Revenues from external customers $ 20,536 $ 551 $ 3,142 $ 2,519 $ 121 $ — $ 26,869 +Intersegment revenues and other (1) +3,286 440 — 7 522 ( 4,255 ) — +23,822 991 3,142 2,526 643 ( 4,255 ) 26,869 +Cost of sales: (2) +Cost of materials and other (3) +20,244 935 3,000 1,838 — ( 4,257 ) 21,760 +Lower of cost or market inventory valuation adjustments 415 2 — — — — 417 +Operating expenses 1,825 90 — 271 199 6 2,391 +22,484 1,027 3,000 2,109 199 ( 4,251 ) 24,568 +Selling, general and administrative expenses (2) +219 4 40 158 7 28 456 +Depreciation and amortization 548 93 29 94 74 71 909 +Other operating expenses, net +8 — — — — 1 9 +Income (loss) from operations $ 563 $ ( 133 ) $ 73 $ 165 $ 363 $ ( 104 ) $ 927 +Earnings of equity method investments 33 +Interest income 42 +Interest expense ( 217 ) +Other expense, net +( 53 ) +Income before income taxes +$ 732 +Capital expenditures $ 286 $ 4 $ 46 $ 45 $ 43 $ 25 $ 449 +122 +Table of Contents +HF SINCLAIR CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Continued) +Refining Renewables Marketing Lubricants & Specialties Midstream Corporate, Other and Eliminations Consolidated +Total +(In millions) +Year Ended December 31, 2024 +Sales and other revenues: +Revenues from external customers $ 21,701 $ 644 $ 3,428 $ 2,700 $ 107 $ — $ 28,580 +Intersegment revenues and other (1) +3,639 347 — 12 537 ( 4,535 ) — +25,340 991 3,428 2,712 644 ( 4,535 ) 28,580 +Cost of sales: (2) +Cost of materials and other (3) +22,907 910 3,319 1,977 — ( 4,531 ) 24,582 +Lower of cost or market inventory valuation adjustments ( 32 ) ( 11 ) — — — — ( 43 ) +Operating expenses 1,912 100 — 254 214 4 2,484 +24,787 999 3,319 2,231 214 ( 4,527 ) 27,023 +Selling, general and administrative expenses (2) +219 5 34 150 11 28 447 +Depreciation and amortization 495 78 27 90 72 70 832 +Other operating expenses, net +6 — — 1 10 — 17 +Income (loss) from operations $ ( 167 ) $ ( 91 ) $ 48 $ 240 $ 337 $ ( 106 ) $ 261 +Earnings of equity method investments 32 +Interest income 75 +Interest expense ( 165 ) +Other income, net 15 +Income before income taxes +$ 218 +Capital expenditures $ 268 $ 9 $ 52 $ 42 $ 48 $ 51 $ 470 +123 +Table of Contents +HF SINCLAIR CORPORATION +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(Continued) +Refining Renewables Marketing Lubricants & Specialties Midstream Corporate, Other and Eliminations Consolidated +Total +(In millions) +Year Ended December 31, 2023 +Sales and other revenues: +Revenues from external customers $ 24,157 $ 781 $ 4,146 $ 2,762 $ 118 $ — $ 31,964 +Intersegment revenues and other (1) +4,516 408 — 13 466 ( 5,403 ) — +28,673 1,189 4,146 2,775 584 ( 5,403 ) 31,964 +Cost of sales: (2) +Cost of materials and other (3) +24,042 1,081 4,051 2,009 — ( 5,399 ) 25,784 +Lower of cost or market inventory valuation adjustments 221 50 — — — — 271 +Operating expenses 1,879 109 — 259 189 2 2,438 +26,142 1,240 4,051 2,268 189 ( 5,397 ) 28,493 +Selling, general and administrative expenses (2) +200 5 34 164 27 67 497 +Depreciation and amortization 461 77 24 85 82 42 771 +Income (loss) from operations $ 1,870 $ ( 133 ) $ 37 $ 258 $ 286 $ ( 115 ) $ 2,203 +Earnings of equity method investments +17 +Interest income 94 +Interest expense ( 191 ) +Other income, net +30 +Income before income taxes +$ 2,153 +Capital expenditures $ 223 $ 18 $ 28 $ 37 $ 32 $ 47 $ 385 +(1) Refining segment intersegment revenues relate to transportation fuels sold to the Marketing segment. Midstream segment revenues relate to pipeline and terminalling services provided primarily to the Refining segment, including leases. These transactions eliminate in consolidation. +(2) Exclusive of Depreciation and amortization . +(3) Exclusive of Lower of cost or market inventory valuation adjustments. +124 +Table of Content s +Item 9 . Changes in and Disagreements with Accountants on Accounting and Financial Disclosure +We have had no change in, or disagreement with, our independent registered public accountants on matters involving accounting and financial disclosure. +Item 9A. Controls and Procedures +Evaluation of Disclosure Controls and Procedures +The Company’s management, with the participation of the current principal executive officer and current principal financial officer of the Company, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of December 31, 2025, the end of the period covered by this report. Based on such evaluation, the Company’s current principal executive officer and current principal financial officer have concluded that, as of December 31, 2025, the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the required time periods and are designed to ensure that information required to be disclosed in its reports is accumulated and communicated to the Company’s management, including the current principal executive officer and current principal financial officer, as appropriate to allow timely decisions regarding required disclosure. +As discussed in more detail above, the Audit Committee of our Board of Directors, with the support of external legal counsel, engaged in an assessment of certain matters relating to the Company’s disclosure processes in relation to the reporting of the Company’s financial results for the fourth quarter of 2025 and full-year 2025. The Audit Committee has completed its review and has concluded that the Company’s disclosure controls and procedures remain effective as of December 31, 2025. +Management’s Report on Internal Control over Financial Reporting +The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed by, or under the supervision of, the Company’s principal executive officer and principal financial officer and effected by the Company’s Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. All internal control systems, no matter how well designed, have inherent limitations that may not prevent or detect all misstatements. Also, projections of any evaluation of effectiveness in future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. +The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting at December 31, 2025. In making this assessment, the Company’s management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework 2013. Based upon its assessment, management concluded that, at December 31, 2025, the Company’s internal control over financial reporting was effective. +Ernst & Young LLP, an independent registered public accounting firm that audited the Company’s Consolidated Financial Statements at December 31, 2025 and the year then ended included in this Form 10-K, has issued an attestation report on the Company’s internal control over financial reporting, at December 31, 2025, which is included herein. +Changes in Internal Controls +Subject to the above, there were no changes in the Company’s internal control over financial reporting that occurred during the quarter ended December 31, 2025, that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. +See Item 8 for “Report of the Independent Registered Public Accounting Firm.” +125 +Table of Content s +Item 9B. Other Information +Disclosure Pursuant to Item 5.02 of Form 8-K - Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers. +On February 24, 2026, our Board of Directors received a request from Mr. Atanas Atanasov, the Company’s Executive Vice President and Chief Financial Officer, to take a voluntary leave of absence from his duties. Our Board of Directors accepted the request and appointed Mr. Vivek Garg, the Company’s Vice President, Chief Accounting Officer and Controller, as acting Chief Financial Officer of the Company, effective as of February 24, 2026. Mr. Garg will also continue to serve in his roles as Vice President, Chief Accounting Officer and Controller. +Mr. Garg, age 51, currently serves as our Vice President, Chief Accounting Officer and Controller. Mr. Garg joined the Company in July 2024. Prior to joining our company, Mr. Garg served as Head, SEC, External Reporting and Controls, Global of Newmont Corporation (“Newmont”), a New York Stock Exchange (“NYSE”) listed gold mining company and producer of copper, silver, zinc and lead, a position he had held since October 2023. Prior to then, he served as Group Executive, Assistant Controller from December 2021 to October 2023, and Senior Director, Assistant Controller from November 2018 to December 2021. Prior to joining Newmont, Mr. Garg held the positions of Deputy Controller, Technical Accounting & Reporting, and Director, Technical Accounting at Andeavor (now Marathon Petroleum Corp.), which was a NYSE listed integrated marketing, logistics and refining company, from June 2015 to November 2018. Prior to then, he served in assurance and accounting advisory services roles for 13 years at Deloitte & Touche LLP and PricewaterhouseCoopers LLP, having most recently served as Director in Capital Markets and Accounting Advisory Services at PricewaterhouseCoopers LLP from February 2012 to June 2015. He is a registered Certified Public Accountant and a Canadian Chartered Professional Accountant. +There are no arrangements or understandings between Mr. Garg and any other person pursuant to which Mr. Garg was determined to be our principal financial officer. Mr. Garg does not have any family relationship with any director or executive officer of the Company, or any person nominated or chosen by the Company to become a director or executive officer. There are no transactions in which Mr. Garg has an interest requiring disclosure under Item 404(a) of Regulation S-K. +At the time of this filing, the Compensation Committee has not finalized any decisions regarding appropriate compensation adjustments for Mr. Garg’s appointment as acting Chief Financial Officer of the Company, but may consider such arrangements at a later date. +The Company currently expects to negotiate a mutually agreeable separation arrangement with each of Mr. Atanasov and Mr. Tim Go. +Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +Not applicable +PART III +Item 10. Directors, Executive Officers and Corporate Governance +The information required by Items 401, 405, 406, 407(c)(3), (d)(4) and (d)(5) and 408(b) of Regulation S-K in response to this item will be set forth in our definitive proxy statement for the 2026 annual meeting of stockholders and is incorporated herein by reference. +Item 11. Executive Compensation +The information required by Items 402 and 407(e)(4) and (e)(5) of Regulation S-K in response to this item will be set forth in our definitive proxy statement for the 2026 annual meeting of stockholders and is incorporated herein by reference. +126 +Table of Content s +Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +The equity compensation plan information required by Item 201(d) and the information required by Item 403 of Regulation S-K in response to this item will be set forth in our definitive proxy statement for the 2026 annual meeting of stockholders and is incorporated herein by reference. +Item 13. Certain Relationships and Related Transactions, and Director Independence +The information required by Items 404 and 407(a) of Regulation S-K in response to this item will be set forth in our definitive proxy statement for the 2026 annual meeting of stockholders and is incorporated herein by reference. +Item 14. Principal Accounting Fees and Services +The information required by Item 9(e) of Schedule 14A in response to this item will be set forth in our definitive proxy statement for the 2026 annual meeting of stockholders and is incorporated herein by reference. +PART IV +Item 15. Exhibit and Financial Statement Schedules +Documents filed as part of this report: +(a) Financial Statements: +(1) The consolidated financial statements, together with the reports of the independent auditors thereon dated February 27, 2026, are included as part of Item 8, Financial Statements and Supplementary Data. +Page in Form 10-K +Report of Independent Registered Public Accounting Firm +82 +Consolidated Balance Sheets +85 +Consolidated Statements of Income +86 +Consolidated Statements of Comprehensive Income +87 +Consolidated Statements of Cash Flows +88 +Consolidated Statements of Equity +89 +Notes to Consolidated Financial Statements +89 +(2) Financial Statements Schedules: +All schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements or notes thereto. +(3) Exhibits: +Exhibits filed or furnished, as applicable, as part of this Annual Report on Form 10-K are listed in the Index to Exhibits. +127 +Table of Content s +HF SINCLAIR CORPORATION +INDEX TO EXHIBITS +Exhibits are numbered to correspond to the exhibit table +in Item 601 of Regulation S-K +Exhibit Number Description +2.1† +Sale and Purchase Agreement, dated as of May 4, 2021, by and between Equilon Enterprises LLC d/b/a Shell Oil Products US and HollyFrontier Puget Sound Refining LLC (incorporated by reference to Exhibit 2.1 of HollyFrontier Corporation’s Current Report on Form 8-K filed May 4, 2021, File No. 1-03876). +2.2† +Waiver and Amendment to Sale and Purchase Agreement, dated as of October 31, 2021, by and among HollyFrontier Puget Sound Refining LLC and Equilon Enterprises LLC d/b/a Shell Oil Products US (incorporated by reference to Exhibit 2.2 of HollyFrontier Corporation’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2021, File No. 1-03876). +2.3† +Business Combination Agreement, dated as of August 2, 2021, by and among HollyFrontier Corporation, Hippo Parent Corporation, Hippo Merger Sub, Inc., The Sinclair Companies, and Hippo Holding LLC (incorporated by reference to Exhibit 2.1 of HollyFrontier Corporation’s Current Report on Form 8-K filed August 3, 2021, File No. 1-03876). +2.4† +Amendment to Business Combination Agreement, dated as of March 14, 2022, by and among HollyFrontier Corporation, Hippo Parent Corporation, Hippo Merger Sub, Inc., The Sinclair Companies and Hippo Holding LLC (incorporated by reference to Exhibit 2.1 of Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022, File No. 1-41325). +2.5 +Contribution Agreement, dated as of August 2, 2021, by and among Holly Energy Partners, L.P., The Sinclair Companies, and Sinclair Transportation Company (incorporated by reference to Exhibit 2.1 of Holly Energy Partners, L.P.’s Current Report on Form 8-K dated August 3, 2021, File No. 1-32225). +2.6 +Amendment to Contribution Agreement, dated as of March 14, 2022, by and among Holly Energy Partners, L.P., The Sinclair Companies, and Sinclair Transportation Company (incorporated by reference to Exhibit 2.1 of Holly Energy Partners, L.P.’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022, File No. 1-32225). +2.7† +Agreement and Plan of Merger, dated August 15, 2023, by and among HF Sinclair Corporation, Navajo Pipeline Co., L.P., Holly Apple Holdings LLC, Holly Energy Partners, L.P., HEP Logistics Holdings, L.P., and Holly Logistic Services, L.L.C. (incorporated by reference to Exhibit 2.1 of Registrant’s Current Report on Form 8-K filed August 16, 2023, File No. 1-41325). +3.1 +Second Amended and Restated Certificate of Incorporation of HF Sinclair Corporation (incorporated by reference to Exhibit 3.1 of Registrant’s Current Report on Form 8- K filed May 15, 2025, File No. 1-41325). +3.2 +Amended and Restated By-Laws of HF Sinclair Corporation (incorporated by reference to Exhibit 3.1 of Registrant’s Current Report on Form 8-K filed February 6 , 2024, File No. 1-41325). +4.1 +Indenture, dated March 22, 2016, between HollyFrontier Corporation and Wells Fargo Bank, National Association (incorporated by reference to Exhibit 4.1 of HollyFrontier Corporation’s Current Report on Form 8-K filed March 22, 2016, File No. 1-03876). +4.2 +Second Supplemental Indenture, dated as of September 28, 2020, between HollyFrontier Corporation and Wells Fargo Bank, National Association (incorporated by reference to Exhibit 4.2 of HollyFrontier Corporation’s Current Report on Form 8-K dated September 28, 2020, File No. 1-03876). +4.3 +Third Supplemental Indenture, dated April 8, 2022, among HollyFrontier Corporation and Computershare Trust Company, N.A., as agent for Wells Fargo, Bank National Association (incorporated by reference to Exhibit 4.1 of Registrant’s Current Report on Form 8-K filed April 8, 2022, File No. 1-41325). +4.4 +Indenture, dated February 4, 2020, by and among Holly Energy Partners, L.P., Holly Energy Finance Corp., each of the Guarantors party thereto and U.S. Bank National Association (incorporated by reference to Exhibit 4.1 of Holly Energy Partners, L.P.’s Current Report on Form 8-K filed February 4, 2020, File No. 1-32225). +4.5 +First Supplemental Indenture, dated as of March 14, 2022, among Sinclair Transportation Company LLC, Sinclair Logistics LLC, Sinclair Pipeline Company LLC, Holly Energy Partners, L.P. and Holly Energy Finance Corp. and the other Guarantors party thereto and U.S. Bank Trust Company, National Association, as trustee, related to Holly Energy Partners, L.P.’s 5.000% Senior Notes due 2028 (incorporated by reference to Exhibit 4.2 of Holly Energy Partners, L.P.’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022, File No. 1-32225). +128 +Table of Content s +HF SINCLAIR CORPORATION +INDEX TO EXHIBITS +Exhibit Number Description +4.6 +Second Supplemental Indenture, dated as of May 22, 2022, among UNEV Pipeline, LLC, Holly Energy Partners, L.P. and Holly Energy Finance Corp. and the other Guarantors party thereto and U.S. Bank Trust Company, National Association, as trustee, related to Holly Energy Partners, L.P.’s 5.000% Senior Notes due 2028 (incorporated by reference to Exhibit 4.7 of Holly Energy Partner, L.P.’s Registration Statement on Form S-3 filed May 23, 2022, File No. 333-265154). +4.7 +Third Supplemental Indenture, dated as of November 10, 2023, among Holly Energy Partners, L.P., Holly Energy Finance Corp., the other Guarantors party thereto and U.S. Bank Trust Company, National Association, as trustee, related to Holly Energy Partners, L.P.’s and Holly Energy Finance Corp.’s 5.000% Senior Notes due 2028 (incorporated by reference to Exhibit 4.2 of Registrant’s Current Report on Form 8-K filed November 14, 2023, File No. 1-41325). +4.8 +Indenture, dated as of April 27, 2022, among HF Sinclair Corporation and Computershare Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.1 of Registrant’s Current Report on Form 8-K filed April 27, 2022, File No. 1-41325). +4.9 +First Supplemental Indenture, dated as of April 27, 2022, among HF Sinclair Corporation and Computershare Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.2 of Registrant’s Current Report on Form 8-K filed April 27, 2022, File No. 1-41325). +4.10 +Second Supplemental Indenture, dated as of December 4, 2023, among HF Sinclair Corporation and Computershare Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.1 of Registrant’s Current Report on Form 8-K filed December 4, 2023, File No. 1-41325). +4.11 +Third Supplemental Indenture, dated as of January 23, 2025, among HF Sinclair Corporation and Computershare Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.2 of Registrant’s Current Report on Form 8-K filed January 23, 2025, File No. 1-41325). +4.12 +Fourth Supplemental Indenture, dated as of August 18, 2025, between HF Sinclair Corporation and Computershare Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.2 of Registrant’s Current Report on Form 8-K filed August 18, 2025, File No. 1-41325). +4.13 +Description of Common Stock (incorporated by reference to Exhibit 4.16 of Registrant’s Annual Report on Form 10-K for its fiscal year ended December 31, 2023, File No. 1-41325). +10.1† +Senior Unsecured Multi-Year Revolving Credit Agreement, dated as of April 3, 2025, among HF Sinclair Corporation, as borrower, Wells Fargo Bank, National Association, as administrative agent, and each of the financial institutions party thereto as lenders (incorporated by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed April 3, 2025, File No. 1-41325). +10.2† +Stockholders Agreement, dated as of August 2, 2021, by and among Hippo Parent Corporation, The Sinclair Companies, and the stockholders set forth on Schedule I thereto, as may be amended from time to time (incorporated by reference to Exhibit 10.1 of HollyFrontier Corporation’s Current Report on Form 8-K filed August 3, 2021, File No. 1-03876). +10.3 +Stock Purchase Agreement, dated as of September 16, 2025, by and among HF Sinclair Corporation and REH Advisors Inc. (incorporated by reference to Exhibit 10.1 of Registrant’s Current Report on Form 8-K filed September 17, 2025, File No. 1-41325). +10.4 +Stock Purchase Agreement, dated as of November 3, 2025, by and among HF Sinclair Corporation and REH Advisors Inc. (incorporated by reference to Exhibit 10.1 of Registrant’s Current Report on Form 8-K filed November 4, 2025, File No. 1-41325). +10.5 +Stock Purchase Agreement, dated as of November 18, 2025 , by and among HF Sinclair and REH Advisors Inc. (incorporated by reference to Exhibit 10.1 of Registrant’s Current Report on Form 8-K filed November 20, 2025, File No. 1-41325). +10.6 +Assignment and Assumption Agreement entered into and effective as of March 14, 2022, by and between HollyFrontier Corporation and HF Sinclair Corporation (incorporated by reference to Exhibit 10.4 of Registrant’s Current Report on Form 8-K12B filed March 14, 2022, File No. 1-41325). +10.7+ +HF Sinclair Corporation Amended and Restated 2020 Long Term Incentive Plan (formerly named the HollyFrontier Corporation 2020 Long Term Incentive Plan) (incorporated by reference to Exhibit 99.1 of Registrant’s Registration Statement on Form S-8 filed March 21, 2022, File No. 333-263721). +10.8+ +Amendment No. 1 to the HF Sinclair Corporation Amended and Restated 2020 Long Term Incentive Plan (incorporated by reference to Exhibit 4.4 of Registrant’s Registration Statement on Form S-8 filed December 4, 2023, File No. 333-275877). +129 +Table of Content s +HF SINCLAIR CORPORATION +INDEX TO EXHIBITS +Exhibit Number Description +10.9+ +HF Sinclair Corporation 2020 Long-Term Incentive Plan Sub-Plan for UK Employees (formerly named the HollyFrontier Corporation 2020 Long-Term Incentive Plan Sub-Plan for UK Employees) (incorporated by reference to Exhibit 10.12 of Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022, File No. 1-41325). +10.10+ +HF Sinclair Corporation Employee Form of Change in Control Agreement (incorporated by reference to Exhibit 10.2 of Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022, File No. 1-41325). +10.11+ +Form of Performance Share Unit Agreement (incorporated by reference to Exhibit 10.13 of Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022, File No. 1-41325). +10.12+ +Form of Performance Share Unit Agreement. (incorporated by reference to Exhibit 10.59 of Registrant’s Annual Report on Form 10-K for its fiscal year ended December 31, 2022, File No. 1-41325). +10.13+ +Form of Restricted Stock Unit Agreement (for employees) (incorporated by reference to Exhibit 10.16 of Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022, File No. 1-41325). +10.14+ +Form of Notice of Grant of Restricted Stock Units (for employees) (incorporated by reference to Exhibit 10.17 of Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022, File No. 1-41325). +10.15+ +Form of Restricted Stock Unit Agreement (for employees) (incorporated by reference to Exhibit 10.67 of Registrant’s Annual Report on Form 10-K for its fiscal year ended December 31, 2022, File No. 1-41325). +10.16+ +Form of Notice of Grant of Restricted Stock Units (for employees) (incorporated by reference to Exhibit 10.68 of Registrant’s Annual Report on Form 10-K for its fiscal year ended December 31, 2022, File No. 1-41325). +10.17+ +HF Sinclair Corporation Executive Nonqualified Deferred Compensation Plan (formerly the HollyFrontier Corporation Executive Nonqualified Deferred Compensation Plan) (incorporated by reference to Exhibit 10.71 of Registrant’s Annual Report on Form 10-K for its fiscal year ended December 31, 2022, File No. 1-41325). +10.18+ +HF Sinclair Corporation Director’s Stock Compensation Deferral Plan (formerly the HollyFrontier Corporation Director’s Stock Compensation Deferral Plan) (incorporated by reference to Exhibit 10.72 of Registrant’s Annual Report on Form 10-K for its fiscal year ended December 31, 2022, File No. 1-41325). +10.19+ +HF Sinclair Corporation Form of Indemnification Agreement to be entered into with officers and directors of HF Sinclair Corporation and its subsidiaries (incorporated by reference to Exhibit 10.1 of Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022, File No. 1-41325). +10.20 +HF Sinclair Corporation Severance Pay Plan and Summary Plan Description and Form of Participation Agreement, dated as of November 8, 2022 (incorporated by reference to Exhibit 10.1 of Registrant’s Current Report on Form 8-K filed November 9, 2022, File No. 1-41325). +10.21+ +Form of Notice of Grant of Restricted Stock Units and Restricted Stock Unit Agreement (for employees) (incorporated by reference to Exhibit 10.27 of Registrant’s Annual Report on Form 10-K for its fiscal year ended December 31, 2024). +10.22+ +Form of Notice of Grant of Restricted Stock Units and Restricted Stock Unit Agreement (for non-employee directors) (incorporated by reference to Exhibit 10.28 of Registrant’s Annual Report on Form 10-K for its fiscal year ended December 31, 2024). +10.23+ +Form of Performance Share Unit Agreement (incorporated by reference to Exhibit 10.29 of Registrant’s Annual Report on Form 10-K for its fiscal year ended December 31, 2024). +19.1* +HF Sinclair Corporation Insider Trading Policy. +21.1* +Subsidiaries of Registrant . +23.1* +Consent of Independent Registered Public Accounting Firm . +31.1* +Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002. +31.2* +Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002. +32.1** +Certification of Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act of 2002. +32.2** +Certification of Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002. +130 +Table of Content s +HF SINCLAIR CORPORATION +INDEX TO EXHIBITS +Exhibit Number Description +97.1 +HF Sinclair Corporation Mandatory Clawback Policy, adopted as of December 1, 2023 (incorporated by reference to Exhibit 97.1 of Registrant’s Annual Report on Form 10-K for its fiscal year ended December 31, 2023, File No. 1-41325). +101++ +The following financial information from Registrant’s Annual Report on Form 10-K for its fiscal year ended December 31, 2025, formatted as inline XBRL (Inline Extensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Cash Flows, (v) Consolidated Statements of Equity, and (vi) Notes to the Consolidated Financial Statements. The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document. +104++ Cover page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). +* Filed herewith. +** Furnished herewith. ++ Constitutes management contracts or compensatory plans or arrangements. +++ Filed electronically herewith. +† Schedules and certain exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The registrant agrees to furnish supplementally a copy of the omitted schedules and exhibits to the SEC upon request. +131 +Table of Content s +HF SINCLAIR CORPORATION +SIGNATURES +Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. +HF SINCLAIR CORPORATION +(Registrant) +Date: February 27, 2026 +/s/ +Franklin Myers +Franklin Myers +Chief Executive Officer and President (Temporary) +Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and as of the date indicated. +Signature Capacity Date +/s/ +Franklin Myers +Chief Executive Officer and President (Temporary), +February 27, 2026 +Franklin Myers +Chairperson of the Board +/s/ +Vivek Garg +Acting Chief Financial Officer, +February 27, 2026 +Vivek Garg +Vice President, Chief Accounting Officer and Controller +(Principal Financial Officer & Principal Accounting Officer) +Director* +February 27, 2026 +Timothy Go +/s/ +Anne-Marie N. Ainsworth +Director February 27, 2026 +Anne-Marie N. Ainsworth +/s/ +Anna C. Catalano +Director February 27, 2026 +Anna C. Catalano +/s/ +Leldon Echols +Director February 27, 2026 +Leldon Echols +/s/ +Manuel J. Fernandez +Director February 27, 2026 +Manuel J. Fernandez +/s/ +Rhoman J. Hardy +Director February 27, 2026 +Rhoman J. Hardy +/s/ +Jeanne M. Johns +Director February 27, 2026 +Jeanne M. Johns +/s/ +R. Craig Knocke +Director February 27, 2026 +R. Craig Knocke +/s/ +Robert J. Kostelnik +Director February 27, 2026 +Robert J. Kostelnik +/s/ +Ross B. Matthews +Director February 27, 2026 +Ross B. Matthews +* On leave. +132 \ No newline at end of file diff --git a/raw/filings/0001915657/2025/0001915657-26-000016/filing_metadata.csv b/raw/filings/0001915657/2025/0001915657-26-000016/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..2a0dd9996840bc9daab326541dc3fb24ecc3af2b --- /dev/null +++ b/raw/filings/0001915657/2025/0001915657-26-000016/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001915657,DINO,HF Sinclair Corp,2025,10-K,2026-02-27,2025-12-31,2026-02-27T11:31:36.000Z,0001915657-26-000016,dino-20251231.htm,10-K,17624271,1,1,https://www.sec.gov/Archives/edgar/data/1915657/000191565726000016/dino-20251231.htm,https://www.sec.gov/Archives/edgar/data/1915657/000191565726000016/ diff --git a/raw/filings/0001915657/2025/0001915657-26-000016/item1.txt 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+cik0001916558:UpProteinBarsMember +2024-01-01 +2024-12-31 +0001916558 +us-gaap:OperatingSegmentsMember +cik0001916558:UpProteinBarsMember +2023-01-01 +2023-12-31 +0001916558 +us-gaap:OperatingSegmentsMember +cik0001916558:AffiliateCommissionsMember +2024-01-01 +2024-12-31 +0001916558 +us-gaap:OperatingSegmentsMember +cik0001916558:AffiliateCommissionsMember +2023-01-01 +2023-12-31 +0001916558 +us-gaap:OperatingSegmentsMember +cik0001916558:DogPainFormulaMember +2024-01-01 +2024-12-31 +0001916558 +us-gaap:OperatingSegmentsMember +cik0001916558:DogPainFormulaMember +2023-01-01 +2023-12-31 +0001916558 +2024-10-01 +2024-12-31 +iso4217:USD +xbrli:shares +iso4217:USD +xbrli:shares +xbrli:pure +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +Form 10-K +☒ Annual +Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 +For +the fiscal year ended December 31 , 2024 +☐ Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 +For +the transition period from __________ to __________ +Commission file number: 333-276233 +Tradewinds Universal +(Exact +name of registrant as specified in its charter) +——————— +Wyoming +2000 +87-4254479 +(State or other jurisdiction of +incorporation or organization) +(Primary Standard Industrial +Classification Code Number) +(I.R.S. Employer Identification +Code Number) +501 Mercury Lane +Brea , CA . 92821 +855 - 434-4488 +TradewindsUniversal.com +Andrewreadtw@gmail.com +(Address and telephone number of registrant's principal executive offices and principal place of business) +Buffalo Registered Agents LLC +401 N Main Street +Buffalo, WY 82834 +855-434-4488 +(Name, address, including zip code, and telephone number, including area code, of agent for service) +Indicate +by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ +Indicate +by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Yes ☐ No ☒ +Indicate +by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities +Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), +and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ +Indicate +by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule +405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant +was required to submit such files). Yes ☒ No ☐ +Indicate +by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not +be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in +Part III of this Form 10-K or any amendment to this Form 10-K. Yes ☐ No ☒ +Indicate +by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting +company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller +reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act: +Large accelerated Filer +☐ +Accelerated Filer +☐ +Non-accelerated Filer +☒ +Smaller reporting company +☒ +(Do not check if a smaller reporting company) +Emerging growth company +☒ +If +an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying +with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐ +Indicate +by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of +its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public +accounting firm that prepared or issued its audit report. ☐ +If +securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant +included in the filing reflect the correction of an error to previously issued financial statements. ☐ +Indicate +by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation +received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ +Indicate +by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). +Yes ☐ No ☒ +As +of June 28, 2024 (the last business day of the registrant's most recently completed second fiscal quarter), the aggregate market value, +computed by reference to the price at which the registrant's common equity was last sold, of the 9,970,000 shares of common stock held +by non-affiliates of the issuer on such date was $ 0 . +As of March 31, 2025, the Company is not yet trading on any exchanges. +The registrant had 32,170,000 shares of common stock, par value $0.001 per share, outstanding. +Documents incorporated by reference: None +TABLE OF CONTENTS +PAGE +Part I +ITEM 1 +Business +3 +ITEM 1A +Risk Factors +7 +ITEM 1B +Unresolved Staff Comments +7 +ITEM 1C +Cybersecurity +7 +ITEM 2 +Properties +7 +ITEM 3 +Legal Proceedings +7 +ITEM 4 +Mine Safety Disclosures +7 +Part II +ITEM 5 +Market f or Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases o f Equity Securities +7 +ITEM 6 +Selected Financial Data +7 +ITEM 7 +Management's Discussion and Analysis of Financial Condition and Results of Operations +8 +ITEM 7A +Quantitative a nd Qualitative Disclosures a bout Market Risk +11 +ITEM 8 +Financial Statements a nd Supplementary Data +F-1 +- F-11 +ITEM 9 +Changes i n a nd Disagreements w ith Accountants o n Accounting and Financial Disclosure +12 +ITEM 9A +Controls a nd Procedures +12 +ITEM 9B +Other Information +12 +ITEM 9C +Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +12 +Part III +ITEM 10 +Directors, Executive Officers a nd Corporate Governance +13 +ITEM 11 +Executive Compensation +13 +ITEM 12 +Security Ownership o f Certain Beneficial Owners a nd Management and Related Stockholder Matters +14 +ITEM 13 +Certain Relationships a nd Related Transactions, a nd Director Independence +14 +ITEM 14 +Principal Accountant Fees a nd Services +14 +Part IV +ITEM 15 +Exhibits a nd Financial Statement Schedules +15 +Signatures +16 +i +STATEMENT REGARDING FORWARD-LOOKING STATEMENTS +In this annual report, references to “TRADEWINDS”, +or “the Company,” or “we,” or “us,” and “our” refer to TRADEWINDS UNIVERSAL. Except for +the historical information contained herein, some of the statements in this report contain forward-looking statements that involve risks +and uncertainties. These statements are found in the sections entitled “Business,” “Management’s Discussion and +Analysis of Financial Condition and Results of Operations,” and “Quantitative and Qualitative Disclosures about Market Risk.” +They include statements concerning: our business strategy; expectations of market and customer response; liquidity and capital expenditures; +future sources of revenues; expansion of our proposed product line; and trends in industry activity generally. In some cases, you can +identify forward-looking statements by words such as “may,” “will,” “should,” “expect,” +“plan,” “could,” “anticipate,” “intend,” “believe,” “estimate,” +“predict,” “potential,” “goal,” or “continue” or similar terminology. These statements +are only predictions and involve known and unknown risks, uncertainties and other factors, including, but not limited to, the risks outlined +under “Risk Factors,” that may cause our or our industry’s actual results, levels of activity, performance or achievements +to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking +statements. For example, assumptions that could cause actual results to vary materially from future results include, but are not limited +to our ability to successfully develop and market our products to customers; our ability to generate customer demand for our products +in our target markets; the development of our target markets and market opportunities; our ability to manufacture suitable products at +a competitive cost; market pricing for our products and for competing products; the extent of increasing competition; technological developments +in our target markets and the development of alternate, competing technologies in them; and sales of shares by existing shareholders. +Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, +levels of activity, performance or achievements. Unless we are required to do so under U.S. federal securities laws or other applicable +laws, we do not intend to update or revise any forward-looking statements. +Below +is a summary of material factors that make an investment in our securities speculative or risky. Importantly, this summary does not address +all of the risks and uncertainties that we face. The below summary is qualified in its entirety by that more complete discussion of such +risks and uncertainties. You should consider carefully the risks and uncertainties as part of your evaluation of an investment in our +securities. +- +We have a limited operating history in an evolving industry, which makes it difficult to evaluate our future prospects and may increase the risk that we will not be successful. +- +Our limited operating history makes it difficult for us to evaluate our future business prospects and make decisions based on those estimates of our future performance. +- +The COVID-19 outbreak caused disruptions in our development operations, which have resulted in delays in existing projects and may have additional negative impacts on our operations. +- +Our results of operations have not resulted in profitability and we may not be able to achieve profitability going forward. +- +We have not generated positive cash flow from operations and our ability to generate positive cash flow is uncertain. If we are unable to generate positive cash flow or obtain sufficient capital when needed, our business and future prospects will be adversely affected and we could be forced to suspend or discontinue operations. +- +We will require additional capital to support business growth and this capital might not be available on acceptable terms, if at all. +- +We depend upon key personnel and need additional personnel. +- +Our business requires substantial capital and if we are unable to maintain adequate cash flows from operations our profitability and financial condition will suffer and jeopardize our ability to continue operations. +- +There is currently no public market for our common stock. Failure to further develop or maintain a trading market could negatively affect the value of our common stock and make it difficult or impossible for you to sell your stock. +- +If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud. As a result, current and potential stockholders could lose confidence in our financial reporting, which would harm our business and the trading price of our stock. +1 +- +Because we plan to be quoted on the OTC QB marketplace instead of a national securities exchange, our investors may experience significant volatility in the market price of our stock and have difficulty selling their shares. +- +Our stock price and trading volume may be volatile, which could result in substantial losses for our stockholders. +- +We have not paid dividends in the past and have no immediate plans to pay cash dividends. +- +Shares eligible for future sale may adversely affect the market for our Common Stock. +- +You may experience future dilution as a result of future equity offerings. +- +Our charter documents and Wyoming law may inhibit a takeover that stockholders consider favorable. +- +There are limitations on director/officer liability. +- +Penny stock regulations may impose certain restrictions on marketability of our securities. +- +FINRA sales practice requirements may limit a stockholder’s ability to buy and sell our stock. +2 +Item 1. Description of Business +Overview +Corporate History +The Company was incorporated in Wyoming on December +28, 2021, with a mission to develop, manufacture, and distribute nutrient-based edible insect foods under the brand "Universal Protein +(UP)," also known as UP Proteins. The product line includes protein bars, shakes, and various nutritional foods, snacks, and beverages. +Additionally, the Company has acquired a proprietary formula for the development, manufacturing, and distribution of dog treats designed +to alleviate pain. +BUSINESS OVERVIEW +The Company focuses on identifying market +opportunities and strategic partnerships for its product offerings. Our primary emphasis is on the formulation, manufacturing, marketing, +and distribution of UP Proteins nutritional products, which include protein bars, powders, drinks, cookies, and other health-conscious +items. These products feature human-grade protein sourced from insects, aligning with our commitment to sustainable and innovative nutrition. +The acronym "UP" (Universal Protein) reflects our vision of delivering high-quality, eco-friendly protein alternatives. +Edible insects provide substantial nutritional +benefits, including high levels of vitamin B12, iron, zinc, fiber, essential amino acids, omega-3 and omega-6 fatty acids, and antioxidants. +Beyond individual health benefits, incorporating edible insects like crickets into the human diet supports environmental sustainability +by reducing greenhouse gas emissions, minimizing the use of agricultural land and water, and potentially helping in the management of +chronic conditions such as autoimmune diseases, diabetes, cancer, and cardiovascular diseases. +After selling our entire inventory +of protein bar SKUs, we are currently assessing market reception and evaluating potential business models. We are also exploring new copackers +to secure more competitive pricing and are in the process of developing a third SKU to further expand our protein bar offerings. This +includes white labeling our proprietary formulas and licensing rights for various territories. As of now, we have not resumed the manufacturing +or sale of our protein bars. +In addition to human nutrition, the Company +has created a proprietary formula for dog pain relief treats. Last year, we successfully sold the exclusive licensing rights for this +formula in Mexico, and we are currently exploring white labeling and expanded licensing opportunities in other markets. +Through these initiatives, we remain committed +to delivering sustainable, health-conscious solutions for human and pet nutrition while strategically expanding our market presence. +As part of our growth strategy, we introduced +an affiliate commission program last year. We plan to expand it to enhance our market reach and sales performance. +Furthermore, as part of our +long-term strategic direction, we are actively exploring opportunities in the green business sector , +which includes industries and enterprises that prioritize environmental sustainability and eco-friendly practices while generating economic +value. These are businesses that aim to reduce environmental impact, conserve natural resources, and promote sustainable development. +However, at this time, no definitive plans have been established. +Sales +The Company is currently generating revenue +through the sale of its UP Protein products and distribution +rights for specific territories. These rights are purchased in advance of product completion to secure exclusive access to the +designated regions. Additionally, last year, we sold the licensing rights for our dog pain relief product +in Mexico and generated income from our affiliate commission program. +Industry +The Global Edible Insects Market was estimated +to reach $1.8 billion in 2025. In terms of value, the edible insect market is expected to grow at a CAGR (compound annual growth rate) +of 26.5% from 2020 to 2027, reaching $4.63 billion by 2027. Moreover, in terms of volume, the edible insect market is expected to grow +at a CAGR of 28.5% from 2020 to 2027, reaching 13,988,626 tons by 2027. +3 +Aspire Food Group, once a provider of insect +snacks online, now focuses on cricket protein powder and is reportedly the largest supplier in the ingredients space. Aspire reports that +about 80% of its cricket protein inventory is used for pet food, but it is designed to be edible for humans as well, with a growing interest +in its use as a food ingredient. Aspire has also established a production facility in Ontario, Canada, capable of producing 20,000 metric +tons of food-grade cricket protein and frass (cricket waste used for fertilizer) per year. +Significant capital is flowing into the +insect protein space. Aspire has raised $21.6 million in funding, according to Crunchbase data. Consumers are also showing increased interest +in alternative protein sources beyond traditional beef, pork, and chicken. According to Barclays, the edible insect industry could be +worth $8 billion by 2030, up from under $1 billion last year. +The plant-based meat market generated revenue +of $4.2 billion globally in 2018, driven primarily by companies such as Impossible Foods and Beyond Meat. According to Grand View Research, +the global insect protein market was worth $250 million in 2020 and is projected to grow at a CAGR of 27.4% from 2021 to 2028. +Competition +Some of the key competitors in the edible insect +market include: +Protifarm Holding NV +EntomoFarms +Haocheng Mealworms Inc. +Agriprotein (Insect Technology Group Holdings U.K. +Ltd.) +Ynsect SAS +Deli Bugs Ltd. +Hargol FoodTech +Aspire Food Group +All Things Bugs, LLC +Tiny Farms +Global Bugs Asia Co., Ltd. +Beta Hatch Inc. +EntoCube Ltd. +Rocky Mountain Micro Ranch +Armstrong Cricket Farm Georgia +EnviroFlight Corporation +SFly Comgraf SAS +Hexafly +F4F SpA +Protix B.V. +InnovaFeed +Nutrition Technologies Group +Protenga Pte Ltd. +nextProtein S.A.S. +Protix Ynsect Innovafeed +Some of these companies will serve as suppliers +for UP Proteins. With a readily available variety of insect sources, UP Proteins will be able to negotiate an ample supply while benefiting +from cost reductions as production facilities expand. +UP Protein Nutrition Products +Product Description +UP Proteins offers high-protein energy products +made with premium ingredients. All UP Proteins products are: +Non-GMO +Non-Dairy +Gluten-Free +Low in sugar, containing only natural sweeteners +from dried fruits, berries, and natural sugar substitutes +Our focus is on delivering both health +and taste, carefully selecting ingredients that align with a balanced diet. The core protein source in UP Proteins products is an Orthoptera +Protein blend, which includes cricket powder and other plant-based protein sources. +4 +UP Proteins products cater to consumers seeking +nutritious, environmentally conscious options, including vegetarians who avoid animal and dairy products and those following a paleo +diet, which prioritizes meat, fish, and eggs while excluding grains and legumes. Insects serve as an innovative protein source that does +not carry the environmental and ethical concerns associated with conventional livestock farming. +Sustainability and Market Potential +Research from the University of Copenhagen highlights +insects as an exceptionally sustainable protein source. According to the United Nations, global livestock farming contributes over 14.5% +of greenhouse gas emissions. In contrast, cricket farming is 20 times more efficient in protein production compared to cattle, producing +80 times less methane. Additionally, insect farming utilizes organic waste as feed, reducing the need for grain-based animal feed that +demands significant energy and water resources. +UP Protein Bar: A Fusion of Vegan and Paleo +Nutrition +The UP Protein Bar offers a unique combination +of vegan and paleo nutrition principles by replacing conventional animal proteins with insect-based protein. Each bar is crafted to deliver +optimal health benefits without compromising on taste, texture, or appearance. Our formulation blends cricket powder with other nutritious +ingredients to create a high-quality, sustainable, and delicious snack option. +UP Proteins is proud to be at the forefront +of this movement, offering innovative, sustainable, and nutritionally superior products that cater to health-conscious consumers worldwide. +FORMULA FOR DOGS +On December 7, 2022, the Company acquired +a proprietary formula for natural pain relief for animals from BearCreek Resources, Corp. for a total consideration of $30,000. This +acquisition granted the Company full ownership and all associated rights to the formula, with no ongoing royalty obligations or additional +payments required. The formula is designed to provide safe, effective, and natural pain relief for dogs, potentially addressing a significant +market demand in the pet health industry. +Licensing and Revenue Strategy +Given the high cost associated with initial manufacturing, +quality control, and regulatory compliance, the Company opted to monetize the formula through licensing. This strategy allows the Company +to generate revenue while minimizing upfront capital expenditures related to production and distribution. +To date, revenue has been derived from +the sale of non-exclusive licensing rights to third parties interested in utilizing the pain relief formula. Additionally, on December +7, 2022, the Company entered into an exclusive licensing agreement with BearCreek Resources, Corp., further solidifying its strategic +approach to leveraging the formula's market potential. +Future Plans and Market Potential +The global pet healthcare market is experiencing +steady growth, with a rising demand for alternative and natural remedies for dog pain management. The Company's long-term strategy is +to continue licensing the formula while building the financial and operational capacity to manufacture, brand, and market the product +directly. Once sufficient revenue is generated, this transition will be pursued, ensuring a scalable and profitable expansion into the +pet health sector. +By adopting this phased approach, the Company +aims to position itself as a leading provider of natural pain relief solutions for animals while maximizing shareholder value and market +penetration. +5 +Regulation +Our business is subject to regulation by federal +and state laws in the United States and the laws of other jurisdictions in which we do business. +Advertising and promotional information presented +on our websites and in our products, and our other marketing and promotional activities, are subject to federal and state consumer protection +laws that regulate unfair and deceptive practices. U.S. federal, state, and foreign legislatures have also adopted laws and regulations +regulating numerous other aspects of our business. Regulations relating to the Internet, including laws governing online content, user +privacy, taxation, liability for third-party activities and jurisdiction, are particularly relevant to our business. Such laws and regulations +are discussed below. +Communications Decency Act . The +CDA regulates content of material on the Internet and provides immunity to Internet service providers and providers of interactive computer +services for certain claims based on content posted by third parties. The CDA and the case law interpreting it generally provide that +domain name registrars and website hosting providers cannot be liable for defamatory or obscene content posted by customers on their servers +unless they participate in creating or developing the content. +Digital Millennium Copyright Act . The +DMCA provides a safe harbor from liability for third-party copyright infringement. To qualify for the safe harbor, however, registrars +and website hosting providers must satisfy numerous requirements, including adoption of a user policy that provides for termination of +service access of users who are repeat infringers, informing users of this policy, and implementing the policy in a reasonable manner. +In addition, registrars and website hosting providers must expeditiously remove or disable access to content upon receiving a proper notice +from a copyright owner alleging infringement of its protected works. A registrar or website hosting provider that fails to comply with +these safe harbor requirements may be found liable for copyright infringement. +Lanham Act . The Lanham Act governs +trademarks and false advertising. Case law interpreting the Lanham Act has limited liability for many online service providers such as +search engines and domain name registrars. Nevertheless, there is no statutory safe harbor for trademark violations comparable to the +provisions of the DMCA and we may be subject to a variety of trademark claims in the future. +Privacy and Data Protection . In the areas +of personal privacy and data protection, the U.S. federal and various state and foreign governments have adopted or proposed limitations +on, and requirements associated with, the collection, distribution, use, storage, and security of personal information of individuals. +Intellectual Property & Proprietary Rights +We consider key aspects of our business and website +to be proprietary. To protect these elements, we intend to rely on a combination of copyright, trademark, service mark, and trade secret +laws, as well as confidentiality agreements, title restrictions, and other protective measures. As of now, we have not filed for any copyrights +or trademarks. +Employees +We are a new, developing company and currently have +only one part-time employee, Andrew Read our CEO and Secretary/Treasurer. At this time there is no arrangement to pay a salary until such +time that the Company begins generating revenue from the sale of its products. We may engage independent contractors in the future. +6 +ITEM +1A. Risk Factors +We are a smaller reporting +company as defined in Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item. +ITEM +1B. Unresolved Staff Comments +None. +ITEM +1C. Cybersecurity +Risk Management and Strategy +We periodically assess risks from cybersecurity threats, +and monitor our information systems for potential vulnerabilities. However, to date, given the small size of our company and the nature +of our operations, our reliance on information systems has been limited to the use of standard off-the-shelf software (such as Google, +QuickBooks and Microsoft Office) and the use by our employees of standard personal computers. Accordingly, management has not implemented +any formal process for assessing, identifying, and managing risks from cybersecurity threats . +Risks from cybersecurity threats have, to date, not +materially affected us, our business strategy, results of operations or financial condition. +Governance +As discussed above, given the nature of our current +operations and our experience to date, we do not currently perceive cybersecurity as a particularly significant risk to our business. +Accordingly, we have not tasked our Board of Directors with any additional cybersecurity oversight duties, or designated any committee +of the Board of Directors to specifically oversee cybersecurity risks to our business. +ITEM +2. Properties +Our principal executive offices consist of shared +office space owned by our CEO located at 501 Mercury Lane Brea, CA. 92821 on a month-to-month basis. +We believe that our current facilities are adequate +for our current needs. We intend to secure new facilities or expand existing facilities as necessary to support future growth. We believe +that suitable additional space will be available on commercially reasonable terms as needed to accommodate our operations. +ITEM +3. Legal Proceedings +There are no material pending +legal proceedings to which we are a party or to which any of our property is subject, nor are there any such proceedings known to be contemplated +by governmental authorities. None of our directors, officers or affiliates is involved in a proceeding adverse to our business or has +a material interest adverse to our business. +ITEM +4. Mine Safety Disclosures +Not applicable. +PART II +ITEM 5. Market for Registrant’s +Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +Market +Information +Shares +of our common stock are not yet listed on any mark et. +ITEM +6. Selected Financial Data +We are a smaller reporting +company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item. +7 +ITEM 7. Management's Discussion and Analysis of +Financial Condition and Results of Operations +The following discussion and analysis of our financial +condition and results of operations should be read in conjunction with our financial statements and the related notes to those statements +included elsewhere in this prospectus. In addition to historical financial information, the following discussion and analysis contain +forward-looking statements involving risks, uncertainties, and assumptions. Our actual results and timing of selected events may differ +materially from those anticipated in these forward-looking statements due to many factors, including, but not limited to, those discussed +under the section titled “Risk Factors” and elsewhere in this prospectus. See the section titled “Special Note Regarding +Forward-Looking Statements” elsewhere in this prospectus. +Overview +We specialize in developing, manufacturing, and distributing +nutrient-rich foods, distinguishing ourselves by integrating insect-based proteins into our products. Our primary product line is marketed +under the brand Universal Proteins (UP) and currently focuses on protein bars. The company plans to broaden its secondary business focus +to include pet foods, particularly developing, manufacturing, and distributing dog treats aimed at alleviating pain. +In early 2022, we began formulating recipes using +insect protein powder derived from crickets. Our CEO, Andrew Read, in collaboration with a nutritionist, formulated two different recipes +for the preparation of the first protein bars. During this process we narrowed our primary protein source to cricket (Orthoptera) powder +from ENTOMO FARMS, a Canadian Company that has supplied protein powder from crickets for over 10 years. +Following the initial development of our first bars, +we conducted a taste test to finalize the ingredients. Subsequently, we initiated the process of partnering with a copacker/manufacturer. +In March 2022, we visited the YouBar facility in Los Angeles, California, and enlisted their expertise to consult on and develop our initial +two bars, also referred to as SKUs: Chocolate Almond and Peanut Butter and Fruit. YouBar has developed and manufactured protein bars since +2006 for companies whose bars are sold in well-known retail establishments such as Whole Foods, Trader Joe's, Costco, Target, Amazon, +and GNS, according to their website www.youbars.com. +The R&D collaboration with YouBar spanned almost +a year to develop the first two flavors (SKUs). This comprehensive process involved testing various ingredient combinations for optimal +taste, experimenting with baking or rolling techniques for the bars, and refining the product to facilitate mass production. YouBar sourced +material for additional bar ingredients, such as: fruits and flavors, all of which received subsequent approval by the Company. +Following +the approval process, we progressed to the packaging development and manufacturing phase, which lasted approximately nine months. Tradewinds +was selective in the type of products and service providers it used for each aspect of packaging. Manufacturing and packaging of the two +formulated SKUs were completed and shipped on December 4, 2023, at which time we received the first order, which included 10,848 peanut +butter fruit bars and 10,764 chocolate almond bars. We have initiated online marketing and sales of the UP protein bars; however, our +main focus has been directed toward larger retail outlets and distributors such as Trader Joe’s, Costco, and Coremark. We anticipate +that it may take an uncertain amount of time to secure sales orders from larger retailers, if it happens at all. In April of 2024 we entered +into a purchase agreement with a smaller distributor for 1,040 cases of UP bars containing 12,480 bars for $24,960. At December 31, 2024, +all bars in inventory had been sold. Raw materials used in the protein bars are generic to energy protein bars sourced by YouBar. The +availability of ingredients is subject to standard supply and demand for energy bars. Protein Cricket Powder protein is purchased from +Entomo Farms, a +Company based out of Canada that has supplied protein powder from crickets for over 10 years. All ingredients required for the manufacturing +of the bars are currently abundant. +Our UP Protein Bars are currently backordered only +on our website, UPProteins.com. We have initiated a marketing program targeting retail outlets through social media platforms, as detailed +in our Business Description on page 12 . We expect to finalize one more new SKU for a bar by the end of 2025. The Company +plans to expand its focus to include pet foods and has acquired a formula for developing, manufacturing, and distributing dog treats for +pain relief. Additionally, we aim to continue marketing Distribution Rights across various territories. We also plan to promote the licensing +rights for our pain relief formula for dogs as well as expand our affiliate marketing program. However, there is no guarantee that licensing +rights, products and affiliate commission income will be sufficient to support our operational plan. We anticipate raising capital through +revenues from licensing rights sales or through some form of debt or equity financing. Currently, we have no arrangements for any funding +sources. +We expect our operating expenses to significantly +increase as we continue to develop additional product lines and establish a market for our current product line. We also expect to incur +additional operating expenses as we begin operating as a public company. Our net losses may fluctuate significantly from quarter to quarter +and year to year, depending on the timing and scope of our marketing and our expenditures on other research and development activities. +Following the sale of our entire inventory of both +protein bar SKUs, we are currently assessing market reception and evaluating potential business models as well as evaluating new copackers +in the effort of obtaining more competitive pricing, and we are in the process of creating a third SKU to further expand our protein bar +offerings. These include white labeling our proprietary formulas and licensing rights for various territories. As of now, we have not +resumed the manufacturing or sale of our protein bars. +8 +Beyond human nutrition, the Company has developed a proprietary +formula for dog pain relief treats. Last year, we successfully sold the exclusive licensing rights for this formula in Mexico, and we +are currently exploring white labeling and expanded licensing opportunities in additional markets. +Through these initiatives, we remain committed to delivering sustainable +and health-conscious solutions for both human and pet nutrition while strategically expanding our market presence. +As part of our growth strategy, we introduced an affiliate commission +program last year, which we plan to expand to enhance our market reach and sales performance. +Furthermore, as part of our long-term strategic direction, +we are actively exploring opportunities in the green business sector , which includes industries +and enterprises that prioritize environmental sustainability and eco-friendly practices while generating economic value. These are businesses +that aim to reduce environmental impact, conserve natural resources, and promote sustainable development. However, at this time, no definitive +plans have been established. +Results of Operations +Comparison of years ended December 31, 2024, +and 2023 +Revenue +For the twelve months ended December 31, 2024 +For the period ended December 31, 2024, the Company +had total sales of $171,596. The increase in revenues was directly related to commissions from affiliate marketing, licensing rights to +our dog formula, and sales of the Company's UP protein bars. +For the twelve months ended December 31, 2023 +For the period ended December 31, 2023, the Company +had total sales of $145,085. Revenues were directly related to the sales of commissions from affiliate marketing. The Company was in the +process of finalizing formulations for its protein bars and had not yet begun sales. +Cost of Goods Sold +For the twelve months ended December 31, 2024 +For the period ended December 31, 2024, the Company +had cost of sales of $21,645. The increase was directly related to the sales of the Company's UP protein bars. +For the twelve months ended December 31, 2023 +For the period ended December 31, 2023, the Company +had cost of sales of $13,023 as its UP- Protein bars were still being designed and formulated. +Gross Profit +For the twelve months ended December 31, 2024 +For the period ended December 31, 2024, the Company +had a gross profit of $149,951 The increase from the same period in the previous year was directly related to the sales of the Company's +UP protein bars, licensing rights to our dog formula, and the increase of sales of commissions from affiliate marketing. +For the twelve months ended December 31, 2023 +For the period ended December 31, 2023, the Company +had a gross profit of $132,062. The gross profit was less than the same period of 2024 as its UP Protein bars were still being designed +and formulated, and its sales of commissions from affiliate marketing program was just beginning. +Operating Expenses +For the twelve months ended December 31, +2024 +For +the period ended December 31, 2024, the Company had operating expenses of $219,323. We had $51,838 in professional fees, which increased +related to our registration statement filings. We had an increase in marketing fees, which were $148,093, attributed to the startup marketing +for our UP Protein bars and marketing for our affiliate commission program. We had a loss of $5,000 for impairment of intangible assets. +We had $5,133 +in consulting fees, a decrease due to our marketing program. We had $4,459 in general and administrative costs related to the expansion +of our business and +we had $4,800 in amortization. +9 +For the twelve months ended December 31, 2023 +For the period ended December 31, 2023, the Company +had operating expenses of $362,683. We had $18,442 in professional fees related to filing our registration statement. We had consulting +fees of $316,173 attributed to the shares issued to our CEO for services rendered as well as other consulting related expenses, marketing +fees of $23,562 attributed to the startup marketing for our UP Protein bars. We had $4,506 in general and administrative costs. +Net Loss +For the twelve months ended December 31, 2024 +For the period ended December 31, 2024, the Company had a net loss +of $115,743. Although our gross profit had increased to $149,951, we had operating expenses of $219,323. Our gross profit increased while +our total expenses decreased which were directly related to the sales of the Company's UP protein bars and the increase in sales of commissions +from affiliate marketing. +For the twelve months ended December 31, 2023 +For the period ended December 31, 2023, the Company +had a net loss of $182,191. Although our gross profit increased to $132,062, we had operating expenses of $362,683. Our gross profit and +expenses were directly related to the initial startup of the Company's UP protein bars and the sales of commissions from affiliate marketing +as well as to the shares issued to our CEO for services rendered. +Liquidity and Capital Resources +As of December 31, 2024, we had cash and cash equivalents +of $210. To date, we have financed our operations primarily through revenue generated from operations, private placements of our securities, +and advances from our founder. +Management has prepared operational estimates and +believes it will have sufficient funds to support our operations and meet our debt obligations for at least the next twelve months. However, +we may require additional cash resources in the future due to changing business conditions, the implementation of our strategy to expand, +or other investments or acquisitions we might pursue. If our financial resources are inadequate to meet our capital needs, we may look +to sell additional equity or debt securities or obtain further credit facilities. Selling additional equity could dilute our stockholders’ +interests. Taking on debt would increase our debt service obligations and may require us to agree to operational and financial covenants +that limit our operations. Financing may not be available in amounts or on terms that are acceptable to us, if at all. Any failure to +secure additional funds on favorable terms or at all could restrict our ability to expand our operations and negatively impact our overall +business prospects. There is no assurance that the Company will be successful. Without sufficient financing, there is substantial doubt +about the Company’s ability to continue as a going concern. +The +accompanying financial statements have been prepared on a going concern basis, under which we are expected to be able to realize our assets +and satisfy our liabilities in the normal course of business. +Operating Activities +For +the period ended December 31, 2024, the Company had operating expenses of $219,323. We had $51,838 in professional fees, which increased +related to our registration statement filings. We had an increase in marketing fees, which were $148,093, attributed to the startup marketing +for our UP Protein bars and marketing for our affiliate commission program. We had a loss of $5,000 for impairment of intangible assets. +We had $5,133 +in consulting fees, a decrease due to our marketing program. We had $4,459 in general and administrative costs related to the expansion +of our business. +Investing Activities +For December 31, 2024, we used $0 in investing activities +and for the year ended December 31, 2023 we used $1,500 in investing activities for an intangible asset for website development. +Financing Activities +Our +financing activities generally consist of the proceeds from the sale of our common stock. During December 31, 2024, we had $0 in financing +activity, and for the year ended December 31, 2023 we had $32,000 in financing activities from the issuance of stock to our CEO for cash +received for stock . +The Company believes it has insufficient cash resources +available to fund its primary operation. The Company has no, current, off-balance sheet arrangements and does not anticipate entering +into any off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition. The +Company has no agreements in place with its shareholders, officer and director or with any third parties to fund operations beyond the +end of the Company's 4th quarter. The Company has not negotiated nor has available to it any other third-party sources of liquidity. +Off Balance Sheet Items +We do not have any off-balance sheet arrangements, +financings, or other relationships with unconsolidated entities or other persons, also known as “special purpose entities” +(SPEs). +10 +Significant Accounting Policies and Estimates +Management's Discussion and Analysis of Financial +Condition and Results of Operations discusses the Company's financial statements which have been prepared in accordance with accounting +principles generally accepted in the United States of America. The preparation of these financial statements requires management to make +estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported +amounts of revenues and expenses during the reporting period. Management bases its estimates and judgments on historical experiences and +on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments +about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these +estimates under different assumptions or conditions. +Use of Estimates +The preparation of financial statements in conformity +with generally accepted accounting principles in the United States requires us to make estimates and assumptions that affect reported +amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statement and the reported +amounts of revenues and expenses during the reporting period. Actual results could differ from the estimates. +Item 7A. Quantitative and Qualitative Disclosures +about Market Risk +Not applicable to smaller reporting companies. +11 +Item 8. Financial Statements and Supplementary +Data +Financial Statements +Tradewinds +Universal +Table of Contents +December 31, 2024 +Financial Statements +F-1 +Report +of Independent Registered Public Accounting Firm (PCAOB # 6920 ) +F-2 +Balance Sheets as of December 31, 2024 and 2023 +F-3 +Statements of Operations for the years ended December 31, 2024 and 2023 +F-4 +Statements of Stockholders’ Equity for the years ended December 31, 2024 and 2023 +F-5 +Statements of Cash Flows for the years ended December 31, 2024 and 2023 +F-6 +Notes to the Financial Statements +F-7 +F- 1 +REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING +FIRM +To the Board of Directors and Stockholders +of Tradewinds +Universal +Opinion on the Financial Statements +We have audited the accompanying balance +sheets of Tradewinds Universal (the Company) as of December 31, 2024 and 2023, and the related statements of operations, stockholders’ +equity, and cash flows for each of the years in the two-year period ended December 31, 2024, and the related notes (collectively referred +to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position +of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the years in the two-year +period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America. +Substantial Doubt about the Company’s +Ability to Continue as a Going Concern +The accompanying financial statements +have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the +Company has not yet established an ongoing source of revenue sufficient to cover operating costs. These conditions raise substantial doubt +about its ability to continue as a going concern. Management’s plans regarding these matters are also described in Note 3. The financial +statements do not include any adjustments that might result from the outcome of this uncertainty. +Basis for Opinion +These financial statements are the responsibility +of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our +audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are +required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and +regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance +with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether +the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were +we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an +understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the +Company’s internal control over financial reporting. Accordingly, we express no such opinion. +Our audits included performing procedures +to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that +respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial +statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as +evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. +We +have served as the Company’s auditor since 2024. +Astra Audit & Advisory, LLC +Tampa, FL +March 31, 2025 +F- 2 +TRADEWINDS UNIVERSAL +BALANCE SHEETS +December +31, +2024 +December +31, +2023 +Assets +Current Assets +Cash and Cash Equivalents +$ 210 +$ 28,213 +Inventory +— +18,076 +Prepaid Expense +— +13,493 +Deferred Tax Asset +— +46,371 +Total Current Assets +210 +106,153 +Intangible Assets, Net +31,300 +41,100 +Total Assets +$ 31,510 +$ 147,253 +Liabilities and Stockholders' Equity +Current Liabilities +$ — +$ — +Total Current Liabilities +— +— +Total Liabilities +— +— +Commitments and Contingencies (Note 4) +— +Stockholders' Equity +Common stock, $ 0.001 par value, 75,000,000 shares authorized, 32,170,000 shares issued and outstanding +32,170 +32,170 +Additional Paid in Capital +289,530 +289,530 +Accumulated Deficit +( 290,190 ) +( 174,447 ) +Total Stockholders' Equity +31,510 +147,253 +Total Liabilities and Stockholders' Equity +$ 31,510 +$ 147,253 +The +accompanying notes are an integral part of these financial statements +F- 3 +TRADEWINDS +UNIVERSAL +STATEMENTS OF OPERATIONS +For the Year +Ended +December 31, +2024 +For the Year +Ended +December 31, +2023 +Revenue +$ 171,596 +$ 145,085 +Cost of Goods Sold +21,645 +13,023 +Gross Profit +149,951 +132,062 +Operating Expenses +Marketing +148,093 +23,562 +Professional Fees +51,838 +18,442 +Consulting +5,133 +316,173 +Amortization +4,800 +— +General and Administrative +4,459 +4,506 +Loss on Impairment +5,000 +— +Total Operating Expenses +219,323 +362,683 +Net Loss Before Taxes +( 69,372 ) +( 230,621 ) +Provision for Income Tax +( 46,371 ) +48,430 +Net Loss +$ ( 115,743 ) +$ ( 182,191 ) +Net Loss Per Share – Basic and Diluted +$ ( 0.01 ) +$ ( 0.02 ) +Basic and diluted weighted average shares used in the calculation of net loss per common share +32,170,000 +9,372,822 +The +accompanying notes are an integral part of these financial statements +F- 4 +TRADEWINDS +UNIVERSAL +STATEMENTS OF CHANGES IN STOCK HOLDERS’ +EQUITY +FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023 +Common Shares +Common Shares Amount +Additional Paid-in Capital +Accumulated Deficit +Total Stockholders’ Equity +Balance +December 31, 2022 +6,970,000 +$ 6,970 +$ 62,730 +$ 7,744 +$ 77,444 +Shares issued for services +22,000,000 +22,000 +198,000 +— +220,000 +Shares issued for cash +3,200,000 +3,200 +28,800 +— +32,000 +Net Loss +— +— +— +( 182,191 ) +( 182,191 ) +Balance +December 31, 2023 +32,170,000 +$ 32,170 +$ 289,530 +$ ( 174,447 ) +$ 147,253 +Net +Loss +— +— +— +( 115,743 ) +( 115,743 ) +Balance +December 31, 2024 +32,170,000 +$ 32,170 +$ 289,530 +$ ( 290,190 ) +$ 31,510 +The accompanying +notes are an integral part of these financial statements +F- 5 +TRADEWINDS +UNIVERSAL +STATEMENTS OF CASH FLOW +For +the Year Ended +December +31, 2024 +For +the Year Ended +December +31, 2023 +Operating Activities +Net Loss +$ ( 115,743 ) +$ ( 182,191 ) +Adjustments to Reconcile Net Loss to Net Cash From Operating Activities: +Amortization +4,800 +— +Stock Compensation +— +220,000 +Changes in Operating Assets and Liabilities: +Inventory +18,076 +( 18,076 ) +Prepaid Expense +13,493 +( 8,093 ) +Impairment of Intangible Assets +5,000 +— +Deferred Tax Asset +46,371 +( 46,371 ) +Taxes Payable +— +( 2,059 ) +Deferred Revenue +— +( 18,853 ) +Net Cash from Operating Activities +( 28,003 ) +( 55,643 ) +Investing Activities +Purchase of Intangible Asset +— +( 1,500 ) +Net Cash from Investing Activities +— +( 1,500 ) +Financing Activities +Shares issued for Cash +— +32,000 +Net Cash from Financing Activities +— +32,000 +Change in Cash and Cash Equivalents +( 28,003 ) +( 25,143 ) +Cash and Cash Equivalents at Beginning of Period +28,213 +53,356 +Cash and Cash Equivalents at End of Period +$ 210 +$ 28,213 +Supplemental Cash Flow Information +Cash Paid for Interest +$ — +$ — +Cash Paid for Taxes +$ — +$ — +The +accompanying notes are an integral part of these financial statements +F- 6 +TRADEWINDS +UNIVERSAL +NOTES TO THE FINANCIAL STATEMENTS +December 31, 2024 +Note 1 – Nature of Operations +Nature of Operations +Tradewinds Universal (“Tradewinds” +or the “Company”) was established in Wyoming on December 21, 2021, with a focus on developing, manufacturing, and distributing +high-nutrient edible insect protein bars, shakes, and other nutritious foods, snacks, and beverages. +Furthermore, on December 11, 2022, Tradewinds +acquired a pain relief formula for dogs, which it plans to produce and distribute as treats, as well as offer licensing rights for the +formula. +Note 2 - Summary of Significant Accounting Policies +Basis of Presentation +The accompanying financial statements have +been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”), and pursuant to the +rules and regulations of the Securities and Exchange Commission (the "SEC") and reflect all adjustments, consisting of normal +recurring adjustments, which management believes are necessary to fairly present the financial position, results of operations and cash +flows of the Company. +Use of Estimates +The preparation of consolidated financial +statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and +liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported +amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates . +Cash And Cash Equivalents +The Company maintains a cash balance in a +non-interest-bearing account that currently does not exceed federally insured limits. For the purpose of the statements of cash flows, +all highly liquid investments with an original maturity of three months or less are considered to be cash equivalents. There were no cash +equivalents as of December 31, 2024 and December 31, 2023. +Inventory +Inventory is recorded at lower of cost or +market; cost is computed on a first-in first-out basis. +Intangible Assets +As +of December 31, 2024 and December 31, 2023, the Company had an Intangible Asset of $ 36,300 +and $ 41,100 +respectively. The intangible assets consist of an indefinite life formula for pain relief for dogs with a cost of $ 30,000 +and a website with a cost of $ 4,800 , +which will be amortized over its useful life of 5 +years and trademarks of $ 1,500 . +The amortization expense for the years ended December 31, 2024 and December 31, 2023 was $ 4,800 +and $ 0 , +respectively . +For the years ended December 31, 2024 and December 31, 2023, there was a loss of impairment of intangible assets of $ 5,000 +and $ 0 , respectively, included on the statement of operations. +Impairment Of Long-Lived Assets +The Company determines its long-lived assets impairment +in accordance with Accounting Standards Codification (ASC) 360-10, Impairment or Disposal of Long-Lived Assets . The Company evaluates +long-lived assets, such as intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying value +of an asset may not be recoverable. Definite and Indefinite lived intangible assets are tested for impairment at least annually. If indicators +of impairment exist and the undiscounted future cash flows that the assets are expected to generate are less than the carrying value +of the assets, the Company reduces the carrying amount of the assets to their estimated fair values based on a discounted cash flow approach +or, when available and appropriate, to comparable market values. For the years ended December 31, 2024 and December 31, 2023, there was +a loss of impairment of intangible assets of $ 5,000 and $ 0 , respectively, included on the statement of operations. +F- 7 +Revenue Recognition +The Company recognizes revenue according +to ASC 606. Revenue is recognized when a customer gains control of the promised goods or services. Furthermore, the standard mandates +the disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows resulting from contracts with customers. The recorded +revenue amount reflects the consideration the Company anticipates receiving in exchange for those goods or services. The Company applies +the following five-step model to determine this amount: +Identification of the promised goods in the contract; +Determination of whether the promised goods are performance +obligations, including whether they are distinct in the context of the contract; +Measurement of the transaction price, including the +constraint of variable consideration; +Allocation of the transaction price of the performance +obligations and +Recognition of revenue when (or as) the Company satisfies +each performance obligation. +The performance obligation associated with a typical +product sale will be satisfied upon delivery to customers, and the revenue will be recognized at that time. Payments are due on demand. +The Company does not offer any warranty on its products; however, customers do receive a manufacturer’s warranty. +The Company's main revenue stream +to date has been from the sale of distribution territories for its protein bars, affiliate commissions and licensing agreement for its +dog formula. The Company sells rights to distribute its protein bars and other products to outside parties and determines if the distribution +agreement (“DA”) is a distinct (separate) performance obligation in accordance with ASC 606. If the DA is determined not to +be distinct, the license is combined with the other goods or services and the combined performance obligation is accounted for using the +general revenue recognition model outlined above. If the DA is determined to be distinct, the Company analyzes whether the DA is functional +or symbolic to assess the timing of revenue recognition. The DA by the Company was determined to be a distinct performance obligation +of symbolic intellectual property (“IP)”, which provides a right to access IP. ASC 606 states that revenue from licenses of +IP deemed to provide a right to use IP will be recognized at a point in time when control is transferred. +In accordance with Topic 606, the +Company analyzes the following to determine when to recognize revenue: +i. Whether the transaction represents a sale or licensing of intellectual property (IP), +ii. Whether the IP is a distinct performance obligation, +iii. The nature of the license - functional or symbolic; and +iv. The timing of recognition based on the nature of the license. +The Company only applies the five-step +model to contracts when it is probable the entity will collect the consideration it is entitled to in exchange for the goods and represents +services it transfers to the customer. Once a contract is determined to be within the scope of ASC 606 at contract inception, the Company +reviews the contract to determine which performance obligations the Company must deliver and which of these performance obligations are +distinct. The Company recognizes as revenues the amount of the transaction price that is allocated to the respective performance obligations +when the performance obligation is satisfied or as it is satisfied. The Company reviews the contract to determine which performance obligations +the Company must deliver and which of these performance obligations are distinct. The Company recognizes as revenues the amount of the +transaction price that is allocated to the respective performance obligations when the performance obligation is satisfied or as it is +satisfied. Generally, the Company’s performance obligations are transferred to customers at a point in time, typically upon delivery. +F- 8 +Fair Value of Financial Instruments +ASC 825, Financial Instruments (“ASC 825”) +requires disclosure of the fair value of certain financial instruments. The carrying value of cash and cash equivalents, accounts payable +and accrued liabilities when reflected in the balance sheets, approximate fair value because of the short-term maturity of these instruments. +All other significant financial assets, financial liabilities and equity instruments of the Company are either recognized or disclosed +in the financial statements together with other information relevant for making a reasonable assessment of future cash flows, interest +rate risk and credit risk. Where practicable the fair values of financial assets and financial liabilities have been determined and disclosed; +otherwise only available information pertinent to fair value has been disclosed. The Company follows ASC 820, Fair Value Measurements +(“ASC 820”) and ASC 825, which permits entities to choose to measure many financial instruments and certain other items at fair +value. +Income Taxes +In accordance with ASC 740 Income Taxes , +deferred tax assets, and liabilities are recognized for the future tax consequences attributable to differences between the financial +statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are +measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to +be recovered or settled. Under ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in Income +in the period that includes the enactment date. +The Company has adopted the provisions set +forth in ASC 740 to account for uncertainty in income taxes. In the preparation of income tax returns in federal and state jurisdictions, +the Company asserts certain tax positions based on its understanding and interpretation of the income tax law. The taxing authorities +may challenge such positions, and the resolution of such matters could result in recognition of Income tax expense in the Company's financial +statements. Management believes it has used reasonable judgments and conclusions in the preparation of its income tax returns. The Company +uses the "more likely than not" criterion for recognizing the tax benefit of uncertain tax positions and to establish measurement +criteria for income tax benefits. The Company’s policy is to recognize interest and/or penalties related to income tax matters in income +tax expense. The Company had no accrual for interest or penalties on its balance sheets as of December 31, 2024 and December 31, +2023. +Earnings Per Share of Common Stock +The Company computes income (loss) per share +in accordance with ASC 260 Earnings Per Share ("EPS") , which requires presentation of basic and diluted +EPS on the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator +and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. In the accompanying financial +statements, basic earnings (loss) per share of common stock is computed by dividing net income (loss) by the weighted average number +of shares of common stock outstanding during the period. The Company does not have a complex capital structure requiring the computation +of diluted earnings per share. +Advertising Expenses +The Company follows the policy of charging the costs +of advertising, marketing, and public relations to expense as incurred. The Company has $ 148,093 in Marketing expenses for the twelve +months ended December 31, 2024, and $ 23,562 for the twelve months ended December 31, 2023. +Stock-based compensation +The Company applies the fair value method of +FASB ASC 718, Share Based Payment, in accounting for its stock-based compensation. The standard states that compensation cost is measured +at the grant date based on the fair value of the award and is recognized over the service period. The Company values stock-based compensation +at the market price for the Company’s common stock and other pertinent factors at the grant date. Fully vested and non-forfeitable +shares issued prior to the services being performed are classified as unearned compensation. +Recently Issued Accounting Pronouncements +The Company is committed +to complying with the new segment reporting requirements issued by the Financial Accounting Standards Board (FASB) under Accounting Standards +Update (ASU) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures . This update enhances segment +reporting transparency by introducing several key disclosure mandates, which the Company has implemented in its financial reporting. +As part of the Company's compliance, +it will disclose significant expense categories and their amounts for each reportable segment. These expenses will include those regularly +provided to the chief operating decision maker (CODM) and incorporated into the segment’s reported measure of profit or loss. +Additionally, the Company will report “other segment items,” which will be calculated as the difference between segment revenues +minus significant segment expenses and the reported measure of segment profit or loss, along with a detailed description of the composition +of these items. +F- 9 +To ensure consistency +and transparency, the Company will also extend certain annual segment disclosure requirements to its interim reporting periods, providing +timely and relevant financial information throughout the year. Furthermore, as an entity with a single reportable segment, the Company +will comply with all segment disclosure requirements mandated by both existing guidance and the new ASU. +Additionally, the Company +will disclose the title and position of its CODM and explain how the CODM utilizes the reported measures of segment profit or loss to +assess performance and allocate resources effectively. By implementing these enhanced segment reporting disclosures, the Company aims +to provide investors and other financial statement users with more detailed and useful information, reinforcing its commitment +to transparency and informed decision-making. +Note 3 - Going Concern +The +Company's financial statements are prepared using GAAP applicable to a going concern which contemplates the realization of assets and +liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenues sufficient +to cover its operating costs to allow it to continue as a going concern and therefore, there is substantial doubt about the Company’s +ability to continue as a going concern. As of December 31, 2024 and December 31, 2023, the Company had an accumulated deficit of and +$ 290,190 and +$ 174,447 , respectively. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital +to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease +operations. In order to continue as a going concern, the Company will need, among other things, additional capital resources. The Company +will continue to attempt to secure equity and/or debt financing. There are no assurances that the Company will be successful, and without +sufficient financing, it would be unlikely for the Company to continue as a going concern. +The ability of the Company to continue as a +going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure +other sources of financing and attain profitable operations. These financial statements do not include any adjustments relating to the +recoverability and classification of recorded asset amounts for amounts and classification of liabilities that might result from this +uncertainty. +Note 4 - Segment +Disclosure +ASC 280 “ Segment Reporting ”, +establishes standards for reporting information about operating segments. Operating segments are defined as components of an enterprise +about which separate financial information is available that is evaluated regularly by the CODM in deciding how to allocate resources +and in assessing performance. The Company manages its business on the basis of one reportable segment and unit and derives revenues +mainly from products, licensing rights and affiliate commissions (see Note 1 for a brief description of the Company’s business). +The Company operates as one operating segment. +Operating segments are defined as components of an enterprise for which separate financial information is regularly evaluated by the CODM, +which is the Company’s chief executive officer, who reviews financial information and annual operating plans for purposes of making +operating decisions, evaluating financial performance, and allocating resources. +The key measure of segment profit or loss that the +CODM uses to allocate resources and assess performance is the Company’s net income (loss). This is reviewed against budgeted expectations +to assess segment performance and allocate resources. The Company’s segment net loss for 2024 and 2023 consisted of the following: +Segment Disclosures for the Years Ended: +Schedule of segment disclosures +December +31, 2024 +December 31, 2023 +Total Assets +$ 36,510 +$ 147,253 +Sales +Up Protein Bars +43,224 +— +Affiliate Commissions +123,622 +145,085 +Dog Pain formula +4,750 +— +Net Sales +171,596 +145,085 +Cost of sales +21,645 +13,023 +Gross Profit +149,951 +132,062 +Sales, marketing and support +Marketing costs +148,093 +23,562 +Professional fees +51,838 +18,442 +Consulting +5,133 +316,173 +Amortization +4,800 +— +Loss on Impairment +5,000 +— +General and Administrative costs +4,459 +4,506 +Net Loss +Before Taxes +$ 69,372 +$ 230,621 +F- 10 +Note 5 - Commitments and +Contingencies +During the normal course of business, the Company +may be exposed to litigation. When the Company becomes aware of potential litigation, it evaluates the merits of the case in accordance +with ASC 450, Contingencies . The Company evaluates its exposure to the matter, possible legal or settlement strategies and the +likelihood of an unfavorable outcome. If the Company determines that an unfavorable outcome is probable and can be reasonably estimated, +it establishes the necessary accruals. As of December 31, 2024 and December 31, 2023, the Company is not aware of any contingent +liabilities that should be reflected in the financial statements . +Note 6 +- Income Taxes +The Company recognizes deferred income tax liabilities +and assets for the expected future tax consequences of events that have been recognized in the financial statements or tax returns. Under +this method, deferred tax liabilities and assets are determined based on the differences between +the financial statement carrying amounts and the tax basis of assets and liabilities using enacted tax rates in effect in the years +in which the differences are expected to reverse. +The components of the Company's reconciliation +of income taxes computed at the s tatutory rate of 21 % to the income tax amount recorded as +of the twelve months ended December 31, 2024 and December 31, 2023, are as follows: +Schedule of reconciliation of income taxes +December 31, 2024 +December 31, 2023 +Net Loss Before Taxes +$ ( 69,372 ) +$ ( 230,621 ) +Effective Tax Rate +21 % +21 % +Provision For Income Taxes +$ ( 14,568 ) +$ ( 48,430 ) +Schedule of net deferred tax asset +December 31, 2024 +December 31, 2023 +Deferred tax asset +$ 60,939 +$ 46,371 +Less valuation allowance +( 60,939 ) +— +Net deferred tax asset +$ — +$ 46,371 +As of December 31, 2024, the components of +the deferred tax asset related to net loss. Due to uncertainties surrounding the Company’s ability +to generate future U.S. taxable income to realize these assets, a full valuation allowance has been established to offset the net U.S. +deferred tax asset as of December 31, 2024. The change in tax loss valuation allowance as of December +31, 2024 was $ 60,939 and for December 31, 2023 it was $ 0 . +Note 7 - Subsequent Events +In accordance with ASC 855, Subsequent +Events, the Company has analyzed its operations subsequent to December 31, 2024 to the date the financial statements were issued +and has determined that it does not have any material subsequent events to disclose. +F-11 +Item 9. Changes in and Disagreements +with Accountants on Accounting and Financial Disclosure +In 2024, the Company transitioned its independent registered public +accounting firm from Accell Audit & Compliance , P.A. to Astra Audit & Advisory. The change was not due to any disagreement or +issue with Accell. Accell’s audit reports for prior periods contained no adverse opinions or disclaimers of opinion and were not +qualified or modified as to uncertainty, audit scope, or accounting principles. +Item 9A. Controls and Procedures +Evaluation of Disclosure Controls and Procedures. +Our principal executive officer and principal financial officer, after evaluating the effectiveness of our disclosure controls and +procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Annual Report on Form +10-K, have concluded that, based on such evaluation, our disclosure controls and procedures were effective to ensure that information +required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, +within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to our management, including +our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions +regarding required disclosure. +Changes in Internal Control over Financial +Reporting. There were no changes in our internal control over financial reporting, identified in connection with the evaluation of +such internal control that occurred during the year ended December 31, 2024 that have materially affected, or are reasonably likely to +materially affect, our internal control over financial reporting. +Management’s Annual Report on Internal +Control over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial +reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, as a process +designed by, or under the supervision of, our principal executive officer and principal financial officer and effected by our board of +directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation +of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial +reporting includes those policies and procedures that: +● +pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; +● +provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of management and our directors; and +● +provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. +Based on our evaluation of internal controls, +our management concluded that there is a lack of segregation of duties identified. As a result our internal controls over financial reporting +were not effective as of December 31, 2024. +Because of its inherent limitations, internal +control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods +are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the +policies or procedures may deteriorate. +Item 9B. Other Information +None of our directors or executive officers adopted +or terminated a Rule 10b5-1 trading arrangement or adopted or terminated a non-Rule 10b5-1 trading arrangement (as defined in Item 408(c) +of Regulation S-K) during the year ended December 31, 2024. +Item 9C. Disclosure Regarding Foreign Jurisdictions +that Prevent Inspections +Not applicable. +12 +PART III +Item 10. Directors, Executive Officers, Promoters +and Control Persons of the Company +Directors And Executive Officers +The following table and subsequent discussion contains +the complete and accurate information concerning our directors and executive officers, their ages, term served and all of our officers +and their positions, who will serve in the same capacity with us upon completion of the offering. +Name +Age +Term Served +Title / Position(s) +Andrew Read +62 +Since December 28, 2021 +CEO, Secretary, +Treasurer and Director +There are no other persons nominated or chosen to become directors +or executive officers nor do we have any employees other than above. +Andrew Read has served as the Company’s +CEO and director since 2021. Prior to this, Andrew launched Voltage River, a solar Electric and battery integration and consulting company, +in 2011 and has worked as CEO of Voltage River since 2011. Voltage River has focused on providing net zero electrical emissions to homes +and businesses in southern California. Prior to this Andrew worked as a technical sales rep for Motorola's broadband radio division and +was instrumental in developing the public safety market for broadband radio nationwide. Prior to his time with Motorola Andrew worked +with a radio startup called Breezecom, a broadband radio company that went public while he worked as a technical sales rep for the company +developing the public safety and SCADA branch of the company. Mr. Read has worked to spread awareness, build partnerships, and create +innovative products that could make a positive impact on people's lives/health and the environment. We believe his Earth-friendly skill +set will greatly benefit the Company’s ability to move forward. +Our directors will hold office until the next annual +meeting of shareholders and the election and qualification of their successors. Directors receive no compensation for serving on the board +of directors other than reimbursement of reasonable expenses incurred in attending meetings. Officers are appointed by the board of directors +and serve at the discretion of the board. +No officer, director, or persons nominated for such +positions and no promoters or significant employee of the Company has been involved in legal proceedings that would be material to an +evaluation of officers and directors. +Item 11. Executive Compensation +The following tables set forth certain information +about compensation paid, earned or accrued for services by our Executive Officers for the years ended December 31, 2024 and 2023: +Summary Compensation Table +Name +and Principal Position (1) +Fiscal +Year +Salary +Bonus +Stock +Awards(1) +All +other Compensation +Total +Andrew Read +President and CEO, CFO +FY 2024 +$ — +$ — +$ — +$ — +$ — +Andrew Read +President and CEO, CFO(2) +FY 2023 +$ — +$ — +$ 220,000 +$ — +$ 220,000 +(1) In 2022, Andrew Read as founder of the Company acquired shares +totaling 230,000 valued at $.01 per share. +(2) On December 28, 2023, Andrew Read was issued 22,000,000 shares +for services per an amended employment agreement. The shares were issued at $.01 per share, $220,000. +The compensation discussed herein addresses all compensation +awarded to, earned by, or paid to our named executive officer. +There are no other stock option plans, retirement, +pension, or profit-sharing plans for the benefit of our sole officer and director other than as described herein. There are no annuity, +pension or retirement benefits proposed to be paid to the officer or director or employees in the event of retirement at normal retirement +date pursuant to any presently existing plan provided or contributed to by the Company or any of its subsidiaries, if any. +Outstanding Equity Awards at Fiscal Year-End +As of December 31, 2024, no new warrants or any other +equity awards were awarded to the executives. +13 +Item 12. Security Ownership of Certain Beneficial +Owners and Management and Related Stockholder Matters +The following table sets forth certain information +as of March 15, 2025, concerning the number of shares of common stock beneficially owned by: (i) each person (including any group) known +to us to own more than five percent (5%) of any class of our voting securities, (ii) our director, and or (iii) our officer. Unless +otherwise indicated, the stockholder listed possesses sole voting and investment power with respect to the shares shown. +Title of Class +Name and Beneficial Owner +Amount and Nature of Beneficial Ownership +Percentage +Common Stock +Andrew Read(1)(2) +22,000,000 +69.5 % +Common Stock +Bear Creek Resources Corporation (3) +2,000,000 +6.2 %** +(1) Andrew Read is the President and Director of the Company. +(2) On December 28, 2023 Andrew Read was issued 22,000,000 shares for services +rendered. +(3) BearCreek Resources Corporation, Gabriel Grabowski, Pres. +The percent of class is based on 32,170,000 shares +of common stock issued and outstanding as of the date of this annual report. +No Director, executive officer, affiliate or any owner +of record or beneficial owner of more than 5% of any class of voting securities of the Company is a party adversary to the Company or +has a material interest adverse to the Company. +Item 13. Certain Relationships and Related Transactions +There are no promoters of the company, and have been +none, as defined in Item 404(c)(1)(i) of Regulation S-K, other than the Company’s directors and officers. +During the year ended December 31, 2024, we had not +entered into any transactions with our sole officer or director, or persons nominated for these positions, beneficial owners of 5% or +more of our common stock, or family members of these persons wherein the amount involved in the transaction or a series of similar transactions +exceeded the lesser of $120,000 or 1% of the average of our total assets for the last three fiscal years. +Procedures for Approval of Related Party Transactions +Our Board of Directors is in charged with reviewing +and approving all potential related party transactions. All such related party transactions must then be reported under applicable SEC +rules. We have not adopted other procedures for review, or standards for approval, of such transactions, but instead review them on a +case-by-case basis. +Director Independence +The Company has no outside directors as of December +31, 2024. +Item 14. Principal Accountant Fees and Services +In 2024, the Company transitioned its independent +registered public accounting firm from Accell Audit & Compliance , P.A. to Astra Audit & Advisory. The change was not due to any +disagreement or issue with Accell. Accell’s audit reports for prior periods contained no adverse opinions or disclaimers of opinion +and were not qualified or modified as to uncertainty, audit scope, or accounting principles. During fiscal year ended December 31, 2024, +we incurred approximately $23,000 in fees to our principal independent accountants for professional services rendered in connection +with the audit of our December 31, 2023 financial statements and for the reviews of our financial statements for the quarters ended March +31, 2024, June 30, 2024, and September 30, 2024. During fiscal year ended December 31, 2023, we incurred approximately $18,442 in +fees to our principal independent accountants for professional services rendered in connection with the audit of our December 31, 2022 +financial statements and for the reviews of our financial statements for the quarters ended March 31, 2023, June 30, 2023, and September +30, 2023. +14 +Item 15. +Exhibits Index. +Incorporated +by Reference +Filed +or +Furnished +No. +Exhibit +Description +Form +Date +Filed +Number +Herewith +19.1 +Insider Trading Policy +Filed +31.1 +Certification of the Chief Executive Officer, as the principal executive officer and the principal financial officer, under 18 U.S.C. Section 1350, as adopted in accordance with section 302 of the Sarbanes-Oxley Act of 2002. +Filed +32.1 +Certification of the Chief Executive Officer, as the principal executive officer and the principal financial officer, under 18 U.S.C. Section 1350, as adopted in accordance with Section 906 of the Sarbanes-Oxley Act of 2002. +Furnished +101. +Interactive Data files +Filed +15 +SIGNATURES +Pursuant +to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the +registrant has duly caused this report to be signed on its behalf by the undersigned, +thereunto duly authorized. +Dated: March 31, 2025 +TRADEWINDS UNIVERSAL +By: +/s/ Andrew Read +Andrew Read, +Chief Executive Officer +/s/ Andrew Read +Andrew Read, +Chief Financial Officer +In accordance with the requirements of the Securities Act of 1933, as amended, +this registration statement has been signed by the following persons in the capacities and on the dates stated. +SIGNATURE +TITLE +DATE +/s/ Andrew Read +Andrew Read +President/Chief Executive +Officer and Director (principal executive officer) +March 31, 2025 +/s/ Andrew Read +Andrew Read +Chief Financial Officer and Director (principal accounting officer) +March 31, 2025 +16 \ No newline at end of file diff --git a/raw/filings/0001916558/2024/0001079973-25-000543/filing_metadata.csv b/raw/filings/0001916558/2024/0001079973-25-000543/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..607f5604a012e3c40a02b25ab0968c5f2750d8e4 --- /dev/null +++ b/raw/filings/0001916558/2024/0001079973-25-000543/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001916558,TRWD,Tradewinds Universal,2024,10-K,2025-03-31,2024-12-31,2025-03-31T19:01:57.000Z,0001079973-25-000543,tradewinds_10k-123124.htm,ANNUAL REPORT,2532999,1,1,https://www.sec.gov/Archives/edgar/data/1916558/000107997325000543/tradewinds_10k-123124.htm,https://www.sec.gov/Archives/edgar/data/1916558/000107997325000543/ diff --git a/raw/filings/0001916558/2024/0001079973-25-000543/item1.txt b/raw/filings/0001916558/2024/0001079973-25-000543/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..82e2522515aedfe2ba762608d00ef51fedc73e7d --- /dev/null +++ b/raw/filings/0001916558/2024/0001079973-25-000543/item1.txt @@ -0,0 +1,185 @@ +Item 1. Description of Business +Overview +Corporate History +The Company was incorporated in Wyoming on December +28, 2021, with a mission to develop, manufacture, and distribute nutrient-based edible insect foods under the brand "Universal Protein +(UP)," also known as UP Proteins. The product line includes protein bars, shakes, and various nutritional foods, snacks, and beverages. +Additionally, the Company has acquired a proprietary formula for the development, manufacturing, and distribution of dog treats designed +to alleviate pain. +BUSINESS OVERVIEW +The Company focuses on identifying market +opportunities and strategic partnerships for its product offerings. Our primary emphasis is on the formulation, manufacturing, marketing, +and distribution of UP Proteins nutritional products, which include protein bars, powders, drinks, cookies, and other health-conscious +items. These products feature human-grade protein sourced from insects, aligning with our commitment to sustainable and innovative nutrition. +The acronym "UP" (Universal Protein) reflects our vision of delivering high-quality, eco-friendly protein alternatives. +Edible insects provide substantial nutritional +benefits, including high levels of vitamin B12, iron, zinc, fiber, essential amino acids, omega-3 and omega-6 fatty acids, and antioxidants. +Beyond individual health benefits, incorporating edible insects like crickets into the human diet supports environmental sustainability +by reducing greenhouse gas emissions, minimizing the use of agricultural land and water, and potentially helping in the management of +chronic conditions such as autoimmune diseases, diabetes, cancer, and cardiovascular diseases. +After selling our entire inventory +of protein bar SKUs, we are currently assessing market reception and evaluating potential business models. We are also exploring new copackers +to secure more competitive pricing and are in the process of developing a third SKU to further expand our protein bar offerings. This +includes white labeling our proprietary formulas and licensing rights for various territories. As of now, we have not resumed the manufacturing +or sale of our protein bars. +In addition to human nutrition, the Company +has created a proprietary formula for dog pain relief treats. Last year, we successfully sold the exclusive licensing rights for this +formula in Mexico, and we are currently exploring white labeling and expanded licensing opportunities in other markets. +Through these initiatives, we remain committed +to delivering sustainable, health-conscious solutions for human and pet nutrition while strategically expanding our market presence. +As part of our growth strategy, we introduced +an affiliate commission program last year. We plan to expand it to enhance our market reach and sales performance. +Furthermore, as part of our +long-term strategic direction, we are actively exploring opportunities in the green business sector , +which includes industries and enterprises that prioritize environmental sustainability and eco-friendly practices while generating economic +value. These are businesses that aim to reduce environmental impact, conserve natural resources, and promote sustainable development. +However, at this time, no definitive plans have been established. +Sales +The Company is currently generating revenue +through the sale of its UP Protein products and distribution +rights for specific territories. These rights are purchased in advance of product completion to secure exclusive access to the +designated regions. Additionally, last year, we sold the licensing rights for our dog pain relief product +in Mexico and generated income from our affiliate commission program. +Industry +The Global Edible Insects Market was estimated +to reach $1.8 billion in 2025. In terms of value, the edible insect market is expected to grow at a CAGR (compound annual growth rate) +of 26.5% from 2020 to 2027, reaching $4.63 billion by 2027. Moreover, in terms of volume, the edible insect market is expected to grow +at a CAGR of 28.5% from 2020 to 2027, reaching 13,988,626 tons by 2027. +3 +Aspire Food Group, once a provider of insect +snacks online, now focuses on cricket protein powder and is reportedly the largest supplier in the ingredients space. Aspire reports that +about 80% of its cricket protein inventory is used for pet food, but it is designed to be edible for humans as well, with a growing interest +in its use as a food ingredient. Aspire has also established a production facility in Ontario, Canada, capable of producing 20,000 metric +tons of food-grade cricket protein and frass (cricket waste used for fertilizer) per year. +Significant capital is flowing into the +insect protein space. Aspire has raised $21.6 million in funding, according to Crunchbase data. Consumers are also showing increased interest +in alternative protein sources beyond traditional beef, pork, and chicken. According to Barclays, the edible insect industry could be +worth $8 billion by 2030, up from under $1 billion last year. +The plant-based meat market generated revenue +of $4.2 billion globally in 2018, driven primarily by companies such as Impossible Foods and Beyond Meat. According to Grand View Research, +the global insect protein market was worth $250 million in 2020 and is projected to grow at a CAGR of 27.4% from 2021 to 2028. +Competition +Some of the key competitors in the edible insect +market include: +Protifarm Holding NV +EntomoFarms +Haocheng Mealworms Inc. +Agriprotein (Insect Technology Group Holdings U.K. +Ltd.) +Ynsect SAS +Deli Bugs Ltd. +Hargol FoodTech +Aspire Food Group +All Things Bugs, LLC +Tiny Farms +Global Bugs Asia Co., Ltd. +Beta Hatch Inc. +EntoCube Ltd. +Rocky Mountain Micro Ranch +Armstrong Cricket Farm Georgia +EnviroFlight Corporation +SFly Comgraf SAS +Hexafly +F4F SpA +Protix B.V. +InnovaFeed +Nutrition Technologies Group +Protenga Pte Ltd. +nextProtein S.A.S. +Protix Ynsect Innovafeed +Some of these companies will serve as suppliers +for UP Proteins. With a readily available variety of insect sources, UP Proteins will be able to negotiate an ample supply while benefiting +from cost reductions as production facilities expand. +UP Protein Nutrition Products +Product Description +UP Proteins offers high-protein energy products +made with premium ingredients. All UP Proteins products are: +Non-GMO +Non-Dairy +Gluten-Free +Low in sugar, containing only natural sweeteners +from dried fruits, berries, and natural sugar substitutes +Our focus is on delivering both health +and taste, carefully selecting ingredients that align with a balanced diet. The core protein source in UP Proteins products is an Orthoptera +Protein blend, which includes cricket powder and other plant-based protein sources. +4 +UP Proteins products cater to consumers seeking +nutritious, environmentally conscious options, including vegetarians who avoid animal and dairy products and those following a paleo +diet, which prioritizes meat, fish, and eggs while excluding grains and legumes. Insects serve as an innovative protein source that does +not carry the environmental and ethical concerns associated with conventional livestock farming. +Sustainability and Market Potential +Research from the University of Copenhagen highlights +insects as an exceptionally sustainable protein source. According to the United Nations, global livestock farming contributes over 14.5% +of greenhouse gas emissions. In contrast, cricket farming is 20 times more efficient in protein production compared to cattle, producing +80 times less methane. Additionally, insect farming utilizes organic waste as feed, reducing the need for grain-based animal feed that +demands significant energy and water resources. +UP Protein Bar: A Fusion of Vegan and Paleo +Nutrition +The UP Protein Bar offers a unique combination +of vegan and paleo nutrition principles by replacing conventional animal proteins with insect-based protein. Each bar is crafted to deliver +optimal health benefits without compromising on taste, texture, or appearance. Our formulation blends cricket powder with other nutritious +ingredients to create a high-quality, sustainable, and delicious snack option. +UP Proteins is proud to be at the forefront +of this movement, offering innovative, sustainable, and nutritionally superior products that cater to health-conscious consumers worldwide. +FORMULA FOR DOGS +On December 7, 2022, the Company acquired +a proprietary formula for natural pain relief for animals from BearCreek Resources, Corp. for a total consideration of $30,000. This +acquisition granted the Company full ownership and all associated rights to the formula, with no ongoing royalty obligations or additional +payments required. The formula is designed to provide safe, effective, and natural pain relief for dogs, potentially addressing a significant +market demand in the pet health industry. +Licensing and Revenue Strategy +Given the high cost associated with initial manufacturing, +quality control, and regulatory compliance, the Company opted to monetize the formula through licensing. This strategy allows the Company +to generate revenue while minimizing upfront capital expenditures related to production and distribution. +To date, revenue has been derived from +the sale of non-exclusive licensing rights to third parties interested in utilizing the pain relief formula. Additionally, on December +7, 2022, the Company entered into an exclusive licensing agreement with BearCreek Resources, Corp., further solidifying its strategic +approach to leveraging the formula's market potential. +Future Plans and Market Potential +The global pet healthcare market is experiencing +steady growth, with a rising demand for alternative and natural remedies for dog pain management. The Company's long-term strategy is +to continue licensing the formula while building the financial and operational capacity to manufacture, brand, and market the product +directly. Once sufficient revenue is generated, this transition will be pursued, ensuring a scalable and profitable expansion into the +pet health sector. +By adopting this phased approach, the Company +aims to position itself as a leading provider of natural pain relief solutions for animals while maximizing shareholder value and market +penetration. +5 +Regulation +Our business is subject to regulation by federal +and state laws in the United States and the laws of other jurisdictions in which we do business. +Advertising and promotional information presented +on our websites and in our products, and our other marketing and promotional activities, are subject to federal and state consumer protection +laws that regulate unfair and deceptive practices. U.S. federal, state, and foreign legislatures have also adopted laws and regulations +regulating numerous other aspects of our business. Regulations relating to the Internet, including laws governing online content, user +privacy, taxation, liability for third-party activities and jurisdiction, are particularly relevant to our business. Such laws and regulations +are discussed below. +Communications Decency Act . The +CDA regulates content of material on the Internet and provides immunity to Internet service providers and providers of interactive computer +services for certain claims based on content posted by third parties. The CDA and the case law interpreting it generally provide that +domain name registrars and website hosting providers cannot be liable for defamatory or obscene content posted by customers on their servers +unless they participate in creating or developing the content. +Digital Millennium Copyright Act . The +DMCA provides a safe harbor from liability for third-party copyright infringement. To qualify for the safe harbor, however, registrars +and website hosting providers must satisfy numerous requirements, including adoption of a user policy that provides for termination of +service access of users who are repeat infringers, informing users of this policy, and implementing the policy in a reasonable manner. +In addition, registrars and website hosting providers must expeditiously remove or disable access to content upon receiving a proper notice +from a copyright owner alleging infringement of its protected works. A registrar or website hosting provider that fails to comply with +these safe harbor requirements may be found liable for copyright infringement. +Lanham Act . The Lanham Act governs +trademarks and false advertising. Case law interpreting the Lanham Act has limited liability for many online service providers such as +search engines and domain name registrars. Nevertheless, there is no statutory safe harbor for trademark violations comparable to the +provisions of the DMCA and we may be subject to a variety of trademark claims in the future. +Privacy and Data Protection . In the areas +of personal privacy and data protection, the U.S. federal and various state and foreign governments have adopted or proposed limitations +on, and requirements associated with, the collection, distribution, use, storage, and security of personal information of individuals. +Intellectual Property & Proprietary Rights +We consider key aspects of our business and website +to be proprietary. To protect these elements, we intend to rely on a combination of copyright, trademark, service mark, and trade secret +laws, as well as confidentiality agreements, title restrictions, and other protective measures. As of now, we have not filed for any copyrights +or trademarks. +Employees +We are a new, developing company and currently have +only one part-time employee, Andrew Read our CEO and Secretary/Treasurer. At this time there is no arrangement to pay a salary until such +time that the Company begins generating revenue from the sale of its products. We may engage independent contractors in the future. +6 \ No newline at end of file diff --git a/raw/filings/0001916558/2024/0001079973-25-000543/item13.txt b/raw/filings/0001916558/2024/0001079973-25-000543/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..4b445ec117842dab2615f3f70bd5513708f53682 --- /dev/null +++ b/raw/filings/0001916558/2024/0001079973-25-000543/item13.txt @@ -0,0 +1,3 @@ +ITEM 13 +Certain Relationships a nd Related Transactions, a nd Director Independence +14 \ No newline at end of file diff --git a/raw/filings/0001916558/2025/0001079973-26-000479/filing.txt b/raw/filings/0001916558/2025/0001079973-26-000479/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..29f061175a26410c828d36b2dd35beb814d1723e --- /dev/null +++ b/raw/filings/0001916558/2025/0001079973-26-000479/filing.txt @@ -0,0 +1,2006 @@ +false +2025 +FY +0001916558 +1 +0001916558 +2025-01-01 +2025-12-31 +0001916558 +2025-12-31 +0001916558 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+Form 10-K +☒ Annual +Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 +For the fiscal year ended December 31 , 2025 +☐ Transition +Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 +For the transition period from __________ to __________ +Commission file number: 333-276233 +Tradewinds Universal +(Exact name of registrant as specified in its +charter) +——————— +Wyoming +2000 +87-4254479 +(State or other jurisdiction of +incorporation or organization) +(Primary Standard Industrial +Classification Code Number) +(I.R.S. Employer Identification +Code Number) +501 Mercury Lane +Brea , CA . 92821 +855 - 434-4488 +TradewindsUniversal.com +Andrewreadtw@gmail.com +(Address and telephone number of registrant's principal executive offices and principal place of business) +Buffalo Registered Agents LLC +401 N Main Street +Buffalo, WY 82834 +855-434-4488 +(Name, address, including zip code, and telephone number, including area code, of agent for service) +Indicate by check mark if the registrant is a +well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ +Indicate by check mark if the registrant is not +required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Yes ☐ No ☒ +Indicate by check mark whether the registrant +(1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the +preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject +to such filing requirements for the past 90 days. Yes ☒ No ☐ +Indicate by check mark whether the registrant +has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 +of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ +Indicate by check mark if disclosure of delinquent +filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s +knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment +to this Form 10-K. Yes ☐ No ☒ +Indicate by check mark whether the registrant +is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large +accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging +growth company” in Rule 12b-2 of the Exchange Act: +Large accelerated Filer +☐ +Accelerated Filer +☐ +Non-accelerated Filer +☒ +Smaller reporting company +☒ +(Do not check if a smaller reporting company) +Emerging growth company +☒ +If an emerging growth company, indicate by check +mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting +standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐ +Indicate by check mark whether the registrant +has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial +reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or +issued its audit report. ☐ +If securities are registered pursuant to Section +12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction +of an error to previously issued financial statements. ☐ +Indicate by check mark whether any of those error +corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s +executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ +Indicate by check mark whether the registrant is a shell company (as +defined in Rule 12b-2 of the Exchange Act). +Yes ☐ No ☒ +As of December 31, 2025 (the last business day +of the registrant's most recently completed fiscal year end), the aggregate market value, computed by reference to the price at which +the registrant's common equity was last sold, of the 20,460,580 shares of common stock held by non-affiliates of the issuer on such date +was $ 2,046,058 . +As of March 31, 2026, the Company had 43,690,580 +shares of common stock, par value $0.001 per share, outstanding. +Documents incorporated by reference: None +TABLE OF CONTENTS +PAGE +Part I +ITEM 1 +Business +1 +ITEM 1A +Risk Factors +4 +ITEM 1B +Unresolved Staff Comments +4 +ITEM 1C +Cybersecurity +4 +ITEM 2 +Properties +4 +ITEM 3 +Legal Proceedings +4 +ITEM 4 +Mine Safety Disclosures +4 +Part II +ITEM 5 +Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +5 +ITEM 6 +Selected Financial Data +5 +ITEM 7 +Management's Discussion and Analysis of Financial Condition and Results of Operations +6 +ITEM 7A +Quantitative and Qualitative Disclosures about Market Risk +7 +ITEM 8 +Financial Statements and Supplementary Data +F-1 - F-13 +ITEM 9 +Changes i n a nd Disagreements w ith Accountants o n Accounting and Financial Disclosure +8 +ITEM 9A +Controls a nd Procedures +8 +ITEM 9B +Other Information +8 +ITEM 9C +Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +8 +Part III +ITEM 10 +Directors, Executive Officers a nd Corporate Governance +9 +ITEM 11 +Executive Compensation +9 +ITEM 12 +Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +10 +ITEM 13 +Certain Relationships and Related Transactions, and Director Independence +10 +ITEM 14 +Principal Accountant Fees and Services +10 +Part IV +ITEM 15 +Exhibits a nd Financial Statement Schedules +11 +Signatures +12 +i +STATEMENT REGARDING FORWARD-LOOKING STATEMENTS +This Annual Report on Form 10-K contains forward-looking +statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act +of 1934, as amended. References in this report to “TRADEWINDS,” the “Company,” “we,” “us,” +or “our” refer to TRADEWINDS UNIVERSAL. +Except for statements of historical fact, all +statements included in this report are forward-looking statements. Forward-looking statements appear in, among other places, the sections +entitled “Business,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition +and Results of Operations,” and “Quantitative and Qualitative Disclosures About Market Risk.” These statements relate +to, among other things, our business strategy, future operations, financial condition, liquidity and capital resources, capital expenditures, +future revenues, market opportunities, customer demand, product development, competitive position, industry trends, and growth plans. +Forward-looking statements may be identified by +words such as “may,” “will,” “should,” “expect,” “anticipate,” “intend,” +“plan,” “believe,” “estimate,” “predict,” “potential,” “goal,” +“continue,” or similar expressions. These statements are based on management’s current expectations, assumptions, and +beliefs and are subject to known and unknown risks, uncertainties, and other factors that may cause actual results, performance, or achievements +to differ materially from those expressed or implied by the forward-looking statements. +Factors that could cause actual results to differ +materially include, but are not limited to: our limited operating history; our ability to develop, manufacture, and market our products +successfully; our ability to generate customer demand in our target markets; the development and growth of our target markets; our ability +to manufacture products at competitive costs; pricing pressures and competition; technological changes and the development of competing +technologies; our ability to raise additional capital on acceptable terms, if at all; our ability to generate positive cash flow and achieve +profitability; disruptions to our operations, including those related to public health events; dependence on key personnel; the effectiveness +of our internal controls over financial reporting; and sales of shares by existing stockholders. These and other risks are discussed in +greater detail under the heading “Risk Factors” elsewhere in this report. +Although we believe that the expectations reflected +in the forward-looking statements are reasonable, we cannot assure you that such expectations will prove to be correct. All forward-looking +statements in this report are made as of the date of this filing. Except as required by applicable U.S. federal securities laws, we undertake +no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. +SUMMARY OF RISK FACTORS +An investment in our securities involves a high degree of risk. The +following is a summary of certain material risks that could adversely affect our business, financial condition, results of operations, +and the value of our securities. This summary does not describe all of the risks we face and is qualified in its entirety by the more +detailed discussion included under the heading “Risk Factors” in this report. +We have a limited operating history in an evolving industry, which makes it difficult to evaluate +our business and prospects and increases the risk that we may not achieve or sustain profitability. +We have incurred losses since inception, have not generated positive cash flow from operations, +and may continue to incur losses for the foreseeable future. +Our ability to continue operations depends on our ability to generate sufficient cash flow +or obtain additional financing, which may not be available on acceptable terms, if at all. +We will require additional capital to fund operations and growth, and future financings may +result in dilution to existing stockholders. +Disruptions from public health events, including the COVID-19 pandemic, have adversely affected +and may continue to affect our operations, development activities, and business plans. +We depend on key management and technical personnel and may face difficulties attracting or +retaining qualified personnel. +Our business requires substantial capital, and failure to maintain adequate liquidity could +jeopardize our ability to continue operations. +Our common stock trades on the OTCMarkets rather than a national securities exchange, which +may result in limited liquidity, increased volatility, and difficulty selling shares. +Our stock price may be volatile, and investors could lose all or part of their investment. +We do not anticipate paying cash dividends in the foreseeable future. +Shares eligible for future sale could negatively impact the market price of our common stock. +Our charter documents and Wyoming law may discourage or delay takeover attempts that stockholders +may consider favorable. +Penny stock regulations and FINRA sales practice requirements may limit the marketability of +our securities. +If we fail to maintain effective internal controls over financial reporting, our ability to +accurately report financial results and prevent fraud may be impaired. +ii +Item 1. Description of Business +Overview +Corporate History +The Company was incorporated in Wyoming on December +28, 2021, with a mission to develop, manufacture, and distribute nutrient-based edible insect foods under the brand "Universal Protein +(UP)," also known as UP Proteins. The product line includes protein bars, shakes, and various nutritional foods, snacks, and beverages. +Additionally, the Company has acquired a proprietary formula for the development, manufacturing, and distribution of dog treats designed +to alleviate pain. +BUSINESS OVERVIEW +The Company focuses on identifying market opportunities +and strategic partnerships for its product offerings. Our primary emphasis is on the formulation, manufacturing, marketing, and distribution +of UP Proteins nutritional products, which include protein bars, powders, drinks, cookies, and other health-conscious items. These products +feature human-grade protein sourced from insects, aligning with our commitment to sustainable and innovative nutrition. The acronym "UP" +(Universal Protein) reflects our vision of delivering high-quality, eco-friendly protein alternatives. +Edible insects provide substantial nutritional +benefits, including high levels of vitamin B12, iron, zinc, fiber, essential amino acids, omega-3 and omega-6 fatty acids, and antioxidants. +Beyond individual health benefits, incorporating edible insects like crickets into the human diet supports environmental sustainability +by reducing greenhouse gas emissions, minimizing the use of agricultural land and water, and potentially helping in the management of +chronic conditions such as autoimmune diseases, diabetes, cancer, and cardiovascular diseases. +After selling our entire inventory of protein +bar SKUs, we are currently assessing market reception and evaluating potential business models. We are also exploring new copackers to +secure more competitive pricing and are in the process of developing a third SKU to further expand our protein bar offerings. This includes +white labeling our proprietary formulas and licensing rights for various territories. As of now, we have not resumed the manufacturing +or sale of our protein bars. +In addition to human nutrition, the Company has +created a proprietary formula for dog pain relief treats. Last year, we successfully sold the exclusive licensing rights for this formula +in Mexico, and we are currently exploring white labeling and expanded licensing opportunities in other markets. +Through these initiatives, we remain committed +to delivering sustainable, health-conscious solutions for human and pet nutrition while strategically expanding our market presence. +As part of our growth strategy, we introduced +an affiliate commission program last year. We plan to expand it to enhance our market reach and sales performance. +In August 2025, the Company executed a Letter +of Intent (“LOI”) with Peppermint Hippo™ to establish a nightlife and hospitality division. Pursuant to the LOI, the +Company intends to acquire Peppermint Hippo Toledo as its initial property, followed by a phased national expansion that includes several +Peppermint Hippo locations and additional affiliated brands owned or operated by Peppermint Hippo. This transaction represents a strategic +expansion of the Company’s operations into the nightlife and hospitality sector. +Furthermore, as part of our long-term strategic +direction, we are actively exploring opportunities in the green business sector , which includes industries and enterprises that +prioritize environmental sustainability and eco-friendly practices while generating economic value. These are businesses that aim to reduce +environmental impact, conserve natural resources, and promote sustainable development. However, at this time, no definitive plans have +been established. +Sales +The Company is currently generating revenue through +the sale of Licensing Rights and Distribution Rights for specific territories. These rights are purchased in advance of product completion +to secure exclusive access to the designated regions. Additionally, last year, we sold the licensing rights for our dog pain relief product +in Mexico and generated income from our affiliate commission program. +1 +Industry +The Global Edible Insects Market was estimated +to reach $1.8 billion in 2025. In terms of value, the edible insect market is expected to grow at a CAGR (compound annual growth rate) +of 26.5% from 2020 to 2027, reaching $4.63 billion by 2027. Moreover, in terms of volume, the edible insect market is expected to grow +at a CAGR of 28.5% from 2020 to 2027, reaching 13,988,626 tons by 2027. +Aspire Food Group, once a provider of insect snacks +online, now focuses on cricket protein powder and is reportedly the largest supplier in the ingredients space. Aspire reports that about +80% of its cricket protein inventory is used for pet food, but it is designed to be edible for humans as well, with a growing interest +in its use as a food ingredient. Aspire has also established a production facility in Ontario, Canada, capable of producing 20,000 metric +tons of food-grade cricket protein and frass (cricket waste used for fertilizer) per year. +Significant capital is flowing into the insect +protein space. Aspire has raised $21.6 million in funding, according to Crunchbase data. Consumers are also showing increased interest +in alternative protein sources beyond traditional beef, pork, and chicken. According to Barclays, the edible insect industry could be +worth $8 billion by 2030, up from under $1 billion last year. +The plant-based meat market generated revenue +of $4.2 billion globally in 2018, driven primarily by companies such as Impossible Foods and Beyond Meat. According to Grand View Research, +the global insect protein market was worth $250 million in 2020 and is projected to grow at a CAGR of 27.4% from 2021 to 2028. +Competition +Some of the key competitors in the edible insect +market include: +Protifarm Holding NV +EntomoFarms +Haocheng Mealworms Inc. +Agriprotein (Insect Technology Group Holdings U.K. Ltd.) +Ynsect SAS +Deli Bugs Ltd. +Hargol FoodTech +Aspire Food Group +All Things Bugs, LLC +Tiny Farms +Global Bugs Asia Co., Ltd. +Beta Hatch Inc. +EntoCube Ltd. +Rocky Mountain Micro Ranch +Armstrong Cricket Farm Georgia +EnviroFlight Corporation +SFly Comgraf SAS +Hexafly +F4F SpA +Protix B.V. +InnovaFeed +Nutrition Technologies Group +Protenga Pte Ltd. +nextProtein S.A.S. +Protix Ynsect Innovafeed +Some of these companies will serve as suppliers +for UP Proteins. With a readily available variety of insect sources, UP Proteins will be able to negotiate an ample supply while benefiting +from cost reductions as production facilities expand. +UP Protein Nutrition Products +Product Description +UP Proteins offers high-protein energy products +made with premium ingredients. All UP Proteins products are: +Non-GMO +Non-Dairy +Gluten-Free +Low in sugar, containing only natural sweeteners from dried fruits, berries, +and natural sugar substitutes +Our focus is on delivering both health and taste, +carefully selecting ingredients that align with a balanced diet. The core protein source in UP Proteins products is an Orthoptera Protein +blend, which includes cricket powder and other plant-based protein sources. +UP Proteins products cater to consumers seeking +nutritious, environmentally conscious options, including vegetarians who avoid animal and dairy products and those following a paleo diet, +which prioritizes meat, fish, and eggs while excluding grains and legumes. Insects serve as an innovative protein source that does not +carry the environmental and ethical concerns associated with conventional livestock farming. +Sustainability and Market Potential +Research from the University of Copenhagen highlights +insects as an exceptionally sustainable protein source. According to the United Nations, global livestock farming contributes over 14.5% +of greenhouse gas emissions. In contrast, cricket farming is 20 times more efficient in protein production compared to cattle, producing +80 times less methane. Additionally, insect farming utilizes organic waste as feed, reducing the need for grain-based animal feed that +demands significant energy and water resources. +2 +UP Protein Bar: A Fusion of Vegan and Paleo Nutrition +The UP Protein Bar offers a unique combination +of vegan and paleo nutrition principles by replacing conventional animal proteins with insect-based protein. Each bar is crafted to deliver +optimal health benefits without compromising on taste, texture, or appearance. Our formulation blends cricket powder with other nutritious +ingredients to create a high-quality, sustainable, and delicious snack option. +UP Proteins is proud to be at the forefront of +this movement, offering innovative, sustainable, and nutritionally superior products that cater to health-conscious consumers worldwide. +FORMULA FOR DOGS +On December 7, 2022, the Company acquired a proprietary +formula for natural pain relief for animals from BearCreek Resources, Corp. for a total consideration of $30,000. This acquisition granted +the Company full ownership and all associated rights to the formula, with no ongoing royalty obligations or additional payments required. +The formula is designed to provide safe, effective, and natural pain relief for dogs, potentially addressing a significant market demand +in the pet health industry. +Licensing and Revenue Strategy +Given the high cost associated with initial manufacturing, +quality control, and regulatory compliance, the Company opted to monetize the formula through licensing. This strategy allows the Company +to generate revenue while minimizing upfront capital expenditures related to production and distribution. +To date, revenue has been derived from the sale +of non-exclusive licensing rights to third parties interested in utilizing the pain relief formula. Additionally, on December 7, 2022, +the Company entered into an exclusive licensing agreement with BearCreek Resources, Corp., further solidifying its strategic approach +to leveraging the formula's market potential. +Future Plans and Market Potential +The global pet healthcare market is experiencing +steady growth, with a rising demand for alternative and natural remedies for dog pain management. The Company's long-term strategy is +to continue licensing the formula while building the financial and operational capacity to manufacture, brand, and market the product +directly. Once sufficient revenue is generated, this transition will be pursued, ensuring a scalable and profitable expansion into the +pet health sector. +By adopting this phased approach, the Company +aims to position itself as a leading provider of natural pain relief solutions for animals while maximizing shareholder value and market +penetration. +Regulation +Our business is subject to regulation by federal +and state laws in the United States and the laws of other jurisdictions in which we do business. +Advertising and promotional information presented +on our websites and in our products, and our other marketing and promotional activities, are subject to federal and state consumer protection +laws that regulate unfair and deceptive practices. U.S. federal, state, and foreign legislatures have also adopted laws and regulations +regulating numerous other aspects of our business. Regulations relating to the Internet, including laws governing online content, user +privacy, taxation, liability for third-party activities and jurisdiction, are particularly relevant to our business. Such laws and regulations +are discussed below. +Communications Decency Act . The CDA +regulates content of material on the Internet and provides immunity to Internet service providers and providers of interactive computer +services for certain claims based on content posted by third parties. The CDA and the case law interpreting it generally provide that +domain name registrars and website hosting providers cannot be liable for defamatory or obscene content posted by customers on their servers +unless they participate in creating or developing the content. +Digital Millennium Copyright Act . The +DMCA provides a safe harbor from liability for third-party copyright infringement. To qualify for the safe harbor, however, registrars +and website hosting providers must satisfy numerous requirements, including adoption of a user policy that provides for termination of +service access of users who are repeat infringers, informing users of this policy, and implementing the policy in a reasonable manner. +In addition, registrars and website hosting providers must expeditiously remove or disable access to content upon receiving a proper notice +from a copyright owner alleging infringement of its protected works. A registrar or website hosting provider that fails to comply with +these safe harbor requirements may be found liable for copyright infringement. +Lanham Act . The Lanham Act governs +trademarks and false advertising. Case law interpreting the Lanham Act has limited liability for many online service providers such as +search engines and domain name registrars. Nevertheless, there is no statutory safe harbor for trademark violations comparable to the +provisions of the DMCA and we may be subject to a variety of trademark claims in the future. +Privacy and Data Protection . In the +areas of personal privacy and data protection, the U.S. federal and various state and foreign governments have adopted or proposed limitations +on, and requirements associated with, the collection, distribution, use, storage, and security of personal information of individuals. +3 +Intellectual Property & Proprietary Rights +We consider key aspects of our business and website +to be proprietary. To protect these elements, we intend to rely on a combination of copyright, trademark, service mark, and trade secret +laws, as well as confidentiality agreements, title restrictions, and other protective measures. As of now, we have not filed for any copyrights +or trademarks. +Employees +We are a new, developing company and currently +have only one part-time employee, Andrew Read our CEO and Secretary/Treasurer. At this time there is no arrangement to pay a salary until +such time that the Company begins generating revenue from the sale of its products. We may engage independent contractors in the future. +ITEM 1A. Risk Factors +We are a smaller reporting company as defined +in Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item. +ITEM 1B. Unresolved +Staff Comments +None. +ITEM 1C. Cybersecurity +Risk Management and Strategy +We periodically assess risks from cybersecurity +threats, and monitor our information systems for potential vulnerabilities. However, to date, given the small size of our company and +the nature of our operations, our reliance on information systems has been limited to the use of standard off-the-shelf software (such +as Google, QuickBooks and Microsoft Office) and the use by our employees of standard personal computers. Accordingly, management has not +implemented any formal process for assessing, identifying, and managing risks from cybersecurity threats. +Risks from cybersecurity threats have, to date, +not materially affected us, our business strategy, results of operations or financial condition. +Governance +As discussed above, given the nature of our current +operations and our experience to date, we do not currently perceive cybersecurity as a particularly significant risk to our business. +Accordingly, we have not tasked our Board of Directors with any additional cybersecurity oversight duties, or designated any committee +of the Board of Directors to specifically oversee cybersecurity risks to our business. +ITEM 2. Properties +Our principal executive offices consist of shared +office space owned by our CEO located at 501 Mercury Lane Brea, CA. 92821 on a month-to-month basis. +We believe that our current facilities are adequate +for our current needs. We intend to secure new facilities or expand existing facilities as necessary to support future growth. We believe +that suitable additional space will be available on commercially reasonable terms as needed to accommodate our operations. +ITEM 3. Legal Proceedings +There are no material +pending legal proceedings to which we are a party or to which any of our property is subject, nor are there any such proceedings known +to be contemplated by governmental authorities. None of our directors, officers or affiliates is involved in a proceeding adverse to our +business or has a material interest adverse to our business. +ITEM 4. Mine Safety +Disclosures +Not applicable. +4 +PART II +ITEM 5. Market for Registrant’s Common +Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +Market Information +Since inception, the Company has issued and sold +securities in transactions exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities +Act”). No such sales involved the use of an underwriter, and no underwriting discounts or commissions were paid in connection with +any of the issuances. The recipients of the securities acquired such securities for investment only and not with a view to or for sale +in connection with any distribution thereof, and appropriate restrictive legends were affixed to the share certificates or book-entry +statements issued in such transactions. The Company believes that each of the following issuances was exempt from registration under Section +4(a)(2) of the Securities Act and, where applicable, Rule 506 of Regulation D promulgated thereunder, as transactions not involving any +public offering. +On February 5, 2022, the Company issued 230,000 +shares of its common stock to the Company's CEO, a related party, at a purchase price of $0.01 per share for aggregate cash proceeds of +$2,300. +On December 28, 2023, the Company issued 22,000,000 +shares of its common stock to the Company's CEO, a related party, at a deemed price of $0.01 per share for services rendered. +During the year ended December 31, 2025, the Company +issued an aggregate of 10,520,580 shares of common stock in private transactions, consisting of 9,400,000 shares issued for services, +173,913 shares issued in exchange for an asset, and 946,667 shares issued for cash. Such issuances were made to a limited number of non-affiliated +individuals and non-affiliated entities as follows: +· On June 8, 2025, the Company issued 1,500,000 shares of common stock to +a non-affiliated entity for services. +· On June 9, 2025, the Company issued 1,000,000 shares of common stock to +a non-affiliated individual for services. +· On July 5, 2025, the Company issued 500,000 shares of common stock to a +non-affiliated individual for services. +· On July 8, 2025, the Company issued 1,000,000 shares of common stock to +a non-affiliated entity for services. +· On July 29, 2025, the Company issued 66,667 shares of common stock to a +non-affiliated individual for cash. +· On August 20, 2025, the Company issued 173,913 shares of common stock to +a non-affiliated entity in exchange for an asset. +· On September 23, 2025, the Company issued 200,000 shares of common stock +to a non-affiliated individual for services. +· On October 10, 2025, the Company issued 500,000 shares of common stock to +a non-affiliated entity for services. +· On October 15, 2025, the Company issued an aggregate of 1,780,000 shares +of common stock, consisting of 1,500,000 shares issued to a non-affiliated entity for services and 280,000 shares issued to a non-affiliated +individual for cash. +· On November 1, 2025, the Company issued 1,400,000 shares of common stock +to a non-affiliated individual for services. +· On November 3, 2025, the Company issued 1,000,000 shares of common stock +to a non-affiliated individual for services. +· On November 12, 2025, the Company issued 1,000,000 shares of common stock +to a non-affiliated individual for services. +· On November 28, 2025, the Company issued 400,000 shares of common stock +to a non-affiliated individual for cash. +During the year ended December 31, 2025, the Company also issued warrants +to purchase an aggregate of 946,667 shares of common stock to one non-affiliated individual, as follows: +· On July 29, 2025, the Company issued a warrant to purchase 66,667 shares of common stock to a +non-affiliated individual at an exercise price of $0.30 per share. The warrant expires on July 29, 2028, and is exercisable for cash. +· On September 8, 2025, the Company issued a warrant to purchase 200,000 shares of common stock +to a non-affiliated individual at an exercise price of $0.10 per share. The warrant expires on September 8, 2028, and is exercisable for +cash. +· On October 15, 2025, the Company issued a warrant to purchase 280,000 shares of common stock +to a non-affiliated individual at an exercise price of $0.05 per share. The warrant expires on October 15, 2028, and is exercisable for +cash. +· On November 28, 2025, the Company issued a warrant to purchase 400,000 shares of common stock +to a non-affiliated individual at an exercise price of $0.05 per share. The warrant expires on November 28, 2028, and is exercisable for +cash. +In addition, the Company issued 6,940,000 shares +of common stock in a Rule 506 offering under Regulation D at an offering price of $0.01 per share for aggregate gross proceeds of $69,400. +None of the investors in such offering were affiliates of the Company’s directors, officers, promoters, or beneficial owners of +more than 10% of the Company’s securities. +ITEM 6. Selected Financial +Data +We are a smaller reporting company as defined +by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item. +5 +ITEM 7. Management's Discussion and +Analysis of Financial Condition and Results of Operations +The following discussion and analysis of our +financial condition and results of operations should be read in conjunction with our financial statements and the related notes to those +statements included elsewhere in this Annual report on Form 10-K. In addition to historical financial information, the following discussion +and analysis contain forward-looking statements involving risks, uncertainties, and assumptions. Our actual results and timing of selected +events may differ materially from those anticipated in these forward-looking statements due to many factors, including, but not limited +to, those discussed under the section titled “Risk Factors” and elsewhere in this prospectus. See the section titled “Special +Note Regarding Forward-Looking Statements” elsewhere in this prospectus. +Overview +Tradewinds Universal, Inc. is a holding company +focused on developing, acquiring, and commercializing businesses with long-term growth potential. Historically, the Company’s operations +have centered on the development and marketing of functional food products, including high-protein nutrition bars under the Universal +Proteins (“UP”) brand, as well as the development and licensing of a canine pain relief formula. During 2024 and 2025, the +Company shifted its strategic focus away from physical product sales toward licensing, distribution rights, and technology-enabled assets, +including the acquisition of intangible assets through non-cash transactions. +The Company has not yet achieved profitability +and continues to incur operating losses as it invests in product development, licensing arrangements, professional services, and public +company compliance. Management believes these activities are necessary to position the Company for future revenue growth, although there +can be no assurance that such efforts will be successful. +Results of Operations +Comparison of the Years Ended December 31, +2025 and 2024 +Revenue +For the year ended December 31, 2025, the Company +generated total revenues of approximately $133,222. Revenue during 2025 was primarily derived from the sale of distribution and licensing +rights. By comparison, for the year ended December 31, 2024, the Company generated revenues of approximately $171,596, which consisted +primarily of affiliate marketing commissions, licensing activity, and sales of the Company’s UP protein bars. The decrease in revenue +of $38,374 year-over-year was attributable to the discontinuation of physical product sales and a reduction in affiliate marketing activity +as the Company transitioned its business model toward licensing and distribution arrangements. +Cost of Goods Sold +For the year ended December 31, 2025, the Company +recorded no cost of goods sold, as revenues were derived from licensing and distribution rights that did not carry direct production or +fulfillment costs. For the year ended December 31, 2024, cost of goods sold totaled approximately $21,645, reflecting manufacturing and +fulfillment costs associated with sales of the Company’s UP protein bars. +Gross Profit +As a result of the absence of cost of goods sold +in 2025, gross profit for the year ended December 31, 2025 was equal to total revenues of approximately $133,222, representing a gross +margin of 100%. For the year ended December 31, 2024, gross profit totaled approximately $149,951, reflecting a gross margin of approximately +87%. The decline in gross profit was primarily driven by lower overall revenues, partially offset by improved margins due to the shift +away from physical products. +Operating Expenses +Total operating expenses for the year ended December +31, 2025 were approximately $1,026,099, compared to approximately $219,323 for the year ended December 31, 2024. The increase in operating +expenses was driven primarily by the sharp rise in consulting expense to $835,660 in 2025 from +$5,133 in 2024, along with amortization of $14,800 and +higher general and administrative costs, partially offset by lower marketing expense. The increase in operating expenses was primarily +attributable to higher consulting and professional fees incurred in connection with business development activities, strategic advisory +services, and the Company’s transition toward licensing and distribution-based operations. These increases were partially offset +by lower marketing expenses following the discontinuation of UP protein bar sales. +Net Loss +For the year ended December 31, 2025, the Company +recorded a net loss of approximately $892,877, compared to a net loss of approximately $115,743 for the year ended December 31, 2024. +The increase in net loss was primarily driven by the increase in consulting expense, including non-cash stock-based compensation/stock +issued for services, plus higher amortization and general and administrative costs, partially offset by the absence of cost of goods sold +in 2025. +Liquidity and Capital Resources +As of December 31, 2025, the Company had total +assets of approximately $307,333, compared to total assets of approximately $31,510 as of December 31, 2024. The increase in total assets +was primarily attributable to the acquisition of intangible assets and increases in accounts receivable and prepaid expenses associated +with licensing and distribution activities. +6 +The Company had no significant liabilities as +of December 31, 2025. Stockholders’ equity totaled approximately $307,333 at December 31, 2025, compared to approximately $31,510 +at December 31, 2024. The increase in stockholders’ equity was primarily the result of equity issuances for cash, services, and +asset acquisitions during 2025. +Despite the increase in assets and equity, the +Company had limited cash on hand at December 31, 2025 and an accumulated deficit of approximately $1,183,067. In addition the company +has cash of $16,638 , accounts receivable of $48,750 , +and prepaid expenses of $25,445 .These conditions raise substantial doubt about the Company’s +ability to continue as a going concern. The Company will require additional capital to fund ongoing operations and future growth initiatives. +Management intends to pursue additional equity financing, licensing revenue growth, and strategic partnerships; however, there can be +no assurance that such financing or revenue will be available on acceptable terms, or at all. +Cash Flow Overview +The Company has historically funded operations +primarily through equity issuances. During 2025, financing activities consisted mainly of proceeds from the issuance of common stock for +cash, services, and asset acquisitions. Net cash used in operating activities was $(577,572) +for 2025, reflecting the net loss adjusted for non-cash stock-based compensation of $ 894,700, +amortization of $14,800 , and changes in working capital, including increases in prepaid expenses +and accounts receivable. Net cash used in investing activities was $(200,000) , primarily +related to the acquisition of intangible assets. Net cash provided by financing activities was $74,000 , +primarily from the issuance of common stock for cash. +Off-Balance Sheet Arrangements +The Company does not have any off-balance sheet +arrangements, special purpose entities, or other relationships that would have a material effect on its financial condition or results +of operations. +Critical Accounting Policies and Estimates +The Company’s financial statements are prepared +in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements +requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. +Significant estimates include the valuation and impairment of intangible assets, stock-based compensation, and the recognition of revenue +from licensing and distribution agreements. Actual results may differ from those estimates. +Outlook +Management expects operating expenses to remain +elevated as the Company continues to develop licensing opportunities, pursue strategic acquisitions, and meet its obligations as a public +company. While management believes that the Company’s strategic shift toward licensing and distribution may provide improved margins +and scalability, the Company expects to continue incurring net losses in the near term. The Company’s ability to achieve profitability +will depend on its ability to generate sustainable revenues, control operating costs, and secure additional financing as needed. +Item 7A. Quantitative and Qualitative Disclosures +about Market Risk +Not applicable to smaller reporting companies. +7 +Item 8. Financial Statements and Supplementary +Data +Financial Statements +Tradewinds +Universal +Table of Contents +December 31, 2025 +Financial Statements +Report +of Independent Registered Public Accounting Firm (PCAOB #0 5525 ) +F-2 +Report of Independent +Registered Public Accounting Firm (PCAOB ID 6920 ) +F-3 +Balance Sheets as of December 31, 2025 and December 31, 2024 +F-4 +Statements of Operations for the Years ended December 31, 2025 and 2024 +F-5 +Statements of Changes in Stockholders’ Equity for the Years ended December 31, 2025 and 2024 +F-6 +Statements of Cash Flow for the Years ended December 31, 2025 and 2024 +F-7 +Notes to the Financial Statements +F-8 +F- 1 +REPORT OF INDEPENDENT REGISTERED PUBLIC +ACCOUNTING FIRM +To the Board of Directors and Stockholders of Tradewinds +Universal +Opinion on the Financial Statements +We have audited the accompanying balance sheet +of Tradewinds Universal (“the Company”) as of December 31, 2025, and the related statements of operations, changes in stockholders’ +equity, and cash flows for the year then ended, and the related notes (collectively referred to as the financial statements). In our opinion, +the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025, and +the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted +in the United States of America. +Going Concern +The accompanying financial statements have been +prepared assuming that the Company will continue as a going concern. As discussed in Note 6 to the financial statements, the Company has +a history of accumulated deficits. This factor, among others, raises substantial doubt about the Company’s ability to continue as +a going concern. Management’s plans in regard to these matters are also described in Note 6. The financial statements do not include +any adjustments that might result from the outcome of this uncertainty. +Basis for Opinion +These financial statements are the responsibility +of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our +audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required +to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations +of the Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance with the +standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial +statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged +to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding +of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s +internal control over financial reporting. Accordingly, we express no such opinion. +Our audits included performing procedures to assess +the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond +to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. +Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating +the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. +Critical Audit Matters +Critical audit matters are matters arising from +the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and +that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, +subjective, or complex judgments. We determined that there were no critical audit matters. +Fruci & Associates II, PLLC – PCAOB ID #05525 +We have served as the Company’s auditor since 2025. +Spokane, Washington +April 14, 2026 +F- 2 +REPORT OF INDEPENDENT REGISTERED +PUBLIC ACCOUNTING FIRM +To the Board of Directors and Stockholders of Tradewinds +Universal +Opinion on the Financial Statements +We have audited the accompanying +balance sheets of Tradewinds Universal (the Company) as of December 31, 2024 and 2023, and the related statements of operations, stockholders’ +equity, and cash flows for each of the years in the two-year period ended December 31, 2024, and the related notes (collectively referred +to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position +of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the years in the two-year +period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America. +Substantial Doubt about the Company’s +Ability to Continue as a Going Concern +The accompanying financial statements +have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the +Company has not yet established an ongoing source of revenue sufficient to cover operating costs. These conditions raise substantial doubt +about its ability to continue as a going concern. Management’s plans regarding these matters are also described in Note 3. The financial +statements do not include any adjustments that might result from the outcome of this uncertainty. +Basis for Opinion +These financial statements are the +responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements +based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) +and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable +rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance +with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether +the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were +we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an +understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the +Company’s internal control over financial reporting. Accordingly, we express no such opinion. +Our audits included performing procedures +to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that +respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial +statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as +evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. +/s/ Astra Audit & Advisory +LLC +We have served as the +Company’s auditor since 2024. +Astra Audit & Advisory, +LLC +Tampa, FL +March 31, 2025 +F- 3 +TRADEWINDS +UNIVERSAL +Balance Sheets +as of December 31, 2025 and December 31, 2024 +December +31, +2025 +December +31, +2024 +ASSETS +Current Assets +Cash and Cash Equivalents +$ 16,638 +$ 210 +Prepaid Expense +25,445 +— +Accounts Receivable +48,750 +— +Total Current Assets +90,833 +210 +Other Assets-Intangible Assets +Intangible Asset - AI App -net of Amortization +190,000 +31,300 +Formula-Pets-net +25,000 +— +Trademarks +1,500 +— +Total Other Assets (net) +$ 216,500 +$ 31,300 +Total Assets +307,333 +31,510 +Liabilities and Stockholders' Equity +Accounts Payable +$ — +$ — +Total Current Liabilities +— +— +Total Liabilities +— +— +Commitments and Contingencies (Note 3) +— +— +Stockholders' Equity +Common stock, $ 0.001 par value, 75,000,000 shares authorized, 42,690,580 issued and outstanding at December 31, 2025 and 32,170,000 issued and outstanding at December 31, 2024 +42,691 +32,170 +Additional Paid in Capital +1,447,709 +289,530 +Accumulated Deficit +( 1,183,067 ) +( 290,190 ) +Total Stockholders' Equity +307,333 +31,510 +Total Liabilities and Stockholders' Equity +$ 307,333 +$ 31,510 +The +accompanying notes are an integral part of these audited financial statements +F- 4 +TRADEWINDS +UNIVERSAL +STATEMENTS OF OPERATIONS +For the Years ended December 31, 2025 and 2024 +December +31, +2025 +December +31, +2024 +Revenue +$ 133,222 +$ 171,596 +Cost of Goods Sold +— +21,645 +Gross Profit +133,222 +149,951 +Operating Expenses +Marketing +60,695 +148,093 +Professional Fees +33,108 +51,838 +Consulting +886,105 +5,133 +Amortization +14,800 +4,800 +General and Administrative +31,392 +4,459 +Loss on Impairment +— +5,000 +Total Operating Expenses +1,026,099 +219,323 +Net Loss Before Taxes +( 892,877 ) +( 69,372 ) +Provision for Income Tax +— +( 46,371 +Net Loss +$ ( 892,877 ) +$ ( 115,743 ) +Net Loss Per Share – Basic and Diluted +$ ( 0.01 ) +$ ( 0.01 ) +Basic and diluted weighted average shares used in the calculation of net loss per common share +35,527,656 +32,170,000 +The +accompanying notes are an integral part of these audited financial statements. +F- 5 +TRADEWINDS +UNIVERSAL +STATEMENTS OF CHANGES IN STOCKHOLDERS’ +EQUITY +FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024 +Common +Shares +Common +Shares Amount +Additional +Paid-in Capital +Accumulated +Deficit +Total +Stockholders’ Equity +Balance +December 31, 2022 +6,970,000 +$ 6,970 +$ 62,730 +$ 7,744 +$ 77,444 +Shares issued for services +22,000,000 +22,000 +198,000 +— +220,000 +Shares issued for cash +3,200,000 +3,200 +28,800 +— +32,000 +Net Loss +— +— +— +( 182,191 ) +( 182,191 ) +Balance +December 31, 2023 +32,170,000 +$ 32,170 +$ 289,530 +$ ( 174,447 ) +$ 147,253 +Net Loss +— +— +— +( 115,743 ) +( 115,743 ) +Balance +December 31, 2024 +32,170,000 +$ 32,170 +$ 289,530 +$ ( 290,190 ) +$ 31,510 +Shares Issued for Services +9,400,000 +9,400 +885,300 +— +894,700 +Shares Issued for Cash +946,667 +947 +73,053 +— +74,000 +Shares Issued for Asset +173,913 +174 +199,826 +— +200,000 +Net Loss +— +— +— +( 892,877 ) +( 892,877 ) +Balance +December 31, 2025 +42,690,580 +$ 42,691 +$ 1,447,709 +$ ( 1,183,067 ) +$ 307,333 +The +accompanying notes are an integral part of these audited financial statements +F- 6 +TRADEWINDS +UNIVERSAL +STATEMENTS +OF CASH FLOW +For the Years +Ended December 31, 2025 and 2024 +December +31, 2025 +December +31, 2024 +Operating Activities +Net Loss +$ ( 892,877 ) +$ ( 115,743 ) +Adjustments to Reconcile Net Loss to Net Cash from Operating Activities +Deferred Taxes +— +46,371 +Amortization +14,800 +4,800 +Stock Based compensation +894,700 +— +Impairment of Intangible Assets +— +5,000 +Changes in Operating Assets and Liabilities +Inventory +— +18,076 +Prepaid Expense +( 25,445 ) +13,493 +Accounts Receivable +( 48,750 ) +— +Net Cash Used in Operating Activities +( 57,572 ) +( 28,003 ) +Investing Activities +Intangible assets +— +— +Net Cash Provided by Investing Activities +— +— +Financing Activities +Common Stock +74,000 +— +Net Cash from Financing Activities +74,000 +— +Net Change in Cash and Cash Equivalents +16,428 +( 28,003 ) +Cash and Cash Equivalents at Beginning of Period +210 +28,213 +Cash and Cash Equivalents at End of Period +$ 16,638 +$ 210 +Supplemental Cash Flow Information +Cash Paid +for Interest +$ — +$ — +Cash Paid +for Taxes +$ — +$ — +Supplemental Non-Cash Investing +and Financing Activities +Prepaid Expense (non-cash future payment) +$ 25,445 +$ — +Purchase of Intangible Asset (shares issued, non-cash transaction) +$ 200,000 +$ — +The +accompanying notes are an integral part of these audited financial statements +F- 7 +TRADEWINDS +UNIVERSAL +NOTES TO THE AUDITED FINANCIAL STATEMENTS +December 31, 2025 +Note 1 – Nature of Operations +Nature of Operations +Tradewinds Universal, Inc. (the “Company”) +was incorporated in the State of Wyoming on December 28, 2021. The Company operates as a holding company focused on acquiring, developing, +and managing businesses with long-term value, resilience, and growth potential. +The Company’s initial operations focused +on the development and distribution of high-nutrition foods and beverages, including edible insect protein-based products. In 2022, the +Company acquired a canine pain relief formula for development into pet-related products. During the year ended December 31, 2025, the +Company expanded its strategic focus to include distribution and licensing activities. +In August 2025, the Company signed a Letter +of Intent with Peppermint Hippo™, a company that generates an estimated $30 million in annual revenue, to launch a nightlife and +hospitality division. This will begin with the planned acquisition of Peppermint Hippo Toledo and a staged rollout of several additional +clubs across the country. +Note 2 - Summary of Significant Accounting +Policies +Basis of Presentation +The accompanying audited financial statements +have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and +the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of management, all adjustments, +consisting of normal recurring adjustments, necessary for a fair presentation of the Company’s financial position, results of operations, +and cash flows for the years ended December 31, 2025 and December 31, 2024 have been included. +Estimates +The preparation of the financial statement in +conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts. Accordingly, actual results +could differ from those estimates. +Cash And Cash Equivalents +The Company maintains a cash balance in a non-interest-bearing +account that currently does not exceed federally insured limits. For the purpose of the statements of cash flows, all highly liquid investments +with an original maturity of three months or less are considered to be cash equivalents. There were no cash equivalents as of December +31, 2025 and December 31, 2024. +Accounts Receivable +Accounts receivable consist of trade receivables +and are stated at the amount management expects to collect. As of December 31, 2025, accounts receivable totaled $ 48,750 and were due +from one customer. There were no accounts receivable as of December 31, 2024. +The Company evaluates accounts receivable for +expected credit losses in accordance with ASC 326, Financial Instruments—Credit Losses . In estimating expected credit losses, +management considers relevant available information, including historical collection experience, the financial condition and creditworthiness +of the customer, current economic conditions, and reasonable and supportable forecasts of future conditions that may affect collectibility. +Because the Company had no prior history of credit losses, the receivable balance at December 31, 2025 was due from a single customer +with no history of delinquency or default, and management was not aware of any current or expected future events that would materially +affect the customer’s ability to pay, no allowance for credit losses was recorded as of December 31, 2025. All accounts receivable +were considered collectible. +Prepaid Expenses +Prepaid expenses consist primarily of payments made for services to +be received in future periods and are expensed as the services are consumed. As of December 31, 2025, prepaid expenses totaled $ 25,445 . +There were no prepaid expenses as of December 31, 2024. +F- 8 +TRADEWINDS UNIVERSAL +NOTES TO THE AUDITED FINANCIAL STATEMENTS +December 31, 2025 +Intangible Asset +Intangible assets are recorded at cost and amortized +over their estimated useful lives unless determined to have an indefinite useful life. +For definite-lived intangible assets, the Company +evaluates impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. +If such indicators are present, the Company compares the expected undiscounted future cash flows attributable to the asset to its carrying +amount. If the carrying amount exceeds the expected undiscounted future cash flows, an impairment loss is recognized for the amount by +which the carrying amount exceeds the asset’s fair value. +Indefinite-lived intangible assets are not amortized +but are evaluated for impairment at least annually, or more frequently if events or changes in circumstances indicate that it is more +likely than not that the asset is impaired. An impairment loss is recognized for the amount by which the carrying value exceeds the asset’s +estimated fair value. +As of December 31, 2025, the Company’s intangible +assets consisted of the following: +· AI App, net $ 190,000 +· Formula-Pets $ 25,000 +· Trademarks $ 1,500 +· Website, net $ 0 +Total intangible assets at gross amounted to $ 233,900 . +Accumulated amortization totaled $ 14,800 , and the Company recorded an impairment loss of $ 5,000 related to the Formula – Pets intangible +asset at year ended December 31, 2024. Total intangible assets, net, were $ 216,500 as of December 31, 2025. There was no impairment recorded +as of December 31, 2025. +As of December 31, 2024, the Company’s intangible +assets consisted of intangible assets of $ 31,300 and the Company recorded an impairment loss of $ 5,000 related to the Formula – +Pets intangible asset. +Finite-lived intangible assets are amortized on +a straight-line basis over their estimated useful lives. The Company’s AI application is amortized over five years, and the Company’s +website was amortized over two years. As of December 31, 2025, the website was fully amortized. Indefinite-lived intangible assets are +not amortized but are tested for impairment at least annually, or more frequently if events or changes in circumstances indicate that +the asset may be impaired. Amortization expense for the year ended December 31, 2025 was $ 14,800 , and amortization expense for the year +ended December 31, 2024 was $ 4,800 . +Stock Compensation +The Company accounts for stock-based compensation +in accordance with ASC 718, Compensation—Stock Compensation . Stock-based compensation expense is recognized based on the +fair value of equity instruments issued. +The Company is authorized to issue 75,000,000 +shares of common stock, par value .001 per share. As of December 31, 2025, there were 42,690,580 shares of common stock issued and outstanding. +( See: Note 5 Shareholders' Equity ) +The Company issued 9,400,000 shares of common +stock as compensation for services during the year ended December 31, 2025 +There were no shares issued for services during +the year ended December 31, 2024. +Impairment Of Long-Lived Assets +The Company accounts for impairment of intangible assets in accordance +with ASC 350, Intangibles—Goodwill and Other . Definite-lived intangible assets are evaluated for impairment whenever events +or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Indefinite-lived intangible assets are +not amortized but are tested for impairment at least annually, or more frequently if events or changes in circumstances indicate potential +impairment. During the year ended December 31, 2024, the Company recorded an impairment charge of $ 5,000 related to the Formula-Pets intangible +asset. No impairment charge was recorded during the year ended December 31, 2025. +As of December 31, 2025, the carrying value of the Formula-Pets intangible +asset was $ 25,000 . +F- 9 +TRADEWINDS UNIVERSAL +NOTES TO THE AUDITED FINANCIAL STATEMENTS +December 31, 2025 +Revenue Recognition +The Company accounts for revenue in accordance +with ASC 606, Revenue from Contracts with Customers . Under ASC 606, revenue is recognized when control of promised goods or services +is transferred to customers in an amount that reflects the consideration the Company expects to receive in exchange for those goods or +services. The Company applies the following five steps in determining revenue recognition: (1) identify the contract with a customer, +(2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the +performance obligations in the contract, and (5) recognize revenue when, or as, the Company satisfies a performance obligation. +The Company’s revenue is derived primarily +from distribution rights, licenses, and affiliate commissions. +For each contract, the Company first determines +whether an arrangement exists that creates enforceable rights and obligations. The Company then identifies the distinct performance obligations +promised in the contract. The transaction price is determined based on the consideration the Company expects to receive under the terms +of the arrangement, including fixed amounts and, when applicable, estimates of variable consideration to the extent it is probable that +a significant reversal of cumulative revenue recognized will not occur. When a contract contains more than one performance obligation, +the transaction price is allocated to each performance obligation based on its relative standalone selling price. +Revenue from distribution rights is recognized +at the point in time or over the period in which the customer obtains control of the contractual rights, depending on the nature of the +arrangement and the Company’s performance obligations under the contract. +Revenue from licenses is recognized when the licensed +intellectual property is made available to the customer or over the license term, depending on whether the license provides a right to +use intellectual property as it exists at a point in time or a right to access intellectual property as it evolves over time. +Revenue from affiliate commissions is recognized +at the time the underlying qualifying transaction occurs and the commission is earned, which is the point at which the Company’s +performance obligation is satisfied. +The Company evaluates each contract to determine +whether it acts as principal or agent, as applicable, and records revenue on a gross or net basis consistent with that determination. +Payment terms vary by contract but are generally due within 30 to 90 days. Amounts billed and collected in advance of satisfying the related +performance obligations are recorded as deferred revenue. +Fair Value of Financial Instruments +ASC 825, Financial Instruments , requires +disclosure of the fair value of certain financial instruments. The carrying amounts of cash and cash equivalents, accounts payable, and +accrued liabilities approximate fair value because of the short-term maturities of these instruments. The Company applies ASC 820, Fair +Value Measurement , which establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair +value into three levels: Level 1, quoted prices in active markets for identical assets or liabilities; Level 2, observable inputs other +than quoted prices included in Level 1; and Level 3, unobservable inputs reflecting the Company’s own assumptions. The Company did +not elect the fair value option for any eligible assets or liabilities under ASC 825. As of December 31, 2025 and 2024, the Company had +no financial instruments measured at fair value on a recurring basis. +Income Taxes +In accordance with ASC 740 Income Taxes , +deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement +carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using +enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or +settled. Under ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in Income in the period +that includes the enactment date. +The Company has adopted the provisions +set forth in ASC 740 to account for uncertainty in income taxes. In the preparation of income tax returns in federal and state jurisdictions, +the Company asserts certain tax positions based on its understanding and interpretation of the income tax law. The taxing authorities +may challenge such positions, and the resolution of such matters could result in recognition of Income tax expense in the Company's financial +statements. Management believes it has used reasonable judgments and conclusions in the preparation of its income tax returns. The Company +uses the "more likely than not" criterion for recognizing the tax benefit of uncertain tax positions and to establish measurement +criteria for income tax benefits. The Company' s policy is to recognize interest and/or penalties related to income tax matters in income +tax expense. The Company had no accrual for interest or penalties on its balance sheets as of December 31, 2025, and December 31, 2024. +F- 10 +TRADEWINDS UNIVERSAL +NOTES TO THE AUDITED FINANCIAL STATEMENTS +December 31, 2025 +The Company has incurred net operating losses +and has established a full valuation allowance against its deferred tax assets. As a result, no income tax expense or benefit was recorded +for the years ended December 31, 2025 or December 31, 2024. +Earnings Per Share of Common Stock +Net loss per share is computed in accordance with +ASC 260, Earnings Per Share . Basic and diluted net loss per share is calculated by dividing net loss by the weighted average number +of common shares outstanding during the period. Potentially dilutive securities were excluded from the calculation as their effect would +be anti-dilutive. +Recently Adopted Accounting Pronouncements +In December 2023, the FASB issued ASU 2023-09, +Income Taxes (Topic 740): Improvements to Income Tax Disclosures , which enhances annual income tax disclosure requirements. For +public business entities, the amendments are effective for annual periods beginning after December 15, 2024. Accordingly, the Company +adopted ASU 2023-09 for the year ended December 31, 2025. The adoption of this standard did not have an effect on the Company’s +financial position, results of operations, or cash flows, but required expanded annual income tax disclosures. +Note 3 - Commitments and Contingencies +During the normal course of business, the Company +may be exposed to litigation. When the Company becomes aware of potential litigation, it evaluates the merits of the case in accordance +with ASC 450, Contingencies . The Company evaluates its exposure to the matter, possible legal or settlement strategies and the +likelihood of an unfavorable outcome. If the Company determines that an unfavorable outcome is probable and can be reasonably estimated, +it establishes the necessary accruals. As of December 31, 2025, and December 31, 2024, the Company is not aware of any contingent liabilities +that should be reflected in the audited financial statements . +Note 4 - Segment Disclosure +ASC 280 “ Segment Reporting ”, +establishes standards for reporting information about operating segments. Operating segments are defined as components of an enterprise +about which separate financial information is available that is evaluated regularly by the CODM in deciding how to allocate resources +and in assessing performance. The Company manages its business on the basis of one reportable segment and unit and derives revenues +mainly from products, licensing rights and affiliate commissions (see Note 1 for a brief description of the Company’s business). +The Company operates as one operating +segment. Operating segments are defined as components of an enterprise for which separate financial information is regularly evaluated +by the CODM, which is the Company’s chief executive officer, who reviews financial information and annual operating plans for purposes +of making operating decisions, evaluating financial performance, and allocating resources. +The key measure of segment profit or loss +that the CODM uses to allocate resources and assess performance is the Company’s net income (loss). This is reviewed against budgeted +expectations to assess segment performance and allocate resources. The Company’s segment net loss for December 31, 2025, and +2024 consisted of the following: +Segment Disclosures for the Years Ended: +Schedule of segment disclosures +December +31, 2025 +December +31, 2024 +Sales +Revenues +$ 133,222 +$ 171,596 +Net Sales +133,222 +171,596 +Cost of Goods Sold +— +21,645 +Gross Profit +133,222 +149,951 +Sales, marketing and support +Marketing costs +60,695 +148,093 +Professional fees +33,108 +51,838 +Amortization +14,800 +4,800 +Consulting +886,105 +5,133 +General and Administrative costs +31,392 +4,459 +Loss on Impairment +— +5,000 +Net Income (Loss) Before Taxes +$ ( 892,877 ) +$ ( 69,372 ) +F- 11 +TRADEWINDS UNIVERSAL +NOTES TO THE AUDITED FINANCIAL STATEMENTS +December 31, 2025 +Note 5 – Stockholders' Equity +The Company is authorized to issue 75,000,000 +shares of common stock, par value .001 per share. As of December 31, 2025, there were 42,690,580 shares of common stock issued and outstanding. +Set forth below is information regarding the issuance +and sales of securities without registration since inception. No such sales involved the use of an underwriter; no advertising +or public solicitation was involved; the securities bear a restrictive legend; and no commissions were paid in connection with the sale +of any securities. +Since January 1, 2025, we have issued an aggregate +of 10,520,580 shares: 9,400,000 shares to 10 people for services, 173,913 shares were issued for an asset, and an aggregate of 946,667 +shares were issued to 4 people as cash investors. The related amounts recorded were as follows: shares issued for services — common +stock of $ 9,400 and additional paid-in capital of $ 754,795 ; shares issued for cash — common stock of $ 947 and additional paid-in +capital of $ 107,991 ; and shares issued for asset acquisition — common stock of $ 174 and additional paid-in capital of $ 295,393 .The +issuances were exempt from registration under Section (4)(a)(2) of the Securities Act as issuances not involving a public offering. Such +issuances were made to a limited number of non-affiliated individuals and non-affiliated entities as follows: +· On June 8, 2025, the Company issued 1,500,000 shares of common stock to +a non-affiliated entity for services. +· On June 9, 2025, the Company issued 1,000,000 shares of common stock to +a non-affiliated individual for services. +· On July 5, 2025, the Company issued 500,000 shares of common stock to a +non-affiliated individual for services. +· On July 8, 2025, the Company issued 1,000,000 shares of common stock to +a non-affiliated entity for services. +· On July 29, 2025, the Company issued 66,667 shares of common stock to a +non-affiliated individual for cash. +· On August 20, 2025, the Company issued 173,913 shares of common stock to +a non-affiliated entity in exchange for an asset. +· On September 23, 2025, the Company issued 200,000 shares of common stock +to a non-affiliated individual for services. +· On October 10, 2025, the Company issued 500,000 shares of common stock to +a non-affiliated entity for services. +· On October 15, 2025, the Company issued an aggregate of 1,780,000 shares +of common stock, consisting of 1,500,000 shares issued to a non-affiliated entity for services and 280,000 shares issued to a non-affiliated +individual for cash. +· On November 1, 2025, the Company issued 1,400,000 shares of common stock +to a non-affiliated individual for services. +· On November 3, 2025, the Company issued 1,000,000 shares of common stock +to a non-affiliated individual for services. +· On November 12, 2025, the Company issued 1,000,000 shares of common stock +to a non-affiliated individual for services. +· On November 28, 2025, the Company issued 400,000 shares of common stock +to a non-affiliated individual for cash. +On February 5, 2022, the Company issued 230,000 +shares of common stock to Andrew Read at $ .01 for $ 2,300 . On December 28, 2023, the Company issued 22,000,000 shares of common stock to +Andrew Read at $ .01 for services. The issuances were exempt from registration by reason of Section (4)(a)(2) of the Securities act as +issuances not involving a public offering. +The company issued 6,940,000 shares in a +Regulation D, Rule 506 offering which was filed with the SEC on March 11, 2022, done in compliance with Section (4)(a)(2) of the 1933 +Act, at an offering price of $ 0.01 per share, resulting in total proceeds of $ 69,400 and a sale of 6,940,000 shares in aggregate. None +of the investors are affiliated with any of our directors, officers or promoters or any beneficial owner of 10 % or more of our securities +As of December 31, 2025, the Company had 42,690,580 shares of common +stock issued and outstanding. +Warrants +During the year ended December 31, 2025, the Company +issued warrants to purchase an aggregate of 946,667 shares of common stock to the Beling Family Trust. No warrants were outstanding as +of December 31, 2024. +A summary of warrant activity for the year ended +December 31, 2025 is as follows: +Schedule of warrant activity +Warrants +Weighted Average Exercise +Price +Outstanding at December 31, 2024 +— +$ +— +Granted +946,667 +$ 0.08 +Exercised +— +$ — +Expired +— +$ — +Outstanding at December 31, 2025 +946,667 +$ 0.08 +Exercisable at December 31, 2025 +946,667 +$ 0.08 +F- 12 +TRADEWINDS UNIVERSAL +NOTES TO THE AUDITED FINANCIAL STATEMENTS +December 31, 2025 +The weighted average exercise price of warrants +granted during the year ended December 31, 2025 was $ 0.08 per share. The weighted average remaining contractual term of warrants outstanding +at December 31, 2025 was approximately 2.74 years. +Based on the Company’s common stock price +of $ 0.10 per share at December 31, 2025, the aggregate intrinsic value of warrants outstanding and exercisable was $ 34,000 .The following +table summarizes warrants outstanding at December 31, 2025: +Schedule of warrants outstanding +Grant Date +Shares Under Warrant +Exercise Price +Expiration Date +Exercise Terms +July 29, 2025 +66,667 +$ 0.30 +July 29, 2028 +Cash exercise +September 8, 2025 +200,000 +$ 0.10 +September 8, 2028 +Cash exercise +October 15, 2025 +280,000 +$ 0.05 +October 15, 2028 +Cash exercise +November 28, 2025 +400,000 +$ 0.05 +November 28, 2028 +Cash exercise +Total / Weighted Average +946,667 +$ 0.08 +We have never utilized an underwriter for an offering +of our securities. Other than the securities mentioned above, we have not issued or sold any securities. +No stock was issued to related parties during +the period. +Note 6 - Going +Concern +The Company has incurred recurring losses and, +as of December 31, 2025 and December 31, 2024, had accumulated deficits of $ 1,183,067 and $ 290,190 , respectively in addition to cash used +in operating activities of $ 57,572 and $ 28,003 , respectively. These conditions raise substantial doubt about the Company’s ability +to continue as a going concern. +The Company’s ability to continue as a going +concern is dependent upon its ability to obtain additional financing and achieve profitable operations. The accompanying financial statements +do not include any adjustments that might result from the outcome of this uncertainty. +Note 7 - Income +Taxes +The Company recognizes deferred income tax liabilities +and assets for the expected future tax consequences of events that have been recognized in the financial statements or tax returns. Under +this method, deferred tax liabilities and assets are determined based on the differences between +the financial statement carrying amounts and the tax basis of assets and liabilities using enacted tax rates in effect in the years +in which the differences are expected to reverse. +The components of the Company's reconciliation +of income taxes computed at the s tatutory rate of 21% to the income tax amount recorded as +of the years ended December 31, 2025 and 2024, are as follows: +Schedule of reconciliation of income taxes +December 31, 2025 +Rate +December 31, 2024 +Rate +Net Loss Before Taxes +( 892,877 ) +100 % +( 69,372 ) +100 % +Tax benefit at federal statutory rate +( 187,504 ) +( 21 )% +( 14,568 ) +( 21 )% +State income taxes, net of federal benefit +— +0.0 % +— +0.0 % +Change in valuation allowance +187,504 +21 % +14,568 +21 % +Provision from Income Taxes +— +0.0 % +— +0.0 % +Schedule of net deferred tax asset +December 31, 2025 +Rate +December 31, 2024 +Rate +Deferred Tax Asset +187,504 +21 % +14,568 +21 % +Less Valuation Allowance +( 187,504 ) +( 21 )% +( 14,568 ) +( 21 )% +Net Deferred Tax Asset +— +0.0 % +— +0.0 % +As of December 31, 2025, the components of the +deferred tax asset related to net loss. Due to uncertainties surrounding the Company’s ability to generate future U.S. taxable income +to realize these assets, a full valuation allowance has been established to offset the net U.S. deferred tax asset as of December 31, +2025. +F- 13 +TRADEWINDS UNIVERSAL +NOTES TO THE AUDITED FINANCIAL STATEMENTS +December 31, 2025 +Note 8 - Subsequent Events +On January 29, 2026 , the Company +entered into a Common Stock Purchase Agreement (the “Purchase Agreement”) with RH2 +Equity Partners (“RH2”), pursuant to which RH2 has committed to purchase, at the Company’s discretion and subject to +specified conditions, up to $ 10 .0 million of the Company’s common stock, par value $ 0.001 +per share. +In connection with the Purchase Agreement, the Company filed a registration +statement on Form S-1 to register for resale up to 20,000,000 +shares of common stock that have been or may be issued to RH2 under the Purchase Agreement. The registered shares are being offered +for resale by RH2, and the Company will not receive any proceeds from the resale of such shares. +No shares were issued, and no proceeds were received under the Purchase +Agreement as of December 31, 2025 . +The Company evaluated subsequent events through the date the financial +statements were issued and determined that no other subsequent events require recognition or disclosure. +F-14 +Item 9. Changes in and Disagreements +with Accountants on Accounting and Financial Disclosure +In 2025, the Company transitioned its independent +registered public accounting firm from Astra Audit & Advisory to Fruci & Associates CPAs. The change was not due to any disagreement +or issue with Accell. Accell’s audit reports for prior periods contained no adverse opinions or disclaimers of opinion and were +not qualified or modified as to uncertainty, audit scope, or accounting principles. +Item 9A. Controls and Procedures +Evaluation of Disclosure Controls and Procedures. +Our principal executive officer and principal financial officer, after evaluating the effectiveness of our disclosure controls and +procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Annual Report on Form +10-K, have concluded that, based on such evaluation, our disclosure controls and procedures were effective to ensure that information +required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, +within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to our management, including +our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions +regarding required disclosure. +Changes in Internal Control over Financial +Reporting. There were no changes in our internal control over financial reporting, identified in connection with the evaluation of +such internal control that occurred during the year ended December 31, 2025 that have materially affected, or are reasonably likely to +materially affect, our internal control over financial reporting. +Management’s Annual Report on Internal +Control over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial +reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, as a process +designed by, or under the supervision of, our principal executive officer and principal financial officer and effected by our board of +directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation +of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial +reporting includes those policies and procedures that: +● +pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; +● +provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of management and our directors; and +● +provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. +Based on our evaluation of internal controls, +our management concluded that there is a lack of segregation of duties identified. As a result our internal controls over financial reporting +were not effective as of December 31, 2025. +Because of its inherent limitations, internal +control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods +are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the +policies or procedures may deteriorate. +Item 9B. Other Information +None of our directors or executive officers adopted +or terminated a Rule 10b5-1 trading arrangement or adopted or terminated a non-Rule 10b5-1 trading arrangement (as defined in Item 408(c) +of Regulation S-K) during the year ended December 31, 2025. +Item 9C. Disclosure Regarding Foreign Jurisdictions +that Prevent Inspections +Not applicable. +8 +PART III +Item 10. Directors, Executive Officers, Promoters +and Control Persons of the Company +Directors And Executive Officers +The following table and subsequent discussion +contains the complete and accurate information concerning our directors and executive officers, their ages, term served and all of our +officers and their positions, who will serve in the same capacity with us upon completion of the offering. +Name +Age +Term Served +Title / Position(s) +Andrew Read +62 +Since December 28, 2021 +CEO, Secretary, +Treasurer and Director +There are no other persons nominated or chosen +to become directors or executive officers nor do we have any employees other than above. +Andrew Read has served as the Company’s +CEO and director since 2021. Prior to this, Andrew launched Voltage River, a solar Electric and battery integration and consulting company, +in 2011 and has worked as CEO of Voltage River since 2011. Voltage River has focused on providing net zero electrical emissions to homes +and businesses in southern California. Prior to this Andrew worked as a technical sales rep for Motorola's broadband radio division and +was instrumental in developing the public safety market for broadband radio nationwide. Prior to his time with Motorola Andrew worked +with a radio startup called Breezecom, a broadband radio company that went public while he worked as a technical sales rep for the company +developing the public safety and SCADA branch of the company. Mr. Read has worked to spread awareness, build partnerships, and create +innovative products that could make a positive impact on people's lives/health and the environment. We believe his Earth-friendly skill +set will greatly benefit the Company’s ability to move forward. +Our directors will hold office until the next +annual meeting of shareholders and the election and qualification of their successors. Directors receive no compensation for serving on +the board of directors other than reimbursement of reasonable expenses incurred in attending meetings. Officers are appointed by the board +of directors and serve at the discretion of the board. +No officer, director, or persons nominated for +such positions and no promoters or significant employee of the Company has been involved in legal proceedings that would be material to +an evaluation of officers and directors. +Item 11. Executive Compensation +The following tables set forth certain information +about compensation paid, earned or accrued for services by our Executive Officers for the years ended December 31, 2025 and 2024: +Summary Compensation Table +Name and Principal +Position (1) +Fiscal +Year +Salary +Bonus +Stock +Awards(1) +All other +Compensation +Total +Andrew Read +President and CEO, CFO +FY 2025 +$ — +$ — +$ — +$ — +$ — +Andrew Read +President and CEO, CFO +FY 2024 +$ — +$ — +$ — +$ — +$ — +Andrew Read +President and CEO, CFO(2) +FY 2023 +$ — +$ — +$ 220,000 +$ — +$ 220,000 +(1) In 2022, Andrew Read as founder of the Company acquired shares +totaling 230,000 valued at $.01 per share. +(2) On December 28, 2023, Andrew Read was issued +22,000,000 shares for services per an amended employment agreement. The shares were issued at $.01 per share, $220,000. +The compensation discussed herein addresses all +compensation awarded to, earned by, or paid to our named executive officer. +9 +There are no other stock option plans, retirement, +pension, or profit-sharing plans for the benefit of our sole officer and director other than as described herein. There are no annuity, +pension or retirement benefits proposed to be paid to the officer or director or employees in the event of retirement at normal retirement +date pursuant to any presently existing plan provided or contributed to by the Company or any of its subsidiaries, if any. +Outstanding Equity Awards at Fiscal Year-End +As of December 31, 2025, no new warrants or any +other equity awards were awarded to the executives. +Item 12. Security Ownership of Certain Beneficial +Owners and Management and Related Stockholder Matters +The following table sets forth certain information +as of December 31, 2025, concerning the number of shares of common stock beneficially owned by: (i) each person (including any group) +known to us to own more than five percent (5%) of any class of our voting securities, (ii) our director, and or (iii) our officer. Unless +otherwise indicated, the stockholder listed possesses sole voting and investment power with respect to the shares shown. +Title of Class +Name and Beneficial Owner +Amount and Nature of Beneficial Ownership +Percentage +Common Stock +Andrew Read(1)(2) +22,000,000 +52 % +(1) Andrew Read is the President and Director of the Company. +(2) On December 28, 2023 Andrew Read was issued 22,000,000 shares for +services rendered. +The percent of class is based on 42,690,580 shares +of common stock issued and outstanding as of the date of this annual report. +No Director, executive officer, affiliate or any +owner of record or beneficial owner of more than 5% of any class of voting securities of the Company is a party adversary to the Company +or has a material interest adverse to the Company. +Item 13. Certain Relationships and Related Transactions +There are no promoters of the company, and have +been none, as defined in Item 404(c)(1)(i) of Regulation S-K, other than the Company’s directors and officers. +During the year ended December 31, 2025, we had +not entered into any transactions with our sole officer or director, or persons nominated for these positions, beneficial owners of 5% +or more of our common stock, or family members of these persons wherein the amount involved in the transaction or a series of similar +transactions exceeded the lesser of $120,000 or 1% of the average of our total assets for the last three fiscal years. +Procedures for Approval of Related Party Transactions +Our Board of Directors is in charged with reviewing +and approving all potential related party transactions. All such related party transactions must then be reported under applicable SEC +rules. We have not adopted other procedures for review, or standards for approval, of such transactions, but instead review them on a +case-by-case basis. +Director Independence +The Company has no outside directors as of December +31, 2025. +Item 14. Principal Accountant Fees and Services +In 2024, the Company transitioned its independent +registered public accounting firm from Accell Audit & Compliance , P.A. to Astra Audit & Advisory. In 2025, the Company transitioned +its independent registered public accounting firm from Astra Audit & Advisory to Fruci & Associates II, PLLC. The change was not +due to any disagreement or issue with Astra. Astra’s audit reports for prior periods contained no adverse opinions or disclaimers +of opinion and were not qualified or modified as to uncertainty, audit scope, or accounting principles. During fiscal year ended December +31, 2025, we incurred approximately $23,000 in fees to our principal independent accountants for professional services rendered in +connection with the audit and approximately $18,442 in December 31, 2024. +10 +Item 15. Exhibits +Incorporated +by Reference +Filed or +Furnished +No. +Exhibit +Description +Form +Date +Filed +Number +Herewith +3.1 +Articles of Incorporation +S-1 +3.1 +12/22/2023 +3.2 +Certificate of Incorporation +S-1 +3.2 +12/22/2023 +3.3 +Bylaws +S-1 +3.3 +12/22/2023 +10.1 +Employment +Agreement +S-1 +10.1 +12/22/2023 +10.2 +Amended +Employment Agreement +S-1/A +10.2 +2/14/2024 +19.1 +Insider +Trading Policy +10-K +19.1 +3/31/2024 +31.1 +Certification of the Chief Executive Officer, as the principal executive officer and the principal financial officer, under 18 U.S.C. Section 1350, as adopted in accordance with section 302 of the Sarbanes-Oxley Act of 2002. +Filed +32.1 +Certification of the Chief Executive Officer, as the principal executive officer and the principal financial officer, under 18 U.S.C. Section 1350, as adopted in accordance with Section 906 of the Sarbanes-Oxley Act of 2002. +Furnished +101. +Interactive Data files +Filed +** Filed Herewith +11 +SIGNATURES +Pursuant to the requirements of Section 13 or 15(d) of the Securities +Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. +Dated: April 14, 2026 +TRADEWINDS UNIVERSAL +By: +/s/ Andrew Read +Andrew Read, +Chief Executive Officer +/s/ Andrew Read +Andrew Read, +Chief Financial Officer +In accordance with the requirements of the Securities Act of 1933, +as amended, this registration statement has been signed by the following persons in the capacities and on the dates stated. +SIGNATURE +TITLE +DATE +/s/ Andrew Read +Andrew Read +President/Chief Executive Officer and Director (principal executive officer) +April 14, 2026 +/s/ Andrew Read +Andrew Read +Chief Financial Officer and Director (principal accounting officer) +April 14, 2026 +12 \ No newline at end of file diff --git a/raw/filings/0001916558/2025/0001079973-26-000479/filing_metadata.csv b/raw/filings/0001916558/2025/0001079973-26-000479/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..98cbc94b3b5eb48caae450ab88c4693ac7787f15 --- /dev/null +++ b/raw/filings/0001916558/2025/0001079973-26-000479/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001916558,TRWD,Tradewinds Universal,2025,10-K,2026-04-15,2025-12-31,2026-04-14T22:57:18.000Z,0001079973-26-000479,trwd_10k-123125.htm,ANNUAL REPORT,3266628,1,1,https://www.sec.gov/Archives/edgar/data/1916558/000107997326000479/trwd_10k-123125.htm,https://www.sec.gov/Archives/edgar/data/1916558/000107997326000479/ diff --git a/raw/filings/0001916558/2025/0001079973-26-000479/item1.txt b/raw/filings/0001916558/2025/0001079973-26-000479/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..9eadfd195e1eb9699f2303bd8c1231fd90f33ad9 --- /dev/null +++ b/raw/filings/0001916558/2025/0001079973-26-000479/item1.txt @@ -0,0 +1,186 @@ +Item 1. Description of Business +Overview +Corporate History +The Company was incorporated in Wyoming on December +28, 2021, with a mission to develop, manufacture, and distribute nutrient-based edible insect foods under the brand "Universal Protein +(UP)," also known as UP Proteins. The product line includes protein bars, shakes, and various nutritional foods, snacks, and beverages. +Additionally, the Company has acquired a proprietary formula for the development, manufacturing, and distribution of dog treats designed +to alleviate pain. +BUSINESS OVERVIEW +The Company focuses on identifying market opportunities +and strategic partnerships for its product offerings. Our primary emphasis is on the formulation, manufacturing, marketing, and distribution +of UP Proteins nutritional products, which include protein bars, powders, drinks, cookies, and other health-conscious items. These products +feature human-grade protein sourced from insects, aligning with our commitment to sustainable and innovative nutrition. The acronym "UP" +(Universal Protein) reflects our vision of delivering high-quality, eco-friendly protein alternatives. +Edible insects provide substantial nutritional +benefits, including high levels of vitamin B12, iron, zinc, fiber, essential amino acids, omega-3 and omega-6 fatty acids, and antioxidants. +Beyond individual health benefits, incorporating edible insects like crickets into the human diet supports environmental sustainability +by reducing greenhouse gas emissions, minimizing the use of agricultural land and water, and potentially helping in the management of +chronic conditions such as autoimmune diseases, diabetes, cancer, and cardiovascular diseases. +After selling our entire inventory of protein +bar SKUs, we are currently assessing market reception and evaluating potential business models. We are also exploring new copackers to +secure more competitive pricing and are in the process of developing a third SKU to further expand our protein bar offerings. This includes +white labeling our proprietary formulas and licensing rights for various territories. As of now, we have not resumed the manufacturing +or sale of our protein bars. +In addition to human nutrition, the Company has +created a proprietary formula for dog pain relief treats. Last year, we successfully sold the exclusive licensing rights for this formula +in Mexico, and we are currently exploring white labeling and expanded licensing opportunities in other markets. +Through these initiatives, we remain committed +to delivering sustainable, health-conscious solutions for human and pet nutrition while strategically expanding our market presence. +As part of our growth strategy, we introduced +an affiliate commission program last year. We plan to expand it to enhance our market reach and sales performance. +In August 2025, the Company executed a Letter +of Intent (“LOI”) with Peppermint Hippo™ to establish a nightlife and hospitality division. Pursuant to the LOI, the +Company intends to acquire Peppermint Hippo Toledo as its initial property, followed by a phased national expansion that includes several +Peppermint Hippo locations and additional affiliated brands owned or operated by Peppermint Hippo. This transaction represents a strategic +expansion of the Company’s operations into the nightlife and hospitality sector. +Furthermore, as part of our long-term strategic +direction, we are actively exploring opportunities in the green business sector , which includes industries and enterprises that +prioritize environmental sustainability and eco-friendly practices while generating economic value. These are businesses that aim to reduce +environmental impact, conserve natural resources, and promote sustainable development. However, at this time, no definitive plans have +been established. +Sales +The Company is currently generating revenue through +the sale of Licensing Rights and Distribution Rights for specific territories. These rights are purchased in advance of product completion +to secure exclusive access to the designated regions. Additionally, last year, we sold the licensing rights for our dog pain relief product +in Mexico and generated income from our affiliate commission program. +1 +Industry +The Global Edible Insects Market was estimated +to reach $1.8 billion in 2025. In terms of value, the edible insect market is expected to grow at a CAGR (compound annual growth rate) +of 26.5% from 2020 to 2027, reaching $4.63 billion by 2027. Moreover, in terms of volume, the edible insect market is expected to grow +at a CAGR of 28.5% from 2020 to 2027, reaching 13,988,626 tons by 2027. +Aspire Food Group, once a provider of insect snacks +online, now focuses on cricket protein powder and is reportedly the largest supplier in the ingredients space. Aspire reports that about +80% of its cricket protein inventory is used for pet food, but it is designed to be edible for humans as well, with a growing interest +in its use as a food ingredient. Aspire has also established a production facility in Ontario, Canada, capable of producing 20,000 metric +tons of food-grade cricket protein and frass (cricket waste used for fertilizer) per year. +Significant capital is flowing into the insect +protein space. Aspire has raised $21.6 million in funding, according to Crunchbase data. Consumers are also showing increased interest +in alternative protein sources beyond traditional beef, pork, and chicken. According to Barclays, the edible insect industry could be +worth $8 billion by 2030, up from under $1 billion last year. +The plant-based meat market generated revenue +of $4.2 billion globally in 2018, driven primarily by companies such as Impossible Foods and Beyond Meat. According to Grand View Research, +the global insect protein market was worth $250 million in 2020 and is projected to grow at a CAGR of 27.4% from 2021 to 2028. +Competition +Some of the key competitors in the edible insect +market include: +Protifarm Holding NV +EntomoFarms +Haocheng Mealworms Inc. +Agriprotein (Insect Technology Group Holdings U.K. Ltd.) +Ynsect SAS +Deli Bugs Ltd. +Hargol FoodTech +Aspire Food Group +All Things Bugs, LLC +Tiny Farms +Global Bugs Asia Co., Ltd. +Beta Hatch Inc. +EntoCube Ltd. +Rocky Mountain Micro Ranch +Armstrong Cricket Farm Georgia +EnviroFlight Corporation +SFly Comgraf SAS +Hexafly +F4F SpA +Protix B.V. +InnovaFeed +Nutrition Technologies Group +Protenga Pte Ltd. +nextProtein S.A.S. +Protix Ynsect Innovafeed +Some of these companies will serve as suppliers +for UP Proteins. With a readily available variety of insect sources, UP Proteins will be able to negotiate an ample supply while benefiting +from cost reductions as production facilities expand. +UP Protein Nutrition Products +Product Description +UP Proteins offers high-protein energy products +made with premium ingredients. All UP Proteins products are: +Non-GMO +Non-Dairy +Gluten-Free +Low in sugar, containing only natural sweeteners from dried fruits, berries, +and natural sugar substitutes +Our focus is on delivering both health and taste, +carefully selecting ingredients that align with a balanced diet. The core protein source in UP Proteins products is an Orthoptera Protein +blend, which includes cricket powder and other plant-based protein sources. +UP Proteins products cater to consumers seeking +nutritious, environmentally conscious options, including vegetarians who avoid animal and dairy products and those following a paleo diet, +which prioritizes meat, fish, and eggs while excluding grains and legumes. Insects serve as an innovative protein source that does not +carry the environmental and ethical concerns associated with conventional livestock farming. +Sustainability and Market Potential +Research from the University of Copenhagen highlights +insects as an exceptionally sustainable protein source. According to the United Nations, global livestock farming contributes over 14.5% +of greenhouse gas emissions. In contrast, cricket farming is 20 times more efficient in protein production compared to cattle, producing +80 times less methane. Additionally, insect farming utilizes organic waste as feed, reducing the need for grain-based animal feed that +demands significant energy and water resources. +2 +UP Protein Bar: A Fusion of Vegan and Paleo Nutrition +The UP Protein Bar offers a unique combination +of vegan and paleo nutrition principles by replacing conventional animal proteins with insect-based protein. Each bar is crafted to deliver +optimal health benefits without compromising on taste, texture, or appearance. Our formulation blends cricket powder with other nutritious +ingredients to create a high-quality, sustainable, and delicious snack option. +UP Proteins is proud to be at the forefront of +this movement, offering innovative, sustainable, and nutritionally superior products that cater to health-conscious consumers worldwide. +FORMULA FOR DOGS +On December 7, 2022, the Company acquired a proprietary +formula for natural pain relief for animals from BearCreek Resources, Corp. for a total consideration of $30,000. This acquisition granted +the Company full ownership and all associated rights to the formula, with no ongoing royalty obligations or additional payments required. +The formula is designed to provide safe, effective, and natural pain relief for dogs, potentially addressing a significant market demand +in the pet health industry. +Licensing and Revenue Strategy +Given the high cost associated with initial manufacturing, +quality control, and regulatory compliance, the Company opted to monetize the formula through licensing. This strategy allows the Company +to generate revenue while minimizing upfront capital expenditures related to production and distribution. +To date, revenue has been derived from the sale +of non-exclusive licensing rights to third parties interested in utilizing the pain relief formula. Additionally, on December 7, 2022, +the Company entered into an exclusive licensing agreement with BearCreek Resources, Corp., further solidifying its strategic approach +to leveraging the formula's market potential. +Future Plans and Market Potential +The global pet healthcare market is experiencing +steady growth, with a rising demand for alternative and natural remedies for dog pain management. The Company's long-term strategy is +to continue licensing the formula while building the financial and operational capacity to manufacture, brand, and market the product +directly. Once sufficient revenue is generated, this transition will be pursued, ensuring a scalable and profitable expansion into the +pet health sector. +By adopting this phased approach, the Company +aims to position itself as a leading provider of natural pain relief solutions for animals while maximizing shareholder value and market +penetration. +Regulation +Our business is subject to regulation by federal +and state laws in the United States and the laws of other jurisdictions in which we do business. +Advertising and promotional information presented +on our websites and in our products, and our other marketing and promotional activities, are subject to federal and state consumer protection +laws that regulate unfair and deceptive practices. U.S. federal, state, and foreign legislatures have also adopted laws and regulations +regulating numerous other aspects of our business. Regulations relating to the Internet, including laws governing online content, user +privacy, taxation, liability for third-party activities and jurisdiction, are particularly relevant to our business. Such laws and regulations +are discussed below. +Communications Decency Act . The CDA +regulates content of material on the Internet and provides immunity to Internet service providers and providers of interactive computer +services for certain claims based on content posted by third parties. The CDA and the case law interpreting it generally provide that +domain name registrars and website hosting providers cannot be liable for defamatory or obscene content posted by customers on their servers +unless they participate in creating or developing the content. +Digital Millennium Copyright Act . The +DMCA provides a safe harbor from liability for third-party copyright infringement. To qualify for the safe harbor, however, registrars +and website hosting providers must satisfy numerous requirements, including adoption of a user policy that provides for termination of +service access of users who are repeat infringers, informing users of this policy, and implementing the policy in a reasonable manner. +In addition, registrars and website hosting providers must expeditiously remove or disable access to content upon receiving a proper notice +from a copyright owner alleging infringement of its protected works. A registrar or website hosting provider that fails to comply with +these safe harbor requirements may be found liable for copyright infringement. +Lanham Act . The Lanham Act governs +trademarks and false advertising. Case law interpreting the Lanham Act has limited liability for many online service providers such as +search engines and domain name registrars. Nevertheless, there is no statutory safe harbor for trademark violations comparable to the +provisions of the DMCA and we may be subject to a variety of trademark claims in the future. +Privacy and Data Protection . In the +areas of personal privacy and data protection, the U.S. federal and various state and foreign governments have adopted or proposed limitations +on, and requirements associated with, the collection, distribution, use, storage, and security of personal information of individuals. +3 +Intellectual Property & Proprietary Rights +We consider key aspects of our business and website +to be proprietary. To protect these elements, we intend to rely on a combination of copyright, trademark, service mark, and trade secret +laws, as well as confidentiality agreements, title restrictions, and other protective measures. As of now, we have not filed for any copyrights +or trademarks. +Employees +We are a new, developing company and currently +have only one part-time employee, Andrew Read our CEO and Secretary/Treasurer. At this time there is no arrangement to pay a salary until +such time that the Company begins generating revenue from the sale of its products. We may engage independent contractors in the future. \ No newline at end of file diff --git a/raw/filings/0001916558/2025/0001079973-26-000479/item13.txt b/raw/filings/0001916558/2025/0001079973-26-000479/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..9e755f04dc438db65ce4290e45ed56c0c840d2b1 --- /dev/null +++ b/raw/filings/0001916558/2025/0001079973-26-000479/item13.txt @@ -0,0 +1,3 @@ +ITEM 13 +Certain Relationships and Related Transactions, and Director Independence +10 \ No newline at end of file diff --git a/raw/filings/0001918102/2024/0001013762-25-003765/filing.txt b/raw/filings/0001918102/2024/0001013762-25-003765/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..338689a4c91450f44bbb92c14fd13a9b3d53a9de --- /dev/null +++ b/raw/filings/0001918102/2024/0001013762-25-003765/filing.txt @@ -0,0 +1,1534 @@ +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +FORM 10-K +(Mark One) +☒ ANNUAL REPORT PURSUANT TO SECTION 13 +OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the fiscal year ended December 31 , 2024 +or +☐ TRANSITION REPORT PURSUANT TO SECTION +13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the transition period from +to +Commission file number: 000-56407 +Surfside Acquisition Inc. +(Exact name of registrant as specified in its charter) +Delaware 87-4265302 +(State or other jurisdiction of +incorporation or organization) (I.R.S. Employer +Identification No.) +55 NE 5th Ave ., Suite 401 , Boca Raton , Florida +33432 +(Address of principal executive offices and Zip +Code) +Registrant’s telephone number, including +area code: (561) 464-2841 +Securities registered pursuant to Section 12(b) +of the Act: +Title of Each Class Trading Symbol Name of Each Exchange on Which Registered +None N/A N/A +Securities registered pursuant to Section 12(g) +of the Act: +Common Stock, $0.0001 par value per share +(Title of Class) +Indicate by check mark if the registrant is a +well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ +Indicate by check mark if the registrant is not +required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒ +Indicate by check mark whether the registrant +(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months +(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements +for the past 90 days. Yes ☒ No ☐ +Indicate by check mark whether the registrant +has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 +of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes +☒ No ☐ +Indicate by check mark whether the registrant +is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. +See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” +and “emerging growth company” in Rule 12b-2 of the Exchange Act. +Large accelerated filer ☐ Accelerated filer ☐ +Non-accelerated filer ☒ Smaller reporting company ☒ +Emerging growth company ☒ +If an emerging growth company, indicate by check +mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting +standards provided pursuant to Section 13(a) of the Exchange Act. ☐ +Indicate by check mark whether the registrant +has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial +reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or +issued its audit report. ☐ +If securities are registered pursuant to Section +12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction +of an error to previously issued financial statements. ☐ +Indicate by check mark whether any of those error +corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s +executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ +Indicate by check mark whether the registrant +is a shell company (as defined in Rule 12b-2 of the Act). Yes ☒ No ☐ +As of September 30, 2024, the last business day +of the registrant’s most recently completed second fiscal quarter, and as of the date of this report, there were and are no non-affiliate +holders of common stock of the registrant. +As of March 28, 2025, there were 5,000,000 shares +of common stock, par value $0.0001, outstanding. +TABLE OF CONTENTS +Page +PART I +Item 1. +Business +1 +Item 1A +Risk Factors +5 +Item 1B +Unresolved staff comments +5 +Item 1C +Cybersecurity +5 +Item 2. +Properties +6 +Item 3. +Legal Proceedings +6 +Item 4. +Mine Safety Disclosures +6 +PART II +Item 5. +Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +7 +Item 6. +[Reserved] +8 +Item 7. +Management’s Discussion and Analysis of Financial Condition and Results of Operation +8 +Item 7A. +Quantitative and Qualitative Disclosures about Market Risk +13 +Item 8. +Financial Statements and Supplementary Data +13 +Item 9. +Changes in and Disagreements with Accountants on Accounting and Financial Disclosure +13 +Item 9A. +Controls and Procedures +13 +Item 9B. +Other Information +14 +Item 9C. +Disclosure Regarding Foreign Jurisdictions That Prevent Inspections +14 +PART III +Item 10. +Directors, Executive Officers and Corporate Governance +15 +Item 11. +Executive Compensation +17 +Item 12. +Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +18 +Item 13. +Certain Relationships and Related Transactions, and Director Independence +18 +Item 14. +Principal Accounting Fees and Services +19 +PART IV +Item 15. +Exhibits, Financial Statement Schedules +20 +Item 16. +Form 10-K Summary +21 +SIGNATURES +22 +i +SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND OTHER +INFORMATION CONTAINED IN THIS REPORT +This Annual Report on Form 10-K (this “Form +10-K”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the provisions +of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange +Act of 1934, as amended (the “Exchange Act”). Forward-looking statements give our current expectations or forecasts of future +events. You can identify these statements by that they do not relate strictly to historical or current facts. You can find many (but not +all) of these statements by looking for words such as “approximates,” “believes,” “hopes,” “expects,” +“anticipates,” “estimates,” “projects,” “intends,” “plans,” “would,” +“should,” “could,” “may” or other similar expressions in this Form 10-K. In particular, these include +statements relating to future actions, future performance, anticipated expenses, or projected financial results. These forward-looking +statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience +and our present expectations or projections. +We may not actually achieve the plans, intentions +or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward- looking statements. +Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements +we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, or joint ventures we +may make or collaborations or strategic partnerships we may enter into. +You should read this Form 10-K and the documents +that we have filed as exhibits to this Form 10-K completely and with the understanding that our actual future results may be materially +different from what we expect. We do not assume any obligation to update any forward-looking statements, whether as a result of new information, +future events or otherwise, except as required by law. +Unless otherwise stated or the context otherwise +requires, the terms “Surfside Acquisition Inc.,” “we,” “us,” “our,” the “Registrant” +and the “Company” refer collectively to Surfside Acquisition Inc. +ii +PART I +Item 1. Business. +Surfside Acquisition Inc. was incorporated in +the State of Delaware on December 10, 2021. Since inception, the Company has been engaged in organizational efforts and obtaining initial +financing. The Company was formed as a vehicle to pursue a business combination and has made no efforts to identify a possible business +combination. As a result, the Company has not conducted negotiations or entered into a letter of intent concerning any target business. +The business purpose of the Company is to seek the acquisition of or merger with, an existing company. The Company selected December 31 st as +its fiscal year end. +The Company, based on proposed business activities, +is a “blank check” company. The U.S. Securities and Exchange Commission (the “SEC”) defines those companies as +“any development stage company that is issuing a penny stock, within the meaning of Section 3 (a)(51) of the Exchange Act, and that +has no specific business plan or purpose, or has indicated that its business plan is to merge with an unidentified company or companies.” +Under SEC Rule 12b-2 under the Exchange Act, the Company also qualifies as a “shell company,” because it has no or nominal +assets (other than cash) and no or nominal operations. As of December 31, 2024, the Company had $3,464 cash, and its auditors have issued +an opinion raising substantial doubt about its ability to continue as a going concern. Many states have enacted statutes, rules and regulations +limiting the sale of securities of “blank check” companies in their respective jurisdictions. Management does not intend to +undertake any efforts to cause a market to develop in our securities, either debt or equity, until we have successfully concluded a business +combination. The Company intends to comply with the periodic reporting requirements of the Exchange Act for so long as it is subject to +those requirements. +The Company was organized as a vehicle to investigate +and, if such investigation warrants, acquire a target company or business seeking the perceived advantages of being a publicly held corporation. +The Company’s principal business objective for the next 12 months and beyond such time will be to achieve long-term growth potential +through a combination with a business rather than immediate, short-term earnings. The Company will not restrict its potential candidate +target companies to any specific business, industry or geographical location and, thus, may acquire any type of business. The Company +has not conducted any active operations since inception, except for its efforts to locate suitable acquisition candidates. The Company’s +plan of operation for the remainder of the fiscal year and beyond such time shall be to continue its efforts to locate suitable acquisition +candidates. As of the date of this filing, the Company has not identified any specific milestones to be achieved by any specific date. +During the remainder of the fiscal year and beyond +such time, we anticipate incurring costs related to the filing of Exchange Act reports, and investigating, analyzing and consummating +an acquisition. We believe we will be able to meet these costs through the use of funds to be loaned by or invested in us by our stockholders, +management or other investors. Our management and stockholders have indicated their intent to advance funds on behalf of the Company as +needed in order to accomplish its business plan and comply with its Exchange Act reporting requirements; however, there are no agreements +in effect between the Company and our management and stockholders specifically requiring that they provide any funds to the Company. As +a result, there are no assurances that such funds will be advanced or that the Company will be able to secure any additional funding as +needed. +The analysis of new business opportunities will +be undertaken by or under the supervision of the Company’s management. As of the date of this filing, the Company has not entered +into any definitive agreement with any party, nor have there been any specific discussions with any potential business combination candidate +regarding business opportunities for the Company. While the Company has limited assets and no revenues, the Company has unrestricted flexibility +in seeking, analyzing and participating in potential business opportunities in that it may seek out a target company in any type of business, +industry or geographical location. In its efforts to analyze potential acquisition targets, the Company will consider the following kinds +of factors: +(a) +potential for growth, indicated by new technology, anticipated market expansion or new products; +(b) +competitive position as compared to other firms of similar size and experience within the industry segment as well as within the industry as a whole; +1 +(c) +strength and diversity of management, either in place or scheduled for recruitment; +(d) +capital requirements and anticipated availability of required funds, to be provided by the Company or from operations, through the sale of additional securities, through joint ventures or similar arrangements or from other sources; +(e) +the cost of participation by the Company as compared to the perceived tangible and intangible values and potentials; +(f) +the extent to which the business opportunity can be advanced; and +(g) +the accessibility of required management expertise, personnel, raw materials, services, professional assistance and other required items. +In applying the foregoing criteria, no one of +which will be controlling, management will attempt to analyze all factors and circumstances and make a determination based upon reasonable +investigative measures and available data. Potentially available business opportunities may occur in many different industries, and at +various stages of development, all of which will make the task of comparative investigation and analysis of such business opportunities +extremely difficult and complex. Due to the Registrant’s limited capital available for investigation, the Registrant may not discover +or adequately evaluate adverse facts about the opportunity to be acquired. In addition, we will be competing against other entities that +possess greater financial, technical and managerial capabilities for identifying and completing business combinations. +In evaluating a prospective business combination, +we will conduct as extensive a due diligence review of potential targets as possible given the lack of information that may be available +regarding private companies and our limited personnel and financial resources. We expect that our due diligence will encompass, among +other things, meetings with the target business’s incumbent management, an inspection of its facilities, as necessary and a review +of financial and other information which is made available to us. +This due diligence review will be conducted either +by our management or by unaffiliated third parties we may engage, including but not limited to attorneys, accountants, consultants or +other such professionals. As of the date of this filing, the Company has not specifically identified any third parties that it may engage. +The costs associated with hiring third parties as required to complete a business combination may be significant and are difficult to +determine as such costs may vary depending on a variety of factors, including the amount of time it takes to complete a business combination, +the location of the target company, and the size and complexity of the business of the target company. +While the Company does not intend to retain any +entity to act as a “finder”, the Company’s management, through its various contacts and affiliations with other entities, +including Montrose Capital Partners Limited (“Montrose Capital”), a privately held company that focuses on identifying public +markets venture capital investment opportunities in high growth early stage companies, may assist in making introductions to candidates +for a potential business combination. Montrose Capital is a sector agnostic privately held firm that has identified and invested, through +its principal owners, in a wide spectrum of global industries, including in biotechnology, specialty pharmaceuticals, medical devices, +robotics, and technology, and may assist the Company with due diligence in the form of identifying a business combination target. A stockholder +and director and the sole officer of the Company, Ian Jacobs, is an associate of Montrose Capital. A stockholder and director of the Company, +Mark Tompkins, is an officer and principal owner of Montrose Capital. Except as described herein, there are currently no other agreements +or preliminary understandings between us and Montrose Capital. As of the date of this filing, Montrose Capital has not introduced any +specific candidate for a potential business combination to the Company. +Our limited funds and the lack of full-time management +will likely make it impracticable to conduct a complete and exhaustive investigation and analysis of a target business before we consummate +a business combination. Management decisions, therefore, will likely be made without detailed feasibility studies, independent analysis, +market surveys and the like which, if we had more funds available to us, would be desirable. We will be particularly dependent in making +decisions upon information provided by the promoters, owners, sponsors or others associated with the target business seeking our participation. +2 +The time and costs required to select and evaluate +a target business and to structure and complete a business combination cannot presently be ascertained with any degree of certainty. The +amount of time it takes to complete a business combination, the location of the target company, and the size and complexity of the business +of the target company, whether current stockholders of the Company will retain equity in the Company, the scope of the due diligence investigation +required, the involvement of the Company’s auditors in the transaction, possible changes in the Company’s capital structure +in connection with the transaction, and whether funds may be raised contemporaneously with the transaction are all factors that determine +the costs associated with completing a business combination transaction. The time and costs required to complete a business combination +can be estimated once a business combination target has been identified. Any costs incurred with respect to the evaluation of a prospective +business combination that is not ultimately completed will result in a loss to us. +Through information obtained from industry professionals +including attorneys, investment bankers, and other consultants with experience in the reverse merger industry, the Company is aware that +there are hundreds of shell companies seeking a business combination target. As a result, the Company believes it is in a highly competitive +market for a small number of business opportunities which could reduce the likelihood of consummating a successful business combination. +We are, and will continue to be, an insignificant participant in the business of seeking mergers with, joint ventures with and acquisitions +of small private and public entities. Many established and well-financed entities, including small public companies and venture capital +firms, are active in mergers and acquisitions of companies that may be desirable target candidates for us. Nearly all these entities have +significantly greater financial resources, technical expertise and managerial capabilities than we do; consequently, we will be at a competitive +disadvantage in identifying possible business opportunities and successfully completing a business combination. These competitive factors +may reduce the likelihood of our identifying and consummating a successful business combination. +In addition, management is currently involved +with another blank check company—namely, Aspen-1 Acquisition Inc. for the year ended December 31, 2024. +The Company may become associated with additional +blank check companies at any time in the future. As a result, conflicts may arise during the pursuit of business combinations with other +such companies with which our management is involved or may become involved with in the future if we and the other blank check companies +that our officers and directors are affiliated with desire to take advantage of the same business opportunity. +At this time, the Company has not identified any +specific factors or criteria that will be used to determine which entity will proceed with a proposed transaction in the event of a conflict +of interest and management reserves the right to use any such criteria as it determines to be relevant at the time a proposed transaction +is presented. However, in the event a conflict of interest arises in connection with the identification of a proposed business transaction, +the Company’s management and board of directors will use their reasonable judgment and intend to take all such actions as may be +required in order to satisfy their fiduciary duties. At this time, our management has not identified any specific conflicts of interests. +We have had and currently have no employees. Our +officer and directors are engaged in outside business activities and are employed on a full-time basis by other companies. Our officer +and directors will be dividing their time amongst these entities and anticipate that they will devote very limited time to our business +until the acquisition of a successful business opportunity has been identified. The specific amount of time that management will devote +to the Company may vary from week to week or even day to day, and therefore the specific amount of time that management will devote to +the Company on a weekly basis cannot be ascertained with any level of certainty. In all cases, management intend to spend as much time +as is necessary to exercise their fiduciary duties as an officer and/or director of the Company and believe that they will be able to +devote the time required to consummate a business combination transaction as necessary. +We expect no significant changes in the number +of our employees other than such changes, if any, incident to a business combination. Because of the nature of our business, management +does not believe it is necessary for us to focus on any human capital measures or objectives in managing our business (such as measures +or objectives that address the development, attraction and retention of personnel). +3 +Form of Acquisition +The manner in which the Registrant participates +in an opportunity will depend upon the nature of the opportunity, the respective needs and desires of the Registrant and the promoters +of the opportunity, and the relative negotiating strength of the Registrant and such promoters. +It is likely that the Registrant will acquire +its participation in a business opportunity through the issuance of its Common Stock or other securities of the Registrant, which could +result in substantial dilution to the equity of stockholders of the Registrant immediately prior to the consummation of a transaction. +Although the terms of any such transaction have not been identified and cannot be predicted, it is expected that any business combination +transaction the Company may enter into would be structured as a “tax free” reorganization. It should be noted that the criteria +for determining whether or not an acquisition is a so-called “tax free” reorganization under Section 368(a)(1) of the Internal +Revenue Code of 1986, as amended (the “Code”) depends upon the transaction meeting certain statutory and non-statutory requirements. +There are different types of statutory requirements for each type of tax-free reorganization and thus each transaction must be reviewed +carefully to determine its eligibility for a tax-free reorganization. One of the statutory requirements in a tax-free reorganization is +that at least a certain percentage of the total consideration in the transaction must be voting stock of the acquirer corporation. This +could result in substantial dilution to the equity of those who were stockholders of the Registrant prior to such reorganization. In addition, +post-transaction dispositions of the Registrant’s stock received as consideration could have implications for the tax-free nature +of the transaction in question. The Company does not intend to supply disclosure to stockholders concerning a target company prior to +the consummation of a business combination transaction, unless required by applicable law or regulation. In the event a proposed business +combination involves a change in a majority of the directors of the Company, the Company will file and provide to stockholders a Schedule +14F-1, which shall include, information concerning the target company, as required. The Company will file a current report on Form 8-K, +as required, within four business days of a business combination which results in the Company ceasing to be a shell company. This Form +8-K will include complete disclosure of the target company, including audited financial statements. +The present stockholders of the Registrant will +likely not have control of a majority of the voting securities of the Registrant following a reorganization transaction. As part of such +a transaction, all or a majority of the Registrant’s directors may resign, and one or more new directors may be appointed without +any vote by stockholders. +In the case of an acquisition, the transaction +may be accomplished upon the sole determination of management without any vote or approval by stockholders. In the case of a statutory +merger or consolidation directly involving the Company, it will likely be necessary to call a stockholders’ meeting and obtain the +approval of the holders of a majority of the outstanding securities. The necessity of obtaining such stockholder approval may result in +delay and additional expense in the consummation of any proposed transaction and will also give rise to certain appraisal rights to dissenting +stockholders. Most likely, management will seek to structure any such transaction so as not to require stockholder approval. +The Company intends to search for a target for +a business combination by contacting various sources including, but not limited to, our affiliates, lenders, investment banking firms, +private equity funds, consultants and attorneys. The approximate number of persons or entities that will be contacted is unknown and dependent +on whether any opportunities are presented by the sources that we contact. Due to our management’s affiliation with Montrose Capital, +we expect that Montrose Capital may be able to assist the Company in identifying a business combination target for us. We currently do +not have any agreements or preliminary agreements between us and any other entities including but not limited to Montrose Capital. +It is anticipated that the investigation of +specific business opportunities and the negotiation, drafting and execution of relevant agreements, disclosure documents and other +instruments will require substantial management time and attention and substantial cost for accountants, attorneys and others. The +costs that will be incurred are difficult to determine with any degree of specificity at this time, as such costs are expected to be +dependent on factors such as (1) the amount of time it takes to identify and complete a business combination transaction; (2) the +location, size and complexity of the business, of the target company; (3) whether current stockholders of the Company will retain +equity in the Company; (4) the scope of the due diligence investigation required; (5) the involvement of the Company’s +auditors in the transaction; (6) possible changes in the Company’s capital structure in connection with the transaction; (7) +and whether funds may be raised contemporaneously with the transaction. If a decision is made not to participate in a specific +business opportunity, the costs theretofore incurred in the related investigation might not be recoverable. Furthermore, even if an +agreement is reached for the participation in a specific business opportunity, the failure to consummate that transaction may result +in the loss to the Registrant of the related costs incurred. The Company has not established a timeline with respect to the +identification of a business combination target. +4 +Emerging Growth Company +The Company is an “emerging growth company” +as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”), and may take advantage of certain exemptions from +various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, +but not limited to, not being required to comply with the auditor attestation requirements of section 404(b) of the Sarbanes-Oxley Act, +and exemptions from the requirements of Sections 14A(a) and (b) of the Securities Exchange Act of 1934 to hold a nonbinding advisory vote +of stockholders on executive compensation and any golden parachute payments not previously approved. +The Company has elected to use the extended transition +period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act. This election allows us to delay +the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards +apply to private companies. As a result of this election, our financial statements may not be comparable to companies that comply with +public company effective dates. +We will remain an “emerging growth company” +for up to five years, although we will lose that status sooner if our revenues exceed $1.235 billion, if we issue more than $1 billion +in non-convertible debt in a three-year period, or if the market value of our common stock that is held by non-affiliates exceeds $700 +million as of the end of the second quarter of any fiscal year following the anniversary of the initial reporting. +To the extent that we continue to qualify as a +“smaller reporting company”, as such term is defined in Rule 12b-2 under the Exchange Act, after we cease to qualify as an +emerging growth company, certain of the exemptions available to us as an emerging growth company may continue to be available to us as +a smaller reporting company, including: (1) not being required to comply with the auditor attestation requirements of Section 404(b) of +the Sarbanes Oxley Act; (2) scaled executive compensation disclosures; and (3) the requirement to provide only two years of audited financial +statements, instead of three years. +Item 1A. Risk Factors. +As a “smaller reporting company” as +defined in Item 10 of Regulation S-K (17 C.F.R. §229.10(f)(1)), the Company is not required to provide this information. +Item 1B. Unresolved Staff Comments. +None. +Item 1C. Cybersecurity. +Risk Management and Strategy +Management believes the Company has adequate +processes and systems to maintain the confidentiality of its communications and records. However, given our current business plan +and lack of significant operations and employees, management does not believe that cybersecurity threats constitute a material risk +for the Company. The Company currently does not have formal processes for assessing, identifying and managing risks from +cybersecurity threats to the Company directly or through third-party service providers. We do not engage assessors, consultants, +auditors or other third parties in connection with cybersecurity. +The Company has not experienced any cybersecurity +incidents to date. +5 +Governance +The board of directors oversees risks from cybersecurity +threats as part of its risk oversight function. However, there are no specific processes or committees by which the board of directors +may be informed about such risks. +Management is responsible for assessing and managing +the any material risks to the Company from cybersecurity threats. However, management has no specific expertise in such matters, and there +are no specific processes by which management is informed about or monitors the prevention, detection, mitigation and remediation of cybersecurity +incidents. If any such risks were identified, management would report such risks to the board of directors. +If and when the Company completes a merger or +other acquisition, the board of directors and management will assess the risks of cybersecurity threats to its business adopt processes +for assessing, identifying and managing risks from cybersecurity threats as warranted. +Item 2. Properties. +The Company neither rents nor owns any properties. +The Company utilizes the office space and equipment of its management at no cost. Given the limited need of the Company, management believes +that the office space is more than suitable and adequate. The Company currently has no policy with respect to investments or interests +in real estate, real estate mortgages or securities of, or interests in, persons primarily engaged in real estate activities. +Item 3. Legal Proceedings. +There are presently no pending legal proceedings +to which the Company or any of its property is subject, or any material proceedings to which any director, officer or affiliate of the +Company, any owner of record or beneficially of more than five percent of any class of voting securities is a party or has a material +interest adverse to the Company, and no such proceedings are known to the Company to be threatened or contemplated against it. +Item 4. Mine Safety Disclosures. +Not applicable. +6 +PART II +Item 5. Market for Registrant’s Common +Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. +The Company is authorized by its Certificate of +Incorporation to issue an aggregate of 60,000,000 shares of capital stock, of which 50,000,000 are shares of Common Stock and 10,000,000 +are shares of Preferred Stock. As of the date of filing this Form 10-K, 5,000,000 shares of Common Stock and zero shares of Preferred +Stock were issued and outstanding and the Company had two stockholders of record. +Common Stock +All outstanding shares of Common Stock are of +the same class and have equal rights and attributes. The holders of Common Stock are entitled to one vote per share on all matters submitted +to a vote of stockholders of the Company. All stockholders are entitled to share equally in dividends, if any, as may be declared from +time to time by the Company’s board of directors out of funds legally available. In the event of liquidation, the holders of Common +Stock are entitled to share ratably in all assets remaining after payment of all liabilities. The stockholders do not have cumulative +or preemptive rights. +There is currently no public market for our Common +Stock. Furthermore, no public trading market is expected to develop in the foreseeable future unless and until the Company completes a +business combination with an operating business. However, we cannot guarantee our Common Stock will ever be listed on any exchange or +approved for quotation on any over-the-counter market. +Preferred Stock +Our Certificate of Incorporation authorizes the +issuance of up to 10,000,000 shares of Preferred Stock with designations, rights and preferences determined from time to time by our board +of directors. Accordingly, our board of directors is empowered, without stockholder approval, to issue Preferred Stock with dividend, +liquidation, conversion, voting, or other rights, which could adversely affect the voting power or other rights of the holders of the +Common Stock. In the event of issuance, the Preferred Stock could be utilized, under certain circumstances, as a method of discouraging, +delaying or preventing a change in control of the Company. Although we have no present intention to issue any shares of our authorized +Preferred Stock, there can be no assurance that the Company will not do so in the future. +Dividends +We have not paid any dividends on our common stock +to date and do not intend to pay dividends prior to the completion of a business combination. The payment of dividends in the future will +be contingent upon our revenues and earnings, if any, capital requirements and general financial condition subsequent to completion of +a business combination. The payment of any dividends subsequent to a business combination will be within the discretion of our then board +of directors. It is the present intention of our board of directors to retain all earnings, if any, for use in our business operations +and, accordingly, our board does not anticipate declaring any dividends in the foreseeable future. +Securities Authorized for Issuance under Equity +Compensation Plans +The Company has not authorized any securities +for issuance under an equity incentive plan. +Recent Sales of Unregistered Securities +None. +Issuer Purchases of Equity Securities +None. +7 +Item 6. [Reserved] +Item 7. Management’s Discussion and Analysis +of Financial Condition and Results of Operation. +Overview of our Business +Surfside Acquisition Inc. was incorporated in +the State of Delaware on December 10, 2021. Since inception, the Company has been engaged in organizational efforts and obtaining initial +financing. The Company was formed as a vehicle to pursue a business combination and has focused its efforts to identify a possible business +combination. No revenue has been generated by the Company since inception. It is unlikely the Company will have any revenues unless it +is able to effect an acquisition or merger with an operating company, of which there can be no assurance. The Company’s plan of +operation for the remainder of the fiscal year shall be to continue its efforts to locate suitable acquisition candidates. Our principal +business objective for the next 12 months and beyond such time will be to achieve long-term growth potential through a combination with +a business rather than immediate, short-term earnings. The Company will not restrict our potential candidate target companies to any specific +business, industry or geographical location and, thus, may acquire any type of business. +The Company is currently considered to be a “blank +check” company. The SEC defines those companies as “any development stage company that is issuing a penny stock, within the +meaning of Section 3(a)(51) of the Exchange Act, and that has no specific business plan or purpose, or has indicated that its business +plan is to merge with an unidentified company or companies.” Many states have enacted statutes, rules and regulations limiting the +sale of securities of “blank check” companies in their respective jurisdictions. The Company is also a “shell company,” +defined in Rule 12b-2 under the Exchange Act as a company with no or nominal assets (other than cash) and no or nominal operations. Management +does not intend to undertake any efforts to cause a market to develop in our securities, either debt or equity, until we have successfully +concluded a business combination. The Company intends to comply with the periodic reporting requirements of the Exchange Act for so long +as we are subject to those requirements. +In addition, the Company is an “emerging +growth company,” as defined in the JOBS Act, and may take advantage of certain exemptions from various reporting requirements that +are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being +required to comply with the auditor attestation requirements of section 404(b) of the Sarbanes-Oxley Act, and exemptions from the requirements +of Sections 14A(a) and (b) of the Exchange Act to hold a nonbinding advisory vote of stockholders on executive compensation and any golden +parachute payments not previously approved. +The Company has also elected to use the extended +transition period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act. This election allows +us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until +those standards apply to private companies. As a result of this election, our financial statements may not be comparable to companies +that comply with public company effective dates. +We will remain an “emerging growth +company” until the earliest of (1) the last day of the fiscal year during which our revenues exceed $1.235 billion, (2) the +date on which we issue more than $1 billion in non-convertible debt in a three- year period, (3) the last day of the fiscal year +following the fifth anniversary of the date of the first sale of our common equity securities pursuant to an effective registration +statement filed pursuant to the Securities Act, or (4) when the market value of our common stock that is held by non-affiliates +exceeds $700 million as of the last business day of our most recently completed second fiscal quarter. To the extent that we +continue to qualify as a “smaller reporting company,” as such term is defined in Rule 12b-2 under the Exchange Act, +after we cease to qualify as an emerging growth company, certain of the exemptions available to us as an emerging growth company may +continue to be available to us as a smaller reporting company, including: (1) not being required to comply with the auditor +attestation requirements of Section 404(b) of the Sarbanes Oxley Act; (2) scaled executive compensation disclosures; and (3) the +requirement to provide only two years of audited financial statements, instead of three years. +8 +The Company has not conducted any +active operations since inception, except for its efforts to locate suitable acquisition candidates. No revenue has been generated +by the Company since inception. It is unlikely the Company will have any revenues unless it is able to effect an acquisition or +merger with an operating company, of which there can be no assurance. The Company’s plan of operation for the remainder of the +fiscal year shall be to continue its efforts to locate suitable acquisition candidates. Our principal business objective for the +next 12 months and beyond such time will be to achieve long-term growth potential through a combination with a business rather than +immediate, short-term earnings. The Company will not restrict our potential candidate target companies to any specific business, +industry or geographical location and, thus, may acquire any type of business. +The Company does not currently engage in any business +activities that provide cash flow. The costs of investigating and analyzing business combinations for the next 12 months and beyond such +time will be paid with funds to be loaned to or invested in us by our stockholders, management or other investors. +During the next twelve months, we anticipate incurring +costs related to: +(i) +filing Exchange Act reports, and +(ii) +investigating, analyzing and consummating an acquisition. +We believe we will be able to meet these costs +through use of funds to be loaned by or invested in us by our stockholders, management or other investors. There are no assurances that +such funds will be advanced or that the Company will be able to secure any additional funding as needed. As of December 31, 2024 and 2023, +the Company had cash of $3,464 and $774, respectively. On December 10, 2021, in connection with advances made in connection with costs +incurred by the Company, the Company issued a promissory note to Mark Tompkins, a stockholder and director of the Company, pursuant to +which the Company agreed to repay Mr. Tompkins the sum of any and all amounts that Mr. Tompkins may advance to the Company on or before +the date that the Company consummates a business combination with a private company or reverse takeover transaction or other transaction +after which the Company would cease to be a shell company (as defined in Rule 12b-2 under the Exchange Act). The Company has used the +proceeds from the note to cover its expenses. Although Mr. Tompkins has no obligation to advance funds to the Company under the terms +of the note, it is anticipated that he may advance funds to the Company as fees and expenses are incurred in the future. As a result, +the Company issued the note in anticipation of such advances. Interest shall not accrue on the outstanding principal amount of the note +except if an Event of Default (as defined in the note) has occurred. In the event of an Event of Default, the entire note shall automatically +become due and payable (the “Default Date”) and starting from five (5) days after the Default Date, the interest rate on the +note shall accrue at the rate of eighteen percent (18%) per annum. As of December 31, 2024, the total amount due under the note was $147,025. +The note is filed herewith as Exhibit 10.1. Except as disclosed herein, we currently have no other agreements or specific arrangements +in place with our stockholders, management or other investors. +Our ability to continue as a going concern is +dependent upon our ability to generate future profitable operations and/or to obtain the necessary financing to meet our obligations and +repay our liabilities arising from normal business operations when they come due. Our ability to continue as a going concern is also dependent +on our ability to find a suitable target company and enter into a possible reverse merger with such company. Management’s plan includes +obtaining additional funds by equity financing through a reverse merger transaction and/or related party advances, however there is no +assurance of additional funding being available. +As of December 31, 2024, the Company had +$3,464 of cash and has not earned any revenues from operations to date. In the next 12 months, we expect to incur expenses equal to +approximately $45,000 related to legal, accounting, audit, and other professional service fees incurred in relation to the +Company’s Exchange Act filing requirements. The costs related to the acquisition of a business combination target company vary +widely and are dependent on a variety of factors including, but not limited to, the amount of time it takes to complete a business +combination, the location of the target company, the size and complexity of the business of the target company, whether stockholders +of the Company prior to the transaction will retain equity in the Company, the scope of the due diligence investigation required, +the involvement of the Company’s auditors in the transaction, possible changes in the Company’s capital structure in +connection with the transaction, and whether funds may be raised contemporaneously with the transaction. Therefore, we believe such +costs are unascertainable until the Company identifies a business combination target. These conditions raise substantial doubt about +our ability to continue as a going concern. The Company is currently devoting its efforts to locating merger candidates. The +Company’s ability to continue as a going concern is dependent upon our ability to develop additional sources of capital, +locate and complete a merger with another company, and ultimately, achieve profitable operations. +9 +The Company may consider acquiring a business, +which has recently commenced operations, is a developing company in need of additional funds for expansion into new products or markets, +is seeking to develop a new product or service, or is an established business which may be experiencing financial or operating difficulties +and is in need of additional capital. Our management believes that the public company status that results from a combination with the +Company will provide such company greater access to the capital markets, increase its visibility in the investment community, and offer +the opportunity to utilize its stock to make acquisitions. There is no assurance that we will in fact have access to additional capital +or financing as a public company. In the alternative, a business combination may involve the acquisition of, or merger with, a company +which does not need substantial additional capital, but which desires to establish a public trading market for its shares, while avoiding, +among other things, the time delays, significant expense, and loss of voting control which may occur in a public offering. +Any target business we select for a potential +business combination may be a financially unstable company or an entity in its early stages of development or growth, including entities +without established records of sales or earnings. In that event, we will be subject to numerous risks inherent in the business and operations +of financially unstable and early stage or potential emerging growth companies. In addition, we may effect a business combination with +an entity in an industry characterized by a high level of risk, and, although our management will endeavor to evaluate the risks inherent +in a particular target business, there can be no assurance that we will properly ascertain or assess all significant risks. +Our management anticipates that it will likely +be able to effect only one business combination, due primarily to our limited financing and the dilution of interest for present and prospective +stockholders, which is likely to occur as a result of our management’s plan to offer a controlling interest to a target business +in order to achieve a tax-free reorganization. This lack of diversification should be considered a substantial risk in investing in us, +because it will not permit us to offset potential losses from one venture against gains from another. +The Company anticipates that the selection of +a business combination will be complex and extremely risky. While the Company is in a competitive market with a small number of business +opportunities, through information obtained from industry professionals including attorneys, investment bankers, and other consultants +with experience in the reverse merger industry, our management believes that there are opportunities for a business combination with firms +seeking the perceived benefits of becoming a publicly traded corporation. Such perceived benefits of becoming a publicly traded corporation +include, among other things, facilitating or improving the terms on which additional equity financing may be obtained, providing liquidity +for the principals of and investors in a business, creating a means for providing incentive stock options or similar benefits to key employees, +and offering greater flexibility in structuring acquisitions, joint ventures and the like through the issuance of stock. Potentially available +business combinations may occur in many different industries and at various stages of development, all of which will make the task of +comparative investigation and analysis of such business opportunities extremely difficult and complex. +We do not currently intend to retain any entity +to act as a “finder” to identify and analyze the merits of potential target businesses. However, we contemplate that Montrose +Capital may introduce business combination opportunities to us. There are currently no agreements or preliminary agreements between us +and Montrose Capital. +10 +We have not established a specific timeline, nor +have we created a specific plan to identify an acquisition target and consummate a business combination. We expect that our management +and the Company, through its various contacts and affiliations with other entities, including Montrose Capital, will locate a business +combination target. We expect that funds in the amount of approximately $45,000 will be required in order for the Company to satisfy its +Exchange Act reporting requirements during the next 12 months, in addition to any other funds that will be required in order to complete +a business combination. Such funds can only be estimated upon identifying a business combination target. Our management and stockholders +have indicated an intent to advance funds on behalf of the Company as needed in order to accomplish its business plan and comply with +its Exchange Act reporting requirements, however, there are no agreements in effect between the Company and our management or stockholders +specifically requiring they provide any funds to the Company. Therefore, there are no assurances that the Company will be able to obtain +the required financing as needed in order to consummate a business combination transaction. +As of the date of this Form 10-K, the Company +has not entered into any definitive agreement with any party, nor have there been any specific discussions with any potential business +combination candidates regarding business opportunities for the Company. +Liquidity and Capital Resources +As of December 31, 2024, the Company had total +assets equal to $3,464 comprised exclusively of cash. The Company’s current liabilities as of December 31, 2024, totaled $157,725 +and was comprised of accounts payable and accrued expenses, and amounts due under a note payable to a stockholder. The Company can provide +no assurance that it can continue to satisfy its cash requirements for at least the next twelve months. +The following is a summary of the Company’s +cash flows provided by (used in) operating and financing activities: +For the Years Ended +December 31, +2024 +2023 +Net Cash Used In Operating Activities +$ (44,810 ) +$ (46,277 ) +Net Cash Provided by Financing Activities +$ 47,500 +$ 46,982 +Net Change in Cash +$ 2,690 +$ 705 +The Company has only cash assets and has generated +no revenues since inception. The Company is also dependent upon the receipt of capital investment or other financing to fund its ongoing +operations and to execute its business plan of seeking a combination with a private operating company. In addition, the Company is dependent +upon certain related parties to provide continued funding and capital resources. If continued funding and capital resources are unavailable +at reasonable terms, the Company may not be able to implement its plan of operations. +Issuance of Promissory Note to a Stockholder and Director +On December 10, 2021, the Company issued a promissory +note (the “Note”) to the majority stockholder of the Company, Mark Tompkins, a stockholder and director of the Company, pursuant +to which the Company agreed to repay Mr. Tompkins the sum of any and all amounts that Mr. Tompkins may advance to the Company on or before +the date that the Company consummates a business combination with a private company or reverse takeover transaction or other transaction +after which the Company would cease to be a shell company (as defined in Rule 12b-2 under the Exchange Act). The Company has used the +proceeds from the note to cover its expenses. Although Mr. Tompkins has no obligation to advance funds to the Company under the terms +of the note, it is anticipated that he may advance funds to the Company as fees and expenses are incurred in the future. As a result, +the Company issued the note in anticipation of such advances. Interest shall not accrue on the outstanding principal amount of the note +except if an Event of Default (as defined in the note) has occurred. In the Event of Default, the entire note shall automatically become +due and payable (the “Default Date”) and starting from five (5) days after the Default Date, the interest rate on the note +shall accrue at the rate of eighteen percent (18%) per annum. As of December 31, 2024, the total amount due under the note was $147,025. +11 +Results of Operations +The Company has not conducted any active operations +since inception, except for its efforts to locate suitable acquisition candidates. No revenue has been generated by the Company for the +years ended December 31, 2024 and 2023. It is unlikely the Company will have any revenues unless it is able to effect an acquisition or +merger with an operating company, of which there can be no assurance. It is management’s assertion that these circumstances may +hinder the Company’s ability to continue as a going concern. The Company’s plan of operations for the next twelve months shall +be to continue its efforts to locate suitable acquisition candidates. +For the years ended December 31, 2024, and 2023, +the Company had a net loss of $44,810 and $47,625, respectively, comprised of accounting, audit and other professional service fees incurred +in relation to the preparation and filing of the Company’s SEC filings and general and administrative expenses. +As of December 31, 2024, the Company had $3,464 +in cash and has not earned any revenues from operations to date. In the next 12 months, we expect to incur expenses equal to approximately +$45,000 related to legal, accounting, audit, and other professional service fees incurred in relation to the Company’s Exchange +Act filing requirements. The costs related to the acquisition of a business combination target company vary widely and are dependent on +a variety of factors including, but not limited to, the amount of time it takes to complete a business combination, the location of the +target company, the size and complexity of the business of the target company, whether stockholders of the Company prior to the transaction +will retain equity in the Company, the scope of the due diligence investigation required, the involvement of the Company’s auditors +in the transaction, possible changes in the Company’s capital structure in connection with the transaction, and whether funds may +be raised contemporaneously with the transaction. Therefore, we believe such costs are unascertainable until the Company identifies a +business combination target. These conditions raise substantial doubt about our ability to continue as a going concern. The Company is +currently devoting its efforts to locating merger candidates. The Company’s ability to continue as a going concern is dependent +upon our ability to develop additional sources of capital, locate and complete a merger with another company, and ultimately, achieve +profitable operations. +Off-Balance Sheet Arrangements +The Company does not have any off-balance sheet +arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes +in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material +to investors. +Critical Accounting Estimates +Accounting estimates are an integral part of the +financial statements prepared by management and are based on management’s knowledge and experience about past and current events +and assumptions about future events. Management’s estimate of the current portion of note payable - stockholder is based on the +possibility that within one year of the balance sheet date a transaction will occur that requires the Company to repay the note payable. +Management’s estimate of the deferred tax benefit arising from the net operating loss carry forwards available to reduce future +federal and state taxable income and the related valuation allowance in the same amount assumes that the Company will be acquired by a +target company and the benefit will not be realized. +Recent Accounting Pronouncements +Our management does not believe that any other +recently issued, but not yet effective, accounting pronouncement if currently adopted would have a material effect on the accompanying +financial statements. +12 +Emerging Growth Company +As an “emerging growth company” under +the JOBS Act, the Company has elected to use the extended transition period for complying with new or revised accounting standards under +Section 102(b)(1) of the JOBS Act. This election allows us to delay the adoption of new or revised accounting standards that have different +effective dates for public and private companies until those standards apply to private companies. As a result of this election, our financial +statements may not be comparable to companies that comply with public company effective dates. +Fiscal Year +Our fiscal year ends on December 31. +Item 7A. Quantitative and Qualitative Disclosures +about Market Risk. +As a “smaller reporting company” defined +by Item 10 of Regulation S-K, the Company is not required to provide the information required by this Item. +Item 8. Financial Statements and Supplementary +Data. +Please see the financial statements beginning +on page F-1 located in this Annual Report on Form 10-K and incorporated herein by reference. +Item 9. Changes in and Disagreements with Accountants +on Accounting and Financial Disclosure. +There are not and have not been any disagreements +between the Company and its accountants on any matter of accounting principles or practices, financial statement disclosure or auditing +scope or procedure, or any reportable event as described in paragraph (a)(1)(v) of Item 304 of Regulation S-K. +Item 9A. Controls and Procedures. +Disclosure Controls and Procedures +Disclosure controls are procedures that are designed +with the objective of ensuring that information required to be disclosed in our reports filed under the Exchange Act, such as this Form +10-K, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure +controls are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including +the Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure. +Internal controls are procedures which are designed with the objective of providing reasonable assurance that (1) our transactions are +properly authorized, recorded and reported; and (2) our assets are safeguarded against unauthorized or improper use, to permit the preparation +of our condensed financial statements in conformity with U.S. GAAP. +In connection with the preparation of this Form +10-K, management, with the participation of our Principal Executive Officer and Principal Financial Officer, has evaluated the effectiveness +of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e) and 15d-15(e)). +Based on that evaluation, our Principal Executive and Financial Officer concluded that our disclosure controls and procedures were effective, +as of the end of the period covered by this Form 10-K. +13 +Management’s Annual Report on Internal +Control over Financial Reporting +Our management is responsible for establishing +and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange +Act. Our internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the +preparation of financial statements for external purposes, in accordance with generally accepted accounting principles. Because of inherent +limitations, a system of internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation +of effectiveness to future periods are subject to the risk that controls may become inadequate due to change in conditions, or that the +degree of compliance with the policies or procedures may deteriorate. +Management assessed the effectiveness of our internal +control over financial reporting as of December 31, 2024. Management based this assessment on criteria for effective internal control +over financial reporting described in “Internal Control - Integrated Framework (2013)” issued by the Committee of Sponsoring +Organizations of the Treadway Commission. Management’s assessment included an evaluation of the design of our internal control over +financial reporting and testing of the operational effectiveness of its internal control over financial reporting. Management reviewed +the results of its assessment with our Board of Directors. +Based on this assessment, management believes +that the Company maintained effective internal control over financial reporting as of December 31, 2024. +This Annual Report on Form 10-K does not include +an attestation report of our independent registered public accounting firm, regarding internal controls over financial reporting. Our +internal control over financial reporting was not subject to such attestation as we are a “smaller reporting company” as defined +by Item 10 of Regulation S-K. +Changes in Internal Controls over Financial +Reporting +There have been no changes in our internal control +over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or 15d-15 under the Exchange +Act that occurred during the period covered by this 10-K that has materially affected, or is reasonably likely to materially affect, our +internal control over financial reporting. +Limitations of the Effectiveness of Control +A control system, no matter how well conceived +and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent +limitations of any control system, no evaluation of controls can provide absolute assurance that all control issues, if any, within a +company have been detected. +Item 9B. Other Information. +No director or officer of the Company adopted +or terminated any contract, instruction or written plan for the purchase or sale of securities of the registrant intended to satisfy the +affirmative defense conditions of Rule 10b5–1(c); or (ii) any “non-Rule 10b5–1 trading arrangement” as defined +in paragraph (c) of Item 408 of Regulation S-K. +Item 9C. Disclosure Regarding Foreign +Jurisdictions That Prevent Inspections. +Not applicable. +14 +PART III +Item 10. Directors, Executive Officers and +Corporate Governance. +Our officer and directors, and additional information +concerning each of them, are as follows: +Name +Age +Position(s) +Ian Jacobs +48 +President, Chief Executive Officer, Chief Financial Officer , Secretary and Director +Mark Tompkins +62 +Director +Ian Jacobs has served as the Company’s +President, Secretary, Chief Executive Officer, Chief Financial Officer and Director since inception. Mr. Jacobs has also served as President, +Secretary, Chief Executive Officer, Chief Financial Officer and as a Director of Aspen-1 Acquisition Inc. since December 10, 2021. Mr. +Jacobs previously served as the President, Secretary, Chief Executive Officer, Chief Financial Officer and Director of Max-1 Acquisition +Corporation, now known as Exicure, Inc. [Nasdaq: XCUR], from February 2017 to September 2017, of Lola One Acquisition Corporation, now +known as Amesite Inc. [Nasdaq: AMST], from April 2017 to April 2018, of Peninsula Acquisition Corporation, now known as Transphorm, Inc. +[Nasdaq: TGAN], from June 2017 to February 2020, of Olivia Ventures, Inc., now known as Compass Therapeutics, Inc. [Nasdaq: CMPX], from +March 2018 to June 2020, of Malo Holdings Corporation, now known as Augmedix, Inc. [Nasdaq: AUGX], from December 2018 to October 2020, +of Odyssey Semiconductor Technologies, Inc. [OTCQB: ODII], from April 2019 to June 2019, of Parasol Investments Corporation, now known +as SmartKem, Inc. [OTCQB:SMTK], from May 2020 to February 2021, of Parc Investments, Inc., now known as Aeluma, Inc. [OTCQB: ALMU], from +August 2020 to June 2021, of Laffin Acquisition Corp., now known as Guerrilla RF, Inc. [OTCQX: GUER], from November 2020 to October 2021, +of Perfect Moment Ltd. [NYSE American: PMNT] from January 2021 to March 2021, of Patricia Acquisition Corp., now known as Serve Robotics +Inc. [OTCQB: SBOT], from November 2020 to July 2023, and of Venetian-1 Acquisition Corp., now known as Lomond Therapeutics Holdings, Inc., +from September 24, 2021 to September 20, 2024. Mr. Jacobs has also been an associate of Montrose Capital Partners Limited, or Montrose +Capital, since 2008. Montrose Capital is a privately held company, which focuses on identifying public markets venture capital investment +opportunities in high growth early-stage companies. Montrose Capital is a sector agnostic privately held firm which has identified and +invested, through its principal owners, in a wide spectrum of global industries, including in biotechnology, specialty pharmaceuticals, +medical devices, robotics, and technology. Mr. Jacobs received a B.S. in Finance from the University of South Florida. Mr. Jacobs’ +past experience identifying investment opportunities and investing in early-stage companies will be beneficial to the Company as its seeks +to identify a business combination target which led to the conclusion that he should serve as a director of the Company. +Mark Tompkins has served as a +Director of the Company since inception. Mr. Tompkins has also served as a Director of Aspen-1 Acquisition Inc. since December 10, +2021. Mr. Tompkins previously served as a Director of Max-1 Acquisition Corporation, now known as Exicure, Inc. [Nasdaq: XCUR], from +February 2017 to September 2017, of Lola One Acquisition Corporation, now known as Amesite Inc. [Nasdaq: AMST], from April 2017 to +April 2018, of Peninsula Acquisition Corporation, now known as Transphorm, Inc. [Nasdaq: TGAN], from June 2017 to February 2020, of +Olivia Ventures, Inc., now known as Compass Therapeutics, Inc. [Nasdaq: CMPX], from March 2018 to June 2020, of Malo Holdings +Corporation, now known as Augmedix, Inc. [Nasdaq: AUGX], from December 2018 to October 2020, of Odyssey Semiconductor Technologies, +Inc. [OTCQB: ODII], from April 2019 to June 2019, of Parasol Investments Corporation, now known as SmartKem, Inc. [OTCQB:SMTK], from +May 2020 to February 2021, of Parc Investments, Inc., now known as Aeluma, Inc [OTCQB: ALMU], from August 2020 to June 2021, of +Laffin Acquisition Corp., now known as Guerrilla RF, Inc. [OTCQX: GUER], from November 2020 to October 2021, of Perfect Moment Ltd. +[NYSE American: PMNT] from January 2021 to March 2021, of Patricia Acquisition Corp., now known as Serve Robotics Inc. [OTCQB: +SBOT], from November 2020 to July 2023, and of Venetian-1 Acquisition Corp., now known as Lomond Therapeutics Holdings, Inc., from +September 24, 2021 to September 20, 2024. Mr. Tompkins is a founder of Montrose Capital and has served as its President since its +inception in 2001. Montrose Capital is a privately held company, which focuses on identifying public markets venture capital +investment opportunities in high growth early-stage companies. Montrose Capital is a sector agnostic privately held firm which has +identified and invested, through its principal owners, in a wide spectrum of global industries, including in biotechnology, +specialty pharmaceuticals, medical devices, robotics, and technology. Mr. Tompkins’ past experience identifying investment +opportunities and investing in early-stage companies will be beneficial to the Company as it seeks to identify a business +combination target which led to the conclusion that he should serve as a director of the Company. +15 +Significant Employees +None. +Family Relationships +None. +Involvement in Certain Legal Proceedings +There have been no events under any bankruptcy +act, no criminal proceedings and no judgments, injunctions, orders or decrees material to the evaluation of the ability and integrity +of any director, executive officer, promoter or control person of the Company during the past ten years. +Committees +The board of directors does not have any standing +committees. +Conflicts of Interest +There are no binding guidelines or procedures +for resolving potential conflicts of interest. Failure by management to resolve conflicts of interest in favor of the Company could result +in liability of management to the Company. However, any attempt by stockholders to enforce a liability of management to the Company would +most likely be prohibitively expensive and time consuming. +Code of Ethics +The Company, as of this time, has not adopted +a Code of Ethics pursuant to rules described in Regulation S-K. The Company has two persons who are the only stockholders and who serve +as the directors and officers. The Company has no operations or business and does not receive any revenues or investment capital. The +adoption of a Code of Ethics at this time would not serve the primary purpose of such a code to provide a manner of conduct as the development, +execution and enforcement of such a code would be by the same persons and only persons to whom such code applied. Furthermore, because +the Company does not have any activities, there are no activities or transactions which would be subject to this code. At the time the +Company enters into a business combination, the current officers and directors will recommend to any new management that such a code be +adopted. The Company does not maintain an Internet website on which to post a code of ethics. +Corporate Governance +For reasons similar to those described above, +the Company does not have a nominating nor audit committee of the board of directors. At this time, the Company consists of two stockholders +who serve as the corporate directors and officers. The Company has no activities and receives no revenues. At such time that the Company +enters into a business combination and/or has additional stockholders and a larger board of directors and commences activities, the Company +will propose creating committees of its board of directors, including both a nominating and an audit committee. Because there are only +two stockholders of the Company, there is no established process by which stockholders to the Company can nominate members to the Company’s +board of directors. Similarly, however, at such time as the Company has more stockholders and an expanded board of directors, the new +management of the Company may review and implement, as necessary, procedures for stockholder nomination of members to the Company’s +board of directors. +16 +No securities of the Company are publicly traded +or listed or quoted on any exchange or quotation system, and all of its outstanding securities are restricted securities (as defined in +Rule 144 under the Securities Act) bearing customary legends and restrictions on transfer and are held by two holders, who management +believes are familiar with the applicable insider trading laws, rules and regulations; therefore, management believes that insider trading +policies and procedures governing the purchase, sale and/or other dispositions of its securities by directors, officers and employees, +or the Company itself, are not necessary at this time, and the Company has not adopted any such policies or procedures. +At the time a trading market for the Company’s +shares of common stock develops, the current officers and directors will recommend that such a policy be adopted. +Item 11. Executive Compensation. +The following table sets forth the cash and other +compensation paid by the Company to its officer and directors during the years ended December 31, 2024 and 2023. +Name +and Position +Year +Salary +Bonus +Option +Awards +All +other +Compensation +Total +Ian Jacobs (1) +2024 +None +None +None +None +None +President, Chief Executive Officer, Chief Financial Officer, Secretary and Director +2023 +None +None +None +None +None +Mark Tompkins (2) +2024 +None +None +None +None +None +Director +2023 +None +None +None +None +None +(1) +Ian Jacobs was appointed to serve as a member of the Company’s board of directors and as its President, Chief Executive Officer, Chief Financial Officer and Secretary on December 10, 2021. +(2) +Mark Tompkins was appointed to serve as a member of the Company’s board of directors on December 10, 2021. +The following compensation discussion addresses +all compensation awarded to, earned by, or paid to the Company’s named executive officers. The Company’s officer and directors +have not received any cash or other compensation since inception through the date of this filing. No compensation of any nature has been +paid for on account of services rendered by an officer or director in such capacity. +It is possible that, after the Company successfully +consummates a business combination with an unaffiliated entity, that entity may desire to employ or retain members of our management for +the purposes of providing services to the surviving entity. +No retirement, pension, profit sharing, stock +option or insurance programs or other similar programs have been adopted by the Company for the benefit of its employees. Furthermore, +as there are no equity awards issued or contemplated to be issued by the Company at this time, there are no policies and practices related +to the grant of certain equity awards close in time to the release of material nonpublic information pursuant to 402(x) of Regulation +S-K. +Except as otherwise disclosed herein, there are +currently no understandings or agreements regarding compensation our management will receive after a business combination. +Compensation Committee +The Company does not have a standing compensation +committee or a committee performing similar functions. +17 +Item 12. Security Ownership of Certain Beneficial +Owners and Management and Related Stockholder Matters. +The following table sets forth, as of the date +of this filing, the number of shares of Common Stock owned of record and beneficially by (i) each person known by us to be the beneficial +owner of more than 5% of our outstanding shares of Common Stock, (ii) each director and named executive officer of the Company and (iii) +all executive officers and directors as a group. +Name and Address +Amount and +Nature of +Beneficial +Ownership +Percentage of +Class +Directors and Named Executive Officers: +Mark Tompkins (1) +Apt. 1, Via Guidino 23, 6900 Lugano Paradiso, Switzerland +4,750,000 +95 % +Ian Jacobs (2) +55 NE 5th Ave, Suite 401, Boca Raton, Florida 33432 +250,000 +5 % +All Directors and Officers as a Group (2 individuals) +5,000,000 +100 % +Other More than 5% Stockholders: +N/A +- +- +(1) +Mark Tompkins serves as a director of the Company. +(2) +Ian Jacobs serves as President, Secretary, Chief Executive Officer, Chief Financial Officer and a director of the Company. +Securities Authorized for Issuance Under Equity +Compensation Plans +The Company has not authorized any securities +for issuance under an equity incentive plan. +Item 13. Certain Relationships and Related +Transactions, and Director Independence. +On December 10, 2021, the Company issued (i) an +aggregate of 4,750,000 shares of Common Stock to Mark Tompkins, a director of the Company, for an aggregate purchase price equal to $475 +representing amounts advanced by Mr. Tompkins to counsel for the Company in connection with the formation and organization of the Company +and (ii) an aggregate of 250,000 shares of Common Stock to Ian Jacobs, an officer and director of the Company, for an aggregate cash purchase +price equal to $25, pursuant to the terms and conditions set forth in the Common Stock Purchase Agreement with each person. The Company +issued these shares of Common Stock under the exemption from registration provided by Section 4(a)(2) of the Securities Act. +On December 10, 2021, in connection with advances +made in connection with costs incurred by the Company, the Company issued a promissory note to Mark Tompkins, a stockholder and director +of the Company, pursuant to which the Company agreed to repay Mr. Tompkins the sum of any and all amounts that Mr. Tompkins may advance +to the Company on or before the date that the Company consummates a business combination with a private company or reverse takeover transaction +or other transaction after which the Company would cease to be a shell company (as defined in Rule 12b-2 under the Exchange Act). The +Company has used the proceeds from the note to cover its expenses. Although Mr. Tompkins has no obligation to advance funds to the Company +under the terms of the note, it is anticipated that he may advance funds to the Company as fees and expenses are incurred in the future. +As a result, the Company issued the note in anticipation of such advances. Interest shall not accrue on the outstanding principal amount +of the note except if an Event of Default (as defined in the note) has occurred. In the event of an Event of Default, the entire note +shall automatically become due and payable (the “Default Date”) and starting from five (5) days after the Default Date, the +interest rate on the note shall accrue at the rate of eighteen percent (18%) per annum. As of December 31, 2024, the total amount due +under the note was $147,025. +The Company currently uses the office space and +equipment of its management at no cost. +18 +Item 14. Principal Accounting Fees and Services. +Grassi & Co., CPAs, P.C. (“Grassi”) +was the Company’s independent registered public accounting firm for years 2024 and 2023. Set below are aggregate fees billed by +Grassi for professional services rendered for the years ended December 31, 2024 and 2023. +Audit Fees +The fees for the audit services billed and to +be billed by Grassi for the year ended December 31, 2024, amounted to $18,025 and $17,250, respectively. +Audit-Related Fees +There were no audit-related fees billed by Grassi +for the years ended December 31, 2024 and 2023. +Tax Fees +The fees for the tax services billed and to be +billed by Grassi for professional services for tax compliance, tax advice, and tax planning for the year ended December 31, 2024 and 2023, +amounted to $2,525 and $2,500, respectively. +All Other Fees +There were no fees billed by Grassi for other +products and services for the years ended December 31, 2024 and 2023. +Audit Committee’s Pre-Approval Process +The Company does not have a standing audit committee +or a committee performing similar functions. +19 +PART IV +Item 15. Exhibits, Financial Statement Schedules. +We have filed the following documents as part +of this Form 10-K: +1. Financial Statements +Statement +Page +Report of Independent Registered Public Accounting Firm (PCAOB ID: 606) +F-2 +Balance Sheets as of December 31, 2024 and 2023 +F-3 +Statements of Operations for the Years Ended December 31, 2024 and 2023 +F-4 +Statements of Changes in Stockholders’ Deficit for the Years Ended December 31, 2024 and 2023 +F-5 +Statements of Cash Flows for the Years Ended December 31, 2024 and 2023 +F-6 +Notes to Financial Statements +F-7 +2. Financial Statement Schedules +All schedules have been omitted because they are +not required, not applicable, not present in amounts sufficient to require submission of the schedule, or the required information is +otherwise included. +20 +3. Exhibits. +Exhibit +Number +Description +3.1 +Certificate of Incorporation (incorporated by reference from the corresponding numbered exhibit in the Company’s registration statement on Form 10 filed with the SEC on March 21, 2022) +3.2 +By-Laws (incorporated by reference from the corresponding numbered exhibit in the Company’s registration statement on Form 10 filed with the SEC on March 21, 2022) +4.1 +Description of Registrant’s Securities (incorporated by reference from Item 11 of the Company’s registration Statement on Form 10 filed with SEC on March 18, 2022) +10.1 +Promissory Note issued by the Company to Mark Tompkins, dated December 10, 2021 (incorporated by reference from the corresponding numbered exhibit in the Company’s registration statement on Form 10 filed with the SEC on March 21, 2022) +10.2 +Common Stock Purchase Agreement by and between the Company and Mark Tompkins, dated December 10, 2021 (incorporated by reference from the corresponding numbered exhibit in the Company’s registration statement on Form 10 filed with the SEC on March 21, 2022) +10.3 +Common Stock Purchase Agreement by and between the Company and Ian Jacobs, dated December 10, 2021 (incorporated by reference from the corresponding numbered exhibit in the Company’s registration statement on Form 10 filed with the SEC on March 21, 2022) +31.1* +Certification of Principal Executive, Financial and Accounting Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. +32.1** +Certification of Principal Executive, Financial and Accounting Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. +101.INS* +Inline XBRL Instance Document. +101.SCH* +Inline XBRL Taxonomy Extension Schema Document. +101.CAL* +Inline XBRL Taxonomy Extension Calculation Linkbase Document. +101.DEF* +Inline XBRL Taxonomy Extension Definition Linkbase Document. +101.LAB* +Inline XBRL Taxonomy Extension Label Linkbase Document. +101.PRE* +Inline XBRL Taxonomy Extension Presentation Linkbase Document. +104* +Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). +* +Filed herewith +** +Furnished herewith +Item 16. Form 10-K Summary. +Not applicable. +21 +SIGNATURES +Pursuant to the requirements of Section 13 or +15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, +thereunto duly authorized. +SURFSIDE ACQUISITION INC. +Date: March 28, 2025 +By: +/s/ Ian Jacobs +Ian Jacobs +President, Chief Executive Officer, +Chief Financial Officer, Secretary and Director +(Principal Executive Officer, +Principal Financial Officer and +Principal Accounting Officer) +Pursuant to the requirements of the Securities +Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and +on the dates indicated. +Name +Title +Date +By: +/s/ Ian Jacobs +President, Chief Executive Officer, Chief Financial Officer, +March 28, 2025 +Ian Jacobs +Secretary and Director +(Principal Executive Officer, Principal Financial Officer, and +Principal Accounting Officer) +By: +/s/ Mark Tompkins +Director +March 28, 2025 +Mark Tompkins +22 +SURFSIDE +ACQUISITION INC. +December 31, 2024 +INDEX TO FINANCIAL STATEMENTS +Statement +Page +Index to Financial Statements +F-1 +Report of Independent Registered Public Accounting Firm (PCAOB ID: 606) +F-2 +Balance Sheets as of December 31, 2024 and 2023 +F-3 +Statements of Operations for the Years Ended December 31, 2024 and 2023 +F-4 +Statements of Changes in Stockholders’ Deficit for the Years Ended December 31, 2024 and 2023 +F-5 +Statements of Cash Flows for the Years Ended December 31, 2024 and 2023 +F-6 +Notes to Financial Statements +F-7 +F- 1 +REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING +FIRM +To the Board of Directors +Surfside Acquisition, Inc. +Boca Raton, Florida +Opinion on the Financial Statements +We have audited the accompanying balance sheets +of Surfside Acquisition, Inc. (the “Company”) as of December 31, 2024 and 2023, and the related statements of operations, +changes in stockholders’ deficit, and cash flows for the years then ended, and the related notes (collectively referred to as the +“financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial +position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for the years then ended, +in conformity with accounting principles generally accepted in the United States of America. +Substantial Doubt About the Company’s +Ability to Continue as a Going Concern +The accompanying financial statements have been +prepared assuming that the Company will continue as a going concern. As discussed in Note 6 to the financial statements, the Company has +incurred losses from inception, which raises substantial doubt about its ability to continue as a going concern. Management’s plans +in regard to these matters are also described in Note 6. The financial statements do not include any adjustments that might result from +the outcome of this uncertainty. +Basis for Opinion +These financial statements are the responsibility +of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our +audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) +and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable +rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance with the +standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial +statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged +to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding +of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s +internal control over financial reporting. Accordingly, we express no such opinion. +Our audits included performing procedures to assess +the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond +to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. +Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating +the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. +GRASSI & CO., CPAs, P.C. +PCAOB ID # 606 +We have served as the Company’s auditors since 2022. +Jericho, New York +March 28, 2025 +F- 2 +SURFSIDE ACQUISITION INC. +BALANCE SHEETS +December 31, +2024 +2023 +ASSETS +Current assets +Cash +$ 3,464 +$ 774 +Total current assets +3,464 +774 +Total assets +$ 3,464 +$ 774 +LIABILITIES AND STOCKHOLDERS’ DEFICIT +Current liabilities +Accounts payable and accrued expenses +$ 10,700 +$ 10,700 +Note payable - stockholder +147,025 +99,525 +Total current liabilities +157,725 +110,225 +Total liabilities +157,725 +110,225 +Commitments and contingencies +Stockholders’ deficit +Preferred stock, $ 0.0001 par value; 10,000,000 shares authorized; none issued and outstanding +- +- +Common stock, $ 0.0001 par value, 50,000,000 shares authorized, 5,000,000 shares issued and outstanding +500 +500 +Accumulated deficit +( 154,761 ) +( 109,951 ) +Total stockholders’ deficit +( 154,261 ) +( 109,451 ) +Total liabilities and stockholders’ deficit +$ 3,464 +$ 774 +See accompanying notes to financial statements. +F- 3 +SURFSIDE ACQUISITION INC. +STATEMENTS OF OPERATIONS +For the Years Ended +December 31, +2024 +2023 +Revenue +$ +- +$ +- +General and administrative expenses +44,810 +47,625 +Loss from operations +( 44,810 ) +( 47,625 ) +Net loss +$ ( 44,810 ) +$ ( 47,625 ) +Weighted average common stock outstanding, basic and diluted +5,000,000 +5,000,000 +Net loss per share of common stock, basic and diluted +$ ( 0.01 ) +$ ( 0.01 ) +See accompanying notes to financial statements. +F- 4 +SURFSIDE ACQUISITION INC. +STATEMENTS OF CHANGES IN STOCKHOLDERS’ +DEFICIT +For the Years Ended December 31, 2024 and 2023 +Total +Common Stock +Accumulated +Stockholders’ +Shares +Amount +Deficit +Deficit +Balances – December 31, 2022 +5,000,000 +$ 500 +$ ( 62,326 ) +$ ( 61,826 ) +Net loss +- +- +( 47,625 ) +( 47,625 ) +Balances - December 31, 2023 +5,000,000 +500 +( 109,951 ) +( 109,451 ) +Net loss +- +- +( 44,810 ) +( 44,810 ) +Balances - December 31, 2024 +5,000,000 +$ 500 +$ ( 154,761 ) +$ ( 154,261 ) +See accompanying notes to financial statements. +F- 5 +SURFSIDE ACQUISITION INC. +STATEMENTS OF CASH FLOWS +For the Years Ended +December 31, +2024 +2023 +Cash flows from operating activities: +Net loss +$ ( 44,810 ) +$ ( 47,625 ) +Adjustments to reconcile net loss to net cash used in operating activities: +Accounts payable and accrued expenses +- +1,348 +Net cash used in operating activities +( 44,810 ) +( 46,277 ) +Cash flows from financing activities: +Repayments of stockholder advances +- +( 518 ) +Proceeds from note payable - stockholder +47,500 +47,500 +Net cash provided by financing activities +47,500 +46,982 +Net change in cash +2,690 +705 +Cash - beginning of year +774 +69 +Cash - end of year +$ 3,464 +$ 774 +See accompanying notes to financial statements. +F- 6 +SURFSIDE ACQUISITION INC. +NOTES TO FINANCIAL STATEMENTS +December 31, 2024 +Note 1. Nature of Operations +Surfside Acquisition Inc, (the “Company”) +was incorporated in the State of Delaware on December 10, 2021. The Company’s management has chosen December 31st for its fiscal +year end. +The Company was organized as a vehicle to investigate +and, if such investigation warrants, acquire a target company or business seeking the perceived advantages of being a publicly traded +corporation. The Company’s principal business objective is to achieve long-term growth potential through a combination with a business, +rather than immediate short-term earnings. The Company will not restrict its potential target companies to any specific business, industry, +or geographical location. The analysis of business opportunities will be undertaken by, or under the supervision of, the officer and directors +of the Company. +Note 2. Basis of Presentation and Summary +of Significant Accounting Policies +Basis of Presentation +The accompanying financial statements have been +prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). +Use of Estimates +The preparation of financial statements in conformity +with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure +of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the +reporting period. Actual results could differ from those estimates. +Income Taxes +The Company adopted ASC 740, “Income +Taxes” , at its inception. Under ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences +attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax +bases. Deferred tax assets, including tax loss and credit carry-forwards, and liabilities are measured using enacted tax rates expected +to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred +tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred income +tax expense represents the change during the period in the deferred tax assets and deferred tax liabilities. The components of the deferred +tax assets and liabilities are individually classified as current and non-current based on their characteristics. Deferred tax assets +are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred +tax assets will not be realized. +The Company recognizes accrued interest and penalties +related to unrecognized tax benefits as income tax expense. There were no unrecognized tax benefits and no amounts accrued for interest +and penalties as of December 31, 2024 and 2023. The Company is currently not aware of any issues under review that could result in significant +payments, accruals or material deviation from its position. +Loss per Common Share +Net loss per share is computed by dividing net loss by the weighted +average number of common shares outstanding for the period. Diluted earnings per share takes into effect any dilutive instruments, except +when doing so would be anti-dilutive. As of December 31, 2024 and 2023, there were no dilutive instruments. +F- 7 +Emerging Growth Company +The Company is an “emerging growth company,” +as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As +such, the Company is eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other +public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with +the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive +compensation in the Company’s periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding +advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. If some investors +find the securities less attractive as a result, there may be a less active trading market for securities and the prices of securities +may be more volatile. +In addition, Section 107 of the JOBS Act also +provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) +of the Securities Act for complying with new or revised accounting standards (that is, an “emerging growth company” can delay +the adoption of certain accounting standards until those standards would otherwise apply to private companies). The Company intends to +take advantage of the benefits of this extended transition period. +Additionally, the Company is a “smaller +reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced +disclosure obligations, including, among other things, providing only two years of audited financial statements. The Company will remain +a smaller reporting company until the last day of the fiscal year in which (1) the market value of the ordinary shares held by non-affiliates +equals or exceeds $250 million as of the prior September 30, and (2) the annual revenues equaled or exceeded $100 million during such +completed fiscal year or the market value of the ordinary shares held by non-affiliates equals or exceeds $700 million as of the prior +September 30. +Recently Issued Accounting Pronouncements +In December 2023, the FASB issued ASU No. 2023-09, +Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”) , which will require the Company to +disclose specified additional information in its income tax rate reconciliation and provide additional information for reconciling items +that meet a quantitative threshold. ASU 2023-09 will also require the Company to disaggregate its income taxes paid disclosure by federal, +state and foreign taxes, with further disaggregation required for significant individual jurisdictions. ASU 2023-09 will become effective +for Annual periods beginning after December 15, 2024. The Company is still reviewing the impact of ASU 2023-09. +The Company does not believe that any other recently +issued but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying financial statements. +Note 3. Capital Stock +Preferred Stock +As of December 31, 2024 and 2023, the Company +has 10,000,000 shares of preferred stock, par value of $ 0.0001 , authorized and none issued or outstanding. +Common Stock +As of December 31, 2024 and 2023, the Company +has 50,000,000 shares of common stock, par value of $ 0.0001 , authorized and has issued 5,000,000 shares of its $ 0.0001 par value common +stock for $ 500 to the founders of the Company. +F- 8 +Note 4. Income Taxes +As of December 31, 2024 and 2023, the Company +has approximately $ 32,500 and $ 23,100 in gross deferred tax assets resulting from net operating loss carry-forwards of $ 155,000 and $ 110,000 , +respectively, available to offset future taxable income through 2041 subject to the change in ownership provisions under IRC 382. A valuation +allowance has been recorded to fully offset these deferred tax assets because the Company’s management believes future realization +of the related tax benefits is uncertain. +The difference between the tax provision at the +statutory federal income tax rate on December 31, 2024 and 2023, and the tax provisions attributable to loss before income taxes is as +follows: +2024 +2023 +Statutory federal income taxes +21.0 % +21.0 % +Valuation allowance +( 21.0 )% +( 21.0 )% +Effective income tax rate, net +- +- +Note 5. Commitments and Related Party Transactions +Office Space +The Company utilizes the office space and equipment of its management +at no cost. +Note Payable - Stockholder +On December 10, 2021, the Company issued a promissory +note (the “Note”) to a stockholder of the Company pursuant to which the Company agreed to repay the sum of any and all amounts +advanced to the Company, on or before the date that the Company consummates a business combination with a private company or reverse takeover +transaction or other transaction after which the Company would cease to be a shell company. Interest shall not accrue on the outstanding +principal amount of the note except if an Event of Default (as defined in the note) has occurred. In the event of an Event of Default, +the entire note shall automatically become due and payable (the “Default Date”) and starting from five (5) days after the +Default Date, the interest rate on the note shall accrue at the rate of eighteen percent ( 18 %) per annum. As of December 31, 2024 and +2023, the amount due under the note payable was $ 147,025 and $ 99,525 , respectively. +Note 6. Going Concern +The accompanying financial statements have been +prepared assuming the Company will continue as a going concern, which contemplates the recoverability of assets and the satisfaction of +liabilities in the normal course of business. +The Company has accumulated deficit and total +stockholders’ deficit of $ 154,761 and $ 154,261 , respectively as of December 31, 2024. Management believes these conditions raise +substantial doubt about the Company’s ability to continue as a going concern for the twelve months following the date these financial +statements are issued. Management intends to finance operations over the next twelve months through additional borrowings from the existing +Note. +The accompanying financial statements do not include +any adjustments that might be required should the Company be unable to continue as a going concern. +Note 7. Subsequent Events +The Company evaluated subsequent events and transactions +that occurred after the balance sheet date up to the date that the financial statements were issued. Based upon this review, the Company +did not identify any subsequent events, other than the below, that would have required adjustment or disclosure in the financial statements. +Formation of New Blank Check Company +On January 2, 2025, the related party owners of +the Company formed a new blank check company, Orielle Acquisition Corp. This new entity was established as a vehicle to pursue a business +combination and will focus its efforts to identify a possible business combination. The formation of Orielle Acquisition Corp. does not +impact the Company’s financial position or results of operations as of December 31, 2024. However, it may present potential opportunities +for collaboration or strategic partnerships in the future. +F-9 +0001918102 +false +FY +0 +0001918102 +2024-01-01 +2024-12-31 +0001918102 +2025-03-28 +0001918102 +2024-06-30 +0001918102 +2024-12-31 +0001918102 +2023-12-31 +0001918102 +2023-01-01 +2023-12-31 +0001918102 +us-gaap:CommonStockMember +2022-12-31 +0001918102 +us-gaap:RetainedEarningsMember +2022-12-31 +0001918102 +2022-12-31 +0001918102 +us-gaap:CommonStockMember +2023-01-01 +2023-12-31 +0001918102 +us-gaap:RetainedEarningsMember +2023-01-01 +2023-12-31 +0001918102 +us-gaap:CommonStockMember +2023-12-31 +0001918102 +us-gaap:RetainedEarningsMember +2023-12-31 +0001918102 +us-gaap:CommonStockMember +2024-01-01 +2024-12-31 +0001918102 +us-gaap:RetainedEarningsMember +2024-01-01 +2024-12-31 +0001918102 +us-gaap:CommonStockMember +2024-12-31 +0001918102 +us-gaap:RetainedEarningsMember +2024-12-31 +0001918102 +2024-10-01 +2024-12-31 +0001918102 +ssai:PromissoryNoteMember +2021-12-10 +xbrli:shares +iso4217:USD +iso4217:USD +xbrli:shares +xbrli:pure \ No newline at end of file diff --git a/raw/filings/0001918102/2024/0001013762-25-003765/filing_metadata.csv b/raw/filings/0001918102/2024/0001013762-25-003765/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..ad7a10cd808e404977ee31c435cf90be5d30bfb8 --- /dev/null +++ b/raw/filings/0001918102/2024/0001013762-25-003765/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001918102,FISN,"DEEP FISSION, INC.",2024,10-K,2025-03-28,2024-12-31,2025-03-28T16:00:57.000Z,0001013762-25-003765,ea0235510-10k_surfside.htm,ANNUAL REPORT,1749922,1,1,https://www.sec.gov/Archives/edgar/data/1918102/000101376225003765/ea0235510-10k_surfside.htm,https://www.sec.gov/Archives/edgar/data/1918102/000101376225003765/ diff --git a/raw/filings/0001918102/2024/0001013762-25-003765/item1.txt b/raw/filings/0001918102/2024/0001013762-25-003765/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..a85e044ee302d523d737b36f4e934f5b7eaea9e7 --- /dev/null +++ b/raw/filings/0001918102/2024/0001013762-25-003765/item1.txt @@ -0,0 +1,209 @@ +Item 1. Business. +Surfside Acquisition Inc. was incorporated in +the State of Delaware on December 10, 2021. Since inception, the Company has been engaged in organizational efforts and obtaining initial +financing. The Company was formed as a vehicle to pursue a business combination and has made no efforts to identify a possible business +combination. As a result, the Company has not conducted negotiations or entered into a letter of intent concerning any target business. +The business purpose of the Company is to seek the acquisition of or merger with, an existing company. The Company selected December 31 st as +its fiscal year end. +The Company, based on proposed business activities, +is a “blank check” company. The U.S. Securities and Exchange Commission (the “SEC”) defines those companies as +“any development stage company that is issuing a penny stock, within the meaning of Section 3 (a)(51) of the Exchange Act, and that +has no specific business plan or purpose, or has indicated that its business plan is to merge with an unidentified company or companies.” +Under SEC Rule 12b-2 under the Exchange Act, the Company also qualifies as a “shell company,” because it has no or nominal +assets (other than cash) and no or nominal operations. As of December 31, 2024, the Company had $3,464 cash, and its auditors have issued +an opinion raising substantial doubt about its ability to continue as a going concern. Many states have enacted statutes, rules and regulations +limiting the sale of securities of “blank check” companies in their respective jurisdictions. Management does not intend to +undertake any efforts to cause a market to develop in our securities, either debt or equity, until we have successfully concluded a business +combination. The Company intends to comply with the periodic reporting requirements of the Exchange Act for so long as it is subject to +those requirements. +The Company was organized as a vehicle to investigate +and, if such investigation warrants, acquire a target company or business seeking the perceived advantages of being a publicly held corporation. +The Company’s principal business objective for the next 12 months and beyond such time will be to achieve long-term growth potential +through a combination with a business rather than immediate, short-term earnings. The Company will not restrict its potential candidate +target companies to any specific business, industry or geographical location and, thus, may acquire any type of business. The Company +has not conducted any active operations since inception, except for its efforts to locate suitable acquisition candidates. The Company’s +plan of operation for the remainder of the fiscal year and beyond such time shall be to continue its efforts to locate suitable acquisition +candidates. As of the date of this filing, the Company has not identified any specific milestones to be achieved by any specific date. +During the remainder of the fiscal year and beyond +such time, we anticipate incurring costs related to the filing of Exchange Act reports, and investigating, analyzing and consummating +an acquisition. We believe we will be able to meet these costs through the use of funds to be loaned by or invested in us by our stockholders, +management or other investors. Our management and stockholders have indicated their intent to advance funds on behalf of the Company as +needed in order to accomplish its business plan and comply with its Exchange Act reporting requirements; however, there are no agreements +in effect between the Company and our management and stockholders specifically requiring that they provide any funds to the Company. As +a result, there are no assurances that such funds will be advanced or that the Company will be able to secure any additional funding as +needed. +The analysis of new business opportunities will +be undertaken by or under the supervision of the Company’s management. As of the date of this filing, the Company has not entered +into any definitive agreement with any party, nor have there been any specific discussions with any potential business combination candidate +regarding business opportunities for the Company. While the Company has limited assets and no revenues, the Company has unrestricted flexibility +in seeking, analyzing and participating in potential business opportunities in that it may seek out a target company in any type of business, +industry or geographical location. In its efforts to analyze potential acquisition targets, the Company will consider the following kinds +of factors: +(a) +potential for growth, indicated by new technology, anticipated market expansion or new products; +(b) +competitive position as compared to other firms of similar size and experience within the industry segment as well as within the industry as a whole; +1 +(c) +strength and diversity of management, either in place or scheduled for recruitment; +(d) +capital requirements and anticipated availability of required funds, to be provided by the Company or from operations, through the sale of additional securities, through joint ventures or similar arrangements or from other sources; +(e) +the cost of participation by the Company as compared to the perceived tangible and intangible values and potentials; +(f) +the extent to which the business opportunity can be advanced; and +(g) +the accessibility of required management expertise, personnel, raw materials, services, professional assistance and other required items. +In applying the foregoing criteria, no one of +which will be controlling, management will attempt to analyze all factors and circumstances and make a determination based upon reasonable +investigative measures and available data. Potentially available business opportunities may occur in many different industries, and at +various stages of development, all of which will make the task of comparative investigation and analysis of such business opportunities +extremely difficult and complex. Due to the Registrant’s limited capital available for investigation, the Registrant may not discover +or adequately evaluate adverse facts about the opportunity to be acquired. In addition, we will be competing against other entities that +possess greater financial, technical and managerial capabilities for identifying and completing business combinations. +In evaluating a prospective business combination, +we will conduct as extensive a due diligence review of potential targets as possible given the lack of information that may be available +regarding private companies and our limited personnel and financial resources. We expect that our due diligence will encompass, among +other things, meetings with the target business’s incumbent management, an inspection of its facilities, as necessary and a review +of financial and other information which is made available to us. +This due diligence review will be conducted either +by our management or by unaffiliated third parties we may engage, including but not limited to attorneys, accountants, consultants or +other such professionals. As of the date of this filing, the Company has not specifically identified any third parties that it may engage. +The costs associated with hiring third parties as required to complete a business combination may be significant and are difficult to +determine as such costs may vary depending on a variety of factors, including the amount of time it takes to complete a business combination, +the location of the target company, and the size and complexity of the business of the target company. +While the Company does not intend to retain any +entity to act as a “finder”, the Company’s management, through its various contacts and affiliations with other entities, +including Montrose Capital Partners Limited (“Montrose Capital”), a privately held company that focuses on identifying public +markets venture capital investment opportunities in high growth early stage companies, may assist in making introductions to candidates +for a potential business combination. Montrose Capital is a sector agnostic privately held firm that has identified and invested, through +its principal owners, in a wide spectrum of global industries, including in biotechnology, specialty pharmaceuticals, medical devices, +robotics, and technology, and may assist the Company with due diligence in the form of identifying a business combination target. A stockholder +and director and the sole officer of the Company, Ian Jacobs, is an associate of Montrose Capital. A stockholder and director of the Company, +Mark Tompkins, is an officer and principal owner of Montrose Capital. Except as described herein, there are currently no other agreements +or preliminary understandings between us and Montrose Capital. As of the date of this filing, Montrose Capital has not introduced any +specific candidate for a potential business combination to the Company. +Our limited funds and the lack of full-time management +will likely make it impracticable to conduct a complete and exhaustive investigation and analysis of a target business before we consummate +a business combination. Management decisions, therefore, will likely be made without detailed feasibility studies, independent analysis, +market surveys and the like which, if we had more funds available to us, would be desirable. We will be particularly dependent in making +decisions upon information provided by the promoters, owners, sponsors or others associated with the target business seeking our participation. +2 +The time and costs required to select and evaluate +a target business and to structure and complete a business combination cannot presently be ascertained with any degree of certainty. The +amount of time it takes to complete a business combination, the location of the target company, and the size and complexity of the business +of the target company, whether current stockholders of the Company will retain equity in the Company, the scope of the due diligence investigation +required, the involvement of the Company’s auditors in the transaction, possible changes in the Company’s capital structure +in connection with the transaction, and whether funds may be raised contemporaneously with the transaction are all factors that determine +the costs associated with completing a business combination transaction. The time and costs required to complete a business combination +can be estimated once a business combination target has been identified. Any costs incurred with respect to the evaluation of a prospective +business combination that is not ultimately completed will result in a loss to us. +Through information obtained from industry professionals +including attorneys, investment bankers, and other consultants with experience in the reverse merger industry, the Company is aware that +there are hundreds of shell companies seeking a business combination target. As a result, the Company believes it is in a highly competitive +market for a small number of business opportunities which could reduce the likelihood of consummating a successful business combination. +We are, and will continue to be, an insignificant participant in the business of seeking mergers with, joint ventures with and acquisitions +of small private and public entities. Many established and well-financed entities, including small public companies and venture capital +firms, are active in mergers and acquisitions of companies that may be desirable target candidates for us. Nearly all these entities have +significantly greater financial resources, technical expertise and managerial capabilities than we do; consequently, we will be at a competitive +disadvantage in identifying possible business opportunities and successfully completing a business combination. These competitive factors +may reduce the likelihood of our identifying and consummating a successful business combination. +In addition, management is currently involved +with another blank check company—namely, Aspen-1 Acquisition Inc. for the year ended December 31, 2024. +The Company may become associated with additional +blank check companies at any time in the future. As a result, conflicts may arise during the pursuit of business combinations with other +such companies with which our management is involved or may become involved with in the future if we and the other blank check companies +that our officers and directors are affiliated with desire to take advantage of the same business opportunity. +At this time, the Company has not identified any +specific factors or criteria that will be used to determine which entity will proceed with a proposed transaction in the event of a conflict +of interest and management reserves the right to use any such criteria as it determines to be relevant at the time a proposed transaction +is presented. However, in the event a conflict of interest arises in connection with the identification of a proposed business transaction, +the Company’s management and board of directors will use their reasonable judgment and intend to take all such actions as may be +required in order to satisfy their fiduciary duties. At this time, our management has not identified any specific conflicts of interests. +We have had and currently have no employees. Our +officer and directors are engaged in outside business activities and are employed on a full-time basis by other companies. Our officer +and directors will be dividing their time amongst these entities and anticipate that they will devote very limited time to our business +until the acquisition of a successful business opportunity has been identified. The specific amount of time that management will devote +to the Company may vary from week to week or even day to day, and therefore the specific amount of time that management will devote to +the Company on a weekly basis cannot be ascertained with any level of certainty. In all cases, management intend to spend as much time +as is necessary to exercise their fiduciary duties as an officer and/or director of the Company and believe that they will be able to +devote the time required to consummate a business combination transaction as necessary. +We expect no significant changes in the number +of our employees other than such changes, if any, incident to a business combination. Because of the nature of our business, management +does not believe it is necessary for us to focus on any human capital measures or objectives in managing our business (such as measures +or objectives that address the development, attraction and retention of personnel). +3 +Form of Acquisition +The manner in which the Registrant participates +in an opportunity will depend upon the nature of the opportunity, the respective needs and desires of the Registrant and the promoters +of the opportunity, and the relative negotiating strength of the Registrant and such promoters. +It is likely that the Registrant will acquire +its participation in a business opportunity through the issuance of its Common Stock or other securities of the Registrant, which could +result in substantial dilution to the equity of stockholders of the Registrant immediately prior to the consummation of a transaction. +Although the terms of any such transaction have not been identified and cannot be predicted, it is expected that any business combination +transaction the Company may enter into would be structured as a “tax free” reorganization. It should be noted that the criteria +for determining whether or not an acquisition is a so-called “tax free” reorganization under Section 368(a)(1) of the Internal +Revenue Code of 1986, as amended (the “Code”) depends upon the transaction meeting certain statutory and non-statutory requirements. +There are different types of statutory requirements for each type of tax-free reorganization and thus each transaction must be reviewed +carefully to determine its eligibility for a tax-free reorganization. One of the statutory requirements in a tax-free reorganization is +that at least a certain percentage of the total consideration in the transaction must be voting stock of the acquirer corporation. This +could result in substantial dilution to the equity of those who were stockholders of the Registrant prior to such reorganization. In addition, +post-transaction dispositions of the Registrant’s stock received as consideration could have implications for the tax-free nature +of the transaction in question. The Company does not intend to supply disclosure to stockholders concerning a target company prior to +the consummation of a business combination transaction, unless required by applicable law or regulation. In the event a proposed business +combination involves a change in a majority of the directors of the Company, the Company will file and provide to stockholders a Schedule +14F-1, which shall include, information concerning the target company, as required. The Company will file a current report on Form 8-K, +as required, within four business days of a business combination which results in the Company ceasing to be a shell company. This Form +8-K will include complete disclosure of the target company, including audited financial statements. +The present stockholders of the Registrant will +likely not have control of a majority of the voting securities of the Registrant following a reorganization transaction. As part of such +a transaction, all or a majority of the Registrant’s directors may resign, and one or more new directors may be appointed without +any vote by stockholders. +In the case of an acquisition, the transaction +may be accomplished upon the sole determination of management without any vote or approval by stockholders. In the case of a statutory +merger or consolidation directly involving the Company, it will likely be necessary to call a stockholders’ meeting and obtain the +approval of the holders of a majority of the outstanding securities. The necessity of obtaining such stockholder approval may result in +delay and additional expense in the consummation of any proposed transaction and will also give rise to certain appraisal rights to dissenting +stockholders. Most likely, management will seek to structure any such transaction so as not to require stockholder approval. +The Company intends to search for a target for +a business combination by contacting various sources including, but not limited to, our affiliates, lenders, investment banking firms, +private equity funds, consultants and attorneys. The approximate number of persons or entities that will be contacted is unknown and dependent +on whether any opportunities are presented by the sources that we contact. Due to our management’s affiliation with Montrose Capital, +we expect that Montrose Capital may be able to assist the Company in identifying a business combination target for us. We currently do +not have any agreements or preliminary agreements between us and any other entities including but not limited to Montrose Capital. +It is anticipated that the investigation of +specific business opportunities and the negotiation, drafting and execution of relevant agreements, disclosure documents and other +instruments will require substantial management time and attention and substantial cost for accountants, attorneys and others. The +costs that will be incurred are difficult to determine with any degree of specificity at this time, as such costs are expected to be +dependent on factors such as (1) the amount of time it takes to identify and complete a business combination transaction; (2) the +location, size and complexity of the business, of the target company; (3) whether current stockholders of the Company will retain +equity in the Company; (4) the scope of the due diligence investigation required; (5) the involvement of the Company’s +auditors in the transaction; (6) possible changes in the Company’s capital structure in connection with the transaction; (7) +and whether funds may be raised contemporaneously with the transaction. If a decision is made not to participate in a specific +business opportunity, the costs theretofore incurred in the related investigation might not be recoverable. Furthermore, even if an +agreement is reached for the participation in a specific business opportunity, the failure to consummate that transaction may result +in the loss to the Registrant of the related costs incurred. The Company has not established a timeline with respect to the +identification of a business combination target. +4 +Emerging Growth Company +The Company is an “emerging growth company” +as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”), and may take advantage of certain exemptions from +various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, +but not limited to, not being required to comply with the auditor attestation requirements of section 404(b) of the Sarbanes-Oxley Act, +and exemptions from the requirements of Sections 14A(a) and (b) of the Securities Exchange Act of 1934 to hold a nonbinding advisory vote +of stockholders on executive compensation and any golden parachute payments not previously approved. +The Company has elected to use the extended transition +period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act. This election allows us to delay +the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards +apply to private companies. As a result of this election, our financial statements may not be comparable to companies that comply with +public company effective dates. +We will remain an “emerging growth company” +for up to five years, although we will lose that status sooner if our revenues exceed $1.235 billion, if we issue more than $1 billion +in non-convertible debt in a three-year period, or if the market value of our common stock that is held by non-affiliates exceeds $700 +million as of the end of the second quarter of any fiscal year following the anniversary of the initial reporting. +To the extent that we continue to qualify as a +“smaller reporting company”, as such term is defined in Rule 12b-2 under the Exchange Act, after we cease to qualify as an +emerging growth company, certain of the exemptions available to us as an emerging growth company may continue to be available to us as +a smaller reporting company, including: (1) not being required to comply with the auditor attestation requirements of Section 404(b) of +the Sarbanes Oxley Act; (2) scaled executive compensation disclosures; and (3) the requirement to provide only two years of audited financial +statements, instead of three years. \ No newline at end of file diff --git a/raw/filings/0001918102/2024/0001013762-25-003765/item13.txt b/raw/filings/0001918102/2024/0001013762-25-003765/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..e90b605a35ec3d7839fb9acd431a42434b52020a --- /dev/null +++ b/raw/filings/0001918102/2024/0001013762-25-003765/item13.txt @@ -0,0 +1,3 @@ +Item 13. +Certain Relationships and Related Transactions, and Director Independence +18 \ No newline at end of file diff --git a/raw/filings/0001918102/2025/0001104659-26-043870/filing.txt b/raw/filings/0001918102/2025/0001104659-26-043870/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..4d242832f1ba3a6b9dc54d631e860811371fea32 --- /dev/null +++ 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13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +​ +For the fiscal year ended December 31, 2025 +​ +OR +​ +☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +​ +For the transition period from _______ to _______ +​ +Commission file number: 000-56407 +​ +Deep Fission, Inc. +(Exact name of registrant as specified in its charter) +​ +Delaware +​ ​ ​ +87-4265302 +(State or other jurisdiction of +incorporation or organization) +​ +(I.R.S. Employer +Identification No.) +​ +​ +2001 Addison St. , Suite 300 +Berkeley , California 94704 +(Address of principal executive offices) +​ +( 707 ) 400-0778 +(Registrant’s telephone number, including area code) +​ +Securities registered pursuant to Section 12(b) of the Act: +​ +Title of Each Class: +​ ​ ​ +Trading Symbol(s): +​ ​ ​ +Name of Each Exchange on Which Registered: +N/A +​ +N/A +​ +N/A +​ +​ +Securities registered pursuant to Section 12(g) of the Act: +Common Stock, $0.0001 par value per share +Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ +​ +Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒ +​ +Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ +​ +Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ +​ +Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. +​ +​ +​ +​ +​ +​ +​ +​ +​ +Large accelerated filer +☐ +Accelerated filer +☐ +Non-accelerated filer +☒ +Smaller reporting company +☒ +​ +​ +Emerging growth company +☒ +​ +If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ +​ +Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐ +​ +If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐ +​ +Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ +​ +Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ +​ +As of the last business day of the registrant’s most recently completed second fiscal quarter, the registrant’s common stock was not listed on a national securities exchange, and it therefore cannot calculate the aggregate market value of its voting and non-voting common equity held by non-affiliates as of such date. +​ +As of March 31, 2026, there were 56,207,422 shares of common stock issued and outstanding. +​ +​ +​ +​ +Table of Contents +TABLE OF CONTENTS +​ +​ +​ ​ ​ +​ +​ ​ ​ +Page +PART I +​ +​ +Item 1. +​ +Business +1 +Item 1A. +​ +Risk Factors +19 +Item 1B. +​ +Unresolved Staff Comments +39 +Item 1C +​ +Cybersecurity +39 +Item 2. +​ +Properties +40 +Item 3. +​ +Legal Proceedings +41 +Item 4. +​ +Mine Safety Disclosures +41 +​ +​ +​ +​ +PART II +​ +Item 5. +​ +Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +42 +Item 6. +​ +[Reserved] +42 +Item 7. +​ +Management’s Discussion and Analysis of Financial Condition and Results of Operations +42 +Item 7A. +​ +Quantitative and Qualitative Disclosures About Market Risk +48 +Item 8. +​ +Financial Statements and Supplementary Data +48 +Item 9. +​ +Changes in and Disagreements with Accountants on Accounting and Financial Disclosure +48 +Item 9A. +​ +Controls and Procedures +48 +Item 9B. +​ +Other Information +49 +Item 9C. +​ +Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +49 +​ +​ +​ +​ +PART III +​ +​ +Item 10. +​ +Directors, Executive Officers and Corporate Governance +50 +Item 11. +​ +Executive Compensation +55 +Item 12. +​ +Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +62 +Item 13. +​ +Certain Relationships and Related Transactions, and Director Independence +64 +Item 14. +​ +Principal Accounting Fees and Services +67 +​ +​ +​ +​ +PART IV +​ +​ +Item 15. +​ +Exhibits and Financial Statement Schedules +69 +Item 16. +​ +Form 10-K Summary +69 +​ +​ +​ +i +Table of Contents +LETTER FROM THE CEO AND CO-FOUNDER +Dear Fellow Shareholders, +We are excited to file our first Annual Report as a public company, and I wanted to share this letter to highlight some of the key priorities that are discussed in more detail elsewhere in this report. +Foremost, I believe the biggest barrier to nuclear energy isn’t new reactor technology; it’s time. +For decades, many in our industry have followed the same, tired playbook: design a reactor, show it works on paper, then try to figure out how to commercialize the design. Each step typically adds years and can cost hundreds of millions (or potentially even billions) of dollars, waiting until the final step to determine whether the technology is viable to generate and sell electricity. By that time, the commercial opportunity may have already passed. +I think there’s a better way. Deep Fission’s goal is to focus on commercial deployment from the start. +At Deep Fission, we’re not trying to invent a new type of reactor. The technology we are utilizing, pressurized water reactors (PWRs), has been deployed for decades in commercial power generation, and uses readily-available low-enriched uranium (LEU) fuel. As of 2025, there are 64 safely operating PWRs in the United States, generating about 12% of our nation’s electricity. Due to this legacy of continuous operation, criticality is not our primary technical proof point. +Our difference is our deployment model. +From the beginning, we have prioritized deployment over invention. Our Gravity Nuclear Reactor leverages existing capabilities developed in the oil, gas, and geothermal industries to deploy established PWR technology in a new way. This involves novel emplacement of PWRs in mile-deep boreholes underground, utilizing the rock itself to provide structural confinement and shielding, along with pressure from a mile-long column of water on top of the reactor in the borehole. This reduces the need for large surface infrastructure associated with conventional nuclear power plants, allowing us to streamline deployment of a technology we already understand. +As our business has begun to mature, we are now sharing our phased plan for commercial viability in the next three years. +In December 2025 we broke ground in Parsons, Kansas, in furtherance of participation in the Department of Energy’s (“DOE”) Reactor Pilot Program. We have already drilled our first data acquisition well to gather real-world data up to 6,000 feet deep. Next, we will demonstrate our ability to drill a commercial-scale borehole and safely deploy a prototype reactor. We’re aiming to complete this drilling, engineering, and emplacement validation phase in the coming months. +The balance of this year and into early 2027 will be focused on delivery of key components for full-system installation, including well casing, our reactor canister, and heat exchanger, as well as LEU fabrication and loading. Pending DOE authorization, we plan to demonstrate our system and apply for a commercial license in the first half of 2027, converting the same pilot reactor to commercial operation. We are targeting as early as that same year to seek high-volume commercial licensing for deployment of multiple boreholes and subsequently, at multiple sites. +Deep Fission is prioritizing validation of the hardest and most differentiated parts of our system, to reduce risk earlier and move more directly toward a commercial outcome. We are working closely with both the DOE and the Nuclear Regulatory Commission to align demonstration and licensing, aiming to move these efforts forward in parallel. +Our goal is to bring new nuclear capacity online faster and more predictably, on pace with modern infrastructure and AI-driven demand. Nuclear can help meet the need for more electricity, but only if we build it in a way that works in the real world. We are starting with planned sites in Kansas, Texas, and Utah, inviting people, partners, and the public to build with us. +We encourage you to read the rest of our Annual Report for additional information regarding our business, including our key priorities. +Sincerely, +Elizabeth Muller +Chair, President and Chief Executive Officer of Deep Fission, Inc. +​ +ii +Table of Contents +EXPLANATORY NOTE +Restatement Background +As previously announced in our Current Report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on April 9, 2026, on April 9, 2026, the Audit Committee (the “Audit Committee”) of the board of directors, in consultation with management, concluded that the audited consolidated financial statements for the fiscal year ended December 31, 2024 and for the period from July 17, 2023 (inception) through December 31, 2023, and the unaudited condensed consolidated financial statements for the six month periods ended June 30, 2024 and 2025, and the three- and nine-month periods ended September 30, 2024 and 2025 of Deep Fission, Inc. (“Deep Fission,” the “Company,” “we,” “our,” or “us”) could no longer be relied upon as a result of material accounting errors identified by management subsequent to the issuance of the Company’s unaudited interim condensed consolidated financial statements as of and for the fiscal quarter ended September 30, 2025. +This Annual Report on Form 10-K for the fiscal year ended December 31, 2025 (this “Annual Report”) includes audited consolidated financial statements of the Company for the fiscal years ended December 31, 2025 and 2024. The consolidated financial statements for the year ended December 31, 2024 and the unaudited condensed consolidated financial information for the six-month periods ended June 30, 2024 and 2025, and the three- and nine-month periods ended September 30, 2024 and 2025 included in this Annual Report have been restated to reflect the correction of identified errors (the “Misstatements”) related to valuations of Simple Agreement for Future Equity (“SAFE Notes”) and stock-based compensation expense (the “Restatement”) (refer to Note 2. Restatement of Previously Issued Consolidated Financial Statements and Note 12. Quarterly Financial Data (Unaudited) to our financial statements included in Part II, Item 8 of this Annual Report for additional information). +All material restatement information that relates to the Misstatements is included in this Annual Report, and we do not intend to separately amend other documents that the Company has previously filed with the SEC. As a result, the financial statements of the Company included in any documents that the Company has previously filed with the SEC should no longer be relied upon. +Control Considerations +Although management did not conduct a formal assessment of internal control over financial reporting as of December 31, 2025, in accordance with Section 215.02 of the SEC Division of Corporation Finance’s Regulation S-K Corporation Finance Interpretations, as a result of the errors described above and the related restatement, the Company identified certain material weaknesses in its internal control over financial reporting. As a result of the material weaknesses in internal control over financial reporting, our disclosure controls and procedures were not effective at a reasonable assurance level as of June 30, 2024, September 30, 2024, December 31, 2024, June 30, 2025, September 30, 2025, and December 31, 2025. Management will be implementing changes to strengthen our internal controls and remediate the material weaknesses. See Item 9A, “Controls and Procedures” for additional information related to the material weaknesses in internal control over financial reporting and our related remediation activities. +​ +iii +Table of Contents +CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS +​ +This Annual Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and is intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. All statements contained in this Annual Report other than statements of historical fact are forward-looking statements. +Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “target,” “potential,” “continue,” “could,” “will,” “would,” or similar expressions, or the negative of these terms or similar expressions, although not all forward-looking statements contain these identifying words. +Forward-looking statements contained in this Annual Report include, but are not limited to, statements regarding our future results of operations and financial condition; business strategy; plans; objectives and expectations for our business; operations and technology; risks related to the restatement of our consolidated financial statements included in this Annual Report and for other periods impacted by the restatement as identified in our Current Report on Form 8-K filed with the SEC on April 9, 2026, and any potential litigation or investigation related to such restatement; our ability to maintain effective internal control over financial reporting and disclosure controls and procedures, including our ability to remediate any existing material weaknesses in our internal control over financial reporting and the timing of any such remediation, as well as to reestablish effective disclosure controls and procedures at a reasonable assurance level; and the assumptions underlying or relating to any of the foregoing. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to differ materially from those expressed or implied by the forward-looking statements. +Important factors that could cause actual results to differ materially from those in the forward-looking statements in this Annual Report include, among other things, the factors summarized below: +· +our status as a pre-revenue company, our ability to continue as a going concern, and our ability to achieve or sustain profitability; +· +our ability to raise substantial additional capital through equity, debt or other financing transactions on acceptable terms, or at all, to fund our operations, technology development, regulatory activities, construction, testing and commercialization; +· +our ability to design, develop, test, validate, license, construct, deploy and operate our Gravity Nuclear Reactor (“Gravity Reactor”) and related technologies, including the feasibility of our subsurface deployment model and our ability to drill, construct and maintain boreholes and related infrastructure to the required depth, width and technical specifications; +· +our ability to identify, acquire, lease or otherwise obtain access to suitable sites for the construction and operation of our facilities, including sites with appropriate geologic characteristics and regulatory approvals for drilling and nuclear activities; +· +our ability to build, commission and successfully operate test reactors, demonstration facilities or commercial reactors, including under the DOE’s (as defined below) Reactor Pilot Program or other government programs; +· +our ability to obtain, maintain and renew required licenses, permits and approvals from the NRC (as defined below), the DOE and other federal, state, local or foreign governmental and regulatory authorities, and the timing and outcome of such regulatory processes; +· +the availability, timing, adequacy and cost of nuclear fuel necessary to operate our reactors, including LEU (as defined below) or other fuels, and our ability to secure fuel supply arrangements on commercially reasonable terms, or at all; +· +the cost, availability and performance of key materials, components and services, including specialized nuclear, drilling and industrial equipment and services, and our reliance on third-party suppliers, contractors and strategic partners; +· +our ability to manage operating expenses, capital expenditures and construction costs, including the risk that development or deployment costs may be higher than anticipated; +· +our ability to meet development, construction, testing, regulatory and commercialization timelines; +iv +Table of Contents +· +the willingness of customers, investors, strategic partners and regulators to adopt or support our technology, particularly given our limited operating history and the fact that our technology has not yet been proven at commercial scale; +· +our ability to identify customers for our electricity or related services and to negotiate and enter into power purchase agreements or other long-term commercial arrangements on acceptable terms, or at all; +· +our ability to obtain timely and cost-effective interconnection to electric transmission systems and access to sufficient transmission capacity to deliver electricity generated by our facilities to customers; +· +our ability to attract and retain qualified personnel, including our executive officers, technical leadership and other key employees; +· +our ability to obtain, maintain, protect and enforce our intellectual property rights and to operate our business without infringing, misappropriating or otherwise violating the intellectual property rights of others; +· +the development of an active trading market for our common stock, including our ability to obtain and maintain a quotation on the OTC markets or listing on a national securities exchange, and the risk that an active or liquid trading market may not develop or be sustained; +· +the liquidity and potential volatility of the market price of our common stock if a trading market develops; +· +the impact of domestic and international economic, financial, political and legal developments on our operations, including changes in interest rates, inflation, taxes, tariffs, trade policies, commodity costs, labor costs and capital markets conditions; +· +changes in laws, regulations, policies, mandates, interpretations, enforcement priorities and funding levels applicable to nuclear energy, environmental protection, drilling, construction and other aspects of our business; +· +the risk of accidents, safety incidents, operational failures, construction incidents or other catastrophic events associated with nuclear facilities or related infrastructure, including risks of personal injury, illness, death, environmental contamination, property damage and associated liability; +· +our potential exposure to environmental liabilities, including under CERCLA (as defined below) and other environmental, health and safety laws and regulations; +· +the costs associated with the handling, storage, transportation and disposal of spent nuclear fuel and other radioactive or hazardous materials; +· +cybersecurity risks affecting our systems, infrastructure, facilities or third-party partners; +· +the outcome of litigation, investigations, regulatory proceedings or other legal matters; +· +risks relating to negative public or political perception of us or the nuclear energy industry generally; and +· +the risks, uncertainties and other factors described in the section titled “Risk Factors” and elsewhere in this Annual Report. +The foregoing does not represent an exhaustive list of factors that could impact the forward-looking statements contained herein or the risk factors that we are faced with. Moreover, we operate in a highly regulated, capital-intensive and evolving industry, and new risks and uncertainties may emerge from time to time that could affect our business, prospects, results of operations, or financial condition. +v +Table of Contents +Forward-looking statements in this Annual Report are based on management’s current expectations, estimates, forecasts, projections, beliefs and assumptions and on information available to us as of the date of this Annual Report. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that such expectations will prove to be correct. Forward-looking statements are inherently subject to known and unknown risks, uncertainties and other factors, many of which are beyond our control, that could cause our actual results, performance, developments or achievements to differ materially from those expressed in or implied by the forward-looking statements. +Accordingly, you should not place undue reliance on forward-looking statements. Forward-looking statements speak only as of the date of this Annual Report. Except as required by applicable law, we undertake no obligation to update or revise any forward-looking statements to reflect events or circumstances after the date of this Annual Report or to reflect the occurrence of unanticipated events. +Implications of Being an Emerging Growth Company and a Smaller Reporting Company +As a company with less than $1.235 billion in revenue during our last fiscal year, we qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”). An emerging growth company may take advantage of reduced reporting requirements that are otherwise applicable to public companies. These provisions include, but are not limited to: +· +being permitted to present only two years of audited financial statements and only two years of related “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure in our periodic reports and registration statements, including this Annual Report; +· +not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, as amended, on the effectiveness of our internal controls over financial reporting; +· +reduced disclosure obligations regarding executive compensation arrangements in our periodic reports, proxy statements and registration statements, including this Annual Report; and +· +exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. +We may use these provisions until the last day of our fiscal year in which the fifth anniversary of the first sale of our common stock pursuant to an effective registration statement occurs. However, if certain events occur prior to the end of such five-year period, including if we become a “large accelerated filer,” our annual gross revenues exceed $1.235 billion or we issue more than $1.00 billion of non-convertible debt in any three-year period, we will cease to be an emerging growth company prior to the end of such five-year period. +We have elected to take advantage of certain of the reduced disclosure obligations in this Annual Report and may elect to take advantage of other reduced reporting requirements in future filings. As a result, the information that we provide to our stockholders may be different than other public reporting companies. +vi +Table of Contents +The JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards, until those standards apply to private companies. We have elected to take advantage of the benefits of this extended transition period and, therefore, we will not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies, until these standards apply to private companies. Our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards. Until the date that we are no longer an emerging growth company or affirmatively and irrevocably opt out of the exemption provided by Section 7(a)(2)(B) of the Securities Act upon issuance of a new or revised accounting standard that applies to our financial statements and that has a different effective date for public and private companies, we will disclose the date on which we will adopt the recently issued accounting standard. We are also a “smaller reporting company,” as defined in the Exchange Act, meaning that the market value of our stock held by non-affiliates was less than $700 million and our annual revenue was less than $100 million during the most recently completed fiscal year. We will continue to be a smaller reporting company until the last day of the fiscal year in which either (i) the market value of our stock held by non-affiliates is more than $250 million measured on the last business day of our second fiscal quarter or (ii) our annual revenue is more than $100 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is more than $700 million measured on the last business day of our second fiscal quarter. If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company we have chosen, and may in the future choose, to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation. Likewise, if we are an emerging growth company at the time we cease to be a smaller reporting company, we may continue to rely on exemptions from certain disclosure requirements that are available to emerging growth companies. +Corporate Information +We were incorporated as Surfside Acquisition Inc. (“Surfside”) in the State of Delaware on December 10, 2021. Prior to the Merger (as defined below), we were a “shell company” (as defined in Rule 12b-2 under the Exchange Act). On September 5, 2025 (the “Merger Closing Date”), Surfside completed a merger (the “Merger”) with Deep Fission Nuclear, Inc. (formerly known as Deep Fission, Inc.), a private Delaware corporation (“Legacy Deep Fission”), pursuant to an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”), under which a wholly owned subsidiary of Surfside merged with and into Legacy Deep Fission, with Legacy Deep Fission continuing as the surviving corporation and becoming a wholly owned subsidiary of Surfside. In connection with the transaction, Surfside changed its name to Deep Fission, Inc. For financial reporting purposes, the transaction was treated as a recapitalization and reverse acquisition, with Legacy Deep Fission considered the accounting acquirer. +Our principal executive offices are located at 2001 Addison St., Suite 300, Berkeley, California 94704. Our telephone number is (707) 400-0778. Our website address is www.deepfission.com. The information contained on, or accessible through, our website is not incorporated by reference into this Annual Report, and the references to our website are intended to be inactive textual references only. +All trademarks, service marks and trade names appearing in this Annual Report are the property of their respective holders. Use or display by us of other parties’ trademarks, trade dress, or products in this Annual Report is not intended to, and does not, imply a relationship with, or endorsements or sponsorship of, us by the trademark or trade dress owners. +​ +​ +vii +Table of Contents +PART I +ITEM 1. Business +1. Company Overview +We are a nuclear energy technology company developing a small modular reactor (“SMR”) based on established pressurized water reactor (“PWR”) technology, with novel emplacement in deep boreholes approximately one mile below the Earth’s surface. Our reactor, which we refer to as the Gravity Reactor, will leverage subsurface conditions to support key containment and operating functions, including the use of hydrostatic pressure from a water column within the borehole to support reactor operating pressure and cooling, and the surrounding geological formation to provide structural confinement and shielding. This approach is intended to reduce reliance on large surface containment structures and other safety-related infrastructure associated with conventional nuclear power plants, support faster deployment timelines, improve security, enhance safety, and enable lower capital and operating costs relative to conventional nuclear facilities, while reducing exposure to environmental and other surface-level hazards. +Each Gravity Reactor is targeted to produce up to 15 megawatts of electric power output (“MWe”). Individual reactors may be deployed as standalone installations or grouped in clusters of boreholes at a single site, which may enable longer refueling cycles through coordinated fuel management, staggered refueling schedules and more efficient utilization of shared infrastructure, and support larger installations capable of supplying hundreds and potentially thousands of MWe of generation capacity. +The Company’s commercialization strategy is based on a phased deployment plan designed to move toward commercialization in the next three years. Given that reactor criticality using established PWR technology is well understood, the Company is prioritizing validation of the hardest and most differentiated parts of our system, to reduce risk earlier and move more directly toward a commercialization outcome. Specifically, the tests that we want to focus on are drilling to depth at commercial scale, installing and integrating a nuclear system a mile underground, and operating as part of a complete energy ecosystem. We also want to prove that we can do this in time to meet the AI-driven surge in demand for energy. The Company is currently participating in the U.S. Department of Energy (“DOE”) Reactor Pilot Program, and we expect to demonstrate our system as part of the DOE Reactor Pilot Program. +The first phase of the Company’s phased deployment plan involves engineering validation and proof of concept wells. The Company has a long-term lease for approximately 100 acres located within the Great Plains Industrial Park in Parsons, Kansas (the “Kansas Site”) and has commenced initial field development activities at the site. As part of this, the Company already drilled its first data acquisition well to gather real-world data up to 6,000 feet deep. Next, the Company will demonstrate its ability to drill a commercial-scale borehole and safely deploy a prototype reactor. The Company continues to advance its reactor design in parallel with these activities, including planning additional drilling activities and conducting related engineering and emplacement work, and is targeting completion of these activities in the coming months. The balance of this year and into early 2027 will be focused on delivery of key components for full-system installation, including well casing, our reactor canister, and heat exchanger, as well as LEU fabrication and loading. +The second phase of the Company’s phased deployment plan involves DOE authorization and one or more commercial pilot wells. Specifically, subject to DOE authorization, the Company intends to demonstrate the Gravity Reactor, and to apply for a commercial license with the U.S. Nuclear Regulatory Commission (“NRC”) in the first half of 2027, converting the same pilot reactor to commercial operation. We are working closely with both the DOE and the NRC to align demonstration and licensing, as we are aiming to move these efforts forward together rather than advancing them in sequence. +The third and final phase of the Company’s phased deployment plan involves the construction of surface facilities and seeking high-volume commercial licensing for deployment of multiple reactors at a single site through clustered boreholes, and subsequently, at multiple sites. We are targeting as early as 2027 to seek such high-volume commercial licensing with the NRC. +The Company’s approach to subsurface reactor deployment is supported by its intellectual property portfolio, which includes issued patents and pending patent applications relating to reactor configuration, deep subsurface emplacement, drilling and casing techniques, thermal-hydraulic performance, instrumentation and monitoring, and other technologies supporting the deployment of underground nuclear reactors. The Company believes that its intellectual property, together with its engineering expertise and ongoing development activities, supports its competitive position. +1 +Table of Contents +Legacy Deep Fission was incorporated in July 2023 and remains in the development stage. The Gravity Reactor remains in conceptual and early engineering stages, and the Company has not constructed or operated a commercial reactor or generated revenue. Current activities include reactor development, geological evaluation, large-diameter borehole drilling research and development, geothermal testing, safety analysis, regulatory engagement, site development, and commercialization planning. +2. Our Technology +The Gravity Reactor integrates established PWR technology with subsurface emplacement in a borehole environment. The system is designed to deliver reliable electricity at lower expected costs relative to conventional nuclear facilities by reducing surface infrastructure requirements and enabling faster deployment than conventional nuclear power plants, while also limiting exposure to environmental and other surface-level hazards. The design of our technology and associated drilling methods described below remains subject to further development and applicable regulatory approvals. +Reactor Architecture +The Gravity Reactor is based on PWR technology, the most widely deployed nuclear reactor technology in the global commercial nuclear fleet. PWRs use water as both coolant and moderator and have been deployed for decades in commercial power generation. +The Gravity Reactor adapts this established reactor architecture for installation within a deep vertical borehole. The reactor module is being designed as a compact unit to be positioned within a drilled and cased vertical borehole at depths of approximately one mile below the Earth’s surface. +The Gravity Reactor is expected to contain all nuclear fuel assemblies, coolant circulation systems, and structural components required to safely sustain controlled nuclear fission and transfer thermal energy for conversion into electricity. +Subsurface Deployment +A defining feature of the Gravity Reactor is the emplacement of the reactor module within a deep subsurface vertical borehole rather than within a conventional above-ground containment structure. The borehole is expected to be lined with steel casing and cement intended to maintain structural integrity and isolate surrounding geological formations. The reactor module will be installed within the borehole, surrounded by a column of water intended to provide external hydrostatic pressure and support cooling. Thermal energy produced within the reactor core will be carried by the primary coolant system to a heat exchanger located in the borehole, where it will be transferred to surface power conversion systems for conversion into electricity. The primary coolant will be a closed system that recirculates through the reactor core and primary heat exchanger. +Subsurface emplacement is intended to provide several safety benefits, including the availability of hydrostatic pressure and water inventory intended to support cooling, geological shielding and separation between the reactor system and the surface environment, reduced exposure to certain external hazards, increased security, and reduced reliance on safety-related surface infrastructure footprint relative to conventional nuclear facilities. +Deep Borehole Drilling +Deployment of the Gravity Reactor is expected to require the construction of 30- to 50-inch-diameter vertical boreholes extending to depths of approximately one mile below the Earth’s surface. Boreholes are expected to be drilled using technologies, service providers, and operational practices developed in the oil, gas, and geothermal industries. +The Company already drilled its first data acquisition well to gather real-world data up to 6,000 feet deep. Next, the Company will demonstrate its ability to drill a commercial-scale borehole and safely deploy a prototype reactor. The Company’s test drilling activities are intended to support evaluation of drilling methods, casing systems, and borehole stability. In parallel, the Company is conducting engineering studies and modeling activities to refine borehole design parameters, including diameter requirements, drilling techniques, and casing systems. +2 +Table of Contents +Reactor Installation and Emplacement +Following completion of borehole drilling and casing, the reactor module is expected to be lowered into the prepared borehole using specialized lifting and handling equipment and secured within the casing structure at the designated depth. Surface infrastructure, including monitoring systems, electrical equipment, and power conversion systems, is expected to be connected to the subsurface reactor system. The Company is conducting engineering studies and modeling activities to refine installation procedures and equipment specifications. +Hydrostatic Pressure and Cooling +The Gravity Reactor incorporates a column of water within the borehole above and surrounding the reactor module. The hydrostatic pressure generated by this water column is intended to support the pressure conditions required for safe reactor operation. +Water within the borehole is also intended to contribute to the reactor’s thermal management system. Thermal energy produced within the reactor core will be carried by the primary coolant system to a heat exchanger located in the borehole, where it will be transferred to surface power conversion systems for conversion into electricity. +Modular Reactor Units +Each Gravity Reactor is targeted to produce up to 15 MWe. Individual reactors may be deployed as standalone installations or grouped in clusters of boreholes at a single site. +Multiple boreholes deployed at a single location are intended to support larger installations capable of supplying hundreds and potentially thousands of MWe of generation capacity. This modular architecture is intended to allow reactor capacity to be added incrementally as electricity demand grows. +Fuel and Core Systems +Nuclear fuel for Gravity Reactors will consist of low-enriched uranium (“LEU”). LEU is produced and fabricated by qualified nuclear fuel suppliers. The Company expects that commercial reactor deployments will require long-term fuel supply arrangements with qualified enrichment, fabrication, and related fuel-cycle service providers. +The availability or cost of LEU may be influenced by uranium market conditions, enrichment and fabrication capacity, transportation constraints, regulatory requirements, geopolitical factors, or other supply chain disruptions. Global enrichment capacity is concentrated among a limited number of suppliers, including facilities in jurisdictions that may be subject to geopolitical developments, trade restrictions, or regulatory actions, which could affect the availability or cost of LEU. +Within the reactor module, nuclear fuel assemblies will sustain controlled fission reactions that generate heat. Reactor control mechanisms will regulate the rate of the fission reaction to maintain stable operating conditions. +Like other nuclear reactors, operation of the Gravity Reactor will generate used nuclear fuel, which must be stored and ultimately disposed of in accordance with applicable regulatory requirements and nuclear waste management frameworks. Depending on the long-term disposal pathway, this may require interim on-site storage, transportation, and coordination with governmental authorities or third-party service providers. The management and disposition of used nuclear fuel will be conducted in compliance with applicable laws and regulations. +Safety and Reactor Protection +The Gravity Reactor incorporates multiple layers of safety systems derived from established PWR technology and its safety is enhanced by the characteristics of deep subsurface emplacement. +The reactor module design includes engineered safety systems intended to regulate reactor operation, remove residual heat following shutdown, and maintain safe operating conditions during both normal operating states, where the reactor module is operating under routine operating conditions and planned changes in operating conditions, and off-normal operating states, where the reactor module deviates unexpectedly from expected operating conditions (including equipment malfunctions and system disturbances). +3 +Table of Contents +Subsurface emplacement of the reactor within a deep borehole is intended to provide physical separation between the reactor system and the surrounding environment. Surrounding geological formations will provide structural confinement and natural shielding, and underground placement is intended to reduce exposure to certain external hazards, such as extreme weather events, earthquakes, wildfires, aircraft impact, potential acts of sabotage or terrorism, or other events that may affect surface facilities. +The safety characteristics of the Gravity Reactor remain subject to ongoing engineering analysis, safety evaluations, and regulatory review as part of our reactor development process and our efforts to obtain requisite licenses from relevant authorities. +Surface Supporting Systems +Although the reactor module is located underground, limited supporting systems are expected to remain on the surface. These systems are expected to include power conversion equipment used to convert thermal energy into electricity, monitoring and control systems for reactor operation, electrical interconnection infrastructure that will connect the facility to the grid or to local power users, and other operational functions associated with the generation and delivery of electricity. +Manufacturing and Supply Chain +The Gravity Reactor is designed to leverage existing industrial supply chains where possible. Major reactor components are expected to utilize established materials and manufacturing processes drawn from the nuclear and broader industrial sectors, while the reactor’s compact and simplified design is intended to enable greater use of standard industrial fabrication methods in place of conventional large-scale nuclear construction practices. +The reactor module is designed as a compact unit that may be manufactured in qualified facilities and delivered to project sites for emplacement within drilled boreholes. Fuel installation may occur at a manufacturing facility or at the borehole site, depending on the local environment and regulations around the transportation of a fueled reactor. This approach is intended to support repeatable and controlled manufacturing and assembly environments. +Deep borehole drilling required for reactor emplacement is expected to use technologies, service providers and operational practices developed in the oil, gas, and geothermal industries. Surface power conversion and balance-of-plant equipment associated with the Gravity Reactor are expected to utilize commercially available industrial components. +Site Requirements and Geological Considerations +The Gravity Reactor is designed for deployment in geologic settings that support the drilling and long-term structural stability of deep vertical boreholes. Site selection is expected to focus on optimizing geologic, operational, project development, and regulatory factors. +The Company has secured a long-term lease at the Kansas Site and has commenced initial site development activities, including geological evaluation, borehole planning, and initial drilling activities. The Company is conducting geological surveys and site characterization studies at the Kansas Site. These activities are intended to inform borehole design, drilling techniques, and site suitability for future reactor deployment. +In addition to the Kansas Site, the Company has entered into multiple non-binding letters of intent (“LOIs”) with potential development partners for candidate commercial sites in the United States. These LOIs relate to potential deployment opportunities in Kansas, Texas, and Utah as well as other locations in the United States and internationally. +In addition to geological considerations, deployment sites must be capable of supporting surface infrastructure, as described above in “Surface Supporting Systems.” +Site-specific engineering analyses will be required for each proposed deployment location to confirm drilling feasibility and compliance with applicable regulatory requirements. Such analyses are ongoing with respect to the Kansas Site and are expected to be required for any future deployment locations, including Texas and Utah, if applicable. +4 +Table of Contents +3. DOE Reactor Pilot Program and Development Activities +Deep Fission is advancing development and demonstration activities to support the future commercial deployment of the Gravity Reactor. Current demonstration efforts are focused on the Company’s planned pilot reactor under the DOE Reactor Pilot Program, together with related engineering, site development, and construction of initial boreholes and test infrastructure. The pilot reactor is not expected to reflect the full output, configuration or commercial economics of any future commercial deployments. The Company has commenced initial field development activities, including test drilling, at the Kansas Site and continues to advance its reactor design. +U.S. Department of Energy Reactor Pilot Program +In August 2025, Deep Fission was selected by the DOE as one of 11 projects across ten companies eligible to participate in the DOE Reactor Pilot Program, which is intended to enable advanced reactor developers to construct and test prototype reactors under DOE authorization to demonstrate technical feasibility, operational performance, and safety characteristics. +On November 17, 2025, the Company entered into an Other Transaction Agreement for Reactor Authorization (the “OTA”) with the DOE, effective as of November 14, 2025. The OTA establishes the framework under which the DOE will review the safety basis for the Company’s planned demonstration reactor, evaluate supporting engineering analyses, and approve certain commissioning and testing milestones prior to operation. If authorized, the demonstration reactor would be constructed and operated under DOE oversight. Data generated through this process is expected to inform the Company’s reactor design, safety analysis, and potential future licensing submissions to the NRC. DOE authorization does not permit commercial operation and does not replace the requirement to obtain NRC licenses. +The DOE Reactor Pilot Program is an authorization and oversight program and does not provide direct funding to the Company under the OTA. Accordingly, the Company is responsible for funding development, construction, and operation of its pilot reactor and related infrastructure, including its borehole development program. While initial activities, including the drilling and development of the Company’s first well (as further described below), are currently funded, subsequent stages of development, including additional boreholes and the planned pilot reactor, are not fully funded and will require substantial additional capital. The Company expects to seek such funding through equity issuances, debt financings, strategic investments, partnerships, or other arrangements, although there can be no assurance that such financing will be available on acceptable terms or at all. +The Company has updated certain previously identified development milestones, including those related to the timing of reactor criticality, to better align with its current development priorities. Given that reactor criticality using established PWR technology is well understood, the Company is prioritizing validation of the hardest and most differentiated parts of our system, to reduce risk earlier and move more directly toward a commercialization outcome. Specifically, the tests that we want to focus on are drilling to depth at commercial scale, installing and integrating a nuclear system a mile underground, and operating as part of a complete energy ecosystem. The timing of DOE authorization and related testing activities remains subject to completion of engineering development, regulatory review, and the availability of funding. +Pilot Reactor Site Development +In support of its participation in the DOE Reactor Pilot Program, Deep Fission has secured a long-term lease for approximately 100 acres at the Kansas Site. The Company intends to use this site for development and testing activities associated with its borehole development program and planned pilot reactor, subject to applicable regulatory approvals and the availability of sufficient funding. +Current activities at the Kansas Site include geological analysis, engineering design work, borehole planning, and test drilling (including the drilling of the Company’s first well (described below)), as well as preparation for subsurface infrastructure development. These activities are intended to support drilling operations, reactor emplacement procedures, and the design and development of associated monitoring and power conversion systems, subject to the availability of capital and continued project development. +5 +Table of Contents +Phased Deployment Model +The Company’s commercialization strategy is based on a phased deployment plan designed to move toward commercialization in the next three years. Given that reactor criticality using established PWR technology is well understood, the Company is prioritizing validation of the hardest and most differentiated parts of our system, to reduce risk earlier and move more directly toward a commercialization outcome. Specifically, the tests that we want to focus on are drilling to depth at commercial scale, installing and integrating a nuclear system a mile underground, and operating as part of a complete energy ecosystem. We also want to prove that we can do this in time to meet the AI-driven surge in demand for energy. The Company is currently participating in the DOE Reactor Pilot Program, and we expect to demonstrate our system as part of the DOE Reactor Pilot Program. +Phase 1 +The first phase of the Company’s phased deployment plan involves engineering validation and proof of concept wells. The Company has a long-term lease for approximately 100 acres located within the Kansas Site and has commenced initial field development activities at the site. As part of this, the Company already drilled its first data acquisition well to gather real-world data up to 6,000 feet deep. Next, the Company will demonstrate its ability to drill a commercial-scale borehole and safely deploy a prototype reactor. The Company continues to advance its reactor design in parallel with these activities, including planning additional drilling activities and conducting related engineering and emplacement work, and is targeting completion of these activities in the coming months. The balance of this year and into early 2027 will be focused on delivery of key components for full-system installation, including well casing, our reactor canister, and heat exchanger, as well as LEU fabrication and loading. +While these wells are not regulated by the DOE as part of the DOE Reactor Pilot Program, engineering data will be used to support our request for the DOE’s authorization of the planned pilot reactor as described below. +Phase 2 +The second phase of the Company’s phased deployment plan involves DOE authorization and one or more commercial pilot wells. Specifically, subject to DOE authorization, the Company intends to demonstrate the Gravity Reactor, and to apply for a commercial license with the NRC in the first half of 2027, converting the same pilot reactor to commercial operation. We are working closely with both the DOE and the NRC to align demonstration and licensing, as we are aiming to move these efforts forward together rather than advancing them in sequence. +Phase 3 +The third and final phase of the Company’s phased deployment plan involves the construction of surface facilities and seeking high-volume commercial licensing for deployment of multiple reactors at a single site through clustered boreholes, which may enable longer refueling cycles through coordinated fuel management, staggered refueling schedules and more efficient utilization of shared infrastructure, and support greater aggregate power generation capacity than the pilot installation, and subsequently, at multiple sites. We are targeting as early as 2027 to seek such high-volume commercial licensing with the NRC. +Commercial deployment of Gravity Reactors will require additional regulatory approvals, including licensing by the NRC, which the Company is pursuing in parallel with DOE-related activities. The Company expects that a DOE-authorized pilot reactor will inform key design, operational and licensing considerations for commercial deployment, although subsequent deployments are expected to involve different configurations, site-specific integration activities and additional engineering development. Additional project financing will also be required. +Ongoing Development Activities +In addition to borehole construction, Deep Fission’s current activities include reactor design, safety analysis, thermal-hydraulic modeling, regulatory engagement with the DOE and the NRC, and supply chain development for reactor components and drilling operations. The Gravity Reactor remains in conceptual and early engineering stages, and key aspects of the design continue to be refined through ongoing engineering and analysis. +The Company expects that data generated through these activities will inform continued development of the Gravity Reactor and future regulatory licensing efforts. +6 +Table of Contents +4. Commercial Strategy +Deep Fission’s commercial strategy is focused on deploying Gravity Reactors in markets with rapidly growing electricity demand and increasing need for reliable, affordable baseload power. The Company’s initial commercial focus is on hyperscale data centers and other large power users, and over time may expand to include utilities, industrial operators, and government or defense installations, as described further below in “Target Markets.” +Commercial Gravity Reactor installations are expected to be deployed at sites capable of supporting multiple reactor units installed through clusters of deep boreholes. This modular architecture is intended to allow reactor capacity to be added incrementally as electricity demand grows. +The Company’s business model is designed to generate revenue from (i) project-level equity participation, including indirect participation in project-level cash flows from electricity sales, (ii) one-time upfront revenue, generally expected to be associated with Gravity Reactor deployment and related upfront project development services and (iii) recurring revenue, generally expected to be associated with technology licensing and operations and maintenance services of Gravity Reactor installations, as described in more detail below in “Business Model and Revenue Streams.” +Project Development Model +Deep Fission expects that many commercial deployments of the Gravity Reactor may be structured as project-level developments in which the Company participates in the development, ownership, and operation of reactor installations. Under this model, electricity generated by Gravity Reactor facilities may be sold to customers under long-term power purchase agreements (“PPAs”) or similar contractual arrangements; these potential PPAs are more particularly described below in “Project-Level Equity Participation; Electricity Sales.” +The Company believes that individual projects may be financed using a combination of corporate capital, strategic capital, and project-level financing structures. This project-level development model is intended to allow the Company to pursue and retain equity ownership in large-scale infrastructure projects while using external financing sources where appropriate to support construction and long-term operation. +In addition to participating in project-level equity and electricity sales, the Company may provide project development, reactor delivery, integration, and related deployment support in connection with Gravity Reactor installations, as described below in “Upfront Revenue Streams.” The Company expects that the specific commercial structure of any project will vary, including based on customer requirements, site characteristics, local power delivery infrastructure, financing arrangements, regulatory requirements, and project counterparties. +Great Plains Industrial Park and Early Deployment Sites +A key element of Deep Fission’s commercialization strategy is the development of suitable sites capable of supporting early deployments of the Gravity Reactor. One such location is the Kansas Site, where the Company has secured a long-term lease for approximately 100 acres for site development and related activities. The Company views this site as an important early location for development of the Gravity Reactor, including pilot reactor activities and evaluation of potential future commercial deployment opportunities. +The Company has also entered into a non-binding letter of intent with the Great Plains Industrial Park in connection with potential future development activities at the site. The Kansas Site offers an established industrial setting and other site characteristics that the Company believes may support future reactor development activities, subject to applicable regulatory approvals, state and local support, site studies, and project-specific engineering and infrastructure considerations. +In addition to the Kansas Site, the Company has entered into multiple non-binding LOIs with potential development partners for candidate commercial sites in the United States. These LOIs relate to potential deployment opportunities in Kansas, Texas, and Utah as well as other locations in the United States and internationally. These LOIs contemplate evaluation of multi-reactor installations. The LOIs generally describe preliminary concepts for site access, project development coordination, power delivery, and development sequencing. Collectively, the discussions reflected in these agreements relate to potential reactor deployments that could support up to 12.5 gigawatts of generation capacity if fully developed over time. +7 +Table of Contents +These LOIs are non-binding and do not contain commitments to purchase electricity, finance projects, construct facilities, grant exclusivity, or deploy a specified number of reactors. Either party may terminate these arrangements without penalty. +Strategic Relationships +Deep Fission has entered into strategic relationships intended to support commercialization of the Gravity Reactor, including relationships focused on digital infrastructure demand, project development, power offtake opportunities, and project-level financing. +In February 2026, the Company entered into a non-binding memorandum of understanding (“MOU”) with Blue Owl Digital Infrastructure Advisors LLC (“Blue Owl”) to establish a framework for potential collaboration in support of the development and deployment of nuclear energy projects utilizing Deep Fission’s technology. The MOU contemplates potential collaboration relating to customer and utility outreach, project development activities, and evaluation of potential power offtake and project-level financing opportunities associated with Blue Owl’s digital infrastructure portfolio and developments. +In connection with execution of the MOU, investment funds affiliated with Blue Owl made an equity investment in the Company in the amount of $20 million. The Company also granted Blue Owl non-exclusive rights of first offer with respect to certain potential future power offtake opportunities and project-level financing opportunities, in each case subject to the terms of the MOU and related transaction documentation. The power offtake right of first offer applies to potential future opportunities where a potential data center or similar large-load end user offtake need is identified in the Company’s project developments, and the project financing right of first offer applies to potential future project-level financing opportunities originated by the Company. +The MOU does not require either party to enter into any specific project, power offtake arrangement, financing transaction, or other commercial arrangement unless agreed in separate definitive written documentation executed by the parties. The MOU also does not grant Blue Owl exclusivity with respect to any future projects or require the Company to consummate any specific offtake or financing transaction. +In November 2024, the Company entered into a non-binding strategic relationship term sheet with Endeavour Energy, LLC (“Endeavour”) designed to support commercialization of the Gravity Reactor. The contemplated collaboration is intended to facilitate coordinated site development, access to potential data center customers, and joint evaluation of multi-reactor deployments. The relationship framework contemplates potential deployment configurations of up to 1.5 gigawatts of generation capacity at a single location, within a broader potential co-development framework of up to 2 gigawatts across multiple projects. +The Endeavour relationship is governed by a non-binding term sheet and does not create commitments to purchase electricity, finance projects, construct facilities, grant exclusivity, or deploy a specified number of reactors. +Commercial Deployment Strategy +The Company’s initial commercial development plan contemplates a first commercial facility involving multiple Gravity Reactors deployed at a single site. This initial commercial deployment is intended to serve as a bridge between pilot-scale demonstration and subsequent scaled commercial deployments by supporting validation of construction methods, operational procedures, project development processes and commercial structures. While this initial facility is expected to generate power, it is not necessarily intended to reflect optimized economics, refueling strategies or generation capacity expected for future commercial deployments. +Subject to successful completion of pilot reactor activities, future regulatory approvals, site development progress, project financing, and customer arrangements, the Company may, following initial commercial deployment, pursue larger deployments at suitable locations where reliable baseload electricity is needed and where conditions support borehole construction and reactor emplacement. The Company’s target for some of these later installations is to involve clusters of reactors capable of producing hundreds of MWe to more than one gigawatt of generation capacity at a single site that could support large-scale electricity generation installations capable of supplying power to data centers, utilities, industrial facilities, and other high-demand energy users. +The Company intends to pursue commercial deployments initially within the United States, with potential future opportunities in international markets. +The timing, scale, and structure of commercial deployments remain subject to a number of factors, including engineering progress, regulatory approvals, export control requirements, applicable international nuclear cooperation agreements, successful completion of pilot reactor activities, financing availability, supply chain and fuel availability, interconnection and infrastructure considerations, site conditions, and customer demand. +8 +Table of Contents +5. Business Model and Revenue Streams +Deep Fission’s business model is designed to generate revenue from (i) project-level equity participation, including indirect participation in project-level cash flows from electricity sales, (ii) one-time upfront revenue, generally expected to be associated with Gravity Reactor deployment and related upfront project development services and (iii) recurring revenue, generally expected to be associated with technology licensing and operations and maintenance services of Gravity Reactor installations. The Company expects that the specific commercial structure of any project will vary, including based on customer requirements, site characteristics, local power delivery infrastructure, financing arrangements, regulatory requirements, and project counterparties. +Gravity Reactor installations are expected to be developed as long-lived energy infrastructure assets. The Company may participate in multiple stages of the project lifecycle, including project development, reactor deployment, commissioning, and ongoing operations and maintenance. +(i) Project-Level Equity Participation; Electricity Sales +For certain projects, Deep Fission intends to participate in the ownership, development, and operation of Gravity Reactor facilities. In these projects, electricity generated by the reactors may be sold to customers at the project-level under PPAs or similar offtake arrangements, and the Company may benefit from the cash flows of such sales, in many cases through its retained equity in the project. +These agreements may include fixed-price or market-linked electricity pricing structures and may be structured as direct power supply agreements at the project-level with end users or through arrangements involving local utilities or grid operators. Such agreements are commonly used in energy infrastructure projects to support long-term revenue stability and project financing. +Under this model, the Company intends to benefit from project-level cash flows associated with electricity generation and sale over the operating life of the facility, in many cases through its retained equity in the project. The Company expects that many such projects may be structured using project-level financing and infrastructure partnerships, which may allow individual reactor projects to be financed and operated through project-specific capital structures. +In many jurisdictions, the delivery of electricity generated by Gravity Reactor facilities will require coordination with local electric utilities, transmission operators, or regional grid operators. Depending on the location of a project and applicable market structures, electricity may be delivered directly to an end user through dedicated infrastructure, through utility-sleeved arrangements, or through interconnection to regional transmission systems. As a result, the development of reactor projects may involve engagement with utilities, transmission providers, and grid operators to obtain necessary interconnection approvals and coordinate power delivery arrangements. The structure of these arrangements may vary depending on local regulatory frameworks, transmission availability, and project-specific commercial agreements. +(ii) Upfront Revenue Streams +In connection with the deployment of Gravity Reactor facilities, the Company intends to generate revenue from activities associated with reactor delivery, integration, and project development. +Reactor Delivery and Integration +We intend to generate revenue through services including engineering support, reactor module delivery, integration of reactor systems with subsurface and surface infrastructure, and related services necessary to support installation and commissioning of Gravity Reactor units. +Project Development and Engineering, Procurement and Construction (“EPC”) Support +The Company may also generate revenue from project development and EPC-related support activities, which may include engineering support, project planning, site evaluation, permitting coordination, borehole development planning, construction coordination, installation, commissioning support, and other services required to advance a reactor installation from development through construction. +The Company may provide these services directly or in coordination with engineering, drilling, construction, and infrastructure partners involved in the development and installation of reactor facilities. +9 +Table of Contents +(iii) Recurring Revenue Streams +Technology Licensing +Deep Fission intends to generate revenue from licensing its proprietary technology in connection with the development and operation of Gravity Reactor facilities. These revenues may include recurring intellectual property fees associated with the use of the Company’s reactor platform, subsurface deployment methods, and related systems and know-how. +Technology licensing arrangements may apply to projects developed by the Company (but owned in whole or in part by third parties) or to projects developed or owned by third parties utilizing the Company’s technology platform. Licensing structures may include recurring fees, milestone payments, and/or other arrangements depending on the structure of the underlying project. +Operations and Maintenance Services +Deep Fission also intends to provide ongoing operational and technical support for deployed reactor facilities. These services may include reactor operations support, maintenance planning, monitoring, refueling coordination, regulatory support, and other services associated with the operation of Gravity Reactors over time. +These services may generate recurring revenue streams throughout the operating life of reactor installations and may be provided either directly by the Company or indirectly through arrangements the Company may establish with qualified nuclear operations partners. +Flexibility of Project and Commercial Structures +The Company expects that project structures and commercial arrangements may vary across projects. In some cases, Deep Fission may participate directly in project ownership and project-level electricity sales. In some cases (which may include cases where the Company participates directly in project ownership), the Company may provide technology, development, deployment, licensing, or operational services in support of projects owned or financed by third parties. +As a result, the mix of revenue that may be derived directly or indirectly by the Company from electricity sales, project development activities, technology licensing, and operations support may differ depending on the structure of a particular project. +6. Target Markets +Deep Fission’s target markets consist of electricity customers and energy markets that require reliable, affordable baseload power and that may benefit from modular nuclear generation located near the point of demand. The Company believes that the Gravity Reactor may be well suited for applications where electricity demand is large, continuous, and difficult to satisfy using other generation sources alone. +While the Company has not yet deployed commercial reactors, it is evaluating potential opportunities across several end-use markets where long-term electricity demand growth and reliability requirements may support the deployment of Gravity Reactor facilities. +Data Centers and Digital Infrastructure +Deep Fission’s initial commercial focus is on hyperscale data centers and other digital infrastructure facilities that require large quantities of reliable electricity. Data centers supporting cloud computing, artificial intelligence workloads, and large-scale data processing often operate continuously and require stable baseload power supply. +Demand for electricity associated with digital infrastructure has increased significantly in recent years as the scale of computing infrastructure has expanded. Many data center operators seek long-term energy supply arrangements to support the continuous operation of these facilities, particularly in regions where grid capacity is constrained or where new generation resources are required to meet projected electricity demand. +The Company believes that modular nuclear generation may provide an attractive solution for data center operators seeking reliable, cost-efficient power over long time horizons, with the ability to scale capacity as demand increases. +10 +Table of Contents +Industrial and Energy-Intensive Facilities +Industrial facilities represent another potential market for Gravity Reactor deployments. Certain industries—including advanced manufacturing, mining, chemical production, and large-scale processing facilities—require significant quantities of reliable electricity to support continuous operations. +These facilities may benefit from dependable baseload power generation capable of supporting uninterrupted operations and reducing reliance on weather-dependent energy sources. In some cases, industrial operators may also seek to reduce emissions associated with electricity consumption, which may increase demand for low-carbon power generation technologies. +Utilities and Grid-Scale Generation +Electric utilities and other power generation developers may represent another potential customer group for Gravity Reactor installations. Utilities are responsible for maintaining reliable electricity supply within their service territories and may seek additional sources of firm generation capacity to support growing electricity demand, replacement of retiring generation assets, or integration of intermittent renewable generation resources. +Modular nuclear generation may provide utilities with an additional option for reliable, affordable electricity generation that can operate continuously and provide stable grid support. +Government and Defense Installations +Government and defense facilities represent potential deployment opportunities for Gravity Reactor technology. Certain installations require reliable electricity supply to support mission-critical operations and may seek energy solutions capable of operating independently of external grid disruptions. +In some cases, distributed nuclear generation may offer advantages for installations requiring high levels of energy security, resilience, and long-term operational reliability. A deep underground environment also has the potential to provide security benefits. +Geographic Focus +Deep Fission’s initial market focus is within the United States, where electricity demand growth, expanding digital infrastructure, and evolving energy policy are creating increasing demand for reliable, affordable electricity generation. +The Company is evaluating international opportunities, particularly in jurisdictions that maintain civil nuclear cooperation agreements with the United States and that support the deployment of advanced nuclear technologies. Any international deployment would be subject to applicable export control regulations, international agreements, and local regulatory approvals. +7. Competition +The market for SMR and other advanced nuclear energy technologies is evolving and includes a range of companies developing new reactor designs, as well as established nuclear vendors and energy infrastructure providers. Deep Fission competes broadly with other developers of advanced nuclear technologies as well as with other sources of energy generation that may serve similar end-use markets. The Company may also compete with utilities that own or operate existing nuclear generation assets or other dispatchable generation resources, such as natural gas-fired power plants or other generation sources capable of producing electricity on demand. +Competition in the energy sector is influenced by a number of factors, including technology maturity, regulatory approval pathways, capital requirements, deployment timelines, safety characteristics, operating and capital costs, access to fuel supply chains, manufacturing capabilities, and the ability to secure project financing and customer commitments. +Advanced Reactor and SMR Developers +A number of companies are developing advanced nuclear reactor technologies intended to provide smaller-scale or modular nuclear power generation. These developers are pursuing a range of reactor designs, including sodium-cooled reactors, molten salt reactors, high-temperature gas reactors, and other advanced nuclear technologies. +11 +Table of Contents +Companies active in this sector include TerraPower, X-energy, Kairos Power, Oklo, and others developing advanced reactor concepts that differ significantly from conventional light-water reactor designs. +Other companies are pursuing smaller-scale nuclear reactors, including SMR designs based on more conventional light-water reactor technology (including PWR technology). These include both established nuclear industry participants, such as GE-Hitachi, Westinghouse and Holtec, as well as newer entrants such as NuScale Power and Last Energy. These companies are generally pursuing above-ground reactor installations using modular construction techniques and are seeking to reduce construction timelines and capital requirements relative to large nuclear power plants. +Illustrative Advanced Reactor Technologies +Company +Reactor Type +Cooling Technology +Deployment Approach +TerraPower +Sodium fast reactor +Liquid sodium +Above-ground plant +X-energy +High-temperature gas reactor +Helium gas +Above-ground plant +Kairos Power +Molten salt reactor +Molten salt +Above-ground plant +Oklo +Fast reactor +Liquid metal +Modular above-ground reactor +NuScale Power +Light-water SMR +Water +Modular above-ground reactor +Last Energy +Light-water SMR +Water +Factory-built above-ground reactors +Deep Fission +PWR-based SMR +Water +Deep borehole underground deployment +​ +Conventional Nuclear Vendors +Deep Fission may also compete with established nuclear technology vendors and reactor developers that supply large-scale nuclear reactors. Companies such as Westinghouse Electric Company, EDF, and GE-Hitachi Nuclear Energy have decades of experience designing and deploying nuclear power plants and continue to develop new reactor technologies, including large advanced reactors and small modular reactor designs. +These companies benefit from established engineering capabilities, deployment experience, manufacturing infrastructure, and long-standing relationships with utilities and governments. +Other Energy Technologies +Deep Fission also competes indirectly with other sources of energy generation that may serve similar markets, including renewable energy technologies such as wind and solar power, natural gas-fired generation, and energy storage systems. +Renewable generation technologies have experienced significant cost reductions in recent years and represent a substantial portion of new electricity generation capacity in many markets. However, renewable energy sources may be intermittent and may require complementary firm generation or storage resources to provide continuous power supply. +Natural gas generation remains a major source of electricity in many markets due to its operational flexibility and relatively low capital cost, although it produces greenhouse gas emissions and may be subject to evolving regulatory and policy considerations related to such emissions. +The Company’s ability to compete successfully will depend on a number of factors, including technological development, regulatory approvals, capital and operating costs, project financing, manufacturing capabilities, supply chain development, and the ability to secure suitable deployment sites and commercial customers. +12 +Table of Contents +8. Regulatory Matters +We are subject to extensive U.S. federal, state, and local laws and regulations, as well as international obligations, governing the design, construction, operation, export, and decommissioning of nuclear reactors and the use of nuclear materials. Our ability to develop and deploy our reactors depends on compliance with these regulatory frameworks, which may evolve over time. +United States Regulations +Atomic Energy Act of 1954 and Energy Reorganization Act of 1974 +The Atomic Energy Act (“AEA”) is the foundation of nuclear regulation in the United States. It establishes the framework for civilian nuclear energy, including the development, licensing, and regulation of nuclear facilities and materials. Pursuant to the AEA, the DOE and NRC exercise regulatory authority over nuclear reactors. +U.S. Department of Energy +Under the AEA, the DOE retains authority over research, development, and demonstration of reactors where DOE maintains ownership or sufficient control. Pursuant to Executive Order 14301 (May 23, 2025), the DOE established the DOE Reactor Pilot Program to authorize “qualified test reactors” (defined in Section 2 of Executive Order 14301) outside of national laboratories. Deep Fission was selected by the DOE on August 12, 2025, as one of 11 projects eligible for authorization under the DOE Reactor Pilot Program. The DOE’s authorization pathway is intended to accelerate reactor testing and demonstration. Importantly, the DOE’s authority does not extend to licensing reactors for commercial operation. +Nuclear Regulatory Commission +The NRC has exclusive authority over commercial “utilization facilities” in the United States. Current NRC regulations govern reactor design certification, combined construction and operating licenses, operating requirements, quality assurance, emergency planning, security, decommissioning, and financial assurance. The NRC also regulates the possession, packaging and transportation of nuclear material as well as storage of used nuclear fuel. Any transition from DOE-authorized test reactors to commercial deployment requires licensing by the NRC as a “utilization facility” under 10 C.F.R. Parts 50 and 52, or potentially under additional advanced-reactor frameworks pursuant to recent congressional and executive direction. +NRC licensing under 10 C.F.R. Part 50 involves a two-step process to obtain a construction permit followed by an operating license. Licensing under 10 C.F.R. Part 52 provides a one-step combined operating license approval (“COLA”) authorizing both construction and operation. NRC regulations also provide for standard design approvals (“SDAs”), which allow applicants to obtain NRC approval of a reactor design that can be referenced later in a COLA. These frameworks remain the NRC’s primary licensing mechanisms pending completion of the modernization initiatives described under “Regulatory Modernization” and “Completed and Active Rulemakings and Guidance.” +NRC Engagement and Feedback +In March 2024, we submitted a regulatory engagement plan to the NRC. Since then, we have participated in multiple pre-application meetings and received written and verbal feedback from NRC staff on elements of our conceptual design and safety approach. These interactions have included questions and observations regarding heat-transport systems, subsurface configuration, materials performance, probabilistic risk assessment methodology, and approaches to source-term evaluation. We also submitted a technical white paper to the NRC in June 2024 to support these discussions. +We are continuing pre-application engagement with the NRC to refine the content and timing of potential SDA or COLA submissions and to assess whether a new licensing framework, such as those under development in the Part 53 rulemaking or pursuant to Executive Order 14300, may offer a more appropriate pathway for our technology. Based on current planning assumptions, and subject to further NRC feedback, resource availability, and the results of our DOE-authorized pilot-reactor program, we do not expect to submit a comprehensive commercial licensing application before late 2026. Our ultimate licensing pathway and schedule will depend on the evolution of NRC regulatory modernization initiatives, the data generated under DOE oversight, and the resolution of technical questions identified during NRC pre-application engagement. +13 +Table of Contents +DOE Reactor Pilot Program and Impact on NRC Licensing +Our participation in the DOE Reactor Pilot Program is governed by the OTA, entered into with DOE on November 17, 2025. Under the OTA, the DOE will authorize, oversee, and evaluate our deep-borehole test reactor. DOE’s review includes oversight of safety-basis development; approval of commissioning and testing milestones; and evaluation of reactor performance. The OTA does not authorize commercial operation and does not replace the need for NRC licensing. +Data and experience generated under DOE oversight, including materials data, thermal-hydraulic validation, and commissioning performance, are expected to inform the content, sequencing, and scope of any subsequent license application submitted to the NRC. DOE authorization does not diminish the NRC’s statutory requirements for commercial licensing, and the DOE program is expected to inform how the NRC evaluates future commercial applications through the provision of technical information earlier in the licensing cycle. Completion of DOE-authorized commissioning, including demonstration of safety-related systems, is therefore expected to provide foundational data for subsequent NRC licensing submissions. +Regulatory Modernization +Existing NRC licensing frameworks were developed primarily for large light-water reactors. Several recent legislative and executive actions have directed the NRC to modernize its regulatory processes to better accommodate advanced reactors: +· +Nuclear Energy Innovation and Modernization Act (the “NEIMA”) (2019) – mandates a technology-inclusive, risk-informed, performance-based licensing framework and requires the NRC to establish and publish milestones for advanced reactor licensing activities. In response, the NRC initiated the 10 C.F.R. Part 53 rulemaking. +· +ADVANCE Act of 2024 – directs the NRC to develop microreactor-specific and performance-based regulatory strategies addressing eight topical areas, including staffing, inspections, security, emergency preparedness, transportation, and risk-informed methods. It also updates the NRC’s mission statement to explicitly recognize the national interest in enabling the deployment of nuclear energy. +· +Executive Order 14300 (May 2025) – requires the NRC to improve efficiency, transparency, and the scientific basis of its regulatory framework to establish more predictable licensing timelines. +These initiatives are expected to influence the structure, schedule, and technical requirements applicable to advanced reactors, including technologies such as the Gravity Reactor. +Completed and Active Rulemakings and Guidance +Regulatory Guide 1.242 promulgated by the NRC (the “Regulatory Guide”) supports a final rule that establishes performance-based requirements for emergency preparedness (“EP”) and applies to SMRs and non-light water reactors. The Regulatory Guide provides an alternative, performance-based EP framework with scalable emergency planning zones, available for applicants using 10 C.F.R. Parts 50 and 52. Parts 50 and 52 are the two existing licensing frameworks for nuclear power reactors under NRC regulations. +In the current NRC regulatory framework, 10 C.F.R. Parts 50 and 52 were developed primarily for licensing large light-water reactors. Pending the 10 C.F.R. Part 53 rulemaking (required under NEIMA) and additional rulemakings responsive to Executive Order 14300, Parts 50 and 52 continue to represent the principal pathways by which the NRC authorizes the siting, construction, and operation of nuclear plants. The NRC is also pursuing performance-based revisions to 10 C.F.R. Part 73 security requirements tailored to the consequence profiles of advanced reactors and intended to reduce reliance on individual exemptions. +14 +Table of Contents +Impact of These Regulations on Deep Fission +We believe the regulatory reforms now under consideration have the potential to reduce historic barriers to the deployment of advanced reactors such as the Gravity Reactor. For commercial deployment, we currently anticipate seeking licensing under an existing pathway in 10 C.F.R. Part 50 or Part 52, or a new advanced-reactor regulation that is in development through ongoing NRC rulemakings, and we expect to rely on the emergency preparedness final rule and, as finalized, risk-informed security alternatives appropriate to our LEU-fueled, underground PWR design. We are monitoring the development of the Part 53 framework and related regulatory initiatives, including a new non-numbered framework under discussion, for potential benefits associated with licensing scope, review efficiency, and alignment with microreactor characteristics. We also participate in public meetings conducted pursuant to Executive Order 14300 to inform NRC implementation and to ensure that any adjustments to underlying policy assumptions are appropriately reflected in our safety basis and licensing materials. +Environmental Laws +Our projects are subject to various federal, state, local and foreign environmental laws, including the National Environmental Policy Act of 1969 (“NEPA”). DOE authorization decisions under the DOE Reactor Pilot Program constitute “major federal actions” pursuant to NEPA and therefore may require preparation of an Environmental Assessment (“EA”) or Environmental Impact Statement (“EIS”). In June 2025, DOE published new procedures for its implementation of NEPA, which it published to its website outside of the Code of Federal Regulations. Changes to the procedures were made, in part, in response to Executive Order 14301 (2025), which directed DOE to streamline NEPA reviews consistent with law. +In certain cases, DOE has historically applied a Categorical Exclusion (“CX”) under NEPA to demonstration activities. One potentially applicable CX is B3.6 – Small-scale research and development, laboratory operations, and pilot projects, which covers siting, construction, modification, operation, and decommissioning of pilot projects that are consistent with existing industrial, experimental, or commercial practices and do not involve significant hazards. There is uncertainty as to how DOE will implement its new NEPA procedures in practice, although it has largely retained its CX categories. Additionally, in February 2026, DOE added a new CX for advanced nuclear reactors (B5.26) to its NEPA procedures. If DOE determines that our demonstration project qualifies for CX B3.6 or CX B5.26, our obligations to comply with NEPA may be less burdensome, thereby shortening the schedule for authorization. However, DOE retains discretion in applying CXs, and legal challenges to such determinations, or any EAs or EISs, are possible. +To mitigate NEPA-related risk, we are pursuing the following measures: +· +Site Selection : We intend to locate our initial demonstration on sites with existing industrial use and limited environmental sensitivity, which may support eligibility for CX treatment or a streamlined EA. +· +Early Engagement : We are coordinating with DOE NEPA staff and developing environmental baseline information to shorten review times and reduce uncertainty. +· +Adaptive Planning : Our project schedules and financing models incorporate contingency buffers to accommodate different levels of NEPA review, including the possibility of a full EIS if required. +Legal challenges under NEPA may be unavoidable, but we believe careful site selection, proactive environmental analysis, and early engagement with stakeholders may help reduce this risk. If we transition to NRC licensing for commercial deployment, the NRC would serve as the lead agency for NEPA review under 10 C.F.R. Part 51. The NRC typically prepares an EIS for new reactor licensing actions. +While NEPA reviews consider environmental impacts and may involve consultation under related statutes, including the Endangered Species Act, Clean Water Act, and National Historic Preservation Act, compliance with such laws is addressed through separate regulatory processes. The Company evaluates applicable environmental requirements as part of project planning and expects to comply with federal, state, and local environmental laws and regulations, including those relating to air emissions, wastewater discharges, land and water use (including drilling and groundwater protection-related regulations), management, transportation, use, handling, and disposal of hazardous and radioactive materials and waste, and remediation of releases of hazardous materials, to the extent applicable. In particular, the Company must comply with certain state-level regulations relating to well drilling and groundwater and aquifer protection, and may be required to perform unanticipated mitigation actions relating to such matters. The Company must also navigate environmental regulatory frameworks and processes that are more challenging for SMRs than conventional nuclear or other electricity generation facilities, as well as foreign regulatory frameworks in the international markets that the Company may explore, which may be unfamiliar to Company personnel. +15 +Table of Contents +Compliance with such requirements may have a material impact on our capital expenditures, earnings, or our competitive position by requiring us to incur significant capital expenditures, obtain and maintain permits or other regulatory approvals, conduct or fund environmental remediation, install pollution control equipment, or implement other operational controls or resulting in delays or other restrictions relating to the deployment or operation of our reactors. Failure to comply with such requirements could result in substantial fines, enforcement actions, litigation or orders affecting our operations. +Occupational Radiation Protection +Worker safety under DOE-authorized operations is governed by 10 C.F.R. Part 835 (Occupational Radiation Protection), among other regulations. If licensed by the NRC, we would be subject to the NRC’s occupational dose limits in 10 C.F.R. Part 20. Both frameworks limit annual radiation doses to workers and require comprehensive radiation protection programs. Placing the Gravity Reactor approximately one mile underground is designed to help provide long-term passive safety for workers by using the Earth’s deep subsurface as a natural containment and shielding system. +Export Controls +The export of nuclear technology, assistance, or materials is subject to DOE regulation 10 C.F.R. Part 810 and NRC regulation 10 C.F.R. Part 110, as well as international non-proliferation agreements. Our technology may be subject to export restrictions requiring DOE or NRC authorization, and unfavorable changes in U.S. export control laws or licensing policies could limit our ability to build reactors abroad. To mitigate this risk, we are prioritizing engagement with U.S. agencies at an early stage, focusing initial export opportunities on allied nations with existing civil nuclear cooperation agreements, and designing our reactors to use standard LEU fuel, which presents lower nonproliferation concerns than alternative fuels. We also intend to establish a comprehensive export compliance program to manage authorizations efficiently. Moreover, our domestic deployment opportunities following the DOE Reactor Pilot Program may provide an independent pathway to near-term revenue, reducing our reliance on international markets. +International Regulations +On an international level, the IAEA publishes safety standards and guidance for nuclear facilities, which influence national regulatory regimes. In the European Union, directives such as the 2013/59/Euratom Basic Safety Standards Directive and the 2011/70/Euratom Radioactive Waste and Spent Fuel Directive establish common requirements for nuclear safety and waste management. Export of U.S. nuclear technology also must comply with bilateral nuclear cooperation agreements between the United States and partner countries. +9. Intellectual Property +Our intellectual property portfolio is designed to protect key elements of the Gravity Reactor, including reactor configuration, deep subsurface emplacement, drilling and casing techniques, thermal-hydraulic performance, instrumentation and monitoring, and other technologies supporting the deployment of underground nuclear reactors. +We rely on a combination of patents, patent applications, trademarks, trade secrets and proprietary know-how, and contractual protections to safeguard our technology and maintain our competitive position. +As of the date of this Annual Report, our intellectual property portfolio consists of one issued U.S. patent and 26 patent applications (including one U.S. patent application that has been allowed for issuance), including: +· +2 U.S. non-provisional applications (one of which has been allowed for issuance) +· +5 U.S. provisional applications +· +4 Patent Cooperation Treaty (“PCT”) applications +· +15 foreign applications filed in multiple jurisdictions, including Europe and Asia +Our issued U.S. patent (U.S. Patent No. 12,469,612) is expected to provide protection until approximately November 2043, subject to potential adjustments and the payment of maintenance fees. In addition, our U.S. patent application relating to a nuclear reactor system architecture within a borehole (U.S. Application No. 18/703,455) has been allowed for issuance and is expected to issue as a patent following payment of applicable fees. There can be no assurance that pending applications will result in issued patents. +16 +Table of Contents +We believe that our intellectual property portfolio contributes to our competitive position, particularly with respect to reactor deployment and subsurface emplacement. We seek to protect our intellectual property through patent, trademark, and trade secret laws in the United States and foreign jurisdictions, as well as through confidentiality and contractual protections. Unpatented research, development, know-how, and engineering expertise also contribute meaningfully to our business. We pursue patent protection when it aligns with our broader strategy for safeguarding intellectual property. +Patent Portfolio Overview +The table below summarizes our primary patent families relating to the design, safety systems, subsurface emplacement, thermal-hydraulic performance, drilling methods, and other core components of the Gravity Reactor. Patent families include U.S. and foreign applications derived from a common priority filing. +All patents and patent applications in our portfolio are owned directly by the Company, and we do not license any material intellectual property from third parties. +Technology Area +Protection Type +Status +Jurisdiction +Estimated Expiration +Deep subsurface reactor emplacement and borehole design +U.S. utility patent and foreign patent applications +Issued as U.S. Patent No. 12,469,612 +U.S., Europe, Asia +2043 +Nuclear reactor within a borehole, including coolant systems and heat exchange configuration +U.S. non-provisional application and foreign patent applications +Allowed for issuance (U.S. Application No. 18/703,455) +U.S., PCT, select foreign +2044–2045 (estimated) +Reactor module configuration, thermal-hydraulic systems, and passive safety features +Non-provisional and foreign applications +Pending +U.S., Europe, Asia +2044–2046 (estimated) +Drilling, casing, and emplacement techniques for nuclear applications +U.S. provisional, PCT, and foreign applications +Pending +U.S., PCT, select foreign +2045–2046 (estimated) +Instrumentation, control, and monitoring systems for deep-borehole reactors +U.S. and foreign applications +Pending +U.S., PCT +2044–2046 (estimated) +Heat extraction and surface power-conversion interface systems +U.S. and foreign applications +Pending +U.S., PCT +2046 (estimated) +​ +We believe that these patent families, together with our trade secrets and engineering know-how, help create barriers to entry for competitors seeking to replicate aspects of our reactor design, deep subsurface architecture, or deployment model. In particular, portions of our intellectual property portfolio relate to methods and systems for deploying nuclear reactor modules in deep boreholes, including techniques for reactor emplacement, drilling and casing configuration, and thermal management within subsurface environments. We believe these technologies are important to enabling the Gravity Reactor and differentiating it from conventional above-ground reactor deployments. +Strategy for Protecting Intellectual Property +Our intellectual property strategy focuses on: +· +protecting innovations related to safety, deployment speed, cost efficiency, and manufacturability +17 +Table of Contents +· +maintaining trade secrets related to design methods, modeling tools, safety analyses, and engineering processes +· +filing patent applications in jurisdictions where we anticipate future commercial activity or manufacturing +· +continuously reviewing our portfolio for opportunities to file additional applications as development progresses +Unpatented know-how, including reactor modeling, safety analysis, drilling expertise, and systems engineering, forms an important component of our competitive position and is protected through internal controls, confidentiality obligations, and other contractual measures. +Confidentiality and Assignment Obligations +All employees, consultants, and contractors with access to proprietary information are required to sign non-disclosure and invention-assignment agreements. We also use non-disclosure agreements when engaging with potential commercial counterparts (including potential customers and suppliers) and government agencies. These protections help ensure that rights to our proprietary technology, data, and inventions remain with the Company. +10. Employees +Human Capital Management +Our ability to develop and commercialize the Gravity Reactor depends on attracting and retaining highly skilled technical and operational personnel. Our human capital management approach focuses on recruiting experienced professionals, supporting employee development, and maintaining a collaborative and safe working environment as we advance our reactor technology and business operations. Management monitors employee retention, recruiting effectiveness, and the ability to attract specialized nuclear engineering talent as key indicators of human capital performance. +As of the date of this Annual Report, we had 51 employees and 9 consultants. Our employees and consultants operate through a combination of remote and in-person work arrangements across multiple time zones and are currently located in the United States and the Netherlands. +By primary job function, the majority of our employees are engineers engaged in reactor design, modeling, and related technical development activities. The remainder perform functions in business development, legal, public relations, and other administrative roles. +None of our employees are represented by a labor union or covered by a collective bargaining agreement. +Competitive Pay and Benefits +We provide compensation and benefits packages designed to be competitive within our industry, including a combination of cash and equity compensation. Our benefits programs include retirement programs, paid time off, and health benefits intended to support employee well-being and long-term retention. +Employee Recruitment, Retention, and Development +We seek to recruit and retain highly qualified personnel with expertise in nuclear engineering, drilling technology, regulatory affairs, and related disciplines. We believe our compensation structure, professional development opportunities, and collaborative work environment support employee retention and long-term engagement. We monitor employee turnover and seek to maintain a stable and experienced technical workforce as our operations grow. +18 +Table of Contents +11. Market and Industry Data +This Annual Report also contains estimates, projections and other information concerning our industry and the markets in which we operate, including the markets for nuclear energy and related technologies. Much of this information consists of forward-looking statements subject to the disclaimers and risks described herein. However, even the historical information is based on estimates, forecasts, projections, market studies or similar methodologies that are inherently subject to uncertainties and assumptions, and actual results may differ materially from those expressed or implied by such information. Unless otherwise expressly stated, we obtained industry, market and other data from our own estimates and research, as well as from reports, research surveys, studies and similar data prepared by third parties, industry sources and governmental sources that we believe to be reliable. However, we have not independently verified such third-party information and do not make any representation as to its accuracy or completeness. +12. Available Information +Our filings with the SEC are available free of charge on our website, www.deepfission.com, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The SEC maintains an Internet website, www.sec.gov, that contains reports, proxy statements, and other information regarding issuers that file electronically with the SEC. The information contained on, or accessible through, our website and the SEC’s website is not incorporated by reference into this Annual Report, and the references to our website and the SEC’s website are intended to be inactive textual references only. +ITEM 1A. Risk Factors +Investing in our common stock involves a high degree of risk. You should carefully consider the risk factors discussed below, together with all of the other information contained in this Annual Report. The risk factors set forth below are not the only risks we face; we may also face risk factors not presently known to us or that we currently believe to be immaterial. If any of the following risk factors or any other risk factors actually occur, our business, prospects, results of operations, and financial condition could be materially adversely affected. In such event, the trading price of our common stock could decline, and you might lose all or part of your investment. +Summary of Risk Factors +Our business is subject to numerous risks and uncertainties, including the following: +● our Gravity Reactor is unproven and may not perform as expected or be commercially viable +● we are an early-stage company with no revenue, a history of losses, and a “going concern” opinion from our auditors +● we require substantial additional capital and may be unable to obtain financing on acceptable terms or at all +● our technology depends on successful deep vertical borehole drilling and subsurface engineering, which involve significant technical and regulatory risks +● we may be unable to identify, acquire, lease, or otherwise secure access to suitable sites with geological characteristics necessary to deploy our Gravity Reactor +● we have no experience operating nuclear facilities and may be unable to develop necessary operational capabilities +● the market for our technology is not established and may not develop as expected +● commercialization depends on our ability to enter into long-term commercial arrangements, including power purchase agreements, ability to establish strategic partnerships, and ability to obtain grid interconnection approvals +● our technology may not be cost competitive with other energy sources +● our development timelines, cost projections, and financial forecasts are subject to significant uncertainty +19 +Table of Contents +● we are subject to significant supply chain risks, including access to nuclear fuel and specialized components and specialized fuel cycle services +● our development activities and operations involve inherent safety risks and potential liability for nuclear incidents and environmental contamination +● our business is subject to extensive government regulation, and we may be unable to obtain required approvals, including from the NRC +● our reliance on DOE authorization under our OTA involves legal and regulatory uncertainty and does not replace the requirement for NRC licensing +● we are involved in litigation relating to the NRC’s licensing framework, which may adversely affect our regulatory pathway +● changes in government policy, including government incentives, public perception of nuclear energy, or environmental laws could adversely affect our business +● we are subject to government export control, economic sanctions, import, anti-corruption, anti-bribery, anti-money laundering and other laws and regulations that may affect our ability to compete successfully outside of the United States +● we may be unable to adequately protect our intellectual property or may be subject to infringement claims +● we face general risks related to cybersecurity, macroeconomic conditions, supply chains, natural disasters and severe weather events, and loss of key personnel +● we may be subject to litigation, investigations, claims or other legal proceedings that could be costly to defend +● we have restated in this Annual Report certain previously issued consolidated financial statements to correct certain errors and have identified material weaknesses in our internal control over financial reporting that caused our management to conclude that we did not maintain effective internal control over financial reporting and disclosure controls and procedures +● there is currently no public trading market for our common stock, and even if one develops, the market price of our common stock may be volatile +Risks Related to Our Business and Industry +Our Gravity Reactor is unproven, and our design, borehole development activities, planned pilot reactor, and future commercial applications may fail, progress more slowly than projected, or encounter delays or changes that increase costs and capital requirements. +Our Gravity Reactor is in the development stage and has not been proven in a real-world operating environment. We are currently advancing the design of the Gravity Reactor and conducting site development, borehole test drilling, engineering, and validation activities, and we plan to construct and operate a pilot reactor under the DOE Reactor Pilot Program. These efforts involve significant technical and engineering challenges, including subsurface deployment and integration of reactor and borehole systems, and may require design changes, additional engineering and validation work, and result in delays or increased costs. +Our development pathway also depends on the timing of required regulatory approvals and licenses. The planned pilot reactor would operate under DOE authorization, which does not permit commercial operation and does not replace the need for NRC licensing. Delays in DOE authorization, challenges in pilot reactor development, or difficulties in obtaining or maintaining NRC approvals could delay or prevent commercialization. +If our design, borehole development activities, or planned pilot reactor do not perform as expected, or if regulatory requirements materially delay or constrain our development and licensing pathway, our technology may prove infeasible or more costly to deploy than anticipated, which could materially adversely affect our business, prospects, results of operations, and financial condition. +20 +Table of Contents +We are an early-stage company with a history of operating losses and expect to incur losses for the foreseeable future. +Legacy Deep Fission was formed in 2023 and has not generated revenue from commercial operations. During the years ended December 31, 2025 and 2024, we incurred net losses of $61.0 million and $5.7 million, respectively. +We expect to continue to incur significant expenses as we continue to develop our technology, pursue regulatory approvals, build our organization, and prepare for potential commercialization. These activities may require substantial capital and may not result in commercially viable products or revenue-generating operations. +Even if we successfully commercialize our technology, we may not achieve or sustain profitability. Our ability to generate revenue will depend on a number of factors, including obtaining regulatory approvals, customer adoption of our technology, successful development and deployment of our reactors, and access to sufficient capital. +Our auditor has issued a “going concern” opinion with respect to our financial statements. +Our independent registered public accounting firm has included an explanatory paragraph in its report on our financial statements for the year ended December 31, 2025 indicating that there is substantial doubt about our ability to continue as a going concern. During the years ended December 31, 2025 and 2024, we generated no revenue and incurred net losses of $61.0 million and $5.7 million, respectively, and as of December 31, 2025 and 2024 we had an accumulated deficit of $66.7 million and $5.7 million, respectively. As of December 31, 2025, our cash and cash equivalents were $23.7 million. In February 2026, we raised approximately $76.0 million in net proceeds from a private placement; however, we expect that these funds, together with our existing cash, will not be sufficient to operate our business for the next twelve months. +Based on our recurring losses from operations, our expectation of continued operating losses for the foreseeable future, and our current cash position, our existing cash and cash equivalents will not be sufficient to fund our operating and capital requirements for the next twelve months. These conditions raise substantial doubt about our ability to continue as a going concern. +To continue operating our business, we will need to raise substantial additional capital. We are actively evaluating potential financing sources, including equity issuances, debt financing, strategic partnerships, and other capital raising transactions. However, there can be no assurance that such financing will be available on acceptable terms, on a timely basis, or at all. +Our business plans require substantial additional capital, and we may not be able to obtain financing on acceptable terms or at all. +Our business will require significant capital to fund the continued development of our Gravity Reactor, obtain regulatory approvals, construct and deploy reactor facilities, and support our operations. We estimate that the total capital required to complete our pilot reactor program under the DOE Reactor Pilot Program and to obtain NRC licensing for commercial deployment will be substantial, and there is significant uncertainty regarding the exact amount of our ultimate capital requirements due to the early stage of our technology development, the novel nature of our regulatory pathway, and the unpredictability of construction and deployment costs. We expect to incur operating losses for the foreseeable future and will require significant additional financing to execute our business plan. Our planned pilot reactor and subsequent development activities are not fully funded and will require substantial additional capital. If we are unable to obtain such funding, our development timelines may be delayed, and we may be required to reduce or terminate portions of our development programs. +The timing and amount of our future capital requirements will depend on a number of factors, including the progress of our technology development, regulatory approvals and processes, commercialization efforts, customer demand, supply chain conditions, and general economic and capital market conditions. Because our technology is in an early stage of development and represents a new category of nuclear energy solutions, we have limited historical data upon which to estimate our capital needs. +We expect that we will need to raise additional capital through equity issuances, debt financings, strategic partnerships, government programs, or other financing arrangements. However, there can be no assurance that such financing will be available on acceptable terms, on a timely basis, or at all. +21 +Table of Contents +If we are unable to obtain sufficient funding, we may be required to delay, reduce, or terminate all or portions of our development programs or other operations, which could materially adversely affect our business, prospects, results of operations, and financial condition. In addition, to the extent that we raise additional capital through the issuance of equity or convertible securities, the ownership interests of our existing stockholders will be diluted, potentially significantly. Given the magnitude of our anticipated capital requirements, future equity financings could result in substantial dilution to existing stockholders. Moreover, the terms of such securities or any other financing may include preferences or other rights that adversely affect the value of, or rights of holders of, our common stock. Debt financing, if available, could result in additional debt service obligations, and debt financings or other financings may involve covenants that restrict our operations or financial flexibility. +If we are unable to obtain sufficient funding or otherwise manage our capital resources effectively, we may not be able to continue operations. +Our technology depends on the successful drilling and long-term stability of deep vertical boreholes, which presents significant technical, engineering, regulatory and operational risks. +Our Gravity Reactors require the drilling and long-term operation of deep vertical boreholes designed to house nuclear reactor systems at significant depths below the surface. Deep vertical borehole drilling and subsurface engineering involve complex technical challenges, including maintaining borehole stability, managing subsurface pressures and temperatures, ensuring the integrity of well casings and seals, and preventing subsurface fluid migration. +Our staged borehole development program (including non-nuclear and prototype wells) may not successfully validate drilling methods, installation procedures, or subsurface performance assumptions necessary for reactor deployment. +Engineering studies and modeling activities are ongoing to refine borehole diameter requirements, drilling techniques, casing systems, and installation procedures as part of the continuing development of the Gravity Reactor. While conducting such studies and activities, we may encounter unforeseen engineering challenges. +Any such engineering challenges may be exacerbated by unpredictable geological conditions, equipment limitations, drilling errors, or failures in subsurface materials or infrastructure. Unexpected subsurface conditions may require changes in drilling design, additional engineering work, or abandonment of drilling operations at particular sites. Additionally, long-term operation of a reactor in a deep vertical borehole environment may involve risks that we do not currently expect. +In addition, the drilling and construction of deep vertical boreholes are subject to federal, state, and local permitting and regulatory requirements, including environmental reviews, groundwater protection standards, and well construction regulations. These requirements vary by jurisdiction, may change from time to time and have generally become more stringent over time, and may be subject to evolving interpretations. Obtaining and maintaining necessary permits may be time-consuming, costly, and uncertain, and may require modifications to drilling plans or site selection. +If we are unable to successfully drill, permit, construct, and maintain boreholes suitable for reactor deployment, or if borehole integrity cannot be maintained or regulatory requirements materially delay or constrain our drilling activities, our technology may prove infeasible or significantly more costly to deploy than anticipated. Any such failure or delay could materially adversely affect our development timelines, costs, and ability to commercialize our technology. +We may be unable to identify, acquire, lease, or otherwise secure access to suitable sites with the geological characteristics necessary to deploy our Gravity Reactor. +The successful deployment of our Gravity Reactor depends on our ability to identify and secure sites with geological characteristics capable of supporting deep vertical borehole drilling and long-term structural stability of deep vertical boreholes. These characteristics may include stable subsurface formations, appropriate thermal and hydrological conditions, sufficient depth, and the ability to safely construct and maintain a borehole reactor facility. +Suitable sites may be difficult to locate, may not be available on commercially acceptable terms, or may be subject to competing land uses, ownership disputes, or conflicting mineral, drilling, or surface rights. In addition, site acquisition may require negotiation with private landowners, governmental entities, non-governmental organizations, or other stakeholders, and may involve obtaining easements, mineral rights, drilling rights, or other property interests. These processes can be time-consuming, uncertain, and costly. +22 +Table of Contents +Even if a potential site is identified, geological conditions may ultimately prove unsuitable for reactor deployment following additional subsurface analysis, drilling activities, or regulatory review. For example, we are currently conducting geological analysis at the Kansas Site, which we intend to use for our pilot reactor program. There can be no assurance that the Kansas Site will ultimately prove to be a suitable site for reactor deployment following further testing. Furthermore, local zoning requirements, environmental regulations, permitting requirements, or opposition from host communities could delay or prevent the development of otherwise suitable sites. +If we are unable to identify or secure suitable sites with the required geological characteristics on commercially reasonable terms, or if such sites become unavailable due to regulatory, environmental, or community considerations or otherwise prove unsuitable, our ability to deploy our technology and execute our business plan could be materially adversely affected. +We have no experience operating nuclear power facilities, and our lack of operational experience may create additional risks as we develop and deploy our technology. +The safe and reliable operation of nuclear reactors requires highly specialized technical capabilities, operational procedures, safety culture, regulatory compliance systems, and experienced personnel. We have not yet constructed or operated a nuclear power facility, commercial or otherwise. +As we work toward demonstration and potential commercial deployment of our Gravity Reactor, we will need to develop operational capabilities, establish safety and compliance programs, recruit and train qualified operating personnel, and implement systems necessary to safely operate nuclear facilities. These efforts may require significant time, expense, and organizational development. +If we are unable to, on a timely basis, successfully develop these operational capabilities, establish safety and compliance programs, recruit and retain appropriately qualified personnel, or establish the operational infrastructure necessary to safely operate our reactors, we may experience operational failures, safety incidents, regulatory enforcement actions, delays in commercialization, or increased operating costs. Any such developments could materially adversely affect our business, prospects, results of operations, and financial condition. +The market for our Gravity Reactor is not yet established and may not achieve the growth potential we expect or may grow more slowly than expected. If demand for our technology fails to develop sufficiently, our business and operations would suffer, and we would be unable to achieve or maintain profitability. +The market for Gravity Reactors has not yet been established. Projections we may provide from time to time for the total addressable market are based on a number of internal and third-party estimates, including, but not limited to, levels of demand for clean energy, including nuclear power, the number of potential customers who have expressed interest in our products and services, estimates of prices and production costs for our Gravity Reactors and the various components of our Gravity Reactor, our anticipated project development, deployment, and operating model, and general market conditions. However, our assumptions and the data underlying our estimates may not be correct and the conditions supporting our assumptions or estimates may change at any time, thereby reducing the predictive accuracy of these underlying factors. As a result, estimates we may provide from time to time of the annual total addressable market for our technology and related offerings, as well as the expected growth rate for the total addressable market for our technology and related offerings may prove to be incorrect. +Challenges that could impact our expectations for the timeline and costs of market development might arise from obtaining federal, state, and local permits and approvals, transportation, actual or threatened litigation, political, host community or other opposition to our technology or proposed Gravity Reactor sites, access to and availability of raw materials on cost-effective terms, lack of support or opposition from governmental entities, our ability to raise capital on attractive terms, as well as other factors. The timeline to scale-up and deploy the necessary technological processes for the commercialization of Gravity Reactors is also based upon assumptions regarding our technology and general market conditions. However, our Gravity Reactor has not been proven at scale and market conditions are volatile and difficult to predict, and our assumptions and the data underlying these estimates may not be correct, and the conditions supporting our assumptions or estimates might change at any time, reducing the accuracy of these underlying assumptions. As a result, the market for the Gravity Reactor may not develop on the timeline we expect or at all, and we may not realize the financial performance we have projected. +23 +Table of Contents +Our ability to deploy reactors commercially will depend on our ability to enter into long-term power purchase agreements or other commercial arrangements with customers. +The successful commercialization of our reactors will depend on our ability to enter into commercial arrangements, including PPAs, with hyperscale data centers and other large power users, as well as utilities, industrial operators, and government or defense installations. These agreements are typically required to support project financing and provide revenue certainty for power generation assets. We have not yet entered into any PPAs or other binding commercial arrangements. +Negotiating PPAs can be complex and time-consuming, and potential customers may be reluctant to enter into long-term commitments with a company developing a novel technology that has not yet been commercially deployed. In addition, potential counterparties may require extensive technical validation, regulatory approvals, operational track records, or other assurances before entering into such agreements. +Even if we are able to negotiate potential commercial arrangements, such agreements may be subject to regulatory approvals, financing conditions, or other contingencies that could delay or prevent their execution. If we are unable to enter into PPAs or similar agreements on commercially reasonable terms, or at all, our ability to deploy reactors, generate revenue, and execute our business plan could be materially adversely affected. +Our future revenue plans depend in part on strategic partners and government entities . +Our business model contemplates the deployment of our Gravity Reactor in collaboration with hyperscale data centers and other large power users, as well as utilities, industrial operators, government or defense installations, and other strategic partners. These relationships may involve joint development arrangements, licensing agreements, project development partnerships, or other commercial structures. +There can be no assurance that we will successfully establish or maintain such partnerships on commercially acceptable terms. Potential partners may require additional validation of our technology, regulatory approvals, operational track records, or other assurances before committing to collaboration. +If we are unable to establish strategic partnerships or if such partnerships fail to achieve the expected level of deployment or utilization of our technology, our business model and commercialization strategy could be materially adversely affected. +Electricity generated by our Gravity Reactors may not be cost-competitive with other energy generation technologies, and competing energy solutions could reduce demand for our reactors and related services . +The markets for electricity generation and clean energy technologies are highly competitive and rapidly evolving. Our Gravity Reactor will compete with a wide range of existing and emerging energy generation technologies, including renewable energy sources such as solar, wind, and geothermal power, natural gas-fired generation, large-scale nuclear power plants, energy storage technologies, and other emerging low-carbon energy solutions. +Many competing technologies benefit from established supply chains, existing regulatory frameworks, government incentives, or declining capital costs. In some markets, renewable energy technologies benefit from subsidies, tax incentives, or regulatory mandates that increase their competitiveness relative to nuclear power. In addition, new or improved technologies, including advances in energy storage, carbon capture, or alternative generation technologies, may provide comparable or superior performance, reliability, or cost advantages relative to our Gravity Reactor. +If the levelized cost of electricity generated by our Gravity Reactor is not competitive with other sources of electricity generation, or if alternative technologies become more cost-effective or widely adopted, commercialization and demand for our reactors and related services could be reduced or fail to materialize. In addition, even if we are able to commercialize our reactor and related services, if we are unable to continue developing and improving our technology to remain competitive, we may lose market share. Any such developments could materially adversely affect our business, prospects, financial condition, and results of operations. +24 +Table of Contents +Delays or failures in obtaining grid interconnection approvals could delay or prevent deployment of our reactors. +The commercial deployment of our reactors will require interconnection to regional electricity transmission systems. Obtaining grid interconnection approvals typically involves complex technical studies, regulatory review, coordination with utilities, transmission providers, and, in some cases, regional transmission organizations or independent system operators, and potentially significant infrastructure upgrades. +Interconnection processes in many regions are subject to substantial backlogs and may take several years to complete. In addition, the cost of required transmission upgrades or system modifications may be significant and could affect the economic viability of a proposed reactor project. Interconnection approvals may also be subject to regulatory or operational conditions that affect project timing or feasibility. +If we are unable to obtain grid interconnection approvals on acceptable timelines or terms, or if required transmission infrastructure upgrades prove too costly or technically impractical, our ability to deploy reactors and deliver electricity to customers could be delayed or prevented. Any such delays could materially adversely affect our development plans, financial condition, and results of operations. +Our development timelines, cost projections, and financial forecasts are subject to significant uncertainty. +From time to time we may provide development or commercialization timelines, cost projections, and financial forecasts, which are based on estimates, including regarding the timing of reactor development, testing, licensing, construction, and commercialization, as well as projections regarding the potential costs associated with developing and deploying our technology. +These estimates are based on numerous assumptions, including assumptions regarding regulatory approvals, engineering performance, supply chain availability, financing conditions, market demand, and the availability of suitable deployment sites. +Because our technology is in an early stage of development and has not yet been commercially deployed, there is limited historical data on which to base these estimates. Actual results may differ materially from our expectations due to a variety of factors, including technical challenges, regulatory delays, supply chain disruptions, changes in market conditions, or the need for additional engineering work or safety modifications. +If our development timelines are delayed or if our costs are materially higher or energy demand is materially lower than we anticipate, our ability to commercialize our technology, obtain financing, or enter into commercial arrangements with customers could be materially adversely affected. +Manufacturing or construction issues could increase costs or delay deployment of our reactors. +Our Gravity Reactor design is still under development, and aspects of the design may evolve as engineering work, validation activities, and regulatory engagement progress. Although we intend to actively manage our design process through design reviews, validation activities, engagement with external partners, and application of industry lessons learned, latent manufacturing, construction, or safety issues may not be identified on a timely basis. +If such issues are discovered after design finalization, long-lead component procurement, module fabrication, or construction activities have begun, addressing them could require design modifications, additional engineering work, replacement of components, or changes to construction procedures. These developments could increase project costs, delay construction schedules, or affect the performance of our reactors. +Any significant delays or cost increases resulting from latent manufacturing, construction, or safety challenges could materially adversely affect our development timelines, business, prospects, results of operations, and financial condition. +We may be unable to obtain sufficient quantities of nuclear fuel and fuel cycle services required to operate our reactors. +While we have entered into an agreement to procure LEU for certain demonstration and initial operations, we have not secured sufficient fuel supply or fuel cycle service arrangements to support ongoing or large-scale commercial deployment of our reactors. +25 +Table of Contents +The nuclear fuel supply chain is subject to capacity constraints, regulatory requirements, and geopolitical risks. Global enrichment and fuel fabrication capacity is concentrated among a limited number of suppliers, including in jurisdictions that have been subject to geopolitical tensions, trade restrictions, or sanctions, including Russia. +We have not entered into binding agreements for long-term or large-scale fuel supply or fuel cycle service arrangements, and there can be no assurance that we will be able to obtain such agreements on acceptable terms, or at all. If sufficient quantities of nuclear fuel or fuel cycle services are not available, our ability to develop, deploy, and operate our reactors could be materially adversely affected. +Our reactors will depend on specialized components and suppliers, and disruptions in the supply chain could delay development , interrupt operations or increase costs. +The development and deployment of our reactors will require specialized components, materials, and services, including nuclear-grade fuel and other materials, fuel cycle services, precision-engineered reactor components, drilling equipment, heat exchange systems, control systems, long-lead manufactured components, and other specialized infrastructure. In many cases, these components must meet stringent regulatory and quality standards and may be available from a limited number of suppliers. +Disruptions in the supply of these components, materials or services may occur due to manufacturing delays, supplier financial distress, quality issues, geopolitical developments, trade restrictions or other regulatory changes, labor shortages, transportation constraints, or other supply chain disruptions. In addition, certain suppliers may have limited capacity to produce nuclear-grade or similarly specialized components or services, and may prioritize larger or more established customers. +If we are unable to secure reliable suppliers for critical components, materials or services on acceptable terms and timelines, the development, deployment, and operation of our reactors could be delayed, interrupted or become significantly more expensive. Any such delays or cost increases could materially adversely affect our business, prospects, results of operations, financial condition, and ability to commercialize our technology. +Construction, drilling, installation procedures and development activities associated with our reactor facilities involve inherent safety risks and could result in workplace accidents, injuries, or fatalities. +The development and deployment of our Gravity Reactor will require drilling deep vertical boreholes, constructing specialized reactor facilities, transporting heavy equipment, installing and emplacing the reactor module, handling, transportation and disposal of radioactive and hazardous materials, and performing complex engineering and construction activities, each of which remains subject to ongoing engineering analysis and development, safety evaluations and regulatory review. These activities involve inherent safety risks, including the potential for workplace accidents, equipment failures, structural incidents, exposure to radioactive and hazardous materials, or other operational hazards. +Accidents involving our employees, contractors, or third-party personnel could result in serious injury or loss of life. Such incidents could lead to project delays, regulatory investigations, litigation, reputational harm, increased insurance costs, or other liabilities. In addition, workplace safety incidents could result in work stoppages, delays in construction schedules, or additional compliance obligations. +Although we intend to implement safety programs and operational controls designed to reduce these risks, we cannot eliminate the possibility of accidents or safety incidents. Any such event could materially adversely affect our development timelines, business, prospects, financial condition, and results of operations. +Our Gravity Reactor could experience a nuclear incident or otherwise cause environmental contamination, personal injuries or property damage, and reputational harm or losses not covered by indemnification or insurance could materially adversely affect our business. +Accidents and other unforeseen problems at nuclear facilities have occurred in the United States and elsewhere. Our Gravity Reactor is a novel design, and full analysis of its performance and safety characteristics is ongoing. As a result, there may be risks associated with the operation of our technology that are not yet fully understood. The subsurface emplacement of our reactor creates unique risk considerations, including the potential for groundwater contamination in the event of a breach of containment systems, challenges associated with accessing or retrieving the reactor module in an emergency, and the interaction of reactor systems with subsurface geological and hydrological conditions over extended operating periods. +26 +Table of Contents +Our OTA with the DOE provides certain indemnification protections for damage resulting from a nuclear incident, generally defined as occurrences involving bodily injury, sickness, disease, death, or property damage arising from the hazardous properties of nuclear material. For any future commercial operations licensed by the NRC, we would be subject to the liability and indemnification framework established under the Price-Anderson Nuclear Industries Indemnity Act, which provides a system of private insurance and government indemnification for nuclear incidents, subject to statutory limits and certain exclusions. However, coverage under Price-Anderson may not apply to all types of incidents, may be subject to aggregate limits that could be exhausted in the event of a major nuclear incident at any covered facility, and may not fully compensate us for all losses. +However, in the event of such damage, the availability of such indemnification protections may be subject to limitations, conditions, or legal challenges. The indemnification could be withdrawn if the OTA is canceled, may not apply if the OTA is invalidated or overturned as the result of litigation, or may not apply if the test reactor is determined to fall under the regulatory jurisdiction of the NRC rather than the DOE. +In addition, we may be subject to liability under environmental laws, including the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (“CERCLA”) and similar state-level legislation. Such environmental laws may impose liability on a strict, joint and several basis. As a result, we may incur liabilities relating to remediation of environmental contamination of property currently or formerly owned, leased or operated by us or of property contaminated by hazardous substances we generated, handled, arranged for the disposal of, or released. If a nuclear incident or other environmental event were to occur, or environmental contamination for which we are alleged to be responsible is identified and indemnification and insurance protections are unavailable or insufficient, we could be exposed to significant liability, which could materially adversely affect our business, prospects, financial condition, and results of operations. Even if indemnification or insurance protections were available, we still may be subject to reputational harm, which could materially adversely affect our business, prospects, financial condition, and results of operations. +Our insurance coverage and any available indemnification may not be sufficient to cover all potential liabilities associated with our operations. +The development, construction, and operation of nuclear reactor facilities involve significant risks, including risks of nuclear incidents, environmental contamination, property damage, personal injury, and other losses. Although costs relating to certain nuclear incidents may be subject to indemnification by the federal government under applicable federal programs, including indemnification provided by the DOE under our OTA, such indemnification may not apply in all circumstances. +In addition, our operations may require us to obtain various forms of insurance coverage, including coverage related to construction activities, general liability, environmental liability, workers’ compensation, and other operational risks. Insurance coverage for nuclear-related activities may be limited in scope, subject to significant exclusions, prohibitively expensive or otherwise unavailable on commercially reasonable terms. +Even where coverage is available, the limits of such insurance policies may be insufficient to cover the full extent of potential liabilities. Nuclear-specific insurance products, such as those offered through Nuclear Electric Insurance Limited (NEIL) or other nuclear insurance pools, may be expensive, limited in scope, or unavailable to us on acceptable terms given our early-stage status and unproven technology. If a nuclear incident, environmental event, construction accident, or other contingencies resulting in significant liability were to occur and were not fully covered by indemnification or insurance, we could be exposed to substantial financial losses, which could materially adversely affect our business, prospects, results of operations, and financial condition. Even if indemnification or insurance protections were sufficient to cover the full extent of potential liabilities, we may still be subject to reputational harm, which could materially adversely affect our business, prospects, financial condition, and results of operations. +The costs associated with the storage and disposal of used nuclear fuel could be significant. +The operation of our reactors will generate used nuclear fuel that must be stored and ultimately disposed of in accordance with applicable legal and regulatory requirements. The costs associated with storing and managing used nuclear fuel may be significant and could increase over time. +The DOE does not currently have an operating long-term disposal facility for used commercial nuclear fuel in the United States, and the timing for the operation of any such facility remains uncertain. As a result, operators of nuclear facilities may be required to store used nuclear fuel on site for extended periods relying on interim storage solutions, which requires compliance with evolving legal and regulatory requirements and could involve significant costs. +27 +Table of Contents +If the costs associated with used nuclear fuel management are higher than anticipated, or if storage or disposal options remain unavailable or subject to more burdensome legal and regulatory requirements, our business, prospects, financial condition, and results of operations could be materially adversely affected. +In addition, if we obtain DOE authorization and/or an NRC license for commercial operation, we may be required to provide financial assurance for the eventual decommissioning of our reactor facilities, which may include funding mechanisms such as prepayment, external sinking funds, surety bonds, or guarantees. Decommissioning costs for nuclear facilities can be substantial and may exceed initial estimates due to unforeseen technical challenges, changes in regulatory requirements, or inflation. Our novel subsurface deployment model may present unique decommissioning challenges, including the potential need to retrieve reactor components from deep underground and remediate subsurface contamination. Any issues in the decommissioning, or any unexpected costs or other liabilities, could materially adversely affect our business, prospects, financial condition, and results of operations. +Changes in government incentives related to nuclear power may adversely affect our business. +Our business and financial model contemplates, in part, the potential monetization of available tax credits and other government incentives, including investment tax credits that may be available for qualifying clean energy projects. We are not currently receiving any such tax credit subsidies, and the availability, timing, and applicability of such incentives to our future projects remain uncertain. +These incentives are subject to change, reduction, elimination, or unavailability due to political, budgetary, or other factors, and may be modified through future legislation, regulatory action, or administrative interpretation. In addition, the ability to monetize such incentives may depend on the availability of tax equity or other financing structures, which may be limited or subject to market conditions. +To the extent that our future commercial deployments depend on the availability of such incentives, any change, reduction, elimination, or unavailability of such incentives could adversely affect the economic viability of our projects, which could materially adversely affect our business, prospects, results of operations, and financial condition. +Risks Related to Our Regulatory Environment +Our business is subject to extensive government regulation, including licensing by the U.S. Nuclear Regulatory Commission, and delays or failures in obtaining required approvals could prevent or delay commercialization of our technology. +The development, construction, and operation of nuclear reactor facilities are subject to extensive federal, state, and local regulation. In the United States, we will be required to obtain and maintain licenses, permits, and other regulatory approvals from the NRC, the DOE, and other governmental authorities before we can construct and operate reactor facilities. Regulatory approval processes for nuclear technologies are complex, time-consuming, and uncertain, and the timeline from initial application to final license issuance can span several years or longer. The NRC and other regulatory authorities may impose conditions on licenses or approvals that increase costs, require design modifications, delay project timelines, or otherwise affect the economic viability of our projects. Regulatory review processes may also allow third parties to challenge or oppose our applications, which could result in lengthy administrative proceedings or litigation. The NRC has limited experience licensing novel reactor designs for deep subsurface emplacement, and regulatory staff may require additional time, resources, or information to evaluate our technology, potentially extending review timelines beyond our current estimates. +In addition, laws and regulations applicable to nuclear technologies, environmental protection, workplace safety, export controls, and other areas tend to evolve and become more stringent over time, and new regulatory requirements could increase our costs or delay our development activities. We cannot predict the timing or outcome of regulatory reviews or whether required approvals will be granted. Furthermore, we may be required to obtain state and local permits, approvals, or authorizations in addition to federal licenses, including permits related to construction, environmental compliance, water use, emissions, effluents, and land use. Such state and local requirements vary by jurisdiction and may involve public hearings, environmental reviews, solicitation and resolution of public comments, or community approval processes that could delay, limit or prevent project development. +If we are unable to obtain or maintain required licenses, permits, or other regulatory approvals, or if such approvals are delayed or granted subject to burdensome conditions, our ability to develop, deploy, and commercialize our Gravity Reactor could be materially adversely affected. +28 +Table of Contents +The DOE’s authorization under our OTA could be terminated or overturned, which could prevent or delay commercialization of our technology. +The DOE’s ability to authorize privately-owned nuclear test facilities on private land under our OTA is a novel application of that authority. Litigation arising under or relating to the AEA and the Energy Reorganization Act of 1974, or a change in policy made by a future administration, could result in this authority being revoked, overturned, limited, modified, or abandoned. +Our current strategy relies on the OTA to support development, demonstration, and testing activities for the Gravity Reactor in preparation for potential commercialization. The OTA does not authorize commercial operation and does not eliminate the need to obtain licenses for commercial deployment. If the OTA is revoked, overturned, limited, modified, or abandoned, it could result in regulatory enforcement actions, a loss or limitation of nuclear indemnification coverage, or other legal or regulatory constraints, any of which could materially adversely affect our ability to develop, test, and advance our technology toward commercialization. +We do not currently have NRC authorization for the commercial operation of any reactor. Even if we are able to conduct testing activities under DOE authorization, delays in obtaining NRC licenses or additional regulatory requirements imposed as part of the NRC licensing process could delay or prevent commercialization of our technology. +Our applications to the NRC may not be approved, and any rework necessary to address NRC concerns could significantly delay the commercialization of our products. +The commercial operation of our Gravity Reactor in the United States will require a license from the NRC. There is no assurance that any applications we submit will be approved, or approved within our anticipated timelines, including due to potential federal staffing constraints or future reductions in government personnel. In addition, during its review process the NRC may require revisions, supplemental information, or other actions or submissions to address concerns it identifies. Our Gravity Reactor’s novel deep borehole emplacement design has not previously been licensed by the NRC, and, even if approved by the NRC, the NRC may require us to modify fundamental aspects of our reactor design, safety systems, or deployment methodology as a condition of licensing. Any such modifications could be time-consuming and costly, could require us to revisit engineering and other work already completed, and could significantly delay the commercialization of our products, which may have a material adverse effect on our business, prospects, results of operations, and financial condition. +Government shutdowns, federal budget delays, federal debt ceiling limitations, or reductions in government spending could adversely impact government spending on U.S. government programs related to our products or services. +Federal government spending reductions or lapses in Congressional appropriations could adversely impact U.S. government programs related to our products or services, including the DOE Reactor Pilot Program. While we believe our products and services do not conflict with the U.S. government’s strategic priorities, government spending on these programs can be subject to negative publicity, political factors and public scrutiny. The risk of future government shutdowns, budget delays or reductions is uncertain, and it is possible that spending cuts may be applied to U.S. government programs across the board, regardless of how programs align with those priorities. Reductions in federal government spending on U.S. government programs related to our services and products, including the DOE Reactor Pilot Program, could materially adversely affect our ability to develop, deploy, and commercialize our Gravity Reactor and affect our business, prospects, results of operations, and financial condition. +Our participation in ongoing litigation challenging aspects of the NRC’s licensing framework exposes us to regulatory uncertainty, increased scrutiny, and potential delays or adverse outcomes in connection with required NRC approvals. +In April 2025, we joined as a plaintiff in a federal lawsuit, State of Texas et al. v. U.S. Nuclear Regulatory Commission (Case No. 6:24-cv-00507), pending in the U.S. District Court for the Eastern District of Texas. The lawsuit challenges the NRC’s interpretation and application of certain licensing regulations under the Atomic Energy Act, including the NRC’s definition of “utilization facility,” and seeks declaratory and injunctive relief requiring the NRC to revise its licensing framework and undertake new rulemaking under the Administrative Procedure Act (the “APA”). The litigation remains pending and is subject to significant uncertainty, including the possibility of adverse rulings, expanded claims, appeals, or changes in regulatory interpretation or enforcement during its pendency. See Item 3, “Legal Proceedings” for more information. +Depending on the outcome of this litigation, we may face heightened regulatory scrutiny or increased administrative burden in our engagement with the NRC. The outcome may also affect how the NRC processes or evaluates our applications, including any standard design approval applications, combined operating license applications, construction permits, exemptions, or other NRC authorizations we may seek. Any adverse developments in the litigation or related regulatory actions could delay, complicate, or impair our ability to obtain the approvals and permits necessary to design, construct, or commercialize our Gravity Reactors or other technologies, which could materially adversely affect our business, prospects, results of operations, and financial condition. +29 +Table of Contents +We are required to comply with governmental export control, economic sanctions, import and other laws and regulations. Our failure to comply with these laws and regulations could have an adverse effect on our business, prospects, financial condition, and results of operations. +Our business is subject to stringent laws and regulations, including U.S. export control, economic sanctions and import laws and regulations. Unfavorable changes in these laws and regulations or U.S. government licensing policies, or our failure to comply with or secure timely U.S. government authorizations under these laws and regulations could have a material adverse effect on us and our ability to expand and thereby affect our business, prospects, results of operations, financial condition, and cash flows. Moreover, the inability to secure and maintain required export licenses or authorizations could negatively impact our ability to compete successfully or market our Gravity Reactor outside the United States. For example, if we were unable to obtain or maintain licenses to export nuclear technology or certain hardware to a particular country, we would be effectively prohibited from exporting our technologies to or operating Gravity Reactor sites in that country, which would limit the number of customers to those in the United States and in countries where we are able to secure licenses. Similarly, if export control laws and regulations prevent us from sharing certain export controlled information with suppliers we intend to partner with to operate our business or develop and produce our technologies or repositories, we may not be able to work with our preferred suppliers, which may impact our finances, business plans, and the competitiveness of our offerings. Failure to comply with export control laws and regulations could expose us to civil or criminal penalties, fines, investigations, more onerous compliance requirements, loss of export privileges, debarment from government contracts or limitations on our ability to enter into contracts with the U.S. government. Any changes in export control regulations or U.S. government licensing policy, such as that necessary to implement U.S. government commitments to multilateral control regimes, may restrict our market size. +We are subject to anti-corruption, anti-bribery, and anti-money laundering laws and regulations, and violations of these laws could result in significant penalties and reputational harm. +We are subject to various anti-corruption, anti-bribery, and anti-money laundering laws and regulations, including the U.S. Foreign Corrupt Practices Act of 1977 (the “FCPA”), the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, and similar laws in jurisdictions in which we conduct business. +These laws generally prohibit companies and their employees, agents, and business partners from offering, promising, authorizing, or providing improper payments or anything of value to government officials or other parties to obtain or retain business or secure an improper advantage. These laws also require companies to maintain accurate books and records and adequate internal controls. +Although we have adopted policies and procedures designed to promote compliance with these laws, there can be no assurance that our employees, contractors, or third-party partners will not take actions in violation of our policies or applicable law. Violations of these laws could result in investigations, substantial civil or criminal penalties, reputational harm, and the diversion of management attention and resources, any of which could materially adversely affect our business, prospects, results of operations, and financial condition. +Nuclear incidents anywhere in the world could increase regulatory requirements, reduce public acceptance of nuclear power, and adversely affect demand for our technology. +The nuclear energy industry is subject to heightened public scrutiny, political sensitivity and regulatory oversight. Public concerns regarding nuclear safety, waste disposal, environmental impacts, or prior nuclear accidents have in the past and may in the future negatively influence governmental policy, regulatory decisions, and the willingness of utilities, investors, and communities to support nuclear energy projects. Any actual or perceived safety issues at our facilities, or potentially those of our customers, may result in reputational harm to our business and could result in enforcement proceedings brought by governmental regulators, tort liabilities, enhanced maintenance costs, or increased safety infrastructure requirements and associated costs. +Moreover, in the nuclear industry, an accident or incident at any facility in the world can impact all other nuclear facilities in terms of public perceptions, political pressures, and regulatory scrutiny. Accordingly, major nuclear incidents anywhere in the world, including events similar to the accidents at Three Mile Island, Chernobyl, or Fukushima Daiichi, could significantly affect public perception of nuclear power and influence governmental policies regarding nuclear energy, and may result in reputational harm to our business even if not directly related to our operations. +Following the Fukushima accident in 2011, for example, several countries delayed or canceled nuclear development programs, imposed stricter regulatory requirements, or accelerated the shutdown of existing nuclear power plants. Similar events in the future could result in increased regulatory requirements, delays in licensing processes, or reduced governmental and public support for nuclear power. +In addition, terrorist acts or other high-profile incidents involving nuclear facilities or radioactive materials could lead to increased security requirements, additional regulatory scrutiny, or greater opposition to nuclear energy projects. +30 +Table of Contents +Adverse public sentiment toward nuclear power could result in increased regulatory requirements, delays in obtaining approvals, legal challenges, or opposition to the siting or construction of reactor facilities. Any such developments could increase our costs, delay the deployment of our reactors, reduce demand for our technology, or otherwise materially adversely affect our business, prospects, results of operations, and financial condition. +Environmental laws and regulations could increase costs for us or our customers and adversely affect demand for our technology. +Our operations and those of our customers are subject to a variety of federal, state, local, and foreign environmental, health, and safety laws and regulations governing, among other things, air emissions; stormwater discharges; wastewater discharges; land and water use (including drilling and groundwater protection-related regulations); workplace safety; the management, transportation, use, handling, and disposal of hazardous and radioactive materials and waste; and the remediation of releases of hazardous materials. In addition, domestic and international environmental laws and regulations tend to evolve and become more stringent over time, including regulations relating to human health and environmental protection. Relevant governmental authorities may also shift their interpretations of existing laws. Relatedly, we cannot guarantee that our measures to monitor these developments—and the time and resources we spend to comply with applicable laws, regulations and guidelines—will satisfy regulators or other third parties, such as our customers, who may also be subject to extensive government regulation. Any such developments could increase the costs associated with deploying or operating our technology or reduce demand for our products, which could materially adversely affect our business, prospects, financial condition, and results of operations. +Compliance with environmental requirements may require us to incur significant capital expenditures, cooperate with federal, state and international agencies with respect to the preparation and evaluation of environmental impact studies or assessments, obtain and maintain permits or other regulatory approvals, conduct or fund environmental remediation, install pollution control equipment, or implement other operational controls. Failure to comply with such requirements could result in substantial fines, enforcement actions, litigation, or orders or delays restricting or suspending our operations. In particular, any delays, including as a result of any unanticipated regulatory action or inaction, affecting our ability to obtain any necessary environmental or other governmental permits or approvals may increase our costs or delay or complicate the deployment or operation of our reactors. The regulatory approval process can be technically challenging and may result in permit or approval conditions that may impact the financial viability of our business and may provide opportunities for third parties to lodge objections or seek more stringent requirements for our operations. Even if obtained, relevant governmental permits or approvals may be subject to revocation, modification, legal challenge or may not be renewed. +Risks Related to Our Intellectual Property +If we are unable to obtain, maintain, protect, or enforce our intellectual property rights, our competitive position could be adversely affected. +Our success depends in part on our ability to protect the proprietary technologies underlying our Gravity Reactor. We rely on a combination of intellectual property protections afforded by patents (including pending patents), trademarks, and trade secret laws in the United States and other jurisdictions, as well as contractual protections such as confidentiality agreements, assignment agreements, and license agreements to establish and protect our proprietary rights. Despite these measures, our intellectual property rights may still not be protected in a meaningful manner, challenges to contractual rights could arise or third parties could copy or otherwise obtain and use our intellectual property without authorization. The occurrence of any of these events could impede our ability to effectively compete against competitors with similar products and services, any of which could materially adversely affect our business, prospects, results of operations, and financial condition. +Our patent applications may not result in issued patents, and issued patents may be challenged, invalidated, circumvented, or limited in scope. In addition, patent protection may not be available in all jurisdictions where our technology could be used. +Accordingly, we may not be able to protect our intellectual property rights in certain jurisdictions and their legal systems. Our competitors may operate in countries where we do not have patent protection and can freely use our technologies and discoveries in such countries to the extent such technologies and discoveries are publicly known or disclosed in countries where we do not have patent protection. Even where patents are issued, competitors may develop technologies that achieve similar results without infringing our patents, including by designing around our patent claims. +We also rely on trade secrets, proprietary know-how, and continuing technological innovation to maintain our competitive position. If our employees, consultants, contractors, suppliers, or other third parties disclose or improperly use our confidential information, or if +31 +Table of Contents +our physical or electronic security measures are breached, we may lose valuable trade secret protection. If we are unable to adequately protect our intellectual property rights, our ability to maintain a competitive advantage could be materially adversely affected. +We may be subject to intellectual property claims that could be costly to defend and could limit our ability to develop or commercialize our technology, and we may be required to enforce intellectual property rights that could be costly to protect. +Third parties may assert that our technologies infringe their patents, trademarks, or other intellectual property rights. From time to time we may receive inquiries or claims from intellectual property holders regarding whether our technologies infringe their proprietary rights. +If a third party successfully asserts an intellectual property claim against us, we could be required to cease making, using, selling, or importing technologies that incorporate the challenged intellectual property, pay substantial damages, obtain licenses from the holders of the infringed rights, or redesign portions of our technology. Such licenses may not be available on commercially reasonable terms or at all. +In addition, defending against intellectual property claims could require significant financial resources and divert management’s attention from our business. Even claims that lack merit could result in substantial legal costs and operational disruption. Any such claims or litigation could materially adversely affect our business, prospects, results of operations, and financial condition. +Litigation may also be necessary to enforce our intellectual property rights or protect our trade secrets. Any litigation of this nature could require significant financial resources and divert management’s attention from our business. Even claims that lack merit could result in substantial legal costs and operational disruption. Any such claims or litigation could materially adversely affect our business, prospects, results of operations, and financial condition. +Disputes regarding inventorship or ownership of our intellectual property could arise. +Our confidentiality and invention-assignment agreements with our employees, consultants and contractors generally provide that those inventions conceived by the party while rendering services to us will be our exclusive intellectual property. While we require our employees, consultants, and contractors to assign such intellectual property to us, if the intellectual property is not automatically assigned (e.g., as work made for hire), those agreements may not be honored and obligations to assign intellectual property may be challenged or breached. Moreover, there may be some circumstances where we are unable to negotiate for such ownership rights and/or others misappropriate those rights in the process. +We may also be subject to claims that former employees, collaborators, contractors, or other third parties have an ownership interest in our patents or other intellectual property. Disputes may arise regarding inventorship, ownership, or licensing rights, particularly where multiple parties have contributed to the development of technologies. +Failure to name the proper inventors on a patent application can render issued patents unenforceable, and inventorship disputes may arise from differing views regarding the contributions of individuals involved in developing our technologies. These disputes may also arise from contractual obligations of third parties or the involvement of foreign nationals in research or development activities. +If we are unable to successfully defend against such claims, we could lose exclusive ownership of valuable intellectual property or be required to grant licenses to third parties. Even if we are successful in defending against such claims, resolving such disputes could result in substantial legal costs and divert management attention from our business. +General Risks Associated with Our Company +Macroeconomic, geopolitical, and trade policy developments could adversely affect our access to capital and liquidity, business and our supply chain. +Our business may be affected by macroeconomic and geopolitical developments outside of our control, including inflation, changes in interest rates, fluctuations in currency exchange rates, adverse developments affecting financial institutions or the financial services industry, global trade tensions, armed conflicts (including the ongoing conflict in Ukraine and the Middle East), public health crises, terrorism, power loss and other disruptions to global markets. +32 +Table of Contents +Such events may disrupt supply chains, increase the cost of materials and components, limit access to financing or result in less favorable financing terms, or affect the ability of our customers, suppliers, and partners to fulfill contractual obligations. Changes in trade policies, tariffs, export controls, or sanctions may also affect our ability to source materials or components from international suppliers. +Any such developments could limit our access to capital, increase our costs, delay our operations, disrupt our supply chain, or adversely affect demand for our technology, which could materially adversely affect our business, prospects, results of operations, and financial condition. +Any acquisitions, partnerships, or joint ventures we enter into could disrupt our business and may not achieve the expected benefits. +From time to time, we may evaluate potential acquisitions, strategic partnerships, or joint ventures. Such transactions involve risks, including difficulties identifying suitable opportunities, financing transactions, integrating acquired businesses, managing joint operations, or realizing anticipated benefits. +These transactions could divert management attention from our core business, increase our expenses, reduce our cash reserves, or result in the impairment of acquired assets. In addition, if financed with debt or equity, such transactions could increase our indebtedness or dilute our existing stockholders. +If we are unable to successfully complete or integrate acquisitions or partnerships, or if such transactions fail to achieve their expected benefits, our business, prospects, results of operations, and financial condition could be materially adversely affected. +We may be unable to adequately control the costs associated with developing and operating our business. +We expect to incur significant expenses as we continue developing our Gravity Reactor, pursue regulatory approvals, scale operations, build partnerships, and operate as a public company. These expenses include research and development costs, procurement and manufacturing expenses, business development activities, operational expenses, and general and administrative costs. +We may also incur significant costs associated with siting, constructing, operating, and maintaining reactor sites. If we are unable to manage these costs effectively, or if our expenses increase faster than anticipated, our margins, profitability, and financial condition could be materially adversely affected. +If we fail to manage our growth effectively, we may be unable to execute our business plan. +We expect to invest significant resources to expand our business from an early-stage company to an organization capable of supporting commercial operations. This expansion may include developing our technology, establishing supply chains, hiring and training personnel, building regulatory and commercial infrastructure, and entering into relationships with strategic partners and government entities. +Rapid growth could place significant strain on our managerial, operational, financial, and other resources. We may encounter difficulties in hiring and retaining qualified personnel, managing suppliers and partners, scaling operations, controlling costs, and maintaining effective internal systems and processes. +If we are unable to manage our growth effectively, our ability to develop and deploy our technology, execute our business plan, and achieve our strategic objectives could be materially adversely affected. +Security breaches, cyber-attacks, or other disruptions to information technology systems, including those of our third-party service providers, could compromise our proprietary information and harm our business. +We rely on information technology systems and third-party service providers to support our operations and protect proprietary information, including trade secrets and technical know-how related to our reactor technologies. Despite our efforts to implement security safeguards, we have experienced incidents, and our systems and those of our third-party providers may be vulnerable to additional cyber-attacks, unauthorized access, computer viruses, malware, ransomware, phishing or other social engineering attacks, or other disruptions. +33 +Table of Contents +Cybersecurity threats have become increasingly sophisticated, and techniques used by attackers evolve rapidly. In addition, certain cybersecurity risks may arise from human error or system misconfigurations. Security breaches or system disruptions could result in the loss or misappropriation of proprietary information, operational disruptions, reputational harm, or increased costs associated with responding to and remediating such incidents, as well as potential regulatory or legal consequences, and could disrupt our business operations or divert management’s attention. +Our use of artificial intelligence technologies, including those provided by third parties, could adversely affect our business. +We incorporate artificial intelligence (“AI”) technologies into certain aspects of our business and may rely on AI tools developed by third parties. The use of AI presents risks and challenges, including the potential for inaccurate or biased outputs, unintended disclosure of confidential or proprietary information, and infringement of third-party intellectual property rights. +The legal and regulatory environment relating to AI is rapidly evolving and may require changes to our use of AI technologies, increase compliance costs, and create risks of regulatory enforcement or liability. In addition, to the extent we rely on third-party AI tools, we are dependent on the practices of those providers, including the data used to train their models and the controls implemented to mitigate associated risks, which may be outside of our control. +Any failure to appropriately develop, implement, or govern the use of AI technologies could result in operational, legal, or reputational harm and could materially adversely affect our business, prospects, results of operations, and financial condition. +Natural disasters and severe weather events could disrupt our operations and supply chain. +Our operations and those of our suppliers and partners may be adversely affected by severe natural disasters, such as earthquakes and other seismic activity, and severe weather events, such as floods, wildfires, high winds, droughts, or storms. Severe weather conditions are expected to be exacerbated in terms of intensity and frequency by climate change. Relatedly, climate change is also expected to contribute to changes to weather patterns, and water availability, among other impacts. +These events and impacts could disrupt our, or our customers’, operations or supply chains, increase insurance or energy costs, or delay the development or deployment of our reactor projects. These events can also result in damage to our properties. Any such disruptions could materially adversely affect our business, prospects, results of operations, and financial condition. +We depend on the continued services of our key personnel, and the loss of one or more members of our management team could adversely affect our business. +Our success depends in significant part on the continued services, experience, and expertise of our founders, senior management, and other key personnel. Our team possesses specialized knowledge related to nuclear engineering, reactor design, subsurface engineering, regulatory engagement, and commercialization of advanced energy technologies. +Competition for highly skilled personnel in the nuclear energy, engineering, and advanced technology sectors is intense. If we are unable to attract, retain, and motivate qualified personnel, or if we lose the services of one or more members of our management team or technical staff, our ability to execute our business plan and advance the development and commercialization of our technology could be adversely affected. +The loss of key personnel could also result in delays in development programs, disruptions to our operations, loss of institutional knowledge, or difficulties in maintaining relationships with regulators, partners, and potential customers, any of which could materially adversely affect our business, prospects, results of operations, and financial condition. +We may be subject to litigation, investigations, claims or other legal proceedings that could be costly to defend and could adversely affect our business. +From time to time, we may become involved in litigation, investigations, claims and other legal proceedings, including those arising in the ordinary course of business. Such matters may involve claims by suppliers, customers, competitors, current or former employees, communities impacted by our operations, governmental or regulatory authorities, or other third parties. We are not currently aware of any material litigation, investigations, claims or other legal proceedings other than those described under Item 3, “Legal Proceedings.” +34 +Table of Contents +Litigation, investigations, claims and other legal proceedings are subject to inherent uncertainties, may be time-consuming and expensive to defend, and may divert management’s attention from our business. Even if we are successful in defending against litigation, investigations, claims and other legal proceedings, the costs associated with legal defense and the diversion of management attention could adversely affect our business. +In addition, if we are found liable, or if we settle, in any litigation, investigations, claims or other legal proceedings, we could be required to pay substantial damages or penalties, or to modify our business practices. In addition, any litigation, investigations, claims or other legal proceedings could damage our reputation or adversely affect our relationships with customers, partners, or regulators. +Operating as a public company increases our administrative burden and costs. +As a public company, we are subject to the reporting and regulatory requirements of the Securities Act, the Exchange Act, and other federal securities laws and regulations, including compliance with the Sarbanes-Oxley Act of 2002 and related rules adopted by the SEC and the Public Company Accounting Oversight Board. These requirements increase our legal, accounting, and administrative costs and require significant management attention. +In order to comply with these requirements, we must maintain effective disclosure controls and procedures, establish and maintain internal control over financial reporting, prepare and file periodic reports with the SEC, and comply with corporate governance requirements. These obligations require us to devote substantial resources to compliance efforts and may increase our legal, accounting, and advisory expenses. In addition, operating as a public company may make it more difficult and expensive for us to obtain director and officer liability insurance and to attract and retain qualified directors and executive officers. +We have restated in this Annual Report certain previously issued consolidated financial statements to correct certain errors and have identified material weaknesses in our internal control over financial reporting that caused our management to conclude that we did not maintain effective internal control over financial reporting as of December 31, 2024 and 2025, and which could, if not remediated, result in additional material misstatements in our consolidated interim and annual financial statements. We also determined that our disclosure controls and procedures were ineffective as of June 30, 2024, September 30, 2024, December 31, 2024, June 30, 2025, September 30, 2025, and December 31, 2025 due to the material weaknesses in internal control over financial reporting. A failure to maintain effective internal control over financial reporting or disclosure controls and procedures could impact our ability to accurately and timely report our financial results and other material disclosures or otherwise cause us to fail to meet our reporting obligations, which could have a material adverse effect on our operations and investor confidence in our business. +Subsequent to the issuance of our unaudited interim condensed consolidated financial statements as of and for the fiscal quarter ended September 30, 2025, we identified errors related to valuations of SAFE Notes and stock-based compensation expense and determined that (i) our previously issued audited consolidated financial statements for the fiscal year ended December 31, 2024 and for the period from July 17, 2023 (inception) through December 31, 2023, and the unaudited condensed consolidated financial statements for the quarters ended June 30, 2024, September 30, 2024, June 30, 2025, and September 30, 2025 should no longer be relied upon and (ii) our previously issued audited consolidated financial statements for the fiscal year ended December 31, 2024 and the unaudited condensed consolidated financial statements for the quarters ended June 30, 2024, September 30, 2024, June 30, 2025, and September 30, 2025 should be restated. As a result of the aforementioned error and restatement of these filings, we are subject to additional risks and uncertainties, including unanticipated legal and accounting costs, litigation, governmental proceedings or investigations and loss of investor confidence or reputational harm to our business. +Although management did not conduct a formal assessment of internal control over financial reporting in accordance with Section 215.02 of the SEC Division of Corporation Finance’s Regulation S-K Corporation Finance Interpretations, as a result of the errors described above and the related restatement, the Company identified material weaknesses in its internal control over financial reporting, which caused our management to conclude that we did not maintain effective internal control over financial reporting as of December 31, 2024 and 2025 due to lack of formal controls and standardized procedures related to financial reporting and historical equity accounting processes. We also determined that our disclosure controls and procedures were not effective as of June 30, 2024, September 30, 2024, December 31, 2024, June 30, 2025, September 30, 2025, and December 31, 2025 for the same reason. See Item 9A, “Controls and Procedures” for further details of the material weaknesses and remediation efforts. +35 +Table of Contents +A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of a company’s consolidated interim or annual financial statements will not be prevented or detected on a timely basis. As such, if we do not remediate these material weaknesses in a timely manner, or if additional material weaknesses in our internal control over financial reporting are discovered, they may adversely affect our ability to record, process, summarize and report financial information timely and accurately and, as a result, our consolidated interim or annual financial statements may contain material misstatements or omissions. Additionally, because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. +Risks Related to Ownership of Our Common Stock +There is currently no public trading market for our common stock, and one may not develop. +There is currently no public trading market for our common stock. Although we have applied for quotation of our common stock on the OTCQB market, there can be no assurance that our application will be approved or that our common stock will become quoted on the OTCQB or any other over-the-counter trading system. +Because there is currently no trading market for our common stock, stockholders have no ability to sell their shares publicly. Even if our common stock becomes listed on a national securities exchange in the future, trading may be limited, sporadic, or highly volatile. As a result, stockholders may find it difficult or impossible to sell their shares at times and prices that they consider appropriate, or at all. The absence of an active trading market could also impair our ability to raise additional capital through future equity issuances and may make it more difficult for us to use our equity as consideration for acquisitions or to attract and retain employees through equity compensation. +We may not be able to list our common stock or maintain a listing on a national securities exchange. +We currently do not meet the listing requirements of any national securities exchange and may not be able to satisfy those requirements in the future. +National securities exchanges have both quantitative and qualitative listing standards, including requirements relating to stock price, market capitalization, stockholder equity, corporate governance, number of stockholders, and trading history. Even if we are able to satisfy the applicable listing standards when we apply in the future, there can be no assurance that our application will be approved or that we may be able to continue meeting the applicable listing standards. +If our common stock is not listed on a national securities exchange, trading in our shares may be limited to over-the-counter markets, which are generally less liquid, more volatile, and subject to greater price fluctuations than securities listed on a national securities exchange. However, even if our common stock is listed on a national securities exchange, we cannot assure you that an active trading market for shares of our common stock will develop. +We have not voluntarily implemented various corporate governance measures, in the absence of which, our stockholders may have more limited protections against interested director transactions, conflicts of interest and similar matters. +Because our common stock is not yet listed on a national securities exchange, we are not required to adopt the corporate governance measures required under the rules of any national securities exchange. These measures address matters such as board independence, audit committee oversight, and adoption of certain policies. We have not yet adopted the full suite of corporate governance measures required by any national securities exchange. Accordingly, you may not have the same protections afforded to stockholders of companies whose securities are listed on a national securities exchange. +36 +Table of Contents +If a trading market develops, the market price of our common stock may be volatile. +If a trading market for our common stock develops, the market price of our common stock may fluctuate significantly. The market prices of securities of early-stage companies in emerging industries are often highly volatile. +Factors that could cause the market price of our common stock to fluctuate include, among others: +● developments relating to our technology, products, or commercialization plans; +● changes in law relating to or delays in regulatory approvals or licensing; +● changes in our operating results or financial condition; +● announcements by us or our competitors; +● changes in market conditions for nuclear energy or clean energy technologies; +● additions or departures of key personnel; +● commencement of, or involvement in, litigation involving us; and +● general economic and market conditions. +In addition, the stock markets in general have experienced significant volatility that has often been unrelated to the operating performance of individual companies. These market fluctuations could adversely affect the trading price of our common stock if a trading market for our common stock develops. +Future sales of our common stock could cause our stock price to decline. +We have filed registration statements with respect to 56,207,422 shares of common stock held by certain of our existing stockholders and 716,084 shares of common stock issuable upon exercise of outstanding warrants held by warrant holders to facilitate the public resale of such securities. We have also granted registration rights to such existing stockholders and warrant holders with respect to shares of our common stock they may acquire in the future, and may grant similar rights in connection with other financing activity in the future. Sales can also be made by stockholders without registration, in accordance with available exemptions under securities laws. If a trading market develops for our common stock, future sales of our common stock by our stockholders (including our executive officers, directors and principal stockholders, which hold a significant portion of our common stock, as described below), or the perception that such sales may occur, could adversely affect the trading price of our common stock. +In addition, to continue operating our business, we will need to raise substantial additional capital, and we are actively evaluating potential financing sources, including equity issuances. We may also issue additional equity and equity-linked instruments in the future, including in connection with the exercise of warrants and options and the vesting and settlement of outstanding RSUs, as well as in connection with financings, strategic transactions, acquisitions, or equity incentive programs. As of the date of this Annual Report, there were warrants outstanding to purchase an aggregate of 716,084 shares of our common stock. The issuance of additional shares will dilute existing stockholders’ ownership percentages and, if a trading market develops for our common stock, any such issuance or the perception that any issuance may occur may adversely affect the trading price of our common stock. +Our executive officers, directors and principal stockholders collectively hold a significant percentage of the voting power of our company. +Our executive officers, directors and holders of more than 5% of our common stock beneficially own collectively approximately 48.93% of the voting power of our outstanding common stock as of March 31, 2026. As a result, these stockholders may be able to influence or control matters requiring stockholder approval, including the election of directors, approval of mergers or other business combinations, and other significant corporate transactions. The interests of these stockholders may conflict with your interests. This concentration of ownership may limit the ability of other stockholders to influence corporate matters and may discourage or delay potential changes in control of the company. +We are an emerging growth company and a smaller reporting company. +We qualify as an “emerging growth company” under the JOBS Act and as a “smaller reporting company” under SEC rules. As a result, we are permitted to rely on certain exemptions from disclosure and other requirements applicable to other public companies. +For example, we are not required to have our independent registered public accounting firm attest to the effectiveness of our internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act for as long as we remain an emerging growth company. +37 +Table of Contents +In addition, we have elected to take advantage of the extended transition period for complying with new or revised accounting standards and intend to rely on certain reduced disclosure requirements available to emerging growth companies and smaller reporting companies. As a result, we will not be subject to the same implementation timing for new or revised accounting standards as other public companies that are not emerging growth companies or smaller reporting companies, which may make comparison of our financial statements with those of other public companies more difficult. In addition, the information that we provide in this Annual Report may be different from the information investors may receive from other public companies in which they hold equity interests. +Investors may find our common stock less attractive if we rely on these exemptions, which could result in a less active trading market for our common stock. +Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of us more difficult and may discourage takeover attempts that stockholders may consider favorable. +Our amended and restated certificate of incorporation and amended and restated bylaws contain provisions that could delay or prevent a change in control of our company without the approval of our board of directors. These provisions could make it more difficult for stockholders to elect directors who are not nominated by our current board of directors or to take other corporate actions. +These provisions include, among others: +● a classified (staggered) board of directors, under which directors are elected for staggered terms and only a portion of the board of directors is elected each year; +● provisions that permit the board of directors to determine the size of the board of directors and fill vacancies; +● provisions that limit the ability of stockholders to remove directors except for cause; +● advance notice requirements for stockholder nominations of directors and proposals for consideration at stockholder meetings; and +● authorization for the issuance of “blank check” preferred stock, which could be used by the board of directors to discourage takeover attempts. +In addition, we are subject to Section 203 of the Delaware General Corporation Law, which restricts certain business combinations with stockholders who own 15% or more of our outstanding voting stock unless certain conditions are satisfied. +These provisions may discourage potential takeover attempts or other transactions that stockholders may consider favorable and may reduce the price that investors might be willing to pay for shares of our common stock. +Our amended and restated certificate of incorporation designates certain courts as the exclusive forum for certain stockholder disputes. +Our amended and restated certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, certain legal actions and substantially all disputes between us and our stockholders must be brought in the Delaware Court of Chancery or federal courts of the United States. This, however, shall not apply to claims or causes of action brought to enforce a duty or liability created by the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, or any other claim for which the federal courts have exclusive jurisdiction. +These provisions may limit a stockholder’s ability to bring claims in a forum of their choosing and may discourage lawsuits against us and our directors or officers. +We do not intend to pay dividends in the foreseeable future. +We have never declared or paid dividends on our capital stock and currently intend to retain any future earnings to finance the growth and development of our business. As a result, investors may only realize a return on their investment through appreciation in the price of our common stock, which may never occur . +38 +Table of Contents +If our common stock becomes publicly traded and securities analysts do not publish research or reports about our business or if they downgrade our stock or our sector, our stock price and trading volume could decline. +If a trading market for our common stock develops, such market will rely in part on the research and reports that industry or financial analysts publish about us or our business. We do not control these analysts. Furthermore, if one or more analysts were to cover us and downgrade our stock or our industries, or the stock of any of our competitors, or publish inaccurate or unfavorable research about our business, or if our operating results did not meet their expectations, the price of our common stock could decline. If one or more analysts were to initiate and then cease coverage of us or fail to publish reports on us regularly, our visibility in the market could decline or disappear, which in turn could cause our stock price or trading volume to decline. +ITEM 1B. Unresolved Staff Comments +Not Applicable +ITEM 1C. Cybersecurity +Risk Management and Strategy +The Company has initiated a cybersecurity risk management program designed to assess, identify, and manage material risks from cybersecurity threats. This program is integrated into the Company’s overall enterprise risk management processes and is intended to protect the confidentiality, integrity, and availability of the Company’s information systems and data. +The Company’s cybersecurity risk management processes include, among other things: +· +ongoing monitoring of information systems using security tools designed to detect, prevent, and respond to cybersecurity threats, including unauthorized access and malicious activity; +· +periodic assessments of cybersecurity risks, including evaluation of potential vulnerabilities in the Company’s information systems and processes; +· +implementation and maintenance of technical safeguards, including access controls, system configurations, and software updates and patch management, designed to reduce exposure to known vulnerabilities; +· +development and maintenance of incident response procedures designed to facilitate the timely identification, containment, investigation, and remediation of cybersecurity incidents; +· +engagement of third-party service providers , including cybersecurity consultants and other advisors, as appropriate, to assist in assessing, testing, and improving the Company’s cybersecurity posture; and +· +processes designed to identify and manage cybersecurity risks associated with third-party service providers, including the use of contractual provisions requiring appropriate data protection, confidentiality, and cybersecurity measures, as well as periodic review and oversight of such providers based on risk. +Cybersecurity risks are considered a part of the Company’s overall risk management processes. Management evaluates cybersecurity risks in the context of the Company’s business operations, strategy, and financial condition, and incorporates such risks into decision-making processes where appropriate. +The Company’s reliance on information technology systems and third-party service providers exposes it to cybersecurity risks, including risks arising from unauthorized access, ransomware, system disruption, and human error. While the Company has implemented measures designed to mitigate these risks, there can be no assurance that such measures will be effective in preventing cybersecurity incidents. Furthermore, in connection with the preparation of our consolidated financial statements for the years ended December 31, 2025 and 2024, we identified material weaknesses in our internal control over financial reporting related in part to IT general controls. For additional information, see “Material Weaknesses in Internal Control over Financial Reporting” in Item 9A of this Annual Report. +39 +Table of Contents +Despite our efforts to implement security safeguards, we have experienced incidents; however, the Company is not aware of having experienced any cybersecurity incidents that have materially affected, or are reasonably likely to materially affect, its business strategy, results of operations, or financial condition . However, the Company may experience cybersecurity incidents in the future that could have a material adverse effect on its business, prospects, results of operations, and financial condition. For additional information, see “Risk Factors” in Item 1A of this Annual Report. +Governance +The Audit Committee of the Company’s board of directors oversees the Company’s cybersecurity risk management as part of its broader risk oversight responsibilities pursuant to its charter. The Audit Committee is responsible for reviewing risks related to information technology and cybersecurity to the extent such risks could materially impact the Company’s financial statements, internal controls, or disclosure obligations. +The Audit Committee receives regular reports from management regarding the Company’s cybersecurity risk profile, including updates on cybersecurity threats, risk assessments, and the Company’s efforts to prevent, detect, and respond to cybersecurity incidents. The Audit Committee also reviews management’s processes for identifying, assessing, and managing cybersecurity risks. Significant cybersecurity incidents and related developments are escalated to the Audit Committee and, where appropriate, to the full board of directors. +The Company’s cybersecurity risk management program is led by its Senior Digital Systems Manager , who is responsible for overseeing the Company’s information technology systems and managing cybersecurity risk in coordination with third-party managed security service providers. The Senior Digital Systems Manager has more than 20 years of experience in information technology systems administration and cybersecurity practices, including network security, system access controls, and incident response. The Senior Digital Systems Manager has held a variety of leadership positions in enterprise systems, digital transformation, and information security at The Arcticom Group and Econolite, including roles involving the implementation of security governance frameworks, role-based access controls, and incident response processes in support of regulatory compliance and operational resilience. +The Senior Digital Systems Manager is responsible for implementing and maintaining the Company’s cybersecurity program and for monitoring cybersecurity risks and incidents through ongoing system oversight, including the use of security tools, system alerts, and periodic assessments. The Company may also engage third-party service providers, including cybersecurity consultants, to assist in monitoring and managing cybersecurity risks. +Cybersecurity matters are communicated to senior management, including the Company’s Chief Executive Officer and Chief Financial Officer, on an ongoing basis. Senior management provides updates to the Audit Committee on a periodic basis and as needed. The Company maintains incident response procedures that include escalation protocols designed to ensure that significant cybersecurity incidents are promptly reported to senior management and the Audit Committee to support timely decision-making and disclosure, as appropriate. +ITEM 2. Properties +We do not currently own any real property. Other than the lease described below, we do not currently lease any facilities. Our corporate, administrative, and engineering functions operate in a decentralized manner, with employees working through a combination of remote and in-person arrangements. Design, development, regulatory, and site-related activities are conducted in person as required by the nature of those functions and applicable regulatory requirements. +In February 2026, in connection with our participation in the DOE Reactor Pilot Program, we entered into a long-term lease for approximately 100 acres located within the Great Plains Industrial Park in Parsons, Kansas. The Kansas Site is being evaluated to support potential future reactor deployment. The lease includes provisions that, upon the satisfaction of specified conditions, require us to purchase the underlying property. +We believe our current operating arrangements and facilities are adequate to meet our present needs. As our development activities progress, we expect to secure additional facilities, land, or site access arrangements as necessary to support future reactor development, testing, and commercial deployment. +​ +40 +Table of Contents +ITEM 3. Legal Proceedings +From time to time, we may become involved in litigation, investigations, claims or legal proceedings arising in the ordinary course of business. Litigation, investigations, claims and other legal proceedings are subject to inherent uncertainties, and an adverse outcome in one or more matters could occur and may have a material adverse effect on our business, prospects, results of operations, and financial condition. Except as described below, we are not aware of any material pending legal proceedings to which we are a party. +In April 2025, we joined as a plaintiff, together with the State of Texas, State of Utah, State of Louisiana, State of Florida, the Arizona State Legislature (by and through the President of the Arizona Senate and the Speaker of the Arizona House of Representatives), Last Energy, Inc., and Valar Atomics Inc., in a federal lawsuit filed in the U.S. District Court for the Eastern District of Texas against the NRC, captioned State of Texas et al. v. U.S. Nuclear Regulatory Commission (Case No. 6:24-cv-00507).The lawsuit challenges the NRC’s interpretation and application of certain licensing regulations under the AEA, including the NRC’s longstanding definition of “utilization facility.” The complaint seeks declaratory and injunctive relief requiring the NRC to revise its licensing framework and undertake new rulemaking under the APA. +The case remains in its early stages, and no substantive rulings have been issued. We cannot predict the outcome of this proceeding or the potential impact it may have on federal or state regulatory processes applicable to advanced reactor technologies or on the timing or evaluation of any applications we may submit to the NRC. See Item 1A, “Risk Factors” of this Annual Report. +ITEM 4. Mine Safety Disclosure s +Not applicable. +​ +41 +Table of Contents +PART II +ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +Market Information +As of the date of this Annual Report, our common stock is not listed on a national securities exchange, an over-the-counter market or any other exchange, and therefore there is no established public trading market for our common stock. We have applied to have our common stock quoted on the OTCQB. However, we cannot assure you that our common stock will be listed on any national securities exchange or quoted on the OTCQB and, even if it is, there can be no assurance that our common stock will continue to be listed on any national securities exchange or quoted on the OTCQB, or that an active trading market for our common stock will develop or continue. See Item 1A, “ Risk Factors— There is currently no public trading market for our common stock, and one may not develop .” +Holders of Record +As of March 31, 2026, we had 372 holders of record of our common stock. +Dividend Policy +We have never declared or paid any cash dividends on our capital stock, and we do not anticipate paying any cash dividends in the foreseeable future. The payment of dividends, if any, in the future is within the discretion of our board of directors, subject to applicable laws, and will depend on our earnings, capital requirements and financial condition and other relevant facts. We currently intend to retain all future earnings, if any, to finance the development and growth of our business. +Recent Sales of Unregistered Securities +During the fiscal year ended December 31, 2025, we did not have sales of unregistered securities other than those already disclosed in our previously filed Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. +Purchases of Equity Securities by the Issuer and Affiliated Purchasers +None. +ITEM 6. [Reserved] +​ +ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations +You should read the following discussion in conjunction with the consolidated financial statements and the notes to those statements included elsewhere in this Annual Report. Certain statements contained in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are forward-looking statements that involve risks and uncertainties as described under the heading “Cautionary Note on Forward-Looking Statements” and Item 1A, “Risk Factors”. The forward-looking statements are not historical facts, but rather are based on management’s current expectations, estimates, forecasts, projections, beliefs and assumptions and on information available to us as of the date of this Annual Report about our industry and business. Our actual results could differ materially from the results contemplated by these forward-looking statements. +Overview +We are a nuclear energy technology company developing a SMR based on established PWR technology, with novel emplacement in deep boreholes approximately one mile below the Earth’s surface. Our reactor, which we refer to as the Gravity Reactor, will leverage subsurface conditions to support key containment and operating functions, including the use of hydrostatic pressure from a water column within the borehole to support reactor operating pressure and cooling, and the surrounding geological formation to provide structural confinement and shielding. This approach is intended to reduce reliance on large surface containment structures and other safety-related infrastructure associated with conventional nuclear power plants, support faster deployment timelines, improve security, enhance safety, and enable lower capital and operating costs relative to conventional nuclear facilities, while reducing exposure to environmental and other surface-level hazards. +42 +Table of Contents +Each Gravity Reactor is targeted to produce up to 15 MWe. Individual reactors may be deployed as standalone installations or grouped in clusters of boreholes at a single site, which may enable longer refueling cycles through coordinated fuel management, staggered refueling schedules and more efficient utilization of shared infrastructure, and support larger installations capable of supplying hundreds and potentially thousands of MWe of generation capacity. +The Company’s commercialization strategy is based on a phased deployment plan designed to move toward commercialization in the next three years. Given that reactor criticality using established PWR technology is well understood, the Company is prioritizing validation of the hardest and most differentiated parts of our system, to reduce risk earlier and move more directly toward a commercialization outcome. Specifically, the tests that we want to focus on are drilling to depth at commercial scale, installing and integrating a nuclear system a mile underground, and operating as part of a complete energy ecosystem. We also want to prove that we can do this in time to meet the AI-driven surge in demand for energy. The Company is currently participating in the DOE Reactor Pilot Program, and we expect to demonstrate our system as part of the DOE Reactor Pilot Program. +The first phase of the Company’s phased deployment plan involves engineering validation and proof of concept wells. The Company has a long-term lease for approximately 100 acres located within the Kansas Site and has commenced initial field development activities at the site. As part of this, the Company already drilled its first data acquisition well to gather real-world data up to 6,000 feet deep. Next, the Company will demonstrate its ability to drill a commercial-scale borehole and safely deploy a prototype reactor. The Company continues to advance its reactor design in parallel with these activities, including planning additional drilling activities and conducting related engineering and emplacement work, and is targeting completion of these activities in the coming months. The balance of this year and into early 2027 will be focused on delivery of key components for full-system installation, including well casing, our reactor canister, and heat exchanger, as well as LEU fabrication and loading. +The second phase of the Company’s phased deployment plan involves DOE authorization and one or more commercial pilot wells. Specifically, subject to DOE authorization, the Company intends to demonstrate the Gravity Reactor, and to apply for a commercial license with the NRC in the first half of 2027, converting the same pilot reactor to commercial operation. We are working closely with both the DOE and the NRC to align demonstration and licensing, as we are aiming to move these efforts forward together rather than advancing them in sequence. +The third and final phase of the Company’s phased deployment plan involves the construction of surface facilities and seeking high-volume commercial licensing for deployment of multiple reactors at a single site through clustered boreholes, and subsequently, at multiple sites. We are targeting as early as 2027 to seek such high-volume commercial licensing with the NRC. +The Company’s approach to subsurface reactor deployment is supported by its intellectual property portfolio, which includes issued patents and pending patent applications relating to reactor configuration, deep subsurface emplacement, drilling and casing techniques, thermal-hydraulic performance, instrumentation and monitoring, and other technologies supporting the deployment of underground nuclear reactors. The Company believes that its intellectual property, together with its engineering expertise and ongoing development activities, supports its competitive position. +Legacy Deep Fission was incorporated in July 2023 and remains in the development stage. The Gravity Reactor remains in conceptual and early engineering stages, and the Company has not constructed or operated a commercial reactor or generated revenue. Current activities include reactor development, geological evaluation, large-diameter borehole drilling research and development, geothermal testing, safety analysis, regulatory engagement, site development, and commercialization planning. +The Merger +On the Merger Closing Date, Surfside completed the Merger with Legacy Deep Fission, pursuant to which a wholly owned subsidiary of Surfside merged with and into Legacy Deep Fission, with Legacy Deep Fission continuing as the surviving corporation and becoming a wholly owned subsidiary of Surfside. In connection with the transaction, Surfside changed its name to Deep Fission, Inc. +On the Merger Closing Date, we issued 38,538,922 shares of our common stock to existing holders of Legacy Deep Fission common stock and 85,000 shares of our common stock (the “Advisor Shares”) to an accredited investor in consideration for services rendered in connection with the Merger, while Surfside’s existing stockholders continued to hold an aggregate of 2,166,667 shares of our common stock (the “Retained Pre-Merger Shares”). We also reserved a total of 9,500,884 shares of our common stock under the 2025 Equity Incentive Plan (“2025 EIP”) for future issuances of equity awards at the discretion of our board of directors to officers, employees, consultants and directors and reserved 1,000,000 shares of our common stock under the 2025 Employee Stock Purchase Plan (“2025 ESPP”) for future purchase by employees. +43 +Table of Contents +The Private Placement +Concurrently with the consummation of the Merger, the Company also issued and sold 10,000,000 shares of our common stock in a private placement to certain accredited and institutional investors at a purchase price of $3.00 per share (the “Private Placement”, and together with the Merger, the “Transactions”). +Accounting Considerations +The historical financial statements and related footnotes included in this Annual Report include descriptions of Legacy Deep Fission’s previously outstanding common stock; however, in connection with the Merger, all shares of Legacy Deep Fission common stock were converted into the right to receive shares of our common stock. See “ The Merger” and “ The Private Placement ” above for detailed information regarding the Transactions and the related conversion of the shares of Legacy Deep Fission’s common stock. +For financial reporting purposes, the Merger was treated as a recapitalization and reverse acquisition. Legacy Deep Fission is considered the acquirer for accounting purposes, meaning that the historical financial results of Legacy Deep Fission prior to the Merger are considered our historical financial results under applicable accounting principles. Accordingly, the historical financial statements included in this Annual Report and discussed in this section, for all periods prior to the Merger, are those of Legacy Deep Fission and not Surfside. +Our Intended Business +As described under “Business Model and Revenue Streams” in Item 1, “Business,” our business model is designed to generate revenue from (i) project-level equity participation, including indirect participation in project-level cash flows from electricity sales, (ii) one-time upfront revenue, generally expected to be associated with Gravity Reactor deployment and related upfront project development services and (iii) recurring revenue, generally expected to be associated with technology licensing and operations and maintenance services of Gravity Reactor installations. Because we have not yet commercialized a Gravity Reactor, none of these revenue streams have begun to materialize and are not reflected in our historical results. +Components of Results of Operations +Operating Expenses +General and administrative expenses primarily consist of costs associated with administrative staff salaries, facilities, utilities, insurance, marketing and advertising, stock-based compensation, legal fees and other office expenses related to our business functions. +Research and development (“R&D”) expenses primarily represent costs incurred to develop our technology. These costs consist of personnel costs, including salaries, employee benefit costs, bonuses and stock-based compensation expenses, software costs, computing costs, hardware and experimental supplies, and expenses for outside engineering contractors for analytical work and consulting costs. We expense all R&D costs in the periods in which they are incurred. +Other Non-Operating Income (Expense) +Other non-operating income (expense) consists primarily of change in fair value of SAFE Notes (as defined below), interest income, interest expenses, and other miscellaneous expenses. +Restatement of Prior Period Financial Statements +As previously discussed under the heading “Explanatory Note,” we are restating our previously issued consolidated financial statements and related notes for the year ended December 31, 2024 and the unaudited condensed consolidated financial information for the periods ended June 30, 2024, September 30, 2024, June 30, 2025, and September 30, 2025. Refer to Note 2 in the notes to the consolidated financial statements in this Annual Report for additional information. The impact of the restatement is reflected in the “Results of Operations” section within this “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” +44 +Table of Contents +Results of Operations +Comparison of the Year Ended December 31, 2025 and 2024 +The following table sets forth our summarized financial information for the periods indicated: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +For the Years Ended December 31, +​ +​ +​ ​ ​ +​ +​ ​ ​ +​ +​ ​ ​ +2025 +​ ​ ​ +2024 +​ ​ ​ +​ +$ Variance +​ ​ ​ +% Variance +​ +​ +​ +​ +​ +​ +(As Restated) +​ +​ +​ +​ +​ +Operating expenses +​ +​ +​ +​ +​ +​ +​ +​ +General and administrative expenses +$ +14,766,607 +$ +3,441,820 +$ +11,324,787 +329.03 +% +Research and development expenses +​ +​ +6,617,562 +​ +​ +661,183 +​ +​ +5,956,379 +900.87 +% +Operating expenses +​ +​ +21,384,169 +​ +​ +4,103,003 +​ +​ +17,281,166 +421.18 +% +Operating loss +​ +​ +(21,384,169) +​ +​ +(4,103,003) +​ +​ +(17,281,166) +421.18 +% +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Other non-operating income (expense) +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Interest income +​ +​ +210,987 +​ +​ +20,331 +​ +​ +190,656 +937.76 +% +Change in fair value of SAFE Notes +​ +​ +(39,834,049) +​ +​ +(1,631,446) +​ +​ +(38,202,603) +2,341.64 +% +Other income +​ +​ +4,277 +​ +​ +749 +​ +​ +3,528 +100.00 +% +Total non-operating income (expense) +​ +​ +(39,618,785) +​ +​ +(1,610,366) +​ +​ +(38,008,419) +2,360.23 +% +Net loss +$ +(61,002,954) +$ +(5,713,369) +$ +(55,289,585) +967.72 +% +​ +Operating Expenses +General and administrative expenses increased by $11.3 million for the year ended December 31, 2025, compared to the year ended December 31, 2024. The increase in general and administrative expenses was primarily attributable to an increase in the number of employees, which resulted in increase in salary and stock-based compensation expense, as well as increased legal, benefits, and marketing costs. +Research and development expenses increased by $6.0 million for the year ended December 31, 2025, compared to the year ended December 31, 2024. The increase in research and development expenses was primarily attributable to the progression of the Company’s operating plans and the increase in salary and benefits corresponding with our increase in headcount, as well as increased consulting fees paid to our research and development advisors. +Other Non-Operating Income (Expense) +Other non-operating expense increased by $38.0 million for the year ended December 31, 2025, compared to the year ended December 31, 2024, largely due to the approximately $39.8 million loss the Company recorded from the change in fair value on the date of conversion of the Company’s previously issued SAFE Notes, which converted into common stock as a result of the Merger. +Liquidity and Capital Resources +Since our inception, we have financed our operations primarily through the issuance and sale of our equity securities. Our primary requirements for liquidity and capital are to finance working capital and capital expenditures associated with operating and managing the Company, as well as for general corporate purposes. As of December 31, 2025, our principal source of liquidity was our cash and cash equivalents of $23.7 million. On February 5, 2026, the Company issued and sold 5,333,333 shares of common stock (the “Shares”) at a purchase price of $15.00 per share, to certain accredited and institutional investors pursuant to the subscription agreements for an aggregate purchase price of $80.0 million. The aggregate net proceeds to the Company from the offering was approximately $76.0 million, after deducting fees to the placement agents and expenses payable by the Company. We anticipate that future sources of liquidity will principally come from sales of common stock and other equity instruments. Since our inception, we have generated significant operating losses as reflected in our accumulated deficit of $66.7 million as of December 31, 2025. We generated a positive cash flow of $17.0 million for the year ended December 31, 2025 due to financing activities. +45 +Table of Contents +We expect to use our proceeds from the 2026 Private Placement for general working capital and corporate purposes, including towards the engineering, research and development of our first pilot nuclear reactor and related technologies. A portion of the net proceeds from the 2026 Private Placement will also be used to cover management, overhead, legal and accounting fees and expenses relating to the Merger and the 2026 Private Placement and could include potential acquisitions of complementary businesses or assets (though none is currently contemplated). Based on our expectation of continued operating losses for at least the near term, we anticipate our existing cash and cash equivalents, together with net proceeds from the 2026 Private Placement, will not be sufficient to operate our business for the next twelve months. Accordingly, we determined that there is substantial doubt about our ability to continue as a going concern. In order to continue to operate our business beyond that time, we will need to raise substantial additional capital. Our independent registered public accounting firm included an explanatory paragraph regarding substantial doubt about the Company’s ability to continue as a going concern in its report on our financial statements for the year ended December 31, 2025. +In addition to our cash and cash equivalents currently available to support these activities, which was approximately $80 million as of April 15, 2026, we estimate that we will require $200 million of additional capital to complete development of, and license and commercially deploy, our first commercial reactor, but we expect we can complete the development and begin operation of an initial test reactor with approximately half that amount of additional capital. We are actively evaluating potential financing sources, including equity issuances, debt financing, strategic partnerships, and other capital raising transactions. However, there can be no assurance that such financing will be available on acceptable terms, on a timely basis, or at all. To the extent that we raise additional capital through the issuance of equity or convertible securities, the ownership interests of our existing stockholders will be diluted. Moreover, the terms of such securities or any other financing may include preferences or other rights that adversely affect the value of, or rights of holders of, our common stock. Debt financing, if available, could result in additional debt service obligations, and debt financings or other financings may involve covenants that restrict our operations or financial flexibility. However, our management team will have broad discretion in making strategic decisions to execute our growth plans, and there can be no assurance that management’s decisions will result in successful achievement of our business objectives. In addition, our estimate as to the sufficiency of our current cash, cash equivalents and short-term investments and our current operating plan as discussed above are based on assumptions that may prove to be wrong, and we could deplete our capital resources sooner than we currently anticipate. +Cash Flows +Year ended December 31, 2025 and 2024 +As of December 31, 2025, our cash and cash equivalents were $23.7 million. The following table shows a summary of our cash flows for the periods presented: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Year Ended +​ +​ +​ ​ ​ +​ +​ ​ ​ +December 31, 2025 +​ ​ ​ +December 31, 2024 +​ ​ ​ +$ Change +​ +​ +​ +​ +(As Restated) +​ +​ +Net cash used in operating activities +$ +(13,051,195) +$ +(2,799,642) +$ +(10,251,553) +Net cash used in investing activities +​ +​ +(43,436) +​ +​ +(2,657) +​ +​ +(40,779) +Net cash provided by financing activities +​ +​ +30,085,158 +​ +​ +8,585,392 +​ +​ +21,499,766 +Net increase (decrease) in cash +​ +$ +16,990,527 +​ +$ +5,783,093 +​ +$ +11,207,434 +Cash, beginning of period +​ +$ +6,728,895 +​ +$ +945,802 +​ +$ +5,783,093 +Cash, end of period +$ +23,719,422 +$ +6,728,895 +$ +16,990,527 +​ +Operating Activities +Net cash used in operating activities increased by $10.3 million, to $13.1 million for the year ended December 31, 2025, compared to the net cash used in operating activities of $2.8 million for the year ended December 31, 2024. The increase in net cash used in operating activities was primarily attributable to increased net losses, changes in working capital, including prepaids and accounts payable, and other current liabilities. +Investing Activities +Net cash used in investing activities increased by $40.8 thousand, to $43.4 thousand for the year ended December 31, 2025, compared to the net cash used in investing activities of $2.7 thousand for the year ended December 31, 2024. The increase was driven by additions by the Company to property and equipment. +46 +Table of Contents +Financing Activities +Net cash provided by financing activities increased by $21.5 million, to $30.1 million for the year ended December 31, 2025, compared to the net cash provided by financing activities of $8.6 million for the year ended December 31, 2024. The increase in net cash provided by financing activities was primarily attributable to proceeds from the Private Placement and additional issuances of SAFE Notes. +Contractual Obligations and Commitments +As of December 31, 2025 and December 31, 2024, we did not have any material contractual obligations or commitments. +Off-Balance Sheet Transactions +We did not have during the periods presented, and we do not currently have, any off-balance sheet financing arrangements or any relationships with entities or financial partnerships, such as structured finance or special purpose entities, that were established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. +Critical Accounting Policies and Estimates +Our financial statements and the related notes thereto included in this Annual Report are prepared in accordance with United States generally accepted accounting principles. The preparation of financial statements also requires us to make certain estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses and related disclosures. These estimates are developed based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from the estimates made by management. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations, and cash flows will be affected. We believe that the accounting policies described below involve a greater degree of judgment and complexity. Accordingly, these are the estimates we believe are most critical to aid in fully understanding and evaluating our financial condition, results of operations and future performance. We have described our significant accounting policies within Note 3 to our financial statements included in this Annual Report. +SAFE Notes +In 2024 and 2025, the Company issued SAFE Notes in exchange for cash financing. The Safe Notes converted into our common stock in connection with the Merger, and are no longer outstanding. The Company accounted for its SAFE Notes as derivatives under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 815, Derivatives and Hedging , and presented them as long-term liabilities in the accompanying consolidated balance sheets. The determination of fair value for the Company’s SAFE Notes required significant judgment and the use of estimates. We have described the valuation of the SAFE Notes in Note 5 to our financial statements included in this Annual Report. +Stock-Based Compensation +We account for stock-based compensation in accordance with ASC 718, Compensation-Stock Compensation. We measure all stock-based awards granted to employees, directors and non-employee consultants based on the fair value on the date of the grant and recognize compensation expense for those awards over the requisite service period, which is generally the vesting period of the respective award. +The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model. We have historically been a private company and lack company-specific historical information for our stock. Determining the appropriate fair value of stock-based awards requires the input of subjective assumptions. The assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and management uses different assumptions, stock-based compensation expenses could be materially different for future awards. +Recent Accounting Pronouncements +A discussion of recently issued accounting pronouncements and recently adopted accounting pronouncements is included in Note 3 to our financial statements included in this Annual Report under the heading “Summary of Significant Accounting Policies.” +47 +Table of Contents +ITEM 7A. Quantitative and Qualitative Disclosure About Market Risk +As a “smaller reporting company” we are not required to provide information required by this Item. +ITEM 8. Financial Statements and Supplementary Data +Reference is made to pages F-1 through F-24 comprising a portion of this Annual Report, which are incorporated herein by reference. +​ +ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure +None. +ITEM 9A. Controls and Procedures +Evaluation of Disclosure Controls and Procedures +Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Form 10-K. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective as of December 31, 2025 due to the material weaknesses in internal control over financial reporting described below. +Material Weaknesses in Internal Control over Financial Reporting +A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected in a timely basis. +In connection with the preparation of our consolidated financial statements for the years ended December 31, 2025 and 2024, we identified material weaknesses in our internal control over financial reporting. The material weaknesses identified are related to IT general controls, segregation of duties and ineffective controls over the preparation and review of accounting estimates (SAFE Notes and stock-based compensation) and financial reporting. +Remediation steps are being taken to improve the Company’s internal control over financial reporting to address the underlying causes of the material weaknesses described above, including designing and implementing increased controls along with increasing oversight and review of controls. Specifically, we have taken the following steps to remediate the identified material weaknesses and improve our internal control over financial reporting: (i) we have hired key personnel with relevant financial reporting and controls expertise to strengthen our finance and accounting function, and to address the material weaknesses related to IT general controls and segregation of duties; and (ii) we are currently in the implementation phase of a new equity management and reporting system. We continue to evaluate and implement additional remediation initiatives as appropriate. +48 +Table of Contents +While we believe that these efforts will improve the Company’s internal control over financial reporting, the implementation of these measures is ongoing and will require validation and testing of the design and operating effectiveness of internal controls over a sustained period of financial reporting cycles. If the steps we take do not remediate the material weaknesses in a timely manner, there could continue to be a reasonable possibility that these control deficiencies or others could result in a material misstatement of our annual or interim financial statements that would not be prevented or detected on a timely basis. If we are unable to successfully remediate our existing or any future material weaknesses, the accuracy of our financial reporting may be adversely affected, which could cause investors to lose confidence in our financial reporting and our share price may decline as a result. +Notwithstanding the identified material weaknesses, management believes that the financial statements and related financial information included in this Form 10-K fairly present, in all material respects, our balance sheets, statements of operations, statements of stockholders’ equity (deficit) and statements of cash flows as of and for the periods presented. We will continue to assess the effectiveness of our internal control over financial reporting and take steps to remediate the known material weaknesses expeditiously. +Management’s Report on Internal Control over Financial Reporting +As discussed elsewhere in this Annual Report, we completed the Merger on September 5, 2025. Prior to the Merger, Surfside, our predecessor, was a special purpose acquisition company formed for the purpose of seeking the acquisition of or merger with an existing company. As a result, previously existing internal controls are no longer applicable or comprehensive enough as of the assessment date as Surfside’s operations prior to the Merger were insignificant compared to those of the consolidated entity post-Merger. The design of internal control over financial reporting for the Company post-Merger has required and will continue to require significant time and resources from management and other personnel. As a result, management was unable, without incurring unreasonable effort or expense, to conduct an assessment of our internal control over financial reporting as of December 31, 2025. Accordingly, we are excluding management’s report on internal control over financial reporting pursuant to Section 215.02 of the SEC Division of Corporation Finance’s Regulation S-K Corporation Finance Interpretations. +Although management did not conduct a formal assessment of internal control over financial reporting, as discussed above, management identified material weaknesses in our internal control over financial reporting and as a result determined that we did not maintain effective internal control over financial reporting as of December 31, 2025. +Changes in Internal Control over Financial Reporting +Other than the changes to remediate the material weaknesses described above, there were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this Form 10-K that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting. +ITEM 9B. Other Information +Insider Trading Arrangements and Policies +During the fiscal quarter ended December 31, 2025, none of our directors or executive officers adopted or terminated a “Rule 10b5-1 trading arrangement ” or a “non-Rule 10b5-1 trading arrangement” (each as defined in Items 408(a) and 408(c) of Regulation S-K), respectively. +ITEM 9C. Disclosure Regarding Foreign Jurisdictions That Prevent Inspections +Not Applicable. +​ +49 +Table of Contents +PART III +ITEM 10. Directors, Executive Officers and Corporate Governance +The following table sets forth information regarding our leadership team, including our executive officers and directors, as of the date of this Annual Report: +​ +​ +​ +​ +​ +Name +​ ​ ​ +Age +​ ​ ​ +Positions +Elizabeth Muller +​ +47 +​ +Chair of the board of directors (Class III); President and Chief Executive Officer +Richard A. Muller +​ +82 +​ +Chief Technology Officer +William (Mark) Schmitz +​ +74 +​ +Chief Financial Officer +Michael Brasel +​ +50 +​ +Chief Operating Officer +Jon Gordon +​ +51 +​ +General Counsel & Secretary +Mark Peres +​ +66 +​ +Chief Nuclear Officer +Stacy Tarver Patterson (1) +​ +40 +​ +Chief Marketing Officer +Blake Janover +​ +43 +​ +Director (Class I) +Leslie Goldman Tepper +​ +60 +​ +Director (Class I) +Jonathon Angell +​ +54 +​ +Director (Class II) +Thomas Glanville +​ +67 +​ +Director (Class II) +(1) Ms. Tarver Patterson is not an executive officer pursuant to Item 401 of Regulation S-K. +​ +Executive Officers +Elizabeth Muller is the Co-Founder, Chair of the board of directors (Class III), President and Chief Executive Officer of Deep Fission, a role she has held since March 2024. She is also a co-founder of Deep Isolation, Nuclear, Inc. (“Deep Isolation”), a nuclear waste disposal company, and has served as the chair of Deep Isolation’s board of directors since its inception in 2016 and as an executive advisor since June 2024. Previously, Ms. Muller served as the chief executive officer of Deep Isolation from 2016 until June 2024. Ms. Muller was also formerly an Executive Director of Berkeley Earth, a director at Gov3, and a Policy Advisor at the Organization for Economic Co-Operation and Development (OECD). Ms. Muller is also a co-author of several of Deep Isolation’s patents. Ms. Muller holds a degree in mathematics from the University of California, San Diego, and a master’s degree in business from ESCP Business School in Paris. +We believe Ms. Muller is qualified to serve on our board of directors due to her direct and sustained leadership experience as the co-founder and former CEO of Deep Isolation, guiding it through its formative stages and into the public markets. In addition, her deep institutional knowledge of the Company, combined with her prior service on multiple corporate boards, provides both strategic insight and governance experience. Ms. Muller also brings environmental, technical, and policy expertise and extensive experience in leadership and operations. +Dr. Richard A. Muller is the Co-Founder and Chief Technology Officer of Deep Fission, a role he has held since March 2024. Previously, Dr. Muller served as the chief executive officer of Deep Fission from June 2023 to March 2024. He is also the co-founder of Deep Isolation and served as Chief Technology Officer from 2016 to 2023. Dr. Muller is a Professor of Physics emeritus at the University of California, Berkeley. He is also a prolific inventor (over 80 patents issued) and has written more than 100 scientific articles in peer-reviewed journals. Dr. Muller’s academic research has led to numerous awards, including a MacArthur Prize, the National Science Foundation Alan T. Waterman Award, the Breakthrough Prize, and election to the American Academy of Arts and Sciences. In addition, Dr. Muller has won numerous awards for excellence in teaching and authored ten books, including Physics for Future Presidents and Energy for Future Presidents . Dr. Muller was a member of JASON, an independent scientific advisory group that provides consulting services to the U.S. government on matters of defense science and technology, for 34 years. Dr. Muller received his A.B. degree from Columbia University and his Ph.D. at the University of California, Berkeley. +50 +Table of Contents +William (Mark) Schmitz is the Chief Financial Officer of Deep Fission, a role he has held since August 2025. Mr. Schmitz has over forty years of experience as a finance professional in the energy technology, automotive, life safety, banking, and manufacturing industries. Mr. Schmitz previously served as Chief Financial Officer of Gru Energy Lab, Inc. from May 2021 until April 2024, Chief Financial Officer of Itron, Inc. from September 2014 until April 2017, and Chief Financial Officer of Alghanim Industries from April 2009 until December 2013. He has also served as Chief Financial Officer of Goodyear and Plug Power and has held positions based in China, Brazil, the U.K., and the Middle East. Mr. Schmitz is experienced at scaling growth-oriented companies and preparing them for public company reporting. Mr. Schmitz has undergraduate and M.B.A. degrees from The Ohio State University. +Michael Brasel has served as Chief Operating Officer of Deep Fission since October 2025 and previously served as Vice President of Nuclear Programs from December 2024 to October 2025. Before joining Deep Fission, Mr. Brasel worked at NuScale Power Corporation (“NuScale”) in successive senior operations and supply-chain leadership roles from April 2012 to March 2024, most recently as Senior Director. Prior to serving at NuScale, he served at Dairyland Power Cooperative from February 2002 to March 2012, including as Plant Manager of the La Crosse Boiling Water Reactor from January 2009 to March 2012. Mr. Brasel is a former U.S. Navy Nuclear Operator–Electrician and completed Naval Nuclear Power School. He holds engineering and business degrees from Old Dominion University and the University of Wisconsin–La Crosse. +Jon Gordon has served as General Counsel and Secretary of Deep Fission since October 2025. Before joining Deep Fission, he served as General Counsel and Chief Commercial Officer of a hydrogen-electrolyzer company from June 2024 to September 2025. From November 2019 to June 2024, he was Co-Founder, General Counsel and Head of Partnerships and Government Affairs of Universal Hydrogen, a developer of hydrogen-powered aircraft and fueling systems. Prior to that, Mr. Gordon was Deputy General Counsel for Technology and Digital at United Technologies Corporation (now Raytheon Technologies Corporation), and earlier in his career he practiced M&A and securities law at Cravath, Swaine & Moore LLP and Wachtell, Lipton, Rosen & Katz LLP. Mr. Gordon earned both his B.A. and J.D. from the University of Chicago. +Mark Pérès was appointed Chief Nuclear Officer of Deep Fission effective February 19, 2026. Prior to his appointment, he served as the Company’s Vice President of Engineering since October 2024. In that role, he managed engineering and technical operations relating to Deep Fission’s nuclear reactor design. Since 2022, Mr. Pérès has served as President of Pérès Engineering, LLC, where he has conducted comprehensive evaluations of SMRs for diverse clients. From 2019 to 2022, Mr. Pérès served as Vice President of Engineering at Kairos Power, where he directed design efforts for the Hermes Test Reactor. From 2009 to 2019, he served as Executive Project Director at Fluor, where he led major nuclear project deliveries, including work relating to NuScale’s SMR, the first NRC-certified small modular reactor design under 10 C.F.R. Part 52. Mr. Pérès holds a B.S. in Mechanical Engineering from Montana State University, an M.S. in Mechanical Engineering from Washington State University, and is a PhD Candidate (ABD) and Adjunct Professor in Nuclear Engineering at the University of South Carolina. +Stacy Tarver Patterson (1) has served as Chief Marketing Officer of Deep Fission since February 19, 2026. In this role, she leads the Company’s marketing, brand, and go-to-market strategy. Prior to joining Deep Fission, Ms. Patterson served as Head of Brand Strategy at Code and Theory from May 2023 to November 2024. From September 2019 to April 2021, she served as Managing Director at West, a venture studio. From January 2021 to December 2021, she served as Co-Founder and Chief Marketing Officer of COR, a digital health technology company. Ms. Patterson has also served as CMO-in-Residence at Columbia Startup Lab since August 2020 and as Founding Partner of New Math since December 2024. She holds a B.S. in Marketing, Management and Organizational Behavior from New York University and an M.B.A. from Columbia Business School. +(1) Ms. Tarver Patterson is not an executive officer pursuant to Item 401 of Regulation S-K. +​ +51 +Table of Contents +Directors +Blake E. Janover — Director (Class I) +Mr. Janover has served as a director of Deep Fission since December 19, 2025. He serves as Chair of the Compensation Committee and as a member of the Audit Committee and the Nominating & Governance Committee. He is the Founder, Chief Executive Officer and Chairman of the board of directors of J2 Labs Inc., since 2025. He was the Founder, Chief Executive Officer, President and Chairman of the board of directors of Janover Inc., a commercial real estate and financial technology company he founded in 2018. Mr. Janover also serves on the board of DeFi Development Corp. Mr. Janover has more than 15 years of experience as an entrepreneur and operator in multifamily and commercial real estate finance, business financing, and technology. Prior to founding Janover Inc., Mr. Janover served as a consultant on a variety of multifamily and commercial real estate finance projects and was a partner in a large apartment development in Miami. Earlier in his career, he founded and operated a mortgage brokerage that later became a correspondent lender and subsequently a direct lender in the residential and commercial real estate markets. Mr. Janover has overseen underwriting, origination, and advisory services across commercial, multifamily, and residential real estate transactions. He is a graduate of the Harvard Business School’s Owner/President Management Program and a NATSEC Fellow at the National War College Alumni Association. We believe Mr. Janover is qualified to serve as a director due to his extensive experience in real estate finance, capital formation, and leadership of technology-enabled businesses. +Leslie Goldman Tepper — Director (Class I) +Ms. Goldman Tepper has served as a director of Deep Fission since November 7, 2025. She serves as Chair of the Nominating and Governance Committee and as a member of the Audit and Compensation Committees. Ms. Goldman Tepper founded and was a General Partner of The Artemis Fund, focused on early-stage, women-led companies, from 2019 to 2024. Since 2022, Ms. Goldman Tepper has served on the board of Deep Isolation where she is Lead Independent Director, Chair of the Compensation Committee and a member of the Nominating and Governance Committee and Audit Committee. Since September 2019, she has been Managing Member of her family office. In April 2025, she was elected to Titan Acquisition (TACH) Corp.’s board as a member of its compensation and audit committees. She brings extensive experience in funding and scaling private companies, has served on the board of multiple growth stage companies, and has been a frequent speaker for the National Association of Corporate Directors (NACD) while serving as a board member for its Texas and Utah Chapters. Her legal background includes serving as General Counsel for Fisher HealthCare and in-house for Waste Management after private practice in AmLaw 100 firms. Ms. Goldman Tepper holds degrees from Yale University, the University of New South Wales, and Fordham University School of Law. We believe that Ms. Goldman Tepper is qualified to serve on our board due to her prior board experience, significant experience investing in and scaling early-stage companies and in management and corporate governance. +Jonathon Angell — Director (Class II) +Mr. Angell has served as a director of Deep Fission since November 7, 2025. He serves as a member of the Nominating & Governance Committee. He has served as the Chief Executive Officer of Angell Investments since 2016 and has previously served as Deep Fission’s Chief Financial Officer from July 2023 to August 2024, where he helped shape its financial structure and led its largest acquisition, and as a Strategic Advisor to Deep Fission from August 2024 to November 2025. He also serves as a director and audit committee chair of Deep Isolation. Mr. Angell has more than 20 years of experience advising companies ranging from startups to Fortune 500 enterprises and has worked on corporate strategy initiatives for companies including Hitachi, Toyota, General Motors, Philips, Merrill Lynch, and Ubisoft. He is a Certified Public Accountant, Certified Financial Manager, Certified Information Systems Auditor, and Certified Management Accountant. He holds a B.A. from Whitman College and an M.B.A. from Heriot-Watt University. We believe Mr. Angell is qualified to serve as a director because of his financial expertise, prior executive experience with the Company, strategic advisory background, and extensive audit committee and board leadership experience. +52 +Table of Contents +Thomas S. Glanville — Director (Class II) +Mr. Glanville has served as a director of Deep Fission since December 19, 2025. He serves as Chair of the Audit Committee and as a member of the Compensation Committee. He is the managing partner of Eschelon Advisors, LP, and its affiliates, providing energy and private equity investment and advisory services, a position he has held for more than five years. Mr. Glanville currently serves on the boards of directors Crescent Pass Energy Holdings, L.L.C. and Strand Energy, L.L.C., both privately held oil and gas exploration and production companies, and since 2015 has served as a Director and Audit Committee Chair of MIND Technology, Inc., a publicly traded provider of innovative technology to the global marine industry. Mr. Glanville is also an Advisory Director of Buzz Solutions, Inc., an AI inspection and monitoring software provider to electric utilities. Previously, Mr. Glanville served from 2001 to 2022 as a director of Itron, Inc., a publicly traded technology and services company dedicated to the efficient use of energy and water, where he served as Chair of the Audit/Finance Committee and as a member of the Compensation and Corporate Governance Committees. Earlier in his career, he served as Vice President of Technology and New Ventures for Reliant Energy, Inc. and its affiliate, Reliant Resources, Inc. Mr. Glanville also served as Chairman of the Texas Tri-Cities branch (Houston, Austin, and San Antonio) of the National Association of Corporate Directors from 2011 to 2016. He holds a Master of Science degree in Mineral Economics from the Colorado School of Mines and a Bachelor of Arts degree in Economics from the University of Virginia. We believe Mr. Glanville is qualified to serve as a director due to his extensive experience in energy and infrastructure, his financial and audit committee expertise, and his long tenure serving on the board of a public company. +Corporate Governance +Board Composition +As of the date of this Annual Report on Form 10-K, our board of directors consists of five members: Elizabeth A. Muller (Chair), Leslie Goldman Tepper, Jonathon Angell, Blake E. Janover, and Thomas S. Glanville. +Richard A. Muller resigned from the board of directors on November 7, 2025 and now serves exclusively as our Chief Technology Officer. +Classified Board of Directors +We have a classified board of directors divided into three staggered classes—Class I, Class II, and Class III—with each class serving a three-year term. One class of directors is elected at each annual meeting of stockholders. +Our directors are currently assigned to the following classes: +● Class I: Leslie Goldman Tepper and Blake E. Janover , whose terms expire at the 2026 annual meeting of stockholders. +● Class II: Jonathon Angell and Thomas S. Glanville , whose terms expire at the 2027 annual meeting of stockholders. +● Class III: Elizabeth A. Muller , whose term expires at the 2028 annual meeting of stockholders. +Each director serves until the election and qualification of their successor or until earlier death, resignation, disqualification, or removal. Under our amended and restated certificate of incorporation and amended and restated bylaws, only the board of directors may fill vacancies on the board of directors, subject to the rights of any preferred stockholders. Any increase or decrease in the number of directors will be apportioned among the classes to maintain a balanced structure as nearly as possible. +The classified board of directors structure may delay or prevent a change in control of Deep Fission. +Family Relationships +Elizabeth A. Muller, our President and Chief Executive Officer and Chair of the board of directors, is the daughter of Richard A. Muller, our Chief Technology Officer. +There are no other family relationships among our directors or executive officers. +53 +Table of Contents +Committees of the Board of Directors +The board of directors has established the following standing committees: +Audit Committee +● Chair: Thomas S. Glanville +● Members: Leslie Goldman Tepper and Blake E. Janover +The responsibilities of the Audit Committee include overseeing (i) the integrity of the Company’s financial statements; (ii) the Company’s compliance with legal and regulatory requirements, (iii) the qualifications, independence and performance of the Company’s independent registered public accounting firm; (iv) the performance of the Company’s internal audit function; (v) the Company’s system of internal control over financial reporting and disclosure controls and procedures; and (v) the Company’s risk management processes that could materially impact the Company’s financial statements, internal controls or disclosure obligations. +The board of directors has determined that Thomas S. Glanville and Blake E. Janover are each an “audit committee financial expert” as defined under the rules of the SEC. In addition, the board of directors has determined that each of the members of the Audit Committee is independent under Rule 10A-3 under the Exchange Act. +Nominating & Governance Committee +● Chair: Leslie Goldman Tepper +● Member: Jonathon Angell and Blake E. Janover +The responsibilities of the Nominating & Governance Committee include (i) identifying, evaluating, recruiting, and recommending to the board of directors for consideration and approval of individuals qualified to be members of the board of directors; (ii) developing and recommending to the board of directors a set of corporate governance principles applicable to the Company; and (iii) overseeing matters of corporate governance matters relevant to the Company. +Compensation Committee +● Chair: Blake E. Janover +● Member: Leslie Goldman Tepper and Thomas S. Glanville +The responsibilities of the Compensation Committee include (i) overseeing determination of executive compensation and reviewing and making recommendations to the board of directors with respect to major compensation plans, policies, and programs of the Company; (ii) approving and evaluating all compensation plans, policies, and programs of the Company as they affect the compensation of the Company’s executive officers; and (iii) overseeing the Company’s management of human capital. +Code of Ethics +We have adopted a Code of Ethics for Senior Financial Officers that applies to our principal executive officer, principal financial officer and principal accounting officer. A copy of our Code of Ethics for Senior Financial Officers is included as Exhibit 14.1 to this Annual Report. +Insider Trading Policy +The Company has adopted an Insider Trading Policy governing the purchase, sale, and other dispositions of its securities by directors, officers, employees, consultants, contractors and advisors that we believe is reasonably designed to promote compliance with insider trading laws, rules and regulations. In addition, the policy requires transactions by the Company in its own securities, including stock repurchases, to be conducted in compliance with applicable securities laws and regulations. A copy of our Insider Trading Policy is included as Exhibit 19.1 to this Annual Report. +54 +Table of Contents +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Exchange Act requires our directors, executive officers and 10% stockholders to file initial reports of ownership and reports of changes in ownership of our common stock with the SEC. Directors, executive officers and 10% stockholders are also required to furnish us with copies of all Section 16(a) forms that they file. Based solely on our review of such forms furnished to us and written representations from certain reporting persons, we believe that during the year ended December 31, 2025, all reports applicable to our executive officers, directors and greater than 10% beneficial owners were filed in a timely manner in accordance with Section 16(a) of the Exchange Act except as disclosed below. +Delinquent Section 16(a) Reports +On November 17, 2025, Mr. Angell filed one late Form 4 covering one transaction. On December 4, 2025, Mr. Gordon filed one late Form 3 and one late Form 4 covering one transaction. On December 12, 2025, Ms. Muller filed one late Form 4 covering one transaction. On December 22, 2025, Mr. Glanville filed one late Form 3 and one late Form 4 covering one transaction. +​ +ITEM 11. Executive Compensation +This section describes the compensation of our named executive officers and non-employee directors for the fiscal year ended December 31, 2025. The discussion below covers compensation arrangements of Legacy Deep Fission prior to the consummation of the Merger with Surfside and compensation arrangements of Deep Fission following the Merger, to the extent applicable, as well as compensation arrangements of Surfside prior to the consummation of the Merger. +Director Compensation +Ian Jacobs and Mark Tompkins served as our sole directors prior to the Merger and resigned from our Board effective as of the closing of the Merger, which occurred on September 5, 2025. Messrs. Jacobs and Tompkins did not receive any compensation for their service on our Board. Effective as of September 5, 2025, Elizabeth Muller and Richard Muller were appointed to our Board, although Dr. Muller resigned from the board of directors on November 7, 2025 to focus on his continuing responsibilities as our Chief Technology Officer. Jonathon Angell and Leslie Goldman Tepper were appointed to our Board on November 7, 2025 and Thomas Glanville and Blake Janover were appointed to our Board on December 19, 2025. +Ms. Muller is employed as our Chief Executive Officer and President and receives no compensation for her service as a director and chair of the board of directors. The compensation received by Ms. Muller as an employee is shown in “ Executive Compensation - Summary Compensation Table ” below. Dr. Muller and Messrs. Thompson and Jacobs each also served as executive officers during the fiscal year ended December 31, 2025 (and Dr. Muller continues to serve as our Chief Technology Officer) and their compensation is also shown in “ Executive Compensation – Summary Compensation Table ” below. +On November 7, 2025, the board of directors adopted a Non-Employee Director Compensation Policy. Under this policy, non-employee directors receive cash and equity compensation for their service. Annual cash retainers are paid for Board service and for service on a committee, and are paid quarterly in arrears. +The fees paid to our non-employee directors for service on our Board and for service on each committee of our Board of which the non-employee director is a member are as follows: +Annual Board Member Service Retainer +All non-employee directors: $67,500 +Annual Committee Member Service Retainer +Member of the audit committee: $10,000 +Member of the compensation committee: $9,500 +Member of the nominating and corporate governance committee: $9,500 +55 +Table of Contents +Equity compensation for non-employee directors is provided in the form of restricted stock units (“RSUs”) granted under the Company’s 2025 Equity Incentive Plan (the “2025 Plan”). Each RSU represents the right to receive one share of the Company’s common stock upon vesting. In connection with the adoption of the policy, the board of directors determined that all RSU awards made to non-employee directors will provide the holder with the ability, following vesting, to defer receipt of the underlying shares until the earlier of (i) a Change in Control (as defined in the 2025 EIP), and (ii) the director’s separation from service. Delivery of any deferred shares will be made in compliance with the 2025 Plan and Section 409A of the U.S. Internal Revenue Code of 1986, as amended (the “Code”). +Under the Non-Employee Director Compensation Policy, non-employee directors who joined the board of directors on or before December 31, 2025 were entitled to receive an RSU award covering 100,000 shares of the Company’s common stock. On November 7, 2025, the Compensation Committee approved an RSU award of 100,000 shares to each of Ms. Goldman Tepper and Mr. Angell pursuant to this provision. On December 19, 2025, the Compensation Committee approved an RSU award of 100,000 shares to each of Messrs. Glanville and Janover pursuant to this provision. In each case, although the RSU awards were approved by the Compensation Committee in fiscal year 2025, the vesting terms for such awards were not finalized until fiscal year 2026, and so the awards were not considered granted for purposes of ASC 718, Compensation – Stock Compensation , until March 31, 2026. As a result, in accordance with SEC rules, no value appears in the 2025 Nonemployee Director Compensation Table for such awards, and instead they will appear in our 2026 Nonemployee Director Compensation Table. The final vesting terms of the RSU awards provide that they will vest on the earlier of six months after the grant date and the occurrence of a Change in Control (as defined in the 2025 Plan). +Under the Non-Employee Director Compensation Policy, non-employee directors who join the board of directors after December 31, 2025 will receive an initial RSU award having a grant-date fair value of $130,000, which vests in full on the earlier of the one-year anniversary of the grant date and the occurrence of a Change in Control. Beginning with the 2026 annual meeting of stockholders, each non-employee director who continues to serve on the board of directors following the annual meeting will receive an annual RSU award having a grant-date fair value of $130,000, which vests in full on the earlier of the first anniversary of the grant date and the occurrence of a Change in Control. +All RSU awards are made pursuant to the terms of the 2025 Plan and the Company’s standard form of award agreement and are subject to the deferred-delivery election described above. The Company also reimburses non-employee directors for reasonable expenses incurred in connection with their service. +2025 Nonemployee Director Compensation Table +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +Fees Earned +​ ​ ​ +​ +​ +​ ​ ​ +All +​ ​ ​ +​ +​ +​ +​ +or Paid in +​ +Stock +​ +Other +​ +​ +​ +​ +​ +Cash +​ +Awards +​ +Compensation +​ +Total +Name +​ ​ ​ +($) +​ ​ ​ +($) (1) +​ ​ ​ +($) +​ ​ ​ +($) +Jonathon Angell (2) +​ +$ +19,250 +​ +$ +— +​ +$ +49,500 +(3) ​ +$ +68,750 +Leslie Goldman Tepper +​ +$ +19,250 +​ +$ +— +​ +$ +— +​ +$ +19,250 +Thomas Glanville +​ +$ +19,375 +​ +$ +— +​ +$ +— +​ +$ +19,375 +Blake Janover +​ +$ +16,875 +​ +$ +— +​ +$ +— +​ +$ +16,875 +Mark Tompkins (4) +​ +$ +— +​ +$ +— +​ +$ +— +​ +$ +— +(1) +As described above, although the Compensation Committee approved RSU awards for four of the directors in fiscal year 2025, they were not considered granted for purposes of ASC 718, Compensation – Stock Compensation , until fiscal year 2026, and therefore are not included in this 2025 Nonemployee Director Compensation Table. Please see the section above titled “Director Compensation” for further information regarding such RSU awards, which will be included in our 2026 Nonemployee Director Compensation Table. +(2) +Mr. Angell served as Chair of the Compensation Committee during the fiscal year ended December 31, 2025. Mr. Angell resigned as Chair and a member of the Compensation Committee on April 3, 2026. +(3) +Prior to his appointment to the board of directors, Mr. Angell provided consulting services to the Company and received a monthly retainer in connection with those services. The consulting relationship terminated upon his appointment to the board of directors, and no consulting fees were paid to Mr. Angell following his commencement of service as a director. +(4) +Mr. Tompkins resigned as a member of the board of directors upon the closing of the Merger on September 5, 2025. +56 +Table of Contents +The table below shows the aggregate number of unvested stock awards held as of December 31, 2025 by each non-employee director, which does not reflect the 100,000 RSUs approved by the Compensation Committee to be granted to each of Messrs. Angell, Glanville and Janover and Ms. Goldman Tepper in fiscal year 2025, but which were not granted until fiscal year 2026. +​ +​ +​ +​ +​ ​ ​ +Stock +​ +​ +Awards +Name +​ ​ ​ +Outstanding +Jonathon Angell +— +Leslie Goldman Tepper +— +Thomas Glanville +— +Blake Janover +— +Mark Tompkins +— +​ +Executive Compensation +As an “emerging growth company,” we have opted to comply with the executive compensation disclosure rules applicable to such companies, which allows us to provide reduced compensation disclosure. This section discusses the material components of the executive compensation program for the Company’s named executive officers who appear in the “— 2025 Summary Compensation Table ” below. In 2025, the “named executive officers” and their positions with the Company were as follows: +● Elizabeth Muller: President and Chief Executive Officer +● Richard A. Muller, Ph.D.: Chief Technology Officer +● Michael Brasel: Chief Operating Officer +● Malcolm Thompson: Former Chief Operating Officer, Legacy Deep Fission +● Ian Jacobs: Former Chief Executive Officer, Surfside +Summary Compensation Table +The following table sets forth information concerning the compensation earned by or paid to our named executive officers for the fiscal years ended December 31, 2025 and December 31, 2024. +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +​ ​ ​ +​ ​ ​ +​ ​ ​ +​ ​ ​ +​ ​ ​ +​ ​ ​ +Stock +​ ​ ​ +Option +​ ​ ​ +All Other +​ ​ ​ +​ ​ ​ +​ +​ +​ +​ +Salary +​ +Bonus +​ +Awards +​ +Awards +​ +Compensation +​ +Total +Name and Principal Position +​ ​ ​ +Year +​ ​ ​ +($) +​ ​ ​ +($) +​ ​ ​ +($) (1) +​ ​ ​ +($) (1) +​ ​ ​ +($) +​ ​ ​ +($) +Elizabeth Muller +2025 +404,261 +60,000 +3,956,047 +2,661,901 +34,008 +(4) ​ +7,116,217 +President and Chief Executive Officer +2024 +279,000 +80,000 +1,144,924 +— +8,533 +(4) ​ +1,512,457 +Richard Muller, Ph.D. +2025 +300,000 +90,000 +— +1,308,466 +— +(4) ​ +1,698,466 +Chief Technology Officer +2024 +300,000 +160,000 +— +— +— +460,000 +Michael Brasel +2025 +242,898 +72,500 +90,418 +269,990 +30,322 +(4) ​ +706,128 +Chief Operating Officer (2) +​ +​ +​ +​ +​ +​ +​ +Malcolm Thompson (3) +2025 +160,417 +— +3,440,304 +— +62,500 +(5) ​ +3,663,221 +Former Chief Operating Officer, Legacy Deep Fission +2024 +38,942 +50,000 +23,271 +— +2,667 +(4) ​ +114,880 +Ian Jacobs (6) +2025 +— +— +— +— +— +(4) ​ +— +Former Chief Executive Officer, Surfside +2024 +— +— +— +— +— +— +(1) The amounts reported in this column represent the aggregate grant-date fair value of equity awards granted during the applicable year, including stock options, RSUs and stock awards, computed in accordance with ASC Topic 718 for stock-based compensation transactions. The assumptions used in calculating the grant date fair value of the stock options, RSUs and stock awards are set forth in Note 8 of the Company’s financial statements for the year ended December 31, 2025. This calculation does not give effect to any estimate of forfeitures related to service-based vesting and assumes that the named executive officer will perform the requisite service for the award to vest in full. +57 +Table of Contents +(2) Mr. Brasel commenced employment as Deep Fission’s Chief Operating Officer on October 6, 2025, having previously served as the Company’s Vice President of Nuclear Programs. +(3) Mr. Thompson ceased employment with Legacy Deep Fission on August 20, 2025. +(4) Consists of 401k employer-match benefits. +(5) Contains of a lump sum cash severance payment of $62,500. Please see the section below titled “Separation Agreement” for further information. +(6) Mr. Jacobs served as the Chief Executive Officer, Chief Financial Officer and Secretary of Surfside. Mr. Jacobs resigned from all such positions upon the closing of the Merger on September 5, 2025. Mr. Jacobs did not receive any compensation for serving as an executive officer of Surfside. +Base Salaries +During the fiscal year ended December 31, 2025, the base salaries of our named executive officers were determined by our Board (and, following its formation, our Compensation Committee) based on each executive’s role, responsibilities, experience and performance. +During the fiscal year ended December 31, 2025, Ms. Muller’s annual base salary was increased from $400,000 to $475,000, effective December 9, 2025. +Mr. Basel was promoted to the position of Chief Operating Officer on October 6, 2025. Prior to this date, Mr. Basel served as the Company’s Vice President of Nuclear Programs, and his base salary reflected in the Summary Compensation Table reflects the aggregate salary he actually received in the fiscal year ended December 31, 2025 for his service in both roles. Mr. Thompson ceased employment during the fiscal year ended December 31, 2025 and his base salary reflected in the Summary Compensation Table reflects the actual salary he received for service through his date of termination. +Annual Bonuses +Annual cash bonuses are determined by our Compensation Committee, and, prior to such Committee’s formation, our board of directors. Annual cash bonuses are set at a level that is commensurate with the executive’s duties and authorities, contributions, prior experience and sustained performance and bonus outcomes are determined based on an overall assessment of Company performance, the executive’s performance and contributions, and other relevant factors. After evaluating the foregoing factors, the Committee determined to pay discretionary cash bonuses to Ms. Muller, Dr. Muller and Mr. Brasel for fiscal year 2025 of $60,000, $90,000 and $72,500, respectively. +Equity Awards +We use equity compensation to align the interests of our employees, including our executive officers, with those of our stockholders and to promote long-term retention. Equity awards are approved by our Board or, following its formation, our Compensation Committee. +Prior to the closing of the Merger, Legacy Deep Fission granted stock options to Ms. Muller and Dr. Muller representing 811,699 and 649,363 shares of Legacy Deep Fission common stock, respectively (on an as-converted basis), pursuant to its pre-Merger 2025 Equity Incentive Plan (the “Pre-Merger 2025 Plan”). The stock options granted to Ms. Muller and Dr. Muller have an exercise price of $3.00 per share and vest over a four-year vesting schedule, with 25% of the shares vesting on June 1, 2025 and the remaining shares vesting in equal monthly installments over the following 36 months, subject to the executive’s continued service through each vesting date. No additional awards will be granted under the Pre-Merger 2025 Plan following the closing of the Merger. +58 +Table of Contents +Following the Merger, the Company granted equity awards to certain of its named executive officers in the form of stock options and RSUs pursuant to the 2025 Plan. Stock options are granted with an exercise price per share no less than the fair market value of the Company’s common stock on the date of grant. Equity awards generally vest over multi-year periods and may be subject to accelerated vesting upon certain termination of employment or change in control events. Following the closing of the Merger, Ms. Muller received a grant of 183,150 stock options and 549,451 RSUs, each vesting 25% on the first anniversary of the date of grant (December 9, 2025) and with the remaining 75% subject to a monthly vesting schedule over the subsequent three-year period and Mr. Brasel received a grant of 70,000 stock options, 25% of which vests on October 6, 2026 and with the remaining 75% subject to a monthly vesting schedule over the subsequent three-year period. As described below under “ Separation Agreement ” Mr. Thompson also received an award of 72,753 fully vested shares of Legacy Deep Fission common stock in connection with his termination of employment. +Prior to the Merger, Legacy Deep Fission was not a public company and Surfside did not grant equity awards, so we did not have any policy or practice regarding the timing of awards of stock options in relation to the disclosure of material nonpublic information. Following the Merger, we have not yet had sufficient time to develop a practice of standard timing of granting equity awards, but when we grant stock options our Board or applicable committee approving the grant will determine that there is not material nonpublic information that would be released on or near the date of grant. Although we granted stock options to Mr. Brasel on November 7, 2025, which was one business day after and within four business days prior to the filing of current reports on Form 8-K, we are unable to determine the impact of such reports on the price of our common stock because our shares are not publicly listed and therefore there is no readily ascertainable value of our common stock. However, we do not consider the information disclosed in such reports as likely to have had a material impact on the price of our common stock. +Benefits +During the fiscal year ended December 31, 2025, we provided benefits to our named executive officers on the same basis as our other employees, including medical, dental, vision, life and AD&D, and short- and long-term disability insurance, flexible spending accounts, vacation and paid holidays. Our named executive officers are also eligible to participate in our 401(k) plan. +Other than director and officer insurance coverage that we maintain for our directors and officers, the Company does not provide material executive-specific health and welfare benefits or perquisites. We also do not provide employees, including our named executive officers, any other retirement benefits, including but not limited to tax-qualified defined benefit plans, supplemental executive retirement plans or nonqualified defined contribution plans. +Executive Compensation Arrangements +Each of the Company’s current named executive officers is an at-will employee, although we have provided Ms. Muller and Mr. Brasel with offer letters reflecting the key terms of their employment with us. The key terms of employment of each named executive officer, as in effect on December 31, 2025, are described below. +Chief Executive Officer — Elizabeth A. Muller +Ms. Muller’s employment is governed by an offer letter, effective December 9, 2025, pursuant to which she serves as the Company’s Chair, President, and Chief Executive Officer on an at-will basis. Ms. Muller receives an annual base salary of $475,000 and is eligible to receive an annual performance-based cash bonus with a target opportunity equal to 50% of her base salary. +In addition, Ms. Muller was granted equity awards consisting of (i) an option to purchase 183,150 shares of the Company’s common stock and (ii) 549,451 RSU’s, each of which vests monthly over a four-year period, subject to a one-year cliff and Ms. Muller’s continued service to the Company. The offer letter also provides that Ms. Muller is eligible to participate in the Company’s Executive Severance and Change in Control Policy, as described below. The terms of the offer letter were approved by the Company’s Compensation Committee. +Ms. Muller participates in the Company’s employee benefit programs on the same basis as other senior executives and is subject to the Company’s Proprietary Information & Intellectual Property Agreement. +59 +Table of Contents +Chief Technology Officer — Richard A. Muller +Dr. Muller serves as the Company’s Chief Technology Officer on an at-will basis. The Company has not entered into a written offer letter or employment agreement with Dr. Muller. He receives an annual base salary of $300,000 and is eligible for an annual performance-based cash bonus with a target opportunity equal to 30% of his base salary. His compensation, including any future adjustments or equity awards, is established from time to time by the board of directors and remains subject to approval by the Compensation Committee. +Dr. Muller participates in the Company’s employee benefit programs on the same basis as other senior executives and is subject to the Company’s Proprietary Information & Intellectual Property Agreement. +Chief Operating Officer — Michael Brasel +Mr. Brasel’s employment is governed by an offer letter, effective November 7, 2025, pursuant to which he serves as Chief Operating Officer on an at-will basis. Mr. Brasel receives an annual base salary of $300,000, subject to periodic review, and is eligible for an annual performance-based cash bonus with a target opportunity equal to 30% of his base salary. +In connection with his appointment, Mr. Brasel was granted an option to purchase 70,000 shares of the Company’s common stock at an exercise price equal to the fair market value on the date of grant, vesting over four years with a one-year cliff subject to Mr. Brasel’s continued service to the Company, and otherwise subject to the 2025 Plan and applicable award agreement. +Mr. Brasel participates in the Company’s employee benefit programs on the same basis as other senior executives and is subject to the Company’s Proprietary Information & Intellectual Property Agreement. +Separation Agreement +In connection with his cessation of employment during the fiscal year ended December 31, 2025, Legacy Deep Fission entered into a separation agreement with Mr. Thompson on September 4, 2025 (the “Separation Agreement”). Pursuant to the Separation Agreement, subject to Mr. Thompson releasing all claims against the Company, Legacy Deep Fission agreed, among other things, to pay Mr. Thompson a lump sum cash severance payment equal to three months of his base salary, less applicable payroll deductions and withholdings, to grant Mr. Thompson 72,753 fully vested shares of Legacy Deep Fission common stock, and to accelerate the vesting of 10,000 shares of previously granted Legacy Deep Fission common stock. +Potential Payments Upon Termination or Change in Control +The Compensation Committee adopted an Executive Severance and Change in Control Policy effective November 7, 2025. The policy provides severance protections for executive officers who are designated by the board of directors as eligible to participate; however, as of the date of this Annual Report on Form 10-K, Ms. Muller is the only executive officer designated as eligible to participate in the policy, and no executive officer is currently entitled to receive any benefits under the policy. Mr. Thompson’s separation was not governed by this policy. +The policy provides that, if an eligible executive’s employment is terminated by the Company without cause or the executive resigns for good reason, in each case, outside the context of a change in control of the Company, the executive would be eligible to receive severance benefits subject to the executive’s execution and non-revocation of a release of claims. These severance benefits include continued payment of base salary for six months, a pro-rated portion of the executive’s target annual bonus for the year of termination, and continued health-care coverage (or a cash equivalent) for up to six months. Unvested time-based equity awards would become vested with respect to the number of shares that would have vested had the executive remained employed for an additional six months, and performance-based equity awards would remain outstanding and eligible to vest in accordance with their original terms. +If an eligible executive’s employment is terminated by the Company without cause or the executive resigns for good reason, in each case, during the period beginning three months prior to a change in control and ending twelve months following the change in control, the policy provides enhanced severance benefits subject to the executive’s execution and non-revocation of a release of claims. In such circumstances, an eligible executive would receive a lump-sum payment equal to 18 months of base salary, a lump-sum payment equal to the executive’s annual target bonus, and continued health-care coverage (or a cash equivalent) for up to 18 months. Time-based equity awards would become fully vested, and performance-based equity awards would vest based on actual or target performance, as applicable under the policy and the terms of the governing award agreements. +60 +Table of Contents +The policy also includes a “best-net” cutback provision under Section 280G of the Code, pursuant to which parachute payments will be reduced only if doing so would result in a greater after-tax benefit to the executive. No tax gross-ups are provided. +Outstanding Equity Awards at Fiscal Year-End +The following table sets forth information regarding outstanding equity awards held by our named executive officers as of December 31, 2025, including unexercised stock options and unvested RSUs. +Mr. Jacobs resigned as an executive officer of the Company upon the closing of the Merger on September 5, 2025, and Mr. Thompson ceased employment on August 20, 2025. Neither Mr. Jacobs nor Mr. Thompson held any outstanding equity awards as of December 31, 2025, and accordingly, they are excluded from the table below. +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Option Awards +​ +Stock Awards (1) +​ +​ +​ +​ +Number of +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Securities +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Market +​ +​ +​ +​ +Underlying +​ +Number of Securities +​ +​ +​ +​ +​ +​ +Number +​ +Value of +​ +​ +​ +​ +Unexercised +​ +Underlying +​ +Option +​ +​ +​ +of Shares +​ +Shares +​ +​ +​ +​ +Options +​ +Unexercised +​ +Exercise +​ +Option +​ +That +​ +That +​ +​ +​ +​ +Exercisable +​ +Options +​ +Price +​ +Expiration +​ +Have Not +​ +Have Not +Name +​ ​ ​ +Grant Date +​ ​ ​ +(#) +​ ​ ​ +Unexercisable (#) +​ ​ ​ +($) (2) +​ ​ ​ +Date +​ ​ ​ +Vested (#) +​ ​ ​ +Vested ($) (3) +Elizabeth Muller +​ +08/29/2025 +(4) ​ +304,387 +​ +507,312 +​ +$ +3.00 +​ +8/28/2035 +​ +— +​ +​ +— +​ +12/09/2025 +(5) ​ +— +6,000 +​ +$ +2.73 +12/08/2035 +— +​ +— +​ +12/09/2025 +(5) ​ +— +183,150 +​ +$ +2.73 +12/08/2035 +— +​ +— +​ +12/09/2025 +(6) ​ +— +— +​ +— +— +549,451 +​ +$ +3,956,047 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Richard Muller, Ph.D. +8/29/2025 +(7) ​ +311,153 +338,210 +​ +$ +3.00 +8/28/2035 +— +​ +— +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Michael Brasel +07/25/2025 +(8) ​ +— +— +​ +— +— +38,973 +​ +$ +280,607 +​ +11/07/2025 +(5) ​ +— +70,000 +​ +$ +2.73 +11/06/2035 +— +​ +— +(1) Stock awards consist of RSUs granted under the 2025 Plan. +(2) The exercise prices in this column represent the fair market value of a share of the Company’s common stock on the date of grant, as determined by the board of directors. +(3) The market value of unvested stock awards is calculated based on the fair market value of the Company’s common stock on December 31, 2025, as determined by the board of directors. +(4) The stock options are subject to a four-year vesting schedule, with 25% of the options vesting on June 1, 2025 and 1/48th of the options vesting monthly over the 36-month period thereafter, subject to the executive’s continued employment through each vesting date. +(5) The stock options are subject to a four-year vesting schedule, with 25% of the options vesting on the first anniversary of the date of grant and 1/48th of the options vesting monthly over the 36-month period thereafter, subject to the executive’s continued employment through each vesting date. +(6) The RSUs are subject to a four-year vesting schedule, with 25% of the RSUs vesting on the first anniversary of the date of grant and 1/48th of the RSUs vesting monthly over the 36-month period thereafter, subject to the executive’s continued employment through each vesting date. +(7) The stock options are subject to a four-year vesting schedule, with 25% of the options vesting on January 1, 2025 and 1/48th of the options vesting monthly over the 36-month period thereafter, subject to the executive’s continued employment through each vesting date. +(8) The RSUs are subject to a four-year vesting schedule, with 25% of the RSUs vesting on December 9, 2025 and 1/48th of the RSUs vesting monthly over the 36-month period thereafter, subject to the executive’s continued employment through each vesting date. +61 +Table of Contents +Legacy Deep Fission’s 2025 Equity Incentive Plan (Pre-Merger) and Outstanding Awards Thereunder +Pursuant to the Merger Agreement and upon the closing of the Merger, we assumed the options issued pursuant to the Pre-Merger 2025 Plan (the “Assumed Options”). The exercise price per share of each Assumed Option is equal to the exercise price of the option immediately prior to the Effective Time (rounded up to the nearest whole cent). Each Assumed Option shall be subject to the terms and conditions of the Pre-Merger 2025 Plan until such outstanding options are exercised or until they terminate or expire by their terms. No further awards shall be made under the Pre-Merger 2025 Plan, and Deep Fission’s board or a committee thereof has succeeded to the authority and responsibility of Legacy Deep Fission’s board of directors or any committee thereof with respect to each Assumed Option. +Our 2025 Equity Incentive Plan (Post-Merger) +Pursuant to the Merger Agreement and immediately prior to the closing of the Merger, we adopted the 2025 Plan, which provides for the issuance of incentive awards consisting of stock options, restricted stock awards, RSUs, stock appreciation rights, performance awards, cash awards and stock bonus awards. We have initially reserved 9,500,884 shares of the Company’s common stock for future issuances of incentive awards under the 2025 Plan at the discretion of our Board to officers, employees, consultants and directors. The number of shares reserved for issuance under our 2025 Plan will increase automatically on January 1 of each calendar year for a period of up to nine years, beginning on January 1, 2027 and continuing through and including January 1, 2035, in an amount equal to the lesser of (i) 5% of the shares of Common Stock outstanding on the last day of the immediately preceding calendar year, and (ii) such lesser amount as determined by the board of directors in its discretion. +Our 2025 Employee Stock Purchase Plan +Pursuant to the Merger and immediately prior to the closing of the Merger, we adopted our 2025 Employee Stock Purchase Plan (the “2025 ESPP”), which allows for eligible U.S. employees to purchase our common shares in a manner that may qualify for favorable tax treatment under Section 423 of the Code. The 2025 ESPP will also permit the grant of purchase rights that do not qualify for such favorable tax treatment in order to allow deviations necessary to permit participation by eligible employees who are foreign nationals or employed outside of the U.S. while complying with applicable foreign laws. We have initially reserved 1,000,000 shares of common stock for issuance under the 2025 ESPP. Shares issuable under the 2025 ESPP may be shares of authorized but unissued or reacquired common stock, including shares purchased by the Company on the open market. The number of shares of our common stock reserved for issuance under the 2025 ESPP will increase automatically on January 1 of each calendar year for a period of up to nine years, beginning on January 1, 2027 and continuing through and including January 1, 2035, in an amount equal to the lesser of (i) 1% of the total number of shares of our common stock outstanding on the last day of the immediately preceding calendar year, (ii) 2,000,000 shares and (iii) such lesser amount as determined by the board of directors in its discretion. As of the date hereof, no shares of our common stock have been purchased under the 2025 ESPP. +ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +The following table sets forth certain information with respect to the beneficial ownership of our common stock as of March 31, 2026 by: +● each of our named executive officers; +● each of our directors; +● all of our current directors and executive officers as a group; and +● each person, or group of affiliated persons, who beneficially own more than 5% of our common stock. +We have determined beneficial ownership in accordance with the rules of the SEC, and the information is not necessarily indicative of beneficial ownership for any other purpose. Except as indicated by the footnotes below, we believe, based on information furnished to us, that the persons and entities named in the table below have sole voting and sole investment power with respect to all shares of common stock that they beneficially owned, subject to applicable community property laws. +62 +Table of Contents +The percentage of shares beneficially owned is computed on the basis of 56,207,422 shares of common stock outstanding as of March 31, 2026. Shares of common stock that a person has the right to acquire within 60 days of March 31, 2026 are deemed outstanding for purposes of computing the percentage ownership of the person holding such rights, but are not deemed outstanding for purposes of computing the percentage ownership of any other person, except with respect to the percentage ownership of all directors and executive officers as a group. Unless otherwise indicated, the address of each beneficial owner in the table below is 2001 Addison St., Suite 300, Berkeley, California 94704. +​ +​ +​ +​ +​ +​ +​ +​ +Beneficial Ownership +Name of Beneficial Owner +​ ​ ​ +Shares +​ ​ ​ +Percentage +5% stockholders +​ +​ +​ +​ +​ +Entities affiliated with 8VC (1) +4,666,630 +8.30 +% +Mark Tompkins +3,158,333 +5.62 +% +EE Holdings Limited (2) +3,066,667 +5.46 +% +Directors and named executive officers +​ +​ +​ +Jonathan Angell (3) +​ +424,517 +​ +0.76 +% +Michael Brasel (4) +​ +51,964 +​ +0.09 +% +Thomas S. Glanville +​ +— +​ +— +% +Blake Janover +​ +— +​ +— +% +Elizabeth Muller (5) +10,254,275 +18.24 +% +Richard Muller (6) +5,588,746 +9.94 +% +Leslie Goldman Tepper (7) +100,000 +0.18 +% +Directors and executive officers as a group (10 persons) +16,610,037 +29.55 +% +* Represents beneficial ownership of less than one percent of the outstanding shares of common stock. +(1) +Consists of (i) 65,319 shares of common stock held by 8VC Entrepreneurs Fund V, L.P. (“8VC Entrepreneurs”) and (ii) 4,601,311 shares of common stock held by 8VC Fund V, L.P. (“8VC” and, together with 8VC Entrepreneurs, the “8VC Entities”). 8VC GP V, LLC (“8VC GP V”), as general partner of each of the 8VC Entities, has sole voting and dispositive power with respect to the securities held by the 8VC Entities. Joe Lonsdale, in his capacity as the managing member of 8VC GP V, has sole voting and dispositive power with respect to the shares held by the 8VC Entities. Mr. Lonsdale and 8VC GP V disclaim beneficial ownership of the shares held by the 8VC Entities. The address of the principal business and office of each of the 8VC Entities is 907 South Congress Avenue, Austin, TX 78704. +(2) +The address for EE Holdings Limited is 3rd Floor, 44 Esplanade, St. Helier, Jersey, JE4 9WG. +(3) +Consists of (i) 324,517 shares of common stock owned by Mr. Angell and (ii) 100,000 shares of common stock issuable upon vesting of RSUs under the 2025 EIP within 60 days of March 31, 2026. +(4) +Consists of 51,964 shares of common stock owned by Mr. Brasel. +(5) +Consists of (i) 5,196,423 shares of common stock owned by Ms. Muller and (ii) 5,057,852 shares of common stock held by the Muller Family Trust (the “Muller Trust”). In her capacity as trustee of the Muller Trust, Ms. Muller controls the right to vote and dispose of the shares held by the Muller Trust and accordingly, may be deemed to beneficially own the shares held by the Muller Trust. Ms. Muller expressly disclaims beneficial ownership of all securities held by the Muller Trust except to the extent of her pecuniary interest therein. +(6) +Consists of (i) 5,196,423 shares of common stock and 365,266 options of common stock owned by Mr. Muller and (ii) 27,057 options of common stock issuable upon vesting within 60 days of March 31, 2026. +(7) +Consists of 100,000 shares of common stock issuable upon vesting of RSUs under the 2025 EIP within 60 days of March 31, 2026. +63 +Table of Contents +Equity Compensation Plan Information +The following table summarizes our equity compensation plan information as of December 31, 2025. Information is included for equity compensation plans approved by our stockholders. We do not have any equity compensation plans not approved by our stockholders. +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +​ +​ ​ ​ +​ +​ +​ ​ ​ +Number of +​ +​ +​ +​ +​ +​ +​ +Securities +​ +​ +​ +​ +​ +​ +​ +Remaining +​ +​ +Number of +​ +​ +​ +​ +Available for +​ +​ +Securities to +​ +​ +​ +​ +Future +​ +​ +be Issued +​ +​ +​ +​ +Issuance Under Equity +​ +​ +Upon +​ +Weighted +​ +Compensation +​ +​ +Exercise of +​ +Average +​ +Plans +​ +​ +Outstanding +​ +Exercise +​ +(Excluding +​ +​ +Options, +​ +Price of +​ +Securities +​ +​ +Warrants and +​ +Outstanding +​ +Reflected in +​ +​ +Rights +​ +Options +​ +Column (a)) +Plan Category +​ ​ ​ +(a) +​ ​ ​ +(b) +​ ​ ​ +(c) +Equity compensation plans approved by security holders (1) +3,619,410 +​ +$ +3.03 +8,342,536 +Equity compensation plans not approved by security holders +— +​ +— +— +Total +3,619,410 +​ +$ +3.03 +8,342,536 +(1) Includes 1,461,062 shares of common stock that may be issued under the Pre-Merger 2025 Plan, 9,500,884 shares of common stock that may be issued under the 2025 Plan, and 1,000,000 shares of common stock that may be issued under the 2025 ESPP. +ITEM 13. Certain Relationships and Related Transactions, and Director Independence +Related Party Transactions +Other than compensation arrangements for our directors and executive officers, which are described elsewhere in this Annual Report, below is a description of transactions since January 1, 2024 to which we, Legacy Deep Fission, and Surfside were a party or will be a party, in which: +· +The amounts involved exceeded or will exceed $120,000; and +· +Any of our directors, executive officers or holders of more than 5% of our capital stock, or any member of the immediate family of, or person sharing the household with, the foregoing persons, had or will have a direct or indirect material interest. +Other than as described below, there have not been transactions to which we, Legacy Deep Fission or Surfside have been a party other than compensation arrangements, which are described under Item 11 , “ Executive Compensation ”. +Legacy Deep Fission +Simple Agreement for Future Equity +In January 2024, Legacy Deep Fission issued to 8VC Fund V, L.P. and 8VC Entrepreneurs Fund V, L.P. SAFE Notes of $493,000 and $7,000, respectively. In May 2024, Legacy Deep Fission issued to 8VC Fund V, L.P. and 8VC Entrepreneurs Fund V, L.P. SAFE Notes of $986,000 and $14,000, respectively. In connection with the Merger, 8VC Fund V, L.P.’s and 8VC Entrepreneurs Fund V, L.P.’s SAFE Notes converted into 4,601,314 and 65,319 shares of common stock, respectively. As a result, 8VC Fund V, L.P. and 8VC Entrepreneurs Fund V, L.P. collectively hold 8.30% of our common stock as of March 31, 2026. +Deep Fission +Pre-Merger Indemnification Agreements +On the Merger Closing Date, we entered into indemnification agreements with our former executive officers and directors, pursuant to which we agreed to indemnify such former executive officers and directors for actions taken by them in their official capacities relating to the consideration, approval and consummation of the Merger and certain related transactions. +64 +Table of Contents +2025 Registration Rights Agreement +In connection with the Merger and the closing of the Private Placement, we entered into a registration rights agreement (the “2025 Registration Rights Agreement”) with each of the persons or entities who have purchased and/or are holding Registrable Shares (as defined below), as applicable, including Elizabeth Muller, President and Chief Executive Officer of the Company, Richard Muller, Chief Technology Officer of the Company, Michael Brasel, Chief Operating Officer of the Company, Mark Peres, Chief Nuclear Officer of the Company, William (Mark) Schmitz, Chief Financial Officer of the Company, Jonathon Angell, a director of the Company, Leslie Goldman Tepper, a director of the Company, Mark Tompkins, former director of Surfside and 5% or greater holder of our Company, Ian Jacobs, former director of Surfside, Malcolm Thompson, former Chief Operating Officer, 8VC Fund V, L.P and 8VC Entrepreneurs Fund V, L., collectively a 5% or greater holder of our Company, and EE Holdings Limited, a 5% or greater holder of our Company, pursuant to which we have agreed that promptly, but no later than 45 calendar days after the date of filing the Current Report on Form 8-K relating to the closing of the Merger, we will file, subject to customary exceptions, a registration statement, and cause such registration statement to become effective and remain effective, current and up-to-date for the applicable time period, with the SEC, covering sale, transfer or disposition of (i) the shares of our common stock issued in the Private Placement; (ii) the shares of our common stock issuable upon exercise of the warrants issued to each of the U.S. registered broker-dealers acting as placement agents in connection with the Private Placement; (iii) the shares of our common stock issued in exchange for all of the equity securities of Legacy Deep Fission that were outstanding immediately prior to the Closing; (iv) the Retained Pre-Merger Shares; and (v) the Advisor Shares ((i)-(v) collectively, the “Registrable Shares”), subject to the prior receipt by the Company of the selling stockholder information regarding the holders of the Registrable Shares required to be included in the registration statement under applicable SEC rules and regulations. +2026 Registration Rights Agreement +In connection with the closing of the 2026 Private Placement (as defined below), we entered into a registration rights agreement (the “2026 Registration Rights Agreement”) with each of the persons or entities who have purchased and/or are holding 2026 Registrable Shares (as defined below), as applicable, including Mark Tompkins, former director of Surfside and 5% or greater holder of our Company, Ian Jacobs, former director of Surfside, and EE Holdings Limited, a 5% or greater holder of our Company, pursuant to which we have agreed that promptly, but no later than 30 calendar days after the date of closing of the 2026 Private Placement, we will file, subject to customary exceptions, a registration statement, and cause such registration statement to become effective and remain effective, current and up-to-date for the applicable time period, with the SEC, covering sale, transfer or disposition of the shares of our common stock issued in the 2026 Private Placement and the shares of our common stock issuable upon exercise of the warrants issued to each of the U.S. registered broker-dealers acting as placement agents in connection with the 2026 Private Placement (collectively, the “2026 Registrable Shares”), subject to the prior receipt by the Company of the selling stockholder information regarding the holders of the 2026 Registrable Shares required to be included in the registration statement under applicable SEC rules and regulations. +Post-Merger Indemnification Agreements +On the Merger Closing Date, we entered into indemnification agreements with each of our current directors and executive officers. The indemnification agreements, together with our amended and restated certificate of incorporation and our amended and restated bylaws, require us to indemnify our directors and executive officers to the fullest extent not prohibited by Delaware General Corporate Law. Subject to very limited exceptions, our amended and restated bylaws also require us to advance expenses incurred by our directors and officers. +Lock-Up Agreements +In connection with the execution of the Merger Agreement, certain Legacy Deep Fission stockholders entered into lockup agreements with us, including Elizabeth Muller, President and Chief Executive Officer of the Company, Richard Muller, Chief Technology Officer of the Company, Michael Brasel, Chief Operating Officer of the Company, Mark Peres, Chief Nuclear Officer of the Company, William (Mark) Schmitz, Chief Financial Officer of the Company, Jonathon Angell, a director of the Company, and 8VC Fund V, L.P. and 8VC Entrepreneurs Fund V, L., collectively a 5% or greater holder of our Company, pursuant to which such stockholders agreed, subject to certain customary exceptions, to not transfer any shares of Common Stock held by them prior to the date that is the earliest of (x) six months following the listing of the Company’s common stock on a national securities exchange, and (y) the date following the Merger Closing Date on which the Company consummates a liquidation, merger, tender offer, or similar transaction resulting in all of its stockholders having the right to exchange their shares of common stock for cash, securities, or other property. +65 +Table of Contents +Participation in the Private Placement +On September 5, 2025, we and certain accredited and institutional investors entered into the Subscription Agreements pursuant to, and on the terms and subject to the conditions of which, such investors collectively subscribed for and agreed to purchase in the Private Placement an aggregate of 10,000,000 shares of common stock at a purchase price of $3.00 per share, resulting in an aggregate purchase price of $30,000,000. +Mark Tompkins, former director of Surfside and 5% or greater holder of our Company, subscribed to purchase 1,083,333 shares of common stock in the Private Placement for an aggregate purchase price of $3,250,000. Ian Jacobs, former director of Surfside, subscribed to purchase 50,000 shares of common stock in the Private Placement for an aggregate purchase price of $150,000. In addition, EE Holdings Limited, a 5% or greater holder of our Company, subscribed to purchase 2,866,667 shares of common stock in the Private Placement for an aggregate purchase price of $8,600,000. +Participation in the 2026 Private Placement +On February 5, 2026, we and certain accredited and institutional investors entered into subscription agreements that pursuant to, and on the terms and subject to the conditions of which, such investors collectively subscribed for and agreed to purchase an aggregate of 5,333,333 shares of common stock at a purchase price of $15.00 per share, resulting in an aggregate purchase price of $80,000,000 (the “2026 Private Placement”). +Mark Tompkins, former director of Surfside and 5% or greater holder of our Company, subscribed to purchase 200,000 shares of common stock in the 2026 Private Placement for an aggregate purchase price of $3,000,000. Ian Jacobs, a former director of Surfside, subscribed to purchase 10,000 shares of common stock in the 2026 Private Placement for an aggregate purchase price of $150,000. In addition, EE Holdings Limited, a 5% or greater holder of our Company, subscribed to purchase 200,000 shares of common stock in the 2026 Private Placement for an aggregate purchase price of $3,000,000. +Related Party Transactions Policy +We have adopted a written Related Person Transaction Policy to ensure that transactions between the Company and any related person are identified, reviewed, and approved or ratified in accordance with applicable securities laws, including Item 404 of Regulation S-K. +Under this policy, a “Related Person” includes any of our directors, director nominees, executive officers, beneficial owners of more than 5% of any class of our voting securities, their immediate family members, and any entity in which any such person has a direct or indirect material interest or controls 10% or more of the entity. +A “Related Person Transaction” is any transaction, arrangement, or relationship in which the Company is or will be a participant, the amount involved exceeds $40,000, and a Related Person has or will have a direct or indirect material interest. As a smaller reporting company, we use a $40,000 threshold because it reflects the “lesser of” standard under Item 404(d) of Regulation S-K, which for the Company is approximately 1% of the average total assets for the last two completed fiscal years. +The policy excludes transactions involving compensation approved by the board of directors or its committees, transactions broadly available to employees on similar terms, and situations where a Related Person’s interest arises solely from service as a director of another entity transacting with the Company. +Each director and executive officer must complete an annual questionnaire to assist in identifying potential Related Person Transactions, and all Related Persons are required to promptly notify the Company of any proposed transaction that may require review. +Before we enter into any Related Person Transaction, the related person (or an appropriate officer) must provide the Audit Committee with information regarding the proposed transaction, including its terms, purpose, and business rationale. The Audit Committee reviews each proposed transaction and considers, among other factors, whether the terms are fair to the Company, whether they are comparable to those available with unrelated third parties, the business purpose of the transaction, the materiality of the Related Person’s interest, the overall benefit to the Company, and whether the transaction could impair the independence of any director. +66 +Table of Contents +A Related Person Transaction will be approved only if the Audit Committee determines that it is fair to the Company and in the best interests of our stockholders. If the Company inadvertently enters into a Related Person Transaction without prior approval, the transaction must be submitted to the Audit Committee for prompt review and determination whether to ratify, amend, or terminate the arrangement. +All Related Person Transactions approved in accordance with this policy will be disclosed as required under Item 404 of Regulation S-K. The Audit Committee administers the policy and may adopt additional procedures or engage advisors as necessary. +Director Independence +Although our common stock is not listed on a national securities exchange, we evaluated the independence of our directors using the independence standards of the Nasdaq Stock Market (“Nasdaq”), which we follow voluntarily. +Following this review, our board of directors determined that: +● Leslie Goldman Tepper, Blake E. Janover and Thomas S. Glanville are independent under Nasdaq independence standards. +● Elizabeth A. Muller is not independent, due to her role as President and Chief Executive Officer. +● Jonathon Angell is not independent under Nasdaq independence standards due to his prior service as an officer of the Company, although he qualifies as a non-employee director for purposes of Rule 16b-3. +In reaching these determinations, the board of directors considered information regarding each director’s professional and personal relationships, prior interactions with the Company, and beneficial ownership of Company securities. +ITEM 14. Principal Accounting Fees and Services +The following table sets forth the fees billed for the fiscal year ended December 31, 2024 by our former independent auditor, dbbmckennon, and for the fiscal years ended December 31, 2025 and 2024 by our current independent auditors, Grant Thornton, LLP. On February 27, 2026, Grant Thornton, LLP was appointed as the Company’s independent registered public accounting firm to audit the Company’s consolidated financial statements for the fiscal years ended December 31, 2024 and 2025. +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +Year Ended December 31, +​ +​ ​ ​ +2025 +​ ​ ​ +2024 +Fees Billed (1) +​ +Grant Thornton +​ +dbbmckennon +Audit fees +​ +$ +274,828 +​ +$ +92,624 +Audit-related fees +​ +​ +— +​ +​ +— +Tax fees +​ +​ +— +​ +​ +— +All other fees +​ +​ +— +​ +​ +— +Total fees +​ +$ +274,828 +​ +$ +92,624 +​ +(1) Audit fees consist of fees for professional services rendered for the audit of our year-end financial statements, review of quarterly financial statements, assistance with registrations statements filed with the SEC, and services that are normally provided by the independent registered public accounting firm in connection with statutory and regulatory filings or engagements. +​ +67 +Table of Contents +Audit-Related Fees +Audit-related fees consist of fees billed for assurance and related services that are reasonably related to performance of the audit or review of our financial statements and are not reported under “Audit Fees.” These services include attest services that are not required by statute or regulation and consultations concerning financial accounting and reporting standards. We did not pay any fees for consultations concerning financial accounting and reporting standards for the fiscal years ended December 31, 2025 and 2024. +Tax Fees +Tax fees include professional services rendered in connection with tax compliance and preparation of tax returns. We did not pay any fees for tax related fees for the fiscal years ended December 31, 2025 and 2024. +All Other Fees +All other fees relate to professional services are not included in the categories above. We did not pay any other fees for the fiscal years ended December 31, 2025 and 2024. +Procedures For Board of Directors Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditor +Our audit committee was formed on November 7, 2025, after the consummation of the Merger. As a result, the audit committee did not pre-approve all of the foregoing services, although any services rendered prior to the formation of our audit committee were approved by our board of directors. The board of directors adopted a pre-approval policy that provides guidelines for the audit, audit-related, tax, and other permissible non-audit services that may be provided by the independent auditors. The policy identifies the guiding principles that must be considered by the audit committee in approving services to ensure that the auditors’ independence is not impaired. Under the policy, the audit committee annually, and from time to time, pre-approves the audit engagement fees and terms of all audit and permitted non-audit services to be provided by the independent auditors. The audit committee has determined that all services performed by dbbmckennon were compatible with maintaining the independence of the firms. +​ +​ +68 +Table of Contents +PART IV +ITEM 15. Exhibits and Financial Statements Schedules +(a) The following documents are filed as part of this Annual Report: +(1) Financial Statements +​ +​ ​ ​ +Page +Report of Independent Registered Public Accounting Firm (PCAOB ID Number 248) +​ +F-2 +Balance Sheets +​ +F-3 +Statements of Operations +​ +F-4 +Statements of Stockholders’ Equity (Deficit) +​ +F-5 +Statements of Cash Flows +​ +F-6 +Notes to Financial Statements +​ +F-7 +​ +(2) Financial Statement Schedules +All financial statement schedules are omitted because they are not applicable or the amounts are immaterial and not required, or the required information is presented in the financial statements and notes thereto beginning on page F-1 of this Annual Report. +(3) Exhibits +We hereby file as part of this Annual Report the exhibits listed in the attached Exhibit Index. Exhibits that are incorporated herein by reference can be inspected on the SEC website at www.sec.gov. The information contained on, or accessible through, the SEC’s website is not incorporated by reference into this Annual Report, and the references to the SEC’s website are intended to be inactive textual references only. +ITEM 16. Form 10-K Summary. +​ +Not applicable. +​ +​ +69 +Table of Contents +DEEP FISSION, INC. +INDEX TO CONSOLIDATED FINANCIAL STATEMENTS +​ +​ +​ +​ +​ ​ ​ +Page +Report of Independent Registered Public Accounting Firm (PCAOB ID 248 ) +​ +F-2 +Consolidated Balance Sheets +​ +F-3 +Consolidated Statements of Operations +​ +F-4 +Consolidated Statements of Stockholders’ Equity (Deficit) +​ +F-5 +Consolidated Statements of Cash Flows +​ +F-6 +Notes to Consolidated Financial Statements +​ +F-7 +​ +​ +​ +​ +F-1 +Table of Contents +REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +Board of Directors and Stockholders +Deep Fission, Inc. +Opinion on the financial statements +We have audited the accompanying consolidated balance sheets of Deep Fission, Inc. (a Delaware corporation) and subsidiary (the “Company”) as of December 31, 2025 and 2024, the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for each of the two years in the period ended December 31, 2025, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America. +Restatement of prior period financial statements +As discussed in Note 2, the 2024 consolidated financial statements have been restated to correct misstatements. +Going concern +The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company incurred a net loss of $61.0 million during the year ended December 31, 2025, and as of that date, had an accumulated deficit of $66.7 million. These conditions, along with other matters as set forth in Note 1, raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. +Basis for opinion +These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. +Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. +/s/ GRANT THORNTON LLP +We have served as the Company’s auditor since 2026. +Dallas, Texas +April 15, 2026 +​ +​ +F-2 +Table of Contents +Item 1. Consolidated Financial Statements +DEEP FISSION, INC. +Consolidated Balance Sheets +​ +​ +​ +​ +​ +​ +​ +​ +​ +December 31, +​ +​ ​ ​ +2025 +​ ​ ​ +2024 +​ +​ +​ +​ +​ +(As Restated) +ASSETS +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Current assets +​ +​ +​ +​ +Cash and cash equivalents +​ +$ +23,719,422 +​ +$ +6,728,895 +Prepaid expenses and other current assets +​ +713,154 +​ +32,113 +SAFE note subscription receivable +​ +— +​ +100,000 +Total current assets +​ +24,432,576 +​ +6,861,008 +​ +​ +​ +​ +​ +​ +​ +Property and equipment, net +​ +37,102 +​ +1,993 +Long term prepaid expenses +​ +​ +221,407 +​ +​ +— +​ +​ +​ +​ +​ +​ +​ +Total assets +​ +​ +24,691,085 +​ +$ +6,863,001 +​ +​ +​ +​ +​ +​ +​ +LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Current liabilities +​ +​ +​ +​ +Accounts payable +​ +​ +538,270 +​ +$ +94,797 +Accrued expenses +​ +185,164 +​ +31,777 +Accrued compensation +​ +25,031 +​ +34,863 +RSU liability award +​ +​ +1,655,507 +​ +​ +— +Total current liabilities +​ +2,403,972 +​ +161,437 +​ +​ +​ +​ +​ +​ +​ +SAFE notes +​ +— +​ +10,783,385 +Total liabilities +​ +2,403,972 +​ +10,944,822 +​ +​ +​ +​ +​ +​ +​ +Commitments and contingencies (Note 6) +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Stockholders’ equity (deficit) +​ +​ +​ +​ +Common stock, par value $ 0.0001 per share, 300,000,000 shares authorized, 51,099,089 and 16,320,839 shares issued and outstanding as of December 31, 2025 and 2024, respectively +​ +5,110 +​ +1,632 +Additional paid-in capital +​ +89,009,102 +​ +1,640,692 +​ +​ +​ +​ +​ +​ +​ +Accumulated deficit +​ +( 66,727,099 ) +​ +( 5,724,145 ) +​ +​ +​ +​ +​ +​ +​ +Total stockholders’ equity (deficit) +​ +22,287,113 +​ +( 4,081,821 ) +​ +​ +​ +​ +​ +​ +​ +Total liabilities and stockholders’ equity (deficit) +​ +​ +24,691,085 +​ +$ +6,863,001 +​ +The accompanying notes are an integral part of these consolidated financial statements. +​ +F-3 +Table of Contents +DEEP FISSION, INC. +Consolidated Statements of Operations +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +For the Years Ended December 31, +​ +​ ​ ​ +2025 +​ ​ ​ +2024 +​ +​ +​ +​ +​ +(As Restated) +Operating expenses +​ +​ +​ +​ +General and administrative expenses +​ +$ +14,766,607 +​ +$ +3,441,820 +Research and development expenses +​ +6,617,562 +​ +661,183 +Operating expenses +​ +21,384,169 +​ +4,103,003 +Operating loss +​ +( 21,384,169 ) +​ +( 4,103,003 ) +​ +​ +​ +​ +​ +​ +​ +Other non-operating income (expense) +​ +​ +​ +​ +Interest income +​ +210,987 +​ +20,331 +Change in fair value of SAFE Notes +​ +( 39,834,049 ) +​ +( 1,631,446 ) +Other income +​ +4,277 +​ +749 +Total non-operating expense +​ +( 39,618,785 ) +​ +( 1,610,366 ) +​ +​ +​ +​ +​ +​ +​ +Net loss +​ +$ +( 61,002,954 ) +​ +$ +( 5,713,369 ) +​ +​ +​ +​ +​ +​ +​ +Basic and diluted weighted average shares outstanding of common stock +​ +25,332,277 +​ +10,037,251 +​ +​ +​ +​ +​ +​ +​ +Basic and diluted net loss per share of common stock +​ +$ +( 2.41 ) +​ +$ +( 0.57 ) +​ +The accompanying notes are an integral part of these consolidated financial statements. +​ +F-4 +Table of Contents +DEEP FISSION, INC. +Consolidated Statements of Stockholders’ Equity (Deficit) +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Additional +​ +​ +​ +​ +Total +​ +​ +Common Stock +​ +Paid-In +​ +Accumulated +​ +Stockholders’ +​ +​ ​ ​ +Shares +​ ​ ​ +Amount +​ ​ ​ +Capital +​ ​ ​ +Deficit +​ ​ ​ +Equity (Deficit) +Balance at December 31, 2023 (As Restated) +​ +7,434,955 +​ +$ +743 +​ +$ +470,295 +​ +$ +( 10,776 ) +​ +$ +460,262 +Stock-based compensation - restricted stock +​ +8,885,884 +​ +​ +889 +​ +​ +( 889 ) +​ +​ +— +​ +​ +— +Issuance of restricted stock awards +​ +— +​ +​ +— +​ +​ +1,171,286 +​ +​ +— +​ +​ +1,171,286 +Net loss +​ +— +​ +​ +— +​ +​ +— +​ +​ +( 5,713,369 ) +​ +​ +( 5,713,369 ) +Balance at December 31, 2024 (As Restated) +​ ​ ​ +16,320,839 +​ ​ ​ +​ +1,632 +​ ​ ​ +​ +1,640,692 +​ ​ ​ +​ +( 5,724,145 ) +​ ​ ​ +​ +( 4,081,821 ) +Stock-based compensation +​ +— +​ +​ +— +​ +​ +6,769,296 +​ +​ +— +​ +​ +6,769,296 +Issuance of restricted stock awards +​ +3,010,401 +​ +​ +301 +​ +​ +797 +​ +​ +— +​ +​ +1,098 +Issuance of common stock upon conversion of SAFE Notes +​ +19,601,182 +​ +​ +1,960 +​ +​ +53,509,274 +​ +​ +— +​ +​ +53,511,234 +Issuance of common stock to PIPE investors +​ +10,000,000 +​ +​ +1,000 +​ +​ +29,999,000 +​ +​ +— +​ +​ +30,000,000 +Offering costs +​ +— +​ +​ +— +​ +​ +( 2,909,740 ) +​ +​ +— +​ +​ +( 2,909,740 ) +Issuance of placement agent warrants (equity component) +​ +— +​ +​ +— +​ +​ +948,639 +​ +​ +— +​ +​ +948,639 +Issuance costs – placement agent warrants (non-cash) +​ +— +​ +​ +— +​ +​ +( 948,639 ) +​ +​ +— +​ +​ +( 948,639 ) +Issuance of common stock to new shareholders upon merger +​ +2,166,667 +​ +​ +217 +​ +​ +( 217 ) +​ +​ +— +​ +​ +— +Net loss +​ +— +​ +​ +— +​ +​ +— +​ +​ +( 61,002,954 ) +​ +​ +( 61,002,954 ) +Balance at December 31, 2025 +​ +51,099,089 +​ +$ +5,110 +​ +$ +89,009,102 +​ +$ +( 66,727,099 ) +​ +$ +22,287,113 +​ +The accompanying notes are an integral part of these consolidated financial statements. +​ +​ +F-5 +Table of Contents +DEEP FISSION, INC. +Consolidated Statements of Cash Flows +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +For the Year Ended December 31, +​ +​ ​ ​ +2025 +​ ​ ​ +2024 +​ +​ +​ +​ +​ +(As Restated) +Cash flows from operating activities: +​ +​ +​ +​ +​ +​ +Net loss +$ +( 61,002,954 ) +$ +( 5,713,369 ) +Adjustments to reconcile net loss to net cash used in operating activities: +​ +​ +​ +​ +​ +​ +Depreciation +​ +​ +8,327 +​ +​ +664 +Change in fair value of SAFE notes +​ +​ +39,834,049 +​ +​ +1,631,446 +Stock-based compensation +​ +​ +8,424,803 +​ +​ +1,171,287 +Changes in operating assets and liabilities: +​ +​ +​ +​ +​ +​ +Prepaid expenses +​ +​ +( 902,448 ) +​ +​ +( 32,113 ) +Accounts payable +​ +​ +443,473 +​ +​ +75,803 +Accrued expenses +​ +​ +153,387 +​ +​ +31,777 +Accrued compensation +​ +​ +( 9,832 ) +​ +​ +34,863 +Net cash used in operating activities +​ +​ +( 13,051,195 ) +​ +​ +( 2,799,642 ) +​ +​ +​ +​ +​ +​ +​ +Cash flows from investing activities: +​ +​ +​ +​ +​ +​ +Purchases of property and equipment +​ +​ +( 43,436 ) +​ +​ +( 2,657 ) +Net cash used in investing activities +​ +​ +( 43,436 ) +​ +​ +( 2,657 ) +​ +​ +​ +​ +​ +​ +​ +Cash flows from financing activities: +​ +​ +​ +​ +​ +​ +Proceeds from exercise of restricted stock awards +​ +​ +1,098 +​ +​ +5,392 +Proceeds from SAFE notes +​ +​ +2,993,800 +​ +​ +8,590,000 +Proceeds from private placement +​ +​ +30,000,000 +​ +​ +— +Offering costs paid +​ +​ +( 2,909,740 ) +​ +​ +— +Payment of related party loan +​ +​ +— +​ +​ +( 10,000 ) +Net cash provided by financing activities +​ +​ +30,085,158 +​ +​ +8,585,392 +​ +​ +​ +​ +​ +​ +​ +Net increase in cash and cash equivalents +​ +​ +16,990,527 +​ +​ +5,783,093 +​ +​ +​ +​ +​ +​ +​ +Cash and cash equivalents, beginning of the year +​ +​ +6,728,895 +​ +​ +945,802 +Cash and cash equivalents, end of the year +$ +23,719,422 +$ +6,728,895 +​ +​ +​ +​ +​ +​ +​ +Supplemental cash flow information: +​ +​ +​ +​ +​ +​ +Subscription of SAFE notes +​ +$ +— +​ +$ +110,000 +Conversion of SAFE Notes into common stock +​ +$ +53,511,234 +​ +$ +— +​ +The accompanying notes are an integral part of these consolidated financial statements. +​ +​ +F-6 +Table of Contents +Note 1: Description of Business and Basis of Presentation +Organization +Deep Fission, Inc. (“Deep Fission” or the “Company”) was incorporated on July 17, 2023, under the laws of the state of Delaware. +Surfside Acquisition Inc. (“Surfside”) was incorporated in the State of Delaware on December 10, 2021. Prior to the Merger (as defined below), Surfside was a “shell company” (as defined in Rule 12b-2 under Securities Exchange Act of 1934, as amended (the “Exchange Act”)). On September 5, 2025, Surfside completed a merger (the “Merger”) with Deep Fission Nuclear, Inc. (formerly known as Deep Fission, Inc.), a private Delaware corporation (“Legacy Deep Fission”), pursuant to an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”), under which a wholly owned subsidiary of Surfside merged with and into Legacy Deep Fission, with Legacy Deep Fission continuing as the surviving corporation and becoming a wholly owned subsidiary of Surfside. In connection with the transaction, Surfside changed its name to Deep Fission, Inc. For financial reporting purposes, the transaction was treated as a recapitalization and reverse acquisition, with Legacy Deep Fission considered the accounting acquirer. See below, Recapitalization , for the accounting of the Merger. +Following the consummation of the Merger, the business previously conducted by Legacy Deep Fission became the business conducted by the Company. The Company’s headquarters are located in Berkeley, California. +Operations +The Company is a nuclear energy technology company developing a small modular reactor based on established pressurized water reactor technology, with novel emplacement in deep boreholes approximately one mile below the Earth’s surface. The Company is currently participating in the U.S. Department of Energy (“DOE”) Reactor Pilot Program, and we expect to demonstrate our system as part of the DOE Reactor Pilot Program. +Deep Fission’s current activities include reactor development, geological evaluation, large-diameter borehole drilling research and development, geothermal testing, safety analysis, regulatory engagement, site development, and commercialization planning. +Basis of Presentation +The accompanying consolidated financial statements for the years ended December 31, 2025 and 2024 have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). The consolidated financial statements include the results of the Company and its wholly owned or controlled subsidiary. All intercompany transactions and balances have been eliminated during consolidation. +For accounting purposes, the Merger was treated as a reverse recapitalization outside the scope of ASC 805 (see Organization above and Recapitalization below), with Legacy Deep Fission considered the accounting acquirer and the Company (formerly Surfside Acquisition Inc.) considered the legal acquirer. Accordingly, these consolidated financial statements represent a continuation of the financial statements of Legacy Deep Fission, with the Merger reflected as the equivalent of Legacy Deep Fission issuing shares for the net assets of Surfside, accompanied by a recapitalization. +All periods prior to the Merger reflect the historical financial position, results of operations, and cash flows of Legacy Deep Fission. The consolidated financial statements are presented in the name of the legal parent; however, they represent the historical operations of Legacy Deep Fission. +The number of shares and corresponding capital amounts and earnings per share, where applicable, have been retroactively restated to reflect the Common Share Conversion Ratio established in connection with the Merger. No goodwill or other intangible assets were recorded as a result of the transaction. +F-7 +Table of Contents +Liquidity and Going Concern +As of December 31, 2025 and 2024, the Company’s cash and cash equivalents were $ 23,719,422 and $ 6,728,895 , respectively. The Company continues to incur significant operating losses. For the years ended December 31, 2025 and 2024, the Company had a net loss of $ 61,002,954 and $ 5,713,369 , respectively, and net cash used in operating activities of $ 13,051,195 and $ 2,799,642 , respectively. As of December 31, 2025 and 2024, the Company had accumulated deficits of $ 66,727,099 and $ 5,724,145 , respectively. Management expects that significant on-going operating expenditures will be necessary to successfully implement the Company’s business plan and develop and market its products and services. These circumstances raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that these financial statements are issued. Implementation of the Company’s plans and its ability to continue as a going concern will depend upon the Company’s ability to establish a source of revenue and raise additional capital to fund its operations. +The Company plans to access capital resources through possible public or private equity issuances, debt financings, corporate collaborations, and other means. The Company has historically been able to raise capital through equity and equity-linked instruments, such as Simple Agreements for Future Equity (“SAFE Notes”) and private placement equity issuances, although no assurance can be provided that it will continue to be successful in raising capital in the future. While the Company believes that it has a reasonable basis for its expectation that it will be able to raise additional funds, there is no assurance that the Company will be able to complete additional financing in a timely manner. +The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary if the Company is unable to continue as a going concern due to the inability to obtain adequate financing in the future. +Recapitalization +As described above, Legacy Deep Fission continued as the surviving corporation and became the Company’s wholly owned subsidiary following the Merger. The Merger was accounted for as a reverse recapitalization and Legacy Deep Fission was considered the accounting acquirer for financial reporting purposes. This determination was based on the facts that, immediately following the Merger: +● the assets of Legacy Deep Fission represented a significant majority of the assets of the combined company; +● Legacy Deep Fission stockholders have a majority of the voting power of the combined company; +● Legacy Deep Fission designated the entire governing body of the combined company; +● the executive officers of the combined company immediately after the closing of the Merger are the same individuals as those of Legacy Deep Fission immediately prior to the closing of the Merger; and +● Legacy Deep Fission’s operations comprise the ongoing operations of the combined company. +At the effective time of the Merger, each outstanding share of Legacy Deep Fission capital stock (after giving effect to the conversion of all SAFE Notes of Legacy Deep Fission into shares of Legacy Deep Fission common stock) was converted into the right to receive 17.32141 shares of the Company’s common stock, rounded to the nearest whole share (“Common Share Conversion Ratio”). Accordingly, all share and per share amounts for all periods presented in the accompanying consolidated financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect the Common Share Conversion Ratio. There was no effect on the number of shares of common stock or preferred stock authorized for issuance under the Company’s amended and restated certificate of incorporation or the par value of such securities. On September 5, 2025, we issued 85,000 shares of our common stock to an accredited investor (the “Advisor”) in consideration for services rendered in connection with the Merger. +F-8 +Table of Contents +On September 5, 2025, the Company issued an aggregate of 10,000,000 shares of its common stock at a purchase price of $ 3.00 per share in a private placement (the “Private Placement”) to certain accredited and institutional investors for aggregate gross consideration of $ 30.0 million. The Company also issued warrants issued to each of the U.S. registered broker-dealers acting as placement agents in connection with the Private Placement representing the right to acquire, on the terms set forth therein, 586,666 shares of its common stock. +​ +​ +​ +​ +Total Legacy Deep Fission shares outstanding prior to Merger +​ ​ ​ +38,538,922 +Shares issued to Surfside shareholders +2,166,667 +Shares issued to Advisor +85,000 +Shares issued to Private Placement +10,000,000 +Total shares outstanding immediately following the Merger +50,790,589 +​ +​ +Note 2: Restatement of Previously Issued Consolidated Financial Statements +In connection with the preparation of the Company’s consolidated financial statements as of and for the fiscal year ended December 31, 2025, the Company discovered errors relating to certain inputs and assumptions used in the valuation models for the Company’s SAFE Notes and stock-based compensation expense, which were used to record the fair value of the SAFE Notes and stock-based compensation expense for various equity agreements. The errors resulted in an overstatement of the fair value of SAFE Notes and an understatement of stock-based compensation expense. +As previously announced in the Company’s Current Report on Form 8-K filed with the SEC on April 9, 2026, on April 9, 2026, the Audit Committee of the Company’s board of directors, in consultation with management, concluded that the audited consolidated financial statements for the fiscal year ended December 31, 2024 and for the period from July 17, 2023 (inception) through December 31, 2023, and the unaudited condensed consolidated financial statements for the six month periods ended June 30, 2024 and 2025, and the three- and nine-month periods ended September 30, 2024 and 2025 of the Company could no longer be relied upon as a result of the misstatement. +Furthermore, the misstatement was evaluated under both rollover and iron curtain methods in accordance with ASC 250, and determined to be quantitatively material to certain previously issued financial statements of the Company and as a result, the Company has restated its consolidated financial statements for the periods presented herein. The restatement includes adjustments to SAFE notes, stock-based compensation expense, net loss, and net loss per share. +The misstatement had no material impact on reported cash flows during the period, as the valuations pertained to non-cash transactions. +Although management did not conduct a formal assessment of internal control over financial reporting in accordance with Section 215.02 of the SEC Division of Corporation Finance’s Regulation S-K Corporation Finance Interpretations, as a result of the misstatement and the related restatement, the Company identified material weaknesses in its internal control over financial reporting, which caused its management to conclude that the Company did not maintain effective internal control over financial reporting as of December 31, 2024 and 2025 due to lack of formal controls and standardized procedures related to financial reporting and historical equity accounting processes. +The impacts of the restatement are summarized below: +Consolidated Balance Sheet – As of January 1, 2024 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +As Previously Reported +​ ​ ​ +Adjustment +​ ​ ​ +As Restated +Liabilities +​ +​ +​ +​ +​ +​ +​ +​ +​ +SAFE Notes +​ +$ +2,047,000 +​ +$ +( 1,085,061 ) +​ +$ +961,939 +Total liabilities +​ +$ +2,075,994 +​ +$ +( 1,085,061 ) +​ +$ +990,933 +Total stockholders’ equity (deficit) +​ +$ +( 630,192 ) +​ +$ +1,085,061 +​ +$ +454,869 +​ +F-9 +Table of Contents +Consolidated Balance Sheet – As of December 31, 2024 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +As Previously Reported +​ ​ ​ +Adjustment +​ ​ ​ +As Restated +SAFE Notes subscription receivable +​ +$ +110,000 +​ +​ +(10,000) +​ +$ +100,000 +Total assets +​ +$ +6,873,001 +​ +$ +( 10,000 ) +​ +$ +6,863,001 +Liabilities +​ +​ +​ +​ +​ +​ +​ +​ +​ +SAFE Notes +​ +$ +15,224,665 +​ +$ +( 4,441,280 ) +​ +$ +10,783,385 +Total liabilities +​ +$ +15,386,102 +​ +$ +( 4,441,280 ) +​ +$ +10,944,822 +Total stockholders’ deficit +​ +$ +( 8,513,101 ) +​ +$ +4,431,280 +​ +$ +( 4,081,821 ) +​ +Consolidated Statement of Operations – For the year ended December 31, 2024 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +As Previously Reported +​ ​ ​ +Adjustment +​ ​ ​ +As Restated +Operating expenses: +​ +​ +​ +​ +​ +​ +​ +​ +​ +General and administrative expenses +​ +$ +2,419,009 +​ +$ +1,022,811 +​ +$ +3,441,820 +Research and development expenses +​ +$ +643,642 +​ +$ +17,541 +​ +$ +661,183 +Other non-operating income (expense): +​ +​ +​ +​ +​ +​ +Change in fair value of SAFE Notes +​ +$ +( 4,987,665 ) +​ +$ +3,356,219 +​ +$ +( 1,631,446 ) +Net loss +​ +$ +( 8,029,236 ) +​ +$ +2,315,867 +​ +$ +( 5,713,369 ) +Basic and diluted weighted average shares outstanding of common stock +​ +13,877,567 +​ +( 3,840,316 ) +​ +10,037,251 +Basic and diluted net loss per share of common stock +​ +$ +( 0.58 ) +​ +$ +0.01 +​ +$ +( 0.57 ) +​ +Consolidated Statement of Stockholders’ Equity (Deficit) for the year ended December 31, 2024 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +As Previously Reported +​ +Adjustment +​ +As Restated +Balance at December 31, 2023 +​ +$ +(630,235) +​ +$ +1,090,496 +​ +$ +460,261 +Stock-based compensation +​ +​ +146,327 +​ +​ +1,024,960 +​ +​ +1,171,287 +Net loss +​ +(8,029,236) +​ +2,315,867 +​ +(5,713,369) +Balance at December 31, 2024 +​ +$ +(8,513,101) +​ +$ +4,431,280 +​ +$ +(4,081,821) +​ +Consolidated Statement of Cash Flows for the year ended December 31, 2024 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +As Previously Reported +​ +Adjustment +​ +As Restated +Cash flows from operating activities: +​ +​ +​ +​ +​ +​ +​ +​ +​ +Net loss +​ +$ +(8,029,236) +​ +$ +2,315,867 +​ +$ +(5,713,369) +Change in fair value of SAFE Notes +​ +4,987,665 +​ +(3,356,219) +​ +1,631,446 +Stock-based compensation +​ +140,935 +​ +1,030,352 +​ +1,171,287 +​ +All referenced amounts for prior period in these financial statements and the notes herein reflect the balances and amounts on a restated basis. +Note 3: Summary of Significant Accounting Policies +The accompanying consolidated financial statements reflect the application of the accounting policies described in this note. +Segments +In accordance with criteria under ASC 280, Segment Reporting , which establishes standards for companies to report in their financial statement information about operating segments, products, services, geographic areas, and major customers, the Company’s chief operating decision maker (“CODM”) has been identified as the Chief Executive Officer. The Company’s CODM reviews results to assess performance, make decisions, and allocate operating and capital resources of the Company as a whole. The CODM has made decisions and assessed performance at the Company level as one segment. The CODM does not distinguish its principal business activities for the purpose of internal reporting and uses net loss, consistent with what is presented in the statement of operations, to allocate resources in the annual budgeting and forecasting process, along with using that measure as a basis for evaluating financial performance quarterly by comparing the actual results with historical budgets. +F-10 +Table of Contents +Use of Estimates +The preparation of the accompanying consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of expenses during the reporting period. Actual results may differ from these estimates. +Fair Value Measurements +The authoritative guidance with respect to fair value established a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels and requires that assets and liabilities carried at fair value be classified and disclosed in one of three categories, as presented below. There are no transfers in and out of Levels 1 and 2, and activity in Level 3 represents fair value measurements. +Financial instruments measured and reported at fair value are classified and disclosed in one of the following categories: +Level 1 - Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company is able to access. +Level 2 - Valuations based on quoted prices in markets that are not active or for which all significant inputs, other than quoted prices included in Level 1, that are observable either directly or indirectly. These inputs may include (a) quoted prices for similar assets in active markets, (b) quoted prices for identical or similar assets in markets that are not active, (c) inputs other than quoted prices that are observable for the asset, or (d) inputs derived principally from or corroborated by observable market data by correlation or other means. +Level 3 - Valuations based on inputs that are unobservable and significant to the entire fair value measurement. +The Company determines the level in the fair value hierarchy within which each fair value measurement falls in its entirety, based on the lowest level input that is significant to the fair value measurement in its entirety. In determining the appropriate levels, the Company performs an analysis of the assets and liabilities at each reporting period end. +The Company’s cash and cash equivalents, prepaid expenses and other current assets, accounts payable, accrued expenses and other current liabilities approximate their fair value due to the short-term nature of these assets and liabilities. The Company’s SAFE Notes (see Note 6) and RSU liability (see Note 8) were carried at fair value and classified as Level 3 liabilities. +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +​ +​ +​ +Fair Value Measurements at December 31, 2025 +​ +​ ​ ​ +Fair Value Total +​ ​ ​ +Level 1 +​ ​ ​ +Level 2 +​ ​ ​ +Level 3 +RSU liability +​ +$ +1,655,507 +​ +$ +— +​ +$ +— +​ +$ +1,655,507 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +Fair Value Measurements at December 31, 2024 +​ +​ ​ ​ +Fair Value Total +​ ​ ​ +Level 1 +​ ​ ​ +Level 2 +​ ​ ​ +Level 3 +SAFE Notes +​ +$ +10,783,385 +​ +$ +— +​ +$ +— +​ +$ +10,783,385 +​ +Cash and Cash Equivalents +The Company maintains deposits in financial institutions that at times exceed the insured amounts provided by the Federal Deposit Insurance Corporation (“FDIC”). As of December 31, 2025 and 2024, the amount of cash exceeding the FDIC insurance limit was $ 23,219,422 and $ 6,228,584 . The Company believes it is not exposed to any significant credit risk to cash. Money market funds and other short-term investments with an original maturity of three months or less are considered cash equivalents. +Property and Equipment +Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Expenditures for repairs and maintenance which do not extend the useful lives of the assets are charged to operations as incurred. +F-11 +Table of Contents +The Company reviews its long-lived assets periodically to determine potential impairment by comparing the carrying value of those assets with the estimated future undiscounted cash flows expected to result from the use of the assets, including cash flows from disposition. Should the sum of the expected future undiscounted cash flows be less than the carrying value, the Company would determine the amount of and recognize an impairment loss at that time in accordance with the guidance. No impairment loss was recognized during the years ended December 31, 2025 and 2024. The estimated useful lives of the Company’s property and equipment are as follows: +​ +​ +​ +​ +​ +​ ​ ​ +Useful Life +Equipment +3 years +​ +SAFE Notes +The Company issued SAFE Notes in exchange for cash financing during the years ended December 31, 2025 and 2024. The Company accounted for its SAFE Notes as derivatives under ASC 815, Derivatives and Hedging , and presented them as long-term liabilities in the accompanying consolidated balance sheets. Changes in the fair value of the SAFE Notes were recorded in earnings. +Immediately upon the effectiveness of the Merger on September 5, 2025, the SAFE Notes were converted into shares of the Company’s common stock (see Note 5). +Research and Development Expenses +Research and development (“R&D”) expenses primarily represent costs incurred to develop the Company’s technology. These costs consist of personnel costs, including salaries, employee benefit costs, bonuses and stock-based compensation expenses, software costs, computing costs, hardware and experimental supplies, and expenses for outside engineering contractors for analytical work and consulting costs. The Company expenses all R&D costs in the periods in which they are incurred. +Stock-Based Compensation +The Company accounts for stock-based compensation in accordance with ASC 718, Compensation - Stock Compensation . The Company classifies awards as either equity-classified or liability-classified based on the terms of the award. Equity-classified awards are measured at the grant-date fair value and recognized as compensation expense over the requisite service period, which is generally the vesting period. Equity-classified awards are not subsequently remeasured. Liability-classified awards are measured at fair value at each reporting date until settlement, with changes in fair value recognized as compensation expense in the period of change. Compensation cost for liability-classified awards is recognized over the requisite service period based on the fair value of the award at each reporting date. +The Company classifies stock-based compensation expense in its statement of operations in the same line items in which the award recipient’s cash and other compensation costs are classified. +Net Loss Per Common Share +The Company calculates basic net loss per common share in accordance with ASC 260, Earnings Per Share , based on the weighted-average number of outstanding common shares during the fiscal period. Diluted loss per common share is based on the weighted-average number of outstanding common shares plus the weighted-average number of potential outstanding common shares. The calculation of diluted net loss does not consider the effect of the warrants to purchase an aggregate of 586,666 common stock with exercise contingent on future events, stock options to purchase an aggregate of 2,325,059 common stock, and unvested RSUs of 669,451 , because their inclusion would be anti-dilutive under the treasury stock method. In periods where potentially dilutive securities are anti-dilutive, such amounts are excluded from the calculations of diluted earnings (loss) per share. All potentially dilutive securities are anti-dilutive for the years ended December 31, 2025 and 2024. For the year ended December 31, 2024, the Company had SAFE Notes, the conversion of which would have been anti-dilutive. +Income Tax (Provision) Benefit +The Company accounts for income taxes in accordance with ASC 740, Income Taxes . Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply in the periods in which those temporary differences are expected to reverse. +F-12 +Table of Contents +The Company evaluates the realizability of its deferred tax assets and establishes a valuation allowance when it is more likely than not that some or all of the deferred tax assets will not be realized. In assessing the need for a valuation allowance, the Company considers all available positive and negative evidence, including historical operating results, future taxable income, and the reversal of existing taxable temporary differences. +The Company recognizes the effect of income tax positions only if those positions are more likely than not to be sustained upon examination by the relevant taxing authorities. The Company recognizes interest and penalties related to uncertain tax positions as a component of income tax expense. +New Accounting Pronouncements +Effective January 1, 2025, the Company adopted ASU 2023-09 “ Income Taxes (Topic 740): Improvements to Income Tax Disclosures ” which enhances income tax disclosures, including expanded requirements for the rate reconciliation and disaggregation of income taxes paid. The adoption of ASU 2023-09 primarily impacts the presentation and disclosure of income taxes in the Company’s consolidated financial statements beginning in 2025. The adoption did not affect the measurement of the Company’s income tax provision. +In October 2023, the FASB issued ASU 2023-06, “Disclosure Improvements”, to clarify or improve disclosure and presentation requirements of a variety of topics and align the requirements in the FASB ASC with the SEC’s regulations. The amendments in ASU 2023-06 will become effective on the date the related disclosures are removed from Regulation S-X or Regulation S-K by the SEC, and will no longer be effective if the SEC has not removed the applicable disclosure requirement by June 30, 2027. Early adoption is prohibited. Adoption is not expected to have a material impact on the Company’s consolidated financial statements. +In November 2024, the FASB issued ASU 2024-03,’-” Income Statement —Reporting Comprehensive Income —Expense Disaggregation Disclosures” as an update to ASC Topic 220-40, which will be effective for fiscal years beginning after December 15, 2026 and interim periods beginning after December 15, 2027. Early adoption is permitted. ASU 2024-03 was issued to improve the disclosures about a public business entity’s expenses and address requests from investors for more disaggregated disclosures about the types of expenses (including employee compensation, depreciation, and amortization) in commonly presented expense captions (such as general and administrative expenses). In January 2025, the FASB also issued ASU 2025-01 “Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date” to clarify the effective date provisions of ASU 2024-03 related to expense disaggregation disclosures. The Company is currently evaluating the impact of ASU 2024-03 and ASU 2025-01 on its consolidated financial statements. +In May 2025, the FASB issued ASU 2025-04 “Compensation – Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606): Clarifications to Share-Based Consideration Payable to a Customer”, which clarifies the accounting for share based consideration payable to a customer, including classification and measurement guidance, to reduce diversity in practice. The amendments are effective for fiscal years, including interim periods, beginning after December 15, 2026, with early adoption permitted. The Company is currently assessing the impact of adopting ASU 2025-04 on its consolidated financial statements but does not expect a material impact. +In December 2025, the FASB issued ASU 2025-11, “ Interim Reporting (Topic 270): Narrow Scope Improvements ”. The amendments clarify the applicability of the interim reporting guidance in Topic 270, improve the navigability of the interim reporting requirements, and provide a more comprehensive framework for interim disclosures, including a principle that entities disclose events and changes since the last annual reporting period that have a material effect on the entity. ASU 2025-11 is effective for public business entities for interim reporting periods within annual reporting periods beginning after December 15, 2027, and for all other entities for interim reporting periods within annual reporting periods beginning after December 15, 2028. Early adoption is permitted. The Company is currently evaluating the impact of ASU 2025-11 on its interim financial statements and related disclosures. +The Company does not believe that any other recently issued, but not yet effective, authoritative guidance, if currently adopted, would have a material impact on the Company’s financial statement presentation or disclosures. +F-13 +Table of Contents +Note 4: Property and Equipment +Property and equipment consisted of the following: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +December 31, +​ ​ ​ +December 31, +​ +​ +2025 +​ +2024 +Equipment +$ +46,094 +$ +2,657 +​ +​ +​ +​ +​ +​ +​ +Less: accumulated depreciation +​ +​ +( 8,992 ) +​ +​ +( 664 ) +​ +​ +​ +​ +​ +​ +​ +Equipment, net +$ +37,102 +$ +1,993 +​ +Depreciation expense for the years ended December 31, 2025 and 2024 totaled $ 8,327 and $ 664 , respectively. +Note 5: SAFE Notes +During the years ended December 31, 2025 and 2024, the Company issued SAFE Notes in exchange for aggregate amounts of $ 2,893,800 and $ 8,190,000 , respectively. For the year ended December 31, 2025, the Company received total cash proceeds of $ 2,993,800 , consisting of $ 2,893,800 of cash from the issuance of SAFE Notes during the period and $ 100,000 of cash received from the subscription of a SAFE Note. For the year ended December 31, 2024, the Company received total cash proceeds of $ 8,590,000 , with $ 8,190,000 cash from the issuance of SAFE Notes during the period and $ 400,000 of cash received from the subscription of a SAFE Note. As of December 31, 2024, the estimated fair value of the SAFE Notes totaled $ 10,783,385 . +Prior to completion of the Merger, each SAFE Note holder gave consent to convert into shares of the Company’s common stock at the valuation cap reflected in each SAFE Note. In connection with the Merger, all SAFE Notes converted into 19,601,182 shares of the Company’s common stock, and the Company recorded a loss from the change in fair value on the date of conversion of approximately $ 39,834,049 (see Note 6). +Note 6: Fair Value Measurements +The following is a description of the valuation methodology and significant inputs used for each asset and liability measured at fair value on a recurring or nonrecurring basis, as well as the classification of the asset or liability within the fair value hierarchy. +The Company’s SAFE Notes were recorded at fair value on the consolidated balance sheets. The fair value of the Company’s SAFE Notes was based on significant inputs not observable in the market which cause the instrument to be classified as a Level 3 measurement with the fair value hierarchy. The valuation used weighted average probabilities estimated by management considering pay-offs under various scenarios as follows: (i) an equity financing where the SAFE Notes would convert into certain preferred stock; (ii) a liquidity event (change of control or initial public offering) where the SAFE Note holders would have an option to receive either a cash payment equal to the invested amount under such SAFE Note, or a number of shares of preferred stock equal to the invested amount divided by the liquidity price; and (iii) a dissolution event where the SAFE Note holders would have been entitled to receive a portion of the related proceeds equal to the purchase amount. Management estimated that equity financing or liquidity events were the predominant settlement scenarios at each period end. The Company determined the fair value of the SAFE Notes under the Monte Carlo simulation method which was used to estimate the future market value of invested capital (“MVIC”) of the Company at an equity financing event and the expected payment to the SAFE Note holders at each simulated MVIC value. The Company believed these assumptions would be made by a market participant in estimating the valuation of the SAFE Notes. The Company assessed these assumptions and estimates on an on-going basis as additional data impacting the assumptions and estimates was obtained while the SAFE Notes were outstanding. The determination of fair value for the Company’s SAFE Notes required significant judgment and the use of estimates. Additionally, the valuation scenarios described above reflected the original contractual terms of the SAFE Notes and anticipated early-stage financing structures. However, the Company completed the Merger with a concurrent issuance of common stock, and in connection with the Merger, the Company obtained consent from all holders of the SAFE Notes to convert their SAFE Notes into common stock rather than preferred stock. Changes in the fair value of the SAFE Notes were recognized on the consolidated statements of operations until their conversion to common stock occurred upon the Merger on September 5, 2025. +F-14 +Table of Contents +The key assumptions used in the Monte Carlo simulation are presented in the table below: +​ +​ +​ +​ +​ +​ +​ ​ ​ +December 31, +​ +​ +2024 +Asset volatility (1) +90 - 95 +% +Risk-free rate (2) +4.08 - 4.23 +% +Expected term (3) +12 - 48 months +​ +(1) Volatility was based on implied and historical volatility of the share price of peer companies. +(2) Risk-free rate based on the U.S. Treasury yield in effect at the time of SAFE Notes consistent with the expected term. +(3) The simulation considered 1 – 2 year term for equity event and 3.5 and 4 -year term for liquidity event. +The following table presents a reconciliation of the liability measured at fair value on a recurring basis using significant unobservable inputs (Level 3) as of December 31, 2025 and 2024: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +​ ​ ​Year Ended +​ +​ +December 31, +​ +December 31, +​ +​ +2025 +​ +2024 +Beginning balance +$ +10,783,385 +$ +961,939 +SAFE Notes issued during the period +​ +$ +2,893,800 +​ +$ +8,190,000 +Change in fair value during the period +​ +$ +39,834,049 +​ +$ +1,631,446 +Conversion of SAFE Notes to common stock +​ +$ +( 53,511,234 ) +​ +$ +— +Ending balance +$ +— +$ +10,783,385 +​ +​ +F-15 +Table of Contents +Note 7: Commitments and Contingencies +In the normal course of business, the Company may be subject to contingencies, including litigation, investigations, claims and other legal proceedings, including those arising in the ordinary course of business. The Company recognizes a liability for such contingency if it determines it is probable that a loss has occurred and a reasonable estimate of the loss can be made. The Company may consider many factors in making these assessments including historical and the specific facts and circumstances of each matter. The Company has not had any litigation, investigations, claims or other legal proceedings for which it should recognize a liability. As such, the Company has not recorded any liability for these in the consolidated financial statements. +​ +Note 8: Stockholders’ Equity (Deficit) +Common Stock +As of December 31, 2025, the Company had 300,000,000 shares of common stock authorized. Each share of its common stock has a par value of $ 0.0001 as of December 31, 2025. +The September 5, 2025 Private Placement +Concurrently with the consummation of the Merger, the Company also issued and sold 10,000,000 shares of our common stock in the Private Placement to certain accredited and institutional investors at a purchase price of $ 3.00 per share. The Company incurred offering costs of $ 2,909,740 in connection with the Private Placement, which were recorded as a reduction of the gross proceeds and recognized as a reduction to additional paid-in capital within stockholders’ equity. +Warrants +On September 5, 2025, the Company issued warrants to purchase an aggregate of 586,666 shares of its common stock, subject to customary anti-dilution adjustments for stock splits, stock dividends, and similar events, at an exercise price of $ 3.00 per share to placement agents in connection with the closing of the Private Placement (the “Placement Agent Warrants”). The Placement Agent Warrants expire on the earlier of (i) five years after the Merger Closing Date and (ii) three years after the Company’s shares of common stock are listed on a national securities exchange. The Warrants are indexed to the Company’s own stock and do not permit net cash settlement under circumstances outside the Company’s control, and thus were accounted for as equity-classified instruments in accordance with ASC 718 Compensation - Stock Compensation and ASC 815-40 Contracts in Entity’s Own Equity. The Warrants were measured at their grant-date fair value $ 1.617 per warrant share, using a Black-Scholes valuation model. The total fair value of $ 948,639 was recorded as an equity issuance cost and reflected as a reduction to additional paid-in capital, with a corresponding increase to additional paid-in capital for the warrant equity, resulting in no net impact to total stockholders’ equity. +Equity Incentive Plans +On August 29, 2025, the board of directors of Legacy Deep Fission approved the 2025 Equity Incentive Plan (the “Pre-Merger Equity Plan”), which permitted the grant of incentive stock options (“ISOs”), nonstatutory stock options (“NSOs”), stock appreciation rights (“SARs”), restricted stock awards (“RSAs”), restricted stock unit awards (“RSUs”), and other stock awards to employees, directors and consultants of Legacy Deep Fission. Subject to certain capitalization adjustments described in the Pre-Merger Equity Plan, the maximum aggregate number of shares of common stock that was issuable pursuant to the Pre-Merger Equity Plan was 84,351 shares. As of the effective date of the Merger, all outstanding options to purchase shares of Legacy Deep Fission common stock were converted into options to purchase shares of the Company’s common stock. Following the effective date of the Merger, no additional equity awards were permitted to be granted under the Pre-Merger Equity Plan; however, the Pre-Merger Equity Plan will continue to govern the terms and conditions of all outstanding equity awards previously granted under the Pre-Merger Equity Plan. +Awards granted prior to the Pre-Merger Equity Incentive Plan were approved by the board of directors and consisted of RSAs, with service-based vesting terms ranging from immediate vesting to four years . +F-16 +Table of Contents +On September 5, 2025, in connection with the Merger, the board of directors and the stockholders of the Company approved the 2025 Equity Incentive Plan (the “2025 Plan”), which permits the grant of ISOs, NSOs, SARs, RSAs, RSUs, performance awards, and other awards to the Company’s employees, directors and consultants, including employees and consultants of the Company’s affiliates. The Company initially reserved 9,500,884 shares of common stock (the “Share Reserve”) for the issuance of awards under the 2025 Plan. The Share Reserve will automatically increase on January 1 of each year for a period of up to nine years commencing on January 1, 2027 and ending on (and including) January 1, 2035, in an amount equal to five percent ( 5 %) of the total number of shares of common stock outstanding on December 31 of the preceding year; provided, however, that the board of directors may act prior to January 1 of a given year to limit the increase for such year to a lesser number of shares of common stock. +In the event of any merger, reorganization, recapitalization, reincorporation, or other such transaction as defined in the 2025 Plan (a “Capitalization Adjustment”), the board of directors is allowed to proportionately adjust the classes and maximum number of shares of common stock subject to the 2025 Plan and the maximum number of shares by which the Share Reserve may annually increase; the classes and maximum number of shares that may be issued pursuant to the exercise of ISOs; and the classes and number of securities and exercise price, strike price or purchase price of common stock subject to outstanding equity awards. No fractional shares or rights for fractional shares of common stock shall be issued under the 2025 Plan. +RSAs, RSUs, and Stock Options +During the years ended December 31, 2025 and 2024, the Company’s board of directors approved the issuances of RSAs, RSUs, and Stock Options to employees, officers, directors, and consultants. Stock-based compensation expense is measured based on the fair value of awards in accordance with ASC 718, Compensation - Stock Compensation . Equity-classified awards are measured at grant-date fair value and are not subsequently remeasured. Liability-classified awards are remeasured at fair value at each reporting date until settlement, with changes in fair value recognized in stock-based compensation expense. The cost of stock-based compensation is recognized over the requisite service period, which is generally the vesting period of the respective award. Grants ranged from immediate vesting to over four years . The determination of fair value requires significant judgment and the use of estimates as the Company does not have an observable stock price. Prior to the Company having an observable transaction for the sale of common stock, the Company estimated the fair value of common stock using invested capital multiple and discounted present value to arrive at equity available for common shareholders. Upon the Private Placement described above, the Company estimated the fair value of common stock using the price per share of the Private Placement, with a de-minimis discount for lack of marketability as the Company’s common stock does not trade in an active market. For restricted common stock awards, shares are issued concurrently with the issuance of restricted common stock. +A summary of the restricted common stock award activity during the year ended December 31, 2025, is as follows: +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +Restricted Common Stock +​ +​ +​ +​ ​ ​ +Weighted +​ +​ +Number of +​ +Average +​ +​ +Shares +​ +Fair Value +Unvested as of December 31, 2024 +​ +2,810,659 +​ +$ +0.10 +Granted +​ +2,848,936 +​ +​ +2.29 +Vested +​ +( 2,802,246 ) +​ +​ +1.59 +Forfeited/ cancelled +​ +( 151,926 ) +​ +​ +0.14 +Unvested as of December 31, 2025 +2,705,423 +$ +0.76 +​ +A summary of the RSU activity during the year ended December 31, 2025, is as follows: +​ +​ +​ +​ +​ +​ +​ +​ +Restricted Stock Units +​ +​ +​ +​ +Weighted +​ +​ +Number of +​ +Average +​ +​ ​ ​ +RSUs +​ ​ ​ +Fair Value +Unvested as of December 31, 2024 +​ +— +​ +$ +— +Granted +894,451 +​ +7.20 +Vested +( 225,000 ) +​ +7.20 +Forfeited +— +​ +— +Unvested as of December 31, 2025 +669,451 +​ +$ +7.20 +​ +No RSUs were granted during the year ended December 31, 2024. +F-17 +Table of Contents +A summary of the stock option activity during the year ended December 31, 2025, is as follows: +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +Stock Options +​ +​ +​ +​ +Weighted +​ +​ +Number of +​ +Average +​ +​ ​ ​ +Options +​ ​ ​ +Fair Value +Unvested as of December 31, 2024 +— +​ +$ +— +Granted +2,325,059 +​ +​ +3.03 +Vested +( 615,540 ) +​ +​ +2.02 +Forfeited +— +​ +​ +— +Unvested as of December 31, 2025 +1,709,519 +​ +$ +3.29 +​ +No stock options were granted during the year ended December 31, 2024. The stock options were valued at the grant date using the Black-Scholes pricing model using the range of inputs as indicated below: +​ +​ +​ +​ +​ +​ +Risk-free interest rate +​ ​ ​ +​ +3.87 – 3.94 +% +Expected term (in years) +​ +6.25 +​ +Expected volatility +​ +48.7 – 85.9 +% +Expected dividend yield +​ +0 +% +​ +The risk-free interest rate is the rate available as of the option date on zero-coupon U.S. government issues with a remaining term equal to the expected term of the option using the simplified approach. The Company currently estimates volatility by using the weighted average implied and historical volatility of the share price of peer companies. The Company has not paid dividends in the past and does not plan to pay any dividends in the foreseeable future. +​ +The Company classifies stock-based compensation expense in its statement of operations in the same manner in which the award recipient’s costs are classified in the statement of operations. Total stock-based compensation expense for the years ended December 31, 2025 and 2024, was $ 8,424,803 and $ 1,171,287 , respectively. Of the stock-based compensation expense recognized in the year ended December 31, 2025, $ 1,655,507 is related to a liability-classified award for a fixed number of shares that can also be settled in cash at the participant’s election upon vesting. The fair value of this award is based on the fair value of the underlying common stock and is remeasured at each reporting date until settlement. As of December 31, 2025, the Company recorded a liability of $ 1,655,507 related to this award, which is included in RSU liability award on the balance sheet. +As of December 31, 2025, the Company has unrecognized stock-based compensation expense of $ 14,742,022 , which will be recognized over a weighted average period of 2.43 years. +Preferred Stock +As of December 31, 2025, the Company had 10,000,000 shares of preferred stock authorized at a par value of $ 0.0001 . No preferred stock was issued and outstanding. +Note 9: Income Taxes +​ +Income tax expense consisted of the following for the years ended December 31, 2025 and December 31, 2024: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +As of December 31, +​ +​ ​ ​ +2025 +​ ​ ​ +2024 +Current: +​ +​ +​ +​ +​ +​ +Federal +​ +$ +— +​ +$ +— +State +​ +825 +​ +800 +Foreign +​ +— +​ +— +Total +​ +825 +​ +800 +​ +The Company had no deferred income tax expense for the years ended December 31, 2025 and 2024. +F-18 +Table of Contents +The provision for income taxes differs from the amount obtained by applying the federal statutory income tax rate as follows: +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +2025 +​ ​ ​ +2024 +​ ​ ​ +Federal taxes at statutory rate +21.00 +% +21.00 +% +State and local taxes, net of federal benefit +0.00 +% +4.98 +% +Change in Fair Value of SAFE Notes and other nondeductible/nontaxable items +( 13.76 ) +% +( 6.00 ) +% +Changes in valuation allowance +​ +( 7.36 ) +% +( 22.26 ) +% +Tax credits +​ +0.12 +% +0.00 +% +Deferred true-up +​ +0.00 +% +2.28 +% +Effective income tax rate +0.00 +% +0.00 +% +​ +Deferred income taxes reflect the net tax effects of temporary differences between carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Realization of net deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. Significant components of the Company’s deferred tax assets and liabilities are as follows: +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +As of December 31, +​ +​ ​ ​ +2025 +​ ​ ​ +2024 +Deferred tax assets: +​ +​ +​ +​ +​ +​ +Net operating losses +​ +$ +3,005,295 +​ +$ +617,819 +Stock-based compensation +​ +2,786,419 +​ +458,061 +Capitalized R&D expenses +​ +1,378,270 +​ +208,112 +Start-up costs +​ +​ +10,435 +​ +​ +11,208 +Property and equipment +​ +​ +— +​ +​ +38 +Credits +​ +​ +71,006 +​ +​ +— +Total deferred tax assets +​ +7,251,425 +​ +1,295,238 +Valuation allowance +​ +( 7,251,124 ) +​ +( 1,295,238 ) +Deferred income tax assets, net +​ +$ +301 +​ +$ +— +​ +​ +​ +​ +​ +​ +​ +Deferred tax liabilities: +​ +​ +​ +​ +Property and equipment +​ +​ +( 301 ) +​ +​ +— +Net deferred tax asset/(liability) +​ +$ +— +​ +$ +— +​ +​ +The Company regularly assesses the ability to realize deferred tax assets recorded based upon the weight of available evidence, including such factors as recent earnings history and expected future taxable income on a jurisdiction-by-jurisdiction basis. In the event that the Company changes its determination as to the amount of realizable deferred tax assets, the Company will adjust its valuation allowance with a corresponding impact to the provision for income taxes in the period in which such determination is made. Due to the uncertainty surrounding their realization, the Company has recorded a full valuation allowance against the net deferred tax assets. Accordingly, no deferred tax asset has been recorded on the balance sheets. The Company’s valuation allowance increased during 2025 and 2024 by $ 5,955,886 and $ 1,271,946 , respectively, primarily due to the generation of net operating losses and the capitalization of research and development expenditures. +As of December 31, 2025 and 2024, the Company has net operating loss carryforwards for federal income tax purposes of approximately $ 9,101,980 and $ 1,960,671 , respectively, which do not expire and may be available to offset future income tax liabilities, but will generally limit the net operating loss deduction to the lesser of the net operating loss carryover or 80% of a corporation’s taxable income. As of December 31, 2025 and 2024, the Company’s state net operating loss carryforwards were $ 15,663,544 and $ 2,950,882 which may be available to offset future income tax liabilities and start to expire in 2043. +The Internal Revenue Code of 1986, as amended, imposes restrictions on the utilization of net operating losses in the event of an “ownership change” of a corporation. Accordingly, a Company’s ability to use net operating losses may be limited as prescribed under Internal Revenue Code Section 382 (“Section 382”). Events which may cause limitations in the amount of the net operating losses that the Company may use in any one year include, but are not limited to, a cumulative ownership change of more than 50% over a three-year period. Utilization of the federal and state net operating losses may be subject to substantial annual limitation due to the ownership change limitations provided by the Section 382 and similar state provision. +The Company files income tax returns in the U.S. federal and various state jurisdictions with varying statutes of limitations. +F-19 +Table of Contents +Note 10: Related Party Transactions +The Company has signed a consulting agreement with a related party, Deep Isolation Nuclear, Inc., a company co-founded by Deep Fission’s co-founder and Chief Executive Officer, to develop generic technical and regulatory guidance for management of the Company. Deep Fission’s Chief Executive Officer currently serves as a member of the board of directors of Deep Isolation Nuclear, Inc. The Company has paid certain administrative expenses totaling $ 12,500 and $ 0 during the years ended December 31, 2025 and 2024, respectively. +During 2023, the Company received $ 10,000 in exchange for a loan payable to a related party that was due on demand and carried interest of 6 % per annum. The loan was repaid in full, with interest, during the year ended December 31, 2024. +​ +Note 11: Subsequent Events +In January 2026, the Company entered into a commitment with a supplier to purchase low-enriched uranium fuel at a cost of $ 9.2 million. +On February 5, 2026, the Company issued and sold 5,333,333 shares of common stock (the “Shares”) at a purchase price of $ 15.00 per share, to certain accredited and institutional investors pursuant to the subscription agreements for an aggregate purchase price of $ 80.0 million. The Company also issued 129,418 warrants to placement agents in conjunction with the financing. The aggregate net proceeds to the Company from the offering was approximately $ 76.0 million, after deducting fees to the placement agents and expenses payable by the Company. The Company is in the process of completing the valuation associated with associated with this transaction. As of the date the financial statements were available to be issued, the valuation has not been finalized. +In February 2026, the Company agreed to issue 188,701 additional shares to former holders of SAFE Notes related to the September 2025 financing, resulting in a reduction of the effective investment price from $ 3.92 to $ 2.90 per share. In connection with this issuance, the investors executed settlement agreements releasing the Company from any potential future claims related to these instruments. +In February 2026, the Company entered into a long-term lease for approximately 100 acres located within the Great Plains Industrial Park in Parsons, Kansas. The Company has commenced initial site development activities, including geological evaluation, borehole planning, and initial drilling activities, and are conducting geological surveys and site characterization studies at the site. These activities are intended to inform borehole design, drilling techniques, and site suitability for future reactor deployment. As part of the lease agreement, the Company has agreed to purchase the property from Great Plains Industrial Park for a purchase price of approximately $ 5 million, upon being granted a license for commercial operation of the reactor by the NRC. +​ +F-20 +Table of Contents +Note 12: Restatement of Interim Financial Information (Unaudited) +As described in Note 2, the Company identified errors related to certain inputs and assumptions used in the valuation models for its SAFE Notes and stock-based compensation expense. These errors resulted in an overstatement of the fair value of SAFE Notes and an understatement of stock-based compensation expense in previously issued financial statements. +The Company has restated the previously issued quarterly (unaudited) financial data for the six-month periods ended June 30, 2024 and 2025, and the three- and nine-month periods ended September 30, 2024 and 2025, to correct these errors. The impacts of the restatement on the Company’s interim Consolidated Balance Sheets, Consolidated Statements of Operations, Consolidated Statements of Stockholders’ Equity (Deficit) and Consolidated Statements of Cash Flows for each of the affected quarterly periods are presented below. The misstatements did not have a material impact on reported cash flows during the period, as the valuations pertained to non-cash transactions. +Consolidated Balance Sheet – As of June 30, 2025 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +As Previously Reported +​ ​ ​ +Adjustment +​ ​ ​ +As Restated +SAFE Notes subscription receivable +​ +$ +— +​ +$ +33,000 +​ +$ +33,000 +Total assets +​ +$ +4,926,231 +​ +$ +33,000 +​ +$ +4,959,231 +Liabilities +​ +​ +​ +​ +​ +​ +​ +​ +​ +SAFE Notes +​ +$ +20,463,632 +​ +$ +( 4,917,505 ) +​ +$ +15,546,127 +Total liabilities +​ +$ +20,564,519 +​ +$ +( 4,917,505 ) +​ +$ +15,647,014 +Total stockholders’ deficit +​ +$ +( 15,638,288 ) +​ +$ +4,950,505 +​ +$ +(10,687,783) +​ +Consolidated Balance Sheet – As of September 30, 2025 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +As Previously Reported +​ ​ ​ +Adjustment +​ ​ ​ +As Restated +SAFE Notes subscription receivable +​ +$ +— +​ +$ +28,000 +​ +$ +28,000 +Total assets +​ +$ +30,524,544 +​ +$ +28,000 +​ +$ +30,552,544 +Liabilities +​ +​ +​ +​ +​ +​ +​ +​ +​ +SAFE Notes +​ +$ +— +​ +$ +— +​ +$ +— +Total liabilities +​ +$ +605,325 +​ +$ +138,977 +​ +$ +744,302 +Total stockholders’ equity +​ +$ +29,919,219 +​ +$ +( 110,977 ) +​ +$ +29,808,242 +​ +Consolidated Statement of Operations – For the six months ended June 30, 2024 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +As Previously Reported +​ ​ ​ +Adjustment +​ ​ ​ +As Restated +Operating expenses: +​ +​ +​ +​ +​ +​ +​ +​ +​ +General and administrative expenses +​ +$ +752,535 +​ +$ +892,601 +​ +$ +1,645,136 +Research and development expenses +​ +$ +135,930 +​ +$ +77,832 +​ +$ +213,762 +Other non-operating income (expense): +​ +​ +​ +​ +​ +​ +Change in fair value of SAFE notes +​ +$ +( 1,251,721 ) +​ +$ +1,409,741 +​ +$ +158,020 +Net loss +​ +$ +( 2,129,151 ) +​ +$ +439,308 +​ +$ +( 1,689,843 ) +Basic and diluted weighted average shares outstanding of common stock +​ +658,569 +​ +4,826,068 +​ +5,484,637 +Basic and diluted net loss per share of common stock +​ +$ +( 3.23 ) +​ +$ +2.92 +​ +$ +( 0.31 ) +​ +Consolidated Statement of Operations – For the three months ended September 30, 2024 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +As Previously Reported +​ ​ ​ +Adjustment +​ ​ ​ +As Restated +Operating expenses: +​ +​ +​ +​ +​ +​ +General and administrative expenses +​ +$ +486,151 +​ +$ +101,016 +​ +$ +587,167 +Research and development expenses +​ +$ +219,478 +​ +$ +( 72,754 ) +​ +$ +146,724 +Other non-operating income (expense): +​ +​ +​ +​ +​ +​ +Change in fair value of SAFE notes +​ +$ +( 1,248,279 ) +​ +$ +752,928 +​ +$ +( 495,351 ) +Net loss +​ +$ +( 1,944,963 ) +​ +$ +724,667 +​ +$ +( 1,220,296 ) +Basic and diluted weighted average shares outstanding of common stock +​ +16,182,268 +​ +( 2,992,451 ) +​ +13,189,817 +Basic and diluted net loss per share of common stock +​ +$ +( 0.12 ) +​ +$ +0.03 +​ +$ +( 0.09 ) +F-21 +Table of Contents +​ +Consolidated Statement of Operations – For the nine months ended September 30, 2024 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +As Previously Reported +​ ​ ​ +Adjustment +​ ​ ​ +As Restated +Operating expenses: +​ +​ +​ +​ +​ +​ +​ +​ +​ +General and administrative expenses +​ +$ +1,238,686 +​ +$ +993,617 +​ +$ +2,232,303 +Research and development expenses +​ +$ +355,408 +​ +$ +5,078 +​ +$ +360,486 +Other non-operating income (expense): +​ +​ +​ +​ +​ +​ +Change in fair value of SAFE notes +​ +$ +(2,500,000) +​ +$ +2,162,669 +​ +$ +(337,331) +Net loss +​ +$ +( 4,074,114 ) +​ +$ +1,163,975 +​ +$ +( 2,910,139 ) +Basic and diluted weighted average shares outstanding of common stock +​ +13,006,041 +​ +( 4,329,737 ) +​ +8,676,304 +Basic and diluted net loss per share of common stock +​ +$ +( 0.31 ) +​ +$ +( 0.02 ) +​ +$ +( 0.33 ) +​ +Consolidated Statement of Operations – For the six months ended June 30, 2025 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +As Previously Reported +​ ​ ​ +Adjustment +​ ​ ​ +As Restated +Operating expenses: +​ +​ +​ +​ +​ +​ +​ +​ +​ +General and administrative expenses +​ +$ +2,718,780 +​ +$ +( 450,018 ) +​ +$ +2,268,762 +Research and development expenses +​ +$ +780,517 +​ +$ +769,258 +​ +$ +1,549,775 +Other non-operating income (expense): +​ +​ +​ +​ +​ +​ +Change in fair value of SAFE notes +​ +$ +(3,638,167) +​ +$ +519,225 +​ +$ +(3,118,942) +Net loss +​ +$ +( 7,136,460 ) +​ +$ +199,985 +​ +$ +( 6,936,475 ) +Basic and diluted weighted average shares outstanding of common stock +​ +16,237,748 +​ +( 2,180,399 ) +​ +14,057,349 +Basic and diluted net loss per share of common stock +​ +$ +( 0.44 ) +​ +$ +( 0.05 ) +​ +$ +( 0.49 ) +​ +Consolidated Statement of Operations – For the three months ended September 30, 2025 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +As Previously Reported +​ ​ ​ +Adjustment +​ ​ ​ +As Restated +Operating expenses: +​ +​ +​ +​ +​ +​ +General and administrative expenses +​ +$ +6,700,416 +​ +$ +93,626 +​ +$ +6,794,042 +Research and development expenses +​ +$ +2,104,021 +​ +$ +( 183,649 ) +​ +$ +1,920,372 +Other non-operating income (expense): +​ +​ +​ +​ +​ +​ +Change in fair value of SAFE notes +​ +$ +( 31,601,632 ) +​ +$ +( 5,113,475 ) +​ +$ +( 36,715,107 ) +Net loss +​ +$ +( 40,390,883 ) +​ +$ +(5,023,452) +​ +$ +( 45,414,335 ) +Basic and diluted weighted average shares outstanding of common stock +​ +31,316,149 +​ +( 7,881,883 ) +​ +23,434,266 +Basic and diluted net loss per share of common stock +​ +$ +( 1.29 ) +​ +$ +( 0.65 ) +​ +$ +( 1.94 ) +​ +Consolidated Statement of Operations – For the nine months ended September 30, 2025 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +As Previously Reported +​ ​ ​ +Adjustment +​ ​ ​ +As Restated +Operating expenses: +​ +​ +​ +​ +​ +​ +General and administrative expenses +​ +$ +9,419,196 +​ +$ +( 356,392 ) +​ +$ +9,062,804 +Research and development expenses +​ +$ +2,884,538 +​ +$ +585,609 +​ +$ +3,470,147 +Other non-operating income (expense): +​ +​ +​ +​ +​ +​ +Change in fair value of SAFE notes +​ +$ +(35,239,799) +​ +$ +(4,594,250) +​ +$ +(39,834,049) +Net loss +​ +$ +( 47,527,343 ) +​ +$ +( 4,823,467 ) +​ +$ +( 52,350,810 ) +Basic and diluted weighted average shares outstanding of common stock +​ +21,282,445 +​ +( 3,891,242 ) +​ +17,391,203 +Basic and diluted net loss per share of common stock +​ +$ +( 2.23 ) +​ +$ +( 0.78 ) +​ +$ +( 3.01 ) +​ +F-22 +Table of Contents +Consolidated Statement of stockholders’ equity (deficit) for six months ended June 30, 2024 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +As Previously Reported +​ ​ ​ +Adjustment +​ ​ ​ +As Restated +Balance at December 31, 2023 +​ +$ +( 630,192 ) +​ +$ +1,090,453 +​ +$ +460,261 +Stock-based compensation +​ +140,730 +​ +965,135 +​ +1,105,865 +Net loss +​ +( 2,129,151 ) +​ +439,308 +​ +( 1,689,843 ) +Balance at June 30, 2024 +​ +$ +( 2,618,613 ) +​ +$ +2,494,896 +​ +$ +( 123,717 ) +​ +Consolidated Statement of stockholders’ equity (deficit) for nine months ended September 30, 2024 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +As Previously Reported +​ ​ ​ +Adjustment +​ ​ ​ +As Restated +Balance at December 31, 2023 +​ +$ +( 630,192 ) +​ +$ +1,090,453 +​ +$ +460,261 +Stock-based compensation +​ +145,273 +​ +993,302 +​ +1,138,575 +Net loss +​ +( 4,074,114 ) +​ +1,163,975 +​ +( 2,910,139 ) +Balance at September 30, 2024 +​ +$ +( 4,559,033 ) +​ +$ +3,247,730 +​ +$ +( 1,311,303 ) +​ +Consolidated Statement of stockholders’ equity (deficit) for three months ended September 30, 2024 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +As Previously Reported +​ ​ ​ +Adjustment +​ ​ ​ +As Restated +Balance at June 30, 2024 +​ +$ +( 2,618,613 ) +​ +$ +2,494,896 +​ +$ +( 123,717 ) +Stock-based compensation +​ +4,543 +​ +28,167 +​ +32,710 +Net loss +​ +( 1,944,963 ) +​ +724,667 +​ +( 1,220,296 ) +Balance at September 30, 2024 +​ +$ +( 4,559,033 ) +​ +$ +3,247,730 +​ +$ +( 1,311,303 ) +​ +Consolidated Statement of stockholders’ equity (deficit) for six months ended June 30, 2025 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +As Previously Reported +​ ​ ​ +Adjustment +​ ​ ​ +As Restated +Balance at December 31, 2024 +​ +$ +( 8,513,101 ) +​ +$ +4,431,280 +​ +$ +( 4,081,821 ) +Stock-based compensation +​ +11,273 +​ +216,400 +​ +227,673 +Net loss +​ +( 7,136,460 ) +​ +199,985 +​ +( 6,936,475 ) +Balance at June 30, 2025 +​ +$ +( 15,638,288 ) +​ +$ +4,847,665 +​ +$ +(10,790,623) +​ +Consolidated Statement of stockholders’ equity (deficit) for nine months ended September 30, 2025 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +As Previously Reported +​ ​ ​ +Adjustment +​ ​ ​ +As Restated +Balance at December 31, 2024 +​ +$ +( 8,513,101 ) +​ +$ +4,431,280 +​ +$ +( 4,081,821 ) +Stock-based compensation +​ +5,567,153 +​ +97,296 +​ +5,664,449 +Issuance of Common Stock upon conversion of SAFE Notes +​ +53,328,419 +​ +182,815 +​ +53,511,234 +Net loss +​ +( 47,527,343 ) +​ +( 4,823,467 ) +​ +( 52,350,810 ) +Balance at September 30, 2025 +​ +$ +29,919,219 +​ +$ +( 110,977 ) +​ +$ +29,808,242 +​ +Consolidated Statement of stockholders’ equity (deficit) for three months ended September 30, 2025 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +As Previously Reported +​ ​ ​ +Adjustment +​ ​ ​ +As Restated +Balance at June 30, 2025 +​ +$ +( 15,638,288 ) +​ +$ +4,848,486 +​ +$ +(10,789,802) +Stock-based compensation +​ +5,555,880 +​ +( 119,104 ) +​ +5,436,776 +Issuance of Common Stock upon conversion of SAFE Notes +​ +53,328,419 +​ +182,815 +​ +53,511,234 +Net loss +​ +( 40,390,883 ) +​ +(5,023,451) +​ +(45,414,334) +Balance at September 30, 2025 +​ +$ +29,919,219 +​ +$ +( 110,977 ) +​ +$ +29,808,242 +​ +F-23 +Table of Contents +Consolidated Statement of cash flows for the six months ended June 30, 2024 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +As Previously Reported +​ ​ ​ +Adjustment +​ ​ ​ +As Restated +Cash flows from operating activities: +​ +​ +​ +​ +​ +​ +​ +​ +​ +Net loss +​ +$ +(2,129,151) +​ +$ +439,308 +​ +$ +(1,689,843) +Change in fair value of SAFE Notes +​ +1,251,721 +​ +(1,409,741) +​ +(158,020) +Stock-based compensation +​ +135,432 +​ +970,433 +​ +1,105,865 +​ +Consolidated Statement of cash flows for the nine months ended September 30, 2024 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +As Previously Reported +​ ​ ​ +Adjustment +​ ​ ​ +As Restated +Cash flows from operating activities: +​ +​ +​ +​ +​ +​ +​ +​ +​ +Net loss +​ +$ +( 4,074,114 ) +​ +$ +1,163,975 +​ +$ +( 2,910,139 ) +Change in fair value of SAFE Notes +​ +2,500,000 +​ +(2,004,649) +​ +495,351 +Stock-based compensation +​ +139,880 +​ +998,695 +​ +1,138,575 +​ +Consolidated Statement of cash flows for the six months ended June 30, 2025 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +As Previously Reported +​ ​ ​ +Adjustment +​ ​ ​ +As Restated +Cash flows from operating activities: +​ +​ +​ +​ +​ +​ +Net loss +​ +$ +( 7,136,460 ) +​ +$ +199,985 +​ +$ +( 6,936,475 ) +Change in fair value of SAFE Notes +​ +3,638,167 +​ +(519,225) +​ +3,118,942 +Stock-based compensation +​ +10,452 +​ +217,221 +​ +227,673 +​ +Consolidated Statement of cash flows for the nine months ended September 30, 2025 +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ ​ ​ +As Previously Reported +​ ​ ​ +Adjustment +​ ​ ​ +As Restated +Cash flows from operating activities: +​ +​ +​ +​ +​ +​ +​ +​ +​ +Net loss +​ +$ +( 47,527,343 ) +​ +$ +( 4,823,467 ) +​ +$ +( 52,350,810 ) +Change in fair value of SAFE Notes +​ +35,239,799 +​ +4,594,250 +​ +39,834,049 +Stock-based compensation +​ +5,567,153 +​ +97,296 +​ +5,664,449 +​ +​ +​ +​ +F-24 +Table of Contents +EXHIBIT INDEX +Exhibit +Number +​ ​ ​ +Description of Document +2.1§ +​ +Agreement and Plan of Merger and Reorganization, dated September 5, 2025, by and among Surfside Acquisition Inc., Deep Fission Acquisition Co., and the Company (incorporated by reference to Exhibit 2.1 of the Company’s Current Report on Form 8-K filed on September 11, 2025). +3.1 +​ +Certificate of Merger relating to the merger of Deep Fission Acquisition Co. with and into Deep Fission Nuclear, Inc., filed with the Secretary of State of the State of Delaware on September 5, 2025 (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed on September 11, 2025). +3.2 +​ +Amended and Restated Certificate of Incorporation, filed with the Secretary of State of the State of Delaware on September 5, 2025 (incorporated by reference to Exhibit 3.2 of the Company’s Current Report on Form 8-K filed on September 11, 2025). +3.3 +​ +Amended and Restated Bylaws (incorporated by reference to Exhibit 3.3 of the Company’s Current Report on Form 8-K filed on September 11, 2025). +4.1* +​ +Description of Securities Registered Pursuant to Section 12 of the Securities and Exchange Act of 1934. +10.1 +​ +Form of Pre-Merger Indemnification Agreement (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on September 11, 2025). +10.2 +​ +Form of Post-Merger Indemnification Agreement (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed on September 11, 2025). +10.3 +​ +Form of Subscription Agreement, dated September 5, 2025, by and between the Company and the parties thereto (incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K filed on September 11, 2025). +10.4 +​ +Form of Registration Rights Agreement, dated September 5, 2025, by and between the Company and the parties thereto (incorporated by reference to Exhibit 10.4 of the Company’s Current Report on Form 8-K filed on September 11, 2025). +10.5+ +​ +Deep Fission, Inc. 2025 Equity Incentive Plan (Pre-Merger) (incorporated by reference to Exhibit 10.5 of the Company’s Current Report on Form 8-K filed on September 11, 2025). +10.6+ +​ +Forms of Option Grant Notice and Option Agreement under 2025 Equity Incentive Plan (Pre-Merger) (incorporated by reference to Exhibit 10.6 of the Company’s Current Report on Form 8-K filed on September 11, 2025). +10.7+ +​ +Deep Fission, Inc. 2025 Equity Incentive Plan (Post-Merger) (incorporated by reference to Exhibit 10.7 of the Company’s Current Report on Form 8-K filed on September 11, 2025). +10.8+ +​ +Forms of Option Grant Notice and Option Agreement under 2025 Equity Incentive Plan (Post-Merger) (incorporated by reference to Exhibit 10.8 of the Company’s Current Report on Form 8-K filed on September 11, 2025). +10.9+ +​ +Forms of Restricted Stock Unit Grant Notice and Award Agreement under 2025 Equity Incentive Plan (Post-Merger) (incorporated by reference to Exhibit 10.9 of the Company’s Current Report on Form 8-K filed on September 11, 2025). +10.10+ +​ +Deep Fission, Inc. 2025 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.10 of the Company’s Current Report on Form 8-K filed on September 11, 2025). +10.11 +​ +Form of Lock-Up Agreement, dated September 5, 2025, by and between the Company and the parties thereto (incorporated by reference to Exhibit 10.11 of the Company’s Registration Statement on Form S-1/A filed on September 24, 2025). +10.12 +​ +Form of 2025 Placement Agent Warrant (incorporated by reference to Exhibit 10.12 of the Company’s Current Report on Form 8-K filed on September 11, 2025). +10.13+ +​ +Employee Separation Agreement by and between the Company and Malcolm Thompson, dated September 4, 2025, (incorporated by reference to Exhibit 10.13 of the Company’s Current Report on Form 8-K filed on September 11, 2025). +10.14+ +​ +Non-Employee Director Compensation Policy (adopted November 7, 2025) (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on November 12, 2025). +10.15+ +​ +Form of Director and Officer Indemnification Agreement (adopted November 7, 2025) (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed on November 12, 2025). +10.16+ +​ +Executive Severance Policy (adopted November 7, 2025) (incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K filed on November 12, 2025). +10.17+ +​ +Offer Letter by and between the Company and Elizabeth Muller, dated December 9, 2025 (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on December 11, 2025). +70 +Table of Contents +10.18+ +​ +Offer Letter by and between the Company and Michael Brasel, dated November 7, 2025 (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q filed on November 14, 2025). +10.19+ +​ +Offer Letter by and between the Company and Jon Gordon, dated November 7, 2025 (incorporated by reference to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q filed on November 14, 2025). +10.20+* +​ +Offer Letter by and between the Company and William (Mark) Schmitz dated August 7, 2025. +10.21 +​ +Other Transaction Agreement for Reactor Authorization, dated November 14, 2025, by and between the Company and the United States Department of Energy (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on November 21, 2025). +10.22§ +​ +Form of Subscription Agreement, dated February 5, 2026, by and between the Company and the parties thereto (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on February 10, 2026). +10.23§ +​ +Form of Registration Rights Agreement, dated February 5, 2026, by and between the Company and the parties thereto (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed on February 10, 2026). +10.24 +​ +Form of 2026 Placement Agent Warrant (incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K filed on February 10, 2026). +14.1* +​ +Code of Ethics for Senior Financial Officers . +16.1 +​ +Letter from Grassi & Co., CPAs, P.C. as to the change in certifying accountant, dated September 10, 2025 (incorporated by reference to Exhibit 16.1 of the Company’s Current Report on Form 8-K filed on September 11, 2025). +16.2 +​ +Letter from dbbmckennon as to the change in certifying accountant, dated March 5, 2026 (incorporated by reference to Exhibit 16.1 of the Company’s Current Report on Form 8-K filed on March 5, 2026). +19.1 +​ +Insider Trading Policy (incorporated by reference to Exhibit 19.1 of the Company’s Current Report on Form 8-K filed on December 22, 2025). +21.1 +​ +Subsidiaries of the Registrant (incorporated by reference to Exhibit 21.1 of the Company’s Current Report on Form 8-K filed on September 11, 2025). +24.1 +​ +Power of Attorney (included on the signature page hereof). +31.1* +​ +Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. +31.2* +​ +Certification of the Principal Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. +32.1˄ +​ +Certification of the Principal Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. +32.2˄ +​ +Certification of the Principal Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. +101.INS +​ +Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. +101.SCH +​ +Inline XBRL Taxonomy Extension Schema Document. +101.CAL +​ +Inline XBRL Taxonomy Extension Calculation Linkbase Document. +101.DEF +​ +Inline XBRL Taxonomy Extension Definition Linkbase Document. +101.LAB +​ +Inline XBRL Taxonomy Extension Label Linkbase Document. +101.PRE +​ +Inline XBRL Taxonomy Extension Presentation Linkbase Document. +104 +​ +Cover Page Interactive Data File (embedded within the Inline XBRL document). +* Filed herewith. ++ Denotes management compensatory contract or arrangement. +˄ Furnished herewith and not “filed” for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended (the “ Exchange Act ”). Such certifications will not be deemed to be incorporated by reference into any filings under the Securities Act of 1933 or the Exchange Act, except to the extent that the registrant specifically incorporates by reference. +§ Schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K promulgated by the SEC. The Company agrees to furnish supplementally a copy of any omitted schedule or exhibit to the SEC upon request. +71 +Table of Contents +SIGNATURES +Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized. +​ +​ +​ +April 15, 2026 +DEEP FISSION, INC. +​ +​ +​ +​ +By: +/s/ Elizabeth Muller +​ +Name: +Elizabeth Muller +​ +Title: +Chair, President and Chief Executive Officer +(Principal Executive Officer of the Registrant) +​ +POWER OF ATTORNEY +KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Elizabeth Muller and William (Mark) Schmitz, and each of them, his or her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him or her and in his or her name, place, and stead, in any and all capacities, to sign any amendments to this Annual Report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his or her substitute or substitutes, may do or cause to be done by virtue hereof. +​ +Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: +​ +​ +​ +​ +​ +​ +Signature +​ ​ ​ +Title +​ ​ ​ +Date +​ +​ +​ +​ +​ +/s/ Elizabeth Muller +​ +Chair, President and Chief Executive Officer +​ +April 15, 2026 +Elizabeth Muller +​ +( principal executive officer ) +​ +​ +​ +​ +​ +​ +​ +/s/ William (Mark) Schmitz +​ +Chief Financial Officer +​ +April 15, 2026 +William (Mark) Schmitz +​ +(principal financial and accounting officer) +​ +​ +​ +​ +​ +​ +​ +/s/ Thomas Glanville +​ +Director +​ +April 15, 2026 +Thomas Glanville +​ +​ +​ +​ +​ +​ +​ +​ +​ +/s/ Blake Janover +​ +Director +​ +April 15, 2026 +Blake Janover +​ +​ +​ +​ +​ +​ +​ +​ +​ +/s/ Leslie Goldman Tepper +​ +Director +​ +April 15, 2026 +Leslie Goldman Tepper +​ +​ +​ +​ +​ +​ +​ +​ +​ +/s/ Jonathon Angell +​ +Director +​ +April 15, 2026 +Jonathon Angell +​ +​ +​ +​ +​ +​ +​ +​ +​ +​ +72 \ No newline at end of file diff --git a/raw/filings/0001918102/2025/0001104659-26-043870/filing_metadata.csv b/raw/filings/0001918102/2025/0001104659-26-043870/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..2671594239bf1ec6a67e4ab78278ceb4afc1363a --- /dev/null +++ b/raw/filings/0001918102/2025/0001104659-26-043870/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001918102,FISN,"DEEP FISSION, INC.",2025,10-K,2026-04-15,2025-12-31,2026-04-15T21:28:55.000Z,0001104659-26-043870,tmb-20251231x10k.htm,10-K,9559066,1,1,https://www.sec.gov/Archives/edgar/data/1918102/000110465926043870/tmb-20251231x10k.htm,https://www.sec.gov/Archives/edgar/data/1918102/000110465926043870/ diff --git a/raw/filings/0001918102/2025/0001104659-26-043870/item1.txt b/raw/filings/0001918102/2025/0001104659-26-043870/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..ebcf69a999c97b66a78b249c40a88b310df71b3d --- /dev/null +++ b/raw/filings/0001918102/2025/0001104659-26-043870/item1.txt @@ -0,0 +1,359 @@ +ITEM 1. Business +1. Company Overview +We are a nuclear energy technology company developing a small modular reactor (“SMR”) based on established pressurized water reactor (“PWR”) technology, with novel emplacement in deep boreholes approximately one mile below the Earth’s surface. Our reactor, which we refer to as the Gravity Reactor, will leverage subsurface conditions to support key containment and operating functions, including the use of hydrostatic pressure from a water column within the borehole to support reactor operating pressure and cooling, and the surrounding geological formation to provide structural confinement and shielding. This approach is intended to reduce reliance on large surface containment structures and other safety-related infrastructure associated with conventional nuclear power plants, support faster deployment timelines, improve security, enhance safety, and enable lower capital and operating costs relative to conventional nuclear facilities, while reducing exposure to environmental and other surface-level hazards. +Each Gravity Reactor is targeted to produce up to 15 megawatts of electric power output (“MWe”). Individual reactors may be deployed as standalone installations or grouped in clusters of boreholes at a single site, which may enable longer refueling cycles through coordinated fuel management, staggered refueling schedules and more efficient utilization of shared infrastructure, and support larger installations capable of supplying hundreds and potentially thousands of MWe of generation capacity. +The Company’s commercialization strategy is based on a phased deployment plan designed to move toward commercialization in the next three years. Given that reactor criticality using established PWR technology is well understood, the Company is prioritizing validation of the hardest and most differentiated parts of our system, to reduce risk earlier and move more directly toward a commercialization outcome. Specifically, the tests that we want to focus on are drilling to depth at commercial scale, installing and integrating a nuclear system a mile underground, and operating as part of a complete energy ecosystem. We also want to prove that we can do this in time to meet the AI-driven surge in demand for energy. The Company is currently participating in the U.S. Department of Energy (“DOE”) Reactor Pilot Program, and we expect to demonstrate our system as part of the DOE Reactor Pilot Program. +The first phase of the Company’s phased deployment plan involves engineering validation and proof of concept wells. The Company has a long-term lease for approximately 100 acres located within the Great Plains Industrial Park in Parsons, Kansas (the “Kansas Site”) and has commenced initial field development activities at the site. As part of this, the Company already drilled its first data acquisition well to gather real-world data up to 6,000 feet deep. Next, the Company will demonstrate its ability to drill a commercial-scale borehole and safely deploy a prototype reactor. The Company continues to advance its reactor design in parallel with these activities, including planning additional drilling activities and conducting related engineering and emplacement work, and is targeting completion of these activities in the coming months. The balance of this year and into early 2027 will be focused on delivery of key components for full-system installation, including well casing, our reactor canister, and heat exchanger, as well as LEU fabrication and loading. +The second phase of the Company’s phased deployment plan involves DOE authorization and one or more commercial pilot wells. Specifically, subject to DOE authorization, the Company intends to demonstrate the Gravity Reactor, and to apply for a commercial license with the U.S. Nuclear Regulatory Commission (“NRC”) in the first half of 2027, converting the same pilot reactor to commercial operation. We are working closely with both the DOE and the NRC to align demonstration and licensing, as we are aiming to move these efforts forward together rather than advancing them in sequence. +The third and final phase of the Company’s phased deployment plan involves the construction of surface facilities and seeking high-volume commercial licensing for deployment of multiple reactors at a single site through clustered boreholes, and subsequently, at multiple sites. We are targeting as early as 2027 to seek such high-volume commercial licensing with the NRC. +The Company’s approach to subsurface reactor deployment is supported by its intellectual property portfolio, which includes issued patents and pending patent applications relating to reactor configuration, deep subsurface emplacement, drilling and casing techniques, thermal-hydraulic performance, instrumentation and monitoring, and other technologies supporting the deployment of underground nuclear reactors. The Company believes that its intellectual property, together with its engineering expertise and ongoing development activities, supports its competitive position. +1 +Table of Contents +Legacy Deep Fission was incorporated in July 2023 and remains in the development stage. The Gravity Reactor remains in conceptual and early engineering stages, and the Company has not constructed or operated a commercial reactor or generated revenue. Current activities include reactor development, geological evaluation, large-diameter borehole drilling research and development, geothermal testing, safety analysis, regulatory engagement, site development, and commercialization planning. +2. Our Technology +The Gravity Reactor integrates established PWR technology with subsurface emplacement in a borehole environment. The system is designed to deliver reliable electricity at lower expected costs relative to conventional nuclear facilities by reducing surface infrastructure requirements and enabling faster deployment than conventional nuclear power plants, while also limiting exposure to environmental and other surface-level hazards. The design of our technology and associated drilling methods described below remains subject to further development and applicable regulatory approvals. +Reactor Architecture +The Gravity Reactor is based on PWR technology, the most widely deployed nuclear reactor technology in the global commercial nuclear fleet. PWRs use water as both coolant and moderator and have been deployed for decades in commercial power generation. +The Gravity Reactor adapts this established reactor architecture for installation within a deep vertical borehole. The reactor module is being designed as a compact unit to be positioned within a drilled and cased vertical borehole at depths of approximately one mile below the Earth’s surface. +The Gravity Reactor is expected to contain all nuclear fuel assemblies, coolant circulation systems, and structural components required to safely sustain controlled nuclear fission and transfer thermal energy for conversion into electricity. +Subsurface Deployment +A defining feature of the Gravity Reactor is the emplacement of the reactor module within a deep subsurface vertical borehole rather than within a conventional above-ground containment structure. The borehole is expected to be lined with steel casing and cement intended to maintain structural integrity and isolate surrounding geological formations. The reactor module will be installed within the borehole, surrounded by a column of water intended to provide external hydrostatic pressure and support cooling. Thermal energy produced within the reactor core will be carried by the primary coolant system to a heat exchanger located in the borehole, where it will be transferred to surface power conversion systems for conversion into electricity. The primary coolant will be a closed system that recirculates through the reactor core and primary heat exchanger. +Subsurface emplacement is intended to provide several safety benefits, including the availability of hydrostatic pressure and water inventory intended to support cooling, geological shielding and separation between the reactor system and the surface environment, reduced exposure to certain external hazards, increased security, and reduced reliance on safety-related surface infrastructure footprint relative to conventional nuclear facilities. +Deep Borehole Drilling +Deployment of the Gravity Reactor is expected to require the construction of 30- to 50-inch-diameter vertical boreholes extending to depths of approximately one mile below the Earth’s surface. Boreholes are expected to be drilled using technologies, service providers, and operational practices developed in the oil, gas, and geothermal industries. +The Company already drilled its first data acquisition well to gather real-world data up to 6,000 feet deep. Next, the Company will demonstrate its ability to drill a commercial-scale borehole and safely deploy a prototype reactor. The Company’s test drilling activities are intended to support evaluation of drilling methods, casing systems, and borehole stability. In parallel, the Company is conducting engineering studies and modeling activities to refine borehole design parameters, including diameter requirements, drilling techniques, and casing systems. +2 +Table of Contents +Reactor Installation and Emplacement +Following completion of borehole drilling and casing, the reactor module is expected to be lowered into the prepared borehole using specialized lifting and handling equipment and secured within the casing structure at the designated depth. Surface infrastructure, including monitoring systems, electrical equipment, and power conversion systems, is expected to be connected to the subsurface reactor system. The Company is conducting engineering studies and modeling activities to refine installation procedures and equipment specifications. +Hydrostatic Pressure and Cooling +The Gravity Reactor incorporates a column of water within the borehole above and surrounding the reactor module. The hydrostatic pressure generated by this water column is intended to support the pressure conditions required for safe reactor operation. +Water within the borehole is also intended to contribute to the reactor’s thermal management system. Thermal energy produced within the reactor core will be carried by the primary coolant system to a heat exchanger located in the borehole, where it will be transferred to surface power conversion systems for conversion into electricity. +Modular Reactor Units +Each Gravity Reactor is targeted to produce up to 15 MWe. Individual reactors may be deployed as standalone installations or grouped in clusters of boreholes at a single site. +Multiple boreholes deployed at a single location are intended to support larger installations capable of supplying hundreds and potentially thousands of MWe of generation capacity. This modular architecture is intended to allow reactor capacity to be added incrementally as electricity demand grows. +Fuel and Core Systems +Nuclear fuel for Gravity Reactors will consist of low-enriched uranium (“LEU”). LEU is produced and fabricated by qualified nuclear fuel suppliers. The Company expects that commercial reactor deployments will require long-term fuel supply arrangements with qualified enrichment, fabrication, and related fuel-cycle service providers. +The availability or cost of LEU may be influenced by uranium market conditions, enrichment and fabrication capacity, transportation constraints, regulatory requirements, geopolitical factors, or other supply chain disruptions. Global enrichment capacity is concentrated among a limited number of suppliers, including facilities in jurisdictions that may be subject to geopolitical developments, trade restrictions, or regulatory actions, which could affect the availability or cost of LEU. +Within the reactor module, nuclear fuel assemblies will sustain controlled fission reactions that generate heat. Reactor control mechanisms will regulate the rate of the fission reaction to maintain stable operating conditions. +Like other nuclear reactors, operation of the Gravity Reactor will generate used nuclear fuel, which must be stored and ultimately disposed of in accordance with applicable regulatory requirements and nuclear waste management frameworks. Depending on the long-term disposal pathway, this may require interim on-site storage, transportation, and coordination with governmental authorities or third-party service providers. The management and disposition of used nuclear fuel will be conducted in compliance with applicable laws and regulations. +Safety and Reactor Protection +The Gravity Reactor incorporates multiple layers of safety systems derived from established PWR technology and its safety is enhanced by the characteristics of deep subsurface emplacement. +The reactor module design includes engineered safety systems intended to regulate reactor operation, remove residual heat following shutdown, and maintain safe operating conditions during both normal operating states, where the reactor module is operating under routine operating conditions and planned changes in operating conditions, and off-normal operating states, where the reactor module deviates unexpectedly from expected operating conditions (including equipment malfunctions and system disturbances). +3 +Table of Contents +Subsurface emplacement of the reactor within a deep borehole is intended to provide physical separation between the reactor system and the surrounding environment. Surrounding geological formations will provide structural confinement and natural shielding, and underground placement is intended to reduce exposure to certain external hazards, such as extreme weather events, earthquakes, wildfires, aircraft impact, potential acts of sabotage or terrorism, or other events that may affect surface facilities. +The safety characteristics of the Gravity Reactor remain subject to ongoing engineering analysis, safety evaluations, and regulatory review as part of our reactor development process and our efforts to obtain requisite licenses from relevant authorities. +Surface Supporting Systems +Although the reactor module is located underground, limited supporting systems are expected to remain on the surface. These systems are expected to include power conversion equipment used to convert thermal energy into electricity, monitoring and control systems for reactor operation, electrical interconnection infrastructure that will connect the facility to the grid or to local power users, and other operational functions associated with the generation and delivery of electricity. +Manufacturing and Supply Chain +The Gravity Reactor is designed to leverage existing industrial supply chains where possible. Major reactor components are expected to utilize established materials and manufacturing processes drawn from the nuclear and broader industrial sectors, while the reactor’s compact and simplified design is intended to enable greater use of standard industrial fabrication methods in place of conventional large-scale nuclear construction practices. +The reactor module is designed as a compact unit that may be manufactured in qualified facilities and delivered to project sites for emplacement within drilled boreholes. Fuel installation may occur at a manufacturing facility or at the borehole site, depending on the local environment and regulations around the transportation of a fueled reactor. This approach is intended to support repeatable and controlled manufacturing and assembly environments. +Deep borehole drilling required for reactor emplacement is expected to use technologies, service providers and operational practices developed in the oil, gas, and geothermal industries. Surface power conversion and balance-of-plant equipment associated with the Gravity Reactor are expected to utilize commercially available industrial components. +Site Requirements and Geological Considerations +The Gravity Reactor is designed for deployment in geologic settings that support the drilling and long-term structural stability of deep vertical boreholes. Site selection is expected to focus on optimizing geologic, operational, project development, and regulatory factors. +The Company has secured a long-term lease at the Kansas Site and has commenced initial site development activities, including geological evaluation, borehole planning, and initial drilling activities. The Company is conducting geological surveys and site characterization studies at the Kansas Site. These activities are intended to inform borehole design, drilling techniques, and site suitability for future reactor deployment. +In addition to the Kansas Site, the Company has entered into multiple non-binding letters of intent (“LOIs”) with potential development partners for candidate commercial sites in the United States. These LOIs relate to potential deployment opportunities in Kansas, Texas, and Utah as well as other locations in the United States and internationally. +In addition to geological considerations, deployment sites must be capable of supporting surface infrastructure, as described above in “Surface Supporting Systems.” +Site-specific engineering analyses will be required for each proposed deployment location to confirm drilling feasibility and compliance with applicable regulatory requirements. Such analyses are ongoing with respect to the Kansas Site and are expected to be required for any future deployment locations, including Texas and Utah, if applicable. +4 +Table of Contents +3. DOE Reactor Pilot Program and Development Activities +Deep Fission is advancing development and demonstration activities to support the future commercial deployment of the Gravity Reactor. Current demonstration efforts are focused on the Company’s planned pilot reactor under the DOE Reactor Pilot Program, together with related engineering, site development, and construction of initial boreholes and test infrastructure. The pilot reactor is not expected to reflect the full output, configuration or commercial economics of any future commercial deployments. The Company has commenced initial field development activities, including test drilling, at the Kansas Site and continues to advance its reactor design. +U.S. Department of Energy Reactor Pilot Program +In August 2025, Deep Fission was selected by the DOE as one of 11 projects across ten companies eligible to participate in the DOE Reactor Pilot Program, which is intended to enable advanced reactor developers to construct and test prototype reactors under DOE authorization to demonstrate technical feasibility, operational performance, and safety characteristics. +On November 17, 2025, the Company entered into an Other Transaction Agreement for Reactor Authorization (the “OTA”) with the DOE, effective as of November 14, 2025. The OTA establishes the framework under which the DOE will review the safety basis for the Company’s planned demonstration reactor, evaluate supporting engineering analyses, and approve certain commissioning and testing milestones prior to operation. If authorized, the demonstration reactor would be constructed and operated under DOE oversight. Data generated through this process is expected to inform the Company’s reactor design, safety analysis, and potential future licensing submissions to the NRC. DOE authorization does not permit commercial operation and does not replace the requirement to obtain NRC licenses. +The DOE Reactor Pilot Program is an authorization and oversight program and does not provide direct funding to the Company under the OTA. Accordingly, the Company is responsible for funding development, construction, and operation of its pilot reactor and related infrastructure, including its borehole development program. While initial activities, including the drilling and development of the Company’s first well (as further described below), are currently funded, subsequent stages of development, including additional boreholes and the planned pilot reactor, are not fully funded and will require substantial additional capital. The Company expects to seek such funding through equity issuances, debt financings, strategic investments, partnerships, or other arrangements, although there can be no assurance that such financing will be available on acceptable terms or at all. +The Company has updated certain previously identified development milestones, including those related to the timing of reactor criticality, to better align with its current development priorities. Given that reactor criticality using established PWR technology is well understood, the Company is prioritizing validation of the hardest and most differentiated parts of our system, to reduce risk earlier and move more directly toward a commercialization outcome. Specifically, the tests that we want to focus on are drilling to depth at commercial scale, installing and integrating a nuclear system a mile underground, and operating as part of a complete energy ecosystem. The timing of DOE authorization and related testing activities remains subject to completion of engineering development, regulatory review, and the availability of funding. +Pilot Reactor Site Development +In support of its participation in the DOE Reactor Pilot Program, Deep Fission has secured a long-term lease for approximately 100 acres at the Kansas Site. The Company intends to use this site for development and testing activities associated with its borehole development program and planned pilot reactor, subject to applicable regulatory approvals and the availability of sufficient funding. +Current activities at the Kansas Site include geological analysis, engineering design work, borehole planning, and test drilling (including the drilling of the Company’s first well (described below)), as well as preparation for subsurface infrastructure development. These activities are intended to support drilling operations, reactor emplacement procedures, and the design and development of associated monitoring and power conversion systems, subject to the availability of capital and continued project development. +5 +Table of Contents +Phased Deployment Model +The Company’s commercialization strategy is based on a phased deployment plan designed to move toward commercialization in the next three years. Given that reactor criticality using established PWR technology is well understood, the Company is prioritizing validation of the hardest and most differentiated parts of our system, to reduce risk earlier and move more directly toward a commercialization outcome. Specifically, the tests that we want to focus on are drilling to depth at commercial scale, installing and integrating a nuclear system a mile underground, and operating as part of a complete energy ecosystem. We also want to prove that we can do this in time to meet the AI-driven surge in demand for energy. The Company is currently participating in the DOE Reactor Pilot Program, and we expect to demonstrate our system as part of the DOE Reactor Pilot Program. +Phase 1 +The first phase of the Company’s phased deployment plan involves engineering validation and proof of concept wells. The Company has a long-term lease for approximately 100 acres located within the Kansas Site and has commenced initial field development activities at the site. As part of this, the Company already drilled its first data acquisition well to gather real-world data up to 6,000 feet deep. Next, the Company will demonstrate its ability to drill a commercial-scale borehole and safely deploy a prototype reactor. The Company continues to advance its reactor design in parallel with these activities, including planning additional drilling activities and conducting related engineering and emplacement work, and is targeting completion of these activities in the coming months. The balance of this year and into early 2027 will be focused on delivery of key components for full-system installation, including well casing, our reactor canister, and heat exchanger, as well as LEU fabrication and loading. +While these wells are not regulated by the DOE as part of the DOE Reactor Pilot Program, engineering data will be used to support our request for the DOE’s authorization of the planned pilot reactor as described below. +Phase 2 +The second phase of the Company’s phased deployment plan involves DOE authorization and one or more commercial pilot wells. Specifically, subject to DOE authorization, the Company intends to demonstrate the Gravity Reactor, and to apply for a commercial license with the NRC in the first half of 2027, converting the same pilot reactor to commercial operation. We are working closely with both the DOE and the NRC to align demonstration and licensing, as we are aiming to move these efforts forward together rather than advancing them in sequence. +Phase 3 +The third and final phase of the Company’s phased deployment plan involves the construction of surface facilities and seeking high-volume commercial licensing for deployment of multiple reactors at a single site through clustered boreholes, which may enable longer refueling cycles through coordinated fuel management, staggered refueling schedules and more efficient utilization of shared infrastructure, and support greater aggregate power generation capacity than the pilot installation, and subsequently, at multiple sites. We are targeting as early as 2027 to seek such high-volume commercial licensing with the NRC. +Commercial deployment of Gravity Reactors will require additional regulatory approvals, including licensing by the NRC, which the Company is pursuing in parallel with DOE-related activities. The Company expects that a DOE-authorized pilot reactor will inform key design, operational and licensing considerations for commercial deployment, although subsequent deployments are expected to involve different configurations, site-specific integration activities and additional engineering development. Additional project financing will also be required. +Ongoing Development Activities +In addition to borehole construction, Deep Fission’s current activities include reactor design, safety analysis, thermal-hydraulic modeling, regulatory engagement with the DOE and the NRC, and supply chain development for reactor components and drilling operations. The Gravity Reactor remains in conceptual and early engineering stages, and key aspects of the design continue to be refined through ongoing engineering and analysis. +The Company expects that data generated through these activities will inform continued development of the Gravity Reactor and future regulatory licensing efforts. +6 +Table of Contents +4. Commercial Strategy +Deep Fission’s commercial strategy is focused on deploying Gravity Reactors in markets with rapidly growing electricity demand and increasing need for reliable, affordable baseload power. The Company’s initial commercial focus is on hyperscale data centers and other large power users, and over time may expand to include utilities, industrial operators, and government or defense installations, as described further below in “Target Markets.” +Commercial Gravity Reactor installations are expected to be deployed at sites capable of supporting multiple reactor units installed through clusters of deep boreholes. This modular architecture is intended to allow reactor capacity to be added incrementally as electricity demand grows. +The Company’s business model is designed to generate revenue from (i) project-level equity participation, including indirect participation in project-level cash flows from electricity sales, (ii) one-time upfront revenue, generally expected to be associated with Gravity Reactor deployment and related upfront project development services and (iii) recurring revenue, generally expected to be associated with technology licensing and operations and maintenance services of Gravity Reactor installations, as described in more detail below in “Business Model and Revenue Streams.” +Project Development Model +Deep Fission expects that many commercial deployments of the Gravity Reactor may be structured as project-level developments in which the Company participates in the development, ownership, and operation of reactor installations. Under this model, electricity generated by Gravity Reactor facilities may be sold to customers under long-term power purchase agreements (“PPAs”) or similar contractual arrangements; these potential PPAs are more particularly described below in “Project-Level Equity Participation; Electricity Sales.” +The Company believes that individual projects may be financed using a combination of corporate capital, strategic capital, and project-level financing structures. This project-level development model is intended to allow the Company to pursue and retain equity ownership in large-scale infrastructure projects while using external financing sources where appropriate to support construction and long-term operation. +In addition to participating in project-level equity and electricity sales, the Company may provide project development, reactor delivery, integration, and related deployment support in connection with Gravity Reactor installations, as described below in “Upfront Revenue Streams.” The Company expects that the specific commercial structure of any project will vary, including based on customer requirements, site characteristics, local power delivery infrastructure, financing arrangements, regulatory requirements, and project counterparties. +Great Plains Industrial Park and Early Deployment Sites +A key element of Deep Fission’s commercialization strategy is the development of suitable sites capable of supporting early deployments of the Gravity Reactor. One such location is the Kansas Site, where the Company has secured a long-term lease for approximately 100 acres for site development and related activities. The Company views this site as an important early location for development of the Gravity Reactor, including pilot reactor activities and evaluation of potential future commercial deployment opportunities. +The Company has also entered into a non-binding letter of intent with the Great Plains Industrial Park in connection with potential future development activities at the site. The Kansas Site offers an established industrial setting and other site characteristics that the Company believes may support future reactor development activities, subject to applicable regulatory approvals, state and local support, site studies, and project-specific engineering and infrastructure considerations. +In addition to the Kansas Site, the Company has entered into multiple non-binding LOIs with potential development partners for candidate commercial sites in the United States. These LOIs relate to potential deployment opportunities in Kansas, Texas, and Utah as well as other locations in the United States and internationally. These LOIs contemplate evaluation of multi-reactor installations. The LOIs generally describe preliminary concepts for site access, project development coordination, power delivery, and development sequencing. Collectively, the discussions reflected in these agreements relate to potential reactor deployments that could support up to 12.5 gigawatts of generation capacity if fully developed over time. +7 +Table of Contents +These LOIs are non-binding and do not contain commitments to purchase electricity, finance projects, construct facilities, grant exclusivity, or deploy a specified number of reactors. Either party may terminate these arrangements without penalty. +Strategic Relationships +Deep Fission has entered into strategic relationships intended to support commercialization of the Gravity Reactor, including relationships focused on digital infrastructure demand, project development, power offtake opportunities, and project-level financing. +In February 2026, the Company entered into a non-binding memorandum of understanding (“MOU”) with Blue Owl Digital Infrastructure Advisors LLC (“Blue Owl”) to establish a framework for potential collaboration in support of the development and deployment of nuclear energy projects utilizing Deep Fission’s technology. The MOU contemplates potential collaboration relating to customer and utility outreach, project development activities, and evaluation of potential power offtake and project-level financing opportunities associated with Blue Owl’s digital infrastructure portfolio and developments. +In connection with execution of the MOU, investment funds affiliated with Blue Owl made an equity investment in the Company in the amount of $20 million. The Company also granted Blue Owl non-exclusive rights of first offer with respect to certain potential future power offtake opportunities and project-level financing opportunities, in each case subject to the terms of the MOU and related transaction documentation. The power offtake right of first offer applies to potential future opportunities where a potential data center or similar large-load end user offtake need is identified in the Company’s project developments, and the project financing right of first offer applies to potential future project-level financing opportunities originated by the Company. +The MOU does not require either party to enter into any specific project, power offtake arrangement, financing transaction, or other commercial arrangement unless agreed in separate definitive written documentation executed by the parties. The MOU also does not grant Blue Owl exclusivity with respect to any future projects or require the Company to consummate any specific offtake or financing transaction. +In November 2024, the Company entered into a non-binding strategic relationship term sheet with Endeavour Energy, LLC (“Endeavour”) designed to support commercialization of the Gravity Reactor. The contemplated collaboration is intended to facilitate coordinated site development, access to potential data center customers, and joint evaluation of multi-reactor deployments. The relationship framework contemplates potential deployment configurations of up to 1.5 gigawatts of generation capacity at a single location, within a broader potential co-development framework of up to 2 gigawatts across multiple projects. +The Endeavour relationship is governed by a non-binding term sheet and does not create commitments to purchase electricity, finance projects, construct facilities, grant exclusivity, or deploy a specified number of reactors. +Commercial Deployment Strategy +The Company’s initial commercial development plan contemplates a first commercial facility involving multiple Gravity Reactors deployed at a single site. This initial commercial deployment is intended to serve as a bridge between pilot-scale demonstration and subsequent scaled commercial deployments by supporting validation of construction methods, operational procedures, project development processes and commercial structures. While this initial facility is expected to generate power, it is not necessarily intended to reflect optimized economics, refueling strategies or generation capacity expected for future commercial deployments. +Subject to successful completion of pilot reactor activities, future regulatory approvals, site development progress, project financing, and customer arrangements, the Company may, following initial commercial deployment, pursue larger deployments at suitable locations where reliable baseload electricity is needed and where conditions support borehole construction and reactor emplacement. The Company’s target for some of these later installations is to involve clusters of reactors capable of producing hundreds of MWe to more than one gigawatt of generation capacity at a single site that could support large-scale electricity generation installations capable of supplying power to data centers, utilities, industrial facilities, and other high-demand energy users. +The Company intends to pursue commercial deployments initially within the United States, with potential future opportunities in international markets. +The timing, scale, and structure of commercial deployments remain subject to a number of factors, including engineering progress, regulatory approvals, export control requirements, applicable international nuclear cooperation agreements, successful completion of pilot reactor activities, financing availability, supply chain and fuel availability, interconnection and infrastructure considerations, site conditions, and customer demand. +8 +Table of Contents +5. Business Model and Revenue Streams +Deep Fission’s business model is designed to generate revenue from (i) project-level equity participation, including indirect participation in project-level cash flows from electricity sales, (ii) one-time upfront revenue, generally expected to be associated with Gravity Reactor deployment and related upfront project development services and (iii) recurring revenue, generally expected to be associated with technology licensing and operations and maintenance services of Gravity Reactor installations. The Company expects that the specific commercial structure of any project will vary, including based on customer requirements, site characteristics, local power delivery infrastructure, financing arrangements, regulatory requirements, and project counterparties. +Gravity Reactor installations are expected to be developed as long-lived energy infrastructure assets. The Company may participate in multiple stages of the project lifecycle, including project development, reactor deployment, commissioning, and ongoing operations and maintenance. +(i) Project-Level Equity Participation; Electricity Sales +For certain projects, Deep Fission intends to participate in the ownership, development, and operation of Gravity Reactor facilities. In these projects, electricity generated by the reactors may be sold to customers at the project-level under PPAs or similar offtake arrangements, and the Company may benefit from the cash flows of such sales, in many cases through its retained equity in the project. +These agreements may include fixed-price or market-linked electricity pricing structures and may be structured as direct power supply agreements at the project-level with end users or through arrangements involving local utilities or grid operators. Such agreements are commonly used in energy infrastructure projects to support long-term revenue stability and project financing. +Under this model, the Company intends to benefit from project-level cash flows associated with electricity generation and sale over the operating life of the facility, in many cases through its retained equity in the project. The Company expects that many such projects may be structured using project-level financing and infrastructure partnerships, which may allow individual reactor projects to be financed and operated through project-specific capital structures. +In many jurisdictions, the delivery of electricity generated by Gravity Reactor facilities will require coordination with local electric utilities, transmission operators, or regional grid operators. Depending on the location of a project and applicable market structures, electricity may be delivered directly to an end user through dedicated infrastructure, through utility-sleeved arrangements, or through interconnection to regional transmission systems. As a result, the development of reactor projects may involve engagement with utilities, transmission providers, and grid operators to obtain necessary interconnection approvals and coordinate power delivery arrangements. The structure of these arrangements may vary depending on local regulatory frameworks, transmission availability, and project-specific commercial agreements. +(ii) Upfront Revenue Streams +In connection with the deployment of Gravity Reactor facilities, the Company intends to generate revenue from activities associated with reactor delivery, integration, and project development. +Reactor Delivery and Integration +We intend to generate revenue through services including engineering support, reactor module delivery, integration of reactor systems with subsurface and surface infrastructure, and related services necessary to support installation and commissioning of Gravity Reactor units. +Project Development and Engineering, Procurement and Construction (“EPC”) Support +The Company may also generate revenue from project development and EPC-related support activities, which may include engineering support, project planning, site evaluation, permitting coordination, borehole development planning, construction coordination, installation, commissioning support, and other services required to advance a reactor installation from development through construction. +The Company may provide these services directly or in coordination with engineering, drilling, construction, and infrastructure partners involved in the development and installation of reactor facilities. +9 +Table of Contents +(iii) Recurring Revenue Streams +Technology Licensing +Deep Fission intends to generate revenue from licensing its proprietary technology in connection with the development and operation of Gravity Reactor facilities. These revenues may include recurring intellectual property fees associated with the use of the Company’s reactor platform, subsurface deployment methods, and related systems and know-how. +Technology licensing arrangements may apply to projects developed by the Company (but owned in whole or in part by third parties) or to projects developed or owned by third parties utilizing the Company’s technology platform. Licensing structures may include recurring fees, milestone payments, and/or other arrangements depending on the structure of the underlying project. +Operations and Maintenance Services +Deep Fission also intends to provide ongoing operational and technical support for deployed reactor facilities. These services may include reactor operations support, maintenance planning, monitoring, refueling coordination, regulatory support, and other services associated with the operation of Gravity Reactors over time. +These services may generate recurring revenue streams throughout the operating life of reactor installations and may be provided either directly by the Company or indirectly through arrangements the Company may establish with qualified nuclear operations partners. +Flexibility of Project and Commercial Structures +The Company expects that project structures and commercial arrangements may vary across projects. In some cases, Deep Fission may participate directly in project ownership and project-level electricity sales. In some cases (which may include cases where the Company participates directly in project ownership), the Company may provide technology, development, deployment, licensing, or operational services in support of projects owned or financed by third parties. +As a result, the mix of revenue that may be derived directly or indirectly by the Company from electricity sales, project development activities, technology licensing, and operations support may differ depending on the structure of a particular project. +6. Target Markets +Deep Fission’s target markets consist of electricity customers and energy markets that require reliable, affordable baseload power and that may benefit from modular nuclear generation located near the point of demand. The Company believes that the Gravity Reactor may be well suited for applications where electricity demand is large, continuous, and difficult to satisfy using other generation sources alone. +While the Company has not yet deployed commercial reactors, it is evaluating potential opportunities across several end-use markets where long-term electricity demand growth and reliability requirements may support the deployment of Gravity Reactor facilities. +Data Centers and Digital Infrastructure +Deep Fission’s initial commercial focus is on hyperscale data centers and other digital infrastructure facilities that require large quantities of reliable electricity. Data centers supporting cloud computing, artificial intelligence workloads, and large-scale data processing often operate continuously and require stable baseload power supply. +Demand for electricity associated with digital infrastructure has increased significantly in recent years as the scale of computing infrastructure has expanded. Many data center operators seek long-term energy supply arrangements to support the continuous operation of these facilities, particularly in regions where grid capacity is constrained or where new generation resources are required to meet projected electricity demand. +The Company believes that modular nuclear generation may provide an attractive solution for data center operators seeking reliable, cost-efficient power over long time horizons, with the ability to scale capacity as demand increases. +10 +Table of Contents +Industrial and Energy-Intensive Facilities +Industrial facilities represent another potential market for Gravity Reactor deployments. Certain industries—including advanced manufacturing, mining, chemical production, and large-scale processing facilities—require significant quantities of reliable electricity to support continuous operations. +These facilities may benefit from dependable baseload power generation capable of supporting uninterrupted operations and reducing reliance on weather-dependent energy sources. In some cases, industrial operators may also seek to reduce emissions associated with electricity consumption, which may increase demand for low-carbon power generation technologies. +Utilities and Grid-Scale Generation +Electric utilities and other power generation developers may represent another potential customer group for Gravity Reactor installations. Utilities are responsible for maintaining reliable electricity supply within their service territories and may seek additional sources of firm generation capacity to support growing electricity demand, replacement of retiring generation assets, or integration of intermittent renewable generation resources. +Modular nuclear generation may provide utilities with an additional option for reliable, affordable electricity generation that can operate continuously and provide stable grid support. +Government and Defense Installations +Government and defense facilities represent potential deployment opportunities for Gravity Reactor technology. Certain installations require reliable electricity supply to support mission-critical operations and may seek energy solutions capable of operating independently of external grid disruptions. +In some cases, distributed nuclear generation may offer advantages for installations requiring high levels of energy security, resilience, and long-term operational reliability. A deep underground environment also has the potential to provide security benefits. +Geographic Focus +Deep Fission’s initial market focus is within the United States, where electricity demand growth, expanding digital infrastructure, and evolving energy policy are creating increasing demand for reliable, affordable electricity generation. +The Company is evaluating international opportunities, particularly in jurisdictions that maintain civil nuclear cooperation agreements with the United States and that support the deployment of advanced nuclear technologies. Any international deployment would be subject to applicable export control regulations, international agreements, and local regulatory approvals. +7. Competition +The market for SMR and other advanced nuclear energy technologies is evolving and includes a range of companies developing new reactor designs, as well as established nuclear vendors and energy infrastructure providers. Deep Fission competes broadly with other developers of advanced nuclear technologies as well as with other sources of energy generation that may serve similar end-use markets. The Company may also compete with utilities that own or operate existing nuclear generation assets or other dispatchable generation resources, such as natural gas-fired power plants or other generation sources capable of producing electricity on demand. +Competition in the energy sector is influenced by a number of factors, including technology maturity, regulatory approval pathways, capital requirements, deployment timelines, safety characteristics, operating and capital costs, access to fuel supply chains, manufacturing capabilities, and the ability to secure project financing and customer commitments. +Advanced Reactor and SMR Developers +A number of companies are developing advanced nuclear reactor technologies intended to provide smaller-scale or modular nuclear power generation. These developers are pursuing a range of reactor designs, including sodium-cooled reactors, molten salt reactors, high-temperature gas reactors, and other advanced nuclear technologies. +11 +Table of Contents +Companies active in this sector include TerraPower, X-energy, Kairos Power, Oklo, and others developing advanced reactor concepts that differ significantly from conventional light-water reactor designs. +Other companies are pursuing smaller-scale nuclear reactors, including SMR designs based on more conventional light-water reactor technology (including PWR technology). These include both established nuclear industry participants, such as GE-Hitachi, Westinghouse and Holtec, as well as newer entrants such as NuScale Power and Last Energy. These companies are generally pursuing above-ground reactor installations using modular construction techniques and are seeking to reduce construction timelines and capital requirements relative to large nuclear power plants. +Illustrative Advanced Reactor Technologies +Company +Reactor Type +Cooling Technology +Deployment Approach +TerraPower +Sodium fast reactor +Liquid sodium +Above-ground plant +X-energy +High-temperature gas reactor +Helium gas +Above-ground plant +Kairos Power +Molten salt reactor +Molten salt +Above-ground plant +Oklo +Fast reactor +Liquid metal +Modular above-ground reactor +NuScale Power +Light-water SMR +Water +Modular above-ground reactor +Last Energy +Light-water SMR +Water +Factory-built above-ground reactors +Deep Fission +PWR-based SMR +Water +Deep borehole underground deployment +​ +Conventional Nuclear Vendors +Deep Fission may also compete with established nuclear technology vendors and reactor developers that supply large-scale nuclear reactors. Companies such as Westinghouse Electric Company, EDF, and GE-Hitachi Nuclear Energy have decades of experience designing and deploying nuclear power plants and continue to develop new reactor technologies, including large advanced reactors and small modular reactor designs. +These companies benefit from established engineering capabilities, deployment experience, manufacturing infrastructure, and long-standing relationships with utilities and governments. +Other Energy Technologies +Deep Fission also competes indirectly with other sources of energy generation that may serve similar markets, including renewable energy technologies such as wind and solar power, natural gas-fired generation, and energy storage systems. +Renewable generation technologies have experienced significant cost reductions in recent years and represent a substantial portion of new electricity generation capacity in many markets. However, renewable energy sources may be intermittent and may require complementary firm generation or storage resources to provide continuous power supply. +Natural gas generation remains a major source of electricity in many markets due to its operational flexibility and relatively low capital cost, although it produces greenhouse gas emissions and may be subject to evolving regulatory and policy considerations related to such emissions. +The Company’s ability to compete successfully will depend on a number of factors, including technological development, regulatory approvals, capital and operating costs, project financing, manufacturing capabilities, supply chain development, and the ability to secure suitable deployment sites and commercial customers. +12 +Table of Contents +8. Regulatory Matters +We are subject to extensive U.S. federal, state, and local laws and regulations, as well as international obligations, governing the design, construction, operation, export, and decommissioning of nuclear reactors and the use of nuclear materials. Our ability to develop and deploy our reactors depends on compliance with these regulatory frameworks, which may evolve over time. +United States Regulations +Atomic Energy Act of 1954 and Energy Reorganization Act of 1974 +The Atomic Energy Act (“AEA”) is the foundation of nuclear regulation in the United States. It establishes the framework for civilian nuclear energy, including the development, licensing, and regulation of nuclear facilities and materials. Pursuant to the AEA, the DOE and NRC exercise regulatory authority over nuclear reactors. +U.S. Department of Energy +Under the AEA, the DOE retains authority over research, development, and demonstration of reactors where DOE maintains ownership or sufficient control. Pursuant to Executive Order 14301 (May 23, 2025), the DOE established the DOE Reactor Pilot Program to authorize “qualified test reactors” (defined in Section 2 of Executive Order 14301) outside of national laboratories. Deep Fission was selected by the DOE on August 12, 2025, as one of 11 projects eligible for authorization under the DOE Reactor Pilot Program. The DOE’s authorization pathway is intended to accelerate reactor testing and demonstration. Importantly, the DOE’s authority does not extend to licensing reactors for commercial operation. +Nuclear Regulatory Commission +The NRC has exclusive authority over commercial “utilization facilities” in the United States. Current NRC regulations govern reactor design certification, combined construction and operating licenses, operating requirements, quality assurance, emergency planning, security, decommissioning, and financial assurance. The NRC also regulates the possession, packaging and transportation of nuclear material as well as storage of used nuclear fuel. Any transition from DOE-authorized test reactors to commercial deployment requires licensing by the NRC as a “utilization facility” under 10 C.F.R. Parts 50 and 52, or potentially under additional advanced-reactor frameworks pursuant to recent congressional and executive direction. +NRC licensing under 10 C.F.R. Part 50 involves a two-step process to obtain a construction permit followed by an operating license. Licensing under 10 C.F.R. Part 52 provides a one-step combined operating license approval (“COLA”) authorizing both construction and operation. NRC regulations also provide for standard design approvals (“SDAs”), which allow applicants to obtain NRC approval of a reactor design that can be referenced later in a COLA. These frameworks remain the NRC’s primary licensing mechanisms pending completion of the modernization initiatives described under “Regulatory Modernization” and “Completed and Active Rulemakings and Guidance.” +NRC Engagement and Feedback +In March 2024, we submitted a regulatory engagement plan to the NRC. Since then, we have participated in multiple pre-application meetings and received written and verbal feedback from NRC staff on elements of our conceptual design and safety approach. These interactions have included questions and observations regarding heat-transport systems, subsurface configuration, materials performance, probabilistic risk assessment methodology, and approaches to source-term evaluation. We also submitted a technical white paper to the NRC in June 2024 to support these discussions. +We are continuing pre-application engagement with the NRC to refine the content and timing of potential SDA or COLA submissions and to assess whether a new licensing framework, such as those under development in the Part 53 rulemaking or pursuant to Executive Order 14300, may offer a more appropriate pathway for our technology. Based on current planning assumptions, and subject to further NRC feedback, resource availability, and the results of our DOE-authorized pilot-reactor program, we do not expect to submit a comprehensive commercial licensing application before late 2026. Our ultimate licensing pathway and schedule will depend on the evolution of NRC regulatory modernization initiatives, the data generated under DOE oversight, and the resolution of technical questions identified during NRC pre-application engagement. +13 +Table of Contents +DOE Reactor Pilot Program and Impact on NRC Licensing +Our participation in the DOE Reactor Pilot Program is governed by the OTA, entered into with DOE on November 17, 2025. Under the OTA, the DOE will authorize, oversee, and evaluate our deep-borehole test reactor. DOE’s review includes oversight of safety-basis development; approval of commissioning and testing milestones; and evaluation of reactor performance. The OTA does not authorize commercial operation and does not replace the need for NRC licensing. +Data and experience generated under DOE oversight, including materials data, thermal-hydraulic validation, and commissioning performance, are expected to inform the content, sequencing, and scope of any subsequent license application submitted to the NRC. DOE authorization does not diminish the NRC’s statutory requirements for commercial licensing, and the DOE program is expected to inform how the NRC evaluates future commercial applications through the provision of technical information earlier in the licensing cycle. Completion of DOE-authorized commissioning, including demonstration of safety-related systems, is therefore expected to provide foundational data for subsequent NRC licensing submissions. +Regulatory Modernization +Existing NRC licensing frameworks were developed primarily for large light-water reactors. Several recent legislative and executive actions have directed the NRC to modernize its regulatory processes to better accommodate advanced reactors: +· +Nuclear Energy Innovation and Modernization Act (the “NEIMA”) (2019) – mandates a technology-inclusive, risk-informed, performance-based licensing framework and requires the NRC to establish and publish milestones for advanced reactor licensing activities. In response, the NRC initiated the 10 C.F.R. Part 53 rulemaking. +· +ADVANCE Act of 2024 – directs the NRC to develop microreactor-specific and performance-based regulatory strategies addressing eight topical areas, including staffing, inspections, security, emergency preparedness, transportation, and risk-informed methods. It also updates the NRC’s mission statement to explicitly recognize the national interest in enabling the deployment of nuclear energy. +· +Executive Order 14300 (May 2025) – requires the NRC to improve efficiency, transparency, and the scientific basis of its regulatory framework to establish more predictable licensing timelines. +These initiatives are expected to influence the structure, schedule, and technical requirements applicable to advanced reactors, including technologies such as the Gravity Reactor. +Completed and Active Rulemakings and Guidance +Regulatory Guide 1.242 promulgated by the NRC (the “Regulatory Guide”) supports a final rule that establishes performance-based requirements for emergency preparedness (“EP”) and applies to SMRs and non-light water reactors. The Regulatory Guide provides an alternative, performance-based EP framework with scalable emergency planning zones, available for applicants using 10 C.F.R. Parts 50 and 52. Parts 50 and 52 are the two existing licensing frameworks for nuclear power reactors under NRC regulations. +In the current NRC regulatory framework, 10 C.F.R. Parts 50 and 52 were developed primarily for licensing large light-water reactors. Pending the 10 C.F.R. Part 53 rulemaking (required under NEIMA) and additional rulemakings responsive to Executive Order 14300, Parts 50 and 52 continue to represent the principal pathways by which the NRC authorizes the siting, construction, and operation of nuclear plants. The NRC is also pursuing performance-based revisions to 10 C.F.R. Part 73 security requirements tailored to the consequence profiles of advanced reactors and intended to reduce reliance on individual exemptions. +14 +Table of Contents +Impact of These Regulations on Deep Fission +We believe the regulatory reforms now under consideration have the potential to reduce historic barriers to the deployment of advanced reactors such as the Gravity Reactor. For commercial deployment, we currently anticipate seeking licensing under an existing pathway in 10 C.F.R. Part 50 or Part 52, or a new advanced-reactor regulation that is in development through ongoing NRC rulemakings, and we expect to rely on the emergency preparedness final rule and, as finalized, risk-informed security alternatives appropriate to our LEU-fueled, underground PWR design. We are monitoring the development of the Part 53 framework and related regulatory initiatives, including a new non-numbered framework under discussion, for potential benefits associated with licensing scope, review efficiency, and alignment with microreactor characteristics. We also participate in public meetings conducted pursuant to Executive Order 14300 to inform NRC implementation and to ensure that any adjustments to underlying policy assumptions are appropriately reflected in our safety basis and licensing materials. +Environmental Laws +Our projects are subject to various federal, state, local and foreign environmental laws, including the National Environmental Policy Act of 1969 (“NEPA”). DOE authorization decisions under the DOE Reactor Pilot Program constitute “major federal actions” pursuant to NEPA and therefore may require preparation of an Environmental Assessment (“EA”) or Environmental Impact Statement (“EIS”). In June 2025, DOE published new procedures for its implementation of NEPA, which it published to its website outside of the Code of Federal Regulations. Changes to the procedures were made, in part, in response to Executive Order 14301 (2025), which directed DOE to streamline NEPA reviews consistent with law. +In certain cases, DOE has historically applied a Categorical Exclusion (“CX”) under NEPA to demonstration activities. One potentially applicable CX is B3.6 – Small-scale research and development, laboratory operations, and pilot projects, which covers siting, construction, modification, operation, and decommissioning of pilot projects that are consistent with existing industrial, experimental, or commercial practices and do not involve significant hazards. There is uncertainty as to how DOE will implement its new NEPA procedures in practice, although it has largely retained its CX categories. Additionally, in February 2026, DOE added a new CX for advanced nuclear reactors (B5.26) to its NEPA procedures. If DOE determines that our demonstration project qualifies for CX B3.6 or CX B5.26, our obligations to comply with NEPA may be less burdensome, thereby shortening the schedule for authorization. However, DOE retains discretion in applying CXs, and legal challenges to such determinations, or any EAs or EISs, are possible. +To mitigate NEPA-related risk, we are pursuing the following measures: +· +Site Selection : We intend to locate our initial demonstration on sites with existing industrial use and limited environmental sensitivity, which may support eligibility for CX treatment or a streamlined EA. +· +Early Engagement : We are coordinating with DOE NEPA staff and developing environmental baseline information to shorten review times and reduce uncertainty. +· +Adaptive Planning : Our project schedules and financing models incorporate contingency buffers to accommodate different levels of NEPA review, including the possibility of a full EIS if required. +Legal challenges under NEPA may be unavoidable, but we believe careful site selection, proactive environmental analysis, and early engagement with stakeholders may help reduce this risk. If we transition to NRC licensing for commercial deployment, the NRC would serve as the lead agency for NEPA review under 10 C.F.R. Part 51. The NRC typically prepares an EIS for new reactor licensing actions. +While NEPA reviews consider environmental impacts and may involve consultation under related statutes, including the Endangered Species Act, Clean Water Act, and National Historic Preservation Act, compliance with such laws is addressed through separate regulatory processes. The Company evaluates applicable environmental requirements as part of project planning and expects to comply with federal, state, and local environmental laws and regulations, including those relating to air emissions, wastewater discharges, land and water use (including drilling and groundwater protection-related regulations), management, transportation, use, handling, and disposal of hazardous and radioactive materials and waste, and remediation of releases of hazardous materials, to the extent applicable. In particular, the Company must comply with certain state-level regulations relating to well drilling and groundwater and aquifer protection, and may be required to perform unanticipated mitigation actions relating to such matters. The Company must also navigate environmental regulatory frameworks and processes that are more challenging for SMRs than conventional nuclear or other electricity generation facilities, as well as foreign regulatory frameworks in the international markets that the Company may explore, which may be unfamiliar to Company personnel. +15 +Table of Contents +Compliance with such requirements may have a material impact on our capital expenditures, earnings, or our competitive position by requiring us to incur significant capital expenditures, obtain and maintain permits or other regulatory approvals, conduct or fund environmental remediation, install pollution control equipment, or implement other operational controls or resulting in delays or other restrictions relating to the deployment or operation of our reactors. Failure to comply with such requirements could result in substantial fines, enforcement actions, litigation or orders affecting our operations. +Occupational Radiation Protection +Worker safety under DOE-authorized operations is governed by 10 C.F.R. Part 835 (Occupational Radiation Protection), among other regulations. If licensed by the NRC, we would be subject to the NRC’s occupational dose limits in 10 C.F.R. Part 20. Both frameworks limit annual radiation doses to workers and require comprehensive radiation protection programs. Placing the Gravity Reactor approximately one mile underground is designed to help provide long-term passive safety for workers by using the Earth’s deep subsurface as a natural containment and shielding system. +Export Controls +The export of nuclear technology, assistance, or materials is subject to DOE regulation 10 C.F.R. Part 810 and NRC regulation 10 C.F.R. Part 110, as well as international non-proliferation agreements. Our technology may be subject to export restrictions requiring DOE or NRC authorization, and unfavorable changes in U.S. export control laws or licensing policies could limit our ability to build reactors abroad. To mitigate this risk, we are prioritizing engagement with U.S. agencies at an early stage, focusing initial export opportunities on allied nations with existing civil nuclear cooperation agreements, and designing our reactors to use standard LEU fuel, which presents lower nonproliferation concerns than alternative fuels. We also intend to establish a comprehensive export compliance program to manage authorizations efficiently. Moreover, our domestic deployment opportunities following the DOE Reactor Pilot Program may provide an independent pathway to near-term revenue, reducing our reliance on international markets. +International Regulations +On an international level, the IAEA publishes safety standards and guidance for nuclear facilities, which influence national regulatory regimes. In the European Union, directives such as the 2013/59/Euratom Basic Safety Standards Directive and the 2011/70/Euratom Radioactive Waste and Spent Fuel Directive establish common requirements for nuclear safety and waste management. Export of U.S. nuclear technology also must comply with bilateral nuclear cooperation agreements between the United States and partner countries. +9. Intellectual Property +Our intellectual property portfolio is designed to protect key elements of the Gravity Reactor, including reactor configuration, deep subsurface emplacement, drilling and casing techniques, thermal-hydraulic performance, instrumentation and monitoring, and other technologies supporting the deployment of underground nuclear reactors. +We rely on a combination of patents, patent applications, trademarks, trade secrets and proprietary know-how, and contractual protections to safeguard our technology and maintain our competitive position. +As of the date of this Annual Report, our intellectual property portfolio consists of one issued U.S. patent and 26 patent applications (including one U.S. patent application that has been allowed for issuance), including: +· +2 U.S. non-provisional applications (one of which has been allowed for issuance) +· +5 U.S. provisional applications +· +4 Patent Cooperation Treaty (“PCT”) applications +· +15 foreign applications filed in multiple jurisdictions, including Europe and Asia +Our issued U.S. patent (U.S. Patent No. 12,469,612) is expected to provide protection until approximately November 2043, subject to potential adjustments and the payment of maintenance fees. In addition, our U.S. patent application relating to a nuclear reactor system architecture within a borehole (U.S. Application No. 18/703,455) has been allowed for issuance and is expected to issue as a patent following payment of applicable fees. There can be no assurance that pending applications will result in issued patents. +16 +Table of Contents +We believe that our intellectual property portfolio contributes to our competitive position, particularly with respect to reactor deployment and subsurface emplacement. We seek to protect our intellectual property through patent, trademark, and trade secret laws in the United States and foreign jurisdictions, as well as through confidentiality and contractual protections. Unpatented research, development, know-how, and engineering expertise also contribute meaningfully to our business. We pursue patent protection when it aligns with our broader strategy for safeguarding intellectual property. +Patent Portfolio Overview +The table below summarizes our primary patent families relating to the design, safety systems, subsurface emplacement, thermal-hydraulic performance, drilling methods, and other core components of the Gravity Reactor. Patent families include U.S. and foreign applications derived from a common priority filing. +All patents and patent applications in our portfolio are owned directly by the Company, and we do not license any material intellectual property from third parties. +Technology Area +Protection Type +Status +Jurisdiction +Estimated Expiration +Deep subsurface reactor emplacement and borehole design +U.S. utility patent and foreign patent applications +Issued as U.S. Patent No. 12,469,612 +U.S., Europe, Asia +2043 +Nuclear reactor within a borehole, including coolant systems and heat exchange configuration +U.S. non-provisional application and foreign patent applications +Allowed for issuance (U.S. Application No. 18/703,455) +U.S., PCT, select foreign +2044–2045 (estimated) +Reactor module configuration, thermal-hydraulic systems, and passive safety features +Non-provisional and foreign applications +Pending +U.S., Europe, Asia +2044–2046 (estimated) +Drilling, casing, and emplacement techniques for nuclear applications +U.S. provisional, PCT, and foreign applications +Pending +U.S., PCT, select foreign +2045–2046 (estimated) +Instrumentation, control, and monitoring systems for deep-borehole reactors +U.S. and foreign applications +Pending +U.S., PCT +2044–2046 (estimated) +Heat extraction and surface power-conversion interface systems +U.S. and foreign applications +Pending +U.S., PCT +2046 (estimated) +​ +We believe that these patent families, together with our trade secrets and engineering know-how, help create barriers to entry for competitors seeking to replicate aspects of our reactor design, deep subsurface architecture, or deployment model. In particular, portions of our intellectual property portfolio relate to methods and systems for deploying nuclear reactor modules in deep boreholes, including techniques for reactor emplacement, drilling and casing configuration, and thermal management within subsurface environments. We believe these technologies are important to enabling the Gravity Reactor and differentiating it from conventional above-ground reactor deployments. +Strategy for Protecting Intellectual Property +Our intellectual property strategy focuses on: +· +protecting innovations related to safety, deployment speed, cost efficiency, and manufacturability +17 +Table of Contents +· +maintaining trade secrets related to design methods, modeling tools, safety analyses, and engineering processes +· +filing patent applications in jurisdictions where we anticipate future commercial activity or manufacturing +· +continuously reviewing our portfolio for opportunities to file additional applications as development progresses +Unpatented know-how, including reactor modeling, safety analysis, drilling expertise, and systems engineering, forms an important component of our competitive position and is protected through internal controls, confidentiality obligations, and other contractual measures. +Confidentiality and Assignment Obligations +All employees, consultants, and contractors with access to proprietary information are required to sign non-disclosure and invention-assignment agreements. We also use non-disclosure agreements when engaging with potential commercial counterparts (including potential customers and suppliers) and government agencies. These protections help ensure that rights to our proprietary technology, data, and inventions remain with the Company. +10. Employees +Human Capital Management +Our ability to develop and commercialize the Gravity Reactor depends on attracting and retaining highly skilled technical and operational personnel. Our human capital management approach focuses on recruiting experienced professionals, supporting employee development, and maintaining a collaborative and safe working environment as we advance our reactor technology and business operations. Management monitors employee retention, recruiting effectiveness, and the ability to attract specialized nuclear engineering talent as key indicators of human capital performance. +As of the date of this Annual Report, we had 51 employees and 9 consultants. Our employees and consultants operate through a combination of remote and in-person work arrangements across multiple time zones and are currently located in the United States and the Netherlands. +By primary job function, the majority of our employees are engineers engaged in reactor design, modeling, and related technical development activities. The remainder perform functions in business development, legal, public relations, and other administrative roles. +None of our employees are represented by a labor union or covered by a collective bargaining agreement. +Competitive Pay and Benefits +We provide compensation and benefits packages designed to be competitive within our industry, including a combination of cash and equity compensation. Our benefits programs include retirement programs, paid time off, and health benefits intended to support employee well-being and long-term retention. +Employee Recruitment, Retention, and Development +We seek to recruit and retain highly qualified personnel with expertise in nuclear engineering, drilling technology, regulatory affairs, and related disciplines. We believe our compensation structure, professional development opportunities, and collaborative work environment support employee retention and long-term engagement. We monitor employee turnover and seek to maintain a stable and experienced technical workforce as our operations grow. +18 +Table of Contents +11. Market and Industry Data +This Annual Report also contains estimates, projections and other information concerning our industry and the markets in which we operate, including the markets for nuclear energy and related technologies. Much of this information consists of forward-looking statements subject to the disclaimers and risks described herein. However, even the historical information is based on estimates, forecasts, projections, market studies or similar methodologies that are inherently subject to uncertainties and assumptions, and actual results may differ materially from those expressed or implied by such information. Unless otherwise expressly stated, we obtained industry, market and other data from our own estimates and research, as well as from reports, research surveys, studies and similar data prepared by third parties, industry sources and governmental sources that we believe to be reliable. However, we have not independently verified such third-party information and do not make any representation as to its accuracy or completeness. +12. Available Information +Our filings with the SEC are available free of charge on our website, www.deepfission.com, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The SEC maintains an Internet website, www.sec.gov, that contains reports, proxy statements, and other information regarding issuers that file electronically with the SEC. The information contained on, or accessible through, our website and the SEC’s website is not incorporated by reference into this Annual Report, and the references to our website and the SEC’s website are intended to be inactive textual references only. \ No newline at end of file diff --git a/raw/filings/0001918102/2025/0001104659-26-043870/item13.txt b/raw/filings/0001918102/2025/0001104659-26-043870/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..1c731963b144eddd614d1f93f14b0f0bd27957fd --- /dev/null +++ b/raw/filings/0001918102/2025/0001104659-26-043870/item13.txt @@ -0,0 +1,4 @@ +Item 13. +​ +Certain Relationships and Related Transactions, and Director Independence +64 \ No newline at end of file diff --git a/raw/filings/0001918414/2025/0001213900-26-032632/filing.txt b/raw/filings/0001918414/2025/0001213900-26-032632/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..cb928b00353727ad914fe4f180619790030f90f7 --- 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13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the fiscal year ended December 31 , 2025 +or +☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the transition period from _____________ to ______________ +Newbridge Acquisition Limited +(Exact name of registrant as specified in its charter) +British Virgin Islands 001-42968 N/A +(State or other jurisdiction +of incorporation) (Commission File Number) (I.R.S. Employer +Identification No.) +Unit B 17/F , Success Commercial Building +245-25 , Hennessy Road , Wanchai , Hong Kong +N/A +(Address of Principal Executive Offices) (Zip Code) +Registrant’s telephone number, including area code: (86) 186-0217-2929 +Securities registered pursuant to Section 12(b) of the Act: +Title of each class Trading Symbol(s) Name of each exchange on which registered +Units, each consisting of one Class A Ordinary Share, no par value, and one Right entitling the holder to receive one -eighth of one Class A Ordinary Share NBRGU The NASDAQ Stock Market LLC +Class A Ordinary Shares NBRG The NASDAQ Stock Market LLC +Rights NBRGR The NASDAQ Stock Market LLC +Securities registered pursuant to Section 12(g) of the Act: None. +Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ +Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐ No ☒ +Indicate by check mark whether the registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ +Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ +Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. +Large accelerated filer ☐ Accelerated filer ☐ +Non-accelerated filer ☒ Smaller reporting company ☒ +Emerging Growth Company ☒ +If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ +Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐ +If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐ +Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ +Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☒ No ☐ +At June 30, 2025, the last business day of the registrant’s most recently completed second fiscal quarter, the registrant’s securities were no public traded. Therefore, the aggregate market value of the Registrant’s ordinary shares held by non-affiliates of the Registrant was $ 0 . +As of March 23, 2026, the Registrant had 7,546,250 ordinary shares outstanding (inclusive of shares included in our units), including 6,108,750 Class A ordinary shares underlying the units, and 1,437,500 Class B ordinary shares issued and outstanding. +DOCUMENTS INCORPORATED BY REFERENCE +None. +Newbridge Acquisition Limited +Annual Report on Form 10-K for the Year Ended +December 31, 2025 +part I +1 +ITEM 1. +BUSINESS +1 +ITEM 1A. +RISK FACTORS +30 +ITEM 1B. +UNRESOLVED STAFF COMMENTS +31 +ITEM 1C. +CYBERSECURITY +31 +ITEM 2. +PROPERTIES +31 +ITEM 3. +LEGAL PROCEEDINGS +31 +ITEM 4. +MINE SAFETY DISCLOSURES +31 +part II +32 +ITEM 5. +MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES +32 +ITEM 6. +[RESERVED] +33 +ITEM 7. +MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS +33 +ITEM 7A. +QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK +36 +ITEM 8. +FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA +36 +ITEM 9. +CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE +36 +ITEM 9A. +CONTROLS AND PROCEDURES +36 +ITEM 9B. +OTHER INFORMATION +37 +ITEM 9C. +DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS +37 +part III +38 +ITEM 10. +DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE +38 +ITEM 11. +EXECUTIVE COMPENSATION +49 +ITEM 12. +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS +50 +ITEM 13. +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE +52 +ITEM 14. +PRINCIPAL ACCOUNTANT FEES AND SERVICES +55 +part IV +56 +ITEM 15. +EXHIBITS AND FINANCIAL STATEMENT SCHEDULES +56 +ITEML 16. +FORM 10-K SUMMARY +58 +i +CERTAIN TERMS +When used throughout +this annual report on Form 10-K, references to: +● references to +“amended and restated memorandum and articles of association” are to the amended +and restated memorandum and articles of association that the Company adopted immediately +prior to or upon the consummation of the IPO; +● references to +“affiliate” are to a corporation, limited liability company, an individual or +other entity that controls, is controlled by, or is under common control with our company +or any of our company’s subsidiaries; +● references to +“BVI” are to the British Virgin Islands; +● references to +the “Board” are to our Board of Directors. +● “completion +window” are to (i) the period ending on the date that is 15 months (or up +to 21 months from the closing of the IPO if we extend the period of time to consummate +a business combination by the full amount of time without shareholder approval) from the +closing of the IPO, or such earlier liquidation date as our board of directors may approve, +in which we must complete an initial business combination or (ii) such other time period +in which we must complete an initial business combination pursuant to an amendment to our +amended and restated memorandum and articles of association. Our shareholders can also vote +at any time to amend our amended and restated memorandum and articles of association to modify +the amount of time we will have to complete an initial business combination, in which case +our public shareholders will be offered an opportunity to redeem their public shares; +● references to +the “Companies Law” are to the BVI Business Companies Act, (Revised Edition 2020) +as the same may be amended and supplemented from time to time; +● references to +“directors” are to our current directors; +● references to +“founder shares” are to the 1,437,500 Class B ordinary shares purchased +by the initial shareholders for an aggregate purchase price of $25,000, or approximately +$0.017 per share, currently held by the initial shareholders; +● references to +our “IPO” or “initial public offering” are to the initial public +offering of our securities pursuant to our prospectus, which offering was consummated on +February 2, 2026. +● references to +our “initial shareholders” are to the sponsor and the directors and officers +who hold the founder shares; +● references to +our “management” or our “management team” are to our officers and +directors; +● references to +“NASDAQ” are to the NASDAQ Capital Market. +ii +● references to +“ordinary shares” are to our Class A ordinary shares of no par value each +and our Class B ordinary shares of no par value; +● references to +our “private shares” are to the Class A ordinary shares included in the +private units; +● references to +our “private rights” are to the rights included in the private units; +● references to +the “PRC” are to the People’s Republic of China including Hong Kong +and Macau; +● references to +our “private units” are to the units, each consisting of one ordinary share and +one right, that the sponsor purchased privately from us in a private placement concurrent +with the IPO, as well as any units issued upon conversion of working capital loans; +● references to +our “public shares” are to Class A ordinary shares which were sold as part +of the units in the IPO (whether they are purchased in the IPO or thereafter in the open +market); +● references to +“public shareholders” refer to the holders of our public shares, including our +initial shareholders to the extent our initial shareholders purchase public shares, provided +that their status as “public shareholders” shall exist only with respect to such +public shares; +● references to +the “representative” are to Kingswood Capital Partners, LLC, the representative +of the underwriters; +● references to “representative shares” are to +172,500 Class A ordinary shares issued as compensation to the representative and its designees, upon the closing of the IPO; +● references to “rights” or “public rights” +refer to the rights which were sold as part of the units in the IPO; +● +references to the “sponsor” are to Wealth Path Holdings Limited, a BVI business company whose ultimate beneficial owner is Jining Li, our director; and +● references to +the “SEC” are to the U.S. Securities and Exchange Commission. +● references to +“we,” “us,” “company” or “our company” are +to Newbridge Acquisition Limited, a BVI business company. +iii +SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS +Certain statements contained +in this annual report, which reflect our current views with respect to future events and financial performance, and any other statements +of a future or forward-looking nature, constitute “forward-looking statements” for the purpose of the federal securities +laws. Our forward-looking statements include, but are not limited to, statements regarding our or our management’s expectations, +hopes, beliefs, intentions or strategies regarding the future. In addition, any statements that refer to projections, forecasts or other +characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words +“anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” +“intends,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” +“project,” “should,” “would” and similar expressions may identify forward-looking statements, +but the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements in this annual +report may include, for example, statements about: +● our ability to complete our +initial business combination; +● our success in retaining or +recruiting, or changes required in, our officers, key employees or directors following our initial business combination; +● our officers and directors +allocating their time to other businesses and potentially having conflicts of interest with our business or in approving our initial +business combination, as a result of which they would then receive expense reimbursements; +● our potential ability to obtain +additional financing to complete our initial business combination; +● our pool of prospective target +businesses, including their industry and geographic location; +● the ability of our officers +and directors to generate a number of potential investment opportunities; +● failure to list or delisting +of our securities from NASDAQ or an inability to have our securities listed on NASDAQ following a business combination; +● our public securities’ +potential liquidity and trading; +● the lack of a market for our +securities; or +● our financial performance following +the IPO or an initial business combination. +The forward-looking statements +contained in this annual report are based on our current expectations and beliefs concerning future developments and their potential +effects on us. Future developments affecting us may not be those that we have anticipated. These forward-looking statements involve a +number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance +to be materially different from those expressed or implied by these forward-looking statements. +These risks and uncertainties +include, but are not limited to, those factors described under the heading “Risk Factors” in the Prospectus. Should one or +more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material +respects from those projected in these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, +whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. +iv +PART I +ITEM 1. BUSINESS +General +Newbridge Acquisition Limited +is a blank check company incorporated for the purpose of entering into a merger, share exchange, asset acquisition, share purchase, recapitalization, +reorganization or similar business combination with one or more businesses or entities, which we refer to throughout this annual report +as our initial business combination. Our efforts to identify a prospective target business will not be limited to a particular industry +or geographic region. +On February 2, 2026, we consummated +our IPO of 5,000,000 units pursuant to the Company’s registration statement on Form S-1 (File No. 333-289966) with respect to the +IPO. Each unit consists of one Class A ordinary share, no par value, and one right to receive one-eighth (1/8) of one Class A ordinary +share upon the consummation of an initial business combination. The units were sold at an offering price of $10.00 per Unit, generating +gross proceeds of $50,000,000. Pursuant to that certain underwriting agreement, dated January 29, 2026, we granted Kingswood Capital +Partners, LLC, the representative of the underwriters, a 45-day option to purchase up to an additional 750,000 Units solely to cover +over-allotments, if any (the “Over-Allotment Option”). Simultaneously with the consummation of the IPO, the underwriters +exercised the Over-Allotment Option in full, generating total proceeds of $7,500,000. +Simultaneously with the closing +of the IPO on February 2, 2026, we consummated the private placement (“Private Placement”) with Wealth Path Holdings Limited +(the “Sponsor”) of 186,250 units (the “Private Units”), generating total proceeds of $1,862,500. The Private +Units are identical to the Units sold in the IPO. Additionally, the Sponsor agreed not to transfer, assign, or sell any of the Private +Units or underlying securities (except in limited circumstances, as described in the Registration Statement) until 30 days after the +completion of our initial business combination or earlier if, subsequent to our initial business combination, we consummate a subsequent +liquidation, merger, stock exchange or other similar transaction which results in all of our shareholders having the right to exchange +their ordinary shares for cash, securities or other property. The Sponsor was granted certain demand and piggyback registration rights +in connection with the purchase of the Private Units. +On February 2, 2026, a total +of $57,500,000 of the net proceeds from the sale of the Units in the IPO and the Private Placement were deposited in a trust account +established for the benefit of the Company’s public shareholders at Citibank, +N.A. maintained by Equiniti Trust Company, LLC , acting as trustee +(the “Trust Account”). Except for all interest income that may be released to us to pay taxes, and up to $50,000 to pay dissolution +expenses, none of the funds held in the trust account will be released from the trust account until the earlier of: (1) the completion +of our initial business combination within the required time period; (2) our redemption of 100% of the outstanding public shares if we +have not completed an initial business combination in the required time period; and (3) the redemption of any public shares properly +tendered in connection with a shareholder vote to amend our amended and restated memorandum and articles of association (A) to modify +the substance or timing of our obligation to redeem 100% of our public shares if we do not complete our initial business combination +within the required time period or (B) with respect to any other provision relating to shareholders’ rights or pre-business combination +activity. +Our principal executive offices +are located in the Hong Kong, China (“PRC” or “China”). The sponsor, Wealth Path Holdings Limited, and all members +of our board of directors and management have significant business ties to or are based in China. Our efforts to identify a prospective +target business will not be limited to a particular industry or geographic region. As such, although we are not targeting target companies +in China, we may consider an initial business combination with a target business with a physical presence or other significant ties to +China (including Hong Kong and Macau). However, given the risks and uncertainties of doing business in China discussed elsewhere +in this annual report, the location and ties of the sponsor and members of our board of directors and management to China may make us +a less attractive partner to a target company not based in China, which may thus increase the likelihood that we will consummate a business +combination with a target company that is located in China or not consummate a business combination at all. Our ties to the PRC may make +us less likely to consummate a business combination with any target company outside of the PRC, which may result in non-PRC target +businesses having increased leverage over us in negotiating an initial business combination knowing that if we do not complete our initial +business combination within a certain timeframe, we may be unable to complete our initial business combination with any target business. +If we fail to complete an initial business combination in the prescribed timeframe, we will cease all our operations and would redeem +our public shares and liquidate, in which case our public shareholders may receive only $10.00 per share, or less than such amount in +certain circumstances, based on the amount available in our trust account on a per share basis, and our rights will expire worthless. +1 +Since our principal executive +offices are located in Hong Kong, and all of our directors and officers have significant ties to China, the Chinese government may have +significant oversight and discretion over the conduct of our directors’ and officers’ search for a target company. The Chinese +government may intervene or influence our operations at any time through the directors and officers who have significant ties to China, +which could result in a material change in our search for a target business and/or the value of the securities we are offering. Changes +in the policies, regulations, rules, and the enforcement of laws of the PRC government may be adopted quickly with little advance notice +and could have a significant impact upon our ability to operate and may limit or completely undermine our ability to search for a target +company. +Further, our initial shareholders, +including the sponsor, own approximately 21.52% of our issued and outstanding shares. As a result, we may be considered a “foreign +person” under rules promulgated by the Committee on Foreign Investment in the United States (“CFIUS”) and may +not be able to complete an initial business combination with a U.S. target company since such initial business combination may be +subject to U.S. foreign investment regulations and review by a U.S. government entity such as CFIUS, or ultimately prohibited. +As a result, the pool of potential targets with which we could complete an initial business combination may be limited. However, we will +not conduct an initial business combination with any target company that conducts operations through variable interest entities (“VIEs”), +which are a series of contractual arrangements used to provide the economic benefits of foreign investment in Chinese-based companies +where Chinese law prohibits direct foreign investment in the operating companies. +As a result, our absolute position +against doing a business combination with a company that conducts operations through a VIE, may limit the pool of acquisition candidates +we may acquire in the PRC, in particular, due to the relevant PRC laws and regulations against foreign ownership of and investment in +certain assets and industries, known as restricted industries. Furthermore, this may also limit the pool of acquisition candidates we +may acquire in the PRC relative to other special purpose acquisition companies that are not subject to such restrictions, which could +make it more difficult and costly for us to consummate a business combination with a target business operating in the PRC relative to +such other companies. +Other than Yongsheng Liu, our +Chief Executive Officer and Chairman of Board of Directors, our officers and directors (including our independent directors) are either +citizens of the PRC or reside in China, including Hong Kong. As a result, it may be difficult for you to effect service of process upon +us or those persons residing in China. Even with service of process, there is uncertainty as to whether courts in China would (i) recognize +or enforce judgments of United States courts obtained against us or our directors or officers predicated upon the civil liability +provisions of the securities laws of the United States or any state in the United States or (ii) entertain original actions +brought in China against us or our directors or officers predicated upon the securities laws of the United States or any state in +the United States. +Recognition and enforcement +of foreign judgments are provided for under China’s Civil Procedure Law. China’s courts may recognize and enforce foreign +judgments in accordance with the requirements of the Civil Procedures Law based either on treaties between China and the country where +the judgment is made or on reciprocity between jurisdictions. There are no treaties between China and the United States for the +mutual recognition and enforcement of court judgments, thus making the recognition and enforcement of a U.S. court judgment against +us or our directors or officers in China difficult. +2 +We are also subject to other +risks and uncertainties about any future actions of the PRC government, which may result in a material change in operations of a target +business. PRC laws and regulations are sometimes vague and uncertain, and therefore, these risks may result in a material change in operations +of a target business, significant depreciation of the value of our ordinary shares, or a complete hindrance of our ability to offer or +continue to offer our securities to investors. Recently, the PRC government initiated a series of regulatory actions and statements to +regulate business operations in China with little advance notice, including cracking down on illegal activities in the securities market, +enhancing supervision over China-based companies listed overseas that use a VIE structure, adopting new measures to extend the scope +of cybersecurity reviews, and expanding efforts in anti-monopoly enforcement. +Since these statements and regulatory +actions are new, it is highly uncertain how soon legislative or administrative regulation-making bodies will respond and what existing +or new laws or regulations or detailed implementations and interpretations will be modified or promulgated, if any, and the potential +impact such modified or new laws and regulations will have on a China-based target company’s daily business operation, the +ability to accept foreign investments and list on a U.S. or other foreign exchange. Additionally, if we effect our initial business +combination with a business located in the PRC, the laws applicable to such business will likely govern all of our material agreements +and we may not be able to enforce our legal rights. There are uncertainties regarding the interpretation and enforcement of PRC laws, +rules and regulations which may have a material adverse impact on the value of our securities. If we enter into a business combination +with a target business operating in China, cash proceeds raised from overseas financing activities, including the IPO, may be transferred +by us to any future PRC subsidiaries via capital contribution or shareholder loans, as the case may be. All these risks could result +in a material change in our or the target company’s post-combination operations and/or the value of our ordinary shares or +could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value +of such securities to significantly decline or become worthless. +Furthermore, the PRC government +has significant authority to exert influence on the ability of a China-based company to conduct its business, make or accept foreign +investments or list on a U.S. stock exchange. For example, if we enter into a business combination with a target business operating +in China, the combined company may face risks associated with regulatory approvals of the proposed business combination between us and +the target, offshore offerings, anti-monopoly regulatory actions, cybersecurity and data privacy. The PRC government may also intervene +with or influence the combined company’s operations at any time as the government deems appropriate to further regulatory, political +and societal goals. +The PRC government has recently +published new policies that significantly affected certain industries such as the education and internet industries, and we cannot rule +out the possibility that it will in the future release regulations or policies regarding any industry that could adversely affect our +potential business combination with a PRC operating business and the business, financial condition and results of operations of the combined +company. Any such action, once taken by the PRC government, could make it more difficult and costly for us to consummate a business combination +with a target business operating in the PRC, result in material changes in the combined company’s post-combination operations +and cause the value of the combined company’s securities to significantly decline, or become worthless or completely hinder the +combined company’s ability to offer or continue to offer securities to investors. +3 +On February 17, 2023, the +China Securities Regulatory Commission (the “CSRC”) promulgated the Trial Administrative Measures of Overseas Securities +Offering and Listing by Domestic Companies (the “Trial Measures”), which took effect on March 31, 2023. The Trial Measures +supersede prior rules and clarified and emphasized several aspects, which include but are not limited to: (1) comprehensive determination +of the “indirect overseas offering and listing by PRC domestic companies” in compliance with the principle of “substance +over form” and particularly, an issuer will be required to go through the filing procedures under the Trial Measures if the following +criteria are met at the same time: (a) 50% or more of the issuer’s operating revenue, total profit, total assets or net assets +as documented in its audited consolidated financial statements for the most recent accounting year comes from PRC domestic companies, +and (b) the main parts of the issuer’s business activities are conducted in mainland China, or its main places of business +are located in mainland China, or the senior managers in charge of its business operation and management are mostly Chinese citizens +or domiciled in mainland China; (2) exemptions from immediate filing requirements for issuers that (a) have already been listed +or registered but not yet listed in foreign securities markets, including U.S. markets, prior to the effective date of the Trial +Measures, (b) are not required to re-perform the regulatory procedures with the relevant overseas regulatory authority or the +overseas stock exchange, and (c) whose such overseas securities offering or listing shall be completed before September 30, +2023, provided however that such issuers shall carry out filing procedures as required if they conduct refinancing or are involved in +other circumstances that require filing with the CSRC; (3) a negative list of types of issuers banned from listing or offering overseas, +such as (a) issuers whose listing or offering overseas has been recognized by the State Council of the PRC as a possible threat +to national security, (b) issuers whose affiliates have been recently convicted of bribery and corruption, (c) issuers under +ongoing criminal investigations, and (d) issuers under major disputes regarding equity ownership; (4) issuers’ compliance +with web security, data security, and other national security laws and regulations; (5) issuers’ filing and reporting obligations, +such as the obligation to file with the CSRC after it submits an application for initial public offering to overseas regulators, and +the obligation after offering or listing overseas to report to the CSRC material events including a change of control or voluntary or +forced delisting of the issuer; and (6) the CSRC’s authority to fine both issuers and their shareholders between 1 and 10 million +RMB for failure to comply with the Trial Measures, including failure to comply with filing obligations or committing fraud and misrepresentation. +We believe we are not required +to obtain approvals from any PRC government authorities, including the CSRC or the Cyberspace Administration of China, or any other government +entity, to issue our securities to foreign investors and to list on a U.S. exchange or to search for a target company. As of the +date of this annual report, we have not received any inquiry, notice, warning, sanctions or regulatory objection to the IPO from the +CSRC or any other PRC governmental authorities. However, applicable laws, regulations, or interpretations of the PRC may change, and +the relevant PRC government agencies could reach a different conclusion and may subject us to a stringent approval process from the relevant +government entities in connection with the IPO, continued listing on a U.S. exchange, the potential business combination, the issuance +of shares or the maintenance of our status as a publicly listed company outside China, and the post business combination entity’s +PRC operations if our business combination target is a PRC Target Company. We may also be subject to registration with the CSRC following +the IPO pursuant to the Trial Measures. It is uncertain when and whether we will be required to obtain permission from the PRC government +to continue to list on a U.S. exchange in the future and offer our securities to foreign investors. If approval is required in the +future, including pursuant to the Trial Measures, and we are denied permission from Chinese authorities to list on U.S. exchanges +or offer our securities to foreign investors, we may not be able to continue listing on a U.S. exchange or be subject to other severe +consequences, which would materially affect the interest of the investors. In addition, any changes in PRC law, regulations, or interpretations +may severely affect our operations after the IPO. The use of the term “operate” and “operations” includes the +process of searching for a target business and conducting related activities. To that extent, we may not be able to conduct the process +of searching for a potential target company in China. +Subject to the considerations +set forth above, if we decide to consummate our initial business combination with a China-based company, the combined company may +make capital contributions or extend loans to any future PRC subsidiaries through intermediate holding companies subject to compliance +with relevant PRC foreign exchange control regulations. From our inception to the date of this annual report, no dividends or distributions +have been made. After an initial business combination with a China-based company, the combined company’s ability to pay dividends, +if any, to the shareholders and to service any debt it may incur will depend upon dividends paid by any future PRC subsidiaries. Under +PRC laws and regulations, PRC companies are subject to certain restrictions with respect to paying dividends or otherwise transferring +any of their net assets to offshore entities. In particular, under the current PRC laws and regulations, dividends may be paid only out +of distributable profits. Distributable profits are the net profit as determined under Chinese accounting standards and regulations, +less any recovery of accumulated losses and appropriations to statutory and other reserves required to be made. +A PRC company is required to +set aside at least 10% of its after-tax profits each year to fund certain statutory reserve funds (up to an aggregate amount equal +to half of its registered capital). As a result, the combined company’s PRC subsidiaries may not have sufficient distributable +profits to pay dividends to the combined company. Furthermore, if certain procedural requirements are satisfied, the payment in foreign +currencies on current account items, including profit distributions and trade and service related foreign exchange transactions, can +be made without prior approval from the State Administration of Foreign Exchange, or SAFE, or its local branches. However, where Renminbi +(“RMB”), the legal currency of the PRC, is to be converted into foreign currency and remitted out of China to pay capital +expenses, such as the repayment of loans denominated in foreign currencies, approval from or registration with competent government authorities +or its authorized banks is required. The PRC government may take measures at its discretion from time to time to restrict access to foreign +currencies for current account or capital account transactions. +4 +If the foreign exchange control +regulations prevent the PRC subsidiaries of the combined company from obtaining sufficient foreign currencies to satisfy their foreign +currency demands, the PRC subsidiaries of the combined company may not be able to pay dividends or repay loans in foreign currencies +to their offshore intermediary holding companies and ultimately to the combined company. We cannot assure you that new regulations or +policies will not be promulgated in the future, which may further restrict the remittance of RMB into or out of the PRC. We cannot +assure you, in light of the restrictions in place, or any amendment to be made from time to time, that the PRC subsidiaries of the combined +company will be able to satisfy their respective payment obligations that are denominated in foreign currencies, including the remittance +of dividends outside of the PRC. +To date, we have not pursued +an initial business combination and there have not been any capital contribution or shareholder loans by us to any PRC entities, we do +not yet have any subsidiaries, and we have not received, declared or made any dividends or distributions. +Pursuant to the Holding Foreign +Companies Accountable Act (“HFCA Act”), the Public Company Accounting Oversight Board (United States) (the “PCAOB”) +issued a Determination Report on December 16, 2021 which found that the PCAOB is unable to inspect or investigate completely registered +public accounting firms headquartered in (1) mainland China of the PRC because of a position taken by one or more authorities in +mainland China and (2) Hong Kong, a Special Administrative Region and dependency of the PRC, because of a position taken by +one or more authorities in Hong Kong. In addition, the PCAOB’s report identified the specific registered public accounting +firms which are subject to these determinations. +In December 2020, Congress +enacted the HFCA Act, and the SEC released interim final amendments that begin to address the components of this Act. In November 2021, +the SEC approved PCAOB Rule 6100, which establishes a process for determining which registered public accounting firms the board +is unable to inspect or investigate completely. In December 2021, the SEC adopted amendments to finalize its rules under the HFCA +Act that set forth submission and disclosure requirements for commission-identified issuers identified under the Act, specify the +processes by which the SEC will identify and notify Commission-Identified Issuers, and implement trading prohibitions after three +consecutive years of identification. +In December 2022, Congress +passed the omnibus spending bill and the President signed it into law. This spending bill included the enactment of provisions to accelerate +the timeline for implementation of trading prohibitions from three years to two years. Separately, on December 15, 2022, +the PCAOB published its determination that in 2022, the PCAOB was able to inspect and investigate completely registered public accounting +firms headquartered in mainland China and Hong Kong. This determination reset the now two-year clock for compliance with the +trading prohibitions for identified issuers audited by these firms. The amendment had originally been passed by the U.S. Senate +in June 2021, as the “ Accelerating Holding Foreign Companies Accountable Act .” +Our auditor, Enrome LLP, the +independent registered public accounting firm of our company, is headquartered in Singapore, registered with the PCAOB and subject to +inspection by the PCAOB. Enrome LLP is not headquartered in mainland China or Hong Kong and was not identified as a firm subject to the +PCAOB’s Determination Report announced on December 16, 2021. As a result, we do not believe that HFCA Act and related regulations +will affect us. Nevertheless, trading in our securities may be prohibited under the HFCA Act if the PCAOB determines that it cannot inspect +or fully investigate our auditor for a period of two consecutive years, and that as a result an exchange may determine to delist our +securities. Moreover, on August 26, 2022, the PCAOB signed a Statement of Protocol with the China Securities Regulatory Commission and +the Ministry of Finance of the People’s Republic of China — the first step toward opening access for the PCAOB to inspect +and investigate registered public accounting firms headquartered in mainland China and Hong Kong completely, consistent with U.S. law. +The Statement of Protocol is intended to grant to the PCAOB complete access to the audit work papers, audit personnel, and other information +it needs to inspect and investigate any firm it chooses, with no loopholes and no exceptions. +5 +Competitive Advantage of Our Management +We have an experienced and highly +professional management team, almost all of whom have entrepreneurial experience or experience working for public companies, and we believe +that this valuable experience can help us to better identify outstanding companies that are considering becoming public companies. +We believe our Chief Executive +Officer, Yongsheng Liu is well-qualified to serve as a member of the board given his public company experience, including other similarly +structured blank check companies, business leadership, operational experience and contacts. Mr. Liu has been our Chief Executive +Officer and Chairman of our Board since April 2021. Throughout the past 20 years, Mr. Liu has assumed various corporate +leadership positions and demonstrated his strong execution ability and in-depth knowledge in private equity and corporate M&A transactions +across a wide range of sectors including aviation, consumer, financial institutions, and technology. From April 2021 to May 2023, +Mr. Liu served as the chief operating officer of Goldenstone Acquisition Limited, a special purpose acquisition company (OTC Markets: +GDST) (“Goldenstone”). He served as the chairman and chief executive officer of Wealthbridge Acquisition Limited, a special +purpose acquisition company (“Wealthbridge”), from June 2018 until its business combination with Scienjoy Inc. (“Scienjoy”) +in May 2020, and currently serves as a director of Scienjoy’s board since then. From August 2020 to May 2023, Mr. Liu +served as the chairman and chief executive officer of Goldenbridge Acquisition Limited, a special purpose acquisition company (“Goldenbridge”), +from August 2020 until its business combination with SunCar Technology Group Inc. (“SunCar”) in May 2023, and currently +serves as a director of SunCar since then. From March 2017 to April 2018, Mr. Liu served as the chairman and chief executive +officer of Royal China Holdings Limited (HKEx: 01683), during which he spearheaded the company’s international growth strategy +and focused on acquiring targets in the aviation industry and finance sector. From the beginning of 2013 to March 2017, Mr. Liu +was the chairman of Joy Air General Aviation, chairman of Cambodia Bayon Airlines, vice chairman of Everbright and Joy International +Leasing Company, and president of General Aviation Investment Company (Shanghai). From April 2004 to August 2008, Mr. Liu +also served as chief strategy officer of United Eagle Airlines (subsequently renamed to Chengdu Airlines). From December 1994 to +June 2000, Mr. Liu was a manager of China Southern Airlines responsible for ground staff training. +We believe our Chief Financial +Officer, Zhen Li, is qualified to serve as our Chief Financial Officer due to his track record of success in the SPAC sector and his +experience in financial management, financial services and credit risk management. Zhen Li has served as our Chief Financial Officer +since October 2024. Mr. Li has over ten years of experience in SPACs, financial services, investment management, credit +risk management and entrepreneurship. Mr. Li served as Board Secretary of Wealthbridge’s board from March 2019 until +Wealthbridge’s business combination with Scienjoy in May 2020. Mr. Li held the same position at Goldenbridge from September 2020 +until Goldenbridge’s business combination with SunCar in May 2023. Earlier in his career, Mr. Li founded and served as +Chief Executive Officer of Shanghai Yimi Investment Management Co., Ltd. from January 2016 to October 2018. During his tenure, +he developed innovative financial products such as Yifushui, offering credit-based, unsecured financial services to enterprises. Prior +to that, Mr. Li served as Vice President of Shanghai Baotong Finance Leasing Co., Ltd. from July 2014 to December 2015, +and from April 2013 to June 2024, he served as a Credit Review Manager at HSBC Bank (Shanghai) Co., Ltd., where he gained deep +expertise in credit risk assessment, policy development, and financial management. +Additionally, we believe that +our independent directors will provide public company governance, executive leadership, operational oversight, private equity investment +management and capital markets experience. Our directors have experience with acquisitions, divestitures and corporate strategy and implementation, +which we believe will significantly benefit us as we evaluate potential acquisition or merger candidates as well as following the completion +of our initial business combination. +We believe our management team +is well positioned to take advantage of the growing set of acquisition opportunities focused on the companies exhibiting substantial +potential in emerging markets driven by innovative technologies or novel business models and that our contacts and relationships, ranging +from owners and management teams of private and public companies, private equity funds, investment bankers, attorneys, to accountants +and business brokers will allow us to generate an attractive transaction for our shareholders. +The past performance of the members +of our management team, or the sponsor is not a guarantee that we will be able to identify a suitable candidate for our initial business +combination or of success with respect to any business combination we may consummate. You should not rely on the historical record of +the performance of our management team or any of its affiliates’ performance as indicative of our future performance. +6 +Chinese Laws and Regulations +Other +than Yongsheng Liu, our Chief Executive Officer and Chairman of Board of Directors, our officers and directors (including our independent +directors) are either citizens of the PRC or reside in China, including Hong Kong. Although we are not targeting target companies +in China, we may consider a business combination with an entity or business with a physical presence or other significant ties to China, +including Hong Kong and Macau, which may subject the post-business combination business to the laws, regulations and policies +of China. Any target for a business combination may conduct operations through subsidiaries in China. The legal and regulatory risks +associated with doing business in China discussed in the IPO Prospectus may make us a less attractive partner in an initial business +combination than other special purpose acquisition companies that do not have any ties to China. As such, our ties to China may make +it harder for us to complete an initial business combination with a target company without any such ties. In addition, we will not conduct +a business combination with any target company that conducts operations through variable interest entities (“VIEs”), which +are a series of contractual arrangements used to provide the economic benefits of foreign investment in Chinese-based companies +where Chinese law prohibits direct foreign investment in the operating companies. As a result, this may limit the pool of acquisition +candidates we may acquire in the PRC, in particular, relative to other special purpose acquisition companies that are not subject to +such restrictions, which could make it more difficult and costly for us to consummate a business combination with a target business operating +in the PRC relative to such other companies. +If we were to complete a business +combination with a Chinese entity, we could be subject to certain legal and operational risks associated with or having the majority +of post-business combination operations in China. PRC laws and regulations governing PRC based business operations are sometimes +vague and uncertain, and as a result these risks may result in material changes in the operations of any post-business combination +subsidiaries, significant depreciation of the value of our ordinary shares, or a complete hindrance of our ability to offer, or continue +to offer, our securities to investors, including investors in the United States. Recently, the PRC government adopted a series of +regulatory actions and issued statements to regulate business operations in China with little advance notice, including cracking down +on illegal activities in the securities market, adopting new measures to extend the scope of cybersecurity reviews, and expanding the +efforts in anti-monopoly enforcement. These recently enacted measures, and new measures which may be implemented, could materially +and adversely affect the operations of any post-business combination company which we may acquire as our initial business combination. +Since these statements and regulatory +actions are new, it is highly uncertain how soon legislative or administrative regulation-making bodies will respond and what existing +or new laws or regulations or detailed implementations and interpretations will be modified or promulgated, if any, and the potential +impact such modified or new laws and regulations will have on a China-based target company’s daily business operation, the +ability to accept foreign investments and list on a U.S. or other foreign exchange. Additionally, if we effect our initial business +combination with a business located in the PRC, the laws applicable to such business will likely govern all of our material agreements +and we may not be able to enforce our legal rights. There are uncertainties regarding the interpretation and enforcement of PRC laws, +rules and regulations which may have a material adverse impact on the value of our securities. If we enter into a business combination +with a target business operating in China, cash proceeds raised from overseas financing activities, including the IPO, may be transferred +by us to any future PRC subsidiaries via capital contribution or shareholder loans, as the case may be. All these risks could result +in a material change in our or the target company’s post-combination operations and/or the value of our ordinary shares or +could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value +of such securities to significantly decline or become worthless. +Furthermore, the PRC government +has significant authority to exert influence on the ability of a China-based company to conduct its business, make or accept foreign +investments or list on a U.S. stock exchange. For example, if we enter into a business combination with a target business operating +in China, the combined company may face risks associated with regulatory approvals of the proposed business combination between us and +the target, offshore offerings, anti-monopoly regulatory actions, cybersecurity and data privacy. The PRC government may also intervene +with or influence the combined company’s operations at any time as the government deems appropriate to further regulatory, political +and societal goals. +7 +The PRC government has recently +published new policies that significantly affected certain industries such as the education and internet industries, and we cannot rule +out the possibility that it will in the future release regulations or policies regarding any industry that could adversely affect our +potential business combination with a PRC operating business and the business, financial condition and results of operations of the combined +company. Any such action, once taken by the PRC government, could make it more difficult and costly for us to consummate a business combination +with a target business operating in the PRC, result in material changes in the combined company’s post-combination operations +and cause the value of the combined company’s securities to significantly decline, or become worthless or completely hinder the +combined company’s ability to offer or continue to offer securities to investors. +On February 17, 2023, the +China Securities Regulatory Commission (the “CSRC”) promulgated the Trial Administrative Measures of Overseas Securities +Offering and Listing by Domestic Companies (the “Trial Measures”), which took effect on March 31, 2023. The Trial Measures +supersede the prior rules and clarified and emphasized several aspects, which include but are not limited to: (1) comprehensive +determination of the “indirect overseas offering and listing by PRC domestic companies” in compliance with the principle +of “substance over form” and particularly, an issuer will be required to go through the filing procedures under the Trial +Measures if the following criteria are met at the same time: (a) 50% or more of the issuer’s operating revenue, total profit, +total assets or net assets as documented in its audited consolidated financial statements for the most recent accounting year comes from +PRC domestic companies, and (b) the main parts of the issuer’s business activities are conducted in mainland China, or its +main places of business are located in mainland China, or the senior managers in charge of its business operation and management are +mostly Chinese citizens or domiciled in mainland China; (2) exemptions from immediate filing requirements for issuers that (a) have +already been listed or registered but not yet listed in foreign securities markets, including U.S. markets, prior to the effective +date of the Trial Measures, (b) are not required to re-perform the regulatory procedures with the relevant overseas regulatory +authority or the overseas stock exchange, and (c) whose such overseas securities offering or listing shall be completed before September 30, +2023, provided however that such issuers shall carry out filing procedures as required if they conduct refinancing or are involved in +other circumstances that require filing with the CSRC; (3) a negative list of types of issuers banned from listing or offering overseas, +such as (a) issuers whose listing or offering overseas has been recognized by the State Council of the PRC as a possible threat +to national security, (b) issuers whose affiliates have been recently convicted of bribery and corruption, (c) issuers under +ongoing criminal investigations, and (d) issuers under major disputes regarding equity ownership; (4) issuers’ compliance +with web security, data security, and other national security laws and regulations; (5) issuers’ filing and reporting obligations, +such as the obligation to file with the CSRC after it submits an application for initial public offering to overseas regulators, and +the obligation after offering or listing overseas to report to the CSRC material events including a change of control or voluntary or +forced delisting of the issuer; and (6) the CSRC’s authority to fine both issuers and their shareholders between 1 and 10 million +RMB for failure to comply with the Trial Measures, including failure to comply with filing obligations or committing fraud and misrepresentation. +Based on our understanding of +the current PRC laws and regulations, as we do not have any material operations in China, given that (a) the CSRC, currently has +not issued any definitive rule or interpretation concerning whether offerings like ours under the IPO Prospectus are subject to the “M&A +Rules and the Trial Measures; and (b) our company is a blank check company newly incorporated in the British Virgin Islands rather +than in China and currently our company does not own or control any equity interest in any PRC company or operate any business in China +although our principal executive offices are located in China, we believe that our company, our officers and/or directors are not required +to obtain any licenses or approvals or subject to registration with the CSRC pursuant to the Trial Measures and under applicable PRC +laws and regulations, for consummation of the IPO and while seeking a target for the initial business combination. We also believe that +our officers and directors do not fall under or are not governed by requirements from the CSRC, and we are not required to obtain approvals +from any PRC government entity, including the CSRC or the CAC, or any other government entity, to issue our securities to foreign investors +and to list on a U.S. exchange or to search for a target company. As of the date of the IPO Prospectus, we had not received any +inquiry, notice, warning, sanctions or regulatory objection to the IPO from the CSRC or any other PRC governmental authorities. However, +applicable laws, regulations, or interpretations of the PRC may change or we could be mistaken about these rules applicability, and the +relevant PRC government agencies could reach a different conclusion and may subject us to a stringent approval process from the relevant +government entities in connection with the IPO, continued listing on a U.S. exchange, the potential business combination, the issuance +of shares or the maintenance of our status as a publicly listed company outside China, and the post business combination entity’s +PRC operations if our business combination target is a PRC Target Company. If the CSRC or the CAC, or any other governmental or regulatory +body subsequently determines that its approval is needed for the IPO, a business combination, the issuance of our ordinary shares upon +exercise of the rights, or maintaining our status as a publicly listed company outside China, we may face approval delays, adverse actions +or sanctions by the CSRC, CAC and/or other PRC regulatory agencies. It is uncertain whether we will be required to obtain permission +from the PRC government to continue to list on a U.S. exchange in the future and offer our securities to foreign investors. If approval +is required in the future, including pursuant to the Trial Measures, and we are denied permission from Chinese authorities to list on +U.S. exchanges or offer our securities to foreign investors, we may not be able to continue listing on a U.S. exchange or be +subject to other severe consequences, which would materially affect our ability to complete a business combination in which case we may +have to liquidate which would be adverse to the interests of the investors. In addition, any changes in PRC law, regulations, or interpretations +may severely affect our operations after the IPO. The use of the term “operate” and “operations” includes the +process of searching for a target business and conducting related activities. To that extent, we may not be able to conduct the process +of searching for a potential target company in China. +8 +There are numerous risks and +uncertainties related to doing business in China including: +● Adverse changes in political +and economic policies or political or social conditions of the PRC government could have a material adverse effect on the overall economic +growth of China; +● Uncertainties with respect +to the PRC legal system could limit legal protections available to you and us; +● It may be difficult for overseas +regulators to conduct investigations or collect evidence within China +● PRC companies in certain business +sectors are required to undergo national security review or obtain clearance from relevant authorities if necessary before making any +filings with the CSRC. +● PRC companies must comply with +national secrecy and data security laws with respect to any data disclosure. +● CSRC has the authority to and +may block offshore listings that: (1) are explicitly prohibited by law; (2) may endanger national security; (3) involve +criminal offenses such as corruption, bribery, embezzlement, misappropriation of property by the issuer, its controlling persons (with +a three-year lookback); (4) involve the issuer under investigations for suspicion of criminal offenses or major violations +of laws and regulations; or (5) involve material ownership disputes. +For a detailed description of +risks associated with our significant ties to or a potential acquisition of a target business in China, see “Risk Factors — Risks +Related to Acquiring or Operating Businesses in the PRC” included in the IPO Prospectus. +Each of our officers and directors +may become an officer or director of another special purpose acquisition company with a class of securities intended to be registered +under the Securities Exchange Act of 1934, as amended, or the Exchange Act, even before we have entered into a definitive +agreement regarding our initial business combination. For more information, see the section of the IPO prospectus entitled “Management — Conflicts +of Interest” and see “Risk Factors” included in the IPO Prospectus. +Investment Direction +Although there is no +restriction or limitation on what industry our target operates in, it is our intention to pursue prospective targets that are +focused on green and sustainable business, new energy, cutting-edge technologies, artificial intelligent applications, business +software and health care products. We anticipate targeting what are traditionally known as “small cap” companies +domiciled in North America, Europe and/or the Asia Pacific (“APAC”) regions that are d eveloping assets in Asia, Europe +and North America which aligns with our management team’s experience in operating emerging start-up companies. Our efforts to +identify a prospective target business will not be limited to a particular industry or geographic region. As such, although we are +not targeting target companies in China, we may consider an initial business combination with an entity or business with a physical +presence or other significant ties to China, including Hong Kong and Macau, which may subject the post-business combination +business to the laws, regulations and policies of China. +9 +Transfers of Cash to and from our Post Business +Combination Subsidiaries +To date, we have not pursued an +initial business combination and there have not been any capital contributions or shareholder loans by us to any PRC entities, we do +not yet have any subsidiaries, and we have not received, declared or made any dividends or distributions. Although we do not have any +specific business combination under consideration and we have not (nor has anyone on our behalf), directly or indirectly, contacted any +prospective target business or had any substantive discussions, formal or otherwise, with respect to such a transaction, our initial +business combination target company may include a company based in the PRC. If we decide to consummate our initial business combination +with a target business based in and primarily operating in the PRC, the combined company, whose securities will be listed on a U.S. stock +exchange, may make capital contributions or extend loans to its PRC subsidiaries through intermediate holding companies subject to compliance +with relevant PRC foreign exchange control regulations. +After the initial business combination, +the combined company’s ability to pay dividends, if any, to the shareholders and to service any debt it may incur will depend upon +dividends paid by its PRC subsidiaries. Under PRC laws and regulations, PRC companies are subject to certain restrictions with respect +to paying dividends or otherwise transferring any of their net assets to offshore entities. In particular, under the current PRC laws +and regulations, dividends may be paid only out of distributable profits. Distributable profits are the net profit as determined under +Chinese accounting standards and regulations, less any recovery of accumulated losses and appropriations to statutory and other reserves +required to be made. +Current PRC regulations permit +a potential PRC target company’s indirect PRC subsidiaries to pay dividends to an overseas subsidiary, for example, a subsidiary +located in Hong Kong, only out of their accumulated profits, if any, determined in accordance with Chinese accounting standards +and regulations. In addition, each of the target’s subsidiaries in China is required to set aside at least 10% of its after-tax +profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of its registered capital. As a result, the combined +company’s PRC subsidiaries may not have sufficient distributable profits to pay entity in China is also required to further set +aside a portion of its after-tax profits to fund the employee welfare fund, although the amount to be set aside, if any, is determined +at the discretion of its board of directors. Although the statutory reserves can be used, among other ways, to increase the registered +capital and eliminate future losses in excess of retained earnings of the respective companies, the reserve funds are not distributable +as cash dividends except in the event of liquidation. +The PRC government also imposes +controls on the conversion of the Renminbi (“RMB”), the legal currency of the PRC, into foreign currencies and the remittance +of currencies out of the PRC. Our initial business combination target may be a PRC company with substantially all of its revenues +in RMB. Shortages in the availability of foreign currency may restrict the ability of the PRC subsidiaries to remit sufficient foreign +currency to pay dividends or other payments to us, or otherwise satisfy their foreign currency denominated obligations. Under existing +PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and expenditures +from trade-related transactions can be made in foreign currencies without prior approval from SAFE by complying with certain procedural +requirements. However, approval from appropriate government authorities is required where RMB is to be converted into foreign currency +and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. The PRC government +may also at its discretion restrict access in the future to foreign currencies for current account transactions. If the foreign exchange +control system prevents us from obtaining sufficient foreign currency to satisfy our currency demands post business combination, we may +not be able to pay dividends in foreign currencies to our security-holders. Furthermore, if our target’s subsidiaries in the PRC +incur debt on their own in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments. +Cash dividends, if any, on our +ordinary shares will be paid in U.S. dollars. If we are considered a PRC tax resident enterprise for tax purposes, any dividends +we pay to our overseas shareholders may be regarded as China-sourced income and, as a result, may be subject to PRC withholding tax at +a rate of up to 10.0%. +10 +The +PRC government may take measures at its discretion from time to time to restrict access to foreign currencies for current account or +capital account transactions. If the foreign exchange control regulations prevent the PRC subsidiaries of the combined company from obtaining +sufficient foreign currencies to satisfy their foreign currency demands, the PRC subsidiaries of the combined company may not be able +to pay dividends or repay loans in foreign currencies to their offshore intermediary holding companies and ultimately to the combined +company. We cannot assure you that new regulations or policies will not be promulgated in the future, which may further restrict the +remittance of RMB into or out of the PRC. We cannot assure you, in light of the restrictions in place, or any amendment to be made +from time to time, that the PRC subsidiaries of the combined company will be able to satisfy their respective payment obligations that +are denominated in foreign currencies, including the remittance of dividends outside of the PRC. See “Risk Factors — Risks +Related to Acquiring or Operating Businesses in the PRC” under the subheadings “Cash-Flow Structure of a Post-Acquisition +Company Based in China” and “Exchange controls that exist in the PRC may restrict or prevent us from using the proceeds of +the IPO to acquire a target company in the PRC and limit our ability +to utilize our cash flow effectively following our initial business combination.” However, the funds held in our trust account +are not held in China, they are held in U.S. dollars in the United States with Equiniti Trust Company, LLC and therefore shareholder +redemption rights would not be impacted. +Business Strategy +Our primary strategy is to identify +and consummate a merger or acquisition with a target company that aligns with the expertise and capabilities of our management team, +while also positioning us to capitalize on current market trends. Leveraging our extensive network of relationships, deep industry knowledge, +sector-specific experience, and proven deal-sourcing capabilities, we aim to focus on companies with substantial growth potential within +emerging markets or those modernizing traditional industries. These markets are defined by their embrace of innovative technologies, +advanced manufacturing practices, or unique business models. Over time, our network has expanded due to our team’s active involvement +in sourcing, investing in, and managing businesses across our target sectors. +Following +the completion of our IPO , our management team will utilize its connections +and industry insights to establish specific criteria for identifying potential merger or acquisition targets and to outline our approach +for the business combination process. This will initiate our search for, and evaluation of, promising opportunities. +Our primary goal is to provide +attractive returns to our shareholders and enhance value by improving the performance of the acquired company. This may include facilitating +access to crucial growth capital. We aim to prioritize companies with certain key attributes, such as: +● A history of stable, long-term growth coupled with promising +future prospects. +● Strong competitive advantages that support continued business +expansion. +● Utilization of advanced technologies, new materials, and +sustainable business models. +● Ownership or control of, or access to, advanced manufacturing +facilities. +● The capacity to meet high demand in fast-growing markets. +11 +● The ability to adapt to industrial upgrading trends. +● Adherence to high environmental, social, and governance (ESG) +standards. +With our extensive network and +combined team expertise in business investment and operations, we specifically target companies in emerging markets with substantial +growth potential. Our focus includes: +● Companies with products and services for large markets, establishing +a first-mover advantage and core competency; +● Platform-based or closed-loop businesses utilizing cutting-edge +technologies; +● Products and services that disrupt traditional markets with +new technologies; +● Scalable business models that quickly generate free cash +flow; and +● Companies with a track record of operational efficiency and +strong financial performance, backed by experienced management. +By sticking to this refined strategy, +we aim to capitalize on opportunities that offer a strong industry context and the potential for significant growth. +Opportunity & Acquisition Target Criteria +Our focus is on acquiring small-cap +companies that demonstrate substantial potential for growth in emerging markets. These companies typically benefit from mature and efficient +operations, innovative technologies, new materials, or novel business models. We are particularly interested in industries that present +significant market opportunities, are characterized by high demand for industrial upgrading, and feature a large pool of emerging high-growth +companies that meet the size criteria for potential acquisition targets. +We believe that our operational +experience and established industry contacts uniquely position us to identify high-value opportunities within these sectors. Our acquisition +targets will adhere to the principles of value investing, focusing on quality companies with specific catalysts and a clear path for +growth. While we remain opportunistic and flexible in evaluating potential targets within this defined space, our primary focus will +be on small-cap companies that possess one or more of the following attributes: +Target Size: We +seek to acquire companies with significant revenue growth potential, valued between $650 million and $2 billion. +High Growth Geographic +Markets: We intend to prioritize companies with international operations in fast-growing regions, capable of +leveraging regional advantages effectively. +High Growth +Industries: Our primary focus will be on companies in rapidly expanding sectors, or those undergoing significant +industrial transformation, such as green and sustainable businesses, new materials, artificial intelligence applications, daily +necessities production, and advanced equipment manufacturing. +Proven Financial Performance +and Growth Potential: We will target businesses that exhibit recent revenue growth and possess strong +expansion prospects, driven by new product offerings, technological advancements, innovative sales strategies, geographic diversification, +cost reductions, and strategic acquisitions. +12 +Competitive +Advantage: We aim to acquire businesses with robust market positions, innovative technologies, deep industry insights, +market leadership status, exclusive partnerships, strong brands, or distinct cost efficiencies. +Benefits of Going +Public: We are particularly interested in companies that would benefit from the enhanced capital access and visibility +associated with being publicly traded. +Experienced and Visionary +Management: Our preference is for companies led by skilled, forward-thinking management teams with deep +industry knowledge and a clear vision for growth. +High ESG Standards: We +will prioritize companies that demonstrate strong commitments to environmental, social, and governance (ESG) standards, with an +emphasis on sustainable and responsible business practices. +Market Trend +Alignment: We aim to identify companies that are aligned with, or are leading, current market trends, positioning them to +adapt effectively to changes in market dynamics and consumer preferences. +These criteria are guidelines +and not exhaustive. Our evaluation may consider these and other relevant factors as needed. If we choose a company that does not meet +all these criteria, we will disclose this to our shareholders in the communications concerning the merger or acquisition, which will +include documents like proxy statements or tender offer announcements filed with the SEC. +Our management team will be primarily +focused on creating shareholder value by efficiently guiding emerging high-growth companies toward commercialization. In line with our +strategy, we have identified several general criteria and guidelines for evaluating prospective target businesses. While we intend to +use these criteria in assessing potential acquisitions, we may adjust or deviate from them as appropriate: +● We believe that a substantial number of potential target +businesses, both domestically and internationally, exist at attractive valuations, which can benefit from a public listing and access +to new capital to support significant revenue and earnings growth. +● We aim to acquire companies with significant, underexploited +expansion opportunities within specific industry sectors. This expansion can be achieved through organic growth acceleration and strategic +add-on acquisitions. Our management team is highly skilled in identifying such targets and evaluating synergies to facilitate successful +integrations. Additionally, our team has extensive experience in assisting companies with fundraising and navigating the regulatory approval +process. +● We will seek target companies that offer attractive risk-adjusted +equity returns for our shareholders, assessing each based on its potential to achieve regulatory approval and successfully commercialize +its products. We will evaluate potential financial returns based on factors such as risk-adjusted peak sales potential, the strength +of the product pipeline, the ability to realize system cost savings, opportunities for growth through follow-on acquisitions, and value +creation from other strategic initiatives. +● We will focus on investing in businesses with a proven track +record of success, emphasizing shareholder-friendly governance, low leverage, and attractive long-term return potential. We believe this +investment approach offers a competitive edge, providing meaningful upside potential with downside protection, particularly in times +of financial market volatility. +These guidelines are not exhaustive, +and our evaluation of any specific target company may involve additional factors, as deemed relevant by our management team. We currently +do not have any specific target business under consideration. Our officers and directors have not selected or engaged in substantive +discussions regarding potential target businesses, nor have we taken steps to identify or locate suitable acquisition candidates. Additionally, +we have not engaged any agents or representatives for this purpose. +13 +Initial Business Combination +We +will have 15 months from the closing of the IPO to consummate our +initial business combination. However, if we anticipate that we may not be able to consummate our initial business combination within +15 months, we may extend the period of time to consummate a business combination up to two times, each by an additional three months +(for a total of up to 21 months to complete a business combination) without shareholder approval. We may hold a shareholder vote +at any time to amend our amended and restated memorandum and articles of association, to modify the amount of time we will have to consummate +an initial business combination (as well as to modify the substance or timing of our obligation to redeem 100% of our public shares if +we have not consummated an initial business combination or with respect to any other material provisions relating to shareholders’ +rights or pre-initial business combination activity). Our sponsor, officers, and directors have agreed, pursuant to a written agreement +with us, that they will not propose, or vote in favor of, an amendment to our amended and restated memorandum and articles of association +that would stop our public shareholders from converting or selling their shares to us in connection with a business combination or that +would affect the substance or timing of our redemption obligation to redeem all public shares if we cannot complete an initial business +combination within 15 months of the closing the IPO (or up to 21 months +from the closing of the IPO if we extend the period of time to consummate +a business combination by the full amount of time, as described in more detail in the prospectus), unless we provide public shareholders +an opportunity to redeem their public shares in conjunction with any such amendment. If we are unable to consummate our initial business +combination within the time period described above, we will, as promptly as reasonably possible but not more than ten business days +thereafter, redeem the public shares for a pro rata portion of the funds held in the trust account and as promptly as reasonably possible +following such redemption, subject to the approval of our remaining shareholders and our board of directors, liquidate and dissolve, +subject to our obligations under British Virgin Islands law to provide for claims of creditors and the requirements of other applicable +law. In such event, the rights will be worthless. +Nasdaq +rules provide that our initial business combination must be with one or more target businesses that together have a fair market value +equal to at least 80% of the balance in the trust account (less any deferred underwriting discounts and taxes payable on interest earned) +at the time of our signing a definitive agreement in connection with our initial business combination. If our board is not able to independently +determine the fair market value of the target business or businesses, we will obtain an opinion from an independent investment banking +firm or another independent firm that commonly renders valuation opinions with respect to the satisfaction of such criteria. If less +than 100% of the equity interests or assets of a target business or businesses are owned or acquired by the post-transaction company, +the portion of such business or businesses that is owned or acquired is what will be valued for purposes of the 80% fair market value +test. If the business combination involves more than one target business, the 80% fair market value test will be based on the aggregate +value of all of the target businesses. If our securities are not listed on Nasdaq after the IPO , +we would not be required to satisfy the 80% requirement. However, we intend to satisfy the 80% requirement even if our securities are +not listed on Nasdaq at the time of our initial business combination. +We anticipate structuring our +initial business combination so that the post-transaction company in which our public shareholders own shares will own or acquire 100% +of the equity interests or assets of the target business or businesses. We may, however, structure our initial business combination such +that the post-transaction company owns or acquires less than 100% of such interests or assets of the target business in order to meet +certain objectives of the target management team or shareholders or for other reasons, but we will only complete such business combination +if the post-transaction company owns or acquires 50% or more of the outstanding voting securities of the target or otherwise acquires +a controlling interest in the target sufficient for it not to be required to register as an investment company under the Investment Company +Act. Even if the post-transaction company owns or acquires 50% or more of the voting securities of the target, our shareholders prior +to the business combination may collectively own a minority interest in the post-transaction company, depending on valuations ascribed +to the target and us in the business combination transaction. For example, we could pursue a transaction in which we issue a substantial +number of new shares in exchange for all of the outstanding capital stock, shares or other equity securities of a target. In this case, +we would acquire a 100% controlling interest in the target. However, as a result of the issuance of a substantial number of new shares, +our shareholders immediately prior to our initial business combination could own less than a majority of our issued and outstanding shares +subsequent to our initial business combination. If less than 100% of the equity interests or assets of a target business or businesses +are owned or acquired by the post-transaction company, the portion of such business or businesses that is owned or acquired is what will +be valued for purposes of the 80% of net assets test. If our initial business combination involves more than one target business, the +80% of net assets test will be based on the aggregate value of all of the target businesses. Notwithstanding the foregoing, if we are +not then listed on Nasdaq for whatever reason, we would no longer be required to meet the foregoing 80% of net assets test. +14 +We are not prohibited from pursuing +an initial business combination with a company that is affiliated with our initial shareholders, officers or directors. In the event +we seek to complete our initial business combination with a company that is affiliated with our initial shareholders, officers or directors, +we, or a committee of independent directors, will obtain an opinion from an independent investment banking firm or another independent +firm that commonly renders valuation opinions that our initial business combination is fair to our company (or shareholders) from a financial +point of view. +Members +of our management team and their affiliates will directly or indirectly own ordinary shares and private rights following the IPO , +and, accordingly, may have a conflict of interest in determining whether a particular target business is an appropriate business with +which to effectuate our initial business combination. Further, each of our officers and directors may have a conflict of interest with +respect to evaluating a particular business combination if the retention or resignation of any such officers and directors was included +by a target business as a condition to any agreement with respect to our initial business combination. Additionally, each of our officers +and directors presently has, and any of them in the future may have additional, fiduciary or contractual obligations to another entity +and other blank check companies similar to our company, pursuant to which such officer or director may be required to present a business +combination opportunity to such entity. Specifically, our executive officers are affiliated with the sponsor and other entities that +make, or are looking to make, investments in companies. Accordingly, if any of our officers or directors becomes aware of a business +combination opportunity which is suitable for an entity to which he or she has fiduciary or contractual obligations, he or she will honor +his or her fiduciary or contractual obligations to present such business combination opportunity to such entity, and only present it +to us if such entity rejects the opportunity. We do not believe, however, that the fiduciary duties or contractual obligations of our +executive officers will materially affect our ability to complete our business combination. For additional information regarding our +executive officers’ and directors’ business affiliations and potential conflicts of interest, see “Management — Directors +and Executive Officers” and “Management — Conflicts of Interest.” Our amended and restated memorandum +and articles of association provide that, subject to fiduciary duties under British Virgin Islands law, we renounce our interest in any +corporate opportunity offered to any director or officer unless such opportunity is expressly offered to such person solely in his or +her capacity as a director or officer of our company and such opportunity is one we are legally and contractually permitted to undertake +and would otherwise be reasonable for us to pursue. +We filed a Registration Statement +on Form 8-A with the SEC to voluntarily register our securities under Section 12 of the Securities Exchange Act of 1934, +as amended (the “Exchange Act”). As a result, we are subject to the rules and regulations promulgated under the Exchange Act. +PRC Approvals +Below is a summary of potential +PRC laws and regulations that could be interpreted by the in-charge PRC government authorities, namely, the CSRC, the CAC and their enforcement +agencies, to require the company to obtain permission or approval in order to issue securities to foreign investors in connection with +a business combination or offer securities to foreign investors. We do not believe that any permission or approval is required under +the PRC laws or regulations to offer securities to non-PRC investors. In addition, as we do not have any material operations in China, +we believe that our company are not required to obtain any material licenses or approvals from PRC governmental authorities because our +principal executive offices are located in Hong Kong, and our executive officers and directors are located in, or have significant +ties to, China. However, there is no assurance that such approval or permission will not be required under the PRC laws, regulations +or policies if the relevant governmental authorities take a contrary position, nor can the company predict whether or how long it will +take to obtain such approval if so required. +15 +The Regulations on Mergers and +Acquisitions of Domestic Companies by Foreign Investors adopted by six PRC regulatory agencies, including the MOFCOM, the State-Owned +Assets Supervision and Administration Commission, the State Administration of Taxation, the State Administration for Industry and Commerce +(the “SAMR”), the CSRC, and the SAFE in 2006 and amended in 2009, as well as some other regulations and rules concerning +mergers and acquisitions (collectively, the “M&A Rules”) include provisions that purport to require that an offshore +special purpose vehicle that is controlled by PRC domestic companies or individuals and that has been formed for the purpose of an overseas +listing of securities through acquisitions of PRC domestic companies or assets to obtain the approval of the CSRC prior to the listing +and trading of such special purpose vehicle’s securities on an overseas stock exchange. On September 21, 2006, the CSRC published +its approval procedures for overseas listings by special purpose vehicles. However, substantial uncertainty remains regarding the scope +and applicability of the M&A Rules to offshore special purpose vehicles. While the application of the M&A Rules remains unclear, +the company believes that the CSRC approval would not be required in the context of a business combination because (1) the M&A +Rules provide that the acquisition of the equity held by the shareholders of a “domestic company” (i.e., a non-foreign investment +company) or the subscription for the new shares issued by a “domestic company” by the shareholders of an offshore special +purpose vehicle with the equity of such offshore special purpose vehicle, or by the offshore special purpose vehicle with its new shares +for the purpose of the overseas listing of such offshore special purpose vehicle, shall be subject to the approval of the CSRC; while +the company currently is a foreign-invested enterprise rather than a “domestic company” as defined under the M&A Rules, +and (2) the CSRC currently has not issued any definitive rule or interpretation concerning whether a transaction of the kind contemplated +herein is subject to the M&A Rules. However, uncertainties still exist as to how the M&A Rules will be interpreted and implemented. +On February 17, 2023, the +China Securities Regulatory Commission (the “CSRC”) promulgated the Trial Administrative Measures of Overseas Securities +Offering and Listing by Domestic Companies (the “Trial Measures”), which took effect on March 31, 2023. The Trial Measures +supersede the prior rules and clarified and emphasized several aspects, which include but are not limited to: (1) comprehensive +determination of the “indirect overseas offering and listing by PRC domestic companies” in compliance with the principle +of “substance over form” and particularly, an issuer will be required to go through the filing procedures under the Trial +Measures if the following criteria are met at the same time: (a) 50% or more of the issuer’s operating revenue, total profit, +total assets or net assets as documented in its audited consolidated financial statements for the most recent accounting year comes from +PRC domestic companies, and (b) the main parts of the issuer’s business activities are conducted in mainland China, or its +main places of business are located in mainland China, or the senior managers in charge of its business operation and management are +mostly Chinese citizens or domiciled in mainland China; (2) exemptions from immediate filing requirements for issuers that (a) have +already been listed or registered but not yet listed in foreign securities markets, including U.S. markets, prior to the effective +date of the Trial Measures, (b) are not required to re-perform the regulatory procedures with the relevant overseas regulatory authority +or the overseas stock exchange, and (c) whose such overseas securities offering or listing shall be completed before September 30, +2023, provided however that such issuers shall carry out filing procedures as required if they conduct refinancing or are involved in +other circumstances that require filing with the CSRC; (3) a negative list of types of issuers banned from listing or offering overseas, +such as (a) issuers whose listing or offering overseas has been recognized by the State Council of the PRC as a possible threat +to national security, (b) issuers whose affiliates have been recently convicted of bribery and corruption, (c) issuers under +ongoing criminal investigations, and (d) issuers under major disputes regarding equity ownership; (4) issuers’ compliance +with web security, data security, and other national security laws and regulations; (5) issuers’ filing and reporting obligations, +such as the obligation to file with the CSRC after it submits an application for initial public offering to overseas regulators, and +the obligation after offering or listing overseas to report to the CSRC material events including a change of control or voluntary or +forced delisting of the issuer; and (6) the CSRC’s authority to fine both issuers and their shareholders between 1 and 10 million +RMB for failure to comply with the Trial Measures, including failure to comply with filing obligations or committing fraud and misrepresentation. +16 +Based +on our understanding of the current PRC laws and regulations, as we do not have any material operations in China, given that (a) the +CSRC, currently has not issued any definitive rule or interpretation concerning whether offerings like ours under the prospectus are +subject to the “M&A Rules and the Trial Measures; and (b) our company is a blank check company incorporated in the British +Virgin Islands rather than in China and currently our company does not own or control any equity interest in any PRC company or operate +any business in China although our principal executive offices are located in Hong Kong, we believe that our company, our officers +and/or directors are not required to obtain any licenses or approvals or subject to registration with the CSRC pursuant to the Trial +Measures and under applicable PRC laws and regulations, for consummation of this IPO and +while seeking a target for the initial business combination. We also believe that our officers and directors do not fall under or are +not governed by requirements from the CSRC, and we are not required to obtain approvals from any PRC government entity, including the +CSRC or the CAC, or any other government entity, to issue our securities to foreign investors and to list on a U.S. exchange or +to search for a target company. As of the date of this annual report, we have not received any inquiry, notice, warning, sanctions or +regulatory objection to the IPO from the CSRC or any other PRC governmental +authorities. However, applicable laws, regulations, or interpretations of the PRC may change or we could be mistaken about these rules +applicability, and the relevant PRC government agencies could reach a different conclusion and may subject us to a stringent approval +process from the relevant government entities in connection with the IPO , +continued listing on a U.S. exchange, the potential business combination, the issuance of shares or the maintenance of our status +as a publicly listed company outside China, and the post business combination entity’s PRC operations if our business combination +target is a PRC target company. If the CSRC or the CAC, or any other governmental or regulatory body subsequently determines that its +approval is needed for the IPO , a business combination, the issuance +of our ordinary shares upon exercise of the rights, or maintaining our status as a publicly listed company outside China, we may face +approval delays, adverse actions or sanctions by the CSRC, CAC and/or other PRC regulatory agencies. It is uncertain whether we will +be required to obtain permission from the PRC government to continue to list on a U.S. exchange in the future and offer our securities +to foreign investors. If approval is required in the future, including pursuant to the Trial Measures, and we are denied permission from +Chinese authorities to list on U.S. exchanges or offer our securities to foreign investors, we may not be able to continue listing +on a U.S. exchange or be subject to other severe consequences, which would materially affect our ability to complete a business +combination in which case we may have to liquidate which would be adverse to the interests of the investors. In addition, any changes +in PRC law, regulations, or interpretations may severely affect our operations after the IPO . +The use of the term “operate” and “operations” includes the process of searching for a target business and conducting +related activities. To that extent, we may not be able to conduct the process of searching for a potential target company in China. +Our Competitive Advantages +Status as a Publicly Listed Company +We believe our structure will +make us an attractive business combination partner to prospective target businesses. As a publicly listed company, we will offer a target +business an alternative to the traditional initial public offering. We believe that target businesses will favor this alternative, which +we believe is less expensive, while offering greater certainty of execution than the traditional initial public offering. During an initial +public offering, there are typically expenses incurred in marketing, which would be costlier than a business combination with us. Furthermore, +once a proposed business combination is approved by our shareholders (if applicable) and the transaction is consummated, the target business +will have effectively become public, whereas an initial public offering is always subject to the underwriters’ ability to complete +the offering, as well as general market conditions that could prevent the offering from occurring. Once public, we believe the target +business would have greater access to capital and additional means of creating management incentives that are better aligned with shareholders’ +interests than it would as a private company. A target business can offer further benefits by augmenting a company’s profile among +potential new customers and vendors and aid in attracting talented management staffs. +Strong Financial Position and Flexibility +With +a trust account initially in the amount of $57,500,000, we can offer a target business a variety of options to facilitate a business +combination and fund future expansion and growth of its business. This amount assumes no redemptions. Because we are able to consummate +a business combination using the cash proceeds from the IPO , our share +capital, debt or a combination of the foregoing, we have the flexibility to use an efficient structure allowing us to tailor the consideration +to be paid to the target business to address the needs of the parties. However, if a business combination requires us to use substantially +all of our cash to pay for the purchase price, we may need to arrange third party financing to help fund our business combination. Since +we have no specific business combination under consideration, we have not taken any steps to secure third party financing. Accordingly, +our flexibility in structuring a business combination may be subject to these constraints. +Effecting Our Initial Business Combination +General +We +are not presently engaged in, and we will not engage in, any operations for an indefinite period of time following the IPO . +We intend to effectuate our initial business combination using cash from the proceeds of the IPO and +the private placement of the private units, our shares, new debt, or a combination of these, as the consideration to be paid in our initial +business combination. We may seek to consummate our initial business combination with a company or business that may be financially unstable +or in its early stages of development or growth, which would subject us to the numerous risks inherent in such companies and businesses, +although we will not be permitted to effectuate our initial business combination with another blank check company or a similar company +with nominal operations. +17 +If our initial business combination +is paid for using shares or debt securities, or not all of the funds released from the trust account are used for payment of the purchase +price in connection with our business combination or used for redemptions of purchases of our ordinary shares, we may apply the cash +released to us from the trust account that is not applied to the purchase price for general corporate purposes, including for maintenance +or expansion of operations of acquired businesses, the payment of principal or interest due on indebtedness incurred in consummating +our initial business combination, to fund the purchase of other companies or for working capital. +We +have not identified any acquisition target and we have not, nor has anyone on our behalf, initiated any discussions, directly or indirectly, +to identify any acquisition target. From the date of our formation through the date of our prospectus, there have been no communications +or discussions between any of our officers, directors or the sponsor and any of their contacts or relationships regarding a potential +initial business combination with our company. Subject to the requirement that our initial business combination must be with one or more +target businesses or assets having an aggregate fair market value of at least 80% of the value of the trust account (less any deferred +underwriting discounts and taxes payable on interest earned) at the time of the agreement to enter into such initial business combination, +we have virtually unrestricted flexibility in identifying and selecting one or more prospective target businesses. Accordingly, there +is no current basis for investors in the IPO to evaluate the possible +merits or risks of the target business with which we may ultimately complete our initial business combination. Although our management +will assess the risks inherent in a particular target business with which we may combine, this assessment may not result in our identifying +all risks that a target business may encounter. Furthermore, some of those risks may be outside of our control, meaning that we can do +nothing to control or reduce the chances that those risks will adversely impact a target business. +We may seek to raise additional +funds through a private offering of debt or equity securities in connection with the consummation of our initial business combination, +and we may effectuate our initial business combination using the proceeds of such offering rather than using the amounts held in the +trust account. Subject to compliance with applicable securities laws, we would consummate such financing only simultaneously with the +consummation of our business combination. In the case of an initial business combination funded with assets other than the trust account +assets, our tender offer documents or proxy materials disclosing the business combination would disclose the terms of the financing and, +only if required by law or the rules of Nasdaq, we would seek shareholder approval of such financing. There are no prohibitions on our +ability to raise funds privately or through loans in connection with our initial business combination. At this time, we are not a party +to any arrangement or understanding with any third party with respect to raising any additional funds through the sale of securities +or otherwise. +Sources of Target Businesses +We +anticipate that target business candidates will be brought to our attention from various unaffiliated sources, including investment bankers, +venture capital funds, private equity funds, leveraged buyout funds, management buyout funds and other members of the financial community. +Target businesses may be brought to our attention by such unaffiliated sources as a result of being solicited by us through calls or +mailings that will not commence until after the completion of the IPO . +These sources may also introduce us to target businesses they think we may be interested in on an unsolicited basis, since many of these +sources will have read our prospectus and know what types of businesses we are targeting. +Our officers and directors, as +well as their respective affiliates, may also bring to our attention target business candidates that they become aware of through their +business contacts as a result of formal or informal inquiries or discussions they may have, as well as attending trade shows or conventions. +While we do not presently anticipate engaging the services of professional firms or other individuals that specialize in business acquisitions +on any formal basis, we may engage these firms or other individuals in the future, in which event we may pay a finder’s fee, consulting +fee or other compensation to be determined in an arm’s length negotiation based on the terms of the transaction. In no event, however, +will any of our existing officers, directors or initial shareholders, or any entity with which they are affiliated, be paid any finder’s +fee, consulting fee or other compensation prior to, or for any services they render in order to effectuate, the consummation of a business +combination (regardless of the type of transaction). Some of our officers and directors may enter into employment or consulting agreements +with the post-transaction company following our initial business combination. The presence or absence of any such fees or arrangements +will not be used as a criterion in our selection process of an initial business combination candidate. +18 +We are not prohibited from pursuing +an initial business combination with a company that is affiliated with our initial shareholders, officers or directors. In the event +we seek to complete our initial business combination with a target that is affiliated with our initial shareholders, officers or directors, +we, or a committee of independent directors, would obtain an opinion from an independent investment banking firm or another independent +entity that commonly renders valuation opinions that our initial business combination is fair to our company (or shareholders) from a +financial point of view. +Selection of a Target Business and Structuring +of a Business Combination +Subject +to the requirement that our initial business combination must be with one or more target businesses or assets having an aggregate fair +market value of at least 80% of the value of the trust account (less any deferred underwriting discounts and taxes payable on interest +earned) at the time of the agreement to enter into such initial business combination, our management will have virtually unrestricted +flexibility in identifying and selecting one or more prospective target businesses, although we will not be permitted to effectuate our +initial business combination with another blank check company or a similar company with nominal operations. In any case, we will only +consummate an initial business combination in which we become the majority shareholder of the target (or control the target through contractual +arrangements in limited circumstances for regulatory compliance purposes as discussed below) or are otherwise not required to register +as an investment company under the Investment Company Act. There is no basis for investors in the IPO to +evaluate the possible merits or risks of any target business with which we may ultimately complete our initial business combination. +To the extent we effect our initial business combination with a company or business that may be financially unstable or in its early +stages of development or growth, we may be affected by numerous risks inherent in such company or business. Although our management will +endeavor to evaluate the risks inherent in a particular target business, we may not properly ascertain or assess all significant risk +factors. +In evaluating a prospective target +business, we will conduct an extensive due diligence review which will encompass, among other things, meetings with incumbent management +and inspection of facilities, as well as review of financial and other information which is made available to us. This due diligence +review will be conducted either by our management or by unaffiliated third parties we may engage, although we have no current intention +to engage any such third parties. +The time and costs required to +select and evaluate a target business and to structure and complete the business combination cannot presently be ascertained with any +degree of certainty. Any costs incurred with respect to the identification and evaluation of a prospective target business with which +a business combination is not ultimately completed will result in a loss to us and reduce the amount of capital available to otherwise +complete a business combination. +Fair market value of target business or businesses +Nasdaq +rules provide that our initial business combination must be with one or more target businesses that together have a fair market value +equal to at least 80% of the balance in the trust account (less any deferred underwriting discounts and taxes payable on interest earned) +at the time of our signing a definitive agreement in connection with our initial business combination. If our board is not able to independently +determine the fair market value of the target business or businesses, we will obtain an opinion from an independent investment banking +firm or another independent firm that commonly renders valuation opinions with respect to the satisfaction of such criteria. If our securities +are not listed on Nasdaq after the IPO , we would not be required to satisfy +the 80% requirement. However, we intend to satisfy the 80% requirement even if our securities are not listed on Nasdaq at the time of +our initial business combination. +19 +We anticipate structuring our +initial business combination to acquire 100% of the equity interest or assets of the target business or businesses. We may, however, +structure our initial business combination to acquire less than 100% of such interests or assets of the target business, but we will +only consummate such business combination if we will become the majority shareholder of the target (or control the target through contractual +arrangements in limited circumstances for regulatory compliance purposes) or are otherwise not required to register as an “investment +company” under the Investment Company Act. Even though we will own a majority interest in the target, our shareholders prior to +the business combination may collectively own a minority interest in the post business combination company, depending on valuations ascribed +to the target and us in the business combination transaction. For example, we could pursue a transaction in which we issue a substantial +number of new shares in exchange for all of the outstanding capital stock, shares or other equity securities of a target. In this case, +we would acquire a 100% controlling interest in the target. However, as a result of the issuance of a substantial number of new shares, +our shareholders immediately prior to our initial business combination could own less than a majority of our issued and outstanding shares +subsequent to our initial business combination. +The fair market value of a target +business or businesses or assets will be determined by our board of directors based upon standards generally accepted by the financial +community, such as actual and potential gross margins, the values of comparable businesses, earnings and cash flow, book value and, where +appropriate, upon the advice of appraisers or other professional consultants. If our board of directors is not able to independently +determine that the target business or assets has a sufficient fair market value to meet the threshold criterion, we will obtain an opinion +from an unaffiliated, independent investment banking firm or an independent accounting firm with respect to the satisfaction of such +criterion. Notwithstanding the foregoing, unless we consummate a business combination with an affiliated entity, we are not required +to obtain an opinion from an independent investment banking firm or an independent accounting firm that the price we are paying is fair +to our shareholders. +Lack of business diversification +For an indefinite period of time +after consummation of our initial business combination, the prospects for our success may depend entirely on the future performance of +a single business. Unlike other entities that have the resources to complete business combinations with multiple entities in one or several +industries, it is probable that we will not have the resources to diversify our operations and mitigate the risks of being in a single +line of business. By consummating our initial business combination with only a single entity, our lack of diversification may: +● subject us to negative economic, competitive and regulatory +developments, any or all of which may have a substantial adverse impact on the particular industry in which we operate after our initial +business combination, and +● cause us to depend on the marketing and sale of a single +product or limited number of products or services. +Limited ability to evaluate the target’s +management team +Although we intend to closely +scrutinize the management of a prospective target business when evaluating the desirability of effecting our initial business combination +with that business, our assessment of the target business’ management may not prove to be correct. The future role of members of +our management team, if any, in the target business cannot presently be stated with any certainty. Consequently, members of our management +team may not become a part of the target’s management team, and the future management may not have the necessary skills, qualifications +or abilities to manage a public company. Further, it is also not certain whether one or more of our directors will remain associated +in some capacity with us following our initial business combination. Moreover, members of our management team may not have significant +experience or knowledge relating to the operations of the particular target business. Our key personnel may not remain in senior management +or advisory positions with the combined company. The determination as to whether any of our key personnel will remain with the combined +company will be made at the time of our initial business combination. +20 +Following our initial business +combination, we may seek to recruit additional managers to supplement the incumbent management of the target business. We may not have +the ability to recruit additional managers, or that additional managers will have the requisite skills, knowledge or experience necessary +to enhance the incumbent management. +Shareholders may not have the ability to approve +our initial business combination +In connection with any proposed +business combination, we will either (1) seek shareholder approval of our initial business combination at a general meeting called +for such purpose at which shareholders may seek to redeem their shares, regardless of whether they vote for or against the proposed business +combination or do not vote at all, into their pro rata share of the aggregate amount on deposit in the trust account (net of taxes payable), +or (2) provide our shareholders with the opportunity to sell their shares to us by means of a tender offer (and thereby avoid the +need for a shareholder vote) for an amount equal to their pro rata share of the aggregate amount on deposit in the trust account (net +of taxes payable), in each case calculated as of two business days prior to the consummation of the business combination and +subject to the limitations described herein. If we determine to engage in a tender offer, such tender offer will be structured so that +each shareholder may tender all of his, her or its shares rather than some pro rata portion of his, her or its shares. If enough shareholders +tender their shares so that we are unable to satisfy any applicable closing condition set forth in the definitive agreement related to +our initial business combination, or we are unable to maintain net tangible assets of at least $5,000,001 (after payment of deferred +underwriting discounts and net of taxes payable on the income earned on the trust account and funds previously released to the company +to pay our taxes or for use as working capital) upon consummation of a business combination, we will not consummate such initial business +combination. The decision as to whether we will seek shareholder approval of a proposed business combination or will allow shareholders +to sell their shares to us in a tender offer will be made by us, solely in our discretion, and will be based on a variety of factors +such as the timing of the transaction and whether the terms of the transaction would otherwise require us to seek shareholder approval. +Unlike other blank check companies which require shareholder votes and conduct proxy solicitations in conjunction with their initial +business combinations and related redemptions of public shares for cash upon consummation of such initial business combination even when +a vote is not required by law, we will have the flexibility to avoid such shareholder vote and allow our shareholders to sell their shares +pursuant to Rule 13e-4 and Regulation 14E of the Exchange Act which regulate issuer tender offers. In that case, we will +file tender offer documents with the SEC which will contain substantially the same financial and other information about the initial +business combination as is required under the SEC’s proxy rules. We will consummate our initial business combination only if we +have net tangible assets of at least $5,000,001 (after payment of deferred underwriting discounts and net of taxes payable on the income +earned on the trust account and funds previously released to the company to pay our taxes or for use as working capital) either immediately +prior to or upon such consummation, or otherwise we are exempt from the provisions of Rule 419 promulgated under the Securities +Act (so that we are not subject to the SEC’s “penny stock” rules) and, solely if we seek shareholder approval, a majority +of the issued and outstanding ordinary shares voted are voted in favor of the business combination. If we seek shareholder approval of +our initial business combination, we will consummate our initial business combination only if we obtain affirmative vote of a majority +of not less than two-thirds of the voting rights held by such shareholders as, being entitled to do so, vote at a general meeting of +the company. +We +chose our net tangible asset threshold of $5,000,001 to ensure that we would avoid being subject to Rule 419 promulgated under the +Securities Act. However, if we seek to consummate an initial business combination with a target business that imposes any type of working +capital closing condition or requires us to have a minimum amount of funds available from the trust account upon consummation of such +initial business combination, our net tangible asset threshold may limit our ability to consummate such initial business combination +(as we may be required to have a lesser number of shares converted or sold to us) and may force us to seek third party financing which +may not be available on terms acceptable to us or at all. As a result, we may not be able to consummate such initial business combination +and we may not be able to locate another suitable target within the applicable time period, if at all. Public shareholders may therefore +have to wait 15 months from the closing of the IPO (or up to 21 months +from the closing of the IPO if we extend the period of time to consummate +a business combination by the full amount of time, as described in more detail in our prospectus) in order to be able to receive a pro +rata share of the trust account. +21 +Our initial shareholders and our +officers and directors have agreed (1) to vote any ordinary shares owned by them in favor of any proposed business combination, +(2) not to redeem any ordinary shares in connection with a shareholder vote to approve a proposed initial business combination and +(3) not sell any ordinary shares in any tender in connection with a proposed initial business combination. +None +of our officers, directors, initial shareholders or their affiliates has indicated any intention to purchase units or ordinary shares +in the IPO or from persons in the open market or in private transactions. +However, if we hold a general meeting to approve a proposed business combination and a significant number of shareholders vote, or indicate +an intention to vote, against such proposed business combination or to redeem their shares, our officers, directors, initial shareholders +or their affiliates could make such purchases in the open market or in private transactions in order to increase the likelihood of satisfying +the necessary closing conditions to such transaction. Notwithstanding the foregoing, our officers, directors, initial shareholders and +their affiliates will not make purchases of ordinary shares if the purchases would violate Section 9(a)(2) or Rule 10b-5 +of the Exchange Act, which are rules designed to stop potential manipulation of a company’s stock, shares or other equity +securities. +Redemption Rights +Redemption rights for public shareholders upon +consummation of our initial business combination +We +will provide our public shareholders with the opportunity to redeem all or a portion their shares upon the consummation of our initial +business combination at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the trust account, including +interest (net of taxes payable), divided by the number of the then issued and outstanding public shares, subject to the limitations described +herein. The amount in the trust account is initially anticipated to be $10.00 per share, whether or not the underwriters’ over-allotment +option is exercised in full. The per-share amount we will distribute to investors who properly redeem their shares will not be reduced +by the deferred underwriting discounts we will pay to the underwriters. Our initial shareholders have agreed to waive their right to +receive liquidating distributions if we fail to consummate our initial business combination within the requisite time period. However, +if our initial shareholders or any of our officers, directors or affiliates acquires public shares in or after the IPO , +they will be entitled to receive liquidating distributions with respect to such public shares if we fail to consummate our initial business +combination within the required time period. +Manner of Conducting Redemptions +At any general meeting called +to approve an initial business combination, public shareholders may seek to redeem their shares, regardless of whether they vote for +or against the proposed business combination or do not vote at all, into their pro rata share of the aggregate amount then on deposit +in the trust account as of two business days prior to the consummation of the initial business combination, less any taxes +then due but not yet paid. Alternatively, we may provide our public shareholders with the opportunity to sell their ordinary shares to +us through a tender offer (and thereby avoid the need for a shareholder vote) for an amount equal to their pro rata share of the aggregate +amount then on deposit in the trust account, less any taxes then due but not yet paid. +22 +Notwithstanding +the foregoing, a public shareholder, together with any affiliate of his or any other person with whom he is acting in concert or as a +“group” (as defined in Section 13(d)(3) of the Exchange Act) will be restricted from seeking redemption rights +with respect to 20% or more of the shares sold in the IPO . Such a public +shareholder would still be entitled to vote against a proposed business combination with respect to all shares owned by him or his affiliates. +We believe this restriction will prevent shareholders from accumulating large blocks of shares before the vote held to approve a proposed +business combination and attempt to use the redemption right as a means to force us or our management to purchase their shares at a significant +premium to the then current market price. By limiting a shareholder’s ability to redeem no more than 20% of the shares sold in +the IPO , we believe we have limited the ability of a small group of shareholders +to unreasonably attempt to block a transaction which is favored by our other public shareholders. +Our +initial shareholders, officers and directors will not have redemption rights with respect to any ordinary shares owned by them, directly +or indirectly, whether acquired prior to the IPO or purchased by them +in the IPO or in the aftermarket. +We may require public shareholders, +whether they are a record holder or hold their shares in “street name,” to either (i) tender their certificates (if +any) to our transfer agent or (ii) deliver their shares to the transfer agent electronically using Depository Trust Company’s +DWAC (Deposit/Withdrawal At Custodian) System, at the holder’s option, in each case prior to a date set forth in the proxy materials +sent in connection with the proposal to approve the business combination. +There is a nominal cost associated +with the above-referenced delivery process and the act of certificating the shares or delivering them through the DWAC System. The transfer +agent will typically charge the tendering broker a nominal amount and it would be up to the broker whether or not to pass this cost on +to the holder. However, this fee would be incurred regardless of whether or not we require holders seeking to exercise redemption rights +to deliver their shares prior to a specified date. The need to deliver shares is a requirement of exercising redemption rights regardless +of the timing of when such delivery must be effectuated. However, in the event we require shareholders seeking to exercise redemption +rights to deliver their shares prior to the consummation of the proposed business combination and the proposed business combination is +not consummated this may result in an increased cost to shareholders. +Any proxy solicitation materials +we furnish to shareholders in connection with a vote for any proposed business combination will indicate whether we are requiring shareholders +to satisfy such certification and delivery requirements. Accordingly, a shareholder would have from the time the shareholder received +our proxy statement up until the vote on the proposal to approve the business combination to deliver his shares if he wishes to seek +to exercise his redemption rights. This time period varies depending on the specific facts of each transaction. However, as the delivery +process can be accomplished by the shareholder, whether or not he is a record holder or his shares are held in “street name,” +in a matter of hours by simply contacting the transfer agent or his broker and requesting delivery of his shares through the DWAC +System, we believe this time period is sufficient for an average investor. However, we cannot assure you of this fact. Please see the +risk factor titled “In connection with any general meeting called to approve a proposed initial business combination, we may require +shareholders who wish to redeem their shares in connection with a proposed business combination to comply with specific requirements +for redemption that may make it more difficult for them to exercise their redemption rights prior to the deadline for exercising their +rights” for further information on the risks of failing to comply with these requirements. +Any request to redeem such shares +once made, may be withdrawn at any time up to the vote on the proposed business combination or the expiration of the tender offer. Furthermore, +if a holder of public shares delivered his certificate in connection with an election of their redemption and subsequently decides prior +to the applicable date not to elect to exercise such rights, he may simply request that the transfer agent return the certificate (physically +or electronically). +23 +If the initial business combination +is not approved or completed for any reason, then our public shareholders who elected to exercise their redemption rights would not be +entitled to redeem their shares for the applicable pro rata share of the trust account as of two business days prior to the +consummation of the initial business combination. In such case, we will promptly return any shares delivered by public holders. +Permitted purchases of our securities by our affiliates +If +we seek shareholder approval of our initial business combination and we do not conduct redemptions in connection with our initial business +combination pursuant to the tender offer rules, our sponsor, initial shareholders, directors, executive officers, advisors or their affiliates +may purchase shares in privately negotiated transactions or in the open market either prior to or following the completion of our initial +business combination. There is no limit on the number of shares our initial shareholders, directors, officers, advisors or their affiliates +may purchase in such transactions, subject to compliance with applicable law and Nasdaq rules. However, they have no current commitments, +plans or intentions to engage in such transactions and have not formulated any terms or conditions for any such transactions. None of +the funds in the trust account will be used to purchase shares in such transactions. If they engage in such transactions, they will be +restricted from making any such purchases when they are in possession of any material non-public information not disclosed to the seller +or if such purchases are prohibited by Regulation M under the Exchange Act. In the event that we submit our initial business +combination to our public shareholders for a vote, our initial shareholders have agreed to vote their founder shares, and they and the +other members of our management team have agreed to vote any founder shares they hold and any shares purchased during the IPO +in favor of our initial business combination. Any shares purchased from public +shareholders by the initial shareholders or their affiliates would not be voted in favor of approving a business combination transaction. +In the event that our sponsor, +initial shareholders, directors, officers, advisors or their affiliates purchase shares in privately negotiated transactions from public +shareholders who have already elected to exercise their redemption rights, such selling shareholders would be required to revoke their +prior elections to redeem their shares. We do not currently anticipate that such purchases, if any, would constitute a tender offer subject +to the tender offer rules under the Exchange Act or a going-private transaction subject to the going-private rules under the Exchange Act; +however, if the purchasers determine at the time of any such purchases that the purchases are subject to such rules, the purchasers will +comply with such rules. +The purpose of any such purchases +of shares could be to satisfy a closing condition in an agreement with a target that requires us to have a minimum net worth or a certain +amount of cash at the closing of our initial business combination, where it appears that such requirement would otherwise not be met, +or to reduce the number of shares being submitted for redemption. Any such purchases of our securities may result in the completion of +our initial business combination that may not otherwise have been possible. If such arrangements or agreements are entered into, we would +file a Current Report on Form 8-K before our security holder meeting to disclose any arrangements entered into or significant purchases +made by any of the aforementioned persons. Any such report will include (i) the amount of shares purchased and the purchase price; +(ii) the purpose of such purchases; (iii) the impact of such purchases on the likelihood that the initial business combination +transaction will be approved; (iv) the identities or characteristics of security holders who sold shares if not purchased in the +open market or the nature of the sellers; and (v) the number of shares for which we has received redemption requests. +24 +In addition, if such purchases +are made, the public “float” of our ordinary shares may be reduced and the number of beneficial holders of our securities +may be reduced, which may make it difficult to maintain or obtain the quotation, listing or trading of our securities on a national securities +exchange. +Our sponsor, initial shareholders, +officers, directors and/or their affiliates anticipate that they may identify the shareholders with whom our initial shareholders, officers, +directors or their affiliates may pursue privately negotiated purchases by either the shareholders contacting us directly or by our receipt +of redemption requests submitted by shareholders (in the case of ordinary shares) following our mailing of proxy materials in connection +with our initial business combination. To the extent that our sponsor, officers, directors, advisors or their affiliates enter into a +private purchase, they would identify and contact only potential selling shareholders who have expressed their election to redeem their +shares for a pro rata share of the trust account or vote against our initial business combination, whether or not such shareholder has +already submitted a proxy with respect to our initial business combination but only if such shares have not already been voted at the +general meeting related to our initial business combination. Our sponsor, executive officers, directors, advisors or any of their affiliates +will select which shareholders to purchase shares from based on a negotiated price and number of shares and any other factors that they +may deem relevant, and will only purchase shares if such purchases comply with Regulation M under the Exchange Act and the +other federal securities laws. Our sponsor, officers, directors and/or their affiliates will be restricted from making purchases of shares +if the purchases would violate Section 9(a)(2) or Rule 10b-5 of the Exchange Act. We expect any such purchases will +be reported pursuant to Section 13 and Section 16 of the Exchange Act to the extent such purchases are subject to such +reporting requirements. +Additionally, in the event our +sponsor, directors, executive officers, advisors or their affiliates were to purchase shares from public shareholders, such purchases +would be structured in compliance with the requirements of Rule 14e-5 under the Exchange Act including, in pertinent part, +through adherence to the following: +● our registration statement/proxy statement filed for our +business combination transaction would disclose the possibility that our sponsor, directors, executive officers, advisors or any of their +affiliates may purchase shares or rights from public shareholders outside the redemption process, along with the purpose of such purchases; +● if our sponsor, directors, executive officers, advisors or +any of their affiliates were to purchase shares from public shareholders, they would do so at a price no higher than the price offered +through our redemption process; +● our registration statement/proxy statement filed for our +business combination transaction would include a representation that any of our securities purchased by our sponsor, directors, executive +officers, advisors or any of their affiliates would not be voted in favor of approving the business combination transaction; +● our sponsor, directors, executive officers, advisors or any +of their affiliates would not possess any redemption rights with respect to our securities or, if they do acquire and possess redemption +rights, they would waive such rights; and +● we would disclose in a Current Report on Form 8-K, before +our security holder meeting to approve the business combination transaction, the following material items: +● the amount of our securities purchased outside of the redemption +offer by our sponsor, directors, executive officers, advisors or any of their affiliates, along with the purchase price; +● the purpose of the purchases by our sponsor, directors, executive +officers, advisors or any of their affiliates; +● the impact, if any, of the purchases by our sponsor, directors, +executive officers, advisors or any of their affiliates on the likelihood that the business combination transaction will be approved; +25 +● the identities of our security holders who sold to our sponsor, +directors, executive officers, advisors or any of their affiliates (if not purchased on the open market) or the nature of our security +holders (e.g., 5% security holders) who sold to our sponsor, directors, executive officers, advisors or any of their affiliates; and +● the number of our securities for which we have received redemption +requests pursuant to our redemption offer. +In addition, if such purchases +are made, the public “float” of our ordinary shares may be reduced and the number of beneficial holders of our securities +may be reduced, which may make it difficult to maintain or obtain the quotation, listing or trading of our securities on a national securities +exchange. +Our sponsor, officers, directors +and/or their affiliates anticipate that they may identify the shareholders with whom our sponsor, officers, directors or their affiliates +may pursue privately negotiated purchases by either the shareholders contacting us directly or by our receipt of redemption requests +submitted by shareholders following our mailing of proxy materials in connection with our initial business combination. To the extent +that our sponsor, officers, directors, advisors or their affiliates enter into a private purchase, they would identify and contact only +potential selling shareholders who have expressed their election to redeem their shares for a pro rata share of the trust account or +vote against our initial business combination, whether or not such shareholder has already submitted a proxy with respect to our initial +business combination. Our sponsor, officers, directors, advisors or their affiliates will only purchase shares if such purchases comply +with Regulation M under the Exchange Act and the other federal securities laws. +Redemption of public shares and liquidation if +no initial business combination +We will have 15 months from +the closing of the IPO to consummate an initial business combination. However, if we anticipate that we may not be able to consummate +our initial business combination within 15 months, we may extend the period of time to consummate a business combination up to two times, +each by an additional three months (for a total of up to 21 months to complete a business combination). Pursuant to the terms of our +amended and restated memorandum and articles of association and the trust agreement entered into between us and Equiniti Trust Company, +LLC, in order to extend the time available for us to consummate our initial business combination, the sponsor or its affiliates or designees, +upon five days advance notice prior to the applicable deadline, must deposit into the trust account $500,000 or up to $575,000 if the +underwriters’ over-allotment option is exercised in full ($0.10 per share in either case) on or prior to the date of the applicable +deadline, for each three months extension (or up to an aggregate of $1,000,000 (or $1,150,000 if the underwriters’ over-allotment +option is exercised in full), or approximately $0.20 per share if we extend for the full six months). Any such payments would be made +in the form of a loan. Any such loans will be non-interest bearing and payable upon the consummation of our initial business combination. +If we complete our initial business combination, we would repay such loaned amounts out of the proceeds of the trust account released +to us. If we do not complete a business combination, we will not repay such loans. Furthermore, the letter agreement with our initial +shareholders contains a provision pursuant to which the sponsor has agreed to waive its right to be repaid for such loans out of the +funds held in the trust account in the event that we do not complete a business combination. The sponsor and its affiliates or designees +are not obligated to fund the trust account to extend the time for us to complete our initial business combination. You will not be able +to vote on or redeem your shares in connection with any such extension. +26 +However, we may hold a shareholder +vote at any time to amend our amended and restated memorandum and articles of association, to modify the amount of time we will have +to consummate an initial business combination (as well as to modify the substance or timing of our obligation to redeem 100% of our public +shares if we have not consummated an initial business combination or with respect to any other material provisions relating to shareholders’ +rights or pre-initial business combination activity). Our sponsor, officers, and directors have agreed, pursuant to a written agreement +with us, that they will not propose, or vote in favor of, an amendment to our amended and restated memorandum and articles of association +that would stop our public shareholders from converting or selling their shares to us in connection with a business combination or that +would affect the substance or timing of our redemption obligation to redeem all public shares if we cannot complete an initial business +combination within 15 months of the closing of the IPO (or up to 21 months from the closing of the IPO if we extend the period of time +to consummate a business combination by the full amount of time, as described in more detail in our prospectus), unless we provide public +shareholders an opportunity to redeem their public shares upon approval of any such amendment at a per share price, payable in cash, +equal to the aggregate amount then on deposit in the trust account, including interest earned on the funds held in the trust account +(net of permitted withdrawals), divided by the number of then-outstanding public shares, subject to the limitations described herein. +If we are unable to consummate +our initial business combination within the completion window, we will, as promptly as reasonably possible but not more than ten business +days thereafter, distribute the aggregate amount then on deposit in the trust account (net of taxes payable, and less up to $50,000 of +interest to pay liquidation expenses), pro rata to our public shareholders by way of redemption and cease all operations except for the +purposes of winding up of our affairs. This redemption of public shareholders from the trust account shall be effected as required by +function of our amended and restated memorandum and articles of association and prior to any voluntary winding up, although at all times +subject to the Companies Law. +Our initial shareholders have +agreed to waive their redemption rights with respect to their founder shares if we fail to consummate our initial business combination +within the applicable period from the closing of the IPO. However, if our initial shareholders, or any of our officers, directors or +affiliates acquire public shares in or after the IPO, they will be entitled to redemption rights with respect to such public shares if +we fail to consummate our initial business combination within the required time period. There will be no redemption rights or liquidating +distributions with respect to our rights, which will expire worthless in the event we do not consummate our initial business combination +within the allotted time period. +If we were to expend all of +the net proceeds of the IPO, other than the proceeds deposited in the trust account, and without taking into account interest, if any, +earned on the trust account, the per-share redemption amount received by shareholders upon our dissolution would be approximately $10.00 +(whether or not the underwriters’ over-allotment option is exercised in full). The proceeds deposited in the trust account could, +however, become subject to the claims of our creditors, which would have higher priority than the claims of our public shareholders. +The actual per-share redemption amount received by shareholders may be less than $10.00, plus interest (net of any taxes payable, and +less up to $50,000 of interest to pay liquidation expenses). +Although we will seek to have +all vendors, service providers, prospective target businesses or other entities with which we do business execute agreements with us +waiving any right, title, interest or claim of any kind in or to any monies held in the trust account for the benefit of our public shareholders, +there is no guarantee that they will execute such agreements or even if they execute such agreements that they would be prevented from +bringing claims against the trust account including but not limited to fraudulent inducement, breach of fiduciary responsibility or other +similar claims, as well as claims challenging the enforceability of the waiver, in each case in order to gain an advantage with respect +to a claim against our assets, including the funds held in the trust account. If any third party refuses to execute an agreement waiving +such claims to the monies held in the trust account, our management will perform an analysis of the alternatives available to it and +will only enter into an agreement with a third party that has not executed a waiver if management believes that such third party’s +engagement would be significantly more beneficial to us than any alternative. Making such a request of potential target businesses may +make our acquisition proposal less attractive to them and, to the extent prospective target businesses refuse to execute such a waiver, +may limit the field of potential target businesses that we might pursue. Our independent registered public accounting firm will not execute +agreements with us waiving such claims to the monies held in the trust account, nor will the underwriters of the IPO. +27 +If any third party refuses to +execute an agreement waiving such claims to the monies held in the trust account, our management will perform an analysis of the alternatives +available to it and will only enter into an agreement with a third party that has not executed a waiver if management believes that such +third party’s engagement would be significantly more beneficial to us than any alternative. Examples of possible instances where +we may engage a third party that refuses to execute a waiver include the engagement of a third party consultant whose particular expertise +or skills are believed by management to be significantly superior to those of other consultants that would agree to execute a waiver +or in cases where management is unable to find a service provider willing to execute a waiver. In addition, there is no guarantee that +such entities will agree to waive any claims they may have in the future as a result of, or arising out of, any negotiations, contracts +or agreements with us and will not seek recourse against the trust account for any reason. In order to protect the amounts held in the +trust account, the sponsor has agreed that it will be liable to us, if and to the extent any claims by a vendor for services rendered +or products sold to us, or a prospective target business with which we have discussed entering into a transaction agreement, reduce the +amounts in the trust account to below $10.00 per share (whether or not the underwriters’ over-allotment option is exercised in +full), except as to any claims by a third party who executed a waiver of any and all rights to seek access to the trust account and except +as to any claims under our indemnity of the underwriters of the IPO against certain liabilities, including liabilities under the Securities +Act. In the event that an executed waiver is deemed to be unenforceable against a third party, the sponsor will not be responsible to +the extent of any liability for such third party claims. However, the sponsor may not be able to satisfy those obligations. Other than +as described above, none of our officers or directors will indemnify us for claims by third parties including, without limitation, claims +by vendors and prospective target businesses. We have not independently verified whether the sponsor has sufficient funds to satisfy +its indemnity obligations. We therefore believe it is unlikely the sponsor would be able to satisfy its indemnity obligations if it was +required to do so. However, we believe the likelihood of the sponsor having to indemnify the trust account is limited because we will +endeavor to have all vendors and prospective target businesses as well as other entities execute agreements with us waiving any right, +title, interest or claim of any kind in or to monies held in the trust account. +In the event that the proceeds +in the trust account are reduced below $10.00 per share (whether or not the underwriters’ over-allotment option is exercised in +full) and the sponsor asserts that it is unable to satisfy any applicable obligations or that it has no indemnification obligations related +to a particular claim, our independent directors would determine whether to take legal action to enforce such indemnification obligations. +While we currently expect that our independent directors would take legal action on our behalf to enforce such indemnification obligations +to us, it is possible that our independent directors in exercising their business judgment may choose not to do so in any particular +instance. Accordingly, due to claims of creditors, the actual value of the per-share redemption price may be less than $10.00 per share +(whether or not the underwriters’ over-allotment option is exercised in full). +If we file a bankruptcy or winding-up +petition or an involuntary bankruptcy or winding-up petition is filed against us that is not dismissed, the proceeds held in the trust +account could be subject to applicable bankruptcy or insolvency law, and may be included in our bankruptcy or insolvency estate and subject +to the claims of third parties with priority over the claims of our shareholders. To the extent any bankruptcy or insolvency claims deplete +the trust account, we cannot assure you we will be able to return $10.00 per share to our public shareholders. Additionally, if we file +a bankruptcy or winding-up petition or an involuntary bankruptcy or winding-up petition is filed against us that is not dismissed, any +distributions received by shareholders could be viewed under applicable debtor/creditor and/or bankruptcy or insolvency laws as either +a “preferential transfer”, a “fraudulent conveyance”, a “fraud in anticipation of winding up”, a +“transaction in fraud of creditors” or a “misconduct in the course of winding up”. As a result, a bankruptcy +or insolvency court could seek to recover some or all amounts received by our shareholders. Furthermore, our board of directors may be +viewed as having breached its fiduciary duty to our creditors and/or may have acted in bad faith, and thereby exposing itself and our +company to claims of punitive damages, by paying public shareholders from the trust account prior to addressing the claims of creditors. +We cannot assure you that claims will not be brought against us for these reasons. +28 +Our public shareholders will +be entitled to receive funds from the trust account only (i) in the event of a redemption of the public shares prior to any winding up +in the event we do not consummate our initial business combination within the allotted time period, (ii) if they redeem their shares +in connection with an initial business combination that we consummate or (iii) if they redeem their shares in connection with a shareholder +vote to amend our amended and restated memorandum and articles of association (A) to modify the substance or timing of our obligation +to allow redemption rights or to redeem 100% of our public shares if we do not complete our initial business combination within the allotted +time period or (B) with respect to any other provision relating to shareholders’ rights or pre-business combination activity. In +no other circumstances shall a shareholder have any right or interest of any kind to or in the trust account. In the event we seek shareholder +approval in connection with our initial business combination, a shareholder’s voting in connection with the business combination +alone will not result in a shareholder’s redeeming its shares to us for an applicable pro rata share of the trust account. Such +shareholder must have also exercised its redemption rights described above. +Competition +In identifying, evaluating and +selecting a target business for our initial business combination, we may encounter intense competition from other entities having a business +objective similar to ours, including other blank check companies, private equity groups, venture capital funds leveraged buyout funds, +and operating businesses seeking strategic acquisitions. Many of these entities are well established and have significant experience +identifying and effecting business combinations directly or through affiliates. Moreover, many of these competitors possess greater financial, +technical, human and other resources than us. Our ability to acquire larger target businesses will be limited by our available financial +resources. This inherent limitation gives others an advantage in pursuing the acquisition of a target business. Furthermore, the requirement +that we acquire a target business or businesses having a fair market value equal to at least 80% of the value of the trust account (less +any deferred underwriting discounts and taxes payable on interest earned) at the time of the agreement to enter into the business combination, +our obligation to pay cash in connection with our public shareholders who exercise their redemption rights and the future dilution they +potentially represent, may not be viewed favorably by certain target businesses. Any of these factors may place us at a competitive disadvantage +in successfully negotiating our initial business combination. +Emerging Growth Company Status and Other Information +We are an “emerging growth +company,” as defined in Section 2(a) of the Securities Act of 1933, as amended, or the Securities Act, as modified +by the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As such, we are eligible to take advantage of certain +exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” +including, but not limited to, not being required to comply with the auditor internal controls attestation requirements of Section 404 +of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive +compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory +vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. If some investors find +our securities less attractive as a result, there may be a less active trading market for our securities and the prices of our securities +may be more volatile. +29 +In addition, Section 107 +of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided +in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging +growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. +We intend to take advantage of the benefits of this extended transition period. +We will remain an “emerging +growth company” for up to five years. However, if our non-convertible debt issued within a three year period or revenues +exceeds $1.235 billion, or the market value of our shares that are held by non-affiliates exceeds $700 million on the +last day of the second fiscal quarter of any given fiscal year, we would cease to be an emerging growth company as of the following +fiscal year. +Employees +We currently have two executive +officers. These individuals are not obligated to devote any specific number of hours to our matters but they intend to devote as +much of their time as they deem necessary to our affairs until we have completed our initial business combination. The amount of time +they will devote in any time period will vary based on whether a target business has been selected for our initial business combination +and the stage of the business combination process we are in. We do not intend to have any full time employees prior to the consummation +of our initial business combination. +Facilities +We currently maintain our executive +offices at Unit B 17/F, Success Commercial Building, 245-25, Hennessy Road, Wanchai, Hong Kong. We consider our current office space +adequate for our current operations. +ITEM 1A. RISK FACTORS +As a smaller reporting company, +we are not required to make disclosures under this Item. However, in addition to the “Risk Factors” section to the Prospectus +filed with the SEC on January 30, 2026, we believe the various risks as set forth below could have a material effect on the Company and +its operations. Any of these factors could result in a significant or material adverse effect on our results of operations or financial +condition. Additional risks could arise that may also affect our business or ability to consummate an initial business combination. We +may disclose changes to such risk factors or disclose additional risk factors from time to time in our future filings with the SEC. +30 +Our independent registered public accounting +firm’s report contains an explanatory paragraph that expresses substantial doubt about our ability to continue as a “going +concern.” +As of December 31, 2025, +the Company had cash of $1,824,242 and a working capital deficit of $3,590,521. Further, we have incurred and expect to continue to incur +significant costs as a public company (for legal, financial reporting, accounting and auditing compliance), as well as expenses in connection +with our initial business combination activities. Management’s plans to address any need for additional capital are discussed in +“Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” We cannot +assure you that any efforts to raise capital (if required) or to consummate an initial business combination will be successful. These +factors, among others, raise substantial doubt about our ability to continue as a going concern. The financial statement contained elsewhere +in this Form 10-K do not include any adjustments that might result from our inability to continue as a going concern. +ITEM 1B. UNRESOLVED STAFF COMMENTS +Not applicable. +ITEM 1C. CYBERSECURITY +We are a SPAC with no business operations. Since our IPO, our sole business activity has been identifying and evaluating suitable acquisition transaction candidates. Therefore, we do not consider that we face significant cybersecurity risk and have not adopted any cybersecurity risk management program or formal processes for assessing cybersecurity risk. Our Board is generally responsible for the oversight of risks from cybersecurity threats, if there is any. We have not encountered any cybersecurity incidents since our IPO. +ITEM 2. PROPERTIES +We currently maintain our executive +offices at Unit B 17/F, Success Commercial Building, 245-25, Hennessy Road, Wanchai, Hong Kong. Such space, utilities and secretarial +and administrative services will be provided to us free of charge by the sponsor. We consider our current office space adequate for our +current operations. +ITEM 3. LEGAL PROCEEDINGS +We may be subject to legal proceedings, +investigations and claims incidental to the conduct of our business from time to time. We are not currently a party to any material litigation +or other legal proceedings brought against us. We are also not aware of any legal proceeding, investigation or claim, or other legal +exposure that has a more than remote possibility of having a material adverse effect on our business, financial condition or results +of operations. +ITEM 4. MINE SAFETY DISCLOSURES +Not Applicable. +31 +PART II +ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, +RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES +Our units began to trade +on the NASDAQ Capital Market under the symbol “NBRGU” on January 30, 2026. The Class A ordinary shares and rights comprising +the units will begin separate trading on NASDAQ on March 23, 2026, under the symbols “NBRG” and “NBRGR,” respectively. +Holders of Record +As of March 23, 2026, there +were 7,546,250 (inclusive of ordinary shares included in our units) of our ordinary shares issued and outstanding, held by a total of +8 record holders. The number of record holders was determined from the records of our transfer agent and does not include beneficial +owners of ordinary shares whose shares are held in the names of various security brokers, dealers, and registered clearing agencies. +Dividend Policy +We have not paid any cash dividends +on our ordinary shares to date and do not intend to pay cash dividends prior to the completion of an initial business combination. The +payment of cash dividends in the future will be dependent upon our revenues and earnings, if any, capital requirements and general financial +condition subsequent to completion of a business combination. The payment of any dividends subsequent to a business combination will +be within the discretion of our board of directors at such time. It is the present intention of our board of directors to retain all +earnings, if any, for use in our business operations and, accordingly, our board of directors does not anticipate declaring any dividends +in the foreseeable future. In addition, our board of directors is not currently contemplating and does not anticipate declaring any share +capitalizations in the foreseeable future. Further, if we incur any indebtedness, our ability to declare dividends may be limited by +restrictive covenants we may agree to in connection therewith. +Securities Authorized for Issuance Under Equity +Compensation Plans +None. +Recent Sales of Unregistered Securities +None. +Use of Proceeds +On February 2, 2026, we consummated +our IPO of 5,000,000 units (the “Units”). Each Unit consists of one Class A Ordinary Share and one Right to receive one-eighth +(1/8) of one Class A Ordinary Share upon the consummation of an initial business combination. The Units were sold at an offering price +of $10.00 per Unit, generating gross proceeds of $50,000,000. Pursuant to that certain underwriting agreement, dated January 29, 2026, +we granted Kingswood Capital Partners, LLC, the representative of the underwriters, a 45-day option to purchase up to an additional 750,000 +Units solely to cover over-allotments, if any (the “Over-Allotment Option”). Simultaneously with the consummation of the +IPO, the underwriters exercised the Over-Allotment Option in full, generating total proceeds of $7,500,000. +32 +Simultaneously with the closing +of the IPO on February 2, 2026, we consummated the Private Placement with the Sponsor of 186,250 Private Units, generating total proceeds +of $1,862,500. The Private Units are identical to the Units sold in the IPO. Additionally, the Sponsor agreed not to transfer, assign, +or sell any of the Private Units or underlying securities (except in limited circumstances, as described in the Registration Statement) +until 30 days after the completion of our initial business combination or earlier if, subsequent to our initial business combination, +we consummate a subsequent liquidation, merger, stock exchange or other similar transaction which results in all of our shareholders +having the right to exchange their ordinary shares for cash, securities or other property. The Sponsor was granted certain demand and +piggyback registration rights in connection with the purchase of the Private Units. +On February 2, 2026, a total +of $57,500,000 of the net proceeds from the sale of the Units in the IPO and the Private Placement were deposited in a trust account +established for the benefit of the Company’s public shareholders at Citibank, +N.A. maintained by Equiniti Trust Company, LLC , acting as trustee. +We paid a total of $862,500 +in underwriting discounts and $695,394 for other costs and expenses related to the IPO. +For a description of the use +of the proceeds generated in our IPO, see Part II, Item 7 ( Management’s Discussion and Analysis of Financial Condition and Results +of Operations ) of this Form 10-K. +Purchases of Equity Securities by the Issuer +and Affiliated Purchasers +None. +ITEM 6. [RESERVED] +ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION +AND RESULTS OF OPERATIONS +The following discussion and +analysis of the Company’s financial condition and results of operations should be read in conjunction with our audited financial +statements and the notes related thereto which are included in “Item 8. Financial Statements and Supplementary Data” of this +annual report on Form 10-K. Certain information contained in the discussion and analysis set forth below includes forward-looking statements. +Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including +those set forth under “Cautionary Note Regarding Forward-Looking Statements and Risk Factor Summary,” and elsewhere in this +annual report on Form 10-K. +Overview +We are a blank check company incorporated as a British +Virgin Islands business company on April 16, 2021 for the purpose of entering into a merger, share exchange, asset acquisition, +share purchase, recapitalization, reorganization or other similar business combination with one or more target businesses. Our efforts +to identify a prospective target business will not be limited to a particular industry or geographic region. As such, although we are +not targeting target companies in China, we may consider a business combination with an entity or business with a physical presence or +other significant ties to China, including Hong Kong and Macau, which may subject the post-business combination business to the +laws, regulations and policies of China. We intend to utilize cash derived from the proceeds of the Initial Public Offering, our securities, +debt or a combination of cash, securities and debt, in effecting a business combination. +33 +We expect to continue to incur significant costs +in the pursuit of our acquisition plans. We cannot assure you that our plans to complete a business combination will be successful. +Results of Operations +We have neither engaged in any operations nor generated +any operating revenues to date. Our only activities since inception were organizational activities and those necessary to prepare for +the initial public offering, described below and, after our initial public offering, identifying a target company for a business combination. +We do not expect to generate any operating revenues until after the completion of our initial business combination. We expect to generate +non-operating income in the form of interest income on marketable securities held after the initial public offering. We expect that we +will incur increased expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), +as well as for due diligence expenses in connection with searching for, and completing, a business combination. +For the years ended December 31, 2024 and 2025, we +had a net loss of $140,962 and $221,014, respectively, which consisted of formation and operating expenses. +Liquidity and Capital Resources +On February 2, 2026, the Company consummated its +Initial Public Offering of 5,750,000 Units, at $10.00 per Unit, generating gross proceeds of $57,500,000, including the full exercise +by the underwriters of their over-allotment option in the amount of 750,000 units. Simultaneously with the closing of the Initial Public +Offering, the Sponsor purchased an aggregate of 186,250 units at a price of $10.00 per unit for an aggregate purchase price of $1,862,500 +in a private placement. +A total of $57,500,000 of the net proceeds from the +Initial Public Offering and the Private Placement were deposited in a trust account established for the benefit of the Company’s +public stockholders, with Equinity Trust Company, LLC acting as trustee. +We intend to use substantially all of the net proceeds +of this offering and the sale of the private units, including the funds held in the trust account (excluding deferred underwriting discounts) +to acquire a target business or businesses and to pay our expenses relating thereto. To the extent that our shares used in whole or in +part as consideration to effect our initial business combination, the remaining proceeds held in the trust account as well as any other +net proceeds not expended will be used as working capital to finance the operations of the target business or businesses. Such working +capital funds could be used in a variety of ways including continuing or expanding the target business’ operations, for strategic +acquisitions and for marketing, research and development of existing or new products. Such funds could also be used to repay any operating +expenses which we had incurred prior to the completion of our initial business combination if the funds available to us outside of the +trust account were insufficient to cover such expenses. +34 +As of December 31, 2025, we had $1,824,242 in cash +and a working capital deficit of $3,590,521. The Company’s liquidity needs prior to the consummation of the IPO had been satisfied +through a payment from the Sponsor of $25,000 for the founder shares and an aggregate of up to $6,500,000 in loans available from the +sponsor under an unsecured promissory note executed on May 1, 2021 and an unsecured promissory note executed on May 1 and November +15, 2025, and due at the closing of this offering. As of December 31, 2025, we have borrowed $5,414,763 under the promissory note with +the sponsor. Subsequent to the consummation of the Initial Public Offering, the Company expects that it will need additional capital +to satisfy its liquidity needs beyond the net proceeds from the consummation of the Initial Public Offering and the proceeds held outside +of the Trust Account for paying existing accounts payable, identifying and evaluating prospective business combination candidates, performing +due diligence on prospective target businesses, paying for travel expenditures, selecting the target business to merge with or acquire, +and structuring, negotiating and consummating the Initial Business Combination. Although certain of the Company’s initial shareholders, +officers and directors or their affiliates have committed to loan the Company funds from time to time or at any time, in whatever amount +they deem reasonable in their sole discretion, there is no guarantee that the Company will receive such funds. +The Company will use funds held outside the Trust +Account primarily to identify and evaluate target businesses, perform business due diligence on prospective target businesses, travel +to and from the offices, plants or similar locations of prospective target businesses or their representatives or owners, review corporate +documents and material agreements of prospective target businesses, and structure, negotiate and complete a business combination. In +addition, we could use a portion of the funds not being placed in trust to pay commitment fees for financing, fees to consultants to +assist us with our search for a target business or as a down payment or to fund a “no-shop” provision (a provision designed +to keep target businesses from “shopping” around for transactions with other companies or investors on terms more favorable +to such target businesses) with respect to a particular proposed business combination, although we do not have any current intention +to do so. If we entered into an agreement where we paid for the right to receive exclusivity from a target business, the amount that +would be used as a down payment or to fund a “no-shop” provision would be determined based on the terms of the specific business +combination and the amount of our available funds at the time. Our forfeiture of such funds (whether as a result of our breach or otherwise) +could result in our not having sufficient funds to continue searching for, or conducting due diligence with respect to, prospective target +businesses. +The Company has incurred and expects to continue +to incur significant professional costs to remain as a publicly traded company and to incur significant transaction costs in pursuit +of the consummation of a Business Combination. In connection with the Company’s assessment of going concern considerations in accordance +with Financial Accounting Standard Board’s Accounting Standards Update (“ASU”) 2014-15, “Disclosures of Uncertainties +about an Entity’s Ability to Continue as a Going Concern,” management has determined that these conditions raise substantial +doubt about the Company’s ability to continue as a going concern. In addition, if the Company is unable to complete a Business +Combination within the Combination Period, the Company’s board of directors would proceed to commence voluntary liquidation and +thereby a formal dissolution of the Company. There is no assurance that the Company’s plans to consummate a Business Combination +will be successful within the Combination Period. As a result, management has determined that such an additional condition also raises +substantial doubt about the Company’s ability to continue as a going concern. The financial statement does not include any adjustments +that might result from the outcome of this uncertainty. +Off-Balance Sheet Arrangements +We did not have any off-balance sheet arrangements +as defined in Item 303(a)(4)(ii) of Regulation S-K as of December 31, 2025. We do not participate in transactions that create +relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have +been established for the purpose of facilitating off-balance sheet arrangements. We have not entered into any off-balance sheet financing +arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any non-financial +assets. +35 +Commitments and Contractual Obligations +We do not have any long-term debt, capital lease +obligations, operating lease obligations or long-term liabilities, other than agreements with affiliates of Sponsor to pay an aggregate +of $6,831 per month for office space, utilities, and secretarial and administrative support. +The underwriters were entitled to a cash underwriting +discount of half and one percent (1.5%) of the gross proceeds of the Initial Public Offering, amounting to $862,500. +Critical Accounting Estimates +The preparation of financial statements and related +disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates +and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date +of the financial statements, and income and expenses during the periods reported. Making estimates requires management to exercise significant +judgement. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that +existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term +due to one or more future confirming events. Accordingly, the actual results could materially differ from those estimates. +Recent Accounting Standards +Management does not believe that any other recently +issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on our financial statements. +ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK +As a smaller reporting company +we are not required to make disclosures under this Item. +ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA +This information appears following +Item 15 of this annual report and is included herein by reference. +ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING +AND FINANCIAL DISCLOSURE +None. +ITEM 9A. CONTROLS AND PROCEDURES +Evaluation of Disclosure Controls and Procedures +Disclosure controls and procedures +are designed to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, +and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated +to our management, including our principal executive officer and principal financial officer or persons performing similar functions, +as appropriate to allow timely decisions regarding required disclosure. +36 +Under the supervision and with +the participation of our management, including our principal executive officer and principal financial and accounting officer, we conducted +an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the fiscal year ended December 31, 2025, +as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on this evaluation, our principal executive officer +and principal financial and accounting officer have concluded that during the period covered by this report, our disclosure controls +and procedures were effective. +We do not expect that our disclosure +controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived +and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are +met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits +must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation +of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances +of fraud, if any. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of +future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. +Management’s Annual Report on Internal +Control Over Financial Reporting +This annual report does not +include a report of management’s assessment regarding internal control over financial reporting or an attestation report of our +independent registered public accounting firm due to a transition period established by rules of the SEC for newly public companies. +Changes in Internal Control Over Financial +Reporting +Other than the matters set forth +above, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange +Act) that occurred during the fourth quarter of the fiscal year covered by this annual report that have materially affected, or are reasonably +likely to materially affect, our internal control over financial reporting. +ITEM 9B. OTHER INFORMATION +None . +ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS +Not applicable. +37 +PART III +ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE +The following table sets +forth information about our directors and executive officers as of March 23, 2026. +Name +Age +Position +Yongsheng Liu +56 +Director, Chief Executive +Officer, and Chairman +Zhen Li +37 +Chief Financial Officer +Jining Li +67 +Director +Russelle Kinpui Choi +67 +Independent Director +Angela Lee +57 +Independent Director +Laurent Patrick André +Michelon +51 +Independent Director +Yongsheng Liu, CEO and Chairman +Mr. Liu has been our Chief +Executive Officer and Chairman of our Board since April 2021. Throughout the past 20 years, Mr. Liu has assumed various +corporate leadership positions and demonstrated his strong execution ability and in-depth knowledge in private equity and corporate M&A +transactions across a wide range of sectors including aviation, consumer, financial institutions, and technology. From April 2021 +to May 2023, Mr. Liu served as the chief operating officer of Goldenstone Acquisition Limited, a special purpose acquisition +company (OTC Markets: GDST) (“Goldenstone”). He served as the chairman and chief executive officer of Wealthbridge Acquisition +Limited, a special purpose acquisition company (“Wealthbridge”), from June 2018 until its business combination with +Scienjoy Inc. (“Scienjoy”) in May 2020, and currently serves as a director of Scienjoy’s board since then. From +August 2020 to May 2023, Mr. Liu served as the chairman and chief executive officer of Goldenbridge Acquisition Limited, +a special purpose acquisition company (“Goldenbridge”), from August 2020 until its business combination with SunCar +Technology Group Inc. (“SunCar”) in May 2023, and currently serves as a director of SunCar since then. From March 2017 +to April 2018, Mr. Liu served as the chairman and chief executive officer of Royal China Holdings Limited (HKEx: 01683), during +which he spearheaded the company’s international growth strategy and focused on acquiring targets in the aviation industry and +finance sector. From the beginning of 2013 to March 2017, Mr. Liu was the chairman of Joy Air General Aviation, chairman of +Cambodia Bayon Airlines, vice chairman of Everbright and Joy International Leasing Company, and president of General Aviation Investment +Company (Shanghai). From April 2004 to August 2008, Mr. Liu also served as chief strategy officer of United Eagle Airlines +(subsequently renamed to Chengdu Airlines). From December 1994 to June 2000, Mr. Liu was a manager of China Southern Airlines +responsible for ground staff training. +Mr. Liu received his master +degree from University of Ottawa in 2002 and his bachelor’s degree from Civil Aviation University of China in 1992. We believe +Mr. Liu is well-qualified to serve as a member of the board given his public company experience, including other similarly structured +blank check companies, business leadership, operational experience and contacts. +38 +Zhen Li, CFO +Zhen Li has served as our Chief +Financial Officer since October 2024. Zhen Li is a citizen and resident of China. Mr. Li has over ten years of experience +in SPACs, financial services, investment management, credit risk management and entrepreneurship. Mr. Li served as Board Secretary +of Wealthbridge’s board from March 2019 until Wealthbridge’s business combination with Scienjoy in May 2020. Mr. Li +held the same position at Goldenbridge from September 2020 until Goldenbridge’s business combination with SunCar in May 2023. +Earlier in his career, Mr. Li founded and served as Chief Executive Officer of Shanghai Yimi Investment Management Co., Ltd. from +January 2016 to October 2018. During his tenure, he developed innovative financial products such as Yifushui, offering credit-based, +unsecured financial services to enterprises. Prior to that, Mr. Li served as Vice President of Shanghai Baotong Finance Leasing +Co., Ltd. from July 2014 to December 2015, and from April 2013 to June 2024, he served as a Credit Review Manager +at HSBC Bank (Shanghai) Co., Ltd., where he gained deep expertise in credit risk assessment, policy development, and financial management. +Zhen Li is the son of Jining Li, who is our director and an affiliate of our sponsor. +Mr. Li holds a Bachelor’s +Degree in Finance from the University of Kansas in December 2012. We believe Mr. Li is qualified to serve as our Chief Financial +Officer due to his track record of success in the SPAC sector and his experience in financial management, financial services and credit +risk management. +Jining Li, Director +Mr. Li has served as our +director since April 2021. Mr. Li is a citizen and resides in Hong Kong. Mr. Li served as a director of Goldenbridge +from March 2021 until its business combination with SunCar in May 2023. Mr. Li served as the director of Wealthbridge +from June 2018 until its business combination with Scienjoy Inc. in May 2020. From May 2020 to September 2021, he +served as an independent director of Scienjoy. From May 2011 to December 2019, Mr. Li was the founder and the chairman +of Star Jet Co., Ltd, a private jet company in Shanghai, China. He has also served as a director of Keen Nice Communications Limited +since November 2017. Prior to Star Jet, Mr. Li founded United Eagle Airlines as the first non-government-owned airline company +in the history of Chinese aviation industry in 2004. From 2004 to 2008, Mr. Li was the chairman of United Eagle Airlines. From 2005 +to 2007, he served as the chairman of China Internet Investment Finance Holdings Limited (HKEx: 00810). In 1998, Mr. Li founded +Guangdong Ying Lian Tong Telecommunication Services Co., Ltd and served as Chairman until 2004. From 1990 to 1998, Mr. Li served +as chairman of Huahui Import and Export Trading Company. From 1988 to 1990, Mr. Li served as a manager in Guangdong Branch of China +Council for the Promotion of International Trade. +We believe that Mr. Li is +qualified to serve on our board of directors based on his expertise in business management and his transaction experience. +Angela Lee, Independent Director +Ms. Angela Lee has served +as our independent director since October 2024. Ms. Lee is a U.S. citizen and resides in China. With over 20 years of +experience in investment banking, mergers and acquisitions, and financial advisory, Ms. Lee brings a wealth of expertise to our board. +She worked for a number of major financial institutions including Macquarie Group from 2007 to 2023 where she was the Head of Southeast +Asia and Greater China for Macquarie’s semiconductor business, responsible for spearheading Macquarie’s Asia growth strategy. +After leaving Macquarie Group in December 2023, Ms. Lee launched her own advisory business, focusing on cross-border M&A and +physical commodities trading. +39 +Ms. Lee holds a Bachelor’s +Degree in Economics from Brown University in 1989 and a MBA Degree from Clark University in 1992. We believe Ms. Lee is well qualified +to serve as our director due to her vast experience in investment banking, M&A, and her deep expertise in the technology and financial +sectors. +Russelle Kinpui Choi, Independent Director +Mr. Choi has served as our +independent director since March 2022. Mr. Choi is a citizen and resides in Hong Kong. He has over 26 years of senior +management experience in telecommunication industry in Hong Kong, U.S. and China. Mr. Choi served as an independent director +of Wealthbridge from September 2018 until its business combination with Scienjoy in May 2020. Mr. Choi served as an independent +director of Goldenbridge from August 2020 until its business combination in May 2023. Since January 2013, Mr. Choi +has served as Non-Executive Director of Success Universal Group Limited (HKEx:00487). From 2002 to 2006, he was the president and chief +executive officer of Elephant Talk Communications Inc. Mr. Choi founded Elephant Talk Limited in 1994, a wholly-owned subsidiary +of Elephant Talk Communications Inc. From April 1994 to August 2002, Mr. Choi was the chief executive officer of Elephant +Talk Limited. Previously, he also served as the chairman of ET Network Services Limited (later known as Guangdong Ming Ying Financial +Leasing Co Limited), a Hong Kong-based company which specializes in providing telecommunication services in China. +We believe Mr. Choi is well-qualified +to serve as a member of our board of directors given his experience, relationships and contacts. +Laurent Patrick André Michelon, Independent +Director +Mr. Michelon has served as +our independent director since October 2024. Mr. Michelon is a citizen of France and resides in Hong Kong. With a diverse +and dynamic career spanning over two decades, Mr. Michelon brings substantial expertise in marketing strategy, business development, +and international relations to our board. Since July 2022, Mr. Michelon has served as the Director of Marketing & +Business Development (Europe) for Golden Bridge Growth Limited, the management company of Golden Bridge M&A Limited Partnership Fund, +a sponsor company in SPACs listed on NASDAQ, NYSE or HKEX. In this role, he is responsible for sourcing and evaluating acquisition +targets in Europe and mainland China for Golden Bridge’s SPACs listed on NASDAQ, NYSE, and HKEX. Additionally, he introduces +European and Chinese investors and financial institutions to investment opportunities within Golden Bridge’s SPAC portfolio. Since +June 2019, Mr. Michelon has served as a Marketing Strategy Consultant at Kalliste Consulting, where he provides branding and +marketing strategy consulting to Chinese corporations expanding into the European market and European corporations entering Greater China. +His work spans various industries, including automotive, engineering, pharmaceuticals, and FMCG (cosmetics). From March 2016 to +June 2019, he worked with BlueFocus International/Metta Beijing, creating and implementing strategic branding, marketing, and communication +solutions for clients in the automotive, internet, sports apparel, pharmaceutical, tourism, and trade sectors. Mr. Michelon co-founded +and directed Kalliste Fine Arts in Hong Kong from 2008 to 2021, advising and brokering art investments. He also served as Director +of Strategic Planning and Nestlé Greater China Account Director at McCann Erickson in Beijing from 2007 to 2008. His earlier roles +also include serving as Film & Culture Counsellor at the French Institute in Taipei and the French Embassy in Beijing from 2004 +to 2007, as well as strategic planning and client service roles at Publicis Paris & Taiwan and Saatchi & Saatchi. +Mr. Michelon holds a Diploma +in Advanced Studies in Political Science from the Institute for Political Studies (IEP de Paris), France in 2002. He also holds an M.A. +in International Politics & Economics from IEP de Paris in 2000, and a B.A. in Chinese Studies from the National Institute for +Oriental Languages & Civilisations (INALCO), France from 1997. He holds a B.A. in Political Science & East-Asian Studies +from the University of Montreal, Canada in 1996. With his extensive experience in SPACs, strategic planning, market entry, international +business development, and his broad expertise in both European and Asian markets, we believe Mr. Michelon is well qualified to contribute +valuable insights and strategic direction to our company’s growth and success. +40 +We believe that our independent +directors will provide public company governance, executive leadership, operational oversight, private equity investment management and +capital markets experience. Our directors have experience with acquisitions, divestitures and corporate strategy and implementation, +which we believe will significantly benefit us as we evaluate potential acquisition or merger candidates as well as following the completion +of our initial business combination. +We believe our management team +is well positioned to take advantage of the growing set of acquisition opportunities focused on the companies exhibiting substantial +potential in emerging markets driven by innovative technologies or novel business models and that our contacts and relationships, ranging +from owners and management teams of private and public companies, private equity funds, investment bankers, attorneys, to accountants +and business brokers will allow us to generate an attractive transaction for our shareholders. +The past performance of the members +of our management team, or the sponsor or their affiliates is not a guarantee that we will be able to identify a suitable candidate for +our initial business combination or of success with respect to any business combination we may consummate. You should not rely on the +historical record of the performance of our management team or any of its affiliates’ performance as indicative of our future performance. +Each of our officers and directors +may become an officer or director of another special purpose acquisition company with a class of securities intended to be registered +under the Securities Exchange Act of 1934, as amended, or the Exchange Act, even before we have entered into a definitive +agreement regarding our initial business combination. For more information, see the section of the prospectus entitled “Management — Conflicts +of Interest” and see “Risk Factors.” +Committees of the Board of Directors +Our Board has four standing +committees: an executive committee, an audit committee, a compensation committee and a nominating and corporate governance committee. +NASDAQ rules and Rule 10A-3 of the Exchange Act require that the audit committee of a listed company be comprised solely of independent +directors, and subject to certain limited exceptions, NASDAQ rules require that the compensation committee and nominating committee of +a listed company be comprised solely of independent directors. Our audit committee, compensation committee and nominating and corporate +governance committee are each governed by a written charter, which charters are incorporated by reference as s Exhibits 99.1, 99.2, and +99.3 to this annual report. In addition, a copy of any or all of these charters will be provided by us without charge upon request. +Audit Committee +We have established an audit committee +of the board of directors. Russelle Kinpui Choi, Angela Lee and Laurent Patrick André Michelon serve as members of our audit committee. +Russelle Kinpui Choi chairs the audit committee. Under the Nasdaq listing standards and applicable SEC rules, we are required to have +three members of the audit committee all of whom must be independent. Russelle Kinpui Choi, Angela Lee and Laurent Patrick André +Michelon are independent. +Each member of the audit committee +is financially literate and our board of directors has determined that Russelle Kinpui Choi qualifies as an “audit committee financial +expert” as defined in applicable SEC rules. +41 +Responsibilities of the audit +committee include: +● the appointment, compensation, retention, replacement, and +oversight of the work of the independent registered public accounting firm and any other independent registered public accounting firm +engaged by us; +● pre-approving all audit and non-audit services to be provided +by the independent registered public accounting firm or any other registered public accounting firm engaged by us, and establishing pre-approval +policies and procedures; +● reviewing and discussing with the independent registered +public accounting firm all relationships the auditors have with us in order to evaluate their continued independence; +● setting clear hiring policies for employees or former employees +of the independent registered public accounting firm; +● setting clear policies for audit partner rotation in compliance +with applicable laws and regulations; +● obtaining and reviewing a report, at least annually, from +the independent registered public accounting firm describing the independent auditor’s internal quality-control procedures and +(ii) any material issues raised by the most recent internal quality-control review, or peer review, of the audit firm, or by any +inquiry or investigation by governmental or professional authorities, within, the preceding five years respecting one or more independent +audits carried out by the firm and any steps taken to deal with such issues; +● reviewing and approving any related party transaction required +to be disclosed pursuant to Item 404 of Regulation S-K promulgated by the SEC prior to us entering into such transaction; and +● reviewing with management, the independent registered public +accounting firm, and our legal advisors, as appropriate, any legal, regulatory or compliance matters, including any correspondence with +regulators or government agencies and any employee complaints or published reports that raise material issues regarding our financial +statements or accounting policies and any significant changes in accounting standards or rules promulgated by the Financial Accounting +Standards Board, the SEC or other regulatory authorities. +Compensation Committee +We have established a compensation +committee of the board of directors. The members of our Compensation Committee are Russelle Kinpui Choi, Angela Lee and Laurent Patrick +André Michelon. Russelle Kinpui Choi chairs the compensation committee. We have adopted a compensation committee charter, which +details the principal functions of the compensation committee, including: +● reviewing and approving on an annual basis the corporate +goals and objectives relevant to our Chief Executive Officer’s compensation, evaluating our Chief Executive Officer’s performance +in light of such goals and objectives and determining and approving the remuneration (if any) of our Chief Executive Officer based on +such evaluation in executive session at which the Chief Executive Officer is not present; +● reviewing and approving the compensation of all of our other +officers; +● reviewing our executive compensation policies and plans; +● implementing and administering our incentive compensation +equity-based remuneration plans; +● assisting management in complying with our proxy statement +and annual report disclosure requirements; +42 +● approving all special perquisites, special cash payments +and other special compensation and benefit arrangements for our officers and employees; +● producing a report on executive compensation to be included +in our annual proxy statement; and +● reviewing, evaluating and recommending changes, if appropriate, +to the remuneration for directors. +The charter also provides that +the compensation committee may, in its sole discretion, retain or obtain the advice of a compensation consultant, legal counsel or other +adviser and will be directly responsible for the appointment, compensation and oversight of the work of any such adviser. However, before +engaging or receiving advice from a compensation consultant, external legal counsel or any other adviser, the compensation committee +will consider the independence of each such adviser, including the factors required by Nasdaq and the SEC. +Director Nominations +We have established a nominating +committee of the board of directors, which consists of Russelle Kinpui Choi, Angela Lee and Laurent Patrick André Michelon, each +of whom is an independent director under Nasdaq’s listing standards. Russelle Kinpui Choi chairs the nominating committee. The +nominating committee is responsible for overseeing the selection of persons to be nominated to serve on our board of directors. The nominating +committee considers persons identified by its members, management, shareholders, investment bankers and others. +Guidelines for Selecting Director Nominees +The guidelines for selecting nominees, +which are specified in the nominating committee charter, generally provide that persons to be nominated: +● should have demonstrated notable or significant achievements +in business, education or public service; +● should possess the requisite intelligence, education and +experience to make a significant contribution to the board of directors and bring a range of skills, diverse perspectives and backgrounds +to its deliberations; and +● should have the highest ethical standards, a strong sense +of professionalism and intense dedication to serving the interests of the shareholders. +The nominating committee will +consider a number of qualifications relating to management and leadership experience, background, integrity and professionalism in evaluating +a person’s candidacy for membership on the board of directors. The nominating committee may require certain skills or attributes, +such as financial or accounting experience, to meet specific board needs that arise from time to time and will also consider the overall +experience and makeup of its members to obtain a broad and diverse mix of board members. The nominating committee does not distinguish +among nominees recommended by shareholders and other persons. +Code of Ethics +We have adopted a code of conduct +and ethics applicable to our directors, officers and employees in accordance with applicable federal securities laws. A copy of our Code +of Ethics is incorporated by reference as Exhibit 14 to this annual report. In addition, a copy of the Code of Ethics will be provided +by us without charge upon request. We intend to disclose any amendments to or waivers of certain provisions of our Code of Ethics in +a Current Report on Form 8-K. +43 +Insider Trading Policy +We have adopted an insider trading policy governing the purchase, sale, and/or other dispositions of our securities by directors, officers and employees, which are reasonably designed to promote compliance with insider trading laws, rules and regulations, and the applicable Nasdaq Rules (the “Insider Trading Policy”). +The foregoing description of +the Insider Trading Policy does not purport to be complete and is qualified in its entirety by the terms and conditions of the Insider +Trading Policy, a copy of which is attached hereto as Exhibit 19 and is incorporated herein by reference. +Conflicts of Interest +Potential investors should be +aware of the following potential conflicts of interest: +● Our +sponsor and members of our management team will directly or indirectly own our securities following the IPO , +and accordingly, they may have a conflict of interest in determining whether a particular target business is an appropriate business +with which to effectuate our initial business combination. +● The +sponsor purchased an aggregate of 1,437,500 founder shares for an aggregate purchase price of $25,000, or approximately $0.017 per share. +The low price that our sponsor, officers and directors (directly or indirectly) paid for the founder shares creates an incentive whereby +our officers and directors could potentially make a substantial profit even if we select an acquisition target that subsequently declines +in value and is unprofitable for public shareholders. If we are unable to complete our initial business combination within 15 months +from the closing of the IPO (or 21 months from the closing of the +IPO if we extend the period of time to consummate a business combination by +the full amount of time, as described in more detail in our prospectus), or by such earlier liquidation date as our board of directors +may approve, the founder shares, private shares and private rights will be worthless, except to the extent they receive liquidating distributions +from assets outside the trust account, which could create an incentive for our sponsor, officers and directors to complete a transaction +even if we select an acquisition target that subsequently declines in value and is unprofitable for public shareholders. +● Our +initial shareholders purchased founder shares prior to the date of our prospectus and the sponsor purchased the private units in transactions +that closed simultaneously with the closing of the IPO . Our initial shareholders +have agreed to waive their right to liquidating distributions from the trust account with respect to its founder shares if we fail to +consummate our initial business combination within the required time period. However, if our initial shareholders acquire public shares +in or after the IPO , they will be entitled to receive liquidating distributions +with respect to such public shares if we fail to consummate our initial business combination within the required time period. If we do +not complete our initial business combination within such applicable time period, the proceeds of the sale of the private units will +be used to fund the redemption of our public shares, and the private units will expire worthless, which could create an incentive our +officers and directors to complete any transaction, regardless of its ultimate value. +● None of our officers or directors is required to commit his +or her full time to our affairs and, accordingly, may have conflicts of interest in allocating his or her time among various business +activities. +● In the course of their other business activities, our officers +and directors may become aware of investment and business opportunities which may be appropriate for presentation to us as well as the +other entities with which they are affiliated. Our management may have conflicts of interest in determining to which entity a particular +business opportunity should be presented. +44 +● Our officers and directors may have a conflict of interest +with respect to evaluating a particular business combination if the retention or resignation of any such officers and directors was included +by a target business as a condition to any agreement with respect to our initial business combination. +● each of our officers and directors presently has, and any +of them in the future may have additional, fiduciary or contractual obligations to another entity and other blank check companies similar +to our company, pursuant to which such officer or director may be required to present a business combination opportunity to such entity. +For a summary of the entities to which our officers and directors currently have fiduciary duties or contractual obligations, see “Management — Conflicts +of Interest.” Accordingly, if any of our officers or directors becomes aware of a business combination opportunity which is suitable +for an entity to which he or she has then current fiduciary or contractual obligations, he or she will honor his or her fiduciary or +contractual obligations to present such business combination opportunity to such other entity, and only present it to us if such entity +rejects the opportunity, subject to their fiduciary duties under British Virgin Islands law. +● Our sponsor and our officers and directors may sponsor or +form other special purpose acquisition companies similar to ours or may pursue other business or investment ventures during the period +in which we are seeking an initial business combination. As a result, our sponsor, officers, and directors could have conflicts of interest +in determining whether to present business combination opportunities to us or to any other blank check company with which they may become +involved. Members of our management team have complete discretion, subject to applicable fiduciary duties, as to which blank check company +they choose to pursue a business combination and the order in which they pursue business combinations for any of their existing or future +blank check companies. Any such companies, businesses or investments may present additional conflicts of interest in pursuing an initial +business combination. +● Our officers, directors, shareholders or affiliates may be +paid fees upon the successful completion of our initial business combination as described in the prospectus under “Summary — the +Offering — Limited payments to insiders”. +● In the event our sponsor, officers, directors or their affiliates +provide working capital loans to us to finance transaction costs and/or incur expenses on our behalf in connection with an initial business +combination, such persons may have a conflict of interest in determining whether a particular target business is an appropriate business +with which to effectuate our initial business combination as such loans may not be repaid and/or such expenses may not be reimbursed +unless we consummate such business combination. +Under British Virgin Islands law, +directors and officers owe the following fiduciary duties: +(i) duty to act in good faith in what the director or officer +believes to be in the best interests of the company as a whole; +(ii) duty to exercise powers for the purposes for which those +powers were conferred and not for a collateral purpose; +(iii) directors should not improperly fetter the exercise of future +discretion; +(iv) duty not to put themselves in a position in which there is +a conflict between their duty to the company and their personal interests; and +(v) duty to exercise independent judgment. +45 +In addition to the above, directors +also owe a duty of care which is not fiduciary in nature. This duty has been defined as a requirement to act as a reasonably diligent +person having both the general knowledge, skill and experience that may reasonably be expected of a person carrying out the same functions +as are carried out by that director in relation to the company and the general knowledge skill and experience which that director has. +As set out above, directors have +a duty not to put themselves in a position of conflict and this includes a duty not to engage in self-dealing, or to otherwise benefit +as a result of their position. However, in some instances what would otherwise be a breach of this duty can be forgiven and/or authorized +in advance by the shareholders provided that there is full disclosure by the directors. This can be done by way of permission granted +in the amended and restated memorandum and articles of association or alternatively by shareholder approval at general meetings. +Accordingly, as a result of multiple +business affiliations, our officers and directors may have similar legal obligations relating to presenting business opportunities meeting +the above-listed criteria to multiple entities. In addition, conflicts of interest may arise when our board evaluates a particular business +opportunity with respect to the above-listed criteria. We cannot assure you that any of the above mentioned conflicts will be resolved +in our favor. Furthermore, each of our officers and directors currently has and may in the future have fiduciary obligations to other +businesses, including other blank check companies similar to our company, of which they are now or may in the future be officers or directors. +To the extent they identify business opportunities which may be suitable for the entities to which they owe fiduciary obligations, our +officers and directors will honor those fiduciary obligations. Accordingly, it is possible they may not present opportunities to us that +otherwise may be attractive to us unless the entities to which they owe fiduciary obligations and any successors to such entities have +declined to accept such opportunities. +In order to minimize potential +conflicts of interest which may arise from multiple corporate affiliations, each of our officers and directors has contractually agreed, +pursuant to a written agreement with us, until the earliest of a business combination, our liquidation or such time as he ceases to be +an officer or director, to present to our company for our consideration, prior to presentation to any other entity, any suitable business +opportunity which may reasonably be required to be presented to us, subject to any fiduciary or contractual obligations he might have. +Below is a table summarizing the +entities to which our officers and directors currently have fiduciary duties or contractual obligations which will take priority over +us. +Individual +Entity/company name +Entity’s Business/industry +Affiliation/Position +(e.g. CEO/CFO/Director/ +Managing Director/ +Chairman/Chairperson) +Yongsheng Liu +● Scienjoy Holding Corporation +●  rovider of mobile live streaming platforms in China +● Director +● SunCar Technology Group Inc. +● cloud-based provider of digitalized enterprise auto services and auto insurance service in China +● Independent Director +● Wealth Path Holding Limited +● Investment +● Director +46 +Individual +Entity/company name +Entity’s Business/industry +Affiliation/Position +(e.g. CEO/CFO/Director/ +Managing Director/ +Chairman/Chairperson) +Zhen Li +— +— +— +Jining Li +● Wealth Path Holding Limited +● Investment +● Director +● Keen Nice Communications Limited +● Investment +● Director +Russelle Kinpui Choi +● Success Universal Group Limited +● Property, entertainment, travel and hotel business +● Non-Executive Director +Angela Lee +— +— +— +Laurent Patrick André Michelon +● Golden Bridge Growth Limited +● fund management, SPAC investments and mergers acquisitions +● Director of Marketing Business Development (Europe) +● Kalliste Consulting +● consulting +● Marketing Strategy Consultant +To further minimize conflicts +of interest, we have agreed not to consummate an initial business combination with an entity that is affiliated with any of our initial +shareholders, officers or directors unless we have obtained an opinion from an independent investment banking firm, or another independent +entity that commonly renders valuation opinions, and the approval of a majority of our disinterested independent directors that the business +combination is fair to our company (or shareholders) from a financial point of view. Notwithstanding the foregoing, our amended and restated +memorandum and articles of association provide that, subject to fiduciary duties under British Virgin Islands law, we renounce our interest +in any corporate opportunity offered to any director or officer unless such opportunity is expressly offered to such person solely in +his or her capacity as a director or officer of our company and such opportunity is one we are legally and contractually permitted to +undertake and would otherwise be reasonable for us to pursue. +Our officers and directors, as +well as our initial shareholders, have agreed (i) to vote any shares owned by them in favor of any proposed business combination +and (ii) not to redeem any shares in connection with a shareholder vote to approve a proposed initial business combination or any +amendment to our charter documents prior to the consummation of our initial business combination or sell any shares to us in a tender +offer in connection with a proposed initial business combination. +Limitation on Liability and Indemnification +of Officers and Directors +Our amended and restated memorandum +and articles of association provide that, subject to certain limitations, the company shall indemnify its directors and officers against +all expenses, including legal fees, and against all judgments, fines and amounts paid in settlement and reasonably incurred in connection +with legal, administrative or investigative proceedings. Such indemnity only applies if the person acted honestly and in good faith with +a view to what the person believes is in the best interests of the company and, in the case of criminal proceedings, the person had no +reasonable cause to believe that their conduct was unlawful. The decision of the directors as to whether the person acted honestly and +in good faith and with a view to the best interests of the company and as to whether the person had no reasonable cause to believe that +his conduct was unlawful and is, in the absence of fraud, sufficient for the purposes of the memorandum and articles of association, +unless a question of law is involved. The termination of any proceedings by any judgment, order, settlement, conviction or the entering +of a nolle prosequi does not, by itself, create a presumption that the person did not act honestly and in good faith and with a view +to the best interests of the company or that the person had reasonable cause to believe that his conduct was unlawful. +47 +We have entered into agreements +with our officers and directors to provide contractual indemnification in addition to the indemnification provided for in our amended +and restated memorandum and articles of association. Our amended and restated memorandum and articles of association also permit us to +purchase and maintain insurance on behalf of any officer or director who at the request of the company is or was serving as a director +or officer of, or in any other capacity is or was acting for, another company or a partnership, joint venture, trust or other enterprise, +against any liability asserted against the person and incurred by the person in that capacity, whether or not the company has or would +have had the power to indemnify the person against the liability as provided in our amended and restated memorandum and articles of association. +We have purchased a policy of directors’ and officers’ liability insurance that insures our officers and directors against +the cost of defense, settlement or payment of a judgment in some circumstances and insures us against our obligations to indemnify our +officers and directors. +These provisions may discourage +shareholders from bringing a lawsuit against our directors for breach of their fiduciary duty or duty of care. These provisions also +may have the effect of reducing the likelihood of derivative litigation against officers and directors, even though such an action, if +successful, might otherwise benefit us and our shareholders. Furthermore, a shareholder’s investment may be adversely affected +to the extent we pay the costs of settlement and damage awards against officers and directors pursuant to these indemnification provisions. +We believe that these provisions, +the insurance and the indemnity agreements are necessary to attract and retain talented and experienced officers and directors. +Insofar as indemnification for +liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling us pursuant to the foregoing +provisions, we have been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities +Act and is theretofore unenforceable. +Section 16(a) Beneficial Ownership Reporting +Compliance +Section 16(a) of the Exchange +Act requires our executive officers, directors and persons who beneficially own more than 10% of a registered class of our equity securities +to file with the SEC initial reports of ownership and reports of changes in ownership of our shares of common stock and other equity +securities. These executive officers, directors, and greater than 10% beneficial owners are required by SEC regulation to furnish us +with copies of all Section 16(a) forms filed by such reporting persons. +Based solely on our review of +such forms furnished to us and written representations from certain reporting persons, we believe that all filing requirements applicable +to our executive officers, directors and greater than 10% beneficial owners were filed in a timely manner. +48 +ITEM 11. EXECUTIVE COMPENSATION +Executive Compensation +No compensation will be paid to +our initial shareholders, officers and directors, or any of their respective affiliates, prior to or in connection with the consummation +of our initial business combination. Additionally, these individuals will be reimbursed for any out-of-pocket expenses incurred in connection +with activities on our behalf such as identifying potential target businesses and performing due diligence on suitable business combinations. +Our independent directors will review on a quarterly basis all payments that were made to our initial shareholders, officers, directors +or our or their affiliates. +After the completion of our initial +business combination, members of our management team who remain with us, may be paid consulting, management or other fees from the combined +company with any and all amounts being fully disclosed to shareholders, to the extent then known, in the tender offer materials or proxy +solicitation materials furnished to our shareholders in connection with a proposed business combination. It is unlikely the amount of +such compensation will be known at the time, as it will be up to the directors of the post-combination business to determine executive +and director compensation. Any compensation to be paid to our officers will be determined, or recommenced, to the board of directors +for determination, either by a committee constituted solely by independent directors or by a majority of the independent directors on +our board of directors. +We do not intend to take any action +to ensure that members of our management team maintain their positions with us after the consummation of our initial business combination, +although it is possible that some or all of our officers and directors may negotiate employment or consulting arrangements to remain +with us after the initial business combination. The existence or terms of any such employment or consulting arrangements to retain their +positions with us may influence our management’s motivation in identifying or selecting a target business but we do not believe +that the ability of our management to remain with us after the consummation of our initial business combination will be a determining +factor in our decision to proceed with any potential business combination. We are not party to any agreements with our officers and directors +that provide for benefits upon termination of employment. +Clawback Policy +As required by the NASDAQ rules, +our Board has adopted a clawback policy (the “Clawback Policy”) permitting the Company to seek the recovery of incentive +compensation received by any the Company’s current and former executive officers (as determined by the Compensation Committee of +the Company’s Board in accordance with Section 10D of the Exchange Act and the rules of the NASDAQ Capital Market) and such other +senior executives/employees who may from time to time be deemed subject to the Clawback Policy by the Compensation Committee (collectively, +the “Covered Executives”) during the three completed fiscal years immediately preceding the date on which the Company is +required to prepare an accounting restatement of its financial statements due to the Company’s material noncompliance with any +financial reporting requirement under the securities laws. The amount to be recovered will be the excess of the incentive compensation +paid to the Covered Executive based on the erroneous data over the incentive compensation that would have been paid to the Covered Executive +had it been based on the restated results, as determined by the Compensation Committee. If the Compensation Committee cannot determine +the amount of excess incentive compensation received by the Covered Executive directly from the information in the accounting restatement, +then it will make its determination based on a reasonable estimate of the effect of the accounting restatement. Because we do not anticipate +paying any cash compensation to our prospective Covered Executives, we do not anticipate paying any incentive compensation which could +become subject to clawback under the Clawback Policy. +49 +ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL +OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS +The following table sets forth +information regarding the beneficial ownership of our ordinary shares as of the date of this annual report by: +each person known by us to be the beneficial owner of more than 5% +of our issued and outstanding ordinary shares; +each of our officers and directors that beneficially owns ordinary +shares; and all our officers and directors as a group. +Unless otherwise indicated, +we believe that all persons named in the table have sole voting and investment power with respect to all ordinary shares beneficially +owned by them. The following table does not reflect record of beneficial ownership of any ordinary shares issuable upon conversion of +any rights, as these rights are not convertible into ordinary shares within 60 days of the date of this annual report on Form 10-K. +Name and Address of Beneficial Owner (1) +Amount and +Nature of +Beneficial +Ownership +Approximate +Percentage of +Outstanding +Shares (2) +Wealth Path Holdings Limited (3) +1,225,000 +16.23 % +Yongsheng Liu (4) +288,750 +3.83 % +Zhen Li +50,000 +- +Jining Li (3) +1,225,000 +16.23 +Russelle Kin Pui Choi +20,000 +- +Angela Lee +20,000 +- +Laurent Patrick André Michelon +20,000 +- +All directors and executive officers as a group (6 individuals) +1,623,750 +21.52 % (3) +Feis Equities LLC (5) +499,000 +6.61 % +(1) +Unless otherwise indicated, the business address of each of the following +entities or the individuals is c/o Newbridge Acquisition Limited, Unit B 17/F, Success Commercial Building, 245-25, Hennessy Road, +Wanchai, Hong Kong. +(2) +All percentages are approximate, and are based upon a total of 7,546,250 ordinary shares outstanding (inclusive of shares included in our units) as of March 23, 2026. +50 +(3) +Represents Class B ordinary shares held by the sponsor. Jining Li owns +and controls, Wealth Path Holdings Limited, our sponsor, and as such, Mr. Li has voting and investment discretion with respect to +the ordinary shares held of record by our sponsor. By virtue of this relationship, Mr. Li may be deemed to have beneficial ownership +of the ordinary shares held of record by our sponsor. +(4) +Consists of 288,750 Class B ordinary shares held by Index Capital Management +Limited, which is owned and controlled by Yongsheng Liu. +(5) +Pursuant to the schedule 13G filed jointly +by Feis Equities LLC and Lawrence M. Feis on February 4, 2026. The address for the reporting persons is 1740 Waukegan Road, Suite 206, +Glenview, Illinois 60025. +Immediately +after the IPO , our initial shareholders will beneficially own approximately +21.52% of the then issued and outstanding ordinary shares (assuming our initial shareholders do not purchase any units in the +IPO ). Because of this ownership block, our initial shareholders may be able +to effectively influence the outcome of all matters requiring approval by our shareholders, including the appointment of directors, amendments +to our amended and restated memorandum and articles of association and approval of significant corporate transactions. +To +the extent the underwriters do not exercise the over-allotment option, up to an aggregate of 187,500 founder shares held by the sponsor +will be subject to forfeiture. The sponsor will be required to forfeit only a number of founder shares necessary to maintain our initial +shareholders’ 20% ownership interest in our ordinary shares (assuming our initial shareholders do not purchase any units in the +IPO and excluding the private units) after giving effect to the offering and +without giving effect to the exercise, if any, of the underwriters’ over-allotment option. +Subject to certain limited exceptions, +our initial shareholders have agreed not to transfer, assign or sell their founder shares until six months after the date of the +consummation of our initial business combination or earlier if, subsequent to our initial business combination, we consummate a subsequent +liquidation, merger, stock exchange or other similar transaction which results in all of our shareholders having the right to exchange +their ordinary shares for cash, securities or other property. Notwithstanding the foregoing if the last reported sale price of our ordinary +shares equal or exceeds $12.00 per share (as adjusted for stock splits, stock capitalizations, reorganization, recapitalizations and +other similar transactions) for any 20 trading days within any 30 trading day period commencing at least 150 days +after our initial business combination the founder shares will not be subject to such transfer restrictions. +During the lock-up period, the +holders of these shares will not be able to sell or transfer their securities except (1) to our officers, directors, shareholders, +employees and members of the sponsor and their affiliates, (2) if a holder is an entity, as a distribution to its, partners, shareholders +or members upon its liquidation, (3) by bona fide gift to a member of the holder’s immediate family or to a trust, the beneficiary +of which is a holder or a member of a holder’s immediate family, for estate planning purposes, (4) by virtue of the laws of +descent and distribution upon death, (5) pursuant to a qualified domestic relations order, (6) by certain pledges to secure +obligations incurred in connection with purchases of our securities, (7) by private sales at prices no greater than the price at +which the shares were originally purchased or (8) to us for no value for cancellation in connection with the consummation of our +initial business combination, in each case (except for clause 8 or with our prior consent) where the transferee agrees to the terms of +the insider letter. If we are unable to effect a business combination and liquidate, there will be no liquidation distribution with respect +to the founder shares. +Our +sponsor purchased from us an aggregate of 186,250 private units at $10.00 per unit. Such purchases took place on a private placement +basis simultaneously with the consummation of the IPO . The private units +are identical to the units sold in this offering, except as described in the prospectus. The holders have agreed not to transfer, assign +or sell any of the private units until 30 days after the completion of our initial business combination. +51 +Registration Rights +Our +initial shareholders and their permitted transferees can demand that we register the founder shares, the private units and the underlying +private shares and private rights and the units issuable upon conversion of working capital loans and the underlying ordinary shares +and rights, pursuant to an agreement signed on January 29, 2026. The holders of such securities are entitled to demand that we register +these securities at any time after we consummate an initial business combination. Notwithstanding anything to the contrary, any holder +that is affiliated with an underwriter participating in the IPO may only +make a demand on one occasion and only during the five-year period beginning on the effective date of the registration statement. In +addition, the holders have certain “piggy-back” registration rights on registration statements filed after our consummation +of a business combination; provided that any holder that is affiliated with an underwriter participating in the IPO may +participate in a “piggy-back” registration only during the seven-year period beginning on the effective date of the registration +statement. Notwithstanding the foregoing, the representative and/or its permitted designees may not exercise their demand and “piggy +back” registration rights beyond five and seven years, respectively, after the commencement of sales of the IPO and +may not exercise their demand rights on more than one occasion. +Our +Sponsor and our executive officers and directors are deemed to be our “promoters,” as that term is defined under the federal +securities laws. +ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, +AND DIRECTOR INDEPENDENCE +In April 2021 and February 2022, +we issued a total of 2,875,000 ordinary shares to our sponsor, referred to in this annual report as the “insider shares” +or “founder shares,” for a total purchase price of $25,000, or approximately $0.009 per share. Subsequently, our sponsor +transferred an aggregate of 398,750 ordinary shares to our directors and officers and we forfeited 1,437,500 ordinary shares. In May +2025, our ordinary shares were reclassified and redesignated into Class A and Class B ordinary shares. This results in an effective +purchase price of approximately $0.017 per share. Of these Class B ordinary shares, our sponsor holds 1,038,750 Class B ordinary +shares. +Subject to certain limited exceptions, +our initial shareholders have agreed not to transfer, assign or sell their founder shares until six months after the date of the +consummation of our initial business combination or earlier if, subsequent to our initial business combination, we consummate a subsequent +liquidation, merger, stock exchange or other similar transaction which results in all of our shareholders having the right to exchange +their ordinary shares for cash, securities or other property. +We have entered into agreements +with our officers and directors to provide contractual indemnification in addition to the indemnification provided for in our amended +and restated memorandum and articles of association. +Other than reimbursement of any +out-of-pocket expenses incurred in connection with activities on our behalf such as identifying potential target businesses and performing +due diligence on suitable business combinations, no compensation or fees of any kind, including finder’s fees, consulting fees +or other similar compensation, will be paid to the sponsor, officers or directors, or to any of their respective affiliates, prior to +or with respect to our initial business combination (regardless of the type of transaction that it is). Our independent directors will +review on a quarterly basis all payments that were made to the sponsor, officers, directors or our or their affiliates and will be responsible +for reviewing and approving all related party transactions as defined under Item 404 of Regulation S-K, after reviewing each +such transaction for potential conflicts of interests and other improprieties. +On +May 1, 2021, we issued a promissory note to the sponsor, pursuant to which we may borrow up to an aggregate principal amount of +$500,000. On May 1, 2025, we issued an unsecured promissory note to the sponsor, pursuant to which we may borrow up to an aggregate principal +amount of $1,000,000. On November 15, 2025, the Sponsor provided additional loans up to an aggregate amount of $5,000,000 under the new +sponsor loan agreement. As of December 31, 2025, the sponsor advanced to us, pursuant to such promissory notes, a total of $5,414,763 +to be used for a portion of the expenses of the IPO . The loan is, at +the discretion of the sponsor, due on the consummation of the IPO . Each +promissory note will be payable without interest. Each promissory note will be repaid out of the proceeds of the IPO available +to us for payment of offering expenses. +‘ +52 +In addition, in order to finance +transaction costs in connection with an intended initial business combination, our initial shareholders, officers and directors and their +affiliates may, but are not obligated to, loan us funds as may be required. Such loans would be evidenced by promissory notes. In the +event that we are unable to consummate an initial business combination, we may use a portion of the offering proceeds held outside the +trust account to repay such loaned amounts but no proceeds from our trust account would be used for such repayment. If we consummate +an initial business combination, the notes would either be paid upon consummation of our initial business combination, without interest, +or, at the lender’s discretion, up to $1,500,000 of the notes may be converted upon consummation of our business combination into +additional private units at a price of $10.00 per unit (which, for example, would result in the holders being issued 150,000 units +if the full amount of notes are issued and converted). +Simultaneously with the closing +of the IPO on February 2, 2026, we consummated the Private Placement with the sponsor of 186,250 Private Units, generating total proceeds +of $1,862,500. The Private Units are identical to the Units sold in the IPO. Additionally, the sponsor agreed not to transfer, assign, +or sell any of the Private Units or underlying securities (except in limited circumstances, as described in the Registration Statement) +until 30 days after the completion of our initial business combination or earlier if, subsequent to our initial business combination, +we consummate a subsequent liquidation, merger, stock exchange or other similar transaction which results in all of our shareholders +having the right to exchange their ordinary shares for cash, securities or other property. The sponsor was granted certain demand and +piggyback registration rights in connection with the purchase of the Private Units. +After our initial business combination, +members of our management team who remain with us may be paid consulting, management or other fees from the combined company with any +and all amounts being fully disclosed to our shareholders, to the extent then known, in the tender offer or proxy solicitation materials, +as applicable, furnished to our shareholders. It is unlikely the amount of such compensation will be known at the time of distribution +of such tender offer materials or at the time of a general meeting held to consider our initial business combination, as applicable, +as it will be up to the directors of the post-combination business to determine executive and director compensation. +All ongoing and future transactions +between us and any member of our management team or his or her respective affiliates will be on terms believed by us at that time, based +upon other similar arrangements known to us, to be no less favorable to us than are available from unaffiliated third parties. It is +our intention to obtain estimates from unaffiliated third parties for similar goods or services to ascertain whether such transactions +with affiliates are on terms that are no less favorable to us than are otherwise available from such unaffiliated third parties. If a +transaction with an affiliated third party were found to be on terms less favorable to us than with an unaffiliated third party, we would +not engage in such transaction. +We are not prohibited from pursuing +an initial business combination with a company that is affiliated with our initial shareholders, officers or directors. In the event +we seek to complete our initial business combination with a target that is affiliated with our initial shareholders, officers or directors, +we, or a committee of independent directors, would obtain an opinion from an independent investment banking firm or another independent +entity that commonly renders valuation opinions that our initial business combination is fair to our company (or shareholders) from a +financial point of view. +We have entered into a registration +rights agreement with respect to the founder shares and private units, among other securities, which is described under the heading “Principal +Shareholders — Registration Rights.” +53 +Related Party Policy +Our Code of Ethics requires +us to avoid, wherever possible, all related party transactions that could result in actual or potential conflicts of interests, except +under guidelines approved by the Board (or the audit committee). Related-party transactions are defined as transactions in which (1) +the aggregate amount involved will or may be expected to exceed $120,000 in any calendar year, (2) we or any of our subsidiaries is a +participant, and (3) any (a) executive officer, director or nominee for election as a director, (b) greater than 5% beneficial owner +of our shares of common stock, or (c) immediate family member, of the persons referred to in clauses (a) and (b), has or will have a +direct or indirect material interest (other than solely as a result of being a director or a less than 10% beneficial owner of another +entity). A conflict of interest situation can arise when a person takes actions or has interests that may make it difficult to perform +his or her work objectively and effectively. Conflicts of interest may also arise if a person, or a member of his or her family, receives +improper personal benefits as a result of his or her position. +Our audit committee, pursuant +to its written charter, is responsible for reviewing and approving related-party transactions to the extent we enter into such transactions. +The audit committee will consider all relevant factors when determining whether to approve a related party transaction, including whether +the related party transaction is on terms no less favorable to us than terms generally available from an unaffiliated third-party under +the same or similar circumstances and the extent of the related party’s interest in the transaction. No director may participate +in the approval of any transaction in which he or she is a related party, but that director is required to provide the audit committee +with all material information concerning the transaction. We also require each of our directors and executive officers to complete a +directors’ and officers’ questionnaire that elicits information about related party transactions. +These procedures are intended +to determine whether any such related party transaction impairs the independence of a director or presents a conflict of interest on +the part of a director, employee or officer. +To further minimize conflicts +of interest, we have agreed not to consummate an initial business combination with an entity that is affiliated with any of our initial +shareholders, officers or directors unless we have obtained an opinion from an independent investment banking firm, or another independent +entity that commonly renders valuation opinions, that the business combination is fair to our unaffiliated shareholders from a financial +point of view. We will also need to obtain approval of a majority of our disinterested independent directors. However, the following +payments will be made to our sponsor, officers or directors, or our or their affiliates, none of which will be made from the proceeds +of our IPO held in the trust account prior to the completion of our initial business combination: +Repayment loans that may be +made to us by our sponsor to cover offering-related and organizational expenses. Such loans would be evidenced by promissory notes. +If we consummate an initial business combination, the notes would either be paid upon consummation of our initial business +combination, without interest, or, at the lender’s discretion, up to $1,500,000 of the notes may be converted upon +consummation of our business combination into additional private units at a price of $10.00 per unit ; and Reimbursement for any +out-of-pocket expenses related to identifying, investigating and completing an initial business combination; +Our independent directors will +review on a quarterly basis all payments that were made to our initial shareholders, officers, directors or our or their affiliates. +54 +Director Independence +Nasdaq requires that a majority +of our board must be composed of “independent directors,” which is defined generally as a person other than an officer or +employee of the company or its subsidiaries or any other individual having a relationship, which, in the opinion of the company’s +board of directors would interfere with the director’s exercise of independent judgment in carrying out the responsibilities of +a director. +Russelle +Kinpui Choi, Angela Lee and Laurent Patrick André Michelon are our independent directors. We +will only enter into a business combination if it is approved by a majority of our independent directors. Our independent directors will +have regularly scheduled meetings at which only independent directors are present. Any affiliated transactions will be on terms no less +favorable to us than could be obtained from independent parties. Any affiliated transactions must be approved by a majority of our independent +and disinterested directors. +ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES +The firm of Enrome LLP (“Enrome”) +acts as our independent registered public accounting firm. The following is a summary of fees paid to Enrome for services rendered. +Audit Fees . Audit fees +consist of fees billed for professional services rendered for the audit of our year-end financial statements and services that are normally +provided by Enrome in connection with regulatory filings. The aggregate fees billed by Enrome for professional services rendered for +the audit of our Form 8-K financial statements and other required filings with the SEC for the year ended December 31, 2025 totaled $60,000. +This amount includes interim procedures and audit fees, as well as attendance at audit committee meetings. +Audit-Related Fees. Audit-related +services consist of fees billed for assurance and related services that are reasonably related to performance of the audit or review +of our financial statements and are not reported under “Audit Fees.” These services include attest services that are not +required by statute or regulation and consultations concerning financial accounting and reporting standards. We did not pay Enrome for +consultations concerning financial accounting and reporting standards for the year ended December 31, 2025. +Tax Fees . For the year +ended December 31, 2025, the aggregate fees billed by Enrome for services rendered for tax compliance, tax advice and tax planning totaled +$0. +All Other Fees . For the +year ended December 31, 2025, Enrome did not render any services to us other than those set forth above. +Pre-Approval Policy +Our audit committee was formed +in connection with the effectiveness of our registration statement for our IPO. As a result, the audit committee did not pre-approve +all of the foregoing services, although any services rendered prior to the formation of our audit committee were approved by our Board. +Since the formation of our audit committee, and on a going-forward basis, the audit committee has and will pre-approve all audit services +and permitted non-audit services to be performed for us by our auditors, including the fees and terms thereof (subject to the de +minimis exceptions for non-audit services described in the Exchange Act which are approved by the audit committee prior to the +completion of the audit). +55 +PART IV +ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES +(a) The following documents are +filed as part of this Form 10-K: +(1) Financial Statements: +Report of Independent +Registered Public Accounting Firm (PCAOB ID 6907) +F-2 +Financial Statements +Balance +Sheets +F-3 +Statements +of Operations +F-4 +Statements +of Changes in Shareholders’ Deficit +F-5 +Statements +of Cash Flows +F-6 +Notes +to Financial Statements +F-7 to F-16 +(2) Financial Statement Schedules: +None. +(3) Exhibits +We hereby file as part of this +annual report the exhibits listed in the attached Exhibit Index. Exhibits which are incorporated herein by reference can be inspected +and copied at the public reference facilities maintained by the SEC, 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Copies of +such material can also be obtained from the Public Reference Section of the SEC, 100 F Street, N.E., Washington, D.C. 20549, at prescribed +rates or on the SEC website at www.sec.gov. +56 +EXHIBIT INDEX +Exhibit No. +Description +1.1 +Underwriting Agreement, dated January 29, 2026, (incorporated by reference to Exhibit 1.1 to the Company’s Current Report on Form 8-K filed with the SEC on February 2, 2026). +3.1 +Amended and Restated Memorandum and Articles of Association (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on February 2, 2026). +4.1 +Specimen Unit Certificate (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-1 (No. 333-289966) filed with the SEC on August 29, 2025). +4.2 +Specimen Ordinary Share Certificate (incorporated by reference to Exhibit 4.2 to the Company’s Registration Statement on Form S-1 (No. 333-289966) filed with the SEC on August 29, 2025). +4.3 +Specimen Rights Certificate (incorporated by reference to Exhibit 4.3 to the Company’s Registration Statement on Form S-1 (No. 333-289966) filed with the SEC on August 29, 2025). +4.4 +Rights Agreement, dated January 29, 2026, between the VStock Transfer LLC (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the SEC on February 2, 2026). +4.5* +Description of Registrant’s +Securities +10.1 +Investment Management Trust Agreement, dated January 29, 2026, between the Company and Equiniti Trust Company, LLC (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on February 2, 2026). +10.2 +Letter Agreements, dated January 29, 2026, with Wealth Path Holdings Limited and each of the Company’s directors and officers (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on February 2, 2026). +10.3 +Indemnification Agreements, dated January 29, 2026, with each of the Company’s directors and officers (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed with the SEC on February 2, 2026). +10.4 +Unit Subscription Agreement, dated January 29, 2026, between the Company and Wealth Path Holdings Limited (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the SEC on February 2, 2026). +10.5 +Registration Rights Agreement, dated January 29, 2026, among the Company, Wealth Path Holdings Limited, the representative and each of the Company’s directors and officers (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on February 2, 2026). +10.6 +Subscription Agreement, dated February 17, 2022, between the Company and Wealth Path Holdings Limited (incorporated by reference to Exhibit 10.6 to the Company’s Registration Statement on Form S-1 (No. 333-289966) filed with the SEC on August 29, 2025). +10.7 +Promissory Note dated May 1, 2021 issued to Wealth Path Holdings Limited (incorporated by reference to Exhibit 10.7 to the Company’s Registration Statement on Form S-1 (No. 333-289966) filed with the SEC on August 29, 2025). +10.8 +Promissory Note dated May 1, 2025 issued to Wealth Path Holdings Limited (incorporated by reference to Exhibit 10.8 to the Company’s Registration Statement on Form S-1 (No. 333-289966) filed with the SEC on August 29, 2025). +14 +Code +of Ethics (incorporated by reference to Exhibit 14 to the Company’s Registration Statement on Form S-1 (No. 333-289966), as +amended by Amendment No. 4 to such Registration Statement, filed with the SEC on September 24, 2024). +57 +19* +Insider Trading Policy. +99.1 +Audit +Committee Charter (incorporated by reference to Exhibit 99.1 to the Company’s Registration Statement on Form S-1 (No. 333-289966), +as amended by Amendment No. 4 to such Registration Statement, filed with the SEC on September 24, 2024). +99.2 +Compensation +Committee Charter (incorporated by reference to Exhibit 99.2 to the Company’s Registration Statement on Form S-1 (No. 333-289966), +as amended by Amendment No. 4 to such Registration Statement, filed with the SEC on September 24, 2024). +99.3 +Nominating +Committee Charter (incorporated by reference to Exhibit 99.3 to the Company’s Registration Statement on Form S-1 (No. 333-289966), +as amended by Amendment No. 4 to such Registration Statement, filed with the SEC on September 24, 2024). +31.1* +Certification of Chief Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended. +31.2* +Certification of Chief Financial Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended. +32.1* +Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. +32.2* +Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. +97.1* +Clawback Policy. +101.INS +Inline XBRL Instance Document +101.SCH +Inline XBRL Taxonomy Extension Schema Document +101.CAL +Inline XBRL Taxonomy Extension Calculation +Linkbase Document +101.DEF +Inline XBRL Taxonomy Extension Definition Linkbase +Document +101.LAB +Inline XBRL Taxonomy Extension Label Linkbase +Document +101.PRE +Inline XBRL Taxonomy Extension Presentation +Linkbase Document +104 +Cover Page Interactive Data File (formatted +as Inline XBRL and contained in Exhibit 101). +* +Filed herewith +ITEM 16. FORM 10-K SUMMARY +Not Applicable. +58 +SIGNATURES +Pursuant to the requirements +of Section 13 or 15(d) of the Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, +thereunto duly authorized. +Dated: March 23, 2026 +NEWBRIDGE ACQUISITION LIMITED +By: +/s/ Yongsheng Liu +Name: +Yongsheng Liu +Title: +Chief Executive Officer +Pursuant to the requirements +of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in +the capacities and on the dates indicated. +Name +Position +Date +/s/ Yongsheng Liu +Chief Executive Officer +March 23, 2026 +Yongsheng Liu +(Principal Executive Officer) and Director +/s/ Zhen +Li +Chief Financial Officer +March 23, 2026 +Zhen Li +(Principal Financial and Accounting Officer) +/s/ Jining +Li +Director +March 23, 2026 +Jining Li +/s/ Russelle +Kinpui Choi +Director +March 23, 2026 +Russelle Kinpui Choi +/s/ Angela +Lee +Director +March 23, 2026 +Angela Lee +/s/ Laurent +Patrick André Michelon +Director +March 23, 2026 +Laurent Patrick André +Michelon +59 +NEWBRIDGE ACQUISITION LIMITED +INDEX TO FINANCIAL STATEMENTS +Contents Page +Report of Independent Registered Public Accounting Firm (PCAOB ID 6907 ) F-2 +Balance Sheets as of December 31, 2024 and 2025 F-3 +Statement of Operations for the Years Ended December 31, 2024 and 2025 F-4 +Statement of Changes in Shareholders’ Deficit for the Years Ended December 31, 2024 and 2025 F-5 +Statement of Cash Flows for the Years Ended December 31, 2024 and 2025 F-6 +Notes to Financial Statements F-7 – F-16 +F- 1 +REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +To the Board of Directors and Shareholders of +Newbridge Acquisition Limited +Opinion on the Financial Statements +We have audited the accompanying balance sheets of Newbridge Acquisition Limited (the “Company”) as of December 31, 2024 and 2025, the related statements of operations, changes in shareholders’ deficit and cash flows for each of the years ended December 31, 2024 and 2025, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2025, and the results of its operations and its cash flows for each of the years ended December 31, 2024 and 2025, in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). +Material Uncertainty Related to Going Concern +The accompanying financial statement has been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statement, the Company had a working capital deficit of $3,590,521, an accumulated deficit of $620,122 and a shareholders’ deficit of $595,122. For the year ended December 31, 2025, the Company had a net loss of $221,014 and negative operating cash flows of $221,014. that raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statement does not include any adjustments that might result from the outcome of this uncertainty. +Basis for Opinion +These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. +Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. +/s/ Enrome LLP +We have served as the Company’s auditor since 2024 +Singapore +March 23, 2026 +F- 2 +NEWBRIDGE ACQUISITION LIMITED +BALANCE SHEETS +As of December 31, +2024 +2025 +Assets +Current asset +Cash $ 9,456 $ 1,824,242 +Total current asset 9,456 1,824,242 +Cash and marketable securities held in trust - 2,700,000 +Deferred offering costs 85,787 295,399 +Total Assets $ 95,243 $ 4,819,641 +Liabilities and Shareholders’ Deficit +Promissory note – related party $ 469,351 $ 5,414,763 +Total current liabilities 469,351 5,414,763 +Total Liabilities 469,351 5,414,763 +Commitments and Contingencies (Note 6) +Shareholders’ deficit +Class B ordinary shares, no par value, 10,000,000 authorized shares, 2,875,000 shares issued and outstanding as of December 31, 2024 and 1,437,500 shares issued and outstanding as of December 31, 2025 (1)(2) 25,000 25,000 +Accumulated deficit ( 399,108 ) ( 620,122 ) +Total shareholders’ deficit ( 374,108 ) ( 595,122 ) +Total Liabilities and Shareholders’ Deficit $ 95,243 $ 4,819,641 +(1) This number includes an aggregate of up to 187,500 Class B ordinary shares subject to forfeiture if the over-allotment option is not exercised in full or in part by the underwriters (see Note 5). +(2) On March 18, 2025, the Company forfeited aggregately 1,437,500 ordinary shares to the Company (See Note 7). +The accompanying notes are an integral part of these +financial statements. +F- 3 +NEWBRIDGE ACQUISITION LIMITED +STATEMENT OF OPERATIONS +For the years ended +December 31, +2024 +2025 +Formation costs and operating costs $ 140,962 $ 221,014 +Net loss $ ( 140,962 ) $ ( 221,014 ) +Basic and diluted weighted average ordinary shares outstanding (1)(2) 2,687,500 1,553,253 +Basic and diluted net loss per ordinary share $ ( 0.05 ) $ ( 0.14 ) +(1) This number excludes an aggregate of up to 187,500 Class B ordinary shares subject to forfeiture if the over-allotment option is not exercised in full or in part by the underwriters (see Note 5). +(2) On March 18, 2025, the Company forfeited aggregately 1,437,500 ordinary shares to the Company (See Note 7). +The accompanying notes are an integral part of these +financial statements. +F- 4 +NEWBRIDGE ACQUISITION LIMITED +STATEMENT OF CHANGES IN SHAREHOLDERS’ DEFICIT +Ordinary Shares +Accumulated +Total +shareholders’ +Class B +Amount +deficit +deficit +Balance as of December 31, 2023 2,875,000 $ 25,000 $ ( 258,146 ) $ ( 233,146 ) +Net loss ( 140,962 ) ( 140,962 ) +Balance as of December 31, 2024 2,875,000 $ 25,000 $ ( 399,108 ) $ ( 374,108 ) +Net loss — — ( 221,014 ) ( 221,014 ) +Forfeited shares ( 1,437,500 ) — — — +Balance as of December 31, 2025 1,437,500 $ 25,000 $ ( 620,122 ) $ ( 595,122 ) +(1) This number includes an aggregate of up to 187,500 Class B ordinary shares subject to forfeiture if the over-allotment option is not exercised in full or in part by the underwriters (see Note 5). +The accompanying notes are an integral part of these +financial statements. +F- 5 +NEWBRIDGE ACQUISITION LIMITED +STATEMENTS OF CASH FLOWS +For the years ended +December 31, +2024 +2025 +Cash Flows from Operating Activity: +Net loss $ ( 140,962 ) $ ( 221,014 ) +Net Cash Used in Operating Activity ( 140,962 ) ( 221,014 ) +Cash Flows from Investing Activity: +Investment of cash into Trust Account $ - $ ( 2,700,000 ) +Net Cash Used in Investing Activity - ( 2,700,000 ) +Cash Flows from Financing Activities: +Proceeds from promissory note – related party 150,000 4,945,412 +Payment for deferred offering costs ( 4,231 ) ( 209,612 ) +Net Cash Provided by Financing Activities 145,769 4,735,800 +Net Change in Cash 4,807 1,814,786 +Cash, at the beginning of year 4,649 9,456 +Cash, at the end of year $ 9,456 $ 1,824,242 +The accompanying notes are an integral part of these +financial statements. +F- 6 +NEWBRIDGE ACQUISITION LIMITED +NOTES TO FINANCIAL STATEMENTS +Note 1 — Organization and Business Operations +Newbridge Acquisition Limited (the “Company”) is incorporated blank check company incorporated as a British Virgin Island (“BVI”) company on April 16, 2021 . The Company was incorporated for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, recapitalization, reorganization or similar Business Combination with one or more businesses (the “Business Combination”). The Company has not selected any potential Business Combination target and the Company has not, nor has anyone on its behalf, initiated any substantive discussions, directly or indirectly, with any potential Business Combination target. +As of December 31, 2025, the Company had not commenced any operations. All activity for the year ended December 31, 2025 relates to the Company’s formation and the Initial Public Offering (as defined below). The Company will not generate any operating revenues until after the completion of its initial Business Combination, at the earliest. The Company will generate non-operating income in the form of interest income on cash and cash equivalents from the proceeds derived from the Initial Public Offering (as defined below). The Company has selected December 31 as its fiscal year end. +The Company’s sponsor is Wealth Path Holdings Limited, a BVI business company (the “Sponsor”). The registration statement for the Company’s Initial Public Offering was declared effective on September 30, 2025. The post-effective amendment to the registration statement was declared effective by the SEC on December 18, 2025. On February 2, 2026, the Company consummated the Initial Public Offering of 5,750,000 units (the “units” and, with respect to the Class A ordinary shares included in the units being offered, the “Public Shares”), including the full exercise by the underwriters of their over-allotment option in the amount of 750,000 units, at $ 10.00 per unit, generating gross proceeds of $ 57,500,000 . Each unit consists of one Class A ordinary share and one right. Each right entitles the holder thereof to receive one-eighth (1/8) of one Class A ordinary share upon the consummation of an initial business combination. +Simultaneously with the closing of the Initial Public Offering, the Company consummated the sale of 186,250 private units (the “Private Units”), at a price of $ 10.00 per Private Unit, in a private placement to the Company’s sponsor, Wealth Path Holdings Limited (the “sponsor”), generating gross proceeds of $ 1,862,500 , which is described in Note 9. Each Private Placement unit consists of one Class A ordinary share and one right. Each right entitles the holder thereof to receive one-eighth (1/8) of one Class A ordinary share upon the consummation of an initial business combination. The Company’s management has broad discretion with respect to the specific application of the net proceeds of the Initial Public Offering and the Private Units, although substantially all of the net proceeds are intended to be generally applied toward consummating a Business Combination. +Transaction costs amounted to $ 1,557,894 , consisting of $ 862,500 of cash underwriting fees, and $ 695,394 of other offering costs. +The initial Business Combination must be with one or more target businesses or assets having an aggregate fair market value of at least 80 % of the value of the Trust Account (defined below) (less any taxes payable on interest earned and less any interest earned thereon that is released to the Company for taxes) at the time of signing a definitive agreement in connection with the initial Business Combination. However, the Company will only complete a Business Combination if the post-Business Combination company owns or acquires 50 % or more of the outstanding voting securities of the target or otherwise acquires a controlling interest in the target sufficient for it not to be required to register as an investment company under the Investment Company Act of 1940, as amended (the “Investment Company Act”). There is no assurance that the Company will be able to successfully effect a Business Combination. +F- 7 +Following the closing of the Initial Public Offering on February 2, 2026, an amount of $ 57,500,000 from the net proceeds from the Unit sold in the Initial Public Offering with total redemption value of $ 10.00 , and the sale of the Private Placement Units, was held in a Trust Account (“Trust Account”), which invest only in U.S. government treasury bills with a maturity of 185 days or less or in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act which invest only in direct U.S. government treasury obligations. The proceeds from the Initial Public Offering and the Private Placement will not be released from the Trust Account until the earliest of (i) the completion of the initial Business Combination, (ii) the redemption of any public shares properly tendered in connection. Therefore, unless and until our initial business combination is consummated, the proceeds held in the trust account will not be available for our use for any expenses related to this offering or expenses which we may incur related to the investigation and selection of a target business and the negotiation of an agreement in connection with our initial Business Combination. +The Company will provide the public shareholders with the opportunity to redeem all or a portion of their public shares upon the completion of the initial Business Combination either (i) seek shareholder approval of such initial Business Combination at a meeting called for such purpose at which public shareholders may seek to convert their public shares, regardless of whether they vote for or against the proposed business combination, into their pro rata share of the aggregate amount then on deposit in the trust account or (ii) provide public shareholders with the opportunity to sell their public shares to us by means of a tender offer (and thereby avoid the need for a shareholder vote) for an amount equal to their pro rata share of the aggregate amount then on deposit in the trust account. The decision as to whether the Company will seek shareholder approval of a proposed Business Combination or conduct a tender offer will be made by the Company, solely in its discretion, and will be based on a variety of factors such as the timing of the transaction and whether the terms of the transaction would require the Company to seek shareholder approval under the law or stock exchange listing requirement. The initial shareholders have agreed, pursuant to written letter agreements with us, not to convert any public shares held by them into their pro rata share of the aggregate amount then on deposit in the trust account. If the Company determines to engage in a tender offer, such tender offer will be structured so that each public shareholder may tender any or all of his, her or its public shares rather than some pro rata portion of his, her or its shares. The Company will proceed with a Business Combination if the Company has net tangible assets of at least $ 5,000,001 , or otherwise we are exempt from the provisions of Rule 419 promulgated under the Securities Act (so that we are not subject to the SEC’s “penny stock” rules) and, if the Company seeks shareholder approval, a majority of the issued and outstanding shares voted are voted in favor of the Business Combination. +The ordinary shares subject to redemption will be recorded at a redemption value and classified as temporary equity upon the completion of the Initial Public Offering, in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 480, “Distinguishing Liabilities from Equity.” +F- 8 +The Company will have only 15 months from the closing of the Initial Public Offering (or up to 21 months from the closing of the Initial Public Offering if the Company extend the period of time to consummate a Business Combination by the full amount of time) (the “Combination Period”) to complete the initial Business Combination. If the Company has not completed the initial Business Combination within the Combination Period, the Company will: (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem 100 % of the outstanding public shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the trust account, including interest (which interest shall be net of taxes payable and up to $ 50,000 of interest to pay dissolution expenses), divided by the number of then public shares in issue, which redemption will completely extinguish public shareholders’ rights as shareholders (including the right to receive further liquidation distributions, if any), and (iii) as promptly as reasonably possible following such redemption, subject to the approval of our remaining holders of ordinary shares and our board of directors, proceed to commence a voluntary liquidation and thereby a formal dissolution of the company, subject in each case to our obligations to provide for claims of creditors and the requirements of applicable law. This redemption of public shareholders from the trust account shall be effected as required by function of the Company’s amended and restated memorandum and articles of association and prior to commencing any voluntary liquidation. +The initial shareholders have agreed to waive their redemption rights with respect to their Founder Shares if the Company fail to consummate the initial business combination within the applicable period from the closing of this offering. However, if the initial shareholders, or any of officers, directors or affiliates acquire public shares in or after this offering, they will be entitled to redemption rights with respect to such public shares if the Company fails to consummate our initial business combination within the required time period. There will be no redemption rights or liquidating distributions with respect to the rights, which will expire worthless in the event the Company does not consummate our initial business combination within the allotted time period. +The sponsor has agreed that it will be liable to the Company, if and to the extent any claims by a vendor for services rendered or products sold to the Company, or a prospective target business with which the Company has discussed entering into a transaction agreement, reduce the amounts in the trust account to below $ 10.00 per share (whether or not the underwriters’ over-allotment option is exercised in full), except as to any claims by a third party who executed a waiver of any and all rights to seek access to the trust account and except as to any claims under the Company’s indemnity of the underwriters of this offering against certain liabilities, including liabilities under the Securities Act. In the event that an executed waiver is deemed to be unenforceable against a third party, the sponsor will not be responsible to the extent of any liability for such third party claims. +The Company has not independently verified whether the sponsor has sufficient funds to satisfy its indemnity obligations and believes that the sponsor’s only assets are securities of the company. The Company has not asked the sponsor to reserve for such obligations and therefore believes the sponsor will be unlikely to satisfy its indemnification obligations if it is required to do so. +However, the Company believes the likelihood of the sponsor having to indemnify the trust account is limited because the Company will endeavor to have all vendors and prospective target businesses as well as other entities execute agreements with us waiving any right, title, interest or claim of any kind in or to monies held in the trust account. +F- 9 +Going Concern Consideration +As of December 31, 2025, the Company had a working capital deficit of $ 3,590,521 , an accumulated deficit of $ 620,122 and a shareholders’ deficit of $ 595,122 . For the year ended December 31, 2025, the Company had a net loss of $ 221,014 and negative operating cash flows of $ 221,014 . The Company has incurred and expects to continue to incur significant costs in pursuit of the consummation of an initial Business Combination. In addition, the Company initially has 15 months to consummate the initial Business Combination (assume no extensions). If the Company does not complete a Business Combination within the prescribed timeline, the Company will trigger an automatic winding up, dissolution and liquidation pursuant to the terms of the Amended and Restated Memorandum and Articles of Association. Notwithstanding management’s belief that the Company would have sufficient funds to execute its business strategy, there is a possibility that business combination might not happen within the 15-month period from the issuance date of these financial statements. In connection with the Company’s assessment of going concern considerations in accordance with Financial Accounting Standard Board’s Accounting Standards Update (“ASU”) 2014-15, “Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” management has determined that the mandatory liquidation, should a business combination not occur, and potential subsequent dissolution, raises substantial doubt about the Company’s ability to continue as a going concern. Therefore, management has determined that such additional condition raise substantial doubt about the Company’s ability to continue as a going concern until the earlier of the consummation of the Business Combination or the date the Company is required to liquidate. The financial statements do not include any adjustments that might result from the Company’s inability to consummate the initial Business Combination to continue as a going concern. +Note 2 — Basis of Presentation and Summary of Significant Accounting Policies +Basis of Presentation +The accompanying financial statements are presented in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”). +Emerging Growth Company Status +The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart our Business Startups Act of 2012, (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. +Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used. +Use of Estimates +The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates. +F- 10 +Cash +The Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. The Company did not have any cash equivalents as of December 31, 2024 and 2025. As of December 31, 2024 and 2025, the Company has $ 9,456 and $ 1,824,242 of cash, respectively. +Cash and Marketable Securities Held in Trust +As of December 31, 2024 and 2025, the Company had aggregated nil and $ 2,700,000 in cash held in the Trust Account with Equinity Trust Company, LLC, respectively. +Deferred Offering Costs +The Company complies with the requirements of the ASC 340-10-S99 and SEC Staff Accounting Bulletin (“SAB”) Topic 5A — “Expenses of Offering.” Deferred offering costs consist principally of professional and registration fees that are related to the Initial Public Offering. Financial Accounting Standards Board (“FASB”) ASC 470-20, “Debt with Conversion and Other Options,” addresses the allocation of proceeds from the issuance of convertible debt into its equity and debt components. The Company applies this guidance to allocate Initial Public Offering proceeds from the Units between Class A ordinary shares and rights, using the residual method by allocating Initial Public Offering proceeds first to assigned value of the rights and then to the Class A ordinary shares. Offering costs allocated to the Public Shares will be charged to temporary equity and offering costs allocated to share rights included in the Public and Private Placement Units will be charged to shareholder’s equity as the share rights included in the Public and Private Placement Units after management’s evaluation will be accounted for under equity treatment. +Fair Value of Financial Instruments +The fair value of the Company’s assets and liabilities, which qualify as financial instruments under FASB ASC 820, “Fair Value Measurements and Disclosures,” approximates the carrying amounts represented in the balance sheet, primarily due to its short-term nature. +Net Loss Per Ordinary Share +Net loss per share is computed by dividing net loss by the weighted average number of ordinary shares outstanding during the period, excluding ordinary shares subject to forfeiture. Weighted average shares were reduced for the effect of an aggregate of 187,500 ordinary shares that are subject to forfeiture if the over-allotment option is not exercised by the underwriters (see Notes 5). As of December 31, 2024 and 2025, the Company did not have any dilutive securities and other contracts that could, potentially, be exercised or converted into ordinary shares and then share in the earnings of the Company. As a result, diluted loss per share is the same as basic loss per share for the period presented. +Income Taxes +The Company follows the asset and liability method of accounting for income taxes under FASB ASC 740, “Income Taxes.” Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that included the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. +F- 11 +ASC Topic 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. The Company’s management determined that the British Virgin Islands is the Company’s major tax jurisdiction. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. As of December 31, 2024 and 2025, there were no unrecognized tax benefits and no amounts accrued for interest and penalties. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position. The Company’s management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months. +The Company may be subject to potential examination by foreign taxing authorities in the area of income taxes. These potential examinations may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions and compliance with foreign tax laws. +The Company’s tax provision is zero for the years ended December 31, 2024 and 2025. +The Company is considered to be a British Virgin Islands business company with no connection to any other taxable jurisdiction and is presently not subject to income taxes or income tax filing requirements in the British Virgin Islands or the United States. As such, the Company’s tax provision was zero for the periods presented. +Ordinary Shares Subject to Possible Redemption +The Company accounts for its ordinary shares subject to possible redemption in accordance with the guidance in ASC Topic 480 “Distinguishing Liabilities from Equity.” Ordinary shares subject to mandatory redemption are classified as a liability instrument and are measured at fair value. Conditionally redeemable ordinary shares (including ordinary shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) are classified as temporary equity. At all other times, ordinary shares are classified as Shareholders’ Deficit. The Company’s ordinary shares feature certain redemption rights that are considered to be outside of the Company’s control and subject to occurrence of uncertain future events. +Recent Accounting Pronouncements +In November 2023, the FASB issued Accounting Standards Update 2023-07 —Segment Reporting — Improvements to Reportable Segment Disclosures (“ASU 2023-07”). This update requires public entities to disclose its significant segment expense categories and amounts for each reportable segment. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. As of December 31, 2025, the Company reported its operations as a single reportable segment, noting no disaggregation of Company activities, management or allocation of resources by geographic region, business activity or organizational method, thus this new guidance does not affect the disclosures. See Note 8 for further information. +In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (“ASU 2024-03”), and in January 2025, the FASB issued ASU 2025-01, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date (“ASU 2025-01”). ASU 2024-03 requires additional disclosure of the nature of expenses included in the income statement as well as disclosures about specific types of expenses included in the expense captions presented in the income statement. ASU 2024-03, as clarified by ASU 2025-01, is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the impact these standards will have on it financial statements. +Management does not believe that any recently issued, but not effective, accounting standards, if currently adopted, would have a material effect on the Company’s financial statements. +F- 12 +Note 3 — Initial Public Offering +On February 2, 2026, the Company consummated its Initial Public Offering of 5,750,000 Units, at $ 10.00 per Unit, generating gross proceeds of $ 57,500,000 , including the full exercise by the underwriters of their over-allotment option in the amount of 750,000 units. Each unit consists of one Class A ordinary share and one right. Each right entitles the holder thereof to receive one-eighth of one Class A ordinary share upon the consummation of an initial business combination. No fractional rights will be issued upon separation of the units. Therefore, the holder must have eight rights to receive one Class A ordinary share at the closing of the initial business combination. +Note 4 — Private Placement +Simultaneously with the closing of the Initial Public Offering, the Sponsor purchased an aggregate of 186,250 units at a price of $ 10.00 per unit for an aggregate purchase price of $ 1,862,500 in a private placement. Subject to certain limited exceptions, the initial shareholders have agreed not to transfer, assign or sell any of the private units and underlying ordinary shares until 30 days after the completion of the initial business combination or earlier if, subsequent to the initial business combination, the Company consummate a subsequent liquidation, merger, stock exchange or other similar transaction which results in all of our shareholders having the right to exchange their ordinary shares for cash, securities or other property. +Note 5 — Related Party Transactions +Founder Shares +The Company’s Sponsor paid $ 25,000 , or approximately $ 0.009 per share, for an aggregate of 2,875,000 ordinary shares (the “Founder Shares”) with no par value, 187,500 of which are subject to forfeiture depending on the extent to which the underwriters’ over-allotment option is exercised. Subject to certain limited exceptions, the initial shareholders have agreed not to transfer, assign or sell their founder shares until six months after the date of the consummation of our initial business combination or earlier if, subsequent to the initial business combination, the Company consummate a subsequent liquidation, merger, stock exchange or other similar transaction which results in all of the Company’s shareholders having the right to exchange their ordinary shares for cash, securities or other property. Notwithstanding the foregoing if the last reported sale price of the Company’s ordinary shares equal or exceeds $ 12.00 per share (as adjusted for stock splits, stock capitalizations, reorganization, recapitalizations and other similar transactions) for any 20 trading days within any 30 trading day period commencing at least 150 days after the initial business combination the founder shares will not be subject to such transfer restrictions. +The Sponsor has also agreed not to transfer, assign or sell any of the Private Units or underlying securities (except to the same permitted transferees) until 30 days after the completion of our initial business combination or earlier if, subsequent to the initial business combination, the Company consummate a subsequent liquidation, merger, stock exchange or other similar transaction which results in all of our shareholders having the right to exchange their ordinary shares for cash, securities or other property. +Promissory Note — Related Party +On May 1, 2021, the Sponsor agreed to loan the Company up to $ 500,000 to be used for a portion of the expenses of the Initial Public Offering. The loan is non-interest bearing, unsecured and shall be payable promptly after the date on which the Company consummates an initial public offering of its securities. On May 1, 2025, a new agreement was signed, under which the total borrowings shall not exceed $ 1,000,000 . These loans will be repaid upon the closing of the Initial Public Offering out of the offering proceeds not held in the Trust Account. On November 15, 2025, the Sponsor provided additional loans up to an aggregate amount of $ 5,000,000 under the new sponsor loan agreement. +As of December 31, 2024 and 2025, the Company had borrowed $ 469,351 and $ 5,414,763 under the promissory note. In February, 2026, the Company made the repayment of $ 1,504,956 . +F- 13 +Working Capital Loans +In addition, in order to finance transaction costs in connection with an intended Business Combination, the Sponsor or an affiliate of the Sponsor, or certain of the Company’s officers and directors may, but are not obligated to, loan the Company funds as may be required (“Working Capital Loans”). If the Company completes the initial Business Combination, the Company may repay the Working Capital Loans. In the event that the initial Business Combination does not close, the Company may use a portion of the working capital held outside the Trust Account to repay the Working Capital Loans but no proceeds from the Trust Account would be used to repay the Working Capital Loans. Up to $ 1,500,000 of such Working Capital Loans may be convertible into units at a price of $ 10.00 per unit at the option of the lender. If the Company does not complete a business combination, the loans would be repaid out of funds not held in the trust account, and only to the extent available. As of December 31, 2024 and 2025, the Company had no borrowings under the Working Capital Loans. +Extension Note +The Company will have until 15 months from the closing of the Initial Public Offering to consummate an initial Business Combination. However, if the Company anticipates that it may not be able to consummate the initial Business Combination within 15 months, it may extend the period of time to consummate a Business Combination up to two times, each by an additional three months (for a total of up to 21 months to complete a Business Combination). Pursuant to the terms of the amended and restated memorandum and articles of association and the trust agreement to be entered into among the Company and Equinity Trust Company, LLC on the date of the prospectus for the Initial Public offering, in order to extend the time available for the Company to consummate the initial Business Combination, the Sponsor or its affiliates or designees, upon five days advance notice prior to the applicable deadline, must deposit into the trust account $ 500,000 or up to $ 575,000 if the underwriter’s over-allotment option is exercised in full ($ 0.10 per share in either case) on or prior to the date of the applicable deadline, for each three months extension (or up to an aggregate of $ 1,000,000 (or $ 1,150,000 if the underwriter’s over-allotment option is exercised in full), or approximately $ 0.20 per share if we extend for the full six months). Any such payments would be made in the form of a loan. Any such loans will be non-interest bearing and payable upon the consummation of our initial business combination. If the Company complete the initial business combination, the Company would repay such loaned amounts out of the proceeds of the trust account released to it. Otherwise, the Company will not repay such loans. Furthermore, the letter agreement with the initial shareholders contains a provision pursuant to which the sponsor has agreed to waive its right to be repaid for such loans out of the funds held in the trust account in the event that the Company do not complete a business combination. The sponsor and its affiliates or designees are not obligated to fund the trust account to extend the time for the Company to complete our initial business combination. No vote on or redemption of shares in connection with any such extension. +Note 6 — Commitments and Contingencies +Registration Rights +Pursuant to an agreement to be entered into on the date of the prospectus, the Company’s initial shareholders and their permitted transferees can demand that the Company register for resale the founder shares, the private units and the underlying private shares and private rights, and the units issuable upon conversion of working capital loans and the underlying ordinary shares and rights. The holders are entitled to make up to three demands, excluding short form demands, that the Company register such securities. Notwithstanding anything to the contrary, any holder that is affiliated with an underwriter participating in this offering may only make a demand on one occasion and only during the five-year period beginning on the effective date of the registration statement of which this prospectus forms a part. In addition, the holders have certain “piggy-back” registration rights on registration statements filed after the consummation of a business combination; provided that any holder that is affiliated with an underwriter participating in this offering may participate in a “piggy-back” registration only during the seven-year period beginning on the effective date of the registration statement of which this prospectus forms a part. The Company will bear the expenses incurred in connection with the filing of any such registration statements. +Underwriters Agreement +Kingswood Capital Partners, LLC (“Kingswood”) has a 45-day option to purchase up to 750,000 units (over and above the 5,000,000 units referred to above) solely to cover over-allotments, if any. As of February 2, 2026, the underwriters fully exercised the over-allotment option to purchase 750,000 Public Units, generating gross proceeds to the Company of $ 7,500,000 . +F- 14 +The underwriters were entitled to a cash underwriting discount of half and one percent ( 1.5 %) of the gross proceeds of the Initial Public Offering, amounting to $ 862,500 . +Representative’s Ordinary Shares +The Company issued to Kingswood and/or its designees, 150,000 ordinary shares upon the consummation of the Initial Public offering as part of the underwriting compensation. Kingswood has agreed not to transfer, assign or sell any such shares until the completion of our initial Business Combination. In addition, the Representative Shares are being registered in the registration statement in connection with the Offering. Kingswood agrees not to transfer, assign or sell any such shares until the completion of an initial business combination. In addition, Kingswood has agreed (i) to waive its redemption rights with respect to the Representative Shares in connection with the completion of an initial business combination and (ii) to waive its rights to liquidating distributions from the trust account with respect to the Representative Shares if the Company fails to complete an initial business combination within the periods of time as provided in the Company’s amended and restated memorandum and articles of association. +The Representative Shares have been deemed compensation by FINRA and are therefore subject to a lock-up for a period of 180 days immediately following the commencement of sales of the Offering pursuant to FINRA Rule 5110(e)(1). Pursuant to this FINRA lock-up, the Representative Shares cannot be sold, transferred, assigned, pledged or hypothecated or the subject of any hedging, short sale, derivative, put or call transaction that would result in the economic disposition of the securities by any person for a period of 180 days from the commencement of sales of the Offering except as permitted under FINRA Rule 5110(e)(2), including to any underwriter and selected dealer participating in the offering and their officers or partners, registered persons or affiliates. +Right of First Refusal +The Company granted Kingswood a right of first refusal, beginning on the date hereof and ending on the earlier of (i) fifteen (15) months from the closing of the Offering, or (ii) the closing of the Company’s initial business combination with a target company (the “RoFR Period”), of first refusal to act as sole underwriter and sole book running manager, or sole placement agent, for any and all future private or public equity, equity-linked, convertible and debt offerings of the Company, or any successor to or any subsidiary of the Company. In accordance with FINRA Rule 5110(g)(6), such right of first refusal shall not have a duration of more than three years from the commencement of sales of the offering. +Note 7 — Shareholders’ Deficit +Class B Ordinary Shares — The Company has unlimited authorized shares with no par value. In April 2021, 100 shares were issued to the initial shareholder. In February 2022, the Company issued another 2,874,900 ordinary shares resulting in an aggregate of 2,875,000 ordinary shares issued to the initial shareholder for an aggregate purchase price of $ 25,000 . In May 2025, the ordinary shares were reclassified into Class A and Class B ordinary shares. Pursuant to the amended and restated memorandum and articles of association, the Company is authorized to issue an unlimited number of shares divided into 200,000,000 Class A ordinary shares of no par value each, 10,000,000 Class B ordinary shares of no par value each and 5,000,000 preferred shares of no par value each. Following these transfers, and the reclassification of shares, the Company’s issued and outstanding ordinary shares consist of 2,875,000 Class B ordinary shares and 0 Class A ordinary shares as of December 31, 2024. +On March 18, 2025, the Company forfeited aggregately 1,437,500 ordinary shares to the Company. Following these transfers and surrender, the Company’s currently issued and outstanding ordinary shares consist of 1,437,500 Class B ordinary shares and 0 Class A ordinary shares as of December 31, 2025. +The shareholders of record are entitled to one vote for each share held on all matters to be voted on by shareholders. In connection with any vote held to approve the initial Business Combination, the Company’s initial shareholder, as well as the Company’s officers and directors, have agreed to vote their respective ordinary shares owned by them immediately prior to this offering and any shares purchased in this offering or following this offering in the open market in favor of the proposed Business Combination. +F- 15 +Shareholders have no conversion, preemptive or other subscription rights and there are no sinking fund or redemption provisions applicable to the ordinary shares, except that public shareholders have the right to have their public shares converted to cash equal to their pro rata share of the trust account if they vote on the proposed Business Combination and the Business Combination is completed. +Note 8 — Segment Reporting +ASC Topic 280, Segment Reporting, establishes standards for companies to report, in their financial statements, information about operating segments, products, services, geographic areas, and major customers. Operating segments are defined as components of an enterprise that engage in business activities from which it may recognize revenues and incur expenses, and for which separate financial information is available that is regularly evaluated by the Company’s chief operating decision maker, or group, in deciding how to allocate resources and assess performance. +The Company’s chief operating decision maker (“CODM”) has been identified as the Chief Executive Officer , who reviews the assets, operating results, and financial metrics for the Company as a whole to make decisions about allocating resources and assessing financial performance. Accordingly, management has determined that the Company only has one reporting segment. +The CODM assesses performance for the single segment and decides how to allocate resources based on net income or loss that also is reported on the statement of operations as net income or loss. The measure of segment assets is reported on the balance sheet as total assets. When evaluating the Company’s performance and making key decisions regarding resource allocation, the CODM reviews several key metrics included in net income or loss and total assets. +The key measures of segment profit or loss reviewed by the CODM are formation costs and operating costs. Formation costs and operating costs are reviewed and monitored by the CODM to manage and forecast cash to ensure enough capital is available to complete a business combination or similar transaction within the business combination period. The CODM also reviews formation costs and operating costs to manage, maintain and enforce all contractual agreements to ensure costs are aligned with all agreements and budget. Formation costs and operating costs, as reported on the statement of operations, are the significant segment expenses provided to the CODM on a regular basis. +All other segment items included in net loss are reported on the statement of operations and described within their respective disclosures. +Note 9 — Subsequent Events +On February 2, 2026, the Company consummated its Initial Public Offering of 5,750,000 Units, at $ 10.00 per Unit, generating gross proceeds of $ 57,500,000 , including the full exercise by the underwriters of their over-allotment option in the amount of 750,000 units. Each unit consists of one Class A ordinary share and one right. Each right entitles the holder thereof to receive one-eighth of one Class A ordinary share upon the consummation of an initial business combination. +Simultaneously with the closing of the Initial Public Offering, the Sponsor purchased an aggregate of 186,250 units at a price of $ 10.00 per unit for an aggregate purchase price of $ 1,862,500 in a private placement. +A total of $ 57,500,000 of the net proceeds from the Initial Public Offering and the Private Placement were deposited in a trust account established for the benefit of the Company’s public stockholders, with Equinity Trust Company, LLC acting as trustee. +The Company evaluated subsequent events and transactions that occurred after the balance sheet date through March 23, 2026 that the financial statements were available to be issued. Except for the events mentioned above, the Company did not identify any other subsequent events that would have required adjustment or disclosure in the financial statements. +F- 16 \ No newline at end of file diff --git a/raw/filings/0001918414/2025/0001213900-26-032632/filing_metadata.csv b/raw/filings/0001918414/2025/0001213900-26-032632/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..f4293b0fc0066a9e935ee0c43439b96d046ac1c8 --- /dev/null +++ b/raw/filings/0001918414/2025/0001213900-26-032632/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001918414,NBRGU,Newbridge Acquisition Ltd,2025,10-K,2026-03-23,2025-12-31,2026-03-23T12:00:44.000Z,0001213900-26-032632,ea0282475-10k_newbridge.htm,ANNUAL REPORT,3110409,1,1,https://www.sec.gov/Archives/edgar/data/1918414/000121390026032632/ea0282475-10k_newbridge.htm,https://www.sec.gov/Archives/edgar/data/1918414/000121390026032632/ diff --git a/raw/filings/0001918414/2025/0001213900-26-032632/item1.txt b/raw/filings/0001918414/2025/0001213900-26-032632/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..a61413471adbeff3f197944c03559a83301d02ec --- /dev/null +++ b/raw/filings/0001918414/2025/0001213900-26-032632/item1.txt @@ -0,0 +1,1343 @@ +ITEM 1. BUSINESS +General +Newbridge Acquisition Limited +is a blank check company incorporated for the purpose of entering into a merger, share exchange, asset acquisition, share purchase, recapitalization, +reorganization or similar business combination with one or more businesses or entities, which we refer to throughout this annual report +as our initial business combination. Our efforts to identify a prospective target business will not be limited to a particular industry +or geographic region. +On February 2, 2026, we consummated +our IPO of 5,000,000 units pursuant to the Company’s registration statement on Form S-1 (File No. 333-289966) with respect to the +IPO. Each unit consists of one Class A ordinary share, no par value, and one right to receive one-eighth (1/8) of one Class A ordinary +share upon the consummation of an initial business combination. The units were sold at an offering price of $10.00 per Unit, generating +gross proceeds of $50,000,000. Pursuant to that certain underwriting agreement, dated January 29, 2026, we granted Kingswood Capital +Partners, LLC, the representative of the underwriters, a 45-day option to purchase up to an additional 750,000 Units solely to cover +over-allotments, if any (the “Over-Allotment Option”). Simultaneously with the consummation of the IPO, the underwriters +exercised the Over-Allotment Option in full, generating total proceeds of $7,500,000. +Simultaneously with the closing +of the IPO on February 2, 2026, we consummated the private placement (“Private Placement”) with Wealth Path Holdings Limited +(the “Sponsor”) of 186,250 units (the “Private Units”), generating total proceeds of $1,862,500. The Private +Units are identical to the Units sold in the IPO. Additionally, the Sponsor agreed not to transfer, assign, or sell any of the Private +Units or underlying securities (except in limited circumstances, as described in the Registration Statement) until 30 days after the +completion of our initial business combination or earlier if, subsequent to our initial business combination, we consummate a subsequent +liquidation, merger, stock exchange or other similar transaction which results in all of our shareholders having the right to exchange +their ordinary shares for cash, securities or other property. The Sponsor was granted certain demand and piggyback registration rights +in connection with the purchase of the Private Units. +On February 2, 2026, a total +of $57,500,000 of the net proceeds from the sale of the Units in the IPO and the Private Placement were deposited in a trust account +established for the benefit of the Company’s public shareholders at Citibank, +N.A. maintained by Equiniti Trust Company, LLC , acting as trustee +(the “Trust Account”). Except for all interest income that may be released to us to pay taxes, and up to $50,000 to pay dissolution +expenses, none of the funds held in the trust account will be released from the trust account until the earlier of: (1) the completion +of our initial business combination within the required time period; (2) our redemption of 100% of the outstanding public shares if we +have not completed an initial business combination in the required time period; and (3) the redemption of any public shares properly +tendered in connection with a shareholder vote to amend our amended and restated memorandum and articles of association (A) to modify +the substance or timing of our obligation to redeem 100% of our public shares if we do not complete our initial business combination +within the required time period or (B) with respect to any other provision relating to shareholders’ rights or pre-business combination +activity. +Our principal executive offices +are located in the Hong Kong, China (“PRC” or “China”). The sponsor, Wealth Path Holdings Limited, and all members +of our board of directors and management have significant business ties to or are based in China. Our efforts to identify a prospective +target business will not be limited to a particular industry or geographic region. As such, although we are not targeting target companies +in China, we may consider an initial business combination with a target business with a physical presence or other significant ties to +China (including Hong Kong and Macau). However, given the risks and uncertainties of doing business in China discussed elsewhere +in this annual report, the location and ties of the sponsor and members of our board of directors and management to China may make us +a less attractive partner to a target company not based in China, which may thus increase the likelihood that we will consummate a business +combination with a target company that is located in China or not consummate a business combination at all. Our ties to the PRC may make +us less likely to consummate a business combination with any target company outside of the PRC, which may result in non-PRC target +businesses having increased leverage over us in negotiating an initial business combination knowing that if we do not complete our initial +business combination within a certain timeframe, we may be unable to complete our initial business combination with any target business. +If we fail to complete an initial business combination in the prescribed timeframe, we will cease all our operations and would redeem +our public shares and liquidate, in which case our public shareholders may receive only $10.00 per share, or less than such amount in +certain circumstances, based on the amount available in our trust account on a per share basis, and our rights will expire worthless. +1 +Since our principal executive +offices are located in Hong Kong, and all of our directors and officers have significant ties to China, the Chinese government may have +significant oversight and discretion over the conduct of our directors’ and officers’ search for a target company. The Chinese +government may intervene or influence our operations at any time through the directors and officers who have significant ties to China, +which could result in a material change in our search for a target business and/or the value of the securities we are offering. Changes +in the policies, regulations, rules, and the enforcement of laws of the PRC government may be adopted quickly with little advance notice +and could have a significant impact upon our ability to operate and may limit or completely undermine our ability to search for a target +company. +Further, our initial shareholders, +including the sponsor, own approximately 21.52% of our issued and outstanding shares. As a result, we may be considered a “foreign +person” under rules promulgated by the Committee on Foreign Investment in the United States (“CFIUS”) and may +not be able to complete an initial business combination with a U.S. target company since such initial business combination may be +subject to U.S. foreign investment regulations and review by a U.S. government entity such as CFIUS, or ultimately prohibited. +As a result, the pool of potential targets with which we could complete an initial business combination may be limited. However, we will +not conduct an initial business combination with any target company that conducts operations through variable interest entities (“VIEs”), +which are a series of contractual arrangements used to provide the economic benefits of foreign investment in Chinese-based companies +where Chinese law prohibits direct foreign investment in the operating companies. +As a result, our absolute position +against doing a business combination with a company that conducts operations through a VIE, may limit the pool of acquisition candidates +we may acquire in the PRC, in particular, due to the relevant PRC laws and regulations against foreign ownership of and investment in +certain assets and industries, known as restricted industries. Furthermore, this may also limit the pool of acquisition candidates we +may acquire in the PRC relative to other special purpose acquisition companies that are not subject to such restrictions, which could +make it more difficult and costly for us to consummate a business combination with a target business operating in the PRC relative to +such other companies. +Other than Yongsheng Liu, our +Chief Executive Officer and Chairman of Board of Directors, our officers and directors (including our independent directors) are either +citizens of the PRC or reside in China, including Hong Kong. As a result, it may be difficult for you to effect service of process upon +us or those persons residing in China. Even with service of process, there is uncertainty as to whether courts in China would (i) recognize +or enforce judgments of United States courts obtained against us or our directors or officers predicated upon the civil liability +provisions of the securities laws of the United States or any state in the United States or (ii) entertain original actions +brought in China against us or our directors or officers predicated upon the securities laws of the United States or any state in +the United States. +Recognition and enforcement +of foreign judgments are provided for under China’s Civil Procedure Law. China’s courts may recognize and enforce foreign +judgments in accordance with the requirements of the Civil Procedures Law based either on treaties between China and the country where +the judgment is made or on reciprocity between jurisdictions. There are no treaties between China and the United States for the +mutual recognition and enforcement of court judgments, thus making the recognition and enforcement of a U.S. court judgment against +us or our directors or officers in China difficult. +2 +We are also subject to other +risks and uncertainties about any future actions of the PRC government, which may result in a material change in operations of a target +business. PRC laws and regulations are sometimes vague and uncertain, and therefore, these risks may result in a material change in operations +of a target business, significant depreciation of the value of our ordinary shares, or a complete hindrance of our ability to offer or +continue to offer our securities to investors. Recently, the PRC government initiated a series of regulatory actions and statements to +regulate business operations in China with little advance notice, including cracking down on illegal activities in the securities market, +enhancing supervision over China-based companies listed overseas that use a VIE structure, adopting new measures to extend the scope +of cybersecurity reviews, and expanding efforts in anti-monopoly enforcement. +Since these statements and regulatory +actions are new, it is highly uncertain how soon legislative or administrative regulation-making bodies will respond and what existing +or new laws or regulations or detailed implementations and interpretations will be modified or promulgated, if any, and the potential +impact such modified or new laws and regulations will have on a China-based target company’s daily business operation, the +ability to accept foreign investments and list on a U.S. or other foreign exchange. Additionally, if we effect our initial business +combination with a business located in the PRC, the laws applicable to such business will likely govern all of our material agreements +and we may not be able to enforce our legal rights. There are uncertainties regarding the interpretation and enforcement of PRC laws, +rules and regulations which may have a material adverse impact on the value of our securities. If we enter into a business combination +with a target business operating in China, cash proceeds raised from overseas financing activities, including the IPO, may be transferred +by us to any future PRC subsidiaries via capital contribution or shareholder loans, as the case may be. All these risks could result +in a material change in our or the target company’s post-combination operations and/or the value of our ordinary shares or +could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value +of such securities to significantly decline or become worthless. +Furthermore, the PRC government +has significant authority to exert influence on the ability of a China-based company to conduct its business, make or accept foreign +investments or list on a U.S. stock exchange. For example, if we enter into a business combination with a target business operating +in China, the combined company may face risks associated with regulatory approvals of the proposed business combination between us and +the target, offshore offerings, anti-monopoly regulatory actions, cybersecurity and data privacy. The PRC government may also intervene +with or influence the combined company’s operations at any time as the government deems appropriate to further regulatory, political +and societal goals. +The PRC government has recently +published new policies that significantly affected certain industries such as the education and internet industries, and we cannot rule +out the possibility that it will in the future release regulations or policies regarding any industry that could adversely affect our +potential business combination with a PRC operating business and the business, financial condition and results of operations of the combined +company. Any such action, once taken by the PRC government, could make it more difficult and costly for us to consummate a business combination +with a target business operating in the PRC, result in material changes in the combined company’s post-combination operations +and cause the value of the combined company’s securities to significantly decline, or become worthless or completely hinder the +combined company’s ability to offer or continue to offer securities to investors. +3 +On February 17, 2023, the +China Securities Regulatory Commission (the “CSRC”) promulgated the Trial Administrative Measures of Overseas Securities +Offering and Listing by Domestic Companies (the “Trial Measures”), which took effect on March 31, 2023. The Trial Measures +supersede prior rules and clarified and emphasized several aspects, which include but are not limited to: (1) comprehensive determination +of the “indirect overseas offering and listing by PRC domestic companies” in compliance with the principle of “substance +over form” and particularly, an issuer will be required to go through the filing procedures under the Trial Measures if the following +criteria are met at the same time: (a) 50% or more of the issuer’s operating revenue, total profit, total assets or net assets +as documented in its audited consolidated financial statements for the most recent accounting year comes from PRC domestic companies, +and (b) the main parts of the issuer’s business activities are conducted in mainland China, or its main places of business +are located in mainland China, or the senior managers in charge of its business operation and management are mostly Chinese citizens +or domiciled in mainland China; (2) exemptions from immediate filing requirements for issuers that (a) have already been listed +or registered but not yet listed in foreign securities markets, including U.S. markets, prior to the effective date of the Trial +Measures, (b) are not required to re-perform the regulatory procedures with the relevant overseas regulatory authority or the +overseas stock exchange, and (c) whose such overseas securities offering or listing shall be completed before September 30, +2023, provided however that such issuers shall carry out filing procedures as required if they conduct refinancing or are involved in +other circumstances that require filing with the CSRC; (3) a negative list of types of issuers banned from listing or offering overseas, +such as (a) issuers whose listing or offering overseas has been recognized by the State Council of the PRC as a possible threat +to national security, (b) issuers whose affiliates have been recently convicted of bribery and corruption, (c) issuers under +ongoing criminal investigations, and (d) issuers under major disputes regarding equity ownership; (4) issuers’ compliance +with web security, data security, and other national security laws and regulations; (5) issuers’ filing and reporting obligations, +such as the obligation to file with the CSRC after it submits an application for initial public offering to overseas regulators, and +the obligation after offering or listing overseas to report to the CSRC material events including a change of control or voluntary or +forced delisting of the issuer; and (6) the CSRC’s authority to fine both issuers and their shareholders between 1 and 10 million +RMB for failure to comply with the Trial Measures, including failure to comply with filing obligations or committing fraud and misrepresentation. +We believe we are not required +to obtain approvals from any PRC government authorities, including the CSRC or the Cyberspace Administration of China, or any other government +entity, to issue our securities to foreign investors and to list on a U.S. exchange or to search for a target company. As of the +date of this annual report, we have not received any inquiry, notice, warning, sanctions or regulatory objection to the IPO from the +CSRC or any other PRC governmental authorities. However, applicable laws, regulations, or interpretations of the PRC may change, and +the relevant PRC government agencies could reach a different conclusion and may subject us to a stringent approval process from the relevant +government entities in connection with the IPO, continued listing on a U.S. exchange, the potential business combination, the issuance +of shares or the maintenance of our status as a publicly listed company outside China, and the post business combination entity’s +PRC operations if our business combination target is a PRC Target Company. We may also be subject to registration with the CSRC following +the IPO pursuant to the Trial Measures. It is uncertain when and whether we will be required to obtain permission from the PRC government +to continue to list on a U.S. exchange in the future and offer our securities to foreign investors. If approval is required in the +future, including pursuant to the Trial Measures, and we are denied permission from Chinese authorities to list on U.S. exchanges +or offer our securities to foreign investors, we may not be able to continue listing on a U.S. exchange or be subject to other severe +consequences, which would materially affect the interest of the investors. In addition, any changes in PRC law, regulations, or interpretations +may severely affect our operations after the IPO. The use of the term “operate” and “operations” includes the +process of searching for a target business and conducting related activities. To that extent, we may not be able to conduct the process +of searching for a potential target company in China. +Subject to the considerations +set forth above, if we decide to consummate our initial business combination with a China-based company, the combined company may +make capital contributions or extend loans to any future PRC subsidiaries through intermediate holding companies subject to compliance +with relevant PRC foreign exchange control regulations. From our inception to the date of this annual report, no dividends or distributions +have been made. After an initial business combination with a China-based company, the combined company’s ability to pay dividends, +if any, to the shareholders and to service any debt it may incur will depend upon dividends paid by any future PRC subsidiaries. Under +PRC laws and regulations, PRC companies are subject to certain restrictions with respect to paying dividends or otherwise transferring +any of their net assets to offshore entities. In particular, under the current PRC laws and regulations, dividends may be paid only out +of distributable profits. Distributable profits are the net profit as determined under Chinese accounting standards and regulations, +less any recovery of accumulated losses and appropriations to statutory and other reserves required to be made. +A PRC company is required to +set aside at least 10% of its after-tax profits each year to fund certain statutory reserve funds (up to an aggregate amount equal +to half of its registered capital). As a result, the combined company’s PRC subsidiaries may not have sufficient distributable +profits to pay dividends to the combined company. Furthermore, if certain procedural requirements are satisfied, the payment in foreign +currencies on current account items, including profit distributions and trade and service related foreign exchange transactions, can +be made without prior approval from the State Administration of Foreign Exchange, or SAFE, or its local branches. However, where Renminbi +(“RMB”), the legal currency of the PRC, is to be converted into foreign currency and remitted out of China to pay capital +expenses, such as the repayment of loans denominated in foreign currencies, approval from or registration with competent government authorities +or its authorized banks is required. The PRC government may take measures at its discretion from time to time to restrict access to foreign +currencies for current account or capital account transactions. +4 +If the foreign exchange control +regulations prevent the PRC subsidiaries of the combined company from obtaining sufficient foreign currencies to satisfy their foreign +currency demands, the PRC subsidiaries of the combined company may not be able to pay dividends or repay loans in foreign currencies +to their offshore intermediary holding companies and ultimately to the combined company. We cannot assure you that new regulations or +policies will not be promulgated in the future, which may further restrict the remittance of RMB into or out of the PRC. We cannot +assure you, in light of the restrictions in place, or any amendment to be made from time to time, that the PRC subsidiaries of the combined +company will be able to satisfy their respective payment obligations that are denominated in foreign currencies, including the remittance +of dividends outside of the PRC. +To date, we have not pursued +an initial business combination and there have not been any capital contribution or shareholder loans by us to any PRC entities, we do +not yet have any subsidiaries, and we have not received, declared or made any dividends or distributions. +Pursuant to the Holding Foreign +Companies Accountable Act (“HFCA Act”), the Public Company Accounting Oversight Board (United States) (the “PCAOB”) +issued a Determination Report on December 16, 2021 which found that the PCAOB is unable to inspect or investigate completely registered +public accounting firms headquartered in (1) mainland China of the PRC because of a position taken by one or more authorities in +mainland China and (2) Hong Kong, a Special Administrative Region and dependency of the PRC, because of a position taken by +one or more authorities in Hong Kong. In addition, the PCAOB’s report identified the specific registered public accounting +firms which are subject to these determinations. +In December 2020, Congress +enacted the HFCA Act, and the SEC released interim final amendments that begin to address the components of this Act. In November 2021, +the SEC approved PCAOB Rule 6100, which establishes a process for determining which registered public accounting firms the board +is unable to inspect or investigate completely. In December 2021, the SEC adopted amendments to finalize its rules under the HFCA +Act that set forth submission and disclosure requirements for commission-identified issuers identified under the Act, specify the +processes by which the SEC will identify and notify Commission-Identified Issuers, and implement trading prohibitions after three +consecutive years of identification. +In December 2022, Congress +passed the omnibus spending bill and the President signed it into law. This spending bill included the enactment of provisions to accelerate +the timeline for implementation of trading prohibitions from three years to two years. Separately, on December 15, 2022, +the PCAOB published its determination that in 2022, the PCAOB was able to inspect and investigate completely registered public accounting +firms headquartered in mainland China and Hong Kong. This determination reset the now two-year clock for compliance with the +trading prohibitions for identified issuers audited by these firms. The amendment had originally been passed by the U.S. Senate +in June 2021, as the “ Accelerating Holding Foreign Companies Accountable Act .” +Our auditor, Enrome LLP, the +independent registered public accounting firm of our company, is headquartered in Singapore, registered with the PCAOB and subject to +inspection by the PCAOB. Enrome LLP is not headquartered in mainland China or Hong Kong and was not identified as a firm subject to the +PCAOB’s Determination Report announced on December 16, 2021. As a result, we do not believe that HFCA Act and related regulations +will affect us. Nevertheless, trading in our securities may be prohibited under the HFCA Act if the PCAOB determines that it cannot inspect +or fully investigate our auditor for a period of two consecutive years, and that as a result an exchange may determine to delist our +securities. Moreover, on August 26, 2022, the PCAOB signed a Statement of Protocol with the China Securities Regulatory Commission and +the Ministry of Finance of the People’s Republic of China — the first step toward opening access for the PCAOB to inspect +and investigate registered public accounting firms headquartered in mainland China and Hong Kong completely, consistent with U.S. law. +The Statement of Protocol is intended to grant to the PCAOB complete access to the audit work papers, audit personnel, and other information +it needs to inspect and investigate any firm it chooses, with no loopholes and no exceptions. +5 +Competitive Advantage of Our Management +We have an experienced and highly +professional management team, almost all of whom have entrepreneurial experience or experience working for public companies, and we believe +that this valuable experience can help us to better identify outstanding companies that are considering becoming public companies. +We believe our Chief Executive +Officer, Yongsheng Liu is well-qualified to serve as a member of the board given his public company experience, including other similarly +structured blank check companies, business leadership, operational experience and contacts. Mr. Liu has been our Chief Executive +Officer and Chairman of our Board since April 2021. Throughout the past 20 years, Mr. Liu has assumed various corporate +leadership positions and demonstrated his strong execution ability and in-depth knowledge in private equity and corporate M&A transactions +across a wide range of sectors including aviation, consumer, financial institutions, and technology. From April 2021 to May 2023, +Mr. Liu served as the chief operating officer of Goldenstone Acquisition Limited, a special purpose acquisition company (OTC Markets: +GDST) (“Goldenstone”). He served as the chairman and chief executive officer of Wealthbridge Acquisition Limited, a special +purpose acquisition company (“Wealthbridge”), from June 2018 until its business combination with Scienjoy Inc. (“Scienjoy”) +in May 2020, and currently serves as a director of Scienjoy’s board since then. From August 2020 to May 2023, Mr. Liu +served as the chairman and chief executive officer of Goldenbridge Acquisition Limited, a special purpose acquisition company (“Goldenbridge”), +from August 2020 until its business combination with SunCar Technology Group Inc. (“SunCar”) in May 2023, and currently +serves as a director of SunCar since then. From March 2017 to April 2018, Mr. Liu served as the chairman and chief executive +officer of Royal China Holdings Limited (HKEx: 01683), during which he spearheaded the company’s international growth strategy +and focused on acquiring targets in the aviation industry and finance sector. From the beginning of 2013 to March 2017, Mr. Liu +was the chairman of Joy Air General Aviation, chairman of Cambodia Bayon Airlines, vice chairman of Everbright and Joy International +Leasing Company, and president of General Aviation Investment Company (Shanghai). From April 2004 to August 2008, Mr. Liu +also served as chief strategy officer of United Eagle Airlines (subsequently renamed to Chengdu Airlines). From December 1994 to +June 2000, Mr. Liu was a manager of China Southern Airlines responsible for ground staff training. +We believe our Chief Financial +Officer, Zhen Li, is qualified to serve as our Chief Financial Officer due to his track record of success in the SPAC sector and his +experience in financial management, financial services and credit risk management. Zhen Li has served as our Chief Financial Officer +since October 2024. Mr. Li has over ten years of experience in SPACs, financial services, investment management, credit +risk management and entrepreneurship. Mr. Li served as Board Secretary of Wealthbridge’s board from March 2019 until +Wealthbridge’s business combination with Scienjoy in May 2020. Mr. Li held the same position at Goldenbridge from September 2020 +until Goldenbridge’s business combination with SunCar in May 2023. Earlier in his career, Mr. Li founded and served as +Chief Executive Officer of Shanghai Yimi Investment Management Co., Ltd. from January 2016 to October 2018. During his tenure, +he developed innovative financial products such as Yifushui, offering credit-based, unsecured financial services to enterprises. Prior +to that, Mr. Li served as Vice President of Shanghai Baotong Finance Leasing Co., Ltd. from July 2014 to December 2015, +and from April 2013 to June 2024, he served as a Credit Review Manager at HSBC Bank (Shanghai) Co., Ltd., where he gained deep +expertise in credit risk assessment, policy development, and financial management. +Additionally, we believe that +our independent directors will provide public company governance, executive leadership, operational oversight, private equity investment +management and capital markets experience. Our directors have experience with acquisitions, divestitures and corporate strategy and implementation, +which we believe will significantly benefit us as we evaluate potential acquisition or merger candidates as well as following the completion +of our initial business combination. +We believe our management team +is well positioned to take advantage of the growing set of acquisition opportunities focused on the companies exhibiting substantial +potential in emerging markets driven by innovative technologies or novel business models and that our contacts and relationships, ranging +from owners and management teams of private and public companies, private equity funds, investment bankers, attorneys, to accountants +and business brokers will allow us to generate an attractive transaction for our shareholders. +The past performance of the members +of our management team, or the sponsor is not a guarantee that we will be able to identify a suitable candidate for our initial business +combination or of success with respect to any business combination we may consummate. You should not rely on the historical record of +the performance of our management team or any of its affiliates’ performance as indicative of our future performance. +6 +Chinese Laws and Regulations +Other +than Yongsheng Liu, our Chief Executive Officer and Chairman of Board of Directors, our officers and directors (including our independent +directors) are either citizens of the PRC or reside in China, including Hong Kong. Although we are not targeting target companies +in China, we may consider a business combination with an entity or business with a physical presence or other significant ties to China, +including Hong Kong and Macau, which may subject the post-business combination business to the laws, regulations and policies +of China. Any target for a business combination may conduct operations through subsidiaries in China. The legal and regulatory risks +associated with doing business in China discussed in the IPO Prospectus may make us a less attractive partner in an initial business +combination than other special purpose acquisition companies that do not have any ties to China. As such, our ties to China may make +it harder for us to complete an initial business combination with a target company without any such ties. In addition, we will not conduct +a business combination with any target company that conducts operations through variable interest entities (“VIEs”), which +are a series of contractual arrangements used to provide the economic benefits of foreign investment in Chinese-based companies +where Chinese law prohibits direct foreign investment in the operating companies. As a result, this may limit the pool of acquisition +candidates we may acquire in the PRC, in particular, relative to other special purpose acquisition companies that are not subject to +such restrictions, which could make it more difficult and costly for us to consummate a business combination with a target business operating +in the PRC relative to such other companies. +If we were to complete a business +combination with a Chinese entity, we could be subject to certain legal and operational risks associated with or having the majority +of post-business combination operations in China. PRC laws and regulations governing PRC based business operations are sometimes +vague and uncertain, and as a result these risks may result in material changes in the operations of any post-business combination +subsidiaries, significant depreciation of the value of our ordinary shares, or a complete hindrance of our ability to offer, or continue +to offer, our securities to investors, including investors in the United States. Recently, the PRC government adopted a series of +regulatory actions and issued statements to regulate business operations in China with little advance notice, including cracking down +on illegal activities in the securities market, adopting new measures to extend the scope of cybersecurity reviews, and expanding the +efforts in anti-monopoly enforcement. These recently enacted measures, and new measures which may be implemented, could materially +and adversely affect the operations of any post-business combination company which we may acquire as our initial business combination. +Since these statements and regulatory +actions are new, it is highly uncertain how soon legislative or administrative regulation-making bodies will respond and what existing +or new laws or regulations or detailed implementations and interpretations will be modified or promulgated, if any, and the potential +impact such modified or new laws and regulations will have on a China-based target company’s daily business operation, the +ability to accept foreign investments and list on a U.S. or other foreign exchange. Additionally, if we effect our initial business +combination with a business located in the PRC, the laws applicable to such business will likely govern all of our material agreements +and we may not be able to enforce our legal rights. There are uncertainties regarding the interpretation and enforcement of PRC laws, +rules and regulations which may have a material adverse impact on the value of our securities. If we enter into a business combination +with a target business operating in China, cash proceeds raised from overseas financing activities, including the IPO, may be transferred +by us to any future PRC subsidiaries via capital contribution or shareholder loans, as the case may be. All these risks could result +in a material change in our or the target company’s post-combination operations and/or the value of our ordinary shares or +could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value +of such securities to significantly decline or become worthless. +Furthermore, the PRC government +has significant authority to exert influence on the ability of a China-based company to conduct its business, make or accept foreign +investments or list on a U.S. stock exchange. For example, if we enter into a business combination with a target business operating +in China, the combined company may face risks associated with regulatory approvals of the proposed business combination between us and +the target, offshore offerings, anti-monopoly regulatory actions, cybersecurity and data privacy. The PRC government may also intervene +with or influence the combined company’s operations at any time as the government deems appropriate to further regulatory, political +and societal goals. +7 +The PRC government has recently +published new policies that significantly affected certain industries such as the education and internet industries, and we cannot rule +out the possibility that it will in the future release regulations or policies regarding any industry that could adversely affect our +potential business combination with a PRC operating business and the business, financial condition and results of operations of the combined +company. Any such action, once taken by the PRC government, could make it more difficult and costly for us to consummate a business combination +with a target business operating in the PRC, result in material changes in the combined company’s post-combination operations +and cause the value of the combined company’s securities to significantly decline, or become worthless or completely hinder the +combined company’s ability to offer or continue to offer securities to investors. +On February 17, 2023, the +China Securities Regulatory Commission (the “CSRC”) promulgated the Trial Administrative Measures of Overseas Securities +Offering and Listing by Domestic Companies (the “Trial Measures”), which took effect on March 31, 2023. The Trial Measures +supersede the prior rules and clarified and emphasized several aspects, which include but are not limited to: (1) comprehensive +determination of the “indirect overseas offering and listing by PRC domestic companies” in compliance with the principle +of “substance over form” and particularly, an issuer will be required to go through the filing procedures under the Trial +Measures if the following criteria are met at the same time: (a) 50% or more of the issuer’s operating revenue, total profit, +total assets or net assets as documented in its audited consolidated financial statements for the most recent accounting year comes from +PRC domestic companies, and (b) the main parts of the issuer’s business activities are conducted in mainland China, or its +main places of business are located in mainland China, or the senior managers in charge of its business operation and management are +mostly Chinese citizens or domiciled in mainland China; (2) exemptions from immediate filing requirements for issuers that (a) have +already been listed or registered but not yet listed in foreign securities markets, including U.S. markets, prior to the effective +date of the Trial Measures, (b) are not required to re-perform the regulatory procedures with the relevant overseas regulatory +authority or the overseas stock exchange, and (c) whose such overseas securities offering or listing shall be completed before September 30, +2023, provided however that such issuers shall carry out filing procedures as required if they conduct refinancing or are involved in +other circumstances that require filing with the CSRC; (3) a negative list of types of issuers banned from listing or offering overseas, +such as (a) issuers whose listing or offering overseas has been recognized by the State Council of the PRC as a possible threat +to national security, (b) issuers whose affiliates have been recently convicted of bribery and corruption, (c) issuers under +ongoing criminal investigations, and (d) issuers under major disputes regarding equity ownership; (4) issuers’ compliance +with web security, data security, and other national security laws and regulations; (5) issuers’ filing and reporting obligations, +such as the obligation to file with the CSRC after it submits an application for initial public offering to overseas regulators, and +the obligation after offering or listing overseas to report to the CSRC material events including a change of control or voluntary or +forced delisting of the issuer; and (6) the CSRC’s authority to fine both issuers and their shareholders between 1 and 10 million +RMB for failure to comply with the Trial Measures, including failure to comply with filing obligations or committing fraud and misrepresentation. +Based on our understanding of +the current PRC laws and regulations, as we do not have any material operations in China, given that (a) the CSRC, currently has +not issued any definitive rule or interpretation concerning whether offerings like ours under the IPO Prospectus are subject to the “M&A +Rules and the Trial Measures; and (b) our company is a blank check company newly incorporated in the British Virgin Islands rather +than in China and currently our company does not own or control any equity interest in any PRC company or operate any business in China +although our principal executive offices are located in China, we believe that our company, our officers and/or directors are not required +to obtain any licenses or approvals or subject to registration with the CSRC pursuant to the Trial Measures and under applicable PRC +laws and regulations, for consummation of the IPO and while seeking a target for the initial business combination. We also believe that +our officers and directors do not fall under or are not governed by requirements from the CSRC, and we are not required to obtain approvals +from any PRC government entity, including the CSRC or the CAC, or any other government entity, to issue our securities to foreign investors +and to list on a U.S. exchange or to search for a target company. As of the date of the IPO Prospectus, we had not received any +inquiry, notice, warning, sanctions or regulatory objection to the IPO from the CSRC or any other PRC governmental authorities. However, +applicable laws, regulations, or interpretations of the PRC may change or we could be mistaken about these rules applicability, and the +relevant PRC government agencies could reach a different conclusion and may subject us to a stringent approval process from the relevant +government entities in connection with the IPO, continued listing on a U.S. exchange, the potential business combination, the issuance +of shares or the maintenance of our status as a publicly listed company outside China, and the post business combination entity’s +PRC operations if our business combination target is a PRC Target Company. If the CSRC or the CAC, or any other governmental or regulatory +body subsequently determines that its approval is needed for the IPO, a business combination, the issuance of our ordinary shares upon +exercise of the rights, or maintaining our status as a publicly listed company outside China, we may face approval delays, adverse actions +or sanctions by the CSRC, CAC and/or other PRC regulatory agencies. It is uncertain whether we will be required to obtain permission +from the PRC government to continue to list on a U.S. exchange in the future and offer our securities to foreign investors. If approval +is required in the future, including pursuant to the Trial Measures, and we are denied permission from Chinese authorities to list on +U.S. exchanges or offer our securities to foreign investors, we may not be able to continue listing on a U.S. exchange or be +subject to other severe consequences, which would materially affect our ability to complete a business combination in which case we may +have to liquidate which would be adverse to the interests of the investors. In addition, any changes in PRC law, regulations, or interpretations +may severely affect our operations after the IPO. The use of the term “operate” and “operations” includes the +process of searching for a target business and conducting related activities. To that extent, we may not be able to conduct the process +of searching for a potential target company in China. +8 +There are numerous risks and +uncertainties related to doing business in China including: +● Adverse changes in political +and economic policies or political or social conditions of the PRC government could have a material adverse effect on the overall economic +growth of China; +● Uncertainties with respect +to the PRC legal system could limit legal protections available to you and us; +● It may be difficult for overseas +regulators to conduct investigations or collect evidence within China +● PRC companies in certain business +sectors are required to undergo national security review or obtain clearance from relevant authorities if necessary before making any +filings with the CSRC. +● PRC companies must comply with +national secrecy and data security laws with respect to any data disclosure. +● CSRC has the authority to and +may block offshore listings that: (1) are explicitly prohibited by law; (2) may endanger national security; (3) involve +criminal offenses such as corruption, bribery, embezzlement, misappropriation of property by the issuer, its controlling persons (with +a three-year lookback); (4) involve the issuer under investigations for suspicion of criminal offenses or major violations +of laws and regulations; or (5) involve material ownership disputes. +For a detailed description of +risks associated with our significant ties to or a potential acquisition of a target business in China, see “Risk Factors — Risks +Related to Acquiring or Operating Businesses in the PRC” included in the IPO Prospectus. +Each of our officers and directors +may become an officer or director of another special purpose acquisition company with a class of securities intended to be registered +under the Securities Exchange Act of 1934, as amended, or the Exchange Act, even before we have entered into a definitive +agreement regarding our initial business combination. For more information, see the section of the IPO prospectus entitled “Management — Conflicts +of Interest” and see “Risk Factors” included in the IPO Prospectus. +Investment Direction +Although there is no +restriction or limitation on what industry our target operates in, it is our intention to pursue prospective targets that are +focused on green and sustainable business, new energy, cutting-edge technologies, artificial intelligent applications, business +software and health care products. We anticipate targeting what are traditionally known as “small cap” companies +domiciled in North America, Europe and/or the Asia Pacific (“APAC”) regions that are d eveloping assets in Asia, Europe +and North America which aligns with our management team’s experience in operating emerging start-up companies. Our efforts to +identify a prospective target business will not be limited to a particular industry or geographic region. As such, although we are +not targeting target companies in China, we may consider an initial business combination with an entity or business with a physical +presence or other significant ties to China, including Hong Kong and Macau, which may subject the post-business combination +business to the laws, regulations and policies of China. +9 +Transfers of Cash to and from our Post Business +Combination Subsidiaries +To date, we have not pursued an +initial business combination and there have not been any capital contributions or shareholder loans by us to any PRC entities, we do +not yet have any subsidiaries, and we have not received, declared or made any dividends or distributions. Although we do not have any +specific business combination under consideration and we have not (nor has anyone on our behalf), directly or indirectly, contacted any +prospective target business or had any substantive discussions, formal or otherwise, with respect to such a transaction, our initial +business combination target company may include a company based in the PRC. If we decide to consummate our initial business combination +with a target business based in and primarily operating in the PRC, the combined company, whose securities will be listed on a U.S. stock +exchange, may make capital contributions or extend loans to its PRC subsidiaries through intermediate holding companies subject to compliance +with relevant PRC foreign exchange control regulations. +After the initial business combination, +the combined company’s ability to pay dividends, if any, to the shareholders and to service any debt it may incur will depend upon +dividends paid by its PRC subsidiaries. Under PRC laws and regulations, PRC companies are subject to certain restrictions with respect +to paying dividends or otherwise transferring any of their net assets to offshore entities. In particular, under the current PRC laws +and regulations, dividends may be paid only out of distributable profits. Distributable profits are the net profit as determined under +Chinese accounting standards and regulations, less any recovery of accumulated losses and appropriations to statutory and other reserves +required to be made. +Current PRC regulations permit +a potential PRC target company’s indirect PRC subsidiaries to pay dividends to an overseas subsidiary, for example, a subsidiary +located in Hong Kong, only out of their accumulated profits, if any, determined in accordance with Chinese accounting standards +and regulations. In addition, each of the target’s subsidiaries in China is required to set aside at least 10% of its after-tax +profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of its registered capital. As a result, the combined +company’s PRC subsidiaries may not have sufficient distributable profits to pay entity in China is also required to further set +aside a portion of its after-tax profits to fund the employee welfare fund, although the amount to be set aside, if any, is determined +at the discretion of its board of directors. Although the statutory reserves can be used, among other ways, to increase the registered +capital and eliminate future losses in excess of retained earnings of the respective companies, the reserve funds are not distributable +as cash dividends except in the event of liquidation. +The PRC government also imposes +controls on the conversion of the Renminbi (“RMB”), the legal currency of the PRC, into foreign currencies and the remittance +of currencies out of the PRC. Our initial business combination target may be a PRC company with substantially all of its revenues +in RMB. Shortages in the availability of foreign currency may restrict the ability of the PRC subsidiaries to remit sufficient foreign +currency to pay dividends or other payments to us, or otherwise satisfy their foreign currency denominated obligations. Under existing +PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and expenditures +from trade-related transactions can be made in foreign currencies without prior approval from SAFE by complying with certain procedural +requirements. However, approval from appropriate government authorities is required where RMB is to be converted into foreign currency +and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. The PRC government +may also at its discretion restrict access in the future to foreign currencies for current account transactions. If the foreign exchange +control system prevents us from obtaining sufficient foreign currency to satisfy our currency demands post business combination, we may +not be able to pay dividends in foreign currencies to our security-holders. Furthermore, if our target’s subsidiaries in the PRC +incur debt on their own in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments. +Cash dividends, if any, on our +ordinary shares will be paid in U.S. dollars. If we are considered a PRC tax resident enterprise for tax purposes, any dividends +we pay to our overseas shareholders may be regarded as China-sourced income and, as a result, may be subject to PRC withholding tax at +a rate of up to 10.0%. +10 +The +PRC government may take measures at its discretion from time to time to restrict access to foreign currencies for current account or +capital account transactions. If the foreign exchange control regulations prevent the PRC subsidiaries of the combined company from obtaining +sufficient foreign currencies to satisfy their foreign currency demands, the PRC subsidiaries of the combined company may not be able +to pay dividends or repay loans in foreign currencies to their offshore intermediary holding companies and ultimately to the combined +company. We cannot assure you that new regulations or policies will not be promulgated in the future, which may further restrict the +remittance of RMB into or out of the PRC. We cannot assure you, in light of the restrictions in place, or any amendment to be made +from time to time, that the PRC subsidiaries of the combined company will be able to satisfy their respective payment obligations that +are denominated in foreign currencies, including the remittance of dividends outside of the PRC. See “Risk Factors — Risks +Related to Acquiring or Operating Businesses in the PRC” under the subheadings “Cash-Flow Structure of a Post-Acquisition +Company Based in China” and “Exchange controls that exist in the PRC may restrict or prevent us from using the proceeds of +the IPO to acquire a target company in the PRC and limit our ability +to utilize our cash flow effectively following our initial business combination.” However, the funds held in our trust account +are not held in China, they are held in U.S. dollars in the United States with Equiniti Trust Company, LLC and therefore shareholder +redemption rights would not be impacted. +Business Strategy +Our primary strategy is to identify +and consummate a merger or acquisition with a target company that aligns with the expertise and capabilities of our management team, +while also positioning us to capitalize on current market trends. Leveraging our extensive network of relationships, deep industry knowledge, +sector-specific experience, and proven deal-sourcing capabilities, we aim to focus on companies with substantial growth potential within +emerging markets or those modernizing traditional industries. These markets are defined by their embrace of innovative technologies, +advanced manufacturing practices, or unique business models. Over time, our network has expanded due to our team’s active involvement +in sourcing, investing in, and managing businesses across our target sectors. +Following +the completion of our IPO , our management team will utilize its connections +and industry insights to establish specific criteria for identifying potential merger or acquisition targets and to outline our approach +for the business combination process. This will initiate our search for, and evaluation of, promising opportunities. +Our primary goal is to provide +attractive returns to our shareholders and enhance value by improving the performance of the acquired company. This may include facilitating +access to crucial growth capital. We aim to prioritize companies with certain key attributes, such as: +● A history of stable, long-term growth coupled with promising +future prospects. +● Strong competitive advantages that support continued business +expansion. +● Utilization of advanced technologies, new materials, and +sustainable business models. +● Ownership or control of, or access to, advanced manufacturing +facilities. +● The capacity to meet high demand in fast-growing markets. +11 +● The ability to adapt to industrial upgrading trends. +● Adherence to high environmental, social, and governance (ESG) +standards. +With our extensive network and +combined team expertise in business investment and operations, we specifically target companies in emerging markets with substantial +growth potential. Our focus includes: +● Companies with products and services for large markets, establishing +a first-mover advantage and core competency; +● Platform-based or closed-loop businesses utilizing cutting-edge +technologies; +● Products and services that disrupt traditional markets with +new technologies; +● Scalable business models that quickly generate free cash +flow; and +● Companies with a track record of operational efficiency and +strong financial performance, backed by experienced management. +By sticking to this refined strategy, +we aim to capitalize on opportunities that offer a strong industry context and the potential for significant growth. +Opportunity & Acquisition Target Criteria +Our focus is on acquiring small-cap +companies that demonstrate substantial potential for growth in emerging markets. These companies typically benefit from mature and efficient +operations, innovative technologies, new materials, or novel business models. We are particularly interested in industries that present +significant market opportunities, are characterized by high demand for industrial upgrading, and feature a large pool of emerging high-growth +companies that meet the size criteria for potential acquisition targets. +We believe that our operational +experience and established industry contacts uniquely position us to identify high-value opportunities within these sectors. Our acquisition +targets will adhere to the principles of value investing, focusing on quality companies with specific catalysts and a clear path for +growth. While we remain opportunistic and flexible in evaluating potential targets within this defined space, our primary focus will +be on small-cap companies that possess one or more of the following attributes: +Target Size: We +seek to acquire companies with significant revenue growth potential, valued between $650 million and $2 billion. +High Growth Geographic +Markets: We intend to prioritize companies with international operations in fast-growing regions, capable of +leveraging regional advantages effectively. +High Growth +Industries: Our primary focus will be on companies in rapidly expanding sectors, or those undergoing significant +industrial transformation, such as green and sustainable businesses, new materials, artificial intelligence applications, daily +necessities production, and advanced equipment manufacturing. +Proven Financial Performance +and Growth Potential: We will target businesses that exhibit recent revenue growth and possess strong +expansion prospects, driven by new product offerings, technological advancements, innovative sales strategies, geographic diversification, +cost reductions, and strategic acquisitions. +12 +Competitive +Advantage: We aim to acquire businesses with robust market positions, innovative technologies, deep industry insights, +market leadership status, exclusive partnerships, strong brands, or distinct cost efficiencies. +Benefits of Going +Public: We are particularly interested in companies that would benefit from the enhanced capital access and visibility +associated with being publicly traded. +Experienced and Visionary +Management: Our preference is for companies led by skilled, forward-thinking management teams with deep +industry knowledge and a clear vision for growth. +High ESG Standards: We +will prioritize companies that demonstrate strong commitments to environmental, social, and governance (ESG) standards, with an +emphasis on sustainable and responsible business practices. +Market Trend +Alignment: We aim to identify companies that are aligned with, or are leading, current market trends, positioning them to +adapt effectively to changes in market dynamics and consumer preferences. +These criteria are guidelines +and not exhaustive. Our evaluation may consider these and other relevant factors as needed. If we choose a company that does not meet +all these criteria, we will disclose this to our shareholders in the communications concerning the merger or acquisition, which will +include documents like proxy statements or tender offer announcements filed with the SEC. +Our management team will be primarily +focused on creating shareholder value by efficiently guiding emerging high-growth companies toward commercialization. In line with our +strategy, we have identified several general criteria and guidelines for evaluating prospective target businesses. While we intend to +use these criteria in assessing potential acquisitions, we may adjust or deviate from them as appropriate: +● We believe that a substantial number of potential target +businesses, both domestically and internationally, exist at attractive valuations, which can benefit from a public listing and access +to new capital to support significant revenue and earnings growth. +● We aim to acquire companies with significant, underexploited +expansion opportunities within specific industry sectors. This expansion can be achieved through organic growth acceleration and strategic +add-on acquisitions. Our management team is highly skilled in identifying such targets and evaluating synergies to facilitate successful +integrations. Additionally, our team has extensive experience in assisting companies with fundraising and navigating the regulatory approval +process. +● We will seek target companies that offer attractive risk-adjusted +equity returns for our shareholders, assessing each based on its potential to achieve regulatory approval and successfully commercialize +its products. We will evaluate potential financial returns based on factors such as risk-adjusted peak sales potential, the strength +of the product pipeline, the ability to realize system cost savings, opportunities for growth through follow-on acquisitions, and value +creation from other strategic initiatives. +● We will focus on investing in businesses with a proven track +record of success, emphasizing shareholder-friendly governance, low leverage, and attractive long-term return potential. We believe this +investment approach offers a competitive edge, providing meaningful upside potential with downside protection, particularly in times +of financial market volatility. +These guidelines are not exhaustive, +and our evaluation of any specific target company may involve additional factors, as deemed relevant by our management team. We currently +do not have any specific target business under consideration. Our officers and directors have not selected or engaged in substantive +discussions regarding potential target businesses, nor have we taken steps to identify or locate suitable acquisition candidates. Additionally, +we have not engaged any agents or representatives for this purpose. +13 +Initial Business Combination +We +will have 15 months from the closing of the IPO to consummate our +initial business combination. However, if we anticipate that we may not be able to consummate our initial business combination within +15 months, we may extend the period of time to consummate a business combination up to two times, each by an additional three months +(for a total of up to 21 months to complete a business combination) without shareholder approval. We may hold a shareholder vote +at any time to amend our amended and restated memorandum and articles of association, to modify the amount of time we will have to consummate +an initial business combination (as well as to modify the substance or timing of our obligation to redeem 100% of our public shares if +we have not consummated an initial business combination or with respect to any other material provisions relating to shareholders’ +rights or pre-initial business combination activity). Our sponsor, officers, and directors have agreed, pursuant to a written agreement +with us, that they will not propose, or vote in favor of, an amendment to our amended and restated memorandum and articles of association +that would stop our public shareholders from converting or selling their shares to us in connection with a business combination or that +would affect the substance or timing of our redemption obligation to redeem all public shares if we cannot complete an initial business +combination within 15 months of the closing the IPO (or up to 21 months +from the closing of the IPO if we extend the period of time to consummate +a business combination by the full amount of time, as described in more detail in the prospectus), unless we provide public shareholders +an opportunity to redeem their public shares in conjunction with any such amendment. If we are unable to consummate our initial business +combination within the time period described above, we will, as promptly as reasonably possible but not more than ten business days +thereafter, redeem the public shares for a pro rata portion of the funds held in the trust account and as promptly as reasonably possible +following such redemption, subject to the approval of our remaining shareholders and our board of directors, liquidate and dissolve, +subject to our obligations under British Virgin Islands law to provide for claims of creditors and the requirements of other applicable +law. In such event, the rights will be worthless. +Nasdaq +rules provide that our initial business combination must be with one or more target businesses that together have a fair market value +equal to at least 80% of the balance in the trust account (less any deferred underwriting discounts and taxes payable on interest earned) +at the time of our signing a definitive agreement in connection with our initial business combination. If our board is not able to independently +determine the fair market value of the target business or businesses, we will obtain an opinion from an independent investment banking +firm or another independent firm that commonly renders valuation opinions with respect to the satisfaction of such criteria. If less +than 100% of the equity interests or assets of a target business or businesses are owned or acquired by the post-transaction company, +the portion of such business or businesses that is owned or acquired is what will be valued for purposes of the 80% fair market value +test. If the business combination involves more than one target business, the 80% fair market value test will be based on the aggregate +value of all of the target businesses. If our securities are not listed on Nasdaq after the IPO , +we would not be required to satisfy the 80% requirement. However, we intend to satisfy the 80% requirement even if our securities are +not listed on Nasdaq at the time of our initial business combination. +We anticipate structuring our +initial business combination so that the post-transaction company in which our public shareholders own shares will own or acquire 100% +of the equity interests or assets of the target business or businesses. We may, however, structure our initial business combination such +that the post-transaction company owns or acquires less than 100% of such interests or assets of the target business in order to meet +certain objectives of the target management team or shareholders or for other reasons, but we will only complete such business combination +if the post-transaction company owns or acquires 50% or more of the outstanding voting securities of the target or otherwise acquires +a controlling interest in the target sufficient for it not to be required to register as an investment company under the Investment Company +Act. Even if the post-transaction company owns or acquires 50% or more of the voting securities of the target, our shareholders prior +to the business combination may collectively own a minority interest in the post-transaction company, depending on valuations ascribed +to the target and us in the business combination transaction. For example, we could pursue a transaction in which we issue a substantial +number of new shares in exchange for all of the outstanding capital stock, shares or other equity securities of a target. In this case, +we would acquire a 100% controlling interest in the target. However, as a result of the issuance of a substantial number of new shares, +our shareholders immediately prior to our initial business combination could own less than a majority of our issued and outstanding shares +subsequent to our initial business combination. If less than 100% of the equity interests or assets of a target business or businesses +are owned or acquired by the post-transaction company, the portion of such business or businesses that is owned or acquired is what will +be valued for purposes of the 80% of net assets test. If our initial business combination involves more than one target business, the +80% of net assets test will be based on the aggregate value of all of the target businesses. Notwithstanding the foregoing, if we are +not then listed on Nasdaq for whatever reason, we would no longer be required to meet the foregoing 80% of net assets test. +14 +We are not prohibited from pursuing +an initial business combination with a company that is affiliated with our initial shareholders, officers or directors. In the event +we seek to complete our initial business combination with a company that is affiliated with our initial shareholders, officers or directors, +we, or a committee of independent directors, will obtain an opinion from an independent investment banking firm or another independent +firm that commonly renders valuation opinions that our initial business combination is fair to our company (or shareholders) from a financial +point of view. +Members +of our management team and their affiliates will directly or indirectly own ordinary shares and private rights following the IPO , +and, accordingly, may have a conflict of interest in determining whether a particular target business is an appropriate business with +which to effectuate our initial business combination. Further, each of our officers and directors may have a conflict of interest with +respect to evaluating a particular business combination if the retention or resignation of any such officers and directors was included +by a target business as a condition to any agreement with respect to our initial business combination. Additionally, each of our officers +and directors presently has, and any of them in the future may have additional, fiduciary or contractual obligations to another entity +and other blank check companies similar to our company, pursuant to which such officer or director may be required to present a business +combination opportunity to such entity. Specifically, our executive officers are affiliated with the sponsor and other entities that +make, or are looking to make, investments in companies. Accordingly, if any of our officers or directors becomes aware of a business +combination opportunity which is suitable for an entity to which he or she has fiduciary or contractual obligations, he or she will honor +his or her fiduciary or contractual obligations to present such business combination opportunity to such entity, and only present it +to us if such entity rejects the opportunity. We do not believe, however, that the fiduciary duties or contractual obligations of our +executive officers will materially affect our ability to complete our business combination. For additional information regarding our +executive officers’ and directors’ business affiliations and potential conflicts of interest, see “Management — Directors +and Executive Officers” and “Management — Conflicts of Interest.” Our amended and restated memorandum +and articles of association provide that, subject to fiduciary duties under British Virgin Islands law, we renounce our interest in any +corporate opportunity offered to any director or officer unless such opportunity is expressly offered to such person solely in his or +her capacity as a director or officer of our company and such opportunity is one we are legally and contractually permitted to undertake +and would otherwise be reasonable for us to pursue. +We filed a Registration Statement +on Form 8-A with the SEC to voluntarily register our securities under Section 12 of the Securities Exchange Act of 1934, +as amended (the “Exchange Act”). As a result, we are subject to the rules and regulations promulgated under the Exchange Act. +PRC Approvals +Below is a summary of potential +PRC laws and regulations that could be interpreted by the in-charge PRC government authorities, namely, the CSRC, the CAC and their enforcement +agencies, to require the company to obtain permission or approval in order to issue securities to foreign investors in connection with +a business combination or offer securities to foreign investors. We do not believe that any permission or approval is required under +the PRC laws or regulations to offer securities to non-PRC investors. In addition, as we do not have any material operations in China, +we believe that our company are not required to obtain any material licenses or approvals from PRC governmental authorities because our +principal executive offices are located in Hong Kong, and our executive officers and directors are located in, or have significant +ties to, China. However, there is no assurance that such approval or permission will not be required under the PRC laws, regulations +or policies if the relevant governmental authorities take a contrary position, nor can the company predict whether or how long it will +take to obtain such approval if so required. +15 +The Regulations on Mergers and +Acquisitions of Domestic Companies by Foreign Investors adopted by six PRC regulatory agencies, including the MOFCOM, the State-Owned +Assets Supervision and Administration Commission, the State Administration of Taxation, the State Administration for Industry and Commerce +(the “SAMR”), the CSRC, and the SAFE in 2006 and amended in 2009, as well as some other regulations and rules concerning +mergers and acquisitions (collectively, the “M&A Rules”) include provisions that purport to require that an offshore +special purpose vehicle that is controlled by PRC domestic companies or individuals and that has been formed for the purpose of an overseas +listing of securities through acquisitions of PRC domestic companies or assets to obtain the approval of the CSRC prior to the listing +and trading of such special purpose vehicle’s securities on an overseas stock exchange. On September 21, 2006, the CSRC published +its approval procedures for overseas listings by special purpose vehicles. However, substantial uncertainty remains regarding the scope +and applicability of the M&A Rules to offshore special purpose vehicles. While the application of the M&A Rules remains unclear, +the company believes that the CSRC approval would not be required in the context of a business combination because (1) the M&A +Rules provide that the acquisition of the equity held by the shareholders of a “domestic company” (i.e., a non-foreign investment +company) or the subscription for the new shares issued by a “domestic company” by the shareholders of an offshore special +purpose vehicle with the equity of such offshore special purpose vehicle, or by the offshore special purpose vehicle with its new shares +for the purpose of the overseas listing of such offshore special purpose vehicle, shall be subject to the approval of the CSRC; while +the company currently is a foreign-invested enterprise rather than a “domestic company” as defined under the M&A Rules, +and (2) the CSRC currently has not issued any definitive rule or interpretation concerning whether a transaction of the kind contemplated +herein is subject to the M&A Rules. However, uncertainties still exist as to how the M&A Rules will be interpreted and implemented. +On February 17, 2023, the +China Securities Regulatory Commission (the “CSRC”) promulgated the Trial Administrative Measures of Overseas Securities +Offering and Listing by Domestic Companies (the “Trial Measures”), which took effect on March 31, 2023. The Trial Measures +supersede the prior rules and clarified and emphasized several aspects, which include but are not limited to: (1) comprehensive +determination of the “indirect overseas offering and listing by PRC domestic companies” in compliance with the principle +of “substance over form” and particularly, an issuer will be required to go through the filing procedures under the Trial +Measures if the following criteria are met at the same time: (a) 50% or more of the issuer’s operating revenue, total profit, +total assets or net assets as documented in its audited consolidated financial statements for the most recent accounting year comes from +PRC domestic companies, and (b) the main parts of the issuer’s business activities are conducted in mainland China, or its +main places of business are located in mainland China, or the senior managers in charge of its business operation and management are +mostly Chinese citizens or domiciled in mainland China; (2) exemptions from immediate filing requirements for issuers that (a) have +already been listed or registered but not yet listed in foreign securities markets, including U.S. markets, prior to the effective +date of the Trial Measures, (b) are not required to re-perform the regulatory procedures with the relevant overseas regulatory authority +or the overseas stock exchange, and (c) whose such overseas securities offering or listing shall be completed before September 30, +2023, provided however that such issuers shall carry out filing procedures as required if they conduct refinancing or are involved in +other circumstances that require filing with the CSRC; (3) a negative list of types of issuers banned from listing or offering overseas, +such as (a) issuers whose listing or offering overseas has been recognized by the State Council of the PRC as a possible threat +to national security, (b) issuers whose affiliates have been recently convicted of bribery and corruption, (c) issuers under +ongoing criminal investigations, and (d) issuers under major disputes regarding equity ownership; (4) issuers’ compliance +with web security, data security, and other national security laws and regulations; (5) issuers’ filing and reporting obligations, +such as the obligation to file with the CSRC after it submits an application for initial public offering to overseas regulators, and +the obligation after offering or listing overseas to report to the CSRC material events including a change of control or voluntary or +forced delisting of the issuer; and (6) the CSRC’s authority to fine both issuers and their shareholders between 1 and 10 million +RMB for failure to comply with the Trial Measures, including failure to comply with filing obligations or committing fraud and misrepresentation. +16 +Based +on our understanding of the current PRC laws and regulations, as we do not have any material operations in China, given that (a) the +CSRC, currently has not issued any definitive rule or interpretation concerning whether offerings like ours under the prospectus are +subject to the “M&A Rules and the Trial Measures; and (b) our company is a blank check company incorporated in the British +Virgin Islands rather than in China and currently our company does not own or control any equity interest in any PRC company or operate +any business in China although our principal executive offices are located in Hong Kong, we believe that our company, our officers +and/or directors are not required to obtain any licenses or approvals or subject to registration with the CSRC pursuant to the Trial +Measures and under applicable PRC laws and regulations, for consummation of this IPO and +while seeking a target for the initial business combination. We also believe that our officers and directors do not fall under or are +not governed by requirements from the CSRC, and we are not required to obtain approvals from any PRC government entity, including the +CSRC or the CAC, or any other government entity, to issue our securities to foreign investors and to list on a U.S. exchange or +to search for a target company. As of the date of this annual report, we have not received any inquiry, notice, warning, sanctions or +regulatory objection to the IPO from the CSRC or any other PRC governmental +authorities. However, applicable laws, regulations, or interpretations of the PRC may change or we could be mistaken about these rules +applicability, and the relevant PRC government agencies could reach a different conclusion and may subject us to a stringent approval +process from the relevant government entities in connection with the IPO , +continued listing on a U.S. exchange, the potential business combination, the issuance of shares or the maintenance of our status +as a publicly listed company outside China, and the post business combination entity’s PRC operations if our business combination +target is a PRC target company. If the CSRC or the CAC, or any other governmental or regulatory body subsequently determines that its +approval is needed for the IPO , a business combination, the issuance +of our ordinary shares upon exercise of the rights, or maintaining our status as a publicly listed company outside China, we may face +approval delays, adverse actions or sanctions by the CSRC, CAC and/or other PRC regulatory agencies. It is uncertain whether we will +be required to obtain permission from the PRC government to continue to list on a U.S. exchange in the future and offer our securities +to foreign investors. If approval is required in the future, including pursuant to the Trial Measures, and we are denied permission from +Chinese authorities to list on U.S. exchanges or offer our securities to foreign investors, we may not be able to continue listing +on a U.S. exchange or be subject to other severe consequences, which would materially affect our ability to complete a business +combination in which case we may have to liquidate which would be adverse to the interests of the investors. In addition, any changes +in PRC law, regulations, or interpretations may severely affect our operations after the IPO . +The use of the term “operate” and “operations” includes the process of searching for a target business and conducting +related activities. To that extent, we may not be able to conduct the process of searching for a potential target company in China. +Our Competitive Advantages +Status as a Publicly Listed Company +We believe our structure will +make us an attractive business combination partner to prospective target businesses. As a publicly listed company, we will offer a target +business an alternative to the traditional initial public offering. We believe that target businesses will favor this alternative, which +we believe is less expensive, while offering greater certainty of execution than the traditional initial public offering. During an initial +public offering, there are typically expenses incurred in marketing, which would be costlier than a business combination with us. Furthermore, +once a proposed business combination is approved by our shareholders (if applicable) and the transaction is consummated, the target business +will have effectively become public, whereas an initial public offering is always subject to the underwriters’ ability to complete +the offering, as well as general market conditions that could prevent the offering from occurring. Once public, we believe the target +business would have greater access to capital and additional means of creating management incentives that are better aligned with shareholders’ +interests than it would as a private company. A target business can offer further benefits by augmenting a company’s profile among +potential new customers and vendors and aid in attracting talented management staffs. +Strong Financial Position and Flexibility +With +a trust account initially in the amount of $57,500,000, we can offer a target business a variety of options to facilitate a business +combination and fund future expansion and growth of its business. This amount assumes no redemptions. Because we are able to consummate +a business combination using the cash proceeds from the IPO , our share +capital, debt or a combination of the foregoing, we have the flexibility to use an efficient structure allowing us to tailor the consideration +to be paid to the target business to address the needs of the parties. However, if a business combination requires us to use substantially +all of our cash to pay for the purchase price, we may need to arrange third party financing to help fund our business combination. Since +we have no specific business combination under consideration, we have not taken any steps to secure third party financing. Accordingly, +our flexibility in structuring a business combination may be subject to these constraints. +Effecting Our Initial Business Combination +General +We +are not presently engaged in, and we will not engage in, any operations for an indefinite period of time following the IPO . +We intend to effectuate our initial business combination using cash from the proceeds of the IPO and +the private placement of the private units, our shares, new debt, or a combination of these, as the consideration to be paid in our initial +business combination. We may seek to consummate our initial business combination with a company or business that may be financially unstable +or in its early stages of development or growth, which would subject us to the numerous risks inherent in such companies and businesses, +although we will not be permitted to effectuate our initial business combination with another blank check company or a similar company +with nominal operations. +17 +If our initial business combination +is paid for using shares or debt securities, or not all of the funds released from the trust account are used for payment of the purchase +price in connection with our business combination or used for redemptions of purchases of our ordinary shares, we may apply the cash +released to us from the trust account that is not applied to the purchase price for general corporate purposes, including for maintenance +or expansion of operations of acquired businesses, the payment of principal or interest due on indebtedness incurred in consummating +our initial business combination, to fund the purchase of other companies or for working capital. +We +have not identified any acquisition target and we have not, nor has anyone on our behalf, initiated any discussions, directly or indirectly, +to identify any acquisition target. From the date of our formation through the date of our prospectus, there have been no communications +or discussions between any of our officers, directors or the sponsor and any of their contacts or relationships regarding a potential +initial business combination with our company. Subject to the requirement that our initial business combination must be with one or more +target businesses or assets having an aggregate fair market value of at least 80% of the value of the trust account (less any deferred +underwriting discounts and taxes payable on interest earned) at the time of the agreement to enter into such initial business combination, +we have virtually unrestricted flexibility in identifying and selecting one or more prospective target businesses. Accordingly, there +is no current basis for investors in the IPO to evaluate the possible +merits or risks of the target business with which we may ultimately complete our initial business combination. Although our management +will assess the risks inherent in a particular target business with which we may combine, this assessment may not result in our identifying +all risks that a target business may encounter. Furthermore, some of those risks may be outside of our control, meaning that we can do +nothing to control or reduce the chances that those risks will adversely impact a target business. +We may seek to raise additional +funds through a private offering of debt or equity securities in connection with the consummation of our initial business combination, +and we may effectuate our initial business combination using the proceeds of such offering rather than using the amounts held in the +trust account. Subject to compliance with applicable securities laws, we would consummate such financing only simultaneously with the +consummation of our business combination. In the case of an initial business combination funded with assets other than the trust account +assets, our tender offer documents or proxy materials disclosing the business combination would disclose the terms of the financing and, +only if required by law or the rules of Nasdaq, we would seek shareholder approval of such financing. There are no prohibitions on our +ability to raise funds privately or through loans in connection with our initial business combination. At this time, we are not a party +to any arrangement or understanding with any third party with respect to raising any additional funds through the sale of securities +or otherwise. +Sources of Target Businesses +We +anticipate that target business candidates will be brought to our attention from various unaffiliated sources, including investment bankers, +venture capital funds, private equity funds, leveraged buyout funds, management buyout funds and other members of the financial community. +Target businesses may be brought to our attention by such unaffiliated sources as a result of being solicited by us through calls or +mailings that will not commence until after the completion of the IPO . +These sources may also introduce us to target businesses they think we may be interested in on an unsolicited basis, since many of these +sources will have read our prospectus and know what types of businesses we are targeting. +Our officers and directors, as +well as their respective affiliates, may also bring to our attention target business candidates that they become aware of through their +business contacts as a result of formal or informal inquiries or discussions they may have, as well as attending trade shows or conventions. +While we do not presently anticipate engaging the services of professional firms or other individuals that specialize in business acquisitions +on any formal basis, we may engage these firms or other individuals in the future, in which event we may pay a finder’s fee, consulting +fee or other compensation to be determined in an arm’s length negotiation based on the terms of the transaction. In no event, however, +will any of our existing officers, directors or initial shareholders, or any entity with which they are affiliated, be paid any finder’s +fee, consulting fee or other compensation prior to, or for any services they render in order to effectuate, the consummation of a business +combination (regardless of the type of transaction). Some of our officers and directors may enter into employment or consulting agreements +with the post-transaction company following our initial business combination. The presence or absence of any such fees or arrangements +will not be used as a criterion in our selection process of an initial business combination candidate. +18 +We are not prohibited from pursuing +an initial business combination with a company that is affiliated with our initial shareholders, officers or directors. In the event +we seek to complete our initial business combination with a target that is affiliated with our initial shareholders, officers or directors, +we, or a committee of independent directors, would obtain an opinion from an independent investment banking firm or another independent +entity that commonly renders valuation opinions that our initial business combination is fair to our company (or shareholders) from a +financial point of view. +Selection of a Target Business and Structuring +of a Business Combination +Subject +to the requirement that our initial business combination must be with one or more target businesses or assets having an aggregate fair +market value of at least 80% of the value of the trust account (less any deferred underwriting discounts and taxes payable on interest +earned) at the time of the agreement to enter into such initial business combination, our management will have virtually unrestricted +flexibility in identifying and selecting one or more prospective target businesses, although we will not be permitted to effectuate our +initial business combination with another blank check company or a similar company with nominal operations. In any case, we will only +consummate an initial business combination in which we become the majority shareholder of the target (or control the target through contractual +arrangements in limited circumstances for regulatory compliance purposes as discussed below) or are otherwise not required to register +as an investment company under the Investment Company Act. There is no basis for investors in the IPO to +evaluate the possible merits or risks of any target business with which we may ultimately complete our initial business combination. +To the extent we effect our initial business combination with a company or business that may be financially unstable or in its early +stages of development or growth, we may be affected by numerous risks inherent in such company or business. Although our management will +endeavor to evaluate the risks inherent in a particular target business, we may not properly ascertain or assess all significant risk +factors. +In evaluating a prospective target +business, we will conduct an extensive due diligence review which will encompass, among other things, meetings with incumbent management +and inspection of facilities, as well as review of financial and other information which is made available to us. This due diligence +review will be conducted either by our management or by unaffiliated third parties we may engage, although we have no current intention +to engage any such third parties. +The time and costs required to +select and evaluate a target business and to structure and complete the business combination cannot presently be ascertained with any +degree of certainty. Any costs incurred with respect to the identification and evaluation of a prospective target business with which +a business combination is not ultimately completed will result in a loss to us and reduce the amount of capital available to otherwise +complete a business combination. +Fair market value of target business or businesses +Nasdaq +rules provide that our initial business combination must be with one or more target businesses that together have a fair market value +equal to at least 80% of the balance in the trust account (less any deferred underwriting discounts and taxes payable on interest earned) +at the time of our signing a definitive agreement in connection with our initial business combination. If our board is not able to independently +determine the fair market value of the target business or businesses, we will obtain an opinion from an independent investment banking +firm or another independent firm that commonly renders valuation opinions with respect to the satisfaction of such criteria. If our securities +are not listed on Nasdaq after the IPO , we would not be required to satisfy +the 80% requirement. However, we intend to satisfy the 80% requirement even if our securities are not listed on Nasdaq at the time of +our initial business combination. +19 +We anticipate structuring our +initial business combination to acquire 100% of the equity interest or assets of the target business or businesses. We may, however, +structure our initial business combination to acquire less than 100% of such interests or assets of the target business, but we will +only consummate such business combination if we will become the majority shareholder of the target (or control the target through contractual +arrangements in limited circumstances for regulatory compliance purposes) or are otherwise not required to register as an “investment +company” under the Investment Company Act. Even though we will own a majority interest in the target, our shareholders prior to +the business combination may collectively own a minority interest in the post business combination company, depending on valuations ascribed +to the target and us in the business combination transaction. For example, we could pursue a transaction in which we issue a substantial +number of new shares in exchange for all of the outstanding capital stock, shares or other equity securities of a target. In this case, +we would acquire a 100% controlling interest in the target. However, as a result of the issuance of a substantial number of new shares, +our shareholders immediately prior to our initial business combination could own less than a majority of our issued and outstanding shares +subsequent to our initial business combination. +The fair market value of a target +business or businesses or assets will be determined by our board of directors based upon standards generally accepted by the financial +community, such as actual and potential gross margins, the values of comparable businesses, earnings and cash flow, book value and, where +appropriate, upon the advice of appraisers or other professional consultants. If our board of directors is not able to independently +determine that the target business or assets has a sufficient fair market value to meet the threshold criterion, we will obtain an opinion +from an unaffiliated, independent investment banking firm or an independent accounting firm with respect to the satisfaction of such +criterion. Notwithstanding the foregoing, unless we consummate a business combination with an affiliated entity, we are not required +to obtain an opinion from an independent investment banking firm or an independent accounting firm that the price we are paying is fair +to our shareholders. +Lack of business diversification +For an indefinite period of time +after consummation of our initial business combination, the prospects for our success may depend entirely on the future performance of +a single business. Unlike other entities that have the resources to complete business combinations with multiple entities in one or several +industries, it is probable that we will not have the resources to diversify our operations and mitigate the risks of being in a single +line of business. By consummating our initial business combination with only a single entity, our lack of diversification may: +● subject us to negative economic, competitive and regulatory +developments, any or all of which may have a substantial adverse impact on the particular industry in which we operate after our initial +business combination, and +● cause us to depend on the marketing and sale of a single +product or limited number of products or services. +Limited ability to evaluate the target’s +management team +Although we intend to closely +scrutinize the management of a prospective target business when evaluating the desirability of effecting our initial business combination +with that business, our assessment of the target business’ management may not prove to be correct. The future role of members of +our management team, if any, in the target business cannot presently be stated with any certainty. Consequently, members of our management +team may not become a part of the target’s management team, and the future management may not have the necessary skills, qualifications +or abilities to manage a public company. Further, it is also not certain whether one or more of our directors will remain associated +in some capacity with us following our initial business combination. Moreover, members of our management team may not have significant +experience or knowledge relating to the operations of the particular target business. Our key personnel may not remain in senior management +or advisory positions with the combined company. The determination as to whether any of our key personnel will remain with the combined +company will be made at the time of our initial business combination. +20 +Following our initial business +combination, we may seek to recruit additional managers to supplement the incumbent management of the target business. We may not have +the ability to recruit additional managers, or that additional managers will have the requisite skills, knowledge or experience necessary +to enhance the incumbent management. +Shareholders may not have the ability to approve +our initial business combination +In connection with any proposed +business combination, we will either (1) seek shareholder approval of our initial business combination at a general meeting called +for such purpose at which shareholders may seek to redeem their shares, regardless of whether they vote for or against the proposed business +combination or do not vote at all, into their pro rata share of the aggregate amount on deposit in the trust account (net of taxes payable), +or (2) provide our shareholders with the opportunity to sell their shares to us by means of a tender offer (and thereby avoid the +need for a shareholder vote) for an amount equal to their pro rata share of the aggregate amount on deposit in the trust account (net +of taxes payable), in each case calculated as of two business days prior to the consummation of the business combination and +subject to the limitations described herein. If we determine to engage in a tender offer, such tender offer will be structured so that +each shareholder may tender all of his, her or its shares rather than some pro rata portion of his, her or its shares. If enough shareholders +tender their shares so that we are unable to satisfy any applicable closing condition set forth in the definitive agreement related to +our initial business combination, or we are unable to maintain net tangible assets of at least $5,000,001 (after payment of deferred +underwriting discounts and net of taxes payable on the income earned on the trust account and funds previously released to the company +to pay our taxes or for use as working capital) upon consummation of a business combination, we will not consummate such initial business +combination. The decision as to whether we will seek shareholder approval of a proposed business combination or will allow shareholders +to sell their shares to us in a tender offer will be made by us, solely in our discretion, and will be based on a variety of factors +such as the timing of the transaction and whether the terms of the transaction would otherwise require us to seek shareholder approval. +Unlike other blank check companies which require shareholder votes and conduct proxy solicitations in conjunction with their initial +business combinations and related redemptions of public shares for cash upon consummation of such initial business combination even when +a vote is not required by law, we will have the flexibility to avoid such shareholder vote and allow our shareholders to sell their shares +pursuant to Rule 13e-4 and Regulation 14E of the Exchange Act which regulate issuer tender offers. In that case, we will +file tender offer documents with the SEC which will contain substantially the same financial and other information about the initial +business combination as is required under the SEC’s proxy rules. We will consummate our initial business combination only if we +have net tangible assets of at least $5,000,001 (after payment of deferred underwriting discounts and net of taxes payable on the income +earned on the trust account and funds previously released to the company to pay our taxes or for use as working capital) either immediately +prior to or upon such consummation, or otherwise we are exempt from the provisions of Rule 419 promulgated under the Securities +Act (so that we are not subject to the SEC’s “penny stock” rules) and, solely if we seek shareholder approval, a majority +of the issued and outstanding ordinary shares voted are voted in favor of the business combination. If we seek shareholder approval of +our initial business combination, we will consummate our initial business combination only if we obtain affirmative vote of a majority +of not less than two-thirds of the voting rights held by such shareholders as, being entitled to do so, vote at a general meeting of +the company. +We +chose our net tangible asset threshold of $5,000,001 to ensure that we would avoid being subject to Rule 419 promulgated under the +Securities Act. However, if we seek to consummate an initial business combination with a target business that imposes any type of working +capital closing condition or requires us to have a minimum amount of funds available from the trust account upon consummation of such +initial business combination, our net tangible asset threshold may limit our ability to consummate such initial business combination +(as we may be required to have a lesser number of shares converted or sold to us) and may force us to seek third party financing which +may not be available on terms acceptable to us or at all. As a result, we may not be able to consummate such initial business combination +and we may not be able to locate another suitable target within the applicable time period, if at all. Public shareholders may therefore +have to wait 15 months from the closing of the IPO (or up to 21 months +from the closing of the IPO if we extend the period of time to consummate +a business combination by the full amount of time, as described in more detail in our prospectus) in order to be able to receive a pro +rata share of the trust account. +21 +Our initial shareholders and our +officers and directors have agreed (1) to vote any ordinary shares owned by them in favor of any proposed business combination, +(2) not to redeem any ordinary shares in connection with a shareholder vote to approve a proposed initial business combination and +(3) not sell any ordinary shares in any tender in connection with a proposed initial business combination. +None +of our officers, directors, initial shareholders or their affiliates has indicated any intention to purchase units or ordinary shares +in the IPO or from persons in the open market or in private transactions. +However, if we hold a general meeting to approve a proposed business combination and a significant number of shareholders vote, or indicate +an intention to vote, against such proposed business combination or to redeem their shares, our officers, directors, initial shareholders +or their affiliates could make such purchases in the open market or in private transactions in order to increase the likelihood of satisfying +the necessary closing conditions to such transaction. Notwithstanding the foregoing, our officers, directors, initial shareholders and +their affiliates will not make purchases of ordinary shares if the purchases would violate Section 9(a)(2) or Rule 10b-5 +of the Exchange Act, which are rules designed to stop potential manipulation of a company’s stock, shares or other equity +securities. +Redemption Rights +Redemption rights for public shareholders upon +consummation of our initial business combination +We +will provide our public shareholders with the opportunity to redeem all or a portion their shares upon the consummation of our initial +business combination at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the trust account, including +interest (net of taxes payable), divided by the number of the then issued and outstanding public shares, subject to the limitations described +herein. The amount in the trust account is initially anticipated to be $10.00 per share, whether or not the underwriters’ over-allotment +option is exercised in full. The per-share amount we will distribute to investors who properly redeem their shares will not be reduced +by the deferred underwriting discounts we will pay to the underwriters. Our initial shareholders have agreed to waive their right to +receive liquidating distributions if we fail to consummate our initial business combination within the requisite time period. However, +if our initial shareholders or any of our officers, directors or affiliates acquires public shares in or after the IPO , +they will be entitled to receive liquidating distributions with respect to such public shares if we fail to consummate our initial business +combination within the required time period. +Manner of Conducting Redemptions +At any general meeting called +to approve an initial business combination, public shareholders may seek to redeem their shares, regardless of whether they vote for +or against the proposed business combination or do not vote at all, into their pro rata share of the aggregate amount then on deposit +in the trust account as of two business days prior to the consummation of the initial business combination, less any taxes +then due but not yet paid. Alternatively, we may provide our public shareholders with the opportunity to sell their ordinary shares to +us through a tender offer (and thereby avoid the need for a shareholder vote) for an amount equal to their pro rata share of the aggregate +amount then on deposit in the trust account, less any taxes then due but not yet paid. +22 +Notwithstanding +the foregoing, a public shareholder, together with any affiliate of his or any other person with whom he is acting in concert or as a +“group” (as defined in Section 13(d)(3) of the Exchange Act) will be restricted from seeking redemption rights +with respect to 20% or more of the shares sold in the IPO . Such a public +shareholder would still be entitled to vote against a proposed business combination with respect to all shares owned by him or his affiliates. +We believe this restriction will prevent shareholders from accumulating large blocks of shares before the vote held to approve a proposed +business combination and attempt to use the redemption right as a means to force us or our management to purchase their shares at a significant +premium to the then current market price. By limiting a shareholder’s ability to redeem no more than 20% of the shares sold in +the IPO , we believe we have limited the ability of a small group of shareholders +to unreasonably attempt to block a transaction which is favored by our other public shareholders. +Our +initial shareholders, officers and directors will not have redemption rights with respect to any ordinary shares owned by them, directly +or indirectly, whether acquired prior to the IPO or purchased by them +in the IPO or in the aftermarket. +We may require public shareholders, +whether they are a record holder or hold their shares in “street name,” to either (i) tender their certificates (if +any) to our transfer agent or (ii) deliver their shares to the transfer agent electronically using Depository Trust Company’s +DWAC (Deposit/Withdrawal At Custodian) System, at the holder’s option, in each case prior to a date set forth in the proxy materials +sent in connection with the proposal to approve the business combination. +There is a nominal cost associated +with the above-referenced delivery process and the act of certificating the shares or delivering them through the DWAC System. The transfer +agent will typically charge the tendering broker a nominal amount and it would be up to the broker whether or not to pass this cost on +to the holder. However, this fee would be incurred regardless of whether or not we require holders seeking to exercise redemption rights +to deliver their shares prior to a specified date. The need to deliver shares is a requirement of exercising redemption rights regardless +of the timing of when such delivery must be effectuated. However, in the event we require shareholders seeking to exercise redemption +rights to deliver their shares prior to the consummation of the proposed business combination and the proposed business combination is +not consummated this may result in an increased cost to shareholders. +Any proxy solicitation materials +we furnish to shareholders in connection with a vote for any proposed business combination will indicate whether we are requiring shareholders +to satisfy such certification and delivery requirements. Accordingly, a shareholder would have from the time the shareholder received +our proxy statement up until the vote on the proposal to approve the business combination to deliver his shares if he wishes to seek +to exercise his redemption rights. This time period varies depending on the specific facts of each transaction. However, as the delivery +process can be accomplished by the shareholder, whether or not he is a record holder or his shares are held in “street name,” +in a matter of hours by simply contacting the transfer agent or his broker and requesting delivery of his shares through the DWAC +System, we believe this time period is sufficient for an average investor. However, we cannot assure you of this fact. Please see the +risk factor titled “In connection with any general meeting called to approve a proposed initial business combination, we may require +shareholders who wish to redeem their shares in connection with a proposed business combination to comply with specific requirements +for redemption that may make it more difficult for them to exercise their redemption rights prior to the deadline for exercising their +rights” for further information on the risks of failing to comply with these requirements. +Any request to redeem such shares +once made, may be withdrawn at any time up to the vote on the proposed business combination or the expiration of the tender offer. Furthermore, +if a holder of public shares delivered his certificate in connection with an election of their redemption and subsequently decides prior +to the applicable date not to elect to exercise such rights, he may simply request that the transfer agent return the certificate (physically +or electronically). +23 +If the initial business combination +is not approved or completed for any reason, then our public shareholders who elected to exercise their redemption rights would not be +entitled to redeem their shares for the applicable pro rata share of the trust account as of two business days prior to the +consummation of the initial business combination. In such case, we will promptly return any shares delivered by public holders. +Permitted purchases of our securities by our affiliates +If +we seek shareholder approval of our initial business combination and we do not conduct redemptions in connection with our initial business +combination pursuant to the tender offer rules, our sponsor, initial shareholders, directors, executive officers, advisors or their affiliates +may purchase shares in privately negotiated transactions or in the open market either prior to or following the completion of our initial +business combination. There is no limit on the number of shares our initial shareholders, directors, officers, advisors or their affiliates +may purchase in such transactions, subject to compliance with applicable law and Nasdaq rules. However, they have no current commitments, +plans or intentions to engage in such transactions and have not formulated any terms or conditions for any such transactions. None of +the funds in the trust account will be used to purchase shares in such transactions. If they engage in such transactions, they will be +restricted from making any such purchases when they are in possession of any material non-public information not disclosed to the seller +or if such purchases are prohibited by Regulation M under the Exchange Act. In the event that we submit our initial business +combination to our public shareholders for a vote, our initial shareholders have agreed to vote their founder shares, and they and the +other members of our management team have agreed to vote any founder shares they hold and any shares purchased during the IPO +in favor of our initial business combination. Any shares purchased from public +shareholders by the initial shareholders or their affiliates would not be voted in favor of approving a business combination transaction. +In the event that our sponsor, +initial shareholders, directors, officers, advisors or their affiliates purchase shares in privately negotiated transactions from public +shareholders who have already elected to exercise their redemption rights, such selling shareholders would be required to revoke their +prior elections to redeem their shares. We do not currently anticipate that such purchases, if any, would constitute a tender offer subject +to the tender offer rules under the Exchange Act or a going-private transaction subject to the going-private rules under the Exchange Act; +however, if the purchasers determine at the time of any such purchases that the purchases are subject to such rules, the purchasers will +comply with such rules. +The purpose of any such purchases +of shares could be to satisfy a closing condition in an agreement with a target that requires us to have a minimum net worth or a certain +amount of cash at the closing of our initial business combination, where it appears that such requirement would otherwise not be met, +or to reduce the number of shares being submitted for redemption. Any such purchases of our securities may result in the completion of +our initial business combination that may not otherwise have been possible. If such arrangements or agreements are entered into, we would +file a Current Report on Form 8-K before our security holder meeting to disclose any arrangements entered into or significant purchases +made by any of the aforementioned persons. Any such report will include (i) the amount of shares purchased and the purchase price; +(ii) the purpose of such purchases; (iii) the impact of such purchases on the likelihood that the initial business combination +transaction will be approved; (iv) the identities or characteristics of security holders who sold shares if not purchased in the +open market or the nature of the sellers; and (v) the number of shares for which we has received redemption requests. +24 +In addition, if such purchases +are made, the public “float” of our ordinary shares may be reduced and the number of beneficial holders of our securities +may be reduced, which may make it difficult to maintain or obtain the quotation, listing or trading of our securities on a national securities +exchange. +Our sponsor, initial shareholders, +officers, directors and/or their affiliates anticipate that they may identify the shareholders with whom our initial shareholders, officers, +directors or their affiliates may pursue privately negotiated purchases by either the shareholders contacting us directly or by our receipt +of redemption requests submitted by shareholders (in the case of ordinary shares) following our mailing of proxy materials in connection +with our initial business combination. To the extent that our sponsor, officers, directors, advisors or their affiliates enter into a +private purchase, they would identify and contact only potential selling shareholders who have expressed their election to redeem their +shares for a pro rata share of the trust account or vote against our initial business combination, whether or not such shareholder has +already submitted a proxy with respect to our initial business combination but only if such shares have not already been voted at the +general meeting related to our initial business combination. Our sponsor, executive officers, directors, advisors or any of their affiliates +will select which shareholders to purchase shares from based on a negotiated price and number of shares and any other factors that they +may deem relevant, and will only purchase shares if such purchases comply with Regulation M under the Exchange Act and the +other federal securities laws. Our sponsor, officers, directors and/or their affiliates will be restricted from making purchases of shares +if the purchases would violate Section 9(a)(2) or Rule 10b-5 of the Exchange Act. We expect any such purchases will +be reported pursuant to Section 13 and Section 16 of the Exchange Act to the extent such purchases are subject to such +reporting requirements. +Additionally, in the event our +sponsor, directors, executive officers, advisors or their affiliates were to purchase shares from public shareholders, such purchases +would be structured in compliance with the requirements of Rule 14e-5 under the Exchange Act including, in pertinent part, +through adherence to the following: +● our registration statement/proxy statement filed for our +business combination transaction would disclose the possibility that our sponsor, directors, executive officers, advisors or any of their +affiliates may purchase shares or rights from public shareholders outside the redemption process, along with the purpose of such purchases; +● if our sponsor, directors, executive officers, advisors or +any of their affiliates were to purchase shares from public shareholders, they would do so at a price no higher than the price offered +through our redemption process; +● our registration statement/proxy statement filed for our +business combination transaction would include a representation that any of our securities purchased by our sponsor, directors, executive +officers, advisors or any of their affiliates would not be voted in favor of approving the business combination transaction; +● our sponsor, directors, executive officers, advisors or any +of their affiliates would not possess any redemption rights with respect to our securities or, if they do acquire and possess redemption +rights, they would waive such rights; and +● we would disclose in a Current Report on Form 8-K, before +our security holder meeting to approve the business combination transaction, the following material items: +● the amount of our securities purchased outside of the redemption +offer by our sponsor, directors, executive officers, advisors or any of their affiliates, along with the purchase price; +● the purpose of the purchases by our sponsor, directors, executive +officers, advisors or any of their affiliates; +● the impact, if any, of the purchases by our sponsor, directors, +executive officers, advisors or any of their affiliates on the likelihood that the business combination transaction will be approved; +25 +● the identities of our security holders who sold to our sponsor, +directors, executive officers, advisors or any of their affiliates (if not purchased on the open market) or the nature of our security +holders (e.g., 5% security holders) who sold to our sponsor, directors, executive officers, advisors or any of their affiliates; and +● the number of our securities for which we have received redemption +requests pursuant to our redemption offer. +In addition, if such purchases +are made, the public “float” of our ordinary shares may be reduced and the number of beneficial holders of our securities +may be reduced, which may make it difficult to maintain or obtain the quotation, listing or trading of our securities on a national securities +exchange. +Our sponsor, officers, directors +and/or their affiliates anticipate that they may identify the shareholders with whom our sponsor, officers, directors or their affiliates +may pursue privately negotiated purchases by either the shareholders contacting us directly or by our receipt of redemption requests +submitted by shareholders following our mailing of proxy materials in connection with our initial business combination. To the extent +that our sponsor, officers, directors, advisors or their affiliates enter into a private purchase, they would identify and contact only +potential selling shareholders who have expressed their election to redeem their shares for a pro rata share of the trust account or +vote against our initial business combination, whether or not such shareholder has already submitted a proxy with respect to our initial +business combination. Our sponsor, officers, directors, advisors or their affiliates will only purchase shares if such purchases comply +with Regulation M under the Exchange Act and the other federal securities laws. +Redemption of public shares and liquidation if +no initial business combination +We will have 15 months from +the closing of the IPO to consummate an initial business combination. However, if we anticipate that we may not be able to consummate +our initial business combination within 15 months, we may extend the period of time to consummate a business combination up to two times, +each by an additional three months (for a total of up to 21 months to complete a business combination). Pursuant to the terms of our +amended and restated memorandum and articles of association and the trust agreement entered into between us and Equiniti Trust Company, +LLC, in order to extend the time available for us to consummate our initial business combination, the sponsor or its affiliates or designees, +upon five days advance notice prior to the applicable deadline, must deposit into the trust account $500,000 or up to $575,000 if the +underwriters’ over-allotment option is exercised in full ($0.10 per share in either case) on or prior to the date of the applicable +deadline, for each three months extension (or up to an aggregate of $1,000,000 (or $1,150,000 if the underwriters’ over-allotment +option is exercised in full), or approximately $0.20 per share if we extend for the full six months). Any such payments would be made +in the form of a loan. Any such loans will be non-interest bearing and payable upon the consummation of our initial business combination. +If we complete our initial business combination, we would repay such loaned amounts out of the proceeds of the trust account released +to us. If we do not complete a business combination, we will not repay such loans. Furthermore, the letter agreement with our initial +shareholders contains a provision pursuant to which the sponsor has agreed to waive its right to be repaid for such loans out of the +funds held in the trust account in the event that we do not complete a business combination. The sponsor and its affiliates or designees +are not obligated to fund the trust account to extend the time for us to complete our initial business combination. You will not be able +to vote on or redeem your shares in connection with any such extension. +26 +However, we may hold a shareholder +vote at any time to amend our amended and restated memorandum and articles of association, to modify the amount of time we will have +to consummate an initial business combination (as well as to modify the substance or timing of our obligation to redeem 100% of our public +shares if we have not consummated an initial business combination or with respect to any other material provisions relating to shareholders’ +rights or pre-initial business combination activity). Our sponsor, officers, and directors have agreed, pursuant to a written agreement +with us, that they will not propose, or vote in favor of, an amendment to our amended and restated memorandum and articles of association +that would stop our public shareholders from converting or selling their shares to us in connection with a business combination or that +would affect the substance or timing of our redemption obligation to redeem all public shares if we cannot complete an initial business +combination within 15 months of the closing of the IPO (or up to 21 months from the closing of the IPO if we extend the period of time +to consummate a business combination by the full amount of time, as described in more detail in our prospectus), unless we provide public +shareholders an opportunity to redeem their public shares upon approval of any such amendment at a per share price, payable in cash, +equal to the aggregate amount then on deposit in the trust account, including interest earned on the funds held in the trust account +(net of permitted withdrawals), divided by the number of then-outstanding public shares, subject to the limitations described herein. +If we are unable to consummate +our initial business combination within the completion window, we will, as promptly as reasonably possible but not more than ten business +days thereafter, distribute the aggregate amount then on deposit in the trust account (net of taxes payable, and less up to $50,000 of +interest to pay liquidation expenses), pro rata to our public shareholders by way of redemption and cease all operations except for the +purposes of winding up of our affairs. This redemption of public shareholders from the trust account shall be effected as required by +function of our amended and restated memorandum and articles of association and prior to any voluntary winding up, although at all times +subject to the Companies Law. +Our initial shareholders have +agreed to waive their redemption rights with respect to their founder shares if we fail to consummate our initial business combination +within the applicable period from the closing of the IPO. However, if our initial shareholders, or any of our officers, directors or +affiliates acquire public shares in or after the IPO, they will be entitled to redemption rights with respect to such public shares if +we fail to consummate our initial business combination within the required time period. There will be no redemption rights or liquidating +distributions with respect to our rights, which will expire worthless in the event we do not consummate our initial business combination +within the allotted time period. +If we were to expend all of +the net proceeds of the IPO, other than the proceeds deposited in the trust account, and without taking into account interest, if any, +earned on the trust account, the per-share redemption amount received by shareholders upon our dissolution would be approximately $10.00 +(whether or not the underwriters’ over-allotment option is exercised in full). The proceeds deposited in the trust account could, +however, become subject to the claims of our creditors, which would have higher priority than the claims of our public shareholders. +The actual per-share redemption amount received by shareholders may be less than $10.00, plus interest (net of any taxes payable, and +less up to $50,000 of interest to pay liquidation expenses). +Although we will seek to have +all vendors, service providers, prospective target businesses or other entities with which we do business execute agreements with us +waiving any right, title, interest or claim of any kind in or to any monies held in the trust account for the benefit of our public shareholders, +there is no guarantee that they will execute such agreements or even if they execute such agreements that they would be prevented from +bringing claims against the trust account including but not limited to fraudulent inducement, breach of fiduciary responsibility or other +similar claims, as well as claims challenging the enforceability of the waiver, in each case in order to gain an advantage with respect +to a claim against our assets, including the funds held in the trust account. If any third party refuses to execute an agreement waiving +such claims to the monies held in the trust account, our management will perform an analysis of the alternatives available to it and +will only enter into an agreement with a third party that has not executed a waiver if management believes that such third party’s +engagement would be significantly more beneficial to us than any alternative. Making such a request of potential target businesses may +make our acquisition proposal less attractive to them and, to the extent prospective target businesses refuse to execute such a waiver, +may limit the field of potential target businesses that we might pursue. Our independent registered public accounting firm will not execute +agreements with us waiving such claims to the monies held in the trust account, nor will the underwriters of the IPO. +27 +If any third party refuses to +execute an agreement waiving such claims to the monies held in the trust account, our management will perform an analysis of the alternatives +available to it and will only enter into an agreement with a third party that has not executed a waiver if management believes that such +third party’s engagement would be significantly more beneficial to us than any alternative. Examples of possible instances where +we may engage a third party that refuses to execute a waiver include the engagement of a third party consultant whose particular expertise +or skills are believed by management to be significantly superior to those of other consultants that would agree to execute a waiver +or in cases where management is unable to find a service provider willing to execute a waiver. In addition, there is no guarantee that +such entities will agree to waive any claims they may have in the future as a result of, or arising out of, any negotiations, contracts +or agreements with us and will not seek recourse against the trust account for any reason. In order to protect the amounts held in the +trust account, the sponsor has agreed that it will be liable to us, if and to the extent any claims by a vendor for services rendered +or products sold to us, or a prospective target business with which we have discussed entering into a transaction agreement, reduce the +amounts in the trust account to below $10.00 per share (whether or not the underwriters’ over-allotment option is exercised in +full), except as to any claims by a third party who executed a waiver of any and all rights to seek access to the trust account and except +as to any claims under our indemnity of the underwriters of the IPO against certain liabilities, including liabilities under the Securities +Act. In the event that an executed waiver is deemed to be unenforceable against a third party, the sponsor will not be responsible to +the extent of any liability for such third party claims. However, the sponsor may not be able to satisfy those obligations. Other than +as described above, none of our officers or directors will indemnify us for claims by third parties including, without limitation, claims +by vendors and prospective target businesses. We have not independently verified whether the sponsor has sufficient funds to satisfy +its indemnity obligations. We therefore believe it is unlikely the sponsor would be able to satisfy its indemnity obligations if it was +required to do so. However, we believe the likelihood of the sponsor having to indemnify the trust account is limited because we will +endeavor to have all vendors and prospective target businesses as well as other entities execute agreements with us waiving any right, +title, interest or claim of any kind in or to monies held in the trust account. +In the event that the proceeds +in the trust account are reduced below $10.00 per share (whether or not the underwriters’ over-allotment option is exercised in +full) and the sponsor asserts that it is unable to satisfy any applicable obligations or that it has no indemnification obligations related +to a particular claim, our independent directors would determine whether to take legal action to enforce such indemnification obligations. +While we currently expect that our independent directors would take legal action on our behalf to enforce such indemnification obligations +to us, it is possible that our independent directors in exercising their business judgment may choose not to do so in any particular +instance. Accordingly, due to claims of creditors, the actual value of the per-share redemption price may be less than $10.00 per share +(whether or not the underwriters’ over-allotment option is exercised in full). +If we file a bankruptcy or winding-up +petition or an involuntary bankruptcy or winding-up petition is filed against us that is not dismissed, the proceeds held in the trust +account could be subject to applicable bankruptcy or insolvency law, and may be included in our bankruptcy or insolvency estate and subject +to the claims of third parties with priority over the claims of our shareholders. To the extent any bankruptcy or insolvency claims deplete +the trust account, we cannot assure you we will be able to return $10.00 per share to our public shareholders. Additionally, if we file +a bankruptcy or winding-up petition or an involuntary bankruptcy or winding-up petition is filed against us that is not dismissed, any +distributions received by shareholders could be viewed under applicable debtor/creditor and/or bankruptcy or insolvency laws as either +a “preferential transfer”, a “fraudulent conveyance”, a “fraud in anticipation of winding up”, a +“transaction in fraud of creditors” or a “misconduct in the course of winding up”. As a result, a bankruptcy +or insolvency court could seek to recover some or all amounts received by our shareholders. Furthermore, our board of directors may be +viewed as having breached its fiduciary duty to our creditors and/or may have acted in bad faith, and thereby exposing itself and our +company to claims of punitive damages, by paying public shareholders from the trust account prior to addressing the claims of creditors. +We cannot assure you that claims will not be brought against us for these reasons. +28 +Our public shareholders will +be entitled to receive funds from the trust account only (i) in the event of a redemption of the public shares prior to any winding up +in the event we do not consummate our initial business combination within the allotted time period, (ii) if they redeem their shares +in connection with an initial business combination that we consummate or (iii) if they redeem their shares in connection with a shareholder +vote to amend our amended and restated memorandum and articles of association (A) to modify the substance or timing of our obligation +to allow redemption rights or to redeem 100% of our public shares if we do not complete our initial business combination within the allotted +time period or (B) with respect to any other provision relating to shareholders’ rights or pre-business combination activity. In +no other circumstances shall a shareholder have any right or interest of any kind to or in the trust account. In the event we seek shareholder +approval in connection with our initial business combination, a shareholder’s voting in connection with the business combination +alone will not result in a shareholder’s redeeming its shares to us for an applicable pro rata share of the trust account. Such +shareholder must have also exercised its redemption rights described above. +Competition +In identifying, evaluating and +selecting a target business for our initial business combination, we may encounter intense competition from other entities having a business +objective similar to ours, including other blank check companies, private equity groups, venture capital funds leveraged buyout funds, +and operating businesses seeking strategic acquisitions. Many of these entities are well established and have significant experience +identifying and effecting business combinations directly or through affiliates. Moreover, many of these competitors possess greater financial, +technical, human and other resources than us. Our ability to acquire larger target businesses will be limited by our available financial +resources. This inherent limitation gives others an advantage in pursuing the acquisition of a target business. Furthermore, the requirement +that we acquire a target business or businesses having a fair market value equal to at least 80% of the value of the trust account (less +any deferred underwriting discounts and taxes payable on interest earned) at the time of the agreement to enter into the business combination, +our obligation to pay cash in connection with our public shareholders who exercise their redemption rights and the future dilution they +potentially represent, may not be viewed favorably by certain target businesses. Any of these factors may place us at a competitive disadvantage +in successfully negotiating our initial business combination. +Emerging Growth Company Status and Other Information +We are an “emerging growth +company,” as defined in Section 2(a) of the Securities Act of 1933, as amended, or the Securities Act, as modified +by the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As such, we are eligible to take advantage of certain +exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” +including, but not limited to, not being required to comply with the auditor internal controls attestation requirements of Section 404 +of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive +compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory +vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. If some investors find +our securities less attractive as a result, there may be a less active trading market for our securities and the prices of our securities +may be more volatile. +29 +In addition, Section 107 +of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided +in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging +growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. +We intend to take advantage of the benefits of this extended transition period. +We will remain an “emerging +growth company” for up to five years. However, if our non-convertible debt issued within a three year period or revenues +exceeds $1.235 billion, or the market value of our shares that are held by non-affiliates exceeds $700 million on the +last day of the second fiscal quarter of any given fiscal year, we would cease to be an emerging growth company as of the following +fiscal year. +Employees +We currently have two executive +officers. These individuals are not obligated to devote any specific number of hours to our matters but they intend to devote as +much of their time as they deem necessary to our affairs until we have completed our initial business combination. The amount of time +they will devote in any time period will vary based on whether a target business has been selected for our initial business combination +and the stage of the business combination process we are in. We do not intend to have any full time employees prior to the consummation +of our initial business combination. +Facilities +We currently maintain our executive +offices at Unit B 17/F, Success Commercial Building, 245-25, Hennessy Road, Wanchai, Hong Kong. We consider our current office space +adequate for our current operations. \ No newline at end of file diff --git a/raw/filings/0001918414/2025/0001213900-26-032632/item13.txt b/raw/filings/0001918414/2025/0001213900-26-032632/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..42502a23b302c354306d39ab458c96632f272cac --- /dev/null +++ b/raw/filings/0001918414/2025/0001213900-26-032632/item13.txt @@ -0,0 +1,3 @@ +ITEM 13. +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE +52 \ No newline at end of file diff --git a/raw/filings/0001919182/2024/0001171520-25-000088/filing.txt b/raw/filings/0001919182/2024/0001171520-25-000088/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..b32ac97c262f4803097c1605e4d7f4ce1d3f2829 --- /dev/null +++ b/raw/filings/0001919182/2024/0001171520-25-000088/filing.txt @@ -0,0 +1,2426 @@ +false +FY +2024 +0001919182 +0001919182 +2024-01-01 +2024-12-31 +0001919182 +2024-09-30 +0001919182 +2024-12-31 +0001919182 +2023-01-01 +2023-12-31 +0001919182 +2024-10-01 +2024-12-31 +0001919182 +2023-12-31 +0001919182 +us-gaap:SeriesAPreferredStockMember +2024-12-31 +0001919182 +us-gaap:SeriesAPreferredStockMember +2023-12-31 +0001919182 +us-gaap:PreferredStockMember +2022-12-31 +0001919182 +us-gaap:CommonStockMember +2022-12-31 +0001919182 +us-gaap:AdditionalPaidInCapitalMember +2022-12-31 +0001919182 +us-gaap:RetainedEarningsMember +2022-12-31 +0001919182 +us-gaap:AccumulatedOtherComprehensiveIncomeMember +2022-12-31 +0001919182 +us-gaap:NoncontrollingInterestMember +2022-12-31 +0001919182 +2022-12-31 +0001919182 +us-gaap:PreferredStockMember +2023-12-31 +0001919182 +us-gaap:CommonStockMember +2023-12-31 +0001919182 +us-gaap:AdditionalPaidInCapitalMember +2023-12-31 +0001919182 +us-gaap:RetainedEarningsMember +2023-12-31 +0001919182 +us-gaap:AccumulatedOtherComprehensiveIncomeMember +2023-12-31 +0001919182 +us-gaap:NoncontrollingInterestMember +2023-12-31 +0001919182 +us-gaap:PreferredStockMember +2023-01-01 +2023-12-31 +0001919182 +us-gaap:CommonStockMember +2023-01-01 +2023-12-31 +0001919182 +us-gaap:AdditionalPaidInCapitalMember +2023-01-01 +2023-12-31 +0001919182 +us-gaap:RetainedEarningsMember +2023-01-01 +2023-12-31 +0001919182 +us-gaap:AccumulatedOtherComprehensiveIncomeMember +2023-01-01 +2023-12-31 +0001919182 +us-gaap:NoncontrollingInterestMember +2023-01-01 +2023-12-31 +0001919182 +us-gaap:PreferredStockMember +2024-01-01 +2024-12-31 +0001919182 +us-gaap:CommonStockMember +2024-01-01 +2024-12-31 +0001919182 +us-gaap:AdditionalPaidInCapitalMember +2024-01-01 +2024-12-31 +0001919182 +us-gaap:RetainedEarningsMember +2024-01-01 +2024-12-31 +0001919182 +us-gaap:AccumulatedOtherComprehensiveIncomeMember +2024-01-01 +2024-12-31 +0001919182 +us-gaap:NoncontrollingInterestMember +2024-01-01 +2024-12-31 +0001919182 +us-gaap:PreferredStockMember +2024-12-31 +0001919182 +us-gaap:CommonStockMember +2024-12-31 +0001919182 +us-gaap:AdditionalPaidInCapitalMember +2024-12-31 +0001919182 +us-gaap:RetainedEarningsMember +2024-12-31 +0001919182 +us-gaap:AccumulatedOtherComprehensiveIncomeMember +2024-12-31 +0001919182 +us-gaap:NoncontrollingInterestMember +2024-12-31 +0001919182 +srt:OfficerMember +2024-01-01 +2024-12-31 +0001919182 +srt:DirectorMember +2024-01-01 +2024-12-31 +0001919182 +2025-01-01 +2025-01-11 +0001919182 +2025-01-11 +0001919182 +ebfi:OfficerAndDirectorMember +2025-02-01 +2025-02-19 +0001919182 +ebfi:OfficerAndDirectorMember +2025-02-19 +iso4217:USD +xbrli:shares +iso4217:USD +xbrli:shares +xbrli:pure +U.S. SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +FORM 10-K +(Mark One) +☑ ANNUAL REPORT PURSUANT TO SECTION +13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the fiscal year ending December 31 , 2024 +☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the transition period from______to______ +Commission +File Number 000-56658 Ec +ECO BRIGHT FUTURE INC. +(Exact name of registrant as specified in its charter) +Wyoming +87-2595314 +(State or other jurisdiction of +(I.R.S. Employer +incorporation or organization) +Identification No.) +Registrant’s Principal Office +World Trade Center El Salvador +Calle El Mirador , 87 Ave Norte +San Salvador El Salvador 00000 +Registrant’s telephone number, including area code: +( 727 - 692-3348 ) +Securities to be registered under Section 12(b) of the Act: +None +Securities to be registered under Section 12(g) of the Exchange +Act: +Title of each class +Trading Symbol +Name of each exchange on which registered +Common +EBFI +OTC Pink Sheets +Indicate by check mark if the registrant is a well-known seasoned +issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☑ +Indicate by check mark if the registrant is not required to +file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☑ +Indicate by check mark whether the registrant (1) has filed +all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for +such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the +past 90 days. Yes ☑ No ☐ +Indicate by check mark whether the registrant has submitted +electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) +during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ +No ☐ +Indicate by check mark whether the registrant is a large +accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the +definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging +growth company” in Rule 12b-2 of the Exchange Act. +Large accelerated filer ☐ +Accelerated filer ☐ +Non-accelerated filer ☑ +Smaller reporting company ☑ +Growth Company ☑ +If an emerging growth company, indicate by check mark if the +registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards +provided pursuant to Section 13(a) of the Exchange Act. ☐ +Indicate by check mark whether the registrant has filed a +report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under +Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit +report. ☐ +If securities are registered pursuant to Section 12(b) of +the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an +error to previously issued financial statements. ☐ +Indicate by check mark whether any of those error corrections +are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive +officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ +Indicate by check mark whether the registrant is a shell company +(as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ +The aggregate market value of the voting stock held by non-affiliates +of the registrant, based upon the closing sale price of the registrant’s common stock of $2.67 per share on September 30, 2024, +the last business day of the registrants most recent completed third quarter, and 25,890,000 shares held by non-affiliates was $ 69,126,300 . +As of December 31, 2024, the Registrant had 100,690,000 issued +and outstanding shares of Common Stock. +TABLE OF CONTENTS +Page +PART I +Item 1. +Business +1 +Item 1A. +Risk Factors +10 +Item 1B. +Unresolved Staff Comments +16 +Item 1C. +Cybersecurity +16 +Item 2. +Properties +16 +Item 3. +Legal Proceedings +16 +Item 4. +Mine Safety Disclosures +16 +PART II +Item 5. +Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +17 +Item 6. +Reserved +17 +Item 7. +Management’s Discussion and Analysis of Financial Condition and Results of Operations +17 +Item 7A. +Quantitative and Qualitative Disclosures about Market Risk +20 +Item 8. +Financial Statements and Supplementary Data +20 +Item 9. +Changes In and Disagreements With Accountants On Accounting and Financial Disclosure +20 +Item 9A. +Controls and Procedures +20 +Item 9B. +Other Information +21 +Item 9C. +Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +21 +PART III +Item 10. +Directors, Executive Officers, and Corporate Governance +22 +Item 11. +Executive Compensation +23 +Item 12. +Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +23 +Item 13. +Certain Relationships and Related Transactions and Director Independence +24 +Item 14. +Principal Accounting Fees and Services +24 +PART IV +Item 15. +Exhibits and Financial Statement Schedules +25 +Item 16. +Form 10-K Summary +25 +Signatures +26 +Part +1 +Item 1. Business. +Forward-Looking and Cautionary Statements +There are statements in this registration statement that are +not historical facts. These “forward-looking statements” can be identified by the use of terminology such as “believe,” +“hope,” “may,” “anticipate,” “should,” “intend,” “plan,” “will,” +“expect,” “estimate,” “project,” “positioned,” “strategy” and similar expressions. +You should be aware that these forward-looking statements are subject to risks and uncertainties beyond our control. To discuss these +risks, you should read this entire registration statement carefully, especially the risks discussed under the “Risk Factors” +section. Although management believes that the assumptions underlying the forward-looking statements included in this registration statement +are reasonable, they do not guarantee our future performance, and actual results could differ from those contemplated by these forward-looking +statements. The assumptions used for purposes of the forward-looking statements specified in the following information represent estimates +of future events and are subject to uncertainty as to possible changes in economic, legislative, industry, and other circumstances. As +a result, the identification and interpretation of data and additional information and their use in developing and selecting assumptions +from and among reasonable alternatives require the exercise of judgment. To the extent that the assumed events do not occur, the outcome +may vary substantially from anticipated or projected results. Accordingly, no opinion is expressed on the achievability of those forward-looking +statements. In light of these risks and uncertainties, there can be no assurance that the results and events contemplated by the forward-looking +statements contained in this registration statement will transpire. You are cautioned not to place undue reliance on these forward-looking +statements, which speak only as of their dates. We do not undertake any obligation to update or revise any forward-looking statements. +Website Access to SEC Reports +Our website at www.ecobrightfuture.com provides information +about our company as well as copies of our reports filed with the SEC including annual and quarterly financial reports. To view the filings +visit the website above and click on “filings” to view SEC filings. The SEC also maintains a website at www.sec.gov that contains +reports, proxy and information statements, and other information regarding public companies, including Eco Bright. Any reports filed with +the SEC may also be obtained from the SEC’s Reference Room at 100F Street, NE, Washington, DC 20549. +ORGANIZATIONAL HISTORY +We were incorporated in the State of Wyoming in August 2021. +We filed a Regulation A Offering in April of 2022. In December of 2023 we completed a reverse recapitalization with United Heritage, an +El Salvador Corporation “United Heritage”), and its wholly owned subsidiary, Universa Hub Africa (“UHA”, or “Universa +Hub Africa”), a Tunisian Corporation. Our current jurisdictions that we consolidate financials in and own any tangible or intangible +assets are Tunisia, El Salvador, and the United States. A 1-U was filed in regards to this change of business on December 28, 2023. El +Salvador is currently a holding company and there are no bank operations or bank accounts in El Salvador. +The reverse recapitalization was completed in December 2023 +and the consolidated financial statements are based on UHA’s historical financial statements and Eco Bright’s historical financial +statements, as adjusted, to give effect to UHA’s reverse recapitalization of the Company. +About Universa Hub Africa: +Universa Hub Africa is currently operating a blockchain application +in Tunisia and has consulted with the Tunisian Government. This blockchain assists the government in interfacing with a top telecom operator +in Tunisia (TOPNET). The blockchain is permissioned by Universa Hub Africa to the Tunisian Government. We assisted in the technical implementation +of the blockchain and they now operate the blockchain. We are involved currently as consultants to assist the government in their specific +needs and small changes they need with the blockchain. They operate and monitor the blockchain from a government level and are currently +in full control of the blockchain they are using. Universa Blockchain which is owned by Universa Hub Africa is a public blockchain that +operates and is available to the public. This blockchain is the same blockchain that will be used for our plans throughout the world to +implement the tokenization of real world assets and will also be the blockchain that supports our open source options for other developers. +Our blockchain operates at more than 30,000 transactions per second and is very secure. Universa Hub Africa has worked with the Tunisian +Government and they run a private version of our public blockchain on their servers. The Tunisian Government is also looking at other +implementations of the universa blockchain throughout the country as they experience the efficiency and organization universa blockchain +provides. There is no guarantee the Tunisian Government will implement other blockchain activities. Our agreement with them was a one +time agreement and we are available as consultants to help them maintain or service the blockchain they operate. They are not under an +exclusive agreement to only use our services to consult. We do not have ongoing agreements with Tunisia other than our contracting services. +We believe they will continue to use our consulting services to maintain the blockchain and we also will discuss future projects with +the Tunisian Government. We do not currently have any material agreements with them. +1 +Currently, the Internet Agency of Tunisia (ATI) has partnered +with and signed a 10 year partnership with Universa Hub Africa – see details here - https://cointelegraph.com/news/tunisia-internet-agency-signs-strategic-partnership-with-blockchain-platform. +The Internet Agency of Tunisia (ATI) had already entered into +a 10-year renewable strategic partnership to provide hosting services for the platform and ensure its further development. +On July 7, 2020, the launch of Tunisia's global national blockchain +network was publicly approved and signed during the presentation of the results of the partnership between ATI (Tunisia's leading Internet +services and technology solutions company) and Universa Hub Africa, held by representatives of the leadership of the participating parties. +In the process of formally approving the launch, during a +live video stream (available at https://lnd.im/2020TunisianNationalBlockchainLaunch), the officials (Moez Maaref, CEO and President of +ATI, Omar Bouattay, Head of Universa Hub Africa, and Alexander Borodich, Universa CEO), signed Public Private Partnership (PPP) documents +using one of the newly launched blockchain services, the certified digital signature service MyDocuments.tn, deployed in Tunisia and available +to ordinary Tunisian citizens wishing to officially sign their documents. Future planned developments are oriented towards Smart Cities, +e-government and citizen-oriented services. +During the speech, Alexander Borodich, CEO of Universa, said: +“Any +developers, startups, entrepreneurs will be able to create any services based on blockchain: digital passports, smart contracts for loans, +insurance, supply chain management, providing quality guarantees.” +The +National Tunisian Blockchain Network is based on the latest technological developments of Universa Blockchain and is open in Tunisia +for both end-users and future integrations with an ever-increasing range of public services and business processes. The next key points +of the project are planned to be the launch of a national Domain Name System (“DNS”) service on top of blockchain, a decentralized +identity system, blockchain web services and several other services in Tunisia. The Tunisian government is currently operating the DNS +and we have not recognized any revenues from the project as they operate the service independently. We do have the ability to consult +with them and earn revenues in the future as disclosed in the disclosure document. +The ten-year agreement with ATI was executed in 2018 and is +renewable at its end or can be cancelled at any time by either party. Universa Hub Africa fulfilled the delivery of the platform and software +in 2021. ATI has agreed to provide hosting services for the platform in exchange for use of the platform. Potential revenues from this +agreement will be realized as contractor work on a case by case basis as requested by ATI. +About United Heritage: +United Heritage was established to obtain licensing in El +Salvador as a Digital Asset Service Provider to allow tokenization of certain assets and commodities. The operations of this company at +the moment are minimal and the company is waiting for the applications to be approved by the Salvadorian Government. +Present Operations +Eco Bright Future, Inc. was founded in 2021 and is headquartered +in El Salvador. Eco Bright Future, Inc., together with its subsidiaries (the “Company”), intends to engage in the financial +technology and blockchain business worldwide. The blockchain is a proprietary blockchain developed by Universa Hub Africa. The proprietary +blockchain allows the company to be independent of third party blockchain to complete transactions and operate. The proprietary blockchain +also allows the company to build additional value added services that do not require the permission and appropriate integrations into +a third party blockchain. The company builds tools to help people in accessing the economy via mobile and digital services. We are also +planning to be involved in digital asset tokenisation, as well as digital wallet activities. The company does not engage in crypto asset +trading and we do not own crypto assets in our own account. During 2018 to 2021, the company built a digital sugar exchange that was tested +and used in Dubai (“UAE”) using a digital exchange service we believe can be used for other digital assets and commodities. +The Company is currently building an open source platform and developer infrastructure which we believe will enable anyone to access and +participate in the global economy and Real-World Assets (“RWA”) tokenisation. +2 +We have applied for a Digital Asset Service Provider license +and have had an interview over video conference with the CNAD. The National Commission of Digital Assets (“CNAD”) in El Salvador +is a regulatory authority dedicated to overseeing and promoting the development of the digital assets ecosystem. We are still in the process +of providing the required information with CNAD such as an external audit of our platform, certain security manuals and operational procedure +manuals. We also have recently retained a local security officer as a requirement from CNAD. This individual is required to be a resident +of El Salvador and will be the local contact for CNAD. We also believe that our El Salvador license will allow us to operate within Guatemala +and have also applied for licensing in the country of Thailand. We expect to have a digital license agreement with a current bank in Thailand +during the fourth quarter of 2025 and are currently negotiating with two separate banks and we have signed non-disclosure agreements. +We have no material agreements with El Salvador at this time +as we are waiting for our licensing to be approved. There are no current contracts in place other than El Salvador. This contract is for +a Digital Asset Service Provider (“DASP”) which will allow the company to legally issue digital assets as tokens and transfer +assets on our proprietary blockchain. These assets are able to be transferred across a variety of wallets due to our open-source code. +We have a robust (KYC “ Know Your Customer”) and AML (“Anti Money Laundering”) process that will track and monitor +suspicious activities, and we are working closely with the Governing body in El Salvador to complete this licensing and progress with +our business plan. We have had talks with the other jurisdictions and have been given the licensing requirements and applications. The +applications have not been submitted at this time. These are the current jurisdictions we are operating or intending to operate in the +very near future. Licensing is required in most jurisdictions we will enter from the individual country. We believe our current plans +to license in Thailand will open up an opportunity in Indonesia under a cooperative license agreement between the two countries. We also +believe that our license in El Salvador will open opportunities in Guatemala, allowing us to enter these jurisdictions using the licenses +from other countries. Licensing requirements could change based on geopolitical policies or other policies outside of our control. Growth +into other jurisdictions will be selected based on the highest probability of approval of the licenses. The blockchain and back-end programming +(back-end programming is the implementation of our platform with the central banks and other organizations we will work with. This back-end +programming will involve the integration from other services into our application interface. These programming needs vary from customer +to customer and depends greatly on what type of API integration they have built within their framework. Many of the clients we are targeting +are central banks, and they typically have quite robust API systems that allow us to integrate quickly, inexpensively and effectively.) +including the ability to transfer Real World Assets within our ecosystem, is complete and ready to use within our blockchain. There will +be certain programming needs in most of the jurisdictions we enter to integrate with local regulations and rules. This includes any integration +with central banks or local banks that will be involved in our transfers or currency conversions from a gold backed currency to local +currencies. Integrations are expected to take anywhere from 1 month to 6 months to complete, with more complex integrations taking longer +to integrate certain tracking systems that will be monitoring the tokenization process and ensuring that all tokens are backed by actual +assets and commodities. +The cost to obtain these licenses is less than $10,000 in +licensing fees. There can be capital requirements with some central banks that require an escrowed amount of cash up to $500,000 and this +would be money we would likely use from funds raised or we will have to use revenues to pay for it if we are unable to raise the funds +publicly. If we are unable to fund these terms for escrow we would need to wait to enter the jurisdictions that require that escrow. El +Salvador and UAE do not require an escrow account with the licensing we have applied for. El Salvador licensing is reciprocal in some +jurisdictions in central and South America. We will continue to monitor which countries allow a reciprocal licensing agreement. +The current countries we intend to work with will offer the +same product and tokenization but could vary with implementation due to regulatory or licensing requirements. Our ability to individually +adapt to the local needs of our clients and customers is one of our greatest competitive strengths. This is also one of the ways which +we could potentially reach the need to register as an investment company in the future. Currently our Tokenization process and current +plans for exchanging digital assets do not currently meet the Howey Test as the current assets and commodities that are tokenized are +not expected to give returns based on the reliance of other peoples efforts. +The company currently does not meet the requirements to need +to register as an investment company. We will continue to monitor the situation as it changes and maintain compliance with SEC governing +rules even when we are dealing with foreign jurisdictions. We have consulted with our attorney, and we will continue to monitor current +regulations and changes in regulations and reporting requirements. We are also working with many attorneys in jurisdictions outside the +United States. Our ability to adapt to the changing regulatory environments is critical to the success of our business plan. As we continue +forward, we will consult on a regular basis with our inside counsel, and we will also engage outside counsel to review our strategies +to provide their opinion on our compliance with current regulations and guidelines. Our business plan is specific to providing a software +solution to businesses and governments that will allow them to provide these services to their population and their clients. We do not +custody the tokens. The custody will be with the government or business providing the token or will be held by the end user. End user +is the holder of the token or asset and is the customer of the government or business tokenizing the asset (“end user”) The +end user will hold the token in their wallet or stored locally on their personal device. In case of loss of device there is a record that +the end user can access by verifying their identity. This is done with our KYC AML partner Sub Sum and they have an extremely robust service +that has been implemented across several networks successfully and securely. +3 +We will be operating under regulations in El Salvador, Tunisia, +UAE and Thailand mainly with our initial plans. These countries have been passing and modifying laws quickly regarding blockchain and +cryptocurrency technologies and currencies. As we work with these countries and their licensing agencies, we intend to partner with them +to help pioneer future policies and procedures. We intend to work directly with the licensing agencies and government agencies to ensure +that we meet the specific criteria that they always implement. As a US company we will also have disclosure documents that will need to +be provided under US law even if we are not operating or accepting clients in the USA. Our revenue projections before we obtain the licenses +is minimal. We will have some consulting revenue, but our main source of revenue will be when our licensing allows us to provide the services +for digital assets. If we are unable to obtain licenses in the countries, we are targeting we will be required to re-evaluate our business +plan for viability. +It is currently planned not to accept clients, businesses, +end users or customers from certain jurisdictions. Individuals or businesses in these jurisdictions will not pass our KYC/AML process. +These jurisdictions include the United States of America and European Union countries. The KYC process will not allow individuals with +passports from these jurisdictions use our services. Additionally, if a certain territory or jurisdiction is prohibited from using our +service, we will be able to adjust our KYC protocols accordingly to prohibit unauthorized access. Our KYC and AML policies will stop end +users’s “clients” and “large corporations” that want to use our open source, wallets or blockchain from +setting up accounts. Our KYC and AML policies are provided by SumSub which monitor and protect our platform. This KYC and AML service +verifies users, businesses and transactions while simultaneously managing cases and deterring fraud. The system includes email and phone +risk assessments and device intelligence. We go through a very thorough ID Verification, Liveness face match, address verification, live +agent video call, QES/eIDAS, NFC, Known face search, blocklist check and duplicate check. Our AML screening screens for PEP and sanctions +amongst other important factors such as ongoing fraud monitoring and suspicious transaction reporting. +Our Tokenization process and current plans for exchanging +digital assets do not currently meet the Howey Test as the current items planned to be tokenized are commodities and are not expected +to give returns based on the reliance of other people’s efforts. There could be a need to register an offering with the SEC when +certain real estate transactions are tokenized or other digital assets that meet the “Howey Test”. We will review each tokenization +process and register the appropriate offerings with the SEC. +Our Tokenization process is currently allowing us to take +a commodity (such as gold) and tokenize it using the Universa Blockchain. This process allows the gold to be held in a secure location +with proper tracking using serial number issuances and converting those serial numbers to tokens. Owning the tokens gives rights and ownership +to the gold that is registered under that serial number. This process is being facilitated with a bank that will hold and store the gold +in a secure location that is covered by bank insurance. +Universa is an open-source blockchain platform for cryptographically +secured accounting and control of the creation and modification of smart contracts - structured documents, so-called Ricardian Contracts. +Consensus. +Universa uses PoA (Proof-of-Authority) consensus - the block/data +is considered correct, if the correctness/acceptability of the block has been confirmed by nodes within a mutually authenticated network +topology. +Universa does not use the PoW (Proof-of-Work), PoS/DPoS (Proof-of-Stake, +Distributed Proof-of-Stake) and similar ones. Universa does not require any “mining”, wasting computing resources simply to +draw lots for the right to register blocks. In addition, data is registered in blocks in a non-routine fashion (periodic, every n seconds) +generation of blocks, but immediately at the moment of receipt, without forced delays until the next block. This made it possible to reach +a speed of 30,000 transactions per second. +Distributed Ledger Structure (DLT). +Each block/revision of a smart contract may contain one or +more descendant/new revision, e.g., in the case of split-join (split) resolution in a smart contract (example: A smart contract of some +token with a value of 1000 is split into three smart contracts, with amounts of 200, 300 and 500). +Also, each block/revision of a smart contract may contain +one or more parent/previous revision, e.g., in the case of split-join (join) resolution in a smart contract (example: three compatible +smart contracts of the same token, of 200, 300, and 500 are converted into a smart contract of this token of 1000). Thus, the revision +history of each particular smart contract represents a DAG (Directed Acyclic Graph); and the entire set of data recorded in the Universa +distributed registry is a set of DAGs. +Blocks content. +“Blocks” of a Universa distributed ledger (DLT) +are serialized revisions of the of smart contracts (structured documents), be it the very first (origin) revision of the document or subsequent +revisions. Each subsequent revision of the contract contains the cryptographic hash of the parent revision (forming a classic blockchain-like +structure). +4 +The Universa distributed registry's tasks do not include: +● Storing/accounting for simple value transfer transactions from address to address (similar to accounting +for cryptocurrencies/tokens, Bitcoin, ETH in Ethereum); +● Storage/accounting of the created program code of distributed applications (dApp), as well as intermediate +results of its launch (similar to Ethereum dApps). +However: +● Value transfer accounting can be simulated as one of the special cases of the use of smart contracts of +a general kind or if infrastructure is implemented to run distributed applications/dApps/UBots +The Universa network stores the fact/status of data fidelity +of a particular block (revision of a smart contract), determined by the HashID value of the contents of that block. Moreover, only the +fidelity status (APPROVED) of the contract is stored long term; the status of the contract's (e.g. REVOKED) of the contract is stored +only as long as necessary, to ensure that a similar contract in APPROVED status cannot be duplicated. +APPROVED. +Decentralization. +Nodes in the Universa network provide BFT-safe (Byzantine +Fault Tolerance) communication between the nodes and ensure decentralized consensus even in the case of malicious participants. The Universa +network does not contain centralized components that affect the logging of data registration in the network (such as the Kafka-based ordering +service in Hyperledger Fabric) +Data consistency. +The Universa registry registers (if the data is correct) the +required new revisions of the blocks immediately (after the obvious technical network delays associated with the verification and registration +of contracts), thus ensuring immediate consistency. +In the case of Universa, it is impossible to occur so-called +“orphan” blocks (Bitcoin) or uncles (Ethereum) - in which a block (and the data in it) that was once considered to be “correct” +is rolled back and deemed unregistered again when another block (and the data in it) when another, longer chain of validated blocks appears +in the blockchain. Unlike architectures like Bitcoin/Ethereum, the number of “validated” blocks does not matter (conventionally, +we can consider the number of validated blocks to be irrelevant and the number of confirmations required is - 0 or 1). Universa, by providing +immediate consistency, gives a more guaranteed timeframe of data fixation than in the case (with Bitcoin/Ethereum architectures) of eventual +consistency. +Our plan with the creation of digital wallets: we do not intend +to provide safe-guard crypto-assets services to our clients. Instead, we create infrastructure solutions for large corporate and government +customers in which end-users can use our digital infrastructure to securely transfer their rights to digital assets from one wallet to +another. We do not act as an agent and do not have access to clients' or customers' digital assets. +Tests with the digital sugar exchange in Dubai in 2018 to +2021 using the underlying technology platform provided a secure and transparent central registry of ownership for sugar commodities stored +in Dubai, where titles of stored commodities could be transferred or pledged within a robust legal and Sharia compliant framework. The +sugar exchange also facilitated physical inventories stored in warehouses around the UAE to be converted into electronic negotiable instruments +administered by the customer. +DMCC Tradeflow allows physical inventories that are stored +in DMCC certified and rated warehouses around the UAE to be converted into electronic negotiable instruments, ‘DMCC Tradeflow Warrants’, +governed by a strong and transparent regulatory regime and administered by DMCC. +Universa entered into a partnership agreement with Al Khaleej +Sugar and DMCC to launch the digital sugar exchange. Universa Digital Sugar Trading DMCC, has been registered at the Dubai Multi Commodities +Centre ("DMCC") under License No. DMCC-759128 with address at Unit No: 20-10-02, Jewellery, Gemplex 2, Dubai, United Arab Emirates +Dubai, UAE Al Khaleej Sugar and Universa DMCC signed the agreement to launch a digital sugar trading platform and entered into several +agreements to implement this project. In order to tokenize Al Khaleej Sugar DMCC's warrants, Universa Digital Sugar Trading DMCC integrated +the digital sugar platform with DMCC Tradeflow. Al Khaleej Sugar allocated 100,000 tons in its warehouse as a single warrant issued and +registered by DMCC Tradeflow. The term "paper warrant" was used to explain that the Tradeflow warrants were initially created +to mirror the physical warrants, and we added the digital layer of tokenization functionality that allows fractions of the warrant to +be traded without the need to reissue new warrants after each sale. Then the Digital Sugar Exchange platform was launched by Universa +DMCC, which allows traders to buy and sell these tokens after proper KYC/AML checks and onboarding procedures. +This agreement was done to test the viability of the project. +Currently the sugar exchange is not operating, and Eco Bright does not own and has not owned Universa Digital Sugar Trading DMCC in the +past. This is included in the disclosure as a sample for what will be done with the Digital Gold Exchange. +5 +Full explanation from the article describing the technology: +The DMCC operates an electronic +central registry of ownership of commodities called the Trade Flow (‘Tradeflow’). The platform has been developed with extensive +interaction from the DMCC members alongside advice from key regional financiers and commodity owners. The access to the Tradeflow is under +the DMCC Tradeflow Corporate Access Agreement dated 11th February 2013 (the ‘Corporate Access Agreement’). This registry uses +negotiable electronic title documents called DMCC Tradeflow warrants (‘Warrants’) to provide interested parties with the undisputed +proof of ownership and security interests attached to UAE based inventories. The Warrants are issued by storage operators (in the DMCC) +in accordance with the DMCC Warrant Rules annexed to Corporate Access Agreement (the “Warrant Rules”) and provide evidence +of specified goods (quantity and quality) being stored therein. Ownership of DMCC Tradeflow Warrants can be electronically transferred +between members using the web-based, secure interface. +The use of collateral management +in trade finance is increasingly seen as a tool that gives financiers a way to reduce and mitigate risk and offers much needed capital +relief. The DMCC has developed a pledge structure which allows commodity owners and their financiers to register pledges on the DMCC Tradeflow +being collateral in return for working capital financing. The advantage of a pledge for financiers is that it creates a security interest +over the assets, allowing them to be used to secure the performance of an obligation, i.e. a trade finance loan. The pledge is created +electronically in accordance with the DMCC Security Rules annexed to Corporate Access Agreement (the ‘Security Rules’). The +process involves registration of parties as participants with DMCC which is done by way of acceptance of the DMCC Tradeflow Corporate +Access Agreement (and all the Rules appended thereto including the Security Rules and Warrant Rules). Each participant (pledgor, storage +operator and the finance party) would sign a document called ‘Letter of Adherence’. +Security is created electronically +by way of electronic issuance of a standard format Security Notification (as defined in the Corporate Access Agreement) and Security Acceptance +(as defined in the Security Rules). In order to enter into subsequent transactions over the DMCC Tradeflow evidencing a pledge over future +Warrants (issued by the storage operator as and when additional goods are deposited), the pledgor (as the legal owner) is required to +issue a new Security Notification to the DMCC on the DMCC Tradeflow in relation to the new Warrant(s) instructing the DMCC to hold the +new Warrant(s) by way of pledge for the pledgee. Upon receipt of the Security Notification on the DMCC Tradeflow, the DMCC would hold +the said Warrant for the benefit of the pledgee. The pledgee upon the receipt of the Security Notification is required to issue and transmit +the Security Acceptance on the DMCC Tradeflow within seven (7) days of receipt thereof. The creation of security by way of pledge over +the Warrant(s) is subject to cancellation by the DMCC without notice if, within seven (7) days after the date of the Security Notification, +a Security Acceptance has not been received from the pledgee. +The Security Rules also provide +for a close out mechanism which permits enforcement of the pledge by way of sale of the Warrants by the DMCC (and the goods it represents) +without recourse to the pledgor or a court order on receipt of a Close Out Settlement Instruction (as defined in the Security Rules) as +prescribed in Rule 3 of the Security Rules. However, the recognition of the close out mechanism under UAE law requires detailed examination +as the concept of “self-help” is not recognised under UAE law and an order of a UAE court may be required for enforcement +of any security created under any of the security documents. Further, any default by the pledgor may not automatically give the pledgee +any right to attach the Warrants (or the goods). It may, however, instruct the DMCC on the DMCC Tradeflow by way of a Security Enforcement +Instruction (as defined in the Security Rules) to hold the goods in favour of the pledgee and not to release the same until the successful +conclusion of the proceeding or any judgment or appealable order issued by a UAE Court in relation to the pledgor’s default. +The storage operator warrants +or guarantees to hold the stored commodity by way of safe custody implying that although they are legally liable for any value lost through +theft or damage, they have no legal ownership in them except for the storage operator lien as highlighted below. As such, in case of liquidation, +the storage operator’s creditors will be unable to seek recourse to the commodities stored since the legal title remains with the +holder of the Warrants – as registered on the DMCC Tradeflow central registry. It is also important to note Rule 3.3 of the Security +Rules which provides the following order of priority in relation to any monies realized pursuant to the enforcement of security: +· First, in or towards satisfaction of any Storage Operator’s lien which is duly annotated on the +relevant Warrant at the time of sale; and +· Second, in or towards satisfaction of all costs, charges and expenses incurred, or payments made, by and +evidenced in writing by DMCCA in connection with such sale of the Warrant (or the Goods represented by the Warrant) (including the agency +fee referred to in Clause 3.5); and +· Third, in or towards satisfaction of all costs, charges and expenses incurred, or payments made, by and +evidenced in writing by the Tradeflow Finance Party in connection with such sale of the Warrant (or the Goods represented by the Warrant); +and +· Fourth, in or towards satisfaction of the Secured Obligations to which the relevant Warrant relates; and +6 +· Fifth, as to the surplus (if any), to the person or persons entitled thereto.’ +Therefore apart from +the cost of the DMCC for the sale of the Warrant (or the Goods represented by the Warrant), the realisation under the pledge documents +will also be subject to any limitation arising from the storage operator’s lien over the goods and such lien shall rank ahead of +the pledgee’s claim and shall include all lawful storage charges, money claims, insurance, transportation, labour, weighing, coopering +and any advertisement charges for auction of the goods in the event of a default. Accordingly, the storage operator may have priority +in the insolvency of the pledgor for unpaid rentals and other charges for the storage of goods in their vault. +Each paper warrant issued +by DMCC Tradeflow has a unique identifier that is converted to a token on the universa blockchain using the Tokenization process. This +allows the Paper warrant to be traded in Digital format for ease of transfer and ease of tracking custody and ownership rights to the +paper warrant. The unique Identifier is encrypted and embedded in the token on the blockchain and it allows a secure, safe and easy way +to trade the commodity. Our ongoing support for the exchange once the license is secured will be on a contract basis for software updates +and development and we are paid an exchange fee for transfers that are completed upon the blockchain in small percentages of the overall +trade volume. Each token equals 1 Kilo of sugar. +Digital rights holders register on the platform for +exchange transactions. Tangible assets are transferred to the platform as a result of an irrevocable, exclusive license to the platform +to sell assets to buyers around the world. +To become a holder of a digital asset, it can either be purchased +on the exchange platform or the tangible asset can be tokenised and then the tokenised asset can be entered on the exchange platform. +A simple asset rights exchange transaction: +The holder of a digital right to sugar would like to acquire +a digital right to gold. +In this case, the two holders of the tangible asset interact +via a smart contract to exchange digitised assets on the Universa Blockchain platform. The exchange platform has already validated the +rights to the tangible asset at the time of the seller's registration and the validation of the rights by the exchange stage is complete +and is guaranteed by the exchange platform with the limitations that due diligence of the ownership documents has been performed. +The tangible asset is available at the time of exchange, allocated +(weighed, packed and placed in a warehouse at the specified address), and the rights to the asset are validated: +a) in the Universa MainNet global distributed +registry +b) in the registry of the country of storage of +sugar, gold, etc. by a title entry (*title - hereinafter legally recognised ownership right). +At the moment when the exchange platform executes the smart +contract - the transfer of the title of ownership of the two parties to each other is initiated accordingly at the rate set at the time +of the transaction. +The exchange platform carries out the technical implementation +of the rules for exchanging rights to digital assets via blockchain and charges the buyer for each exchange fee in the form of a commission, +the rights to which are shared between the co-owners of this platform: UHA, sugar, gold and other holders of tangible assets. +It should be noted that in blockchain, the digital rights +to sugar or gold are transferred at the time of execution of the smart contract of transfer of rights on the platform. In English law, +an executed smart contract is binding and enforceable. For convenience, changes to the paper registry will be carried out infrequently, +for example, when the redeemed sugar or gold rights on the blockchain reach a threshold or when a digital right of claim is realised by +acceptance of the asset at the point of allocation. +The certificate of title of the asset (bill of lading) is +temporarily held by the custodian of sugar or gold at the time of exchange. +The custodian, a custodian, is vested with the rights of temporary +custodian of the tangible property until the goods are shipped to a third party designated by the owner. +The custodian acts for the owner of the asset to store, deliver +and ship to a third party, the buyer, under the terms of a digital smart contract. This is consistent with the text of the trust agreement. +The custodian charges a periodic fee for its services. The ownership rights in the registry of the country of possession do not change. +The fulfilment of the trust storage contract is achieved because +of the shipment of the entire allocated physical asset - gold or sugar - to the buyers. Bids for the asset are withdrawn from the exchange +floor until the allocation of a new portion of the asset for shipment to buyers at the storage location. +7 +The buyer, who has received the claim rights in the form of +a token on the exchange platform, inherits with the token the contract for storage of sugar and gold in the specified warehouse at the +place of allocation of the asset. +The right to hold title for the first owner until release +to the gold or sugar can be incorporated as a condition of the storage contract. In a storage contract, the condition has a set form known +in English law as Romalpa Clause to hold title until the buyer fulfils the terms of the contract, in this case the exit from a digital +asset into a tangible asset. By this provision, the smart contract and the custody agreement are harmonized. +The licensing for this project is not finalized. There was +a beta testing project where the exchange was operated and tested for reliability and ease of use. This test was done in cooperation with +Al Khaleej Sugar. The test was successful, and 100,000 tons of sugar was traded on the platform during the test and we are awaiting the +proper licensing in conjunction with Al Khaleej Sugar and the DMCC to proceed with the rollout of the project as a business model. Upon +rolling out the project Universa will be paid a transaction fee for each transaction posted on the network. This percentage will be negotiated +based on volume and will not exceed 5%. +The process of gold tokenization will be the same as it was +done by Universa DMCC for sugar tokenization. +The process will be as follows: +- Gold owner allocates the amount of gold to be +tokenized. +- Gold bars are reserved by DMCC TradeFlow system, +the warrant is issued +- Title of the warrant is transferred to the individual +or organization purchasing the tokenized asset via DMCC TradeFlow system. Universa Gold trading has yet to be registered as a legal entity. +We will register this entity as part of the licensing process. +- The digital tokens represent 1g of raw, stored +in the warehouse, guaranteed by this warrant. +- User buys tokens with fiat currency (AED, Dirham), +via Partner’s Bank +- Ownership of tokens (gold grams) will be transferred +to the buyer and registered on the gold blockchain network. +- User can sell tokens for fiat currency (AED, +dirham) and get money to their bank account or can order physical gold delivery through the digital gold trading platform (from 1kg) +- When the user requests delivery of gold bars, +the tokens are burned, the gold bars are delivered to the user and the Warrant is reissued using DMCC Tradeflow to eliminate the risk +of discrepancy between the amount of gold in storage and the amount of digital gold in circulation. +- Commission is paid in gold milligrams to the +gold owner, DMCC and our NewCo Gold Trading DMCC respectively +Our blockchain network doesn’t store the private keys, +it will be stored at the laptops, computers and mobile phones of our clients. Network is stored the full history of transactions, including +hash of both receiver and sender, which would allow us to find all information needed for KYT (know your transaction) procedures. +Any amount of gold tokens might be sold via online digital +platform, but only standard bars may be delivered in physical form. All milligrams might be easily converted back to national fiat currency +under current exchange rate. +Our material terms of our agreement are not finalized with +DMCC or Bank of Abu Dhabi. We expect the material terms to be as follows: +Individuals will be able to purchase gold as described above +in token form. This gold will be held by DMCC and Bank of Abu Dhabi. The owner of the gold at that time is the owner of the token. +The seller of the physical gold will be Emirates Gold. +Tokens can be redeemed for the gold and be sent electronically +or can be claimed in person at the bank. +Verification of the gold ownership will be tied to the token. +Tokens will accompany a serial number of a corresponding gold bar. This record his held as described above including a hash of both receiver +and sender meaning all transactions are recognized through our network and ownership chain will show a complete chain of “title” +or record of ownership of the corresponding gold. +An owner of a token has ownership rights to the gold. If a +person or entity holds this token it will have a completely verifiable background showing they are the rightful owner of the token. This +would allow them to claim the gold. If they lose their login there will be terms to verify their identity through our KYC process using +SubSum. The process to verify identity will be disclosed to users as they sign up for the platform. They must be able to prove identity +with a government issued valid form of identification and they must have the keys given to them when they opened their account. +8 +We also intend to implement an AI platform that will allow +users to interact with an AI engine to receive concierge services. They will be able to book hotels, make reservations at restaurants +and other services directly from their wallet. This service will be added later and will likely be in 3 rd or 4 th +quarter of 2025. The AI engine is prepared and can be implemented. The cost of implementing will mainly be advertising and getting companies +to integrate their reservation systems with our blockchain. We intend to fund this project from revenues which is why it is estimated +that it will be late in 2025 for implementation. If we are unable to fund this project from revenues, we would most likely delay implementation +for another year. Some of the difficulties in implementing this project will include the AI integration, Cost of acquiring customers and +integration into their reservation software and ongoing maintenance costs of supporting the ongoing AI integration. +The full implementation of our AI platform is not yet fully +planned in detail. We have a substantial amount of the code written for this and the expenses are not expected to be significant to finish +the product. We do anticipate significant expenses in the implementation and the marketing of the product. This will not start this year +and will be in the year 2025. We would fund the project off of perceived revenues from our success in our current business plan. If we +do not have the revenue from our current business plan, we would delay the roll out of the AI platform. We plan to generate revenue from +the AI engine through reservation fees through the concierge service. The plans to generate these revenues has also not fully been developed. +The rollout of the AI platform could be delayed for multiple reasons including but not limited to the revenues necessary to fund the platform, +the ability to market the platform and the ability to generate the necessary business plan to implement the platform. +Supplemental Information +Regarding the sugar exchange +The mentioned sugar exchange was operated as a test to prove +the concept of tokenization and how the trade would work. The digital sugar exchange operated from 2018 until 2021. It has not transacted +any business and does not currently hold any tokenized sugar. This entity was not consolidated as it was not operating and has not operated +in many years. +The “warrants” issued for the sugar were issued +by Al Khaleej Sugar. These warrants provided 1 kilo of sugar for the owner of the digital asset. This asset was never custodied by the +company. It went from Al Khaleej Sugar to the purchaser of the token through our software system. We are a software provider that facilitates +the transfer of these digital assets. +The company (EBFI) does not custody the actual asset and it +will not be held on the books of the company. The transaction fees associated with transferring the tokenized asset or commodity along +with some currency conversion fees is what the company will recognize as revenue. +The sugar exchange is not currently and will not likely be +a part of our ongoing business plan. This was structured to prove concept. It has been proven and will now be used for the gold tokenization +process. +The below points explain in summary how Project E-Sugar +has been carried out: +1. Al Khaleej Sugar LLC and Al Khaleej Sugar DMCC is registered +with Dubai Multi Commodities Centre (DMCC) as a Trade Flow Storage Operator and Trade Flow Owner respectively on the DMCC Trade Flow Platform, +being the storage keeper and owner of designated raw sugar quantities (“Raw Sugar”). +2. Universa Digital Sugar Trading DMCC (“Universa DMCC”) +developed and launched a digital platform (via website and mobile app) to trade in Raw Sugar using the blockchain technology (the “Platform”). +3. The Parties hereby agreed that the working structure for +Project E-Sugar will be as follows: +(1) AKS LLC in its capacity as Storage Operator under DMCC +Trade Flow Platform will issue (100.000) Sugar Warrants (“Sugar Warrants”) for the volume of 1 metric ton of raw sugar each +and sell them to AKS DMCC on the DMCC Trade Flow platform with full title. +(2) The platform provided by Universa DMCC allows Sugar Electronic +Warrants (SEW) to be traded digitally. +3. Sugar Warrants: Pursuant to the DMCC Trade Flow Agreement +AKS LLC will issue Sugar Warrants to AKS DMCC +4. The Sugar Warrants will be transferred via the blockchain +provided by Universa DMCC. SEW holders purchase their tokens using Fiat Currency through partner banks. +5. Insurance Agreement: AKS LLC and the designated Insurance +Company chosen by it will enter into an Insurance Agreement to ensure the Raw Sugar being traded through the Sugar Warrants and SEWs and +stored in AKS LLC facilities. +9 +6. SEW holders will be able to trade their SEWs on the Platform +subject to terms and conditions. SEW holders will also have the option to request physical delivery of the raw sugar represented by SEWs +they hold subject to a minimum delivery threshold of the value equivalent to each Sugar Warrant issued by AKS LLC +7. Upon receipt of confirmation of a physical delivery request +from Universa DMCC via the blockchain and the relevant Sugar Warrants, AKS LLC will be granted 60 days period to prepare the relevant +raw sugar quantities for physical pick up by the designated parties and notify Universa DMCC who in turn will notify the relevant parties +to proceed to pick up their sugar quantities. +8. The raw sugar delivery will be delivered at AKS LLC’s +refinery in Jebel Ali. +9. SEW holders that notify AKS LLC of their intent to collect +their quantities of raw sugar represented by their SEWs will surrender the same to Universa DMCC so such SEWs are not tradable anymore +on the Platform. AKS LLC will have the right to reissue warrants for the amount of redeemed sugar. AKS LLC is not required to reissue +the warrants. There will simply be fewer warrants available on the blockchain. +Summary: +This overview is to explain the process of the test that was +conducted to prove the concept. The blockchain served as an important piece of the process. Upon proof of concept, we have implemented +a plan to initiate the gold exchange. It will also work as listed above. +The Sugar exchange is not in use. Does not have current SEW’s +outstanding and has not since 2021. The entity Universa DMCC has no assets no revenue and is not operating. +As the Company continues its business development and asset +acquisitions, the Company anticipates our capital needs to be between $5,000,000 and $25,000,000 (varying based on growth strategies). +We will raise these funds through the sale of stock or offerings to the public. The difference in growth strategy will primarily be based +on how quickly we expand our client and userbase that is using our blockchain and wallet service. The more aggressive we can market will +allow us to attract more customers faster. If we raise the full amount of 25 million, we will also be able to enter at least 2 other regions. +These regions will be selected carefully in conjunction with our current operations and where we are currently having the most success +and profitability. If we raise less money we will not grow as fast, but our plans will be unchanged overall. We currently have the necessary +technology developed and most of our expenses will be in marketing and opening new areas which includes integration costs and licensing +fees. If we raise less than 5 million, we will be limited to expanding outside of El Salvador and UAE. If we raise 10 million, we will +be able to expand quickly into Thailand and if we raise 25 million, we will be able to expand into all the jurisdictions we are targeting +immediately upon receiving the licenses. If we raise less money, we will expand slower and continue our business operations in the jurisdictions +we are currently setting up. +Employees +We have one full time employee, our President, George Athanasiadis +and a part time CTO Tomaz Strgar. The Board retains consultants and advisors on as needed basis. They are compensated with cash and also +with the issuance of the Company’s common stock. +Facilities +Our corporate offices are located in Texas and El Salvador. +Our main operations will be spread across Central America and Asia. Consultants, advisors and contract service providers will work from +home offices and from our location in El Salvador. +ITEM 1A. RISK FACTORS +Any investment in our securities is highly speculative. The +Company's business and ownership of shares of our common stock are subject to numerous risks. You should not purchase our shares if you +cannot afford to lose your entire investment. You should consider the following risks before acquiring any of our shares. +We need additional capital. +We need additional financing to grow our operations. The amount +required depends upon our business operations, and how quickly we grow. Varying based on growth strategies, it is estimated between $5,000,000 +and $25,000,000 will have to be raised over the next 2 years. We may be unable to secure this additional required financing on a timely +basis, under terms acceptable to us, or at all. To obtain additional financing, we will sell additional equity securities, which will +further dilute shareholders' ownership in us. Ultimately, if we do not raise the required capital, we may experience delayed growth or +need to cease operations. +10 +We are dependent upon our key personnel. +We are highly dependent upon the services of Tomaz Strgar, +our Chief Technology Officer. If he terminated his services with us, our business would suffer. +There is only a limited trading market for our securities. +Our Common Stock is traded on the OTC Pink Sheets. The prices +quoted may not reflect the price at which you can resell your shares. Because of the illiquid nature of our stock, we are subject to rules +of the U.S. Securities and Exchange Commission that make it difficult for stockbrokers to solicit customers to purchase our stock. This +reduces the number of potential buyers of our stock and may reduce the value of your shares. There can be no assurance that a trading +market for our stock will continue or that you will ever be able to resell your shares at a profit, or at all. +Our management controls us. +Our current officers and directors own approximately 74% of +our outstanding common stock and are able to affect the election of the members of our Board of Directors and make corporate decisions. +Alexander Borodich, by his ownership of Class A Preferred Stock, has the right to vote 49% of our voting securities. +We have a going concern issue. +Eco Bright's consolidated financial statements are prepared +using Generally Accepted Accounting Principles applicable to a going concern that contemplates the realization of assets and liquidation +of liabilities in the normal course of business. However, Eco Bright has recently accumulated losses since its inception and has had negative +cash flows from operations until 2023, which raise substantial doubt about its ability to continue as a going concern. Management's plans +with respect to alleviating the adverse financial conditions that caused management to express substantial doubt about the Eco Bright's +ability to continue as a going concern are as follows: +The ability to continue Eco Bright’s operations depends +on its ability to generate and grow revenue and results of operations as well as our ability to access capital markets when necessary +to accomplish strategic objectives. We expect to continue to incur losses for the immediate future and will need additional equity or +debt financing until we can achieve profitability and positive cash flows from operating activities. Our future capital requirements for +operations will depend on many factors, including the ability to generate revenues and obtain capital. +There can be no assurance that Eco Bright will be able +to achieve its business plans, raise any more required capital or secure the financing necessary to achieve its current operating plan. +The ability of Eco Bright to continue as a going concern is dependent upon its ability to successfully accomplish the plan described in +the preceding paragraph and eventually attain profitable operations. The accompanying financial statements do not include any adjustments +that might be necessary if the Company is unable to continue as a going concern. +Licensing and permissions to tokenize real world +assets could take longer than expected in different jurisdictions. +Licensing and permission to tokenize real world assets legally +in the jurisdictions in which we operate could be delayed or denied. If we are unable to obtain all the licenses, we are expecting it +could negatively impact our growth potential. +The Real World Asset (RWA) Tokenization Market is Highly +Competitive and Fragmented. +There are a substantial number of companies attempting to +enter this highly competitive market. We feel we have a good competitive advantage, however there are many companies we will compete with +that are better funded than we are. There is no guarantee we will be able to take the market share we are expecting. Other risks associated +can come from government intervention including, but not necessarily limited to, future government regulation limiting the scope of activities +available to generate revenue and creating technological difficulties. +11 +Reporting requirements under the Exchange Act and compliance +with the Sarbanes-Oxley Act of 2002, including establishing and maintaining acceptable internal controls over financial reporting, are +costly and may increase substantially. +The rules and regulations of the SEC require a public company +to prepare and file periodic reports under the Exchange Act, which will require that the Company engage in legal, accounting, auditing, +and other professional services. The engagement of such services is costly, and we are likely to incur losses that may adversely affect +our ability to continue as a going concern. Additionally, the Sarbanes-Oxley Act of 2002 requires, among other things, that we design, +implement and maintain adequate internal controls and procedures over financial reporting. The costs of complying with the Sarbanes-Oxley +Act may make it difficult for us to design, implement and maintain adequate internal controls over financial reporting. If we fail to +maintain an effective system of internal controls or discover material weaknesses in our internal control. In that case, we may not be +able to produce reliable financial reports or report fraud, which may harm our overall financial condition and result in a loss of the +investor confidence and a decline in our share price. +We cannot assure you that our Common Stock will be listed +on an exchange. +Our common stock is currently traded on the Pink Sheets under +the symbol EBFI. We cannot assure you that we will be able to meet the initial listing standards of the stock exchanges or quotation medium +we are hoping to uplist to, or that we will be able to maintain a listing of our Common Stock on any stock exchange. We expect that our +Common Stock would continue to be eligible to trade on the “pink sheets,” where our stockholders may find it more difficult +to trade shares in our Common Stock or obtain accurate quotations as to the market value of our Common Stock. In addition, we would be +subject to an SEC rule that, if we failed to meet the criteria outlined in such rule, imposes various practice requirements on broker-dealers +who sell securities governed by such rule to persons other than established customers and accredited investors. Consequently, such a rule +may deter broker-dealers from recommending or trading shares in our Common Stock, which may further affect its liquidity. This would also +make it more difficult for us to raise additional capital following a business combination. +Our Common Stock will likely be considered a “penny +stock,” which may make it more difficult for investors to sell their shares due to suitability requirements. +Our common stock is currently deemed “penny stock,” +as that term is defined under the Exchange Act. Penny stocks generally are equity securities with a price of less than $5.00 (other than +securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that the exchange or system provides +current price and volume information concerning transactions in such securities). Penny stock rules impose additional sales practice requirements +on broker-dealers who sell to persons other than established customers and “accredited investors.” The term “accredited +investor” generally refers to institutions with assets over $5,000,000 or individuals with a net worth in excess of $1,000,000 or +an annual income exceeding $200,000 or $300,000 jointly with their spouse. +The penny stock rules require a broker-dealer, before a transaction +in a penny stock not otherwise exempt from the rules, to deliver a standardized disclosure document in a form prepared by the SEC, which +provides information about penny stocks and the nature and level of risks in the penny stock market. Moreover, brokers/dealers are required +to determine whether an investment in a penny stock is suitable for a prospective investor. A broker/dealer must receive a written agreement +to the transaction from the investor setting forth the identity and quantity of the penny stock to be purchased. These requirements may +reduce the potential market for our common stock by reducing the number of potential investors. This may make it more difficult for investors +in our common stock to sell shares to third parties or dispose of them. This could cause our stock price to decline. +We have never paid dividends on our Common Stock, and it +is not guaranteed that we will in the future. +We have never paid dividends on our Common Stock, we have +this option as valid to discuss on the management level and approve it. There are no assurances or guarantees that we will be able to +pay dividends. +We are an “emerging growth company” under the +JOBS Act of 2012. We cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common +stock less attractive to investors. +We are an “emerging growth company,” as defined +in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”). We may take advantage of certain exemptions from various +reporting requirements that apply to other public companies that are not “emerging growth companies,” including, but not limited +to, not being required to comply with the auditor attestation requirements of section 404 of the Sarbanes-Oxley Act, reduced disclosure +obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding +a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. +We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find +our common stock less attractive, there may be a less active trading market for our common stock, and our stock price may be more volatile. +12 +In addition, Section 107 of the JOBS Act also provides that +an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities +Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption +of specific accounting standards until those standards would otherwise apply to private companies. We are taking advantage of the extended +transition period to comply with new or revised accounting standards. +We will remain an “emerging growth company” for +up to five years, although we will lose that status sooner if our revenues exceed $1 billion, if we issue more than $1 billion in non-convertible +debt in three years, or if the market value of our common stock that is held by non-affiliates exceeds $700 million as of any June 30. +Our status as an “emerging growth company” under +the JOBS Act of 2012 may make it more challenging to raise capital as and when we need it. +Because of the exemptions from various reporting requirements +provided to us as an “emerging growth company” and because we will have an extended transition period for complying with new +or revised financial accounting standards, we may be less attractive to investors, and it may be difficult for us to raise additional +capital as and when we need it. Investors may be unable to compare our business with other companies in our industry if they believe that +our financial accounting is not as transparent as other companies in our industry. If we cannot raise additional capital as and when we +need it, our financial condition and results of operations may be materially and adversely affected. +We have the right to issue shares of preferred stock. If +we were to issue preferred stock, it is likely to have rights, preferences, and privileges that may adversely affect the common stock. +We have preferred stock currently issued and outstanding and +do have the ability to issue more. The issuance of these shares could adversely affect the common stock already outstanding. The aforementioned +preferred stock allows the holder to vote 10 times for each share owned. Currently Alexander Borodich owns 10,000,000 shares representing +100,000,000 votes. These shares hold special voting rights but are not convertible into common stock of the company. +There are inherent risks associated with our limitation +of our internal policies and procedures to determine whether crypto assets and crypto-asset related services and products offered or that +we intend to offer are “securities” within the meaning of Section 2(a)(1) +Some of our policies and procedures are risk-based judgments +made by the company and not a legal standard or determination binding on any regulatory body or court. This includes the risk that we +could be compliant within the jurisdiction we are operating in but out of compliance within the Securities Division and Governing Boards +of Public Companies. The laws are often changing and keeping up with the specific changes is very important and difficult to manage. +We have a potential requirement to register as an investment +company under the Investment Company Act of 1940 +The company could be required to register as an investment +company in the future. This could add additional requirements and additional expenses that could negatively impact the company and restrict +our ability to implement certain aspects of our business plan. We do not currently meet The “Howey Test” and we do not custody +any investments. We currently do not meet the definition of an investment company under Section 2(a)(1). In certain jurisdictions and +depending on how certain assets are held in “custody” (meaning who holds the asset or commodity in question in their custody) +there could be a need in the future to register as an investment company. We have consulted with our legal counsel and although right +now we do not meet the requirement to register we could at a future date be required to register either through change in who has to register +as an investment company or due to a change in how we operate and do business. We will continue to monitor the situation as it changes +and maintain compliance with SEC governing rules even when we are dealing with foreign jurisdictions. The changing laws and regulations +regarding what is considered an investment company is evolving with current blockchain and crypto technologies. This could change our +regulatory expenses significantly and we could be required to register as an investment company. +We are currently applying for several licenses in different +Jurisdictions. If they are not approved it could affect our growth rate. +We are currently applying for licenses in El Salvador and +plan to quickly apply for licensing in Thailand and UAE. If these licenses do not get issued it would affect our ability to grow and would +prohibit us from tokenizing many of the assets and commodities we are planning on tokenizing. +The use of AI can be expensive, unpredictable and carries +its own risks that are not associated with our individual blockchain technology. +The use of AI can also create more regulatory stipulations +and the everchanging environment could make AI implementation difficult or not profitable. Certain AI engines also carry with them security +risks from an encryption aspect. +13 +We plan to operate in El Salvador, Tunisia, United Arab +Emirates, Thailand, Indonesia and Guatemala. The risks associated with the various regimes and government oversite in these countries +could impact our business. +The governments and regulations in the countries we plan to +operate in could pass legislation affecting our plans for development and growth within the regions. Dealing with the regulatory environments +in these countries can be risky and therefore could affect the growth, expansion and viability of the company in the future. +We plan to operate using licenses with El Salvador, Tunisia, +United Arab Emirates, Thailand, Indonesia and Guatemala. Any country can change regulations and make licensing and compliance more difficult +and/or more expensive. +The operation of licensing across multiple jurisdictions can +be difficult to keep up with current regulations and restrictions. Changes in leadership in the countries can also affect our licenses +even after they are issued. +Regulatory developments are rapidly changing related to +crypto assets, the crypto asset markets and artificial intelligence products in El Salvador +El Salvador has become a global leader in crypto assets and +crypto markets. They have been aggressively marketing crypto assets and have created regulations within El Salvador that govern their +digital asset markets. This can provide risk if they begin to be more restrictive in certain activities that the company is involved with. +We will be using the Digital Asset Provider License (DASP) from El Salvador and the revocation or suspension of this license could cause +harm to the company. +CNAD is the regulating entity in El Salvador and they have +very specific licensing requirements and they update regulations very often. The ongoing compliance has required us to hire a local individual +that is approved by CNAD to assist in the rolling out of new and changing regulations. Licensing requirements are currently our main focus. +In order to be granted a license you must show that your platform meets the guidelines and regulations of the CNAD and that you have the +ability to adapt your platform to their future changes. This is a challenging environment to do business in because things change quickly +and often. +Regulatory developments are rapidly changing related to +crypto assets, the crypto asset markets and artificial intelligence products in Tunisia. +Tunisia is relatively new to the crypto asset market and will +be changing and evolving as they learn and grow. This could be a risk as we are one of the first companies operating with the government +in crypto assets and blockchain technologies in the country. +Tunisia has fewer regulatory changes currently happening than +other jurisdictions, but licensing requirements exist and ongoing compliance with their regulatory statutes requires supervision and a +knowledgeable individual to monitor compliance. We have been operating in Tunisia for several years and we have a good understanding of +their changing regulations and compliance issues. +Regulatory developments are rapidly changing related to +crypto assets, the crypto asset markets and artificial intelligence products in United Arab Emirates. +UAE is on the cutting edge of crypto asset markets and is +evolving and designing regulations and restrictions on many aspects of digital assets. As they introduce more regulations, we could have +an increased expense in conforming with new policies and procedures. +DMCC issues new rules and regulations including licensing +requirements for operating within the UAE. Restrictions include not being able to operate without a license. To obtain licensing you must +prove competence as a company, and you must provide detail structure of your KYC/AML process and your overall platform security. Failure +to obtain licensing could adversely affect the company. +Regulatory developments are rapidly changing related to +crypto assets, the crypto asset markets and artificial intelligence products in Thailand. +Thailand is relatively new to the digital asset market and +we expect to be one of the first companies operating in the way we expect to operate once we get the necessary licenses. Thailand will +monitor closely our actions as a company and will be heavily involved in the way we roll out our products and services. We could experience +delays or additional costs due to regulatory compliance. +Thailand has a growing digital market and as they continue +to grow they are adapting their laws and regulations to prevent issues and fraud. The changes include limiting the licenses they are issuing. +We intend to partner with a bank that currently has a license and in order to do this we must comply with the regulatory compliance from +the bank we will work with. This process is ongoing in negotiations and we will release more information on this when we have reached +a final agreement and have permission from our partners to disclose our agreement. If we are unable to proceed with this partnership we +will need to find another partner or apply for our own license. Applying for our own license will greatly increase the timeline in which +we expect to enter the Thai market. +14 +Regulatory developments are rapidly changing related to +crypto assets, the crypto asset markets and artificial intelligence products in Indonesia. +Indonesia is relatively new to the digital asset market. Indonesia +will likely introduce new and widespread policies and procedures regarding crypto asset markets. We could experience delays or additional +costs due to regulatory compliance. +Thailand licenses with the bank we are planning to work with +would allow us to enter Indonesia. Indonesia has their own set of regulations that would also need to be complied with. Our partners in +Thailand will work with our legal team and review the specific requirements before we enter the Indonesian market. If we are unable to +obtain the license through partnership, we will apply for a license individually in Indonesia and this would greatly increase our timeline +for entering this market. +Regulatory developments are rapidly changing related to +crypto assets, the crypto asset markets and artificial intelligence products in Guatemala. +Guatemala is more established with their policies than many +other countries in regard to how they treat crypto asset markets but is still evolving and regulations are being changed often. Upon receiving +and entering the market in Guatemala we will likely deal with many changes to the regulations as they implement more policies and procedures +to regulate and protect the market. +Guatemala has individual compliance guidelines in regard to +tokenized digital assets. We are monitoring the changes they are implementing and when we approach Guatemala for business, we will ensure +we are in compliance with their licensing requirements and that our platform meets their standards for KYC/AML, security features and +the authorized access requirements. +Risks Related to Real World Asset Tokenization. +There are risks associated with dealing with and issuing real +world asset tokens. These risks include but are not limited to: risks of the underlying asset being damaged or stolen, storage costs, +maintenance costs, the liquidity risks associated with selling the real world assets and the overall risk of theft of not only the tangible +asset but also the token. +Our KYC Process and AML process is using a third-party +program called SubSum. There are material risks if unauthorized individuals access our platform. +There are risks of Fines or regulatory issues if unauthorized +individuals access our platform. We have taken steps to ensure this does not occur. In the event that it does happen we could be adversely +affected in our business and there could be regulatory fines, penalties or levies associated with unauthorized or impermissible access +or activities. +Blockchain Technology carries with is certain risks and +compliance issues. +Blockchain technologies are heavily regulated and will likely +become more regulated as it becomes more integrated in business and personal use cases. There are also risks associated with cyber criminals +and fraud throughout the world. Blockchain also uses infrastructure that can be slowed or destroyed by natural disasters, power outages +and other uncontrollable circumstances. There are also risks associated with blockchain due to cyber criminals and fraud throughout the +world. +Blockchain Cyber criminals are causing issues throughout the +world and have created the need for more regulation from countries attempting to protect companies and consumers. These regulations can +create additional substantial expenses for blockchain companies to operate. Fraudulent activities such as setting up fake accounts and +trying to create fake transactions have created the need for further regulation. “hacking wallets” has become a significant +risk when dealing with blockchain and crypto asset companies. Hacking wallets can be defined as an unauthorized individual accessing your +individual wallet. +As regulation increases and more resources are put into stopping +cyber criminals it is likely that a large financial burden will be put on companies operating blockchains. +Blockchain Technology Regulatory developments could present +the company with certain risks and compliance issues. +The blockchain technology regulatory environment is ever changing. +Changes to the regulations could affect our ability to implement certain parts or all of our business plan. The areas in which we intend +to operate are evolving their blockchain requirements and maintaining compliance with these changes can become expensive and very cumbersome +for the company. Licensing requirements in many of the jurisdictions in which we intend to operate are evolving and also many are under +their initial development stage. Historically countries have introduced more and more legislation as they continue to resolve issues related +to blockchain regulation. +15 +Blockchain Technology outage or impairment could significantly +harm our company. +If our blockchain experienced an outage or impairment or attack +from cyber criminals we could have our business model affected in many ways including but not limited to a complete loss of customer base, +loss of a large portion of our customers, bad reputation for being an unsable blockchain or a questionable reputation for securing information +as advertised. +Item 1B. Unresolved Staff Comments +Not required for a smaller reporting company. +Item 1C. Cybersecurity Risks +Material Effects from Cybersecurity Incidents +Our business is subject to risk from cybersecurity threats +and incidents, including attempts to gain unauthorized access to our systems or networks, or those of our managers, employees, and third-party +vendors and service providers, to disrupt operations, corrupt data or steal confidential or personal information and other cybersecurity +breaches. We consider cybersecurity risk a serious threat to our assets and our people and have put processes in place designed to mitigate +the risk and impact of any such cybersecurity threat or incident. +Our operations rely on the secure, accurate and timely receipt, +storage, transmission, use, disclosure, and other processing of confidential and other information (including personal information) in +our systems and networks. We also rely on the secure, accurate and timely receipt, storage, transmission, use, disclosure, and other processing +of confidential and other information in the systems and networks of our customers and third parties, including suppliers, sellers and +servicers, financial market utilities, and other third parties. Cybersecurity risks for companies like ours continue to increase. Like +many companies and government entities, from time to time we have been, and expect to continue to be, the target of attempted cybersecurity +incidents and other information security threats, including those from nation-state and nation-state supported actors. +As of the date of this report we have not experienced or aware +of any cybersecurity incidents resulting, or reasonably likely to result in, a material impact to us, including to our business, financial +condition, and results of operations. There is no assurance that our cybersecurity risk management program will prevent cybersecurity +incidents from having such impacts in the future. +Additionally, insider threats also remain a risk given our +workforce diversification to include contractors, remote workers, part-time employees, and full-time employees. As referenced above, our +third-party vendors and service providers and their supply chain connections remain a potential source of risk. +Cybersecurity Risk Management and Strategy +Our cybersecurity program is built upon industry standards +and we have deployed sophisticated software both from internal and external sources to mitigate cybersecurity threats. We identify security +threats through internal audits of our systems. We also require any service providers to provide System and Organizational Control (“SOC”) +type reports to ensure that data is secure and our duty to protect information is fulfilled. +Cybersecurity Governance +We believe that all employees of the company have a duty to +manage cybersecurity. We have implemented industry standard guidelines that help ensure that cybersecurity governance is a priority. Our +BOD is also very involved in the cybersecurity governance. We conduct regular searches for threats and suspicious activities, and we monitor +passwords and change passwords within industry expectations. Due to the technical aspects, we have a lot of individuals that are very +capable and are able to quickly act if we are to find any issues with our cybersecurity. +Item 2. Properties +Our corporate offices are located in Texas and El Salvador. +Our main operations will be spread across Central America and Asia. Consultants, advisors and contract service providers will work from +home offices and from our location in El Salvador. +Item 3. Legal Proceedings +There are no pending material legal proceedings to which we +are a party or to which any of our property is subject. +Item 4. Mine Safety Disclosures +Not Applicable +16 +PART II +Item 5. Market for Registrant's Common Equity, Related +Stockholder Matters and Issuer Purchases of Equity Securities +Market Information +Our common stock is quoted on the OTC markets under the symbol +“EBFI”. As of March 1, 2025, there were 313 registered stockholders of Eco Bright. +Repurchases +The Company did not purchase any shares under any stock repurchase +programs in 2024 or 2023, respectively, and there is no allocation of funds set aside for future repurchases under any stock repurchase +plans at the current time. +Dividends and Restrictions +Holders of common stock are entitled to dividends when, +as, and if declared by the Board of Directors, out of funds legally available, therefore. We have never declared cash dividends on its +common stock and our Board of Directors does not anticipate paying cash dividends in the foreseeable future as it intends to retain future +earnings to finance the growth of our businesses. There are no restrictions in our articles of incorporation or bylaws that restrict us +from declaring dividends. +Item 6. Reserved +Item 7. Management’s Discussion and Analysis of Financial +Condition and Results of Operations +Management’s discussion and analysis (“MD&A”) +should be read in conjunction with the consolidated financial statements and accompanying notes included in Item 8 of this Annual Report +on Form 10-K (annual report), which include additional information about our accounting policies, practices, and the transactions +underlying our financial results. The preparation of our consolidated financial statements in conformity with accounting principles +generally accepted in the United States of America (U.S. GAAP) requires us to make estimates and assumptions that affect the reported +amounts in our consolidated financial statements and the accompanying notes, including various claims and contingencies related to lawsuits, +taxes, environmental and other matters arising during the normal course of business. We apply our best judgment, our knowledge of +existing facts, circumstances, and actions that we may undertake in the future in determining the estimates that affect our consolidated +financial statements. We evaluate our estimates on an ongoing basis using our historical experience, as well as other factors we believe +appropriate under the circumstances, such as current economic conditions, and adjust or revise our estimates as circumstances change. +As future events and their effects cannot be determined with precision, actual results may differ from these estimates. Our MD&A contains +forward-looking statements that discuss, among other things, future expectations and projections regarding future developments, operations, +and financial condition. All forward-looking statements are based on management’s existing beliefs about present and future events +outside of management’s control and on assumptions that may prove to be incorrect. If any underlying assumptions prove incorrect, +our actual results may vary materially from those anticipated, estimated, projected, or intended. We undertake no obligation to publicly +update or revise any forward-looking statements to reflect actual results, changes in expectations, events or circumstances after the +date of this Report is filed. Eco Bright Future, Inc. and its subsidiaries are referred to collectively as “Eco Bright” “the +Company,” “we, “us” or “our” in the following discussion and analysis. +Going Concern +At December 31, 2024, we had $84,733 in assets and a $178,971 +accumulated deficit. Our current liquidity resources are not sufficient to fund anticipated level of operations for at least the next +12 months from the date these consolidated financial statements were issued. As a result, there is substantial doubt regarding the Company’ +ability to continue as a going concern. +The ability to continue Eco Bright’s operations depends +on its ability to generate and grow revenue and results of operations as well as our ability to access capital markets when necessary +to accomplish strategic objectives. We expect to continue to incur losses for the immediate future and will need additional equity or +debt financing until we can achieve profitability and positive cash flows from operating activities. Our future capital requirements for +operations will depend on many factors, including the ability to generate revenues and obtain capital. +There is no assurance that we will ever be profitable or that +debt or equity financing will be available to us. The consolidated financial statements do not include any adjustments to reflect the +possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may +result should we be unable to continue as a going concern. There is no assurance we will be successful in any of these goals. +17 +Results of Operations +For the Years Ended December 31, 2024 and 2023 +Revenues and Cost of Sales +During the years ended December 31, 2024 and 2023, we recognized +$0 and $32,132 in consulting revenue, respectively. +Operating Expenses +Operating expenses were $169,033 during the year ended December +31, 2024, compared to $18,716 during the year ended December 31, 2023. Operating expenses consisted mainly of $147,234 and $0 in professional +fees; $0 and $14,946 in salaries and wages; and, $21,799 and $3,770 in general and administrative expenses during the years ended December +31, 2024 and 2023, respectively. Increases in professional fees and general and administrative expenses are a result of the Universa Hub +Africa acquisition which closed in December 2023. +Other +Income and Expenses +Total other income was $2,655 during the year ended December +31, 2024, compared to $285 in net other expenses during the year ended December 31, 2023. Other expenses consisted of $493 in other expenses, +$474 in interest expense and $682 in other income during the year ended December 31, 2023. +Net Income (Loss) +As a result of the above, we recognized a net loss of $166,378 +for the year ended December 31, 2024 and net income of $13,131 for the year ended December 31, 2023. +We anticipate losses from operations will increase during +the next twelve months due to anticipated increased payroll expenses as we add necessary staff to continue planned operations and increases +in legal and accounting expenses associated with maintaining a reporting company. We expect that we will continue to have net losses from +operations for several years until revenues become sufficient to offset operating expenses. +Liquidity and Capital Resources of the Company +Current Assets +Current assets as of December 31, 2024 totaled $84,733, consisting +of $67,784 in cash and other current assets of $16,949. Current assets as of December 31, 2023 totaled $17,400, consisting of $14,761 +in cash, $1,657 in accounts receivable and $982 in other current assets. +Non-Current Assets +Non-current assets as of December 31, 2024 totaled $430,306, +consisting of $425,500 in software development costs and $4,806 in intangible assets. Non-current assets as of December 31, 2023 totaled +$296 of property and equipment, net of accumulated depreciation +. +Current Liabilities +Total liabilities totaled $670,846 and $10,868 as of as of +December 31, 2024 and 2023, respectively, and consisted of accounts payable and accrued expenses totaling $20,620 and $10,868 and notes +payable to related parties of $650,226 and $0, respectively. +Net Cash Used in Operating Activities +During the year ended December 31, 2024, our operating activities +used net cash of $166,897. Uses of cash during the year ended December 31, 2024 are mainly due to the $166,378 in net loss as well as +a $15,967 net increase in other current assets. Uses are partially offset by $11,743 in changes in cash used from accounts receivable +and payable and $3,705 in non-cash expenses such as depreciation and currency translation. +During the year ended December 31, 2023, our operating activities +provided net cash of $8,737. Sources of cash during the year ended December 31, 2023 are mainly due to the $13,131 in net income, partially +offset by $5,168 in changes in cash used from operating assets and liabilities. +18 +Net Cash Used in Investing Activities +During the year ended December 31, 2024, we used $430,306 +in cash investing activities. Uses of cash during the year ended December 31, 2024 are due to $425,500 in software development costs and +$4,806 in purchases of intangible assets. There was no cash used in investing activities during the year ended December 31, 2023. +Net Cash Provided by Financing Activities +During the year ended December 31, 2024, we received $650,226 +in cash from related party advances. There were no cash flows used in financing activities during the year ended December 31, 2023. +At December 31, 2024, we had a working capital deficit of +$586,113, compared to working capital of $6,532 at December 31, 2023. +Off-Balance Sheet Arrangements +We had no off-balance sheet arrangements of any kind for the +years ended December 31, 2024 or 2023. +Critical Accounting Policies +Our discussion and analysis of our financial condition and +results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally +accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the +reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. We continuously +evaluate our critical accounting policies and estimates. We base our estimates on historical experience and on various assumptions that +we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values +of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates +under different assumptions or conditions. +We believe the following critical accounting policies are +important to the portrayal of our financial condition and results of operations and require our management’s subjective or complex +judgment because of the sensitivity of the methods, assumptions and estimates used in the preparation of our financial statements. +Revenue Recognition Policy +Eco Bright recognizes revenue in accordance with the provisions +of Accounting Series Codification (“ASC”) 606, Revenue From Contracts With Customers (“ASC 606”), which +provides guidance on the recognition, presentation, and disclosure of revenue in financial statements. ASC 606 outlines the basic criteria +that must be met to recognize revenue and provides guidance for disclosure related to revenue recognition policies. In general, the Company +recognizes revenue based on the allocation of the transaction price to each performance obligation as each performance obligation in a +contract is satisfied. +The Company intends to provide digital assets from El Salvador +for sale, tokenize assets for sale and develop blockchain tools for sale that will provide entry to the market for countries such as Tunisia +and United Arab Emirates. During 2025, the Company plans to enter into agreements in connection with its blockchain products in Thailand, +Indonesia, and Guatemala. Revenue recognition for the sale of digital and tokenized assets will be based on the allocation of the transaction +price to each performance obligation as each performance obligation in a contract is satisfied, title or access to digital assets are +transferred and amounts are due are collected or collectible. +Accounts Receivable +Trade accounts receivable are recorded at invoiced amounts. +Eco Bright does not provide any unusual contractual trade terms, sales incentive programs or discounts. Allowances for doubtful accounts +are established for estimated losses resulting from the inability of customers to make required payments. Allowances are determined based +on a review of specific customer accounts where collection is doubtful, as well as an assessment of the collectability of total receivables. +Receivables are written off against the allowance when it is determined that the amounts will not be recovered. +19 +Software Development Costs +In accordance with ASC 350-40, Internal Use Software, +Eco Bright capitalizes certain internal use software development costs associated with creating and enhancing internally developed software +related to its platforms. Software development activities generally consist of three stages (i) the research and planning stage, +(ii) the application and development stage, and (iii) the post-implementation stage. Costs incurred in the planning and post-implementation +stages of software development, or other maintenance and development expenses that do not meet the qualification for capitalization are +expensed as incurred. Costs incurred in the application and infrastructure development stage, including significant enhancements and upgrades, +are capitalized. Capitalized costs include personnel and related employee benefits expenses for employees or consultants who are directly +associated with and who devote time to software projects, and external direct costs of materials obtained in developing the software. +Software development costs, when placed in service, are amortized on a straight-line basis over their estimated useful life upon initial +release of the software or additional features. +Income Tax +We account for income taxes under the asset and liability +method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that +have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences +between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences +are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be +realized. +Item 7A. Quantitative and Qualitative Disclosures About +Market Risk +Not required for a smaller reporting company. +Item 8. Financial Statements and Supplementary Data +The +information with respect to this Item 8 is hereby incorporated by reference from our Consolidated Financial Statements beginning on page +F-1 of this Annual Report on Form 10-K. +Item 9. Changes in and Disagreements with Accountants on +Accounting and Financial Disclosure +None. +Item 9A. Controls and Procedures +Evaluation of Disclosure Controls and Procedures +Disclosure controls and procedures are the controls and other +procedures that are designed to ensure that information required to be disclosed in the reports that the Company files or submits under +the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. +Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to +be disclosed in the reports that the Company files or submits under the Exchange Act is accumulated and communicated to management, including +the Chief Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. +As of December 31, 2024, we carried out an evaluation, under +the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer of the +effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rules 13a-15(e) and 15d-15(e) +under the Securities Exchange Act of 1934, as amended. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer +concluded that our financial disclosure controls and procedures were not effective due to our limited internal resources and lack of ability +to have multiple levels of transaction review. +20 +Management’s Report on Internal Control Over Financial +Reporting +The Company’s management is responsible for establishing +and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. Internal +control over financial reporting is a process designed by, or under the supervision of, the Company’s principal executive and principal +financial officers, and effected by the board of directors, management, and other personnel, to provide reasonable assurance regarding +the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP +including those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and +fairly reflect the transactions and dispositions of the assets of the Company, (ii) provide reasonable assurance that transactions +are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP and that receipts and expenditures +are being made only in accordance with authorizations of management and directors of the Company, and (iii) provide reasonable assurance +regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have +a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not +prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that the controls +may become inadequate because of changes in conditions or that the degree of compliance with policies and procedures may deteriorate. +Management has assessed our internal control system in relation +to criteria for effective internal control over financial reporting described in “Internal Control-Integrated Framework” issued +in 2013 by the Committee of Sponsoring Organizations (“COSO”) of the Treadway Commission. Based upon these criteria, we believe +that, as of December 31, 2024, our system of internal control over financial reporting was not effective due to material weaknesses that +were identified. The material weaknesses are caused by our limited internal resources and limited personnel. We presently have only two +officers. The material weaknesses include: 1) no segregation of duties within the Company; 2) no management oversight or multiple levels +of supervision and review; 3) no control documentation being produced and no one to review control documentation; and, 4) a lack of expertise +in the application of generally accepted accounting principles. +This annual report does not include an attestation report +of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s +report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the SEC that permit +the Company to provide only management’s report in this annual report. +Changes in Internal Control over Financial Reporting +There were no changes in our internal control over financial +reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during +the year ended December 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over +financial reporting. +Item 9B. Other Information +During the three months ended December 31, 2024, no director +or officer (as defined in SEC Rule 16a-1(f) of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule +10b5-1 trading arrangement,” as each term is defined in Item 405 of Regulation S-K. +Item 9C. Disclosures Regarding Foreign Jurisdictions That +Prevent Inspection +Not Applicable. +21 +Part III +Item 10. Directors, Executive Officers, and Corporate Governance +Information Concerning Directors +Each of the persons named below currently serve as a director +of the Company. +Name +Position +Age +Start Date +George Athanasiadis +CEO/Director +48 +August 2021 +Tomaz Strgar +CTO/Director +62 +December 2023 +George Athanasiadis +Director, President, Chief Executive Officer, Treasurer, Secretary, Age 48, director until Dec 31, 2025 +Mr. Athanasiadis joined the Company as Chief Executive Officer, +Secretary, and Principal Financial Officer in August 2021. Mr. Athanasiadis has a history of managing multiple successful businesses. +He has experience at an executive level and has served on multiple boards and as an officer of multiple companies. He graduated from University +of Florida with a Bachelor’s of Science in electrical engineering. He also has a masters degree in business and a masters degree +in information technology. Mr. Athanasiadis has been elected to serve as director of the Company until December 31, 2025. +Recent Work History: +Bright Business LLC – Owner and operator of import of +LED light fixtures for multi family construction for the last 15 years. +2G Group LLC – Managing director of marketing group +that specializes in information technology and business development +Tomaz Strgar +Director, Chief Technology Officer, Age 62, director until Dec 31, 2025 +Mr. Strgar has served as a Director of the Company since December +2023. Mr. Strgar has over 30 years experience in managing companies and assisting with technological advancement within companies. Mr. +Strgar also has worked for the Ministry of Defense and is a retired colonel of the Slovenian Armed Forces. Mr. Strgar has been elected +to serve as director of the Company until December 31, 2025. +Recent Work History +Mr. Strgar retired from the military as a Colonel and has +been involved in consulting multiple international technology companies during his retirement. He has been consulting companies for the +last 8 years since his retirement. He works primarily with companies that are looking to grow infrastructure and need a strong manager +to assist in corporate structure and technology. +Corporate Governance +Director Independence +Applying the definition of independence under Nasdaq rules, +the board has determined that there are no independent directors on the board currently. +Family Relationships +There are no family relationships among any of our executive +officers or directors. +Attendance of Directors at Board Meetings and Annual Meeting +of the Shareholders +During 2024, the Board of Directors met (or acted via written +consent) 2 times. Each director during this time frame attended at least 75% of the aggregate number of meetings held during his term +of service. +Board Committees +The board does not have committees established at this time. +22 +Item 11. Executive Compensation +During the previous 2 years Executive Compensation has been +zero. Executive Compensation will begin as revenues increase. It is expected that compensation will begin in 2 nd quarter of +2025 and will initially be $120,000 per year for executive board members that are working full time. Any additional board members that +are not full time will be compensated on a contract basis and will be individually negotiated. Amount paid will not exceed the full time +board members. +Review process for executive compensation is currently done +between executives. As we increase revenues and growth there will be a specific committee established for the future. This committee will +be The Compensation Committee. It is not yet established. +The following table illustrates compensation accrued to director +during the most recently ended fiscal year: +Name +Fees earned or paid in cash ($) (Wages Earned and Accrued) +Stock +awards ($) +Option +awards ($) +Non-equity incentive compensation plan ($) +Nonqualified deferred compensation earnings ($) +All other compensation ($) +Total ($) +George Athanasiadis +- +- +- +- +- +- +- +There are no outstanding equity awards and no new employment +contracts have been signed during the most recent fiscal year. +Indemnification +Our articles of incorporation, by-laws and director +indemnification agreements provide that each person who was or is made a party or is threatened to be made a party to or is otherwise +involved (including, without limitation, as a witness) in any action, suit or proceeding, whether civil, criminal, administrative or investigative, +by reason of the fact that he or she is or was a director or an officer of the Company or, in the case of a director, is or was serving +at our request as a director, officer, or trustee of another corporation, or of a partnership, joint venture, trust or other enterprise, +including service with respect to an employee benefit plan, whether the basis of such proceeding is alleged action in an official capacity +as a director, officer or trustee or in any other capacity while serving as a director, officer or trustee, shall be indemnified and held +harmless by us to the fullest extent authorized by the Wyoming General Corporation Law against all expense, liability and loss reasonably +incurred or suffered by such. +Section 17 of the Wyoming Statutes permits a corporation +to indemnify any director or officer of the corporation against expenses (including attorney's fees), judgments, fines and amounts paid +in settlement actually and reasonably incurred in connection with any action, suit or proceeding brought by reason of the fact that such +person is or was a director or officer of the corporation, if such person acted in good faith and in a manner that he or she reasonably +believed to be in, or not opposed to, the best interests of the corporation, and, with respect to any criminal action or proceeding, if +he or she had no reason to believe his or her conduct was unlawful. In a derivative action, ( i.e ., one brought by or on behalf of the +corporation), indemnification may be provided only for expenses actually and reasonably incurred by any director or officer in connection +with the defense or settlement of such an action or suit if such person acted in good faith and in a manner that he or she reasonably +believed to be in, or not opposed to, the best interests of the corporation, except that no indemnification shall be provided if such +person shall have been adjudged to be liable to the corporation, unless and only to the extent that the court in which the action or suit +was brought shall determine that the defendant is fairly and reasonably entitled to indemnity for such expenses despite such adjudication +of liability. +Item 12. Security Ownership +of Beneficial Owners and Management, and Related Stockholder Matters +Beneficial ownership is determined in accordance with the +rules of the SEC and includes voting or investment power with respect to the securities. In computing the number of shares beneficially +owned by a person and the percentage of ownership of that person, shares of common stock subject to options and warrants held by +that person that are exercisable as of the Record Date or become exercisable within 60 days of the Record Date are deemed outstanding +even if they have not actually been exercised. Those shares, however, are not deemed outstanding for the purpose of computing the percentage +ownership of any other person. +The following tables set forth certain information with respect +to beneficial ownership of the Company’s common stock as of March 18, 2025, based on 101,235,000 issued and outstanding shares of +common stock, by: +● +Each director and director nominee; +● +Each named executive officer; and +● +All of the executive officers and directors as a group. +● +Each person known to be the beneficial owner of 5% or more of the Company’s outstanding common stock +23 +To our knowledge each person named in the tables below has +sole voting and investment power with respect to the number of shares of common stock set forth opposite such person’s name. +Title of Class +Name and address +of Beneficial Owner +Amount of +shares owned +Nature of +beneficial ownership +Percent of +class +Voting +Power +Common +George Athanasiadis +(Puerto Rico) +54,800,000 +Officer/Director +54% +27% +Common +Tarasov Law +Alexander Borodich +(Dubai, UAE) +20,195,000 +Over 5% +20% +10% +Preferred Series A +Alexander Borodich +(Dubai UAE) +10,000,000 +Over 5% +100% +49% +Tomaz Strgr (Slovenia) +- +Officer +- +- +Item 13. Certain Relationships and Related Transactions, +and Director Independence +During the year ended December 31, 2024, George Athanasiadis, +an officer and director of the Company, lent a total of $613,423 in short-term advances. The advances are unsecured, do not bear interest +and are due on demand. +During the year ended December 31, 2024, Alexander Borodich, +a significant shareholder of the Company, lent a total of $36,802 in short-term advances. The advances are unsecured, do not bear interest +and are due on demand. +Item 14. Principal Accountant Fees and Services +Our auditor for the fiscal year ended December 31, 2024, is +M.S. Madhava Rao. +The Company has ratified M.S. Madhava Rao, Independent Registered +Public Accounting Firm, to audit our books, records and accounting for the year ended December 31, 2024. +The aggregate fees billed for professional services rendered +by the principal accountant for the audit of our annual financial statements and review of the financial statements included in our quarterly +reports on Form 10-Q and services that are normally provided by the principal accountant in connection with statutory and regulatory filings +or engagements for these fiscal periods were as follows: +Year +Audit Fees +Audit Related Fees +Total Fees +2023 +$25,000 +$3000 +$28,000 +2024 +$47,500 +$47,500 +Audit Fees: The aggregate fees billed for professional services +rendered by the principal accountant for the audit of our annual financial statements and review of financial statements included in our +Form 10-K and other services that are normally provided by the principal accountant in connection with statutory and regulatory filings +or engagements for those fiscal years. +Audit-Related Fees: The aggregate fees billed for assurance +and related services rendered by the former principal accountant that are reasonably related to the performance of the audit or review +of our financial statements and are not reported under the previous item, Audit Fees. +24 +PART IV +Item 15. Exhibits and Financial Statement Schedules +(a) Financial +Statements +See +Index to Consolidated Financial Statements set forth on page F-1 of this Annual Report on Form 10-K. +(b) Financial +Statement Schedule +Not +applicable. +(c) Exhibits +The +following Exhibits are filed with this Report: +Exhibit +Number +Exhibit Name +3.1 +Articles of Incorporation of Eco Bright Future, Inc. (incorporated by +reference) +3.2 +Articles of Incorporation Amended and Restated of Eco Bright Future, Inc. (incorporated by reference) +3.3 +Corporate Bylaws of Eco Bright Future, Inc. (incorporated by reference) +20.1 +Bitcoin Digital Service License +23.1 +Consent of Independent Registered Accounting Firm for the year ending December 31, 2023 +31.1 +Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 +32.1 +Certification pursuant to 18 U.S.C. Section 1350, as Adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 +101.INS +Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. +101.XSD +Inline XBRL Taxonomy Extension Schema Document +101.CAL +Inline XBRL Taxonomy Extension Calculation Linkbase Document +101.DEF +Inline XBRL Taxonomy Extension Definition Linkbase Document +101.LAB +Inline XBRL Taxonomy Extension Label Linkbase Document +101.PRE +Inline XBRL Taxonomy Extension Presentation Linkbase Document +104 +Cover Page Interactive Data File - formatted in Inline XBRL and contained in Exhibit 101 +Item 16. Form 10-K Summary +None +25 +SIGNATURES +Pursuant to the requirements of Section +13 or 15(d) of the Securities Exchange Act of 1934, the registrant has caused this Report to be signed on its behalf by the undersigned, +thereunto duly authorized. +ECO BRIGHT FUTURE INC. +By: +/s/ +George Athanasiadis +Name: +George Athanasiadis +Title: +Chief Executive Officer +Pursuant to the requirements of +the Securities Exchange Act of 1934, this Report has been signed by the following persons on behalf of the registrant and in the capacities +and on the dates indicated. +Signature +Title +Date +/s/ George Athanasiadis +Chief Executive Officer, President, Secretary and Director +(Principal Executive Officer and Principal Accounting and Financial Officer) +April 9, +2025 +George Athanasiadis +/s/ +Tomaz Strgar +Chief Technology +Officer and Director +April 9, 2025 +Tomaz Strgar +Index to Consolidated Financial Statements +Page +Report of Independent Registered Public Accounting Firm (PCAOB ID 06662) +F-2 +Report of Independent Registered Public Accounting Firm (PCAOB ID 222 ) +F-4 +Consolidated Balance Sheet as of December 31, 2024 and 2023 +F-6 +Consolidated Statements of Operations for the Years Ended December 31, 2024 and 2023 +F-7 +Consolidated Statements of Stockholders’ (Deficit) Equity for the Years Ended December 31, 2024 and 2023 +F-8 +Consolidated Statements of Cash Flows for the Years Ended December 31, 2024 and 2023 +F-9 +Notes to Consolidated Financial Statements +F-10 +F- 1 +REPORT +OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +Audit Committee/Board of Directors +Eco Bright Future. Inc. +32 N. Gould Str +Sheridan, WY 82801 +Opinion on the financial statements +We audited the accompanying balance sheet of Eco +Bright Future. Inc. (“the Company”) as of December 31, 2024 and the related statements of operations, stockholders’ +equity, and cash flows for year then ended and the related notes (collectively referred to as “financial statements”) . +In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of +December 31, 2024, and the results of its operations and cash flows for the year then ended, in conformity with accounting principles +generally accepted in the United States of America. +Going Concern +The Company’s financial statements are prepared using +the generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and liquidation +of the liabilities in the normal course of business. The Company has an accumulated deficit of $178,971 for the year ended December 31, +2024. These factors as discussed in Note 2 of the financial statements raise substantial doubt about the Company’s ability to continue +as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include +any adjustments that might result from the outcome of this uncertainty. +Basis of Opinion +These financial statements are the responsibility of the Company’s +management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public +accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to +be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations +of the Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance with the standards +of the PCAOB. Those standards require we plan and perform the audit to obtain reasonable assurance about whether the financial statements +are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, +an audit of its internal control over financial reporting. As part of our audits. we are required to obtain an understanding of internal +control over financial reporting not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control +over financial reporting. Accordingly, we express no such opinion. +Our audits included performing procedures to assess +the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond +to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. +Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating +the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. +F- 2 +Critical Audit Matters +Critical audit matters arising from the current period of +the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts +or disclosure that are material to the financial statements and (2) involve especially challenging, subjective, or complex judgements. +The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we +are not, by communicating the critical audit below, providing separate opinions on the critical audit matters or the accounts or disclosures +to which they relate. +Related party transactions. +As discussed in Note 6 to the financial statement, the Company +has borrowed from related parties an amount $650,226 as of the date of December 31, 2024. The procedure performed to address the matter +included: obtaining confirmation from related party. +We have served as the Company’s auditor since 2024. +M. S. Madhava Rao, Chartered Accountant +Bangalore, India +April 8, 2025 +0 6662 +F- 3 +Report of Independent Registered Public Account Firm +To the Board of Directors and Stockholders Eco Bright Future Inc. +and Subsidiaries +Opinion on the Financial Statements +We have audited the accompanying consolidated +balance sheets of Eco Bright Future Inc. and Subsidiaries (the “Company”) as of December 31, 2023 and 2022, and the related +consolidated statements of operations, stockholders’ equity and cash flows for the years ended December 31, 2023 and 2022, and the +related notes to the financial statements. In our opinion, these financial statements present fairly, in all material respects, the financial +position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for the years ended December +31, 2023 and 2022, in conformity with accounting principles generally accepted in the United States of America. +Going Concern +The accompanying financial statements have been +prepared assuming that the entity will continue as a going concern. As discussed in Note 3 to the financial statements, the entity has +suffered recurring losses from operations and has a net capital deficiency that raises substantial doubt about its ability to continue +as a going concern. Management’s plans in regard to these matters are also described in Note 3. The financial statements do not +include any adjustments that might result from the outcome of this uncertainty. +Basis for Opinion +These financial statements are the responsibility +of the entity’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We are +a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required +to be independent with respect to Eco Bright Future Inc. and Subsidiaries in accordance with the U.S. federal securities laws and the +applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance with the +standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require +that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, +whether due to error or fraud. Eco Bright Future Inc. and Subsidiaries is not required to have, nor were we engaged to perform, an audit +of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control +over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control +over financial reporting. Accordingly, we express no such opinion. +F- 4 +Our audits included performing procedures +to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that +respond to those risks. Such procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the financial +statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as +evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. +Critical Audit Matter +The critical audit matter communicated in the +Going Concern paragraph above is a matter arising from the current period audit of the financial statements that was communicated or required +to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements +and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not +alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter, +providing a separate opinion on the critical audit mater or on the accounts or disclosures to which it relates. +We have served as Eco Bright Future, Inc. and Subsidiaries’ +auditor since 2021. +Goff Backa Alfera and Company, LLC +Pittsburgh, Pennsylvania +April 29, 2024 +F- 5 +ECO BRIGHT FUTURE, INC. AND SUBSIDIARIES +CONSOLIDATED BALANCE SHEET +December 31, +2024 +2023 +ASSETS +Current Assets: +Cash +$ 67,784 +$ 14,761 +Accounts receivable +— +1,657 +Prepaid and other current assets +16,851 +982 +Total Current Assets +84,733 +17,400 +Non-Current Assets: +Software development in progress +425,500 +— +Intangible assets +4,806 +— +Computers and equipment +— +296 +Total Non-Current Assets +430,306 +296 +Total Assets +$ 515,039 +$ 17,696 +LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY +Current Liabilities: +Accounts payable and accrued expenses +$ 20,540 +$ 10,868 +Advances payable, related party +650,226 +— +Total Current Liabilities +670,766 +10,868 +Total Liabilities +$ 670,766 +$ 10,868 +Stockholders' (Deficit) Equity +Preferred Stock Series A; $ 0.001 par value, 100,000,000 and 10,000,000 shares authorized and 10,000,000 and 10,000,000 shares issued and outstanding, respectively +10,000 +10,000 +Common stock; $ 0.001 par value, 750,000,000 and 750,000,000 shares authorized and 100,690,000 and 100,690,000 shares issued and outstanding, respectively +100,690 +100,690 +Additional paid-in capital +( 90,935 ) +( 90,935 ) +Other comprehensive (loss) income +3,409 +( 334 ) +Accumulated deficit +( 178,971 ) +( 12,593 ) +Total Stockholders' (Deficit) Equity Attributable to Parent +( 155,807 ) +6,828 +Equity Attributable to Noncontrolling interest +5 +— +Total Stockholders' (Deficit) Equity +( 155,802 ) +6,828 +Total Liabilities and Stockholders' (Deficit) Equity +$ 515,039 +$ 17,696 +F- 6 +ECO BRIGHT FUTURE, INC. AND SUBSIDIARIES +CONSOLIDATED STATEMENTS OF OPERATIONS +For the Years Ended +December 31, +2024 +2023 +REVENUES +Service revenue +$ — +$ 32,132 +Total revenues +— +32,132 +OPERATING EXPENSES +Compensation expense +— +14,946 +Professional Fees +147,234 +— +General and administrative +21,799 +3,770 +Total Operating Expenses +169,033 +18,716 +OPERATING INCOME (LOSS) +( 169,033 ) +13,416 +OTHER INCOME (EXPENSES) +Interest expense +— +( 474 ) +Other expenses +— +( 493 ) +Other income +2,655 +682 +Total Other Income (Expenses) +2,655 +( 285 ) +INCOME (LOSS) BEFORE INCOME TAXES +( 166,378 ) +13,131 +Provision for income taxes +— +— +CONSOLIDATED NET INCOME (LOSS) +$ ( 166,378 ) +$ 13,131 +Consolidated net income (loss) attributable to noncontrolling interest +( 5 ) +— +CONSOLIDATED NET INCOME (LOSS) +$ ( 166,383 ) +$ 13,131 +OTHER COMPREHENSIVE INCOME (LOSS) +Foreign currency translation +7,500 +( 1,279 ) +OTHER COMPREHENSIE INCOME (LOSS) +$ ( 158,883 ) +$ 11,852 +INCOME (LOSS) PER COMMON SHARE +Basic +$ ( 0.00 ) +$ 0.00 +Diluted +$ ( 0.00 ) +$ 0.00 +WEIGHTED AVERAGE COMMON SHARES OUTSTANDING +Basic +100,690,000 +100,690,000 +Diluted +100,690,000 +100,690,000 +F- 7 +ECO BRIGHT FUTURE, INC. AND SUBSIDIARIES +CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY +Preferred +Stock +Common +Stock +Additional +Paid-In Capital +Retained +(Deficit) Earnings +Accumulated +Other Comprehensive Income (Loss) +Noncontrolling +Interest +Total +Stockholders’ (Deficit) +Equity +Shares +Amount +Shares +Amount +Balance, December 31, 2022 +— +$ — +2,000 +$ 19,108 +$ — +$ ( 25,724 ) +$ 945 +$ — +$ ( 5,671 ) +Recapitalization for merger acquisition on December 20, 2023 +10,000,000 +10,000 +100,688,000 +100,690 +( 110,043 ) +— +( 647 ) +— +— +Retirement of subsidiary common stock +— +— +— +( 19,108 ) +19,108 +— +— +— +— +Foreign currency translation +— +— +— +— +— +— +( 632 ) +— +( 632 ) +Net income for the year ended December 31, 2023 +— +— +— +— +— +13,131 +— +$ — +$ 13,131 +Balance, December 31, 2023 +10,000,000 +$ 10,000 +100,690,000 +$ 100,690 +$ ( 90,935 ) +$ ( 12,593 ) +$ ( 334 ) +$ — +$ 6,828 +Foreign currency translation +— +— +— +— +— +— +3,743 +— +3,743 +Net loss for the year ended December 31, 2024 +— +— +— +— +— +( 166,378 ) +— +5 +( 166,373 ) +Balance, December 31, 2024 +10,000,000 +$ 10,000 +100,690,000 +$ 100,690 +$ ( 90,935 ) +$ ( 178,971 ) +$ 3,409 +$ 5 +$ ( 155,802 ) +F- 8 +ECO BRIGHT FUTURE, INC. AND SUBSIDIARIES +CONSOLIDATED STATEMENTS OF CASH FLOWS +For the Years Ended +December 31, +2024 +2022 +Cash Flows From Operating Activities +Net income (loss) +$ ( 166,378 ) +$ 13,131 +Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: +Depreciation +296 +440 +Loss on foreign currency translation +3,409 +334 +Changes in operating assets and liabilities: +Accounts receivable +1,573 +( 1,657 ) +Other current assets +( 15,967 ) +( 761 ) +Accounts payable and accrued expenses +10,170 +( 2,750 ) +Net cash provided by (used in) operating activities +( 166,897 ) +8,737 +Cash Flows from Investing Activities +Software development costs +( 425,500 ) +— +Purchase of domain name +( 4,806 ) +— +Net cash used in investing activities +( 430,306 ) +— +Cash Flows from Financing Activities +Advances from related party +650,225 +— +Net cash provided by financing activities +650,225 +— +Net change in cash +53,023 +8,737 +Cash, beginning of year +14,761 +6,024 +Cash, end of year +$ 67,784 +$ 14,761 +SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: +Cash paid for interest +$ — +$ 474 +Cash paid for taxes +$ — +$ — +F- 9 +ECO BRIGHT FUTURE, INC. AND SUBSIDIARIES +FOOTNOTES TO CONSOLIDATED +FINANCIAL STATEMENTS +DECEMBER 31, 2024 and 2023 +NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES +The financial statements presented are those of Eco Bright +Future, Inc. and its wholly owned subsidiaries (“Eco Bright”, or the “Company”) United Heritage, Sociedad Anonmima +De Capital Variable (“UHS”) and its wholly owned subsidiary Universa Hub Africa (“UHSA” and collectively, “UHA”). +Eco Bright was incorporated on August 31, 2021 , under the laws of the State of Wyoming . UHS was incorporated on July 12, 2023, under the +laws of the country of El Salvador and UHSA was incorporated on March 28, 2019, under the laws of the country of Tunisia. The Company +intends to carry on the business of UHA as an artificial intelligence and blockchain technology company that utilizes real world tokenization +to create a virtual investment vehicle on the blockchain linked to tangible assets such as real estate, precious metals, art and collectibles. +The Company intends to provide digital assets from El Salvador, tokenize assets and develop blockchain tools for entry to countries such +as Tunisia and United Arab Emirates and plan to enter into agreements in connection with its blockchain products in Thailand, Indonesia, +and Guatemala. +On December 20, 2023, the Company entered into a Merger Agreement +with UHA that provided for the controlling owner and holder of 10,000,000 shares of Eco Bright’s Series A Preferred Stock to transfer +all of the Series A Preferred Stock to the beneficial owner of all of the 2,000 shares of capital stock of UHA, with 1,999 shares of UHA +common stock transferred to Eco Bright and 1 share retained to satisfy El Salvador corporate ownership laws. +Basis of Presentation +The Financial Statements and related disclosures have been +prepared using the accrual basis of accounting in accordance with Generally Accepted Accounting Principles (“GAAP”) of the +United States. Eco Bright has elected a calendar year-end. +Cash Equivalents +Eco Bright considers all highly liquid investments with maturities +of three months or less when purchased to be cash equivalents. +Use of Estimates +The preparation of financial statements requires management +to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities +at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results +could differ from those estimates. +Revenue Recognition Policy +Eco Bright recognizes revenue in accordance with the provisions +of Accounting Series Codification (“ASC”) 606, Revenue From Contracts With Customers (“ASC 606”), which +provides guidance on the recognition, presentation, and disclosure of revenue in financial statements. ASC 606 outlines the basic criteria +that must be met to recognize revenue and provides guidance for disclosure related to revenue recognition policies. In general, the Company +recognizes revenue based on the allocation of the transaction price to each performance obligation as each performance obligation in a +contract is satisfied. +The Company intends to provide digital assets from El Salvador +for sale, tokenize assets for sale and develop blockchain tools for sale that will provide entry to the market for countries such as Tunisia +and United Arab Emirates. During 2025, the Company plans to enter into agreements in connection with its blockchain products in Thailand, +Indonesia, and Guatemala. Revenue recognition for the sale of digital and tokenized assets will be based on the allocation of the transaction +price to each performance obligation as each performance obligation in a contract is satisfied, title or access to digital assets are +transferred and amounts are due are collected or collectible. +During the years ended December 31, 2024 and 2023, Eco Bright +recognized $ 0 and $ 32,132 of revenue, respectively, from providing consulting services related to blockchain technology software development +sales. Revenue was recognized when earned upon completion of services and acceptance by the customer. +F- 10 +ECO BRIGHT FUTURE, INC. AND SUBSIDIARIES +FOOTNOTES TO CONSOLIDATED +FINANCIAL STATEMENTS +DECEMBER 31, 2024 and 2023 +Accounts Receivable +Trade accounts receivable are recorded at invoiced amounts. +Eco Bright does not provide any unusual contractual trade terms, sales incentive programs or discounts. Allowances for doubtful accounts +are established for estimated losses resulting from the inability of customers to make required payments. Allowances are determined based +on a review of specific customer accounts where collection is doubtful, as well as an assessment of the collectability of total receivables. +Receivables are written off against the allowance when it is determined that the amounts will not be recovered. Due to exceptional collections +history, Eco Bright has not had any bad debt write-offs and there were no allowances for doubtful accounts as of and for the years ended +December 31, 2024, and 2023. Receivables were $ 0 and $ 1,657 as of December 31, 2024 and 2023, respectively. +Software Development Costs +In accordance with ASC 350-40, Internal Use Software, +Eco Bright capitalizes certain internal use software development costs associated with creating and enhancing internally developed software +related to its platforms. Software development activities generally consist of three stages (i) the research and planning stage, +(ii) the application and development stage, and (iii) the post-implementation stage. Costs incurred in the planning and post-implementation +stages of software development, or other maintenance and development expenses that do not meet the qualification for capitalization are +expensed as incurred. Costs incurred in the application and infrastructure development stage, including significant enhancements and upgrades, +are capitalized. Capitalized costs include personnel and related employee benefits expenses for employees or consultants who are directly +associated with and who devote time to software projects, and external direct costs of materials obtained in developing the software. +These software development costs, when placed in service, will be amortized on a straight-line basis over the estimated useful life upon +initial release of the software or additional features. See Note 4 for further details. +Stock-Based Compensation +Eco Bright records stock-based compensation using the fair +value method. Equity instruments issued to employees and the cost of the services received as consideration are accounted for in accordance +with ASC 718, Stock Compensation and are measured and recognized based on the fair value of the equity instruments issued. All +transactions with non-employees in which goods or services are the consideration received for the issuance of equity instruments are accounted +for in accordance with ASC 515, Equity-Based Payments to Non-Employees , based on the fair value of the consideration received or +the fair value of the equity instrument issued, whichever is more reliably measurable. There are no outstanding stock-based compensation +plans or awards issued as of December 31, 2024. +Fair Value of Financial Instruments +ASC 820, Fair Value Measurements (“ASC 820”) +and ASC 825, Financial Instruments (“ASC 825”), requires an entity to maximize the use of observable inputs and minimize +the use of unobservable inputs when measuring fair value. It establishes a fair value hierarchy based on the level of independent, objective +evidence surrounding the inputs used to measure fair value. A financial instrument's categorization within the fair value hierarchy is +based upon the lowest level of input that is significant to the fair value measurement. It prioritizes the inputs into three levels that +may be used to measure fair value: +Level 1 - Level 1 applies to assets or liabilities for which +there are quoted prices in active markets for identical assets or liabilities. +Level 2 - Level 2 applies to assets or liabilities for which +there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities +in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less +active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated +by, observable market data. +Level 3 - Level 3 applies to assets or liabilities for which +there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or +liabilities. +The carrying values of cash, other current assets, in-process +software development and property, as well as accounts payable and accrued expenses and related part payables approximate fair value. +Pursuant to ASC 820 and 825, the fair value of cash is determined based on "Level 1" inputs, which consist of quoted prices +in active markets for identical assets. +F- 11 +ECO BRIGHT FUTURE, INC. AND SUBSIDIARIES +FOOTNOTES TO CONSOLIDATED +FINANCIAL STATEMENTS +DECEMBER 31, 2024 and 2023 +New Accounting Pronouncements +Eco Bright has implemented all new accounting pronouncements +that are in effect and that may impact its financial statements. The Company does not believe that there are any other new accounting +pronouncements that have been issued that might have a material impact on its financial position or results of operations. +In November 2023, the Financial Accounting Standards Board +(“FASB”) issued Accounting Series Update (“ASU”) No. 2023-07, Segment Reporting (Topic 280): Improvements to +Reportable Segment Disclosures . ASU 2023-07 improves reportable segment disclosure requirements, primarily through requiring enhanced +disclosures about significant segment expenses. ASU 2023-07 also requires disclosure of incremental segment information on an annual and +interim basis for all public entities. ASU 2023-07 was effective January 1, 2024 for Eco Bright. The adoption of ASU 2023-07 did not have +a significant impact on Eco Bright’s consolidated financial statements. +In December 2023, the FASB issued ASU 2023-09, Income Taxes +(Topic 740): Improvements to Income Tax Disclosures (ASU “2023-09”). ASU 2023-09 address investor requests for more transparency +about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes +paid information. The amendments require that public business entities provide on an annual basis to (1) disclose specific categories +in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold. ASU 2023-09 +also requires all entities disclose on an annual basis the amount of income taxes paid disaggregated by federal, state and foreign and +disaggregated by individual jurisdictions for amounts greater than 5% of income taxes paid. ASU 2023-09 is effective for the Company for +fiscal years beginning after December 15, 2024, including interim periods within those fiscal years. Eco Bright is currently evaluating +the impact the adoption of the standard will have on its consolidated financial statements. +In November 2024, the FASB issued ASU 2024-04, Debt—Debt +with Conversion and Other Options (Subtopic 470-20): Induced Conversions of Convertible Debt Instruments (“ASU 2024-04”). +ASU 2024-04 clarifies the requirements for determining whether certain settlements of convertible debt instruments should be accounted +for as an induced conversion. ASU 2024-04 is effective for the Company for fiscal years beginning after December 15, 2025, including interim +periods within those fiscal years. Eco Bright is currently evaluating the impact the adoption of the standard will have on its consolidated +financial position and results of operations. +Other accounting standards that have been issued by the FASB +or other standards-setting bodies are not currently expected to have a material effect on Eco Bright’s consolidated financial position, +results of operations or cash flows. +Basic and Diluted Loss Per Share +Eco Bright presents basic earnings per share (EPS) on the +face of the statements of operation. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) +by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential +common shares outstanding during the period including convertible debt, stock options, and warrants, using the treasury stock method, +and convertible debt instrument, using the if-converted method. In computing diluted EPS, the average stock price for the period is used +in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive +potential shares if their effect is anti-dilutive. +The calculation of basic and diluted net income (loss) per +share is as follows: +Schedule of antidilutive securities excluded from computation of earnings per share +For the Years Ended +December 31, +2024 +2023 +Basic Income (Loss) Per Share: +Numerator: +Net income (loss) +$ ( 166,378 ) +$ 13,131 +Denominator: +Weighted average common shares outstanding +100,690,000 +100,690,000 +Basic net income (loss) per share +$ ( 0.00 ) +$ 0.00 +F- 12 +ECO BRIGHT FUTURE, INC. AND SUBSIDIARIES +FOOTNOTES TO CONSOLIDATED +FINANCIAL STATEMENTS +DECEMBER 31, 2024 and 2023 +For the Years Ended +December 31, +2024 +2023 +Diluted Income (Loss) Per Share: +Numerator: +Net loss +$ ( 166,378 ) +$ 13,131 +Denominator: +Weighted average common shares outstanding +100,690,000 +100,690,000 +Diluted net income (loss) per share +$ ( 0.00 ) +$ 0.00 +Income Taxes +Eco Bright records income taxes under the asset and liability +method, whereby deferred tax assets and liabilities are recognized based on the future tax consequences attributable to temporary differences +between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and attributable to +operating loss and tax credit carryforwards. Accounting standards regarding income taxes requires a reduction of the carrying amounts +of deferred tax assets by a valuation allowance, if based on the available evidence, it is more likely than not that such assets will +not be realized. Accordingly, the need to establish valuation allowances for deferred tax assets is assessed at each reporting period +based on a “more likely than not” realization threshold. This assessment considers, among other matters, the nature, frequency +and severity of current and cumulative losses, forecasts of future profitability, the duration of statutory carryforward periods, the +Company’s experience with operating loss and tax credit carryforwards not expiring unused, and tax planning alternatives. +Significant judgment is required in evaluating the Company’s +tax positions and determining its provision for income taxes. During the ordinary course of business, there are many transactions and +calculations for which the ultimate tax determination is uncertain. Accounting standards regarding uncertainty in income taxes provides +a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition +by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, +including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest +amount which is more than 50% likely, based solely on the technical merits, of being sustained on examinations. Eco Bright considers many +factors when evaluating and estimating its tax positions and tax benefits, which may require periodic adjustments and which may not accurately +anticipate actual outcomes. +NOTE 2 - GOING CONCERN +Eco Bright's consolidated financial statements are prepared +using Generally Accepted Accounting Principles applicable to a going concern that contemplates the realization of assets and liquidation +of liabilities in the normal course of business. However, Eco Bright has recently accumulated losses since its inception and has had negative +cash flows from operations until 2023, which raise substantial doubt about its ability to continue as a going concern. Management's plans +with respect to alleviating the adverse financial conditions that caused management to express substantial doubt about the Eco Bright's +ability to continue as a going concern are as follows: +The ability to continue Eco Bright’s operations depends +on its ability to generate and grow revenue and results of operations as well as our ability to access capital markets when necessary +to accomplish strategic objectives. We expect to continue to incur losses for the immediate future and will need additional equity or +debt financing until we can achieve profitability and positive cash flows from operating activities. Our future capital requirements for +operations will depend on many factors, including the ability to generate revenues and obtain capital. +There can be no assurance that Eco Bright will be able to +achieve its business plans, raise any more required capital or secure the financing necessary to achieve its current operating plan. The +ability of Eco Bright to continue as a going concern is dependent upon its ability to successfully accomplish the plan described in the +preceding paragraph and eventually attain profitable operations. The accompanying financial statements do not include any adjustments +that might be necessary if the Company is unable to continue as a going concern. +F- 13 +ECO BRIGHT FUTURE, INC. AND SUBSIDIARIES +FOOTNOTES TO CONSOLIDATED +FINANCIAL STATEMENTS +DECEMBER 31, 2024 and 2023 +NOTE 3 - SOFTWARE DEVELOPMENT COSTS +The Company is developing an open-source platform and developer +infrastructure to enable access to a global economy using real-world asset tokenization built on a proprietary blockchain. Research and +planning phase costs are expensed as incurred. Costs incurred in the application and infrastructure development stage, including significant +enhancements and upgrades, are capitalized. These costs to date have only included external consultants, but in the future could include +Company personnel and related employee benefits expenses for employees who are directly associated with and who devote time to software +projects and external direct costs of materials obtained in developing the software. +We incurred and capitalized software development costs of +$ 425,500 and $ 0 during the years ended December 31, 2024 and 2023, respectively. Upon completion, the Company will amortize its software +development costs on a straight-line basis over the estimated the useful life. +NOTE 4 - INCOME TAXES +Eco Bright files income tax returns in the U.S. federal jurisdiction. +Eco Bright’s policy is to recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in operating +expenses. Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences +and operating loss and tax credit carry forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary +differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced +by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets +will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of +enactment. +Net deferred tax assets consist of the following components: +Schedule of deferred tax assets +For the Years Ended +December 31, +2024 +2023 +Deferred tax assets: +Net operating loss carry forward +$ 44,988 +$ 10,069 +Valuation allowance +( 44,988 ) +( 10,069 ) +Net deferred tax asset +$ — +$ — +The federal income tax provision differs from the amount of +income tax determined by applying the U.S. federal income tax rate of 21 % to pretax income for the year ended December 31, 2024 and 2023 +due to the following: +Schedule of federal income tax +For the Years Ended December 31, +2024 +2023 +Pre-tax book income (loss) +$ ( 34,949 ) +$ ( 2,807 ) +Meals +20 +— +Valuation allowance +34,929 +2,807 +Federal Income Tax +$ — +$ — +The Company had net operating losses of approximately $ 214,229 +that can be used indefinitely. Due to the change in ownership in 2023, net operating loss carryforwards may be limited as to use in future +years. In accordance with the statute of limitations for federal tax returns, the Company’s federal tax returns for the years 2021 +through 2023 are subject to examination. +NOTE 5 - FOREIGN CURRENCY OPERATIONS +Eco Bright operates in foreign countries, specifically, Tunisia +during the years ended December 31, 2024 and 2023. As such, assets and liabilities of foreign subsidiaries are translated into United +States dollars at the rated of exchange in effect at year-end. The related translation adjustments are made directly to other comprehensive +income or loss. Income and expenses are translated at the average rates of exchange in effect during the year. Foreign currency gains +and losses are included in the results of operations and are generally classified in other income (expense) in the Consolidated Statements +of Operations. Accumulated other comprehensive income was $ 3,409 at December 31, 2024, Accumulated other comprehensive loss was $ 334 +at December 31, 2023. Foreign currency comprehensive net income was $ 3,409 for the year ended December 31, 2024 and foreign currency comprehensive +net loss was $ 334 for the year ended December 31, 2023. +F- 14 +ECO BRIGHT FUTURE, INC. AND SUBSIDIARIES +FOOTNOTES TO CONSOLIDATED +FINANCIAL STATEMENTS +DECEMBER 31, 2024 and 2023 +NOTE 6 - RELATED PARTY TRANSACTIONS +During the year ended December 31, 2024, an officer and director +of the Company lent a total of $ 613,423 in short-term advances. The advances are unsecured, do not bear interest and are due on demand. +During the year ended December 31, 2024, a significant shareholder +and director of the Company lent a total of $ 36,802 in short-term advances. The advances are unsecured, do not bear interest and are due +on demand. +NOTE 7 - SUBSEQUENT EVENTS +On Jan 11, 2025, the Company issued 350,000 restricted shares +of common stock for $ 595,000 cash, or $ 1.70 per share. +On Feb 19, 2025, the Company issued 195,000 of restricted +shares of common stock in exchange for a $ 487,500 note payable to an officer and director, or 2.50 per share. +F- 15 \ No newline at end of file diff --git a/raw/filings/0001919182/2024/0001171520-25-000088/filing_metadata.csv b/raw/filings/0001919182/2024/0001171520-25-000088/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..3d23a59a2949c2f94e387359fa66aa0ce7851661 --- /dev/null +++ b/raw/filings/0001919182/2024/0001171520-25-000088/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001919182,UTKN,Universal Token,2024,10-K,2025-04-09,2024-12-31,2025-04-09T19:03:44.000Z,0001171520-25-000088,eps11833_efbi.htm,,4233203,1,1,https://www.sec.gov/Archives/edgar/data/1919182/000117152025000088/eps11833_efbi.htm,https://www.sec.gov/Archives/edgar/data/1919182/000117152025000088/ diff --git a/raw/filings/0001919182/2024/0001171520-25-000088/item1.txt b/raw/filings/0001919182/2024/0001171520-25-000088/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..1ffe5a192690b3ea28f0a16bed69bb66d375eaf1 --- /dev/null +++ b/raw/filings/0001919182/2024/0001171520-25-000088/item1.txt @@ -0,0 +1,525 @@ +Item 1. Business. +Forward-Looking and Cautionary Statements +There are statements in this registration statement that are +not historical facts. These “forward-looking statements” can be identified by the use of terminology such as “believe,” +“hope,” “may,” “anticipate,” “should,” “intend,” “plan,” “will,” +“expect,” “estimate,” “project,” “positioned,” “strategy” and similar expressions. +You should be aware that these forward-looking statements are subject to risks and uncertainties beyond our control. To discuss these +risks, you should read this entire registration statement carefully, especially the risks discussed under the “Risk Factors” +section. Although management believes that the assumptions underlying the forward-looking statements included in this registration statement +are reasonable, they do not guarantee our future performance, and actual results could differ from those contemplated by these forward-looking +statements. The assumptions used for purposes of the forward-looking statements specified in the following information represent estimates +of future events and are subject to uncertainty as to possible changes in economic, legislative, industry, and other circumstances. As +a result, the identification and interpretation of data and additional information and their use in developing and selecting assumptions +from and among reasonable alternatives require the exercise of judgment. To the extent that the assumed events do not occur, the outcome +may vary substantially from anticipated or projected results. Accordingly, no opinion is expressed on the achievability of those forward-looking +statements. In light of these risks and uncertainties, there can be no assurance that the results and events contemplated by the forward-looking +statements contained in this registration statement will transpire. You are cautioned not to place undue reliance on these forward-looking +statements, which speak only as of their dates. We do not undertake any obligation to update or revise any forward-looking statements. +Website Access to SEC Reports +Our website at www.ecobrightfuture.com provides information +about our company as well as copies of our reports filed with the SEC including annual and quarterly financial reports. To view the filings +visit the website above and click on “filings” to view SEC filings. The SEC also maintains a website at www.sec.gov that contains +reports, proxy and information statements, and other information regarding public companies, including Eco Bright. Any reports filed with +the SEC may also be obtained from the SEC’s Reference Room at 100F Street, NE, Washington, DC 20549. +ORGANIZATIONAL HISTORY +We were incorporated in the State of Wyoming in August 2021. +We filed a Regulation A Offering in April of 2022. In December of 2023 we completed a reverse recapitalization with United Heritage, an +El Salvador Corporation “United Heritage”), and its wholly owned subsidiary, Universa Hub Africa (“UHA”, or “Universa +Hub Africa”), a Tunisian Corporation. Our current jurisdictions that we consolidate financials in and own any tangible or intangible +assets are Tunisia, El Salvador, and the United States. A 1-U was filed in regards to this change of business on December 28, 2023. El +Salvador is currently a holding company and there are no bank operations or bank accounts in El Salvador. +The reverse recapitalization was completed in December 2023 +and the consolidated financial statements are based on UHA’s historical financial statements and Eco Bright’s historical financial +statements, as adjusted, to give effect to UHA’s reverse recapitalization of the Company. +About Universa Hub Africa: +Universa Hub Africa is currently operating a blockchain application +in Tunisia and has consulted with the Tunisian Government. This blockchain assists the government in interfacing with a top telecom operator +in Tunisia (TOPNET). The blockchain is permissioned by Universa Hub Africa to the Tunisian Government. We assisted in the technical implementation +of the blockchain and they now operate the blockchain. We are involved currently as consultants to assist the government in their specific +needs and small changes they need with the blockchain. They operate and monitor the blockchain from a government level and are currently +in full control of the blockchain they are using. Universa Blockchain which is owned by Universa Hub Africa is a public blockchain that +operates and is available to the public. This blockchain is the same blockchain that will be used for our plans throughout the world to +implement the tokenization of real world assets and will also be the blockchain that supports our open source options for other developers. +Our blockchain operates at more than 30,000 transactions per second and is very secure. Universa Hub Africa has worked with the Tunisian +Government and they run a private version of our public blockchain on their servers. The Tunisian Government is also looking at other +implementations of the universa blockchain throughout the country as they experience the efficiency and organization universa blockchain +provides. There is no guarantee the Tunisian Government will implement other blockchain activities. Our agreement with them was a one +time agreement and we are available as consultants to help them maintain or service the blockchain they operate. They are not under an +exclusive agreement to only use our services to consult. We do not have ongoing agreements with Tunisia other than our contracting services. +We believe they will continue to use our consulting services to maintain the blockchain and we also will discuss future projects with +the Tunisian Government. We do not currently have any material agreements with them. +1 +Currently, the Internet Agency of Tunisia (ATI) has partnered +with and signed a 10 year partnership with Universa Hub Africa – see details here - https://cointelegraph.com/news/tunisia-internet-agency-signs-strategic-partnership-with-blockchain-platform. +The Internet Agency of Tunisia (ATI) had already entered into +a 10-year renewable strategic partnership to provide hosting services for the platform and ensure its further development. +On July 7, 2020, the launch of Tunisia's global national blockchain +network was publicly approved and signed during the presentation of the results of the partnership between ATI (Tunisia's leading Internet +services and technology solutions company) and Universa Hub Africa, held by representatives of the leadership of the participating parties. +In the process of formally approving the launch, during a +live video stream (available at https://lnd.im/2020TunisianNationalBlockchainLaunch), the officials (Moez Maaref, CEO and President of +ATI, Omar Bouattay, Head of Universa Hub Africa, and Alexander Borodich, Universa CEO), signed Public Private Partnership (PPP) documents +using one of the newly launched blockchain services, the certified digital signature service MyDocuments.tn, deployed in Tunisia and available +to ordinary Tunisian citizens wishing to officially sign their documents. Future planned developments are oriented towards Smart Cities, +e-government and citizen-oriented services. +During the speech, Alexander Borodich, CEO of Universa, said: +“Any +developers, startups, entrepreneurs will be able to create any services based on blockchain: digital passports, smart contracts for loans, +insurance, supply chain management, providing quality guarantees.” +The +National Tunisian Blockchain Network is based on the latest technological developments of Universa Blockchain and is open in Tunisia +for both end-users and future integrations with an ever-increasing range of public services and business processes. The next key points +of the project are planned to be the launch of a national Domain Name System (“DNS”) service on top of blockchain, a decentralized +identity system, blockchain web services and several other services in Tunisia. The Tunisian government is currently operating the DNS +and we have not recognized any revenues from the project as they operate the service independently. We do have the ability to consult +with them and earn revenues in the future as disclosed in the disclosure document. +The ten-year agreement with ATI was executed in 2018 and is +renewable at its end or can be cancelled at any time by either party. Universa Hub Africa fulfilled the delivery of the platform and software +in 2021. ATI has agreed to provide hosting services for the platform in exchange for use of the platform. Potential revenues from this +agreement will be realized as contractor work on a case by case basis as requested by ATI. +About United Heritage: +United Heritage was established to obtain licensing in El +Salvador as a Digital Asset Service Provider to allow tokenization of certain assets and commodities. The operations of this company at +the moment are minimal and the company is waiting for the applications to be approved by the Salvadorian Government. +Present Operations +Eco Bright Future, Inc. was founded in 2021 and is headquartered +in El Salvador. Eco Bright Future, Inc., together with its subsidiaries (the “Company”), intends to engage in the financial +technology and blockchain business worldwide. The blockchain is a proprietary blockchain developed by Universa Hub Africa. The proprietary +blockchain allows the company to be independent of third party blockchain to complete transactions and operate. The proprietary blockchain +also allows the company to build additional value added services that do not require the permission and appropriate integrations into +a third party blockchain. The company builds tools to help people in accessing the economy via mobile and digital services. We are also +planning to be involved in digital asset tokenisation, as well as digital wallet activities. The company does not engage in crypto asset +trading and we do not own crypto assets in our own account. During 2018 to 2021, the company built a digital sugar exchange that was tested +and used in Dubai (“UAE”) using a digital exchange service we believe can be used for other digital assets and commodities. +The Company is currently building an open source platform and developer infrastructure which we believe will enable anyone to access and +participate in the global economy and Real-World Assets (“RWA”) tokenisation. +2 +We have applied for a Digital Asset Service Provider license +and have had an interview over video conference with the CNAD. The National Commission of Digital Assets (“CNAD”) in El Salvador +is a regulatory authority dedicated to overseeing and promoting the development of the digital assets ecosystem. We are still in the process +of providing the required information with CNAD such as an external audit of our platform, certain security manuals and operational procedure +manuals. We also have recently retained a local security officer as a requirement from CNAD. This individual is required to be a resident +of El Salvador and will be the local contact for CNAD. We also believe that our El Salvador license will allow us to operate within Guatemala +and have also applied for licensing in the country of Thailand. We expect to have a digital license agreement with a current bank in Thailand +during the fourth quarter of 2025 and are currently negotiating with two separate banks and we have signed non-disclosure agreements. +We have no material agreements with El Salvador at this time +as we are waiting for our licensing to be approved. There are no current contracts in place other than El Salvador. This contract is for +a Digital Asset Service Provider (“DASP”) which will allow the company to legally issue digital assets as tokens and transfer +assets on our proprietary blockchain. These assets are able to be transferred across a variety of wallets due to our open-source code. +We have a robust (KYC “ Know Your Customer”) and AML (“Anti Money Laundering”) process that will track and monitor +suspicious activities, and we are working closely with the Governing body in El Salvador to complete this licensing and progress with +our business plan. We have had talks with the other jurisdictions and have been given the licensing requirements and applications. The +applications have not been submitted at this time. These are the current jurisdictions we are operating or intending to operate in the +very near future. Licensing is required in most jurisdictions we will enter from the individual country. We believe our current plans +to license in Thailand will open up an opportunity in Indonesia under a cooperative license agreement between the two countries. We also +believe that our license in El Salvador will open opportunities in Guatemala, allowing us to enter these jurisdictions using the licenses +from other countries. Licensing requirements could change based on geopolitical policies or other policies outside of our control. Growth +into other jurisdictions will be selected based on the highest probability of approval of the licenses. The blockchain and back-end programming +(back-end programming is the implementation of our platform with the central banks and other organizations we will work with. This back-end +programming will involve the integration from other services into our application interface. These programming needs vary from customer +to customer and depends greatly on what type of API integration they have built within their framework. Many of the clients we are targeting +are central banks, and they typically have quite robust API systems that allow us to integrate quickly, inexpensively and effectively.) +including the ability to transfer Real World Assets within our ecosystem, is complete and ready to use within our blockchain. There will +be certain programming needs in most of the jurisdictions we enter to integrate with local regulations and rules. This includes any integration +with central banks or local banks that will be involved in our transfers or currency conversions from a gold backed currency to local +currencies. Integrations are expected to take anywhere from 1 month to 6 months to complete, with more complex integrations taking longer +to integrate certain tracking systems that will be monitoring the tokenization process and ensuring that all tokens are backed by actual +assets and commodities. +The cost to obtain these licenses is less than $10,000 in +licensing fees. There can be capital requirements with some central banks that require an escrowed amount of cash up to $500,000 and this +would be money we would likely use from funds raised or we will have to use revenues to pay for it if we are unable to raise the funds +publicly. If we are unable to fund these terms for escrow we would need to wait to enter the jurisdictions that require that escrow. El +Salvador and UAE do not require an escrow account with the licensing we have applied for. El Salvador licensing is reciprocal in some +jurisdictions in central and South America. We will continue to monitor which countries allow a reciprocal licensing agreement. +The current countries we intend to work with will offer the +same product and tokenization but could vary with implementation due to regulatory or licensing requirements. Our ability to individually +adapt to the local needs of our clients and customers is one of our greatest competitive strengths. This is also one of the ways which +we could potentially reach the need to register as an investment company in the future. Currently our Tokenization process and current +plans for exchanging digital assets do not currently meet the Howey Test as the current assets and commodities that are tokenized are +not expected to give returns based on the reliance of other peoples efforts. +The company currently does not meet the requirements to need +to register as an investment company. We will continue to monitor the situation as it changes and maintain compliance with SEC governing +rules even when we are dealing with foreign jurisdictions. We have consulted with our attorney, and we will continue to monitor current +regulations and changes in regulations and reporting requirements. We are also working with many attorneys in jurisdictions outside the +United States. Our ability to adapt to the changing regulatory environments is critical to the success of our business plan. As we continue +forward, we will consult on a regular basis with our inside counsel, and we will also engage outside counsel to review our strategies +to provide their opinion on our compliance with current regulations and guidelines. Our business plan is specific to providing a software +solution to businesses and governments that will allow them to provide these services to their population and their clients. We do not +custody the tokens. The custody will be with the government or business providing the token or will be held by the end user. End user +is the holder of the token or asset and is the customer of the government or business tokenizing the asset (“end user”) The +end user will hold the token in their wallet or stored locally on their personal device. In case of loss of device there is a record that +the end user can access by verifying their identity. This is done with our KYC AML partner Sub Sum and they have an extremely robust service +that has been implemented across several networks successfully and securely. +3 +We will be operating under regulations in El Salvador, Tunisia, +UAE and Thailand mainly with our initial plans. These countries have been passing and modifying laws quickly regarding blockchain and +cryptocurrency technologies and currencies. As we work with these countries and their licensing agencies, we intend to partner with them +to help pioneer future policies and procedures. We intend to work directly with the licensing agencies and government agencies to ensure +that we meet the specific criteria that they always implement. As a US company we will also have disclosure documents that will need to +be provided under US law even if we are not operating or accepting clients in the USA. Our revenue projections before we obtain the licenses +is minimal. We will have some consulting revenue, but our main source of revenue will be when our licensing allows us to provide the services +for digital assets. If we are unable to obtain licenses in the countries, we are targeting we will be required to re-evaluate our business +plan for viability. +It is currently planned not to accept clients, businesses, +end users or customers from certain jurisdictions. Individuals or businesses in these jurisdictions will not pass our KYC/AML process. +These jurisdictions include the United States of America and European Union countries. The KYC process will not allow individuals with +passports from these jurisdictions use our services. Additionally, if a certain territory or jurisdiction is prohibited from using our +service, we will be able to adjust our KYC protocols accordingly to prohibit unauthorized access. Our KYC and AML policies will stop end +users’s “clients” and “large corporations” that want to use our open source, wallets or blockchain from +setting up accounts. Our KYC and AML policies are provided by SumSub which monitor and protect our platform. This KYC and AML service +verifies users, businesses and transactions while simultaneously managing cases and deterring fraud. The system includes email and phone +risk assessments and device intelligence. We go through a very thorough ID Verification, Liveness face match, address verification, live +agent video call, QES/eIDAS, NFC, Known face search, blocklist check and duplicate check. Our AML screening screens for PEP and sanctions +amongst other important factors such as ongoing fraud monitoring and suspicious transaction reporting. +Our Tokenization process and current plans for exchanging +digital assets do not currently meet the Howey Test as the current items planned to be tokenized are commodities and are not expected +to give returns based on the reliance of other people’s efforts. There could be a need to register an offering with the SEC when +certain real estate transactions are tokenized or other digital assets that meet the “Howey Test”. We will review each tokenization +process and register the appropriate offerings with the SEC. +Our Tokenization process is currently allowing us to take +a commodity (such as gold) and tokenize it using the Universa Blockchain. This process allows the gold to be held in a secure location +with proper tracking using serial number issuances and converting those serial numbers to tokens. Owning the tokens gives rights and ownership +to the gold that is registered under that serial number. This process is being facilitated with a bank that will hold and store the gold +in a secure location that is covered by bank insurance. +Universa is an open-source blockchain platform for cryptographically +secured accounting and control of the creation and modification of smart contracts - structured documents, so-called Ricardian Contracts. +Consensus. +Universa uses PoA (Proof-of-Authority) consensus - the block/data +is considered correct, if the correctness/acceptability of the block has been confirmed by nodes within a mutually authenticated network +topology. +Universa does not use the PoW (Proof-of-Work), PoS/DPoS (Proof-of-Stake, +Distributed Proof-of-Stake) and similar ones. Universa does not require any “mining”, wasting computing resources simply to +draw lots for the right to register blocks. In addition, data is registered in blocks in a non-routine fashion (periodic, every n seconds) +generation of blocks, but immediately at the moment of receipt, without forced delays until the next block. This made it possible to reach +a speed of 30,000 transactions per second. +Distributed Ledger Structure (DLT). +Each block/revision of a smart contract may contain one or +more descendant/new revision, e.g., in the case of split-join (split) resolution in a smart contract (example: A smart contract of some +token with a value of 1000 is split into three smart contracts, with amounts of 200, 300 and 500). +Also, each block/revision of a smart contract may contain +one or more parent/previous revision, e.g., in the case of split-join (join) resolution in a smart contract (example: three compatible +smart contracts of the same token, of 200, 300, and 500 are converted into a smart contract of this token of 1000). Thus, the revision +history of each particular smart contract represents a DAG (Directed Acyclic Graph); and the entire set of data recorded in the Universa +distributed registry is a set of DAGs. +Blocks content. +“Blocks” of a Universa distributed ledger (DLT) +are serialized revisions of the of smart contracts (structured documents), be it the very first (origin) revision of the document or subsequent +revisions. Each subsequent revision of the contract contains the cryptographic hash of the parent revision (forming a classic blockchain-like +structure). +4 +The Universa distributed registry's tasks do not include: +● Storing/accounting for simple value transfer transactions from address to address (similar to accounting +for cryptocurrencies/tokens, Bitcoin, ETH in Ethereum); +● Storage/accounting of the created program code of distributed applications (dApp), as well as intermediate +results of its launch (similar to Ethereum dApps). +However: +● Value transfer accounting can be simulated as one of the special cases of the use of smart contracts of +a general kind or if infrastructure is implemented to run distributed applications/dApps/UBots +The Universa network stores the fact/status of data fidelity +of a particular block (revision of a smart contract), determined by the HashID value of the contents of that block. Moreover, only the +fidelity status (APPROVED) of the contract is stored long term; the status of the contract's (e.g. REVOKED) of the contract is stored +only as long as necessary, to ensure that a similar contract in APPROVED status cannot be duplicated. +APPROVED. +Decentralization. +Nodes in the Universa network provide BFT-safe (Byzantine +Fault Tolerance) communication between the nodes and ensure decentralized consensus even in the case of malicious participants. The Universa +network does not contain centralized components that affect the logging of data registration in the network (such as the Kafka-based ordering +service in Hyperledger Fabric) +Data consistency. +The Universa registry registers (if the data is correct) the +required new revisions of the blocks immediately (after the obvious technical network delays associated with the verification and registration +of contracts), thus ensuring immediate consistency. +In the case of Universa, it is impossible to occur so-called +“orphan” blocks (Bitcoin) or uncles (Ethereum) - in which a block (and the data in it) that was once considered to be “correct” +is rolled back and deemed unregistered again when another block (and the data in it) when another, longer chain of validated blocks appears +in the blockchain. Unlike architectures like Bitcoin/Ethereum, the number of “validated” blocks does not matter (conventionally, +we can consider the number of validated blocks to be irrelevant and the number of confirmations required is - 0 or 1). Universa, by providing +immediate consistency, gives a more guaranteed timeframe of data fixation than in the case (with Bitcoin/Ethereum architectures) of eventual +consistency. +Our plan with the creation of digital wallets: we do not intend +to provide safe-guard crypto-assets services to our clients. Instead, we create infrastructure solutions for large corporate and government +customers in which end-users can use our digital infrastructure to securely transfer their rights to digital assets from one wallet to +another. We do not act as an agent and do not have access to clients' or customers' digital assets. +Tests with the digital sugar exchange in Dubai in 2018 to +2021 using the underlying technology platform provided a secure and transparent central registry of ownership for sugar commodities stored +in Dubai, where titles of stored commodities could be transferred or pledged within a robust legal and Sharia compliant framework. The +sugar exchange also facilitated physical inventories stored in warehouses around the UAE to be converted into electronic negotiable instruments +administered by the customer. +DMCC Tradeflow allows physical inventories that are stored +in DMCC certified and rated warehouses around the UAE to be converted into electronic negotiable instruments, ‘DMCC Tradeflow Warrants’, +governed by a strong and transparent regulatory regime and administered by DMCC. +Universa entered into a partnership agreement with Al Khaleej +Sugar and DMCC to launch the digital sugar exchange. Universa Digital Sugar Trading DMCC, has been registered at the Dubai Multi Commodities +Centre ("DMCC") under License No. DMCC-759128 with address at Unit No: 20-10-02, Jewellery, Gemplex 2, Dubai, United Arab Emirates +Dubai, UAE Al Khaleej Sugar and Universa DMCC signed the agreement to launch a digital sugar trading platform and entered into several +agreements to implement this project. In order to tokenize Al Khaleej Sugar DMCC's warrants, Universa Digital Sugar Trading DMCC integrated +the digital sugar platform with DMCC Tradeflow. Al Khaleej Sugar allocated 100,000 tons in its warehouse as a single warrant issued and +registered by DMCC Tradeflow. The term "paper warrant" was used to explain that the Tradeflow warrants were initially created +to mirror the physical warrants, and we added the digital layer of tokenization functionality that allows fractions of the warrant to +be traded without the need to reissue new warrants after each sale. Then the Digital Sugar Exchange platform was launched by Universa +DMCC, which allows traders to buy and sell these tokens after proper KYC/AML checks and onboarding procedures. +This agreement was done to test the viability of the project. +Currently the sugar exchange is not operating, and Eco Bright does not own and has not owned Universa Digital Sugar Trading DMCC in the +past. This is included in the disclosure as a sample for what will be done with the Digital Gold Exchange. +5 +Full explanation from the article describing the technology: +The DMCC operates an electronic +central registry of ownership of commodities called the Trade Flow (‘Tradeflow’). The platform has been developed with extensive +interaction from the DMCC members alongside advice from key regional financiers and commodity owners. The access to the Tradeflow is under +the DMCC Tradeflow Corporate Access Agreement dated 11th February 2013 (the ‘Corporate Access Agreement’). This registry uses +negotiable electronic title documents called DMCC Tradeflow warrants (‘Warrants’) to provide interested parties with the undisputed +proof of ownership and security interests attached to UAE based inventories. The Warrants are issued by storage operators (in the DMCC) +in accordance with the DMCC Warrant Rules annexed to Corporate Access Agreement (the “Warrant Rules”) and provide evidence +of specified goods (quantity and quality) being stored therein. Ownership of DMCC Tradeflow Warrants can be electronically transferred +between members using the web-based, secure interface. +The use of collateral management +in trade finance is increasingly seen as a tool that gives financiers a way to reduce and mitigate risk and offers much needed capital +relief. The DMCC has developed a pledge structure which allows commodity owners and their financiers to register pledges on the DMCC Tradeflow +being collateral in return for working capital financing. The advantage of a pledge for financiers is that it creates a security interest +over the assets, allowing them to be used to secure the performance of an obligation, i.e. a trade finance loan. The pledge is created +electronically in accordance with the DMCC Security Rules annexed to Corporate Access Agreement (the ‘Security Rules’). The +process involves registration of parties as participants with DMCC which is done by way of acceptance of the DMCC Tradeflow Corporate +Access Agreement (and all the Rules appended thereto including the Security Rules and Warrant Rules). Each participant (pledgor, storage +operator and the finance party) would sign a document called ‘Letter of Adherence’. +Security is created electronically +by way of electronic issuance of a standard format Security Notification (as defined in the Corporate Access Agreement) and Security Acceptance +(as defined in the Security Rules). In order to enter into subsequent transactions over the DMCC Tradeflow evidencing a pledge over future +Warrants (issued by the storage operator as and when additional goods are deposited), the pledgor (as the legal owner) is required to +issue a new Security Notification to the DMCC on the DMCC Tradeflow in relation to the new Warrant(s) instructing the DMCC to hold the +new Warrant(s) by way of pledge for the pledgee. Upon receipt of the Security Notification on the DMCC Tradeflow, the DMCC would hold +the said Warrant for the benefit of the pledgee. The pledgee upon the receipt of the Security Notification is required to issue and transmit +the Security Acceptance on the DMCC Tradeflow within seven (7) days of receipt thereof. The creation of security by way of pledge over +the Warrant(s) is subject to cancellation by the DMCC without notice if, within seven (7) days after the date of the Security Notification, +a Security Acceptance has not been received from the pledgee. +The Security Rules also provide +for a close out mechanism which permits enforcement of the pledge by way of sale of the Warrants by the DMCC (and the goods it represents) +without recourse to the pledgor or a court order on receipt of a Close Out Settlement Instruction (as defined in the Security Rules) as +prescribed in Rule 3 of the Security Rules. However, the recognition of the close out mechanism under UAE law requires detailed examination +as the concept of “self-help” is not recognised under UAE law and an order of a UAE court may be required for enforcement +of any security created under any of the security documents. Further, any default by the pledgor may not automatically give the pledgee +any right to attach the Warrants (or the goods). It may, however, instruct the DMCC on the DMCC Tradeflow by way of a Security Enforcement +Instruction (as defined in the Security Rules) to hold the goods in favour of the pledgee and not to release the same until the successful +conclusion of the proceeding or any judgment or appealable order issued by a UAE Court in relation to the pledgor’s default. +The storage operator warrants +or guarantees to hold the stored commodity by way of safe custody implying that although they are legally liable for any value lost through +theft or damage, they have no legal ownership in them except for the storage operator lien as highlighted below. As such, in case of liquidation, +the storage operator’s creditors will be unable to seek recourse to the commodities stored since the legal title remains with the +holder of the Warrants – as registered on the DMCC Tradeflow central registry. It is also important to note Rule 3.3 of the Security +Rules which provides the following order of priority in relation to any monies realized pursuant to the enforcement of security: +· First, in or towards satisfaction of any Storage Operator’s lien which is duly annotated on the +relevant Warrant at the time of sale; and +· Second, in or towards satisfaction of all costs, charges and expenses incurred, or payments made, by and +evidenced in writing by DMCCA in connection with such sale of the Warrant (or the Goods represented by the Warrant) (including the agency +fee referred to in Clause 3.5); and +· Third, in or towards satisfaction of all costs, charges and expenses incurred, or payments made, by and +evidenced in writing by the Tradeflow Finance Party in connection with such sale of the Warrant (or the Goods represented by the Warrant); +and +· Fourth, in or towards satisfaction of the Secured Obligations to which the relevant Warrant relates; and +6 +· Fifth, as to the surplus (if any), to the person or persons entitled thereto.’ +Therefore apart from +the cost of the DMCC for the sale of the Warrant (or the Goods represented by the Warrant), the realisation under the pledge documents +will also be subject to any limitation arising from the storage operator’s lien over the goods and such lien shall rank ahead of +the pledgee’s claim and shall include all lawful storage charges, money claims, insurance, transportation, labour, weighing, coopering +and any advertisement charges for auction of the goods in the event of a default. Accordingly, the storage operator may have priority +in the insolvency of the pledgor for unpaid rentals and other charges for the storage of goods in their vault. +Each paper warrant issued +by DMCC Tradeflow has a unique identifier that is converted to a token on the universa blockchain using the Tokenization process. This +allows the Paper warrant to be traded in Digital format for ease of transfer and ease of tracking custody and ownership rights to the +paper warrant. The unique Identifier is encrypted and embedded in the token on the blockchain and it allows a secure, safe and easy way +to trade the commodity. Our ongoing support for the exchange once the license is secured will be on a contract basis for software updates +and development and we are paid an exchange fee for transfers that are completed upon the blockchain in small percentages of the overall +trade volume. Each token equals 1 Kilo of sugar. +Digital rights holders register on the platform for +exchange transactions. Tangible assets are transferred to the platform as a result of an irrevocable, exclusive license to the platform +to sell assets to buyers around the world. +To become a holder of a digital asset, it can either be purchased +on the exchange platform or the tangible asset can be tokenised and then the tokenised asset can be entered on the exchange platform. +A simple asset rights exchange transaction: +The holder of a digital right to sugar would like to acquire +a digital right to gold. +In this case, the two holders of the tangible asset interact +via a smart contract to exchange digitised assets on the Universa Blockchain platform. The exchange platform has already validated the +rights to the tangible asset at the time of the seller's registration and the validation of the rights by the exchange stage is complete +and is guaranteed by the exchange platform with the limitations that due diligence of the ownership documents has been performed. +The tangible asset is available at the time of exchange, allocated +(weighed, packed and placed in a warehouse at the specified address), and the rights to the asset are validated: +a) in the Universa MainNet global distributed +registry +b) in the registry of the country of storage of +sugar, gold, etc. by a title entry (*title - hereinafter legally recognised ownership right). +At the moment when the exchange platform executes the smart +contract - the transfer of the title of ownership of the two parties to each other is initiated accordingly at the rate set at the time +of the transaction. +The exchange platform carries out the technical implementation +of the rules for exchanging rights to digital assets via blockchain and charges the buyer for each exchange fee in the form of a commission, +the rights to which are shared between the co-owners of this platform: UHA, sugar, gold and other holders of tangible assets. +It should be noted that in blockchain, the digital rights +to sugar or gold are transferred at the time of execution of the smart contract of transfer of rights on the platform. In English law, +an executed smart contract is binding and enforceable. For convenience, changes to the paper registry will be carried out infrequently, +for example, when the redeemed sugar or gold rights on the blockchain reach a threshold or when a digital right of claim is realised by +acceptance of the asset at the point of allocation. +The certificate of title of the asset (bill of lading) is +temporarily held by the custodian of sugar or gold at the time of exchange. +The custodian, a custodian, is vested with the rights of temporary +custodian of the tangible property until the goods are shipped to a third party designated by the owner. +The custodian acts for the owner of the asset to store, deliver +and ship to a third party, the buyer, under the terms of a digital smart contract. This is consistent with the text of the trust agreement. +The custodian charges a periodic fee for its services. The ownership rights in the registry of the country of possession do not change. +The fulfilment of the trust storage contract is achieved because +of the shipment of the entire allocated physical asset - gold or sugar - to the buyers. Bids for the asset are withdrawn from the exchange +floor until the allocation of a new portion of the asset for shipment to buyers at the storage location. +7 +The buyer, who has received the claim rights in the form of +a token on the exchange platform, inherits with the token the contract for storage of sugar and gold in the specified warehouse at the +place of allocation of the asset. +The right to hold title for the first owner until release +to the gold or sugar can be incorporated as a condition of the storage contract. In a storage contract, the condition has a set form known +in English law as Romalpa Clause to hold title until the buyer fulfils the terms of the contract, in this case the exit from a digital +asset into a tangible asset. By this provision, the smart contract and the custody agreement are harmonized. +The licensing for this project is not finalized. There was +a beta testing project where the exchange was operated and tested for reliability and ease of use. This test was done in cooperation with +Al Khaleej Sugar. The test was successful, and 100,000 tons of sugar was traded on the platform during the test and we are awaiting the +proper licensing in conjunction with Al Khaleej Sugar and the DMCC to proceed with the rollout of the project as a business model. Upon +rolling out the project Universa will be paid a transaction fee for each transaction posted on the network. This percentage will be negotiated +based on volume and will not exceed 5%. +The process of gold tokenization will be the same as it was +done by Universa DMCC for sugar tokenization. +The process will be as follows: +- Gold owner allocates the amount of gold to be +tokenized. +- Gold bars are reserved by DMCC TradeFlow system, +the warrant is issued +- Title of the warrant is transferred to the individual +or organization purchasing the tokenized asset via DMCC TradeFlow system. Universa Gold trading has yet to be registered as a legal entity. +We will register this entity as part of the licensing process. +- The digital tokens represent 1g of raw, stored +in the warehouse, guaranteed by this warrant. +- User buys tokens with fiat currency (AED, Dirham), +via Partner’s Bank +- Ownership of tokens (gold grams) will be transferred +to the buyer and registered on the gold blockchain network. +- User can sell tokens for fiat currency (AED, +dirham) and get money to their bank account or can order physical gold delivery through the digital gold trading platform (from 1kg) +- When the user requests delivery of gold bars, +the tokens are burned, the gold bars are delivered to the user and the Warrant is reissued using DMCC Tradeflow to eliminate the risk +of discrepancy between the amount of gold in storage and the amount of digital gold in circulation. +- Commission is paid in gold milligrams to the +gold owner, DMCC and our NewCo Gold Trading DMCC respectively +Our blockchain network doesn’t store the private keys, +it will be stored at the laptops, computers and mobile phones of our clients. Network is stored the full history of transactions, including +hash of both receiver and sender, which would allow us to find all information needed for KYT (know your transaction) procedures. +Any amount of gold tokens might be sold via online digital +platform, but only standard bars may be delivered in physical form. All milligrams might be easily converted back to national fiat currency +under current exchange rate. +Our material terms of our agreement are not finalized with +DMCC or Bank of Abu Dhabi. We expect the material terms to be as follows: +Individuals will be able to purchase gold as described above +in token form. This gold will be held by DMCC and Bank of Abu Dhabi. The owner of the gold at that time is the owner of the token. +The seller of the physical gold will be Emirates Gold. +Tokens can be redeemed for the gold and be sent electronically +or can be claimed in person at the bank. +Verification of the gold ownership will be tied to the token. +Tokens will accompany a serial number of a corresponding gold bar. This record his held as described above including a hash of both receiver +and sender meaning all transactions are recognized through our network and ownership chain will show a complete chain of “title” +or record of ownership of the corresponding gold. +An owner of a token has ownership rights to the gold. If a +person or entity holds this token it will have a completely verifiable background showing they are the rightful owner of the token. This +would allow them to claim the gold. If they lose their login there will be terms to verify their identity through our KYC process using +SubSum. The process to verify identity will be disclosed to users as they sign up for the platform. They must be able to prove identity +with a government issued valid form of identification and they must have the keys given to them when they opened their account. +8 +We also intend to implement an AI platform that will allow +users to interact with an AI engine to receive concierge services. They will be able to book hotels, make reservations at restaurants +and other services directly from their wallet. This service will be added later and will likely be in 3 rd or 4 th +quarter of 2025. The AI engine is prepared and can be implemented. The cost of implementing will mainly be advertising and getting companies +to integrate their reservation systems with our blockchain. We intend to fund this project from revenues which is why it is estimated +that it will be late in 2025 for implementation. If we are unable to fund this project from revenues, we would most likely delay implementation +for another year. Some of the difficulties in implementing this project will include the AI integration, Cost of acquiring customers and +integration into their reservation software and ongoing maintenance costs of supporting the ongoing AI integration. +The full implementation of our AI platform is not yet fully +planned in detail. We have a substantial amount of the code written for this and the expenses are not expected to be significant to finish +the product. We do anticipate significant expenses in the implementation and the marketing of the product. This will not start this year +and will be in the year 2025. We would fund the project off of perceived revenues from our success in our current business plan. If we +do not have the revenue from our current business plan, we would delay the roll out of the AI platform. We plan to generate revenue from +the AI engine through reservation fees through the concierge service. The plans to generate these revenues has also not fully been developed. +The rollout of the AI platform could be delayed for multiple reasons including but not limited to the revenues necessary to fund the platform, +the ability to market the platform and the ability to generate the necessary business plan to implement the platform. +Supplemental Information +Regarding the sugar exchange +The mentioned sugar exchange was operated as a test to prove +the concept of tokenization and how the trade would work. The digital sugar exchange operated from 2018 until 2021. It has not transacted +any business and does not currently hold any tokenized sugar. This entity was not consolidated as it was not operating and has not operated +in many years. +The “warrants” issued for the sugar were issued +by Al Khaleej Sugar. These warrants provided 1 kilo of sugar for the owner of the digital asset. This asset was never custodied by the +company. It went from Al Khaleej Sugar to the purchaser of the token through our software system. We are a software provider that facilitates +the transfer of these digital assets. +The company (EBFI) does not custody the actual asset and it +will not be held on the books of the company. The transaction fees associated with transferring the tokenized asset or commodity along +with some currency conversion fees is what the company will recognize as revenue. +The sugar exchange is not currently and will not likely be +a part of our ongoing business plan. This was structured to prove concept. It has been proven and will now be used for the gold tokenization +process. +The below points explain in summary how Project E-Sugar +has been carried out: +1. Al Khaleej Sugar LLC and Al Khaleej Sugar DMCC is registered +with Dubai Multi Commodities Centre (DMCC) as a Trade Flow Storage Operator and Trade Flow Owner respectively on the DMCC Trade Flow Platform, +being the storage keeper and owner of designated raw sugar quantities (“Raw Sugar”). +2. Universa Digital Sugar Trading DMCC (“Universa DMCC”) +developed and launched a digital platform (via website and mobile app) to trade in Raw Sugar using the blockchain technology (the “Platform”). +3. The Parties hereby agreed that the working structure for +Project E-Sugar will be as follows: +(1) AKS LLC in its capacity as Storage Operator under DMCC +Trade Flow Platform will issue (100.000) Sugar Warrants (“Sugar Warrants”) for the volume of 1 metric ton of raw sugar each +and sell them to AKS DMCC on the DMCC Trade Flow platform with full title. +(2) The platform provided by Universa DMCC allows Sugar Electronic +Warrants (SEW) to be traded digitally. +3. Sugar Warrants: Pursuant to the DMCC Trade Flow Agreement +AKS LLC will issue Sugar Warrants to AKS DMCC +4. The Sugar Warrants will be transferred via the blockchain +provided by Universa DMCC. SEW holders purchase their tokens using Fiat Currency through partner banks. +5. Insurance Agreement: AKS LLC and the designated Insurance +Company chosen by it will enter into an Insurance Agreement to ensure the Raw Sugar being traded through the Sugar Warrants and SEWs and +stored in AKS LLC facilities. +9 +6. SEW holders will be able to trade their SEWs on the Platform +subject to terms and conditions. SEW holders will also have the option to request physical delivery of the raw sugar represented by SEWs +they hold subject to a minimum delivery threshold of the value equivalent to each Sugar Warrant issued by AKS LLC +7. Upon receipt of confirmation of a physical delivery request +from Universa DMCC via the blockchain and the relevant Sugar Warrants, AKS LLC will be granted 60 days period to prepare the relevant +raw sugar quantities for physical pick up by the designated parties and notify Universa DMCC who in turn will notify the relevant parties +to proceed to pick up their sugar quantities. +8. The raw sugar delivery will be delivered at AKS LLC’s +refinery in Jebel Ali. +9. SEW holders that notify AKS LLC of their intent to collect +their quantities of raw sugar represented by their SEWs will surrender the same to Universa DMCC so such SEWs are not tradable anymore +on the Platform. AKS LLC will have the right to reissue warrants for the amount of redeemed sugar. AKS LLC is not required to reissue +the warrants. There will simply be fewer warrants available on the blockchain. +Summary: +This overview is to explain the process of the test that was +conducted to prove the concept. The blockchain served as an important piece of the process. Upon proof of concept, we have implemented +a plan to initiate the gold exchange. It will also work as listed above. +The Sugar exchange is not in use. Does not have current SEW’s +outstanding and has not since 2021. The entity Universa DMCC has no assets no revenue and is not operating. +As the Company continues its business development and asset +acquisitions, the Company anticipates our capital needs to be between $5,000,000 and $25,000,000 (varying based on growth strategies). +We will raise these funds through the sale of stock or offerings to the public. The difference in growth strategy will primarily be based +on how quickly we expand our client and userbase that is using our blockchain and wallet service. The more aggressive we can market will +allow us to attract more customers faster. If we raise the full amount of 25 million, we will also be able to enter at least 2 other regions. +These regions will be selected carefully in conjunction with our current operations and where we are currently having the most success +and profitability. If we raise less money we will not grow as fast, but our plans will be unchanged overall. We currently have the necessary +technology developed and most of our expenses will be in marketing and opening new areas which includes integration costs and licensing +fees. If we raise less than 5 million, we will be limited to expanding outside of El Salvador and UAE. If we raise 10 million, we will +be able to expand quickly into Thailand and if we raise 25 million, we will be able to expand into all the jurisdictions we are targeting +immediately upon receiving the licenses. If we raise less money, we will expand slower and continue our business operations in the jurisdictions +we are currently setting up. +Employees +We have one full time employee, our President, George Athanasiadis +and a part time CTO Tomaz Strgar. The Board retains consultants and advisors on as needed basis. They are compensated with cash and also +with the issuance of the Company’s common stock. +Facilities +Our corporate offices are located in Texas and El Salvador. +Our main operations will be spread across Central America and Asia. Consultants, advisors and contract service providers will work from +home offices and from our location in El Salvador. \ No newline at end of file diff --git a/raw/filings/0001919182/2024/0001171520-25-000088/item13.txt b/raw/filings/0001919182/2024/0001171520-25-000088/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..9b4a2e3ca8190ec17d03ae6e9dbbfa1f30f3acfa --- /dev/null +++ b/raw/filings/0001919182/2024/0001171520-25-000088/item13.txt @@ -0,0 +1,3 @@ +Item 13. +Certain Relationships and Related Transactions and Director Independence +24 \ No newline at end of file diff --git a/raw/filings/0001919182/2025/0001171520-26-000041/filing.txt b/raw/filings/0001919182/2025/0001171520-26-000041/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..d759bfe3421987cd9fb6b2f4bbd041b60e859353 --- /dev/null +++ b/raw/filings/0001919182/2025/0001171520-26-000041/filing.txt @@ -0,0 +1,2572 @@ +false +FY +2025 +0001919182 +0001919182 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+0001919182 +utkn:ShareholderAndDirectorMember +2025-12-31 +0001919182 +utkn:ShareholderAndDirectorMember +2024-12-31 +0001919182 +srt:ScenarioPreviouslyReportedMember +2024-12-31 +0001919182 +utkn:AsReportedMember +2024-12-31 +0001919182 +2025-10-01 +2025-12-31 +iso4217:USD +xbrli:shares +iso4217:USD +xbrli:shares +xbrli:pure +U.S. +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +FORM 10-K +(Mark One) +☑ ANNUAL +REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the fiscal year ending December +31 , 2025 +☐ TRANSITION +REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For +the transition period from______to______ +Commission +File Number: 000-56658 +UNIVERSAL TOKEN, INC. +(Formerly Eco Bright Future, +Inc.) +(Exact name of registrant as +specified in its charter) +Wyoming +87-2595314 +(State +or other jurisdiction of +(I.R.S. +Employer +incorporation +or organization) +Identification +No.) +World Trade Center El Salvador +Calle El Mirador , 87 Ave Norte +San Salvador El Salvador 00000 +(Address of principal executive offices) (Zip Code) +Registrant’s telephone +number, including area code: ( 727 - 692-3348 ) +Securities to be registered +under Section 12(b) of the Act: None +Securities to be registered +under Section 12(g) of the Exchange Act: +Title +of each class +Trading +Symbol +Name +of each exchange on which registered +Common +UTKN +OTCQB +Indicate by check +mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ +No ☑ +Indicate by check +mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ +No ☑ +Indicate by check +mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 +during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject +to such filing requirements for the past 90 days. Yes ☑ +No ☐ +Indicate by check +mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of +Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required +to submit such files). Yes ☑ No ☐ +Indicate by check mark whether +the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging +growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting +company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. +Large +accelerated filer ☐ +Accelerated +filer ☐ +Non-accelerated filer ☑ +Smaller +reporting company ☑ +Emerging +Growth Company ☑ +If +an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying +with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ +Indicate +by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness +of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered +public accounting firm that prepared or issued its audit report. ☐ +If securities +are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included +in the filing reflect the correction of an error to previously issued financial statements. ☐ +Indicate +by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation +received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ +Indicate +by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ +No ☑ +The aggregate market value +of the voting stock held by non-affiliates of the registrant, based upon the closing sale price of the registrant’s common stock +of $4.15 per share on September 30, 2025, the last business day of the registrants most recent completed third quarter, and 26,566,000 +shares held by non-affiliates was $ 110,248,900 . +As of December 31, 2025, the +Registrant had 101,561,000 issued and outstanding shares of Common Stock. +TABLE OF CONTENTS +PART I +Page +Item +1. +Business +1 +Item +1A. +Risk +Factors +3 +Item +1B. +Unresolved +Staff Comments +9 +Item +1C. +Cybersecurity +9 +I tem +2. +Properties +10 +Item +3. +Legal +Proceedings +10 +Item +4. +Mine +Safety Disclosures +10 +PART II +Item +5. +Market +for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +11 +Item +6. +Reserved +11 +Item +7. +Management’s +Discussion and Analysis of Financial Condition and Results of Operations +11 +Item +7A. +Quantitative +and Qualitative Disclosures about Market Risk +15 +Item +8. +Financial +Statements and Supplementary Data +15 +Item +9. +Changes +In and Disagreements With Accountants On Accounting and Financial Disclosure +33 +Item +9A. +Controls +and Procedures +33 +Item +9B. +Other +Information +34 +Item +9C. +Disclosure +Regarding Foreign Jurisdictions that Prevent Inspections +34 +PART III +Item +10. +Directors, +Executive Officers, and Corporate Governance +35 +Item +11. +Executive +Compensation +36 +Item +12. +Security +Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +37 +Item +13. +Certain +Relationships and Related Transactions and Director Independence +38 +Item +14. +Principal +Accounting Fees and Services +38 +PART IV +Item +15. +Exhibits +and Financial Statement Schedules +39 +Signatures +40 +Part +1 +Item 1. Business. +Forward-Looking and +Cautionary Statements +There are statements in this +registration statement that are not historical facts. These “forward-looking statements” can be identified by the use of +terminology such as “believe,” “hope,” “may,” “anticipate,” “should,” “intend,” +“plan,” “will,” “expect,” “estimate,” “project,” “positioned,” +“strategy” and similar expressions. You should be aware that these forward-looking statements are subject to risks and uncertainties +beyond our control. To discuss these risks, you should read this entire registration statement carefully, especially the risks discussed +under the “Risk Factors” section. Although management believes that the assumptions underlying the forward-looking statements +included in this registration statement are reasonable, they do not guarantee our future performance, and actual results could differ +from those contemplated by these forward-looking statements. The assumptions used for purposes of the forward-looking statements specified +in the following information represent estimates of future events and are subject to uncertainty as to possible changes in economic, +legislative, industry, and other circumstances. As a result, the identification and interpretation of data and additional information +and their use in developing and selecting assumptions from and among reasonable alternatives require the exercise of judgment. To the +extent that the assumed events do not occur, the outcome may vary substantially from anticipated or projected results. Accordingly, no +opinion is expressed on the achievability of those forward-looking statements. In light of these risks and uncertainties, there can be +no assurance that the results and events contemplated by the forward-looking statements contained in this registration statement will +transpire. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. We +do not undertake any obligation to update or revise any forward-looking statements. +Website Access to SEC Reports +Our +website at www.universaltoken.com provides information about our company as well as copies of +our reports filed with the SEC including annual and quarterly financial reports. To view the filings visit the website above and click +on “filings” to view SEC filings. The SEC also maintains a website at www.sec.gov that contains reports, proxy and information +statements, and other information regarding public companies, including Universal Token, Inc. Any reports filed with the SEC may also +be obtained from the SEC’s Reference Room at 100F Street, NE, Washington, DC 20549. +ORGANIZATIONAL HISTORY +Universal Token, Inc., (together +with its subsidiaries the “Company”), was incorporated in the State of Wyoming in August 2021 under the name Eco Bright Future, +Inc. We changed our name to Universal Token, Inc. during October 2025 to better reflect the change in business operations as discussed +below. In December of 2023, we completed a reverse recapitalization with United Heritage, an El Salvador Corporation (“United Heritage”), +and its wholly owned subsidiary, Universa Hub Africa (“UHA”), a Tunisian Corporation. United Heritage was established to +obtain licensing in El Salvador as a digital asset service provider to allow tokenization of certain assets and commodities and was the +parent company of UHA until its disposition in November 2025. The operations of United Heritage and UHA were minimal during 2025. During +November 2025, United Heritage disposed of UHA and stopped consolidating its operations. Our current jurisdictions that we consolidate +financials in and own any tangible or intangible assets are El Salvador and the United States. +Present Operations +The Company intends to engage +in the financial technology and blockchain business and is developing an open-source platform and developer infrastructure using Universa +Blockchain, to create the UTKN platform, which we believe will enable anyone to access and participate in the global economy and Real-World +Assets (“RWA”) tokenisation. We believe our platform will allow digital assets to be transferred safely across a variety +of “wallets” due to robust Know Your Customer (“KYC”) and AML (“Anti Money Laundering”) processes +that will track and monitor suspicious activities. We are also developing tools to access the platform via mobile and digital services. +The Company does not, and does not plan to, engage in crypto asset trading and does not own crypto assets. The +Company currently does not meet the requirements to register as an investment company but will continue to monitor current regulations +and changes in regulations and reporting requirements, especially as it relates to dealing with foreign jurisdictions. Our ability to +adapt to the changing regulatory environments is critical to the success of our business plan. We consult on a regular basis with legal +counsel to review our strategies for compliance with regulations and guidelines. +1 +Our business plan is to market +a software solution to businesses and governments allowing them to provide our platform to their clients and populations. We are targeting +central and local banks having robust API systems we believe will allow quick, inexpensive and effective integration of our platform. +The platform will require back-end programming with central banks and other organizations to interface with each banking platform, including +currency conversions from gold backed currencies to local currencies and conform with local regulations and rules. Integrations are expected +to take anywhere from one to six months to complete. The Company will not take custody of RWA tokens, custody remains with the customer, +who utilizes the platform to transfer the RWA token directly to the buyer. Holders of RWA tokens can chose to hold tokens in digital +“wallets” or locally on their personal device, documented and recoverable with proper credentials if lost. +The RWA tokenization +process will allow us to take a commodity such as gold and tokenize it using the Universa Blockchain. Owning the RWA tokens gives rights +and ownership to the registered owner. The process allows the underlying commodity to be held in a secure location with tracking using +serial numbers assigned to RWA tokens. This process will be facilitated using a bank that will hold and store the commodity in a secure +location covered by bank insurance. +We are waiting for our Digital +Asset Service Provider (“DASP”) licensing application with the National Commission of Digital Assets (“NCDA”) +in El Salvador to be approved. Once approved, the Company will be allowed to legally issue digital assets as tokens and transfer assets +on its blockchain platform. We are still in the process of providing the required information with NCDA such as an external audit of +our platform, certain security manuals and operational procedure manuals. We also intend to apply for licensing in other countries such +as United Arab Emirates (“UAE”) and Thailand, countries that have been passing and modifying laws quickly regarding blockchain +and cryptocurrency technologies and currencies. +We believe licensing in Thailand +will open up opportunities in Indonesia under a cooperative license agreement between the two countries. We also believe that our license +in El Salvador will open opportunities in other south american countries, allowing us to enter these jurisdictions using the licenses +from other countries. Licensing requirements could change based on geopolitical policies or other policies outside of our control. Growth +into other jurisdictions will be selected based on the highest probability of approval of the licenses. We have had talks with the other +jurisdictions and are reviewing licensing and application requirements, but applications have not yet been submitted. +El Salvador and UAE do not +require an escrow account for licensing. The cost to obtain licenses is generally less than $10,000, but there can be capital requirements +with banks requiring escrowed amounts of cash up to $500,000. Failure to fund escrow requirements would result in delay in our ability +to operate in that jurisdiction. If we are unable to obtain licenses in the countries we are targeting, we will be required to re-evaluate +our business plan for viability. +As a US company we will also +have disclosure documents that will need to be provided under US law even if we are not operating or accepting clients in the USA. Our +current business operating plan to digitize RWA tokens does not qualify as a investment contract under the “Howey Test” requiring +SEC regulation as current assets and commodities that are tokenized are not expected to give returns based on the reliance of other people’s +efforts. +2 +Individuals, countries or businesses +that cannot pass our KYC/AML process, including the United States of America and European Union countries, are prohibited from using +our service, stopping end users trying to access our platform from setting up accounts. The KYC and AML service verifies users, businesses +and transactions while simultaneously managing cases and deterring fraud. The system includes email and phone risk assessments and device +intelligence. We go through a very thorough ID Verification, Liveness face match, address verification, live agent video call, QES/eIDAS, +NFC, Known face search, blocklist check and duplicate check. Our AML screening screens for PEP and sanctions amongst other important +factors such as ongoing fraud monitoring and suspicious transaction reporting. Our KYC and AML policies are provided by SumSub, a third-party +service provider which monitors and protects our platform. +Our Tokenization process +and current plans for exchanging digital assets do not currently meet the Howey Test as the current items planned to be tokenized are +commodities and are not expected to give returns based on the reliance of other people’s efforts. There could be a need to register +an offering with the SEC when certain real estate transactions are tokenized or other digital assets that meet the “Howey Test”. +We will review each tokenization process and register the appropriate offerings with the SEC. +Employees +We have one full time +employee, our President, George Athanasiadis and a part time CTO Tomaz Strgar. The Board retains consultants and advisors on as +needed basis. They are compensated with cash and the issuance of the Company’s common stock. +Facilities +Our corporate offices are located +in El Salvador. Our main operations will be spread across Central America and Asia. Consultants, advisors and contract service providers +will work from home offices and from a location in El Salvador. +ITEM 1A. RISK +FACTORS +Any investment in our securities +is highly speculative. The Company's business and ownership of shares of our common stock are subject to numerous risks. You +should not purchase our shares if you cannot afford to lose your entire investment. You should consider the following risks before acquiring +any of our shares. +We need additional capital. +We need additional financing +to grow our operations. The amount required depends upon our business operations, and how quickly we grow. Varying based on growth strategies, +it is estimated between $5,000,000 and $25,000,000 will have to be raised over the next 2 years. We may be unable to secure this additional +required financing on a timely basis, under terms acceptable to us, or at all. To obtain additional financing, we will sell additional +equity securities, which will further dilute shareholders' ownership in us. Ultimately, if we do not raise the required capital, we may +experience delayed growth or need to cease operations. +We are dependent upon our +key personnel. +We are highly dependent upon +the services of Tomaz Strgar, our Chief Technology Officer. If he terminated his services with us, our business would suffer. +There is only a limited +trading market for our securities. +Our Common Stock is traded +on the OTC Markets. The prices quoted may not reflect the price at which you can resell your shares. Because of the illiquid nature of +our stock, we are subject to rules of the U.S. Securities and Exchange Commission that make it difficult for stockbrokers to solicit +customers to purchase our stock. This reduces the number of potential buyers of our stock and may reduce the value of your shares. There +can be no assurance that a trading market for our stock will continue or that you will ever be able to resell your shares at a profit, +or at all. +Our management controls +us. +Our current officers and directors +own approximately 74% of our outstanding common stock and are able to affect the election of the members of our Board of Directors and +make corporate decisions. Alexander Borodich, by his ownership of Class A Preferred Stock, has the right to vote 49% of our voting securities. +3 +We have a going concern +issue. +Our consolidated financial +statements are prepared using Generally Accepted Accounting Principles applicable to a going concern that contemplates the realization +of assets and liquidation of liabilities in the normal course of business. However, we have accumulated losses since inception and have +had negative cash flows from operations, which raise substantial doubt about our ability to continue as a going concern. Management's +plans with respect to alleviating the adverse financial conditions that caused management to express substantial doubt about our ability +to continue as a going concern are as follows: +The ability to continue our +operations depends on our ability to generate and grow revenue and results of operations as well as our ability to access capital markets +when necessary to accomplish strategic objectives. We expect to continue to incur losses for the immediate future and will need additional +equity or debt financing until we can achieve profitability and positive cash flows from operating activities. Our future capital requirements +for operations will depend on many factors, including the ability to generate revenues and obtain capital. +There can be no assurance +that we will be able to achieve its business plans, raise any more required capital or secure the financing necessary to achieve its +current operating plan. The ability to continue as a going concern is dependent upon our ability to successfully accomplish the plan +described in the preceding paragraph and eventually attain profitable operations. The accompanying financial statements do not include +any adjustments that might be necessary if the company is unable to continue as a going concern. +Licensing and permissions +to tokenize real world assets could take longer than expected in different jurisdictions. +Licensing and permission to +tokenize real world assets legally in the jurisdictions in which we operate could be delayed or denied. If we are unable to obtain all +the licenses, we are expecting it could negatively impact our growth potential. +The Real World Asset (RWA) +Tokenization Market is Highly Competitive and Fragmented. +There are a substantial number +of companies attempting to enter this highly competitive market. We feel we have a good competitive advantage, however there are many +companies we will compete with that are better funded than we are. There is no guarantee we will be able to take the market share we +are expecting. Other risks associated can come from government intervention including, but not necessarily limited to, future government +regulation limiting the scope of activities available to generate revenue and creating technological difficulties. +Reporting requirements under +the Exchange Act and compliance with the Sarbanes-Oxley Act of 2002, including establishing and maintaining acceptable internal controls +over financial reporting, are costly and may increase substantially. +The rules and regulations of +the SEC require a public company to prepare and file periodic reports under the Exchange Act, which will require that the Company engage +in legal, accounting, auditing, and other professional services. The engagement of such services is costly, and we are likely to incur +losses that may adversely affect our ability to continue as a going concern. Additionally, the Sarbanes-Oxley Act of 2002 requires, among +other things, that we design, implement and maintain adequate internal controls and procedures over financial reporting. The costs of +complying with the Sarbanes-Oxley Act may make it difficult for us to design, implement and maintain adequate internal controls over +financial reporting. If we fail to maintain an effective system of internal controls or discover material weaknesses in our internal +control. In that case, we may not be able to produce reliable financial reports or report fraud, which may harm our overall financial +condition and result in a loss of the investor confidence and a decline in our share price. +We cannot assure you that +our Common Stock will be listed on an exchange. +Our common stock is currently +traded on the OTC Markets OTCQB under the symbol UTKN. Our goal is to uplist to a larger exchange. However, we cannot assure you that +we will be able to meet the initial listing standards of the stock exchanges or quotation medium we are hoping to uplist to, or that +we will be able to maintain a listing of our common stock on any stock exchange. In addition, we may be subject to an SEC rule that, +if we failed to meet the criteria outlined in such rule, imposes various practice requirements on broker-dealers who sell securities +governed by such rule to persons other than established customers and accredited investors. Consequently, such a rule may deter broker-dealers +from recommending or trading shares in our common stock, which may further affect its liquidity. This would also make it more difficult +for us to raise additional capital following a business combination. +4 +Our Common Stock will likely +be considered a “penny stock,” which may make it more difficult for investors to sell their shares due to suitability requirements. +Our common stock is currently +deemed “penny stock,” as that term is defined under the Exchange Act. Penny stocks generally are equity securities with a +price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided +that the exchange or system provides current price and volume information concerning transactions in such securities). Penny stock rules +impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and “accredited +investors.” The term “accredited investor” generally refers to institutions with assets over $5,000,000 or individuals +with a net worth in excess of $1,000,000 or an annual income exceeding $200,000 or $300,000 jointly with their spouse. +The penny stock rules require +a broker-dealer, before a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized disclosure document +in a form prepared by the SEC, which provides information about penny stocks and the nature and level of risks in the penny stock market. +Moreover, brokers/dealers are required to determine whether an investment in a penny stock is suitable for a prospective investor. A +broker/dealer must receive a written agreement to the transaction from the investor setting forth the identity and quantity of the penny +stock to be purchased. These requirements may reduce the potential market for our common stock by reducing the number of potential investors. +This may make it more difficult for investors in our common stock to sell shares to third parties or dispose of them. This could cause +our stock price to decline. +We have never paid dividends +on our Common Stock, and it is not guaranteed that we will in the future. +We have never paid dividends +on our common stock, we have this option as valid to discuss on the management level and approve it. There are no assurances or guarantees +that we will be able to pay dividends. +We are an “emerging +growth company” under the JOBS Act of 2012. We cannot be certain if the reduced disclosure requirements applicable to emerging +growth companies will make our common stock less attractive to investors. +We are an “emerging growth +company,” as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”). We may take advantage of certain +exemptions from various reporting requirements that apply to other public companies that are not “emerging growth companies,” +including, but not limited to, not being required to comply with the auditor attestation requirements of section 404 of the Sarbanes-Oxley +Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from +the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments +not previously approved. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. +If some investors find our common stock less attractive, there may be a less active trading market for our common stock, and our stock +price may be more volatile. +In addition, Section 107 of +the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided +in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging +growth company” can delay the adoption of specific accounting standards until those standards would otherwise apply to private +companies. We are taking advantage of the extended transition period to comply with new or revised accounting standards. +We will remain an “emerging +growth company” for up to five years, although we will lose that status sooner if our revenues exceed $1 billion, if we issue more +than $1 billion in non-convertible debt in three years, or if the market value of our common stock that is held by non-affiliates exceeds +$700 million as of any June 30. +Our status as an “emerging +growth company” under the JOBS Act of 2012 may make it more challenging to raise capital as and when we need it. +5 +Because of the exemptions from +various reporting requirements provided to us as an “emerging growth company” and because we will have an extended transition +period for complying with new or revised financial accounting standards, we may be less attractive to investors, and it may be difficult +for us to raise additional capital as and when we need it. Investors may be unable to compare our business with other companies in our +industry if they believe that our financial accounting is not as transparent as other companies in our industry. If we cannot raise additional +capital as and when we need it, our financial condition and results of operations may be materially and adversely affected. +We have the right to issue +shares of preferred stock. If we were to issue preferred stock, it is likely to have rights, preferences, and privileges that may adversely +affect the common stock. +We have preferred stock +currently issued and outstanding and do have the ability to issue more. The issuance of these shares could adversely affect the common +stock already outstanding. The aforementioned preferred stock allows the holder to vote 10 times for each share owned. Currently Alexander +Borodich owns 10,000,000 shares representing 100,000,000 votes. These shares hold special voting rights but are not convertible into +common stock of the company. +There are inherent +risks associated with our limitation of our internal policies and procedures to determine whether crypto assets and crypto-asset related +services and products offered or that we intend to offer are “securities” within the meaning of Section 2(a)(1) +Some of our policies +and procedures are risk-based judgments made by the company and not a legal standard or determination binding on any regulatory body +or court. This includes the risk that we could be compliant within the jurisdiction we are operating in but out of compliance within +the Securities Division and Governing Boards of Public Companies. The laws are often changing and keeping up with the specific changes +is very important and difficult to manage . +We have a potential requirement +to register as an investment company under the Investment Company Act of 1940 +The company could be required +to register as an investment company in the future. This could add additional requirements and additional expenses that could negatively +impact the company and restrict our ability to implement certain aspects of our business plan. We do not currently meet The “Howey +Test” and we do not custody any investments. We currently do not meet the definition of an investment company under Section 2(a)(1). +In certain jurisdictions and depending on how certain assets are held in “custody” (meaning who holds the asset or commodity +in question in their custody) there could be a need in the future to register as an investment company. We have consulted with our legal +counsel and although right now we do not meet the requirement to register we could at a future date be required to register either through +change in who has to register as an investment company or due to a change in how we operate and do business. We will continue to monitor +the situation as it changes and maintain compliance with SEC governing rules even when we are dealing with foreign jurisdictions. The +changing laws and regulations regarding what is considered an investment company is evolving with current blockchain and crypto technologies. +This could change our regulatory expenses significantly and we could be required to register as an investment company. +We are currently applying +for several licenses in different Jurisdictions. If licenses are not approved it could affect our growth rate. +We are currently applying for +licenses in El Salvador and plan to quickly apply for licensing in Thailand and UAE. If these licenses do not get issued it would affect +our ability to grow and would prohibit us from tokenizing many of the assets and commodities we are planning on tokenizing. +The use of AI can be expensive, +unpredictable and carries its own risks that are not associated with our individual blockchain technology. +The use of AI can also create +more regulatory stipulations and the everchanging environment could make AI implementation difficult or not profitable. Certain AI engines +also carry with them security risks from an encryption aspect. +6 +We plan to operate in El +Salvador, United Arab Emirates, Thailand and Indonesia. The risks associated with the various regimes and government oversite in these +countries could impact our business. +The governments and regulations +in the countries we plan to operate in could pass legislation affecting our plans for development and growth within the regions. Dealing +with the regulatory environments in these countries can be risky and therefore could affect the growth, expansion and viability of the +company in the future. +We plan to operate using +licenses with El Salvador, United Arab Emirates, Thailand and Indonesia. Any country can change regulations and make licensing and compliance +more difficult and/or more expensive. +The operation of licensing +across multiple jurisdictions can be difficult to keep up with current regulations and restrictions. Changes in leadership in the countries +can also affect our licenses even after they are issued. +Regulatory developments +are rapidly changing related to crypto assets, the crypto asset markets and artificial intelligence products in El Salvador +El Salvador has become +a global leader in crypto assets and crypto markets. They have been aggressively marketing crypto assets and have created regulations +within El Salvador that govern their digital asset markets. This can provide risk if they begin to be more restrictive in certain activities +that the company is involved with. We will be using the Digital Asset Provider License from El Salvador and the revocation or suspension +of this license could cause harm to the company. +CNAD is the regulating +entity in El Salvador and they have very specific licensing requirements and they update regulations very often. The ongoing compliance +has required us to hire a local individual that is approved by CNAD to assist in the rolling out of new and changing regulations. Licensing +requirements are currently our main focus. In order to be granted a license you must show that your platform meets the guidelines and +regulations of the CNAD and that you have the ability to adapt your platform to their future changes. This is a challenging environment +to do business in because things change quickly and often. +Regulatory developments +are rapidly changing related to crypto assets, the crypto asset markets and artificial intelligence products in Tunisia. +Tunisia is relatively +new to the crypto asset market and will be changing and evolving as they learn and grow. This could be a risk as we are one of the first +companies operating with the government in crypto assets and blockchain technologies in the country. +Tunisia has fewer regulatory +changes currently happening than other jurisdictions, but licensing requirements exist and ongoing compliance with their regulatory statutes +requires supervision and a knowledgeable individual to monitor compliance. We have been operating in Tunisia for several years and we +have a good understanding of their changing regulations and compliance issues. +Regulatory developments +are rapidly changing related to crypto assets, the crypto asset markets and artificial intelligence products in United Arab Emirates. +UAE is on the cutting +edge of crypto asset markets and is evolving and designing regulations and restrictions on many aspects of digital assets. As they introduce +more regulations, we could have an increased expense in conforming with new policies and procedures. +DMCC issues new rules +and regulations including licensing requirements for operating within the UAE. Restrictions include not being able to operate without +a license. To obtain licensing you must prove competence as a company, and you must provide detail structure of your KYC/AML process +and your overall platform security. Failure to obtain licensing could adversely affect the company. +Regulatory developments +are rapidly changing related to crypto assets, the crypto asset markets and artificial intelligence products in Thailand. +Thailand is relatively +new to the digital asset market and we expect to be one of the first companies operating in the way we expect to operate once we get +the necessary licenses. Thailand will monitor closely our actions as a company and will be heavily involved in the way we roll out our +products and services. We could experience delays or additional costs due to regulatory compliance. +7 +Thailand has a growing +digital market and as they continue to grow they are adapting their laws and regulations to prevent issues and fraud. The changes include +limiting the licenses they are issuing. We intend to partner with a bank that currently has a license and in order to do this we must +comply with the regulatory compliance from the bank we will work with. This process is ongoing in negotiations and we will release more +information on this when we have reached a final agreement and have permission from our partners to disclose our agreement. If we are +unable to proceed with this partnership we will need to find another partner or apply for our own license. Applying for our own license +will greatly increase the timeline in which we expect to enter the Thai market. +Regulatory developments +are rapidly changing related to crypto assets, the crypto asset markets and artificial intelligence products in Indonesia. +Indonesia is relatively +new to the digital asset market. Indonesia will likely introduce new and widespread policies and procedures regarding crypto asset markets. +We could experience delays or additional costs due to regulatory compliance. +Thailand licenses with +the bank we are planning to work with would allow us to enter Indonesia. Indonesia has their own set of regulations that would also need +to be complied with. Our partners in Thailand will work with our legal team and review the specific requirements before we enter the +Indonesian market. If we are unable to obtain the license through partnership, we will apply for a license individually in Indonesia +and this would greatly increase our timeline for entering this market. +Risks Related to Real +World Asset Tokenization. +There are risks associated +with dealing with and issuing real world asset tokens. These risks include but are not limited to: risks of the underlying asset being +damaged or stolen, storage costs, maintenance costs, the liquidity risks associated with selling the real world assets and the overall +risk of theft of not only the tangible asset but also the token. +Our KYC Process and +AML process is using a third-party program called SubSum. There are material risks if unauthorized individuals access our platform. +There are risks of Fines +or regulatory issues if unauthorized individuals access our platform. We have taken steps to ensure this does not occur. In the event +that it does happen we could be adversely affected in our business and there could be regulatory fines, penalties or levies associated +with unauthorized or impermissible access or activities. +Blockchain Technology +carries with is certain risks and compliance issues. +Blockchain technologies +are heavily regulated and will likely become more regulated as it becomes more integrated in business and personal use cases. There are +also risks associated with cyber criminals and fraud throughout the world. Blockchain also uses infrastructure that can be slowed or +destroyed by natural disasters, power outages and other uncontrollable circumstances. There are also risks associated with blockchain +due to cyber criminals and fraud throughout the world. +Blockchain Cyber criminals +are causing issues throughout the world and have created the need for more regulation from countries attempting to protect companies +and consumers. These regulations can create additional substantial expenses for blockchain companies to operate. Fraudulent activities +such as setting up fake accounts and trying to create fake transactions have created the need for further regulation. “hacking +wallets” has become a significant risk when dealing with blockchain and crypto asset companies. Hacking wallets can be defined +as an unauthorized individual accessing your individual wallet. +As regulation increases +and more resources are put into stopping cyber criminals it is likely that a large financial burden will be put on companies operating +blockchains. +8 +Blockchain Technology +Regulatory developments could present the company with certain risks and compliance issues. +The blockchain technology +regulatory environment is ever changing. Changes to the regulations could affect our ability to implement certain parts or all of our +business plan. The areas in which we intend to operate are evolving their blockchain requirements and maintaining compliance with these +changes can become expensive and very cumbersome for the company. Licensing requirements in many of the jurisdictions in which we intend +to operate are evolving and also many are under their initial development stage. Historically countries have introduced more and more +legislation as they continue to resolve issues related to blockchain regulation. +Blockchain Technology +outage or impairment could significantly harm our company. +If our blockchain experienced +an outage or impairment or attack from cyber criminals we could have our business model affected in many ways including but not limited +to a complete loss of customer base, loss of a large portion of our customers, bad reputation for being an unsable blockchain or a questionable +reputation for securing information as advertised. +Item 1B. Unresolved +Staff Comments +Not required for a smaller +reporting company. +Item 1C. Cybersecurity +Risks +Material Effects from +Cybersecurity Incidents +Our business is subject +to risk from cybersecurity threats and incidents, including attempts to gain unauthorized access to our systems or networks, or those +of our managers, employees, and third-party vendors and service providers, to disrupt operations, corrupt data or steal confidential +or personal information and other cybersecurity breaches. We consider cybersecurity risk a serious threat to our assets and our people +and have put processes in place designed to mitigate the risk and impact of any such cybersecurity threat or incident. +Our operations rely on +the secure, accurate and timely receipt, storage, transmission, use, disclosure, and other processing of confidential and other information +(including personal information) in our systems and networks. We also rely on the secure, accurate and timely receipt, storage, transmission, +use, disclosure, and other processing of confidential and other information in the systems and networks of our customers and third parties, +including suppliers, sellers and servicers, financial market utilities, and other third parties. Cybersecurity risks for companies like +ours continue to increase. Like many companies and government entities, from time to time we have been, and expect to continue to be, +the target of attempted cybersecurity incidents and other information security threats, including those from nation-state and nation-state +supported actors. +As of the date of this +report we have not experienced or aware of any cybersecurity incidents resulting, or reasonably likely to result in, a material impact +to us, including to our business, financial condition, and results of operations. There is no assurance that our cybersecurity risk management +program will prevent cybersecurity incidents from having such impacts in the future. +Additionally, insider +threats also remain a risk given our workforce diversification to include contractors, remote workers, part-time employees, and full-time +employees. As referenced above, our third-party vendors and service providers and their supply chain connections remain a potential source +of risk. +Cybersecurity Risk +Management and Strategy +Our cybersecurity program +is built upon industry standards and we have deployed sophisticated software both from internal and external sources to mitigate cybersecurity +threats. We identify security threats through internal audits of our systems. We also require any service providers to provide System +and Organizational Control (“SOC”) type reports to ensure that data is secure and our duty to protect information is fulfilled. +Cybersecurity Governance +We believe that all employees +of the company have a duty to manage cybersecurity. We have implemented industry standard guidelines that help ensure that cybersecurity +governance is a priority. Our BOD is also very involved in the cybersecurity governance. We conduct regular searches for threats and +suspicious activities, and we monitor passwords and change passwords within industry expectations. Due to the technical aspects, we have +a lot of individuals that are very capable and are able to quickly act if we are to find any issues with our cybersecurity. +9 +Item 2. Properties +Our corporate offices are located +in El Salvador. Our main operations will be spread across Central America and Asia. Consultants, advisors and contract service providers +will work from home offices and from our location in El Salvador. +Item 3. Legal Proceedings +There are no pending material +legal proceedings to which we are a party or to which any of our property is subject. +Item 4. Mine Safety Disclosures +Not Applicable +10 +PART +II +Item 5. Market for Registrant's +Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +Market Information +Our common stock is quoted +on the OTC markets under the symbol “UTKN”. As of March 1, 2026, there were 252 registered stockholders of Universal Token, +Inc. +Repurchases +The company did not purchase +any shares under any stock repurchase programs in 2025 or 2024, respectively, and there is no allocation of funds set aside for future +repurchases under any stock repurchase plans at the current time. +Dividends and Restrictions +Holders of common stock +are entitled to dividends when, as, and if declared by the Board of Directors, out of funds legally available, therefore. We have never +declared cash dividends on its common stock and our Board of Directors does not anticipate paying cash dividends in the foreseeable future +as it intends to retain future earnings to finance the growth of our businesses. There are no restrictions in our articles of incorporation +or bylaws that restrict us from declaring dividends. +Item 6. Reserved +Item 7. Management’s +Discussion and Analysis of Financial Condition and Results of Operations +Management’s discussion +and analysis (“MD&A”) should be read in conjunction with the consolidated financial statements and accompanying notes +included in Item 8 of this Annual Report on Form 10-K (annual report), which include additional information about our accounting +policies, practices, and the transactions underlying our financial results. The preparation of our consolidated financial statements +in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) requires us to make estimates +and assumptions that affect the reported amounts in our consolidated financial statements and the accompanying notes, including various +claims and contingencies related to lawsuits, taxes, environmental and other matters arising during the normal course of business. We apply +our best judgment, our knowledge of existing facts, circumstances, and actions that we may undertake in the future in determining the +estimates that affect our consolidated financial statements. We evaluate our estimates on an ongoing basis using our historical experience, +as well as other factors we believe appropriate under the circumstances, such as current economic conditions, and adjust or revise our +estimates as circumstances change. As future events and their effects cannot be determined with precision, actual results may differ +from these estimates. Our MD&A contains forward-looking statements that discuss, among other things, future expectations and projections +regarding future developments, operations, and financial condition. All forward-looking statements are based on management’s existing +beliefs about present and future events outside of management’s control and on assumptions that may prove to be incorrect. If any +underlying assumptions prove incorrect, our actual results may vary materially from those anticipated, estimated, projected, or intended. +We undertake no obligation to publicly update or revise any forward-looking statements to reflect actual results, changes in expectations, +events or circumstances after the date of this Report is filed. Universal Token, Inc. and its subsidiaries are referred to collectively +as “Universal Token” “the Company,” “we, “us” or “our” in the following discussion +and analysis. +Going Concern +At December 31, 2025, we had +$1,151,236 in assets, $12,930 of them current assets and a $505,219 accumulated deficit. Our current liquidity resources are not sufficient +to fund anticipated level of operations for at least the next 12 months from the date these consolidated financial statements were issued. +As a result, there is substantial doubt regarding the Company’ ability to continue as a going concern. +11 +The ability to continue Universal +Token’s operations depends on its ability to generate and grow revenue and results of operations as well as our ability to access +capital markets when necessary to accomplish strategic objectives. We expect to continue to incur losses for the immediate future and +will need additional equity or debt financing until we can achieve profitability and positive cash flows from operating activities. Our +future capital requirements for operations will depend on many factors, including the ability to generate revenues and obtain capital. +There is no assurance that +we will ever be profitable or that debt or equity financing will be available to us. The consolidated financial statements do not include +any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications +of liabilities that may result should we be unable to continue as a going concern. There is no assurance we will be successful in any +of these goals. +Results of Operations +For the Years Ended December +31, 2025 and 2024 +Revenues and Cost of +Sales +We did not recognize any revenue +during the years ended December 31, 2025 and 2024. +Operating Expenses +Operating expenses were $355,026 +during the year ended December 31, 2025, compared to $156,838 during the year ended December 31, 2024. Operating expenses consisted of +$303,264 and $147,234 in professional fees and $51,762 and $9,604 in general and administrative expenses during the years ended December +31, 2025 and 2024, respectively. Increases in professional fees and general and administrative expenses are a result of increased software +development activities requiring administrative support. +Other Income and Expenses +Total other income was $2,860 +as a result of a gain from disposal of subsidiary during the year ended December 31, 2025, compared to $0 in during the year ended December +31, 2024. +Net Loss Before Discontinued +Operations +As a result of the above, we +recognized a net loss before discontinued operations of $352,166 and $156,838 for the years ended December 31, 2025 and 2024, respectively. +Loss From Discontinued +Operations +We recognized net losses from +discontinued operations of $4,082 and $9,540 for the years ended December 31, 2025 and 2024, respectively. +Net Loss +As a result of the above, we +recognized a net loss of $356,248 and $166,378 for the years ended December 31, 2025 and 2024, respectively. +We anticipate losses from operations +will increase during the next twelve months due to anticipated increased payroll expenses as we add necessary staff to continue planned +operations and increases in legal and accounting expenses associated with maintaining a reporting company. We expect that we will continue +to have net losses from operations for several years until revenues become sufficient to offset operating expenses. +12 +Liquidity and Capital Resources +of the Company +Current Assets +Current assets as of +December 31, 2025 totaled $12,930, consisting of $1,842 in cash and $11,088 in other current assets. Current assets as of December 31, +2024 totaled $84,733, consisting of $67,705 in cash and other current assets of $1,560. +Non-Current Assets +Non-current assets as of December +31, 2025 totaled $1,138,306, consisting of $1,133,500 in capitalized software and $4,806 in intangible assets. Non-current assets as +of December 31, 2024 totaled $447,774, consisting of $425,500 in software development costs, $4,806 in intangible assets and assets of +discontinued operations of $17,468. +. +Current Liabilities +Total liabilities were $30,000 +and $658,009 as of as of December 31, 2025 and 2024, respectively, and were all current. Total current liabilities at December 31, 2025 +consisted of accounts payable and accrued expenses totaling $30,000. Total current liabilities at December 31, 2024 consisted of accounts +payable and accrued expenses totaling $7,783 and notes payable to related parties of $650,226. +Non-Current Liabilities +There were no non-current liabilities +at December 31, 2025. Non-current liabilities as of December 31, 2024 totaled $12,837, all liabilities of discontinued operations. +Net Cash Used in Operating +Activities +During the years ended +December 31, 2025 and 2024, our operating activities used net cash of $372,889 and $166,897, respectively. Uses of cash during the year +ended December 31, 2025 were mainly due to the $356,248 in net loss as well as and $2,560 in gain from disposal of subsidiary and net +changes in non-cash currency translation, partially offset by $15,919 in net changes in other current liabilities. Uses of cash during +the year ended December 31, 2024 were mainly due to the $166,378 in net loss as well as a $15,967 net increase in other current assets. +Uses are partially offset by $11,743 in changes in cash used from accounts receivable and payable and $3,705 in non-cash expenses such +as depreciation and currency translation. +Net Cash Used in Investing +Activities +During the years ended +December 31, 2025 and 2024, we used $709,527 and $430,306 in cash investing activities, respectively. Uses of cash during the year ended +December 31, 2025 were due to $708,000 in software development costs and $1,527 in cash distributed in the disposal of its subsidiary +UHA. Uses of cash during the year ended December 31, 2024 are due to $425,500 in software development costs and $4,806 in purchases of +intangible assets. +Net Cash Provided by +Financing Activities +During the years ended +December 31, 2025 and 2024, we recognized $986,474 and $650,226 in cash provided by financing activities, respectively. During the years +ended December 31, 2025 and 2024, we received $1,149,200 and $0 from common stock sold for cash, respectively. During the years ended +December 31, 2025 and 2024, we received $0 and $650,226 in cash from related party advances and repaid $162,726 and $0 in notes payable, +related party, respectively. +At December 31, 2025 and 2024, +we had working capital deficits of $17,070 and $590,744, respectively. +Off-Balance Sheet Arrangements +We had no off-balance sheet +arrangements of any kind for the years ended December 31, 2025 or 2024. +13 +Critical Accounting Policies +Our discussion and analysis +of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance +with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make +estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent +assets and liabilities. We continuously evaluate our critical accounting policies and estimates. We base our estimates on historical +experience and on various assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for +making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results +may differ materially from these estimates under different assumptions or conditions. +We believe the following +critical accounting policies are important to the portrayal of our financial condition and results of operations and require our management’s +subjective or complex judgment because of the sensitivity of the methods, assumptions and estimates used in the preparation of our financial +statements. +Revenue Recognition Policy +Universal Token recognizes +revenue in accordance with the provisions of Accounting Series Codification (“ASC”) 606, Revenue From Contracts With Customers +(“ASC 606”), which provides guidance on the recognition, presentation, and disclosure of revenue in financial statements. +ASC 606 outlines the basic criteria that must be met to recognize revenue and provides guidance for disclosure related to revenue recognition +policies. In general, the Company recognizes revenue based on the allocation of the transaction price to each performance obligation +as each performance obligation in a contract is satisfied. +The Company intends to provide +digital assets from El Salvador for sale, tokenize assets for sale and develop blockchain tools for sale that will provide entry to the +market for countries such as Tunisia and United Arab Emirates. During 2025, the Company plans to enter into agreements in connection +with its blockchain products in Thailand and Indonesia. Revenue recognition for the sale of digital and tokenized assets will be based +on the allocation of the transaction price to each performance obligation as each performance obligation in a contract is satisfied, +title or access to digital assets are transferred and amounts are due are collected or collectible. +Accounts Receivable +Trade accounts receivable are +recorded at invoiced amounts. Universal Token does not provide any unusual contractual trade terms, sales incentive programs or discounts. +Allowances for doubtful accounts are established for estimated losses resulting from the inability of customers to make required payments. +Allowances are determined based on a review of specific customer accounts where collection is doubtful, as well as an assessment of the +collectability of total receivables. Receivables are written off against the allowance when it is determined that the amounts will not +be recovered. +Software Development Costs +In accordance with ASC 350-40, +Internal Use Software, Universal Token capitalizes certain internal use software development costs associated with creating and +enhancing internally developed software related to its platforms. Software development activities generally consist of three stages (i) the +research and planning stage, (ii) the application and development stage, and (iii) the post-implementation stage. Costs incurred +in the planning and post-implementation stages of software development, or other maintenance and development expenses that do not meet +the qualification for capitalization are expensed as incurred. Costs incurred in the application and infrastructure development stage, +including significant enhancements and upgrades, are capitalized. Capitalized costs include personnel and related employee benefits expenses +for employees or consultants who are directly associated with and who devote time to software projects, and external direct costs of +materials obtained in developing the software. Software development costs, when placed in service, are amortized on a straight-line basis +over their estimated useful life upon initial release of the software or additional features. A related license fee shall also commence +the amortization only upon capitalization of software development. +14 +Income Tax +We account for income taxes +under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax +consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are +determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates +in effect for the year in which the differences are expected to reverse. Valuation allowances are established when necessary to reduce +deferred tax assets to the amount expected to be realized. +Item 7A. Quantitative and +Qualitative Disclosures About Market Risk +Not required for a smaller +reporting company. +Item 8. Financial Statements +and Supplementary Data +15 +REPORT +OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +NEW +AUDITOR REPORT +Report +of Independent Registered Public Accounting Firm +To the shareholders and the board of directors +of Universal Token, Inc +Opinion on the Consolidated Financial Statements +We have +audited the accompanying consolidated balance sheet of Universal Token, Inc. And its subsidiaries (the "Company") as of December +31, 2025 and the related consolidated statements of operations, comprehensive income, stockholders' equity, and cash flows for the year +then ended December 31,2025 and the related notes (collectively referred to as the "consolidated financial statements").In +our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the +Company as of December 31, 2025 and the consolidated results of its operations and its cash flows of the period ended December 31, 2025 +in conformity with accounting principles generally accepted in the United States of America. +Substantial doubt about +the entity's ability to continue as a going concern +The accompanying financial +statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 5 to the financial statements, +the Company has suffered recurring losses from operations and has a net capital deficiency that raise substantial doubt about its ability +to continue as a going concern. Management's plans in regard to these matters are also described in Note 5. The financial statements +do not include any adjustments that might result from the outcome of this uncertainty. +Basis for +Opinion +These +consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on +the Company's consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company +Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance +with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We +conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain +reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. +The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. As part +of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing +an opinion on ·the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. +Our +audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated +financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included +examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating +the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial +statements. We believe that our audit provides a reasonable basis for our opinion. +16 +Discontinued Operations +As described in Note 9, the +Company ceased operations through the disposition of its subsidiary, UHA, as it was no longer considered viable to pursue licensing activities +in Tunisia. Accordingly, the results of such operations have been presented as discontinued operations, reflecting a significant strategic +shift in the Company's operation s. Prior period amounts have been appropriately reclassified to con form to the current presentation. +Our opinion is not modified with respect to this matter. +Other Matters +We were +not engaged to audit, review, or apply any procedures to the financial statements for the year ended December 31 , 2024 and, accordingly, +we do not express an opinion or any other form of assurance on those financial statements. +Critical Audit Matters +Critical +audit matters are matters arising from the current period audit of the consolidated financial statements that were communicated or required +to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements +and (2) involved our especially challenging, subjective, or complex judgements. We determined that there are no critical audit matters +to communicate. +For +CNGSN & Associates +LLP +Chartered Accountants +PCAOB Firm ID: 7274 +We have served as the Company’s auditor since +2025 +CNGSN & Associates LLP +Bengaluru, India +Date — 30 th March 2026 +UDIN- 26269079DWJGEZ9564 +17 +REPORT +OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +Audit Committee/Board of Directors +Eco Bright Future. Inc. +32 N. Gould Str +Sheridan, WY 82801 +Opinion on the financial statements +We audited the accompanying balance sheet of Eco +Bright Future. Inc. (“the Company”) as of December 31, 2024 and the related statements of operations, stockholders’ +equity, and cash flows for year then ended and the related notes (collectively referred to as “financial statements”) . +In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of +December 31, 2024, and the results of its operations and cash flows for the year then ended, in conformity with accounting principles +generally accepted in the United States of America. +Going Concern +The Company’s financial statements are prepared using +the generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and liquidation +of the liabilities in the normal course of business. The Company has an accumulated deficit of $178,971 for the year ended December 31, +2024. These factors as discussed in Note 2 of the financial statements raise substantial doubt about the Company’s ability to continue +as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include +any adjustments that might result from the outcome of this uncertainty. +Basis of Opinion +These financial statements are the responsibility of the Company’s +management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public +accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to +be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations +of the Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance with the standards +of the PCAOB. Those standards require we plan and perform the audit to obtain reasonable assurance about whether the financial statements +are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, +an audit of its internal control over financial reporting. As part of our audits. we are required to obtain an understanding of internal +control over financial reporting not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control +over financial reporting. Accordingly, we express no such opinion. +Our audits included performing procedures to assess +the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond +to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. +Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating +the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. +F- 2 +Critical Audit Matters +Critical audit matters arising from the current period of +the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts +or disclosure that are material to the financial statements and (2) involve especially challenging, subjective, or complex judgements. +The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we +are not, by communicating the critical audit below, providing separate opinions on the critical audit matters or the accounts or disclosures +to which they relate. +Related party transactions. +As discussed in Note 6 to the financial statement, the Company +has borrowed from related parties an amount $650,226 as of the date of December 31, 2024. The procedure performed to address the matter +included: obtaining confirmation from related party. +We have served as the Company’s auditor since 2024. +M. S. Madhava Rao, Chartered Accountant +Bangalore, India +April 8, 2025 +0 6662 +19 +UNIVERSAL TOKEN, INC. AND +SUBSIDIARIES +(FORMERLY ECO BRIGHT FUTURE, +INC.) +CONSOLIDATED BALANCE SHEETS +December +31, +2025 +2024 +ASSETS +Current Assets: +Cash +$ 1,842 +$ 65,705 +Prepaid and other +current assets +11,088 +1,560 +Assets +from discontinued operations +— +17,468 +Total +Current Assets +12,930 +84,733 +Non-Current Assets: +Software development +in progress +1,133,500 +425,500 +Intangible +assets +4,806 +4,806 +Total Non-Current +Assets +1,138,306 +430,306 +Total +Assets +$ 1,151,236 +$ 515,039 +LIABILITIES AND +STOCKHOLDERS' EQUITY (DEFICIT) +Current Liabilities: +Accounts payable +and accrued expenses +$ 30,000 +$ 7,783 +Advances payable, +related party +— +650,226 +Liabilities +from discontinued operations +— +12,837 +Total +Current Liabilities +30,000 +670,846 +Total +Liabilities +$ 30,000 +$ 670,846 +Stockholders' Equity +(Deficit) +Preferred Stock Series A; $ 0.001 par value, 100,000,000 and 10,000,000 shares authorized and 10,000,000 and 10,000,000 shares issued and outstanding, respectively +10,000 +10,000 +Common stock; $ 0.001 +par value, 750,000,000 and 750,000,000 shares authorized and 101,561,000 and 100,690,000 shares issued and outstanding, respectively +101,561 +100,690 +Additional paid-in +capital +1,544,894 +( 90,935 ) +Other comprehensive +(loss) income +— +3,409 +Accumulated +deficit +( 535,219 ) +( 178,971 ) +Total +Stockholders' (Deficit) Equity Attributable to Parent +1,121,236 +( 155,807 ) +Equity +Attributable to Noncontrolling interest +( 7 ) +5 +Total +Stockholders' Equity (Deficit) +1,121,229 +( 155,802 ) +Total +Liabilities and Stockholders' Equity (Deficit) +$ 1,151,236 +$ 515,039 +20 +UNIVERSAL TOKEN, INC. AND +SUBSIDIARIES +(FORMERLY ECO BRIGHT FUTURE, +INC.) +CONSOLIDATED STATEMENTS OF +OPERATIONS +For the Years Ended +December 31, +2025 +2024 +REVENUES +Service revenue +$ — +$ — +Total revenues +— +— +OPERATING EXPENSES +Professional Fees +303,264 +147,234 +General and administrative +51,762 +9,604 +Total Operating Expenses +355,026 +156,838 +OPERATING LOSS +( 355,026 ) +( 156,838 ) +OTHER INCOME (EXPENSES) +Gain on disposal of subsidiary +2,860 +— +Total Other Income (Expenses) +2,860 +— +LOSS BEFORE INCOME TAXES +( 352,166 ) +( 156,838 ) +Provision for income taxes +— +— +CONSOLIDATED NET LOSS FROM CONTINUING OPERATIONS +( 352,166 ) +( 156,838 ) +Loss from discontinued operations +( 4,082 ) +( 9,540 ) +CONSOLIDATED NET LOSS +$ ( 356,248 ) +$ ( 166,378 ) +Consolidated net income (loss) attributable to noncontrolling interest +( 2 ) +( 5 ) +CONSOLIDATED NET LOSS +$ ( 356,246 ) +$ ( 166,383 ) +OTHER COMPREHENSIVE INCOME +Foreign currency translation +300 +7,500 +COMPREHENSIVE NET LOSS +$ ( 355,946 ) +$ ( 158,883 ) +LOSS PER COMMON SHARE, BASIC AND DILUTED +Continuing operations +$ ( 0.00 ) +$ ( 0.00 ) +Discontinued operations +( 0.00 ) +( 0.00 ) +Basic net income per common share +( 0.00 ) +( 0.00 ) +WEIGHTED AVERAGE COMMON SHARES OUTSTANDING +101,358,304 +100,690,000 +21 +UNIVERSAL TOKEN, INC. AND +SUBSIDIARIES +(FORMERLY ECO BRIGHT FUTURE, +INC.) +CONSOLIDATED STATEMENTS OF +STOCKHOLDERS’ EQUITY (DEFICIT) +Preferred Stock +Common Stock +Additional Paid-In Capital +Retained (Deficit) Earnings +Accumulated Other Comprehensive Income (Loss) +Noncontrolling Interest +Total Stockholders’ (Deficit) Equity +Shares +Amount +Shares +Amount +Balance, December 31, 2023 +10,000,000 +$ 10,000 +100,690,000 +$ 100,690 +$ ( 90,935 ) +$ ( 12,593 ) +$ ( 334 ) +$ — +$ 6,828 +Foreign currency translation +— +— +— +— +— +— +3,743 +— +3,743 +Net income for the year ended December 31, 2024 +— +— +— +— +— +( 166,378 ) +— +5 +( 166,373 ) +Balance, December 31, 2024 +10,000,000 +$ 10,000 +100,690,000 +$ 100,690 +$ ( 90,935 ) +$ ( 178,971 ) +$ 3,409 +$ 5 +$ ( 155,802 ) +Preferred Stock +Common Stock +Additional Paid-In Capital +Retained (Deficit) Earnings +Accumulated Other Comprehensive Income (Loss) +Noncontrolling Interest +Total Stockholders’ (Deficit) Equity +Shares +Amount +Shares +Amount +Balance, December 31, 2024 +10,000,000 +$ 10,000 +100,690,000 +$ 100,690 +$ ( 90,935 ) +$ ( 178,971 ) +$ 3,409 +$ 5 +$ ( 155,802 ) +Common stock issued for cash +— +— +676,000 +676 +1,148,524 +— +— +— +1,149,200 +Common stock issued for related party debt +— +— +195,000 +195 +487,305 +— +— +— +487,500 +Foreign currency translation +— +— +— +— +— +— +300 +— +— +Recognition of other comprehensive income +— +— +— +— +— +— +( 3,709 ) +— +( 3,709 ) +Net loss for the year ended December 31, 2025 +— +— +— +— +— +( 356,248 ) +— +2 +( 356,246 ) +Balance, December 31, 2025 +10,000,000 +$ 10,000 +101,561,000 +$ 101,561 +$ 1,544,894 +$ ( 535,219 ) +$ — +$ 7 +$ 1,121,229 +22 +UNIVERSAL TOKEN, INC. AND +SUBSIDIARIES +(FORMERLY ECO BRIGHT FUTURE, +INC.) +CONSOLIDATED STATEMENTS OF +CASH FLOWS +For +the Years Ended +December 31, +2025 +2024 +Cash Flows From +Operating Activities +Net +income (loss) +$ ( 356,248 ) +$ ( 166,378 ) +Adjustments to reconcile +net income (loss) to net +cash provided +(used) by operating activities: +Depreciation +— +296 +Loss on foreign +currency translation +300 +3,409 +Gain on disposal +of subsidiary +( 2,860 ) +— +Changes in operating +assets and liabilities: +Accounts receivable +— +1,573 +Other current assets +( 6,771 ) +( 15,967 ) +Accounts +payable and accrued expenses +22,690 +10,170 +Net +cash provided by (used in) operating activities +( 342,889 ) +( 166,897 ) +Cash Flows from +Investing Activities +Software development +costs +( 708,000 ) +( 425,500 ) +Cash disbursed +in disposition of subsidiary +( 1,527 ) +— +Purchase +of domain name +— +( 4,806 ) +Net +cash used in investing activities +( 709,527 ) +( 430,306 ) +Cash Flows from +Financing Activities +Common stock +issued for cash +1,149,200 +— +Advances from +related party +— +650,225 +Repayment +of advances from related party +( 162,726 ) +— +Net +cash provided by financing activities +986,474 +650,225 +Net change in +cash +( 65,942 ) +53,022 +Cash, +beginning of year +67,784 +14,762 +Cash, +end of year +$ 1,842 +$ 67,784 +SUPPLEMENTAL DISCLOSURE +OF CASH FLOW INFORMATION: +Cash paid for interest +$ — +$ — +Cash paid for taxes +$ — +$ — +NON-CASH FINANCING +ACTIVITIES: +Common stock issued +for related party debt +$ 487,500 +$ — +23 +NOTE 1 - ORGANIZATION +AND SIGNIFICANT ACCOUNTING POLICIES +The financial +statements presented are those of Universal Token, Inc. and its wholly owned subsidiary (“Universal Token”, or the “Company”) +United Heritage, Sociedad Anonmima De Capital Variable (“UHS”) and UHS’s formerly wholly owned subsidiary, Universa +Hub Africa (“UHA”). Universal Token was incorporated on August 31, 2021 , under the laws of the State of Wyoming under the +name Eco Bright Future, Inc., the name was changed to Universal Token, Inc. in October 2025. UHS was incorporated on July 12, 2023, under +the laws of the country of El Salvador and UHA was incorporated on March 28, 2019, under the laws of the country of Tunisia. On December +20, 2023, the Company entered into a Merger Agreement with UHS that provided for the controlling owner and holder of 10,000,000 shares +of Universal Token’s Series A Preferred Stock to transfer all of the Series A Preferred Stock to the beneficial owner of all of +the 2,000 shares of capital stock of UHS, with 1,999 shares of UHS common stock transferred to Universal Token and 1 share retained to +satisfy El Salvador corporate ownership laws, a minority interest. On November 30, 2025, the ownership of UHA was returned to its prior +owner by returning UHS’s shares in UHA. +The Company +is an artificial intelligence and blockchain technology company that intends to utilize real world asset tokenization to create a virtual +investment vehicle on the blockchain linked to tangible assets such as real estate, precious metals, art and collectibles. The Company +intends to provide digital assets from El Salvador, tokenize assets and develop blockchain tools for entry to countries such as the United +Arab Emirates and Thailand. +Basis of Presentation +The Financial Statements and +related disclosures have been prepared using the accrual basis of accounting in accordance with Generally Accepted Accounting Principles +(“GAAP”) of the United States. Universal Token has elected a calendar year-end. +Cash Equivalents +Universal Token considers all +highly liquid investments with maturities of three months or less when purchased to be cash equivalents. +Use of Estimates +The preparation of consolidated +financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities +and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of +revenues and expenses during the reporting period. Actual results could differ from those estimates. +Revenue Recognition Policy +Universal Token recognizes +revenue in accordance with the provisions of Accounting Series Codification (“ASC”) 606, Revenue From Contracts With Customers +(“ASC 606”), which provides guidance on the recognition, presentation, and disclosure of revenue in financial statements. +ASC 606 outlines the basic criteria that must be met to recognize revenue and provides guidance for disclosure related to revenue recognition +policies. In general, the Company recognizes revenue based on the allocation of the transaction price to each performance obligation +as each performance obligation in a contract is satisfied. +The Company intends to provide +digital assets from El Salvador for sale, tokenize assets for sale and develop blockchain tools for sale that will provide entry to the +market for countries such as Tunisia and United Arab Emirates. During 2026, the Company plans to enter into agreements in connection +with its blockchain products in Thailand and Indonesia. Revenue recognition for the sale of digital and tokenized assets will be based +on the allocation of the transaction price to each performance obligation as each performance obligation in a contract is satisfied, +title or access to digital assets are transferred and amounts are due are collected or collectible. +Universal Token did no t recognize +any revenue during the years ended December 31, 2025 and 2024. +24 +Accounts Receivable +Trade accounts receivable are +recorded at invoiced amounts. Universal Token does not provide any unusual contractual trade terms, sales incentive programs or discounts. +Allowances for doubtful accounts are established for estimated losses resulting from the inability of customers to make required payments. +Allowances are determined based on a review of specific customer accounts where collection is doubtful, as well as an assessment of the +collectability of total receivables. Receivables are written off against the allowance when it is determined that the amounts will not +be recovered. There were no receivables or bad debt write offs as of and for the years ended December 31, 2025 and 2024. +Software Development Costs +In accordance with ASC 350-40, +Internal Use Software, Universal Token capitalizes certain software development costs associated with creating and enhancing internally +developed software related to its platforms. Software development activities generally consist of three stages (i) the research +and planning stage, (ii) the application and development stage, and (iii) the post-implementation stage. Costs incurred in +the planning and post-implementation stages of software development, or other maintenance and development expenses that do not meet the +qualification for capitalization are expensed as incurred. Costs incurred in the application and infrastructure development stage, including +significant enhancements and upgrades, are capitalized. Capitalized costs include personnel and related employee benefits expenses for +employees or consultants who are directly associated with and who devote time to software projects, and external direct costs of materials +obtained in developing the software. These software development costs, when placed in service, will be amortized on a straight-line basis +over the estimated useful life upon initial release of the software or additional features. A related license fee shall also commence +the amortization only upon capitalization of software development. See Note 3 for further details. +Stock-Based Compensation +Universal Token records stock-based +compensation using the fair value method. Equity instruments issued to employees and the cost of the services received as consideration +are accounted for in accordance with ASC 718, Stock Compensation and are measured and recognized based on the fair value of the +equity instruments issued. All transactions with non-employees in which goods or services are the consideration received for the issuance +of equity instruments are accounted for in accordance with ASC 515, Equity-Based Payments to Non-Employees , based on the fair +value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. There are +no outstanding stock-based compensation plans or awards issued as of December 31, 2025. +Fair Value of Financial +Instruments +ASC 820, Fair Value +Measurements (“ASC 820”) and ASC 825, Financial Instruments (“ASC 825”), requires an entity to maximize +the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. It establishes a fair value hierarchy +based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument's categorization +within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. It prioritizes +the inputs into three levels that may be used to measure fair value: +Level 1 - Level 1 applies +to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities. +Level 2 - Level 2 applies +to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted +prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient +volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can +be derived principally from, or corroborated by, observable market data. +Level 3 - Level 3 applies +to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement +of the fair value of the assets or liabilities. +25 +The carrying values of +cash, other current assets, in-process software development and intangibles approximate fair value. Pursuant to ASC 820 and 825, the +fair value of cash is determined based on "Level 1" inputs, which consist of quoted prices in active markets for identical +assets. +New Accounting Pronouncements +Universal Token has implemented +all new accounting pronouncements that are in effect and that may impact its financial statements. The Company does not believe that +there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or +results of operations. +In August 2023, the Financial +Accounting Standards Board (“FASB”) issued Accounting Series Update (“ASU”) No. 2023-05, Business Combinations +– Joint Venture Formations (Subtopic 805-60):Recognition and Initial Measurement (“ASU 2023-05”). ASU 2023-05 addresses +the accounting for contributions made to a joint venture, upon formation, in a joint venture’s separate financial statements. ASU +2023-05 was effective January 1, 2025 for the Company. The adoption of ASU 2023-05 did not have a significant impact on the Company’s +consolidated financial statements. +In December +2023, the FASB issued ASU 2023-08, Intangibles – Goodwill and Other Crypto Assets (Subtopic 350-60): Accounting for and Disclosure +of Crypto Assets (“ASU 2023-08”). ASU 2023-08 was issued to improve the accounting for and disclosure of certain crypto +assets in light of their expanded use in the investment community. The changes made by ASU 2023-08 were effective for the Company January +1, 2025. The adoption of ASU 2023-08 did not have a significant impact on the Company’s consolidated financial statements. +In December +2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”). +ASU 2023-09 address investor requests for more transparency about income tax information through improvements to income tax disclosures +primarily related to the rate reconciliation and income taxes paid information. The amendments require that public business entities +provide on an annual basis to (1) disclose specific categories in the rate reconciliation and (2) provide additional information for +reconciling items that meet a quantitative threshold. ASU 2023-09 also requires all entities disclose on an annual basis the amount of +income taxes paid disaggregated by federal, state and foreign and disaggregated by individual jurisdictions for amounts greater than +5% of income taxes paid. The changes made by ASU 2023-09 were effective for the Company January 1, 2025. The adoption of ASU 2023-09 +did not have a significant impact on the Company’s consolidated financial statements. +In November 2024, the FASB +issued ASU 2024-03, Income Statement- Reporting Comprehensive Income - Expense Disaggregations Disclosures (Subtopic 220-40) (“ASU +2024-03”). ASU 2024-03 requires an entity to disaggregate, in a tabular format, disclosure in the notes to financial statements +of all relevant expense captions presented on the face of the income statement in continuing operations into the following expense categories: +a) Purchases of inventory b) Employee compensation (disclosing separately any one-time employee termination benefits, if applicable) +c) Depreciation for the period in total d) Intangible asset amortization (for separate requirement to disclose intangible asset amortization +expense for the period in total) e) Depreciation, depletion, and amortization of capitalized acquisition, exploration, and development +costs recognized as part of oil- and gas- producing activities or other amounts of depletion expense. ASU 2024-03 is effective for the +Company effective for the Company January 1, 2028. The Company is currently evaluating the impact the adoption of the standard will have +on the Company’s consolidated financial position and results of operations. +In May 2025, the FASB issued +ASU 2025-03, Business Combinations (Topic 805) and Consolidation (Topic 810) Determining the Accounting Acquirer in the Acquisition +of a Variable Interest (“ASU 2025-03”). ASU 2025-03 revises current guidance for determining the accounting acquirer +for a transaction effected primarily by exchanging equity interests in which the legal acquiree is a VIE that meets the definition of +a business. The amendments require that an entity consider the same factors that are currently required for determining which entity +is the accounting acquirer in other acquisition transactions. ASU 2025-03 is effective for the Company January 1, 2028. The Company is +currently evaluating the impact the adoption of the standard will have on the Company’s consolidated financial position and results +of operations. +In May +2025, the FASB issued ASU 2025-04, Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606) Clarifications +to Share-Based +26 +Consideration +Payable to a Customer (“ASU 2025-04”). ASU 2025-04 revises the Master Glossary definition of the term performance condition +for share-based consideration payable to a customer. The revised definition incorporates conditions (such as vesting conditions) that +are based on the volume or monetary amount of a customer’s purchases (or potential purchases) of goods or services from the grantor +(including over a specified period of time). The revised definition also incorporates performance targets based on purchases made by +other parties that purchase the grantor’s goods or services from the grantor’s customers. The revised definition of the term +performance condition cannot be applied by analogy to awards granted to employees and nonemployees in exchange for goods or services +to be used or consumed in the grantor’s own operations. ASU 2025-04 is effective for the Company January 1, 2028. The Company is +currently evaluating the impact the adoption of the standard will have on the Company’s consolidated financial position and results +of operations. +In July +2025, the FASB issued ASU 2025-05, Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606) Financial +Instruments—Credit Losses (Topic 326) Measurement of Credit Losses for Accounts Receivable and Contract Assets (“ASU +2025-05”). ASU 2025-05 was issued to address challenges encountered when applying the guidance in Topic 326, Financial Instruments—Credit +Losses, to current accounts receivable and current contract assets arising from transactions accounted for under Topic 606, Revenue from +Contracts with Customers. ASU 2025-05 introduces a practical expedient for all entities and an accounting policy election for entities +other than public business entities related to applying Subtopic 326-20 to current accounts receivable and current contract assets arising +from transactions accounted for under Topic 606. ASU 2025-04 is effective for the Company January 1, 2026 and is not expected to have +a significant impact on the Company’s consolidated financial position and results of operations. +In September +2025, the FASB issued ASU 2025-06, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Targeted Improvements +to the Accounting for Internal-Use Software (“ASU 2025-06”). ASU 2025-06 was issued to modernize the accounting for software +costs that are accounted for under Subtopic 350-40, Intangibles—Goodwill and Other—Internal-Use Software (referred to as +“internal-use software”). ASU 2025-06 removes all references to prescriptive and sequential software development stages (referred +to as “project stages”) throughout Subtopic 350-40. Therefore, an entity is required to start capitalizing software costs +when both of the following occur: 1. Management has authorized and committed to funding the software project. 2. It is probable that +the project will be completed and the software will be used to perform the function intended (referred to as the “probable-to-complete +recognition threshold”). ASU 2025-06 is effective for the Company January 1, 2028. The Company is currently evaluating the impact +the adoption of the standard will have on the Company’s consolidated financial position and results of operations. +Other accounting standards +that have been issued by the FASB or other standards-setting bodies are not currently expected to have a material effect on the Company’s +consolidated financial position, results of operations or cash flows. +Basic and Diluted Loss +Per Share +Universal Token presents +basic earnings per share (EPS) on the face of the statements of operation. Basic EPS is computed by dividing net income (loss) available +to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS +gives effect to all dilutive potential common shares outstanding during the period including convertible debt, stock options, and warrants, +using the treasury stock method, and convertible debt instrument, using the if-converted method. In computing diluted EPS, the average +stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or +warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. +The calculation of basic +and diluted net loss per share is as follows: +Schedule of antidilutive securities excluded from computation of earnings per share +For +the Years Ended +December 31, +2025 +2024 +Basic and Diluted +Loss Per Share: +Numerator: +Net +loss from continuing operations +$ ( 352,166 ) +$ ( 156,838 ) +Net +loss from discontinued operations +( 4,082 ) +( 9,540 ) +Net +loss +$ ( 356,248 ) +$ ( 166,378 ) +Denominator: +Weighted +average common shares outstanding, basic and diluted +101,358,304 +100,690,000 +Basic +and diluted net loss per share from continuing operations +$ ( 0.00 ) +$ ( 0.00 ) +Basic +and diluted net loss per share from discontinued operations +$ ( 0.00 ) +$ ( 0.00 ) +Basic +and diluted net loss per share +$ ( 0.00 ) +$ ( 0.00 ) +27 +Income Taxes +Universal Token records income +taxes under the asset and liability method, whereby deferred tax assets and liabilities are recognized based on the future tax consequences +attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective +tax bases, and attributable to operating loss and tax credit carryforwards. Accounting standards regarding income taxes requires a reduction +of the carrying amounts of deferred tax assets by a valuation allowance, if based on the available evidence, it is more likely than not +that such assets will not be realized. Accordingly, the need to establish valuation allowances for deferred tax assets is assessed at +each reporting period based on a “more likely than not” realization threshold. This assessment considers, among other matters, +the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the duration of statutory carryforward +periods, the Company’s experience with operating loss and tax credit carryforwards not expiring unused, and tax planning alternatives. +Significant judgment is required +in evaluating the Company’s tax positions and determining its provision for income taxes. During the ordinary course of business, +there are many transactions and calculations for which the ultimate tax determination is uncertain. Accounting standards regarding uncertainty +in income taxes provides a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the +tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position +will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the +tax benefit as the largest amount which is more than 50% likely, based solely on the technical merits, of being sustained on examinations. +Universal Token considers many factors when evaluating and estimating its tax positions and tax benefits, which may require periodic +adjustments and which may not accurately anticipate actual outcomes. +NOTE 2 - INCOME TAXES +Universal Token files income +tax returns in the U.S. federal jurisdiction. Universal Token’s policy is to recognize interest accrued related to unrecognized +tax benefits in interest expense and penalties in operating expenses. Deferred taxes are provided on a liability method whereby deferred +tax assets are recognized for deductible temporary differences and operating loss and tax credit carry forwards and deferred tax liabilities +are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and +liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more +likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted +for the effects of changes in tax laws and rates on the date of enactment. +Net deferred tax assets consist +of the following components: +Schedule of deferred tax assets +For the Years Ended +December 31, +2025 +2024 +Deferred tax assets: +Net operating loss carry forward +$ 118,952 +$ 44,988 +Valuation allowance +( 118,952 ) +( 44,988 ) +Net deferred tax asset +$ — +$ — +The federal income tax provision +differs from the amount of income tax determined by applying the U.S. federal income tax rate of 21 % to pretax income for the year ended +December 31, 2025 and 2024 due to the following: +28 +Schedule of federal income tax +For the Years Ended December +31, +2025 +2024 +Pre-tax book +income (loss) +$ ( 73,955 ) +$ ( 34,949 ) +Meals +— +20 +Valuation allowance +73,955 +34,929 +Federal Income Tax +$ — +$ — +The Company had net operating +losses of approximately $ 566,395 that can be used indefinitely. Due to the change in ownership in 2023, net operating loss carryforwards +may be limited as to use in future years. In accordance with the statute of limitations for federal tax returns, the Company’s +federal tax returns for the years 2021 through 2024 are subject to examination. +Supplemental income tax +disclosures for the year ended December 31, 2025 follow: +Schedule of net operating +losses +Income taxes paid: +Federal +$ — +State +— +Foreign +— +Total +income taxes paid +$ — +Income from continuing +operations before income taxes: +Domestic +$ — +Foreign +— +Income from continuing operations before income taxes +$ — +Income tax expense +from continuing operations: +Federal +$ — +State +— +Foreign +— +A reconciliation of income +tax expense to the income tax expense computed at the statutory rate follows: +Schedule of statutory rate and provision for income taxes +Amount +% +Federal +income tax expense (benefit)- at the statutory rate of 21% +$ ( 73,955 ) +( 21 )% +Adjustments: +Other nontaxable +and nondeductible items +— +- % +Valuation allowance +$ ( 73,955 ) +( 21 )% +— +— +NOTE 3 - SOFTWARE DEVELOPMENT +COSTS +The Company is developing an +open-source platform and developer infrastructure to enable access to a global economy using real-world asset tokenization built on a +proprietary blockchain. Research and planning phase costs are expensed as incurred. Costs incurred in the application and infrastructure +development stage, including significant enhancements and upgrades, are capitalized. These costs to date have only included external +consultants, but in the future could include Company personnel and related employee benefits expenses for employees who are directly +associated with and who devote time to software projects and external direct costs of materials obtained in developing the software. +We incurred and capitalized +software development costs of $ 708,000 and $ 425,500 during the years ended December 31, 2025 and 2024, respectively. Upon completion, +the Company will amortize its software development costs on a straight-line basis over the estimated the useful life. The balance of +software development costs at December 31, 2025 and 2024 was $ 1,133,500 and $ 425,500 , respectively. +29 +NOTE 4 - COMMON STOCK +On January 11, 2025, the Company +issued 350,000 restricted shares of common stock for $ 595,000 cash, or $ 1.70 per share. +On February 19, 2025, the Company +issued 195,000 of restricted shares of common stock in exchange for a $ 487,500 note payable to an officer and director, or 2.50 per share. +On April 24, 2025, the Company +issued 200,000 restricted shares of common stock for $ 340,000 cash, or $ 1.70 per share. +On August 11, 2025, the Company +issued 40,000 restricted shares of common stock for $ 68,000 cash, or $ 1.70 per share. +On September 29, 2025, the +Company issued 30,000 restricted shares of common stock for $ 51,000 cash, or $ 1.70 per share. +On November 25, 2025, the Company +issued 41,000 restricted shares of common stock for $ 69,700 cash, or $ 1.70 per share. +On December 17, 2025, the Company +issued 15,000 restricted shares of common stock for $ 25,500 cash, or $ 1.70 per share. +NOTE 5 - GOING CONCERN +Universal Token's consolidated +financial statements are prepared using Generally Accepted Accounting Principles applicable to a going concern that contemplates the +realization of assets and liquidation of liabilities in the normal course of business. However, Universal Token has recently accumulated +losses since its inception and has had recent negative cash flows from operations, which raise substantial doubt about its ability to +continue as a going concern. Management's plans with respect to alleviating the adverse financial conditions that caused management to +express substantial doubt about Universal Token's ability to continue as a going concern are as follows: +The ability to continue Universal +Token’s operations depends on its ability to generate and grow revenue and results of operations as well as our ability to access +capital markets when necessary to accomplish strategic objectives. We expect to continue to incur losses for the immediate future and +will need additional equity or debt financing until we can achieve profitability and positive cash flows from operating activities. Our +future capital requirements for operations will depend on many factors, including the ability to generate revenues and obtain capital. +There can be no assurance that +Universal Token will be able to achieve its business plans, raise any more required capital or secure the financing necessary to achieve +its current operating plan. The ability of Universal Token to continue as a going concern is dependent upon its ability to successfully +accomplish the plan described in the preceding paragraph and eventually attain profitable operations. The accompanying financial statements +do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. +NOTE 6 - FOREIGN CURRENCY +OPERATIONS +Universal Token operated in +foreign countries, specifically, Tunisia during the years ended December 31, 2025 and 2024. As such, assets and liabilities of foreign +subsidiaries are translated into United States dollars at the rate of exchange in effect at year-end. The related translation adjustments +are made directly to other comprehensive income or loss. Income and expenses are translated at the average rates of exchange in effect +during the year. Foreign currency gains and losses are included in the results of operations and are generally classified in other income +(expense) in the Consolidated Statements of Operations. During November 2025, UHA was disposed of through a return of its stock to its +original owners. As such, accumulated income through November 30, 2025 related to the conversion of Tunisian dinar into United States +dollars was recognized as part of the gain on disposal of subsidiary. Accumulated other comprehensive loss was $ 0 and $ 3,409 at December +31, 2025 and 2024, respectively. Foreign currency comprehensive net income was $ 300 and $ 7,500 for the years ended December 31, 2025 +and 2024, respectively. +30 +NOTE 7 - RELATED PARTY +TRANSACTIONS +Share Return Agreement +On November 30, 2025, the Company’s +wholly owned El Salvadorian subsidiary, UHS, entered into a Share Return Agreement to return the shares of UHA to an entity controlled +by a significant shareholder of the Company and former ownership of UHA. The Share Return Agreement provides for the transfer of the +ownership of UHA from UHS and the acceptance and assumption of all assets and liabilities of UHA as of November 30, 2025. As a result +of the Share Return Agreement, the Company recognized a net loss on disposition of $2,860, which, due to the related party relationship, +was recorded as a reduction of capital to additional paid-in capital. +Related Party Advances +As of December 31, 2024, Eco +Bright had a note payable to an officer and director for short-term advances totaling $ 613,423 . On Feb 19, 2025, the Company issued 195,000 +of restricted shares of common stock in exchange for a $ 487,500 note payable to an officer and director, or $ 2.50 per share. Additionally, +during the year ended December 31, 2025, the Company repaid the balance of $ 125,932 in cash. The balance of the advances was $ 0 and $ 613,423 +as December 31, 2025 and 2024, respectively. +During the year ended December +31, 2025, the Company repaid $ 36,802 in short-term advances to a significant shareholder and director of the Company. The balance of +the advances was $ 0 and $ 36,802 as of as December 31, 2025 and 2024, respectively. +Consulting Fees +During the year ended December +31, 2025, the Company paid a significant shareholder $ 20,000 in consulting fees. +NOTE 8 - PRIOR PERIOD +PRESENTATION CORRECTION +During the preparation of the +consolidated financial statements for the three months ended March 31, 2025, it was discovered that there were unintentional errors in +the presentation of two balance sheet accounts, resulting in immaterial errors. As such, the December 31, 2024 presented amounts for +Other current assets, originally reported as $ 16,851 , was changed to $ 16,949 , and Accounts payable was increase from the originally reported +$ 20,540 to $ 20,620 . These changes resulted in a net difference of $18 on the presented consolidated balance sheet as of December 31, +2024, there were no impacts to the consolidated income statement as of December 31, 2024. +31 +NOTE 9 - DISCONTINUED +OPERATIONS +During November 2025, the Company +determined it no longer viable to continue to pursue licensing in the country of Tunisia and ceased operations through a disposition +of its subsidiary UHA as discussed above. As such, the operations of UHA qualified as discontinued operations as it represented a significant +strategic shift in the Company’s operations and financial results. In addition, the operations and cash flows of the UHA operations +business can be distinguished, operationally and for financial reporting purposes, from the remaining operations of the Company. The +historical statement of operations of UHA as of December 31, 2025 and 2024 have been presented as discontinued operations in the consolidated +financial statements. The previous year numbers are regrouped and reclassified wherever necessary on account of disposal of subsidiary. +The operating results of the +Company’s discontinued operations for the years ended December 31, 2025 and 2024 are as follows: +Schedule of discontinued operations +For +the Years Ended +December 31, +2025 +2024 +Operating Expenses: +General +and administrative +3,115 +12,195 +Total operating +expenses +3,115 +12,195 +Operating +Loss +( 3,115 ) +( 12,195 ) +Other Income (Expenses) +Other expense +( 967 ) +— +Other +income +— +2,655 +Total +other income (expense) +( 967 ) +2,655 +Loss +from discontinued operations +$ ( 4,082 ) +$ ( 9,540 ) +Assets and liabilities from +discontinued operations as of December 31, 2024 are as follows: +Schedule of assets and liabilities from discontinued operations +December +31, +2024 +ASSETS +Current Assets: +Cash +$ 2,079 +Prepaid +and other current assets +15,389 +Total +Current Assets +$ 17,468 +LIABILITIES +Current Liabilities: +Accounts +payable and accrued expenses +$ 12,837 +Total +Current Liabilities +$ 12,837 +NOTE 10 - SUBSEQUENT +EVENTS +The Company reviewed subsequent +events through March 30, 2026, the date the financial statements were available to be issued. +32 +Item 9. Changes in and Disagreements +with Accountants on Accounting and Financial Disclosure +None. +Item 9A. Controls and Procedures +Evaluation of Disclosure Controls and Procedures +Disclosure controls and procedures +are the controls and other procedures that are designed to ensure that information required to be disclosed in the reports that the Company +files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s +rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information +required to be disclosed in the reports that the Company files or submits under the Exchange Act is accumulated and communicated to management, +including the Chief Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. +As of December 31, 2025, +we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer +and Chief Financial Officer of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange +Act Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended. Based on this evaluation, our Chief Executive +Officer and Chief Financial Officer concluded that our financial disclosure controls and procedures were not effective due to our limited +internal resources and lack of ability to have multiple levels of transaction review. +Management’s Report on Internal Control +Over Financial Reporting +The Company’s management +is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) +under the Exchange Act. Internal control over financial reporting is a process designed by, or under the supervision of, the Company’s +principal executive and principal financial officers, and effected by the board of directors, management, and other personnel, to provide +reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes +in accordance with U.S. GAAP including those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable +detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company, (ii) provide reasonable assurance +that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP and that receipts +and expenditures are being made only in accordance with authorizations of management and directors of the Company, and (iii) provide +reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s +assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial +reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the +risk that the controls may become inadequate because of changes in conditions or that the degree of compliance with policies and procedures +may deteriorate. +Management has assessed our +internal control system in relation to criteria for effective internal control over financial reporting described in “Internal +Control-Integrated Framework” issued in 2013 by the Committee of Sponsoring Organizations (“COSO”) of the Treadway +Commission. Based upon these criteria, we believe that, as of December 31, 2025, our system of internal control over financial reporting +was not effective due to material weaknesses that were identified. The material weaknesses are caused by our limited internal resources +and limited personnel. We presently have only two officers. The material weaknesses include: 1) no segregation of duties within the Company; +2) no management oversight or multiple levels of supervision and review; 3) no control documentation being produced and no one to review +control documentation; and, 4) a lack of expertise in the application of generally accepted accounting principles. +This annual report does not +include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial +reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant +to rules of the SEC that permit the Company to provide only management’s report in this annual report. +33 +Changes in Internal Control over Financial Reporting +There were no changes in our +internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the +Exchange Act that occurred during the year ended December 31, 2025 that have materially affected, or are reasonably likely to materially +affect, our internal control over financial reporting. +Item 9B. Other Information +During the three months ended +December 31, 2025, no director or officer (as defined in SEC Rule 16a-1(f) of the Company adopted or terminated a “Rule 10b5-1 +trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 405 of Regulation S-K. +Item 9C. Disclosures Regarding +Foreign Jurisdictions That Prevent Inspection +Not Applicable. +34 +Part +III +Item 10. Directors, Executive +Officers, and Corporate Governance +Information Concerning Directors +Each of the persons named below +currently serve as a director of the Company. +Name +Position +Age +Start +Date +George +Athanasiadis +CEO/Director +49 +August +2021 +Tomaz +Strgr +CTO/Director +63 +December +2023 +Alexander +Borodich +Chairman +of the Board +50 +August +2025 +George +Athanasiadis Director, President, Chief Executive Officer, Treasurer, Secretary, Age 49, director until Dec 31, 2027 +Mr. +Athanasiadis joined the Company as Chief Executive Officer, Secretary, and Principal Financial Officer in August 2021. Mr. Athanasiadis +has a history of managing multiple successful businesses. He has experience at an executive level and has served on multiple boards and +as an officer of multiple companies. He graduated from University of Florida with a Bachelor’s of Science in electrical engineering. +He also has a masters degree in business and a masters degree in information technology. Mr. Athanasiadis has been elected to serve as +director of the Company until December 31, 2027. +Recent Work History: +Bright Business LLC +– Owner and operator of import of LED light fixtures for multi family construction for the last 15 years. +2G Group LLC – +Managing director of marketing group that specializes in information technology and business development +Tomaz Strgar Director, Chief +Technology Officer, Age 63, director until Dec 31, 2027 +Mr. Strgar +has served as a Director of the Company since December 2023. Mr. Strgar has over 30 years experience in managing companies and assisting +with technological advancement within companies. Mr. Strgar also has worked for the Ministry of Defense and is a retired colonel of the +Slovenian Armed Forces. Mr. Strgar has been elected to serve as director of the Company until December 31, 2025. +Recent Work History +Mr. Strgar retired from the +military as a Colonel and has been involved in consulting multiple international technology companies during his retirement. He has been +consulting companies for the last 8 years since his retirement. He works primarily with companies that are looking to grow infrastructure +and need a strong manager to assist in corporate structure and technology. +Alexander +Borodich, Chairman of the Board, Age 50, Director until Dec. 31, 2027 +Alexander +Borodich has served as Chairman of the Board since August 2025 and is the founder of the Universa blockchain platform. Mr Borodich graduated +from the Moscow State Institute of Electronics and Mathematics, completing his graduate studies in 2003. +Recent Work History +Mr. Borodich is a private investor +and the managing partner of the marketing communication agency FutureAction, the founder of FutureLabs, and the VentureClub.ru investor +club, a crowd-investment platform. He is the former principal of the Economic School at Moscow State University (2010–2013), and +current Chairman of the Scientific Research & Innovative Technologies Commission at the International Aerospace Committee. +35 +Corporate Governance +Director Independence +Applying the definition of +independence under Nasdaq rules, the board has determined that there are no independent directors on the board currently. +Family Relationships +There are no family relationships +among any of our executive officers or directors. +Attendance of Directors +at Board Meetings and Annual Meeting of the Shareholders +During 2025, the Board of Directors +met (or acted via written consent) 10 times. Each director during this time frame attended at least 75% of the aggregate number of meetings +held during his term of service. +Board Committees +The board does not have committees +established at this time. +Item 11. Executive Compensation +During the previous 2 years +Executive Compensation has been zero. Executive Compensation will begin as revenues increase. It is expected that compensation will begin +in 4 th quarter of 2026 and will initially be $120,000 per year for executive board members that are working full time. Any +additional board members that are not full time will be compensated on a contract basis and will be individually negotiated. Amount paid +will not exceed the full time board members. +Review process for executive +compensation is currently done between executives. As we increase revenues and growth there will be a specific committee established +for the future. This committee will be The Compensation Committee. It is not yet established. +The following table illustrates +compensation accrued to directors during the most recently ended fiscal year: +Name +Fees +earned or paid in cash ($) (Wages Earned and Accrued) +Stock +awards ($) +Option +awards ($) +Non-equity +incentive compensation plan ($) +Nonqualified +deferred compensation earnings ($) +All +other compensation ($) +Total +($) +George +Athanasiadis +— +— +— +— +— +— +— +Tomaz +Strgr +— +— +— +— +— +— +— +Alexander +Borodich +— +— +— +— +— +— +— +There are no outstanding equity +awards and no new employment contracts have been signed during the most recent fiscal year. +36 +Indemnification +Our articles of incorporation, +by-laws and director indemnification agreements provide that each person who was or is made a party or is threatened to be made a party +to or is otherwise involved (including, without limitation, as a witness) in any action, suit or proceeding, whether civil, criminal, +administrative or investigative, by reason of the fact that he or she is or was a director or an officer of the Company or, in the case +of a director, is or was serving at our request as a director, officer, or trustee of another corporation, or of a partnership, joint +venture, trust or other enterprise, including service with respect to an employee benefit plan, whether the basis of such proceeding +is alleged action in an official capacity as a director, officer or trustee or in any other capacity while serving as a director, officer +or trustee, shall be indemnified and held harmless by us to the fullest extent authorized by the Wyoming General Corporation Law against +all expense, liability and loss reasonably incurred or suffered by such. +Section 17 of the Wyoming +Statutes permits a corporation to indemnify any director or officer of the corporation against expenses (including attorney's fees), +judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with any action, suit or proceeding brought +by reason of the fact that such person is or was a director or officer of the corporation, if such person acted in good faith and in +a manner that he or she reasonably believed to be in, or not opposed to, the best interests of the corporation, and, with respect to +any criminal action or proceeding, if he or she had no reason to believe his or her conduct was unlawful. In a derivative action, ( i.e +., one brought by or on behalf of the corporation), indemnification may be provided only for expenses actually and reasonably incurred +by any director or officer in connection with the defense or settlement of such an action or suit if such person acted in good faith +and in a manner that he or she reasonably believed to be in, or not opposed to, the best interests of the corporation, except that no +indemnification shall be provided if such person shall have been adjudged to be liable to the corporation, unless and only to the extent +that the court in which the action or suit was brought shall determine that the defendant is fairly and reasonably entitled to indemnity +for such expenses despite such adjudication of liability. +Item 12. Security Ownership +of Beneficial Owners and Management, and Related Stockholder Matters +Beneficial ownership is determined +in accordance with the rules of the SEC and includes voting or investment power with respect to the securities. In computing the +number of shares beneficially owned by a person and the percentage of ownership of that person, shares of common stock subject to +options and warrants held by that person that are exercisable as of the Record Date or become exercisable within 60 days of the +Record Date are deemed outstanding even if they have not actually been exercised. Those shares, however, are not deemed outstanding for +the purpose of computing the percentage ownership of any other person. +The following tables set forth +certain information with respect to beneficial ownership of the Company’s common stock as of February 20, 2026, based on 101,561,000 +issued and outstanding shares of common stock, by: +● +Each +director and director nominee; +● +Each +named executive officer; and +● +All +of the executive officers and directors as a group. +● +Each +person known to be the beneficial owner of 5% or more of the Company’s outstanding common stock +To our knowledge each person +named in the tables below has sole voting and investment power with respect to the number of shares of common stock set forth opposite +such person’s name. +Title +of Class +Name +and address of +Beneficial Owner +Amount +of +shares owned +Nature +of +beneficial ownership +Percent +of +class +Voting +Power +Common +George +Athanasiadis (Puerto Rico) +19,800,000 +Officer/Director +19.5% +9.5% +Common +Tarasov +Law (Alexander Borodich) +20,195,000 +Over +5% +19.9% +10% +Common +United +Digital Holdings LLC +35,000,000 +Over +5% +34.4% +17.4% +Preferred +Series A +Alexander +Borodich +10,000,000 +Over +5% +100% +49% +Tomaz +Strgr (Slovenia) +— +Officer +— +— +37 +Item 13. Certain Relationships +and Related Transactions, and Director Independence +Share Return Agreement +On November 30, 2025, our wholly +owned El Salvadorian subsidiary, UHS, entered into a Share Return Agreement to return the shares of UHA to an entity controlled by a +Alexander Borodich and former ownership of UHA. The Share Return Agreement provides for the transfer of the ownership of UHA from UHS +and the acceptance and assumption of all assets and liabilities of UHA as of November 30, 2025. +Related Party Advances +As of December 31, 2024, we +had a note payable to George Athanasiadis for short-term advances totaling $613,423. On Feb 19, 2025, the Company issued 195,000 of restricted +shares of common stock in exchange for a $487,500 of the amount. During the year ended December 31, 2025, we repaid the balance of $125,932 +in cash. +During the year ended December +31, 2025, we repaid $36,802 in short-term advances from Alexander Borodich. +Consulting Fees +During the year ended December +31, 2025, the Company paid Alexander Borodich $20,000 in consulting fees. +Item 14. Principal Accountant +Fees and Services +Our auditor for the fiscal +year ended December 31, 2025, is CNGSN & Associates LLP. The Company has ratified CNGSN & Associates LLP, Independent Registered +Public Accounting Firm, to audit our books, records and accounting for the year ended December 31, 2025. Our auditor for the fiscal year +ended December 31, 2024, was M.S. Madhava Rao. +The aggregate fees billed for +professional services rendered by the principal accountant for the audit of our annual financial statements and review of the financial +statements included in our quarterly reports on Form 10-Q and services that are normally provided by the principal accountant in connection +with statutory and regulatory filings or engagements for these fiscal periods were as follows: +Year +Audit Fees +Audit Related Fees +Total Fees +2025 +$ 48,000 +$ 0 +$ 48,000 +2024 +$ 47,500 +$ 0 +$ 47,500 +Audit Fees: The aggregate fees +billed for professional services rendered by the principal accountant for the audit of our annual financial statements and review of +financial statements included in our Form 10-K and other services that are normally provided by the principal accountant in connection +with statutory and regulatory filings or engagements for those fiscal years. +Audit-Related Fees: The aggregate +fees billed for assurance and related services rendered by the former principal accountant that are reasonably related to the performance +of the audit or review of our financial statements and are not reported under the previous item, Audit Fees. +38 +PART IV +Item 15. Exhibits and Financial +Statement Schedules +The following Exhibits are filed with this Report: +Exhibit +Number +Exhibit +Name +3.1 +Articles +of Incorporation of Eco Bright Future, Inc. (incorporated by reference) +3.2 +Articles +of Incorporation Amended and Restated of Eco Bright Future, Inc. (incorporated by reference) +3.3 +Corporate +Bylaws of Eco Bright Future, Inc. (incorporated by reference) +20.1 +Bitcoin +Digital Service License +23.1 +Consent of Independent Registered Accounting Firm for the year ending December 31, 2025 +23.2 +Consent +of Independent Registered Accounting Firm for the year ending December 31, 2024 +31.1 +Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 +32.1 +Certification pursuant to 18 U.S.C. Section 1350, as Adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 +101.INS +Inline XBRL Instance Document +- the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. +101.XSD +Inline XBRL Taxonomy Extension +Schema Document +101.CAL +Inline XBRL Taxonomy Extension +Calculation Linkbase Document +101.DEF +Inline XBRL Taxonomy Extension +Definition Linkbase Document +101.LAB +Inline XBRL Taxonomy Extension +Label Linkbase Document +101.PRE +Inline XBRL Taxonomy Extension +Presentation Linkbase Document +104 +Cover Page Interactive Data +File - formatted in Inline XBRL and contained in Exhibit 101 +Item 16. Form 10-K Summary +None +39 +SIGNATURES +Pursuant +to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has caused this Report to be signed +on its behalf by the undersigned, thereunto duly authorized. +UNIVERSAL +TOKEN, INC. +By: +/s/ +George Athanasiadis +Name: +George +Athanasiadis +Title: +Chief +Executive Officer +Pursuant +to the requirements of the Securities Exchange Act of 1934, this Report has been signed by the following persons on behalf of the registrant +and in the capacities and on the dates indicated. +Signature +Title +Date +/s/ +Alexander Borodich +Chairman of the Board +of Directors +March +31, 2026 +Alexander +Borodich +/s/ +George Athanasiadis +Chief +Executive Officer, President, Secretary and Director +(Principal +Executive Officer and Principal Accounting and Financial Officer) +March +31, 2026 +George Athanasiadis +/s/ +Tomaz Strgar +Chief +Technology Officer and Director +March +31, 2026 +Tomaz Strgar +40 \ No newline at end of file diff --git a/raw/filings/0001919182/2025/0001171520-26-000041/filing_metadata.csv b/raw/filings/0001919182/2025/0001171520-26-000041/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..4f67721fd068b059e73de17839e7500a0c54775f --- /dev/null +++ b/raw/filings/0001919182/2025/0001171520-26-000041/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001919182,UTKN,Universal Token,2025,10-K,2026-03-31,2025-12-31,2026-03-31T21:11:38.000Z,0001171520-26-000041,eps12516_utkn.htm,,6114239,1,1,https://www.sec.gov/Archives/edgar/data/1919182/000117152026000041/eps12516_utkn.htm,https://www.sec.gov/Archives/edgar/data/1919182/000117152026000041/ diff --git a/raw/filings/0001919182/2025/0001171520-26-000041/item1.txt b/raw/filings/0001919182/2025/0001171520-26-000041/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..3c1118275a03356b83112dfebc26860710a6322b --- /dev/null +++ b/raw/filings/0001919182/2025/0001171520-26-000041/item1.txt @@ -0,0 +1,108 @@ +Item 1. Business. +Forward-Looking and +Cautionary Statements +There are statements in this +registration statement that are not historical facts. These “forward-looking statements” can be identified by the use of +terminology such as “believe,” “hope,” “may,” “anticipate,” “should,” “intend,” +“plan,” “will,” “expect,” “estimate,” “project,” “positioned,” +“strategy” and similar expressions. You should be aware that these forward-looking statements are subject to risks and uncertainties +beyond our control. To discuss these risks, you should read this entire registration statement carefully, especially the risks discussed +under the “Risk Factors” section. Although management believes that the assumptions underlying the forward-looking statements +included in this registration statement are reasonable, they do not guarantee our future performance, and actual results could differ +from those contemplated by these forward-looking statements. The assumptions used for purposes of the forward-looking statements specified +in the following information represent estimates of future events and are subject to uncertainty as to possible changes in economic, +legislative, industry, and other circumstances. As a result, the identification and interpretation of data and additional information +and their use in developing and selecting assumptions from and among reasonable alternatives require the exercise of judgment. To the +extent that the assumed events do not occur, the outcome may vary substantially from anticipated or projected results. Accordingly, no +opinion is expressed on the achievability of those forward-looking statements. In light of these risks and uncertainties, there can be +no assurance that the results and events contemplated by the forward-looking statements contained in this registration statement will +transpire. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. We +do not undertake any obligation to update or revise any forward-looking statements. +Website Access to SEC Reports +Our +website at www.universaltoken.com provides information about our company as well as copies of +our reports filed with the SEC including annual and quarterly financial reports. To view the filings visit the website above and click +on “filings” to view SEC filings. The SEC also maintains a website at www.sec.gov that contains reports, proxy and information +statements, and other information regarding public companies, including Universal Token, Inc. Any reports filed with the SEC may also +be obtained from the SEC’s Reference Room at 100F Street, NE, Washington, DC 20549. +ORGANIZATIONAL HISTORY +Universal Token, Inc., (together +with its subsidiaries the “Company”), was incorporated in the State of Wyoming in August 2021 under the name Eco Bright Future, +Inc. We changed our name to Universal Token, Inc. during October 2025 to better reflect the change in business operations as discussed +below. In December of 2023, we completed a reverse recapitalization with United Heritage, an El Salvador Corporation (“United Heritage”), +and its wholly owned subsidiary, Universa Hub Africa (“UHA”), a Tunisian Corporation. United Heritage was established to +obtain licensing in El Salvador as a digital asset service provider to allow tokenization of certain assets and commodities and was the +parent company of UHA until its disposition in November 2025. The operations of United Heritage and UHA were minimal during 2025. During +November 2025, United Heritage disposed of UHA and stopped consolidating its operations. Our current jurisdictions that we consolidate +financials in and own any tangible or intangible assets are El Salvador and the United States. +Present Operations +The Company intends to engage +in the financial technology and blockchain business and is developing an open-source platform and developer infrastructure using Universa +Blockchain, to create the UTKN platform, which we believe will enable anyone to access and participate in the global economy and Real-World +Assets (“RWA”) tokenisation. We believe our platform will allow digital assets to be transferred safely across a variety +of “wallets” due to robust Know Your Customer (“KYC”) and AML (“Anti Money Laundering”) processes +that will track and monitor suspicious activities. We are also developing tools to access the platform via mobile and digital services. +The Company does not, and does not plan to, engage in crypto asset trading and does not own crypto assets. The +Company currently does not meet the requirements to register as an investment company but will continue to monitor current regulations +and changes in regulations and reporting requirements, especially as it relates to dealing with foreign jurisdictions. Our ability to +adapt to the changing regulatory environments is critical to the success of our business plan. We consult on a regular basis with legal +counsel to review our strategies for compliance with regulations and guidelines. +1 +Our business plan is to market +a software solution to businesses and governments allowing them to provide our platform to their clients and populations. We are targeting +central and local banks having robust API systems we believe will allow quick, inexpensive and effective integration of our platform. +The platform will require back-end programming with central banks and other organizations to interface with each banking platform, including +currency conversions from gold backed currencies to local currencies and conform with local regulations and rules. Integrations are expected +to take anywhere from one to six months to complete. The Company will not take custody of RWA tokens, custody remains with the customer, +who utilizes the platform to transfer the RWA token directly to the buyer. Holders of RWA tokens can chose to hold tokens in digital +“wallets” or locally on their personal device, documented and recoverable with proper credentials if lost. +The RWA tokenization +process will allow us to take a commodity such as gold and tokenize it using the Universa Blockchain. Owning the RWA tokens gives rights +and ownership to the registered owner. The process allows the underlying commodity to be held in a secure location with tracking using +serial numbers assigned to RWA tokens. This process will be facilitated using a bank that will hold and store the commodity in a secure +location covered by bank insurance. +We are waiting for our Digital +Asset Service Provider (“DASP”) licensing application with the National Commission of Digital Assets (“NCDA”) +in El Salvador to be approved. Once approved, the Company will be allowed to legally issue digital assets as tokens and transfer assets +on its blockchain platform. We are still in the process of providing the required information with NCDA such as an external audit of +our platform, certain security manuals and operational procedure manuals. We also intend to apply for licensing in other countries such +as United Arab Emirates (“UAE”) and Thailand, countries that have been passing and modifying laws quickly regarding blockchain +and cryptocurrency technologies and currencies. +We believe licensing in Thailand +will open up opportunities in Indonesia under a cooperative license agreement between the two countries. We also believe that our license +in El Salvador will open opportunities in other south american countries, allowing us to enter these jurisdictions using the licenses +from other countries. Licensing requirements could change based on geopolitical policies or other policies outside of our control. Growth +into other jurisdictions will be selected based on the highest probability of approval of the licenses. We have had talks with the other +jurisdictions and are reviewing licensing and application requirements, but applications have not yet been submitted. +El Salvador and UAE do not +require an escrow account for licensing. The cost to obtain licenses is generally less than $10,000, but there can be capital requirements +with banks requiring escrowed amounts of cash up to $500,000. Failure to fund escrow requirements would result in delay in our ability +to operate in that jurisdiction. If we are unable to obtain licenses in the countries we are targeting, we will be required to re-evaluate +our business plan for viability. +As a US company we will also +have disclosure documents that will need to be provided under US law even if we are not operating or accepting clients in the USA. Our +current business operating plan to digitize RWA tokens does not qualify as a investment contract under the “Howey Test” requiring +SEC regulation as current assets and commodities that are tokenized are not expected to give returns based on the reliance of other people’s +efforts. +2 +Individuals, countries or businesses +that cannot pass our KYC/AML process, including the United States of America and European Union countries, are prohibited from using +our service, stopping end users trying to access our platform from setting up accounts. The KYC and AML service verifies users, businesses +and transactions while simultaneously managing cases and deterring fraud. The system includes email and phone risk assessments and device +intelligence. We go through a very thorough ID Verification, Liveness face match, address verification, live agent video call, QES/eIDAS, +NFC, Known face search, blocklist check and duplicate check. Our AML screening screens for PEP and sanctions amongst other important +factors such as ongoing fraud monitoring and suspicious transaction reporting. Our KYC and AML policies are provided by SumSub, a third-party +service provider which monitors and protects our platform. +Our Tokenization process +and current plans for exchanging digital assets do not currently meet the Howey Test as the current items planned to be tokenized are +commodities and are not expected to give returns based on the reliance of other people’s efforts. There could be a need to register +an offering with the SEC when certain real estate transactions are tokenized or other digital assets that meet the “Howey Test”. +We will review each tokenization process and register the appropriate offerings with the SEC. +Employees +We have one full time +employee, our President, George Athanasiadis and a part time CTO Tomaz Strgar. The Board retains consultants and advisors on as +needed basis. They are compensated with cash and the issuance of the Company’s common stock. +Facilities +Our corporate offices are located +in El Salvador. Our main operations will be spread across Central America and Asia. Consultants, advisors and contract service providers +will work from home offices and from a location in El Salvador. \ No newline at end of file diff --git a/raw/filings/0001919182/2025/0001171520-26-000041/item13.txt b/raw/filings/0001919182/2025/0001171520-26-000041/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..610eb17708b4987ffc37ad102ea207fc207bbcc4 --- /dev/null +++ b/raw/filings/0001919182/2025/0001171520-26-000041/item13.txt @@ -0,0 +1,5 @@ +Item +13. +Certain +Relationships and Related Transactions and Director Independence +38 \ No newline at end of file diff --git a/raw/filings/0001919246/2024/0001753926-25-000503/filing.txt b/raw/filings/0001919246/2024/0001753926-25-000503/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..827f084ffcbc55ffd04cd2d6f73bfba81d3a3d83 --- /dev/null +++ b/raw/filings/0001919246/2024/0001753926-25-000503/filing.txt @@ -0,0 +1,8948 @@ +false +2024 +FY +--12-31 +0001919246 +7955338 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+telephone number, including area code: (877) 265-8266 +Securities +registered pursuant to Section 12(b) of the Act: +Title +of each class: +Trading +Symbol +Name +of each exchange on which registered: +Common +Stock, $0.0001 par value +CHRO +The +NYSE American LLC +Securities +registered pursuant to Section 12(g) of the Act: +None +(Title +of class) +Indicate +by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No +☒ +Indicate +by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ +No ☒ +Indicate +by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange +Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), +and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ +Indicate +by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant +to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that +the registrant was required to submit such files). Yes ☒ No ☐ +Indicate +by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting +company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” +“smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. +Large accelerated filer +☐ +Accelerated filer +☐ +Non-accelerated filer +☒ +Smaller reporting company +☒ +Emerging growth company +☒ +If +an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for +complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ +Indicate +by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness +of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered +public accounting firm that prepared or issued its audit report. ☐ +If +securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the +registrant included in the filing reflect the correction of an error to previously issued financial statements. ☒ +Indicate +by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation +received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). +☐ +Indicate +by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒ +The +aggregate market value of the Common Stock held by non-affiliates of the registrant, as of June 28, 2024, the last business day +of the second fiscal quarter, was approximately $ 6.8 million based on a closing price of $1.32 per share on such date. Shares +of Common Stock held by each director, each officer and each person who owns 10% or more of the outstanding Common Stock have +been excluded from this calculation in that such persons may be deemed to be affiliates. The determination of affiliate status +is not necessarily conclusive. +The +registrant had 6,103,813 shares of its common stock outstanding as of March 26, 2025. +References +in this Annual Report on Form 10-K to the “Company,” “Channel,” “we,” “us,” or +“our” mean Channel Therapeutics Corporation unless otherwise expressly stated or the context indicates otherwise. +Documents +Incorporated By Reference: None . +SPECIAL +NOTE REGARDING FORWARD-LOOKING STATEMENTS +This +Annual Report on Form 10-K (this “Report”) contains “forward-looking statements” within the meaning of +the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities +Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking +statements include information concerning our strategy, future operations, future financial position, future revenue, projected +expenses, prospects and plans and objectives of management. Forward-looking statements include all statements that are not historical +facts and can be identified by terms such as “anticipate,” “believe,” “continue,” “could,” +“estimate,” “expect,” “intend,” “may,” “plan,” “potential,” +“predict, “project,” “seek,” “should,” “target,” “will,” “would” +or similar expressions and the negatives of those terms. +Forward-looking +statements contained in this Report include, but are not limited to, statements about the following: +● +the +initiation, timing, progress and results of preclinical and clinical trials for CC8464, CT2000, CT3000 and any other compounds, +including statements regarding the timing of initiation and completion of studies or trials and related preparatory work, +the period during which the results of the trials will become available and our research and development programs; +● +the timing, scope +or results of regulatory filings and approvals, including timing of final U.S. Food and Drug Administration (“FDA”) +marketing and other regulatory approval of CC8464, CT2000 and CT3000; +● +our ability to achieve +certain accelerated or orphan drug designations from the FDA; +● +our estimates regarding +the potential market opportunity for CC8464, CT2000 and CT3000; +● +our research and +development programs for our lead compounds, CC8464, CT2000 and CT3000; +● +our plans and ability +to successfully develop and commercialize future compounds, including CC8464, CT2000 and CT3000; +● +our ability to identify +and develop new compounds; +● +our ability to identify, +recruit and retain key personnel; +● +our commercialization, +marketing and manufacturing capabilities and strategy; +● +the implementation +of our business model, strategic plans for our business, lead compounds and technology; +● +the scalability +and commercial viability of our proprietary manufacturing methods and processes; +● +the rate and degree +of market acceptance and clinical utility of our lead and any other future compounds; +● +our competitive +position; +● +our intellectual +property position and our ability to protect our intellectual property and enforce our intellectual property rights; +● +our financial performance; +● +developments and +projections relating to our competitors and our industry; +● +our ability to establish +and maintain collaborations or obtain additional funding; +● +our estimates regarding +expenses, future revenue, capital requirements and needs for or ability to obtain additional financing; +● +the impact of laws +and regulations; and +● +our expectations +regarding the time during which we will be an emerging growth company under the Jumpstart Our Business Startups Act of 2012 +(the “JOBS Act”). +Forward-looking +statements are subject to a number of risks, uncertainties and assumptions, including those described in “ Risk Factors ” +and elsewhere in this Report. Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge +from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on +our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from +those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking +events and circumstances discussed in this Report may not occur and actual results could differ materially and adversely from +those anticipated or implied in the forward-looking statements. Given these uncertainties, you should not place undue reliance +on these forward-looking statements. Also, forward-looking statements represent our management’s beliefs and assumptions +only as of the date of this Report. You should read this Report and the documents that we have filed as exhibits hereto completely +and with the understanding that our actual future results may be materially different from what we expect. +Except +as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual +results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available +in the future. +For +discussion of factors that we believe could cause our actual results to differ materially from expected and historical results, +see “ Item 1A - Risk Factors ” below. These and other factors could cause results to differ materially from those +expressed in the estimates made by the independent parties and by us. +TABLE +OF CONTENTS +PART I +1 +Item 1. +Business +1 +Item 1A. +Risk Factors +27 +Item 1B. +Unresolved Staff Comments +65 +Item 1C. +Cybersecurity +65 +Item 2. +Properties +66 +Item 3. +Legal Proceedings +66 +Item 4. +Mine Safety Disclosures +67 +PART II +67 +Item 5. +Market for Registrant’s +Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +68 +Item 6. +Reserved +68 +Item 7. +Management’s Discussion +and Analysis of Financial Condition and Results of Operations +68 +Item 7A. +Quantitative and Qualitative +Disclosures about Market Risk +81 +Item 8. +Financial Statements and Supplementary +Data +81 +Item 9. +Changes in and Disagreements +with Accountants on Accounting and Financial Disclosure +81 +Item 9A. +Controls and Procedures +81 +Item 9B. +Other Information +82 +Item 9C. +Disclosure Regarding Foreign +Jurisdictions That Prevent Inspections +82 +PART III +82 +Item 10. +Directors, Executive Officers +and Corporate Governance +82 +Item 11. +Executive Compensation +88 +Item 12. +Security Ownership of Certain +Beneficial Owners and Management and Related Stockholder Matters +96 +Item 13. +Certain Relationships and Related +Transactions, and Director Independence +99 +Item 14. +Principal Accountant Fees and +Services +102 +PART IV +103 +Item 15. +Exhibits and Financial Statement +Schedules +103 +pART +i +Item +1. Business +Overview +We +are a clinical-stage biotech company focused on developing and commercializing new therapeutics to alleviate pain. Our clinical +focus is to selectively target the sodium ion-channel known as “NaV1.7”, which has been genetically validated as a +pain receptor in human physiology. A NaV1.7 blocker is a chemical entity that modulates the structure of the sodium-channel in +a way to prevent the transmission of pain perception to the central nervous system (“CNS”). Our goal is to develop +a novel and proprietary class of NaV blockers that target the body’s peripheral nervous system. +We +have formally launched three programs developing pain treatment therapeutics, all of which are based on the same proprietary molecule, +as follows: +Eye +Pain : Based on a novel formulation of CC8464, our Eye Pain program, titled CT2000, is for the potential treatment of both +acute and chronic eye pain. NaV1.7 channels are present on the cornea, making it a viable biological target for treating eye pain. +Eye pain may occur with various conditions, including severe dry eye disease, trauma and surgery. Existing therapies for eye pain +(such as steroids, topical non-steroidal anti-inflammatory agents, lubricants, local anesthetics) are limited in their effectiveness +and/or limited in the duration that they may be prescribed because of safety issues. We intend to explore the viability of developing +CT2000 as a topical agent for the relief of eye pain. A potential advantage of this approach is that topical administration of +CT2000 is unlikely to lead to any hypersensitivity or skin reactions, like what was noted with systemic administration of CC8464, +because the systemic absorption from a topical administration would be extremely limited. We have developed topical ophthalmic +formulations and are pursuing trial plans as set forth below. +Current +options for the treatment of ocular pain center on the use of corticosteroids and non-steroidal anti-inflammatory drug (“NSAID”) +based therapeutics. These options suffer from sight-threatening complications such as Glaucoma and corneal melting, thus there +is a large unmet need for other approaches. As an example of the potential patient population, we estimate that there are approximately +5 million cases of corneal abrasions per year in the United States. In addition, other potential indications associated with eye +pain include: +● +severe dry eye, +● +side effects from +photorefractive keratectomy (PRK) and pterygium surgery, +● +second eye cataract +surgery, +● +neuropathic corneal +pain, and +● +severe uveitis and +severe iritis/scleritis. +As NaV1.7 channels are present on the cornea +and is a viable biological target for treating eye pain, we believe that we have a sound scientific basis for our ability to treat +a multitude of eye pain indications. We have successfully developed an eye drop formulation and have determined that the eye drops +are well tolerated by animals. We have completed animal efficacy studies and are in the process of running toxicology studies on +animals. We expect to announce the efficacy and toxicology results by April 2025. +Following the animal studies, if successful, +we intend to move into proof-of-concept (“POC”) studies in humans. We plan to conduct the POC study in Australia to +avail ourselves of a 43.5% tax credit for clinical expenses incurred in Australia and, on January 9, 2023, established an Australian +subsidiary through which the work will be conducted. We are planning to conduct the POC in a clinic in Brisbane, Australia +and are in the process of contracting the services to perform such trial. +Depot +Program : Based on several novel formulations of CC8464, the Company’s most recently launched program, titled CT3000, +is for the potential treatment of post operative pain with the use of nerve blocks. Examples would include knee surgery +or shoulder surgery. Existing therapies for nerve blocks lead to neuromuscular blockade which prevents movement following surgery. +Doctors often want patients to move soon after surgery to avoid complications such as blood clots. A NaV1.7 inhibitor used for +nerve blocks may provide good analgesia but will not lead to neuromuscular blockade that prevents movement like other local anesthetics. +1 +The +Company has successfully developed a number of formulations and in December 2024, announced that it achieved its endpoints in +two pre-clinical in vivo models of the Company’s nerve block formulations for acute pain, showing material improvement over +the existing standard of care, bupivacaine, in both efficacy and duration. +The +Company performed a thermal hyperalgesia test in rodents with a placebo arm, bupivacaine arm and four arms of the main formulations +of the Company’s molecule. The Company also performed a mechanical allodynia test in rodents with the same arms as above. +For both models, the drugs were administered as a sciatic nerve block. All four Company formulations showed a depot effect in +excess of four days, an improvement over bupivacaine, the current standard of care. +The +results of the thermal hyperalgesia results are shown in the chart below. After thirty minutes, three of the four formulations +showed materially better efficacy than bupivacaine, with each of the three being statistically superior to placebo for more than +two days longer than bupivacaine. One of the formulations remained statistically superior to placebo for more than four days. +Further, as NaV1.7 does not have an impact on mobility, this approach may offer a better option for post-surgical physical therapy +as current nerve block therapies cause temporary paralysis in the affected area. +Similarly +for the mechanical allodynia test results, three of the four formulations showed statistically better efficacy for a longer duration +of time than bupivacaine. The mechanical allodynia test is shorter in duration, reflecting the subject’s innate swift recovery +rate to surgical incisions. Nonetheless, the results mirrored the successful results set forth with the thermal hyperalgesia test. +2 +The +Company will commence toxicology and CMC work in 2025 and expects to commence human POC trial in early 2026. +Neuropathic +Pain : CC8464 is being developed to address certain types of neuropathic pain. The chemical characteristics of CC8464 restrict +its entry into the CNS and limit its effect to the NaV1.7 channels in the peripheral nervous system, which consists of the nerves +outside the brain and spinal cord. Activation of other channels in the CNS can result in side effects, including addiction and +other centrally mediated adverse effects. Since CC8464 is designed to not penetrate the CNS it is highly unlikely to produce CNS +mediated side effects including euphoria or addiction. Based on its characteristics, preclinical studies (described below) and +the Phase 1 studies we have completed to date, we believe that CC8464, if approved, could become an attractive option for both +patients and physicians as a treatment for moderate-to-severe pain in Erythromelalgia (“EM”) and idiopathic +small fiber neuropathy (“iSFN”). +We +conducted four Phase 1 trials with 207 patients. The results showed that CC8464 has a good overall tolerability and demonstrated +no liver or renal toxicity, no central nervous system changes and no cardiovascular findings but may cause skin rashes in certain +patients. The occurrence of skin rashes is not uncommon with the class of molecules to which CC8464 belongs and the rashes were +successfully treated in all cases with topical steroids and/or topical antihistamines (with the exception of one patient requiring +systemic steroids). +As +a result of the potential for skin rashes, following discussions with the FDA, we will conduct a slow dose escalation study +to further evaluate the incidence of rashes. By titrating the dose over several weeks, we anticipate that we will reduce or eliminate +this side effect. We expect that the slow dose escalation study will also help determine the need for dose escalation in the final +treatment regime. Even though the FDA has in the past approved drugs that listed rashes as a potential side effect, we do not +know if CC8464 will be approved by the FDA (or any foreign authority). +When +the dose escalation trial is funded, we will enroll approximately 20 healthy volunteers who will receive CC8464 over a period +of several weeks, with the dose escalation study expected to take approximately 9-12 months in total. We anticipate that the slower +dose escalation will decrease the likelihood of drug-related skin reactions. The primary endpoint of the dose escalation trail +will be safety and tolerability of the slower dose titration; however, we will also be measuring blood concentrations of CC8464, +which will allow us to better understand the pharmacokinetics of CC8464. Even if it is ultimately determined that we will need +an escalation period for chronic pain treatment therapy, which patients could well take for the remainder of their lives, we do +not believe the dose escalation approach will be consequential. +We +plan to conduct the dose escalation trial in Australia to avail ourselves of the tax credit set forth above, utilizing our Australian +subsidiary through which the work will be conducted. The location of the POC has not been determined at this time, with +availability of facilities and patient population, costs, tax credits, centers of excellence in the respective fields (EM or iSFN) +are all factors in the ultimate determination of the location. +In +parallel with the dose escalation study, we expect to run a pilot efficacy study on approximately ten EM patients. In this study, +we will induce EM flares, determine baseline pain, and then dose escalate CC8464, after which, we will attempt to induce flares. +The primary endpoint will be the amount of pain experienced, and the secondary endpoint is a determination if CC8464 reduces the +frequency of EM flares. +3 +We +are currently working on the development of the Phase 2a POC plan and expect to launch the Phase 2a POC study following the dose +escalation study and EM pilot study, to assess the potential efficacy of CC8464 in iSFN patients. Both of iSFN and EM are orphan +indications for which we plan to apply for orphan drug designations. The orphan indication may decrease the scope of the ultimate +development program that is necessary for approval and is associated with a marketing exclusivity period from the FDA along with +some tax advantages. +Though +the Phase 2a POC study design has not yet been completed, the study will take approximately twelve months after it is initiated. +The primary endpoint will be the amount of pain experienced from iSFN with secondary endpoints including other measurements like +pain relief and neuropathy scores. The final design may change based on feedback from regulatory authorities or information learned +during the dose escalation trial. +The +potential population for EM in the United States is estimated to be between 5,000 and 50,000 patients and the potential population +for iSFN in the United States is estimated to be between 20,000 and 80,000 patients. In both instances, we expect patients would +potentially take our drug for the remainder of their lives, and given the lack of good therapeutic alternatives, we expect to +have a robust, ongoing, and durable market. +The +Phase 2a results will have significance beyond EM and iSFN and provide important insights about NaV1.7 as a potential target to +find novel pain medications as an alternative to opioids, the continuing primary standard of care in analgesics. We believe that +positive results from the Phase 2a study could not only act as support for CC8464’s potential in EM and iSFN but may also +provide guidance of its potential for other indications of peripheral neuropathic pain. +We +may further expand our pipeline with other internal or external compounds in the future, but all other internally discovered compounds +are pre-clinical. +Benuvia +Spray Formulations : In addition to our NaV1.7 programs set forth above, on December 23, 2023, we entered into an exclusive +licensing agreement (the “Benuvia License Agreement”) with Benuvia for a sublingual formulation of a Diclofenac spray +for the treatment of acute pain, a Rizatriptan intranasal spray formulation and an Ondansetron sublingual spray formulation (collectively, +the “Spray Formulations”). The Spray Formulations diversify our pipeline of non-opioid pain treatment therapies, while +adding therapeutic options for related conditions. The sublingual formulation of a Diclofenac spray for the treatment of acute +pain (the “Diclofenac Spray Formulation”) is patented and has started clinical development in human volunteers. Preliminary +pharmacokinetics suggest that this formulation may have a faster onset of action than oral Diclofenac tablets. Diclofenac is an +NSAID that is also marketed under additional brand names including Voltaren and Cataflam in its pill form. A single Phase 1 trial +of the Diclofenac Spray Formulation was completed in 24 healthy volunteers wherein a single dose of 50mg diclofenac-potassium +was compared to 25 mg of Diclofenac Spray Formulation. In this trial, the blood plasma concentrations of Diclofenac rose more +quickly with the Diclofenac Spray Formulation than with the diclofenac administered orally by approximately 15 minutes. This suggests +that the Diclofenac Spray Formulation may have a faster onset of analgesia; however, additional trials may be needed to confirm +this effect. Additionally, the initial pharmacokinetic study demonstrated that a 25mg dose of Diclofenac Spray Formulation resulted +in lower systemic exposure to Diclofenac than the oral dose of 50mg diclofenac-potassium which means that an additional Phase +I pharmacokinetic study exploring additional higher doses of the sublingual diclofenac spray will likely be necessary to determine +the appropriate dose. +Rizatriptan, +whose brand name is Maxalt, is used for the acute treatment of migraines as a pill. By a number of clinical measures it is thought +to be superior to Sumatriptan. Both Rizatriptan and Sumatriptan belong to a family of tryptamine-based medications named “triptans” +that work as serotonin 1A receptor (or 5-HT1A-receptor) agonists and are indicated for the treatment of migraine. An intranasal +spray formulation of Rizatriptan (the “Rizatriptan Spray Formulation”) may potentially have a faster onset of action +than an oral form and may be easier to tolerate than swallowing a pill when patients are experiencing nausea as a result of the +migraine headache. According to a study that was reported in 2001, Rizatriptan has a higher bioavailability and a more rapid onset +of action which may be responsible for better results in resolving migraines as well as better results in patients reporting that +they are “pain free” after 2 hours. Both Sumatriptan and Rizatriptan are competitors for the same indication, though +neither are widely marketed because they are generic drugs. +4 +Ondansetron +is an anti-emetic that is available in oral and intravenous form. An Ondansetron sublingual spray formulation (the “Ondansetron +Spray Formulation”) may potentially have a faster onset of action than an oral form and may be easier to tolerate than swallowing +a pill when patients are experiencing nausea. Under the terms of the Benuvia License Agreement, Benuvia will be responsible for +the manufacturing and supply of the Spray Formulations, but we will have exclusive, worldwide rights to develop, commercialize +and distribute the Spray Formulations. +We +currently do not have strategy and development plans for the Spray Formulations licensed from Benuvia. +Our +Strategy +We +are a clinical-stage pharmaceutical company focused on non-opioid pain blockers in the NaV space. Our development programs are +initially designed to address the underlying condition and mitigate the pain associated with neuropathic pain and eye pain. The +key elements of our strategy to achieve our mission are: +● Develop +CT2000 for the treatment of eye pain. According to a presentation at the Association +for Research in Vision and Ophthalmology, with the abstract published in the publication, +Investigative Ophthalmology and Visual Science in June 2020, NaV1.7 receptor is present +on the cornea and as such, is a viable biological target for treating eye pain. We have +developed a number of topical ophthalmic formulation of CT2000 that are being evaluated +for ophthalmic efficacy and toxicology in two in vivo models, which will be followed +by a POC trial in patients. We expect the human POC trials for this ophthalmic formulation +of CT2000 to start in the second quarter 2025. +● Develop +CT3000 for the treatment of post-surgical pain. Based on its pre-clinical profile, +and the target validation, if approved by the FDA, we believe that CT3000 has the potential +to become a drug for treatment of acute post operative surgical pain for knee and shoulder +surgery where nerve blocks are appropriate, potentially delivering meaningful clinical +benefits over the currently available standard of care. +● +Advance the +development of CC8464 towards FDA approval for treating EM and iSFN. Based on its pre-clinical profile, the target +validation and trends seen with other NaV1.7 blockers in clinical studies, if approved by the FDA, we believe that CC8464 +has the potential to become a drug for treatment of EM and iSFN patients, potentially delivering meaningful clinical benefits +over the currently available standard of care. +● +Leverage our +differentiated research and discovery approach to expand our pipeline. We plan to build a pipeline of potential pain +blockers acting against sodium-channels related to NaV1.7. Pain modulation is complex, and a multitude of physiological mechanisms +are involved in transmitting pain signals. Other than NaV1.7, we believe that several related sodium channels, e.g., NaV1.8 +or NaV1.9, may be involved in pain sensation. While NaV1.7 is the most validated pain receptor, we believe that blockers against +other sodium channels may complement CC8464, CT2000 and CT3000 as our primary pain blocking candidates. +● +Build a leading, +fully integrated pharmaceutical company to maximize the clinical impact and value of our pipeline and deliver value to stockholders. +We plan to build an experienced team to rapidly advance compounds in a capital-efficient manner. We intend to retain +the commercialization rights to our lead compounds; however, we may opportunistically enter into strategic collaborations +in certain geographic or clinical settings to maximize the value of our pipeline. +While +CT2000 and CT3000 are the focus of our efforts, we may also allocate future resources towards the discovery and development of +other compounds that could potentially treat pain. +CC8464’s +FDA Orphan Drug Designation +We +are considering submitting a request to the FDA for Orphan Drug Designation for EM and iSFN, which could lead to approval for +such designation. Orphan Drug Designation provides for a seven-year window of exclusivity and potential 25% tax credit on qualified +clinical trials, as well as reduced FDA review periods and regulatory fees. We may apply for similar designations in additional +jurisdictions, including India, Japan and Mexico, as well as additional regulatory classifications, such as FDA Breakthrough Therapy +designation, that confer an advantage during development. As of the date of this Report, we have not submitted an application +for orphan drug designation for CC8464. +5 +CC8464, +CT2000 and CT3000 Manufacturing +We +plan to manufacture the clinical and eventual commercial supply through Clinical Manufacturing Organizations (“CMOs”) +in the U.S. and potentially other jurisdictions. We do not produce drug substances in house. External CMOs have produced enough +CC8464 drug substance to conduct the dose escalation trial, prepare the eye pain formulation, conduct the eye pain toxicology +trial and potentially, to conducts the Phase 2 proof of concept for neuropathic pain and acute and chronic eye pain. +We +have rights to two proprietary methods to produce CC8464. We have not yet decided which production process we will use for subsequent +clinical trials and eventual commercial supply, but both appear suitable for further use and optimization. Both manufacturing +processes employ common methods of organic synthesis used in the production drug substance. We do not intend to file patents for +these processes but will keep the detailed protocols (e.g., the selected crystallization solvent or the particular salt) as trade +secrets. +The +Company has developed the formulation for the eye drops associated with the eye pain treatment therapy and depot injections associated +with the nerve block therapy and are in the early stages of determining our manufacturing strategy. We expect to pursue a similar +strategy to have CT2000 and CT3000 manufactured by CMOs. +Intellectual +Property +Protection of our intellectual property +is an important part of our business. We seek patent protection in the United States and in other countries for our inventions +and discoveries, and we develop and protect our key know-how and trade secrets relating to our platform technology and the products +we are developing using our platform. +We have adopted a strategy of seeking patent protection in the United States and in other jurisdictions globally that we deem appropriate with respect to certain of our technologies relating to our products and process. We have been granted a patent in the United States directed to the composition of matter and use of our lead compound, CC8464. We have also obtained patents in France, Japan, India in Mexico, Israel and South Korea. Our U.S. patent for CC8464 will expire in 2035. In addition, we have an additional pending patent application in India. +We +have pending patent applications for each of CT2000 ophthalmic formulation and CT3000 injectable formulations, and for the treatment +of pain. +Granted +U.S. Patent 9,855,234 is directed to the diclofenac spray formulation and will expire in April of 2036. The Ondansetron Spray +Formulation is covered by U.S. Patent 9,566,233 and U.S. Patent 10,172,833. Both patents are composition-of-matter patents that +will expire in May 2034 and August 2036, respectively. The U.S. and international patents relating to the Rizatriptan Spray Formulation +have either expired or have been abandoned. +In +addition to patents and licenses, we rely on trade secrets and know-how to develop and maintain technologies and methods that +provide us a meaningful competitive advantage. However, trade secrets can be difficult to defend and maintain. We seek to protect +our proprietary technology and processes, and maintain ownership of certain technologies, in part, through confidentiality agreements +and invention assignment agreements with our employees, consultants and commercial partners. +Our +Competition +The +biotechnology and pharmaceutical industries are highly competitive. Several pharmaceutical companies that are developing molecules +that modulate NaV (including NaV1.7 and NaV1.8) activities or address pain through other methods of action and therefore have +the potential to mitigate eye, post-surgical and EM and iSFN pain. These companies and new entrants may potentially compete with +our products in the future with novel delivery technologies. Competition in this space will remain strong and we do not know if +we will be successful in obtaining orphan designation from the FDA for CC8464, encounter challenges to our issued patents and +continue to advance CC8464, C2000 and CT3000 through clinical development towards approval. +6 +In +connection with the Company’s initial public offering (the “IPO”), we entered into a side letter with Chromocell +Holdings, pursuant to which Chromocell Holdings agreed not to (i) directly or indirectly engage in the business of owning, licensing, +developing, marketing, manufacturing, producing, selling or distributing products, technologies, therapies, or services in any +way related to our business, including all patents, pre-clinical and Phase I study results and data, and trade secrets related +to the CC8464 compound, transferred by Chromocell Holdings to us further to the that certain Contribution Agreement (the “Contribution +Agreement”) with Chromocell Holdings. Pursuant to the Contribution Agreement, effective July 12, 2022 (the “Contribution +Date”), (ii) directly or indirectly, hire, engage or employ (as an employee, consultant or otherwise) any of our employees; +provided that Chromocell Holdings shall not, directly or indirectly, prevent any of our employees from serving on the board of +directors of Chromocell Holdings, and (iii) through any director or officer of Chromocell Holdings, directly or indirectly, solicit +for employment or the engagement of services of any of our employees or induce or attempt to induce any of our employees to leave +his or her employment with us, or in any way intentionally interfere with the employment relationship between any of our employees +and us, for the purpose of employing or engaging the services of such employee or soliciting such employee to become an employee +or consultant of Chromocell Holdings or any other person. +Our +Facilities +Our +office is located at 4400 Route 9 South, Suite 1000, Freehold, NJ 07728. We are considering lab options commensurate with the +start of the Phase II trials and dose escalation study. +Employees +and Human Capital Resources +As +of March 26, 2025, we had four full-time employees and seven individual consultants on a part-time basis. None of our employees +is subject to a collective bargaining agreement or represented by a trade or labor union. We consider our relationship with our +employees to be good. +Our +human capital resources objectives include, as applicable, identifying, recruiting, retaining, incentivizing and integrating our +existing and additional employees. The principal purposes of our equity incentive plans are to attract, retain and motivate selected +employees, consultants and directors through the granting of stock-based compensation awards and cash-based performance bonus +awards. +In +addition, we have a two person Scientific Advisory Board led by Dr. Stephen Waxman, who is the Bridget M. Flaherty Professor of +Neurology and of Neuroscience and the Director of the Center for Neuroscience and Regeneration Medicine at Yale University School +of Medicine. +Legal +Proceedings +From +time to time, we may be involved in legal proceedings arising in the ordinary course of our business. We are not presently a party +to any legal proceedings that, in the opinion of management, would have a material adverse effect on our business. Regardless +of outcome, litigation can have an adverse impact on us due to defense and settlement costs, diversion of management resources, +negative publicity and reputation harm, and other factors. +Demand +Letter from Mr. Kopfli’s Attorney +On +February 14, 2024, our Board received a demand letter from an attorney representing Chromocell Holdings and our former Chief Executive +Officer and former Chief Strategy Officer, Mr. Christian Kopfli, who was released for “cause” as disclosed elsewhere +in this Report. Mr. Kopfli alleged an improper termination for “cause” and claimed to seek monetary damages in the +amount of $479,169. Of the $479,169 asserted by Mr. Kopfli, as of September 30, 2024, +the Company had accrued $363,091 in compensation expenses associated with Mr. Kopfli’s prior employment with the Company. +However, the Company believed the assertions made by Mr. Kopfli were without merit and commenced a lawsuit against Mr. Kopfli +and Chromocell Holdings in the Supreme Court for the State of New York, County of New +York on June 7, 2024 (Index No. 652917/2024, the “New York Action”) , asserting causes of action against Mr. +Kopfli for breach of the Employment Agreement entered into on January 10, 2023 between the Company and Mr. Kopfli, breach of fiduciary +duty by Mr. Kopfli, as well as breach of contract against Chromocell Holdings. The Company also asserted a “faithless servant” +claim against Mr. Kopfli, seeking a ruling that Mr. Kopfli was not entitled to compensation from the Company. The Company sought +monetary damages against Mr. Kopfli and Chromocell Holdings in the New York Action, plus disgorgement of all compensation previously +paid or accrued to Mr. Kopfli by the Company. +7 +By +Order dated October 3, 2024, the court in the New York Action awarded the Company a default judgment against Mr. Kopfli and Chromocell +Holdings on all claims, and ordered an assessment of damages against Mr. Kopfli and Chromocell Holdings (to be held at a date +to be determined). As of December 31, 2024, the Company has removed the accrual of $363,091 in compensation expenses and recorded +a gain on default judgement in the same amount. +Parexel +Claim +On +July 31, 2024, the Company received a demand letter from an attorney representing Parexel International (IRL) Limited (“Parexel”). +The letter, which was addressed to both the Company and Chromocell Holdings, purports to be a notice of default of +the Promissory Note between Chromocell Holdings and Parexel (the “Promissory Note”) and seeks the payment +of allegedly unpaid principal in the amount of $682,551 plus interest exceeding $177,000. The Company denies that it +is liable for any of the amounts sought by Parexel; the Company is not a party to the Promissory Note and does +not believe it is liable for any amounts allegedly due thereunder. The Company intends to defend itself vigorously in the +matter. +Government +Regulation +The +FDA and other regulatory authorities at federal, state and local levels, as well as outside the United States, extensively regulate, +among other things, the research, development, testing, manufacture, quality control, import, export, safety, effectiveness, labeling, +packaging, storage, distribution, recordkeeping, approval, advertising, promotion, marketing, post-approval monitoring and post-approval +reporting of drugs and biologics. We, along with our vendors, Clinical Research Organizations (“CRO”), clinical investigators, +clinical trial sites and contract manufacturing organizations, will be required to navigate the various preclinical, clinical, +manufacturing and commercial approval requirements of the governing regulatory agencies of the countries in which we wish to conduct +studies or seek marketing approval of compounds. The process of obtaining regulatory approvals of drugs and biologics and ensuring +subsequent compliance with appropriate federal, state, local and foreign statutes and regulations requires the expenditure of +substantial time and financial resources. +In +the United States where we are initially focusing our drug commercialization, we believe compounds, as small molecule drugs, would +be regulated as new drugs rather than biologics. The FDA regulates new drug products under the Federal Food, Drug, and Cosmetic +Act, as amended (the “FDCA”) and its implementing regulations. New drug products are also subject to other federal, +state and local statutes and regulations. If we fail to comply with applicable FDA or other requirements at any time with respect +to product development, clinical testing, approval or any other regulatory requirements relating to product manufacture, processing, +handling, storage, quality control, safety, marketing, advertising, promotion, packaging, labeling, export, import, distribution, +or sale, we may become subject to administrative or judicial sanctions or other legal consequences. These sanctions or consequences +could include, among other things, the FDA’s refusal to approve pending applications, issuance of clinical holds for proposed +or ongoing studies, suspension or revocation of approvals, warning or untitled letters, product withdrawals or recalls, product +seizures, relabeling or repackaging, total or partial suspensions of manufacturing or distribution, injunctions, fines, civil +penalties or criminal prosecution. +Compounds +must be approved for therapeutic indications by the FDA before they may be marketed in the United States. For new drug products +regulated under the FDCA, a sponsor must submit a U.S. New Drug Application (“NDA”) to the FDA for review and approval. +The NDA review and approval process may take multiple years and involves the following steps: +● +completion of extensive +preclinical studies in accordance with applicable regulations, including studies conducted in accordance with Good Laboratory +Practice (“GLP”) requirements; +8 +● +completion of the +manufacture, under current Good Manufacturing Practices (“cGMP”) conditions of the drug substance, drug product, +and labeling and packaging that the sponsor intends to use in human clinical trials along with required analytical and stability +testing; +● +submission to the +FDA of an Investigational New Drug Application (“IND”), which must become effective before clinical trials may +begin and must be updated annually and amended when certain changes are made; +● +approval by an institutional +review board (“IRB”) or independent ethics committee (“IEC”) at each clinical trial site before each +trial may be initiated; +● +performance of adequate +and well-controlled clinical trials in accordance with applicable IND regulations, Good Clinical Practice (“GCP”) +requirements, including informed consent, financial disclosure by investigators and other clinical trial-related regulations, +to establish maximum tolerable dose and efficacy of the investigational product for each proposed indication and other condition +of use; +● +preparation and +submission to the FDA of an NDA; +● +a determination +by the FDA within 60 days of its receipt of an NDA to file the application for review; +● +satisfactory completion +of one or more FDA pre-approval inspections of the manufacturing facility or facilities where the drug will be produced to +assess compliance with cGMP requirements to assure that the facilities, methods and controls are adequate to preserve the +drug product’s identity, strength, quality and purity; +● +satisfactory completion +of FDA inspection of select clinical trial sites involved in conducting pivotal studies that generated the data in support +of the NDA; +● +payment of user +fees for FDA review of the NDA; and +● +FDA review and approval +of the NDA, including of the proposed prescribing information and, where applicable, consideration of the views of any FDA +advisory committee, prior to any commercial marketing or sale of the drug in the United States. +Preclinical +Studies and Clinical Trials for Drugs +Before +testing any drug in humans, compound must undergo rigorous preclinical testing. Preclinical studies include laboratory evaluations +of product chemistry, formulation and stability, as well as in vitro and animal studies to assess maximum tolerable dose and in +some cases to establish the rationale for therapeutic use. The conduct of preclinical studies is subject to federal and state +regulation and requirements, including GLP requirements under 21 C.F.R. Part 58 and animal testing requirements under the Animal +Welfare Act Amendments of 1976 (7 U.S.C. 2131 et seq.). The results of the preclinical studies, together with manufacturing information +and analytical data, must be submitted to the FDA as part of an IND. +An +IND is a submission to the FDA under which a sponsor proposes to administer an investigational product to humans. An IND must +become effective before the proposed clinical trials may begin. The central focus of an IND submission is on the general investigational +plan and the protocol(s) for clinical studies. The IND also includes the results of animal and in vitro studies assessing the +toxicology, pharmacokinetics, pharmacology, and pharmacodynamic characteristics of the product; chemistry, manufacturing, and +controls information; and any available human data or literature to support the use of the investigational product. Some long-term +preclinical testing may continue after the IND is submitted. The IND automatically becomes effective 30 days after receipt by +the FDA, unless the FDA, within the 30-day time period, raises concerns or questions about the conduct of the proposed clinical +trial, including concerns that human research subjects will be exposed to unreasonable health risks, refuses to allow the IND +to take effect until the FDA’s concerns and questions have been addressed and/or imposes a full or partial clinical hold. +The FDA must notify the sponsor of the grounds for the hold, and any identified deficiencies must be resolved before the clinical +trial can begin. Submission of an IND may result in the FDA not allowing clinical trials to commence or not allowing clinical +trials to commence on the terms originally specified in the IND. A clinical hold can also be imposed once a trial has already +begun, thereby halting the trial until the deficiencies articulated by FDA are corrected. +9 +The +clinical stage of development involves the administration of the compounds to healthy volunteers or patients under the supervision +of qualified investigators, who generally are physicians not employed by or under the trial sponsor’s control, in accordance +with GCP requirements, which include the requirements that all research subjects provide their informed consent for their participation +in any clinical trial. Clinical trials are conducted under protocols detailing, among other things, the objectives of the clinical +trial, dosing procedures, subject selection and exclusion criteria, and the parameters and criteria to be used in monitoring safety +and evaluating effectiveness. Each protocol, and any subsequent amendments to the protocol, must be submitted to the FDA as part +of the IND. +Furthermore, +each clinical trial must be reviewed and approved by an IRB or IEC for each institution at which the clinical trial will be conducted +to ensure that the risks to individuals participating in the clinical trials are minimized and are reasonable compared to the +anticipated benefits. The IRB or IEC also approves the informed consent form that must be provided to each clinical trial subject +or his or her legal representative and must monitor the clinical trial until completed. The FDA, the IRB or IEC, or the sponsor +may suspend or discontinue a clinical trial at any time on various grounds, including a finding that the subjects are being exposed +to an unacceptable health risk. There also are requirements governing the reporting of ongoing clinical trials and completed clinical +trials to public registries. Information about clinical trials, including results for clinical trials other than phase 1 investigations, +must be submitted within specific timeframes for publication on www.ClinicalTrials.gov, a clinical trials database maintained +by the National Institutes of Health. +A +sponsor who wishes to conduct a clinical trial outside of the United States are subject to the requirements of the applicable +jurisdiction and may, but need not, obtain FDA authorization to conduct the clinical trial under an IND. If a foreign clinical +trial is not conducted under an IND, the FDA will nevertheless accept the results of the study in support of an NDA if the study +was conducted in accordance with GCP requirements, and the FDA is able to validate the data through an onsite inspection if deemed +necessary. +Clinical +trials to evaluate therapeutic indications to support NDAs for marketing approval are typically conducted in three sequential +phases, which may overlap. +● +Phase 1 — +Phase 1 clinical trials involve initial introduction of the investigational product in a limited population of healthy human +volunteers or patients with the target disease or condition. These studies are typically designed to test the safety, dosage +tolerance, absorption, metabolism and distribution of the investigational product in humans, evaluate the side effects associated +with increasing doses, and, if possible, to gain early evidence of effectiveness. +● +Phase 2 — +Phase 2 clinical trials typically involve administration of the investigational product to a limited patient population with +a specified disease or condition to evaluate the drug’s potential efficacy, to determine the optimal dosages and dosing +schedule, and to identify possible adverse side effects and safety risks. +● +Phase 3 — +Phase 3 clinical trials typically involve administration of the investigational product to an expanded patient population +to further evaluate dosage, to provide statistically significant evidence of clinical efficacy, and to further test for safety, +generally at multiple geographically dispersed clinical trial sites. These clinical trials are intended, with the other available +evidence, to establish the overall risk/benefit ratio of the investigational product and to provide an adequate basis for +product approval and physician labeling. Generally, two adequate and well-controlled phase 3 trials are required by the FDA +for approval of an NDA. Under certain circumstances, FDA can conclude that one adequate and well-controlled clinical investigation +plus confirmatory evidence is sufficient to establish effectiveness. +Post-approval +trials, sometimes referred to as phase 4 clinical trials or post-marketing studies, may be conducted after initial marketing approval. +These trials are used to gain additional evidence from the treatment of study subjects in the intended therapeutic indication +and are commonly intended to generate additional safety data regarding use of the product in a clinical setting, or in some cases +to confirm clinical benefit. In certain instances, the FDA may mandate the performance of phase 4 clinical trials as a condition +of NDA approval. +10 +Progress +reports detailing the results of the clinical trials, among other information, must be submitted at least annually to the FDA. +Written IND safety reports must be submitted to the FDA and the investigators fifteen days after the trial sponsor determines +the information qualifies for reporting for serious and unexpected suspected adverse events, findings from other studies or animal +or in vitro testing that suggest a significant risk for human volunteers, and any clinically important increase in the rate of +a serious suspected adverse reaction over that listed in the protocol or investigator brochure. The sponsor must also notify the +FDA of any unexpected fatal or life-threatening suspected adverse reaction as soon as possible but in no case later than seven +calendar days after the sponsor’s initial receipt of the information. +Concurrent +with clinical trials, companies usually complete additional animal studies and must also develop additional information about +the chemistry and physical characteristics of the compound and finalize a process for manufacturing the drug product in commercial +quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches +of the compound and manufacturers must develop, among other things, methods for testing the identity, strength, quality and purity +of the final drug product. Additionally, appropriate packaging must be selected and tested, and stability studies must be conducted +to demonstrate that the compound does not undergo unacceptable deterioration over its shelf life. +Expanded +Access +Expanded +access, sometimes called “compassionate use,” is the use of investigational products outside of controlled clinical +trials to treat patients with serious or immediately life-threatening diseases or conditions when there are no comparable or satisfactory +alternative treatment options. FDA regulations allow access to investigational products under an IND by the sponsor or the treating +physician for treatment purposes on a case-by-case basis for the following groups: individual patients (single-patient IND applications +for treatment in emergency settings and non-emergency settings); intermediate-size patient populations; and larger populations +for use of the investigational product under a treatment protocol or treatment IND. +A +clinical trial sponsor is not obligated under the law to provide expanded access to its investigational product. However, if a +sponsor decides to make its investigational product available for expanded access, FDA reviews each request for expanded access +and determines if treatment may proceed. Expanded access may be appropriate when all of the following criteria apply: the patient +has a serious or immediately life-threatening disease or condition, and there is no comparable or satisfactory alternative therapy +to diagnose, monitor, or treat the disease or condition; the potential patient benefit justifies the potential risks of the treatment +and the potential risks are not unreasonable in the context of the disease or condition to be treated; and providing the investigational +product for the requested use will not interfere with the initiation, conduct, or completion of clinical investigations that could +support marketing approval of the expanded access use or otherwise compromise the potential development of the expanded access +use. +In +addition, on May 30, 2018, the Right to Try Act was signed into law. The law, among other things, provides an additional mechanism +for patients with a life-threatening condition who have exhausted approved treatments and are unable to participate in clinical +trials to access certain investigational products that have completed a phase 1 clinical trial, are the subject of an active IND, +and are undergoing investigation in a clinical trial that is intended to form the primary basis of a claim of effectiveness in +support of FDA approval. Unlike the expanded access framework described above, the Right to Try Act does not require FDA to review +or approve requests for use of the investigational product, although the law requires sponsors to report annually to the FDA on +use of the pathway and require the FDA to post certain annual summaries. There is no obligation for a sponsor to make its investigational +products available to eligible patients under the Right to Try Act. +Under +the 21st Century Cures Act, the manufacturer or distributor of one or more investigational products for the diagnosis, monitoring +and treatment of a serious disease or condition must make publicly available their policy for evaluating and responding to requests +for expanded access for individual patients. The manufacturer or distributor is required to make such policies publicly available +upon the earlier of initiation of a Phase 2 or Phase 3 study, or as applicable, 15 days after the investigational drug receives +designation as a breakthrough therapy, fast track product, or regenerative medicine advanced therapy. The posting of the expanded +access policies by manufacturers and distributors does not serve as a guarantee of access to any specific investigational drug +by any individual patient, but the sponsor must develop a policy and respond to patient requests according to that policy. +11 +U.S. +Marketing Approval for Drugs +Assuming +successful completion of the required clinical testing, the results of the preclinical studies and clinical trials, together with +detailed information relating to the product’s chemistry, manufacture, controls and proposed labeling, among other things, +are submitted to the FDA as part of an NDA package requesting approval to market the drug product for one or more indications. +An NDA is an application to FDA for approval to market a new drug for one or more specified indications and must contain proof +of the drug’s maximum tolerable dose and efficacy for the requested indication(s). An NDA is required to include both negative +and ambiguous results of preclinical studies and clinical trials, as well as positive findings, together with detailed information +relating to the product’s chemistry, manufacturing, controls, and proposed labeling, among other things. Data may come from +company-sponsored clinical trials intended to test the maximum tolerable dose and efficacy of a product’s use or from several +alternative sources, including studies initiated by investigators. To support marketing approval, the data submitted must be sufficient +in quality and quantity to establish the maximum tolerable dose and efficacy of the investigational drug, to the satisfaction +of the FDA. The FDA must approve an NDA before a drug may be marketed in the United States. +The +FDA reviews all submitted NDAs to ensure they are sufficiently complete to permit substantive review before it accepts them for +filing and may request additional information rather than accepting the NDA for filing. The FDA must make a decision on accepting +an NDA for filing within 60 days of receipt, and such decision could include a “refuse-to-file” decision by the FDA. +Once the submission is accepted for filing, the FDA begins an in-depth substantive review of the NDA. The FDA reviews an NDA to +determine, among other things, whether the product is safe and effective for the indications sought and whether the facility in +which it is manufactured, processed, packaged or held meets standards designed, including cGMP requirements, designed to assure +and preserve the product’s continued identity, strength, quality and purity. Under the goals and polices agreed to by the +FDA under the Prescription Drug User Fee Act, as amended (the “PDUFA”), the FDA targets ten months, from the filing +date, in which to complete its initial review of a new molecular entity NDA and respond to the applicant, and six months from +the filing date of a new molecular entity NDA for priority review. The FDA does not always meet its PDUFA goal dates for standard +or priority NDAs, and the review process is often extended by FDA requests for additional information or clarification. +Further, +under PDUFA, each NDA must be accompanied by a substantial user fee. For fiscal year 2025, the application fee for each application +containing clinical data is $4,310.002. PDUFA also imposes an annual program fee for each approved prescription drug, which has +been set at $403,889 for fiscal year 2025. The FDA adjusts the PDUFA user fees on an annual basis. Fee waivers or reductions are +available in certain circumstances, including a waiver of the application fee for the first application filed by a small business. +Additionally, no user fees are assessed on applications for products designated as orphan drugs, unless the product also includes +a non-orphan indication. +The +FDA also may require submission of a Risk Evaluation and Mitigation Strategy (“REMS”) if it believes that a risk evaluation +and mitigation strategy is necessary to ensure that the benefits of the drug outweigh its risks. A REMS can include use of risk +evaluation and mitigation strategies like medication guides, physician communication plans, assessment plans, and/or elements +to assure safe use such as restricted distribution methods, patient registries, special monitoring or other risk-minimization +tools. +The +FDA may refer an application for a novel drug to an advisory committee. An advisory committee is a panel of independent experts, +including clinicians and other scientific experts, which reviews, evaluates and provides advice and recommendations to FDA as +to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory +committee, but it considers such recommendations carefully when making decisions. +Before +approving an NDA, the FDA typically will inspect the facility or facilities where the product is manufactured. The FDA will not +approve an application unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements +and are adequate to assure consistent production of the product within required specifications. Additionally, before approving +an NDA, the FDA may inspect one or more select clinical trial sites involved in conducting pivotal studies to assure compliance +with GCP and other requirements and the integrity of the clinical data submitted to the FDA. +12 +After +evaluating the NDA and all related information, including the advisory committee recommendation, if any, and inspection reports +regarding the manufacturing facilities and clinical trial sites, the FDA may issue an approval letter, or, in some cases, a complete +response letter. A complete response letter indicates that the review cycle of the application is complete, and the application +is not ready for approval. A complete response letter generally contains a statement of specific conditions that must be met in +order to secure final approval of the NDA, except that where the FDA determines that the data supporting the application are inadequate +to support approval, the FDA may issue the complete response letter without first conducting required inspections, testing submitted +product lots, and/or reviewing proposed labeling. In issuing the complete response letter, the FDA may require additional clinical +or preclinical testing or recommend other actions, such as requests for additional information or clarification, that the applicant +might take in order for the FDA to reconsider the application. Even with submission of this additional information, the FDA ultimately +may decide that the application does not satisfy the regulatory criteria for approval. If and when those conditions have been +met to the FDA’s satisfaction, the FDA will typically issue an approval letter. An approval letter authorizes commercial +marketing of the product with specific prescribing information for specific indication(s). +Even +if the FDA approves a product, depending on the specific risk(s) to be addressed it may limit the approved indications for use +of the product, require that contraindications, warnings or precautions be included in the product labeling, require that post-approval +studies, including phase 4 clinical trials, be conducted to further assess a product’s maximum tolerable dose and efficacy +after approval, require testing and surveillance programs to monitor the product after commercialization, or impose other conditions, +including distribution and use restrictions or other risk management mechanisms under a REMS, which can materially affect the +potential market and profitability of the product. The FDA may prevent or limit further marketing of a product based on the results +of post-marketing studies or surveillance programs. After approval, some types of changes to the approved product, such as adding +new indications, manufacturing changes, and additional labeling claims, are subject to further testing requirements and FDA review +and approval. +Orphan +Drug Designation and Exclusivity +Under +the Orphan Drug Act, the FDA may grant orphan drug designation to a drug intended to treat a rare disease or condition, which +is a disease or condition with either a patient population of fewer than 200,000 individuals in the United States, or a patient +population greater than 200,000 individuals in the United States when there is no reasonable expectation that the cost of developing +and making the product available in the United States for the disease or condition will be recovered from sales of the product. +Orphan drug designation must be requested before submitting a marketing application. After the FDA grants orphan drug designation, +the generic identity of the therapeutic agent and its designated orphan use are disclosed by the FDA on its website. Orphan drug +designation does not convey any advantage in or shorten the duration of the regulatory review and approval process, though companies +developing orphan products are eligible for certain incentives, including tax credits for qualified clinical testing and waiver +of application fees. +If +a product that has orphan drug designation subsequently receives the first FDA approval for the use for which it has such designation, +the product is entitled to a seven-year period of marketing exclusivity from the date of FDA approval during which the FDA may +not approve any other applications to market the “same drug” for the same use, except in limited circumstances, such +as a subsequent product’s showing of “clinical superiority” over the product with orphan exclusivity or where +the original applicant cannot produce sufficient quantities of product. The FDA defines “same drug” with respect to +small molecule drugs as a drug that contains the same active moiety as a previously approved drug and is intended for the same +use as the previously approved drug. To demonstrate a drug is “clinically superior” to the previously approved orphan +drug, a sponsor must show that the drug provides a significant therapeutic advantage over and above the previously already approved +drug in terms of greater efficacy, greater safety, or by providing a major contribution to patient care. Since the enactment of +the FDA Reauthorization Act of 2017, the FDA publishes clinical superiority findings on its website for those drugs approved on +or after August 18, 2017. Competitors, however, may receive approval of different therapeutic agents for the indication for which +the orphan product has exclusivity or obtain approval for the same therapeutic agent for a different indication than that for +which the orphan product has exclusivity. If an orphan designated product receives marketing approval for an indication broader +than what is designated, it may not be entitled to orphan exclusivity. Further, orphan drug exclusive marketing rights in the +United States may be lost if the FDA later determines that the request for designation was materially defective or the manufacturer +of the approved product is unable to assure sufficient quantities of the product to meet the needs of patients with the rare disease +or condition, or if the manufacturer chooses to provide consent to approval of other applications. +13 +Expedited +Development and Review Programs for Drugs +The +FDA maintains several programs intended to facilitate and expedite development and review of new drugs to address unmet medical +needs in the treatment of serious or life-threatening diseases or conditions. These programs include Fast Track designation, Breakthrough +Therapy designation, Priority Review and Accelerated Approval, and the purpose of these programs is to either expedite the development +or review of important new drugs and biologics to get them to patients more quickly than standard FDA review timelines typically +permit. We intend to apply for these programs for compounds, as applicable. +A +new drug is eligible for Fast Track designation if it is intended to treat a serious or life-threatening disease or condition +and demonstrates the potential to address unmet medical needs for such disease or condition. Fast Track designation applies to +the compound and the specific indication for which it is being studied. The sponsor of a new drug product may request the FDA +to designate the drug as a Fast Track product at any time during the clinical development of the product, but ideally no later +than the pre-NDA meeting because many of the features of Fast Track designation will not apply after that time. Fast Track designation +provides increased opportunities for sponsor interactions with the FDA during preclinical and clinical development, in addition +to the potential for rolling review once a marketing application is filed. Rolling review means that the FDA may review portions +of the marketing application before the sponsor submits the complete application. +In +addition, a new drug may be eligible for Breakthrough Therapy designation if it is intended to treat a serious or life-threatening +disease or condition and preliminary clinical evidence indicates that the drug, alone or in combination with one or more other +drugs, may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as +substantial treatment effects observed early in clinical development. A sponsor may request that a drug product be designated +as a Breakthrough Therapy at any time during the clinical development of the product and ideally before initiation of the pivotal +clinical trial intended to serve as the primary basis for demonstration of efficacy to obtain the full benefits of the designation. +Breakthrough Therapy designation provides all the features of Fast Track designation, in addition to intensive guidance on an +efficient product development program beginning as early as phase 1 and FDA organizational commitment to expedited development, +including involvement of senior managers and experienced review staff in a cross-disciplinary review, where appropriate. +Any +product submitted to the FDA for approval, including a product with Fast Track or Breakthrough Therapy designation, may also be +eligible for additional FDA programs intended to expedite the review and approval process, including Priority Review and Accelerated +Approval. A product is eligible for Priority Review, once an NDA is submitted, if the product that is the subject of the marketing +application has the potential to provide a significant improvement in safety or effectiveness in the treatment, diagnosis or prevention +of a serious disease or condition. Significant improvement may be illustrated by the following examples: evidence of increased +effectiveness in treatment, prevention, or diagnosis of a condition, elimination or substantial reduction of a treatment-limiting +adverse reaction, documented enhancement of patient compliance that is expected to lead to an improvement in serious outcomes, +and evidence of safety and effectiveness in a new subpopulation. Under Priority Review, the FDA’s goal date to take action +on the marketing application is six months compared to ten months for a standard review. +The +FDA may grant Accelerated Approval to a product for a serious or life-threatening condition that provides meaningful therapeutic +advantage to patients over existing treatments based upon a determination that the product has an effect on a surrogate endpoint +that is reasonably likely to predict clinical benefit. The FDA may also grant Accelerated Approval for such a condition when the +product has an effect on an intermediate clinical endpoint that can be measured earlier than an effect on irreversible morbidity +or mortality (“IMM”) and that is reasonably likely to predict an effect on irreversible morbidity or mortality or +other clinical benefit, taking into account the severity, rarity or prevalence of the condition and the availability or lack of +alternative treatments. Products granted accelerated approval must meet the same statutory standards for safety and effectiveness +as those granted traditional approval. +For +the purposes of Accelerated Approval, a surrogate endpoint is a marker, such as a laboratory measurement, radiographic image, +physical sign or other measure that is thought to predict clinical benefit but is not itself a measure of clinical benefit. Surrogate +endpoints can often be measured more easily or more rapidly than clinical endpoints. An intermediate clinical endpoint is a measurement +of a therapeutic effect that is considered reasonably likely to predict the clinical benefit of a drug, such as an effect on IMM. +The FDA has limited experience with accelerated approvals based on intermediate clinical endpoints but has indicated that such +endpoints generally may support Accelerated Approval where the therapeutic effect measured by the endpoint is not itself a clinical +benefit and basis for traditional approval, if there is a basis for concluding that the therapeutic effect is reasonably likely +to predict the ultimate clinical benefit of a product. +14 +The +Accelerated Approval pathway is most often used in settings in which the course of a disease is long, and an extended period of +time is required to measure the intended clinical benefit of a product, even if the effect on the surrogate or intermediate clinical +endpoint occurs rapidly. Thus, Accelerated Approval has been used extensively in the development and approval of products for +treatment of a variety of cancers in which the goal of therapy is generally to improve survival or decrease morbidity and the +duration of the typical disease course requires lengthy and sometimes large trials to demonstrate a clinical or survival benefit. +Thus, the benefit of Accelerated Approval derives from the potential to receive approval based on surrogate endpoints sooner than +possible for trials with clinical or survival endpoints, rather than deriving from any explicit shortening of the FDA approval +timeline, as is the case with priority review. +The +Accelerated Approval pathway is usually contingent on a sponsor’s agreement to conduct, in a diligent manner, additional +post-approval confirmatory studies to verify and describe the product’s clinical benefit. As a result, a compound approved +on this basis is subject to rigorous post-marketing compliance requirements, including the completion of phase 4 or post-approval +clinical trials to confirm the effect on the clinical endpoint. Failure to conduct required post-approval studies, or confirm +a clinical benefit during post-marketing studies, would allow the FDA to initiate expedited proceedings to withdraw approval of +the product. All promotional materials for compounds approved under accelerated regulations are subject to prior review by the +FDA. In addition, the FDA generally requires, as a condition for Accelerated Approval, that all advertising and promotional materials +intended for dissemination or publication within 120 days of marketing approval be submitted to the agency for review during the +pre-approval review period. After the 120-day period has passed, all advertising and promotional materials must be submitted at +least 30 days prior to the intended time of initial dissemination or publication. +Even +if a product qualifies for one or more of these programs, the FDA may later decide that the product no longer meets the conditions +for qualification or the time period for FDA review or approval may not be shortened. Furthermore, Fast Track designation, Breakthrough +Therapy designation, Priority Review and Accelerated Approval do not change the scientific or medical standards for approval or +the quality of evidence necessary to support approval, though they may expedite the development or review process. +Pediatric +Study Plan and Pediatric Exclusivity +Under +the Pediatric Research Equity Act, as amended (the “PREA”), certain NDAs and certain NDA supplements must contain +data that can be used to assess the safety and efficacy of the compound for the claimed indications in all relevant pediatric +subpopulations and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. +For a cancer drug directed at a molecular target, the pediatric testing requirement extends to pediatric cancers involving the +molecular target even if different than the claimed adult cancer in the NDA. The FDA may grant deferrals for submission of pediatric +data or full or partial waivers. The PREA requires that a sponsor who is planning to submit a marketing application for a compound +that includes a new active ingredient, new indication, new dosage form, new dosing regimen or new route of administration submit +an initial Pediatric Study Plan (the “PSP”), within 60 days of an end-of-phase 2 meeting or, if there is no such meeting, +as early as practicable before the initiation of the phase 3 or phase 2/3 study. The initial PSP must include an outline of the +pediatric study or studies that the sponsor plans to conduct, including study objectives and design, age groups, relevant endpoints +and statistical approach, or a justification for not including such detailed information, and any request for a deferral of pediatric +assessments or a full or partial waiver of the requirement to provide data from pediatric studies along with supporting information. +The FDA and the sponsor must reach an agreement on the PSP. A sponsor can submit amendments to an agreed-upon initial PSP at any +time if changes to the pediatric plan need to be considered based on data collected from preclinical studies, early phase clinical +trials and/or other clinical development programs. Unless otherwise required by regulation, the PREA does not apply to a drug +for an indication for which orphan drug designation has been granted, except that the PREA will apply to an original NDA for a +new active ingredient that is orphan-designated if the drug is a molecularly targeted cancer product intended for the treatment +of an adult cancer and is directed at a molecular target that the FDA determines to be substantially relevant to the growth or +progression of a pediatric cancer. +15 +A +drug can also obtain pediatric market exclusivity in the United States. Pediatric exclusivity, if granted, adds six months to +existing exclusivity periods. This six-month exclusivity, which runs from the end of other exclusivity protection or patent term, +may be granted based on the voluntary completion of a pediatric study in accordance with an FDA-issued “Written Request” +for such a study. +U.S. +Post-Approval Requirements for Drugs +Drugs +approved by FDA are subject to continuing regulation by the FDA, including, among other things, requirements relating to manufacturing +establishment registration and product listing, recordkeeping, periodic reporting, product sampling and distribution, reporting +of adverse experiences with the product, field alerts regarding issues with distributed product, promotion and advertising compliance, +which include restrictions on promoting products for unapproved uses or patient populations (known as “off-label use”) +and limitations on industry-sponsored scientific and educational activities. Although physicians may prescribe approved products +for off-label uses, manufacturers may not market or promote such uses. The FDA and other agencies actively enforce the laws and +regulations prohibiting the promotion of off-label uses, as well as other advertising and promotion requirements, including not +only by company employees but also by agents of the company or those speaking on the company’s behalf, and a company that +is found to have improperly promoted may be subject to significant liability, including investigation by federal and state authorities. +Failure to comply with these requirements can result in, among other things, adverse publicity, warning letters, untitled letters, +corrective advertising, and potential civil and criminal penalties, including liabilities under the federal False Claims Act (the +“FCA”) where products obtain reimbursement under federal health care programs. Promotional materials for approved +drugs must be submitted to the FDA in conjunction with their first use or first publication, and for products approved under accelerated +approval prior to their first use. Further, if there are any modifications to the drug, including changes in indications, labeling +or manufacturing processes or facilities, the applicant may be required to submit and obtain FDA approval of a new NDA or NDA +supplement, which may require the development of additional data or preclinical studies and clinical trials. +The +FDA may withdraw approval of a product if compliance with regulatory requirements and standards is not maintained or if problems +occur after the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events +of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may +result in revisions to the approved labeling to add new safety information, requirements for post-market studies or clinical trials +to assess new safety risks, or imposition of distribution or other restrictions under a REMS. Other potential consequences include, +among other things: +● +restrictions on +the marketing or manufacturing of the product, complete withdrawal of the product from the market or product recalls; +● +the issuance of +safety alerts, Dear Healthcare Provider letters, press releases or other communications containing warnings or other safety +information about the product; +● +fines, warning letters +or holds on post-approval clinical trials; +● +refusal of the FDA +to approve applications or supplements to approved applications, or suspension or revocation of product approvals; +● +product seizure +or detention, or refusal to permit the import or export of products; +● +injunctions or the +imposition of civil or criminal penalties; and +● +consent decrees, +corporate integrity agreements, debarment or exclusion from federal healthcare programs; or mandated modification of promotional +materials and labeling and issuance of corrective information. +16 +United +States Patent Term Restoration and Marketing Exclusivity +Depending +upon the timing, duration and specifics of FDA approval of future compounds, some of our United States patents may be eligible +for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984 (the “Hatch-Waxman +Amendments”). The Hatch-Waxman Amendments permit restoration of the patent term of up to five years as compensation for +patent term lost during the FDA regulatory review process for a drug that has not been previously approved for commercial marketing. +Patent-term restoration, however, cannot extend the remaining term of a patent beyond a total of 14 years from the product’s +approval date and only those claims covering such approved drug product, a method for using it or a method for manufacturing it +may be extended. The patent-term restoration period is generally one-half the time between the effective date of an IND and the +submission date of an NDA plus the time between the submission date of an NDA and the approval of that application, except that +the review period is reduced by any time during which the applicant failed to exercise due diligence. Only one patent applicable +to an approved drug is eligible for the extension and the application for the extension must be submitted prior to the expiration +of the patent. The USPTO, in consultation with the FDA, reviews and approves the application for any patent term extension or +restoration. In the future, we may apply for restoration of patent term for our currently owned or licensed patents to add patent +life beyond its current expiration date, depending on the expected length of the clinical trials and other factors involved in +the filing of the relevant NDA. +Regulatory +exclusivity provisions under the FDCA also can delay the submission or the approval of certain applications. The FDCA provides +a five-year period of non-patent marketing exclusivity within the United States to the first applicant to gain approval of an +NDA for a new chemical entity. A drug is a new chemical entity if the FDA has not previously approved any other new drug containing +the same active moiety, which is the molecule or ion responsible for the action of the drug substance. During the exclusivity +period, the FDA may not accept for review an Abbreviated New Drug Application (“ANDA”), or a 505(b)(2) NDA, submitted +by another company for another version of such drug where the applicant does not own or have a legal right of reference to all +the data required for approval. However, an application may be submitted after four years if it contains a certification of patent +invalidity or non-infringement. +The +FDCA also provides three years of exclusivity for an NDA, 505(b)(2) NDA, or supplement to an existing NDA, if new clinical investigations, +other than bioavailability studies, that were conducted or sponsored by the applicant are deemed by the FDA to be essential to +the approval of the application, for example, new indications, dosages or strengths of an existing drug. This three-year exclusivity +covers only the conditions of use associated with the new clinical investigations and prevents FDA approval of an ANDA or 505(b)(2) +NDA for such conditions of use, but does not prevent FDA acceptance for filing and review of an ANDA or 505(b)(2) NDA. The three-year +exclusivity does not prohibit the FDA from approving ANDAs or 505(b)(2) NDAs for drugs containing the original active agent for +other conditions of use outside those protected by the exclusivity. Five-year and three-year exclusivity will not delay the submission +or approval of a full NDA. However, an applicant submitting a full NDA would be required to conduct or obtain a right of reference +to all of the preclinical studies and adequate and well-controlled clinical trials necessary to evaluate maximum tolerated dose +and effectiveness. +Other +Regulatory Matters +Manufacturing, +sales, promotion and other activities of products following product approval, where applicable, or commercialization are also +subject to regulation by numerous regulatory authorities in the United States in addition to the FDA, which may include the Centers +for Medicare & Medicaid Services (“CMS”), other divisions of the U.S. Department of Health and Human Services +(“HHS”), the Department of Justice, the Drug Enforcement Administration, the Consumer Product Safety Commission, the +Federal Trade Commission, the Occupational Safety & Health Administration, the Environmental Protection Agency and state and +local governments and governmental agencies. +17 +Healthcare +Laws +Healthcare +providers, physicians, and third-party payors will play a primary role in the recommendation and prescription of any products +for which we obtain marketing approval. Our business operations and any current or future arrangements with third-party payors, +healthcare providers, and physicians may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations +that may constrain the business or financial arrangements and relationships through which we develop, market, sell and distribute +any drugs for which we obtain marketing approval. In the United States, these laws include federal and state anti-kickback, false +claims, physician transparency, and patient data privacy and security laws and regulations, including those described below. +● +The federal Anti-Kickback +Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering or paying +any remuneration (including any kickback, bribe, or rebate), directly or indirectly, overtly or covertly, in cash or in kind, +to induce, or in return for, either the referral of an individual, or the purchase, lease, order or recommendation of any +good, facility, item or service for which payment may be made, in whole or in part, under a federal healthcare program, such +as the Medicare and Medicaid programs. A person or entity does not need to have actual knowledge of the statute or specific +intent to violate it in order to have committed a violation. Violations are subject to civil and criminal fines and penalties +for each violation, plus up to three times the remuneration involved, imprisonment, and exclusion from federal health care +programs. In addition, the government may assert that a claim including items or services resulting from a violation of the +federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the FCA. There are a number of statutory +exceptions and regulatory safe harbors protecting some common activities from prosecution, but the exceptions and safe harbors +are drawn narrowly and require strict compliance in order to offer protection. +● +The federal civil +and criminal false claims laws, including the FCA, which can be enforced through civil “whistleblower” actions, +and civil monetary penalty laws, impose criminal and civil penalties against individuals or entities for, among other things, +knowingly presenting, or causing to be presented, claims for payment or approval from Medicare, Medicaid, or other federal +health care programs that are false or fraudulent; knowingly making or causing a false statement material to a false or fraudulent +claim or an obligation to pay money to the federal government; or knowingly concealing or knowingly and improperly avoiding +or decreasing such an obligation. Manufacturers can be held liable under the FCA even when they do not submit claims directly +to government payors if they are deemed to “cause” the submission of false or fraudulent claims. When an entity +is determined to have violated the federal civil FCA, the government may impose civil fines and penalties for each false claim, +plus treble damages, and exclude the entity from participation in Medicare, Medicaid and other federal healthcare programs. +● +The federal civil +monetary penalties laws impose civil fines for, among other things, the offering or transfer or remuneration to a Medicare +or state healthcare program beneficiary, if the person knows or should know it is likely to influence the beneficiary’s +selection of a particular provider, practitioner, or supplier of services reimbursable by Medicare or a state health care +program, unless an exception applies. +● +The federal Health +Insurance Portability and Accountability Act of 1996 (“HIPAA”), which created additional federal criminal statutes +that prohibit knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program +or obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, +or under the custody or control of, any healthcare benefit program, regardless of the payor (including, public or private) +and knowingly and willfully falsifying, concealing or covering up by any trick or device a material fact or making any materially +false statements in connection with the delivery of, or payment for, healthcare benefits, items or services relating to healthcare +matters. Similar to the federal Anti-Kickback Statute, a person or entity can be found guilty of violating HIPAA without actual +knowledge of the statute or specific intent to violate it. +● +HIPAA, as amended +by the Health Information Technology for Economic and Clinical Health Act (“HITECH”), and their respective implementing +regulations, which impose requirements on certain covered healthcare providers, health plans, and healthcare clearinghouses +and their respective business associates that perform services for them that involve the use, or disclosure of, individually +identifiable health information as well as their covered subcontractors, relating to the privacy, security and transmission +of individually identifiable health information without appropriate authorization. HITECH also created new tiers of civil +monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable to business associates, and gave +state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal +HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions. +18 +● +The federal Physician +Payments Sunshine Act, enacted as part of the Patient Protection and Affordable Care Act, as amended by the Health Care and +Education Reconciliation Act of 2010 (collectively, the “ACA”), imposed annual reporting requirements for certain +manufacturers of drugs, devices, biologics, and medical supplies for which payment is available under Medicare, Medicaid, +or the Children’s Health Insurance Program, for certain payments and “transfers of value” provided to physicians +(currently defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, as well +as ownership and investment interests held by physicians and their immediate family members. Effective January 1, 2022, these +reporting obligations will extend to include transfers of value made in the previous year to certain non-physician providers +such as physician assistants and nurse practitioners. +● +Federal consumer +protection and unfair competition laws broadly regulate marketplace activities and activities that potentially harm consumers. +● +Analogous state +and foreign laws and regulations, such as state and foreign anti-kickback, false claims, consumer protection and unfair competition +laws which may apply to pharmaceutical business practices, including but not limited to, research, distribution, sales and +marketing arrangements as well as submitting claims involving healthcare items or services reimbursed by any third-party payor, +including commercial insurers; state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s +voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government that otherwise +restricts payments that may be made to healthcare providers and other potential referral sources; state laws that require +drug manufacturers to file reports with states regarding pricing and marketing information, such as the tracking and reporting +of gifts, compensations and other remuneration and items of value provided to healthcare professionals and entities; state +and local laws requiring the registration of pharmaceutical sales representatives; and state and foreign laws governing the +privacy and security of health information in certain circumstances, many of which differ from each other in significant ways +and may not have the same effect, thus complicating compliance efforts. +The +scope and enforcement of each of these laws is uncertain and subject to rapid change in the current regulatory and healthcare +environment, especially in light of the lack of applicable precedent and regulations. Federal and state enforcement bodies have +recently increased their scrutiny of interactions between healthcare companies and healthcare providers, which has led to a number +of investigations, prosecutions, convictions and settlements in the healthcare industry. +Insurance +Coverage and Reimbursement +In +the United States and markets in other countries, patients who are prescribed treatments for their conditions and providers performing +healthcare services generally rely on third-party payors to reimburse all or part of the associated healthcare costs. Thus, even +if a compound is approved, sales of the product will depend, in part, on the extent to which third-party payors, including government +healthcare programs in the United States such as Medicare and Medicaid, private health insurers, managed care organizations and +other third-party payors, provide coverage, and establish adequate reimbursement levels for, the product. In the United States, +principal decisions about Medicare reimbursement for new products are typically made by CMS and regional contractors responsible +for administering the Medicare program. CMS and these contractors decide whether and to what extent a new product will be covered +and reimbursed under Medicare, and private third-party payors often follow CMS’s decisions regarding coverage and reimbursement +to a substantial degree. +Reimbursement +by a third-party payor may depend upon a number of factors, including, but not limited to, the third-party payor’s determination +that use of a product is (1) a covered benefit under its health plan; (2) safe, effective and medically necessary; (3) appropriate +for the specific patient; (4) cost-effective; and (5) neither experimental nor investigational. Reimbursement rates may vary according +to the use of the drug and the clinical setting in which it is used, may be based on reimbursement levels already set for lower +cost drugs and may be incorporated into existing payments for other services. However, one third-party payor’s determination +to provide coverage for a compound does not assure that other payors will also provide coverage for the compound. No uniform policy +of coverage and reimbursement for products exists among third-party payors, and coverage and reimbursement levels for products +can differ significantly from payor to payor. +19 +Third-party +payors are increasingly challenging the prices charged, examining the medical necessity, reviewing the cost-effectiveness of medical +products and services and imposing controls to manage costs. In order to secure coverage and reimbursement for any product that +might be approved for sale, a company may need to conduct expensive pharmaco-economic studies in order to demonstrate the cost +effectiveness of the product, which will require additional expenditure above and beyond the costs required to obtain FDA or other +comparable regulatory approvals. Third-party payors may limit coverage to specific products on an approved list, also known as +a formulary, which might not include all of the FDA-approved products for a particular indication. Moreover, the containment of +healthcare costs has become a priority of federal, state and foreign governments, and the prices of products have been a focus +in this effort. Governments have shown significant interest in implementing cost-containment programs, including price controls +or price increase penalties, restrictions on reimbursement and requirements for substitution of generic products. +In +addition, companion diagnostic tests require coverage and reimbursement separate and apart from the coverage and reimbursement +for their companion pharmaceutical products. Similar challenges to obtaining coverage and reimbursement, applicable to pharmaceutical +products, will apply to companion diagnostics. +Current +and Future Healthcare Reform Legislation +In +the United States and certain foreign jurisdictions, there have been, and likely will continue to be, a number of proposed and +adopted legislative and regulatory changes regarding the healthcare system directed at broadening the availability of healthcare, +improving the quality of healthcare, and containing or lowering the cost of healthcare. For example, in March 2010, the United +States Congress enacted the ACA, which, among other things, includes changes to the coverage and payment for products under government +health care programs. The ACA includes provisions of importance to our potential compounds that: +● +created an annual, +nondeductible fee on any entity that manufactures or imports specified branded prescription drug products, apportioned among +these entities according to their market share in certain government healthcare programs; +● +expanded eligibility +criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to certain individuals with +income at or below 133% of the federal poverty level, thereby potentially increasing a manufacturer’s Medicaid rebate +liability; +● +expanded manufacturers’ +rebate liability under the Medicaid Drug Rebate Program by increasing the minimum rebate for both branded and generic drugs +and revising the definition of “average manufacturer price,” or AMP, for calculating and reporting Medicaid drug +rebates on outpatient prescription drug prices; +● +addressed a new +methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are +inhaled, infused, instilled, implanted or injected; +● +expanded the types +of entities eligible for the 340B drug discount program; +● +established the +Medicare Part D coverage gap discount program by requiring manufacturers to provide point-of-sale-discounts off the negotiated +price of applicable brand drugs to eligible beneficiaries during their coverage gap period as a condition for the manufacturers’ +outpatient drugs to be covered under Medicare Part D; and +● +created a new Patient-Centered +Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along +with funding for such research. +Since +its enactment, there have been numerous judicial, administrative, executive, and legislative challenges to certain aspects of +the ACA, and we expect there will be additional challenges and amendments to the ACA in the future. For example, various portions +of the ACA have faced legal and constitutional challenges, including in the United States Supreme Court; the Trump administration +issued various Executive Orders which eliminated cost sharing subsidies and various provisions that would impose a fiscal burden +on states or a cost, fee, tax, penalty or regulatory burden on individuals, healthcare providers, health insurers, or manufacturers +of pharmaceuticals or medical devices; and Congress introduced several pieces of legislation aimed at significantly revising or +repealing the ACA. It is unclear whether the ACA will be overturned, repealed, replaced, or further amended in the future, and +we cannot predict what effect further changes to the ACA would have on our business. +20 +Other +legislative changes have been proposed and adopted in the United States since the ACA was enacted. For example, in August 2011, +the Budget Control Act of 2011, among other things, included reductions of Medicare payments to providers of 2%, which went into +effect in April 2013 and, due to subsequent legislative amendments to the statute, will remain in effect through 2030 unless additional +Congressional action is taken. In January 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other +things, further reduced Medicare payments to several providers, including hospitals, imaging centers and cancer treatment centers, +and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. +Moreover, +payment methodologies may be subject to changes in healthcare legislation and regulatory initiatives. For example, CMS may develop +new payment and delivery models, including bundled payment models. In addition, recently there has been heightened governmental +scrutiny over the manner in which manufacturers set prices for their commercial products, which has resulted in numerous Congressional +inquiries and proposed and enacted state and federal legislation designed to, among other things, bring more transparency to product +pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement +methodologies for pharmaceutical products. At the federal level, former President Trump used several means to propose or implement +drug pricing reform, including through federal budget proposals, executive orders, and policy initiatives. It is unclear whether +the Biden administration will work to reverse those measures or pursue similar or other policy initiatives, for example related +to an independent review board or other mechanisms that would impact drug pricing and reimbursement. +On +November 20, 2020, CMS and the HHS Office of the Inspector General issued two final rules implementing changes to the Physician +Self-Referral Law, or Stark Law, and the Anti-Kickback Statute. These new rules provide new value-based enterprise exceptions +and safe harbors to the Stark Law and the Anti-Kickback Statute, as well as offer additional clarification in the form of updated +definitions. +Compliance +with Other Federal and State Laws or Requirements; Changing Legal Requirements +If +any products that we may develop are made available to authorized users of the Federal Supply Schedule of the General Services +Administration, additional laws and requirements apply. Products must meet applicable child-resistant packaging requirements under +the U.S. Poison Prevention Packaging Act. Manufacturing, labeling, packaging, distribution, sales, promotion and other activities +also are potentially subject to federal and state consumer protection and unfair competition laws, among other requirements to +which we may be subject. The distribution of pharmaceutical products is subject to additional requirements and regulations, including +extensive recordkeeping, licensing, storage and security requirements intended to prevent the unauthorized sale of pharmaceutical +products, and state licensure. +The +failure to comply with any of these laws or regulatory requirements may subject firms to legal or regulatory action. Depending +on the circumstances, failure to meet applicable regulatory requirements can result in criminal prosecution, fines or other penalties, +injunctions, exclusion from federal healthcare programs, requests for recall, seizure of products, total or partial suspension +of production, denial or withdrawal of product approvals, relabeling or repackaging, or refusal to allow a firm to enter into +supply contracts, including government contracts. Any claim or action against us for violation of these laws, even if we successfully +defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation +of our business. Prohibitions or restrictions on marketing, sales or withdrawal of future products marketed by us could materially +affect our business in an adverse way. +Changes +in regulations, statutes or the interpretation of existing regulations could impact our business in the future by requiring, for +example: (1) changes to our manufacturing arrangements; (2) additions or modifications to product labeling or packaging; (3) the +recall or discontinuation of our products; or (4) additional recordkeeping requirements. If any such changes were to be imposed, +they could adversely affect the operation of our business. +21 +Government +Regulation of Drugs Outside of the United States +To +market any product outside of the United States, we would need to comply with numerous and varying regulatory requirements of +other countries regarding safety and efficacy and governing, among other things, clinical trials, marketing authorization, manufacturing, +commercial sales and distribution of our products. These regulatory requirements may be similarly complex and even more stringent +in certain regards than those described above. If we fail to comply with applicable regulatory requirements in the jurisdiction +where we conduct clinical trials or seek regulatory approvals, we may be subject to, among other things, fines, suspension or +withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution. +For +instance, in the European Economic Area (the “EEA”) (comprising the 27 European Union member states plus Iceland, +Liechtenstein and Norway), medicinal products must be authorized for marketing by using either the centralized authorization procedure +or national authorization procedures. +● +Centralized procedure—The +centralized procedure provides for the grant of a single marketing authorization by the European Commission that is valid +throughout the EEA. Pursuant to Regulation (EC) No. 726/2004, the centralized procedure is compulsory for specific products, +including for medicines produced by certain biotechnological processes, products designated as orphan medicinal products, +advanced therapy products (gene therapy, somatic cell therapy and tissue engineered products) and products with a new active +substance indicated for the treatment of certain diseases, which includes products for the treatment of cancer. For medicines +that do not fall within one of the mandatory categories, an applicant still has the option of submitting an application for +a centralized marketing authorization to the European Medicines Agency (the “EMA”), as long as the medicine concerned +contains a new active substance not authorized in the EEA prior to May 20, 2004, is a significant therapeutic, scientific +or technical innovation, or if its authorization would be in the interest of public health in the EEA. If pursuing marketing +authorization for one of our compounds for a therapeutic indication under the centralized procedure, the EMA’s Committee +for Medicinal Products for Human Use (the “CHMP”), is responsible for conducting an initial assessment of whether +a product meets the required quality, safety and efficacy requirements, and whether a product has a positive benefit/risk +ratio. Under the centralized procedure the maximum timeframe for the evaluation of a marketing authorization application (the +“MAA”), by the EMA is 210 days, excluding clock stops, when additional written or oral information is to be provided +by the applicant in response to questions asked by the CHMP. Clock stops may extend the timeframe of evaluation of a MAA considerably +beyond 210 days. Where the CHMP gives a positive opinion, it provides the opinion together with supporting documentation to +the European Commission, who make the final decision to grant a marketing authorization, which is issued within 67 days of +receipt of the EMA’s recommendation. Accelerated assessment might be granted by the CHMP in exceptional cases, when +a medicinal product is expected to be of major public health interest, particularly from the point of view of therapeutic +innovation. The timeframe for the evaluation of a MAA under the accelerated assessment procedure is 150 days, excluding clock +stops, but it is possible that the CHMP may revert to the standard time limit for the centralized procedure if it determines +that the application is no longer appropriate to conduct an accelerated assessment. +● +National authorization +procedures—There are also two other possible routes to authorize products for therapeutic indications in several countries, +which are available for products that fall outside the scope of the centralized procedure: +● +Decentralized procedure—Using +the decentralized procedure, an applicant may apply for simultaneous authorization in more than one EEA member state for a +medicinal product that has not yet been authorized in any EEA member state and that does not fall within the mandatory scope +of the centralized procedure. +● +Mutual recognition +procedure—In the mutual recognition procedure, a medicine is first authorized in one EEA member state, in accordance +with the national procedures of that country. Following this, additional marketing authorizations can be sought from other +EEA member states in a procedure whereby the countries concerned recognize the validity of the original, national marketing +authorization. +In +both cases, as with the centralized procedure, the competent authorities of the EEA member states assess the risk-benefit balance +of the product on the basis of scientific criteria concerning its quality, safety and efficacy before granting the marketing authorization. +22 +In +the EEA, new products for therapeutic indications that are authorized for marketing (so called “references products”) +qualify for eight years of data exclusivity and an additional two years of market exclusivity upon marketing authorization. The +data exclusivity period prevents generic or biosimilar applicants from referencing the preclinical and clinical trial data contained +in the dossier of the reference product when applying for a generic or biosimilar marketing authorization in the EEA during a +period of eight years from the date on which the reference product was first authorized in the EEA. The additional two-year period +of market exclusivity period prevents a successful generic or biosimilar applicant from commercializing its product in the EEA +until ten years have elapsed from the initial authorization of the reference product in the European Union. The overall ten-year +period can be extended to a maximum of eleven years if, during the first eight years of those ten years, the marketing authorization +holder obtains an authorization for one or more new therapeutic indications which, during the scientific evaluation prior to their +authorization, are held to bring a significant clinical benefit in comparison with existing therapies. Even if a compound is considered +to be a new active substance so that the innovator gains the prescribed period of data exclusivity, another company may market +another version of the product if such company obtained marketing authorization based on a MAA with a complete independent data +package of pharmaceutical tests, preclinical tests and clinical trials. +The +criteria for designating an “orphan medicinal product” in the EEA are similar in principle to those in the United +States. Under Article 3 of Regulation (EC) 141/2000, in the EEA a medicinal product may be designated as orphan if it meets the +following criteria (1) it is intended for the diagnosis, prevention or treatment of a life-threatening or chronically debilitating +condition; and (2) either (a) such condition affects no more than five in 10,000 persons in the EEA when the application is made, +or (b) it is unlikely that the product, without the benefits derived from orphan status, would generate sufficient return in the +EEA to justify the investment needed for its development; and (3) there exists no satisfactory method of diagnosis, prevention +or treatment of such condition, or if such a method exists, the product will be of significant benefit to those affected by the +condition. Orphan medicinal products are eligible for financial incentives such as reduction of fees or fee waivers and are, upon +grant of a marketing authorization, entitled to ten years of market exclusivity for the approved therapeutic indication. During +this ten-year orphan market exclusivity period, no marketing authorization application shall be accepted, and no marketing authorization +shall be granted for a similar medicinal product for the same indication, although similar, is safer, more effective or otherwise +clinically superior than the authorized product; (ii) the marketing authorization holder of the authorized product consents to +a second orphan medicinal product application; or (iii) the marketing authorization holder of the authorized product cannot supply +enough orphan medicinal product. An orphan product can also obtain an additional two years of market exclusivity in the EEA for +pediatric studies. The ten-year market exclusivity may be reduced to six years if, at the end of the fifth year, it is established +that the product no longer meets the criteria for orphan drug designation, for example, if the product is sufficiently profitable +not to justify maintenance of market exclusivity. The application for orphan drug designation must be submitted before the application +for marketing authorization. The applicant will receive a fee reduction for the MAA if the orphan drug designation has been granted, +but not if the designation is still pending at the time the marketing authorization is submitted. Orphan drug designation does +not convey any advantage in, or shorten the duration of, the regulatory review and approval process. +Similar +to the United States, the various phases of non-clinical and clinical research in the European Union are subject to significant +regulatory controls. +The +Clinical Trials Directive 2001/20/EC, the Directive 2005/28/EC on GCP and the related national implementing provisions of the +individual European Union member states govern the system for the approval of clinical trials in the European Union. Under this +system, an applicant must obtain prior approval from the national competent authority (the “NCA”), of the European +Union member states in which the clinical trial is to be conducted. Furthermore, the applicant may only start a clinical trial +at a specific study site after the competent ethics committee (the “EC”), has issued a favorable opinion. The clinical +trial application must be accompanied by, among other documents, an investigational medicinal product dossier (the Common Technical +Document) with supporting information prescribed by Directive 2001/20/EC, Directive 2005/28/EC, and the provisions of the individual +European Union member states’ legislation implementing the Clinical Trials Directive. Under the current regime (the European +Union Clinical Trials Directive 2001/20/EC and corresponding national laws) all suspected unexpected serious adverse reactions +to the investigated drug that occur during the clinical trial have to be reported to the NCA and ECs of the member state where +they occurred. +23 +In +April 2014, the new Clinical Trials Regulation, (EU) No 536/2014 (the “Clinical Trials Regulation”) was adopted, which +is expected to apply following confirmation of full functionality of the Clinical Trials Information System, the centralized European +Union portal and database for clinical trials foreseen by the regulation, through an independent audit. The regulation becomes +applicable six months after the European Commission publishes notice of this confirmation, which it has not yet done. The Clinical +Trials Regulation will be directly applicable in all the European Union member states, repealing the current Clinical Trials Directive +2001/20/EC. Conduct of all clinical trials performed in the European Union will continue to be bound by the Clinical Trials Directive +and the member states’ national implementing legislation until the new Clinical Trials Regulation becomes applicable. The +extent to which ongoing clinical trials will be governed by the Clinical Trials Regulation will depend on when the Clinical Trials +Regulation becomes applicable and on the duration of the individual clinical trial. If a clinical trial continues for more than +three years from the day on which the Clinical Trials Regulation becomes applicable the Clinical Trials Regulation will at that +time begin to apply to the clinical trial. The new Clinical Trials Regulation aims to simplify and streamline the approval of +clinical trials in the European Union. The main characteristics of the regulation include: a streamlined application procedure +via a single-entry point, the “European Union portal”; a single set of documents to be prepared and submitted for +the application as well as simplified reporting procedures for clinical trial sponsors; and a harmonized procedure for the assessment +of applications for clinical trials, which is divided in two parts. Part I is assessed by the competent authorities of all European +Union member states in which an application for authorization of a clinical trial has been submitted (member states concerned). +Part II is assessed separately by each member state concerned. Strict deadlines have been established for the assessment of clinical +trial applications. The role of the relevant ethics committees in the assessment procedure will continue to be governed by the +national law of the concerned European Union member state. However, overall related timelines will be defined by the Clinical +Trials Regulation. +Outside +the United States, ensuring coverage and adequate payment for a product also involves challenges. Pricing of prescription pharmaceuticals +is subject to government control in many countries. Pricing negotiations with government authorities can extend well beyond the +receipt of regulatory approval for a product and may require a clinical trial that compares the cost-effectiveness of a product +to other available therapies. The conduct of such a clinical trial could be expensive and result in delays in commercialization. +For example, in the European Union, pricing and reimbursement schemes vary widely from country to country. Some countries provide +that products may be marketed only after a reimbursement price has been agreed upon. Some countries may require the completion +of additional studies that compare the cost-effectiveness of a particular compound to currently available therapies or so-called +health technology assessments, in order to obtain reimbursement or pricing approval. For example, the European Union provides +options for its member states to restrict the range of products for which their national health insurance systems provide reimbursement +and to control the prices of medicinal products for human use. European Union member states may approve a specific price for a +product or may instead adopt a system of direct or indirect controls on the profitability of the company placing the product on +the market. Other member states allow companies to fix their own prices for products but monitor and control prescription volumes +and issue guidance to physicians to limit prescriptions. Recently, many countries in the European Union have increased the amount +of discounts required on pharmaceuticals and these efforts could continue as countries attempt to manage healthcare expenditures, +especially in light of the severe fiscal and debt crises experienced by many countries in the European Union. The downward pressure +on healthcare costs in general, particularly prescription products, has become intense. As a result, increasingly high barriers +are being erected to the entry of new products. Political, economic and regulatory developments may further complicate pricing +negotiations, and pricing negotiations may continue after reimbursement has been obtained. Reference pricing used by various European +Union member states, and parallel trade, in other words, arbitrage between low- priced and high-priced member states, can further +reduce prices. There can be no assurance that any country that has price controls or reimbursement limitations for pharmaceutical +products will allow favorable reimbursement and pricing arrangements for any products, if approved in those countries. +Government +Regulation of Data Collection Outside of the United States +In +the event we conduct clinical trials in the European Union, we will be subject to additional privacy restrictions. The collection +and use of personal health data in the EEA is governed by the General Data Protection Regulation (the “GDPR”), which +became effective on May 25, 2018. The GDPR applies to the processing of personal data by any company established in the EEA and +to companies established outside the EEA to the extent they process personal data in connection with the offering of goods or +services to data subjects in the EEA or the monitoring of the behavior of data subjects in the EEA. The GDPR enhances data protection +obligations for data controllers of personal data, including stringent requirements relating to the consent of data subjects, +expanded disclosures about how personal data is used, enhanced requirements for securing personal data, requirements to conduct +privacy impact assessments for “high risk” processing, limitations on retention of personal data, mandatory data breach +notification and “privacy by design” requirements, and creates direct obligations on service providers acting as processors. +The GDPR also imposes strict rules on the transfer of personal data outside of the EEA to countries that do not ensure an adequate +level of protection, like the United States. Failure to comply with the requirements of the GDPR and the related national data +protection laws of the EEA member states, which may deviate slightly from the GDPR, may result in fines of up to 4% of a company’s +global revenue for the preceding financial year, or €20 million, whichever is greater. Moreover, the GDPR grants data subjects +the right to claim material and non-material damages resulting from infringement of the GDPR. Given the breadth and depth of changes +in data protection obligations, maintaining compliance with the GDPR will require significant time, resources and expense, and +we may be required to put in place additional controls and processes ensuring compliance with the new data protection rules. There +has been limited enforcement of the GDPR to date, particularly in biopharmaceutical development, so we face uncertainty as to +the exact interpretation of the new requirements on any future trials and we may be unsuccessful in implementing all measures +required by data protection authorities or courts in interpretation of the new law. Further, the United Kingdom’s decision +to leave the European Union, means that it has in force its own legislation, which is aligned with the GDPR, known as the Data +Protection Act 2018. The requirements are similar except that the United Kingdom is now regarded as a “third country” +for the purposes of transfers of personal data from the EEA. Transfers continue to flow freely from the UK to the EEA following +an adequacy decision from the European Commission adopted on June 28, 2021 and valid for four years. +24 +Data +protection authority activity differs across the European Union, with certain authorities applying their own agenda which shows +there is uncertainty in the manner in which data protection authorities will seek to enforce compliance with GDPR. For example, +it is not clear if the authorities will conduct random audits of companies doing business in the European Union, or if the authorities +will wait for complaints to be filed by individuals who claim their rights have been violated. Enforcement uncertainty and the +costs associated with ensuring GDPR compliance are onerous and may adversely affect our business, financial condition, results +of operations and prospects. +Should +we utilize third-party distributors, compliance with such foreign governmental regulations would generally be the responsibility +of such distributors, who may be independent contractors over whom we have limited control. +Recent +Developments of the Company +Bridge +Note +On +February 25, 2025, the Company issued an unsecured promissory note in the aggregate principal amount of $325,000 (the “Bridge +Note”) to 3i, L.P., a Delaware limited partnership (the “Holder”), for a purchase price of $250,000, pursuant +to which the Company promises to pay the Holder or its registered assigns the principal sum of $325,000 or such amount equal to +the outstanding principal amount of the Note together with interest. The Note will bear interest on the outstanding principal +amount at an annual rate equal to 6.0%. The Note may be prepaid by the Company without penalty, in whole or in part, upon two +days’ prior written notice to the Holder. All unpaid principal, together with any then unpaid and accrued interest and other +amounts payable under the Note, will otherwise be due and payable on the earliest of: (i) May 25, 2025, (ii) the consummation +of a Corporate Event (as defined in the Note), or (iii) when, upon or after the occurrence of an Event of Default (as defined +in the Note), such amounts are declared due and payable by the Holder or made automatically due and payable in accordance with +the terms of the Note. +25 +Corporate +Information +Chromocell +Holdings, our predecessor, was founded in 2002 to commercialize “Chromovert Technology,” a proprietary discovery technology +with a potential broad range of applications in the biomedical field, including the potential capability to create complex targets +(cell-lines) needed for effective high-throughput screening that is commonly used both in therapeutics and flavors discovery. +Initially, Chromocell Holdings focused on applications in the food and flavors space. +In +2012, Chromocell Holdings started applying the technology in the therapeutics area. Chromocell Holdings focused its efforts on +projects where it believed that the discovery of novel medications was largely held back by difficulties creating complex targets +(cell lines) needed for effective high-throughput screening. The NaV1.7 ion-channel is a complex target with a well-established +role in pain modulation and management believed it presented an opportunity to apply the technology in an area of unmet medical +need. Upon creating the necessary NaV1.7 assays and conducting a large high-throughput campaign, Chromocell Holdings’ research +team discovered CC8464. After pre-clinical studies and assessments, an IND was filed and CC8464 was evaluated in a Phase 1 study +with more than 100 subjects. In 2015, Chromocell Holdings signed an agreement with Astellas Pharma Inc. (“Astellas”) +for the joint development and commercialization of CC8464. Astellas terminated such agreement in 2018 and returned all rights, +including all intellectual property rights on CC8464, to Chromocell Holdings. +As +both the flavors and the therapeutics businesses grew and increasingly required different expertise, capital and business concepts, +Chromocell Holdings made the strategic decision to separate the two businesses. +Channel +Therapeutics Corporation was incorporated in Delaware on March 19, 2021. On November 18, 2024 (“Reincorporation Merger Effective +Date”), Chromocell Therapeutics Corporation, a Delaware corporation (the “Predecessor”), merged with and into +its wholly-owned subsidiary, Channel Therapeutics Corporation, a Nevada corporation (the “Reincorporation Merger”), +pursuant to an agreement and plan of merger, dated as of November 18, 2024 (the “Reincorporation Merger Agreement”). +All information disclosed in this Form 10-K for periods prior to the Reincorporation Merger Effective Date relates to the Predecessor, +and all information disclosed in this Form 10-K for periods after the Reincorporation Merger Effective Date relates to Channel +Therapeutics Corporation, a Nevada corporation. +Our +principal executive offices are located at 4400 Route 9 South, Suite 1000, Freehold, NJ 07728, and our telephone number is (732) +514-2636. Our website is www.channeltherapeutics.com . Information contained on, or that can be accessed through, our website +is not incorporated by reference into this Report, and you should not consider information on our website to be part of this Report. +We +make available free of charge under the “Investors” section of our website all of our filings with the Securities +and Exchange Commission (the “SEC”), including our annual reports on Form 10-K, quarterly reports on Form 10-Q, current +reports on Form 8-K, proxy statements and amendments to such documents, each of which is provided on our website as soon as reasonably +practicable after we electronically file or furnish, as applicable, the information with the SEC. +26 +Implications +of Being an Emerging Growth and Smaller Reporting Company +We +qualify as an “emerging growth company” as defined in the JOBS Act. An emerging growth company may take advantage +of relief from certain reporting requirements and other burdens that are otherwise applicable generally to public companies. These +provisions include: +● +reduced obligations +with respect to financial data; +● +an exception from +compliance with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley +Act”); +● +reduced disclosure +about our executive compensation arrangements in our periodic reports, proxy statements and registration statements; and +● +exemptions from +the requirements of holding non-binding advisory votes on executive compensation or golden parachute arrangements. +We +may take advantage of these provisions for up to five years or such earlier time that we no longer qualify as an emerging growth +company. We would cease to be an emerging growth company upon the earliest of: +● +the last day of +the fiscal year on which we have $1.235 billion or more in annual revenue, +● +the date on which +we become a “large accelerated filer” (i.e., as of our fiscal year end, the total market value of our common equity +securities held by non-affiliates is $700 million or more as of June 30), +● +the date on which +we issue more than $1.0 billion of non-convertible debt over a three-year period, or +● +the last day of +our fiscal year following the fifth anniversary of the date of the completion of our IPO. +We +may choose to take advantage of some but not all of these reduced reporting burdens. +In +addition, under the JOBS Act, emerging growth companies can take advantage of an extended transition period and delay adopting +new or revised accounting standards until such time as those standards apply to private companies. We have elected to use this +extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which +adoption of such standards is required for private companies. If we were to subsequently elect instead to comply with public company +effective dates, such election would be irrevocable pursuant to the JOBS Act. +Also, +we are a “smaller reporting company” ​(and may continue to qualify as such even after we no longer qualify as +an emerging growth company). For as long as we qualify as a “smaller reporting company,” we may provide reduced disclosure +in the public filings that we make with the U.S. Securities and Exchange Commission (the “SEC”) than larger public +companies, such as the inclusion of only two years of audited financial statements and only two years of management’s +discussion and analysis of financial condition and results of operations disclosure. +As +a result of qualifying as an emerging growth company and a smaller reporting company, to the extent we take advantage of the allowable +reduced reporting burdens, the information that we provide to our stockholders may be different than what you might receive from +other public reporting companies in which you hold equity interests. +Item +1A. Risk Factors +Our +business, financial condition and operating results are subject to a number of risk factors, both those that are known to us and +identified below and others that may arise from time to time. These risk factors could cause our actual results to differ materially +from those suggested by forward-looking statements in this Report and elsewhere, and may adversely affect our business, financial +condition or operating results. If any of these risk factors should occur, moreover, the trading price of our securities could +decline, and investors in our securities could lose all or part of their investment in our securities. These risk factors should +be carefully considered in evaluating our prospects. +27 +Summary +of Risk Factors +Our +business is subject to a number of risks that you should be aware of before making an investment decision to purchase our securities. +You should carefully consider all of the information set forth in this Report and, in particular, should evaluate the specific +factors set forth in the section titled “Risk Factors” in deciding whether to invest in our securities. Among these +important risks are the following: +● +The report of the +independent registered public accounting firm on our 2024 and 2023 financial statements contains a going concern qualification; +● +We are a clinical +stage biopharmaceutical company with a limited operating history; +● +We have incurred +net losses since inception. We expect to incur losses for the foreseeable future and may never achieve or maintain profitability; +● +We have identified +material weaknesses in our internal control over financial reporting; +● +We will need to +raise additional funding to receive approval for CC8464, CT2000, CT3000 or any other future compound. Such funding may not +be available on acceptable terms, or at all. Failure to obtain this necessary capital when needed may force us to delay, limit, +sell or terminate certain of our product development efforts or other operations; +● +We may be subject +to litigation for a variety of claims, which could adversely affect our results of operations, harm our reputation or otherwise +negatively impact our business; +● +We are early in +our efforts to develop CC8464, which is the only compound that we have advanced into clinical development. If we are unable +to advance CC8464 through clinical trials, obtain regulatory approval and ultimately commercialize CC8464, or if we experience +significant delays in doing so, our business will be materially harmed; +● +We are early in +our efforts to develop both of CT2000 and CT3000 and have not moved into pre-clinical or clinical trials. If we are unable +to advance CT2000 and CT3000 through pre-clinical and clinical trials, obtain regulatory approval and ultimately commercialize +CT2000 and CT3000, or if we experience significant delays in doing so, our business will be materially harmed; +● +CC8464 is in early-stage +development, and there is no guarantee that the results from prior clinical and preclinical studies will be indicative of +our ability to complete or the results to be obtained in the current or future studies and clinical trials. CC8464 is our +only compound in clinical development and advancing a different compound would require substantial time and resources as well +as being subject to the same risks and uncertainties as described here for CC8464; +● +Even if we obtain +and maintain approval for CC8464, CT2000 and CT3000 from the FDA, we may never obtain approval for them outside of the United +States, which would limit our market opportunities and adversely affect our business; +● +While we plan to +apply for orphan drug designation for CC8464 in the future, it may not effectively protect us from competition, and we may +be unable to obtain similar designations for our future compounds. For instance, if our competitors are able to obtain orphan +drug exclusivity for products that constitute the same drug and treat the same indications as our lead compounds before us, +we may not be able to have competing products approved by the applicable regulatory authority for a significant period of +time. To date, we have not submitted an application for orphan drug designation; +● +On December 23, +2023, we entered into the Benuvia License Agreement. We are dependent on the Benuvia License Agreement, and the termination +of the Benuvia License Agreement could have an adverse effect on our business; +● +If Benuvia does +not properly maintain or enforce the intellectual property underlying the Benuvia License Agreement, our competitive position +and business prospects could be harmed. Benuvia may also seek to terminate our license; +28 +● +If the +market opportunities for CC8464, CT2000, CT3000 or our future compounds are smaller than we believe they are, our revenues +may be adversely impacted, and our business may suffer; +● +Government price +controls or other changes in pricing regulation could restrict the amount that we are able to charge for CC8464, CT2000 and +CT3000, if approved, or any of our other future compounds that may be approved in the future, which would adversely affect +our revenue and results of operations; +● +If we are unable +to obtain and maintain adequate U.S. and foreign patent protection for our compounds, including CC8464, CT2000 and CT3000, +or if the scope of the patent protection obtained is not sufficiently broad, our competitors could develop and commercialize +products and technologies similar or identical to ours, and our ability to successfully commercialize CC8464, CT2000, CT3000 +and any of our other current or future compounds may be adversely affected; +● +We could issue “blank +check” preferred stock without stockholder approval with the effect of diluting then current stockholder interests and +impairing their voting rights; and provisions in our charter documents could discourage a takeover that stockholders may consider +favorable; +● +Our articles of +incorporation (which, as may be amended and/or restated, we refer to as our “articles of incorporation”) designate +the Second Judicial District Court, in and for the State of Nevada, located in Washoe County, Nevada, as the exclusive forum +for certain types of actions and proceedings that may be initiated by our stockholders, which could limit stockholders’ +ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or agents; +● +The other factors +set forth under “Risk Factors.” +These +and other risks are more fully described in the section entitled “Risk Factors” in this Report. If any of these risks +actually occurs, our business, financial condition, results of operations, cash flows, and prospects could be materially and adversely +affected. As a result, you could lose all or part of your investment in our securities. +Risks +Related to Our Business +The +report of the independent registered public accounting firm on our 2024 and 2023 financial statements contains a going concern +qualification. +The +report of the independent registered public accounting firm covering our consolidated financial statements for the years ended +December 31, 2024 and 2023 stated that certain factors, including that we have suffered recurring losses from operations and have +an accumulated deficit at December 31, 2024, raised substantial doubt as to our ability to continue as a going concern. Because +we are not yet producing sufficient revenue to sustain our operating costs, we are dependent upon raising capital to continue +our business. If we are unable to raise capital, we may be unable to continue as a going concern. +We +are a clinical stage biopharmaceutical company with a limited operating history. +The +operations of our company, contributed to us by Chromocell Holdings, to date have been limited to financing and staffing our Company, +developing and licensing compounds, conducting preclinical and clinical studies of CC8464 for EM and iSFN, CT2000 for eye pain, +CT3000 for post-surgical pain and other pain indications. We have not yet demonstrated the ability to successfully complete a +large-scale, pivotal clinical trial, obtain marketing approval, manufacture a commercial scale product, arrange for a third party +to do so on our behalf, or conduct sales and marketing activities necessary for successful product commercialization. Consequently, +predictions about our future success or viability may not be as accurate as they could be if we had a history of successfully +developing and commercializing pharmaceutical products. +29 +Accordingly, +you should consider our prospects in light of the costs, uncertainties, delays and difficulties frequently encountered by companies +in the early stages of development, especially early-stage clinical pharmaceutical companies such as ours. Potential investors +should carefully consider the risks and uncertainties that a company with a limited operating history will face. In particular, +potential investors should consider that we cannot assure you that we will be able to, among other things: +● +successfully implement +or execute our current business plan, and we cannot assure you that our business plan will lead to an approval or successful +commercialization; +● +successfully manufacture +our compounds and establish commercial supply; +● +successfully complete +the clinical trials necessary to obtain regulatory approval for the marketing of CC8464, CT2000 and CT3000; +● +secure market exclusivity +and/or adequate intellectual property rights for our compounds in each jurisdiction in which we do or plan to commercialize +our compounds or where our competitors are organized or may engage in competitive activity; +● +attract and retain +an experienced management and advisory team; +● +secure acceptance +of our compounds in the medical community and with third-party payors and consumers; +● +raise sufficient +funds in the capital markets or otherwise to effectuate our business plan; and +● +utilize the funds +that we do have and/or raise in the future to efficiently execute our business strategy. +If +we cannot successfully execute any one of the foregoing, our business may fail, and your investment will be adversely affected. +We +have incurred net losses since inception. We expect to incur losses for the foreseeable future and may never achieve or maintain +profitability. +There +are numerous risks and uncertainties associated with pharmaceutical product and biological development, and we are unable to accurately +predict the timing or amount of increased expenses or when, or if, we will be able to achieve profitability. +We +have had net losses since inception, and we had an accumulated deficit of approximately $21.5 million and $13.5 million as of +December 31, 2024 and December 31, 2023, respectively, which includes a net loss of approximately $8.0 million for year ended +December 31, 2024, and approximately $7.4 million the year ended December 31, 2023, respectively. Overall, these conditions have +raised substantial doubt regarding our ability to continue as a going concern beyond one year of the filing of our consolidated +financial statements. Our ability to continue as a going concern is dependent upon the ability to complete clinical studies and +implement our business plan, raise capital, generate sufficient revenues and to control operating expenses. +We +have primarily financed our operations through a combination of a series of cash advances, equity raises, bridge and promissory +note issuances, licensing arrangements, government grants and the IPO (from which we raised net proceeds of approximately $5.7 +million, after deducting underwriting discounts, commissions and other offering expenses). Our ability to achieve significant +profitability depends on our ability to successfully complete the development of, and obtain the regulatory approvals necessary +to commercialize, CC8464, CT2000, CT3000 and/or additional compounds. We expect that it will take several years, if ever, before +we have a commercialized compound. The net losses we incur may fluctuate significantly from quarter to quarter. +30 +If +we are required by the FDA, the EMA, or other international regulatory authorities to which we may be subject, to perform studies +in addition to those currently expected, or if there are any delays in completing our clinical trials or the development of CC8464, +CT2000, CT3000 and/or other future compounds, our expenses could increase and revenue could be further delayed. We anticipate +that our expenses will increase substantially if, and as, we: +● +continue our research +and the clinical development of CC8464, CT2000 and CT3000; +● +launch +human proof of concept of CT2000 for the treatment of eye pain; +● +conduct +CMC and develop GMP formulations and human proof of concept of CT3000 for the treatment of post-surgical pain; +● +initiate additional +clinical trials and preclinical studies for any additional compounds that we may pursue in the future; +● +prepare an NDA for +filing with the FDA, a marketing authorization application, and approvals in certain other countries; +● +oversee the manufacturing +of material for clinical trials or potential commercial sales; +● +develop a portfolio +of compounds; +● +establish a business +development operation to in- our out-license certain assets; +● +establish a sales, +marketing and distribution infrastructure to commercialize any compound for which we may obtain marketing approval; +● +develop, maintain, +expand, protect and enforce our intellectual property rights portfolio; and/or +● +acquire or in-license +other compounds and technologies. +To +become and remain profitable, we must develop and eventually commercialize one or more compounds with significant market potential. +This will require us to be successful in a range of challenging activities, including completing the clinical trials, developing +and validating commercial scale manufacturing processes, obtaining marketing approval for our compounds, manufacturing, and marketing. +Licensing and selling any future compounds for which we may obtain marketing approval and satisfying any post-marketing requirements. +If we were required to discontinue development of CC8464, CT2000 or CT3000, if CC8464, CT2000 or CT3000 does not receive regulatory +approval, if we do not obtain our targeted indication(s) for CC8464, CT2000 or CT3000, or if CC8464, CT2000 pr CT3000 fails to +achieve sufficient market acceptance for any indication, we could be delayed by many years in our ability to achieve profitability. +Our failure to become and remain profitable would decrease the value of our company and could impair our ability to raise capital, +maintain our research and development efforts, expand our business or continue our operations. A decline in the value of our company +also could cause you to lose all or part of your investment. +Our +business could be adversely impacted if there are deficiencies in our disclosure controls and procedures or our internal control +over financial reporting. +The +design and effectiveness of our disclosure controls and procedures and our internal control over financial reporting may not prevent +all errors, misstatements or misrepresentations. There can be no guarantee that our disclosure controls and procedures and internal +control over financial reporting will be effective in accomplishing all control objectives all of the time. Deficiencies, including +any material weaknesses, in our disclosure controls and procedures or internal control over financial reporting could result in +misstatements of our results of operations or our consolidated financial statements or could otherwise materially and adversely +affect our business, reputation, results of operations, financial condition or liquidity. +31 +We +have identified material weaknesses in our internal control over financial reporting. +Prior +to our IPO, we were a private company and had limited accounting and financial reporting personnel and other resources with which +to address our internal controls and related procedures. In connection with the audit and review, as applicable, of our consolidated +financial statements for the years ended December 31, 2024 and 2023, we identified material weaknesses in our internal control +over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial +reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial +statements will not be prevented or detected on a timely basis. The material weaknesses in our case arose from inadequate segregation +of duties, ineffective information technology controls and lack of certain financial reporting and transaction processing controls. +If we are unable to remedy our material weaknesses, or if we generally fail to establish and maintain effective internal controls +appropriate for a public company, we may be unable to produce timely and accurate consolidated financial statements, and we may +conclude that our internal control over financial reporting is not effective, which could adversely impact our investors’ +confidence and our stock price. +We +will need to raise additional funding to receive approval for CC8464, CT2000, CT3000 or any other future compound. Such funding +may not be available on acceptable terms, or at all. Failure to obtain this necessary capital when needed may force us to delay, +limit, sell or terminate certain of our product development efforts or other operations. +To +complete the process of obtaining regulatory approval for CC8464, CT2000 and CT3000 and to build the sales, marketing, licensing +and distribution infrastructure that we believe will be necessary to commercialize CC8464, CT2000 and CT3000, if approved, we +will require substantial additional funding. In addition, if we obtain marketing approval for CC8464, CT2000 and CT3000, we expect +to incur significant expenses related to product sales, medical affairs, marketing, manufacturing and distribution. +Our +future capital requirements will depend on many factors, including: +● +the progress, timing, +results and costs of our dose escalation and phase 2 clinical trial for CC8464; +● +the +progress, timing, results and costs of our human POC trials for CT2000; +● +the +progress, timing, results and costs of our GMP manufacturing and human POC for CT3000; +● +the progress, timing +and costs of manufacturing clinical trial for our planned pivotal clinical trials; +● +the potential development +and the filing on an IND application for other future compounds; +● +the initiation, +scope, progress, timing, costs and results of drug discovery, laboratory testing, manufacturing, preclinical studies and clinical +trials for any other future compounds that we may pursue in the future, if any; +● +the outcome, timing +and costs of seeking regulatory approvals; +● +the costs associated +with the manufacturing process development and evaluation of third-party manufacturers; +● +the costs of future +activities, including product sales, medical affairs, marketing, manufacturing and distribution, in the event we receive marketing +approval for CC8464, CT2000, CT3000 or any other future compounds we may develop; +● +the extent to which +the costs of future compounds, if approved, will be paid by health maintenance, managed care, pharmacy benefit and similar +healthcare management organizations, or will be reimbursed by government authorities, private health coverage insurers and +other third-party payors; +32 +● +the costs of commercialization +activities for CC8464, CT2000, CT3000 and other future compounds if we receive marketing approval for CC8464, CT2000, CT3000 +or any other future compounds we may develop, including the costs and timing of establishing product sales, medical affairs, +marketing, distribution and manufacturing capabilities; +● +subject to receipt +of marketing approval, if any, revenue received from commercial sale of CC8464, CT2000, CT3000 or any of our other future +compounds; +● +the terms and timing +of any future collaborations, licensing, consulting or other arrangements that we may establish; +● +the amount and timing +of any payments we may be required or decide to make, or that we may receive, in connection with the licensing, filing, prosecution, +maintenance, and enforcement of any patents or other intellectual property rights and defense against third party intellectual +property infringement claims, including milestone and royalty payments and patent prosecution fees that we are obligated to +pay pursuant to our license agreements, if any; +● +the development +of alternative treatments for EM or iSFN or other pain indications; +● +our ability to establish +and maintain collaborations and licenses on favorable terms, if at all; and +● +the extent to which +we acquire or in-license other compounds and technologies. +Identifying +potential compounds and conducting preclinical testing and clinical trials is a time-consuming, expensive and uncertain process +that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval and +achieve product sales. Our lead compounds, if approved, may not achieve commercial success. Our future compound’s revenues, +if any, will be derived from or based on sales of compounds that may not be commercially available for many years, if at all. +Accordingly, it is unlikely that we will generate product or licensing revenue during the next twelve months and will need to +continue to rely on additional financing to achieve our business objectives. Any additional fundraising efforts may divert our +management from their day-to-day activities, which may adversely affect our ability to develop and commercialize future compounds. +Moreover, the terms of any financing may adversely affect the holdings or the rights of our stockholders and the issuance of additional +securities, whether equity or debt, by us, or the possibility of such issuance, may cause the market price of our shares to decline. +The sale of additional equity or convertible securities would dilute all our stockholders. The incurrence of indebtedness would +result in increased fixed payment obligations and a portion of our operating cash flows, if any, being dedicated to the payment +of principal and interest on such indebtedness, and we may be required to agree to certain restrictive covenants, such as limitations +on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and +other operating restrictions that could adversely impact our ability to conduct our business. Furthermore, existing securityholders +may not agree with our financing plans or the terms of such financings. Adequate additional financing may not be available to +us on acceptable terms, or at all. The terms of additional financing may be impacted by, among other things, general market conditions, +and the market’s perception of future compounds. If adequate funds are not available, we may be required to curtail our +operations or other business activities or obtain funds through arrangements with strategic partners or others that may require +us to relinquish rights to certain technologies or potential markets. +We +may be subject to litigation for a variety of claims, which could adversely affect our results of operations, harm our reputation +or otherwise negatively impact our business. +We +may be subject to litigation for a variety of claims arising from our normal business activities. These may include claims, suits, +and proceedings involving labor and employment, wage and hour, commercial and other matters. The outcome of any litigation, regardless +of its merits, is inherently uncertain. Any claims and lawsuits, and the disposition of such claims and lawsuits, could be time-consuming +and expensive to resolve, divert management attention and resources, and lead to attempts on the part of other parties to pursue +similar claims. Any adverse determination related to litigation could adversely affect our results of operations, harm our reputation +or otherwise negatively impact our business. In addition, depending on the nature and timing of any such dispute, a resolution +of a legal matter could materially affect our future operating results, our cash flows or both. +33 +Risks +Related to Development, Clinical Testing, and Regulatory Approval +We +are early in our efforts to develop CC8464, which is the only compound that we have advanced into clinical development. If we +are unable to advance CC8464 through clinical trials, obtain regulatory approval and ultimately commercialize CC8464, or if we +experience significant delays in doing so, our business will be materially harmed. +We +are early in our development of CC8464. The development and commercialization of CC8464 (or any other compound that we may advance +towards clinical development in the future) is subject to many uncertainties, including the following: +● +successful enrollment +and completion of the two studies we are planning to conduct in the next phase of our clinical trials (Phase 2); +● +positive results +from our current and planned future clinical trials; +● +receipt of regulatory +approvals from applicable regulatory authorities; +● +successful development +of our internal manufacturing processes on an ongoing basis and maintenance of our potential future arrangements with third-party +manufacturers for clinical supply; +● +commercial launch +of CC8464, if and when approved, whether alone or in collaboration with others; and +● +acceptance of CC8464, +if and when approved, by patients, the medical community and third-party payors. +If +we fail in one or more of these factors, we could experience significant delays or an inability to successfully commercialize +CC8464, which would materially harm our business. If we do not receive regulatory approvals for CC8464, our business, financial +condition, results of operations and prospects could be materially and adversely affected. Advancing a different compound than +CC8464 towards clinical development would take substantial time and resources and be subject to the same risks as described here +for CC8464. +We +are early in our efforts to develop CT2000 and have not moved into clinical trials. If we are unable to advance CT2000 through +clinical trials, obtain regulatory approval and ultimately commercialize CT2000, or if we experience significant delays in doing +so, our business will be materially harmed. +We +are early in our development of CT2000. The development and commercialization of CT2000 (or any other compound that we may advance +towards clinical development in the future) is subject to many uncertainties, including the following: +● +successful final +completion of the formula for eye drops; +● +positive results +from our planned future pre-clinical and clinical trials; +● +receipt of regulatory +approvals from applicable regulatory authorities; +● +successful development +of our internal manufacturing processes on an ongoing basis and maintenance of our potential future arrangements with third-party +manufacturers for clinical supply; +● +commercial launch +of CT2000, if and when approved, whether alone or in collaboration with others; and +● +acceptance of CT2000, +if and when approved, by patients, the medical community and third-party payors. +If +we fail in one or more of these factors, we could experience significant delays or an inability to successfully commercialize +CT2000, which would materially harm our business. If we do not receive regulatory approvals for CT2000, our business, financial +condition, results of operations and prospects could be materially and adversely affected. Advancing a different compound than +CT2000 towards clinical development would take substantial time and resources and be subject to the same risks as described here +for CT2000. +34 +We +are early in our efforts to develop CT3000 and have not moved into clinical trials. If we are unable to advance CT3000 through +clinical trials, obtain regulatory approval and ultimately commercialize CT3000, or if we experience significant delays in doing +so, our business will be materially harmed. +We +are early in our development of CT3000. The development and commercialization of CT3000 (or any other compound that we may advance +towards clinical development in the future) is subject to many uncertainties, including the following: +● +successful final +completion of the formula for the nerve block; +● +positive results +from our planned future pre-clinical and clinical trials; +● +receipt of regulatory +approvals from applicable regulatory authorities; +● +successful development +of our internal manufacturing processes on an ongoing basis and maintenance of our potential future arrangements with third-party +manufacturers for clinical supply; +● +commercial launch +of CT3000, if and when approved, whether alone or in collaboration with others; and +● +acceptance of CT3000, +if and when approved, by patients, the medical community and third-party payors. +If +we fail in one or more of these factors, we could experience significant delays or an inability to successfully commercialize +CT3000, which would materially harm our business. If we do not receive regulatory approvals for CT3000, our business, financial +condition, results of operations and prospects could be materially and adversely affected. Advancing a different compound than +CT3000 towards clinical development would take substantial time and resources and be subject to the same risks as described here +for CT3000. +CC8464 +is in early-stage development, and there is no guarantee that the results from prior clinical and preclinical studies will be +indicative of our ability to complete or the results to be obtained in the current or future studies and clinical trials. CC8464 +is our only compound in clinical development and advancing a different compound would require substantial time and resources as +well as being subject to the same risks and uncertainties as described here for CC8464. +There +is no guarantee that results of our potential future clinical trials will be positive or that we will be able to complete this +or any potential future clinical trials on the anticipated timelines or at all. Furthermore, research and discoveries by us or +others may identify serious adverse events, undesirable side effects or other unexpected properties of our current and future +compounds, including CC8464, that could delay, prevent or cause the withdrawal of regulatory approval, limit the commercial potential, +or result in significant negative consequences following marketing approval. +The +regulatory authorities may not complete their review processes in a timely manner, or we may not be able to obtain regulatory +approval. Additional delays may result if an FDA Advisory Committee or other regulatory authority recommends non-approval or restrictions +on approval. In addition, we may experience delays or rejections based upon additional government regulation from future legislation +or administrative action, or changes in regulatory authority policy during the period of product development, clinical trials +and the review process. +Regulatory +authorities also may approve a future compound for more limited indications than requested or they may impose significant limitations +in the form of narrow indications, warnings or post-approval safety monitoring program. These regulatory authorities may require +precautions or contra-indications with respect to conditions of use or they may grant approval subject to the performance of costly +post-marketing clinical trials. In addition, regulatory authorities may not approve the labeling claims that are necessary or +desirable for the successful commercialization of CC8464. Any of the foregoing scenarios could materially harm the commercial +prospects for CC8464 and materially and adversely affect our business, financial condition, results of operations and prospects. +35 +We +may encounter substantial delays in our pre-clinical and clinical trials, or we may fail to demonstrate safety and efficacy to +the satisfaction of applicable regulatory authorities. +Before +obtaining marketing approval from regulatory authorities for the sale of our drug candidates, CC8464, CT2000 and CT3000 included, +we must conduct extensive clinical trials to demonstrate the safety and efficacy of the drug candidate for its intended indications. +Clinical trials are expensive, time consuming and uncertain as to outcome. We cannot guarantee that any clinical trials will be +conducted as planned or completed on schedule, if at all. A failure of one or more clinical trials can occur at any stage of testing. +Events that may prevent successful or timely completion of clinical development include: +● +delays in reaching +a consensus with regulatory authorities on trial design; +● +delays in opening +sites and recruiting suitable patients to participate in our clinical trials; +● +imposition of a +clinical hold by regulatory authorities as a result of a serious adverse event or concerns with a class of drug candidates, +or after an inspection of our clinical trial operations or trial sites; +● +delays in having +patients complete participation in a trial or return for post-treatment follow-up; +● +occurrence of serious +adverse events associated with the drug candidate that are viewed to outweigh its potential benefits; or +● +changes in regulatory +requirements and guidance that require amending or submitting new clinical protocols. +In +addition, if we have to make manufacturing or formulation changes to CC8464, CT2000 and CT3000, we would need to conduct additional +studies to bridge our modified compound to earlier versions. Clinical trial delays could also shorten any periods during which +we may have the exclusive right to commercialize CC8464, CT2000, and CT3000, or allow our competitors to bring products to market +before we do, which could limit our potential revenue or impair our ability to successfully commercialize CC8464, CT2000 and CT3000 +and may harm our business, financial condition, results of operations and prospects. Any delays, setbacks or failures in our clinical +trials could materially and adversely affect our business, financial condition, results of operations and prospects. +Additionally, +if the results of our clinical trials are inconclusive or if there are safety concerns or serious adverse events associated with +our drug candidates, we may: +● +be delayed in obtaining +marketing approval, if at all, or be required to conduct additional confirmatory safety and/or efficacy studies causing additional +expenses; +● +obtain approval +for indications or patient populations that are not as broad as intended or desired; +● +obtain approval +with labeling that includes significant use or distribution restrictions or safety warnings; +● +be subject to additional +post-marketing testing requirements; +● +be required to perform +additional clinical trials to support approval or be subject to additional post-marketing testing requirements; +● +have regulatory +authorities withdraw, or suspend, their approval of the drug or impose restrictions on its distribution; +● +be subject to the +addition of labeling statements, such as warnings or contraindications; +● +be sued; or +36 +● +experience damage +to our reputation. +As +CC8464 is our only compound in clinical development, any setback may have a significant negative effect on our business. +Our +drug development costs will increase if we experience delays in testing or obtaining marketing approvals. We do not know whether +any of our preclinical studies or clinical trials will begin as planned, need to be restructured or be completed on schedule, +if at all. +We, +the FDA or an Institutional Review Board may suspend our clinical trials at any time if it appears that we or our collaborators +are failing to conduct a trial in accordance with regulatory requirements, including the FDA’s current GCP, regulations, +that we are exposing participants to unacceptable health risks, or if the FDA finds deficiencies in our IND applications or the +conduct of these trials. Therefore, we cannot predict with any certainty the schedule for commencement and completion of future +clinical trials. If we experience delays in the commencement or completion of our clinical trials, or if we terminate a clinical +trial prior to completion, the commercial prospects of our drug candidates could be negatively impacted, and our ability to generate +revenues from our drug candidates may be delayed. As CC8464 is our only compound in clinical development, any setback may have +a significant negative effect on our business. +Even +if we complete the necessary clinical trials, we cannot predict when, or if, we will obtain regulatory approval to commercialize +CC8464, CT2000 and CT3000 and the approval may be for a narrower indication than we seek. +We +cannot commercialize a compound until the appropriate regulatory authorities have reviewed and approved the compound. Even if +CC8464, CT2000 and CT3000 meet their respective safety and efficacy endpoints in clinical trials, the regulatory authorities may +not complete their review processes in a timely manner, or we may not be able to obtain regulatory approval. Additional delays +may result if an FDA Advisory Committee or other regulatory authority recommends non-approval or restrictions on approval. In +addition, we may experience delays or rejections based upon additional government regulation from future legislation or administrative +action, or changes in regulatory authority policy during the period of product development, clinical trials and the review process. +Regulatory +authorities also may approve a compound for more limited indications than requested or they may impose significant limitations +in the form of narrow indications, warnings or a post-approval safety monitoring program. These regulatory authorities may require +precautions or contra-indications with respect to conditions of use or they may grant approval subject to the performance of costly +post-marketing clinical trials. In addition, regulatory authorities may not approve the labeling claims that are necessary or +desirable for the successful commercialization of CC8464, CT2000 and CT3000. Any of the foregoing scenarios could materially harm +the commercial prospects for CC8464, CT2000 and CT3000 and materially and adversely affect our business, financial condition, +results of operations and prospects as CC8464 is our only compound in clinical development and CT2000 and CT3000 have not yet +entered pre-clinical trials. +CC8464, +CT2000 and CT3000 may cause undesirable side effects or have other properties that could delay or prevent its regulatory approval, +limit the commercial potential or result in significant negative consequences following any potential marketing approval. +Our +Phase 1 clinical trials have shown that CC8464 can lead to rashes. In addition to this side effect and possibly others caused +by CC8464, the administration process or related procedures also can cause adverse side effects. If any such adverse events occur, +our clinical trials could be suspended or terminated. If in the future we are unable to demonstrate that such adverse events were +caused by the administration process or related procedures, the FDA, the European Commission, the EMA or other regulatory authorities +could order us to cease further development of, or deny approval of, CC8464 for any or all targeted indications. Even if we can +demonstrate that any serious adverse events are not product-related, such occurrences could affect patient recruitment or the +ability of enrolled patients to complete the trial. Moreover, if we elect, or are required, to delay, suspend or terminate any +clinical trial of CC8464, the commercial prospects of such compound may be harmed and our ability to generate revenues from this +compound may be delayed or eliminated. Any of these occurrences may harm our ability to develop other product candidates, and +may harm our business, financial condition and prospects significantly. As CC8464 is our only compound in clinical development, +any setback may have a significant negative effect on our business. +37 +Additionally, +if CC8464 receives marketing approval, the FDA could require us to adopt a post-approval safety monitoring program to ensure that +the benefits outweigh its risks, which may include, among other things, a medication guide outlining the risks of the product +for distribution to patients and a communication plan to health care practitioners. Furthermore, if we or others later identify +undesirable side effects caused by CC8464, several potentially significant negative consequences could result, including: +● +regulatory authorities +may suspend or withdraw approvals of such compound; +● +regulatory authorities +may require additional warnings on the label; +● +we may be required +to change the way a compound is administered or conduct additional clinical trials; +● +we could be sued +and held liable for harm caused to patients; and +● +our reputation may +suffer. +Any +of these events could prevent us from achieving or maintaining market acceptance of CC8464 and could significantly harm our business, +financial condition, results of operations and prospects. +Additionally, +other regulatory regimes in other geographies, such as the European Union, India and Japan, where we are initially targeting our +products, may impose similar conditions or post-monitoring requirements as a result of such findings. +We +have yet to begin evaluating CT2000 and CT3000 in humans to determine if it has any side effects, but could face similar or other +issues, including but not limited to the disclosures set forth above for CC8464 with respect to FDA approval, ongoing monitoring +programs and label requirements. +CC8464, +CT2000 and CT3000 are based on specific modes of administration (dose escalation regime, eye drops and injection, respectively), +which makes it difficult to predict the time and cost of development and of subsequently obtaining regulatory approval. +The +clinical trial requirements of the FDA, EMA and other regulatory authorities and the criteria these regulators use to determine +the safety and efficacy of a compound vary substantially according to the type, complexity, novelty and intended use and market +of such compounds. The regulatory approval process for novel compounds such as ours can be more expensive and take longer than +for other, better known or more extensively studied compounds. +Regulatory +requirements governing pain medication products have been changing as side effects and the addictive nature of opioids became +more apparent. The regulatory framework for pain medications has been tightened and these changes may affect our programs and +its commercial potential despite our expectations that CC8464 will not show addictive features. While we are subject to the FDA +and EMA regulatory regimes, these are not the only regulatory regimes to which we may be subject in the event we are able to execute +on our objectives. +These +regulatory review committees and advisory groups and the new guidelines they promulgate may lengthen the regulatory review process, +require us to perform additional studies, increase our development costs, lead to changes in regulatory positions and interpretations, +delay or prevent approval and commercialization of CC8464, CT2000 and CT3000 or future compounds or lead to significant post-approval +limitations or restrictions. As we advance CC8464, CT2000 and CT3000, we will be required to consult with these regulatory and +advisory groups and comply with applicable guidelines. If we fail to do so, we may be required to delay or discontinue development +of CC8464, CT2000 and CT3000. These additional processes may result in a review and approval process that is longer than we otherwise +would have expected. Delay or failure to obtain, or unexpected costs in obtaining, the regulatory approval necessary to bring +a potential product to market could decrease our ability to generate sufficient product revenue, and our business, financial condition, +results of operations and prospects would be materially and adversely affected. +38 +Even +if we obtain regulatory approval for CC8464, CT2000 and CT3000, our compounds will remain subject to regulatory oversight. +Even +if we obtain any regulatory approval for CC8464, CT2000 and CT3000, our lead compounds, they will be subject to ongoing regulatory +requirements for manufacturing, labeling, packaging, storage, advertising, promotion, sampling, record-keeping and submission +of safety and other post-market information. Any regulatory approvals that we receive for CC8464, CT2000 and CT3000 may also be +subject to a post-approval safety monitoring program, limitations on the approved indicated uses for which the product may be +marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase +4 clinical trials, and surveillance to monitor the quality, safety and efficacy of the product. For example, the holder of an +approved NDA is obligated to monitor and report adverse events and any failure of a product to meet the specifications in the +NDA. The holder of an approved NDA also must submit new or supplemental applications and obtain FDA approval for certain changes +to the approved product, product labeling or manufacturing process. Advertising and promotional materials must comply with FDA +rules and are subject to FDA review, in addition to other potentially applicable federal and state laws. +In +addition, product manufacturers and their facilities are subject to payment of user fees and continual review and periodic inspections +by the FDA and other regulatory authorities for compliance with cGMP requirements and adherence to commitments made in the NDA +or foreign marketing application. If we, or a regulatory authority, discover previously unknown problems with a product, such +as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured or disagrees +with the promotion, marketing or labeling of that product, a regulatory authority may impose restrictions relative to that product, +the manufacturing facility or us, including requiring recall or withdrawal of the product from the market or suspension of manufacturing. +If +we fail to comply with applicable regulatory requirements following approval of CC8464, CT2000, CT3000 or any future compound, +a regulatory authority may: +● +issue a warning +letter asserting that we are in violation of the law; +● +seek an injunction +or impose administrative, civil or criminal penalties or monetary fines; +● +suspend or withdraw +regulatory approval; +● +suspend any ongoing +clinical trials; +● +refuse to approve +a pending NDA or comparable foreign marketing application (or any supplements thereto) submitted by us or our strategic partners; +● +restrict the marketing +or manufacturing of the product; +● +seize or detain +the product or otherwise require the withdrawal of the product from the market; +● +refuse to permit +the import or export of compounds; or +● +refuse to allow +us to enter into supply contracts, including government contracts. +Any +government investigation of alleged violations of law could require us to expend significant time and resources in response and +could generate negative publicity. The occurrence of any event or penalty described above may inhibit our ability to commercialize +CC8464, CT2000 and CT3000 and adversely affect our business, financial condition, results of operations and prospects. +The +FDA’s policies, and those of equivalent foreign regulatory agencies, may change and additional government regulations may +be enacted that could prevent, limit or delay regulatory approval of CC8464, CT2000 and CT3000. We cannot predict the likelihood, +nature or extent of government regulation that may arise from future legislation or administrative action, either in the United +States or abroad. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or +policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained +and we may not achieve or sustain profitability, which would materially and adversely affect our business, financial condition, +results of operations and prospects. +39 +Even +if we obtain and maintain approval for CC8464, CT2000 and CT3000 from the FDA, we may never obtain approval for them outside of +the United States, which would limit our market opportunities and adversely affect our business. +Approval +of a compound in the United States by the FDA does not ensure approval of such compound by regulatory authorities in other countries +or jurisdictions, and approval by one foreign regulatory authority does not ensure approval by regulatory authorities in other +foreign countries or by the FDA. Sales of CC8464, CT2000 and CT3000 or other future compounds outside of the United States will +be subject to foreign regulatory requirements governing clinical trials and marketing approval. Even if the FDA grants marketing +approval for a compound, comparable regulatory authorities of foreign countries also must approve the manufacturing and marketing +of the compound in those countries. Approval procedures vary among jurisdictions and can involve requirements and administrative +review periods different from, and more onerous than, those in the United States, including additional preclinical studies or +clinical trials. In many countries outside the United States, a compound must be approved for reimbursement before it can be approved +for sale in that country. In some cases, the price that we intend to charge for our compounds, if approved, is also subject to +approval. We intend to submit a marketing authorization application to the EMA for approval of CC8464, CT2000 and CT3000 in the +European Union, but obtaining such approval from the European Commission following the opinion of the EMA is a lengthy and expensive +process. Even if a compound is approved, the FDA or the European Commission, as the case may be, may limit the indications for +which the product may be marketed, require extensive warnings on the product labeling or require expensive and time-consuming +additional clinical trials or reporting as conditions of approval. Regulatory authorities in countries outside of the United States +and the European Union also have requirements for approval of compounds with which we must comply prior to marketing in those +countries. Obtaining foreign regulatory approvals and compliance with foreign regulatory requirements could result in significant +delays, difficulties and costs for us and could delay or prevent the introduction of our compounds in certain countries. +Further, +clinical trials conducted in one country may not be accepted by regulatory authorities in other countries. Also, regulatory approval +for any of our compounds may be withdrawn. If we fail to comply with the regulatory requirements, our target market will be reduced +and our ability to realize the full market potential of CC8464, CT2000, CT3000 or our future compounds will be harmed and our +business, financial condition, results of operations and prospects will be adversely affected. +While +we plan to apply for orphan drug designation for CC8464 in the future, it may not effectively protect us from competition, and +we may be unable to obtain similar designations for our future compounds. For instance, if our competitors are able to obtain +orphan drug exclusivity for products that constitute the same drug and treat the same indications as our lead compounds before +us, we may not be able to have competing products approved by the applicable regulatory authority for a significant period of +time. To date, we have not submitted an application for orphan drug designation. +In +connection with the application for one of our two lead compounds, CC8464, for the treatment of EM and iSFN, we also plan to seek +orphan drug designation from the FDA. As of the date of this Report, we have not submitted an application for orphan drug designation +for CC8464. Under the Orphan Drug Act of 1983, the FDA may designate a compound as an orphan drug if it is intended to treat a +rare disease or condition, which is generally defined as having a patient population of fewer than 200,000 individuals in the +United States, or a patient population greater than 200,000 in the United States where there is no reasonable expectation that +the cost of developing the drug will be recovered from sales in the United States. +Generally, +if a compound with an orphan drug designation receives the first marketing approval for the indication for which it has such designation, +the product is entitled to a period of marketing exclusivity, which precludes the FDA from approving another marketing application +for a product that constitutes the same drug treating the same indication for that marketing exclusivity period, except in limited +circumstances. If another sponsor receives such approval before we do (regardless of our orphan drug designation), we will be +precluded from receiving marketing approval for our product for the applicable exclusivity period. The applicable period is seven +years in the United States. +40 +Even +though we may obtain orphan drug exclusivity for CC8464, that exclusivity may not effectively protect the compound from competition +because different drugs can be approved for the same condition. In the United States, even after an orphan drug is approved, the +FDA may subsequently approve another drug for the same condition if the FDA concludes that the latter drug is not the same drug +or is clinically superior in that it is shown to be safer, more effective or makes a major contribution to patient care. In the +European Union, marketing authorization may be granted to a similar medicinal product for the same orphan indication if: +● +the second applicant +can establish in its application that its medicinal product, although like the orphan medicinal product already authorized, +is safer, more effective or otherwise clinically superior; +● +the holder of the +marketing authorization for the original orphan medicinal product consents to a second orphan medicinal product application; +or +● +the holder of the +marketing authorization for the original orphan medicinal product cannot supply enough quantities of orphan medicinal product. +If +we are not able to secure an orphan drug designation, or if the exclusivity associated with such designation does not effectively +protect us from competition, our business, financial condition, results of operations and prospects will be adversely affected. +FDA +designations to expedite drug development and review, including “orphan drug” designation, Breakthrough Therapy designation, +and/or Fast Track designation, even if granted for any of our compounds, may not lead to a faster development, regulatory review +or approval process and do not increase the likelihood that any of our compounds will receive marketing approval in the United +States. +As +with any future application for “orphan drug” designation for CC8464 from the FDA, there is no assurance that any +of our other compounds that we may develop in the future will receive a similar designation from the FDA or that we will receive +Breakthrough Therapy or Fast Track designations for our compounds. Further, even if we do receive favorable designations from +the FDA, the receipt of any of these designations may not result in a faster development process, review or approval compared +to products considered for approval under conventional FDA procedures and does not assure ultimate approval by the FDA. +We +may expend our limited resources to pursue a compound or indication and fail to capitalize on our compounds or indications that +may be more profitable or for which there is a greater likelihood of success. +We +have limited financial and managerial resources. As a result, we may forego or delay pursuit of opportunities with other of our +compounds or for other indications that later prove to have greater commercial potential. Our resource allocation decisions may +cause us to fail to timely capitalize on viable commercial products or profitable market opportunities. Our spending on current +and future research and development programs and our lead compounds for specific indications may not yield any commercially viable +products. If we do not accurately evaluate the commercial potential or target market for a particular compound, we may relinquish +valuable rights to that compound through collaboration, licensing or other royalty arrangements in cases in which it would have +been more advantageous for us to retain sole development and commercialization rights to such compound. +If +we are not successful in discovering, developing and commercializing additional compounds, our ability to expand our business +and achieve our strategic objectives would be impaired. +Although +a substantial amount of our effort initially focuses on developing CC8464, CT2000 and CT3000 towards approval in the U.S. and +other countries, an additional component of our strategy is to discover, develop and potentially commercialize a portfolio of +compounds to treat orphan diseases and potentially, non-orphan diseases. Identifying new compounds requires substantial technical, +financial and human resources, whether any other compounds are ultimately identified. We may not be able to identify new molecules +with the potential for clinical development and ultimate approval. Even if we identify new compounds that initially show promise, +we may fail to successfully develop and commercialize such new compounds for many reasons, including the following: +● +the research methodology +used may not be successful in identifying potential new compounds; +41 +● +competitors may +develop alternatives that render our compounds obsolete; +● +new compounds we +develop may nevertheless be covered by third parties’ patents or other exclusive rights; +● +a new compound may, +on further study, be shown to have harmful side effects or other characteristics that indicate it is unlikely to be effective +or otherwise does not meet applicable regulatory criteria; +● +a new compound may +not be capable of being produced in commercial quantities at an acceptable cost, or at all; and +● +a new compound may +not be accepted as safe and effective by patients, the medical community or third-party payors. +If +we are unsuccessful in identifying and developing additional new compounds, our potential for growth may be impaired. +We +face significant competition in an environment of rapid technological change and the possibility that our competitors may achieve +regulatory approval before us or develop therapies that are more advanced or effective than ours, which may adversely affect our +financial condition and our ability to successfully market or commercialize CC8464, CT2000 and CT3000. +Many +of our potential competitors, alone or with their strategic partners, have substantially greater financial, technical and other +resources, such as larger research and development, clinical, marketing and manufacturing organizations. Mergers and acquisitions +in the biotechnology and pharmaceutical industries may result in even more resources being concentrated among a smaller number +of competitors. Our commercial opportunity could be reduced or eliminated if competitors develop and commercialize products that +are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than any compound +that we may develop. Competitors also may obtain FDA or other regulatory approval for their products more rapidly or earlier than +we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able +to enter the market. Additionally, technologies developed by our competitors may render CC8464, CT2000 and CT3000 uneconomical +or obsolete, and we may not be successful in marketing CC8464, CT2000 and CT3000 against competitors. +In +addition, as a result of the expiration or successful challenge of our patent rights, we could face more litigation with respect +to the validity and/or scope of patents relating to our competitors’ products. The availability of our competitors’ +products could limit the demand, and the price we are able to charge, for any compound that we may develop and commercialize. +On +December 23, 2023, we entered into the Benuvia License Agreement. We are dependent on the Benuvia License Agreement, and the termination +of the Benuvia License Agreement could have an adverse effect on our business. +On +December 23, 2023, we entered into the Benuvia License Agreement for the Diclofenac Spray Formulation, the Rizatriptan Spray Formulation +and the Ondansetron Spray Formulation, diversifying our pipeline of non-opioid pain treatment therapies, while adding therapeutic +options for related conditions. The Diclofenac Spray Formulation is patented and has started clinical development in human volunteers. +Preliminary pharmacokinetics suggest that this formulation may have a faster onset of action than oral Diclofenac tablets. Diclofenac +is an NSAID that is also marketed under additional brand names including Voltaren and Cataflam in its pill form. Rizatriptan, +whose brand name is Maxalt, is used for the acute treatment of migraines as a pill. Ondansetron is an anti-emetic that is available +in oral and intravenous form. Under the terms of the Benuvia License Agreement, Benuvia will be responsible for the manufacturing +and supply of the Spray Formulations, but we will have exclusive, worldwide rights to develop, commercialize and distribute the +Spray Formulations. If we breach the Benuvia License Agreement, Benuvia may be able to terminate it, and as a result of this termination, +our business could be negatively impacted. +42 +If +Benuvia does not properly maintain or enforce the intellectual property underlying the Benuvia License Agreement, our competitive +position and business prospects could be harmed. Benuvia may also seek to terminate our license. +We +are a party to the Benuvia License Agreement. To this end, we are dependent on our license with Benuvia. Our success will depend +in part on the ability of Benuvia to obtain, maintain and enforce its licensed intellectual property. Benuvia may not successfully +prosecute any applications for or maintain intellectual property to which we have licenses, may determine not to pursue litigation +against other companies that are infringing such intellectual property, or may pursue such litigation less aggressively than we +would. Without protection for the intellectual property we license, other companies might be able to offer similar products for +sale, which could adversely affect our competitive business position and harm our business prospects. If we lose any of our right +to use third-party intellectual property, it could adversely affect our ability to commercialize our technologies, products or +services, as well as harm our competitive business position and our business prospects. +Rizatriptan +is an off-patent branded generic that can be manufactured and sold by other pharmaceutical manufacturers, which may increase the +competition we face and reduce our ability to diversify our pipeline of non-opioid pain treatment therapies, while adding therapeutic +options for related conditions under the Benuvia License Agreement. +Rizatriptan +is an off-patent branded generic pharmaceutical and is currently not protected by intellectual property rights. As a result, other +pharmaceutical companies may sell products similar to the Rizatriptan Spray Formulation at a lower cost, and this might result +in a commensurate loss in expected sales or require us to lower our prices to compete. If other pharmaceutical companies sell +products that are similar to the Rizatriptan Spray Formulation, we may face additional competition and our business and profitability +may be adversely affected, and our ability diversifying our pipeline of non-opioid pain treatment therapies, while adding therapeutic +options for related conditions under the Benuvia License Agreement may be reduced. +Risks +Related to Manufacturing +Delays +in obtaining regulatory approvals of the process and facilities needed to manufacture CC8464, CT2000, CT3000 or any of our other +compounds or disruptions in our manufacturing process may delay or disrupt our product development and commercialization efforts. +Before +we can begin to commercially manufacture CC8464, CT2000, CT3000 or any of our other compounds, whether in a third-party facility +or in our own facility, if established, we must pass a pre-approval inspection of our manufacturing facility by the FDA. A manufacturing +authorization must also be obtained from the appropriate regulatory authorities. The timeframe required for us to obtain such +approvals is uncertain. To obtain approval, we will need to ensure that all our processes, methods and equipment are compliant +with cGMP, and perform extensive audits of vendors, contract laboratories and suppliers. If any of our vendors, contract laboratories +or suppliers is found to be out of compliance with cGMP, we may experience delays or disruptions in manufacturing while we work +with these third parties to remedy the violation or while we work to identify suitable replacement vendors. The cGMP requirements +govern quality control of the manufacturing process and documentation policies and procedures. In complying with cGMP, we will +be obligated to expend time, money and effort in production, record keeping and quality control to assure that the product meets +applicable specifications and other requirements. If we fail to comply with these requirements, we would be subject to possible +regulatory action and may not be permitted to sell any compound that we may develop. +In +addition, the manufacturing process used to produce our existing compounds is complex, novel and has not been validated for commercial +use. To produce enough quantities of our existing compounds for future clinical trials and initial U.S. commercial demand, we +will need to increase the scale of our manufacturing process. We employ multiple steps to control our manufacturing process to +assure that the process works and that CC8464, CT2000 and CT3000 are made strictly and consistently in compliance with the process. +Problems with, or deviations from, the manufacturing process, even if minor, could result in product defects or manufacturing +failures that result in lot failures, product recalls, product liability claims or insufficient inventory. We may encounter problems +achieving adequate quantities and quality of clinical-grade materials that meet FDA, EMA or other applicable standards or specifications +with consistent and acceptable production yields and costs. +43 +Any +contamination in our manufacturing process, shortages of raw materials or failure of any of our key suppliers to deliver necessary +components could result in delays in our clinical development or marketing schedules. +Given +the nature of sterile product manufacturing, there is a risk of contamination. Any contamination could materially adversely affect +our ability to produce CC8464, CT2000 and CT3000 on schedule and could, therefore, harm our results of operations and cause reputational +damage. +Some +of the raw materials required in our manufacturing process may be derived from biologic sources. Such raw materials are difficult +to procure and may be subject to contamination or recall. A material shortage, contamination, recall or restriction on the use +of biologically derived substances in the manufacture of CC8464, CT2000 and CT3000 could adversely impact or disrupt the commercial +manufacturing or the production of clinical material, which could materially and adversely affect our development timelines and +our business, financial condition, results of operations and prospects. +Risks +Related to Commercialization of Our Compounds +If +we are unable to expand our market development capabilities or enter into agreements with third parties to market and sell our +compounds, we may be unable to generate any revenue. +We +currently do not have a market development organization. To successfully commercialize CC8464, CT2000 and CT3000, if approved, +we will need to expand our capabilities to promote market access and build awareness. To successfully commercialize any other +products that may result from our development programs, we will need to further expand our market development organization, either +on our own or with a third party. The development of our own market development team will be expensive and time-consuming and +could delay any product launch. Moreover, we cannot be certain that we will be able to successfully develop this capability. We +may enter into collaboration agreements regarding any of our compounds with third parties to utilize their established marketing +and distribution capabilities, but we may be unable to enter into such agreements on favorable terms, if at all. If any future +collaborators do not commit sufficient resources to commercialize our products, or we are unable to develop the necessary capabilities +on our own, we will be unable to generate sufficient product revenue to sustain our business. We compete with many companies that +currently have extensive, experienced and well-funded medical affairs, marketing and sales operations to recruit, hire, train +and retain marketing and sales personnel. We also face competition in our search for third parties to assist us with the sales +and marketing efforts of our compounds. Without an internal team or the support of a third party to perform marketing and sales +functions, we may be unable to compete successfully against these more established companies. +Our +efforts to educate the medical community and third-party payors on the benefits of our compounds may require significant resources +and may never be successful. Such efforts may require more resources than are typically required due to the complexity and uniqueness +of our potential products. If any of our compounds are approved but fails to achieve market acceptance among physicians, patients +or third-party payors, we will not be able to generate significant revenues from such product, which could have a material adverse +effect on our business, financial condition, results of operations and prospects. +If +the market opportunities for CC8464, CT2000, CT3000 or our future compounds are smaller than we believe they are, our revenues +may be adversely impacted, and our business may suffer. +We +are currently focusing our research and product development efforts on CC8464 for the management of EM and iSFN, CT2000 for acute +and chronic eye pain, CT3000 for post-surgical pain and, potentially, other fields of neuropathic pain. Our understanding of both +the number of people who have EM or iSFN, as well as the subset of people with either disease who have the potential to benefit +from treatment with CC8464, are based on estimates in published literature. Similarly, our understanding of the number of people +who could benefit from treatment with CT2000 and CT3000, are based on estimates in published literature. These estimates may prove +to be incorrect and new studies may reduce the estimated incidence or prevalence of this disease. The number of patients in the +United States, the European Union and elsewhere may turn out to be lower than expected or these patients may not be otherwise +amenable to treatment with CC8464, CT2000 and CT3000 or may become increasingly difficult to identify and access, all of which +would adversely affect our business, financial condition, results of operations and prospects. +Further, +there are several factors that could contribute to making the actual number of patients who receive CC8464, CT2000 and CT3000 +less than the potentially addressable market. These include the increased use of currently available medication for mild cases +as physicians gain a better understanding diagnosis and treatment of EM and iSFN, the discovery of novel medications for EM and +iSFN and the lack of widespread availability of, and limited reimbursement for, new therapies in many underdeveloped markets. +44 +Government +price controls or other changes in pricing regulation could restrict the amount that we are able to charge for CC8464, CT2000 +and CT3000, if approved, or any of our other future compounds that may be approved in the future, which would adversely affect +our revenue and results of operations. +We +expect that coverage and reimbursement of pharmaceutical costs may be increasingly restricted both in the U.S. and internationally. +The escalating cost of health care has led to increased pressure on the health care industry to reduce costs. Drug pricing by +pharmaceutical companies recently has come under increased scrutiny and continues to be subject to intense political and public +debate in the U.S. and abroad. Government and private third-party payors have proposed health care reforms and cost reductions. +A number of federal and state proposals to control the cost of health care, including the cost of drug treatments, have been made +in the US. Specifically, there have been several recent U.S. Congressional inquiries and proposed bills designed to, among other +things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient programs and +reform government program reimbursement methodologies for drugs. In some international markets, the government controls the pricing, +which can affect the profitability of drugs. Current government regulations and possible future legislation regarding health care +may affect coverage and reimbursement for medical treatment by third-party payors, which may render our compounds, if approved, +not commercially viable or may adversely affect our anticipated future revenues and gross margins. +We +cannot predict the extent to which our business may be affected by these or other potential future legislative or regulatory developments. +However, future price controls or other changes in pricing regulation or negative publicity related to the pricing of pharmaceutical +drugs generally could restrict the amount that we are able to charge for our future products, which would adversely affect our +anticipated revenue and results of operations. +The +insurance coverage and reimbursement status of newly approved products is uncertain. Failure to obtain or maintain adequate coverage +and reimbursement for our products, if approved, could limit our ability to market those products and decrease our ability to +generate product revenue. +We +expect that coverage and reimbursement by government and private payors will be essential for most patients to be able to afford +these treatments. Accordingly, sales of our compounds will depend substantially, both domestically and abroad, on the extent to +which the costs of our compounds will be paid by health maintenance, managed care, pharmacy benefit and similar healthcare management +organizations, or will be reimbursed by government authorities, private health coverage insurers and other third-party payors. +Coverage and reimbursement by a third- party payor may depend upon several factors, including the third-party payor’s determination +that use of a product is: +● +a covered benefit +under its health plan; +● +safe, effective +and medically necessary; +● +appropriate for +the specific patient; +● +cost-effective; +and +● +neither experimental +nor investigational. +Obtaining +coverage and reimbursement for a product from third-party payors is a time-consuming and costly process that could require us +to provide to the payor supporting scientific, clinical and cost-effectiveness data. We may not be able to provide data sufficient +to gain acceptance with respect to coverage and reimbursement. If coverage and reimbursement are not available, or are available +only at limited levels, we may not be able to successfully commercialize our compounds. Even if coverage is provided, the approved +reimbursement amount may not be adequate to realize a sufficient return on our investment. +45 +There +is significant uncertainty related to third-party coverage and reimbursement of newly approved products. In the United States, +third-party payors, including government payors such as the Medicare and Medicaid programs, play an important role in determining +the extent to which new drugs and biologics will be covered and reimbursed. The Medicare and Medicaid programs increasingly are +used as models for how private payors and government payors develop their coverage and reimbursement policies. +Outside +the United States, international operations generally are subject to extensive government price controls and other market regulations +and increasing emphasis on cost-containment initiatives in the European Union, Canada and other countries may put pricing pressure +on us. In many countries, the prices of medical products are subject to varying price control mechanisms as part of national health +systems. It also can take a significant amount of time after approval of a product to secure pricing and reimbursement for such +product in many counties outside the United States. In general, the prices of medicines under such systems are substantially lower +than in the United States. Other countries allow companies to fix their own prices for medical products but monitor and control +company profits. Additional foreign price controls or other changes in pricing regulation could restrict the amount that we are +able to charge for our compounds. Accordingly, in markets outside the United States, the reimbursement for our products will be +reduced compared with the United States and may be insufficient to generate commercially reasonable product revenues. +Moreover, +increasing efforts by government and third-party payors in the United States and abroad to cap or reduce healthcare costs may +cause such organizations to limit both coverage and the level of reimbursement for new products approved and, as a result, they +may not cover or provide adequate payment for our compounds. Payors increasingly are considering new metrics as the basis for +reimbursement rates, such as average sales price, average manufacturer price, and Actual Acquisition Cost. The existing data for +reimbursement based on some of these metrics is relatively limited, although certain states have begun to survey acquisition cost +data for the purpose of setting Medicaid reimbursement rates, and CMS has begun making pharmacy National Average Drug Acquisition +Cost and National Average Retail Price data publicly available on at least a monthly basis. Therefore, it may be difficult to +project the impact of these evolving reimbursement metrics on the willingness of payors to cover candidate products that we or +our partners are able to commercialize. We expect to experience pricing pressures in connection with the sale of any of our product +candidates due to the trend toward managed healthcare, the increasing influence of health maintenance organizations and additional +legislative changes. The downward pressure on healthcare costs in general, particularly prescription drugs and surgical procedures +and other treatments, has become intense. As a result, increasingly high barriers are being erected to the entry of new products +such as ours. +Risks +Related to Our Business Operations +We +may not be successful in our efforts to identify or discover additional compounds and may fail to capitalize on programs or compounds +that may be a greater commercial opportunity or for which there is a greater likelihood of success. +Beyond +the development and commercialization of CC8464, CT2000 and CT3000, the future success of our business depends upon our ability +to identify, develop and commercialize compounds based on the platform technology. CC8464, along with CT2000 and CT3000, which +were derived from CC8464, was discovered in our labs using our technologies. Research programs to identify new compounds will +require to invest substantial technical, financial and human resources. We may fail to identify other potential compounds for +clinical development for several reasons. For example, our research may be unsuccessful in identifying potential compounds or +our potential compounds may be shown to have harmful side effects, may be commercially impracticable to manufacture or may have +other characteristics that may make the products unmarketable or unlikely to receive marketing approval. +Additionally, +because we have limited resources, we may forego or delay pursuit of opportunities with certain programs or compounds or for indications +that later prove to have greater commercial potential. Our spending on current and future research and development programs may +not yield any commercially viable products. If we do not accurately evaluate the commercial potential for a particular compound, +we may relinquish valuable rights to that compound through strategic collaboration, licensing or other arrangements in cases in +which it would have been more advantageous for us to retain sole development and commercialization rights to such compound. Alternatively, +we may allocate internal resources to a compound in a therapeutic area in which it would have been more advantageous to enter +into a partnering arrangement. +46 +If +any of these events occur, we may be forced to abandon our development efforts with respect to a particular compound or fail to +develop a potentially successful compound, which could have a material adverse effect on our business, financial condition, results +of operations and prospects. +If +we are unable to manage expected growth in the scale and complexity of our operations, our performance may suffer. +If +we are successful in executing our business strategy, we will need to expand our managerial, operational, financial and other +systems and resources to manage our operations, continue our research and development activities and, in the longer term, build +a commercial infrastructure to support commercialization of any of our compounds that are approved for sale. Future growth would +impose significant added responsibilities on members of management. It is likely that our management, finance, development personnel, +systems and facilities currently in place may not be adequate to support this future growth. Our need to effectively manage our +operations, growth and our compounds requires that we continue to develop more robust business processes and improve our systems +and procedures in each of these areas and to attract and retain enough numbers of talented employees. We may be unable to successfully +implement these tasks on a larger scale and, accordingly, may not achieve our research, development and growth goals. +Our +future success depends on our ability to retain key employees and scientific advisors and to attract, retain and motivate qualified +personnel. +Our +success is dependent upon certain key management and technical personnel, the loss of whose services may adversely impact the +achievement of our objectives. Our Chief Executive Officer, Chief Financial Officer, Chief Medical Officer, Treasurer and Corporate +Secretary have played key roles in the founding, management, technology development and/or promotion of the Company. We currently +do not hold key man insurance on our executives. Even if we do seek to obtain such insurance, we cannot assure you that such insurance +will be available on acceptable terms or at all. The loss of the services of either our Chief Executive Officer, Chief Financial +Officer, Chief Medical Officer, Treasurer or Corporate Secretary could have a material adverse effect on our business, financial +condition, and results of operations. +We +employ additional staff that are critical to implementing our clinical development and business strategy, and further development +of our products will require that we recruit additional employees or consultants, particularly qualified scientific and technical +personnel. Any inability to retrain and attract key employees or advisors may impede the progress of our research, development +and commercialization objectives which could have a material adverse effect on our business, financial condition, results of operations +and prospects. In addition, failure to succeed in preclinical or clinical trials or applications for marketing approval may make +it more challenging to recruit and retain qualified personnel. +Our +employees, principal investigators and advisors may engage in misconduct or other improper activities, including non-compliance +with regulatory standards and requirements. +We +are exposed to the risk of fraud or other misconduct by our employees, principal investigators and advisors. Misconduct by these +parties could include intentional failures to comply with FDA regulations or the regulations applicable in the European Union +and other jurisdictions, provide accurate information to the FDA, the EMA and other regulatory authorities, comply with healthcare +fraud and abuse laws and regulations in the United States and abroad, report financial information or data accurately or disclose +unauthorized activities to us. Sales, marketing and business arrangements in the healthcare industry are subject to extensive +laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and +regulations restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive +programs and other business arrangements. Such misconduct also could involve the improper use of information obtained during clinical +trials or interactions with the FDA or other regulatory authorities, which could result in criminal and civil penalties or sanctions +and cause serious harm to our reputation. It is not always possible to identify and deter employee misconduct, and the precautions +we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting +us from government investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. +If any such actions are instituted against us and we are not successful in defending ourselves or asserting our rights, those +actions could have a significant impact on our business, financial condition, results of operations and prospects, including the +imposition of significant fines, criminal penalties, or other sanctions. +47 +In +addition, principal investigators for our clinical trials may serve as scientific advisors or consultants to us from time to time +and receive compensation in connection with such services. Under certain circumstances, we may be required to report some of these +relationships to the FDA. The FDA may conclude that a financial relationship between us and a principal investigator has created +a conflict of interest or otherwise affected interpretation of the trial. The FDA may therefore question the integrity of the +data generated at the applicable clinical trial site and the utility of the clinical trial itself may be jeopardized. This could +result in a delay in approval, or rejection, of our marketing applications by the FDA and may ultimately lead to the denial of +marketing approval of our current and future drug candidates. +We +may be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws, false claims laws and health information +privacy and security laws. If we are unable to comply, or have not fully complied, with such laws, we could face substantial penalties. +If +we obtain FDA approvals for CC8464, CT2000 and CT3000 and begin commercializing them in the United States, our operations will +be directly, or indirectly through our prescribers, customers and purchasers, subject to various federal and state fraud and abuse +laws and regulations, including, without limitation, the federal Anti-Kickback Statute, federal civil and criminal false claims +laws and the Physician Payments Sunshine Act and regulations. These laws will impact, among other things, our proposed sales, +marketing and educational programs. In addition, we may be subject to patient privacy laws by both the federal government and +the states in which we conduct our business as well as other jurisdictions. The laws that will affect our operations include, +but are not limited to: +● +the federal Anti-Kickback +Statute, which prohibits, among other things, persons or entities from knowingly and willfully soliciting, receiving, offering +or paying any remuneration (including any kickback, bribe or rebate), directly or indirectly, overtly or covertly, in cash +or in kind, in return for the purchase, recommendation, leasing or furnishing of an item or service reimbursable under a federal +healthcare program, such as the Medicare and Medicaid programs. This statute has been interpreted to apply to arrangements +between pharmaceutical manufacturers on the one hand, and prescribers, purchasers and formulary managers on the other. The +ACA amended the intent requirement of the federal Anti-Kickback Statute to clarify that a person or entity does not have to +have actual knowledge of this statute or specific intent to violate it; +● +federal civil and +criminal false claims laws and civil monetary penalty laws which prohibit, among other things, individuals or entities from +knowingly presenting, or causing to be presented, claims for payment or approval from Medicare, Medicaid or other government +payors that are false or fraudulent. The ACA provides that a claim for items or services resulting from an Anti-Kickback Statute +violation is a false claim under the FCA. Cases against pharmaceutical manufacturers support the view that certain marketing +practices, including off-label promotion, may implicate the FCA; +● +HIPAA, which created +new federal criminal statutes that prohibit a person from knowingly and willfully executing a scheme or from making false +or fraudulent statements to defraud any healthcare benefit program, regardless of the payor (e.g., public or private); +● +HIPAA, as amended +by HITECH, and its implementing regulations, and as amended again by the final HIPAA omnibus rule, Modifications to the HIPAA +Privacy, Security, Enforcement, and Breach Notification Rules under HITECH and the Genetic Information Nondiscrimination Act; +● +other modifications +to HIPAA, which imposes certain requirements relating to the privacy, security and transmission of individually identifiable +health information without appropriate authorization by entities subject to the rule, such as health plans, health care clearinghouses +and health care providers. +● +federal transparency +laws, including the federal Physician Payment Sunshine Act, that require certain manufacturers of drugs, devices, biologics +and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program, +with specific exceptions, to report annually to the CMS information related to: (i) payments or other “transfers of +value” made to physicians and teaching hospitals and (ii) ownership and investment interests held by physicians and +their immediate family members; +48 +● +state and foreign +law equivalents of each of the above federal laws, state laws that require drug manufacturers to report information related +to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures and state +laws governing the privacy and security of health information in certain circumstances, many of which differ from each other +in significant ways and may not have the same effect, thus complicating compliance efforts in certain circumstances, such +as specific disease states; and +● +state and foreign +laws that govern the privacy and security of health information in some circumstances, many of which differ from each other +in significant ways and often are not enrollment by HIPAA, thus complicating compliance efforts. +Because +of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some +of our business activities could be subject to challenge under one or more of such laws. If our operations are found to be in +violation of any of the laws described above or any other government regulations that apply to us, we may be subject to penalties, +including civil and criminal penalties, damages, fines, exclusion from participation in government health care programs, such +as Medicare and Medicaid, imprisonment and the curtailment or restructuring of our operations, any of which could adversely affect +our ability to operate our business and our results of operations. +Efforts +to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve +substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with +current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. +If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, +we may be subject to significant civil, criminal and administrative penalties, damages, fines, imprisonment, exclusion of products +from government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations. +The +risk of our being found in violation of these laws is increased by the fact that many of them have not been fully interpreted +by the regulatory authorities or the courts, and their provisions are open to a variety of interpretations. Any action against +us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses +and divert our management’s attention from the operation of our business. The shifting compliance environment and the need +to build and maintain a robust and expandable systems to comply with multiple jurisdictions with different compliance and/or reporting +requirements increases the possibility that a healthcare company may run afoul of one or more of the requirements. +If +we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or +incur costs that could have a material adverse effect on the success of our business. +We +are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures +and the generation, handling, use, storage, treatment, manufacture, transportation and disposal of, and exposure to, hazardous +materials and wastes, as well as laws and regulations relating to occupational health and safety. Our operations involve the use +of hazardous and flammable materials, including chemicals and biologic materials. Our operations also produce hazardous waste +products. We generally contract with third parties for the disposal of these materials and wastes. We cannot eliminate the risk +of contamination or injury from these materials. In the event of contamination or injury resulting from our use of hazardous materials, +we could be held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant +costs associated with civil or criminal fines and penalties. We do not carry specific biological or hazardous waste insurance +coverage, and our property, casualty and general liability insurance policies specifically exclude coverage for damages and fines +arising from biological or hazardous waste exposure or contamination. Accordingly, in the event of contamination or injury, we +could be held liable for damages or be penalized with fines in an amount exceeding our resources, and our clinical trials or regulatory +approvals could be suspended. +Although +we maintain workers’ compensation insurance for certain costs and expenses, we may incur due to injuries to our employees +resulting from the use of hazardous materials or other work-related injuries, this insurance may not provide adequate coverage +against potential liabilities. We do not maintain insurance for toxic tort claims that may be asserted against us in connection +with our storage or disposal of biologic, hazardous or radioactive materials. +49 +We +also may incur substantial costs to comply with current or future environmental, health and safety laws and regulations, which +have tended to become more stringent over time. These current or future laws and regulations may impair our research, development +or production efforts. Failure to comply with these laws and regulations also may result in substantial fines, penalties or other +sanctions or liabilities, which could materially adversely affect our business, financial condition, results of operations and +prospects. +Unfavorable +global economic conditions could adversely affect our business, financial condition or results of operations. +Our +results of operations could be adversely affected by general conditions in the global economy and in the global financial markets, +including conditions that are outside of our control, such as the impact of health and safety concerns, as well as the recent +inflation in the United States, foreign and domestic government sanctions imposed on Russia as a result of its invasion of Ukraine, +war or other military conflict, terrorist activities, and other disruptions to global supply chains. Each of these events has +caused or may continue to result in extreme volatility and disruptions in the capital and credit markets. A severe or prolonged +economic downturn, whether due to inflationary pressures or otherwise, could result in a variety of risks to our business, including +weakened demand for our compounds and our ability to raise additional capital when needed on acceptable terms, if at all. A weak +or declining economy could strain our suppliers, possibly resulting in supply disruption, or cause delays in payments for our +services by third-party payors or our collaborators. Any of the foregoing could harm our business and we cannot anticipate all +the ways in which the current economic climate and financial market conditions could adversely impact our business. +Adverse +developments affecting the financial services industry, such as actual events or concerns involving liquidity, defaults or non-performance +by financial institutions or transactional counterparties, could adversely affect our current and projected business operations +and financial condition and results of operations. +Events +involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional +counterparties or other companies in the financial services industry or the financial services industry generally or concerns +or rumors about any events of these kinds or other similar risks, have in the past and may in the future lead to market-wide liquidity +problems. For example, on March 10, 2023, Silicon Valley Bank (“SVB”) was closed by the California Department of Financial +Protection and Innovation, which appointed the Federal Deposit Insurance Corporation (“FDIC”) as receiver. Similarly, +on March 12, 2023, Signature Bank and Silvergate Capital Corp. were each swept into receivership. Although a statement by the +Department of the Treasury, the Federal Reserve and the FDIC indicated that all depositors of SVB would have access to all of +their money after only one business day of closure, including funds held in uninsured deposit accounts, borrowers under credit +agreements, letters of credit and certain other financial instruments with SVB, Signature Bank or any other financial institution +that is placed into receivership by the FDIC may be unable to access undrawn amounts thereunder. +Although +we regularly assess our banking relationships and the location of the assets held in the company’s account as we believe +necessary or appropriate, our access to funding sources and other credit arrangements could be significantly impaired by factors +that affect the financial services industry or economy in general. These factors could include, among others, events such as liquidity +constraints or failures, the ability to perform obligations under various types of financial, credit or liquidity agreements or +arrangements, disruptions or instability in the financial services industry. +Our +internal computer systems, or those of our collaborators or other contractors or consultants, may fail or suffer security breaches, +which could result in a material disruption of our product development programs. +Our +internal computer systems and those of our current and any future collaborators and other contractors or consultants are vulnerable +to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. +While +we have not experienced any such material system failure, accident or security breach to date, if such an event were to occur +and cause interruptions in our operations, it could result in a material disruption of our development programs and our business +operations, whether due to a loss of our trade secrets or other proprietary information or other similar disruptions. For example, +the loss of clinical trial data from completed or future clinical trials could result in delays in our regulatory approval efforts +and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach were +to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, +we could incur liability, our competitive position could be harmed, and the further development and commercialization of our compounds +could be delayed. +50 +Cyber-security +incidents, including data security breaches or computer viruses, could harm our business by disrupting our delivery of services, +damaging our reputation or exposing us to liability. +We +receive, process, store and transmit, often electronically, confidential data of others. Unauthorized access to our computer systems +or stored data could result in the theft or improper disclosure of confidential information, the deletion or modification of records, +or could cause interruptions in our operations. These cyber-security risks increase when we transmit information from one location +to another, including transmissions over the Internet or other electronic networks. Despite implemented security measures, our +facilities, systems, and procedures, and those of our third-party service providers, may be vulnerable to security breaches, acts +of vandalism, software viruses, misplaced or lost data, programming and/or human errors, or other similar events which may disrupt +our delivery of services or expose the confidential information of our customers and others. Any security breach involving the +misappropriation, loss or other unauthorized disclosure or use of confidential information of others, whether by us or a third +party, could: (i) subject us to civil and criminal penalties; (ii) have a negative impact on our reputation; or (iii) expose us +to liability to our customers, third parties or government authorities. +Product +liability lawsuits against us could cause us to incur substantial liabilities and to limit commercialization of any products that +we may develop. +Our +business exposes us to significant potential product liability risks that are inherent in the development, manufacturing, marketing +and sale of human device and drug products. Product liability claims could delay or prevent completion of its development programs, +clinical or otherwise. If we succeed in marketing and selling products, such claims could result in a recall of any products or +a limitation or other change in the indications for which they may be used. If we cannot successfully defend ourselves against +claims that our compounds or drugs caused injuries, we will incur substantial liabilities. Depending on their merit or eventual +outcome, liability claims may result in: +● +decreased demand +for any product candidates or drugs that we may develop; +● +injury to our reputation +and significant negative media attention; +● +withdrawal of clinical +trial participants; +● +significant costs +to defend the related litigation; +● +substantial monetary +awards paid to trial participants or patients. +● +loss of revenue; +● +reduced resources +of our management to pursue our business strategy; and +● +the inability to +commercialize any products that we may develop. +In +addition, we currently do not have product liability insurance, but plan to obtain such insurance at appropriate levels prior +to initiating studies in humans or clinical trials and prior to marketing and selling any drug or device products. Any insurance +we obtain may not provide sufficient coverage against potential liabilities. These liabilities could prevent or interfere with +our product development and commercialization efforts. Furthermore, if we were unable or otherwise failed to obtain and maintain +sufficient insurance at a reasonable cost to protect it against any such liabilities, that inability could have a material adverse +effect on its business. +51 +Risks +Related to Our Intellectual Property +If +we are unable to obtain and maintain adequate U.S. and foreign patent protection for our compounds, including CC8464, CT2000 and +CT3000, or if the scope of the patent protection obtained is not sufficiently broad, our competitors could develop and commercialize +products and technologies similar or identical to ours, and our ability to successfully commercialize CC8464, CT2000, CT3000 and +any of our other current or future compounds may be adversely affected. +Our +success depends, in large part, on our ability to obtain and maintain patent protection in the United States and other countries +with respect to CC8464, CT2000 and CT3000, additional new compounds in our product pipeline, and our institutional knowledge. +The patent prosecution process is expensive, time- consuming and complex. In particular, we may not be able to file, prosecute, +maintain, and/or enforce all necessary or desirable patent applications and issued patents at a reasonable cost or in a timely +manner. +We +have secured U.S. Patent No. 9,458,118 (the “CC8464 Patent”), covering the chemical composition and use of our clinical-stage +NaV1.7 blocker. Apart from the CC8464 Patent, we have filed multiple patent applications in foreign jurisdictions, including Canada, +France, India and Japan. It is possible that some of our pending patent applications in foreign jurisdictions will not result +in issued patents in a timely fashion or at all, and even if we are granted the patents we are currently pursuing in foreign jurisdictions, +the patents may not be issued in a form that will provide us with the full scope of protection that we desire, they may not prevent +competitors or other third parties from competing with us, and/or they may not otherwise provide us with a competitive advantage. +Our competitors, or other third parties, may be able to circumvent our patents by developing similar or alternative technologies +or products in a non-infringing manner. For example, there is no assurance that the CC8464 Patent, or any other patent that we +may be granted, will prevent third parties from developing competing technologies. Moreover, our patent estate, including the +CC8464 Patent, does not preclude third parties from obtaining intellectual property rights that could interfere with our freedom +to use our platform for other indications. Even assuming patents issue from our pending and future patent applications, changes +in either the patent laws or interpretation of the patent laws in the United States and foreign jurisdictions may diminish the +value of our patents or narrow their scope of protection. +We +have pending patent applications for both of CT2000 and CT3000 and there is no guarantee that any of these applications become +patents in the United States or any other jurisdiction. +We +may not be able to protect our intellectual property or enforce our intellectual property rights adequately throughout the world. +Filing +and prosecuting patent applications on CC8464, CT2000, CT3000 and future new compounds, current and future innovations related +to our technology, and our institutional knowledge in all countries throughout the world would be prohibitively expensive, and +intellectual property protections available in some countries outside the United States, and the enforceability thereof, may differ +in scope from those in the United States. Thus, in some cases, we will not seek to obtain patent protection for certain technologies +in some jurisdictions outside the United States. In addition, the laws of some foreign countries do not protect intellectual property +to the same extent as federal and state laws in the United States. Consequently, we may not be able to prevent third parties from +utilizing our inventions in all countries outside the United States, even in jurisdictions where we do pursue patent protection. +Competitors may use our technologies in jurisdictions where we have not pursued and obtained patent protection to develop their +own products and, further, may export otherwise infringing products to territories where we have patent protection, but enforcement +is not as strong as that in the United States. These products may compete with our compounds, and our patents or other intellectual +property rights may not be effective or sufficient to prevent them from competing. +Many +companies have encountered significant problems in protecting intellectual property and enforcing intellectual property rights +in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the +enforcement of patents, trade secrets and other intellectual property protections, particularly those relating to biotechnology +products and those of foreign entities. Such challenges in enforcing rights in these countries could make it difficult for us +to stop the infringement of our patents, if pursued and obtained, or marketing of competing products in violation of our proprietary +rights generally. Proceedings to enforce our current and future patent rights in foreign jurisdictions could result in substantial +costs and may divert our efforts and attention from other aspects of our business; could put our asserted patents at risk of being +invalidated or interpreted narrowly; could put any future patent applications, including continuation and divisional applications, +at risk of not issuing; and could provoke third parties to assert their own patent claims against us or to attack the validity +of our other patents. We may not prevail in any lawsuits that we initiate, and the damages or other remedies awarded, if any, +may not be commercially meaningful. Accordingly, our efforts to enforce any intellectual property rights around the world stemming +from intellectual property that we develop may be inadequate to obtain a significant commercial advantage in these foreign jurisdictions. +52 +Third +parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which +would be uncertain and could have a material adverse effect on the success of our business. +Our +commercial success depends upon our ability (and the ability of any potential future collaborators) to develop, manufacture, market +and sell CC8464, CT2000, CT3000 and future new compounds, and to freely use our proprietary technologies ( e.g. , without +infringing the intellectual property rights of others). Many companies and institutions have filed, and continue to file, patent +applications related to various aspects of pain management and opioid sparing technology. Because patent applications can take +many years to issue, may be confidential for 18 months or more after filing, and can be revised before and after issuance, there +may be issued patents and patent applications now pending which may later result in issued patents that third-party asserts are +infringed by the manufacture, use, sale, or importation of our products. The biotechnology and pharmaceutical industries are characterized +by extensive and complex litigation regarding patents and other intellectual property rights. Our competitors or other third parties +may assert infringement claims against us, alleging that our therapeutics, manufacturing methods, formulations or administration +methods are covered by their patents. Moreover, we may face patent infringement claims from non-practicing entities that have +no relevant product revenue, and against whom our patent portfolio may therefore have no deterrent effect. +Third +parties may initiate legal or administrative proceedings attacking the validity of our patents protecting CC8464, CT2000, CT3000 +and future compounds the outcome of which would be uncertain and could have a material adverse effect on the success of our business. +We +may in the future become party to, or be threatened with, adversarial proceedings or litigation regarding intellectual property +rights with respect to CC8464, CT2000, CT3000 or any future compounds, or related technologies, including, for example, interference +proceedings, post grant review challenges, and inter partes review before the USPTO. For example, a third party may bring +an inter partes review challenging our patents and any future patent that may be granted to us. Such proceedings often +are used as a tactic by defendants in a patent litigation suit to threaten a patentee’s patents, both asserted in the litigation +and unasserted. Thus, a competitor, either in response to litigation initiated by us or in the ordinary course, may threaten the +validity, enforceability, and breadth of our patents which could have a negative impact on our business and render our patents +or other intellectual property rights ineffective or insufficient to prevent competition. +Instituting +and defending against patent and other types of intellectual property litigation and administrative proceedings could cause us +to spend substantial resources, distract our personnel from their normal responsibilities, and have uncertain outcomes. +Patent +and other types of intellectual property litigation and administrative proceedings can involve complex factual and legal questions, +and their outcomes are uncertain. A finding of infringement could prevent us from manufacturing and commercializing our technologies, +including CC8464, CT2000 and CT3000, or force us to cease some or all our business operations. If we are found or believe there +is a risk that we may be found, to infringe a third party’s valid and enforceable intellectual property rights, we could +be required (or may choose) to obtain a license from such a third party to continue developing, manufacturing and marketing our +technologies. However, we may not be able to obtain any required license on commercially reasonable terms, if at all. Even if +we were able to obtain a license, it could be non-exclusive, thereby giving our competitors and other third parties access to +the same technologies licensed to us, and further, it could require us to make substantial licensing and royalty payments. We +could be forced, including by court order, to cease developing, manufacturing and commercializing the infringing technologies, +including CC8464, CT2000 and CT3000. We also could be found liable for monetary damages, including treble damages and attorneys’ +fees if we are found to have willfully infringed a patent or other intellectual property right. Claims that we have misappropriated +the confidential information or trade secrets of third parties could have a similar negative impact on our business, financial +condition, results of operations and prospects. +53 +Litigation +or other legal or administrative proceedings relating to intellectual property claims, with or without merit, is unpredictable +and generally expensive and time consuming. Competitors may infringe our current or future patents, should such patents issue, +or we may be required to defend against claims of infringement or other unauthorized use of third-party intellectual property +or third-party attacks against our intellectual property rights. Even if resolved in our favor, litigation or other legal proceedings +relating to intellectual property may cause us to incur significant expenses and could distract our scientific and management +personnel from their normal responsibilities. Furthermore, because of the substantial amount of discovery required in connection +with intellectual property litigation and administrative proceedings, there is a risk that some of our confidential information +could be compromised by disclosure during this type of litigation despite our attempts to prevent such disclosure. In addition, +there could be public announcements of the results of hearings, motions, or other interim proceedings or developments and, if +securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price +of our Common Stock. Such litigation or proceedings could substantially increase our operating losses and reduce the resources +available for development activities or any future sales, marketing, or distribution activities. +We +may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Some of our competitors +may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial +resources. Accordingly, despite our efforts, we may not be able to prevent third parties from infringing, misappropriating, or +successfully challenging our intellectual property rights. Uncertainties resulting from the initiation and continuation of patent +litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace. +Changes +in United States patent law and its administrative and judicial interpretation could diminish the value of patents in general, +thereby impairing our ability to protect our compounds. +Patent +reform legislation could increase the uncertainties and costs surrounding the prosecution of patent applications and the enforcement +or defense of issued patents. As patent reform legislation can inject serious uncertainty into the patent prosecution and litigation +processes, it is not clear what impact future patent reform legislation will have on the operation of our business. However, such +future legislation, and its implementation, could increase the uncertainties and costs surrounding the prosecution of our patent +applications and the enforcement or defense of any issued patents, all of which could have a material adverse effect on our business, +financial condition, results of operations and prospects. +Moreover, +the patent positions of companies engaged in the development and commercialization of pharmaceuticals are particularly uncertain. +We cannot assure you that our efforts to seek patent protection for CC8464, CT2000, CT3000 and future new compounds will not be +negatively impacted by the future court decisions or changes in guidance or procedures issued by the USPTO. These decisions, and +any guidance issued by the USPTO (or changes thereto), could have a material adverse effect on our existing patent portfolio and +our ability to protect and enforce our intellectual property rights in the future. +Intellectual +property rights and regulatory exclusivity rights do not necessarily address all potential threats. +The +degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have +limitations and may not adequately protect our business or permit us to maintain our competitive advantage. For example: +● +others may be able +to make products that are similar to our current and future new compound but that are not covered by the claims of our current +patents or of patents that we may own or license in the future; +● +we, or any future +license partners or collaborators, might not have been the first to file patent applications covering certain aspects of the +concerned technologies; +● +others may independently +develop similar or alternative technologies, or duplicate any of our technologies, potentially without falling within the +scope of our current or future issued claims, thus not infringing our intellectual property rights; +● +it is possible that +our filed or future patent applications will not lead to issued patents; +54 +● +issued patents to +which we currently hold rights or to which we may hold rights in the future may be held invalid or unenforceable, including +as a result of legal challenges by our competitors; +● +others may have +access to any future intellectual property rights licensed to us on a non-exclusive basis; +● +our competitors +might conduct research and development activities in countries where we have or intend to pursue patent rights, and then use +the information learned from such activities to develop competitive products for sale in our major commercial markets where +we do not have patent rights; +● +we may not develop +additional proprietary technologies that are patentable; +● +the patents or other +intellectual property rights of others may have an adverse effect on our business; and +● +we may choose not +to file a patent application covering certain of our trade secrets or know-how, and a third party may subsequently file a +patent covering such intellectual property. +Should +any of these events occur, they could significantly harm our business, financial condition, results of operations and prospects. +If +we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed. Our +reliance on third parties requires us to share our trade secrets, which increases the possibility that a competitor will discover +them or that our trade secrets will be misappropriated or disclosed. +In +addition to patent protection, we also rely on the protection of trade secrets, know-how and confidential and proprietary information. +The disclosure of our trade secrets would impair our competitive position and could harm our business. However, trade secrets +are difficult to protect. To maintain the confidentiality of trade secrets and proprietary information, we rely in part on confidentiality +agreements with our employees, consultants, outside scientific collaborators, sponsored researchers, and/or other advisors, and +inventions agreements with employees, consultants, and advisors, to protect our trade secrets and other proprietary information. +These agreements require that all confidential information developed by the individual or made known to the individual by us during +the course of the individual’s relationship with us be kept confidential and not disclosed to third parties. Our agreements +with employees and consultants also provide that inventions conceived by the individual in the course of rendering services to +us will be our exclusive property. Despite these efforts, we cannot provide any assurances that these agreements may not effectively +prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure +of confidential information. In addition, others may independently discover our trade secrets and proprietary information. +In +the event of unauthorized use or disclosure of trade secrets or proprietary information, these agreements, even if obtained, may +not provide sufficient protection for our trade secrets or other confidential information. Further, to the extent that our employees, +consultants or contractors use technology or know-how owned by others in their work for the Company, disputes may arise as to +the rights in related inventions. This can be of particular concern with respect to university collaborators with us, who typically +have pre-existing obligations to their universities to assign intellectual property rights, which university rights generally +are superior to assignment rights that we might receive from such individuals. +Enforcing +a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the +outcome is unpredictable. In addition, some courts inside and outside the United States are less willing or unwilling to protect +trade secrets. Moreover, third parties may still obtain this information or may come upon this or similar information independently, +and we would have no right to prevent them from using that technology or information to compete with us. Trade secrets will over +time be disseminated within the industry through independent development, the publication of journal articles, and the movement +of personnel skilled in the art from company to company or academic to industry scientific positions. Though our agreements with +third parties typically restrict the ability of our advisors, employees, collaborators, licensors, suppliers, third-party contractors, +and/or consultants to publish data potentially relating to our trade secrets, our agreements may contain certain limited publication +rights. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no +right to prevent such competitor from using that technology or information to compete with us, which could harm our competitive +position. Because from time to time we expect to rely on third parties in the development, manufacture, and distribution of our +products and provision of our services, we must, at times, share trade secrets with them. Despite employing the contractual and +other security precautions described above, the need to share trade secrets increases the risk that such trade secrets become +known by our competitors, are inadvertently incorporated into the technology of others, or are disclosed or used in violation +of these agreements. If any of these events occurs or if we otherwise lose protection for our trade secrets, the value of this +information may be greatly reduced and our competitive position would be harmed. If we do not apply for patent protection prior +to such publication or if we cannot otherwise maintain the confidentiality of our proprietary technology and other confidential +information, then our ability to obtain patent protection or to protect our trade secret information may be jeopardized. +55 +Risks +Related to our Common Stock +The +market price and trading volume of our shares of Common Stock may experience rapid and substantial price volatility, which could +cause purchasers of our Common Stock to incur substantial losses. +Recently, +the market prices and trading volume of shares of Common Stock of other small publicly traded companies with a limited number +of shares available to purchasers, have experienced rapid and substantial price volatility unrelated to the financial performance +of those companies. Similarly, shares of our Common Stock may experience similar rapid and substantial price volatility unrelated +to our financial performance, which could cause purchasers of our Common Stock to incur substantial losses, which may be unpredictable +and not bear any relationship to our business and financial performance. Extreme fluctuations in the market price of our Common +Stock may occur in response to strong and atypical retail investor interest, including on social media and online forums, the +direct access by retail investors to broadly available trading platforms, the amount and status of short interest in our Common +Stock and our other securities, access to margin debt, trading in options and other derivatives on our shares of Common Stock +and any related hedging and other trading factors. +If +there is extreme market volatility and trading patterns in our Common Stock, it may create several risks for investors, including +the following: +● +the market price +of our Common Stock may experience rapid and substantial increases or decreases unrelated to our operating performance or +prospects, or macro or industry fundamentals; +● +if our future market +capitalization reflects trading dynamics unrelated to our financial performance or prospects, purchasers of our Common Stock +could incur substantial losses as prices decline once the level of market volatility has abated; +● +if the future market +price of our Common Stock declines, purchasers of shares of Common Stock may be unable to resell such shares at or above the +price at which they acquired them. We cannot assure such purchasers that the market of our Common Stock will not fluctuate +or decline significantly in the future, in which case investors could incur substantial losses. +Further, +we may incur rapid and substantial increases or decreases in our Common Stock price in the foreseeable future that may not coincide +in timing with the disclosure of news or developments by or affecting us. Accordingly, the market price of our Common Stock may +fluctuate dramatically, and may decline rapidly, regardless of any developments in our business. Overall, there are various factors, +many of which are beyond our control, that could negatively affect the market price of our Common Stock or result in fluctuations +in the price or trading volume of our Common Stock, including: +● +actual or anticipated +variations in our annual or quarterly results of operations, including our earnings estimates and whether we meet market expectations +with regard to our earnings; +● +our current inability +to pay dividends or other distributions; +56 +● +publication of research +reports by analysts or others about us or the industry in which we operate, including the pharmaceutical or biotechnology +industry which may be unfavorable, inaccurate, inconsistent or not disseminated on a regular basis; +● +changes in market +valuations of similar companies; +● +market reaction +to any additional equity, debt or other securities that we may issue in the future, and which may or may not dilute the holdings +of our existing stockholders; +● +additions or departures +of key personnel; +● +actions by institutional +or significant stockholders; +● +short interest in +our Common Stock or our other securities and the market response to such short interest; +● +the dramatic increase +in the number of individual holders of our Common Stock and their participation in social media platforms targeted at speculative +investing; +● +speculation in the +press or investment community about our company or industries in which we operate; +● +strategic actions +by us or our competitors, such as acquisitions or other investments; +● +legislative, administrative, +regulatory or other actions affecting our business, our industry, including positions taken by the FDA; +● +investigations, +proceedings, or litigation that involve or affect us; +● +the occurrence of +any of the other risk factors included in this Report; and +● +general market and +economic conditions. +Our +Common Stock is currently listed on The NYSE American LLC (“NYSE American)”. NYSE American may delist our Common Stock +from trading, which could limit investors’ ability to make transactions in our securities and subject us to additional trading +restrictions. +Should +we fail to satisfy the continued listing requirements for remaining listed on NYSE American, such as the corporate governance +requirements or the minimum closing bid price requirement, NYSE American may take steps to delist our Common Stock. Such a delisting +would likely have a negative effect on the price of our Common Stock and would impair your ability to sell or purchase our Common +Stock when you wish to do so. In the event of a delisting, we would take actions to restore our compliance with NYSE American’s +listing requirements, but we can provide no assurance that any such action taken by us would allow our Common Stock to become +listed again, stabilize the market price or improve the liquidity of our Common Stock, prevent our Common Stock from dropping +below NYSE American’s minimum bid price requirement or prevent future non-compliance with such listing requirements. +If +we cannot maintain the listing of our Common Stock for trading on NYSE American, we could face significant material adverse consequences, +including: +● +a limited availability +of market quotations for our Common Stock; +● +reduced liquidity +for our Common Stock; +● +a determination +that our Common Stock is a “penny stock” which will require brokers trading in our Common Stock to adhere to more +stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our Common +Stock; +● +a limited amount +of news and analyst coverage; and +57 +● +a decreased ability +to issue additional Common Stock or obtain additional financing in the future. +We +could issue “blank check” preferred stock without stockholder approval with the effect of diluting then current stockholder +interests and impairing their voting rights; and provisions in our charter documents could discourage a takeover that stockholders +may consider favorable. +Our +articles of incorporation authorizes the issuance of up to 20,000,000 shares of “blank check” preferred stock with +designations, rights and preferences as may be determined from time to time by our Board. Our Board is empowered, without stockholder +approval, to issue a series of preferred stock with dividend, liquidation, conversion, voting or other rights which could dilute +the interest of, or impair the voting power of, our common stockholders. The issuance of a series of preferred stock could be +used as a method of discouraging, delaying, or preventing a change in control of the Company. For example, it would be possible +for our Board to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt +to change control of the Company. +Our +Series C Convertible Redeemable Preferred Stock, par value of $0.0001 per share (“Series C Preferred Stock”)currently +ranks (i) senior to the Common Stock and any class or series of capital stock of the Company created specifically ranking by its +terms junior to the Series C Preferred Stock; and (ii) junior to any class or series of capital stock of the Company created after +the creation of the Series C Preferred Stock specifically ranking by its terms senior to any Series C Preferred Stock, in each +case, with respect to payment of dividends and distributions of assets upon liquidation, dissolution or winding up of the Corporation, +whether voluntarily or involuntarily. For further information regarding our shares of Series C Preferred Stock, please refer to +the Certificate of Designations of Series C Convertible Redeemable Preferred Stock, filed with the Secretary of State of the State +of Nevada on November 8, 2024 filed as an exhibit to, and the disclosure contained in, our Post-Effective Amendment No. 1 on Form +S-1 filed with the SEC on November 22, 2024. +Our articles of incorporation designate the Second Judicial District +Court, in and for the State of Nevada, located in Washoe County, Nevada, as the exclusive forum for certain types of actions and +proceedings that may be initiated by our stockholders, which could limit stockholders’ ability to obtain a favorable judicial +forum for disputes with us or our directors, officers, employees or agents. +Our +articles of incorporation require that, to the fullest extent permitted by law, and unless we otherwise consent in writing to +the selection of an alternative forum, the Second Judicial District Court, in and for the State of Nevada, located in Washoe County, +Nevada, (or if the Second Judicial District Court does not have jurisdiction, any other state district court located in the State +of Nevada, and if no state district court in the State of Nevada has jurisdiction, any federal court located in the State of Nevada), will +be the exclusive forum for each of the following: +● any +derivative action, suit or proceeding brought on behalf of the Company, +● any +action, suit or proceeding asserting a claim of breach of a fiduciary duty owed by any +director, officer, employee or stockholder of the Company to the Company or to the Company’s +stockholders, or +● any +action, suit or proceeding arising pursuant to any provision of the Nevada Revised Statutes +(“NRS”) Chapter 78 of the State of Nevada, as amended or our bylaws or our +articles of incorporation (as either may be amended and/or restated from time to time) +The +exclusive forum provision provides federal courts located in the State of Nevada as the forum for suits brought to enforce any +duty or liability for which Section 27 of the Exchange Act establishes exclusive jurisdiction with the federal courts, +or any other claim for which the federal courts have exclusive jurisdiction. In addition, Section 22 of the Securities Act +provides that federal and state courts have concurrent jurisdiction over lawsuits brought under the Securities Act or +the rules and regulations thereunder. To the extent the exclusive forum provision restricts the courts in which claims arising +under the Securities Act may be brought, there is uncertainty as to whether a court would enforce such a provision. +We note that investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. Although +we believe this provision will benefit the Company by providing increased consistency in the application of Nevada law in the +types of lawsuits to which it applies, the provision may have the effect of discouraging lawsuits against our directors and officers. +58 +A +significant portion of our total outstanding shares are restricted from immediate resale but may be sold into the market in the +near future, which could cause the market price of our Common Stock to drop significantly, even if our business is performing +well. +Sales +of substantial amounts of our shares of Common Stock in the public market following the IPO, or the perception that these sales +could occur, could cause the market price of our securities to decline. These sales, or the possibility that these sales may occur, +also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. +All +of the shares of Common Stock in the IPO are immediately tradable without restriction under the Securities Act, except for any +securities held by “affiliates,” as that term is defined in Rule 144 under the Securities Act, or Rule 144. +The +remaining shares of Common Stock of the Company outstanding, other than the 2,969,823 shares (the “Selling Stockholder Shares”) +of Common Stock that we have registered on behalf of certain selling stockholders (the “Selling Stockholders”) identified +in a separate prospectus (the “Resale Prospectus”) and which may be resold by such Selling Stockholders from time +to time, are restricted securities within the meaning of Rule 144 under the Securities Act but will be eligible for resale subject +to applicable volume, means of sale, holding period and other limitations of Rule 144 under the Securities Act or pursuant to +an exception from registration under Rule 701 under the Securities Act, subject to the lock-up agreements executed in +conjunction with the IPO. +In +addition, we have registered the Selling Stockholder Shares pursuant to the Resale Prospectus and, as a result, all of the Selling +Stockholder Shares are freely tradable under the Securities Act, subject to the terms of the lock up agreements. +We +intend to file one or more registration statements on Form S-8 under the Securities Act to register the shares of Common +Stock to be issued under Channel Therapeutics Corporation 2023 Equity Incentive Plan, as amended (the “2023 Plan”) +and, as a result, all shares of Common Stock acquired under our plans will also be freely tradable under the Securities Act, subject +to the terms of any lock-up agreements, unless purchased by our affiliates. In addition, 1,944,444 shares of our Common +Stock will be reserved for future issuances under the equity incentive plan that we have adopted. +In +connection with the Bridge Financings (defined below), we were required to file a registration statement within 180 calendar days +after the consummation of the IPO, providing for the resale of Common Stock, which includes 549 Bonus Shares (as defined below), +received by holders of the senior secured convertible notes upon conversion of such notes. As of March 26, 2025, the Company +has not filed a registration statement in connection with the Bridge Financings, and the investors that participated in the Bridge +Financings have not objected to the fact that the Company has not filed such registration statement nor have they requested the +payment of partial liquidated damages pursuant to the terms of the Bridge Documents. +In +connection with the CEF Purchase Agreement, we filed a registration statement, providing for the resale of the shares of Common +Stock issuable pursuant to the CEF Purchase Agreement. In the future, we may issue additional shares of Common Stock or other +equity or debt securities convertible into Common Stock in connection with draw-downs under the CEF Purchase Agreement, a financing, +acquisition, litigation settlement or employee arrangement or otherwise. Any of these issuances could result in substantial dilution +to our existing stockholders and could cause the trading price of our securities to decline. +The +Series C Preferred Stock has a liquidation preference over our Common Stock. +The +Series C Preferred Stock has a liquidation preference that gets paid prior to any payment on our Common Stock. As a result, if +we were to liquidate, dissolve or wind-up, each holder of our Series C Preferred Stock would have the right to receive payment +out of our assets available for distribution, before any amount is paid to the holders of our Common Stock, in an amount in cash +equal to the aggregate liquidation value of all of the shares of preferred stock held by such holder. Holders of the Series C +Preferred Stock will not be entitled to dividends. The payment of the liquidation preferences on the Series C Preferred Stock +could result in holders of our Common Stock not receiving any proceeds if we were to liquidate, dissolve or wind up, either voluntarily +or involuntarily. +59 +The +existence of the liquidation preferences may reduce the value of our Common Stock, make it harder for us to sell shares of Common +Stock in offerings in the future, or prevent or delay a change of control. +If +securities analysts do not publish research or reports about our business or if they publish negative evaluations of our stock, +the price of our stock could decline. +The +trading market for our Common Stock relies, in part, on the research and reports that industry or financial analysts publish about +us or our business. If securities analysts do not commence coverage of us, the trading price of our stock could decrease. Additionally, +if one or more of the analysts covering our business downgrade their evaluations of our stock, the price of our stock could decline. +If one or more of these analysts cease to cover our stock, we could lose visibility in the market for our stock, which in turn +could cause our stock price to decline. +The +price of our securities may be volatile and fluctuate substantially, which could result in substantial losses for purchasers of +our securities. +The +market price of our securities is likely to be highly volatile due to many factors, including: +● +our ability to successfully +proceed to and conduct clinical trials; +● +results of pre-clinical +and clinical trials of our existing lead or new future compounds or those of our competitors; +● +the success of competitive +products or technologies; +● +commencement or +termination of collaborations; +● +regulatory or legal +developments in the United States and other countries; +● +developments or +disputes concerning patent applications, issued patents or other proprietary rights; +● +the recruitment +or departure of key personnel; +● +the level of expenses +related to any of our current or future compounds or clinical development programs; +● +the results of our +efforts to discover, develop, acquire or in-license additional new compounds; +● +actual or anticipated +changes in estimates as to financial results, development timelines or recommendations by securities analysts; +● +our inability to +obtain or delays in obtaining adequate product supply for any approved product or inability to do so at acceptable prices; +● +disputes or other +developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patent protection +for our technologies; +● +significant lawsuits, +including patent or stockholder litigation; +● +variations in our +financial results or those of companies that are perceived to be similar to us; +● +changes in the structure +of healthcare payment systems; +● +market conditions +in the pharmaceutical and biotechnology sectors; +● +general economic, +industry and market conditions; and +● +the other factors +described in this “Risk Factors” section. +60 +The +stock markets have experienced extreme volatility in recent years that has been unrelated to operating performance. These broad +market fluctuations may adversely affect the trading price of our securities. In the past, following periods of volatility in +the market price of a company’s securities, class action litigation has often been instituted against the affected company. +Any litigation of this type brought against us could result in substantial costs and a diversion of our management’s attention +and resources, which would harm our business, results of operations, financial condition and cash flows. +We +have broad discretion in the use of our cash and may not use them effectively. +Our +management will have broad discretion in the application of our cash and could spend the proceeds in ways that do not improve +our results of operations or enhance the value of our Common Stock. The failure by our management to apply these funds effectively +could result in financial losses that could have a material adverse effect on our business, cause the price of our Common Stock +to decline and delay the development of CC8464, CT2000 and any other new compounds that we may develop. Pending their use, we +may invest our cash in a manner that does not produce income or that loses value. +Raising +additional capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights +to our technologies, CC8464, CT2000 and CT3000. +We +may seek additional capital through a combination of draw-downs under the CEF Purchase Agreement, public and private equity offerings, +debt financings, collaborations and licensing arrangements. To the extent that we raise additional capital through the sale of +equity or debt securities, your ownership interest will be diluted, and the terms may include liquidation or other preferences +that adversely affect your rights as a stockholder. The incurrence of indebtedness would result in increased fixed payment obligations +and could involve restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability +to acquire or license intellectual property rights and other operating restrictions that could adversely impact our ability to +conduct our business. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with +third parties, we may have to relinquish valuable rights to our technologies, CC8464, CT2000 and CT3000 or grant licenses on terms +unfavorable to us. +We +are an “emerging growth company” and the reduced disclosure requirements applicable to emerging growth companies may +make our Common Stock less attractive to investors. +We +are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions and +relief from various reporting requirements that are applicable to other public companies that are not “emerging growth companies.” +In particular, while we are an “emerging growth company: (i) we will not be required to comply with the auditor attestation +requirements of Section 404(b) of the Sarbanes-Oxley Act; (ii) we will be exempt from any rules that may be adopted by the Public +Company Accounting Oversight Board requiring mandatory audit firm rotations or a supplement to the auditor’s report on financial +statements; (iii) we will be subject to reduced disclosure obligations regarding executive compensation in our periodic reports +and proxy statements; and (iv) we will not be required to hold nonbinding advisory votes on executive compensation or stockholder +approval of any golden parachute payments not previously approved. Investors may find our Common Stock less attractive if we rely +on the exemptions and relief granted by the JOBS Act. If some investors find our Common Stock less attractive as a result, there +may be a less active trading market for our Common Stock and our stock price may decline or become more volatile. +We +have taken advantage of reduced reporting burdens in this Report. We cannot predict whether investors will find our Common Stock +less attractive if we rely on certain or all of these exemptions. If some investors find our Common Stock less attractive as a +result, there may be a less active trading market for our Common Stock and our stock price may be more volatile. +In +addition, the JOBS Act provides that an emerging growth company may take advantage of an extended transition period for complying +with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards +until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this exemption +from new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as +other public companies that are not emerging growth companies. +61 +The +requirements of being a public company may strain our resources and divert management’s attention. +As +a public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the +Dodd-Frank Wall Street Reform and Consumer Protection Act and other applicable securities rules and regulations. The Exchange +Act requires, among other things, that we file annual and current reports with the SEC with respect to our business and operating +results. Compliance with these rules and regulations increases our legal and financial compliance costs, makes some activities +more difficult, time-consuming, or costly, and increases demand on our systems and resources. +As +a result of disclosure of information in this Annual Report on Form 10-K and in filings required of a public company, our +business and financial condition is more visible, which we believe may result in threatened or actual litigation, including by +competitors and other third parties. If such claims are successful, our business and operating results could be harmed, and even +if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to +resolve them, could divert resources of our management and harm our business and operating results. +Because +we do not anticipate paying any cash dividends on our capital stock in the foreseeable future, capital appreciation, if any, will +be your sole source of gain. +We +have never declared or paid cash dividends on our capital stock. We currently intend to retain all of our future earnings, if +any, to finance the growth and development of our business. In addition, the terms of any future debt agreements may preclude +us from paying dividends. As a result, capital appreciation, if any, of our Common Stock will be your sole source of gain for +the foreseeable future. +Risks +Related to our CEF Purchase Agreement +It +is not possible to predict the actual number of Purchase Shares we will sell under the CEF Purchase Agreement, or the actual gross +proceeds resulting from those sales. We may not have access to the full amount available under the CEF Purchase Agreement with +Tikkun. +On +July 26, 2024, we entered into the CEF Purchase Agreement (the “CEF Purchase Agreement”) with Tikkun Capital LLC (“Tikkun”), +pursuant to which Tikkun committed to purchase up to $30.0 million in shares of our Common Stock, subject to certain limitations +and conditions set forth in the CEF Purchase Agreement. +The +shares of Common Stock that may be issued under the CEF Purchase Agreement (the “Purchase Shares”) may be sold by +us to Tikkun at our discretion from time to time until July 26, 2026, commencing after the satisfaction of certain conditions +set forth in the CEF Purchase Agreement, including a registration statement covering the resale of shares of Common Stock that +may be issued under the CEF Purchase Agreement is declared effective by the SEC, a final prospectus in connection therewith is +filed, and the other conditions set forth in the CEF Purchase Agreement are satisfied. We generally have the right to control +the timing and amount of any sales of Purchase Shares to Tikkun under the CEF Purchase Agreement. Sales of Purchase Shares to +Tikkun under the CEF Purchase Agreement will depend upon market conditions and other factors to be determined by us. We may ultimately +decide to sell to Tikkun all or a portion of the Purchase Shares that may be available pursuant to the CEF Purchase Agreement. +Because +the purchase price per share to be paid by Tikkun for the Purchase Shares that we may elect to sell to Tikkun under the CEF Purchase +Agreement will fluctuate based on the market prices of our Common Stock during the applicable volume weighted average price purchase +valuation period for each purchase, it is not possible for us to predict the total number of Purchase Shares that we will sell +to Tikkun under the CEF Purchase Agreement, the purchase price per share that Tikkun will pay for shares purchased from us under +the CEF Purchase Agreement, or the aggregate gross proceeds that we will receive from those purchases by Tikkun under the CEF +Purchase Agreement. +62 +Although +the CEF Purchase Agreement provides that we may sell up to an aggregate of $30.0 million of Purchase Shares to Tikkun, only 2,000,000 +Purchase Shares are being registered for resale by Tikkun under the registration statement on Form S-1 filed with the SEC on July +29, 2024, which we may elect to sell to Tikkun, in our sole discretion, from time to time from and after the Commencement Date +under the CEF Purchase Agreement. +If +after the Commencement Date, we elect to sell to Tikkun all of the 2,000,000 Purchase Shares being registered for resale under +the prospectus in the registration statement on Form S-1 filed with the SEC on July 29, 2024, that are available for sale by us +to Tikkun in purchases under the CEF Purchase Agreement, depending on the market prices of our Common Stock during the applicable +volume weighted average price purchase valuation period for each purchase made pursuant to the CEF Purchase Agreement, the actual +gross proceeds from the sale of all such shares may be substantially less than the $30.0 million (the “Total Commitment”) +available to us under the CEF Purchase Agreement, which could materially adversely affect our liquidity. +If +it becomes necessary for us to issue and sell to Tikkun under the CEF Purchase Agreement more than 2,000,000 Purchase Shares being +registered for resale under the registration statement on Form S-1 filed with the SEC on July 29, 2024 in order to receive aggregate +gross proceeds equal to the Total Commitment of an aggregate of $30.0 million under the CEF Purchase Agreement, we must file with +the SEC one or more additional registration statements to register under the Securities Act the resale by Tikkun of any such additional +Purchase Shares we wish to sell from time to time under the CEF Purchase Agreement, which the SEC must declare effective. Tikkun +will not be required to purchase any Purchase Shares if such sale would result in Tikkun and its affiliates’ beneficial +ownership exceeding than 4.99% of the outstanding shares of the Common Stock (the “Beneficial Ownership Limit”). +Any +issuance and sale by us under the CEF Purchase Agreement of a substantial amount of Purchase Shares could cause additional substantial +dilution to our stockholders. The number of Purchase Shares ultimately offered for resale by Tikkun is dependent upon the number +of Purchase Shares we ultimately sell to Tikkun under the CEF Purchase Agreement. +Our +inability to access a portion or the full amount available under the CEF Purchase Agreement, in the absence of any other financing +sources, could have a material adverse effect on our business. +Sales +of a substantial number of our Common Stock in the public market by our existing stockholders could cause the price of our shares +of our Common Stock to fall. +Tikkun may resell up to 2,000,000 Purchase +Shares, from time to time during the term of the CEF Purchase Agreement. If all of the 2,000,000 Purchase Shares were issued and +outstanding as of the date hereof (without taking into account the Exchange Cap limitation), such shares would represent approximately +24.7% of the total number of outstanding shares of our Common Stock and approximately 26.9% of the total number of outstanding +shares of our Common Stock held by non-affiliates of our Company, in each case as of March 7, 2025. +Sales +of a substantial number of our shares of our Common Stock in the public market by Tikkun and/or by our other existing stockholders, +or the perception that those sales might occur, could depress the market price of shares of our Common Stock and could impair +our ability to raise capital through the sale of additional equity securities . +Investors +who buy shares of our Common Stock at different times will likely pay different prices. +Pursuant +to the CEF Purchase Agreement, we will have discretion, subject to market demand, to vary the timing, prices, and numbers of Purchase +Shares sold to Tikkun. If and when we do elect to sell Purchase Shares to Tikkun under the CEF Purchase Agreement, after Tikkun +has acquired such shares, Tikkun may resell all or a portion of such shares at any time or from time to time in its discretion +and at different prices. As a result, investors who purchase shares of our Common Stock from Tikkun at different times will likely +pay different prices for those shares, and so may experience different levels of dilution and in some cases substantial dilution +and different outcomes in their investment results. Investors may experience a decline in the value of the shares they purchase +from Tikkun as a result of future sales made by us to Tikkun at prices lower than the prices such investors paid for their shares. +63 +We +may require additional financing to sustain our operations and, without it, we will not be able to continue operations. +The +extent to which we rely on Tikkun as a source of funding will depend on a number of factors, including the prevailing market price +of our Common Stock and the extent to which we are able to secure working capital from other sources. If obtaining sufficient +funding from Tikkun were to prove unavailable or prohibitively dilutive, we may need to secure another source of funding in order +to satisfy our working capital needs. Even if we were to sell to Tikkun all of the shares of our Common Stock available for sale +to Tikkun under the CEF Purchase Agreement, we will still need additional capital to fully implement our business plan. Should +the financing we require to sustain our working capital needs be unavailable or prohibitively expensive when we require it, the +consequences would be a material adverse effect on our business, operating results, financial condition and prospects. +On +July 24, 2024, we entered into a securities purchase agreement with an accredited investor (the “July Holder”), pursuant +to which the Company issued to the July Holder a senior unsecured convertible note (the “July Note”) in the aggregate +principal amount of $750,000, which is convertible into shares of the Company’s common stock. If we were to default on the +July Note and such default is not waived, the July Note shall bear interest at a rate of 12% per annum, and the Holder may +require us to redeem all or any portion of the July Note. The July Note also imposes certain restrictions on us and our subsidiaries. +These restrictions limit us and our subsidiaries’ ability, among other things, to incur or guarantee certain additional +indebtedness, engage in transactions with affiliates, sell certain assets, and create liens, and they place restrictions on the +ability of us to make dividends and our subsidiaries to pay dividends. If we fail to maintain compliance with the restrictions +and covenants under the Securities Purchase Agreement and the July Note, we would be subject to events of default which in turn +would materially and adversely affect our business, financial condition, and results of operations and our liquidity. +The +terms of the CEF Purchase Agreement limit the amount of shares of Common Stock we may issue to Tikkun, which may have an adverse +effect on our liquidity. +The +CEF Purchase Agreement includes restrictions on our ability to sell shares of our Common Stock to Tikkun, including, subject to +specified limitations, if a sale would cause Tikkun and its affiliates to beneficially own more than the Beneficial Ownership +Limit. Accordingly, we cannot guarantee that we will be able to sell all $30.0 million of shares of Common Stock under the CEF +Purchase Agreement. If we cannot sell the full amount of the shares that Tikkun has committed to purchase because of these limitations, +we may be required to utilize more costly and time-consuming means of accessing the capital markets, which could materially adversely +affect our liquidity and cash position. +Future +sales of substantial amounts of our Common Stock, or the possibility that such sales could occur, could adversely affect the market +price of our Common Stock. +In +order to raise additional capital, we may in the future offer additional shares of our Common Stock or other securities convertible +into or exchangeable for our Common Stock. Investors purchasing shares or other securities in the future could have rights superior +to existing shareholders. The price per share at which we sell additional shares of our Common Stock, or securities convertible +or exchangeable into common stock, in future transactions may be higher or lower than the price per share paid by investors in +previous offerings by us. +Management +will have broad discretion as to the use of the proceeds from our sale of Purchase Shares to Tikkun under the CEF Purchase Agreement, +and such uses may not improve our financial condition or market value. +Because +we have not designated the amount of net proceeds from our sale to Tikkun of Purchase Shares to be used for any particular purpose, +our management will have broad discretion as to the application of such net proceeds. Our management may use the net proceeds +for corporate purposes that may not improve our financial condition or advance our business objectives. +64 +Item +1B. Unresolved Staff Comments. +None. +Item +1C. Cybersecurity +Risk +management and strategy +We +are an R&D stage pharmaceutical company, with no commercial operations or revenue streams. Since our IPO, our sole business +activity has been ongoing research into our drug therapies. Therefore, we do not consider that we face significant cybersecurity +risk and have not adopted a formal cybersecurity risk management program or process for assessing cybersecurity risk currently. +We assess material risks from cybersecurity threats on an ongoing basis, including any potential unauthorized occurrence on or +conducted through our information systems that may result in adverse effects on the confidentiality, integrity, or availability +of our information systems or any information residing therein. As our Company grows, we plan to develop a more robust and detailed +strategy for cybersecurity in alignment with nationally accepted standards. We have not encountered cybersecurity challenges that +have materially impaired our operations or financial standing. For additional information regarding risks from cybersecurity threats, +please refer to Item 1A, “Risk Factors,” in this Annual Report on Form 10-K. +65 +Governance +Our +management and board of directors recognize the critical importance of maintaining the trust and confidence of our business partners +and employees, including the importance of managing cybersecurity risks as part of our larger risk management program. While all +of our personnel play a part in managing cybersecurity risks, one of the key functions of our board of directors is informed oversight +of our risk management process, including risks from cybersecurity threats. Our board of directors is responsible for monitoring +and assessing strategic risk exposure, and our executive officers are responsible for the day-to-day management of the material +risks that we face. In general, we seek to address cybersecurity risks through a cross-functional approach that is focused on +preserving the confidentiality, integrity, and availability of the information that we collect and store by identifying, preventing, +and mitigating cybersecurity threats and effectively responding to cybersecurity incidents when they occur. +Item +2. Properties. +Our +principal executive offices are located at 4400 Route 9 South, Suite 1000, Freehold, NJ 07728. The lease for our principal executive +offices is on a month-to-month basis. We believe our executive offices are adequate to meet our current needs, although we may +seek to negotiate new leases or evaluate additional or alternate space to support our operations and regulatory needs. We believe +appropriate alternative space will be readily available on commercially reasonable terms. +Item +3. Legal Proceedings +From +time to time, we may be involved in legal proceedings arising in the ordinary course of our business. We are not presently a party +to any legal proceedings that, in the opinion of our management, would have a material adverse effect on our business. Regardless +of outcome, litigation can have an adverse impact on us due to defense and settlement costs, diversion of management resources, +negative publicity and reputation harm, and other factors. +Demand +Letter from Mr. Kopfli’s Attorney +On +February 14, 2024, our board of directors received a demand letter from an attorney representing Chromocell Holdings and our former +Chief Executive Officer and former Chief Strategy Officer, Mr. Christian Kopfli, who was released for “cause” as disclosed +elsewhere in this Report. Mr. Kopfli alleged an improper termination for “cause” and claimed to seek monetary damages +in the amount of $479,169. Of the $479,169 asserted by Mr. Kopfli, as of December 31 , +2024, the Company had accrued $363,091 in compensation expenses associated with Mr. Kopfli’s prior employment with the Company. +However, the Company believed the assertions made by Mr. Kopfli were without merit and commenced the New York Action against Mr. +Kopfli and Chromocell Holdings , asserting causes of action against Mr. Kopfli +for breach of the Employment Agreement entered into on January 10, 2023 between the Company and Mr. Kopfli, breach of fiduciary +duty by Mr. Kopfli, as well as breach of contract against Chromocell Holdings. The Company also asserted a “faithless servant” +claim against Mr. Kopfli, seeking a ruling that Mr. Kopfli was not entitled to compensation from the Company. The Company sought +monetary damages against Mr. Kopfli and Chromocell Holdings in the New York Action, plus disgorgement of all compensation previously +paid or accrued to Mr. Kopfli by the Company. +By +Order dated October 3, 2024, the court in the New York Action awarded the Company a default judgment against Mr. Kopfli and Chromocell +Holdings on all claims and ordered an assessment of damages against Mr. Kopfli and Chromocell Holdings (to be held at a date to +be determined). As of December 31, 2024, the Company has removed the accrual of $363,091 in compensation expenses and recorded +a gain on default judgement in the same amount. +Parexel +Claim +On +July 31, 2024, the Company received a demand letter from an attorney representing Parexel. The letter, which was addressed +to both the Company and Chromocell Holdings, purports to be a notice of default of the Promissory Note and seeks the payment +of allegedly unpaid principal in the amount of $682,551.49 plus interest exceeding $177,000. The Company denies that it +is liable for any of the amounts sought by Parexel; the Company is not a party to the Promissory Note and does +not believe it is liable for any amounts allegedly due thereunder. The Company intends to defend itself vigorously in the +matter. +66 +Item +4. Mine Safety Disclosures +Not +applicable. +Part +II +Item +5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. +Market +Information +Our +Common Stock trades on NYSE American under the symbol “CHRO.” +Holders +of our Common Stock +As +of March 7, 2025, there were approximately 16 holders of record of our Common Stock. This number does not include shares of Common +Stock held by brokerage clearing houses, depositories or others in unregistered form. +Dividends +We +have never declared or paid cash dividends on our capital stock. We currently intend to retain all available funds and any future +earnings for use in the operation of our business and do not anticipate paying any dividends on our Common Stock in the foreseeable +future. Any future determination to declare dividends will be made at the discretion of our board of directors and will depend +on our financial condition, operating results, capital requirements, general business conditions and other factors that our board +of directors may deem relevant. +Securities +Authorized for Issuance under Equity Compensation Plans +Reference +is made to “Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters—Securities +Authorized for Issuance under Equity Compensation Plans” for the information required by this item. +Recent +Sales of Unregistered Securities +On +June 12, 2024, the Company agreed to issue up to an aggregate of 140,000 shares of Common Stock to a vendor in considerations +for the services provided by the vendor to the Company, with 51,187 shares issued between June 1, 2024 and December 31, 2024 +On +August 12, 2024, the Company agreed to issue 10,000 shares of Common Stock to a vendor in exchange for outstanding invoices +related to services provided by the vendor to the Company. +On +October 22, 2024, the Company agreed to issue up to an aggregate of 76,667 shares of Common Stock to three vendors in considerations +for the services provided by the vendor to the Company. +Also +on October 22, 2024, the Company granted a different vendor options to purchase up to an aggregate of 50,000 shares of Common +Stock at a grant price of $0.73 per share. +On +November 18, 2024, the Company agreed to issue up to 25,000 shares of Common Stock to a vendor in considerations for +the services provided by the vendor to the Company. +67 +Between September 1, 2024 and December +31, 2024, we issued and sold an aggregate of 155,953 shares of Common Stock to Tikkun pursuant to the CEF Purchase Agreement at +an average price per share of $0.70, resulting in aggregate gross proceeds to the Company of $108,552. +The +offers and sales of the above securities were deemed to be exempt from registration under the Securities Act in reliance upon +Section 4(a)(2) of the Securities Act or Regulation D promulgated thereunder, or Rule 701 promulgated under Section 3(b) of the +Securities Act, as transactions by an issuer not involving any public offering or pursuant to benefit plans and contracts relating +to compensation as provided under Rule 701. The recipients of the above securities represented their intentions to acquire the +securities for investment only and not with a view to or for sale in connection with any distribution thereof. +Purchases +of Equity Securities by the Issuer and Affiliated Purchasers +Stock +Repurchase Plan +On +August 5, 2024, the board of directors authorized a stock repurchase plan (the “Repurchase Plan”) pursuant to which +up to $250,000 of the Company’s Common Stock may be repurchased prior to December 31, 2024, unless completed sooner +or otherwise extended. During the year ended December 31, 2024, the Company repurchased 86,196 shares of Common Stock. +Open market purchases are intended to be conducted in accordance with applicable Securities and Exchange Commission regulations, +including the guidelines and conditions of Rule 10b-18 and Rule 10b5-1 of the Exchange Act. We established the Repurchase Plan +on the premise that the value of the Company’s programs and prospects were not reflected in the trading price of the Company’s +Common Stock on the NYSE American and in an effort to maintain a minimum price relative to NYSE American’s listing standards. +Further, the Company endeavored to balance the repurchase of what the Company felt was undervalued stock and the Company’s +available cash, as a result of which, the timing and actual number of shares repurchased have depended and will continue to depend +on a variety of factors including trading price of the Company’s Common Stock on the NYSE American, the Company’s +financial performance, corporate and regulatory requirements and other market conditions. +Repurchase +Plan Amendment +On +October 22, 2024, the board of directors authorized an amendment (the “Plan Amendment”) to the Repurchase Plan to +increase the total value of shares of Common Stock available for repurchase by the Company under the Repurchase Plan by an additional +$500,000, to $750,000. In addition, the Plan Amendment extended the termination date of the Repurchase Plan from December 31, +2024 to June 30, 2025, prior to which Common Stock may be repurchased, unless completed sooner or otherwise extended. +We +did not repurchase any shares during the fourth quarter of the fiscal year covered by this Annual Report on Form 10-K. +Item +6. Reserved +Item +7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. +You +should read the following discussion and analysis of our financial condition and results of operations together with our consolidated +financial statements and related notes appearing in this Report. Some of the information contained in this discussion and analysis +or set forth elsewhere in this Report, including information with respect to our plans and strategy for our business and related +financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those +factors set forth in the “Risk Factors” section of this Report, our actual results could differ materially from the +results described in or implied by the forward-looking statements contained in the following discussion and analysis. +Overview +We +are a clinical-stage biotech company focused on developing and commercializing new therapeutics to alleviate pain. Our clinical +focus is to selectively target the sodium ion-channel known as “NaV1.7”, which has been genetically validated as a +pain receptor in human physiology. A NaV1.7 blocker is a chemical entity that modulates the structure of the sodium-channel in +a way to prevent the transmission of pain perception to the CNS. Our goal is to develop a novel and proprietary class of NaV blockers +that target the body’s peripheral nervous system. +68 +We +have formally launched three programs developing pain treatment therapeutics, all of which are based on the same proprietary molecule, +as follows: +Eye +Pain : Based on a novel formulation of CC8464, our Eye Pain program, titled CT2000, is for the potential treatment of both +acute and chronic eye pain. NaV1.7 channels are present on the cornea, making it a viable biological target for treating eye pain. +Eye pain may occur with various conditions, including severe dry eye disease, trauma and surgery. Existing therapies for eye pain +(such as steroids, topical non-steroidal anti-inflammatory agents, lubricants, local anesthetics) are limited in their effectiveness +and/or limited in the duration that they may be prescribed because of safety issues. We intend to explore the viability of developing +CT2000 as a topical agent for the relief of eye pain. A potential advantage of this approach is that topical administration of +CT2000 is unlikely to lead to any hypersensitivity or skin reactions, like what was noted with systemic administration of CC8464, +because the systemic absorption from a topical administration would be extremely limited. We have developed topical ophthalmic +formulations and are pursuing trial plans as set forth below. +Current +options for the treatment of ocular pain center on the use of corticosteroids and non-steroidal anti-inflammatory drug (“NSAID”) +based therapeutics. These options suffer from sight-threatening complications such as Glaucoma and corneal melting, thus there +is a large unmet need for other approaches. As an example of the potential patient population, we estimate that there are approximately +5 million cases of corneal abrasions per year in the United States. In addition, other potential indications associated with eye +pain include: +● +severe dry eye, +● +side effects from +photorefractive keratectomy (PRK) and pterygium surgery, +● +second eye cataract +surgery, +● +neuropathic corneal +pain, and +● +severe uveitis and +severe iritis/scleritis. +As +NaV1.7 channels are present on the cornea and is a viable biological target for treating eye pain, we believe that we have a sound +scientific basis for our ability to treat a multitude of eye pain indications. We have successfully developed an eye drop formulation +and have determined that the eye drops are well tolerated by animals. We have completed animal efficacy studies and are in the +process of running toxicology studies on animals. We expect to announce the efficacy and toxicology results by April 2025. +Following +the animal studies, if successful, we intend to move into POC studies in humans. We plan to conduct the POC study in Australia +to avail ourselves of a 43.5% tax credit for clinical expenses incurred in Australia and, on January 9, 2023, established an Australian +subsidiary through which the work will be conducted. We are planning to conduct the POC in a clinic in Brisbane, Australia +and are in the process of contracting the services to perform such trial. +Depot +Program : Based on several novel formulations of CC8464, the Company’s most recently launched program, titled CT3000, +is for the potential treatment of post operative pain with the use of nerve blocks. Examples would include knee surgery +or shoulder surgery. Existing therapies for nerve blocks lead to neuromuscular blockade which prevents movement following surgery. +Doctors often want patients to move soon after surgery to avoid complications such as blood clots. A NaV1.7 inhibitor used for +nerve blocks may provide good analgesia but will not lead to neuromuscular blockade that prevents movement like other local anesthetics. +The +Company has successfully developed a number of formulations and in December 2024, announced that it achieved its endpoints in +two pre-clinical in vivo models of the Company’s nerve block formulations for acute pain, showing material improvement over +the existing standard of care, bupivacaine, in both efficacy and duration. +The +Company performed a thermal hyperalgesia test in rodents with a placebo arm, bupivacaine arm and four arms of the main formulations +of the Company’s molecule. The Company also performed a mechanical allodynia test in rodents with the same arms as above. +For both models, the drugs were administered as a sciatic nerve block. All four Company formulations showed a depot effect in +excess of four days, an improvement over bupivacaine, the current standard of care. +69 +The +results of the thermal hyperalgesia results are shown in the chart below. After thirty minutes, three of the four formulations +showed materially better efficacy than bupivacaine, with each of the three being statistically superior to placebo for more than +two days longer than bupivacaine. One of the formulations remained statistically superior to placebo for more than four days. +Further, as NaV1.7 does not have an impact on mobility, this approach may offer a better option for post-surgical physical therapy +as current nerve block therapies cause temporary paralysis in the affected area. +Similarly +for the mechanical allodynia test results, three of the four formulations showed statistically better efficacy for a longer duration +of time than bupivacaine. The mechanical allodynia test is shorter in duration, reflecting the subject’s innate swift recovery +rate to surgical incisions. Nonetheless, the results mirrored the successful results set forth with the thermal hyperalgesia test. +The +Company will commence toxicology and CMC work in 2025 and expects to commence human POC trial in early 2026. +Neuropathic +Pain : CC8464 is being developed to address certain types of neuropathic pain. The chemical characteristics of CC8464 restrict +its entry into the CNS and limit its effect to the NaV1.7 channels in the peripheral nervous system, which consists of the nerves +outside the brain and spinal cord. Activation of other channels in the CNS can result in side effects, including addiction and +other centrally mediated adverse effects. Since CC8464 is designed to not penetrate the CNS it is highly unlikely to produce CNS +mediated side effects including euphoria or addiction. Based on its characteristics, preclinical studies (described below) and +the Phase 1 studies we have completed to date, we believe that CC8464, if approved, could become an attractive option for both +patients and physicians as a treatment for moderate-to-severe pain in Erythromelalgia (“EM”) and idiopathic +small fiber neuropathy (“iSFN”). +70 +We +conducted four Phase 1 trials with 207 patients. The results showed that CC8464 has a good overall tolerability and demonstrated +no liver or renal toxicity, no central nervous system changes and no cardiovascular findings but may cause skin rashes in certain +patients. The occurrence of skin rashes is not uncommon with the class of molecules to which CC8464 belongs and the rashes were +successfully treated in all cases with topical steroids and/or topical antihistamines (with the exception of one patient requiring +systemic steroids). +As +a result of the potential for skin rashes, following discussions with the FDA, we will conduct a slow dose escalation study +to further evaluate the incidence of rashes. By titrating the dose over several weeks, we anticipate that we will reduce or eliminate +this side effect. We expect that the slow dose escalation study will also help determine the need for dose escalation in the final +treatment regime. Even though the FDA has in the past approved drugs that listed rashes as a potential side effect, we do not +know if CC8464 will be approved by the FDA (or any foreign authority). +When +the dose escalation trial is funded, we will enroll approximately 20 healthy volunteers who will receive CC8464 over a period +of several weeks, with the dose escalation study expected to take approximately 9-12 months in total. We anticipate that the slower +dose escalation will decrease the likelihood of drug-related skin reactions. The primary endpoint of the dose escalation trail +will be safety and tolerability of the slower dose titration; however, we will also be measuring blood concentrations of CC8464, +which will allow us to better understand the pharmacokinetics of CC8464. Even if it is ultimately determined that we will need +an escalation period for chronic pain treatment therapy, which patients could well take for the remainder of their lives, we do +not believe the dose escalation approach will be consequential. +We +plan to conduct the dose escalation trial in Australia to avail ourselves of the tax credit set forth above, utilizing our Australian +subsidiary through which the work will be conducted. The location of the POC has not been determined at this time, with availability +of facilities and patient population, costs, tax credits, centers of excellence in the respective fields (EM or iSFN) are all +factors in the ultimate determination of the location. +In +parallel with the dose escalation study, we expect to run a pilot efficacy study on approximately ten EM patients. In this study, +we will induce EM flares, determine baseline pain, and then dose escalate CC8464, after which, we will attempt to induce flares. +The primary endpoint will be the amount of pain experienced, and the secondary endpoint is a determination if CC8464 reduces the +frequency of EM flares. +We +are currently working on the development of the Phase 2a POC plan and expect to launch the Phase 2a POC study following the dose +escalation study and EM pilot study, to assess the potential efficacy of CC8464 in iSFN patients. Both of iSFN and EM are orphan +indications for which we plan to apply for orphan drug designations. The orphan indication may decrease the scope of the ultimate +development program that is necessary for approval and is associated with a marketing exclusivity period from the FDA along with +some tax advantages. +Though +the Phase 2a POC study design has not yet been completed, the study will take approximately twelve months after it is initiated. +The primary endpoint will be the amount of pain experienced from iSFN with secondary endpoints including other measurements like +pain relief and neuropathy scores. The final design may change based on feedback from regulatory authorities or information learned +during the dose escalation trial. +The +potential population for EM in the United States is estimated to be between 5,000 and 50,000 patients and the potential population +for ISFN in the United States is estimated to be between 20,000 and 80,000 patients. In both instances, we expect patients would +potentially take our drug for the remainder of their lives, and given the lack of good therapeutic alternatives, we expect to +have a robust, ongoing, and durable market. +The +Phase 2a results will have significance beyond EM and iSFN and provide important insights about NaV1.7 as a potential target to +find novel pain medications as an alternative to opioids, the continuing primary standard of care in analgesics. We believe that +positive results from the Phase 2a study could not only act as support for CC8464’s potential in EM and iSFN but may also +provide guidance of its potential for other indications of peripheral neuropathic pain. +71 +We +may further expand our pipeline with other internal or external compounds in the future, but all other internally discovered compounds +are pre-clinical. +Benuvia +Spray Formulations : In addition to our NaV1.7 programs set forth above, on December 23, 2023, we entered into an exclusive +licensing agreement (the “Benuvia License Agreement”) with Benuvia for a sublingual formulation of a Diclofenac spray +for the treatment of acute pain, a Rizatriptan intranasal spray formulation and an Ondansetron sublingual spray formulation (collectively, +the “Spray Formulations”). The Spray Formulations diversify our pipeline of non-opioid pain treatment therapies, while +adding therapeutic options for related conditions. The sublingual formulation of a Diclofenac spray for the treatment of acute +pain (the “Diclofenac Spray Formulation”) is patented and has started clinical development in human volunteers. Preliminary +pharmacokinetics suggest that this formulation may have a faster onset of action than oral Diclofenac tablets. Diclofenac is an +NSAID that is also marketed under additional brand names including Voltaren and Cataflam in its pill form. A single Phase 1 trial +of the Diclofenac Spray Formulation was completed in 24 healthy volunteers wherein a single dose of 50mg diclofenac-potassium +was compared to 25 mg of Diclofenac Spray Formulation. In this trial, the blood plasma concentrations of Diclofenac rose more +quickly with the Diclofenac Spray Formulation than with the diclofenac administered orally by approximately 15 minutes. This suggests +that the Diclofenac Spray Formulation may have a faster onset of analgesia; however, additional trials may be needed to confirm +this effect. Additionally, the initial pharmacokinetic study demonstrated that a 25mg dose of Diclofenac Spray Formulation resulted +in lower systemic exposure to Diclofenac than the oral dose of 50mg diclofenac-potassium which means that an additional Phase +I pharmacokinetic study exploring additional higher doses of the sublingual diclofenac spray will likely be necessary to determine +the appropriate dose. +Rizatriptan, +whose brand name is Maxalt, is used for the acute treatment of migraines as a pill. By a number of clinical measures it is thought +to be superior to Sumatriptan. Both Rizatriptan and Sumatriptan belong to a family of tryptamine-based medications named “triptans” +that work as serotonin 1A receptor (or 5-HT1A-receptor) agonists and are indicated for the treatment of migraine. An intranasal +spray formulation of Rizatriptan (the “Rizatriptan Spray Formulation”) may potentially have a faster onset of action +than an oral form and may be easier to tolerate than swallowing a pill when patients are experiencing nausea as a result of the +migraine headache. According to a study that was reported in 2001, Rizatriptan has a higher bioavailability and a more rapid onset +of action which may be responsible for better results in resolving migraines as well as better results in patients reporting that +they are “pain free” after 2 hours. Both Sumatriptan and Rizatriptan are competitors for the same indication, though +neither are widely marketed because they are generic drugs. +Ondansetron +is an anti-emetic that is available in oral and intravenous form. An Ondansetron sublingual spray formulation (the “Ondansetron +Spray Formulation”) may potentially have a faster onset of action than an oral form and may be easier to tolerate than swallowing +a pill when patients are experiencing nausea. Under the terms of the Benuvia License Agreement, Benuvia will be responsible for +the manufacturing and supply of the Spray Formulations, but we will have exclusive, worldwide rights to develop, commercialize +and distribute the Spray Formulations. +We +currently do not have strategy and development plans for the Spray Formulations licensed from Benuvia. +Background +We +were incorporated in Delaware on March 19, 2021. On August 10, 2022, we entered into the Contribution Agreement with Chromocell +Holdings. Pursuant to the Contribution Agreement, as of the Contribution Date, we acquired from Chromocell Holdings all +assets, liabilities and results of operations related to Chromocell Holdings’ therapeutic business, including all patents, +pre-clinical and Phase I study results and data, and trade secrets related to the CC8464 compound, in exchange for the issuance +by us of 1,111,112 shares of our c ommon stock, par value $0.0001 per share (“ Common +Stock”) and (ii) 600,000 shares of Series A Convertible Preferred Stock (“ Series +A Preferred Stock”). +On +August 2, 2023, we entered into a Side Letter to the Contribution Agreement with Chromocell Holdings (the “Holdings Side +Letter”). Pursuant to the Holdings Side Letter, upon closing of our initial public offering (“IPO”): (a) Chromocell +Holdings re-assumed all $1.6 million in direct liabilities previously assumed by the Company in accordance with the Contribution +Agreement, (b) Chromocell Holdings waived the Company’s obligations to make a cash payment in the amount of $0.6 million +to Chromocell Holdings, and (c) in consideration thereof, we issued to Chromocell Holdings 2,600 shares of Series C Preferred +Stock. +72 +On +February 21, 2024, we completed the IPO and issued and sold 1,100,000 shares of Common Stock at a price to the public of $6.00 +per share. The aggregate net proceeds from the IPO were approximately $5.7 million after deducting underwriting discounts and +commissions of approximately $0.5 million and offering expenses of approximately $0.4 million. +In +connection with the completion of the IPO: (A) we effected the 9-for-1 reverse stock split effective February 15, 2024 (the “Reverse +Stock Split”) of our shares of Common Stock, (B) all 600,000 issued and outstanding shares of our Series A Preferred Stock +automatically converted into 499,429 shares of Common Stock, (C) $389,757 and accrued interest of approximately $28,336 as of +February 21, 2024 outstanding under our senior secured convertible notes issued in a +bridge financing in April 2023 for an aggregate principal amount of $393,808 ( the “April Bridge Financing”) +after giving effect to the Representative Affiliate Transactions (as defined below), automatically converted into approximately +87,109 shares of Common Stock, (D) $197,421 and accrued interest of $8,169 as of February 21, 2024 outstanding under our senior +secured convertible notes issued in a bridge financing in September 2023 for an aggregate +principal amount of $198,128 (the “September Bridge Financing” and together with the April Bridge Financing, the “Bridge +Financings”) after giving effect to the Representative Affiliate Transactions, automatically converted into +approximately 43,385 shares of Common Stock, which includes an additional 549 shares of Common Stock issuable as consideration +for the September Bridge Financing (the “Bonus Shares”), (E) we issued 37,500 shares of Common Stock to an investor +as consideration for its previous agreement to provide funding that is no longer necessary in connection with the IPO, (F) we +effected the Representative Affiliate Transactions, (G) we effected the transactions contemplated by the Holdings Side Letter, +and issued an aggregate of 2,600 shares of Series C Preferred Stock to Chromocell Holdings pursuant thereto, and (H) we issued +(i) 93,823 shares to a lender holding a note payable for $450,000 (the “Investor Note”) and (ii) 29,167 shares to +one of our directors holding the promissory note in the aggregate principal amount of $175,000 (the “Director Note”) +in full satisfaction of our obligations thereunder (in the case of (A) through (D) and (H) above, based on the IPO price of $6.00 +per share of Common Stock). We refer to these actions as the “IPO Transactions.” +In +addition, certain stockholders of the Company (“Selling Stockholders”), as identified in the Registration Statement, +have agreed to offer for resale of up to an aggregate of 2,969,823 shares of Common Stock (the “Selling Stockholder Shares”) +to the public. After conversion of the convertible notes or shares of preferred stock, as applicable, the Selling Stockholders, +or their respective transferees, pledgees, donees or other successors-in-interest, may sell the Selling Stockholders Shares through +public or private transactions at prevailing market prices, at prices related to prevailing market prices or at privately negotiated +prices. We will not receive any proceeds from the sale of the Selling Stockholder Shares by the Selling Stockholders. +The +affirmative vote of a majority of the outstanding shares of Common Stock present in person, by remote communication, if applicable, +or represented by proxy at the annual meeting of stockholders held on October 22, 2024 approved a reincorporation merger of the +Company in the State of Nevada with and into Channel Therapeutics Corporation, a wholly-owned subsidiary of the Company, with +Channel Therapeutics Corporation remaining as the surviving corporation immediately following the reincorporation merger (the +“Reincorporation Merger”). The Reincorporation Merger occurred on November 18, 2024. +On +December 18, 2024, 747,187 shares of Common Stock and 2,600 shares of Series C Preferred Stock held by Chromocell Holdings were +transferred by the Company to Alexandra Wood (Canada) Inc. (“AWI”) in satisfaction of a default judgement against +Chromocell Holdings regarding the default by Chromocell Holdings of a secured promissory note by order of the Supreme Court of +the State of New York, County of New York on November 25, 2024 in the matter Alexandra Wood (Canada) Inc v. Chromocell Corp., +Index No. 651735/2024 . AWI subsequently transferred 173,000 shares of Chromocell Holding’s shares of Common Stock that +it received such that AWI now owns 574,187 shares of the Common Stock originally issued to Chromocell Holdings in connection with +the Contribution Agreement. +73 +Trends +and Other Factors Affecting Our Business +On +December 23, 2023, we entered into an exclusive licensing agreement (the “Benuvia License Agreement”) with Benuvia +Operations LLC (“Benuvia”) for the Diclofenac Spray Formulation (as defined below), an intranasal spray formulation +of Rizatriptan and an Ondansetron sublingual spray formulation (collectively, the “Spray Formulations”), diversifying +our pipeline of non-opioid pain treatment therapies, while adding therapeutic options for related conditions. The sublingual formulation +of a Diclofenac spray for the treatment of acute pain (the “Diclofenac Spray Formulation”) is patented and has started +clinical development in human volunteers. Preliminary pharmacokinetics suggest that this formulation may have a faster onset of +action than oral Diclofenac tablets. Diclofenac is an NSAID that is also marketed under additional brand names including Voltaren +and Cataflam in its pill form. Rizatriptan, whose brand name is Maxalt, is used for the acute treatment of Migraines as a pill. +By a number of clinical measures it is thought to be superior to Sumatriptan. A sublingual formulation of Rizatriptan may potentially +have a faster onset of action than an oral form and may be easier to tolerate than swallowing a pill when patients are experiencing +nausea as a result of the migraine headache. Ondansetron is an anti-emetic that is available in oral and intravenous form. An +Ondansetron sublingual spray formulation may potentially have a faster onset of action than an oral form and may be easier to +tolerate than swallowing a pill when patients are experiencing nausea. Under the terms of the Benuvia License Agreement, Benuvia +will be responsible for the manufacturing and supply of the Spray Formulations, but we will have exclusive, worldwide rights to +develop, commercialize and distribute the Spray Formulations. +In +connection with the Benuvia License Agreement, we agreed to pay Benuvia a six and one-half percent (6.5%) royalty on net sales +of the Spray Formulations for a period of up to 15 years from the date of the first commercial sale of any of the Spray Formulations. +In addition, on December 23, 2023, we entered into a stock issuance agreement with Benuvia pursuant to which we issued to Benuvia +384,226 shares of our Common Stock, which may be offered and sold pursuant to the resale prospectus which forms a part of the +Registration Statement. +While +we currently do not have strategy and development plans for the Spray Formulations licensed from Benuvia, beginning in the first +quarter of 2025, we plan to develop clinical programs for each of the Spray Formulations, determine the labelling strategy that +would be obtained from completion of these programs and discuss with the FDA the requirements for bringing each of the Spray Formulations +to market. We anticipate bringing the Spray Formulations to market through the FDA 505(b)(2) regulatory pathway for new drug applications; +however, the exact details will require further consultation with the FDA. +74 +Going +Concern +For +the years ended December 31, 2024 and 2023, we had a net loss of approximately $8.0 million and approximately $7.4 million, respectively, +and will require additional capital in order to operate in the normal course of business and fund clinical studies. The IPO closed +on February 21, 2024, from which, the Company received net proceeds from the IPO of approximately $5.7 million after deducting +the underwriting discounts and commissions and offering expenses payable by the Company (excluding any exercise of the warrants +issued to A.G.P./Alliance Global Partners (the “ Representative”) +or its designees, in connection with the IPO). +Based +on the Company’s current projections, management believes there is substantial doubt about its ability to continue to operate +as a going concern and fund its operations through at least the next twelve months following the issuance of these consolidated +financial statements. While the Company will continue to invest in its business and the development of CC8464, CT2000 and CT 3000, +and potentially other molecules, it is unlikely that the Company will generate product or licensing revenue during the next twelve +months. During the period, the Company completed its initial public offering, raising $5.7 million, after +deducting the underwriting discounts and commissions and offering expenses , and the Company +may need to raise additional funds through either strategic partnerships or the capital markets. However, there is no assurance +that the Company will be able to raise such additional funds on acceptable terms, if at all. If the Company raises additional +funds by issuing securities, existing stockholders may be diluted. +Results +of Operations +Comparison +of the Years Ended December 31, 2024 and 2023 +The +following table summarizes our results of operations for the years ended December 31, 2024 and 2023: +Years Ended December 31, 2024 and 2023 +2024 +2023 +$ Change +% Change +OPERATING EXPENSES +General and administrative expenses +$ 4,110,045 +$ 2,738,948 +$ 1,371,097 +50 % +Research and development +1,179,436 +2,579,418 +(1,399,982 ) +(54 )% +Professional fees +2,281,968 +1,543,918 +738,050 +48 % +Total operating expenses +7,571,449 +6,862,284 +709,165 +10 % +Loss from operations +(7,571,449 ) +(6,862,284 ) +(709,165 ) +10 % +Other expense +(383,889 ) +(518,509 ) +134,620 +(26 )% +Net loss before provision for income taxes +(7,955,338 ) +(7,380,793 ) +(574,545 ) +8 % +Provision for income taxes +— +— +— +NA +Net loss +$ (7,955,338 ) +(7,380,793 ) +(574,545 ) +8 % +Operating +Expenses +Our +operating expenses consist of general and administrative expenses, research and development expenses and professional fees. +General +and Administrative Expenses +We +incurred general and administrative expenses for the years ended December 31, 2024 and 2023 of $4,110,045 and $2,738,948, respectively. +For the year ended December 31, 2024, compared to the same period in 2023, this represented an increase of $1,371,097, or 50%, +primarily as a result of increases of $495,688 in compensation expenses, an increase of $212,956 marketing expenses, an increase +of $367,723 in D&O insurance, an increase of $259,535 in IPO fees, and an increase of $137,582 in board expenses. +75 +Research +and Development Expenses +We +incurred research and development expenses for the years ended December 31, 2024 and 2023 of $1,179,436, and $2,579,418, respectively. +For the year ended December 31, 2024, compared to the same period in 2023, this represented a decrease of $1,399,982, or 54%, +with the details set forth in the table below: +Years Ended December 31, 2024 and 2023 +2024 +2023 +$ Change +% Change +Consultant +$ 286,680 +$ 68,900 +$ 217,780 +316 % +Lab Gas +1,818 +— +1,818 +NA +Lab Cell Storage +88,662 +48,572 +40,090 +83 % +Chemistry Manufacturing and Controls (“CMC”) +642,304 +— +642,304 +NA +IP Services +159,972 +2,461,946 +(2,301,974 ) +(94 )% +Total +$ 1,179,436 +$ 2,579,418 +$ (1,399,982 ) +(54 )% +The +Company incurred less research and development expenses for the year ended December 31, 2024, as compared to the corresponding +period in 2023 primarily as a result of a decrease in IP services of $2,301,974. +Professional +Fees +We +incurred professional expenses for the years ended December 31, 2024 and 2023 of $2,281,968 and $1,543,918, respectively. For +the year ended December 31, 2024, compared to the same period in 2023, this represented an increase of $738,050, or 48%, as a +result of higher auditing and legal expenses associated with the Company operating as a public company since February 2024. +Other +(Expense) Income +We +incurred other expense for the year ended December 31, 2024 of $383,889 as compared to other expense for the year ended December +31 , 2023 of $518,509. For the year ended December 31, 2024, compared to the same period in 2023, this represented a decrease +of $134,620 or 26%. The other expense for the years ended December 31 , 2024 +and 2023 was primarily the result of increased interest expense, net of a gain on default judgement of $363,091. The increase +in the interest expense was due to the remaining amortization of the debt discount on the Company’s notes being accelerated +upon the conversion of the notes to equity upon consummation of the IPO. +Liquidity +Sources +of Liquidity and Capital +We +are in our early stages of development and growth, without established records of sales or earnings. We will be subject to numerous +risks inherent in the business and operations of financially unstable and early stage or emerging growth companies. We have not +yet commercialized any products, and we do not expect to generate revenue from product sales of any of our compounds for several +years. +Cash +totaled $0.5 million and $0.1 million as of December 31, 2024 and December 31, 2023, respectively. As of December 31, 2024 and +December 31, 2023, we had an accumulated deficit of approximately $21.5 million and $13.5 million, respectively, and had a working +capital deficit of approximately $2.7 million and $6.4 million, respectively. +Historically, +we have funded our operations from a series of cash advances from Chromocell Holdings, licensing arrangements, bridge and note +issuances and grants from the National Institutes of Health. +76 +On +February 8, 2024, we and certain affiliates of the Representative entered into amendments to the senior secured convertible notes +issued to such affiliates of the Representative in the April Bridge Financing and September Bridge Financing to remove the automatic +conversion features from such notes (the “Bridge Financing Note Amendments”). Under the Bridge Financing Note Amendments, +both notes issued in the April Bridge Financing and the September Bridge Financing had a maturity date of March 1, 2024, and the +full principal amount of both notes and any accrued interest thereon was payable solely in cash upon the consummation of the IPO. +Both notes had an annual interest rate of eight percent (8%), which accrued daily, and was calculated on the basis of a 360-day +year (consisting of twelve 30 calendar day periods). +On +February 10, 2024, we entered into a Stock Rescission Agreement with certain affiliates of the Representative (the “Stock +Rescission Agreement” and, together with the Bridge Financing Note Amendments, the “Representative Affiliate Transactions”), +pursuant to which we rescinded 111,129 shares of our Common Stock held by such affiliates of the Representative and agreed to +refund an aggregate of $91,513 paid by such affiliates of the Representative in consideration therefor within 30 days of the effective +date of the Stock Rescission Agreement. At September 30, 2024, all such amounts have +been paid pursuant to the Representative Affiliate Transactions and there are no remaining obligations thereto. +On +February 21, 2024, we completed the IPO and issued 1,100,000 shares of Common Stock at a price of $6.00 per share. The aggregate +net proceeds from the IPO were approximately $5.7 million after deducting approximately $0.9 million in underwriting discounts +and commissions and offering expenses. +In +connection with the completion of the IPO: (A) we effected the Reverse Stock Split, effective as of February 15, 2024 (B) all +600,000 issued and outstanding shares of our Series A Preferred Stock automatically converted into 499,429 shares of Common Stock, +(C) principal in the amount of $389,757, along with accrued interest of approximately $28,336 as of February 21, 2024, outstanding +under our senior secured convertible notes issued in the April Bridge Financing (after giving effect to the Representative Affiliate +Transactions), automatically converted into approximately 87,109 shares of Common Stock, (D) principal in the amount of $197,421, +along with accrued interest of $8,169 as of February 21, 2024, outstanding under our senior secured convertible notes issued in +the September Bridge Financing (after giving effect to the Representative Affiliate Transactions), automatically converted into +approximately 43,385 shares of Common Stock, which includes an additional 549 Bonus Shares issuable as consideration for the September +Bridge Financing, (E) we issued 37,500 shares of Common Stock to an investor as consideration for its previous agreement to provide +funding that is no longer necessary in connection with the IPO, (F) we effected the Representative Affiliate Transactions, (G) +we effected the transactions contemplated by the Holdings Side Letter, and issued an aggregate of 2,600 shares of Series C Preferred +Stock to Chromocell Holdings pursuant thereto, and (H) we issued (i) 93,823 shares to a lender holding the Investor Note and (ii) +29,167 shares to one of our directors holding the Director Note in full satisfaction of our obligations thereunder (in the case +of (A) through (D) and (H) above, based on the IPO price of $6.00 per IPO Share). +In +addition, certain Selling Stockholders, as identified in the Registration Statement, have agreed to offer for resale of up to +an aggregate of 2,969,823 Selling Stockholder Shares to the public. After conversion of the convertible notes or shares of preferred +stock, as applicable, the Selling Stockholders, or their respective transferees, pledgees, donees or other successors-in-interest, +may sell the Selling Stockholders Shares through public or private transactions at prevailing market prices, at prices related +to prevailing market prices or at privately negotiated prices. We will not receive any proceeds from the sale of the Stockholder +Shares by the Selling Stockholders. +On +July 26, 2024, the Company entered into a Common Stock Purchase Agreement, dated as of July 26, 2024 (the “CEF Purchase +Agreement”), with Tikkun Capital LLC (“Tikkun”), providing for a committed equity financing facility, pursuant +to which, upon the terms and subject to the satisfaction of the conditions contained in the CEF Purchase Agreement, Tikkun has +committed to purchase, at the Company’s direction in its sole discretion, up to an aggregate of $30,000,000 (the “Total +Commitment”) of the shares of Common Stock (the “Purchase Shares”), subject to certain limitations set forth +in the CEF Purchase Agreement, from time to time during the term of the CEF Purchase Agreement. Concurrently with the execution +of the CEF Purchase Agreement, the Company and Tikkun also entered into a Registration Rights Agreement, dated as of July 26, +2024, pursuant to which the Company agreed to file with the SEC one or more registration statements, to register under the Securities +Act, the offer and resale by Tikkun of all of the Purchase Shares that may be issued and sold by the Company to Tikkun from time +to time under the CEF Purchase Agreement. +77 +On +August 5, 2024, our board of directors authorized the Repurchase Plan, pursuant to which up to $250,000 of our Common Stock may +be repurchased prior to December 31, 2024, unless completed sooner or otherwise extended. Open market purchases are intended to +be conducted in accordance with applicable Securities and Exchange Commission regulations, including the guidelines and conditions +of Rule 10b-18 and Rule 10b5-1 of the Securities Exchange Act of 1934, as amended. The timing and actual number of shares repurchased +will depend on a variety of factors including trading price, the Company’s financial performance, corporate and regulatory +requirements and other market conditions. On +October 22, 2024, the board of directors authorized an amendment (the “Amendment”) to the Repurchase Plan to increase +the total value of shares of Common Stock available for repurchase by the Company under the Repurchase Plan by an additional $500,000, +to $750,000. +Future +Funding Requirements +Our +primary use of cash is to fund clinical development, operating expenses and repay accrued liabilities associated with our IPO +and prior operating expenses. +With +respect to the Company’s future expected operations expenses, the primary expense drivers will be research and development +and management overhead, including costs of being a public company. Of these, research and development is a significant expense +which has been utilized for the furtherance of the Company’s CC8464, CT2000 and CT3000 programs. We have based the research +and development costs on current clinical and pre-clinical trial parameters and expectations on certain existing tax credits, +and there is no certainty that the clinical and pre-clinical trial parameters or tax credits available to the Company will remain +as they are, which could lead to changes in our research and development expenditures. Cash used to fund operating expenses is +impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable, accrued +expenses and prepaid expenses. +We +expect to continue to incur significant and increasing expenses and operating losses in connection with our ongoing research and +development activities. As a result, we expect to continue to incur operating losses and negative operating cash flows for the +foreseeable future. +As +a result, we will need to raise additional funding through strategic relationships, public or private equity or debt financings, +credit facilities, grants or other arrangements or some combination thereof. If such funding is not available or not available +on terms acceptable to us, our current development plan and plans for expansion of our general and administrative infrastructure +may be curtailed. If we raise additional funds through the issuance of preferred stock, convertible debt securities or other debt +financing, these securities or other debt could contain covenants that restrict our operations. Any other third-party funding +arrangement could require us to relinquish valuable rights. +The +source, timing and availability of any future financing will depend principally upon market conditions. Funding may not be available +when needed, at all, or on terms acceptable to us. Lack of necessary funds may require us to, among other things, delay, scale +back or eliminate expenses including some or all of our planned development. There is substantial doubt about our ability to continue +as a going concern. +Cash +Flows +The +following table summarizes our cash flows for the years ended December 31, 2024 and 2023: +Years Ended December 31, 2024 and 2023 +2024 +2023 +$ Change +% +Change +Net cash used in operating activities +$ (5,792,483 ) +$ (981,031 ) +$ (4,811,452 ) +490 % +Net cash provided by financing activities +6,209,535 +1,022,348 +5,187,187 +507 % +Net increase in cash +$ 417,052 +$ 41,317 +$ 375,735 +909 % +Net +Cash Used in Operating Activities +78 +For +the year ended December 31, 2024, we incurred a net loss of $7,955,338, and net cash flows used in operating activities was $5,792,483. +The cash flow used in operating activities was primarily due to a net loss of $7,955,338, offset by stock-based compensation expense +of $1,799,295, amortization of debt discount of $692,020, a change in account payable and accrued expense of $1,178,573, offset +by a change in prepaid expenses of $65,300, a change of $45,786 in due from Chromocell Corporation, and a change in accrued compensation +in the amount of $282,856, and deferred offering costs of $750,000. +For +the year ended December 31, 2023, we incurred a net loss of $7,380,793, and net cash flows used in operating activities was $981,031. +The cash flow used in operating activities was primarily due to a net loss of $7,380,793, offset by stock-based compensation expense +of $1,733,233, shares issued for license of $2,225,733, amortization of debt discount of $188,119, a change in account payable +and accrued expense of $1,627,005, share issuance cost associated with the extension of the bridge loan in the amount of $201,600 +and an increase in accrued compensation in the amount of $424,072. +Net +Cash (Used in) Provided by Investing Activities +The +Company neither received nor used cash in investing activities during the years ended December 31, 2024 and 2023. +Net +Cash Provided by Financing Activities +For +the year ended December 31, 2024, net cash flows provided by financing activities were $6,209,535 resulting from net proceeds +from common stock issued for cash of $5,972,000, net proceeds from common stock issued for cash under the equity line of credit +of $82,620, proceeds from loans of $536,184, partially offset by payment of recission on stock of $91,512, payment of repurchase +of common stock under Stock Repurchase Plan of $75,000 and payments on loans of $214,757. +For +the year ended December 31, 2023, net cash flows provided by financing activities were $1,022,348 resulting from proceeds from +loans of $766,936, with $565,928 of that amount derived from related parties and $255,412 from common stock issued for cash. +Off-Balance +Sheet Arrangements +During +the year ended December 31, 2024 and 2023, we did not have, and we do not currently have, any off-balance sheet arrangements, +as defined under applicable SEC rules. +Critical +Accounting Estimates +The +following discussions are based upon our consolidated financial statements, which have been prepared in accordance with accounting +principles generally accepted in the United States. +The +preparation of these consolidated financial statements requires management to make estimates, judgments and assumptions that affect +the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingencies. We continually evaluate +the accounting policies and estimates used to prepare the consolidated financial statements. We base our estimates on historical +experiences and assumptions believed to be reasonable under current facts and circumstances. Actual amounts and results could +differ from these estimates made by management. +See +Note 3 – Summary of Significant Accounting Policies to the accompanying consolidated financial statements for a detailed +description of our significant accounting policies. +Income +Taxes +We +are subject to income taxes in the U.S. Significant judgment is required in determining income tax expense, deferred taxes and +uncertain tax positions. The underlying assumptions are also highly susceptible to change from period to period. In assessing +the realizability of deferred tax assets, management considers whether it is more likely than not that some or all the deferred +tax assets will be realized. The ultimate realization of deferred taxes assets is dependent upon generation of future taxable +income during the period in which those temporary differences become deductible. Management considers the scheduled reversal of +deferred tax liabilities, projected future taxable income, and taxable income in carryback years and tax-planning strategies when +making this assessment. There is currently significant negative evidence which contributes to our recording a valuation allowance +against our deferred tax assets due to cumulative losses since inception. +79 +Although +we believe our assumptions, judgments, and estimates are reasonable, changes in tax laws or our interpretation of tax laws and +the resolution of any tax audits could significantly impact the amounts provided for income taxes in our consolidated financial +statements. The effect on deferred tax assets and liabilities from a change in tax rates is recognized in income in the period +that includes the enactment date. Adjustments to income tax expense, to the extent we establish a valuation allowance or adjust +the allowance in a future period, could have a material impact on our financial condition and results of operations. +Recently +Issued and Adopted Accounting Pronouncements +The +FASB issues ASUs to amend the authoritative literature in the Accounting Standards Codification (“ASC”). There have +been several ASUs to date, including those above, that amend the original text of ASC. Management believes that those issued to +date either (i) provide supplemental guidance, (ii) are technical corrections, (iii) are not applicable to us or (iv) are not +expected to have a significant impact on our consolidated financial statements. +Other +accounting standards that have been issued or proposed by FASB and do not require adoption until a future date are not expected +to have a material impact on the consolidated financial statements upon adoption. Other than below, management does not believe +that any other recently issued, but not yet effective, accounting standard if currently adopted would have a material effect on +the accompanying consolidated financial statements. +In +December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires disaggregated +information about a reporting entity’s effective tax rate reconciliation, as well as information related to income taxes +paid to enhance the transparency and decision usefulness of income tax disclosures. This ASU will be effective for the annual +periods beginning after December 15, 2024. The Company is currently evaluating the timing and impacts of adoption of this ASU. +Segment +Reporting +The +clinical-stage biotech segment focused on developing and commercializing new therapeutics to alleviate pain. Our clinical focus +is to selectively target the sodium ion-channel known as “NaV1.7”, which has been genetically validated as a pain +receptor in human physiology. A NaV1.7 blocker is a chemical entity that modulates the structure of the sodium-channel in a way +to prevent the transmission of pain perception to the CNS. Our goal is to develop a novel and proprietary class of NaV blockers +that target the body’s peripheral nervous system. This segment is currently pre-revenue. +The +accounting policies of the clinical-stage biotech segment are the same as those described in the summary of significant accounting +policies. +The +chief operating decision maker assesses performance for the clinical-stage biotech segment and decides how to allocate resources +based on net loss that also is reported on the statement of operations as consolidated net loss. +The +measure of segment assets is reported on the balance sheet as total assets. +The +chief operating decision maker uses net loss to evaluate spending in deciding how funds should be allocated in preforming the +Company’s research and development. Net loss is used to monitor budget versus actual results. +The Company has +one reportable segment: clinical-stage biotech. This segment performs research and development for biotech products. Since the +Company only has one segment, the segment information is the same as the consolidated financials. +The Company’s +chief operating decision maker includes the chief executive officer, with such individual also holding the position of chief financial +officer. +80 +Item +7A. Quantitative and Qualitative Disclosures About Market Risk. +As +a smaller reporting company, as defined in Rule 12b-2 of the Exchange Act, we are not required to provide the information required +by this Item. +Item +8. Financial Statements and Supplementary Data. +The +Company’s consolidated financial statements, notes to the consolidated financial statements, and the reports of the Company’s +independent registered accountants required to be filed in response to this Item 8 begin on page F-1 of this Report. +Item +9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. +None. +Item +9A. Controls and Procedures. +Evaluation +of Disclosure Controls and Procedures +As +required by Rule 13a-15 under the Exchange Act, we have carried out an evaluation of the effectiveness of our disclosure controls +and procedures as of the end of the period covered by this Report. This evaluation was carried out under the supervision and with +the participation of our management, including our Chief Executive Officer and Chief Financial Officer. +Disclosure +controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed +in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods +specified in the SEC’s rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure +that information required to be disclosed in our company’s reports filed under the Exchange Act is accumulated and communicated +to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required +disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, +no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, +and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a +company have been detected. Based on the evaluation of our disclosure controls and procedures as of December 31, 2024, our Chief +Executive Officer and our Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were +not effective. +Management +identified the following material weaknesses: +1. +We lack +the necessary corporate accounting resources to maintain adequate segregation of duties. Such a lack of segregation of duties +is typical in a company with limited resources. +2. +We lack the ability +to provide multiple levels of review in connection with the financial reporting process, which means that we cannot ensure +that we are meeting certain financial reporting and transaction processing controls standards. +3. +We lack the necessary +internal IT infrastructure to ensure proper IT general controls. Additionally, we are reliant on third-party software for +our financial systems and cannot ensure there are no vulnerabilities in these systems. +Management’s +Report on Internal Control over Financial Reporting +This +Report does not include a report of management’s assessment regarding internal control over financial reporting or an attestation +report of the Company’s registered public accounting firm due to a transition period established by rules of the SEC for +newly public companies. Additionally, our auditors will not be required to formally opine on the effectiveness of our internal +control over financial reporting pursuant to Section 404 until we are no longer an “emerging growth company” as defined +in the JOBS Act. +81 +Changes +in Internal Control over Financial Reporting +There +were no changes in the Company’s internal control over financial reporting during the year ended December 31, 2024, +that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial +reporting. +Item +9B. Other Information +During +the three months ended December 31, 2024, none of our directors and officers adopted or terminated a “Rule 10b5-1 trading +arrangement” or “non-Rule 10b5-1 trading arrangement”, as each term is defined in Item 408(a) of Regulation +S-K. +Item +9C. Disclosure Regarding Foreign Jurisdictions That Prevent Inspections +Not +applicable. +PART +III +Item +10. Directors, Executive Officers and Corporate Governance +The +following table provides information regarding our current executive officers and directors: +Name +Age +Position +Executive +Officers +Francis +Knuettel II +58 +Chief +Executive Officer and President, Chief Financial Officer, Treasurer and Secretary +Eric +Lang +63 +Chief +Medical Officer +Directors +Todd +Davis +64 +Director +(Chairman of the Board) +Ezra +Friedberg +55 +Director +Richard +Malamut +65 +Director +Chia-Lin +Simmons +51 +Director +Francis +Knuettel II +58 +Director +Biographic +Information +Francis +Knuettel II has served as our Chief Executive Officer since July 2023, as our Chief Financial Officer, Treasurer and Secretary +since June 2022, as our Chief Executive Officer since March 2024, and has served as a member of our board of directors since August +2024. Prior to that, from December 2020 to April 2022, he served as Chief Executive Officer and director of Unrivaled Brands, +a California-based operator of cannabis assets in California and Oregon, where he helped grow revenue from an annualized rate +of $10 million to $100 million in six quarters by acquiring three companies in the sector. He also served as Chief Financial Officer +of ONE Cannabis Group from June 2019 to January 2021 and held various roles at MJardin Group, including Chief Strategy Officer, +from August 2018 to January 2019. Prior to MJardin Group, Mr. Knuettel served as Chief Financial Officer of Aqua Metals in 2018 +and held the same position at Marathon Patent Group from 2014 to 2018. During Mr. Knuettel’s career, he has helped raise +more than $300 million via venture equity and debt, public equity and debt offerings in the United States and Canada, convertible +debt, PIPEs, bridge loans and other instruments. In addition, he has managed more than 15 mergers and acquisition transactions +of companies as both buyer and seller and has handled large-scale licensing transactions with fortune 50 companies. Mr. Knuettel +is also a board member at Etheros Pharmaceuticals Corp. since 2023. Mr. Knuettel received his BA with honors in Economics from +Tufts University and holds an MBA in Finance and Entrepreneurial Management from The Wharton School at the University of Pennsylvania. +82 +Eric +Lang has served as our Chief Medical Officer since May 2023. Prior to that, from September 2018 to May 2023, Dr. +Lang served at Nevakar Inc, initially as Vice President of Clinical Development and later as its Chief Medical Officer. From January +2018 to September 2018, Dr. Lang served as the Chief Medical Officer at Entera Bio Ltd. (Nasdaq: ENTX). From February 2012 to +November 2017, he served at Covance (now Labcorp Drug Development), heading an international team that assisted smaller biotech +companies in moving their programs through the various phases of pre-clinical and clinical development. From August 2010 to January +2012, Dr. Lang served at Grunenthal USA, Inc. as their head of clinical development. Prior to that, Dr. Lang led the clinical +development team at Javelin Pharmaceuticals, Inc. from October 2008 to August 2010, which was acquired by Hospira (now Pfizer +Inc.) in 2010. Dr. Lang worked for Novartis Consumer Health from October 2006 to October 2008 and he began his career with Johnson & +Johnson (NYSE: JNJ) where he worked from 1999 to 2006. In addition, Dr. Lang serves on several boards including with Cytogel Pharmaceuticals +and the NIH/NINDS EPPIC initiative. Dr. Lang is an Anesthesiologist and Pain Management Specialist with over 26 years of +experience in the pharmaceutical industry. During his pharmaceutical career, he has had both broad-based drug and device development +expertise in a variety of therapeutic areas. Dr. Lang has experience in designing development programs from early translational +stages through phase III including the successful filing of several recent INDs and NDAs. He has experience with regulatory interactions +and negotiations with FDA and various European and Asian Authorities. Dr. Lang received his Doctor of Medicine from Ben-Gurion +University of the Negev and completed post graduate training at Emory University in Atlanta, GA. +Todd +Davis has served as a member of our board of directors since January 2023. He is the Chief Executive Officer of Ligand +Pharmaceuticals Incorporated since December 2022 and is a member of the board of directors since 2007. He is the founder and has +served as the managing partner of RoyaltyRx Capital, LLC, a special opportunities investment firm, since 2018. Since November +2019, he has also served as Chairman and CEO of Benuvia Holdings, LLC, a pharmaceutical holding company. From 2006 to 2018, Mr. +Davis was a founder and Managing Partner of HealthCare Royalty Partners, a global healthcare investment firm. From 2004 to 2006, +Mr. Davis was a partner at Paul Capital Partners, where he co-managed its royalty investments as a member of the Royalty Management +Committee. From 2001 to 2004, he served as a partner responsible for biopharmaceutical growth equity investments at Apax Partners. +Mr. Davis began his business career in sales at Abbott Laboratories where he held several commercial roles of increasing responsibility. +He subsequently held general management, business development, and licensing roles at Elan Pharmaceuticals. Mr. Davis is a navy +veteran and received a B.S. from the U.S. Naval Academy and an M.B.A. from the Harvard Business School. He currently serves on +the board of directors of Palvella Therapeutics Inc., Virocell Biologics and Ligand Pharmaceuticals Incorporated. He is also a +former board member of the Harvard Business School Healthcare Alumni Association. We believe Mr. Davis is qualified to serve on +the board of directors because of his extensive experience within the life sciences industry, including as a founder and managing +partner of a special opportunities investment firm. +Ezra +Friedberg has served on our board of directors since May 2021, bringing over 30 years of investment experience across +public and private markets. Since co-founding Multiplier Capital in 2011, a private credit fund specializing in sponsor-backed +growth companies, he has acted as General Partner and a member of the fund’s investment committee. A seasoned investor, Mr. Friedberg +has a strong focus on the biotechnology sector, including his tenure on the board of Humanigen (Nasdaq: HGEN), a clinical-stage +biopharmaceutical company developing monoclonal antibodies. His broader portfolio spans private equity, venture capital, and real +estate investments. In addition to his work with Multiplier Capital, Mr. Friedberg manages diverse investments and businesses +through Liberty Peak Capital, Key Recovery Group, and related entities. A graduate of Johns Hopkins University, he is also deeply +committed to civic engagement, having founded and actively served on the boards of several community organizations, including +a nonprofit mentoring agency. His extensive investment expertise and understanding of our industry were key factors in his selection +to our board of directors. +Dr. +Richard Malamut has served as a member of our board of directors since January 2023. Dr. Malamut is currently Chief Medical +Officer at MedinCell Inc. He was most recently Chief Medical Officer and Executive Vice President at Collegium Pharmaceuticals +from April 2019 to May 2022 and has also served as Chief Medical Officer for Braeburn Pharmaceuticals, Inc. from 2018 to 2019 +where he was responsible for the company’s medical affairs, non-clinical and clinical development, clinical operations, +research and development quality assurance, and pharmacovigilance functions. Prior to that, Dr. Malamut had similar responsibilities +as Chief Medical Officer at Avanir Pharmaceuticals from 2016 to 2018 and was Senior Vice President of Global Clinical Development +at Teva Pharmaceutical Industries Ltd from 2013 to 2016 where he was responsible for Pain, Neuropsychiatry, Oncology, and New +Therapeutic Entities. His experience also includes roles of increasing responsibility focusing on early clinical development and +translational medicine in Neurology, Psychiatry and Analgesia at Bristol-Myers Squibb and AstraZeneca. Dr. Malamut earned his +medical degree from Hahnemann University in Philadelphia and completed both a residency in Neurology and a fellowship in neuromuscular +disease. He worked as a board-certified academic and clinical neurologist for 17 years and has more than 50 publications in the +fields of pain medicine, neuromuscular disease, autonomic disease, and neurodegenerative disease. He was selected to serve on +our board of directors due to his experience and knowledge of our industry. +83 +Chia-Lin +Simmons has served as a member of our board of directors since March 2023. Since June 2021, Ms. Simmons has served +as Chief Executive Officer and as a director of LogicMark, Inc. (Nasdaq: LGMK), a company that develops medical alert devices +and related technologies. Ms. Simmons served as a member of the governing board of directors for Servco Pacific Inc., a global +automotive and consumer goods company with businesses in mobility, automotive distribution and sales, and entertainment and currently +serves on its Investment Board. Ms. Simmons serves on the board of New Energy Nexus, an international organization that supports +clean energy entrepreneurs with funds, accelerators, and networks. From 2016 to June 2021, Ms. Simmons served as the Chief Executive +Officer and co-founder of LookyLoo, Inc., an artificial intelligence social commerce company. From 2014 to 2016, Ms. Simmons served +as Head of Global Partner Marketing at Google Play, prior to which, between 2010 and 2014, she served as VP of Marketing & +Content for Harman International. Ms. Simmons received her B.A. in Communications, Magna cum Laude, and Phi Beta Kappa, from the +University of California, San Diego in 1995. She also received her M.B.A. from Cornell University in 2002, where she was a Park +Leadership Fellow, and her J.D. from George Mason University in 2005, and is currently a licensed attorney in the State of New +York. She was selected to serve on our board of directors due to her experience serving on the boards of directors of public companies. +Family +Relationships +There +are no family relationships among any of our directors or executive officers. +Involvement +in Certain Legal Proceedings +None. +Code +of Ethics +We +have a written code of conduct and ethics that applies to our directors, officers, employees and contractors, including our principal +executive officer, principal financial officer, principal accounting officer or controller, and persons performing similar functions. +The code of conduct and ethics is available on our website at www.channeltherapeutics.com . We intend to disclose +future amendments to such code, or any waivers of its requirements, applicable to any principal executive officer, principal financial +officer, principal accounting officer or controller, or persons performing similar functions or our directors on our website identified +above or in a Current Report on Form 8-K that we would file with the SEC. +Delinquent +Section 16(a) Reports +Under +the securities laws of the United States, our directors, executive (and certain other) officers, and any persons holding ten percent +or more of our Common Stock must report on their ownership of the Common Stock and any changes in that ownership to the SEC. Specific +due dates for these reports have been established. During the fiscal year ended December 31, 2024, all reports required to be +filed by such persons pursuant to Section 16(a) were filed on a timely basis. +84 +Corporate +Governance +Board +of Directors +Our +board of directors consists of four members. The primary responsibilities of our board of directors are to provide oversight, +strategic guidance, counseling and direction to our management. Our board of directors meets on a regular basis and additionally +as required. +Director +Independence +Applicable +NYSE American rules require a majority of a listed company’s board of directors to be comprised of independent directors +within one year of listing. In addition, NYSE American rules require that, subject to specified exceptions, each member of a listed +company’s audit, compensation and nominating and corporate governance committees be independent and that audit committee +members also satisfy independence criteria set forth in Rule 10A-3 under the Exchange Act. The NYSE American independence definition +includes a series of objective tests, such as that the director is not, and has not been for at least three years, one of our +employees and that neither the director nor any of his family members has engaged in various types of business dealings with us. +In addition, under applicable NYSE American rules, a director will only qualify as an “independent director” if, in +the opinion of the listed company’s board of directors, that person does not have a relationship that would interfere with +the exercise of independent judgment in carrying out the responsibilities of a director. +Our +board of directors has determined that all of our non-employee directors, other than Mr. Todd Davis, are independent, as defined +under applicable NYSE American rules. In making such determination, our board of directors considered the relationships that each +such non-employee director has with our company and all other facts and circumstances that our board of directors deemed relevant +in determining his or her independence, including the beneficial ownership of our capital stock by each non-employee director +and the transactions involving them described in the section entitled “Certain Relationships and Related-Party Transactions.” +Audit +committee members must also satisfy the independence criteria set forth in Rule 10A-3 under the Exchange Act. In order to be considered +independent for purposes of Rule 10A-3 of the Exchange Act, a member of an audit committee of a listed company may not, other +than in his or her capacity as a member of the audit committee, the board of directors or any other board committee: (i) accept, +directly or indirectly, any consulting, advisory or other compensatory fee from the listed company or any of its subsidiaries; +or (ii) be an affiliated person of the listed company or any of its subsidiaries. +Our +executive officers are elected by, and serve at the discretion of, our board of directors. +Board +Meetings and Attendance +During +the 2024 fiscal year, the board of directors held five (5) board meetings, with all board members in attendance for each, and +also conducted other matters by unanimous written consent. +Annual +Meeting Attendance +On +October 22, 2024, the Company held its 2024 Annual Meeting of Stockholders (the “Annual Meeting”). Set forth below +are the five proposals that were voted on at the Annual Meeting and the stockholder votes on each such proposal, as certified +by the inspector of elections for the Annual Meeting. These proposals are described in further detail in the Definitive Proxy +Statement on Schedule 14A filed by the Company with the SEC on September 26, 2024 (the “Proxy Statement”). +As +of the close of business on September 20, 2024, the record date for the Annual Meeting, 5,766,704 shares of the Company’s +common stock, par value $0.0001 per share (“Common Stock”), were issued, outstanding and entitled to vote. Holders +of shares of Common Stock were entitled to one vote per share for each share of Common Stock. Stockholders holding an aggregate +of 3,950,312 votes were present at the Annual Meeting, in person or represented by proxy, which number constituted a quorum. +85 +Proposal +1 – The five (5) nominees named in the Proxy Statement were elected at the Annual Meeting to serve as the Company’s +directors until the Company’s 2025 Annual Meeting of Stockholders and until each of their respective successors are elected +and qualified or until each of their earlier resignation or removal. The final voting results with respect to the election of +each such nominee were as follows: +Nominee +For +Withheld +Todd Davis +3,534,258 +815 +Ezra Friedberg +3,534,258 +815 +Francis Knuettel II +3,534,258 +815 +Dr. Richard Malamut +3,534,254 +819 +Chia-Lin Simmons +3,532,834 +2,239 +There +were 415,239 broker non-votes with respect to each such nominee for the first proposal. +Proposal +2 – The amendment to the Company’s 2023 Equity Incentive Plan to increase the number of shares authorized +for issuance thereunder was approved by the Company’s stockholders. The final voting results were as follows: +For +Against +Abstain +3,527,889 +4,985 +2,199 +There +were 415,239 broker non-votes with respect to the second proposal. +Proposal +3 – The proposal to waive the limit on the number of shares of Common Stock that may be issued to certain shareholders +pursuant to that certain Securities Purchase Agreement, dated July 24, 2024, and that certain Common Stock Purchase Agreement, +dated July 26, 2024, as required by NYSE American, was approved by the Company’s stockholders. The final voting results +were as follows: +For +Against +Abstain +3,126,104 +406,770 +2,199 +There +were 415,239 broker non-votes with respect to the third proposal. +Proposal +4 – The reincorporation of the Company in Nevada and simultaneous name change to “Channel Therapeutics Corporation” +was approved by the Company’s stockholders. The final voting results were as follows: +For +Against +Abstain +2,603,047 +2,335 +929,691 +There +were 415,239 broker non-votes with respect to the fourth proposal. +Proposal +5 – The appointment of Marcum LLP as the independent registered public accounting firm of the Company for the fiscal +year ending December 31, 2024 was ratified by the Company’s stockholders. The final voting results were as follows: +For +Against +Abstain +3,941,195 +6,918 +2,199 +Role +of our Board of Directors in Risk Oversight +One +of the key functions of the board of directors is informed oversight of our risk management process. The board of directors does +not anticipate having a standing risk management committee but rather anticipates administering this oversight function directly +through our board of directors as a whole, as well as through various standing committees of our board of directors that address +risks inherent in their respective areas of oversight. In particular, our board of directors is responsible for monitoring and +assessing strategic risk exposure and our audit committee has the responsibility to consider and discuss our major financial risk +exposures and the steps our management has to take to monitor and control such exposures, including guidelines and policies to +govern the process by which risk assessment and management is undertaken. The audit committee also monitors compliance with legal +and regulatory requirements. Our compensation committee also assesses and monitors whether our compensation plans, policies and +programs comply with applicable legal and regulatory requirements. +86 +Committees +of Our Board of Directors +Our +board of directors has established an audit committee, a compensation committee and a nominating and corporate governance committee, +each of which has the composition and the responsibilities described below. Members serve on these committees until their resignation +or until otherwise determined by our board of directors. Each committee operates under a charter approved by our board of directors. +Copies of each committee’s charter will be posted on the investor relations section of our website at www.channeltherapeutics.com . +Audit +Committee +Our +audit committee is composed of Ezra Friedberg and Chia-Lin Simmons. Ezra Friedberg is the chairperson of our audit committee. +The composition of our audit committee meets the requirements for independence under the current NYSE American listing standards +and SEC rules and regulations. Each member of our audit committee is financially literate. In addition, our board of directors +has determined that Ezra Friedberg is an “audit committee financial expert” as defined in Item 407(d)(5)(ii) of Regulation +S-K promulgated under the Securities Act. This designation does not impose any duties, obligations or liabilities that are greater +than are generally imposed on members of our audit committee and our board of directors. Our audit committee is responsible for, +among other things: +● +our accounting and +financial reporting processes, including our financial statement audits and the integrity of our consolidated financial statements; +● +our compliance with +legal and regulatory requirements; +● +reviewing and approving +related person transactions; +● +selecting and hiring +our registered independent public accounting firm; +● +the qualifications, +independence and performance of our independent auditors; and +● +the preparation +of the audit committee report to be included in our annual proxy statement. +Compensation +Committee +Our +compensation committee is composed of Richard Malamut and Chia-Lin Simmons. Richard Malamut is the chairperson of our compensation +committee. The composition of our compensation committee meets the requirements for independence under the current NYSE American +listing standards and SEC rules and regulations. Each member of this committee is: (i) an outside director, as defined pursuant +to Section 162(m) of the Internal Revenue Code of 1986, as amended; and (ii) a non-employee director, as defined in Rule 16b-3 +promulgated under the Exchange Act. Our compensation committee is responsible for, among other things: +● +evaluating, recommending, +approving and reviewing executive officer and director compensation arrangements, plans, policies and programs; +● +administering our +cash-based and equity-based compensation plans; and +● +making recommendations +to our board of directors regarding any other board of director responsibilities relating to executive compensation. +87 +Nominating +and Corporate Governance Committee +Our +nominating and corporate governance committee is composed of Chia-Lin Simmons and Richard Malamut. Chia-Lin Simmons is the chairperson +of our nominating and corporate governance committee. The composition of our nominating and corporate governance committee meets +the requirements for independence under the current NYSE American listing standards and SEC rules and regulations. Our nominating +and corporate governance committee is responsible for, among other things: +● +identifying, considering +and recommending candidates for membership on our board of directors; +● +overseeing the process +of evaluating the performance of our board of directors; and +● +advising our board +of directors on other corporate governance matters. +Director +Nomination Procedures +There +have been no material changes to the procedures by which security holders may recommend nominees to our board of directors. +Insider +Trading Arrangements and Policies +We +have a written insider trading policy that applies to our directors, officers, employees and contractors, including our principal +executive officer, principal financial officer, principal accounting officer or controller, and persons performing similar functions. +We intend to disclose future amendments to such policy, or any waivers of its requirements, applicable to any principal executive +officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions or our +directors on our website identified above or in a Current Report on Form 8-K that we would file with the SEC. +Our +directors and executive officers may adopt written plans, known as Rule 10b5-1 plans, in which they will contract with a broker +to buy or sell shares of our Common Stock on a periodic basis. Under a Rule 10b5-1 plan, a broker executes trades pursuant to +parameters established by the director or officer when entering into the plan, without further direction from them. The director +or officer may amend a Rule 10b5-1 plan in some circumstances and may terminate a plan at any time. Our directors and executive +officers also may buy or sell additional shares outside of a Rule 10b5-1 plan when they are not in possession of material non-public +information subject to compliance with the terms of our insider trading policy. Prior to 180 days after the date of the pricing +of our IPO, subject to early termination, the sale of any shares under such plans would be prohibited by the lock-up agreement +that the director or officer has entered into with the underwriters. +Item +11. Executive Compensation. +Our +named executive officers for 2024 were Mr. Francis Knuettel II, our Chief Executive Officer and President, Chief Financial Officer, +Treasurer and Secretary, and Dr. Eric Lang, our Chief Medical Officer. Mr. Knuettel was first appointed in June 2022, and Dr. +Lang was first appointed in May 2023. +Summary +Compensation Table +The +following table provides information regarding the compensation of our named executive officers during the years ended December +31, 2024 and 2023. +Name and Principal Position +Year +Salary +Bonus +Option +Awards +Non-Equity +Incentive Plan +Compensation +All Other +Compensation +Total +Francis Knuettel II +2024 +$ 424,923 +$ 56,666 +$ 361,833 +$ — +$ — +$ 843,422 +Chief Executive and Chief Financial Officer +2023 +$ 107,500 +$ — +$ 199,510 +$ — +$ — +$ 307,010 +Eric Lang (1) +2024 +$ 446,154 +$ — +$ 230,318 +$ — +$ — +$ 676,472 +Chief Medical Officer +2023 +$ 166,767 +$ — +$ 120,735 +$ — +$ — +$ 287,502 +Christian Kopfli +2024 +$ — +$ — +$ — +$ — +$ — +$ — +Former Chief Executive Officer, Former Chief Strategy Officer, and Former Vice Chairman (2) +2023 +$ 11,280 (3) +$ — +$ 149,633 +$ — +$ — +$ 160,913 +(1) +Represents the portion +of Dr. Lang’s salary attributable to his services to the Company during the year ended December 31, 2023. Dr. Lang was +appointed Chief Medical Officer of the Company, effective May 15, 2023. +(2) +Mr. Kopfli stepped +down as Chief Financial Officer with the hiring of Mr. Knuettel, effective June 10, 2022. In addition, in July 2023, Mr. Knuettel +assumed the role of Interim Chief Executive Officer and stepped down as Chief Strategy Officer, and Mr. Kopfli was appointed +Vice Chairman and Chief Strategy Officer. On December 1, 2023, the Company terminated Mr. Kopfli as Vice Chairman and Chief +Strategy Officer. +(3) +Represents the portion +of Mr. Kopfli’s salary attributable to his services to the Company during the years ended December 31, 2023. +88 +Employment +Agreements and Arrangements +Christian +Kopfli +We +were a party to an amended and restated employment agreement with Christian Kopfli, dated July 28, 2023. Pursuant to such agreement, +Mr. Kopfli agreed to serve as our Vice Chairman and Chief Strategy Officer, in consideration for an annualized salary of $275,000, +payable in cash at the rate of $5,000 per month (a minimum of $1,125 per week), with the remainder accrued and paid as of the +earliest of a sale or liquidation of the Company, the Company’s bankruptcy or three days after the approval by the board +of directors of a funded budget with appropriately established milestones subsequent to the effective date of a Form S-1 registration +statement (“Post-registration Approval”). Mr. Kopfli also agreed, as of Post-registration Approval, to resign as Chief +Executive Officer of Chromocell Corporation although he could continue to serve on the board of directors of Chromocell Corporation, +including as its board of directors Chair. The employment agreement provided that Mr. Kopfli receive an option to acquire 200,000 +shares of our Common Stock, vesting quarterly over 10 quarters and beginning October 1, 2022. This option shall have an exercise +price equal to the fair market value of our Common Stock on the date of grant and shall expire on the 10th anniversary of the +date of grant. The option was awarded as of January 10, 2023. The employment agreement contemplated an annual bonus, as determined +by the board of directors. The target bonus was 50% of Mr. Kopfli’s annualized salary and was to be based on achievement +of performance goals and objectives agreed to by Mr. Kopfli and the board of directors in January of each year. The board of directors +was to increase the bonus in recognition of performance in excess of the performance objectives. Any bonus would have only been +paid if Mr. Kopfli remained employed on the date of payment, which would have been no later than March 15 of the year following +the year to which the bonus relates. Any bonus for 2022 would have been payable solely in the board of directors’ discretion. +Pursuant +to Mr. Kopfli’s employment agreement, in the event he was involuntarily terminated by the Company other than for “Cause” +or if he resigns for “Good Reason,” he was entitled to receive (i) six months of salary at the same rate existing +immediately prior to his termination, (ii) his target bonus, if performance goals and objectives had been established for the +year and prorated for the period of service, and (iii) six months of additional vesting credit with respect to any outstanding +time-based equity awards. “Cause” and “Good Reason” are each defined in the employment agreement. +Finally, +Mr. Kopfli agreed to certain non-solicitation and non-competition provisions for a period of 12 months following termination and +to certain confidentiality obligations. Additional terms and conditions are set forth in the employment agreement. +On +November 27, 2023, Mr. Kopfli was removed from our board of directors by our stockholders having a majority of the number of votes +necessary to take such action. Mr. Kopfli was then terminated from his position as Vice Chairman and Chief Strategy Officer by +the Company for “Cause”, as defined in the employment agreement, effective December 1, 2023. +89 +Camden +Capital LLC +We +entered into a Consultant Agreement with Camden Capital LLC (“Camden”), dated January 10, 2023 (the “Consultant +Agreement”). This Consultant Agreement replaced an agreement with Mr. Francis Knuettel II dated June 2, 2022 and pursuant +to which, Camden agreed to provide the services of Mr. Knuettel, who was to serve as our Chief Financial and Strategy Officer, +Treasurer and Secretary. +Under +the Consultant Agreement, Camden accrued a consulting fee for the period June 6, 2022 through August 31, 2022 of $10,000 per month +and effective September 1, 2022, began to accrue a consulting fee of $20,000 per month, payable in cash at the rate of $5,000 +per month (a minimum of $1,125 per week), with the remainder accrued. All accrued consulting fees are payable as of the earliest +of a sale or liquidation of the Company, the Company’s bankruptcy or three days after Post-registration Approval. The Consultant +Agreement provides for the following equity awards to Camden: (i) an option, awarded as of January 10, 2023, to acquire 200,000 +shares of our Common Stock, vesting quarterly over 10 quarters and beginning October 1, 2022, with the option having an exercise +price equal to the fair market value of our Common Stock on the date of grant and expiring on the 10th anniversary of the date +of grant; (ii) an option, awarded as of January 10, 2023, to acquire 25,000 shares of our Common Stock, vesting 100% upon the +sooner of the sale of the Company or Post-registration Approval, with the option having an exercise price equal to the fair market +value of our Common Stock on the date of grant and expiring on the 10th anniversary of the date of grant; and (iii) a restricted +stock unit (“RSU”), awarded as of January 10, 2023, of 150,000 shares of our Common Stock, vesting 100% on the day +after the first trading window that opens after Post-registration Approval. +The +Consultant Agreement contemplates an additional consulting fee, as determined by the board of directors. The potential additional +consulting fee is 50% of the annualized consulting fee and will be based on achievement of performance goals and objectives established +by the board of directors in concert with Mr. Knuettel in January of each year. The board of directors may increase the potential +additional consulting fee in recognition of performance in excess of the performance objectives. Any amount shall only be paid +if Camden continues to provide consulting services to the Company as of the date of payment, which will be no later than March +15 of the year following the year to which the additional consulting fee relates. Any additional consulting fee for 2022 is payable +solely in the board of directors’ discretion. +Pursuant +to the Consultant Agreement, in the event the relationship with Camden is involuntarily terminated by the Company other than for +“Cause” or if Camden terminates the relationship for “Good Reason,” Camden is entitled to receive (i) +six months of consulting fees at the same rate existing immediately prior to termination, (ii) a potential additional consulting +fee, if performance goals and objectives have been established for the year and prorated for the period of service, and (iii) +six months of additional vesting credit with respect to any outstanding time-based equity awards. “Cause” and “Good +Reason” are each defined in the Consultant Agreement. +Finally, +Camden and Mr. Knuettel agree to certain non-solicitation and non-competition provisions for a period of 12 months following termination +of the relationship and to certain confidentiality obligations. Additional terms and conditions are set forth in the Consultant +Agreement. +On +June 23, 2023, we amended and restated the Consultant Agreement by entering into an Amended and Restated Consultant Agreement +with Camden whereby the RSU for 16,667 shares of Common Stock was cancelled, and we agreed to grant Camden an option to acquire +27,777 shares of Common Stock within 30 days of the closing of the IPO. As of June 23, 2023, such RSU for 16,667 shares of our +Common Stock had not vested, and no expense was recorded on the Company’s consolidated financial statements. In addition, +from and after June 1, 2023, the consulting fee will be paid in cash by the Company. No other material changes were made to the +Consultant Agreement. +Effective +July 19, 2023, the board of directors appointed Francis Knuettel II as Interim Chief Executive Officer and as of March 13, 2024, +the board of directors appointed Francis Knuettel II as Chief Executive Officer of the Company, at which time Mr. Knuettel became +an employee of the Company. Mr. Knuettel will serve as the Company’s Chief Executive Officer until a successor is duly elected +and qualified, unless sooner removed. In addition to his role as Chief Executive Officer of the Company, Mr. Knuettel will continue +to serve in his capacity as Chief Financial Officer, Treasurer and Secretary of the Company. +90 +Eric +Lang +We +are a party to an employment agreement with Eric Lang, effective May 15, 2023. Pursuant to such agreement, Dr. Lang agreed to +serve as our Chief Medical Officer, in consideration for an annualized salary of $400,000. The employment agreement provides that +Dr. Lang receive an option to acquire 218,000 shares of our Common Stock, vesting quarterly over 12 quarters and beginning August +15, 2023. This option shall have an exercise price equal to the fair market value of our Common Stock on the date of grant and +shall expire on the 10th anniversary of the date of grant. The option was awarded as of May 15, 2023. The employment agreement +contemplates an annual bonus, as determined by the board of directors. The target bonus is 50% of Dr. Lang’s annualized +salary and will be based on achievement of performance goals and objectives determined by our Chief Executive Officer. The Chief +Executive Officer may increase the bonus in recognition of performance in excess of the performance objectives. Any bonus will +be paid if Dr. Lang remains employed on the date of payment, which will be no later than March 15 of the year following the year +to which the bonus relates. In addition, the employment agreement contemplates annual equity bonus. The board of directors may, +in its sole discretion, and for so long as Dr. Lang remains an employee, make an annual discretionary bonus award of an option +to acquire up to 32,000 additional shares of Common Stock of the Company. Any such option shall vest in equal increments on a +quarterly basis, beginning one quarter after the date of grant, with the final vesting date on the third anniversary of the date +of grant. The option shall have an exercise price equal to the fair market value of our Common Stock on the date of grant and +shall expire on the 10th anniversary of the date of grant. +Pursuant +to Dr. Lang’s employment agreement, in the event he is involuntarily terminated by the Company other than for “Cause” +or if he resigns for “Good Reason,” he is entitled to receive (i) six months of salary at the same rate existing immediately +prior to his termination, (ii) 50% of his annualized salary, prorated from January 1 of the year of termination and through the +date of termination, (iii) vesting of all outstanding options with time-based vesting, and (iv) coverage of 18 months of group +medical, dental and/or vision benefits under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, if he elects +to continue such benefits. “Cause” and “Good Reason” are each defined in the employment agreement. +Finally, +Dr. Lang agreed to certain non-solicitation and non-competition provisions for a period of 12 months following termination and +to certain confidentiality obligations. Additional terms and conditions are set forth in the employment agreement. +91 +Equity +and Equity-Based Plans +Outstanding +Equity Awards at Fiscal Year-End +The +following table provides information regarding the outstanding equity awards of our named executive officers during the year ended +December 31, 2024. +Option Awards +Stock Awards +Name and +Principal Position +Number of +Securities +Underlying +Unexercised +Options +Exercisable +Number of +Securities +Underlying +Unexercised +Options +Unexercisable +Equity +Incentive +Plan +Awards: +Number of +Securities +Underlying +Unexercised +Unearned +Options +Option +Exercise +Price +Option +Expiration +Date +Number +of +shares of Common Stock +Unvested +Market +Value of +shares of Common Stock +Unvested +Equity +Incentive Plan +Awards: Number +of Unearned +Unvested +Shares +Equity +Incentive +Plan +Awards: +Market +or Payout +Value of +Unearned +Unvested +Shares +Francis Knuettel II, Chief Executive Officer and Chief Financial Officer +17,778 +4,445 +— +$ 22.68 +09/30/2032 +— +$ — +— +$ — +Francis Knuettel II, Chief Executive Officer and Chief Financial Officer +2,778 +— +— +22.68 +1/10/2033 +— +— +— +— +Francis Knuettel II, Chief Executive Officer and Chief Financial Officer +27,778 +— +— +22.68 +5/15/2033 +— +— +— +— +Francis Knuettel II, Chief Executive Officer and Chief Financial Officer +81,000 +243,000 +— +1.30 +6/14/2024 +— +— +— +— +Eric Lang, Chief Medical Officer +10,093 +14,130 +— +$ 22.68 +5/15/2033 +— +$ — +— +$ — +Eric Lang, Chief Medical Officer +32,500 +97,500 +— +1.30 +6/14/2034 +— +— +— +— +92 +Equity +Incentive Plans +The +Channel Therapeutics Corporation 2023 Equity Incentive Plan +On +January 10, 2023, our board of directors adopted and submitted for stockholder approval the 2023 Plan, which 2023 Plan was later +approved by the Company’s stockholders. On February 15, 2023, we amended the 2023 Plan to increase the number of shares +available for issuance thereunder to 444,444 and on October 22, 2024, we further amended the 2023 Plan to increase the number +of shares available for issuance thereunder to 1,944,444. The following summary of the material features of the 2023 Plan is qualified +in its entirety by reference to the complete text of the 2023 Plan, a copy of which is filed with this Report. The 2023 Plan will +terminate on January 10, 2033, in accordance with its terms, although, awards outstanding under the 2023 Plan will continue to +be governed by their existing terms after the 2023 Plan’s expiration. +Share +Reserve . We have reserved 1,944,444 shares of our Common Stock for issuance under the 2023 Plan. Unissued shares of Common +Stock subject to awards that fail to settle, vest or be fully exercised prior to expiration or other termination shall again become +available for grant under the terms of the 2023 Plan. +Administration . +Our board of directors currently administers the 2023 Plan. The compensation committee of our board of directors administers the +2023 Plan. The administrator has complete discretion to make all decisions relating to the 2023 Plan and outstanding awards. +Eligibility. +Key employees, non-employee members of our board of directors and other persons who render services of special importance +to our management, operation or development are eligible to participate in the 2023 Plan. +Types +of Awards . The 2023 Plan provides for the following types of awards granted with respect to shares of our Common Stock: +● +incentive and nonqualified +stock options to purchase shares of our Common Stock; +● +stock appreciation +rights, whether settled in cash or our Common Stock; +● +direct awards or +sales of shares of our Common Stock, with or without restrictions; and +● +restricted stock +units. +The +recipient of an award under the 2023 Plan is referred to as a participant. +Options . +The administrator may grant incentive stock options (“ISOs”) and nonqualified stock options (“NSOs”) under +the 2023 Plan. The administrator determines the number of shares of our Common Stock subject to each option, its exercise price, +its duration and the manner and time of exercise; provided, however, that no option may be issued under the 2023 Plan with an +exercise price that is less than the fair market value of our Common Stock as of the date the option is granted, and no option +issued as an ISO will have a duration that exceeds ten years. ISOs may be issued only to our employees or employees of our corporate +subsidiaries, and in the case of a more than ten percent stockholder, must have an exercise price that is at least 110% of the +fair market value of our Common Stock as of the date the option is granted, and may not have a duration of more than five years. +The +administrator, in its discretion, may provide that any option is subject to vesting limitations that make it exercisable during +its entire duration or during any lesser period of time. +The +exercise price of an option may be paid in cash, by delivery of a recourse promissory note secured by the Common Stock acquired +upon exercise of the option (except that such a loan would not be available to any of our executive officers or directors), by +means of a “cashless exercise” procedure in which a broker transmits to us the exercise price in cash, either as a +margin loan or against the optionee’s notice of exercise and confirmation by us that we will issue and deliver to the broker +stock certificates for that number of shares of Common Stock having an aggregate fair market value equal to the exercise price, +or agrees to pay the exercise price to us in cash upon our receipt of stock certificates, by delivery of shares of our Common +Stock already owned by the optionee, by a “net exercise” in the case of an NSO or by any combination of the methods +listed. +Stock +Appreciation Rights (“SARs”) . The administrator may also grant SARs to participants on such terms and conditions +as it may determine. SARs may be granted separately or in connection with an option. No SAR may be issued under the 2023 Plan +with an exercise price that is less than the Fair Market Value of our Common Stock as of the date the SAR is granted, and no SAR +will have a duration that exceeds ten years. Upon the exercise of an SAR, the participant is entitled to receive payment equal +to the excess of the fair market value, on the date of exercise, of the number of shares of Common Stock for which the SAR is +exercised over the exercise price for the Common Stock under a related option or, if there is not a related option, over an amount +per share stated in the agreement setting forth the terms and conditions of the SAR. +93 +Payment +to the participant may be made in cash or other property, including Common Stock, in accordance with the provisions of the SAR +agreement. +Stock +Grants . The administrator may make an award in one or more of the following forms of stock grant. Stock grants (including +restricted stock units and performance units after settlement) generally will provide the participant with all of the rights of +a stockholder of ours, including the right to vote and to receive payment of dividends. +Stock +grant without restriction . The administrator may make a stock grant without any restrictions. +Restricted +stock and RSUs . The administrator may issue shares of our Common Stock with restrictions determined by the administrator in +its discretion. Restrictions could include conditions that require the participant to forfeit the shares in the event that the +participant ceases to provide services to us or any of our affiliates thereof before a stated time. RSUs are similar to restricted +stock except that no shares are actually issued to the participant on the RSU grant date. Rather, and provided all applicable +restrictions are satisfied, shares of Common Stock are generally delivered at settlement of the award. The period of restriction, +the number of shares of restricted stock or the number of RSUs granted, the purchase price, if any, and such other conditions +and/or restrictions as the administrator may establish will be set forth in an award agreement. Participants holding RSUs will +not have voting rights or other rights as a stockholder until any shares related to the RSU are issued. After all conditions and +restrictions applicable to restricted shares and/or RSUs have been satisfied or have lapsed, shares of restricted stock will become +freely transferable and RSUs may be settled in cash, in shares of our Common Stock or in some combination of cash and shares of +our Common Stock, as determined by the administrator and stated in the award agreement. +Performance +shares and performance share units (“PSUs”) . With respect to an award of performance shares and/or PSUs, the administrator +will establish performance periods and performance goals. The extent to which a participant achieves their performance goals during +the applicable performance period will determine the value and/or the number of performance shares and/or PSUs earned by such +participant. Payment of earned performance shares and/or PSUs will be in cash, shares of our Common Stock or some combination +of cash and shares of our Common Stock, as determined by the administrator and stated in the award agreement. +Other +awards . The administrator may issue other types of equity-based or equity-related awards under the 2023 Plan, on such terms +and conditions as the administrator shall determine in its discretion. +Dividends . +Participants holding restricted stock and performance shares will be entitled to receive dividends on our shares, provided that +in the discretion of the administrator, participants will not be entitled to dividends with respect to unvested restricted stock +and performance shares until the stock or shares vest, respectively. Dividend equivalent units may, but are not required to, be +issued with respect to RSUs or PSUs and may be paid in cash, additional shares of our Common Stock or a combination on the date +the shares are delivered, all as determined by the administrator and stated in the award agreement. +Effect +of certain corporate transactions . In the event of a stock split, reverse stock split, stock dividend, recapitalization, combination +of shares, reclassification of shares, spin-off or other similar change in capitalization or event, or any dividend or distribution +on our Common Stock other than an ordinary cash dividend, the administrator shall make equitable adjustments to awards as it, +in its sole discretion, deems appropriate. In the case of (1) a merger or consolidation of the Company with or into another entity +pursuant to which all of our Common Stock is cancelled or converted into or exchanged for the right to receive cash, securities +or other property, (2) any transfer or disposition of all of our Common Stock for cash, securities or other property pursuant +to a share exchange or other transaction, (3) the sale or other disposition of all or substantially all of the Company’s +assets or (4) any liquidation or dissolution of the Company, the administrator may take any of a number of actions including providing +for the assumption of awards, the termination of awards (with advance notice permitting exercise), Awards to become exercisable +at or prior to the event, the liquidation of awards or any combination of the foregoing. +94 +Amendments +to the 2023 Plan . Our board of directors may amend, suspend or terminate the 2023 Plan in whole or in part at any time provided +that stockholder approval shall be required to the extent necessary under the rules applicable to ISOs or under NYSE American +or other applicable securities exchange rules. +The +administrator may, without stockholder approval, amend the 2023 Plan as necessary to enable awards to qualify for favorable foreign +tax, securities or other treatment in the case of a participant who is subject to a jurisdiction outside the United States. +Amendments +or Termination . The administrator may at any time amend, suspect or terminate the 2023 Plan, subject to stockholder approval +in the case of an amendment if the amendment increases the number of shares available for issuance or materially changes the class +of persons eligible to receive incentive stock options. The 2023 Plan will terminate automatically ten years after the later of +the date when our board of directors adopted the plan or the date when our board of directors most recently approved an increase +in the number of shares of Common Stock reserved thereunder which was also approved by our stockholders, and as noted above, any +awards outstanding under the 2023 Plan upon termination will remain outstanding and will continue to be governed by their existing +terms. +On +January 10, 2023, pursuant to the 2023 Plan, we granted: (a) options to purchase up to an aggregate of 141,667 shares of Common +Stock to employees and directors and (b) 16,667 RSUs to employees. On March 9, 2023, pursuant to the 2023 Plan, we granted an +option to purchase up to 15,000 shares of Common Stock to a director. On June 23, 2023, we granted options to acquire 52,000 shares +of Common Stock to employees (inclusive of options that have not yet been granted but the Company has agreed to grant in connection +with the closing of the IPO) and canceled an RSU for 16,667 shares issued to an employee on January 10, 2023. +The +offers and sales of the above securities were deemed to be exempt from registration under the Securities Act in reliance upon +Section 4(a)(2) of the Securities Act or Regulation D promulgated thereunder, or Rule 701 promulgated under Section 3(b) of the +Securities Act, as transactions by an issuer not involving any public offering or pursuant to benefit plans and contracts relating +to compensation as provided under Rule 701. The recipients of the above securities represented their intentions to acquire the +securities for investment only and not with a view to or for sale in connection with any distribution thereof. +Director +Compensation for Fiscal Year 2024 +We +have not implemented a formal policy with respect to compensation payable to our non-employee directors. From time to time, we +have granted equity awards to attract individuals to join our board of directors and for their continued service thereon. In 2024, +independent directors received $14,396 in cash compensation. In addition, in 2024 directors were granted options to purchase 90,000 +shares of Common Stock at fair market value as of the date of issuance, expiring ten years from issuance and RSUs representing +356,664 shares of Common Stock. In addition, we reimburse our directors for expenses associated with attending meetings of our +board of directors and its committees. Our board of directors is still in the process of considering the non-employee director +compensation policy. +Name +Fees Earned +or Paid in +Cash +($) +Stock +Awards +($) +Stock +Option +Awards +($)(1) +Non-Equity +Incentive +Plan +Compensation +($) +Nonqualified +Deferred +Compensation +Earnings +($) +All Other +Compensation +($) +Total +($) +Todd Davis +14,396 +52,258 +299,215 +— +20,000 +— +385,869 +Ezra Friedberg +14,396 +26,111 +149,608 +— +20,000 +— +210,115 +Richard Malamut +14,396 +26,111 +149,608 +— +20,000 +— +210,115 +Chia-Lin Simmons +14,396 +183,675 +— +20,000 +— +218,071 +(1) +Amounts reflect the aggregate grant date fair value of the stock options granted to each named executive officer during the fiscal +year ended December 31, 2024 and 2023, as computed in accordance with Financial Accounting Standards Board ASC 718. +95 +Policies +and Practices Related to The Grant of Certain Equity Awards +We +maintain the 2023 Plan through which we grant equity awards, including stock options and stock appreciation rights, to our named +executive officers, other employees, and directors as part of our compensation program. In addition, certain employment agreements +with our named executive officers provide for the grant of such equity awards. We do not currently have a formal policy governing +the timing of grants of stock options, stock appreciation rights, or similar option-like instruments to named executive officers +or directors in relation to the release of material nonpublic information. Equity awards under the 2023 Plan have been granted +from time to time, including to directors to encourage their initial or continued service on our board of directors. Our board +of directors is evaluating the adoption of a policy concerning the timing of such awards relative to material non-public information +disclosures. We have not adopted any practice of timing, and do not time, the release of material non-public information to affect +the value of equity awards granted to named executive officers or directors. +During the year +ended December 31, 2024, there were no equity grants made to our executive officers during any period beginning four business days +before the filing of a periodic report or current report disclosing material non-public information and ending one business day +after the filing or furnishing of such report with the SEC. +Item +12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +The +following table sets forth certain information regarding the beneficial ownership of our capital stock as of March 21, 2025 by +(a) each person, or group of affiliated persons, who is known to us to own beneficially 5% or more of our outstanding equity securities; +(b) each of our directors; (c) each of our named executive officers; and (d) all of our named executive officers and directors +as a group. Except as otherwise indicated in the footnotes below, we believe, based on the information provided to us, that all +persons listed below have sole voting power and investment power with respect to their shares of Common Stock or other equity +securities that they beneficially own, subject to community property laws where applicable. +For purposes +of this table, a person or group of persons is deemed to have “beneficial ownership” of any shares of Common Stock +or other equity securities of the Company that such person has the right to acquire within sixty (60) days of March 26, 2025. +For purposes of computing the percentage of outstanding shares of our Common Stock or other equity securities of the Company held +by each person or group of persons named above, any shares that such person or persons has the right to acquire within sixty (60) +days of March 21, 2025 is deemed to be outstanding, but is not deemed to be outstanding for the purpose of computing the percentage +ownership of any other person. The percentage ownership information shown in the table is based upon 6,103,813 shares of Common +Stock issued and outstanding as of March 26, 2025. The inclusion herein of any shares of Common Stock or other equity securities +of the Company listed as beneficially owned does not constitute an admission of beneficial ownership. Unless otherwise identified, +the address of our directors and executive officers is 4400 Route 9 South, Suite 1000, Freehold, NJ 07728. +Name of and Address of Beneficial Owner(1): +Shares of +Common Stock +Beneficially +Owned +Percentage of +Common Stock +Beneficially +Owned +Directors and executive officers +Francis Knuettel II (2) +285,232 +4.6 % +Ezra Friedberg (3) +568,084 +9.4 % +Todd Davis (4) +136,300 +2.2 % +Richard Malamut (5) +47,365 +* % +Chia-Lin Simmons (6) +47,083 +* % +Eric Lang (7) +62,880 +1.0 % +All executive officers and directors as a group (6 persons) +1,145,212 +17.9 % +5% or greater stockholders: +Alexandra Wood (Canada) Inc. (8) +574,187 +9.5 % +Boswell Prayer Ltd (9) +471,592 +7.8 % +Motif Pharmaceuticals Ltd. (10) +483,406 +8.0 % +Balmoral Financial Group LLC (11) +520,719 +8.6 % +AME Equities LLC (12) +369,178 +6.1 % +Aperture Healthcare Ventures Ltd. (13) +444,071 +7.4 % +Benuvia Operations, LLC (15) +384,226 +6.4 % +96 +* +Less than 1% +(1) +Except as otherwise +indicated, the persons named in the table above have sole voting and investment power with respect to all shares of Common +Stock shown as beneficially owned by them. +(2) +For Mr. Knuettel, +includes 22,223 shares of Common Stock issuable upon the exercise of stock options which are exercisable for shares of Common +Stock at a price of $22.68 per share, 2,778 shares of Common Stock issuable upon the exercise of stock options which are exercisable +for shares of Common Stock at a price of $22.68 per share, 27,778 shares of Common Stock issuable upon the exercise of stock +options which are exercisable for shares of Common Stock at a price of $22.68 per share, 121,500 shares of Common Stock issuable +upon the exercise of stock options which are exercisable for shares of Common Stock at a price of $1.30 per share and 110,953 +shares held by the Lara Knuettel Revocable Trust. The option for 121,500 shares is owned by Mr. Knuettel directly and all +other stock options are held of record by Camden. Mr. Knuettel serves as Managing Member of Camden and co-trustee, with individual +dispositive power of the Lara Knuettel Revocable Trust, and accordingly, may be deemed to beneficially own the shares of Common +Stock owned directly by Camden and the Lara Knuettel Revocable Trust. +(3) +For Mr. Friedberg, +includes 15,000 shares of Common Stock issuable upon the exercise stock options held by Mr. Friedberg, which are exercisable +for shares of Common Stock at a price of $22.68 per share, a RSU for 31,934 shares and 520,711 shares of Common Stock owned +by Balmoral Financial Group LLC (“Balmoral”). In addition, Mr. Friedberg serves as a manager with individual dispositive +power of Balmoral, and accordingly, may be deemed to beneficially own the shares of Common Stock owned directly by Balmoral. +(4) +For Mr. Davis, includes +20,001 shares of Common Stock issuable upon the exercise of stock options held by Mr. Davis, which are exercisable for shares +of Common Stock at a price of $22.68 per share, 22,223 shares of Common Stock issuable upon the exercise of stock options +held by Mr. Davis, which are exercisable for shares of Common Stock at a price of $22.68 per share, an RSU for 64,039 shares +and an additional 29,167 shares of Common Stock issued in a private placement in full satisfaction of the Company’s +obligations under the Director Note. +(5) +For Mr. Malamut, +includes 15,000 shares of Common Stock issuable upon the exercise of stock options held by Mr. Malamut, which are exercisable +for shares of Common Stock at a price of $22.68 per share and an RSU for 31,934 shares. +(6) +For Ms. Simmons, +includes 13,333 shares of Common Stock issuable upon the exercise of stock options held by Ms. Simmons, which are exercisable +for shares of Common Stock at a price of $22.68 per share and 33,750 shares of Common Stock issuable upon the exercise of +stock options held by Ms. Simmons, which are exercisable for shares of Common Stock at a price of $1.30. +(7) +For Dr. Lang, includes +14,130 shares of Common Stock issuable upon the exercise of stock options held by Dr. Lang, which are exercisable for shares +of Common Stock at a price of $22.68 per share and 48,750 shares of Common Stock issuable upon the exercise of stock options +held by Dr. Lang, which are exercisable for shares of Common Stock at a price of $1.30. +97 +(8) +Alexandra Wood (Canada) +Inc. has sole voting power and dispositive power over the shares held by Alexandra Wood (Canada) Inc. The principal executive +office of Alexandra Wood (Canada) Inc. is 45 Adelaide Street West, Toronto ON M5H 4E5, Canada. +(9) +Rochelle Gross has +sole voting and dispositive power over the shares held by Boswell Prayer Ltd. The principal executive office of Boswell Prayer +Ltd. is 145 Adelaide Street West, Toronto ON M5H 4E5, Canada. +(10) +None of the directors +of that board of directors has sole voting or dispositive power with respect to the shares of Common Stock held by Motif Pharmaceuticals +Ltd. The principal executive office of Motif Pharmaceuticals Ltd. is 25 and 28 North Wall Quay, Dublin 1, Ireland. +(11) +Ezra Friedberg has +sole voting and dispositive power over the shares held by Balmoral. The principal executive office of Balmoral is 106 Court +Road, Suite 202, Baltimore, MD 21208. +(12) +Ruth Friedman has +sole voting and dispositive power over the shares held by AME Equities LLC. The principal executive office of AME Equities +LLC is 3012 Luke Crossing Drive, Charlotte, NC 28226. +(13) +None of the directors +of that board of directors has sole voting or dispositive power with respect to the shares of Common Stock held by Aperture +Healthcare Ventures Ltd. The principal executive office of Aperture Healthcare Ventures Ltd. is 970 Lawrence Ave W. Suite +904, Toronto, ON M6A 3B6, Canada. +(14) +Darwin Richardson +has sole voting and dispositive power over the shares held by Benuvia. The principal executive office of Benuvia is 3950 N. +Mays Street Round Rock, TX 78665. +Securities +Authorized for Issuance under Equity Compensation Plans +Plan +Category +Number +of +Securities to Be +Issued upon +Exercise of +Outstanding +Options, Warrants +and Rights (2) +Weighted +Average +Exercise Price of +Outstanding +Options, +Warrants and +Rights (2) +Number +of Securities +Remaining Available for +Future Issuance under +the Plan (excluding +securities reflected in +column (a) (2)) +(a) +(b) +(c) +Equity +compensation plans approved by security holders (1) +925,449 +$ +5.95 +1,018,995 +Equity +compensation plans not approved by security holders +Total +1,018,995 +(1) +Represents +the shares of Common Stock authorized for issuance under the 2023 Plan. In February 2024, the board +of directors approved an amendment to the 2023 Plan, subject to stockholder approval +which was subsequently obtained. An aggregate of 3,000,000 shares were originally authorized for issuance under the 2023 Plan, and +after the amendment and our Reverse Stock Split in connection with the IPO, an aggregate of 444,444 shares have been authorized +under the 2023 Plan. On June 12, 2024, the board of directors authorized an amendment to the 2023 Plan to increase +the number of shares of Common Stock authorized for issuance thereunder by 1,500,000 from 444,444 shares +to 1,944,444 shares. On October 22, 2024, the increase in the number of shares in the 2023 Plan was approved +by the affirmative vote of a majority of the outstanding shares of Common Stock present in person, by remote communication, +if applicable, or represented by proxy at the Annual Meeting. As of March +26 , 2025, options to purchase an aggregate of 925,449 +shares of our Common Stock with a weighted-average exercise price of $ 5.95 per +share, were outstanding under the 2023 Plan, with 1,108,995 shares of our Common +Stock remaining available for future issuance. Unissued shares subject to awards that expire, are forfeited, or are cancelled +will again become available for issuance under the 2023 Plan. +(2) +As of December 31, +2024. +98 +Item +13. Certain Relationships and Related Transactions, and Director Independence +Transactions +with Related Parties +The +following is a summary of transactions among related parties that occurred since the Company’s incorporation, and any ongoing +related party relationships: +In +May 2021, Chromocell Holdings, the Company and Flamands International Holdings LLC (“Flamands”) commenced negotiations +regarding a three-party agreement whereby Chromocell Holdings would spin off assets and liabilities associated with its therapeutics +operations to the Company and Flamands would provide funding to the Company. As the parties contemplated various transactional +structures, an agreement was never effectuated because significant details concerning the assumption of liabilities were never +finalized. Chromocell Holdings instead provided multiple advances to the Company for its operations from May 2021 through August +2022. At December 31, 2021, all amounts previously received from Chromocell Holdings by the Company were recorded as advances +payable on the Company’s consolidated financial statements. +On +August 10, 2022, the Company and Chromocell Holdings entered into the Contribution Agreement effecting (1) the contribution by +Chromocell Holdings to the Company of assets related to Chromocell Holdings’ therapeutics business, which we transferred +to the Company (the “Therapeutics Business”), including all intellectual property secrets related to Chromocell Holdings’ +NaV1.7 program and its clinical-stage CC8464 lead compound, (2) assumption by the Company of direct liabilities related to Chromocell +Holdings’ historical Therapeutics Business in the amount of $1,556,323 as well as a cash payment by the Company to Chromocell +Holdings of $597,038 within three business days of the closing of the IPO and (3) the issuance by the Company to Chromocell Holdings +of 1,111,112 shares of its Common Stock and 600,000 shares of Series A Preferred Stock. +On +August 2, 2023, we entered into the Holdings Side Letter to the Contribution Agreement. Pursuant to the Holdings Side Letter, +upon closing of the IPO: (a) Chromocell Holdings re-assumed all $1.6 million in direct liabilities previously assumed by the Company +in accordance with the Contribution Agreement, (b) Chromocell Holdings waived the Company’s obligations to make a cash payment +in the amount of $0.6 million to Chromocell Holdings, and (c) in consideration thereof, we issued to Chromocell Holdings 2,600 +shares of Series C Preferred Stock. +On +April 17, 2023, Chromocell Holdings forfeited 133,745 shares of Common Stock as Chromocell Holdings did not fund its pro rata +allocation in the April Bridge Financing, per the terms governing the April Bridge Financing. +On +December 18, 2024, 747,187 shares of Common Stock and 2,600 shares of Series C Preferred Stock held by Chromocell +Holdings were transferred by the Company to Alexandra Wood (Canada) Inc. (“AWI”) in satisfaction of a default judgement +against Chromocell Holdings regarding the default by Chromocell Holdings of a secured promissory note by order of the Supreme +Court of the State of New York, County of New York on November 25, 2024 in the matter Alexandra Wood (Canada) Inc v. Chromocell +Corp., Index No. 651735/2024 . AWI subsequently transferred 173,000 shares of Chromocell Holding’s Common Stock that +it received such that AWI now owns 574,187 shares of the Common Stock originally issued to Chromocell Holdings in connection with +the Contribution Agreement. +On +December 6, 2022, the Company and Mr. Todd Davis, one of our directors, entered into the Director Note for $175,000. The Director +Note has an original issuance discount of $75,000 and matures on December 31, 2023, or, if earlier to occur, upon the closing +of an underwritten offering of securities resulting in at least $15 million in gross proceeds. Mr. Davis, as lender, has the right +but not the obligation to subscribe to the underwritten offering by presenting the Director Note in whole or in part to purchase +such securities as legal tender therefor, on a dollar-for-dollar basis based upon the offering price of such securities to the +public. The Director Note bears no interest except in the case of certain events of default. As of December 31, 2023, there was +an unamortized debt discount of $0. On December 28, 2023, we entered into an amendment to the Director Note, which extended the +maturity date to February 29, 2024. +99 +On +April 17, 2023, we entered into the April Bridge Financing for working capital purposes with various accredited investors, all +of whom are pre-existing stockholders, including Chromocell Holdings, Boswell Prayer Ltd., Motif Pharmaceuticals Ltd, Aperture +Healthcare Ventures Ltd., MDB Merchants Park LLC, Balmoral and AME EQUITIES LLC (each a related party based on share ownership +in excess of 5% or resulting from a principal at one of the entities being on the Company’s board of directors) in the aggregate +principal amount of $389,757, after giving effect to the Representative Affiliate Transactions. During the year ended December +31, 2023, the Company received an aggregate of $303,651 in Advances prior to the close of the April Bridge Financing from certain +of the participating investors. Such Advances accrued interest at a rate of eight percent (8%) per annum until close of the April +Bridge Financing on April 17, 2023, for a total of $19,323 in aggregate interest on all Advances during the year ended December +31. The April Bridge Financing consists of senior secured convertible notes that had a maturity date of October 17, 2023. On October +12, 2023, we entered into a first amendment to the senior secured convertible notes in the April Bridge Financing, which extended +the maturity of the notes to November 1, 2023. On October 24, 2023, we entered into a second amendment to the senior secured convertible +notes in the April Bridge Financing, which extended the maturity of the notes to November 14, 2023. On November 13, 2023, we entered +into a third amendment to the senior secured convertible notes in the April Bridge Financing, which further extended the maturity +of the notes to February 29, 2024. Such notes accrue interest on the unpaid principal amount at a rate of eight percent (8%) per +annum and will automatically convert into 87,109 shares of Common Stock in connection with the IPO at a twenty percent (20%) discount +to the price per IPO Share (based on the IPO price of $6.00 per IPO Share). The senior secured convertible notes issued in the +April Bridge Financing are secured by a security interest in all of our assets (including our patents and intellectual property +licenses). In connection with the April Bridge Financing, on April 17, 2023, we also entered into a securities purchase agreement +with holders of the notes, pursuant to which we are required to file a registration statement within 180 calendar days after consummation +of the IPO, providing for the resale of Common Stock received by holders of the notes upon conversion of such notes. +On +September 1, 2023, we entered into the September Bridge Financing with various accredited investors, certain of which are pre-existing +stockholders, including Aperture Healthcare Ventures Ltd., MDB Merchants Park LLC, Balmoral and AME Equities LLC (each a related +party based on share ownership in excess of 5% or resulting from a principal at one of the entities being on the Company’s +board of directors) in the aggregate principal amount of $197,421, after giving effect to the Representative Affiliate Transactions. +The September Bridge Financing consists of senior secured convertible notes that have a maturity date of March 1, 2024. Such notes +accrue interest on the unpaid principal amount at a rate of eight percent (8%) per annum and automatically converted into shares +of Common Stock in connection with the IPO at a twenty percent (20%) discount to the price per IPO Share plus 549 Bonus Shares +(43,385 shares, based on the IPO price of $6.00 per IPO Share). The senior secured convertible notes issued in the September Bridge +Financing are secured by a security interest in all of our assets (including our patents and intellectual property licenses). +In connection with the September Bridge Financing, on September 1, 2023, we also entered into a securities purchase agreement +with holders of the notes, pursuant to which we are required to file a registration statement within 180 calendar days after consummation +of the IPO, providing for the resale of Common Stock received by holders of the notes upon conversion of such notes. Additionally, +we entered into a subordination and intercreditor agreement, effective September 1, 2023, with the holders of the senior secured +convertible notes issued in the April Bridge Financing, pursuant to which those notes and certain liens of the Company will be +subordinated to the rights of the holders of the notes issued in the September Bridge Financing. +On +October 12, 2023, we and four existing investors entered into the October Promissory Notes with an aggregate face amount of $210,000 +and an aggregate purchase price of $175,000. The October Promissory Notes mature on November 12, 2023 or, if earlier to occur, +upon the closing of the IPO. The October Promissory Notes bear no interest except in the case of certain events of default. On +November 7, 2023, we amended and restated the October Promissory Notes to extend the maturity dates of the October Promissory +Notes to November 17, 2023. On November 13, 2023, we amended and restated the October Promissory Notes to further extend the maturity +dates of the Promissory Notes to February 29, 2024. The October Promissory Notes were repaid on February 26, 27 and 28, 2024. +On +November 22, 2023, we commenced the Rights Offering pursuant to which we distributed Subscription Rights to each holder of our +Common Stock held as of the Rights Offering Record Date. The Subscription Rights could be exercised at any time during the subscription +period, which commenced on November 22, 2023 and expired at 5:00 p.m., Eastern Standard Time, on December 1, 2023. The Subscription +Rights were offered to all of our pre-existing stockholders, including Aperture Healthcare Ventures Ltd., MDB Merchants Park LLC, +Balmoral and AME Equities LLC (each a related party based on share ownership in excess of 5%, or resulting from a principal at +one of the entities being on the Company’s board of directors), and each participated and exercised their Subscription Rights +to purchase an aggregate of 1,211,238 shares of Common Stock at the Subscription Price. In addition, we distributed to Mr. Knuettel, +our Chief Executive Officer and Chief Financial Officer, and Mrs. Lara Knuettel c/o The Lara H. Knuettel Revocable Trust, a trust +for which Mr. Knuettel and his wife are co-trustees (the “Knuettel Trust”), and at no charge to them, additional non-transferable +Subscription Rights to purchase up to an aggregate 158,731 shares of our Common Stock in the Rights Offering at the same Subscription +Price. On December 27, 2023, the Knuettel Trust made a charitable donation of 27,778 of those shares to Temple Israel of the City +of New York. On June 28, 2024, the Knuettel Trust made an additional charitable donation of 5,000 shares to Temple Israel of the +City of New York and 15,000 shares to The Hewitt School. Also on December 27, 2023, AME Equities LLC made a charitable donation +of 87,778 of its shares to Ballantyne Jewish Center, Inc. Upon the closing of the Rights Offering, we issued an aggregate of 2,442,468 +shares of our Common Stock and received aggregate net proceeds of $246,201, after giving effect to the Representative Affiliate +Transactions, which we used primarily for general corporate purposes and expenses associated with our IPO. +100 +On +December 23, 2023, we entered into the Benuvia License Agreement for the Spray Formulations, diversifying our pipeline of non-opioid +pain treatment therapies, while adding therapeutic options for related conditions. The Diclofenac Spray Formulation is patented +and has started clinical development in human volunteers. Preliminary pharmacokinetics suggest that this formulation may have +a faster onset of action than oral Diclofenac tablets. Diclofenac is an NSAID that is also marketed under additional brand names +including Voltaren and Cataflam in its pill form. Rizatriptan, whose brand name is Maxalt, is used for the acute treatment of +migraines as a pill. By a number of clinical measures it is thought to be superior to Sumatriptan. A sublingual formulation of +Rizatriptan may potentially have a faster onset of action than an oral form and may be easier to tolerate than swallowing a pill +when patients are experiencing nausea as a result of the migraine headache. Ondansetron is an anti-emetic that is available in +oral and intravenous form. An Ondansetron sublingual spray formulation may potentially have a faster onset of action than an oral +form and may be easier to tolerate than swallowing a pill when patients are experiencing nausea. Under the terms of the Benuvia +License Agreement, Benuvia will be responsible for the manufacturing and supply of the Spray Formulations, but we will have exclusive, +worldwide rights to develop, commercialize and distribute the Spray Formulations and we will purchase the Spray Formulations exclusively +from Benuvia, pursuant to the Benuvia Supply Agreement. The initial sale price per unit for each Spray Formulation payable by +us to Benuvia pursuant to the Benuvia Supply Agreement shall be subject to good faith negotiations; provided that the initial +price for each Spray Formulation and the price for each Spray Formulation during the term of the Benuvia License Agreement in +no event shall be less than Benuvia’s cost of manufacturing the respective Spray Formulation plus a gross margin to Benuvia. +The price for each Spray Formulation shall be subject to an annual increase in amounts equal to the percentage change in the Producer +Price Index, Pharmaceutical Preparations as published by the U.S. Department of Labor, Bureau of Labor Statistics. +Under +the terms of the Benuvia License Agreement, we obtained exclusive, worldwide rights to develop, commercialize and distribute the +Spray Formulations. In connection with the Benuvia License Agreement, we agreed to pay Benuvia a six and one-half percent (6.5%) +royalty on net sales of the Spray Formulations for a period of up to 15 years from the date of the first commercial sale of the +Spray Formulations. To date, we have paid $0 to Benuvia as royalty on net sales of the Spray Formulations. Pursuant to the Benuvia +Stock Issuance Agreement, we issued to Benuvia 384,226 shares of our Common Stock, which may be offered and sold pursuant to the +Resale Prospectus. Benuvia will be responsible for the manufacturing and supply of the Spray Formulations, which is capped not +to exceed a specific gross margin for Benuvia, and we have a most favored nation rate on development and regulatory services. +Under +the Benuvia License Agreement, we will have exclusive, worldwide rights to develop, commercialize and distribute the Spray Formulations. +Further, we have the right to request a bid from a third party to manufacture the Spray Formulations once each year. +The +Benuvia License Agreement contains standard termination provisions. The Benuvia License Agreement may be terminated in its entirety, +on a Spray Formulation by Spray Formulation basis, and by country by county for a material breach not cured within sixty (60) +days after written notice thereof. If we breach any of our payment obligations under the terms of the Benuvia License Agreement +that are not the subject of a good faith dispute and are not cured within twenty (20) business days following notice thereof, +Benuvia may terminate the Agreement upon written notice to us. We also have the right to terminate the Benuvia License Agreement +in the event we determine, in our reasonable business judgment, that (i) any of the Spray Formulations will not be differentiated +from oral tablets to result in a financially viable product or (ii) after having discussed a Spray Formulations with the FDA, +we determine in our reasonable business judgment, that the cost of development of such Spray Formulation would exceed any reasonable +forecast of a positive financial return. In the event we terminate the License Agreement, the parties will negotiate in good faith +a license agreement to any improvements we made to the Spray Formulations, including any clinical trial data, and Benuvia will +pay us a pre-determined royalty for such license. Mr. Davis, one of our directors, serves as the Chairman and Chief Executive +Officer of Benuvia Holdings, LLC, which is the ultimate parent company of Benuvia. +101 +On +February 8, 2024, we and certain affiliates of the Representative entered into the Bridge Financing Note Amendments. Under the +Bridge Financing Note Amendments, both notes issued in the April Bridge Financing and the September Bridge Financing had a maturity +date of March 1, 2024, and the full principal amount of both notes and any accrued interest thereon was payable solely in cash +upon the consummation of the IPO. Both notes had an annual interest rate of eight percent (8%), which accrued daily, and was calculated +on the basis of a 360-day year (consisting of twelve 30 calendar day periods). +On +February 10, 2024, we entered into the Stock Rescission Agreement with certain affiliates of the Representative, pursuant to which +we rescinded 111,129 shares of our Common Stock held by such affiliates of the Representative and agreed to refund an aggregate +of $91,512 paid by such affiliates of the Representative in consideration therefor within 30 days of the effective date of the +Stock Rescission Agreement. +Review, +Approval or Ratification of Transactions with Related Parties +We +have adopted a written related-person transactions policy that provides that our executive officers, directors, nominees for election +as a director, beneficial owners of more than 5% of our Common Stock and any members of the immediate family of the foregoing +persons, are not permitted to enter into a material related-person transaction with us without the review and approval of our +audit committee, or a committee composed solely of independent directors in the event it is inappropriate for our audit committee +to review such transaction due to a conflict of interest. Such policy provides that any request for us to enter into a transaction +with an executive officer, director, nominee for election as a director, beneficial owner of more than 5% of our Common Stock +or with any of their immediate family members or affiliates, in which the amount involved exceeds the lesser of (i) $120,000 or +(ii) one percent of the average of the Company’s total assets at year-end for the last two fiscal years, will be presented +to our audit committee for review, consideration and approval. In approving or rejecting any such proposal, we expect that our +audit committee will consider the relevant facts and circumstances available and deemed relevant to the audit committee, including, +but not limited to, whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third +party under the same or similar circumstances and the extent of the related person’s interest in the transaction. +Item +14. Principal Accountant Fees and Services. +Marcum +LLP is our independent registered public accounting firm and performed the audits of our consolidated financial statements for +the years ended December 31, 2024 and 2023. The following table sets forth all fees billed or to be billed for such periods: +2024 +2023 +Audit fees (1) +$ 211,817 +$ 164,229 +Audit-related fees (2) +82,546 +156,346 +Tax fees (3) +— +— +All other fees (4) +77,092 +43,490 +Total +$ 371,455 +$ 364,065 +(1) +“Audit fees” include fees for professional services rendered in connection with the audit of our annual consolidated +financial statements, review of our quarterly condensed consolidated financial statements and advisory services on accounting +matters that were addressed during the annual audit and quarterly review. This category also includes fees for services that were +incurred in connection with statutory and regulatory filings or engagements, such as consents and review of documents filed with +the SEC. +102 +(2) +“Audit-related fees” include fees billed for professional services rendered that are reasonably related to the performance +of the audit or review of our consolidated financial statements including subscription for the online library of accounting research +literature and are not reported under “Audit Fees”. +(3) +“Tax fees” include fees for tax compliance. Tax compliance fees encompass a variety of permissible services, including +technical tax advice related to federal and state income tax matters, and assistance with tax audits. +(4) +“All other fees” include fees for the bring down and comfort letters associated with the IPO as well as work done +in evaluating the Contribution Agreement. +Policy +on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors +Our +Audit Committee pre-approves all audit and non-audit services provided by the independent auditors prior to the engagement of +the independent auditors with respect to such services. The chairman of our Audit Committee has been delegated the authority by +such committee to pre-approve interim services by the independent auditors other than the annual audit. The chairman of our Audit +Committee must report all such pre-approvals to the entire Audit Committee at the next committee meeting. +PART +IV +Item +15. Exhibits and Financial Statement Schedules. +(a) +The following documents +are filed as part of this Report: +(1) +Financial Statements: +The +audited balance sheets of the Company as of December 31, 2024 and December 31, 2023, the related statements of operations, changes +in stockholders’ equity and cash flows for the years then ended, the footnotes thereto, and the report of Marcum LLP, an +independent registered public accounting firm, are filed herewith. +(2) +Financial Schedules: +None. +Financial statement schedules have been omitted because they are either not applicable or the required information is included +in the consolidated financial statements or notes thereto. +(3) +Exhibits: +The +exhibits listed in the accompanying index to exhibits are filed with this Report or incorporated by reference into this Item 15(a)(3) +as part of this Report. +(b) +The following are exhibits to this Report and, if incorporated by reference, we have indicated the document previously filed with +the SEC in which the exhibit was included. +Certain +of the agreements filed as exhibits to this Report contain representations and warranties by the parties to the agreements that +have been made solely for the benefit of such parties. These representations and warranties: +● +may have been qualified +by disclosures that were made to the other parties in connection with the negotiation of the agreements, which disclosures +are not necessarily reflected in the agreements; +● +may apply standards +of materiality that differ from those of a reasonable investor; and +● +were made only as +of specified dates contained in the agreements and are subject to subsequent developments and changed circumstances. +103 +Accordingly, +these representations and warranties may not describe the actual state of affairs as of the date that these representations and +warranties were made or at any other time. Investors should not rely on them as statements of fact. +Exhibit +No. +Description +of Exhibit +2.1 +Contribution +Agreement (filed as Exhibit 2.1 to Registrant’s Registration Statement on Form S-1/A, filed with the SEC on January +20, 2023 and incorporated by reference herein). +2.2 +Side +Letter to Contribution Agreement (filed as Exhibit 2.2 to Registrant’s Registration Statement on Form S-1/A, filed with +the SEC on September 1, 2023 and incorporated by reference herein). +3.1 +Amended +and Restated Certificate of Incorporation (filed as Exhibit 3.1 to Registrant’s Current Report on Form 8-K, filed with +the SEC on February 22, 2024 and incorporated by reference herein). +3.2 +Certificate +of Designation of Series A Convertible Preferred Stock, as currently in effect (filed as Exhibit 3.2 to Registrant’s +Registration Statement on Form S-1/A, filed with the SEC on January 20, 2023 and incorporated by reference herein). +3.3 +Certificate of Designation of Series C Convertible Preferred Stock (filed as Exhibit 3.3 to Registrant’s Annual Report on Form 10-K, filed with the SEC on April 16, 2024 and incorporated by reference herein). +3.4 +Amended +and Restated By-Laws (filed as Exhibit 3.2 to Registrant’s Current Report on Form 8-K, filed with the SEC on February +22, 2024 and incorporated by reference herein). +3.5 +Articles of Incorporation, filed with the Secretary of State of the State of Nevada on November 5, 2024 (filed as Exhibit 3.1(a) to Registrant’s Current Report on Form 8-K, filed with the SEC on November 18, 2024 and incorporated by reference herein). +3.6 +Certificate of Correction to Articles of Incorporation, filed with the Secretary of State of the State of Nevada on November 7, 2024 (filed as Exhibit 3.1(b) to Registrant’s Current Report on Form 8-K, filed with the SEC on November 18, 2024 and incorporated by reference herein). +3.7 +Certificate of Designations, Preferences and Rights of Series C Convertible Redeemable Preferred Stock, filed with the Secretary of State of the State of Nevada on November 8, 2024 (filed as Exhibit 3.1(c) to Registrant’s Current Report on Form 8-K, filed with the SEC on November 18, 2024 and incorporated by reference herein). +3.8 +Bylaws (filed as Exhibit 3.1(ii) to Registrant’s Current Report on Form 8-K, filed with the SEC on November 18, 2024 and incorporated by reference herein). +4.1 +Representative’s +Warrant (filed as Exhibit 4.1 to Registrant’s Current Report on Form 8-K, filed with the SEC on February 22, 2024 and +incorporated by reference herein). +4.2 +Description of the Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934 (filed as Exhibit 4.2 to the Registrant’s Annual Report on Form 10-K, filed with the SEC on April 16, 2024 and incorporated by reference herein). +4.4 +Investor +Promissory Note Issued by the Company (filed as Exhibit 4.6 to Registrant’s Registration Statement on Form S-1/A, filed +with the SEC on January 20, 2023 and incorporated by reference herein). +4.5 +Side +Letter to Amended and Restated Investor Promissory Note issued by the Company (filed as Exhibit 4.7 to Registrant’s +Registration Statement on Form S-1/A, filed with the SEC on June 30, 2023 and incorporated by reference herein). +4.6 +Second +Amended and Restated Investor Promissory Note Issued by the Company (filed as Exhibit 4.6 to Registrant’s Registration +Statement on Form S-1/A, filed with the SEC on June 30, 2023 and incorporated by reference herein). +4.7 +Third +Amended and Restated Investor Promissory Note Issued by the Company (filed as Exhibit 4.4 to Registrant’s Registration +Statement on Form S-1/A, filed with the SEC on September 1, 2023 and incorporated by reference herein). +4.8 +Side +Letter to Second Amended and Restated Investor Promissory Note Issued by the Company (filed as Exhibit 4.5 to Registrant’s +Registration Statement on Form S-1/A, filed with the SEC on September 1, 2023 and incorporated by reference herein). +4.9 +Director +Promissory Note Issued by the Company (filed as Exhibit 4.7 to Registrant’s Registration Statement on Form S-1/A, filed +with the SEC on January 20, 2023 and incorporated by reference herein). +4.10 +Form +of Senior Secured Convertible Promissory Note (April Bridge Financing; included in Exhibit 10.4) (filed as Exhibit 4.6 to +Registrant’s Registration Statement on Form S-1/A, filed with the SEC on July 20, 2023 and incorporated by reference +herein). +104 +4.11 +Form +of Senior Secured Convertible Promissory Note (September Bridge Financing; included in Exhibit 10.6) (filed as Exhibit 4.8 +to Registrant’s Registration Statement on Form S-1/A, filed with the SEC on September 1, 2023 and incorporated by reference +herein). +4.12 +Amendment +No. 1 to Third Amended and Restated Investor Promissory Note Issued by the Company (filed as Exhibit 4.8 to Registrant’s +Registration Statement on Form S-1/A, filed with the SEC on October 16, 2023 and incorporated by reference herein). +4.13 +Side +Letter to Third Amended and Restated Investor Promissory Note Issued by the Company (filed as Exhibit 4.9 to Registrant’s +Registration Statement on Form S-1/A, filed with the SEC on October 16, 2023 and incorporated by reference herein). +4.14 +Fourth +Amended and Restated Investor Promissory Note Issued by the Company (filed as Exhibit 4.10 to Registrant’s Registration +Statement on Form S-1/A, filed with the SEC on October 16, 2023 and incorporated by reference herein). +4.15 +First +Amendment to Senior Secured Convertible Note (April Bridge Financing) (filed as Exhibit 4.11 to Registrant’s Registration +Statement on Form S-1/A, filed with the SEC on October 25, 2023 and incorporated by reference herein). +4.16 +October +Promissory Note Issued by the Company (AME Equities LLC) (filed as Exhibit 4.12 to Registrant’s Registration Statement +on Form S-1/A, filed with the SEC on October 16, 2023 and incorporated by reference herein). +4.17 +October +Promissory Note Issued by the Company (Balmoral Financial Group LLC) (filed as Exhibit 4.13 to Registrant’s Registration +Statement on Form S-1/A, filed with the SEC on October 16, 2023 and incorporated by reference herein). +4.18 +October +Promissory Note Issued by the Company (Camden Capital LLC) (filed as Exhibit 4.14 to Registrant’s Registration Statement +on Form S-1/A, filed with the SEC on October 16, 2023 and incorporated by reference herein). +4.19 +October +Promissory Note Issued by the Company (MDB Merchants Park LLC) (filed as Exhibit 4.15 to Registrant’s Registration Statement +on Form S-1/A, filed with the SEC on October 16, 2023 and incorporated by reference herein). +4.20 +Second +Amendment to Senior Secured Convertible Note (April Bridge Financing) (filed as Exhibit 4.16 to Registrant’s Registration +Statement on Form S-1/A, filed with the SEC on October 25, 2023 and incorporated by reference herein). +4.21 +Amended +and Restated October Promissory Note Issued by the Company (AME Equities LLC) (filed as Exhibit 4.17 to Registrant’s +Registration Statement on Form S-1/A, filed with the SEC on November 8, 2023 and incorporated by reference herein). +4.22 +Amended +and Restated October Promissory Note Issued by the Company (Balmoral Financial Group LLC) (filed as Exhibit 4.18 to Registrant’s +Registration Statement on Form S-1/A, filed with the SEC on November 8, 2023 and incorporated by reference herein). +4.23 +Amended +and Restated October Promissory Note Issued by the Company (Camden Capital LLC) (filed as Exhibit 4.19 to Registrant’s +Registration Statement on Form S-1/A, filed with the SEC on November 8, 2023 and incorporated by reference herein). +4.24 +Amended +and Restated October Promissory Note Issued by the Company (MDB Merchants Park LLC) (filed as Exhibit 4.20 to Registrant’s +Registration Statement on Form S-1/A, filed with the SEC on November 8, 2023 and incorporated by reference herein). +4.25 +Third +Amendment to Senior Secured Convertible Note (April Bridge Financing) (filed as Exhibit 4.21 to Registrant’s Registration +Statement on Form S-1/A, filed with the SEC on January 16, 2024 and incorporated by reference herein). +4.26 +Side +Letter to Fourth Amended and Restated Investor Promissory Note Issued by the Company (filed as Exhibit 4.22 to Registrant’s +Registration Statement on Form S-1/A, filed with the SEC on January 16, 2024 and incorporated by reference herein). +4.27 +Fifth +Amended and Restated Investor Promissory Note Issued by the Company (filed as Exhibit 4.23 to Registrant’s Registration +Statement on Form S-1/A, filed with the SEC on January 16, 2024 and incorporated by reference herein). +105 +4.28 +Second +Amended and Restated October Promissory Note Issued by the Company (AME Equities LLC) (filed as Exhibit 4.24 to Registrant’s +Registration Statement on Form S-1/A, filed with the SEC on January 16, 2024 and incorporated by reference herein). +4.29 +Second +Amended and Restated October Promissory Note Issued by the Company (Balmoral Financial Group LLC) (filed as Exhibit 4.25 to +Registrant’s Registration Statement on Form S-1/A, filed with the SEC on January 16, 2024 and incorporated by reference +herein). +4.30 +Second +Amended and Restated October Promissory Note Issued by the Company (Camden Capital LLC) (filed as Exhibit 4.26 to Registrant’s +Registration Statement on Form S-1/A, filed with the SEC on January 16, 2024 and incorporated by reference herein). +4.31 +Second +Amended and Restated October Promissory Note Issued by the Company (MDB Merchants Park LLC) (filed as Exhibit 4.27 to Registrant’s +Registration Statement on Form S-1/A, filed with the SEC on January 16, 2024 and incorporated by reference herein). +4.32 +Stock +Issuance Agreement (Benuvia License Agreement) (filed as Exhibit 4.28 to Registrant’s Registration Statement on Form +S-1/A, filed with the SEC on January 16, 2024 and incorporated by reference herein). +4.33 +Amendment +No. 1 to Director Promissory Note Issued by the Company (filed as Exhibit 4.29 to Registrant’s Registration Statement +on Form S-1/A, filed with the SEC on January 16, 2024 and incorporated by reference herein). +4.34 +Side +Letter to Fifth Amended and Restated Investor Promissory Note Issued by the Company (filed as Exhibit 4.30 to Registrant’s +Registration Statement on Form S-1/A, filed with the SEC on January 30, 2024 and incorporated by reference herein). +4.35 +Sixth +Amended and Restated Investor Promissory Note Issued by the Company (filed as Exhibit 4.31 to Registrant’s Registration +Statement on Form S-1/A, filed with the SEC on January 30, 2024 and incorporated by reference herein). +4.36 +Fourth +Amendment to Senior Secured Convertible Note (April Bridge Financing) (filed as Exhibit 4.32 to Registrant’s Registration +Statement on Form S-1/A, filed with the SEC on February 12, 2024 and incorporated by reference herein). +4.37 +First +Amendment to Senior Secured Convertible Note (September Bridge Financing) (filed as Exhibit 4.33 to Registrant’s Registration +Statement on Form S-1/A, filed with the SEC on February 12, 2024 and incorporated by reference herein). +4.38 +Stock +Rescission Agreement (filed as Exhibit 4.34 to Registrant’s Registration Statement on Form S-1/A, filed with the SEC +on February 12, 2024 and incorporated by reference herein). +4.39 +Convertible Note, dated July 24, 2024 (filed as Exhibit 4.1 to Registrant’s Current Report on Form 8-K, filed with the SEC on July 29, 2024 and incorporated by reference herein). +10.1+ +Channel Therapeutics Corporation 2023 Equity Incentive Plan (filed as Exhibit 10.1 to Registrant’s Registration Statement on Form S-1/A, filed with the SEC on January 20, 2023 and incorporated by reference herein). +10.2+ +Amended +and Restated Employment Agreement (Christian Kopfli) (filed as Exhibit 10.2 to Registrant’s Registration Statement on +Form S-1/A, filed with the SEC on September 1, 2023 and incorporated by reference herein). +10.3+ +Amended and Restated Consultant Agreement (Camden Capital LLC) (filed as Exhibit 10.3 to Registrant’s Registration Statement on Form S-1/A, filed with the SEC on June 30, 2023 and incorporated by reference herein). +10.4 +Securities +Purchase Agreement (April Bridge Financing) (filed as Exhibit 10.4 to Registrant’s Registration Statement on Form S-1/A, +filed with the SEC on July 20, 2023 and incorporated by reference herein). +10.5 +Security +Agreement (April Bridge Financing) (filed as Exhibit 10.5 to Registrant’s Registration Statement on Form S-1/A, filed +with the SEC on July 20, 2023 and incorporated by reference herein). +10.6 +Securities +Purchase Agreement (September Bridge Financing) (filed as Exhibit 10.6 to Registrant’s Registration Statement on Form +S-1/A, filed with the SEC on October 16, 2023 and incorporated by reference herein). +106 +10.7 +Security +Agreement (September Bridge Financing) (filed as Exhibit 10.7 to Registrant’s Registration Statement on Form S-1/A, +filed with the SEC on September 1, 2023 and incorporated by reference herein). +10.8 +Subordination +and Intercreditor Agreement (September Bridge Financing) (filed as Exhibit 10.8 to Registrant’s Registration Statement +on Form S-1/A, filed with the SEC on September 1, 2023 and incorporated by reference herein). +10.9 +Securities +Purchase Agreement (Series B Preferred Stock) (filed as Exhibit 10.9 to Registrant’s Registration Statement on Form +S-1/A, filed with the SEC on October 16, 2023 and incorporated by reference herein). +10.10 +Registration +Rights Agreement (Series B Preferred Stock) (filed as Exhibit 10.10 to Registrant’s Registration Statement on Form S-1/A, +filed with the SEC on October 16, 2023 and incorporated by reference herein). +10.11+ +Employment +Agreement (Eric Lang) (filed as Exhibit 10.7 to Registrant’s Registration Statement on Form S-1/A, filed with the SEC +on June 30, 2023 and incorporated by reference herein). +10.12+ +First +Amendment to Channel Therapeutics Corporation 2023 Equity Incentive Plan (filed as Exhibit 4.4 to Registrant’s Registration +Statement on Form S-8, filed with the SEC on April 15, 2024 and incorporated by reference herein). +10.13 +Side +Letter re Securities Purchase Agreement (Standby Shares) (filed as Exhibit 10.13 to Registrant’s Registration Statement +on Form S-1/A, filed with the SEC on January 16, 2024 and incorporated by reference herein). +10.14+ +Benuvia +License Agreement (filed as Exhibit 10.14 to Registrant’s Registration Statement on Form S-1/A, filed with the SEC on +January 16, 2024 and incorporated by reference herein). +10.15 +Consulting +Agreement (Francis Knuettel II) (filed as Exhibit 10.3 to Registrant’s Registration Statement on Form S-1/A, filed with +the SEC on January 20, 2023 and incorporated by reference herein). +10.16 +Form +of Restricted Stock Unit Agreement under the Channel Therapeutics Corporation 2023 Equity Incentive Plan (filed as Exhibit +4.5 to Registrant’s Registration Statement on Form S-8, filed with the SEC on April 15, 2024 and incorporated by reference +herein). +10.17 +Form of Stock Option Agreement under the Channel Therapeutics Corporation 2023 Equity Incentive Plan (filed as Exhibit 4.6 to Registrant’s Registration Statement on Form S-8, filed with the SEC on April 15, 2024 and incorporated by reference herein). +10.18+ +Side Letter to Amended and Restated Consultant Agreement (Camden Capital) (filed as Exhibit 10.1 to Registrant’s Current Report on Form 8-K, filed with the SEC on May 15, 2024 and incorporated by reference herein). +10.19+ +Promissory Note Issued by the Company (Camden Capital) (filed as Exhibit 10.2 to Registrant’s Current Report on Form 8-K, filed with the SEC on May 15, 2024 and incorporated by reference herein). +10.20+ +Employment Agreement (Francis Knuettel II) (filed as Exhibit 10.3 to Registrant’s Current Report on Form 8-K, filed with the SEC on May 15, 2024 and incorporated by reference herein). +10.21+ +Form of Restricted Stock Unit Agreement under the Chromocell Therapeutics Corporation 2023 Equity Incentive Plan (filed as Exhibit 4.5 to Registrant’s Registration Statement on Form S-8, filed with the SEC on April 15, 2024 and incorporated by reference herein). +10.22+ +Form of Stock Option Agreement under the Chromocell Therapeutics Corporation 2023 Equity Incentive Plan (filed as Exhibit 4.6 to Registrant’s Registration Statement on Form S-8, filed with the SEC on April 15, 2024 and incorporated by reference herein). +10.23 +Securities Purchase Agreement by and between the Company and the July Note Holder, dated July 24, 2024 (filed as Exhibit 10.1 to Registrant’s Current Report on Form 8-K, filed with the SEC on July 29, 2024 and incorporated by reference herein). +10.24 +Common Stock Purchase Agreement by and the Company and Tikkun, dated July 26, 2024 (filed as Exhibit 10.2 to Registrant’s Current Report on Form 8-K, filed with the SEC on July 29, 2024 and incorporated by reference herein). +10.25 +Registration Rights Agreement by and between the Company and Tikkun, dated July 26, 2024 (filed as Exhibit 10.3 to Registrant’s Current Report on Form 8-K, filed with the SEC on July 29, 2024 and incorporated by reference herein). +107 +10.26+ +Second Amendment to the Chromocell Therapeutics Corporation 2023 Equity Incentive Plan (filed as Exhibit 10.1 to Registrant’s Quarterly Report on Form 10-Q, filed with the SEC on November 13, 2024 and incorporated by reference herein). +10.27 +Promissory Note dated February 25, 2025 (filed as Exhibit 10.1 to Registrant’s Current Report on Form 8-K, filed with the SEC on March 3, 2024 and incorporated by reference herein). +19.1 +Insider Trading Policy (filed as Exhibit 19.1 to the Registrant’s Annual Report on Form 10-K, filed with the SEC on April 16, 2024 and incorporated by reference herein). +23.1* +Consent of Marcum LLP. +31.1#* +Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. +32.1#* +Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. +97.1+ +Compensation Recovery Policy (filed as Exhibit 97.1 to the Registrant’s Annual Report on Form 10-K, filed with the SEC on April 16, 2024 and incorporated by reference herein). +101.INS +XBRL +Instance Document +101.SCH +XBRL +Taxonomy Schema +101.CAL +XBRL +Taxonomy Calculation Linkbase +101.DEF +XBRL +Taxonomy Definition Linkbase +101.LAB +XBRL +Taxonomy Label Linkbase +101.PRE +XBRL +Taxonomy Presentation Linkbase +104 +Cover +Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) +* +Filed herewith. ++ +Indicates management contract or compensatory plan. +# +The certifications furnished in Exhibits 32.1 and 32.2 hereto are deemed to be furnished with this Report and will not be deemed +to be “filed” for purposes of Section 18 of the Exchange Act, except to the extent that the registrant specifically +incorporates it by reference. +108 +SIGNATURES +Pursuant +to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report +to be signed on its behalf by the undersigned, thereunto duly authorized. +Channel +Therapeutics Corporation +Date: +March 27, 2025 +By: +/s/ +Francis Knuettel II +Name: +Francis Knuettel II +Title: +Chief Executive Officer and President, Chief Financial Officer, Treasurer and Secretary +(Principal +Executive Officer, Principal Financial Officer, Principal Accounting Officer) +Pursuant +to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf +of the registrant and in the capacities and on the dates indicated. +Date: +March 27, 2025 +By: +/s/ +Francis Knuettel II +Francis Knuettel +II +Chief +Executive Officer and President, Chief Financial Officer, Treasurer, Secretary and Director +Date: +March 27, 2025 +By: +/s/ +Ezra Friedberg +Ezra Friedberg +Director +Date: +March 27, 2025 +By: +/s/ +Todd Davis +Todd Davis +Director +Date: +March 27, 2025 +By: +/s/ +Richard Malamut +Richard Malamut +Director +Date: +March 27, 2025 +By: +/s/ +Chia-Lin Simmons +Chia-Lin Simmons +Director +109 +CHANNEL +THERAPEUTICS CORPORATION +INDEX +TO CONSOLIDATED FINANCIAL STATEMENTS +Page +Report of Independent Registered Public Accounting Firm (PCAOB ID 688 ) +F-2 +Audited Financial Statements +Consolidated Balance Sheets +F-3 +Consolidated Statements of Operations +F-4 +Consolidated Statements of Changes in Stockholders’ Equity (Deficit) +F-5 +Consolidated Statements of Cash Flows +F-6 +Notes to the Consolidated Financial Statements +F-7 +F- 1 +REPORT +OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +To +the Shareholders and Board of Directors of +Channel +Therapeutics Corporation +Freehold, +New Jersey +Opinion +on the Financial Statements +We +have audited the accompanying consolidated balance sheets of Channel Therapeutics Corporation (the “Company”) as of +December 31, 2024 and 2023, the related consolidated statements of operations, changes in stockholders’ deficit and cash +flows for each of the two years in the period ended December 31, 2024, and the related notes (collectively referred to as the +“financial statements”). In our opinion, the financial statements present fairly, in all material respects, the consolidated +financial position of the Company as of December 31, 2024 and 2023, and the consolidated results of its operations and its cash +flows for each of the two years in the period ended December 31, 2024, in conformity with accounting principles generally accepted +in the United States of America. +Explanatory +Paragraph – Going Concern +The +accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As more fully +described in Note 2, the Company has a significant working capital deficiency, has incurred significant losses and needs to raise +additional funds to meet its obligations and sustain its operations. These conditions raise substantial doubt about the Company’s +ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The +financial statements do not include any adjustments that might result from the outcome of this uncertainty. +Basis +for Opinion +These +financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on +the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company +Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company +in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission +and the PCAOB. +We +conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits +to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error +or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial +reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but +not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. +Accordingly, we express no such opinion. +Our +audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to +error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence +regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles +used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. +We believe that our audits provide a reasonable basis for our opinion. +/s/ +Marcum llp +Marcum +llp +We +have served as the Company’s auditor since 2021. +Hartford, +Connecticut +March 27, 2025 +Marcum +LLP +F- 2 +Item +1. Financial Statements +CHANNEL +THERAPEUTICS CORP +CONSOLIDATED +BALANCE SHEETS +December 31, 2024 +December 31, 2023 +ASSETS +CURRENT ASSETS +Cash +$ 513,443 +$ 96,391 +Prepaid expenses +65,300 +— +Due from Chromocell Corporation +40,400 +— +Deferred offering costs +750,000 +— +TOTAL CURRENT ASSETS +1,369,143 +96,391 +TOTAL ASSETS +$ 1,369,143 +$ 96,391 +LIABILITIES AND STOCKHOLDERS’ DEFICIT +CURRENT LIABILITIES +Accounts payable and accrued expenses +$ 1,897,127 +$ 4,620,925 +Accrued compensation +— +645,947 +Investor Note, net of debt discount +— +316,324 +Loan payable, net of debt discount +2,054,202 +202,279 +Loan payable - related party, net of debt discount +131,868 +750,082 +Due to Chromocell Corporation +— +5,386 +TOTAL CURRENT LIABILITIES +4,083,197 +6,540,943 +TOTAL LIABILITIES +4,083,197 +6,540,943 +COMMITMENTS AND CONTINGENCIES +- +STOCKHOLDERS’ DEFICIT +Preferred stock Series A, $ 0.0001 par value, 700,000 shares authorized, 0 and 600,000 shares issued and outstanding as of December 31, 2024 and December 31, 2023, respectively +— +60 +Preferred stock Series C, $ 0.0001 par value, 5,000 shares authorized, 2,600 and 0 shares issued and outstanding as of December 31, 2024 and December 31, 2023, respectively +— +— +Common stock, $ 0.0001 par value, 200,000,000 shares authorized, 6,103,813 and 3,906,300 shares issued and outstanding as of December 31, 2024 and December 31, 2023, respectively +613 +391 +Additional paid in capital +18,760,320 +7,074,646 +Accumulated deficit +( 21,474,987 ) +( 13,519,649 ) +TOTAL STOCKHOLDERS’ DEFICIT +( 2,714,054 ) +( 6,444,552 ) +TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT +$ 1,369,143 +$ 96,391 +The +accompanying notes are an integral part of these consolidated financial statements. +F- 3 +CHANNEL +THERAPEUTICS CORP +CONSOLIDATED +STATEMENTS OF OPERATIONS +FOR +THE YEARS ENDED DECEMBER 31, 2024 AND 2023 +Years Ended December 31, +2024 +2023 +OPERATING EXPENSES +General and administrative expenses +$ 4,110,045 +$ 2,738,948 +Research and development +1,179,436 +2,579,418 +Professional fees +2,281,968 +1,543,918 +Total operating expenses +7,571,449 +6,862,284 +NET LOSS FROM OPERATIONS +( 7,571,449 ) +( 6,862,284 ) +OTHER (EXPENSE) INCOME +Interest expense +( 786,393 ) +( 518,509 ) +Other income +39,413 +— +Gain on default judgement +363,091 +— +Total other (expense) income +( 383,091 ) +( 518,509 ) +Net loss before provision for income taxes +( 7,955,338 ) +( 7,380,793 ) +Provision for income taxes +— +— +NET LOSS +$ ( 7,955,338 ) +$ ( 7,380,793 ) +Net loss per common share - basic and diluted +$ ( 1.43 ) +$ ( 5.78 ) +Weighted average number of common shares outstanding during the year - basic and diluted +5,574,473 +1,276,543 +The +accompanying notes are an integral part of these consolidated financial statements. +F- 4 +CHANNEL +THERAPEUTICS CORP +CONSOLIDATED +STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT +FOR +THE YEARS ENDED DECEMBER 31, 2024 AND 2023 +Preferred A +Shares +Preferred +A Shares +Par +Preferred +C Shares +Preferred +C Shares +Par +Common +Shares +Par +Additional +Paid-in +Capital +Accumulated +Deficit +Total +Stockholders’ +Deficit +Balance, December 31, 2022 +600,000 +$ 60 +— +$ — +1,111,112 +$ 111 +$ 2,432,148 +$ ( 6,138,856 ) +$ ( 3,706,537 ) +Stock-based compensation +— +— +— +— +— +— +1,733,233 +— +1,733,233 +Shares issued for extension of bridge loan +— +— +— +— +18,892 +2 +428,398 +— +428,400 ) +Shares issued for license +— +— +— +— +384,226 +38 +2,225,695 +— +2,225,733 +Shares issued for cash +— +— +— +— +2,525,815 +253 +255,159 +— +255,412 +Shares forfeited +— +— +— +— +( 133,745 ) +( 13 ) +13 +— +— +Net loss +— +— +— +— +— +— +— +( 7,380,793 ) +( 7,380,793 ) +Balance December 31, 2023 +600,000 +$ 60 +— +$ — +3,906,300 +$ 391 +$ 7,074,646 +$ ( 13,519,649 ) +$ ( 6,444,552 ) +CHANNEL +THERAPEUTICS CORP +CONSOLIDATED +STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT +FOR +THE YEARS ENDED DECEMBER 31, 2024 AND 2023 +Preferred A +Shares +Preferred +A Shares +Par +Preferred +C Shares +Preferred +C Shares +Par +Common +Shares +Par +Additional +Paid-in +Capital +Accumulated +Deficit +Total +Stockholders’ +Deficit +Balance, December 31, 2023 +600,000 +$ 60 +— +$ — +3,906,300 +$ 391 +$ 7,074,646 +$ ( 13,519,649 ) +$ ( 6,444,552 ) +Stock-based compensation +— +— +— +— +— +— +1,455,561 +— +1,455,561 +Issuance cost from shares issued on extension of bridge loan +— +— +— +— +81,112 +9 +447,770 +— +447,779 +Conversion of preferred stock into Common Stock +( 600,000 ) +( 60 ) +— +— +499,429 +50 +10 +— +— +Shares issued for cash in Initial Public Offering +— +— +— +— +1,100,000 +110 +5,971,890 +— +5,972,000 +Shares issued for Standby agreement +— +— +— +— +37,500 +4 +( 4 )) +— +— +Recission of common stock +— +— +— +— +( 111,129 ) +( 11 ) +( 91,501 ) +— +( 91,512 ) +Transfer of liabilities to Chromocell Corp. for Preferred stock +— +— +2,600 +— +— +— +2,153,362 +— +2,153,362 +Conversion of notes into Common Stock +— +— +— +— +253,492 +25 +1,362,796 +— +1,362,821 +Restricted Stock Units expense +— +— +— +— +64,498 +6 +104,478 +— +104,484 +Shares issued for services +192,854 +21 +239,229 +— +239,250 +Shares issued for payment of accounts payable +— +— +— +— +10,000 +1 +7,338 +— +7,339 +Repurchase of Common Stock +( 86,196 ) +( 9 ) +( 74,991 ) +— +( 75,000 ) +Shares issued for cash under equity line of credit, net of issuance costs and for +paydown on notes payable and accrued interest +— +— +— +— +155,953 +16 +109,736 +— +109,752 +Net loss +— +— +— +— +— +— +— +( 7,955,338 ) +( 7,955,338 ) +Balance December 31, 2024 +— +$ — +2,600 +$ — +6,103,813 +$ 613 +$ 18,760,320 +$ ( 21,474,987 ) +$ ( 2,714,054 ) +The +accompanying notes are an integral part of these consolidated financial statements. +F- 5 +CHANNEL +THERAPEUTICS CORP +CONSOLIDATED +STATEMENTS OF CASH FLOWS +FOR +THE YEARS ENDED DECEMBER 31, 2024 AND 2023 +Years Ended December 31, +2024 +2023 +CASH FLOWS FROM OPERATING ACTIVITIES: +Net loss +$ ( 7,955,338 ) +$ ( 7,380,793 ) +Adjustments to reconcile net loss to net cash used in operating activities +Amortization of debt discount +692,020 +188,119 +Issuance cost from shares issued on extension of investor note +— +201,600 +Stock-based compensation +1,799,295 +1,733,233 +Shares issued for license +— +2,225,733 +Gain on default judgement +( 363,091 ) +— +Changes in operating assets and liabilities: +Accounts payable and accrued expenses +1,178,573 +1,627,005 +Accrued compensation +( 282,856 ) +424,072 +Due from Chromocell Corporation +( 45,786 ) +— +Prepaid expenses +( 65,300 ) +— +Deferred offering costs +( 750,000 ) +— +Net Cash Used In Operating Activities +( 5,792,483 ) +( 981,031 ) +CASH FLOWS FROM FINANCING ACTIVITIES: +Proceeds from loan payable, net of debt discount +536,184 +201,008 +Proceeds from loan payable - related party, net of debt discount +— +565,928 +Payment of bridge loan, net of debt discount +( 214,757 ) +— +Common stock issued for cash +5,972,000 +255,412 +Recission of common stock +( 91,512 ) +— +Repurchase of Common Stock under Stock Repurchase Plan +( 75,000 ) +— +Shares issued for cash under equity line of credit +82,620 +— +Net Cash Provided By Financing Activities +6,209,535 +1,022,348 +NET INCREASE IN CASH +417,052 +41,317 +CASH AT BEGINNING OF YEAR +96,391 +55,074 +CASH AT END OF YEAR +$ 513,443 +$ 96,391 +Supplemental cash flow information: +Cash paid for income taxes +$ — +$ — +Cash paid for interest expense +$ — +$ — +NONCASH INVESTING AND FINANCING ACTIVITIES: +Shares forfeited +$ +$ 13 +Debt discount from common stock issued for extension of bridge loan +$ 447,779 +$ 428,400 +Conversion of notes to common stock +$ 1,362,821 +$ — +Transfer of liabilities to Chromocell Corp for Series C Preferred Stock +$ 2,153,362 +$ — +Accounts payable and accrued expenses converted to loans payable +$ 1,455,416 +$ — +Accounts payable and accrued expenses converted to loans payable - related party +$ 131,868 +$ — +Shares issued for payment of accounts payable +$ 7,339 +$ — +Shares issued for payment of accrued interest +$ 3,344 +$ — +Shares issued for payment of principal on loan payable +$ 23,788 +$ — +The +accompanying notes are an integral part of these consolidated financial statements. +F- 6 +CHANNEL +THERAPEUTICS CORP +NOTES +TO CONSOLIDATED FINANCIAL STATEMENTS +NOTE +1 – ORGANIZATION AND NATURE OF BUSINESS +Company +Background +Channel +Therapeutics Corporation (“Channel” or the “Company”) was incorporated in the State of Delaware on +March 19, 2021. On August 10, 2022, the Company entered into that certain Contribution Agreement (the “Contribution Agreement”) +with Chromocell Corporation, a Delaware corporation (“Chromocell Holdings”), pursuant to which, effective July 12, +2022 (the “Contribution Date”), Chromocell Holdings contributed all assets and liabilities related to Chromocell Holdings’ +historical therapeutic business, including all patents, pre-clinical and Phase I study results and data, and trade secrets related +to the CC8464 compound to the Company (See Note 4). On October 22, 2024, the Company’s shareholders approved a reincorporation +merger of the Company in the State of Nevada with and into Channel Therapeutics Corporation, wholly-owned subsidiary of the Company, +with Channel Therapeutics Corporation remaining as the surviving corporation immediately following the reincorporation merger +(the “Reincorporation Merger”). The Reincorporation Merger occurred on November 18, 2024. +The +Company is a clinical-stage biotech company focused on developing and commercializing new therapeutics to alleviate pain. The +Company’s clinical focus is to selectively target the sodium ion-channel known as “NaV1.7”, which has been genetically +validated as a pain receptor in human physiology. A NaV1.7 blocker is a chemical entity that modulates the structure of the sodium-channel +in a way to prevent the transmission of pain perception to the central nervous system (“CNS”). The Company’s +goal is to develop a novel and proprietary class of NaV blockers that target the body’s peripheral nervous system. +F- 7 +Overview +The +Company has a limited operating history and has not generated revenue from its intended operations. The Company’s business +and operations are sensitive to general business and economic conditions in the U.S. and worldwide along with local, state, and +federal governmental policy decisions. A host of factors beyond the Company’s control could cause fluctuations in these +conditions. Adverse conditions may include changes in the biotechnology regulatory environment, technological advances that render +the Company’s technologies obsolete, availability of resources for clinical trials, acceptance of technologies into the +medical community, and competition from larger, more well-funded companies. +Initial +Public Offering +On October 22, 2024, the affirmative vote of a majority of the outstanding shares of Common Stock present +in person, by remote communication, if applicable, or represented by proxy at the Annual Meeting approved the +Reincorporation Merger. The Reincorporation Merger occurred on November 18, 2024. +Reincorporation +Merger and Name Change +On October 22, 2024, the affirmative vote +of a majority of the outstanding shares of Common Stock present in person, by remote communication, if applicable, or represented +by proxy at the Annual Meeting approved the Reincorporation Merger. The Reincorporation Merger occurred on November 18, 2024. +F- 8 +NOTE +2 – LIQUIDITY AND GOING CONCERN +A +fundamental principle of the preparation of financial statements in accordance with GAAP is the assumption that an entity will +continue in existence as a going concern, which contemplates continuity of operations and the realization of assets and settlement +of liabilities occurring in the ordinary course of business. In accordance with this requirement, the Company has prepared its +accompanying consolidated financial statements assuming the Company will continue as a going concern. +During +the year ended December 31, 2024,During +the year ended December 31, 2024, the Company had a net loss of approximately $ 8.0 million. As of December 31, 2024, the +Company has cash of approximately $ 0.5 million and a working capital deficit. During +the year ended December 31, 2024, the Company had a net loss of approximately $ 8.0 million. As of December 31, 2024, the +Company has cash of approximately $ 0.5 million and a working capital deficit$ 8.0 million. As of December 31, 2024, the +Company has cash of approximately $ 0.5 million and a working capital deficit of approximately +$ 2.7 million, compared to approximately $ 0.1 million in cash and a working capital +deficit of approximately $ 6.4 million at December 31, 2023. +Based on the Company’s current projections, management believes there is substantial doubt about +its ability to continue to operate as a going concern and fund its operations through at least the next twelve months following +the issuance of these consolidated financial +statements. While the Company will continue to invest in its business and the development of CC8464, CT2000, and CT3000, and potentially +other molecules, it is unlikely that the Company will generate product or licensing revenue during the next twelve months. During +the year ended December 31, 2024, the Company completed its initial public offering, raising $5.7 million, after +deducting the underwriting discounts and commissions and offering expenses, and it is likely +the Company will need to raise additional funds through either strategic partnerships or the capital markets. However, there is +no assurance that the Company will be able to raise such additional funds on acceptable terms, if at all. If the Company raises +additional funds by issuing securities, existing stockholders may be diluted. +The +consolidated financial +statements included in this report do not include any adjustments to reflect the possible future effects on the recoverability +and classification of assets or the amounts and classification of liabilities that may result from the matters discussed herein. +While the Company believes in the viability of the Company’s strategy to generate sufficient revenue, control costs, and +raise additional funds, when necessary, there can be no assurances to that effect. The Company’s ability to continue as +a going concern is dependent upon the ability to implement the business plan, generate sufficient revenues, raise capital, and +to control operating expenses. +NOTE +3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES +Basis +of Presentation +The +accompanying audited financial statement has been prepared in accordance with accounting principles generally accepted in the +United States of America (“GAAP”) and pursuant to the rules and regulations of the SEC. +Revision +of previously issued financial statements +During the course of preparing the Company’s Annual Report on Form 10-K for the year ended +December 31, 2024, the Company identified a misstatement in the prior year financial statements. This misstatement related to the +reporting an incorrect number of shares of Common Stock issued for cash in the Company’s consolidated statement of changes +in stockholders’ deficit. This led to an incorrect amount of total common shares outstanding on the Company’s consolidated +statement of changes in stockholders’ deficit and on the Company’s consolidated balance sheet. On the Company’s +consolidated balance sheet as of December 31, 2023, the Company disclosed shares of Common Stock issued and outstanding of 3,914,338. +This amount of shares has been revised to 3,906,300, a change of 8,038 shares. On the Company’s consolidated statement of +changes in stockholders’ deficit for the year ended December 31, 2023, the Company disclosed shares of Common Stock issued +for cash of 2,533,853. This amount of shares has been revised to 2,525,815, a change of 8,038 shares. Also, on the Company’s +consolidated statement of changes in stockholders’ deficit for the year ended December 31, 2023, the Company disclosed total +shares of Common Stock issued and outstanding as of December 31, 2023 of 3,914,338. This amount of shares has been revised to 3,906,300, +a change of 8,038 shares. +F- 9 +Emerging +Growth Company +The +Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended (the +“Securities Act”), as modified by the Jumpstart Our Business Startups Act of 2012, as amended (the “JOBS Act”), +and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies +that are not emerging growth companies including, but not limited to, not being required to comply with the independent registered +public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding +executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding +advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. +Further, +Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial +accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared +effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised +financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and +comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The +Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and +it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the +new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s +consolidated financial statements with another public company which is neither an emerging growth company nor an emerging growth +company which has opted out of using the extended transition period difficult or impossible because of the potential differences +in accounting standards used. +P rinciples +of consolidation +The +consolidated financial statements include the accounts of Channel Therapeutics Corporation and its wholly owned subsidiary, Chromocell +Therapeutics Australia Pty. Ltd. All significant intercompany balances and transactions have been eliminated. +Use +of Estimates +The +preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions +that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of +the consolidated financial statements and the reported amounts of expenses during the reporting period. Actual results could differ +from those estimates. Significant estimates made by management include, but are not limited to, estimating the valuation of deferred +income taxes. +Cash +and Cash Equivalents +The +Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. +As of December 31, 2024 and December 31, 2023, the Company did not have any cash equivalents. +As +of December 31, 2024, the Company had deposits in excess of federally insured limits. +F- 10 +Research +and Development +The +Company incurs research and development (“R&D”) costs during the process of researching and developing technologies +and future offerings. The Company expenses these costs as incurred unless such costs qualify for capitalization under applicable +guidance. The Company reviews acquired R&D and licenses to determine if they should be capitalized or expensed under U.S. +GAAP standards. +Below +is a disaggregation of R&D expenses: +Schedule +of disaggregation of R&D expenses +For the Year Ended +For the Year Ended +December 31, 2024 +December 31, 2023 +Consultant +$ 286,680 +$ 68,900 +Lab Materials +1,818 +— +Lab Cell Storage +88,662 +48,572 +Chemistry Manufacturing and Controls (“CMC”) +642,304 +— +IP Services +159,972 +2,461,946 +Total +$ 1,179,436 +$ 2,579,418 +Fair +Value Measurements and Fair Value of Financial Instruments +The +Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the +principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following +fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels: +● +Level +1 Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date. +● +Level +2 Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or +similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs +derived from or corroborated by observable market data. +● +Level +3 Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market +participants would use in pricing the asset or liability based on the best available information. +The +Company did not identify any assets or liabilities that are required to be presented on the balance sheets at fair value in accordance +with ASC Topic 820. +Due +to the short-term nature of all financial assets and liabilities, their carrying value approximates their fair value as of the +balance sheet dates. +Stock-Based +Compensation +The +Company accounts for stock-based compensation costs under the provisions of ASC 718, Compensation—Stock Compensation (“ASC +718”), which requires the measurement and recognition of compensation expense related to the fair value of stock-based compensation +awards that are ultimately expected to vest. Stock-based compensation expense recognized includes the compensation cost for all +stock-based payments granted to employees, officers, and directors based on the grant date fair value estimated in accordance +with the provisions of ASC 718. ASC 718 is also applied to awards modified, repurchased, or cancelled during the periods reported. +Stock-based compensation is recognized as expense over the employee’s requisite vesting period and over the nonemployee’s +period of providing goods or services. Pursuant to ASC 718, the Company can elect to either recognize the expenses on a straight-line +or graded basis and has elected to do so under the straight-line basis. +F- 11 +Basic +and Diluted Net Loss per Common Share +Basic +loss per common share is computed by dividing the net loss by the weighted average number of shares of Common Stock outstanding +for each period. Diluted loss per share is computed by dividing the net loss by the weighted average number of shares of Common +Stock outstanding plus the dilutive effect of shares issuable through the common stock equivalents. The weighted-average number +of common shares outstanding excludes common stock equivalents because their inclusion would be anti-dilutive. As of December +31, 2024, 870,449 stock options, 55,000 warrants, and 243,100 unvested restricted stock units (“RSUs”) +were excluded from dilutive earnings per share as their effects were anti-dilutive. As of December 31, 2023, 197,560 stock +options were excluded from dilutive earnings per share as their effects were anti-dilutive. +Income +Taxes +The +Company accounts for income taxes pursuant to the provision of ASC 740 “Accounting for Income Taxes,” (“ASC +740”) which requires, among other things, an asset and liability approach to calculating deferred income taxes. The asset +and liability approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences +of temporary differences between the carrying amounts and the tax bases of assets and liabilities. A valuation allowance is provided +to offset any net deferred tax assets for which management believes it is more likely than not that the net deferred asset will +not be realized. +The +Company follows the provision of the ASC 740 related to Accounting for Uncertain Income Tax Position. When tax returns are filed, +it is more likely than not that some positions taken would be sustained upon examination by the taxing authorities, while others +are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. +In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the consolidated financial statements +in the period during which, based on all available evidence, management believes it is most likely that not that the position +will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are +not offset or aggregated with other positions. +Tax +positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more +than 50% likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated +with tax positions taken that exceeds the amount measured as described above should be reflected as a liability for uncertain +tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing +authorities upon examination. The Company believes its tax positions will more likely than not be upheld upon examination. As +such, the Company has not recorded a liability for uncertain tax benefits. +The +federal and state income tax returns of the Company are subject to examination by the Internal Revenue Service and state taxing +authorities, generally for three years after they were filed. The Company has filed its tax returns for the year ended December +31, 2023 and after review of the prior year consolidated financial statements and the results of operations through December 31, +2024, the Company has recorded a full valuation allowance on its deferred tax asset. +Recently +Issued Accounting Pronouncements +In December 2023, the FASB issued ASU 2023-09, +Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires disaggregated information about a reporting entity’s +effective tax rate reconciliation, as well as information related to income taxes paid to enhance the transparency and decision +usefulness of income tax disclosures. This ASU will be effective for the annual periods beginning after December 15, 2024. The +Company is currently evaluating the impacts of adoption of this ASU. +F- 12 +In +November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures,” +which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant +segment expenses. The purpose of the amendment is to enable investors to better understand an entity’s overall performance +and assess potential future cash flows. The guidance is effective for fiscal years beginning after December 15, 2023, and interim +periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The guidance is to be applied retrospectively +to all prior periods presented in the consolidated financial statements. The Company adopted this ASU in 2024, see Note 9. +NOTE +4 – RELATED PARTY TRANSACTIONS +Employment +Agreement +On +February 14, 2024, the board of directors of the Company (the “Board”) received a demand letter from an attorney +representing Chromocell Holdings and Christian Kopfli, the Company’s former Chief Executive Officer and former Chief Strategy +Officer. Mr. Kopfli alleged an improper termination for “cause” and claimed to seek monetary damages in the amount +of $479,169. Of the $479,169 asserted by Mr. Kopfli, as of December 31, 2024, the Company had accrued $363,091 in compensation +expenses associated with Mr. Kopfli’s prior employment with the Company . However, the Company believed the assertions +made by Mr. Kopfli were without merit and commenced a lawsuit against Mr. Kopfli and Chromocell Holdings in the Supreme Court +for the State of New York, County of New York on June 7, 2024 (Index No. 652917/2024, the “New York Action”), asserting +causes of action against Mr. Kopfli for breach of the Employment Agreement entered into on January 10, 2023 between the Company +and Mr. Kopfli, breach of fiduciary duty by Mr. Kopfli, as well as breach of contract against Chromocell Holdings in connection +with the Contribution Agreement between the Company and Chromocell Holdings. The Company also asserted a “faithless servant” +claim against Mr. Kopfli, seeking a ruling that Mr. Kopfli was not entitled to compensation from the Company. The Company sought +monetary damages against Mr. Kopfli and Chromocell Holdings in the New York Action, plus disgorgement of all compensation previously +paid or accrued to Mr. Kopfli by the Company. +By +Order dated October 3, 2024, the court in the New York Action awarded the Company a default judgment against Mr. Kopfli and Chromocell +Holdings on all claims and ordered an assessment of damages against Mr. Kopfli and Chromocell Holdings (currently scheduled to +be held in May 2025). As of December 31, 2024, the Company has removed the accrual of $363,091 in compensation expenses and recorded +a gain on default judgement in the same amount. +Camden +Consulting LLC +The +Company entered into a Consultant Agreement with Camden Capital LLC (“Camden”), dated January 10, 2023 (the “Consultant +Agreement”). This Consultant Agreement replaced an agreement with Mr. Francis Knuettel II dated June 2, 2022, and pursuant +to which, Camden agreed to provide the services of Mr. Knuettel, who was to serve as the Company’s Chief Financial and Strategy +Officer, Treasurer and Secretary. +Under +the Consultant Agreement, Under the Consultant Agreement, Camden +accrued a consulting fee for the period June 6, 2022 through August 31, 2022 of $10,000 per month and effective September 1, 2022, +began to accrue a consulting fee of $20,000 per month, payable in cash at the rate of $5,000 per month (a minimum of $1,125 per +week), with the remainder accrued. All accrued consulting fees are payable as of the earliest of a sale or liquidation of the Company, +the Company’s bankruptcy or three days after Post-registration Approval. The Consultant Agreement provides for the following +equity awards to Camden: (i) an option, awarded as of January 10, 2023, to acquire 22,223 shares of the Company’s Common +Stock, vesting quarterly over 10 quarters and beginning October 1, 2022, with the option having an exercise price equal to the +fair market value of the Company’s Common Stock on the date of grant and expiring on the 10th anniversary of the date of +grant; (ii) an option, awarded as of January 10, 2023, to acquire 2,778 shares of the Company’s Common Stock, vesting 100% +upon the sooner of the sale of the Company or Post-registration Approval, with the option having an exercise price equal to the +fair market value of the Company’s Common Stock on the date of grant and expiring on the 10th anniversary of the date of +grant; and (iii) a RSU, awarded as of January 10, 2023, of 16,667 shares of the Company’s Common Stock, vesting 100% on the +day after the first trading window that opens after Post-registration Approval. +F- 13 +The +Consultant Agreement contemplates an additional consulting fee, as determined by the Board. The potential additional consulting +fee is 50% of the annualized consulting fee and will be based on achievement of performance goals and objectives established by +the Board in concert with Mr. Knuettel in January of each year. The Board may increase the potential additional consulting fee +in recognition of performance in excess of the performance objectives. Any amount shall only be paid if Camden continues to provide +consulting services to the Company as of the date of payment, which will be no later than March 15 of the year following the year +to which the additional consulting fee relates. Any additional consulting fee for 2022 is payable solely in the Board’s +discretion. +Pursuant +to the Consultant Agreement, in the event the relationship with Camden is involuntarily terminated by the Company other than for +“Cause” or if Camden terminates the relationship for “Good Reason,” Camden is entitled to receive (i) +six months of consulting fees at the same rate existing immediately prior to termination, (ii) a potential additional consulting +fee, if performance goals and objectives have been established for the year and prorated for the period of service, and (iii) +six months of additional vesting credit with respect to any outstanding time-based equity awards. “Cause” and “Good +Reason” are each defined in the Consultant Agreement. +Finally, +Camden and Mr. Knuettel agree to certain non-solicitation and non-competition provisions for a period of 12 months following termination +of the relationship and to certain confidentiality obligations. Additional terms and conditions are set forth in the Consultant +Agreement. +On +June 23, 2023, we amended and restated the Consultant Agreement by entering into an Amended and Restated Consultant Agreement +with Camden whereby the RSU for 16,667 shares of Common Stock was cancelled, and the Company agreed to grant Camden +an option to acquire 27,777 shares of Common Stock within 30 days of the closing of the IPO. As of June 23, 2023, such +RSU for 16,667 shares of the Company’s Common Stock had not vested, and no expense was recorded on the Company’s +consolidated financial statements. In addition, from and after June 1, 2023, the consulting fee will be paid in cash by the +Company. No other material changes were made to the Consultant Agreement. +Effective +July 19, 2023, the Board appointed +Francis Knuettel II as Interim Chief Executive Officer and as of March 13, 2024, the Board appointed +Francis Knuettel II as Chief Executive Officer of the Company, at which time Mr. Knuettel became an employee of the Company. Mr. +Knuettel will serve as the Company’s Chief Executive Officer until a successor is duly elected and qualified, unless sooner +removed. In addition to his role as Chief Executive Officer of the Company, Mr. Knuettel will continue to serve in his capacity +as Chief Financial Officer, Treasurer and Secretary of the Company. +Director +Note +On +December 6, 2022, the Company and Mr. Todd Davis, one of the Company’s directors, entered into the Director Note for +$175,000. The Director Note has an original issuance discount of $ 75,000 , and matures on December 31, 2023, or, if earlier to +occur, upon the closing of an underwritten offering of securities resulting in at least $ 15 million in gross proceeds. On +December 28, 2023, the Company entered into an amendment to the Director Note, which extended the maturity date to February 29, +2024. On February 21, 2024, the principal and accrued interest on this note converted into 29,167 shares of the Company’s +Common Stock. +April +and September Bridge Financings +On +April 17, 2023 and September 1, 2023, the Company entered into bridge notes, the investors in which were almost entirely existing +investors. Related party investors in the April Bridge Financing include Chromocell Holdings, Boswell Prayer Ltd., Motif Pharmaceuticals +Ltd, Aperture Healthcare Ventures Ltd., MDB Merchants Park LLC, Balmoral Financial Group LLC and AME Equities LLC (each a related +party based on share ownership in excess of 5% or resulting from a principal at one of the entities being on the Board ). +All of these investors, except Chromocell Holdings, also participated in the September Bridge Financing. On February 21, 2024, +the principal and accrued interest on these notes converted into 130,494 shares of the Company’s Common Stock. See Note +5 for terms of these notes. +F- 14 +Due +from/to Chromocell Holdings +As +of December 31, 2024, the Company had a $ 40,400 receivable due from Chromocell Holdings, from which the Company was spun +out in August 2022. This amount is comprised of expenses paid by the Company to be reimbursed by Chromocell Holdings. No interest +is incurred on these amounts. +As +of December 31, 2023, the Company had a $ 5,386 liability due to Chromocell Holdings. This amount is comprised of expenses +paid by Chromocell Holdings to be reimbursed by the Company. No interest is incurred on these amounts. +Side +Letter to the Contribution Agreement and Issuance of Series C Convertible Redeemable Preferred Stock +On +August 2, 2023, the Company entered into a side letter to the Contribution Agreement (the “Holdings Side Letter”) +with Chromocell Holdings. Pursuant to the side letter, upon closing of the Company’s IPO: (a) Chromocell Holdings re-assumed +all $1.6 million in direct liabilities previously assumed by the Company in accordance with the Contribution Agreement, (b) Chromocell +Holdings waived the Company’s obligations to make a cash payment in the amount of $0.6 million to Chromocell Holdings, and +(c) in consideration thereof, the Company issued to Chromocell Holdings 2,600 shares of Series C Convertible Redeemable Preferred +Stock of the Company, par value of $ 0.0001 per share (the “Series C Preferred Stock”). +The +Series C Preferred Stock has a liquidation preference of $1,000 per share. Holders of the Series C Preferred Stock are not entitled +to dividends, have no voting rights other than as required by law, and the shares of Series C Preferred Stock are convertible +into shares of Common Stock at a price of $7.50 per share of Common Stock. Following the IPO, at the Company’s option, the +shares of Series C Preferred Stock are convertible into shares of Common Stock automatically if, the trading price of the Common +Stock exceeds certain thresholds and are redeemable by the Company for cash. +Related +Party Note +On +May 10, 2024, the Company and Camden Capital LLC, a company controlled by Mr. Knuettel, the Company’s Chief Executive +Officer and Chief Financial Officer, entered converted certain payables into a promissory note for $131,868. The note matures +on December 15, 2024, or, if earlier to occur, upon the closing of a public or private offering or other financing or capital-raising +transaction of any kind. As of December 31, 2024, the note was in default, though the Company has not received any notice from +Mr. Knuettel. The note accrued interest at the rate of 4.86% per annum through December 15, 2024 and 6.86% thereafter. As +of December 31, 2024, the note had an outstanding principal of $ 131,868 and accrued interest of $ 4,242 . +Outstanding +Principal on Related Party Notes +Schedule +of Outstanding +Principal on Related Party Notes +Note Payable – Related Party +Outstanding +Principal +Unamortized +Debt Discount +Outstanding +Principal, net of +Debt Discount +Related Party Note +$ 131,868 +$ — +$ 131,868 +Total as of December 31, 2024 +$ 131,868 +$ — +$ 131,868 +Note Payable – Related Party +Outstanding +Principal +Unamortized +Debt Discount +Outstanding +Principal, net of +Debt Discount +Director Note +$ 175,000 +$ — +$ 175,000 +September and April Bridge financings +596,928 +( 21,846 ) +575,082 +Total as of December 31, 2023 +$ 771,928 +$ ( 21,846 ) +$ 750,082 +F- 15 +NOTE +5 – NOTES PAYABLE +Investor +Note +On +February 4, 2022, the Company entered into a note payable for $ 450,000 (the “Investor Note”) with a third party. +This Investor Note had an original issuance discount of $ 150,000 , representing an implicit interest rate of 50 %, a maturity +date of February 3, 2023 , and accrues no interest beyond the original issuance discount. During the year ended December 31, +2024, the Company issued 81,112 shares of common stock to extend the maturity date of the note, resulting in an additional debt +discount of $447,379. The Company recognized $ 581,055 and $ 309,094 , respectively, of amortization of debt discount included +in interest expense on the statement of operations for the years ended December 31, 2024 and 2023 related to the Investor Note. +As of December 31, 2024, the debt discount associated with this Investor Note was fully amortized. +On +February 27, 2023, the Investor Note was amended. The maturity date was extended from its original due date of February 3, +2023 to May 15, 2023, in return for the Company agreeing to pay 2% per month in accrued interest and the third party agreeing +to settle its outstanding debt, including accrued interests in shares of Common Stock at the IPO . +On +June 23, 2023, the Company entered into a side letter with the holder of the Investor Note pursuant to which the Company (i) amended +and restated the Investor Note to extend the maturity date to August 15, 2023 and (ii) in consideration therefor, issued +to such holder 50,000 shares of Common Stock. The Company determined that this extension qualified as a modification of the Investor +Note rather than an extinguishment. The Company recorded an expense of $126,000 from the issuance of the 556 shares of Common +Stock based on a share price of $22.68. The $22.68 share price was based on a third-party valuation of the Company’s Common +Stock, with certain adjustments as set forth below in detail in Note 7 – Stockholders’ Equity. +On +August 17, 2023, the Company entered into a second side letter with the holder of the Investor Note (the “August Investor +Note Side Letter” and, together with the June Investor Note Side Letter, the “Investor Note Side Letters”) pursuant +to which the Company (i) amended and restated the Investor Note to extend the maturity date to September 30, 2023 and (ii) in +consideration therefor, issued to such holder 30,000 shares of Common Stock. On September 24, 2023, the Company entered +into an amendment to the Investor Note, which further extended the maturity date to October 10, 2023. The Investor Note provides +for the accrual of interest equal to 2% monthly ($9,000 per month) of the face amount of $450,000 and obligates the holder +to subscribe for securities in the IPO in full satisfaction of the Company’s repayment obligations. In addition, pursuant +to the Investor Note Side Letters, the Company agreed to register the 8,890 shares of Common Stock (5,556 issued for the June +23, 2023 side letter, and 3,334 issued for the August 17, 2023 side letter) for resale. The Company recorded an expense of $75,600 +from the issuance of the 3,333 shares of Common Stock based on a share price of $22.68. The $22.68 share price was based on a +third-party valuation of the Company’s Common Stock, with certain adjustments as set forth below in detail in Note 7 – +Stockholders’ Equity. +Effective +October 10, 2023, the Company entered into a side letter with the Holder of the Investor Note, which extended the maturity date +of the Investor Note to November 14, 2023, and the Company issued to the Holder of the Investor Note 3,334 shares of +Common Stock. +Effective +November 13, 2023, the Company entered into another side letter with the holder of the Investor Note pursuant to which the Company +(i) amended and restated the Investor Note to extend the maturity date to January 31, 2024, and (ii) in consideration therefor, +agreed to issue to such Holder of the Investor Note 3,334 shares of Common Stock on each of November 29, 2023, December +29, 2023 and January 29, 2024, provided the Investor Note remained outstanding as of such date. +Effective +January 30, 2024, the Company entered into another side letter with the holder of the Investor Note (the “January Investor +Note Side Letter”) pursuant to which the Company (i) amended and restated the Investor Note to extend the maturity date +to February 29, 2024, and (ii) in consideration therefor, agreed to issue to such Holder of the Investor Note 77,778 shares +of Common Stock on the earlier to occur of the IPO or February 29, 2024. +As +of December 31, 2024, the Investor Note and the accrued interest on the note has been fully paid off. As of December 31, 2023, +there was $ 98,036 in accrued interest on +the note. Interest expense totaled $ 15,517 for the year ended December 31, 2024, compared to $ 98,036 the year ended +December 31, 2023. The net principal amount of this note was $316,324 as of December 31, 2023. These +notes were exchanged for 93,831 shares of Common Stock at the time +of the Company’s IPO. +F- 16 +Director +Note +On +December 6, 2022, the Company and Mr. Todd Davis, one of the Company’s directors, entered into a note payable agreement +(the “Director Note”) for $ 175,000 . The Director Note had an original issuance discount of $ 75,000 , no other interest +and matures on December 31, 2023, or, if earlier to occur, upon the closing of an underwritten offering of securities resulting +in at least $ 15 million in gross proceeds. Mr. Davis, as lender, has the right but not the obligation to subscribe to the +underwritten offering by presenting the Director Note in whole or in part to purchase such securities as legal tender therefor, +on a dollar-for-dollar basis based upon the offering price of such securities to the public. The Director Note bears no interest +except in the case of certain events of default. +On +December 28, 2023, the Company entered into an amendment to the Director Note, which extended the maturity date to February 29, +2024. The Director Note was exchanged for 29,167 shares of Common +Stock at the time of the Company’s IPO. +April +Bridge Financing +On +April 17, 2023, the Company entered into a bridge loan for working capital purposes, with various accredited investors, all +of whom are pre-existing stockholders, in the aggregate principal amount of $393,808 (the “April Bridge Financing”). +During the year ended December 31, 2023, the Company received $389,808, in Advances from certain participating investors. Such +Advances accrued interest at a rate of 8% per annum until close of the April Bridge Financing on April 17, 2023, for a total of +$1,870 in aggregate interest on all Advances. The April Bridge Financing consisted of senior secured convertible notes that +had a maturity date of October 17, 2023. Such notes accrued interest on the unpaid principal amount at a rate of 8% per annum +and automatically converted into shares of Common Stock at the IPO of shares of Common Stock at a 20% discount to the price per +IPO Share. The senior secured convertible notes issued in the April Bridge Financing were secured by a security interest in all +of the Company’s assets (including the Company’s patents and intellectual property licenses). In connection with the +April Bridge Financing, on April 17, 2023, the Company also entered into a securities purchase agreement with holders of the notes, +pursuant to which the Company is required to file a registration statement within 180 calendar days after consummation of the +IPO, providing for the resale of Common Stock received by holders of the notes upon conversion of such notes. +On +October 12, 2023, the Company entered into a first amendment to the senior secured convertible notes in the April Bridge Financing, +which extended the maturity of the notes to November 1, 2023. On October 24, 2023, the Company entered into a second amendment +to the senior secured convertible notes in the April Bridge Financing, which extended the maturity of the notes to November 14, +2023. On November 13, 2023, the Company entered into a third amendment to the senior secured convertible notes in the April Bridge +Financing, which further extended the maturity of the notes to February 29, 2024. These notes were exchanged for 87,727 shares +of Common Stock at +the time of the Company’s IPO. +September +Bridge Financing +On +September 1, 2023, the Company entered into a bridge loan for working capital purposes, with various accredited investors, certain +of which are pre-existing stockholders, in the aggregate principal amount of $ 198,128 (the “September Bridge Financing”). +The September Bridge Financing consisted of senior secured convertible notes that had a maturity date of March 1, 2024. Such notes +accrued interest on the unpaid principal amount at a rate of eight percent (8%) per annum and automatically converted into shares +of Common Stock in connection with the IPO at a twenty percent (20%) discount to the price per IPO Share plus an additional 62 +shares of Common Stock issuable as further consideration for the September Bridge Financing. The senior secured convertible notes +issued in the September Bridge Financing were secured by a security interest in all of the Company’s assets (including patents +and intellectual property licenses). In connection with the September Bridge Financing, on September 1, 2023, the Company also +entered into a securities purchase agreement with holders of the notes, pursuant to which the Company is required to file a registration +statement within 180 calendar days after consummation of the IPO, providing for the resale of Common Stock received by holders +of the notes upon conversion of such notes. Additionally, the Company entered into a subordination and intercreditor agreement, +effective September 1, 2023, with the holders of the senior secured convertible notes issued in the April Bridge Financing, pursuant +to which those notes and certain liens of the Company would be subordinated to the rights of the holders of the notes issued in +the September Bridge Financing. These notes were exchanged for 42,767 shares of Common +Stock at the time of the Company’s IPO. +F- 17 +October +Promissory Notes +On +October 12, 2023, the Company and four existing investors entered into promissory notes (the “October Promissory Notes”) +with an aggregate face amount of $ 210,000 and an aggregate purchase price of $ 175,000 . The October Promissory Notes matured +on November 12, 2023 or, if earlier to occur, upon the closing of the IPO. The October Promissory Notes bore no interest except +in the case of certain events of default. On November 7, 2023, the Company amended and restated the October Promissory Notes to +extend the maturity dates of the October Promissory Notes to November 17, 2023. On November 13, 2023, the Company amended and +restated the October Promissory Notes to further extend the maturity dates of the October Promissory Notes to February 29, 2024. +The Company recognized $ 24,575 and $ 10,425 , respectively, of amortization of debt discount included in interest expense on +the statements of operations for the years ended December 31, 2024 and 2023. As of December 31, 2024, the October Promissory Notes +have been fully paid off in cash. +Bridge +Financing Note Amendments and Recission Agreement +On +February 8, 2024, the Company and certain affiliates of A.G.P./Alliance Global Partners (“A.G.P.”) entered into amendments +to the senior secured convertible notes issued to such affiliates of the A.G.P. in the April Bridge Financing and September Bridge +Financing to remove the automatic conversion features from such notes (the “Bridge Financing Note Amendments”). Under +the Bridge Financing Note Amendments, both notes issued in the April Bridge Financing and the September Bridge Financing have +a maturity date of March 1, 2024, and the full principal amount of both notes and any accrued interest thereon shall be payable +solely in cash upon the consummation of the IPO. Both notes have an annual interest rate of 8%, which accrues daily, and is calculated +on the basis of a 360-day year (consisting of twelve 30 calendar day periods), giving an effective interest rate of 8.3%. During +the year ended December 31, 2024, the Company issued 81,112 shares of common stock to extend the maturity date of the note, resulting +in an additional debt discount of $447,379. +On +February 10, 2024, the Company entered into a Stock Rescission Agreement with certain affiliates of A.G.P. (the “Stock Rescission +Agreement” and, together with the Bridge Financing Note Amendments, the “Representative Affiliate Transactions”), pursuant +to which the Company rescinded 111,129 shares of Common Stock held by such affiliates of A.G.P. and agreed to refund an aggregate +of $91,512 paid by such affiliates of A.G.P. in consideration therefor within 30 days of the effective date of the Stock Rescission +Agreement. At December 31, 2024, all such amounts have been paid pursuant to the Representative Affiliate Transactions and there +are no remaining obligations thereto. +May +Promissory Note +On +May 10, 2024, the Company converted accounts payable with a professional advisor into a promissory note in the amount of $ 1,455,416 . +The note matures on December 15, 2024 or, if earlier to occur, upon the closing of a public or private offering or other financing +or capital-raising transaction of any kind. As of December 31, 2024, the note was in default, though the Company has not received +any notice from the professional advisor. The note accrued interest at the rate of 4.86 % per annum through December 15, 2024 and +6.86% thereafter. As of December 31, 2024, the note had an outstanding principal of $ 1,455,416 and accrued interest of $ 46,817 . +Convertible +Note +On +July 24, 2024, the Company entered into a securities purchase agreement with an accredited investor (the “July Note Holder”), +pursuant to which the Company issued to the July Note Holder a senior unsecured convertible note (the “July Note”) +in the aggregate principal amount of $ 750,000 , which is convertible into shares of Common Stock. The July Note accrues interest +at a rate of 6% per annum (which increases to 12% in the event of a default) and matures on August 24, 2025 (the “July +Note Maturity Date”). Interest is guaranteed through the July Note Maturity Date regardless of whether the July Note is +earlier converted or redeemed. The July Note is convertible by the holder thereof in whole or in part at any time after issuance +and prior to the July Note Maturity Date into shares of Common Stock based on a conversion price (the “July Note Conversion +Price”) of $1.506 per share (the “July Note Conversion Shares”), which cannot be reduced below $0.231 per share, +and is subject to customary adjustments for stock splits, stock dividends, recapitalization and other similar transactions. Notwithstanding +the foregoing, such conversions are subject to (i) a 4.99% beneficial ownership limitation contained in the Note, which may +be increased to 9.99% upon 61 days’ prior written notice to the Company by the July Note Holder, and (ii) the Exchange Cap +(as defined below). The Company has agreed to hold a meeting of its stockholders to seek approval of a waiver of the Exchange +Cap - no later than ninety (90) days from July 24, 2024. Under the applicable rules of the NYSE American LLC, in no event may +the Company issue to July Note Holder and any of its affiliates under the CEF Purchase Agreement (as defined below), or otherwise, +more than 1,152,764 shares of Common Stock, which number of shares represents 19.99% of the shares of the Common Stock outstanding +immediately prior to the execution of the CEF Purchase Agreement (the “Exchange Cap”). +F- 18 +The +July Note is redeemable by the Company in whole or in part at any time after issuance and prior to the July Note Maturity Date +in cash at a price equal to 110% of the greater of (i) the July Note Note’s outstanding principal amount, plus all accrued +but unpaid interest and late charges due under the July Note (the “July Note Conversion Amount”) being redeemed as +of the date on which such redemption will occur (the “Company Optional Redemption Date”) and (ii) the product of (1) +the number of July Note Conversion Shares then issuable under the July Note multiplied by (2) the highest closing sale price of +the Common Stock on any trading day during the period commencing on the date immediately preceding the date of the Company Optional +Redemption Notice (as defined below) and ending on the trading day immediately prior to the date the Company makes the entire +payment. The Company may deliver only one notice to exercise its right to require redemption (the “Company Optional +Redemption Notice”) in any given 20 trading day period and each Company Optional Redemption Notice is irrevocable. At any +time prior to the date on which such optional redemption payment is paid in full, the July Note may be converted by the July Note +Holder into shares of Common Stock in accordance with the conversion terms thereof. +As +of December 31, 2024, there was $ 199 in +accrued interest and $ 127,426 in unamortized debt discount on the note. Interest expense totaled $ 19,418 for the year +ended December 31, 2024, compared to $ 0 for year ended December 31, 2023. The Company recognized $ 86,390 and $ 0 , respectively, +of amortization of debt discount included in interest expense on the statements of operations for the years ended December 31, +2024 and 2023. As of December 31, 2024 there as $726,212 in outstanding principal on this note. +Waiver +of Exchange Cap +On +October 22, 2024, the affirmative vote of a majority of the outstanding shares of Common Stock present in person, by remote communication, +if applicable, or represented by proxy at the Annual Meeting approved the waiver of the Exchange Cap in connection with the July +Note and the CEF Purchase Agreement. +Outstanding +Principal on Notes +Schedule +of Outstanding +Principal on Notes +Loan Payable +Outstanding +Principal +Unamortized +Debt Discount +Outstanding +Principal, net of +Debt Discount +May Promissory Note +$ 1,455,416 +$ — +$ 1,455,416 +Convertible Note +726,212 +( 127,426 ) +598,786 +Total as of December 31, 2024 +$ 2,181,628 +$ ( 127,426 ) +$ 2,054,202 +Loan Payable +Outstanding +Principal +Unamortized +Debt Discount +Outstanding +Principal, net of +Debt Discount +Investor Note +$ 205,008 +( 2,729 ) +$ 202,279 +Total as of December 31, 2023 +$ 205,008 +$ ( 2,729 ) +$ 202,279 +F- 19 +Investor Loan +Outstanding +Principal +Unamortized +Debt Discount +Outstanding +Principal, net of +Debt Discount +Investor Note +$ 450,000 +( 133,676 ) +$ 316,324 +Total as of December 31, 2023 +$ 450,000 +$ ( 133,676 ) +$ 316,324 +NOTE +6 – STOCKHOLDERS’ EQUITY +Initial +Public Offering +On +February 21, 2024, the Company completed its IPO and issued 1,100,000 shares of Common Stock at a price of $ 6.00 per +share. The aggregate net proceeds from the IPO were approximately $ 5.9 million after deducting approximately $0.9 million of +underwriting discounts and commissions and offering expenses. +Stock +Split +On +February 15, 2024, the Company effected a 9-for-1 reverse stock split. All share and per share amounts have been retrospectively +adjusted for the reverse stock split. +2023 +Plan Amendment +On +June 12, 2024, the Board authorized an amendment to the Chromocell Therapeutics Corporation 2023 Equity Incentive Plan (the +“2023 Plan”) to increase the number of shares of Common Stock authorized for issuance thereunder by 1,500,000 from 444,444 shares +to 1,944,444 shares. On October 22, 2024, the 2023 Plan Amendment was approved by the affirmative vote of a majority +of the outstanding shares of Common Stock present in person, by remote communication, if applicable, or represented by proxy at +the Annual Meeting. +Share +Forfeiture +Pursuant +to the terms of the April Bridge Financing, Chromocell Holdings forfeited 133,745 of the shares of Common Stock of the +Company on April 17, 2023. All shareholders with ownership stakes greater than 5% of the Company agreed that the failure to invest +its pro rata allocation in the April Bridge Financing would result in the forfeiture of a pro rata percentage of their shares. +Chromocell Holdings did not invest its full pro rata allocation, leading to the forfeiture of a portion of their shares of Common +Stock of the Company. +Standby +Investor Side letter +On +October 11, 2023, the Company entered into a securities purchase agreement with an institutional investor (the “Standby +Investor”), pursuant to which (i) the Standby Investor agreed to purchase, upon close of the IPO and at the Company’s +election, an aggregate of up to 750 shares of Series B Convertible Preferred Stock, par value of $ 0.0001 per share +(the “Series B Preferred Stock”) for a purchase price of $ 1,000 per share, and (ii) in consideration therefor, +the Company would issue upon close of the IPO, and regardless of whether the Company would have issued any shares of Series B +Preferred Stock, an aggregate of 4,167 shares (such shares, the “Standby Shares”) of Common Stock to the Standby Investor +(such agreement, the “Series B Securities Purchase Agreement”). In addition, pursuant to the Series B Securities Purchase +Agreement, the Company was required to file a registration statement within 180 calendar days after consummation of the IPO, providing +for the resale of the Standby Shares and shares of Common Stock issuable upon conversion of the Series B Preferred Stock, if issued. +Effective +November 13, 2023, the Company entered into a side letter with the Standby Investor (the “Standby Investor Side Letter”), +pursuant to which it (i) waived in full the Standby Investor’s obligation to fund the aggregate amount to be paid for the +Series B Preferred Stock to be purchased under the Series B Securities Purchase Agreement and (ii) agreed to continue to have +the obligation to issue the full amount of the Standby Shares upon the closing of the IPO. The Company and the Standby Investor +also agreed to terminate each of their obligations solely with respect to the Series B Preferred Stock under the Series B Securities +Purchase Agreement and a certain Registration Rights Agreement between the Company and the Standby Investor, which was required +to be delivered pursuant to the Series B Securities Purchase Agreement. +F- 20 +Rights +Offering +On +November 22, 2023, the Company commenced a rights offering (the “Rights Offering”) pursuant to which the Company +distributed non-transferable subscription rights (“Subscription Rights”) to each holder of its Common Stock held as +of 5:00 p.m. Eastern Standard Time on November 22, 2023, the record date for the Rights Offering (the “Rights Offering Record +Date”). The Subscription Rights could be exercised at any time during the subscription period, which commenced on November +22, 2023 and expired at 5:00 p.m., Eastern Standard Time, on December 1, 2023. Each Subscription Right entitled the eligible holder +to purchase up to three shares of the Company’s Common Stock at a price per whole share of Common Stock of $0.1008 (the +“Subscription Price”). Holders who fully exercised their rights could also subscribe for additional shares of Common +Stock not subscribed for by other holders on a pro rata basis. In addition, the Company could distribute to one or more additional +persons, at no charge to such person, additional non-transferable subscription rights to purchase shares of its Common Stock in +the Rights Offering at the same Subscription Price, without notice to the holders of its Common Stock. Upon the closing of the +Rights Offering, the Company issued an aggregate of 2,533,853 shares of Common Stock and received aggregate net proceeds +of $ 255,412 , after giving effect to the Representative Affiliate Transactions (as defined below), which it intended to use primarily +for general corporate purposes and expenses associated with the IPO. +Recission +Agreement +On +February 10, 2024, the Company entered into a Stock Rescission Agreement with certain affiliates of A.G.P. pursuant to which the +Company rescinded 111,129 shares of Common Stock held by such affiliates of A.G.P. and agreed to refund an aggregate +of $ 91,512 paid by such affiliates of A.G.P. in consideration therefor within 30 days of the effective date of the Stock +Rescission Agreement. At December 31, 2024, all such amounts have been paid pursuant to the Representative Affiliate Transactions +and there are no remaining obligations thereto. +Equity +Issuances +On +June 12, 2024, the Company issued 50,000 shares of Common Stock to a vendor in considerations for the services provided +by the vendor to the Company. +On +June 12, 2024, the Company entered into a twelve-month agreement with a vendor to issue up to 7,500 share of Common +Stock per month for services performed by such vendor. As of December 31, 2024, the Company has issued 51,187 shares +of Common Stock pursuant to this agreement. +On +August 12, 2024, the Company issued 10,000 shares of Common Stock to a vendor in exchange for outstanding invoices related +to services provided by the vendor to the Company, with such shares issued on October 22, 2024. +On +October 22, 2024, the Company issued 50,000 shares of Common Stock to a vendor in considerations for the services provided +by the vendor to the Company. +On +November 18, 2024, the Company issued 25,000 shares of Common Stock to a vendor in considerations for the services provided +by the vendor to the Company. +During +the year ended December 31, 2024, the Company issued 16,667 shares of Common Stock to a vendor in considerations for +the services provided by the vendor to the Company, with such shares granted on October 22, 2024. +Committed +Equity Financing +On +July 26, 2024, the Company entered into a Common Stock Purchase Agreement, dated as of July 26, 2024 (the “CEF Purchase +Agreement”), with Tikkun Capital LLC (“Tikkun”), providing for a committed equity financing facility, pursuant +to which, upon the terms and subject to the satisfaction of the conditions contained in the CEF Purchase Agreement, Tikkun has +committed to purchase, at the Company’s direction in its sole discretion, up to an aggregate of $ 30,000,000 (the “Total +Commitment”) of the shares of Common Stock (the “Purchase Shares”), subject to certain limitations set forth +in the CEF Purchase Agreement, from time to time during the term of the CEF Purchase Agreement. Concurrently with the execution +of the CEF Purchase Agreement, the Company and Tikkun also entered into a Registration Rights Agreement, dated as of July 26, +2024, pursuant to which the Company agreed to file with the SEC one or more registration statements, to register under the Securities +Act, the offer and resale by Tikkun of all of the Purchase Shares that may be issued and sold by the Company to Tikkun from time +to time under the CEF Purchase Agreement. +F- 21 +Stock +Repurchase Plan +On August 5, 2024, the Board authorized a stock repurchase plan (the “Repurchase Plan”) pursuant +to which up to $250,000 of the Company’s Common Stock may be repurchased prior to December 31, 2024, unless completed +sooner or otherwise extended. During the year ended December 31, 2024, the Company repurchased 86,196 shares of Common +Stock for $75,000. The 86,186 shares of Common Stock repurchased by the Company were subsequently cancelled. Open market purchases +are intended to be conducted in accordance with applicable Securities and Exchange Commission regulations, including the guidelines +and conditions of Rule 10b-18 and Rule 10b5-1 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). +The timing and actual number of shares repurchased will depend on a variety of factors including trading price, the Company’s +financial performance, corporate and regulatory requirements and other market conditions. +Repurchase +Plan Amendment +On +October 22, 2024, the Board authorized an amendment (the “Amendment”) to the Repurchase Plan to increase the total +value of shares of Common Stock available for repurchase by the Company under the Repurchase Plan by an additional $ 500,000 , to +$ 750,000 . In addition, the Amendment extended the termination date of the Repurchase Plan from December 31, 2024 to June 30, 2025, +prior to which Common Stock may be repurchased, unless completed sooner or otherwise extended. +Chromocell +Holdings Share Transfers +On +December 18, 2024, 747,187 shares of Common Stock and 2,600 shares of Series C Preferred Stock held by Chromocell +Holdings were transferred by the Company to Alexandra Wood (Canada) Inc. (“AWI”) in satisfaction of a default judgement +against Chromocell Holdings regarding the default by Chromocell Holdings of a secured promissory note by order of the Supreme +Court of the State of New York, County of New York on November 25, 2024 in the matter Alexandra Wood (Canada) Inc v. Chromocell +Corp., Index No. 651735/2024 . AWI subsequently transferred 173,000 shares of Chromocell Holding’s Common Stock that +it received such that AWI now owns 574,187 shares of the Common Stock originally issued to Chromocell Holdings in connection with +the Contribution Agreement. +Options +During +the year ended December 31, 2024, the Company granted a total of 684,000 stock options related to the Company’s +common stock. These stock options had a life of 10 years and an exercise price of $ 1.30 or $ 0.73 per option. During +the year ended December 31, 2023, the Company granted a total of 158,670 stock options. These stock options had a life +of 10 years and an exercise price of $ 22.68 per option. +During +the years ended December 31, 2024 and 2023, the fair value of each stock option granted was estimated using the Black-Scholes +Option Pricing Model using the following inputs: +Schedule +of fair value of each stock option granted +For +the Year +Ended +December 31, 2024 +For +the Year +Ended +December 31, 2023 +Exercise price +$ +0.73 - 1.30 +$ +22.68 +Expected dividend yield +0 +% +0 +% +Risk free interest rate +4.20 +% +3.50 - 3.93 +% +Expected life in years +10 +10 +Expected volatility +196 - 201 +% +157 - 158 +% +F- 22 +The +risk-free interest rate assumption for options granted is based upon observed interest rates on the United States Government Bond +Equivalent Yield appropriate for the expected term of the options. +With +certain adjustments outlined below, the Company based its determination of the underlying fair value of the Company’s Common +Stock on the findings of an independent third party engaged by the Company to determine the fair value of the Company’s +intellectual property. The Company had the analysis conducted in conjunction with the Contribution Agreement, which was executed +on August 10, 2022. The analysis determined that the fair value of the Company’s intellectual property was $ 44.8 million. +At the time of the Contribution Agreement and the option grants, there was 1,187,302 shares (on an as converted basis +reflecting the conversion of the 600,000 Series A Convertible Preferred Stock held by Chromocell Holdings). As of December +31, 2024, all of the Series A Convertible Preferred Stock shares have been converted. The resulting value per share of common +stock was $ 37.71 . The Company then adjusted this value in accordance with the following: +Schedule +of of Servicing Assets at Fair Value +Value +of intellectual property +$ +44.8 million +Common shares outstanding +(as converted) +1,187,302 +Value per common +share +$ +37.71 +Illiquidity discount +20 +% +Minority discount +20 +% +Fair value of the +common stock +$ +22.68 +After +the completion of the Company’s IPO, the trading price of the Company’s Common Stock is used as the fair value of +the Company’s Common Stock. +The +Company determined the expected volatility assumption for options granted using the historical volatility of comparable public +companies’ common stock. The Company will continue to monitor peer companies and other relevant factors used to measure +expected volatility for future option grants, until such time that the Company’s Common Stock has enough market history +to use historical volatility. +The +dividend yield assumption for options granted is based on the Company’s history and expectation of dividend payouts. The +Company has never declared nor paid any cash dividends on its Common Stock, and the Company does not anticipate paying any cash +dividends in the foreseeable future. +The +Company recognizes option forfeitures as they occur as there is insufficient historical data to accurately determine future forfeiture +rates. +The +following is an analysis of the stock option grant activity : +Schedule +of analysis of the stock option grant +Weighted +Average +Weighted +Average +Number of +Shares +Exercise +Price +Remaining +Life +Stock Options +Outstanding December 31, 2023 +197,560 +$ 22.68 +9.08 +Granted +684,000 +$ 1.26 +10.00 +Expired +( 11,111 ) +$ ( 22.68 ) +— +Exercised +— +$ — +— +Outstanding December 31, 2024 +870,449 +$ 5.85 +9.19 +Exercisable December 31, 2024 +309,521 +$ 11.14 +9.38 +F- 23 +Weighted +Average +Weighted +Average +Number of +Shares +Exercise +Price +Remaining +Life +Stock Options +Outstanding December 31, 2022 +50,002 +$ 22.68 +9.76 +Granted +158,670 +$ 22.68 +9.16 +Expired +( 11,111 ) +$ 22.68 +— +Exercised +— +$ — +— +Outstanding December 31, 2023 +197,560 +$ 22.68 +9.08 +Exercisable December 31, 2023 +84,131 +$ 22.68 +8.98 +A +summary of the status of the Company’s nonvested options as of December 31, 2024, and 2023, and changes during years ended +December 31, 2024, and 2023, is presented below : +Schedule +of nonvested options +Non-vested Options +Options +Weighted- +Average +Exercise +Price +Non-vested at December 31, 2023 +113,429 +$ 22.68 +Granted +684,000 +$ 1.26 +Vested +( 236,501 ) +$ 7.58 +Forfeited +— +$ — +Non-vested at December 31, 2024 +560,928 +$ 2.93 +Non-vested Options +Options +Weighted- +Average +Exercise +Price +Non-vested at December 31, 2022 +45,556 +$ 22.68 +Granted +158,670 +$ 22.68 +Vested +( 90,797 ) +$ 22.68 +Forfeited +— +$ — +Non-vested at December 31, 2023 +113,429 +$ 22.68 +The +total number of options granted during the years ended December 31, 2024 and 2023 was 684,000 and 158,670 , respectively. +The exercise price for these options was $ 0.73 , $ 1.30 or $ 22.68 per share. There was an intrinsic value of $ 0 and +$ 0 as of December 31, 2024 and 2023, respectively. +The +Company recognized stock-based compensation expense related to option vesting amortization of $ 1,455,561 and $ 1,733,233 for +the years ended December 31, 2024 and 2023, respectively, which is included in general and administrative expenses in the consolidated +statements of operations. +As +of December 31, 2024, the unamortized stock option expense was $ 1,295,319 . As of December 31, 2024, the weighted average period +for the unamortized stock compensation to be recognized is 1.75 years. +Warrants +The +following is an analysis of the stock warrant grant activity: +Schedule +of analysis of the stock warrant grant +Weighted +Average +Weighted +Average +Number of +Shares +Exercise +Price +Remaining +Life +Stock Warrants +Outstanding December 31, 2023 +— +$ — +— +Granted +55,000 +$ 7.50 +4.99 +Expired +— +$ — +— +Exercised +— +$ — +— +Outstanding December 31, 2024 +55,000 +$ 7.50 +4.13 +Exercisable December 31, 2024 +55,000 +$ 7.50 +4.38 +F- 24 +A +summary of the status of the Company’s nonvested warrants as of December 31, 2024, and changes during the year ended December +31 , 2024, is presented below: +Schedule +of nonvested warrants +Non-vested +Warrants +Warrants +Weighted- +Average +Exercise +Price +Non-vested at December 31, +2023 +— +$ +— +Granted +55,000 +$ +7.50 +Vested +( 55,000 +) +$ +7.50 +Forfeited +— +$ +— +Non-vested at +December 31, 2024 +— +$ +— +The +total number of warrants granted during the years ended December 31, 2024 and 2023 was 55,000 and 0 , respectively. +The exercise price for these warrants was $ 7.50 per share and there was an intrinsic value of $0. +The +Company recognized stock-based compensation expense related to warrant vesting amortization of $0 and $0 for the years ended December +31, 2024 and 2023, respectively. +On +February 21, 2024, the Company issued warrants to purchase up to 55,000 shares of Common Stock to the representative of the +underwriters of the IPO (the “Representative”). These warrants have an exercise price of $7.50, have a cashless exercise +provision, are exercisable 180 days following the commencement of sales of the shares of Common Stock of the IPO and have an expiration +date of February 21, 2029 . No expense was recognized to the warrants issued to such warrants from the IPO as these warrants constituted +offering costs of the IPO. +RSUs +A +summary of the status of the Company’s nonvested RSUs as of December 31, 2024, and changes during the year ended December +31, 2024, is presented below: +Schedule +of nonvested RSUs +Non-vested RSUs +RSUs +Weighted- +Average +Exercise +Price +Non-vested at December 31, 2023 +— +$ — +Granted +356,664 +$ 1.12 +Vested +64,498 +$ ( 1.30 ) +Forfeited +— +$ — +Non-vested at December 31, 2024 +292,166 +$ 1.08 +The +total number of RSUs granted during the years ended December 31, 2024 and 2023 was 356,664 and 16,667 , +respectively. The exercise price for these RSUs was $ 0.64 or $ 1.30 per share. +On +June 23, 2023, the Company and Camden Capital LLC amended and restated the Consultant Agreement by entering into an Amended and +Restated Consultant Agreement, whereby the RSU for 16,667 shares of common stock was cancelled, and the Company agreed to grant +Camden Capital LLC an option to acquire 27,778 shares of common stock within 30 days of the closing of the IPO. As of June 23, +2023, such RSU for 16,667 shares of common stock had not vested, and no expense was recorded on the Company’s financial +statements. +The +Company recognized stock-based compensation expense related to warrant vesting amortization of $ 104,484 and $ 0 for the +years ended December 31, 2024 and 2023, respectively, which is included in general and administrative expenses in the consolidated +statements of operations. +F- 25 +NOTE +7 – LEGAL +Demand +Letter from Mr. Kopfli’s Attorney +On +February 14, 2024, the Board received a demand letter from an attorney representing Chromocell Holdings and the Company’s +former Chief Executive Officer and former Chief Strategy Officer, Mr. Christian Kopfli, who was released for “cause” +as disclosed elsewhere in this Report. Mr. Kopfli alleged an improper termination for “cause” and claimed to seek +monetary damages in the amount of $ 479,169 . Of the $ 479,169 asserted by Mr. Kopfli, as of December +31 , 2024, the Company had accrued $ 363,091 in compensation expenses associated +with Mr. Kopfli’s prior employment with the Company. However, the Company believed the assertions made by Mr. Kopfli are +without merit and commenced a lawsuit against Mr. Kopfli and Chromocell Holdings in +New York Action, asserting causes of action against Mr. Kopfli for breach of the Employment Agreement entered into on January +10, 2023 between the Company and Mr. Kopfli, breach of fiduciary duty by Mr. Kopfli, as well as breach of contract against Chromocell +Holdings in connection with the Contribution Agreement between the Company and Chromocell Holdings. The Company also asserted +a “faithless servant” claim against Mr. Kopfli, seeking a ruling that Mr. Kopfli was not entitled to compensation +from the Company. The Company sought monetary damages against Mr. Kopfli and Chromocell Holdings in the New York Action, plus +disgorgement of all compensation previously paid or accrued to Mr. Kopfli by the Company. +By +Order dated October 3, 2024, the court in the New York Action awarded the Company a default judgment against Mr. Kopfli and Chromocell +Holdings on all claims, and ordered an assessment of damages against Mr. Kopfli and Chromocell Holdings (currently scheduled to +be held in May 2025). As of December 31, 2024, the Company has removed the accrual of $ 363,091 in compensation expenses and recorded +a gain on default judgement in the same amount. +Parexel +Claim +On +July 31, 2024, the Company received a demand letter from an attorney representing Parexel International (IRL) Limited (“Parexel”). +The letter, which was addressed to both the Company and Chromocell Holdings, purports to be a notice of default of +a note (the “Promissory Note”) between Chromocell Holdings and Parexel and seeks the payment of allegedly +unpaid principal in the amount of $682,551 plus interest exceeding $177,000. The Company denies that it is liable for any +of the amounts sought by Parexel; the Company is not a party to the Promissory Note and does not believe it is +liable for any amounts allegedly due thereunder. The Company intends to defend itself vigorously in the matter. +NOTE +8 – INCOME TAX +The +Company follows the asset and liability method of accounting for income taxes under ASC 740, “Income Taxes.” Deferred +tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the consolidated +financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and +liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences +are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized +in income in the period that included the enactment date. Valuation allowances are established, when necessary, to reduce deferred +tax assets to the amount expected to be realized. +ASC +740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of +tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more +likely than not to be sustained upon examination by taxing authorities. The Company recognizes accrued interest and penalties +related to unrecognized tax benefits as income tax expense. There were no unrecognized tax benefits and no amounts accrued for +interest and penalties as of December 31, 2020. The Company is currently not aware of any issues under review that could result +in significant payments, accruals or material deviation from its position. The Company is subject to income tax examinations by +major taxing authorities since inception. The Company used the separate return method for the preparation of the income tax provision. +F- 26 +For +the years ended December 31, 2024 and 2023, there was no income tax provision recorded. The tax benefit was added to the net operating +loss to which a full valuation allowance was applied. +A +reconciliation of income tax expense (benefit) computed at the statutory federal income tax rate to income taxes as reflected +in the consolidated financial statements is as follows: +Schedule reconciliation of income tax expense (benefit) +2024 +2023 +Income taxes at U.S. statutory rate +21.00 % +19.11 % +Income taxes at state rate +— % +9.00 % +Change in valuation allowance +( 21.00 )% +( 28.11 )% +Total provision for income taxes +— % +— % +Deferred +taxes are recognized for temporary differences between the basis of assets and liabilities for financial statement and income +tax purposes. The significant components of the Company’s deferred tax assets and liabilities as of December 31, +2024 and 2023 are comprised of the following: +Schedule of deferred taxes +December 31, +2024 +2023 +Deferred tax assets +Net operating loss carryforwards +$ 4,297,287 +$ 2,248163 +Stock-based compensation +470,245 +518,174 +Accrued compensation +— +181,576 +Capitalized organizational costs +— +22,016 +Capitalized intellectual property costs +— +620,440 +Interest expense limitation +24,664 +36,202 +Capitalized R&D +799,623 +— +Total deferred tax assets +5,591,819 +3,626,571 +Valuation allowance +( 5,591,819 ) +( 3,626,571 ) +Net deferred tax assets +— +— +Deferred tax liabilities +Total deferred tax liabilities +— +— +Net deferred taxes +$ — +$ — +For +the years ended December 31, 2024 and 2023, the Company recorded a full valuation allowance of its deferred tax assets. +The +Company has a net operating loss carryforward for federal tax purposes totalling approximately $ 16.4 million at December +31, 2024. Approximately $ 16.4 million net operating losses incurred in fiscal 2018 through fiscal 2024 that do not expire +and can be utilized to offset up to 80 % of future taxable income under the Tax Cuts and Jobs Act. +Utilization of NOL and tax +credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations that may have occurred +or that could occur in the future, as required by the Internal Revenue Code (the “Code”), as amended, as well as similar +state provisions. In general, an “ownership change” as defined by the Code results from a transaction or series of +transactions over a three-year period resulting in an ownership change of more than 50 percent of the outstanding stock of a company +by certain stockholders or public groups. +NOTE +9 – SEGMENT DISCLOSURE +The +clinical-stage biotech segment focused on developing and commercializing new therapeutics to alleviate pain. Our clinical focus +is to selectively target the sodium ion-channel known as “NaV1.7”, which has been genetically validated as a pain +receptor in human physiology. A NaV1.7 blocker is a chemical entity that modulates the structure of the sodium-channel in a way +to prevent the transmission of pain perception to the central nervous system (“CNS”). Our goal is to develop a novel +and proprietary class of NaV blockers that target the body’s peripheral nervous system. This segment is currently pre-revenue. +F- 27 +The +accounting policies of the clinical-stage biotech segment are the same as those described in the summary of significant accounting +policies. +The +chief operating decision maker assesses performance for the clinical-stage biotech segment and decides how to allocate resources +based on net loss that also is reported on the statement of operations as consolidated net loss. +The +measure of segment assets is reported on the balance sheet as total assets. +The +chief operating decision maker uses net loss to evaluate spending in deciding how funds should be allocated in preforming the +Company’s research and development. Net loss is used to monitor budget versus actual results. +The Company has +one reportable segment: clinical-stage biotech. This segment performs research and development for biotech products. Since the +Company only has one segment, the segment information is the same as the consolidated financials. +The Company’s +chief operating decision maker is the chief executive officer, with such individual also holding the position of chief financial +officer. +NOTE +10 – SUBSEQUENT EVENTS +Bridge +Note +On February 25, 2025, the Company issued an unsecured promissory note in the aggregate principal amount +of $325,000 (the “Bridge Note”) to 3i, L.P., a Delaware limited partnership (the “Holder”), for a purchase +price of $250,000, pursuant to which the Company promises to pay the Holder or its registered assigns the principal sum of $325,000 +or such amount equal to the outstanding principal amount of the Note together with interest. The Note will bear interest on the +outstanding principal amount at an annual rate equal to 6.0%. The Note may be prepaid by the Company without penalty, in whole +or in part, upon two days’ prior written notice to the Holder. All unpaid principal, together with any then unpaid and accrued +interest and other amounts payable under the Note, will otherwise be due and payable on the earliest of: (i) May 25, 2025, (ii) +the consummation of a Corporate Event (as defined in the Note), or (iii) when, upon or after the occurrence of an Event of Default +(as defined in the Note), such amounts are declared due and payable by the Holder or made automatically due and payable in accordance +with the terms of the Note. +F- 28 \ No newline at end of file diff --git a/raw/filings/0001919246/2024/0001753926-25-000503/filing_metadata.csv b/raw/filings/0001919246/2024/0001753926-25-000503/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..9174d4a18489711f939f40825ee5e3b43346e7bc --- /dev/null +++ b/raw/filings/0001919246/2024/0001753926-25-000503/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001919246,PTHS,Pelthos Therapeutics Inc.,2024,10-K,2025-03-27,2024-12-31,2025-03-27T21:08:42.000Z,0001753926-25-000503,g084720_10k.htm,10-K,7238043,1,1,https://www.sec.gov/Archives/edgar/data/1919246/000175392625000503/g084720_10k.htm,https://www.sec.gov/Archives/edgar/data/1919246/000175392625000503/ diff --git a/raw/filings/0001919246/2024/0001753926-25-000503/item1.txt b/raw/filings/0001919246/2024/0001753926-25-000503/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..e79f6045588ffa6da0389a7dc9d06361a3130bd5 --- /dev/null +++ b/raw/filings/0001919246/2024/0001753926-25-000503/item1.txt @@ -0,0 +1,1385 @@ +Item +1. Business +Overview +We +are a clinical-stage biotech company focused on developing and commercializing new therapeutics to alleviate pain. Our clinical +focus is to selectively target the sodium ion-channel known as “NaV1.7”, which has been genetically validated as a +pain receptor in human physiology. A NaV1.7 blocker is a chemical entity that modulates the structure of the sodium-channel in +a way to prevent the transmission of pain perception to the central nervous system (“CNS”). Our goal is to develop +a novel and proprietary class of NaV blockers that target the body’s peripheral nervous system. +We +have formally launched three programs developing pain treatment therapeutics, all of which are based on the same proprietary molecule, +as follows: +Eye +Pain : Based on a novel formulation of CC8464, our Eye Pain program, titled CT2000, is for the potential treatment of both +acute and chronic eye pain. NaV1.7 channels are present on the cornea, making it a viable biological target for treating eye pain. +Eye pain may occur with various conditions, including severe dry eye disease, trauma and surgery. Existing therapies for eye pain +(such as steroids, topical non-steroidal anti-inflammatory agents, lubricants, local anesthetics) are limited in their effectiveness +and/or limited in the duration that they may be prescribed because of safety issues. We intend to explore the viability of developing +CT2000 as a topical agent for the relief of eye pain. A potential advantage of this approach is that topical administration of +CT2000 is unlikely to lead to any hypersensitivity or skin reactions, like what was noted with systemic administration of CC8464, +because the systemic absorption from a topical administration would be extremely limited. We have developed topical ophthalmic +formulations and are pursuing trial plans as set forth below. +Current +options for the treatment of ocular pain center on the use of corticosteroids and non-steroidal anti-inflammatory drug (“NSAID”) +based therapeutics. These options suffer from sight-threatening complications such as Glaucoma and corneal melting, thus there +is a large unmet need for other approaches. As an example of the potential patient population, we estimate that there are approximately +5 million cases of corneal abrasions per year in the United States. In addition, other potential indications associated with eye +pain include: +● +severe dry eye, +● +side effects from +photorefractive keratectomy (PRK) and pterygium surgery, +● +second eye cataract +surgery, +● +neuropathic corneal +pain, and +● +severe uveitis and +severe iritis/scleritis. +As NaV1.7 channels are present on the cornea +and is a viable biological target for treating eye pain, we believe that we have a sound scientific basis for our ability to treat +a multitude of eye pain indications. We have successfully developed an eye drop formulation and have determined that the eye drops +are well tolerated by animals. We have completed animal efficacy studies and are in the process of running toxicology studies on +animals. We expect to announce the efficacy and toxicology results by April 2025. +Following the animal studies, if successful, +we intend to move into proof-of-concept (“POC”) studies in humans. We plan to conduct the POC study in Australia to +avail ourselves of a 43.5% tax credit for clinical expenses incurred in Australia and, on January 9, 2023, established an Australian +subsidiary through which the work will be conducted. We are planning to conduct the POC in a clinic in Brisbane, Australia +and are in the process of contracting the services to perform such trial. +Depot +Program : Based on several novel formulations of CC8464, the Company’s most recently launched program, titled CT3000, +is for the potential treatment of post operative pain with the use of nerve blocks. Examples would include knee surgery +or shoulder surgery. Existing therapies for nerve blocks lead to neuromuscular blockade which prevents movement following surgery. +Doctors often want patients to move soon after surgery to avoid complications such as blood clots. A NaV1.7 inhibitor used for +nerve blocks may provide good analgesia but will not lead to neuromuscular blockade that prevents movement like other local anesthetics. +1 +The +Company has successfully developed a number of formulations and in December 2024, announced that it achieved its endpoints in +two pre-clinical in vivo models of the Company’s nerve block formulations for acute pain, showing material improvement over +the existing standard of care, bupivacaine, in both efficacy and duration. +The +Company performed a thermal hyperalgesia test in rodents with a placebo arm, bupivacaine arm and four arms of the main formulations +of the Company’s molecule. The Company also performed a mechanical allodynia test in rodents with the same arms as above. +For both models, the drugs were administered as a sciatic nerve block. All four Company formulations showed a depot effect in +excess of four days, an improvement over bupivacaine, the current standard of care. +The +results of the thermal hyperalgesia results are shown in the chart below. After thirty minutes, three of the four formulations +showed materially better efficacy than bupivacaine, with each of the three being statistically superior to placebo for more than +two days longer than bupivacaine. One of the formulations remained statistically superior to placebo for more than four days. +Further, as NaV1.7 does not have an impact on mobility, this approach may offer a better option for post-surgical physical therapy +as current nerve block therapies cause temporary paralysis in the affected area. +Similarly +for the mechanical allodynia test results, three of the four formulations showed statistically better efficacy for a longer duration +of time than bupivacaine. The mechanical allodynia test is shorter in duration, reflecting the subject’s innate swift recovery +rate to surgical incisions. Nonetheless, the results mirrored the successful results set forth with the thermal hyperalgesia test. +2 +The +Company will commence toxicology and CMC work in 2025 and expects to commence human POC trial in early 2026. +Neuropathic +Pain : CC8464 is being developed to address certain types of neuropathic pain. The chemical characteristics of CC8464 restrict +its entry into the CNS and limit its effect to the NaV1.7 channels in the peripheral nervous system, which consists of the nerves +outside the brain and spinal cord. Activation of other channels in the CNS can result in side effects, including addiction and +other centrally mediated adverse effects. Since CC8464 is designed to not penetrate the CNS it is highly unlikely to produce CNS +mediated side effects including euphoria or addiction. Based on its characteristics, preclinical studies (described below) and +the Phase 1 studies we have completed to date, we believe that CC8464, if approved, could become an attractive option for both +patients and physicians as a treatment for moderate-to-severe pain in Erythromelalgia (“EM”) and idiopathic +small fiber neuropathy (“iSFN”). +We +conducted four Phase 1 trials with 207 patients. The results showed that CC8464 has a good overall tolerability and demonstrated +no liver or renal toxicity, no central nervous system changes and no cardiovascular findings but may cause skin rashes in certain +patients. The occurrence of skin rashes is not uncommon with the class of molecules to which CC8464 belongs and the rashes were +successfully treated in all cases with topical steroids and/or topical antihistamines (with the exception of one patient requiring +systemic steroids). +As +a result of the potential for skin rashes, following discussions with the FDA, we will conduct a slow dose escalation study +to further evaluate the incidence of rashes. By titrating the dose over several weeks, we anticipate that we will reduce or eliminate +this side effect. We expect that the slow dose escalation study will also help determine the need for dose escalation in the final +treatment regime. Even though the FDA has in the past approved drugs that listed rashes as a potential side effect, we do not +know if CC8464 will be approved by the FDA (or any foreign authority). +When +the dose escalation trial is funded, we will enroll approximately 20 healthy volunteers who will receive CC8464 over a period +of several weeks, with the dose escalation study expected to take approximately 9-12 months in total. We anticipate that the slower +dose escalation will decrease the likelihood of drug-related skin reactions. The primary endpoint of the dose escalation trail +will be safety and tolerability of the slower dose titration; however, we will also be measuring blood concentrations of CC8464, +which will allow us to better understand the pharmacokinetics of CC8464. Even if it is ultimately determined that we will need +an escalation period for chronic pain treatment therapy, which patients could well take for the remainder of their lives, we do +not believe the dose escalation approach will be consequential. +We +plan to conduct the dose escalation trial in Australia to avail ourselves of the tax credit set forth above, utilizing our Australian +subsidiary through which the work will be conducted. The location of the POC has not been determined at this time, with +availability of facilities and patient population, costs, tax credits, centers of excellence in the respective fields (EM or iSFN) +are all factors in the ultimate determination of the location. +In +parallel with the dose escalation study, we expect to run a pilot efficacy study on approximately ten EM patients. In this study, +we will induce EM flares, determine baseline pain, and then dose escalate CC8464, after which, we will attempt to induce flares. +The primary endpoint will be the amount of pain experienced, and the secondary endpoint is a determination if CC8464 reduces the +frequency of EM flares. +3 +We +are currently working on the development of the Phase 2a POC plan and expect to launch the Phase 2a POC study following the dose +escalation study and EM pilot study, to assess the potential efficacy of CC8464 in iSFN patients. Both of iSFN and EM are orphan +indications for which we plan to apply for orphan drug designations. The orphan indication may decrease the scope of the ultimate +development program that is necessary for approval and is associated with a marketing exclusivity period from the FDA along with +some tax advantages. +Though +the Phase 2a POC study design has not yet been completed, the study will take approximately twelve months after it is initiated. +The primary endpoint will be the amount of pain experienced from iSFN with secondary endpoints including other measurements like +pain relief and neuropathy scores. The final design may change based on feedback from regulatory authorities or information learned +during the dose escalation trial. +The +potential population for EM in the United States is estimated to be between 5,000 and 50,000 patients and the potential population +for iSFN in the United States is estimated to be between 20,000 and 80,000 patients. In both instances, we expect patients would +potentially take our drug for the remainder of their lives, and given the lack of good therapeutic alternatives, we expect to +have a robust, ongoing, and durable market. +The +Phase 2a results will have significance beyond EM and iSFN and provide important insights about NaV1.7 as a potential target to +find novel pain medications as an alternative to opioids, the continuing primary standard of care in analgesics. We believe that +positive results from the Phase 2a study could not only act as support for CC8464’s potential in EM and iSFN but may also +provide guidance of its potential for other indications of peripheral neuropathic pain. +We +may further expand our pipeline with other internal or external compounds in the future, but all other internally discovered compounds +are pre-clinical. +Benuvia +Spray Formulations : In addition to our NaV1.7 programs set forth above, on December 23, 2023, we entered into an exclusive +licensing agreement (the “Benuvia License Agreement”) with Benuvia for a sublingual formulation of a Diclofenac spray +for the treatment of acute pain, a Rizatriptan intranasal spray formulation and an Ondansetron sublingual spray formulation (collectively, +the “Spray Formulations”). The Spray Formulations diversify our pipeline of non-opioid pain treatment therapies, while +adding therapeutic options for related conditions. The sublingual formulation of a Diclofenac spray for the treatment of acute +pain (the “Diclofenac Spray Formulation”) is patented and has started clinical development in human volunteers. Preliminary +pharmacokinetics suggest that this formulation may have a faster onset of action than oral Diclofenac tablets. Diclofenac is an +NSAID that is also marketed under additional brand names including Voltaren and Cataflam in its pill form. A single Phase 1 trial +of the Diclofenac Spray Formulation was completed in 24 healthy volunteers wherein a single dose of 50mg diclofenac-potassium +was compared to 25 mg of Diclofenac Spray Formulation. In this trial, the blood plasma concentrations of Diclofenac rose more +quickly with the Diclofenac Spray Formulation than with the diclofenac administered orally by approximately 15 minutes. This suggests +that the Diclofenac Spray Formulation may have a faster onset of analgesia; however, additional trials may be needed to confirm +this effect. Additionally, the initial pharmacokinetic study demonstrated that a 25mg dose of Diclofenac Spray Formulation resulted +in lower systemic exposure to Diclofenac than the oral dose of 50mg diclofenac-potassium which means that an additional Phase +I pharmacokinetic study exploring additional higher doses of the sublingual diclofenac spray will likely be necessary to determine +the appropriate dose. +Rizatriptan, +whose brand name is Maxalt, is used for the acute treatment of migraines as a pill. By a number of clinical measures it is thought +to be superior to Sumatriptan. Both Rizatriptan and Sumatriptan belong to a family of tryptamine-based medications named “triptans” +that work as serotonin 1A receptor (or 5-HT1A-receptor) agonists and are indicated for the treatment of migraine. An intranasal +spray formulation of Rizatriptan (the “Rizatriptan Spray Formulation”) may potentially have a faster onset of action +than an oral form and may be easier to tolerate than swallowing a pill when patients are experiencing nausea as a result of the +migraine headache. According to a study that was reported in 2001, Rizatriptan has a higher bioavailability and a more rapid onset +of action which may be responsible for better results in resolving migraines as well as better results in patients reporting that +they are “pain free” after 2 hours. Both Sumatriptan and Rizatriptan are competitors for the same indication, though +neither are widely marketed because they are generic drugs. +4 +Ondansetron +is an anti-emetic that is available in oral and intravenous form. An Ondansetron sublingual spray formulation (the “Ondansetron +Spray Formulation”) may potentially have a faster onset of action than an oral form and may be easier to tolerate than swallowing +a pill when patients are experiencing nausea. Under the terms of the Benuvia License Agreement, Benuvia will be responsible for +the manufacturing and supply of the Spray Formulations, but we will have exclusive, worldwide rights to develop, commercialize +and distribute the Spray Formulations. +We +currently do not have strategy and development plans for the Spray Formulations licensed from Benuvia. +Our +Strategy +We +are a clinical-stage pharmaceutical company focused on non-opioid pain blockers in the NaV space. Our development programs are +initially designed to address the underlying condition and mitigate the pain associated with neuropathic pain and eye pain. The +key elements of our strategy to achieve our mission are: +● Develop +CT2000 for the treatment of eye pain. According to a presentation at the Association +for Research in Vision and Ophthalmology, with the abstract published in the publication, +Investigative Ophthalmology and Visual Science in June 2020, NaV1.7 receptor is present +on the cornea and as such, is a viable biological target for treating eye pain. We have +developed a number of topical ophthalmic formulation of CT2000 that are being evaluated +for ophthalmic efficacy and toxicology in two in vivo models, which will be followed +by a POC trial in patients. We expect the human POC trials for this ophthalmic formulation +of CT2000 to start in the second quarter 2025. +● Develop +CT3000 for the treatment of post-surgical pain. Based on its pre-clinical profile, +and the target validation, if approved by the FDA, we believe that CT3000 has the potential +to become a drug for treatment of acute post operative surgical pain for knee and shoulder +surgery where nerve blocks are appropriate, potentially delivering meaningful clinical +benefits over the currently available standard of care. +● +Advance the +development of CC8464 towards FDA approval for treating EM and iSFN. Based on its pre-clinical profile, the target +validation and trends seen with other NaV1.7 blockers in clinical studies, if approved by the FDA, we believe that CC8464 +has the potential to become a drug for treatment of EM and iSFN patients, potentially delivering meaningful clinical benefits +over the currently available standard of care. +● +Leverage our +differentiated research and discovery approach to expand our pipeline. We plan to build a pipeline of potential pain +blockers acting against sodium-channels related to NaV1.7. Pain modulation is complex, and a multitude of physiological mechanisms +are involved in transmitting pain signals. Other than NaV1.7, we believe that several related sodium channels, e.g., NaV1.8 +or NaV1.9, may be involved in pain sensation. While NaV1.7 is the most validated pain receptor, we believe that blockers against +other sodium channels may complement CC8464, CT2000 and CT3000 as our primary pain blocking candidates. +● +Build a leading, +fully integrated pharmaceutical company to maximize the clinical impact and value of our pipeline and deliver value to stockholders. +We plan to build an experienced team to rapidly advance compounds in a capital-efficient manner. We intend to retain +the commercialization rights to our lead compounds; however, we may opportunistically enter into strategic collaborations +in certain geographic or clinical settings to maximize the value of our pipeline. +While +CT2000 and CT3000 are the focus of our efforts, we may also allocate future resources towards the discovery and development of +other compounds that could potentially treat pain. +CC8464’s +FDA Orphan Drug Designation +We +are considering submitting a request to the FDA for Orphan Drug Designation for EM and iSFN, which could lead to approval for +such designation. Orphan Drug Designation provides for a seven-year window of exclusivity and potential 25% tax credit on qualified +clinical trials, as well as reduced FDA review periods and regulatory fees. We may apply for similar designations in additional +jurisdictions, including India, Japan and Mexico, as well as additional regulatory classifications, such as FDA Breakthrough Therapy +designation, that confer an advantage during development. As of the date of this Report, we have not submitted an application +for orphan drug designation for CC8464. +5 +CC8464, +CT2000 and CT3000 Manufacturing +We +plan to manufacture the clinical and eventual commercial supply through Clinical Manufacturing Organizations (“CMOs”) +in the U.S. and potentially other jurisdictions. We do not produce drug substances in house. External CMOs have produced enough +CC8464 drug substance to conduct the dose escalation trial, prepare the eye pain formulation, conduct the eye pain toxicology +trial and potentially, to conducts the Phase 2 proof of concept for neuropathic pain and acute and chronic eye pain. +We +have rights to two proprietary methods to produce CC8464. We have not yet decided which production process we will use for subsequent +clinical trials and eventual commercial supply, but both appear suitable for further use and optimization. Both manufacturing +processes employ common methods of organic synthesis used in the production drug substance. We do not intend to file patents for +these processes but will keep the detailed protocols (e.g., the selected crystallization solvent or the particular salt) as trade +secrets. +The +Company has developed the formulation for the eye drops associated with the eye pain treatment therapy and depot injections associated +with the nerve block therapy and are in the early stages of determining our manufacturing strategy. We expect to pursue a similar +strategy to have CT2000 and CT3000 manufactured by CMOs. +Intellectual +Property +Protection of our intellectual property +is an important part of our business. We seek patent protection in the United States and in other countries for our inventions +and discoveries, and we develop and protect our key know-how and trade secrets relating to our platform technology and the products +we are developing using our platform. +We have adopted a strategy of seeking patent protection in the United States and in other jurisdictions globally that we deem appropriate with respect to certain of our technologies relating to our products and process. We have been granted a patent in the United States directed to the composition of matter and use of our lead compound, CC8464. We have also obtained patents in France, Japan, India in Mexico, Israel and South Korea. Our U.S. patent for CC8464 will expire in 2035. In addition, we have an additional pending patent application in India. +We +have pending patent applications for each of CT2000 ophthalmic formulation and CT3000 injectable formulations, and for the treatment +of pain. +Granted +U.S. Patent 9,855,234 is directed to the diclofenac spray formulation and will expire in April of 2036. The Ondansetron Spray +Formulation is covered by U.S. Patent 9,566,233 and U.S. Patent 10,172,833. Both patents are composition-of-matter patents that +will expire in May 2034 and August 2036, respectively. The U.S. and international patents relating to the Rizatriptan Spray Formulation +have either expired or have been abandoned. +In +addition to patents and licenses, we rely on trade secrets and know-how to develop and maintain technologies and methods that +provide us a meaningful competitive advantage. However, trade secrets can be difficult to defend and maintain. We seek to protect +our proprietary technology and processes, and maintain ownership of certain technologies, in part, through confidentiality agreements +and invention assignment agreements with our employees, consultants and commercial partners. +Our +Competition +The +biotechnology and pharmaceutical industries are highly competitive. Several pharmaceutical companies that are developing molecules +that modulate NaV (including NaV1.7 and NaV1.8) activities or address pain through other methods of action and therefore have +the potential to mitigate eye, post-surgical and EM and iSFN pain. These companies and new entrants may potentially compete with +our products in the future with novel delivery technologies. Competition in this space will remain strong and we do not know if +we will be successful in obtaining orphan designation from the FDA for CC8464, encounter challenges to our issued patents and +continue to advance CC8464, C2000 and CT3000 through clinical development towards approval. +6 +In +connection with the Company’s initial public offering (the “IPO”), we entered into a side letter with Chromocell +Holdings, pursuant to which Chromocell Holdings agreed not to (i) directly or indirectly engage in the business of owning, licensing, +developing, marketing, manufacturing, producing, selling or distributing products, technologies, therapies, or services in any +way related to our business, including all patents, pre-clinical and Phase I study results and data, and trade secrets related +to the CC8464 compound, transferred by Chromocell Holdings to us further to the that certain Contribution Agreement (the “Contribution +Agreement”) with Chromocell Holdings. Pursuant to the Contribution Agreement, effective July 12, 2022 (the “Contribution +Date”), (ii) directly or indirectly, hire, engage or employ (as an employee, consultant or otherwise) any of our employees; +provided that Chromocell Holdings shall not, directly or indirectly, prevent any of our employees from serving on the board of +directors of Chromocell Holdings, and (iii) through any director or officer of Chromocell Holdings, directly or indirectly, solicit +for employment or the engagement of services of any of our employees or induce or attempt to induce any of our employees to leave +his or her employment with us, or in any way intentionally interfere with the employment relationship between any of our employees +and us, for the purpose of employing or engaging the services of such employee or soliciting such employee to become an employee +or consultant of Chromocell Holdings or any other person. +Our +Facilities +Our +office is located at 4400 Route 9 South, Suite 1000, Freehold, NJ 07728. We are considering lab options commensurate with the +start of the Phase II trials and dose escalation study. +Employees +and Human Capital Resources +As +of March 26, 2025, we had four full-time employees and seven individual consultants on a part-time basis. None of our employees +is subject to a collective bargaining agreement or represented by a trade or labor union. We consider our relationship with our +employees to be good. +Our +human capital resources objectives include, as applicable, identifying, recruiting, retaining, incentivizing and integrating our +existing and additional employees. The principal purposes of our equity incentive plans are to attract, retain and motivate selected +employees, consultants and directors through the granting of stock-based compensation awards and cash-based performance bonus +awards. +In +addition, we have a two person Scientific Advisory Board led by Dr. Stephen Waxman, who is the Bridget M. Flaherty Professor of +Neurology and of Neuroscience and the Director of the Center for Neuroscience and Regeneration Medicine at Yale University School +of Medicine. +Legal +Proceedings +From +time to time, we may be involved in legal proceedings arising in the ordinary course of our business. We are not presently a party +to any legal proceedings that, in the opinion of management, would have a material adverse effect on our business. Regardless +of outcome, litigation can have an adverse impact on us due to defense and settlement costs, diversion of management resources, +negative publicity and reputation harm, and other factors. +Demand +Letter from Mr. Kopfli’s Attorney +On +February 14, 2024, our Board received a demand letter from an attorney representing Chromocell Holdings and our former Chief Executive +Officer and former Chief Strategy Officer, Mr. Christian Kopfli, who was released for “cause” as disclosed elsewhere +in this Report. Mr. Kopfli alleged an improper termination for “cause” and claimed to seek monetary damages in the +amount of $479,169. Of the $479,169 asserted by Mr. Kopfli, as of September 30, 2024, +the Company had accrued $363,091 in compensation expenses associated with Mr. Kopfli’s prior employment with the Company. +However, the Company believed the assertions made by Mr. Kopfli were without merit and commenced a lawsuit against Mr. Kopfli +and Chromocell Holdings in the Supreme Court for the State of New York, County of New +York on June 7, 2024 (Index No. 652917/2024, the “New York Action”) , asserting causes of action against Mr. +Kopfli for breach of the Employment Agreement entered into on January 10, 2023 between the Company and Mr. Kopfli, breach of fiduciary +duty by Mr. Kopfli, as well as breach of contract against Chromocell Holdings. The Company also asserted a “faithless servant” +claim against Mr. Kopfli, seeking a ruling that Mr. Kopfli was not entitled to compensation from the Company. The Company sought +monetary damages against Mr. Kopfli and Chromocell Holdings in the New York Action, plus disgorgement of all compensation previously +paid or accrued to Mr. Kopfli by the Company. +7 +By +Order dated October 3, 2024, the court in the New York Action awarded the Company a default judgment against Mr. Kopfli and Chromocell +Holdings on all claims, and ordered an assessment of damages against Mr. Kopfli and Chromocell Holdings (to be held at a date +to be determined). As of December 31, 2024, the Company has removed the accrual of $363,091 in compensation expenses and recorded +a gain on default judgement in the same amount. +Parexel +Claim +On +July 31, 2024, the Company received a demand letter from an attorney representing Parexel International (IRL) Limited (“Parexel”). +The letter, which was addressed to both the Company and Chromocell Holdings, purports to be a notice of default of +the Promissory Note between Chromocell Holdings and Parexel (the “Promissory Note”) and seeks the payment +of allegedly unpaid principal in the amount of $682,551 plus interest exceeding $177,000. The Company denies that it +is liable for any of the amounts sought by Parexel; the Company is not a party to the Promissory Note and does +not believe it is liable for any amounts allegedly due thereunder. The Company intends to defend itself vigorously in the +matter. +Government +Regulation +The +FDA and other regulatory authorities at federal, state and local levels, as well as outside the United States, extensively regulate, +among other things, the research, development, testing, manufacture, quality control, import, export, safety, effectiveness, labeling, +packaging, storage, distribution, recordkeeping, approval, advertising, promotion, marketing, post-approval monitoring and post-approval +reporting of drugs and biologics. We, along with our vendors, Clinical Research Organizations (“CRO”), clinical investigators, +clinical trial sites and contract manufacturing organizations, will be required to navigate the various preclinical, clinical, +manufacturing and commercial approval requirements of the governing regulatory agencies of the countries in which we wish to conduct +studies or seek marketing approval of compounds. The process of obtaining regulatory approvals of drugs and biologics and ensuring +subsequent compliance with appropriate federal, state, local and foreign statutes and regulations requires the expenditure of +substantial time and financial resources. +In +the United States where we are initially focusing our drug commercialization, we believe compounds, as small molecule drugs, would +be regulated as new drugs rather than biologics. The FDA regulates new drug products under the Federal Food, Drug, and Cosmetic +Act, as amended (the “FDCA”) and its implementing regulations. New drug products are also subject to other federal, +state and local statutes and regulations. If we fail to comply with applicable FDA or other requirements at any time with respect +to product development, clinical testing, approval or any other regulatory requirements relating to product manufacture, processing, +handling, storage, quality control, safety, marketing, advertising, promotion, packaging, labeling, export, import, distribution, +or sale, we may become subject to administrative or judicial sanctions or other legal consequences. These sanctions or consequences +could include, among other things, the FDA’s refusal to approve pending applications, issuance of clinical holds for proposed +or ongoing studies, suspension or revocation of approvals, warning or untitled letters, product withdrawals or recalls, product +seizures, relabeling or repackaging, total or partial suspensions of manufacturing or distribution, injunctions, fines, civil +penalties or criminal prosecution. +Compounds +must be approved for therapeutic indications by the FDA before they may be marketed in the United States. For new drug products +regulated under the FDCA, a sponsor must submit a U.S. New Drug Application (“NDA”) to the FDA for review and approval. +The NDA review and approval process may take multiple years and involves the following steps: +● +completion of extensive +preclinical studies in accordance with applicable regulations, including studies conducted in accordance with Good Laboratory +Practice (“GLP”) requirements; +8 +● +completion of the +manufacture, under current Good Manufacturing Practices (“cGMP”) conditions of the drug substance, drug product, +and labeling and packaging that the sponsor intends to use in human clinical trials along with required analytical and stability +testing; +● +submission to the +FDA of an Investigational New Drug Application (“IND”), which must become effective before clinical trials may +begin and must be updated annually and amended when certain changes are made; +● +approval by an institutional +review board (“IRB”) or independent ethics committee (“IEC”) at each clinical trial site before each +trial may be initiated; +● +performance of adequate +and well-controlled clinical trials in accordance with applicable IND regulations, Good Clinical Practice (“GCP”) +requirements, including informed consent, financial disclosure by investigators and other clinical trial-related regulations, +to establish maximum tolerable dose and efficacy of the investigational product for each proposed indication and other condition +of use; +● +preparation and +submission to the FDA of an NDA; +● +a determination +by the FDA within 60 days of its receipt of an NDA to file the application for review; +● +satisfactory completion +of one or more FDA pre-approval inspections of the manufacturing facility or facilities where the drug will be produced to +assess compliance with cGMP requirements to assure that the facilities, methods and controls are adequate to preserve the +drug product’s identity, strength, quality and purity; +● +satisfactory completion +of FDA inspection of select clinical trial sites involved in conducting pivotal studies that generated the data in support +of the NDA; +● +payment of user +fees for FDA review of the NDA; and +● +FDA review and approval +of the NDA, including of the proposed prescribing information and, where applicable, consideration of the views of any FDA +advisory committee, prior to any commercial marketing or sale of the drug in the United States. +Preclinical +Studies and Clinical Trials for Drugs +Before +testing any drug in humans, compound must undergo rigorous preclinical testing. Preclinical studies include laboratory evaluations +of product chemistry, formulation and stability, as well as in vitro and animal studies to assess maximum tolerable dose and in +some cases to establish the rationale for therapeutic use. The conduct of preclinical studies is subject to federal and state +regulation and requirements, including GLP requirements under 21 C.F.R. Part 58 and animal testing requirements under the Animal +Welfare Act Amendments of 1976 (7 U.S.C. 2131 et seq.). The results of the preclinical studies, together with manufacturing information +and analytical data, must be submitted to the FDA as part of an IND. +An +IND is a submission to the FDA under which a sponsor proposes to administer an investigational product to humans. An IND must +become effective before the proposed clinical trials may begin. The central focus of an IND submission is on the general investigational +plan and the protocol(s) for clinical studies. The IND also includes the results of animal and in vitro studies assessing the +toxicology, pharmacokinetics, pharmacology, and pharmacodynamic characteristics of the product; chemistry, manufacturing, and +controls information; and any available human data or literature to support the use of the investigational product. Some long-term +preclinical testing may continue after the IND is submitted. The IND automatically becomes effective 30 days after receipt by +the FDA, unless the FDA, within the 30-day time period, raises concerns or questions about the conduct of the proposed clinical +trial, including concerns that human research subjects will be exposed to unreasonable health risks, refuses to allow the IND +to take effect until the FDA’s concerns and questions have been addressed and/or imposes a full or partial clinical hold. +The FDA must notify the sponsor of the grounds for the hold, and any identified deficiencies must be resolved before the clinical +trial can begin. Submission of an IND may result in the FDA not allowing clinical trials to commence or not allowing clinical +trials to commence on the terms originally specified in the IND. A clinical hold can also be imposed once a trial has already +begun, thereby halting the trial until the deficiencies articulated by FDA are corrected. +9 +The +clinical stage of development involves the administration of the compounds to healthy volunteers or patients under the supervision +of qualified investigators, who generally are physicians not employed by or under the trial sponsor’s control, in accordance +with GCP requirements, which include the requirements that all research subjects provide their informed consent for their participation +in any clinical trial. Clinical trials are conducted under protocols detailing, among other things, the objectives of the clinical +trial, dosing procedures, subject selection and exclusion criteria, and the parameters and criteria to be used in monitoring safety +and evaluating effectiveness. Each protocol, and any subsequent amendments to the protocol, must be submitted to the FDA as part +of the IND. +Furthermore, +each clinical trial must be reviewed and approved by an IRB or IEC for each institution at which the clinical trial will be conducted +to ensure that the risks to individuals participating in the clinical trials are minimized and are reasonable compared to the +anticipated benefits. The IRB or IEC also approves the informed consent form that must be provided to each clinical trial subject +or his or her legal representative and must monitor the clinical trial until completed. The FDA, the IRB or IEC, or the sponsor +may suspend or discontinue a clinical trial at any time on various grounds, including a finding that the subjects are being exposed +to an unacceptable health risk. There also are requirements governing the reporting of ongoing clinical trials and completed clinical +trials to public registries. Information about clinical trials, including results for clinical trials other than phase 1 investigations, +must be submitted within specific timeframes for publication on www.ClinicalTrials.gov, a clinical trials database maintained +by the National Institutes of Health. +A +sponsor who wishes to conduct a clinical trial outside of the United States are subject to the requirements of the applicable +jurisdiction and may, but need not, obtain FDA authorization to conduct the clinical trial under an IND. If a foreign clinical +trial is not conducted under an IND, the FDA will nevertheless accept the results of the study in support of an NDA if the study +was conducted in accordance with GCP requirements, and the FDA is able to validate the data through an onsite inspection if deemed +necessary. +Clinical +trials to evaluate therapeutic indications to support NDAs for marketing approval are typically conducted in three sequential +phases, which may overlap. +● +Phase 1 — +Phase 1 clinical trials involve initial introduction of the investigational product in a limited population of healthy human +volunteers or patients with the target disease or condition. These studies are typically designed to test the safety, dosage +tolerance, absorption, metabolism and distribution of the investigational product in humans, evaluate the side effects associated +with increasing doses, and, if possible, to gain early evidence of effectiveness. +● +Phase 2 — +Phase 2 clinical trials typically involve administration of the investigational product to a limited patient population with +a specified disease or condition to evaluate the drug’s potential efficacy, to determine the optimal dosages and dosing +schedule, and to identify possible adverse side effects and safety risks. +● +Phase 3 — +Phase 3 clinical trials typically involve administration of the investigational product to an expanded patient population +to further evaluate dosage, to provide statistically significant evidence of clinical efficacy, and to further test for safety, +generally at multiple geographically dispersed clinical trial sites. These clinical trials are intended, with the other available +evidence, to establish the overall risk/benefit ratio of the investigational product and to provide an adequate basis for +product approval and physician labeling. Generally, two adequate and well-controlled phase 3 trials are required by the FDA +for approval of an NDA. Under certain circumstances, FDA can conclude that one adequate and well-controlled clinical investigation +plus confirmatory evidence is sufficient to establish effectiveness. +Post-approval +trials, sometimes referred to as phase 4 clinical trials or post-marketing studies, may be conducted after initial marketing approval. +These trials are used to gain additional evidence from the treatment of study subjects in the intended therapeutic indication +and are commonly intended to generate additional safety data regarding use of the product in a clinical setting, or in some cases +to confirm clinical benefit. In certain instances, the FDA may mandate the performance of phase 4 clinical trials as a condition +of NDA approval. +10 +Progress +reports detailing the results of the clinical trials, among other information, must be submitted at least annually to the FDA. +Written IND safety reports must be submitted to the FDA and the investigators fifteen days after the trial sponsor determines +the information qualifies for reporting for serious and unexpected suspected adverse events, findings from other studies or animal +or in vitro testing that suggest a significant risk for human volunteers, and any clinically important increase in the rate of +a serious suspected adverse reaction over that listed in the protocol or investigator brochure. The sponsor must also notify the +FDA of any unexpected fatal or life-threatening suspected adverse reaction as soon as possible but in no case later than seven +calendar days after the sponsor’s initial receipt of the information. +Concurrent +with clinical trials, companies usually complete additional animal studies and must also develop additional information about +the chemistry and physical characteristics of the compound and finalize a process for manufacturing the drug product in commercial +quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches +of the compound and manufacturers must develop, among other things, methods for testing the identity, strength, quality and purity +of the final drug product. Additionally, appropriate packaging must be selected and tested, and stability studies must be conducted +to demonstrate that the compound does not undergo unacceptable deterioration over its shelf life. +Expanded +Access +Expanded +access, sometimes called “compassionate use,” is the use of investigational products outside of controlled clinical +trials to treat patients with serious or immediately life-threatening diseases or conditions when there are no comparable or satisfactory +alternative treatment options. FDA regulations allow access to investigational products under an IND by the sponsor or the treating +physician for treatment purposes on a case-by-case basis for the following groups: individual patients (single-patient IND applications +for treatment in emergency settings and non-emergency settings); intermediate-size patient populations; and larger populations +for use of the investigational product under a treatment protocol or treatment IND. +A +clinical trial sponsor is not obligated under the law to provide expanded access to its investigational product. However, if a +sponsor decides to make its investigational product available for expanded access, FDA reviews each request for expanded access +and determines if treatment may proceed. Expanded access may be appropriate when all of the following criteria apply: the patient +has a serious or immediately life-threatening disease or condition, and there is no comparable or satisfactory alternative therapy +to diagnose, monitor, or treat the disease or condition; the potential patient benefit justifies the potential risks of the treatment +and the potential risks are not unreasonable in the context of the disease or condition to be treated; and providing the investigational +product for the requested use will not interfere with the initiation, conduct, or completion of clinical investigations that could +support marketing approval of the expanded access use or otherwise compromise the potential development of the expanded access +use. +In +addition, on May 30, 2018, the Right to Try Act was signed into law. The law, among other things, provides an additional mechanism +for patients with a life-threatening condition who have exhausted approved treatments and are unable to participate in clinical +trials to access certain investigational products that have completed a phase 1 clinical trial, are the subject of an active IND, +and are undergoing investigation in a clinical trial that is intended to form the primary basis of a claim of effectiveness in +support of FDA approval. Unlike the expanded access framework described above, the Right to Try Act does not require FDA to review +or approve requests for use of the investigational product, although the law requires sponsors to report annually to the FDA on +use of the pathway and require the FDA to post certain annual summaries. There is no obligation for a sponsor to make its investigational +products available to eligible patients under the Right to Try Act. +Under +the 21st Century Cures Act, the manufacturer or distributor of one or more investigational products for the diagnosis, monitoring +and treatment of a serious disease or condition must make publicly available their policy for evaluating and responding to requests +for expanded access for individual patients. The manufacturer or distributor is required to make such policies publicly available +upon the earlier of initiation of a Phase 2 or Phase 3 study, or as applicable, 15 days after the investigational drug receives +designation as a breakthrough therapy, fast track product, or regenerative medicine advanced therapy. The posting of the expanded +access policies by manufacturers and distributors does not serve as a guarantee of access to any specific investigational drug +by any individual patient, but the sponsor must develop a policy and respond to patient requests according to that policy. +11 +U.S. +Marketing Approval for Drugs +Assuming +successful completion of the required clinical testing, the results of the preclinical studies and clinical trials, together with +detailed information relating to the product’s chemistry, manufacture, controls and proposed labeling, among other things, +are submitted to the FDA as part of an NDA package requesting approval to market the drug product for one or more indications. +An NDA is an application to FDA for approval to market a new drug for one or more specified indications and must contain proof +of the drug’s maximum tolerable dose and efficacy for the requested indication(s). An NDA is required to include both negative +and ambiguous results of preclinical studies and clinical trials, as well as positive findings, together with detailed information +relating to the product’s chemistry, manufacturing, controls, and proposed labeling, among other things. Data may come from +company-sponsored clinical trials intended to test the maximum tolerable dose and efficacy of a product’s use or from several +alternative sources, including studies initiated by investigators. To support marketing approval, the data submitted must be sufficient +in quality and quantity to establish the maximum tolerable dose and efficacy of the investigational drug, to the satisfaction +of the FDA. The FDA must approve an NDA before a drug may be marketed in the United States. +The +FDA reviews all submitted NDAs to ensure they are sufficiently complete to permit substantive review before it accepts them for +filing and may request additional information rather than accepting the NDA for filing. The FDA must make a decision on accepting +an NDA for filing within 60 days of receipt, and such decision could include a “refuse-to-file” decision by the FDA. +Once the submission is accepted for filing, the FDA begins an in-depth substantive review of the NDA. The FDA reviews an NDA to +determine, among other things, whether the product is safe and effective for the indications sought and whether the facility in +which it is manufactured, processed, packaged or held meets standards designed, including cGMP requirements, designed to assure +and preserve the product’s continued identity, strength, quality and purity. Under the goals and polices agreed to by the +FDA under the Prescription Drug User Fee Act, as amended (the “PDUFA”), the FDA targets ten months, from the filing +date, in which to complete its initial review of a new molecular entity NDA and respond to the applicant, and six months from +the filing date of a new molecular entity NDA for priority review. The FDA does not always meet its PDUFA goal dates for standard +or priority NDAs, and the review process is often extended by FDA requests for additional information or clarification. +Further, +under PDUFA, each NDA must be accompanied by a substantial user fee. For fiscal year 2025, the application fee for each application +containing clinical data is $4,310.002. PDUFA also imposes an annual program fee for each approved prescription drug, which has +been set at $403,889 for fiscal year 2025. The FDA adjusts the PDUFA user fees on an annual basis. Fee waivers or reductions are +available in certain circumstances, including a waiver of the application fee for the first application filed by a small business. +Additionally, no user fees are assessed on applications for products designated as orphan drugs, unless the product also includes +a non-orphan indication. +The +FDA also may require submission of a Risk Evaluation and Mitigation Strategy (“REMS”) if it believes that a risk evaluation +and mitigation strategy is necessary to ensure that the benefits of the drug outweigh its risks. A REMS can include use of risk +evaluation and mitigation strategies like medication guides, physician communication plans, assessment plans, and/or elements +to assure safe use such as restricted distribution methods, patient registries, special monitoring or other risk-minimization +tools. +The +FDA may refer an application for a novel drug to an advisory committee. An advisory committee is a panel of independent experts, +including clinicians and other scientific experts, which reviews, evaluates and provides advice and recommendations to FDA as +to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory +committee, but it considers such recommendations carefully when making decisions. +Before +approving an NDA, the FDA typically will inspect the facility or facilities where the product is manufactured. The FDA will not +approve an application unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements +and are adequate to assure consistent production of the product within required specifications. Additionally, before approving +an NDA, the FDA may inspect one or more select clinical trial sites involved in conducting pivotal studies to assure compliance +with GCP and other requirements and the integrity of the clinical data submitted to the FDA. +12 +After +evaluating the NDA and all related information, including the advisory committee recommendation, if any, and inspection reports +regarding the manufacturing facilities and clinical trial sites, the FDA may issue an approval letter, or, in some cases, a complete +response letter. A complete response letter indicates that the review cycle of the application is complete, and the application +is not ready for approval. A complete response letter generally contains a statement of specific conditions that must be met in +order to secure final approval of the NDA, except that where the FDA determines that the data supporting the application are inadequate +to support approval, the FDA may issue the complete response letter without first conducting required inspections, testing submitted +product lots, and/or reviewing proposed labeling. In issuing the complete response letter, the FDA may require additional clinical +or preclinical testing or recommend other actions, such as requests for additional information or clarification, that the applicant +might take in order for the FDA to reconsider the application. Even with submission of this additional information, the FDA ultimately +may decide that the application does not satisfy the regulatory criteria for approval. If and when those conditions have been +met to the FDA’s satisfaction, the FDA will typically issue an approval letter. An approval letter authorizes commercial +marketing of the product with specific prescribing information for specific indication(s). +Even +if the FDA approves a product, depending on the specific risk(s) to be addressed it may limit the approved indications for use +of the product, require that contraindications, warnings or precautions be included in the product labeling, require that post-approval +studies, including phase 4 clinical trials, be conducted to further assess a product’s maximum tolerable dose and efficacy +after approval, require testing and surveillance programs to monitor the product after commercialization, or impose other conditions, +including distribution and use restrictions or other risk management mechanisms under a REMS, which can materially affect the +potential market and profitability of the product. The FDA may prevent or limit further marketing of a product based on the results +of post-marketing studies or surveillance programs. After approval, some types of changes to the approved product, such as adding +new indications, manufacturing changes, and additional labeling claims, are subject to further testing requirements and FDA review +and approval. +Orphan +Drug Designation and Exclusivity +Under +the Orphan Drug Act, the FDA may grant orphan drug designation to a drug intended to treat a rare disease or condition, which +is a disease or condition with either a patient population of fewer than 200,000 individuals in the United States, or a patient +population greater than 200,000 individuals in the United States when there is no reasonable expectation that the cost of developing +and making the product available in the United States for the disease or condition will be recovered from sales of the product. +Orphan drug designation must be requested before submitting a marketing application. After the FDA grants orphan drug designation, +the generic identity of the therapeutic agent and its designated orphan use are disclosed by the FDA on its website. Orphan drug +designation does not convey any advantage in or shorten the duration of the regulatory review and approval process, though companies +developing orphan products are eligible for certain incentives, including tax credits for qualified clinical testing and waiver +of application fees. +If +a product that has orphan drug designation subsequently receives the first FDA approval for the use for which it has such designation, +the product is entitled to a seven-year period of marketing exclusivity from the date of FDA approval during which the FDA may +not approve any other applications to market the “same drug” for the same use, except in limited circumstances, such +as a subsequent product’s showing of “clinical superiority” over the product with orphan exclusivity or where +the original applicant cannot produce sufficient quantities of product. The FDA defines “same drug” with respect to +small molecule drugs as a drug that contains the same active moiety as a previously approved drug and is intended for the same +use as the previously approved drug. To demonstrate a drug is “clinically superior” to the previously approved orphan +drug, a sponsor must show that the drug provides a significant therapeutic advantage over and above the previously already approved +drug in terms of greater efficacy, greater safety, or by providing a major contribution to patient care. Since the enactment of +the FDA Reauthorization Act of 2017, the FDA publishes clinical superiority findings on its website for those drugs approved on +or after August 18, 2017. Competitors, however, may receive approval of different therapeutic agents for the indication for which +the orphan product has exclusivity or obtain approval for the same therapeutic agent for a different indication than that for +which the orphan product has exclusivity. If an orphan designated product receives marketing approval for an indication broader +than what is designated, it may not be entitled to orphan exclusivity. Further, orphan drug exclusive marketing rights in the +United States may be lost if the FDA later determines that the request for designation was materially defective or the manufacturer +of the approved product is unable to assure sufficient quantities of the product to meet the needs of patients with the rare disease +or condition, or if the manufacturer chooses to provide consent to approval of other applications. +13 +Expedited +Development and Review Programs for Drugs +The +FDA maintains several programs intended to facilitate and expedite development and review of new drugs to address unmet medical +needs in the treatment of serious or life-threatening diseases or conditions. These programs include Fast Track designation, Breakthrough +Therapy designation, Priority Review and Accelerated Approval, and the purpose of these programs is to either expedite the development +or review of important new drugs and biologics to get them to patients more quickly than standard FDA review timelines typically +permit. We intend to apply for these programs for compounds, as applicable. +A +new drug is eligible for Fast Track designation if it is intended to treat a serious or life-threatening disease or condition +and demonstrates the potential to address unmet medical needs for such disease or condition. Fast Track designation applies to +the compound and the specific indication for which it is being studied. The sponsor of a new drug product may request the FDA +to designate the drug as a Fast Track product at any time during the clinical development of the product, but ideally no later +than the pre-NDA meeting because many of the features of Fast Track designation will not apply after that time. Fast Track designation +provides increased opportunities for sponsor interactions with the FDA during preclinical and clinical development, in addition +to the potential for rolling review once a marketing application is filed. Rolling review means that the FDA may review portions +of the marketing application before the sponsor submits the complete application. +In +addition, a new drug may be eligible for Breakthrough Therapy designation if it is intended to treat a serious or life-threatening +disease or condition and preliminary clinical evidence indicates that the drug, alone or in combination with one or more other +drugs, may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as +substantial treatment effects observed early in clinical development. A sponsor may request that a drug product be designated +as a Breakthrough Therapy at any time during the clinical development of the product and ideally before initiation of the pivotal +clinical trial intended to serve as the primary basis for demonstration of efficacy to obtain the full benefits of the designation. +Breakthrough Therapy designation provides all the features of Fast Track designation, in addition to intensive guidance on an +efficient product development program beginning as early as phase 1 and FDA organizational commitment to expedited development, +including involvement of senior managers and experienced review staff in a cross-disciplinary review, where appropriate. +Any +product submitted to the FDA for approval, including a product with Fast Track or Breakthrough Therapy designation, may also be +eligible for additional FDA programs intended to expedite the review and approval process, including Priority Review and Accelerated +Approval. A product is eligible for Priority Review, once an NDA is submitted, if the product that is the subject of the marketing +application has the potential to provide a significant improvement in safety or effectiveness in the treatment, diagnosis or prevention +of a serious disease or condition. Significant improvement may be illustrated by the following examples: evidence of increased +effectiveness in treatment, prevention, or diagnosis of a condition, elimination or substantial reduction of a treatment-limiting +adverse reaction, documented enhancement of patient compliance that is expected to lead to an improvement in serious outcomes, +and evidence of safety and effectiveness in a new subpopulation. Under Priority Review, the FDA’s goal date to take action +on the marketing application is six months compared to ten months for a standard review. +The +FDA may grant Accelerated Approval to a product for a serious or life-threatening condition that provides meaningful therapeutic +advantage to patients over existing treatments based upon a determination that the product has an effect on a surrogate endpoint +that is reasonably likely to predict clinical benefit. The FDA may also grant Accelerated Approval for such a condition when the +product has an effect on an intermediate clinical endpoint that can be measured earlier than an effect on irreversible morbidity +or mortality (“IMM”) and that is reasonably likely to predict an effect on irreversible morbidity or mortality or +other clinical benefit, taking into account the severity, rarity or prevalence of the condition and the availability or lack of +alternative treatments. Products granted accelerated approval must meet the same statutory standards for safety and effectiveness +as those granted traditional approval. +For +the purposes of Accelerated Approval, a surrogate endpoint is a marker, such as a laboratory measurement, radiographic image, +physical sign or other measure that is thought to predict clinical benefit but is not itself a measure of clinical benefit. Surrogate +endpoints can often be measured more easily or more rapidly than clinical endpoints. An intermediate clinical endpoint is a measurement +of a therapeutic effect that is considered reasonably likely to predict the clinical benefit of a drug, such as an effect on IMM. +The FDA has limited experience with accelerated approvals based on intermediate clinical endpoints but has indicated that such +endpoints generally may support Accelerated Approval where the therapeutic effect measured by the endpoint is not itself a clinical +benefit and basis for traditional approval, if there is a basis for concluding that the therapeutic effect is reasonably likely +to predict the ultimate clinical benefit of a product. +14 +The +Accelerated Approval pathway is most often used in settings in which the course of a disease is long, and an extended period of +time is required to measure the intended clinical benefit of a product, even if the effect on the surrogate or intermediate clinical +endpoint occurs rapidly. Thus, Accelerated Approval has been used extensively in the development and approval of products for +treatment of a variety of cancers in which the goal of therapy is generally to improve survival or decrease morbidity and the +duration of the typical disease course requires lengthy and sometimes large trials to demonstrate a clinical or survival benefit. +Thus, the benefit of Accelerated Approval derives from the potential to receive approval based on surrogate endpoints sooner than +possible for trials with clinical or survival endpoints, rather than deriving from any explicit shortening of the FDA approval +timeline, as is the case with priority review. +The +Accelerated Approval pathway is usually contingent on a sponsor’s agreement to conduct, in a diligent manner, additional +post-approval confirmatory studies to verify and describe the product’s clinical benefit. As a result, a compound approved +on this basis is subject to rigorous post-marketing compliance requirements, including the completion of phase 4 or post-approval +clinical trials to confirm the effect on the clinical endpoint. Failure to conduct required post-approval studies, or confirm +a clinical benefit during post-marketing studies, would allow the FDA to initiate expedited proceedings to withdraw approval of +the product. All promotional materials for compounds approved under accelerated regulations are subject to prior review by the +FDA. In addition, the FDA generally requires, as a condition for Accelerated Approval, that all advertising and promotional materials +intended for dissemination or publication within 120 days of marketing approval be submitted to the agency for review during the +pre-approval review period. After the 120-day period has passed, all advertising and promotional materials must be submitted at +least 30 days prior to the intended time of initial dissemination or publication. +Even +if a product qualifies for one or more of these programs, the FDA may later decide that the product no longer meets the conditions +for qualification or the time period for FDA review or approval may not be shortened. Furthermore, Fast Track designation, Breakthrough +Therapy designation, Priority Review and Accelerated Approval do not change the scientific or medical standards for approval or +the quality of evidence necessary to support approval, though they may expedite the development or review process. +Pediatric +Study Plan and Pediatric Exclusivity +Under +the Pediatric Research Equity Act, as amended (the “PREA”), certain NDAs and certain NDA supplements must contain +data that can be used to assess the safety and efficacy of the compound for the claimed indications in all relevant pediatric +subpopulations and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. +For a cancer drug directed at a molecular target, the pediatric testing requirement extends to pediatric cancers involving the +molecular target even if different than the claimed adult cancer in the NDA. The FDA may grant deferrals for submission of pediatric +data or full or partial waivers. The PREA requires that a sponsor who is planning to submit a marketing application for a compound +that includes a new active ingredient, new indication, new dosage form, new dosing regimen or new route of administration submit +an initial Pediatric Study Plan (the “PSP”), within 60 days of an end-of-phase 2 meeting or, if there is no such meeting, +as early as practicable before the initiation of the phase 3 or phase 2/3 study. The initial PSP must include an outline of the +pediatric study or studies that the sponsor plans to conduct, including study objectives and design, age groups, relevant endpoints +and statistical approach, or a justification for not including such detailed information, and any request for a deferral of pediatric +assessments or a full or partial waiver of the requirement to provide data from pediatric studies along with supporting information. +The FDA and the sponsor must reach an agreement on the PSP. A sponsor can submit amendments to an agreed-upon initial PSP at any +time if changes to the pediatric plan need to be considered based on data collected from preclinical studies, early phase clinical +trials and/or other clinical development programs. Unless otherwise required by regulation, the PREA does not apply to a drug +for an indication for which orphan drug designation has been granted, except that the PREA will apply to an original NDA for a +new active ingredient that is orphan-designated if the drug is a molecularly targeted cancer product intended for the treatment +of an adult cancer and is directed at a molecular target that the FDA determines to be substantially relevant to the growth or +progression of a pediatric cancer. +15 +A +drug can also obtain pediatric market exclusivity in the United States. Pediatric exclusivity, if granted, adds six months to +existing exclusivity periods. This six-month exclusivity, which runs from the end of other exclusivity protection or patent term, +may be granted based on the voluntary completion of a pediatric study in accordance with an FDA-issued “Written Request” +for such a study. +U.S. +Post-Approval Requirements for Drugs +Drugs +approved by FDA are subject to continuing regulation by the FDA, including, among other things, requirements relating to manufacturing +establishment registration and product listing, recordkeeping, periodic reporting, product sampling and distribution, reporting +of adverse experiences with the product, field alerts regarding issues with distributed product, promotion and advertising compliance, +which include restrictions on promoting products for unapproved uses or patient populations (known as “off-label use”) +and limitations on industry-sponsored scientific and educational activities. Although physicians may prescribe approved products +for off-label uses, manufacturers may not market or promote such uses. The FDA and other agencies actively enforce the laws and +regulations prohibiting the promotion of off-label uses, as well as other advertising and promotion requirements, including not +only by company employees but also by agents of the company or those speaking on the company’s behalf, and a company that +is found to have improperly promoted may be subject to significant liability, including investigation by federal and state authorities. +Failure to comply with these requirements can result in, among other things, adverse publicity, warning letters, untitled letters, +corrective advertising, and potential civil and criminal penalties, including liabilities under the federal False Claims Act (the +“FCA”) where products obtain reimbursement under federal health care programs. Promotional materials for approved +drugs must be submitted to the FDA in conjunction with their first use or first publication, and for products approved under accelerated +approval prior to their first use. Further, if there are any modifications to the drug, including changes in indications, labeling +or manufacturing processes or facilities, the applicant may be required to submit and obtain FDA approval of a new NDA or NDA +supplement, which may require the development of additional data or preclinical studies and clinical trials. +The +FDA may withdraw approval of a product if compliance with regulatory requirements and standards is not maintained or if problems +occur after the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events +of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may +result in revisions to the approved labeling to add new safety information, requirements for post-market studies or clinical trials +to assess new safety risks, or imposition of distribution or other restrictions under a REMS. Other potential consequences include, +among other things: +● +restrictions on +the marketing or manufacturing of the product, complete withdrawal of the product from the market or product recalls; +● +the issuance of +safety alerts, Dear Healthcare Provider letters, press releases or other communications containing warnings or other safety +information about the product; +● +fines, warning letters +or holds on post-approval clinical trials; +● +refusal of the FDA +to approve applications or supplements to approved applications, or suspension or revocation of product approvals; +● +product seizure +or detention, or refusal to permit the import or export of products; +● +injunctions or the +imposition of civil or criminal penalties; and +● +consent decrees, +corporate integrity agreements, debarment or exclusion from federal healthcare programs; or mandated modification of promotional +materials and labeling and issuance of corrective information. +16 +United +States Patent Term Restoration and Marketing Exclusivity +Depending +upon the timing, duration and specifics of FDA approval of future compounds, some of our United States patents may be eligible +for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984 (the “Hatch-Waxman +Amendments”). The Hatch-Waxman Amendments permit restoration of the patent term of up to five years as compensation for +patent term lost during the FDA regulatory review process for a drug that has not been previously approved for commercial marketing. +Patent-term restoration, however, cannot extend the remaining term of a patent beyond a total of 14 years from the product’s +approval date and only those claims covering such approved drug product, a method for using it or a method for manufacturing it +may be extended. The patent-term restoration period is generally one-half the time between the effective date of an IND and the +submission date of an NDA plus the time between the submission date of an NDA and the approval of that application, except that +the review period is reduced by any time during which the applicant failed to exercise due diligence. Only one patent applicable +to an approved drug is eligible for the extension and the application for the extension must be submitted prior to the expiration +of the patent. The USPTO, in consultation with the FDA, reviews and approves the application for any patent term extension or +restoration. In the future, we may apply for restoration of patent term for our currently owned or licensed patents to add patent +life beyond its current expiration date, depending on the expected length of the clinical trials and other factors involved in +the filing of the relevant NDA. +Regulatory +exclusivity provisions under the FDCA also can delay the submission or the approval of certain applications. The FDCA provides +a five-year period of non-patent marketing exclusivity within the United States to the first applicant to gain approval of an +NDA for a new chemical entity. A drug is a new chemical entity if the FDA has not previously approved any other new drug containing +the same active moiety, which is the molecule or ion responsible for the action of the drug substance. During the exclusivity +period, the FDA may not accept for review an Abbreviated New Drug Application (“ANDA”), or a 505(b)(2) NDA, submitted +by another company for another version of such drug where the applicant does not own or have a legal right of reference to all +the data required for approval. However, an application may be submitted after four years if it contains a certification of patent +invalidity or non-infringement. +The +FDCA also provides three years of exclusivity for an NDA, 505(b)(2) NDA, or supplement to an existing NDA, if new clinical investigations, +other than bioavailability studies, that were conducted or sponsored by the applicant are deemed by the FDA to be essential to +the approval of the application, for example, new indications, dosages or strengths of an existing drug. This three-year exclusivity +covers only the conditions of use associated with the new clinical investigations and prevents FDA approval of an ANDA or 505(b)(2) +NDA for such conditions of use, but does not prevent FDA acceptance for filing and review of an ANDA or 505(b)(2) NDA. The three-year +exclusivity does not prohibit the FDA from approving ANDAs or 505(b)(2) NDAs for drugs containing the original active agent for +other conditions of use outside those protected by the exclusivity. Five-year and three-year exclusivity will not delay the submission +or approval of a full NDA. However, an applicant submitting a full NDA would be required to conduct or obtain a right of reference +to all of the preclinical studies and adequate and well-controlled clinical trials necessary to evaluate maximum tolerated dose +and effectiveness. +Other +Regulatory Matters +Manufacturing, +sales, promotion and other activities of products following product approval, where applicable, or commercialization are also +subject to regulation by numerous regulatory authorities in the United States in addition to the FDA, which may include the Centers +for Medicare & Medicaid Services (“CMS”), other divisions of the U.S. Department of Health and Human Services +(“HHS”), the Department of Justice, the Drug Enforcement Administration, the Consumer Product Safety Commission, the +Federal Trade Commission, the Occupational Safety & Health Administration, the Environmental Protection Agency and state and +local governments and governmental agencies. +17 +Healthcare +Laws +Healthcare +providers, physicians, and third-party payors will play a primary role in the recommendation and prescription of any products +for which we obtain marketing approval. Our business operations and any current or future arrangements with third-party payors, +healthcare providers, and physicians may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations +that may constrain the business or financial arrangements and relationships through which we develop, market, sell and distribute +any drugs for which we obtain marketing approval. In the United States, these laws include federal and state anti-kickback, false +claims, physician transparency, and patient data privacy and security laws and regulations, including those described below. +● +The federal Anti-Kickback +Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering or paying +any remuneration (including any kickback, bribe, or rebate), directly or indirectly, overtly or covertly, in cash or in kind, +to induce, or in return for, either the referral of an individual, or the purchase, lease, order or recommendation of any +good, facility, item or service for which payment may be made, in whole or in part, under a federal healthcare program, such +as the Medicare and Medicaid programs. A person or entity does not need to have actual knowledge of the statute or specific +intent to violate it in order to have committed a violation. Violations are subject to civil and criminal fines and penalties +for each violation, plus up to three times the remuneration involved, imprisonment, and exclusion from federal health care +programs. In addition, the government may assert that a claim including items or services resulting from a violation of the +federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the FCA. There are a number of statutory +exceptions and regulatory safe harbors protecting some common activities from prosecution, but the exceptions and safe harbors +are drawn narrowly and require strict compliance in order to offer protection. +● +The federal civil +and criminal false claims laws, including the FCA, which can be enforced through civil “whistleblower” actions, +and civil monetary penalty laws, impose criminal and civil penalties against individuals or entities for, among other things, +knowingly presenting, or causing to be presented, claims for payment or approval from Medicare, Medicaid, or other federal +health care programs that are false or fraudulent; knowingly making or causing a false statement material to a false or fraudulent +claim or an obligation to pay money to the federal government; or knowingly concealing or knowingly and improperly avoiding +or decreasing such an obligation. Manufacturers can be held liable under the FCA even when they do not submit claims directly +to government payors if they are deemed to “cause” the submission of false or fraudulent claims. When an entity +is determined to have violated the federal civil FCA, the government may impose civil fines and penalties for each false claim, +plus treble damages, and exclude the entity from participation in Medicare, Medicaid and other federal healthcare programs. +● +The federal civil +monetary penalties laws impose civil fines for, among other things, the offering or transfer or remuneration to a Medicare +or state healthcare program beneficiary, if the person knows or should know it is likely to influence the beneficiary’s +selection of a particular provider, practitioner, or supplier of services reimbursable by Medicare or a state health care +program, unless an exception applies. +● +The federal Health +Insurance Portability and Accountability Act of 1996 (“HIPAA”), which created additional federal criminal statutes +that prohibit knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program +or obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, +or under the custody or control of, any healthcare benefit program, regardless of the payor (including, public or private) +and knowingly and willfully falsifying, concealing or covering up by any trick or device a material fact or making any materially +false statements in connection with the delivery of, or payment for, healthcare benefits, items or services relating to healthcare +matters. Similar to the federal Anti-Kickback Statute, a person or entity can be found guilty of violating HIPAA without actual +knowledge of the statute or specific intent to violate it. +● +HIPAA, as amended +by the Health Information Technology for Economic and Clinical Health Act (“HITECH”), and their respective implementing +regulations, which impose requirements on certain covered healthcare providers, health plans, and healthcare clearinghouses +and their respective business associates that perform services for them that involve the use, or disclosure of, individually +identifiable health information as well as their covered subcontractors, relating to the privacy, security and transmission +of individually identifiable health information without appropriate authorization. HITECH also created new tiers of civil +monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable to business associates, and gave +state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal +HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions. +18 +● +The federal Physician +Payments Sunshine Act, enacted as part of the Patient Protection and Affordable Care Act, as amended by the Health Care and +Education Reconciliation Act of 2010 (collectively, the “ACA”), imposed annual reporting requirements for certain +manufacturers of drugs, devices, biologics, and medical supplies for which payment is available under Medicare, Medicaid, +or the Children’s Health Insurance Program, for certain payments and “transfers of value” provided to physicians +(currently defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, as well +as ownership and investment interests held by physicians and their immediate family members. Effective January 1, 2022, these +reporting obligations will extend to include transfers of value made in the previous year to certain non-physician providers +such as physician assistants and nurse practitioners. +● +Federal consumer +protection and unfair competition laws broadly regulate marketplace activities and activities that potentially harm consumers. +● +Analogous state +and foreign laws and regulations, such as state and foreign anti-kickback, false claims, consumer protection and unfair competition +laws which may apply to pharmaceutical business practices, including but not limited to, research, distribution, sales and +marketing arrangements as well as submitting claims involving healthcare items or services reimbursed by any third-party payor, +including commercial insurers; state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s +voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government that otherwise +restricts payments that may be made to healthcare providers and other potential referral sources; state laws that require +drug manufacturers to file reports with states regarding pricing and marketing information, such as the tracking and reporting +of gifts, compensations and other remuneration and items of value provided to healthcare professionals and entities; state +and local laws requiring the registration of pharmaceutical sales representatives; and state and foreign laws governing the +privacy and security of health information in certain circumstances, many of which differ from each other in significant ways +and may not have the same effect, thus complicating compliance efforts. +The +scope and enforcement of each of these laws is uncertain and subject to rapid change in the current regulatory and healthcare +environment, especially in light of the lack of applicable precedent and regulations. Federal and state enforcement bodies have +recently increased their scrutiny of interactions between healthcare companies and healthcare providers, which has led to a number +of investigations, prosecutions, convictions and settlements in the healthcare industry. +Insurance +Coverage and Reimbursement +In +the United States and markets in other countries, patients who are prescribed treatments for their conditions and providers performing +healthcare services generally rely on third-party payors to reimburse all or part of the associated healthcare costs. Thus, even +if a compound is approved, sales of the product will depend, in part, on the extent to which third-party payors, including government +healthcare programs in the United States such as Medicare and Medicaid, private health insurers, managed care organizations and +other third-party payors, provide coverage, and establish adequate reimbursement levels for, the product. In the United States, +principal decisions about Medicare reimbursement for new products are typically made by CMS and regional contractors responsible +for administering the Medicare program. CMS and these contractors decide whether and to what extent a new product will be covered +and reimbursed under Medicare, and private third-party payors often follow CMS’s decisions regarding coverage and reimbursement +to a substantial degree. +Reimbursement +by a third-party payor may depend upon a number of factors, including, but not limited to, the third-party payor’s determination +that use of a product is (1) a covered benefit under its health plan; (2) safe, effective and medically necessary; (3) appropriate +for the specific patient; (4) cost-effective; and (5) neither experimental nor investigational. Reimbursement rates may vary according +to the use of the drug and the clinical setting in which it is used, may be based on reimbursement levels already set for lower +cost drugs and may be incorporated into existing payments for other services. However, one third-party payor’s determination +to provide coverage for a compound does not assure that other payors will also provide coverage for the compound. No uniform policy +of coverage and reimbursement for products exists among third-party payors, and coverage and reimbursement levels for products +can differ significantly from payor to payor. +19 +Third-party +payors are increasingly challenging the prices charged, examining the medical necessity, reviewing the cost-effectiveness of medical +products and services and imposing controls to manage costs. In order to secure coverage and reimbursement for any product that +might be approved for sale, a company may need to conduct expensive pharmaco-economic studies in order to demonstrate the cost +effectiveness of the product, which will require additional expenditure above and beyond the costs required to obtain FDA or other +comparable regulatory approvals. Third-party payors may limit coverage to specific products on an approved list, also known as +a formulary, which might not include all of the FDA-approved products for a particular indication. Moreover, the containment of +healthcare costs has become a priority of federal, state and foreign governments, and the prices of products have been a focus +in this effort. Governments have shown significant interest in implementing cost-containment programs, including price controls +or price increase penalties, restrictions on reimbursement and requirements for substitution of generic products. +In +addition, companion diagnostic tests require coverage and reimbursement separate and apart from the coverage and reimbursement +for their companion pharmaceutical products. Similar challenges to obtaining coverage and reimbursement, applicable to pharmaceutical +products, will apply to companion diagnostics. +Current +and Future Healthcare Reform Legislation +In +the United States and certain foreign jurisdictions, there have been, and likely will continue to be, a number of proposed and +adopted legislative and regulatory changes regarding the healthcare system directed at broadening the availability of healthcare, +improving the quality of healthcare, and containing or lowering the cost of healthcare. For example, in March 2010, the United +States Congress enacted the ACA, which, among other things, includes changes to the coverage and payment for products under government +health care programs. The ACA includes provisions of importance to our potential compounds that: +● +created an annual, +nondeductible fee on any entity that manufactures or imports specified branded prescription drug products, apportioned among +these entities according to their market share in certain government healthcare programs; +● +expanded eligibility +criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to certain individuals with +income at or below 133% of the federal poverty level, thereby potentially increasing a manufacturer’s Medicaid rebate +liability; +● +expanded manufacturers’ +rebate liability under the Medicaid Drug Rebate Program by increasing the minimum rebate for both branded and generic drugs +and revising the definition of “average manufacturer price,” or AMP, for calculating and reporting Medicaid drug +rebates on outpatient prescription drug prices; +● +addressed a new +methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are +inhaled, infused, instilled, implanted or injected; +● +expanded the types +of entities eligible for the 340B drug discount program; +● +established the +Medicare Part D coverage gap discount program by requiring manufacturers to provide point-of-sale-discounts off the negotiated +price of applicable brand drugs to eligible beneficiaries during their coverage gap period as a condition for the manufacturers’ +outpatient drugs to be covered under Medicare Part D; and +● +created a new Patient-Centered +Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along +with funding for such research. +Since +its enactment, there have been numerous judicial, administrative, executive, and legislative challenges to certain aspects of +the ACA, and we expect there will be additional challenges and amendments to the ACA in the future. For example, various portions +of the ACA have faced legal and constitutional challenges, including in the United States Supreme Court; the Trump administration +issued various Executive Orders which eliminated cost sharing subsidies and various provisions that would impose a fiscal burden +on states or a cost, fee, tax, penalty or regulatory burden on individuals, healthcare providers, health insurers, or manufacturers +of pharmaceuticals or medical devices; and Congress introduced several pieces of legislation aimed at significantly revising or +repealing the ACA. It is unclear whether the ACA will be overturned, repealed, replaced, or further amended in the future, and +we cannot predict what effect further changes to the ACA would have on our business. +20 +Other +legislative changes have been proposed and adopted in the United States since the ACA was enacted. For example, in August 2011, +the Budget Control Act of 2011, among other things, included reductions of Medicare payments to providers of 2%, which went into +effect in April 2013 and, due to subsequent legislative amendments to the statute, will remain in effect through 2030 unless additional +Congressional action is taken. In January 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other +things, further reduced Medicare payments to several providers, including hospitals, imaging centers and cancer treatment centers, +and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. +Moreover, +payment methodologies may be subject to changes in healthcare legislation and regulatory initiatives. For example, CMS may develop +new payment and delivery models, including bundled payment models. In addition, recently there has been heightened governmental +scrutiny over the manner in which manufacturers set prices for their commercial products, which has resulted in numerous Congressional +inquiries and proposed and enacted state and federal legislation designed to, among other things, bring more transparency to product +pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement +methodologies for pharmaceutical products. At the federal level, former President Trump used several means to propose or implement +drug pricing reform, including through federal budget proposals, executive orders, and policy initiatives. It is unclear whether +the Biden administration will work to reverse those measures or pursue similar or other policy initiatives, for example related +to an independent review board or other mechanisms that would impact drug pricing and reimbursement. +On +November 20, 2020, CMS and the HHS Office of the Inspector General issued two final rules implementing changes to the Physician +Self-Referral Law, or Stark Law, and the Anti-Kickback Statute. These new rules provide new value-based enterprise exceptions +and safe harbors to the Stark Law and the Anti-Kickback Statute, as well as offer additional clarification in the form of updated +definitions. +Compliance +with Other Federal and State Laws or Requirements; Changing Legal Requirements +If +any products that we may develop are made available to authorized users of the Federal Supply Schedule of the General Services +Administration, additional laws and requirements apply. Products must meet applicable child-resistant packaging requirements under +the U.S. Poison Prevention Packaging Act. Manufacturing, labeling, packaging, distribution, sales, promotion and other activities +also are potentially subject to federal and state consumer protection and unfair competition laws, among other requirements to +which we may be subject. The distribution of pharmaceutical products is subject to additional requirements and regulations, including +extensive recordkeeping, licensing, storage and security requirements intended to prevent the unauthorized sale of pharmaceutical +products, and state licensure. +The +failure to comply with any of these laws or regulatory requirements may subject firms to legal or regulatory action. Depending +on the circumstances, failure to meet applicable regulatory requirements can result in criminal prosecution, fines or other penalties, +injunctions, exclusion from federal healthcare programs, requests for recall, seizure of products, total or partial suspension +of production, denial or withdrawal of product approvals, relabeling or repackaging, or refusal to allow a firm to enter into +supply contracts, including government contracts. Any claim or action against us for violation of these laws, even if we successfully +defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation +of our business. Prohibitions or restrictions on marketing, sales or withdrawal of future products marketed by us could materially +affect our business in an adverse way. +Changes +in regulations, statutes or the interpretation of existing regulations could impact our business in the future by requiring, for +example: (1) changes to our manufacturing arrangements; (2) additions or modifications to product labeling or packaging; (3) the +recall or discontinuation of our products; or (4) additional recordkeeping requirements. If any such changes were to be imposed, +they could adversely affect the operation of our business. +21 +Government +Regulation of Drugs Outside of the United States +To +market any product outside of the United States, we would need to comply with numerous and varying regulatory requirements of +other countries regarding safety and efficacy and governing, among other things, clinical trials, marketing authorization, manufacturing, +commercial sales and distribution of our products. These regulatory requirements may be similarly complex and even more stringent +in certain regards than those described above. If we fail to comply with applicable regulatory requirements in the jurisdiction +where we conduct clinical trials or seek regulatory approvals, we may be subject to, among other things, fines, suspension or +withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution. +For +instance, in the European Economic Area (the “EEA”) (comprising the 27 European Union member states plus Iceland, +Liechtenstein and Norway), medicinal products must be authorized for marketing by using either the centralized authorization procedure +or national authorization procedures. +● +Centralized procedure—The +centralized procedure provides for the grant of a single marketing authorization by the European Commission that is valid +throughout the EEA. Pursuant to Regulation (EC) No. 726/2004, the centralized procedure is compulsory for specific products, +including for medicines produced by certain biotechnological processes, products designated as orphan medicinal products, +advanced therapy products (gene therapy, somatic cell therapy and tissue engineered products) and products with a new active +substance indicated for the treatment of certain diseases, which includes products for the treatment of cancer. For medicines +that do not fall within one of the mandatory categories, an applicant still has the option of submitting an application for +a centralized marketing authorization to the European Medicines Agency (the “EMA”), as long as the medicine concerned +contains a new active substance not authorized in the EEA prior to May 20, 2004, is a significant therapeutic, scientific +or technical innovation, or if its authorization would be in the interest of public health in the EEA. If pursuing marketing +authorization for one of our compounds for a therapeutic indication under the centralized procedure, the EMA’s Committee +for Medicinal Products for Human Use (the “CHMP”), is responsible for conducting an initial assessment of whether +a product meets the required quality, safety and efficacy requirements, and whether a product has a positive benefit/risk +ratio. Under the centralized procedure the maximum timeframe for the evaluation of a marketing authorization application (the +“MAA”), by the EMA is 210 days, excluding clock stops, when additional written or oral information is to be provided +by the applicant in response to questions asked by the CHMP. Clock stops may extend the timeframe of evaluation of a MAA considerably +beyond 210 days. Where the CHMP gives a positive opinion, it provides the opinion together with supporting documentation to +the European Commission, who make the final decision to grant a marketing authorization, which is issued within 67 days of +receipt of the EMA’s recommendation. Accelerated assessment might be granted by the CHMP in exceptional cases, when +a medicinal product is expected to be of major public health interest, particularly from the point of view of therapeutic +innovation. The timeframe for the evaluation of a MAA under the accelerated assessment procedure is 150 days, excluding clock +stops, but it is possible that the CHMP may revert to the standard time limit for the centralized procedure if it determines +that the application is no longer appropriate to conduct an accelerated assessment. +● +National authorization +procedures—There are also two other possible routes to authorize products for therapeutic indications in several countries, +which are available for products that fall outside the scope of the centralized procedure: +● +Decentralized procedure—Using +the decentralized procedure, an applicant may apply for simultaneous authorization in more than one EEA member state for a +medicinal product that has not yet been authorized in any EEA member state and that does not fall within the mandatory scope +of the centralized procedure. +● +Mutual recognition +procedure—In the mutual recognition procedure, a medicine is first authorized in one EEA member state, in accordance +with the national procedures of that country. Following this, additional marketing authorizations can be sought from other +EEA member states in a procedure whereby the countries concerned recognize the validity of the original, national marketing +authorization. +In +both cases, as with the centralized procedure, the competent authorities of the EEA member states assess the risk-benefit balance +of the product on the basis of scientific criteria concerning its quality, safety and efficacy before granting the marketing authorization. +22 +In +the EEA, new products for therapeutic indications that are authorized for marketing (so called “references products”) +qualify for eight years of data exclusivity and an additional two years of market exclusivity upon marketing authorization. The +data exclusivity period prevents generic or biosimilar applicants from referencing the preclinical and clinical trial data contained +in the dossier of the reference product when applying for a generic or biosimilar marketing authorization in the EEA during a +period of eight years from the date on which the reference product was first authorized in the EEA. The additional two-year period +of market exclusivity period prevents a successful generic or biosimilar applicant from commercializing its product in the EEA +until ten years have elapsed from the initial authorization of the reference product in the European Union. The overall ten-year +period can be extended to a maximum of eleven years if, during the first eight years of those ten years, the marketing authorization +holder obtains an authorization for one or more new therapeutic indications which, during the scientific evaluation prior to their +authorization, are held to bring a significant clinical benefit in comparison with existing therapies. Even if a compound is considered +to be a new active substance so that the innovator gains the prescribed period of data exclusivity, another company may market +another version of the product if such company obtained marketing authorization based on a MAA with a complete independent data +package of pharmaceutical tests, preclinical tests and clinical trials. +The +criteria for designating an “orphan medicinal product” in the EEA are similar in principle to those in the United +States. Under Article 3 of Regulation (EC) 141/2000, in the EEA a medicinal product may be designated as orphan if it meets the +following criteria (1) it is intended for the diagnosis, prevention or treatment of a life-threatening or chronically debilitating +condition; and (2) either (a) such condition affects no more than five in 10,000 persons in the EEA when the application is made, +or (b) it is unlikely that the product, without the benefits derived from orphan status, would generate sufficient return in the +EEA to justify the investment needed for its development; and (3) there exists no satisfactory method of diagnosis, prevention +or treatment of such condition, or if such a method exists, the product will be of significant benefit to those affected by the +condition. Orphan medicinal products are eligible for financial incentives such as reduction of fees or fee waivers and are, upon +grant of a marketing authorization, entitled to ten years of market exclusivity for the approved therapeutic indication. During +this ten-year orphan market exclusivity period, no marketing authorization application shall be accepted, and no marketing authorization +shall be granted for a similar medicinal product for the same indication, although similar, is safer, more effective or otherwise +clinically superior than the authorized product; (ii) the marketing authorization holder of the authorized product consents to +a second orphan medicinal product application; or (iii) the marketing authorization holder of the authorized product cannot supply +enough orphan medicinal product. An orphan product can also obtain an additional two years of market exclusivity in the EEA for +pediatric studies. The ten-year market exclusivity may be reduced to six years if, at the end of the fifth year, it is established +that the product no longer meets the criteria for orphan drug designation, for example, if the product is sufficiently profitable +not to justify maintenance of market exclusivity. The application for orphan drug designation must be submitted before the application +for marketing authorization. The applicant will receive a fee reduction for the MAA if the orphan drug designation has been granted, +but not if the designation is still pending at the time the marketing authorization is submitted. Orphan drug designation does +not convey any advantage in, or shorten the duration of, the regulatory review and approval process. +Similar +to the United States, the various phases of non-clinical and clinical research in the European Union are subject to significant +regulatory controls. +The +Clinical Trials Directive 2001/20/EC, the Directive 2005/28/EC on GCP and the related national implementing provisions of the +individual European Union member states govern the system for the approval of clinical trials in the European Union. Under this +system, an applicant must obtain prior approval from the national competent authority (the “NCA”), of the European +Union member states in which the clinical trial is to be conducted. Furthermore, the applicant may only start a clinical trial +at a specific study site after the competent ethics committee (the “EC”), has issued a favorable opinion. The clinical +trial application must be accompanied by, among other documents, an investigational medicinal product dossier (the Common Technical +Document) with supporting information prescribed by Directive 2001/20/EC, Directive 2005/28/EC, and the provisions of the individual +European Union member states’ legislation implementing the Clinical Trials Directive. Under the current regime (the European +Union Clinical Trials Directive 2001/20/EC and corresponding national laws) all suspected unexpected serious adverse reactions +to the investigated drug that occur during the clinical trial have to be reported to the NCA and ECs of the member state where +they occurred. +23 +In +April 2014, the new Clinical Trials Regulation, (EU) No 536/2014 (the “Clinical Trials Regulation”) was adopted, which +is expected to apply following confirmation of full functionality of the Clinical Trials Information System, the centralized European +Union portal and database for clinical trials foreseen by the regulation, through an independent audit. The regulation becomes +applicable six months after the European Commission publishes notice of this confirmation, which it has not yet done. The Clinical +Trials Regulation will be directly applicable in all the European Union member states, repealing the current Clinical Trials Directive +2001/20/EC. Conduct of all clinical trials performed in the European Union will continue to be bound by the Clinical Trials Directive +and the member states’ national implementing legislation until the new Clinical Trials Regulation becomes applicable. The +extent to which ongoing clinical trials will be governed by the Clinical Trials Regulation will depend on when the Clinical Trials +Regulation becomes applicable and on the duration of the individual clinical trial. If a clinical trial continues for more than +three years from the day on which the Clinical Trials Regulation becomes applicable the Clinical Trials Regulation will at that +time begin to apply to the clinical trial. The new Clinical Trials Regulation aims to simplify and streamline the approval of +clinical trials in the European Union. The main characteristics of the regulation include: a streamlined application procedure +via a single-entry point, the “European Union portal”; a single set of documents to be prepared and submitted for +the application as well as simplified reporting procedures for clinical trial sponsors; and a harmonized procedure for the assessment +of applications for clinical trials, which is divided in two parts. Part I is assessed by the competent authorities of all European +Union member states in which an application for authorization of a clinical trial has been submitted (member states concerned). +Part II is assessed separately by each member state concerned. Strict deadlines have been established for the assessment of clinical +trial applications. The role of the relevant ethics committees in the assessment procedure will continue to be governed by the +national law of the concerned European Union member state. However, overall related timelines will be defined by the Clinical +Trials Regulation. +Outside +the United States, ensuring coverage and adequate payment for a product also involves challenges. Pricing of prescription pharmaceuticals +is subject to government control in many countries. Pricing negotiations with government authorities can extend well beyond the +receipt of regulatory approval for a product and may require a clinical trial that compares the cost-effectiveness of a product +to other available therapies. The conduct of such a clinical trial could be expensive and result in delays in commercialization. +For example, in the European Union, pricing and reimbursement schemes vary widely from country to country. Some countries provide +that products may be marketed only after a reimbursement price has been agreed upon. Some countries may require the completion +of additional studies that compare the cost-effectiveness of a particular compound to currently available therapies or so-called +health technology assessments, in order to obtain reimbursement or pricing approval. For example, the European Union provides +options for its member states to restrict the range of products for which their national health insurance systems provide reimbursement +and to control the prices of medicinal products for human use. European Union member states may approve a specific price for a +product or may instead adopt a system of direct or indirect controls on the profitability of the company placing the product on +the market. Other member states allow companies to fix their own prices for products but monitor and control prescription volumes +and issue guidance to physicians to limit prescriptions. Recently, many countries in the European Union have increased the amount +of discounts required on pharmaceuticals and these efforts could continue as countries attempt to manage healthcare expenditures, +especially in light of the severe fiscal and debt crises experienced by many countries in the European Union. The downward pressure +on healthcare costs in general, particularly prescription products, has become intense. As a result, increasingly high barriers +are being erected to the entry of new products. Political, economic and regulatory developments may further complicate pricing +negotiations, and pricing negotiations may continue after reimbursement has been obtained. Reference pricing used by various European +Union member states, and parallel trade, in other words, arbitrage between low- priced and high-priced member states, can further +reduce prices. There can be no assurance that any country that has price controls or reimbursement limitations for pharmaceutical +products will allow favorable reimbursement and pricing arrangements for any products, if approved in those countries. +Government +Regulation of Data Collection Outside of the United States +In +the event we conduct clinical trials in the European Union, we will be subject to additional privacy restrictions. The collection +and use of personal health data in the EEA is governed by the General Data Protection Regulation (the “GDPR”), which +became effective on May 25, 2018. The GDPR applies to the processing of personal data by any company established in the EEA and +to companies established outside the EEA to the extent they process personal data in connection with the offering of goods or +services to data subjects in the EEA or the monitoring of the behavior of data subjects in the EEA. The GDPR enhances data protection +obligations for data controllers of personal data, including stringent requirements relating to the consent of data subjects, +expanded disclosures about how personal data is used, enhanced requirements for securing personal data, requirements to conduct +privacy impact assessments for “high risk” processing, limitations on retention of personal data, mandatory data breach +notification and “privacy by design” requirements, and creates direct obligations on service providers acting as processors. +The GDPR also imposes strict rules on the transfer of personal data outside of the EEA to countries that do not ensure an adequate +level of protection, like the United States. Failure to comply with the requirements of the GDPR and the related national data +protection laws of the EEA member states, which may deviate slightly from the GDPR, may result in fines of up to 4% of a company’s +global revenue for the preceding financial year, or €20 million, whichever is greater. Moreover, the GDPR grants data subjects +the right to claim material and non-material damages resulting from infringement of the GDPR. Given the breadth and depth of changes +in data protection obligations, maintaining compliance with the GDPR will require significant time, resources and expense, and +we may be required to put in place additional controls and processes ensuring compliance with the new data protection rules. There +has been limited enforcement of the GDPR to date, particularly in biopharmaceutical development, so we face uncertainty as to +the exact interpretation of the new requirements on any future trials and we may be unsuccessful in implementing all measures +required by data protection authorities or courts in interpretation of the new law. Further, the United Kingdom’s decision +to leave the European Union, means that it has in force its own legislation, which is aligned with the GDPR, known as the Data +Protection Act 2018. The requirements are similar except that the United Kingdom is now regarded as a “third country” +for the purposes of transfers of personal data from the EEA. Transfers continue to flow freely from the UK to the EEA following +an adequacy decision from the European Commission adopted on June 28, 2021 and valid for four years. +24 +Data +protection authority activity differs across the European Union, with certain authorities applying their own agenda which shows +there is uncertainty in the manner in which data protection authorities will seek to enforce compliance with GDPR. For example, +it is not clear if the authorities will conduct random audits of companies doing business in the European Union, or if the authorities +will wait for complaints to be filed by individuals who claim their rights have been violated. Enforcement uncertainty and the +costs associated with ensuring GDPR compliance are onerous and may adversely affect our business, financial condition, results +of operations and prospects. +Should +we utilize third-party distributors, compliance with such foreign governmental regulations would generally be the responsibility +of such distributors, who may be independent contractors over whom we have limited control. +Recent +Developments of the Company +Bridge +Note +On +February 25, 2025, the Company issued an unsecured promissory note in the aggregate principal amount of $325,000 (the “Bridge +Note”) to 3i, L.P., a Delaware limited partnership (the “Holder”), for a purchase price of $250,000, pursuant +to which the Company promises to pay the Holder or its registered assigns the principal sum of $325,000 or such amount equal to +the outstanding principal amount of the Note together with interest. The Note will bear interest on the outstanding principal +amount at an annual rate equal to 6.0%. The Note may be prepaid by the Company without penalty, in whole or in part, upon two +days’ prior written notice to the Holder. All unpaid principal, together with any then unpaid and accrued interest and other +amounts payable under the Note, will otherwise be due and payable on the earliest of: (i) May 25, 2025, (ii) the consummation +of a Corporate Event (as defined in the Note), or (iii) when, upon or after the occurrence of an Event of Default (as defined +in the Note), such amounts are declared due and payable by the Holder or made automatically due and payable in accordance with +the terms of the Note. +25 +Corporate +Information +Chromocell +Holdings, our predecessor, was founded in 2002 to commercialize “Chromovert Technology,” a proprietary discovery technology +with a potential broad range of applications in the biomedical field, including the potential capability to create complex targets +(cell-lines) needed for effective high-throughput screening that is commonly used both in therapeutics and flavors discovery. +Initially, Chromocell Holdings focused on applications in the food and flavors space. +In +2012, Chromocell Holdings started applying the technology in the therapeutics area. Chromocell Holdings focused its efforts on +projects where it believed that the discovery of novel medications was largely held back by difficulties creating complex targets +(cell lines) needed for effective high-throughput screening. The NaV1.7 ion-channel is a complex target with a well-established +role in pain modulation and management believed it presented an opportunity to apply the technology in an area of unmet medical +need. Upon creating the necessary NaV1.7 assays and conducting a large high-throughput campaign, Chromocell Holdings’ research +team discovered CC8464. After pre-clinical studies and assessments, an IND was filed and CC8464 was evaluated in a Phase 1 study +with more than 100 subjects. In 2015, Chromocell Holdings signed an agreement with Astellas Pharma Inc. (“Astellas”) +for the joint development and commercialization of CC8464. Astellas terminated such agreement in 2018 and returned all rights, +including all intellectual property rights on CC8464, to Chromocell Holdings. +As +both the flavors and the therapeutics businesses grew and increasingly required different expertise, capital and business concepts, +Chromocell Holdings made the strategic decision to separate the two businesses. +Channel +Therapeutics Corporation was incorporated in Delaware on March 19, 2021. On November 18, 2024 (“Reincorporation Merger Effective +Date”), Chromocell Therapeutics Corporation, a Delaware corporation (the “Predecessor”), merged with and into +its wholly-owned subsidiary, Channel Therapeutics Corporation, a Nevada corporation (the “Reincorporation Merger”), +pursuant to an agreement and plan of merger, dated as of November 18, 2024 (the “Reincorporation Merger Agreement”). +All information disclosed in this Form 10-K for periods prior to the Reincorporation Merger Effective Date relates to the Predecessor, +and all information disclosed in this Form 10-K for periods after the Reincorporation Merger Effective Date relates to Channel +Therapeutics Corporation, a Nevada corporation. +Our +principal executive offices are located at 4400 Route 9 South, Suite 1000, Freehold, NJ 07728, and our telephone number is (732) +514-2636. Our website is www.channeltherapeutics.com . Information contained on, or that can be accessed through, our website +is not incorporated by reference into this Report, and you should not consider information on our website to be part of this Report. +We +make available free of charge under the “Investors” section of our website all of our filings with the Securities +and Exchange Commission (the “SEC”), including our annual reports on Form 10-K, quarterly reports on Form 10-Q, current +reports on Form 8-K, proxy statements and amendments to such documents, each of which is provided on our website as soon as reasonably +practicable after we electronically file or furnish, as applicable, the information with the SEC. +26 +Implications +of Being an Emerging Growth and Smaller Reporting Company +We +qualify as an “emerging growth company” as defined in the JOBS Act. An emerging growth company may take advantage +of relief from certain reporting requirements and other burdens that are otherwise applicable generally to public companies. These +provisions include: +● +reduced obligations +with respect to financial data; +● +an exception from +compliance with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley +Act”); +● +reduced disclosure +about our executive compensation arrangements in our periodic reports, proxy statements and registration statements; and +● +exemptions from +the requirements of holding non-binding advisory votes on executive compensation or golden parachute arrangements. +We +may take advantage of these provisions for up to five years or such earlier time that we no longer qualify as an emerging growth +company. We would cease to be an emerging growth company upon the earliest of: +● +the last day of +the fiscal year on which we have $1.235 billion or more in annual revenue, +● +the date on which +we become a “large accelerated filer” (i.e., as of our fiscal year end, the total market value of our common equity +securities held by non-affiliates is $700 million or more as of June 30), +● +the date on which +we issue more than $1.0 billion of non-convertible debt over a three-year period, or +● +the last day of +our fiscal year following the fifth anniversary of the date of the completion of our IPO. +We +may choose to take advantage of some but not all of these reduced reporting burdens. +In +addition, under the JOBS Act, emerging growth companies can take advantage of an extended transition period and delay adopting +new or revised accounting standards until such time as those standards apply to private companies. We have elected to use this +extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which +adoption of such standards is required for private companies. If we were to subsequently elect instead to comply with public company +effective dates, such election would be irrevocable pursuant to the JOBS Act. +Also, +we are a “smaller reporting company” ​(and may continue to qualify as such even after we no longer qualify as +an emerging growth company). For as long as we qualify as a “smaller reporting company,” we may provide reduced disclosure +in the public filings that we make with the U.S. Securities and Exchange Commission (the “SEC”) than larger public +companies, such as the inclusion of only two years of audited financial statements and only two years of management’s +discussion and analysis of financial condition and results of operations disclosure. +As +a result of qualifying as an emerging growth company and a smaller reporting company, to the extent we take advantage of the allowable +reduced reporting burdens, the information that we provide to our stockholders may be different than what you might receive from +other public reporting companies in which you hold equity interests. \ No newline at end of file diff --git a/raw/filings/0001919246/2024/0001753926-25-000503/item13.txt b/raw/filings/0001919246/2024/0001753926-25-000503/item13.txt new file mode 100644 index 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+☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the transition period from ___________ to ___________ +Commission file number: 001-41964 +Pelthos Therapeutics Inc. +(Exact name of registrant as specified in its charter) +Nevada +86-3335449 +(State or other jurisdiction of +incorporation or organization) (I.R.S. Employer +Identification No.) +4020 Stirrup Creek Drive , Suite 110 +Durham , NC 27703 +(Address of principal executive offices) (Zip Code) +Registrant’s telephone number, including area code: (919) 908-2400 +Securities registered pursuant to Section 12(b) of the Act: +Title of each class: Trading +Symbol Name of each exchange on which registered: +Common Stock, par value $0.0001 per share PTHS The NYSE American LLC +Securities registered pursuant to Section 12(g) of the Act: +None +(Title of class) +Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ +Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒ +Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ +Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ +Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. +Large accelerated filer +‘ ☐ +Accelerated filer +‘ ☐ +Non-accelerated filer +‘ ☒ +Smaller reporting company +‘ ☒ +Emerging growth company +‘ ☒ +If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ +Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐ +If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐ +Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ +Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒ +The aggregate market value of the common stock held by non-affiliates of the registrant, as of June 30, 2025, the last business day of the second fiscal quarter, was approximately $ 6.7 million based on a closing price of $12.60 per share on such date. Shares of common stock held by each director, each officer and each person who owns 10% or more of the outstanding common stock have been excluded from this calculation in that such persons may be deemed to be affiliates. The determination of affiliate status is not necessarily conclusive. +The registrant had 3,355,543 shares of its common stock outstanding as of March 11, 2026. +References in this Annual Report on Form 10-K to the “Company,” “Pelthos,” “we,” “us,” or “our” mean Pelthos Therapeutics Inc. unless otherwise expressly stated or the context indicates otherwise. +Documents Incorporated By Reference: None . +1 +FORWARD-LOOKING STATEMENTS AND SUMMARY OF PRINCIPAL RISK FACTORS +This Annual Report on Form 10-K contains forward-looking statements concerning our business, operations and financial performance and condition, as well as our plans, objectives and expectations. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. These statements are often identified by the use of words such as “believe,” “contemplate,” “continue,” “due,” “goal,” “objective,” “plan,” “seek,” “target,” “expect,” “anticipate,” “intend,” “may,” “will,” “would,” “could,” “should,” “potential,” “predict,” “project,” or “estimate,” and similar expressions or variations. These statements are based on the beliefs and assumptions of management based on information currently available to management. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Except as may be required by law, we undertake no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future. As a result, any or all of our forward-looking statements in this Annual Report on Form 10-K may turn out to be inaccurate. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed below and under the section entitled “Risk Factors” in this Annual Report on Form 10-K and those discussed elsewhere in this Annual Report on Form 10-K. These forward-looking statements speak only as of the date of this Annual Report on Form 10-K. +The following summary briefly highlights the principal risks and uncertainties facing our business that could affect an investment in our common stock, par value $0.0001 per share (the “Common Stock”). A more complete statement of those risks and uncertainties is set forth in the section entitled “Risk Factors” in this Annual Report on Form 10-K. This summary is qualified in its entirety by that more complete statement: +- The report of the independent registered public accounting firm on our 2024 financial statements contained a going concern qualification. The report of the independent registered public firm on our 2025 financial statements does not contain a going concern qualification; however, if we are unable to maintain sustainable revenues, we may be unable to continue as a going concern. +- We have incurred significant losses since our inception. +- We have a limited operating history and history of commercializing products, which may make it difficult for you to evaluate the success of our business to date and to assess our future viability. +- We depend heavily on the commercial success of ZELSUVMI, which was approved by the FDA in January 2024, which we have only recently launched in the United States in July 2025. +- ZELSUVMI and any of our product candidates that receive regulatory approval, may fail to achieve the degree of market acceptance by physicians, patients, third-party payors and others in the medical community necessary for commercial success. +- If we are unable to establish effective sales, marketing and distribution capabilities for ZELSUVMI or any product candidate that may receive regulatory approval, we may not be successful in commercializing ZELSUVMI or our other product candidates if and when they are approved. +- ZELSUVMI or our product candidates may cause undesirable side effects or have other properties that could limit their commercial profile, expose us to product liability claims, delay or prevent regulatory approval of our product candidates or additional indications, or result in significant negative consequences following any additional marketing approval, any of which may adversely impact our business, financial condition, operating results and prospects. +- We face substantial competition, which may result in a smaller than expected commercial opportunity and/or other firms may discover, develop or commercialize products before or more successfully than we do. +- The commercial success of our products and product candidates will depend upon the degree of market acceptance by physicians, patients, third-party payers and others in the medical community. +- Our products may become subject to unfavorable third-party coverage or reimbursement policies, which would harm our business. +- The market for ZELSUVMI and our future product candidates may not be as large as we expect. +- The FDA and other regulatory agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses. +- Product liability lawsuits could cause us to incur substantial liabilities and limit commercialization of any products that we may develop. +- Delays or disruptions in our supply chain and manufacturing of our products, including ZELSUVMI, and potential product candidates could adversely affect our sales and marketing efforts and our development and commercialization timelines and could result in increased costs or in our breaching our obligations to others. +- We have limited experience in producing commercial scale products that utilize the NITRICIL technology, which was assigned to Ligand in March 2024, including the API, berdazimer sodium, used in the ZELSUVMI product. +- Unexpected results in the analysis of raw materials, the API or drug product or problems with the execution of or quality systems supporting the analytical testing work, whether conducted internally or by third-party service providers, could adversely affect our development and commercialization timelines and result in increased costs of potential development programs initiated by us. +2 +- Our business involves the use of hazardous materials, and we face risks related to the handling of such materials and other regulations governing environmental safety. We and our third-party suppliers and manufacturers must comply with environmental laws and regulations, which can be expensive and restrict how we do business. +- The seasonal nature of our business may cause fluctuations in operations. +- We may be adversely affected by the effects of inflation or trade tariffs. +- We will rely on third parties to conduct any preclinical studies and clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may be unable to obtain regulatory approval for or commercialize any of our future product candidates. +- Our employees, independent contractors, principal investigators, contract manufacturing organizations (“CMOs”), contract research organizations (“CROs”), consultants, commercial partners and vendors may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which could expose us to liability and hurt our reputation. +- We rely on in-licenses from third parties and with respect to the ZELSUVMI license, among other requirements, we are obligated to explore commercialization of ZELSUVMI in certain foreign jurisdictions and the licensor may terminate the license in the event that ZELSUVMI is not approved for sale in those jurisdictions by March 31, 2027. +- Third party intellectual property may prevent us from developing our potential products; our intellectual property may not prevent competition; and any intellectual property issues may be expensive and time consuming to resolve. +- If we are unable to obtain and maintain sufficient intellectual property protection for our products and technology, or if the scope of the intellectual property protection obtained is not sufficiently broad, our competitors could develop and commercialize technologies similar to ours, and our ability to successfully sell our products and services may be impaired. +- Issued patents directed to the NITRICIL platform and technology could be found invalid or unenforceable if challenged in court or before administrative bodies in the United States or abroad. +- Changes in patent law in the United States and other jurisdictions could diminish the value of patents in general, thereby impairing Ligand’s ability to protect our products, platform and technology on which we rely. +- We may be subject to claims challenging the inventorship of the patents and other intellectual property on which we rely. +- If we are unable to protect the confidentiality of our information and our trade secrets, the value of our technology could be materially and adversely affected and our business could be harmed. +- If our trademarks and trade names are not adequately protected, we may not be able to build name recognition in our markets of interest and our competitive position may be harmed. +- Current and future healthcare reform legislation or regulation may increase the difficulty and cost for us to commercialize ZELSUVMI and may adversely affect the prices we may obtain and may have a negative impact on our business and results of operations. +- If we fail to comply with our reporting and payment obligations under the Medicaid Drug Rebate Program or other governmental pricing programs in which we participate, we could be subject to additional reimbursement requirements, penalties, sanctions and fines, which could have a material adverse effect on our business, financial condition, results of operations and growth prospects. +- We are subject to federal, state and foreign healthcare laws and regulations, including fraud and abuse laws. +- Changes in and actual or perceived failures to comply with applicable data privacy, security and protection laws, regulations, standards and contractual obligations may adversely affect our business, operations and financial performance. +- If plaintiffs bring product liability lawsuits against us or our partners, we or our partners may incur substantial liabilities and may be required to limit commercialization of our approved products and product candidates. +- We may also be subject to other laws and regulations not specifically targeting the healthcare industry. +- The occurrence of a catastrophic disaster could disrupt our business, damage our facilities beyond insurance limits, increase our costs and expenses, or we could lose key data which could cause us to curtail or cease operations. +- Impairment charges pertaining to goodwill, identifiable intangible assets or other long-lived assets from our mergers and acquisitions could have an adverse impact on our results of operations and our market value. +- If securities or industry analysts do not publish research or reports about our business, or publish negative reports about our business, our Common Stock price and trading volume could decline. +- Our Common Stock is thinly traded and even a small number of shares sold could have a disparate impact on our share price. +- Our business could be adversely impacted if there are deficiencies in our disclosure controls and procedures or our internal control over financial reporting. +- Our internal computer systems, or those of our collaborators or other contractors or consultants, may fail or suffer security breaches, which could result in a material disruption of our product development programs. +- Cyber-security incidents, including data security breaches or computer viruses, could disrupt our services, damage our reputation, or cause our internal computer systems or those of our collaborators to fail. +3 +TABLE OF CONTENTS +PART I +Page +Item 1. +Business +5 +Item 1A. +Risk Factors +25 +Item 1B. +Unresolved Staff Comments +58 +Item 1C. +Cybersecurity +58 +Item 2. +Properties +59 +Item 3. +Legal Proceedings +60 +Item 4. +Mine Safety Disclosures +60 +PART II +Item 5. +Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +61 +Item 6. +Reserved +62 +Item 7. +Management’s Discussion and Analysis of Financial Condition and Results of Operations +62 +Item 7A. +Quantitative and Qualitative Disclosures about Market Risk +85 +Item 8. +Financial Statements and Supplementary Data +85 +Item 9. +Changes in and Disagreements with Accountants on Accounting and Financial Disclosure +85 +Item 9A. +Controls and Procedures +85 +Item 9B. +Other Information +86 +Item 9C. +Disclosure Regarding Foreign Jurisdictions That Prevent Inspections +86 +PART III +Item 10. +Directors, Executive Officers and Corporate Governance +87 +Item 11. +Executive Compensation +92 +Item 12. +Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +100 +Item 13. +Certain Relationships and Related Transactions, and Director Independence +103 +Item 14. +Principal Accountant Fees and Services +108 +PART IV +Item 15. +Exhibits and Financial Statement Schedules +109 +4 +PART I +Item 1. Business +Overview +Pelthos Therapeutics Inc. (the “Company”) is a bio-pharmaceutical company committed to commercializing innovative, safe, and efficacious therapeutic products to help patients with unmet treatment burdens. The Company currently has three U.S. Food and Drug Administration (“FDA”) approved products in its commercial portfolio, in various stages of commercialization, including ZELSUVMI TM , XEPI ® , and XEGLYZE ® . +The July 1, 2025 merger transaction between Channel Therapeutics Corporation (“Channel”) and LNHC, Inc. (“LNHC”), discussed below, resulted in Pelthos Therapeutics Inc. initially having (i) a commercially marketable product, ZELSUVMI for the treatment of molluscum contagiosum, which was launched in July 2025 shortly after the Merger (as defined below); (ii) a manufacturing facility, equipment and know-how to produce the active pharmaceutical ingredient (“API”) used in ZELSUVMI and the NITRICIL TM technology platform; and (iii) clinical-stage assets which selectively target the sodium ion-channel known as “NaV1.7”, which has been genetically validated as a pain receptor in human physiology. In addition, during the fourth quarter of 2025 the Company acquired two additional FDA approved products to expand its commercial product portfolio. +Background +The Company was effectively formed on July 1, 2025 with the Merger of Channel and LNHC. +Channel Background +Chromocell Therapeutics Corporation (“Chromocell”) was incorporated in Delaware on March 19, 2021. On February 21, 2024, Chromocell completed the initial public offering of its Common Stock (“IPO”) on the NYSE American LLC (“NYSE American”). +On November 18, 2024, Chromocell merged with and into its wholly-owned subsidiary, Channel, a Nevada corporation, pursuant to an agreement and plan of merger, dated as of November 18, 2024, for the purposes of reincorporating Chromocell in Nevada. Concurrently with the closing of the reincorporation merger, the Company changed its name from “Chromocell Therapeutics Corporation” to “Channel Therapeutics Corporation”. +LNHC Background +LNHC was incorporated in the state of Delaware in September 2023 by Ligand Pharmaceuticals, Inc. (“Ligand”) and was initially formed to facilitate a transaction between Ligand and Novan, Inc. (“Novan”). On September 27, 2023, Ligand acquired certain assets of Novan, after providing debtor in possession financing and acquiring specific assets from Novan, under Section 363 of the U.S. Bankruptcy Code (a “363 transaction”). Novan was a medical dermatology company focused on developing and commercializing innovative therapeutic products for skin diseases. Through its NITRICIL technology platform, Novan developed ZELSUVMI (berdazimer gel, 10.3%), formerly named SB206, as a topical prescription gel for the treatment of viral skin infections, with a focus on molluscum contagiosum. As of the acquisition date in September 2023 by Ligand, all assets and liabilities acquired in the Novan acquisition were held by LNHC, which was a wholly owned subsidiary of Ligand, including the NITRICIL technology platform. +On March 24, 2025, LNHC assigned its intellectual property portfolio related to the Novan acquisition, including the NITRICIL technology, to Ligand and entered into an exclusive license and sublicense agreement with Ligand, pursuant to which Ligand licensed to the Company the intellectual property rights necessary to make, use, sell or offer to sell ZELSUVMI for the treatment of molluscum contagiosum in humans worldwide, except for Japan. +On March 24, 2025, LNHC and Ligand also entered into a master services agreement under which Ligand, or related parties, may contract with LNHC to provide API for clinical or commercial use related to the NITRICIL technology. In addition, the agreement also allows Ligand to require LNHC to provide manufacturing technology transfer services, if requested, for products other than ZELSUVMI, to a potential third-party manufacturer. +5 +Recent Business Updates +Venture Loan and Security Agreement +On January 12, 2026, the Company entered into a Venture Loan and Security Agreement with Horizon Technology Finance Corporation, a Delaware corporation, as lender and collateral agent (the “Venture Loan and Security Agreement”). The Venture Loan and Security Agreement provides for a senior secured term loan facility in an aggregate principal amount of up to $50.0 million. The proceeds of the facility will be used to support the commercialization of the Company’s existing commercialized pharmaceutical product, to prepare for the launch of two recently acquired products, working capital and general corporate purposes. The Company borrowed $30.0 million of the facility on January 12, 2026. The remaining $20.0 million of the facility may be borrowed upon the achievement by the Company of certain milestones set forth in the Venture Loan and Security Agreement. +Product Portfolio +ZELSUVMI TM (berdazimer) topical gel, 10.3% for the Treatment of Molluscum Contagiosum +ZELSUVMI (berdazimer) topical gel, 10.3% is a nitric oxide (NO) releasing agent indicated for the topical treatment of molluscum contagiosum in adults and pediatric patients one year of age and older. ZELSUVMI is the first FDA approved topically applied nitric oxide releasing agent indicated for the treatment of molluscum contagiosum in people ages one year and older and the first and only prescription medication FDA approved for use in non-medical settings that can be safely applied by patients, parents and caregivers. Molluscum contagiosum is a highly contagious viral skin infection that primarily affects children, immunocompromised adults and sexually active persons. The Company estimates that molluscum contagiosum infections afflict approximately 16 million people of all ages in the United States. +ZELSUVMI was developed using the proprietary nitric oxide-based technology platform, NITRICIL. ZELSUVMI’s mechanism of action against molluscum contagiosum is unknown. In vitro studies of ZELSUVMI’s active ingredient, berdazimer sodium, have demonstrated (i) anti-pox virus activity on vaccinia virus, which is often used as a surrogate for molluscum contagiosum virus; and (ii) reduced early gene expression of molluscum contagiosum virus proteins. ZELSUVMI’s final Phase 3 clinical study included 891 enrolled patients treated with ZELSUVMI and demonstrated statistically significant and clinically meaningful efficacy results on both primary and secondary endpoints, a greater reduction in lesions at every measurement point, and favorable safety results during the 12-week duration. +The Company’s market research and feedback to date indicate physicians have highly favorable opinions about ZELSUVMI’s clinical efficacy, safety, and practicality as the first and only topical medication indicated for molluscum contagiosum that does not require in-office administration by a healthcare provider. The Company believes that ZELSUVMI is likely to complement or represent a differing treatment regimen of current procedural treatments administered in medical settings such as cryosurgery, cantharidin application and curettage. +The Company has an exclusive license to use the NITRICIL Technology Platform as necessary to manufacture ZELSUVMI, as set forth in the license agreement between the Company and Ligand. The Company believes that the NITRICIL platform’s ability to deploy nitric oxide in a solid form, on demand and in localized formulations allows the potential to improve patient outcomes in a variety of diseases. The Company believes that the FDA approval of ZELSUVMI has validated the NITRICIL technology platform’s ability to achieve stable, tunable and druggable delivery of nitric oxide on therapeutically and commercially important targets such as molluscum contagiosum. +Molluscum Contagiosum +Molluscum contagiosum is caused by a poxvirus and is a common skin infection seen by dermatologists, pediatric dermatologists, and pediatricians, with a prevalence estimated by management to be 16 million people in the United States and an annual incidence estimated by management to be 3-6 million. According to the Centers for Disease Control and Prevention (“CDC”), molluscum contagiosum infections are contagious and spread to others through contact with infected persons or contaminated objects such as towels, toys, furniture, swimming pools, and other surfaces. Children are the most vulnerable to molluscum contagiosum infections as are adults with weakened immune systems. In addition, molluscum contagiosum can be sexually transmitted. +Molluscum contagiosum infections present with raised, skin-colored or red bumps that can appear anywhere on the body, including the face, hands, trunk, genitals, back of the knees, armpits, and other sensitive areas. People with molluscum contagiosum may suffer discomfort from itching, secondary bacterial infections, as well as immense social stigma from +6 +having visible molluscum contagiosum lesions which typically last for months or for years. Left untreated, molluscum contagiosum lesions may persist an average of 13 months, with reports of cases remaining unresolved for up to five years. The symptoms of molluscum contagiosum can cause anxiety, and parents frequently seek treatment due to its highly contagious nature and its impact on physical appearance. +XEPI ® (ozenoxacin) Cream, 1% for the Treatment of Impetigo +In November 2025, the Company acquired XEPI (ozenoxacin) cream, 1% for the treatment of impetigo. The acquisition of this asset provided a complementary dermatology product to the Company’s portfolio anchored by ZELSUVMI. +XEPI is a novel FDA-approved non-fluorinated quinolone antimicrobial indicated for the topical treatment of impetigo due to Staphylococcus aureus or Streptococcus pyogenes in adult and pediatric patients two months of age and older. The Company believes XEPI addresses a critical unmet need in antibiotic-resistant skin infections caused by staph and strep infections, most commonly affecting children. Impetigo affects approximately 3 million people in the U.S. every year and is among the most common bacterial skin infections seen in pediatric offices. +The Company acquired the U.S. commercialization rights to XEPI, from Biofrontera, Inc. (“Biofrontera”) and an exclusive license agreement with Ferrer Internacional S.A. (“Ferrer”) and Interquim, S.A.U. (“Interquim”). XEPI was developed by Ferrer and Medimetriks Pharmaceuticals, Inc., and approved by the FDA in 2017. At the time of approval, XEPI was the first new novel treatment for impetigo in more than 10 years. Biofrontera had owned the U.S. rights to XEPI since 2019 but, has not been actively promoting the product. +XEPI, a new chemical entity, belongs to a new generation of non-fluorinated quinolones. In two Phase 3 pivotal studies, XEPI showed positive efficacy and appeared to be safe and well tolerated in both adult and pediatric populations aged 2 months and older. In addition, XEPI has demonstrated excellent in vitro antibacterial activity against pathologically relevant bacteria and clinical isolates of organisms with emerging resistance to methicillin-resistant s. aureus (“MRSA”). The Company believes XEPI represents a novel and important therapy for the topical treatment of impetigo. +The Company expects to commercially relaunch XEPI once certain manufacturing, supply chain, and regulatory activities are validated, implemented and completed, respectively. In addition, the Company will also need to implement its commercial marketing, trade and access strategy prior to the relaunch of XEPI, currently expected in late 2026. +Impetigo +Impetigo is a highly contagious bacterial skin infection most often caused by Staphylococcus aureus and/or Group A Streptococcus (Streptococcus pyogenes). It affects approximately 3 million people in the U.S. every year and is most common in children ages 2 to 5. Impetigo is among the most common bacterial skin infections seen in pediatric offices and spreads easily within families, in crowded settings, such as schools and childcare facilities. +Impetigo, a highly contagious bacterial skin infection commonly treated by Dermatologists and Pediatricians, most often affects infants, young children and those involved in close contact sports or living in enclosed environments. Impetigo is estimated to account for approximately 10% of the skin problems observed in pediatric clinics in the United States and is considered the most common bacterial skin infection. +XEGLYZE ® (abametapir) for the Topical Treatment of Head Lice +In December 2025, the Company acquired XEGLYZE (abametapir) for the topical treatment of head lice. XEGLYZE is a pediculicide indicated for the topical treatment of head lice infestation in patients 6 months of age and older. The prescription medication was approved by the FDA in July 2020. The acquisition of this asset from Hatchtech Pty Ltd., an Australian biotech company, provided an additional complementary product to the Company’s portfolio. This acquisition will provide the Company the ability to commercialize XEGLYZE worldwide. +XEGLYZE is a novel, patent protected FDA-approved prescription medication indicated for the topical treatment of head lice infestation in patients 6 months of age and older. Abametapir, the active ingredient in XEGLYZE, inhibits metalloproteinases that have a role in physiological processes critical to egg development and survival of lice. The single, 10 minute application does not require nit combing and has sufficient volume in each bottle to treat either short or long hair. +7 +The Company expects to commercially launch XEGLYZE once certain manufacturing, supply chain, and regulatory activities are validated, implemented and completed, respectively. In addition, the Company will also need to implement its commercial marketing, trade and access strategy prior to the launch of XEGLYZE, currently expected in 2027. +Head Lice +In the U.S., infestation with head lice is most common among preschool- and elementary-school age children and their household members and caretakers. An estimated 6 to 12 million infestations occur each year in the U.S. among children 3 to 11 years of age. +Merger Transaction +July 1, 2025 Merger +On July 1, 2025 (the “Merger Closing Date”), the Company consummated the previously announced merger transaction (the “Merger”) pursuant to that certain Agreement and Plan of Merger (the “Merger Agreement”) by and among the Company, CHRO Merger Sub, Inc. a Delaware Corporation and a wholly owned subsidiary of the Company (“Merger Sub”), LNHC, and solely for the purposes of Article III of the Merger Agreement, Ligand. Pursuant to the Merger Agreement, (i) Merger Sub merged with and into LNHC, with LNHC as the surviving company in the Merger and, after giving effect to such Merger, continuing as a wholly-owned subsidiary of the Company and (ii) the Company’s name was changed from Channel Therapeutics Corporation to Pelthos Therapeutics Inc. +At the effective time of the Merger, the Company issued an aggregate of 31,278 shares of the Company’s Series A Preferred Stock to Ligand as consideration for the LNHC shares. +The shares of Series A Preferred Stock issued to Ligand in the Merger were not registered under the Securities Act and were issued and sold in reliance on the exemption from registration requirements thereof provided by Section 4(a)(2) of the Securities Act as a transaction by an issuer not involving a public offering. +The shares of the Company’s Common Stock listed on NYSE American previously trading through the close of business on July 1, 2025 under the ticker symbol “CHRO,” commenced trading on NYSE American under the ticker symbol “PTHS,” on July 2, 2025. The Company’s Common Stock is represented by a new CUSIP number, 171126 204. +Securities Purchase Agreement +Concurrently with the execution of the Merger Agreement, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with LNHC and certain investors, which included Ligand (collectively, the “PIPE Investors”), pursuant to which, among other things, on the Merger Closing Date and immediately prior to the consummation of the Merger, the PIPE Investors purchased (either for cash or in exchange for the conversion of principal and interest payable under an outstanding convertible note issued by the Company), and the Company issued and sold to the PIPE Investors, an aggregate of 50,100 shares of the Company’s Series A Convertible Preferred Stock, par value $0.0001 per share (the “Series A Preferred Stock”) at a price per share equal to $1,000 (such transaction, the “PIPE Financing”). The gross proceeds from the PIPE Financing were approximately $50.1 million, consisting of approximately $50.0 million in consideration and the conversion of approximately $0.1 million of principal and interest payable under an outstanding convertible note with a related party issued by the Company, before paying estimated expenses and before the settlement of certain outstanding bridge notes with the PIPE Investors, described below. +On July 1, 2025, the Company, LNHC and the PIPE Investors entered into Amendment No. 1 to Securities Purchase Agreement, pursuant to which, the Company, LNHC and the PIPE Investors consented to the inclusion of two additional PIPE Investors in the PIPE Financing and a corresponding decrease in the amount of certain PIPE Investors’ investments in the PIPE Financing such that the aggregate amount of the PIPE Financing would remain unchanged (the “Securities Purchase Agreement Amendment”). +Each share of Series A Preferred Stock is convertible at any time at the holder’s option into a number of shares of Common Stock, par value $0.0001 per share equal to (i) $1,000, subject to adjustment, plus any all declared and unpaid dividends thereon as of such date of determination, plus any other amounts owed to such holder pursuant to the Certificate of Designations of Rights and Preferences of Series A Convertible Preferred Stock (the “Certificate of Designations”), divided by (ii) $1 (adjusted to $10 as a result of the ten-for-one Reverse Stock Split), subject to adjustments. +8 +In general, a holder of shares of Series A Preferred Stock may not convert any portion of Series A Preferred Stock if the holder, together with its affiliates, would beneficially own more than 49.9% in the case of Ligand or 4.99% or 9.99%, in the case of the other PIPE Investors (the “Maximum Percentage”), of the number of shares of the Company’s Common Stock outstanding immediately after giving effect to such exercise, provided, however, that a holder may increase or decrease the Maximum Percentage by giving 61 days’ notice to the Company, but not to any percentage in excess of 9.99%. +The shares of Series A Preferred Stock issued and sold to the PIPE Investors were not registered under the Securities Act and were issued and sold in reliance on the exemption from registration requirements thereof provided by Section 4(a)(2) of the Securities Act as a transaction by an issuer not involving a public offering. +The closing of the PIPE Financing occurred on July 1, 2025, immediately prior to the consummation of the Merger. +On July 1, 2025, certain PIPE Investors entered into Series A Convertible Preferred Stockholder Side Letters (each, a “Side Letter”) with the Company, pursuant to which, immediately after the closing of the PIPE Financing on July 1, 2025, the PIPE Investors converted 23,810 shares of Series A Preferred Stock not exceeding such PIPE Investors’ Maximum Percentage into an aggregate of 2,381,000 shares of the Company’s Common Stock (after giving effect to the Reverse Stock Split), by providing the Company with a completed and signed Conversion Notice under the Certificate of Designation. Approximately 57,568 shares of the Company’s Series A Preferred Stock were issued and outstanding immediately following the Effective Time. Immediately following the Merger and the PIPE Financing, the Company’s security holders as of immediately prior to the Merger owned approximately 7.4% of the outstanding shares of the Company and LNHC security holders owned approximately 56.1% of the outstanding shares of the Company, in each case on a fully diluted basis, calculated using the treasury stock method. +Net Proceeds from PIPE Financing +Certain PIPE Investors were a party to the ZELSUVMI Royalty Agreement while other PIPE Investors were a party to the Channel Products Royalty Agreement, (collectively, the “Royalty Agreements”) as described in Note 9 — “ License and Other Agreements” in the notes to our consolidated financial statements. Further, certain PIPE Investors were not a party to the Royalty Agreements. As the PIPE Financing and Royalty Agreements were negotiated together, aggregate proceeds were allocated based on their relative fair value basis. The Company will account for future royalties due as liabilities and will accrete the financing using the effective interest method based on estimated and actual cash flows payable to the counterparties over the estimated life of the royalty agreements. +Effective January 1, 2025, LNHC entered into a bridge loan agreement with Ligand under which any amounts of cash transferred from Ligand to LNHC, or settlement of LNHC's expenses directly by Ligand, starting from January 1, 2025, were considered a loan from Ligand to LNHC. The maximum borrowing under the bridge loan agreement was $18.0 million (the “Ligand Bridge Note”). The repayment of the Ligand Bridge Note loan at the closing of the Merger was offset against Ligand’s funding commitment in the PIPE Financing. The balance of the Ligand Bridge Note was $12.7 million, resulting in $5.3 million of funding provided to the Company as of the Merger Closing Date as part of the PIPE Financing. In addition, on April 16, 2025, LNHC entered into a bridge loan agreement with two third-party lenders, part of the group of strategic investors who participated in the PIPE Financing, for an aggregate amount, including interest, of $6.1 million (the “April Bridge Note”). The repayment of the April Bridge Note at the closing of the Merger was offset against the strategic investors funding commitment in the PIPE Financing. In addition, as part of the Merger closing, a settlement of a related party note of $0.1 million and settlement of a third-party note with a professional services firm of approximately $1.5 million also occurred. +9 +The following are details of the Merger and PIPE Financing as it relates to Series A Preferred Stock and proceeds from the PIPE Financing (in thousands, except share and per share amounts): +Series A Preferred Shares Issued Allocated Gross Proceeds Notes Settlement Payables Settlement and Expenses Net Proceeds +Beginning Balance as of July 1, 2025 — $ — $ — $ — $ — +Preferred Stock (Series A) Issued - Merger 31,278 — — — — +Preferred Stock (Series A) Issued - PIPE Financing 50,100 50,100 (20,340) (2,376) 27,384 +Preferred Stock (Series A) Converted to Common Stock (23,810) — — — — +Ending Balance as of July 1, 2025 57,568 $ 50,100 $ (20,340) $ (2,376) $ 27,384 +The Merger resulted in the Company having (i) a commercial product, ZELSUVMI; (ii) the facility, equipment and know-how to manufacture the API used in ZELSUVMI and the NITRICIL technology platform; and (iii) clinical-stage NaV1.7 assets. +Manufacturing Facility and NITRICIL Platform +The Company currently leases its primary operating facility, including 19,265 square feet of laboratory, current good manufacturing practices (“cGMP”) manufacturing, warehouse, storage and office space in Durham, North Carolina. The lease, dated January 18, 2021, as amended, has an initial term expiring in 2032, with an option to extend the term of the lease for a period of 5 years. This purpose-built facility was constructed to serve as the primary berdazimer sodium API manufacturing site. Berdazimer sodium is the API that is the backbone of the NITRICIL platform technology. Different concentrations of berdazimer sodium and different formulations of the finished drug product are what differentiates potential treatment options for various indications. +While the intellectual property rights for the NITRICIL technology platform were assigned by LNHC to Ligand prior to the Merger, the Company currently has the rights to the manufacturing facility, equipment and know-how to produce the API used in ZELSUVMI and any other products that may be developed by Ligand, Ligand affiliated parties or third-party licensees related to the NITRICIL technology platform. The MSA between Ligand and the Company provides Ligand, Ligand affiliated parties or third-party licensees with an ability to source commercial or developmental supply of API, while also providing the Company with the associated economics of the supply of such material. +The NITRICIL proprietary technology platform leverages nitric oxide’s naturally occurring anti-viral, anti-bacterial, anti-fungal, and immunomodulatory potential mechanisms of action in an effort to treat a range of diseases. Nitric oxide plays a vital role in the natural immune system response against microbial pathogens and is a critical regulator of inflammation. The technology’s ability to harness nitric oxide and its multiple potential mechanisms of action has enabled the creation of a platform with the potential to generate differentiated product candidates. The two key components of the nitric oxide platform are the proprietary NITRICIL technology, which drives the creation of macromolecular New Chemical Entities, and formulation science, both of which are used to tune product candidates for specific targeted indications. +The Company believes the NITRICIL technology platform has many other potential product candidates that could be further developed. Prior to the Merger, clinical work was performed in various indications, including, but not limited to, acne (SB204), atopic dermatitis and psoriasis (SB414), tinea pedis and onychomycosis (SB208) and external genital warts (SB207). Other than SB207, to which the Company has existing rights, the rights are owned by Ligand. Any further development of these assets will require the Company to produce and manufacture the API for use by Ligand, Ligand affiliated parties, third-party licensees or for our own account if we pursue SB207 or license any of the other programs. +NaV1.7 Pain Programs +Prior to the Merger, the Company had been developing new non-opioid therapeutics to alleviate pain. These programs selectively target the sodium ion-channel known as “NaV1.7”, which has been genetically validated as a pain receptor in human physiology. A NaV1.7 blocker is a chemical entity that modulates the structure of the sodium-channel in a way to +10 +prevent or reduce the transmission of pain perception to the central nervous system (“CNS”). The goal of these programs is to develop a novel and proprietary class of NaV blockers that target the body’s peripheral nervous system. +There are currently three pain programs developing therapeutics, all of which are based on the same proprietary molecule, as follows: +Eye Pain (Phase1-2a ready) : Based on a novel formulation of CC8464, our Eye Pain program, titled CT2000, is for the potential treatment of both acute and chronic eye pain. NaV1.7 channels are present on the cornea, making it a viable biological target for treating eye pain. Eye pain may occur with various conditions, including severe dry eye disease, trauma and surgery. Existing therapies for eye pain (such as steroids, topical non-steroidal anti-inflammatory agents, lubricants, local anesthetics) are limited in their effectiveness and/or limited in the duration that they may be prescribed because of safety issues. The Company intends to explore the viability of developing CT2000 as a topical agent for the relief of eye pain. A potential advantage of this approach is that topical administration of CT2000 is unlikely to lead to any hypersensitivity or skin reactions, like what was noted with systemic administration of CC8464, because the systemic absorption from a topical administration would be extremely limited. The Company has completed two animal efficacy studies and has successfully completed a pivotal Investigational New Drug Application (“IND”) enabling ophthalmic toxicology studies as a precursor to launching a Phase 1a/2b human proof of concept study. The Company expects to initiate the Phase 1a/2b study in Eye Pain in the first quarter of 2026. +Depot Program (Pre-Clinical) : Based on several novel formulations of CC8464, the Company’s most recently launched program, titled CT3000, is for the potential treatment of post operative pain with the use of nerve blocks. Examples would include knee surgery or shoulder surgery. Existing therapies for nerve blocks lead to neuromuscular blockade which prevents movement following surgery. Doctors often want patients to move soon after surgery to avoid complications such as blood clots. A NaV1.7 inhibitor used for nerve blocks may provide good analgesia but will not lead to neuromuscular blockade that prevents movement like other local anesthetics. The Company will periodically review the timing and budget related to the commencement of toxicology and chemistry, manufacturing, and controls (“CMC”) work and a subsequent human proof-of-concept (“POC”) trial, but has no immediate plans to do so. +Neuropathic Pain (Clinical) : CC8464 is being developed to address certain types of neuropathic pain. The chemical characteristics of CC8464 restrict its entry into the CNS and limit its effect to the NaV1.7 channels in the peripheral nervous system, which consists of the nerves outside the brain and spinal cord. Activation of other channels in the CNS can result in side effects, including addiction and other centrally mediated adverse effects. Since CC8464 is designed to not penetrate the CNS it is highly unlikely to produce CNS mediated side effects including euphoria or addiction. Based on its characteristics, preclinical studies, and the Phase 1 studies completed to date, the Company believes that CC8464, if approved, could become an attractive option for both patients and physicians as a treatment for moderate-to-severe pain in Erythromelalgia and idiopathic small fiber neuropathy. The Company will periodically review the timing and budget related to the commencement of toxicology and CMC work and a subsequent human POC trial, but has no immediate plans to do so. +ZELSUVMI Commercial Strategy +The Company has launched and is focused on the commercialization of ZELSUVMI and is continuing to support its sales, marketing and commercial team to detail ZELSUVMI. +Commercial Background +ZELSUVMI is the first FDA-approved at-home prescription medication indicated for the treatment of molluscum contagiosum in patients one year of age and older that can be administered by patients, parents and caregivers. As a prescription, ZELSUVMI will generally be covered under patients’ pharmacy benefit, differentiating it from procedural reimbursement for cantharidin and cryotherapy. Pediatricians, pediatric dermatologists, dermatologists and infectious disease specialists are the target prescribers. +Pediatricians diagnose the majority of molluscum contagiosum infections, and the Company believes many patients have not been treated due, in part, to a lack of FDA approved prescription treatment options that can be administered outside of medical settings. The Company believes that pediatricians will be key to expanding the market, increasing peak sales, and sales and marketing efficiency. The Company will seek to position ZELSUVMI as the preferred first line therapy among pediatricians. The Company believes ZELSUVMI will enhance and complement current non-prescription treatment options +11 +and referral patterns. Based on the Company’s interactions with healthcare professionals (“HCPs”) to date, the Company believes HCPs would welcome this positioning of ZELSUVMI. +The Company believes that ZELSUVMI fills a medical need in the market as the first safe and efficacious prescription medication for molluscum contagiosum that can be administered outside of medical settings. Based on 2023 data from Veeva Compass, on an annual basis, greater than 390,000 unique patients are affected by molluscum contagiosum and greater than 100,000 unique HCPs are treating the disease in the United States. However, the Company believes this number underestimates the true number of cases due to a previous lack of treatment options. +Sales and Distribution Strategy +The Company is marketing ZELSUVMI primarily to physicians with various types of electronic and physical promotion and direct sales efforts with a dedicated sales force supported by a product management team and support staff. The sales and marketing effort focuses on increasing awareness, adoption and usage of ZELSUVMI to targeted pediatricians, pediatric dermatologists and dermatologists. The Company distributes ZELSUVMI via standard retail pharmacy chains, mail order pharmacies and Amazon pharmacy utilizing a third-party logistics provider. Based on the Company’s conversations with HCPs, the Company believes these distribution channels are the most preferred by patients and HCPs. Critical to the launch and commercialization efforts of ZELSUVMI will be co-pay assistance and managing co-pay and patient out-of-pocket costs as well as prescription “pull-through” strategies and tactics to ensure patient access and utilization of ZELSUVMI. +Marketing Strategy +The Company is focusing sales and marketing efforts on expanding product awareness and trial of ZELSUVMI initially by means of personal outreach by sales representatives to pediatric, pediatric dermatologist and dermatologist HCPs who have regularly included diagnosis codes for molluscum contagiosum infection as part of their claims for reimbursement by health insurers. The Company intends to expand its marketing strategies to include more non-personal promotion strategies and tactics focused on patients and eventually to consumer segments. HCP marketing initiatives focus on driving adoption through targeted initiatives like peer-to-peer education, data-driven digital advertising, and customized sales representative programs tailored to practice needs such as understanding insurance coverage and product acquisition. Consumer marketing initiatives focus on expanding both diagnosed and treated patient populations through strategic social media advertising, sharing impactful patient testimonials, and leveraging trusted influence partnerships. For example, in early October 2025, the Company launched “Moms Against Molluscum” movement, a movement to unite mothers, parents, and other caregivers navigating molluscum contagiosum. The Moms Against Molluscum movement encourages people managing this highly contagious skin infection to visit MomsAgainstMolluscum.com to share their stories and access information about new treatment options, including ZELSUVMI. +Market Access Strategy +The Company’s cross functional, payer and reimbursement account team is actively prioritizing and ensuring that the process of accessing ZELSUVMI is seamless, affordable, and easy with everything our patient customers will need, from step-by-step instructions to co-pay cards for eligible patients, to maximize the probability of having a positive outcome from using the Company’s product regardless of whatever distributor they prefer to access ZELSUVMI. The Company is focused on certain payer channels, including commercial, Medicaid and Managed Medicaid and provides co-pay cards and coupons for eligible patients that are commercially insured. +In December 2025, the Company announced that it had signed its first commercial agreement with a major Pharmacy Benefit Manager (“PBM”) to expand patient access for ZELSUVMI. This agreement is with a Group Purchasing Organization that collaborates with manufacturers on behalf of one of the largest PBMs in the U.S. The PBM with which we contracted manages prescription drug benefits for more than 20 million covered lives, and the formulary inclusion updates for ZELSUVMI started on December 1, 2025. +Manufacturing and Supply Chain +Background +Berdazimer sodium is the API that is the critical component of the NITRICIL platform technology. The Company believes different concentrations of berdazimer sodium and different formulations of the finished drug product may be used to +12 +develop additional product candidates for other diseases or conditions. For example, ZELSUVMI (berdazimer) topical gel, 10.3%, which has been approved by the FDA, is one product and indication that has met the regulatory requirements for commercialization. The Company believes the NITRICIL technology platform could generate other potential product candidates that could be further developed, and, pursuant to the MSA with Ligand, the Company may produce API for such other uses. +The supply chain includes the procurement of raw materials, the conversion of raw materials into API, and the conversion of API to finished product. The Company’s process, as described in more detail below, is effectively as follows: +• Procurement of underlying raw materials, such as nitric oxide gas; +• Conversion of raw materials into API, including allocated overhead, fixed and variable costs; +• Shipment of API to a third-party CMO; +• Conversion of API into finished product, ZELSUVMI, at the third party CMO; and +• Shipment of finished product from CMO to a third-party logistics provider for distribution. +The Company uses various qualified vendors to source raw materials. The conversion of the API and manufacture occurs at its primary operating facility in North Carolina. The API is then shipped to a third-party fill/finish CMO who converts the API into the finished product, including ancillary/supportive manufacturing, filling and packaging. The finished product is then shipped back to the U.S. domiciled third-party logistics provider for distribution. +The ZELSUVMI manufacturing process is effectively comprised of four key components: raw materials, supply chain, drug substance (API), and drug product (finished product). +Raw Materials +The Company currently relies on third-party suppliers to provide the raw materials that are used by it and its third-party manufacturers in the manufacture of ZELSUVMI. There are a limited number of suppliers for raw materials, including nitric oxide, that are used to manufacture the product candidates and commercial products. +Supply Chain +The Company also relies on third-party logistics vendors to transport raw materials, API, and drug products through our supply chain. Certain materials, including the API, have designated hazard classifications that limit available transportation modes or quantities. Third-party logistics vendors may choose to delay or defer transportation of materials from time to time, which could adversely impact the timing or cost of our manufacturing supply chain activities. +Drug Substance (Active Pharmaceutical Ingredient) +Due to the complexity of the proprietary manufacturing technology related to the NITRICIL platform, including intellectual property, know-how, trade secrets, production techniques, and the related physical manufacturing requirements and characteristics, the Company previously determined that constructing its custom manufacturing facility was the most effective way to mitigate risk associated with API production. The facility and production process has been fully validated and qualified and the facility has an operational and integrated QMS (Quality Management System) and Enterprise Resource Planning (“ERP”) platform governing the operations of the facility. +The Company has manufactured more than one metric ton of API in its facility since becoming operative, including site registration batches, process validation batches, and commercial batches. In preparing for the commercial launch of ZELSUVMI, the Company stockpiled numerous batches of commercial API. The operational API manufacturing strategy incorporates redundancy planning, including maintaining a minimum API inventory on hand to mitigate potential risk, both “upside” and “downside”, related to potential future commercial demand of ZELSUVMI. Manufacturing API at its own, U.S.-based facility provides the Company with critical control over the longest lead time and the most complex component of ZELSUVMI’s supply chain. The API has a shelf life of 36 months following its manufacture. +The Company currently has sufficient API manufacturing capacity within its facility, as it is configured, to comfortably meet its current sales forecasts to supply API for ZELSUVMI. In its current configuration, the Company has excess capacity to increase utilization for additional API demand. Furthermore, the Company also has the ability to add additional manufacturing shifts and team members to manufacture even greater quantities of API, if needed, for our own account and current and potential future partners or customers of the NITRICIL technology. Effectively, the Company believes the +13 +current API theoretical manufacturing capacity could be roughly doubled, if needed, due to one or more of the following: a higher than expected sales demand for ZELSUVMI, demand from current partners, such as Ligand, and potential future partnerships for ZELSUVMI and/or the NITRICIL platform. The Company does not expect to need to invest in material or significant capital expenditures and other fixed costs to bring more manufacturing capacity on-line in the foreseeable future. The Company does expect to incur certain levels of capital expenditures for on-going operations, maintenance and improvements. +Drug Product (ZELSUVMI) +The Company has a long-standing relationship with Orion Corporation (“Orion”), a Finnish full-scale pharmaceutical company with broad experience in cGMP drug manufacturing. Orion manufactures the Company’s commercial supply of its ZELSUVMI finished product. The drug product manufacturing and fill/finish process at Orion has been fully validated and qualified including site registration batches, process validation batches, and commercial batches. Through its contractual relationship with Orion, the Company has manufactured initial commercial launch quantities of ZELSUVMI. In addition, the Company has entered into a multi-year supply agreement and provides monthly estimates and forecasts for on-going production of finished products. The Company’s supply forecast is informed by the expected sales forecast, with adjustments such as MOH (months-on-hand), safety stock, shelf life, and product dating. +Intellectual Property +Under the Exclusive License and Sublicense Agreement with Ligand, dated March 24, 2025, the Company acquired exclusive rights to a robust IP portfolio that provides material coverage for ZELSUVMI, which includes patents and patent applications covering the ZELSUVMI product and its use for treating molluscum contagiosum; trademarks; and know-how and trade secrets covering various aspects of the nitric oxide NITRICIL Technology Platform in addition to manufacturing, research, development, formulation, analytical chemistry and scientific know-how. +There are 14 issued U.S. patents covering ZELSUVMI which are listed in the Approved Drug Products with Therapeutic Equivalence Evaluations (“Orange Book”) and which are expected to expire during the time period beginning in 2026 and ending in 2035. Upon the initial approval of ZELSUVMI, the Company applied for 1,280 days of patent term extension (“PTE”) for the U.S. patent covering ZELSUVMI composition of matter. Assuming the approval of the PTE application, the term of this patent may be extended from February 27, 2034, to August 30, 2037. +In addition, as part of the XEPI transaction and the XEGLYZE acquisition, the Company licensed or purchased the rights to the related patents, trademarks, and intellectual property necessary to commercialize those respective assets, in their field of use and geographic market, respectively. There are two XEPI related patent / applications, with the latest expiration date on January 29, 2032. There are 11 issued patents related to XEGLYZE, with the latest expiration date on December 17, 2034. +Our Customers +The Company primarily sells its ZELSUVMI product to national and regional wholesaler channels. Our wholesalers purchase products from us and, in turn, supply products to retail drug store chains, independent pharmacies and mail order pharmacies. +Seasonality of Business +Sales of ZELSUVMI may be affected by a number of factors, including but not limited to annual insurance deductible resets, weather, HCP office openings, holidays and school and summer activities. +Competition +The pharmaceutical industry is subject to rapidly advancing technologies, intense competition, and a strong emphasis on proprietary products. The Company faces potential competition from many different sources, including major pharmaceutical, specialty pharmaceutical and biotechnology companies, compounding facilities, academic institutions, governmental agencies, and public and private research institutions. +ZELSUVMI is the first and only FDA-approved prescription pharmaceutical therapy for the treatment of molluscum contagiosum that can be administered by patients or caregivers outside of a medical setting. The Company believes the key +14 +competitive factors affecting the success of ZELSUVMI are likely to be its efficacy, safety, convenience, and pricing. With respect to ZELSUVMI for the treatment of molluscum contagiosum, the Company will be primarily competing with therapies such as other topical products, natural oils, off-label drugs, natural remedies, cantharidin or medical procedures such as curettage, cryotherapy, and laser surgery. +International Opportunities +The Company, through its exclusive license of ZELSUVMI from Ligand, has the ability to seek approval for and commercialize ZELSUVMI through the rest of the world, except for Japan. The Company estimates molluscum contagiosum incidence and prevalence rates in the European Union and Asia to be comparable to the United States. The Company has previously engaged in several international discussions with distributors seeking supply or license agreements for ZELSUVMI in multiple ex-U.S. territories. +On May 12, 2025, the Trump Administration issued an executive order titled Delivering Most-Favored-Nation Prescription Drug Pricing to American Patients (the “2025 EO”). The 2025 EO outlines a plan to reduce prescription drug prices for Americans. The 2025 EO directs multiple federal agencies, including the U.S. Department of Health and Human Services (“HHS”), to take specific actions aimed at compelling drug manufacturers to lower drug prices in the United States in a manner comparable with other developed nations. +On May 20, 2025, HHS issued a press release stating that the Department “expects each drug manufacturer to commit to aligning United States pricing for all brand products across all markets that do not currently have generic or biosimilar competition with the lowest price of a set of economic peer countries.” From this statement, it appears that HHS intends to apply the most-favored-nation (“MFN”) pricing only to single-source drugs (i.e., “brand-name” drugs without any approved generic or biosimilar versions). In its May press release, HHS also advised that it will calculate the MFN price as the lowest price in a country that is part of the Organisation for Economic Co-operation and Development and that has a per capita gross domestic product (“GDP”) of at least 60% of the U.S. per capita GDP. +The Company will continue to evaluate the 2025 EO and its potential impact to international opportunities for ZELSUVMI. +Data Privacy and Security Laws +Numerous state, federal and foreign laws, regulations and standards govern the collection, use, access to, confidentiality and security of health-related and other personal information, and could apply now or in the future to our operations or the operations of our partners. In the United States, numerous federal and state laws and regulations, including data breach notification laws, health information privacy and security laws, and consumer protection laws and regulations govern the collection, use, disclosure, and protection of health-related and other personal information. In addition, certain foreign laws govern the privacy and security of personal data, including health-related data. Privacy and security laws, regulations, and other obligations are constantly evolving, may conflict with each other to complicate compliance efforts, and can result in investigations, proceedings, or actions that lead to significant civil and/or criminal penalties and restrictions on data processing. +Government Regulation and Product Approval +Government authorities in the United States, at the federal, state and local level, and other countries extensively regulate, among other things, the research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, marketing and export and import of products such as those we are developing. A new drug must be approved by the FDA through the new drug application (“NDA”) process before it may be legally marketed in the United States. +U.S. Drug Development Process +In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act (“FDCA”) and its implementing regulations. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state and local statutes and regulations require the expenditure of substantial time and financial resources. The process required by the FDA before a drug may be marketed in the United States generally involves the following: +• completion of certain preclinical laboratory tests, animal studies and formulation studies in accordance with good laboratory practice (“GLP”) regulations and other applicable regulations; +15 +• submission to the FDA of an IND, which must become effective before human clinical trials may begin; +• approval by an Institutional Review Board (“IRB”), or ethics committee at each clinical site before each trial may be initiated; +• performance of adequate and well-controlled human clinical trials in accordance with good clinical practices (“GCPs”) to evaluate the safety and efficacy of the product candidate for its intended use; +• submission to the FDA of a NDA after completion of all pivotal trials; +• satisfactory completion of an FDA advisory committee review, if applicable; +• satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the drug is produced to assess compliance with cGMPs to assure that the facilities, methods and controls are adequate to preserve the drug’s identity, strength, quality and purity; +• satisfactory completion of potential inspection of selected clinical investigation sites to assess compliance with GCPs; and +• FDA review and approval of the NDA to permit commercial marketing of the product for particular indications for use in the United States. +Once a product candidate is identified for development, it enters the preclinical testing stage. Preclinical tests include laboratory evaluations of product chemistry, toxicity and formulation, as well as animal studies. An IND sponsor must submit the results of the preclinical tests, together with manufacturing information and analytical data, to the FDA as part of an IND. An IND is a request for allowance from the FDA to administer an investigational drug product to humans. An IND will also include a protocol detailing, among other things, the objectives of the clinical trial, the parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated, if the trial includes an efficacy evaluation. Some preclinical testing may continue even after the IND is submitted. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, places the clinical trial on a clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. Clinical holds also may be imposed by the FDA at any time before or during clinical trials due to safety concerns about on-going or proposed clinical trials or non-compliance with specific FDA requirements, and the trials may not begin or continue until the FDA notifies the sponsor that the hold has been lifted. +All clinical trials must be conducted under the supervision of one or more qualified investigators in accordance with GCPs, which include, among other things, the requirement that all research subjects provide their informed consent in writing for their participation in any clinical trial. Clinical trials must be conducted under protocols detailing the objectives of the trial, dosing procedures, subject selection and exclusion criteria and the safety and effectiveness criteria to be evaluated. Each protocol must be submitted to the FDA as part of the IND, and a separate submission to the existing IND must be made for each successive clinical trial conducted during product development and for any subsequent protocol amendments. While the IND is active, progress reports summarizing the results of the clinical trials and nonclinical studies performed since the last progress report, among other information, must be submitted at least annually to the FDA, and written IND safety reports must be submitted to the FDA and investigators for serious and unexpected suspected adverse events, findings from other studies suggesting a significant risk to humans exposed to the same or similar drugs, findings from animal or in vitro testing suggesting a significant risk to humans, and any clinically important increased incidence of a serious suspected adverse reaction compared to that listed in the protocol or investigator brochure. +Furthermore, an independent IRB at each institution participating in the clinical trial must review and approve each protocol before a clinical trial commences at that institution and must also approve the information regarding the trial and the consent form that must be provided to each trial subject or his or her legal representative, monitor the study until completed and otherwise comply with IRB regulations. The FDA or the sponsor may suspend a clinical trial at any time on various grounds, including a finding that the research subjects or patients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug has been associated with unexpected serious harm to patients. In addition, some clinical trials are overseen by an independent group of qualified experts organized by the sponsor, known as a data safety monitoring board or committee. Depending on its charter, this group may determine whether a trial may move forward at designated check points based on access to certain data from the trial. There are also requirements governing the reporting of ongoing clinical studies and clinical study results to public registries, including clinicaltrials.gov. +16 +Human clinical trials are typically conducted in three sequential phases that may overlap or be combined: +• Phase 1: The product candidate is initially introduced into healthy human subjects, or in some cases, patients with the target disease or condition, and tested for safety, dosage tolerance, absorption, metabolism, distribution and excretion and, if possible, to gain an early indication of its effectiveness. +• Phase 2: The product candidate is administered to a limited patient population with a specified disease or condition to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the product candidate for specific targeted diseases and to determine dosage tolerance and appropriate dosage. +• Phase 3: The product candidate is administered to an expanded patient population to further evaluate dosage, to provide substantial evidence of efficacy and to further test for safety, generally at multiple geographically dispersed clinical trial sites. These clinical trials are intended to establish the overall risk-benefit ratio of the product candidate and provide an adequate basis for product labeling. +Post-approval trials, sometimes referred to as Phase 4 studies, may be conducted after initial marketing approval. These trials are used to gain additional experience from the treatment of patients in the intended therapeutic indication. In certain instances, the FDA may mandate the performance of Phase 4 clinical trials as a condition of approval of an NDA. +Concurrently with clinical trials, companies usually complete additional animal studies and must also develop additional information about the chemistry and physical characteristics of the drug and finalize a process for manufacturing the product in commercial quantities in accordance with cGMPs. The manufacturing process must be capable of consistently producing quality batches of the product candidate and, among other things, the manufacturer must develop methods for testing the identity, strength, quality and purity of the final drug. In addition, appropriate packaging must be selected and tested, and stability studies must be conducted to demonstrate that the product candidate does not undergo unacceptable deterioration over its shelf life. +U.S. Review and Approval Process +The results of product development, including results from preclinical and other non-clinical studies and clinical trials, along with descriptions of the manufacturing process, analytical tests conducted on the chemistry of the drug, proposed labeling and other relevant information are submitted to the FDA as part of an NDA requesting approval to market the product. The submission of an NDA is subject to the payment of substantial user fees; a waiver of such fees may be obtained under certain limited circumstances. +In addition, the Pediatric Research Equity Act (“PREA”) requires a sponsor to conduct pediatric clinical trials for most drugs, for a new active ingredient, new indication, new dosage form, new dosing regimen or new route of administration. Under PREA, NDAs and certain supplements must contain a pediatric assessment unless the sponsor has received a deferral or waiver. The required assessment must evaluate the safety and effectiveness of the product for the claimed indications in all relevant pediatric subpopulations and support dosing and administration for each pediatric subpopulation for which the product is deemed safe and effective. The sponsor or FDA may request a deferral of pediatric clinical trials for some or all of the pediatric subpopulations. A deferral may be granted for several reasons, including a finding that the drug is ready for approval for use in adults before pediatric clinical trials are complete or that additional safety or effectiveness data needs to be collected before the pediatric clinical trials begin. The FDA must send a non-compliance letter to any sponsor that fails to submit the required assessment, keep a deferral current or fails to submit a request for approval of a pediatric formulation. +Once an NDA has been submitted, the FDA conducts a preliminary review of the application within the first 60 days after submission, before accepting it for filing, to determine whether it is sufficiently complete to permit substantive review. The FDA may request additional information rather than accept an NDA for filing. In this event, the NDA must be resubmitted with the additional information. The resubmitted application also is subject to review before the FDA accepts it for filing. Once filed, the FDA reviews an NDA to determine, among other things, whether a product is safe and effective for its intended use and whether its manufacturing is cGMP-compliant to assure and preserve the product’s identity, strength, quality and purity. Under the Prescription Drug User Fee Act (“PDUFA”) guidelines that are currently in effect, the FDA has a goal of ten months from the date of “filing” of a standard NDA for a new molecular entity to review and act on the submission. This review typically takes twelve months from the date the NDA is submitted to FDA because the FDA has approximately two months to make a “filing” decision after it the application is submitted. +The FDA may refer an application for a novel drug to an advisory committee. An advisory committee is a panel of independent experts, including clinicians and other scientific experts, that reviews, evaluates and provides a +17 +recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions. Before approving an NDA, the FDA will typically inspect the facility or facilities where the product is manufactured. Additionally, before approving an NDA, the FDA may inspect one or more clinical trial sites to assure compliance with GCPs. +After the FDA evaluates an NDA and conducts inspections of manufacturing facilities where the investigational product and/or its drug substance will be produced, the FDA may issue an approval letter or a Complete Response Letter (“CRL”). An approval letter authorizes commercial marketing of the drug with prescribing information for specific indications. A CRL indicates that the review cycle of the application is complete, and the application will not be approved in its present form. A CRL usually describes the specific deficiencies in the NDA identified by the FDA and may require additional clinical data, including additional clinical trials, or other significant and time-consuming requirements related to clinical trials, nonclinical studies or manufacturing. If a CRL is issued, the sponsor must resubmit the NDA or, addressing all of the deficiencies identified in the letter, or withdraw the application. Even if such data and information are submitted, the FDA may decide that the NDA does not satisfy the criteria for approval. +If a product receives regulatory approval, the approval may be significantly limited to specific diseases and dosages or the indications for use may otherwise be limited, which could restrict the commercial value of the product. In addition, the FDA may require a sponsor to conduct clinical trials designed to further assess a drug’s safety and/or effectiveness following NDA approval, and may require additional testing and surveillance programs to monitor the safety of approved products which have been commercialized. The FDA may also place other conditions on approval, including the requirement for a risk evaluation and mitigation strategy (“REMS”), to assure the safe use of the drug. If the FDA concludes a REMS is needed, the sponsor of the NDA must submit a proposed REMS, which could include medication guides, physician communication plans or elements to assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. The FDA will not approve the NDA without an approved REMS, if required. Any of these limitations on approval or marketing could restrict the commercial promotion, distribution, prescription or dispensing of products. +Post-Approval Requirements +Any products manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to record-keeping, reporting of adverse experiences, periodic reporting, product sampling and distribution, and advertising and promotion of the product. After approval, most changes to the approved product, such as adding new indications, certain manufacturing changes and additional labeling claims, are subject to further FDA review and approval. +Drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and certain state agencies and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMPs and other laws and regulations. Changes to the manufacturing process are strictly regulated, and, depending on the significance of the change, may require prior FDA approval before being implemented. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain compliance with cGMPs and other aspects of regulatory compliance. +The FDA may withdraw approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information; imposition of requirements for post-market studies or clinical studies to assess new safety risks; or imposition of distribution restrictions or other restrictions under a REMS program. Other potential consequences include, among other things: +• restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market or product recalls; +• fines, warning letters, or untitled letters; +• clinical holds on ongoing or planned clinical studies; +• refusal of the FDA to approve pending applications or supplements to approved applications, or suspension or revocation of approvals; +• product seizure or detention, or refusal to permit the import or export of products; +• consent decrees, corporate integrity agreements, debarment or exclusion from federal healthcare programs; +18 +• mandated modification of promotional materials and labeling and the issuance of corrective information; +• the issuance of safety alerts, Dear Healthcare Provider letters, press releases and other communications containing warnings or other safety information about the product; or +• injunctions or the imposition of civil or criminal penalties. +In addition, the FDA closely regulates the marketing, labeling, advertising and promotion of drug products. A company can make only those claims relating to safety and efficacy that are approved by the FDA and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses. Failure to comply with these requirements can result in, among other things, adverse publicity, warning letters, corrective advertising and potential civil and criminal penalties. Physicians may prescribe legally available products for uses that are not described in the product’s labeling and that differ from those tested by us and approved by the FDA. Such off-label uses are common across medical specialties. Physicians may believe that such off-label uses are the best treatment for many patients in varied circumstances. The FDA does not regulate the behavior of physicians in their choice of treatments. The FDA does, however, restrict manufacturer’s communications on the subject of off-label use of their products. +Marketing Exclusivity +Market exclusivity provisions under the FDCA can delay the submission or the approval of certain marketing applications. The FDCA provides a five-year period of non-patent data exclusivity within the United States to the first applicant to obtain approval of an NDA for a new chemical entity. A drug is a new chemical entity if the FDA has not previously approved any other new drug containing the same active moiety, which is the molecule or ion responsible for the action of the drug substance. During the exclusivity period, the FDA may not accept for review an abbreviated new drug application (“ANDA”), or an NDA submitted under Section 505(b)(2) (“505(b)(2) NDA”) submitted by another sponsor for another drug based on the same active moiety, regardless of whether the drug is intended for the same indication as the original innovative drug or for another indication, where the applicant does not own or have a legal right of reference to all the data required for approval. However, an application may be submitted after four years if it contains a certification of patent invalidity or non-infringement to one of the patents listed with the FDA by the innovator NDA holder. +The FDCA alternatively provides three years of non-patent exclusivity for an NDA, or supplement to an existing NDA if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the applicant are deemed by the FDA to be essential to the approval of the application, for example new indications, dosages or strengths of an existing drug. This three-year exclusivity covers only the modification for which the drug received approval on the basis of the new clinical investigations and does not prohibit the FDA from approving ANDAs or 505(b)(2) NDAs for drugs containing the active agent for the original indication or condition of use. Five-year and three-year exclusivity will not delay the submission or approval of a full NDA. However, an applicant submitting a full NDA would be required to conduct, or obtain a right of reference to, all of the preclinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness. +Pediatric exclusivity is another type of marketing exclusivity available in the United States. Pediatric exclusivity provides for an additional six months of exclusivity attached to another period of existing non-patent regulatory exclusivity or an available patent term if a sponsor conducts clinical trials in children in response to a “written request” from the FDA. The issuance of a written request does not require the sponsor to undertake the described clinical trials, and the FDA’s grant of pediatric exclusivity does not require the FDA to approve labeling containing information on pediatric use based on the studies conducted. +Federal and State Fraud and Abuse and Transparency Laws and Regulations +In addition to FDA restrictions on marketing of pharmaceutical products, federal and state healthcare laws and regulations restrict business practices in the biopharmaceutical industry. These laws may impact, among other things, our current and future business operations, including our clinical research activities, and proposed sales, marketing and education programs and constrain the business or financial arrangements and relationships with healthcare providers and other parties through which we market, sell and distribute our products for which we obtain marketing approval. These laws include anti-kickback and false claims laws and regulations, and transparency laws and regulations, including, without limitation, those laws described below. +The federal Anti-Kickback Statute prohibits, among other things, individuals or entities from knowingly and willfully offering, paying, soliciting or receiving remuneration, directly or indirectly, overtly or covertly, in cash or in kind to induce +19 +or in return for purchasing, leasing, ordering or arranging for or recommending the purchase, lease or order of any item or service reimbursable under Medicare, Medicaid or other federal healthcare programs. The term “remuneration” has been broadly interpreted to include anything of value. The federal Anti-Kickback Statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on one hand and prescribers, purchasers, formulary managers, and other individuals and entities on the other hand. Although there are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution, the exceptions and safe harbors are drawn narrowly and require strict compliance to offer protection. Practices that involve remuneration that may be alleged to be intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exception or safe harbor. In addition, a person or entity does not need to have actual knowledge of this statute or specific intent to violate it in order to have committed a violation. The majority of states also have anti-kickback laws which establish similar prohibitions and in some cases may apply to items or services reimbursed by any third-party payor, including commercial insurers. +The federal civil and criminal false claims laws, including the False Claims Act (“FCA”), prohibit, among other things, any individual or entity from knowingly presenting, or causing to be presented, a false claim for payment to the federal government or knowingly making, using or causing to be made or used a false record or statement material to a false or fraudulent claim to the federal government. A claim includes “any request or demand” for money or property presented to the U.S. government. Several pharmaceutical and other healthcare companies have been prosecuted under these laws for allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product. Other companies have been prosecuted for causing false claims to be submitted because of the companies’ marketing of products for unapproved, and thus non-reimbursable, uses. Further, the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the FCA. +The Health Insurance Portability and Accountability Act (“HIPAA”) created additional federal criminal statutes that prohibit, among other things, knowingly and willfully executing or attempting to execute a scheme to defraud any healthcare benefit program, including private third-party payors and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. +In addition, a person who offers or transfers to a Medicare or Medicaid beneficiary any remuneration, including waivers of co-payments and deductible amounts (or any part thereof), that the person knows or should know is likely to influence the beneficiary’s selection of a particular provider, practitioner or supplier of Medicare or Medicaid payable items or services may be liable for civil monetary penalties for each wrongful act. Moreover, in certain cases, providers who routinely waive copayments and deductibles for Medicare and Medicaid beneficiaries can also be held liable under the Anti-Kickback Statute and civil FCA, which can impose additional penalties associated with the wrongful act. One of the statutory exceptions to the prohibition is non-routine, unadvertised waivers of copayments or deductible amounts based on individualized determinations of financial need or exhaustion of reasonable collection efforts. The Office of Inspector General of the Department of Health and Human Services emphasizes, however, that this exception should only be used occasionally to address special financial needs of a particular patient. Although this prohibition applies only to federal healthcare program beneficiaries, the routine waivers of copayments and deductibles offered to patients covered by commercial payers may implicate applicable state laws related to, among other things, unlawful schemes to defraud, excessive fees for services, tortious interference with patient contracts and statutory or common law fraud. To the extent our patient assistance programs are found to be inconsistent with applicable laws, we may be required to restructure or discontinue such programs, or be subject to other significant penalties. +The federal Physician Payments Sunshine Act requires certain manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program, with specific exceptions, to report annually to the Centers for Medicare & Medicaid Services (“CMS”) information related to payments or other transfers of value made to physicians (defined to include doctors, dentists, optometrists, podiatrists, and chiropractors), teaching hospitals, and other health care professionals (such as physician assistants and nurse practitioners), as well as information regarding ownership and investment interests held by physicians and their immediate family members. +We may also be subject to state and foreign law equivalents of each of the above federal laws; state laws that require manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; state laws that require pharmaceutical companies to comply with the pharmaceutical +20 +industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government, or that otherwise restrict payments that may be made to healthcare providers; and state laws that require reporting of information related to drug pricing; state and local laws that require the registration of pharmaceutical sales representatives. +Violations of any of these laws or any other governmental regulations that may apply to us can result in significant civil, criminal and administrative penalties, damages, fines, disgorgement, imprisonment, exclusion from participating in government funded healthcare programs, such as Medicare and Medicaid, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, contractual damages, reputational harm and the curtailment or restructuring of our operations. To the extent that any of our products are sold in a foreign country, we may be subject to similar foreign laws and regulations, which may include, for instance, applicable post-marketing requirements, including safety surveillance, anti-fraud and abuse laws and implementation of corporate compliance programs and reporting of payments or transfers of value to healthcare professionals. +Coverage and Reimbursement +The commercial success of ZELSUVMI and our drug candidates, if approved, and our ability to commercialize those products successfully will depend in part on the extent to which governmental payor programs at the federal and state levels, including Medicaid, private health insurers and other third-party payors provide adequate coverage and reimbursement. These third-party payors generally develop their own policies as to which drugs they will pay for and the reimbursement levels for the drugs. For example, governmental programs in the United States often require manufacturers to pay certain rebates or otherwise provide discounts to secure coverage of drug products. To control healthcare expenditures generally, in the United States, the EU and other potentially significant markets for ZELSUVMI and our drug candidates, if approved, government authorities and third party payors are increasingly attempting to limit or regulate the price of medical products and services, particularly for new and innovative products and therapies. The measures taken often have resulted in lower average selling prices. Further, the increased emphasis on managed healthcare in the United States and on country and regional pricing and reimbursement controls in the EU places additional pressure on product pricing, reimbursement and usage, which may adversely affect our future product sales and results of operations. These pressures can arise from rules and practices of managed care groups, judicial decisions and governmental laws and regulations related to Medicare, Medicaid and healthcare reform, as well as drug coverage and reimbursement policies and pricing in general. +Some of the additional requirements and restrictions on coverage and reimbursement levels imposed by third-party payors influence the purchase of healthcare services and products. For example, there may be limited coverage to specific drug products on an approved list, or formulary, which might not include all of the FDA-approved drug products for a particular indication. There may also be formulary placements that result in lower reimbursement levels and higher cost-sharing borne by patients. Further, third-party payors are increasingly examining the medical necessity and cost-effectiveness of medical products and services, in addition to their safety and efficacy. We may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of our products, in addition to the costs required to obtain the FDA approvals. Our products may not be considered medically necessary or cost-effective. Even if a third-party payor determines to provide coverage for a drug product, adequate reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in drug development. +Healthcare legislative proposals to reform healthcare or reduce costs under government insurance programs may also result in lower reimbursement for our drugs and drug candidates or exclusion of our drugs and drug candidates from coverage altogether. The cost containment measures that healthcare payors and providers are instituting and any healthcare reform could significantly reduce our revenues from the sale of ZELSUVMI and any of our approved drug candidates. We cannot provide any assurances that we will be able to obtain and maintain third party coverage or adequate reimbursement for ZELSUVMI or any of our approved drug candidates in whole or in part. +Impact of Healthcare Reform on our Business +In the United States and some foreign jurisdictions, there have been, and continue to be, several legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval of drug product candidates, restrict or regulate post-approval activities, and affect the profitable sale of drug product candidates. +21 +Among policy makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and/or expanding access. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives. For example, in March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (collectively, “ACA”) was passed, which substantially changed the way healthcare is financed by both the government and private insurers and significantly impacts the U.S. pharmaceutical industry. The ACA, among other things: (i) increased the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extended the rebate program to individuals enrolled in Medicaid managed care organizations; (ii) established an annual, nondeductible fee on any entity that manufactures or imports certain specified branded prescription drugs and biologic agents apportioned among these entities according to their market share in some government healthcare programs; (iii) expanded the availability of lower pricing under the 340B drug pricing program by adding new entities to the program; (iv) increased the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program, to 23.1% and 13% of the average manufacturer price for most branded and generic drugs, respectively; (v) expanded the eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additional individuals, thereby potentially increasing manufacturers’ Medicaid rebate liability; (vi) created a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research; and (vii) established a Center for Medicare and Medicaid Innovation at CMS to test innovative payment and service delivery models to lower Medicare and Medicaid spending, potentially including prescription drug spending. +Other legislative changes have been proposed and adopted since the ACA was enacted. These changes include the American Rescue Plan Act of 2021, which eliminated the statutory Medicaid drug rebate cap, previously set at 100% of a drug’s average manufacturer price, for single source and innovator multiple source drugs, effective January 1, 2024. In addition, the Inflation Reduction Act of 2022 (“IRA”) which among other things, extended enhanced subsidies for individuals purchasing health insurance coverage in ACA marketplaces through plan year 2025. The IRA also eliminated the “donut hole” under the Medicare Part D program beginning in 2025 by significantly lowering the beneficiary maximum out-of-pocket cost and creating a new manufacturer discount program. These new laws may result in additional reductions in Medicare and other healthcare funding, which could have an adverse effect on customers for ZELSUVMI and our product candidates, if approved, and, accordingly, our financial operations. +Additionally, there has been heightened governmental scrutiny in the United States of pharmaceutical pricing practices in light of the rising cost of prescription drugs and biologics. Such scrutiny has resulted in several recent congressional inquiries, presidential executive orders and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for products. For example, the IRA, among other things, (1) directs the Department of Health and Human Services, or HHS, to negotiate the price of certain single-source drugs and biologics that have been on the market at least 7 years covered under Medicare, or the Medicare Drug Price Negotiation Program, and (2) imposes rebates under Medicare Part B and Medicare Part D to penalize price increases that outpace inflation. The IRA permits HHS to implement many of these provisions through guidance, as opposed to regulation, for the initial years. These provisions took effect progressively starting in fiscal year 2023. On August 15, 2024, HHS announced the agreed-upon price of the first ten drugs that were subject to price negotiations, although the Medicare Drug Price Negotiation Program is currently subject to legal challenges. On January 17, 2025, HHS selected fifteen additional products covered under Part D for price negotiation in 2025. Each year thereafter more Part B and Part D products will become subject to the Medicare Drug Price Negotiation Program. +Further, on December 7, 2023, an initiative to control the price of prescription drugs through the use of march-in rights under the Bayh-Dole Act was announced. On December 8, 2023, the National Institute of Standards and Technology published for comment a Draft Interagency Guidance Framework for Considering the Exercise of March-In Rights which for the first time includes the price of a product as one factor an agency can use when deciding to exercise march-in rights. While march-in rights have not previously been exercised, it is uncertain if that will continue under the new framework. +At the state level, legislatures are increasingly passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure, drug price reporting and other transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. For example, on January 5, 2024, the FDA approved Florida’s Section 804 Importation Program (SIP) proposal to import certain drugs from Canada for specific state healthcare programs. It is unclear how this program will be implemented, including which drugs will be chosen, and whether it will be subject to legal challenges in the United States or Canada. Other states have also submitted +22 +SIP proposals that are pending review by the FDA. Any such approved importation plans, when implemented, may result in lower drug prices for products covered by those programs. Some states have also enacted legislation creating so-called prescription drug affordability boards, which ultimately may attempt to impose price limits on certain drugs in these states. +We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for ZELSUVMI or our approved product candidates or additional pricing pressures. We cannot predict with certainty what impact any federal or state health reforms will have on us, but such changes could impose new or more stringent regulatory requirements on our activities or result in reduced reimbursement for our products, any of which could adversely affect our business, results of operations and financial condition. +Business Segments +The Company manages its operations and allocate resources in two reporting segments, which represent (i) the sale, promotion and commercialization of approved commercial products, the Commercial Operations segment, and (ii) research and development activities related to developing a novel and proprietary class of NaV blockers that target the body’s peripheral nervous system; and supportive activities to expand the NITRICIL nitric oxide-based technology. +The Company discloses information about its reportable segments based on the way that the Company organizes segments within the Company for making operating decisions and assessing financial performance. See Note 14 — “Segment Information” to the accompanying consolidated financial statements for certain financial information related to reportable segments. +Human Capital +Employees +As of December 31, 2025, the Company had a total of 92 full-time employees. The Company’s ability to attract, recruit, hire and retain key personnel who are necessary to the operation of the business and the commercialization of its products are critical to its success. +The Company’s business results depend in part on its ability to successfully manage its human capital resources. Factors that may affect the Company’s ability to attract and retain qualified employees include employee morale, competition from other employers, and availability of qualified individuals. The Company recruits for talent in the biotechnology and pharmaceutical industry, which periodically experiences higher turnover rates than other industries. +None of the Company’s employees are represented by labor unions or covered by collective bargaining agreements, and the Company considers its relations with its employees to be good. The Company also hires consultants and contracts with third parties, as needed, to provide additional resources to support its business activities. +Compensation and Benefits +The Company strives to provide robust compensation and benefits to its employees, while balancing the operational needs of the business. In addition to salaries, compensation and benefit programs include annual bonuses, stock-based compensation awards, a 401(k) plan with employee matching opportunities, healthcare and insurance benefits, health savings and flexible spending accounts, paid time off and other employee assistance programs. +Other Information +The Company is incorporated under the laws of the State of Nevada. Its principal executive offices are located at 4020 Stirrup Creek Drive, Suite 110, Durham, NC 27703, and its telephone number is 919-908-2400. The Company’s website address is www.pelthos.com. +The Company makes available free of charge through its website its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, (“Exchange Act”). The Company makes these reports available through its website as soon as reasonably practicable after it electronically files such reports with, or furnish such reports to, the Securities and Exchange Commission (“SEC”). Additionally, the SEC maintains an internet website at +23 +www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The information contained on, or that can be accessible through, the Company’s website is not incorporated by reference into, and should not be considered to be a part of, this Annual Report on Form 10-K. +Implications of Being an Emerging Growth and Smaller Reporting Company +We qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act (“JOBS Act”). An emerging growth company may take advantage of relief from certain reporting requirements and other burdens that are otherwise applicable generally to public companies. These provisions include: +• reduced obligations with respect to financial data; +• an exception from compliance with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”); +• reduced disclosure about our executive compensation arrangements in our periodic reports, proxy statements and registration statements; and +• exemptions from the requirements of holding non-binding advisory votes on executive compensation or golden parachute arrangements. +We may take advantage of these provisions for up to five years or such earlier time that we no longer qualify as an emerging growth company. We would cease to be an emerging growth company upon the earliest of: +• the last day of the fiscal year on which we have $1.235 billion or more in annual revenue, +• the date on which we become a “large accelerated filer” (i.e., as of our fiscal year end, the total market value of our common equity securities held by non-affiliates is $700 million or more as of June 30), +• the date on which we issue more than $1.0 billion of non-convertible debt over a three-year period, or +• the last day of our fiscal year following the fifth anniversary of the date of the completion of our IPO. +We may choose to take advantage of some but not all of these reduced reporting burdens. +In addition, under the JOBS Act, emerging growth companies can take advantage of an extended transition period and delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected to use this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for private companies. If we were to subsequently elect instead to comply with public company effective dates, such election would be irrevocable pursuant to the JOBS Act. +Also, we are a “smaller reporting company” and may continue to qualify as such even after we no longer qualify as an emerging growth company. For as long as we qualify as a “smaller reporting company,” we may provide reduced disclosure in the public filings that we make with the SEC than larger public companies, such as the inclusion of only two years of audited financial statements and only two years of management’s discussion and analysis of financial condition and results of operations disclosure. +As a result of qualifying as an emerging growth company and a smaller reporting company, to the extent we take advantage of the allowable reduced reporting burdens, the information that we provide to our stockholders may be different than what you might receive from other public reporting companies in which you hold equity interests. +24 +Item 1A. Risk Factors +Our business, financial condition and operating results are subject to a number of risk factors, both those that are known to us and identified below and others that may arise from time to time. These risk factors could cause our actual results to differ materially from those suggested by forward-looking statements in this Annual Report on Form 10-K and elsewhere, and may adversely affect our business, financial condition or operating results. These risk factors reflect the Company’s beliefs and opinions as to factors that could materially and adversely affect the Company and its securities in the future. References to past events are provided by way of example only and are not intended to be a complete listing or a representation as to whether or not such factors have occurred in the past or their likelihood of occurring in the future. If any of these risk factors should occur, moreover, the trading price of our securities could decline, and investors in our securities could lose all or part of their investment in our securities. These risk factors should be carefully considered in evaluating our prospects. +Risks Related to Our Financial Condition and Capital Needs +The report of the independent registered public accounting firm on our 2024 financial statements contained a going concern qualification. The report of the independent registered public firm on our 2025 financial statements does not contain a going concern qualification; however, if we are unable to maintain sustainable revenues, we may be unable to continue as a going concern. +The report of the independent registered public accounting firm covering our consolidated financial statements for the year ended December 31, 2024 stated that certain factors, including that we had suffered recurring losses from operations and had an accumulated deficit at December 31, 2024, raised substantial doubt as to our ability to continue as a going concern. Because we were not yet producing sufficient revenue to sustain our operating costs, we were dependent upon raising capital to continue our business. +The report of the independent registered public accounting firm on our 2025 financial statements does not contain a going concern qualification. Based on current projections, including forecasted cash flows related to net product sales of ZELSUVMI, proceeds from the convertible note agreement in November 2025, proceeds from the initial draw of the January 2026 Venture Loan and Security Agreement, and the potential additional availability under the January 2026 Venture Loan and Security Agreement, management believes it has sufficient capital, or access to capital, to fund its operations through at least the next twelve months following the issuance of these consolidated financial statements; however, if we are unable to maintain sustainable revenues, we may be unable to continue as a going concern. +We have incurred significant losses since our inception. We expect to incur losses until revenue from ZELSUVMI is sufficient to fund our operations, if ever, and may never achieve or maintain profitability. If we do not achieve or maintain profitability, we may need additional funding to continue our business operations. +Since the Merger, we have devoted substantially all of our financial resources and efforts to the development and commercialization of ZELSUVMI, our product for the topical treatment of molluscum contagiosum. ZELSUVMI was approved by the FDA for the treatment of molluscum contagiosum in adults and pediatric patients one year of age and older in January 2024. +During the year ended December 31, 2025 , the Company had a net loss of approximately $43.3 million . As of December 31, 2025 , the Company had cash of approximately $18.0 million and working capital of $27.4 million . For the year ended December 31, 2025, the Company recorded net revenue in the amount of $16.2 million, which represented approximately six months of commercial activity for its lead commercial product, ZELSUVMI. For the year ended December 31, 2025, the Company recorded total operating expenses of $49.2 million. +On January 12, 2026, the Company entered into a Venture Loan and Security Agreement with Horizon Technology Finance Corporation, a Delaware corporation, as lender and collateral agent. The Venture Loan and Security Agreement provides for a senior secured term loan facility in an aggregate principal amount of up to $50.0 million. The proceeds of the facility will be used to support the commercialization of the Company’s existing commercialized pharmaceutical product, to prepare for the launch of two recently acquired products, working capital and general corporate purposes. The Company borrowed $30.0 million of the facility on January 12, 2026. The remaining $20.0 million of the facility may be borrowed upon the achievement by the Company of certain milestones set forth in the Venture Loan and Security Agreement. +25 +Based on current projections, including cash flows related to net product sales of ZELSUVMI, proceeds from the convertible note agreement in November 2025, proceeds from the initial draw of the January 2026 Venture Loan and Security Agreement, and the potential additional availability under the January 2026 Venture Loan and Security Agreement, management believes it has sufficient capital, or access to capital, to fund its operations through at least the next twelve months following the issuance of these consolidated financial statements. +We expect to continue to incur significant expenses and operating losses until revenue from ZELSUVMI is sufficient to fund our operations, if ever. Our net losses may fluctuate significantly from quarter to quarter and year to year. Our expenses may increase substantially, as we: +• commercialize ZELSUVMI; +• operate our manufacturing facility, at which we create the API for ZELSUVMI; +• work with third-party contract manufacturers to produce the ZELSUVMI finished product; +• prepare our XEPI and XEGLYZE products for commercialization; +• maintain or expand a sales, commercial and distribution infrastructure and manufacturing and logistics capabilities to commercialize currently approved products as well as any future products that receive regulatory approval; +• seek to in-license or acquire additional products or programs; +• launch new clinical trials on other indications; +• develop our regulatory compliance efforts to address requirements applicable to marketed products; +• maintain, expand and protect our intellectual property portfolio; +• hire and retain sales, marketing, manufacturing, commercial and scientific personnel; +• incur additional legal, accounting and other expenses in operating as a public company; and incur additional legal expenses associated with managing the regulatory environment or any litigations that may arise. +To become and remain profitable, we must succeed in commercializing ZELSUVMI and/or develop and potentially commercialize future products or product candidates that generate significant revenue. This will require us to be successful in a range of challenging activities, including commercialization of ZELSUVMI, completing preclinical testing and clinical trials of any of our potential future product candidates, acquiring and integrating products or product candidates, obtaining regulatory approval, and manufacturing, marketing and selling any future products or product candidates for which we may obtain regulatory approval, as well as discovering and developing additional products or product candidates. We may never succeed in these activities and, even if we do, may never generate revenue that is significant enough to achieve profitability. +Our revenue will be dependent, in part, upon the size of the markets in the territories for which we have gained or may gain regulatory approval, the accepted price for the product, the ability to obtain coverage and reimbursement and whether we own the commercial rights for that territory. If the number of our addressable patients is not as significant as we estimate, if any indication approved by regulatory authorities is narrower than we expect, or any targeted treatment population is narrowed by competition, physician choice or treatment guidelines, we may not generate significant revenue from sales of such products. +Because of the numerous risks and uncertainties associated with commercialization and product development, we may not achieve profitability in the time frame we currently expect, or at all. If we are required by regulatory authorities to perform additional post-approval studies, or if there are any delays in the adoption of ZELSUVMI or the development of any of our future products or product candidates, our expenses could increase, and we may never reach profitability. +Even if we achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable could depress our value and could impair our ability to raise capital, diversify our offerings or continue our operations. +We have a limited operating history and history of commercializing products, which may make it difficult for you to evaluate the success of our business to date and to assess our future viability. +Our operations to date have been largely focused on developing and commercializing ZELSUVMI, which was approved by the FDA for the treatment of molluscum contagiosum in adult and pediatric patients one year of age and older in January 2024. We hold a worldwide license to commercialize ZELSUVMI, subject to an out license for Japan, and recently launched the product in July 2025, but our commercialization efforts are in early stages. We have limited experience in demonstrating the ability to successfully complete clinical trials, obtain regulatory approval for a product, manufacture a product on a commercial scale, or arrange for a third party to do so on our behalf, or conduct sales and marketing activities +26 +necessary for successful commercial launch and commercialization over time. Consequently, any predictions you make about our future success or viability may not be as accurate as they could be if we had a longer operating history or a history of successfully commercializing products. +We may encounter unforeseen expenses, difficulties, complications, delays and other known or unknown factors in achieving our business objectives. +Risks Related to Commercialization of Our Products and any Future Product Candidates +We depend heavily on the commercial success of ZELSUVMI, which was approved by the FDA in January 2024, which we have only recently launched in the United States. There is no assurance that our commercialization efforts in the United States with respect to ZELSUVMI will be successful or that we will be able to generate profit at the levels or within the timing we expect. +Our business currently depends heavily on our ability to successfully commercialize ZELSUVMI in the United States, which was launched in the United States in July 2025. We may never be able to successfully commercialize ZELSUVMI or reach our expectations with respect to revenue or profit. There is no guarantee that the infrastructure, systems, processes, policies, personnel, relationships and materials we built in preparation for the launch and commercialization of ZELSUVMI in the United States will be sufficient for us to achieve success at the levels we expect. Additionally, healthcare providers may not accept a new treatment for the treatment of molluscum contagiosum. We may also encounter challenges related to reimbursement of ZELSUVMI, even if we have positive early indications from payors, including potential limitations in the scope, breadth, availability, or amount of reimbursement covering ZELSUVMI. Similarly, healthcare settings or patients may determine that the financial burdens of treatment are not acceptable. Our results may also be negatively impacted if we encounter deficiencies or inefficiencies in our infrastructure or processes. Any of these issues could impair our ability to successfully commercialize ZELSUVMI or to generate substantial profit or to meet our expectations with respect to the amount or timing of profit. Any issues or hurdles related to our commercialization efforts for ZELSUVMI may materially adversely affect our business, results of operations, financial condition and prospects. There is no guarantee that we will be successful in our commercialization efforts with respect to ZELSUVMI, or that we will generate significant profit from ZELSUVMI or any product candidate or become profitable. +Our two recently acquired products, XEPI and XEGLYZE, both of which have been FDA approved, require substantial preparation prior to commercial launch. If we are unable to meet the manufacturing, regulatory, and commercialization requirements to successfully prepare these products for launch, including expanding our current commercial infrastructure to sell these products, our results of operations may be negatively impacted. +We acquired the rights to XEPI and XEGLYZE in the fourth quarter of 2025. Prior to commercial launch of either product, we must complete the following for each product, individually: +• complete all contracting with external manufacturers for both API and finished product, ensuring that all commercial supply, master services, and quality agreement are fully established and implemented; +• successfully document and implement appropriate CMC processes governing both the API and finished product; +• navigate the regulatory requirements to allow for commercial launch of the products, including appropriate filings with regulatory bodies, including the FDA; +• process validation of API and finished product, as applicable, including stability testing; +• incorporate these products into our current QMS and ERP systems; +• establish complete supply chain relationships and connections to meet expected demand; +• manage our third-party manufacturers to meet the regulatory requirements needed to be addressed while maintaining our projected development and launch timelines; and +• ensure quality standards and guidelines are observed to facilitate regulatory acceptance. +If we are unable to successfully meet our internal development and manufacturing timelines, including the management of third-parties on which we rely, we may have delays in the expected commercial launch of XEPI and/or XEGLYZE, or we may be unable to commercialize either product at all. +27 +ZELSUVMI, our approved products that have not yet been launched and any of our product candidates that receive regulatory approval, may fail to achieve the degree of market acceptance by physicians, patients, third-party payors and others in the medical community necessary for commercial success. +ZELSUVMI, our approved products that have not yet been launched and any of our product candidates that receive regulatory approval may fail to gain sufficient market acceptance by physicians, patients, third-party payors and others in the medical community. If ZELSUVMI, approved products not yet launched or our potential product candidates, if approved, do not achieve an adequate level of acceptance, we may not generate sufficient revenue, and we may not become profitable. The degree of market acceptance of ZELSUVMI, approved products not yet launched and our product candidates, if approved for commercial sale, will depend on a number of factors, including: +• the efficacy, safety and potential advantages compared to alternative treatments; +• our ability to offer our products for sale at competitive prices; +• the convenience and ease of administration compared to alternative treatments; +• the willingness of the target patient population to try new treatments and of physicians to prescribe these treatments; +• our ability to hire and retain a sales force in the United States; +• the strength of marketing and distribution support; +• the availability of third-party coverage and adequate reimbursement; +• the prevalence and severity of any side effects; and +• any restrictions on the use of our products together with other medications. +The failure of healthcare professionals or patients to perceive the benefits of using ZELSUVMI for the treatment of molluscum contagiosum instead of other alternative therapies, such as curettage, cantharidin application or cryotherapy, would adversely affect the commercial success of ZELSUVMI. +If we are unable to establish effective sales, marketing and distribution capabilities for ZELSUVMI, approved products not yet launched or any product candidate that may receive regulatory approval, we may not be successful in commercializing ZELSUVMI, approved products not yet launched or our other product candidates if and when they are approved. +We have only recently commercially launched ZELSUVMI and to achieve commercial success for it and any other product candidate for which we may obtain regulatory approval, we will need to establish an effective sales and marketing organization. We have built a focused sales and marketing organization to launch ZELSUVMI in the United States, but it may not be large enough to support the market acceptance and revenue growth of ZELSUVMI that we expect and may need to expand for the XEPI and XEGLYZE products, or if we receive approval of other product candidates. There are inherent risks to establishing and maintaining a standalone commercial organization, which is also time-consuming and requires significant financial resources. +Factors that create risk and may inhibit our efforts to commercialize our products on our own include: +• our inability to recruit, train and retain adequate numbers of effective sales and marketing personnel; +• the inability of sales personnel to obtain access to physicians or educate adequate numbers of physicians on the benefits of prescribing ZELSUVMI, approved products not yet launched or any potential future products; +• inability to obtain favorable insurance coverage of any approved product; +• the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines; and +• unforeseen costs and expenses associated with creating an independent sales and marketing organization. +If we are unable to maintain our own sales, marketing and distribution capabilities and are forced to enter into arrangements with, and rely on, third parties to perform these services, our revenue and our profitability, if any, is likely to be lower than if we had maintained such capabilities internally. In addition, in the event we proceed with engaging third parties for sales and marketing services, we may not be successful in entering into arrangements with third parties to sell, market and distribute our products or may be unable to do so on terms that are favorable to it. We likely will have little control over such third parties, and any of them may fail to devote the necessary resources and attention to sell and market our products effectively. If we do not establish and maintain sales, marketing and distribution capabilities successfully, either on our own or in collaboration with third parties, we will not be successful in commercializing our products. +28 +ZELSUVMI, approved products not yet launched or our product candidates may cause undesirable side effects or have other properties that could limit their commercial profile, expose us to product liability claims, delay or prevent regulatory approval of our product candidates or additional indications, or result in significant negative consequences following any additional marketing approval, any of which may adversely impact our business, financial condition, operating results and prospects. +As is the case with biopharmaceuticals generally, it is likely that there may be side effects and adverse events (“AEs”) associated with use of ZELSUVMI, approved products not yet launched or our product candidates. Results of our preclinical testing and clinical trials could reveal a high and unacceptable severity and prevalence of side effects or unexpected characteristics. Undesirable side effects caused by our product candidates could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval of our product candidates by the FDA. The drug-related side effects could affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims. Any of these occurrences may harm our business, financial condition and prospects significantly. +Additionally, with respect to ZELSUVMI, approved products not yet launched or any of our product candidates that receive marketing approval, if we or the FDA later identify undesirable side effects caused by ZELSUVMI, approved products not yet launched or such product candidates or other products with the same or related active ingredients, a number of potentially significant negative consequences could result, including, among other things: +• regulatory authorities may withdraw, suspend, or vary approvals of such product, including the FDA, withdrawing approval for the affected medicine; +• regulatory authorities may require additional warnings on the label; +• regulatory authorities may require a recall or we or our potential partners may voluntarily recall such product; +• we may be required to create a medication guide outlining the risks of such side effects for distribution to patients at significant cost or instate a Risk Evaluation and Mitigation Strategies (“REMS”) or Risk Management Plan (“RMP”); +• regulatory authorities may require the addition of warnings, such as black box or other warnings, or contraindications in the product labeling that could diminish the usage of the product or otherwise limit the commercial success of the affected product; +• our ability to promote our approved medicines may be limited and we could be required to change administration of, or modify, such product in some other way; +• regulatory authorities may require us to modify, suspend or terminate our clinical trials, conduct additional clinical trials or engage in costly post-marketing testing and surveillance to monitor the safety or efficacy of such product; +• undesirable side effects may limit physicians’ or patients’ willingness to initiate or continue therapy with such product; +• sales may decrease significantly; +• we could be sued and held liable for harm caused to patients; and +• our corporate brand and reputation or the reputation of our approved medicines may suffer. +Such events could prevent us from achieving or maintaining market acceptance of ZELSUVMI, approved products not yet launched or our product candidates, and could significantly harm our business, results of operations and prospects. +We face substantial competition, which may result in a smaller than expected commercial opportunity and/or other firms may discover, develop or commercialize products before or more successfully than we do. +The development and commercialization of new products is highly competitive. We face competition with respect to ZELSUVMI and will face competition with respect to our approved products not yet launched and any product candidates that we may seek to develop or commercialize in the future, from many different sources, including major pharmaceutical and specialty pharmaceutical companies, compounding facilities, academic institutions and governmental agencies and public and private research institutions. +ZELSUVMI may compete with other procedure-based treatment regimens currently available for molluscum contagiosum such as curettage, cantharidin application of cryotherapy. In addition, other drugs have been and may continue to be used off label as treatment for molluscum contagiosum. +29 +In addition, our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than ZELSUVMI or any other product that we may develop. +Many of the companies against which we are competing, or against which we may compete in the future, have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or that may be necessary for, our programs. +Our gross to net (“GTN”) expenses could increase, resulting in a negative impact to our net revenues, causing a reduction in cash flow, potential impact to our stock price and have other deleterious effects to our investors. +We provide co-pay card assistance and other programs to facilitate the sales of ZELSUVMI and utilize third party services for distribution. Higher usage of the co-pay card and other programs could cause an increase in our GTNs or fees associated with our distribution could rise, reducing our net revenues and cash flow. This could cause a negative impact to stock price and investor and market perception of our business. +The commercial success of our products and product candidates will depend upon the degree of market acceptance by physicians, patients, third-party payers and others in the medical community. +The commercial success of our products, including ZELSUVMI, approved products not yet launched and any other products for which we may obtain regulatory approval, will depend in part on the medical community, patients and third-party payers accepting our products and product candidates as effective and safe. If these products do not achieve an adequate level of acceptance, we may not generate significant product revenue and may not become profitable. The degree of market acceptance of our products will depend on a number of factors, including: +• the safety and efficacy of the products, and advantages over alternative treatments; +• the labeling of any approved product; +• the prevalence and severity of any side effects, including any limitations or warnings contained in a product’s approved labeling; +• the prevalence of the disease or condition for which the product is approved; +• the emergence, and timing of market introduction, of competitive products; +• the effectiveness of our and our collaboration partners’ marketing strategy; +• obtaining and maintaining adequate pricing and reimbursement; and +• sufficient third-party insurance coverage or governmental reimbursement, which may depend on our ability to provide compelling evidence that a product meaningfully improves health outcomes to support such insurance coverage or reimbursement. +Even if a product candidate displays a favorable efficacy and safety profile in preclinical studies and clinical trials, market acceptance of the product will not be known until after it is launched. Any failure to achieve market acceptance of our products will harm our business, results and financial condition. +Furthermore, government agencies, as well as private organizations involved in healthcare, from time to time publish guidelines or recommendations to healthcare providers and patients. Such guidelines or recommendations can be very influential and may adversely affect product usage directly (for example, by recommending a decreased dosage of a product in conjunction with a concomitant therapy) or indirectly (for example, by recommending a competitive product over a product of ours). Consequently, we do not know if physicians or patients will adopt or use our products for their approved indications. +30 +Our products may become subject to unfavorable third-party coverage or reimbursement policies, which would harm our business. +Market acceptance and sales of ZELSUVMI, approved products not yet launched and any product candidates that we may develop will depend in large part on third-party payor coverage and reimbursement policies and may be affected by future healthcare reform measures in the U.S. as well as the EEA countries and other key international markets. The continuing efforts of government and other third-party payors to contain, reduce or shift the costs of healthcare through various means, including an increased emphasis on managed care and attempts to limit or regulate the price of medical products and services, particularly for new and innovative products and therapies, may result in downward pressure on pricing, reimbursement and utilization, which may adversely affect our product sales and results of operations. Moreover, because private health insurers and other third-party payors in the U.S. often follow the coverage and reimbursement policies of government payors, including the Medicare and Medicaid programs, cost-containment measures under these programs play a particularly significant role in the reimbursement landscape. +The government programs relevant to our products include, without limitation, the following: +• the Medicaid Drug Rebate Program, under which manufacturers must report pricing information and pay rebates in order for their drug products to be covered under state Medicaid programs; +• the Public Health Service’s 340B Drug Pricing Program, under which manufacturers must offer discounts to certain health care organizations that care for underserved populations; and +• the Tricare Retail Pharmacy Program, under which manufacturers must agree to honor certain discounted prices, specifically Federal Ceiling Prices under the Veterans Health Care Act, as a condition for placement in the Department of Defense uniform formulary. +In addition, in the U.S., third-party payors often develop cost containment measures using policies that specifically target specialty products and high-cost drugs. For example, formulary placements may be less favorable for brand and higher-costing drugs, resulting in, among other things, greater out-of-pocket costs to patients. ZELSUVMI may be subject to such measures and may be impacted by similar future policies addressing such cost-containment measures. +Further, payors also are increasingly considering new metrics as the basis for reimbursement rates, such as average sales price, or ASP, average manufacturer price, or AMP, or actual acquisition cost, or AAC. Although the intent of the changes to reimbursement methodologies generally is to limit payment increases, it is difficult to project the impact of these and other alternative reimbursement methodologies on the willingness of payors to reimburse ZELSUVMI, approved products not yet launched and any product candidates that we may develop. We cannot provide any assurances that ZELSUVMI, approved products not yet launched and any future products, if approved, will be covered and reimbursed in the U.S. and if we do receive coverage and reimbursement, that we will continue over time to receive such coverage and reimbursement. If coverage and reimbursement are not available or available only to limited levels, we may not be able to generate sufficient revenue to meet our operating costs or to achieve our revenue, cash flow breakeven or profitability goals in the timeframe that it expects, or at all. +The market for ZELSUVMI, approved products not yet launched and our future product candidates may not be as large as we expect. +Molluscum contagiosum is a skin disease that is currently undertreated. Even with approval of ZELSUVMI in adult and pediatric patients one year and older, individuals may continue to decline treatment for molluscum contagiosum as, if left untreated, the diseases will eventually be resolved by the body’s immune system. +In addition, our estimates of the potential market opportunity for ZELSUVMI include several key assumptions based on our industry knowledge, industry publications, third-party research reports, ICD-10 claims data, and surveys of dermatologists commissioned by us. These assumptions include the current treatment rates and/or prevalence of molluscum contagiosum and other skin diseases as well as the estimated coverage levels for ZELSUVMI. However, there can be no assurance that any of these assumptions are, or will remain, accurate. Furthermore, even if our estimates relating to claims data and/or the prevalence of molluscum contagiosum and other skin diseases as well as the estimated coverage levels for ZELSUVMI, approved products not yet launched or any future product candidate we may develop, as applicable, are accurate, the degree of market acceptance by the medical community and those infected by such skin diseases following regulatory approval could impact our assumptions and reduce the market size for ZELSUVMI, approved products not yet launched and any other product that may be approved. Furthermore, the market research study we commissioned surveying payor organizations has no bearing on the payors, and any assumptions or interpretations based on the results of this study, +31 +may ultimately be inaccurate. If the actual markets for ZELSUVMI, approved products not yet launched or any future product candidates are smaller than we expect, our revenues, if any, may be limited and it may be more difficult for us to achieve or maintain profitability. +The FDA and other regulatory agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses. +The FDA strictly regulates marketing, labeling, advertising and promotion of prescription drugs. These regulations include standards and restrictions for direct-to-consumer advertising, industry-sponsored scientific and educational activities, promotional activities involving the internet and off-label promotion. Any regulatory approval that the FDA grants, including the approval of ZELSUVMI, is limited to those specific diseases and indications for which a product is deemed to be safe and effective by FDA. While physicians in the United States may choose, and are generally permitted, to prescribe drugs for uses that are not described in the product’s labeling and for uses that differ from those tested in clinical trials and approved by the regulatory authorities, our ability to promote ZELSUVMI or any future products will be narrowly limited to those indications that are specifically approved by the FDA. ZELSUVMI has been approved by the FDA for the treatment of molluscum contagiosum in adults and pediatric patients one year of age and older, and we are not permitted to promote ZELSUVMI for other uses. +If we are found to have promoted such off-label uses, we may become subject to significant liability. The U.S. federal government has levied large civil and criminal fines against companies for alleged improper promotion of off-label use and has enjoined several companies from engaging in off-label promotion. The FDA has also required that companies enter into consent decrees or permanent injunctions under which specified promotional conduct is changed or curtailed. If we cannot successfully manage the promotion of ZELSUVMI, approved products not yet launched or any future product candidates, if approved, we could become subject to significant liability, which would materially adversely affect our business and financial condition. +Product liability lawsuits could cause us to incur substantial liabilities and limit commercialization of any products that we may develop. +We face an inherent risk of product liability exposure related to the commercial sales of ZELSUVMI, as well as the testing of our potential future product candidates in human clinical trials. If we cannot successfully defend ourselves against claims that ZELSUVMI or such product candidates caused injuries, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in: +• decreased demand for ZELSUVMI and any product candidates that we may develop; +• injury to our reputation and significant negative media attention; +• loss of revenue; +• withdrawal of clinical trial participants; +• significant costs to defend the related litigation; +• substantial monetary awards paid to trial participants or patients; +• reduced resources of management to pursue our business strategy; and +• the inability to commercialize any products that we may develop. +We currently hold product liability insurance that covers damages up to a $15 million annual limit. We may need to secure additional product liability insurance coverage if and when sales of ZELSUVMI grow and may need to further increase our insurance coverage if we initiate clinical trials or expand commercialization activities for our other product candidates that obtain regulatory approval. Insurance coverage is increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise. +Risks Related to Our Operations and Manufacturing +Delays or disruptions in our supply chain and manufacturing of our products, including ZELSUVMI, approved products not yet launched and potential product candidates could adversely affect our sales and marketing efforts and our development and commercialization timelines and could result in increased costs or in our breaching our obligations to others. +Our ability to make, move, and sell our products is critical to our success. Damage or disruption to our supply chain, including third-party manufacturing, assembly or transportation and distribution capabilities, due to weather, including any potential effects of climate change, natural disaster, fire or explosion, terrorism, pandemics, strikes, tariffs, government +32 +action, inflation, war or other reasons beyond our control or the control of our suppliers and business partners, could impair our ability to manufacture or sell our products. Failure to take adequate steps to mitigate the likelihood or potential impact of such events, or to effectively manage such events if they occur, particularly where our product is sourced from a single supplier or location, could adversely affect our business or financial results. Any interruption or failure by our suppliers, distributors and other partners to meet their obligations on schedule or in accordance with our expectations, misappropriation of our proprietary information, including trade secrets and know-how, or any termination by these third parties of their arrangements with us, which, in each case, could be the result of one or many factors outside of our control, could delay or prevent the manufacture or commercialization of our products, disrupt our operations or cause reputational harm to us. In addition, except for the terms and conditions specified in our contractual arrangements with our contract manufacturers, we have no control over the ability of our contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel. If the FDA or a comparable foreign regulatory authority does not approve these facilities for the manufacture of our API or drug products or if it withdraws any such approval in the future, we may need to find alternative manufacturing facilities, which would significantly impact our ability to develop, obtain regulatory approval for, market and sell our products and potential product candidates. +We are required to identify the supplier(s) of all the raw materials for our products, including ZELSUVMI, in our applications with the FDA. To the extent practicable, we attempt to identify more than one supplier in each drug application for certain products and raw materials. However, some products and raw materials are available only from a single source and, in some of our drug applications, only one supplier of products and raw materials has been identified, even in instances where multiple sources exist. To the extent any difficulties experienced by our suppliers cannot be resolved within a reasonable time and at reasonable cost, or if raw materials for a particular product become unavailable from an approved supplier and we are required to qualify a new supplier with the FDA, our profit margins and market share for the affected product could decrease and our development and sales and marketing efforts could be delayed or negatively impacted. +We have limited experience in producing commercial scale products that utilize the NITRICIL technology, which was assigned to Ligand in March 2024, including the API, berdazimer sodium, used in the ZELSUVMI product. Any delay or disruptions in the on-going qualification of manufacturing facilities and process or in the manufacture of our (i) API, including berdazimer sodium, or (ii) potential future clinical trial materials or commercial supplies of any other potentially approved product candidates utilizing the NITRICIL technology, could adversely affect our development and commercialization timelines and results or result in increased costs or in our breaching our obligations to others. +We internally manufacture the berdazimer sodium API that is utilized in our ZELSUVMI commercial product. Any delays or disruptions in our manufacturing processes and analytical methods for API testing and commercial manufacturing under cGMP guidelines and regulations, or our inability to execute such activities, could impact the commercialization efforts for ZELSUVMI and/or any future product candidate, as well as increase costs. Further, if we do not appropriately coordinate with, project manage or provide adequate internal expertise, resources and documentation with our third-party drug product manufacturer, we may not be successful, or may be delayed, in the commercialization of ZELSUVMI. We have a limited number of personnel who have experience in drug substance manufacturing and possess the expertise necessary to manufacture berdazimer sodium. +Orion Corporation (“Orion”), with whom we have formed a relationship to manufacture the commercial drug product for ZELSUVMI, including final fill/finish and packaging, must be successful in our execution of our commercial production strategy. For instance, we may not be successful in realizing the intended operating goals from this arrangements based on a number of factors, including, among other things, (i) delays or failures, including delays in our ability to transition applicable technology and processes to our vendors or partners, (ii) reduced quality, (iii) delayed receipt of goods or services, (iv) increased and unexpected costs on the part of the third-party vendors or strategic partners, and (v) certain incremental and discrete costs to effect this strategy. If we are unsuccessful in partnering with third-party manufacturers, we could experience delays in the development and commercialization timelines of our product candidates, as well as increased costs. +We will also have no direct control over the ability of third-party manufacturers to maintain adequate quality control, quality assurance and qualified personnel. If the FDA or any comparable foreign regulatory authority does not approve these facilities for the manufacture of our products, or if such authorities withdraw any such approval in the future, we may be required to find alternative manufacturing facilities, which would significantly impact our ability to obtain approval of and commercialize any product candidates, if approved. our failure, or the failure of any of our third-party manufacturers, to comply with applicable regulations could result in sanctions being imposed on us, including clinical holds, fines, +33 +injunctions, civil penalties, delays, suspension or withdrawal of approvals, seizures or recalls, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect our financial position. +Our or a third party’s failure to execute on our manufacturing requirements on commercially reasonable terms and in compliance with cGMP or other regulatory requirements could adversely affect our business in a number of ways, including: +• an inability to meet commercial demands; +• an inability to initiate or complete clinical trials in a timely manner; +• delays in submitting regulatory applications, or receiving regulatory approvals; +• subjecting third-party manufacturing facilities to additional inspections by regulatory authorities; and +• requirements to cease development or to recall product batches. +In addition, we may be unable to establish additional long-term supply agreements with third-party manufacturers or to do so on acceptable terms, which increases the risk of failing to timely obtain sufficient quantities of our products or any future product candidates or such quantities at an acceptable cost, which would have a material adverse impact on our financial position. There are risks associated with scaling up manufacturing to commercial volumes including, among others, cost overruns, technical or other problems with process scale-up, process reproducibility, stability issues, lot consistency and timely availability of raw materials. There is no assurance that our manufacturers will be successful in establishing a larger-scale commercial manufacturing process for ZELSUVMI that achieves our objectives for manufacturing capacity and cost of goods, in a timely manner, or at all. +Unexpected results in the analysis of raw materials, the API or drug product or problems with the execution of or quality systems supporting the analytical testing work, whether conducted internally or by third-party service providers, could adversely affect our development and commercialization timelines and result in increased costs of potential development programs initiated by us. +Third parties engaged directly by us or by our API and drug product CMOs, test all of the raw materials and finished API and drug products. It is a regulatory requirement that raw materials are tested and there are a limited number of suppliers for testing these raw materials. There may be a need to assess alternate suppliers to prevent a possible disruption of the supply of these raw materials for the manufacture of API or drug product. Additionally, the analytical equipment used by these third parties must be maintained and operational. Except for the terms established within our or our CMOs’ contracts with the third parties responsible for testing raw materials and finished API and drug products, we have limited ability to control the process or timing of their testing work. Additionally, if the results do not meet specifications, then obtaining additional raw materials may jeopardize our or our CMOs’ ability to manufacture API and/or drug product, the start or overall conduct of preclinical studies and clinical trials, the timing of regulatory submissions, or the commercialization of our products and any future product candidates, if approved. We and our CMOs currently engage third parties to perform analytical tests to ensure the API and drug product meets quality specifications. The analytical equipment used by us or our CMOs to perform these tests must be maintained, qualified, calibrated and operational. If there are testing execution delays, equipment problems or if the results of the analytical testing do not meet our quality specifications, then manufacturing additional API or drug product may increase costs and may jeopardize our or our CMOs’ ability to manufacture API and/or drug product, which may cause delays in the start or overall conduct of preclinical studies and clinical trials, the submission of regulatory filings, or the commercialization of our products and any future product candidates. +Our business involves the use of hazardous materials, and we and our third-party suppliers and manufacturers must comply with environmental laws and regulations, which can be expensive and restrict how we do business. +Our manufacturing activities and the manufacturing activities of our third-party suppliers and manufacturers, involve the controlled storage, use and disposal of hazardous materials. Further, our manufactured drug substances and drug products may be considered hazardous materials under applicable laws and regulations. our manufacturing activities, whether conducted by us or our third-party suppliers and manufacturers, like all manufacturing processes that utilize hazardous materials, including those under high pressures, must be properly controlled to avoid unintended reactions or other accidents that could cause injury or damage to personnel, equipment or property. We and our manufacturers and suppliers are subject to laws and regulations governing the use, manufacture, storage, transportation, handling and disposal of these hazardous materials, and our failure to manage the use, manufacture, storage, transportation, handling or disposal of hazardous materials could subject us to significant costs or future liabilities. In some cases, these hazardous materials and various wastes resulting from their use are transported and stored at our suppliers’ or manufacturers’ facilities pending use and disposal. We and our suppliers and manufacturers cannot completely eliminate the risk of contamination, which could +34 +cause an interruption of our commercialization efforts, research and development efforts and business operations, injury to our service providers and others and environmental damage resulting in costly clean-up and liabilities under applicable laws and regulations governing the use, storage, handling and disposal of these materials and specified waste products. Although we believe that the manufacturing controls and safety procedures utilized by us and our third-party suppliers and manufacturers for handling, transporting and disposing of these materials generally comply with the standards prescribed by these laws and regulations, we cannot guarantee that this is the case or eliminate the risk (i) that the laws and regulations will not restrict our or our third-party suppliers’ or manufacturers’ ability to use, manufacture, store, transport, handle or dispose of such materials or (ii) of accidental contamination or injury from these hazardous materials and processes. If these risks were to materialize, we could experience an interruption of our business operations, and we may be held liable for any resulting damages, and such liability could exceed our financial resources. +The seasonal nature of our business may cause fluctuations in operations. +During the fourth quarter of 2025, we experienced a downward impact on the growth of total prescriptions of ZELSUVMI associated with, we believe, the seasonality corresponding with HCP office closures for the Thanksgiving, Christmas and New Year’s holidays. In addition, we believe that certain severe weather events, in addition to these holidays, may influence the ability of patients suffering from molluscum, or their care givers, from scheduling appointments with healthcare professionals. Also, many healthcare professionals take time-off during these periods, which may impact the total number of prescriptions of ZELSUVMI written . During the first quarter of 2026, we experienced a return to the previous growth trend for total prescriptions of ZELSUVMI, which we believe supports our belief that there is an element of seasonality related to the total number of prescriptions written for ZELSUVMI at certain times during the year. +We may be adversely affected by the effects of inflation or trade tariffs. +We have been impacted, and may continue to be impacted, by inflation and/or trade tariffs which have the potential to adversely affect our liquidity, business, financial condition and results of operations by increasing our overall cost structure. The existence of inflation and the recent uncertainty in the levying of certain trade tariffs by the U.S. government, has resulted in, and may continue to result in, higher interest rates and capital costs, supply shortages, increased costs of labor, components, manufacturing and shipping, as well as weakening exchange rates and other similar effects. As a result of inflation and tariffs, we have experienced and may continue to experience cost increases. Although we may take measures to mitigate the effects of inflation and tariffs, if these measures are not effective and if the inflationary and tariff pressure is sustained or increased, our business, financial condition, results of operations and liquidity could be negatively affected. Even if such measures are effective, there could be a difference between the timing of when these beneficial actions impact our results of operations and when the cost of inflation and/or tariffs are incurred. +Risks Related to Our Dependence on Third Parties +We will rely on third parties to conduct any preclinical studies and clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may be unable to obtain regulatory approval for or commercialize any of our future product candidates. +We currently do not have the ability to conduct in-house preclinical studies that comply with the regulatory requirements known as GLP requirements. We also do not currently have the ability to conduct any clinical trials in-house. The FDA and regulatory authorities in other jurisdictions require us to comply with regulations and standards, commonly referred to as GCPs for conducting, monitoring, recording and reporting the results of clinical trials, in order to ensure that the data and results are scientifically credible and accurate and that the trial subjects are adequately informed of the potential risks of participating in clinical trials. We will be required to rely on medical institutions, clinical investigators, contract laboratories and other third parties, such as CROs, to conduct GLP-compliant preclinical studies and GCP-compliant clinical trials on any future product candidates properly and on time. While we will have agreements governing our activities, we will control only certain aspects of our activities and will have limited influence over their actual performance. The third parties with whom we may contract for execution of our GLP preclinical studies and our GCP clinical trials play a significant role in the conduct of these studies and trials and the subsequent collection and analysis of data. These third parties will not be our employees and, except for restrictions imposed by our contracts with such third parties, we will have limited ability to control the amount or timing of resources that they devote to our programs. Although we plan to rely on these third parties to conduct GLP-compliant preclinical studies and GCP-compliant clinical trials, we will remain responsible for ensuring that each of these studies and clinical trials is conducted in accordance with our investigational plan and protocol and applicable laws and regulations, and our reliance on the third parties will not relieve us of our regulatory responsibilities. In addition, if any of our third parties terminate their involvement with us for +35 +any reason, we may not be able to enter into similar arrangements with alternative third parties within a short period of time or do so on commercially reasonable terms. +Many of the third parties with whom we may contract may also have relationships with other commercial entities, including our competitors, for whom they may also be conducting clinical trials or other drug development activities that could harm our competitive position. If the third parties conducting our preclinical studies or clinical trials do not perform their contractual duties or obligations, experience work stoppages, do not meet expected deadlines, terminate their agreements with us or need to be replaced, or if the quality or accuracy of the clinical data they obtain is compromised due to their failure to adhere to our clinical trial protocols, GLPs or GCPs, or for any other reason, we may need to enter into new arrangements with alternative third parties. This could be difficult, costly or impossible, and our preclinical studies or clinical trials may need to be extended, delayed, terminated or repeated. As a result, we may not be able to obtain regulatory approval in a timely fashion, or at all, for the applicable future product candidate, our financial results and the commercial prospects for our product candidates would be harmed, our costs could increase, and our ability to generate revenues could be delayed. +In addition, principal investigators for our clinical trials may serve as scientific advisors or consultants to us from time to time and may receive cash or equity compensation in connection with such services. If these relationships and any related compensation result in perceived or actual conflicts of interest, or the FDA concludes that the financial relationship may have affected the interpretation of the trial, the integrity of the data generated at the applicable clinical trial site may be questioned and the utility of the clinical trial itself may be jeopardized, which could result in the delay or rejection by the FDA of any NDA we submit. Any such delay or rejection could prevent it from commercializing our future product candidates. +Our employees, independent contractors, principal investigators, CMOs, CROs, consultants, commercial partners and vendors may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which could expose us to liability and hurt our reputation. +We are exposed to the risk that our employees, independent contractors, principal investigators, CMOs, CROs, consultants, commercial partners and vendors may engage in fraudulent conduct or other illegal activity. Misconduct by these parties could include intentional, reckless or negligent conduct or disclosure of unauthorized activities to us that violates: (i) FDA laws and regulations, including those laws that require the reporting of true, complete and accurate information to the FDA, (ii) manufacturing standards,(iii) federal, state and foreign data privacy, security, fraud and abuse and other healthcare laws, or (iv) laws that require the true, complete and accurate reporting of financial information or data. Activities subject to these laws also involve the improper use or misrepresentation of information obtained in the course of clinical trials, creating fraudulent data in our preclinical studies or clinical trials or illegal misappropriation of drug product, which could result in regulatory sanctions and cause serious harm to our reputation. It is not always possible to identify and deter misconduct by employees and other third parties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. Additionally, we are subject to the risk that a person or government could allege such fraud or other misconduct, even if none occurred. If any such actions are instituted against us, and we are not successful in defending itself or asserting our rights, those actions could have a significant impact on our business and financial results, including, without limitation, the imposition of significant civil, criminal and administrative penalties, damages, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, reputational harm, diminished profits and future earnings, and curtailment of our operations. +We sell to a limited number of wholesalers who have significant market share and if we lose our relationship with any one of those wholesalers, our revenue could be impacted and business could materially suffer. +There are a limited number of wholesalers in the industry that have a significant market share amongst them and if something were to happen whereby we no longer had access to a particular wholesaler, then our revenues would likely suffer and there could be a negative impact on our revenue, profits and stock price. +36 +Risks Related to Intellectual Property +We rely on in-licenses from third parties. If we lose these rights, our business may be materially and adversely affected, our ability to develop improvements to our technology platform may be negatively and substantially impacted, and if disputes arise, we may be subjected to future litigation, as well as the potential loss of or limitations on our ability to incorporate the technology covered by these license agreements. +On March 24, 2025, LNHC assigned its IP portfolio related to the Novan acquisition, including the NITRICIL technology, to Ligand and entered into an exclusive license and sublicense agreement with Ligand, pursuant to which Ligand licensed to LNHC the intellectual property rights necessary to make, use, sell or offer to sell ZELSUVMI for the treatment of molluscum contagiosum in humans worldwide, except for Japan. This license agreement imposes various diligence, milestone payment, royalty, insurance, and other obligations on us, while also granting us the rights to certain patents related to our products. +On November 6, 2025, we acquired the U.S. commercialization rights to XEPI, from Biofrontera and an exclusive license agreement with Ferrer. XEPI was developed by Ferrer and Medimetriks Pharmaceuticals, Inc., and approved by the FDA in 2017. The Ferrer License Agreement contains certain representations, warranties, limitations of liabilities, confidentiality and indemnity obligations and other provisions customary for an agreement of its type. The Ferrer License Agreement also imposes various diligence, milestone payment, royalty, insurance, and other obligations on us, while also granting us the rights to certain patents related to our products. +In spite of our efforts to comply with our obligations under our in-license agreements, our licensors might conclude that we have materially breached our obligations under our license agreements and might therefore, including in connection with any aforementioned disputes, terminate the relevant license agreement, thereby removing or limiting our ability to develop and commercialize technology covered by these license agreements. If any such in-license is terminated, or if the licensed patents fail to provide the intended exclusivity, competitors or other third parties might have the freedom to market or develop technologies similar to ours. +In some circumstances, we may not have the right to control the preparation, filing, prosecution, maintenance and defense of patent applications or patents covering technology that we license from third parties. In such circumstances, our licensors generally have rights to file, prosecute, and maintain the licensed patents in their name, generally with our right to comment on such filing, prosecution, and maintenance, with some obligation for the licensor to consider or incorporate our comments. If our licensors having rights to file, prosecute and maintain our patent rights fail to conduct these activities for patents or patent applications covering any of our product candidates, our ability to develop and commercialize those product candidates may be adversely affected and we may not be able to prevent competitors from making, using or selling competing products. Additionally, there could also be delays at the USPTO caused by staffing cuts and other U.S. government actions as a result of the Department of Government Efficiency or other executive actions to reduce the size of the U.S. government, which may adversely affect us or our licensors. We cannot be certain that such activities by our licensors have been or will be conducted in compliance with applicable laws and regulations or will result in valid and enforceable patents or other intellectual property rights. +In addition, absent the rights granted to us under our license agreements, we may infringe the intellectual property rights that are the subject of those agreements, we may be subject to litigation by the licensor, and if such litigation by the licensor is successful we may be required to pay damages to our licensor, or we may be required to cease our development and commercialization activities that are deemed infringing, and in such event +We may ultimately need to modify our activities or technologies to design around such infringement, which may be time- and resource-consuming, and which ultimately may not be successful. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations and prospects. +In addition, our rights to certain components of our technology platform, may be licensed to us on a non-exclusive basis. The owners of these non-exclusively licensed technologies are therefore free to license them to third parties, including our competitors, on terms that may be superior to those offered to us, which could place us at a competitive disadvantage. +Moreover, our licensors may own or control intellectual property that has not been licensed to us and, as a result, we may be subject to claims, regardless of their merit, that we are infringing or otherwise violating the licensor’s rights. In addition, certain of our agreements with third parties may provide that intellectual property arising under these agreements, such as data that could be valuable to our business, will be owned by the third party, in which case, we may not have adequate +37 +rights to use such data or have exclusivity with respect to the use of such data, which could result in third parties, including our competitors, being able to use such data to compete with us. +Third party intellectual property may prevent us from developing our potential products; our intellectual property may not prevent competition; and any intellectual property issues may be expensive and time consuming to resolve. +The manufacture, use or sale of our potential products may infringe the patent rights of others. If others obtain patents with conflicting claims, we may be required to obtain licenses to those patents or to develop or obtain alternative technology. We may not be able to obtain any such licenses on acceptable terms, or at all. Any failure to obtain such licenses could delay or prevent us from pursuing the development or commercialization of our potential products, platform and technology. +Generally, our success will depend on our and our licensors’ ability to obtain and maintain patents and other intellectual property rights for our potential products and technologies. our patent position is uncertain and involves complex legal and technical questions for which legal principles are unresolved. Even if we do obtain patents, such patents may not adequately protect the technology we own or have licensed. +The patents that cover our branded products are listed in the Orange Book. If a third party submits an NDA or ANDA for a generic drug product that relies in whole or in part on studies contained in the NDA for one of our branded products, the third party will have the option to certify to the FDA that, in the opinion of that third party, the patents listed in the Orange Book for our branded product are invalid, unenforceable, or will not be infringed by the manufacture, use or sale of the third party’s generic drug product. A third-party certification that a new product will not infringe Orange Book-listed patents, or that such patents are invalid, is called a paragraph IV patent certification. If the third party submits a paragraph IV patent certification to the FDA, a notice of the paragraph IV patent certification must be sent to the NDA owner and the owner of the patents that are subject to the paragraph IV patent certification notice once the third-party’s NDA or ANDA is accepted for filing by the FDA. A lawsuit may then be initiated to defend the patents identified in the notice. The filing of a patent infringement lawsuit within 45 days of the receipt of notice of a paragraph IV patent certification automatically prevents the FDA from approving the generic NDA or ANDA until the earlier of the expiration of a 30-month period, the expiration of the patents, the entry of a settlement order stating that the patents are invalid or not infringed, a decision in the infringement case that is favorable to the NDA or ANDA applicant, or such shorter or longer period as the court may order. If a patent infringement lawsuit is not initiated within the required 45-day period, the third-party’s NDA or ANDA will not be subject to the 30-month stay. Third parties may challenge the patents covering our branded products. We may from time to time become party to litigation or other proceedings as a result of paragraph IV patent certifications. +In addition, we cannot assure you that all of the potentially relevant prior art information that was or is deemed available to a person of skill in the relevant art prior to the priority date of the claimed invention-relating to our patents and patent applications has been found. If such prior art exists, it can invalidate a patent or prevent a patent from issuing from a pending patent application (whether owned by us or in-licensed from Ligand or another third party), and we may be subject to a third-party pre-issuance submission of prior art to the United States Patent and Trademark Office (“USPTO”). Even if our patent applications (whether owned by us or in-licensed from Ligand or another third party) do successfully issue and even if such patents cover our products or potential products, third parties may initiate litigation or opposition, interference, re-examination, post-grant review, inter partes review, nullification or derivation action in court or before patent offices, or similar proceedings challenging the validity, enforceability or scope of such patents, which may result in the patent claims being narrowed or invalidated, may allow third parties to commercialize our products and compete directly with us, without payment to us, or limit the duration of the patent protection of our technology and products. +In addition, similar to what other companies in our industry have experienced, we expect our competitors and others may have patents or may in the future obtain patents and claim that making, having made, using, selling, offering to sell or importing our technologies infringes these patents. Defense of infringement and other claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of management and employee resources from our business. Parties making claims against us may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources, or may be able to obtain injunctive or other relief, which could block our ability to develop, commercialize, and sell products or services and could result in the award of substantial damages against us, including treble damages, attorney’s fees, costs and expenses if we are found to have willfully infringed. In the event of a successful claim of infringement against us, we may be required to pay damages and ongoing royalties and obtain one or more licenses from third parties or be prohibited from selling certain products or services. As discussed above, we may not be able to obtain these licenses on acceptable or commercially reasonable terms, if at all, or these licenses may be non-exclusive, which could result in our competitors gaining access to the same +38 +intellectual property. In addition, we could encounter delays in product or service introductions while we attempt to develop alternative products or services to avoid infringing third-party patents or proprietary rights. Defense of any lawsuit or failure to obtain any of these licenses could prevent us from commercializing products or services, and the prohibition of sale of any of our technologies could materially affect our business and our ability to gain market acceptance for our technology. +Litigation or other proceedings to enforce or defend intellectual property rights are often very complex in nature, may be very expensive and time-consuming, may divert our management’s attention from our core business, and may result in unfavorable results that could adversely impact our ability to prevent third parties from competing with our products or technologies. Any adverse outcome of such litigation or other proceedings could result in one or more of our patents (whether owned by us or in-licensed from Ligand or another third party) being held invalid or unenforceable, which could adversely affect our ability to successfully execute our business strategy and negatively impact our financial condition and results of operations. However, given the unpredictability inherent in litigation, we cannot predict or guarantee the outcome of these matters or any other litigation. Regardless of how these matters are ultimately resolved, these matters may be costly, time-consuming and distracting to our management, which could have a material adverse effect on our business. It may be necessary for us or our licensors to pursue litigation or adversarial proceedings before the patent office in order to enforce their patent and proprietary rights or to determine the scope, coverage and validity of the proprietary rights of others. The outcome of any such litigation might not be favorable, and even if we or our licensors were to prevail, such litigation could result in substantial costs and diversion of resources and could have a material adverse effect on our business, operating results or financial condition. +In addition, periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and/or applications will be due to the U.S. and various foreign patent offices at various points over the lifetime of our and our licensors’ patents and/or applications. We will rely on Ligand to pay these fees with respect to the patents covering ZELSUVMI and cannot ensure Ligand will pay these fees in a timely manner. Additionally, the U.S. and various foreign patent offices require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. We will rely on Ligand to comply with these requirements. In many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with rules applicable to the particular jurisdiction. However, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. If such an event were to occur, it could have a material adverse effect on our business. +Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. In addition, during the course of this kind of litigation, there could be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our Common Stock. +Any conflicts with the patent rights of others could significantly reduce the coverage of our patents (whether owned by us or in-licensed from Ligand or another third party) or limit our ability to obtain meaningful patent protection. In addition, any determination that our patent rights are invalid may result in early termination of our agreements with our license partners and could adversely affect our ability to enter into new license agreements. We also rely on unpatented trade secrets and know-how to protect and maintain our competitive position. We require our employees, consultants, licensees, and others to sign confidentiality agreements when they begin their relationship with us. These agreements may be breached, and we may not have adequate remedies for any breach. In addition, our competitors may independently discover our trade secrets. +We may also need to initiate litigation, which could be time-consuming and expensive, to enforce our proprietary rights or to determine the scope and validity of others’ rights. If this occurs, a court may find our patents or those of our licensors invalid or may find that we have infringed on a competitor’s rights. In addition, if any of our competitors have filed patent applications in the United States prior to March 2013 which claim technology we also have invented, the USPTO may require us or our licensors to participate in expensive interference proceedings to determine who has the right to a patent for the technology. +In addition, our agreements with some of our suppliers or other entities with whom we do business require us to defend or indemnify these parties to the extent they become involved in infringement claims, including the types of claims described above. We could also voluntarily agree to defend or indemnify third parties in instances where we are not obligated to do so if we determine it would be important to our business relationships. If we are required or agrees to defend or indemnify +39 +third parties in connection with any infringement claims, we could incur significant costs and expenses that could adversely affect our business, financial condition, results of operations, and prospects. The occurrence of any of the foregoing problems could be time-consuming and expensive and could adversely affect our financial position, liquidity and results of operations. +If we are unable to obtain and maintain sufficient intellectual property protection for our products and technology, or if the scope of the intellectual property protection obtained is not sufficiently broad, our competitors could develop and commercialize technologies similar to ours, and our ability to successfully sell our products and services may be impaired. +Our success depends in part on our and our licensor’s ability to obtain and maintain adequate protection of the intellectual property we may own solely and jointly with others or otherwise have rights to, particularly patents, in the United States and in other countries with respect to our platform, our software and our technologies, without infringing the intellectual property rights of others. +We strive to protect and enhance the proprietary technologies that we believe are important to our business, including seeking patents intended to cover our platform and related technologies and uses thereof, as we deem appropriate. However, obtaining and enforcing patents in our industry is costly, time-consuming and complex, and we may fail to apply for patents on important products and technologies in a timely fashion or at all, or we may fail to apply for patents in potentially relevant jurisdictions. There can be no assurance that the claims of our patents or any patent application that issues as a patent (whether owned by us or in-licensed from Ligand or another third party) will exclude others from making, using, importing, offering for sale, or selling products or services that are substantially similar to ours. We also rely on trade secrets to protect aspects of our business that are not amenable to, or that we do not consider appropriate for, patent protection. In countries where we have not sought and do not seek patent protection, third parties may be able to manufacture and sell our technology without our permission, and we may not be able to stop them from doing so. We may not be able to file and prosecute all necessary or desirable patent applications, or maintain, enforce and license any patents that may issue from such patent applications, at a reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection. We may not have the right to control the preparation, filing and prosecution of patent applications, or to maintain the rights to patents licensed to third parties. Therefore, these patents and applications may not be prosecuted and enforced in a manner consistent with the best interests of our business. +It is possible that none of our pending patent applications (whether owned by us or in-licensed from Ligand or another third party) will result in issued patents in a timely fashion or at all, and even if patents are granted, they may not provide a basis for intellectual property protection of commercially viable products or services, may not provide us with any competitive advantages, or may be challenged and invalidated by third parties or deemed unenforceable by a court. It is possible that others will design around our current or future patented technologies. As a result, our owned and licensed patents and patent applications comprising our patent portfolio may not provide us with sufficient rights to exclude others from commercializing technology and products similar to any of our products, platform and technology. +In addition, we may identify third party intellectual property and technology we may need to acquire or license in order to engage in our business, including to develop or commercialize new technologies. However, such licenses may not be available to us on acceptable terms or at all. Furthermore, geopolitical actions in the United States and in foreign countries could increase the uncertainties and costs surrounding the prosecution or maintenance of our patent applications or those of any current or future license partners and the maintenance, enforcement or defense of our issued patents or those of any current or future license partners. For example, the United States and foreign government actions related to Russia’s conflict in Ukraine may limit or prevent filing, prosecution, and maintenance of patent applications in Russia. Government actions may also prevent maintenance of issued patents in Russia. These actions could result in abandonment or lapse of our or our license partners’ patents or patent applications, resulting in partial or complete loss of patent rights in Russia. If such an event were to occur, it could have a material adverse effect on our business. In addition, a decree was adopted by the Russian government in March 2022, allowing Russian companies and individuals to exploit inventions owned by patentees from the United States without consent or compensation. Consequently, we or our license partners would not be able to prevent third parties from practicing our or our inventions in Russia or from selling or importing products made using our inventions in and into Russia. Accordingly, our competitive position may be impaired, and our business, financial condition, results of operations and prospects may be adversely affected. +40 +Issued patents directed to the NITRICIL platform and technology could be found invalid or unenforceable if challenged in court or before administrative bodies in the United States or abroad. +The issuance of a patent is not conclusive as to our inventorship, scope, validity or enforceability. Some of our patents or patent applications (whether owned by us or in-licensed from Ligand or another third party) may be challenged at a future point in time in opposition, derivation, reexamination, inter partes review, post-grant review or interference. Any successful third-party challenge to our patents in this or any other proceeding could result in the unenforceability or invalidity of such patents or amendment to our patents in such a way that any resulting protection may lead to increased competition to our business, which could harm our business. In addition, in patent litigation in the United States, defendant counterclaims alleging invalidity or unenforceability are commonplace. The outcome following legal assertions of invalidity and unenforceability during patent litigation is unpredictable. If a defendant were to prevail on a legal assertion of invalidity or unenforceability, we would lose at least part, and perhaps all, of the patent protection on certain aspects of our platform technologies. In addition, if the breadth or strength of protection provided by our patents and patent applications (whether owned by us or in-licensed from Ligand or another third party) is threatened, regardless of the outcome, it could dissuade companies from collaborating with us to license, develop or commercialize current or future products, platform and technology. +We may not be aware of all third-party intellectual property rights potentially relating to our products, platform and technology. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until approximately 18 months after filing or, in some cases, not until such patent applications issue as patents. We or our licensors might not have been the first to make the inventions included in each of our pending patent applications and we or our licensors might not have been the first to file patent applications for these inventions. There is also no assurance that all of the potentially relevant prior art relating to our patents and patent applications or licensed patents and patent applications have been found, which could be used by a third party to challenge their validity or prevent a patent from issuing from a pending patent application. +To determine the priority of these inventions, we may have to participate in interference proceedings (with respect to patent applications filed prior to March 2013), derivation proceedings or other post-grant proceedings declared by the USPTO that could result in substantial cost to us. The outcome of such proceedings is uncertain. No assurance can be given that other patent applications will not have priority over our patent applications (whether owned by us or in-licensed from Ligand or another third party). In addition, changes to the patent laws of the United States allow for various post-grant opposition proceedings that have not been extensively tested, and their outcome is therefore uncertain. Furthermore, if third parties bring these proceedings against our patents (whether owned by us or in-licensed from Ligand or another third party), we could experience significant costs and management distraction. +Changes in patent law in the United States and other jurisdictions could diminish the value of patents in general, thereby impairing Ligand’s ability to protect our products, platform and technology on which we rely. +Changes in either the patent laws or interpretation of the patent laws in the United States could increase the uncertainties and costs surrounding the prosecution of patent applications and the enforcement or defense of issued patents, and may diminish our ability to protect our inventions, obtain, maintain, enforce and protect our intellectual property rights and, more generally, could affect the value of our intellectual property or narrow the scope of our future owned and licensed patents. Depending on future actions by the United States Congress, the United States courts, the USPTO and the relevant law-making bodies in other countries, the laws and regulations governing patents could change in unpredictable ways that would weaken our or our license partners’ ability to obtain new patents and patents that we or our license partners might obtain in the future. For example, on June 1, 2023, the European Union Patent Package (“EU Patent Package”) regulations were implemented with the goal of providing a single pan-European Unitary Patent and a new European Unified Patent Court (“UPC”) for litigation involving European patents. As a result, all European patents, including those issued prior to ratification of the EU Patent Package, now by default automatically fall under the jurisdiction of the UPC. It is uncertain how the UPC will impact granted European patents in the biotechnology and pharmaceutical industries. Our or our license partners’ European patent applications, if issued, could be challenged in the UPC. During the first seven years of the UPC’s existence, the UPC legislation allows a patent owner to opt our European patents out of the jurisdiction of the UPC. We or our license partners may decide to opt out future European patents from the UPC, but doing so may preclude we or our license partners from realizing the benefits of the UPC. Moreover, if we or our license partners do not meet all of the formalities and requirements for opt-out under the UPC, our or our license partners’ future European patents could remain under the jurisdiction of the UPC. The UPC will provide our and our license partners’ competitors with a new forum to centrally revoke our European patents and allow for the possibility of a competitor to obtain pan-European injunction. Such a loss of patent protection could have a material adverse impact on our or our license partners’ business and ability to +41 +commercialize our technology and product candidates and, resultantly, on our business, financial condition, prospects and results of operations. +In addition, the U.S. federal government retains certain rights in inventions produced with our financial assistance under the Patent and Trademark Law Amendments Act(Bayh-Dole Act). For example, certain patents and patent applications licensed from the University of North Carolina at Chapel Hill (through Ligand) were made with financial assistance from the federal government. The federal government retains a “nonexclusive, nontransferable, irrevocable, paid-up license” for our own benefit. The Bayh-Dole Act also provides federal agencies with “march-in rights.” March-in rights allow the government, in specified circumstances, to require the contractor or successors in title to the patent to grant a “nonexclusive, partially exclusive, or exclusive license” to a “responsible applicant or applicants.” If the patent owner refuses to do so, the government may grant the license itself. If we choose to collaborate with academic institutions for our research or development, we cannot be sure that any co-developed intellectual property will be free from government rights pursuant to the Bayh-Dole Act. If, in the future, we co-own or license in technology which is critical to our business that is developed in whole or in part with federal funds subject to the Bayh-Dole Act, our ability to enforce or otherwise exploit patents covering such technology may be adversely affected. +We rely on in-licenses from third parties. If we lose these rights, our business may be materially and adversely affected, our ability to develop improvements to our technology platform may be negatively and substantially impacted, and if disputes arise, we may be subjected to future litigation, as well as the potential loss of or limitations on our ability to incorporate the technology covered by these license agreements. +We are party to royalty-bearing license agreements that grant us rights to practice certain patent rights that are related to our products, platform and technology, including the NITRICIL platform technology in-licensed from the University of North Carolina at Chapel Hill (through Ligand). In spite of our efforts to comply with our obligations under our in-license agreements, our licensors might conclude that we have materially breached our obligations under our license agreements and might therefore, including in connection with any aforementioned disputes, terminate the relevant license agreement, thereby removing or limiting our ability to develop and commercialize technology covered by these license agreements. If any such in-license is terminated, or if the licensed patents fail to provide the intended exclusivity, competitors or other third parties might have the freedom to market or develop technologies similar to ours. +In some circumstances, we may not have the right to control the preparation, filing, prosecution, maintenance and defense of patent applications or patents covering technology that we license from third parties. In such circumstances, our licensors generally have rights to file, prosecute, and maintain the licensed patents in their name, generally with our right to comment on such filing, prosecution, and maintenance, with some obligation for the licensor to consider or incorporate our comments. If our licensors having rights to file, prosecute and maintain our patent rights fail to conduct these activities for patents or patent applications covering any of our product candidates, our ability to develop and commercialize those product candidates may be adversely affected and we may not be able to prevent competitors from making, using or selling competing products. Additionally, there could also be delays at the USPTO caused by staffing cuts and other U.S. government actions as a result of the Department of Government Efficiency or other executive actions to reduce the size of the U.S. government, which may adversely affect us or our licensors. We cannot be certain that such activities by our licensors have been or will be conducted in compliance with applicable laws and regulations or will result in valid and enforceable patents or other intellectual property rights. +In addition, absent the rights granted to us under our license agreements, we may infringe the intellectual property rights that are the subject of those agreements, we may be subject to litigation by the licensor, and if such litigation by the licensor is successful we may be required to pay damages to our licensor, or we may be required to cease our development and commercialization activities that are deemed infringing, and in such event, we may ultimately need to modify our activities or technologies to design around such infringement, which may be time- and resource-consuming, and which ultimately may not be successful. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations and prospects. +In addition, our rights to certain components of our technology platform, may be licensed to us on a non-exclusive basis. The owners of these non-exclusively licensed technologies are therefore free to license them to third parties, including our competitors, on terms that may be superior to those offered to us, which could place us at a competitive disadvantage. +Moreover, our licensors may own or control intellectual property that has not been licensed to us and, as a result, we may be subject to claims, regardless of their merit, that we are infringing or otherwise violating the licensor’s rights. In addition, certain of our agreements with third parties may provide that intellectual property arising under these agreements, such as +42 +data that could be valuable to our business, will be owned by the third party, in which case, we may not have adequate rights to use such data or have exclusivity with respect to the use of such data, which could result in third parties, including our competitors, being able to use such data to compete with us. +We may be subject to claims challenging the inventorship of the patents and other intellectual property on which we rely. +We or our licensors may be subject to claims that former employees or other third parties have an interest in our or our in-licensed patents, trade secrets or other intellectual property as an inventor or co-inventor. Litigation may be necessary to defend against these and other claims challenging inventorship of our or our licensors’ ownership of our owned or in-licensed patents, trade secrets or other intellectual property. If we or our licensors fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, intellectual property that is important to our systems, including our software, workflows, consumables and reagents. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees, and certain partners may defer engaging with us until the particular dispute is resolved. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations and prospects. +If we are unable to protect the confidentiality of our information and our trade secrets, the value of our technology could be materially and adversely affected and our business could be harmed. +We rely on trade secrets and confidentiality agreements to protect our unpatented know-how, technology and other proprietary information, including parts of our technology platform, and to maintain our competitive position. However, trade secrets and know-how can be difficult to protect. In addition to pursuing patents on our technology, we take steps to protect our intellectual property and proprietary technology by entering into agreements, including confidentiality agreements, non-disclosure agreements and intellectual property assignment agreements, with our employees, consultants, academic institutions, corporate partners and, when needed, our advisers. However, we cannot be certain that such agreements have been entered into with all relevant parties, and we cannot be certain that our trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. For example, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. Such agreements may not be enforceable or may not provide meaningful protection for our trade secrets or other proprietary information in the event of unauthorized use or disclosure or other breaches of the agreements, and we may not be able to prevent such unauthorized disclosure, which could adversely impact our ability to establish or maintain a competitive advantage in the market. If we are required to assert our rights against such party, it could result in significant cost and distraction. +Monitoring unauthorized disclosure and detection of unauthorized disclosure is difficult, and we do not know whether the steps we have taken to prevent such disclosure are, or will be, adequate. If we were to enforce a claim that a third party had illegally obtained and was using our trade secrets, it would be expensive and time-consuming, and the outcome would be unpredictable. In addition, some courts both within and outside the United States may be less willing, or unwilling, to protect trade secrets. Further, we may need to share our trade secrets and confidential know-how with current or future partners, collaborators, contractors and others located in countries at heightened risk of theft of trade secrets, including through direct intrusion by private parties or foreign actors, and those affiliated with or controlled by state actors. +We also seek to preserve the integrity and confidentiality of our confidential proprietary information by maintaining physical security of our premises and physical and electronic security of our information technology systems, but it is possible that these security measures could be breached. If any of our confidential proprietary information were to be lawfully obtained or independently developed by a competitor or other third party, absent patent protection, we would have no right to prevent such competitor from using that technology or information to compete with us, which could harm our competitive position. If any of our trade secrets were to be disclosed to or independently discovered by a competitor or other third party, it could harm our business, financial condition, results of operations and prospects. +If our trademarks and trade names are not adequately protected, we may not be able to build name recognition in our markets of interest and our competitive position may be harmed. +We rely on our trademarks, trade names and brand names to distinguish our products from the products of our competitors and have registered or applied to register many of these trademarks. We cannot guarantee that our trademark applications +43 +will be approved. Third parties may also oppose our trademark applications or otherwise challenge our use of the trademarks. our registered and unregistered trademarks, trade names, and brand names may be challenged, infringed, circumvented, declared generic or determined to be violating or infringing on other marks. We may not be able to protect our rights to these trademarks, trade names, and brand names which we rely upon to build name recognition among potential partners and customers in our markets of interest. In the event that our trademarks are successfully challenged, we could be forced to rebrand our products, which could result in loss of brand recognition and could require us to devote resources to advertising and marketing new brands. Further, there can be no assurance that competitors will not infringe our trademarks or that we will have adequate resources to enforce our trademarks. +Risks Related to Regulatory and Legal Compliance +Current and future healthcare reform legislation or regulation may increase the difficulty and cost for us to commercialize our products and may adversely affect the prices we may obtain and may have a negative impact on our business and results of operations. +In the United States and some foreign jurisdictions there have been, and continue to be, a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could, among other things, restrict or regulate post-approval activities with respect to ZELSUVMI and affect our ability to profitably sell our products. Among policy makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing health care costs, improving quality and/or expanding access. In the United States and elsewhere, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative and regulatory initiatives. We expect that current laws, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and in additional downward pressure on the price that we may receive for ZELSUVMI, approved products not yet launched or any product candidates approved for sale. New and changing laws and regulations may also create uncertainty about how such laws and regulations will be interpreted and applied. If we are found to have violated laws and regulations, it could materially adversely affect our business, results of operations and financial condition. +The ACA was signed into law in 2010. The ACA substantially changed the way healthcare is financed by both governmental and private insurers and significantly affects the U.S. pharmaceutical industry. Among the provisions of the ACA of importance to our business, including, without limitation, our ability to commercialize and the prices we may obtain for any product candidates that are approved for sale, are the following: +• an annual, nondeductible fee on any entity that manufactures or imports specified branded prescription drugs and biologic agents, apportioned among these entities according to their market share in certain government healthcare programs, although this fee does not apply to sales of certain products approved exclusively for orphan indications; +• expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to certain individuals with income at or below 133% of the federal poverty level, thereby potentially increasing a manufacturer’s Medicaid rebate liability; +• expansion of manufacturers’ rebate liability under the Medicaid Drug Rebate Program by increasing the minimum rebate for both branded and generic drugs, revising the “average manufacturer price” definition, and extending rebate liability from fee-for-service Medicaid utilization to include the utilization of Medicaid managed care organizations as well; +• expansion of the list of entity types eligible for participation in the Public Health Service 340B drug pricing program, or the 340B program, to include certain free-standing cancer hospitals, critical access hospitals, rural referral centers, and sole community hospitals, but exempting “orphan drugs” from the 340B ceiling price requirements for these covered entities; +• a Patient Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research; and +• establishment of the Center for Medicare and Medicaid Innovation within CMS to test innovative payment and service delivery models to lower Medicare and Medicaid spending, including prescription drug spending. +Since its enactment, certain provisions of the ACA have been subject to judicial, executive, and legislative challenges and may be subject to additional challenges in the future. In addition, other legislative changes have been proposed and adopted since the ACA was enacted. For example, on March 11, 2021, the American Rescue Plan Act of 2021 was signed into law, which eliminated the statutory Medicaid drug rebate cap, beginning January 1, 2024. Previously, the Medicaid rebate was capped at 100% of a drug’s average manufacturer price. +44 +The cost of prescription pharmaceuticals in the United States has also been the subject of considerable discussion in the United States. There have been several Congressional inquiries, as well as legislative and regulatory initiatives and executive orders designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drug products. +Most significantly, in August 2022, the Inflation Reduction Act of 2022 (“IRA”) was signed into law. Among other things, the IRA requires manufacturers of certain drugs to engage in price negotiations with Medicare, with prices that can be negotiated subject to a cap; imposes rebates under Medicare Part B and Medicare Part D to penalize price increases that outpace inflation (first due in 2023); redesigns the Medicare Part D benefit (which began in 2024); and replaces the Part D coverage gap discount program with anew manufacturer discount program (which began in 2025). CMS has published the negotiated prices for the initial ten drugs, which will first be effective in 2026, and the list of the subsequent 15 drugs that will be subject to negotiation. The IRA permits the Secretary of the Department of Health and Human Services (“HHS”) to implement many of these provisions through guidance, as opposed to regulation, for the initial years. HHS has and will continue to issue and update guidance as these programs are implemented, although the Medicare drug price negotiation program is currently subject to legal challenges. The impact of the IRA on us and the pharmaceutical industry cannot yet be fully determined but is likely to be significant. +Congress and the Trump administration are considering significant reductions in the funding of the Medicaid program. If such reductions are adopted and decrease the number of persons enrolled in Medicaid or reduce the services covered by Medicaid, our sales of ZELSUVMI, approved products not yet launched or any product candidates could be adversely affected. +Moreover, the federal government and the individual states in the United States have become increasingly active in developing proposals, passing legislation and implementing regulations designed to control drug pricing, including price or patient reimbursement constraints, discounts, formulary flexibility, marketing cost disclosure, drug price reporting, and other transparency measures. Some states have enacted legislation creating so-called prescription drug affordability boards, which ultimately may attempt to impose price limits on certain drugs in these states. These types of initiatives may result in additional reductions in Medicare, Medicaid, and other healthcare funding, and may otherwise affect the prices we may obtain for ZELSUVMI, approved products not yet launched or any product candidates or the frequency with which ZELSUVMI, approved products not yet launched or any product candidates are prescribed or used. +We expect that these and other healthcare reform measures that may be adopted in the future may result in more rigorous coverage and payment criteria and in additional downward pressure on the price that we receive for any approved drug. Any reduction in reimbursement from Medicaid or other government programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability, or commercialize our drugs. We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our product candidates or additional pricing pressures. We cannot predict with certainty what impact any federal or state health reforms will have on us, but such changes could impose new or more stringent regulatory requirements on our activities or result in reduced reimbursement for our products, any of which could adversely affect our business, results of operations and financial condition. +The pricing of prescription pharmaceuticals is also subject to governmental control outside the United States. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost effectiveness of ZELSUVMI, approved products not yet launched or any product candidates to other available therapies. If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our ability to generate revenues and become profitable could be impaired. +If we fail to comply with our reporting and payment obligations under the Medicaid Drug Rebate Program or other governmental pricing programs in which we participate, we could be subject to additional reimbursement requirements, penalties, sanctions and fines, which could have a material adverse effect on our business, financial condition, results of operations and growth prospects. +Medicaid is a joint federal and state program administered by the states for low income and disabled beneficiaries. We intend to participate in and will have certain price reporting obligations under the Medicaid Drug Rebate Program +45 +(“MDRP”) as a condition of having covered outpatient drugs payable under Medicaid. The MDRP requires us to pay a rebate to state Medicaid programs every quarter for each unit of our covered outpatient drugs dispensed to Medicaid beneficiaries and paid for by a state Medicaid program. The rebate is based on pricing data that we must report on a monthly and quarterly basis to CMS, the federal agency that administers the MDRP and other governmental healthcare programs. These data include the average manufacturer price (“AMP”) for each drug and, in the case of innovator products, the best price, which in general represents the lowest price available from the manufacturer to certain entities in the United States in any pricing structure, calculated to include all sales and associated rebates, discounts and other price concessions. The Medicaid rebate consists of two components, the basic rebate and the additional rebate, which is triggered if the AMP for a drug increases faster than inflation. If we become aware that our MDRP government price reporting submission for a prior quarter was incorrect or has changed as a result of recalculation of the pricing data, we must resubmit the corrected data for up to three years after those data originally were due. If we fail to provide information timely or are found to have knowingly submitted false information to the government, we may be subject to civil monetary penalties and other sanctions, including termination from the MDRP. In the event that CMS terminates our rebate agreement pursuant to which we participate in the MDRP, no federal payments would be available under Medicaid for our covered outpatient drugs. Our failure to comply with our MDRP price reporting and rebate payment obligations could negatively impact our financial results. +Federal law requires that any company that participates in the MDRP also participate in the Public Health Service’s 340B drug pricing program in order for federal funds to be available for the manufacturer’s drugs under Medicaid. We intend to participate in the 340B program, which is administered by the Health Resources and Services Administration (“HRSA”) and requires us to charge statutorily defined covered entities no more than the 340B “ceiling price” for our covered outpatient drugs. These 340Bcovered entities include a variety of community health clinics and other entities that receive health services grants from the Public Health Service, as well as hospitals that serve a disproportionate share of low-income patients. The ACA expanded the list of covered entities to include certain free-standing cancer hospitals, critical access hospitals, rural referral centers and sole community hospitals, but exempts “orphan drugs” from the ceiling price requirements for these covered entities. The 340B ceiling price is calculated using a statutory formula based on the AMP and rebate amount for the covered outpatient drug as calculated under the MDRP, and in general, products subject to Medicaid price reporting and rebate liability are also subject to the 340B ceiling price calculation and discount requirement. We will be required to report 340B ceiling prices to HRSA on a quarterly basis, and HRSA publishes those prices to 340B covered entities. In addition, HRSA has finalized regulations regarding the calculation of the 340B ceiling price and the imposition of civil monetary penalties on manufacturers that knowingly and intentionally overcharge covered entities for 340B-eligible drugs. HRSA has also finalized a revised regulation implementing an administrative dispute resolution process through which 340B covered entities may pursue claims against participating manufacturers for overcharges, and through which manufacturers may pursue claims against 340B covered entities for engaging in unlawful diversion or duplicate discounting of 340B drugs. Our failure to comply with 340B program requirements could negatively impact our financial results. Any additional future changes to the definition of average manufacturer price and the Medicaid rebate amount under legislation or regulation could affect our 340B ceiling price calculations and also negatively impact our financial results. +In order for ZELSUVMI, approved products not yet launched or any product candidates, if approved, to be paid for with federal funds under the Medicaid and Medicare Part B programs and purchased by certain federal agencies and grantees, we also participate in the U.S. Department of Veterans Affairs (“VA”) Federal Supply Schedule (“FSS”) pricing program. As part of this program, we are required to make our products available for procurement on an FSS contract under which we must comply with standard government terms and conditions and charge a price that is no higher than the statutory Federal Ceiling Price (“FCP”) to four federal agencies (VA, U.S. Department of Defense (“DOD”), Public Health Service, and U.S. Coast Guard). The FCP is based on the Non-Federal Average Manufacturer Price, or Non-FAMP, which we must calculate and report to the VA on a quarterly and annual basis. Pursuant to applicable law, knowing provision of false information in connection with a Non-FAMP filing can subject a manufacturer to significant civil monetary penalties for each item of false information. The FSS pricing and contracting obligations also contain extensive disclosure and certification requirements. +We also intend to participate in the Tricare Retail Pharmacy program, under which we will be required to pay quarterly rebates on utilization of innovator products that are dispensed through the Tricare Retail Pharmacy network to Tricare beneficiaries. The rebates are calculated as the difference between the annual Non-FAMP and FCP. We are required to list our innovator products on a Tricare Agreement in order for them to be eligible for DOD formulary inclusion. If we overcharge the government in connection with our FSS contract or Tricare Agreement, whether due to a misstated FCP or otherwise, we are required to refund the difference to the government. Failure to make necessary disclosures and/or to identify contract overcharges could result in allegations against us under the False Claims Act (“FCA”) and other laws and +46 +regulations. Unexpected refunds to the government, and responding to a government investigation or enforcement action, would be expensive and time-consuming, and could have a material adverse effect on our business, financial condition, results of operations and growth prospects. +Individual states continue to consider and have enacted legislation to limit the growth of healthcare costs, including the cost of prescription drugs and combination products. A number of states have either implemented or are considering implementation of drug price transparency legislation. Requirements of pharmaceutical manufacturers under such laws include advance notice of planned price increases, reporting price increase amounts and factors considered in taking such increases, wholesale acquisition cost information disclosure to prescribers, purchasers, and state agencies, and new product notice and reporting. Such legislation could limit the price or payment for certain drugs, and a number of states are authorized to impose civil monetary penalties or pursue other enforcement mechanisms against manufacturers who fail to comply with drug price transparency requirements, including the untimely, inaccurate, or incomplete reporting of drug pricing information. +Pricing and rebate calculations vary among products and programs. The calculations are complex and are often subject to interpretation by us, governmental or regulatory agencies, and the courts. CMS, the Department of Health & Human Services Office of Inspector General, and other governmental agencies have pursued manufacturers that were alleged to have failed to report these data to the government in a timely or accurate manner. Governmental agencies may also make changes in program interpretations, requirements or conditions of participation, some of which may have implications for amounts previously estimated or paid. We cannot assure you that any submissions we are required to make under the MDRP, the 340B program, the VA/FSS program, the Tricare Retail Pharmacy Program, and other governmental drug pricing programs will not be found to be incomplete or incorrect. +We are subject to federal, state and foreign healthcare laws and regulations, including fraud and abuse laws. If we are unable to comply or have not fully complied with such laws and regulations, we could face criminal sanctions, damages, substantial civil penalties, reputational harm and diminished profits and future earnings. +Healthcare providers, physicians and others will play a primary role in the recommendation and prescription of ZELSUVMI, approved products not yet launched and other product candidates, if approved. Our arrangements and interactions with healthcare professionals, third-party payors, patients and others will expose us to broadly applicable fraud and abuse, antikickback, false claims and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell, and distribute ZELSUVMI, approved products not yet launched and other product candidates, if we obtain regulatory approval. The U.S. federal healthcare laws and regulations that may affect our ability to operate include, but are not limited to: +• the federal healthcare Anti-Kickback Statute, which prohibits, among other things, persons and entities from knowingly and willfully soliciting, offering, paying, or receiving remuneration, (anything of value), directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, lease order or arranging for or recommending the purchase, lease or order of any good or service for which payment may be made, in whole or in part, by federal healthcare programs such as Medicare and Medicaid. This statute has been interpreted to apply to arrangements between pharmaceutical companies on one hand and prescribers, purchasers, formulary managers, and patients on the other. Liability under the Anti-Kickback Statute may be established without proving actual knowledge of the statute or specific intent to violate it; +• the federal civil FCA, which prohibits individuals or entities from, among other things, knowingly presenting, or causing to be presented a false or fraudulent claim for payment of government funds, or knowingly making, using or causing to made or used a false record or statement material to an obligation to pay money to the government or knowingly concealing or knowingly and improperly avoiding, decreasing or concealing an obligation to pay money to the federal government. Actions under the FCA may be brought by the Attorney General or as a qui tam action by a private individual in the name of the government. Such private individuals may share in amounts paid by the entity to the government in recovery or settlement. The government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal civil FCA; +• the federal civil monetary penalties laws, which impose civil fines for, among other things, the offering or transfer or remuneration to a Medicare or state healthcare program beneficiary, if the person knows or should know it is likely to influence the beneficiary’s selection of a particular provider, practitioner, or supplier of services reimbursable by Medicare or a state health care program, unless an exception applies; +• the federal HIPAA imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program, including private third-party payors, or for knowingly and willfully falsifying, concealing or covering up +47 +a material fact or making any materially false, fictitious or fraudulent statement or representation, or making or using any false writing or document knowing the same to contain any materially false, fictitious or fraudulent statement or entry in connection with the delivery of or payment for healthcare benefits, items or services. Similar to the federal healthcare Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it to have committed a violation; +• the federal Physician Payments Sunshine Act, implemented as the Open Payments Program, requires certain manufacturers of drugs, devices, biologics and medical supplies to report payments and other transfers of value to physicians for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to CMS information related to physicians (defined to include doctors, dentists, optometrists, podiatrists, and chiropractors), certain non-physician practitioners (physician assistants, nurse practitioners, clinical nurse specialists, certified nurse anesthetists, anesthesiology assistants and certified nurse-midwives) and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members. Manufacturers must submit reports on or before the 90th day of each calendar year disclosing reportable payments made in the previous calendar year; +• analogous state laws and regulations, such as state anti-kickback and false claims laws, which may apply to items or services reimbursed under Medicaid and other state programs or, in several states, regardless of the payer, including private insurers. Some state laws require pharmaceutical companies to report expenses relating to the marketing and promotion of pharmaceutical products and to report gifts and payments to individual health care providers in those states. Some of these states also prohibit certain marketing- related activities including the provision of gifts, meals, or other items to certain health care providers. Some states restrict the ability of manufacturers to offer co-pay support to patients for certain prescription drugs. Some states require the posting of information relating to clinical studies and their outcomes. Other states and cities require identification or licensing of sales representatives. In addition, several states require pharmaceutical companies to implement compliance programs or marketing codes of conduct; and +• analogous foreign laws and regulations, including restrictions imposed on the promotion and marketing of medicinal products in the EU member states and other countries, restrictions on interactions with healthcare professionals and requirements for public disclosure of payments made to physicians. Laws (including those governing promotion, marketing and anti-kickback provisions), industry regulations and professional codes of conduct often are strictly enforced. Even in those countries where we may decide not to directly promote or market our products, inappropriate activity by our international distribution partners could have implications for us. +Ensuring that our business arrangements and interactions with healthcare professionals, third-party payors, patients and others comply with applicable healthcare laws and regulations will require substantial resources. Various state, federal and foreign regulatory and enforcement agencies continue actively to investigate violations of healthcare laws and regulations, and the United States Congress continues to strengthen the arsenal of enforcement tools. +It is possible that governmental authorities will conclude that our business practices do not comply with current or future statutes, regulations or case law involving applicable healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to costly investigations, significant civil, criminal and administrative monetary penalties, imprisonment, damages, fines, disgorgement, exclusion from government funded healthcare programs, such as Medicare and Medicaid, contractual damages, diminished profits and future earnings, and the curtailment or restructuring of our operations, any of which could substantially disrupt our operations or financial results. Any action against us for violation of these laws or regulations, even if we successfully defend against us, could cause us to incur significant legal expenses and generate negative publicity, which could harm our financial condition and divert our management’s attention from the operation of our business. +Changes in and actual or perceived failures to comply with applicable data privacy, security and protection laws, regulations, standards and contractual obligations may adversely affect our business, operations and financial performance. +We and our partners are or may become subject to federal, state, and foreign laws, requirements and regulations that govern data privacy and security. The legislative and regulatory landscape for privacy and data protection continues to evolve, and there has been an increasing focus on privacy and data protection issues. Implementation standards and enforcement practices are likely to remain uncertain for the foreseeable future, and we cannot yet determine the impact of future laws, regulations, standards, or perception of their requirements may have on our business. This evolution may create uncertainty in our business, affect our ability to operate in certain jurisdictions or to collect, store, transfer, use, and share personal +48 +information, necessitate the acceptance of more onerous obligations in our contracts, result in liability, or impose additional costs on us. The cost of compliance with these laws, regulations, and standards is high and likely to increase in the future. +In the United States, numerous federal and state laws and regulations govern the collection, use, disclosure, and protection of personal information, including state data breach notification laws, federal and state health information privacy laws, and federal and state consumer protection laws. Each of these laws is subject to varying interpretations by courts and government agencies, creating complex compliance issues. If we fail to comply with applicable laws and regulations, we could be subject to penalties or sanctions, including criminal penalties if we knowingly obtain or disclose individually identifiable health information from a covered entity in a manner that is not authorized or permitted by HIPAA or applicable state laws. HIPAA imposes, among other things, certain standards relating to the privacy, security, transmission, and breach reporting of individually identifiable health information. We may obtain health information from third parties (including research institutions from which we obtain clinical trial data) that are subject to privacy and security requirements under HIPAA. Depending on the facts and circumstances, we could be subject to significant penalties if we violate HIPAA. +Certain states have also adopted comparable privacy and security laws and regulations, which govern the privacy, processing and protection of health-related and other personal information. Such laws and regulations will be subject to interpretation by various courts and other governmental authorities, thus creating potentially complex compliance issues for us and our future customers and strategic partners. For example, the California Consumer Privacy Act of as amended by the California Privacy Rights Act(collectively, the “CCPA”) requires covered businesses that process the personal information of California residents to, among other things: (i) provide certain disclosures to California residents regarding the business’s collection, use, and disclosure of their personal information; (ii) receive and respond to requests from California residents to access, delete, and correct their personal information, or to opt out of certain disclosures of their personal information; and (iii) enter into specific contractual provisions with service providers that process California resident personal information on the business’s behalf. Additional compliance investment and potential business process changes may be required. Similar laws have passed in other states and are continuing to be proposed at the state and federal level, reflecting a trend toward more stringent privacy legislation in the United States. The enactment of such laws could have potentially conflicting requirements that would make compliance challenging. In the event that we are subject to or affected by HIPAA, the CCPA or other domestic privacy and data protection laws, any liability from failure to comply with the requirements of these laws could adversely affect our financial condition. +We also may become subject to rapidly evolving data protection laws, rules and regulations in foreign jurisdictions. For example, the European Union General Data Protection Regulation (“GDPR”) went into effect in May 2018 and imposes strict requirements for processing the personal data of individuals within the European Economic Area(“EEA”) or in the context of our activities within the EEA. Companies that must comply with the GDPR face increased compliance obligations and risk, including more robust regulatory enforcement of data protection requirements and potential fines for noncompliance of up to €20 million or 4% of the annual global revenues of the noncompliant company, whichever is greater. In addition to fines, a breach of the GDPR may result in regulatory investigations, reputational damage, orders to cease/change our data processing activities, enforcement notices, assessment notices (for a compulsory audit) and/or civil claims (including class actions). Among other requirements, the GDPR regulates transfers of personal data subject to the GDPR to third countries that have not been found to provide adequate protection to such personal data, including the United States, and the efficacy and longevity of current transfer mechanisms between the EEA and the United States remains uncertain. Case law from the Court of Justice of the European Union (“CJEU”) states that reliance on the standard contractual clauses - a standard form of contract approved by the European Commission as an adequate personal data transfer mechanism - alone may not necessarily be sufficient in all circumstances and that transfers must be assessed on a case-by-case basis. On July 10, 2023, the European Commission adopted our Adequacy Decision in relation to the new EU-US Data Privacy Framework (“DPF”), rendering the DPF effective as a GDPR transfer mechanism to U.S. entities self-certified under the DPF. We expect the existing legal complexity and uncertainty regarding international personal data transfers to continue. In particular, we expect the DPF Adequacy Decision to be challenged and international transfers to the United States and to other jurisdictions more generally to continue to be subject to enhanced scrutiny by regulators. As a result, we may have to make certain operational changes, and we will have to implement revised standard contractual clauses and other relevant documentation for existing data transfers within required time frames. Further, the U.S. Department of Justice recently issued a final rule that went into effect in April 2025, known as the “Data Security Program,” (the “DSP Rule”), which regulates data transactions that could grant access to US sensitive personal data to certain foreign actors with connections to “countries of concern,” such as China, which the DSP refers to as “covered persons.” As supervisory authorities issue further guidance on personal data export mechanisms, and/or start taking enforcement action, we could suffer additional costs, complaints and/or regulatory investigations or fines, and/or if we are otherwise unable to transfer personal data between and among countries and regions in which we operate, it could affect +49 +the manner in which we provide our services, the geographical location or segregation of our relevant systems and operations, and could adversely affect our financial results. +Since the beginning of 2021, after the end of the transition period following the United Kingdom’s departure from the European Union, we are also subject to the United Kingdom General Data Protection Regulation and Data Protection Act 2018 (collectively, the “UK GDPR”), which imposes separate but similar obligations to those under the GDPR and comparable penalties, including fines of up to £17.5 million or 4% of a noncompliant company’s global annual revenue for the preceding financial year, whichever is greater. On October 12, 2023, the UK Extension to the DPF came into effect (as approved by the UK Government), as a data transfer mechanism to U.S. entities self-certified under the DPF. As we continue to expand into other foreign countries and jurisdictions, we may be subject to additional laws and regulations that may affect how we conduct business. Failure or perceived failure to comply with the GDPR, the UK GDPR, and other countries’ privacy or data security-related laws, rules, or regulations could result insignificant regulatory penalties and fines, affect our compliance with contracts entered into with our partners, collaborators and other third-party payors, and could have an adverse effect on our reputation, business, and financial condition. +Furthermore, the Federal Trade Commission (“FTC”) also has authority to initiate enforcement actions against entities that make deceptive statements about privacy and data sharing in privacy policies, fail to limit third-party use of personal health information, fail to implement policies to protect personal health information or engage in other unfair practices that harm customers or that may violate Section 5 of the Federal Trade Commission Act. Failing to take appropriate steps to keep consumers’ personal information secure can constitute unfair acts or practices in or affecting commerce in violation of Section 5(a) of the Federal Trade Commission Act. The FTC expects a company’s data security measures to be reasonable and appropriate in light of the sensitivity and volume of consumer information we hold, the size and complexity of our business, and the cost of available tools to improve security and reduce vulnerabilities. Additionally, federal and state consumer protection laws are increasingly being applied by FTC and states ‘attorneys general to regulate the collection, use, storage, and disclosure of personal or personally identifiable information, through websites or otherwise, and to regulate the presentation of website content. +Compliance with applicable data privacy and security laws, rules and regulations could require us to take on more onerous obligations in our contracts, require us to engage in costly compliance exercises, restrict our ability to collect, use and disclose data, or in some cases, impact our or our partners’ ability to operate in certain jurisdictions. Each of these constantly evolving laws can be subject to varying interpretations and may conflict with one another or other legal obligations with which we must comply. Any failure or perceived failure by us or our employees, representatives, contractors, consultants, collaborators, or other third parties comply with any such laws, rules, or regulations, or adequately address privacy and security concerns, even if unfounded, could result in government investigations and/or enforcement actions, fines, civil or criminal penalties, private litigation or adverse publicity that could adversely affect our business, financial condition and results of operations. +If plaintiffs bring product liability lawsuits against us or our partners, we or our partners may incur substantial liabilities and may be required to limit commercialization of our approved products, approved products not yet launched and product candidates. +As is common in our industry, we and our partners face an inherent risk of product liability as a result of the clinical testing of our product candidates in clinical trials and face an even greater risk for commercialized products. Although we are not currently a party to product liability litigation, if we are sued, we may be held liable if any product or product candidate we develop causes injury or is found otherwise unsuitable during product testing, manufacturing, marketing or sale. Regardless of merit or eventual outcome, liability claims may result in decreased demand for any product candidates, partnered products or products that we may develop, injury to our reputation, discontinuation of clinical trials, costs to defend litigation, substantial monetary awards to clinical trial participants or patients, loss of revenue and product recall or withdrawal from the market and the inability to commercialize any products that we develop. We have product liability insurance that covers up to a $15 million annual limit. Our insurance coverage may not be sufficient to cover all of our product liability-related expenses or losses and may not cover us for any expenses or losses we may suffer. If we are sued for any injury caused by our product candidates, partnered products or any future products, our liability could exceed our total assets. +We face risks related to handling of hazardous materials and other regulations governing environmental safety. +Our operations are subject to complex and stringent environmental, health, safety and other governmental laws and regulations that both public officials and private individuals may seek to enforce. Our activities that are subject to these +50 +regulations include, among other things, our use of hazardous materials and the generation, transportation and storage of waste. Although we have secured clearance from the EPA historically, and while we are currently operating in material compliance with applicable EPA rules and regulations, our business could be adversely affected if the EPA discovers that we or an acquired business is not in material compliance with these rules and regulations. +In the future, we may pursue the use of other surfactant substances that will require clearance from the EPA, and we may fail to obtain such clearance. Existing laws and regulations may also be revised or reinterpreted, or new laws and regulations may become applicable to us, whether retroactively or prospectively, that may have a negative effect on our business and results of operations. It is also impossible to eliminate completely the risk of accidental environmental contamination or injury to individuals. In such an event, we could be liable for any damages that result, which could adversely affect our business. +We may also be subject to other laws and regulations not specifically targeting the healthcare industry. +Certain regulations not specifically targeting the healthcare industry also could have material effects on our operations. For example, the California Financing Law (“CFL”),Division 9, Sections 22000-22780.1 of the California Financial Code, could be applied to us as a result of loans or similar arrangements we enter into with partners. If a regulator were to take the position that such loans were covered by the California Financing Law, we could be subject to regulatory action that could impair our ability to continue to operate and may have a material adverse effect on our profitability and business as we currently do not hold a CFL finance lenders license. Pursuant to an exemption under the CFL, a person may make five or fewer commercial loans with a California nexus in a 12-month period without a CFL finance lenders license if such loans are “incidental” to the business of the person making the loan. This exemption, however, creates some uncertainty as to which loans could be deemed as incidental to our business. In addition, there is another exemption that would allow a person without a CFL finance lenders license to make a single commercial loan with a California nexus in a12-month period. +Risks Related to our Common Stock +The market price and trading volume of our shares of Common Stock may experience rapid and substantial price volatility, which could cause purchasers of our Common Stock to incur substantial losses. +Recently, the market prices and trading volume of shares of Common Stock of other small publicly traded companies with a limited number of shares available to purchasers, have experienced rapid and substantial price volatility unrelated to the financial performance of those companies. Similarly, shares of our Common Stock may experience similar rapid and substantial price volatility unrelated to our financial performance, which could cause purchasers of our Common Stock to incur substantial losses, which may be unpredictable and not bear any relationship to our business and financial performance. Extreme fluctuations in the market price of our Common Stock may occur in response to strong and atypical retail investor interest, including on social media and online forums, the direct access by retail investors to broadly available trading platforms, the amount and status of short interest in our Common Stock and our other securities, access to margin debt, trading in options and other derivatives on our shares of Common Stock and any related hedging and other trading factors. +If there is extreme market volatility and trading patterns in our Common Stock, it may create several risks for investors, including the following: +• the market price of our Common Stock may experience rapid and substantial increases or decreases unrelated to our operating performance or prospects, or macro or industry fundamentals; +• if our future market capitalization reflects trading dynamics unrelated to our financial performance or prospects, purchasers of our Common Stock could incur substantial losses as prices decline once the level of market volatility has abated; +• if the future market price of our Common Stock declines, purchasers of shares of Common Stock may be unable to resell such shares at or above the price at which they acquired them. We cannot assure such purchasers that the market of our Common Stock will not fluctuate or decline significantly in the future, in which case investors could incur substantial losses. +51 +Further, we may incur rapid and substantial increases or decreases in our Common Stock price in the foreseeable future that may not coincide in timing with the disclosure of news or developments by or affecting us. Accordingly, the market price of our Common Stock may fluctuate dramatically, and may decline rapidly, regardless of any developments in our business. Overall, there are various factors, many of which are beyond our control, that could negatively affect the market price of our Common Stock or result in fluctuations in the price or trading volume of our Common Stock, including: +• actual or anticipated variations in our annual or quarterly results of operations, including our earnings estimates and whether we meet market expectations with regard to our earnings; +• our current inability to pay dividends or other distributions; +• publication of research reports by analysts or others about us or the industry in which we operate, including the pharmaceutical or biotechnology industry which may be unfavorable, inaccurate, inconsistent or not disseminated on a regular basis; +• changes in market valuations of similar companies; +• market reaction to any additional equity, debt or other securities that we may issue in the future, and which may or may not dilute the holdings of our existing stockholders; +• additions or departures of key personnel; +• actions by institutional or significant stockholders; +• short interest in our Common Stock or our other securities and the market response to such short interest; +• the dramatic increase in the number of individual holders of our Common Stock and their participation in social media platforms targeted at speculative investing; +• speculation in the press or investment community about our company or industries in which we operate; +• strategic actions by us or our competitors, such as acquisitions or other investments; +• legislative, administrative, regulatory or other actions affecting our business, our industry, including positions taken by the FDA; +• investigations, proceedings, or litigation that involve or affect us; +• the occurrence of any of the other risk factors included in this Annual Report on Form 10-K; and +• general market and economic conditions. +Our Common Stock is currently listed on NYSE American. NYSE American may delist our Common Stock from trading, which could limit investors’ ability to make transactions in our securities and subject us to additional trading restrictions. +Should we fail to satisfy the continued listing requirements for remaining listed on NYSE American, such as the corporate governance requirements or the minimum closing bid price requirement, NYSE American may take steps to delist our Common Stock. Such a delisting would likely have a negative effect on the price of our Common Stock and would impair your ability to sell or purchase our Common Stock when you wish to do so. In the event of a delisting, we would take actions to restore our compliance with NYSE American’s listing requirements, but we can provide no assurance that any such action taken by us would allow our Common Stock to become listed again, stabilize the market price or improve the liquidity of our Common Stock, prevent our Common Stock from dropping below NYSE American’s minimum bid price requirement or prevent future non-compliance with such listing requirements. +If we cannot maintain the listing of our Common Stock for trading on NYSE American, we could face significant material adverse consequences, including: +• a limited availability of market quotations for our Common Stock; +• reduced liquidity for our Common Stock; +• a determination that our Common Stock is a “penny stock” which will require brokers trading in our Common Stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our Common Stock; +• a limited amount of news and analyst coverage; and +• a decreased ability to issue additional Common Stock or obtain additional financing in the future. +We could issue “blank check” preferred stock without stockholder approval with the effect of diluting then current stockholder interests and impairing their voting rights; and provisions in our charter documents could discourage a takeover that stockholders may consider favorable. +Our articles of incorporation authorizes the issuance of up to 20,000,000 shares of “blank check” preferred stock with designations, rights and preferences as may be determined from time to time by our Board. Our Board is empowered, without stockholder approval, to issue a series of preferred stock with dividend, liquidation, conversion, voting or other +52 +rights which could dilute the interest of, or impair the voting power of, our common stockholders. The issuance of a series of preferred stock could be used as a method of discouraging, delaying, or preventing a change in control of the Company. For example, it would be possible for our Board to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to change control of the Company. +The Company has issued Series A Preferred Stock, par value of $0.0001 per share. For further information regarding our shares of Series A Preferred Stock, please refer to the Certificate of Designations of Series A Convertible Redeemable Preferred Stock, filed with the Secretary of State of the State of Nevada on July 1, 2025 filed as an exhibit to, and the disclosure contained in, our Form S-1A filed with the SEC on January 20, 2023. +The Company has issued Series C Convertible Redeemable Preferred Stock, par value of $0.0001 per share (“Series C Preferred Stock”). For further information regarding our shares of Series C Preferred Stock, please refer to the Certificate of Designations of Series C Convertible Redeemable Preferred Stock, filed with the Secretary of State of the State of Nevada on November 8, 2024 filed as an exhibit to, and the disclosure contained in, our Post-Effective Amendment No. 1 on Form S-1 filed with the SEC on November 22, 2024. +Our articles of incorporation designate the Second Judicial District Court, in and for the State of Nevada, located in Washoe County, Nevada, as the exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or agents. +Our articles of incorporation require that, to the fullest extent permitted by law, and unless we otherwise consent in writing to the selection of an alternative forum, the Second Judicial District Court, in and for the State of Nevada, located in Washoe County, Nevada, (or if the Second Judicial District Court does not have jurisdiction, any other state district court located in the State of Nevada, and if no state district court in the State of Nevada has jurisdiction, any federal court located in the State of Nevada), will be the exclusive forum for each of the following: +• any derivative action, suit or proceeding brought on behalf of the Company, +• any action, suit or proceeding asserting a claim of breach of a fiduciary duty owed by any director, officer, employee or stockholder of the Company to the Company or to the Company’s stockholders, or +• any action, suit or proceeding arising pursuant to any provision of the Nevada Revised Statutes (“NRS”) Chapter 78 of the State of Nevada, as amended or our bylaws or our articles of incorporation (as either may be amended and/or restated from time to time) +The exclusive forum provision provides federal courts located in the State of Nevada as the forum for suits brought to enforce any duty or liability for which Section 27 of the Exchange Act establishes exclusive jurisdiction with the federal courts, or any other claim for which the federal courts have exclusive jurisdiction. In addition, Section 22 of the Securities Act provides that federal and state courts have concurrent jurisdiction over lawsuits brought under the Securities Act or the rules and regulations thereunder. To the extent the exclusive forum provision restricts the courts in which claims arising under the Securities Act may be brought, there is uncertainty as to whether a court would enforce such a provision. We note that investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. Although we believe this provision will benefit the Company by providing increased consistency in the application of Nevada law in the types of lawsuits to which it applies, the provision may have the effect of discouraging lawsuits against our directors and officers. +Our Series A Preferred Stock and Series C Preferred Stock have liquidation preferences over our Common Stock. +Our Series A Preferred Stock and Series C Preferred Stock have liquidation preferences that gets paid prior to any payment on our Common Stock. As a result, if we were to liquidate, dissolve or wind-up, each holder of our Series A Preferred Stock and Series C Preferred Stock would have the right to receive payment out of our assets available for distribution, before any amount is paid to the holders of our Common Stock, in an amount per share such holder would receive if such holder converted such preferred share into Common Stock immediately prior to the date of such payment. Holders of the Series A Preferred Stock will be entitled to receive dividends. The payment of the liquidation preferences on the Series A Preferred Stock could result in holders of our Common Stock not receiving any proceeds if we were to liquidate, dissolve or wind up, either voluntarily or involuntarily. +The existence of the liquidation preferences may reduce the value of our Common Stock, make it harder for us to sell shares of Common Stock in offerings in the future, or prevent or delay a change of control. +53 +If securities or industry analysts do not publish research or reports about our business, or publish negative reports about our business, or we don’t meet expectations in those research reports, our Common Stock price and trading volume could decline. +The trading market for our Common Stock may depend in part on the research and reports that securities or industry analysts may publish about us or our business, our market and our competitors. We do not have any control over such analysts. If one or more such analysts downgrade or publish a negative opinion of our Common Stock or we do not meet expectations as set forth in those research reports, the Common Stock price would likely decline. If analysts do not cover us or do not regularly publish reports on us, we may not be able to attain visibility in the financial markets, which could have a negative impact on our Common Stock price or trading volume. +The price of our securities may be volatile and fluctuate substantially, which could result in substantial losses for purchasers of our securities. +The market price of our securities is likely to be highly volatile due to many factors, including: +• our ability to successfully proceed to and conduct clinical trials; +• results of preclinical and clinical trials of our existing lead or new future compounds or those of our competitors; +• the success of competitive products or technologies; +• commencement or termination of collaborations; +• regulatory or legal developments in the United States and other countries; +• developments or disputes concerning patent applications, issued patents or other proprietary rights; +• the recruitment or departure of key personnel; +• the level of expenses related to any of our current or future compounds or clinical development programs; +• the results of our efforts to discover, develop, acquire or in-license additional new compounds; +• actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts; +• a slowing growth rate or decline in our revenue associated with the sale of our products; +• our inability to obtain or delays in obtaining adequate product supply for any approved product or inability to do so at acceptable prices; +• disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our technologies; +• significant lawsuits, including patent or stockholder litigation; +• variations in our financial results or those of companies that are perceived to be similar to us; +• changes in the structure of healthcare payment systems; +• market conditions in the pharmaceutical and biotechnology sectors; +• seasonality associated with officer closures, weather, and other factors; +• general economic, industry and market conditions; and +• the other factors described in this “Risk Factors” section. +The stock markets have experienced extreme volatility in recent years that has been unrelated to operating performance. These broad market fluctuations may adversely affect the trading price of our securities. In the past, following periods of volatility in the market price of a company’s securities, class action litigation has often been instituted against the affected company. Any litigation of this type brought against us could result in substantial costs and a diversion of our management’s attention and resources, which would harm our business, results of operations, financial condition and cash flows. +We have broad discretion in the use of our cash and may not use them effectively. +Our management will have broad discretion in the application of our cash and could spend the proceeds in ways that do not improve our results of operations or enhance the value of our Common Stock. The failure by our management to apply these funds effectively could result in financial losses that could have a material adverse effect on our business, cause the price of our Common Stock to decline and delay the development of any new compounds that we may develop. Pending their use, we may invest our cash in a manner that does not produce income or that loses value. +The requirements of being a public company may strain our resources and divert management’s attention. +As a public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act and other applicable securities rules and regulations. The Exchange Act requires, among other things, that we file annual and current reports with the SEC with respect to our +54 +business and operating results. Compliance with these rules and regulations increases our legal and financial compliance costs, makes some activities more difficult, time-consuming, or costly, and increases demand on our systems and resources. +As a result of disclosure of information in this Annual Report on Form 10-K and in filings required of a public company, our business and financial condition is more visible, which we believe may result in threatened or actual litigation, including by competitors and other third parties. If such claims are successful, our business and operating results could be harmed, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert resources of our management and harm our business and operating results. +Because we do not anticipate paying any cash dividends on our capital stock in the foreseeable future, capital appreciation, if any, will be your sole source of gain. +We have never declared or paid cash dividends on our capital stock. We currently intend to retain all of our future earnings, if any, to finance the growth and development of our business. In addition, the terms of any future debt agreements may preclude us from paying dividends. As a result, capital appreciation, if any, of our Common Stock will be your sole source of gain for the foreseeable future. +Other Risks and Uncertainties Affecting Our Business +The occurrence of a catastrophic disaster could disrupt our business, damage our facilities beyond insurance limits, increase our costs and expenses, or we could lose key data which could cause us to curtail or cease operations. +We are vulnerable to damage, business disruptions and/or loss of vital data from natural or man-made disasters, such as earthquakes, tornadoes, severe weather conditions, power loss, fire, floods and similar events, as well as from accidental loss or destruction. If any disaster were to occur, our ability to operate our business could be seriously impaired. We maintain property, liability, and business interruption insurance which may not be adequate to cover our losses resulting from disasters or other similar significant business interruptions, and we do not plan to purchase additional insurance to cover such losses due to the cost of obtaining such coverage. Any significant losses that are not recoverable under our insurance policies could seriously impair our business, financial condition and prospects. +Impairment charges pertaining to goodwill, identifiable intangible assets or other long-lived assets from our mergers and acquisitions could have an adverse impact on our results of operations and our market value. +The total purchase price pertaining to transactions that result in the fair valuing of assets and liabilities, may be allocated to net tangible assets, identifiable intangible assets, in-process research and development and goodwill. To the extent the value of goodwill or identifiable intangible assets or other long-lived assets become impaired, we will be required to incur material charges relating to the impairment. Any impairment charges could have a material adverse impact on our results of operations and our market value. +Our results of operations and liquidity needs could be materially negatively affected by market fluctuations and economic downturn. +Our results of operations could be materially negatively affected by economic conditions generally, both in the United States and elsewhere around the world. Concerns over inflation, energy costs, geopolitical issues, military conflicts, including Operation Epic Fury involving U.S. military strikes against Iran, the wars between Russia and Ukraine and Israel and Hamas, terrorism, public health emergencies or pandemics, the availability and cost of credit, and the U.S. financial markets have in the past contributed to, and may continue in the future to contribute to, increased volatility and diminished expectations for the economy and the markets. Sanctions imposed by the United States and other countries in response to military conflicts, including the wars between Russia and Ukraine and Israel and Hamas, may also adversely impact the financial markets and the global economy, and any economic countermeasures by the affected countries or others could exacerbate market and economic instability. Domestic and international equity markets periodically experience heightened volatility and turmoil. These events may have an adverse effect on us. In the event of a market downturn, our results of operations could be adversely affected by those factors in many ways, including making it more difficult for us to raise funds if necessary, and our value may decline. We cannot provide assurance that our investments are not subject to adverse changes in market value. If our investments experience adverse changes in market value, we may have less capital to fund our operations. +55 +Our business is subject to risks arising from pandemic and epidemic diseases. +Future pandemics, including the residual effects of the COVID-19 pandemic, or other public health epidemics, pose the risk that we or our employees, contractors, including our CROs, suppliers, and other partners may be prevented from conducting business activities for an indefinite period of time, including due to spread of the disease within these groups or due to shutdowns that may be requested or mandated by governmental authorities. Although we currently do not believe the COVID-19 pandemic is having a material impact on our business, we cannot guarantee that pandemics, such as COVID-19 or the emergence of variants thereof, or a similar event, will not impact our operations in the future. +Although we believe that we and our partners have adjusted their business practices to the impacts of the COVID-19 pandemic, in the future, we may experience similar pandemics or epidemic diseases that could severely impact our business, drug manufacturing and supply chain, nonclinical activities and clinical trials, including due to delays or difficulties in enrolling patients in clinical trials, diversion of healthcare resources away from the conduct of clinical trials, interruption of, or delays in receiving, supplies of product or product candidates from contract manufacturing organizations due to staffing shortages, production slowdowns or stoppages and disruptions in delivery systems, interruption or delays to discovery and development pipelines and difficulties launching or commercializing products, including due to reduced access to doctors as a result of social distancing protocols. +The extent to which the emergence of new variants of COVID-19, or any other outbreak of a pandemic or epidemic disease, impacts our results will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of the virus and the actions to contain our impact. Further, to the extent any pandemic or epidemic disease adversely affects our business and financial results, we may also have the effect of heightening many of the other risks described in this section. +The biopharmaceutical industry may be negatively affected by federal government deficit reduction policies, which could reduce the value of ZELSUVMI. +In an effort to contain the U.S. federal deficit, the biopharmaceutical industry could be considered a potential source of savings and could be the target of legislative proposals aimed at reducing federal expenditures. Government action to reduce U.S. federal spending on entitlement programs, including Medicare, Medicaid or other publicly funded or subsidized health programs, or to lower drug spending, may affect payment for ZELSUVMI. These and any other cost controls or any significant additional taxes or fees that may be imposed on the biopharmaceutical industry as part of deficit reduction efforts could reduce cash flows and adversely affect our business, financial condition or results of operations. +We may pursue strategic transactions, including asset divestitures, sales, spin‑outs or other distributions, which could materially adversely affect our business, financial condition, results of operations and the value of our securities. +From time to time, we may evaluate and pursue strategic transactions, including the divestiture, sale, spin‑out or other disposition of certain assets, businesses or subsidiaries, or the distribution of assets or securities to our stockholders, including through dividends or other means. For example, we may in the future determine to separate one or more businesses or subsidiaries from the Company. Any such transaction could divert management’s attention and resources away from our ongoing operations and could be complex, time‑consuming and costly to execute. Separating a business or subsidiary may involve challenges related to disentangling operations, personnel, intellectual property, contractual arrangements, financial reporting systems and other infrastructure, and may result in the loss of operational or strategic benefits previously realized from the combined organization. Further, we may opt not to consummate any divesture, sale or spin-out that we evaluate and pursue. +In addition, any divestiture, sale or spin‑out could result in the loss of revenues, cash flows or other benefits associated with the assets or businesses that are separated, and could expose us to liabilities, disputes or litigation arising from the transaction or the post‑separation relationship between the Company and the separated business. We may also incur significant transaction‑related costs, restructuring charges, impairment charges or other expenses, and we may be required to obtain regulatory approvals or third‑party consents that could delay or prevent the completion of a transaction or impose conditions that reduce its anticipated benefits. Further, such transactions could result in adverse tax consequences to us or our stockholders, including the risk that a transaction does not qualify as tax‑free for U.S. federal income tax purposes. +If we were to distribute shares of a subsidiary or other business to our stockholders, there can be no assurance that an active trading market for such securities would develop or be sustained, or that the market value of such securities would reflect +56 +the value that stockholders might expect. Any of these factors could cause our remaining business to be less diversified, more exposed to market or operational risks, or less able to generate sufficient revenues or cash flows, and could materially adversely affect our business, financial condition, results of operations and the value of your investment in our securities. +Our business could be adversely impacted if there are deficiencies in our disclosure controls and procedures or our internal control over financial reporting. +The design and effectiveness of our disclosure controls and procedures and our internal control over financial reporting may not prevent all errors, misstatements or misrepresentations. There can be no guarantee that our disclosure controls and procedures and internal control over financial reporting will be effective in accomplishing all control objectives all of the time. Deficiencies, including any material weaknesses, in our disclosure controls and procedures or internal control over financial reporting could result in misstatements of our results of operations or our consolidated financial statements or could otherwise materially and adversely affect our business, reputation, results of operations, financial condition or liquidity. +We have previously identified material weaknesses in our internal control over financial reporting. +Prior to our IPO, we were a private company and had limited accounting and financial reporting personnel and other resources with which to address our internal controls and related procedures. In connection with the audit and review, as applicable, of our consolidated financial statements for the year ended December 31, 2024, we identified material weaknesses in our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis. The material weaknesses in our case arose from inadequate segregation of duties, ineffective information technology controls and lack of certain financial reporting and transaction processing controls. +As part of the Merger, we have increased the number of and improved the qualifications of those employees related to both information technology and financial reporting for the Company. In addition, since the Merger, the Company has migrated its primary information technology systems and financial reporting platform to those systems acquired as part of the Merger, including an ERP system. The expansion in the number of personnel within the finance and accounting function has allowed for (i) more robust operating and disclosure controls, (ii) significantly optimized segregation of duties, and (iii) the documentation and implementation of additional controls. We have devoted, and plan to continue to devote, significant efforts and resources to our internal control over financial reporting with respect to the complex accounting matters associated with a commercial pharmaceutical business. During the quarter ended December 31, 2025, we have engaged additional sources of personnel with technical expertise to assist in accounting for certain transactions during the year ended December 31, 2025. Based on the actions taken since the Merger, and management’s assessment as of December 31, 2025, we have concluded that we have remediated the material weaknesses from the prior year and that our internal control over financial reporting is now effective. +If we fail to maintain effective internal controls appropriate for a public company, we may be unable to produce timely and accurate consolidated financial statements, and we may conclude that our internal control over financial reporting is not effective, which could adversely impact our investors’ confidence and our stock price. +Our failure to maintain compliance with stock exchange listing requirements could result in our Common Stock being delisted. +Our Common Stock is listed on NYSE American. We are required to meet certain financial and other listing standards. If we fail to satisfy these requirements, our Common Stock could be subject to delisting. Delisting could reduce the liquidity of our Common Stock, limit our ability to raise capital and adversely affect the market price of our Common Stock. +Our internal computer systems, or those of our collaborators or other contractors or consultants, may fail or suffer security breaches, which could result in a material disruption of our product development programs. +Our internal computer systems and those of our current and any future collaborators and other contractors or consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. +57 +While we have not experienced any such material system failure, accident or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our development programs and our business operations, whether due to a loss of our trade secrets or other proprietary information or other similar disruptions. For example, the loss of clinical trial data from completed or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability, our competitive position could be harmed, and the further development and commercialization of our compounds could be delayed. +Cyber-security incidents, including data security breaches or computer viruses, could harm our business by disrupting our delivery of services, damaging our reputation or exposing us to liability. +We receive, process, store and transmit, often electronically, confidential data of others. Unauthorized access to our computer systems or stored data could result in the theft or improper disclosure of confidential information, the deletion or modification of records, or could cause interruptions in our operations. These cyber-security risks increase when we transmit information from one location to another, including transmissions over the Internet or other electronic networks. Despite implemented security measures, our facilities, systems, and procedures, and those of our third-party service providers, may be vulnerable to security breaches, acts of vandalism, software viruses, misplaced or lost data, programming and/or human errors, or other similar events which may disrupt our delivery of services or expose the confidential information of our customers and others. Any security breach involving the misappropriation, loss or other unauthorized disclosure or use of confidential information of others, whether by us or a third party, could: (i) subject us to civil and criminal penalties; (ii) have a negative impact on our reputation; or (iii) expose us to liability to our customers, third parties or government authorities. +We are an “emerging growth company” and the reduced disclosure requirements applicable to emerging growth companies may make our Common Stock less attractive to investors. +We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions and relief from various reporting requirements that are applicable to other public companies that are not “emerging growth companies.” In particular, while we are an “emerging growth company: (i) we will not be required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act; (ii) we will be exempt from any rules that may be adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotations or a supplement to the auditor’s report on financial statements; (iii) we will be subject to reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements; and (iv) we will not be required to hold nonbinding advisory votes on executive compensation or stockholder approval of any golden parachute payments not previously approved. Investors may find our Common Stock less attractive if we rely on the exemptions and relief granted by the JOBS Act. If some investors find our Common Stock less attractive as a result, there may be a less active trading market for our Common Stock and our stock price may decline or become more volatile. +We have taken advantage of reduced reporting burdens in this Report. We cannot predict whether investors will find our Common Stock less attractive if we rely on certain or all of these exemptions. If some investors find our Common Stock less attractive as a result, there may be a less active trading market for our Common Stock and our stock price may be more volatile. +In addition, the JOBS Act provides that an emerging growth company may take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. +Item 1B. Unresolved Staff Comments +None. +Item 1C. Cybersecurity +Risk Management and Strategy +We maintain a comprehensive cybersecurity risk management program designed to identify, assess, and mitigate material risks posed by evolving cybersecurity threats. +58 +Our program employs a multi‑layered strategy that includes: +• Governance through policies and technical controls that guide employee behavior and enforce secure practices. +• Centralized access administration, including required manager and system‑owner approvals, and prompt removal of access when roles change. +• Access provisioning based on the Principle of Least Privilege (PoLP) to restrict hardware, network, and data access to only what users need. +• Ongoing monitoring using a variety of software tools to detect potential cyber threats. +• Ongoing evaluation and improvement of cybersecurity safeguards employed by the company. +• Multi-layered system and data backup strategies for effective mitigation of potential cyber events. +• Ongoing employee education, including regular cybersecurity training and phishing simulations. +These controls work together to strengthen our security posture and safeguard the organization’s information assets. +To date, cybersecurity threats, including those resulting from any previous cybersecurity incidents, have not materially affected our Company, including our business strategy, results of operations or financial condition. We do not believe that cybersecurity threats resulting from any previous cybersecurity incidents of which we are aware are reasonably likely to materially affect our Company. See “Our internal computer systems, or those of our collaborators or other contractors or consultants, may fail or suffer security breaches, which could result in a material disruption of our product development programs” and “ Cyber-security incidents, including data security breaches or computer viruses, could harm our business by disrupting our delivery of services, damaging our reputation or exposing us to liability” in the “Risk Factors” section of this Annual Report on Form 10-K for further information. +Governance +Our management and board of directors recognize the critical importance of maintaining the trust and confidence of our business partners and employees, including the importance of managing cybersecurity risks as part of our larger risk management program. While all of our personnel play a part in managing cybersecurity risks, one of the key functions of our board of directors is informed oversight of our risk management process, including risks from cybersecurity threats. Our board of directors is responsible for monitoring and assessing strategic risk exposure, and our executive officers are responsible for the day-to-day management of the material risks that we face. In general, we seek to address cybersecurity risks through a cross-functional approach that is focused on preserving the confidentiality, integrity, and availability of the information that we collect and store by identifying, preventing, and mitigating cybersecurity threats and effectively responding to cybersecurity incidents when they occur. +Item 2. Properties +Our principal executive offices and primary API manufacturing operations are located in leased facilities in Durham, North Carolina. We lease approximately 19,265 rentable square feet within the Triangle Business Center pursuant to a lease that commenced in January 2021 and, as amended, has a term extending into 2032. The facility serves as our corporate headquarters and our primary site for the manufacturing of berdazimer sodium API used in ZELSUVMI. We own and operate the specialized manufacturing equipment used in API production at this site. The lease includes one option to extend the term for an additional five years at market rates, which we have not yet elected. +The Durham facility contains validated production suites, quality control laboratories, warehouse space, and administrative offices that support our commercial API manufacturing activities. We believe this facility provides sufficient capacity to meet our current commercial demand forecasts and allows for operational expansion through additional shifts without the need for significant new capital investment. +We do not own any real property. Other than the Durham facility described above, we do not lease any additional properties that we consider material to our business. Manufacturing of our finished drug product, ZELSUVMI, is conducted by a third-party contract manufacturer and does not require us to maintain additional owned or leased manufacturing real estate. +We believe our existing facilities are adequate for our current needs and that suitable additional space would be available on commercially reasonable terms if required in the future. +59 +Item 3. Legal Proceedings +From time to time, we may be involved in legal proceedings arising in the ordinary course of our business. We are not presently a party to any legal proceedings that, in the opinion of our management, would have a material adverse effect on our business. Regardless of outcome, litigation can have an adverse impact on us due to defense and settlement costs, diversion of management resources, negative publicity and reputation harm, and other factors. +Kopfli Matter +On February 14, 2024, Chromocell’s board of directors received a demand letter from an attorney representing Chromocell Holdings and its former Chief Executive Officer and former Chief Strategy Officer, Mr. Christian Kopfli, who was released for “cause.” Mr. Kopfli alleged an improper termination for “cause” and claimed to seek monetary damages in the amount of $479,169. Of the $479,169 asserted by Mr. Kopfli, as of September 30, 2024, Chromocell had accrued $363,091 in compensation expenses associated with Mr. Kopfli’s prior employment with Chromocell. However, Chromocell believed the assertions made by Mr. Kopfli were without merit and commenced a lawsuit against Mr. Kopfli and Chromocell Holdings in the Supreme Court for the State of New York, County of New York on June 7, 2024 (Index No. 652917/2024, the “New York Action”), asserting causes of action against Mr. Kopfli for breach of the Employment Agreement entered into on January 10, 2023 between Chromocell and Mr. Kopfli, breach of fiduciary duty by Mr. Kopfli, as well as breach of contract against Chromocell Holdings. Chromocell also asserted a “faithless servant” claim against Mr. Kopfli, seeking a ruling that Mr. Kopfli was not entitled to compensation from Chromocell. Chromocell sought monetary damages against Mr. Kopfli and Chromocell Holdings in the New York Action, plus disgorgement of all compensation previously paid or accrued to Mr. Kopfli by Chromocell. +By Order dated October 3, 2024, the court in the New York Action awarded Chromocell a default judgment against Mr. Kopfli and Chromocell Holdings on all claims. On October 7, 2025, following an inquest held before the Court regarding Chromocell’s damages, a judgment was entered in favor of Chromocell and against Mr. Kopfli and Chromocell Holdings, jointly and severally, in the amount of $17,950,810, as well as additional damages against Mr. Kopfli in the amount of $348,461. As of June 30, 2025, the Company has removed the accrual of $348,461 in compensation expenses (the “Judgment”). By a subsequent Order dated February 27, 2026, the Court in the New York Action ordered the assignment of Chromocell Holdings’ rights, title and interest in and to U.S. Patent No. 10,179,781 and its foreign counterparts to Chromocell in partial satisfaction of the Judgment. +Lang Demand Letter +On July 24, 2025, the Company received a demand latter (the “Lang Demand Letter”) from an attorney representing Dr. Eric Lang, the former Chief Medical Officer of the Company. The Lang Demand Letter asserted that the Company breached Dr. Lang’s employment contract with the Company and violated Dr. Lang’s rights under New Jersey wage and hour laws and the federal Consolidated Omnibus Budget Reconciliation Act. The Lang Demand Letter asserted potential liability of as much as $1,008,095, an amount that included liquidated damages of $640,000 that the Company believed was unavailable under applicable law. The Company settled the matter without payment of any liquidated damages. There is one remaining payment due under the employment contract, which is to be made not later than March 15, 2026. The Company believes that this matter has been full resolved. +Item 4. Mine Safety Disclosures +Not applicable. +60 +PART II +Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +Market Information +Our Common Stock is listed on NYSE American under the trading symbol “PTHS.” +Holders +As of March 11, 2026, there were 3,355,543 shares of our Common Stock outstanding. The number of record holders of our Common Stock is small because many of our shares are held in “street name” by brokers and other nominees on behalf of beneficial owners. +Dividends +We have never declared or paid cash dividends on our Common Stock and do not anticipate paying any cash dividends in the foreseeable future. We currently intend to retain any future earnings to fund the development and growth of our business. Any future determination to pay dividends will be at the discretion of our Board of Directors and will depend on our financial condition, operating results, capital requirements, contractual restrictions, and other factors our Board deems relevant. +Recent Sales of Unregistered Securities +On January 23, 2025, the Company agreed to issue 2,500 shares of Common Stock to a vendor in consideration for the services provided by the vendor to the Company. +In conjunction with the consummation of the Merger, the Company closed the PIPE Financing pursuant to the Securities Purchase Agreement executed concurrently with the Merger Agreement, by and among the Company, and the PIPE Investors. At the closing of the PIPE Financing, the Company issued an aggregate of 50,100 shares of Series A Preferred Stock to the PIPE Investors for gross proceeds of approximately $50.1 million, consisting of approximately $50.0 million in cash and the conversion of approximately $0.1 million of principal and interest under an outstanding convertible note. +Each share of Series A Preferred Stock is convertible into shares Common Stock, subject to certain beneficial ownership limitations, including a 49.9% cap for Ligand and a 4.99% or 9.99% cap for other PIPE Investors. Immediately following the PIPE Financing, certain PIPE Investors converted 23,810 shares of Series A Preferred Stock into an aggregate of 2,381,000 shares of Common Stock. +The Securities Purchase Agreement for the Series A Preferred Stock also provides the PIPE Investors with customary rights, including participation rights in future financings, anti-dilution protections, and registration rights pursuant to a certain registration rights agreement entered into on the Merger Closing Date. The Company was obligated to file a resale registration statement with the SEC covering the shares of Common Stock issuable upon conversion of the Series A Preferred Stock, which became effective on September 24, 2025. +On November 6, 2025, the Company issued and sold to investors pursuant to a securities purchase agreement, senior secured convertible notes of the Company, in the aggregate original principal amount of $18.0 million, which are convertible into shares of the Company’s Common Stock (the “Convertible Notes”). Each Convertible Note is convertible into shares of Common Stock, subject to certain beneficial ownership limitations, including a 49.9% cap for Ligand and a 4.99% or 9.99% cap for other convertible noteholders. +The Securities Purchase Agreement for the Convertible Notes also provides the PIPE Investors with customary rights, including participation rights in future financings, anti-dilution protections, and registration rights pursuant to a Registration Rights Agreement entered into on November 6, 2025 (the “Convertible Note Registration Rights Agreement”). The Company was obligated to file a resale registration statement with the SEC covering the shares of Common Stock issuable upon conversion of the Convertible Notes, which became effective on February 9, 2026. +The offers and sales of the above securities were deemed to be exempt from registration under the Securities Act in reliance upon Section 4(a)(2) of the Securities Act or Regulation D promulgated thereunder, or Rule 701 promulgated under Section 3(b) of the Securities Act, as transactions by an issuer not involving any public offering or pursuant to benefit plans and contracts relating to compensation as provided under Rule 701. The recipients of the above securities represented their +61 +intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof. +Purchases of Equity Securities by the Issuer and Affiliated Purchasers +We did not repurchase any shares during the fourth quarter of the fiscal year covered by this Annual Report on Form 10-K. +Item 6. [Reserved] +Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations +You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes appearing in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Report, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Risk Factors” section of this Report, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. +Background +Pelthos Therapeutics Inc. is a bio-pharmaceutical company committed to commercializing innovative, safe, and efficacious therapeutic products to help patients with unmet treatment burdens. The Company currently has three FDA approved products in its commercial portfolio, in various stages of commercialization, including ZELSUVMI TM , XEPI ® , and XEGLYZE ® . +The Merger between Channel and LNHC resulted in the Company initially having (i) a commercially marketable product, ZELSUVMI for the treatment of molluscum contagiosum, which was launched in July 2025 shortly after the Merger; (ii) a manufacturing facility, equipment and know-how to produce the API used in ZELSUVMI and the NITRICIL TM technology platform; and (iii) clinical-stage assets which selectively target the sodium ion-channel known as “NaV1.7”, which has been genetically validated as a pain receptor in human physiology. In addition, during the fourth quarter of 2025 the Company acquired two additional FDA approved products to expand its commercial product portfolio. +Recent Business Updates +Venture Loan and Security Agreement +On January 12, 2026, the Company entered into a Venture Loan and Security Agreement with Horizon Technology Finance Corporation, a Delaware corporation, as lender and collateral agent. The Venture Loan and Security Agreement provides for a senior secured term loan facility in an aggregate principal amount of up to $50.0 million. The proceeds of the facility will be used to support the commercialization of the Company’s existing commercialized pharmaceutical product, to prepare for the launch of two recently acquired products, working capital and general corporate purposes. The Company borrowed $30.0 million of the facility on January 12, 2026. The remaining $20.0 million of the facility may be borrowed upon the achievement by the Company of certain milestones set forth in the Venture Loan and Security Agreement. +Trends and Other Factors Affecting Our Business +Seasonality +Sales of ZELSUVMI may be affected by a number of factors, including but not limited to annual insurance deductible resets, weather, HCP office openings, holidays and school and summer activities. +During the fourth quarter of 2025, we experienced a downward impact on the growth of total prescriptions of ZELSUVMI associated with, we believe, is the seasonality corresponding with HCP office closures for the Thanksgiving, Christmas and New Year’s holidays. In addition, we believe that certain severe weather events, in addition to these holidays, may influence the ability of patients suffering from molluscum, or their care givers, from scheduling appointments with healthcare professionals. Also, many healthcare professionals also take time-off during these periods, which may impact the total number of prescriptions of ZELSUVMI written. +62 +During the first quarter of 2026, we experienced a return to the previous growth trend for total prescriptions of ZELSUVMI, which we believe supports our belief that there is an element of seasonality related to the total number of prescriptions written for ZELSUVMI at certain times during the year. +Our Customers +The Company primarily sells its ZELSUVMI product to national and regional wholesaler channels. Our wholesalers purchase products from us and, in turn, supply products to retail drug store chains, independent pharmacies and mail order pharmacies. +As of December 31, 2025, three of the Company’s wholesaler customers accounted for 90% of its total gross accounts receivable balance at 38%, 31% and 21%, respectively. In addition, for the year ended December 31, 2025, these three wholesalers accounted for 89% of gross revenue at 35%, 28% and 26%, respectively. +Competition +The pharmaceutical industry is subject to rapidly advancing technologies, intense competition, and a strong emphasis on proprietary products. The Company faces potential competition from many different sources, including major pharmaceutical, specialty pharmaceutical and biotechnology companies, compounding facilities, academic institutions, governmental agencies, and public and private research institutions. +ZELSUVMI is the first and only FDA-approved prescription pharmaceutical therapy for the treatment of molluscum contagiosum that can be administered by patients or caregivers outside of a medical setting. The Company believes the key competitive factors affecting the success of ZELSUVMI are likely to be its efficacy, safety, convenience, and pricing. With respect to ZELSUVMI for the treatment of molluscum contagiosum, the Company will be primarily competing with therapies such as other topical products, natural oils, off-label drugs, natural remedies, cantharidin or medical procedures such as curettage, cryotherapy, and laser surgery. +Key Factors Affecting Our Results of Operations and Future Performance +The Company believes that its financial performance has been, and in the foreseeable future will continue to be, primarily driven by multiple factors as described below, each of which presents growth opportunities for our business. These factors also pose important challenges that the Company must successfully address in order to sustain our growth and improve our results of operations. Our ability to successfully address these challenges is subject to various risks and uncertainties. +• The Company must effectively implement and maintain sales, marketing and distribution capabilities for our products to successfully commercialize and generate revenues from our products. +• Our products must achieve a broad degree of physician and patient adoption and use necessary for commercial success. The commercial success of our approved products depends significantly on the broad adoption and use of such products by physicians and patients for approved indications. +• Our product revenues will be dependent on sales to a few significant wholesale customers and the loss of, or substantial decline in, sales to one of these wholesale customers could have a material adverse effect on our expected future revenues and profitability. +• Delays or disruptions in our supply chain and the manufacturing of our product could adversely affect our sales and marketing efforts. +• Unexpected results in the analysis of raw materials, the API or drug product or problems with the execution of or quality systems supporting the analytical testing work, whether conducted internally or by third-party service providers, could adversely affect our commercialization activities. +63 +Results of Operations +On July 1, 2025, Channel, Merger Sub (a wholly owned subsidiary of Channel), LNHC, and solely for the purposes of Article III within the Merger Agreement, Ligand consummated the Merger, pursuant to which, (i) Merger Sub merged with and into LNHC, with LNHC as the surviving company in the Merger and, after giving effect to such Merger, continuing as a wholly-owned subsidiary of Channel and (ii) Channel changed its name to Pelthos Therapeutics Inc. +The post-Merger operating results of LNHC are reflected within the Company’s consolidated statement of operations and comprehensive loss for the year ended December 31, 2025, specifically from July 1, 2025 through December 31, 2025. +Comparison of the Years Ended December 31, 2025 and 2024 +The following table sets forth our results of operations for the years ended December 31, 2025 and 2024 (in thousands): +Years Ended December 31, Change +2025 2024 $ +Revenue +Net product revenues $ 16,206 $ — $ 16,206 +License and collaboration revenues 589 — 589 +Total revenue 16,795 — 16,795 +Operating expenses +Cost of goods sold 3,988 — 3,988 +Selling, general and administrative 42,453 6,392 36,061 +Research and development 1,228 1,179 49 +Amortization of intangible assets 1,556 — 1,556 +Total operating expenses 49,225 7,571 41,654 +Operating loss (32,430) (7,571) (24,859) +Other (expense) income +Interest expense (3,012) (786) (2,226) +Impairment of intangible assets (285) — (285) +Change in fair value of convertible debt (14,984) — (14,984) +Interest income and other income 5 402 (397) +Total other (expense) income (18,276) (384) (17,892) +Net loss before provision for income taxes (50,706) (7,955) (42,751) +Provision for income taxes (7,387) — (7,387) +Net loss and comprehensive loss $ (43,319) $ (7,955) $ (35,364) +Net Product Revenues +The Company currently sells ZELSUVMI to national and regional wholesalers in the United States. Revenue from product sales is recognized when the customer obtains control of the Company's product, which typically occurs on delivery. Revenue from product sales is recorded at the transaction price, net of estimates for variable consideration consisting of prompt-pay discounts, distribution service fees, government rebates, co-payment assistance and payor rebates and administration fees for which reserves are established. These reserves are based on estimates of the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable (if the amount is payable to the customer) or a liability (if the amount is payable to a party other than the customer). +For the year ended December 31, 2025, net product revenues were $16.2 million. Net product revenues relate solely to the commercial launch of ZELSUVMI, which was announced on July 10, 2025. +64 +License and Collaboration Revenues +The Company has one agreement related to a license of intellectual property to a third party. Per Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, the Company determines if there are distinct performance obligations identified in the arrangement. The Company recognizes revenues from non-refundable, upfront fees allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license. +License and collaboration revenues for the year ended December 31, 2025, were $0.6 million. This revenue is related to recognition of deferred revenue from a collaboration agreement with Sato Pharmaceutical Co., Ltd. (“Sato Agreement”). +For information about the Sato Agreement, see Note 6 — “Sato Agreement” in the accompanying notes to our consolidated financial statements. +Cost of Goods Sold +Cost of goods sold includes direct and indirect costs related to the manufacture, production, packaging, and distribution of the Company’s commercial products. These costs primarily consist of manufacturing costs, including allocated overhead, supply costs, third-party logistics and distribution expenses, quality control and assurance costs, and freight and shipping charges incurred in fulfilling customer orders. +Additionally, the Company’s product is subject to strict quality control and monitoring that is performed throughout the manufacturing process, including release of work-in-process to finished goods. In the event that certain batches or units of product do not meet quality specifications, the Company records a write-down of any potential unmarketable inventory to its estimated net realizable value. +The following table sets forth our cost of goods sold for the year ended December 31, 2025 and 2024 (in thousands): +Years Ended December 31, Change +2025 2024 $ +Cost of goods sold: +Products sold (including ASC 805 fair value adjustments) $ 2,933 $ — $ 2,933 +Write-off of inventory 1,055 — 1,055 +Total cost of goods sold $ 3,988 $ — $ 3,988 +The Company recorded work-in-process write-offs of $0.8 million during the year ended December 31, 2025 related to out of specification issues related to one manufactured batch of API and $0.3 million related to previously capitalized process validation expenses. +As part of the Merger, certain inventoried items were revalued subject to ASC 805, Business Combinations (“ASC 805”), as of July 1, 2025. For more information, see Note 3 — “Acquisition of LNHC, Inc.” in the accompanying notes to our consolidated financial statements. +Selling, General and Administrative Expense +Selling, general and administrative (“SG&A”) expense consists of personnel and non-personnel expenses to support growing sales of ZELSUVMI. Personnel-related expense includes salaries, incentive pay, benefits and share-based compensation for personnel engaged in sales, marketing, regulatory, quality, medical, non-capitalizable manufacturing, finance, information technology and administrative functions. +Non-personnel-related expense includes: (i) selling, patient services, pharmacovigilance, marketing, advertising, travel, sponsorships and trade shows; and (ii) other general and administrative costs, including consulting, legal, patent, insurance, accounting, information technology and facilities. +65 +The Company uses a third-party logistics provider (“3PL”) to perform a full order-to-cash service, which includes warehousing and shipping directly to its customers on its behalf. Activities performed by the 3PL as recorded in SG&A. SG&A expenses are recognized as they are incurred. +Royalty and/or milestone payments due to third parties under license arrangements or license agreements for commercial products, the associated payment obligations are expensed within SG&A and recorded as a current liability in the periods in which the obligation is incurred. +The following table summarizes our SG&A expense for the years ended December 31, 2025 and 2024 (in thousands): +Years Ended December 31, Change +2025 2024 $ +Personnel expense: +Salaries, incentive pay and benefits $ 14,155 $ 1,372 $ 12,783 +Stock-based compensation 5,461 1,560 3,901 +Total personnel expense 19,616 2,932 16,684 +Non-personnel expense: +Marketing, sales and commercial 7,796 — 7,796 +Facilities, manufacturing and depreciation 2,541 — 2,541 +Corporate and professional services 7,506 3,460 4,046 +Travel 991 — 991 +Royalty and milestones 2,836 — 2,836 +Regulatory and other 1,167 — 1,167 +Total non-personnel expense 22,837 3,460 19,377 +Total SG&A expense $ 42,453 $ 6,392 $ 36,061 +The increase in SG&A for the year ended December 31, 2025 as compared to the year ended December 31, 2024 is primarily due to increased headcount and other costs associated with the commercial launch of ZELSUVMI, which commenced on July 10, 2025. The additional expenses in 2025 include selling, patient services, pharmacovigilance, marketing, advertising, travel, sponsorships and trade shows related to the commercial detailing of ZELSUVMI. As of December 31, 2025 the Company had approximately 53 territory managers and regional sales managers actively engaged in commercialization efforts related to ZELSUVMI. +In addition, certain corporate, administrative, consulting, legal, patent, insurance, accounting, public company, information technology and facilities expenses have increased for the year ended December 31, 2025 as compared to the year ended December 31, 2024, following the launch of ZELSUVMI and the Merger. +Research and Development Expense +Research and development (“R&D”) expenses are recognized as they are incurred based on actual work completed through monitoring invoices received and discussions with internal personnel and external service providers as to the progress or stage of completion of preclinical activities, clinical studies and related supporting services for non-commercial assets. +R&D expenses related to the level of activities related for our NaV1.7 pain programs for the years ended December 31, 2025 and 2024 are noted below (in thousands): +Years Ended December 31, Change +2025 2024 $ +R&D expense: +Consultants, chemistry manufacturing, controls and other $ 1,228 $ 1,179 $ 49 +Total R&D expense $ 1,228 $ 1,179 $ 49 +66 +Amortization of Intangible Assets Expense +The amortization of intangibles is primarily related to (a) the Company's purchase accounting of LNHC associated with the Merger upon which the Company recognized intangible assets for (i) the rights it has to make, use and sell ZELSUVMI, and (ii) the Sato Agreement; and (b) the asset acquisition accounting for both the XEPI and XEGLYZE assets acquired during the fourth quarter of 2025. +These assets are being amortized on a straight-line basis over the lesser of the term of the agreement and the useful life of the license or asset. For the year ended December 31, 2025, amortization of intangible assets was $1.6 million. For more information, see Note 5 — “Goodwill and Intangible Assets” in the accompanying notes to our consolidated financial statements. +Interest Expense +Interest expense is primarily attributable to (a) interest on outstanding debt; and (b) the accounting treatment of certain royalty and purchases agreements entered into by the Company. Outstanding debt relates to the Convertible Notes, whereas the (i) Reedy Creek Purchase Agreement, (ii) ZELSUVMI Royalty Agreement, (iii) Channel Products Royalty Agreement, (iv) XEPI Royalty Agreement and (v) the Sato Payments related to amendments to prior royalty agreements or new royalty agreements associated with the closing of the convertible note. +The Company accounts for the royalty and purchase agreements as liabilities and will accrete the financings using the effective interest method based on estimated and actual cash flows payable to the counterparties over the estimated lives of the applicable agreements. At the effective date of the agreements, the effective annual interest rate of the specific financing was estimated and contains significant assumptions that affect both the amount recorded at the effective date and the interest expense that will be recognized over the term of the corresponding agreement. +The Company periodically assesses the estimated royalty payments and to the extent the amount or timing of such payments is materially different than the original estimates, an adjustment is made to the effective interest rate, which will be recorded prospectively to increase or decrease interest expense. There are a number of factors that could materially affect the amount and timing of royalty payments and the amount of interest expense recorded by the Company over the term. Such factors include, but are not limited to, volumes of revenue generated by the underlying products, changing standards of care, the introduction of competing products, manufacturing or other delays, generic competition, intellectual property matters, adverse events that result in regulatory authorities placing restrictions on the use of the drug products, delays or discontinuation of development and commercialization applicable products, and other events or circumstances that are not currently foreseen. Changes to any of these factors could result in increases or decreases to both forecasted revenues and interest expense. +For more information, see Note 8 — “Reedy Creek Liability” and Note 9 — “License and Other Agreements” in the accompanying notes to our consolidated financial statements. +The following table summarizes our interest expense for the years ended December 31, 2025 and 2024 (in thousands): +Years Ended December 31, Change +2025 2024 $ +Interest expense: +Reedy Creek Purchase Agreement $ (1,271) $ — $ (1,271) +ZELSUVMI Royalty Agreement (897) — (897) +Channel Products Royalty Agreement (149) — (149) +Xepi Royalty Agreement - Convertible Note (53) — (53) +Sato Payments - Convertible Note (27) — (27) +Convertible Note (234) — (234) +Other (381) (786) 405 +Total interest expense $ (3,012) $ (786) $ (2,226) +67 +Impairment of Intangible Assets +For the year ended December 31, 2025, the Company recorded an impairment of $0.3 million related to its Sato license intangible asset recorded as part of the Merger, based on the terms of the convertible note entered into on November 6, 2025. As partial consideration for the Convertible Notes, the Company granted to each of the convertible note investors (i) a 5.0% royalty on net sales of XEPI and (ii) the Company’s right to receive all royalty payments and milestone payments paid by Sato in respect of net sales of ZELSUVMI (less 50.0% of the milestone payment payable by Sato in respect of the first commercial sale of ZELSUVMI in Japan, which will be kept by the Company), to be shared pro rata among all the Convertible Investors. See Note 5 — “Goodwill and Intangible Assets” and Note 7 — “Notes Payable” in the accompanying notes to our consolidated financial statements for detail. +Change in Fair Value of Convertible Debt +On November 6, 2025, the Company entered into a securities purchase agreement with certain investors, including Ligand, pursuant to which, among other things, on the closing date, the convertible investors purchased for cash, and the Company issued and sold to the convertible investors, senior secured Convertible Notes of the Company in the aggregate original principal amount of $18.0 million, which are convertible into shares of the Company’s Common Stock at a conversion rate of $29.73. The Convertible Notes accrue interest at a rate of 8.5% per annum and mature on November 6, 2027. +The Company analyzed the terms of the Convertible Notes and its embedded features concluding it appropriate to account for the Convertible Notes at fair value under the allowable fair value option. Accordingly, the Company initially recognized the Convertible Notes at fair value and will subsequently measure the Convertible Notes at fair value with changes in fair value recorded in current period earnings, or other comprehensive income if specific to Company credit risk. +Due to the significant related-party relationships with certain investors and Ligand, the convertible securities purchase agreement is not presumed to be at arms-length. The Company estimated the initial fair value of the Convertible Notes and royalty obligations to be in excess of the transaction price. Accordingly, the Company initially recorded both instruments, which were determined to be free standing, at the issuance date fair value of $34.6 million and $3.2 million, respectively. This resulted in a loss on issuance of approximately $18.1 million. Subsequent to the issuance date of the Convertible Notes, the Company recorded an adjustment to fair value of the notes in the consolidated statement of operations in the amount of $3.2 million for the year ended December 31, 2025. As such, for the year ended December 31, 2025, total change in fair value of convertible debt was $14.9 million. See Note 7 — “Notes Payable” in the accompanying notes to our consolidated financial statements for additional detail. +Provision for Income Taxes +For the year ended December 31, 2025, the Company recorded an income tax benefit of $7.4 million. Prior to the LNHC acquisition, the Company had a deferred tax asset related to net operating losses that was fully offset with a valuation allowance. Based on the December 31, 2025 consolidated Company tax position, including both deferred tax assets related to historical net operating loss carryforwards and deferred tax liabilities associated with the LNHC acquisition, for the year ended December 31, 2025 the Company recorded an income tax benefit, primarily related to the release of valuation allowance for historical deferred tax assets. See Note 3 — “Acquisition of LNHC, Inc.” in the accompanying notes to our consolidated financial statements for additional details. +Liquidity and Capital Resources +During the year ended December 31, 2025 , the Company had a net loss of approximately $43.3 million . As of December 31, 2025 , the Company had cash of approximately $18.0 million and working capital of $27.4 million . For the year ended December 31, 2025, the Company recorded net revenue in the amount of $16.2 million, which represented six months of commercial activity for its lead commercial product, ZELSUVMI. For the year ended December 31, 2025, the Company recorded total operating expenses of $49.2 million. +On January 12, 2026, the Company entered into a Venture Loan and Security Agreement with Horizon Technology Finance Corporation, a Delaware corporation, as lender and collateral agent. The Venture Loan and Security Agreement provides for a senior secured term loan facility in an aggregate principal amount of up to $50.0 million. The proceeds of the facility will be used to support the commercialization of the Company’s existing commercialized pharmaceutical product, to prepare for the launch of two recently acquired products, working capital and general corporate purposes. The Company +68 +borrowed $30.0 million of the facility on January 12, 2026. The remaining $20.0 million of the facility may be borrowed upon the achievement by the Company of certain milestones set forth in the Venture Loan and Security Agreement. +As further discussed in Note 2 — “Basis of Presentation and Summary of Significant Accounting Policies” in the accompanying notes to our consolidated financial statements, in prior periods, management disclosed substantial doubt about the Company’s ability to continue as a going concern. The conditions and events that previously raised substantial doubt have been alleviated by management’s plans and actions. Based on current projections, including forecasted cash flows related to net product sales of ZELSUVMI, proceeds from the convertible note agreement in November 2025, proceeds from the initial draw of the January 2026 Venture Loan and Security Agreement, and the potential additional availability under the January 2026 Venture Loan and Security Agreement, management believes it has sufficient capital, or access to capital, to fund its operations through at least the next twelve months following the issuance of the accompanying consolidated financial statements and management has concluded there are no conditions or events that raise substantial doubt about the Company’s ability to continue as a going concern under ASC 205-40, Presentation of Financial Statements - Going Concern. While risks remain, management believes available liquidity and cash generation from operations are sufficient for near-term needs. +Cash Flows +The following table sets forth our cash flows for the periods indicated (in thousands): +Years Ended December 31, +2025 2024 +Net cash (used in) provided by: +Operating activities $ (22,590) $ (5,792) +Investing activities (5,236) — +Financing activities 45,336 6,209 +Net increase in cash, cash equivalents and restricted cash $ 17,510 $ 417 +Net Cash Used in Operating Activities +For the year ended December 31, 2025, net cash used in operating activities was $22.6 million and consisted primarily of a net loss of $43.3 million, with adjustments for non-cash amounts related primarily to (i) stock-based compensation expense of $5.5 million, (ii) amortization of definite lived intangible assets of $1.6 million, (iii) $0.7 million of depreciation expense, (iv) $2.4 million of accretion of interest expense for royalty obligations, (v) $1.1 million related to inventory write-offs, (vi) $0.3 million amortization of debt discount, (vii) $0.1 million of lease amortization, (viii) change in fair value of Convertible Notes of $15.0 million, (ix) impairment of intangible assets of $0.3 million, and (x) a $6.1 million decrease in cash related to changes in operating assets and liabilities. +The favorable impacts to cash related to changes in assets and liabilities was primarily due to (i) a $1.8 million change in inventory, (ii) a change in accounts payable and accrued expenses of $1.4 million and $6.2 million, respectively, (iii) a change in operating lease assets of $0.3 million, and (iv) a change in contingent consideration and other long-term assets and liabilities of $2.2 million. The unfavorable impacts to cash related to changes in (i) accounts receivable of $8.8 million, (ii) prepaid expenses and other assets of $0.9 million, (iii) operating lease liabilities of $0.3 million, (iv) a change in deferred revenue of $0.6 million, and (v) a change in deferred tax liabilities of $7.4 million. The change in operating assets and liabilities and related changes from the prior period primary relate to acquisition of LNHC, Inc. See Note 3 — “Acquisition of LNHC, Inc.” to the accompanying consolidated financial statements for additional detail. +For the year ended December 31, 2024, the Company incurred a net loss of $8.0 million and net cash flows used in operating activities was $5.8 million. The cash flow used in operating activities was primarily due to net loss, offset by stock-based compensation expense of $1.8 million, amortization of debt discount of $0.7 million, and a gain on default judgment of $0.4 million, and a change in accounts payable of $1.2 million, offset by a change in prepaid expenses of $0.9 million, a change in accrued expenses of $0.3 million. +69 +Net Cash Provided By Investing Activities +For the year ended December 31, 2025, net cash flows used in investing activities was $5.2 million, related primarily to (i) the acquisition of XEPI for $6.1 million, (ii) the acquisition of XEGLYZE for $1.8 million, and (iii) purchases of property and equipment of $0.1 million, partially offset by $2.8 million related to the LNHC acquisition. +The Company neither received nor used cash in investing activities during the year ended December 31, 2024. +Net Cash Provided by Financing Activities +For the year ended December 31, 2025, net cash flows provided by financing activities were $45.3 million, primarily from (i) net proceeds from the PIPE Financing related to the Merger of $27.4 million following the repayment of bridge loans in the amount of $18.8 million from Ligand and other PIPE Investors and $3.9 million of prior Company obligations and closing expenses, and (ii) gross proceeds from Convertible Notes of $17.9 million. +For the year ended December 31, 2024, net cash flows provided by financing activities were $6.2 million resulting from (i) net proceeds from Common Stock issued for cash of $6.0 million, (ii) $0.1 million from an equity line of credit, and (iii) proceeds from loans of $0.5 million, offset by payment on rescission on stock of $0.1 million, stock repurchases of $0.1 million and payments on loans of $0.2 million. +Capital Requirements +The Company may utilize its available financial resources sooner than it currently expects. The Company will need to raise additional capital in the future if it decides to expand its business, to develop other product candidates, or to pursue strategic investments or acquisitions, and it may consider raising additional capital to take advantage of favorable market conditions or financing opportunities or for other reasons. +Our future capital requirements will depend on many factors, including, but not limited to: +• The level of sales achieved from the commercialization of ZELSUVMI for the treatment of molluscum contagiosum; +• the costs of commercializing ZELSUVMI, XEPI and XEGLYZE, including our business development and marketing efforts; +• the effect of competing products and other market developments; +• the extent to which the Company acquires or seeks to develop other product candidates; +• the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patents and other intellectual property and proprietary rights, and +• our efforts to enhance operational systems and hire additional personnel to satisfy our obligations as a public company. +The Company anticipates that its principal uses of cash in the future will be primarily to fund our operations, working capital needs, capital expenditures and other general corporate purposes. However, any potential future additional issuances of equity, or debt that could be convertible into equity, would result in further dilution to our existing stockholders. +Off -Balance Sheet Arrangements +During the twelve months ended December 31, 2025 and 2024, the Company did not have, and it does not currently have, any off-balance sheet arrangements, as defined under applicable SEC rules. +Contractual Obligations and Commitments +We have entered into arrangements that contractually obligate us to make payments that will affect our liquidity and cash flows in future periods. Such arrangements include those related to our lease commitments, third-party license agreements, including licenses and long-term manufacturing agreements. +As described above, the Company's wholly owned subsidiary, LNHC, was formed in September 2023 to execute the Ligand acquisition of certain assets and liabilities from Novan in a 363 transaction. Per the 363 transaction, certain Novan +70 +agreements were assumed by LNHC and as of the Merger as of July 1, 2025, LNHC had certain rights and obligations related to various agreements. +Ligand Pharmaceuticals Inc. +On March 24, 2025, LNHC (i) assigned its rights to its intellectual property portfolio to Ligand (the “Assignment Agreement”); (ii) entered into an Exclusive License and Sublicense Agreement with Ligand (the “ZELSUVMI License”), pursuant to which Ligand licensed to LNHC the intellectual property rights necessary to make, use, sell or offer to sell ZELSUVMI for the treatment of molluscum contagiosum in humans worldwide, except for Japan; and (iii) entered into a Master Services Agreement For Product Supply (the “Ligand MSA”). In addition, on July 1, 2025, LNHC and Ligand entered into a Transition Services Agreement (the “Ligand TSA”). +Ligand Assignment Agreement +On March 24, 2025, LNHC assigned all of its intellectual property rights, including patents, to Ligand. The Assignment Agreement covered all assets within the NITRICIL patent portfolio and other nitric oxide releasing compounds previously held by LNHC. Historically, Novan and LNHC, through the 363 transaction, acquired exclusive rights to intellectual property, including those that were ultimately developed into the specific library of NITRICIL compounds, pursuant to license agreements with the University of North Carolina at Chapel Hill (“UNC”), entered into in July 2007 and October 2009, which were subsequently amended, restated and consolidated in June 2012 (the “UNC License Agreement”). Under the UNC License Agreement, Novan, and subsequently LNHC, was granted an exclusive, worldwide license, with the ability to sublicense, to develop and commercialize products utilizing the licensed intellectual property. Novan and LNHC amended the UNC License Agreement multiple times since June 2012 to both expand the scope of licensed patents to cover additional nitric oxide technologies and to modify certain regulatory and/or commercial milestones under the UNC License Agreement. The Assignment Agreement assigned all of these rights, patents and intellectual property to Ligand. +As of December 31, 2025 the last to expire patent related to ZELSUVMI originating from the UNC License Agreement, described below, is May 2026. Prior to the Assignment Agreement, LNHC had progressed the development of that in-licensed intellectual property portfolio from the UNC License Agreement and obtained 12 U.S. patents, in addition to two U.S. patents obtained with the original UNC License Agreement, resulting in a total of 14 issued U.S. patents covering ZELSUVMI. These 14 U.S. patents are expected to expire during the time period beginning in 2026 and ending in 2035. Upon the initial FDA approval of ZELSUVMI, LNHC applied for a 1,280 day patent term extension (“PTE”), for the U.S. patent covering ZELSUVMI compositions. Assuming grant of the PTE application, the term of this patent may be extended from February 27, 2034, to August 30, 2037. +Ligand Assignment Agreement Amendment +As an inducement to certain investors to enter into the Convertible Securities Purchase Agreement, discussed below, the Company and Ligand entered into Amendment No. 1 to the Assignment Agreement (the “Assignment Agreement Amendment”), pursuant to which Ligand agreed to pay the Company (i) 75% of the milestone payment received by Ligand from Sato in respect of the first commercial sale of the “Licensed Product” (as defined in Amended Sato Agreement) in Japan; and (ii) fifty percent (50%) of any other amounts received by Ligand from Sato under the Amended Sato Agreement solely in respect of the “Licensed Product” (and, for the avoidance of doubt, no other product covered by the Amended Sato Agreement) in the “Licensed Field” (in each case, as defined in the Amended Sato Agreement), less any out-of-pocket costs incurred by Ligand to effectuate its rights, obligations and responsibilities under the Amended Sato Agreement. +These amended rights to the Company were subsequently impacted by the terms of the Convertible Notes, in which the Company granted to each of the Convertible Investors (i) a 5.0% royalty on net sales of XEPI (ozenoxacin) cream, for topical use, and all other derivatives and modifications thereof, to be shared pro rata among all the Convertible Investors and (ii) the Company’s right to receive all royalty payments and milestone payments paid by Sato in respect of net sales of ZELSUVMI (less 50.0% of the milestone payment payable by Sato in respect of the first commercial sale of ZELSUVMI in Japan, which will be kept by the Company), to be shared pro rata among all the Convertible Investors. +Ligand Royalty Agreement +Under the terms of the ZELSUVMI License, Ligand is entitled to (i) a 13% royalty on worldwide sales, excluding, Japan, of ZELSUVMI prior to the expiration of the initial royalty term, defined as on a country-by-country basis, the period of time commencing on the effective date and continuing until the expiration or termination of the last to expire valid claim of +71 +the patent rights that are included in the specified intellectual property and that cover the licensed product; (ii) a 10.4% royalty on worldwide sales, excluding, Japan, of ZELSUVMI after the expiration of the initial royalty term; (iii) upon the first commercial sale of the ZELSUVMI, a $5.0 million milestone; (iv) upon the occurrence obtaining a threshold of $35.0 million in aggregate net sales during four consecutive calendar quarters, a $5.0 million milestone; and (vi) 30% of all non-royalty sublicense income received by the Company or its affiliates from any sublicensee. The first commercial sale milestone has been accrued within accrued expenses on the consolidated balance sheets as of December 31, 2025. +Ligand may terminate the ZELSUVMI License on 30 days’ prior notice to the Company if (i) the Company fails to launch ZELSUVMI in the U.S. by December 31, 2025; (ii) the Company fails to use commercially reasonable efforts to enter into an agreement with a third-party to commercialize ZELSUVMI in France, Germany, Italy, Spain and the United Kingdom by September 30, 2026; or (iii) the Company or its affiliates or potential sublicensee fails to receive regulatory approval for ZELSUVMI in France, Germany, Italy, Spain and the United Kingdom by March 31, 2027. +Under the ZELSUVMI License agreement, the Company is also obligated to satisfy certain contractual obligations pursuant to the license agreements with the University of North Carolina at Chapel Hill (“UNC”), entered into in July 2007 and October 2009 by Novan, which were subsequently amended, restated and consolidated in June 2012 (the “UNC License Agreement”), were assumed during the Novan 363 transactions and assigned to Ligand on March 24, 2025 by LNHC. +The UNC License Agreement is described below. The Company obligations regarding the UNC License Agreement include satisfying all payment obligations, due diligence, reporting, information, inspection and recordation obligations of Ligand under the UNC license agreement. +In addition, the Company also has development rights for a period of 1 year commencing on the effective date of the ZELSUVMI License, to negotiate a development and funding agreement to develop and commercialize the product program designated by Ligand as SB207. If the Parties are unable to enter into a mutually agreeable development and funding agreement within 1 year of the effective date of the ZELSUVMI License, the Company will have no further rights to the SB207 program under the ZELSUVMI License. +Ligand Master Services Agreement +On March 24, 2025, LNHC and Ligand entered into the Ligand MSA under which Ligand, or related parties, may contract with LNHC for LNHC to provide Ligand active pharmaceutical ingredients for clinical or commercial use related to NITRICIL technology. In addition, the agreement also allows Ligand to require LNHC to provide manufacturing technology transfer services, if requested by Ligand, for products utilizing NITRICIL technology other than ZELSUVMI for the treatment of molluscum contagiosum in humans, to a potential third-party manufacturer. +Ligand Transition Services Agreement +On July 1, 2025, LNHC and Ligand entered into the Ligand TSA under which Ligand and LNHC could provide certain services to the other party related to supportive activities for intellectual property, R&D, or regulatory services provide by the Company to Ligand, or for certain administrative functions to be provided to the Company by Ligand. The TSA governs the nature of the activities of work, their scope, and the amounts be the charged to either party based on services performed. +UNC License Agreement +The UNC License Agreement currently requires the Company to pay UNC up to $250,000 in regulatory and commercial milestones on a licensed product by licensed product basis and a running royalty percentage in the low single digits on net sales of licensed products. Licensed products include any products being developed by the Company or by its sublicensees. In addition, the Company is obligated to reimburse UNC for reasonable prosecution and maintenance costs related to intellectual property. The UNC License Agreement remains in effect on a country by country and licensed product by licensed product basis until the expiration of the last to expire issued patent covering such licensed product in the applicable country. +UNC may terminate the agreement or render the license granted thereunder non-exclusive for material breach of the agreement that remains uncured after 90 days of receipt of written notice thereof from UNC and may also terminate the +72 +agreement or render the license granted thereunder non-exclusive upon providing written notice for bankruptcy or insolvency-related events within 30 days of the occurrence of such events. +July 1, 2025 Royalty Agreements +As an inducement to enter into the Securities Purchase Agreement, See Note 1 — “Organization and Description of Business” in the accompanying notes to our consolidated financial statements for detail, on July 1, 2025 the Company entered into a Purchase and Sale Agreement with Nomis RoyaltyVest LLC (“NRV”) (the “ZELSUVMI Royalty Agreement”), pursuant to which the Company sold to NRV all of the Company’s rights, title and interest in and to a portion of the Company’s revenue payments for ZELSUVMI and all accounts with respect thereto. The purchase price was $1,000. +Under the terms of the ZELSUVMI Royalty Agreement, prior to the expiration of the initial royalty term NRV will receive (i) a 1.5% royalty on net sales of ZELSUVMI worldwide, other than in Japan; and (ii) 3.46% of non-royalty sublicensing payments received by the Company for its sublicensing of rights to ZELSUVMI, and after the expiration of the initial royalty term, NRV will receive (i) a 1.2% royalty on net sales of ZELSUVMI worldwide, other than in Japan; and (ii) 3.46% of non-royalty sublicensing payments received by LNHC for its sublicensing of rights to ZELSUVMI. The initial royalty term is defined as, on a country-by-country basis, the period of time commencing on the effective date and continuing until the expiration or termination of the last to expire valid claim of the patents that cover the ZELSUVMI. +On July 1, 2025, the Company and NRV, Ligand, and Madison Royalty LLC, a Colorado limited liability company (“Madison”, being formed on behalf of certain of the legacy Channel directors and management team with the Company’s Chief Financial Officer as the sole and managing member as of July 1, 2025 and December 31, 2025), entered into a Purchase and Sale Agreement (the “Channel Products Royalty Agreement”), pursuant to which the Company sold to each of NRV, Ligand, and Madison, and each of NRV, Ligand, and Madison purchased, all of the Company’s rights, title and interest in and to a portion of the Company’s revenue payments all accounts related to or utilizing the covered products, as defined within that agreement (the “Channel Covered Products”). The purchase price was $1,000. +Under the terms of the Channel Products Royalty Agreement, (A) prior to the expiration of the Initial Royalty Term, (i) NRV will receive a 5.3% royalty, Ligand will receive a 1.7% royalty and Madison will receive a 1.5% royalty on Net Sales (as defined in the Channel Products Royalty Agreement) of the Channel Covered Products worldwide, and (ii) NRV will receive 12.23%, Ligand will receive 3.92% and Madison will receive 3.46% of non-royalty sublicensing payments received by Pharmaceutical Sub for its sublicensing of rights to the Channel Covered Products worldwide; and (B) after the expiration of the Initial Royalty Term, (i) NRV will receive a 4.24% royalty, Ligand will receive a 1.36% royalty and Madison will receive a 1.2% royalty on Net Sales of the Channel Covered Products worldwide, and (ii) NRV will receive 12.23%, Ligand will receive 3.92% and Madison will receive 3.46% of non-royalty sublicensing payments received by Pharmaceutical Sub for its sublicensing of rights to the Channel Covered Products worldwide. The Initial Royalty Term is defined as, on a country-by-country basis, the period of time commencing on the effective date of the Merger and continuing until the expiration or termination of the last to expire valid claim of the patents that cover the Channel Covered Products. +November 6, 2025 Royalty Agreements +On November 6, 2025, concurrent with the XEPI Royalty Agreement, discussed below, the Company and NRV, Ligand, and Madison entered into Amendment No. 1 to the Channel Products Royalty Agreement (the “Amended Channel Products Royalty Agreement”), pursuant to which the Company, NRV, Ligand and Madison amended the definition of the Channel Covered Products to exclude (i) Nitricil-based technology and (ii) XEPI. The Company evaluated the amendment concluding that the modification would be treated as a debt extinguishment as the difference in cash flows is greater than 10%. Due to significant related party relationships with certain investors to the Amended Channel Products Royalty Agreement, the Company determined it appropriate to account for the extinguishment as a contribution increasing additional paid-in capital. +On November 6, 2025, the Company entered into the Convertible Securities Purchase Agreement, discussed below. Also, see Note 7 — “Notes Payable” in the accompanying notes to our consolidated financial statements for additional detail regarding these Convertible Notes. +As partial consideration for the Convertible Notes, the Company granted to each of the Convertible Investors (i) a 5.0% royalty on net sales of XEPI, for topical use, and all other derivatives and modifications thereof, to be shared pro rata among all the Convertible Investors, (the “XEPI Royalty Agreement”) and (ii) the Company’s right to receive all royalty +73 +payments and milestone payments paid by Sato in respect of net sales of ZELSUVMI (less 50.0% of the milestone payment payable by Sato in respect of the first commercial sale of ZELSUVMI in Japan, which will be kept by the Company), to be shared pro rata among all the Convertible Investors (the “Sato Payments”), collective with the Xepi Royalty Agreement, the “Convertible Royalty Agreements”. +Sato Agreement +On January 12, 2017, Novan entered into a license agreement, and related first amendment with Sato, relating to SB204, its drug candidate for the treatment of acne vulgaris in Japan (the “Sato Agreement”). Pursuant to the Sato Agreement, Novan granted to Sato an exclusive, royalty-bearing, non-transferable right and license under certain of Novan’s intellectual property rights, with the right to sublicense with Novan's prior written consent, to develop, use and sell products in Japan that incorporate SB204 in certain topical dosage forms for the treatment of acne vulgaris, and to make the finished form of such products. +On October 5, 2018, Novan and Sato entered into the second amendment (the “Sato Amendment”) to the Sato Agreement (collectively, the “Amended Sato Agreement”). The Sato Amendment expanded the Sato Agreement to include SB206, Novan's drug candidate for the treatment of viral skin infections. Pursuant to the Amended Sato Agreement, Novan granted to Sato an exclusive, royalty-bearing, non-transferable license under certain of its intellectual property rights, with the right to sublicense with Novan’s prior written consent, to develop, use and sell products in Japan that incorporate SB204 or SB206 in certain topical dosage forms for the treatment of acne vulgaris or viral skin infections, respectively, and to make the finished form of such products. +Novan or its designated contract manufacturer was to supply study materials to Sato for use in the development of SB204 and SB206 in the licensed territory. The rights granted to Sato did not include the right to manufacture the API of SB204 or SB206; rather, the parties agreed to negotiate a commercial supply agreement pursuant to which the Novan or its designated contract manufacturer would be the exclusive supplier to Sato of the API for the commercial manufacture of licensed products in the licensed territory. Under the terms of the Amended Sato Agreement, Novan also had exclusive rights to certain intellectual property that may be developed by Sato in the future, which Novan could choose to use for its own development and commercialization of SB204 or SB206 outside of Japan. +The term of the Amended Sato Agreement (and the period during which Sato must pay royalties under the amended license agreement) expires on the twentieth anniversary of the first commercial sale of a licensed product in the licensed field in the licensed territory (adjusted from the tenth anniversary of the first commercial sale in the Sato Agreement). The term of the Amended Sato Agreement may be renewed with respect to a licensed product by mutual written agreement of the parties for additional two-year periods following expiration of the initial term. All other material terms of the Sato Agreement remain unchanged by the Sato Amendment. +Sato is responsible for funding the development and commercial costs for the program that are specific to Japan. Novan was obligated to perform certain oversight, review and supporting activities for Sato, including: using commercially reasonable efforts to obtain marketing approval of SB204 and SB206 in the United States and sharing all future scientific information Novan may obtain during the term of the Amended Sato Agreement pertaining to SB204 and SB206; and participating in a joint committee that oversees, reviews and approves Sato’s development and commercialization activities under the Amended Sato Agreement. Additionally, Novan has granted Sato the option to use the Novan’s trademarks in connection with the commercialization of licensed products in the licensed territory for no additional consideration, subject to the Novan’s approval of such use. +Prior to the Merger on July 1, 2025, on March 24, 2025, LNHC assigned the Amended Sato Agreement to Ligand, however, LNHC assumed certain contractual liabilities and obligations under the Sato Agreement and certain ancillary and supportive agreements related to the Amended Sato Agreement. In consideration of LNHC addressing these contractual obligations, Ligand was obligated to pass-through all future payments received from Sato to LNHC, however, this obligation was amended on November 6, 2025 as described below, and in Note 7 — “Notes Payable” in the accompanying notes to our consolidated financial statements. +Convertible Notes +On November 6, 2025, the Company entered into a securities purchase agreement (the “Convertible Securities Purchase Agreement”) with certain investors, including Ligand (collectively, the “Convertible Investors”), pursuant to which, among other things, on the closing date, the Convertible Investors purchased for cash, and the Company issued and sold to the +74 +Convertible Investors, senior secured Convertible Notes of the Company in the aggregate original principal amount of $18.0 million, which are convertible into shares of the Company’s Common Stock (such transaction, the “Convertible Note Financing”). The gross proceeds from the Convertible Note Financing were $18.0 million, before paying estimated expenses. The Convertible Securities Purchase Agreement generally prohibits the Company from issuing securities without the written consent of the Required Holders (as defined in the Convertible Securities Purchase Agreement), but includes exceptions for specific issuances of securities, including in connection with the independent funding and development of the Company’s historical assets relating to the sodium-ion channel known as NaV1.7 for the treatment of various types of systemic chronic pain, acute and chronic eye pain and post-surgical nerve blocks. The Investors have approved Ligand to serve as collateral agent (the “Convertible Collateral Agent”). +The Convertible Notes rank senior to current and future indebtedness of the Company and its subsidiaries, excluding (i) any credit facility with one or more financial institutions in form and substance reasonably satisfactory to the Required Holders and with an aggregate amount of indebtedness that does not exceed $50.0 million or (ii) an asset-based loan facility that does not exceed $10.0 million, subject to certain conditions (together, the “Permitted Senior Indebtedness”). The Convertible Notes accrue interest at a rate of 8.5% per annum (which increases to 18.0% in the event of a default) and mature on November 6, 2027 (the “Convertible Maturity Date”). +The Convertible Notes are convertible by the holders thereof in whole or in part at any time after issuance and prior to the Convertible Maturity Date into shares of Common Stock based on a conversion price (the “Convertible Conversion Price”) of $34.442 per share (the “Convertible Conversion Shares”), which cannot be reduced below $34.442 per share without obtaining the approval of the shareholders of the Company (the “Convertible Shareholder Approval”), and is subject to customary adjustments for stock splits, stock dividends, recapitalization and other similar transactions. On the later of December 1, 2025 and the date the Company obtains the Convertible Shareholder Approval, if any, if the Convertible Conversion Price then in effect was greater than $29.73, the Convertible Conversion Price would automatically lower to $29.73. Effective December 17, 2025, the date the Company obtained the requisite Convertible Shareholder Approval, the Convertible Conversion Price was adjusted to $29.73. In addition, on the maturity date of the Convertible Notes, if the Company’s Permitted Senior Indebtedness does not permit the Company to make the cash payment then due under the Convertible Notes, the Convertible Conversion Price will automatically adjust to a price equal to the average volume weighted average price of the Common Stock for the five trading days ending immediately prior to the Convertible Maturity Date. +In general, a holder of a Convertible Note may not convert any portion of a Convertible Note if the holder, together with its affiliates, would beneficially own more than 49.9% in the case of Ligand, or 4.99% or 9.99%, in in the case of the other Investors (the “Convertible Maximum Percentage”), of the number of shares of the Company’s Common Stock outstanding immediately after giving effect to such exercise; provided, however, that a holder may increase or decrease the Convertible Maximum Percentage by giving 61 days’ notice to the Company, but not to any percentage in excess of 9.99% (except for Ligand, whose Convertible Maximum Percentage already exceeds 9.99%). +As partial consideration for the Convertible Notes, the Company granted to each of the Convertible Investors (i) a 5.0% royalty on net sales of XEPI (ozenoxacin) cream, for topical use, and all other derivatives and modifications thereof, to be shared pro rata among all the Convertible Investors and (ii) the Company’s right to receive all royalty payments and milestone payments paid by Sato in respect of net sales of ZELSUVMI (less 50.0% of the milestone payment payable by Sato in respect of the first commercial sale of ZELSUVMI in Japan, which will be kept by the Company), to be shared pro rata among all the Convertible Investors. See Note 9 — “License and Other Agreements” in the accompanying notes to our consolidated financial statements for detail. +The Convertible Notes contain certain customary events of default provisions, including failure to timely issue the Convertible Conversion Shares, failure to maintain the listing of the Common Stock on an Eligible Market (as defined in the Convertible Notes) for a period of five (5) consecutive trading days, failure to maintain sufficient authorized shares for the issuance of Convertible Conversion Shares, a breach of any representation or warranty by the Company under the Convertible Securities Purchase Agreement and the Convertible Notes, the failure of any Security Document to create a separate valid and perfected first priority lien in favor of the Convertible Collateral Agent (subject to certain exceptions), and the occurrence of a Material Adverse Effect (as defined in the Convertible Securities Purchase Agreement), as well as certain customary events of default set forth in the Convertible Notes, including, among others, breach of covenants, including the incurrence of subsequent indebtedness or issuance of dividends, representations or warranties, insolvency, bankruptcy, liquidation and failure by the Company to pay the principal, interest late charges and other payments due under the Convertible Notes, in each case subject to certain cure periods, as applicable. +75 +Upon an event of default, a holder has the option to require the Company to redeem a Convertible Note at a conversion price equal to the greater of (i) the Convertible conversion amount to be redeemed multiplied by (B) 115.0% (the “Redemption Premium”) and (ii) the product of (X) the conversion rate with respect to the conversion amount in effect at such time as the holder delivers to the Company a notice requiring the Company to redeem the Convertible Note upon an event of default (the “Convertible Event of Default Redemption Notice”) multiplied by (Y) the greatest closing price of the Common Stock on any trading day during the period commencing on the date immediately preceding such event of default and ending on the date the Company makes the entire payment therefor (the “Convertible Event of Default Redemption Price”). In the event of a Bankruptcy Event of Default (as defined in the Convertible Notes), the Company will immediately pay the holder an amount in cash representing (i) all outstanding principal, accrued and unpaid interested and accrued unpaid late charges on such principal and interest, multiplied by (ii) the Redemption Premium, in addition to any and all other amounts due under the Convertible Note, without the requirement for any notice or demand or other action by any person or entity. +No sooner than twenty trading days nor later than ten trading days prior to the consummation of a Change of Control (as defined in the Convertible Notes) (the “Convertible Change of Control Date”), but not prior to the public announcement of such Convertible Change of Control, the Company must deliver written notice of such Convertible Change of Control to the Holder (a “Convertible Change of Control Notice”). At any time during the period beginning after the holder’s receipt of a Convertible Change of Control Notice or the holder becoming aware of a Convertible Change of Control (if a Convertible Change of Control Notice is not delivered) and ending twenty trading days after the later of (A) the date of consummation of such Convertible Change of Control, (B) the date of receipt of such Convertible Change of Control Notice or (C) the date of the announcement of such Convertible Change of Control, the holder may require the Company to redeem all or any portion of the Convertible Note by delivering written Notice thereof (the “Convertible Change of Control Redemption Notice”) to the Company. A Convertible Note may be redeemed by the holder in cash at a price equal to the greatest of (i) the product of (w) 125% (the “Convertible Change of Control Redemption Premium”) multiplied by (y) the conversion amount being redeemed, (ii) the product of (A) the conversion amount being redeemed multiplied by (B) the quotient determined by dividing (I) the greatest closing price of the shares of Common Stock during the period beginning on the date immediately preceding the earlier to occur of (1) the consummation of the applicable Convertible Change of Control and (2) the public announcement of such Convertible Change of Control and ending on the date the holder delivers the Convertible Change of Control Redemption Notice by (II) the conversion price then in effect, and (iii) the product of (A) the conversion amount being redeemed multiplied by (B) the quotient of (I) the aggregate cash consideration and the aggregate cash value of any non-cash consideration per share of Common Stock to be paid to the holders of the shares of Common Stock upon consummation of such Convertible Change of Control, divided by (II) the conversion price then in effect (the “Convertible Change of Control Redemption Price”). At any time prior to the date on which such redemption payment is paid in full as a result of such Convertible Change of Control, the Convertible Notes may be converted in accordance with their terms. +In the event that the Company does not pay the applicable redemption price to the Holder within the time period required, until such unpaid redemption price is paid, the Holder has the option to notify the Company that it promptly return all or any portion of the Convertible Note representing the conversion amount that was submitted for redemption. Upon the Company’s receipt of such notice, the Company will immediately return the Convertible Note (or issue a new convertible note), and the principal amount of the Convertible Note or such new convertible note will be increased by an amount equal to the difference between (1) the applicable redemption price minus (2) the principal portion of the conversion amount submitted for redemption. +Pledge Agreement +On the Convertible Note Financing Closing Date, the Company, as pledgor and Ligand, as secured party, in its capacity as Collateral Agent for each holder of Convertible Notes, entered into a pledge agreement (the “Pledge Agreement”). In accordance with the terms of the Pledge Agreement, the Convertible Notes are secured by a lien on, and security interest in, (i) 10.0% of all aggregate net sales of the “End Product” as defined in the Ferrer License Agreement, including XEPI, in the United States, including Puerto Rico and the U.S. Virgin Islands; provided, however, that the Company will only accrue 5.0% of such payments as liabilities until the occurrence of an event of default (the “Covered Product Revenue Payments”), (ii) the Sato Payments, and (iii) all accounts receivable of the Company with respect to the Covered Product Revenue Payments and the Sato Payments, pursuant to a pledge agreement by and between – in each case, subject to certain permitted indebtedness of the Company. +76 +Biofrontera Asset Purchase Agreement +On November 6, 2025, the Company entered into an Asset Purchase Agreement (the “Biofrontera Asset Purchase Agreement”) with Biofrontera Inc., a Delaware corporation (“Biofrontera”), pursuant to which Biofrontera sold all of its right, title and interest in (i) XEPI, (ii) all of the assets of Biofrontera pertaining to the manufacture, sale and distribution of XEPI, (iii) all intellectual property of Biofrontera relating to XEPI, including, without limitation (A) certain patent and patent applications, including all specifically associated goodwill and (B) trademarks and trademark applications, including all specifically associated goodwill (iv) all preclinical data, records and reports relating to XEPI; (v) certain contracts related to XEPI; (vi) all of the licenses and agreements to which seller is a party pertaining to the manufacture, sale and distribution of XEPI; and (vii) to the extent transferable in accordance with applicable laws, all regulatory filing related to XEPI. +The aggregate purchase price payable by the Company to Biofrontera for the acquired assets will not exceed $10.0 million and will consist of (i) a cash payment of $3.0 million; (ii) a cash payment of $1.0 million following the availability of certain commercial quantities of XEPI, subject to certain conditions; and (iii) two contingent milestone payments of $3.0 million due upon generating two separate net sales achievements of XEPI. +In connection with the acquisition of XEPI, the Company simultaneously entered into a standard third-party manufacturing services agreement in the ordinary course. +Ferrer License Agreement +On November 6, 2025, the Company entered into a License and API Supply Agreement (the “Ferrer License Agreement”) with Ferrer and Interquim. Pursuant to the Ferrer License Agreement, Ferrer will grant the Company an exclusive, sublicensable, royalty-bearing license to manufacture and commercialize Xepi in the Territory, as well as an exclusive, royalty-free sublicensable license to use Ferrer’s trademarks for the purpose of marketing, distributing, promoting and selling XEPI. Ferrer will supply analytical test methods and other testing know-how required to perform testing as required by applicable regulatory authorities. +Interquim will act as the supplier to the Company of XEPI in the Territory. Pursuant to the Ferrer License Agreement, the Company has agreed to order from Interquim certain minimum amounts of XEPI based on 24-month forecasts provided by the Company, of which the first eight months of such forecasts are considered binding. The Company is required to purchase 100% of its requirements for XEPI from Interquim at a specified price during the term of the Ferrer License and Supply. +The initial term of the Ferrer License Agreement is for an initial twelve-year period following the commercial launch of XEPI and is automatically renewed thereafter for successive one-year periods unless the Company provides notice of termination to Ferrer at least three months before the end of then-current term. The Ferrer License Agreement is otherwise terminated in accordance with the termination provisions provided therein. +The aggregate transaction price payable by the Company to Ferrer includes: (i) an upfront payment of $1.2 million, payable upon the Company’s receipt of the initial quantity of API purchased pursuant to an initial purchase of API, once it is determined that the API strictly complies with all of the requirements and representations and warranties of the Ferrer License Agreement; and (ii) an on-going royalty of 7% based on net sales of the XEPI. In addition, the Company also executed a work order related to an initial supply of API in an amount of $0.5 million. This upfront purchase will be accounted for as a separate transaction +The initial term of the Ferrer License Agreement is for an initial twelve-year period following the commercial launch of XEPI and is automatically renewed thereafter for successive one-year periods unless the Company provides notice of termination to Ferrer at least three months before the end of then-current term. The Ferrer License Agreement is otherwise terminated in accordance with the termination provisions provided therein. +The Ferrer License Agreement contains certain representations, warranties, limitations of liabilities, confidentiality and indemnity obligations and other provisions customary for an agreement of its type. +XEGLYZE Asset Purchase Agreement +On November 20, 2025, the Company entered into a Downpayment Agreement for XEGLYZE Assets Purchase (the “Downpayment Agreement”) with Hatchtech Pty Ltd. (“Hatchtech”) to purchase the right, title and interest in XEGLYZE +77 +(the “Product”), an FDA-approved Abametapir lotion treatment for head lice infestation in humans. The purchase includes all assets of the seller pertaining to the associated product intellectual property, preclinical data, associated regulatory materials, and all inventory and other tangible personal property and materials used or held for use in connection with the Product. On December 23, 2025, Pelthos and Hatchtech entered into an Asset Purchase Agreement (the “XEGLYZE Asset Purchase Agreement”) for the transferred assets. +As outlined by the Downpayment Agreement, the Company was to pay Hatchtech a total purchase price of $1.8 million of which, $0.4 million was made as a downpayment on November 20, 2025 upon execution of the Downpayment Agreement. On December 29, 2025, the date of closing of the acquisition, the Company paid the remaining $1.4 million to Hatchtech. +Though the XEGLYZE Asset Purchase Agreement referenced tangible assets, including inventory, components, packaging, supplies, equipment, machinery, tooling, computers, hardware, furniture, and fixtures related to the Product, no tangible assets were transferred to the Company. Additionally, no liabilities were assumed by the Company as a result of the XEGLYZE Asset Purchase Agreement. The Company will be responsible for all future liabilities that arise on or after the closing date, directly or indirectly. +The Company determined that the acquired assets associated with the XEGLYZE Asset Purchase Agreement do not meet the definition of a business and should be accounted for as an asset acquisition. The Company acquired the XEGLYZE intellectual property rights including all patents, tradenames, trademarks, know-how, technical data, and all other XEGLYZE proprietary and intellectual property rights, which are recognized as a single intangible asset. The total purchase price of $1.8 million, will be allocated to the XEGLYZE intangible asset. +The intangible asset will be amortized over the 9-year expected useful life of the intellectual property, which is determined based on the expiration date of the patent underlying the XEGLYZE intellectual property. The Company will assess the remaining useful life of the intangible assets each reporting period to determine whether events and circumstances warrant a revision to the remaining period of amortization. +Reedy Creek +On April 29, 2019, Novan entered into a royalty and milestone payments purchase agreement (the “Reedy Creek Purchase Agreement”) with Reedy Creek, pursuant to which Reedy Creek provided funding to Novan in an amount of $25.0 million for it to pursue the development, regulatory approval and commercialization activities (including through out-license agreements and other third-party arrangements) for SB206, a topical gel with anti-viral properties being developed as a treatment for molluscum, and advancing programmatically such activities with respect to SB204, a once-daily, topical monotherapy being developed for the treatment of acne vulgaris, and SB414, a topical cream-based product candidate being developed for the treatment of atopic dermatitis. If Novan were to have successfully commercialized any such product, following regulatory approval, it was obligated to pay Reedy Creek a low single digit royalty on net sales of such products in the United States, Mexico or Canada. +Pursuant to the Reedy Creek Purchase Agreement, Novan was obligated to pay Reedy Creek ongoing quarterly payments, calculated based on an applicable percentage per product of any upfront fees, milestone payments, royalty payments or equivalent payments received by Novan pursuant to any out-license agreement for SB204, SB206 or SB414 in the United States, Mexico or Canada, net of any upfront fees, milestone payments, royalty payments or equivalent payments paid by Novan to third parties pursuant to any agreements under which Novan had in-licensed intellectual property with respect to such products in the United States, Mexico or Canada. The applicable percentage used for determining the ongoing quarterly payments, applied to amounts received directly by Novan pursuant to any out-license agreement for each product, ranges from 10% for SB206 to 20% for SB204 and SB414. +However, the agreement provides that the applicable percentage for each product will be 25% for fees or milestone payments received by Novan (but not royalty payments received by Novan) until Reedy Creek has received payments under the Purchase Agreement equal to the total funding amount provided by Reedy Creek under the Purchase Agreement. If Novan decided to commercialize any product on its own following regulatory approval, as opposed to commercializing through an out-license agreement or other third-party arrangement, Novan will only be obligated to pay Reedy Creek a low single digit royalty on net sales of such products. +On March 24, 2025, LNHC assigned its rights to its intellectual property portfolio to Ligand. In addition, LNHC and Ligand also entered into an agreement that clarified the nature of on-going obligations related to the Reedy Creek Purchase Agreement. Based on that letter agreement dated March 24, 2025, LNHC is obligated and responsible for satisfying all +78 +obligations with respect to the Reedy Creek Purchase Agreement for SB206 (ZELSUVMI), whereas Ligand will be responsible for satisfying all obligations related to the SB204 and SB414 product candidates, if and when they are developed. Obligations under the Reedy Creek Agreement that arise from any non-SB206 (ZELSUVMI) asset will be satisfied by Ligand. As of the closing date of the Merger, the Company is obligated to pay Reedy Creek amounts due, per the Reedy Creek Purchase Agreement, related to SB206 (commercially known as ZELSUVMI). +Facility Lease Agreement +On January 18, 2021, the Company entered into a lease with an initial term expiring in 2032, as amended for 19,265 rentable square feet, located in Durham, North Carolina. This lease dated as of January 18, 2021, as amended (the “TBC Lease”), is by and between the Company and Copper II 2020, LLC (the “TBC Landlord”), pursuant to which the Company is leasing space serving as its corporate headquarters and primary API manufacturing site (the “Premises”) located within the Triangle Business Center. The lease executed on January 18, 2021, as amended, was further amended on November 23, 2021 to expand the Premises by approximately 3,642 additional rentable square feet from 15,623 rentable square feet. +The TBC Lease commenced on January 18, 2021 (the “Lease Commencement Date”). Rent under the TBC Lease commenced in October 2021 (the “Rent Commencement Date”). The term of the TBC Lease expires on the last day of the one hundred twenty-third calendar month after the Rent Commencement Date. The TBC Lease provides the Company with one option to extend the term of the TBC Lease for a period of 5 years, which would commence upon the expiration of the original term of the TBC Lease, with base rent of a market rate determined according to the TBC Lease; however, the renewal period was not included in the calculation of the lease obligation as the Company determined it was not reasonably certain to exercise the renewal option. +The monthly base rent for the Premises is approximately $39,000 for months 1-10 and approximately $49,000 for months 11-12, per the second amendment to the primary lease. Beginning with month 13 and annually thereafter, the monthly base rent will be increased by 3%. Subject to certain terms, the TBC Lease provided that base rent was abated for three months following the Rent Commencement Date. The Company is obligated to pay its pro-rata portion of taxes and operating expenses for the building as well as maintenance and insurance for the Premises, all as provided for in the TBC Lease. +Pursuant to the terms of the TBC Lease, the Company delivered to the TBC Landlord a letter of credit in the amount of $583,000, as amended, as collateral for the full performance by the Company of all of its obligations under the TBC Lease and for all losses and damages the TBC Landlord may suffer as a result of any default by the Company under the TBC Lease. +Contract Manufacturing Agreement +In February 2025, LNHC entered into a non-exclusive Contract Management Agreement with Orion to manufacture and assemble various components related to the ZELSUVMI commercial drug product, including the final fill/finish process and product packaging. This agreement has an initial period of five years, with automatic two-year renewal periods thereafter, unless a notice of non-renewal is provided by either party. This commercial supply agreement includes customary terms governing the manufacture of the ZELSUVMI drug product, including but not limited to, a quality agreement governing the manufacture and quality control of the drug product, required periodic forecasting and demand planning/production scheduling, periodic non-binding, and binding purchase commitments, including minimums, and pricing and cost parameters. +Critical Accounting Policies and Estimates +The preparation of consolidated financial statements in conformity with GAAP requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent liabilities in the financial statements and accompanying notes. The U.S. Securities and Exchange Commission (the “SEC”) has defined a company’s critical accounting policies as the ones that are most important to the portrayal of the company’s financial condition and results of operations, and which require the company to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, the Company has identified the critical accounting policies and judgments addressed below. The Company also has other key accounting policies, which involve the use of estimates, judgments, and assumptions that are significant to understanding our results. Changes in estimates are reflected in reported results for the period in which they become known. Actual results may differ materially from these estimates under different assumptions or conditions. To the extent there are material differences between the estimates and actual results, our future results of operations will be affected. +79 +For additional information, see Note 2 — “Basis of Presentation and Summary of Significant Accounting Policies” in the accompanying notes to our consolidated financial statements. Although the Company believes that its estimates, assumptions, and judgments are reasonable, they are based upon information presently available. Actual results may differ significantly from these estimates under different assumptions, judgments, or conditions. +While our significant accounting policies are more fully described in the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K, the Company believes that the following accounting policies are critical to the process of making significant judgments and estimates in the preparation of its consolidated financial statements and understanding and evaluating our reported financial results. +Business Acquisitions +The Company accounts for business acquisitions using the acquisition method of accounting in accordance with ASC 805. ASC 805 requires, among other things, that assets acquired and liabilities assumed be recognized at their fair values, as determined in accordance with ASC 820, Fair Value Measurements (“ASC 820”), as of the acquisition date. For certain assets and liabilities, book value approximates fair value. In addition, ASC 805 establishes that consideration transferred be measured at the closing date of the acquisition at the then-current market price. Under ASC 805, acquisition-related costs (i.e., advisory, legal, valuation and other professional fees) are expensed in the period in which the costs are incurred. The application of the acquisition method of accounting requires the Company to make estimates and assumptions related to the estimated fair values of net assets acquired, which require significant management judgment. +• The goodwill arising from the Merger is primarily attributable to expected synergies. The goodwill will not be deductible for federal tax purposes. The fair value measurements were primarily based on significant inputs that are not observable in the market, and thus represent Level 3 fair value measurements. +• The fair value of developed technology was estimated using the “multi-period excess earnings” method, an income approach that considers the net cash flows expected to be generated by the intangible asset by excluding any cash flows related to contributory assets. Significant assumptions include the expected useful life of the patent, contributory asset charges and the concluded discount rate. The developed technology will be amortized on a straight-line basis over an estimated useful of 12.17 years. +• The fair value of the Sato licensing agreement was estimated using the “relief from royalty” method, an income approach that considers the market-based royalty a company would pay to enjoy the benefits of the trade name or technology in lieu of actual ownership of the technology. Significant assumptions include the royalty rate, forecasted cash flows of the license agreement and concluded discount rate. The Sato licensing agreement was initially amortized on a straight-line basis over an estimated useful of 13.01 years. Based on changes described in Note 5 — “Goodwill and Intangible Assets” in the accompanying notes to our consolidated financial statements the useful life was shortened to 2.25 years as of December 31, 2025. +• The fair value of the inventory was estimated using the top/down method that considers the estimated selling price, costs to complete, disposal costs, profit margin on disposal effort, and holding costs. Significant assumptions include management's estimates for the selling price and the costs to be incurred related to the disposal effort of the inventory. +• The fair value of the Reedy Creek liability was estimated using the income approach that considers the royalties based on sales of ZELSUVMI. Significant assumptions include the management's revenue forecast, royalty rate, and concluded discount rate. +• Deferred taxes were adjusted to record the deferred tax impact of acquisition accounting adjustments primarily related to amounts allocated to intangible assets and inventory. +See Note 3 — “Acquisition of LNHC, Inc.” in the accompanying notes to our consolidated financial statements for additional detail. +Revenue Recognition +Pursuant to ASC 606, the Company recognizes revenue when a customer obtains control of promised goods or services. Revenue is recognized in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. To determine revenue recognition for contracts with customers within the scope of ASC 606, the Company performs the following 5 steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) a performance obligation is satisfied. +80 +Net Product Revenues +The Company sells ZELSUVMI to national and regional wholesalers in the United States. The wholesalers are considered the Company's customers for accounting purposes. +Revenue from product sales is recognized when the customer obtains control of the Company's product, which typically occurs on delivery. Revenue from product sales is recorded at the transaction price, net of estimates for variable consideration consisting of prompt-pay discounts, distribution service fees, government rebates, co-payment assistance and payor rebates and administration fees for which reserves are established. These reserves are based on estimates of the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable (if the amount is payable to the customer) or a liability (if the amount is payable to a party other than the customer). +Variable consideration is estimated using the expected-value amount method, which is the sum of probability-weighted amounts in a range of possible consideration amounts. In making these estimates, the Company considers historical data, including patient mix and inventory sold to customers that has not yet been dispensed. Actual amounts of consideration ultimately received may differ from the Company’s estimates. If actual results vary materially from the Company’s estimates, the Company will adjust these estimates, which will affect net product sales and earnings in the period such estimates are adjusted. These items, as applicable based on current contractual agreements and obligations on behalf of the Company, include prompt pay discounts, distribution service fees, co-pay assistance, government rebates, payor rebates and administration fees. +License and Collaboration Revenues +The Company has one agreement related to a license of intellectual property to a third party. Per ASC 606 the Company determines if there are distinct performance obligations identified in the arrangement. The Company recognizes revenues from non-refundable, upfront fees allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license. For licenses that are bundled with other promises, the Company’s management utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the estimated performance period and the appropriate method of measuring progress during the performance period for purposes of recognizing revenue. +The Company re-evaluates the estimated performance period and measure of progress for each reporting period and, if necessary, adjusts related revenue recognition accordingly. These arrangements often include milestone as well as royalty or profit-share payments, contingent upon the occurrence of certain future events linked to the success of the asset in development, as well as expense reimbursements from our payments to the collaboration partner. Because of the risk that products in development will not receive regulatory approval, the Company does not recognize any contingent payments until regulatory approval becomes probable. Future sales-based royalties are not recorded until the subsequent sale occurs. +Inventory +The Company measures inventory using the first-in, first-out method and values inventory at the lower of cost or net realizable value. Inventory value includes costs related to materials, manufacturing, labor, conversion and overhead expenses. The Company adjusts its inventory for potentially obsolete inventory. The adjustment for obsolescence is generally an estimate of the value of inventory that is expected to expire in the future based on projected sales volume and product expiration or expected sell-by dates. These assumptions require the Company to analyze the aging of and forecasted demand for its inventory and make estimates regarding future product sales. +Prior to obtaining initial regulatory approval for ZELSUVMI in January 2024, inventory costs related to the production of pre-launch inventory were expensed as research and development costs. Subsequent to January 5, 2024, the date of the FDA’s approval of ZELSUVMI, inventory costs were capitalized by LNHC. As part of the Merger, certain inventoried items were revalued subject to ASC 805. +See Note 3 — “Acquisition of LNHC, Inc.” in the accompanying notes to our consolidated financial statements for additional detail. +81 +Intangible Assets, Net and Goodwill +Intangible assets represent certain identifiable intangible assets, including product rights consisting of pharmaceutical product licenses and patents. Amortization for pharmaceutical products licenses is computed using the straight-line method based on the lesser of the term of the agreement and the useful life of the license. Amortization for pharmaceutical patents is computed using the straight-line method based on the useful life of the patent. +Definite-lived intangible assets are reviewed for impairment whenever events or circumstances indicate that carrying amounts may not be recoverable. In the event impairment indicators are present or if other circumstances indicate that an impairment might exist, then management compares the future undiscounted cash flows directly associated with the asset or asset group to the carrying amount of the asset group being determined for impairment. If those estimated cash flows are less than the carrying amount of the asset group, an impairment loss is recognized. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value. Considerable judgment is necessary to estimate the fair value of these assets; accordingly, actual results may vary significantly from such estimates. +Indefinite-lived intangible assets, including goodwill, are not amortized. The Company tests the carrying amounts of goodwill for recoverability on an annual basis on July 1 or when events or changes in circumstances indicate evidence that a potential impairment exists, using a fair value-based test. +Goodwill, which has an indefinite useful life, represents the excess of cost over fair value of net assets acquired. Goodwill is reviewed for impairment at the reporting unit level at least annually, or more frequently if an event occurs indicating the potential for impairment. During a goodwill impairment review, management performs an assessment of qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than the carrying amount, including goodwill. The qualitative factors include, but are not limited to, macroeconomic conditions, industry and market considerations, and the overall financial performance. If, after assessing the totality of these qualitative factors, management determines that it is not more likely than not that the fair value of reporting unit is less than the carrying amount, then no additional assessment is deemed necessary. The Company did not identify indicators of impairment for goodwill during the year ended December 31, 2025. +Fair Value Measurements and Fair Value of Financial Instruments +The Company determines fair value, per ASC 820, based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels: +• Level 1 Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date. +• Level 2 Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data. +• Level 3 Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information. +Reedy Creek Purchase Agreement +The Company has determined that the Reedy Creek Purchase Agreement is within the scope of ASC 730-20, Research and Development Arrangements (“ASC 730-20”), and that there has not been a substantive and genuine transfer of risk related to the Reedy Creek Purchase Agreement. As of the Merger date, the Reedy Creek liability was measured at fair value. This long-term liability is subsequently measured at amortized cost using the prospective effective interest method described in ASC 835-30, Imputation of Interest (“ASC 835-30”). The effective interest rate is calculated by forecasting the expected cash flows to be paid over the life of the liability relative to its fair value as of the Merger date. The effective interest rate is recalculated in each reporting period as the difference between expected cash flows and actual cash flows are realized and as there are changes to expected future cash flows. The carrying value of the Reedy Creek liability is made up of the opening balance, which is increased by accrued interest expense, and decreased by any cash payments made to Reedy Creek during the period to arrive at the ending balance. +82 +See Note 8 — “Reedy Creek Liability” in the accompanying notes to our consolidated financial statements for additional detail. +July 1, 2025 and November 6, 2025 Royalty Agreements +The Company accounts for the Reedy Creek Purchase Agreement, the ZELSUVMI Royalty Agreement, the Amended Channel Products Royalty Agreement and the Convertible Royalty Agreements as liabilities and will accrete the financing using the effective interest method based on estimated and actual cash flows payable to the counterparties over the estimated lives of the applicable agreements. At the effective date of the agreements, the effective annual interest rate of the specific financing was estimated and contains significant assumptions that affect both the amount recorded at the effective date and the interest expense that will be recognized over the term of the corresponding agreement. +The Company periodically assesses the estimated royalty payments and to the extent the amount or timing of such payments is materially different than the original estimates, an adjustment is made to the effective interest rate, which will be recorded prospectively to increase or decrease interest expense. There are a number of factors that could materially affect the amount and timing of royalty payments and the amount of interest expense recorded by the Company over the term. Such factors include, but are not limited to, volumes of revenue generated by the underlying products, changing standards of care, the introduction of competing products, manufacturing or other delays, generic competition, intellectual property matters, adverse events that result in regulatory authorities placing restrictions on the use of the drug products, delays or discontinuation of development and commercialization applicable products, and other events or circumstances that are not currently foreseen. Changes to any of these factors could result in increases or decreases to both forecasted revenues and interest expense. +See Note 9 — “License and Other Agreements” in the accompanying notes to our consolidated financial statements for additional detail. +Convertible Notes +The Company analyzed the terms of the Convertible Notes and its embedded features concluding it appropriate to account for the Convertible Notes at fair value under the allowable fair value option. Accordingly, the Company initially recognized the Convertible Notes at fair value and will subsequently measure the Convertible Notes at fair value with changes in fair value recorded in current period earnings, or other comprehensive income if specific to Company credit risk. +Due to the significant related-party relationships with certain investors and Ligand, the Convertible Securities Purchase Agreement is not presumed to be at arms-length. The Company estimated the initial fair value of the Convertible Notes and royalty obligations to be in excess of the transaction price. Accordingly, the Company initially recorded both instruments, which were determined to be free standing, at the issuance date fair value of $34.6 million and $3.2 million, respectively. This resulted in a loss on issuance of approximately $18.1 million. Further, the Company allocated issuance costs between the two instruments based on their relative fair values. Therefore, $1.0 million of issuance costs were allocated to the Convertible Notes. Such issuance costs were expensed in the year ended December 31, 2025. +Subsequent to the issuance date of the Convertible Notes, the Company recorded an adjustment to fair value of the notes in the consolidated statement of operations in the amount of $3.2 million for the year ended December 31, 2025. As of December 31, 2025 the fair value of the Convertible Notes was $31.4 million and is presented in non-current liabilities within the consolidated balance sheets based on its maturity date. +XEPI Transaction +The Biofrontera Asset Purchase Agreement and the Ferrer License Agreement were entered into in contemplation of each other to achieve a combined commercial effect. Additionally, the execution of the Biofrontera Asset Purchase Agreement was contingent upon the execution of the Ferrer License Agreement. As such, the Biofrontera Asset Purchase Agreement and the Ferrer License Agreement are combined and accounted for as a single transaction (the “XEPI Transaction”). +The Company determined that the acquired assets associated with the XEPI Transaction do not meet the definition of a business and should be accounted for as an asset acquisition. +83 +The XEPI Transaction intangible asset will be amortized over the 6-year expected useful life of the intellectual property, which is determined based on the last to expire patent underlying the XEPI intellectual property. The Company will assess the remaining useful life of the intangible assets each reporting period to determine whether events and circumstances warrant a revision to the remaining period of amortization. +As of the closing date of the XEPI Transaction, the Company determined that the contingent payments are both considered probable and reasonably estimable and will recognize the fair value of the liabilities as part of the cost of the asset acquisition. The Company determined that the full $1.0 million and $1.2 million contractual values are expected to be paid to Biofrontera and Ferrer, respectively, and therefore recorded the initial liability at $2.2 million. The Company also believes $2.2 million approximates the fair value of the obligation as the Company is expected to receive the API and achieve Commercial Quantities within one year of the closing date. Given the initial probability of being met, any adjustments to present value are therefore deemed immaterial. As such, the Company recorded $2.2 million of contingent consideration within current liabilities on its consolidated balance sheets as of December 31, 2025. +XEGLYZE Asset Purchase Agreement +On November 20, 2025, the Company entered into a Downpayment Agreement for XEGLYZE Assets Purchase (the “Downpayment Agreement”) with Hatchtech Pty Ltd. (“Hatchtech”) to purchase the right, title and interest in XEGLYZE (the “Product”), an FDA-approved Abametapir lotion treatment for head lice infestation in humans. The purchase includes all assets of the seller pertaining to the associated product intellectual property, preclinical data, associated regulatory materials, and all inventory and other tangible personal property and materials used or held for use in connection with the Product. On December 23, 2025, Pelthos and Hatchtech entered into an Asset Purchase Agreement (the “XEGLYZE Asset Purchase Agreement”) for the transferred assets. +As outlined by the Downpayment Agreement, the Company was to pay Hatchtech a total purchase price of $1.8 million of which, $0.4 million was made as a downpayment on November 20, 2025 upon execution of the Downpayment Agreement. On December 29, 2025, the date of closing of the acquisition, the Company paid the remaining $1.4 million to Hatchtech. +Though the XEGLYZE Asset Purchase Agreement referenced tangible assets, including inventory, components, packaging, supplies, equipment, machinery, tooling, computers, hardware, furniture, and fixtures related to the Product, no tangible assets were transferred to the Company. Additionally, no liabilities were assumed by the Company as a result of the XEGLYZE Asset Purchase Agreement. The Company will be responsible for all future liabilities that arise on or after the closing date, directly or indirectly. +The Company determined that the acquired assets associated with the XEGLYZE Asset Purchase Agreement do not meet the definition of a business and should be accounted for as an asset acquisition. The Company acquired the XEGLYZE intellectual property rights including all patents, tradenames, trademarks, know-how, technical data, and all other XEGLYZE proprietary and intellectual property rights, which are recognized as a single intangible asset. The total purchase price of $1.8 million, will be allocated to the XEGLYZE intangible asset. +The intangible asset will be amortized over the 9-year expected useful life of the intellectual property, which is determined based on the expiration date of the patent underlying the XEGLYZE intellectual property. The Company will assess the remaining useful life of the intangible assets each reporting period to determine whether events and circumstances warrant a revision to the remaining period of amortization. +Income Taxes +We are subject to income taxes in the U.S. and Australia. Significant judgment is required in determining income tax expense, deferred taxes and uncertain tax positions. The underlying assumptions are also highly susceptible to change from period to period. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some or all the deferred tax assets will be realized. The ultimate realization of deferred taxes assets is dependent upon generation of future taxable income during the period in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and taxable income in carryback years and tax-planning strategies when making this assessment. There is currently significant negative evidence which contributes to our recording a valuation allowance against our deferred tax assets due to cumulative losses since inception. Although we believe our assumptions, judgments, and estimates are reasonable, changes in tax laws or our interpretation of tax laws and the resolution of any tax audits could significantly impact the amounts provided for income taxes in our consolidated financial statements. The effect on deferred tax assets and liabilities from a change in tax rates is +84 +recognized in income in the period that includes the enactment date. Adjustments to income tax expense, to the extent we adjust the valuation allowance in a future period, could have a material impact on our financial condition and results of operations. +Recently Issued and Adopted Accounting Pronouncements +We describe the impact of recently issued accounting pronouncements that apply to us in Note 2 of Item 15 of this Annual Report on Form 10-K. +Item 7A. Quantitative and Qualitative Disclosures about Market Risk +As a smaller reporting company, as defined in Rule 12b-2 of the Exchange Act, we are not required to provide the information required by this Item. +Item 8. Financial Statements and Supplementary Data +The Company’s consolidated financial statements, notes to the consolidated financial statements, and the reports of the Company’s independent registered accountants required to be filed in response to this Item 8 begin on page F-1 of this Report. +Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure +None. +Item 9A. Controls and Procedures +Evaluation of Disclosure Controls and Procedures +The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, refers to controls and procedures that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that such information is accumulated and communicated to a company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. +In designing and evaluating our disclosure controls and procedures, management recognizes that disclosure controls and procedures, no matter how well conceived and operated, cannot provide absolute assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a control system, misstatements due to error or fraud may occur and not be detected. +As of December 31, 2025, our management, with the participation of our principal executive and financial officers, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based upon such evaluation, our principal executive and financial officers have concluded that, as of December 31, 2025, our disclosure controls and procedures were effective at the reasonable assurance level. +Management’s Report on Internal Control Over Financial Reporting +Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in the Exchange Act Rule 13a-15(f). Our internal control over financial reporting is designed to provide reasonable assurance to our management and board of directors regarding the preparation and fair presentation of published financial +85 +statements. A control system, no matter how well designed and operated, can only provide reasonable, not absolute, assurance that the objectives of the control system are met. Because of these inherent limitations, management does not expect that our internal controls over financial reporting will prevent all error and all fraud. Management conducted an evaluation of our internal control over financial reporting and concluded that our internal control over financial reporting was effective as of December 31, 2025. +This Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting due to a transition period established by the rules of the SEC for newly public companies. We are an “emerging growth company” as defined in the JOBS Act. For as long as we remain an “emerging growth company,” we are exempt from the auditor attestation requirement in the assessment of the effectiveness of our internal control over financial reporting. In addition, we are also a smaller reporting company. Even if we no longer qualify as an “emerging growth company”, as long as we are a smaller reporting company that meets the revenue test in paragraph (2) or (3)(iii)(B) of Rule 12b-2, we will still be exempt from the auditor attestation requirement in the assessment of the effectiveness of our internal control over financial reporting. +Changes in Internal Control over Financial Reporting +On July 1, 2025, we completed the Merger. As part of the Merger, we have increased the number of and improved the qualifications of those employees related to both information technology and financial reporting for the Company. In addition, since the Merger, the Company has migrated its primary information technology systems and financial reporting platform to those systems acquired as part of the Merger, including an ERP system. +The expansion in the number of personnel within the finance and accounting function has allowed for (i) more robust operating and disclosure controls, (ii) significantly optimized segregation of duties, and (iii) the documentation, implementation and execution of additional controls. In addition, the utilization of the ERP system and information technology infrastructure has resulted in (i) improved security and access controls, (ii) a fully integrated procurement cycle within our ERP system, and (iii) enhanced cybersecurity protocols. We have devoted, and plan to continue to devote, significant efforts and resources to our internal control over financial reporting with respect to the complex accounting matters associated with a commercial pharmaceutical business. During the quarter ended December 31, 2025, we have engaged additional sources of personnel with technical expertise to assist in accounting for certain transactions during the year ended December 31, 2025. Based on the actions taken since the Merger, management has concluded that we have remediated the material weaknesses that existed for the year ended December 31, 2024. +There have been no other changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the last quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. +Item 9B. Other Information +During the three months ended December 31, 2025, none of our directors and officers adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement”, as each term is defined in Item 408(a) of Regulation S-K. +Item 9C. Disclosure Regarding Foreign Jurisdictions That Prevent Inspections +Not applicable. +86 +PART III +Item 10. Directors, Executive Officers and Corporate Governance +The following table provides information regarding our current executive officers and directors: +Name Age Position +Executive Officers +Scott Plesha 61 Chief Executive Officer and President +Francis Knuettel II 59 Chief Financial Officer +Sai Rangarao 42 Chief Commercial Officer +Directors +Peter Greenleaf (3) +56 Director (Chairman of the Board) +Richard Baxter 62 Director +Todd Davis 65 Director +Andrew Einhorn (1)(2) +66 Director +Ezra Friedberg (1) +56 Director +Dr. Richard Malamut (2)(3) +66 Director +Matthew Pauls (1)(2) +55 Director +Scott Plesha 61 Chief Executive Officer +(1) - Member of the Audit Committee +(2) - Member of the Compensation Committee +(3) - Member of the Nominating Committee +Biographic Information +Scott M. Plesha has served as LNHC’s Chief Executive Officer since November 2023 and as our Chief Executive Officer since July 2025. Prior to joining LNHC, Mr. Plesha served as the President and Chief Commercial Officer at BioDelivery Sciences (BDSI), a commercial-stage specialty pharmaceutical company dedicated to patients living with chronic conditions, from January 2018 until it was acquired by Collegium Pharmaceutical in 2022. Mr. Plesha joined BioDelivery Sciences in August 2015 as Senior Vice President, Sales, and assumed the additional responsibility of leading the marketing department in December 2015. He previously served as Senior Vice President of Gastrointestinal Sales at Salix Pharmaceuticals. Before Salix, Mr. Plesha was a Regional Sales Manager for Oclassen Dermatologics, a division of Watson Laboratories, and in commercial roles of increasing responsibility at Solvay Pharmaceuticals. Mr. Plesha received a Bachelor of Arts in Pre-Medical Studies from DePauw University. He was selected to serve as the Company’s Chief Executive Officer, President and Director due to his previous leadership of LNHC and extensive experience in sales and sales management in the pharmaceutical and medical industries. +Francis Knuettel II has served as our Chief Financial Officer, Treasurer and Secretary since June 2022, as our Chief Executive Officer from July 2023 through July 2025, and has served as a member of our board of directors from August 2024 through July 2025. Prior to that, from December 2020 to April 2022, he served as Chief Executive Officer and director of Unrivaled Brands where he helped grow revenue from an annualized rate of $10 million to $100 million in six quarters by acquiring three companies in the sector. He also served as Chief Financial Officer of OCG, Inc. from June 2019 to January 2021 and held various roles at MJardin Group, including Chief Strategy Officer, from August 2018 to January 2019. Prior to MJardin Group, Mr. Knuettel served as Chief Financial Officer of Aqua Metals in 2018 and held the same position at Marathon Patent Group from 2014 to 2018. During Mr. Knuettel’s career, he has helped raise more than $500 million via venture equity and debt, public equity and debt offerings in the United States and Canada, convertible debt, PIPEs, bridge loans and other instruments. In addition, he has managed more than 15 mergers and acquisition transactions of companies as both buyer and seller and has handled large-scale licensing transactions with fortune 50 companies. Mr. Knuettel is also a board member at Etheros Pharmaceuticals Corp. since 2023 and Beeline Holdings, Inc. since 2025. Mr. Knuettel received his BA with honors in Economics from Tufts University and holds an MBA in Finance and Entrepreneurial Management from The Wharton School at the University of Pennsylvania. +Sai Rangarao has served as our Chief Commercial Officer since July 2025 and as LNHC’s Senior Vice President, Head of Sales, Marketing & Commercial Operations at the Company from March 2024 through July 2025. He has more than a +87 +decade of experience leading, launching, and marketing large and highly differentiated pharmaceutical products, including Otezla®, the only approved oral systemic therapy with a broad indication. Prior to joining the Company, Mr. Rangarao was Vice President of Marketing at Collegium Pharmaceutical, where he led marketing for the full product portfolio and Neurology sales. He joined Collegium from BioDelivery Sciences International (BDSI), which was acquired by Collegium in 2022. Under Mr. Rangarao’s leadership as Vice President of Marketing and Commercial Operations at BDSI, the company expanded its pain and neurology product portfolio and increased market share of the company’s lead product BELBUCA®, ultimately leading to the successful sale to Collegium. Before BDSI, he was Head of Dermatology Marketing at Celgene Corporation. At Celgene, Mr. Rangarao was responsible for the commercial efforts of Otezla in dermatology for three consecutive years leading to significant year-over-year market share growth until the product was sold to Amgen for $13 billion. He began his career at Novartis Pharmaceuticals, where he held roles of increasing responsibility across Global R&D, Sales Force Effectiveness, Multichannel, and In-Line Marketing. Mr. Rangarao also served as a key member of the commercial and marketing organization at Novartis that launched COSENTYX® in the U.S. Mr. Rangarao earned an MS in Bioscience Regulatory Affairs from The Johns Hopkins University, an MBA and MS from the New Jersey Institute of Technology, and a BS in Computer Science from Indiana University of Pennsylvania. +Peter Greenleaf has served as a member of our board of directors since July 2025. He has served as the Chief Executive Officer and member of the board of directors of Aurinia Pharmaceuticals Inc. (Nasdaq: AUPH), a biopharmaceutical company focused on delivering therapies to people living with autoimmune diseases with high unmet medical needs, since April 2019. From March 2018 to April 2019, he served as the CEO of Cerecor Pharmaceuticals, Inc. (now Avalo Therapeutics, Inc.). From March 2014 to February 2018, Mr. Greenleaf served as CEO and Chairman of Sucampo Pharmaceuticals, Inc. Sucampo was focused on the development and commercialization of medicines to meet major unmet medical needs of patients worldwide and was sold in February 2018 to UK pharmaceutical company, Mallinckrodt PLC. From June 2013 to March 2014, he served as CEO and a member of the board of directors of Histogenics Corporation, a regenerative medicine company. From 2006 to 2013, Mr. Greenleaf was employed by MedImmune LLC, the global biologics arm of AstraZeneca, where he most recently served as President. From January 2010 to June 2013, he also served as President of MedImmune Ventures, a wholly-owned venture capital fund within the AstraZeneca Group. Prior to serving as President of MedImmune, Mr. Greenleaf was Senior Vice President, Commercial Operations of the company, responsible for its commercial, corporate development, and strategy functions. He has also held senior commercial roles at Centocor, Inc. (now Jansen Biotechnology, Johnson & Johnson) from1998 to 2006 and at Boehringer Mannheim (now Roche Holdings) from 1996 to 1998. Mr. Greenleaf previously partnered with Governor Martin O’Malley to chair the Maryland Venture Fund Authority, whose vision was to oversee the implementation of Invest Maryland, a public-private partnership to spur venture capital investment in the state. In addition, he has extensive public and private board experience, including as a board member for BDSI from 2018 through March 2022 and Antares Pharmaceuticals from 2019 through the second quarter of 2022 and has served in leadership roles on both BIO and PhRMA throughout the years. Mr. Greenleaf earned an MBA from St. Joseph’s University and a B.S. from Western Connecticut State University. +Richard Baxter has served as a member of our board of directors since July 2025. He is currently the Senior Vice President of Investment Operations and a member of the Investment Committee at Ligand since 2024. From 2020-2024, Mr. Baxter was a Managing Director and Partner of Birch Lake Partners and is currently a member of Birch Lake's Advisory Board. Mr. Baxter is a co-founder of the healthcare group for the Drawbridge Special Opportunities Fund at Fortress Investment Group and was a Managing Director at Fortress Investment Group from 2004 to 2010. He also previously served as a Managing Director and co-head of the healthcare team at Hayfin Capital Management LLP from 2013 to 2017. Before starting his investment career, he held senior roles in the pharmaceutical industry as Head of Sales, Marketing, and Business Development at PathoGensis Corp., ViroPharma Inc., and Marketing leadership at SmithKline Beecham. He earned an AB (cum laude) from Princeton University and an MBA from Harvard Business School. +Todd Davis has served as a member of our board of directors since January 2023. He is the Chief Executive Officer of Ligand Pharmaceuticals Incorporated since December 2022 and is a member of the Ligand board of directors since 2007. He is the founder and has served as the managing partner of RoyaltyRx Capital, LLC, a special opportunities investment firm, since 2018. Since November 2019, he has also served as Chairman and CEO of Benuvia Holdings, LLC, a pharmaceutical holding company. From 2006 to 2018, Mr. Davis was a founder and Managing Partner of HealthCare Royalty Partners, a global healthcare investment firm. From 2004 to 2006, Mr. Davis was a partner at Paul Capital Partners, where he co-managed its royalty investments as a member of the Royalty Management Committee. From 2001 to 2004, he served as a partner responsible for biopharmaceutical growth equity investments at Apax Partners. Mr. Davis began his business career in sales at Abbott Laboratories where he held several commercial roles of increasing responsibility. He subsequently held general management, business development, and licensing roles at Elan Pharmaceuticals. Mr. Davis is a navy veteran and received a B.S. from the U.S. Naval Academy and an M.B.A. from the Harvard Business School. In addition to his board position at Ligand, he currently serves on the board of directors of +88 +Palvella Therapeutics Inc. since 2024 and served on the board of directors for Vaxart, Inc. from 2021-2023 and BDSI from May 2018 through March 2022. He is also a former board member of the Harvard Business School Healthcare Alumni Association. +Andrew Einhorn has served as a member of our board of directors since December 2025. Mr. Einhorn is a consultant for Danforth Advisors where he has served as a fractional CFO and strategic advisor to public and private commercial and clinical stage biotechnology companies in infectious disease, neurodegenerative disease, rare disease, oncology, ocular gene therapy and gastrointestinal therapeutic areas. Previously, from September 2017 – May 2022 he served as Chief Financial Officer of RVL Pharmaceuticals plc (formerly Osmotica Pharmaceuticals plc) a specialty pharmaceutical company which went public in October 2018. From May 2013 to March 2017, Mr. Einhorn served as the Chief Financial Officer and Executive Vice President of Corporate Development of Edge Therapeutics, Inc., a clinical-stage biotechnology company that completed its IPO in September 2015. Prior to Edge, he was a co-founder and Chief Financial Officer of three specialty pharmaceutical and therapeutics companies: Oceana Therapeutics, Inc., Esprit Pharma, Inc. and ESP Pharma, Inc. From 1983 to 2003, Mr. Einhorn was an investment banker with Credit Lyonnais Securities, PNC Capital Markets, Chase Securities, Inc., Bankers Trust Company and the Chase Manhattan Bank. Previously, Mr. Einhorn was a senior accountant at Touche Ross & Co. Mr. Einhorn was a Certified Public Accountant in the State of New Jersey and holds a B.S. in Finance and Accounting from The American University. Mr. Einhorn currently serves as a venture advisor to the Israel Biotechnology Fund. +Ezra Friedberg has served as a member of our board of directors since May 2021. Mr. Friedberg is a seasoned investor with more than twenty years of investing experience in both public and private companies. He invests actively in the biotech space and has served on the board of directors of Humanigen (HGEN), a clinical-stage biopharmaceutical company which develops monoclonal antibodies. Mr. Friedberg is a graduate of Johns Hopkins University. +Dr. Richard Malamut has served as a member of our board of directors since January 2023. Dr. Malamut is currently Chief Medical Officer at MedinCell Inc. He was most recently Chief Medical Officer and Executive Vice President at Collegium Pharmaceuticals from April 2019 to May 2022 and has also served as Chief Medical Officer for Braeburn Pharmaceuticals, Inc. from 2018 to 2019 where he was responsible for the company’s medical affairs, non-clinical and clinical development, clinical operations, research and development quality assurance, and pharmacovigilance functions. Prior to that, Dr. Malamut had similar responsibilities as Chief Medical Officer at Avanir Pharmaceuticals from 2016 to 2018 and was Senior Vice President of Global Clinical Development at Teva Pharmaceutical Industries Ltd from 2013 to 2016 where he was responsible for Pain, Neuropsychiatry, Oncology, and New Therapeutic Entities. His experience also includes roles of increasing responsibility focusing on early clinical development and translational medicine in Neurology, Psychiatry and Analgesia at Bristol-Myers Squibb and AstraZeneca. Dr. Malamut earned his medical degree from Hahnemann University in Philadelphia and completed both a residency in Neurology and a fellowship in neuromuscular disease. He worked as a board-certified academic and clinical neurologist for 17 years and has more than 50 publications in the fields of pain medicine, neuromuscular disease, autonomic disease, and neurodegenerative disease. +Matthew Pauls has served as a member of our board of directors since June 2025. Mr. Pauls has served as Chair of the Board of Directors and Chief Executive Officer of Savara since 2020. Since 2023, he has been Lead Independent Director at Soleno Therapeutics, a publicly traded biopharmaceutical company focused on rare diseases and since 2020, he has served on the Board of Directors of Amplo Biotechnology, a private gene therapy company focused on rare neuromuscular disorders. From 2014 to 2019, Mr. Pauls was President and Chief Executive Officer and a member of the Board of Directors of Strongbridge Biopharma plc., a publicly traded rare disease focused biopharmaceutical company that he took public via IPO on the NASDAQ. Prior to 2014, he served as Chief Commercial Officer of Insmed, Inc., where he led both the global Commercial and Technical Operations organizations. Prior to Insmed, Mr. Pauls worked at Shire Pharmaceuticals, most recently as Senior Vice President, Head of Global Commercial Operations, and earlier in his career held senior commercial leadership positions at Bristol Myers Squibb and Johnson & Johnson. In addition to his other Board positions, Mr. Pauls has also served as Chair of the Board of Directors of Mast Therapeutics and was a member of the Board of Directors of Zyla Life Sciences, both publicly traded biopharma companies. Mr. Pauls holds B.S. and M.B.A. degrees from Central Michigan University and a J.D. from Michigan State University College of Law. +Family Relationships +There are no family relationships among any of our directors or executive officers. +Involvement in Certain Legal Proceedings +None. +89 +Code of Ethics +We have a written code of conduct and ethics that applies to our directors, officers, employees and contractors, including our principal executive officer, principal financial officer, principal accounting officer or controller, and persons performing similar functions. The code of conduct and ethics is available on our website https://pelthos.com . We intend to disclose future amendments to such code, or any waivers of its requirements, applicable to any principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions or our directors on our website identified above or in a Current Report on Form 8-K that we would file with the SEC. +Delinquent Section 16(a) Reports +Under the securities laws of the United States, our directors, executive (and certain other) officers, and any persons holding ten percent or more of our Common Stock must report on their ownership of the Common Stock and any changes in that ownership to the SEC. Specific due dates for these reports have been established. +During the fiscal year ended December 31, 2025, we believe all reports required to be filed by such persons pursuant to Section 16(a) were filed on a timely basis, except for the following: +• Mr. Rangarao and Mr. Plesha did not timely file their Form 3s; +• Each of Mr. Rangarao and Mr. Plesha had one late Form 4 filing with respect to stock options and RSUs awarded by the Company on July 2, 2025; and +• Mr. Baxter, Mr. Davis, Mr. Friedberg, Mr. Greenleaf, Mr. Malamut and Mr. Pauls did not timely file Form 4s with respect to the periodic vesting of RSUs previously reported as convertible securities in the fiscal years ended December 31, 2024 and December 31, 2025, which will be corrected by the filing of amendments to each reporting person’s initial Form 4 reporting the grant of those RSUs. +Corporate Governance +Board of Directors +Our board of directors consists of eight members. The primary responsibilities of our board of directors are to provide oversight, strategic guidance, counseling and direction to our management. Our board of directors meets on a regular basis and additionally as required. +Director Independence +Applicable NYSE American rules require a majority of a listed company’s board of directors to be comprised of independent directors within one year of listing. In addition, NYSE American rules require that, subject to specified exceptions, each member of a listed company’s audit, compensation and nominating and corporate governance committees be independent and that audit committee members also satisfy independence criteria set forth in Rule 10A-3 under the Exchange Act. NYSE American’s independence definition includes a series of objective tests, such as that the director is not, and has not been for at least three years, one of our employees and that neither the director nor any of his family members has engaged in various types of business dealings with us. In addition, under applicable NYSE American rules, a director will only qualify as an “independent director” if, in the opinion of the listed company’s board of directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. +Our board of directors has determined that all of our non-employee directors, other than Mr. Todd Davis and Mr. Richard Baxter, are independent, as defined under applicable NYSE American rules. In making such determination, our board of directors considered the relationships that each such non-employee director has with our company and all other facts and circumstances that our board of directors deemed relevant in determining his or her independence, including the beneficial ownership of our capital stock by each non-employee director and the transactions involving them described in the section entitled “Certain Relationships and Related-Party Transactions.” +Audit committee members must also satisfy the independence criteria set forth in Rule 10A-3 under the Exchange Act. In order to be considered independent for purposes of Rule 10A-3 of the Exchange Act, a member of an audit committee of a listed company may not, other than in his or her capacity as a member of the audit committee, the board of directors or any +90 +other board committee: (i) accept, directly or indirectly, any consulting, advisory or other compensatory fee from the listed company or any of its subsidiaries; or (ii) be an affiliated person of the listed company or any of its subsidiaries. +Our executive officers are elected by, and serve at the discretion of, our board of directors. +Board Meetings and Attendance +During the 2025 fiscal year, the board of directors held nine (9) board meetings, with all board members in attendance for each, except that one board member missed one of the board meetings. The board of directors also conducted other matters by unanimous written consent. +Our last annual meeting of shareholders was held on December 17, 2025, and Mr. Plesha was the sole board member in attendance for that meeting. +Role of our Board of Directors in Risk Oversight +One of the key functions of the board of directors is informed oversight of our risk management process. The board of directors does not anticipate having a standing risk management committee but rather anticipates administering this oversight function directly through our board of directors as a whole, as well as through various standing committees of our board of directors that address risks inherent in their respective areas of oversight. In particular, our board of directors is responsible for monitoring and assessing strategic risk exposure and our audit committee has the responsibility to consider and discuss our major financial risk exposures and the steps our management has to take to monitor and control such exposures, including guidelines and policies to govern the process by which risk assessment and management is undertaken. The audit committee also monitors compliance with legal and regulatory requirements. Our compensation committee also assesses and monitors whether our compensation plans, policies and programs comply with applicable legal and regulatory requirements. +Committees of Our Board of Directors +Our board of directors has established an audit committee, a compensation committee and a nominating and corporate governance committee, each of which has the composition and the responsibilities described below. Members serve on these committees until their resignation or until otherwise determined by our board of directors. Each committee operates under a charter approved by our board of directors. Copies of each committee’s charter will be posted on the investor relations section of our website at https://pelthos.com . +Audit Committee +Our audit committee is composed of Andrew Einhorn, Ezra Friedberg and Matthew Pauls. Andrew Einhorn is the chairperson of our audit committee. The composition of our audit committee meets the requirements for independence under the current NYSE American listing standards and SEC rules and regulations. Each member of our audit committee is financially literate. In addition, our board of directors has determined that Andrew Einhorn is an “audit committee financial expert” as defined in Item 407(d)(5)(ii) of Regulation S-K promulgated under the Securities Act. This designation does not impose any duties, obligations or liabilities that are greater than are generally imposed on members of our audit committee and our board of directors. Our audit committee is responsible for, among other things: +• our accounting and financial reporting processes, including our financial statement audits and the integrity of our consolidated financial statements; +• our compliance with legal and regulatory requirements; +• reviewing and approving related party transactions; +• selecting and hiring our registered independent public accounting firm; +• the qualifications, independence and performance of our independent auditors; and +• the preparation of the audit committee report to be included in our annual proxy statement. +Compensation Committee +Our compensation committee is composed of Matthew Pauls, Andrew Einhorn and Richard Malamut. Matthew Pauls is the chairperson of our compensation committee. The composition of our compensation committee meets the requirements for independence under the current NYSE American listing standards and SEC rules and regulations. Each member of this committee is: (i) an outside director, as defined pursuant to Section 162(m) of the Internal Revenue Code of 1986, as +91 +amended; and (ii) a non-employee director, as defined in Rule 16b-3 promulgated under the Exchange Act. Our compensation committee is responsible for, among other things: +• evaluating, recommending, approving and reviewing executive officer and director compensation arrangements, plans, policies and programs; +• administering our cash-based and equity-based compensation plans; and +• making recommendations to our board of directors regarding any other board of director responsibilities relating to executive compensation. +Nominating and Corporate Governance Committee +Our nominating and corporate governance committee is composed of Peter Greenleaf and Richard Malamut. Peter Greenleaf is the chairperson of our nominating and corporate governance committee. The composition of our nominating and corporate governance committee meets the requirements for independence under the current NYSE American listing standards and SEC rules and regulations. Our nominating and corporate governance committee is responsible for, among other things: +• identifying, considering and recommending candidates for membership on our board of directors; +• overseeing the process of evaluating the performance of our board of directors; and +• advising our board of directors on other corporate governance matters. +Director Nomination Procedures +There have been no material changes to the procedures by which security holders may recommend nominees to our board of directors. +Insider Trading Arrangements and Policies +We have a written insider trading policy that applies to our directors, officers, employees and contractors, including our principal executive officer, principal financial officer, principal accounting officer or controller, and persons performing similar functions. We intend to disclose future amendments to such policy, or any waivers of its requirements, applicable to any principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions or our directors on our website identified above or in a Current Report on Form 8-K that we would file with the SEC. +Our directors and executive officers may adopt written plans, known as Rule 10b5-1 plans, in which they will contract with a broker to buy or sell shares of our Common Stock on a periodic basis. Under a Rule 10b5-1 plan, a broker executes trades pursuant to parameters established by the director or officer when entering into the plan, without further direction from them. The director or officer may amend a Rule 10b5-1 plan in some circumstances and may terminate a plan at any time. Our directors and executive officers also may buy or sell additional shares outside of a Rule 10b5-1 plan when they are not in possession of material non-public information subject to compliance with the terms of our insider trading policy. +On December 16, 2025, the Company entered into a Rule 10b5-1(c)(1) Sales Plan (the “Sales Plan”) with Raymond James & Associates, Inc. (“Raymond James”), acting as agent for the limited purpose of effecting sales of shares of Common Stock of certain officers, directors or related parties of officers or directors of the Company (collectively, the “Sellers”), including shares of Common Stock each Seller has the right to acquire under outstanding RSUs issued by the Company. Each Seller has made an election to include their shares of Common Stock underlying RSUs in the Sales Plan and has instructed Raymond James to sell shares of Common Stock to cover the tax associated with each vesting date as provided by the Company to Raymond James, provided that Board approval has been obtained for such grants. The Sales Plan is intended to comply with the requirements of Rule 10b5-1 under the Exchange Act. +Item 11. Executive Compensation +Our named executive officers for 2025 were Mr. Scott M. Plesha, our Chief Executive Officer and President, Mr. Francis Knuettel II, our Chief Financial Officer, Treasurer and Secretary, and Mr. Sai Rangarao, our Chief Commercial Officer. Mr. Plesha was first appointed in July 2025, Mr. Knuettel was first appointed in June 2022, and Mr. Rangarao was first appointed in July 2025. +92 +Summary Compensation Table +The following table provides information regarding the compensation of our named executive officers during the years ended December 31, 2025 and 2024. +Name and Principal Position Year Salary Bonus Option +Awards Stock +Awards Non-Equity +Incentive Plan +Compensation All Other +Compensation Total +Scott M. Plesha (1) 2025 $ 219,802 $ 240,900 $ 2,557,650 $ 1,129,653 $ — $ 5,163 $ 4,153,168 +Chief Executive Officer 2024 $ — $ — $ — $ — $ — $ — $ — +Francis Knuettel II (2) 2025 $ 410,000 $ 331,650 $ 1,092,167 $ 451,872 $ — $ 2,545 $ 2,288,234 +Chief Financial Officer and former Chief Executive Officer 2024 $ 424,923 $ 56,666 $ 361,833 $ 361,833 $ — $ — $ 1,205,255 +Sai Rangarao (3) 2025 $ 200,733 $ 176,000 $ 932,790 $ 411,993 $ — $ 1,891 $ 1,723,407 +Chief Commercial Officer 2024 $ — $ — $ — $ — $ — $ — $ — +(1) Mr. Plesha became our Chief Executive Officer effective July 1, 2025, and in connection therewith, Mr. Plesha entered into an employment agreement (the “Plesha Employment Agreement”), as described in further detail within the section entitled “Executive Compensation—Arrangements with our Named Executive Officers—Arrangements with Scott M. Plesha. +(2) Mr. Knuettel has served as our Chief Financial Officer, Treasurer and Secretary since June 2022, and as our Chief Executive Officer from July 2023 through July 2025. In connection with the Merger, Mr. Knuettel entered into an employment agreement (the “Knuettel Employment Agreement”), as described in further detail within the section entitled “Executive Compensation—Arrangements with our Named Executive Officers—Arrangements with Francis Knuettel II. +(3) Mr. Rangarao became our Chief Commercial Officer effective July 1, 2025, and in connection therewith, Mr. Rangarao entered into an employment agreement (the “Rangarao Employment Agreement”), as described in further detail within the section entitled “Executive Compensation—Arrangements with our Named Executive Officers—Arrangements with Sai Rangarao. +Employment Agreements and Arrangements +Arrangements with Scott M. Plesha +Mr. Plesha serves as our Chief Executive Officer and President and is compensated pursuant to the Plesha Employment Agreement. Pursuant to the Plesha Employment Agreement dated July 1, 2025, Mr. Plesha receives an annualized salary of $438,000 and is eligible to receive an annual performance-based bonus with a target bonus of 50% his base salary. Mr. Plesha is also eligible to participate in our incentive award plans, and is eligible to participate in standard benefit plans as well as for the reimbursement of reasonable business expenses. In addition, our board of directors approved a stock option award covering 255,000 shares and a restricted stock unit award covering 83,678 shares, each under the 2023 Plan. +Pursuant to Mr. Plesha’s employment agreement, in the event he is involuntarily terminated by the Company other than for “Cause” or if he resigns for “Good Reason” (except as set forth below), he is entitled to receive (i) severance equivalent to eighteen (18) months of salary at the same rate existing immediately prior to his termination, (ii) the vesting of all outstanding options and equity awards with time-based vesting that would have vested had Mr. Plesha remained employed through the severance period, and (iii) payment of or reimbursement by the Company for coverage up to the duration of the severance period of group medical, dental and/or vision benefits under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, if he elects to continue such benefits. “Cause” and “Good Reason” are each defined in the employment agreement. +Notwithstanding the foregoing, the Plesha Employment Agreement further provides that, in the event he is involuntarily terminated by the Company other than for “Cause” or if he resigns for “Good Reason” at the time of, or within six months +93 +of, a “Change in Control”, he is instead entitled to severance, accelerated equity award vesting and group benefits reimbursement equivalent to twenty four (24) months instead of eighteen (18) months as set forth above. +Finally, Mr. Plesha agreed to certain non-competition provisions following termination and to certain confidentiality obligations. Additional terms and conditions are set forth in the employment agreement +Arrangements with Francis Knuettel II +Mr. Knuettel serves as our Chief Financial Officer, Treasurer, and Secretary, and is compensated pursuant to the Knuettel Employment Agreement. Pursuant to the Knuettel Employment Agreement dated July 1, 2025, Mr. Knuettel receives an annualized salary of $410,000 and is eligible to receive an annual performance-based bonus with a target bonus of 40% his base salary. Mr. Knuettel is also eligible to participate in our incentive award plans, and is eligible to participate in standard benefit plans as well as for the reimbursement of reasonable business expenses. In addition, our board of directors approved a stock option award covering 102,000 shares and a restricted stock unit award covering 33,472 shares, each under the 2023 Plan. +Pursuant to Mr. Knuettel’s employment agreement, in the event he is involuntarily terminated by the Company other than for “Cause” or if he resigns for “Good Reason” (except as set forth below), he is entitled to receive (i) severance equivalent to twelve (12) months of salary at the same rate existing immediately prior to his termination, (ii) the vesting of all outstanding options and equity awards with time-based vesting that would have vested had Mr. Knuettel remained employed through the severance period, and (iii) payment of or reimbursement by the Company for coverage up to the duration of the severance period of group medical, dental and/or vision benefits under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, if he elects to continue such benefits. “Cause” and “Good Reason” are each defined in the employment agreement. +Notwithstanding the foregoing, the Knuettel Employment Agreement further provides that, in the event he is involuntarily terminated by the Company other than for “Cause” or if he resigns for “Good Reason” at the time of, or within six months of, a “Change in Control”, he is instead entitled to severance, accelerated equity award vesting and group benefits reimbursement equivalent to eighteen (18) months instead of twelve (12) months as set forth above. +Finally, Mr. Knuettel agreed to certain non-competition provisions following termination and to certain confidentiality obligations. Additional terms and conditions are set forth in the employment agreement. +Prior to the Knuettel Employment Agreement, Mr. Knuettel served as our Chief Executive Officer, Chief Financial Officer, Treasurer, and Secretary under a separate employment agreement effective as of May 1, 2024, or the Knuettel 2024 Agreement. Pursuant to the 2024 Knuettel Agreement, Mr. Knuettel received an annualized salary of $410,000 and was eligible to receive an annual performance-based bonus with a target bonus of 0% his base salary. Mr. Knuettel was also eligible to participate in our incentive award plans, was eligible to participate in standard benefit plans as well as for the reimbursement of reasonable business expenses. In addition, our board of directors approved a one-time cash signing bonus of $56,666. +Prior to the 2024 Knuettel Agreement, Mr. Knuettel served as our Chief Financial and Strategy Officer, Treasurer and Secretary under a Consultant Agreement with Camden Capital LLC (“Camden”), dated January 10, 2023, and effective as of September 1, 2022 (the “Consultant Agreement”). +Under the Consultant Agreement, Camden began to accrue a consulting fee of $20,000 per month, payable in cash at the rate of $5,000 per month (a minimum of $1,125 per week), with the remainder accrued. All accrued consulting fees were payable as of the earliest of a sale or liquidation of the Company, the Company’s bankruptcy or three days after Post-registration Approval. The Consultant Agreement provides for the following equity awards to Camden: (i) an option, awarded as of January 10, 2023, to acquire 2,223 shares of our Common Stock (ii) an additional option, awarded as of January 10, 2023, to acquire 278 shares of our Common Stock, and (iii) a restricted stock unit (“RSU”), awarded as of January 10, 2023, of 1,667 shares of our Common Stock. +On June 23, 2023, we amended and restated the Consultant Agreement by entering into an Amended and Restated Consultant Agreement with Camden whereby the RSU for 1,667 shares of Common Stock was cancelled, and we agreed to grant Camden an option to acquire 2,778 shares of Common Stock within 30 days of the closing of the IPO. In addition, from and after June 1, 2023, the consulting fee was to be paid in cash by the Company. No other material changes were +94 +made to the Consultant Agreement. Mr. Knuettel served under this Amended and Restated Consultant Agreement until entering into the 2024 Knuettel Agreement with the Company. +Arrangements with Sai Rangarao +Mr. Rangarao serves as our Chief Commercial Officer and is compensated pursuant to the Rangarao Employment Agreement. Pursuant to the Rangarao Employment Agreement dated July 1, 2025, Mr. Rangarao receives an annualized salary of $400,000 and is eligible to receive an annual performance-based bonus with a target bonus of 40% his base salary. Mr. Rangarao is also eligible to participate in our incentive award plans, and is eligible to participate in standard benefit plans as well as for the reimbursement of reasonable business expenses. In addition, our board of directors approved a stock option award covering 93,000 shares and a restricted stock unit award covering 30,518 shares, each under the 2023 Plan. +Pursuant to Mr. Rangarao’s employment agreement, in the event he is involuntarily terminated by the Company other than for “Cause” or if he resigns for “Good Reason” (except as set forth below), he is entitled to receive (i) severance equivalent to twelve (12) months of salary at the same rate existing immediately prior to his termination, (ii) the vesting of all outstanding options and equity awards with time-based vesting that would have vested had Mr. Rangarao remained employed through the severance period, and (iii) payment of or reimbursement by the Company for coverage up to the duration of the severance period of group medical, dental and/or vision benefits under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, if he elects to continue such benefits. “Cause” and “Good Reason” are each defined in the employment agreement. +Notwithstanding the foregoing, the Rangarao Employment Agreement further provides that, in the event he is involuntarily terminated by the Company other than for “Cause” or if he resigns for “Good Reason” at the time of, or within six months of, a “Change in Control”, he is instead entitled to severance, accelerated equity award vesting and group benefits reimbursement equivalent to eighteen (18) months instead of twelve (12) months as set forth above. +Finally, Mr. Rangarao agreed to certain non-competition provisions following termination and to certain confidentiality obligations. Additional terms and conditions are set forth in the employment agreement. +Equity and Equity-Based Plans +95 +Outstanding Equity Awards at Fiscal Year-End +The following table provides information regarding the outstanding equity awards of our named executive officers during the year ended December 31, 2025. +Option Awards Stock Awards +Name and +Principal Position Grant Date Number of +Securities +Underlying +Unexercised +Options +Exercisable Number of +Securities +Underlying +Unexercised +Options +Unexercisable Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options Option +Exercise +Price Option +Expiration +Date Number +of +shares of Common +Stock +Unvested Market +Value of +shares of Common +Stock +Unvested Equity +Incentive Plan +Awards: Number +of Unearned +Unvested +Shares Equity Incentive Plan Awards: Market or Payout Value of Unearned Unvested Shares +Scott M. Plesha, Chief Executive Officer and President 7/2/2025 (1) — 255,000 — $ 13.50 7/1/2035 — $ — — $ — +Scott M. Plesha, Chief Executive Officer and President 7/2/2025 (2) — — — $ — 0 83,678 $ 2,594,018 — $ — +Francis Knuettel II, Chief Financial Officer 10/1/2022 (3) 2,223 — — $ 226.80 9/30/2032 — $ — — $ — +Francis Knuettel II, Chief Financial Officer 1/10/2023 (4) 278 — — $ 226.80 1/9/2033 — $ — — $ — +Francis Knuettel II, Chief Financial Officer 5/15/2023 (4) 2,778 — — $ 226.80 5/14/2033 — $ — — $ — +Francis Knuettel II, Chief Financial Officer 6/14/2024 (5) 32,400 — — $ 13.00 6/13/2034 — $ — — $ — +Francis Knuettel II, Chief Financial Officer 4/11/2025 (6) 5,399 — — $ 13.50 4/10/2035 — $ — — $ — +Francis Knuettel II, Chief Financial Officer 7/2/2025 (1) — 102,000 — $ 13.50 7/1/2035 — $ — — $ — +Francis Knuettel II, Chief Financial Officer 7/2/2025 (2) — — — $ — 0 33,472 $ 1,037,632 $ — +Sai Rangarao, Chief Commercial Officer 7/2/2025 (1) — 93,000 — $ 22.68 5/15/2033 — $ — — $ — +Sai Rangarao, Chief Commercial Officer 7/2/2025 (2) — — — $ — 0 30,518 $ 946,058 — $ — +(1) This option was granted under the 2023 Plan and one-third shall vest on July 2, 2026, with the remainder vesting in eight equal quarterly installments, with the first installment vesting on October 2, 2026. +(2) This RSU was granted under the 2023 Plan and one-third shall vest on July 2, 2026, with the remainder vesting in eight equal quarterly installments, with the first installment vesting on October 2, 2026. +(3) This option was granted under the 2023 Plan and vested in ten equal quarterly installments, with the first installment vesting on October 1, 2022. +(4) This option was granted under the 2023 Plan and vested in its entirety on February 29, 2024. +(5) This option was granted under the 2023 Plan and one-half vested in four equal quarterly installments, with the first quarterly installment vesting on September 14, 2024, and the remainder vested on July 1, 2025. +(6) This option was granted under the 2023 Plan and vested in its entirety on July 1, 2025. +96 +Equity Incentive Plans +The Pelthos Therapeutics 2023 Equity Incentive Plan +On June 12, 2024, the Board authorized an amendment to the Pelthos Therapeutics Inc. 2023 Equity Incentive Plan (as further amended and/or restated, the “2023 Plan”) to increase the number of shares of Common Stock authorized for issuance thereunder by 150,000 from 44,444 shares to 194,444 shares. On October 22, 2024, the 2023 Plan Amendment was approved by the affirmative vote of a majority of the outstanding shares of Common Stock present in person, by remote communication, if applicable, or represented by proxy at the Annual Meeting. On April 16, 2025, pursuant to written consent of the majority of shareholders of the Company, the number of shares authorized for issuance under the 2023 Plan was increased to 2,400,000 shares. The Company’s board of directors approved the increase to the 2023 Plan on June 26, 2025. The following summary of the material features of the 2023 Plan is qualified in its entirety by reference to the complete text of the 2023 Plan, a copy of which is filed with this Report. The 2023 Plan will terminate on January 10, 2033, in accordance with its terms, although, awards outstanding under the 2023 Plan will continue to be governed by their existing terms after the 2023 Plan’s expiration. +Share Reserve . We have reserved 2,400,000 shares of our Common Stock for issuance under the 2023 Plan. Unissued shares of Common Stock subject to awards that fail to settle, vest or be fully exercised prior to expiration or other termination shall again become available for grant under the terms of the 2023 Plan. +Administration . Our board of directors currently administers the 2023 Plan. The administrator has complete discretion to make all decisions relating to the 2023 Plan and outstanding awards. The board of directors has authorized the compensation committee to also act as administrator to the 2023 Plan. +Eligibility . Key employees, non-employee members of our board of directors and other persons who render services of special importance to our management, operation or development are eligible to participate in the 2023 Plan. +Types of Awards . The 2023 Plan provides for the following types of awards granted with respect to shares of our Common Stock: +• incentive and nonqualified stock options to purchase shares of our Common Stock; +• stock appreciation rights, whether settled in cash or our Common Stock; +• direct awards or sales of shares of our Common Stock, with or without restrictions; and +• restricted stock units. +The recipient of an award under the 2023 Plan is referred to as a participant. +Options . The administrator may grant incentive stock options (“ISOs”) and nonqualified stock options (“NSOs”) under the 2023 Plan. The administrator determines the number of shares of our Common Stock subject to each option, its exercise price, its duration and the manner and time of exercise; provided, however, that no option may be issued under the 2023 Plan with an exercise price that is less than the fair market value of our Common Stock as of the date the option is granted, and no option issued as an ISO will have a duration that exceeds ten years. ISOs may be issued only to our employees or employees of our corporate subsidiaries, and in the case of a more than ten percent stockholder, must have an exercise price that is at least 110% of the fair market value of our Common Stock as of the date the option is granted, and may not have a duration of more than five years. +The administrator, in its discretion, may provide that any option is subject to vesting limitations that make it exercisable during its entire duration or during any lesser period of time. +The exercise price of an option may be paid in cash, by delivery of a recourse promissory note secured by the Common Stock acquired upon exercise of the option (except that such a loan would not be available to any of our executive officers or directors), by means of a “cashless exercise” procedure in which a broker transmits to us the exercise price in cash, either as a margin loan or against the optionee’s notice of exercise and confirmation by us that we will issue and deliver to the broker stock certificates for that number of shares of Common Stock having an aggregate fair market value equal to the exercise price, or agrees to pay the exercise price to us in cash upon our receipt of stock certificates, by delivery of shares of our Common Stock already owned by the optionee, by a “net exercise” in the case of an NSO or by any combination of the methods listed. +97 +Stock Appreciation Rights (“SARs”) . The administrator may also grant SARs to participants on such terms and conditions as it may determine. SARs may be granted separately or in connection with an option. No SAR may be issued under the 2023 Plan with an exercise price that is less than the Fair Market Value of our Common Stock as of the date the SAR is granted, and no SAR will have a duration that exceeds ten years. Upon the exercise of an SAR, the participant is entitled to receive payment equal to the excess of the fair market value, on the date of exercise, of the number of shares of Common Stock for which the SAR is exercised over the exercise price for the Common Stock under a related option or, if there is not a related option, over an amount per share stated in the agreement setting forth the terms and conditions of the SAR. +Payment to the participant may be made in cash or other property, including Common Stock, in accordance with the provisions of the SAR agreement. +Stock Grants . The administrator may make an award in one or more of the following forms of stock grant. Stock grants (including restricted stock units and performance units after settlement) generally will provide the participant with all of the rights of a stockholder of ours, including the right to vote and to receive payment of dividends. +Stock grant without restriction. The administrator may make a stock grant without any restrictions. +Restricted stock and RSUs . The administrator may issue shares of our Common Stock with restrictions determined by the administrator in its discretion. Restrictions could include conditions that require the participant to forfeit the shares in the event that the participant ceases to provide services to us or any of our affiliates thereof before a stated time. RSUs are similar to restricted stock except that no shares are actually issued to the participant on the RSU grant date. Rather, and provided all applicable restrictions are satisfied, shares of Common Stock are generally delivered at settlement of the award. The period of restriction, the number of shares of restricted stock or the number of RSUs granted, the purchase price, if any, and such other conditions and/or restrictions as the administrator may establish will be set forth in an award agreement. Participants holding RSUs will not have voting rights or other rights as a stockholder until any shares related to the RSU are issued. After all conditions and restrictions applicable to restricted shares and/or RSUs have been satisfied or have lapsed, shares of restricted stock will become freely transferable and RSUs may be settled in cash, in shares of our Common Stock or in some combination of cash and shares of our Common Stock, as determined by the administrator and stated in the award agreement. +Performance shares and performance share units (“PSUs”) . With respect to an award of performance shares and/or PSUs, the administrator will establish performance periods and performance goals. The extent to which a participant achieves their performance goals during the applicable performance period will determine the value and/or the number of performance shares and/or PSUs earned by such participant. Payment of earned performance shares and/or PSUs will be in cash, shares of our Common Stock or some combination of cash and shares of our Common Stock, as determined by the administrator and stated in the award agreement. +Other awards . The administrator may issue other types of equity-based or equity-related awards under the 2023 Plan, on such terms and conditions as the administrator shall determine in its discretion. +Dividends . Participants holding restricted stock and performance shares will be entitled to receive dividends on our shares, provided that in the discretion of the administrator, participants will not be entitled to dividends with respect to unvested restricted stock and performance shares until the stock or shares vest, respectively. Dividend equivalent units may, but are not required to, be issued with respect to RSUs or PSUs and may be paid in cash, additional shares of our Common Stock or a combination on the date the shares are delivered, all as determined by the administrator and stated in the award agreement. +Effect of certain corporate transactions . In the event of a stock split, reverse stock split, stock dividend, recapitalization, combination of shares, reclassification of shares, spin-off or other similar change in capitalization or event, or any dividend or distribution on our Common Stock other than an ordinary cash dividend, the administrator shall make equitable adjustments to awards as it, in its sole discretion, deems appropriate. In the case of (1) a merger or consolidation of the Company with or into another entity pursuant to which all of our Common Stock is cancelled or converted into or exchanged for the right to receive cash, securities or other property, (2) any transfer or disposition of all of our Common Stock for cash, securities or other property pursuant to a share exchange or other transaction, (3) the sale or other disposition of all or substantially all of the Company’s assets or (4) any liquidation or dissolution of the Company, the administrator may take any of a number of actions including providing for the assumption of awards, the termination of awards (with advance notice permitting exercise), Awards to become exercisable at or prior to the event, the liquidation of awards or any combination of the foregoing. +98 +Amendments to the 2023 Plan . Our board of directors may amend, suspend or terminate the 2023 Plan in whole or in part at any time provided that stockholder approval shall be required to the extent necessary under the rules applicable to ISOs or under NYSE American or other applicable securities exchange rules. +The administrator may, without stockholder approval, amend the 2023 Plan as necessary to enable awards to qualify for favorable foreign tax, securities or other treatment in the case of a participant who is subject to a jurisdiction outside the United States. +Amendments or Termination . The administrator may at any time amend, suspend or terminate the 2023 Plan, subject to stockholder approval in the case of an amendment if the amendment increases the number of shares available for issuance or materially changes the class of persons eligible to receive incentive stock options. The 2023 Plan will terminate automatically ten years after the later of the date when our board of directors adopted the plan or the date when our board of directors most recently approved an increase in the number of shares of Common Stock reserved thereunder which was also approved by our stockholders, and as noted above, any awards outstanding under the 2023 Plan upon termination will remain outstanding and will continue to be governed by their existing terms. +Director Compensation for Fiscal Year 2025 +We have not implemented a formal policy with respect to compensation payable to our non-employee directors. From time to time, we have granted equity awards to attract individuals to join our board of directors and for their continued service thereon. In 2025, independent directors received $10,000 in cash compensation for each quarter of service and a non-employee chairman of the board of directors received $12,500 for each quarter of service. Unless otherwise noted below, in 2025, directors were granted options to purchase 58,230 shares of Common Stock at fair market value as of the date of issuance, expiring ten years from issuance and RSUs representing 19,108 shares of Common Stock. In addition, we reimburse our directors for expenses associated with attending meetings of our board of directors and its committees. Our board of directors is still in the process of considering the non-employee director compensation policy. +Name +Fees Earned +or Paid in +Cash +($) (1) +Stock +Awards +($) +Stock +Option +Awards +($) (2) +Non-Equity +Incentive +Plan +Compensation +($) Nonqualified +Deferred +Compensation Earnings +($) All Other +Compensation +($) Total +($) +Peter Greenleaf (3) +$ 40,000 $ 343,953 $ 749,226 — — — $ 1,133,179 +Richard Baxter 20,000 257,958 578,806 — — — 856,764 +Todd Davis 60,000 257,958 578,806 — — — 896,764 +Andrew Einhorn (4) +978 323,760 — — — — 324,738 +Ezra Friedberg 60,000 257,958 578,806 — — — 896,764 +Dr. Richard Malamut 60,000 257,958 578,806 — — — 896,764 +Matthew Pauls (5) +35,000 343,953 749,226 — — — 1,128,179 +Chia-Lin Simmons (6) +40,000 — 32,000 — — — 72,000 +(1) Amounts reflected in this column include the fees earned during the fourth quarter ended December 31, 2024, but paid in cash to the applicable director during the year ended December 31, 2025, and fees earned during the fourth quarter ended December 31, 2025, but paid in cash to the applicable director during the year ended December 31, 2026. In this column we are required to report all fees either earned or paid to directors during 2025. As a result, fees earned in 2025 for fourth quarter service in 2025 but paid in 2026 are also included; thus, the dollar amount represents fees paid for five (not four) successive quarters. In addition, fees earned in 2024 but paid in 2025 were $20,000 for each of the following directors: Mr. Davis, Mr. Malamut, Mr. Friedberg, and Ms. Simmons. +(2) Amounts reflect the aggregate grant date fair value of the stock options granted to each director during the fiscal year ended December 31, 2025, as computed in accordance with ASC 718, rather than the amounts paid to or realized by the named individual. For a discussion of the assumptions used to calculate the value of all stock awards and option awards made to our directors, see Note 11 — “Stockholders’ Equity” to the accompanying consolidated financial statements included in this Annual Report on Form 10-K. These amounts do not necessarily correspond to the actual value that may be recognized from the option awards by the applicable directors. +99 +(3) Mr. Greenleaf served on the board of directors of LNHC, Inc. prior to the Merger and received $15,000 in cash compensation, which is included in this schedule. Mr. Greenleaf joined our board of directors as chairman on July 1, 2025, and was granted options to purchase 77,640 shares of Common Stock at fair market value as of the date of issuance. Mr. Greenleaf was also granted RSUs representing 25,478 shares of Common Stock. +(4) Mr. Einhorn joined our board of directors on December 23, 2025, and was granted RSUs representing 12,000 shares of Common Stock. +(5) Mr. Pauls served on the board of directors of LNHC, Inc. prior to the Merger and received $15,000 in cash compensation, which is included in this schedule. Mr. Pauls joined our board of directors on July 1, 2025, and was granted options to purchase 77,640 shares of Common Stock at fair market value as of the date of issuance. Mr. Pauls was also granted RSUs representing 25,478 shares of Common Stock. +(6) Chia-Lin Simmons served on our board of directors until the Merger completed in July 2025. Prior to the Merger, Ms. Simmons was granted options to purchase 2,500 shares of Common Stock. +Policies and Practices Related to The Grant of Certain Equity Awards +We maintain the 2023 Plan through which we grant equity awards, including stock options and stock appreciation rights, to our named executive officers, other employees, and directors as part of our compensation program. In addition, certain employment agreements with our named executive officers provide for the grant of such equity awards. We do not currently have a formal policy governing the timing of grants of stock options, stock appreciation rights, or similar option-like instruments to named executive officers or directors in relation to the release of material nonpublic information. Equity awards under the 2023 Plan have been granted from time to time, including to directors to encourage their initial or continued service on our board of directors. Our board of directors is evaluating the adoption of a policy concerning the timing of such awards relative to material non-public information disclosures. We have not adopted any practice of timing, and do not time, the release of material non-public information to affect the value of equity awards granted to named executive officers or directors. +During the year ended December 31, 2024, there were no equity grants made to our executive officers during any period beginning four business days before the filing of a periodic report or current report disclosing material non-public information and ending one business day after the filing or furnishing of such report with the SEC. +Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +The following table sets forth certain information regarding the beneficial ownership of our capital stock as of March 4, 2026 by (a) each person, or group of affiliated persons, who is known to us to own beneficially 5% or more of our outstanding equity securities; (b) each of our directors; (c) each of our named executive officers; and (d) all of our named executive officers and directors as a group. Except as otherwise indicated in the footnotes below, we believe, based on the information provided to us, that all persons listed below have sole voting power and investment power with respect to their shares of Common Stock or other equity securities that they beneficially own, subject to community property laws where applicable. +For purposes of this table, a person or group of persons is deemed to have “beneficial ownership” of any shares of Common Stock or other equity securities of the Company that such person has the right to acquire within sixty (60) days of March 4, 2026. For purposes of computing the percentage of outstanding shares of our Common Stock or other equity securities of the Company held by each person or group of persons named above, any shares that such person or persons has the right to acquire within sixty (60) days of March 4, 2026 is deemed to be outstanding, but is not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. The percentage ownership information shown in the table is based upon 3,366,686 shares of Common Stock issued and outstanding as of March 4, 2026. The inclusion herein of any shares of Common Stock or other equity securities of the Company listed as beneficially owned does not constitute an admission of beneficial ownership. Unless otherwise identified, the address of our directors and executive officers is 4020 Stirrup Creek Drive, Suite 110, Durham, NC 27703. +100 +Name of Beneficial Owner (1) : +Shares of +Common Stock +Beneficially +Owned Percentage of +Common Stock +Beneficially +Owned +Directors and executive officers +Scott M. Plesha — * +Francis Knuettel II (2) +65,894 2.0 % +Sai Rangarao — * +Peter Greenleaf (3) +60,152 1.8 % +Richard Baxter (4) +19,335 * +Todd Davis (5) +43,232 1.3 % +Andrew Einhorn — * +Ezra Friedberg (6) +205,336 6.1 % +Dr. Richard Malamut (7) +29,731 * +Matthew Pauls (8) +50,610 1.5 % +All executive officers and directors as a group (10 persons) 474,290 14.1 % +5% or greater stockholders: +Ligand Pharmaceuticals Incorporated (9) +1,500,000 44.6 % +Murchinson Ltd. (10) +280,000 8.3 % +Ikarian Capital, LLC (11) 255,758 7.6 % +3i, LP (12) +213,507 6.3 % +* Represents beneficial ownership of less than one percent. +(1) Except as otherwise indicated, the persons named in the table above have sole voting and investment power with respect to all shares of Common Stock shown as beneficially owned by them. +(2) For Mr. Knuettel, includes 5,279 shares of Common Stock issuable upon the exercise of stock options which are exercisable at a price of $226.80 per share, 32,400 shares of Common Stock issuable upon the exercise of stock options which are exercisable at a price of $13.00 per share, 5,399 shares of Common Stock issuable upon the exercise of stock options which are exercisable at a price of $13.50 per share, 10,000 shares of Common Stock held by Camden and 12,816 shares of Common Stock held by the Lara Knuettel Revocable Trust. The options for 32,400 shares and 5,399 shares are owned by Mr. Knuettel directly and all other stock options are held of record by Camden. Mr. Knuettel serves as Managing Member of Camden and co-trustee, with individual dispositive power of the Lara Knuettel Revocable Trust, and accordingly, may be deemed to beneficially own the shares of Common Stock owned directly by Camden and the Lara Knuettel Revocable Trust. +(3) For Mr. Greenleaf, includes 45,290 shares of Common Stock issuable upon the exercise of stock options held by Mr. Greenleaf which are exercisable at a price of $13.50 per share, a RSU held by Mr. Greenleaf for 2,123 shares, and 12,739 shares of Common Stock owned by Mr. Greenleaf. +(4) For Mr. Baxter, includes 14,558 shares of Common Stock issuable upon the exercise of stock options held by Mr. Baxter which are exercisable at a price of $13.50 per share, a RSU held by Mr. Baxter for 1,592 shares, and 3,185 shares of Common Stock owned by Mr. Baxter. +(5) For Mr. Davis, includes 14,558 shares of Common Stock issuable upon the exercise of stock options held by Mr. Davis which are exercisable at a price of $13.50 per share, 5,557 shares of Common Stock issuable upon the exercise of stock options held by Mr. Davis which are exercisable at a price of $226.80 per share, a RSU held by Mr. Davis for 1,592 shares, a RSU held by Mr. Davis for 1,613 shares, and 19,912 shares of Common Stock owned by Mr. Davis. +(6) For Mr. Friedberg, includes 14,558 shares of Common Stock issuable upon the exercise of stock options held by Mr. Friedberg which are exercisable at a price of $13.50 per share, 1,667 shares of Common Stock issuable upon the +101 +exercise of stock options held by Mr. Friedberg which are exercisable at a price of $226.80 per share, a RSU held by Mr. Friedberg for 1,592 shares, a RSU held by Mr. Friedberg for 806 shares, 64,641 shares of Common Stock owned by Mr. Friedberg, 82,072 shares of Common Stock owned by Balmoral Financial Group LLC (“Balmoral”) and 40,000 shares of Common Stock owned by Key Recovery Group, LLC (“Key”). In addition, Mr. Friedberg serves as a manager with individual dispositive power of both Balmoral and Key, and accordingly, may be deemed to beneficially own the shares of Common Stock owned directly by Balmoral and by Key. Mr. Friedberg has sole voting and dispositive power over the shares held by Balmoral and by Key. The principal executive office of both Balmoral and Key is 106 Court Road, Suite 202, Baltimore, MD 21208. +(7) For Mr. Malamut, includes 14,558 shares of Common Stock issuable upon the exercise of stock options held by Mr. Malamut which are exercisable at a price of $13.50 per share, 1,667 shares of Common Stock issuable upon the exercise of stock options held by Mr. Malamut which are exercisable at a price of $226.80 per share, a RSU held by Mr. Malamut for 1,592 shares, a RSU held by Mr. Malamut for 806 shares, and 11,108 shares of Common Stock owned by Mr. Malamut. +(8) For Mr. Pauls, includes 45,290 shares of Common Stock issuable upon the exercise of stock options held by Mr. Pauls which are exercisable at a price of $13.50 per share, a RSU held by Mr. Pauls for 2,123 shares, and 3,197 shares of Common Stock owned by Mr. Pauls. +(9) None of the directors of Ligand has sole voting or dispositive power with respect to the shares of Common Stock held by Ligand Pharmaceuticals Incorporated. The principal executive office of Ligand Pharmaceuticals Incorporated. is 555 Heritage Drive, Suite 200, Jupiter, FL 33458. +(10) None of the directors of Murchinson Ltd. has sole voting or dispositive power with respect to the shares of Common Stock held by Murchinson Ltd. The principal executive office of Murchinson Ltd. is 145 Adelaide Street West, Toronto A6 M5H 4E5, Canada. +(11) None of the directors of Ikarian Capital, LLC has sole voting or dispositive power with respect to the shares of Common Stock held by Ikarian Capital, LLC. The principal executive office of Ikarian Capital, LLC is 100 Crescent Court, Suite 1620, Dallas, TX 75201. +(12) None of the directors of 3i, LP has sole voting or dispositive power with respect to the shares of Common Stock held by 3i, LP. The principal executive office of 3i, LP is 2 Wooster St., 2nd Floor, New York, NY 10013. +Securities Authorized for Issuance under Equity Compensation Plans +The following table presents information as of December 31, 2025, with respect to compensation plans under which shares of our Common Stock may be issued. The category “Equity compensation plans approved by security holders” in the table below consists of the 2023 Plan. +Plan Category Number of +Securities to Be +Issued upon +Exercise of +Outstanding +Options, Warrants +and Rights Weighted Average +Exercise Price of +Outstanding +Options, +Warrants and +Rights Number of Securities +Remaining Available for +Future Issuance under +the Plan (excluding +securities reflected in +column (a)) +(a) (b) (c) +Equity compensation plans approved by security holders (1) +1,971,472 $ 5.95 354,497 +Equity compensation plans not approved by security holders — — — +Total 354,497 +(1) Includes 1,506,551 shares of Common Stock issuable upon exercise of outstanding stock options under the 2023 Plan and outstanding RSUs representing 464,921 shares of Common Stock. +102 +Item 13. Certain Relationships and Related Transactions, and Director Independence +Channel Related Party Transactions +The following is a summary of transactions among related parties that occurred from Channel’s incorporation, until its merger with and into LNHC: +On December 18, 2024, 747,187 shares of Channel common stock and 2,600 shares of Series C Preferred Stock held by Chromocell Holdings were transferred by Channel to Alexandra Wood (Canada) Inc. (“AWI”) in satisfaction of a default judgment against Chromocell Holdings regarding the default by Chromocell Holdings of a secured promissory note by order of the Supreme Court of the State of New York, County of New York on November 25, 2024 in the matter Alexandra Wood (Canada) Inc. v. Chromocell Corp., Index No. 651735/2024 . AWI subsequently transferred 173,000 shares of Chromocell Holding’s Channel common stock that it received such that AWI now owns 574,187 shares of the Channel common stock originally issued to Chromocell Holdings in connection with the Contribution Agreement. +On February 8, 2024, the company and certain affiliates of the Representative entered into the Bridge Financing Note Amendments. Under the Bridge Financing Note Amendments, both notes issued in the April Bridge Financing and the September Bridge Financing had a maturity date of March 1, 2024, and the full principal amount of both notes and any accrued interest thereon was payable solely in cash upon the consummation of the IPO. Both notes had an annual interest rate of eight percent (8%), which accrued daily, and was calculated on the basis of a 360-day year (consisting of twelve 30 calendar day periods). +On February 10, 2024, the company entered into the Stock Rescission Agreement with certain affiliates of the Representative, pursuant to which we rescinded 111,129 shares of our Common Stock held by such affiliates of the Representative and agreed to refund an aggregate of $91,512 paid by such affiliates of the Representative in consideration therefor within 30 days of the effective date of the Stock Rescission Agreement. +LNHC Related Party Transactions +The following includes a summary of transactions from January 1, 2022 until the Merger to which LNHC has been a party in which the amount involved exceeded or will exceed the lesser of (i) $120,000 and (ii) 1% of the average of LNHC’s total assets at year-end for the prior two fiscal years, and in which any of LNHC’s directors, executive officers or, to LNHC’s knowledge, beneficial owners of more than 5% of LNHC capital stock or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest, other than equity and other compensation, termination, change in control and other arrangements. +Assignment Agreement +Ligand and LNHC entered into an Assignment Agreement, dated March 24, 2025 (the “Assignment Agreement”), pursuant to which LNHC assigned to Ligand all of its material assets and liabilities (including intellectual property rights and contracts) relating to the NITRICIL platform technology, ZELSUVMI, and product candidates that utilize the NITRICIL platform technology. Ligand’s rights to the assigned assets under the Assignment Agreement are subject to the Amended Sato Agreement described below. +Amended Sato Agreement +Ligand and LNHC entered into an Exclusive License and Sublicense Agreement, dated March 24, 2025 (the “Amended Sato Agreement”), pursuant to which Ligand granted to LNHC an exclusive, sublicensable license under the intellectual property rights assigned to Ligand pursuant to the Assignment Agreement to exploit ZELSUVMI™(berdazimer) topical gel (the “Licensed Product”) for the treatment of molluscum contagiosum in humans (the “Licensed Field”) anywhere in the world except Japan (the “Territory”) and to make and have made certain compounds and products as defined in the Sato Agreement, pursuant to which Sato has received certain rights to certain compounds and products in Japan. +LNHC will use commercially reasonable efforts to commercialize the Licensed Product in the Licensed Field in the Territory. Within one year of the effective date of the Amended Sato Agreement, Ligand and LNHC will also negotiate in good faith a development and funding agreement for LNHC to obtain rights to develop and commercialize the product program designated SB207. +103 +LNHC will pay Ligand a 13% royalty on net sales of the Licensed Product. LNHC will also pay Ligand an aggregate amount of $10.0 million upon the achievement of certain sales and commercial milestones. LNHC will further pay Ligand a low-mid percentage of non-royalty payments received from its sublicensees. +Unless terminated earlier according to its terms, the Amended Sato Agreement will expire when LNHC ceases to actively exploit the Licensed Product. Either party may terminate for the other party’s material breach subject to a notice and cure period. Ligand may terminate if LNHC fails to achieve certain regulatory and commercial milestones with respect to certain major markets, if LNHC challenges the licensed patents or if LNHC becomes insolvent. +Master Services Agreement +In connection with drug products developed by Ligand, its affiliates or its licensees (the “Ligand Parties”) utilizing the NITRICIL platform technology, Ligand and LNHC entered into a Master Services Agreement, pursuant to which LNHC will provide to the Ligand Parties certain development and manufacturing services in connection with such drug products developed by the Ligand Parties. In the event Ligand wishes to manufacture any product that uses the NITRICIL platform technology for other than ZELSUVMI(berdazimer) topical gel for the treatment of molluscum contagiosum in humans, then LNHC will transfer all necessary know-how to enable Ligand or its designee to manufacture such product. The Master Services Agreement will expire on March 24, 2040, subject to Ligand’s election to renew the Master Services Agreement for additional five-year periods, provided Ligand gives at least 90 days’ prior written notice thereof to LNHC. Ligand may terminate the Master Services Agreement for any reason or if LNHC undergoes a change in control, provided Ligand gives at least 30 days’ prior written notice to LNHC. Either party may terminate for the other party’s material breach subject to a notice and cure period or if the other party becomes insolvent or bankrupt. +Ligand Bridge Note +Effective January 1, 2025, LNHC entered into a revolving bridge promissory note with Ligand (the “Ligand Bridge Note”) under which any amounts of cash transfers from Ligand to LNHC, and settlement of LNHC’s expenses directly by Ligand, starting from January 1, 2025, are considered a loan from Ligand to LNHC. The maximum borrowing under the Ligand Bridge Note is $18.0 million. The Ligand Bridge Note was repaid at the closing of the Merger, and the amount repaid under the Ligand Bridge was offset against Ligand’s funding commitment in the PIPE Financing. +Post-Merger Related Party Transactions +On July 1, 2025, the Company consummated the Merger with LNHC, pursuant to which CHRO Merger Sub merged with and into LNHC, with LNHC surviving the Merger and continuing as a wholly-owned subsidiary of the Company. +Pursuant to the terms of the Merger Agreement, executed by and among the Company, Merger Sub, LNHC and Ligand, the Merger closed on July 1, 2025. At the Effective Time, the Company issued an aggregate of approximately 31,278 shares of Series A Preferred Stock to Ligand, based on the exchange ratio set forth in the Merger Agreement. Immediately following the Effective Time, approximately 57,568 shares of Series A Preferred Stock were issued and outstanding. Following the Merger, LNHC became a wholly-owned subsidiary of the Company, and the Company adopted the business plan of LNHC. LNHC is a biopharmaceutical company committed to commercializing innovative, safe, and efficacious therapeutic products to help patients with unmet treatment burdens. +In conjunction with the consummation of the Merger, the Company closed the PIPE Financing pursuant to a Securities Purchase Agreement with LNHC and the PIPE Investors, which included Ligand. At the closing of the PIPE Financing, which occurred immediately prior to the Effective Time, the Company issued an aggregate of 50,100 shares of Series A Preferred Stock to the PIPE Investors, including Camden which received 100 shares of Series A Preferred Stock, Balmoral which received 400 shares of Series A Preferred Stock, Ligand which received 31,278 shares of Series A Preferred Stock and Key Recovery which received 400 shares of Series A Preferred Stock (each a related party based on share ownership in excess of 5% or a principal at one or more of the investing entities being on the Board or an executive officer of the Company), for gross proceeds of approximately $50.1 million, consisting of approximately $50.0 million in cash and the conversion of approximately $0.1 million of principal and interest under an outstanding convertible note. +Each share of Series A Preferred Stock is convertible into shares of Common Stock, subject to certain beneficial ownership limitations, including a 49.9% cap for Ligand and a 4.99% or 9.99% cap for other PIPE Investors. Immediately following the PIPE Financing, certain PIPE Investors converted 23,810 shares of Series A Preferred Stock into an aggregate of 2,381,000 shares of Common Stock (after giving effect to the “Reverse Stock Split”). +104 +The Securities Purchase Agreement also provides the PIPE Investors with customary rights, including participation rights in future financings, anti-dilution protections, and registration rights pursuant to a registration rights agreement entered into on the Closing Date. The Company is obligated to file a resale registration statement with the SEC covering the shares of Common Stock issuable upon conversion of the Series A Preferred Stock. +On the Closing Date, the Company effected the Reverse Stock Split and changed its name from Channel Therapeutics Corporation to Pelthos Therapeutics Inc. The Common Stock commenced trading on NYSE American under the symbol “PTHS” on July 2, 2025. +Nomis Royalty Vest +As an inducement to enter into the Securities Purchase Agreement, the Company and Nomis Royalty Vest LLC (“NRV”) entered into a Purchase and Sale Agreement, dated as of July 1, 2025, pursuant to which the Company sold to NRV, and NRV purchased, all of the Company’s rights, title and interest in and to a portion of the Company’s revenue payments for ZELSUVMI and all accounts with respect thereto. In addition, prior to the expiration of the Initial Royalty Term (as defined in the ZELSUVMI Royalty Agreement), NRV will receive a 1.5% royalty on net sales of ZELSUVMI worldwide, other than in Japan, and 3.46% of non-royalty sublicensing payments received by LNHC for its sublicensing of rights to ZELSUVMI, and (ii) after the expiration of the Initial Royalty Term, NRV will receive a 1.2% royalty on net sales of ZELSUVMI worldwide, other than in Japan, and 3.46% of non-royalty sublicensing payments received by LNHC for its sublicensing of rights to ZELSUVMI. +NRV, Ligand, and Madison +On July 1, 2025, the Company and NRV, Ligand, and Madison Royalty LLC, a Colorado limited liability company, on behalf of certain of the Company’s management team and other assignees (“Madison”) entered into a Purchase and Sale Agreement, pursuant to which the Company sold to each of NRV, Ligand, and Madison, and each of NRV, Ligand, and Madison purchased, all of the Company’s rights, title and interest in and to a portion of the Company’s revenue payments and all accounts related to or utilizing the Channel Covered Products. In addition, (A) prior to the expiration of the initial royalty term, (i) NRV will receive a 5.3% royalty, Ligand will receive a 1.7% royalty and Madison will receive a 1.5% royalty on Net Sales of the Channel Covered Products worldwide, and (ii) NRV will receive 12.23%, Ligand will receive 3.92% and Madison will receive 3.46% of non-royalty sublicensing payments received by Pharmaceutical Sub for its sublicensing of rights to the Channel Covered Products worldwide; and (B) after the expiration of the initial royalty term, (i) NRV will receive a 4.24% royalty, Ligand will receive a 1.36% royalty and Madison will receive a 1.2% royalty on Net Sales of the Channel Covered Products worldwide, and (ii) NRV will receive 12.23%, Ligand will receive 3.92% and Madison will receive 3.46% of non-royalty sublicensing payments received by Pharmaceutical Sub for its sublicensing of rights to the Channel Covered Products worldwide. +Convertible Note Financing (Private Placement) +On November 6, 2025 (the “Convertible Note Financing Closing Date”), the Company entered into a securities purchase agreement (the “November 2025 Securities Purchase Agreement”) with certain investors, including Ligand which received a Convertible Note in the principal amount of $9.0 million and Balmoral which received a Convertible Note in the principal amount of $250,000 (each a related party based on share ownership in excess of 5%, or resulting from a principal at one of the entities being on the Board) (collectively, the “Investors”), pursuant to which, among other things, on the Convertible Note Financing Closing Date, the Investors purchased for cash, and the Company issued and sold to the Investors, the Convertible Notes in the aggregate original principal amount of $18.0 million, which are convertible into shares of the Company’s Common Stock, par value $0.0001 per share (the “Convertible Note Financing”). The gross proceeds from the Convertible Note Financing were approximately $18.0 million, before paying estimated expenses. The November 2025 Securities Purchase Agreement contained customary representations and warranties of the Company, on the one hand and the Investors, on the other hand, and customary conditions to closing. The November 2025 Securities Purchase Agreement generally prohibits the Company from issuing securities without the written consent of the Required Holders (as defined in the November 2025 Securities Purchase Agreement), but includes exceptions for specific issuances of securities, including in connection with the independent funding and development of the Company’s historical assets relating to the sodium-ion channel known as NaV1.7 for the treatment of various types of systemic chronic pain, acute and chronic eye pain and post-surgical nerve blocks. The Investors have approved Ligand to serve as collateral agent (the “Collateral Agent”) under the Pledge Agreement (as defined below) and the other Security Documents (as defined in the November 2025 Securities Purchase Agreement) and have authorized the Collateral Agent to take action on behalf of the Investors in accordance with +105 +the terms of the November 2025 Securities Purchase Agreement and the Security Documents. The Convertible Note Financing was approved by the vote of the disinterested directors of the Board. +The closing of the Convertible Note Financing occurred on November 6, 2025. +As partial consideration for the Convertible Notes, the Company granted to each of the Investors (i) a 5.0% royalty on net sales of XEPI (ozenoxacin) cream, for topical use (described below), and all other derivatives and modifications thereof (“XEPI”), to be shared pro rata among all the Investors and (ii) the Company’s right to receive all royalty payments and milestone payments paid by Sato to Ligand in respect of net sales of ZELSUVMI (less 50.0% of the milestone payment payable by Sato in respect of the first commercial sale of ZELSUVMI in Japan, which will be kept by the Company), to be shared pro rata among all the Investors (the “Sato Payments”). +Pledge Agreement +On the Convertible Note Financing Closing Date, the Company, as pledgor and Ligand, as secured party, in its capacity as Collateral Agent for each holder of Convertible Notes, entered into a pledge agreement (the “Pledge Agreement”). In accordance with the terms of the Pledge Agreement, the Convertible Notes are secured by a lien on, and security interest in, (i) 10.0% of all aggregate net sales of the “End Product” as defined in that certain License and API Supply Agreement, dated as of November 6, 2025, by and among the Company, Ferrer Internacional, S.A. and Interquim, S.A.U., including XEPI, in the United States, including Puerto Rico and the U.S. Virgin Islands; provided, however, that the Company will only accrue 5.0% of such payments as liabilities until the occurrence of an event of default (the “Covered Product Revenue Payments”), (ii) the Sato Payments, and (iii) all accounts receivable of the Company with respect to the Covered Product Revenue Payments and the Sato Payments, pursuant to a pledge agreement by and between – in each case, subject to certain permitted indebtedness of the Company. +Registration Rights Agreement +On the Convertible Note Financing Closing Date, the Company and the Investors entered into a Convertible Notes Registration Rights Agreement, pursuant to which the Investors are entitled to certain resale registration rights with respect to shares of the Company’s Common Stock issuable upon conversion of the Convertible Notes issued to the Investors. Pursuant to the Convertible Notes Registration Rights Agreement, the Company is required to prepare and file a resale registration statement with the SEC on or prior to the 60th calendar day following the Convertible Note Financing Closing Date. The Company is obligated to use reasonable best efforts to cause this registration statement to be declared effective by the SEC by the earlier of (i) 90 calendar days following the Convertible Note Financing Closing Date and (ii) the second business day after the date the Company is notified by the SEC that the registration statement will not be reviewed. +Amended and Restated Lock-Up Agreement +As previously disclosed in the Company’s Current Report on Form 8-K filed on April 17, 2025, certain investors (the “Lock-Up Investors”) and Ligand entered into lock-up agreements (collectively, the “Lock-Up Agreements”), pursuant to which such parties agreed not to, except in limited circumstances, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or preferred stock, par value $0.0001 per share, from July 1, 2025 until December 31, 2025, subject to certain exceptions set forth in each of the Lock-Up Agreements. +As an inducement to certain Investors to enter into the November 2025 Securities Purchase Agreement, the Lock-Up Investors and Ligand, have, on the Convertible Note Financing Closing Date, entered into amended and restated lock-up agreements, pursuant to which the Lock-Up Investors and Ligand have received terms identical to those included in the Lock-Up Agreements signed by certain other investors who were parties to that certain securities purchase agreement, dated April 16, 2025, by and among the Company, LNHC, and the others investors thereto. +Channel Products Royalty Agreement Amendment +As an inducement to certain Investors to enter into the November 2025 Securities Purchase Agreement, on the Convertible Note Financing Closing Date, Channel Pharmaceutical Corporation, a wholly owned subsidiary of the Company, and the Company, as seller, and NRV, Ligand, and Madison, as purchasers, entered into Amendment No. 1 to the Channel Products Royalty Agreement , pursuant to which the Company, NRV, Ligand and Madison amended the definition of the Channel Covered Products to exclude (i) Nitricil based technology and (ii) XEPI. +106 +Assignment Agreement Amendment +As an inducement to certain Investors to enter into the November 2025 Securities Purchase Agreement, on the Convertible Note Financing Closing Date, LNHC and Ligand entered into Amendment No. 1 to the Assignment Agreement, pursuant to which Ligand agreed to pay the Company (i) 75% of the milestone payment received by Ligand from Sato in respect of the first commercial sale of the “Licensed Product” (as defined in Amended Sato Agreement) in Japan; and (ii) fifty percent (50%) of any other amounts received by Ligand from Sato under the Amended Sato Agreement solely in respect of the “Licensed Product” (and, for the avoidance of doubt, no other product covered by the Amended Sato Agreement) in the “Licensed Field” (in each case, as defined in the Amended Sato Agreement), less any out-of-pocket costs incurred by Ligand to effectuate its rights, obligations and responsibilities under the Amended Sato Agreement. +Review, Approval or Ratification of Transactions with Related Parties +We have adopted a written related-party transactions policy that provides that our executive officers, directors, nominees for election as a director, beneficial owners of more than 5% of our Common Stock and any members of the immediate family of the foregoing persons, are not permitted to enter into a material related-party transaction with us without the review and approval of our audit committee, or a committee composed solely of independent directors in the event it is inappropriate for our audit committee to review such transaction due to a conflict of interest. Such policy provides that any request for us to enter into a transaction with an executive officer, director, nominee for election as a director, beneficial owner of more than 5% of our Common Stock or with any of their immediate family members or affiliates, in which the amount involved exceeds the lesser of (i) $120,000 or (ii) one percent of the average of the Company’s total assets at year-end for the last two fiscal years, will be presented to our audit committee for review, consideration and approval. In approving or rejecting any such proposal, we expect that our audit committee will consider the relevant facts and circumstances available and deemed relevant to the audit committee, including, but not limited to, whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the related party’s interest in the transaction. +107 +Item 14. Principal Accountant Fees and Services +CBIZ CPAs P.C. (“CBIZ”) is our independent registered public accounting firm and performed the audit of our consolidated financial statements for the year ended December 31, 2025. Effective November 1, 2024, CBIZ acquired the attest business of Marcum LLP, who was our independent registered public accounting firm and performed the audit of our consolidated financial statements for the year ended December 31, 2024. The following table sets forth all fees billed or to be billed for such periods: +2025 2024 +Audit fees (1) $ 399,615 $ 211,817 +Audit-related fees (2) 137,240 82,546 +Tax fees (3) — — +All other fees (4) — 77,092 +Total $ 536,855 $ 371,455 +(1) “Audit fees” include fees for professional services rendered in connection with the audit of our annual consolidated financial statements, review of our quarterly condensed consolidated financial statements and advisory services on accounting matters that were addressed during the annual audit and quarterly review. This category also includes fees for services that were incurred in connection with statutory and regulatory filings or engagements, such as consents and review of documents filed with the SEC. +(2) “Audit-related fees” include fees billed for professional services rendered that are reasonably related to the performance of the audit or review of our consolidated financial statements including subscription for the online library of accounting research literature and are not reported under “Audit Fees”. +(3) “Tax fees” include fees for tax compliance. Tax compliance fees encompass a variety of permissible services, including technical tax advice related to federal and state income tax matters, and assistance with tax audits. +(4) “All other fees” include fees for the bring down and comfort letters associated with the IPO as well as work done in evaluating the Contribution Agreement. +Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors +Our Audit Committee pre-approves all audit and non-audit services provided by the independent auditors prior to the engagement of the independent auditors with respect to such services. The chairman of our Audit Committee has been delegated the authority by such committee to pre-approve interim services by the independent auditors other than the annual audit. The chairman of our Audit Committee must report all such pre-approvals to the entire Audit Committee at the next committee meeting. +108 +PART IV +Item 15. Exhibits and Financial Statement Schedules +(a) The following documents are filed as part of this Report: +(1) Financial Statements: +The audited balance sheets of the Company as of December 31, 2025 and December 31, 2024, the related statements of operations, changes in stockholders’ equity (deficit) and cash flows for the years then ended, the footnotes thereto, and the reports of CBIZ CPAs P.C. and Marcum LLP, independent registered public accounting firms for the years ended December 31, 2025 and December 31 2024, respectively, are filed herewith. +(2) Financial Schedules: +None. Financial statement schedules have been omitted because they are either not applicable or the required information is included in the consolidated financial statements or notes thereto. +(3) Exhibits: +The exhibits listed in the accompanying index to exhibits are filed with this Report or incorporated by reference into this Item 15(a)(3) as part of this Report. +(b) The following are exhibits to this Report and, if incorporated by reference, we have indicated the document previously filed with the SEC in which the exhibit was included. +Certain of the agreements filed as exhibits to this Report contain representations and warranties by the parties to the agreements that have been made solely for the benefit of such parties. These representations and warranties: +• may have been qualified by disclosures that were made to the other parties in connection with the negotiation of the agreements, which disclosures are not necessarily reflected in the agreements; +• may apply standards of materiality that differ from those of a reasonable investor; and +• were made only as of specified dates contained in the agreements and are subject to subsequent developments and changed circumstances. +Accordingly, these representations and warranties may not describe the actual state of affairs as of the date that these representations and warranties were made or at any other time. Investors should not rely on them as statements of fact. +109 +Exhibit +Number Description +3.1 +Articles of Incorporation, filed with the Secretary of State of the State of Nevada on November 5, 2024 (filed as Exhibit 3.1(a) to Registrant’s Current Report on Form 8-K, filed with the SEC on November 18, 2024). +3.2 +Certificate of Correction to Articles of Incorporation, filed with the Secretary of State of the State of Nevada on November 7, 2024 (filed as Exhibit 3.1(b) to Registrant’s Current Report on Form 8-K, filed with the SEC on November 18, 2024). +3.3 +Certificate of Amendment to Articles of Incorporation, filed with the Secretary of State of the State of Nevada on July 1, 2025 (Name Change Certificate of Amendment) (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed with the SEC on July 2, 2025) +3.4 +Certificate of Amendment to Articles of Incorporation, filed with the Secretary of State of the State of Nevada on July 1, 2025 (Reverse Stock Split Certificate of Amendment) (incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K, filed with the SEC on July 2, 2025). +3.5 +Certificate of Designations, Preferences and Rights of Series A Convertible Redeemable Preferred Stock, filed with the Secretary of State of the State of Nevada on July 1, 2025 (incorporated by reference to Exhibit 3.3 to the Registrant’s Current Report on Form 8-K, filed with the SEC on July 2, 2025). +3.6 +Certificate of Amendment to the Certificate of Designations, Preferences and Rights of Series A Convertible Redeemable Preferred Stock, filed with the Secretary of State of the State of Nevada on July 17, 2025 (incorporated by reference to Exhibit 4.3 to the Registrant’s Registration Statement on Form S-8, filed with the SEC on July 25, 2025 (Registration No. 333-288980)). +3.7 +Certificate of Designations, Preferences and Rights of Series C Convertible Redeemable Preferred Stock, filed with the Secretary of State of the State of Nevada on November 8, 2024 (incorporated by reference to Exhibit 3.1(c) to the Registrant’s Current Report on Form 8-K, filed with the SEC on November 18, 2024). +3.8 +Bylaws (incorporated by reference to Exhibit 3.4 to the Registrant’s Current Report on Form 8-K, filed with the SEC on July 2, 2025). +4.1 +Form of Senior Secured Convertible Note (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K, filed with the SEC on November 7, 2025). +4.2 +Form of Warrant issued pursuant to Venture Loan and Security Agreement dated as of January 12, 2026, by and among Pelthos Therapeutics Inc., LNHC, Inc., Channel Therapeutics Corporation and Horizon Technology Finance Corporation (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K, file d with the SEC on January 13, 2026). +4.3 +Form of Senior Debt Indenture (incorporated by reference to Exhibit 4.7 to the Registrant’s Registration Statement on Form S-3, filed with the SEC on February 2, 2026). +4.4 +Form of Subordinated Debt Indenture (incorporated by reference to Exhibit 4.8 to the Registrant’s Registration Statement on Form S-3, filed with the SEC on February 2, 2026). +10.1 +Agreement and Plan of Merger by and among Pelthos Therapeutics Inc., CHRO Merger Sub Inc., LNHC, Inc. and Ligand Pharmaceuticals Incorporated, dated as of April 16, 2025. (incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K, filed with the SEC on April 17, 2025). +10.2 +Merger Agreement Waiver, dated as of July 1, 2025, by and among Channel Therapeutics Corporation, CHRO Merger Sub Inc., LNHC, Inc. and Ligand Pharmaceuticals Incorporated (incorporated by reference to Exhibit 2.2 to the Registrant’s Current Report on Form 8-K, filed with the SEC on July 2, 2025). +10.3 +Securities Purchase Agreement by and among Pelthos Therapeutics Inc., LNHC Inc., and each of the investors thereto, dated as of April 16, 2025 (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed with the SEC on April 17, 2025). +10.8 +Form of Registration Rights Agreement (incorporated by reference to Exhibit 10.6 to the Registrant’s Current Report on Form 8-K, filed with the SEC on April 17, 2025). +10.10 +Pelthos Therapeutics Amended and Restated 2023 Equity Incentive Plan. (incorporated by reference to Exhibit 10.14 to the Registrant’s Current Report on Form 8-K, filed with the SEC on July 1, 2025). +10.11 +Merger Agreement Waiver, dated as of July 1, 2025, by and among Channel Therapeutics Corporation, CHRO Merger Sub Inc., LNHC, Inc. and Ligand Pharmaceuticals Incorporated. (incorporated by reference to Exhibit 2.2 to the Registrant’s Current Report on Form 8-K, filed with the SEC on July 1, 2025). +110 +10.12 +Amendment No. 1 to Securities Purchase Agreement, dated as of July 1, 2025, by and among Channel Therapeutics Corporation, LNHC Inc., and each of the investors thereto. (incorporated by reference to Exhibit 10. 6 to the Registrant’s Current Report on Form 8-K, filed with the SEC on July 1, 2025). +10.13 +Contribution Agreement, dated as of July 1, 2025, by and between Channel Therapeutics Corporation and Channel Pharmaceutical Corporation. (incorporated by reference to Exhibit 10.10 to the Registrant’s Current Report on Form 8-K, filed with the SEC on July 1, 2025). +10.14 +Intellectual Property Assignment and Assumption Agreement, dated as of July 1, 2025, by and between Channel Therapeutics Corporation and Channel Pharmaceutical Corporation. (incorporated by reference to Exhibit 10.11 to the Registrant’s Current Report on Form 8-K, filed with the SEC on July 1, 2025). +10.15 +Purchase and Sale Agreement, dated as of July 1, 2025, by and among Channel Therapeutics Corporation and LNHC, Inc., as the Seller Parties and Nomis RoyaltyVest LLC, as the Purchaser. (incorporated by reference to Exhibit 10.12 to the Registrant’s Current Report on Form 8-K, filed with the SEC on July 1, 2025). +10.16 +Purchase and Sale Agreement, dated as of July 1, 2025, by and among Channel Therapeutics Corporation and Channel Pharmaceutical Corporation, as the Seller Parties and Nomis RoyaltyVest LLC, Ligand Pharmaceuticals Incorporated and Madison Royalty LLC, as the Purchasers. (incorporated by reference to Exhibit 10.13 to the Registrant’s Current Report on Form 8-K, filed with the SEC on July 1, 2025). +10.17+ +Executive Employment Agreement, dated July 1, 2025, between Pelthos Therapeutics Inc. and Scott Plesha. (incorporated by reference to Exhibit 10.17 to the Registrant’s Current Report on Form 8-K, filed with the SEC on July 1, 2025). +10.18+ +Executive Employment Agreement, dated July 1, 2025, between Pelthos Therapeutics Inc. and Francis Knuettel II. (incorporated by reference to Exhibit 10.18 to the Registrant’s Current Report on Form 8-K, filed with the SEC on July 1, 2025). +10.19+ +Executive Employment Agreement, dated July 1, 2025, between Pelthos Therapeutics Inc. and Sai Rangarao. (incorporated by reference to Exhibit 10.19 to the Registrant’s Current Report on Form 8-K, filed with the SEC on July 1, 2025). +10.20 +Employee Lease Agreement, dated July 1, 2025, by and between Ligand Pharmaceuticals Incorporated and Pelthos Therapeutics Inc. (incorporated by reference to Exhibit 10.20 to the Registrant’s Current Report on Form 8-K, filed with the SEC on July 1, 2025). +10.21 +Transition Services Agreement, dated July 1, 2025, by and between Ligand Pharmaceuticals Incorporated and LNHC, Inc. (incorporated by reference to Exhibit 10.21 to the Registrant’s Current Report on Form 8-K, filed with the SEC on July 1, 2025). +10.22 +Registration Rights Agreement (incorporated by reference to Exhibit 10.8 to the Registrant’s Current Report on Form 8-K, filed with the SEC on July 2, 2025). +10.23 +License Agreement dated January 12, 2017, by and between Novan, Inc. and Sato Pharmaceutical Co., Ltd. (incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K, filed with the SEC on September 16, 2025). +10.24 +First Amendment to License Agreement dated January 12, 2017, by and between Novan, Inc. and Sato Pharmaceutical Co., Ltd. (incorporated by reference to Exhibit 10.6 to the Registrant’s Current Report on Form 8-K/A, filed with the SEC on September 16, 2025). +10.25 +Second Amendment to License Agreement dated October 5, 2018, by and between Novan, Inc. and Sato Pharmaceutical Co., Ltd. (incorporated by reference to Exhibit 10.7 to the Registrant’s Current Report on Form 8-K/A, filed with the SEC on September 16, 2025). +10.26 +Royalty and Milestone Payments Purchase Agreement dated April 29, 2019, by and between Novan, Inc. and Reedy Creek Investments LLC. (incorporated by reference to Exhibit 10.8 to the Registrant’s Current Report on Form 8-K/A, filed with the SEC on September 16, 2025). +10.27 +Amendment, Assignment and Assumption Agreement dated September 11, 2023, by and between Novan, Inc., LNHC, Inc. and Reedy Creek Investments LLC. (incorporated by reference to Exhibit 10.9 to the Registrant’s Current Report on Form 8-K/A, filed with the SEC on September 16, 2025). +10.28 +Amended, Restated and Consolidated License Agreement dated June 27, 2012, by and between The University of North Carolina at Chapel Hill and Novan, Inc. (incorporated by reference to Exhibit 10.10 to the Registrant’s Current Report on Form 8-K/A, filed with the SEC on September 16, 2025). +10.29 +First Amendment to Amended, Restated and Consolidated License Agreement dated as of November 20, 2012, between The University of North Carolina at Chapel Hill and Novan, Inc. (incorporated by reference to Exhibit 10.11 to the Registrant’s Current Report on Form 8-K/A, filed with the SEC on September 16, 2025). +111 +10.30 +Second Amendment to Amended, Restated and Consolidated License Agreement dated April 12, 2016, by and between The University of North Carolina at Chapel Hill and Novan, Inc. (incorporated by reference to Exhibit 10.12 to the Registrant’s Current Report on Form 8-K/A, filed with the SEC on September 16, 2025). +10.31 +Third Amendment to Amended, Restated and Consolidated License Agreement dated November 1, 2018, by and between The University of North Carolina at Chapel Hill and Novan, Inc. (incorporated by reference to Exhibit 10.13 to the Registrant’s Current Report on Form 8-K/A, filed with the SEC on September 16, 2025). +10.32 +Fourth Amendment to Amended, Restated and Consolidated License Agreement dated November 26, 2018, by and between The University of North Carolina at Chapel Hill and Novan, Inc. (incorporated by reference to Exhibit 10.14 to the Registrant’s Current Report on Form 8-K/A, filed with the SEC on September 16, 2025). +10.33 +Fifth Amendment to Amended, Restated and Consolidated License Agreement dated October 27, 2021, by and between The University of North Carolina at Chapel Hill and Novan, Inc. (incorporated by reference to Exhibit 10.15 to the Registrant’s Current Report on Form 8-K/A, filed with the SEC on September 16, 2025). +10.34 +Sixth Amendment to Amended, Restated and Consolidated License Agreement dated July 26, 2024, by and between The University of North Carolina at Chapel Hill and Novan, Inc. (incorporated by reference to Exhibit 10.16 to the Registrant’s Current Report on Form 8-K/A, filed with the SEC on September 16, 2025). +10.35 +Seventh Amendment to Amended, Restated and Consolidated License Agreement dated March 12, 2025, by and between The University of North Carolina at Chapel Hill and Novan, Inc. (incorporated by reference to Exhibit 10.17 to the Registrant’s Current Report on Form 8-K/A, filed with the SEC on September 16, 2025). +10.36 +Lease dated January 18, 2021 by and between Copper II 2020, LLC and Novan, Inc. (incorporated by reference to Exhibit 10.18 to the Registrant’s Current Report on Form 8-K/A, filed with the SEC on September 16, 2025). +10.37 +Second Amendment to Lease dated November 23, 2021 by and between Copper II 202 0 , LLC and Novan, Inc. (incorporated by reference to Exhibit 10.19 to the Registrant’s Current Report on Form 8-K/A, filed with the SEC on September 16, 2025). +10.38 +Third Amendment to Lease dated October 17, 2023 by and between TBC Stirrup Creek Owner LLC and LNHC, Inc. (incorporated by reference to Exhibit 10.20 to the Registrant’s Current Report on Form 8-K/A, filed with the SEC on September 16, 2025). +10.39 +Contract Manufacturing Agreement dated February 12, 2025 by and between LNHC, Inc. and Orion Corporation. (incorporated by reference to Exhibit 10.21 to the Registrant’s Current Report on Form 8-K/A, filed with the SEC on September 16, 2025). +10.40 +Assignment Agreement dated March 24, 2025, by and between Ligand Pharmaceuticals Incorporated and LNHC, Inc. (incorporated by reference to Exhibit 10.22 to the Registrant’s Current Report on Form 8-K/A, filed with the SEC on September 16, 2025). +10.41 +Master Services Agreement for Product Supply dated as of March 24, 2025, by and between Ligand Pharmaceuticals Incorporated and LNHC, Inc. (incorporated by reference to Exhibit 10.23 to the Registrant’s Current Report on Form 8-K/A, filed with the SEC on September 16, 2025). +10.42 +Exclusive License and Sublicense Agreement dated March 24, 2025, by and between Ligand Pharmaceuticals Incorporated and LNHC, Inc. (incorporated by reference to Exhibit 10.24 to the Registrant’s Current Report on Form 8-K/A, filed with the SEC on September 16, 2025). +10.43 +Securities Purchase Agreement, dated as of November 6, 2025, by and among Pelthos Therapeutics Inc. and each of the investors thereto (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on November 7, 2025). +10.44 +Pledge Agreement, dated as of November 6, 2025, by and among Pelthos Therapeutics Inc., as Pledgor, and Ligand Pharmaceuticals Incorporated, as Secured Party, in its capacity as Collateral Agent (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K, filed with the SEC on November 7, 2025). +10.45 +Registration Rights Agreement, dated as of November 6, 2025, by and among Pelthos Therapeutics Inc. and each of the buyers thereto (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K, filed with the SEC on November 7, 2025). +10.46 +Amendment No. 1 to Purchase and Sale Agreement, dated as of November 6, 2025, by and among Channel Pharmaceutical Corporation and Pelthos Therapeutics Inc., as the Seller Parties, and Nomis RoyaltyVest LLC, Ligand Pharmaceuticals Incorporated and Madison Royalty LLC, as Purchasers (incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K, filed with the SEC on November 7, 2025). +112 +10.47 +Amendment No. 1 to Assignment Agreement, dated as of November 6, 2025, by and between Ligand Pharmaceuticals Incorporated, as Assignee, and LNHC, Inc., as Assignor (incorporated by reference to Exhibit 10.6 to the Registrant’s Current Report on Form 8-K, filed with the SEC on November 7, 2025). +10.48 +Asset Purchase Agreement, dated as of November 6, 2025, by and between Pelthos Therapeutics Inc., as Purchaser, and Biofrontera Inc., as Seller (incorporated by reference to Exhibit 10.7 to the Registrant’s Current Report on Form 8-K filed, with the SEC on November 7, 2025). +10.49 +License and API Supply Agreement, effective as of November 6, 2025, by and among Pelthos Therapeutics Inc., Ferrer Internacional, S.A. and Interquim, S.A.U. (incorporated by reference to Exhibit 10.8 to the Registrant’s Current Report on Form 8-K, filed with the SEC on November 7, 2025). +10.50 +Asset Purchase Agreement, dated as of December 23, 2025, by and between Pelthos Therapeutics Inc., as Purchaser, and Hatchtech Pty Ltd ACN 098 559 409, as Seller (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed with the SEC on January 2, 2026). +10.51 +Down Payment Agreement for Xeglyze Assets Purchase, dated as of November 20, 2025, by and between Hatchtech Pty Ltd, as Seller and Pelthos Therapeutics Inc. as Buyer (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K, filed with the SEC on January 2, 2026). +10.52 +Venture Loan and Security Agreement, dated as of January 12, 2026, by and among Pelthos Therapeutics Inc., LNHC, Inc., Channel Therapeutics Corporation and Horizon Technology Finance Corporation (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed with the SEC on January 13, 2026). +19.1 +Insider Trading Policy (filed as Exhibit 19.1 to the Registrant’s Annual Report on Form 10-K, filed with the SEC on April 16, 2024). +21.1* +List of Subsidiaries. +23.1* +Consent of CBIZ CPA S P.C. +23.2* +Consent of Marcum LLP. +24.1* +Power of Attorney (included on the signature pages herein). +31.1* +Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 +31.2* +Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 +32.1* +Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 +32.2* +Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 +97.1+ +Compensation Recovery Policy (filed as Exhibit 97.1 to the Registrant’s Annual Report on Form 10-K, filed with the SEC on April 16, 2024). +99.1* +Rule 10b5-1(c)(1) Trading Plan dated December 12, 2025 by and among Pelthos Therapeutics Inc. and Raymond James & Associates, Inc. +101 Interactive Data Files (embedded within the Inline XBRL document) +104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) +*Filed herewith. ++ Indicates management contract or compensatory plan. +In accordance with SEC Release 33-8238, Exhibits 31s and 32s are being furnished and not filed. +113 +SIGNATURES +Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. +Pelthos Therapeutics Inc. +Date: March 19, 2026 +By: /s/ Scott Plesha +Name: Scott Plesha +Title: Chief Executive Officer and President (Principal Executive Officer) +Date: March 19, 2026 +By: /s/ Francis Knuettel II +Name: Francis Knuettel II +Title: Chief Financial Officer, Treasurer and Secretary +(Principal Financial Officer, Principal Accounting Officer) +114 +SIGNATURES AND POWER OF ATTORNEY +We, the undersigned directors and officers of Pelthos Therapeutics Inc., hereby severally constitute and appoint Scott Plesha and Frank Knuettel II, and each of them singly, our true and lawful attorneys, with full power to them, and to each of them singly, to sign for us and in our names in the capacities indicated below, any and all amendments to this Annual Report on Form 10-K, and to file or cause to be filed the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as each of us might or could do in person, and hereby ratifying and confirming all that said attorneys, and each of them, or their substitute or substitutes, shall do or cause to be done by virtue of this Power of Attorney. +Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. +Pelthos Therapeutics Inc. +Date: March 19, 2026 +By: /s/ Scott Plesha +Name: Scott Plesha +Title: Chief Executive Officer, President and Director +Date: March 19, 2026 +By: /s/ Peter Greenleaf +Name: Peter Greenleaf +Chairman of the Board of Directors +Date: March 19, 2026 +By: /s/ Matthew Pauls +Name: Matthew Pauls +Director +Date: March 19, 2026 +By: /s/ Andrew Einhorn +Name: Andrew Einhorn +Director +Date: March 19, 2026 +By: /s/ Todd Davis +Name: Todd Davis +Director +Date: March 19, 2026 +By: /s/ Richard Baxter +Name: Richard Baxter +Director +Date: March 19, 2026 +By: /s/ Ezra Friedberg +Name: Ezra Friedberg +Director +Date: March 19, 2026 +By: /s/ Richard Malamut +Name: Richard Malamut +Director +115 +PELTHOS THERAPEUTICS INC. +INDEX TO CONSOLIDATED FINANCIAL STATEMENTS +Page +Report of Independent Registered Public Accounting Firm (PCAOB ID 199 ) +F-2 +Report of Independent Registered Public Accounting Firm (PCAOB ID 688) +F-3 +Consolidated Balance Sheets +F-4 +Consolidated Statements of Operations and Comprehensive Loss +F-5 +Consolidated Statements of Changes in Stockholders’ Equity ( Deficit ) +F-6 +Consolidated Statements of Cash Flows +F-8 +Notes to Consolidated Financial Statements +F-10 +F-1 +REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +To the Stockholders and Board of Directors of +Pelthos Therapeutics Inc. +Opinion on the Financial Statements +We have audited the accompanying consolidated balance sheet of Pelthos Therapeutics Inc. (the “Company”) as of December 31, 2025, the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity (deficit) and cash flows for the year ended December 31, 2025, and the related notes (collectively referred to as the “financial statements”). In our opinion, based on our audit, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025, and the results of its operations and its cash flows for the year ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America. +Basis for Opinion +These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. +Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. +/s/ CBIZ CPAs P.C. +We have served as the Company’s auditor since 2021 (such date takes into account the acquisition of the attest business of Marcum LLP by CBIZ CPAs P.C. effective November 1, 2024). +Hartford, Connecticut +March 19, 2026 +F-2 +REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +To the Shareholders and Board of Directors +Channel Therapeutics Corporation +Freehold, New Jersey +Opinion on the Financial Statements +We have audited the accompanying balance sheet of Channel Therapeutics Corporation (the “Company”) as of December 31, 2024, the related statements of operations, changes in stockholders’ deficit and cash flows for the year ended December 31, 2024, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024, and the results of its operations and its cash flows for the year ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America. +Explanatory Paragraph – Going Concern +The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 2, the Company has a significant working capital deficiency, has incurred significant losses and needs to raise additional funds to meet its obligations and sustain its operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might +result from the outcome of this uncertainty. +Basis for Opinion +These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. +Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. +/s/ Marcum LLP +We have served as the Company’s auditor since 2021. +Hartford, CT +March 27, 2025, except for the effect of the reverse stock split described in Note 11 to the +financial statements, as to which the date is March 19, 2026 +F-3 +PELTHOS THERAPEUTICS INC. +CONSOLIDATED BALANCE SHEETS +(in thousands, except share and per share amounts) +December 31, 2025 December 31, 2024 +ASSETS +Cash and cash equivalents $ 17,973 $ 513 +Restricted cash, current 50 — +Accounts receivable, net 8,858 — +Inventory, net 23,574 — +Prepaid expenses and other current assets 2,955 856 +Total current assets 53,410 1,369 +Property and equipment, net 9,586 — +Operating lease right-of-use assets, net 3,250 — +Intangible assets, net 39,470 — +Goodwill 24,681 — +Total assets $ 130,397 $ 1,369 +LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) +Accounts payable $ 2,986 $ 1,897 +Accrued expenses 15,364 — +Contingent consideration 2,200 — +Operating lease liabilities, current portion 635 — +Deferred revenue, current portion 966 — +Loan payable, net of debt discount — 2,054 +Loan payable - related party, net of debt discount — 132 +Other liabilities 3,842 — +Total current liabilities 25,993 4,083 +Operating lease liabilities, net of current portion 2,752 — +Deferred revenue, net of current portion 1,280 — +Convertible debt 31,441 — +Other long-term liabilities 30,050 — +Total liabilities 91,516 4,083 +Commitments and contingencies (Note 12) +STOCKHOLDERS’ EQUITY (DEFICIT) +Preferred stock Series A, $ 0.0001 par value, 150,000 shares authorized, 56,418 shares issued and outstanding as of December 31, 2025 and 700,000 shares authorized, no shares issued or outstanding as of December 31, 2024, respectively +— — +Preferred stock Series C, $ 0.0001 par value, 5,000 shares authorized, 2,600 and 2,600 shares issued and outstanding as of December 31, 2025 and December 31, 2024, respectively +— — +Common stock, $ 0.0001 par value, 200,000,000 shares authorized, 3,234,423 and 610,389 shares issued and outstanding as of December 31, 2025 and December 31, 2024, respectively +— — +Additional paid in capital 103,675 18,761 +Accumulated deficit ( 64,794 ) ( 21,475 ) +Total stockholders' equity (deficit) 38,881 ( 2,714 ) +Total liabilities and stockholders' equity (deficit) $ 130,397 $ 1,369 +The accompanying notes are an integral part of these consolidated financial statements. +F-4 +PELTHOS THERAPEUTICS INC. +CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS +FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024 +(in thousands, except share and per share amounts ) +Years Ended December 31, +2025 2024 +Revenue +Net product revenues $ 16,206 $ — +License and collaboration revenues 589 — +Total revenue 16,795 — +Operating expenses +Cost of goods sold 3,988 — +Selling, general and administrative 42,453 6,392 +Research and development 1,228 1,179 +Amortization of intangible assets 1,556 — +Total operating expenses 49,225 7,571 +Operating loss ( 32,430 ) ( 7,571 ) +Other (expense) income +Interest expense ( 3,012 ) ( 786 ) +Impairment of intangible assets ( 285 ) — +Change in fair value of convertible debt ( 14,984 ) — +Interest income and other income 5 402 +Total other (expense) income ( 18,276 ) ( 384 ) +Net loss before provision for income taxes ( 50,706 ) ( 7,955 ) +Provision for income taxes ( 7,387 ) — +Net loss and comprehensive loss $ ( 43,319 ) $ ( 7,955 ) +Net loss per common share - +basic and diluted $ ( 23.04 ) $ ( 14.27 ) +Weighted average number of common shares outstanding during the period - +basic and diluted 1,880,498 557,447 +The accompanying notes are an integral part of these consolidated financial statements. +F-5 +PELTHOS THERAPEUTICS INC. +CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT) +FOR THE YEAR ENDED DECEMBER 31, 2025 +(in thousands, except share and per share amounts ) +Preferred A +Shares Preferred +A Shares +Par Preferred +C Shares Preferred +C Shares +Par Common +Shares Par Additional +Paid-in +Capital Accumulated +Deficit Total +Stockholders’ +Equity (Deficit) +Balance, December 31, 2024 — $ — 2,600 $ — 610,389 $ — $ 18,761 $ ( 21,475 ) $ ( 2,714 ) +Stock-based compensation — — — — — — 3,954 — 3,954 +Restricted stock unit expense — — — — 47,080 — 1,507 — 1,507 +Shares issued for services — — — — 3,081 — 53 — 53 +Shares issued for cash — — — — 1,650 — — — — +Shares issued for conversion of notes — — — — 48,938 — 737 — 737 +Exercise of stock options — — — — 19,538 — 206 — 206 +Stock split — — — — 7,747 — — — — +Shares issued in Acquisition of LNHC, Inc. 31,278 — — — — — 39,410 — 39,410 +Shares issued in PIPE Financing 50,100 — — — — — 38,678 — 38,678 +Conversion of Preferred A Shares ( 24,960 ) — — — 2,496,000 — — — — +Royalty obligation extinguishment — — — — — — 369 — 369 +Net loss — — — — — — — ( 43,319 ) ( 43,319 ) +Balance, December 31, 2025 56,418 $ — 2,600 $ — 3,234,423 $ — $ 103,675 $ ( 64,794 ) $ 38,881 +The accompanying notes are an integral part of these consolidated financial statements. +F-6 +PELTHOS THERAPEUTICS INC. +CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT) +FOR THE YEAR ENDED DECEMBER 31, 2024 +(in thousands, except share and per share amounts ) +Preferred A +Shares Preferred +A Shares +Par Preferred +C Shares Preferred +C Shares +Par Common +Shares Par Additional +Paid-in +Capital Accumulated +Deficit Total +Stockholders’ +Equity (Deficit) +Balance, December 31, 2023 600,000 $ — — $ — 390,634 $ — $ 7,075 $ ( 13,520 ) $ ( 6,445 ) +Stock-based compensation — — — — — — 1,455 — 1,455 +Restricted stock unit expense — — — — 6,450 — 105 — 105 +Shares issued for services — — — — 19,287 — 239 — 239 +Shares issued for cash — — — — 110,000 — 5,972 — 5,972 +Shares issued for conversion of notes — — — — 25,350 — 1,363 — 1,363 +Issuance cost from common stock issued for extension of bridge loan — — — — 8,112 — 448 — 448 +Standby agreement — — — — 3,750 — — — — +Recission of common stock — — — — ( 11,113 ) — ( 92 ) — ( 92 ) +Transfer of liabilities to Chromocell Corp. for preferred C shares — — 2,600 — — — 2,153 — 2,153 +Shares issued for payment of accounts payable — — — — 1,000 — 7 — 7 +Stock repurchase — — — — ( 8,620 ) — ( 74 ) — ( 74 ) +Conversion of Preferred A Shares ( 600,000 ) — — — 49,943 — — — — +Shares issued for cash under equity line of credit, net of issuance costs and for paydown on notes payable and accrued interest — — — — 15,596 — 110 — 110 +Net loss — — — — — — — ( 7,955 ) ( 7,955 ) +Balance, December 31, 2024 — $ — 2,600 $ — 610,389 $ — $ 18,761 $ ( 21,475 ) $ ( 2,714 ) +The accompanying notes are an integral part of these consolidated financial statements. +F-7 +PELTHOS THERAPEUTICS INC. +CONSOLIDATED STATEMENTS OF CASH FLOWS +FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024 +(in thousands, except share and per share amounts) +Years Ended December 31, +2025 2024 +Cash flow from operating activities: +Net loss $ ( 43,319 ) $ ( 7,955 ) +Adjustments to reconcile net loss to net cash used in operating activities +Accretion of interest for royalty obligations 2,397 — +Change in fair value of convertible note 14,984 — +Depreciation of property and equipment 729 — +Amortization of intangible assets 1,556 — +Impairment of intangible assets 285 — +Amortization of debt discount 259 692 +Lease amortization expense 74 — +Stock-based compensation 5,461 1,799 +Inventory write-off 1,055 — +Gain on default judgment — ( 363 ) +Changes in operating assets and liabilities: +Accounts receivable ( 8,810 ) — +Inventory 1,778 — +Prepaid expenses ( 880 ) ( 861 ) +Operating lease right-of-use assets 345 — +Accounts payable 1,356 1,179 +Accrued expenses 6,163 ( 283 ) +Contingent consideration 2,200 — +Operating lease liabilities ( 282 ) — +Deferred revenue ( 589 ) — +Deferred income tax ( 7,387 ) — +Other assets and liabilities 35 — +Net cash used in operating activities ( 22,590 ) ( 5,792 ) +Cash flow from investing activities: +Purchases of property and equipment ( 99 ) — +Acquisition of Xepi asset ( 6,080 ) — +Acquisition of Xeglyze asset ( 1,818 ) — +Acquisition of LNHC, Inc. 2,761 — +Net cash used in investing activities ( 5,236 ) — +Cash flow from financing activities: +Proceeds from PIPE, net 27,384 — +Proceeds from stock option exercises 206 — +Proceeds from convertible note 17,898 — +Proceeds from loan payable, net of debt discount 693 536 +Payment of loan payable, net of debt discount ( 845 ) ( 215 ) +Common stock issued for cash — 5,972 +Rescission of common stock — ( 92 ) +Repurchase of common stock under stock repurchase plan — ( 75 ) +Shares issued for cash under equity line of credit — 83 +Net cash provided by financing activities 45,336 6,209 +Net increase in cash and cash equivalents 17,510 417 +Cash, cash equivalents and restricted cash as of beginning of period 513 96 +Cash, cash equivalents and restricted cash as of end of period $ 18,023 $ 513 +The accompanying notes are an integral part of these consolidated financial statements. +F-8 +PELTHOS THERAPEUTICS INC. +CONSOLIDATED STATEMENTS OF CASH FLOWS +FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024 (CONTINUED) +(in thousands, except share and per share amounts) +Reconciliation to consolidated balance sheets: +Cash and cash equivalents $ 17,973 $ 513 +Restricted cash 50 — +Total cash, cash equivalents and restricted cash shown in the statement of cash flows $ 18,023 $ 513 +Supplemental cash flow information: +Cash paid for income taxes $ — $ — +Cash paid for interest expense $ 19 $ — +Supplemental non-cash investing and financing activities: +Royalty obligation extinguishment $ 369 $ — +Issuance costs allocated to convertible debt $ 1,072 $ — +PIPE proceeds allocated to accounts payable $ 1,776 $ — +PIPE proceeds allocated to debt payable $ 20,340 $ — +PIPE proceeds allocated to fees $ 600 $ — +Royalty agreement liability reclassified from additional paid in capital $ 10,821 $ — +Debt discount from common stock issued for extension of bridge loan $ — $ 448 +Shares issued for payment of accounts payable or for services $ 53 $ 7 +Conversion of notes to common stock $ 737 $ 1,363 +Transfer of liabilities to Chromocell Corporation for Series C Preferred Stock $ — $ 2,153 +Account payable and accrued expenses converted to notes $ — $ 1,455 +Account payable and accrued expenses converted to notes - related party $ — $ 132 +Shares issued for payment of accrued interest $ — $ 3,000 +Shares issued for payment of principal on loan payable $ — $ 24,000 +The accompanying notes are an integral part of these consolidated financial statements. +F-9 +PELTHOS THERAPEUTICS INC. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(dollar values in thousands, except per share data) +NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS +Description of Business +Pelthos Therapeutics Inc. (the “Company”) is a bio-pharmaceutical company committed to commercializing innovative, safe, and efficacious therapeutic products to help patients with unmet treatment burdens. The Company currently has three U.S. Food and Drug Administration (“FDA”) approved products in its commercial portfolio, in various stages of commercialization, including ZELSUVMI TM , XEPI ® , and XEGLYZE ® . +The Company is currently actively promoting one commercial product, ZELSUVMI (berdazimer) topical gel, 10.3% for the treatment of molluscum contagiosum, which was approved by the FDA in January 2024 and was commercially launched in July 2025. Berdazimer sodium is the active pharmaceutical ingredient (“API”) used in ZELSUVMI and is the backbone of the NITRICIL™ platform technology. During the fourth quarter of 2025, the Company acquired the rights to both XEPI and XEGLYZE, for the treatment of impetigo and head lice, respectively, and is preparing them for future commercialization. The Company leases its manufacturing facility, owns and operates the equipment used in the production of the ZELSUVMI API, and has the personnel, know-how, and experience to produce the API for ZELSUVMI. +In addition, the Company also has rights to clinical stage assets that selectively target the sodium ion-channel known as “NaV1.7”, which has been genetically validated as a pain receptor in human physiology. A NaV1.7 blocker is a chemical entity that modulates the structure of the sodium-channel in a way to modulate the transmission of pain perception to the central nervous system. +Company Background +The Company was effectively formed on July 1, 2025 with the merger transaction between Channel Therapeutics Corporation (“Channel”) and LNHC, Inc. (“LNHC”). See below within this Note 1 as well as Note 3 — “Acquisition of LNHC, Inc.” for further information regarding the merger transaction between Channel and LNHC. +Chromocell Therapeutics Corporation (“Chromocell”) was incorporated in Delaware on March 19, 2021. On February 21, 2024 , Chromocell completed the initial public offering of its Common Stock (the “IPO”) by issuing 110,000 shares of its Common Stock at a price of $ 60.00 per share. The aggregate net proceeds from the IPO were approximately $ 5,900 after deducting $ 900 in underwriting discounts and commissions and offering expenses. +On November 18, 2024, Chromocell merged with and into its wholly-owned subsidiary, Channel, a Nevada corporation, pursuant to an agreement and plan of merger, dated as of November 18, 2024 for the purposes of reincorporating Chromocell in Nevada. +LNHC was incorporated in the state of Delaware in September 2023 by Ligand Pharmaceuticals, Inc. (“Ligand”) and was initially formed to facilitate a transaction between Ligand and Novan, Inc. (“Novan”). On September 27, 2023, Ligand acquired certain assets of Novan, after providing debtor in possession financing and acquiring specific assets from Novan, under Section 363 of the U.S. Bankruptcy Code (a “363 transaction”). Novan was a medical dermatology company focused on developing and commercializing innovative therapeutic products for skin diseases. Through its NITRICIL technology platform, Novan developed ZELSUVMI (berdazimer gel, 10.3%), formerly named SB206, as a topical prescription gel for the treatment of viral skin infections, with a focus on molluscum contagiosum. As of the acquisition date in September 2023 by Ligand, all assets and liabilities acquired in the Novan acquisition were held by LNHC, which was a wholly owned subsidiary of Ligand, including the NITRICIL technology platform. +On March 24, 2025, LNHC assigned its intellectual property portfolio related to the Novan acquisition, including the NITRICIL technology, to Ligand and entered into an exclusive license and sublicense agreement with Ligand, pursuant to which Ligand licensed to the Company the intellectual property rights necessary to make, use, sell or offer to sell ZELSUVMI for the treatment of molluscum contagiosum in humans worldwide, except for Japan. +On March 24, 2025, LNHC and Ligand also entered into a master services agreement under which Ligand, or related parties, may contract with LNHC to provide API for clinical or commercial use related to the NITRICIL technology. In +F-10 +addition, the agreement also allows Ligand to require LNHC to provide manufacturing technology transfer services, if requested, for products other than ZELSUVMI, to a potential third-party manufacturer. +The Merger +On July 1, 2025 (the “Merger Closing Date”), the Company consummated the previously announced merger transaction pursuant to that certain Agreement and Plan of Merger (the “Merger”) by and among the Company, CHRO Merger Sub, Inc. a Delaware Corporation and a wholly owned subsidiary of the Company (“Merger Sub”), LNHC, and solely for the purposes of Article III of the merger agreement, Ligand. Pursuant to the merger agreement, (i) Merger Sub merged with and into LNHC, with LNHC as the surviving company in the Merger and, after giving effect to such Merger, continuing as a wholly-owned subsidiary of the Company and (ii) the Company’s name was changed from Channel Therapeutics Corporation to Pelthos Therapeutics Inc. +The Merger was accounted for as a business combination using the acquisition method of accounting under the provisions of Accounting Standards Codification (“ASC”) 805, Business Combinations (“ASC 805”). The Company and LNHC each meet the definition of a business as defined by ASC 805 by virtue of having inputs, processes and outputs. In addition, LNHC met the definition of a VIE given the entity does not have sufficient equity to finance its activities without additional financial support, as assessed immediately prior to the Merger. Finally, the Company owns 100 % of the shares of LNHC following the close of the Merger and is therefore the primary beneficiary of the LNHC business. As a result, the Company is deemed to be the accounting acquirer in the Merger, and the Merger is accounted for as a business combination in which the Company acquired the LNHC business. The LNHC assets acquired, and liabilities assumed in connection with the Merger are recorded at their acquisition date fair values. See Note 3 — “Acquisition of LNHC, Inc.” for further information regarding the LNHC acquisition. +At the effective time of the Merger, the Company issued an aggregate of 31,278 shares of the Company’s Series A Preferred Stock to Ligand as consideration for the LNHC shares. +The shares of Series A Preferred Stock issued to Ligand in the Merger were not registered under the Securities Act and were issued and sold in reliance on the exemption from registration requirements thereof provided by Section 4(a)(2) of the Securities Act as a transaction by an issuer not involving a public offering. +The shares of the Company’s Common Stock listed on NYSE American, previously trading through the close of business on July 1, 2025 under the ticker symbol “CHRO,” commenced trading on NYSE American under the ticker symbol “PTHS” on July 2, 2025. The Company’s Common Stock is represented by a new CUSIP number, 171126 204. +The July 1, 2025 Merger resulted in the Company having (i) a commercial product, ZELSUVMI; (ii) the facility, equipment and know-how to manufacture the API used in ZELSUVMI; and (iii) clinical-stage NaV1.7 assets. +Securities Purchase Agreement +Concurrently with the execution of the merger agreement, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with LNHC and certain investors, which included Ligand (collectively, the “PIPE Investors”), pursuant to which, among other things, on the Merger Closing Date and immediately prior to the consummation of the Merger, the PIPE Investors purchased (either for cash or in exchange for the conversion of principal and interest payable under an outstanding convertible note issued by the Company), and the Company issued and sold to the PIPE Investors, an aggregate of 50,100 shares of the Company’s Series A Convertible Preferred Stock, par value $ 0.0001 per share (the “Series A Preferred Stock”) at a price per share equal to $ 1,000 (such transaction, the “PIPE Financing”). The gross proceeds from the PIPE Financing were approximately $ 50,100 , consisting of approximately $ 50,000 in consideration and the conversion of approximately $ 100 of principal under an outstanding convertible note with a related party issued by the Company, before paying estimated expenses and before the settlement of certain outstanding bridge notes with the PIPE Investors, described below. +On July 1, 2025, the Company, LNHC and the PIPE Investors entered into Amendment No. 1 to Securities Purchase Agreement, pursuant to which, the Company, LNHC and the PIPE Investors consented to the inclusion of two additional PIPE Investors in the PIPE Financing and a corresponding decrease in the amount of certain PIPE Investors’ investments in the PIPE Financing such that the aggregate amount of the PIPE Financing would remain unchanged (the “Securities Purchase Agreement Amendment”). +F-11 +Each share of Series A Preferred Stock is convertible at any time at the holder’s option into a number of shares of Common Stock, par value $ 0.0001 per share equal to (i) $1,000, subject to adjustment, plus any all declared and unpaid dividends thereon as of such date of determination, plus any other amounts owed to such holder pursuant to the Certificate of Designations of Rights and Preferences of Series A Convertible Preferred Stock (the “Certificate of Designations”), divided by (ii) $ 1 (adjusted to $ 10 as a result of the ten-for-one Reverse Stock Split), subject to adjustments. +In general, a holder of shares of Series A Preferred Stock may not convert any portion of Series A Preferred Stock if the holder, together with its affiliates, would beneficially own more than 49.9 % in the case of Ligand or 4.99 % or 9.99 %, in the case of the other PIPE Investors (the “Maximum Percentage”), of the number of shares of the Company’s Common Stock outstanding immediately after giving effect to such exercise, provided, however, that a holder may increase or decrease the Maximum Percentage by giving 61 days’ notice to the Company, but not to any percentage in excess of 9.99 %. +The shares of Series A Preferred Stock issued and sold to the PIPE Investors were not registered under the Securities Act and were issued and sold in reliance on the exemption from registration requirements thereof provided by Section 4(a)(2) of the Securities Act as a transaction by an issuer not involving a public offering. +The closing of the PIPE Financing occurred on July 1, 2025, immediately prior to the consummation of the Merger. +On July 1, 2025, certain PIPE Investors entered into Series A Convertible Preferred Stockholder Side Letters (each, a “Side Letter”) with the Company, pursuant to which, immediately after the closing of the PIPE Financing on July 1, 2025, the PIPE Investors converted 23,810 shares of Series A Preferred Stock not exceeding such PIPE Investors’ Maximum Percentage into an aggregate of 2,381,000 shares of the Company’s Common Stock (after giving effect to the reverse stock split discussed in Note 11 — “Stockholders’ Equity ” ), by providing the Company with a completed and signed Conversion Notice under the Certificate of Designation. Approximately 57,568 shares of the Company’s Series A Preferred Stock were issued and outstanding immediately following the Effective Time. Immediately following the Merger and the PIPE Financing, the Company’s security holders as of immediately prior to the Merger owned approximately 7.4 % of the outstanding shares of the Company and LNHC security holders owned approximately 56.1 % of the outstanding shares of the Company, in each case on a fully diluted basis, calculated using the treasury stock method. +Net Proceeds from PIPE Financing +Certain PIPE Investors were a party to the ZELSUVMI Royalty Agreement while other PIPE Investors were a party to the Channel Products Royalty Agreement, (collectively, the “July 1, 2025 Royalty Agreements”) as described in Note 9 — “ License and Other Agreements” . Further, certain PIPE Investors were not a party to the July 1, 2025 Royalty Agreements. As the PIPE Financing and July 1, 2025 Royalty Agreements were negotiated together, aggregate proceeds were allocated based on their relative fair value basis. The Company will account for future royalties due as liabilities and will accrete the financing using the effective interest method based on estimated and actual cash flows payable to the counterparties over the estimated life of the royalty agreements. +Effective January 1, 2025, LNHC entered into a bridge loan agreement with Ligand under which any amounts of cash transferred from Ligand to LNHC, or settlement of LNHC’s expenses directly by Ligand, starting from January 1, 2025, were considered a loan from Ligand to LNHC. The maximum borrowing under the bridge loan agreement was $ 18,000 , (the “Ligand Bridge Note”). The repayment of the Ligand Bridge Note loan at the closing of the Merger was offset against Ligand’s funding commitment in the PIPE Financing. The balance of the Ligand Bridge Note was $ 12,732 , resulting in $ 5,268 of funding provided to the Company as of the Merger Closing Date as part of the PIPE Financing. In addition, on April 16, 2025, LNHC entered into a bridge loan agreement with two third-party lenders, part of the group of strategic investors who participated in the PIPE Financing, for an aggregate amount, including interest, of $ 6,053 . The repayment of April 16, 2025 bridge note at the closing of the Merger was offset against the strategic investors funding commitment in the PIPE Financing. In addition, as part of the Merger closing, a settlement of a related party note of $ 100 and settlement of a third-party note with a professional services firm of $ 1,455 also occurred. +F-12 +The following are details of the Merger and PIPE Financing as it relates to Series A Preferred Stock and proceeds from the PIPE Financing: +Series A Preferred Shares Issued Allocated Gross Proceeds Notes Settlement Payables Settlement and Expenses Net Proceeds +Beginning Balance as of July 1, 2025 — $ — $ — $ — $ — +Preferred Stock (Series A) Issued - Merger 31,278 — — — — +Preferred Stock (Series A) Issued - PIPE Financing 50,100 50,100 ( 20,340 ) ( 2,376 ) 27,384 +Preferred Stock (Series A) Converted to Common Stock ( 23,810 ) — — — — +Ending Balance as of July 1, 2025 57,568 $ 50,100 $ ( 20,340 ) $ ( 2,376 ) $ 27,384 +NOTE 2 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES +Basis of Presentation +The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of the Company’s management, the accompanying consolidated financial statements reflect all adjustments, consisting of normal, recurring adjustments, considered necessary for a fair presentation of the results for the years ended December 31, 2025 and 2024 . +Emerging Growth Company +The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities Act”), as modified by the Jumpstart Our Business Startups Act of 2012, as amended (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. +Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s consolidated financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used. +Principles of Consolidation +The consolidated financial statements include the accounts of Pelthos Therapeutics Inc. and its wholly owned subsidiaries, LNHC, Chromocell Therapeutics Australia Pty. Ltd, and Channel Pharmaceutical Corporation (“CPC”). All significant intercompany balances and transactions have been eliminated. +F-13 +See Note 3 — “Acquisition of LNHC, Inc.” for further information regarding the LNHC acquisition. The post-acquisition operating results of LNHC are reflected within the Company’s consolidated statement of operations and comprehensive loss for the year ended December 31, 2025. +Liquidity and Ability to Continue as a Going Concern +A fundamental principle of the preparation of financial statements in accordance with U.S. GAAP is the assumption that an entity will continue in existence as a going concern, which contemplates continuity of operations and the realization of assets and settlement of liabilities occurring in the ordinary course of business. In accordance with this requirement, the Company has prepared its accompanying consolidated financial statements assuming the Company will continue as a going concern. +The Company has evaluated principal conditions and events, in the aggregate, and concluded that there was not substantial doubt about its ability to continue as a going concern within one year from the date that these financial statements are issued. The Company identified the following conditions: +• During the year ended December 31, 2025 , the Company had a net loss of approximately $ 43,319 . +• As of December 31, 2025 , the Company had cash of approximately $ 17,973 and working capital of $ 27,417 . +• For the year ended December 31, 2025, the Company recorded net revenue in the amount of $ 16,206 , which represented just under six months of commercial activity for its lead commercial product, ZELSUVMI. +• For the year ended December 31, 2025, the Company recorded total operating expenses of $ 49,225 . +• As discussed in Note 15 — “Subsequent Events,” on January 12, 2026 the Company borrowed $ 30,000 of a $ 50,000 lending facility with Horizon Technology Finance Corporation. The remaining $ 20,000 of the facility may be borrowed upon the achievement by the Company of certain milestones set forth in the Venture Loan and Security Agreement. +Based on current projections, including forecasted cash flows related to net product sales of ZELSUVMI, proceeds from the convertible note agreement in November 2025, proceeds from the initial draw of the January 2026 Venture Loan and Security Agreement, and the potential additional availability under the January 2026 Venture Loan and Security Agreement, management believes it has sufficient capital, or access to capital, to fund its operations through at least the next twelve months following the issuance of these consolidated financial statements. +Use of Estimates +The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. +Significant estimates made by management include provisions for distribution service fees, co-payment assistance, government and payor rebates and fees, inventory net realizable value, useful lives of amortizable intangible assets, valuation of assets and liabilities in business combinations, valuation of convertible debt, developmental timelines related to licensed products, valuation of future obligations related to licensees and contractual payments, deferred income taxes and contingencies. Actual results may differ materially and adversely from these estimates. To the extent there are material differences between the estimates and actual results, the Company’s future results of operations will be affected. +Business Acquisitions +The Company accounts for business acquisitions using the acquisition method of accounting in accordance with ASC 805. ASC 805 requires, among other things, that assets acquired and liabilities assumed be recognized at their fair values, as determined in accordance with ASC 820, Fair Value Measurements (“ASC 820”), as of the acquisition date. For certain assets and liabilities, book value approximates fair value. In addition, ASC 805 establishes that consideration transferred be measured at the closing date of the acquisition at the then-current market price. Under ASC 805, acquisition-related costs (i.e., advisory, legal, valuation and other professional fees) are expensed in the period in which the costs are incurred. The +F-14 +application of the acquisition method of accounting requires the Company to make estimates and assumptions related to the estimated fair values of net assets acquired, which require significant management judgment. See Note 3 — “Acquisition of LNHC, Inc.” for further information regarding the LNHC acquisition. +Reclassifications +Certain amounts in the Company’s consolidated balance sheet as of December 31, 2024 have been reclassified to conform to the current presentation, in addition to certain line items within the historical consolidated statements of operations. +Cash and Cash Equivalents +The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. +Restricted Cash +Restricted cash as of December 31, 2025 relates to a deposit account securing the Company’s corporate credit card program. +Accounts Receivable, Net +Accounts receivables are stated as amounts due, net of estimates for discounts offered in customer contracts and any expected credit losses. The Company estimates expected credit losses using the “expected loss” model, which is based on an assessment of the collectability of customer accounts, including collection history, credit quality, the age of past-due balances, current conditions, and reasonable and supportable future conditions that might impact a customer’s ability to pay. The allowance for credit losses is periodically analyzed and adjusted as needed through a charge to selling, general and administrative expense. Amounts deemed to be uncollectible are charged against the allowance for credit losses. The Company does not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between the transfer of the promised good to the customer and receipt of payment will be one year or less. As of December 31, 2025, the Company did not record an allowance for credit losses, based on its history of collections from its customers. +Concentration of Credit Risk +Financial instruments that potentially subject the Company to a concentration of credit risk consist principally of cash, cash equivalents and accounts receivable. The Company places its cash and cash equivalents with financial institutions, and these deposits may at times be in excess of federally insured limits. In addition, the Company assesses the creditworthiness of its customers on an on-going basis. As of December 31, 2025, three of the Company’s wholesaler customers accounted for 90 % of its total gross accounts receivable balance at 38 %, 31 % and 21 %, respectively. In addition, for the year ended December 31, 2025, these three wholesalers accounted for 89 % of gross revenue at 35 %, 28 % and 26 %, respectively. +Inventory +The Company measures inventory using the first-in, first-out method and values inventory at the lower of cost or net realizable value. Inventory value includes costs related to materials, manufacturing, labor, conversion and overhead expenses. The Company adjusts its inventory for potentially obsolete inventory. The adjustment for obsolescence is generally an estimate of the value of inventory that is expected to expire in the future based on projected sales volume and product expiration or expected sell-by dates. These assumptions require the Company to analyze the aging of and forecasted demand for its inventory and make estimates regarding future product sales. +Prior to obtaining initial regulatory approval for ZELSUVMI in January 2024, inventory costs related to the production of pre-launch inventory were expensed as research and development costs. Subsequent to January 5, 2024, the date of the FDA’s approval of ZELSUVMI, inventory costs were capitalized by LNHC. As part of the Merger, certain inventoried items were revalued subject to ASC 805. See Note 3 — “Acquisition of LNHC, Inc.” for additional detail. +F-15 +Property and Equipment, Net +Property and equipment are recorded at cost and depreciated using the straight-line method over their estimated useful lives as follows: +Computer equipment +3 years +Software +3 - 5 years +Furniture and fixtures +5 - 7 years +Manufacturing and laboratory equipment +7 years +Leasehold improvements are amortized over the shorter of the life of the lease or the useful life of the improvements. Expenditures for maintenance and repairs are expensed as incurred. Improvements and betterments that add new functionality or extend the useful life of an asset are capitalized. Leases for real estate often include tenant improvement allowances, which the Company assesses according to applicable accounting guidance to determine the appropriate owner, and capitalizes such tenant improvement assets accordingly. +Intangible Assets, Net and Goodwill +Intangible assets represent certain identifiable intangible assets, including product rights consisting of pharmaceutical product licenses and patents. Amortization for pharmaceutical products licenses is computed using the straight-line method based on the lesser of the term of the agreement and the useful life of the license. Amortization for pharmaceutical patents is computed using the straight-line method based on the useful life of the patent. +Definite-lived intangible assets are reviewed for impairment whenever events or circumstances indicate that carrying amounts may not be recoverable. In the event impairment indicators are present or if other circumstances indicate that an impairment might exist, then management compares the future undiscounted cash flows directly associated with the asset or asset group to the carrying amount of the asset group being determined for impairment. If those estimated cash flows are less than the carrying amount of the asset group, an impairment loss is recognized. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value. Considerable judgment is necessary to estimate the fair value of these assets, accordingly, actual results may vary significantly from such estimates. +Indefinite-lived intangible assets, including goodwill, are not amortized. The Company tests the carrying amounts of goodwill for recoverability on an annual basis on July 1 or when events or changes in circumstances indicate evidence that a potential impairment exists, using a fair value based test. +Goodwill, which has an indefinite useful life, represents the excess of cost over fair value of net assets acquired. Goodwill is reviewed for impairment at the reporting unit level at least annually, or more frequently if an event occurs indicating the potential for impairment. During a goodwill impairment review, management performs an assessment of qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than the carrying amount, including goodwill. The qualitative factors include, but are not limited to, macroeconomic conditions, industry and market considerations, and the overall financial performance. If, after assessing the totality of these qualitative factors, management determines that it is not more likely than not that the fair value of reporting unit is less than the carrying amount, then no additional assessment is deemed necessary. +The Company did not identify indicators of impairment for intangible assets or goodwill during the year ended December 31, 2025, other than as discussed in Note 5 — “Goodwill and Intangible Assets.” +Leases +The Company leases office space under non-cancelable lease agreements. The Company applies the accounting guidance in ASC 842, Leases (“ASC 842”). As such, the Company assesses all arrangements, that convey the right to control the use of property, plant and equipment, at inception, to determine if it is, or contains, a lease based on the unique facts and circumstances present in that arrangement. For those leases identified, the Company determines the lease classification, recognition, and measurement at the lease commencement date. For arrangements that contain a lease, the Company: (i) identifies lease and non-lease components; (ii) determines the consideration in the contract; (iii) determines whether the lease is an operating or financing lease; and (iv) recognizes lease Right of Use (“ROU”) assets and corresponding lease liabilities. Lease liabilities are recorded based on the present value of lease payments over the expected lease term. The +F-16 +corresponding ROU asset is measured from the initial lease liability, adjusted by (i) accrued or prepaid rents; (ii) remaining unamortized initial direct costs and lease incentives; and (iii) any impairments of the ROU asset. +The Company elected the practical expedient to not separate non-lease components from the lease components. Fixed lease payments on operating leases are recognized over the expected term of the lease on a straight-line basis. Variable lease expenses that are not considered fixed are expensed as incurred. Fixed and variable lease expense on operating leases is recognized within operating expenses within the consolidated statements of operations. The Company has elected the short-term lease exemption and, therefore, does not recognize an ROU asset or corresponding liability for lease arrangements with an original term of 12 months or less. +The interest rate implicit in the Company’s lease contracts is typically not readily determinable and as such, the Company uses its incremental borrowing rate based on the information available at the lease commencement date, which represents an internally developed rate that would be incurred to borrow, on a collateralized basis, over a similar term, an amount equal to the lease payments in a similar economic environment. +Impairment of Long-Lived Assets +Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized for an amount by which the carrying amount of the asset exceeds the fair value of the asset. +The Company did not identify indicators of impairment for the long-lived assets during the year ended December 31, 2025. +Fair Value Measurements and Fair Value of Financial Instruments +The Company determines fair value, per ASC 820, based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels: +• Level 1 Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date. +• Level 2 Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data. +• Level 3 Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information. +See Note 7 — “Notes Payable”, Note 8 — “Reedy Creek Liability” and Note 9 — “License and Other Agreements” for additional detail regarding the carrying value of certain balances reflected within the accompanying consolidated financial statements. +Revenue Recognition +Pursuant to ASC 606, Revenue from Contracts with Customers (“ASC 606”), the Company recognizes revenue when a customer obtains control of promised goods or services. Revenue is recognized in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. To determine revenue recognition for contracts with customers within the scope of ASC 606, the Company performs the following 5 steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) a performance obligation is satisfied. +F-17 +Net Product Revenues +The Company sells ZELSUVMI to national and regional wholesalers in the United States. The wholesalers are considered the Company’s customers for accounting purposes. +Revenue from product sales is recognized when the customer obtains control of the Company’s product, which typically occurs on delivery. Revenue from product sales is recorded at the transaction price, net of estimates for variable consideration consisting of prompt-pay discounts, distribution service fees, government rebates, co-payment assistance and payor rebates and administration fees for which reserves are established. These reserves are based on estimates of the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable (if the amount is payable to the customer) or a liability (if the amount is payable to a party other than the customer). +Variable consideration is estimated using the expected-value amount method, which is the sum of probability-weighted amounts in a range of possible consideration amounts. In making these estimates, the Company considers historical data, including patient mix and inventory sold to customers that has not yet been dispensed. Actual amounts of consideration ultimately received may differ from the Company’s estimates. If actual results vary materially from the Company’s estimates, the Company will adjust these estimates, which will affect net product sales and earnings in the period such estimates are adjusted. These items, as applicable based on current contractual agreements and obligations on behalf of the Company, include: +• Prompt-Pay Discounts — The Company generally provides discounts on product sales to its customers for prompt payment. The Company estimates that its customers will earn these discounts. These discounts are recorded as a reduction of gross revenue and accounts receivable at the time such revenue is recognized. +• Distribution Service Fees — The Company pays certain distribution service fees, such as fees for certain data that customers provide to the Company or for distribution services provided to the Company. Fees paid to its customers are recorded as a reduction of gross revenue and accounts receivable, unless the payment is: (i) for a distinct good or service from the customer; and (ii) the Company can reasonably estimate the fair value of the goods or services received. If both conditions are met, the Company records the consideration paid to the customer as selling, general and administrative expense. +• Co-payment Assistance — Co-payment assistance represents financial assistance to qualified patients, assisting them with prescription drug co-payments required by insurance. The program is administered by a third-party on the Company's behalf. Co-payment assistance is recorded as a reduction of revenue and a current liability is established and included in accrued expenses at the time such revenue is recognized. +• Government Rebates — The Company estimates government rebates, primarily Medicaid, based upon a range of possible outcomes for the estimated patient mix. Medicaid rebates relate to the Company's estimated obligations to states under reimbursement arrangements. Rebates are recorded as a reduction of gross revenue and a current liability is established and included in accrued expenses at the time such gross revenue is recognized. The amount of the rebate for each unit of product reimbursed by the state Medicaid program is established by law and is adjusted upward if the wholesale acquisition cost increases more than inflation (measured by the Consumer Price Index). The liability for Medicaid rebates consists of: (i) estimated current quarter claims; (ii) estimated prior quarter claims for which an invoice has not been received; (iii) prior quarter claims based on unpaid invoices received; and (iv) estimated claims for inventory in the distribution channel at period end. +• Payor Rebates and Administration Fees — Payor rebates and administration fees represent the estimated obligations to third parties, primarily benefit managers. The payor rebates and administration fees result from formulary position, price increase limit allowances (price protection) and administration fees. The liability payor rebates and administration fees are based on the estimated payors buying patterns and the resulting applicable contractual rebate rate(s) to be earned over a contractual period. Payor rebates and administration fees are recorded as a reduction of revenue and a liability is established and included in accrued expenses at the time such revenue is recognized. +License and Collaboration Revenues +The Company has one agreement related to an out-license of intellectual property to a third party. Per ASC 606, the Company determines if there are distinct performance obligations identified in the arrangement. The Company recognizes +F-18 +revenues from non-refundable, upfront fees allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license. For licenses that are bundled with other promises, the Company’s management utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the estimated performance period and the appropriate method of measuring progress during the performance period for purposes of recognizing revenue. +The Company re-evaluates the estimated performance period and measure of progress each reporting period and, if necessary, adjusts related revenue recognition accordingly. These arrangements often include milestone as well as royalty or profit-share payments, contingent upon the occurrence of certain future events linked to the success of the asset in development, as well as expense reimbursements from or payments to the collaboration partner. Because of the risk that products in development will not receive regulatory approval, the Company does not recognize any contingent payments until regulatory approval becomes probable. Future sales-based royalties are not recorded until the subsequent sale occurs. +See Note 6 — “Sato Agreement” for further information regarding license and collaboration revenues. +Cost of Goods Sold +Cost of goods sold includes direct and indirect costs related to the manufacture, production, packaging, and distribution of the Company’s commercial products. These costs primarily consist of manufacturing costs, including allocated overhead, supply costs, third-party logistics and distribution expenses, quality control and assurance costs, and freight and shipping charges incurred in fulfilling customer orders. +Additionally, the Company’s product is subject to strict quality control and monitoring that is performed throughout the manufacturing process, including release of work-in-process to finished goods. In the event that certain batches or units of product do not meet quality specifications, the Company records a write-down of any potential unmarketable inventory to its estimated net realizable value. +As part of the Merger, certain inventoried items were revalued subject to ASC 805. See Note 3 — “Acquisition of LNHC, Inc.” for additional detail. +The amount of expense related to inventory write down as a result of excess, obsolescence, scrap, or other reasons is recorded as cost of goods sold in the consolidated statements of operations. The Company recorded work-in-process write-offs of $ 770 during the year ended December 31, 2025 related to out of specification issues related to one manufactured batch of API and $ 285 related to previously capitalized process validation expenses. +Selling, General and Administrative Expense +Selling, general and administrative (“SG&A”) expense consists of personnel and non-personnel expenses to support growing sales of ZELSUVMI. Personnel-related expenses include salaries, incentive pay, benefits and share-based compensation for personnel engaged in sales, marketing, regulatory, quality, medical, non-capitalizable manufacturing, finance, information technology and administrative functions. As the majority of the Company’s contracts are short-term in nature, sales commissions are generally recorded as selling, general and administrative expense when incurred as the amortization period would have been less than one year. +Non-personnel-related expense includes: (i) selling, patient services, pharmacovigilance, marketing, advertising, travel, sponsorships and trade shows; and (ii) other general and administrative costs, including consulting, legal, patent, insurance, accounting, information technology and facilities. +The Company uses a third-party logistics provider (“3PL”) to perform a full order-to-cash service, which includes warehousing and shipping directly to its customers on its behalf. Activities performed by the 3PL are recorded in SG&A. SG&A expenses are recognized as they are incurred. +Royalty and/or milestone payments due to third parties under license arrangements for commercial products are expensed within SG&A and recorded as a current liability in the periods in which the obligation is incurred. +F-19 +Research and Development Expense +Research and development (“R&D”) expense consists of personnel and non-personnel expenses. Personnel-related expense includes salaries, bonus, benefits and share-based compensation for personnel engaged in research and development functions. Non-personnel-related expense includes subcontractors and materials used for R&D activities, development, clinical trials, clinical supply and distribution, and other professional services. +R&D expenses are recognized as they are incurred based on actual work completed through monitoring invoices received and discussions with internal personnel and external service providers as to the progress or stage of completion of preclinical activities, clinical studies and related supporting services for non-commercial assets. +Contingent milestone payments due to third parties under R&D arrangements or license agreements, are expensed within R&D and recorded as a current liability in the periods in which the obligation is incurred. +Stock-Based Compensation +The Company accounts for stock-based compensation costs under the provisions of ASC 718, Compensation—Stock Compensation (“ASC 718”), which requires the measurement and recognition of compensation expense related to the fair value of stock-based compensation awards that are ultimately expected to vest. Stock-based compensation expense recognized includes the compensation cost for all stock-based payments granted to employees, officers, and directors based on the grant date fair value estimated in accordance with the provisions of ASC 718. ASC 718 is also applied to awards modified, repurchased, or cancelled during the periods reported. Stock-based compensation is recognized as expense over the employee’s requisite vesting period and over the non-employee’s period of providing goods or services. +Basic and Diluted Net Loss per Common Share +Basic loss per common share is computed by dividing the net loss by the weighted average number of shares of Common Stock outstanding for each year. Diluted loss per share is computed by dividing the net loss by the weighted average number of shares of Common Stock outstanding plus the dilutive effect of shares issuable through the common stock equivalents. The weighted-average number of common shares outstanding excludes common stock equivalents because their inclusion would be anti-dilutive. The following securities, presented on a common stock equivalent basis, have been excluded from the calculation of weighted average common shares outstanding for the years ended December 31, 2025 and 2024 because the effect is anti-dilutive due to the net loss reported in each of those years. +All share amounts presented in the table below represent the total number outstanding as of the end of each year indicated. +December 31, 2025 December 31, 2024 +Convertible notes payable 605,449 48,221 +Preferred stock series A 5,641,800 — +Preferred stock series C 34,667 34,667 +Warrants to purchase common stock 5,500 5,500 +Stock options 1,506,551 87,049 +Nonvested restricted stock units 464,921 29,218 +Income Taxes +The Company accounts for income taxes pursuant to the provision of ASC 740 “Accounting for Income Taxes,” (“ASC 740”) which requires, among other things, an asset and liability approach to calculating deferred income taxes. The asset and liability approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. A valuation allowance is provided to offset any net deferred tax assets for which management believes it is more likely than not that the net deferred asset will not be realized. +The Company follows the provision of the ASC 740 related to Accounting for Uncertain Income Tax Positions. When tax returns are filed, it is more likely than not that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that +F-20 +would be ultimately sustained. In accordance with the guidance of ASC 740, the benefit of a tax position is recognized in the consolidated financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. +Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50% likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above should be reflected as a liability for uncertain tax benefits in the accompanying consolidated balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. The Company believes its tax positions will more likely than not be upheld upon examination. As such, the Company has not recorded a liability for uncertain tax benefits. +The federal and state income tax returns of the Company are subject to examination by the Internal Revenue Service and state taxing authorities, generally for three years after they were filed. +Comprehensive Loss +Comprehensive loss is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. For all periods presented, comprehensive loss was equal to net loss. +Segment Information +Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the Company’s Chief Executive Officer, the chief operating decision-maker (“CODM”). For accounting purposes, the CODM is making decisions regarding resource allocation and assessing performance based on consolidated net loss as if presented in the Company’s consolidated financial statements. The Company views its operations and manages its business in two operating segments, the Commercial Operations segment, and the Research and Development Operations segment. See Note 14 — “Segment Information” for additional detail. +Related Party Transactions +The Company has historically separately presented certain related party transactions and balances in its consolidated financial statements. See Note 7 — “Notes Payable” and Note 9 — “License and Other Agreements” for additional detail regarding related party transactions. +Recently Issued Accounting Pronouncements +In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires disaggregated information about a reporting entity’s effective tax rate reconciliation, as well as information related to income taxes paid to enhance the transparency and decision usefulness of income tax disclosures. This ASU will be effective for the annual periods beginning after December 15, 2024. The Company has adopted ASU 2023-09 for the year-ended December 31, 2025. +In November 2024, the FASB issued ASU No. 2024-03, “Disaggregation of Income Statement Expenses,” which requires disclosures of certain disaggregated income statement expense captions into specified categories within the footnotes to the financial statements. The requirements of the ASU are effective for annual periods beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027, with early adoption permitted. The requirements will be applied prospectively with the option for retrospective application. The Company is currently evaluating the impact ASU No. 2024-03 will have on its consolidated financial statements. +Other new accounting pronouncements issued, but not effective until after December 31, 2025, did not and are not expected to have a material impact on the Company’s financial position, results of operations or liquidity. +F-21 +NOTE 3 - ACQUISITION OF LNHC, INC. +The Company issued 31,278 shares of Series A Preferred Stock as consideration pursuant to the terms of the Merger and merger agreement. The total merger consideration was determined to have a fair value of $ 39,410 , calculated as follows: +Shares of Series A Preferred Stock issued in the Merger Agreement (1) 31,278 +Series A Preferred Stock per share price (2) $ 1,260 +Total merger consideration $ 39,410 +(1) Represents the number of shares of the Company’s Series A Preferred Stock issued to LNHC’s shareholders based on the exchange ratio as set forth in the Merger Agreement. +(2) As the Company’s Series A Preferred Stock was immediately convertible into the Company’s common stock at a ratio of 1 to 100, the fair value estimate of the Company’s Series A Preferred Stock is calculated as the closing Company common stock price on June 30, 2025 multiplied by 100. +The preliminary purchase price is subject to additional further adjustments based on the final determination of purchase price adjustments, if any. +The Company made a preliminary allocation of the consideration transferred to the tangible and intangible assets acquired and liabilities assumed of LNHC as of July 1, 2025 based on their estimated fair value, including subsequent measurement period adjustments, described below, as follows: +Cash and cash equivalents $ 2,761 +Accounts receivable 48 +Inventory 26,203 +Prepaid expenses and other current assets 1,189 +Intangible assets 33,200 +Property and equipment 10,633 +Operating lease right-of-use assets 3,595 +Other assets 65 +Accounts payable ( 1,562 ) +Accrued liabilities ( 9,201 ) +Short-term Bridge loan ( 18,785 ) +Deferred revenue, current portion ( 1,072 ) +Operating lease liabilities, current portion ( 625 ) +Deferred revenue, long-term portion ( 1,763 ) +Operating lease liabilities, long-term portion ( 2,970 ) +Deferred tax liability ( 7,387 ) +Other long-term liabilities ( 19,600 ) +Fair value of net assets acquired 14,729 +Goodwill 24,681 +Consideration transferred $ 39,410 +The Company has estimated the preliminary fair value of assets acquired and liabilities assumed based on information currently available and will continue to adjust those estimates as additional information pertaining to events or circumstances present at the Merger Closing Date becomes available and final appraisals and analysis are completed. The Company will reflect measurement period adjustments, in the period in which the adjustments occur, and the Company will finalize its accounting for the acquisition within one year from July 1, 2025. A change in the fair value of the net assets may change the amount recognized to goodwill. If the final fair value estimates and tax adjustments related to the net assets acquired decrease from their preliminary estimates, the amount of goodwill will increase and if the final fair value +F-22 +estimates and tax adjustments related to the net assets acquired increase from their preliminary estimates, the amount of goodwill will decrease. In addition, the final fair value estimates related to the net assets acquired could impact the amount of amortization expense recorded associated with amounts allocated to intangible assets. The preliminary goodwill arising from the Merger is primarily attributable to expected synergies. The goodwill will not be deductible for federal tax purposes. The fair value measurements were primarily based on significant inputs that are not observable in the market, and thus represent Level 3 fair value measurements. +During the fourth quarter of 2025, the Company recorded measurement period adjustments for the Merger to reflect a decrease of $ 5,944 in the deferred tax liability and a corresponding decrease in goodwill. This adjustment was based on a reassessment of the consolidated tax positions of the Company as of the acquisition date, taking into account the historical tax positions of both LNHC and Channel, including a reassessment of the previously assumed effective federal and state rate estimated as of July 1, 2025. +The fair value of developed technology was estimated using the “multi-period excess earnings” method, an income approach that considers the net cash flows expected to be generated by the intangible asset by excluding any cash flows related to contributory assets. Significant assumptions include the expected useful life of the patent, contributory asset charges and the concluded discount rate. The developed technology will be amortized on a straight-line basis over an estimated useful of 12.2 years. The $ 32,200 fair value of the developed technology is within intangible assets in the table above . +The fair value of the Sato Pharmaceutical Co., Ltd. (“Sato”) licensing agreement was estimated using the “relief from royalty” method, an income approach that considers the market-based royalty a company would pay to enjoy the benefits of the trade name or technology in lieu of actual ownership of the technology. Significant assumptions include the royalty rate, forecasted cash flows of the license agreement and concluded discount rate. The $ 1,000 fair value of this agreement is within intangible assets in the table above. The Sato licensing agreement was to be initially amortized on a straight-line basis over an estimated useful of 13.0 years. See Note 5 — “Goodwill and Intangible Assets” and Note 6 — “Sato Agreement” for additional detail regarding subsequent changes regarding the fair value of the Sato licensing agreement, unrelated to the July 1, 2025 acquisition and the Company’s rights and obligation at that date. +The fair value of the inventory was estimated using the top/down method that considers the estimated selling price, costs to complete, disposal costs, profit margin on disposal effort, and holding costs. Significant assumptions include management’s estimates for the selling price and the costs to be incurred related to the disposal effort of the inventory. +The fair value of the Reedy Creek liability was estimated using the income approach that considers the royalties based on sales of ZELSUVMI. The $ 19,600 fair value of this agreement is within other long-term liabilities in the table above. Significant assumptions include the management’s revenue forecast, royalty rate, and concluded discount rate. See Note 8— “Reedy Creek Liability” for additional detail regarding the fair value of the Reedy Creek liability. +Pro Forma Statement of Operations Information +The following unaudited pro forma financial information presents the combined results of operations as if LNHC had been combined with the Company as of January 1, 2024. The unaudited pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of the periods presented, nor should it be taken as indication of the Company’s future consolidated results of operations. +The pro forma financial information has been calculated after applying the Company’s accounting policies and includes adjustments for transaction-related costs: +December 31, 2025 December 31, 2024 +Total revenue $ 17,406 $ 879 +Net loss and comprehensive loss $ ( 67,791 ) $ ( 36,185 ) +For the year ended December 31, 2025, the Company recorded Merger related expenses of $ 1,022 in its consolidated statements of operations within selling, general and administrative expense. +F-23 +NOTE 4 - BALANCE SHEET ACCOUNT DETAILS +Prepaid expenses and other current assets consisted of the following: +December 31, 2025 December 31, 2024 +Prepaid Prescription Drug User Fee Act (PDUFA) fees $ 442 $ — +Prepaid insurance 766 — +Deposits for meetings and conferences 80 — +Commercial data platforms 364 — +Patient assistance platforms 75 — +Financial reporting platforms 98 — +Deferred offering costs 711 750 +Other 419 106 +Total prepaid expenses and other current assets $ 2,955 $ 856 +Inventory consisted of the following: +December 31, 2025 December 31, 2024 +Raw materials $ 436 $ — +Work-in-process 16,556 — +Finished goods 6,582 — +Total inventory $ 23,574 $ — +Property and equipment consisted of the following: +December 31, 2025 December 31, 2024 +Manufacturing and laboratory equipment $ 1,778 $ — +Software 1,083 — +Furniture and fixtures 70 — +Computer equipment 111 — +Leasehold improvements 5,967 — +Construction-in-progress 1,509 — +Property and equipment, cost 10,518 — +Less: Accumulated depreciation and amortization ( 932 ) — +Total property and equipment, net $ 9,586 $ — +The Company’s depreciation expense was $ 729 for the year ended December 31, 2025. +F-24 +Goodwill and other identifiable intangible assets consisted of the following: +December 31, 2025 December 31, 2024 +Indefinite-lived intangible assets +Goodwill $ 24,681 $ — +Definite-lived intangible assets +Developed technology 32,200 — +Amended Sato license 715 — +Xepi 6,080 — +Xeglyze 1,817 — +Website development 214 — +Less: accumulated amortization ( 1,556 ) — +Total definite-lived intangible assets 39,470 — +Total goodwill and other identifiable intangible assets, net $ 64,151 $ — +Accrued expenses consisted of the following: +December 31, 2025 December 31, 2024 +Compensation $ 3,475 $ — +Drug product manufacturing subcontractor 292 — +Commercial, marketing and sales 818 — +Insurance 265 — +Accrued interest 234 — +Commercialization milestone and royalties payable 7,819 — +Accrued gross-to-net adjustments 1,778 — +Other 683 — +Total accrued expenses $ 15,364 $ — +Other liabilities and other long-term liabilities consisted of the following: +December 31, 2025 December 31, 2024 +Reedy Creek Purchase Agreement $ 1,963 $ — +ZELSUVMI Royalty Agreement 1,540 — +Channel Products Royalty Agreement — — +Xepi Royalty Agreement 226 — +Sato Payments 113 — +Total other liabilities $ 3,842 $ — +Reedy Creek Purchase Agreement $ 18,908 $ — +ZELSUVMI Royalty Agreement 8,233 — +Channel Products Royalty Agreement — — +Xepi Royalty Agreement 1,928 — +Sato Payments 981 — +Total other long-term liabilities $ 30,050 $ — +F-25 +See Note 8 — “Reedy Creek Liability” and Note 9 — “License and Other Agreements” for additional detail regarding the carrying value of certain balances reflected within the accompanying consolidated financial statements. +NOTE 5 - GOODWILL AND INTANGIBLE ASSETS +Goodwill +The Company’s goodwill balance as of December 31, 2025 was $ 24,681 . The entire goodwill balance relates to the LNHC, Inc. acquisition during the year ended December 31, 2025. +None of the goodwill is expected to be deductible for income tax purposes. All of the goodwill has been allocated to the Commercial Operations reporting unit and operating segment. See Note 3 — “Acquisition of LNHC, Inc.” for detail. +Biofrontera Asset Purchase Agreement +On November 6, 2025, the Company entered into an Asset Purchase Agreement (the “Biofrontera Asset Purchase Agreement”) with Biofrontera Inc., a Delaware corporation (“Biofrontera”), pursuant to which Biofrontera sold all of its right, title and interest in (i) XEPI, (ii) all of the assets of Biofrontera pertaining to the manufacture, sale and distribution of XEPI, (iii) all intellectual property of Biofrontera relating to XEPI, including, without limitation (A) certain patent and patent applications, including all specifically associated goodwill and (B) trademarks and trademark applications, including all specifically associated goodwill (iv) all preclinical data, records and reports relating to XEPI; (v) certain contracts related to XEPI; (vi) all of the licenses and agreements to which seller is a party pertaining to the manufacture, sale and distribution of XEPI; and (vii) to the extent transferable in accordance with applicable laws, all regulatory filing related to XEPI. +The aggregate purchase price payable by the Company to Biofrontera for the acquired assets will not exceed $ 10,000 and will consist of (i) a cash payment of $ 3,000 ; (ii) a cash payment of $ 1,000 following the availability of certain commercial quantities of XEPI, subject to certain conditions; and (iii) two contingent milestone payments of $ 3,000 due upon generating two separate net sales achievements of XEPI. +In connection with the acquisition of XEPI, the Company simultaneously entered into a standard third-party manufacturing services agreement in the ordinary course. +Ferrer License Agreement +On November 6, 2025, the Company entered into a License and API Supply Agreement (the “Ferrer License Agreement”) with Ferrer Internacional, S.A. (“Ferrer”) and Interquim, S.A.U. (“Interquim”). Pursuant to the Ferrer License Agreement, Ferrer will grant the Company an exclusive, sublicensable, royalty-bearing license to manufacture and commercialize XEPI in the Territory, as well as an exclusive, royalty-free sublicensable license to use Ferrer’s trademarks for the purpose of marketing, distributing, promoting and selling XEPI. Ferrer will supply analytical test methods and other testing know-how required to perform testing as required by applicable regulatory authorities. +Interquim will act as the supplier to the Company of XEPI in the Territory. Pursuant to the Ferrer License Agreement, the Company has agreed to order from Interquim certain minimum amounts of XEPI based on 24 -month forecasts provided by the Company, of which the first 8 months of such forecasts are considered binding. The Company is required to purchase 100 % of its requirements for XEPI from Interquim at a specified price during the term of the Ferrer License Agreement. +The initial term of the Ferrer License Agreement is for an initial twelve-year period following the commercial launch of XEPI and is automatically renewed thereafter for successive one-year periods unless the Company provides notice of termination to Ferrer at least 3 months before the end of then-current term. The Ferrer License Agreement is otherwise terminated in accordance with the termination provisions provided therein. +The Ferrer License Agreement contains certain representations, warranties, limitations of liabilities, confidentiality and indemnity obligations and other provisions customary for an agreement of its type. +The aggregate transaction price payable by the Company to Ferrer includes: (i) an upfront payment of $ 1,200 , payable upon the Company’s receipt of the initial quantity of API purchased pursuant to an initial purchase of API, once it is determined that the API strictly complies with all of the requirements and representations and warranties of the Ferrer License Agreement; and (ii) an on-going royalty of 7 % based on net sales of the XEPI. In addition, the Company also +F-26 +executed a work order related to an initial supply of API in an amount of $ 456 . This upfront purchase will be accounted for as a separate transaction. +XEPI Transaction +The Biofrontera Asset Purchase Agreement and the Ferrer License Agreement were entered into in contemplation of each other to achieve a combined commercial effect. Additionally, the execution of the Biofrontera Asset Purchase Agreement was contingent upon the execution of the Ferrer License Agreement. As such, the Biofrontera Asset Purchase Agreement and the Ferrer License Agreement are combined and accounted for as a single transaction (the “XEPI Transaction”). +The Company determined that the acquired assets associated with the XEPI Transaction do not meet the definition of a business and should be accounted for as an asset acquisition. +The following table summarizes the consideration for the XEPI Transaction for the year ended December 31, 2025: +Consideration Type Counterparty Contractual Amount Allocated Purchase Price +Upfront Payment - Asset Purchase Agreement Biofrontera $ 3,000 $ 3,000 +Contingent Consideration - Achievement of Commercial Quantities Biofrontera 1,000 1,000 +Contingent Consideration - Achievement of Sales Based Milestones Biofrontera 6,000 — +Contingent Consideration - Acceptance of Initial API Purchase Ferrer 1,200 1,200 +Xepi Transaction - Transaction Expenses Various 880 880 +$ 12,080 $ 6,080 +Royalty Payments on Net Sales of Xepi Ferrer 7 % — % +The XEPI Transaction intangible asset will be amortized over the 6-year expected useful life of the intellectual property, which is determined based on the last to expire patent underlying the XEPI intellectual property. The Company will assess the remaining useful life of the intangible assets each reporting period to determine whether events and circumstances warrant a revision to the remaining period of amortization. +As of the closing date of the XEPI Transaction, the Company determined that the contingent payments are both considered probable and reasonably estimable and will recognize the fair value of the liabilities as part of the cost of the asset acquisition. The Company determined that the full $ 1,000 and $ 1,200 contractual values are expected to be paid to Biofrontera and Ferrer, respectively, and therefore recorded the initial liability at $ 2,200 . The Company also believes $ 2,200 approximates the fair value of the obligation as the Company is expected to receive the API and achieve commercial quantities within one year of the closing date. Given the initial probability of being met, any adjustments to present value are therefore deemed immaterial. As such, the Company recorded $ 2,200 of contingent consideration within current liabilities on its consolidated balance sheets as of December 31, 2025. +XEGLYZE Asset Purchase Agreement +On November 20, 2025, the Company entered into a Downpayment Agreement for XEGLYZE assets purchase (the “Downpayment Agreement”) with Hatchtech Pty Ltd. (“Hatchtech”) to purchase the right, title and interest in XEGLYZE, an FDA-approved Abametapir lotion treatment for head lice infestation in humans. The purchase includes all assets of the seller pertaining to the associated product intellectual property, preclinical data, associated regulatory materials, and all inventory and other tangible personal property and materials used or held for use in connection with the Product. On December 23, 2025, Pelthos and Hatchtech entered into an Asset Purchase Agreement (the “XEGLYZE Asset Purchase Agreement”) for the transferred assets. +As outlined by the Downpayment Agreement, the Company was to pay Hatchtech a total purchase price of $ 1,800 of which, $ 450 was made as a down payment on November 20, 2025 upon execution of the Downpayment Agreement. On December 29, 2025, the date of closing of the acquisition, the Company paid the remaining $ 1,350 to Hatchtech. +Though the XEGLYZE Asset Purchase Agreement referenced tangible assets, including inventory, components, packaging, supplies, equipment, machinery, tooling, computers, hardware, furniture, and fixtures related to the Product, no +F-27 +tangible assets were transferred to the Company. Additionally, no liabilities were assumed by the Company as a result of the XEGLYZE Asset Purchase Agreement. The Company will be responsible for all future liabilities that arise on or after the closing date, directly or indirectly. +The Company determined that the acquired assets associated with the XEGLYZE Asset Purchase Agreement do not meet the definition of a business and should be accounted for as an asset acquisition. The Company acquired the XEGLYZE intellectual property rights including all patents, trade names, trademarks, know-how, technical data, and all other XEGLYZE proprietary and intellectual property rights, which are recognized as a single intangible asset. The total purchase price of $ 1,817 , will be allocated to the XEGLYZE intangible asset, including $ 17 for transaction costs. +The intangible asset will be amortized over the 9-year expected useful life of the intellectual property, which is determined based on the expiration date of the patent underlying the XEGLYZE intellectual property. The Company will assess the remaining useful life of the intangible assets each reporting period to determine whether events and circumstances warrant a revision to the remaining period of amortization. +Intangible Assets +The Company’s definite-lived intangible assets balance as of December 31, 2025 was $ 39,470 . +The following table presents both definite and indefinite lived intangible assets as of December 31, 2025, comprised primarily of acquired product rights related to the LNHC, Inc. acquisition, as discussed in Note 3 — “Acquisition of LNHC, Inc.” and the asset acquisitions of XEPI and XEGLYZE in the fourth quarter of 2025, described above: +Initial Carrying Value Impairment Accumulated Amortization Net Book Value Remaining Useful Life (Years) +Definite-lived intangible assets +Developed technology $ 32,200 $ — $ ( 1,326 ) $ 30,874 11.67 +Amended Sato license 1,000 ( 285 ) ( 70 ) 645 2.25 +Xepi 6,080 — ( 147 ) 5,933 6.08 +Xeglyze 1,817 — ( 5 ) 1,812 8.97 +Website development 214 — ( 8 ) 206 3.11 +Total definite-lived intangible assets $ 41,311 $ ( 285 ) $ ( 1,556 ) $ 39,470 +Indefinite-lived intangible assets +Goodwill 24,681 — — 24,681 +Total goodwill and other identifiable intangible assets $ 65,992 $ ( 285 ) $ ( 1,556 ) $ 64,151 +Amortization of finite-lived intangible assets is computed using the straight-line method over the estimated useful life of the respective asset. The Company’s amortization expense was $ 1,556 for the year ended December 31, 2025. +For the year ended December 31, 2025, the Company recorded an impairment of its Sato license intangible asset, that was recorded as part of the LNHC, Inc. acquisition on July 1, 2025, in an amount of $ 285 . This impairment was solely related to the change of the expected future cash flows due to the Company based on changes in its rights given as part of the Convertible Securities Purchase Agreement, described in Note 7 — “Notes Payable”. The Company recorded no other impairment of goodwill or other intangible assets during the year ended December 31, 2025. +F-28 +The following table represents annual amortization of definite lived intangible assets for the next five fiscal years, and thereafter: +Developed Technology Amended Sato License Xepi Xeglyze Website Development Total +2026 $ 2,645 $ 286 $ 975 $ 202 $ 66 $ 4,174 +2027 2,645 286 975 202 66 4,174 +2028 2,645 73 978 203 66 3,965 +2029 2,645 — 975 202 8 3,830 +2030 2,645 — 975 202 — 3,822 +2031 and thereafter 17,649 — 1,055 801 — 19,505 +Total amortization $ 30,874 $ 645 $ 5,933 $ 1,812 $ 206 $ 39,470 +NOTE 6 – SATO AGREEMENT +As described in Note 1 — “Organization and Description of Business”, the Company’s wholly owned subsidiary, LNHC, was formed in September 2023 to execute the Ligand acquisition of certain assets and liabilities from Novan in a 363 transaction. Per the 363 transaction, certain Novan agreements were assumed by LNHC and as of the Merger as of July 1, 2025, LNHC had certain rights and obligations related to agreements with Sato. +Background +On January 12, 2017, Novan entered into a license agreement, and related first amendment with Sato, relating to SB204, its drug candidate for the treatment of acne vulgaris in Japan (the “Sato Agreement”). Pursuant to the Sato Agreement, Novan granted to Sato an exclusive, royalty-bearing, non-transferable right and license under certain of Novan’s intellectual property rights, with the right to sublicense with Novan's prior written consent, to develop, use and sell products in Japan that incorporate SB204 in certain topical dosage forms for the treatment of acne vulgaris, and to make the finished form of such products. +On October 5, 2018, Novan and Sato entered into the second amendment (the “Sato Amendment”) to the Sato Agreement (collectively, the “Amended Sato Agreement”). The Sato Amendment expanded the Sato Agreement to include SB206, Novan's drug candidate for the treatment of viral skin infections. Pursuant to the Amended Sato Agreement, Novan granted to Sato an exclusive, royalty-bearing, non-transferable license under certain of its intellectual property rights, with the right to sublicense with Novan’s prior written consent, to develop, use and sell products in Japan that incorporate SB204 or SB206 in certain topical dosage forms for the treatment of acne vulgaris or viral skin infections, respectively, and to make the finished form of such products. +Novan or its designated contract manufacturer was to supply study materials to Sato for use in the development of SB204 and SB206 in the licensed territory. The rights granted to Sato did not include the right to manufacture the API of SB204 or SB206; rather, the parties agreed to negotiate a commercial supply agreement pursuant to which the Novan or its designated contract manufacturer would be the exclusive supplier to Sato of the API for the commercial manufacture of licensed products in the licensed territory. Under the terms of the Amended Sato Agreement, Novan also had exclusive rights to certain intellectual property that may be developed by Sato in the future, which Novan could choose to use for its own development and commercialization of SB204 or SB206 outside of Japan. +The term of the Amended Sato Agreement (and the period during which Sato must pay royalties under the amended license agreement) expires on the twentieth anniversary of the first commercial sale of a licensed product in the licensed field in the licensed territory (adjusted from the tenth anniversary of the first commercial sale in the Sato Agreement). The term of the Amended Sato Agreement may be renewed with respect to a licensed product by mutual written agreement of the parties for additional two-year periods following expiration of the initial term. All other material terms of the Sato Agreement remain unchanged by the Sato Amendment. +Sato is responsible for funding the development and commercial costs for the program that are specific to Japan. Novan was obligated to perform certain oversight, review and supporting activities for Sato, including: using commercially reasonable efforts to obtain marketing approval of SB204 and SB206 in the United States and sharing all future scientific +F-29 +information Novan may obtain during the term of the Amended Sato Agreement pertaining to SB204 and SB206; and participating in a joint committee that oversees, reviews and approves Sato’s development and commercialization activities under the Amended Sato Agreement. Additionally, Novan has granted Sato the option to use the Novan’s trademarks in connection with the commercialization of licensed products in the licensed territory for no additional consideration, subject to the Novan’s approval of such use. +July 1, 2025 Merger +Prior to the Merger on July 1, 2025, on March 24, 2025, LNHC assigned the Amended Sato Agreement to Ligand, however, LNHC assumed certain contractual liabilities and obligations under the Sato Agreement and certain ancillary and supportive agreements related to the Amended Sato Agreement. In consideration of LNHC addressing these contractual obligations, Ligand was obligated to pass through all future payments received from Sato to LNHC, however, this obligation was amended as described in Note 7 — “Notes Payable” on November 6, 2025. +The Company has assessed the accounting treatment historically used by LNHC and has continued to account for the Amended Sato Agreement per ASC 606, as the Company’s rights and obligations have effectively remained unchanged despite the assignment of the Amended Sato Agreement to Ligand. +The Company concluded that Sato is a customer with respect to all promises in the Amended Sato Agreement, and as such, revenue is recognized in accordance with ASC 606. The Company allocated the transaction price (including the upfront payments received and the unconstrained variable consideration), between the individual performance obligations based on their relative standalone-selling prices. In future periods, the Company would lift the variable consideration constraint from each contingent payment if there were no longer a probable likelihood of significant revenue reversal. +A portion of transaction price allocated to license performance obligation was recognized in revenues on the date of license delivery. For all other performance obligations, the Company concluded that a cost-based input method for revenue recognition is most appropriate. The Company monitors and reassesses actual and estimated costs over the expected development period to calculate a percentage of completeness for purposes of revenue recognition during each reporting period. +The Company currently estimates the end of development period in the first quarter of 2028, based upon a Sato-prepared Japanese development program timeline. The estimated percentage of completeness remains subject to prospective reassessment and adjustment based upon Sato’s interaction with the Japanese regulatory authorities and other developmental and timing considerations. +All contract liabilities (deferred revenue) recognized on the balance sheets as of December 31, 2025, were related to the Amended Sato Agreement. All license and collaboration revenue recognized for the year ended December 31, 2025 was related to the Amended Sato Agreement and was recognized out of the deferred revenue balance as of the beginning of respective period. The net amount of existing performance obligations under long-term contracts unsatisfied as of December 31, 2025 was $ 2,246 , out of which the Company expects to recognize approximately $ 966 in revenue over the next 12 months and the remaining balance thereafter. +The Amended Sato Agreement may be terminated by (i) Sato without cause upon 120 days’ advance written notice; (ii) either party in the event of the other party’s uncured material breach upon 60 days’ advance written notice; (iii) force majeure; (iv) either party in the event of the other party’s dissolution, liquidation, bankruptcy or insolvency; and (v) immediately upon written notice if Sato challenges the validity, patentability, or enforceability of any of the patents or patent applications licensed to Sato under the Amended Sato Agreement. In the event of a termination, no portion of the upfront fees received from Sato are refundable. The payment terms contained within the Amended Sato Agreement related to upfront, developmental milestone and sales milestone payments are of a short-term nature and, therefore, do not represent a financing component requiring additional consideration. +NOTE 7 – NOTES PAYABLE +Convertible Notes +On November 6, 2025, the Company entered into a securities purchase agreement (the “Convertible Securities Purchase Agreement”) with certain investors, including Ligand (collectively, the “Convertible Investors”), pursuant to which, among other things, on the closing date, the Convertible Investors purchased for cash, and the Company issued and sold to the +F-30 +Convertible Investors, senior secured convertible notes of the Company (the “Convertible Notes”) in the aggregate original principal amount of $ 18,000 , which are convertible into shares of the Company’s common stock (such transaction, the “Convertible Note Financing”). The gross proceeds from the Convertible Note Financing were approximately $ 18,000 , before paying estimated expenses. The Convertible Securities Purchase Agreement generally prohibits the Company from issuing securities without the written consent of the Required Holders (as defined in the Convertible Securities Purchase Agreement), but includes exceptions for specific issuances of securities, including in connection with the independent funding and development of the Company’s historical assets relating to the sodium-ion channel known as NaV1.7 for the treatment of various types of systemic chronic pain, acute and chronic eye pain and post-surgical nerve blocks. The Investors have approved Ligand to serve as collateral agent (the “Convertible Collateral Agent”). +The Convertible Notes rank senior to current and future indebtedness of the Company and its subsidiaries, excluding (i) any credit facility with one or more financial institutions in form and substance reasonably satisfactory to the Required Holders and with an aggregate amount of indebtedness that does not exceed $ 50,000 or (ii) an asset-based loan facility that does not exceed $ 10,000 , subject to certain conditions (together, the “Permitted Senior Indebtedness”). The Convertible Notes accrue interest at a rate of 8.5 % per annum (which increases to 18.0 % in the event of a default) and mature on November 6, 2027 (the “Convertible Maturity Date”). +The Convertible Notes are convertible by the holders thereof in whole or in part at any time after issuance and prior to the Convertible Maturity Date into shares of common stock based on a conversion price (the “Convertible Conversion Price”) of $ 34.442 per share (the “Convertible Conversion Shares”), which cannot be reduced below $ 34.442 per share without obtaining the approval of the shareholders of the Company (the “Convertible Shareholder Approval”), and is subject to customary adjustments for stock splits, stock dividends, recapitalization and other similar transactions. On the later of December 1, 2025 and the date the Company obtains the Convertible Shareholder Approval, if any, if the Convertible Conversion Price then in effect was greater than $ 29.73 , the Convertible Conversion Price would automatically lower to $ 29.73 . Effective December 17, 2025, the date the Company obtained the requisite Convertible Shareholder Approval, the Convertible Conversion Price was adjusted to $ 29.73 . In addition, on the maturity date of the Convertible Notes, if the Company’s Permitted Senior Indebtedness does not permit the Company to make the cash payment then due under the Convertible Notes, the Convertible Conversion Price will automatically adjust to a price equal to the average volume weighted average price of the common stock for the five trading days ending immediately prior to the Convertible Maturity Date. +In general, a holder of a Convertible Note may not convert any portion of a Convertible Note if the holder, together with its affiliates, would beneficially own more than 49.9 % in the case of Ligand, or 4.99 % or 9.99 %, in in the case of the other Investors (the “Convertible Maximum Percentage”), of the number of shares of the Company’s common stock outstanding immediately after giving effect to such exercise; provided, however, that a holder may increase or decrease the Convertible Maximum Percentage by giving 61 days’ notice to the Company, but not to any percentage in excess of 9.99 % (except for Ligand, whose Convertible Maximum Percentage already exceeds 9.99 %). +As partial consideration for the Convertible Notes, the Company granted to each of the Convertible Investors (i) a 5.0 % royalty on net sales of XEPI (ozenoxacin) cream, for topical use, and all other derivatives and modifications thereof, to be shared pro rata among all the Convertible Investors and (ii) the Company’s right to receive all royalty payments and milestone payments paid by Sato in respect of net sales of ZELSUVMI (less 50.0 % of the milestone payment payable by Sato in respect of the first commercial sale of ZELSUVMI in Japan, which will be kept by the Company), to be shared pro rata among all the Convertible Investors. See Note 9 — “License and Other Agreements” for detail. +The Convertible Notes contain certain customary events of default provisions, including failure to timely issue the Convertible Conversion Shares, failure to maintain the listing of the common stock on an Eligible Market (as defined in the Convertible Notes) for a period of five consecutive trading days, failure to maintain sufficient authorized shares for the issuance of Convertible Conversion Shares, a breach of any representation or warranty by the Company under the Convertible Securities Purchase Agreement and the Convertible Notes, the failure of any Security Document to create a separate valid and perfected first priority lien in favor of the Convertible Collateral Agent (subject to certain exceptions), and the occurrence of a Material Adverse Effect (as defined in the Convertible Securities Purchase Agreement), as well as certain customary events of default set forth in the Convertible Notes, including, among others, breach of covenants, including the incurrence of subsequent indebtedness or issuance of dividends, representations or warranties, insolvency, bankruptcy, liquidation and failure by the Company to pay the principal, interest late charges and other payments due under the Convertible Notes, in each case subject to certain cure periods, as applicable. +F-31 +Upon an event of default, a holder has the option to require the Company to redeem a Convertible Note at a conversion price equal to the greater of (i) the Convertible conversion amount to be redeemed multiplied by (B) 115 % (the “Redemption Premium”) and (ii) the product of (X) the conversion rate with respect to the conversion amount in effect at such time as the holder delivers to the Company a notice requiring the Company to redeem the Convertible Note upon an event of default (the “Convertible Event of Default Redemption Notice”) multiplied by (Y) the greatest closing price of the common stock on any trading day during the period commencing on the date immediately preceding such event of default and ending on the date the Company makes the entire payment therefor (the “Convertible Event of Default Redemption Price”). In the event of a Bankruptcy Event of Default (as defined in the Convertible Notes), the Company will immediately pay the holder an amount in cash representing (i) all outstanding principal, accrued and unpaid interested and accrued unpaid late charges on such principal and interest, multiplied by (ii) the Redemption Premium, in addition to any and all other amounts due under the Convertible Note, without the requirement for any notice or demand or other action by any person or entity. +No sooner than twenty trading days nor later than ten trading days prior to the consummation of a Change of Control (as defined in the Convertible Notes) (the “Convertible Change of Control Date”), but not prior to the public announcement of such Convertible Change of Control, the Company must deliver written notice of such Convertible Change of Control to the Holder (a “Convertible Change of Control Notice”). At any time during the period beginning after the holder’s receipt of a Convertible Change of Control Notice or the holder becoming aware of a Convertible Change of Control (if a Convertible Change of Control Notice is not delivered) and ending twenty trading days after the later of (A) the date of consummation of such Convertible Change of Control, (B) the date of receipt of such Convertible Change of Control Notice or (C) the date of the announcement of such Convertible Change of Control, the holder may require the Company to redeem all or any portion of the Convertible Note by delivering written Notice thereof (the “Convertible Change of Control Redemption Notice”) to the Company. A Convertible Note may be redeemed by the holder in cash at a price equal to the greatest of (i) the product of (w) 125 % (the “Convertible Change of Control Redemption Premium”) multiplied by (y) the conversion amount being redeemed, (ii) the product of (A) the conversion amount being redeemed multiplied by (B) the quotient determined by dividing (I) the greatest closing price of the shares of common stock during the period beginning on the date immediately preceding the earlier to occur of (1) the consummation of the applicable Convertible Change of Control and (2) the public announcement of such Convertible Change of Control and ending on the date the holder delivers the Convertible Change of Control Redemption Notice by (II) the conversion price then in effect, and (iii) the product of (A) the conversion amount being redeemed multiplied by (B) the quotient of (I) the aggregate cash consideration and the aggregate cash value of any non-cash consideration per share of common stock to be paid to the holders of the shares of common stock upon consummation of such Convertible Change of Control, divided by (II) the conversion price then in effect (the “Convertible Change of Control Redemption Price”). At any time prior to the date on which such redemption payment is paid in full as a result of such Convertible Change of Control, the Convertible Notes may be converted in accordance with their terms. +In the event that the Company does not pay the applicable redemption price to the Holder within the time period required, until such unpaid redemption price is paid, the Holder has the option to notify the Company that it promptly return all or any portion of the Convertible Note representing the conversion amount that was submitted for redemption. Upon the Company’s receipt of such notice, the Company will immediately return the Convertible Note (or issue a new convertible note), and the principal amount of the Convertible Note or such new convertible note will be increased by an amount equal to the difference between (1) the applicable redemption price minus (2) the principal portion of the conversion amount submitted for redemption. +Fair Value +The Company analyzed the terms of the Convertible Notes and its embedded features concluding it appropriate to account for the Convertible Notes at fair value under the allowable fair value option. Accordingly, the Company initially recognized the Convertible Notes at fair value and will subsequently measure the Convertible Notes at fair value with changes in fair value recorded in current period earnings, or other comprehensive income if specific to Company credit risk. +The Company had no assets or liabilities that are remeasured on a recurring basis using level 1 or level 2 inputs for the years ended December 31, 2025 or 2024. The Company’s Convertible Notes are measured on a recurring basis using level 3 inputs. +F-32 +The following table summarizes the change in fair value, as determined by Level 3 inputs for the Convertible Notes for the year ended December 31, 2025: +Fair value of convertible note at issuance $ 34,591 +Change in fair value ( 3,150 ) +Fair value of convertible note at December 31, 2025 $ 31,441 +For the year ended December 31, 2025, the decrease in the fair value of the Convertible Notes, since the date of issuance, was related primarily to changes in the Company’s stock price. +Due to the significant related-party relationships with certain investors and Ligand, the Convertible Securities Purchase Agreement is not presumed to be at arms-length. The Company estimated the initial fair value of the Convertible Notes and related royalty obligations to be in excess of the transaction price. Accordingly, the Company initially recorded both instruments, which were determined to be free standing, at the issuance date fair value. This resulted in a loss on issuance of approximately $ 18,134 . Further, the Company allocated issuance costs between the two instruments based on their relative fair values. Therefore, $ 1,072 of issuance costs were allocated to the Convertible Notes. Such issuance costs were expensed in the year ended December 31, 2025. +The following table summarizes the loss on issuance of the Convertible Notes for the year ended December 31, 2025: +Fair value of convertible note at issuance $ 34,591 +Fair value of Xepi Royalty Agreement 2,167 +Fair value of Sato Payments 1,100 +Royalty obligation extinguishment - Convertible Investors ( 1,724 ) +Gross proceeds from convertible note ( 18,000 ) +Loss on issuance of convertible note $ 18,134 +The following tables present the significant inputs and valuation methodologies used for the Company’s fair value of the Convertible Notes as of the date of issuance and December 31, 2025: +November 6, 2025 December 31, 2025 +Scenario 1 Scenario 1 +Convertible Fair Value - Valuation Weighting 90.0 % 90.0 % +Valuation methodology - Principal Present Value Present Value +PIK period (years) 1 0.85 +Discount rate 6.23 % 5.94 % +Valuation methodology - Convertible feature Black-Scholes Black-Scholes +Conversion price $ 29.73 $ 29.73 +Expected volatility 147.00 % 152.00 % +Risk-free interest rate 3.51 % 3.41 % +Expected term (in years) 2 1.85 +Expected dividend yield — % — % +Scenario 2 Scenario 2 +Convertible Fair Value - Valuation Weighting 10.0 % 10.0 % +Valuation methodology Market Comparable Market Comparable +Instrument credit rating B- B- +Expected term (in years) 2 1.85 +Probability 9.5 % 9.5 % +Yield curve 6.23 % 5.64 % +F-33 +Pledge Agreement +On the Convertible Note Financing Closing Date, the Company, as pledgor and Ligand, as secured party, in its capacity as Collateral Agent for each holder of Convertible Notes, entered into a pledge agreement (the “Pledge Agreement”). In accordance with the terms of the Pledge Agreement, the Convertible Notes are secured by a lien on, and security interest in, (i) 10.0 % of all aggregate net sales of the “End Product” as defined in the Ferrer License Agreement (as defined below), including XEPI, in the United States, including Puerto Rico and the U.S. Virgin Islands; provided, however, that the Company will only accrue 5.0 % of such payments as liabilities until the occurrence of an event of default (the “Covered Product Revenue Payments”), (ii) the Sato Payments, and (iii) all accounts receivable of the Company with respect to the Covered Product Revenue Payments and the Sato Payments, pursuant to a pledge agreement by and between – in each case, subject to certain permitted indebtedness of the Company. +May Promissory Note +On May 10, 2024 , the Company converted accounts payable with a professional advisor into a promissory note in the amount of $ 1,455 . During the year ended December 31, 2025 the Company repaid $ 1,455 in principal and accrued interest of $ 96 . As of December 31, 2025, t he May 10, 2024 note has been satisfied in full and no amounts remain outstanding. +July Convertible Note +On July 24, 2024, the Company entered into a securities purchase agreement with an accredited investor (the “July Note Holder”), pursuant to which the Company issued to the July Note Holder a senior unsecured convertible note (the “July Note”) in the aggregate principal amount of $ 750 , which was convertible into shares of Common Stock. The July Note accrued interest at a rate of 6 % per annum and matured on August 24, 2025 (the “July Note Maturity Date”). Interest was guaranteed through the July Note Maturity Date regardless of whether the July Note is earlier converted or redeemed. +On April 16, 2025, the July Note Holder converted $ 400 of principal of its note, at a conversion price of $ 15.06 per share, into 26,561 shares of the Company’s common stock, on April 21, 2025, the July Note Holder converted $ 200 of principal of its note, at a conversion price of $ 15.06 per share, into 13,281 shares of the Company’s Common Stock, and on June 30, 2025, the July Note Holder further converted the remaining $ 137 of principal of its note, at a conversion price of $ 15.06 per share, into 9,097 shares of the Company’s Common Stock. As of December 31, 2025, all of the July Note had been fully converted and there was no outstanding principal on the July Note. +Waiver of Exchange Cap +On October 22, 2024, the affirmative vote of a majority of the outstanding shares of Common Stock present in person, by remote communication, if applicable, or represented by proxy at the Annual Meeting approved the waiver of the Exchange Cap in connection with the July Note and the CEF Purchase Agreement described in Note 11 — “ Stockholders’ Equity”. +February Bridge Note +On February 25, 2025, the Company issued an unsecured promissory note in the aggregate principal amount of $ 325 (the “February Bridge Note”) to 3i, L.P., a Delaware limited partnership (the “Holder”), for a purchase price of $ 250 , pursuant to which the Company promises to pay the Holder or its registered assigns the principal sum of $ 325 or such amount equal to the outstanding principal amount of the February Bridge Note together with interest. On May 12, 2025, the Company executed a first amendment (the “February Bridge Note Amendment”) to the February Bridge Note. The February Bridge Note Amendment extends the maturity date of the February Bridge Note from May 25, 2025 to September 30, 2025. Aside from extending the maturity date of the February Bridge Note, the February Bridge Note Amendment does not amend, alter, restate or otherwise change the principal terms and conditions of the February Bridge Note. +During the year ended December 31, 2025 the Company repaid $ 325 in principal and $ 7 of accrued interest related to the February Bridge Note . As of December 31, 2025, t he February Bridge Note has been satisfied in full and no amounts remain outstanding. +May Bridge Note +On May 8, 2025, the Company issued an unsecured promissory note in the aggregate principal amount of $ 325 (the “May Bridge Note”) to the Holder, for a purchase price of $ 250 , pursuant to which the Company promises to pay the Holder or +F-34 +its registered assigns the principal sum of $ 325 or such amount equal to the outstanding principal amount of the May Note together with interest. During the year ended December 31, 2025 the Company repaid $ 325 in principal and $ 3 of accrued interest related to the May Bridge Note . As of December 31, 2025, t he May Bridge Note has been satisfied in full and no amounts remain outstanding. +June Bridge Note +On June 23, 2025, the Company issued an unsecured promissory note in the aggregate principal amount of $ 163 (the “June Bridge Note”) to the Holder, for a purchase price of $ 125 , pursuant to which the Company promises to pay the Holder or its registered assigns the principal sum of $ 163 or such amount equal to the outstanding principal amount of the June Note together with interest. During the year ended December 31, 2025, the Company repaid $ 163 in principal and all of accrued interest related to the June Bridge Note . As of December 31, 2025, t he June Bridge Note has been satisfied in full and no amounts remain outstanding. +Related Party Note +On May 10, 2024 , the Company and Camden Capital LLC, a company controlled by Mr. Knuettel, the Company’s Chief Financial Officer, converted certain payables into a promissory note for $ 132 . During the year ended December 31, 2025 the Company repaid $ 32 in principal and $ 8 of accrued interest related to the Related Party Note . In addition, as described in Note 1 — “Organization and Description of Business” , as part of the Merger and PIPE Financing, $ 100 of principal related to this note was converted into 10,000 shares of Common Stock. +As of December 31, 2025, the Related Party Note has been satisfied in full and no amounts remain outstanding. +NOTE 8 – REEDY CREEK LIABILITY +As described in Note 1 — “Organization and Description of Business”, the Company’s wholly owned subsidiary, LNHC, was formed in September 2023 to execute Ligand’s acquisition of certain assets and liabilities from Novan in a 363 transaction. Per the 363 transaction, certain Novan agreements were assumed by LNHC and as of the Merger as of July 1, 2025, LNHC had certain obligations related to agreements with Reedy Creek Investments LLC (“Reedy Creek”). +Background +On April 29, 2019, Novan entered into a royalty and milestone payments purchase agreement (the “Reedy Creek Purchase Agreement”) with Reedy Creek, pursuant to which Reedy Creek provided funding to Novan in an amount of $ 25,000 for it to pursue the development, regulatory approval and commercialization activities (including through out-license agreements and other third-party arrangements) for SB206, a topical gel with anti-viral properties being developed as a treatment for molluscum, and advancing programmatically such activities with respect to SB204, a once-daily, topical monotherapy being developed for the treatment of acne vulgaris, and SB414, a topical cream-based product candidate being developed for the treatment of atopic dermatitis. If Novan were to have successfully commercialized any such product, following regulatory approval, it was obligated to pay Reedy Creek a low single digit royalty on net sales of such products in the United States, Mexico or Canada. +Pursuant to the Reedy Creek Purchase Agreement, Novan was obligated to pay Reedy Creek ongoing quarterly payments, calculated based on an applicable percentage per product of any upfront fees, milestone payments, royalty payments or equivalent payments received by Novan pursuant to any out-license agreement for SB204, SB206 or SB414 in the United States, Mexico or Canada, net of any upfront fees, milestone payments, royalty payments or equivalent payments paid by Novan to third parties pursuant to any agreements under which Novan had in-licensed intellectual property with respect to such products in the United States, Mexico or Canada. The applicable percentage used for determining the ongoing quarterly payments, applied to amounts received directly by Novan pursuant to any out-license agreement for each product, ranges from 10 % for SB206 to 20 % for SB204 and SB414. +However, the Reedy Creek Purchase Agreement provides that the applicable percentage for each product will be 25 % for fees or milestone payments received by Novan (but not royalty payments received by Novan) until Reedy Creek has received payments under the Purchase Agreement equal to the total funding amount provided by Reedy Creek under the Purchase Agreement. If Novan decided to commercialize any product on its own following regulatory approval, as opposed to commercializing through an out-license agreement or other third-party arrangement, Novan will only be obligated to pay Reedy Creek a low single digit royalty on net sales of such products. +F-35 +July 1, 2025 Merger +On March 24, 2025, LNHC assigned its rights to its intellectual property portfolio to Ligand. In addition, LNHC and Ligand also entered into an agreement that clarified the nature of on-going obligations related to the Reedy Creek Purchase Agreement. Based on that letter agreement dated March 24, 2025, LNHC is obligated and responsible for satisfying all obligations with respect to the Reedy Creek Purchase Agreement for SB206 (ZELSUVMI), whereas Ligand will be responsible for satisfying all obligations related to the SB204 and SB414 product candidates, if and when they are developed. Obligations under the Reedy Creek Agreement that arise from any non-SB206 (ZELSUVMI) asset will be satisfied by Ligand. As of the July 1, 2025 Merger, the Company is obligated to pay Reedy Creek amounts due, per the Reedy Creek Purchase Agreement, related to SB206 (commercially known as ZELSUVMI). +The Company determined that the Reedy Creek Purchase Agreement is within the scope of ASC 730-20, Research and Development Arrangements (“ASC 730-20”), and that there has not been a substantive and genuine transfer of risk related to the Reedy Creek Purchase Agreement. As of the LNHC Acquisition date, the Reedy Creek liability was measured at fair value in the amount of $ 19,600 . This long-term liability is subsequently measured at amortized cost using the prospective effective interest method described in ASC 835-30, Imputation of Interest (“ASC 835-30”). +The effective interest rate is calculated by forecasting the expected cash flows to be paid over the life of the liability relative to its fair value as of the LNHC Acquisition date. The effective interest rate is recalculated in each reporting period as the difference between expected cash flows and actual cash flows are realized and as there are changes to expected future cash flows. The carrying value of the Reedy Creek liability is made up of the opening balance, which is increased by accrued interest expense, and decreased by any accrued payments to be made to Reedy Creek to arrive at the ending balance. See Note 9 — “License and Other Agreements” for additional detail regarding this obligation. +NOTE 9 – LICENSE AND OTHER AGREEMENTS +Ligand Pharmaceuticals Inc. +On March 24, 2025, LNHC (i) assigned its rights to its intellectual property portfolio to Ligand (the “Assignment Agreement”); (ii) entered into an Exclusive License and Sublicense Agreement with Ligand (the “ZELSUVMI License”), pursuant to which Ligand licensed to LNHC the intellectual property rights necessary to make, use, sell or offer to sell ZELSUVMI for the treatment of molluscum contagiosum in humans worldwide, except for Japan; and (iii) entered into a Master Services Agreement For Product Supply (the “Ligand MSA”). In addition, on July 1, 2025, LNHC and Ligand entered into a Transition Services Agreement (the “Ligand TSA”). +Ligand Assignment Agreement +On March 24, 2025, LNHC assigned all of its intellectual property rights, including patents, to Ligand. The Assignment Agreement covered all assets within the NITRICIL patent portfolio and other nitric oxide releasing compounds previously held by LNHC. Historically, Novan and LNHC, through the 363 transaction, acquired exclusive rights to intellectual property, including those that were ultimately developed into the specific library of NITRICIL compounds, pursuant to license agreements with the University of North Carolina at Chapel Hill (“UNC”), entered into in July 2007 and October 2009, which were subsequently amended, restated and consolidated in June 2012 (the “UNC License Agreement”). Under the UNC License Agreement, Novan, and subsequently LNHC, was granted an exclusive, worldwide license, with the ability to sublicense, to develop and commercialize products utilizing the licensed intellectual property. Novan and LNHC amended the UNC License Agreement multiple times since June 2012 to both expand the scope of licensed patents to cover additional nitric oxide technologies and to modify certain regulatory and/or commercial milestones under the UNC License Agreement. The Assignment Agreement assigned all of these rights, patents and intellectual property to Ligand. +As of December 31, 2025 the last to expire patent related to ZELSUVMI originating from the UNC License Agreement, described below, is May 2026. Prior to the Assignment Agreement, LNHC had progressed the development of that in-licensed intellectual property portfolio from the UNC License Agreement and obtained 12 U.S. patents, in addition to two U.S. patents obtained with the original UNC License Agreement, resulting in a total of 14 issued U.S. patents covering ZELSUVMI. These 14 U.S. patents are expected to expire during the time period beginning in 2026 and ending in 2035. Upon the initial FDA approval of ZELSUVMI, LNHC applied for a 1280 day patent term extension (“PTE”), for the U.S. patent covering ZELSUVMI compositions. Assuming grant of the PTE application, the term of this patent may be extended from February 27, 2034, to August 30, 2037. +F-36 +Ligand Assignment Agreement Amendment +As an inducement to certain investors to enter into the Convertible Securities Purchase Agreement, the Company and Ligand entered into Amendment No. 1 to the Assignment Agreement (the “Assignment Agreement Amendment”), pursuant to which Ligand agreed to pay the Company (i) 75 % of the milestone payment received by Ligand from Sato in respect of the first commercial sale of the “Licensed Product” (as defined in Amended Sato Agreement) in Japan; and (ii) fifty percent ( 50 %) of any other amounts received by Ligand from Sato under the Amended Sato Agreement solely in respect of the “Licensed Product” (and, for the avoidance of doubt, no other product covered by the Amended Sato Agreement) in the “Licensed Field” (in each case, as defined in the Amended Sato Agreement), less any out-of-pocket costs incurred by Ligand to effectuate its rights, obligations and responsibilities under the Amended Sato Agreement. +These amended rights to the Company were subsequently impacted by the terms of the Convertible Notes, in which the Company granted to each of the Convertible Investors (i) a 5.0 % royalty on net sales of XEPI, and all other derivatives and modifications thereof, to be shared pro rata among all the Convertible Investors and (ii) the Company’s right to receive all royalty payments and milestone payments paid by Sato in respect of net sales of ZELSUVMI (less 50.0 % of the milestone payment payable by Sato in respect of the first commercial sale of ZELSUVMI in Japan, which will be kept by the Company), to be shared pro rata among all the Convertible Investors. +Ligand Royalty Agreement +Under the terms of the ZELSUVMI License, Ligand is entitled to (i) a 13 % royalty on worldwide sales, excluding, Japan, of ZELSUVMI prior to the expiration of the initial royalty term, defined as on a country-by-country basis, the period of time commencing on the effective date and continuing until the expiration or termination of the last to expire valid claim of the patent rights that are included in the specified intellectual property and that cover the licensed product; (ii) a 10.4 % royalty on worldwide sales, excluding, Japan, of ZELSUVMI after the expiration of the initial royalty term; (iii) upon the first commercial sale of the ZELSUVMI, a $ 5,000 milestone; (iv) upon the occurrence obtaining a threshold of $ 35,000 in aggregate net sales during four consecutive calendar quarters, a $ 5,000 milestone; and (vi) 30 % of all non-royalty sublicense income received by the Company or its affiliates from any sublicensee. The first commercial sale milestone has been accrued within accrued expenses on the consolidated balance sheets as of December 31, 2025. +Ligand may terminate the ZELSUVMI License on 30 days’ prior notice to the Company if (i) the Company fails to launch ZELSUVMI in the U.S. by December 31, 2025; (ii) the Company fails to use commercially reasonable efforts to enter into an agreement with a third-party to commercialize ZELSUVMI in France, Germany, Italy, Spain and the United Kingdom by September 30, 2026; or (iii) the Company or its affiliates or potential sublicensee fails to receive regulatory approval for ZELSUVMI in France, Germany, Italy, Spain and the United Kingdom by March 31, 2027. +Under the ZELSUVMI License agreement, the Company is also obligated to satisfy certain contractual obligations pursuant to the license agreements with UNC, entered into in July 2007 and October 2009 by Novan, which were subsequently amended, restated and consolidated in June 2012 into the UNC License Agreement, and which were assumed during the Novan 363 transaction and assigned to Ligand on March 24, 2025 by LNHC. +The UNC License Agreement is described below. The Company obligations regarding the UNC License Agreement include satisfying all payment obligations, due diligence, reporting, information, inspection and recordation obligations of Ligand under the UNC license agreement. +In addition, the Company also has development rights for a period of 1 year commencing on the effective date of the ZELSUVMI License, to negotiate a development and funding agreement to develop and commercialize the product program designated by Ligand as SB207. If the Parties are unable to enter into a mutually agreeable development and funding agreement within 1 year of the effective date of the ZELSUVMI License, the Company will have no further rights to the SB207 program under the ZELSUVMI License. +Ligand Master Services Agreement +On March 24, 2025, LNHC and Ligand entered into the Ligand MSA under which Ligand, or related parties, may contract with LNHC for LNHC to provide Ligand active pharmaceutical ingredients for clinical or commercial use related to NITRICIL technology. In addition, the agreement also allows Ligand to require LNHC to provide manufacturing technology transfer services, if requested by Ligand, for products utilizing NITRICIL technology other than ZELSUVMI for the treatment of molluscum contagiosum in humans, to a potential third-party manufacturer. +F-37 +Ligand Transition Services Agreement +On July 1, 2025, LNHC and Ligand entered into the Ligand TSA under which Ligand and LNHC could provide certain services to the other party related to supportive activities for intellectual property, R&D, or regulatory services provide by the Company to Ligand, or for certain administrative functions to be provided to the Company by Ligand. The Ligand TSA governs the nature of the activities of work, their scope, and the amounts be the charged to either party based on services performed. +UNC License Agreement +The UNC License Agreement currently requires the Company to pay UNC up to $ 250 in regulatory and commercial milestones on a licensed product by licensed product basis and a running royalty percentage in the low single digits on net sales of licensed products. Licensed products include any products being developed by the Company or by its sublicensees. In addition, the Company is obligated to reimburse UNC for reasonable prosecution and maintenance costs related to intellectual property. The UNC License Agreement remains in effect on a country by country and licensed product by licensed product basis until the expiration of the last to expire issued patent covering such licensed product in the applicable country. +UNC may terminate the agreement or render the license granted thereunder non-exclusive for material breach of the agreement that remains uncured after 90 days of receipt of written notice thereof from UNC and may also terminate the agreement or render the license granted thereunder non-exclusive upon providing written notice for bankruptcy or insolvency-related events within 30 days of the occurrence of such events. +July 1, 2025 Royalty Agreements +As an inducement to enter into the Securities Purchase Agreement, Note 1 — “Organization and Description of Business” for detail, on July 1, 2025 the Company entered into a Purchase and Sale Agreement with Nomis RoyaltyVest LLC (“NRV”) (the “ZELSUVMI Royalty Agreement”), pursuant to which the Company sold to NRV all of the Company’s rights, title and interest in and to a portion of the Company’s revenue payments for ZELSUVMI and all accounts with respect thereto. The purchase price was $ 1 . +Under the terms of the ZELSUVMI Royalty Agreement, prior to the expiration of the initial royalty term NRV will receive (i) a 1.5 % royalty on net sales of ZELSUVMI worldwide, other than in Japan; and (ii) 3.46 % of non-royalty sublicensing payments received by the Company for its sublicensing of rights to ZELSUVMI, and after the expiration of the initial royalty term, NRV will receive (i) a 1.2 % royalty on net sales of ZELSUVMI worldwide, other than in Japan; and (ii) 3.46 % of non-royalty sublicensing payments received by LNHC for its sublicensing of rights to ZELSUVMI. The initial royalty term is defined as, on a country-by-country basis, the period of time commencing on the effective date and continuing until the expiration or termination of the last to expire valid claim of the patents that cover the ZELSUVMI. +The Company concluded that the ZELSUVMI Royalty Agreement represents a sale of future revenues under ASC 470, Debt (“ASC 470”) as the agreement does not convey to the counterparty any rights to the intellectual property underlying ZELSUVMI and the Company will continue to have significant ongoing involvement in the generation of the royalties due to the counterparties. See below for additional detail. +On July 1, 2025, the Company and NRV, Ligand, and Madison Royalty LLC, a Colorado limited liability company (“Madison”, being formed on behalf of certain of the legacy Channel directors and management team with the Company’s Chief Financial Officer as the sole and managing member as of July 1, 2025 and December 31, 2025), entered into a Purchase and Sale Agreement (the “Channel Products Royalty Agreement”), pursuant to which the Company sold to each of NRV, Ligand, and Madison, and each of NRV, Ligand, and Madison purchased, all of the Company’s rights, title and interest in and to a portion of the Company’s revenue payments all accounts related to or utilizing the covered products, as defined within that agreement (the “Channel Covered Products”). The purchase price was $ 1 . +The Company concluded that the Channel Products Royalty Agreement represents an R&D funding arrangement under ASC 730-20 in which it is presumed probable that the Company will repay the funding due to the significant related party relationship with the counterparties. Therefore, the Company accounts for the obligation to repay as a liability consistent with ASC 470. See below for additional detail. +F-38 +November 6, 2025 Royalty Agreements +On November 6, 2025, concurrent with the XEPI Royalty Agreement, discussed below, the Company and NRV, Ligand, and Madison entered into Amendment No. 1 to the Channel Products Royalty Agreement (the “Amended Channel Products Royalty Agreement”), pursuant to which the Company, NRV, Ligand and Madison amended the definition of the Channel Covered Products to exclude (i) Nitricil-based technology and (ii) XEPI. The Company evaluated the amendment concluding that the modification would be treated as a debt extinguishment as the difference in cash flows is greater than 10%. Due to significant related party relationships with certain investors to the Amended Channel Products Royalty Agreement, the Company determined it appropriate to account for the extinguishment as a contribution increasing additional paid-in capital. +Under the terms of the Amended Channel Products Royalty Agreement, (A) prior to the expiration of the Initial Royalty Term, (i) NRV will receive a 5.3 % royalty, Ligand will receive a 1.7 % royalty and Madison will receive a 1.5 % royalty on Net Sales (as defined in the Amended Channel Products Royalty Agreement) of the Channel Covered Products worldwide, and (ii) NRV will receive 12.23 %, Ligand will receive 3.92 % and Madison will receive 3.46 % of non-royalty sublicensing payments received by Pharmaceutical Sub for its sublicensing of rights to the Channel Covered Products worldwide; and (B) after the expiration of the Initial Royalty Term, (i) NRV will receive a 4.24 % royalty, Ligand will receive a 1.36 % royalty and Madison will receive a 1.2 % royalty on Net Sales of the Channel Covered Products worldwide, and (ii) NRV will receive 12.23 %, Ligand will receive 3.92 % and Madison will receive 3.46 % of non-royalty sublicensing payments received by Pharmaceutical Sub for its sublicensing of rights to the Channel Covered Products worldwide. The Initial Royalty Term is defined as, on a country-by-country basis, the period of time commencing on the effective date of the Merger and continuing until the expiration or termination of the last to expire valid claim of the patents that cover the Channel Covered Products. +On November 6, 2025, the Company entered into the Convertible Securities Purchase Agreement, such transaction, the Convertible Note Financing. See Note 7 — “Notes Payable” for additional detail regarding these Convertible Notes. +As partial consideration for the Convertible Notes, the Company granted to each of the Convertible Investors (i) a 5.0 % royalty on net sales of XEPI, for topical use, and all other derivatives and modifications thereof, to be shared pro rata among all the Convertible Investors, (the “XEPI Royalty Agreement”) and (ii) the Company’s right to receive all royalty payments and milestone payments paid by Sato in respect of net sales of ZELSUVMI (less 50.0 % of the milestone payment payable by Sato in respect of the first commercial sale of ZELSUVMI in Japan, which will be kept by the Company), to be shared pro rata among all the Convertible Investors (the “Sato Payments”), collective with the XEPI Royalty Agreement, the “Convertible Royalty Agreements”. +The Company concluded that the Convertible Royalty Agreements represent a sale of future royalties under ASC 470 as the agreement does not convey to the counterparties any rights to the intellectual property underlying XEPI and the Company will continue to have significant ongoing involvement in the generation of royalties due to the counterparties related to the Sato Agreement. See below for additional detail. +As detailed in Note 7 — “Notes Payable”, the Convertible Securities Purchase Agreement is presumed to not be at arms-length due to the significant related party relationships involved. Therefore, the instruments were each recorded at their initial fair value. The Company concluded the initial fair value of the royalty obligations was $ 3,267 . The Company will account for royalties due as revenue and will accrete the financing using the effective interest method based on estimated and actual cash flows payable to the counterparties over the estimated life of the Convertible Royalty Agreement. Further, the Company allocated $ 99 of issuance costs to the financing as a debt issuance cost, which reduced the initial carrying value of the financing. +Accounting for Royalty Agreements +The Company accounts for the Reedy Creek Purchase Agreement, the ZELSUVMI Royalty Agreement, the Amended Channel Products Royalty Agreement and the Convertible Royalty Agreements as liabilities and will accrete the financings using the effective interest method based on estimated and actual cash flows payable to the counterparties over the estimated lives of the applicable agreements. At the effective date of the agreements, the effective annual interest rate of the specific financing was estimated and contains significant assumptions that affect both the amount recorded at the effective date and the interest expense that will be recognized over the term of the corresponding agreement. The Company periodically assesses the estimated royalty payments and to the extent the amount or timing of such payments is materially different than the original estimates, an adjustment is made to the effective interest rate, which will be recorded +F-39 +prospectively to increase or decrease interest expense. There are a number of factors that could materially affect the amount and timing of royalty payments and the amount of interest expense recorded by the Company over the term. Such factors include, but are not limited to, volumes of revenue generated by the underlying products, changing standards of care, the introduction of competing products, manufacturing or other delays, generic competition, intellectual property matters, adverse events that result in regulatory authorities placing restrictions on the use of the drug products, delays or discontinuation of development and commercialization applicable products, and other events or circumstances that are not currently foreseen. Changes to any of these factors could result in increases or decreases to both forecasted revenues and interest expense. +The following table provides the significant assumptions used in determining the initial fair value of the financing used in allocating the proceeds based on relative fair value for the Reedy Creek Purchase Agreement, the ZELSUVMI Royalty Agreement, the Amended Channel Products Royalty Agreement and the Convertible Royalty Agreements, in addition to managements forecasts and estimates as it relates to the future cash flow of the underlying assets (weighted average, as applicable): +Reedy Creek Purchase Agreement ZELSUVMI Royalty Agreement Channel Products Royalty Agreement Xepi Royalty Agreement Sato Payments +Discount rate 16.0 % 16.0 % 20.3 % 25.7 % 35.7 % +Probability of success 85.0 % 85.0 % 47.2 % 95.0 % 52.4 % +During the year ended December 31, 2025, the Company paid $ 24 royalties to licensing counterparties based on the payment terms within the respective license agreements. As noted within the related license agreements and definition of net sales, covered products are considered sold when paid for. As such, royalty payments are calculated based on cash payments received by the Company during the respective calendar quarter, rather than the accrual basis. The Company accrues royalty obligations based on the accrual basis, as net revenue is recorded within the consolidated statements of operations. +The following table provides the activity of the financing from the effective date of July 1, 2025 through December 31, 2025 for the Reedy Creek Purchase Agreement, the ZELSUVMI Royalty Agreement, the Amended Channel Products Royalty Agreement and the Convertible Royalty Agreements (weighted average, as applicable): +Reedy Creek Purchase Agreement ZELSUVMI Royalty Agreement Channel Products Royalty Agreement Xepi Royalty Agreement Sato Payments Total +Initial carrying value $ 19,600 $ 8,876 $ 1,945 $ 2,167 $ 1,100 $ 33,688 +Interest accretion 1,595 1,141 149 53 27 2,965 +Royalty payments accrued ( 324 ) ( 244 ) — — — ( 568 ) +Royalty obligation extinguishment — — ( 2,094 ) — — ( 2,094 ) +Carrying value at December 31, 2025 20,871 9,773 — 2,220 1,127 33,991 +Less: current portion 1,963 1,540 — 226 113 3,842 +Convertible fees allocated to royalty — — — 66 33 99 +Carrying value at December 31, 2025, +net of current portion $ 18,908 $ 8,233 $ — $ 1,928 $ 981 $ 30,050 +December 31, 2025 +Effective Annual Discount Rate 14.8 % 23.7 % — % 9.8 % 9.7 % +NOTE 10 - LEASES +As described in Note 1 — “Organization and Description of Business”, the Company's wholly owned subsidiary, LNHC, was formed in September 2023 to execute the Ligand acquisition of certain assets and liabilities from Novan in a 363 +F-40 +transaction. Per the 363 transaction, certain Novan agreements were assumed by LNHC and as of the Merger as of July 1, 2025, LNHC had certain rights and obligations related to its manufacturing facility and the related lease described below. +On January 18, 2021, the Company entered into a lease with an initial term expiring in 2032, as amended for 19,265 rentable square feet, located in Durham, North Carolina. This lease dated as of January 18, 2021, as amended (the “TBC Lease”), is by and between the Company and Copper II 2020, LLC (the “TBC Landlord”), pursuant to which the Company is leasing space serving as its corporate headquarters and primary API manufacturing site (the “Premises”) located within the Triangle Business Center. The lease executed on January 18, 2021, as amended, was further amended on November 23, 2021 to expand the Premises by approximately 3,642 additional rentable square feet from 15,623 rentable square feet. +The TBC Lease commenced on January 18, 2021 (the “Lease Commencement Date”). Rent under the TBC Lease commenced in October 2021 (the “Rent Commencement Date”). The term of the TBC Lease expires on the last day of the one hundred twenty-third calendar month after the Rent Commencement Date. The TBC Lease provides the Company with one option to extend the term of the TBC Lease for a period of 5 years, which would commence upon the expiration of the original term of the TBC Lease, with base rent of a market rate determined according to the TBC Lease; however, the renewal period was not included in the calculation of the lease obligation as the Company determined it was not reasonably certain to exercise the renewal option. +The monthly base rent for the Premises is approximately $ 39 for months 1-10 and approximately $ 49 for months 11-12, per the second amendment to the primary lease. Beginning with month 13 and annually thereafter, the monthly base rent will be increased by 3 %. Subject to certain terms, the TBC Lease provided that base rent was abated for three months following the Rent Commencement Date. The Company is obligated to pay its pro-rata portion of taxes and operating expenses for the building as well as maintenance and insurance for the Premises, all as provided for in the TBC Lease. +Pursuant to the terms of the TBC Lease, the Company is currently obligated to deliver to the TBC Landlord a letter of credit in the amount of $ 583 , as amended, as collateral for the full performance by the Company of all of its obligations under the TBC Lease and for all losses and damages the TBC Landlord may suffer as a result of any default by the Company under the TBC Lease. As of December 31, 2025, the Company is in the process of securing this letter of credit. +The Company’s facility lease cost was $ 399 for the year ended December 31, 2025, comprised of $ 324 and $ 75 , respectively, of base rent and other variable expenses, including common area maintenance. Cash paid for amounts included in the measurement of operating lease liabilities was $ 324 for the year ended December 31, 2025. The Company also recorded $ 294 of storage rental costs associated with short-term leases for the year ended December 31, 2025. +The weighted average remaining lease term for the TBC Lease and weighted average discount rate for the TBC Lease are 6.1 years and 8.4 %, respectively, as of December 31, 2025. +Future minimum lease payments as of December 31, 2025, were as follows: +Maturity of Lease Liabilities Operating Leases +2026 $ 665 +2027 685 +2028 705 +2029 726 +2030 748 +2031 and thereafter 836 +Total future undiscounted lease payments 4,365 +Less: imputed interest ( 978 ) +Total reported lease liability $ 3,387 +F-41 +NOTE 11 – STOCKHOLDERS’ EQUITY +See Note 1 — “Organization and Description of Business” as it relates to the July 1, 2025 Merger and PIPE Financing. +Initial Public Offering +On February 21, 2024 , the Company completed its IPO and issued 110,000 shares of Common Stock at a price of $ 60.00 per share. The aggregate net proceeds from the IPO were approximately $ 5,900 after deducting approximately $ 900 of underwriting discounts and commissions and offering expenses. +Stock Split +On February 15, 2024 , the Company effected a 9-for-1 reverse stock split. All share and per share amounts have been retrospectively adjusted for the reverse stock split. +On July 1, 2025 , the Company effected a 10-for-1 reverse stock split. All share and per share amounts have been retrospectively adjusted for the reverse stock split. +Series A Convertible Preferred Stock +The Company has filed a Series A Certificate of Designations of Series A Convertible Preferred Stock with the Secretary of State of the State of Nevada designating 150,000 shares of Preferred Stock as the Company’s Series A Preferred Stock. +Dividend Rights +Holders of Series A Preferred Stock are entitled to receive dividends as and when declared by the Company’s board of directors, in its sole discretion. Any such dividends are payable in cash out of legally available funds and are calculated based on the stated value of each share of the Series A Preferred Stock. Dividends are not guaranteed and will only be paid if and when declared by the Company’s board of directors. +Voting Rights +Holders of the Series A Preferred Stock are entitled to receive notice of and vote at all shareholder meetings alongside holders of Common Stock, voting together as a single class provided, that each holder will be deemed to have waived any voting rights such that the aggregate voting rights of any Common Stock beneficially owned by such holder and/or any of its Attribution Parties (as defined in the Series A Certificate of Designations), collectively, on any record date shall not exceed the Maximum Percentage. Each share of the Series A Preferred Stock has the right to vote together with the shares of Common Stock in an amount equal to the voting power of the aggregate number of shares of Common Stock that would be issuable to such holder upon conversion of such share of the Series A Preferred Stock as if the conversion price of such share of the Series A Preferred Stock was $ 1.255 (the “Voting Conversion Price”), such that each share of Series A Preferred Stock shall be entitled to vote, with the aggregate voting power of a holder’s Series A Preferred Stock limited by the Maximum Percentage, subject to adjustment in the event of stock splits, combinations, or stock dividends affecting the Common Stock. Except as otherwise required by the Charter, Bylaws, or applicable law, Series A Preferred Stockholders have no special voting rights. However, where Nevada law requires a separate class or series vote for certain corporate actions, approval by the holders of a majority of the outstanding Series A Preferred Stock, voting together as a class, will be sufficient. +Conversion +Each share of Series A Preferred Stock is convertible at any time at the holder’s option into a number of shares of Common Stock, par value $ 0.0001 per share equal to (i) $1,000, subject to adjustment, plus any all declared and unpaid dividends thereon as of such date of determination, plus any other amounts owed to such holder pursuant to the Certificate of Designations of Rights and Preferences of Series A Convertible Preferred Stock (the “Certificate of Designations”), divided by (ii) $ 1 (adjusted to $ 10 as a result of the ten-for-one Reverse Stock Split), subject to adjustments. +In general, a holder of shares of Series A Preferred Stock may not convert any portion of Series A Preferred Stock if the holder, together with its affiliates, would beneficially own more than 49.9 % in the case of Ligand or 4.99 %, in the case of the other PIPE Investors, of the number of shares of the Company’s Common Stock outstanding immediately after giving +F-42 +effect to such exercise, provided, however, that a holder may increase or decrease the Maximum Percentage by giving 61 days’ notice to the Company, but not to any percentage in excess of 9.99 %. +The Series A Certificate of Designations requires liquidated damages and “buy-in” payments to be made by us for failure to deliver shares of Common Stock issuable upon conversion. +Liquidation Rights +In the event of a liquidation event, the holders of Series A Preferred Stock shall be entitled to receive in cash out of the assets of the Company, whether from capital or from earnings available for distribution to its shareholders, the amount per share such holder would receive if such holder converted such shares of Series A Preferred Stock into Common Stock immediately prior to the date of such payment (without regard to any limitation on conversion set forth herein). Upon payment of such amount in full on the outstanding Series A Preferred Stock, holders of the Series A Preferred Stock will have no rights to the Company’s remaining assets or funds, if any. +Series C Convertible Redeemable Preferred Stock +The Company has filed a Certificate of Designation of Series C Redeemable Convertible Redeemable Preferred Stock with the Secretary of State of the State of Nevada designating 5,000 shares of Preferred Stock as Series C Convertible Redeemable Preferred Stock (the “Series C Preferred Stock”). +Dividend Rights +The Series C Preferred Stock has no dividend rights. +Voting Rights +Holders of Pelthos Series C Preferred Stock are not entitled to vote, unless otherwise permitted by the Nevada Revised Statutes. +Redemption Rights +The Company, at its option shall have the right to redeem a portion or all of the outstanding shares of Series C Preferred Stock at any time; provided, however, that the Company may not redeem any share of Series C Preferred Stock prior to the expiration of the lock-up period associated with this IPO without first obtaining consent of the holder of shares being redeemed. The Company shall pay in cash an amount equal to the Stated Value (as defined in the Certificate of Designation of Series C Convertible Redeemable Preferred Stock) per share of Series C Convertible Redeemable Preferred Stock redeemed. +Conversion +Each share of Series C Convertible Redeemable Preferred Stock will be convertible at any time at the holder’s option into a number of shares of Common Stock determined by (i) multiplying the number of Series C Convertible Redeemable Preferred Shares by the Stated Value of the Pelthos Series C Preferred Stock, and then (ii) dividing the value obtained from the preceding clause (i) by 125 % of the IPO Price (as defined in the Certificate of Designation of Series C Convertible Redeemable Preferred Stock). If the Pelthos common trades for twenty ( 20 ) consecutive trading days above 175 % of the IPO Price, each share of Series C Convertible Redeemable Preferred Stock shall mandatorily convert into a number of shares of Common Stock equal to the result by multiplying 120 % with the quotient obtained by dividing the Stated Value by the price per IPO Share issued to the public in connection with the IPO. +Liquidation Rights +The shares of Series C Convertible Redeemable Preferred Stock will be entitled to a liquidation preference of $ 1,000 per share of Series C Convertible Redeemable Preferred Stock (the “Series C Liquidation Preference”). In the event that the Company voluntarily or involuntarily liquidates, dissolves, or winds up its affairs, holders of the shares of Series C Convertible Redeemable Preferred Stock are entitled to receive out of the Company’s assets available for distribution to stockholders, after satisfaction of liabilities and obligations to creditors, if any, and subject to the rights of holders of any shares of capital stock then outstanding ranking senior to or on parity with the Series C Convertible Redeemable Preferred +F-43 +Stock with respect to distributions upon the voluntary or involuntary liquidation, dissolution, or winding-up of the Company’s business and affairs, and before the Company makes any distribution or payment out of its assets to the holders of Common Stock or any other class or series of capital stock ranking junior to the Series C Convertible Redeemable Preferred Stock with respect to distributions upon the Company’s liquidation, dissolution, or winding-up, an amount per share equal to the Pelthos Series C Liquidation Preference. +2023 Plan Amendment +On June 12, 2024 , the Board authorized an amendment to the Pelthos Therapeutics Inc. 2023 Equity Incentive Plan (as further amended and/or restated, the “2023 Plan”) to increase the number of shares of Common Stock authorized for issuance thereunder by 150,000 from 44,444 shares to 194,444 shares. On October 22, 2024, the 2023 Plan Amendment was approved by the affirmative vote of a majority of the outstanding shares of Common Stock present in person, by remote communication, if applicable, or represented by proxy at the Annual Meeting. On April 16, 2025, pursuant to a written consent of the majority of shareholders of the Company, the number of shares authorized for issuance under the 2023 Plan was increased to 2,400,000 shares. The Company’s board of directors approved the increase to the 2023 Plan on June 26, 2025. As of December 31, 2025 , there were 354,497 shar es available for future stock based award issuance under the 2023 Plan. +Committed Equity Financing +On July 26, 2024 , the Company entered into a Common Stock Purchase Agreement, dated as of July 26, 2024 (the “CEF Purchase Agreement”), with Tikkun Capital LLC (“Tikkun”), providing for a committed equity financing facility, pursuant to which, upon the terms and subject to the satisfaction of the conditions contained in the CEF Purchase Agreement, Tikkun has committed to purchase, at the Company’s direction in its sole discretion, up to an aggregate of $ 30,000 (the “Total Commitment”) of the shares of Common Stock (the “Purchase Shares”), subject to certain limitations set forth in the CEF Purchase Agreement, from time to time during the term of the CEF Purchase Agreement. Concurrently with the execution of the CEF Purchase Agreement, the Company and Tikkun also entered into a Registration Rights Agreement, dated as of July 26, 2024 , pursuant to which the Company agreed to file with the SEC one or more registration statements, to register under the Securities Act, the offer and resale by Tikkun of all of the Purchase Shares that may be issued and sold by the Company to Tikkun from time to time under the CEF Purchase Agreement. On October 2, 2024 , the Company tendered 7,632 shares to Tikkun for $ 46 and on October 18, 2024 , the Company tendered 7,965 shares to Tikkun for $ 63 . +Warrants +On February 21, 2024, the Company issued warrants to purchase up to 5,500 shares of Common Stock to the representative of the underwriters of the IPO. These warrants had an exercise price of $ 75.00 , have a cashless exercise provision, were exercisable 180 days following the commencement of sales of the shares of Common Stock of the IPO and have an expiration date of February 21, 2029. +On September 18, 2025, these warrants were repriced to $ 33.31 per share. This modification resulted in a difference in fair value of $ 31 which was reflected in additional paid in capital, with no net impact, due to the equity treatment of these warrants associated with the IPO equity issuance cost. +Stock Based Compensation +Stock Compensation Expense +The 2023 Plan provides for the grant of the following awards: (i) incentive stock options, (ii) nonstatutory stock options, (iii) SARs, (iv) restricted stock awards, (v) restricted stock unit awards and (vi) other stock awards. Eligible plan participants include employees, directors, and consultants. +Options to purchase the Company’s common stock may be granted at a price no less than the fair value of a common stock share on the date of grant. The Black-Scholes option-pricing model uses the common stock fair value based on the closing sales price for a share as quoted on any established securities exchange for such grant date or the last preceding date for which such quotation exists. Vesting terms of options issued are determined by the board of directors or compensation committee of the board. The Company’s stock options vest based on terms in the stock option agreements and have a maximum term of ten years . The Company determined the expected volatility assumption for options granted using the historical volatility of comparable public companies’ common stock. The Company will continue to monitor peer +F-44 +companies and other relevant factors used to measure expected volatility for future option grants, until such time that the Company’s Common Stock has enough market history to use historical volatility. The dividend yield assumption for options granted is based on the Company’s history and expectation of dividend payouts. The Company has never declared nor paid any cash dividends on its Common Stock, and the Company does not anticipate paying any cash dividends in the foreseeable future. The Company recognizes option forfeitures as they occur as there is insufficient historical data to accurately determine future forfeiture rates. +The Company accounts for RSUs based on their estimated fair values on the date of grant. The fair value of RSUs is estimated based on the closing price of the underlying common stock on the date of grant. Stock-based compensation expense related to the RSUs is recognized on a straight-line basis over the requisite service period. +The Company recognizes RSU forfeitures as they occur as there is insufficient historical data to accurately determine future forfeiture rates. +During the years ended December 31, 2025 and 2024, the Company recorded stock-based compensation expense within the consolidated statements of operations as follows: +Year Ended December 31, +2025 2024 +Research & development $ — $ — +Selling, general and administrative 5,461 1,560 +Total $ 5,461 $ 1,560 +During the years ended December 31, 2025 and 2024, the Company recorded stock-based compensation expense based on the type of award as follows: +Year Ended December 31, +2025 2024 +Stock options $ 3,954 $ 1,456 +Restricted stock units 1,507 104 +Total $ 5,461 $ 1,560 +The following provides detail regarding future stock-based compensation as of December 31, 2025: +As of December 31, 2025 +Unamortized Expense Remaining Life +Stock options $ 11,662 2.44 years +Restricted stock units $ 5,561 2.33 years +F-45 +Stock Options +The activity related to stock options during the year ended December 31, 2025 consisted of the following: +Stock Options Number of +Shares Weighted +Average +Exercise +Price Weighted +Average +Remaining +Life Aggregate Intrinsic Value (thousands) +Outstanding December 31, 2024 87,049 $ 58.48 $ — +Granted 1,471,900 13.68 +Expired ( 31,898 ) 29.70 +Exercised ( 20,500 ) 11.61 +Outstanding December 31, 2025 1,506,551 $ 15.96 9.45 years $ 25,861 +Exercisable December 31, 2025 153,887 $ 35.84 8.92 years $ 2,432 +Vested and expected to vest December 31, 2025 1,506,551 $ 15.96 9.45 years $ 25,861 +The total intrinsic value of all options exercised during 2025 was $ 389 . +The activity related to stock options during the year ended December 31, 2024 consisted of the following: +Stock Options Number of +Shares Weighted +Average +Exercise +Price Weighted +Average +Remaining +Life Aggregate Intrinsic Value (thousands) +Outstanding December 31, 2023 19,761 $ 226.80 $ — +Granted 68,400 12.58 +Expired ( 1,112 ) 226.80 +Exercised — — +Outstanding December 31, 2024 87,049 $ 58.48 9.19 years $ — +Exercisable December 31, 2024 30,952 $ 111.40 9.38 years $ — +Vested and expected to vest December 31, 2024 87,049 $ 58.48 9.19 years $ — +The following weighted-average assumptions were used to estimate the fair value of stock options granted during the years ended December 31, 2025 and 2024: +Year Ended December 31, +2025 2024 +Expected volatility 85.67 % 196.00 % +Risk-free interest rate 4.26 % 4.20 % +Expected term (in years) 5.94 10.00 +Expected dividend yield — % — % +Weighted-average fair value per option $ 10.13 $ 12.58 +F-46 +Restricted Stock Units +The activity related to RSUs during the year ended December 31, 2025 consisted of the following: +Non-vested RSUs RSUs Weighted- +Average +Grant Date +Fair Value +Non-vested at December 31, 2024 29,218 $ 10.77 +Granted 492,462 14.01 +Vested ( 47,080 ) 12.37 +Forfeited ( 9,679 ) 13.50 +Non-vested at December 31, 2025 464,921 $ 13.98 +The activity related to RSUs during the year ended December 31, 2024 consisted of the following: +Non-vested RSUs RSUs Weighted- +Average +Grant Date +Fair Value +Non-vested at December 31, 2023 — $ — +Granted 35,669 11.18 +Vested ( 6,451 ) 13.00 +Forfeited — — +Non-vested at December 31, 2024 29,218 $ 10.77 +NOTE 12 - COMMITMENTS AND CONTINGENCIES +From time to time, the Company may have certain contingent liabilities that arise in the ordinary course of business activities. The Company accrues a liability for such matters when it is probable that future expenditures will be made and such expenditures can be reasonably estimated. +The Company has entered into, and expects to continue to enter into, contracts in the normal course of business with various third parties who support its development work, commercialization activities, including drug product manufacturing, technical transfers, finished commercial product production and supportive costs. The scope of the services under these agreements can generally be modified at any time, and these agreements can generally be terminated by either party after a period of notice and receipt of written notice. There have been no material contract terminations as of December 31, 2025. +NOTE 13 - INCOME TAXES +Income before provision for income taxes was as follows: +Years Ended December 31, +12/31/2025 12/31/2024 +United States $ ( 50,231 ) $ ( 7,928 ) +Foreign ( 475 ) ( 27 ) +Total income before taxes $ ( 50,706 ) $ ( 7,955 ) +F-47 +The components of income tax expense attributable to income before income taxes for the period ended December 31, 2025 and December 31, 2024, consisted of the following: +Years Ended December 31, +12/31/2025 12/31/2024 +Current tax expense: +Federal $ — $ — +State — — +Foreign — — +Total current tax expense — — +Deferred tax expense (benefit): +Federal ( 6,963 ) — +State ( 424 ) — +Foreign — — +Total deferred tax expense (benefit) ( 7,387 ) — +Total provision for income taxes $ ( 7,387 ) $ — +Deferred income taxes reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Acquisition of LNHC, Inc. was completed on July 1, 2025 and was accounted for as a business combination under ASC 805. The LNHC acquisition was a non-taxable acquisition and generated a net deferred tax liability on the opening balance sheet. As of December 31, 2025, the Company has generated enough additional deferred tax assets to reduce the opening balance sheet deferred tax liability to zero. During 2025, the Company also completed two taxable asset acquisitions, that give rise to tax deductible intangible assets. +Prior to the LNHC acquisition, the Company had a deferred tax asset related to net operating losses that was fully offset with a valuation allowance. Based on the December 31, 2025 consolidated Company tax position, including both deferred tax assets related to historical net operating loss carryforwards and deferred tax liabilities associated with the LNHC acquisition, for the year ended December 31, 2025 the Company recorded an income tax benefit, primarily related to the release of valuation allowance for historical deferred tax assets. +As of December 31, 2025 the Company has $ 18,107 , $ 30,543 , and $ 505 of Federal, State, and Foreign net operating losses. Federal and foreign net operating losses carryforward indefinitely, while the state net operating losses begin to expire in 2040. +As of December 31, 2025, there are no known items that would result in a material liability related to uncertain tax positions, as such, there are no unrecognized tax benefits. The Company’s policy is to recognize interest and penalties related to uncertain tax positions in the provision for income taxes. As of December 31, 2025, the Company had no accrued interest or penalties related to uncertain tax positions. There were no changes in uncertain tax positions during the 2025 reporting year. +The Company’s 2021 to 2024 domestic income tax return years are open under the statute of limitations for examination by the taxing authorities. Additionally, the Company’s tax returns for Channel Therapeutics Australia are open under the statute of limitations for examination by the tax authorities for tax years 2023 and 2024. +The Company recorded a valuation allowance of $ 2,835 against the deferred tax assets as of December 31, 2025 because realization is not more likely than not based on available positive and negative evidence. The change in valuation allowance was a decrease of $ 1,190 for the year ended December 31, 2025. +The Tax Cuts and Jobs Act of 2017 subjects a U.S. shareholder to tax on global intangible low-taxed income (“GILTI”) earned by certain foreign subsidiaries. The Company has elected to account for GILTI in the year the tax is incurred. The Company did not record a GILTI inclusion for the year ended December 31, 2025 or 2024. +F-48 +On July 4, 2025, the U.S. government enacted the One Big Beautiful Bill Act (OBBBA), which includes several changes to U.S. federal income tax law, including temporary and permanent extension, of expiring provisions of the Tax Cuts and Jobs Act of 2017. Significant provisions for corporate taxpayers include permanent 100% bonus depreciation for qualified property, immediate expensing of domestic R&D expenditures, and changes to the limitation on business interest expense deductions under Section 163(j). None of these provisions have a material impact on the Company’s 2025 income tax provision. +S ignificant components of the Company’s deferred tax assets and liabilities are as follows: +December 31, 2025 December 31, 2024 +Deferred income tax assets: +Net operating losses $ 3,971 $ 4,025 +Lease liability 763 — +Accrued compensation 566 — +Royalty and license payments 1,718 — +Deferred revenue 8,143 — +Stock compensation 848 — +Total deferred tax assets 16,009 4,025 +Valuation allowance ( 2,835 ) ( 4,025 ) +Total net deferred income tax assets 13,174 — +Deferred income tax liabilities: +Fixed assets ( 1,829 ) — +Intangible assets ( 7,111 ) — +Inventory ( 3,502 ) — +Right-of-use lease assets ( 732 ) — +Total deferred income tax liabilities ( 13,174 ) — +Total net deferred income tax assets $ — $ — +A reconciliation of the provision for income taxes to the amount computed by applying the 21% statutory U.S. federal income tax rate to income before income taxes after the adoption of ASU 2023-09 is as follows: +Years Ended +December 31, 2025 December 31, 2024 +Amount % of Pretax Losses Amount % of Pretax Losses +U.S. Federal statutory tax rate $ ( 10,649 ) 21.0 % $ ( 1,675 ) 21.0 % +State and local income taxes, net of federal income tax effect ( 424 ) 0.8 % — — % +Foreign tax effects +Australia +Statutory tax rate difference between Australia and U.S. ( 19 ) 0.1 % ( 1 ) — % +Change in valuation allowance 119 ( 0.2 ) % 5 — % +Change in valuation allowance ( 1,353 ) 2.6 % 1,671 ( 21.0 ) % +Nontaxable or nondeductible items +Change in fair value of convertible debt 3,147 ( 6.1 ) % — — % +Interest expense - 163(l) 633 ( 1.2 ) % — — % +Nondeductible transaction costs and other 355 ( 0.8 ) % — — % +Adjustment to prior year NOL carryforwards 804 ( 1.6 ) % — — % +Effective tax rate $ ( 7,387 ) 14.6 % $ — — % +F-49 +The states and local jurisdictions that contribute to the majority (greater than 50%) of the tax effect in this category include Colorado and Kentucky. +For the years ended December 31, 2025 and 2024 the Company paid no cash amounts related to income taxes . +NOTE 14 - SEGMENT INFORMATION +The Company has determined that it operates in two segments , which represent (i) the sale, promotion and commercialization of approved commercial products (the “Commercial Operations” segment), and (ii) research and development activities (the “Research and Development Operations” segment). +• The Commercial Operations segment consists of the Company’s commercial product portfolio. +• The Research and Development Operations segment consists of (i) activities related to developing a novel and proprietary class of NaV blockers that target the body’s peripheral nervous system; and (ii) supportive activities to expand the NITRICIL nitric oxide-based technology. +The Commercial Operations segment includes activities related to the commercialization of ZELSUVMI (berdazimer topical gel, 10.3%), the Company’s FDA-approved product for the treatment of molluscum contagiosum, and associated sales, marketing, distribution, and post-marketing activities. Net revenues attributed to this segment are derived from product sales in the United States following the July 1, 2025 Merger with LNHC. +The Research and Development Operations segment is primarily responsible for the NaV1.7 pain-modulation program and other preclinical candidates. This segment may also include activities associated with the Company’s license and collaboration arrangements, including the license with Sato covering development and commercialization of ZELSUVMI (SB206) in Japan. +Costs associated with product development are recorded within the Research and Development Operations segment. There are no significant inter-segment sales, and there is no inter-segment allocation of non-operating income, expenses, or income taxes. Mr. Plesha, the Company’s Chief Executive Officer, is CODM. +Segment revenue, net and comprehensive loss and total assets were as follows: +Year Ended December 31, 2025 Year Ended December 31, 2024 +Revenue +Commercial operations $ 16,206 $ — +Research and Development operations 589 — +Total revenue $ 16,795 $ — +Net loss +Commercial operations $ ( 37,263 ) $ — +Research and Development operations ( 6,056 ) ( 7,955 ) +Net loss and comprehensive loss $ ( 43,319 ) $ ( 7,955 ) +December 31, 2025 December 31, 2024 +Assets +Commercial operations $ 129,292 $ — +Research and Development operations 1,105 1,369 +Total assets $ 130,397 $ 1,369 +The net revenues attributed to the Commercial Operations segment are derived from the sale of the Company’s commercial product, and the net revenues attributed to the Research and Development Operations segment are derived from the +F-50 +arrangement with the Company’s licensing partner in Japan. Total assets by reporting segment are not reviewed by the CODM when evaluating the reporting segments’ performance, however, the Commercial Operations segment includes the acquired assets associated with the LNHC acquisition and changes in such assets, while the Research and Development Operations segment is comprised of the assets associated with the historical business of the Company. +Substantially all revenue was derived from product sales or from licensing agreements originating in the United States. All of the Company’s long-lived assets are maintained in the United States. +NOTE 15 – SUBSEQUENT EVENTS +On January 12, 2026, the Company entered into a Venture Loan and Security Agreement with Horizon Technology Finance Corporation, a Delaware corporation, as lender and collateral agent. The Venture Loan and Security Agreement provides for a senior secured term loan facility in an aggregate principal amount of up to $ 50,000 . The proceeds of the facility will be used to support the commercialization of the Company’s existing commercialized pharmaceutical product, to prepare for the launch of two recently acquired products, working capital and general corporate purposes. The Company borrowed $ 30,000 of the facility on January 12, 2026. The remaining $ 20,000 of the facility may be borrowed upon the achievement by the Company of certain milestones set forth in the Venture Loan and Security Agreement. +F-51 \ No newline at end of file diff --git a/raw/filings/0001919246/2025/0001919246-26-000013/filing_metadata.csv b/raw/filings/0001919246/2025/0001919246-26-000013/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..a9b72a0c133c4b6cca2dacda0d5f8bf5f4dad66b --- /dev/null +++ b/raw/filings/0001919246/2025/0001919246-26-000013/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001919246,PTHS,Pelthos Therapeutics Inc.,2025,10-K,2026-03-19,2025-12-31,2026-03-19T10:37:56.000Z,0001919246-26-000013,pths-20251231.htm,10-K,13587595,1,1,https://www.sec.gov/Archives/edgar/data/1919246/000191924626000013/pths-20251231.htm,https://www.sec.gov/Archives/edgar/data/1919246/000191924626000013/ diff --git a/raw/filings/0001919246/2025/0001919246-26-000013/item1.txt b/raw/filings/0001919246/2025/0001919246-26-000013/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..5302e69d3361c9eabe4b0780c84a2600a6d6ad74 --- /dev/null +++ b/raw/filings/0001919246/2025/0001919246-26-000013/item1.txt @@ -0,0 +1,255 @@ +Item 1. Business +Overview +Pelthos Therapeutics Inc. (the “Company”) is a bio-pharmaceutical company committed to commercializing innovative, safe, and efficacious therapeutic products to help patients with unmet treatment burdens. The Company currently has three U.S. Food and Drug Administration (“FDA”) approved products in its commercial portfolio, in various stages of commercialization, including ZELSUVMI TM , XEPI ® , and XEGLYZE ® . +The July 1, 2025 merger transaction between Channel Therapeutics Corporation (“Channel”) and LNHC, Inc. (“LNHC”), discussed below, resulted in Pelthos Therapeutics Inc. initially having (i) a commercially marketable product, ZELSUVMI for the treatment of molluscum contagiosum, which was launched in July 2025 shortly after the Merger (as defined below); (ii) a manufacturing facility, equipment and know-how to produce the active pharmaceutical ingredient (“API”) used in ZELSUVMI and the NITRICIL TM technology platform; and (iii) clinical-stage assets which selectively target the sodium ion-channel known as “NaV1.7”, which has been genetically validated as a pain receptor in human physiology. In addition, during the fourth quarter of 2025 the Company acquired two additional FDA approved products to expand its commercial product portfolio. +Background +The Company was effectively formed on July 1, 2025 with the Merger of Channel and LNHC. +Channel Background +Chromocell Therapeutics Corporation (“Chromocell”) was incorporated in Delaware on March 19, 2021. On February 21, 2024, Chromocell completed the initial public offering of its Common Stock (“IPO”) on the NYSE American LLC (“NYSE American”). +On November 18, 2024, Chromocell merged with and into its wholly-owned subsidiary, Channel, a Nevada corporation, pursuant to an agreement and plan of merger, dated as of November 18, 2024, for the purposes of reincorporating Chromocell in Nevada. Concurrently with the closing of the reincorporation merger, the Company changed its name from “Chromocell Therapeutics Corporation” to “Channel Therapeutics Corporation”. +LNHC Background +LNHC was incorporated in the state of Delaware in September 2023 by Ligand Pharmaceuticals, Inc. (“Ligand”) and was initially formed to facilitate a transaction between Ligand and Novan, Inc. (“Novan”). On September 27, 2023, Ligand acquired certain assets of Novan, after providing debtor in possession financing and acquiring specific assets from Novan, under Section 363 of the U.S. Bankruptcy Code (a “363 transaction”). Novan was a medical dermatology company focused on developing and commercializing innovative therapeutic products for skin diseases. Through its NITRICIL technology platform, Novan developed ZELSUVMI (berdazimer gel, 10.3%), formerly named SB206, as a topical prescription gel for the treatment of viral skin infections, with a focus on molluscum contagiosum. As of the acquisition date in September 2023 by Ligand, all assets and liabilities acquired in the Novan acquisition were held by LNHC, which was a wholly owned subsidiary of Ligand, including the NITRICIL technology platform. +On March 24, 2025, LNHC assigned its intellectual property portfolio related to the Novan acquisition, including the NITRICIL technology, to Ligand and entered into an exclusive license and sublicense agreement with Ligand, pursuant to which Ligand licensed to the Company the intellectual property rights necessary to make, use, sell or offer to sell ZELSUVMI for the treatment of molluscum contagiosum in humans worldwide, except for Japan. +On March 24, 2025, LNHC and Ligand also entered into a master services agreement under which Ligand, or related parties, may contract with LNHC to provide API for clinical or commercial use related to the NITRICIL technology. In addition, the agreement also allows Ligand to require LNHC to provide manufacturing technology transfer services, if requested, for products other than ZELSUVMI, to a potential third-party manufacturer. +5 +Recent Business Updates +Venture Loan and Security Agreement +On January 12, 2026, the Company entered into a Venture Loan and Security Agreement with Horizon Technology Finance Corporation, a Delaware corporation, as lender and collateral agent (the “Venture Loan and Security Agreement”). The Venture Loan and Security Agreement provides for a senior secured term loan facility in an aggregate principal amount of up to $50.0 million. The proceeds of the facility will be used to support the commercialization of the Company’s existing commercialized pharmaceutical product, to prepare for the launch of two recently acquired products, working capital and general corporate purposes. The Company borrowed $30.0 million of the facility on January 12, 2026. The remaining $20.0 million of the facility may be borrowed upon the achievement by the Company of certain milestones set forth in the Venture Loan and Security Agreement. +Product Portfolio +ZELSUVMI TM (berdazimer) topical gel, 10.3% for the Treatment of Molluscum Contagiosum +ZELSUVMI (berdazimer) topical gel, 10.3% is a nitric oxide (NO) releasing agent indicated for the topical treatment of molluscum contagiosum in adults and pediatric patients one year of age and older. ZELSUVMI is the first FDA approved topically applied nitric oxide releasing agent indicated for the treatment of molluscum contagiosum in people ages one year and older and the first and only prescription medication FDA approved for use in non-medical settings that can be safely applied by patients, parents and caregivers. Molluscum contagiosum is a highly contagious viral skin infection that primarily affects children, immunocompromised adults and sexually active persons. The Company estimates that molluscum contagiosum infections afflict approximately 16 million people of all ages in the United States. +ZELSUVMI was developed using the proprietary nitric oxide-based technology platform, NITRICIL. ZELSUVMI’s mechanism of action against molluscum contagiosum is unknown. In vitro studies of ZELSUVMI’s active ingredient, berdazimer sodium, have demonstrated (i) anti-pox virus activity on vaccinia virus, which is often used as a surrogate for molluscum contagiosum virus; and (ii) reduced early gene expression of molluscum contagiosum virus proteins. ZELSUVMI’s final Phase 3 clinical study included 891 enrolled patients treated with ZELSUVMI and demonstrated statistically significant and clinically meaningful efficacy results on both primary and secondary endpoints, a greater reduction in lesions at every measurement point, and favorable safety results during the 12-week duration. +The Company’s market research and feedback to date indicate physicians have highly favorable opinions about ZELSUVMI’s clinical efficacy, safety, and practicality as the first and only topical medication indicated for molluscum contagiosum that does not require in-office administration by a healthcare provider. The Company believes that ZELSUVMI is likely to complement or represent a differing treatment regimen of current procedural treatments administered in medical settings such as cryosurgery, cantharidin application and curettage. +The Company has an exclusive license to use the NITRICIL Technology Platform as necessary to manufacture ZELSUVMI, as set forth in the license agreement between the Company and Ligand. The Company believes that the NITRICIL platform’s ability to deploy nitric oxide in a solid form, on demand and in localized formulations allows the potential to improve patient outcomes in a variety of diseases. The Company believes that the FDA approval of ZELSUVMI has validated the NITRICIL technology platform’s ability to achieve stable, tunable and druggable delivery of nitric oxide on therapeutically and commercially important targets such as molluscum contagiosum. +Molluscum Contagiosum +Molluscum contagiosum is caused by a poxvirus and is a common skin infection seen by dermatologists, pediatric dermatologists, and pediatricians, with a prevalence estimated by management to be 16 million people in the United States and an annual incidence estimated by management to be 3-6 million. According to the Centers for Disease Control and Prevention (“CDC”), molluscum contagiosum infections are contagious and spread to others through contact with infected persons or contaminated objects such as towels, toys, furniture, swimming pools, and other surfaces. Children are the most vulnerable to molluscum contagiosum infections as are adults with weakened immune systems. In addition, molluscum contagiosum can be sexually transmitted. +Molluscum contagiosum infections present with raised, skin-colored or red bumps that can appear anywhere on the body, including the face, hands, trunk, genitals, back of the knees, armpits, and other sensitive areas. People with molluscum contagiosum may suffer discomfort from itching, secondary bacterial infections, as well as immense social stigma from +6 +having visible molluscum contagiosum lesions which typically last for months or for years. Left untreated, molluscum contagiosum lesions may persist an average of 13 months, with reports of cases remaining unresolved for up to five years. The symptoms of molluscum contagiosum can cause anxiety, and parents frequently seek treatment due to its highly contagious nature and its impact on physical appearance. +XEPI ® (ozenoxacin) Cream, 1% for the Treatment of Impetigo +In November 2025, the Company acquired XEPI (ozenoxacin) cream, 1% for the treatment of impetigo. The acquisition of this asset provided a complementary dermatology product to the Company’s portfolio anchored by ZELSUVMI. +XEPI is a novel FDA-approved non-fluorinated quinolone antimicrobial indicated for the topical treatment of impetigo due to Staphylococcus aureus or Streptococcus pyogenes in adult and pediatric patients two months of age and older. The Company believes XEPI addresses a critical unmet need in antibiotic-resistant skin infections caused by staph and strep infections, most commonly affecting children. Impetigo affects approximately 3 million people in the U.S. every year and is among the most common bacterial skin infections seen in pediatric offices. +The Company acquired the U.S. commercialization rights to XEPI, from Biofrontera, Inc. (“Biofrontera”) and an exclusive license agreement with Ferrer Internacional S.A. (“Ferrer”) and Interquim, S.A.U. (“Interquim”). XEPI was developed by Ferrer and Medimetriks Pharmaceuticals, Inc., and approved by the FDA in 2017. At the time of approval, XEPI was the first new novel treatment for impetigo in more than 10 years. Biofrontera had owned the U.S. rights to XEPI since 2019 but, has not been actively promoting the product. +XEPI, a new chemical entity, belongs to a new generation of non-fluorinated quinolones. In two Phase 3 pivotal studies, XEPI showed positive efficacy and appeared to be safe and well tolerated in both adult and pediatric populations aged 2 months and older. In addition, XEPI has demonstrated excellent in vitro antibacterial activity against pathologically relevant bacteria and clinical isolates of organisms with emerging resistance to methicillin-resistant s. aureus (“MRSA”). The Company believes XEPI represents a novel and important therapy for the topical treatment of impetigo. +The Company expects to commercially relaunch XEPI once certain manufacturing, supply chain, and regulatory activities are validated, implemented and completed, respectively. In addition, the Company will also need to implement its commercial marketing, trade and access strategy prior to the relaunch of XEPI, currently expected in late 2026. +Impetigo +Impetigo is a highly contagious bacterial skin infection most often caused by Staphylococcus aureus and/or Group A Streptococcus (Streptococcus pyogenes). It affects approximately 3 million people in the U.S. every year and is most common in children ages 2 to 5. Impetigo is among the most common bacterial skin infections seen in pediatric offices and spreads easily within families, in crowded settings, such as schools and childcare facilities. +Impetigo, a highly contagious bacterial skin infection commonly treated by Dermatologists and Pediatricians, most often affects infants, young children and those involved in close contact sports or living in enclosed environments. Impetigo is estimated to account for approximately 10% of the skin problems observed in pediatric clinics in the United States and is considered the most common bacterial skin infection. +XEGLYZE ® (abametapir) for the Topical Treatment of Head Lice +In December 2025, the Company acquired XEGLYZE (abametapir) for the topical treatment of head lice. XEGLYZE is a pediculicide indicated for the topical treatment of head lice infestation in patients 6 months of age and older. The prescription medication was approved by the FDA in July 2020. The acquisition of this asset from Hatchtech Pty Ltd., an Australian biotech company, provided an additional complementary product to the Company’s portfolio. This acquisition will provide the Company the ability to commercialize XEGLYZE worldwide. +XEGLYZE is a novel, patent protected FDA-approved prescription medication indicated for the topical treatment of head lice infestation in patients 6 months of age and older. Abametapir, the active ingredient in XEGLYZE, inhibits metalloproteinases that have a role in physiological processes critical to egg development and survival of lice. The single, 10 minute application does not require nit combing and has sufficient volume in each bottle to treat either short or long hair. +7 +The Company expects to commercially launch XEGLYZE once certain manufacturing, supply chain, and regulatory activities are validated, implemented and completed, respectively. In addition, the Company will also need to implement its commercial marketing, trade and access strategy prior to the launch of XEGLYZE, currently expected in 2027. +Head Lice +In the U.S., infestation with head lice is most common among preschool- and elementary-school age children and their household members and caretakers. An estimated 6 to 12 million infestations occur each year in the U.S. among children 3 to 11 years of age. +Merger Transaction +July 1, 2025 Merger +On July 1, 2025 (the “Merger Closing Date”), the Company consummated the previously announced merger transaction (the “Merger”) pursuant to that certain Agreement and Plan of Merger (the “Merger Agreement”) by and among the Company, CHRO Merger Sub, Inc. a Delaware Corporation and a wholly owned subsidiary of the Company (“Merger Sub”), LNHC, and solely for the purposes of Article III of the Merger Agreement, Ligand. Pursuant to the Merger Agreement, (i) Merger Sub merged with and into LNHC, with LNHC as the surviving company in the Merger and, after giving effect to such Merger, continuing as a wholly-owned subsidiary of the Company and (ii) the Company’s name was changed from Channel Therapeutics Corporation to Pelthos Therapeutics Inc. +At the effective time of the Merger, the Company issued an aggregate of 31,278 shares of the Company’s Series A Preferred Stock to Ligand as consideration for the LNHC shares. +The shares of Series A Preferred Stock issued to Ligand in the Merger were not registered under the Securities Act and were issued and sold in reliance on the exemption from registration requirements thereof provided by Section 4(a)(2) of the Securities Act as a transaction by an issuer not involving a public offering. +The shares of the Company’s Common Stock listed on NYSE American previously trading through the close of business on July 1, 2025 under the ticker symbol “CHRO,” commenced trading on NYSE American under the ticker symbol “PTHS,” on July 2, 2025. The Company’s Common Stock is represented by a new CUSIP number, 171126 204. +Securities Purchase Agreement +Concurrently with the execution of the Merger Agreement, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with LNHC and certain investors, which included Ligand (collectively, the “PIPE Investors”), pursuant to which, among other things, on the Merger Closing Date and immediately prior to the consummation of the Merger, the PIPE Investors purchased (either for cash or in exchange for the conversion of principal and interest payable under an outstanding convertible note issued by the Company), and the Company issued and sold to the PIPE Investors, an aggregate of 50,100 shares of the Company’s Series A Convertible Preferred Stock, par value $0.0001 per share (the “Series A Preferred Stock”) at a price per share equal to $1,000 (such transaction, the “PIPE Financing”). The gross proceeds from the PIPE Financing were approximately $50.1 million, consisting of approximately $50.0 million in consideration and the conversion of approximately $0.1 million of principal and interest payable under an outstanding convertible note with a related party issued by the Company, before paying estimated expenses and before the settlement of certain outstanding bridge notes with the PIPE Investors, described below. +On July 1, 2025, the Company, LNHC and the PIPE Investors entered into Amendment No. 1 to Securities Purchase Agreement, pursuant to which, the Company, LNHC and the PIPE Investors consented to the inclusion of two additional PIPE Investors in the PIPE Financing and a corresponding decrease in the amount of certain PIPE Investors’ investments in the PIPE Financing such that the aggregate amount of the PIPE Financing would remain unchanged (the “Securities Purchase Agreement Amendment”). +Each share of Series A Preferred Stock is convertible at any time at the holder’s option into a number of shares of Common Stock, par value $0.0001 per share equal to (i) $1,000, subject to adjustment, plus any all declared and unpaid dividends thereon as of such date of determination, plus any other amounts owed to such holder pursuant to the Certificate of Designations of Rights and Preferences of Series A Convertible Preferred Stock (the “Certificate of Designations”), divided by (ii) $1 (adjusted to $10 as a result of the ten-for-one Reverse Stock Split), subject to adjustments. +8 +In general, a holder of shares of Series A Preferred Stock may not convert any portion of Series A Preferred Stock if the holder, together with its affiliates, would beneficially own more than 49.9% in the case of Ligand or 4.99% or 9.99%, in the case of the other PIPE Investors (the “Maximum Percentage”), of the number of shares of the Company’s Common Stock outstanding immediately after giving effect to such exercise, provided, however, that a holder may increase or decrease the Maximum Percentage by giving 61 days’ notice to the Company, but not to any percentage in excess of 9.99%. +The shares of Series A Preferred Stock issued and sold to the PIPE Investors were not registered under the Securities Act and were issued and sold in reliance on the exemption from registration requirements thereof provided by Section 4(a)(2) of the Securities Act as a transaction by an issuer not involving a public offering. +The closing of the PIPE Financing occurred on July 1, 2025, immediately prior to the consummation of the Merger. +On July 1, 2025, certain PIPE Investors entered into Series A Convertible Preferred Stockholder Side Letters (each, a “Side Letter”) with the Company, pursuant to which, immediately after the closing of the PIPE Financing on July 1, 2025, the PIPE Investors converted 23,810 shares of Series A Preferred Stock not exceeding such PIPE Investors’ Maximum Percentage into an aggregate of 2,381,000 shares of the Company’s Common Stock (after giving effect to the Reverse Stock Split), by providing the Company with a completed and signed Conversion Notice under the Certificate of Designation. Approximately 57,568 shares of the Company’s Series A Preferred Stock were issued and outstanding immediately following the Effective Time. Immediately following the Merger and the PIPE Financing, the Company’s security holders as of immediately prior to the Merger owned approximately 7.4% of the outstanding shares of the Company and LNHC security holders owned approximately 56.1% of the outstanding shares of the Company, in each case on a fully diluted basis, calculated using the treasury stock method. +Net Proceeds from PIPE Financing +Certain PIPE Investors were a party to the ZELSUVMI Royalty Agreement while other PIPE Investors were a party to the Channel Products Royalty Agreement, (collectively, the “Royalty Agreements”) as described in Note 9 — “ License and Other Agreements” in the notes to our consolidated financial statements. Further, certain PIPE Investors were not a party to the Royalty Agreements. As the PIPE Financing and Royalty Agreements were negotiated together, aggregate proceeds were allocated based on their relative fair value basis. The Company will account for future royalties due as liabilities and will accrete the financing using the effective interest method based on estimated and actual cash flows payable to the counterparties over the estimated life of the royalty agreements. +Effective January 1, 2025, LNHC entered into a bridge loan agreement with Ligand under which any amounts of cash transferred from Ligand to LNHC, or settlement of LNHC's expenses directly by Ligand, starting from January 1, 2025, were considered a loan from Ligand to LNHC. The maximum borrowing under the bridge loan agreement was $18.0 million (the “Ligand Bridge Note”). The repayment of the Ligand Bridge Note loan at the closing of the Merger was offset against Ligand’s funding commitment in the PIPE Financing. The balance of the Ligand Bridge Note was $12.7 million, resulting in $5.3 million of funding provided to the Company as of the Merger Closing Date as part of the PIPE Financing. In addition, on April 16, 2025, LNHC entered into a bridge loan agreement with two third-party lenders, part of the group of strategic investors who participated in the PIPE Financing, for an aggregate amount, including interest, of $6.1 million (the “April Bridge Note”). The repayment of the April Bridge Note at the closing of the Merger was offset against the strategic investors funding commitment in the PIPE Financing. In addition, as part of the Merger closing, a settlement of a related party note of $0.1 million and settlement of a third-party note with a professional services firm of approximately $1.5 million also occurred. +9 +The following are details of the Merger and PIPE Financing as it relates to Series A Preferred Stock and proceeds from the PIPE Financing (in thousands, except share and per share amounts): +Series A Preferred Shares Issued Allocated Gross Proceeds Notes Settlement Payables Settlement and Expenses Net Proceeds +Beginning Balance as of July 1, 2025 — $ — $ — $ — $ — +Preferred Stock (Series A) Issued - Merger 31,278 — — — — +Preferred Stock (Series A) Issued - PIPE Financing 50,100 50,100 (20,340) (2,376) 27,384 +Preferred Stock (Series A) Converted to Common Stock (23,810) — — — — +Ending Balance as of July 1, 2025 57,568 $ 50,100 $ (20,340) $ (2,376) $ 27,384 +The Merger resulted in the Company having (i) a commercial product, ZELSUVMI; (ii) the facility, equipment and know-how to manufacture the API used in ZELSUVMI and the NITRICIL technology platform; and (iii) clinical-stage NaV1.7 assets. +Manufacturing Facility and NITRICIL Platform +The Company currently leases its primary operating facility, including 19,265 square feet of laboratory, current good manufacturing practices (“cGMP”) manufacturing, warehouse, storage and office space in Durham, North Carolina. The lease, dated January 18, 2021, as amended, has an initial term expiring in 2032, with an option to extend the term of the lease for a period of 5 years. This purpose-built facility was constructed to serve as the primary berdazimer sodium API manufacturing site. Berdazimer sodium is the API that is the backbone of the NITRICIL platform technology. Different concentrations of berdazimer sodium and different formulations of the finished drug product are what differentiates potential treatment options for various indications. +While the intellectual property rights for the NITRICIL technology platform were assigned by LNHC to Ligand prior to the Merger, the Company currently has the rights to the manufacturing facility, equipment and know-how to produce the API used in ZELSUVMI and any other products that may be developed by Ligand, Ligand affiliated parties or third-party licensees related to the NITRICIL technology platform. The MSA between Ligand and the Company provides Ligand, Ligand affiliated parties or third-party licensees with an ability to source commercial or developmental supply of API, while also providing the Company with the associated economics of the supply of such material. +The NITRICIL proprietary technology platform leverages nitric oxide’s naturally occurring anti-viral, anti-bacterial, anti-fungal, and immunomodulatory potential mechanisms of action in an effort to treat a range of diseases. Nitric oxide plays a vital role in the natural immune system response against microbial pathogens and is a critical regulator of inflammation. The technology’s ability to harness nitric oxide and its multiple potential mechanisms of action has enabled the creation of a platform with the potential to generate differentiated product candidates. The two key components of the nitric oxide platform are the proprietary NITRICIL technology, which drives the creation of macromolecular New Chemical Entities, and formulation science, both of which are used to tune product candidates for specific targeted indications. +The Company believes the NITRICIL technology platform has many other potential product candidates that could be further developed. Prior to the Merger, clinical work was performed in various indications, including, but not limited to, acne (SB204), atopic dermatitis and psoriasis (SB414), tinea pedis and onychomycosis (SB208) and external genital warts (SB207). Other than SB207, to which the Company has existing rights, the rights are owned by Ligand. Any further development of these assets will require the Company to produce and manufacture the API for use by Ligand, Ligand affiliated parties, third-party licensees or for our own account if we pursue SB207 or license any of the other programs. +NaV1.7 Pain Programs +Prior to the Merger, the Company had been developing new non-opioid therapeutics to alleviate pain. These programs selectively target the sodium ion-channel known as “NaV1.7”, which has been genetically validated as a pain receptor in human physiology. A NaV1.7 blocker is a chemical entity that modulates the structure of the sodium-channel in a way to +10 +prevent or reduce the transmission of pain perception to the central nervous system (“CNS”). The goal of these programs is to develop a novel and proprietary class of NaV blockers that target the body’s peripheral nervous system. +There are currently three pain programs developing therapeutics, all of which are based on the same proprietary molecule, as follows: +Eye Pain (Phase1-2a ready) : Based on a novel formulation of CC8464, our Eye Pain program, titled CT2000, is for the potential treatment of both acute and chronic eye pain. NaV1.7 channels are present on the cornea, making it a viable biological target for treating eye pain. Eye pain may occur with various conditions, including severe dry eye disease, trauma and surgery. Existing therapies for eye pain (such as steroids, topical non-steroidal anti-inflammatory agents, lubricants, local anesthetics) are limited in their effectiveness and/or limited in the duration that they may be prescribed because of safety issues. The Company intends to explore the viability of developing CT2000 as a topical agent for the relief of eye pain. A potential advantage of this approach is that topical administration of CT2000 is unlikely to lead to any hypersensitivity or skin reactions, like what was noted with systemic administration of CC8464, because the systemic absorption from a topical administration would be extremely limited. The Company has completed two animal efficacy studies and has successfully completed a pivotal Investigational New Drug Application (“IND”) enabling ophthalmic toxicology studies as a precursor to launching a Phase 1a/2b human proof of concept study. The Company expects to initiate the Phase 1a/2b study in Eye Pain in the first quarter of 2026. +Depot Program (Pre-Clinical) : Based on several novel formulations of CC8464, the Company’s most recently launched program, titled CT3000, is for the potential treatment of post operative pain with the use of nerve blocks. Examples would include knee surgery or shoulder surgery. Existing therapies for nerve blocks lead to neuromuscular blockade which prevents movement following surgery. Doctors often want patients to move soon after surgery to avoid complications such as blood clots. A NaV1.7 inhibitor used for nerve blocks may provide good analgesia but will not lead to neuromuscular blockade that prevents movement like other local anesthetics. The Company will periodically review the timing and budget related to the commencement of toxicology and chemistry, manufacturing, and controls (“CMC”) work and a subsequent human proof-of-concept (“POC”) trial, but has no immediate plans to do so. +Neuropathic Pain (Clinical) : CC8464 is being developed to address certain types of neuropathic pain. The chemical characteristics of CC8464 restrict its entry into the CNS and limit its effect to the NaV1.7 channels in the peripheral nervous system, which consists of the nerves outside the brain and spinal cord. Activation of other channels in the CNS can result in side effects, including addiction and other centrally mediated adverse effects. Since CC8464 is designed to not penetrate the CNS it is highly unlikely to produce CNS mediated side effects including euphoria or addiction. Based on its characteristics, preclinical studies, and the Phase 1 studies completed to date, the Company believes that CC8464, if approved, could become an attractive option for both patients and physicians as a treatment for moderate-to-severe pain in Erythromelalgia and idiopathic small fiber neuropathy. The Company will periodically review the timing and budget related to the commencement of toxicology and CMC work and a subsequent human POC trial, but has no immediate plans to do so. +ZELSUVMI Commercial Strategy +The Company has launched and is focused on the commercialization of ZELSUVMI and is continuing to support its sales, marketing and commercial team to detail ZELSUVMI. +Commercial Background +ZELSUVMI is the first FDA-approved at-home prescription medication indicated for the treatment of molluscum contagiosum in patients one year of age and older that can be administered by patients, parents and caregivers. As a prescription, ZELSUVMI will generally be covered under patients’ pharmacy benefit, differentiating it from procedural reimbursement for cantharidin and cryotherapy. Pediatricians, pediatric dermatologists, dermatologists and infectious disease specialists are the target prescribers. +Pediatricians diagnose the majority of molluscum contagiosum infections, and the Company believes many patients have not been treated due, in part, to a lack of FDA approved prescription treatment options that can be administered outside of medical settings. The Company believes that pediatricians will be key to expanding the market, increasing peak sales, and sales and marketing efficiency. The Company will seek to position ZELSUVMI as the preferred first line therapy among pediatricians. The Company believes ZELSUVMI will enhance and complement current non-prescription treatment options +11 +and referral patterns. Based on the Company’s interactions with healthcare professionals (“HCPs”) to date, the Company believes HCPs would welcome this positioning of ZELSUVMI. +The Company believes that ZELSUVMI fills a medical need in the market as the first safe and efficacious prescription medication for molluscum contagiosum that can be administered outside of medical settings. Based on 2023 data from Veeva Compass, on an annual basis, greater than 390,000 unique patients are affected by molluscum contagiosum and greater than 100,000 unique HCPs are treating the disease in the United States. However, the Company believes this number underestimates the true number of cases due to a previous lack of treatment options. +Sales and Distribution Strategy +The Company is marketing ZELSUVMI primarily to physicians with various types of electronic and physical promotion and direct sales efforts with a dedicated sales force supported by a product management team and support staff. The sales and marketing effort focuses on increasing awareness, adoption and usage of ZELSUVMI to targeted pediatricians, pediatric dermatologists and dermatologists. The Company distributes ZELSUVMI via standard retail pharmacy chains, mail order pharmacies and Amazon pharmacy utilizing a third-party logistics provider. Based on the Company’s conversations with HCPs, the Company believes these distribution channels are the most preferred by patients and HCPs. Critical to the launch and commercialization efforts of ZELSUVMI will be co-pay assistance and managing co-pay and patient out-of-pocket costs as well as prescription “pull-through” strategies and tactics to ensure patient access and utilization of ZELSUVMI. +Marketing Strategy +The Company is focusing sales and marketing efforts on expanding product awareness and trial of ZELSUVMI initially by means of personal outreach by sales representatives to pediatric, pediatric dermatologist and dermatologist HCPs who have regularly included diagnosis codes for molluscum contagiosum infection as part of their claims for reimbursement by health insurers. The Company intends to expand its marketing strategies to include more non-personal promotion strategies and tactics focused on patients and eventually to consumer segments. HCP marketing initiatives focus on driving adoption through targeted initiatives like peer-to-peer education, data-driven digital advertising, and customized sales representative programs tailored to practice needs such as understanding insurance coverage and product acquisition. Consumer marketing initiatives focus on expanding both diagnosed and treated patient populations through strategic social media advertising, sharing impactful patient testimonials, and leveraging trusted influence partnerships. For example, in early October 2025, the Company launched “Moms Against Molluscum” movement, a movement to unite mothers, parents, and other caregivers navigating molluscum contagiosum. The Moms Against Molluscum movement encourages people managing this highly contagious skin infection to visit MomsAgainstMolluscum.com to share their stories and access information about new treatment options, including ZELSUVMI. +Market Access Strategy +The Company’s cross functional, payer and reimbursement account team is actively prioritizing and ensuring that the process of accessing ZELSUVMI is seamless, affordable, and easy with everything our patient customers will need, from step-by-step instructions to co-pay cards for eligible patients, to maximize the probability of having a positive outcome from using the Company’s product regardless of whatever distributor they prefer to access ZELSUVMI. The Company is focused on certain payer channels, including commercial, Medicaid and Managed Medicaid and provides co-pay cards and coupons for eligible patients that are commercially insured. +In December 2025, the Company announced that it had signed its first commercial agreement with a major Pharmacy Benefit Manager (“PBM”) to expand patient access for ZELSUVMI. This agreement is with a Group Purchasing Organization that collaborates with manufacturers on behalf of one of the largest PBMs in the U.S. The PBM with which we contracted manages prescription drug benefits for more than 20 million covered lives, and the formulary inclusion updates for ZELSUVMI started on December 1, 2025. +Manufacturing and Supply Chain +Background +Berdazimer sodium is the API that is the critical component of the NITRICIL platform technology. The Company believes different concentrations of berdazimer sodium and different formulations of the finished drug product may be used to +12 +develop additional product candidates for other diseases or conditions. For example, ZELSUVMI (berdazimer) topical gel, 10.3%, which has been approved by the FDA, is one product and indication that has met the regulatory requirements for commercialization. The Company believes the NITRICIL technology platform could generate other potential product candidates that could be further developed, and, pursuant to the MSA with Ligand, the Company may produce API for such other uses. +The supply chain includes the procurement of raw materials, the conversion of raw materials into API, and the conversion of API to finished product. The Company’s process, as described in more detail below, is effectively as follows: +• Procurement of underlying raw materials, such as nitric oxide gas; +• Conversion of raw materials into API, including allocated overhead, fixed and variable costs; +• Shipment of API to a third-party CMO; +• Conversion of API into finished product, ZELSUVMI, at the third party CMO; and +• Shipment of finished product from CMO to a third-party logistics provider for distribution. +The Company uses various qualified vendors to source raw materials. The conversion of the API and manufacture occurs at its primary operating facility in North Carolina. The API is then shipped to a third-party fill/finish CMO who converts the API into the finished product, including ancillary/supportive manufacturing, filling and packaging. The finished product is then shipped back to the U.S. domiciled third-party logistics provider for distribution. +The ZELSUVMI manufacturing process is effectively comprised of four key components: raw materials, supply chain, drug substance (API), and drug product (finished product). +Raw Materials +The Company currently relies on third-party suppliers to provide the raw materials that are used by it and its third-party manufacturers in the manufacture of ZELSUVMI. There are a limited number of suppliers for raw materials, including nitric oxide, that are used to manufacture the product candidates and commercial products. +Supply Chain +The Company also relies on third-party logistics vendors to transport raw materials, API, and drug products through our supply chain. Certain materials, including the API, have designated hazard classifications that limit available transportation modes or quantities. Third-party logistics vendors may choose to delay or defer transportation of materials from time to time, which could adversely impact the timing or cost of our manufacturing supply chain activities. +Drug Substance (Active Pharmaceutical Ingredient) +Due to the complexity of the proprietary manufacturing technology related to the NITRICIL platform, including intellectual property, know-how, trade secrets, production techniques, and the related physical manufacturing requirements and characteristics, the Company previously determined that constructing its custom manufacturing facility was the most effective way to mitigate risk associated with API production. The facility and production process has been fully validated and qualified and the facility has an operational and integrated QMS (Quality Management System) and Enterprise Resource Planning (“ERP”) platform governing the operations of the facility. +The Company has manufactured more than one metric ton of API in its facility since becoming operative, including site registration batches, process validation batches, and commercial batches. In preparing for the commercial launch of ZELSUVMI, the Company stockpiled numerous batches of commercial API. The operational API manufacturing strategy incorporates redundancy planning, including maintaining a minimum API inventory on hand to mitigate potential risk, both “upside” and “downside”, related to potential future commercial demand of ZELSUVMI. Manufacturing API at its own, U.S.-based facility provides the Company with critical control over the longest lead time and the most complex component of ZELSUVMI’s supply chain. The API has a shelf life of 36 months following its manufacture. +The Company currently has sufficient API manufacturing capacity within its facility, as it is configured, to comfortably meet its current sales forecasts to supply API for ZELSUVMI. In its current configuration, the Company has excess capacity to increase utilization for additional API demand. Furthermore, the Company also has the ability to add additional manufacturing shifts and team members to manufacture even greater quantities of API, if needed, for our own account and current and potential future partners or customers of the NITRICIL technology. Effectively, the Company believes the +13 +current API theoretical manufacturing capacity could be roughly doubled, if needed, due to one or more of the following: a higher than expected sales demand for ZELSUVMI, demand from current partners, such as Ligand, and potential future partnerships for ZELSUVMI and/or the NITRICIL platform. The Company does not expect to need to invest in material or significant capital expenditures and other fixed costs to bring more manufacturing capacity on-line in the foreseeable future. The Company does expect to incur certain levels of capital expenditures for on-going operations, maintenance and improvements. +Drug Product (ZELSUVMI) +The Company has a long-standing relationship with Orion Corporation (“Orion”), a Finnish full-scale pharmaceutical company with broad experience in cGMP drug manufacturing. Orion manufactures the Company’s commercial supply of its ZELSUVMI finished product. The drug product manufacturing and fill/finish process at Orion has been fully validated and qualified including site registration batches, process validation batches, and commercial batches. Through its contractual relationship with Orion, the Company has manufactured initial commercial launch quantities of ZELSUVMI. In addition, the Company has entered into a multi-year supply agreement and provides monthly estimates and forecasts for on-going production of finished products. The Company’s supply forecast is informed by the expected sales forecast, with adjustments such as MOH (months-on-hand), safety stock, shelf life, and product dating. +Intellectual Property +Under the Exclusive License and Sublicense Agreement with Ligand, dated March 24, 2025, the Company acquired exclusive rights to a robust IP portfolio that provides material coverage for ZELSUVMI, which includes patents and patent applications covering the ZELSUVMI product and its use for treating molluscum contagiosum; trademarks; and know-how and trade secrets covering various aspects of the nitric oxide NITRICIL Technology Platform in addition to manufacturing, research, development, formulation, analytical chemistry and scientific know-how. +There are 14 issued U.S. patents covering ZELSUVMI which are listed in the Approved Drug Products with Therapeutic Equivalence Evaluations (“Orange Book”) and which are expected to expire during the time period beginning in 2026 and ending in 2035. Upon the initial approval of ZELSUVMI, the Company applied for 1,280 days of patent term extension (“PTE”) for the U.S. patent covering ZELSUVMI composition of matter. Assuming the approval of the PTE application, the term of this patent may be extended from February 27, 2034, to August 30, 2037. +In addition, as part of the XEPI transaction and the XEGLYZE acquisition, the Company licensed or purchased the rights to the related patents, trademarks, and intellectual property necessary to commercialize those respective assets, in their field of use and geographic market, respectively. There are two XEPI related patent / applications, with the latest expiration date on January 29, 2032. There are 11 issued patents related to XEGLYZE, with the latest expiration date on December 17, 2034. +Our Customers +The Company primarily sells its ZELSUVMI product to national and regional wholesaler channels. Our wholesalers purchase products from us and, in turn, supply products to retail drug store chains, independent pharmacies and mail order pharmacies. +Seasonality of Business +Sales of ZELSUVMI may be affected by a number of factors, including but not limited to annual insurance deductible resets, weather, HCP office openings, holidays and school and summer activities. +Competition +The pharmaceutical industry is subject to rapidly advancing technologies, intense competition, and a strong emphasis on proprietary products. The Company faces potential competition from many different sources, including major pharmaceutical, specialty pharmaceutical and biotechnology companies, compounding facilities, academic institutions, governmental agencies, and public and private research institutions. +ZELSUVMI is the first and only FDA-approved prescription pharmaceutical therapy for the treatment of molluscum contagiosum that can be administered by patients or caregivers outside of a medical setting. The Company believes the key +14 +competitive factors affecting the success of ZELSUVMI are likely to be its efficacy, safety, convenience, and pricing. With respect to ZELSUVMI for the treatment of molluscum contagiosum, the Company will be primarily competing with therapies such as other topical products, natural oils, off-label drugs, natural remedies, cantharidin or medical procedures such as curettage, cryotherapy, and laser surgery. +International Opportunities +The Company, through its exclusive license of ZELSUVMI from Ligand, has the ability to seek approval for and commercialize ZELSUVMI through the rest of the world, except for Japan. The Company estimates molluscum contagiosum incidence and prevalence rates in the European Union and Asia to be comparable to the United States. The Company has previously engaged in several international discussions with distributors seeking supply or license agreements for ZELSUVMI in multiple ex-U.S. territories. +On May 12, 2025, the Trump Administration issued an executive order titled Delivering Most-Favored-Nation Prescription Drug Pricing to American Patients (the “2025 EO”). The 2025 EO outlines a plan to reduce prescription drug prices for Americans. The 2025 EO directs multiple federal agencies, including the U.S. Department of Health and Human Services (“HHS”), to take specific actions aimed at compelling drug manufacturers to lower drug prices in the United States in a manner comparable with other developed nations. +On May 20, 2025, HHS issued a press release stating that the Department “expects each drug manufacturer to commit to aligning United States pricing for all brand products across all markets that do not currently have generic or biosimilar competition with the lowest price of a set of economic peer countries.” From this statement, it appears that HHS intends to apply the most-favored-nation (“MFN”) pricing only to single-source drugs (i.e., “brand-name” drugs without any approved generic or biosimilar versions). In its May press release, HHS also advised that it will calculate the MFN price as the lowest price in a country that is part of the Organisation for Economic Co-operation and Development and that has a per capita gross domestic product (“GDP”) of at least 60% of the U.S. per capita GDP. +The Company will continue to evaluate the 2025 EO and its potential impact to international opportunities for ZELSUVMI. +Data Privacy and Security Laws +Numerous state, federal and foreign laws, regulations and standards govern the collection, use, access to, confidentiality and security of health-related and other personal information, and could apply now or in the future to our operations or the operations of our partners. In the United States, numerous federal and state laws and regulations, including data breach notification laws, health information privacy and security laws, and consumer protection laws and regulations govern the collection, use, disclosure, and protection of health-related and other personal information. In addition, certain foreign laws govern the privacy and security of personal data, including health-related data. Privacy and security laws, regulations, and other obligations are constantly evolving, may conflict with each other to complicate compliance efforts, and can result in investigations, proceedings, or actions that lead to significant civil and/or criminal penalties and restrictions on data processing. +Government Regulation and Product Approval +Government authorities in the United States, at the federal, state and local level, and other countries extensively regulate, among other things, the research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, marketing and export and import of products such as those we are developing. A new drug must be approved by the FDA through the new drug application (“NDA”) process before it may be legally marketed in the United States. +U.S. Drug Development Process +In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act (“FDCA”) and its implementing regulations. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state and local statutes and regulations require the expenditure of substantial time and financial resources. The process required by the FDA before a drug may be marketed in the United States generally involves the following: +• completion of certain preclinical laboratory tests, animal studies and formulation studies in accordance with good laboratory practice (“GLP”) regulations and other applicable regulations; +15 +• submission to the FDA of an IND, which must become effective before human clinical trials may begin; +• approval by an Institutional Review Board (“IRB”), or ethics committee at each clinical site before each trial may be initiated; +• performance of adequate and well-controlled human clinical trials in accordance with good clinical practices (“GCPs”) to evaluate the safety and efficacy of the product candidate for its intended use; +• submission to the FDA of a NDA after completion of all pivotal trials; +• satisfactory completion of an FDA advisory committee review, if applicable; +• satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the drug is produced to assess compliance with cGMPs to assure that the facilities, methods and controls are adequate to preserve the drug’s identity, strength, quality and purity; +• satisfactory completion of potential inspection of selected clinical investigation sites to assess compliance with GCPs; and +• FDA review and approval of the NDA to permit commercial marketing of the product for particular indications for use in the United States. +Once a product candidate is identified for development, it enters the preclinical testing stage. Preclinical tests include laboratory evaluations of product chemistry, toxicity and formulation, as well as animal studies. An IND sponsor must submit the results of the preclinical tests, together with manufacturing information and analytical data, to the FDA as part of an IND. An IND is a request for allowance from the FDA to administer an investigational drug product to humans. An IND will also include a protocol detailing, among other things, the objectives of the clinical trial, the parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated, if the trial includes an efficacy evaluation. Some preclinical testing may continue even after the IND is submitted. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, places the clinical trial on a clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. Clinical holds also may be imposed by the FDA at any time before or during clinical trials due to safety concerns about on-going or proposed clinical trials or non-compliance with specific FDA requirements, and the trials may not begin or continue until the FDA notifies the sponsor that the hold has been lifted. +All clinical trials must be conducted under the supervision of one or more qualified investigators in accordance with GCPs, which include, among other things, the requirement that all research subjects provide their informed consent in writing for their participation in any clinical trial. Clinical trials must be conducted under protocols detailing the objectives of the trial, dosing procedures, subject selection and exclusion criteria and the safety and effectiveness criteria to be evaluated. Each protocol must be submitted to the FDA as part of the IND, and a separate submission to the existing IND must be made for each successive clinical trial conducted during product development and for any subsequent protocol amendments. While the IND is active, progress reports summarizing the results of the clinical trials and nonclinical studies performed since the last progress report, among other information, must be submitted at least annually to the FDA, and written IND safety reports must be submitted to the FDA and investigators for serious and unexpected suspected adverse events, findings from other studies suggesting a significant risk to humans exposed to the same or similar drugs, findings from animal or in vitro testing suggesting a significant risk to humans, and any clinically important increased incidence of a serious suspected adverse reaction compared to that listed in the protocol or investigator brochure. +Furthermore, an independent IRB at each institution participating in the clinical trial must review and approve each protocol before a clinical trial commences at that institution and must also approve the information regarding the trial and the consent form that must be provided to each trial subject or his or her legal representative, monitor the study until completed and otherwise comply with IRB regulations. The FDA or the sponsor may suspend a clinical trial at any time on various grounds, including a finding that the research subjects or patients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug has been associated with unexpected serious harm to patients. In addition, some clinical trials are overseen by an independent group of qualified experts organized by the sponsor, known as a data safety monitoring board or committee. Depending on its charter, this group may determine whether a trial may move forward at designated check points based on access to certain data from the trial. There are also requirements governing the reporting of ongoing clinical studies and clinical study results to public registries, including clinicaltrials.gov. +16 +Human clinical trials are typically conducted in three sequential phases that may overlap or be combined: +• Phase 1: The product candidate is initially introduced into healthy human subjects, or in some cases, patients with the target disease or condition, and tested for safety, dosage tolerance, absorption, metabolism, distribution and excretion and, if possible, to gain an early indication of its effectiveness. +• Phase 2: The product candidate is administered to a limited patient population with a specified disease or condition to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the product candidate for specific targeted diseases and to determine dosage tolerance and appropriate dosage. +• Phase 3: The product candidate is administered to an expanded patient population to further evaluate dosage, to provide substantial evidence of efficacy and to further test for safety, generally at multiple geographically dispersed clinical trial sites. These clinical trials are intended to establish the overall risk-benefit ratio of the product candidate and provide an adequate basis for product labeling. +Post-approval trials, sometimes referred to as Phase 4 studies, may be conducted after initial marketing approval. These trials are used to gain additional experience from the treatment of patients in the intended therapeutic indication. In certain instances, the FDA may mandate the performance of Phase 4 clinical trials as a condition of approval of an NDA. +Concurrently with clinical trials, companies usually complete additional animal studies and must also develop additional information about the chemistry and physical characteristics of the drug and finalize a process for manufacturing the product in commercial quantities in accordance with cGMPs. The manufacturing process must be capable of consistently producing quality batches of the product candidate and, among other things, the manufacturer must develop methods for testing the identity, strength, quality and purity of the final drug. In addition, appropriate packaging must be selected and tested, and stability studies must be conducted to demonstrate that the product candidate does not undergo unacceptable deterioration over its shelf life. +U.S. Review and Approval Process +The results of product development, including results from preclinical and other non-clinical studies and clinical trials, along with descriptions of the manufacturing process, analytical tests conducted on the chemistry of the drug, proposed labeling and other relevant information are submitted to the FDA as part of an NDA requesting approval to market the product. The submission of an NDA is subject to the payment of substantial user fees; a waiver of such fees may be obtained under certain limited circumstances. +In addition, the Pediatric Research Equity Act (“PREA”) requires a sponsor to conduct pediatric clinical trials for most drugs, for a new active ingredient, new indication, new dosage form, new dosing regimen or new route of administration. Under PREA, NDAs and certain supplements must contain a pediatric assessment unless the sponsor has received a deferral or waiver. The required assessment must evaluate the safety and effectiveness of the product for the claimed indications in all relevant pediatric subpopulations and support dosing and administration for each pediatric subpopulation for which the product is deemed safe and effective. The sponsor or FDA may request a deferral of pediatric clinical trials for some or all of the pediatric subpopulations. A deferral may be granted for several reasons, including a finding that the drug is ready for approval for use in adults before pediatric clinical trials are complete or that additional safety or effectiveness data needs to be collected before the pediatric clinical trials begin. The FDA must send a non-compliance letter to any sponsor that fails to submit the required assessment, keep a deferral current or fails to submit a request for approval of a pediatric formulation. +Once an NDA has been submitted, the FDA conducts a preliminary review of the application within the first 60 days after submission, before accepting it for filing, to determine whether it is sufficiently complete to permit substantive review. The FDA may request additional information rather than accept an NDA for filing. In this event, the NDA must be resubmitted with the additional information. The resubmitted application also is subject to review before the FDA accepts it for filing. Once filed, the FDA reviews an NDA to determine, among other things, whether a product is safe and effective for its intended use and whether its manufacturing is cGMP-compliant to assure and preserve the product’s identity, strength, quality and purity. Under the Prescription Drug User Fee Act (“PDUFA”) guidelines that are currently in effect, the FDA has a goal of ten months from the date of “filing” of a standard NDA for a new molecular entity to review and act on the submission. This review typically takes twelve months from the date the NDA is submitted to FDA because the FDA has approximately two months to make a “filing” decision after it the application is submitted. +The FDA may refer an application for a novel drug to an advisory committee. An advisory committee is a panel of independent experts, including clinicians and other scientific experts, that reviews, evaluates and provides a +17 +recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions. Before approving an NDA, the FDA will typically inspect the facility or facilities where the product is manufactured. Additionally, before approving an NDA, the FDA may inspect one or more clinical trial sites to assure compliance with GCPs. +After the FDA evaluates an NDA and conducts inspections of manufacturing facilities where the investigational product and/or its drug substance will be produced, the FDA may issue an approval letter or a Complete Response Letter (“CRL”). An approval letter authorizes commercial marketing of the drug with prescribing information for specific indications. A CRL indicates that the review cycle of the application is complete, and the application will not be approved in its present form. A CRL usually describes the specific deficiencies in the NDA identified by the FDA and may require additional clinical data, including additional clinical trials, or other significant and time-consuming requirements related to clinical trials, nonclinical studies or manufacturing. If a CRL is issued, the sponsor must resubmit the NDA or, addressing all of the deficiencies identified in the letter, or withdraw the application. Even if such data and information are submitted, the FDA may decide that the NDA does not satisfy the criteria for approval. +If a product receives regulatory approval, the approval may be significantly limited to specific diseases and dosages or the indications for use may otherwise be limited, which could restrict the commercial value of the product. In addition, the FDA may require a sponsor to conduct clinical trials designed to further assess a drug’s safety and/or effectiveness following NDA approval, and may require additional testing and surveillance programs to monitor the safety of approved products which have been commercialized. The FDA may also place other conditions on approval, including the requirement for a risk evaluation and mitigation strategy (“REMS”), to assure the safe use of the drug. If the FDA concludes a REMS is needed, the sponsor of the NDA must submit a proposed REMS, which could include medication guides, physician communication plans or elements to assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. The FDA will not approve the NDA without an approved REMS, if required. Any of these limitations on approval or marketing could restrict the commercial promotion, distribution, prescription or dispensing of products. +Post-Approval Requirements +Any products manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to record-keeping, reporting of adverse experiences, periodic reporting, product sampling and distribution, and advertising and promotion of the product. After approval, most changes to the approved product, such as adding new indications, certain manufacturing changes and additional labeling claims, are subject to further FDA review and approval. +Drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and certain state agencies and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMPs and other laws and regulations. Changes to the manufacturing process are strictly regulated, and, depending on the significance of the change, may require prior FDA approval before being implemented. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain compliance with cGMPs and other aspects of regulatory compliance. +The FDA may withdraw approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information; imposition of requirements for post-market studies or clinical studies to assess new safety risks; or imposition of distribution restrictions or other restrictions under a REMS program. Other potential consequences include, among other things: +• restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market or product recalls; +• fines, warning letters, or untitled letters; +• clinical holds on ongoing or planned clinical studies; +• refusal of the FDA to approve pending applications or supplements to approved applications, or suspension or revocation of approvals; +• product seizure or detention, or refusal to permit the import or export of products; +• consent decrees, corporate integrity agreements, debarment or exclusion from federal healthcare programs; +18 +• mandated modification of promotional materials and labeling and the issuance of corrective information; +• the issuance of safety alerts, Dear Healthcare Provider letters, press releases and other communications containing warnings or other safety information about the product; or +• injunctions or the imposition of civil or criminal penalties. +In addition, the FDA closely regulates the marketing, labeling, advertising and promotion of drug products. A company can make only those claims relating to safety and efficacy that are approved by the FDA and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses. Failure to comply with these requirements can result in, among other things, adverse publicity, warning letters, corrective advertising and potential civil and criminal penalties. Physicians may prescribe legally available products for uses that are not described in the product’s labeling and that differ from those tested by us and approved by the FDA. Such off-label uses are common across medical specialties. Physicians may believe that such off-label uses are the best treatment for many patients in varied circumstances. The FDA does not regulate the behavior of physicians in their choice of treatments. The FDA does, however, restrict manufacturer’s communications on the subject of off-label use of their products. +Marketing Exclusivity +Market exclusivity provisions under the FDCA can delay the submission or the approval of certain marketing applications. The FDCA provides a five-year period of non-patent data exclusivity within the United States to the first applicant to obtain approval of an NDA for a new chemical entity. A drug is a new chemical entity if the FDA has not previously approved any other new drug containing the same active moiety, which is the molecule or ion responsible for the action of the drug substance. During the exclusivity period, the FDA may not accept for review an abbreviated new drug application (“ANDA”), or an NDA submitted under Section 505(b)(2) (“505(b)(2) NDA”) submitted by another sponsor for another drug based on the same active moiety, regardless of whether the drug is intended for the same indication as the original innovative drug or for another indication, where the applicant does not own or have a legal right of reference to all the data required for approval. However, an application may be submitted after four years if it contains a certification of patent invalidity or non-infringement to one of the patents listed with the FDA by the innovator NDA holder. +The FDCA alternatively provides three years of non-patent exclusivity for an NDA, or supplement to an existing NDA if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the applicant are deemed by the FDA to be essential to the approval of the application, for example new indications, dosages or strengths of an existing drug. This three-year exclusivity covers only the modification for which the drug received approval on the basis of the new clinical investigations and does not prohibit the FDA from approving ANDAs or 505(b)(2) NDAs for drugs containing the active agent for the original indication or condition of use. Five-year and three-year exclusivity will not delay the submission or approval of a full NDA. However, an applicant submitting a full NDA would be required to conduct, or obtain a right of reference to, all of the preclinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness. +Pediatric exclusivity is another type of marketing exclusivity available in the United States. Pediatric exclusivity provides for an additional six months of exclusivity attached to another period of existing non-patent regulatory exclusivity or an available patent term if a sponsor conducts clinical trials in children in response to a “written request” from the FDA. The issuance of a written request does not require the sponsor to undertake the described clinical trials, and the FDA’s grant of pediatric exclusivity does not require the FDA to approve labeling containing information on pediatric use based on the studies conducted. +Federal and State Fraud and Abuse and Transparency Laws and Regulations +In addition to FDA restrictions on marketing of pharmaceutical products, federal and state healthcare laws and regulations restrict business practices in the biopharmaceutical industry. These laws may impact, among other things, our current and future business operations, including our clinical research activities, and proposed sales, marketing and education programs and constrain the business or financial arrangements and relationships with healthcare providers and other parties through which we market, sell and distribute our products for which we obtain marketing approval. These laws include anti-kickback and false claims laws and regulations, and transparency laws and regulations, including, without limitation, those laws described below. +The federal Anti-Kickback Statute prohibits, among other things, individuals or entities from knowingly and willfully offering, paying, soliciting or receiving remuneration, directly or indirectly, overtly or covertly, in cash or in kind to induce +19 +or in return for purchasing, leasing, ordering or arranging for or recommending the purchase, lease or order of any item or service reimbursable under Medicare, Medicaid or other federal healthcare programs. The term “remuneration” has been broadly interpreted to include anything of value. The federal Anti-Kickback Statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on one hand and prescribers, purchasers, formulary managers, and other individuals and entities on the other hand. Although there are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution, the exceptions and safe harbors are drawn narrowly and require strict compliance to offer protection. Practices that involve remuneration that may be alleged to be intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exception or safe harbor. In addition, a person or entity does not need to have actual knowledge of this statute or specific intent to violate it in order to have committed a violation. The majority of states also have anti-kickback laws which establish similar prohibitions and in some cases may apply to items or services reimbursed by any third-party payor, including commercial insurers. +The federal civil and criminal false claims laws, including the False Claims Act (“FCA”), prohibit, among other things, any individual or entity from knowingly presenting, or causing to be presented, a false claim for payment to the federal government or knowingly making, using or causing to be made or used a false record or statement material to a false or fraudulent claim to the federal government. A claim includes “any request or demand” for money or property presented to the U.S. government. Several pharmaceutical and other healthcare companies have been prosecuted under these laws for allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product. Other companies have been prosecuted for causing false claims to be submitted because of the companies’ marketing of products for unapproved, and thus non-reimbursable, uses. Further, the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the FCA. +The Health Insurance Portability and Accountability Act (“HIPAA”) created additional federal criminal statutes that prohibit, among other things, knowingly and willfully executing or attempting to execute a scheme to defraud any healthcare benefit program, including private third-party payors and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. +In addition, a person who offers or transfers to a Medicare or Medicaid beneficiary any remuneration, including waivers of co-payments and deductible amounts (or any part thereof), that the person knows or should know is likely to influence the beneficiary’s selection of a particular provider, practitioner or supplier of Medicare or Medicaid payable items or services may be liable for civil monetary penalties for each wrongful act. Moreover, in certain cases, providers who routinely waive copayments and deductibles for Medicare and Medicaid beneficiaries can also be held liable under the Anti-Kickback Statute and civil FCA, which can impose additional penalties associated with the wrongful act. One of the statutory exceptions to the prohibition is non-routine, unadvertised waivers of copayments or deductible amounts based on individualized determinations of financial need or exhaustion of reasonable collection efforts. The Office of Inspector General of the Department of Health and Human Services emphasizes, however, that this exception should only be used occasionally to address special financial needs of a particular patient. Although this prohibition applies only to federal healthcare program beneficiaries, the routine waivers of copayments and deductibles offered to patients covered by commercial payers may implicate applicable state laws related to, among other things, unlawful schemes to defraud, excessive fees for services, tortious interference with patient contracts and statutory or common law fraud. To the extent our patient assistance programs are found to be inconsistent with applicable laws, we may be required to restructure or discontinue such programs, or be subject to other significant penalties. +The federal Physician Payments Sunshine Act requires certain manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program, with specific exceptions, to report annually to the Centers for Medicare & Medicaid Services (“CMS”) information related to payments or other transfers of value made to physicians (defined to include doctors, dentists, optometrists, podiatrists, and chiropractors), teaching hospitals, and other health care professionals (such as physician assistants and nurse practitioners), as well as information regarding ownership and investment interests held by physicians and their immediate family members. +We may also be subject to state and foreign law equivalents of each of the above federal laws; state laws that require manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; state laws that require pharmaceutical companies to comply with the pharmaceutical +20 +industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government, or that otherwise restrict payments that may be made to healthcare providers; and state laws that require reporting of information related to drug pricing; state and local laws that require the registration of pharmaceutical sales representatives. +Violations of any of these laws or any other governmental regulations that may apply to us can result in significant civil, criminal and administrative penalties, damages, fines, disgorgement, imprisonment, exclusion from participating in government funded healthcare programs, such as Medicare and Medicaid, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, contractual damages, reputational harm and the curtailment or restructuring of our operations. To the extent that any of our products are sold in a foreign country, we may be subject to similar foreign laws and regulations, which may include, for instance, applicable post-marketing requirements, including safety surveillance, anti-fraud and abuse laws and implementation of corporate compliance programs and reporting of payments or transfers of value to healthcare professionals. +Coverage and Reimbursement +The commercial success of ZELSUVMI and our drug candidates, if approved, and our ability to commercialize those products successfully will depend in part on the extent to which governmental payor programs at the federal and state levels, including Medicaid, private health insurers and other third-party payors provide adequate coverage and reimbursement. These third-party payors generally develop their own policies as to which drugs they will pay for and the reimbursement levels for the drugs. For example, governmental programs in the United States often require manufacturers to pay certain rebates or otherwise provide discounts to secure coverage of drug products. To control healthcare expenditures generally, in the United States, the EU and other potentially significant markets for ZELSUVMI and our drug candidates, if approved, government authorities and third party payors are increasingly attempting to limit or regulate the price of medical products and services, particularly for new and innovative products and therapies. The measures taken often have resulted in lower average selling prices. Further, the increased emphasis on managed healthcare in the United States and on country and regional pricing and reimbursement controls in the EU places additional pressure on product pricing, reimbursement and usage, which may adversely affect our future product sales and results of operations. These pressures can arise from rules and practices of managed care groups, judicial decisions and governmental laws and regulations related to Medicare, Medicaid and healthcare reform, as well as drug coverage and reimbursement policies and pricing in general. +Some of the additional requirements and restrictions on coverage and reimbursement levels imposed by third-party payors influence the purchase of healthcare services and products. For example, there may be limited coverage to specific drug products on an approved list, or formulary, which might not include all of the FDA-approved drug products for a particular indication. There may also be formulary placements that result in lower reimbursement levels and higher cost-sharing borne by patients. Further, third-party payors are increasingly examining the medical necessity and cost-effectiveness of medical products and services, in addition to their safety and efficacy. We may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of our products, in addition to the costs required to obtain the FDA approvals. Our products may not be considered medically necessary or cost-effective. Even if a third-party payor determines to provide coverage for a drug product, adequate reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in drug development. +Healthcare legislative proposals to reform healthcare or reduce costs under government insurance programs may also result in lower reimbursement for our drugs and drug candidates or exclusion of our drugs and drug candidates from coverage altogether. The cost containment measures that healthcare payors and providers are instituting and any healthcare reform could significantly reduce our revenues from the sale of ZELSUVMI and any of our approved drug candidates. We cannot provide any assurances that we will be able to obtain and maintain third party coverage or adequate reimbursement for ZELSUVMI or any of our approved drug candidates in whole or in part. +Impact of Healthcare Reform on our Business +In the United States and some foreign jurisdictions, there have been, and continue to be, several legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval of drug product candidates, restrict or regulate post-approval activities, and affect the profitable sale of drug product candidates. +21 +Among policy makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and/or expanding access. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives. For example, in March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (collectively, “ACA”) was passed, which substantially changed the way healthcare is financed by both the government and private insurers and significantly impacts the U.S. pharmaceutical industry. The ACA, among other things: (i) increased the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extended the rebate program to individuals enrolled in Medicaid managed care organizations; (ii) established an annual, nondeductible fee on any entity that manufactures or imports certain specified branded prescription drugs and biologic agents apportioned among these entities according to their market share in some government healthcare programs; (iii) expanded the availability of lower pricing under the 340B drug pricing program by adding new entities to the program; (iv) increased the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program, to 23.1% and 13% of the average manufacturer price for most branded and generic drugs, respectively; (v) expanded the eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additional individuals, thereby potentially increasing manufacturers’ Medicaid rebate liability; (vi) created a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research; and (vii) established a Center for Medicare and Medicaid Innovation at CMS to test innovative payment and service delivery models to lower Medicare and Medicaid spending, potentially including prescription drug spending. +Other legislative changes have been proposed and adopted since the ACA was enacted. These changes include the American Rescue Plan Act of 2021, which eliminated the statutory Medicaid drug rebate cap, previously set at 100% of a drug’s average manufacturer price, for single source and innovator multiple source drugs, effective January 1, 2024. In addition, the Inflation Reduction Act of 2022 (“IRA”) which among other things, extended enhanced subsidies for individuals purchasing health insurance coverage in ACA marketplaces through plan year 2025. The IRA also eliminated the “donut hole” under the Medicare Part D program beginning in 2025 by significantly lowering the beneficiary maximum out-of-pocket cost and creating a new manufacturer discount program. These new laws may result in additional reductions in Medicare and other healthcare funding, which could have an adverse effect on customers for ZELSUVMI and our product candidates, if approved, and, accordingly, our financial operations. +Additionally, there has been heightened governmental scrutiny in the United States of pharmaceutical pricing practices in light of the rising cost of prescription drugs and biologics. Such scrutiny has resulted in several recent congressional inquiries, presidential executive orders and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for products. For example, the IRA, among other things, (1) directs the Department of Health and Human Services, or HHS, to negotiate the price of certain single-source drugs and biologics that have been on the market at least 7 years covered under Medicare, or the Medicare Drug Price Negotiation Program, and (2) imposes rebates under Medicare Part B and Medicare Part D to penalize price increases that outpace inflation. The IRA permits HHS to implement many of these provisions through guidance, as opposed to regulation, for the initial years. These provisions took effect progressively starting in fiscal year 2023. On August 15, 2024, HHS announced the agreed-upon price of the first ten drugs that were subject to price negotiations, although the Medicare Drug Price Negotiation Program is currently subject to legal challenges. On January 17, 2025, HHS selected fifteen additional products covered under Part D for price negotiation in 2025. Each year thereafter more Part B and Part D products will become subject to the Medicare Drug Price Negotiation Program. +Further, on December 7, 2023, an initiative to control the price of prescription drugs through the use of march-in rights under the Bayh-Dole Act was announced. On December 8, 2023, the National Institute of Standards and Technology published for comment a Draft Interagency Guidance Framework for Considering the Exercise of March-In Rights which for the first time includes the price of a product as one factor an agency can use when deciding to exercise march-in rights. While march-in rights have not previously been exercised, it is uncertain if that will continue under the new framework. +At the state level, legislatures are increasingly passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure, drug price reporting and other transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. For example, on January 5, 2024, the FDA approved Florida’s Section 804 Importation Program (SIP) proposal to import certain drugs from Canada for specific state healthcare programs. It is unclear how this program will be implemented, including which drugs will be chosen, and whether it will be subject to legal challenges in the United States or Canada. Other states have also submitted +22 +SIP proposals that are pending review by the FDA. Any such approved importation plans, when implemented, may result in lower drug prices for products covered by those programs. Some states have also enacted legislation creating so-called prescription drug affordability boards, which ultimately may attempt to impose price limits on certain drugs in these states. +We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for ZELSUVMI or our approved product candidates or additional pricing pressures. We cannot predict with certainty what impact any federal or state health reforms will have on us, but such changes could impose new or more stringent regulatory requirements on our activities or result in reduced reimbursement for our products, any of which could adversely affect our business, results of operations and financial condition. +Business Segments +The Company manages its operations and allocate resources in two reporting segments, which represent (i) the sale, promotion and commercialization of approved commercial products, the Commercial Operations segment, and (ii) research and development activities related to developing a novel and proprietary class of NaV blockers that target the body’s peripheral nervous system; and supportive activities to expand the NITRICIL nitric oxide-based technology. +The Company discloses information about its reportable segments based on the way that the Company organizes segments within the Company for making operating decisions and assessing financial performance. See Note 14 — “Segment Information” to the accompanying consolidated financial statements for certain financial information related to reportable segments. +Human Capital +Employees +As of December 31, 2025, the Company had a total of 92 full-time employees. The Company’s ability to attract, recruit, hire and retain key personnel who are necessary to the operation of the business and the commercialization of its products are critical to its success. +The Company’s business results depend in part on its ability to successfully manage its human capital resources. Factors that may affect the Company’s ability to attract and retain qualified employees include employee morale, competition from other employers, and availability of qualified individuals. The Company recruits for talent in the biotechnology and pharmaceutical industry, which periodically experiences higher turnover rates than other industries. +None of the Company’s employees are represented by labor unions or covered by collective bargaining agreements, and the Company considers its relations with its employees to be good. The Company also hires consultants and contracts with third parties, as needed, to provide additional resources to support its business activities. +Compensation and Benefits +The Company strives to provide robust compensation and benefits to its employees, while balancing the operational needs of the business. In addition to salaries, compensation and benefit programs include annual bonuses, stock-based compensation awards, a 401(k) plan with employee matching opportunities, healthcare and insurance benefits, health savings and flexible spending accounts, paid time off and other employee assistance programs. +Other Information +The Company is incorporated under the laws of the State of Nevada. Its principal executive offices are located at 4020 Stirrup Creek Drive, Suite 110, Durham, NC 27703, and its telephone number is 919-908-2400. The Company’s website address is www.pelthos.com. +The Company makes available free of charge through its website its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, (“Exchange Act”). The Company makes these reports available through its website as soon as reasonably practicable after it electronically files such reports with, or furnish such reports to, the Securities and Exchange Commission (“SEC”). Additionally, the SEC maintains an internet website at +23 +www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The information contained on, or that can be accessible through, the Company’s website is not incorporated by reference into, and should not be considered to be a part of, this Annual Report on Form 10-K. +Implications of Being an Emerging Growth and Smaller Reporting Company +We qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act (“JOBS Act”). An emerging growth company may take advantage of relief from certain reporting requirements and other burdens that are otherwise applicable generally to public companies. These provisions include: +• reduced obligations with respect to financial data; +• an exception from compliance with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”); +• reduced disclosure about our executive compensation arrangements in our periodic reports, proxy statements and registration statements; and +• exemptions from the requirements of holding non-binding advisory votes on executive compensation or golden parachute arrangements. +We may take advantage of these provisions for up to five years or such earlier time that we no longer qualify as an emerging growth company. We would cease to be an emerging growth company upon the earliest of: +• the last day of the fiscal year on which we have $1.235 billion or more in annual revenue, +• the date on which we become a “large accelerated filer” (i.e., as of our fiscal year end, the total market value of our common equity securities held by non-affiliates is $700 million or more as of June 30), +• the date on which we issue more than $1.0 billion of non-convertible debt over a three-year period, or +• the last day of our fiscal year following the fifth anniversary of the date of the completion of our IPO. +We may choose to take advantage of some but not all of these reduced reporting burdens. +In addition, under the JOBS Act, emerging growth companies can take advantage of an extended transition period and delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected to use this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for private companies. If we were to subsequently elect instead to comply with public company effective dates, such election would be irrevocable pursuant to the JOBS Act. +Also, we are a “smaller reporting company” and may continue to qualify as such even after we no longer qualify as an emerging growth company. For as long as we qualify as a “smaller reporting company,” we may provide reduced disclosure in the public filings that we make with the SEC than larger public companies, such as the inclusion of only two years of audited financial statements and only two years of management’s discussion and analysis of financial condition and results of operations disclosure. +As a result of qualifying as an emerging growth company and a smaller reporting company, to the extent we take advantage of the allowable reduced reporting burdens, the information that we provide to our stockholders may be different than what you might receive from other public reporting companies in which you hold equity interests. +24 \ No newline at end of file diff --git a/raw/filings/0001919246/2025/0001919246-26-000013/item13.txt b/raw/filings/0001919246/2025/0001919246-26-000013/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..0791c4f7604005fc48e39b501a034af0273ea66b --- /dev/null +++ b/raw/filings/0001919246/2025/0001919246-26-000013/item13.txt @@ -0,0 +1,3 @@ +Item 13. +Certain Relationships and Related Transactions, and Director Independence +103 \ No newline at end of file diff --git a/raw/filings/0001920406/2024/0001213900-25-026431/filing.txt b/raw/filings/0001920406/2024/0001213900-25-026431/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..25a773415f51f4d420245fa216c0b1a5c23e0426 --- /dev/null +++ b/raw/filings/0001920406/2024/0001213900-25-026431/filing.txt @@ -0,0 +1,6586 @@ +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +FORM 10-K +(Mark One) +☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE +SECURITIES EXCHANGE ACT OF 1934 +For the fiscal year ended: December 31 , 2024 +☐ TRANSITION +REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the transition period from ____________ to +_____________ +Commission File No. 001-41612 +ASSET ENTITIES INC. +(Exact name of registrant as specified in its charter) +Nevada 88-1293236 +(State or other jurisdiction of +incorporation or organization) (I.R.S. Employer +Identification No.) +100 Crescent Ct , 7th Floor , Dallas , TX 75201 +(Address of principal executive offices) (Zip Code) +(214) 459-3117 +(Registrant’s telephone number, including area code) +Securities registered pursuant to Section 12(b) +of the Act: +Title of each class +Trading Symbol(s) Name of each exchange on which registered +Class B Common Stock, $0.0001 par value per share ASST +The NASDAQ Stock Market LLC +Securities registered pursuant to Section 12(g) of the Act: None +Indicate by check mark if the registrant is a +well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ +Indicate by check mark if the registrant is not +required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒ +Indicate by check mark whether the registrant +(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 +months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements +for the past 90 days. Yes ☒ No ☐ +Indicate by check mark whether the registrant +has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding +12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ +Indicate by check mark whether the registrant +is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. +See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” +and “emerging growth company” in Rule 12b-2 of the Exchange Act. +Large accelerated filer ☐ Accelerated filer ☐ +Non-accelerated filer ☒ Smaller reporting company ☒ +Emerging growth company ☒ +If an emerging growth company, indicate by check +mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting +standards provided pursuant to Section 13(a) of the Exchange Act. ☐ +Indicate by check mark whether the +registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control +over financial reporting under Section 404(b) of the Sarbanes-Oxley Act by the registered public accounting firm that prepared or +issued its audit report. ☐ +If securities are registered pursuant to Section +12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction +of an error to previously issued financial statements. ☐ +Indicate by check mark whether any of those error +corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s +executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ +Indicate by check mark whether registrant is +a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒ +As of June 28, 2024 (the last business day of +the registrant’s most recently completed second fiscal quarter), the aggregate market value of the registrant’s shares of +Class B Common Stock, $0.0001 par value per share (“Class B Common Stock”), held by non-affiliates (based upon the closing +price of such shares as reported on The Nasdaq Stock Market LLC) was $ 2,288,866.66 . Shares held by each executive officer and director +and by each person who owned more than 10% of the outstanding shares of Class B Common Stock have been excluded from the calculation in +that such persons may be deemed to be affiliates of the registrant. This determination of affiliate status is not necessarily a conclusive +determination for other purposes. +As of March 25, 2025, there were a total of 1,000,000 +shares of the registrant’s Class A Common Stock, $0.0001 par value per share, outstanding and 13,413,162 shares of the registrant’s +Class B Common Stock outstanding. +DOCUMENTS INCORPORATED BY REFERENCE +None. +Asset Entities Inc. +Annual Report on Form 10-K +Year Ended December 31, 2024 +TABLE OF CONTENTS +PART I +Item 1. +Business. +1 +Item 1A. +Risk Factors. +16 +Item 1B. +Unresolved Staff Comments. +34 +Item 1C. +Cybersecurity. +34 +Item 2. +Properties. +36 +Item 3. +Legal Proceedings. +36 +Item 4. +Mine Safety Disclosures. +36 +PART II +Item 5. +Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. +37 +Item 6. +[Reserved] +39 +Item 7. +Management’s Discussion and Analysis of Financial Condition and Results of Operations. +39 +Item 7A. +Quantitative and Qualitative Disclosures About Market Risk. +56 +Item 8. +Financial Statements and Supplementary Data. +56 +Item 9. +Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. +57 +Item 9A. +Controls and Procedures. +57 +Item 9B. +Other Information. +58 +Item 9C. +Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. +59 +PART III +Item 10. +Directors, Executive Officers and Corporate Governance. +60 +Item 11. +Executive Compensation. +64 +Item 12. +Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. +73 +Item 13. +Certain Relationships and Related Transactions, and Director Independence. +75 +Item 14. +Principal Accountant Fees and Services. +79 +PART IV +Item 15. +Exhibit and Financial Statement Schedules. +81 +Item 16. +Form 10-K Summary. +84 +Signatures +85 +i +INTRODUCTORY NOTES +Use of Terms +Except as otherwise indicated by the context and +for the purposes of this Annual Report on Form 10-K (this “Annual Report”) only, references in this Annual Report to “we,” +“us,” “our,” the “Company,” “Asset Entities,” and “our company” are to Asset +Entities Inc., a Nevada corporation. “Class A Common Stock” refers to the Company’s Class A Common Stock, $0.0001 par +value per share. “Class B Common Stock” refers to the Company’s Class B Common Stock, $0.0001 par value per share. “Series +A Preferred Stock” refers to the Company’s Series A Convertible Preferred Stock, $0.0001 par value per share. +Unless otherwise noted, the share and per share information in this report have been adjusted to give effect to the one-for-five (1-for-5) +reverse stock split of the authorized and issued and outstanding Class A Common Stock and the authorized and issued and outstanding Class +B Common Stock, which became effective as of 5:00 p.m. Eastern Time on July 1, 2024. +Note Regarding Trademarks, +Trade Names and Service Marks +We use various trademarks, trade names and service +marks in our business, including “AE 360 DDM”, “Asset Entities Where Assets Are Created”, “SiN”, “Social +Influencer Network”, Ternary D, OptionsSwing, and associated marks. For convenience, we may not include the SM, ® or +™ symbols, but such omission is not meant to indicate that we would not protect our intellectual property rights to the +fullest extent allowed by law. Any other trademarks, trade names or service marks referred to in this Annual Report are the property of +their respective owners. +Note Regarding Industry and Market Data +We are responsible for the information contained +in this Annual Report. This report includes industry data and forecasts that we obtained from industry publications and surveys as well +as public filings and internal company sources. Industry publications, surveys and forecasts generally state that the information contained +therein has been obtained from sources believed to be reliable. Statements as to our ranking, market position and market estimates are +based on third-party forecasts, management’s estimates and assumptions about our markets and our internal research. We have not +independently verified such third-party information, nor have we ascertained the underlying economic assumptions relied upon in those +sources. While we believe that all such information contained in this Annual Report is accurate and complete, nonetheless such data involve +uncertainties and risks, including risks from errors, and is subject to change based on various factors, including those discussed under +Item 1A. “Risk Factors ” and “ Cautionary Note Regarding Forward-Looking Statements ” below. +Cautionary Note Regarding Forward-Looking Statements +This report contains forward-looking statements +that are based on our management’s beliefs and assumptions and on information currently available to us. All statements other than +statements of historical facts are forward-looking statements. These statements relate to future events or to our future financial performance +and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance +or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied +by these forward-looking statements. Forward-looking statements include, but are not limited to, statements about: +● our ability to introduce new products and services; +● our ability to obtain additional funding to develop additional services and offerings; +● compliance with obligations under intellectual property licenses with third parties; +● market acceptance of our new offerings; +● competition from existing online offerings or new offerings that may emerge; +● our ability to establish or maintain collaborations, licensing or other arrangements; +● our ability and third parties’ abilities to protect intellectual property rights; +● our ability to adequately support future growth; +● our goals and strategies; +ii +● our future business development, financial condition and results of operations; +● expected changes in our revenue, costs or expenditures; +● growth of and competition trends in our industry; +● the accuracy and completeness of the data underlying our or third-party sources’ industry and market +analyses and projections; +● our expectations regarding demand for, and market acceptance of, our services; +● our expectations regarding our relationships with investors, institutional funding partners and other +parties with whom we collaborate; +● fluctuations in general economic and business conditions in the markets in which we operate; and +● relevant government policies and regulations relating to our industry. +In some cases, you can identify forward-looking +statements by terms such as “may,” “could,” “will,” “should,” “would,” “expect,” +“plan,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” +“potential,” “project” or “continue” or the negative of these terms or other comparable terminology. +These statements are only predictions. You should not place undue reliance on forward-looking statements because they involve known and +unknown risks, uncertainties and other factors, which are, in some cases, beyond our control and which could materially affect results. +Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under Item +1A. “ Risk Factors ” and elsewhere in this Annual Report. If one or more of these risks or uncertainties occur, or if +our underlying assumptions prove to be incorrect, actual events or results may vary significantly from those implied or projected by the +forward-looking statements. No forward-looking statement is a guarantee of future performance. +In addition, statements that “we believe” +and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available +to us as of the date of this Annual Report, and while we believe such information forms a reasonable basis for such statements, such information +may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or +review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to +unduly rely upon these statements. +The forward-looking statements made in this Annual +Report relate only to events or information as of the date on which the statements are made in this Annual Report. Except as expressly +required by the federal securities laws, there is no undertaking to publicly update or revise any forward-looking statements, whether +as a result of new information, future events, changed circumstances or any other reason. +Summary of Risk Factors +The following is a summary of material risks that +could affect our business. This summary may not contain all of our material risks, and it is qualified in its entirety by the more detailed +risk factors set forth under “Item 1A. Risk Factors ”. +● We have a limited operating history, which may make it difficult to evaluate our business and prospects. +● The Company may experience negative cash flow. +● The Company may need to raise additional capital to support its operations. +● The Company may incur significant losses, and there can be no assurance that the Company will ever become +a profitable business. +● The Company’s future revenue and operating results are unpredictable and may fluctuate significantly. +● If we are unable to maintain our good standing with the social media platforms where we operate, our business +will suffer. +iii +● The regulation of social media services, and the ban of TikTok in the United States in particular, may +threaten our ability to market and promote our services effectively. +● Risks relating to the blockchain, cryptocurrencies, and NFT industries may cause material adverse effects +on our business operations. +● If demand for our services does not develop as expected, our projected revenues and profits will be affected. +● The Company will be subject to risk associated with the development of new products or services. +● The Company may not be able to create and maintain a competitive advantage, given the rapid technological +and other competitive changes affecting all markets nationally and worldwide. The Company’s success will depend on its ability to +keep pace with any such changes. +● The technology area is subject to rapid change, and there are risks associated with new products and services. +● If our paying subscribers are not satisfied with our Discord subscription services, we may face additional +cost, loss of profit opportunities, damage to our reputation, or legal liability. +● Our services are based in a new and unproved market and are subject to the risks of failure inherent in +the development of new products and services. +● Our business depends on a strong brand, and if we are not able to maintain and enhance our brand, our +ability to expand our customer base will be impaired and our business and operating results will be harmed. +● The social media, education, and community-based platform sectors are subject to rapid technological change +and, to compete, we must continually evolve and upgrade the user experience to enhance our business. +● The Company operates in a highly competitive industry and there can be no assurance that the Company will +be able to compete successfully. +● We are dependent on the continued services and performance of our senior management and other key employees, +the loss of any of whom could adversely affect our business, operating results and financial condition. +● If our co-founders were to experience a loss to their social media followings, it could adversely affect +our business, operating results and financial condition. +● Our business depends on our ability to attract and retain talented qualified employees or key personnel. +● We may not be able to manage future growth effectively. +● We may have difficulty scaling and adapting our existing infrastructure to accommodate a larger customer +base, technology advances or customer requirements. +● If the Company fails to develop or protect its intellectual property adequately, the Company’s business +could suffer. +● The Company’s products, services or processes could be subject to claims of infringement of the +intellectual property of others. +● We may experience disruption to our servers or our software which could cause us to lose customers. +● A failure or breach of our security systems or infrastructure as a result of cyberattacks could disrupt +our business, result in the disclosure or misuse of confidential or proprietary information, damage our reputation, increase our costs +and cause losses. +● Certain stockholders have substantial influence over our company, and their interests may not be aligned +with the interests of other stockholders. +iv +● Current market conditions and recessionary pressures in one or more of the Company’s markets could +impact the Company’s ability to grow its business. +● We may incur liability as a result of information retrieved from or transmitted over the Internet or published +using our services or services of social media platforms, or as a result of claims related to our services or services of social media +platforms, and legislation regulating content on social media platforms may require us to change our services or business practices and +may adversely affect our business and financial results. +● We are not currently registered as an investment adviser and if we should have registered as an investment +adviser, our failure to do so could subject us to civil and/or criminal penalties. +● We will face growing regulatory and compliance requirements which can be costly and time-consuming. +● Failure to comply with data privacy and security laws and regulations could adversely affect our operating +results and business. +● Our business could be negatively impacted by changes in the U.S. political environment. +● Our business depends on our customers’ continued and unimpeded access to the Internet and the development +and maintenance of Internet infrastructure. Internet access providers may be able to block, degrade or charge for access to certain of +our services, which could lead to additional expenses and the loss of customers. +● Our business could be affected by new governmental regulations regarding the Internet. +● The requirements of being a public company may strain our resources. +● Climate change and increased focus by governmental organizations on sustainability issues, including those +related to climate change, may have a material adverse effect on our business and operations. +● If we fail to maintain an effective system of disclosure controls and internal control over financial +reporting, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired. +● The structure of our common stock has the effect of concentrating voting control with certain Asset Entities +officers and directors; this will limit or preclude your ability to influence corporate matters. It may also limit the price and liquidity +of our common stock due to its ineligibility for inclusion in certain stock market indices. +v +PART I +ITEM 1. BUSINESS. +Overview +Asset Entities is a technology company +providing social media marketing and content delivery services across Discord, TikTok, and other social media platforms. We also design, +develop and manage servers for communities on Discord. Based on the growth of our Discord servers and social media following, we have +developed three categories of services: (1) our Discord investment education and entertainment services, (2) social media and marketing +services, and (3) our “AE.360.DDM” brand services. We also offer Ternary v2, a cloud-based subscription management and payment +processing solution for Discord communities, which includes a suite of customer relations management tools and Stripe-verified payment +processing. All of our services are based on our effective use of Discord as well as other social media including TikTok, X, Instagram, +and YouTube. +Our Background +In 2020, Mr. Arshia Sarkhani, our Chief +Executive Officer and President, and Mr. Kyle Fairbanks, our Executive Vice-Chairman and Chief Marketing Officer, had been actively investing +and developing social influencer followings on their own when they had a vision: Bring Wall Street trading education and entertainment +to the Generation Z masses through social media through the community-based platform known as Discord. Mr. Sarkhani and Mr. Fairbanks +sensed that social media could empower retail investors, as later demonstrated in the extreme by recent developments such as the GameStop +meme stock phenomenon. Based on their vision and personal investing experience, Mr. Sarkhani and Mr. Fairbanks founded our company with +fellow investors and social influencers Jackson Fairbanks, our Director of Socials, and Arman Sarkhani, our Chief Operating Officer. Our +company initially focused on providing social media and marketing campaigns and consulting services for clients. +By October 2020, we had determined that +the social media platform Discord, which focuses on users’ shared interests and features premium content instead of advertisements, +would be the most effective forum for our vision. We formed a stock investing education and entertainment Discord server, with the server +name “STOCKS”. Subsequently, in 2021, we formed similar servers focusing on cryptocurrencies and nonfungible tokens, or NFTs, +with the server names “CRYPTOS” and “NFTS”, respectively. We also launched a real estate Discord server in May +2022, with the server name “REALTY”, to provide similar content on various aspects of residential and commercial real estate +investing. We believe it is significant, and shows the pioneering vision of our founders, that we were able to obtain the Discord domain +names of “STOCKS”, “CRYPTOS”, “NFTS”, and “REALTY” for their four main Discord communities. +We believe that each of these servers is one of the first of its kind on Discord. +As of December 31, 2024, we had launched +or acquired a total of ten Discord servers, and our Discord servers had approximately 206,899 members combined. We plan to launch or acquire +servers with other popular investment themes in the future. Through the consistent release of relevant content, cross-marketing, strategic +subscription pricing, and strategic acquisitions, we anticipate that our various Discord communities will continue to grow. +Our record of growth on Discord has +also depended and will continue to depend on a massive social media following. Since deciding to form our Discord communities, our social +influencers’ effective use of TikTok and other social media has fueled their growth. Since August 2020, as a result of social media +campaigns helping to promote our Discord servers in the financial education and entertainment space, our social media presence has grown +from fewer than 50,000 members and followers, to over 2 million by December 31, 2024. Our social media reach across all platforms has +accumulated well over 1 billion interactions. +Our Current Business +Our Discord investment education and +entertainment service is designed primarily by and for enthusiastic Generation Z, or Gen Z, retail investors, creators and influencers. +Gen Z is commonly considered to be people born between 1997 and 2012. Our investment education and entertainment service focuses on stock, +real estate, cryptocurrency, and NFT community learning programs designed for the next generation. While we believe that Gen Z will continue +to be our primary market, our expanded Discord server offering also features education and entertainment content covering real estate +investments, which is expected to appeal strongly to older generations as well. +1 +We initially developed our Discord community +and other social media following for our company through the talents, insights and efforts of our executive social influencers, Messrs. +Arshia and Arman Sarkhani and Messrs. Kyle and Jackson Fairbanks. Our executive team has also offered social media and marketing campaign +services to business clients. To the end of further capitalizing on our management’s social influencer backgrounds, we developed +our “SiN” or “Social Influencer Network,” our team of social influencer independent contractors. Our SiN social +influencer independent contractors can perform social media and marketing campaign services to expand our clients’ Discord server +bases and drive traffic to their businesses, as well as increase membership in our own servers. +In forming community groups +on Discord, we designed and developed 25 Asset Entities server communities and manage a combined server user membership of approximately +212,253 as of December 31, 2024. As a result, we have developed a high level of expertise in designing, developing, and managing Discord +servers. Having developed multiple Discord servers in a variety of fields, we have positioned ourselves as experts in the Discord space. +Further capitalizing on this experience, since January 2022, we have formally offered our “AE.360.DDM, Design Develop Manage” +service, or “AE.360.DDM”. AE.360.DDM is a suite of services to individuals and companies seeking to create a server on Discord. +We believe we are the first company to provide “Design, Develop and Manage,” or DDM, services for any individual, company, +or organization that wishes to join Discord and create their own community. We liken this service to that provided by companies like Register.com +and Godaddy.com during the dot.com era in the 1990s for companies looking to register their domain names, develop webpages and websites, +and manage and host those websites. With our AE.360.DDM rollout, we believe we are uniquely positioned to offer DDM services in the growing +market for Discord servers. +In addition, through Ternary +v2, our subscription management and payment processing solution for Discord communities, subscribers can monetize and manage their Discord +users. Ternary v2 simplifies the process for our subscribers to: (i) sell memberships to their Discord servers on their websites and collect +payments through Stripe with daily payouts; (ii) add digital products and services and designate purchase options to their Discord servers; +(iii) customize their user Discord permissions and roles and other Discord settings; and (iv) utilize our Discord bot to automatically +apply their Discord user settings to authenticate new users, apply customizable permission sets to users, and remove users when their +subscriptions expire. As a Stripe-verified partner through Ternary v2, we can also assist subscribers with integrating other platforms +into their Discord servers with open application programming interfaces, further extending our platform’s capabilities. +Fiscal Year 2024 Highlights +During 2024, we took the following initiatives +to expand our business: +● In March 2024, we launched our official YouTube channel, "The Lounge," which features podcast +interviews with celebrities, sports figures, business professionals, and more, and where interviews will focus on each guest's journey +through life. Previous guests have included Michael “the Playmaker” Irvin, former NFL superstar Hall +of Fame wide receiver and three-time Superbowl Champion; Jeff Blue, the Company’s Head of Entertainment and a multi-platinum music +producer; and Ray Crockett, a winner of two Super Bowl rings. +● In March 2024, we entered into an agreement with Zendrop, an industry leader in dropshipping and ecommerce. +We will provide its services and solutions to Zendrop through Ternary v2, our SaaS platform for payment processing and Stripe Verified +Partner for Discord communities. These services will include a suite of customer relationship management (CRM) solutions, Discord customer +analytics, and payment processing. +● In May 2024, we completed the first closing of our financing transaction involving the sale of shares +of the Company’s newly designated Series A Preferred Stock, for gross proceeds of $1.5 million, from an institutional +investor. +● In April 2024, we filed a Registration Statement on Form S-3 (File No. 333-278707) (the “Shelf Registration +Statement”) with the Securities and Exchange Commission (the “SEC”), which was declared effective by the SEC on +April 26, 2024. Pursuant to the Shelf Registration Statement, we may offer to the public from time to time, in one or more offerings, +shares of Class B Common Stock, preferred stock, debt securities, warrants, subscription rights, and units in up to a total aggregate +offering amount of $100,000,000, subject to the requirement that in no event may we sell shares having a value exceeding more than +one-third of our public float in any 12-month period under the Shelf Registration Statement so long as our public float remains below +$75,000,000. The securities will be offered at prices and on terms to be determined at the time of any such offering. The specifics of +any offerings, along with the use of proceeds of any such securities, will be described in detail in a prospectus supplement at the time +of any such offering. +2 +● In June 2024, we acquired the assets of TommyBoyTV, LLC (“TommyBoyTV”), a company engaged +in the business of Discord development, social media, online community management, marketing, and analytics, expanding the Company’s +share of the Discord community market. +● In July 2024, we completed the second closing of our financing transaction involving the sale of shares +of the Company’s newly designated Series A Preferred Stock, for gross proceeds of $1.5 million, from an institutional +investor, for a total of $3.0 million from sales of the Series A Preferred Stock to the investor. +● In September 2024, we commenced an “at the market offering” +(as defined in Rule 415(a)(4) under the Securities Act) of up to $1,791,704 of shares of Class B Common Stock, which, as of March 31, +2025, has been increased to $5,489,399 of shares of Class B Common Stock in November 2024 (the “ATM Financing”). Sales from +the offering will be made from time to time solely through or to A.G.P./Alliance Global Partners, as sales agent (“A.G.P.” +or the “Sales Agent”). These sales, if any, will be made pursuant to the terms of a sales agreement between us and the Sales +Agent, dated September 27, 2024 (the “ATM Sales Agreement”). Since the commencement of the ATM Financing, a total of 5,417,700 +shares has been sold, for net proceeds to the Company of $4,830,648, after paying $329,362 in compensation to the Sales Agent and the +same amount to Boustead Securities, LLC (“Boustead”) under the Boustead ATM Waiver (as defined in Item 7. “ Management’s +Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – ATM Financing +– Waivers and Consents to ATM Financing ”) with respect to such sales. +● In October-November 2024, we were selected to design, develop, and manage the Discord servers +for Maxx Talent Awards, a premier platform for showcasing the talents of aspiring actors, models, and singers; social media influencer, American +fitness model, training specialist, actor, and entrepreneur, Scott Mathison; Grammy Award-winning R&B and soul singer, songwriter, +producer and actress Macy Gray; and dog behavioralist Jas Leverette, star of the Netflix show Canine Intervention . +● In November 2024, we acquired the assets of the TikTok Shop space known as the TikTok Money Machine, which +included its Discord community. The Discord community teaches content creators how to sell products on TikTok Shop via the use of product +content videos. It also connects major consumer product brands with these content creators, offering the latter the opportunity to earn +sales commissions, via their TikTok accounts, on each product sale completed. We also secured consulting agreements with TikTokers and +lead creators of the Discord, who have an aggregate of approximately 280,000 followers on Instagram and 4,700,000 followers on TikTok. +● In November 2024, we signed an agreement with our Head of Entertainment, Jeff Blue, to acquire a +50% ownership interest in all film, TV, streaming and media rights to Blue’s story, One Step Closer: From Xero +to #1: Becoming Linkin Park . Under the agreement, we also engaged with Mr. Blue to write the screenplay. Published by Simon & +Schuster/Posthill Press in 2020, One Step Closer: From Xero to #1: Becoming Linkin Park has been translated into seven different +languages. +● In December 2024, we were approved as a TikTok Shop Partner. We plan to work with TikTok to connect brands +with creators and help them collaborate further in the affiliate marketing space. +Our Historical Performance +As +of December 31, 2024, the Company had an accumulated deficit of $12,006,357 and a cash balance of $2,660,624. During the years ended +December 31, 2024 and 2023, we had a net loss of $6,393,932 and $4,931,197, respectively. To date, the Company has financed its +operations primarily through capital raises and sales of its services. In April 2024, the Company filed the Shelf Registration +Statement, which was declared effective by the SEC on April 26, 2024, for potential offerings of up to $100,000,000 in aggregate, +subject to the requirement that in no event may we sell shares having a value exceeding more than one-third of our public float in +any 12-month period under the Shelf Registration Statement so long as our public float remains below $75,000,000. In May 2024, the +Company completed the first of a two-part private placement of its Series A Preferred Stock for gross proceeds of $1.5 million, and +in July 2024, the Company completed the second part of the private placement for an additional $1.5 million in gross proceeds. In +September 2024, the Company entered into the ATM Sales Agreement, and filed a prospectus supplement to the Shelf Registration +Statement for the ATM Financing for gross proceeds of up to $1,791,704. In November 2024, the Company filed an additional prospectus +supplement to the Shelf Registration Statement to increase the maximum gross proceeds to $2,271,487. The +Company has received confirmation from the investor in its Series A Preferred Stock that it will invest up to an additional $3 +million upon request by the Company. Based on the Company’s existing cash resources and the cash expected to be +received from the ATM Financing and other planned financings, it is expected that the Company will have sufficient funds to carry +out the Company’s planned operations through December 31, 2025 and for at least 12 months beyond that period. For further +discussion, see Part II. Item 7. “ Management’s Discussion and Analysis of Financial Condition and Results of +Operations – Liquidity and Capital Resources ”. +3 +Industry Overview +The social influencer and online media +presence on various platforms are expanding and evolving. More than any previous generation, Generation Z is immersed in social media +platforms like TikTok, X, and Meta Platforms’ Facebook and Instagram. This trend has generated opportunities for young adults to +become social influencers and to gain financial success. Many kids now want to be “tiktokers”, “instagrammers”, +and social media influencers. In addition to these platforms, the Reddit-based campaigns behind the GameStop, AMC and Koss meme stock +phenomena of 2021 demonstrated the power of social media to generate and destroy financial wealth relatively quickly. We believe that +these developments are together giving way to a new type of social media community. Social media was once occupied by influencers who +were showing off their latest snacks, clothes, makeup brands, and other products and services, but now, a new breed of influencers focus +on other subjects that are gaining mass interest, especially with Generation Z, including personal finance and investing. +As Bloomberg has reported (“Influencers +Are Luring Investors Flummoxed by Meme Stonks and Options,” June 18, 2021), in the U.S., there is relatively little formal personal-finance +education. Only 26 states require – or are in the process of mandating – a standalone high school course on the topic (Ramsey +Solutions, “Which States Require Financial Literacy for High School Students,” August 19, 2024). For most students, learning +about money means learning about topics like budgeting, understanding compound interest or opening a savings account. While this information +might be useful, there are many more complex and risky financial opportunities available to young, inexperienced investors who are digital +natives, i.e., most of Generation Z. $1 can be used to open financial accounts and buy fractions of shares or portions of cryptocurrencies +through companies like Robinhood, Cash App and others. With modestly more in their investment accounts, people can get access to higher-risk +strategies such as margin or option trading. Meanwhile, there is new jargon to decipher every day if investors want to understand chatter +about the markets. While banks and mutual fund companies offer advisory services to their members, they tend to reserve advisory services +for higher-net-worth individuals, and generally do not make their advice particularly entertaining or accessible to Generation Z consumers. +With the rise of free, fast trading +online and by phone, demand has surged for information about investing and markets, creating opportunities for a new generation of financial +influencers who are rushing to fill the gap in traditional education. With a massive, younger, financially uneducated market desperate +to learn about the financial markets, a deluge of new companies and their influencer leaders are fighting to be the first place individuals +turn to chat about stocks, budgets or finances. +More broadly, this trend towards relying +on social media and influencers means that skilled social media marketers and influencers can parlay their brands into multiple streams +of revenue including subscription-only content, promotional campaign contracts for business clients, and related consulting services. +As argued by a guest contributor’s article on Nasdaq.com (“How Gen Z Influencers Can Transform the Nature of Investing,” +June 2, 2021), Generation Z is asserting more influence over the social media influencer market, which has already surpassed $13 billion +in market size worldwide according to a research report published by Statista (“Influencer Marketing Worldwide - Statistics & +Facts,” September 27, 2021), and shows no signs of abating. Internet users look to niche influencers they trust as their go-to source +for new information and product recommendations. With such authority over the way consumers spend their money on commercial goods, Gen +Z influencers are bound to sway their followers’ interests in the area of financial education. +Gen Z’s social media habits are +distinctive from other generations. Their most-used social media platforms are Instagram, Snapchat, and TikTok, according to a 2021 Pew +Research survey. TikTok’s quick ascension to Gen Z dominance at comparable levels to other well-established online titans has captivated +potential investors, e-marketers, and others looking to profit from this bustling and youthful platform. +Given the growth of the influencer industry +across social media like Instagram and TikTok, the rapid influx of young retail investors into the stock and cryptocurrency markets, and +recent phenomena like meme stocks, we believe the stage is set for Gen Z to seek dedicated online community-based investment education +and entertainment services. +At the same time, a relatively new social +media app, Discord, has emerged and demonstrated unique appeal to younger people. As reported by The New York Times (“How +Discord, born from an obscure game, became a social hub for young people,” December 29, 2021), driven in part by the COVID-19 pandemic, +Discord “has exploded into the mainstream.” While parents working from home flocked to Zoom, many of their children were downloading +the Discord app to socialize with other young people through text and audio and video calls in groups known as servers. As of March 2025, +the platform has more than 259 million active users each month – up from 56 million in 2019. It has expanded from gamers to many +other groups including music aficionados, students, art communities, and cryptocurrency enthusiasts. According to Bloomberg, on September +15, 2021, Discord’s valuation doubled from $7 billion in 2020 to about $15 billion based on a $500 million capital raise. +4 +Discord is split into servers – +essentially chat rooms similar to the workplace tool Slack – which facilitate casual, free-flowing conversations about shared interests +such as gaming, music, art, school, and memes. Some servers are large and open to the public; others are private and invitation-only. +Another feature that significantly differentiates Discord from the established social media platforms like Facebook is that the service +does not have advertisements. It makes money through premium subscriptions that give users access to features like custom emoji for $5 +or $10 per month. Discord also began experimenting in December 2021 with allowing some users to charge for access to their server, up +to $100 a month, of which Discord takes 10%. +Based on the above, social +influencers can generate revenues from Discord user subscriptions by drawing users in with their investment education and entertainment +content. Expert influencers on Discord and other social media can simultaneously use their social media expertise and brands to generate +social media marketing campaigns for business clients looking to attract more Generation Z consumers. Services, such as “AE.360.DDM, +Design Develop Manage”, covering all aspects of the design and implementation of the Discord servers themselves can attract subscribers +and, therefore, create a new source of revenue. We believe that we are a leading provider of all of these services, and that demand for +all of our services will continue to grow. +Our Services +We offer three types of services that +utilize Discord and other social media to younger generations and other social media users. +Discord Communities . +Our investment education and entertainment service aims to serve as an education and entertainment platform for investments in a way that +is accessible to Generation Z and other social media users. As one of the largest community-based education and entertainment platforms +on Discord, with ten separate servers with a combined user membership of approximately 206,899 as of December 31, 2024, we provide financial +literacy education and entertainment on trading and investment. Our largest Discord server, “STOCKS”, focuses on stock investing +education and entertainment, and we have smaller but growing real estate and cryptocurrency education and entertainment Discord servers. +One of the unique aspects of Discord is that the base access to certain materials is free to all users. Our Discord server subscription +fees currently range from $4.99 to $59.99, with a top tier that includes access to the OptionsSwing software platform of $120.00. +For monthly fees, paying subscribers +to our Discord servers can get access to live trading diaries, premium prerecorded investing and trading education video content, and +paying subscriber-only private group discussion channels relating to the general investment and trading education content on the Company’s +Discord servers. All members may watch nonpremium video education content, watch live day trading sessions during market hours, and participate +in live chat sessions with other members. We upload and manage all content on our Discord servers. There are no formal requirements for +our investment education and entertainment materials; however, we are selective with the content that we post on our servers. +We comply with Discord’s terms +of service, including minimum age requirements. Discord requires all users to be at least 13 years old, and we require users to be at +least 18 years old in order to participate in community discussions. Discord is in the process of creating a gateway to require age verification. +In addition, we maintain a set of community behavior rules for its servers which include bans on hate speech, harassment, spam, illegal +activities, and false information. All members must confirm that they have read and accept these rules in order to enter our Discord servers. +Our Discord moderators enforce these rules. +Social Media and Marketing . +We offer white-label marketing, content creation, content management, TikTok promotions, and TikTok consulting to clients in any industry +or market. Fees under our social media and marketing agreements are expected to range from $2,000 for small, short projects to $50,000 +for more intricate and labor-intensive campaigns. Pricing depends on the amount of social media posts, length of the campaign, and product +placement. +Through social media, we have conducted +marketing and other social media campaigns on behalf of clients in investing, gaming, recreation, cryptocurrency assets, NFTs, and other +areas through our team of social media influencers, which we call our “Social Influencer Network,” or “SiN”. +5 +We utilize our “SiN” or +“Social Influencer Network,” our social influencer independent contractors, in part to increase social media reach for our +clients’ Discord servers or to drive traffic to their businesses. Both we and our clients generally have the right to preapprove +and remove the influencer’s posts at our and our clients’ discretion. They are generally paid on a commission-only basis. +Typical payment terms are a dollar amount for a certain number of new member signups, or in some cases a percentage, subject to a dollar +cap, on the server’s subscription net revenue. We or our clients may also commission the influencer to provide premium video education +series with revenue-sharing provisions for any related subscription fees. Depending on the particular contract, we, our client, or both +may own the content produced by our SiN influencers. Depending on each contract, we may require weekly meetings with the influencer. Our +SiN contractors’ work for clients are terminable by either us or our clients on 30 days’ notice, and are subject to customary +confidentiality, nondisclosure, and noncompete provisions. +Under our social media and marketing +agreements, we typically agree to produce a certain minimum number of posts, streams, or other social media and marketing content, at +a minimum required frequency for the agreed-upon period. We may agree to promote the products or services of the client by mentioning +the client or its products or services a certain number of times per post or stream, using products or service in our content in a designated +manner, or not using, mentioning or promoting competing products or services. Clients must generally preapprove our promotion-containing +content, subject to their reasonable discretion. Clients typically own any data generated by promotional posts or streams; however, we +retain the right to use the content created. Our social media and marketing agreements are subject to customary confidentiality, non-disparagement, +indemnification and other standard terms and social media policy compliance requirements. Other than as otherwise noted above, our influencers +are not exclusive to any social media and marketing client. +AE.360.DDM, Design Develop Manage . +AE.360.DDM is a suite of services to individuals and companies seeking to create their own server on Discord. We believe that we are the +first company to provide a full range of Discord DDM services for any individual, company, or organization that wishes to join Discord. +Since November 2021, we have worked with various communities on how to better manage their presence on Discord and have designed servers +for businesses and celebrities. We tailor our fees to the services requested and can range from set prices of $497 to $5,000 for each +Discord server design project. However, our fees may be higher based on the expected complexity, size, and management responsibilities +for the server. They may also be based on a percentage split of subscription revenues. +On Discord servers managed by our company +on behalf of clients, clients generally provide and own their servers’ content and control all rights to their servers, while we +provide management or other contracted services. If we are managing the Discord server under the AE.360.DDM service, we may upload content +for the server owner. The server owner may always upload content. Other server users may also upload content, but the server owner’s +moderators may remove it. +AE.360.DDM is a proprietary service +that is summarized below. The list of services below is not inclusive of our full suite of the AE.360.DDM services and processes by which +we design, develop and manage Discord servers on behalf of clients. +Our AE.360.DDM service includes any +or all of the following: +● “360.DD Level 1, 2 or 3” Design and Development service: We design and establish the client’s +Discord server under one of the following three “levels” of service: +● Level 1 includes a simple setup of the client’s server with base, or general-purpose, channels and +basic bots. Discord channels are topic-based chatrooms. Discord bots are user-like computer-simulated members of the server that can automate +various actions. Bots use Discord’s public application programming interface, or API, to perform actions like send messages, modify +roles, or automate moderation. +● Level 2 includes both Level 1 services and more advanced server features. +● Level 3 includes Level 1 and Level 2 services, and adds the following key features: +● Enhancements taking advantage of premium Discord features. +● Setup of a number of private channels. A private channel on Discord only allows selected members to join +it or limits what users may view and post without special permissions. Discord server members who are not added to the channel will not +be able to see it on the server’s sidebar. Private chat channels may be used to offer premium content to users. +● Third-party integrations, which may be used to integrate the use of complimentary apps into the Discord +server such as other social media platforms, productivity or data-management apps, and others. +● Special-purpose community bot and chat features. +● External links to websites that a client wishes to promote may also be included. +6 +● “360.M” Management service: We will act as the lead moderator and community manager of the +client’s Discord server. Features may include the following: +● Moderating and interacting in daily chats; +● Answering support tickets; +● Acting as a moderator and team leader; team leaders usually have the ability to create channels, create +and delete roles, and perform other administrative functions; +● Provide informative, fun, and interactive announcements; +● Make suggestions on how to improve the Discord community based on performance over time; +● Add all necessary bots for security, gaming, fun and so on. +● Managing the Discord server through moderation and maintenance through a proprietary process. +● ChatGPT AI bot as an AE.360.DDM Discord server customer service feature. +Since February 2024, we also offer Ternary V2, +the next generation of Ternary’s Stripe-verified payment processing platform for Discord communities. Ternary V2 provides additional +CRM tools, allowing community owners the ability to scale, manage, and transact payments all in a single platform. +Our Market Opportunity and Customers +We market our services primarily to +“Generation Z” users and businesses seeking to market their services to these users. As the first generation to have grown +up with access to the Internet and portable digital technology from a young age, members of Generation Z have been dubbed “digital +natives”. Around the world, it has been reported that members of Generation Z are spending more time on electronic devices and less +time reading books than before, with implications for their attention span and vocabulary, as well as their future in the modern economy. +As discussed above, Gen Z users are often bereft of the financial literacy needed to invest, in spite of growing demand for financial +services especially in an era of meme stocks and stock trading apps like Webull, Robinhood, and E*Trade. With our emphasis on video, chat, +and other social media education, entertainment and marketing, and deep knowledge of Discord server design and trending investment topics, +we have positioned ourselves to attract younger investors and businesses seeking to market to them. +We also target millennials, Generation X, and +older generations. +Sales, Marketing and Customer Acquisition +We will continue to seek customers by +producing content for our Discord servers and other social media accounts and using our Social Influencer Network to increase our Discord +members and to provide marketing services. To that end, we frequently engage in social media campaigns for our Discord servers by posting +free videos, tweets, and other social media content on Discord, TikTok, X, Instagram, and YouTube. We use search engine optimization, +or SEO, to gain further reach in acquiring paying subscribers and other members to our Discord servers and potential customers of our +other services. We expect that we will increase sales and revenues from increased Discord members and customers of our paid services from +the expansion of our AE.360.DDM service and expansion of our Discord servers. +One of the ways we can increase our +Discord users and customer base is to utilize our “SiN” or “Social Influencer Network,” our social influencer +independent contractors. Each of our SiN social influencer independent contractors can perform social media outreach to expand our Discord +server bases and increase membership in our Discord servers. When we use our social influencers to increase our user base, we have the +right to preapprove and remove the influencer’s posts at our discretion. They are generally paid on a commission-only basis. Typical +payment terms are a dollar amount for a certain number of new member signups or subscription net revenue. We may also commission them +to provide premium video education series with revenue-sharing provisions for any related subscription fees. We generally own all content +produced by our SiN influencers. Depending on each contract, we may require weekly meetings with the influencer. Our SiN contracts are +terminable on 30 days’ notice and have customary confidentiality, nondisclosure, and noncompete provisions. +As discussed above, we likewise offer +the services of our SiN independent contractors to current and potential social media and marketing customers. We are also working to +expand our user base by contracting with trained social media analysts in order to develop larger and more long-term campaigns to promote +our business. We expect that these offerings may accelerate growth in client contracts for our social media and marketing customer services. +7 +Our AE.360.DDM service is expected to grow through +multiple avenues including the use of SEO with Facebook and Google Ads, as well as our targeted outreach to venture capitalists, social +media influencers, digital technology brands, and other businesses. We also expect that revenues from this service will increase organically +by showing our expertise in Discord design, development and management through our own growing Discord communities. +During 2023 and the first quarter of 2024, we +initiated an online marketing campaign and expanded use of SEO, Facebook Ads, Google Ads and Google Analytics to accelerate customer acquisition +for our AE.360.DDM service; launched a new AE.360.DDM website; engaged music producer Jeff Blue as Head of Entertainment to lead the development +of the AE.360.DDM Music and Entertainment A&R service; hired a Senior Project Manager for all Discord servers under the AE.360.DDM +suite of services; introduced a ChatGPT AI bot as an AE.360.DDM Discord server customer service feature; engaged professional golfers +Bryson DeChambeau and Scott Verplank to promote the AE.360.DDM service; and engaged Michael Irvin, American sports commentator and former +professional football player, to provide marketing services for the AE.360.DDM service; launched an official YouTube channel, “The +Lounge,” which has featured podcast interviews with celebrities, sports figures, business professionals, and more, and where interviews +will focus on each guest’s journey through life; expanded the AE.360.DDM service with Ternary V2, the next generation of the Ternary +Stripe-verified payment processing platform for Discord communities; introduced a ChatGPT AI bot as an AE.360.DDM Discord server customer +service feature; and entered into an agreement with Zendrop, an industry leader in dropshipping and ecommerce, to provide CRM, Discord +customer analytics, payment processing, and related services. +In June 2024, we acquired the assets of TommyBoyTV, +a company engaged in the business of Discord development, social media, online community management, marketing, and analytics, expanding +the Company’s share of the Discord community market. +In October-November 2024, we were selected to design, develop, +and manage the Discord servers for Maxx Talent Awards, a premier platform for showcasing the talents of aspiring actors, models, +and singers; social media influencer, American fitness model, training specialist, actor, and entrepreneur, Scott Mathison; +Grammy Award-winning R&B and soul singer, songwriter, producer and actress Macy Gray; and dog behavioralist Jas Leverette, +star of the Netflix show Canine Intervention . +In November 2024, we acquired the assets of the +TikTok Shop space known as the TikTok Money Machine, which included its Discord community. The Discord community teaches content creators +how to sell products on TikTok Shop via the use of product content videos. It also connects major consumer product brands with these content +creators, offering the latter the opportunity to earn sales commissions, via their TikTok accounts, on each product sale completed. We +also secured consulting agreements with TikTokers and lead creators of the Discord, who have an aggregate of approximately 280,000 followers +on Instagram and 4,700,000 followers on TikTok. +In November 2024, we signed an agreement with +our Head of Entertainment, Jeff Blue, to acquire a 50% ownership interest in all film, TV, streaming and media +rights to Blue’s story, One Step Closer: From Xero to #1: Becoming Linkin Park . Under the agreement, we also engaged +with Mr. Blue to write the screenplay. Published by Simon & Schuster/Posthill Press in 2020, One Step Closer: From Xero to #1: +Becoming Linkin Park has been translated into seven different languages. +In December 2024, we were approved as a TikTok +Shop Partner. We plan to work with TikTok to connect brands with creators and help them collaborate further in the affiliate marketing +space. +Competition +While we do not have any competitors +that compete with us across our business in its entirety, we face competition in certain aspects of our business. Our products and services +face competition from different businesses depending on the offering. +The education components of our investment +education and entertainment services have the following primary competitors: +● Xtrades Discord Server – Stocks and options trading communities with real traders providing +analysis; their advertised monthly fee is $38. Their Discord server had approximately 110,000 members as of March 2025. +● WallStreetBets Discord Server and Subreddit – These are generally free services where anyone +can offer advice on high-risk investing in stocks, options, and futures trading. Their Discord server has approximately 484,305 members +and their subreddit had approximately 18 million registered users as of March 2025. +8 +● Eagle Investors – An online investment education service provided by investment advisory +firm Eagle Investments LLC. They manage a Discord server which includes a free investor community, a number of channels on diverse topics, +and free webinars. They also offer premium-only content for $67 to $140 per month for different levels of access to trading alerts on +their Discord server. They also offer paid stocks and options training courses for $400 per course not including discounts, and private +one-on-one sessions ranging from one to eight hours with expert traders at varying prices. Their Discord server had approximately 156,000 +members as of March 2025. +Our social media marketing and advertising +competitors primarily include social media influencers who are the owners of alternative Discord servers and social media education and +entertainment services, which may detract from our current and potential paying subscriber base and customers of our other services. These +competitors include: +● @Fourtoeight – A social influencer who is the owner of the Discord server Wiseguyinvesting. +Wiseguyinvesting offers several payment plans for investment education resources and other features. Its community size is similar to +ours. Its plans range from $25 per week to $800 per year as of March 2025. +● @moneylinemark – A social influencer who owns the “StockVIP” +Discord server with approximately 254,000 members as of March 2025. Their revenue model relies 100% on Discord memberships. We are not +aware of any competitors for our AE.360.DDM suite of services. +We believe that we have other competitive strengths, +some of which are discussed below, that position us favorably in each aspect of our business. However, the technology industry is evolving +rapidly and is increasingly competitive. A variety of business models are being pursued or may be considered for the provision of digital +learning tools, some of which may be more profitable or successful than our business model. +Our Strengths +We believe that we have competitive +strengths, some of which are discussed below, that position us favorably in each aspect of our business. We believe our key competitive +strengths include the following: +● Superior Social Influencer Team . We believe that our greatest competitive strength is our +people. Our blend of young, dynamic, entrepreneurial executive social influencers are part of Generation Z and understand their needs +and interests. Moreover, our executive team includes professionals with two or more decades of accounting, legal, technology, sales, and +management experience including our Executive Chairman, who has practiced law for over 25 years; our Chief Financial Officer, a Certified +Public Accountant, or CPA, with over ten years of experience in finance and accounting; and our Chief Technology Officer, a former Salesforce +Inc. Senior Solution Engineer. We believe that we have a unique combination of knowledge, global experience and business acumen to sustain +long-term growth. +● First-Mover Advantage . We believe that our AE.360.DDM service is a first-of-its-kind business +developed by our company to design, develop, and manage Discord servers for customers wanting to create their own Discord communities +for their business. With our superior understanding of the Discord platform, we can provide the technology and speed to market which customers +require to set up successful Discord servers. +● Best-in-Class Investment Education, Entertainment and Technology . Our insights into compelling +investment education and entertainment methods and subjects for Gen Z and other types of interested customers; experience creating communities +for Gen Z and social media consumers; and our social influencer network, or “SiN”, and related content publishing network, +are some of the hallmarks of our business. +● Service Synergy . Each of our operating business categories has the ability to be a standalone +business, but all are housed within our single Asset Entities enterprise. With each deployment of additional services, we have historically +experienced organic growth in our other businesses. +Our Growth Strategies +The key elements of our strategy to expand our +business include the following: +● Expand Our Social Influencer Network . Our growth has been grounded on our team of social +influencers. In order to generate even greater momentum for the growth of our services, we will seek to expand our “SiN” social +influencer network. We plan to continue to bring top current and former athletes, celebrities, and rising and high-profile social influencers +into our SiN network to promote our established and newer Discord servers. We have also begun utilizing our SiN network to accelerate +the growth of our social media and marketing service. +9 +● Leverage Discord Server Community Outreach . We will continue to seek accelerated growth +in Discord server paying subscriber revenues from strategic pricing of varying levels of access to our Discord communities. Moreover, +we will leverage our Discord servers to help increase our social media reach and cross-market to our other services. +● Expand the AE.360.DDM Service . During 2023 and through March +2024, we initiated an online marketing campaign and expanded use of SEO, Facebook Ads, Google Ads and Google Analytics to accelerate customer +acquisition for our AE.360.DDM service; launched a new AE.360.DDM website; engaged music producer Jeff Blue as Head of Entertainment to +lead the development of the AE.360.DDM Music and Entertainment A&R service; hired a Senior Project Manager for all Discord servers +under the AE.360.DDM suite of services; introduced a ChatGPT AI bot as an AE.360.DDM Discord server customer service feature; engaged +professional golfers Bryson DeChambeau and Scott Verplank to promote the AE.360.DDM service; and engaged Michael Irvin, American sports +commentator and former professional football player, to provide marketing services for the AE.360.DDM service; launched an official YouTube +channel, “The Lounge,” which will feature podcast interviews with celebrities, sports figures, business professionals, and +more, and where interviews will focus on each guest’s journey through life; expanded the AE.360.DDM service with Ternary V2, the +next generation of the Ternary Stripe-verified payment processing platform for Discord communities; introduced a ChatGPT AI bot as an +AE.360.DDM Discord server customer service feature; and entered into an agreement with Zendrop, an industry leader in dropshipping and +ecommerce, to provide CRM, Discord customer analytics, payment processing, and related services. In June +2024, we acquired the assets of TommyBoyTV, a company engaged in the business of Discord development, social media, online community +management, marketing, and analytics, expanding the Company’s share of the Discord community market. In October-November 2024, we +were selected to design, develop, and manage the Discord servers for Maxx Talent Awards, a premier platform for showcasing +the talents of aspiring actors, models, and singers; social media influencer, American fitness model, training specialist, actor, +and entrepreneur, Scott Mathison; Grammy Award-winning R&B and soul singer, songwriter, producer and actress Macy Gray; +and dog behavioralist Jas Leverette, star of the Netflix show Canine Intervention . +● Market and Leverage Synergies from the AE.360.DDM Service . We will further use and expand +this service to create synergies and income-producing revenue streams that complement our other business categories. +Intellectual Property +We own common law rights to certain +marks, including “Asset Entities Where Assets Are Created”, “SiN”, “Social Influencer Network”, and +“AE 360 DDM”. We also own rights to the assetentities.com Internet domain name. +We own the trademarks “Ternary +D” and “OptionsSwing”, the domain names ternarydev.com and optionsswing.com, the social media handle @optionsswing on +Instagram, Facebook, TikTok, YouTube, and X, the social media handle @TernaryDevelopments on Instagram, the social media handle @TernaryDev +on Facebook, TikTok and X, and the Ternary Developments and OptionsSwing Discord servers. We also own The Whop, Instagram, TikTok, YouTube, +and Facebook social media accounts and PayPal and Stripe accounts relating to the Pure Profits Group Discord and TikTok Shop services. +Human Capital +As of March 25, 2025, we had nine full-time employees, one executive +consultant, and 41 independent contractors, some of which serve as Discord server moderators, analysts, server developers, customer service, +sales, and marketing outreach. None of our personnel are represented by labor unions, and we believe that we have an excellent relationship +with everyone who works with us. We operate the Company under remote-first principles. +Seasonality +We do not experience significant seasonality in +our sales cycle. +10 +Government Regulation +We are subject to several laws and regulations +that affect companies conducting business on the Internet, many of which are still evolving and could be interpreted in ways that could +harm our business. The way existing laws and regulations will be applied to the Internet and how they will relate to our business, are +often unclear. For example, we often cannot be certain how existing laws will apply in the e-commerce and online context, including with +respect to such topics as privacy, defamation, pricing, credit card fraud, advertising, taxation, sweepstakes, promotions, content regulation, +quality of products and services, and intellectual property ownership and infringement. +Numerous laws and regulatory schemes +have been adopted at the national and state level in the United States, and in some cases internationally, that have a direct impact on +our business and operations. For example: +● The Protecting Americans from Foreign Adversary Controlled Applications Act (the “PAFACA +Act”) was adopted on April 24, 2024, and bans social networking services within 270 to 360 days if they are determined by the president +of the United States and relevant provisions to be a “foreign adversary controlled application”. The definition covers websites +and application software, including mobile apps. The PAFACA Act explicitly applies to ByteDance Ltd. and its subsidiaries, including TikTok, +without the need for additional determination. It ceases to be applicable if the foreign adversary-controlled application is divested +and no longer considered to be controlled by a foreign adversary of the United States. +● The Controlling the Assault of Non-Solicited Pornography And Marketing Act, as amended (the “CAN-SPAM +Act”), and similar laws adopted by several states, regulate unsolicited commercial emails, create criminal penalties for emails +containing fraudulent headers, and control other abusive online marketing practices. The law also restricts data collection and use in +connection with its opt-out process requirements for senders of commercial emails. Similarly, the U.S. Federal Trade Commission (“FTC”) +has guidelines that impose responsibilities on us with respect to communications with consumers and impose fines and liability for failure +to comply with rules with respect to advertising or marketing practices it may deem misleading or deceptive. +● The federal Telephone Consumer Protection Act of 1991 (“TCPA”) restricts telemarketing and +the use of automated telephone equipment. The TCPA limits the use of automatic dialing systems, artificial or prerecorded voice messages, +SMS text messages, and fax machines. It also applies to unsolicited text messages advertising the commercial availability of goods or +services. Additionally, several states have enacted statutes that address telemarketing. For example, some states, such as California, +Illinois, and New York, have created do-not-call lists. Other states, such as Oregon and Washington, have enacted “no rebuttal statutes” +that require the telemarketer to end the call when the consumer indicates that such person is not interested in the product being sold. +Restrictions on telephone marketing, including calls and text messages, are enforced by the FTC, the Federal Communications Commission, +states, and through the availability of statutory damages and class action lawsuits for violations of the TCPA. +● The Credit Card Accountability Responsibility and Disclosure Act of 2009, and similar laws and regulations +adopted by several states regulate credit card and gift certificate use fairness, including expiration dates and fees. Our business also +requires that we comply with payment card industry data security and other standards. We are subject to payment card association operating +rules, certification requirements, and rules governing electronic funds transfers, which could change or be reinterpreted to make it difficult +or impossible for us to comply. If we fail to comply with these rules or requirements, or if our data security systems are breached or +compromised, we may be liable for card issuing banks’ costs, subject to fines and higher transaction fees, and lose our ability +to accept credit and debit card payments from our customers, process electronic funds transfers, or facilitate other types of online payments, +and our business and results of operations could be adversely affected. +● The Digital Millennium Copyright Act provides relief for claims of circumvention +of copyright protected technologies and includes a safe harbor intended to reduce the liability of online service providers for hosting, +listing, or linking to third-party content that infringes copyrights of others. +● The Communications Decency Act provides that online service providers will not be +considered the publisher or speaker of content provided by others, such as individuals who post content on an online service provider’s +website. +● The California Consumer Privacy Act (“CCPA”), which went into effect +on January 1, 2020, provides consumers the right to know what personal data companies collect, how it is used, and the right to access, +delete, and opt out of the sale of their personal information to third parties. It also expands the definition of personal information +and gives consumers increased privacy rights and protections for that information. The CCPA also includes special requirements for California +consumers under the age of 16. In addition, the European Union and United Kingdom have adopted the General Data Protection Regulation +(“GDPR”), which likewise impose significant data protection obligations on enterprises, including limitations on data uses +and constraints on certain uses of sensitive data. Effective January 1, 2023, we also became subject to the California Privacy Rights +Act (“CPRA”), which expands upon the consumer data use restrictions, penalties and enforcement provisions under the CCPA. +11 +● Virginia’s Consumer Data Protection Act (“VCDPA”) establishes +rights for Virginia consumers to control how companies use individuals’ personal data. The VCDPA dictates how companies must protect +personal data in their possession and respond to consumers exercising their rights, as prescribed by the law, regarding such personal +data. The VCDPA went into effect on January 1, 2023. +● The Colorado Privacy Act (the “CPA”) and +Connecticut’s An Act Concerning Personal Data Privacy and Online Monitoring (“CDPA”) , +effective as of July 1, 2023, are similar comprehensive consumer privacy laws in Colorado and Connecticut, respectively. +● Effective as of December 31, 2023 , the Utah Consumer Privacy +Act (“UCPA”) regulates business handling of consumers’ personal data in Utah. +● In addition, the following other state laws have become effective +or will become effective within the next 12 months: +o The Texas Data Privacy and Security Act (effective as of July 1, +2024) +o The Oregon Consumer Privacy Act (effective as of July 1, 2024) +o The Montana Consumer Data Privacy Act ( effective +as of October 1, 2024) +● Effective as of January 1, 2025, the Iowa Consumer Privacy +Act (“ICPA”), the Delaware Personal Data Privacy Act (“DPDPA”), the Nebraska Data Privacy Act (“NEDPA”), +the New Hampshire Data Privacy Act (“NHDPA”), became comprehensive privacy laws +in Iowa, Delaware, Nebraska, and New Hampshire , respectively. +● Effective as of January 15, 2025, the New Jersey Data Protection +Act (“NJDPA”) became a comprehensive privacy law in New Jersey. +● Effective as of July 1, 2025, the Minnesota Consumer Data Privacy Act (“MCDPA”) and the Tennessee +Information Protection Act (“TIPA”) will become comprehensive privacy laws in Minnesota and Tennessee, respectively. +● Effective as of October 1, 2025, the Maryland Online Data Privacy Act of 2024 (“MODPA”) +will become a comprehensive privacy law in Maryland. +● Effective as of January 1, 2026, the Indiana Consumer Data Protection Act (“ICDPA”), +the Kentucky Consumer Data Protection Act (“KCDPA”), and the Rhode Island Data Transparency and Privacy Protection Act (“RIDTPPA”) +will become comprehensive privacy laws in Indiana, Kentucky, and Rhode Island, respectively. +● The European Union (the “EU”) General Data Protection Regulation (“GDPR”) +imposes stringent requirements for controllers and processors of personal data of persons in the EU, including, for example, more robust +disclosures to individuals and a strengthened individual data rights regime, shortened timelines for data breach notifications, limitations +on retention of information, increased requirements pertaining to special categories of data, and additional obligations when we contract +with third-party processors in connection with the processing of the personal data. The GDPR also imposes strict rules on the transfer +of personal data out of the EU to the United States and other third countries. In addition, the GDPR provides that EU member states may +make their own further laws and regulations limiting the processing of personal data. +The GDPR applies extraterritorially, +and we may be subject to the GDPR because of our data processing activities that involve the personal data of individuals located in the +EU, such as in connection with our EU-based students. Failure to comply with the requirements of the GDPR and the applicable national +data protection laws of the EU member states may result in fines of up to €20,000,000 or up to 4% of the total worldwide annual turnover +of the preceding financial year, whichever is higher, and other administrative penalties. GDPR regulations may impose additional responsibility +and liability in relation to the personal data that we process, and we may be required to put in place additional mechanisms to ensure +compliance with the new data protection rules. +12 +Following the withdrawal of the +United Kingdom from the EU and the expiry of the transition period, from January 1, 2021, the United Kingdom Data Protection Act 2018 +(“UK GDPR”) retains in large part the GDPR in United Kingdom national law. The UK GDPR mirrors the fines under the GDPR, e.g., +we could be fined up to the greater of €20 million/£17.5 million or 4% of global turnover under each regime. +The federal U.S. Children’s +Online Privacy Protection Act (“COPPA”), the GDPR, and the UK GDPR impose additional restrictions on the ability of online +services to collect information from minors. In addition, certain states, including Utah and Massachusetts, have laws that impose criminal +penalties on the production and distribution of content that is “harmful to a minor.” +Investment Advisers Act of 1940 +Under the Investment Advisers Act of 1940 (the “Investment Advisers +Act”), and the rules adopted under that statute, a person or firm is required to register with the SEC if the person or firm +is: +● an “investment adviser” under Section 202(a)(11) of the Investment Advisers Act; +● not excepted from the definition of investment adviser by Section 202(a)(11)(A) through (E) of the Investment Advisers Act; +● not exempt from SEC registration under Section 203(b) of the Investment Advisers Act; and +● not prohibited from SEC registration by Section 203A of the Investment Advisers Act. +Applicable state laws +may have similar registration requirements. +Subject to certain limited +exclusions, Section 202(a)(11) of the Investment Advisers Act generally defines an “investment adviser” as any person or firm +that: (1) for compensation; (2) is engaged in the business of; (3) providing advice, making recommendations, issuing reports, or furnishing +analyses on securities, either directly or through publications. A person or firm must satisfy all three elements to be regulated under +the Investment Advisers Act. +The SEC’s Division +of Investment Management construes these elements broadly. For example, with respect to “compensation,” the receipt of any +economic benefit suffices. To be deemed compensation, a fee need not be separate from other fees charged, it need not be designated as +an advisory fee, and it need not be received directly from a client. With respect to the “business” element, an investment +advisory business need not be the person’s or firm’s sole or principal business activity. Rather, this element is satisfied +under any of the following circumstances: the person or firm holds himself or itself out as an investment adviser or as providing investment +advice; the person or firm receives separate or additional compensation for providing advice about securities; or the person or firm typically +provides advice about specific securities or specific categories of securities. Finally, a person or firm satisfies the “advice +about securities” element if the advice or reports relate to securities. The Division has stated that providing one or more of the +following also could satisfy this element: advice about market trends; advice in the form of statistical or historical data (unless the +data is no more than an objective report of facts on a non-selective basis); advice about the selection of an investment adviser; advice +concerning the advantages of investing in securities instead of other types of investments; and a list of securities from which a client +can choose, even if the adviser does not make specific recommendations from the list. An employee of an SEC-registered investment adviser +does not need to register separately, so long as all of the employee’s investment advisory activities are within the scope of his +employment. +One of the statutory +exclusions from the definition of “investment adviser” is the “publisher’s exclusion”. Under Section 202(a)(11)(D) +of the Investment Advisers Act, “the publisher of any bona fide newspaper, news magazine or business or financial publication of +general and regular circulation” is excluded from the “investment adviser” definition. This “publisher’s +exclusion” requires that product or service offerings must be: (1) of a general and impersonal nature, in that the research provided +is not adapted to any specific portfolio or any client’s particular needs; (2) “bona fide” or genuine, in that it contains +disinterested discussion and analysis as opposed to promotional material; and (3) of general and regular circulation, in that it is not +timed to specific market activity or to events affecting, or having the ability to affect, the securities industry. The basis for reliance +on such exclusion will depend on a facts-and-circumstances analysis. +Certain services provided +by the Company may cause the Company to meet the definition of “investment adviser” in the Investment Advisers Act and similar +state laws. Under the Investment Advisers Act, an “investment adviser” is defined as a “person who, for compensation, +engages in the business of advising others, either directly or through publications or writings, as to the value of securities or as to +the advisability of investing in, purchasing, or selling securities, or who, for compensation and as part of a regular business, issues +or promulgates analyses or reports concerning securities.” In particular, certain of the content on the Company’s Discord +servers, such as trading diaries posted by the Company’s personnel, and other content available on the Company’s social media +channels, may constitute investment advice. In addition, in general, disclaimers, such as those included with the Company’s posts +on Discord and other social media, do not change the character of the advice provided for Investment Advisers Act purposes. The Company +relies on the “publisher’s exclusion” from the definition of “investment adviser” under Section 202(a)(11)(D) +of the Investment Advisers Act, as described above and as interpreted by legal precedent. We intend at all times to operate our business +in a manner as to not become inadvertently subject to the regulatory requirements under the Investment Advisers Act. +13 +If we meet the definition of “investment +adviser” in the Investment Advisers Act, and do not meet the requirements for reliance on the “publisher’s exclusion” +from the definition of “investment adviser” or another exclusion, exemption, or exception from the registration requirements +under the Investment Advisers Act, we will have to register as an investment adviser with the SEC pursuant to the Investment Advisers +Act and potentially with one or more states under similar state laws. Registration requirements for investment advisers are significant. +If we are deemed to be an investment adviser and are required to register with the SEC and potentially one or more states as an investment +adviser, we will become subject to the requirements of the Investment Advisers Act and the corresponding state laws. The Investment Advisers +Act requires: (i) fiduciary duties to clients; (ii) substantive prohibitions and requirements; (iii) contractual requirements; (iv) record-keeping +requirements; and (v) administrative oversight by the SEC, primarily by inspection. Requirements and obligations imposed on investment +advisers can be burdensome and costly. If it is deemed that we are out of compliance with such rules and regulations, we may also be subject +to civil and/or criminal penalties. Applicable state laws may have similar or additional requirements. If we are required to register +under these laws, we may no longer be able to continue to offer our investment education and entertainment services, which may have a +significant adverse impact on our business and results of operations. +Corporate History and Structure +Formation and Merger into Asset Entities +Inc. +We began our operations as a general partnership +on August 1, 2020. Asset Entities Limited Liability Company, a California limited liability company (“California LLC”), was +formed on October 20, 2020 to operate our business. Asset Entities Inc., a Nevada corporation, was incorporated on March 9, 2022. Immediately +after the incorporation of Asset Entities Inc., all of the issued and outstanding stock of Asset Entities was purchased by California +LLC in exchange for $1.00. On March 28, 2022, in accordance with Sections 17710.01-17710.19, inclusive, of the California Corporation +Code and Chapter 92A of the Nevada Revised Statutes (the “NRS”), California LLC was merged with and into Asset Entities. As +a result of the merger, Asset Entities acquired the business of California LLC. Pursuant to the Agreement and Plan of Merger, the units +of California LLC were automatically converted into shares of Asset Entities. in the same proportion as the percentage interests of California +LLC represented by such units. As a result and as further provided in the Agreement and Plan of Merger, on March 28, 2022, Asset Entities +Holdings, LLC, a Texas limited liability company (“AEH”), which owned 97.56% of California LLC’s units, became the holder +of 1,951,200 shares of Class A Common Stock of Asset Entities, or 97.56% of the total issued and outstanding post-merger shares of common +stock of Asset Entities, and a holder of 2.44% of California LLC’s units became the holder of 48,800 shares of Class B Common Stock +of Asset Entities, or 2.44% of the total issued and outstanding post-merger shares of common stock of Asset Entities. +Capital Structure +Under the Company’s Articles of Incorporation, +as amended (the “Articles of Incorporation”), we are authorized to issue two classes of common stock, Class A Common Stock +and Class B Common Stock, and any number of classes of preferred stock. Class A Common Stock is entitled to ten votes per share on proposals +requiring or requesting stockholder approval, and Class B Common Stock is entitled to one vote on any such matter. A share of Class A +Common Stock may be voluntarily converted into a share of Class B Common Stock. A transfer of a share of Class A Common Stock will result +in its automatic conversion into a share of Class B Common Stock upon such transfer, subject to certain exceptions, including that the +transfer of a share of Class A Common Stock to another holder of Class A Common Stock will not result in such automatic conversion. Class +B Common Stock is not convertible. Other than as to voting and conversion rights, the Company’s Class A Common Stock and Class B +Common Stock have the same rights and preferences and rank equally, share ratably and are identical in all respects as to all matters. +Holders of the Series A Preferred Stock generally +have the right to vote on an as-converted basis with the Class B Common Stock, to the extent that such conversion would not cause such +holder’s beneficial ownership of Class B Common Stock to exceed 4.99% of the outstanding Class B Common Stock, which may be increased +by the holder to up to 9.99% upon no fewer than 61 days’ prior notice. +14 +As of March 25, 2025, AEH owns all of the 1,000,000 +shares of our outstanding Class A Common Stock. The shares of Class A Common Stock held by AEH are controlled by its officers and managers, +all of whom are also some of our officers and directors. AEH also owns 250,000 shares of our Class B Common Stock. There are 13,413,162 +shares of Class B Common Stock issued and outstanding as of March 25, 2025. AEH therefore controls 10,250,000 votes, or approximately +42.6% of all voting rights. In addition, our directors and officers collectively hold 260,689 shares of Class B Common Stock. Combining +their control of AEH’s shares of Class A Common Stock and Class B Common Stock and their own shares of Class B Common Stock, our +officers and directors collectively control 10,510,689 votes, or approximately 43.6% of total voting power. Management’s concentrated +voting power may limit or preclude the ability of others to influence corporate matters including significant business decisions for the +foreseeable future. +Organizational Structure +The following diagram depicts our organizational structure as of March +25, 2025. This diagram includes our stockholder of Class A Common Stock, stockholders of Class B Common Stock subject to restrictions +on transfer, as a group, and our public stockholders of Class B Common Stock, as a group. The Class A Common Stock and Class B Common +Stock holdings of these stockholders is also depicted. +15 +As of the date of this Annual Report, we have no subsidiaries. +Our principal executive offices are located at +100 Crescent Ct, 7th Floor, Dallas, TX 75201 and our telephone number is (214) 459-3117. We maintain a website at https://www.assetentities.com. +Information available on our website is not incorporated by reference in and is not deemed a part of this Annual Report. Our fiscal year +ends December 31. Neither we nor any of our predecessors have been in bankruptcy, receivership or any similar proceeding. +ITEM 1A. RISK FACTORS. +An investment in our securities involves a +high degree of risk. You should carefully read and consider all of the risks described below, together with all of the other information +contained or referred to in this Annual Report, before making an investment decision with respect to our securities. If any of the following +events occur, our financial condition, business and results of operations (including cash flows) may be materially adversely affected. +In that event, the market price of our shares could decline, and you could lose all or part of your investment. +Risks Related to Our Business and Industry +We have a limited operating history, which +may make it difficult to evaluate our business and prospects. +The Company is an early, startup stage entity +with little operating history. The revenue and income potential of the Company’s business and market are unproven. The Company’s +limited operating history makes an evaluation of the Company and its prospects difficult and highly speculative. There can be no assurances +that: (a) The Company will be able to develop products or services on a timely and cost effective basis; (b) the Company will be able +to generate any increase in revenues; (c) the Company will have adequate financing or resources to continue operating its business and +to provide services to customers; (d) the Company will earn a profit; (e) the Company can raise sufficient capital to support operations +by attaining profitability; or (f) the Company can satisfy future liabilities. +The Company may experience negative cash +flow. +We had a net loss for the years ended December +31, 2024 and 2023. The Company intends to increase expenditures to develop its business and, as a result, may continue to incur losses. +There can be no assurance that the Company will achieve significant revenues or profitability. There can be no assurance that the Company +will be able to raise additional capital on acceptable terms and conditions, if at all. In the event the Company does achieve rapid sales +growth and raise additional capital to fund its current liabilities and burn rate, there is a risk that the Company could fail. There +can be no assurances that the Company will be able to retain or attract qualified personnel if it is not able to get to profitability +in the foreseeable future. +The Company may need to raise additional +capital to support its operations. +The Company may need to procure additional financing +over time, the amount and timing of which will depend on a number of factors, including the pace of expansion of the Company’s opportunities +and customer base, the scope of service development to be undertaken by the Company, the need to respond to customer needs for improvement +of service offerings, the services offered and development efforts, the cash flow generated by its operations, the extent of losses, if +any with respect to matters identified as risk factors herein and the extent of other unanticipated areas or amounts of expenditure. The +Company cannot fully predict the extent to which it will require additional financing. There can be no assurance regarding the availability +or terms of additional financing the Company may be able to procure over time. Any new investor may require that any future debt financing +or issuance of preferred equity by the Company could be senior to the rights of stockholders, and any future issuance of equity could +result in the dilution of the value of our shares. +The Company may incur significant losses, +and there can be no assurance that the Company will ever become a profitable business. +We had a net loss for the years ended December +31, 2024 and 2023. It is anticipated that the Company may continue to sustain operating losses. Its ability to become and/or remain profitable +depends in material part on success in growing and expanding the Company’s products and services. There can be no assurance that +this will occur. Unanticipated problems and expenses often encountered in offering new and unique products or services may impact whether +the Company is successful. Furthermore, the Company may encounter substantial unexpected expenses related to development, technological +changes, marketing, insurance, legal or regulatory requirements and changes to such requirements or other unforeseen difficulties. There +can be no assurance that the Company will become or remain profitable. If the Company sustains losses over a period of time, it may be +unable to continue in business. +16 +The Company’s future revenue and operating +results are unpredictable and may fluctuate significantly. +We had a net loss for the years ended December +31, 2024 and 2023. It is difficult to accurately forecast the Company’s revenues and operating results, and they could continue +to fluctuate in the future due to a number of factors. These factors may include: Acceptance of the Company’s products and services; +the amount and timing of operating costs and capital expenditures; competition from other market venues or services that may reduce market +share and create pricing pressure; and adverse changes in general economic, industry and regulatory conditions and requirements. The Company’s +operating results may fluctuate from year to year due to the factors listed above, others described in Part II Item 7. “ Management’s +Discussion and Analysis of Financial Condition and Results of Operations ”, or not listed. At times, these fluctuations may be +significant. +If we are unable to maintain our good standing +with the social media platforms where we operate, our business will suffer. +We expect to generate substantially all of our +revenue through social media, marketing agreements, and performing services in connection with social media platforms. Any deterioration +in our relationship with these social media platforms would harm our business. We will be subject to Discord’s, TikTok’s, +Instagram’s, YouTube’s, X’s, Apple’s and Google’s standard terms and conditions, which govern the promotion, +distribution and operation of the various aspects of the operations of the Company. In particular, without being able to use TikTok and +other dominant social media as platforms for our social influencers to disseminate marketing and other content, we may not succeed. In +July 2021, our co-founder, Executive Vice-Chairman and Chief Marketing Officer, Kyle Fairbanks, was temporarily banned from TikTok for +posting a comment that TikTok had determined had violated its terms of service. Although Mr. Fairbanks’s comment was about the Robinhood/GameStop +meme stock phenomenon and Mr. Fairbanks believed that he was merely “looking out for the little guy” when he posted the comment +in support of the retail investors, TikTok imposed a temporary ban on Mr. Fairbanks. Although TikTok subsequently lifted its ban on Mr. +Fairbanks and Mr. Fairbanks has not experienced similar issues since the incident, there is no assurance that TikTok or any other service +will permit our key influencers like Mr. Fairbanks from using their services in the future. +Our business would also be harmed if: +● Discord, TikTok, Instagram, YouTube, X, Apple, Google, or other social media companies whose services +we use to market our services, establish terms or conditions which have the effect of discontinuing or limiting our access to their platforms; +● These companies modify their terms of service or other policies, including fees charged to, or other restrictions +on, and change how the personal information of its users is made available on their respective platforms or shared by users; or +● These companies develop their own competitive offerings. +In addition, these companies have broad discretion +to change their terms of service and other policies with respect to us, and those changes may be unfavorable to us. Any such changes in +the future could significantly alter how users experience our product and services and interact with our application or in our community, +which may harm our business. +The regulation of social media services, +and the ban of TikTok in the United States in particular, may threaten our ability to market and promote our services effectively. +As laws and regulations and public opinion rapidly +evolve to govern the use of social media platforms, our ability to use certain platforms, including TikTok in particular, as marketing +tools may become limited, restricted or more expensive or complicated, which could adversely impact our business and operating results. +On April 24, 2024, President Biden signed into law the PAFACA Act requiring TikTok’s parent company to sell TikTok by January 19, +2025 or face a total ban in the United States. On January 20, 2025, President Trump instructed the Attorney General of the United States +not to take any action to enforce the PAFACA Act for a period of 75 days. There can be no assurance that TikTok’s parent company +will sell TikTok to a non-Chinese owner or that the PAFACA Act will not be enforced. +Our business has relied on the ability of our +social influencers to use social media in general, and TikTok in particular, to reach its target consumers. We have also expended resources +to acquire assets such as the TikTok Money Machine and use our status as a TikTok Shop Partner to expand our services and generate revenues. +The loss of access to these platforms by these consumers due to the PAFACA Act or other legal restrictions, could threaten our ability +to market and promote our services effectively and cause material adverse effects to our business prospects. In addition, the failure +by us, our employees, our network of social media influencers, or third parties acting at our direction to abide by applicable laws and +regulations in the use of social media platforms or otherwise, including intellectual property laws and tax reporting and compliance requirements, +could subject us to regulatory investigations, class action lawsuits, liability, taxes, fines or other penalties and have a material adverse +effect on our business, financial condition and operating results. +17 +Risks relating to the blockchain, cryptocurrencies, +and NFT industries may cause material adverse effects on our business operations. +There are a number of unique risks to investments +in digital assets such as cryptocurrencies and NFTs which use blockchain technologies in retail and commercial marketplaces. Currently, +there is a relatively limited use for such digital assets. Moreover, the regulations governing such assets and underlying blockchain technologies +are at present limited and have not prevented significant and sudden losses in the value of such assets. We believe that these and other +risks have contributed to the price volatility of these assets. If, due to the unique risks of these types of assets, any of our paying +subscribers or other members or followers believe that our education and entertainment services relating to these industries have caused +them to incur losses on their investments, we may lose or fail to expand our Discord paying subscriber base and related revenues, and +be unable to sustain or gain credibility with other current and potential social media followers, which may have a material adverse effect +on our business, results of operations, financial condition and cash flow, as well as require additional resources to rebuild our brand +and reputation. +If demand for our services does not develop +as expected, our projected revenues and profits will be affected. +Our future profits are influenced by many factors, +including economics, technology advancements, and world events and changing customer preferences. We believe that the markets for our +services will continue to grow, that we will be successful in marketing our services in these markets. If our expectations as to the size +of these markets and our ability to sell our products and services in this market are not correct, our revenue may not materialize and +our business will be adversely affected. +The Company will be subject to risk associated +with the development of new products or services. +The Company’s business objectives contemplate +ongoing development of new processes, products, services and applications. There can be no assurance that the Company will have sufficient +funds available to fund any of these projects or that the projects will be completed on time or within budget. It is likely that certain, +if not many, of the aspects of the business objectives will not proceed as contemplated. +The Company may not be able to create and +maintain a competitive advantage, given the rapid technological and other competitive changes affecting all markets nationally and worldwide. +The Company’s success will depend on its ability to keep pace with any such changes. +The potential markets for the Company’s +products and services are characterized by rapidly changing technology, evolving industry standards, frequent enhancements to existing +services, the introduction of new services and products, and changing customer demands. The Company’s success could depend on the +Company’s ability to respond to changing standards and technologies on a timely and cost-effective basis. In addition, any failure +by the Company to anticipate or respond adequately to changes in technology and customer preferences could have a material adverse effect +on its financial condition, operating results and cash flow. +The technology area is subject to rapid +change, and there are risks associated with new products and services. +Software-driven products and services are characterized +by rapidly changing technology. The Company’s products and services may require continual improvement in order to satisfy the demand +by the Company’s customers for new features and capabilities. The Company’s future success will depend upon its ability to +introduce products and services and to add new features and enhancements that keep pace with technological and market developments. The +development of new services and products and the enhancement of existing services and products entail significant technical risks. There +can be no assurance that the Company will be successful in (i) developing, maintaining and improving one or more products; (ii) effectively +using new technologies; (iii) adapting its services and products to emerging industry standards; or (iv) developing, introducing and marketing +service and product enhancements or new services and products. Furthermore, there can be no assurance that the Company will not experience +difficulties that could delay or prevent the successful development, introduction or marketing of these services and products, or that +its new service and product enhancements will adequately satisfy the requirements of the marketplace and achieve market acceptance. If +the Company is unable, for technical or other reasons, to develop and introduce new services and products or enhancements of existing +services and products in a timely manner in response to changing market conditions or customer requirements, or if new services and products +do not achieve market acceptance, the Company’s business, results of operations or financial condition could be materially and adversely +affected. +18 +If our paying subscribers are not satisfied +with our Discord subscription services, we may face additional cost, loss of profit opportunities, damage to our reputation, or legal +liability. +We depend, to a large extent, on our relationships +with our Discord servers’ paying subscribers, and our reputation for high-quality education and entertainment material. If a paying +subscriber is not satisfied with our services, it could cause us to incur additional costs and impair profitability, loss of the paying +subscriber relationship, or legal liability. For example, although we prominently warn paying subscribers and all other members that our +investment education and entertainment content should not be relied upon for making investment decisions, a paying subscriber may claim +that they suffered losses due to reliance on our investment education and entertainment content, which poses risks of liability exposure +and costs of defense and increased insurance premiums. Many of our paying subscribers and other members actively share information among +themselves about the quality of service they receive from us. Accordingly, the perception of poor service by any paying subscriber or +other member may negatively impact our relationships with multiple other paying subscribers or other members. +Our services are based in a new and unproved +market and are subject to the risks of failure inherent in the development of new products and services. +Because the Company’s business is based +on new technologies, we are subject to risks of failure that are particular to new technologies, including the possibility that: +● our new approach will not result in any products or services that gain market acceptance; +● the Company’s services could be restricted; +● proprietary rights of third parties may preclude us from marketing our new product and services; or +● third parties may market superior or more cost-effective products or services. +As a result, our activities may not result in +a commercially viable product or service, which would harm our sales, revenue and financial condition. +Our business depends on a strong brand, +and if we are not able to maintain and enhance our brand, our ability to expand our customer base will be impaired and our business and +operating results will be harmed. +We believe that the development of our brand identity +will be critical to the success of our business. Maintaining and enhancing our brand may require us to make substantial investments, and +these investments may not be successful. If we fail to establish and promote the brand, or if it incurs excessive expenses in this effort, +our business, operating results and financial condition will be materially and adversely affected. +The social media, education, and community-based +platform sectors are subject to rapid technological change and, to compete, we must continually evolve and upgrade the user experience +to enhance our business. +We must continue to enhance and improve the performance, +functionality and reliability of our business. This area is characterized by rapid technological change, changes in user requirements +and preferences, frequent new product and services introductions embodying new technologies and the emergence of new industry standards +and practices that could render our products and services obsolete. Our success will depend, in part, on our ability to both internally +further develop and market leading brands and businesses and to continually grow our community-based platforms and increase visibility +and reach across social media platforms. The development of our proprietary technology involves significant technical and business risks. +We may fail to use new technologies effectively or to adapt our proprietary technology and systems to customer requirements or emerging +industry standards. If we are unable to adapt to changing market conditions, customer requirements or emerging industry standards, we +may not be able to either generate revenue or expand our business. +19 +The Company operates in a highly competitive +industry and there can be no assurance that the Company will be able to compete successfully. +The Company competes with many other social media +and community-based platform companies. Many of those companies are larger, more experienced and better funded than the Company. In addition, +due to the unique services that the Company is providing, it is likely that, over time, several key competitors will emerge, which likely +will be better funded than the Company, and the marketplace may have difficulties in differentiating between the quality and scope of +the competitors’ offerings, or the competitors’ services may be superior to those of the Company. +We are dependent on the continued services +and performance of our senior management and other key employees, the loss of any of whom could adversely affect our business, operating +results and financial condition. +Our future performance depends on the continued +services and contributions of our senior management and other key employees, including our co-founders and leading social media influencers: +Arshia Sarkhani, our Chief Executive Officer and President; Kyle Fairbanks, our Executive Vice-Chairman and Chief Marketing Officer; Jackson +Fairbanks, our Director of Socials; and Arman Sarkhani, our Chief Operating Officer. Without these key executives and employees, we may +not have the ability to execute on our business plans and to identify and pursue new opportunities and service innovations. The loss of +services of senior management or other key employees could significantly delay or prevent the achievement of our development and strategic +objectives. The loss of the services of our senior management or other key employees for any reason could adversely affect our business, +financial condition and operating results. We do not presently maintain any key man life insurance policies. +If our co-founders were to experience a +loss to their social media followings, it could adversely affect our business, operating results and financial condition. +Our future performance depends on the ability +of our co-founders and leading social media influencers, Arshia Sarkhani, Kyle Fairbanks, Jackson Fairbanks, and Arman Sarkhani, to retain +and grow their social media followings and fanbase by creating quality content that meets the changing preferences of the consumer market. +If they were to experience a significant loss of followers on any of their social media accounts, such as Discord, TikTok, Instagram, +or X, it could have a negative impact on our business. +Followers +on social media in general often fluctuate significantly due to external factors that are not predictable. Changes in consumers’ +tastes or a change in the perceptions of our co-founders or business partners, whether as a result of the social and political climate +or otherwise, could adversely affect our operating results. Our failure to avoid a negative perception among consumers or anticipate and +respond to changes in consumer preferences, including in the form of content creation or distribution, could result in reduced demand +for our services, or reduced social media followings, which could adversely affect our business, financial condition and operating +results. +Our business depends on our ability to attract +and retain talented qualified employees or key personnel. +Our success depends to a significant degree upon +our ability to attract, retain and motivate skilled and qualified personnel. Recruiting and retaining the skilled personnel we require +to maintain and grow our market position may be difficult. The market for highly skilled workers and leaders in our industry is extremely +competitive. If we do not succeed in attracting, hiring, integrating, retaining and motivating excellent personnel, we may be unable to +grow effectively. Our inability to attract highly skilled personnel with sufficient experience in our industries could harm our business. +We may not be able to manage future growth +effectively. +If our business plans are successful, we may experience +significant growth in a short period of time and potential scaling issues. Should we grow rapidly, our financial, management and operating +resources may not expand sufficiently to adequately manage our growth. If we are unable to manage our growth, our costs may increase disproportionately, +our future revenues may stop growing or decline and we may face dissatisfied customers. Our failure to manage our growth may adversely +impact our business and the value of your investment. +We may have difficulty scaling and adapting +our existing infrastructure to accommodate a larger customer base, technology advances or customer requirements. +In the future, advances in technology, increases +in traffic, and new customer requirements may require us to change our infrastructure, expand our infrastructure or replace our infrastructure +entirely. Scaling and adapting our infrastructure are likely to be complex and require additional technical expertise. If we are required +to make any changes to our infrastructure, we may incur substantial costs and experience delays or interruptions in our service. These +delays or interruptions may cause customers to become dissatisfied with our service and move to competing service providers. Our failure +to accommodate increased traffic, increased costs, inefficiencies or failures to adapt to new technologies or customer requirements and +the associated adjustments to our infrastructure could harm our business, financial condition and results of operations. +20 +If the Company fails to develop or protect +its intellectual property adequately, the Company’s business could suffer. +The Company has attempted, and may attempt, to +develop certain intellectual property of its own, but cannot assure that it will be able to obtain exclusive rights in trade secrets, +patents, trademark registrations and copyright registrations. At this time, the Company is unsure of what types of intellectual property +might be developed. The cost of developing, applying for and obtaining such enforceable rights is expensive. Even after such enforceable +rights are obtained, there are significant costs for maintaining and enforcing them. The Company may lack the resources to put in place +exclusive protection and enforcement efforts. Also, certain of the Company’s service offerings draw from publicly available technology +in the marketplace. The Company’s failure to obtain or maintain adequate protection of its intellectual property rights for any +reason could have a material adverse effect on its business, financial condition and results of operations. +The Company may seek to enforce its intellectual +property rights on others through litigation. The Company’s claims, even if meritorious, may be found invalid or inapplicable to +a party the Company believes infringes or has misappropriated its intellectual property rights. In addition, litigation can: +● be expensive and time-consuming to prosecute or defend; +● result in a finding that the Company does not have certain intellectual property rights or that such rights +lack sufficient scope or strength; +● divert management’s attention and resources; or +● require the Company to license its intellectual property. +The Company may rely on trademarks or service +marks to establish a market identity for its products or services. To maintain the value of the Company’s trademarks or service +marks, the Company might have to file lawsuits against third parties to prevent them from using marks confusingly similar to or dilutive +of the Company’s registered or unregistered trademarks or service marks. The Company also might not obtain registrations for its +pending or future trademark or service marks applications, and might have to defend its registered trademarks or service marks and pending +applications from challenge by third parties. Enforcing or defending the Company’s registered and unregistered trademarks or service +marks might result in significant litigation costs and damages, including the inability to continue using certain marks. +The laws of foreign countries in which the Company +may contemplate doing business in the future may not recognize intellectual property rights or protect them to the same extent as do the +laws of the United States. Adverse determinations in a judicial or administrative proceeding could prevent the Company from offering or +providing its products or services or prevent the Company from stopping others from offering or providing competing services, and thereby +have a material adverse effect on the Company’s business, financial condition, and results of operations. +The Company’s products, services or +processes could be subject to claims of infringement of the intellectual property of others. +Claims that the Company’s products, services, +business methods, or processes infringe upon the proprietary rights of others may not be asserted until after commencement of commercial +sales of its offerings. Significant litigation regarding intellectual property rights exists in the Company’s industry. Third parties +may make claims of infringement against the Company in connection with the use of its technology. Any claims, even those without merit, +could: +● be expensive and time-consuming to defend; +● cause the Company to cease making, licensing, or using services that incorporate the challenged intellectual +property; +● divert management’s attention and resources; or +● require the Company to enter into royalty or licensing agreements in order to obtain the right to use +a necessary feature of any of the Company’s current or proposed products, services, business methods, or processes. +The Company cannot be certain of the outcome of +any litigation. Any royalty or licensing agreement, if required, may not be available to the Company on acceptable terms or at all. The +Company’s failure to obtain the necessary licenses or other rights could prevent the development or distribution of the Company’s +products and services and, therefore, could have a material adverse effect on the Company’s business. +21 +We may experience disruption to our servers +or our software which could cause us to lose customers. +Our ability to successfully create and deliver +our content or manage and deploy our products and services will depend in large part on the capacity, reliability and security of our +networking hardware, software and telecommunications infrastructure. Failures of our network infrastructure could result in unanticipated +expenses to address such failures and could prevent our customers from effectively utilizing our services, which could prevent us from +retaining and attracting customers. We currently have a limited disaster recovery plan in place. Our system will be susceptible to natural +and man-made disasters, including global pandemics, war, terrorism, earthquakes, fires, floods, power loss and vandalism. Further, telecommunications +failures, computer viruses, electronic break-ins or other similar disruptive problems could adversely affect the operation of our systems. +Such a disruption could cause us to lose customers and possibly subject the Company to litigation, any of which could have a material +adverse effect on our business. Our insurance policies may not adequately compensate us for any losses that may occur due to any damages +or interruptions in our systems. Accordingly, we could incur capital expenditures in the event of unanticipated damage. In addition, our +paying subscribers and other members and followers will depend on Internet service providers, or ISPs, for access to our website, Discord +servers, and, if we develop one, our mobile app. In the past, ISPs, websites and mobile apps have experienced significant system failures +and could, in the future, experience outages, delays and other difficulties due to system failures unrelated to our systems. These problems +could harm our business by preventing our customers from effectively utilizing our services. +A failure or breach of our security systems +or infrastructure as a result of cyberattacks could disrupt our business, result in the disclosure or misuse of confidential or proprietary +information, damage our reputation, increase our costs and cause losses. +Information security risks for technology companies, +such as the Company, have significantly increased in recent years in part because of the proliferation of new technologies, the use of +the Internet and telecommunications technologies to conduct financial transactions, and the increased sophistication and activities of +organized crime, hackers, terrorists and other external parties. These threats may derive from fraud or malice on the part of our employees +or third parties, or may result from human error or accidental technological failure. These threats include cyberattacks, such as computer +viruses, malicious code, phishing attacks or information security breaches. +Our operations will, in part, rely on the secure +processing, transmission and storage of confidential proprietary and other information in our computer systems and networks. Our customers +will rely on our digital technologies, computer, email and messaging systems, software and networks to conduct their operations or to +utilize our products or services. In addition, to access our products and services, our customers will use personal smartphones, tablet +computers and other mobile devices that may be beyond our control. +If a cyberattack or other information security +breach occurs, it could lead to security breaches of the networks, systems or devices that our customers use to access our products and +services which could result in the unauthorized disclosure, release, gathering, monitoring, misuse, loss or destruction of confidential, +proprietary and other information (including account data information) or data security compromises. Such events could also cause service +interruptions, malfunctions or other failures in the physical infrastructure or operations systems that will support our businesses and +customers, as well as the operations of our customers or other third parties. Any actual attacks could lead to damage to our reputation +with our customers and other parties and the market, additional costs to the Company (such as repairing systems, adding new personnel +or protection technologies or compliance costs), regulatory penalties, financial losses to both us and our customers and collaborators +and the loss of customers and business opportunities. If such attacks are not detected immediately, their effect could be compounded. +Although we will attempt to mitigate these risks, +there can be no assurance that we will be immune to these risks and not suffer losses in the future. +Certain stockholders have substantial influence +over our company, and their interests may not be aligned with the interests of other stockholders. +A small number of stockholders have significant +influence over our business, including decisions regarding mergers, consolidations and the sale of all or substantially all of our assets, +election of directors and other significant corporate actions. This concentration of ownership may also have the effect of discouraging, +delaying or preventing a future change of control. For further discussion, please see “ —Risks Related to Ownership of Our +Class B Common Stock – The structure of our common stock has the effect of concentrating voting control with certain Asset Entities +officers and directors; this will limit or preclude your ability to influence corporate matters. It may also limit the price and liquidity +of our common stock due to its ineligibility for inclusion in certain stock market indices. ” +22 +Current market conditions and recessionary +pressures in one or more of the Company’s markets could impact the Company’s ability to grow its business. +The U.S. economy faces continued concerns about +the systemic impacts of adverse economic conditions such as the U.S. deficit, historically high interest rates and the continued availability +and cost of credit, the renewed threat of high inflation, volatile energy costs, geopolitical issues, ongoing supply chain disruptions, +the ongoing impact of the COVID-19 pandemic and threats from other potential pandemics, and unstable financial and real estate markets. +Foreign countries, including those in the Euro zone, are affected by similar systemic impacts. Turbulence in the United States and international +markets and economic conditions may adversely affect the Company’s liquidity and financial condition, and the liquidity and financial +condition of the Company’s customers. If these market conditions occur, they may limit the Company’s ability, and the ability +of the Company’s customers, to replace maturing liabilities and to access the capital markets to meet liquidity needs, which could +have a material adverse effect on the Company’s financial condition and results of operations. There is no assurance that the Company’s +products and services will be accepted in the marketplace. +Our ability to use our net operating loss +carryforwards and certain other tax attributes may be limited. +We have incurred net +losses since our inception in 2020, and we may never achieve or sustain profitability. Federal net operating loss, or NOL, carryforwards +we generated since our incorporation in March 2022 may be carried forward indefinitely but may only be used to offset 80% of our taxable +income annually. Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an “ownership +change,” generally defined as a greater than 50 percentage point change (by value) in its equity ownership by certain stockholders +over a three-year period, the corporation’s ability to use its pre-change NOL carryforwards and other pre-change tax attributes +(such as research tax credits) to offset its post-change income or taxes may be limited. We have not completed a study to assess whether +an ownership change for purposes of Section 382 or 383 has occurred, or whether there have been multiple ownership changes since our inception. +For purposes of Section 382 or 383, we may have experienced ownership changes in the past and may experience ownership changes in the +future as a result of shifts in our stock ownership (some of which shifts are outside our control). As a result, if we earn net taxable +income, our ability to use our pre-change NOL carryforwards or other pre-change tax attributes to offset such taxable income or the tax +thereon will be subject to limitations. Similar provisions of state tax law may also apply to limit our use of accumulated state tax attributes. +Therefore, if we attain profitability, we may be unable to use a material portion of our NOL carryforwards and other tax attributes, which +could adversely affect our future cash flows. +Risks Related to Government Regulation and Being a Public Company +We may incur liability +as a result of information retrieved from or transmitted over the Internet or published using our services or services of social media +platforms, or as a result of claims related to our services or services of social media platforms, and legislation regulating content +on social media platforms may require us to change our services or business practices and may adversely affect our business and financial +results. +As the owner of several Discord servers and reliance +on social media for our own and our clients’ promotional campaigns, we may face claims or enforcement actions relating to information +or content that is published or made available on social media platforms where our content or our users’ content is posted, or relating +to our policies or the policies of Discord and other social media platforms on which our content or our users’ content is posted, +notwithstanding our or the respective platforms’ best efforts to enforce such policies. In particular, the nature of our social +media-based business exposes us to claims related to defamation, dissemination of misinformation or news hoaxes, discrimination, harassment, +intellectual property rights, rights of publicity and privacy, personal injury torts, laws regulating hate speech or other types of content, +online safety, consumer protection, and breach of contract, among others. This risk is enhanced in certain jurisdictions outside the United +States where our protection from liability for third-party actions may be unclear or where we may be less protected under local laws than +we are in the United States. For example, in April 2019, the European Union passed a directive (the European Copyright Directive) expanding +online platform liability for copyright infringement and regulating certain uses of news content online, which the EU member states have +since implemented into their national laws. In addition, the European Union revised the European Audiovisual Media Service Directive to +apply to online video-sharing platforms, which member states are implementing. Additionally, Brazil has an intermediary liability framework +limiting liability for third-party content, which has been challenged as unconstitutional and is under review by the Brazilian Supreme +Court. In the United States, in 2023, the U.S. Supreme Court heard oral argument in a matter in which the scope of the protections available +to online platforms under Section 230 of the Communications Decency Act (“Section 230”) was at issue, but it ultimately declined +to address Section 230 in its decision. There also have been, and continue to be, various other litigation concerning, and state and federal +legislative and executive efforts to remove or restrict, the scope of the protections under Section 230, as well as to impose new obligations +on online platforms with respect to commerce listings, user access and content, counterfeit goods and copyright-infringing material, and +our current protections from liability for third-party content in the United States could decrease or change. We could incur significant +costs investigating and defending such claims and, if we are found liable, significant damages. +23 +We could also face fines, orders restricting or +blocking our services in particular geographies, or other government-imposed remedies as a result of our content or the content hosted +on our services. For example, numerous countries in Europe, the Middle East, Asia-Pacific, and Latin America are considering or have implemented +certain content removal, law enforcement cooperation, and disclosure obligation legislation imposing potentially significant penalties, +including fines, service throttling, or advertising bans, for failure to remove certain types of content or follow certain processes. +Content-related legislation also may require us in the future to change our services or business practices, increase our costs, or otherwise +impact our operations or our ability to provide services in certain geographies. For example, the European Copyright Directive requires +certain online services to obtain authorizations for copyrighted content or to implement measures to prevent the availability of that +content, which may require us to make substantial investments in compliance processes. Member states’ laws implementing the European +Copyright Directive may also require online platforms or businesses that rely on them, like ours, to pay for content. In addition, our +products and services are subject to new restrictions and requirements, and our compliance costs may significantly increase, as a result +of the Digital Services Act in the European Union, and other content-related legislative developments such as the Online Safety and Media Regulation +Act in Ireland and the Online Safety Act in the United Kingdom. Certain countries have also implemented or proposed legislation that +may require us to pay publishers for certain news content shared on our products. In the United States, changes to the protections +available under Section 230 or the First Amendment to the U.S. Constitution or new state or federal content-related legislation may +increase our costs or require significant changes to our services, business practices, or operations, which could adversely affect user +growth and engagement. Any of the foregoing events could adversely affect our business and financial results. +We are not currently +registered as an investment adviser and if we should have registered as an investment adviser, our failure to do so could subject us to +civil and/or criminal penalties. +Certain services provided +by the Company may cause the Company to meet the definition of “investment adviser” in the Investment Advisers Act of 1940, +or Investment Advisers Act, and similar state laws. Under the Investment Advisers Act, an “investment adviser” is defined +as a “person who, for compensation, engages in the business of advising others, either directly or through publications or writings, +as to the value of securities or as to the advisability of investing in, purchasing, or selling securities, or who, for compensation and +as part of a regular business, issues or promulgates analyses or reports concerning securities.” In particular, certain of the content +on the Company’s Discord servers, such as trading diaries posted by the Company’s personnel, and other content available on +the Company’s social media channels, may constitute investment advice. In addition, in general, disclaimers, such as those included +with the Company’s posts on Discord and other social media, do not change the character of the advice provided for Investment Advisers +Act purposes. +The Company relies on +the “publisher’s exclusion” from the definition of “investment adviser” under Section 202(a)(11)(D) of the +Investment Advisers Act, as interpreted by legal precedent. The publisher’s exclusion requires that product or service offerings +must be: (1) of a general and impersonal nature, in that the research provided is not adapted to any specific portfolio or any client’s +particular needs; (2) “bona fide” or genuine, in that it contains disinterested discussion and analysis as opposed to promotional +material; and (3) of general and regular circulation, in that it is not timed to specific market activity or to events affecting, or having +the ability to affect, the securities industry. The basis for reliance on such exclusion will depend on a facts-and-circumstances analysis. +We intend at all times to operate our business in a manner as to not become inadvertently subject to the regulatory requirements under +the Investment Advisers Act. +If we meet the definition +of “investment adviser” in the Investment Advisers Act, and do not meet the requirements for reliance on the “publisher’s +exclusion” from the definition of “investment adviser” or another exclusion, exemption, or exception from the registration +requirements under the Investment Advisers Act, we will have to register as an investment adviser with the SEC pursuant to the Investment +Advisers Act and potentially with one or more states under similar state laws. Registration requirements for investment advisers are significant. +If we are deemed to be an investment adviser and are required to register with the SEC and potentially one or more states as an investment +adviser, we will become subject to the requirements of the Investment Advisers Act and the corresponding state laws. The Investment Advisers +Act imposes: (i) fiduciary duties to clients; (ii) substantive prohibitions and requirements; (iii) contractual requirements; (iv) record-keeping +requirements; and (v) administrative oversight by the SEC, primarily by inspection. These requirements and obligations can be burdensome +and costly. If it is deemed that we are out of compliance with such rules and regulations, we may also be subject to civil and/or criminal +penalties. Applicable state laws may have similar or additional requirements. If we are required to register under these laws, we +may no longer be able to continue to offer our investment education and entertainment services, which may have a significant adverse impact +on our business and results of operations. +24 +We will face growing +regulatory and compliance requirements which can be costly and time-consuming. +New and evolving regulations +and compliance standards for cybersecurity, data protection, privacy, and internal IT controls are often created in response to the tide +of cyberattacks and will increasingly impact organizations like our company. Existing regulatory standards require that organizations +implement internal controls for user access to applications and data. In addition, data breaches are driving a new wave of regulation, +such as the GDPR, with stricter enforcement and higher penalties. Regulatory and policy-driven obligations require expensive and time-consuming +compliance measures. The fear of non-compliance, failed audits, and material findings has pushed organizations to spend more to ensure +they are in compliance, often resulting in costly, one-off implementations to mitigate potential fines or reputational damage. The high +costs associated with failing to meet regulatory requirements, combined with the risk of fallout from security breaches, may force us +to spend additional time and money ensuring we will meet future regulatory requirements. +Failure to comply with data privacy and +security laws and regulations could adversely affect our operating results and business. +In the ordinary course of our business, we might +collect and store in our internal and external data centers, cloud services and networks sensitive data, including our proprietary business +information and that of our customers, suppliers and business collaborators, as well as personal information of our customers and employees. +The secure processing, maintenance and transmission of this information is critical to our operations and business strategy. The number +and sophistication of attempted attacks and intrusions that companies have experienced from third parties has increased over the past +few years. Despite our security measures, it is impossible for us to eliminate this risk. +U.S. federal data privacy laws include the CAN-SPAM +Act, which, among other things, restricts data collection and use in connection with CAN-SPAM Act’s opt-out process requirements +for senders of commercial emails; and COPPA, which regulates the collection of information by operators of websites and other electronic +solutions that are directed to children under 13 years of age, although our website and app user terms of service and privacy policy expressly +prohibit children under 13 from submitting information to or on our website or app. These laws and regulations promulgated under these +laws restrict our collection, processing, storage, use and disclosure of personal information, may require us to notify individuals of +our privacy practices and provide individuals with certain rights to prevent the use and disclosure of protected information, and mandate +certain procedures with respect to safeguarding and proper description of stored information. +Moreover, certain laws and regulations of U.S. +states and the EU impose similar or greater data protection requirements and may also subject us to scrutiny or attention from regulatory +authorities. For example, the EU and California have passed comprehensive data privacy laws, the EU GDPR and the CCPA and regulations +promulgated under the CCPA, respectively, which impose data protection obligations on enterprises, including limitations on data uses +and constraints on certain uses of sensitive data. Of particular importance, the CCPA, which became effective on January 1, 2020, limits +how we may collect and use personal information, including by requiring companies that process information relating to California residents +to make disclosures to consumers about their data collection, use and sharing practices, provide consumers with rights to know and delete +personal information and allow consumers to opt out of certain data sharing with third parties. The CCPA also creates an expanded definition +of personal information, imposes special rules on the collection of consumer data from minors, and provides for civil penalties +for violations, as well as a private right of action for data breaches that is expected to increase the likelihood and cost of data breach +litigation. The potential effects of this legislation are far-reaching and may require us to modify our data processing practices and +policies and incur substantial costs and expenses in compliance and potential ligation efforts. Effective January 1, 2023, we also +became subject to the CPRA in California, which expands upon the consumer data use restrictions, penalties and enforcement provisions +under the CCPA. +In addition, similar consumer data privacy laws +have been passed and either are in effect or will become effective within the next 12 months in a number of other states, including Virginia +(effective January 1, 2023) ; Colorado (effective July 1, 2023); Connecticut (effective July +1, 2023); Utah (effective December 31, 2023); Texas (effective July 1, 2024); Oregon (effective July 1, 2024); Montana (effective October +1, 2024); Iowa (effective January 1, 2025); Delaware (effective January 1, 2025); Nebraska (effective January 1, 2025); New Hampshire +(effective January 1, 2025); New Jersey (effective January 15, 2025); Minnesota (effective July 1, 2025); Tennessee (effective July 1, +2025); Maryland (effective October 1, 2025); Indiana (effective January 1, 2026); Kentucky (effective January 1, 2026); and Rhode Island +(effective January 1, 2026). Further, there are several legislative proposals in the United States, at both the federal and state level, +that could impose new privacy and security obligations. We cannot yet determine the impact that these laws and regulations may have on +our business. +25 +Outside of the U.S., data protection laws, including +the GDPR, also might apply to some of our operations or business collaborators. Legal requirements in the European Union and United Kingdom +relating to the collection, storage, processing and transfer of personal data/information continue to evolve. The GDPR imposes, among +other things, data protection requirements that include strict obligations and restrictions on the ability to collect, analyze and transfer +EU personal data/information, a requirement for prompt notice of data breaches to data subjects and supervisory authorities in certain +circumstances, and possible substantial fines for any violations (including possible fines for certain violations of up to the greater +of 20 million Euros or 4% of total company revenue). Other governmental authorities around the world have enacted or are considering similar +types of legislative and regulatory proposals concerning data protection. +The interpretation and +enforcement of the laws and regulations described above are uncertain and subject to change, and may require substantial costs to monitor +and implement and maintain adequate compliance programs. Failure to comply with U.S. and international data protection laws and regulations +could result in government enforcement actions (which could include substantial civil and/or criminal penalties), private litigation and/or +adverse publicity and could negatively affect our operating results and business. +Our business could be negatively impacted +by changes in the U.S. political environment. +There is significant ongoing uncertainty with +respect to potential legislation, regulation and government policy at the federal, state and local levels in the United States. Such uncertainty +and any material changes in such legislation, regulation and government policy could significantly impact our business as well as the +markets in which we compete. Specific legislative and regulatory proposals that might materially impact us include, but are not limited +to, changes to liability rules for Internet platforms, data privacy regulations, import and export regulations, income tax regulations +and the U.S. federal tax code and public company reporting requirements, immigration policies and enforcement, healthcare law, minimum +wage laws, climate and energy policies, foreign trade and relations with foreign governments, pandemic response and increased antitrust +scrutiny in the tech industry. To the extent changes in the political environment have a negative impact on us or on our customers, our +markets, our business, results of operation and financial condition could be materially and adversely impacted in the future. +Our business depends on our customers’ +continued and unimpeded access to the Internet and the development and maintenance of Internet infrastructure. Internet access providers +may be able to block, degrade or charge for access to certain of our services, which could lead to additional expenses and the loss of +customers. +Our services depend on the ability of our customers +to access the Internet. Currently, this access is provided by companies having significant market power in the broadband and Internet +access marketplace, including incumbent telephone companies, cable companies, mobile communications companies and government-owned service +providers. Some of these providers have the ability to take measures including legal actions, that could degrade, disrupt or increase +the cost of user access to certain of our services by restricting or prohibiting the use of their infrastructure to support our services, +charging increased fees to our users, or regulating online speech. Such interference could result in a loss of existing users, advertisers +and goodwill, could result in increased costs and could impair our ability to attract new users, thereby harming our revenue and growth. +Moreover, the adoption of any laws or regulations adversely affecting the growth, popularity or use of the Internet, including laws impacting +Internet neutrality, could decrease the demand for our services and increase our operating costs. The legislative and regulatory landscape +regarding the regulation of the Internet and, in particular, Internet neutrality, in the U.S. is subject to uncertainty. +To the extent any laws, regulations or rulings +permit ISPs to charge some users higher rates than others for the delivery of their content, ISPs could attempt to use such law, regulation +or ruling to impose higher fees or deliver our content with less speed, reliability or otherwise on a non-neutral basis as compared to +other market participants, and our business could be adversely impacted. Internationally, government regulation concerning the Internet, +and in particular, network neutrality, may be developing or non-existent. Within such a regulatory environment, we could experience discriminatory +or anticompetitive practices impeding both our and our customers’ domestic and international growth, increasing our costs or adversely +affecting our business. Additional changes in the legislative and regulatory landscape regarding Internet neutrality, or otherwise regarding +the regulation of the Internet, could harm our business, operating results and financial condition. +26 +Our business could be affected by new governmental +regulations regarding the Internet. +To date, government regulations have not materially +restricted use of the Internet in most parts of the world. However, the legal and regulatory environment relating to the Internet is uncertain, +and governments may impose regulation in the future. New laws may be passed, courts may issue decisions affecting the Internet, existing +but previously inapplicable or unenforced laws may be deemed to apply to the Internet or regulatory agencies may begin to more rigorously +enforce such formerly unenforced laws, or existing legal safe harbors may be narrowed, both by U.S. federal or state governments and by +governments of foreign jurisdictions. The adoption of any new laws or regulations, or the narrowing of any safe harbors, could hinder +growth in the use of the Internet and online services generally, and decrease acceptance of the Internet and online services as a means +of communications, e-commerce and advertising. In addition, such changes in laws could increase our costs of doing business or prevent +us from delivering our services over the Internet or in specific jurisdictions, which could harm our business and our results of operations. +The requirements +of being a public company may strain our resources. +As a public company, +we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), +and the listing standards of Nasdaq. We expect that the requirements of these rules and regulations will continue to increase our legal, +accounting and financial compliance costs, make some activities more difficult, time-consuming and costly, and place significant strain +on our personnel, systems and resources. Management’s attention may be diverted from other business concerns, which could adversely +affect our business and operating results. +The Exchange Act requires +that our company file annual, quarterly, and current reports with respect to our businesses, financial condition, and results of operations. +In addition, we must establish the corporate infrastructure necessary for operating a public company, which may divert our management’s +attention from implementing our growth strategy, which could delay or slow the implementation of our business strategies, and in turn +negatively impact our company’s financial condition and results of operations. +Climate change and increased focus by governmental +organizations on sustainability issues, including those related to climate change, may have a material adverse effect on our business +and operations. +Federal, state and local governments are responding +to climate change issues. This increased focus on sustainability is resulting in new regulations and legislation and vendor and customer +requirements that could negatively affect us as we may incur additional costs or be required to make changes to our operations in order +to comply with any new regulations. Legislation or regulations that impose disclosure requirements, restrictions, caps, taxes, or other +controls on emissions of greenhouse gases such as carbon dioxide, a by-product of burning fossil fuels could force us to incur additional +costs and we may fail to pass such additional costs on to our customers, which could also have a material adverse effect on our business. +In particular, on March 6, 2024, the SEC adopted +rules that will require us to disclose: +● Climate-related risks that have had or are reasonably likely to have a material impact on our business +strategy, results of operations, or financial condition; +● The actual and potential material impacts of any identified climate-related risks on our strategy, business +model, and outlook; +● If, as part of our strategy, we have undertaken activities to mitigate or adapt to a material climate-related +risk, a quantitative and qualitative description of material expenditures incurred and material impacts on financial estimates and assumptions +that directly result from such mitigation or adaptation activities; +● Specified disclosures regarding our activities, if any, to mitigate or adapt to a material climate-related +risk including the use, if any, of transition plans, scenario analysis, or internal carbon prices; +● Any oversight by our board of directors of climate-related risks and any role by management in assessing +and managing our material climate-related risks; +● Any processes we have for identifying, assessing, and managing material climate-related risks and, if +we are managing those risks, whether and how any such processes are integrated into our overall risk management system or processes; +27 +● Information about our climate-related targets or goals, if any, that have materially affected or are reasonably +likely to materially affect our business, results of operations, or financial condition; required disclosures would include material expenditures +and material impacts on financial estimates and assumptions as a direct result of the target or goal or actions taken to make progress +toward meeting such target or goal; +● The capitalized costs, expenditures expensed, charges, and losses incurred as a result of severe weather +events and other natural conditions, such as hurricanes, tornadoes, flooding, drought, wildfires, extreme temperatures, and sea level +rise, subject to applicable one percent and de minimis disclosure thresholds, disclosed in a note to the financial statements; +● The capitalized costs, expenditures expensed, and losses related to carbon offsets and renewable energy +credits or certificates if used as a material component of our plans to achieve our disclosed climate-related targets or goals, disclosed +in a note to our financial statements; and +● If the estimates and assumptions we use to produce our financial statements were materially impacted by +risks and uncertainties associated with severe weather events and other natural conditions or any disclosed climate-related targets or +transition plans, a qualitative description of how the development of such estimates and assumptions was impacted, disclosed in a note +to our financial statements. +We will be exempt from +the SEC rules’ requirements to disclose certain information about our greenhouse gas emissions and comply with related auditor assurance +requirements as long as we remain a “smaller reporting company” (as described below under “— Risks Related to +Ownership of Our Class B Common Stock – We are a ‘smaller reporting company’ within the meaning of the Exchange Act, +and if we take advantage of certain exemptions from disclosure requirements available to smaller reporting companies, this could make +our securities less attractive to investors and may make it more difficult to compare our performance with other public companies. ”) +or an “emerging growth company” (as described below under “— Risks Related to Ownership of Our Class B Common +Stock – We are subject to ongoing public reporting requirements that are less rigorous than Exchange Act rules for companies that +are not emerging growth companies and our stockholders could receive less information than they might expect to receive from more mature +public companies. ”). In addition, these disclosure rules will not require compliance by us until our fiscal year beginning in +2027, with certain requirements not becoming effective until our fiscal year beginning in 2028, if we remain a smaller reporting company +or emerging growth company. +A number of petitions have been filed in federal +courts seeking to challenge the SEC’s climate disclosure rules. On April 4, 2024, the SEC issued an order staying the rules. The +SEC’s administrative stay will remain in place until the completion of litigation filed in the federal courts that challenges the +agency’s authority to adopt the rules. The outcome of this litigation cannot be determined. +Assuming that the SEC +climate disclosure rules are ultimately upheld in their present form, and even in light of the exemptions and accommodations made for +smaller reporting companies and emerging growth companies described above, the costs to adopt the necessary disclosure controls and procedures +to disclose all required information, the potential costs to make changes in our operations to allow us to improve our climate change-related +disclosures, or the potential loss of revenues from these disclosure requirements due to investor, customer, or vendor requirements to +disclose and meet certain climate change-related targets pursuant to these disclosure rules, may still have a material adverse effect +on our business and operations. +If we fail to maintain an effective +system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements +or comply with applicable regulations could be impaired. +Our current disclosure +controls and internal controls and any new controls that we develop may be inadequate or become inadequate because of changes in conditions +in our business or changes in the applicable laws, regulations and standards. Any failure to develop or maintain effective controls, or +any difficulties encountered in their implementation or improvement, could harm our operating results, cause us to fail to meet our reporting +obligations, result in a restatement of our financial statements for prior periods or adversely affect the results of management evaluations +and independent registered public accounting firm audits of our internal control over financial reporting that we will or may eventually +be required to include in our periodic reports that will be filed with the SEC. Ineffective disclosure controls and procedures and internal +control over financial reporting could also cause investors to lose confidence in our reported financial and other information, which +would likely have a negative effect on the trading price of our Class B Common Stock. In addition, if we are unable to continue to meet +these requirements, we may not be able to remain listed on Nasdaq in the future. +28 +Our management team has limited experience +managing a public company. +Most members of our management team have limited +experience managing a publicly traded company, interacting with public company investors and complying with the increasingly complex laws +pertaining to public companies. Our management team may not successfully or efficiently manage our transition to being a public company +that is subject to significant regulatory oversight and reporting obligations under the federal securities laws and the continuous scrutiny +of securities analysts and investors. These new obligations and constituents will require significant attention from our senior management +and could divert their attention away from the day-to-day management of our business, which could harm our business, financial condition +and results of operations. +Industry and other market data used in this +Annual Report and in other periodic reports that we may in the future file with the SEC, including those undertaken by us or our engaged +consultants, may not prove to be representative of current and future market conditions or future results. +This report includes or refers to, and periodic +reports that we may in the future file with the SEC may include or refer to, statistical and other industry and market data that we obtained +or may obtain from industry publications and research, surveys and studies conducted by third parties and surveys and studies that we +may undertake ourselves regarding the market potential for our current services. Although we believe that such information has been obtained +from reliable sources, the sources of such data have not guaranteed the accuracy or completeness of such information. Industry publications +and third-party research, surveys and studies may not be reliable. The results of this data represent various methodologies, assumptions, +research, analysis, projections, estimates, composition of respondent pool, presentation of data and adjustments, each of which may ultimately +prove to be incorrect, and cause actual results and market viability to differ materially from those presented in any such report or other +materials. +Risks Related to Ownership of Our Class B Common Stock +The structure of our common stock has the +effect of concentrating voting control with certain Asset Entities officers and directors; this will limit or preclude your ability to +influence corporate matters. It may also limit the price and liquidity of our common stock due to its ineligibility for inclusion in certain +stock market indices. +We are authorized to issue two classes of common +stock, Class A Common Stock and Class B Common Stock, and any number of classes of preferred stock. Class A Common Stock is entitled to +ten votes per share on proposals requiring or requesting stockholder approval, and Class B Common Stock is entitled to one vote on any +such matter. +As of March 25, 2025, AEH owns all of the 1,000,000 +shares of our outstanding Class A Common Stock. The shares of Class A Common Stock held by AEH are controlled by its officers and managers, +all of whom are also some of our officers and directors. AEH also owns 250,000 shares of our Class B Common Stock. There are 13,413,162 +shares of Class B Common Stock issued and outstanding as of March 25, 2025. AEH therefore controls 10,250,000 votes, or approximately +42.6% of all voting rights. In addition, our directors and officers collectively hold 260,689 shares of Class B Common Stock. Combining +their control of AEH’s shares of Class A Common Stock and Class B Common Stock and their own shares of Class B Common Stock, our +officers and directors collectively control 10,510,689 votes, or approximately 43.6% of total voting power. Management’s concentrated +voting power may limit or preclude the ability of others to influence corporate matters including significant business decisions for the +foreseeable future. +In addition, certain index providers have announced +restrictions on including companies with multiple-class share structures in certain of their indexes. For example, in July 2017, FTSE +Russell and Standard & Poor’s announced that they would cease to allow most newly public companies utilizing dual or multi-class +capital structures to be included in their indices. Under the announced policies, our capital structure would make us ineligible +for inclusion in any of these indices. Given the sustained flow of investment funds into passive strategies that seek to track certain +indexes, exclusion from stock indexes would likely preclude investment by many of these funds and could make our Class B Common +Stock less attractive to other investors. As a result, fewer investors may be willing to purchase our Class B Common Stock. In consequence, +the market price and liquidity of our Class B Common Stock could be adversely affected. +Our Class B Common Stock may be volatile +or may decline regardless of our operating performance, and you may not be able to resell your shares at or above your purchase price. +The market price for our Class B Common Stock +is likely to be volatile, in part because our shares had not been traded publicly prior to our initial public offering in February 2023. +In addition, the market price of our Class B Common Stock may fluctuate significantly in response to several factors, most of which we +cannot control, including: +● quarterly variations in our operating results compared to market expectations; +● adverse publicity about us, the industries we participate in or individual scandals; +29 +● announcements of new offerings or significant price reductions by us or our competitors; +● stock price performance of our competitors; +● fluctuations in stock market prices and volumes; +● changes in senior management or key personnel; +● changes in financial estimates by securities analysts; +● the market’s reaction to our reduced disclosure as a result of being an “emerging growth company” +under the JOBS Act; +● negative earnings or other announcements by us or our competitors; +● defaults on indebtedness, incurrence of additional indebtedness, or issuances of additional capital stock; +● global economic, legal and regulatory factors unrelated to our performance; and +● the other factors listed in Item 1A. “ Risk Factors ” of this Annual Report. +Volatility in the market price of our Class B Common Stock may prevent investors from being able to sell their shares at or above the +price at which they purchased our Class B Common Stock. As a result, you may suffer a loss on your investment. +Certain recent initial public offerings +of companies with relatively small public floats comparable to our anticipated public float have experienced extreme volatility that was +seemingly unrelated to the underlying performance of the respective company. Our Class B Common Stock may potentially experience rapid +and substantial price volatility, which may make it difficult for prospective investors to assess the value of our Class B Common Stock. +In addition to the risks addressed above under +“— Our Class B Common Stock may be volatile or may decline regardless of our operating performance, and you may not be +able to resell your shares at or above your purchase price ,” our Class B Common Stock may be subject to rapid and substantial +price volatility. Recently, companies with comparably small public floats and initial public offering sizes have experienced instances +of extreme stock price run-ups followed by rapid price declines, and such stock price volatility was seemingly unrelated to the respective +company’s underlying performance. Although the specific cause of such volatility is unclear, our small public float may amplify +the impact the actions taken by a few stockholders have on the price of our stock, which may cause our stock price to deviate, potentially +significantly, from a price that better reflects the underlying performance of our business. Our Class B Common Stock may experience run-ups +and declines that are seemingly unrelated to our actual or expected operating performance and financial condition or prospects, making +it difficult for prospective investors to assess the rapidly changing value of our Class B Common Stock. In addition, investors of shares +of our Class B Common Stock may experience losses, which may be material, if the price of our Class B Common Stock experiences such declines +after any investors purchase shares of our Class B Common Stock. +We may not be able to maintain a listing +of our Class B Common Stock on Nasdaq. +Our Class B Common Stock is currently listed on +The Nasdaq Capital Market tier of Nasdaq. We must meet certain financial and liquidity criteria and corporate governance requirements +to maintain the listing of our Class B Common Stock on Nasdaq. If we fail to meet any of Nasdaq’s continued listing standards or +we violate Nasdaq listing requirements, our Class B Common Stock may be delisted. In addition, our board of directors may determine that +the cost of maintaining our listing on a national securities exchange outweighs the benefits of such listing. A delisting of our Class +B Common Stock from Nasdaq may materially impair our stockholders’ ability to buy and sell our Class B Common Stock and could have +an adverse effect on the market price of, and the efficiency of the trading market for, our Class B Common Stock. The delisting of our +Class B Common Stock could significantly impair our ability to raise capital and the value of your investment. +On August 21, 2024, the Company received a written +notification (the “August 2024 Notification Letter”), from the Listing Qualifications Department (the “Staff”) +of Nasdaq notifying the Company that it was not in compliance with the minimum $2,500,000 stockholders’ equity requirement set forth +in Nasdaq Listing Rule 5550(b)(1) for continued listing on The Nasdaq Capital Market tier of Nasdaq because the Company’s Quarterly +Report on Form 10-Q for the period ended June 30, 2024 reported stockholders’ equity of $2,097,090, and, as of the date of the August +2024 Notification Letter, the Company did not meet the alternatives of market value of listed securities or net income from continuing +operations set forth in Nasdaq Listing Rule 5550(b). +30 +Nasdaq Listing Rule 5550(b) requires a company +that has its primary equity security listed on The Nasdaq Capital Market tier of Nasdaq to meet one of three requirements: (1) have stockholders’ +equity of at least $2,500,000; (2) have a market value of listed securities of at least $35,000,000; or (3) have net income from continuing +operations of $500,000 in the most recently completed fiscal year or in two of the three most recently completed fiscal years. +In accordance with Nasdaq Listing Rule 5810(c)(2)(A), +the Company was provided 45 calendar days, or until October 7, 2024, to submit a plan to regain compliance with Nasdaq Listing Rule +5550(b). The Company submitted a compliance plan on October 7, 2024. Based on the Staff’s review of the compliance plan materials, +the Staff determined to grant the Company an extension to regain compliance to February 17, 2025. On or before that date, the Company +will be required to file a report with the SEC and Nasdaq that meets certain requirements for demonstrating compliance with Nasdaq Listing +Rule 5550(b). In addition, the Company must evidence compliance upon filing its Quarterly Report for the quarter ended March 31, 2025. +If the Company fails to meet these requirements the Company may be subject to delisting. In the event the Company does not satisfy these +terms, the Staff will provide written notification that its securities will be delisted. At that time, the Company may appeal the Staff’s +determination to a Nasdaq Hearings Panel (“Hearings Panel”). +On December 16, 2024, the Company received a written +notification (the “December 2024 Notification Letter”) from the Staff notifying the Company that it is not in compliance with +the minimum bid price requirement set forth in Nasdaq Listing Rule 5550(a)(2) for continued listing on The Nasdaq Capital Market tier +of Nasdaq. +Nasdaq Listing Rule 5550(a)(2) requires listed +securities to maintain a minimum bid price of $1.00 per share, and Nasdaq Listing Rule 5810(c)(3)(A) provides that a failure +to meet the minimum bid price requirement exists if the deficiency continues for a period of 30 consecutive business days. Based on the +closing bid price of the Class B Common Stock for the 30 consecutive business days from October 31, 2024 to December 13, 2024, the +Company no longer met the minimum bid price requirement. +In accordance with Nasdaq Listing Rule 5810(c)(3)(A), +the Company has been provided 180 calendar days, or until June 16, 2025, to regain compliance with Nasdaq Listing Rule 5550(a)(2). +To regain compliance, the Company’s common stock must have a closing bid price of at least $1.00 for a minimum of 10 consecutive +business days. If the Company does not regain compliance during such 180-day period, the Company may be eligible for an additional 180 +calendar days, provided that the Company meets the continued listing requirement for market value of publicly held shares of $1,000,000 +under Nasdaq Listing Rule 5550(a)(5) and all other initial listing standards for The Nasdaq Capital Market, except for Nasdaq Listing +Rule 5550(a)(2), and the Company must provide a written notice of its intention to cure this deficiency during the second compliance period, +by effecting a reverse stock split, if necessary. If the Company does not qualify for the second compliance period or fails to regain +compliance during the second 180-day period, then Nasdaq will notify the Company of its determination to delist the Class B Common Stock, +and the Class B Common Stock will be subject to delisting. At that time, the Company will have an opportunity to appeal the delisting +determination to a Hearings Panel. +In the event that we +are unsuccessful in demonstrating compliance with Nasdaq Listing Rule 5550(b) by the extended deadline of February 17, 2025 or to evidence +compliance with such rule in our Quarterly Report for the quarter ended March 31, 2025, or we are unable to regain compliance with Nasdaq +Listing Rule 5550(a)(2) by the end of the 180-day period on June 16, 2025 and either fail to qualify for the second 180-day compliance +period or fail to regain compliance during the second 180-day period, and we are unsuccessful in appealing a resulting delisting determination +to a Hearings Panel, we will be delisted from Nasdaq, and the value of your shares may be materially adversely affected. +If securities or industry analysts do not +publish research or publish inaccurate or unfavorable research about our business, the market price for the shares and trading volume +could decline. +The trading market for our Class B Common Stock +will depend in part on the research and reports that securities or industry analysts publish about us or our business. If research analysts +do not establish and maintain adequate research coverage or if one or more of the analysts who covers us downgrades our Class B Common +Stock or publishes inaccurate or unfavorable research about our business, the market price for our Class B Common Stock would likely decline. +If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in +the financial markets, which, in turn, could cause the market price or trading volume for our Class B Common Stock to decline. +31 +We have never paid cash dividends on our +stock and do not intend to pay dividends for the foreseeable future. +We have paid no cash dividends on any class of +our stock to date and we do not anticipate paying cash dividends in the near term. For the foreseeable future, we intend to retain any +earnings to finance the development and expansion of our business, and we do not anticipate paying any cash dividends on our Class B Common +Stock. Moreover, the Series A Certificate of Designation (as defined in Part II. Item 7. “ Management’s Discussion and Analysis +of Financial Condition and Results of Operations – Liquidity and Capital Resources – Private Placements of Series A Preferred +Stock – Terms of Series A Convertible Preferred Stock under Certificate of Designation and Securities Purchase Agreement ”) +prohibits the Company from declaring or paying any cash dividends on its capital stock other than as required by the Series A Certificate +of Designation with respect to the outstanding shares of Series A Preferred Stock. Accordingly, investors must be prepared to rely on +sales of their Class B Common Stock after price appreciation to earn an investment return, which may never occur. Investors seeking cash +dividends should not purchase our Class B Common Stock. Any determination to pay dividends in the future will be made at the discretion +of our board of directors and will depend on our results of operations, financial condition, contractual restrictions, restrictions imposed +by applicable law and other factors our board deems relevant. +We +have issued and may in the future issue additional debt or equity securities which are senior to our Class B Common Stock as to distributions +and in liquidation, which could materially adversely affect the market price of our Class B Common Stock. +The Series A Preferred Stock ranks senior to all +other capital stock of the Company with respect to the payment of dividends, distributions and payments upon the liquidation, dissolution +and winding up of the Company, unless the holders of the majority of the outstanding shares of Series A Preferred Stock consent to the +creation of other capital stock of the Company that is senior or equal in rank to the Series A Preferred Stock. +In addition, in the future, we may attempt to +increase our capital resources by entering into additional debt or debt-like financing that is secured by all or up to all of our assets, +or issuing debt or equity securities, which could include issuances of commercial paper, medium-term notes, senior notes, subordinated +notes, or preferred shares. In the event of our liquidation, our lenders and holders of our debt securities would receive a distribution +of our available assets before distributions to our stockholders. In addition, any additional preferred stock, if issued by our company, +may have a preference with respect to distributions and upon liquidation, which could further limit our ability to make distributions +to our stockholders. Because our decision to incur debt and issue securities in our future offerings will depend on market conditions +and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings and debt financing. +Further, market conditions could require us to +accept less favorable terms for the issuance of our securities in the future. Thus, you will bear the risk of our future offerings reducing +the value of your Class B Common Stock and diluting your interest in our company. +We are subject to ongoing public reporting +requirements that are less rigorous than Exchange Act rules for companies that are not emerging growth companies and our stockholders +could receive less information than they might expect to receive from more mature public companies. +We are required to publicly report on an ongoing +basis as an “emerging growth company” (as defined in the JOBS Act) under the reporting rules set forth under the Exchange +Act. For so long as we remain an emerging growth company, we may take advantage of certain exemptions from various reporting requirements +that are applicable to other Exchange Act reporting companies that are not emerging growth companies, including but not limited to: +● not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley +Act; +● being exempt from certain greenhouse gas emissions disclosure and related third-party assurance requirements; +● being permitted to comply with reduced disclosure obligations regarding executive compensation in our +periodic reports and proxy statements; and +● being exempt from the requirement to hold a non-binding advisory vote on executive compensation and stockholder +approval of any golden parachute payments not previously approved. +In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period +provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging +growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. +We have elected to take advantage of the benefits of this extended transition period. Our financial statements may therefore not be comparable +to those of companies that comply with such new or revised accounting standards. +32 +We expect to take advantage of these reporting +exemptions until we are no longer an emerging growth company. We would remain an emerging growth company for up to five years, although +if the market value of our Class B Common Stock that is held by non-affiliates exceeds $700 million as of any June 30 before that time, +we would cease to be an emerging growth company as of the following December 31. +Because we will be subject to ongoing public reporting +requirements that are less rigorous than Exchange Act rules for companies that are not emerging growth companies, our stockholders could +receive less information than they might expect to receive from more mature public companies. We cannot predict if investors will find +our Class B Common Stock less attractive if we elect to rely on these exemptions, or if taking advantage of these exemptions would result +in less active trading or more volatility in the price of our Class B Common Stock. +As a non-accelerated filer, we are not required +to comply with the auditor attestation requirements of the Sarbanes-Oxley Act. +We are not an “accelerated filer” +or a “large accelerated filer” under the Exchange Act. Rule 12b-2 under the Exchange Act defines an “accelerated filer” +to mean any company that first meets the following conditions at the end of each fiscal year: The company had a public float of $75 million +or more, but less than $700 million, as of the last business day of the company’s most recently completed second fiscal quarter; +the company has been subject to the reporting requirements of the Exchange Act for at least twelve calendar months; the company has filed +at least one annual report under the Exchange Act; the company did not have annual revenues of less than $100 million and either no public +float or a public float of less than $700 million; and, once the company determines that it does not qualify for “smaller reporting +company” status because it exceeded one or more of the current thresholds for such status, is not eligible to regain “smaller +reporting company” status under the test provided under paragraph (3)(iii)(B) of the “smaller reporting company” definition +in Rule 12b-2 of the Exchange Act. Rule 12b-2 under the Exchange Act defines a “large accelerated filer” in the same way as +an “accelerated filer” except that the company meeting the definition must have a public float of $700 million or more as +of the last business day of the company’s most recently completed second fiscal quarter. +A non-accelerated filer is not required to file +an auditor attestation report on internal control over financial reporting that is otherwise required under Section 404(b) of the Sarbanes-Oxley +Act. +Therefore, our internal +control over financial reporting will not receive the level of review provided by the process relating to the auditor attestation included +in annual reports of issuers that are subject to the auditor attestation requirements. In addition, we cannot predict if investors will +find our common stock less attractive because we are not required to comply with the auditor attestation requirements. If some investors +find our common stock less attractive as a result, there may be a less active trading market for our common stock and trading price for +our common stock may be negatively affected. See also above, “— We are subject to ongoing public reporting requirements +that are less rigorous than Exchange Act rules for companies that are not emerging growth companies and our stockholders could receive +less information than they might expect to receive from more mature public companies. ” +We are a “smaller +reporting company” within the meaning of the Exchange Act, and if we take advantage of certain exemptions from disclosure requirements +available to smaller reporting companies, this could make our securities less attractive to investors and may make it more difficult to +compare our performance with other public companies. +Rule 12b-2 of the Exchange Act defines a “smaller +reporting company” as an issuer that is not an investment company, an asset-backed issuer, or a majority-owned subsidiary of a parent +that is not a smaller reporting company and that: +● had a public float of less than $250 million as of the last business day of its most recently completed +second fiscal quarter, computed by multiplying the aggregate worldwide number of shares of its voting and non-voting common equity held +by non-affiliates by the price at which the common equity was last sold, or the average of the bid and asked prices of common equity, +in the principal market for the common equity; or +● in the case of an initial registration statement under the Securities Act or the Exchange Act for shares +of its common equity, had a public float of less than $250 million as of a date within 30 days of the date of the filing of the registration +statement, computed by multiplying the aggregate worldwide number of such shares held by non-affiliates before the registration plus, +in the case of a Securities Act registration statement, the number of such shares included in the registration statement by the estimated +public offering price of the shares; or +● in the case of an issuer whose public float as calculated under paragraph (1) or (2) of this definition +was zero or whose public float was less than $700 million, had annual revenues of less than $100 million during the most recently completed +fiscal year for which audited financial statements are available. +33 +If a company determines that it does not qualify +for smaller reporting company status because it exceeded one or more of the above thresholds, it will remain unqualified unless when making +its annual determination it meets certain alternative threshold requirements which will be lower than the above thresholds if its prior +public float or prior annual revenues exceed certain thresholds. +As a smaller reporting company, we are not required +to include a Compensation Discussion and Analysis section in our proxy statements; we will provide only two years of financial statements; +and we need not provide the table of selected financial data. We will also be exempt from certain greenhouse gas emissions disclosure +and related third-party assurance requirements. We also will have other “scaled” disclosure requirements that are less comprehensive +than issuers that are not smaller reporting companies which could make our Class B Common Stock less attractive to potential investors, +which could make it more difficult for our stockholders to sell their shares. +As a “smaller reporting company,” +we may choose to exempt our company from certain corporate governance requirements that could have an adverse effect on our public stockholders . +Under Nasdaq rules, a “smaller reporting +company,” as defined in Rule 12b-2 under the Exchange Act, is not subject to certain corporate governance requirements otherwise +applicable to companies listed on Nasdaq. For example, a smaller reporting company is exempt from the requirement of having a compensation +committee composed solely of directors meeting certain enhanced independence standards, as long as the compensation committee has at least +two members who do meet such standards. Although we have not yet determined to avail ourselves of this or other exemptions from Nasdaq +requirements that are or may be afforded to smaller reporting companies, while we will seek to maintain our shares on Nasdaq in the future +we may elect to rely on any or all of them. By electing to utilize any such exemptions, our company may be subject to greater risks of +poor corporate governance, poorer management decision-making processes, and reduced results of operations from problems in our corporate +organization. Consequently, our stock price may suffer, and there is no assurance that we will be able to continue to meet all continuing +listing requirements of Nasdaq from which we will not be exempt, including minimum stock price requirements. +ITEM 1B. UNRESOLVED STAFF COMMENTS. +Not applicable. +ITEM 1C. CYBERSECURITY. +Risk Management and Strategy +The Company recognizes the critical importance +of developing, implementing, and maintaining robust cybersecurity measures to safeguard our information systems and protect the confidentiality, +integrity , and availability of our data. We maintain cybersecurity insurance coverage that provides protection against potential +losses arising from certain cybersecurity incidents. In addition, we have developed the following processes as part of our strategy for +assessing, identifying, and managing material risks from cybersecurity threats. +Managing Material Risks and Integrated Overall +Risk Management +We have integrated cybersecurity risk management +into our risk management processes. This integration is intended to ensure that cybersecurity considerations are part of our decision-making +processes. We continuously evaluate and address cybersecurity risks in alignment with our business objectives and operational needs. +We have adopted the standard 2FA (two factor authentication) +for all our eData access (emails, online storage, etc.). In addition, all our applications and third-party applications have timed, authentication +and environmental disposable cookie processes that force every user to reauthenticate their credentials. Our business transactional data +includes dumb access controls that are vendor-specific, a set or specified range of costs, faceless entry point, and a unique 4FA (four +factor authentication) process, protecting access to our banking and application systems. +Moreover, our commitment to data security extends +beyond industry standards through the implementation of advanced access controls. We have developed a sophisticated access control system, +referred to as “dumb access controls,” which limits access to only specific vendors within a predefined range of costs. This +system operates through a faceless entry point with a unique 4FA process, ensuring that access to sensitive banking or application systems +is strictly controlled and virtually nonexistent for unauthorized entities. These comprehensive security measures not only protect our +business transactional data but also uphold the integrity and confidentiality of our systems and information assets. +34 +Engaging Risk Management Systems and Third-Party +Consultant +Recognizing the complexity and evolving nature +of cybersecurity threats, we use risk management systems developed and tested by external experts, including cybersecurity assessors, +consultants, and auditors. These risk management systems enable us to leverage specialized knowledge and insights as part of our cybersecurity +strategies and processes. These systems are assessed and maintained with the assistance of third-party service providers, including a +Technology Consultant engaged by the Company. +Overseeing Third-Party Risk +Because we are aware of the risks associated with +third-party service providers, we implement processes to oversee and manage these risks. We conduct thorough security assessments of all +third-party providers before engagement and maintain ongoing monitoring to ensure compliance with our cybersecurity standards. The monitoring +includes regular assessments by our Chief Technology Officer. This approach is designed to mitigate risks related to data breaches or +other security incidents originating from third parties. +Risks from Cybersecurity Threats +We have not encountered cybersecurity challenges +that have materially affected or are reasonably likely to materially affect us, including our business strategy, results of operations, +or financial condition. +Governance +Board of Directors Oversight +Our board of directors oversees the management +of risks associated with cybersecurity threats. +Management’s Role Managing Risk +The Company’s Chief Technology Officer, +Chief Operating Officer, and Technology Consultant are primarily responsible for assessing, monitoring and managing our cybersecurity +risks. Our Chief Technology Officer must ensure that all industry standard cybersecurity measures are functioning as required to prevent +or detect cybersecurity threats and related risks. The Chief Technology Officer provides briefings on cybersecurity threats and related +risks to our Chief Executive Officer on a regular basis. Our Chief Technology Officer has nine years of experience in the field of information +technology. The Chief Technology Officer oversees and tests our compliance with standards, remediates known risks, and leads our employee +training program. The Company’s Chief Technology Officer and Technology Consultant have extensive experience in cybersecurity and +possess the necessary knowledge, skills, background, and experience. +Monitoring Cybersecurity Incidents +The Company’s Chief Technology Officer and +Technology Consultant are continually informed about the latest developments in cybersecurity, including potential threats and innovative +risk management techniques. The Chief Technology Officer and Technical Consultant implement and oversee processes for the regular monitoring +of our information systems. This includes the deployment of industry-standard security measures and regular system audits to identify +potential vulnerabilities. In the event of a cybersecurity incident, the Chief Technology Officer and Technical Consultant will implement +an incident response plan. This plan includes immediate actions to mitigate the impact and long-term strategies for remediation and prevention +of future incidents. +Reporting to Board of Directors +Significant cybersecurity matters, and strategic +risk management decisions, will be escalated to the board of directors. +35 +ITEM 2. PROPERTIES. +Although we are a remote-first company, we have +a central office in Dallas, Texas. All of our independent contractors and employees are remote-first and supply their own equipment and +office space. In the future, we may seek to expand our physical facilities to accommodate our growth. Our headquarters is in Dallas, leased +through Regus Management at The Crescent Office Complex located at 100 Crescent Court, 7th Floor, in Dallas, Texas. Our rent was initially +$32.82 per day from February 1, 2022 to January 31, 2023. On October 10, 2022, we renewed an office lease at this location for $1,085 +per month from February 1, 2023 to January 31, 2024. On May 4, 2022, we leased an office at this location for a daily payment of $44.63 +from June 1, 2022 to May 31, 2023. On March 3, 2023, we transferred an office lease to a different office at this location for a monthly +payment of $4,989 from March 7, 2023 to May 31, 2023. On March 6, 2023, we renewed an office lease at this location for a monthly payment +of $5,104 from June 1, 2023 to February 29, 2024. On October 10, 2023, we renewed an office lease at this location for a monthly payment +of $1,228 from February 1, 2024 to January 31, 2025. On November 9, 2023, we renewed an office lease at this location for a monthly payment +of $5,329 from March 1, 2024 to November 30, 2024. On June 9, 2024, between the Company and Regus Management, we renewed an office lease +at this location for a monthly payment of $1,981 from October 1, 2024 to September 30, 2025. +Each lease will automatically renew for an additional +one-year term unless cancelled by either party with at least three months’ notice. The rent on any renewal will be at the then-prevailing +market rate. +We believe that all our properties have been adequately +maintained, are generally in good condition, and are suitable and adequate for our businesses. +ITEM 3. LEGAL PROCEEDINGS. +From time to time, we may become involved in various +lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, +and an adverse result in these or other matters may arise from time to time that may harm our business. We are not currently aware of +any such legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating +results. +ITEM 4. MINE SAFETY DISCLOSURES. +Not applicable. +36 +PART II +ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. +Market Information +Our Class B Common Stock is listed and began trading +on the Nasdaq Capital Market tier of Nasdaq on February 3, 2023, under the symbol “ASST”. Prior to the listing, there was +no public market for our common stock. +Number of Holders of Our Common Stock +As of March 25, 2025, there was one holder of +record of our Class A Common Stock, which is not listed, quoted or traded on any stock exchange or over-the-counter market, and 19 holders +of record of our Class B Common Stock, which is listed and traded on Nasdaq under the symbol “ASST”. In computing the number +of holders of record of our common stock, holders whose shares are held in nominee or “street name” accounts through banks, +brokers or other financial institutions are not included. +Use of Proceeds from Registered Securities +The closing of our initial public offering took +place on February 7, 2023, pursuant to the Underwriting Agreement, dated as of February 2, 2023, between the Company and Boustead, as +representative of the underwriters named on Schedule 1 thereto (the “Underwriting Agreement”). At the closing, the Company +sold 300,000 shares of Class B Common Stock for total gross proceeds of $7,500,000. After deducting +the underwriting discounts, commissions, non-accountable expense allowance, and other expenses from the initial public offering, the Company +received net proceeds of approximately $6.6 million. Pursuant to the Underwriting Agreement, on February 7, 2023, the Company also agreed +to issue Boustead a warrant to purchase the number of shares of Class B Common Stock equal to 7% of the aggregate number of shares of +Class B Common Stock sold in the initial public offering (the “Representative’s Warrant”). +37 +The shares were offered +and sold, and the Representative’s Warrant was issued, pursuant to the Registration Statement on Form S-1 (File No. 333-267258), +initially filed with the SEC on September 2, 2022, and declared effective by the SEC on February 2, 2023 (as amended, the “IPO Registration +Statement”), and the final prospectus, dated February 2, 2023, filed with the SEC on February 6, 2023 pursuant to Rule 424(b)(4) +of the Securities Act (the “IPO Public Offering Prospectus”). In addition, a total of 300,000 shares of Class B Common Stock +were registered for resale by the selling stockholders named in the IPO Registration Statement and a final prospectus relating to these +shares, dated February 2, 2023, which was filed with the SEC on February 6, 2023 pursuant to Rule 424(b)(3) of the Securities Act (the +“IPO Resale Prospectus”). The Company did not and will not receive any proceeds from the resale of Class B Common Stock by +the selling stockholders. +The IPO Registration +Statement also registered for sale shares of Class B Common Stock with a maximum aggregate offering price of $1,125,000 for an additional +45,000 shares of Class B Common Stock at the assumed public offering price of $25.00 per share upon full exercise of the underwriters’ +over-allotment option; and up to an additional 3,150 shares of Class B Common Stock underlying the Representative’s Warrant with +a maximum aggregate offering price of $98,437.50 at the assumed exercise price of $31.25 per share assuming full exercise of the over-allotment +option. The underwriters’ over-allotment option expired unexercised, and as of the date of this Annual Report, the Representative’s +Warrant has not been exercised. +On April 4, 2023, Post-Effective +Amendment No. 1 to the IPO Registration Statement was filed with the SEC and became effective on April 14, 2023 (the “IPO Post-Effective +Amendment”). The IPO Post-Effective Amendment was required to be filed to update the IPO Registration Statement’s prospectuses +to include, among other things, the information contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, +which was filed with the SEC on June 30, 2023, and information in certain subsequent reports and filings under the Exchange Act. The IPO +Post-Effective Amendment maintained the effectiveness of the IPO Registration Statement with respect to the sale of shares of common stock +issuable upon exercise of the Representative’s Warrant and the resale of the shares of common stock held by the selling stockholders. +Updates to the IPO Public Offering Prospectus and the IPO Resale Prospectus were included with the IPO Post-Effective Amendment. +As stated in the IPO +Public Offering Prospectus, the Company intended to use the net proceeds from the initial public offering for investment in corporate +infrastructure, marketing and promotion of Discord communities, social campaigns, and the Company’s “AE.360.DDM” Discord +design, development and management service, expansion of “SiN”, the Company’s social influencer network, increasing +staff and company personnel, and general working capital, operating, and other corporate expenses. +The following is our +reasonable estimate of the uses of the proceeds from the Company’s initial public offering from the date of the closing of the offering +on November 16, 2023 until December 31, 2024: +● None was used for construction of plant, building and facilities; +● None was used for the purchase and installation of machinery and equipment; +● None was used for purchases of real estate; +● Approximately +$0.3 million was used for the acquisition of assets of other businesses; +● None was used for the repayment of indebtedness; +● Approximately +$6.3 million was used for working capital; and +● None was used for temporary investments. +38 +As of December 31, 2024, +none of the proceeds from the initial public offering were used to make direct or indirect payments to any of our directors or officers, +any of their associates, any persons owning 10% or more of any class of our equity securities, or any of our affiliates, or direct or +indirect payments to any others other than for the direct costs of the offering. +There has not been, and +we do not expect, any material change in the planned use of proceeds from the initial public offering as described in the IPO Registration +Statement. +Securities Authorized for Issuance Under Equity +Compensation Plans +See Part III. Item 12. “ Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters – +Securities Authorized for Issuance Under Equity Compensation Plans ”. +Dividend Policy +We have never declared or paid cash dividends +on our common stock. We currently intend to retain all available funds and any future earnings for use in the operation of our business +and do not anticipate paying any cash dividends on our common stock in the near future. In addition, the Series A Certificate of Designation +prohibits the Company from declaring or paying any cash dividends on its capital stock other than as required by the Series A Certificate +of Designation with respect to the outstanding shares of Series A Preferred Stock. We may also enter into credit agreements or other borrowing +arrangements in the future that will restrict our ability to declare or pay cash dividends on our common stock. Any future determination +to declare dividends will be made at the discretion of our board of directors and will depend on our financial condition, operating results, +capital requirements, contractual restrictions, general business conditions and other factors that our board of directors may deem relevant. +See also “Item 1A. Risk Factors – Risks Related to Ownership of Our Class B Common +Stock – We have never paid cash dividends on our stock and do not intend to pay dividends for the foreseeable future .” +Recent Sales of Unregistered Securities +During 2024, the +Company did not sell any equity securities that were not registered under the Securities Act and that were not previously disclosed in +a Quarterly Report on Form 10-Q or Current Report on Form 8-K where required. +Purchases +of Equity Securities +No repurchases of our common stock were made during +the fourth quarter of 2024. +ITEM 6. [RESERVED] +ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. +The +following discussion and analysis summarizes the significant factors affecting our operating results, financial condition, liquidity and +cash flows as of and for the periods presented below. The following discussion and analysis should be read in conjunction with our financial +statements and the related notes thereto included elsewhere in this Annual Report. The discussion contains forward-looking statements +that are based on the beliefs of management, as well as assumptions made by, and information currently available to, management. Actual +results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors, including +those discussed below and elsewhere in this Annual Report, particularly in the sections titled Item 1A. “ Risk Factors” +and “ Cautionary Note Regarding Forward-Looking Statements. ” +Overview +Asset Entities is a technology company providing +social media marketing and content delivery services across Discord, TikTok, and other social media platforms. We also design, develop +and manage servers for communities on Discord. Based on the growth of our Discord servers and social media following, we have developed +three categories of services: (1) our Discord investment education and entertainment services, (2) social media and marketing services, +and (3) our “AE.360.DDM” brand services. We also offer Ternary v2, a cloud-based subscription management and payment processing +solution for Discord communities, which includes a suite of customer relations management tools and Stripe-verified payment processing. +All of our services are based on our effective use of Discord as well as other social media including TikTok, X, Instagram, and YouTube. +39 +Our Discord investment education and entertainment +service is designed primarily by and for enthusiastic Generation Z, or Gen Z, retail investors, creators and influencers. Gen Z is commonly +considered to be people born between 1997 and 2012. Our investment education and entertainment service focuses on stock, real estate, +cryptocurrency, and NFT community learning programs designed for the next generation. While we believe that Gen Z will continue to be +our primary market, our Discord server offering features education and entertainment content covering real estate investments, which is +expected to appeal strongly to older generations as well. Our combined server user membership was approximately 206,899 as of December +31, 2024. +Our social media and marketing services utilize +our management’s social influencer backgrounds by offering social media and marketing campaign services to business clients. Our +team of social influencer independent contractors, which we call our “SiN” or “Social Influencer Network”, can +perform social media and marketing campaign services to expand our clients’ Discord server bases and drive traffic to their businesses, +as well as increase membership in our own servers. +Our “AE.360.DDM, Design Develop Manage” +service, or “AE.360.DDM”, is a suite of services to individuals and companies seeking to create a server on Discord. We believe +we are the first company to provide “Design, Develop and Manage,” or DDM, services for any individual, company, or organization +that wishes to join Discord and create their own community. With our AE.360.DDM rollout, we are uniquely positioned to offer DDM services +in the growing market for Discord servers. +Through Ternary v2, our subscription management +and payment processing solution for Discord communities, subscribers can monetize and manage their Discord users. Ternary v2 simplifies +the process for our subscribers to: (i) sell memberships to their Discord servers on their websites and collect payments through Stripe +with daily payouts; (ii) add digital products and services and designate purchase options to their Discord servers; (iii) customize their +user Discord permissions and roles and other Discord settings; and (iv) utilize our Discord bot to automatically apply their +Discord user settings to authenticate new users, apply customizable permission sets to users, and remove users when their subscriptions +expire. As a Stripe-verified partner through Ternary v2, we can also assist subscribers with integrating other platforms into their Discord +servers with open application programming interfaces, further extending our platform’s capabilities. +We believe that we are a leading provider of all +of these services, and that demand for all of our services will continue to grow. We expect to experience rapid revenue growth from our +services. We believe that we have built a scalable and sustainable business model and that our competitive strengths position us favorably +in each aspect of our business. +Our revenue depends on the number of paying subscribers +to our Discord servers. During the years ended December 31, 2024 and 2023, we received revenue from 1,302 and 298 Asset Entities Discord +server paying subscribers, respectively. +Our Historical Performance +As +of December 31, 2024, the Company had an accumulated deficit of $12,006,357 and a cash balance of $2,660,624. During the years ended +December 31, 2024 and 2023, we had a net loss of $6,393,932 and $4,931,197, respectively. To date, the Company has financed its +operations primarily through capital raises and sales of its services. In April 2024, the Company filed the Shelf Registration +Statement, which was declared effective by the SEC on April 26, 2024, for potential offerings of up to $100,000,000 in aggregate, +subject to the requirement that in no event may we sell shares having a value exceeding more than one-third of our public float in +any 12-month period under the Shelf Registration Statement so long as our public float remains below $75,000,000. In May 2024, the +Company completed the first of a two-part private placement of its Series A Preferred Stock for gross proceeds of $1.5 million, and +in July 2024, the Company completed the second part of the private placement for an additional $1.5 million in gross proceeds. In +September 2024, the Company entered into the ATM Sales Agreement, and filed a prospectus supplement to the Shelf Registration +Statement for the ATM Financing for gross proceeds of up to $1,791,704. As of March 31, 2025, the Company had filed additional +prospectus supplements to the Shelf Registration Statement to increase the maximum gross proceeds to $5,489,399. Since the +commencement of the ATM Financing, a total of 5,417,700 shares has been sold, for net proceeds to the Company of $4,830,647.56, +after paying $329,362 in compensation to the Sales Agent and the same amount to Boustead under the Boustead ATM Waiver. The +Company has received confirmation from the investor in its Series A Preferred Stock that it will invest up to an additional $3 +million upon request by the Company. Based on the Company’s existing cash resources and the cash expected to be +received from the ATM Financing and other planned financings, it is expected that the Company will have sufficient funds to carry +out the Company’s planned operations through December 31, 2025 and for at least 12 months beyond that period. For further +discussion, see Item 7. “ —Liquidity and Capital Resources ”. +40 +Principal Factors Affecting Our Financial Performance +Our operating results are primarily affected by +the following factors: +● our ability to acquire new customers and users or retain existing customers and users; +● our ability to offer competitive pricing; +● our ability to broaden product or service offerings; +● industry demand and competition; +● our ability to leverage technology and use and develop efficient processes; +● our ability to attract and retain talented employees and contractors; and +● market conditions and our market position. +Emerging Growth Company and Smaller Reporting +Company +We qualify as an “emerging growth company” +under the JOBS Act. As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements. For so long +as we are an emerging growth company, we will not be required to: +● have an auditor report on our internal control over financial reporting pursuant to Section 404(b) of +the Sarbanes-Oxley Act; +● present three years, instead of two years, of audited financial statements, with correspondingly reduced +“ Management’s Discussion and Analysis of Financial Condition and Results of Operations ” disclosure in this Annual +Report; +● comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding +mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial +statements (i.e., an auditor discussion and analysis); +● comply with certain greenhouse gas emissions disclosure and related third-party assurance requirements; +● submit certain executive compensation matters to stockholder advisory votes, such as “say-on-pay” +and “say-on-frequency;” and +● disclose certain executive compensation related items such as the correlation between executive compensation +and performance and comparisons of the chief executive officer’s compensation to median employee compensation. +In addition, Section 107 of the JOBS Act also +provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities +Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain +accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits +of this extended transition period. Our financial statements may therefore not be comparable to those of companies that comply with such +new or revised accounting standards. +We will remain an emerging growth company for +up to five years, or until the earliest of (i) the last day of the first fiscal year in which our total annual gross revenues exceed $1,235,000,000, +(ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur +if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently +completed second fiscal quarter or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding +three year period. +To the extent that we continue to qualify as a +“smaller reporting company,” as such term is defined in Rule 12b-2 under the Exchange Act, after we cease to qualify as an +emerging growth company, certain of the exemptions available to us as an emerging growth company may continue to be available to us as +a smaller reporting company, including as to: (i) the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act; (ii) +scaled executive compensation disclosures; (iii) presenting two years of audited financial statements, instead of three years; and (iv) +compliance with certain greenhouse gas emissions disclosure and related third-party assurance requirements. +41 +Recent Developments +Amended and Restated Waiver and Consent +On March 20, 2025, the Company entered into an +Amended and Restated Waiver and Consent, dated as of March 20, 2025 (the “A&R Ionic ATM Waiver”), between the Company +and Ionic Ventures, LLC, a California limited liability company (“Ionic”), the sole holder of the Series A Preferred Stock. +Pursuant to the A&R Ionic ATM Waiver, Ionic waived any prohibition, restriction or adverse adjustment that would otherwise apply to +any action of the Company relating to an “at the market offering” (as defined in Rule 415(a)(4) under the Securities Act), +under a sales agreement between the Company and A.G.P. under which the Company may offer and sell through A.G.P., as sales agent, the +Company’s shares of Class B Common Stock (“Waived A.G.P. ATM”), under the Securities Purchase Agreement, dated as of +May 24, 2024, between the Company and Ionic, as amended by the First Amendment to Securities Purchase Agreement, dated as of June 13, +2024, between the Company and Ionic (as amended, the “Ionic Purchase Agreement”), or Series A Certificate of Designation. +Pursuant to the A&R Ionic ATM Waiver, regardless of the terms and conditions of the Ionic Purchase Agreement and the Series A Certificate +of Designation, the Company may at any time enter into or consummate the transactions contemplated by any agreement relating to a Waived +A.G.P. ATM, the filing of a prospectus supplement to a prospectus contained in an effective registration statement that was filed under +the Securities Act relating to a Waived A.G.P. ATM, the announcement of a Waived A.G.P. ATM, the issuance, offer, sale, or grant of any +shares of the Class B Common Stock relating to a Waived A.G.P. ATM, or the issuance, offer, sale, or grant of any securities in connection +with either the provision of goods or services or settlement of any obligations that may otherwise arise with respect to a Waived A.G.P. +ATM. In addition, pursuant to the A&R Ionic ATM Waiver, Ionic waived any adjustment to the applicable Conversion Price (as defined +in the Series A Certificate of Designation), which partly determines the number of shares of Class B Common Stock issuable upon conversion +of a share of Series A Preferred Stock, that would otherwise occur as a result of any Waived A.G.P. ATM under the terms of the Series +A Certificate of Designation. +Results of Operations +The following table summarizes our results of +operations for the fiscal years ended December 31, 2024 and 2023. +Year Ended +Consolidated Operations Data +December 31, +2024 +December 31, +2023 +Revenue +$ +633,489 +$ +277,038 +Operating expenses +Contract labor +512,911 +176,773 +General and administrative +3,021,547 +2,183,155 +Management compensation +3,503,059 +2,848,307 +Total operating expenses +7,037,517 +5,208,235 +Loss from operations +(6,404,028 +) +(4,931,197 +) +Other income +Interest income +10,096 +- +Total other income +10,096 +- +Net loss +$ +(6,393,932 +) +$ +(4,931,197 +) +42 +Revenue . +Our revenue increased 128.7% to approximately $0.6 million for the fiscal year ended December 31, 2024 from approximately $0.3 million +for the fiscal year ended December 31, 2023. This increase was primarily due to an increase in revenues from the increased number of +our Discord server paying subscribers during the fiscal year ended December 31, 2024, including subscribers to the OptionsSwing and Pure +Profits Discord servers that the Company acquired in November 2023 and June 2024, respectively, compared to such revenues for the fiscal +year ended December 31, 2023, the majority of which preceded the acquisitions of the OptionsSwing and Pure Profits Discord servers. There +was no material difference in the Company’s subscription pricing structure between these periods. +Operating Expenses . Our total operating +expenses increased 35.1% to approximately $7.0 million for the fiscal year ended December 31, 2024 from approximately $5.2 million for +the fiscal year ended December 31, 2023. This increase was primarily due to an increase in advertising, marketing, payroll and other +administrative expenses and administrative cost of public filings of approximately $1.1 million and an increase in management compensation +costs of approximately $0.7 million for the fiscal year ended December 31, 2024, compared to such costs for the fiscal year ended December +31, 2023. +Loss +From Operations . Our loss from operations increased 29.9% to approximately $6.4 million for the fiscal year ended December 31, +2024 from approximately $4.9 million for the fiscal year ended December 31, 2023. This increase was primarily due to an increase in advertising, +marketing, payroll and other administrative expenses and administrative cost of public filings of approximately $1.1 million and an +increase in management compensation costs of approximately $0.7 million for the fiscal year ended December 31, 2024, compared to such +costs for the fiscal year ended December 31, 2023. +Liquidity and Capital Resources +As +of December 31, 2024, the Company had an accumulated deficit of $12,006,357 and cash balance of $2,660,624. During the years ended +December 31, 2024 and 2023, we had a net loss of $6,393,932 and $4,931,197, respectively. To date, the Company has financed its operations +primarily through capital raises and sales of its services. In April 2024, the Company filed the Shelf Registration Statement, which +was declared effective by the SEC on April 26, 2024, for potential offerings of up to $100,000,000 in aggregate, subject to the requirement +that in no event may we sell shares having a value exceeding more than one-third of our public float in any 12-month period under the +Shelf Registration Statement so long as our public float remains below $75,000,000. In May 2024, the Company completed the first of a +two-part private placement of its Series A Preferred Stock for gross proceeds of $1.5 million, and in July 2024, the Company completed +the second part of the private placement for an additional $1.5 million in gross proceeds. In September 2024, the Company entered into +the ATM Sales Agreement, and filed a prospectus supplement to the Shelf Registration Statement for the ATM Financing for gross proceeds +of up to $1,791,704. As of March 31, 2025, the Company has filed additional prospectus supplements to the Shelf Registration Statement +to increase the maximum gross proceeds to $5,489,399. Since the commencement of the ATM Financing, a total of 5,417,700 shares has been +sold, for net proceeds to the Company of $4,830,647.56, after paying $329,362 in compensation to the Sales Agent and the same amount +to Boustead under the Boustead ATM Waiver. The Company has received confirmation +from the investor in its Series A Preferred Stock that it will invest up to an additional $3 million upon request by the Company. Based on the Company’s existing cash resources and the cash expected to be received +from the ATM Financing and other planned financings, it is expected that the Company will have sufficient funds to carry out the Company’s +planned operations through December 31, 2025 and for at least 12 months beyond that period. +We may, however, in the +future require additional cash resources due to changing business conditions, implementation of our strategy to expand our business, or +other investments or acquisitions we may decide to pursue. If our own financial resources are insufficient to satisfy our capital requirements, +we may seek to sell additional equity or debt securities or obtain additional credit facilities. The sale of additional equity securities +could result in dilution to our stockholders. The incurrence of indebtedness would result in increased debt service obligations and could +require us to agree to operating and financial covenants that would restrict our operations. Financing may not be available in amounts +or on terms acceptable to us, if at all. Any failure by us to raise additional funds on terms favorable to us, or at all, could limit +our ability to expand our business operations and could harm our overall business prospects. +43 +Summary of Cash Flow +The following table provides detailed information +about our net cash flow for the periods presented: +Years Ended December 31, +2024 +2023 +Net cash used in operating activities +$ (4,900,057 ) +$ (3,807,623 ) +Net cash used in investing activities +(400,000 ) +(113,559 ) +Net cash provided by financing activities +5,036,358 +6,708,328 +Net change in cash +(263,699 ) +2,787,146 +Cash at beginning of year +2,924,323 +137,177 +Cash at end of year +$ 2,660,624 +$ 2,924,323 +Net cash used in operating activities was approximately +$ 4.9 million for the fiscal year ended December 31, 2024, as compared to net cash used +in operating activities of approximately $3.8 million for the fiscal year ended December 31, 2023. This increase was primarily due to +an increase in net loss. +Net cash used in investing activities was $ 0.4 +million for the fiscal year ended December 31, 2024, as compared to net cash used in operating activities of approximately $0.1 for the +fiscal year ended December 31, 2023. The change was primarily due to the purchase of intangible +assets during the fiscal year ended December 31, 2024 compared to a lesser amount of such +purchases during the fiscal year ended December 31, 2023. +Net cash provided by financing activities was +approximately $5.0 million for the fiscal year ended December 31, 2024, as compared to net cash provided by financing activities of +approximately $6.7 million for the fiscal year ended December 31, 2023. The change was primarily due to the reduced amount of proceeds +from the Company’s private placements during the fiscal year ended December 31, 2024 compared to the proceeds received from its +February 2023 initial public offering. +Initial Public +Offering and Underwriting Agreement +The closing of our initial public offering took +place on February 7, 2023 pursuant to the Underwriting Agreement. At the closing, the Company sold 300,000 shares of Class B Common Stock +for total gross proceeds of $7,500,000. The Company also issued the Representative’s Warrant. After +deducting the underwriting discounts, commissions, non-accountable expense allowance, and other expenses from the initial public offering, +the Company received net proceeds of approximately $6.6 +million. +Pursuant to the Underwriting Agreement, as of +February 3, 2023, we were subject to a lock-up agreement that prevented us, subject to certain exceptions, from selling or transferring +any of our shares of capital stock of the Company for up to 12 months. In addition, our officers, directors and beneficial owners of approximately +78.0% of our common stock agreed to be locked up for a period of 12 months. Holders of approximately 7.2% of our outstanding common stock +agreed to be locked up for a period of nine months, and a holder of approximately 2.3% of our outstanding Class B Common Stock prior to +the initial public offering agreed to be locked up for a period of six months with respect to approximately 0.9% of the outstanding common +stock held by such holder, subject to certain exceptions. The remaining shares were not subject to lock-up provisions or such lock-up +provisions were waived. This lock-up period expired on February 2, 2024. +As stated in the IPO Public Offering Prospectus, +the Company intended to use the net proceeds from the initial public offering for investment in corporate infrastructure, marketing and +promotion of Discord communities, social campaigns, and the Company’s “AE.360.DDM” Discord design, development and management +service, expansion of “SiN”, the Company’s social influencer network, increasing staff and company personnel, and general +working capital, operating, and other corporate expenses. +The following is our +reasonable estimate of the uses of the proceeds from the Company’s initial public offering from the date of the closing of the offering +on November 16, 2023 until December 31, 2024: +● None was used for construction of plant, building and facilities; +● None was used for the purchase and installation of machinery and equipment; +● None was used for purchases of real estate; +● Approximately $0.3 million was used for the acquisition of assets of other businesses; +● None was used for the repayment of indebtedness; +● Approximately $6.3 million was used for working capital; and +● None was used for temporary investments. +44 +As of December 31, 2024, +none of the proceeds from the initial public offering were used to make direct or indirect payments to any of our directors or officers, +any of their associates, any persons owning 10% or more of any class of our equity securities, or any of our affiliates, or direct or +indirect payments to any others other than for the direct costs of the offering. +There has not been, and +we do not expect, any material change in the planned use of proceeds from the initial public offering as described in the IPO Registration +Statement. +Engagement Letter +and Underwriting Agreement with Boustead Securities, LLC +Under the engagement letter agreement, dated November +29, 2021, between the Company and Boustead (the “Boustead Engagement Letter”), during the term that began on November 29, +2021 and ending 12 months following the termination or expiration of the Boustead Engagement letter, which occurred on February 7, 2024 +(see below), we were required to compensate Boustead with a cash fee equal to seven percent (7.0%) +and non-accountable expense allowance equal to one percent (1.0%) of the gross proceeds received by the Company from the sale of securities +in an investment transaction, or up to ten percent (10.0%) of the gross proceeds from certain other merger, acquisition, or joint venture, +strategic alliance, license, research and development, or other similar transactions, with a party, including any investor in a private +placement in which Boustead served as placement agent or in the initial public offering, or who became aware of the Company or who became +known to the Company prior to the termination or expiration of the Boustead Engagement Letter, including any Company officers, directors, +employees, consultants, advisors, stockholders, members, or partners, for such transactions that occurred during the 12-month period following +the termination or expiration of the Boustead Engagement Letter (the “Tail Rights”). The Boustead Engagement Letter +expired on February 7, 2024. The Tail Rights therefore expired on February 7, 2025. +Pursuant to the Underwriting +Agreement, the Company granted Boustead an irrevocable right of first refusal until February 2, 2025, to act as financial advisor, lead +managing underwriter, book runner, placement agent, or to act as joint advisor, managing underwriter, book runner, or placement agent +on at least equal economic terms, on any public or private financing (debt or equity), merger, business combination, recapitalization +or sale of some or all of the equity or assets of the Company. This right of first refusal expired on February 7, 2025. +October 2023 and April 2024 Private Placements +with Triton Funds LP +Sales to Triton Funds +LP +Under a Closing Agreement, +dated as of June 30, 2023 (the “Triton Closing Agreement”), between the Company and Triton Funds LP, a Delaware limited partnership +(“Triton”), the Company agreed to sell to Triton, at its option, shares of Class B Common Stock having an aggregate value +of $1,000,000 (“Triton Shares”), pursuant to a registration statement to be filed and made effective for the resale of the +Triton Shares. Subject to the terms of the Triton Closing Agreement, the Company was provided a right to deliver a closing notice (the +“Triton Closing Notice”) and issue the Triton Shares to Triton at any time before September 30, 2023, pursuant to which Triton +had agreed to purchase the Triton Shares for $1,000,000 before deducting a $25,000 administrative fee. The price of each of the Triton +Shares was agreed to be 85% of the lowest daily volume-weighted average price of the Class B Common Stock during the five business days +prior to the closing of the purchase of the Triton Shares (the “Triton Closing”). The Triton Closing was required to occur +within five business days after the Triton Shares were received by Triton. Triton’s obligation to purchase the Triton Shares was +conditioned on the effectiveness of a registration statement covering the resale of the Triton Shares and Triton’s ownership not +exceeding 9.99% of the Class B Common Stock outstanding as of June 30, 2023. +The Triton Closing Agreement +contained additional requirements, including that the Company maintain the listing of the Class B Common Stock on the primary market on +which the Class B Common Stock is listed and provide notice to Triton of certain events affecting registration or that may suspend its +right to submit the Triton Closing Notice. The Company also agreed to provide indemnification against liabilities relating to misrepresentations, +breaches of obligations, and third-party claims relating to the Triton Closing Agreement, with certain exceptions. The Triton Closing +Agreement provided that it would expire either upon the Triton Closing or September 30, 2023. +45 +Under an Amended and +Restated Closing Agreement, dated as of August 1, 2023, between the Company and Triton (the “Triton Amended and Restated Closing +Agreement”), the Closing Agreement was amended and restated to provide that, subject to its terms and conditions, the Company may +deliver a Triton Closing Notice and issue certain securities to Triton at any time on or before September 30, 2023, pursuant to which +Triton would be required to purchase such securities of the Company with an aggregate gross purchase price of $1,000,000 in the following +manner. Upon delivery of a Triton Closing Notice and the issuance and delivery of securities as described below, Triton would purchase +Triton Shares in an amount equal to up to 9.99% of the outstanding shares of Class B Common Stock following such purchase, pre-funded +warrants (“Triton Pre-Funded Warrants” and together with Triton Shares, “Triton Securities”) that may be exercised +to purchase an amount of newly-issued shares of Class B Common Stock (“Triton Warrant Shares”), or both Triton Shares and +Triton Pre-Funded Warrants, such that the aggregate price of the Triton Shares and the Triton Pre-Funded Warrants together with the exercise +price to be paid upon full exercise of the Triton Pre-Funded Warrants was required to equal a total gross purchase price of $1,000,000. +Any proceeds under the Triton Amended and Restated Closing Agreement must be reduced by a $25,000 administrative fee. The Triton Amended +and Restated Closing Agreement also provided that it would expire either upon the date that Triton paid the required purchase price after +receiving a Triton Closing Notice, or September 30, 2023. The terms of the price of the Triton Securities and the required date of the +Triton Closing were not amended, except that if Triton elected to purchase Triton Pre-Funded Warrants in lieu of Triton Shares, then the +purchase price per Triton Pre-Funded Warrant acquired would be reduced by $0.01 with such $0.01 being the exercise price of the Triton +Pre-Funded Warrant. +The Triton Amended and +Restated Closing Agreement provided that Triton’s obligation to purchase the Triton Securities was subject to certain conditions. +These conditions included the filing and effectiveness of the required registration statement for the resale of the Triton Securities. +In addition, the Class B Common Stock was required to remain listed on The Nasdaq Capital Market tier of Nasdaq, and the issuance of the +Triton Securities was required to not violate any requirements of Nasdaq. Triton’s purchase requirement was also subject to provisions +that prevented Triton from acquiring shares of Class B Common Stock at the time of any sale of the Triton Securities or exercise of the +Triton Pre-Funded Warrants that would result in the number of shares beneficially owned by Triton and its affiliates exceeding 9.99% of +the total number of shares of Class B Common Stock outstanding immediately after giving effect to the issuance of the shares under the +Triton Amended and Restated Closing Agreement or the Triton Pre-Funded Warrants (the “Triton Beneficial Ownership Limitation”). +The Triton Amended and Restated Closing Agreement provided for the issuance of the Triton Pre-Funded Warrants in lieu of issuance of some +or all the Triton Shares, with an exercise price of $0.01 per share and with no expiration date, if, in Triton’s sole discretion, +it would otherwise exceed the Triton Beneficial Ownership Limitation, or otherwise upon Triton’s election. For each of the Triton +Shares that Triton instead elected to be issuable as Triton Warrant Shares, the number of Triton Shares that we were required to issue +to Triton at the time of any sale of the Triton Securities was required to be decreased on a one-for-one basis. We were also required +to provide indemnification against liabilities relating to misrepresentations, breaches of obligations, and third-party claims relating +to the Triton Amended and Restated Closing Agreement, with certain exceptions. +On August 18, 2023, the +Company filed a Registration Statement on Form S-1 (File No. 333-274079) to register the offer and sale of the Triton Securities in an +amount of up to 177,000 shares of Class B Common Stock consisting of Triton Shares and Triton Warrant Shares, as well as other securities. +The registration statement was declared effective by the SEC on September 6, 2023. +Under an Amendment to +Triton Amended and Restated Closing Agreement (the “First Triton Amendment”), dated as of September 27, 2023, the Company +and Triton agreed to amend the Triton Amended and Restated Closing Agreement (as amended, the “Amended A&R Closing Agreement”) +to provide that the Amended A&R Closing Agreement would expire on December 30, 2023 instead of September 30, 2023; to provide that +up to an aggregate value of $1,000,000 of the Class B Common Stock, based on the purchase price formula described above, may be sold and +purchased pursuant to a Triton Closing Notice; and to amend the form of Triton Closing Notice to provide for a specific number of shares +that may be sold to Triton under the Amended A&R Closing Agreement. The First Triton Amendment did not amend any of the other provisions +of the Triton Amended and Restated Closing Agreement. +As an incentive to Triton +to enter into the First Triton Amendment and agree to the extension of the term under the Amended A&R Closing Agreement to December +30, 2023, the Company indicated to Triton that it would deliver a Triton Closing Notice under the Amended A&R Closing Agreement to +sell a number of shares of Class B Common Stock equal to approximately 4.9% of the outstanding shares of Class B Common Stock prior to +the sale. Therefore, on September 29, 2023, under the Amended A&R Closing Agreement, the Company delivered a Triton Closing Notice +to Triton (the “First Triton Closing Notice”) for the purchase of 52,682 Triton Shares (the “First Triton Shares”), +which was the amount of shares of Class B Common Stock equal to approximately 4.9% of the shares of Class B Common Stock outstanding on +that date. Pursuant to the Amended A&R Closing Agreement, the closing date for this purchase was required to take place within five +business days after the Triton Shares were delivered to Triton. On the date of this Triton Closing (the “First Triton Closing”), +Triton was required to pay the Company a purchase price per share equal to 85% of the lowest daily volume-weighted average price of the +Class B Common Stock during the five business days prior to the date of the First Triton Closing, the proceeds of which would be reduced +by the $25,000 administrative fee, in accordance with the terms of the Amended A&R Closing Agreement. +46 +On October 4, 2023, the +First Triton Shares were received by Triton. Pursuant to the Amended A&R Closing Agreement, on the fifth business day following the +day that the First Triton Shares were received, Triton was required to pay the Company approximately $45,841, based on a price per share +of $1.3447, equal to 85% of $1.582, the lowest daily volume-weighted average price of the Class B Common Stock during the five-business-day +period ending October 11, 2023, less the $25,000 administrative fee. The Company received payment of this amount on October 13, 2023. +Under a Second Amendment +to Triton Amended and Restated Closing Agreement (the “Second Triton Amendment”), dated as of December 30, 2023, the Company +and Triton agreed to amend the Amended A&R Closing Agreement to provide that the Amended A&R Closing Agreement would expire on +March 31, 2024, instead of December 30, 2023. The Second Triton Amendment did not amend any of the other provisions of the Amended A&R +Closing Agreement. +Under a Third Amendment +to Amended and Restated Closing Agreement (the “Third Triton Amendment”), dated as of March 29, 2024, the Company and Triton +agreed to amend the Amended A&R Closing Agreement to provide that the Amended A&R Closing Agreement would expire on April 30, +2024, instead of March 31, 2024. The Third Triton Amendment did not amend any of the other provisions of the Amended A&R Closing Agreement. +Pursuant to the Amended +A&R Closing Agreement, as amended by each of the Second Triton Amendment and the Third Triton Amendment, on March 27, 2024, the Company +delivered a Triton Closing Notice to Triton informing Triton that the Company had elected to exercise its right to sell Triton 124,318 +Triton Shares (the “Second Triton Shares”). The price of each of the Second Triton Shares was required to be 85% of the lowest +daily volume-weighted average price of the Class B Common Stock during the five business days prior to the Triton Closing for the sale +of the Second Triton Shares (the “Second Triton Closing”), and the Second Triton Closing was required to occur within five +business days after the date that the Second Triton Shares were received by Triton. +On April 10, 2024, the +date of the Second Triton Closing, the price of the Second Triton Shares was determined to be $1.70 per share based on the lowest daily +volume-weighted average price of the Class B Common Stock during the five business days prior to the Second Triton Closing. On April 17, +2024, the Company received gross proceeds of $211,341. +Compensation to Boustead +Securities, LLC +In connection with the +First Triton Closing, pursuant to the Boustead Engagement Letter and the Underwriting Agreement, the Company was required to pay Boustead +a fee equal to 7% of the aggregate purchase price, and non-accountable expense allowance equal to 1% of the aggregate purchase price for +the First Triton Shares. In addition, the Company issued a warrant to Boustead for the purchase of 3,688 shares of Class B Common Stock, +equal to 7% of the number of the First Triton Shares, with an exercise price of $1.3447 per share, subject to adjustment, a five-year +term, and cashless exercise and registration rights. +In connection with the +Second Triton Closing, pursuant to the Boustead Engagement Letter and the Underwriting Agreement, the Company paid Boustead, as placement +agent compensation, a fee equal to 7% of the aggregate purchase price and a non-accountable expense allowance equal to 1% of the aggregate +purchase price for the Second Triton Shares. In addition, the Company issued a warrant to Boustead for the purchase of 8,702 shares of +Class B Common Stock, equal to 7% of the number of the Second Triton Shares, with an exercise price of $1.70 per share, subject to adjustment, +a five-year term, and cashless exercise and registration rights. +June 2024 TommyBoyTV +Asset Purchase Agreement +Under an Asset Purchase +Agreement (the “TBTV Asset Purchase Agreement”), dated as of June 21, 2024, among the Company, TommyBoyTV, LLC (the “TBTV +Seller”), and Tomas Cvercko, the owner of all of the membership interests of the TBTV Seller (the “TBTV Member”), the +Company agreed to purchase all of the TBTV Seller’s right, title, and interest in and to substantially all of the assets and properties +owned by the TBTV Seller and used in connection with its business of Discord development, social media, online community management, marketing, +and analytics for the payment of $200,000 in cash (the “TBTV Cash Consideration”) and the issuance of 5,000 shares of Class +B Common Stock (the “TBTV Stock Consideration”). +Pursuant to the TBTV +Asset Purchase Agreement, on June 21, 2024, the Company paid the TBTV Seller $200,000 and issued the TBTV Stock Consideration to the TBTV +Member, and the TBTV Seller and the TBTV Member delivered title to all of the assets of the TBTV Seller. The TBTV Stock Consideration +vested immediately upon issuance. +47 +Pursuant to the TBTV +Asset Purchase Agreement, the Company agreed to assume certain liabilities including the obligations, duties and liabilities with respect +to the contracts used in conducting or relating to the business of the TBTV Seller and other specified assets, in each case only to the +extent arising from and after June 21, 2024. These assumed liabilities also exclude any obligations arising from the TBTV Seller’s +breach or default before June 21, 2024. +The TBTV Asset Purchase +Agreement also contains mutual indemnification provisions with respect to breaches of representations and warranties as well as to certain +third-party claims, and indemnification by the Company of the TBTV Seller and the TBTV Member with respect to certain damages with respect +to the assumed liabilities and certain other liabilities asserted by a third party arising after June 21, 2024. In the case of indemnification +provided with respect to breaches of certain non-fundamental representations and warranties, the indemnifying party will only become liable +for indemnified losses to the extent that the amount exceeds an aggregate threshold of $25,000. However, this threshold limitation does +not apply to claims by the Company for breaches by the TBTV Seller or the TBTV Member of certain fundamental representations and warranties. +In addition, the Company’s aggregate remedy with respect to any and all indemnifiable losses may in no event exceed the purchase +price, consisting of the TBTV Cash Consideration. +Private Placements of Series A Preferred +Stock +Under the Ionic Purchase +Agreement, the Company agreed to the issuance and sale of up to 330 shares of the Company’s newly designated Series A Preferred +Stock for maximum gross proceeds of $3,000,000. The shares of the Series A Preferred Stock are convertible into shares of Class B Common +Stock. Pursuant to the Ionic Purchase Agreement, the Company is required to issue and sell 165 shares of Series A Preferred Stock at each +of two closings subject to the satisfaction of the terms and conditions for each closing. +The first closing (the “First Ionic Closing”) +occurred on May 24, 2024 for the issuance and sale of 165 shares of Series A Preferred Stock for gross proceeds of $1,500,000. The second +closing (the “Second Ionic Closing”), for the issuance and sale of 165 shares of Series A Preferred Stock for gross proceeds +of $1,500,000, was required to occur on the first business day on which the conditions specified in the Ionic Purchase Agreement for the +Second Ionic Closing were satisfied or waived, including the filing and effectiveness of the First Registration Statement (as defined +below) and the effectiveness of the Stockholder Approval (as defined below). On July 29, 2024, the conditions to the occurrence of the +Second Ionic Closing were met. As a result, on July 29, 2024, the Company issued and sold 165 shares of Series A Preferred Stock to Ionic +for gross proceeds of $1,500,000. +Registration Rights +Agreement +In connection with the Ionic Purchase Agreement, +the Company agreed to provide certain registration rights to Ionic, pursuant to the Registration Rights Agreement, dated as of May 24, +2024, between the Company and Ionic (the “Ionic Registration Rights Agreement”). The Ionic Registration Rights Agreement provides +for the registration for resale of any and all shares of Class B Common Stock issuable to Ionic with respect to the shares of Series A +Preferred Stock under the Ionic Purchase Agreement (the “Registrable Conversion Shares”). Within the later of 15 calendar +days of the First Ionic Closing or May 24, 2024, the Company was required to file a registration statement (the “First Registration +Statement”) for the offer and resale of the maximum number of Registrable Conversion Shares permitted to be covered in accordance +with applicable SEC rules, regulations and interpretations. The First Registration Statement was required to be declared effective within +45 days of the First Ionic Closing, or 90 days if the First Registration Statement received a review. Pursuant to these requirements, +a Registration Statement on Form S-1 (File No. 333-280020), was originally filed by the Company with the SEC on June 7, 2024, and as amended, +was filed to register the offer and resale of 385,894 shares of Class B Common Stock, which was considered the maximum number of +Registrable Conversion Shares permitted to be covered in accordance with applicable SEC rules, regulations and interpretations, and was +declared effective by the SEC on July 24, 2024. Following the Second Ionic Closing, which occurred on July 29, 2024, for the issuance +and sale of an additional 165 shares of Series A Preferred Stock for gross proceeds of $1,500,000, the Company was required to file a +registration statement (the “Second Registration Statement”) within 45 days of the Second Ionic Closing for the offer and +resale of the maximum number of Registrable Conversion Shares permitted to be covered in accordance with applicable SEC rules, regulations +and interpretations. The Second Registration Statement was required to be declared effective within 45 days of the Second Ionic Closing, +or 90 days if the Second Registration Statement received a review. Pursuant to these requirements, a Registration Statement on Form S-1 +(File No. 333-281438), was originally filed by the Company with the SEC on August 9, 2024, and as amended, was filed to register the offer +and resale of 482,120 shares of Class B Common Stock, which was considered the maximum number of Registrable Conversion Shares permitted +to be covered in accordance with applicable SEC rules, regulations and interpretations, and was declared effective by the SEC on September +11, 2024. +48 +In the event the number +of shares of Class B Common Stock available under the First Registration Statement and the Second Registration Statement is insufficient +to cover all of the Registrable Conversion Shares, the Company will be required to file at least one additional registration statement +(each of such additional registration statement, the First Registration Statement, and the Second Registration Statement, and collectively, +the “Registration Statement”) within 14 days of the date that the necessity arises and that such additional Registration Statement +may be filed under SEC rules to cover such Registrable Conversion Shares up to the maximum permitted to be covered under SEC rules, which +must be made effective within 45 days of such date, or 90 days if such additional Registration Statement receives a review. Any failure +to meet the filing deadline for either the First Registration Statement or the Second Registration Statement (“Filing Failure”) +would have resulted in liquidated damages of 20,000 shares of Class B Common Stock. Any failure to meet the effectiveness deadline for +any Registration Statement (“Effectiveness Failure”) will result in liquidated damages of 20,000 shares of Class B Common +Stock. Each of the shares issuable upon a Filing Failure or an Effectiveness Failure must also be covered by a Registration Statement +to the same extent as the Registrable Conversion Shares. The Company will be required to use its best efforts to keep each Registration +Statement effective until all such shares of Class B Common Stock are sold or may be sold without restriction pursuant to Rule 144 under +the Securities Act (“Rule 144”), and without the requirement for us to be in compliance with the current public information +requirement under Rule 144. +Terms of Series A +Convertible Preferred Stock under Certificate of Designation and Securities Purchase Agreement +Pursuant to the Ionic +Purchase Agreement, on May 24, 2024, the Company filed a Certificate of Designation of Series A Convertible Preferred Stock of the Company +with the Secretary of State of the State of Nevada (the “Initial Certificate of Designation”), as amended by the Certificate +of Amendment to Designation (the “First Designation Amendment”) filed with the Secretary of State of the State of Nevada on +June 14, 2024, as amended by the Certificate of Amendment to Designation (the “Second Designation Amendment”) filed with the +Secretary of State of the State of Nevada on September 4, 2024 at 9:58 AM Pacific Daylight Time, as amended by the Certificate of Amendment +to Designation (the “Third Designation Amendment”) filed with the Secretary of State of the State of Nevada on September 4, +2024 at 11:38 AM Pacific Daylight Time (as amended, the “Series A Certificate of Designation”), designating 660 shares of +the Company’s preferred stock as “Series A Convertible Preferred Stock,” $0.0001 par value per share, and setting forth +the voting and other powers, preferences and relative, participating, optional or other rights of the Series A Preferred Stock. Each share +of Series A Preferred Stock has an initial stated value (“Stated Value”) of $10,000 per share. +The Series A Preferred +Stock ranks senior to all other capital stock of the Company with respect to the payment of dividends, distributions and payments upon +the liquidation, dissolution and winding up of the Company, unless the holders of the majority of the outstanding shares of Series A Preferred +Stock consent to the creation of other capital stock of the Company that is senior or equal in rank to the Series A Preferred Stock. +Holders of Series A Preferred +Stock will be entitled to receive cumulative dividends, in shares of Class B Common Stock (or cash at the Company’s option) on the +Stated Value at an annual rate of 6% (which will increase to 12% if a Triggering Event (as defined in the Series A Certificate of Designation) +occurs until such Triggering Event, if curable, is cured). Dividends will be payable upon conversion or redemption of the Series A Preferred +Stock. +Holders of Series A Preferred +Stock will be entitled to convert shares of Series A Preferred Stock into a number of shares of Class B Common Stock determined by dividing +the Stated Value of such shares (plus any accrued but unpaid dividends and other amounts due, unless paid by the Company in cash) by the +conversion price of the Series A Preferred Stock (the “Conversion Price”). The initial Conversion Price is $3.75, subject +to adjustment including adjustments due to full-ratchet anti-dilution provisions. Holders may elect to convert shares of Series A Preferred +Stock to Class B Common Stock at an alternate conversion price equal to 85% (or 70% if the Company’s Class B Common Stock is suspended +from trading on or delisted from a principal trading market or upon occurrence of a Triggering Event) of the average of the lowest daily +volume weighed average price of the Class B Common Stock during the Alternate Conversion Measuring Period (as defined in the Series A +Certificate of Designation). +A holder of Series A +Preferred Stock may not convert the Series A Preferred Stock into Class B Common Stock to the extent that such conversion would cause +such holder’s beneficial ownership of Class B Common Stock to exceed 4.99% of the outstanding Class B Common Stock immediately after +conversion, which may be increased by the holder to up to 9.99% upon no fewer than 61 days’ prior notice (the “Series A Beneficial +Ownership Limitation”). Any conversion of shares of Series A Preferred Stock that would result in the holder beneficially owning +in excess of 4.99% of the shares of Class B Common Stock will not be effected, and the shares of Class B Common Stock that would cause +such excess will be held in abeyance and not issued to the holder until the date the Company is notified by the holder that its ownership +is less than 4.99%, at the applicable Conversion Price, and subject to the holder’s compliance with other applicable procedural +requirements for conversion. Holders of Series A Preferred Stock are not prohibited from delivering a Conversion Notice (as defined by +the Series A Certificate of Designation) while another Conversion Notice remains outstanding. +49 +The Series A Certificate +of Designation provides that the Conversion Price may not be lower than a floor price (the “Floor Price”) of $0.4275 per share, +subject to adjustment for stock splits and similar transactions. If the Conversion Price would be less than the Floor Price, then, subject +to the terms and conditions of the Series A Certificate of Designation, the Stated Value will automatically increase in the manner provided +pursuant to the Series A Certificate of Designation, as described in the following paragraph. The Series A Preferred Stock also may not +be converted except to the extent that the shares of Class B Common Stock issuable upon such conversion may be resold pursuant to Rule +144 or an effective and available registration statement. +If a conversion of Series +A Preferred Stock would have resulted in the issuance of an amount of shares of Class B Common Stock exceeding 19.99% of the Company’s +common stock outstanding as of the date of the signing of the related binding agreement, which number of shares would be reduced, on a +share-for-share basis, by the number of shares of common stock issued or issuable pursuant to any transaction or series of transactions +that may be aggregated with the transactions contemplated by the Series A Certificate of Designation under applicable rules of Nasdaq, +including Nasdaq Listing Rule 5635(d) (such amount, the “Exchange Limitation”), the Conversion Price would have been required +to be at least equal to the price (the “Minimum Price”) that would be the lower of the last closing price of the stock immediately +preceding the signing of the related binding agreement and the average closing price for the five Trading Days (as defined below) immediately +preceding the signing of the related binding agreement, before the effectiveness of the approval of such number of the holders of the +outstanding shares of the Company’s voting securities as required by the Bylaws of the Company (the “Bylaws”) and the +NRS, to ratify and approve all of the transactions contemplated by the Transaction Documents (as defined in the Ionic Purchase Agreement), +including the issuance of all of the shares of Series A Preferred Stock and shares of Class B Common Stock upon conversion of the shares +of Series A Preferred Stock, all as may be required by the applicable rules and regulations of The Nasdaq Capital Market tier of Nasdaq +(or any successor entity) (the “Stockholder Approval”). In the event that the Conversion Price on a Conversion Date (as defined +in the Series A Certificate of Designation) would have been less than the applicable Minimum Price or the Floor Price if not for the immediately +preceding sentence, then, upon any conversion of shares of Series A Preferred Stock, the Stated Value will automatically be increased +by an amount equal to the product obtained by multiplying (A) the higher of (I) the highest price that the Class B Common Stock trades +at on the Trading Day immediately preceding the Conversion Date and (II) the applicable Conversion Price and (B) the difference obtained +by subtracting (I) the number of shares of Class B Common Stock delivered (or to be delivered) to the holder on the applicable Conversion +Date with respect to such conversion of shares of Series A Preferred Stock from (II) the quotient obtained by dividing (x) the Stated +Value (plus any accrued but unpaid dividends and other amounts due on such shares) of the Series A Preferred Stock being converted that +the holder has elected to be the subject of the applicable conversion, by (y) the applicable Conversion Price. +The Ionic Purchase Agreement +required that the Company obtain the Stockholder Approval, by the prior written consent of the requisite stockholders as required by the +Bylaws and the NRS, to ratify and approve all of the transactions contemplated by the Transaction Documents, including the issuance of +all of the shares of Series A Preferred Stock and shares of Class B Common Stock issuable upon conversion of such shares pursuant to the +Ionic Purchase Agreement, all as may be required by the applicable rules and regulations of The Nasdaq Capital Market tier of Nasdaq (or +any successor entity). The Ionic Purchase Agreement and the Series A Certificate of Designation further required that the Company file +a Preliminary Information Statement on Schedule 14C with the SEC within 10 days of the date of the First Ionic Closing followed by the +filing of a Definitive Information Statement on Schedule 14C with the SEC within 20 days of the date of the First Ionic Closing, or within +45 days of the date of the First Ionic Closing if delayed due to a court or regulatory agency, including but not limited to the SEC, which +was required to disclose the Stockholder Approval. In accordance with the rules of the SEC, the Stockholder Approval was required to become +effective 20 days after the Definitive Information Statement was sent or given in accordance with SEC rules. +In accordance with the +requirements and provisions described above, on May 24, 2024, the Company obtained the execution of a written consent in lieu of a special +meeting of a majority of the voting power of the stockholders of the Company approving a resolution approving the issuance of Class B +Common Stock in aggregate in excess of the limitations provided by Nasdaq Listing Rule 5635(d), including that an amount of shares of +Class B Common Stock equal to or greater than 20% of the total common stock or voting power outstanding on the date of the Series A Certificate +of Designation may be issued pursuant to the Series A Certificate of Designation at a price that may be less than the Minimum Price. On +May 31, 2024, the Company filed a Preliminary Information Statement on Schedule 14C with the SEC. On June 13, 2024, the Company filed +a Definitive Information Statement on Schedule 14C with the SEC disclosing such written consent. As of the 20 th day following +actions meeting these and other applicable requirements, the Company is permitted to issue more than the limited number of shares as defined +by the Exchange Limitation, at a Conversion Price that may be below the Minimum Price. +50 +Under the Ionic Purchase +Agreement, if the closing price of the Class B Common Stock falls below $3.75 per share, the holder’s total sales of Class B Common +Stock will be restricted. The holder may only sell either the greater of $25,000 per Trading Day or 15% of the daily trading volume of +the Class B Common Stock reported by Bloomberg, LP, until the closing price exceeds $3.75. “Trading Day” is defined as a day +on which the principal trading market for the Class B Common Stock is open for trading for at least six hours. +In addition, while any +of the shares of Series A Preferred Stock are outstanding, if the closing price of the Class B Common Stock is equal to or less than $0.4275 +per share for a period of ten consecutive Trading Days, then the Company will promptly take all corporate action necessary to authorize +a reverse stock split of the Class B Common Stock by a ratio equal to or greater than 300% of the quotient obtained by dividing $0.4275 +by the lowest closing price of the Class B Common Stock during such ten-Trading Day period, including calling a special meeting of stockholders +to authorize such reverse stock split or obtaining written consent for such reverse stock split, and voting the management shares of the +Company in favor of such reverse stock split. +The Series A Preferred +Stock will automatically convert to Class B Common Stock upon the 24-month anniversary of the initial issuance date of the Series A Preferred +Stock. +The Company will have +the right at any time to redeem all or any portion of the Series A Preferred Stock then outstanding at a price equal to 110% of the Stated +Value plus any accrued but unpaid dividends and other amounts due. +Holders of the Series +A Preferred Stock will generally have the right to vote on an as-converted basis with the Class B Common Stock, subject to the Series +A Beneficial Ownership Limitation. +Under the Ionic Purchase +Agreement, the Company generally may not sell securities in a financing transaction while Ionic beneficially owns any shares of Series +A Preferred Stock or common stock until the end of the 30-day period following the initial date of the effectiveness of each Registration +Statement or during any Alternate Conversion Measuring Period. In addition, the Company may not file any other registration statement +or any offering statement under the Securities Act, other than a registration statement on Form S-8 or supplements or amendments to registration +statements that were filed and effective as of the date of the Ionic Purchase Agreement (solely to the extent necessary to keep such registration +statements effective and available and not with respect to any Subsequent Placement (as defined by the Ionic Purchase Agreement)), unless +each of the First Registration Statement and the Second Registration Statement is effective and the respective prospectuses are available +for use, or the outstanding shares of Series A Preferred Stock and underlying shares of Class B Common Stock may be resold without limitation +under Rule 144. Additionally, the Company may not, directly or indirectly, redeem, or declare or pay any cash dividend or distribution +on, any securities of the Company without the prior express written consent of Ionic (other than as required by the Series A Certificate +of Designation). +Compensation to Boustead +Securities, LLC +In connection with each +of the First Ionic Closing and the Second Ionic Closing, pursuant to the Boustead Engagement Letter and the Underwriting Agreement, the +Company was required to pay Boustead a fee equal to 7% of the aggregate purchase price and a non-accountable expense allowance equal to +1% of the aggregate purchase price for the Series A Preferred Stock. On the date of the First Ionic Closing, we therefore paid Boustead +a total amount of $120,000. In addition, the Company was required to issue a warrant to Boustead for the purchase of 30,800 shares of +Class B Common Stock, equal to 7% of the number of shares of Class B Common Stock that may be issued upon conversion of the shares of +Series A Preferred Stock sold at the First Ionic Closing at the initial Conversion Price of $3.75 per share (the “May 2024 Boustead +Warrant”). On the date of the Second Ionic Closing, we paid Boustead a total amount of $120,000. In addition, on the date of the +Second Ionic Closing, the Company was required to issue a warrant to Boustead for the purchase of 30,800 shares of Class B Common Stock, +equal to 7% of the number of shares of Class B Common Stock that may be issued upon conversion of the shares of Series A Preferred Stock +sold at the Second Ionic Closing at the initial Conversion Price of $3.75 per share (the “July 2024 Boustead Warrant”). +51 +Pursuant to an Assignment +and Assumption Agreement, dated as of July 30, 2024, among Boustead, Sutter Securities, Inc., a registered broker-dealer and an affiliate +of Boustead (“Sutter”), and the Company (the “First July 2024 Boustead Warrant Assignment Agreement”), all of +the rights to the July 2024 Boustead Warrant were assigned by Boustead to Sutter. Pursuant to an Assignment and Assumption Agreement, +dated as of July 30, 2024, among Sutter, Michael R. Jacks (the “Warrant Assignee”), Boustead, and the Company (the “Second +July 2024 Boustead Warrant Assignment Agreement”), all of the rights to the July 2024 Boustead Warrant were assigned by Sutter to +the Warrant Assignee, a registered representative of Sutter. Pursuant to the First July 2024 Boustead Warrant Assignment Agreement and +the Second July 2024 Boustead Warrant Assignment Agreement, the July 2024 Boustead Warrant was cancelled, and a warrant (the “July +2024 Assignee Warrant”) was issued to the Warrant Assignee. The terms of the July 2024 Assignee Warrant are identical to those of +the July 2024 Boustead Warrant. +The May 2024 Boustead +Warrant and the July 2024 Assignee Warrant have an exercise price of $3.75 per share, subject to adjustment, five-year terms, and cashless +exercise and piggyback registration rights. +ATM Financing +ATM Sales Agreement +On September 27, 2024, +the Company entered into the ATM Sales Agreement with the Sales Agent. Under the terms of the ATM Sales Agreement, the Company may, from +time to time, in transactions that are deemed to be “at the market offerings” as defined in Rule 415 under the Securities +Act, issue and sell through or to the Sales Agent, initially up to a maximum aggregate amount of $2,271,487 of shares of the Company’s +Class B Common Stock (the “ATM Shares”). The issuance and sale of the ATM Shares to or through the Sales Agent from time to +time will be effected pursuant to the Shelf Registration Statement and the prospectus supplements filed by the Company with the SEC on +September 30, 2024 and November 18, 2024 relating to the offering of the ATM Shares and the accompanying base prospectus. +Pursuant to the ATM Sales +Agreement, the Company may issue and sell the ATM Shares from time to time through or to the Sales Agent, acting as sales agent or principal, +subject to the terms and conditions of the ATM Sales Agreement. The Company may instruct the Sales Agent to make such sales, and the Sales +Agent, as agent, will use its commercially reasonable efforts to sell the ATM Shares within the parameters set forth in the Company’s +notice to sell, and subject to the satisfaction of the Company’s obligations as set forth in the ATM Sales Agreement. The Company +will designate the parameters within which the ATM Shares must be sold, including at a minimum the number to be sold, the time period +during which sales are requested to be made, any limitation on the number of the ATM Shares that may be sold in any one trading day, and +any minimum price below which sales may not be made. The Company has no obligation to sell, and the Sales Agent is not obligated to buy +or sell, any of the ATM Shares under the ATM Sales Agreement and may at any time suspend offers under the ATM Sales Agreement or terminate +the ATM Sales Agreement as provided for in the ATM Sales Agreement. The offering of the ATM Shares pursuant to the related prospectus +supplements to the Shelf Registration Statement and the accompanying base prospectus will terminate upon the earlier of (i) the sale of +all of the ATM Shares pursuant to such prospectus supplements and accompanying base prospectus having an aggregate sales price of $2,271,487, +and (ii) the termination by the Company or the Sales Agent of the ATM Sales Agreement pursuant to its terms. +Notwithstanding anything +to the contrary in the ATM Sales Agreement, the Sales Agent may only sell the ATM Shares directly into the market at prevailing market +prices in ordinary brokerage transactions that are open to all market participants, and will not sell shares in privately negotiated transactions, +whether acting solely as an agent on behalf of the Company or on a principal basis if agreed by the Sales Agent and the Company. +Unless otherwise agreed +between the Company and the Sales Agent, settlement for sales of the ATM Shares will occur on the first trading day following the date +on which any sales are made. Sales of the ATM Shares will be settled through the facilities of The Depository Trust Company or by such +other means as the Company and the Sales Agent may agree. There is no arrangement for funds to be received in an escrow, trust or similar +arrangement. +The Company will pay +the Sales Agent a cash commission of 3.0% of the gross sales price of the ATM Shares sold by the Sales Agent pursuant to the ATM Sales +Agreement. Pursuant to the terms of the ATM Sales Agreement, the Company also agreed to reimburse the Sales Agent for reasonable fees +and expenses, not to exceed $60,000 (including but not limited to the reasonable and documented fees and disbursements of its legal counsel), +and additional amounts for annual maintenance of the ATM Sales Agreement (including but not limited to the reasonable and documented fees +and disbursements of its legal counsel) on a quarterly basis, not to exceed $5,000 per quarter. +Each of the Company and +the Sales Agent has the right, by giving written notice as specified in the ATM Sales Agreement, to terminate the ATM Sales Agreement +in its sole discretion at any time upon five (5) days’ prior written notice. The Sales Agent also has the right to terminate the +ATM Sales Agreement at any time in certain circumstances, including in the event of the occurrence of a material adverse change with respect +to the Company, the failure of the Company to perform its obligations under the ATM Sales Agreement, any failure to fulfill any condition +to the obligations of the Sales Agent under the ATM Sales Agreement, or any suspension or limitation of trading of the ATM Shares. +52 +The ATM Sales Agreement +contains certain covenants, representations and warranties customary for an agreement of this type. The Company agreed to provide indemnification +and contribution to the Sales Agent against certain liabilities, including liabilities under the Securities Act. +Waivers and Consents to ATM Financing +On September 20, 2024, +the Company entered into a Waiver and Consent, dated as of September 20, 2024 (the “Ionic ATM Waiver”), between the Company +and Ionic, pursuant to which Ionic waived any prohibition, restriction or adverse adjustment that would otherwise apply to any action +of the Company relating to an “at the market offering” (as defined in Rule 415(a)(4) under the Securities Act), of equity +securities of up to $5 million (“Waived ATM Financing”) under the Ionic Purchase Agreement or the Series A Certificate of +Designation. Pursuant to the Ionic ATM Waiver, regardless of the terms and conditions of the Ionic Purchase Agreement and the Series A +Certificate of Designation, the Company may at any time enter into any agreement relating to a Waived ATM Financing, the filing of a prospectus +supplement to a prospectus contained in an effective registration statement that was filed under the Securities Act relating to a Waived +ATM Financing, the announcement of a Waived ATM Financing, the issuance, offer, sale, or grant of any shares of Class B Common Stock relating +to a Waived ATM Financing, or the issuance, offer, sale, or grant of any securities in connection with either the provision of goods or +services or settlement of any obligations that may otherwise arise with respect to a Waived ATM Financing. In addition, pursuant to the +Ionic ATM Waiver, Ionic waived any adjustment to the applicable Conversion Price, which partly determines the number of shares of Class +B Common Stock issuable upon conversion of a share of Series A Preferred Stock, that would otherwise occur as a result of any Waived ATM +Financing under the terms of the Series A Certificate of Designation. +On September 26, 2024, +the Company entered into a Limited Waiver and Consent, dated as of September 26, 2024 (the “Boustead ATM Waiver”), between +the Company and Boustead. Pursuant to the Boustead ATM Waiver, Boustead waived any condition on, restriction on, compensation rights, +or rights of first refusal that would be applicable under the Boustead Engagement Letter and the Underwriting Agreement in relation to +a Waived ATM Financing. Pursuant to the Boustead ATM Waiver, the Company may at any time enter into any agreement relating to a Waived +ATM Financing, the filing of a prospectus supplement to a prospectus contained in an effective registration statement that was filed under +the Securities Act relating to a Waived ATM Financing, the announcement of a Waived ATM Financing, the issuance, offer, sale, or grant +of any shares of the Class B Common Stock relating to a Waived ATM Financing, or the issuance, offer, sale, or grant of any securities +in connection with either the provision of goods or services or settlement of any obligations that may otherwise arise with respect to +a Waived ATM Financing. As consideration, the Boustead ATM Waiver provides that the Company will promptly pay Boustead 3.0% of the gross +sales price of all shares of Class B Common Stock sold in connection with any Waived ATM Financing until the end of the applicability +of the provisions of the right of first refusal provisions of the Boustead Engagement Letter. +Critical Accounting Estimates +This discussion and analysis of our financial +condition and results of operations is based on our financial statements, which have been prepared in accordance with generally accepted +accounting principles in the United States (“GAAP”). The preparation of these financial statements requires us to make estimates +and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at +the date of the financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based +on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which +form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. +Actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are +described in more detail in the notes to our financial statements included with this Annual Report, we believe that the following accounting +policies are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving +management’s judgments and estimates. We believe our most critical accounting policies and estimates relate to the following: +Intangible Assets +Intangible assets acquired are recorded at fair +value. We test our finite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying +value of the assets may not be recoverable. We test our indefinite-lived intangible assets for impairment annually or whenever events +or changes in circumstances indicate that the carrying value of the assets may not be recoverable. If the carrying value exceeds the fair +value, we recognize an impairment in an amount equal to the excess, not to exceed the carrying value. Management uses considerable judgment +to determine key assumptions, including projected revenue, royalty rates and appropriate discount rates. During the year ended December +31, 2024 and 2023, there were no intangible asset impairment charges. +53 +Finite-lived intangible assets are amortized using +the straight-line method over their estimated useful lives, which ranges from 5 to 15 years. Our finite-lived intangible assets include +acquired franchise agreements, acquired customer relationships, acquired customer lists, and internally developed software. Our indefinite-lived +intangible assets include acquired domain names, trade names, and purchased software. +Intangible assets internally developed are measured +at cost. We capitalize costs to develop or purchase computer software for internal use which are incurred during the application development +stage. These costs include fees paid to third parties for development services and payroll costs for employees’ time spent developing +the software. We expense costs incurred during the preliminary project stage and the post-implementation stage. Capitalized development +costs are amortized on a straight-line basis over the estimated useful life of the software. The capitalization and ongoing assessment +of recoverability of development costs requires considerable judgment by management with respect to certain external factors, including, +but not limited to, technological and economic feasibility, and estimated economic life. +Impairment of Long-lived Assets Other Than +Goodwill +Long-lived assets with finite lives, primarily +property and equipment, intangible assets, and operating lease right-of-use assets are reviewed for impairment whenever events or changes +in circumstances indicate that the carrying amount of an asset may not be recoverable. If the estimated cash flows from the use of the +asset and its eventual disposition are below the asset’s carrying value, then the asset is deemed to be impaired and written down +to its fair value. +Advertising Expenses +The Company expenses advertising costs as they +incurred. Total advertising expenses were $944,635 and $436,066 for the year ended December 31, 2024 and 2023, respectively, and have +been included as part of general and administrative expenses. +Research and Development +Research and development costs are charged to +expense as incurred. Accordingly, internal research and development costs are expensed as incurred. Third-party research and development +costs are expensed when the contracted work has been performed or as milestone results have been achieved as defined under the applicable +agreement. +The Company incurred research and development +expenses of $423,299 and $18,935 for the year ended December 31, 2024 and 2023, respectively, and have been included as +part of contract labor. +Stock Based Compensation +Service-Based Awards +The Company records stock-based compensation for +awards granted to employees, non-employees, and to members of the board for their services on the board based on the grant date fair value +of awards issued, and the expense is recorded on a straight-line basis over the requisite service period, which is generally one to three +years. +For restricted stock awards (“RSAs”) +issued under the Company’s stock-based compensation plans, the fair value of each grant is calculated based on the Company’s +stock price on the date of grant. +Share Repurchase +Share repurchases are open market purchases. Share +repurchases are generally recorded on the settlement date, as treasury stock. When shares are cancelled, the value of repurchased shares +is deducted from stockholders’ equity through common stock with the excess over par value recorded to accumulated deficit. +54 +Revenue Recognition +The Company recognizes revenue utilizing the following +steps: (i) Identify the contract, or contracts, with a customer; (ii) Identify the performance obligations in the contract; (iii) Determine +the transaction price; (iv) Allocate the transaction price to the performance obligations in the contract; (v) Recognize revenue when +the Company satisfies a performance obligation. +Subscriptions +Subscription revenue is related to a single performance +obligation that is recognized over time when earned. Subscriptions are paid in advance and can be purchased on a monthly, quarterly, or +annual basis. Any quarterly or annual subscription revenue is recognized as a contract liability recorded over the contracted service +period. +Marketing +Revenue related to marketing campaign contracts +with customers are normally of a short duration, typically less than two (2) weeks. +AE.360.DDM Contracts +Revenue related to AE.360.DDM contracts with customers +are normally of a short duration, typically less than one (1) week. +Contract Liabilities +Contract liabilities consist of quarterly and +annual subscription revenue that have not been recognized. Revenue under these agreements is recognized over the related service period. +As of December 31, 2024 and 2023, total contract liabilities were $369 and $3,445 respectively. Contract liabilities are expected +to be recognized as revenue over a period not to exceed twelve (12) months. +Changes in contract liabilities for the year ended +December 31, 2024 are as follows: +2024 +2023 +Balance, January 1 +$ 3,445 +$ 4,648 +Deferral of revenue +- +- +Recognition of revenue +(3,076 ) +(1,203 ) +Balance, December 31 +$ 369 +$ 3,445 +Earnings per Share +of Common Stock +The Company has adopted Financial Accounting Standards +Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 260, “ Earnings per Share ” which +requires presentation of basic earnings per share on the face of the statements of operations for all entities with complex capital structures +and requires a reconciliation of the numerator and denominator of the basic earnings per share computation. In the accompanying financial +statements, basic loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding +during the year. Diluted earnings per share is computed by dividing net income by the weighted average number of shares of common stock +and potentially dilutive outstanding shares of common stock during the period to reflect the potential dilution that could occur from +common stock issuable through contingent share arrangements, stock options and warrants unless the result would be antidilutive. The +Company would account for the potential dilution from convertible securities using the as-if converted method. The Company accounts for +warrants and options using the treasury stock method. +As of December +31, 2024, warrants representing 105,490 shares of common stock equivalents were excluded from the computation from diluted net loss per +share as the result was anti-dilutive. +Income Taxes +As described in more detail above (see Item 1. +“ Business – Corporate History and Structure – Formation and Merger into Asset Entities Inc. ”), the business +now conducted by the Company was operated as a partnership from August 1, 2020 until October 19, 2020, when it was reorganized as a limited +liability company, or LLC, and that LLC was merged into the Company on March 28, 2022. Prior to that date, the partnership and the subsequent +LLC were not subject to federal income tax and all income, deductions, gains and losses were attributed to the partners or members. +55 +The Company adopted FASB ASC 740, Income Taxes, +at its inception. Under FASB ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable +to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred +tax assets, including tax loss and credit carryforwards, and liabilities are measured using enacted tax rates expected to apply to taxable +income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and +liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred income tax expense +represents the change during the period in the deferred tax assets and deferred tax liabilities. The components of the deferred tax assets +and liabilities are individually classified as current and non-current based on their characteristics. Deferred tax assets are reduced +by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets +will not be realized. No deferred tax assets or liabilities were recognized as of December 31, 2024 or December 31, 2023. +Segment Reporting +The Company operates as one operating +segment. The Company's chief operating decision maker ("CODM") is its chief executive officer, who reviews the operating results +for the Company as a whole to make decisions about allocating resources and assessing financial performance. The CODM uses operating margin +and net income to assess financial performance and allocate resources. These financial metrics are used by the CODM to make key operating +decisions, such as the determination of the rate at which the Company seeks to grow operating margin, the allocation of budget between +operating expenses and the management and forecasting of cash to ensure enough capital is available. Accordingly, we determined we operate +in a single reporting segment. +Our CEO assesses performance and decides how to +allocate resources primarily based on consolidated net income, which is reported on our Consolidated Statements of Operations. Total assets +on the Consolidated Balance Sheets represent our segment assets. +Recent Accounting Pronouncements +In +November 2024, the FASB issued ASU 2024-03 final standard on Income Statement: Disaggregation of Income Statement Expenses, which requires +disaggregated disclosure of income statement expenses for public business entities. The ASU does not change the expense captions an entity +presents on the face of the income statement; rather, it requires disaggregation of certain expense captions into specified categories +in disclosures within the footnotes to the financial statements. This guidance will be effective for us on January 1, 2027. +The Company has considered +all other recently issued accounting pronouncements and does not believe the adoption of such pronouncements will have a material impact +on its financial statements. +Recently Adopted Accounting Standards +In November 2023, the FASB issued ASU 2023-07, +which improves reportable segment disclosure requirements. Primarily through enhanced disclosures about significant segment expenses among +other disclosure requirements. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within +fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company adopted ASU 2023-07 on January 1, 2024. The amendments +will be applied retrospectively to all prior periods presented in the accompanying financial statements. The adoption of ASU 2023-07 has +not had a material effect on the Company’s statements and disclosures. +ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. +Not applicable. +ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. +The full text of our audited consolidated financial +statements begins on page F-1 of this Annual Report. +56 +ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. +None. +ITEM 9A. CONTROLS AND PROCEDURES. +Evaluation of Disclosure Controls and Procedures +Our management, with the participation of our +Chief Executive Officer and Chief Financial Officer, have evaluated our disclosure controls and procedures (as defined in Rules 13a-15(e) +and 15d-15(e) under the Exchange Act) prior to the filing of this Annual Report. Based on that evaluation, our Chief Executive Officer +and Chief Financial Officer concluded that, as of the end of the period covered by this Annual Report, our disclosure controls and procedures +were, in design and operation, effective at a reasonable assurance level . +Management’s Annual Report on Internal +Control over Financial Reporting +Management is responsible +for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rule 13a-15(f) of +the Exchange Act. Our internal control system is designed to provide reasonable assurance regarding the preparation and fair presentation +of financial statements for external purposes in accordance with generally accepted account principles. All internal control systems, +no matter how well designed, have inherent limitations and can provide only reasonable assurance that the objectives of the internal control +system are met. +Management assessed the +effectiveness of our internal control over financial reporting as of December 31, 2024. In making this assessment, management used the +framework set forth in the report entitled Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations +of the Treadway Commission, or COSO. The COSO framework summarizes each of the components of a company’s internal control system, +including (i) the control environment, (ii) risk assessment, (iii) control activities, (iv) information and communication, and (v) monitoring. +Based +on this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that the Company’s internal control over +financial reporting as of December 31, 2024 was effective. +This Annual +Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial +reporting. Pursuant to Item 308(b) of Regulation S-K, management’s report is not subject to attestation by our independent registered +public accounting firm because the Company is neither an “accelerated filer” nor a “large accelerated filer” as +those terms are defined by the SEC. +Changes in Internal Control over Financial +Reporting +There were no changes in our internal control +over financial reporting during the quarter ended December 31, 2024 that have materially affected, or are reasonably likely to materially +affect, our internal control over financial reporting. +57 +Inherent Limitation on the Effectiveness of Internal Control +The effectiveness of any system of internal control +over financial reporting, including ours, is subject to inherent limitations, including the exercise of judgment in designing, implementing, +operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, any system of +internal control over financial reporting, including ours, no matter how well designed and operated, can only provide reasonable, not +absolute assurances. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls +may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. +We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business but cannot assure you +that such improvements will be sufficient to provide us with effective internal control over financial reporting. +ITEM 9B. OTHER INFORMATION. +We have no information to disclose that was required +to be disclosed in a report on Form 8-K during the fourth quarter of fiscal year 2024 but was not reported. +None of our directors or “officers,” +as defined in Rule 16a-1(f) under the Exchange Act, adopted or terminated a Rule 10b5-1 trading plan or arrangement or a non-Rule 10b5-1 +trading plan or arrangement, as defined in Item 408(c) of Regulation S-K, during the fiscal quarter ended December 31, 2024. +New Executive Employment and Consulting +Agreements +On March 27, 2025, the Company entered into a +letter agreement between the Company and Arshia Sarkhani, the Company’s Chief Executive Officer and President, dated as of March +27, 2025 (the “New Arshia Sarkhani Agreement”). Under the New Arshia Sarkhani Agreement, Mr. Sarkhani will remain employed +by the Company for a term that will begin on April 1, 2025 and will end on April 1, 2027 unless terminated earlier in accordance with +its terms or extended by mutual written agreement. For the period beginning on the day following the date of the termination of the Company’s +previous letter agreement, dated as of April 21, 2022, between the Company and Mr. Sarkhani (the “Prior Arshia Sarkhani Employment +Agreement”), and ending on April 1, 2027, the Company will pay Mr. Sarkhani an annual salary of $240,000. Pursuant to the New Arshia +Sarkhani Agreement, the Company will also pay Mr. Sarkhani an immediate cash bonus of $25,000. Mr. Sarkhani will also be eligible to receive +an annual cash bonus as determined by the Company’s board of directors or the Compensation Committee of the board (the “Compensation +Committee”). Subject to the approval by the Company’s stockholders of an amendment to the Asset Entities Inc. 2022 Equity +Incentive Plan (the “Plan”) to increase the number of shares of the Class B Common Stock available for grant under the Plan, +and further subject to the approval of the board or the Compensation Committee, Mr. Sarkhani will be granted an award of shares of Class +B Common Stock under the Plan in an amount to be determined by the board or the Compensation Committee pursuant to a restricted stock +award agreement (the “Sarkhani Award Agreement”). The shares will vest equally over two years on each anniversary of the Sarkhani +Award Agreement subject to Mr. Sarkhani’s continuous service. Upon a change of control of the Company, all of the shares will vest +immediately. The Sarkhani Award Agreement will also contain non-competition and non-solicitation provisions. Under the New Arshia Sarkhani +Agreement, Mr. Sarkhani will be eligible to participate in standard benefits plans offered to similarly-situated employees by the Company +from time to time, subject to plan terms and generally applicable Company policies. The New Arshia Sarkhani Agreement also contains certain +confidentiality provisions. The Company may terminate Mr. Sarkhani for “cause” as defined in the New Arshia Sarkhani Agreement. +If the Company terminates Mr. Sarkhani without cause, the Company will be required to pay Mr. Sarkhani a separation fee of $240,000. +On March 27, 2025, the Company entered into a +letter agreement between the Company and Matthew Krueger, the Company’s Chief Financial Officer, Treasurer and Secretary, dated +as of March 27, 2025 (the “New Krueger Agreement”). Under the New Krueger Agreement, Mr. Krueger will remain employed by the +Company for a term that will begin on April 1, 2025 and will end on April 1, 2027 unless terminated earlier in accordance with its terms +or extended by mutual written agreement. For the period beginning on the day following the date of the termination of the Company’s +previous letter agreement, dated April 21, 2022, between the Company and Mr. Krueger (the “Prior Krueger Agreement”), and +ending on April 1, 2027, the Company will pay Mr. Krueger an annual salary of $180,000. Pursuant to the New Krueger Agreement, the Company +will also pay Mr. Krueger an immediate cash bonus of $50,000. Mr. Krueger will also be eligible to receive an annual cash bonus as determined +by the board or the Compensation Committee. Subject to the approval by the Company’s stockholders of an amendment to the Plan +to increase the number of shares of Class B Common Stock available for grant under the Plan, and further subject to the approval of the +board or the Compensation Committee, Mr. Krueger will be granted an award of shares of Class B Common Stock under the Plan in an amount +to be determined by the board or the Compensation Committee pursuant to a restricted stock award agreement (the “Krueger Award Agreement”). +The shares will vest equally over two years on each anniversary of the Krueger Award Agreement subject to Mr. Krueger’s continuous +service. Upon a change of control of the Company, all of the shares will vest immediately. The Krueger Award Agreement will also contain +non-competition and non-solicitation provisions. Under the New Krueger Agreement, Mr. Krueger will be eligible to participate in standard +benefits plans offered to similarly-situated employees by the Company from time to time, subject to plan terms and generally applicable +Company policies. The New Krueger Agreement also contains certain confidentiality provisions. The Company may terminate Mr. Krueger for +“cause” as defined in the New Krueger Agreement. If the Company terminates Mr. Krueger without cause, the Company will be +required to pay Mr. Krueger a separation fee of $180,000. +58 +On March 27, 2025, the Company entered into a +letter agreement between the Company and Kyle Fairbanks, the Company’s Executive Vice-Chairman and Chief Marketing Officer, dated +as of March 27, 2025 (the “New Kyle Fairbanks Agreement”). Under the New Kyle Fairbanks Agreement, Mr. Fairbanks will remain +employed by the Company for a term that will begin on April 1, 2025 and will end on April 1, 2027 unless terminated earlier in accordance +with its terms or extended by mutual written agreement. For the period beginning on the day following the date of the termination of the +Company’s previous letter agreement, dated April 21, 2022, between the Company and Mr. Fairbanks (the “Prior Kyle Fairbanks +Agreement”), and ending on April 1, 2027, the Company will pay Mr. Fairbanks an annual salary of $240,000. Pursuant to the New Kyle +Fairbanks Agreement, the Company will also pay Mr. Fairbanks a cash bonus of $10,000 on April 1, 2025. Mr. Fairbanks will also be eligible +to receive an annual cash bonus as determined by the board or the Compensation Committee. Subject to the approval by the Company’s +stockholders of an amendment to the Plan to increase the number of shares of Class B Common Stock available for grant under the Plan, +and further subject to the approval of the board or the Compensation Committee, Mr. Fairbanks will be granted an award of shares of Class +B Common Stock under the Plan in an amount to be determined by the board or the Compensation Committee pursuant to a restricted stock +award agreement (the “Fairbanks Award Agreement”). The shares will vest equally over two years on each anniversary of the +Fairbanks Award Agreement subject to Mr. Fairbanks’s continuous service. Upon a change of control of the Company, all of the shares +will vest immediately. The Fairbanks Award Agreement will also contain non-competition and non-solicitation provisions. Under the New +Kyle Fairbanks Agreement, Mr. Fairbanks will be eligible to participate in standard benefits plans offered to similarly-situated employees +by the Company from time to time, subject to plan terms and generally applicable Company policies. The New Kyle Fairbanks Agreement also +contains certain confidentiality provisions. The Company may terminate Mr. Fairbanks for “cause” as defined in the New Kyle +Fairbanks Agreement. If the Company terminates Mr. Fairbanks without cause, the Company will be required to pay Mr. Fairbanks a separation +fee of $240,000. +On March 27, 2025, the Company entered into an +engagement letter between the Company and Michael Gaubert, the Company’s Executive Chairman, dated as of March 27, 2025 (the “New +Gaubert Agreement”). Under the New Gaubert Agreement, Mr. Gaubert will continue to provide services to the Company for a term that +will begin on April 1, 2025 and will end on April 1, 2027 unless terminated earlier in accordance with its terms or extended by mutual +written agreement. For the period beginning on the day following the date of the termination of the Company’s previous engagement +letter, dated April 21, 2022, between the Company and Mr. Gaubert (the “Prior Gaubert Agreement”), and ending on April 1, +2027, the Company will pay Mr. Gaubert a monthly fee of $20,000. Pursuant to the New Gaubert Agreement, the Company will also pay Mr. +Gaubert an immediate cash fee of $75,000. Mr. Gaubert will be eligible to receive additional cash payments as determined by the Company. +Mr. Gaubert will also be reimbursed for all preapproved costs and expenses reasonably incurred in the performance of his services to the +Company. Subject to the approval by the Company’s stockholders of an amendment to the Plan to increase the number of shares of Class +B Common Stock available for grant under the Plan, and further subject to the approval of the board or the Compensation Committee, Mr. +Gaubert will be granted an award of shares of Class B Common Stock under the Plan in an amount to be determined by the board or the Compensation +Committee pursuant to a restricted stock award agreement (the “Gaubert Award Agreement”). The shares will vest equally over +two years on each anniversary of the Gaubert Award Agreement subject to Mr. Gaubert’s continuous service. The Gaubert Award Agreement +will also contain non-competition and non-solicitation provisions. Upon a change of control of the Company, all of the shares will vest +immediately. Under the New Gaubert Agreement, Mr. Gaubert will be eligible to participate in standard benefits plans offered to similarly-situated +employees by the Company from time to time, subject to plan terms and generally applicable Company policies. The New Gaubert Agreement +also contains certain confidentiality provisions. The New Gaubert Agreement may be terminated by either party upon 30 days’ advance +written notice. However, if either party breaches a material obligation under the New Gaubert Agreement, and such breach continues for +a period of ten days after the other party notifies the breaching party, the New Gaubert Agreement may be terminated immediately by notice +to the breaching party. In addition, if the Company commits such a breach, or the Company terminates Mr. Gaubert in the absence of a material +breach by Mr. Gaubert under the New Gaubert Agreement, then any shares granted will vest immediately, any shares due will be granted and +vest immediately, and the Company will be required to pay Mr. Gaubert a separation fee of $240,000. +Each of the executive officers named above was required to sign an +Employee Confidential Information and Inventions Assignment Agreement or an Independent Contractor Confidential Information and Inventions +Assignment Agreement which prohibits unauthorized use or disclosure of the Company’s proprietary information, contains a general +assignment of rights to inventions and intellectual property rights, non-competition provisions that apply during the term of employment +or services, non-solicitation provisions that apply during the term of employment or services and for one year after the term of employment +or services, and non-disparagement provisions that apply during and after the term of employment or services. +ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS. +Not applicable. +59 +PART III +ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. +Directors and Executive Officers +The following sets forth information about our +directors and executive officers: +Name +Age +Position +Michael Gaubert +58 +Executive Chairman and Director +Arshia Sarkhani +28 +Chief Executive Officer, President and Director +Matthew Krueger +39 +Chief Financial Officer, Treasurer and Secretary +Arman Sarkhani +24 +Chief Operating Officer +Kyle Fairbanks +27 +Chief Marketing Officer, Executive Vice-Chairman and Director +Jason Lee +35 +Chief Technology Officer +Richard A. Burton +60 +Director +John A. Jack II +58 +Director +Scott K. McDonald +72 +Director +David Reynolds +57 +Director +Michael +Gaubert has served as our Executive Chairman since January 2022 and has been a director of the Company since March 2022. Mr. +Gaubert has been a licensed attorney for 31 years. Since July 2016, Mr. Gaubert has been the President of Gaubert Law Group, PC, where +he provides legal services to his clients. Prior to establishing Gaubert Law Group, PC, from March 2015 to July 2016, Mr. Gaubert was +a partner at the national law firm of Lewis Brisbois Bisgaard & Smith, LLP, ranked in the top 20 largest law firms in the country. +Since August 2017, Mr. Gaubert has been a manager of the rideshare company Get It Holdings, LLC. From February 2015 to December 2017, +Mr. Gaubert was the chairman and chief executive officer of Get Me, LLC, a rideshare/delivery software app operator, and he resumed the +position of chairman in April 2018. Mr. Gaubert has litigation and trial experience working on complex cases in a variety of areas relating +to management contracts, termination agreements, loan agreements, real estate sale and purchase contracts, and various other agreements. +Mr. Gaubert has represented large real estate companies, hotel owners and operators, including publicly- and privately-held businesses, +in litigation in multiple U.S. states. Mr. Gaubert represents clients in complex commercial and business litigation, business and real +estate, and other transactions. Mr. Gaubert’s areas of practice include general contract, business torts, real estate litigation +and transactions, hotel and hospitality law, construction contracts and litigation, personal services contracts, consulting agreements, +bankruptcy litigation, intellectual property, e-commerce and Internet-related issues, and certain aspects of entertainment law and related +disputes. Mr. Gaubert is admitted to practice law in all of the Courts of the State of Texas, the United States District Court for the +Northern District of Texas, the United States District Court for the Eastern District of Texas, the United States Court of Appeals for +the Third Circuit, and the United States Court of Appeals for the Fifth Circuit. Mr. Gaubert received his JD from Georgetown University +Law Center and his bachelor’s degree in History with a minor in Business Administration and African American Studies from Southern +Methodist University. We believe that Mr. Gaubert is qualified to serve on the board of directors due to his deep knowledge of the Company +and his professional, executive and board experience. +Arshia Sarkhani is a co-founder +of Asset Entities, has served as our Chief Executive Officer since September 2021 and as our President since March 2022, and has been +a director of the Company since March 2022. Mr. Sarkhani was our Head of Monetization from August 2020, when we began our operations as +a general partnership, until September 2021. From April 2020 and July 2020 to December 2021, Mr. Sarkhani was the sole owner and chief +executive officer of Sarkhani Inc. and Shiazon Inc., respectively. Before co-founding Asset Entities, Mr. Sarkhani actively invested and +developed a social media following which he and his co-founders utilized when starting Asset Entities. From May 2019 to September 2020, +Mr. Sarkhani was a legal intern at The RDM Legal Group. From September 2015 to May 2018, Mr. Sarkhani attended the University of California, +Merced, and subsequently, from September 2018 to May 2019, Grossmont Community College. From September 2019 to May 2021, Mr. Sarkhani +attended San Diego State University where he received his Bachelor’s degree in Humanities. We believe that Mr. Sarkhani is qualified +to serve on the board of directors as a co-founder with deep knowledge of Asset Entities. +60 +Matthew Krueger has served as our +Chief Financial Officer since September 2021 and has been the Company’s Secretary and Treasurer in March 2022. Since December 2018, +Mr. Krueger has been the manager and chief executive officer of consulting company Xcelerated Consulting, LLC where he provides business +and management services to clients in the technology, oil and gas, and real estate industry. From March 2015 to December 2018, Mr. Krueger +was the director of finance at Get Me, LLC. From 2010 to 2015, he had roles as the director of finance, controller, and assistant controller +at Technology Resource Center of America, LLC. Mr. Krueger received his bachelor’s degree in Business Administration, with a minor +in Accounting, summa cum laude, from Finlandia University. Mr. Krueger holds a Texas CPA license. +Arman Sarkhani is a co-founder of +Asset Entities and has served as the Chief Operating Officer since January 2022. Before co-founding Asset Entities, Mr. Sarkhani actively +invested and developed a social media following which he and his co-founders utilized when starting Asset Entities. From October 2019 +to November 2020, Mr. Sarkhani was a tutor with AVID, a nonprofit educational service, at Mount Carmel High School. From August 2018 to +May 2021, Mr. Sarkhani attended Miramar Community College. Mr. Sarkhani has attended University of California – San Diego since +September 2021, and expects to earn a bachelor’s degree in Psychology, Marketing, and Management in May 2025. +Kyle Fairbanks is a co-founder of +Asset Entities, has served as our Executive Vice-Chairman since January 2022, as our Chief Marketing Officer since November 2023, and +has been a director of the Company since March 2022. Mr. Fairbanks was our Executive Chairman from August 2020, when we began our operations +as a general partnership, until January 2022. Before co-founding Asset Entities, Mr. Fairbanks actively invested and developed a social +media following which he and his co-founders utilized when starting Asset Entities. From December 2019 to December 2020, Mr. Fairbanks +worked as a certified personal trainer with Associated Students, a student-led nonprofit auxiliary of California State University, Chico. +From September 2017 to May 2018, Mr. Fairbanks worked as a part-time instructional aide at the Humboldt County Office of Education Juvenile +Hall Court. From September to October 2019, Mr. Fairbanks worked as a dining hall student-employee at California State University, Chico. +Mr. Fairbanks received his Bachelor’s degree in Business Administration and Management from California State University, Chico in +May 2020. We believe that Mr. Fairbanks is qualified to serve on the board of directors as a co-founder with deep knowledge of Asset Entities. +Jason Lee has served as our Chief +Technology Officer since November 2023. In July 2020, Mr. Lee founded Ternary Inc., a Discord community business management service, and +served as its Chief Executive Officer until November 2023 when its business and assets were acquired by the Company. In August 2019, Mr. +Lee co-founded OptionsSwing Inc., an educational Discord options trading service, and served as its Chief Executive Officer until November +2023 when its business and assets were also acquired by the Company. In 2021, Mr. Lee was placed on the Forbes Next 1000 list and received +the GFEL Excellence in Education Award for his work at OptionsSwing. From April 2014 to November 2020, Mr. Lee worked for Salesforce Inc. +(NYSE: CRM), where from February 2017 he was a Lead Solution Engineer after consecutive positions as an Associate Solution Engineer, Solution +Engineer, and Senior Solution Engineer from April 2014 to February 2017. Mr. Lee holds several Salesforce certifications, which underscore +his expertise in customer relationship management (CRM) technologies. Mr. Lee received his bachelor’s degree in U.S. History from +Syracuse University. +Richard A. Burton has been a director +of the Company since February 2023. Mr. Burton is licensed to practice law in Texas. Since 2009, Mr. Burton has served as general counsel +and executive vice president for Landmark Management Group, LLC. As part of his duties at Landmark Management Group, he manages the corporate +and regulatory affairs of companies in the financial services industry, in addition to managing the human resources department and acting +as company spokesperson. From 1996 to 2008, Mr. Burton was general counsel and executive vice president for Marketing Investors Corporation, +Inc. where he managed the corporate and litigation affairs of businesses operating in the real estate, apparel, direct to consumer sales +and restaurant industries. Mr. Burton has been a director on several boards over the years, including CreditAssociates, LLC, CID Resources, +Inc. and BayLab USA, LLC. Mr. Burton received his JD from the Albany Law School of Union University and his bachelor’s degree in +Finance and Economics from State University of New York at Albany. We believe that Mr. Burton is qualified to serve on the board of directors +due to his extensive legal career and board of directors experience. +John A. Jack II has been a director +of the Company since February 2023. Since 1998, Mr. Jack has been an Allstate Insurance Agent with offices in Boca Raton and Delray Beach, +Florida. Throughout this time, these offices have won numerous awards from Allstate, including the Honor Ring for six years, Circle of +Champions Award for three years, Inner Circle Elite Award for two years and the National Conference Award for one year. Mr. Jack served +on the Advent Lutheran School Board of Boca Raton, Florida from 2012 to 2016 and served on the Advent Luther Church Executive Committee +of Boca Raton, Florida until February 2024. Mr. Jack played Division 1 College football for the famed Miami Hurricanes from 1985 to 1989 +winning a national championship under the nationally known former coach, Jimmy Johnson, before attending law school at Georgetown. Mr. +Jack received a JD from Georgetown University Law Center and his bachelor’s degree in Communication and Economics from the University +of Miami. Mr. Jack was formerly licensed to practice law in Florida. We believe that Mr. Jack is qualified to serve on the board of directors +due to his record of business team management and successes. +61 +Scott K. McDonald has +been a director of the Company since February 2023. Mr. McDonald is licensed to practice law in Texas. Over the course of the four decades +Mr. McDonald has been practicing law, he has represented buyers and sellers of real property and lenders in a variety of transactions, +including clients who buy, sell and develop unimproved real property and who buy and sell improved property such as multifamily projects, +retail projects and office buildings. Mr. McDonald has also been lender’s counsel for banks, savings and loans and private lenders. +From 2001 to 2007, and again from 2019 to 2022, Mr. McDonald has served on the Planning and Zoning Commission for the City of DeSoto, +Texas. Mr. McDonald received his JD from the University of Texas and his bachelor’s degree in Political Science and Mathematics +from Southern Methodist University. We believe that Mr. McDonald is qualified to serve on the board of directors due to his extensive +legal career and commission experience. +David Reynolds has been +a director of the Company since May 2024. Since 2011, Mr. Reynolds has worked at MRO Corporation, a healthcare software company, initially +as Regional Director of Sales – West from September 2011 to August 2018, and in his current position as Senior Director of Sales +– Major Accounts since August 2018. Prior to these positions, Mr. Reynolds held various sales and business development positions +at other healthcare software companies including Superior Global Solutions, EDiX Corporation, and Webmedx (now Nuance Communications). +Mr. Reynolds is proficient with many customer relationship management (CRM) software tools including Salesforce, Saleslogix, Sage and +HubSpot. From March 2024 to August 2024, Mr. Reynolds served as a member of the board of directors of Trinity Constructors, Inc., a commercial +construction company in Texas. Mr. Reynolds attended University of Denver and Southern Methodist University where he studied Political +Science and English. We believe that Mr. Reynolds is qualified to serve on our board of directors due to his extensive sales, CRM software, +and cybersecurity experience as a healthcare software executive. +Our directors currently have terms which will +end at our next annual meeting of the stockholders or until their successors are elected and qualify, subject to their prior death, resignation +or removal. Officers serve at the discretion of the board of directors. There is no arrangement or understanding between any director +or executive officer and any other person pursuant to which he was or is to be selected as a director, nominee or officer. +Family Relationships +Arman Sarkhani, our Chief Operating Officer, and +Arshia Sarkhani, our Chief Executive Officer and President and a director, are brothers. There are no other family relationships among +any of our executive officers or directors. +Involvement in Certain Legal Proceedings +To the best of our knowledge, except as described +below, none of our directors or executive officers has, during the past ten years: +● been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic +violations and other minor offences); +● had any bankruptcy petition filed by or against the business or property of the person, or of any partnership, +corporation or business association of which he was a general partner or executive officer, either at the time of the bankruptcy filing +or within two years prior to that time; +● been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any +court of competent jurisdiction or federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise +limiting, his involvement in any type of business, securities, futures, commodities, investment, banking, savings and loan, or insurance +activities, or to be associated with persons engaged in any such activity; +● been found by a court of competent jurisdiction in a civil action or by the SEC or the Commodity Futures +Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, +or vacated; +62 +● been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, +or finding, not subsequently reversed, suspended or vacated (not including any settlement of a civil proceeding among private litigants), +relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting +financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement +or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation +prohibiting mail or wire fraud or fraud in connection with any business entity; or +● been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, +of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity +(as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or +organization that has disciplinary authority over its members or persons associated with a member. +Committees of the Board of Directors +Our board established the Company’s Audit Committee (the “Audit Committee”), Compensation Committee, and Nominating +and Corporate Governance Committee (the “Nominating and Corporate Governance Committee”), each with its own charter approved +by the board. Each committee’s charter is also available on our website at https://assetentities.gcs-web.com. +In addition, our board of directors may, from +time to time, designate one or more additional committees, which shall have the duties and powers granted to it by our board of directors. +For further related discussion, see Item 13. “ Certain +Relationships and Related Transactions, and Director Independence – Director Independence – Committees of the Board of Directors ”. +Audit Committee Members +Richard A. Burton, John A. Jack II, and Scott +K. McDonald, each of whom has been determined by the board of directors to satisfy the “independence” requirements of Rule 10A-3 +under the Exchange Act and Nasdaq’s rules, serve on the Audit Committee, with Mr. Burton serving as the chairman. Our board has +determined that Mr. Burton qualifies as an “audit committee financial expert” as defined by Item 407(d)(5) of Regulation S-K +promulgated by the SEC. +Material Changes to Director Nomination Procedures +There have been no material changes to the procedures +by which stockholders may recommend nominees to our board of directors since such procedures were last disclosed. +Code of Ethics and Business Conduct +We have adopted a Code of Ethics and Business +Conduct that applies to all of our directors, officers and employees, including our principal executive officer, principal financial officer +and principal accounting officer. Such Code of Ethics and Business Conduct addresses, among other things, honesty and ethical conduct, +conflicts of interest, compliance with laws, regulations and policies, including disclosure requirements under the federal securities +laws, and reporting of violations of the Code of Ethics and Business Conduct. +The full text of the Code of Ethics and Business +Conduct is attached as Exhibit 14.1 to this Annual Report and posted on our website at https://assetentities.gcs-web.com. Any waiver of +the Code of Ethics and Business Conduct for directors or executive officers must be approved by the Audit Committee. We will disclose +future amendments to our Code of Ethics and Business Conduct, or waivers from our Code of Ethics and Business Conduct for our principal +executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, on +our website within four business days following the date of the amendment or waiver. In addition, we will disclose any waiver from +our Code of Ethics and Business Conduct for our other executive officers and our directors on our website. A copy of our Code of Ethics +and Business Conduct will also be provided free of charge upon request to: Secretary, Asset Entities Inc., 100 Crescent Ct, 7th Floor, +Dallas, TX 75201. +63 +Insider Trading Policy +Effective March 28, 2023, we adopted an insider trading policy that +applies to all our executive officers, directors and key employees. The insider trading policy codifies the legal +and ethical principles that govern trading in our securities by persons associated with the Company that may possess material nonpublic +information relating to the Company. A copy of the insider trading policy is filed as Exhibit 19.1 to this report. +Delinquent Section 16(a) Reports +Section 16(a) of the Exchange Act requires our +directors and executive officers and beneficial holders of more than 10% of our shares of common stock to file with the SEC initial reports +of ownership and reports of changes in ownership of our equity securities. Based solely on a review of our records, publicly available +information, and written representations by the persons required to file such reports, we believe that during the fiscal year ended December +31, 2024, there were no delinquent Section 16(a) reports, except the following: Each of AEH, Arman Sarkhani, Arshia Sarkhani, Jackson +Fairbanks, Kyle Fairbanks, Matthew Krueger, and Michael Gaubert filed a late Form 4 to report three transactions on September 16, 2024. +ITEM 11. EXECUTIVE COMPENSATION. +Summary Compensation Table - Years Ended December 31, 2024 and 2023 +The following table sets forth information concerning all cash and +non-cash compensation awarded to, earned by or paid to the named persons for services rendered in all capacities during the noted periods. +Name and Principal Position +Year +Salary +($) +Bonus +($) +Stock +Awards +($) +Option +Awards +($) +All Other +Compensation +($) +Total +($) +Arshia Sarkhani, +2024 +240,000 +75,000 +6,174 (1) +- +12,864 +334,038 +Chief Executive Officer and President +2023 +240,000 +10,000 +486,000 (2) +- +7,346 +334,038 +Michael Gaubert, +2024 +240,000 +75,000 +9,549 (3) +- +12,864 +334,038 +Executive Chairman +2023 +220,000 +50,000 +547,965 (4) +- +27,346 (5) +334,038 +Kyle Fairbanks, +2024 +240,000 +- +4,658 (6) +- +12,864 +334,038 +Executive Vice-Chairman and Chief Marketing Officer +2023 +240,000 +10,000 +486,000 (7) +- +7,346 +334,038 +(1) On December 27, 2024, Arshia Sarkhani was granted 13,254 shares of Class B Common Stock. The aggregate +grant date fair value of this award was computed in accordance with FASB ASC Topic 718 based on the assumptions described in Note 2 to +the Company’s financial statements beginning on page F-1 of this Annual Report. +(2) On February 7, 2023, Arshia Sarkhani was granted 40,000 shares of Class B Common Stock subject to vesting +as to approximately one-third of the total granted shares on each of the first three anniversaries of the grant date. The aggregate grant +date fair value of this award was computed in accordance with FASB ASC Topic 718 based on the assumptions described in Note 2 to the Company’s +financial statements beginning on page F-1 of this Annual Report. +(3) On December 27, 2024, Michael Gaubert was granted 20,500 shares of Class B Common Stock. The aggregate +grant date fair value of this award was computed in accordance with FASB ASC Topic 718 based on the assumptions described in Note 2 to +the Company’s financial statements beginning on page F-1 of this Annual Report. +(4) On February 7, 2023, Michael Gaubert was granted 45,100 shares of Class B Common Stock subject to vesting +as to approximately one-third of the total granted shares on each of the first three anniversaries of the grant date. The aggregate grant +date fair value of this award was computed in accordance with FASB ASC Topic 718 based on the assumptions described in Note 2 to the Company’s +financial statements beginning on page F-1 of this Annual Report. +(5) All other compensation consisted of consulting fees and health insurance. +(6) On December 27, 2024, Kyle Fairbanks was granted 10,000 shares of Class B Common Stock. The aggregate +grant date fair value of this award was computed in accordance with FASB ASC Topic 718 based on the assumptions described in Note 2 to +the Company’s financial statements beginning on page F-1 of this Annual Report. +(7) On February 7, 2023, Kyle Fairbanks was granted 40,000 shares of Class B Common Stock subject to subject +to vesting as to approximately one-third of the total granted shares on each of the first three anniversaries of the grant date. The aggregate +grant date fair value of this award was computed in accordance with FASB ASC Topic 718 based on the assumptions described in Note 2 to +the Company’s financial statements beginning on page F-1 of this Annual Report. +64 +Executive +Employment and Consulting Agreements +Under the Prior Arshia Sarkhani Employment Agreement, +the term of the Prior Arshia Sarkhani Employment Agreement commenced as of the closing of our initial public offering on February 7, 2023, +and terminated on February 7, 2025 in accordance with its terms. During the term of the Prior Arshia Sarkhani Employment Agreement, the +Company paid Mr. Sarkhani an annual salary of $240,000 and paid an initial cash bonus of $10,000. Mr. Sarkhani was eligible to receive +an annual cash bonus as determined by the board of directors. Pursuant to the Prior Arshia Sarkhani Employment Agreement, following the +closing of the initial public offering, on February 7, 2023, the Company entered into its standard form of restricted stock award agreement +with Mr. Sarkhani granting restricted stock under the Plan in the amount of 40,000 shares of Class B Common Stock subject to vesting as +to approximately one-third of the total granted shares on each of the first three anniversaries of the grant date. Upon a change of control +of the Company, all of the shares will vest immediately. Under the Prior Arshia Sarkhani Employment Agreement, Mr. Sarkhani was eligible +to participate in standard benefits plans offered to similarly-situated employees by the Company from time to time, subject to plan terms +and generally applicable Company policies. The Prior Arshia Sarkhani Employment Agreement also contained certain confidentiality provisions. +Under the Prior Kyle Fairbanks Agreement, the +term of the Prior Kyle Fairbanks Agreement commenced as of the closing of the initial public offering on February 7, 2023, and terminated +on February 7, 2025 in accordance with its terms. During the term of the Prior Kyle Fairbanks Agreement, the Company paid Mr. Fairbanks +an annual salary of $240,000 and paid an initial cash bonus of $10,000. Mr. Fairbanks was eligible to receive an annual cash bonus as +determined by the board of directors. Pursuant to the Prior Kyle Fairbanks Agreement, following the closing of the initial public offering, +on February 7, 2023, the Company entered into its standard form of restricted stock award agreement with Mr. Fairbanks granting restricted +stock under the Plan in the amount of 40,000 shares of Class B Common Stock subject to vesting as to approximately one-third of the total +granted shares on each of the first three anniversaries of the grant date. Upon a change of control of the Company, all of the shares +will vest immediately. Under the Prior Kyle Fairbanks Agreement, Mr. Fairbanks was eligible to participate in standard benefits plans +offered to similarly-situated employees by the Company from time to time, subject to plan terms and generally applicable Company policies. +The Prior Kyle Fairbanks Agreement also contained certain confidentiality provisions. +Under the Prior Krueger Agreement, the term of +the Prior Krueger Agreement commenced as of the closing of the initial public offering on February 7, 2023, and terminated on February +7, 2025 in accordance with its terms. During the term of the Prior Krueger Agreement, the Company paid Mr. Krueger an annual salary of +$180,000 and paid an initial cash bonus of $25,000. Mr. Krueger was eligible to receive an annual cash bonus as determined by the board +of directors. Pursuant to the Prior Krueger Agreement, following the closing of the initial public offering, on February 7, 2023, the +Company entered into its standard form of restricted stock award agreement with Mr. Krueger granting restricted stock under the Plan in +the amount of 39,600 shares of Class B Common Stock subject to vesting as to approximately one-third of the total granted shares on each +of the first three anniversaries of the grant date. Upon a change of control of the Company, all of the shares will vest immediately. +Under the Prior Krueger Agreement, Mr. Krueger was eligible to participate in standard benefits plans offered to similarly-situated employees +by the Company from time to time, subject to plan terms and generally applicable Company policies. The Prior Krueger Agreement also contained +certain confidentiality provisions. +Under the letter agreement between the Company +and Arman Sarkhani, the Company’s Chief Operating Officer, dated as of April 21, 2022 (the “Prior Arman Sarkhani Employment +Agreement”), the term of the Arman Sarkhani Employment Agreement commenced as of the closing of the initial public offering on February +7, 2023, and terminated on February 7, 2025 in accordance with its terms. During the term of the Arman Sarkhani Employment Agreement, +the Company paid Mr. Sarkhani an annual salary of $125,000 and paid an initial cash bonus of $10,000. On August 15, 2023, the Arman Sarkhani +Employment Agreement was amended to provide for an annual salary of $150,000 effective as of September 1, 2023. Mr. Sarkhani was eligible +to receive an annual cash bonus as determined by the board of directors. Pursuant to the Arman Sarkhani Employment Agreement, following +the closing of the initial public offering, on February 7, 2023, the Company entered into its standard form of restricted stock award +agreement with Mr. Sarkhani granting restricted stock under the Plan in the amount of 32,600 shares of Class B Common Stock subject to +vesting as to approximately one-third of the total granted shares on each of the first three anniversaries of the grant date. Upon a change +of control of the Company, all of the shares will vest immediately. Under the Arman Sarkhani Employment Agreement, Mr. Sarkhani was eligible +to participate in standard benefits plans offered to similarly-situated employees by the Company from time to time, subject to plan terms +and generally applicable Company policies. The Arman Sarkhani Employment Agreement also contained certain confidentiality provisions. +65 +Under the letter agreement between the Company +and Jason Lee, the Company’s Chief Technology Officer, dated as of November 10, 2023 (the “Lee Agreement”), the term +of the agreement commenced as of November 15, 2023, and will continue for two years unless terminated earlier in accordance with its terms. +During the term of the Lee Agreement, the Company will pay Mr. Lee an annual salary of $100,000. Pursuant to the Lee Agreement, the Company +entered into its standard form of restricted stock award agreement with Mr. Lee granting restricted stock under the Plan in the amount +of 35,400 shares of Class B Common Stock subject to vesting as to one-fourth of the total granted shares on each of the first four six-month +anniversaries of the grant date. Under the Lee Agreement, Mr. Lee will be eligible to participate in standard benefits plans offered to +similarly-situated employees by the Company from time to time, subject to plan terms and generally applicable Company policies. The Lee +Agreement also contains certain confidentiality provisions. Mr. Lee may terminate the Lee Agreement at will. +Each of the above letter agreements could or may +be terminated by the Company only for “cause”. Each of the agreements defined “cause” as (a) conviction of or +plea of guilty or nolo contendere to a felony under the laws of the United States or any state thereof; (b) commission of fraud or embezzlement +on the Company or any of its subsidiaries; (c) willful act or omission which results in an assessment of a civil or criminal penalty against +the Company or any of its subsidiaries that causes material financial or reputational harm to the Company or any of its subsidiaries; +(d) any intentional act of dishonesty resulting or intending to result in personal gain or enrichment at the expense of the Company or +any of its subsidiaries; (e) a violation by of law (whether statutory, regulatory or common law), causing a material financial harm or +material reputational harm to the Company or any of its subsidiaries; (f) a material violation of the Company’s (or any of its subsidiaries’) +bona fide, written equal employment opportunity, antidiscrimination, anti-harassment, or anti-retaliation policies; (g) material breach +of this agreement; (h) the consistent abuse of alcohol, prescription drugs or controlled substances, which interferes with the performance +of the officer’s duties to the Company; (i) failure to execute the duties and responsibilities of the officer position which the +officer holds; (j) a breach or default of the officer’s obligations to the Company or under the agreement; or (k) excessive absenteeism +other than for reasons of illness. +Under the Prior Gaubert +Agreement, the term of the Prior Gaubert Agreement commenced as of the closing of the initial public offering on February 7, 2023, and +terminated on February 7, 2025 in accordance with its terms. During the term of the Prior Gaubert Agreement, the Company paid Mr. Gaubert +an annual salary of $240,000. The Company paid an initial cash bonus of $50,000 during 2023. Mr. Gaubert was eligible to receive an annual +cash bonus as determined by the board of directors. Pursuant to the Prior Gaubert Agreement, following the closing of the initial public +offering, on February 7, 2023, the Company entered into its standard form of restricted stock award agreement with Mr. Gaubert granting +restricted stock under the Plan in the amount of 45,100 shares of Class B Common Stock subject to vesting as to approximately one-third +of the total granted shares on each of the first three anniversaries of the grant date. Upon a change of control of the Company, all of +the shares will vest immediately. Under the Prior Gaubert Agreement, Mr. Gaubert will be eligible to participate in standard benefits +plans offered to similarly-situated employees by the Company from time to time, subject to plan terms and generally applicable Company +policies. The Prior Gaubert Agreement also contained certain confidentiality provisions. +66 +Each of the executive officers named above was +required to sign an Employee Confidential Information and Inventions Assignment Agreement or similar agreement which prohibits unauthorized +use or disclosure of the Company’s proprietary information, contains a general assignment of rights to inventions and intellectual +property rights, non-competition provisions that apply during the term of employment, non-solicitation provisions that apply during the +term of employment and for one year after the term of employment, and non-disparagement provisions that apply during and after the term +of employment. +The information under Item 9B. “ Other +Information – New Executive Employment and Consulting Agreements ” is incorporated by reference herein. +Outstanding Equity +Awards at Fiscal Year-End +The executive officers named above had the following +unexercised options, stock that has not vested, or equity incentive plan awards outstanding as of December 31, 2024. +Option +Awards +Stock +Awards +Name +Number +of +securities +underlying +unexercised options +(#) exercisable +Number +of +securities +underlying +unexercised +options +(#) +unexercisable +Equity +incentive +plan +awards: +Number of +securities +underlying +unexercised +unearned +options +(#) +Option +exercise +price +($) +Option +expiration +date +Number +of shares +or units +of stock +that have +not +vested +(#) +Market +value +of +shares +of units +of +stock +that +have +not +vested +($) +Equity +incentive +plan +awards: +Number +of +unearned +shares, +units or +other +rights +that have +not +vested +(#) +Equity +incentive +plan +awards: +Market +or +payout +value of +unearned +shares, +units or +other +rights +that have +not +vested +($) +Arshia Sarkhani +- +- +- +- +- +26,666 (1) +13,093 +- +- +Michael Gaubert +- +- +- +- +- +30,066 (2) +14,762 +- +- +Kyle Fairbanks +- +- +- +- +- +26,666 (3) +13,093 +- +- +(1) On February 7, 2023, Arshia Sarkhani was granted 40,000 shares of common stock subject to vesting as to +approximately one-third of the total granted shares on each of the first three anniversaries of the grant date. +(2) On February 7, 2023, Michael Gaubert was granted 45,100 shares of common stock subject to vesting as to +approximately one-third of the total granted shares on each of the first three anniversaries of the grant date. +(3) On February 7, 2023, Kyle Fairbanks was granted 40,000 shares of common stock subject to subject to vesting +as to approximately one-third of the total granted shares on each of the first three anniversaries of the grant date. +Additional Narrative Disclosure +Retirement Benefits +We have not maintained, and do not currently maintain, +a defined benefit pension plan, nonqualified deferred compensation plan or other retirement benefits. +Potential Payments Upon Termination or Change +in Control +See “ —Executive Employment and +Consulting Agreements ” above. +67 +Director Compensation +The directors +of the Company were compensated for services as directors during the fiscal year ended December 31, 2024 as follows: +Name +Fees +Earned +or Paid +in Cash +($) +Stock +Awards +($) +Option +Awards +($) +Non-Equity +Incentive Plan +Compensation +($) +Nonqualified +Deferred +Compensation +Earnings +($) +All Other +Compensation +($) +Total +($) +Richard A. Burton +49,000 +6,544 (1) +- +- +- +- +55,544 +John A. Jack II +44,500 +6,544 (1) +- +- +- +- +51,044 +Scott K. McDonald +49,000 +6,544 (1) +- +- +- +- +55,544 +David Reynolds +20,000 +5,231 (1)(2) +- +- +- +- +25,231 +Brian Regli (3) +24,500 +- (1) +- +- +- +- +24,500 +(1) On February 7, 2023, each of Richard A. Burton, John A. Jack II, Scott K. McDonald, and Brian Regli was +granted 1,800 shares of Class B Common Stock, subject to vesting as to one-fourth of the granted shares in each of the first, second, +third, and fourth calendar quarters following the grant date. On November 11, 2024, each of Mr. Burton, Mr. Jack, and Mr. McDonald was +granted 8,200 shares of Class B Common Stock, subject to vesting as to one-fourth of the granted shares on each of the grant date, the +three-month anniversary of the grant date, the six-month anniversary of the grant date, and the nine-month anniversary of the grant date. +The aggregate grant date fair value of this award was computed in accordance with FASB ASC Topic 718 based on the assumptions described +in Note 2 to the Company’s financial statements beginning on page F-1 of this Annual Report. All of the granted shares remained +outstanding as of December 31, 2024. +(2) On May 15, 2024, David Reynolds was granted 1,800 shares of Class B Common Stock, subject to vesting as +to 450 shares of Class B Common Stock in each of the first, second, third, and fourth calendar quarters following the grant date, subject +to vesting as to one-fourth of the granted shares in each of the first, second, third, and fourth calendar quarters following the grant +date. On November 11, 2024, Mr. Reynolds was granted 1,200 shares of Class B Common Stock, subject to vesting as to one-fourth of the +granted shares on each of the grant date, the three-month anniversary of the grant date, the six-month anniversary of the grant date, +and the nine-month anniversary of the grant date. On December 27, 2024, Mr. Reynolds was granted 2,000 shares of Class B Common Stock. +The aggregate grant date fair value of these awards was computed in accordance with FASB ASC Topic 718 based on the assumptions described +in Note 2 to the Company’s financial statements beginning on page F-1 of this Annual Report. All of the granted shares remained +outstanding as of December 31, 2024. +(3) Brian Regli was a director of the Company from February 2, 2023 to May 16, 2024. +Additional Narrative Disclosure +Each of the Company’s independent directors +have entered into an Independent Director Agreement with the Company (each, an “Independent Director Agreement”). Under each +Independent Director Agreement, each independent director will receive an annual cash fee and an initial award of restricted Class B Common +Stock. We will pay the annual cash compensation fee to each independent director in four equal installments no later than the fifth business +day of each calendar quarter commencing in the quarter following the date of the director’s appointment. The cash fee to be paid +to each independent director will be $40,000 per year in cash, plus $9,000 per year for as long as the director serves as a chairman of +a committee of the board. In addition, under each Independent Director Agreement, 1,800 restricted shares of Class B Common Stock were +awarded to each independent director following each director’s appointment. The restricted stock vests in four (4) equal quarterly +installments commencing in the quarter following the date of grant. We will also reimburse each independent director for pre-approved +reasonable business-related expenses incurred in good faith in connection with the performance of the director’s duties for us. +As also required under each Independent Director Agreement, we have separately entered into a standard indemnification agreement with +each of our directors. +Indemnification Agreements and Directors and +Officers Liability Insurance +We have entered into a standard indemnification +agreement with each of our executive officers and directors. We have also obtained +standard policies of insurance under which coverage is provided (a) to our directors and executive officers +against loss rising from claims made by reason of breach of duty or other wrongful act, and (b) to us with respect to payments which +we may make to such executive officers and directors pursuant to the indemnification +agreements referred to above , the Articles of Incorporation and the Bylaws, or +otherwise as a matter of law. +68 +Asset Entities Inc. 2022 Equity Incentive Plan +On May 2, 2022, the board of directors approved, +and our majority stockholders ratified, the Asset Entities Inc. 2022 Equity Incentive Plan (the “Plan”). The purpose of the +Plan is to advance our interests and the interests of our stockholders by providing an incentive to attract, retain and reward persons +performing services for us and by motivating such persons to contribute to our growth and profitability. The maximum number of shares +of Class B Common Stock that may be issued pursuant to awards granted under the Plan is 550,000 shares. Cancelled and forfeited stock +options and stock awards may again become available for grant under the Plan. However, shares tendered in payment of an option, delivered +or withheld by the Company to satisfy any tax withholding obligation, or covered by a stock-settled stock appreciation right or other +awards that were not issued upon the settlement of the award will not again become available for grant under the Plan. +As of March 31, 2025, we have granted awards for +a total of 550,000 shares of Class B Common Stock under the Plan and we have not granted any stock options under the Plan. As of March +31, 2025, there are no shares remaining available for issuance under the Plan. We intend that awards granted under the Plan be exempt +from or comply with Section 409A of the U.S. Internal Revenue Code of 1986, as amended (the “Code”) (including any amendments +or replacements of such section), and the Plan shall be so construed. +Summary of Principal Features of the Plan +Awards that may be granted under the Plan include: +(a) Incentive Stock Options, (b) Non-qualified Stock Options, (c) Stock Appreciation Rights, (d) Restricted Awards, +(e) Performance Share Awards, and (f) Performance Compensation Awards, each as defined by the Plan. These awards offer our officers, +employees, consultants and directors the possibility of future value, depending on the long-term price appreciation of the Class +B Common Stock and the award holder’s continuing service with the Company. +Stock options give the option holder the right +to acquire from us a designated number of shares of Class B Common Stock at a purchase price that is fixed upon the grant of the option. +The exercise price generally will not be less than the market price of the Class B Common Stock on the date of grant. Stock options granted +may be either Incentive Stock Options or Non-qualified Stock Options. +Stock Appreciation Rights, or SARs, may be granted +alone or in tandem with options, and have an economic value similar to that of options. When a SAR for a particular number of shares is +exercised, the holder receives a payment equal to the difference between the fair market value of the shares on the date of exercise and +the exercise price of the shares under the SAR. The exercise price for SARs is normally the market price of the shares on the date the +SAR is granted. Under the Plan, holders of SARs may receive this payment — the appreciation value — either in cash +or shares of Class B Common Stock valued at the fair market value on the date of exercise. The form of payment will be determined by the +administrator. +Restricted Awards are awards of shares of Class +B Common Stock or rights to shares of Class B Common Stock to participants at no cost. Restricted Stock (as defined by the Plan) represents +issued and outstanding shares of Class B Common Stock which may be subject to vesting criteria under the terms of the award within the +discretion of the administrator. Restricted Stock Units (as defined by the Plan) represent the right to receive shares of Class B Common +Stock which may be subject to satisfaction of vesting criteria under the terms of the award within the discretion of the administrator. +Restricted Stock and the rights under Restricted Stock Units are forfeitable and non-transferable until they vest. The vesting date +or dates and other conditions for vesting are established when the shares are awarded. +The Plan also provides for Performance Compensation +Awards, representing the right to receive a payment, which may be in the form of cash, shares of Class B Common Stock, or a combination, +based on the attainment of pre-established goals. +Principal Features of the Plan +Purposes of the Plan: The purposes +of the Plan are (a) to enable the Company and any affiliate company to attract and retain the types of employees, consultants and directors +who will contribute to the Company’s long-term success; (b) provide incentives that align the interests of employees, consultants +and directors with those of the stockholders of the Company; and (c) promote the success of the Company’s business. +Administration of the Plan: The +Plan is administered by the Compensation Committee. In this summary, we refer to the Compensation Committee as the administrator. Among +other things, the administrator has the authority to select persons who will receive awards, determine the types of awards and the number +of shares to be covered by awards, and to establish the terms, conditions, performance criteria, restrictions and other provisions of +awards. The administrator has authority to establish, amend and rescind rules and regulations relating to the Plan. +69 +Eligible Recipients: Persons eligible +to receive awards under the Plan are employees (including officers or directors who are also treated as employees); consultants, i.e., +individuals engaged to provide consulting or advisory services to the Company; and directors. +Shares Available Under the Plan: +The maximum number of shares of our Class B Common Stock that may be delivered to participants under the Plan is 550,000, subject to adjustment +for certain corporate changes affecting the shares, such as stock splits. Shares subject to an award under the Plan which is canceled, +forfeited or expires again become available for grants under the Plan. However, shares tendered in payment of an option, delivered or +withheld by the Company to satisfy any tax withholding obligation, or covered by a stock-settled SAR or other awards that were not issued +upon the settlement of the award will not again become available for grant under the Plan. +Stock Options: +General. Subject to the provisions +of the Plan, the administrator has the authority to determine all grants of stock options. That determination will include: (i) the +number of shares subject to any option; (ii) the exercise price per share; (iii) the expiration date of the option; (iv) the +manner, time and date of permitted exercise; (v) other restrictions, if any, on the option or the shares underlying the option; and +(vi) any other terms and conditions as the administrator may determine. +Option Price . The exercise price for stock +options will be determined at the time of grant. Normally, the exercise price will not be less than the fair market value on the date +of grant. As a matter of tax law, the exercise price for any Incentive Stock Option awarded may not be less than the fair market value +of the shares on the date of grant. However, Incentive Stock Option grants to any person owning more than 10% of our voting stock must +have an exercise price of not less than 110% of the fair market value on the grant date. +Exercise of Options. An option may be exercised +only in accordance with the terms and conditions of the option agreement as established by the administrator at the time of the grant. +The option must be exercised by notice to us, accompanied by payment of the exercise price. Payments may be made in cash or, at the option +of the administrator, by actual or constructive delivery of shares of Class B Common Stock based upon the fair market value of the shares +on the date of exercise. +Expiration or Termination. Options, if +not previously exercised, will expire on the expiration date established by the administrator at the time of grant. In the case of Incentive +Stock Options, such term cannot exceed ten years provided that in the case of holders of more than 10% of our voting stock, such term +cannot exceed five years. Options will terminate before their expiration date if the holder’s service with the Company or an affiliate +company terminates before the expiration date. The option may remain exercisable for specified periods after certain terminations of employment, +including terminations as a result of death, disability or retirement, with the precise period during which the option may be exercised +to be established by the administrator and reflected in the grant evidencing the award. +Incentive Stock Options and Non-Qualified +Stock Options. As described elsewhere in this summary, an Incentive Stock Option is an option that is intended to qualify +under certain provisions of the Code, for more favorable tax treatment than applies to Non-qualified Stock Options. Only employees +may be granted Incentive Stock Options. Any option that does not qualify as an Incentive Stock Option will be a Non-qualified Stock +Option. Under the Code, certain restrictions apply to Incentive Stock Options. For example, the exercise price for Incentive Stock Options +may not be less than the fair market value of the shares on the grant date and the term of the option may not exceed ten years. In addition, +an Incentive Stock Option may not be transferred, other than by will or the laws of descent and distribution, and is exercisable during +the holder’s lifetime only by the holder. In addition, no Incentive Stock Option may be granted to a holder that is first exercisable +in a single year if that option, together with all Incentive Stock Options previously granted to the holder that also first become exercisable +in that year, relate to shares having an aggregate market value in excess of $100,000, measured at the grant date. +Stock +Appreciation Rights: Awards of SARs may be granted alone or in tandem with stock options. SARs provide the holder with the +right, upon exercise, to receive a payment, in cash or shares of stock, having a value equal to the excess of the fair market value +on the exercise date of the shares covered by the award over the exercise price of those shares. Essentially, a holder of a SAR +benefits when the market price of the Class B Common Stock increases, to the same extent that the holder of an option does, but, +unlike an option holder, the SAR holder need not pay an exercise price upon exercise of the award. +70 +Restricted Stock . Restricted Stock +is a grant of shares of Class B Common Stock. These awards may be subject to such vesting conditions, restrictions and contingencies as +the administrator shall determine at the date of grant. Those may include requirements for continuous service and/or the achievement of +specified performance goals. Restricted Stock is forfeitable and generally non-transferable until it vests. The vesting date or dates +and other conditions for vesting are established when the shares are awarded. The administrator may remove any vesting or other restrictions +from Restricted Stock whenever it may determine that, by reason of changes in applicable laws or other changes in circumstances arising +after the date of grant, such action is appropriate. Holders of Restricted Stock otherwise generally have the rights of stockholders of +the Company, including voting and dividend rights, to the same extent as other stockholders of the Company. +Restricted Stock Units . A Restricted +Stock Unit is a right to receive stock on a future date, at which time the Restricted Stock Unit will be settled and the stock to which +it granted rights will be issued to the Restricted Stock Unit holder. These awards may be subject to such vesting conditions, restrictions +and contingencies as the administrator shall determine at the date of grant. Restricted Stock Units are forfeitable and generally non-transferable until +they vest. The administrator may remove any vesting or other restrictions from a Restricted Stock Unit whenever it may determine that, +by reason of changes in applicable laws or other changes in circumstances arising after the date of grant, such action is appropriate. +A Restricted Stock Unit holder has no rights as a stockholder. The administrator may exercise discretion to credit a Restricted Stock +Unit with cash and stock dividends, with or without interest, and distribute such credited amounts upon settlement of a Restricted Stock +Unit, and if the Restricted Stock Unit is forfeited, such dividend equivalents will also be forfeited. +Performance Share Awards and Performance +Compensation Awards: The administrator may grant Performance Share Awards and Performance Compensation +Awards. A Performance Share Award means the grant of a right to receive a number of actual shares of Class B Common Stock or share units +based upon the performance of the Company during a performance period, as determined by the administrator. The administrator may determine +the number of shares subject to the Performance Share Award, the performance period, the conditions to be satisfied to earn an award, +and the other terms, conditions and restrictions of the award. No payout of a Performance Share Award will be made except upon written +certification by the administrator that the minimum threshold performance goal(s) have been achieved. +The administrator may also designate any of the +other awards described above as a Performance Compensation Award (other than stock options and SARs granted with an exercise price equal +to or greater than the fair market value per share of Class B Common Stock on the grant date). In addition, the administrator shall have +the authority to make an award of a cash bonus to any participant and designate such award as a Performance Compensation Award. The participant +must be employed by the Company on the last day of the performance period to be eligible for payment in respect of a Performance Compensation +Award unless otherwise provided in the applicable award agreement. A Performance Compensation Award will be paid only to the extent that +the administrator certifies in writing whether and the extent to which the applicable performance goals for the performance period have +been achieved and the applicable performance formula determines that the Performance Compensation Award has been earned. A performance +formula means, for a performance period, one or more objective formulas applied against the relevant performance goal to determine, with +regard to the Performance Compensation Award of a particular participant, whether all, some portion but less than all, or none of the +Performance Compensation Award has been earned for the performance period. The administrator will not have the discretion to grant or +provide payment in respect of a Performance Compensation Award for a performance period if the performance goals for such performance +period have not been attained. +The administrator will establish performance goals +for each Performance Compensation Award based upon the performance criteria that it has selected. The performance criteria shall be based +on the attainment of specific levels of performance of the Company and may include the following: (a) net earnings or net income (before +or after taxes); (b) basic or diluted earnings per share (before or after taxes); (c) net revenue or net revenue growth; (d) gross revenue; +(e) gross profit or gross profit growth; (f) net operating profit (before or after taxes); (g) return on assets, capital, invested capital, +equity, or sales; (h) cash flow (including, but not limited to, operating cash flow, free cash flow, and cash flow return on capital); +(i) earnings before or after taxes, interest, depreciation and/or amortization; (j) gross or operating margins; (k) improvements in capital +structure; (l) budget and expense management; (m) productivity ratios; (n) economic value added or other value added measurements; (o) +share price (including, but not limited to, growth measures and total stockholder return); (p) expense targets; (q) margins; (r) operating +efficiency; (s) working capital targets; (t) enterprise value; (u) safety record; (v) completion of acquisitions or business expansion; +(w) achieving research and development goals and milestones; (x) achieving product commercialization goals; and (y) other criteria as +may be set by the administrator from time to time. +71 +The administrator will also determine the performance +period for the achievement of the performance goals under a Performance Compensation Award. At any time during the first 90 days of a +performance period (or such longer or shorter time period as the administrator shall determine) or at any time thereafter, in its sole +and absolute discretion, to adjust or modify the calculation of a performance goal for such performance period in order to prevent the +dilution or enlargement of the rights of participants based on the following events: (a) asset write-downs; (b) litigation or claim judgments +or settlements; (c) the effect of changes in tax laws, accounting principles, or other laws or regulatory rules affecting reported results; +(d) any reorganization and restructuring programs; (e) extraordinary nonrecurring items as described in Accounting Principles Board Opinion +No. 30 (or any successor or pronouncement thereto) and/or in management’s discussion and analysis of financial condition and results +of operations appearing in the Company’s annual report to stockholders for the applicable year; (f) acquisitions or divestitures; +(g) any other specific unusual or nonrecurring events, or objectively determinable category thereof; (h) foreign exchange gains and losses; +and (i) a change in the Company’s fiscal year. +Any one or more of the performance criteria may +be used on an absolute or relative basis to measure the performance of our company, as the administrator may deem appropriate, or as compared +to the performance of a group of comparable companies, or published or special index that the administrator deems appropriate. +In determining the actual size of an individual +Performance Compensation Award, the administrator may reduce or eliminate the amount of the award through the use of negative discretion +if, in its sole judgment, such reduction or elimination is appropriate. The administrator shall not have the discretion to (i) grant +or provide payment in respect of Performance Compensation Awards if the performance goals have not been attained or (ii) increase +a Performance Compensation Award above the maximum amount payable under the Plan. +Other Material Provisions: Awards +will be evidenced by a written agreement, in such form as may be approved by the administrator. In the event of various changes to the +capitalization of our company, such as stock splits, stock dividends and similar re-capitalizations, an appropriate adjustment will be +made by the administrator to the number of shares covered by outstanding awards or to the exercise price of such awards. The administrator +generally has the power to accelerate the exercise or vesting period of an award. The administrator is also permitted to include in the +written agreement provisions that provide for certain changes in the award in the event of a change of control of our company, including +acceleration of vesting or payment of the value of the award in cash or stock. Except as otherwise determined by the administrator at +the date of grant, awards will generally not be transferable, other than by will or the laws of descent and distribution. Prior to any +award distribution, to the extent provided by the terms of an award agreement and subject to the discretion of the administrator, a participant +may satisfy any employee withholding tax requirements relating to the exercise or acquisition of Class B Common Stock under an award by +tendering a cash payment authorizing the Company to withhold shares of Class B Common Stock otherwise issuable to the participant as a +result of the exercise or acquisition of Class B Common Stock under the award (in addition to the Company’s right to withhold from +any compensation paid to the participant by the Company). The board of directors has the authority, at any time, to discontinue the granting +of awards. The board also has the authority to alter or amend the Plan or any outstanding award or may terminate the Plan as to further +grants, provided that no amendment to the Plan will be made, without the approval of our stockholders, to the extent that such approval +is required by law or the rules of an applicable securities exchange, or such alteration or amendment would change the number of shares +available under the Plan or change the persons eligible for awards under the Plan. No amendment to an outstanding award made under the +Plan that would adversely affect the award may be made without the consent of the holder of such award. +Clawback Policy +On November 10, 2023, our board of directors adopted +a Clawback Policy in accordance with applicable Nasdaq rules (the “Clawback Policy”). The Clawback Policy provides that we +will recover reasonably promptly the amount of erroneously awarded incentive-based compensation to any current or former executive officers +in the event that the Company is required to prepare an accounting restatement due to the material noncompliance of the Company with any +financial reporting requirement under the securities laws, including any required accounting restatement to correct an error in previously +issued financial statements that is material to the previously issued financial statements, or that would result in a material misstatement +if the error were corrected in the current period or left uncorrected in the current period. A copy of the Clawback Policy has been filed +as Exhibit 97.1 to this report. +72 +ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. +The following table sets forth certain information +with respect to the beneficial ownership of our voting securities as of close of business on March 25, 2025, for: (i) each of our named +executive officers and directors; (ii) all of our executive officers and directors as a group; and (iii) each other stockholder known +by us to be the beneficial owner of more than 5% of any class of our voting securities. +Beneficial ownership is determined in accordance +with the rules of the SEC and generally includes voting or investment power with respect to securities. Under those rules, beneficial +ownership includes any shares as to which a person has sole or shared voting power or investment power, and also any shares which the +person has the right to acquire within 60 days of March 25, 2025, through the exercise or conversion of any stock option, convertible +security, warrant or other right. Except as set forth below, each of the beneficial owners listed below has direct ownership of and sole +voting power and investment power with respect to the shares of our voting securities. +Unless otherwise indicated, the address of each +beneficial owner listed in the table below is c/o our company, Asset Entities Inc., 100 Crescent Court, 7 th Floor, Dallas, +TX 75201. +Amount of +Class A +Common +Stock +Percent of +Class A +Common +Stock (%) (1) +Amount of +Class B +Common +Stock +Percent of +Class B +Common +Stock (%) (2) +Total +Voting +Power (3) (%) +Arshia Sarkhani, +Chief Executive Officer, President and Director +1,000,000 +(4) +100.0 +289,921 +(5) +2.2 +42.7 +Kyle Fairbanks, +Chief Marketing Officer, Executive Vice-Chairman and Director +1,000,000 +(6) +100.0 +286,667 +(7) +2.1 +42.7 +Michael Gaubert, +Executive Chairman and Director +1,000,000 +(8) +100.0 +300,567 +(9) +2.2 +42.8 +Richard A. Burton, +Director +- +- +10,000 +* +* +John A. Jack II, +Director +- +- +10,000 +* +* +Scott K. McDonald, +Director +- +- +10,000 +* +* +David Reynolds, +Director +- +- +5,000 +* +* +All directors and executive officers as a group (10 persons) +1,000,000 +100.0 +510,689 +3.8 +43.6 +Asset Entities Holdings, LLC (11) +1,000,000 +100.0 +250,000 +1.9 +41.5 +* A percentage of shares beneficially owned by a director of the +Company that does not exceed one percent of the outstanding shares of common stock as of March 25, 2025. +(1) Based on 1,000,000 shares of Class A Common Stock issued and outstanding as of March 25, 2025. +(2) Based on 13,413,162 shares of Class B Common Stock issued and outstanding as of March 25, 2025. +73 +(3) Shares of Class A Common Stock are entitled to ten votes for each share of Class A Common Stock. Shares +of Class B Common Stock are entitled to one vote for each share of Class B Common Stock. Based a total of 24,083,882 outstanding votes +as of March 25, 2025, consisting of 13,413,162 votes of the Class B Common Stock, 10,000,000 votes of the Class A Common Stock, and 670,720 +votes of Series A Preferred Stock on an as-converted basis. +(4) Consists of 1,000,000 shares of Class A Common Stock held by AEH. Arshia Sarkhani is a manager, officer +and owner of AEH. +(5) Consists of (i) 39,921 shares of Class B Common Stock and (ii) 250,000 shares of Class B Common Stock +held by AEH. Arshia Sarkhani is a manager, officer and owner of AEH. +(6) Consists of 1,000,000 shares of Class A Common Stock held by AEH. Kyle Fairbanks is a manager, officer +and owner of AEH. +(7) Consists of (i) 36,667 shares of Class B Common Stock and (ii) 250,000 shares of Class B Common Stock +held by AEH. Arshia Sarkhani is a manager, officer and owner of AEH. Kyle Fairbanks is a manager, officer and owner of AEH. +(8) Consists of 1,000,000 shares of Class A Common Stock held by AEH. Michael Gaubert is an officer and indirect +owner of AEH. +(9) Consists of (i) 50,567 shares of Class B Common Stock and (ii) 250,000 shares of Class B Common Stock +held by AEH. Michael Gaubert is an officer and indirect owner of AEH. +(10) Consists of 1,000,000 shares of Class A Common Stock held by AEH. AEH’s managers, officers or other +beneficial owners are Arman Sarkhani, Arshia Sarkhani, Jackson Fairbanks, Kyle Fairbanks, Matthew Krueger, and Michael Gaubert, of which +Arman Sarkhani, Arshia Sarkhani, Kyle Fairbanks, Matthew Krueger, and Michael Gaubert are directors and executive officers of the Company. +(11) Asset Entities Holdings, LLC, or AEH, is a Texas limited liability company. Arman Sarkhani, Arshia Sarkhani, +Jackson Fairbanks, Kyle Fairbanks, Matthew Krueger, and Michael Gaubert are managers, officers, or beneficial owners of AEH. Each of them +is deemed to beneficially own the shares of Class A Common Stock owned by AEH and has shared voting and dispositive powers over its shares. +Changes in Control +There are no arrangements known to us, including +any pledge by any person of our securities, the operation of which may at a subsequent date result in a change in control of the Company. +Securities Authorized for Issuance Under Equity Compensation Plans +The following table sets forth certain information +about the securities authorized for issuance under our incentive plans as of December 31, 2024. +Plan +Category +Number +of +securities to be +issued upon +exercise of +outstanding +options, +warrants and +rights +(a) +Weighted- +average +exercise price +of outstanding +options, +warrants and +rights +(b) +Number +of securities +remaining available +for future issuance +under equity +compensation plans +(excluding securities +reflected in column +(a)) +(c) +Equity compensation +plans approved by security holders (1) +- +- +- +Equity compensation plans not approved by security +holders +- +- +- +Total +- +- +- +(1) On May 2, 2022, our board of directors approved, and our majority stockholders ratified, the Asset Entities +Inc. 2022 Equity Incentive Plan. The maximum number of shares of Class B Common Stock that may be issued pursuant to awards granted under +the Plan is 550,000 shares. For a further description of the Plan, see Item 11. “ Executive Compensation – 2022 Equity Incentive +Plan ”. As of December 31, 2024, no options, warrants or rights to securities were outstanding under the Plan, and 550,000 shares +of Class B Common Stock had been granted and were outstanding under the Plan. +74 +ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. +Transactions with Related Persons +The following includes a summary of transactions +since the beginning of our 2023 fiscal year, or any currently proposed transaction, in which we were or are to be a participant and the +amount involved exceeded or exceeds the lesser of $120,000 or 1% of the average of our total assets at year-end for the last two completed +fiscal years, and in which any related person had or will have a direct or indirect material interest (other than compensation described +under Item 11. “ Executive Compensation ” above). We believe the terms obtained or consideration that we paid or received, +as applicable, in connection with the transactions described below were comparable to terms available or the amounts that would be paid +or received, as applicable, in arm’s-length transactions. +● On November 10, 2023, the Company entered into an Asset Purchase Agreement (the “Asset Purchase +Agreement”) with Ternary Inc., a Florida corporation (“Ternary FL”), Ternary Developments Inc., a Delaware corporation +(“Ternary DE”), OptionsSwing Inc., a Florida corporation (together with Ternary DE and Ternary FL, the “Sellers”), +and Jason Lee, the principal shareholder of each of the Sellers, pursuant to which the Company purchased from the Sellers all of Sellers’ +right, title, and interest in and to substantially all of the assets and properties owned by Sellers and used in connection with the business +of Discord development, social media, online community management, marketing, B2B SaaS that offers sales, service, marketing, and analytics. +On the same date, the Company paid the Sellers $100,000 in cash and issued 60,000 shares of Class B Common Stock. Mr. Lee received 35,400 +shares of the Class B Common Stock, which will vest equally over two years on each six-month anniversary of the grant date. Additionally, +Mr. Lee received $20,475 of the $100,000 cash payment. Pursuant to the Asset Purchase Agreement, the Company agreed to assume certain +liabilities including accrued liabilities (other than taxes), customer deposits and accounts payable, the obligations, duties and liabilities +with respect to the contracts used in conducting or relating to the business of the Sellers and other specified assets, in each case only +to the extent arising from and after November 10, 2023. These assumed liabilities also exclude any obligations arising from the Sellers’ +breach or default before November 10, 2023. As required under the Asset Purchase Agreement, on November 10, 2023, the Company entered +into employment agreements with Mr. Lee and certain employees of the Sellers and an independent contractor agreement with one individual. +Under the Lee Agreement, Mr. Lee was appointed the Chief Technology Officer of the Company commencing November 15, 2023 for +a two-year term unless terminated earlier by Mr. Lee or by the Company for cause or by mutual agreement. Mr. Lee will be paid a salary +of $100,000 per year and be eligible for standard employee benefits. In connection with the Lee Agreement, Mr. Lee entered +into an Employee Confidential Information and Inventions Assignment Agreement, which prohibits unauthorized use or disclosure of the Company’s +proprietary information, contains a general assignment of rights to inventions and intellectual property rights, and contains non-competition +provisions that apply during the term of employment, employee/contractor non-solicitation provisions that apply during the term of employment +and for one year after the term of employment, and non-disparagement provisions that apply during and after the term of employment. The +Asset Purchase Agreement provides that during the time of employment of Mr. Lee and two years after, Mr. Lee and the Sellers will be subject +to non-competition and non-solicitation provisions. The Company will also provide standard indemnification and directors’ and officers’ +insurance. The Asset Purchase Agreement also contains mutual indemnification provisions with respect to breaches of representations and +warranties as well as to certain third-party claims, and indemnification by the Company of the Sellers and Mr. Lee with respect to certain +damages with respect to the assumed liabilities and certain other liabilities asserted by a third party arising after November 10, 2023. +In the case of indemnification provided with respect to breaches of certain non-fundamental representations and warranties, the indemnifying +party will only become liable for indemnified losses to the extent that the amount exceeds an aggregate threshold of $25,000. However, +this threshold limitation does not apply to claims by the Company for breaches by the Sellers or Mr. Lee of certain fundamental representations +and warranties. In addition, the Company’s aggregate remedy with respect to any and all indemnifiable losses may in no event exceed +the purchase price of $100,000 in cash and 60,000 shares of Class B Common Stock. +75 +● On February 22, 2024, the Company entered into a Cancellation and Exchange Agreement with each of AEH, +the holder of 1,677,055 shares of Class A Common Stock, GKDB AE Holdings, LLC, a Texas limited liability company (“GKDB”), +the holder of 603,953 units of membership interests in AEH representing approximately 13.2% ownership of AEH, and certain holders of an +aggregate of 308,073 units of membership interests in GKDB (the “2024 Former GKDB Holders”), representing approximately 51.0% +ownership in GKDB. In accordance with these agreements, we and AEH agreed to convert 112,317 shares of AEH’s Class A Common Stock +into 112,317 shares of Class B Common Stock and transfer such shares to GKDB, in exchange for GKDB’s agreement to cancel and surrender +308,073 of GKDB’s 603,953 units of membership interests in AEH, representing the 2024 Former GKDB Holders’ approximately 51.0% +share of GKDB’s total ownership interest in AEH. GKDB in turn agreed to the cancellation of 308,073 of its AEH units and transfer +of the 112,317 shares of Class B Common Stock to the 2024 Former GKDB Holders in proportion to their former ownership interests in GKDB, +in exchange for the 2024 Former GKDB Holders’ agreement to cancel and surrender all of their units of membership interests in GKDB. +The 112,317 shares of Class B Common Stock transferred to the 2024 Former GKDB Holders were derived from the 2024 Former GKDB Holders’ +approximately 6.7% nominal indirect interest in AEH’s 1,677,055 shares of Class A Common Stock, which in turn was derived from the +2024 Former GKDB Holders’ approximately 51.0% ownership of GKDB and, in turn, their nominal indirect interest in 308,073 of GKDB’s +603,953 units, or approximately 13.2% ownership of AEH. The 2024 Former GKDB Holders’ nominal indirect interest in AEH’s 1,677,055 +shares of Class A Common Stock was therefore automatically converted into ownership of 112,317 shares of Class B Common Stock upon the +conversion and transfer of this number of Class A Common Stock that were held by AEH to the 2024 Former GKDB Holders. Additionally, on +February 22, 2024, we entered into a Cancellation and Exchange Agreement with AEH and a holder of 160,000 units of membership interests +in AEH (the “2024 Former AEH Holder”), representing approximately 3.4% ownership in AEH. In accordance with this agreement, +we and AEH agreed to convert 58,332 shares of AEH’s Class A Common Stock into 58,332 shares of Class B Common Stock and transfer +such shares to the 2024 Former AEH Holder in exchange for the 2024 Former AEH Holder’s agreement to cancel and surrender the 2024 +Former AEH Holder’s 160,000 units of membership interests in AEH. The 2024 Former AEH Holder’s nominal direct interest in +AEH’s 1,677,055 shares of Class A Common Stock was therefore automatically converted into ownership of 58,332 shares of Class B +Common Stock upon the conversion and transfer of this number of Class A Common Stock that were held by AEH to the 2024 Former AEH Holder. +These share transfers were recorded with the transfer agent as of February 26, 2024. As a result of these transactions, AEH held 1,506,406 +shares of Class A Common Stock, the 2024 Former GKDB Holders held a total of 112,317 shares of Class B Common Stock, and the 2024 Former +AEH Holder held 58,332 shares of Class B Common Stock. Based on the closing price per share of $2.43 for the Company’s Class B Common +Stock on February 22, 2024, the total approximate dollar value of these transactions was $414,678; the approximate dollar value of the +interest of Atticus Peppas in these transactions was $141,748; the approximate dollar value of the interest of Aaron Edwards in these +transactions was $47,414; the approximate dollar value of the interest of Brian Fox in these transactions was $47,414; the approximate +dollar value of the interest of Derek Dunlop in these transactions was $59,567; the approximate dollar value of the interest of Haeley +Benavides in these transactions was $71,121; and the approximate dollar value of the interest of John Costacos in these transactions was +$47,414. +● Matthew Krueger, the Company’s Chief Financial Officer, Treasurer, and Secretary, received total +annual compensation from the Company of $220,163 in 2024, consisting of salary payments totaling $180,000, a cash bonus of $25,000, a +grant of 5,000 shares of Class B Common Stock with an aggregate grant date fair value of $2,329 computed in accordance with FASB ASC Topic +718 based on the assumptions described in Note 2 to the Company’s financial statements beginning on page F-1 of this Annual Report, +and $12,864 in other compensation consisting of health insurance. Mr. Krueger received total annual compensation from the Company of $693,486 +in 2023, consisting of salary payments totaling $180,000, a bonus payment of $25,000, a grant of 39,600 shares of Class B Common Stock +subject to vesting as to approximately one-third of the total granted shares on each of the first three anniversaries of the grant date +with an aggregate grant date fair value of $481,140 computed in accordance with FASB ASC Topic 718 based on the assumptions described +in Note 2 to the Company’s financial statements beginning on page F-1 of this Annual Report, and $7,346 in other compensation consisting +of health insurance. +● Arman Sarkhani, the Company’s Chief Operating Officer, received total annual compensation from the +Company of $192,461 in 2024, consisting of salary payments totaling $150,000, a cash bonus of $25,000, a grant of 10,000 shares of Class +B Common Stock with an aggregate grant date fair value of $4,597 computed in accordance with FASB ASC Topic 718 based on the assumptions +described in Note 2 to the Company’s financial statements beginning on page F-1 of this Annual Report, and $12,864 in other compensation +consisting of health insurance. Mr. Sarkhani received total annual compensation from the Company of $546,769 in 2023, consisting of salary +payments totaling $133,333, a bonus payment of $10,000, a grant of 32,600 shares of Class B Common Stock subject to vesting as to approximately +one-third of the total granted shares on each of the first three anniversaries of the grant date with an aggregate grant date fair value +of $396,090 computed in accordance with FASB ASC Topic 718 based on the assumptions described in Note 2 to the Company’s financial +statements beginning on page F-1 of this Annual Report, and $7,346 in other compensation consisting of health insurance. +76 +● On March 27, 2025, the Company entered into a letter agreement +between the Company and Arman Sarkhani, the Company’s Chief Operating Officer, dated as of March 27, 2025 (the “New Arman +Sarkhani Agreement”). Under the New Arman Sarkhani Agreement, Mr. Sarkhani will remain employed by the Company for a term that +will begin on April 1, 2025 and will end on April 1, 2027 unless terminated earlier in accordance with its terms or extended by mutual +written agreement. For the period beginning on the day following the date of the termination of the Prior Arman Sarkhani Employment Agreement +and ending on April 1, 2027, the Company will pay Mr. Sarkhani an annual salary of $150,000. Pursuant to the New Arman Sarkhani Agreement, +the Company will also pay Mr. Sarkhani a cash bonus of $10,000 on April 1, 2025. Mr. Sarkhani will also be eligible to receive an annual +cash bonus as determined by the board or the Compensation Committee. Subject to the approval by the Company’s stockholders +of an amendment to the Plan to increase the number of shares of Class B Common Stock available for grant under the Plan, and further +subject to the approval of the board or the Compensation Committee, Mr. Sarkhani will be granted an award of shares of Class B Common +Stock under the Plan in an amount to be determined by the board or the Compensation Committee pursuant to a restricted stock award agreement +(the “Arman Sarkhani Award Agreement”). The shares will vest equally over two years on each anniversary of the Arman Sarkhani +Award Agreement subject to Mr. Sarkhani’s continuous service. Upon a change of control of the Company, all of the shares will vest +immediately. The Arman Sarkhani Award Agreement will also contain non-competition and non-solicitation provisions. Under the New Arman +Sarkhani Agreement, Mr. Sarkhani will be eligible to participate in standard benefits plans offered to similarly-situated employees by +the Company from time to time, subject to plan terms and generally applicable Company policies. The New Arman Sarkhani Agreement also +contains certain confidentiality provisions. The Company may terminate Mr. Sarkhani for “cause” as defined in the New Arman +Sarkhani Agreement. If the Company terminates Mr. Sarkhani without cause, the Company will be required to pay Mr. Sarkhani a separation +fee of $150,000. +● Jason Lee, the Company’s Chief Technology Officer, received total annual compensation from the Company +of $116,667 in 2024, consisting of salary payments totaling $116,667. Mr. Lee received total annual compensation from the Company of $77,459 +in 2023, consisting of salary payments totaling $12,500 and a grant of 35,400 shares of Class B Common Stock subject to vesting as to +one-fourth of the total granted shares on each of the first four six-month anniversaries of the grant date with an aggregate grant date +fair value of $64,959 computed in accordance with FASB ASC Topic 718 based on the assumptions described in Note 2 to the Company’s +financial statements beginning on page F-1 of this Annual Report. +● Under the letter agreement between the Company and Jackson +Fairbanks, the Company’s Director of Socials and former Chief Marketing Officer, and a beneficial owner of more than 5% of our +Class B Common Stock, dated as of April 21, 2022 (the “Prior Jackson Fairbanks Agreement”), the term of the Prior Jackson +Fairbanks Agreement commenced as of the closing of the initial public offering on February 7, 2023, and terminated on February 7, 2025 +in accordance with its terms. During the term of the Prior Jackson Fairbanks Agreement, the Company paid Mr. Fairbanks an annual salary +of $125,000 and an initial cash bonus of $10,000. Mr. Fairbanks was eligible to receive an annual cash bonus as determined by the Company’s +board of directors. Pursuant to the Prior Jackson Fairbanks Agreement, following the closing of the initial public offering, on February +7, 2023, the Company entered into its standard form of restricted stock award agreement with Mr. Fairbanks granting restricted stock +under the Plan in the amount of 163,000 shares of Class B Common Stock to vest equally over three years on each anniversary of the agreement. +Upon a change of control of the Company, all of the shares will vest immediately. Under the Prior Jackson Fairbanks Agreement, Mr. Fairbanks +will be eligible to participate in standard benefits plans offered to similarly-situated employees by the Company from time to time, +subject to plan terms and generally applicable Company policies. The Prior Jackson Fairbanks Agreement also contained certain confidentiality +provisions. +● Jackson Fairbanks, the Company’s Director of Socials +and former Chief Marketing Officer, and a beneficial owner of more than 5% of our Class B Common Stock, received total annual compensation +from the Company of $142,461 in 2024, consisting of salary payments totaling $125,000, a grant of 10,000 shares of Class B Common Stock +with an aggregate grant date fair value of $4,658 computed in accordance with FASB ASC Topic 718 based on the assumptions described in +Note 2 to the Company’s financial statements beginning on page F-1 of this Annual Report, and $12,864 in other compensation consisting +of health insurance. Mr. Fairbanks received total annual compensation from the Company of $538,436 in 2023, consisting of salary payments +totaling $125,000, a bonus payment of $10,000, a grant of 32,600 shares of Class B Common Stock subject to vesting as to approximately +one-third of the total granted shares on each of the first three anniversaries of the grant date with an aggregate grant date fair value +of $396,090 computed in accordance with FASB ASC Topic 718 based on the assumptions described in Note 2 to the Company’s financial +statements beginning on page F-1 of this Annual Report, and $7,346 in other compensation consisting of health insurance. +77 +● On March 27, 2025, the Company entered into a letter agreement, +dated as of March 27, 2025, between the Company and Jackson Fairbanks, the Company’s Director of Socials and former Chief Marketing +Officer, and a beneficial owner of more than 5% of our Class B Common Stock (the “New Jackson Fairbanks Agreement”). Under +the New Jackson Fairbanks Agreement, Mr. Fairbanks will remain employed by the Company for a term that will begin on April 1, 2025 and +will end on April 1, 2027 unless terminated earlier in accordance with its terms or extended by mutual written agreement. For the period +beginning on the day following the date of the termination of the Prior Jackson Fairbanks Agreement, and ending on April 1, 2027, the +Company will pay Mr. Fairbanks an annual salary of $125,000. Pursuant to the New Jackson Fairbanks Agreement, the Company will also pay +Mr. Fairbanks a cash bonus of $10,000 on April 1, 2025. Mr. Fairbanks will also be eligible to receive an annual cash bonus as determined +by the board or the Compensation Committee. Subject to the approval by the Company’s stockholders of an amendment to the +Plan to increase the number of shares of Class B Common Stock available for grant under the Plan, and further subject to the approval +of the board or the Compensation Committee, Mr. Fairbanks will be granted an award of shares of Class B Common Stock under the Plan in +an amount to be determined by the board or the Compensation Committee pursuant to a restricted stock award agreement (the “Fairbanks +Award Agreement”). The shares will vest equally over two years on each anniversary of the Fairbanks Award Agreement subject to +Mr. Fairbanks’s continuous service. Upon a change of control of the Company, all of the shares will vest immediately. The Fairbanks +Award Agreement will also contain non-competition and non-solicitation provisions. Under the New Jackson Fairbanks Agreement, Mr. Fairbanks +will be eligible to participate in standard benefits plans offered to similarly-situated employees by the Company from time to time, +subject to plan terms and generally applicable Company policies. The New Jackson Fairbanks Agreement also contains certain confidentiality +provisions. The Company may terminate Mr. Fairbanks for “cause” as defined in the New Jackson Fairbanks Agreement. If the +Company terminates Mr. Krueger without cause, the Company will be required to pay Mr. Fairbanks a separation fee of $125,000. +● Under the letter agreement between the Company and Derek +Dunlop, the Company’s former Chief Experience Officer, dated as of April 21, 2022 (the “Dunlop Agreement”), the term +of the Dunlop Agreement commenced as of the closing of the initial public offering on February 7, 2023, and had a term of two years unless +terminated earlier in accordance with its terms. During the term of the Dunlop Agreement, the Company was required to pay Mr. Dunlop +an annual salary of $220,000 and an initial cash bonus of $10,000. Mr. Dunlop was eligible to receive an annual cash bonus as determined +by the Company’s board of directors. Pursuant to the Dunlop Agreement, following the closing of the initial public offering, on +February 7, 2023, the Company entered into its standard form of restricted stock award agreement with Mr. Dunlop granting restricted +stock under the Plan in the amount of 45,100 shares of Class B Common Stock subject to vesting as to approximately one-third of the total +granted shares on each of the first three anniversaries of the grant date. Under the Dunlop Agreement, Mr. Dunlop was eligible to participate +in standard benefits plans offered to similarly-situated employees by the Company from time to time, subject to plan terms and generally +applicable Company policies. The Dunlop Agreement also contained certain confidentiality provisions. On September 30, 2024, Mr. Dunlop’s +employment was terminated by the Company. +● Derek Dunlop, the Company’s former Chief Experience +Officer, received total annual compensation from the Company of $165,000 in 2024, consisting of salary payments totaling $165,000, and +$11,884 in other compensation consisting of health insurance. Mr. Dunlop received total annual compensation from the Company of $785,311 +in 2023, consisting of salary payments totaling $206,250, a bonus payment of $10,000, a grant of 45,100 shares of Class B Common Stock +subject to vesting as to approximately one-third of the total granted shares on each of the first three anniversaries of the grant date +with an aggregate grant date fair value of $547,965 computed in accordance with FASB ASC Topic 718 based on the assumptions described +in Note 2 to the Company’s financial statements beginning on page F-1 of this Annual Report, and $21,096 in other compensation +consisting of consulting fees and health insurance. +● The information under Item 9B. “ Other Information +– New Executive Employment and Consulting Agreements ” is incorporated by reference herein. +Promoters and Certain Control Persons +Each of Mr. Kyle Fairbanks, our co-founder, Executive +Vice-Chairman and Chief Marketing Officer, Mr. Arshia Sarkhani, our co-founder, Chief Executive Officer and President, Mr. Jackson Fairbanks, +our co-founder and Director of Socials, and Mr. Arman Sarkhani, our co-founder and Chief Operating Officer, may be deemed a “promoter” +as defined by Rule 405 of the Securities Act. For information regarding compensation, including items of value, that have been provided +or that may be provided to these individuals, please refer to “ Executive Compensation ” above. +Director Independence +Independent Directors +Nasdaq’s rules generally require that a +majority of an issuer’s board of directors consist of independent directors. Our board of directors consists of seven directors, +four of whom are independent within the meaning of Nasdaq’s rules. +Committees of the Board of Directors +Audit Committee +Richard A. Burton, John A. Jack II, and Scott +K. McDonald, each of whom has been determined by the board of directors to satisfy the “independence” requirements of Rule 10A-3 +under the Exchange Act and Nasdaq’s rules, serve on the Audit Committee, with Mr. Burton serving as the chairman. Our board has +determined that Mr. Burton qualifies as an “audit committee financial expert” as defined by Item 407(d)(5) of Regulation S-K +promulgated by the SEC. The Audit Committee oversees our accounting and financial reporting processes and the audits of the financial +statements of the Company. +78 +Compensation Committee +Richard A. Burton, John A. Jack II, and Scott +K. McDonald, each of whom satisfies the “independence” requirements of Rule 10C-1 under the Exchange Act and Nasdaq’s +rules, serve on the Compensation Committee, with Mr. Jack serving as the chairman. The members of the compensation committee are also +“non-employee directors” within the meaning of Section 16 of the Exchange Act. The Compensation Committee assists the board +in reviewing and approving the compensation structure, including all forms of compensation, relating to our directors and executive officers. +Nominating and Corporate Governance Committee +John A. Jack II, Scott McDonald, and Richard A. +Burton, each of whom satisfies the “independence” requirements of Nasdaq’s rules, serve on our nominating and corporate +governance committee, with Mr. McDonald serving as the chairman. The Nominating and Corporate Governance Committee assists the board of +directors in selecting individuals qualified to become our directors and in determining the composition of the board and its committees. +ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES. +Independent Auditors’ Fees +The aggregate fees billed to the Company by the Company’s principal +accountant for the indicated services for each of the last two fiscal years were as follows: +Year Ended +December 31, +2024 +2023 +Audit Fees +$ 65,500 +$ 44,500 +Audit-Related Fees +— +— +Tax Fees +— +— +All Other Fees +— +— +Total +$ 65,500 +$ 44,500 +As used in the table above, the following terms have the meanings set +forth below. +Audit Fees +Audit fees consist of aggregate fees billed for +each of the last two fiscal years for professional services performed by the Company’s principal accountant for the audit of the +financial statements included in our Annual Reports on Form 10-Q and review of the financial statements included in our Quarterly Reports +on Form 10-Q, reviews of registration statements and issuances of consents, and services that are normally provided in connection with +statutory and regulatory filings or engagements. +Audit-Related Fees +Audit-related fees consist of aggregate fees billed for each of the +last two fiscal years for assurance and related services performed by the Company’s principal accountant that are reasonably related +to the performance of the audit or review of our financial statements and are not reported under the paragraph captioned “Audit +Fees” above. We did not engage our principal accountant to provide assurance or related services during the last two fiscal years. +Tax Fees +Tax fees consist of aggregate fees billed for each of the last two +fiscal years for professional services performed by the Company’s principal accountant with respect to tax compliance, tax advice, +tax consulting and tax planning. We did not engage our principal accountant to provide tax compliance, tax advice or tax planning services +during the last two fiscal years. +79 +All Other Fees +All other fees consist of aggregate fees billed for each of the last +two fiscal years for products and services provided by the Company’s principal accountant, other than for the services reported +under the headings “ Audit Fees ,” “ Audit-Related Fees ” and “ Tax Fees ” above. We +did not engage our principal accountant to render services to us during the last two fiscal years, other than as reported above. +Pre-Approval Policies and Procedures +The Audit Committee has reviewed and approved +all fees earned in 2024 and 2023 by the Company’s principal accountant, and actively monitored the relationship between audit and +non-audit services provided. The Audit Committee has concluded that the fees earned by the principal accountant were consistent with the +maintenance of the principal accountant’s independence in the conduct of its auditing functions. +The Company’s +principal accountant did not provide, and the Audit Committee did not approve, any services that would have been described under “ —Audit-Related +Fees ”, or “ —Tax Fees ” or “ —All Other Fees ” above for either of the last two +fiscal years. +The Audit Committee annually considers the provision +of audit services. The Audit Committee must pre-approve all services provided and fees earned by the Company’s principal accountant. +The Audit Committee has established pre-approval policies and procedures that are detailed as to the particular service, that require +that the Audit committee be informed of each service, and that do not include delegation of the Audit Committee’s responsibilities +under the Exchange Act to management. The pre-approval policies and procedures provide only for defined audit services and, if any, specified +audit-related fees, tax services, and other services, and may impose specific dollar value limits for the fees for pre-approved services. +The Audit Committee also considers on a case-by-case basis specific engagements that are not otherwise pre-approved under the pre-approval +policies and procedures or that materially exceed pre-approved fee amounts. On an interim basis, any proposed engagement that does not +fit within the definition of a pre-approved service may be presented to a designated member of the Audit Committee for approval and to +the full Audit Committee at its next regular meeting. +The percentage +of hours expended on the Company’s principal accountant’s engagement to audit the Company’s financial statements for +the most recent fiscal year that were attributed to work performed by persons other than the principal accountant’s full-time, +permanent employees was not greater than 50%. +80 +PART IV +ITEM 15. EXHIBIT AND FINANCIAL STATEMENT SCHEDULES. +(a) List of Documents Filed as a Part of This Report: +(1) Index to Financial Statements: +Report of Independent Registered Public Accounting Firm +F-2 +Consolidated Balance Sheets as of December 31, 2024 and 2023 +F-3 +Consolidated Statements of Operations for the Years Ended December 31, 2024 and 2023 +F-4 +Consolidated Statements of Changes in Stockholder’s Equity for the Years Ended December 31, 2024 and 2023 +F-5 +Consolidated Statements of Cash Flows for the Years Ended December 31, 2024 and 2023 +F-6 +Notes to Consolidated Financial Statements +F-7 +(2) Index to Financial Statement Schedules: +All schedules have been omitted because +the required information is included in the financial statements or the notes thereto, or because it is not required. +(3) Index to Exhibits: +See exhibits listed under “ —(b) Exhibits ” +below. +81 +(b) Exhibits: +Exhibit No. +Description +3.1 +Articles of Incorporation of Asset Entities Inc. (incorporated by reference to Exhibit 3.1 to Registration Statement on Form S-1 filed on September 2, 2022) +3.2 +Certificate of Designation of Series A Convertible Preferred Stock of Asset Entities Inc. filed with the Secretary of State of the State of Nevada on May 24, 2024 (incorporated by reference to Exhibit 3.3 to Registration Statement on Form S-1 filed on June 7, 2024) +3.3 +Certificate of Amendment to Designation of Asset Entities Inc. filed with the Secretary of State of the State of Nevada on June 14, 2024 (incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed on June 20, 2024) +3.4 +Certificate of Change of Asset Entities Inc. filed with the Secretary of State of the State of Nevada on June 27, 2024 (incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed on June 28, 2024) +3.5 +Certificate of Amendment to Designation of Series A Convertible Preferred Stock of Asset Entities Inc. filed with the Secretary of State of the State of Nevada at 9:58 AM Pacific Daylight Time on September 4, 2024 (incorporated by reference to Exhibit 3.6 to Registration Statement on Form S-1 filed on October 31, 2024) +3.6 +Certificate of Amendment to Designation of Series A Convertible Preferred Stock of Asset Entities Inc. filed with the Secretary of State of the State of Nevada at 11:38 AM Pacific Daylight Time on September 4, 2024 (incorporated by reference to Exhibit 3.7 to Registration Statement on Form S-1 filed on October 31, 2024) +3.7 +Bylaws of Asset Entities Inc. (incorporated by reference to Exhibit 3.2 to Registration Statement on Form S-1 filed on September 2, 2022) +4.1* +Description of Securities of Asset Entities Inc. +4.2 +Warrant To Purchase Class B Common Stock issued to Boustead Securities, LLC, dated June 9, 2022 (incorporated by reference to Exhibit 4.2 to Annual Report on Form 10-K filed on March 31, 2023) +4.3 +Warrant To Purchase Class B Common Stock issued to Boustead Securities, LLC, dated October 7, 2022 (incorporated by reference to Exhibit 4.3 to Annual Report on Form 10-K filed on March 31, 2023) +4.4 +Warrant To Purchase Class B Common Stock issued to Boustead Securities, LLC, dated October 21, 2022 (incorporated by reference to Exhibit 4.4 to Annual Report on Form 10-K filed on March 31, 2023) +4.5 +Common Stock Purchase Warrant issued to Boustead Securities, LLC, dated February 7, 2023 (incorporated by reference to Exhibit 4.1 to Current Report on Form 8-K filed on February 8, 2023) +4.6 +Form of Pre-Funded Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.1 to Current Report on Form 8-K filed on August 7, 2023) +4.7 +Form of Warrant To Purchase Class B Common Stock issuable to Boustead Securities, LLC (incorporated by reference to Exhibit 4.2 to Current Report on Form 8-K filed on August 7, 2023) +4.8 +Warrant To Purchase Class B Common Stock issued to Boustead Securities, LLC, dated as of May 24, 2024 (incorporated by reference to Exhibit 4.1 to Form 8-K filed on May 28, 2024) +4.9 +Warrant To Purchase Class B Common Stock issued to Michael R. Jacks, dated as of July 29, 2024 (incorporated by reference to Exhibit 4.8 to Registration Statement on Form S-1 filed on filed on August 9, 2024) +10.1† +Letter Agreement between Asset Entities Inc. and Arshia Sarkhani, dated as of April 21, 2022 (incorporated by reference to Exhibit 10.1 to Registration Statement on Form S-1 filed on September 2, 2022) +10.2† +Letter Agreement between Asset Entities Inc. and Matthew Krueger, dated as of April 21, 2022 (incorporated by reference to Exhibit 10.5 to Registration Statement on Form S-1 filed on September 2, 2022) +10.3† +Letter Agreement between Asset Entities Inc. and Kyle Fairbanks, dated as of April 21, 2022 (incorporated by reference to Exhibit 10.3 to Registration Statement on Form S-1 filed on September 2, 2022) +10.4† +Letter Agreement between Asset Entities Inc. and Arman Sarkhani, dated as of April 21, 2022 (incorporated by reference to Exhibit 10.6 to Registration Statement on Form S-1 filed on September 2, 2022) +10.5† +Amendment to Letter Agreement between Arman Sarkhani and Asset Entities Inc., dated as of August 15, 2023 (incorporated by reference to Exhibit 10.3 to Quarterly Report on Form 10-Q filed on November 14, 2023) +10.6† +Letter Agreement between Asset Entities Inc. and Jason Lee, dated as of November 10, 2023 (incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K filed on November 15, 2023) +10.7† +Consulting Letter Agreement between Asset Entities Inc. and Michael Gaubert, dated as of April 21, 2022 (incorporated by reference to Exhibit 10.2 to Registration Statement on Form S-1 filed on September 2, 2022) +10.8† +Independent Director Agreement between Asset Entities Inc. and John A. Jack II, dated May 2, 2022 (incorporated by reference to Exhibit 10.12 to Annual Report on Form 10-K filed on March 31, 2023) +10.9† +Independent Director Agreement between Asset Entities Inc. and Richard A. Burton, dated May 2, 2022 (incorporated by reference to Exhibit 10.13 to Annual Report on Form 10-K filed on March 31, 2023) +10.10† +Independent Director Agreement between Asset Entities Inc. and Scott K. McDonald, dated May 2, 2022 (incorporated by reference to Exhibit 10.14 to Annual Report on Form 10-K filed on March 31, 2023) +10.11† +Independent Director Agreement between Asset Entities Inc. and David Reynolds, dated as of May 16, 2024 (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on May 16, 2024) +82 +10.12 +Form of Indemnification Agreement between Asset Entities Inc. and each officer or director (incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K filed on May 16, 2024) +10.13 +Asset Entities Inc. 2022 Equity Incentive Plan (incorporated by reference to Exhibit 10.13 to Registration Statement on Form S-1 filed on September 2, 2022) +10.14 +Form of Stock Option Agreement for Asset Entities Inc. 2022 Equity Incentive Plan (incorporated by reference to Exhibit 10.14 to Registration Statement on Form S-1 filed on September 2, 2022) +10.15 +Form of Restricted Stock Award Agreement for Asset Entities Inc. 2022 Equity Incentive Plan (incorporated by reference to Exhibit 10.15 to Registration Statement on Form S-1 filed on September 2, 2022) +10.16 +Form of Restricted Stock Unit Award Agreement for Asset Entities Inc. 2022 Equity Incentive Plan (incorporated by reference to Exhibit 10.16 to Registration Statement on Form S-1 filed on September 2, 2022) +10.17 +Renewal Service Agreement, dated as of June 9, 2024, between Asset Entities, LLC and Regus Management Group, LLC (incorporated by reference to Exhibit 10.17 to Registration Statement on Form S-1 filed on August 9, 2024) +10.18 +Renewal Service Agreement, dated as of November 9, 2023, between Asset Entities, LLC and Regus Management Group, LLC (incorporated by reference to Exhibit 10.18 to Registration Statement on Form S-1 filed on August 9, 2024) +10.19 +Renewal Service Agreement, dated as of October 10, 2023, between Asset Entities, LLC and Regus Management Group, LLC (incorporated by reference to Exhibit 10.19 to Registration Statement on Form S-1 filed on August 9, 2024) +10.20 +Cancellation and Exchange Agreement, dated as of February 22, 2024, among Asset Entities Inc., Asset Entities Holdings, LLC, GKDB AE Holdings, LLC, and Derek Dunlop (incorporated by reference to Exhibit 10.2 to Quarterly Report on Form 10-Q filed on May 15, 2024) +10.21 +Cancellation and Exchange Agreement, dated as of February 22, 2024, among Asset Entities Inc., Asset Entities Holdings, LLC, GKDB AE Holdings, LLC, and Brian Fox (incorporated by reference to Exhibit 10.3 to Quarterly Report on Form 10-Q filed on May 15, 2024) +10.22 +Cancellation and Exchange Agreement, dated as of February 22, 2024, among Asset Entities Inc., Asset Entities Holdings, LLC, GKDB AE Holdings, LLC, and Haeley Benavides (incorporated by reference to Exhibit 10.4 to Quarterly Report on Form 10-Q filed on May 15, 2024) +10.23 +Cancellation and Exchange Agreement, dated as of February 22, 2024, among Asset Entities Inc., Asset Entities Holdings, LLC, GKDB AE Holdings, LLC, and John Costacos (incorporated by reference to Exhibit 10.5 to Quarterly Report on Form 10-Q filed on May 15, 2024) +10.24 +Cancellation and Exchange Agreement, dated as of February 22, 2024, among Asset Entities Inc., Asset Entities Holdings, LLC, GKDB AE Holdings, LLC, and Aaron Edwards (incorporated by reference to Exhibit 10.6 to Quarterly Report on Form 10-Q filed on May 15, 2024) +10.25 +Cancellation and Exchange Agreement, dated as of February 22, 2024, among Asset Entities Inc., Asset Entities Holdings, LLC, and Atticus Peppas (incorporated by reference to Exhibit 10.7 to Quarterly Report on Form 10-Q filed on May 15, 2024) +10.28 +Underwriting Agreement, dated February 2, 2022, by and between Asset Entities Inc. and Boustead Securities, LLC (as representative of the underwriters named therein) (incorporated by reference to Exhibit 1.1 to Current Report on Form 8-K filed on February 8, 2023) +10.26 +Third Amendment to Amended and Restated Closing Agreement, dated as of March 29, 2024, between Asset Entities Inc. and Triton Funds LP (incorporated by reference to Exhibit 10.32 to Annual Report on Form 10-K filed on April 2, 2024) +10.27 +Form of Securities Purchase Agreement, dated as of May 24, 2024 (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on May 28, 2024) +10.28 +Form of First Amendment to Securities Purchase Agreement, dated as of June 13, 2024 (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on June 20, 2024) +10.29 +Form of Registration Rights Agreement, dated as of May 24, 2024 (incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K filed on May 28, 2024) +10.30 +Assignment and Assumption Agreement, dated as of July 30, 2024, among Boustead Securities, LLC, Sutter Securities, Inc., and Asset Entities Inc. (incorporated by reference to Exhibit 10.34 to Registration Statement on Form S-1 filed on August 9, 2024) +10.31 +Assignment and Assumption Agreement, dated as of July 30, 2024, among Sutter Securities, Inc., Michael R. Jacks, Boustead Securities, LLC, and Asset Entities Inc. (incorporated by reference to Exhibit 10.35 to Registration Statement on Form S-1 filed on August 9, 2024) +10.32 +Waiver and Consent, dated as of September 20, 2024, between Asset Entities Inc. and Ionic Ventures, LLC (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on September 23, 2024) +83 +10.33 +Limited Waiver and Consent, dated as of September 26, 2024, between Asset Entities Inc. and Boustead Securities, LLC (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on September 27, 2024) +10.34 +Sales Agreement, dated as of September 27, 2024, between Asset Entities Inc. and A.G.P./Alliance Global Partners (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on September 30, 2024) +10.35 +Purchase Agreement, dated November 25, 2024, between Asset Entities Inc. and Jeff Blue (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on December 2, 2024) +10.36 +Letter Agreement between Asset Entities Inc. and Jackson Fairbanks, dated as of April 21, 2022 (incorporated by reference to Exhibit 10.7 to Registration Statement on Form S-1 filed on September 2, 2022) +10.37* +Letter Agreement between Asset Entities Inc. and Arshia Sarkhani, dated as of March 27, 2025 +10.38* +Letter Agreement between Asset Entities Inc. and Matthew Krueger, dated as of March 27, 2025 +10.39* +Letter Agreement between Asset Entities Inc. and Kyle Fairbanks, dated as of March 27, 2025 +10.40* +Letter Agreement between Asset Entities Inc. and Arman Sarkhani, dated as of March 27, 2025 +10.41* +Letter Agreement between Asset Entities Inc. and Jackson Fairbanks, dated as of March 27, 2025 +10.42* +Consulting Letter Agreement between Asset Entities Inc. and Michael Gaubert, dated as of March 27, 2025 +14.1 +Code of Ethics and Business Conduct (incorporated by reference to Exhibit 14.1 to Registration Statement on Form S-1 filed on September 2, 2022) +19.1 +Asset Entities Inc. Insider Trading Policy (incorporated by reference to Exhibit 99.1 to Annual Report on Form 10-K filed on April 2, 2024) +23.1* +Consent of WWC, Professional Corporation +31.1* +Certifications of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 +31.2* +Certifications of Principal Financial and Accounting Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 +32.1* +Certifications of Principal Executive Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 +32.2* +Certifications of Principal Financial and Accounting Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 +97.1 +Asset Entities Inc. Clawback Policy (incorporated by reference to Exhibit 97.1 to Annual Report on Form 10-K filed on April 2, 2024) +101.PRE +Inline XBRL Instance Document +101.INS +Inline XBRL Taxonomy Extension Schema Document +101.SCH +Inline XBRL Taxonomy Extension Calculation Linkbase Document +101.CAL +Inline XBRL Taxonomy Extension Definition Linkbase Document +101.DEF +Inline XBRL Taxonomy Extension Label Linkbase Document +101.LAB +Inline XBRL Taxonomy Extension Presentation Linkbase Document +104 +Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) +* Filed herewith +† Executive compensation plan or arrangement +ITEM 16. FORM 10-K SUMMARY. +None. +84 +FINANCIAL STATEMENTS +Page +Report of Independent Registered Public Accounting Firm (PCAOB ID: 1171) +F-2 +Balance Sheets +F-3 +Statements of Operations +F-4 +Statements of Changes in Stockholder’s Equity +F-5 +Statements of Cash Flows +F-6 +Notes to Financial Statements +F-7 +F- 1 +REPORT OF INDEPENDENT +REGISTERED PUBLIC ACCOUNTING FIRM +To: The Board of Directors and Stockholders of +ASSET ENTITIES INC. +Opinion on the Financial Statements +We have audited the accompanying balance sheets +of ASSET ENTITIES INC. (the “Company”) as of December 31, 2024 and 2023, and the related statements of operations, stockholders’ +equity, and cash flows for each of the years in the two-year period ended December 31, 2024, and the related notes (collectively referred +to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the +financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the +years in the two-year period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States +of America. +Basis for Opinion +These financial statements are the responsibility +of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our +audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are +required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and +regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance with the +standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial +statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged +to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding +of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s +internal control over financial reporting. Accordingly, we express no such opinion. +Our audits included performing procedures to assess +the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond +to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. +Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating +the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. +/s/ WWC, P.C . +WWC, P.C. +Certified Public Accountants +PCAOB ID: 1171 +We have served as the Company’s auditor since January 19, 2022. +San Mateo, CA +March 31, 2025 +F- 2 +ASSET ENTITIES INC. +Balance Sheets +As of +As of +December 31, +December 31, +2024 +2023 +ASSETS +Current Assets +Cash +$ 2,660,624 +$ 2,924,323 +Prepaid expenses +37,228 +38,681 +Trading marketable securities +- +- +Total Current Assets +2,697,852 +2,963,004 +Non-Current Assets +Property and equipment, net +10,114 +12,825 +Intangible asset +509,500 +100,000 +Total Non-Current Assets +519,614 +112,825 +TOTAL ASSETS +$ 3,217,466 +$ 3,075,829 +LIABILITIES AND STOCKHOLDERS' EQUITY +Current Liabilities +Accounts payable and credit card liability +$ 430,526 +$ 150,096 +Contract liabilities +369 +3,445 +Total Current Liabilities +430,895 +153,541 +TOTAL LIABILITIES +430,895 +153,541 +Commitments and contingencies +Stockholders' Equity +Preferred Stock; $ 0.0001 par value, 50,000,000 authorized Series A Convertible Preferred Stock; $ 0.0001 par value, $ 10,000 stated value , 660 designated 100 and 0 shares issued and outstanding, respectively +- +- +Common Stock; $ 0.0001 par value, 40,000,000 authorized Class A Common Stock; $ 0.0001 par value, 2,000,000 authorized 1,000,000 and 1,677,056 shares issued and outstanding, respectively +100 +168 +Class B Common Stock; $ 0.0001 par value, 38,000,000 authorized 9,060,965 and 1,207,827 shares issued, respectively +906 +121 +Additional paid in capital +14,791,922 +8,657,190 +Treasury Stock, at cost: Class B Common Stock - 250,000 shares +- +( 176,876 ) +Subscription receivable +- +- +Accumulated deficit +( 12,006,357 ) +( 5,558,315 ) +TOTAL STOCKHOLDERS’ EQUITY +2,786,571 +2,922,288 +TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY +$ 3,217,466 +$ 3,075,829 +The accompanying notes are an integral part +of these financial statements. +F- 3 +ASSET ENTITIES INC. +Statements +of Operations +Year ended +December 31, +2024 +2023 +Revenue +$ 633,489 +$ 277,038 +Operating expenses +Contract labor +512,911 +176,773 +General and administrative +3,021,547 +2,183,155 +Management compensation +3,503,059 +2,848,307 +Total operating expenses +7,037,517 +5,208,235 +Loss from operations +( 6,404,028 ) +( 4,931,197 ) +Other income +Interest income +10,096 +- +Total other income +10,096 +- +Income before income tax credit +( 6,393,932 ) +( 4,931,197 ) +Income taxes credit from prior period +Net loss +$ ( 6,393,932 ) +$ ( 4,931,197 ) +Dividend on Series A Preferred Stock +( 54,110 ) +- +Net loss attributable to common stockholders +$ ( 6,448,042 ) +$ ( 4,931,197 ) +Loss per share of common stock - basic and diluted +$ ( 1.70 ) +$ ( 1.85 ) +Weighted average number of shares of common stock outstanding - basic and diluted +3,788,525 +2,663,477 +The accompanying notes are an integral part +of these financial statements. +F- 4 +ASSET ENTITIES INC. +Statement of +Stockholders’ Equity +For the years ended December 31, 2024 and 2023 +Series +A +Convertible +Preferred +Stock +Class +A +Common Stock +Class +B +Common Stock +Additional +Paid in +Subscription +Treasury +Accumulated +Shares +Amount +Shares +Amount +Shares +Amount +Capital +Receivable +Stock +Deficit +Total +Balance - December 31, 2022 +- +$ - +1,677,056 +$ 168 +472,945 +$ 48 +$ 780,685 +$ - +$ - +$ ( 627,118 ) +$ 153,783 +Class B Common stock issued +- +- +- +- +352,682 +35 +6,580,612 +- +- +- +6,580,647 +Class B Common stock issued for restricted stock awards +- +- +- +- +382,200 +38 +1,295,893 +- +- +- +1,295,931 +Repurchase of Class B Common stock +- +- +- +- +- +- +- +( 176,876 ) +- +( 176,876 ) +Net loss +- +- +- +- +- +- +- +- +- +( 4,931,197 ) +( 4,931,197 ) +Balance - December 31,2023 +- +$ - +1,677,056 +$ 168 +1,207,827 +$ 121 +$ 8,657,190 +$ - +$ ( 176,876 ) +$ ( 5,558,315 ) +$ 2,922,288 +Series A Convertible Preferred stock issued +330 +- +- +- +- +- +2,647,500 +- +- +- +2,647,500 +Conversion from Series A Convertible Preferred stock to Class B common +stock +( 230 ) +- +- +- +4,293,312 +429 +53,681 +- +- +- +54,110 +Conversion from Class A to Class B common stock +- +- +( 677,056 ) +( 68 ) +677,056 +68 +- +- +- +- +- +Class B common stock for cash +- +- +- +- +2,718,475 +271 +2,388,587 +- +- +- +2,388,858 +Class B Common stock issued for restricted stock awards +- +- +- +- +168,354 +17 +1,212,340 +- +- +- +1,212,357 +Class B Common stock issued for purchase of intangible asset +- +- +- +- +5,000 +1 +9,499 +9,500 +Cancellation of Class B common stock and Treasury stock +- +- +- +- +( 80,067 ) +( 8 ) +( 176,868 ) +- +176,876 +- +- +Reverse stock split adjustment +- +- +- +- +71,008 +7 +( 7 ) +- +- +- +- +Dividend declared - Series A Convertible Preferred stock +- +- +- +- +- +- +- +- +- +( 54,110 ) +( 54,110 ) +Net loss +- +- +- +- +- +- +- +- +- +( 6,393,932 ) +( 6,393,932 ) +Balance - December 31,2024 +100 +$ - +1,000,000 +$ 100 +9,060,965 +$ 906 +$ 14,791,922 +$ - +$ - +$ ( 12,006,357 ) +$ 2,786,571 +The accompanying notes are an integral part +of these financial statements. +F- 5 +ASSET +ENTITIES INC. +Statements +of Cash Flows +Year ended +December 31, +2024 +2023 +CASH FLOWS FROM OPERATING ACTIVITIES +Net loss +$ ( 6,393,932 ) +$ ( 4,931,197 ) +Adjustments to reconcile net loss to net cash used in operating activities: +Stock based compensation +1,212,357 +1,295,931 +Depreciation and amortization +2,711 +734 +Changes in operating assets and liabilities: +Prepaid expenses +1,453 +( 38,681 ) +Accounts payable and accrued expenses +280,430 +( 133,207 ) +Contract liabilities +( 3,076 ) +( 1,203 ) +Net cash used in operating activities +( 4,900,057 ) +( 3,807,623 ) +CASH FLOWS FROM INVESTING ACTIVITIES +Purchase of property and equipment +- +( 13,559 ) +Purchase of intangible asset +( 400,000 ) +( 100,000 ) +Net cash used in investing activities +( 400,000 ) +( 113,559 ) +CASH FLOWS FROM FINANCING ACTIVITIES +Series A Convertible Preferred stock issued +2,647,500 +- +Proceeds from Class B common stock issued, net +2,388,858 +6,885,204 +Reacquisition of shares +- +( 176,876 ) +Net cash provided by financing activities +5,036,358 +6,708,328 +Net change in cash +( 263,699 ) +2,787,146 +Cash at beginning of period +2,924,323 +137,177 +Cash at end of period +$ 2,660,624 +$ 2,924,323 +SUPPLEMENTAL CASH FLOW INFORMATION: +Cash paid for income taxes +$ +- +$ +- +Cash paid for interest +$ +- +$ +- +NON CASH INVESTING AND FINANCING ACTIVITIES +Conversion from Class A to Class B common stock +$ 68 +$ +- +Conversion from Series A Convertible Preferred stock to Class B common stock +$ 54,110 +Class B Common stock issued for purchase of intangible asset +$ 9,500 +$ +- +Cancellation of Class B common stock +$ 176,876 +$ +- +Reverse stock split adjustment +$ 7 +$ +- +The accompanying notes are an integral +part of these financial statements. +F- 6 +ASSET ENTITIES INC. +NOTES TO FINANCIAL +STATEMENTS +As of and for the years ended December 31, 2024 +and 2023 +Note 1. Organization, Description of Business +and Liquidity +Organization +Asset Entities Inc. (“Asset Entities”, +“we”, “us” or the “Company”), began operations as a general partnership in August 2020 and formed +Assets Entities Limited Liability Company in the state of California on October 20, 2020. The financial statements reflect the operations +of the Company from inception of the general partnership. On March 15, 2022, the Company filed Articles of Merger to register and incorporate +with the state of Nevada and changed the company name to Asset Entities Inc. +Reverse Stock Split +On June 27, 2024, the Company filed a Certificate +of Change pursuant to Section 78.209 of the Nevada Revised Statutes with the Secretary of State of the State of Nevada authorizing +a 1-for-5 reverse stock split of the Company’s issued and outstanding shares of Class A Common Stock, $ 0.0001 par value per +share, and Class B Common Stock, $ 0.0001 par value per share. The reverse stock split became effective on July 1, 2024. +Prior to the reverse stock split, the Company +was authorized to issue 200,000,000 shares of common stock, consisting of 10,000,000 shares of Class A Common Stock +and 190,000,000 shares of Class B Common Stock. As a result of the reverse stock split, the Company will be authorized to 40,000,000 shares +of common stock, consisting of 2,000,000 shares of Class A Common Stock and 38,000,000 shares of Class B Common Stock. +All share and per share information in these financial +statements retroactively reflect this reverse stock split. +Description of Business +Asset Entities is an Internet company providing +social media marketing, content delivery, and development and design services across Discord, TikTok, and other social media platforms. +Based on the rapid growth of our Discord servers and social media following, we have developed three categories of services. First, we +provide subscription upgrades to premium content on our investment education and entertainment servers on Discord. Second, we codevelop +and execute influencer social media and marketing campaigns for clients. Third, we design, develop and manage Discord servers for clients +under our “AE.360.DDM” brand. Our AE.360.DDM service was released in December 2021. All of these services – our Discord +investment education and entertainment, social media and marketing, and AE.360.DDM services – are therefore based on our effective +use of Discord in combination with ongoing social media outreach on TikTok, Facebook, Twitter, Instagram, and YouTube. +Liquidity +The accompanying +financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization +of assets and the liquidation of liabilities in the normal course of business. The Company has an accumulated deficit of $ 12,006,357 at +December 31, 2024 and a net loss of $ 6,393,932 , during the year ended December 31, 2024. +The Company +has received confirmation from Ionic Ventures, LLC that it will invest up to $ 3 million in the Company’s Series A Convertible +Preferred Stock upon request by the Company, and the Company’s Certificate of Designation of Series A Convertible Preferred Stock +allows for an additional 330 preferred shares of Series A Convertible Preferred Stock to be sold. +With the additional revenue from the +purchase of the TommyBoyTV, LLC server in June 2024, gross revenue is projected to increase to over $ 1.2 million in 2025. +Based on the Company’s existing cash resources, +management believes that the Company will have sufficient funds to carry out the Company’s planned operations for at least the next +12 months from the issuance date of the accompanying financial statements. +F- 7 +Note 2. Summary of Significant Accounting Policies +Basis of Presentation +The financial +statements and related disclosures have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission +(“SEC”). The financial statements of the Company have been prepared in accordance with generally accepted accounting principles +in the United States of America (“GAAP”) and are presented in US dollars. The Company uses the accrual basis of accounting +and has adopted a December 31 fiscal year end. +Use of Estimates +The preparation of financial statements in conformity +with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure +of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting +period. Some of these judgments can be subjective and complex, and, consequently, actual results may differ from these estimates. +Cash and Cash Equivalents +For purposes of balance sheet presentation and +reporting of cash flows, the Company considers all unrestricted demand deposits, money market funds and highly liquid debt instruments +with an original maturity of less than 90 days to be cash and cash equivalents. The Company had no cash equivalents at December 31, 2024 +and 2023. +Periodically, the Company may carry cash balances +at financial institutions more than the federally insured limit of $ 250,000 per institution. The +amount in excess of the FDIC insurance as of December 31, 2024, was approximately $ 1.9 million. The Company has not experienced losses +on account balances and management believes, based upon the quality of the financial institutions, that the credit risk with regard to +these deposits is not significant. +Deferred Offering Costs +As of December 31, 2022, deferred offering costs +represent legal fees for preparation of any securities purchase agreements or current registration statement. The Company recorded these +fees as a current asset that netted against gross proceeds received from any offering or placements. In +February 2023, the Company issued common stock as initial public offering and netted offering cost as additional paid in capital. As of +December 31, 2024, there is no more deferred offering costs. +Property and equipment +Property and equipment are stated at cost less +accumulated depreciation and impairment loss, if any. Property and equipment are depreciated at rates sufficient to write off their costs +less impairment and residual value, if any, over their estimated useful lives on a straight-line basis. +Category +Useful life +(years) +Building +39 +Machinery and Equipment +5 - 10 +Office Equipment and Fixtures +5 +Vehicle +8 +The Company did not have any Building, Machinery +and Equipment, and Vehicle as of December 31, 2024. +Maintenance and repairs are charged to expense +as incurred. Improvements of a major nature are capitalized. At the time of retirement or other disposition of property and equipment, +the cost and accumulated depreciation are removed from the accounts and any gains or losses are reflected in income. +The long-lived assets of the Company are reviewed +for impairment in accordance with ASC No. 360, “Property, Plant and Equipment” (“ASC No. 360”), whenever events +or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The recoverability of assets to be held +and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated +by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying +amount of the assets exceeds the fair value of the assets. +F- 8 +Intangible Assets +Intangible assets acquired are recorded at fair +value. We test our finite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying +value of the assets may not be recoverable. We test our indefinite-lived intangible assets for impairment annually +or whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. If +the carrying value exceeds the fair value, we recognize an impairment in an amount equal to the excess, not to exceed the carrying +value. Management uses considerable judgment to determine key assumptions, including projected revenue, royalty rates and appropriate +discount rates. During the year ended December 31, 2024 and 2023, there were no intangible asset impairment charges. +Finite-lived intangible assets are amortized using +the straight-line method over their estimated useful lives, which ranges from 5 to 15 years . Our finite-lived +intangible assets include acquired franchise agreements, acquired customer relationships, acquired customer lists, and internally +developed software. Our indefinite-lived intangible assets include acquired domain names, trade names, and purchased software. +Intangible assets internally +developed are measured at cost. We capitalize costs to develop or purchase computer software for internal use which are incurred during +the application development stage. These costs include fees paid to third parties for development services and payroll costs +for employees' time spent developing the software. We expense costs incurred during the preliminary project stage and the post-implementation +stage. Capitalized development costs are amortized on a straight-line basis over the estimated useful life of the software. +The capitalization and ongoing assessment of recoverability of development costs requires considerable judgment by management +with respect to certain external factors, including, but not limited to, technological and economic feasibility, and estimated +economic life. +Impairment of Long-lived Assets Other Than +Goodwill +Long-lived assets with finite lives, primarily +property and equipment, intangible assets, and operating lease right-of-use assets are reviewed for impairment whenever events or changes +in circumstances indicate that the carrying amount of an asset may not be recoverable. If the estimated cash flows from the use of the +asset and its eventual disposition are below the asset’s carrying value, then the asset is deemed to be impaired and written down +to its fair value. +Fair Value Measurements +The Company uses a three-tier fair value hierarchy +to classify and disclose all assets and liabilities measured at fair value on a recurring basis, as well as assets and liabilities measured +at fair value on a non-recurring basis, in periods subsequent to their initial measurement. The hierarchy requires the Company to use +observable inputs when available, and to minimize the use of unobservable inputs, when determining fair value. The three tiers are defined +as follows: +● +Level 1—Observable inputs that reflect quoted market prices (unadjusted) for identical assets or liabilities in active markets; +● +Level 2—Observable inputs other than quoted prices in active markets that are observable either directly or indirectly in the marketplace for identical or similar assets and liabilities; and +● +Level 3—Unobservable inputs that are supported by little or no market data, which require the Company to develop its own assumptions. +The Company’s +financial instruments, including cash, accounts receivable, prepaid expense, deferred offering costs and contract liabilities, other current +liabilities are carried at historical cost. At December 31, 2024 and 2023, the carrying amounts of these instruments approximated their +fair values because of the short-term nature of these instruments. +Advertising Expenses +The Company expenses advertising costs as they +incurred. Total advertising expenses were $ 944,635 and $ 436,066 for the year ended December 31, 2024 and 2023, respectively, and have +been included as part of general and administrative expenses. +F- 9 +Research and Development +Research and development costs are charged to +expense as incurred. Accordingly, internal research and development costs are expensed as incurred. Third-party research and development +costs are expensed when the contracted work has been performed or as milestone results have been achieved as defined under the applicable +agreement. +The Company incurred research and development +expenses of $ 423,299 and $ 18,935 for the year ended December 31, 2024 and 2023, respectively, and have been included as +part of contract labor. +Stock based compensation +Service-Based Awards +The Company records stock-based compensation for awards granted to +employees, non-employees, and to members of the Board for their services on the Board based on the grant date fair value of awards issued, +and the expense is recorded on a straight-line basis over the requisite service period, which is generally one to three years. +For restricted stock awards (“RSAs”) issued under the Company’s +stock-based compensation plans, the fair value of each grant is calculated based on the Company’s stock price on the date of grant. +Share Repurchase +Share repurchases are open market purchases. Share +repurchases are generally recorded on the settlement date, as treasury stock. When shares are cancelled, the value of repurchased shares +is deducted from stockholders’ equity through common stock with the excess over par value recorded to accumulated deficit. +Revenue Recognition +The Company recognizes revenue utilizing the following +steps: (i) Identify the contract, or contracts, with a customer; (ii) Identify the performance obligations in the contract; (iii) Determine +the transaction price; (iv) Allocate the transaction price to the performance obligations in the contract; (v) Recognize revenue when +the Company satisfies a performance obligation. +Subscriptions +Subscription revenue is related to a single performance +obligation that is recognized over time when earned. Subscriptions are paid in advance and can be purchased on a monthly, quarterly, or +annual basis. Any quarterly or annual subscription revenue is recognized as a contract liability recorded over the contracted service +period. +Marketing +Revenue related to marketing campaign contracts +with customers are normally of a short duration, typically less than two (2) weeks. +AE.360.DDM Contracts +Revenue related to AE.360.DDM contracts with customers +are normally of a short duration, typically less than one (1) week. +Contract Liabilities +Contract liabilities consist of quarterly and +annual subscription revenue that have not been recognized. Revenue under these agreements is recognized over the related service period. +As of December 31, 2024 and 2023, total contract liabilities were $ 369 and $ 3,445 respectively. Contract liabilities are expected +to be recognized as revenue over a period not to exceed twelve (12) months. +F- 10 +Changes in contract liabilities for the year ended +December 31, 2024 are as follows: +2024 +2023 +Balance, January 1 +$ 3,445 +$ 4,648 +Deferral of revenue +- +- +Recognition of revenue +( 3,076 ) +( 1,203 ) +Balance, December 31 +$ 369 +$ 3,445 +Earnings Per Share of Common Stock +The Company has adopted ASC Topic 260, “Earnings +per Share” which requires presentation of basic earnings per share on the face of the statements of operations for all +entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic earnings per share +computation. In the accompanying financial statements, basic loss per share is computed by dividing net loss by the weighted average number +of shares of common stock outstanding during the year. Diluted earnings per share is computed by dividing net income by the weighted average +number of shares of common stock and potentially dilutive outstanding shares of common stock during the period to reflect the potential +dilution that could occur from common stock issuable through contingent share arrangements, stock options and warrants unless the result +would be antidilutive. The Company would account for the potential dilution from convertible securities +using the as-if converted method. The Company accounts for warrants and options using the treasury stock method. +As of December +31, 2024, warrants representing 105,490 shares of common stock equivalents were excluded from the computation from diluted net loss per +share as the result was anti-dilutive. +Income Taxes +As described in more detail in note 1, the business +now conducted by the Company was operated as a partnership from August 1, 2020 until October 19, 2020, when it was reorganized as a limited +liability company, or LLC, and that LLC was merged into the Company on March 28, 2022. Prior to that date, the partnership and the subsequent +LLC were not subject to federal income tax and all income, deductions, gains and losses were attributed to the partners or members. +The Company adopted FASB ASC 740, Income Taxes, +at its inception. Under FASB ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable +to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred +tax assets, including tax loss and credit carryforwards, and liabilities are measured using enacted tax rates expected to apply to taxable +income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and +liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred income tax expense +represents the change during the period in the deferred tax assets and deferred tax liabilities. The components of the deferred tax assets +and liabilities are individually classified as current and non-current based on their characteristics. Deferred tax assets are reduced +by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets +will not be realized. No deferred tax assets or liabilities were recognized as of December 31, 2024 or December 31, 2023. +Related Parties +The Company follows ASC 850, “Related +Party Disclosures” , for the identification of related parties and disclosure of related party transactions and balances. +There were no related party transactions except management fees. During the years ended December 31, 2024 and 2023, the Company paid management +fees to their controlling members totaling $ 3,297,906 and $ 2,848,307 , respectively . +Commitments and Contingencies +The Company follows ASC 450-20, “Loss +Contingencies” , to report accounting for contingencies. Liabilities for loss contingencies arising from claims, assessments, +litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of +the assessment can be reasonably estimated. As of December 31, 2024 and 2023, the Company did not have any commitments and contingencies. +Segment Reporting +The Company operates as one operating +segment. The Company's chief operating decision maker ("CODM") is its chief executive officer, who reviews the operating results +for the Company as a whole to make decisions about allocating resources and assessing financial performance. The CODM uses operating margin +and net income to assess financial performance and allocate resources. These financial metrics are used by the CODM to make key operating +decisions, such as the determination of the rate at which the Company seeks to grow operating margin, the allocation of budget between +operating expenses and the management and forecasting of cash to ensure enough capital is available. Accordingly, we determined we operate +in a single reporting segment. +F- 11 +Our CEO assesses performance and decides how to +allocate resources primarily based on consolidated net income, which is reported on our Consolidated Statements of Operations. Total assets +on the Consolidated Balance Sheets represent our segment assets. +Recent Accounting Pronouncements +In November +2024, the FASB issued ASU 2024-03 final standard on Income Statement: Disaggregation of Income Statement Expenses, which requires disaggregated +disclosure of income statement expenses for public business entities. The ASU does not change the expense captions an entity presents +on the face of the income statement; rather, it requires disaggregation of certain expense captions into specified categories in disclosures +within the footnotes to the financial statements. This guidance will be effective for us on January 1, 2027. +The Company has considered all other recently +issued accounting pronouncements and does not believe the adoption of such pronouncements will have a material impact on its financial +statements. +Recently adopted accounting standards +In November 2023, the FASB issued ASU 2023-07, +which improves reportable segment disclosure requirements. Primarily through enhanced disclosures about significant segment expenses among +other disclosure requirements. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within +fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company adopted ASU 2023-07 on January 1, 2024. The amendments +will be applied retrospectively to all prior periods presented in the accompanying financial statements. The adoption of ASU 2023-07 has +not had a material effect on the Company’s statements and disclosures. +Note 3. Property and Equipment +Property and equipment consisted of the following: +December 31, +December 31, +2024 +2023 +Office equipment +$ 13,559 +$ 13,559 +Accumulated depreciation +( 3,445 ) +( 734 ) +$ 10,114 +$ 12,825 +During the year ended December 31, 2024 and 2023, +the Company recorded depreciation of $ 2,711 and $ 734 , respectively. +Note 4. Intangible Assets +Intangible assets consist of the following: +December 31, +December 31, +2024 +2023 +Purchased software +$ 100,000 +$ 100,000 +Discord server +249,500 +- +Right of literary work entitled +160,000 +- +Less: Impairment +- +- +$ 509,500 +$ 100,000 +On November 10, 2023, the Company entered into +an asset purchase agreement (the “Asset Purchase Agreement”). Under the Asset Purchase Agreement, the Company agreed to purchase +all of the right, title, and interest in and to substantially all of the assets and properties and used in connection with their business +of Discord development, social media, online community management, marketing, and business-to-business software-as-a-service that offers +sales, service, marketing, and analytics for the payment of $ 100,000 in cash (“Purchase software”). The Company determined +the asset has indefinite useful lived. +F- 12 +On June 21, 2024, the Company entered into an +asset purchase agreement (the “Asset Purchase Agreement”). Under the Asset Purchase Agreement, the Company agreed to purchase +all of the right, title, and interest in and to substantially all of the assets and properties owned by the Seller and used in connection +with its business of Discord development, social media, online community management, marketing, and analytics for the payment of $ 200,000 +in cash and the issuance of 25,000 shares of Class B Common Stock valued at $ 9,500 (“Discord server”). The Company determined +the asset has indefinite useful lived. +On November 15, 2024, the Company entered into a asset purchase agreement. Under this agreement, the Company agreed to purchase all of +the right, title, and interest in and to the assets, properties and rights owned by the Seller and used in connection with its business +of Discord development, social media, online community management, marketing, and analytics for the payment of $ 40,000 in cash (“Discord +server”). The Company determined the asset has indefinite useful lived. +On November 25, 2024, the Company entered into +a Purchase Agreement (the "Agreement") with Jeff Blue ("Owner") regarding the literary work entitled "One Step +Closer: From Xero to #1: Becoming Linkin Park" (the "Work"). Under the terms of the Agreement, the Company has acquired +a 50 % ownership interest in the film, TV, streaming, and other media adaptation rights to the Work. The Agreement stipulates several conditions +precedent, including approval of the chain-of-title to the Work by the Company, and receipt of necessary tax forms and other documents +for payment processing. In consideration of the rights granted, the Company paid $ 160,000 (“Right of literary work entitled”). +The Company determined the asset has indefinite useful lived. +Note 5. Stockholders’ Equity +Authorized Capital Stock +On June 27, 2024, the Company filed a Certificate +of Change pursuant to Section 78.209 of the Nevada Revised Statutes with the Secretary of State of the State of Nevada authorizing a 1-for-5 +reverse stock split of the Company’s issued and outstanding shares of class A common stock and class B common stock. As a result +of the Reverse Stock Split, the Company will be authorized to issue 40,000,000 shares of common stock, consisting of 2,000,000 shares +of Class A Common Stock and 38,000,000 shares of Class B Common Stock. +Preferred Stock +The Company shall have the authority to issue +the shares of Preferred Stock in one or more series with such rights, preferences and designations as determined by the Board of Directors +of the Company. +Series A Convertible Preferred Stock +On May 24, 2024, the Company filed a Certificate +of Designation of Series A Convertible Preferred Stock (the “Certificate of Designation”) with the Secretary of State of the +State of Nevada designating 660 shares of the Company’s Preferred Stock, $ 0.0001 par value per share, as +“Series A Convertible Preferred Stock,” and setting forth the voting and other powers, preferences and relative, participating, +optional or other rights of the Series A Preferred Stock. Each share of Series A Preferred Stock has an initial stated value (“Stated +Value”) of $ 10,000 per share. +The Series A Preferred Stock, with respect to +the payment of dividends, distributions and payments upon the liquidation, dissolution and winding up of the Company, ranks senior to +all capital stock of the Company unless the holders of the majority of the outstanding shares of Series A Preferred Stock consent to the +creation of other capital stock of the Company that is senior or equal in rank to the Series A Preferred Stock. +Holders of Series A Preferred Stock will be entitled +to receive cumulative dividends, in shares of Class B Common Stock or cash on the Stated Value at an annual rate of 6 % (which will +increase to 12 % if a Triggering Event (as defined in the Certificate of Designation) occurs. Dividends will be payable upon conversion +of the Series A Preferred Stock or upon any redemption. +Holders of Series A Preferred Stock will be entitled +to convert shares of Series A Preferred Stock into a number of shares of Class B Common Stock determined by dividing the Stated Value +(plus any accrued but unpaid dividends and other amounts due, unless paid by the Company in cash) by the conversion price of the Series +A Preferred Stock (the “Conversion Price”). The initial Conversion Price is $ 0.75 , subject to adjustment including adjustments +due to full-ratchet anti-dilution provisions. Holders may elect to convert shares of Series A Preferred Stock to Class B Common Stock +at an alternate Conversion Price equal to 85 % (or 70 % if the Company’s Class B Common Stock is suspended from trading +on or delisted from a principal trading market or upon occurrence of a Triggering Event) of the average lowest daily volume weighed average +price of the Class B Common Stock during the Alternate Conversion Measuring Period (as defined in the Certificate of Designation). +F- 13 +On September 4, 2024, the Company, filed an amendment +(the “Second Amended Designation”) to the Certificate of Designation of Series A Convertible Preferred Stock of the Company +(as amended, the “Certificate of Designation”), which amended the original Certificate of Designation, as amended by the Certificate +of Amendment to Designation of Series A Convertible Preferred Stock of Asset Entities Inc. filed with the Secretary of State of the State +of Nevada on June 14, 2024, by providing that amendments may be made to the beneficial ownership limitation provisions of the Certificate +of Designation. The Second Amended Designation became effective immediately upon filing. +Immediately after the filing of the Second Amended +Designation, the Company filed an amendment (the “Third Amended Designation”) to the Certificate of Designation to amend the +conversion and beneficial ownership limitation provisions of the Certificate of Designation. The conversion provisions were amended to +provide that a holder of Series A Convertible Preferred Stock, $ 0.0001 par value per share (the “Series A Preferred Stock”), +is not prohibited from delivering a Conversion Notice (as defined by the Certificate of Designation) while another Conversion Notice remains +outstanding. The beneficial ownership provisions were amended to provide that any conversion of shares of Series A Preferred Stock that +would result in the holder beneficially owning in excess of 4.99 % of the shares of Class B Common Stock, $ 0.0001 par value per share (“Class +B Common Stock”), will not be effected, and the shares of Class B Common Stock that would cause such excess will be held in abeyance +and not issued to the holder until the date the Company is notified by the holder that its ownership is less than 4.99 %, at the applicable +Conversion Price (as defined by the Certificate of Designation), and subject to the holder’s compliance with other applicable procedural +requirements for conversion. The Third Amended Designation became effective immediately upon filing. +Securities Purchase Agreement +Series A Convertible Preferred Stock +On May 24, 2024, the Company entered into a securities +purchase agreement (the “Purchase Agreement”) with an investor (the “Investor”) for the issuance and sale of up +to 330 shares of the Company’s newly designated Series A Convertible Preferred Stock, $ 0.0001 par value per share +(“Series A Preferred Stock”), for maximum gross proceeds of $ 3,000,000 . Pursuant to the Purchase Agreement, the Company is +required to issue and sell 165 shares of Series A Preferred Stock at each of two closings subject to the satisfaction of the +terms and conditions for each closing. The first closing (the “First Closing”) occurred on May 24, 2024 for the issuance and +sale of 165 shares of Series A Preferred Stock for gross proceeds of $ 1,500,000 . The second closing (the “Second Closing”), +for the issuance and sale of 165 shares of Series A Preferred Stock for gross proceeds of $ 1,500,000 , will occur on the first +business day on which the conditions specified in the Purchase Agreement for the Second Closing are satisfied or waived, including the +filing and effectiveness of the Registration Statement and the effectiveness of the Stockholder Consent. In addition, the Company issued +a warrant to Boustead for the purchase of 30,800 shares of Class B Common Stock with an exercise price of $ 3.75 per share. +The warrant is exercisable for a period of five years and contains cashless exercise provisions. The Company received $ 1,345,000 , +net of offering cost of $ 155,000 . +The Second Closing, for the issuance and sale +of 165 shares of Series A Preferred Stock for gross proceeds of $ 1,500,000 , occurred on July 29, 2024, which was the first business +day on which the conditions specified in the Purchase Agreement for the Second Closing were satisfied or waived. The Company received +$ 1,302,500 , net of offering cost of $ 197,500 . +On the date of the Second Closing, the Company +was required to issue a warrant to Boustead Securities, LLC for the purchase of 30,800 shares of Class B Common Stock, equal +to 7 % of the number of shares of Class B Common Stock that may be issued upon conversion of the shares of Series A Preferred Stock +sold at the Second Closing at the initial Conversion Price of $ 3.75 per share, subject to the Exchange Limitation before the effectiveness +of the Stockholder Approval (the “Fourth Tail Warrant”). The Fourth Tail Warrant has an exercise price of $ 3.75 per share. +On July 30, 2024, Boustead’s rights to the +Fourth Tail Warrant were assigned to an assignee. The Fourth Tail Warrant was consequently cancelled and a new warrant was issued to the +assignee as of July 29, 2024. +During the year ended December 31, 2024, the Company +issued 330 shares of Series A Convertible Preferred Stock for $ 2,647,500 , net of discount. +During the year ended December 31, 2024, 230 shares +of Series A Convertible Preferred Stock valued at $ 2,354,110 including dividend of $ 54,110 converted into 4,293,312 shares of Class B +Stock. +The Company had 100 shares of Series A Convertible +Preferred Stock issued and outstanding as of December 31, 2024. +F- 14 +Waiver of agreement +On September 20, 2024, the Company entered into a +Waiver and Consent, dated as of September 20, 2024 (the “Ionic ATM Waiver”), between the Company and Ionic Ventures, LLC (“Ionic”), +the sole holder of the Company’s Series A Convertible Preferred Stock, $ 0.0001 par value per share (“Series A Preferred Stock”). +Pursuant to the Waiver and Consent, Ionic waived any prohibition, restriction or adverse adjustment that would otherwise apply to any +action of the Company relating to an “at the market offering” (as defined in Rule 415(a)(4) under the Securities Act of 1933, +as amended (the “Securities Act”)), of equity securities of up to $ 5 million (“Waived ATM”) under the Securities +Purchase Agreement, dated as of May 24, 2024, between the Company and Ionic. Pursuant to the Ionic ATM Waiver, regardless of the terms +and conditions of the Ionic Purchase Agreement and the Series A Certificate of Designation, the Company may at any time enter into any +agreement relating to a Waived ATM, the filing of a prospectus supplement to a prospectus contained in an effective registration statement +that was filed under the Securities Act relating to a Waived ATM, the announcement of a Waived ATM, the issuance, offer, sale, or grant +of any shares of the Company’s Class B Common Stock, $ 0.0001 par value per share (“Class B Common Stock”), relating +to a Waived ATM, or the issuance, offer, sale, or grant of any securities in connection with either the provision of goods or services +or settlement of any obligations that may otherwise arise with respect to a Waived ATM. In addition, pursuant to the Ionic ATM Waiver, +Ionic waived any adjustment to the applicable Conversion Price (as defined in the Series A Certificate of Designation), which partly determines +the number of shares of Class B Common Stock issuable upon conversion of a share of Series A Preferred Stock, that would otherwise occur +as a result of any Waived ATM under the terms of the Series A Certificate of Designation. +On September 26, 2024, the Company entered into a +Limited Waiver and Consent, dated as of September 26, 2024 (the “Boustead ATM Waiver”), between the Company and Boustead Securities, +LLC. Pursuant to the Boustead ATM Waiver, Boustead waived any condition on, restriction on, compensation rights, or rights of first refusal +that would be applicable under the letter agreement, dated November 29, 2021, between the Company and Boustead (the “Boustead Engagement +Letter”) and the Underwriting Agreement, dated as of February 2, 2023, between the Company and Boustead (as representative of the +underwriters named therein) in relation to an “at the market offering” (as defined in Rule 415(a)(4) under the Securities +Act of 1933, as amended (the “Securities Act”)) of equity securities of up to $ 5 million (a “Boustead Waived ATM”). +Pursuant to the Boustead ATM Waiver, the Company may at any time enter into any agreement relating to a Boustead Waived ATM, the filing +of a prospectus supplement to a prospectus contained in an effective registration statement that was filed under the Securities Act relating +to a Boustead Waived ATM, the announcement of a Boustead Waived ATM, the issuance, offer, sale, or grant of any shares of the Class B +Common Stock relating to a Boustead Waived ATM, or the issuance, offer, sale, or grant of any securities in connection with either the +provision of goods or services or settlement of any obligations that may otherwise arise with respect to a Boustead Waived ATM. As consideration, +the Boustead ATM Waiver provides that the Company will promptly pay Boustead 3.0 % of the gross sales price of all shares of Class B Common +Stock sold in connection with any Boustead Waived ATM until the end of the applicability of the provisions of the right of first refusal +provisions of the Boustead Engagement Letter. +Class A Common Stock +Each share of Class A Common Stock entitles the +holder to ten ( 10 ) votes, in person or proxy, on any matter on which an action of the stockholders of the Company is sought and is convertible +by the holder into one ( 1 ) share of Class B Common Stock. +As part of a share conversion in March 2022, the +Company converted the 97.56 % membership interest to 1,951,200 shares of Class A Common Stock of the Company. The Company has reflected +this conversion for all periods presented. +The Company had 1,000,000 and 1,506,406 shares +of Class A Common Stock issued and outstanding as of December 31, 2024 and 2023, respectively. +Class B Common Stock +Each share of Class B Common Stock entitles the +holder to one ( 1 ) vote, in person or proxy, on any matter on which an action of the stockholders of the Company is sought. +The +Company had 9,060,965 and 1,207,827 shares of Class B Common Stock issued as of December 31, 2024 and 2023, respectively. +F- 15 +Fiscal year 2024 +During the year ended December 31, 2024, the Company +issued and cancelled Class B common stock as follows: +● 677,056 shares of Class A common stock were converted into 677,056 shares of Class B common stock +● 124,318 shares of Class +B common stock for cash of $ 194,434 net (Triton Purchase agreement) +● 2,594,157 shares of Class B common stock for cash of $ 2,194,418 net (ATM Alternative Deal) +, +● 168,354 shares of Class B common stock for restricted stock awards valued at $ 161,753 +● 5,000 shares of Class B common stock for purchase of intangible asset valued at $ 9,500 +● 4,293,312 shares of Class B common stock for conversion of Series A Convertible Preferred stock. 891,304 shares were not yet issued at December 31, 2024 +● 30,067 shares of Class B common stock for cancellation +● 50,000 treasury shares of Class B common stock for cancellation +● 71,008 shares of Class B common stock for reverse stock split adjustment +Fiscal year 2023 +During the year ended December 31, 2023, the Company +issued Class B common stock as follows: +● 300,000 shares of Class B common stock issued for cash at $ 7,500,000 in the offering, and after deducting $ 884,880 of underwriting discounts and commissions, the non-accountable expense allowance, and other expenses from the offering, the Company received net proceeds of $ 6,615,120 . +● 52,682 shares of Class B common stock for cash of $ 40,154 net of $ 30,687 in offering costs (Triton Purchase agreement) +● 382,200 shares of Class B restricted stock awards under the 2022 Equity Incentive Plan (“2022 Plan”) to directors and executive officers, valued at $ 3,779,230 . +Treasury stock +During the year ended December 31, 2023, the Company +repurchase 50,000 shares of Class B Common stock at $ 176,876 and recorded as treasury stock as of December 31, 2023. During 2024, all +the treasury stock was cancelled. +Triton Purchase Agreement +On June 30, 2023, the Company, entered into a +Closing Agreement (the “Closing Agreement”) with Triton. Under the Closing Agreement, the Company agreed to sell to Triton +shares of class B common stock, $ 0.0001 par value per share, of the Company (the “Class B Common Stock”), having a total value, +as determined under the Closing Agreement, of $ 1,000,000 . +F- 16 +On August 1, 2023, the Company and Triton entered +into an Amended and Restated Closing Agreement (the “Amended and Restated Closing Agreement”). Subject to the terms of the +Amended and Restated Closing Agreement, the Company may deliver a closing notice (the “Closing Notice”) and issue certain +securities to Triton at any time on or before April 30, 2024, pursuant to which Triton will be obligated to purchase such securities of +the Company with an aggregate value of $ 1,000,000 in the following manner. Upon delivery of the Closing Notice, Triton must purchase newly-issued +shares of Class B Common Stock of the Company (the “Triton Shares”) in an amount equal to up to 9.99 % of the outstanding shares +of Class B Common Stock following such purchase, plus pre-funded warrants (the “Triton Pre-Funded Warrants” and together with +the Triton Shares, the “Triton Securities”) that may be exercised to purchase an amount of newly-issued shares of Class B +Common Stock (the “Triton Warrant Shares”), such that the aggregate price of the Triton Shares and the Triton Pre-Funded Warrants +together with the exercise price to be paid upon full exercise of the Triton Pre-Funded Warrants will equal a total gross purchase price +of $ 1,000,000 . Upon the Company’s election to deliver the Closing Notice, the price of each of the Triton Shares will be set at +85 % of the lowest daily volume-weighted average price of the Class B Common Stock during the five (5) business days before and five business +days after the date of the Closing Notice. +On March 27, 2024, the Company delivered a Closing +Notice to Triton (the “Second Closing Notice”) for the purchase of 124,318 shares of the Company’s Class B +Common Stock to Triton Funds LP, a Delaware limited partnership (“Triton”). The price of the shares was required to be 85 % +of the lowest daily volume-weighted average price of the Class B Common Stock during the five business days prior +to the closing of the purchase of the shares (the “Triton Closing”), and the Triton Closing was required to occur within five business days after +the date that the Triton Shares were received by Triton, in accordance with the Amended and Restated Closing Agreement, dated as of August +1, 2023, between the Company and Triton, as amended by the Amendment to Amended and Restated Closing Agreement, dated as of September +27, 2023, between the Company and Triton, the Second Amendment to Amended and Restated Closing Agreement, dated as of December 30, 2023, +between the Company and Triton, and the Third Amendment to Amended and Restated Closing Agreement, dated as of March 29, 2024, between +the Company and Triton (as amended, the “Amended and Restated Closing Agreement”). On April 10, 2024, the date of the Triton +Closing, the price of the Triton Shares was determined to be $ 1.70 per share based on the lowest daily volume-weighted average price +of the Class B Common Stock during the five business days prior to the Triton Closing. +In connection with the Triton Closing, pursuant +to the Boustead Engagement Letter and the Underwriting Agreement, the Company paid Boustead, as placement agent compensation, a total +of $ 16,907 , equal to 7 % of the aggregate purchase price and a non-accountable expense allowance equal to 1 % of the aggregate +purchase price for the Triton Shares. In addition, the Company issued a warrant to Boustead for the purchase of 8,702 shares +of Class B Common Stock, equal to 7 % of the number of the Triton Shares, with an exercise price of $ 1.70 per share, equal to +the purchase price per share of the Triton Shares (the “Tail Warrant”). The Tail Warrant is exercisable for a period +of five years and contains cashless exercise provisions. +Sales agreement of Class B Common Stock +On September 27, 2024, the Company entered into +a Sales Agreement between the Company and A.G.P./Alliance Global Partners (the “Sales Agent”). Pursuant to the prospectus +supplement and accompanying base prospectus relating to the offering of the Shares (as defined below), and under terms of the Sales Agreement +and the prospectus supplement and the accompanying base prospectus, filed on September 27, 2024, the Company may, from time to time, in +transactions that are deemed to be “at the market offerings” as defined in Rule 415 under the Securities Act of 1933, as amended +(the “Securities Act”), issue and sell through or to the Sales Agent, up to a maximum aggregate amount of $ 1,791,704 of shares +of the Company’s Class B Common Stock, $ 0.0001 par value per share (the “Shares”). +The Company will pay the Sales Agent a cash commission +of 3.0 % of the gross sales price of the Shares sold by the Sales Agent pursuant to the Sales Agreement. Pursuant to the terms of the Sales +Agreement, the Company also agreed to reimburse the Sales Agent for reasonable fees and expenses, not to exceed $ 60,000 (including but +not limited to the reasonable and documented fees and disbursements of its legal counsel), and additional amounts for annual maintenance +of the Sales Agreement (including but not limited to the reasonable and documented fees and disbursements of its legal counsel) on a quarterly +basis, not to exceed $ 5,000 per quarter. +2022 +Equity Incentive Plan +The maximum +number of shares of Class B Common Stock that may be issued pursuant to awards granted under the 2022 Plan is 550,000 shares. +Awards that may be granted include: (a) Incentive Stock Options, or ISO (b) Non-statutory Stock Options, (c) Stock Appreciation Rights, +(d) Restricted Stock, the Restricted Stock Units, or RSUs, (f) Stock granted as a bonus or in lieu of another award, and (g) Performance +Awards. These awards offer us and our shareholders the possibility of future value, depending on the long-term price appreciation of our +Class B Common Stock and the award holder’s continuing service with us. +The RSA +shares to directors vest quarterly for one year from the date of grantee’s appointment as a director. The RSA shares to officers +vest annually over three years from the grant date. RSA shares are measured at fair market value on the date of grant and stock-based +compensation expense is recognized as the shares vest with a corresponding offset credited to additional paid-in-capital. For the year +December 31, 2024 and 2023, the Company recorded stock-based compensation expense of $ 1,212,357 and $ 1,295,931 , respectively. As +of December 31, 2024 and 2023, 317,420 and 39,200 RSA shares have vested, respectively. +F- 17 +As of December 31, 2024 and 2023, there was $ 1,067,382 +and $ 2,483,299 of unrecognized stock-based compensation expense related to unvested RSUs, which is expected to be recognized over a weighted-average +period of 1.13 and 2.09 years, respectively. +Warrant +In June and October 2022, the Company issued a +total of 10,500 warrants to purchase Class B Common stock for a success fee of private placements of shares of Class B common stock. The +exercise price of warrants is $ 31.25 and expiration date is the date that is five years from the issuance date of each warrant. The Company +accounted for these warrants as equity-classified instruments. +On February +7, 2023, the Company issued 21,000 warrants to purchase Class B Common stock Company’s Class B Common Stock +which is equal to 7 % of the aggregate number of shares of Class B Common Stock sold in the above mentioned initial public offering. +These warrants carry an exercise price of $ 31.25 per share, which is equal to 125 % of the public offering price, subject to +adjustment, the warrants also include a cashless exercise provision; these warrants may be exercised at any time for five years following +the date of issuance. +On April 17, 2024, the Company issued a total +of 8,702 warrants to purchase Class B Common Stock for a success fee of private placements of shares of Class B common stock. The exercise +price of warrants is $ 1.70 and expiration date is the date that is five years from the issuance date of each warrant. The Company accounted +for these warrants as equity-classified instruments. +In May and July 2024, the Company issued a total +of 61,600 warrants to purchase Class B Common stock for a success fee of private placements of shares of Class B common stock. The exercise +price of warrants is $ 3.75 and expiration date is the date that is five years from the issuance date of each warrant. The Company accounted +for these warrants as equity-classified instruments. +On October 11, 2023, the Company issued warrants +to purchase 3,688 shares of Class B Common Stock as a success fee in connection with a private placement. The exercise price of the warrants +is $ 1.3447 and the expiration date is the date that is five years from the issuance date of the warrant. The Company accounted for these +warrants as equity-classified instruments. +A summary of activity during the years ended December +31, 2024 and 2023, follows: +Weighted Weighted +Average Average +Number of +shares +Exercise Price Life +(years) +Outstanding, December 31, 2022 10,500 $ 31.25 4.68 +Granted 24,688 26.78 4.90 +Expired +- +- +- +Exercised +- +- +- +Outstanding, December 31, 2023 35,188 $ 28.12 4.05 +Granted 70,302 3.50 4.92 +Expired +- +- +- +Exercised +- +- +- +Outstanding, December 31, 2024 105,490 $ 11.71 3.92 +All of the outstanding warrants are exercisable +as of December 31, 2024. The intrinsic value of the warrants as of December 31, 2024, is $ 0 . +Note 6. Income tax +The Company has not made +a provision for income taxes for the year ended December 31, 2024 and 2023, since the Company has the benefit of net operating losses +in these periods and the Company changed from a limited liability partnership to a C corporation during 2022. +F- 18 +Due to uncertainties +surrounding the Company’s ability to generate future taxable income to realize deferred income tax assets arising as a result of +net operating losses carried forward, the Company has not recorded any deferred income tax assets as of December 31, 2024. During +the year ended December 31, 2024, the Company has incurred a net operating loss (“NOL”) of $ 6,393,932 . NOLs generated after +December 31, 2017 can be carryforward indefinitely. +A reconciliation +between expected income taxes, computed at the federal income tax rate of 21 % applied to the pretax accounting loss, and the income tax +net expense included in the consolidated statements of operations for the year ended December 31, 2024 and 2023 is as follows: +Year ended +December 31, +2024 +2023 +Income tax expense (credit) at statutory rate +$ ( 1,342,726 ) +$ ( 1,035,551 ) +Income tax adjustment +Stock based compensation +254,595 +272,146 +Change of valuation allowance +1,088,131 +763,405 +Income tax expense (credit) +$ +- +$ +- +Net deferred tax assets consist of the following +components as of: +December 31, +December 31, +2024 +2023 +Operating loss carry forward +$ 1,987,040 +$ 898,909 +Valuation allowance +( 1,987,040 ) +( 898,909 ) +Deferred tax asset +$ +- +$ +- +Note 7. Subsequent Events +Management +evaluated all events from the date of the balance sheet, which was December 31, 2024 through March 31, 2025 which was the date these +financial statements were available to be issue. Based on our evaluation no material events have occurred that require disclosure +other than below. +On January +21, 2025, the conversion price at initial price is amended from $ 0.75 to $ 3.75 . +As of February +14, 2025, the Company has sold $ 5,489,371 in relation of Sales Agreement (the “ATM Sales”) between the Company and Alliance +Global Partners with up to a maximum aggregate amount of $ 5,489,399 of shares of the Company’s Class B Common Stock, $ 0.0001 par +value per share. +F- 19 +SIGNATURES +Pursuant to the requirements of Section 13 or +15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, +thereunto duly authorized. +Date: March 31, 2025 +ASSET ENTITIES INC. +/s/ Arshia Sarkhani +Name: +Arshia Sarkhani +Title: +Chief Executive Officer and President +(Principal Executive Officer) +/s/ Matthew Krueger +Name: +Matthew Krueger +Title: +Chief Financial Officer, Treasurer and Secretary +(Principal Financial and Accounting Officer) +Pursuant to the requirements of the Securities +Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and +on the dates indicated. +SIGNATURE +TITLE +DATE +/s/ Arshia Sarkhani +Chief Executive Officer, President and Director (principal executive officer) +March 31, 2025 +Arshia Sarkhani +/s/ Matthew Krueger +Chief Financial Officer (principal financial and accounting officer) +March 31, 2025 +Matthew Krueger +/s/ Michael Gaubert +Executive Chairman and Director +March 31, 2025 +Michael Gaubert +/s/ Kyle Fairbanks +Executive Vice-Chairman, Chief Marketing Officer and Director +March 31, 2025 +Kyle Fairbanks +/s/ Richard A. Burton +Director +March 31, 2025 +Richard A. Burton +/s/ John A. Jack II +Director +March 31, 2025 +John A. Jack II +/s/ Scott K. McDonald +Director +March 31, 2025 +Scott K. 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BUSINESS. +Overview +Asset Entities is a technology company +providing social media marketing and content delivery services across Discord, TikTok, and other social media platforms. We also design, +develop and manage servers for communities on Discord. Based on the growth of our Discord servers and social media following, we have +developed three categories of services: (1) our Discord investment education and entertainment services, (2) social media and marketing +services, and (3) our “AE.360.DDM” brand services. We also offer Ternary v2, a cloud-based subscription management and payment +processing solution for Discord communities, which includes a suite of customer relations management tools and Stripe-verified payment +processing. All of our services are based on our effective use of Discord as well as other social media including TikTok, X, Instagram, +and YouTube. +Our Background +In 2020, Mr. Arshia Sarkhani, our Chief +Executive Officer and President, and Mr. Kyle Fairbanks, our Executive Vice-Chairman and Chief Marketing Officer, had been actively investing +and developing social influencer followings on their own when they had a vision: Bring Wall Street trading education and entertainment +to the Generation Z masses through social media through the community-based platform known as Discord. Mr. Sarkhani and Mr. Fairbanks +sensed that social media could empower retail investors, as later demonstrated in the extreme by recent developments such as the GameStop +meme stock phenomenon. Based on their vision and personal investing experience, Mr. Sarkhani and Mr. Fairbanks founded our company with +fellow investors and social influencers Jackson Fairbanks, our Director of Socials, and Arman Sarkhani, our Chief Operating Officer. Our +company initially focused on providing social media and marketing campaigns and consulting services for clients. +By October 2020, we had determined that +the social media platform Discord, which focuses on users’ shared interests and features premium content instead of advertisements, +would be the most effective forum for our vision. We formed a stock investing education and entertainment Discord server, with the server +name “STOCKS”. Subsequently, in 2021, we formed similar servers focusing on cryptocurrencies and nonfungible tokens, or NFTs, +with the server names “CRYPTOS” and “NFTS”, respectively. We also launched a real estate Discord server in May +2022, with the server name “REALTY”, to provide similar content on various aspects of residential and commercial real estate +investing. We believe it is significant, and shows the pioneering vision of our founders, that we were able to obtain the Discord domain +names of “STOCKS”, “CRYPTOS”, “NFTS”, and “REALTY” for their four main Discord communities. +We believe that each of these servers is one of the first of its kind on Discord. +As of December 31, 2024, we had launched +or acquired a total of ten Discord servers, and our Discord servers had approximately 206,899 members combined. We plan to launch or acquire +servers with other popular investment themes in the future. Through the consistent release of relevant content, cross-marketing, strategic +subscription pricing, and strategic acquisitions, we anticipate that our various Discord communities will continue to grow. +Our record of growth on Discord has +also depended and will continue to depend on a massive social media following. Since deciding to form our Discord communities, our social +influencers’ effective use of TikTok and other social media has fueled their growth. Since August 2020, as a result of social media +campaigns helping to promote our Discord servers in the financial education and entertainment space, our social media presence has grown +from fewer than 50,000 members and followers, to over 2 million by December 31, 2024. Our social media reach across all platforms has +accumulated well over 1 billion interactions. +Our Current Business +Our Discord investment education and +entertainment service is designed primarily by and for enthusiastic Generation Z, or Gen Z, retail investors, creators and influencers. +Gen Z is commonly considered to be people born between 1997 and 2012. Our investment education and entertainment service focuses on stock, +real estate, cryptocurrency, and NFT community learning programs designed for the next generation. While we believe that Gen Z will continue +to be our primary market, our expanded Discord server offering also features education and entertainment content covering real estate +investments, which is expected to appeal strongly to older generations as well. +1 +We initially developed our Discord community +and other social media following for our company through the talents, insights and efforts of our executive social influencers, Messrs. +Arshia and Arman Sarkhani and Messrs. Kyle and Jackson Fairbanks. Our executive team has also offered social media and marketing campaign +services to business clients. To the end of further capitalizing on our management’s social influencer backgrounds, we developed +our “SiN” or “Social Influencer Network,” our team of social influencer independent contractors. Our SiN social +influencer independent contractors can perform social media and marketing campaign services to expand our clients’ Discord server +bases and drive traffic to their businesses, as well as increase membership in our own servers. +In forming community groups +on Discord, we designed and developed 25 Asset Entities server communities and manage a combined server user membership of approximately +212,253 as of December 31, 2024. As a result, we have developed a high level of expertise in designing, developing, and managing Discord +servers. Having developed multiple Discord servers in a variety of fields, we have positioned ourselves as experts in the Discord space. +Further capitalizing on this experience, since January 2022, we have formally offered our “AE.360.DDM, Design Develop Manage” +service, or “AE.360.DDM”. AE.360.DDM is a suite of services to individuals and companies seeking to create a server on Discord. +We believe we are the first company to provide “Design, Develop and Manage,” or DDM, services for any individual, company, +or organization that wishes to join Discord and create their own community. We liken this service to that provided by companies like Register.com +and Godaddy.com during the dot.com era in the 1990s for companies looking to register their domain names, develop webpages and websites, +and manage and host those websites. With our AE.360.DDM rollout, we believe we are uniquely positioned to offer DDM services in the growing +market for Discord servers. +In addition, through Ternary +v2, our subscription management and payment processing solution for Discord communities, subscribers can monetize and manage their Discord +users. Ternary v2 simplifies the process for our subscribers to: (i) sell memberships to their Discord servers on their websites and collect +payments through Stripe with daily payouts; (ii) add digital products and services and designate purchase options to their Discord servers; +(iii) customize their user Discord permissions and roles and other Discord settings; and (iv) utilize our Discord bot to automatically +apply their Discord user settings to authenticate new users, apply customizable permission sets to users, and remove users when their +subscriptions expire. As a Stripe-verified partner through Ternary v2, we can also assist subscribers with integrating other platforms +into their Discord servers with open application programming interfaces, further extending our platform’s capabilities. +Fiscal Year 2024 Highlights +During 2024, we took the following initiatives +to expand our business: +● In March 2024, we launched our official YouTube channel, "The Lounge," which features podcast +interviews with celebrities, sports figures, business professionals, and more, and where interviews will focus on each guest's journey +through life. Previous guests have included Michael “the Playmaker” Irvin, former NFL superstar Hall +of Fame wide receiver and three-time Superbowl Champion; Jeff Blue, the Company’s Head of Entertainment and a multi-platinum music +producer; and Ray Crockett, a winner of two Super Bowl rings. +● In March 2024, we entered into an agreement with Zendrop, an industry leader in dropshipping and ecommerce. +We will provide its services and solutions to Zendrop through Ternary v2, our SaaS platform for payment processing and Stripe Verified +Partner for Discord communities. These services will include a suite of customer relationship management (CRM) solutions, Discord customer +analytics, and payment processing. +● In May 2024, we completed the first closing of our financing transaction involving the sale of shares +of the Company’s newly designated Series A Preferred Stock, for gross proceeds of $1.5 million, from an institutional +investor. +● In April 2024, we filed a Registration Statement on Form S-3 (File No. 333-278707) (the “Shelf Registration +Statement”) with the Securities and Exchange Commission (the “SEC”), which was declared effective by the SEC on +April 26, 2024. Pursuant to the Shelf Registration Statement, we may offer to the public from time to time, in one or more offerings, +shares of Class B Common Stock, preferred stock, debt securities, warrants, subscription rights, and units in up to a total aggregate +offering amount of $100,000,000, subject to the requirement that in no event may we sell shares having a value exceeding more than +one-third of our public float in any 12-month period under the Shelf Registration Statement so long as our public float remains below +$75,000,000. The securities will be offered at prices and on terms to be determined at the time of any such offering. The specifics of +any offerings, along with the use of proceeds of any such securities, will be described in detail in a prospectus supplement at the time +of any such offering. +2 +● In June 2024, we acquired the assets of TommyBoyTV, LLC (“TommyBoyTV”), a company engaged +in the business of Discord development, social media, online community management, marketing, and analytics, expanding the Company’s +share of the Discord community market. +● In July 2024, we completed the second closing of our financing transaction involving the sale of shares +of the Company’s newly designated Series A Preferred Stock, for gross proceeds of $1.5 million, from an institutional +investor, for a total of $3.0 million from sales of the Series A Preferred Stock to the investor. +● In September 2024, we commenced an “at the market offering” +(as defined in Rule 415(a)(4) under the Securities Act) of up to $1,791,704 of shares of Class B Common Stock, which, as of March 31, +2025, has been increased to $5,489,399 of shares of Class B Common Stock in November 2024 (the “ATM Financing”). Sales from +the offering will be made from time to time solely through or to A.G.P./Alliance Global Partners, as sales agent (“A.G.P.” +or the “Sales Agent”). These sales, if any, will be made pursuant to the terms of a sales agreement between us and the Sales +Agent, dated September 27, 2024 (the “ATM Sales Agreement”). Since the commencement of the ATM Financing, a total of 5,417,700 +shares has been sold, for net proceeds to the Company of $4,830,648, after paying $329,362 in compensation to the Sales Agent and the +same amount to Boustead Securities, LLC (“Boustead”) under the Boustead ATM Waiver (as defined in Item 7. “ Management’s +Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – ATM Financing +– Waivers and Consents to ATM Financing ”) with respect to such sales. +● In October-November 2024, we were selected to design, develop, and manage the Discord servers +for Maxx Talent Awards, a premier platform for showcasing the talents of aspiring actors, models, and singers; social media influencer, American +fitness model, training specialist, actor, and entrepreneur, Scott Mathison; Grammy Award-winning R&B and soul singer, songwriter, +producer and actress Macy Gray; and dog behavioralist Jas Leverette, star of the Netflix show Canine Intervention . +● In November 2024, we acquired the assets of the TikTok Shop space known as the TikTok Money Machine, which +included its Discord community. The Discord community teaches content creators how to sell products on TikTok Shop via the use of product +content videos. It also connects major consumer product brands with these content creators, offering the latter the opportunity to earn +sales commissions, via their TikTok accounts, on each product sale completed. We also secured consulting agreements with TikTokers and +lead creators of the Discord, who have an aggregate of approximately 280,000 followers on Instagram and 4,700,000 followers on TikTok. +● In November 2024, we signed an agreement with our Head of Entertainment, Jeff Blue, to acquire a +50% ownership interest in all film, TV, streaming and media rights to Blue’s story, One Step Closer: From Xero +to #1: Becoming Linkin Park . Under the agreement, we also engaged with Mr. Blue to write the screenplay. Published by Simon & +Schuster/Posthill Press in 2020, One Step Closer: From Xero to #1: Becoming Linkin Park has been translated into seven different +languages. +● In December 2024, we were approved as a TikTok Shop Partner. We plan to work with TikTok to connect brands +with creators and help them collaborate further in the affiliate marketing space. +Our Historical Performance +As +of December 31, 2024, the Company had an accumulated deficit of $12,006,357 and a cash balance of $2,660,624. During the years ended +December 31, 2024 and 2023, we had a net loss of $6,393,932 and $4,931,197, respectively. To date, the Company has financed its +operations primarily through capital raises and sales of its services. In April 2024, the Company filed the Shelf Registration +Statement, which was declared effective by the SEC on April 26, 2024, for potential offerings of up to $100,000,000 in aggregate, +subject to the requirement that in no event may we sell shares having a value exceeding more than one-third of our public float in +any 12-month period under the Shelf Registration Statement so long as our public float remains below $75,000,000. In May 2024, the +Company completed the first of a two-part private placement of its Series A Preferred Stock for gross proceeds of $1.5 million, and +in July 2024, the Company completed the second part of the private placement for an additional $1.5 million in gross proceeds. In +September 2024, the Company entered into the ATM Sales Agreement, and filed a prospectus supplement to the Shelf Registration +Statement for the ATM Financing for gross proceeds of up to $1,791,704. In November 2024, the Company filed an additional prospectus +supplement to the Shelf Registration Statement to increase the maximum gross proceeds to $2,271,487. The +Company has received confirmation from the investor in its Series A Preferred Stock that it will invest up to an additional $3 +million upon request by the Company. Based on the Company’s existing cash resources and the cash expected to be +received from the ATM Financing and other planned financings, it is expected that the Company will have sufficient funds to carry +out the Company’s planned operations through December 31, 2025 and for at least 12 months beyond that period. For further +discussion, see Part II. Item 7. “ Management’s Discussion and Analysis of Financial Condition and Results of +Operations – Liquidity and Capital Resources ”. +3 +Industry Overview +The social influencer and online media +presence on various platforms are expanding and evolving. More than any previous generation, Generation Z is immersed in social media +platforms like TikTok, X, and Meta Platforms’ Facebook and Instagram. This trend has generated opportunities for young adults to +become social influencers and to gain financial success. Many kids now want to be “tiktokers”, “instagrammers”, +and social media influencers. In addition to these platforms, the Reddit-based campaigns behind the GameStop, AMC and Koss meme stock +phenomena of 2021 demonstrated the power of social media to generate and destroy financial wealth relatively quickly. We believe that +these developments are together giving way to a new type of social media community. Social media was once occupied by influencers who +were showing off their latest snacks, clothes, makeup brands, and other products and services, but now, a new breed of influencers focus +on other subjects that are gaining mass interest, especially with Generation Z, including personal finance and investing. +As Bloomberg has reported (“Influencers +Are Luring Investors Flummoxed by Meme Stonks and Options,” June 18, 2021), in the U.S., there is relatively little formal personal-finance +education. Only 26 states require – or are in the process of mandating – a standalone high school course on the topic (Ramsey +Solutions, “Which States Require Financial Literacy for High School Students,” August 19, 2024). For most students, learning +about money means learning about topics like budgeting, understanding compound interest or opening a savings account. While this information +might be useful, there are many more complex and risky financial opportunities available to young, inexperienced investors who are digital +natives, i.e., most of Generation Z. $1 can be used to open financial accounts and buy fractions of shares or portions of cryptocurrencies +through companies like Robinhood, Cash App and others. With modestly more in their investment accounts, people can get access to higher-risk +strategies such as margin or option trading. Meanwhile, there is new jargon to decipher every day if investors want to understand chatter +about the markets. While banks and mutual fund companies offer advisory services to their members, they tend to reserve advisory services +for higher-net-worth individuals, and generally do not make their advice particularly entertaining or accessible to Generation Z consumers. +With the rise of free, fast trading +online and by phone, demand has surged for information about investing and markets, creating opportunities for a new generation of financial +influencers who are rushing to fill the gap in traditional education. With a massive, younger, financially uneducated market desperate +to learn about the financial markets, a deluge of new companies and their influencer leaders are fighting to be the first place individuals +turn to chat about stocks, budgets or finances. +More broadly, this trend towards relying +on social media and influencers means that skilled social media marketers and influencers can parlay their brands into multiple streams +of revenue including subscription-only content, promotional campaign contracts for business clients, and related consulting services. +As argued by a guest contributor’s article on Nasdaq.com (“How Gen Z Influencers Can Transform the Nature of Investing,” +June 2, 2021), Generation Z is asserting more influence over the social media influencer market, which has already surpassed $13 billion +in market size worldwide according to a research report published by Statista (“Influencer Marketing Worldwide - Statistics & +Facts,” September 27, 2021), and shows no signs of abating. Internet users look to niche influencers they trust as their go-to source +for new information and product recommendations. With such authority over the way consumers spend their money on commercial goods, Gen +Z influencers are bound to sway their followers’ interests in the area of financial education. +Gen Z’s social media habits are +distinctive from other generations. Their most-used social media platforms are Instagram, Snapchat, and TikTok, according to a 2021 Pew +Research survey. TikTok’s quick ascension to Gen Z dominance at comparable levels to other well-established online titans has captivated +potential investors, e-marketers, and others looking to profit from this bustling and youthful platform. +Given the growth of the influencer industry +across social media like Instagram and TikTok, the rapid influx of young retail investors into the stock and cryptocurrency markets, and +recent phenomena like meme stocks, we believe the stage is set for Gen Z to seek dedicated online community-based investment education +and entertainment services. +At the same time, a relatively new social +media app, Discord, has emerged and demonstrated unique appeal to younger people. As reported by The New York Times (“How +Discord, born from an obscure game, became a social hub for young people,” December 29, 2021), driven in part by the COVID-19 pandemic, +Discord “has exploded into the mainstream.” While parents working from home flocked to Zoom, many of their children were downloading +the Discord app to socialize with other young people through text and audio and video calls in groups known as servers. As of March 2025, +the platform has more than 259 million active users each month – up from 56 million in 2019. It has expanded from gamers to many +other groups including music aficionados, students, art communities, and cryptocurrency enthusiasts. According to Bloomberg, on September +15, 2021, Discord’s valuation doubled from $7 billion in 2020 to about $15 billion based on a $500 million capital raise. +4 +Discord is split into servers – +essentially chat rooms similar to the workplace tool Slack – which facilitate casual, free-flowing conversations about shared interests +such as gaming, music, art, school, and memes. Some servers are large and open to the public; others are private and invitation-only. +Another feature that significantly differentiates Discord from the established social media platforms like Facebook is that the service +does not have advertisements. It makes money through premium subscriptions that give users access to features like custom emoji for $5 +or $10 per month. Discord also began experimenting in December 2021 with allowing some users to charge for access to their server, up +to $100 a month, of which Discord takes 10%. +Based on the above, social +influencers can generate revenues from Discord user subscriptions by drawing users in with their investment education and entertainment +content. Expert influencers on Discord and other social media can simultaneously use their social media expertise and brands to generate +social media marketing campaigns for business clients looking to attract more Generation Z consumers. Services, such as “AE.360.DDM, +Design Develop Manage”, covering all aspects of the design and implementation of the Discord servers themselves can attract subscribers +and, therefore, create a new source of revenue. We believe that we are a leading provider of all of these services, and that demand for +all of our services will continue to grow. +Our Services +We offer three types of services that +utilize Discord and other social media to younger generations and other social media users. +Discord Communities . +Our investment education and entertainment service aims to serve as an education and entertainment platform for investments in a way that +is accessible to Generation Z and other social media users. As one of the largest community-based education and entertainment platforms +on Discord, with ten separate servers with a combined user membership of approximately 206,899 as of December 31, 2024, we provide financial +literacy education and entertainment on trading and investment. Our largest Discord server, “STOCKS”, focuses on stock investing +education and entertainment, and we have smaller but growing real estate and cryptocurrency education and entertainment Discord servers. +One of the unique aspects of Discord is that the base access to certain materials is free to all users. Our Discord server subscription +fees currently range from $4.99 to $59.99, with a top tier that includes access to the OptionsSwing software platform of $120.00. +For monthly fees, paying subscribers +to our Discord servers can get access to live trading diaries, premium prerecorded investing and trading education video content, and +paying subscriber-only private group discussion channels relating to the general investment and trading education content on the Company’s +Discord servers. All members may watch nonpremium video education content, watch live day trading sessions during market hours, and participate +in live chat sessions with other members. We upload and manage all content on our Discord servers. There are no formal requirements for +our investment education and entertainment materials; however, we are selective with the content that we post on our servers. +We comply with Discord’s terms +of service, including minimum age requirements. Discord requires all users to be at least 13 years old, and we require users to be at +least 18 years old in order to participate in community discussions. Discord is in the process of creating a gateway to require age verification. +In addition, we maintain a set of community behavior rules for its servers which include bans on hate speech, harassment, spam, illegal +activities, and false information. All members must confirm that they have read and accept these rules in order to enter our Discord servers. +Our Discord moderators enforce these rules. +Social Media and Marketing . +We offer white-label marketing, content creation, content management, TikTok promotions, and TikTok consulting to clients in any industry +or market. Fees under our social media and marketing agreements are expected to range from $2,000 for small, short projects to $50,000 +for more intricate and labor-intensive campaigns. Pricing depends on the amount of social media posts, length of the campaign, and product +placement. +Through social media, we have conducted +marketing and other social media campaigns on behalf of clients in investing, gaming, recreation, cryptocurrency assets, NFTs, and other +areas through our team of social media influencers, which we call our “Social Influencer Network,” or “SiN”. +5 +We utilize our “SiN” or +“Social Influencer Network,” our social influencer independent contractors, in part to increase social media reach for our +clients’ Discord servers or to drive traffic to their businesses. Both we and our clients generally have the right to preapprove +and remove the influencer’s posts at our and our clients’ discretion. They are generally paid on a commission-only basis. +Typical payment terms are a dollar amount for a certain number of new member signups, or in some cases a percentage, subject to a dollar +cap, on the server’s subscription net revenue. We or our clients may also commission the influencer to provide premium video education +series with revenue-sharing provisions for any related subscription fees. Depending on the particular contract, we, our client, or both +may own the content produced by our SiN influencers. Depending on each contract, we may require weekly meetings with the influencer. Our +SiN contractors’ work for clients are terminable by either us or our clients on 30 days’ notice, and are subject to customary +confidentiality, nondisclosure, and noncompete provisions. +Under our social media and marketing +agreements, we typically agree to produce a certain minimum number of posts, streams, or other social media and marketing content, at +a minimum required frequency for the agreed-upon period. We may agree to promote the products or services of the client by mentioning +the client or its products or services a certain number of times per post or stream, using products or service in our content in a designated +manner, or not using, mentioning or promoting competing products or services. Clients must generally preapprove our promotion-containing +content, subject to their reasonable discretion. Clients typically own any data generated by promotional posts or streams; however, we +retain the right to use the content created. Our social media and marketing agreements are subject to customary confidentiality, non-disparagement, +indemnification and other standard terms and social media policy compliance requirements. Other than as otherwise noted above, our influencers +are not exclusive to any social media and marketing client. +AE.360.DDM, Design Develop Manage . +AE.360.DDM is a suite of services to individuals and companies seeking to create their own server on Discord. We believe that we are the +first company to provide a full range of Discord DDM services for any individual, company, or organization that wishes to join Discord. +Since November 2021, we have worked with various communities on how to better manage their presence on Discord and have designed servers +for businesses and celebrities. We tailor our fees to the services requested and can range from set prices of $497 to $5,000 for each +Discord server design project. However, our fees may be higher based on the expected complexity, size, and management responsibilities +for the server. They may also be based on a percentage split of subscription revenues. +On Discord servers managed by our company +on behalf of clients, clients generally provide and own their servers’ content and control all rights to their servers, while we +provide management or other contracted services. If we are managing the Discord server under the AE.360.DDM service, we may upload content +for the server owner. The server owner may always upload content. Other server users may also upload content, but the server owner’s +moderators may remove it. +AE.360.DDM is a proprietary service +that is summarized below. The list of services below is not inclusive of our full suite of the AE.360.DDM services and processes by which +we design, develop and manage Discord servers on behalf of clients. +Our AE.360.DDM service includes any +or all of the following: +● “360.DD Level 1, 2 or 3” Design and Development service: We design and establish the client’s +Discord server under one of the following three “levels” of service: +● Level 1 includes a simple setup of the client’s server with base, or general-purpose, channels and +basic bots. Discord channels are topic-based chatrooms. Discord bots are user-like computer-simulated members of the server that can automate +various actions. Bots use Discord’s public application programming interface, or API, to perform actions like send messages, modify +roles, or automate moderation. +● Level 2 includes both Level 1 services and more advanced server features. +● Level 3 includes Level 1 and Level 2 services, and adds the following key features: +● Enhancements taking advantage of premium Discord features. +● Setup of a number of private channels. A private channel on Discord only allows selected members to join +it or limits what users may view and post without special permissions. Discord server members who are not added to the channel will not +be able to see it on the server’s sidebar. Private chat channels may be used to offer premium content to users. +● Third-party integrations, which may be used to integrate the use of complimentary apps into the Discord +server such as other social media platforms, productivity or data-management apps, and others. +● Special-purpose community bot and chat features. +● External links to websites that a client wishes to promote may also be included. +6 +● “360.M” Management service: We will act as the lead moderator and community manager of the +client’s Discord server. Features may include the following: +● Moderating and interacting in daily chats; +● Answering support tickets; +● Acting as a moderator and team leader; team leaders usually have the ability to create channels, create +and delete roles, and perform other administrative functions; +● Provide informative, fun, and interactive announcements; +● Make suggestions on how to improve the Discord community based on performance over time; +● Add all necessary bots for security, gaming, fun and so on. +● Managing the Discord server through moderation and maintenance through a proprietary process. +● ChatGPT AI bot as an AE.360.DDM Discord server customer service feature. +Since February 2024, we also offer Ternary V2, +the next generation of Ternary’s Stripe-verified payment processing platform for Discord communities. Ternary V2 provides additional +CRM tools, allowing community owners the ability to scale, manage, and transact payments all in a single platform. +Our Market Opportunity and Customers +We market our services primarily to +“Generation Z” users and businesses seeking to market their services to these users. As the first generation to have grown +up with access to the Internet and portable digital technology from a young age, members of Generation Z have been dubbed “digital +natives”. Around the world, it has been reported that members of Generation Z are spending more time on electronic devices and less +time reading books than before, with implications for their attention span and vocabulary, as well as their future in the modern economy. +As discussed above, Gen Z users are often bereft of the financial literacy needed to invest, in spite of growing demand for financial +services especially in an era of meme stocks and stock trading apps like Webull, Robinhood, and E*Trade. With our emphasis on video, chat, +and other social media education, entertainment and marketing, and deep knowledge of Discord server design and trending investment topics, +we have positioned ourselves to attract younger investors and businesses seeking to market to them. +We also target millennials, Generation X, and +older generations. +Sales, Marketing and Customer Acquisition +We will continue to seek customers by +producing content for our Discord servers and other social media accounts and using our Social Influencer Network to increase our Discord +members and to provide marketing services. To that end, we frequently engage in social media campaigns for our Discord servers by posting +free videos, tweets, and other social media content on Discord, TikTok, X, Instagram, and YouTube. We use search engine optimization, +or SEO, to gain further reach in acquiring paying subscribers and other members to our Discord servers and potential customers of our +other services. We expect that we will increase sales and revenues from increased Discord members and customers of our paid services from +the expansion of our AE.360.DDM service and expansion of our Discord servers. +One of the ways we can increase our +Discord users and customer base is to utilize our “SiN” or “Social Influencer Network,” our social influencer +independent contractors. Each of our SiN social influencer independent contractors can perform social media outreach to expand our Discord +server bases and increase membership in our Discord servers. When we use our social influencers to increase our user base, we have the +right to preapprove and remove the influencer’s posts at our discretion. They are generally paid on a commission-only basis. Typical +payment terms are a dollar amount for a certain number of new member signups or subscription net revenue. We may also commission them +to provide premium video education series with revenue-sharing provisions for any related subscription fees. We generally own all content +produced by our SiN influencers. Depending on each contract, we may require weekly meetings with the influencer. Our SiN contracts are +terminable on 30 days’ notice and have customary confidentiality, nondisclosure, and noncompete provisions. +As discussed above, we likewise offer +the services of our SiN independent contractors to current and potential social media and marketing customers. We are also working to +expand our user base by contracting with trained social media analysts in order to develop larger and more long-term campaigns to promote +our business. We expect that these offerings may accelerate growth in client contracts for our social media and marketing customer services. +7 +Our AE.360.DDM service is expected to grow through +multiple avenues including the use of SEO with Facebook and Google Ads, as well as our targeted outreach to venture capitalists, social +media influencers, digital technology brands, and other businesses. We also expect that revenues from this service will increase organically +by showing our expertise in Discord design, development and management through our own growing Discord communities. +During 2023 and the first quarter of 2024, we +initiated an online marketing campaign and expanded use of SEO, Facebook Ads, Google Ads and Google Analytics to accelerate customer acquisition +for our AE.360.DDM service; launched a new AE.360.DDM website; engaged music producer Jeff Blue as Head of Entertainment to lead the development +of the AE.360.DDM Music and Entertainment A&R service; hired a Senior Project Manager for all Discord servers under the AE.360.DDM +suite of services; introduced a ChatGPT AI bot as an AE.360.DDM Discord server customer service feature; engaged professional golfers +Bryson DeChambeau and Scott Verplank to promote the AE.360.DDM service; and engaged Michael Irvin, American sports commentator and former +professional football player, to provide marketing services for the AE.360.DDM service; launched an official YouTube channel, “The +Lounge,” which has featured podcast interviews with celebrities, sports figures, business professionals, and more, and where interviews +will focus on each guest’s journey through life; expanded the AE.360.DDM service with Ternary V2, the next generation of the Ternary +Stripe-verified payment processing platform for Discord communities; introduced a ChatGPT AI bot as an AE.360.DDM Discord server customer +service feature; and entered into an agreement with Zendrop, an industry leader in dropshipping and ecommerce, to provide CRM, Discord +customer analytics, payment processing, and related services. +In June 2024, we acquired the assets of TommyBoyTV, +a company engaged in the business of Discord development, social media, online community management, marketing, and analytics, expanding +the Company’s share of the Discord community market. +In October-November 2024, we were selected to design, develop, +and manage the Discord servers for Maxx Talent Awards, a premier platform for showcasing the talents of aspiring actors, models, +and singers; social media influencer, American fitness model, training specialist, actor, and entrepreneur, Scott Mathison; +Grammy Award-winning R&B and soul singer, songwriter, producer and actress Macy Gray; and dog behavioralist Jas Leverette, +star of the Netflix show Canine Intervention . +In November 2024, we acquired the assets of the +TikTok Shop space known as the TikTok Money Machine, which included its Discord community. The Discord community teaches content creators +how to sell products on TikTok Shop via the use of product content videos. It also connects major consumer product brands with these content +creators, offering the latter the opportunity to earn sales commissions, via their TikTok accounts, on each product sale completed. We +also secured consulting agreements with TikTokers and lead creators of the Discord, who have an aggregate of approximately 280,000 followers +on Instagram and 4,700,000 followers on TikTok. +In November 2024, we signed an agreement with +our Head of Entertainment, Jeff Blue, to acquire a 50% ownership interest in all film, TV, streaming and media +rights to Blue’s story, One Step Closer: From Xero to #1: Becoming Linkin Park . Under the agreement, we also engaged +with Mr. Blue to write the screenplay. Published by Simon & Schuster/Posthill Press in 2020, One Step Closer: From Xero to #1: +Becoming Linkin Park has been translated into seven different languages. +In December 2024, we were approved as a TikTok +Shop Partner. We plan to work with TikTok to connect brands with creators and help them collaborate further in the affiliate marketing +space. +Competition +While we do not have any competitors +that compete with us across our business in its entirety, we face competition in certain aspects of our business. Our products and services +face competition from different businesses depending on the offering. +The education components of our investment +education and entertainment services have the following primary competitors: +● Xtrades Discord Server – Stocks and options trading communities with real traders providing +analysis; their advertised monthly fee is $38. Their Discord server had approximately 110,000 members as of March 2025. +● WallStreetBets Discord Server and Subreddit – These are generally free services where anyone +can offer advice on high-risk investing in stocks, options, and futures trading. Their Discord server has approximately 484,305 members +and their subreddit had approximately 18 million registered users as of March 2025. +8 +● Eagle Investors – An online investment education service provided by investment advisory +firm Eagle Investments LLC. They manage a Discord server which includes a free investor community, a number of channels on diverse topics, +and free webinars. They also offer premium-only content for $67 to $140 per month for different levels of access to trading alerts on +their Discord server. They also offer paid stocks and options training courses for $400 per course not including discounts, and private +one-on-one sessions ranging from one to eight hours with expert traders at varying prices. Their Discord server had approximately 156,000 +members as of March 2025. +Our social media marketing and advertising +competitors primarily include social media influencers who are the owners of alternative Discord servers and social media education and +entertainment services, which may detract from our current and potential paying subscriber base and customers of our other services. These +competitors include: +● @Fourtoeight – A social influencer who is the owner of the Discord server Wiseguyinvesting. +Wiseguyinvesting offers several payment plans for investment education resources and other features. Its community size is similar to +ours. Its plans range from $25 per week to $800 per year as of March 2025. +● @moneylinemark – A social influencer who owns the “StockVIP” +Discord server with approximately 254,000 members as of March 2025. Their revenue model relies 100% on Discord memberships. We are not +aware of any competitors for our AE.360.DDM suite of services. +We believe that we have other competitive strengths, +some of which are discussed below, that position us favorably in each aspect of our business. However, the technology industry is evolving +rapidly and is increasingly competitive. A variety of business models are being pursued or may be considered for the provision of digital +learning tools, some of which may be more profitable or successful than our business model. +Our Strengths +We believe that we have competitive +strengths, some of which are discussed below, that position us favorably in each aspect of our business. We believe our key competitive +strengths include the following: +● Superior Social Influencer Team . We believe that our greatest competitive strength is our +people. Our blend of young, dynamic, entrepreneurial executive social influencers are part of Generation Z and understand their needs +and interests. Moreover, our executive team includes professionals with two or more decades of accounting, legal, technology, sales, and +management experience including our Executive Chairman, who has practiced law for over 25 years; our Chief Financial Officer, a Certified +Public Accountant, or CPA, with over ten years of experience in finance and accounting; and our Chief Technology Officer, a former Salesforce +Inc. Senior Solution Engineer. We believe that we have a unique combination of knowledge, global experience and business acumen to sustain +long-term growth. +● First-Mover Advantage . We believe that our AE.360.DDM service is a first-of-its-kind business +developed by our company to design, develop, and manage Discord servers for customers wanting to create their own Discord communities +for their business. With our superior understanding of the Discord platform, we can provide the technology and speed to market which customers +require to set up successful Discord servers. +● Best-in-Class Investment Education, Entertainment and Technology . Our insights into compelling +investment education and entertainment methods and subjects for Gen Z and other types of interested customers; experience creating communities +for Gen Z and social media consumers; and our social influencer network, or “SiN”, and related content publishing network, +are some of the hallmarks of our business. +● Service Synergy . Each of our operating business categories has the ability to be a standalone +business, but all are housed within our single Asset Entities enterprise. With each deployment of additional services, we have historically +experienced organic growth in our other businesses. +Our Growth Strategies +The key elements of our strategy to expand our +business include the following: +● Expand Our Social Influencer Network . Our growth has been grounded on our team of social +influencers. In order to generate even greater momentum for the growth of our services, we will seek to expand our “SiN” social +influencer network. We plan to continue to bring top current and former athletes, celebrities, and rising and high-profile social influencers +into our SiN network to promote our established and newer Discord servers. We have also begun utilizing our SiN network to accelerate +the growth of our social media and marketing service. +9 +● Leverage Discord Server Community Outreach . We will continue to seek accelerated growth +in Discord server paying subscriber revenues from strategic pricing of varying levels of access to our Discord communities. Moreover, +we will leverage our Discord servers to help increase our social media reach and cross-market to our other services. +● Expand the AE.360.DDM Service . During 2023 and through March +2024, we initiated an online marketing campaign and expanded use of SEO, Facebook Ads, Google Ads and Google Analytics to accelerate customer +acquisition for our AE.360.DDM service; launched a new AE.360.DDM website; engaged music producer Jeff Blue as Head of Entertainment to +lead the development of the AE.360.DDM Music and Entertainment A&R service; hired a Senior Project Manager for all Discord servers +under the AE.360.DDM suite of services; introduced a ChatGPT AI bot as an AE.360.DDM Discord server customer service feature; engaged +professional golfers Bryson DeChambeau and Scott Verplank to promote the AE.360.DDM service; and engaged Michael Irvin, American sports +commentator and former professional football player, to provide marketing services for the AE.360.DDM service; launched an official YouTube +channel, “The Lounge,” which will feature podcast interviews with celebrities, sports figures, business professionals, and +more, and where interviews will focus on each guest’s journey through life; expanded the AE.360.DDM service with Ternary V2, the +next generation of the Ternary Stripe-verified payment processing platform for Discord communities; introduced a ChatGPT AI bot as an +AE.360.DDM Discord server customer service feature; and entered into an agreement with Zendrop, an industry leader in dropshipping and +ecommerce, to provide CRM, Discord customer analytics, payment processing, and related services. In June +2024, we acquired the assets of TommyBoyTV, a company engaged in the business of Discord development, social media, online community +management, marketing, and analytics, expanding the Company’s share of the Discord community market. In October-November 2024, we +were selected to design, develop, and manage the Discord servers for Maxx Talent Awards, a premier platform for showcasing +the talents of aspiring actors, models, and singers; social media influencer, American fitness model, training specialist, actor, +and entrepreneur, Scott Mathison; Grammy Award-winning R&B and soul singer, songwriter, producer and actress Macy Gray; +and dog behavioralist Jas Leverette, star of the Netflix show Canine Intervention . +● Market and Leverage Synergies from the AE.360.DDM Service . We will further use and expand +this service to create synergies and income-producing revenue streams that complement our other business categories. +Intellectual Property +We own common law rights to certain +marks, including “Asset Entities Where Assets Are Created”, “SiN”, “Social Influencer Network”, and +“AE 360 DDM”. We also own rights to the assetentities.com Internet domain name. +We own the trademarks “Ternary +D” and “OptionsSwing”, the domain names ternarydev.com and optionsswing.com, the social media handle @optionsswing on +Instagram, Facebook, TikTok, YouTube, and X, the social media handle @TernaryDevelopments on Instagram, the social media handle @TernaryDev +on Facebook, TikTok and X, and the Ternary Developments and OptionsSwing Discord servers. We also own The Whop, Instagram, TikTok, YouTube, +and Facebook social media accounts and PayPal and Stripe accounts relating to the Pure Profits Group Discord and TikTok Shop services. +Human Capital +As of March 25, 2025, we had nine full-time employees, one executive +consultant, and 41 independent contractors, some of which serve as Discord server moderators, analysts, server developers, customer service, +sales, and marketing outreach. None of our personnel are represented by labor unions, and we believe that we have an excellent relationship +with everyone who works with us. We operate the Company under remote-first principles. +Seasonality +We do not experience significant seasonality in +our sales cycle. +10 +Government Regulation +We are subject to several laws and regulations +that affect companies conducting business on the Internet, many of which are still evolving and could be interpreted in ways that could +harm our business. The way existing laws and regulations will be applied to the Internet and how they will relate to our business, are +often unclear. For example, we often cannot be certain how existing laws will apply in the e-commerce and online context, including with +respect to such topics as privacy, defamation, pricing, credit card fraud, advertising, taxation, sweepstakes, promotions, content regulation, +quality of products and services, and intellectual property ownership and infringement. +Numerous laws and regulatory schemes +have been adopted at the national and state level in the United States, and in some cases internationally, that have a direct impact on +our business and operations. For example: +● The Protecting Americans from Foreign Adversary Controlled Applications Act (the “PAFACA +Act”) was adopted on April 24, 2024, and bans social networking services within 270 to 360 days if they are determined by the president +of the United States and relevant provisions to be a “foreign adversary controlled application”. The definition covers websites +and application software, including mobile apps. The PAFACA Act explicitly applies to ByteDance Ltd. and its subsidiaries, including TikTok, +without the need for additional determination. It ceases to be applicable if the foreign adversary-controlled application is divested +and no longer considered to be controlled by a foreign adversary of the United States. +● The Controlling the Assault of Non-Solicited Pornography And Marketing Act, as amended (the “CAN-SPAM +Act”), and similar laws adopted by several states, regulate unsolicited commercial emails, create criminal penalties for emails +containing fraudulent headers, and control other abusive online marketing practices. The law also restricts data collection and use in +connection with its opt-out process requirements for senders of commercial emails. Similarly, the U.S. Federal Trade Commission (“FTC”) +has guidelines that impose responsibilities on us with respect to communications with consumers and impose fines and liability for failure +to comply with rules with respect to advertising or marketing practices it may deem misleading or deceptive. +● The federal Telephone Consumer Protection Act of 1991 (“TCPA”) restricts telemarketing and +the use of automated telephone equipment. The TCPA limits the use of automatic dialing systems, artificial or prerecorded voice messages, +SMS text messages, and fax machines. It also applies to unsolicited text messages advertising the commercial availability of goods or +services. Additionally, several states have enacted statutes that address telemarketing. For example, some states, such as California, +Illinois, and New York, have created do-not-call lists. Other states, such as Oregon and Washington, have enacted “no rebuttal statutes” +that require the telemarketer to end the call when the consumer indicates that such person is not interested in the product being sold. +Restrictions on telephone marketing, including calls and text messages, are enforced by the FTC, the Federal Communications Commission, +states, and through the availability of statutory damages and class action lawsuits for violations of the TCPA. +● The Credit Card Accountability Responsibility and Disclosure Act of 2009, and similar laws and regulations +adopted by several states regulate credit card and gift certificate use fairness, including expiration dates and fees. Our business also +requires that we comply with payment card industry data security and other standards. We are subject to payment card association operating +rules, certification requirements, and rules governing electronic funds transfers, which could change or be reinterpreted to make it difficult +or impossible for us to comply. If we fail to comply with these rules or requirements, or if our data security systems are breached or +compromised, we may be liable for card issuing banks’ costs, subject to fines and higher transaction fees, and lose our ability +to accept credit and debit card payments from our customers, process electronic funds transfers, or facilitate other types of online payments, +and our business and results of operations could be adversely affected. +● The Digital Millennium Copyright Act provides relief for claims of circumvention +of copyright protected technologies and includes a safe harbor intended to reduce the liability of online service providers for hosting, +listing, or linking to third-party content that infringes copyrights of others. +● The Communications Decency Act provides that online service providers will not be +considered the publisher or speaker of content provided by others, such as individuals who post content on an online service provider’s +website. +● The California Consumer Privacy Act (“CCPA”), which went into effect +on January 1, 2020, provides consumers the right to know what personal data companies collect, how it is used, and the right to access, +delete, and opt out of the sale of their personal information to third parties. It also expands the definition of personal information +and gives consumers increased privacy rights and protections for that information. The CCPA also includes special requirements for California +consumers under the age of 16. In addition, the European Union and United Kingdom have adopted the General Data Protection Regulation +(“GDPR”), which likewise impose significant data protection obligations on enterprises, including limitations on data uses +and constraints on certain uses of sensitive data. Effective January 1, 2023, we also became subject to the California Privacy Rights +Act (“CPRA”), which expands upon the consumer data use restrictions, penalties and enforcement provisions under the CCPA. +11 +● Virginia’s Consumer Data Protection Act (“VCDPA”) establishes +rights for Virginia consumers to control how companies use individuals’ personal data. The VCDPA dictates how companies must protect +personal data in their possession and respond to consumers exercising their rights, as prescribed by the law, regarding such personal +data. The VCDPA went into effect on January 1, 2023. +● The Colorado Privacy Act (the “CPA”) and +Connecticut’s An Act Concerning Personal Data Privacy and Online Monitoring (“CDPA”) , +effective as of July 1, 2023, are similar comprehensive consumer privacy laws in Colorado and Connecticut, respectively. +● Effective as of December 31, 2023 , the Utah Consumer Privacy +Act (“UCPA”) regulates business handling of consumers’ personal data in Utah. +● In addition, the following other state laws have become effective +or will become effective within the next 12 months: +o The Texas Data Privacy and Security Act (effective as of July 1, +2024) +o The Oregon Consumer Privacy Act (effective as of July 1, 2024) +o The Montana Consumer Data Privacy Act ( effective +as of October 1, 2024) +● Effective as of January 1, 2025, the Iowa Consumer Privacy +Act (“ICPA”), the Delaware Personal Data Privacy Act (“DPDPA”), the Nebraska Data Privacy Act (“NEDPA”), +the New Hampshire Data Privacy Act (“NHDPA”), became comprehensive privacy laws +in Iowa, Delaware, Nebraska, and New Hampshire , respectively. +● Effective as of January 15, 2025, the New Jersey Data Protection +Act (“NJDPA”) became a comprehensive privacy law in New Jersey. +● Effective as of July 1, 2025, the Minnesota Consumer Data Privacy Act (“MCDPA”) and the Tennessee +Information Protection Act (“TIPA”) will become comprehensive privacy laws in Minnesota and Tennessee, respectively. +● Effective as of October 1, 2025, the Maryland Online Data Privacy Act of 2024 (“MODPA”) +will become a comprehensive privacy law in Maryland. +● Effective as of January 1, 2026, the Indiana Consumer Data Protection Act (“ICDPA”), +the Kentucky Consumer Data Protection Act (“KCDPA”), and the Rhode Island Data Transparency and Privacy Protection Act (“RIDTPPA”) +will become comprehensive privacy laws in Indiana, Kentucky, and Rhode Island, respectively. +● The European Union (the “EU”) General Data Protection Regulation (“GDPR”) +imposes stringent requirements for controllers and processors of personal data of persons in the EU, including, for example, more robust +disclosures to individuals and a strengthened individual data rights regime, shortened timelines for data breach notifications, limitations +on retention of information, increased requirements pertaining to special categories of data, and additional obligations when we contract +with third-party processors in connection with the processing of the personal data. The GDPR also imposes strict rules on the transfer +of personal data out of the EU to the United States and other third countries. In addition, the GDPR provides that EU member states may +make their own further laws and regulations limiting the processing of personal data. +The GDPR applies extraterritorially, +and we may be subject to the GDPR because of our data processing activities that involve the personal data of individuals located in the +EU, such as in connection with our EU-based students. Failure to comply with the requirements of the GDPR and the applicable national +data protection laws of the EU member states may result in fines of up to €20,000,000 or up to 4% of the total worldwide annual turnover +of the preceding financial year, whichever is higher, and other administrative penalties. GDPR regulations may impose additional responsibility +and liability in relation to the personal data that we process, and we may be required to put in place additional mechanisms to ensure +compliance with the new data protection rules. +12 +Following the withdrawal of the +United Kingdom from the EU and the expiry of the transition period, from January 1, 2021, the United Kingdom Data Protection Act 2018 +(“UK GDPR”) retains in large part the GDPR in United Kingdom national law. The UK GDPR mirrors the fines under the GDPR, e.g., +we could be fined up to the greater of €20 million/£17.5 million or 4% of global turnover under each regime. +The federal U.S. Children’s +Online Privacy Protection Act (“COPPA”), the GDPR, and the UK GDPR impose additional restrictions on the ability of online +services to collect information from minors. In addition, certain states, including Utah and Massachusetts, have laws that impose criminal +penalties on the production and distribution of content that is “harmful to a minor.” +Investment Advisers Act of 1940 +Under the Investment Advisers Act of 1940 (the “Investment Advisers +Act”), and the rules adopted under that statute, a person or firm is required to register with the SEC if the person or firm +is: +● an “investment adviser” under Section 202(a)(11) of the Investment Advisers Act; +● not excepted from the definition of investment adviser by Section 202(a)(11)(A) through (E) of the Investment Advisers Act; +● not exempt from SEC registration under Section 203(b) of the Investment Advisers Act; and +● not prohibited from SEC registration by Section 203A of the Investment Advisers Act. +Applicable state laws +may have similar registration requirements. +Subject to certain limited +exclusions, Section 202(a)(11) of the Investment Advisers Act generally defines an “investment adviser” as any person or firm +that: (1) for compensation; (2) is engaged in the business of; (3) providing advice, making recommendations, issuing reports, or furnishing +analyses on securities, either directly or through publications. A person or firm must satisfy all three elements to be regulated under +the Investment Advisers Act. +The SEC’s Division +of Investment Management construes these elements broadly. For example, with respect to “compensation,” the receipt of any +economic benefit suffices. To be deemed compensation, a fee need not be separate from other fees charged, it need not be designated as +an advisory fee, and it need not be received directly from a client. With respect to the “business” element, an investment +advisory business need not be the person’s or firm’s sole or principal business activity. Rather, this element is satisfied +under any of the following circumstances: the person or firm holds himself or itself out as an investment adviser or as providing investment +advice; the person or firm receives separate or additional compensation for providing advice about securities; or the person or firm typically +provides advice about specific securities or specific categories of securities. Finally, a person or firm satisfies the “advice +about securities” element if the advice or reports relate to securities. The Division has stated that providing one or more of the +following also could satisfy this element: advice about market trends; advice in the form of statistical or historical data (unless the +data is no more than an objective report of facts on a non-selective basis); advice about the selection of an investment adviser; advice +concerning the advantages of investing in securities instead of other types of investments; and a list of securities from which a client +can choose, even if the adviser does not make specific recommendations from the list. An employee of an SEC-registered investment adviser +does not need to register separately, so long as all of the employee’s investment advisory activities are within the scope of his +employment. +One of the statutory +exclusions from the definition of “investment adviser” is the “publisher’s exclusion”. Under Section 202(a)(11)(D) +of the Investment Advisers Act, “the publisher of any bona fide newspaper, news magazine or business or financial publication of +general and regular circulation” is excluded from the “investment adviser” definition. This “publisher’s +exclusion” requires that product or service offerings must be: (1) of a general and impersonal nature, in that the research provided +is not adapted to any specific portfolio or any client’s particular needs; (2) “bona fide” or genuine, in that it contains +disinterested discussion and analysis as opposed to promotional material; and (3) of general and regular circulation, in that it is not +timed to specific market activity or to events affecting, or having the ability to affect, the securities industry. The basis for reliance +on such exclusion will depend on a facts-and-circumstances analysis. +Certain services provided +by the Company may cause the Company to meet the definition of “investment adviser” in the Investment Advisers Act and similar +state laws. Under the Investment Advisers Act, an “investment adviser” is defined as a “person who, for compensation, +engages in the business of advising others, either directly or through publications or writings, as to the value of securities or as to +the advisability of investing in, purchasing, or selling securities, or who, for compensation and as part of a regular business, issues +or promulgates analyses or reports concerning securities.” In particular, certain of the content on the Company’s Discord +servers, such as trading diaries posted by the Company’s personnel, and other content available on the Company’s social media +channels, may constitute investment advice. In addition, in general, disclaimers, such as those included with the Company’s posts +on Discord and other social media, do not change the character of the advice provided for Investment Advisers Act purposes. The Company +relies on the “publisher’s exclusion” from the definition of “investment adviser” under Section 202(a)(11)(D) +of the Investment Advisers Act, as described above and as interpreted by legal precedent. We intend at all times to operate our business +in a manner as to not become inadvertently subject to the regulatory requirements under the Investment Advisers Act. +13 +If we meet the definition of “investment +adviser” in the Investment Advisers Act, and do not meet the requirements for reliance on the “publisher’s exclusion” +from the definition of “investment adviser” or another exclusion, exemption, or exception from the registration requirements +under the Investment Advisers Act, we will have to register as an investment adviser with the SEC pursuant to the Investment Advisers +Act and potentially with one or more states under similar state laws. Registration requirements for investment advisers are significant. +If we are deemed to be an investment adviser and are required to register with the SEC and potentially one or more states as an investment +adviser, we will become subject to the requirements of the Investment Advisers Act and the corresponding state laws. The Investment Advisers +Act requires: (i) fiduciary duties to clients; (ii) substantive prohibitions and requirements; (iii) contractual requirements; (iv) record-keeping +requirements; and (v) administrative oversight by the SEC, primarily by inspection. Requirements and obligations imposed on investment +advisers can be burdensome and costly. If it is deemed that we are out of compliance with such rules and regulations, we may also be subject +to civil and/or criminal penalties. Applicable state laws may have similar or additional requirements. If we are required to register +under these laws, we may no longer be able to continue to offer our investment education and entertainment services, which may have a +significant adverse impact on our business and results of operations. +Corporate History and Structure +Formation and Merger into Asset Entities +Inc. +We began our operations as a general partnership +on August 1, 2020. Asset Entities Limited Liability Company, a California limited liability company (“California LLC”), was +formed on October 20, 2020 to operate our business. Asset Entities Inc., a Nevada corporation, was incorporated on March 9, 2022. Immediately +after the incorporation of Asset Entities Inc., all of the issued and outstanding stock of Asset Entities was purchased by California +LLC in exchange for $1.00. On March 28, 2022, in accordance with Sections 17710.01-17710.19, inclusive, of the California Corporation +Code and Chapter 92A of the Nevada Revised Statutes (the “NRS”), California LLC was merged with and into Asset Entities. As +a result of the merger, Asset Entities acquired the business of California LLC. Pursuant to the Agreement and Plan of Merger, the units +of California LLC were automatically converted into shares of Asset Entities. in the same proportion as the percentage interests of California +LLC represented by such units. As a result and as further provided in the Agreement and Plan of Merger, on March 28, 2022, Asset Entities +Holdings, LLC, a Texas limited liability company (“AEH”), which owned 97.56% of California LLC’s units, became the holder +of 1,951,200 shares of Class A Common Stock of Asset Entities, or 97.56% of the total issued and outstanding post-merger shares of common +stock of Asset Entities, and a holder of 2.44% of California LLC’s units became the holder of 48,800 shares of Class B Common Stock +of Asset Entities, or 2.44% of the total issued and outstanding post-merger shares of common stock of Asset Entities. +Capital Structure +Under the Company’s Articles of Incorporation, +as amended (the “Articles of Incorporation”), we are authorized to issue two classes of common stock, Class A Common Stock +and Class B Common Stock, and any number of classes of preferred stock. Class A Common Stock is entitled to ten votes per share on proposals +requiring or requesting stockholder approval, and Class B Common Stock is entitled to one vote on any such matter. A share of Class A +Common Stock may be voluntarily converted into a share of Class B Common Stock. A transfer of a share of Class A Common Stock will result +in its automatic conversion into a share of Class B Common Stock upon such transfer, subject to certain exceptions, including that the +transfer of a share of Class A Common Stock to another holder of Class A Common Stock will not result in such automatic conversion. Class +B Common Stock is not convertible. Other than as to voting and conversion rights, the Company’s Class A Common Stock and Class B +Common Stock have the same rights and preferences and rank equally, share ratably and are identical in all respects as to all matters. +Holders of the Series A Preferred Stock generally +have the right to vote on an as-converted basis with the Class B Common Stock, to the extent that such conversion would not cause such +holder’s beneficial ownership of Class B Common Stock to exceed 4.99% of the outstanding Class B Common Stock, which may be increased +by the holder to up to 9.99% upon no fewer than 61 days’ prior notice. +14 +As of March 25, 2025, AEH owns all of the 1,000,000 +shares of our outstanding Class A Common Stock. The shares of Class A Common Stock held by AEH are controlled by its officers and managers, +all of whom are also some of our officers and directors. AEH also owns 250,000 shares of our Class B Common Stock. There are 13,413,162 +shares of Class B Common Stock issued and outstanding as of March 25, 2025. AEH therefore controls 10,250,000 votes, or approximately +42.6% of all voting rights. In addition, our directors and officers collectively hold 260,689 shares of Class B Common Stock. Combining +their control of AEH’s shares of Class A Common Stock and Class B Common Stock and their own shares of Class B Common Stock, our +officers and directors collectively control 10,510,689 votes, or approximately 43.6% of total voting power. Management’s concentrated +voting power may limit or preclude the ability of others to influence corporate matters including significant business decisions for the +foreseeable future. +Organizational Structure +The following diagram depicts our organizational structure as of March +25, 2025. This diagram includes our stockholder of Class A Common Stock, stockholders of Class B Common Stock subject to restrictions +on transfer, as a group, and our public stockholders of Class B Common Stock, as a group. The Class A Common Stock and Class B Common +Stock holdings of these stockholders is also depicted. +15 +As of the date of this Annual Report, we have no subsidiaries. +Our principal executive offices are located at +100 Crescent Ct, 7th Floor, Dallas, TX 75201 and our telephone number is (214) 459-3117. We maintain a website at https://www.assetentities.com. +Information available on our website is not incorporated by reference in and is not deemed a part of this Annual Report. Our fiscal year +ends December 31. Neither we nor any of our predecessors have been in bankruptcy, receivership or any similar proceeding. \ No newline at end of file diff --git a/raw/filings/0001920406/2024/0001213900-25-026431/item13.txt b/raw/filings/0001920406/2024/0001213900-25-026431/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..3e0a30c9b1f4d2fa9818851fa477a53e5c51f280 --- /dev/null +++ b/raw/filings/0001920406/2024/0001213900-25-026431/item13.txt @@ -0,0 +1,3 @@ +Item 13. +Certain Relationships and Related Transactions, and Director Independence. +75 \ No newline at end of file diff --git a/raw/filings/0001920406/2025/0001628280-26-019879/filing.txt b/raw/filings/0001920406/2025/0001628280-26-019879/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..a84e80188307d11d1c9ee4c0a21f67414789daf2 --- /dev/null +++ b/raw/filings/0001920406/2025/0001628280-26-019879/filing.txt @@ -0,0 +1,2085 @@ +asst-20251231 +0001920406 2025 FY false 0.05 P1Y P1Y 0.05 1 1 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+_____________________________________________ +FORM 10-K +_____________________________________________ +x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the fiscal year ended December 31 , 2025 +OR +o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the transition period from ______ to ______ +Commission file number 001-41612 +_________________________________________________________ +STRIVE, INC. +(Exact name of Registrant as Specified in Its Charter) +_________________________________________________________ +Nevada 001-41612 +88-1293236 +(State or Other Jurisdiction +of Incorporation) (Commission File Number) (IRS Employer +Identification No.) +200 Crescent Ct. , Suite 1400 , Dallas , Texas 75201 +(Address of principal executive offices and zip code) +Registrant’s Telephone Number, Including Area Code: ( 855 ) 427-7360 +(Former Name or Former Address, if Changed Since Last Report) +Securities registered pursuant to Section 12(b) of the Act: +Title of each class Trading +Symbol(s) Name of each exchange on which registered +Class A common stock, $0.001 par value per share ASST The Nasdaq Stock Market LLC +Variable Rate Series A Perpetual Preferred Stock, $0.001 par value per share SATA The Nasdaq Stock Market LLC +Securities registered pursuant to section 12(g) of the Act: None +Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No o +Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x +Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o +Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o +Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. +Large accelerated filer o Accelerated filer o +Non-accelerated filer +x +Smaller reporting company +x +Emerging growth company +x +If +an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o +Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. o +If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. o +Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). o +Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x +As of June 30, 2025, the aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant (based on the last reported sales price of the registrant's Class A common stock on June 30, 2025 on The Nasdaq Stock Market LLC) was approximately $ 56,784,578 . +As of March 17, 2026, the registrant had 59,286,628 and 9,872,157 shares of Class A common stock and Class B common stock outstanding, respectively. +Documents incorporated by reference: None. +STRIVE, INC. +FORM 10-K +TABLE OF CONTENTS +Page +Part I +Item 1. +Business +5 +Item 1A. +Risk Factors +12 +Item 1B. +Unresolved Staff Comments +46 +Item 1C. +Cybersecurity +46 +Item 2. +Properties +47 +Item 3. +Legal Proceedings +47 +Item 4. +Mine Safety Disclosures +48 +Part II +Item 5. +Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +49 +Item 6. +[Reserved] +50 +Item 7. +Management’s Discussion and Analysis of Financial Condition and Results of Operations +50 +Item 7A. +Quantitative and Qualitative Disclosures about Market Risk +60 +Item 8. +Consolidated Financial Statements and Supplementary Data +61 +Item 9. +Changes in and Disagreements with Accountants on Accounting and Financial Disclosure +61 +Item 9A. +Controls and Procedures +61 +Item 9B. +Other Information +61 +Item 9C. +Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +61 +Part III +Item 10. +Directors, Executive Officers and Corporate Governance +62 +Item 11. +Executive Compensation +68 +Item 12. +Security and Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +76 +Item 13. +Certain Relationships and Related Transactions, and Director Independence +76 +Item 14. +Principal Accountant Fees and Services +77 +Part IV +Item 15. +Exhibits and Financial Statement Schedules +78 +Item 16. +Form 10-K Summary +78 +Signatures +109 +Unless the context otherwise indicates, throughout this Annual Report, we refer to Strive, Inc. and its consolidated subsidiaries, as “Strive,” the “Company,” “we,” “us” and “our.” +FORWARD-LOOKING STATEMENTS +This Annual Report on Form 10-K for the year ended December 31, 2025 (the “Annual Report”) contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Rule 175 promulgated thereunder, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 3b-6 promulgated thereunder, which statements involve inherent risks and uncertainties. For this purpose, any statements contained herein that are not statements of historical fact, including, without limitation, certain statements under “Item 1. Business,” “Item 1A. Risk Factors,” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and located elsewhere herein concerning our future financial condition, business strategies and plans and objectives of management for future operations and other information, may be forward-looking statements. Without limiting the foregoing, such statements are often characterized by the use of qualified words (and their derivatives) such as “may,” +1 +“will,” “anticipate,” “could,” “should,” “would,” “believe,” “contemplate,” “expect,” “estimate,” “continue,” “plan,” “project,” “predict,” “potential,” “assume,” “forecast,” “target,” “budget,” “outlook,” “trend,” “guidance,” “objective,” “goal,” “strategy,” “opportunity,” and “intend,” as well as words of similar meaning or other statements concerning opinions or judgment of the Company or its management about future events. Forward-looking statements are not historical facts, and are based on assumptions as of the time they are made and are subject to risks, uncertainties and other important factors that are difficult to predict with regard to timing, extent, likelihood and degree of occurrence, which could cause actual results to differ materially from anticipated results expressed or implied by such forward-looking statements. Forward-looking statements include, but are not limited to, statements about: +• the outcome of any legal proceedings that may be instituted against Strive or its subsidiaries; +• the possibility that the anticipated benefits of the merger transactions with Asset Entities, Inc. (the “Asset Entities Merger”) or Semler Scientific, Inc. ("Semler" or "Semler Scientific") (the “Semler Scientific Merger” and together with the Asset Entities Merger, the “Mergers”) are not realized when expected or at all, including as a result of changes in, or problems arising from, implementation of bitcoin treasury strategies and risks associated with bitcoin and other digital assets, general economic and market conditions, interest and exchange rates, monetary policy, and laws and regulations and their enforcement; +• the diversion of management’s attention from ongoing business operations and opportunities; +• dilution caused by Strive’s issuance of additional shares of its Class A common stock or Variable Rate Series A Perpetual Preferred Stock ("SATA Stock"); +• potential adverse reactions of Strive’s clients and customers or changes to business or employee relationships, including those resulting from the completion of the merger transaction; and +• other factors that may affect future results of Strive. +We caution you that the foregoing list of important factors may not contain all of the material factors that are important to you. Although the Company believes that its expectations with respect to forward-looking statements are based upon reasonable assumptions within the bounds of its existing knowledge of its business and operations, there can be no assurance that actual results of the Company will not differ materially from any projected future results expressed or implied by such forward-looking statements. Additional factors that could cause results to differ materially from those described in “Item 1A. Risk Factors” of this Annual Report. The actual results anticipated may not be realized or, even if substantially realized, they may not have the expected consequences to or effects on the Company. Investors are cautioned not to rely too heavily on any such forward-looking statements. Forward-looking statements contained in this Annual Report speak only as of the date hereof, and the Company undertakes no obligation to update or clarify these forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent required by applicable law. +2 +Summary of Risk Factors +The following is a summary of material risks that could affect our business. This summary may not contain all of our material risks, and it is qualified in its entirety by the more detailed risk factors set forth under “Item 1A. Risk Factors”. +• Our limited operating history and recently launched bitcoin treasury strategy make it difficult to evaluate our business and prospects. +• We have a history of operating losses and may need to raise additional capital, which might not be available on favorable terms or at all. +• Our assets are concentrated in bitcoin, a novel and highly volatile asset, which does not pay interest or dividends and is less liquid than cash, declines in market value or adverse developments in the digital asset industry, such as counterparty risks and adverse legal, commercial, regulatory and technical developments, and could harm our business and impair our ability to satisfy financial obligations. +• We have an evolving business model and strategy; our bitcoin strategy has not been tested over a significant period or under varying market conditions. +• The availability of spot ETPs for bitcoin may adversely affect the market price of our listed securities. +• Our proposed investments in junior tranches of bitcoin-backed credit structures involve heightened risk. +• Failure to effectively manage our growth could place strains on our managerial, operational and financial resources and could adversely affect its business and operating results. +• The complexity of the accounting rules applicable to our business, combined with limited interpretive guidance, could make financial reporting more difficult and increase the risk that we fail to maintain effective internal control over financial reporting, which could result in material misstatements in our financial statements. +• Security breaches or cyberattacks against us or our third-party service providers, or loss or destruction of our private keys could result in the loss of some or all of our bitcoin and materially adversely affect our financial condition and results of operations. +• A significant decrease in the market value of our bitcoin holdings could adversely affect our ability to satisfy any financial obligations. +• If we are unable to recruit or retain skilled personnel, or if we lose the services of Matthew Cole, our business, operating results, and financial condition could be materially adversely affected. +• Our bitcoin treasury business is not subject to the regulatory framework that applies to investment companies or advisers. +• We are an “emerging growth company” under the JOBS Act and are able to avail ourselves of reduced disclosure requirements applicable to emerging growth companies. +• We may fail to successfully combine the businesses of Strive and Semler Scientific, which may have liabilities not known to us. +• We are a “controlled company,” and insiders have influence over us and could limit your ability to influence the outcome of key transactions. +• Substantial sales or dilution of our common stock could dilute stockholders and significantly reduce the market price, even if our business is performing well. +• We may not pay any cash dividends on our common stock in the foreseeable future. Accordingly, stockholders need to be prepared to rely on capital appreciation, if any, for any return on their investment. +• The accounting method for our SATA Stock may result in lower reported net earnings attributable to common stockholders and lower reported diluted earnings per share. +• Case law in Nevada may be less likely to provide guidance for specific fact scenarios than in Delaware. +• Our directors and officers are protected from liability for a broad range of actions. +• Our governing documents provide that the Eighth Judicial District Court of Clark County, Nevada is the sole and exclusive forum for substantially all disputes between us and our stockholders. +• Our governing documents and Nevada law or terms of our SATA Stock could discourage takeover attempts and other corporate governance changes. +• Failure to successfully implement our healthcare solutions strategy may adversely affect business and operations. +• Our limited number of FDA-cleared testing products and related services, which will need to generate significant revenues to regain profitability, may not achieve broad market acceptance or be commercially successful, including as a result of inadequate coverage or reimbursement for QuantaFlo, and our efforts to grow our healthcare business may not be successful. +3 +• We do not require our healthcare customers to enter into long-term licenses or maintenance contracts. +• Insufficient insurance coverage for significant product liability risks in the healthcare industry could significantly increase our costs. +• Our healthcare business is subject to changing laws and regulations including the Health Care Reform Law, including those governing medical devices, patient data, as well as potential disruptions at the FDA and other government agencies. +• If we are found to have improperly promoted our products for off-label uses, we may become subject to significant fines and other liability. +• We are subject to healthcare fraud and abuse laws, recently entered into a settlement agreement with DOJ in a qui tam action under the False Claims Act, and are consequently subject to additional litigation and risk. +• Our healthcare business depends on our ability to obtain, maintain and protect the proprietary information our product is based on, including trade secrets, and failure to do so could harm our business and competitive position. +• We may need to license intellectual property from third parties, which may not be available on commercially reasonable terms or at all. +• We may be subject to claims by third parties asserting that our employees or we have misappropriated their intellectual property, or claiming ownership of what we regard as our own intellectual property. +• Our SATA Stock is junior to our existing and future indebtedness, structurally junior to the liabilities of our subsidiaries and subject to the rights and preferences of our other preferred stock then outstanding. +• Reducing the regular dividend rate could cause SATA Stock to accumulate dividends at rates below those of otherwise comparable instruments and decrease the trading price of SATA Stock, and otherwise harm investors. +• We may not have sufficient funds or choose not to pay dividends in cash on our SATA Stock. In addition, regulatory and contractual restrictions may prevent us from declaring or paying dividends. +• We have not entered into an escrow or other similar arrangement to manage the distribution of dividends of our SATA Stock, including dividends from the Dividend Payment Account. +• Our SATA Stock has only limited voting rights. +• Without the consent of any holder of our SATA Stock or Class A Common Stock, we may issue preferred stock in the future that ranks equally with our SATA Stock. +• The Dividend Payment Account could be subject to the claims of creditors. +• The condition of the financial markets, prevailing interest rates and other factors could significantly affect the trading price of our SATA Stock. +• Future sales, or the perception of future sales, of our Class A Common Stock, our debt instruments, our SATA Stock, or other securities could depress the trading price of our listed securities. +• We may not achieve, or may abandon, our current intention of adjusting the regular dividend rate on our SATA Stock as we believe would be designed to cause the SATA Stock to trade at prices, or otherwise have a value, within its targeted long-term trading range. +• Holders of our SATA Stock may be treated as receiving deemed distributions, and consequently may be subject to tax with respect to our SATA Stock. +• Holders of our SATA Stock may not be entitled to the dividends-received deduction or preferential tax rates applicable to qualified dividend income. +• The tax rules applicable to “fast-pay stock” could result in adverse consequences to holders of our SATA Stock. +• A future SATA issuance could have an adverse tax profile, which could subject holders of our previously issued SATA Stock to adverse consequences. +• Your investment in the SATA Stock may be harmed if we redeem the SATA Stock. +• Holding SATA Stock does not, in itself, confer any rights with respect to our Class A Common Stock. +• Our indebtedness and liabilities could limit the cash flow available for our operations, expose us to additional risks and impair our ability to satisfy our obligations under our debt instruments when they come due. +4 +PART I +Item 1. Business +Overview +Strive is a structured finance company and institutional asset manager focused on disciplined capital allocation and long term value creation. We have strategically adopted bitcoin as our hurdle rate for capital deployment because of our fiduciary duty to maximize long-term value for stockholders, and compounding purchasing power over time. Relative to a traditional depreciating fiat-denominated benchmark, implementing a bitcoin hurdle rate establishes a higher level of accountability and strategic investment discipline, since our decisions are measured against an asset we believe will appreciate over time. +Strive’s operating business generates stockholder value through disciplined balance sheet management and the growth of our bitcoin holdings. Our SATA Stock exemplifies this approach, a publicly traded security that aims to provide investors with consistent cash flows and minimal volatility, while enabling Strive to capture the spread between SATA Stock’s financing cost and the potential long term return of bitcoin. +Beyond balance sheet strategy, Strive is focused on advancing innovation within the capital markets by modernizing established financing structures. The Company has developed our SATA Stock, our perpetual preferred equity instrument, that incorporates an at‑the‑market (“ATM”) program, creating a flexible and continuous capital formation mechanism. This approach transforms a historically static capital structure into a dynamic and adaptive capital funding platform. Through these innovations, Strive seeks to combine legacy market frameworks with modern assets, positioning the Company at the intersection of institutional finance and a bitcoin‑based reserve strategy. +Following the completion of Strive Enterprises, Inc.’s reverse acquisition of Asset Entities Inc. on September 12, 2025, Strive began operating as a publicly traded company and began deploying capital to execute on its bitcoin treasury strategy, becoming the first U.S. publicly traded bitcoin treasury asset management firm. As of December 31, 2025, the Company managed over $2.4 billion in assets under management (“AUM”). These activities provide recurring, fee-based revenue streams which increase with AUM. Beginning in fiscal year 2026, we plan to operate our asset-management segment within a single-digit-million dollar operating loss to single-digit-million dollar operating profit range. +On September 22, 2025, Strive, Inc. entered into that certain Agreement and Plan of Merger (the "Semler Scientific Merger Agreement") with Semler Scientific. On January 16, 2026, pursuant to the Semler Scientific Merger Agreement, Strive Merger Sub, Inc., a wholly owned subsidiary of Strive merged with and into Semler Scientific, with Semler Scientific continuing as the surviving corporation and a wholly owned subsidiary of Strive. Through the acquisition of Semler Scientific, Strive acquired Semler Scientific's existing bitcoin reserve as well as Semler Scientific's operating business, which develops and markets technology products and services that assist customers in evaluating and treating chronic diseases. +Our Bitcoin Strategy +Our bitcoin strategy generally involves, from time to time, subject to market conditions and the need for cash and cash equivalents to meet short-term working capital requirements, (i) acquiring bitcoin through open market purchases using available cash, which may be raised from our operating activities as well as capital raising initiatives, such as issuing equity and fixed income offerings, among other capital raise strategies (collectively, “beta” initiatives) and (ii) acquiring bitcoin through alpha strategies, such as acquiring bitcoin through strategic M&A activity or other transactions, resulting in the acquisition of bitcoin at a discount relative to market value, which are intended to deliver returns above and beyond what beta initiatives may deliver alone. +Our Bitcoin Holdings +In 2025, we acquired a total of approximately 7,627 bitcoin at an aggregate acquisition cost of approximately $863.0 million, or $113,153 per bitcoin, including fees and expenses. During the period from January 1, 2026 to March 17, 2026, we acquired approximately 5,048 bitcoin through our acquisition of Semler Scientific and purchased an additional 953 bitcoin at an average price of approximately $81,092 per bitcoin, inclusive of fees and expenses. Consistent with our long-term holding strategy, we have not sold any bitcoin to date. In addition, in March 2026, we made an initial investment of $50.0 million in the Variable Rate Series A Perpetual Stretch Preferred Stock (the "STRC Stock") of Strategy Inc. +As of December 31, 2025, our digital assets, at fair value totaled approximately $668.5 million within our consolidated statement of financial condition, consisting of approximately 7,627 bitcoin. We also held $67.5 million in cash and cash equivalents, putting us in a position to strategically deploy capital to bolster our treasury. As of March 17, 2026, our cash +5 +and cash equivalents totaled $83.7 million, while our position in the STRC Stock had a fair value of $50.4 million. Our bitcoin treasury totaled 13,628 bitcoin as of March 17, 2026. +Overview of the Bitcoin Industry and Market +Bitcoin is a digital asset that is issued by and transmitted through an open-source protocol, known as the Bitcoin protocol, collectively maintained by a peer-to-peer network of individual, decentralized network participants called "nodes." This network hosts a public transaction ledger, known as the Bitcoin blockchain, on which bitcoin holdings and all validated transactions that have ever taken place on the bitcoin network are recorded. Balances of bitcoin are stored in individual “wallets”, which associate network public addresses with one or more “private keys” that control the transfer of bitcoin. The Bitcoin blockchain can be updated without any single entity owning or operating the network. +Creation of New Bitcoin and Limits on Supply +The bitcoin protocol limits the total number of bitcoin that can be generated over time to 21 million. New bitcoin is created and allocated by the Bitcoin protocol through a “mining” process that rewards users that validate transactions in the bitcoin blockchain. Validated transactions are added in “blocks” approximately every 10 minutes. The mining process serves to validate transactions and secure the bitcoin network. Mining is a competitive and costly operation that requires a large amount of computational power to solve complex mathematical algorithms. This expenditure of computing power is known as “proof of work.” To incentivize miners to incur the costs of mining bitcoin, the Bitcoin protocol rewards miners that successfully validate a block of transactions with newly generated bitcoin. +Modifications to the Bitcoin Protocol +Bitcoin is an open-source network that has no central authority, meaning that no one person can unilaterally make changes to the software that runs the network. However, there is a core group of developers that maintains the code for the Bitcoin protocol, and this group can propose changes to the source code and release periodic updates and other changes. Unlike most software that has a central entity that can push updates to users, bitcoin is a peer-to-peer network in which the nodes decide whether to upgrade the software and accept the new changes. As a practical matter, a modification becomes part of the Bitcoin protocol only if the proposed changes are accepted by participants collectively having more than 50% of the processing power, known as "hash rate", on the network. If a certain percentage of the nodes reject the changes, then a “fork” takes place, and participants can choose the version of the software they want to run. +Forms of Attack Against the Bitcoin Network and Wallets +Blockchain technology has many built-in security features that make it difficult for hackers and other malicious actors to corrupt the protocol or blockchain. However, as with any computer network, the Bitcoin network may be subject to certain attacks. Some forms of attack include unauthorized access to wallets that hold bitcoin and direct attacks, like “51% attacks” or “denial-of-service attacks” on the Bitcoin network. +Bitcoin is controllable only by the possessor of both the unique public key and private key(s) relating to the local or online digital wallet in which the bitcoin is held. Private keys used to access bitcoin balances are not widely distributed and are typically held on hardware (which can be physically controlled by the holder or by a third party, such as a custodian) or via software programs on third-party servers. One form of obtaining unauthorized access to a wallet occurs following a phishing attack where the attacker deceives the victim and manipulates them into sharing their private keys for their digital wallet or other sensitive information. Other similar attacks may also result in the loss of private keys, which may cause the victim to effectively lose the corresponding bitcoin because the victim can no longer access their digital wallet. +A “51% attack” may occur when a group of miners attain more than 50% of the Bitcoin network’s mining power, thereby enabling them to control the Bitcoin network and protocol and manipulate the blockchain. A “denial-of-service attack” occurs when legitimate users are unable to access information systems, devices, or other network resources due to the actions of a malicious actor flooding the network with traffic until the network is unable to respond or crashes. The Bitcoin network has been, and can be in the future, subject to denial-of-service attacks, which can result in temporary delays in block creation and in the transfer of bitcoin. +Bitcoin Industry Participants +The primary bitcoin industry participants are miners, investors and traders, digital asset exchanges, and service providers, including custodians, brokers, payment processors, wallet providers, and financial institutions. +6 +Miners . Miners range from bitcoin enthusiasts to professional mining operations that design and build dedicated mining machines and data centers, including mining pools, which are groups of miners that act cohesively and combine their processing power to mine bitcoin blocks. +Investors and Traders. Bitcoin investors and traders include individuals and institutional investors who, directly or indirectly, purchase, hold, and sell bitcoin or bitcoin-based derivatives, including bitcoin exchange-traded products. Exchange-traded products ("ETPs") can be bought and sold on a stock exchange like traditional stocks and provide investors with another means of gaining economic exposure to bitcoin through traditional brokerage accounts. +Digital Asset Exchanges. Digital asset exchanges provide trading venues for purchases and sales of bitcoin in exchange for fiat or other digital assets. Bitcoin can be exchanged for fiat currencies, such as the U.S. dollar, at rates of exchange determined by market forces on bitcoin trading platforms, which are not regulated in the same manner as traditional securities exchanges. In addition to these platforms, over-the-counter markets and derivatives markets for bitcoin also exist. The value of bitcoin within the market is determined, in part, by the supply of and demand for bitcoin in the global bitcoin market, market expectations for the adoption of bitcoin as a store of value, the number of merchants that accept bitcoin as a form of payment, and the volume of peer-to-peer transactions, among other factors. +Service Providers. Service providers offer a multitude of services to other participants in the bitcoin industry, including custodial and trade execution services, commercial and retail payment processing, loans secured by bitcoin collateral, and financial advisory services. Given the continued widespread adoption of the Bitcoin network, the range of service and number of service providers continue to increase. +Other Digital Assets +As of the date of this Annual Report, bitcoin was the largest digital asset by market capitalization. However, numerous alternative digital assets exist, and many entities, including consortia and financial institutions, are actively researching and investing resources in blockchain platforms and digital assets that utilize consensus mechanisms other than proof-of-work mining, which is employed by the Bitcoin network. For example, in late 2022, the Ethereum network transitioned to a “proof-of-stake” mechanism for validating transactions that requires significantly less computing power than proof-of-work mining. Other alternative digital assets that compete with bitcoin in certain ways include “stablecoins,” which are designed to maintain a constant price because of their issuers’ promise to hold high-quality liquid assets (such as U.S. dollar deposits and short-term U.S. treasury securities) equal to the total value of stablecoins in circulation. Stablecoins have grown rapidly as an alternative to bitcoin and other digital assets as a medium of exchange and store of value, particularly on digital asset trading platforms. +Additionally, central banks in some countries have started to introduce digital forms of legal tender. For example, China’s central bank digital currency (“CBDC”) project was made available to consumers in January 2022, and governments including the United States and the European Union have discussed the potential creation of new CBDCs. +Competition +Our bitcoin strategy generally involves from time to time, subject to market conditions, (i) issuing debt or equity securities or engaging in other capital raising transactions with the objective of using the proceeds to purchase bitcoin and bitcoin-related products or engage in other opportunistic transactions to acquire bitcoin and bitcoin-related products and (ii) acquiring bitcoin with our liquid assets that exceed working capital requirements. When we engage in such capital raising transactions, we compete for capital with, among others, ETPs, bitcoin miners, digital assets exchanges, other digital assets service providers, other companies that hold bitcoin or other digital assets as treasury reserve assets, private funds that invest in bitcoin and other digital assets, and similar vehicles. An increase in the competition for sources of capital could adversely affect the availability and cost of financing for our bitcoin purchases, and thereby could adversely affect the market price of our listed securities. +Custody of our Bitcoin +We currently hold and intend to continue to hold all of our bitcoin in custodial accounts at U.S.-based, institutional-grade custodians (who may hold our bitcoin in the United States or other territories) that have demonstrated records of regulatory compliance and information security. Our custodians may also serve as liquidity providers. We engage with multiple custodians to diversify our potential risk exposure to any one custodian. Our custodial services contracts do not restrict our ability to reallocate our bitcoin among our custodians, and our bitcoin holdings may be concentrated with a single custodian from time to time. In light of the significant amount of bitcoin we hold, we continually seek to engage additional digital asset custodians to further diversify the custody of our bitcoin. +7 +We carefully select the custodians that custody our bitcoin after undertaking a due diligence process. As part of our custodian selection process, we evaluate and select custodians that can demonstrate that they operate with strict security protocols, including multifactor authentication procedures designed to safekeep our bitcoin. In addition, our custodial services agreements generally specify that the private keys that control our bitcoin will be held in offline or “cold” storage, which is designed to mitigate risks that a system may be susceptible to when connected to the internet, including the risks associated with unauthorized network access and cyberattacks. We also conduct due diligence reviews during the custodial relationship to monitor the safekeeping of our bitcoin. As part of our process, we obtain and review our custodians’ Services Organization Controls reports. +Our custodians have access to the private key information associated with our bitcoin, or private keys, and they deploy security measures to secure our bitcoin holdings such as advanced encryption technologies, multi-factor identification, and a policy of storing our private keys in redundant, secure and geographically dispersed facilities. We never store, view or directly access our private keys. The operational procedures of our custodians are reviewed periodically by third-party advisors. All movement of our bitcoin by our custodians is coordinated and monitored. Additionally, we routinely verify our bitcoin holdings by reconciling our custodial service ledgers to the public blockchain. +Potential Advantages and Disadvantages of Holding Bitcoin +We believe that bitcoin is an attractive asset because it can serve as a store of value, supported by a robust and public open-source architecture, that is untethered to sovereign monetary policy. We also believe that, due to its limited supply, bitcoin offers the potential to serve as a hedge against inflation in the long-term and, if its adoption increases, the opportunity for appreciation in value. +Bitcoin exists entirely in electronic form, as virtually irreversible public transaction ledger entries on the blockchain, and transactions in bitcoin are recorded and authenticated not by a central repository, but by a decentralized peer-to-peer network. This decentralization mitigates the risks of certain threats common to centralized computer networks, such as denial-of-service attacks, and reduces the dependency of the bitcoin network on any single system. The decentralization of user nodes and miners also mitigates the risk of a 51% attack, which would be very costly and difficult to execute with respect to bitcoin because the Bitcoin network is open source and widely distributed, and transactions on the blockchain require significant computing power to be validated. However, while the Bitcoin network as a whole is decentralized, the private keys used to access bitcoin balances are not widely distributed and are susceptible to phishing and other attacks designed to obtain sensitive information or gain access to password-protected systems. Loss of such private keys can result in an inability to access, and effective loss of, the corresponding bitcoin. Consequently, bitcoin holdings are susceptible to all of the risks inherent in holding any electronic data, such as power failure, data corruption, security breach, communication failure and user error, among others. These risks, in turn, make bitcoin substantially more susceptible to theft, destruction, or loss of value from hackers, corruption, viruses and other technology-specific factors as compared to conventional fiat currency or other conventional financial assets. +In addition, the Bitcoin network relies on open-source developers to maintain and improve the Bitcoin protocol. Accordingly, bitcoin may be subject to protocol design changes, governance disputes such as “forked” protocols, competing protocols, and other open source-specific risks that do not affect conventional proprietary software. +Our Healthcare Technology Solutions Products and Services +Our subsidiary, Semler Scientific, currently markets a patented and FDA-cleared, vascular testing product, QuantaFlo. QuantaFlo is a four-minute in-office blood flow test that features a sensor clamp placed on the toe and finger. Infrared light emitted from the clamp on the dorsal surface of the digit is scattered and reflected by the red blood cells coursing through the area of illumination. Returning light is ‘sensed’ by the sensor. A blood flow waveform is instantaneously constructed by our proprietary software algorithm. Semler Scientific primarily utilizes a license model rather than an outright sales model for QuantaFlo. Semler Scientific has placed its QuantaFlo product with healthcare insurance plans, integrated delivery networks, independent physician groups, hospitals and companies contracting with the healthcare industry such as risk assessment groups and retailers in addition to doctors’ offices. Semler Scientific previously reported that it is experiencing and expects to continue to experience decreased usage of its QuantaFlo device due various factors, including the 2024 Medicare Advantage and Part D Final Rate Announcement issued by the Centers for Medicare and Medicaid Services (“CMS”). Semler Scientific manufactures its product, QuantaFlo, in the United States through independent contractors whom it pays for finished goods. +Intellectual Property +We use various methods to establish and protect our intellectual property, and rely on intellectual property laws in the United States and other countries, along with contractual measures to do so. +8 +We own numerous trademarks (under common law, pending US Trademark applications, and a federally registered trademark for STRIVE), proprietary research, and copyrightable educational content distributed through our corporate digital channels. We protect intellectual-property rights via trademark registrations, confidentiality agreements, and strict access controls. We do not rely on patented technology for our core business. For our healthcare business, we have been issued one patent for Semler Scientific’s apparatus, U.S. Patent No. 7,628,760, which expires December 11, 2027. +Government Regulation +Bitcoin Regulation +The laws and regulations applicable to bitcoin and digital assets are evolving and subject to interpretation and change. +Governments around the world have reacted differently to digital assets; certain governments have deemed them illegal, and others have allowed their use and trade without restriction, while in some jurisdictions, such as the U.S., digital assets are subject to overlapping, uncertain and evolving regulatory requirements. +As digital assets have grown in both popularity and market size, the U.S. Executive Branch, Congress and a number of U.S. federal and state agencies, including the Financial Crimes Enforcement Network, the Commodity Futures Trading Commission (“CFTC”), the U.S. Securities and Exchange Commission ("SEC"), the Financial Industry Regulatory Authority, the Consumer Financial Protection Bureau, the Department of Justice, the Department of Homeland Security, the Federal Bureau of Investigation, the IRS and state financial regulators, have been examining the operations of digital asset networks, digital asset users and digital asset exchanges, with particular focus on the extent to which digital assets can be used to violate state or federal laws, including to facilitate the laundering of proceeds of illegal activities or the funding of criminal or terrorist enterprises, and the safety and soundness and consumer-protective safeguards of exchanges or other service-providers that hold, transfer, trade or exchange digital assets for users. Many of these state and federal agencies have issued consumer advisories regarding the risks posed by digital assets to investors. In addition, federal and state agencies, and other countries have issued rules or guidance regarding the treatment of digital asset transactions and requirements for businesses engaged in activities related to digital assets. +Depending on the regulatory characterization of bitcoin, the markets for bitcoin in general, and our activities in particular, our business and our bitcoin strategy may be subject to regulation by one or more regulators in the United States and globally. Ongoing and future regulatory actions may alter, to a materially adverse extent, the nature of digital assets markets, the participation of industry participants, including service providers and financial institutions in these markets, and our ability to pursue our bitcoin strategy. Additionally, U.S. state and federal and foreign regulators and legislatures have taken action against industry participants, including digital assets businesses, and enacted restrictive regimes in response to adverse publicity arising from hacks, consumer harm, or criminal activity stemming from digital assets activity. U.S. federal and state energy regulatory authorities are also monitoring the total electricity consumption of cryptocurrency mining, and the potential impacts of cryptocurrency mining to the supply and dispatch functionality of the wholesale grid and retail distribution systems. Many state legislative bodies have passed, or are actively considering, legislation to address the impact of cryptocurrency mining in their respective states. +The CFTC takes the position that some digital assets, including bitcoin, fall within the definition of a “commodity” under the Commodity Exchange Act of 1936, as amended (the “CEA”). Under the CEA, the CFTC has broad enforcement authority to police market manipulation and fraud in spot digital assets markets in which we may transact. Beyond instances of fraud or manipulation, the CFTC generally does not oversee cash or spot market exchanges or transactions involving digital asset commodities that do not utilize margin, leverage, or financing. In addition, CFTC regulations and CFTC oversight and enforcement authority apply with respect to futures, swaps, other derivative products and certain retail leveraged commodity transactions involving digital asset commodities, including the markets on which these products trade. +The SEC and its staff have taken the position that certain other digital assets fall within the definition of a “security” under the U.S. federal securities laws. Public statements made by senior officials and senior members of the staff at the SEC indicate that the SEC does not consider bitcoin to be a security under the federal securities laws. However, such statements are not official policy statements by the SEC and reflect only the speakers’ views, which are not binding on the SEC or any other agency or court and cannot be generalized to any other digital assets. +In addition, since transactions in bitcoin provide a degree of anonymity, they are susceptible to misuse for criminal activities, such as money laundering. This misuse, or the perception of such misuse, could lead to greater regulatory oversight of bitcoin and Bitcoin platforms, and there is the possibility that law enforcement agencies could close or blacklist bitcoin platforms or other bitcoin-related infrastructure with little or no notice and prevent users from accessing or retrieving bitcoin held via such platforms or infrastructure. For example, the U.S. Treasury Department’s Office of Foreign Assets Control has issued updated advisories regarding the use of virtual currencies, added a number of digital asset +9 +exchanges and service providers to the Specially Designated Nationals and Blocked Persons list and engaged in several enforcement actions, including a series of enforcement actions that have either shut down or significantly curtailed the operations of several smaller digital asset exchanges associated with Russian and/or North Korean nationals. +U.S. Food and Drug Administration Regulation +QuantaFlo is a medical device subject to extensive regulation by the FDA and other federal, state, local and foreign regulatory bodies. FDA regulations govern, among other things, activities that Semler Scientific or Semler Scientific’s partners perform and will continue to perform, including product design and development, product testing, product manufacturing, product safety, post-market adverse event reporting, post-market surveillance, product labeling, product storage, record keeping, premarket clearance or approval, post-market approval studies, advertising and promotion, and product sales and distribution. +Healthcare Fraud and Abuse +Semler Scientific’s operations are subject to federal and state healthcare laws and regulations including fraud and abuse laws, such as anti-kickback and false claims laws, data privacy and security laws and transparency laws related to payments and/or other transfers of value made to physicians and other healthcare professionals and teaching hospitals. +The federal Anti-Kickback Law prohibits unlawful inducements for the referral of business reimbursable under federally-funded healthcare programs, such as remuneration provided to physicians to induce them to use certain tissue products or medical devices reimbursable by Medicare or Medicaid. The federal Anti-Kickback Law is subject to evolving interpretations. For example, the government has enforced the federal Anti-Kickback Law to reach large settlements with healthcare companies based on, among other things, inappropriate consultant arrangements with physicians or questionable joint venture arrangements. The majority of states also have anti-kickback laws, which establish similar prohibitions that may apply to items or services reimbursed by any third-party payor, including commercial insurers. Further, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, the “Health Care Reform Law”), among other things, amended the intent requirement of the federal Anti-Kickback Law and criminal healthcare fraud statutes. A person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it in order to have committed a violation. In addition, the Health Care Reform Law provided that the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Law constitutes a false or fraudulent claim for purposes of the civil False Claims Act and certain criminal healthcare fraud statutes. +Additionally, the civil False Claims Act prohibits knowingly presenting or causing the presentation of a false, fictitious or fraudulent claim for payment to the U.S. government. Actions under the False Claims Act may be brought by the U.S. Attorney General or as a qui tam action by a private individual in the name of the government. The federal government is using the civil False Claims Act, and the accompanying threat of significant liability, in its investigations of healthcare providers and suppliers throughout the country for a wide variety of Medicare billing practices and has obtained multi-million and multi-billion dollar settlements in addition to individual criminal convictions. The federal False Claims Act provides for treble damages and per-claim penalties. Semler Scientific has been cooperating with civil investigative demands from DOJ (as defined below) since 2017 related to claims for reimbursement related to Semler Scientific’s QuantaFlo device and entered into a settlement agreement with DOJ related thereto in September 2025. See “ Risk Factors— Risks Related to Our Healthcare Legal and Regulatory Environment—We are subject to various healthcare fraud and abuse laws and regulations, recently entered into a settlement agreement with DOJ relating to a qui tam action under the False Claims Act, and is now subject to additional litigation and risk relating to the DOJ matter and disclosures regarding the same. ” for more information. In addition, off-label promotion has been pursued as a violation of the federal False Claims Act. Pursuant to FDA regulations, Semler Scientific can only market Semler Scientific’s products for cleared or approved uses. Although physicians are permitted to use medical devices for indications other than those cleared or approved by the FDA based on their independent medical judgment, Semler Scientific is prohibited from promoting products for such off-label uses. Given the significant size of actual and potential settlements, it is expected that the government will continue to devote substantial resources to investigating healthcare providers’ and suppliers’ compliance with the healthcare reimbursement rules and fraud and abuse laws. +Additionally, the majority of states in which Semler Scientific markets Semler Scientific’s products have similar fraud and abuse laws, such as anti-kickback, false claims, anti-fee splitting and self-referral laws, which may apply to items or services reimbursed by any third-party payor, including commercial insurers, and violations may result in substantial civil, criminal and administrative penalties. +The Health Care Reform Law also included the federal Physician Payments Sunshine Act, which requires device manufacturers for which payment is available under Medicare, Medicaid, or the Children’s Health Insurance Program to +10 +disclose annually to CMS any “transfer of value” made or distributed to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors), other licensed health care practitioners, and teaching hospitals. Such information is now made publicly available in a searchable format, and device manufacturers are now required to report and disclose any investment interests held by physicians and their family members during the preceding calendar year. Failure to submit required information may result in significant civil monetary penalties for all payments, transfers of value or ownership or investment interests not reported in an annual submission. Additionally, the commercial compliance environment is continually evolving in the healthcare industry, and some states, including California, Massachusetts and Vermont, mandate implementation of corporate compliance programs, along with the tracking and reporting of gifts, compensation and other remuneration to physicians and other healthcare providers. The shifting compliance environment and the need to build and maintain robust and expandable systems to comply in multiple jurisdictions with different compliance and/or reporting requirements increases the possibility that a healthcare company may run afoul of one or more of the requirements. +Semler Scientific’s business operations may also be subject to certain federal and state laws regarding the use and disclosure of individually identifiable health information, such as the federal Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, which impose obligations on certain entities with respect to safeguarding the privacy, security and transmission of individually identifiable health information. +To enforce compliance with the federal laws, the DOJ has also increased its scrutiny of interactions between healthcare companies and healthcare providers (including Semler Scientific), which has led to an unprecedented level of investigations, prosecutions, convictions and settlements in the healthcare industry. Dealing with investigations can be time- and resource-consuming. Additionally, if a healthcare company settles an investigation with the DOJ or other law enforcement agencies, the company may be required to agree to additional compliance and reporting requirements as part of a consent decree or corporate integrity agreement. +The U.S. and foreign government regulators have increased regulation, enforcement, inspections and governmental investigations of the medical device industry, including increased U.S. government oversight and enforcement of the Foreign Corrupt Practices Act. Whenever a governmental authority concludes that Semler Scientific is not in compliance with applicable laws or regulations, that authority can impose fines, delay or suspend regulatory clearances, institute proceedings to detain or seize Semler Scientific’s products, issue a recall, impose operating restrictions, enjoin future violations and assess civil penalties against Semler Scientific or Semler Scientific’s officers or employees and can recommend criminal prosecution. Moreover, governmental authorities can ban or request the recall, repair, replacement or refund of the cost of devices Semler Scientific distributes. +If a governmental authority were to conclude that Semler Scientific is not in compliance with applicable fraud and abuse laws and regulations, Semler Scientific and Semler Scientific’s officers and employees could be subject to severe penalties including, for example, civil, criminal and administrative penalties, damages, fines, disgorgement, individual imprisonment, exclusion from participation as a supplier of product to beneficiaries covered by Medicare or Medicaid, additional reporting obligations and oversight if subject to a corporate integrity agreement or other agreement to resolve allegations of non-compliance with these laws, contractual damages, reputational harm, diminished profits and future earnings, and curtailment or restructuring of operations, any of which could adversely affect Semler Scientific’s ability to operate Semler Scientific’s business and the results of Semler Scientific’s operations. +It is uncertain whether and how future legislation, whether domestic or foreign, could affect prospects for QuantaFlo or what actions foreign, federal, state or private payors for health care treatment and services may take in response to any such health care reform proposals or legislation. +Human Capital +As of December 31, 2025, we employed 28 full-time employees. None of our employees are represented by a labor union. We believe our human-capital practices — centered on meritocracy, performance-based compensation, and equity ownership — are critical to attracting and retaining top talent. We consider our relationship with our employees to be good and have not experienced any work stoppages. We also regularly engage consultants and subcontractors on an as-needed basis. +Our executive management team regularly review and update our talent strategy, monitoring a variety of data, including turnover, diversity, and tenure, to design and implement effective reward/recognition, training, development, succession, and benefit programs to meet the needs of our businesses and our employees. +11 +Available Information +Our website is located at www.strive.com. We make available free of charge, on or through the Investor Relations section of our website (https://investors.strive.com), our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after electronically filing or furnishing such reports with the SEC. Information found on our website is not part of this Annual Report or any other report filed with the SEC. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers, including us, that file or furnish electronically with the SEC at www.sec.gov. We also maintain a dashboard on our website (https://treasury.strive.com/) as a disclosure channel for providing broad, non-exclusionary distribution of information regarding the Company to the public, including information regarding market prices of our outstanding securities, bitcoin acquisitions and holdings, certain KPI metrics and other supplemental information, and as one means of disclosing non-public information in compliance with our disclosure obligations under Regulation FD. Investors and others are encouraged to regularly review the information that we make public via the website dashboard. +Item 1A. Risk Factors +Any investment in our securities involves a high degree of risk. Investors should carefully consider the risks described below before making an investment decision. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impact us, our business, or bitcoin holdings, or our securities. +If any of the following risks occur, our business, financial condition, or results of operations could be materially adversely affected. In such case, the market price of our Class A Common Stock and our SATA Stock, which we refer to collectively as our “listed securities,” could decline, and you may lose all or part of your investment. +On February 6, 2026, we completed a 1-for-20 reverse stock split of our Class A Common Stock and Class B Common Stock (the "Reverse Stock Split"). See Note 2, Summary of Significant Accounting Policies – Reverse Stock Split, to the Consolidated Financial Statements, for further information. As a result of the Reverse Stock Split, all applicable share and per share information presented within this Item 1A. Risk Factors has been retroactively adjusted to reflect the Reverse Stock Split for all periods presented. +Risks Related to Our Business +We have a limited operating history and recently launched a bitcoin treasury strategy, making it difficult to evaluate our business and prospects and may increase the risks associated with any investment. +We were formed in 2022 and started formulating and executing on our business plan at that time. In addition, we announced our plan to launch a bitcoin treasury strategy in May 2025, and our management team has a limited operating history of investing in and holding bitcoin. We have since implemented this strategy, holding approximately 7,627 bitcoin as of December 31, 2025. We cannot provide assurances that we will be able to operate our business successfully or implement our operating policies and strategies, including with respect to our bitcoin treasury strategy, as described elsewhere herein. We may encounter risks and challenges frequently experienced by growing companies in rapidly developing industries, including risks related to our ability to: +• maintain a bitcoin treasury strategy, including with respect to the financing, acquisition and custody of bitcoin; +• identify and successfully implement alpha-generating strategies, such as the identification and acquisition of bitcoin-related products, including junior tranches of bitcoin-backed credit structures or the acquisition of target companies at a purchase price discount to their book value or cash assets; +• improve our current operational infrastructure and non-platform technology to support our growth, including our bitcoin treasury strategy, and to respond to the evolution of our market and competitors’ developments; +• further trust with future investors and partners with respect to our bitcoin treasury business; +• distinguish ourselves from competitors in the bitcoin treasury business and our other businesses and navigate political issues; +• respond appropriately to changes in the price of bitcoin, the price of which has been, and will likely continue to be, highly volatile; +• respond to complex, evolving, stringent, contradictory industry standards and government regulation on an international scale that impact our businesses, including our bitcoin treasury strategy; +• maintain and grow our existing asset management operations; +• identify, complete and integrate acquisitions; +12 +• prevent, detect, respond to, or mitigate failures or breaches of privacy and security, including with respect to our bitcoin and our custodial partners; +• hire and retain qualified and motivated employees; +• respond to varying general economic, industry and market conditions; and +• address the other factors described in this section. +If we are unable to do so, our business may suffer, our revenue and operating results may decline and we may not be able to achieve further growth or sustain profitability. +We have a history of operating losses as our business has grown. If we are unable to achieve greater revenues than our operating costs or reduce operating costs, we will continue to incur operating losses, which could result in the need to raise additional capital to support our operating business and negatively impact our operations, strategy and financial performance. +We began our historical operating business in 2022 and have had operating losses in each year as the business has grown. We have a limited operating history upon which an evaluation of the historical business and our prospects can be based. We may be subject to many risks common to new and growing businesses, including under-capitalization, cash shortages, limitations with respect to personnel, financial and other resources and lack of revenues. There is no assurance that we will be successful in achieving a return on an investment or meeting other metrics of success. Our future business plans, including with respect to our bitcoin treasury strategy, require substantial expenses in the establishment and operation of our business, and there can be no assurance that subsequent operational objectives will be achieved. We do not expect our historical businesses to generate return on investment sufficient to support our bitcoin strategy. Our success with respect to its bitcoin treasury strategy will ultimately depend on our ability to raise capital. If we do not achieve our operational objectives, and to the extent that we do not raise capital or generate cash flow and income, our financial performance and long-term viability may be materially and adversely affected. +Bitcoin is a novel asset, and subject to significant legal, commercial, regulatory and technical uncertainty. +Bitcoin is relatively novel and subject to significant uncertainty, which could adversely impact its price. The application of state and federal securities laws and other laws and regulations to digital assets such as bitcoin is unclear in certain respects, and it is possible that regulators in the United States or foreign countries may interpret or apply existing laws and regulations in a manner that adversely affects the price of bitcoin or the ability of individuals or institutions such as ourselves to own or transfer bitcoin. +The U.S. federal government, states, regulatory agencies and foreign countries may also enact new laws and regulations that could materially impact the price of bitcoin or the ability of individuals or institutions such as ourselves to own or transfer bitcoin. Within the past several years, the European Union adopted Markets in Crypto Assets Regulation (“MiCA”), a comprehensive digital asset regulatory framework for the issuance and use of digital assets, like bitcoin, the United Kingdom adopted and implemented the Financial Services and Markets Act 2023 (“FSMA 2023”), which regulates market activities in “cryptoassets,” and in China, the People’s Bank of China and the National Development and Reform Commission have outlawed cryptocurrency mining and declared all cryptocurrency transactions illegal within the country. While the current U.S. administration has expressed support regarding the development and use of digital assets, and the U.S. federal government enacted the Genius Act in July 2025, which provide a regulatory framework for the issuance of “Payment stablecoins”, additional regulatory frameworks and timeline for implementation are still to be developed. +In addition, federal, state and foreign governments and regulatory agencies may pursue regulatory, enforcement or judicial actions. For example, in June 2023, the SEC filed complaints against Binance Holdings Ltd. and Coinbase, Inc., and their respective affiliated entities, relating to, among other claims, that each party was operating as an unregistered securities exchange, broker, dealer, and clearing agency, and in November 2023, the SEC filed a complaint against Payward Inc. and Payward Ventures Inc., together known as Kraken, alleging, among other claims, that Kraken’s crypto trading platform was operating as an unregistered securities exchange, broker, dealer, and clearing agency. In November 2023, Binance Holdings Ltd. and its then chief executive officer reached a settlement with the U.S. Department of Justice, CFTC, the U.S. Department of Treasury’s Office of Foreign Asset Control, and the Financial Crimes Enforcement Network to resolve a multi-year investigation by the agencies and a civil suit brought by the CFTC, pursuant to which Binance Holdings Ltd. agreed to, among other things, pay $4.3 billion in penalties across the four agencies and to discontinue its operations in the United States. +It is not possible to predict whether, or when, new laws will be enacted that change the legal framework governing digital assets such as bitcoin or provide additional authorities to the SEC or other regulators, or whether, or when, any other federal, state or foreign legislative bodies will take any similar actions. It is also not possible to predict the nature of any such additional laws or authorities, how additional legislation or regulatory oversight might impact the ability of digital +13 +asset markets to function, the willingness of financial and other institutions to continue to provide services to the digital assets industry, or how any new laws or regulations, or changes to existing laws or regulations, might impact the value of digital assets generally and bitcoin specifically. The consequences of any new law or regulation relating to digital assets and digital asset activities could adversely affect the market price of bitcoin, as well as our ability to hold or transact in bitcoin, and in turn adversely affect the market price of our securities. Moreover, the risks of engaging in a bitcoin strategy are relatively novel and have created, and could continue to create, complications due to the lack of experience that third parties have with companies engaging in such a strategy, such as increased costs of director and officer liability insurance or the potential inability to obtain such coverage on acceptable terms in the future. The growth of the digital assets industry in general, and the use and acceptance of bitcoin in particular, may also impact the price of bitcoin and is subject to a high degree of uncertainty. The pace of worldwide growth in the adoption and use of bitcoin may depend, for instance, on public familiarity with digital assets, ease of buying, accessing or gaining exposure to bitcoin, institutional demand for bitcoin as an investment asset, the participation of traditional financial institutions in the digital assets industry, consumer demand for bitcoin as a store of value or means of payment, and the availability and popularity of alternatives to bitcoin. Even if growth in bitcoin adoption occurs in the near or medium term, there is no assurance that bitcoin usage will continue to grow over the long term. +Because bitcoin has no physical existence beyond the record of transactions on the bitcoin blockchain, a variety of technical factors related to the bitcoin blockchain could also impact the price of bitcoin. For example, malicious attacks by miners, inadequate mining fees to incentivize validating of bitcoin transactions, hard “forks” of the bitcoin blockchain into multiple blockchains, and advances in digital computing, algebraic geometry, and quantum computing could undercut the integrity of the bitcoin blockchain and negatively affect the price of bitcoin. The liquidity of bitcoin may also be reduced, and damage to the public perception of bitcoin may occur, if financial institutions were to deny or limit banking services to businesses that hold bitcoin, provide bitcoin-related services or accept bitcoin as payment, which could also decrease the price of bitcoin. Actions by U.S. banking regulators, such as the issuance in February 2023 by Federal banking agencies of the “Interagency Liquidity Risk Statement,” which cautioned banks on contagion risks posed by providing services to digital assets customers, and similar actions, have in the past resulted in or contributed to reductions in access to banking services for bitcoin-related customers and service providers, or the willingness of traditional financial institutions to participate in markets for digital assets. The liquidity of bitcoin may also be impacted to the extent that changes in applicable laws and regulatory requirements negatively impact the ability of exchanges and trading venues to provide services for bitcoin. +Our proposed bitcoin strategy will subject us to enhanced regulatory oversight. +Several spot bitcoin ETPs have received approval from the SEC to list their shares on a U.S. national securities exchange with continuous share creation and redemption at net asset value. Even though we do not intend to be, nor intend to function in the manner of, a spot bitcoin ETP, it is possible that we nevertheless could face regulatory scrutiny from the SEC or other federal or state agencies due to our bitcoin holdings. +In addition, there has been increasing focus on the extent to which digital assets such as bitcoin can be used to launder the proceeds of illegal activities, fund criminal or terrorist activities, or circumvent sanctions regimes, including those sanctions imposed in response to the ongoing conflict between Russia and Ukraine. While we are implementing and expect to maintain policies and procedures reasonably designed to promote compliance with applicable anti-money laundering and sanctions laws and regulations and take care to only acquire bitcoin through entities subject to anti-money laundering regulation and related compliance rules in the United States, if we are found to have purchased any bitcoin from bad actors that have used bitcoin to launder money or persons subject to sanctions, we may be subject to regulatory proceedings and any further transactions or dealings in bitcoin by us may be restricted or prohibited. We may also incur indebtedness or enter into other financial instruments in the future that may be collateralized by our bitcoin holdings. +We may pursue strategies to create income streams or otherwise generate funds using our bitcoin holdings. These types of bitcoin-related transactions are the subject of enhanced regulatory oversight. These and any other bitcoin-related transactions that we may enter into, beyond simply acquiring and holding bitcoin, may subject us to additional regulatory compliance requirements and scrutiny, including under federal and state and foreign money services regulations, money transmitter licensing requirements and various commodity and securities laws and regulations. Additional laws, guidance and policies may be issued by domestic and foreign regulators following the filing for Chapter 11 bankruptcy protection by FTX, one of the world’s largest cryptocurrency exchanges, in November 2022. In addition, private actors that are wary of bitcoin or the regulatory concerns associated with bitcoin have in the past taken and may in the future take further actions that may have an adverse effect on our business or the market price of our future securities. +14 +The broader digital assets industry in which bitcoin exists is subject to counterparty risks, which could adversely impact the adoption rate, price, and use of bitcoin. +A series of recent high-profile bankruptcies, closures, liquidations, regulatory enforcement actions and other events relating to companies operating in the digital asset industry have highlighted the counterparty risks applicable to owning and transacting in digital assets. Such events could adversely impact our access to any bitcoin we acquire and negatively impact the adoption rate and use of bitcoin. Additional bankruptcies, closures, liquidations, regulatory enforcement actions or other events involving participants in the digital assets industry in the future may further negatively impact the adoption rate, price, and use of bitcoin, limit the availability to us of financing collateralized by bitcoin, or create or expose additional counterparty risks. +Bitcoin is a highly volatile asset, and fluctuations in the price of bitcoin are likely to influence our financial results and the market price of our listed securities. +Our financial results and the market price of our listed securities, would be adversely affected, and our business and financial condition would be negatively impacted, if the price of bitcoin decreased substantially (as it has as recently as January and February 2026), including as a result of: +• decreased user and investor confidence in bitcoin, including due to the various factors described herein; +• investment and trading activities, such as trading activities of highly active retail and institutional users, speculators, miners and investors; +• actual or expected significant dispositions of bitcoin by large holders, including the expected liquidation of digital assets associated with entities that have filed for bankruptcy protection and the transfer and sale of bitcoin associated with significant hacks, seizures, or forfeitures, such as the transfers of bitcoin to creditors of Mt. Gox and Bitfinex, and liquidation of seized assets of Movie2k and the Silk Road marketplace; +• actual or perceived manipulation of the spot or derivative markets for bitcoin or spot bitcoin ETPs; +• negative publicity, media or social media coverage, or sentiment due to events in or relating to, or perception of, bitcoin or the broader digital assets industry, for example, (i) public perception that bitcoin can be used as a vehicle to circumvent sanctions, including sanctions imposed on Russia or certain regions related to the ongoing conflict between Russia and Ukraine, or to fund criminal or terrorist activities, such as the purported use of digital assets by Hamas to fund its terrorist attack against Israel in October 2023; (ii) expected or pending civil, criminal, regulatory enforcement or other high-profile actions against major participants in the bitcoin ecosystem, including the SEC’s enforcement actions against Coinbase, Inc. and Binance Holdings Ltd.; (iii) additional filings for bankruptcy protection or bankruptcy proceedings of major digital asset industry participants, such as the bankruptcy proceeding of FTX Trading and its affiliates; and (iv) the actual or perceived environmental impact of bitcoin and related activities, including environmental concerns raised by private individuals, governmental and non-governmental organizations, and other actors related to the energy resources consumed in the bitcoin mining process; +• changes in consumer preferences and the perceived value or prospects of bitcoin; +• competition from other digital assets that exhibit better speed, security, scalability, or energy efficiency, that feature other more favored characteristics, that are backed by governments, including the U.S. government, or reserves of fiat currencies, or that represent ownership or security interests in physical assets; +• a decrease in the price of other digital assets, including stablecoins, or the crash or unavailability of stablecoins that are used as a medium of exchange for bitcoin purchase and sale transactions, such as the crash of the stablecoin Terra USD in 2022, to the extent the decrease in the price of such other digital assets or the unavailability of such stablecoins may cause a decrease in the price of bitcoin or adversely affect investor confidence in digital assets generally; +• the identification of Satoshi Nakamoto, the pseudonymous person or persons who developed bitcoin, or the transfer of substantial amounts of bitcoin from bitcoin wallets attributed to Mr. Nakamoto; +• developments relating to the bitcoin protocol, including (i) changes to the bitcoin protocol that impact its security, speed, scalability, usability, or value, such as changes to the cryptographic security protocol underpinning the bitcoin blockchain, changes to the maximum number of bitcoin outstanding, changes to the mutability of transactions, changes relating to the size of blockchain blocks, and similar changes, (ii) failures to make upgrades to the bitcoin protocol to adapt to security, technological, legal or other challenges, and (iii) changes to the bitcoin protocol that introduce software bugs, security risks or other elements that adversely affect bitcoin, or disruptions, failures, unavailability, or interruptions in service of trading venues for bitcoin, such as, for example, the announcement by the digital asset exchange FTX Trading that it would freeze withdrawals and transfers from its accounts and subsequent filing for bankruptcy protection and the SEC enforcement action brought against Binance +15 +Holdings Ltd., which initially sought to freeze all of its assets during the pendency of the enforcement action and has since resulted in Binance discontinuing all fiat deposits and withdrawals in the United States.; +• the filing for bankruptcy protection by, liquidation of, or market concerns about the financial viability of digital asset custodians, trading venues, lending platforms, investment funds, or other digital asset industry participants, such as the filing for bankruptcy protection by digital asset trading venues FTX Trading and BlockFi and digital asset lending platforms Celsius Network and Voyager Digital Holdings in 2022, the ordered liquidation of the digital asset investment fund Three Arrows Capital in 2022, the announced liquidation of Silvergate Bank in 2023, the government-mandated closure and sale of Signature Bank in 2023, the placement of Prime Trust, LLC into receivership following a cease-and-desist order issued by the Nevada Department of Business and Industry in 2023, and the exit of Binance from the U.S. market as part of its settlement with the Department of Justice and other federal regulatory agencies; +• regulatory, legislative, enforcement and judicial actions that adversely affect the price, ownership, transferability, trading volumes, legality or public perception of bitcoin, or that adversely affect the operations of or otherwise prevent digital asset custodians, trading venues, lending platforms or other digital assets industry participants from operating in a manner that allows them to continue to deliver services to the digital assets industry; +• further reductions in mining rewards of bitcoin, including due to block reward "halving" events, which are events that occur after a specific period of time (the most recent of which occurred in April 2024) that either reduce the block reward earned by “miners” who validate bitcoin transactions, or increase the costs associated with bitcoin mining, including increases in electricity costs and hardware and software used in mining, or new or enhanced regulation or taxation of bitcoin mining, which could further increase the costs associated with bitcoin mining, any of which may cause a decline in support for the bitcoin network; +• transaction congestion and fees associated with processing transactions on the bitcoin network; +• macroeconomic changes, such as changes in the level of interest rates and inflation, fiscal and monetary policies of governments (such as increased or decreased fiscal austerity), trade restrictions, and fiat currency devaluations; +• developments in mathematics or technology, including in digital computing, algebraic geometry and quantum computing, that could result in the cryptography used by the bitcoin blockchain becoming insecure or ineffective; and +• changes in national and international economic and political conditions, including, without limitation, federal government policies, trade tariffs and trade disputes, the adverse impacts attributable to the current conflict between Russia and Ukraine and the economic sanctions adopted in response to the conflict, the Iran conflict, and the broadening of the Israel-Hamas conflict to other countries in the Middle East. +Bitcoin holdings and bitcoin-related products are less liquid than cash and cash equivalents and may not be able to serve as a source of liquidity to the same extent as cash and cash equivalents. +Historically, the bitcoin market has been characterized by significant volatility in price, limited liquidity and trading volumes compared to sovereign currencies markets, relative anonymity, a developing regulatory landscape, potential susceptibility to market abuse and manipulation, compliance and internal control failures at exchanges, and various other risks inherent in its entirely electronic, virtual form and decentralized network. During times of market instability, Strive may not be able to sell any bitcoin it acquires at favorable prices or at all. For example, a number of bitcoin trading venues temporarily halted deposits and withdrawals in 2022. As a result, bitcoin holdings may not be able to serve as a source of liquidity to the same extent as cash and cash equivalents. +Strive may also use proceeds of future capital raising activities in part to acquire bitcoin-related products. Such bitcoin-related products may be less liquid than bitcoin and are subject to additional risks, including the potential for higher price volatility, counterparty risks and reduced trading volumes as compared to bitcoin. +Further, bitcoin held with our future custodians or transacted with its trade execution partners will not be subject to the same protections as are available to cash or securities deposited with or transacted by institutions subject to regulation by the Federal Deposit Insurance Corporation or the Securities Investor Protection Corporation. Additionally, we may be unable to enter into term loans or other capital raising transactions collateralized by any unencumbered bitcoin we may hold or otherwise generate funds using our bitcoin holdings, including in particular during times of market instability or when the price of bitcoin has declined significantly. If we are unable to sell any bitcoin we acquire, enter into additional capital raising transactions, including capital raising transactions using bitcoin as collateral, or otherwise generate funds using any future bitcoin holdings, or if we are forced to sell bitcoin at a significant loss, in order to meet its working capital requirements, our business and financial condition could be negatively impacted. +16 +Our bitcoin strategy has not been tested over a significant period of time or under varying market conditions. +We announced our bitcoin treasury strategy in May 2025 and such strategy, including any underlying alpha-generating strategies such as the acquisition of bitcoin-related products, including investments in junior tranches of bitcoin-backed credit structures or the acquisition of target companies at a purchase price discount to their book value or cash assets, similar to the strategies of other bitcoin treasury companies with limited operating histories, has not been tested over a significant period of time or under varying market conditions. For example, although we believe bitcoin, due to its limited supply, has the potential to serve as a hedge against inflation in the long term, the short-term price of bitcoin declined in recent periods during which the inflation rate increased. In addition, if bitcoin treasury companies including ourselves trade on multiple-of-net-asset-value (“mNAV”) basis of less than 1.00 to 1.00, investor confidence and interest may be negatively impacted. If bitcoin prices were to decrease or our bitcoin treasury strategy otherwise proves unsuccessful, our financial condition, results of operations, and the market price of our listed securities would be materially adversely impacted. +The availability of spot ETPs for bitcoin may adversely affect the market price of our listed securities. +On January 10, 2024, the SEC approved the listing and trading of spot bitcoin ETPs, the shares of which can be sold in public offerings and are traded on U.S. national securities exchanges. +Investors may choose to purchase shares of a spot bitcoin ETP instead of shares of our Class A Common Stock. They may do so for a variety of reasons, including if they believe that ETPs offer a “pure play” exposure to bitcoin that is generally not subject to federal income tax at the entity level as we are expected to be, or the other risk factors applicable to an operating business, such as our existing operating businesses. Additionally, unlike spot bitcoin ETPs, we (i) will not seek for shares of our Class A Common Stock to track the value of the underlying bitcoin we expect to hold before payment of expenses and liabilities, (ii) do not benefit from various exemptions and relief under the Securities Exchange Act of 1934, as amended, including Regulation M, and other securities laws, which enable ETPs to continuously align the value of their shares to the price of the underlying assets they hold through share creation and redemption, (iii) will be a Nevada corporation rather than a statutory trust, and do not operate pursuant to a trust agreement that would require us to pursue one or more stated investment objectives, and (iv) are not required to provide daily transparency as to our bitcoin holdings or our daily net asset value. Furthermore, recommendations by broker-dealers to buy, hold, or sell complex products and non-traditional ETPs or an investment strategy involving such products, may be subject to additional or heightened scrutiny that would not be applicable to broker-dealers making recommendations with respect to our Class A Common Stock. Based on how we may be viewed in the market relative to ETPs, and other vehicles which offer economic exposure to bitcoin, such as bitcoin futures exchange-traded funds (“ETFs”), leveraged bitcoin futures ETFs, and similar vehicles offered on international exchanges, any premium or discount in the our Class A Common Stock relative to the value of our future bitcoin holdings may increase or decrease in different market conditions. +As a result of the foregoing factors, availability of spot ETPs for bitcoin could have a material adverse effect on the market price of our securities. +We have an evolving business model and strategy. +Our business model has significantly evolved since our inception and we expect it to continue to do so in the future. As digital assets become more widely available, we expect the services and products associated with them to evolve. In order to stay current with the industry, our business model may need to evolve as well. As a result, from time to time, we may modify aspects of our business model relating to our strategy, including pursuing business opportunities outside of our bitcoin treasury business or additional opportunities in line with our existing businesses. In addition, our bitcoin treasury strategy itself may continue to develop and shift over time, including changes to the scope, timing, structure or implementation of that strategy, or a potential reduction in emphasis on bitcoin-related activities altogether. +We have also recently initiated an alpha investing strategy, which may include strategic acquisitions. These investments carry unique risks and may differ significantly from our historical activities. We may ultimately determine not to proceed with a specific acquisition or to pivot away from the alpha investing strategy entirely, including for strategic, operational or regulatory reasons. There can be no assurance that any such investments or acquisitions will be completed or, if completed, that such investments or acquisitions will be completed on terms favorable to us. In addition, if we are able to complete such investments or acquisitions, we may be unable to successfully monetize any legacy intellectual property or other assets on terms favorable to us. We may also incur unexpected costs and encounter other challenges in connection with the wind-down of acquired businesses. +We cannot offer any assurance that these or any other modifications will be successful or will not result in harm to our business. These modifications may increase the complexity of our business and place significant strain on our management, personnel, operations, systems, technical performance, financial resources and internal financial control and reporting functions. We may not be able to manage growth effectively, which could damage our reputation, limit our growth and +17 +negatively affect our operating results. Further, we cannot provide any assurance that we will successfully identify all emerging trends and growth opportunities within the bitcoin treasury business and we may lose out on such opportunities. Such circumstances could have a material adverse effect on our business, prospects, financial condition and operating results. +Our proposed investments in junior tranches of bitcoin-backed credit structures involve heightened risk and may result in significant losses. +As part of our alpha investing strategies, we may acquire junior or equity tranches of structured pools backed by bitcoin at discounted levels relative to the underlying collateral. These instruments are typically subordinated to senior tranches in repayment priority and therefore carry a higher risk of loss in the event of adverse market conditions. There can be no assurance that we will be able to acquire such instruments at terms favorable to us, if at all. In addition, while these investments may offer the potential for superior risk-adjusted returns, especially when purchased at a discount to par value, they are also highly sensitive to declines in the value of the underlying bitcoin collateral. +If we are able to acquire such instruments and there is a material decrease in bitcoin market prices or deterioration in the credit performance of the underlying pool, our junior tranche holdings could suffer disproportionately large losses, including full principal impairment. In addition, the market for such instruments may be illiquid, and we may not be able to sell or hedge its exposure on favorable terms. These risks could adversely affect our financial condition, results of operations and the performance of our alpha investing strategies more broadly. +Failure to effectively manage our growth could place strains on our managerial, operational and financial resources and could adversely affect its business and operating results. +Our current and future growth, including increases in the number of our strategic relationships, may place a strain on our managerial, operational and financial resources and systems, as well as on our management team. Although we may not grow as we expect, if we fail to manage our growth effectively or to develop and expand our managerial operational and financial resources and systems, our business and financial results would be materially harmed. +A significant decrease in the market value of our bitcoin holdings could adversely affect our ability to satisfy any financial obligations. +As part of our bitcoin strategy, we may incur indebtedness and other fixed charges. In addition to the SATA Stock, we may also issue additional preferred equity and other securities that increase our cash dividend payments. For the year ended December 31, 2025, our historical operating businesses did not generate positive cash flow from operations. If our historical operating businesses do not generate cash flow in future periods sufficient to satisfy our financial obligations, including any future debt and cash dividend obligations, we intend to fund obligations using cash flow generated by equity or debt financings. Our ability to obtain equity or debt financing may in turn depend on, among other factors, the value of our then-existing bitcoin holdings, investor sentiment and the general public perception of bitcoin, our strategy and our value proposition, including as compared to other bitcoin treasury companies. Accordingly, a significant decline in the market value of our bitcoin holdings or a negative shift in these other factors may create liquidity and credit risks, as such a decline or such shifts may adversely impact our ability to secure sufficient equity or debt financing to satisfy any future financial obligations, including any future debt and cash dividend obligations. These risks could materialize at times when bitcoin or any bitcoin-related products trade below the carrying value on our most recent balance sheet or our cost basis. As we have limited operating assets, we may be required to sell bitcoin or bitcoin-related products to satisfy such future obligations. Any such sale of bitcoin or bitcoin-related products may have a material adverse effect on our operating results and financial condition, and could impair our ability to secure additional equity or debt financing in the future. Our inability to secure additional equity or debt financing in a timely manner, on favorable terms or at all, or to sell our bitcoin in amounts and at prices sufficient to satisfy our financial obligations, including our debt service and cash dividend obligations, could cause us to default under any future debt obligations and have a material adverse effect on our financial condition. +Our proposed bitcoin strategies will expose us to risk of non-performance by counterparties. +Our proposed bitcoin strategies, including proposed alpha-generating strategies, will expose us to the risk of non-performance by counterparties, whether contractual or otherwise. Risk of non-performance includes inability or refusal of a counterparty to perform because of a deterioration in the counterparty’s financial condition and liquidity or for any other reason. For example, our future partners, custodians, or other counterparties might fail to perform in accordance with the terms of our agreements with them, which could result in a loss of bitcoin, a loss of the opportunity to generate funds, or other losses. +We anticipate that our primary counterparty risk with respect to any bitcoin treasury strategy is custodian performance obligations under the custody arrangements we expect to enter into in the future. A series of recent high-profile +18 +bankruptcies, closures, liquidations, regulatory enforcement actions and other events relating to companies operating in the digital asset industry, including the filings for bankruptcy protection by Three Arrows Capital, Celsius Network, Voyager Digital, FTX Trading and Genesis Global Capital, the closure or liquidation of certain financial institutions that provided lending and other services to the digital assets industry, including Signature Bank and Silvergate Bank, SEC enforcement actions against Coinbase, Inc., Binance Holdings Ltd., and Kraken, the placement of Prime Trust, LLC into receivership following a cease-and-desist order issued by Nevada’s Department of Business and Industry, and the filing and subsequent settlement of a civil fraud lawsuit by the New York Attorney General against Genesis Global Capital, its parent company Digital Currency Group, Inc., and former partner Gemini Trust Company have highlighted the perceived and actual counterparty risk applicable to digital asset ownership and trading. Legal precedent created in these bankruptcy and other proceedings may increase the risk of future rulings adverse to our interests in the event one or more of our future custodians becomes a debtor in a bankruptcy case or is the subject of other liquidation, insolvency or similar proceedings. +While we expect that any of our future custodians will be subject to regulatory regimes intended to protect customers in the event of a custodial bankruptcy, receivership or similar insolvency proceeding, no assurance can be provided that our custodially held bitcoin will not become part of the custodian’s insolvency estate if one or more of our future custodians enters bankruptcy, receivership or similar insolvency proceedings. Additionally, if we pursue any strategies to create income streams or otherwise generate funds using any future bitcoin holdings, we would become subject to additional counterparty risks. +We may also have additional counterparty exposure with respect to our bitcoin counterparties due to our limited operating history, recent adoption of a bitcoin treasury strategy, limited bitcoin treasury experience, proposed alpha-generating strategies and need to establish new counterparty relationships, including the identification, diligence and establishment of new custodial relationships for future bitcoin purchases. Any significant non-performance by counterparties, including in particular the custodians with which we custody any future bitcoin, could have a material adverse effect on our business, prospects, financial condition, and operating results. +Regulatory change reclassifying bitcoin as a security could lead to our classification as an “investment company” under the Investment Company Act of 1940 and could adversely affect the market price of bitcoin and the market price of our listed securities. +Our future assets are expected to be in future bitcoin holdings. While senior SEC officials have stated their view that bitcoin is not a “security” for purposes of the federal securities laws, a contrary determination by the SEC could lead to our classification as an “investment company” under the Investment Company Act of 1940, which would subject us to significant additional regulatory controls that could have a material adverse effect on our ability to execute on our bitcoin strategy, and our business and operations and may also require us to substantially change the manner in which we conduct our business. In addition, if bitcoin is determined to constitute a security for purposes of the federal securities laws, the additional regulatory restrictions imposed by such a determination could adversely affect the market price of bitcoin and in turn adversely affect the market price of our listed securities. +Our assets are, and we expect our future assets will continue to be, concentrated in bitcoin. +The vast majority of our assets are, and we expect our future assets will continue to be, concentrated in bitcoin holdings or bitcoin-related products. The concentration of our assets in bitcoin or bitcoin-related products will limit our ability to mitigate risk that could otherwise be achieved by holding a more diversified portfolio of treasury assets. +Future developments regarding the treatment of bitcoin for U.S. and foreign tax purposes could adversely affect our business, operating results, and financial condition. +Due to the new and evolving nature of crypto assets such as bitcoin and the absence of comprehensive legal and tax guidance with respect to crypto asset products and transactions, including bitcoin and bitcoin transactions, many significant aspects of the U.S. and foreign tax treatment of transactions involving crypto assets, such as the purchase and sale of crypto assets, as well as the provision of blockchain rewards and other crypto asset incentives and rewards products, are uncertain, and it is unclear whether, when and what guidance may be issued in the future on the treatment of crypto asset transactions for U.S. and foreign tax purposes. +In 2014, the IRS released Notice 2014-21, discussing certain aspects of “virtual currency” for U.S. federal income tax purposes and, in particular, stating that such virtual currency (i) is “property,” (ii) is not “currency” for purposes of the rules relating to foreign currency gain or loss, and (iii) may be held as a capital asset. From time to time, the IRS has released other guidance relating to the tax treatment of virtual currency or crypto assets reflecting the IRS’s position on certain issues. The IRS has not addressed many other significant aspects of the U.S. federal income tax treatment of crypto assets and related transactions. +19 +There continues to be uncertainty with respect to the timing, character, and amount of income inclusions for various crypto asset transactions including, but not limited to, lending and borrowing crypto assets and other crypto asset incentives and products that we expect to offer. Because of the rapidly evolving nature of crypto asset innovations and the increasing variety and complexity of crypto asset transactions and products, it is possible the IRS and various U.S. states may disagree with our future treatment of certain crypto asset offerings for U.S. and state tax purposes. Similar uncertainties exist in the foreign markets in which we expect to operate with respect to direct and indirect taxes, and these uncertainties and potential adverse interpretations of tax law could impact the amount of tax we are required to pay. +There can be no assurance that the IRS, U.S. state revenue agencies, or foreign tax authorities will not alter their respective positions with respect to crypto assets in the future or that a court would uphold the treatment set forth in existing positions. It also is unclear what additional tax authority positions, regulations, or legislation may be issued in the future on the treatment of existing crypto asset transactions and future crypto asset innovations under U.S. federal, U.S. state, or foreign tax law. Any such developments could result in adverse tax consequences for holders of crypto assets and could have an adverse effect on the value of crypto assets and the broader crypto asset markets. Future technological and operational developments that may arise with respect to crypto assets may increase the uncertainty with respect to the treatment of crypto assets for U.S. and foreign tax purposes. The uncertainty regarding tax treatment of crypto asset transactions could impact our business. +Bitcoin does not pay interest or dividends. +Bitcoin does not and bitcoin-related products may not directly pay interest or other returns. Even if we pursue any such strategies, we may be unable to create income streams or otherwise generate cash from our bitcoin holdings, and any such strategies may subject us and holders of our securities to additional risks. +We will require significant additional capital to support our bitcoin treasury strategy and existing businesses, and this capital might not be available on favorable terms, or at all. +We have funded our operations since inception primarily through equity financings. We do not expect that our cash flows from operations will fund our bitcoin treasury strategy or other strategic alternatives, which are capital-intensive and may require substantial funding over time. We also intend to continue to make investments in our existing businesses, which may require us to secure additional funds. We may address our capital needs through future equity or debt financings, which may include at-the-market offerings, preferred stock issuances and fixed income financings, issuances of equity in exchange for bitcoin or bitcoin-related products, or credit arrangements. Additional financing may not be available on terms favorable to us, if at all, including due to general macroeconomic conditions, bitcoin market conditions and any disruptions in the bitcoin market, competition from other bitcoin treasury companies or alternate investments, instability in the global banking system, increasing regulatory uncertainty and scrutiny or other unforeseen factors. Any future equity or debt offerings, issuances or credit arrangements may be on unfavorable terms or terms that may not be acceptable to us. If we incur indebtedness to finance our existing businesses or treasury strategy, the debt holders would have rights senior to holders of our Class A and Class B Common Stock, to make claims on our assets, and the terms of any debt could restrict our operations, including our ability to pay dividends on our common stock. Furthermore, we have authorized the issuance of “blank check” preferred stock that our board of directors could use to, among other things, implement a stockholder rights plan, or issue other shares of preferred stock. If we issue additional equity securities, stockholders will experience dilution, and the new equity securities could have rights senior to those of our currently authorized and issued common stock. The trading prices for our Class A Common Stock may be highly volatile, which may reduce our ability to access capital on favorable terms or at all. In addition, a slowdown or other sustained adverse downturn in the general economic or crypto asset markets could adversely affect our business and the value of our shares of Class A Common Stock. Because our decision to raise capital in the future will depend on numerous considerations, including factors beyond our control, we cannot predict or estimate the amount, timing, or nature of any future issuances of securities. As a result, our stockholders will bear the risk of future issuances of debt or equity securities reducing the value of their common stock and diluting their interests. +Adverse economic conditions could adversely affect our business. +Our performance is subject to general economic conditions, and their impact on the crypto asset markets. The United States and other key international economies have experienced cyclical downturns from time to time in which economic activity declined resulting in lower consumption rates, restricted credit, reduced profitability, weaknesses in financial markets, bankruptcies, and overall uncertainty with respect to the economy. Adverse general economic conditions have impacted in the past, and may impact in the future, the cryptoeconomy, although the extent of such impacts remains uncertain and dependent on a variety of factors, including market adoption of crypto assets, global trends in the cryptoeconomy, central bank monetary policies, instability in the global banking system, volatility and disruptions in the capital and credit markets, and other events beyond our control. Geopolitical developments, such as trade wars and foreign exchange limitations, can also increase the severity and levels of unpredictability globally and increase the volatility of +20 +global financial and crypto asset markets. For example, in the past the capital and credit markets have experienced extreme volatility and disruptions, resulting in steep declines in the value of crypto assets. To the extent general economic conditions and crypto assets markets materially deteriorate or decline for a prolonged period, our business, operating results and financial condition could be adversely affected. Moreover, even if general economic conditions were to improve following any such deterioration, there is no guarantee that the cryptoeconomy would similarly improve. +The nature of our business requires the application of complex financial accounting rules, and there is limited guidance from accounting standard setting bodies on certain topics. If financial accounting standards undergo significant changes, our operating results could fluctuate. +The accounting rules and regulations that we must comply with, or is expected to be required to comply with in the future, are complex and subject to interpretation by the FASB, the SEC, and various other bodies formed to promulgate and interpret appropriate accounting principles. Recent actions and public comments from the FASB and the SEC have focused on the integrity of financial reporting and internal controls and many companies’ accounting policies are being subjected to heightened scrutiny by regulators and the public. Further, there has been limited precedent for the financial accounting of crypto assets and related valuation and revenue recognition. Moreover, a change in these principles or interpretations could have a significant effect on our reported financial results. For example, in December 2023, the FASB issued Accounting Standards Update No. 2023-08, Intangibles-Goodwill and Other-Crypto Assets (ASU 2023-08): Accounting for and Disclosure of Crypto Assets, which represents a significant change in how entities that hold crypto assets will account for certain of those holdings. +Uncertainties in or changes to regulatory or financial accounting standards could result in the need to change our accounting methods and may retroactively affect previously reported results and impair our ability to provide timely and accurate financial information, which could adversely affect our financial statements, result in a loss of investor confidence, and our business, operating results, and financial condition. +If we or our third-party service providers experience a security breach or cyberattack and unauthorized parties obtain access to our bitcoin holdings, or if our private keys are lost or destroyed, or other similar circumstances or events occur, we may lose some or all of our bitcoin and our financial condition and results of operations could be materially adversely affected. +We expect that substantially all of the bitcoin we will acquire will be held in custody accounts at U.S.-based institutional-grade digital asset custodians. Our custodial services contracts are not expected to restrict our ability to reallocate our bitcoin among our custodians, and our bitcoin holdings may be concentrated with a single custodian from time to time. Security breaches and cyberattacks are of particular concern with respect to bitcoin. Bitcoin and other blockchain-based cryptocurrencies and the entities that provide services to participants in the bitcoin ecosystem have been, and may in the future be, subject to security breaches, cyberattacks, or other malicious activities. For example, in October 2021 it was reported that hackers exploited a flaw in the account recovery process and stole from the accounts of at least 6,000 customers of the Coinbase exchange, although the flaw was subsequently fixed and Coinbase reimbursed affected customers. Similarly, in November 2022, hackers exploited weaknesses in the security architecture of the FTX Trading digital asset exchange and reportedly stole over $400 million in digital assets from customers. +A successful security breach or cyberattack could result in: +• a partial or total loss of our bitcoin in a manner that may not be covered by insurance or the liability provisions of the custody agreements with the custodians who will hold our bitcoin; +• harm to our reputation and brand; +• improper disclosure of data and violations of applicable data privacy and other laws; or +• significant regulatory scrutiny, investigations, fines, penalties, and other legal, regulatory, contractual and financial exposure. +Similar risks will apply to bitcoin underlying any bitcoin-related products we may acquire in the future, and with respect to our historical operating businesses. +We expect that any insurance agreements we enter into with respect to losses of our bitcoin holdings will cover only a small fraction of the value of the entirety of our future bitcoin holdings, and there can be no guarantee that such insurance will be maintained as part of the custodial services we enter into or that such coverage will cover losses with respect to our bitcoin. +Further, any actual or perceived data security breach or cybersecurity attack directed at other companies with digital assets or companies that operate digital asset networks, regardless of whether we are directly impacted, could lead to a +21 +general loss of confidence in the broader Bitcoin blockchain ecosystem or in the use of the Bitcoin network to conduct financial transactions, which could negatively impact us. +In addition, bitcoin is controllable only by the possessor of both the unique public key and private key(s) relating to the local or online digital wallet in which the bitcoin is held. While the Bitcoin blockchain ledger requires a public key relating to a digital wallet to be published when used in a transaction, private keys must be safeguarded and kept private in order to prevent a third party from accessing the bitcoin held in such wallet. To the extent the private key(s) for a digital wallet are lost, destroyed, or otherwise compromised and no backup of the private key(s) is accessible, neither we nor our custodians will be able to access the bitcoin held in the related digital wallet. Furthermore, Strive cannot provide assurance that its digital wallets, nor the digital wallets of our custodians held on our behalf, will not be compromised as a result of a cyberattack. The bitcoin and blockchain ledger, as well as other digital assets and blockchain technologies, have been, and may in the future be, subject to security breaches, cyberattacks, or other malicious activities. +Attacks upon systems across a variety of industries, including industries related to bitcoin and financial services, are increasing in frequency, persistence, and sophistication, and, in many cases, are being conducted by sophisticated, well-funded and organized groups and individuals, including state actors. The techniques used to obtain unauthorized, improper or illegal access to systems and information (including personal data and digital assets), disable or degrade services, or sabotage systems are constantly evolving, may be difficult to detect quickly, and often are not recognized or detected until after they have been launched against a target. These attacks may occur on our systems or those of our third-party service providers or partners. In 2025, we have not identified any cybersecurity threats or incidents, including those resulting from any previous cybersecurity incidents, that have materially affected, or, to our knowledge, are reasonably likely to materially affect, us or our business strategy, results of operations or financial condition. However, we may, in the future, experience breaches of our security measures due to human error, malfeasance, insider threats, system errors or vulnerabilities or other irregularities. In particular, we expect that unauthorized parties will attempt to gain access to our systems and facilities, as well as those of our partners and third-party service providers, through various means, such as hacking, social engineering, phishing and fraud. Threats can come from a variety of sources, including criminal hackers, hacktivists, state-sponsored intrusions, industrial espionage, and insiders. In addition, certain types of attacks could harm us even if our systems are left undisturbed. For example, certain threats are designed to remain dormant or undetectable, sometimes for extended periods of time, until launched against a target and we may not be able to implement adequate preventative measures. Further, there has been an increase in such activities due to the increase in work-from-home arrangements. The risk of cyberattacks could also be increased by cyberwarfare in connection with the ongoing Russia-Ukraine and Israel-Hamas conflicts, or other future conflicts, including potential proliferation of malware into systems unrelated to such conflicts. Any future breach of our operations or those of others in the bitcoin or financial services industries, including third-party services on which we rely, could materially and adversely affect our financial condition and results of operations. +If we are unable to recruit or retain skilled personnel, or if we lose the services of Matthew Cole, our business, operating results, and financial condition could be materially adversely affected. +Our future success depends on our continuing ability to attract, train, assimilate, and retain highly skilled personnel. There has historically been significant competition for qualified employees in the technology industry, and such competition may be further amplified by evolving restrictions on immigration, travel, or availability of visas for skilled technology workers. We may not be able to retain our current key employees or attract, train, assimilate, and retain other highly skilled personnel in the future, particularly at times when we undergo significant headcount reductions. Our future success also depends in large part on the continued service of Matthew Cole. If we were unable to attract, train, assimilate, and retain the highly skilled personnel we need, or we were to lose the services of Matthew Cole, our business, operating results, and financial condition could be materially adversely affected. +We may be subject to material litigation, including individual and class action lawsuits, as well as investigations and enforcement actions by regulators and governmental authorities. +We may from time to time become subject to claims, arbitrations, individual and class action lawsuits, government and regulatory investigations, inquiries, actions or requests, including with respect to employment matters, and other proceedings alleging violations of laws, rules and regulations, both foreign and domestic. The scope, determination and impact of claims, lawsuits, government and regulatory investigations, enforcement actions, disputes and proceedings to which we are subject cannot be predicted with certainty, and may result in: +• substantial payments to satisfy judgments, fines or penalties; +• substantial outside counsel legal fees and costs; +• additional compliance and licensure requirements; +• loss or non-renewal of existing licenses or authorizations, or prohibition from or delays in obtaining additional licenses or authorizations, required for our business; +22 +• loss of productivity and high demands on employee time; +• criminal sanctions or consent decrees; +• termination of certain employees, including members of our executive team; +• barring of certain employees from participating in our business in whole or in part; +• orders that restrict or suspend our business or prevent us from offering certain products or services; +• changes to our business model and practices; +• delays and/or interruptions to planned transactions, product launches or improvements; and +• damage to our brand and reputation. +Any such matters can have an adverse impact, which may be material, on our business, operating results or financial condition because of legal costs, diversion of management resources, reputational damage and other factors. +Our bitcoin treasury business will not be subject to legal and regulatory obligations that apply to investment companies such as mutual funds and exchange-traded funds, or to obligations applicable to investment advisers. +Mutual funds, ETFs and their directors and management are subject to extensive regulation as “investment companies” and “investment advisers” under U.S. federal and state law; this regulation is intended for the benefit and protection of investors. Our bitcoin treasury business is not subject to, and does not intend to otherwise voluntarily comply with, these laws and regulations other than as may be required with respect to its existing wealth management (until the disposal thereof) and asset management businesses. This means, among other things, that the execution of or changes to our bitcoin strategy, our use of leverage, the manner in which our bitcoin is custodied, our ability to engage in transactions with affiliated parties and our operating and investment activities generally with respect to its bitcoin strategy are not subject to the extensive legal and regulatory requirements and prohibitions that apply to investment companies and investment advisers. For example, no stockholder or regulatory approval would be necessary with respect to a significant change in our bitcoin strategy. Consequently, our board of directors and management are expected to have broad discretion over the investment, leverage and cash management policies we authorize, whether in respect of our future bitcoin holdings or other activities we may pursue, and have the power to change our current policies, including our strategy of acquiring and holding bitcoin. +Our historical asset management business is subject to business, legal and regulatory obligations. +Our existing asset management business is subject to various laws and regulations, including the Investment Advisers Act of 1940, the Investment Company Act of 1940, the Securities Act of 1933 and the Securities Exchange Act of 1934, and our asset management business subsidiary is a registered investment adviser, subject to periodic SEC examinations, marketing-rule compliance, fund-reporting obligations and other requirements. Failure by us and our business to comply with these and other rules applicable to the asset management business may materially and adversely impact our business, operating results, and financial condition. In addition, the asset management business could distract our management team from pursuing or executing on the bitcoin treasury business or limit our ability to pursue new opportunities. +We are a “controlled company” within the meaning of the Nasdaq Stock Market Rules because our insiders beneficially own more than 50% of the voting power of our outstanding voting securities. +Certain of our existing stockholders, including Vivek Ramaswamy, entered into a Shareholders’ Agreement, and, as of December 31, 2025, collectively beneficially owned more than 50% of the voting power of our outstanding voting securities. Therefore, as of December 31, 2025, Strive is a “controlled company” within the meaning of the listing rules of Nasdaq. So long as such stockholders collectively beneficially own more than 50% of our voting power and subject to applicable Nasdaq transition requirements, we may rely on certain exemptions from corporate governance rules, including an exemption from the rule that a majority of the our board of directors must be independent directors. Because we have elected to rely on the “controlled company” exemption, a majority of the members of our board of directors may not be independent directors, and our nominating and corporate governance and compensation committees may not consist entirely of independent directors. Our status as a controlled company could cause the shares of our common stock to be less attractive to certain investors or otherwise harm our trading price. As a result, you would not have the same protection afforded to stockholders of companies that are subject to these corporate governance requirements. +We are an “emerging growth company” under the JOBS Act and are able to avail ourselves of reduced disclosure requirements applicable to emerging growth companies, which could make our securities less attractive to investors. +We are an “emerging growth company,” as defined in the JOBS Act, and intend to utilize certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies,” including not being required to comply with the auditor attestation requirements of Section 404(b) of SOX, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any +23 +golden parachute payments not previously approved. In addition, Section 107 of the JOBS Act also provides that an emerging growth company can utilize the extended transition period provided in Section 7(a)(2)(B) of the Securities Act, for complying with new or revised accounting standards. We will not utilize the extended transition period provided under Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. +We cannot predict if investors will find our securities less attractive because we may rely on these exemptions. +If some investors find our securities less attractive as a result, there may be a less active trading market for our securities and the price of our securities may be more volatile. We may utilize these exemptions until such time that it is no longer an emerging growth company. We would cease to be an emerging growth company upon the earliest to occur of (i) the last day of the fiscal year in which it has more than $1.235 billion in annual revenue; (ii) the last day of the fiscal year in which we will qualify as a “large accelerated filer”; (iii) the date on which we will have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities; and (iv) December 31, 2028, the last day of the fiscal year in which the fifth anniversary of the effectiveness of the registration statement for our predecessor company’s initial public offering occurs. +Risks Related to the Combined Company Following the Semler Scientific Merger +Failure to successfully combine the businesses of Strive and Semler Scientific in the expected time frame or at all may adversely affect the future results of the combined company, and, consequently, the value of our Class A Common Stock. +The success of the Semler Scientific Merger will depend, in part, on the ability of the combined company to realize in a timely fashion the anticipated benefits and efficiencies from combining the businesses of Strive and Semler Scientific. The process of integration may reveal that benefits and efficiencies are less than anticipated and may result in additional expenses, all of which could reduce the anticipated benefits of the Semler Scientific Merger. +Achieving the anticipated benefits of the Semler Scientific Merger is subject to a number of uncertainties, including: +• the ability of the two companies to combine certain of their operations or take advantage of expected growth opportunities; +• general market and economic conditions; +• general competitive factors in the marketplace; and +• higher than expected costs required to achieve the anticipated benefits of the Semler Scientific Merger. +Failure to achieve the anticipated benefits and efficiencies from the Semler Scientific Merger, or the occurrence of additional expenses, could have a material adverse impact on the results of operations of the combined company and its ability to pay dividends after closing. In turn, the market value of our Class A Common Stock could be adversely impacted. +Semler Scientific may have liabilities that are not known to us. +Following completion of the Semler Scientific Merger, we may learn additional information about Semler Scientific that materially adversely affects us, such as unknown or contingent liabilities and liabilities related to compliance with applicable laws. As a result of these factors, we may incur additional costs and expenses and may be forced to later write-down or write-off assets, restructure operations or incur impairment or other charges that could result losses. Even if our due diligence had identified certain risks, unexpected risks may arise and previously known risks may materialize in a manner not consistent with our expectations. If any of these risks materialize, this could adversely affect our financial condition and results of operations and could contribute to negative market perceptions about, or price movements of, our Class A Common Stock. +Risks Related to Our Class A Common Stock +The trading price of our Class A Common Stock is and will likely continue to be volatile and subject to wide price fluctuations in response to various factors, including: +• market conditions in the broader stock market in general, or in our industry in particular; +• actual or anticipated fluctuations in our quarterly financial and operating results; +• introduction of new products and services by us or our competitors; +• issuance of new or changed securities analysts’ reports or recommendations; +• sales of large blocks of our stock; +• additions or departures of key personnel; +24 +• regulatory developments; +• litigation and governmental investigations; and +• economic and political conditions or events. +These and the other factors described herein may cause the market price and demand for our common stock to fluctuate substantially, which may limit or prevent investors from readily selling their shares of common stock and may otherwise negatively affect the liquidity of our common stock. In addition, in the past, when the market price of other companies’ stock has been volatile, holders of that stock have instituted securities class action litigation against them. If any of our stockholders brought a lawsuit against us, we could incur substantial costs defending the lawsuit. Such a lawsuit could also divert the time and attention of our management from our business. +Insiders have influence over us and could limit your ability to influence the outcome of key transactions, including a change of control. +Certain of our existing holders, including Vivek Ramaswamy, by virtue of our dual-class structure, control a majority of the voting power of our common stock. As a result, such stockholders are able to influence matters requiring approval by our stockholders, including the election of directors and the approval of mergers or other extraordinary transactions. Further, pursuant to our Amended & Restated Articles of Incorporation, as Principal Stockholder (as defined therein), Vivek Ramaswamy has the right, subject to certain requirements, to cause our Class B Common Stock to convert into our Class A Common Stock. +Such stockholders may also have interests that differ from yours, including as a result of holding other investments, and may vote in a way with which you disagree and which may be adverse to your interests, including in connection with a change of control of our company or premiums received in connection with a sale of our company. +These risks may be exacerbated if other stockholders (or a group of affiliated stockholders) were to exercise majority voting control over us, including if our current significant stockholders were to sell a significant portion of their shares in our company. +The Amended & Restated Articles of Incorporation include a corporate opportunity waiver. +To the fullest extent permitted under the Nevada Revised Statutes ("NRS"), our Amended & Restated Articles of Incorporation renounced any interest or expectancy of us in, or in being offered an opportunity to participate in, business opportunities that are presented to members of our board of directors who are not our employees (a “Non-Employee Director”) (including any Non-Employee Director who serves as an officer in both his or her director and officer capacities). Our Amended & Restated Articles of Incorporation further provide that, to the fullest extent permitted by law, our Non-Employee Directors and their respective affiliates do not have any liability to us for any breach of fiduciary duty for engaging in any such activities or from not disclosing any corporate opportunities to us or from pursuing or acquiring such opportunities themselves or offering or directing such opportunities to any other person. As a result of these provisions, we may be not be offered certain corporate opportunities which could be beneficial to us, or our Non-Employee Directors may direct such opportunities to certain other businesses in which they are engaged (or such other businesses may otherwise pursue such opportunities) causing them to compete with us, which may cause such opportunities not to be available to us or to become more expensive or difficult for us to pursue, which could adversely impact our business or prospects. By being our stockholder, you will be deemed to have notice of and have consented to these provisions of our Amended & Restated Articles of Incorporation. +Some provisions of the Amended & Restated Articles of Incorporation and the Amended & Restated Bylaws may deter third parties from acquiring us. +The Amended & Restated Articles of Incorporation and the Amended & Restated Bylaws include, among other things, the following: +• the authorization of undesignated preferred stock, the terms of which may be established and shares of which may be issued without stockholder approval; +• advance notice requirements for stockholder proposals; +• a restriction on acquiring more than a 20% ownership interest in us; and +• from and after the Sunset Date (as such term is defined in the Amended & Restated Articles of Incorporation), we will be governed by Nevada’s “combinations with interested stockholders” statutes (NRS 78.411 through 78.444). +These "anti-takeover" defenses could discourage, delay or prevent a transaction involving a change in control of our company. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing and cause us to take other corporate actions than you desire. +25 +We do not anticipate paying any cash dividends or other distributions to holders of our common stock in the foreseeable future. Accordingly, stockholders need to be prepared to rely on capital appreciation, if any, for any return on their investment. +We currently intend to retain our future earnings, if any, for the foreseeable future, to fund the development and growth of our business. We do not intend to pay any dividends or make other distributions to holders of our common stock for the foreseeable future. As a result, capital appreciation in the price of our common stock, if any, will be your only source of gain on an investment in our common stock. +Sales of substantial amounts of our common stock in the open market by our significant stockholders could depress our stock price. +Shares of our common stock that were issued to holders of shares of capital stock, $0.00001 par value per share, of Strive Enterprises, Inc. pursuant to that certain Amended and Restated Agreement and Plan of Merger, dated as of June 27, 2025, by and among Strive, Inc. (which was, until September 12, 2025, known as Asset Entities Inc.), Alpha Merger Sub, LLC, an Ohio limited liability company and our wholly owned subsidiary, and Strive Enterprises, Inc., an Ohio corporation, became freely tradable once registered pursuant to that certain Registration Rights Agreement, dated as of September 12, 2025, by and among Strive, Inc. and the persons listed on Schedule A thereto (the “Registration Rights Agreement”) or sold in compliance with Rule 144 promulgated under the 1933 Act. Pursuant to the Registration Rights Agreement, certain of such holders will receive customary piggyback and demand rights. +Such persons may wish to dispose of some or all of their interests in our company, and as a result may seek to sell their shares of our common stock. These sales (or the perception that these sales may occur), coupled with the increase in the number of outstanding shares of our common stock, may affect the market for, and the market price of, our common stock in an adverse manner. +If the holders of our common stock, including the aforementioned persons, sell substantial amounts of our common stock in the public market once such shares are registered pursuant to the Registration Rights Agreement or sold in compliance with Rule 144 promulgated under the 1933 Act, the market price of our common stock may decrease. These sales might also make it more difficult for us to raise capital by selling equity or equity-related securities at a time and price that it otherwise would deem appropriate. +A significant portion of the total outstanding shares of our common stock may be sold into the public market in the near future, which could cause the market price of our common stock to drop significantly, even if our business is doing well. +Concurrent with the consummation of the transactions contemplated by the Asset Entities Merger Agreement, we issued (i) (a) 345,487,794 shares (17,274,389 on a split-adjusted basis) of Class A Common Stock, (b) 209,771,462 pre-funded warrants exercisable for 10,488,573 shares of Class A Common Stock (on a split-adjusted basis), and (c) 555,259,256 warrants exercisable at a price of $1.35 for 27,762,962 shares of Class A Common Stock (on a split-adjusted basis), each issued pursuant to the terms of the subscription agreements, dated as of May 26, 2025, by and among Asset Entities, Inc., Strive Enterprises, Inc. and certain stockholders (together, the “PIPE Shares”), and (ii) 2,681,893 shares (134,094 on a split-adjusted basis) of Class A Common Stock issued pursuant to the terms of the exchange agreements, dated as of August 22, 2025, by and among Asset Entities, Inc., Strive Enterprises, Inc. and certain stockholders (the “351 Exchange Shares”) (together, the “PIPE Financing Transactions”). +If our existing stockholders or investors of the PIPE Shares and the 351 Exchange Shares sell, or indicate an intention to sell, substantial amounts of such shares in the public market, the trading price of the shares of our Class A Common Stock could substantially decline. As of March 17, 2026, Strive has a total of 59,286,628 shares of Class A Common Stock issued and outstanding. The shares of Class A Common Stock as of March 17, 2026 do not include 9,872,157 shares of Class B Common Stock that are issued and outstanding and 531,888,702 unexercised traditional warrants to purchase 26,594,435 shares of Class A Common Stock, in each case issued and outstanding as of March 17, 2026, nor does such figure include restricted stock awards or shares issuable in connection with our equity award plans. +Substantially all of our shares of common stock will be able to be sold, subject to any applicable volume limitations, under federal securities laws with respect to affiliate sales. +On September 15, 2025, Strive also registered 15,053,903 shares (752,696 on a split-adjusted basis) of Class A Common Stock to be available for issuance pursuant to the Strive, Inc. 2022 Amended and Restated Equity Incentive Plan (the “Pre-ASST Transaction Plan”) under Form S-8 (the “Initial Form S-8”). Such shares can be freely sold in the public market upon issuance, subject to the lock-up agreements and the restrictions imposed on our affiliates under Rule 144. We may register additional shares of common stock for issuance under future employee benefit plans. In addition, we also registered 43,847,840 shares (2,192,392 on a split-adjusted basis) of Class A Common Stock in respect of converted awards of restricted stock units and restricted shares of Class B common stock, par value $0.00001 per share, of Strive +26 +Enterprises, Inc. as a result of the transactions contemplated by the Asset Entities Merger Agreement, pursuant to the Pre-ASST Transaction Plan. Such shares can be freely sold in the public market. +You may experience future dilution as a result of future equity offerings. +In order to raise additional capital or pursue strategic acquisition opportunities, we may in the future offer additional shares of Class A Common Stock, equity-linked offerings, preferred stock issuances and/or fixed income financings. For example, we entered into an “at-the-market” offering program for shares of Class A Common Stock in September 2025, conducted an initial public offering of shares of our SATA Stock in November 2025, entered into an “at-the-market” offering program for shares of our SATA Stock in December 2025 and issued and sold shares of our SATA Stock in a follow-on offering in January 2026. +The price per share at which we sell or issue additional shares of Class A Common Stock, SATA Stock or other securities in future transactions may be higher or lower than the price at which you purchased your shares. +If we fail to implement effective internal control over financial reporting, such failure could result in material misstatements in its financial statements, cause investors to lose confidence in our reported financial and other public information and have a negative effect on the trading price of our securities. +Prior to the consummation of the Asset Entities Merger, we operated as a private company, and accordingly, we have had relatively less accounting personnel and other resources to address internal controls as compared to a typical public company. Effective internal control over financial reporting is necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, designed to prevent fraud. We cannot assure you that the robust internal control and financial reporting requirements we are seeking to adopt as the result of being a public company will not lead to the discovery of past or future control deficiencies in our financial reporting. Any failure to identify and remediate past control deficiencies, or to implement required new or improved controls, or difficulties encountered in their implementation, could cause us to fail to meet our reporting obligations. +Following the consummation of the Asset Entities Merger, we became a public company in the United States subject to SOX. Section 404(a) of SOX (“Section 404”) requires management of public companies to develop and implement internal control over financial reporting and evaluate the effectiveness thereof. We will be required to disclose changes made in our internal controls and procedures and our management will be required to assess the effectiveness of these controls annually. This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting. In particular, we are required to furnish a report by management on, among other things, the effectiveness and any material weaknesses of our internal control over financial reporting beginning with this Annual Report. However, for as long as we are an “emerging growth company” under the JOBS Act, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 of SOX, which may otherwise be applicable beginning with this Annual Report. An independent assessment of the effectiveness of our internal controls by our registered public accountant could detect past or future problems that our management’s assessment might not. Any testing by us conducted in connection with Section 404 of SOX, or any subsequent testing by our independent registered public accounting firm, may reveal deficiencies in our internal control over financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive changes to our financial statements or identify areas for further attention or improvement. In particular, undetected past or future material weaknesses in our internal controls could lead to financial statement restatements and require us to incur the expense of remediation and the trading price of our securities may suffer. We may also not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404 or may not be able to remediate some of the identified deficiencies in time to meet the deadline imposed by SOX for compliance with the requirements of Section 404. +The process of designing, implementing and maintaining effective internal controls is a continuous effort that will require us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company. If we fail to design, implement and maintain effective internal controls and financial reporting procedures, it could severely inhibit our ability to accurately report its results of operations and result in material misstatements in our financial statements, impair our ability to raise revenue, subject us to regulatory scrutiny and sanctions and cause investors to lose confidence in our reported financial information, which in turn could have a negative effect on the business and the trading price of our securities. Additionally, ineffective internal control over financial reporting could result in deficiencies that are deemed material weaknesses, and any such material weaknesses could result in our failure to detect a material misstatement of our annual or quarterly consolidated financial statements or disclosures. Ineffective internal control over financial reporting could also expose us to increased risk of fraud or misuse of corporate assets and subject us to potential delisting from Nasdaq, regulatory investigations, civil or criminal sanctions and lawsuits. In addition, our internal control over financial reporting will not prevent or detect all errors or fraud. A control system, no matter how well designed and +27 +operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of the inherent limitations in all internal control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud will be detected. +The accounting method for our SATA Stock may result in lower reported net earnings attributable to common stockholders and lower reported diluted earnings per share. +The accounting method for reflecting the provisions of our SATA Stock in our financial statements may adversely affect our reported earnings. Applicable accounting standards require us to separately account for certain redemption features associated with our SATA Stock as embedded derivatives. Under this treatment, any embedded derivatives are measured at its fair value and accounted for separately as liabilities that are marked-to-market at the end of each reporting period. For each financial statement period after the issuance of the SATA Stock, a gain or loss would be reported in our statement of operations to the extent the valuation of any of the embedded derivatives changes from the previous period. This accounting treatment may subject our reported net income (loss) to significant non-cash volatility. In addition, accounting standards may change in the future. Accordingly, we may account for our SATA Stock in a manner that is significantly different than described above. +Future sales or other dilution of our Class A Common Stock, including other equity-related securities, could dilute our existing stockholders or otherwise depress the market price of our Class A Common Stock and the value of our SATA Stock. +Future sales of our Class A Common Stock or our SATA Stock in the public market, or the perception that such sales could occur, could negatively impact the market price of our Class A Common Stock, and, accordingly, the value of our SATA Stock. The terms of our SATA Stock do not restrict our ability to issue additional SATA Stock, Class A Common Stock or other equity-related securities in the future. Future sales or issuances of Class A Common Stock, SATA Stock or other equity-related securities could be dilutive to holders of Class A Common Stock and SATA Stock and could adversely affect their voting and other rights and economic interests. If we issue additional shares of our SATA Stock, shares of Class A Common Stock (including as payment for regular dividends on our SATA Stock), or other equity-related securities, the price of Class A Common Stock and the value of our SATA Stock may decline. We cannot predict the size of future issuances of Class A Common Stock or other securities or the effect, if any, that the issuance of our SATA Stock, and future sales and issuances of Class A Common Stock and other securities would have on the market price of Class A Common Stock and the value of our SATA Stock. The sale or the availability for sale of a large number of shares of Class A Common Stock in the public market could cause the market price of our Class A Common Stock to decline. +Risks Related to Nevada Law and Our Charter +Case law in Nevada may be less likely to provide guidance for specific fact scenarios than in Delaware. +We are a Nevada corporation. Because of Delaware’s prominence as a state of incorporation for many large corporations, the Delaware courts have developed considerable expertise in dealing with corporate issues and a substantial body of case law has developed construing Delaware law under certain sets of facts. While Nevada also has adopted comprehensive, modern and flexible corporate law statutes, because the volume of Nevada case law concerning the effects of its statutes and regulations is more limited, we may experience, and our stockholders may experience, less predictability with respect to the legal requirements in connection with corporate affairs and transactions, and stockholders’ rights to challenge them in specific situations where the application of the statute may be open to differing interpretations. +Our directors and officers are protected from liability for a broad range of actions. +Under the NRS, unless otherwise provided in the articles of incorporation or pursuant to certain statutory exceptions, a director or officer is not individually liable to a corporation or its stockholders or creditors for any damages as a result of any act or failure to act in his or her capacity as a director or officer, except where (i) the statutory presumption of the business judgment rule (i.e. that such director or officer has acted in good faith, on an informed basis and with a view to the interests of the corporation) has been rebutted, and (ii) it is proven that such director’s or officer’s act or failure to act was a breach of his or her fiduciary duties as a director or officer and such breach involved intentional misconduct, fraud or a knowing violation of law. The Amended & Restated Articles of Incorporation provide that, to the fullest extent permitted by Nevada law, our directors and officers will not be individually liable to us or any of our stockholders or creditors for damages as a result of any act or failure to act in their respective capacities as a director or officer. +28 +The Amended & Restated Articles of Incorporation provide that the Eighth Judicial District Court of Clark County, Nevada is the sole and exclusive forum for substantially all disputes between us and the holders of our common stock, which could limit the ability of the holders of our common stock to obtain a favorable judicial forum for disputes with us or our directors, officers or employees. +The Amended & Restated Articles of Incorporation provide that the Eighth Judicial District Court of Clark County, Nevada (or, if the Eighth Judicial District Court does not have jurisdiction, any other state district court located in the State of Nevada, and, if no state district court in the State of Nevada has jurisdiction, any federal court located in the State of Nevada), is the sole and exclusive forum for many disputes between us and the holders of our common stock, which could limit the ability of the holders of our common stock to obtain a favorable judicial forum for disputes with us or our directors, officers or employees. The Amended & Restated Articles of Incorporation provide that, unless we consent in writing to the selection of an alternative forum, to the fullest extent permitted by applicable law, the Eighth Judicial District Court of Clark County, Nevada is the sole and exclusive forum for any or all actions, suits or proceedings, whether civil, administrative or investigative or that asserts any claim or counterclaim: (a) brought in our name or right or on our behalf, (b) asserting a claim for breach of any fiduciary duty owed by any of our current or former directors, officers, stockholders, employees, agents or fiduciaries or its stockholders, (c) for any "internal action" (as defined in NRS 78.046), including any action asserting a claim against us arising pursuant to any provision of NRS Chapters 78 or 92A, any provision of the Amended & Restated Articles of Incorporation or its Amended & Restated Bylaws, any agreement entered into pursuant to NRS 78.365 or as to which the NRS confers jurisdiction on the district court of the State of Nevada, (d) to interpret, apply, enforce or determine the validity of the Amended & Restated Articles of Incorporation or its Amended & Restated Bylaws or (e) governed by the internal affairs doctrine. The choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees. Alternatively, if a court were to find the choice of forum provision contained in the Amended & Restated Articles of Incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business, financial condition and results of operations. +Our governing documents and Nevada law could discourage takeover attempts and other corporate governance changes. +The Amended & Restated Articles of Incorporation and Amended & Restated Bylaws contain provisions that could delay or prevent a change in control of our company. These provisions may also make it difficult for holders of our common stock to elect directors that are not nominated by the current members of our board of directors or take other corporate actions, including effecting changes in our management. These provisions include the following provisions: +• permit the board of directors to establish the number of directors and fill any vacancies and newly created directorships; +• provide that our board of directors is classified into three classes with staggered, three-year terms, and that directors may be removed only by the affirmative vote of the holders of not less than two-thirds of the voting power of the shares then entitled to vote generally in the election of directors, voting together as a single class; +• require super-majority voting to amend certain provisions in our Amended & Restated Articles of Incorporation and Amended & Restated Bylaws; +• authorize the issuance of “blank check” preferred stock that our board of directors could use to implement a stockholder rights plan; +• specify that special meetings of our stockholders can be called only by the affirmative vote of a majority of the entire board of directors; provided, that, until the Sunset Date, special meetings of stockholders shall be called by our Secretary at the request of our Principal Stockholder (as such term is defined in the Amended & Restated Articles); +• provide that the board of directors is expressly authorized to make, alter or repeal our bylaws; +• provide that vacancies on our board of directors may be filled only by a majority of directors then in office, even though less than a quorum or by the sole remaining director; +• prohibit cumulative voting in the election of directors; +• restrict the forum for certain litigation against us to Nevada; +• restrict the forum for certain litigation against us to the federal district courts of the United States; +• reflect the dual class structure of our common stock; and +• establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at annual stockholder meetings. +29 +In addition, after certain events specified in the Amended & Restated Articles of Incorporation, we will be subject to Nevada’s statutes regarding combinations with interested stockholders. These provisions may prohibit large stockholders, in particular, those beneficially owning 10% or more of the voting power of our outstanding voting stock, from merging or otherwise engaging in a "combination" (as defined in the Nevada statutes) with us for a period of time. +If securities or industry analysts do not publish or cease publishing research, or publish inaccurate or unfavorable research, about our business, the price of our Class A Common Stock and its liquidity could decline. +The trading market for our securities may be influenced by the research and reports that securities or industry analysts publish about us or our business, market or competitors. We will not have any control over these analysts. If securities and industry analysts do not cover our company, cease coverage of our company, downgrade our securities, or publish inaccurate or unfavorable research about our business, the market price and trading volume for our securities may be negatively affected. In light of the unpredictability inherent in our anticipated businesses, our financial outlook commentary may differ from analysts’ expectations, which could cause volatility to the price of our securities. +Risks Related to Our Healthcare Business +If we do not successfully implement our healthcare solutions strategy, our business and results of operations will be adversely affected. +In late March 2023, the Centers for Medicare and Medicaid Services (“CMS”) issued a final 2024 rate announcement with payment changes for the Medicare Advantage and Part D prescription drug programs and under which CMS is phasing in a new Medicare Advantage risk adjustment model (2024 model) from the previous model (2020 model) over a three-year period. The 2024 model does not include risk adjusted payments for peripheral artery disease (“PAD”) without complications, which payments many of our customers previously relied upon for their Medicare Advantage patients under the previous 2020 model. In calendar year 2025, only 33% of the 2020 model is available. Such changes in the regulatory landscape for hierarchical condition category (“HCC”) codes has impacted the perceived profitability of using QuantaFlo to aid diagnosis of cardiovascular diseases. We are experiencing and expect to continue to experience decreased usage due to the current CMS reimbursement landscape, which is having a negative effect on our revenues. +Although we believe that various demographics and industry-specific trends, including the aging of the general population, growth of capitated payment programs, numbers of undiagnosed patients with cardiac and vascular or other diseases and the importance of codifying vascular disease and potentially other diseases should drive growth in our healthcare business. However, even with these demographics and trends, if CMS reimbursement landscape remains unfavorable, growth will be limited. If our customers do not receive increased capitated payments for providing care to patients for PAD, it will continue to have a material and adverse effect on our business, financial condition and results of operations. Actual demand for our products and service offerings could differ materially from projected demand if our assumptions regarding these factors prove to be incorrect or do not materialize, or if alternatives to our products or other risk assessment service providers gain widespread acceptance. +To implement our business strategy, we need to (among other things) find new applications for and improve our products and service offerings and educate healthcare providers and plans about the clinical and cost benefits of our products even without CMS reimbursement, or distribute additional products and services that are reimbursable in the current CMS landscape. We may not be successful in these endeavors. We have ceased marketing of QuantaFlo as an aid in the diagnosis of heart dysfunction and there is no guarantee that we will obtain a new FDA 510(k) clearance for the expanded use. Although we have the right from time to time to distribute other third-party products, and recently began distributing FDA-cleared products and services licensed in from a third party, there is no guarantee that we will be successful. For example, although Semler Scientific had a distribution agreement for Insulin Insights from Mellitus, it was not able to generate significant revenue from the arrangement and, in December 2023, Semler Scientific wrote off the entire $2.5 million balance of a prepayment it had made for Insulin Insights software licenses and took a $0.6 million impairment charge on its investment in Mellitus. Additionally, in March 2025, Semler Scientific wrote off the remaining $1.1 million balance (including $0.1 million of accrued interest) of our investment in Mellitus. We may also need to develop or acquire rights to other products and services that would be of interest to our customers given the patient populations they serve. We recently formed a new wholly owned subsidiary, CardioVanta, which focuses on early detection of heart failure and cardiac arrhythmia monitoring. Even if we successfully implement our business strategy, our operating results may not improve or may decline. We may decide to alter or discontinue aspects of our business strategy and may adopt different strategies due to business or competitive factors not currently foreseen, such as new medical technologies that would make our products obsolete or changes in the regulatory landscape that may undermine the economic rationale for QuantaFlo or difficulties in obtaining a new 510(k) clearance, which could cause us to cease efforts to expand the indications for QuantaFlo. Our attempts to alter aspects of our business strategy, such as our prior entry into an exclusive marketing and distribution agreement and our investments in private companies, may not yield positive effects +30 +on our business, results of operations and financial condition. Any delay or failure to implement our business strategy may adversely affect our business, results of operations and financial condition. +We currently market a limited number of FDA-cleared testing products and related services, and may not achieve broad market acceptance or be commercially successful. We may also fail to develop or license in complementary products or distribution agreements for complementary products and our efforts to grow and expand our health care business may not be successful. +We currently actively market a limited number of FDA-cleared testing products and related services, including our proprietary QuantaFlo, and other third-party products and services for which we have a distribution agreement. These and any other products and services we may offer in the future may not gain broad market acceptance unless we continue to educate physicians and plans of their benefits. Moreover, even if insurance plans, home health care providers and physicians understand the benefits of cardiovascular and other risk assessment testing, they still may elect not to use our products for a variety of reasons, such as familiarity with other devices and approaches, or the impact of CMS regulatory revisions. The current CMS regulatory landscape has negatively impacted the perceived profitability of using QuantaFlo to aid in the diagnosis of cardiovascular diseases and use of our product is declining. Aside from the regulatory reimbursement landscape, we may not be successful in gaining market acceptance of a technique measuring comparative blood flows using our proprietary algorithm to indicate flow obstruction as opposed to existing techniques that measure comparative blood pressures using well-accepted criteria to indicate flow obstruction, or imaging techniques that visualize anatomy of the arteries. Providers may also object to renting an examining tool with ongoing monthly payments rather than making a one-time capital purchase or be reluctant to pay monthly fees for tools in the examining room when they have many such tools, such as thermometer and stethoscope that only required one-time minimal purchases. Providers may also not synch their devices as required per their service contracts in the fee-per-test (variable license fees) model, and thus we may not capture all revenue to which we is entitled. If QuantaFlo or other products we offer are not viewed as an attractive alternative to other products, procedures and techniques, we will not achieve significant market penetration or be able to generate significant revenues. To the extent that any products we offer are not commercially successful or are withdrawn from the market for any reason, our revenues will be adversely impacted, and our business, operating results and financial condition will be harmed. +We may also not be able to identify other products or services to grow our healthcare business. Although Semler Scientific had an exclusive marketing and distribution agreement for another product (Insulin Insights), it did not generate meaningful distribution revenues and Semler Scientific wrote off its prepaid licenses and a portion of its investment in December 2023. We have a minority investment in one company but we do not distribute their products. There is a risk that we may never receive repayment of our loans, nor receive any benefit from our equity investment, nor that we will generate meaningful revenues from our existing distribution arrangements. Accordingly, we expect that revenues from QuantaFlo will account for the vast majority of our revenues for the foreseeable future. +Physicians and other customers may not widely adopt our products unless they determine, based on experience, long-term clinical data and published peer reviewed journal articles, that the use of our products provides a safe and effective alternative to other existing ankle-Brachial index (“ABI”) devices. +We believe that physicians and other customers will not widely adopt our vascular testing product or our other products in development or products we distribute unless they determine, based on experience, long-term clinical data and published peer reviewed journal articles, that the use of such product provides a safe and effective alternative to other existing ABI devices. +We cannot provide any assurance that the data collected from our past, current and any future clinical trials will be sufficient to demonstrate that our products are an attractive alternative to other ABI devices or procedures. If we fail to demonstrate safety and efficacy that is at least comparable to other ABI devices that are available on the market, our ability to successfully market our products will be significantly limited. Even if the data collected from clinical studies or clinical experience indicate positive results, each physician’s actual experience with our products will vary. We also believe that published peer-reviewed journal articles and recommendations and support by influential physicians regarding our vascular testing product and our other products in development will be important for market acceptance and adoption, and we cannot assure you that we will receive these recommendations and support, or that supportive articles will be published. Accordingly, there is a risk that our products may not be adopted by many physicians, which would negatively impact our business, financial condition and results of operations. +Moreover, for any complementary products for which we have (or acquire) exclusive distribution rights, we may not be able to convince potential customers of their benefits, and these rights and potential future rights may not generate any meaningful revenues for our company. +31 +If healthcare providers are unable to obtain adequate coverage and reimbursement either for procedures performed using our product or patient care incorporating the use of our product, our product might have difficulty gaining widespread acceptance. +Maintaining and growing revenues from our products and service offerings depends on the availability of coverage and adequate reimbursement from third-party payors, including government programs such as Medicare and Medicaid, private insurance plans and managed care programs. Healthcare providers that use medical devices such as QuantaFlo to test their patients generally rely on third-party payors to pay for all or part of the costs and fees associated with the procedures performed with these devices, or to compensate them for their patient care services. The existence of coverage and adequate reimbursement for the procedures or patient care performed with QuantaFlo by third-party payors is central to the acceptance of QuantaFlo and any future products. During the past several years, third-party payors have undertaken cost-containment initiatives including different payment methods, monitoring healthcare expenditures, and anti-fraud initiatives. We may not be able to return to growing revenues in its healthcare business if third-party payors deny coverage or reduce their current levels of payment, or if our costs of production increase faster than increases in reimbursement levels that spur the use of our product. Further, many private payors use coverage decisions and payment amounts determined by CMS, which administers the Medicare program, as guidelines in setting their coverage and reimbursement policies. Those private payors that do not follow the Medicare guidelines may adopt different coverage and reimbursement policies for procedures or patient care performed with our vascular testing product. Future action by CMS or other government agencies may diminish payments to physicians, outpatient centers and/or hospitals or may undermine the economic rationale for using QuantaFlo if there is no increased capitated payment for the vascular diseases it helps diagnose. For example, the final 2024 CMS rate announcement for Medicare Advantage and Medicare Part D did not include risk-adjusted payments for PAD without complications, which is leading to decreased usage of our product and negatively affecting our revenues. For some governmental programs, such as Medicaid, coverage and reimbursement differ from state to state, and some state Medicaid programs may not pay an adequate amount for the procedures or patient care performed with QuantaFlo if any payment is made at all. As the portion of the U.S. population over the age of 65 and eligible for Medicare continues to grow, we may be more vulnerable to coverage and reimbursement limitations imposed by CMS. Furthermore, the healthcare industry in the United States has experienced a trend toward cost containment as government and private insurers seek to control healthcare costs by imposing lower payment rates and negotiating reduced contract rates with service providers. Therefore, we cannot be certain that the procedures or patient care performed with our product will be reimbursed at a cost-effective level. +QuantaFlo is not specifically approved for reimbursement under any third-party payor codes; if third-party payors refuse to reimburse our customers for their use of our product, it could have a material adverse effect on our business. +QuantaFlo is licensed by healthcare providers. They may bill various third-party payors, including governmental healthcare programs, such as Medicare and Medicaid, private insurance plans and managed care programs for procedures in which our testing product is used. Reimbursement is a significant factor considered by healthcare providers in determining whether to license medical devices or systems such as QuantaFlo. We cannot control whether or not providers who use QuantaFlo will seek reimbursement. Therefore, our ability to successfully commercialize our vascular testing product could depend on the coverage and adequacy of reimbursement from these third-party payors. +Currently, our QuantaFlo device is not specifically approved for any particular reimbursement code. Although some of our customers report being covered and reimbursed by third-party payors for procedures, we have not offered any reimbursement guidance, therefore there is a risk that third-party payors may disagree with the reimbursement under a particular code. We recently settled allegations by DOJ related to incorrect reimbursement relating to testing using our device. In addition, some of our potential customers might have deferred renting our product given the uncertainty regarding reimbursement. We do not track denial of requests for reimbursement made by the users of our product. It is our belief that such denials have occurred and might occur in the future with more or less frequency. Even if our product and procedures are often currently covered and reimbursed by third-party payors and Medicare, problems for customers to receive reimbursement or adverse changes in payors’ coverage and reimbursement policies that affect our product could harm our ability to market our vascular testing product. Obtaining approval for a particular reimbursement code is time consuming and can be costly. Accordingly, at this time, and given the way we intend our QuantaFlo to be used, we do not intend to pursue formal approval for QuantaFlo for any particular code. +Moreover, we are unable to predict what changes will be made to the reimbursement methodologies used by third-party payors. We cannot be certain that under current and future payment systems, in which healthcare providers may be reimbursed a set amount based on the type of procedure performed, such as those utilized by Medicare and in many privately managed care systems, the cost of our product will be justified and incorporated into the overall cost of the procedure. +32 +We do not require our customers to enter into long-term licenses or maintenance contracts for our products or services and may therefore lose customers on short notice. +Our healthcare business is primarily based on a leasing model rather than an outright sale of our products although we also generate variable fee revenues, which are based on usage (fee-per-test). Our pricing is based on data collected on use rates and third-party payment rates to physicians and facilities for the use of our product. We require no down payment, long-term commitment or maintenance contract or fees from our customers and may replace damaged products free of charge in the service model. If we lose current customers on short notice, we may not be able to find new customers to replace them with in a timely manner and that could adversely affect our business, results of operations and financial condition. In addition, our business model of replacing damaged products free of charge may prove to be costly and affect the profitability of our service model. In our fee-per-test model, we rely on our customers to comply with the terms of service that require them to synchronize devices on a regular and routine basis such that we are able to invoice them for the tests done using our device. There is a risk that customers use our device without synching as agreed, which could lead to inadequate billing and failing to capture revenue based on actual usage. Although we have procedures in place to limit usage of our device if it has not synchronized for a period of time, there is no guarantee that our customers will act in compliance with their terms of service and we may not appropriately capture all per-test fees to which we are entitled. +Our healthcare business will need to generate significant revenues to regain profitability. +We will need to generate significant sales or significantly modify expenses to regain profitability in our healthcare business and we might not be able to do so. Recently, a number of our large customers in our healthcare business have notified us that they intend to stop testing with our device, which is negatively impacting our revenues in our healthcare business. Further revenue declines over the quarter are anticipated as other customers cease use of QuantaFlo in light of the CMS reimbursement landscape as well as the recent DOJ settlement. If we are not able to undertake measures to control expenses, we expect that it will experience operating losses in our healthcare business. Even if we do generate significant sales, we might not be able to return to profitability on a quarterly or annual basis in this segment in the future. If our sales continue to decline or grow more slowly than we anticipate or if we are not able to control our operating expenses or such expenses exceed our expectations, our financial performance from our operating healthcare business will likely continue to be adversely affected. +Our future financial performance will depend in part on the successful improvements and software updates to QuantaFlo on a cost-effective basis. +Our future financial performance will depend in part on our ability to anticipate, identify and respond to changing user preferences and needs and the technologies relating to the care and treatment of vascular problems. We can provide no assurances that QuantaFlo will achieve significant commercial success and that it will gain meaningful market share even if the regulatory reimbursement landscape improves. We may not correctly anticipate or identify trends in user preferences or needs or may identify them later than competitors do. In addition, difficulties in manufacturing or in obtaining regulatory approvals may delay or prohibit improvements to QuantaFlo, such as our 510(k) extension for heart dysfunction, or any other products in development. Further, we may not be able to develop improvements and software updates to QuantaFlo at a cost that allows us to meet our goals for profitability. Service costs relating to our product may be greater than anticipated, rentals may be returned prior to the end of the license term, and we may be required to devote significant resources to address any quality issues associated with QuantaFlo. +Failure to successfully introduce, improve or update our products on a cost-effective basis, or delays in customer decisions related to the evaluation of our products could cause us to lose market acceptance and could materially adversely affect our business, financial condition and results of operations. +Because the healthcare industry within which we operate has significant product liability risk, and we may not be sufficiently insured against this risk, we may be subject to substantial claims against our product or services that we may provide. +The development, manufacture and sale, lease or use of products or provision of services in a medical setting entails significant risks of product liability or other negligence or malpractice claims. Although we maintain insurance to cover ourselves in the event of liability claims, and no such claims have been asserted or threatened against us, our insurance may not be sufficient to cover all possible future liabilities regarding our product, or from performing tests with our product or other non-proprietary products. Accordingly, we may not be adequately protected from any liabilities, including any adverse judgments or settlements, we might incur in connection with the development, clinical testing, manufacture and sale, lease or use of our products or the provision of services. A successful product liability or negligence or medical malpractice claim or series of claims brought against us that result in an adverse judgment against or settlement by us in excess of any insurance coverage could seriously harm our financial condition or reputation. Moreover, even if no judgments, fines, damages or liabilities are imposed on us, our reputation could suffer, which could have a material adverse +33 +effect on our business, financial condition and results of operations. In addition, product liability and other malpractice insurance is expensive and may not always be available to us on acceptable terms, if at all. +We may implement a product recall or voluntary market withdrawal or stop shipment of our product due to product defects or product enhancements and modifications, which would significantly increase our costs. +The manufacturing and marketing of QuantaFlo and any future products that we may develop involves an inherent risk that our products may prove to be defective. In that event, we may voluntarily implement a recall or market withdrawal or stop shipment or may be required to do so by a regulatory authority. A recall of QuantaFlo or one of our future products, or a similar product manufactured by another manufacturer, could impair sales of the products we market as a result of confusion concerning the scope of the recall or as a result of the damage to our reputation for quality and safety. Further, any product recall, voluntary market withdrawal or shipment stoppage of our product could significantly increase our costs and have a material adverse effect on our business. +Risks Related to Our Healthcare Legal and Regulatory Environment +Our healthcare business is subject to many laws and government regulations governing the manufacture and sale of medical devices, including the FDA’s 510(k) clearance process, and laws and regulations governing patient data and information, among others. +Our vascular testing product and any future medical devices that we may develop or services that we may offer are subject to extensive regulation in the United States by the federal government, including by the FDA. For example, our operations are subject to regulations governing packaging and labeling requirements, adverse event reporting, quality system and manufacturing requirements, clinical testing and recalls. We cannot assure that any new medical devices or new uses or modifications for QuantaFlo that we develop, including our planned 510(k) for the use of QuantaFlo to enable expanded labeling as an aid in the diagnosis of other cardiovascular diseases in addition to PAD, will be cleared or approved in a timely or cost-effective manner, if cleared or approved at all. Even if such clearances or approvals are received, they may not be for all indications. Because medical devices may only be marketed for cleared or approved indications, this could significantly limit the market for that product and may adversely affect our results of operations. +Furthermore, although QuantaFlo has received FDA clearance, we must make our own determination regarding whether a modification to the device requires a new clearance. For example, we are seeking a new 510(k) clearance from the FDA for the expanded use of QuantaFlo intended to enable expanded labeling as an aid in the diagnosis of other cardiovascular diseases in addition to PAD. We cannot guarantee that the FDA will agree with our decisions not to seek clearances for particular device modifications or that we will be successful in obtaining 510(k) clearances for modifications. Any such additional clearance processes with the FDA could delay our ability to market a modified product and may adversely affect our results of operations. We also may need to undertake a recall of any modified product that has been distributed. +The FDA may change its policies, adopt additional regulations, or revise existing regulations, in particular relating to the 510(k) clearance process. +The FDA may change its policies, adopt additional regulations, or revise existing regulations, each of which could prevent or delay premarket approval or 510(k) clearance of a device, or could impact our ability to market our currently cleared device. For example, in February 2024, the FDA published a final rule to amend its quality system regulation requirements to align more closely with the international consensus standards for medical devices by converging with quality management system, requirements used by other regulatory authorities from other countries. Specifically, the final rule does so primarily by incorporating by reference the 2016 edition of the International Organization of Standardization (“ISO”), ISO 13485 standard. The amended regulation is referred to as the Quality Management System Regulation, and became effective February 2026. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing authorization that we may have obtained, which could have a material adverse effect on our business, prospects, results of operations, financial condition and our ability to achieve or sustain profitability. Further, future reforms could require us to file new 510(k)s and could increase the total number of 510(k)s to be filed. We cannot predict what effect these reforms will have on our ability to obtain 510(k) clearances in a timely manner. We also cannot predict the nature of other regulatory reforms and their resulting effects on our business. +Our business is subject to unannounced inspections by the FDA to determine our compliance with FDA requirements. +FDA inspections can result in inspectional observations on FDA’s Form-483, warning letters, untitled letters or other forms of more significant enforcement action. More specifically, if the FDA concludes that we are not in compliance with applicable laws or regulations, or that our vascular testing product or any future medical device we develop is ineffective or poses an unreasonable health risk, the FDA could: +34 +• require us to notify health professionals and others that our devices present unreasonable risk of substantial harm to public health; +• order us to recall, repair, replace or refund the cost of any medical device that we manufactured or distributed; +• detain, seize or ban adulterated or misbranded medical devices; +• refuse to provide us with documents necessary to export our product; +• refuse requests for 510(k) clearance or premarket approval of new products or new intended uses; +• withdraw the premarket approvals we may receive or reclassify our device; +• impose operating restrictions, including requiring a partial or total shutdown of production; +• enjoin or restrain conduct resulting in violations of applicable law pertaining to medical devices; and/or +• assess criminal or civil penalties against our officers, employees or us. +Following correspondence from the FDA questioning our reliance on letters-to-file for the expansion into heart dysfunction, we are now seeking a new 510(k) clearance from the FDA for the expanded use of QuantaFlo to enable expanded labeling. If the FDA concludes that we failed to comply with any regulatory requirement during an inspection or otherwise, it could have a material adverse effect on our business and financial condition. We could incur substantial expense and harm to our reputation, and our ability to introduce new or enhanced products in a timely manner could be adversely affected. +If we are found to have improperly promoted our products for off-label uses, we may become subject to significant fines and other liability. +The FDA and other regulatory agencies strictly regulate the promotional claims that may be made about medical devices. For example, devices cleared under section 510(k) cannot be marketed for any intended use that is outside of the FDA’s substantial equivalence determination for such devices. Physicians nevertheless may use our products on their patients in a manner that is inconsistent with the intended use cleared by the FDA. If we are found to have promoted such “off-label” uses, we may become subject to significant government fines and other related liability. The federal government has levied large civil and criminal fines against companies for alleged improper promotion and has enjoined several companies from engaging in off-label promotion. The FDA has also requested that companies enter into consent decrees or permanent injunctions under which specified promotional conduct is changed or curtailed. +Although part of our business strategy is based on payment provisions enacted under government healthcare reform, we also face significant uncertainty in the industry regarding the implementation, transformation or repeal and replacement of the Health Care Reform Law. +Political, economic and regulatory influences are subjecting the healthcare industry to fundamental changes. For example, the Health Care Reform Law brought a new way of doing business for providers and health insurance plans, shifting the focus from fee for service programs to capitated programs that pay a monthly fee per patient. The Health Care Reform law also provided for higher risk factor adjustment payments for sicker patients who have conditions that are codified, as well as economic benefits for achieving certain quality of care measurements. +We believe that the Health Care Reform Law measures are mainly positive for our business given the ability of QuantaFlo to measure blood flow in an in-office setting, which can assist doctors and other providers to suspect PAD and other vascular diseases. However, we cannot predict what changes will now be made, and if these features will be repealed. For example, the 2024 final rate announcement from CMS removed incentives for our customers to screen for asymptomatic PAD. If the CMS reimbursement landscape changes again, or if the Health Care Reform Law is changed or repealed altogether without a comparable replacement, such that there are no incentives for identifying sicker patients, it would negatively affect our business prospects and strategy, and could materially adversely affect our healthcare business, financial condition and results of operations. +Further, the Health Care Reform Law encourages hospitals and physicians to work collaboratively through shared savings programs, such as accountable care organizations, as well as other bundled payment initiatives, which may ultimately result in the reduction of medical device acquisitions and the consolidation of medical device suppliers used by hospitals and health systems. Changes to or repeal of the Health Care Reform Law could adversely affect our financial results and business. +We are subject to various healthcare fraud and abuse laws and regulations, recently entered into a settlement agreement with DOJ relating to a qui tam action under the False Claims Act, ad is now subject to additional litigation and risk relating to the DOJ matter and disclosures regarding the same. +We are subject to various healthcare fraud and abuse laws and regulations. We have been and may be subject to liability under such laws and may also be subject to liability for any future conduct that is deemed by the government or the +35 +courts to violate these laws, including significant administrative, criminal and civil penalties, damages, fines, disgorgement, imprisonment, exclusion from participation as a supplier of product to beneficiaries covered by Medicare or Medicaid, additional reporting obligations and oversight if subject to a corporate integrity agreement or other agreement to resolve allegations of non-compliance with these laws, contractual damages, reputational harm, diminished profits and future earnings, and curtailment or restructuring of operations. +Additionally, the government has continued to pursue an increasing number of enforcement actions. This increased enforcement environment may increase scrutiny of our company, directly or indirectly, and could increase the likelihood of an enforcement action targeting our company, either due to our actions, those of any distributor (including our former distributor), or our customers or those of our distributors. These customers include parties that bill Federal healthcare programs for use of our product or for caring for patients with conditions diagnosed with the aid of our product, all of whom may be subject to government scrutiny. The federal False Claims Act provides for treble damages and per-claim penalties. For example, the DOJ investigated Semler Scientific for improper reimbursement of claims for testing using our QuantaFlo device, which led to the entry into a $29.8 million settlement agreement in September 2025. Semler Scientific also entered into a corporate integrity agreement with the Department of Health and Human Services (“HHS”) in connection with the settlement. Our settlement with DOJ also exposes us to risk of other litigation. Notably, a purported class action lawsuit was filed in late August 2025 relating to our disclosures regarding the DOJ investigation. In addition, to the extent that our customers, many of whom are providers, may be affected by this increased enforcement environment, or cease to do business with us as a result of the reputational harm caused by the DOJ settlement or additional requirements imposed by the HHS corporate integrity agreement, our business could correspondingly be affected. It is possible that a review of our business practices or those of our customers by courts or government authorities could result in a determination with an adverse effect on our business. We cannot predict the effect of possible future enforcement actions on our business. +Disruptions at the FDA and other government agencies caused by the change in presidential administration, funding shortages or potential funding shortages could hinder their ability to hire and retain key leadership and other personnel, prevent new products and services from being developed or commercialized in a timely manner, or otherwise prevent those agencies from performing normal business functions, which could negatively impact our business and our timelines. +The ability of the FDA to review and clear or approve new products can be affected by a variety of factors, including government budget and funding levels, ability to hire and retain key personnel and accept the payment of user fees, shifting policy priorities as a result of changes in the Presidential administration and political appointees tasked to oversee the agency, and statutory, regulatory, and policy changes. Average review times at the agency have fluctuated in recent years as a result. In addition, government funding of other government agencies on which our operations may rely is subject to the impacts of political events, which are inherently fluid and unpredictable. +Disruptions at the FDA and other agencies may slow the time necessary for review and approval (including our expanded indication for QuantaFlo), which could adversely affect our business. For example, over the last several years, the U.S. government has shut down several times and certain regulatory agencies, such as the FDA, have had to furlough critical FDA and other government employees and stop critical activities. Prolonged government shutdown could significantly impact the ability of the FDA to timely review and process our submissions, which could have a material adverse effect on our business and our timelines. +Risks Related to Our Healthcare Intellectual Property +Our healthcare business largely depends on our ability to obtain and protect the proprietary information on which we base our product. +Our healthcare business depends in large part upon our ability to establish and maintain the proprietary nature of our technology through the patent process, as well as our ability to license from others’ patents and patent applications necessary to develop our product. If our patent or any future patents are successfully challenged, invalidated or circumvented, or our right or ability to manufacture our product was to be limited, our ability to continue to manufacture and market our product could be adversely affected. In addition to patents, we rely on trade secrets and proprietary know-how, which we seek to protect, in part, through confidentiality and proprietary information agreements. The other parties to these agreements may breach these provisions, and we may not have adequate remedies for any breach. Additionally, our trade secrets could otherwise become known to or be independently developed by competitors. +As of December 31, 2025, Semler Scientific has been issued, or has rights to, one U.S. patent (which expires on December 11, 2027) (prior to the Semler Scientific Merger). The patent we and our consolidated subsidiaries hold may be successfully challenged, invalidated or circumvented, or we and our consolidated subsidiaries may otherwise be unable to rely on this patent. These risks are also present for the process we use for manufacturing our product. In addition, our +36 +competitors, many of whom have substantial resources and have made substantial investments in competing technologies, may apply for and obtain patents that prevent, limit or interfere with our ability to make, use and sell our product, either in the United States or in international markets. The medical device industry has been characterized by extensive litigation regarding patents and other intellectual property rights. We may institute, become party to, or be threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to our product and technology, including interference or derivation proceedings before the U.S. Patent and Trademark Office (“USPTO”). Third parties may assert infringement claims against us based on existing patents or patents that may be granted in the future. If we are found to infringe a third party’s intellectual property rights, we could be required to obtain a license from such third party to continue developing and marketing our product and technology. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. We could be forced, including by court order, to cease commercializing the infringing technology or product. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we are found to have willfully infringed a patent. A finding of infringement could prevent us from commercializing our product or force us to cease some of our business operations, which could materially harm our business. Claims that we have misappropriated the confidential information or trade secrets of third parties could have a similar negative impact on our business. The defense and prosecution of intellectual property suits, USPTO proceedings and related legal and administrative proceedings are both costly and time consuming. Any litigation or interference proceedings involving us may require us to incur substantial legal and other fees and expenses and may require some of our employees to devote all or a substantial portion of their time to the proceedings. +We may need to license intellectual property from third parties, and such licenses may not be available or may not be available on commercially reasonable terms. +A third party may hold intellectual property, including patent rights that are important or necessary to the development of our vascular testing product or any future products. It may be necessary for us to use the patented or proprietary technology of a third party to commercialize our own technology or products, in which case we would be required to obtain a license from such third party. A license to such intellectual property may not be available or may not be available on commercially reasonable terms, which could have a material adverse effect on our business and financial condition. +We may be subject to claims by third parties asserting that our employees or we have misappropriated their intellectual property, or claiming ownership of what we regard as our own intellectual property. +Although we try to ensure that we and our employees and independent contractors do not use the proprietary information or know-how of others in their work for our company, we may be subject to claims that we or that our employees or independent contractors have used or disclosed intellectual property in violation of the rights of others. These claims may cover a range of matters, such as challenges to our trademarks, as well as claims that our employees or independent contractors are using trade secrets or other proprietary information of any such employee’s former employer or independent contractors. Although we do not expect the resolution of the proceeding to have a material adverse effect on our business or financial condition, litigation to defend itself against claims can be both costly and time consuming, and divert management’s attention away from growing our business. +In addition, while it is our policy to require our employees and independent contractors who may be involved in the development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who in fact develops intellectual property that we regard as our own. Our and their assignment agreements may not be self-executing or may be breached, and we may be forced to bring claims against third parties, or defend claims they may bring against us, to determine the ownership of what we regard as our intellectual property. +If we fail in prosecuting or defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in prosecuting or defending against such claims, litigation could result in substantial costs and be a distraction to management. +If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed. +In addition to seeking patents for some of our technology and product, we also rely on trade secrets, including unpatented know-how, technology and other proprietary information, to maintain our competitive position. We seek to protect these trade secrets, in part, by entering into non-disclosure and confidentiality agreements with parties who have access to them, such as our employees, corporate collaborators, outside scientific collaborators, contract manufacturers, consultants, advisors and other third parties. We also generally enter into confidentiality and invention or patent assignment agreements with our employees and consultants. Despite these efforts, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for +37 +such breaches. Enforcing a claim that a party infringed a patent or illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside the United States are less willing or unwilling to protect trade secrets. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent them, or those to whom they communicate it, from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor, our competitive position would be harmed. +Risks Related to Our Preferred Stock +Although our SATA Stock is senior to our Class A Common Stock and Class B Common Stock, it is junior to our existing and future indebtedness, structurally junior to the liabilities of our subsidiaries and subject to the rights and preferences of any other class or series of preferred stock then outstanding. +If we liquidate, dissolve or wind up, whether voluntarily or involuntarily, then our assets will be available to distribute to our equity holders, including holders of our SATA Stock, our Class A Common Stock and our Class B Common Stock, only if all of our then-outstanding indebtedness is first paid in full. The remaining assets, if any, would then be allocated among the holders of our equity securities in accordance with their respective liquidation rights. If we issue any liquidation senior stock in the future, then we would be required to pay the amounts due on such liquidation senior stock in full before making any payments on our SATA Stock or common stock. If any assets remain after any liquidation senior stock is paid in full, those assets will be distributed pro rata among holders of our SATA Stock and any other liquidation parity stock then outstanding. There may be insufficient remaining assets available to pay the liquidation preference and any accumulated and unpaid dividends on our SATA Stock in which case holders of our common stock would not receive any value for their shares. If we issue any dividend senior stock in the future, such dividend senior stock could contain provisions that prohibit us from paying accumulated dividends on our SATA Stock, or from purchasing, redeeming or acquiring our SATA Stock until and unless we first pay accumulated dividends in full on such dividend senior stock. As of March 17, 2026, we had no consolidated indebtedness outstanding, with the exception of $10.0 million aggregate principal amount of our Semler Convertible Notes (as defined below), which we assumed from Semler Scientific. Additionally, as of March 17, 2026, there were no shares of dividend parity stock or liquidation parity stock outstanding. Our indebtedness ranks senior to our SATA Stock. Our indebtedness ranks senior to our SATA Stock. As of March 17, 2026, there were 59,286,628 shares of Class A Common Stock issued and outstanding and 9,872,157 shares of Class B Common Stock issued and outstanding, all of which rank junior to our SATA Stock. The shares of Class A Common Stock as of March 17, 2026 do not include 9,872,157 shares of Class B Common Stock that are issued and outstanding and 531,888,702 unexercised traditional warrants to purchase 26,594,435 shares of Class A Common Stock, in each case issued and outstanding as of March 17, 2026. +In addition, our subsidiaries have no obligation to pay any amounts on our SATA Stock. If any of our subsidiaries liquidates, dissolves or winds up, whether voluntarily or involuntarily, then we, as a direct or indirect common equity owner of that subsidiary, will be subject to the prior claims of that subsidiary’s creditors, including trade creditors and preferred equity holders. We may never receive any amounts from that subsidiary, and, accordingly, the assets of that subsidiary may never be available to make payments on our SATA Stock. +Our right to unilaterally reduce the regular dividend rate could cause our SATA Stock to accumulate dividends at rates that are below those of otherwise comparable instruments, could cause the trading price or value of our SATA Stock to decrease, and could otherwise significantly harm investors. +Our SATA Stock accumulates cumulative regular dividends on the stated amount thereof at a variable rate per annum equal to the monthly regular dividend rate per annum. The monthly regular dividend rate per annum was initially set at 12.00%. However, we have the right, in our sole and absolute discretion, to adjust the monthly regular dividend rate per annum that applies to each regular dividend period that begins after the first regular dividend period. For example, most recently, on March 11, 2026, we announced an increase to the monthly regular dividend rate per annum on SATA Stock from 12.50% to 12.75%, effective for monthly periods commencing on or after March 16, 2026. Our right to adjust the monthly regular dividend rate per annum is subject to certain restrictions. For example, we are not permitted to reduce the monthly regular dividend rate per annum that applies to any regular dividend period (i) by more than the following amount from the monthly regular dividend rate per annum applicable to the prior regular dividend period: the sum of (1) 25 basis points; and (2) the excess, if any, of (x) the monthly secured overnight financing rate ("SOFR") per annum on the first business day of such prior regular dividend period, over (y) the minimum of the monthly SOFR per annum rates that occur on the business days during the period from, and including, the first business day of such prior regular dividend period to, and including, the last business day of such prior regular dividend period; or (ii) to a rate per annum that is less than the monthly SOFR per annum in effect on the business day before we provide notice of the next regular dividend rate. In addition, we are not entitled to reduce the monthly regular dividend rate per annum unless, at the time we provide the related notice of the adjustment, all accumulated regular dividends, if any, on our SATA Stock then outstanding for all +38 +prior completed regular dividend periods, if any, have been paid in full (or have been declared in full and consideration in kind and amount that is sufficient, in accordance with the certificate of designation, to pay such accumulated regular dividends, is set aside for the benefit of the preferred stockholders entitled thereto). +Our current intention, which is subject to change in our sole and absolute discretion, is to adjust the monthly regular dividend rate per annum in such a manner as we believe will maintain SATA Stock’s trading price within its stated long-term range of $99 and $101 per share. We may, at any time in our sole and absolute discretion, and without the consent of any preferred stockholder, choose to reduce the monthly regular dividend rate per annum to the maximum extent permitted by the terms of our SATA Stock, without regard to the impact that reduction may have on the trading price or value of our SATA Stock. +If we reduce the monthly regular dividend rate per annum, then the trading price or value of our SATA Stock could decrease significantly. If you hold SATA Stock at the time of such a decrease, the value of your investment could materially depreciate, and you may not be able to resell your SATA Stock at favorable prices, if at all. Moreover, the mere existence of our right to unilaterally reduce the monthly regular dividend rate per annum could, in itself and without any actual reduction in the monthly regular dividend rate per annum, cause our SATA Stock to trade at prices below those that may otherwise be expected. +Notwithstanding the limitations on our ability to reduce the monthly regular dividend rate per annum, the trading price of SATA Stock could decline significantly if, for example, we reduce the dividend rate in successive regular dividend periods, or there is a market expectation that we do so. Further, consecutive monthly reductions of the regular dividends rate on our SATA Stock may cause the regular dividend rate on SATA Stock to be viewed as reasonably expected to decline, which could result in adverse consequences to holders of SATA Stock. See “Risk Factors—The tax rules applicable to “fast-pay stock” could result in adverse consequences to holders of SATA Stock” below. If we reduce the monthly regular dividend rate per annum to the minimum dividend rate of the monthly SOFR per annum, and the monthly SOFR per annum thereafter increases, we have no obligation to increase the monthly regular dividend rate per annum to the new monthly SOFR per annum. Moreover, SOFR has a limited history, and its future performance cannot be predicted. +Despite our current intention, which is to adjust the monthly regular dividend rate per annum in such a manner as we believe will maintain SATA Stock’s trading price within its stated long-term range of $99 and $101 per share, since we are permitted to exercise our right to adjust the monthly regular dividend rate per annum for any reason, the trading price of our SATA Stock could be significantly volatile. For example, we could choose to adjust the monthly regular dividend rate per annum for reasons not directly related to the market value of our bitcoin holdings or the interest rate environment. Accordingly, the trading profile of our SATA Stock could be significantly different than that of our other securities. Increased volatility could harm investors by, for example, causing wide fluctuations in the implied yield of our SATA Stock and otherwise increasing the uncertainty regarding the price at which investors may resell their SATA Stock, if at all. +Certain provisions of our SATA Stock are intended to protect investors in the event we fail to declare and pay regular dividends on our SATA Stock. These provisions include restrictions on our ability to make payments on, or engage in certain other transactions relating to, other classes of our capital stock that rank junior to, or on parity with, our SATA Stock. Our ability to reduce the monthly regular dividend rate per annum could cause these provisions to be inadequate to protect investors. For example, we could reduce the monthly regular dividend rate per annum to a sufficiently low rate that permits us to pay all accumulated regular dividends and avoid invoking the protective measures of these provisions. +We may not have sufficient funds to pay dividends in cash on our SATA Stock, or we may choose not to pay dividends on our SATA Stock. In addition, regulatory and contractual restrictions may prevent us from declaring or paying dividends on our SATA Stock. +Concurrent with the closing of our registered initial public offering of our SATA Stock on November 10, 2025 (the “IPO Closing”), we established an initial dividend reserve in an amount equal to the first 12 months of dividend payments (which assumed dividend payments at a rate of 12.00% per annum) calculated as of the date of the IPO Closing (the “Initial Dividend Reserve”) and deposited $12.00 per share of SATA Stock into a separate account (the “Dividend Payment Account”) funded by us with existing cash on hand. Concurrent with the closing of our registered follow-on public offering of our SATA Stock on January 27, 2026 (the “Follow-On Closing”), we increased the dividend reserve in the Dividend Payment Account in an amount equal to the first 12 months of dividend payments (assuming dividend payments are made at a rate of 12.25% per annum) calculated as of the date of the Follow-On Closing and deposited $12.25 per share of SATA Stock sold in such offering into the Dividend Payment Account (such amount, together with the Initial Dividend Reserve, the “Dividend Reserve”). We have increased regular dividends on SATA Stock, most recently from 12.50% to 12.75% per annum for the monthly period commencing on or after March 16, 2026. Subject to compliance with Nevada law and any other applicable requirements, we may make dividend distributions from the Dividend Payment Account or from any other account maintained by us to the holders of the then-outstanding SATA Stock on a monthly basis. +39 +Our ability to declare and pay cash dividends on our SATA Stock will depend on many factors, including the following: +• our financial condition, including the amount of cash we have on hand; +• the amount of cash, if any, generated by our operations and financing activities (including our ability to raise additional capital from the equity capital markets on favorable terms or at all); +• our anticipated financing needs, including the amounts needed to service our indebtedness or other obligations, which may be impacted by our ability to sell equity which is reliant on maintaining effective registration statements, certain market conditions, such as sufficient liquid trading volume for our stock, the market price of our securities, the value of our bitcoin holdings, investor sentiment and the general public perception of bitcoin, our strategy and our value proposition; +• the degree to which we decide to reinvest any cash generated by our operations or financing activities to fund our future operations; +• the ability of our subsidiaries to distribute funds to us; +• regulatory restrictions on our ability to pay dividends, including under the NRS; +• our ability to sell equity securities under existing or new at-the-market offering programs; and +• contractual restrictions on our ability to pay dividends. +In addition, our board of directors or any duly authorized committee thereof may choose not to pay accumulated dividends on our SATA Stock for any reason. Accordingly, we may pay less than the full amount of accumulated dividends on our SATA Stock. In addition, if we fail to declare and pay accumulated dividends on our SATA Stock in full, then the value of the SATA Stock, as well as our Class A Common Stock will likely decline. +Provisions contained in the instruments governing our future indebtedness may restrict or prohibit us from paying cash dividends on our SATA Stock. If the terms of our indebtedness restrict or prohibit us from paying dividends, then we may seek to refinance that indebtedness or seek a waiver that would permit the payment of dividends. However, we may be unable or may choose not to refinance the indebtedness or obtain a waiver. +Under the NRS 78.288(2)(b), we may declare dividends on our SATA Stock if, after giving each dividend effect, we are able to pay our debts as they become due in the usual course of business and our total assets would be more than the sum of our total liabilities plus the amount that would be needed, if we were to be dissolved immediately after the time of the dividend, to satisfy the preferential rights upon such dissolution of holders of shares of any class or series of our capital stock having preferential rights superior to those receiving the dividend. +If we fail to declare and pay full dividends on our SATA Stock, then we will be prohibited from paying dividends on our Class A Common Stock and any other junior securities, subject to limited exceptions. Further, no dividends may be declared or paid on any class or series of dividend parity stock, unless regular dividends are simultaneously declared on our SATA Stock on a pro rata basis . +We have not engaged an escrow or independent third-party agent to manage the distribution of dividends of our SATA Stock, including dividends from the Dividend Payment Account, nor entered into an escrow agreement or other similar arrangement. +We have not engaged, and do not intend to engage, an escrow or independent third-party agent to manage the distribution of dividends of our SATA Stock, including dividends from the Dividend Payment Account, nor entered into, and do not intend to enter into, an escrow agreement or other similar arrangement. While we intend to manage the distribution of dividends in good faith, there will not be independent custodianship of the funds allocated for distribution to the holders of SATA Stock as dividends, which may result in the mismanagement or misallocation of such funds. In addition, the absence of an escrow or independent third-party agent imposes additional operational and administrative burdens on senior management, and holders of SATA Stock may experience delayed or incorrect distributions of their dividends. +Our SATA Stock has only limited voting rights. +Our SATA Stock confers no voting rights except with respect to certain dividend arrearages, certain amendments to the terms of our SATA Stock and certain other limited circumstances, and except as required by the NRS. Holding our SATA Stock does not confer the right to vote together with holders of our Class A Common Stock on matters on which our holders of Class A Common Stock are entitled to vote. For example, holders of our SATA Stock, as such, do not have the right to vote in the general election of our directors, although those holders will have a limited right, voting together with holders of any voting parity stock, if any, with similar voting rights regarding the election of directors upon a failure to pay dividends, which similar voting rights are then exercisable, to elect one director upon the occurrence of a “regular dividend +40 +non-payment event.” For the full terms of our SATA Stock, see Item 1 to the Form 8-A we filed with the SEC on November 7, 2025. However, because certain existing holders of Strive, including Vivek Ramaswamy, by virtue of our dual-class structure, control a majority of the voting power of our common stock, the impact of any such election may be limited. Accordingly, the voting provisions of our SATA Stock may not afford meaningful protections. +Without the consent of any holder of our SATA Stock or Class A Common Stock, we may issue preferred stock in the future that ranks equally with our SATA Stock with respect to dividends and liquidation rights, which may adversely affect the rights of preferred and common stock stockholders. +Without the consent of any holder of SATA Stock or Class A Common Stock, we may authorize and issue preferred stock (including additional SATA Stock) that ranks equally with our SATA Stock with respect to the payment of dividends and other distributions or the distribution of assets upon our liquidation, dissolution or winding up. If we issue any such equally ranked preferred stock in the future, the rights of holders of our SATA Stock and our Class A Common Stock will be diluted and the value of our SATA Stock and Class A Common Stock may decline. For example, if we issue any dividend parity stock in the future, no dividends may be declared or paid on the SATA Stock unless regular dividends are simultaneously declared on any dividend parity preferred stock on a pro rata basis. The issuance of any preferred stock in the future would also have the effect of further subordinating our Class A Common Stock. +The terms of our SATA Stock will not impose any contractual restrictions on our use of the Dividend Payment Account and the Dividend Payment Account could be subject to the claims of creditors. +Concurrent with the IPO Closing, we established a Dividend Payment Account to hold the Dividend Reserve for dividend distributions payable to the holders of our then-outstanding SATA Stock. However, the terms of our SATA Stock do not impose any contractual restrictions or limit our discretion on how we may use the funds in the Dividend Payment Account, nor grant any liens or contractual rights in favor of the holders of our SATA Stock over such funds. For example, we are permitted to invest the proceeds of the Dividend Payment Account in various capital preservation instruments, including short-term investment grade, interest-bearing securities, and money-market funds. We expect that any investment income earned from the Dividend Payment Account will be remitted to us to use for working capital or general corporate purposes, including the acquisition of additional bitcoin. In addition, we are not contractually required to increase our contributions to the Dividend Payment Account if the dividend rate increases above 12.25% or if we issue additional SATA Stock. In the event we experience any insolvency issues and/or file for bankruptcy, the proceeds held in the Dividend Payment Account could be subject to the claims of creditors. +The condition of the financial markets, prevailing interest rates and other factors could significantly affect the trading price of our SATA Stock. +The condition of the financial markets and changes in prevailing interest rates can have an adverse effect on the trading price of our SATA Stock. For example, prevailing interest rates have fluctuated in the past and are likely to fluctuate in the future, and we would expect an increase in prevailing interest rates to depress the trading price of our SATA Stock. An increase in short- or long-term interest rates, including as a result of a rise in actual or expected inflation, could cause the trading price of our SATA Stock to fall significantly. +Future sales, or the perception of future sales, of our Class A Common Stock, our debt instruments, our SATA Stock, or other classes or series of liquidation parity stock or dividend parity stock could depress the trading price of our listed securities. +We may issue and sell additional shares of Class A Common Stock, shares of SATA Stock, notes, or other classes or series of liquidation parity stock or dividend parity stock in subsequent offerings to raise capital, or may issue such securities for other purposes, including in connection with the acquisition of additional bitcoin. We cannot predict the size and terms of future issuances of such securities or the effect, if any, that future issuances and sales of such securities will have on the trading price of our listed securities. +Transactions involving newly issued Class A Common Stock, debt, SATA Stock, or other series of liquidation parity stock or dividend parity stock could result in a decrease in the trading price of our Class A Common Stock and our SATA Stock. +We may be unsuccessful in achieving, or may abandon, our current intention of adjusting the regular dividend rate on our SATA Stock in such a manner as we believe (in our sole and absolute judgment) would be designed to cause the SATA Stock to trade at prices, or otherwise have a value, within its targeted long-term trading range of $99 and $101 per share. +Our current intention, which is subject to change in our sole and absolute discretion, is to adjust the monthly regular dividend rate per annum on our SATA Stock in such a manner as we believe will maintain SATA Stock’s trading price within its stated long-term range of $99 and $101 per share. However, we have no obligation to do so, and even if we +41 +attempt to achieve our current stated intent, any adjustments we make to the monthly regular dividend rate per annum, or any other actions we take, may fail to achieve or maintain a long-term trading level for the SATA Stock between $99 and $101 per share. For example, if the SATA Stock is trading at a price per share above $101 and we reduce the monthly regular dividend rate per annum with the goal of decreasing the trading price per share of the SATA Stock, such reduction may cause the trading price of the SATA Stock to decrease by a greater amount than we anticipate. +Similarly, if the SATA Stock is trading at a price per share below $99 and we increase the monthly regular dividend rate per annum with the goal of increasing the trading price per share of the SATA Stock, such increase may cause the trading price of the SATA Stock to increase by a lesser amount than we anticipate. +Further, for any additional shares of SATA Stock that we issue (whether in an “at-the-market” or similar offering) in the future, our current intention (which is subject to change in our sole and absolute discretion) is to issue any such shares of SATA Stock at a price per share not less than $99 or more than $110. However, we may issue any additional shares of SATA Stock (whether in an “at-the-market” or similar offering) at any price we choose. +Like any other security, the trading price or value of our SATA Stock will depend on a wide range of factors, including those described elsewhere in this “Risk Factors” section , many of which are beyond our control. While we expect that the dividend rate on the SATA Stock will directly impact its trading price or value, there are many other factors that could have equal or more significant impacts. Any adjustment we make to the monthly regular dividend rate per annum on our SATA Stock that is designed to achieve a specified trading price or value will, necessarily, be based on assumptions regarding those other factors. These assumptions will always be inaccurate or incomplete to some degree, and potentially to a material extent. Moreover, even if such an adjustment initially achieves a specified trading price or value, the trading price or value may fluctuate significantly throughout the relevant regular dividend period before we have an opportunity to adjust the monthly regular dividend rate per annum for the next regular dividend period. +Importantly, the mere existence of our right to unilaterally adjust the monthly regular dividend rate per annum will impact the trading price and value of the SATA Stock. Specifically, we expect the trading price of the SATA Stock at any time to reflect the market’s expectations at that time regarding how we will exercise this right in the foreseeable future. Comments we make regarding our intentions regarding the adjustment of the monthly regular dividend rate per annum could also impact the trading price and value of the SATA Stock. Modeling the impact of market expectations on the trading price of the SATA Stock may be impossible. For example, if we increase, or announce an intention to increase, the monthly regular dividend rate per annum, then the trading price of the SATA Stock may in fact decrease if the market expected us to make a larger increase. +From time to time, we may publicly disclose our expected policies regarding adjustments to the monthly regular dividend rate per annum of the SATA Stock. These disclosures may include specific numerical frameworks setting forth the amount of any change to the monthly regular dividend rate per annum that we intend to make based on the trading price of the SATA Stock or other metrics. In all cases, these disclosures refer only to our current intent as of the time of the applicable disclosure; they are neither a guarantee that the SATA Stock will trade at a specified price in response to any changes to the monthly regular dividend rate per annum, nor a guarantee that we will make any specific adjustment to the monthly regular dividend rate per annum. Moreover, we are free to abandon our stated intent, as described above, or any policies or frameworks that we may subsequently disclose publicly, at any time in our sole and absolute discretion and without the consent of any preferred stockholder. See “Risk Factors—Risks Related to Our Preferred Stock—Our right to unilaterally reduce the regular dividend rate could cause our SATA Stock to accumulate dividends at rates that are below those of otherwise comparable instruments, could cause the trading price or value of our SATA Stock to decrease, and could otherwise significantly harm investors” above. +Holders of our SATA Stock may be treated as receiving deemed distributions, and consequently may be subject to tax with respect to our SATA Stock under certain circumstances, even though no corresponding distribution of cash has been made. +Under Section 305 of the Internal Revenue Code of 1986, as amended (the “Code”), holders of our SATA Stock may be treated as receiving a deemed distribution on our SATA Stock under certain circumstances, including (i) an increase in the liquidation preference of our SATA Stock, (ii) if our SATA Stock is issued at a discount or (iii) if we can call the SATA Stock at a price above its issue price. The liquidation preference of the SATA Stock is subject to adjustment in the manner described in Item 1 to the Form 8-A we filed with the SEC on November 7, 2025, which adjustment may result in an increase in the liquidation preference. In addition, if our board of directors does not declare a dividend on our SATA Stock in respect of any dividend period before the related dividend payment date, the deferred dividend may be treated as an increase in the liquidation preference of our SATA Stock. In either case, any increase in the liquidation preference could give rise to a deemed dividend to holders of our SATA Stock. Although the matter is not entirely clear, we believe any such adjustment of liquidation preference in the manner described in Item 1 to the Form 8-A we filed with the SEC on November 7, 2025, deferred dividend, discount or call premium should not be treated as giving rise to a deemed +42 +distribution on our SATA Stock. However, there is no assurance that the Internal Revenue Service (“IRS”) or an applicable withholding agent will not take a contrary position. It is also possible you may be treated as receiving a deemed distribution under Section 305 of the Code if we elect to increase the price at which we exercise our optional redemption right, with the likelihood of such treatment depending on the circumstances existing at the time the redemption price is adjusted. +Any deemed distribution will generally be taxable to the same extent as a cash distribution. In addition, for any holder of our SATA Stock that is considered a non-U.S. person for U.S. federal income tax purposes, any deemed distribution could be subject to U.S. federal withholding tax at a 30% rate, or such lower rate as may be specified by an applicable treaty. Because deemed distributions received by a holder of our SATA Stock would not give rise to any cash from which any applicable withholding tax could be satisfied, if we (or an applicable withholding agent) pay withholding (including backup withholding) on behalf of a holder of our SATA Stock, we (or an applicable withholding agent) may set off any such payment against, or withhold such taxes from, payments of cash to such holder of our SATA Stock or sales proceeds received by, or other funds or assets of, such holder of our SATA Stock, or require alternative arrangements with respect to such withholding taxes. +The application of the rules under Section 305 of the Code to our SATA Stock is uncertain, and holders of our SATA Stock should consult their tax advisors about the impact of these rules in their particular situations. +Holders of our SATA Stock may not be entitled to the dividends-received deduction or preferential tax rates applicable to qualified dividend income. +Distributions paid to corporate U.S. holders of our SATA Stock may be eligible for the dividends-received deduction and distributions paid to non-corporate U.S. holders of our SATA Stock may be subject to tax at the preferential tax rates applicable to “qualified dividend income” if we have current or accumulated earnings and profits, as determined for U.S. federal income tax purposes and certain holding period and other requirements are met. We may not have sufficient current or accumulated earnings and profits during any fiscal year for the distributions on our SATA Stock to qualify as dividends for U.S. federal income tax purposes. If any distributions on our SATA Stock with respect to any fiscal year are not eligible for the dividends-received deduction or for the preferential tax rates applicable to “qualified dividend income” because of insufficient current or accumulated earnings and profits, the trading price of the SATA Stock may decline. +The tax rules applicable to “fast-pay stock” could result in adverse consequences to holders of our SATA Stock. +Under Treasury Regulations promulgated under Section 7701(l) of the Code (the “Fast-Pay Stock Regulations”), if stock of a corporation is structured such that dividends paid with respect to the stock are economically (in whole or in part) a return of the stockholder’s investment (rather than a return on the stockholder’s investment), then the stock is characterized as “fast-pay stock” and is subject to adverse tax reporting requirements and potentially penalties, as described below. In addition, under the Fast-Pay Stock Regulations, unless clearly demonstrated otherwise, stock is presumed to be fast-pay stock if it is structured to have a dividend that is reasonably expected to decline (as opposed to a dividend rate that is reasonably expected to fluctuate or remain constant) (for such purpose, the dividend rate may be viewed as reasonably expected to decline if we are reasonably expected to stop paying regular dividends on our SATA Stock or if we are reasonably expected to reduce the monthly regular dividend rate over a meaningful time period) or is issued for an amount that exceeds (by more than a de minimis amount, as determined under applicable Treasury Regulations) the amount at which the stockholder can be compelled to dispose of the stock. It is not clear what amount would constitute “de minimis” in the case of stock with a perpetual term. +The determination of whether stock is fast-pay stock is based on all the facts and circumstances. To determine whether it is fast-pay stock, stock is examined when issued, and, for stock that is not fast-pay stock when issued, when there is a significant modification in the terms of the stock or the related agreements or a significant change in the relevant facts and circumstances. The relevant tax regulations do not indicate the types of significant changes in facts and circumstances that are intended to give rise to such a determination, and therefore it is possible that such a change could arise when, for example, there is a change to the terms of optional redemption or a compounded dividend rate comes into effect. We do not believe that our SATA Stock is fast-pay stock. +We may issue additional shares of our SATA Stock (or resell any shares of our SATA Stock that we or any of our subsidiaries have purchased or otherwise acquired) (such additional or resold shares, the “Additional Shares”). We do not intend to issue any Additional Shares that would be treated as fast-pay stock. Moreover, we intend to obtain advice of counsel in connection with future offerings of Additional Shares for the purpose of analyzing the consequences of issuing such Additional Shares in light of any legal developments regarding the definition of fast-pay stock. As the liquidation preference of the SATA Stock is subject to adjustment in the manner described in Item 1 to the Form 8-A we filed with the SEC on November 7, 2025 and our current intention is to issue any Additional Shares at a price per share not more than $110 plus accrued and unpaid dividends that may apply to such instrument at the time of its issuance, it is generally not expected that the Additional Shares would be issued at such a level of premium above their liquidation preference or +43 +optional redemption price at the time of sale of the Additional Shares so as to implicate the fast-pay stock rules. In addition, we do not intend to adjust the regular dividend rate in a manner that would cause the SATA Stock to be treated as fast-pay stock. Any adjustment to the regular dividend rate is expected to be consistent with our current intention to maintain a long-term trading level for the SATA Stock between $99 and $101 per share, and therefore the SATA Stock’s dividend rate is generally expected to fluctuate over time. Nonetheless, there may be increased risk that the IRS could assert that such Additional Shares constitute fast-pay stock. +Transactions involving fast-pay stock arrangements are treated as “listed transactions” for U.S. federal income tax purposes. Issuers and holders of any shares of fast-pay stock would be required to report their participation in the transaction on IRS Form 8886 on an annual basis with their U.S. federal income tax returns and would also be required to mail a copy of that form to the IRS Office of Tax Shelter Analysis. Failure to comply with those disclosure requirements could result in the assessment by the IRS of interest, additions to tax and onerous penalties. In addition, an accuracy-related penalty applies under the Code to any reportable transaction understatement attributable to a listed transaction if a significant purpose of the transaction is the avoidance or evasion of U.S. federal income tax. Furthermore, certain material advisors would also be required to file a disclosure statement with the IRS. If we determine that we are required to file an IRS Form 8886 (including a protective filing) in connection with the potential issuance of fast-pay stock with respect to our previously issued SATA Stock or Additional Shares, we intend to provide public notice to the holders of our previously issued SATA Stock or Additional Shares, as applicable, which notice may be by a press release, by publication on our investor relations website, or by filing a current report on Form 8-K with the SEC. +Notwithstanding our intent not to issue Additional Shares that would be fast-pay stock, the rules regarding the definition of fast-pay stock are unclear in certain respects and, therefore, the IRS could disagree with our determination and treat such Additional Shares as fast-pay stock. In addition, even though we believe that our previously issued SATA Stock is not fast-pay stock, treatment of the Additional Shares as fast-pay stock could result in adverse consequences to holders of our previously issued SATA Stock because such Additional Shares may be indistinguishable from our previously issued SATA Stock. See “Risk Factors—A future issuance of Additional Shares could have an adverse tax profile, which could subject holders of our previously issued SATA Stock to adverse consequences” below. +Accordingly, holders of our SATA Stock are strongly urged to consult their tax advisors regarding the Fast-Pay Stock Regulations and their potential consequences to an investment in our SATA Stock. +A future issuance of Additional Shares could have an adverse tax profile, which could subject holders of our previously issued SATA Stock to adverse consequences. +If we issue Additional Shares that have a different, and potentially adverse, tax profile or treatment for U.S. federal income tax purposes from our previously issued SATA Stock, since such Additional Shares would trade under the same CUSIP or other identifying number as that of our previously issued SATA Stock, our previously issued SATA Stock may be treated by subsequent purchasers, withholding agents and potentially the IRS as having the same profile or treatment as such Additional Shares if our previously issued SATA Stock is not otherwise distinguishable from the shares of SATA Stock subject to such adverse treatment. +For example, notwithstanding our intent not to issue any Additional Shares that are fast-pay stock, the IRS could assert that such Additional Shares constitute fast-pay stock. See “Risk Factors—The tax rules applicable to “fast-pay stock” could result in adverse consequences to holders of our SATA Stock.” above. +Furthermore, if any Additional Shares are issued at a price that exceeds their liquidation preference, such Additional Shares would constitute “disqualified preferred stock” within the meaning of Section 1059(f)(2) of the Code and any corporate U.S. holder generally will be required to reduce its tax basis (but not below zero) in our SATA Stock by the amount of any dividends-received deduction it receives. The liquidation preference of the SATA Stock is subject to adjustment in the manner described in Item 1 to the Form 8-A we filed with the SEC on November 7, 2025, which adjustment may be taken into account for purposes of disqualified preferred stock determination. If Additional Shares issued are considered disqualified preferred stock, our previously issued SATA Stock could also be subject to same treatment as a practical matter due to fungible trading. +If any Additional Shares are sold at a discount (or at a discount that exceeds the discount that applies to our previously issued SATA Stock), such Additional Shares may be subject to rules that require the accrual of such discount (or such greater discount) currently over the deemed term of the Additional Shares as deemed distributions under U.S. tax rules similar to those governing original issue discount for debt instruments. In that event, the IRS or a withholding agent may treat any such discount as resulting in deemed taxable distributions with respect to our previously issued SATA Stock as well as such Additional Shares. +Because the IRS or other parties (such as withholding agents) may not be able to distinguish between our SATA Stock and the Additional Shares, a holder of our SATA Stock might be subject to adverse tax consequences or might be required +44 +to demonstrate to the IRS (or such other parties) that the holder purchased our SATA Stock as opposed to such Additional Shares. Moreover, any adverse tax consequences as described above in connection with the future issuance of Additional Shares may adversely affect the market value of our SATA Stock. +Provisions of our SATA Stock could delay or prevent an otherwise beneficial takeover of us. +Certain provisions in the SATA Stock could make a third-party attempt to acquire us more difficult or expensive. For example, if a takeover constitutes a Fundamental Change (as defined in the SATA Stock certificate of designation), then, subject to certain exceptions, holders of our SATA Stock will have the right to require us to repurchase their SATA Stock for cash. For the full terms of our SATA Stock, see Item 1 to the Form 8-A we filed with the SEC on November 7, 2025. These fundamental change provisions could increase the cost of acquiring us or otherwise discourage a third party from acquiring us or removing incumbent management, including in a transaction that holders of our SATA Stock or holders of our Class A Common Stock may view as favorable. +Your investment in the SATA Stock may be harmed if we redeem the SATA Stock. +We have the right to redeem our SATA Stock in certain circumstances. For the full terms of our SATA Stock, see Item 1 to the Form 8-A we filed with the SEC on November 7, 2025. If we redeem your SATA Stock, then you may be unable to reinvest any proceeds from the redemption in comparable investments at favorable dividend or interest rates. Furthermore, if we elect to redeem the SATA Stock, the redemption price per share of SATA Stock that we redeem may be less than the price per share of SATA Stock that you may receive upon a sale of your SATA Stock in the open market. In addition, a redemption of less than all of the outstanding SATA Stock may harm the liquidity of the market for the unredeemed SATA Stock following the redemption. Accordingly, if your SATA Stock is not redeemed in a partial redemption, then you may be unable to sell your SATA Stock at the times you desire or at favorable prices, if at all, and the trading price of your SATA Stock may decline. +We are not subject to legal and regulatory obligations that apply to investment companies such as mutual funds and exchange-traded funds, or to obligations applicable to investment advisers. +Mutual funds, exchange-traded funds and their directors and management are subject to extensive regulation as “investment companies” and “investment advisers” under U.S. federal and state law; this regulation is intended for the benefit and protection of investors. We are not subject to, and do not otherwise voluntarily comply with, these laws and regulations. This means, among other things, that the execution of or changes to our Treasury Reserve Policy or our bitcoin strategy, our use of leverage, the manner in which our bitcoin is custodied, our ability to engage in transactions with affiliated parties and our operating and investment activities generally are not subject to the extensive legal and regulatory requirements and prohibitions that apply to investment companies and investment advisers. For example, although a significant change to our Treasury Reserve Policy would require the approval of our board of directors, no stockholder or regulatory approval would be necessary. Consequently, our board of directors has broad discretion over the investment, leverage and cash management policies it authorizes, whether in respect of our bitcoin holdings or other activities we may pursue, and has the power to change our current policies, including our strategy of acquiring and holding bitcoin. Additionally, we are not a registered money market fund under the Investment Company Act of 1940, as amended, and we do not operate as a registered money market fund. Holders of our SATA Stock do not benefit from the protections available to holders of securities of a registered money market fund. Bitcoin does not have a similar risk profile to the assets required to be held by money market funds because, among other things, it is much more volatile and involves no principal protection. Unlike money market funds, we do not price our securities, including our SATA Stock, based on the net asset value of the pool of assets backing the securities. We are also not subject to any regulation requiring that we maintain any particular pricing or stable value, and we are not subject to the fee restrictions or liquidity requirements applicable to registered money market funds. +The accounting method for our SATA Stock may result in lower reported net earnings attributable to common stockholders. +The accounting method for reflecting the provisions of our SATA Stock in our financial statements may adversely affect our reported earnings. We expect that applicable accounting standards will require us to separately account for certain redemption features associated with our SATA Stock as embedded derivatives. Under this treatment, any embedded derivatives will be measured at their fair value and accounted for separately as liabilities that are marked-to-market at the end of each reporting period. For each financial statement period after the issuance of the SATA Stock, a gain or loss will be reported in our statement of operations to the extent the valuation of any of the embedded derivatives changes from the previous period. This accounting treatment may subject our reported net income (loss) to significant non-cash volatility. +Furthermore, we have not reached a final determination regarding the accounting treatment for our SATA Stock, and the description above is preliminary. In addition, accounting standards may change in the future. Accordingly, we may account for our SATA Stock in future periods in a manner that is significantly different than described above. +45 +Holding SATA Stock does not, in itself, confer any rights with respect to our Class A Common Stock. +Holding SATA Stock does not confer any rights with respect to our Class A Common Stock (including the voting rights of, and rights to receive any dividends or other distributions on, our Class A Common Stock). However, holders of our SATA Stock are subject to all changes affecting our Class A Common Stock to the extent the value of our SATA Stock depends on the market price of our Class A Common Stock. For example, if we propose an amendment to our charter documents that requires the approval of holders of our Class A Common Stock but not the approval of the preferred stockholders, then holders of any SATA Stock will not, as such, be entitled to vote on the amendment, although those holders will be subject to any changes implemented by that amendment in the powers, preferences or special rights of our Class A Common Stock. +Risks Related to Our Indebtedness +Our indebtedness and liabilities could limit the cash flow available for our operations, expose us to risks that could adversely affect our business, financial condition and results of operations and impair our ability to satisfy our obligations under our debt instruments when they come due. +In January 2025, Semler Scientific, a wholly-owned subsidiary that we acquired in January 2026, issued $100.0 million aggregate principal amount of the Semler Convertible Notes. On January 22, 2026, we entered into separate, privately negotiated exchange agreements with certain holders of the outstanding Semler Convertible Notes, representing $90.0 million aggregate principal amount of the Semler Convertible Notes, pursuant to which such holders exchanged their Semler Convertible Notes for approximately 929,999 newly issued shares of our SATA Stock (the “Notes Exchange”). As of January 27, 2026, we had $10.0 million aggregate principal amount of our Semler Convertible Notes outstanding. Our indebtedness could have negative consequences for our security holders and our business, results of operations and financial condition by, among other things: +• increasing our vulnerability to adverse economic and industry conditions; +• limiting our ability to obtain additional financing on acceptable terms or at all; +• requiring the dedication of a portion of our cash flow from operations to service our indebtedness, which will reduce the amount of cash available for other purposes; +• limiting our flexibility to plan for, or react to, changes in our business; +• diluting the interests of our existing stockholders as a result of issuing shares of our Class A Common Stock upon conversion of the Semler Convertible Notes; and +• placing us at a possible competitive disadvantage with competitors that are less leveraged than us or have better access to capital. +While we have announced intentions to repay, redeem or otherwise retire the outstanding indebtedness of Semler Scientific, any such transactions may be subject to market conditions and available cash on hand and there is no guarantee that we will be able to do so on terms favorable to us, in the timeframe sought by us, or at all. +Item 1B. Unresolved Staff Comments +None. +Item 1C. Cybersecurity +Risk Management and Strategy +We have implemented a comprehensive risk management framework, which includes policies and procedures designed for assessing, identifying, and managing material cybersecurity threats and facilitating timely disclosure of material cybersecurity incidents. Our security approach is built on three core principles: defense in depth (layered security), least privilege access, and a risk-based approach that prioritizes security resources based on risk assessment. +Our policies require mandatory annual cybersecurity awareness training for all employees, focusing on phishing and social engineering recognition and reporting, among other areas. We evaluate potential security risks and conduct routine incident response tabletop exercises to practice responding to realistic cybersecurity incident and data breach scenarios. We undertake annual reviews of our policies, which are designed to help ensure their effectiveness and relevance in light of evolving cybersecurity threats. We have also implemented controls designed to identify and mitigate cybersecurity threats associated with our use of third-party service providers, including by reviewing evidence that their systems meet appropriate cybersecurity requirements for key service providers. We collaborate with our service providers to understand developments within their cybersecurity framework and to seek to ensure service providers notify us promptly of +46 +cybersecurity threats or incidents that may affect our systems or data. Additionally, we maintain cyber insurance to help cover costs associated with cybersecurity events and to provide access to a panel of approved incident response partners, including forensics and incident response firms, law firms, breach notification providers, public relations firms, and distributed denial-of-service mitigation services. +We also engage third parties to assist in our cybersecurity mitigation and detection efforts, including a managed service provider ("MSP") that provides, among other things, cybersecurity monitoring and threat detection through a Security Information and Event Management system, security assessments and penetration testing, and Virtual Chief Information Security Officer services. The MSP operates as an extension of our Corporate Strategy professionals, who, as discussed below, manage the Company’s information technology and cybersecurity risk management initiatives, and is bound by the same security and confidentiality obligations as the Company’s employees. +Our incident response and data breach procedures apply to all employees, contractors, and third-party users and are designed to provide a comprehensive, structured response to cybersecurity threats and incidents. Upon receiving an incident report, Corporate Strategy and our MSP perform an initial assessment to determine severity level, whether escalation to executive leadership is needed, and whether cyber insurance notification and approved partner engagement is required. For potentially significant cybersecurity incidents, we engage insurance-approved partners based on the nature and scope of the incident, and Corporate Strategy coordinates with our executive leadership to manage the incident response, investigation, notification, and remediation process. +In 2025, we have not identified any cybersecurity threats or incidents, including those resulting from any previous cybersecurity incidents, that have materially affected, or, to our knowledge, are reasonably likely to materially affect, us or our business strategy, results of operations or financial condition. However, despite our efforts, we cannot eliminate all risks from cybersecurity threats or incidents, or provide assurances that we have not experienced an undetected cybersecurity incident. For more information about these risks, please see “Risk Factors—Risks Related to Our Business—If we or our third-party service providers experience a security breach or cyberattack and unauthorized parties obtain access to our bitcoin holdings, or if our private keys are lost or destroyed, or other similar circumstances or events occur, we may lose some or all of our bitcoin and our financial condition and results of operations could be materially adversely affected.” +Governance +Our board of directors, in coordination with our Audit Committee, oversees our risk management process, including cybersecurity risks. The Audit Committee receives regular reports from our executive leadership and our Vice President of Corporate Strategy on the threat landscape and the Company’s cybersecurity program. +Our Corporate Strategy department manages the Company's information technology operations and cybersecurity risk management and is responsible for receiving incident reports, performing initial assessments, coordinating approved partner engagement, leading investigations, overseeing remediation, and managing communications related to cybersecurity incidents. The Vice President of Corporate Strategy , who is responsible for the establishment and maintenance of our cybersecurity program, as well as the assessment and management of cybersecurity risks, has significant experience in information technology and possesses the requisite education, skills, and experience expected of an individual assigned to these duties. Our executive leadership, including our Chief Executive Officer, Chief Financial Officer, Chief Risk Officer, and Chief Legal Officer, provides oversight of our cybersecurity risk management program and receives regular updates from the Vice President of Corporate Strategy. +Item 2. Properties +As of December 31, 2025, we do not own any property. Our corporate headquarters is located in leased space in Dallas, Texas. Our office lease expires in July 2033. In addition, we lease an office space in Dublin, Ohio that is sub-leased to a third party at terms consistent with the master lease. This lease expires in February 2033. +We believe that our current facilities are adequate to conduct our business operations for the foreseeable future. We believe that we will be able to renew these leases on similar terms upon expiration. If it cannot renew, we believe that we could find other suitable premises without any material adverse impact on our operations. +Item 3. Legal Proceedings +We are involved in various lawsuits, claims, investigations, proceedings, and threats of litigation arising in the normal course of business. Although the outcomes of these legal proceedings are inherently difficult to predict, we do not expect the resolution of these legal proceedings to have a material adverse effect on our financial position, results of operations, or cash flows. +47 +Effective September 10, 2025, the U.S. Department of Justice Civil Fraud Section (the "DOJ"), the Department of Health and Human Services (the “HHS”), and certain relators entered into a settlement agreement with Semler Scientific resolving alleged violations of the False Claims Act pertaining to submissions of false claims to Medicare Part B for tests performed using certain of its medical devices. Pursuant to the settlement agreement, Semler Scientific agreed, among other things, to pay $29.8 million, and interest at a rate of 4.25% per annum from April 28, 2025 on such amount, in addition to $0.4 million for attorney’s fees for the relators. Subject to certain exceptions, the settlement releases Semler Scientific from any civil or administrative monetary claims for the covered conduct. Semler neither admitted nor denied any wrongdoing. +In connection with the settlement, Semler Scientific also entered into a “Corporate Integrity Agreement” with the Office of Inspector General (the “OIG”) of HHS whereby it agreed to institute certain compliance and other measures relating to its sales practices and provide reporting to OIG for a five-year period. +On August 29, 2025, a purported stockholder of Semler Scientific filed a lawsuit captioned Ravi Krishnamoorthy v. Semler Scientific, Inc., et al., No 5:25-cv-07303 , in the U.S. District Court for the Northern District of California, against Semler Scientific and three current or former officers on behalf of a putative class of stockholders who purchased shares of Semler Scientific from March 10, 2021 to April 15, 2025. The complaint alleges violations of Sections 10(b) and 20(a) of the Exchange Act, and of SEC rules promulgated thereunder, challenging, among other things, the timing and extent of Semler Scientific’s public disclosure of a potential claim by the DOJ against Semler Scientific and subsequent negotiation of an agreement in principle to resolve the matter. The complaint seeks recovery of unspecified damages, interest, and an award of the attorneys’ fees and costs. Semler Scientific denies any liability or misconduct and intends to vigorously defend the litigation. +Item 4. Mine Safety Disclosures +Not applicable. +48 +Part II +Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities +Market Information and Holders +Our Class A Common Stock is traded on The Nasdaq Stock Market LLC under the symbol "ASST". There is no established public trading market for our Class B Common Stock. As of March 6, 2026, there were approximately 52 stockholders of record of our Class A Common Stock and 54 stockholders of record of our Class B Common Stock. +Holders of Class A Common Stock generally have the same rights, including rights to dividends, as holders of Class B Common Stock, except that holders of Class A Common Stock have one vote per share while holders of Class B Common Stock have ten votes per share. +Dividends +We have never declared or paid any cash dividends on either our Class A or Class B Common Stock and have no current plans to declare or pay any such dividends on our Class A or Class B Common Stock. Our SATA Stock accumulates cumulative dividends ("regular dividends") at a variable rate (as described below) per annum on the stated amount of $100 per share thereof. Regular dividends on the SATA Stock will be payable when, as and if declared by the Company’s board of directors or any duly authorized committee thereof, out of funds legally available for their payment, monthly in arrears on the 15th calendar day of each calendar month. The monthly regular dividend rate per annum was initially set at 12.00%. However, the Company has the right, in its sole and absolute discretion, to adjust the monthly regular dividend rate per annum applicable to subsequent regular dividend periods. For example, most recently, on March 11, 2026, we announced an increase to the monthly regular dividend rate per annum on SATA Stock from 12.50% to 12.75%, effective for monthly periods commencing on or after March 16, 2026. The Company’s right to adjust the monthly regular dividend rate per annum is subject to certain restrictions. For example, the Company is not permitted to reduce the monthly regular dividend rate per annum that will apply to any regular dividend period (i) by more than the following amount from the monthly regular dividend rate per annum applicable to the prior regular dividend period: the sum of (1) 25 basis points; and (2) the excess, if any, of (x) the one-month term SOFR rate on the first business day of such prior regular dividend period, over (y) the minimum of the one-month term SOFR rates that occur on the business days during the period from, and including, the first business day of such prior regular dividend period to, and including, the last business day of such prior regular dividend period; or (ii) to a rate per annum that is less than the one-month term SOFR rate in effect on the business day before the Company provides notice of the next monthly regular dividend rate per annum. In addition, the Company is not entitled to elect to reduce the monthly regular dividend rate per annum unless and until (x) three (3) months following the initial issue date, or such earlier time as the arithmetic average of the last reported sale prices per share of SATA Stock for each trading day of twenty (20) consecutive trading days at any time during the three (3) months following the initial issuance date exceeds $100, (y) all accumulated regular dividends, if any, on the SATA Stock then outstanding for all prior completed regular dividend periods, if any, have been paid in full, and (z) the arithmetic average of the last reported sale prices per share of SATA Stock for each trading day during the immediately preceding regular dividend period is not less than $99 per share. The Company’s current intention (which is subject to change in the Company’s sole and absolute discretion) is to adjust the monthly regular dividend rate per annum in such manner as the Company believes will maintain SATA Stock’s trading price within its stated long-term range of $99 and $101 per share. Declared regular dividends on the SATA Stock will be payable solely in cash. In the event that any accumulated regular dividend on the SATA Stock is not paid on the applicable regular dividend payment date, then additional regular dividends (“SATA Compounded Dividends”) will accumulate on the amount of such unpaid regular dividend, compounded monthly. The compounded dividend rate applicable to any unpaid regular dividend that was due on a regular dividend payment date (or, if such regular dividend payment date is not a business day, the next business day) will initially be a rate per annum equal to 12.00% plus 25 basis points; provided, however, that, until such regular dividend, together with compounded dividends thereon, is paid in full, such compounded dividend rate will increase by 25 basis points per month for each subsequent regular dividend period, up to a maximum dividend rate of 20% per annum. The SATA Stock also has certain redemption and repurchase rights, in the manner, and subject to the terms, set forth in the SATA Stock certificate of designation. +Securities Authorized for Issuance Under Equity Compensation Plans +The information required by this item can be found under Part III, Item 12 of this Annual Report. +Issuer Purchases of Equity Securities +In September 2025, the Company's board of directors authorized the purchase of up to $500.0 million of its Class A Common Stock through a share repurchase program. Repurchases may be made from time-to-time, subject to general +49 +business and market conditions, other investment opportunities, and applicable legal requirements. Repurchases may be made through open market purchases or privately negotiated transactions, including through Rule 10b5-1 plans. +No repurchases of Class A Common Stock by the Company occurred during the year ended December 31, 2025. +Unregistered Sales of Equity Securities +On January 22, 2026, the Company entered into separate, privately negotiated exchange agreements with certain holders of the 4.25% Convertible Senior Notes due 2030 assumed through the Semler Scientific Merger, representing $90.0 million aggregate principal amount of the Semler Convertible Notes, pursuant to which such holders exchanged their Semler Convertible Notes for approximately 929,999 newly issued shares of SATA Stock. The issuance of SATA Stock was made in reliance upon the exemption from the registration requirements in Section 4(a)(2) of the Securities Act. +During the year ended December 31, 2025, we did not sell any equity securities that were not registered under the Securities Act and that were not previously disclosed in a Current Report on Form 8-K. +Item 6. [Reserved] +Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations +Forward-Looking Information +The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and notes to those consolidated financial statements included in Item 15 of this Annual Report. References to "we", "us", "our", or "the Company" refer to Strive, Inc. and its consolidated subsidiaries unless specifically stated otherwise. In addition to historical financial information, this discussion and analysis contains forward-looking statements that are based upon our current expectations, beliefs, estimates and projections, and various assumptions, many of which, by their nature, are inherently uncertain and beyond our control. See the section of this Annual Report entitled “Forward Looking Information and Risk Factor Summary.” Actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Part I. Item 1A. Risk Factors” or elsewhere in this Annual Report. +References to "we", "us", "our", or "the Company" refer to Strive, Inc. and its consolidated subsidiaries unless specifically stated otherwise. +1:20 Reverse Stock Split +On February 6, 2026, we completed a 1:20 reverse stock split of our Class A and Class B Common Stock (the "Reverse Stock Split"). As a result of the Reverse Stock Split, all applicable share and per share information of the Successor presented within this “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” has been retroactively adjusted to reflect the Reverse Stock Split for all periods presented. Concurrent with the effectiveness of the Reverse Stock Split, the number of shares of Class A Common Stock available to purchase and the related exercise price of outstanding warrants were adjusted pro-rata to give effect to the Reverse Stock Split. +Overview +Strive is a structured finance company and institutional asset manager focused on disciplined capital allocation and long term value creation. We have strategically adopted bitcoin as our hurdle rate for capital deployment because of our fiduciary duty to maximize long-term value for stockholders, and compounding purchasing power over time. Relative to a traditional depreciating fiat-denominated benchmark, implementing a bitcoin hurdle rate establishes a higher level of accountability and strategic investment discipline, since our decisions are measured against an asset we believe will appreciate over time. +Strive’s operating business generates stockholder value through disciplined balance sheet management and the growth of our bitcoin holdings. Our SATA Stock exemplifies this approach, a publicly traded security that aims to provide investors with consistent cash flows and minimal volatility, while enabling Strive to capture the spread between SATA Stock’s financing cost and the potential long term return of bitcoin. +Beyond balance sheet strategy, Strive is focused on advancing innovation within the capital markets by modernizing established financing structures. The Company has developed our SATA Stock, our perpetual preferred equity instrument, that incorporates an at‑the‑market (“ATM”) program, creating a flexible and continuous capital formation mechanism. This approach transforms a historically static capital structure into a dynamic and adaptive capital funding platform. Through +50 +these innovations, Strive seeks to combine legacy market frameworks with modern assets, positioning the Company at the intersection of institutional finance and a bitcoin‑based reserve strategy. +Following the completion of Strive Enterprises, Inc.'s reverse acquisition of Asset Entities Inc. in September 2025, Strive began operating as a publicly traded company and began deploying capital to execute on its bitcoin treasury strategy, becoming the first U.S. publicly traded bitcoin treasury asset management firm. +As of December 31, 2025, the Company manages over $2.4 billion in AUM. These activities provide recurring, fee-based revenue streams which increase with AUM. Beginning in fiscal year 2026, we plan to operate our asset-management segment within a single-digit-million dollar operating loss to single-digit-million dollar operating profit range. +On September 22, 2025, Strive, Inc. entered into the Semler Scientific Merger Agreement with Semler Scientific. On January 16, 2026, pursuant to the Semler Scientific Merger Agreement, Strive Merger Sub, Inc., a wholly owned subsidiary of Strive merged with and into Semler Scientific, with Semler Scientific continuing as the surviving corporation and a wholly owned subsidiary of Strive. Through the acquisition of Semler Scientific, Strive acquired Semler Scientific's existing bitcoin reserve as well as Semler Scientific's operating business, which develops and markets technology products and services that assist customers in evaluating and treating chronic diseases. The patented and FDA cleared product, QuantaFlo, measures arterial blood flow in the extremities to aid in the diagnosis of PAD. QuantaFlo, which is intended to enable expanded labeling as an aid in the diagnosis of other cardiovascular diseases, is currently pursuing a 510(k) clearance from the FDA. +Our Bitcoin Strategy +Our bitcoin strategy generally involves, from time to time, subject to market conditions and the need for cash and cash equivalents to meet short-term working capital requirements, (i) acquiring bitcoin through open market purchases using available cash, which may be raised from our operating activities as well as capital raising initiatives, such as issuing equity and fixed income offerings, among other capital raise strategies (collectively, "beta" initiatives) and (ii) acquiring bitcoin through alpha strategies, such as acquiring bitcoin through strategic M&A activity or other transactions, resulting in the acquisition of bitcoin at a discount relative to market value, which are intended to deliver returns above and beyond what beta initiatives may deliver alone. +Our Bitcoin Holdings +In 2025, we acquired a total of approximately 7,627 bitcoin at an aggregate acquisition cost of approximately $863.0 million, or $113,153 per bitcoin, including fees and expenses. During the period from January 1, 2026 to March 17, 2026, we acquired approximately 5,048 bitcoin through our acquisition of Semler Scientific and purchased an additional 953 bitcoin at an average price of approximately $81,092 per bitcoin, inclusive of fees and expenses. In addition, in March 2026, we made an initial investment of $50.0 million in the Variable Rate Series A Perpetual Stretch Preferred Stock (the "STRC Stock") of Strategy Inc. +As of December 31, 2025, our digital assets, at fair value totaled approximately $668.5 million within our consolidated statement of financial condition, consisting of approximately 7,627 bitcoin. We also held $67.5 million in cash and cash equivalents, putting us in a position to strategically deploy capital to bolster our treasury. As of March 17, 2026, our cash and cash equivalents totaled $83.7 million, while our position in the STRC Stock had a fair value of $50.4 million. Our bitcoin treasury totaled 13,628 bitcoin as of March 17, 2026. +Business Combination with Asset Entities Inc. +On May 6, 2025, Strive Enterprises, Inc. entered into that certain Agreement and Plan of Merger, dated as of May 6, 2025, as amended by that certain Amended and Restated Agreement and Plan of Merger, dated as of June 27, 2025, with Asset Entities Inc. On September 12, 2025, pursuant to the Asset Entities Merger Agreement, Alpha Merger Sub, Inc., a wholly-owned subsidiary of Asset Entities, merged with and into Strive Enterprises, Inc., with Strive Enterprises, Inc. surviving as a wholly owned subsidiary of Asset Entities. Concurrent with the consummation of the transactions contemplated by the Asset Entities Merger Agreement, Asset Entities Inc. was renamed Strive, Inc. and became the first publicly traded bitcoin treasury asset management firm. +Concurrent with the consummation of the Asset Entities Merger, the Company closed its PIPE Financing Transactions, issuing Class A Common Stock and pre-funded warrants to raise $749.6 million in gross proceeds, with the ability to raise $749.6 million in additional gross proceeds upon the exercise of traditional warrants issued to PIPE participants. In addition, the Company completed an exchange pursuant to Section 351 of the Internal Revenue Code of 1986, as amended, with certain accredited investors, in which the Company exchanged 2.7 million shares (134 thousand shares on a split-adjusted basis) of Class A Common Stock for 69 bitcoin (the "351 Exchange"). The bitcoin acquired through the 351 +51 +Exchange, along with open market purchases of 7,558 bitcoin by the Company, resulted in the Company acquiring an aggregate of 7,627 bitcoin during the period from September 12, 2025 to December 31, 2025. +Business Combination with Semler Scientific, Inc. +On September 22, 2025, the Company entered into the Semler Scientific Merger Agreement with Semler Scientific. On January 16, 2026, pursuant to the Semler Scientific Merger Agreement, Strive Merger Sub, Inc., a wholly owned subsidiary of Strive merged with and into Semler Scientific, with Semler Scientific continuing as the surviving corporation and a wholly owned subsidiary of Strive. As part of the closing of the Semler Scientific Merger, the Company acquired the assets held by Semler Scientific, including 5,048 bitcoin held by Semler Scientific, which includes certain bitcoin held as collateral by a third party as collateral for an outstanding loan, and assumed Semler Scientific's outstanding liabilities. +Capital Markets Activity +On September 15, 2025, the Company entered into a Controlled Equity Offering SM Sales Agreement (the “ASST Sales Agreement”) with Cantor Fitzgerald & Co. (the “ASST Sales Agent”), pursuant to which the Company, from time to time, at its option, may offer and sell shares of its Class A Common Stock to or through the ASST Sales Agent, acting as the principal and/or the sole agent, having an aggregate sales price of up to $450.0 million. During the period from September 12, 2025 to December 31, 2025, the Company issued 26.4 million shares (1.3 million on a split-adjusted basis) of Class A Common Stock for aggregate gross proceeds of $78.7 million. As of December 31, 2025, the Company has the availability to raise approximately $371.3 million through the issuance and sale of its Class A Common Stock pursuant to the ASST Sales Agreement. +On November 10, 2025, the Company issued 2,000,000 shares of SATA Stock in an initial public offering registered under the Securities Act. The Company filed a certificate of designation with the Nevada Secretary of State designating and establishing the terms of the SATA Stock. The SATA Stock is listed for trading on the Nasdaq Global Market under the symbol “SATA.” The Company received approximately $148.4 million of net proceeds, after deducting the underwriting discounts and commissions and offering expenses, from the issuance of SATA Stock in the initial public offering of SATA Stock. +On December 9, 2025, the Company entered into a Controlled Equity Offering SM Sales Agreement (the “SATA Sales Agreement”) with each of Cantor Fitzgerald & Co., Barclays Capital Inc., and Clear Street LLC (each, a "SATA Sales Agent", and collectively the “SATA Sales Agents”), pursuant to which the Company, from time to time, at its option, may offer and sell shares of its SATA Stock to or through the SATA Sales Agents, acting as the principal and/or agent, having an aggregate sales price of up to $500.0 million. During the period from September 12, 2025 to December 31, 2025, the Company issued 13 thousand shares of SATA Stock for aggregate gross proceeds of $1.2 million. As of December 31, 2025, the Company has the availability to raise approximately $498.8 million through the issuance and sale of its SATA Stock pursuant to the SATA Sales Agreement. +On January 27, 2026, the Company issued 1,320,000 shares of SATA Stock in a public follow-on offering registered under the Securities Act (the "Follow-On Offering"). The Company received approximately $109.2 million of net proceeds, after deducting the underwriting discounts and commissions and expected offering expenses, from the issuance of SATA Stock in the Follow-On Offering. +Partial Retirement of 4.25% Convertible Senior Notes due 2030 +On January 16, 2026, in connection with the Semler Scientific Merger, we assumed $100.0 million of the 4.25% Convertible Senior Notes due 2030 (the “Semler Convertible Notes”) from Semler Scientific. Upon the completion of the Semler Scientific Merger, Semler Scientific, Strive and U.S Bank Trust Company, National Association, as trustee, entered into a supplemental indenture, dated January 16, 2026 (the “Supplemental Indenture”), to that certain indenture, dated as of January 28, 2025 (such indenture as so amended, supplemented and modified from time to time, the “Convertible Notes Indenture”), pursuant to which Semler Scientific issued its outstanding 4.25% Convertible Senior Notes due 2030 (the “Semler Convertible Notes”). The Supplemental Indenture provides that, as of the effective time of the Semler Scientific Merger (the “Effective Time”), the right of the holders of the Semler Convertible Notes that were outstanding as of the Effective Time to convert each $1,000 principal amount of such Semler Convertible Notes into shares of common stock of Semler Scientific (“Semler Common Stock”) became a right to convert such principal amount of Semler Convertible Notes into the number of shares of Class A Common Stock, that a holder of such number of shares of Semler Common Stock equal to the Conversion Rate (as defined in the Convertible Notes Indenture) immediately prior to the Effective Time would have been entitled to receive upon the completion of the Semler Scientific Merger; provided, however, that at and after the Effective Time (A) Semler Scientific will continue to have the right to determine the form of consideration to be paid or delivered, as the case may be, upon conversion of the Semler Convertible Notes in accordance with the terms of the +52 +Convertible Notes Indenture, (B) any amount payable in cash upon conversion of the Semler Convertible Notes in accordance with the terms of the Convertible Notes Indenture will continue to be payable in cash and (C) the Daily VWAP (as defined in the Convertible Notes Indenture) will be calculated (in a manner determined by Semler Scientific in good faith) based on the value of a share of our Class A Common Stock. +Upon completion of the Semler Scientific Merger, each then-outstanding share of Semler Common Stock was converted into the right to receive 21.05 shares of Class A Common Stock, resulting in an adjusted initial Conversion Rate of 275.3887 shares of Class A Common Stock per $1,000 principal amount of Semler Convertible Notes, which was further adjusted to an initial Conversion Rate of 13.7694 shares of Class A Common Stock per $1,000 principal amount of Semler Convertible Notes after giving effect to the Reverse Stock Split. In addition, the Supplemental Indenture provides for a guarantee of the Semler Convertible Notes by Strive. +As amended by the terms of the Supplemental Indenture, the Semler Convertible Notes are general senior, unsecured obligations of Semler Scientific, guaranteed by Strive, and will mature on August 1, 2030, unless earlier converted, redeemed or repurchased. The Semler Convertible Notes bear interest at a rate of 4.25% per year, payable semiannually in arrears on February 1 and August 1 of each year. +In connection with the pricing of the Semler Convertible Notes, Semler Scientific entered into privately negotiated capped call transactions with the Option Counterparties. The capped call transactions cover, subject to customary adjustments, the number of shares of Class A Common Stock that initially underlie the Semler Convertible Notes. The capped call transactions are expected to offset the potential dilution as a result of any conversion of Semler Convertible Notes. +On January 22, 2026, the Company entered into separate, privately negotiated exchange agreements with certain holders of the Semler Convertible Notes, representing $90.0 million aggregate principal amount of the Semler Convertible Notes, pursuant to which such holders exchanged their Semler Convertible Notes for approximately 929,999 newly issued shares of SATA Stock concurrent with the closing of the Follow-On Offering. As of January 27, 2026, and following the settlement of the Notes Exchange, $10.0 million aggregate principal amount of the Semler Convertible Notes remained outstanding. +Retirement of Acquired Indebtedness +On January 16, 2026, in connection with the Semler Scientific Merger, we assumed a $20.0 million loan with Coinbase Credit Inc. from Semler Scientific (the “Coinbase Loan”). On January 27, 2026, we fully retired the Coinbase Loan, resulting in all of Strive's bitcoin holdings being unencumbered following the retirement. +Critical Accounting Estimates +Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with GAAP, which requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and equity, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results and outcomes could differ from these estimates and assumptions. Critical accounting estimates involve a significant level of estimation uncertainty and are estimates that have had or are reasonably likely to have a material impact on our financial condition or results of operations. +Please refer to Note 2, “Summary of Significant Accounting Policies”, in the notes to the Consolidated Financial Statements included in this Annual Report for a description of Strive’s significant accounting policies. +Results of Operations +The comparability of our operating results for the period from September 12, 2025 to December 31, 2025 (Successor), for the period from January 1, 2025 to September 11, 2025 (Predecessor), and for the year ended December 31, 2024 (Predecessor) was impacted by our Asset Entities Merger and may not be comparable. For the purposes of the comparison of the results of operations below, we have compared the Predecessor year ended December 31, 2024 to the combined Predecessor and Successor periods of 2025. +53 +Comparison of the Year Ended December 31, 2025 and the Year Ended December 31, 2024 +The following table presents information regarding the consolidated results of operations for the period from September 12, 2025 to December 31, 2025 (Successor) and for the period from January 1, 2025 to September 11, 2025 (Predecessor) compared to the year ended December 31, 2024 (Predecessor) (amounts in thousands, other than percentages): +Successor Predecessor Increase (Decrease) +Period from September 12, 2025 to December 31, 2025 Period from January 1, 2025 to September 11, 2025 Year Ended December 31, 2024 $ % +Revenues: +Investment advisory fees $ 1,495 $ 4,187 $ 3,592 $ 2,090 58.2 % +Other revenue 17 35 58 (6) (10.3) % +Total revenues 1,512 4,222 3,650 2,084 57.1 % +Operating expenses: +Fund management and administration 1,867 4,250 4,867 1,250 25.7 % +Employee compensation and benefits 27,639 7,222 9,135 25,726 281.6 % +General and administrative expense 3,681 4,229 11,248 (3,338) (29.7) % +Marketing and advertising 151 231 862 (480) (55.7) % +Depreciation and amortization 71 149 192 28 14.6 % +Total operating expenses 33,409 16,081 26,304 23,186 88.1 % +Investment gains/(losses): +Net unrealized loss on digital assets, at fair value (194,508) — — (194,508) (100.0) % +Other derivative loss (14,731) — — (14,731) (100.0) % +Net investment gains/(losses) (209,239) — — (209,239) (100.0) % +Net operating loss (241,136) (11,859) (22,654) (230,341) 1,016.8 % +Other income/(expense): +Other income 723 586 795 514 64.7 % +Transaction costs (12,400) (15,717) — (28,117) (100.0) % +Gain on lease remeasurement — — 279 (279) (100.0) % +Goodwill and intangible asset impairment (140,785) — — (140,785) (100.0) % +Total other income/(expense) (152,462) (15,131) 1,074 (168,667) (15,704.6) % +Net loss before income taxes (393,598) (26,990) (21,580) (399,008) 1,849.0 % +Income tax benefit/(expense) — — — — — % +Net loss $ (393,598) $ (26,990) $ (21,580) $ (399,008) 1,849.0 % +Dividends on preferred stock (4,320) — — (4,320) 100.0 % +Net loss attributable to common stockholders $ (397,918) $ (26,990) $ (21,580) $ (403,328) 1,869.0 % +Investment advisory fees +Investment advisory fees increased by $2.1 million, or 58.2%, to $5.7 million ($1.5 million for the period from September 12, 2025 to December 31, 2025 and $4.2 million for the period from January 1, 2025 to September 11, 2025) from $3.6 million for the year ended December 31, 2024. This increase was driven by an increase in average assets under management of existing Strive offerings, leading to an increase in investment advisory fees of $2.0 million, coupled with additional Strive fund offerings launched in 2024 and 2025. +Other revenue +Other revenue remained at less than $0.1 million during all periods. +54 +Fund management and administration +Fund management and administration expense increased by $1.3 million, or 25.7%, to $6.1 million ($1.9 million for the period from September 12, 2025 to December 31, 2025 and $4.3 million for the period from January 1, 2025 to September 11, 2025) from $4.9 million for the year ended December 31, 2024. This increase was primarily due to expansion in average AUM held within previously launched Strive funds, which led to a $1.0 million increase, as well as additional Strive fund offerings launched in 2024 and 2025. +Employee compensation and benefits +Employee compensation and benefits expense increased by $25.7 million, or 281.6%, to $34.9 million ($27.6 million for the period from September 12, 2025 to December 31, 2025 and $7.2 million for the period from January 1, 2025 to September 11, 2025) from $9.1 million for the year ended December 31, 2024. This increase was primarily a result of stock compensation expense recorded during the period from September 12, 2025 to December 31, 2025 of $21.7 million, which was largely the result of the achievement of the liquidity event performance condition, which gave rise to a one-time catch up of previously time-vested awards. This was paired with bonuses paid to certain employees in 2025 concurrent with the close of the Asset Entities Merger and an increase in the average headcount in 2025 compared to 2024. +General and administrative expense +General and administrative expense decreased by $3.3 million, or (29.7)%, to $7.9 million ($3.7 million for the period from September 12, 2025 to December 31, 2025 and $4.2 million for the period from January 1, 2025 to September 11, 2025) from $11.2 million for the year ended December 31, 2024. This decrease was primarily due to a decrease in legal and consulting expenses of $4.8 million related to the launch of the wealth management business line in late 2024, regulatory compliance consultations, general counsel representation and various legal matters throughout 2024, which was partially offset by increases in accounting and insurance expenses of $1.3 million as a result of the Asset Entities Merger and various capital markets transactions in 2025. +Marketing and advertising +Marketing and advertising expense decreased by $0.5 million, or (55.7)%, to $0.4 million ($0.2 million for the period from September 12, 2025 to December 31, 2025 and $0.2 million for the period from January 1, 2025 to September 11, 2025) from $0.9 million for the year ended December 31, 2024. This decrease was primarily due to additional marketing consulting and advertising services as a result of additional public relations efforts throughout 2024. +Depreciation and amortization +Depreciation and amortization increased by less than $0.1 million, or 14.6%, to $0.2 million ($0.1 million for the period from September 12, 2025 to December 31, 2025 and $0.1 million for the period from January 1, 2025 to September 11, 2025) from $0.2 million for the year ended December 31, 2024. This increase was due to purchases of property, plant, and equipment during 2024. +Net unrealized loss on digital assets, at fair value +Net unrealized loss on digital assets, at fair value increased by $194.5 million, or (100.0)%, to $194.5 million for the period from September 12, 2025 to December 31, 2025. The Company did not hold any digital assets during periods prior to September 12, 2025. +Other derivative loss +Other derivative loss increased by $14.7 million, or (100.0)%, to $14.7 million for the period from September 12, 2025 to December 31, 2025, which was driven by the market price of the Company's Class A Common Stock being higher than the price agreed-upon as part of the exchange of bitcoin for Class A common shares at the exchange date. +Other income +Other income increased by $0.5 million, or 64.7%, to $1.3 million ($0.7 million for the period from September 12, 2025 to December 31, 2025 and $0.6 million for the period from January 1, 2025 to September 11, 2025) from $0.8 million for the year ended December 31, 2024. This increase was due to an increase in the average level of holdings of interest-bearing assets during 2025 as compared to 2024. +Transaction costs +Transaction costs increased by $28.1 million, or (100.0)%, to $28.1 million ($12.4 million for the period from September 12, 2025 to December 31, 2025 and $15.7 million for the period from January 1, 2025 to September 11, 2025) from no transaction costs for the year ended December 31, 2024. This increase was primarily due to accounting and legal costs +55 +incurred related to the Asset Entities Merger and the recently consummated Semler Scientific Merger, which did not occur during the year ended December 31, 2024. +Gain on lease remeasurement +Gain on lease remeasurement decreased by $0.3 million, or (100.0)%. There was a $0.3 million gain on lease remeasurement during the year ended December 31, 2024 due to the relocation from Dublin, Ohio to Dallas, Texas in late 2024, which resulted in a reduction of the expected remaining lease term for the office space in Dublin, Ohio. There were no such events during the period from September 12, 2025 to December 31, 2025 or the period from January 1, 2025 to September 11, 2025. +Goodwill and intangible asset impairment +Goodwill and intangible asset impairment increased by $140.8 million, or (100.0)%, to $140.8 million for the period from September 12, 2025 to December 31, 2025. The Company performed an impairment assessment of goodwill and intangible assets acquired as part of the Asset Entities Merger and determined that these assets were impaired. No such impairments occurred during the year ended December 31, 2024 or the period from January 1, 2025 to September 11, 2025. +Dividends on preferred stock +Dividends on preferred stock increased by $4.3 million, or 100.0%, to $4.3 million for the period from September 12, 2025 to December 31, 2025. The Company issued its SATA Stock during the period from September 12, 2025 to December 31, 2025 and declared dividends during such period. No dividends were declared on the Predecessor's preferred stock during the year ended December 31, 2024 or the period from January 1, 2025 to September 11, 2025. +Liquidity and Capital Resources +Liquidity +The following table summarizes Strive's available liquidity (in thousands): +December 31, 2025 December 31, 2024 +(Successor) (Predecessor) +Cash and cash equivalents $ 67,499 $ 6,155 +Short-term investments — 16,755 +Digital assets, at fair value 668,486 — +Total liquidity $ 735,985 $ 22,910 +Our principal sources of liquidity are cash and cash equivalents and short-term investments. Cash and cash equivalents may include holdings in bank demand deposits, money market investments, and certificates of deposit. Strive considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. Short-term investments consist of U.S. Treasury Bills that have a maturity exceeding three months and less than 12 months at the time of purchase. Strive classifies short-term investments as held-to-maturity based on Strive’s intent and ability to hold these investments until maturity. The Company decreased holdings of short-term investments period-over-period, instead holding in cash and cash equivalents, to meet commitments from recent transactions and to opportunistically invest in bitcoin and bitcoin-related investments. +Although the Company holds significant investments in bitcoin, all of which are unencumbered, the Company's intention is to hold these assets and not liquidate any such investments for working capital needs. +Management believes that Strive's liquidity position puts the Company in a position of strategic advantage to execute on strategic initiatives and meet working capital needs for at least the next twelve months. +Capital resources +On May 26, 2025, Asset Entities Inc. and Strive Enterprises, Inc., entered into subscription agreements with certain accredited investors (the "PIPE Subscribers" and the transactions collectively, the "PIPE Transactions"), pursuant to which the PIPE Subscribers agreed to purchase, and the Company agreed to sell, the Company's Class A Common Stock at a price of $1.35 per share ($27.00 on a split-adjusted basis), with certain PIPE Subscribers agreeing to purchase pre-funded warrants (the "PIPE Pre-Funded Warrants") to purchase shares of Class A Common Stock at a price of $1.3499 ($26.9980 on a split-adjusted basis) in lieu of Class A common shares. Each PIPE Pre-Funded Warrant gives the holder the right to purchase a share of Class A Common Stock (1/20th of a share of Class A Common Stock on a split-adjusted basis) at an exercise price of $0.0001 per share ($0.0020 on a split-adjusted basis). For each share of Class A Common Stock and PIPE Pre-Funded Warrant purchased, the holder received a traditional warrant (the "PIPE Traditional Warrants"), which gives +56 +the holder the right to purchase a share of Class A Common Stock (1/20th of a share of Class A Common Stock on a split-adjusted basis) at an exercise price of $1.35 per share ($27.00 on a split-adjusted basis). +On September 12, 2025, the Company consummated the PIPE Transactions, pursuant to which it issued 345.5 million shares (17.3 million on a split-adjusted basis) of Class A Common Stock, 209.8 million PIPE Pre-Funded Warrants to purchase 10.5 million shares of Class A Common Stock (on a split-adjusted basis), and 555.3 million PIPE Traditional Warrants to purchase 27.8 million shares of Class A Common Stock (on a split-adjusted basis), and received gross proceeds of $749.6 million, with the ability to raise $749.6 million in additional gross proceeds upon the exercise of such warrants. Each PIPE Pre-Funded Warrant became immediately exercisable upon issuance, and will be exercisable until each PIPE Pre-Funded Warrant is exercised in full. Each PIPE Traditional Warrant became immediately exercisable upon issuance, and will expire on the first anniversary of the effectiveness date of the registration statement covering the resale of the securities issued in the PIPE Transactions. +On September 15, 2025, the Company entered into the ASST Sales Agreement with the ASST Sales Agent, pursuant to which the Company, from time to time, at its option, may offer and sell shares of its Class A Common Stock to or through the ASST Sales Agent, acting as the principal and/or the sole agent, having an aggregate sales price of up to $450.0 million. During the period from September 12, 2025 to December 31, 2025, the Company issued 26.4 million shares (1.3 million on a split-adjusted basis) of Class A Common Stock for aggregate gross proceeds of $78.7 million. As of December 31, 2025, the Company has the availability to raise approximately $371.3 million through the issuance and sale of its Class A Common Stock pursuant to the ASST Sales Agreement. +On September 15, 2025, the Company's board of directors authorized the purchase of up to $500.0 million of its Class A Common Stock through a share repurchase program. Repurchases may be made from time-to-time, subject to general business and market conditions, other investment opportunities, and applicable legal requirements. Repurchases may be made through open market purchases or privately negotiated transactions, including through Rule 10b5-1 plans. During the period from September 12, 2025 to December 31, 2025, the Company did not repurchase any Class A Common Stock. As of December 31, 2025, $500.0 million of Class A Common Stock remains available for repurchase through the share repurchase program. +On November 10, 2025, the Company issued 2,000,000 shares of SATA Stock in an initial public offering registered under the Securities Act. The Company received approximately $148.4 million of net proceeds, after deducting the underwriting discounts and commissions and offering expenses, from the issuance of SATA Stock in the initial public offering of SATA Stock. +On December 9, 2025, the Company entered into the SATA Sales Agreement with the SATA Sales Agents, pursuant to which the Company, from time to time, at its option, may offer and sell shares of its SATA Stock to or through the SATA Sales Agents, acting as the principal and/or agent, having an aggregate sales price of up to $500.0 million. During the period from September 12, 2025 to December 31, 2025, the Company issued 13 thousand shares of SATA Stock for aggregate gross proceeds of $1.2 million. As of December 31, 2025, the Company has the availability to raise approximately $498.8 million through the issuance and sale of its SATA Stock pursuant to the SATA Sales Agreement. +On January 27, 2026, the Company issued 1,320,000 shares of SATA Stock in a public follow-on offering registered under the Securities Act. The Company received approximately $109.2 million of net proceeds, after deducting the underwriting discounts and commissions and expected offering expenses, from the issuance of SATA Stock in the Follow-On Offering. +On January 22, 2026, the Company entered into separate, privately negotiated exchange agreements with certain holders of the 4.25% Convertible Senior Notes due 2030 assumed through the Semler Scientific Merger (the "Semler Convertible Notes"), representing $90.0 million aggregate principal amount of the Semler Convertible Notes, pursuant to which such holders exchanged their Semler Convertible Notes for approximately 929,999 newly issued shares of SATA Stock concurrent with the closing of the Follow-On Offering. As of January 27, 2026, and following the settlement of the Notes Exchange, $10.0 million aggregate principal amount of the Semler Convertible Notes remained outstanding. +Contractual and Other Obligations +As of December 31, 2025, our material contractual obligations and commitments primarily include operating leases and employee compensation agreements. Strive did not have any long-term debt or other long-term liabilities as of December 31, 2025. +Strive maintains operating leases for its office locations in Dallas, Texas and Dublin, Ohio. In May 2025, Strive entered into an agreement to sub-lease the Dublin, Ohio office location to a third-party for substantially the same terms as Strive’s lease. As of December 31, 2025, Strive had operating lease payment obligations of approximately $5.4 million, of which $0.7 million is payable within 12 months. Of these amounts, $2.3 million of the future lease obligations, $0.3 million of +57 +which is due within 12 months, relate to amounts that will be recovered through lease payments from our sub-tenant for the Dublin, Ohio lease. +The following table summarizes Strive's cash flow activities (in thousands): +Successor Predecessor +Period from September 12, 2025 to December 31, 2025 Period from January 1, 2025 to September 11, 2025 Year Ended December 31, 2024 +Net cash used in operating activities $ (24,976) $ (18,209) $ (21,595) +Net cash provided by (used in) investing activities (854,648) 16,477 (3,201) +Net cash provided by (used in) financing activities 943,200 (500) 28,865 +Net increase (decrease) in cash and cash equivalents $ 63,576 $ (2,232) $ 4,069 +Net cash used in operating activities +The primary sources of our cash and cash equivalents from operating activities are collections from customers related to investment advisory services and interest collections from our short-term investments and holdings of cash and cash equivalents. Our primary uses of cash and cash equivalents are from general and administrative expenses and employee-related expenditures. Non-cash items to reconcile net loss to net cash and cash equivalents used in operating activities include depreciation and amortization, accretion of discount on short-term investments, amortization of right-of-use assets and liabilities, unrealized gain (loss) on digital assets, at fair value, other derivative loss, share-based compensation expense, gain on lease remeasurement, goodwill and intangible asset impairments, and non-cash transaction expenses. +For the period from September 12, 2025 to December 31, 2025, net cash and cash equivalents used in operating activities was $25.0 million. This was primarily driven by a $393.6 million net loss generated by Strive, which was driven by a goodwill and intangible asset impairment of $140.8 million, net investment losses of $209.2 million, operating expenses of $33.4 million, and transaction costs of $12.4 million, partially offset by total revenues of $1.5 million and net other income of $0.7 million. Strive’s net loss was adjusted for non-cash items totaling $374.8 million. Further, Strive had a net change in operating assets and liabilities of $6.1 million, driven by a decrease in accounts payable and other liabilities of $4.7 million and an increase in prepaid expenses of $2.1 million, which were partially offset by a decrease in other current assets of $0.5 million and an increase in compensation and benefits payable of $0.1 million. +For the period from January 1, 2025 to September 11, 2025, net cash and cash equivalents used in operating activities was $18.2 million. This was primarily driven by a $27.0 million net loss generated by the Predecessor, which was driven by operating expenses of $16.1 million, and transaction costs of $15.7 million, partially offset by total revenues of $4.2 million and net other income of $0.6 million. The Predecessor’s net loss was adjusted for non-cash items totaling $2.5 million. Further, the Predecessor had a net change in operating assets and liabilities of $6.2 million, driven by an increase in accounts payable and other liabilities of $9.8 million, which was partially offset by a decrease compensation and benefits payable of $1.0 million, an increase in prepaid expenses of $0.2 million, an increase in other current assets of $1.6 million, and an increase in other non-current assets of $0.7 million. +For the year ended December 31, 2024, net cash and cash equivalents used in operating activities was $21.6 million. This was primarily driven by a $21.6 million net loss generated by the Predecessor, which was driven by operating expenses of $26.3 million, partially offset by total revenues of $3.7 million and net other income of $0.8 million. The Predecessor's net loss was adjusted for non-cash items and a net change in operating assets and liabilities totaling less than $0.1 million. +Net cash provided by (used in) investing activities +For the period from September 12, 2025 to December 31, 2025, net cash and cash equivalents used in investing activities was $854.6 million, primarily due to purchases of digital asset investments of $855.0 million and purchases of property and equipment and intangible assets of $0.1 million, partially offset by cash acquired through the Asset Entities Merger of $0.4 million. +For the period from January 1, 2025 to September 11, 2025, net cash and cash equivalents provided by investing activities was $16.5 million, primarily due to net proceeds from short-term investments of $16.6 million, partially offset purchases of intangible assets of $0.1 million. +For the year ended December 31, 2024, net cash and cash equivalents used in investing activities was $3.2 million, primarily due to net purchases of short-term investments of $3.2 million. +58 +Net cash provided by (used in) financing activities +For the period from September 12, 2025 to December 31, 2025, net cash and cash equivalents provided by financing activities was $943.2 million, primarily due to proceeds from the issuance of Class A Common Stock of $545.1 million, proceeds from the issuance of pre-funded warrants of $283.2 million, proceeds from the issuance of SATA Stock of $161.2 million, proceeds from the exercise of warrants of $31.6 million, which were partially offset by the payment of financing issuance costs of $42.0 million, the payment of withholding taxes upon the vesting of employee restricted stock of $33.6 million, and the payment of dividends on preferred stock of $2.3 million. +For the period from January 1, 2025 to September 11, 2025, net cash and cash equivalents used in financing activities was $0.5 million, primarily due to repurchases of preferred stock of $0.5 million. +For the year ended December 31, 2024, net cash and cash equivalents provided by financing activities was $28.9 million, primarily due to net proceeds from the issuance of preferred stock of $29.0 million, partially offset by repurchases of preferred stock of $0.1 million. +Non-GAAP Financial Measures +This Annual Report contains certain non-GAAP financial measures, consisting of non-GAAP adjusted net income (loss), non-GAAP adjusted net income (loss) attributable to common stockholders and non-GAAP adjusted net income (loss) attributable to common stockholders per diluted common share. Non-GAAP financial measures are subject to material limitations as they are not measurements prepared in accordance with GAAP and are not a substitute for such measurements. Our non-GAAP financial measures are not meant to be considered in isolation and should be read only in conjunction with our consolidated financial statements, which have been prepared in accordance with GAAP. We rely primarily on such consolidated financial statements to understand, manage, and evaluate our business performance and use the non-GAAP financial measures as supplemental information. Reconciliations of reported GAAP historic measures to adjusted non-GAAP measures are included in the financial schedules contained in this Annual Report. +Non-GAAP adjusted net income (loss) +Non-GAAP adjusted net income (loss), non-GAAP adjusted net income (loss) attributable to common stockholders, and the related non-GAAP adjusted net income (loss) per diluted common share excludes the impact of (i) share-based compensation expense, (ii) depreciation and amortization, (iii) other derivative loss, (iv) transaction costs, (v) gain on lease remeasurement, and (vi) goodwill and intangible asset impairments. We believe these measures offer management and investors insight as they exclude significant non-cash and/or non-recurring items. The following provides GAAP measures of net loss, net loss attributable to common stockholders, and net loss per diluted common share and the details with respect to reconciling the line items to non-GAAP adjusted net income (loss), non-GAAP adjusted net income (loss) attributable to common stockholders, and non-GAAP adjusted net income (loss) per diluted common share (all amounts in thousands, other than share and per share information): +Successor Predecessor +Period from September 12, 2025 to December 31, 2025 Period from January 1, 2025 to September 11, 2025 Year Ended December 31, 2024 +Net loss $ (393,598) $ (26,990) $ (21,580) +Share-based compensation expense 21,710 — — +Depreciation and amortization 71 149 192 +Other derivative loss 14,731 — — +Transaction costs 12,400 15,717 — +Gain on lease remeasurement — — (279) +Goodwill and intangible asset impairment 140,785 — — +Non-GAAP adjusted net income (loss) $ (203,901) $ (11,124) $ (21,667) +Dividends on preferred stock (4,320) — — +Non-GAAP adjusted net loss attributable to common stockholders $ (208,221) $ (11,124) $ (21,667) +Weighted average number of diluted common shares outstanding 43,997,862 2,299,243 2,213,424 +Net loss per diluted common share $ (9.04) $ (11.74) $ (9.75) +Non-GAAP adjusted net loss per diluted common share $ (4.73) $ (4.84) $ (9.79) +59 +Item 7A. Quantitative and Qualitative Disclosures about Market Risk +The following discussion about our market risk exposures involves forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements. +We are exposed to the impact of market price changes in bitcoin and interest rate risk. +Bitcoin Market Price Risk +We have invested, and plan to continue to invest, a significant amount of our capital into bitcoin and bitcoin-related products. Our investments in bitcoin are recorded at fair value on a recurring basis using observed prices from active exchanges, with changes in fair value recorded in net income. The market price of bitcoin may fluctuate significantly, and declines in market price of bitcoin could result in a material adverse effect on our financial results in future periods. As of December 31, 2025, the Company held approximately 7,627 bitcoin with a fair value of $668.5 million. +Interest Rate Risk +We are exposed to changes in interest rates primarily via our SATA Stock, which accumulates cumulative dividends, which we refer to in this Item 7A. Quantitative and Qualitative Disclosures About Market Risk as “regular dividends”, at a variable dividend rate, which was initially set at 12.00% per annum with respect to the regular dividend period. However, we have the right, in our sole and absolute discretion, to adjust the regular dividend rate applicable to subsequent regular dividend periods, subject to certain restrictions, including restrictions on the maximum reduction of the dividend rate and a requirement to declare a dividend equal to at least the monthly SOFR per annum rate. Our current intention (which is subject to change in our sole and absolute discretion) is to adjust the monthly regular dividend rate per annum in such manner as we believe is designed to cause the SATA Stock to trade at prices within its stated long-term range of $99 and $101 per share. We have increased regular dividends on SATA Stock, most recently from 12.50% per annum to 12.75% per annum for the monthly period commencing on or after March 16, 2026. +As of March 17, 2026, if we determined to increase the regular dividend rate on our SATA Stock by 0.50%, the SATA Stock’s monthly dividend accrual would increase by less than $0.2 million. We do not believe our interest rate risk exposure via the SATA Stock is material as of March 17, 2026. +60 +Item 8. Consolidated Financial Statements and Supplementary Data +Our consolidated financial statements and the related notes, together with the Report of Independent Registered Public Accounting Firm, are set forth in Part IV of this Annual Report. +Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure +None. +Item 9A. Controls and Procedures +(a) Evaluation of Disclosure Controls and Procedures +As of the end of the period covered by this report, an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) under the Exchange Act) was performed under the supervision and with the participation of the Company's senior management, including the Chief Executive Officer and the Chief Financial Officer. Based on that evaluation, the Company's management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by this report. +(b) Changes in Internal Controls over Financial Reporting +Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act, as a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States and includes those policies and procedures that: +• pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; +• provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and +• provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. +Because of its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2025. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in the 2013 Internal Control-Integrated Framework. Based on this assessment, management concluded that, as of December 31, 2025, our internal control over financial reporting was effective. +Item 9B. Other Information +Rule 10b5-1 Information +None of our directors or officers (as defined in Rule 16a-1(f) promulgated under the Exchange Act) adopted , modified, or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement (each as defined in Item 408 of Regulation S-K of the Exchange Act) during the quarter ended December 31, 2025. +Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +None. +61 +Part III +Item 10. Directors, Executive Officers and Corporate Governance +Overview +The following are our directors and executive officers and their respective ages and positions as of the date of this Annual Report on Form 10-K: +Name Age Class Positions and Officers with Registrant +Matthew Cole 41 III Chief Executive Officer and Chairman of the Board +Benjamin Pham 32 III Chief Financial Officer and Director +Brian Logan Beirne 44 III Chief Legal Officer and Director +Arshia Sarkhani 29 III Chief Marketing Officer and Director +Pierre Rochard 36 II Director +Shirish Jajodia 38 II Director +Eric Semler 61 II Director +James A. Lavish 55 I Director +Jonathan R. Macey 70 I Director +Mahesh Ramakrishnan 30 I Director +Biographies of Directors and Executive Officers +Matthew Cole. Matthew Cole has served as Chief Executive Officer (CEO) of Strive since April 2023, and has served as the Chairman of Strive's board of directors since September 2025. Mr. Cole previously served as Chief Investment Officer (CIO) of Strive until October 2025. A long-time Bitcoin investor and advocate, Mr. Cole has extensive experience in institutional asset management and fixed income, having spent 15 years at CalPERS in global fixed income, where he oversaw over $70 billion in actively managed Fixed Income assets. Mr. Cole joined Strive Asset Management in May 2022 as Head of Investment Office & Global Fixed Income. He was promoted to Chief Investment Officer, Global Head of Fixed Income in February 2023 before also becoming CEO of Strive. As CEO, Mr. Cole is focused on delivering innovative Bitcoin solutions and transforming how Americans interact with Bitcoin - making it accessible, practical, and central to their financial futures - while Strive remains committed to empowering investors through its pro-stockholder focused equity ETFs and actively managed Fixed Income ETFs. Mr. Cole is a CFA charterholder and holds an MBA from California State University - Sacramento. Mr. Cole’s leadership is grounded in a deep understanding of institutional asset management, investment strategy and organizational governance. Drawing on his experience at CalPERS and Strive, he brings a long-term, investor-focused perspective to executive decision-making. His broad expertise across public and private sector organizations, combined with his board service and strategic insight, position him to guide the company through its next phase of growth and innovation. +Benjamin Pham. Benjamin Pham has served as the Chief Financial Officer (CFO) of Strive since July 2024 and has served as a member of Strive's board of directors since September 2025. Mr. Pham was Strive’s first executive officer and employee when the company was founded in early 2022 and was promoted to Chief Operating Officer in November 2022. He has an extensive background in corporate finance and strategy, having previously held various roles of increasing seniority and encompassing several transformative corporate transactions at Roivant Sciences, a publicly traded biopharmaceutical company, and serving as Chief of Staff to Vivek Ramaswamy, co-founder of Strive. Earlier in his career, he was an investment banker at Citigroup, where he focused on raising equity and equity-linked financing for healthcare companies. Ben received his B.S. in Applied Economics and Management from Cornell University. Mr. Pham brings a strong combination of operational leadership, strategic financial insight, capital markets, and corporate transactions experience to his role as CFO at Strive. His background spans both high-growth private companies and global financial institutions, equipping him with the tools to lead the company through its next stage of growth, with a focus on financial discipline, stockholder alignment and value creation. +Brian Logan Beirne. Brian Logan Beirne has served as the Chief Legal Officer of Strive since February 2025 and has served as a member of Strive's board of directors since September 2025. Before joining Strive, Mr. Beirne served as Chief Executive Officer of Matterhorn Transactions, Inc., a technology company he sold to DealPulse, Inc. in 2023, and has founded and built multiple companies, including Artusi Music. Mr. Beirne previously worked as an attorney with Sullivan & Cromwell LLP, in investment banking at J.P. Morgan, and in private equity at GE Equity. Mr. Beirne teaches financial markets and corporate law at Yale Law School and is an award-winning author. He speaks frequently across the United States and has been featured by The Wall Street Journal, Fox News, The New York Times, Reuters, ABC News and other media outlets. Mr. Beirne graduated first in his class with a B.S. from Fairfield University, was Fulbright Scholar at Queens University, and earned his J.D. from Yale Law School. He is admitted to the New York and Connecticut Bars. Mr. +62 +Beirne has a proven track record of building businesses, driving operational excellence and creating stockholder value. Mr. Beirne brings a diverse background spanning law, finance and entrepreneurship, which informs his strategic approach to legal and business matters. His experience founding companies as well as advising transactions at leading institutions position him to help drive Strive’s legal and business strategy through its next phase of growth and navigate the dynamic legal and policy landscape in which Strive operates. +Arshia Sarkhani. Arshia Sarkhani is the Chief Marketing Officer of Strive and serves on Strive's board of directors. Prior to this, Arshia was the Chief Executive Officer of Asset Entities, which he co-founded, since September 2021 and as President and director since March 2022 until Asset Entities’ combination with Strive in 2025. Mr. Sarkhani was Head of Monetization of Asset Entities from August 2020, when Asset Entities began its operations as a general partnership, until September 2021. From April 2020 and July 2020 to December 2021, Mr. Sarkhani was the sole owner and chief executive officer of Sarkhani Inc. and Shiazon Inc., respectively. Before co-founding Asset Entities, Mr. Sarkhani actively invested and developed a social media following which he and his co-founders utilized when starting Asset Entities. From May 2019 to September 2020, Mr. Sarkhani was a legal intern at The TDM Legal Group. From September 2015 to May 2018, Mr. Sarkhani attended the University of California, Merced, and subsequently, from September 2018 to May 2019, Grossmont Community College. From September 2019 to May 2021, Mr. Sarkhani attended San Diego State University where he received his bachelor’s degree from in Humanities. Mr. Sarkhani brings a diverse background in entrepreneurship, media and business leadership. As co-founder and CEO of Asset Entities, and with prior experience building a digital brand and multiple ventures, he combines creative vision with operational execution to support Strive’s continued growth in a rapidly evolving landscape. +Pierre Rochard. Pierre Rochard is the Founder and CEO of the Bitcoin Bond Company since April 2025, a financial technology firm focused on developing Bitcoin-backed financial products and has served as a member of Strive's board of directors since September 2025. Prior to that role, he served as Vice President of Research for Riot Platforms Inc. from July 2022 to March 2025, one of the largest publicly traded Bitcoin mining companies in North America. Before that, he was a product manager at Kraken Digital Asset Exchange, a cryptocurrency exchange, from October 2019 to June 2022. Mr. Rochard has an extensive career in Bitcoin economics, policy and technology. He started his career in public accounting and later co-founded the Satoshi Nakamoto Institute, an educational initiative dedicated to archiving and promoting Bitcoin’s intellectual history. He became a prominent writer and speaker on Bitcoin, energy policy and financial regulation, and has advised policymakers, institutional investors and corporations on Bitcoin adoption and integration into the traditional financial markets. Mr. Rochard was educated at the University of Texas at Austin, where he earned his Bachelor of Business Administration and master’s degrees in accounting. Mr. Rochard brings to the board of directors deep expertise in Bitcoin, financial innovation and regulatory engagement. His background at the intersection of digital assets, economics and public policy supports informed oversight and long-term value creation. +Shirish Jajodia. Shirish Jajodia has served as Vice President, Corporate Treasurer and Head of Investor Relations at Strategy Inc. since November 2022 and has served as a member of Strive's board of directors since September 2025. Mr. Jajodia previously served as the Senior Director of Treasury and Investor Relations since October 2021. Mr. Jajodia holds a B.Tech. in Metallurgical Engineering and Materials Science from the Indian Institute of Technology, Bombay and has completed Level 2 of the CFA program and passed Level 1 of the Financial Risk Manager (FRM) certification. He is proficient in multiple languages, including English, Hindi, and Marathi, and has a strong background in treasury management, investor relations, and corporate finance strategies, particularly in the context of digital assets like Bitcoin. Under his leadership, Strategy has implemented a digital asset treasury reserve policy, positioning the company as a pioneer in corporate Bitcoin holdings. Mr. Jajodia brings to the board of directors deep expertise in strategic treasury planning, digital asset management and investor engagement. His experience leading high-impact financial initiatives at Strategy positions him to contribute meaningfully to the board of directors' oversight of the Company’s financial strategic direction as Strive enters its next phase of growth. +James A. Lavish. James A. Lavish is the Co-Founder and has been Managing Partner of the Bitcoin Opportunity Fund, a value investment fund focused on public and private opportunities within the Bitcoin ecosystem, since August 2023, and has served as a member of Strive's board of directors since September 2025. From March 2006 to January 2022, Mr. Lavish served as Chief Operating Officer of LKCM Alternative Investments, LLC, an asset management firm. Before that, Mr. Lavish cofounded and served as Managing Partner at Ranger Arbitrage, a risk arbitrage hedge fund. Mr. Lavish earned his B.A. in Political Science from Yale University in 1993 and has been a Chartered Financial Analyst (CFA) since 2002. +Jonathan R. Macey. Jonathan R. Macey has been the Sam Harris Professor of Corporate Law, Corporate Finance and Securities Law at Yale University, a Professor in the Yale School of Management since 2004 and has served as a member of Strive's board of directors since September 2025. Professor Macey is also a Member of the Executive Committee of the Yale Law School Center for the Study of Corporate Governance, and of the Members Consultative Group for the American Law Institute, Restatement of the Law, Corporate Governance. Professor Macey previously served as Chair of the Yale University Advisory Committee on Investor Responsibility (ACIR) and as Chair of the Yale University Committee on +63 +Fossil Fuel Investment Principles (CFFIP). Prior to joining the faculty at Yale, Professor Macey served as J. DuPratt White Professor of Law at Cornell University. He has served as an independent director of two public companies. Professor Macey previously served as a member of the Financial Industry Regulatory Authority, Inc.’s (“FINRA”) Economic Advisory Committee, as a member of the FINRA National Adjudicatory Council and is Co-Chair of the Bipartisan Policy Center Task Force on Capital Markets. Professor Macey is the author of several books and over 150 articles on corporate law and banking law. He has served as a member of the Legal Advisory Committee to the Board of Directors of the New York Stock Exchange. Professor Macey earned his B.A. from Harvard College and his J.D. from Yale Law School. Professor Macey brings to the board of directors his significant expertise in corporate governance, securities law and finance, as well as his prior experience as a public company director. +Mahesh Ramakrishnan. Mahesh Ramakrishnan is the Co-Founder and has been Managing Partner of Escape Velocity (EV3) Ventures, a venture capital firm focused on early-stage investments in blockchain infrastructure and decentralized technologies, since April 2022, and has served as a member of Strive's board of directors since September 2025. From August 2020 to March 2022, he served as a Private Equity Investor at Apollo Global Management Inc., a global alternative investment manager. From July 2018 to July 2020, Mr. Ramakrishnan served at Goldman Sachs, a multinational financial services firm. Mr. Ramakrishnan earned a B.A. in Economics from Harvard University in 2018 and an MBA from Harvard Business School in 2022. Mr. Ramakrishnan brings to the board of directors experience in private equity, venture capital, and financial technology, with a focus on decentralized infrastructure and digital asset ecosystems. +Eric Semler. Eric Semler is a public and private market investor in technology and media and has served as a member of Strive's board of directors since January 2026. His long/short investment fund, TCS Capital Management, LLC (“TCS”), which he founded in 2001 and converted into a family office in 2017, was, at its peak, among the largest independent technology, media and telecom investment funds worldwide. He is currently the Chief Executive Officer and Chairman of the Board of Trailblazer Acquisition Corp (Nasdaq: BLZR), a SPAC that went public in September 2025 raising $275 million. He served as executive chairman of the board of Semler Scientific, Inc. (Nasdaq: SMLR), a medical device and software business and the second U.S. public company to adopt bitcoin as its primary treasury reserve asset. Since 2021, he has served on the board of Fundstrat Global Advisors, an independent financial services firm. Mr. Semler is also a director of FutureCrest (Nasdaq: FCRS), a SPAC that went public in September 2025. Mr. Semler has previously served on three public company boards: Angie’s List, Inc., The Maven, Inc. (now known as Arena Group Holdings, Inc.) and Geeknet Inc. After graduating from Dartmouth College in 1987, Mr. Semler began his career as a journalist working for The New York Times and for the Moscow News in Russia. After graduating from Harvard University with both J.D. and M.B.A. degrees in 1994, Mr. Semler was an associate at James D. Wolfensohn & Co for three years, focusing on mergers and acquisitions. From 1997 to 1998, he was an investment banking principal in the media and communications group at Montgomery Securities. Mr. Semler is the co-author of two books published by Harper Collins: The Language of Nuclear War and The Businessman’s Guide to Moscow. In 2019, Mr. Semler and his wife Tracy founded and developed the Raising Fame podcast franchise, partnering with NBA parents Dell and Sonya Curry to tell stories about raising extraordinary athletes. In 2024, they launched Raising Fame TV, hosted by Sonya Curry and Lucille O’Neal, the mother of Shaquille O’Neal; the show began airing on TV One in July 2024, and includes episodes on raising successful athletes and entertainers. +Board Meetings +During the year ended December 31, 2025, our board of directors held seven meetings and acted by unanimous written consent ten times. +During the year ended December 31, 2025, each member of our board of directors attended at least 75% of the aggregate of the total number of meetings of the board of directors (held during the period for which he or she has been a director) and the total number of meetings held by all committees of the board of directors on which he or she served (during the periods that he or she served). +We do not have a policy requiring Board members to attend the annual meeting of our stockholders. The Company did not hold an annual meeting of stockholders during 2025. +Family Relationships +There are no family relationships between executive officers or directors of the Company. +Skills and Qualifications of the Directors +The Board believes that the qualifications of the directors, as set forth in their biographies, which are listed above, give them the qualifications and skills to serve as directors of the Company. +64 +Director Independence +Certain stockholders affiliated with Strive control more than a majority of the voting power of Class A Common Stock eligible to vote in the election of directors. As a result, we are a “controlled company” within the meaning of the corporate governance standards of Nasdaq. Under the rules of Nasdaq, a company of which more than 50% of the voting power for the election of directors is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate governance standards, including the requirements that the board be composed of a majority of independent directors and have a compensation committee and a nominating and corporate governance committee that are composed entirely of independent directors. +We intend to rely on these exemptions. As a result, we may not have a majority of independent directors on the board of directors. In addition, our Compensation Committee and our Nominating and Corporate Governance Committee may not, from time to time, consist entirely of independent directors. Accordingly, our stockholders may not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance standards applicable to non-controlled companies. +The Board has affirmatively determined that each of Messrs. Lavish, Macey, Ramakrishnan, Rochard and Semler meet the definition of “independent director” under the applicable rules and regulations of the SEC and the applicable listing standards of Nasdaq. Messrs. Rochard, Lavish and Macey serve as members of the Audit Committee, Messrs. Ramakrishnan, Rochard and Lavish serve as members of the Compensation Committee, and Messrs. Macey, Rochard and Ramakrishnan serve as members of the Nominating and Corporate Governance Committee. +Audit Committee +The Board has established a standing Audit Committee in accordance with Section 3(a)(58)(A) of the Exchange Act and adopted the Audit Committee Charter, which is publicly available on the Corporate Governance section of our website, https://investors.strive.com . The Audit Committee oversees our accounting and financial reporting processes and the audits of our financial statements, reviews the effectiveness of our internal controls over financial reporting, provides the opportunity for direct contact between our independent registered public accounting firm and our board of directors, and provides information about significant financial matters to our board of directors. Additionally, the Audit Committee is responsible for coordinating our board of directors’ oversight of risk assessment and management for cybersecurity. +The Audit Committee is currently comprised of Messrs. Rochard (Chair), Lavish and Macey. During 2025, the Audit Committee met five times and acted by unanimous written consent one time. All current members attended all the meetings of the Audit Committee in 2025 during the periods that he or she served. +Our board of directors has determined that each member of the Audit Committee meets the Nasdaq listing rules’ definition of an independent director for audit committee purposes, as well as the independence requirements of Rule 10A-3 under the Exchange Act. Each member of the Audit Committee is an audit committee financial expert, as defined in Item 407(d)(5)(ii) of Regulation S-K. Additional information regarding the Audit Committee and its functions and responsibilities is incorporated herein by reference to the information provided under the caption “Audit Committee Report” in the 2026 Proxy Statement. +Compensation Committee +Our board of directors has established a standing Compensation Committee and adopted the Compensation Committee Charter, which is publicly available on the Corporate Governance section of our website, https://investors.strive.com . The Compensation Committee determines the compensation arrangements of all executive officers of the Company, equity awards, including awards under the 2026 Omnibus Equity Incentive Plan (as amended, the “2026 Equity Plan”), and arrangements relating to certain perquisites and personal benefits provided to our executive officers, and performs other functions related to compensation matters. The Compensation Committee may delegate its authority to subcommittees or the Chair of the Committee when it deems it appropriate and in the best interests of the Company. The Committee may delegate to one or more officers of the Company the authority to make grants and awards or options to any non-Section 16 officer of the Company under such of the Company’s incentive-compensation or other equity-based plans as the Committee deems appropriate and in accordance with the terms of such plans. +During 2025, the Compensation Committee retained Mercer (US) Inc. as a third-party compensation consultant (the “Compensation Consultant”) to assist the board of directors with the evaluation of compensation for certain of our executive officers. +The Compensation Consultant reported directly to the Compensation Committee. Pursuant to its charter, our Compensation Committee has the sole authority to retain, and replace as needed, compensation consultants to provide independent advice to our Compensation Committee, as well as the sole authority to approve the consultants’ fees and other terms and +65 +conditions of retention. A representative from the Compensation Consultant participated in meetings of the Compensation Committee and met with the committee outside of the presence of management, as requested, and directly communicated with the chair of the Compensation Committee between meetings. However, the Compensation Committee made all decisions regarding the compensation paid to Section 16 executive officers. +The Compensation Consultant provided various executive compensation advisory services to the Compensation Committee pursuant to a written consulting agreement. Generally, these services included advising the Compensation Committee on the principal aspects of Strive’s executive and director compensation programs, assisting in the selection of the compensation peer group and providing market information and analysis regarding the competitiveness of our compensation program design. +The Compensation Committee considers the independence of the Compensation Consultant under SEC rules and Nasdaq listing standards. The Compensation Committee has received a written statement of independence from the Compensation Consultant, which addressed the following factors: (1) other services provided to Strive by the Compensation Consultant; (2) amount of fees paid by the Company as a percentage of the Compensation Consultant’s total revenues; (3) policies or procedures maintained by the Compensation Consultant that are designed to prevent a conflict of interest; (4) any shares of Common Stock owned by the individual consultants involved in the engagement; (5) any business or personal relationships between the individual consultants involved in the engagement and any member of the Compensation Committee; and (6) any business or personal relationships between our executive officers and the Compensation Consultant or the individual consultants involved in the engagement. At this time, the Compensation Committee has concluded that the work of the Compensation Consultant does not raise any conflicts of interest. +The Compensation Committee is currently comprised of Messrs. Ramakrishnan (Chair), Rochard and Lavish. During 2025, the Compensation Committee met one time and acted by unanimous written consent two times. All current members attended all the meetings of the Compensation Committee in 2025 during the periods that he or she served. +Our board of directors has determined that each member of the Compensation Committee meets the Nasdaq listing rules’ definition of an independent director for compensation committee purposes, as well as the independence requirements of Rule 10C-1 under the Exchange Act. Each member of the Compensation Committee is also a non-employee director, as defined in Rule 16b-3 under the Exchange Act. Additional information regarding the Compensation Committee and its functions and responsibilities is included in this Annual Report under the caption “Executive Compensation.” +Compensation Committee Interlocks and Insider Participation +None of the members of the Compensation Committee has ever been a member of the board of directors or compensation committee of any other entity that has or has had one or more executive officers serving as a member of the board of directors or Compensation Committee. +Nominating and Corporate Governance Committee +The board of directors has established a standing Nominating and Corporate Governance Committee and has adopted the Nominating and Corporate Governance Committee Charter, which is publicly available on the Corporate Governance section of our website, https://investors.strive.com . The Nominating and Corporate Governance Committee has been delegated the authority to exercise oversight of director nominations, which includes: +• reviewing and evaluating the size, composition, function and duties of the board of directors consistent with its needs; +• recommending criteria for the selection of candidates to the board of directors and its committees, and identifying individuals qualified to become board members consistent with such criteria, including the consideration of nominees submitted by stockholders; +• recommending director nominees for election to the board of directors at the next annual or special meeting of stockholders at which directors are to be elected or to fill any vacancies or newly created directorships that may occur between such meetings; and +• developing and recommending to the board of directors the Corporate Governance Guidelines and Code of Business Conduct and Ethics for the Company and overseeing compliance with such Guidelines and Code. +The Nominating and Corporate Governance Committee is currently comprised of Messrs. Macey (Chair), Rochard and Ramakrishnan. Our board of directors has determined that all members of the Nominating and Corporate Governance Committee meet the Nasdaq listing rules’ definition of an independent director. During 2025, the Nominating and Corporate Governance Committee met four times and acted by unanimous written consent two times. +66 +Nomination Process +As noted above, we have established a Nominating and Corporate Governance Committee, which is responsible for evaluating and recommending director nominees to our board of directors. The Nominating and Corporate Governance Committee will, from time to time, evaluate biographical information and background materials relating to potential candidates and interview selected candidates. The Nominating and Corporate Governance Committee may also use a third-party search firm to identify director candidates in situations where particular qualifications are required or where existing contacts are not sufficient to identify an appropriate candidate. +In considering whether to nominate any particular candidate for election to the board of directors, the Nominating and Corporate Governance Committee has not formally established any specific, minimum qualifications that must be met or skills that are necessary for directors to possess. In general, the board of directors will consider each candidate’s integrity, business acumen, knowledge of our business and industry, experience, diligence, conflicts of interest, and ability to act in the interests of our stockholders. The Nominating and Corporate Governance Committee does not have a formal policy with regard to the consideration of diversity in identifying director nominees. The Nominating and Corporate Governance Committee and board of directors believe the board of directors possesses the appropriate backgrounds, professional experience, and varied perspectives amongst its members to effectively provide direction and oversight. The Nominating and Corporate Governance Committee also considers whether a potential nominee would satisfy the Nasdaq listing rules’ definition of an independent director and the SEC’s definition of an audit committee financial expert. The Nominating and Corporate Governance Committee does not set specific minimum qualifications or assign specific weights to particular criteria and no particular criterion is a prerequisite for a prospective nominee. +We do not have a formal policy with respect to the consideration of director candidates recommended by our stockholders. Stockholder recommendations relating to director nominees or other proposals may be submitted in accordance with the procedures set forth above under the caption “Deadlines for Stockholder Proposals and Universal Proxy Notice for the 2027 Annual Meeting” in the 2026 Proxy Statement, which is incorporated herein by reference. Any stockholder nominations proposed for consideration should include the nominee’s name and qualifications. Such nominations will be evaluated in the same manner as nominations by members of the board of directors, management, or other parties. Stockholders may also send communications to the board of directors in accordance with the procedures set forth below under “Communicating with the Board of Directors.” +In 2025, the Nominating and Corporate Governance Committee did not engage third-party search firms to assist in identifying and screening potential director candidates. The Nominating and Corporate Governance Committee may use third-party search firms to identify director candidates in the future. +Communicating with the Board of Directors +Stockholders who wish to send communications to the board of directors may do so by writing to the Secretary of Strive, 200 Crescent Ct, Suite 1400, Dallas, TX 75201. The mailing envelope must clearly indicate that the enclosed letter is a “Stockholder-Board Communication.” All such letters must identify the author as a stockholder and include the stockholder’s full name, address, and a telephone number. If the letter is intended for a specific board member, the name of such board member should be noted in the communication. The Secretary will forward any such correspondence to the intended recipient. However, prior to doing so, the Secretary or his designee will review such correspondence and, in his or her discretion, may not forward communications that relate to ordinary business affairs, communications that are primarily commercial in nature or personal grievances, or communications that relate to an improper or irrelevant topic or are otherwise inappropriate for the board of directors’ or any individual board member’s consideration. +Board Leadership Structure +Mr. Cole is the Chairman of the board of directors and is our CEO. Having served as the Company’s CEO for almost 3 years, Mr. Cole is extremely knowledgeable about the Company’s business and strategy and, therefore, we believe it is appropriate for him to serve as the Chairman of the board of directors. In addition, Mr. Cole’s service as Chairman of the board of directors allows him to provide strategic input on the type and number of issues proposed for board consideration by helping to set and approve agendas for meetings and helping to ensure appropriate discussion of board level issues. +We do not have a lead independent director or a presiding director. However, the independent directors regularly meet in executive sessions of the board of directors. +Oversight of Risk +Our board of directors oversees our risk management processes directly and through its committees. Our management is responsible for risk management on a day-to-day basis. The role of our board of directors and its committees is to oversee +67 +the risk management activities of management. They fulfill this duty by discussing with management the policies and practices utilized by management in assessing and managing risks and providing input on those policies and practices. In general, our board of directors oversees risk management activities relating to business strategy, capital allocation, organizational structure, and certain operational risks. Our Audit Committee oversees risk management activities relating to financial controls, and legal and compliance risks, and coordinates the board of directors’ oversight of cybersecurity risks, and our Compensation Committee oversees risk management activities relating to the Company’s compensation policies and practices. In addition, since risk issues often overlap, committees from time to time can request that the full Board discuss particular risk issues. +Delinquent Section 16(a) Reports +Based solely on Strive’s review of the Section 16(a) reports that have been filed by or on behalf of its officers, directors and persons who own more than 10% of a registered class of Strive’s equity securities, we believe that all such persons complied on a timely basis with all Section 16(a) filing requirements during the fiscal year ended December 31, 2025, except that one Form 3 reporting Mr. Lavish’s initial holdings of Strive upon his appointment to Strive’s board of directors that was filed late due to an administrative delay. +Code of Ethics +Our board of directors has adopted a Code of Business Conduct and Ethics (the “Code of Ethics”) that applies to Strive’s principal executive officer, principal financial officer, principal account officer or controller, or persons performing similar functions and such other personnel of Strive’s or its majority-owned subsidiaries as may be designated from time to time by our board of directors. The Code of Ethics is publicly available on the Corporate Governance section of our website, https://investors.strive.com . We intend to disclose any amendments to the Code of Ethics or any waiver from a provision of the Code of Ethics on the Corporate Governance section of our website, https://investors.strive.com . Our Code of Ethics is also included as an exhibit to this Annual Report. +Clawback Policy +The Company has adopted its Compensation Recoupment Policy in compliance with Nasdaq listing rule 5601 and Rule 10D-1 of the Exchange Act effective September 12, 2025. This clawback policy applies to current or former officers of the Company (as defined in Rule 16a-1(f) under the Exchange Act or to the extent Nasdaq listing rule 5608 otherwise provides, such officers as provided under Rule 5608) (“Covered Executive”) and requires us, subject to limited exemptions provided by Nasdaq rules, to act to recover incentive-based compensation erroneously received on or after October 2, 2023 by our current or former Covered Executive and within the three fiscal years preceding the date an accounting restatement is determined to be required. For more information, see our Compensation Recoupment Policy, which is included as an exhibit to this Annual Report. +Insider Trading Policy +Our board of directors has adopted an insider trading policy governing the purchase, sale, disposition and other transactions in our securities by our directors, officers, employees and certain other covered persons. We believe our insider trading policy is reasonably designed to promote compliance with insider trading laws, rules and regulations, and Nasdaq listing standards. The policy prohibits our directors, officers, employees and certain other covered persons from illegally trading in Company securities, including common stock, debt securities, preferred stock and related derivative securities while aware of material non-public information about the Company or its securities. Additionally, Company personnel and related persons are prohibited from trading securities during various times throughout the year, and certain individuals must receive pre-clearance from our certain designated compliance officers prior to engaging in transactions in our securities. Our insider trading policy is filed as an exhibit to this Annual Report. +Item 11. Executive Compensation +The following executive compensation disclosures provide historical compensation information relating to the named executive officers of the Company. In September 2025, Asset Entities, Inc. completed a business combination with Strive Enterprises, Inc. and changed its name to Strive, Inc. In light of the recent transactions, which resulted in Strive Enterprises, Inc. becoming a subsidiary of Asset Entities and the named executive officers of Strive Enterprises, Inc. becoming executive officers of Strive, Inc. (which was previously Asset Entities) at the closing of the transactions, the Company is providing historical executive compensation of the named executive officers with respect to their employment with Strive Enterprises, Inc. for fiscal year 2024 and their employment with Strive, Inc. for fiscal year 2025. +68 +Executive Compensation of Strive, Inc. +The following table sets forth information concerning the compensation paid to the Company’s chief executive officer and our next two most highly compensated executive officer during our fiscal years ended December 31, 2025 and 2024 (collectively referred to as the “NEOs”). We disclose compensation for two NEOs with respect to 2024 because only two of the NEOs were executive officers in 2024. Logan Beirne, Chief Legal Officer joined Strive as an executive officer in February 2025. +Summary Compensation Table +Name and Principal Position Year +Salary ($) (1) +Bonus ($) Stock Awards ($) +All Other Compensation ($) (6) +Total ($) +Matthew Cole 2025 536,900 +2,000,000 (2) +— 46,900 2,583,000 +Chief Executive Officer 2024 415,000 +63,000 (3) +7,050,275 (4) +13,800 7,542,075 +Benjamin Pham 2025 397,500 +500,000 (2) +4,716,662 (4) +10,196 5,624,358 +Chief Financial Officer 2024 337,500 +52,500 (3) +1,938,466 (4) +9,437 2,337,903 +Logan Beirne 2025 381,300 +540,000 (2) +19,317,803 (4) +4,667 20,243,770 +Chief Legal Officer 2024 — — — — — +(1) As further described below, (a) Mr. Cole’s annual base salary for 2025 was initially $420,000 and was increased to $800,000 in connection with Mr. Cole entering into an employment agreement in September 2025, (b) Mr. Pham’s annual base salary for 2025 was initially $350,000 and was increased to $500,000 in connection with Mr. Pham entering into an employment agreement in September 2025 and (c) Mr. Beirne’s annual base salary for 2025 was initially $400,000 and was increased to $500,000 in connection with Mr. Beirne entering into an employment agreement in September 2025. The amounts reflected in this column reflect the actual amount of annual base salary received by each NEO in 2025. +(2) In connection with his appointment as our Chief Executive Officer, Mr. Cole received a special one-time bonus in an amount equal to $2,000,000. In connection with his hiring in February 2025, Mr. Beirne received a one-time signing bonus in an amount equal to $40,000. In addition, Messrs. Pham and Beirne each received a transaction bonus in the amount of $500,000 in connection with the closing of the Asset Entities Merger (as defined below). +(3) These amounts reflect special bonuses paid to Messrs. Cole and Pham as compensation for their relocation from Ohio to Texas. Strive otherwise did not provide any other bonuses to any of the NEOs in 2024. +(4) These amounts represent the aggregate grant date fair value of the Old Strive RSUs and Old Strive RSAs (as defined below) granted to each of the NEOs under the Pre-ASST Transaction Plan and as described in further detail below. The grant date fair value was calculated in accordance with FASB ASC Topic 718, excluding the effect of estimated forfeitures related to time-based vesting conditions or performance-based vesting conditions. The amounts reported for the Old Strive RSU and Old Strive RSA awards subject to performance conditions were calculated based on the probable outcome of the performance conditions as of the grant date, consistent with the estimate of aggregate compensation cost to be recognized over the service period determined as of the grant date under FASB ASC Topic 718, excluding the effect of estimated forfeitures. The assumptions used in calculating such grant date fair value are set forth in the notes to Strive’s audited consolidated financial statements included elsewhere in the prospectus of our Form S-4 filed with the Commission on December 3, 2025. Amounts reported do not reflect the actual economic value that may be realized by the applicable NEO. +(5) These amounts represent the aggregate grant date fair value of the New Strive RSUs (as defined below) granted to each of the NEOs under the Pre-ASST Transaction Plan and as described in further detail below. The grant date fair value was calculated in accordance with FASB ASC Topic 718, excluding the effect of estimated forfeitures related to time-based vesting conditions or performance-based vesting conditions. The amounts reported for the New Strive RSUs subject to performance conditions were calculated based on the probable outcome of the performance conditions as of the grant date, consistent with the estimate of aggregate compensation cost to be recognized over the service period determined as of the grant date under FASB ASC Topic 718, excluding the effect of estimated forfeitures. The assumptions used in calculating such grant date fair value are set forth in the notes to Strive’s audited consolidated financial statements included elsewhere in the prospectus of our Form S-4 filed with the Commission on December 3, 2025. Amounts reported do not reflect the actual economic value that may be realized by the applicable NEO. +(6) The amounts reported in this column reflect company matching contributions in 2025 under Strive’s 401(k) plan for Mr. Cole ($11,900), Mr. Pham ($10,196) and Mr. Beirne ($4,667). For Mr. Cole only, the amount also reflects personal security costs incurred in 2025. +Elements of Strive’s Executive Compensation Program +For the year ended December 31, 2025, the compensation for each NEO generally consisted of a base salary, special one-time bonuses, restricted stock units and standard employee benefits. These elements (and the amounts of compensation and benefits under each element) were selected because Strive believes they are necessary to help attract and retain executive talent which is fundamental to its success. Below is a more detailed summary of the current executive compensation program as it relates to the NEOs. +Base Salaries +The NEOs receive a base salary to compensate them for services rendered to Strive. The base salary payable to each NEO is intended to provide a fixed component of compensation reflecting the executive’s skill set, experience, role and responsibilities. Prior to September 15, 2025, Mr. Cole had an annual base salary of $420,000, Mr. Pham had an annual base salary of $350,000 and Mr. Beirne had an annual base salary of $400,000 in connection with their employment with Strive Enterprises, Inc. Effective September 15, 2025, Mr. Cole’s annual base salary was increased to $800,000, Mr. Pham’s annual base salary was increased to $500,000 and Mr. Beirne’s annual base salary was increased to $500,000, which increase was approved by the board of directors, after consultation with our independent compensation consultant, to provide compensation commensurate with each NEO’s new role as an executive officer of a public company. +69 +Bonuses +In 2025, each named executive officer was eligible to participate in our annual discretionary incentive plan under which cash incentive payments were awarded based on the achievement of key performance metrics as determined by our board of directors. For 2025, Mr. Cole was eligible to receive a bonus of up to 200% of his base salary and Messrs. Pham and Beirne were each eligible to receive a bonus of up to 100% of their respective base salaries, in each case, pursuant to the terms of their employment agreements described below under “—Employment Agreements”. +Annual bonuses for our named executive officers are awarded at the discretion of our board of directors, and are primarily based on our board of directors' general assessment of the bitcoin yield generated, paying interest-bearing liabilities, outperforming broad-based equity indices, and outperforming bitcoin itself over the long run. As of the date of this Annual Report, our board of directors has not yet determined any of our NEO’s annual bonus for 2025.  +In addition, in February 2025, Mr. Beirne received a one-time signing bonus in an amount equal to $40,000. In September 2025, Mr. Cole received a special one-time bonus in an amount equal to $2,000,000 in connection with his appointment as the Chief Executive Officer, and each of Messrs. Pham and Beirne received a transaction bonus in the amount of $500,000 in connection with the closing of the Asset Entities Merger (as defined below). +2025 Equity Grants +In September 2025, Strive granted Messrs. Pham and Beirne restricted stock units pursuant to the terms and conditions of the Pre-ASST Transaction Plan. Messrs. Pham and Beirne were granted awards of restricted stock units that settle in shares of Class A Common Stock of the Company granted pursuant to the Pre-ASST Transaction Plan (the “New Strive RSUs”) that vest upon the satisfaction of a “time condition”. The time condition applicable to the New Strive RSUs is satisfied as follows: (i) 33% of the New Strive RSUs vesting on the first anniversary of the grant date and (ii) 8.33% of the New Strive RSUs vesting on the nearest quarter-end date prior to the next eight quarterly anniversaries thereafter, such that the New Strive RSUs will vest on March 31, June 30, September 30 or December 31, as applicable, in each case subject to the NEO’s continued service to the Company on each applicable vesting date and otherwise subject to the terms and conditions set forth in the form of the RSU award agreement. In the event the NEO’s employment is involuntarily terminated for any reason other than for “cause” within 12 months following the consummation of a “change in control” (each term as defined in the applicable award agreement), the New Strive RSUs will become fully vested. +Other Elements of Compensation +Defined Contribution Plan +Strive maintains a 401(k) defined contribution retirement savings plan for its employees in the United States who satisfy certain eligibility requirements, including the NEOs. The NEOs are eligible to participate in the 401(k) plan on the same terms as other U.S. full-time employees, including matching employer contributions equal to 100% of the first 3% of the employees’ contribution and 50% of the next 2% of the employees’ contribution. +Employee Benefits +All of Strive’s full-time employees in the United States, including the NEOs, are eligible to participate in health and welfare plans, including medical, dental and vision benefits, medical and dependent care, flexible spending accounts, short-term and long-term disability insurance and life insurance. +Personal Security +As a result of Mr. Cole’s high profile as the Chief Executive Officer, we have provided an executive protection security detail to Mr. Cole. Security includes the use of a leased vehicle and driver, who is also a member of the security detail. The costs of this benefit attributable to security at his residence or any other amounts required to be disclosed are reported in our “Summary Compensation Table” above. +Outstanding Equity Awards at Fiscal Year-End +The following table sets forth information concerning outstanding equity awards for our named executive officers as of the end of our fiscal year ended December 31, 2025. Pursuant to that certain Amended and Restated Agreement and Plan of Merger, dated as of June 27, 2025, by and among Strive (which was, until September 12, 2025, known as Asset Entities Inc.), Alpha Merger Sub, LLC, an Ohio limited liability company and wholly-owned subsidiary of Strive, and Strive Enterprises, Inc., an Ohio corporation, Strive Enterprises, Inc., completed the reverse acquisition of Asset Entities, Inc. (“Asset Entities”) on September 12, 2025, and continued as the surviving entity. Upon the consummation of the Asset +70 +Entities Merger (“Closing”), (i) each outstanding share Class B Common Stock of Strive Enterprises, Inc. (the “Old Strive Class B Shares”) held by the NEO as of the Closing was converted into the right to receive a number of shares of Class B Common Stock of the Company (the “New Strive Class B Shares”) equal to the product, rounded down to the nearest whole share, obtained by multiplying (x) the number of Old Strive Class B Shares by (y) a ratio equal to 70.9470650 (the “Exchange Ratio”), (ii) each outstanding restricted stock unit in respect of Old Strive Class B Shares held by the NEO as of the Closing (each, an “Old Strive RSU”) was converted into an award of restricted stock units with respect to a number of New Strive Class B Shares (which automatically converted into shares of Class A Common Stock of the Company (the “New Strive Class A Shares”) upon the transfer thereof) (each, a “Converted Strive RSU”) equal to the product, rounded down to the nearest whole share, obtained by multiplying (x) the number of Old Strive RSUs held by the NEO by (y) the Exchange Ratio, which such Converted Strive RSUs remain subject to the same terms and conditions as were applicable to the corresponding Old Strive RSU and (iii) each outstanding award of restricted shares with respect to Old Strive Class B Share held by the NEO as of the Closing (each, an “Old Strive RSA”) was converted into an award of restricted shares with respect to New Strive Class B Shares (which automatically converted into New Strive Class A Shares upon the transfer thereof) (each, a “Converted Strive RSA”) equal to the product, rounded down to the nearest whole share, obtained by multiplying (x) the number of Old Strive RSA held by the NEO by (y) the Exchange Ratio, which such Converted Strive RSAs remain subject to the same terms and conditions as were applicable to the corresponding Old Strive RSA. +The market value of the equity awards set forth below is based on the closing price of our Class A Common Share as of December 31, 2025, the last trading day of 2025, which was $0.7380 ($14.76 on a split-adjusted basis). +Stock Awards +Name Grant Date Number of Shares or Units of Stock That Have Not Vested (#) (1) Market Value of Shares or Units of Stock That Have Not Vested ($) +Matthew Cole (2) +— — — +Benjamin Pham 7/8/2024 +101,963 (3) +1,504,963 +9/15/2025 +27,778 (4) +410,000 +Logan Beirne 9/15/2025 +111,112 (4) +1,640,000 +(1) The number of units reflected in this column have been adjusted to account for the 1-for-20 reverse stock split. +(2) In connection with the Closing, each of the time-vesting condition and the performance vesting condition of the Converted Strive RSUs held by Mr. Cole was deemed to have been achieved and all of then-outstanding Converted Strive RSUs held by Mr. Cole became vested as of September 12, 2025. Mr. Cole has not been granted any equity awards since the Closing. +(3) Reflects the grant of Converted Strive RSUs outstanding under the Pre-ASST Transaction Plan that vest upon the satisfaction of both a “time condition” and a “performance condition.” The time condition applicable to the Converted Strive RSUs is satisfied as follows: (i) 25% of the Converted Strive RSUs satisfy the time condition on the first anniversary of the Converted Strive RSU grant date and (ii) the remaining 75% of the Converted Strive RSUs satisfy the time condition in 12 equal quarterly installments thereafter (with the vesting dates always being on March 31, June 30, September 30 or December 31, as applicable), in each case subject to the NEO’s continuous service through the applicable vesting date. The performance condition will be satisfied on the earlier to occur of (i) a “liquidity event” or (ii) an “IPO” (each term as defined in the applicable award agreement) prior to the expiration date of the Converted Strive RSUs, which is eight years from the grant date. The performance condition was deemed fully satisfied in connection with the Asset Entities Merger. If both the time condition and performance condition have not been satisfied before the expiration date, the Converted Strive RSUs will expire on the expiration date. The number of Converted Strive RSUs reflected in the table above assumes full attainment of the time condition and performance condition. In the event the NEO’s employment is involuntarily terminated for any reason other than for “cause” within 12 months following the consummation of a “change in control” (each term as defined in the applicable award agreement), the Converted Strive RSUs will become fully vested. +(4) These New Strive RSUs vest as follows: 33% vests on the first anniversary of the grant date and the remainder vests as to 8.33% on a quarterly basis (with the vesting dates always being on March 31, June 30, September 30 or December 31, as applicable), in all cases subject to the NEO’s continued employment through each applicable vesting date. +Employment Agreements +Executive Employment Agreements +Cole Employment Agreement +During the first portion of the 2025 fiscal year (ending September 15, 2025), Mr. Cole was party to an employment agreement with Strive, dated May 19, 2022 (the “Old Cole Employment Agreement”), which provided for at-will employment and no specified term of employment. The Old Cole Employment Agreement provided for annual base salary (which was $420,000 until September 15, 2025), a discretionary bonus, the amount and terms of which were in the sole and absolute discretion of the board of directors and eligibility to receive discretionary equity incentive awards under the Pre-ASST Transaction Plan, as determined in the sole discretion of the board of directors. +Pursuant to the Old Cole Employment Agreement, in the event Mr. Cole’s employment was terminated for any reason, Mr. Cole was not entitled to any payments in the nature of severance or termination payments other than any accrued but unpaid salary and vacation, reimbursement for unreimbursed business expenses and vested employee benefits (including equity compensation) to which Mr. Cole would have been entitled as of the date of termination. +71 +The Old Cole Employment Agreement also contained customary perpetual confidentiality and non-disparagement covenants, as well as, for a period of twenty-four (24) months following termination of Mr. Cole’s employment with Strive, covenants not to compete and not to solicit customers and services provider covenants. +Pham Employment Agreement +During the first portion of the 225 fiscal year (ending September 15, 2025), Mr. Pham was party to an amended and restated employment agreement with Strive, dated March 1, 2022 (the “Old Pham Employment Agreement”), which provided for at-will employment and no specified term of employment. The Old Pham Employment Agreement provided for agreement annual base salary (which was $350,000 until September 15, 2025), a discretionary bonus, the amount and terms of which were in the sole and absolute discretion of the board of directors and eligibility to receive discretionary equity incentive awards under the Pre-ASST Transaction Plan, as determined in the sole discretion of the board of directors. Mr. Pham was also entitled to participate in the employee benefit plans and programs as provided by Strive to similarly situated full-time employees from time to time. +Pursuant to the Old Pham Employment Agreement, in the event Mr. Pham’s employment was terminated without “cause” or Mr. Pham resigns for “good reason” (each as defined in the Old Pham Employment Agreement ), then, subject to Mr. Pham’s timely execution and non-revocation of a release of claims and continued compliance with applicable restrictive covenants, Mr. Pham would have been entitled to receive (i) a lump sum payment equal to 3 months of base salary for the year in which the date of termination occurs and (ii) monthly reimbursement of COBRA premiums (less active employee rates) for 18 months following the date of his termination (or, if earlier, until the date Mr. Pham became eligible for substantially similar coverage from another employer or other source). +In addition, in the event Mr. Pham’s employment was terminated without cause or Mr. Pham resigned for good reason within 24 months following a “change in control” (as defined in the Old Pham Employment Agreement), then, subject to Mr. Pham’s timely execution and non-revocation of a release of claims and continued compliance with applicable restrictive covenants, Mr. Pham would have been entitled to receive (i) a prorated bonus, if any, that Mr. Pham would have earned for the period in which the termination date occurs (or if greater, the period in which the change in control occurs) and (ii) monthly reimbursement of COBRA premiums (less active employee rates) for 18 months following the date of his termination (or, if earlier, until the date Mr. Pham becomes eligible for substantially similar coverage from another employer or other source). +The Old Pham Employment Agreement also contained customary perpetual confidentiality and non-disparagement covenants, as well as, for a period of twelve (12) months following termination of Mr. Pham’s employment with Strive, a non-compete covenant and a covenant not to solicit customers, and, for a period of twenty-four (24) months following termination of Mr. Pham’s employment with Strive, a covenant not to solicit employees. +Executive Employment Agreements Following the Asset Entities Merger +On September 15, 2025, Strive entered into Executive Employment Agreements (each, a “New Employment Agreement,” and together, the “New Employment Agreements”) with each NEO as described below. +Position and Term +Pursuant to the terms of the New Employment Agreements, Mr. Cole serves as the Company’s Chief Executive Officer, Mr. Pham serves as the Company’s Chief Financial Officer and Mr. Beirne serves as the Company’s Chief Legal Officer. The term of each of the NEOs’ employment commenced on September 12, 2025, and will be of an indefinite duration and may be terminated by either Strive or the NEO for any reason upon 30 days’ prior written notice. +Compensation +Mr. Cole’s New Employment Agreement provides for an annual base salary of $800,000 and an annual performance-based bonus with a target of 200% of base salary, subject to achievement of performance metrics to be determined by the board of directors in consultation with Mr. Cole. Mr. Cole’s New Employment Agreement also provides that Mr. Cole may participate in the Pre-ASST Transaction Plan (together with any successor stockholder approved plan, the “Equity Incentive Plan”) subject to the terms of such plan, as determined by the board of directors in its sole discretion. Additionally, Mr. Cole’s New Employment Agreement provides (i) for a one-time transaction bonus in connection with the closing of the Asset Entities Merger, in an amount equal to $2,000,000 and (ii) subject to the applicable approvals (including stockholder approval of the applicable action with respect to the Equity Incentive Plan) and Mr. Cole’s continued employment through Strive’s next annual stockholders meeting, for the grant of time-vesting restricted stock units with a value of $17,000,000, with the number of shares underlying the restricted stock unit award to be determined based on the average closing price of Strive Common Stock for the six month period beginning the day after the closing of +72 +the Asset Entities Merger (the “Future CEO Grant”), with the Future CEO Grant to vest in five substantially equal installments on each of the first five anniversaries of the closing of the Asset Entities Merger, subject to Mr. Cole’s continued employment through each vesting date; provided that the vesting will be accelerated upon a Change in Control (as defined in the Equity Incentive Plan) or a termination of Mr. Cole’s employment by Strive without Cause, by Mr. Cole with Good Reason or due to death or Disability (each such term as defined in Mr. Cole’s New Employment Agreement). +Mr. Pham’s New Employment Agreement and Mr. Beirne’s New Employment Agreement provide for an annual base salary of $500,000 and an annual performance-based bonus with a target of 100% of base salary, subject to achievement of performance metrics to be determined by the board of directors in consultation with Mr. Cole. Mr. Pham’s New Employment Agreement and Mr. Beirne’s New Employment Agreement also provide that Messrs. Pham and Beirne may participate in the Equity Incentive Plan, subject to the terms of such plan, as determined by the board of directors in its sole discretion. +Each of the NEOs are also entitled to participate in Strive’s employee benefit plans, perquisites and vacation scheme as are made generally available from time to time to executives of Strive. Strive shall also reimburse each of the NEOs for all reasonable and necessary business, entertainment and travel expenses incurred in the performance of their respective job duties. In addition, Strive will provide each of the NEOs with life insurance policy naming each of the NEO’s respective designated beneficiary or beneficiaries as the sole beneficiary or beneficiaries (which, for Mr. Cole, will provide for a death benefit of no less than $4,800,000). Mr. Cole’s New Employment Agreement also provides that Strive will provide him with appropriate security services at a maximum annual amount of $250,000 per year, subject to review by the board of directors for potential increase. +Payment in Connection with Termination of Employment +For a description of payments and benefits payable to the NEOs pursuant to the New Employment Agreements in connection with termination of their employment, see the section entitled “Potential Payments Upon Termination or Change in Control” below. +Potential Payments Upon Termination or Change in Control +Where a NEO’s employment is terminated by Strive for Cause (as defined in the Employment Agreements), or by the NEO voluntarily without Good Reason (as defined in the Employment Agreements), Strive shall pay to the terminating NEO any accrued but unpaid base salary and accrued but unused vacation, unreimbursed business expenses properly incurred by the NEO and employee benefits (including equity compensation), if any, to which the NEO may be entitled under Strive’s employee benefit plans as of the date of termination of employment (collectively, the “Accrued Amounts”). +If a NEO’s employment is terminated on account of the NEO’s death or Disability (as defined in the Employment Agreements), Strive shall pay to the NEO the Accrued Amounts and, subject to the NEO’s (or, if applicable, NEO’s estate or beneficiaries) timely execution and non-revocation execution of a release of claims in favor of Strive (the “Release”), (i) a prorata portion of the NEO’s bonus for the year in which termination of employment occurs based on actual achievement of the applicable performance goals during the year of termination of employment (the “Prorata Bonus”), (ii) full vesting of all equity awards that vest solely based on continued service with Strive (the “Service-Based Equity Acceleration”), (iii) vesting of all equity awards that vest based on the attainment of performance goals based on actual performance for any open performance periods (the “Performance-Based Equity Acceleration”), (iv) the NEO’s estate and/or beneficiaries elects continued health benefits coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”), reimbursement of the cost of the premiums for such coverage for the NEO’s dependents for (x) in the case of NEO’s death, 36 months following the NEO’s death and (y) in the case of NEO’s Disability, 24 months following the date on which NEO’s employment terminated due to Disability and (iv) continued indemnification under Strive’s director and officer’s liability insurance for a period of six years following the termination date (the “D&O Coverage Continuation”). If a NEO’s employment with Strive terminates due to the NEO’s Disability resulting from an intentional violent act of a third party targeting the NEO, subject to the NEO’s (or, if applicable, the NEO’s estate or beneficiaries) timely execution and non-revocation of the Release, the NEO will receive an additional payment equal to one times (or, in the case of Mr. Cole, one and a half times) base salary and the NEO’s target annual bonus. +If a NEO’s employment is terminated by Strive without Cause, or by the NEO for Good Reason, Strive shall pay the terminating NEO the Accrued Amounts, and, subject to the timely execution and non-revocation of the Release, the NEO will also be entitled to receive: (i) a lump sum payment in an amount equal to (x) for Mr. Cole, two times the sum of Mr. Cole’s base salary and target annual bonus for the year in which the termination date occurs and (y) for Messrs. Pham and Beirne, one times the sum of their respective base salary and target annual bonus for the year in which the termination date occurs, (ii) the Prorata Bonus, (iii) a payment equal to any earned but unpaid annual bonus with respect to any completed fiscal year immediately preceding the termination date that will be paid on the same date as payments for annual bonuses +73 +are made to similarly situated NEOs (the “Prior Year Bonus”), (iv) the Service-Based Equity Acceleration, (v) the Performance-Based Equity Acceleration and (vi) if the NEO elects continued health benefits coverage under COBRA, reimbursement of the cost of the premiums for such coverage for the NEO and their dependents (x) for Mr. Cole, for 24 months following Mr. Cole’s termination of employment and (y) for Messrs. Pham and Beirne, for 12 months following their respective termination. +If a NEO’s employment is terminated by Strive without Cause, or by the NEO for Good Reason, in each case within 24 months immediately following a Change in Control, Strive shall pay to the terminating NEO the Accrued Amounts, and subject to the timely execution and non-revocation of the Release, the NEO will be entitled to receive: (i) a lump sum payment in an amount equal to (x) for Mr. Cole, three times the sum of Mr. Cole’s base salary and target annual bonus for the year in which the termination date occurs and (y) for Messrs. Pham and Beirne, two times the sum of their respective base salary and target annual bonus for the year in which the termination date occurs, (ii) the Prior Year Bonus, (iii) the Prorata Bonus, (iv) the Service-Based Equity Acceleration, (v) vesting of all equity awards that vest based on the attainment of performance goals at the greater of target and actual performance for any open performance periods and (vi) if the NEO elects continued health benefits coverage under COBRA, reimbursement of the cost of the premiums for such coverage for the NEO and their dependents (x) for Mr. Cole, for 36 months following Mr. Cole’s termination of employment and (y) for Messrs. Pham and Beirne, for 24 months following their respective termination. +DIRECTOR COMPENSATION +The following director compensation disclosures provide compensation information relating to the non-employee directors of both Strive, Inc. and Asset Entities in respect of the fiscal year ended December 31, 2025. In light of the Asset Entities Merger which was consummated on September 12, 2025 (the “Closing Date”), the Company is providing compensation information of both the Asset Entities’ non-employee directors and Strive, Inc.’s non-employee directors. +Compensation of Strive’s Directors +In connection with the Asset Entities Merger, Strive entered into director appointment letters with each of its non-employee directors (the “Strive Director Appointment Letters”), which provide for an annual cash retainer of $100,000. In addition, pursuant to the Strive Director Appointment Letters, each non-employee director who serves on the audit committee, compensation committee or nominating committee of the board of directors are eligible for an additional annual cash retainer for their service on a committee as follows: (i) $30,000 for service as the audit committee chair and $15,000 for service as an audit committee member, (ii) $20,000 for service as the nominating and corporate governance committee chair and $10,000 for service as a nominating and corporate governance committee member, and (iii) $25,000 for service as the compensation committee chair and $12,500 for service as a compensation committee member. On November 13, 2025, pursuant to the Strive Director Appointment Letters, each non-employee director was granted an initial equity award of 296,296 New Strive RSUs under the Pre-ASST Transaction Plan, which will vest on the first anniversary of the date on which the non-employee director is appointed as a director of the board of directors, subject to the non-employee director’s continued service through that date. For each year following 2025, under the Strive Director Appointment Letters, each non-employee director will receive an annual equity award of restricted stock units under the Pre-ASST Transaction Plan (or any successor stockholder approved plan) with a grant date fair market value of $200,000, determined as of the date of Strive’s annual meeting for the applicable year. +Compensation of Asset Entities’ Directors +Prior to the Closing of the Asset Entities Merger, each of the non-employee directors of Asset Entities had entered into an Independent Director Agreement with Asset Entities (each, an “Independent Director Agreement”). Under each Independent Director Agreement, each non-employee director was eligible to receive an annual cash fee and an initial award of restricted Asset Entities Class B Common Stock. Asset Entities was to pay the annual cash compensation fee to each non-employee director in four equal installments no later than the fifth business day of each calendar quarter commencing in the quarter following the date of the director’s appointment. The cash fee to be paid to each independent director was to be $40,000 per year in cash, plus $9,000 per year for as long as the director serves as a chairman of a committee of the Asset Entities Board of Directors. In addition, under each Independent Director Agreement, 1,800 restricted shares of Asset Entities Class B Common Stock were awarded to each non-employee director following each director’s appointment. The restricted stock would have vested in four equal quarterly installments commencing in the quarter following the date of grant. Asset Entities was also to reimburse each independent director for pre-approved reasonable business-related expenses incurred in good faith in connection with the performance of the director’s duties for Asset Entities. As also required under each Independent Director Agreement, Asset Entities had separately entered into a standard indemnification agreement with each director. +74 +DIRECTOR COMPENSATION TABLE +The following table sets forth compensation paid to or earned by the individuals who served as non-employee directors of the Company or as directors of Asset Entities during 2025. On September 22, 2025, the Company and Semler Scientific, Inc. (“Semler Scientific”) entered into an Agreement and Plan of Merger (as amended on December 3, 2025, the “Merger Agreement”), that provides for the combination of the two companies whereby Strive Merger Sub, Inc. (“Merger Sub”) will merge with and into Semler Scientific with Semler Scientific as the surviving corporation of the Merger (the “Semler Scientific Merger”). In connection with the Semler Scientific Merger, which was consummated on January 16, 2026, Mr. Semler was appointed to the board of directors as of January 16, 2026. Mr. Semler is not included in the following table as he was not a director of the Company or Asset Entities during 2025. +Name Fees Earned or Paid in Cash ($) Stock Awards ($) Total ($) +Avik Roy +46,667 (1) +320,000 (2) +366,667 +Pierre Rochard +44,479 (1) +320,000 (2) +364,479 +Shirish Jajodia +29,167 (1) +320,000 (2) +349,167 +James A. Lavish +32,917 (1) +320,000 (2) +352,917 +Jonathan R. Macey +31,667 (1) +320,000 (2) +351,667 +Mahesh Ramakrishnan +32,292 (1) +320,000 (2) +352,292 +Arshia Sarkhani (3) +547,917 6,288,883 6,836,800 +Kyle Fairbanks (4) +306,250 1,572,221 1,878,471 +Michael Gaubert (5) +745,000 — 745,000 +Richard A. Burton +25,000 (6) +— 25,000 +John A. Jack II +25,000 (6) +— 25,000 +Scott K. McDonald +25,000 (6) +— 25,000 +David Reynolds +25,000 (6) +— 25,000 +Benjamin Werkman (7) +5,729 — 5,729 +(1) Each non-employee director of Strive has entered into a Strive Director Appointment Letter, which provides for an annual cash retainer of $100,000. In addition, pursuant to the Strive Director Appointment Letters, each non-employee director who serves on the audit committee, compensation committee or nominating committee of the board of directors are eligible for an additional annual cash retainer for their service on a committee as follows: (i) $30,000 for service as the audit committee chair and $15,000 for service as an audit committee member, (ii) $20,000 for service as the nominating and corporate governance committee chair and $10,000 for service as a nominating and corporate governance committee member, and (iii) $25,000 for service as the compensation committee chair and $12,500 for service as a compensation committee member. The amounts reflected in this column reflect the actual amount of the annual cash retainer received by each non-employee director of Strive in 2025. +(2) On November 13, 2025, pursuant to the Strive Director Appointment Letters, each non-employee director of Strive was granted an initial equity award of 296,296 New Strive RSUs under the Pre-ASST Transaction Plan, which will vest on the first anniversary of the date on which the non-employee director is appointed as a director of the board of directors, subject to the non-employee director’s continued service through that date. These amounts represent the aggregate grant date fair value of the New Strive RSUs granted to each of the non-employee directors of Strive under the Pre-ASST Transaction Plan and as described in further detail above. The grant date fair value was calculated in accordance with FASB ASC Topic 718, excluding the effect of estimated forfeitures related to time-based vesting conditions. Amounts reported do not reflect the actual economic value that may be realized by the applicable non-employee director. +(3) Prior to the Closing Date, Mr. Sarkhani served as Chief Executive Officer and Director of Asset Entities. Effective as of the Closing Date, Mr. Sarkhani was appointed as Chief Marketing Officer and Director of Strive. As an employee director, Mr. Sarkhani did not earn any compensation with respect to his service as a director at either Strive or Asset Entities. The amounts reported for Mr. Sarkhani in this table reflect his compensation with respect to his employment with Asset Entities before the Closing Date and with Strive following such date. In connection with his employment as Chief Executive Officer of Asset Entities, Mr. Sarkhani was paid an annual base salary of $240,000 and a discretionary bonus of $275,000. Mr. Sarkhani was not granted any stock awards with respect to Asset Entities common stock in 2025. In connection with his employment as Chief Marketing Officer of Strive, Mr. Sarkhani was paid an annual base salary of $350,000. The amounts reported for the “Fees Earned or Paid in Cash” column reflect the actual amount of annual base salary received by Mr. Sarkhani, prorated for his service with the respective company before and after the Closing Date. In addition, on September 12, 2025, Mr. Sarkhani was granted New Strive RSUs. The grant date fair value of this award was calculated in accordance with FASB ASC Topic 718, excluding the effect of estimated forfeitures related to time-based vesting conditions or performance-based vesting conditions. Amounts reported do not reflect the actual economic value that may be realized by the grantee. +(4) Prior to the Closing Date, Mr. Fairbanks served as Executive Vice-Chairman, Chief Marketing Officer and Director of Asset Entities. Effective as of the Closing Date, Mr. Fairbanks was appointed as Director, Marketing of Strive. As an employee director, Mr. Fairbanks did not earn any compensation with respect to his service as a director at Asset Entities. The amounts reported for Mr. Fairbanks in this table reflect his compensation with respect to his employment with Asset Entities before the Closing Date and with Strive following such date. In connection with his employment as Executive Vice-Chairman and Chief Marketing Officer of Asset Entities, Mr. Fairbanks was paid an annual base salary of $240,000 and a discretionary bonus of $85,000. Mr. Fairbanks was not granted any stock awards with respect to Asset Entities common stock in 2025. In connection with his employment as Director, Marketing of Strive, Mr. Fairbanks was paid an annual base salary of $150,000. The amounts reported for the “Fees Earned or Paid in Cash” column reflect the actual amount of annual base salary received by Mr. Fairbanks, prorated for his service with the respective company before and after the Closing Date. In addition, on September 12, 2025, Mr. Fairbanks was granted New Strive RSUs. The grant date fair value of this award was calculated in accordance with FASB ASC Topic 718, excluding the effect of estimated forfeitures related to time-based vesting conditions or performance-based vesting conditions. Amounts reported do not reflect the actual economic value that may be realized by the grantee. +(5) Prior to the Closing Date, Mr. Gaubert served as Executive Chairman and Director of Asset Entities. As an employee director, Mr. Gaubert did not earn any compensation with respect to his service as a director at Asset Entities. In connection with his employment as Executive Chairman of Asset Entities, Mr. Gaubert was paid an annual base salary of $240,000 and a discretionary bonus of $325,000. The amounts reported for the “Fees Earned or Paid in Cash” column reflect the actual amount of annual base salary received by Mr. Gaubert, prorated for his service with Asset Entities before the Closing Date. In addition, in connection with his resignation as Executive Chairman of Asset Entities, Mr. Gaubert was paid a separation fee of $240,000 pursuant to the terms of his engagement letter with Asset Entities, dated March 27, 2025. +(6) Under each Independent Director Agreement, each non-employee director of Asset Entities was entitled to receive an annual cash fee of $40,000 per year. The amounts reflected in this column reflect the actual amount of the annual cash fee received by each non-employee director of Asset Entities in 2025 for their service up to the closing of the Asset Entities Merger. +75 +(7) On October 5, 2025, in connection with his appointment as Chief Investment Officer of the Company, Mr. Werkman resigned from the board of directors, effective October 5, 2025. The portion of annual cash retainer earned by Mr. Werkman in connection with his service as a director in 2025 was $5,729. Mr. Werkman did not receive any stock awards in connection with his service as a director in 2025. +Item 12. Security and Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +The information required by this item has been included in our Proxy Statement for the 2026 Annual Meeting of Stockholders, which was filed with the SEC on March 16, 2026, and is incorporated by reference herein. +Item 13. Certain Relationships and Related Transactions, and Director Independence +The following includes a summary of transactions since January 1, 2025, including those transactions entered into by the Company prior to the reverse acquisition by Strive Enterprises, Inc., to which we have been a party in which the amount involved exceeded or will exceed the lesser of (x) $120,000 or (y) 1% of our average total assets at year-end for the last two completed fiscal years, and in which any of our directors, executive officers or, to our knowledge, beneficial owners of more than 5% of our capital stock or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest, other than equity and other compensation, termination, change in control and other arrangements. We also describe below certain other transactions with our directors, executive officers and stockholders. +• In connection with the Asset Entities Merger, which closed on September 12, 2025, Strive entered into the Shareholders Agreement (the “Shareholders Agreement”) with Vivek Ramaswamy and affiliated entities, Matthew Cole, Benjamin Pham, Logan Beirne, Virtuous Industries, LLC and Liberty Pier Foundation (the “Controlling Shareholders”). The Shareholders Agreement remains in effect and provides the Controlling Shareholders with certain board nomination and voting rights, as well as the ability to require the combined company to elect controlled company status under the rules of The Nasdaq Stock Market LLC, for so long as they collectively beneficially own at least 50% of the voting power of our outstanding Common Stock. Pursuant to a joinder dated November 17, 2025, Virtuous Industries, LLC and Liberty Pier Foundation became parties to the Shareholders Agreement. At the closing of the Asset Entities Merger, Strive also entered into a Registration Rights Agreement with the Controlling Shareholders providing them with customary registration rights and subjecting certain holders to lock-up and market stand-off restrictions. +• In connection with the Company's issuance of Class A Common Stock and warrants to purchase Class A Common Stock on September 12, 2025, each of Matthew Cole, Benjamin Pham and Logan Beirne, who serve as executive officers and directors of Strive, Inc., entered into subscription agreements with Strive and Asset Entities, pursuant to which each purchased shares of Strive, Inc. Class A Common Stock and warrants. Specifically, Mr. Cole, Mr. Pham, and Mr. Beirne purchased such securities for an aggregate purchase price of $250,000, $100,000, and $100,000, respectively. +• Mr. Lavish is Managing Director of certain funds associated with Bitcoin Opportunity Fund that purchased an aggregate of 1,111,111 shares of our Class A Common Stock and 1,111,111 PIPE Traditional Warrants through the funds’ participation in the PIPE Financing Transactions. Mr. Lavish holds immaterial limited partnership interests in the funds’ interests in Strive but may be deemed, as a result of his general partnership interests in the funds, to have a material interest in the future performance of the funds’ investment in Strive. +• On November 5, 2025, the Company entered into an underwriting agreement with Barclays Capital Inc. and Cantor Fitzgerald & Co., as the joint book-running managers and representatives of the several underwriters, relating to the issuance and sale in an underwritten offering registered under the Securities Act of 2,000,000 shares of our SATA Stock, at a public offering price of $80.00 per share (the “SATA IPO”). As part of the SATA IPO, at the Company’s request, the underwriters reserved up to 100,000 shares of SATA Stock for sale at the public offering price through a directed share program to certain of the Company’s employees, officers and directors based in the United States, and their friends and family members, and certain other individuals identified by management. Under the directed share program, Vivek Ramaswamy, who beneficially owned more than 5% of our Class B Common Stock at the time of the offering and is a Principal Stockholder under our Amended and Restated Articles of Incorporation purchased 15,625 shares of SATA Stock for $1.25 million. +Except as may be the case with respect to the matters discussed in the preceding paragraphs, there have been no related person transactions required to be reported pursuant to rules or regulations promulgated by the Exchange Act since the beginning of 2025. +Review, Approval or Ratification of Transactions with Related Persons +Our board of directors has adopted a related person transaction policy setting forth the policies and procedures for the review and approval or ratification of related-person transactions. This policy covers, with certain exceptions set forth in Item 404 of Regulation S-K under the Securities Act, any transaction, arrangement or relationship, or any series of similar +76 +transactions, arrangements or relationships in which we were or are to be a participant, where the amount involved exceeds $120,000 (or if we are a “smaller reporting company” at such time, the lesser of (x) $120,000 or (y) 1% of our average total assets at year-end for the last two completed fiscal years) and a related person had or will have a direct or indirect material interest, including, without limitation, purchases of goods or services by or from the related person or entities in which the related person has a material interest, indebtedness, guarantees of indebtedness and employment by us of a related person. In reviewing and approving any such transactions, our audit committee is tasked to consider all relevant facts and circumstances, including, but not limited to, whether the transaction is on terms comparable to those that could be obtained in an arm’s length transaction and the extent of the related person’s interest in the transaction. +Item 14. Principal Accountant Fees and Services +The information required by this item has been included in our Proxy Statement for the 2026 Annual Meeting of Stockholders, which was filed with the SEC on March 16, 2026, and is incorporated by reference herein. +77 +Part IV +Item 15. Exhibits and Financial Statement Schedules +(a) The following documents are filed as part of this Annual Report: +Page +Report of Independent Registered Public Accounting Firm (PCAOB ID No. 185 ) +79 +Consolidated Financial Statements: +Consolidated Statements of Financial Condition +80 +Consolidated Statements of Operations +81 +Consolidated Statements of Changes in Stockholders’ Equity +82 +Consolidated Statements of Cash Flows +83 +Notes to Consolidated Financial Statements +85 +Exhibits +104 +(b) Exhibits +We hereby file as part of this Annual Report the exhibits listed in the Index to the Exhibits. +(c) Financial statement schedules have been omitted because either they are not applicable or the required information is included in the financial statements or notes thereto. +Item 16. Form 10-K Summary +None. +78 +Report of Independent Registered Public Accounting Firm +To the Stockholders and the Board of Directors of Strive, Inc.: +Opinion on the Consolidated Financial Statements +We have audited the accompanying consolidated statements of financial condition of Strive, Inc. and subsidiaries (the Company, Successor) as of December 31, 2025 and Strive Enterprises, Inc. (Predecessor) as of December 31, 2024, and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for the periods from September 12, 2025 through December 31, 2025 (Successor), January 1, 2025 through September 11, 2025 (Predecessor) and January 1, 2024 through December 31, 2024 (Predecessor), and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and Predecessor as of December 31, 2024, and the results of its operations and its cash flows for the periods from September 12, 2025 through December 31, 2025 (Successor), January 1, 2025 through September 11, 2025 (Predecessor) and January 1, 2024 through December 31, 2024 (Predecessor), in conformity with U.S. generally accepted accounting principles. +Basis for Opinion +These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. +/s/ KPMG LLP +We have served as the Company's auditor since 2023. +Columbus, Ohio +March 19, 2026 +79 +STRIVE, INC. +CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION +(in thousands, except share and per share data) +December 31, 2025 December 31, 2024 +(Successor) (Predecessor) +Assets: +Current assets: +Cash and cash equivalents $ 67,499 $ 6,155 +Short-term investments — 16,755 +Prepaid expenses 2,708 351 +Other current assets 1,569 500 +Total current assets 71,776 23,761 +Digital assets, at fair value 668,486 — +Property and equipment, net 778 951 +Intangible assets, net 355 187 +Right-of-use lease assets 4,037 1,786 +Other non-current assets 95 1,512 +Total assets $ 745,527 $ 28,197 +Liabilities: +Current liabilities: +Compensation and benefits payable $ 164 $ 1,112 +Accounts payable and other liabilities 8,560 2,227 +Dividends payable 2,053 — +Total current liabilities 10,777 3,339 +Operating lease liabilities 3,512 1,516 +Total liabilities 14,289 4,855 +Mezzanine equity: +Variable Rate Series A Preferred Stock, $ 0.001 par value; 20,000,000 and 0 shares authorized, 2,012,729 and 0 shares issued and outstanding, $ 201.3 million and $ 0 redemption value and liquidation preference as of December 31, 2025 and December 31, 2024, respectively +148,802 — +Total mezzanine equity 148,802 — +Stockholders’ equity: +Predecessor preferred stock, $ 0.00001 par value; 0 and 1,161,650 shares authorized, 0 and 1,158,802 shares issued and outstanding as of December 31, 2025 and December 31, 2024, respectively +— 72,488 +Predecessor Class A common stock, $ 0.00001 par value; 0 and 2,000,000 shares authorized, 0 and 2,000,000 shares issued and outstanding as of December 31, 2025 and December 31, 2024, respectively +— — +Predecessor Class B common stock, $ 0.00001 par value; 0 and 2,339,765 shares authorized, 0 and 400,970 shares issued and outstanding as of December 31, 2025 and December 31, 2024, respectively +— — +Successor Class A common stock, $ 0.001 par value; 22,200,000,000 and 0 shares authorized, 34,936,745 and 0 shares issued and outstanding as of December 31, 2025 and December 31, 2024, respectively +699 — +Successor Class B common stock, $ 0.001 par value; 1,050,000,000 and 0 shares authorized, 9,776,540 and 0 shares issued and outstanding as of December 31, 2025 and December 31, 2024, respectively +196 — +Additional paid-in capital 1,055,595 — +Accumulated deficit ( 474,054 ) ( 49,146 ) +Total stockholders’ equity 582,436 23,342 +Total liabilities, mezzanine equity, and stockholders' equity $ 745,527 $ 28,197 +The accompanying notes are an integral part of these consolidated financial statements +80 +STRIVE, INC. +CONSOLIDATED STATEMENTS OF OPERATIONS +(in thousands, except share and per share data) +Successor Predecessor +Period from September 12, 2025 to December 31, 2025 Period from January 1, 2025 to September 11, 2025 Year Ended December 31, 2024 +Revenues: +Investment advisory fees $ 1,495 $ 4,187 $ 3,592 +Other revenue 17 35 58 +Total revenues 1,512 4,222 3,650 +Operating expenses: +Fund management and administration 1,867 4,250 4,867 +Employee compensation and benefits 27,639 7,222 9,135 +General and administrative expense 3,681 4,229 11,248 +Marketing and advertising 151 231 862 +Depreciation and amortization 71 149 192 +Total operating expenses 33,409 16,081 26,304 +Investment gains/(losses): +Net unrealized loss on digital assets, at fair value ( 194,508 ) — — +Other derivative loss ( 14,731 ) — — +Net investment gains/(losses) ( 209,239 ) — — +Net operating loss ( 241,136 ) ( 11,859 ) ( 22,654 ) +Other income/(expense): +Other income 723 586 795 +Transaction costs ( 12,400 ) ( 15,717 ) — +Gain on lease remeasurement — — 279 +Goodwill and intangible asset impairment ( 140,785 ) — — +Total other income/(expense) ( 152,462 ) ( 15,131 ) 1,074 +Net loss before income taxes ( 393,598 ) ( 26,990 ) ( 21,580 ) +Income tax benefit/(expense) — — — +Net loss $ ( 393,598 ) $ ( 26,990 ) $ ( 21,580 ) +Dividends on preferred stock ( 4,320 ) — — +Net loss attributable to common stockholders $ ( 397,918 ) $ ( 26,990 ) $ ( 21,580 ) +Weighted average number of common shares outstanding: +Basic (1) +43,997,862 2,299,243 2,213,424 +Diluted (1) +43,997,862 2,299,243 2,213,424 +Net loss per common share: +Basic (1) +$ ( 9.04 ) $ ( 11.74 ) $ ( 9.75 ) +Diluted (1) +$ ( 9.04 ) $ ( 11.74 ) $ ( 9.75 ) +(1) Basic and diluted earnings per common share for Class A and Class B common stock are the same. +The accompanying notes are an integral part of these consolidated financial statements +81 +STRIVE, INC. +CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY +(in thousands, except share data) +Predecessor +Mezzanine Equity Stockholders' Equity +Successor Perpetual Predecessor Predecessor Class A Predecessor Class B Successor Class A Successor Class B Additional Retained +Earnings/ Total +Preferred Stock Preferred Stock Common Stock Common Stock Common Stock Common Stock Paid-in (Accumulated Stockholders' +Shares Amount Shares Amount Shares Par Value Shares Par Value Shares Par Value Shares Par Value Capital Deficit) Equity +Balance at December 31, 2023 — $ — 787,598 $ 43,624 2,000,000 $ — 400,970 $ — — $ — — $ — $ — $ ( 27,566 ) $ 16,058 +Net proceeds from sale of preferred stock — — 372,257 28,949 — — — — — — — — — — 28,949 +Redemption of preferred stock — — ( 1,053 ) ( 85 ) — — — — — — — — — — ( 85 ) +Net loss — — — — — — — — — — — — — ( 21,580 ) ( 21,580 ) +Balance at December 31, 2024 — $ — 1,158,802 $ 72,488 2,000,000 $ — 400,970 $ — — $ — — $ — $ — $ ( 49,146 ) $ 23,342 +Redemption of preferred stock — — ( 1,238 ) ( 500 ) — — — — — — — — — — ( 500 ) +Net loss — — — — — — — — — — — — — ( 26,990 ) ( 26,990 ) +Balance at September 11, 2025 — $ — 1,157,564 $ 71,988 2,000,000 $ — 400,970 $ — — $ — — $ — $ — $ ( 76,136 ) $ ( 4,148 ) +Successor +Mezzanine Equity Stockholders' Equity +Successor Perpetual Predecessor Predecessor Class A Predecessor Class B Successor Class A Successor Class B Additional Retained +Earnings/ Total +Preferred Stock Preferred Stock Common Stock Common Stock Common Stock Common Stock Paid-in (Accumulated Stockholders' +Shares Amount Shares Amount Shares Par Value Shares Par Value Shares Par Value Shares Par Value Capital Deficit) Equity +Balance at September 12, 2025 — $ — 1,157,564 $ 71,988 2,000,000 $ — 400,970 $ — — $ — — $ — $ — $ ( 76,136 ) $ ( 4,148 ) +Conversion of Predecessor shares for Strive, Inc. Class B common stock — — ( 1,157,564 ) ( 71,988 ) ( 2,000,000 ) — ( 400,970 ) — — — 12,445,578 249 71,739 — — +Business combination with Asset Entities Inc. — — — — — — — — 831,219 17 — — 141,123 — 141,140 +Share-based compensation expense — — — — — — — — — — — — 21,710 — 21,710 +Issuance of common stock upon vesting of restricted stock, net of withholding taxes — — — — — — — — — — 1,105,487 22 ( 33,644 ) — ( 33,622 ) +Issuance of Variable Rate Series A Perpetual Preferred Stock 2,012,729 161,212 — — — — — — — — — — — — — +Issuance of Class A common stock — — — — — — — — 18,727,541 375 — — 567,537 — 567,912 +Issuance of pre-funded warrants — — — — — — — — — — — — 283,170 — 283,170 +Exercise of warrants — — — — — — — — 11,603,460 232 — — 31,318 — 31,550 +Conversions of Class B common stock to Class A common stock — — — — — — — — 3,774,525 75 ( 3,774,525 ) ( 75 ) — — — +Share-based transaction costs — — — — — — — — — — — — 2,936 — 2,936 +Issuance costs — ( 12,410 ) — — — — — — — — — — ( 30,294 ) — ( 30,294 ) +Preferred stock dividends declared — — — — — — — — — — — — — ( 4,320 ) ( 4,320 ) +Net loss — — — — — — — — — — — — — ( 393,598 ) ( 393,598 ) +Balance at December 31, 2025 2,012,729 $ 148,802 — $ — — $ — — $ — 34,936,745 $ 699 9,776,540 $ 196 $ 1,055,595 $ ( 474,054 ) $ 582,436 +The accompanying notes are an integral part of these consolidated financial statements +82 +STRIVE, INC. +CONSOLIDATED STATEMENTS OF CASH FLOWS +(in thousands) +Successor Predecessor +Period from September 12, 2025 to December 31, 2025 Period from January 1, 2025 to September 11, 2025 Year Ended December 31, 2024 +Cash flows from operating activities: +Net loss $ ( 393,598 ) $ ( 26,990 ) $ ( 21,580 ) +Adjustments to reconcile net loss to net cash used in operating activities: +Depreciation and amortization 71 149 192 +Accretion of discount on investments, net — 155 ( 14 ) +Reduction in carrying amount of right-of-use assets 22 91 68 +Gain on lease remeasurement — — ( 279 ) +Net unrealized loss on digital assets, at fair value 194,508 — — +Other derivative loss 14,731 — — +Share-based compensation expense 21,710 — — +Goodwill and intangible asset impairment 140,785 — — +Non-cash transaction expenses 2,936 2,150 — +Changes in operating assets and liabilities: +Prepaid expenses ( 2,103 ) ( 227 ) 13 +Other current assets 520 ( 1,589 ) ( 354 ) +Other non-current assets 47 ( 723 ) ( 1,464 ) +Compensation and benefits payable 70 ( 1,018 ) 896 +Accounts payable and other liabilities ( 4,675 ) 9,793 927 +Net cash used in operating activities ( 24,976 ) ( 18,209 ) ( 21,595 ) +Cash flows from investing activities: +Purchases of digital assets, at fair value ( 854,956 ) — — +Purchases of intangible assets ( 80 ) ( 123 ) — +Purchases of property and equipment ( 12 ) — ( 24 ) +Cash acquired through business combination 400 — — +Purchases of short-term investments — ( 4,271 ) ( 32,203 ) +Proceeds from short-term investments — 20,871 29,026 +Net cash provided by (used in) investing activities ( 854,648 ) 16,477 ( 3,201 ) +Cash flows from financing activities: +Proceeds from issuance of Class A common stock 545,143 — — +Proceeds from issuance of pre-funded warrants 283,170 — — +Proceeds from warrant exercises 31,550 — — +Payment of issuance costs ( 41,986 ) — — +Proceeds from issuance of preferred stock 161,212 — 28,950 +Preferred stock dividends paid ( 2,267 ) — — +Payment of withholding tax on vesting of restricted stock ( 33,622 ) — — +Redemption of preferred stock — ( 500 ) ( 85 ) +Net cash provided by (used in) financing activities 943,200 ( 500 ) 28,865 +Net increase (decrease) in cash and cash equivalents 63,576 ( 2,232 ) 4,069 +Cash and cash equivalents, beginning of period 3,923 6,155 2,086 +Cash and cash equivalents, end of period $ 67,499 $ 3,923 $ 6,155 +Supplemental disclosures of cash flow information: +Cash paid during the period for interest expense $ — $ — $ — +Cash paid during the period for income taxes $ — $ — $ — +83 +Non-cash investing and financing activities: +Accrued but unpaid financing offering costs 718 770 — +Declared but unpaid preferred stock dividends 2,053 — — +Class A common stock exchanged for digital assets 8,038 — — +Class A common stock issued as part of business combination 141,140 — — +Assets and liabilities resulting from business combination: +Prepaid expenses 27 — — +Goodwill 140,039 — — +Intangible assets 746 — — +Other non-current assets 57 — — +Accounts payable and other liabilities 129 — — +The accompanying notes are an integral part of these consolidated financial statements +84 +STRIVE, INC. +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +(1) Organization +Strive, Inc. (the "Company", "Strive", or the "Successor"), a Nevada corporation, is a bitcoin treasury asset management firm trading on The Nasdaq Stock Market LLC ("Nasdaq") under the symbol "ASST". The Company earns substantially all of its revenue from investment advisory and other investment management services, and generates market returns from investments in bitcoin and bitcoin-related products. +The Company operates through wholly-owned subsidiaries, including, among others, Strive Enterprises, Inc. ("SEI") and Strive Asset Management, LLC ("SAM"), a registered investment advisor with the Securities and Exchange Commission ("SEC"). SAM provides sub-advisory services for the Strive funds (the "Funds"), a series of exchange traded funds ("ETFs"), and has the discretionary responsibility to select investments in accordance with each fund's investment objectives, policies, and restrictions. SAM is not responsible for selecting broker-dealers or placing trades for the Funds. Products are offered through intermediaries in a variety of vehicles, ETFs, separate accounts, and collective investment trust funds. +On May 6, 2025, SEI (the "Predecessor") entered into that certain Agreement and Plan of Merger, dated as of May 6, 2025, as amended by that certain Amended and Restated Agreement and Plan of Merger, dated as of June 27, 2025 (the "Asset Entities Merger Agreement") with Asset Entities Inc. ("Asset Entities"). On September 12, 2025, pursuant to the Asset Entities Merger Agreement, Alpha Merger Sub, Inc., a wholly-owned subsidiary of Asset Entities Inc., merged with and into SEI, with SEI surviving as a wholly owned subsidiary of Asset Entities Inc. Concurrent with the consummation of the transactions contemplated by the Asset Entities Merger Agreement, Asset Entities Inc. was renamed Strive, Inc. (the "Asset Entities Merger"). +(2) Summary of Significant Accounting Policies +Basis of presentation +The accompanying consolidated financial statements and the related notes of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). In the opinion of management, all adjustments necessary for a fair statement of financial position and results of operations have been included. All such adjustments are of a normal recurring nature, unless otherwise disclosed. +The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. +Since the merger between Strive Enterprises, Inc. and Asset Entities has been determined to be a reverse acquisition, with SEI being the accounting acquirer, the Company determined that SEI is the Predecessor and Strive, Inc. is the Successor . The financial information as of December 31, 2024 and for the year ended December 31, 2024 and period from January 1, 2025 to September 11, 2025 reflect the historical financial information of the Predecessor and are referred to as the "Predecessor Periods". The financial information as of December 31, 2025 and for the period from September 12, 2025 to December 31, 2025 reflect the financial information of Strive, Inc. and are referred to as the "Successor Periods". +Use of estimates +The preparation of consolidated financial statements in conformity with GAAP requires management of the Company to make estimates and assumptions that affect the reporting amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and accompanying notes. Due to uncertainties in the estimation process, actual results could differ from those estimates. +Reverse stock split +On February 6, 2026, the Company amended its articles of incorporation in order to effect a 1-for-20 reverse stock split of its outstanding shares of Class A and Class B common stock. As a result of the reverse stock split, every 20 shares of the Company’s Class A and Class B common stock issued or outstanding were automatically reclassified into one new share of Class A or Class B common stock, respectively, without any action on the part of the holders. Concurrently with the reverse stock split, the number of shares of Class A common stock available to purchase and the related exercise price of outstanding warrants were adjusted pro-rata to give effect to the reverse stock split. All historical share and per-share amounts of the Successor reflected throughout the accompanying consolidated financial statements and other financial information in this Annual Report have been retroactively adjusted to reflect the reverse stock split as if the split occurred as of the earliest Successor period presented. The reverse stock split did not affect the par value of the Class A and Class B common stock. No fractional shares were issued in connection with the reverse stock split. +85 +Business combinations +In accordance with ASC Topic 805 “Business Combinations", acquired assets and liabilities assumed as part of a business acquisition are generally recorded at their fair value at the date of acquisition. Goodwill is calculated as the amount by which the purchase consideration exceeds the net identifiable assets acquired. +Determining the fair value of identifiable assets, particularly intangibles, and liabilities acquired also requires management to make estimates, which are based on all available information and in some cases assumptions with respect to the timing and amount of future revenues and expenses associated with an asset. +Cash and cash equivalents +Short-term, highly liquid investments with original maturities of three months or less are considered to be cash equivalents. The Company’s cash is held with major financial institutions and may at times exceed federally insured limits. As of December 31, 2025 and December 31, 2024, the Company did not have any restricted cash. +Short-term investments +Short-term investments have maturities exceeding three months and less than twelve months at the time of purchase. The Company classifies short-term investments as held-to-maturity based on the Company's intent to sell the security or, its intent and ability to hold the short-term investment to maturity. Held-to-maturity debt securities are purchased with the intent and ability to hold until maturity and are carried at amortized cost. Interest income on short-term investments is recognized using the effective interest method and included in interest and dividend income on the consolidated statements of operations. +Digital assets, at fair value +The Company accounts for its digital assets, which consist solely of bitcoin, in accordance with Accounting Standards Codification ("ASC") 350-60, Intangibles - Goodwill and Other - Crypto Assets . The Company has ownership of and control over its bitcoin and is engaged with multiple geographically dispersed third-party custodial services to store its bitcoin. The Company initially records its digital assets at cost, inclusive of transaction costs and fees. The Company subsequently remeasures its digital assets to fair value at the end of each reporting period in accordance with ASC 820, Fair Value Measurement , based on quoted (unadjusted) prices on the Coinbase exchange, which is considered a Level 1 input within the fair value hierarchy. Any changes in fair value are recognized in net income within net unrealized gain (loss) on digital assets, at fair value. Realized gains or losses are recorded upon the sale of digital assets based upon the difference between the sales price and the carrying value of the specific bitcoin sold. +Leases +The Company determines if a contract is a lease or contains a lease at inception. The Company accounts for its headquarters office lease as an operating lease, which may include escalation clauses that are based on an index or market rate. The Company accounts for lease and non-lease components, including common areas maintenance charges, as a single component for its leases. The Company elected the short-term lease exception for leases with an initial term of 12 months or less. Consequently, such leases are not recorded on the consolidated statements of financial condition. The Company’s lease terms include options to extend or terminate the lease when it is reasonably certain they will be exercised or not. +The Company recognizes right-of-use (“ROU”) lease assets and operating lease liabilities on the consolidated statements of financial condition based on the present value of future lease payments over the lease term at the commencement date discounted using an incremental borrowing rate (“IBR”). The IBR for individual leases is estimated considering the Company’s credit rating using various financial metrics, and, as appropriate, performing market analysis of yields on publicly traded bonds (secured and unsecured) with similar terms of comparable companies in a similar economic environment. ROU assets are tested for impairment when there is an indication that the carrying value of an asset may not be recoverable. Fixed lease payments made over the lease term are recorded as lease expense on a straight-line basis. Variable lease payments based on usage, changes in an index or market rate, are expensed as incurred. +Property and equipment +Property and equipment, consisting of hardware and equipment, furniture and fixtures, tenant improvements, and software are carried at cost less accumulated depreciation. As of December 31, 2025 and December 31, 2024, the Company had $ 0.4 million and $ 0.2 million, respectively, of accumulated depreciation which is included in property and equipment, net on the consolidated statements of financial condition. +86 +Property and equipment is tested for impairment when there is an indication that the carrying amount of an asset may not be recoverable. When an asset is determined to not be recoverable, the impairment loss is measured based on the excess, if any, of the carrying value of the asset over its fair value. +Depreciation and amortization is provided for using the straight-line method over the estimated useful lives of the related assets as follows: +Hardware and equipment 5 years +Furniture and fixtures 7 years +Tenant improvements +Lesser of the remaining term or 15 years +Software 3 years +Intangible assets +Intangible assets, consisting of domain names, are carried at cost less accumulated amortization. For finite-lived intangible assets, if potential impairment circumstances are considered to exist, the Company will perform a recoverability test using an undiscounted cash flow analysis. If the carrying value of the asset is determined not to be recoverable based on the undiscounted cash flow test, the difference between the carrying value of the asset and its current fair value would be recognized as an expense in the period in which the impairment occurs. Intangible assets are amortized over a period of ten years . As of both December 31, 2025 and December 31, 2024, the Company had less than $ 0.1 million of accumulated amortization which is included in intangible assets, net on the consolidated statements of financial condition. +Fair value measurement +The Company measures certain assets and liabilities at fair value on a recurring or non-recurring basis. Fair value is defined as the price that is expected to be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company uses a three-level hierarchy that prioritizes fair value measurements based on the types of inputs used for the various valuation techniques. The three levels of the fair value hierarchy are described below: +Level 1: Quoted (unadjusted) prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. +Level 2: Inputs other than quoted prices that are either directly or indirectly observable, such as quoted prices in active markets for similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. +Level 3: Inputs that are generally unobservable, supported by little or no market activity, and typically reflect management's estimates of assumptions that market participants would use in pricing the asset or liability. +The categorization of an asset or liability within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The valuation techniques used by the Company when measuring the fair value prioritize the use of observable inputs and minimize the use of unobservable inputs. +As of December 31, 2025 and December 31, 2024, the fair value of the Company's financial assets and liabilities not held at fair value on the consolidated statements of financial condition equaled the related carrying value given the short-term maturities of all. +Revenue recognition - investment advisory fees +The Company recognizes revenue when it satisfies performance obligations under the terms of contracts with clients. The Company earns substantially all of its revenue from SAM investment advisory and sub-advisory contracts (collectively “Investment Advisory Fees” and “Investment Advisory Contracts”) related to its asset management services. Investment advisory fees, generally calculated as a percentage of assets under management (“AUM”), are recorded as revenue as services are performed over time because the customer is receiving and consuming the benefits as they are provided by the Company. +SAM’s investment advisory contracts have a single performance obligation because the contracted services are not separately identifiable from other obligations in the contracts and therefore, are not distinct. All performance obligations to provide investment advisory services are satisfied over time by SAM and the Company recognizes revenue through SAM as time passes. +The fees SAM receives for its services under its investment advisory contracts are based on AUM, which changes based on the value of securities held under each investment advisory contract. These fees are thereby constrained and represent +87 +variable consideration, and they are excluded from revenue until the AUM on which SAM’s client is billed is no longer subject to market fluctuations. In addition, the Company may contract with third parties to provide advisory services on its behalf. The investment advisory contracts typically have contractual terms that extend throughout the life of the fund being advised, which generally contain provisions allowing the third party advisor to remove the Company with prior notice. Clients are typically charged monthly or quarterly, either in advance or arrears, based on the fee arrangement agreed to with each client; payment terms vary depending on the client and services offered. Based on the nature of the agreements, the performance obligations are generally satisfied throughout the contractual term. +Fund management and administration expense +Direct fund expense, which is expensed as incurred, primarily consists of third-party advisory and non-advisory expense incurred by Strive related to certain investment products, reference data for certain indices, custodial services, fund administration, fund accounting, transfer agent services, stockholder reporting services, audit and tax services as well as other fund-related expense directly attributable to the operations of Strive offerings. +Share-based compensation +Share-based compensation expense is measured based on the grant-date fair value of the share-based awards. The Company recognizes share-based compensation expense for the portion of each stock award that is expected to vest over the estimated period of service and vesting. For awards that contain a performance condition, share-based compensation expense is not recorded until the achievement of the related performance condition is determined to be probable. Forfeitures are recognized as incurred. Share-based compensation expense is recognized on a straight-line basis over the requisite service period of the grant. +Income taxes +The Company is a C-Corporation and is treated as a corporation for federal and state income tax purposes and all wholly owned subsidiaries are disregarded entities for tax purposes. Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The deferred income tax provision represents the change during the reporting period in the deferred tax assets and deferred tax liabilities. The effect on deferred tax assets and liabilities of a change in tax rates is recognized on the consolidated statements of operations in the period that includes the enactment date. The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. +Management assesses the recoverability of its deferred income tax assets based upon expected future earnings, taxable income in prior carryback years, future deductibility of the asset, changes in applicable tax laws and other factors. If management determines that it is not more likely than not that the deferred tax asset will be fully recoverable in the future, a valuation allowance will be established for the difference between the asset balance and the amount expected to be recoverable in the future. This allowance will result in additional income tax expense. Further, the Company records its income taxes receivable and payable based upon its estimated income tax position. +Earnings per share ("EPS") +Basic net income (loss) per common share is determined by dividing the net income (loss) attributable to common stockholders by the weighted average number of shares of Class A and Class B common stock outstanding and assumed outstanding common stock during the period. Diluted net income (loss) per common share is determined by dividing the net income (loss) attributable to common stockholders by the weighted average number of shares of Class A and Class B common stock and potential shares of common stock outstanding during the period. Net income (loss) attributable to common stockholders is computed by deducting the dividends declared in the period on the Company’s preferred stock, if any, from net income (loss). The impact from potential shares of common stock on the diluted earnings per share calculation are included when dilutive. Potential shares of Class A common stock consisting of shares underlying employee share awards and outstanding warrants are computed using the treasury stock method. Potentially dilutive shares are only included in the amount of dilutive shares if their impact results in dilution to net income (loss) per share. +The Company's common stock consists of two classes of common stock, Class A and Class B. Holders of Class A common stock generally have the same rights, including rights to dividends, as holders of Class B common stock, except that holders of Class A common stock have one vote per share while holders of Class B common stock have ten votes per share. Each share of Class B common stock is convertible at any time, at the option of the holder, into one share of Class A +88 +common stock. As such, basic and fully diluted earnings per share for Class A common stock and for Class B common stock are the same. The Company has never declared or paid any cash dividends on either Class A or Class B common stock. +Accounting standards adopted +In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which requires incremental disclosures about reportable segments but does not change the definition of a segment or the guidance for determining reportable segments. The new guidance requires disclosure of significant segment expenses that are (1) regularly provided to (or easily computed from information regularly provided to) the chief operating decision maker ("CODM") and (2) included in the reported measure of segment profit or loss. The new standard also requires companies to disclose the title and position of the individual (or the name of the committee) identified as the CODM, allows companies to disclose multiple measures of segment profit or loss if those measures are used to assess performance and allocate resources, and is applicable to companies with a single reportable segment. The Company adopted the disclosure requirements of ASU 2023-07 during the year ended December 31, 2024. +In December 2023, the FASB issued ASU No. 2023-09: Income Taxes (Topic 740): Improvements to Income Tax Disclosures ("ASU 2023-09") that requires entities to disclose additional information about federal, state, and foreign income taxes primarily related to the income tax rate reconciliation and income taxes paid. The new standard also eliminates certain existing disclosure requirements related to uncertain tax positions and unrecognized deferred tax liabilities. The Company adopted the requirements of ASU 2023-09 during the year ended December 31, 2025. +In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2023-08, Intangibles—Goodwill and Other—Crypto Assets (Subtopic 350-60): Accounting for and Disclosure of Crypto Assets (“ASU 2023-08”). ASU 2023-08 requires in-scope crypto assets (including the Company's bitcoin holdings) to be measured at fair value in the consolidated statement of financial position, with gains and losses from changes in the fair value of such crypto assets recognized in net income each reporting period. ASU 2023-08 also requires certain interim and annual disclosures for crypto assets within the scope of the standard. The Company adopted this guidance effective January 1, 2025 on a prospective basis. Given the Company did not hold any in-scope digital assets prior to January 1, 2025, there was no cumulative-effect adjustment as a result of the adoption of ASU 2023-08. +Accounting standards not yet adopted +In November 2024, the FASB issued ASU 2024-03, Disaggregation of Income Statement Expenses ("ASU 2024-03"), which requires entities to disaggregate in a tabular presentation disclosures about specific types of expenses included in the expense captions presented on the face of the income statement, as well as disclosures about selling expenses. Specifically, ASU 2024-03 requires disaggregation of expense captions that include any of the following natural expenses: (1) purchases of inventory, (2) employee compensation, (3) depreciation, (4) intangible asset amortization, and (5) depreciation, depletion, and amortization recognized as part of oil- and gas-producing activities or other types of depletion expenses. The requirements are effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027 and are required to be applied prospectively with the option for retrospective application. Early adoption is permitted. The Company does not expect the additional disclosure requirements under ASU 2024-03 to have a material impact on the consolidated financial statements. +(3) Digital Assets, at Fair Value +The Company accounts for its digital assets, which are comprised solely of bitcoin, in accordance with ASC 350-60, Intangibles - Goodwill and Other - Crypto Assets . The Company’s digital assets are initially recorded at cost, inclusive of transaction costs and fees. The Company subsequently remeasures its digital assets to fair value at the end of each reporting period in accordance with ASC 820, Fair Value Measurement , based on quoted (unadjusted) prices on the Coinbase exchange, resulting in their classification as Level 1 instruments. Any changes in fair value are recognized in net income within net unrealized gain (loss) on digital assets, at fair value. As of December 31, 2025, there are no contractual restrictions on the Company's holdings of digital assets. +89 +The following table provides a summary of the changes in the Company's digital assets, at fair value for the period from September 12, 2025 to December 31, 2025 (in thousands): +Period from September 12, 2025 to December 31, 2025 +Balance, beginning of period $ — +Acquisitions 862,994 +Sales — +Aggregate cost basis $ 862,994 +Change in fair value ( 194,508 ) +Balance, end of period $ 668,486 +The Company's investments in digital assets are summarized below. The Company did not hold any investments in digital assets prior to September 12, 2025. +December 31, 2025 December 31, 2024 +(Successor) (Predecessor) +Approximate number of bitcoin held 7,627 — +Weighted average acquisition cost $ 113,153 $ — +Fair value per bitcoin $ 87,650 $ — +(4) Business Combinations +Acquisition of Asset Entities, Inc. +On May 6, 2025, the Predecessor entered into the Asset Entities Merger Agreement. On September 12, 2025, pursuant to the Asset Entities Merger Agreement, Alpha Merger Sub, Inc., a wholly-owned subsidiary of Asset Entities Inc., merged with and into SEI, with SEI surviving as a wholly owned subsidiary of Asset Entities Inc. Concurrent with the consummation of the transactions contemplated by the Asset Entities Merger Agreement, Asset Entities Inc. was renamed Strive, Inc. +The Company accounted for the transaction as a reverse acquisition under ASC 805, Business Combinations , with SEI being the accounting acquirer based on existing Strive stockholders retaining the majority of the voting interests, as well as the senior management and directors representing the majority of senior management and directors, respectively, following the close of the transaction. As a result, the Company recognized the assets acquired, including trade names and customer relationship intangible assets, and liabilities assumed at their acquisition date fair value, with goodwill recognized based on the excess of the consideration transferred and the net assets acquired. None of the goodwill acquired was deductible for tax purposes. +As part of the Asset Entities acquisition, the Predecessor incurred transaction costs of $ 15.7 million during the period from January 1, 2025 to September 11, 2025 and the Successor incurred transaction costs of $ 6.0 million during the period from September 12, 2025 to December 31, 2025. +During the period from September 12, 2025 to December 31, 2025, based on the Company's determination to suspend subscriptions on certain legacy Discord servers acquired as part of the acquisition of Asset Entities and a decline in the price of the Company's Class A common stock, the Company performed a goodwill and intangible asset impairment test. Based on this assessment, the Company recognized a goodwill and intangible asset impairment charge totaling $ 140.8 million during the period from September 12, 2025 to December 31, 2025. As of December 31, 2025 and December 31, 2024, the Company had no goodwill. As of December 31, 2025 and December 31, 2024, the Company had $ 0.4 million and $ 0.2 million of intangible assets, respectively. +90 +The following table summarizes the consideration transferred and the assets acquired and liabilities assumed at their acquisition date fair value (in thousands): +Consideration transferred: +Strive, Inc. Class A common stock $ 141,140 +Assets acquired and liabilities assumed: +Cash and cash equivalents 400 +Prepaid expenses 27 +Intangible assets 746 +Other non-current assets 57 +Accounts payable and other liabilities ( 129 ) +Total identifiable net assets $ 1,101 +Goodwill 140,039 +Total $ 141,140 +Acquisition of Semler Scientific, Inc. +On September 22, 2025, Strive, Inc. entered into that certain Agreement and Plan of Merger (the "Semler Scientific Merger Agreement") with Semler Scientific, Inc. ("Semler Scientific") (the "Semler Scientific Merger"). On January 16, 2026, pursuant to the Semler Scientific Merger Agreement, Strive Merger Sub, Inc., a wholly owned subsidiary of Strive merged with and into Semler Scientific, with Semler Scientific continuing as the surviving corporation and a wholly owned subsidiary of Strive. +As part of the Semler Scientific Merger, the Company incurred transaction costs of $ 6.4 million during the period from September 12, 2025 to December 31, 2025. +The Company expects to account for the transaction as a business combination under ASC 805, Business Combinations , with the Company being considered the acquirer for accounting purposes. As a result, the Company will recognize the assets acquired and liabilities assumed at their acquisition date fair value. The initial accounting for the acquisition was not complete at the time this Annual Report on Form 10-K due to the timing of the acquisition. As a result, full disclosures required under ASC 805-10-50 - Business Combinations cannot be made at this time. +On January 16, 2026, in connection with the Semler Scientific Merger, we assumed $ 100.0 million of the 4.25 % Convertible Senior Notes due 2030 (the “Semler Convertible Notes”) from Semler Scientific. In addition, we assumed Semler Scientific's capped call contracts, which were intended to reduce potential dilution or offset any cash payments. On January 22, 2026, the Company entered into separate, privately negotiated exchange agreements with certain holders of the Semler Convertible Notes, representing $ 90.0 million aggregate principal amount of the Semler Convertible Notes, pursuant to which such holders exchanged their Semler Convertible Notes for approximately 929,999 newly issued shares of SATA Stock concurrent with the closing of the Follow-On Offering (as defined below) (the “Notes Exchange”). As of January 27, 2026, and following the settlement of the Notes Exchange, $ 10.0 million aggregate principal amount of the Semler Convertible Notes remained outstanding. See Note 10 for more information on the exchange transaction. +On January 16, 2026, in connection with the Semler Scientific merger, we assumed a $ 20.0 million loan with Coinbase Credit Inc. from Semler Scientific (the “Coinbase Loan”). On January 27, 2026, we fully retired the Coinbase Loan using cash on hand as well as a portion of net proceeds obtained through the public follow-on offering of SATA Stock. See Note 10 for more information on the follow-on public offering of SATA Stock. +(5) Short-term investments +Short-term investments consist of U.S. Treasury Bills that have maturities exceeding three months and less than twelve months at the time of purchase and are stated at amortized cost. The Company classifies short-term investments as held-to-maturity based on the Company's intent to hold the short-term investment to maturity. The Company does not hold any +91 +short-term investments as of December 31, 2025. The Predecessor's short-term investments are summarized below (in thousands): +December 31, 2024 +Expiration Amortized Cost Cost Basis Accumulated Accretion Fair Value +1/31/2025 $ 4,243 $ 4,177 $ 66 $ 4,243 +2/28/2025 4,163 4,149 14 4,163 +3/31/2025 4,202 4,167 35 4,202 +4/15/2025 4,147 4,128 19 4,147 +Total $ 16,755 $ 16,621 $ 134 $ 16,755 +(6) Revenue +The Company earns a substantial portion of its revenue from investment advisory, consulting services, and subscription revenue. The table below summarizes the Company's investment advisory fees and other revenue (in thousands): +Successor Predecessor +Period from September 12, 2025 to December 31, 2025 Period from January 1, 2025 to September 11, 2025 Year Ended +December 31, 2024 +Investment advisory fees $ 1,495 $ 4,187 $ 3,592 +Other revenue 17 35 58 +Total revenue $ 1,512 $ 4,222 $ 3,650 +No individual customer accounted for 10% or greater of revenue for any period. +(7) Commitments and Contingencies +Office Leases +The Company leases office spaces in Dallas, Texas and Dublin, Ohio under operating lease agreements, which expire in July 2033 and February 2033, respectively. Under both the Dallas, Texas and Dublin, Ohio leases, the Company has two five-year renewal options. Under these lease agreements, the Company is required to reimburse the landlord for its share of any common area expenses, which may include certain taxes, utilities, maintenance costs, and other fees. During the year ended December 31, 2024, the Company, in line with its relocation to Dallas, Texas, reassessed the expected lease term of the Dublin, Ohio office lease, resulting in a reduction of the remaining lease term. The lease liability was remeasured based on the present value of the remaining lease payments, which resulted in a revised lease liability of approximately $ 1.8 million and a corresponding right-of-use asset of approximately $ 1.8 million as of December 31, 2024. During the period from January 1, 2025 to September 11, 2025, the Company entered into an agreement to sub-lease the office space in Dublin, Ohio, with the sub-lessee lease term and payments being substantially similar to that of the Company's lease agreement for the same space. +The following table summarizes lease expense, which is included in general and administrative expense, for the period from September 12, 2025 to December 31, 2025, the period from January 1, 2025 to September 11, 2025, and the year ended December 31, 2024 (in thousands): +Successor Predecessor +Period from September 12, 2025 to December 31, 2025 Period from January 1, 2025 to September 11, 2025 Year Ended +December 31, 2024 +Fixed lease expense $ 223 $ 431 $ 365 +Variable lease expense 105 154 212 +Sub-lease income ( 140 ) ( 207 ) — +Total lease expense $ 188 $ 378 $ 577 +Supplemental cash flow information related to operating leases for the period from September 12, 2025 to December 31, 2025, the period from January 1, 2025 to September 11, 2025, and the year ended December 31, 2024 is as follows (in thousands): +92 +Successor Predecessor +Period from September 12, 2025 to December 31, 2025 Period from January 1, 2025 to September 11, 2025 Year Ended +December 31, 2024 +Supplemental cash flow information: +Right-of-use lease assets obtained in exchange for new operating lease liabilities $ — $ 2,555 $ — +Operating cash outflows from operating leases $ 197 $ 238 $ 274 +Change in ROU assets from remeasurement $ — $ — $ 1,103 +The operating lease liability for the office leases was determined using a weighted average discount rate of 7.2 % and 9.2 % as of December 31, 2025 and December 31, 2024, respectively. +The following table provides a maturity analysis of the Company's operating lease liability, based on undiscounted cash flows, as of December 31, 2025 (in thousands): +December 31, +2025 +2026 $ 664 +2027 684 +2028 704 +2029 726 +2030 747 +Thereafter 1,886 +Total undiscounted operating lease payments $ 5,411 +Less: imputed interest ( 1,261 ) +Present value of operating lease liability $ 4,150 +Contingencies +The Company may be subject to various legal proceedings, claims, and governmental inspections or investigations arising during the ordinary course of business. The outcome of these matters and claims is subject to significant uncertainty, and the Company often cannot predict what the eventual outcome of pending matters will be or the timing of the ultimate resolution of these matters. Fees, expenses, fines, penalties, judgments, or settlement costs which might be incurred by the Company in connection with the various proceedings could adversely affect its results of operations and financial condition. When a loss for a legal claim is determined to be probable and the amount of the loss can be reasonably estimated, the Company establishes an accrued liability. Once established, accruals are adjusted from time to time, as appropriate, in light of additional information. The amount of any loss ultimately incurred in relation to matters for which an accrual has been established may be higher or lower than the amounts accrued for such matters. Legal fees associated with litigation and similar proceedings are expensed as incurred. In the event there is at least a reasonable possibility that a loss may be incurred but the Company is unable to estimate the specific or range of amounts of such loss, the Company would disclose such contingencies. The Company recognizes gain contingencies when the gain becomes realized or realizable. +During 2025, the Predecessor determined its intent to settle existing litigation matters for a settlement amount of $ 0.9 million, of which $ 0.5 million was recovered from insurance, which was recorded as part of employee compensation and benefits for the year ended December 31, 2024. Further, during the period from January 1, 2025 to September 11, 2025, the Predecessor repurchased outstanding preferred stock held by the employee. +Effective September 10, 2025, the U.S. Department of Justice Civil Fraud Section, the Department of Health and Human Services (“HHS”), and certain relators entered into a settlement agreement with Semler Scientific resolving alleged violations of the False Claims Act pertaining to submissions of false claims to Medicare Part B for tests performed using certain of its medical devices. Pursuant to the settlement agreement, Semler Scientific agreed, among other things, to pay $ 29.8 million, and interest at a rate of 4.25 % per annum from April 28, 2025 on such amount, in addition to $ 0.4 million for attorney’s fees for the relators. Subject to certain exceptions, the settlement releases Semler Scientific from any civil or administrative monetary claims for the covered conduct. Semler neither admitted nor denied any wrongdoing. +In connection with the settlement, Semler Scientific also entered into a “Corporate Integrity Agreement” with the Office of Inspector General (“OIG”) of HHS whereby it agreed to institute certain compliance and other measures relating to its sales practices and provide reporting to OIG for a five-year period. +93 +(8) Share-based Compensation +Pursuant to the Strive 2022 Equity Incentive Plan, adopted on April 12, 2022, and as amended from time to time (together, the "2022 Plan"), the Company may, subject to the terms and limitations of the 2022 Plan, grant compensatory awards, including restricted stock ("RSAs"), stock appreciation rights, restricted stock units ("RSUs"), incentive stock options, and non-statutory stock options. +Incentive Stock Options +Pursuant to the 2022 Plan, options to purchase shares of the Company's common stock may be granted at an exercise price not less than 100 % of the fair value of the common stock subject to the option on the date the option is granted. A maximum of 166.0 million shares of common stock ( 8.3 million on a split-adjusted basis) were authorized for issuance under the 2022 Plan. Of this amount, 166.0 million shares ( 8.3 million on a split-adjusted basis) remain available for future awards as of December 31, 2025. +Restricted Stock and Restricted Stock Units +Pursuant to the 2022 Plan, RSAs and RSUs may be granted to certain employees, directors, and consultants. Substantially all RSAs and RSUs vest over periods ranging from one to four years , pro-rata over the requisite service period, with the first vesting event occurring at the first anniversary of the award's grant date, with subsequent pro-rata vesting events quarterly thereafter. The RSU grants also contain a performance condition requiring a Liquidity Event or IPO, as defined in the 2022 Plan, to occur for the vesting of the RSUs. Compensation cost is recognized using the straight-line method over the requisite service period, to the extent such performance condition is deemed probable, which occurred during the period from September 12, 2025 to December 31, 2025. +The 2022 Plan permits the grant of 58.9 million shares ( 2.9 million on a split-adjusted basis) of common stock, of which 7.7 million ( 384 thousand on a split-adjusted basis) remain available for future awards as of December 31, 2025. +During the period from September 12, 2025 to December 31, 2025, the Company granted 9.2 million RSU awards ( 458 thousand on a split-adjusted basis) to employees with a grant date fair value of $ 44.2 million. The RSU awards were valued using the market price of our Class A common stock at the grant date. +During the period from September 12, 2025 to December 31, 2025, the Company granted 1.8 million RSU awards ( 89 thousand on a split-adjusted basis) to directors with a grant date fair value of $ 1.9 million. The RSU awards were valued using the market price of our Class A common stock at the grant date. +During the period from January 1, 2025 to September 11, 2025, the Predecessor granted 43 thousand RSU awards to employees (which, after giving effect to the Exchange Ratio as a result of the Asset Entities Merger, equaled 3.0 million RSU awards, or 152 thousand on a split-adjusted basis) with a grant date fair value of $ 2.1 million. +During the year ended December 31, 2024, the Predecessor granted 373 thousand RSU awards to employees (which, after giving effect to the Exchange Ratio as a result of the Asset Entities Merger, equaled 26.5 million RSU awards, or 1.3 million on a split-adjusted basis) with a grant date fair value of $ 14.6 million. +The Company recorded $ 21.7 million of share-based compensation expense for the period from September 12, 2025 to December 31, 2025, which is included in employee compensation and benefits. No such share-based compensation expense was recorded for previous periods. +94 +The following table summarizes awards that have been granted, forfeited, or vested (amounts in thousands, except weighted average grant date fair values): +Weighted Average Weighted Average +Grant Date Grant Date +RSAs (1) +Fair Value (1) +RSUs (1) +Fair Value (1) +December 31, 2023 800 $ 0.00040 807 $ 10.69400 +Granted — — 1,323 11.00420 +Vested ( 356 ) 0.00040 — — +Forfeited — — ( 200 ) 10.69400 +December 31, 2024 444 $ 0.00040 1,930 $ 10.90680 +Granted — — 152 13.68660 +Vested ( 267 ) 0.00040 — — +Forfeited — — ( 68 ) 11.85640 +September 11, 2025 177 $ 0.00040 2,014 $ 11.08500 +Granted — — 547 84.27980 +Vested ( 177 ) 0.00040 ( 1,739 ) 11.13160 +Forfeited — — — — +December 31, 2025 — $ — 822 $ 59.71440 +(1) Amounts have been adjusted to reflect the shares underlying such awards after giving effect to the Exchange Ratio as a result of the Asset Entities Merger and the 1-20 reverse split that became effective on February 6, 2026. +As of December 31, 2025, aggregate unrecognized compensation expense for unvested equity awards was $ 43.8 million, which is expected to be recognized over a remaining weighted-average period of 2.5 years. +As of December 31, 2024, aggregate unrecognized compensation expense for unvested equity awards was $ 21.0 million, which is expected to be recognized over a remaining weighted-average period of 3.0 years. +(9) Stockholders' Equity +Common Stock: +Authorized Capital +The Company has 444,000,000,000 ( 22,200,000,000 on a split-adjusted basis) and 21,000,000,000 ( 1,050,000,000 on a split-adjusted basis) authorized shares of Class A and Class B common stock, respectively, all of which have a designated par value of $ 0.001 per share. Each holder of Class A common stock is entitled to one vote per Class A common share held, while each holder of Class B common stock is entitled to ten votes per Class B common share held. +PIPE Financing +On May 26, 2025, Asset Entities Inc. and Strive Enterprises, Inc., entered into subscription agreements with certain accredited investors (the "PIPE Subscribers" and the transactions collectively, the "PIPE Transactions"), pursuant to which the PIPE Subscribers agreed to purchase, and the Company agreed to sell, the Company's Class A common stock at a price of $ 1.35 per share ($ 27.00 on a split-adjusted basis), with certain PIPE Subscribers agreeing to purchase pre-funded warrants (the "PIPE Pre-Funded Warrants") to purchase shares of Class A common stock at a price of $ 1.3499 ($ 26.9980 on a split-adjusted basis) in lieu of Class A common shares. Each PIPE Pre-Funded Warrant gives the holder the right to purchase a share of Class A common stock (1/20th of a share of Class A common stock on a split-adjusted basis) at an exercise price of $ 0.0001 per share ($ 0.0020 on a split-adjusted basis). For each share of Class A common stock and PIPE Pre-Funded Warrant purchased, the holder received a traditional warrant (the "PIPE Traditional Warrants"), which gives the holder the right to purchase a share of Class A common stock (1/20th of a share of Class A common stock on a split-adjusted basis) at an exercise price of $ 1.35 per share ($ 27.00 on a split-adjusted basis). +On September 12, 2025, the Company consummated the PIPE Transactions, pursuant to which it issued 345.5 million shares ( 17.3 million on a split-adjusted basis) of Class A common stock, 209.8 million PIPE Pre-Funded Warrants ( 10.5 million on a split-adjusted basis), and 555.3 million PIPE Traditional Warrants ( 27.8 million on a split-adjusted basis), and received gross proceeds of $ 749.6 million, with the ability to raise $ 749.6 million in additional gross proceeds upon the exercise of such warrants. Each PIPE Pre-Funded Warrant became immediately exercisable, and will be exercisable until each PIPE Pre-Funded Warrant is exercised in full. Each PIPE Traditional Warrant became immediately exercisable, and will expire on the first anniversary of the effectiveness date of the registration statement covering the resale of the PIPE securities. +95 +Certain of the Company's officers and directors participated in the PIPE Transactions at equivalent terms as third-party participants. Certain members of management, or entities controlled by members of management, purchased 0.3 million shares ( 17 thousand on a split-adjusted basis) of Class A common stock and received 0.3 million PIPE Traditional Warrants ( 17 thousand on a split-adjusted basis) through their participation in the PIPE Transactions. Certain investment funds that are managed by one of the Company's board members, and in which the director has a limited partner and general partner interest in the funds, participated in the PIPE Transactions, purchasing 1.1 million shares ( 56 thousand on a split-adjusted basis) of Class A common stock and 1.1 million Traditional Warrants ( 56 thousand on a split-adjusted basis). +As of December 31, 2025, there are 26.6 million and 54 thousand shares of Class A common stock subject to issuance underlying unexercised PIPE Traditional Warrants and PIPE Pre-Funded Warrants, respectively. The table below summarizes activity related to the Company's PIPE Traditional Warrants and PIPE Pre-Funded Warrants for the period from September 12, 2025 to December 31, 2025: +Period from September 12, 2025 to December 31, 2025 +PIPE Traditional Warrants (1) +PIPE Pre-Funded Warrants (1) +PIPE warrants outstanding, beginning of period — — +Issued 555,259,256 209,771,462 +Exercised ( 23,370,554 ) ( 208,699,173 ) +Expired — — +PIPE warrants outstanding, end of period 531,888,702 1,072,289 +(1) Each warrant gives the holder the right to purchase 1/20th of a share of Class A common stock. +351 Exchange +On August 22, 2025, Asset Entities Inc. and Strive Enterprises, Inc., entered into exchange agreements with certain accredited investors (the "351 Investors" and the transactions collectively, the "351 Exchange"), pursuant to which the Company agreed to issue and exchange 2.7 million shares ( 134 thousand on a split-adjusted basis) of the Company's Class A common stock in exchange for an aggregate amount of 69 bitcoin. The exchange ratio was determined based on the price of bitcoin on August 22, 2025 and an assumed price of $ 3.00 per share ($ 60.00 on a split-adjusted basis) of Class A common stock. The 351 Exchange was completed on September 12, 2025, at which time the Company issued 2.7 million shares ( 134 thousand on a split-adjusted basis) of Class A common stock in exchange for 69 bitcoin. For the period from September 12, 2025 to December 31, 2025, the Company recorded a realized loss of $ 14.7 million based on the difference between the fair value of the Company's Class A common stock at the exchange date and the agreed-upon exchange price, which is recorded in other derivative loss on the Company's consolidated statements of operations. +At-the-Market Common Equity Program +On September 15, 2025, the Company entered into a Controlled Equity Offering SM Sales Agreement (the “ASST Sales Agreement”) with Cantor Fitzgerald & Co. (the “Agent”), pursuant to which the Company, from time to time, at its option, may offer and sell shares of its Class A common stock to or through the Agent, acting as the principal and/or the sole agent, having an aggregate sales price of up to $ 450.0 million. During the period from September 12, 2025 to December 31, 2025, the Company issued 26.4 million shares ( 1.3 million on a split-adjusted basis) of Class A common stock for aggregate gross proceeds of $ 78.7 million. As of December 31, 2025, the Company has the availability to raise approximately $ 371.3 million through the issuance and sale of its Class A common stock pursuant to the ASST Sales Agreement. +Share Repurchase Program +On September 15, 2025, the Company's Board of Directors authorized the purchase of up to $ 500.0 million of its Class A common stock through a share repurchase program. Repurchases may be made from time-to-time, subject to general business and market conditions, other investment opportunities, and applicable legal requirements. Repurchases may be made through open market purchases or privately negotiated transactions, including through Rule 10b5-1 plans. During the period from September 12, 2025 to December 31, 2025, the Company has not repurchased any Class A common stock. As of December 31, 2025, $ 500.0 million of Class A common stock remains available for repurchase through the share repurchase program. +(10) Redeemable Preferred Stock +Authorized Capital +The Company has 21,000,000,000 authorized shares of preferred stock, which have a designated par value of $ 0.001 per share. The Company's Variable Rate Series A Perpetual Preferred Stock (“SATA Stock”) is classified within mezzanine +96 +equity as certain events that could cause such outstanding shares to become redeemable are not solely within the control of the Company. Issuances of the SATA Stock are recognized based on proceeds received, net of issuance costs and are not accreted to its redemption value unless it is probable that the SATA Stock will become redeemable. The Company has evaluated the probability of a redemption in connection with a Fundamental Change (as defined in the Certificate of Designation (as defined below)). Based on current facts and circumstances and the Company’s current and projected capital structure, management has determined that the occurrence of a Fundamental Change is remote. Accordingly, the Company concluded that accretion to the redemption value of the Preferred Stock is not required as of the reporting date. +Variable Rate Series A Perpetual Preferred Stock +On November 10, 2025, the Company completed a registered public offering of 2,000,000 shares of its SATA Stock, at a price to the public of $ 80.00 per share, for net proceeds of approximately $ 148.4 million, after deducting the underwriting discounts and commissions and the Company’s offering expenses. The Company filed a certificate of designation (the "Certificate of Designation") with the Nevada Secretary of State designating and establishing the terms of the SATA Stock. The SATA Stock is listed for trading on the Nasdaq Global Market under the symbol “SATA.” As part of the SATA public offering, at the Company’s request, the underwriters reserved up to 100,000 shares of SATA Stock for sale at the public offering price through a directed share program to certain of the Company’s employees, officers and directors based in the United States and their friends and family members, and certain other individuals identified by management. Under the directed share program, Vivek Ramaswamy, who beneficially owned more than 5 % of our Class B Common Stock at the time of the offering and is a Principal Stockholder under our Amended and Restated Articles of Incorporation purchased 15,625 shares of SATA Stock for $ 1.3 million. +On January 27, 2026, the Company issued 1,320,000 shares of SATA Stock in a public offering registered under the Securities Act (the "Follow-On Offering"). The Company received approximately $ 109.2 million of net proceeds, after deducting the underwriting discounts and commissions and expected offering expenses, from the issuance of our SATA Stock in the Follow-On Offering. On January 22, 2026, the Company entered into separate, privately negotiated exchange agreements with certain holders of the Semler Convertible Notes, representing $ 90.0 million aggregate principal amount of the Semler Convertible Notes, pursuant to which such holders exchanged their Semler Convertible Notes for approximately 929,999 newly issued shares of SATA Stock concurrent with the closing of the Follow-On Offering. +The SATA Stock accumulates cumulative dividends ("regular dividends") at a variable rate (as described below) per annum on the stated amount of $ 100 per share thereof. Regular Dividends on the SATA Stock will be payable when, as and if declared by the Company’s board of directors or any duly authorized committee thereof, out of funds legally available for their payment, monthly in arrears on the 15th calendar day of each calendar month. The Company has the right, in its sole and absolute discretion, to adjust the monthly regular dividend rate per annum applicable to subsequent regular dividend periods. The Company’s right to adjust the monthly regular dividend rate per annum is subject to certain restrictions. For example, the Company is not permitted to reduce the monthly regular dividend rate per annum that will apply to any regular dividend period (i) by more than the following amount from the monthly regular dividend rate per annum applicable to the prior regular dividend period: the sum of (1) 25 basis points; and (2) the excess, if any, of (x) the one-month term secured overnight financing rate (“SOFR”) rate on the first business day of such prior regular dividend period, over (y) the minimum of the one-month term SOFR rates that occur on the business days during the period from, and including, the first business day of such prior regular dividend period to, and including, the last business day of such prior regular dividend period; or (ii) to a rate per annum that is less than the one-month term SOFR rate in effect on the business day before the Company provides notice of the next monthly regular dividend rate per annum. In addition, the Company is not entitled to elect to reduce the monthly regular dividend rate per annum unless and until (x) three ( 3 ) months following the initial issue date, or such earlier time as the arithmetic average of the last reported sale prices per share of SATA Stock for each trading day of twenty ( 20 ) consecutive trading days at any time during the three ( 3 ) months following the initial issuance date exceeds $ 100 , (y) all accumulated regular dividends, if any, on the SATA Stock then outstanding for all prior completed regular dividend periods, if any, have been paid in full, and (z) the arithmetic average of the last reported sale prices per share of SATA Stock for each trading day during the immediately preceding regular dividend period is not less than $ 99 per share. The Company’s current intention (which is subject to change in the Company’s sole and absolute discretion) is to adjust the monthly regular dividend rate per annum in such manner as the Company believes will maintain SATA Stock’s trading price within its stated long-term range of $ 99 and $ 101 per share. Declared regular dividends on the SATA Stock will be payable solely in cash. In the event that any accumulated regular dividend on the SATA Stock is not paid on the applicable regular dividend payment date, then SATA Compounded Dividends will accumulate on the amount of such unpaid regular dividend, compounded monthly. As of December 31, 2025, there are no accumulated SATA Compounded Dividends. +The SATA Stock initially had a liquidation preference of $ 100 per share, subject to adjustment as set forth below (the “Liquidation Preference”), with a Liquidation Preference of $ 100 per share as of December 31, 2025. Effective +97 +immediately after the close of business on each business day after the initial issue date (and, if applicable, during the course of a business day on which any sale transaction to be settled by the issuance of the SATA Stock is executed, from the exact time of the first such sale transaction during such business day until the close of business of such business day), the Liquidation Preference per share of SATA Stock will be adjusted to be the greatest of (i) the stated amount per share of SATA Stock; (ii) in the case of any business day with respect to which Strive has, on such business day, executed any sale transaction to be settled by the issuance of SATA Stock, an amount equal to the last reported sale price per share of SATA Stock on the trading day immediately before such business day; and (iii) the arithmetic average of the last reported sale prices per share of SATA Stock for each trading day of the ten consecutive trading days (or, if applicable, the lesser number of trading days as have elapsed during the period from, and including, the initial issue date to, but excluding, such business day) immediately preceding such business day. +The SATA Stock ranks senior to Strive’s Class A common stock and Class B common stock with respect to the payment of dividends and the distribution of assets upon Strive’s liquidation, dissolution or winding up. If Strive liquidates, dissolves or winds up, whether voluntarily or involuntarily, then the holders of SATA Stock will be entitled to receive payment for the Liquidation Preference of, and all accumulated and unpaid regular dividends and any compounded dividends on, their shares of SATA Stock out of Strive’s assets or funds legally available for distribution to its stockholders, before any such assets or funds are distributed to, or set aside for the benefit of, holders of the Class A common stock and Class B common stock or other junior stock, if any. The SATA Stock is junior to Strive’s existing and future indebtedness and structurally junior to the liabilities of Strive’s subsidiaries. +Strive has the right, at its election, to redeem all, or any whole number of shares, of the issued and outstanding SATA Stock, at any time, and from time to time, at a cash redemption price per share of SATA Stock to be redeemed equal to $ 110 (or such higher amount as may be chosen in Strive’s sole discretion, it being understood that such higher amount (or the formula to determine such higher amount) will be announced by prior public notice and/or set forth in the applicable relevant notice of redemption), plus accumulated and unpaid regular dividends, if any, thereon to, and including the redemption date. However, Strive may not redeem less than all of the outstanding SATA Stock unless at least $ 50.0 million aggregate stated amount of the SATA Stock is outstanding and not called for redemption as of the time Strive provides the related redemption notice. Strive also has the right, at its election, to redeem all, but not less than all, of the SATA Stock, at any time, for cash if the total number of shares of all SATA Stock then outstanding is less than 25 % of the total number of shares of SATA Stock originally issued in the Offering and in any future offering, taken together (such redemption, a “clean-up redemption”). In addition, Strive has the right to redeem all, but not less than all, of the SATA Stock if certain tax events occur (such redemption, a “tax redemption”). The redemption price for any SATA Stock to be redeemed pursuant to a clean-up redemption or a tax redemption will be a cash amount equal to the Liquidation Preference of the SATA Stock to be redeemed as of the business day before the date on which Strive provides the related redemption notice, plus accumulated and unpaid regular dividends, if any, thereon to, and including, the redemption date. +If an event that constitutes a “Fundamental Change” under the Certificate of Designation governing the SATA Stock occurs, then, subject to certain limitations, holders of the SATA Stock will have the right to require Strive to repurchase some or all of their shares of SATA Stock at a cash repurchase price equal to the stated amount of the SATA Stock to be repurchased, plus accumulated and unpaid regular dividends, if any, to, and including, the Fundamental Change repurchase date. +The SATA Stock has voting rights with respect to certain amendments to Strive’s articles of incorporation or the Certificate of Designation, certain business combination transactions and certain other matters. However, holders of the SATA Stock will not always be entitled to vote with holders of Class A common stock on matters on which holders of Class A common stock are entitled to vote. +If (in each case, subject to the Certificate of Designation) less than the full amount of accumulated and unpaid regular dividends on the outstanding SATA Stock have been declared and paid within 60 days of the following regular dividend payment date in respect of each of (i) 12 or more consecutive regular dividend payment dates; and (ii) 24 or more consecutive regular dividend payment dates, then, in each case, subject to certain limitations, if then required under Strive’s articles of incorporation or bylaws in order to increase the size of the board of directors, Strive will obtain board and/or stockholder approval to amend its articles of incorporation to increase the authorized number of its directors by one (or, to the fullest extent permitted under the Nevada Revised Statutes and Strive's articles of incorporation, Strive will cause the office of one director to be vacated) and the holders of the SATA Stock, voting together as a single class with the holders of each class or series of “Voting Parity Stock” (as defined in the Certificate of Designation) with similar voting rights regarding the election of directors upon a failure to pay dividends, which similar voting rights are then exercisable, will have the right to elect one director (a “Preferred Stock Director”) to fill such vacant directorship at Strive’s next annual meeting of stockholders (or, if earlier, at a special meeting of Strive’s stockholders called for such purpose). If, thereafter, all accumulated and unpaid dividends on the outstanding SATA Stock have been paid in full, then the right of the holders of the SATA Stock to elect any Preferred Stock Directors will terminate. Upon the termination of such right with respect to +98 +the SATA Stock and all other outstanding Voting Parity Stock, if any, the term of office of each person then serving as a Preferred Stock Director will immediately and automatically terminate (and, if the authorized number of Strive’s directors was increased by one or two, as applicable, in connection with such election, then the authorized number of Strive’s directors will automatically decrease by one or two, as applicable). +Dividends on Preferred Stock +During the period from September 12, 2025 to December 31, 2025, the Company declared dividends to holders of SATA Stock of $ 4.3 million, or $ 2.1541 per share of SATA Stock. The monthly regular dividend rate as of December 31, 2025 per annum was 12.25 %. +At-the-Market Preferred Equity Program +On December 9, 2025, the Company entered into a Controlled Equity Offering SM Sales Agreement (the “SATA Sales Agreement”) with each of Cantor Fitzgerald & Co., Barclays Capital Inc., and Clear Street LLC (each, an "Agent", and collectively the “Agents”), pursuant to which the Company, from time to time, at its option, may offer and sell shares of its SATA Stock to or through the Agents, acting as the principal and/or agent, having an aggregate sales price of up to $ 500.0 million. During the period from September 12, 2025 to December 31, 2025, the Company issued 13 thousand shares of SATA Stock for aggregate gross proceeds of $ 1.2 million. As of December 31, 2025, the Company has the availability to raise approximately $ 498.8 million through the issuance and sale of its SATA Stock pursuant to the SATA Sales Agreement. +(11) Basic and Diluted Earnings (Loss) per Common Share +Basic earnings (loss) per common share is computed by dividing net income (loss) attributable to common stockholders by the weighted-average common stock outstanding during the respective period. The impact from potential shares of common stock on the diluted earnings per common share calculation are included only when dilutive. +Basic and diluted earnings (loss) per common share are calculated as follows (in thousands, except for share and per share data): +Successor Predecessor +Period from September 12, 2025 to December 31, 2025 Period from January 1, 2025 to September 11, 2025 Year Ended +December 31, 2024 +Numerator: +Net loss $ ( 393,598 ) $ ( 26,990 ) $ ( 21,580 ) +Dividends on preferred stock +( 4,320 ) — — +Net loss attributable to common stockholders - Basic +$ ( 397,918 ) $ ( 26,990 ) $ ( 21,580 ) +Denominator: +Basic and diluted weighted average shares of common stock outstanding 43,997,862 2,299,243 2,213,424 +Income (loss) per common share: +Basic income (loss) per common share $ ( 9.04 ) $ ( 11.74 ) $ ( 9.75 ) +Diluted income (loss) per common share $ ( 9.04 ) $ ( 11.74 ) $ ( 9.75 ) +During the period from September 12, 2025 to December 31, 2025, 5.4 million weighted-average shares of potential common stock related to outstanding warrants and stock awards were excluded from the computation of diluted earnings (loss) per common share as their impact would have been anti-dilutive. +During the period from January 1, 2025 to September 11, 2025, 1.2 million weighted-average shares of potential common stock were excluded from the computation of diluted earnings (loss) per common share as their impact would have been anti-dilutive and certain performance-contingent RSUs were excluded from the diluted EPS calculation because the contractual contingencies were not met. +During the year ended December 31, 2024, 1.1 million weighted-average shares of potential common stock were excluded from the computation of diluted earnings (loss) per common share as their impact would have been anti-dilutive and certain performance-contingent RSUs were excluded from the diluted EPS calculation because the contractual contingencies were not met. +99 +(12) Income Taxes +The Company had no income tax benefit or expense during the period from September 12, 2025 to December 31, 2025, the period from July 1, 2025 to September 11, 2025, the three months ended December 31, 2024, the period from January 1, 2025 to September 11, 2025, and the year ended December 31, 2024, which was driven by net taxable losses generated. The Company had no net deferred tax asset as of December 31, 2025 and December 31, 2024 due to the establishment of a full valuation allowance. The entire loss from continuing operations before income taxes is attributable to the United States and no cash income taxes were paid during the aforementioned periods. +The benefit from or provision for income taxes differs from the amount computed by applying the federal statutory income tax rate to the Company's loss before income taxes as follows (amounts in thousands, other than percentages): +Successor Predecessor +Period from September 12, 2025 to December 31, 2025 Period from January 1, 2025 to September 11, 2025 Year Ended +December 31, 2024 +Amount Percent Amount Percent Amount Percent +U.S. federal statutory income tax rate $ ( 82,656 ) 21.0 % $ ( 5,668 ) 21.0 % $ ( 4,532 ) 21.0 % +Nontaxable and nondeductible items: +Non-deductible goodwill impairment 29,408 ( 7.5 ) % — — % — — % +Non-deductible transaction expenses 1,694 ( 0.4 ) % 3,301 ( 12.2 ) % — — % +Non-deductible officers compensation 10,559 ( 2.7 ) % — — % — — % +Other nondeductible items: +Other permanent differences 3,121 ( 0.8 ) % — — % 21 ( 0.1 ) % +Other reconciling items: +Share-based compensation ( 12,939 ) 3.3 % — — % — — % +Change in valuation allowance 50,813 ( 12.9 ) % 2,367 ( 8.8 ) % 4,511 ( 20.9 ) % +Effective income tax rate $ — — % $ — — % $ — — % +The Company is subject to U.S. federal, state and local tax examinations by tax authorities for the periods from December 31, 2022 through December 31, 2024. To the extent necessary, the Company recognizes interest and penalties related to income tax matters as a component of income tax expense. There were no material uncertain tax positions as of December 31, 2025 or December 31, 2024. For all periods presented, the Company has not recognized any interest or penalties related to uncertain tax positions. +The components of deferred income tax assets and deferred tax liabilities as of December 31, 2025 and December 31, 2024 are shown below (in thousands): +December 31, +2025 December 31, +2024 +(Successor) (Predecessor) +Deferred tax assets: +Net operating loss carryforwards $ 26,748 $ 11,723 +Other accruals — 72 +Lease liabilities 1,019 375 +Digital assets 46,443 — +Capitalized start-up costs 158 35 +Share-based compensation expense 1,434 — +Charitable contribution carryforward 46 35 +Other — 98 +Gross deferred tax assets $ 75,848 12,338 +Less: valuation allowances ( 74,719 ) ( 11,828 ) +Deferred tax assets, net $ 1,129 $ 510 +Deferred tax liabilities: +Right of use assets ( 992 ) ( 375 ) +Property and equipment ( 137 ) ( 126 ) +Intangible assets — ( 9 ) +Gross deferred tax liabilities $ ( 1,129 ) $ ( 510 ) +Net deferred tax asset $ — $ — +100 +As of December 31, 2025 and December 31, 2024, the Company had available net operating loss carryforwards of $ 204.5 million and $ 87.5 million, respectively. As of December 31, 2025 and December 31, 2024, $ 110.4 million and $ 48.5 million, respectively, of the carryforwards have an indefinite life, while $ 94.1 million and $ 39.1 million, respectively, begin to expire in 2044. At both December 31, 2025 and December 31, 2024, the Company had a full valuation allowance against its loss carryforwards based on the conclusion it is not more likely than not that some or all of its deferred tax assets will be realized based on the Company's history of taxable losses and uncertainty as to future income generation. +Internal Revenue Code ("IRC") Section 382 addresses company ownership changes and specifically limits the utilization of certain deduction and tax attributes on an annual basis. As a result of the Asset Entities Merger and the Semler Scientific Merger, the Company's tax attributes, including net operating losses, may be subject to IRC Section 382 limitations. +On July 4, 2025, the One Big Beautiful Bill Act ("OBBBA"), which includes a broad range of tax reform provisions, was signed into law in the United States. The OBBBA did not have a material impact on our annual effective tax rate during the year ended December 31, 2025 and we do not expect it to have a material impact on our effective tax rate during the year ended December 31, 2026. +(13) Segment Information +Beginning in 2025, the Company's management directs operations as two reportable operating segments, the “Asset Management” segment, which provides investment advisory services and the "Corporate & Other" segment, which includes the Company's bitcoin treasury operations. Prior to 2025, the Company's management evaluated performance and allocated resources in consideration of only one operating segment, the Asset Management segment, as the Company's sole operations were related to its asset management business, with no consideration of a potential bitcoin treasury strategy. As a result, prior to 2025, all revenues and expenses were related to the Company's Asset Management segment. Beginning in 2025, costs that are not directly allocable to a specific operating segment, including, but not limited to, employee-related costs, general and administrative expenses, such as rent expense, and depreciation and amortization, are allocated using a reasonable allocation methodology, which is primarily represented by the relative percentage of resources used by each segment. +The Company's CODM is its Chief Executive Officer, who utilizes key financial metrics, including net income (loss), to assess performance and make decisions regarding allocation of resources, such as capital allocation, determining compensation, and managing costs. The CODM also evaluates significant revenues and expenses by reportable segment to evaluate key operating decisions. +The following summarizes the information reviewed by the CODM to evaluate the net income (loss) of the Company's Asset Management and Corporate & Other for the period from September 12, 2025 to December 31, 2025, the period from January 1, 2025 to September 11, 2025, and the year ended December 31, 2024 (amounts in thousands): +Period from September 12, 2025 to December 31, 2025 (Successor) +Asset Management Corporate & Other Total Consolidated +Revenues: +Investment advisory fees $ 1,495 $ — $ 1,495 +Other revenue — 17 17 +Total revenues 1,495 17 1,512 +Operating expenses: +Fund management and administration 1,867 — 1,867 +Employee compensation and benefits 4,932 22,707 27,639 +General and administrative expense 631 3,050 3,681 +Marketing and advertising 19 132 151 +Depreciation and amortization — 71 71 +Total operating expenses 7,449 25,960 33,409 +Investment gains/(losses): +Net unrealized loss on digital assets, at fair value — ( 194,508 ) ( 194,508 ) +Other derivative loss — ( 14,731 ) ( 14,731 ) +Net investment gains/(losses) — ( 209,239 ) ( 209,239 ) +Net operating loss ( 5,954 ) ( 235,182 ) ( 241,136 ) +101 +Other income/(expense): +Other income 15 708 723 +Transaction costs — ( 12,400 ) ( 12,400 ) +Goodwill and intangible asset impairment — ( 140,785 ) ( 140,785 ) +Total other income/(expense) 15 ( 152,477 ) ( 152,462 ) +Net loss before income taxes ( 5,939 ) ( 387,659 ) ( 393,598 ) +Income tax benefit/(expense) — — — +Net loss $ ( 5,939 ) $ ( 387,659 ) $ ( 393,598 ) +Period from January 1, 2025 to September 11, 2025 (Predecessor) +Asset Management Corporate & Other Total Consolidated +Revenues: +Investment advisory fees $ 4,187 $ — $ 4,187 +Other revenue 7 28 35 +Total revenues 4,194 28 4,222 +Operating expenses: +Fund management and administration 4,250 — 4,250 +Employee compensation and benefits 4,861 2,361 7,222 +General and administrative expense 2,672 1,557 4,229 +Marketing and advertising 88 143 231 +Depreciation and amortization 52 97 149 +Total operating expenses 11,923 4,158 16,081 +Investment gains/(losses): +Net unrealized loss on digital assets, at fair value — — — +Other derivative loss — — — +Net investment gains/(losses) — — — +Net operating loss ( 7,729 ) ( 4,130 ) ( 11,859 ) +Other income/(expense): +Other income 360 226 586 +Transaction costs — ( 15,717 ) ( 15,717 ) +Goodwill and intangible asset impairment — — — +Total other income/(expense) 360 ( 15,491 ) ( 15,131 ) +Net loss before income taxes ( 7,369 ) ( 19,621 ) ( 26,990 ) +Income tax benefit/(expense) — — — +Net loss $ ( 7,369 ) $ ( 19,621 ) $ ( 26,990 ) +102 +Year Ended December 31, 2024 (Predecessor) +Asset Management Corporate & Other Total Consolidated +Revenues: +Investment advisory fees $ 3,592 $ — $ 3,592 +Other revenue 58 — 58 +Total revenues 3,650 — 3,650 +Operating expenses: +Fund management and administration 4,867 — 4,867 +Employee compensation and benefits 9,135 — 9,135 +General and administrative expense 11,248 — 11,248 +Marketing and advertising 862 — 862 +Depreciation and amortization 192 — 192 +Total operating expenses 26,304 — 26,304 +Investment gains/(losses): +Net unrealized loss on digital assets, at fair value — — — +Other derivative loss — — — +Net investment gains/(losses) — — — +Net operating loss ( 22,654 ) — ( 22,654 ) +Other income/(expense): +Other income 795 — 795 +Transaction costs — — — +Gain on lease remeasurement 279 — 279 +Goodwill and intangible asset impairment — — — +Total other income/(expense) 1,074 — 1,074 +Net loss before income taxes ( 21,580 ) — ( 21,580 ) +Income tax benefit/(expense) — — — +Net loss $ ( 21,580 ) $ — $ ( 21,580 ) +The total assets of the Company's operating segments are summarized as follows (in thousands): +December 31, 2025 December 31, 2024 +(Successor) (Predecessor) +Asset Management $ 1,279 $ 28,197 +Corporate & Other 744,248 — +Total $ 745,527 $ 28,197 +(14) Subsequent Events +Digital asset, STRC Stock, and cash and cash equivalents update +During the period from January 1, 2026 to March 17, 2026, we acquired approximately 5,048 bitcoin through our acquisition of Semler Scientific and purchased an additional 953 bitcoin at an average price of approximately $ 81,092 per bitcoin, inclusive of fees and expenses. In March 2026, we made an initial investment of $ 50.0 million in the Variable Rate Series A Perpetual Stretch Preferred Stock (the "STRC Stock") of Strategy Inc. +As of March 17, 2026, the Company held $ 83.7 million of cash and cash equivalents and held STRC Stock with a fair value of $ 50.4 million. The Company's bitcoin treasury totaled 13,628 bitcoin as of March 17, 2026. +Capital stock update +As of March 17, 2026, the Company had 59,286,628 and 9,872,157 shares of Class A common stock and Class B common stock outstanding, respectively. +103 +As of March 17, 2026, the Company had 4,275,118 shares of SATA Stock outstanding, which currently pays a monthly regular dividend rate per annum of 12.75 %. +Exercises of PIPE Pre-Funded Warrants +During the period from January 1, 2026 to March 17, 2026, 1,072,289 PIPE Pre-Funded Warrants were exercised for shares of Class A common stock. As of March 17, 2026, no PIPE Pre-Funded Warrants remain outstanding. +Exercises of PIPE Traditional Warrants +There were no exercises of PIPE Traditional Warrants during the period from January 1, 2026 to March 17, 2026. As of March 17, 2026, 26,594,435 shares of Class A common stock are subject to issuance underlying unexercised PIPE Traditional Warrants. +At-the-market offerings +During the period from January 1, 2026 to March 17, 2026, the Company issued an aggregate of 8,182,150 shares of its Class A common stock under the ASST Sales Agreement for aggregate gross proceeds of $ 95.0 million. As of March 17, 2026, the Company has the availability to raise approximately $ 276.3 million through the issuance and sale of its Class A common stock pursuant to the ASST Sales Agreement. +During the period from January 1, 2026 to March 17, 2026, the Company issued an aggregate of 12,390 shares of its SATA Stock under the SATA Sales Agreement for aggregate gross proceeds of $ 1.2 million. As of March 17, 2026, the Company has the availability to raise approximately $ 497.6 million through the issuance and sale of its SATA Stock pursuant to the SATA Sales Agreement. +Other updates +In accordance with the employment terms previously approved and as disclosed in Strive, Inc.’s Form 8-K on September 15, 2025, the board of directors approved the issuance of 702,856 RSUs to the Company’s Chairman and Chief Executive Officer, Matthew Cole, which will vest over five substantially equal installments on each of the first five anniversaries of September 12, 2025 through September 12, 2030, subject to the terms of the RSU agreement and Mr. Cole’s continued employment through each applicable vesting date. +The Company has evaluated subsequent events through the date of the issuance of this Annual Report and determined that, except as disclosed within these consolidated financial statements, there have been no other events that have occurred that would require accrual or additional disclosure. +INDEX TO EXHIBITS +Exhibit +Number Description +2.1** +Agreement and Plan of Merger among Asset Entities Inc., Alpha Merger Sub, LLC, Strive Enterprises, Inc., and Strive Asset Management, LLC, dated as of May 6, 2025 (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on May 7, 2025). +2.2** +Amended and Restated Agreement and Plan of Merger among Asset Entities Inc., Alpha Merger Sub, Inc. and Strive Enterprises, Inc., dated as of June 27, 2025 (incorporated by reference to Exhibit 2.1 to Current Report on Form 8-K filed on July 3, 2025). +2.3** +Agreement and Plan of Merger, dated as of September 22, 2025, by and between Strive, Inc. and Semler Scientific, Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on September 22, 2025). +2.4 +Amendment to the Merger Agreement, dated as of December 3, 2025, to that certain Agreement and Plan of Merger, dated as of September 22, 2025, by and among Strive, Inc., Strive Merger Sub, Inc., and Semler Scientific, Inc. by and among Strive, Inc., Strive Merger Sub, Inc., and Semler Scientific, Inc. (incorporated by reference to Annex B to the Company’s definitive information statement/proxy statement/prospectus filed December 5, 2025). +104 +3.1 +Amended and Restated Articles of Incorporation of Strive, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on September 12, 2025). +3.2 +Certificate of Amendment, dated October 8, 2025 (effective December 31, 2025), and Certificate of Correction, dated October 13, 2025, to the Amended and Restated Articles of Incorporation of Strive, Inc., as filed with the Secretary of State of the State of Nevada (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on October 14, 2025). +3.3 +Amended and Restated Bylaws of Strive, Inc. (effective December 31, 2025) (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on October 14, 2025). +3.4 +Certificate of Designation of Variable Rate Series A Perpetual Preferred Stock (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed on November 10, 2025). +3.5 +Certificate of Amendment for Variable Rate Series A Perpetual Preferred Stock, as filed with the Nevada Secretary of State on December 9, 2025 (incorporated by reference to Exhibit 3.1 to the Form 8-K filed on December 9, 2025). +3.6 +Certificate of Change of Strive, Inc., as filed with the Nevada Secretary of State on February 3, 2026 and effective on February 6, 2026 (incorporated by reference to Exhibit 3.1 to the Form 8-K filed on February 3, 2026). +4.1* +Description of Capital Stock. +4.2 +Shareholders Agreement, dated as of September 12, 2025, by and among the Company and the shareholders party thereto (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on September 12, 2025). +4.3 +Registration Rights Agreement, dated as of September 12, 2025, by and among Strive, Inc. and the persons listed on Schedule A thereto (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on September 12, 2025). +4.4 +First Amendment to the First Amended and Restated Investors’ Rights Agreement, dated as of September 12, 2025 (incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K filed on September 12, 2025). +4.5 +Form of Pre-Funded Warrant (incorporated by reference to Exhibit 4.4 to the Company’s Current Report on Form 8-K filed on September 12, 2025). +4.6 +Form of Warrant (incorporated by reference to Exhibit 4.5 to the Company’s Current Report on Form 8-K filed on September 12, 2025). +4.7 +Form of Certificate of Variable Rate Series A Perpetual Preferred Stock (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed on November 10, 2025). +4.8 +Form of Global Note, representing Semler Scientific, Inc.’s 4.25% Convertible Senior Notes due 2030 (included in Exhibit 10.34). +10.1 +Letter Agreement between Asset Entities Inc. and Arshia Sarkhani, dated as of March 27, 2025 (incorporated by reference to Exhibit 10.37 to the Company’s Annual Report on Form 10-K filed on March 31, 2025). +10.2 +Letter Agreement between Asset Entities Inc. and Matthew Krueger, dated as of March 27, 2025 (incorporated by reference to Exhibit 10.38 to the Company’s Annual Report on Form 10-K filed on March 31, 2025). +10.3 +Letter Agreement between Asset Entities Inc. and Kyle Fairbanks, dated as of March 27, 2025 (incorporated by reference to Exhibit 10.39 to the Company’s Annual Report on Form 10-K filed on March 31, 2025). +105 +10.4 +Letter Agreement between Asset Entities Inc. and Arman Sarkhani, dated as of March 27, 2025 (incorporated by reference to Exhibit 10.40 to the Company’s Annual Report on Form 10-K filed on March 31, 2025). +10.5 +Letter Agreement between Asset Entities Inc. and Jackson Fairbanks, dated as of March 27, 2025 (incorporated by reference to Exhibit 10.41 to the Company’s Annual Report on Form 10-K filed on March 31, 2025). +10.6 +Consulting Letter Agreement between Asset Entities Inc. and Michael Gaubert, dated as of March 27, 2025 (incorporated by reference to Exhibit 10.42 to the Company’s Annual Report on Form 10-K filed on March 31, 2025). +10.7 +Amended and Restated Waiver and Consent, dated as of March 20, 2025, between Asset Entities Inc. and Ionic Ventures, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on March 20, 2025). +10.8** +Voting and Support Agreement by and among Strive Enterprises, Inc. and certain stockholders of Asset Entities Inc., dated as of May 6, 2025 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 7, 2025). +10.9 +Form of Subscription Agreement, dated May 26, 2025, by and among Asset Entities Inc., Strive Enterprises, Inc. and the subscribers party thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 27, 2025). +10.10 +Amended and Restated Voting and Support Agreement by and among Strive Enterprises, Inc. and certain stockholders of Asset Entities Inc., dated as of June 27, 2025 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 3, 2025). +10.11 +Assignment and Assumption Agreement dated August 18, 2025, by and among Asset Entities Inc., Hybrid Assets LLC and Jeff Blue (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 20, 2025). +10.12 +Letter Agreement dated August 18, 2025, between Asset Entities Inc. and Hybrid Assets LLC (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on August 20, 2025). +10.13 +Form of Exchange Agreement, dated August 22, 2025, by and among Asset Entities Inc., Strive Enterprises, Inc. and the investors party thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 28, 2025). +10.14 +Notice of Termination between Asset Entities Inc. and A.G.P./Alliance Global Partners, dated as of September 8, 2025 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 12, 2025). +10.15† +Form of Indemnification Agreement (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on September 12, 2025). +10.16 +Separation Agreement and Release of Claims between Asset Entities Inc. and Matthew Krueger, dated as of September 10, 2025 (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on September 12, 2025). +10.17 +Separation Agreement and Release of Claims between Asset Entities Inc. and Michael Gaubert, dated as of September 10, 2025 (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on September 12, 2025). +10.18 +Form of Amendment No. 1 to the Sale and Subscription Agreements, dated as of September 15, 2025, by and between Strive, Inc. and the subscribers party thereto (incorporated by reference to Exhibit 1.1 to the Company’s Current Report on Form 8-K filed on September 15, 2025). +106 +10.19 +Controlled Equity Offering SM Sales Agreement, dated as of September 15, 2025, by and between, Strive, Inc. and Cantor Fitzgerald & Co. (incorporated by reference to Exhibit 1.2 to the Form S-3 filed on September 15, 2025 (File No. 333-290252)). +10.20† +Amended and Restated Strive Enterprises, Inc. 2022 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Form S-4 filed on August 5, 2025 (File No. 333-289280)). +10.21† +Form of Restricted Stock Award Agreement for Amended and Restated 2022 Equity Incentive Plan (incorporated by reference to Exhibit 10.2 to the Form S-4 filed on August 5, 2025 (File No. 333-289280)). +10.22† +Form of Restricted Stock Unit Award Agreement for Amended and Restated 2022 Equity Incentive Plan (incorporated by reference to Exhibit 10.2 to the Form S-4 filed on August 5, 2025 (File No. 333-289280)). +10.23† +Asset Entities Inc. 2022 Equity Incentive Plan (incorporated by reference to Exhibit 10.13 to Registration Statement on Form S-1 filed on September 2, 2022 (File No.: 333-267258)). +10.24† +Form of Stock Option Agreement for Asset Entities Inc. 2022 Equity Incentive Plan (incorporated by reference to Exhibit 10.14 to Registration Statement on Form S-1 filed on September 2, 2022 (File No.: 333-267258)). +10.25† +Form of Restricted Stock Award Agreement for Asset Entities Inc. 2022 Equity Incentive Plan (incorporated by reference to Exhibit 10.15 to Registration Statement on Form S-1 filed on September 2, 2022 (File No.: 333-267258)). +10.26† +Form of Restricted Stock Unit Award Agreement for Asset Entities Inc. 2022 Equity Incentive Plan (incorporated by reference to Exhibit 10.16 to Registration Statement on Form S-1 filed on September 2, 2022 (File No.: 333-267258)). +10.27† +Strive, Inc. Amended and Restated 2022 Equity Incentive Plan (incorporated by reference to Exhibit 99.1 to the Form S-8 filed on September 15, 2025 (File No. 333-290254)). +10.28† +Employment Agreement between Strive, Inc. and Matthew Cole, dated as of September 15, 2025 (incorporated by reference to Exhibit 10.18 to the Company’s Form 10-Q filed on November 14, 2025). +10.29† +Employment Agreement between Strive, Inc. and Benjamin Bartley Pham, dated as of September 15, 2025 (incorporated by reference to Exhibit 10.19 to the Company’s Form 10-Q filed on November 14, 2025). +10.30† +Employment Agreement between Strive, Inc. and Brian Logan Beirne, dated as of September 15, 2025 (incorporated by reference to Exhibit 10.20 to the Company’s Form 10-Q filed on November 14, 2025). +10.31† +Employment Agreement between Strive, Inc. and Arshia Sarkhani, dated as of September 15, 2025 (incorporated by reference to Exhibit 10.21 to the Company’s Form 10-Q filed on November 14, 2025). +10.32 +Letter Agreement, dated as of December 3, 2025, between Strive, Inc. and Vivek Ramaswamy (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on December 9, 2025). +10.33 +Controlled Equity OfferingSM Sales Agreement, dated as of December 9, 2025, by and among Strive, Inc., Cantor Fitzgerald & Co., Barclays Capital Inc. and Clear Street LLC (incorporated by reference to Exhibit 1.1 to the Company’s Form 8-K filed on December 9, 2025). +10.34 +Indenture, dated as of January 28, 2025, between Semler Scientific, Inc. and U.S Bank Trust Company, National Association, as Trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on January 16, 2026). +10.35 +Supplemental Indenture, dated as of January 16, 2026, by and among Semler Scientific, Inc., Strive, Inc., as guarantor, and U.S Bank Trust Company, National Association, as Trustee (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on January 16, 2026). +10.36* +Settlement Agreement effective September 10, 2025. +107 +14.1* +Code of Business Conduct and Ethics +16.1 +Letter from WWC, P.C. to the Securities and Exchange Commission dated September 15, 2025 (incorporated by reference to Exhibit 16.1 to the Company’s Current Report on Form 8-K filed on September 15, 2025). +19.2* +Insider Trading Policy. +19.3* +Rule 10b5-1 Trading Plan Guidelines. +21.1* +Subsidiaries of the registrant. +22.1* +List of Guarantor Subsidiaries and Issuers of Guaranteed Securities. +23.1* +Consent of KPMG LLP. +31.1* +Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Principal Executive Officer. +31.2* +Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Principal Financial Officer. +32.1* +Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. +97.1* +Compensation Recoupment Policy. +101.INS* Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document). +101.SCH* Inline XBRL Taxonomy Extension Schema with Embedded Linkbase Document. +101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document. +101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document. +101.LAB* Inline XBRL Taxonomy Extension Labels Linkbase Document. +101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document. +104 Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101). +____________ +† Executive compensation plan or arrangement. +* Filed or furnished herewith. +** All schedules and exhibits to the agreement have been omitted pursuant to Item 601(a)(5) of Regulations S-K. A copy of any omitted schedule and/or exhibit will be furnished to the Securities and Exchange Commission upon request. +108 +SIGNATURES +Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. +STRIVE, INC. +By: /s/ Matthew Cole +Matthew Cole +Chief Executive Officer +Date: March 19, 2026 +By: /s/ Benjamin Pham +Benjamin Pham +Chief Financial Officer +Date: March 19, 2026 +Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. +Signature Title Date +/s/ Matthew Cole Chief Executive Officer and Chairman (Principal Executive Officer) March 19, 2026 +Matthew Cole +/s/ Benjamin Pham Chief Financial Officer and Director (Principal Financial Officer and Principal Accounting Officer) March 19, 2026 +Benjamin Pham +/s/ Brian Logan Beirne Chief Legal Officer and Director March 19, 2026 +Brian Logan Beirne +/s/ Arshia Sarkhani Chief Marketing Officer and Director March 19, 2026 +Arshia Sarkhani +/s/ Shirish Jajodia Director March 19, 2026 +Shirish Jajodia +/s/ James A. Lavish Director March 19, 2026 +James A. Lavish +/s/ Jonathan R. Macey Director March 19, 2026 +Jonathan R. Macey +/s/ Mahesh Ramakrishnan Director March 19, 2026 +Mahesh Ramakrishnan +/s/ Pierre Rochard Director March 19, 2026 +Pierre Rochard +/s/ Eric Semler Director March 19, 2026 +Eric Semler +109 \ No newline at end of file diff --git a/raw/filings/0001920406/2025/0001628280-26-019879/filing_metadata.csv b/raw/filings/0001920406/2025/0001628280-26-019879/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..cb05cfaa19c39c3f15e01a30ef44951d9e535f21 --- /dev/null +++ b/raw/filings/0001920406/2025/0001628280-26-019879/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001920406,SATA,"Strive, Inc.",2025,10-K,2026-03-19,2025-12-31,2026-03-19T21:21:04.000Z,0001628280-26-019879,asst-20251231.htm,10-K,22184939,1,1,https://www.sec.gov/Archives/edgar/data/1920406/000162828026019879/asst-20251231.htm,https://www.sec.gov/Archives/edgar/data/1920406/000162828026019879/ diff --git a/raw/filings/0001920406/2025/0001628280-26-019879/item1.txt b/raw/filings/0001920406/2025/0001628280-26-019879/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..f9749c0d12fdbcb87f1dca18bba89cdc54e9e313 --- /dev/null +++ b/raw/filings/0001920406/2025/0001628280-26-019879/item1.txt @@ -0,0 +1,83 @@ +Item 1. Business +Overview +Strive is a structured finance company and institutional asset manager focused on disciplined capital allocation and long term value creation. We have strategically adopted bitcoin as our hurdle rate for capital deployment because of our fiduciary duty to maximize long-term value for stockholders, and compounding purchasing power over time. Relative to a traditional depreciating fiat-denominated benchmark, implementing a bitcoin hurdle rate establishes a higher level of accountability and strategic investment discipline, since our decisions are measured against an asset we believe will appreciate over time. +Strive’s operating business generates stockholder value through disciplined balance sheet management and the growth of our bitcoin holdings. Our SATA Stock exemplifies this approach, a publicly traded security that aims to provide investors with consistent cash flows and minimal volatility, while enabling Strive to capture the spread between SATA Stock’s financing cost and the potential long term return of bitcoin. +Beyond balance sheet strategy, Strive is focused on advancing innovation within the capital markets by modernizing established financing structures. The Company has developed our SATA Stock, our perpetual preferred equity instrument, that incorporates an at‑the‑market (“ATM”) program, creating a flexible and continuous capital formation mechanism. This approach transforms a historically static capital structure into a dynamic and adaptive capital funding platform. Through these innovations, Strive seeks to combine legacy market frameworks with modern assets, positioning the Company at the intersection of institutional finance and a bitcoin‑based reserve strategy. +Following the completion of Strive Enterprises, Inc.’s reverse acquisition of Asset Entities Inc. on September 12, 2025, Strive began operating as a publicly traded company and began deploying capital to execute on its bitcoin treasury strategy, becoming the first U.S. publicly traded bitcoin treasury asset management firm. As of December 31, 2025, the Company managed over $2.4 billion in assets under management (“AUM”). These activities provide recurring, fee-based revenue streams which increase with AUM. Beginning in fiscal year 2026, we plan to operate our asset-management segment within a single-digit-million dollar operating loss to single-digit-million dollar operating profit range. +On September 22, 2025, Strive, Inc. entered into that certain Agreement and Plan of Merger (the "Semler Scientific Merger Agreement") with Semler Scientific. On January 16, 2026, pursuant to the Semler Scientific Merger Agreement, Strive Merger Sub, Inc., a wholly owned subsidiary of Strive merged with and into Semler Scientific, with Semler Scientific continuing as the surviving corporation and a wholly owned subsidiary of Strive. Through the acquisition of Semler Scientific, Strive acquired Semler Scientific's existing bitcoin reserve as well as Semler Scientific's operating business, which develops and markets technology products and services that assist customers in evaluating and treating chronic diseases. +Our Bitcoin Strategy +Our bitcoin strategy generally involves, from time to time, subject to market conditions and the need for cash and cash equivalents to meet short-term working capital requirements, (i) acquiring bitcoin through open market purchases using available cash, which may be raised from our operating activities as well as capital raising initiatives, such as issuing equity and fixed income offerings, among other capital raise strategies (collectively, “beta” initiatives) and (ii) acquiring bitcoin through alpha strategies, such as acquiring bitcoin through strategic M&A activity or other transactions, resulting in the acquisition of bitcoin at a discount relative to market value, which are intended to deliver returns above and beyond what beta initiatives may deliver alone. +Our Bitcoin Holdings +In 2025, we acquired a total of approximately 7,627 bitcoin at an aggregate acquisition cost of approximately $863.0 million, or $113,153 per bitcoin, including fees and expenses. During the period from January 1, 2026 to March 17, 2026, we acquired approximately 5,048 bitcoin through our acquisition of Semler Scientific and purchased an additional 953 bitcoin at an average price of approximately $81,092 per bitcoin, inclusive of fees and expenses. Consistent with our long-term holding strategy, we have not sold any bitcoin to date. In addition, in March 2026, we made an initial investment of $50.0 million in the Variable Rate Series A Perpetual Stretch Preferred Stock (the "STRC Stock") of Strategy Inc. +As of December 31, 2025, our digital assets, at fair value totaled approximately $668.5 million within our consolidated statement of financial condition, consisting of approximately 7,627 bitcoin. We also held $67.5 million in cash and cash equivalents, putting us in a position to strategically deploy capital to bolster our treasury. As of March 17, 2026, our cash +5 +and cash equivalents totaled $83.7 million, while our position in the STRC Stock had a fair value of $50.4 million. Our bitcoin treasury totaled 13,628 bitcoin as of March 17, 2026. +Overview of the Bitcoin Industry and Market +Bitcoin is a digital asset that is issued by and transmitted through an open-source protocol, known as the Bitcoin protocol, collectively maintained by a peer-to-peer network of individual, decentralized network participants called "nodes." This network hosts a public transaction ledger, known as the Bitcoin blockchain, on which bitcoin holdings and all validated transactions that have ever taken place on the bitcoin network are recorded. Balances of bitcoin are stored in individual “wallets”, which associate network public addresses with one or more “private keys” that control the transfer of bitcoin. The Bitcoin blockchain can be updated without any single entity owning or operating the network. +Creation of New Bitcoin and Limits on Supply +The bitcoin protocol limits the total number of bitcoin that can be generated over time to 21 million. New bitcoin is created and allocated by the Bitcoin protocol through a “mining” process that rewards users that validate transactions in the bitcoin blockchain. Validated transactions are added in “blocks” approximately every 10 minutes. The mining process serves to validate transactions and secure the bitcoin network. Mining is a competitive and costly operation that requires a large amount of computational power to solve complex mathematical algorithms. This expenditure of computing power is known as “proof of work.” To incentivize miners to incur the costs of mining bitcoin, the Bitcoin protocol rewards miners that successfully validate a block of transactions with newly generated bitcoin. +Modifications to the Bitcoin Protocol +Bitcoin is an open-source network that has no central authority, meaning that no one person can unilaterally make changes to the software that runs the network. However, there is a core group of developers that maintains the code for the Bitcoin protocol, and this group can propose changes to the source code and release periodic updates and other changes. Unlike most software that has a central entity that can push updates to users, bitcoin is a peer-to-peer network in which the nodes decide whether to upgrade the software and accept the new changes. As a practical matter, a modification becomes part of the Bitcoin protocol only if the proposed changes are accepted by participants collectively having more than 50% of the processing power, known as "hash rate", on the network. If a certain percentage of the nodes reject the changes, then a “fork” takes place, and participants can choose the version of the software they want to run. +Forms of Attack Against the Bitcoin Network and Wallets +Blockchain technology has many built-in security features that make it difficult for hackers and other malicious actors to corrupt the protocol or blockchain. However, as with any computer network, the Bitcoin network may be subject to certain attacks. Some forms of attack include unauthorized access to wallets that hold bitcoin and direct attacks, like “51% attacks” or “denial-of-service attacks” on the Bitcoin network. +Bitcoin is controllable only by the possessor of both the unique public key and private key(s) relating to the local or online digital wallet in which the bitcoin is held. Private keys used to access bitcoin balances are not widely distributed and are typically held on hardware (which can be physically controlled by the holder or by a third party, such as a custodian) or via software programs on third-party servers. One form of obtaining unauthorized access to a wallet occurs following a phishing attack where the attacker deceives the victim and manipulates them into sharing their private keys for their digital wallet or other sensitive information. Other similar attacks may also result in the loss of private keys, which may cause the victim to effectively lose the corresponding bitcoin because the victim can no longer access their digital wallet. +A “51% attack” may occur when a group of miners attain more than 50% of the Bitcoin network’s mining power, thereby enabling them to control the Bitcoin network and protocol and manipulate the blockchain. A “denial-of-service attack” occurs when legitimate users are unable to access information systems, devices, or other network resources due to the actions of a malicious actor flooding the network with traffic until the network is unable to respond or crashes. The Bitcoin network has been, and can be in the future, subject to denial-of-service attacks, which can result in temporary delays in block creation and in the transfer of bitcoin. +Bitcoin Industry Participants +The primary bitcoin industry participants are miners, investors and traders, digital asset exchanges, and service providers, including custodians, brokers, payment processors, wallet providers, and financial institutions. +6 +Miners . Miners range from bitcoin enthusiasts to professional mining operations that design and build dedicated mining machines and data centers, including mining pools, which are groups of miners that act cohesively and combine their processing power to mine bitcoin blocks. +Investors and Traders. Bitcoin investors and traders include individuals and institutional investors who, directly or indirectly, purchase, hold, and sell bitcoin or bitcoin-based derivatives, including bitcoin exchange-traded products. Exchange-traded products ("ETPs") can be bought and sold on a stock exchange like traditional stocks and provide investors with another means of gaining economic exposure to bitcoin through traditional brokerage accounts. +Digital Asset Exchanges. Digital asset exchanges provide trading venues for purchases and sales of bitcoin in exchange for fiat or other digital assets. Bitcoin can be exchanged for fiat currencies, such as the U.S. dollar, at rates of exchange determined by market forces on bitcoin trading platforms, which are not regulated in the same manner as traditional securities exchanges. In addition to these platforms, over-the-counter markets and derivatives markets for bitcoin also exist. The value of bitcoin within the market is determined, in part, by the supply of and demand for bitcoin in the global bitcoin market, market expectations for the adoption of bitcoin as a store of value, the number of merchants that accept bitcoin as a form of payment, and the volume of peer-to-peer transactions, among other factors. +Service Providers. Service providers offer a multitude of services to other participants in the bitcoin industry, including custodial and trade execution services, commercial and retail payment processing, loans secured by bitcoin collateral, and financial advisory services. Given the continued widespread adoption of the Bitcoin network, the range of service and number of service providers continue to increase. +Other Digital Assets +As of the date of this Annual Report, bitcoin was the largest digital asset by market capitalization. However, numerous alternative digital assets exist, and many entities, including consortia and financial institutions, are actively researching and investing resources in blockchain platforms and digital assets that utilize consensus mechanisms other than proof-of-work mining, which is employed by the Bitcoin network. For example, in late 2022, the Ethereum network transitioned to a “proof-of-stake” mechanism for validating transactions that requires significantly less computing power than proof-of-work mining. Other alternative digital assets that compete with bitcoin in certain ways include “stablecoins,” which are designed to maintain a constant price because of their issuers’ promise to hold high-quality liquid assets (such as U.S. dollar deposits and short-term U.S. treasury securities) equal to the total value of stablecoins in circulation. Stablecoins have grown rapidly as an alternative to bitcoin and other digital assets as a medium of exchange and store of value, particularly on digital asset trading platforms. +Additionally, central banks in some countries have started to introduce digital forms of legal tender. For example, China’s central bank digital currency (“CBDC”) project was made available to consumers in January 2022, and governments including the United States and the European Union have discussed the potential creation of new CBDCs. +Competition +Our bitcoin strategy generally involves from time to time, subject to market conditions, (i) issuing debt or equity securities or engaging in other capital raising transactions with the objective of using the proceeds to purchase bitcoin and bitcoin-related products or engage in other opportunistic transactions to acquire bitcoin and bitcoin-related products and (ii) acquiring bitcoin with our liquid assets that exceed working capital requirements. When we engage in such capital raising transactions, we compete for capital with, among others, ETPs, bitcoin miners, digital assets exchanges, other digital assets service providers, other companies that hold bitcoin or other digital assets as treasury reserve assets, private funds that invest in bitcoin and other digital assets, and similar vehicles. An increase in the competition for sources of capital could adversely affect the availability and cost of financing for our bitcoin purchases, and thereby could adversely affect the market price of our listed securities. +Custody of our Bitcoin +We currently hold and intend to continue to hold all of our bitcoin in custodial accounts at U.S.-based, institutional-grade custodians (who may hold our bitcoin in the United States or other territories) that have demonstrated records of regulatory compliance and information security. Our custodians may also serve as liquidity providers. We engage with multiple custodians to diversify our potential risk exposure to any one custodian. Our custodial services contracts do not restrict our ability to reallocate our bitcoin among our custodians, and our bitcoin holdings may be concentrated with a single custodian from time to time. In light of the significant amount of bitcoin we hold, we continually seek to engage additional digital asset custodians to further diversify the custody of our bitcoin. +7 +We carefully select the custodians that custody our bitcoin after undertaking a due diligence process. As part of our custodian selection process, we evaluate and select custodians that can demonstrate that they operate with strict security protocols, including multifactor authentication procedures designed to safekeep our bitcoin. In addition, our custodial services agreements generally specify that the private keys that control our bitcoin will be held in offline or “cold” storage, which is designed to mitigate risks that a system may be susceptible to when connected to the internet, including the risks associated with unauthorized network access and cyberattacks. We also conduct due diligence reviews during the custodial relationship to monitor the safekeeping of our bitcoin. As part of our process, we obtain and review our custodians’ Services Organization Controls reports. +Our custodians have access to the private key information associated with our bitcoin, or private keys, and they deploy security measures to secure our bitcoin holdings such as advanced encryption technologies, multi-factor identification, and a policy of storing our private keys in redundant, secure and geographically dispersed facilities. We never store, view or directly access our private keys. The operational procedures of our custodians are reviewed periodically by third-party advisors. All movement of our bitcoin by our custodians is coordinated and monitored. Additionally, we routinely verify our bitcoin holdings by reconciling our custodial service ledgers to the public blockchain. +Potential Advantages and Disadvantages of Holding Bitcoin +We believe that bitcoin is an attractive asset because it can serve as a store of value, supported by a robust and public open-source architecture, that is untethered to sovereign monetary policy. We also believe that, due to its limited supply, bitcoin offers the potential to serve as a hedge against inflation in the long-term and, if its adoption increases, the opportunity for appreciation in value. +Bitcoin exists entirely in electronic form, as virtually irreversible public transaction ledger entries on the blockchain, and transactions in bitcoin are recorded and authenticated not by a central repository, but by a decentralized peer-to-peer network. This decentralization mitigates the risks of certain threats common to centralized computer networks, such as denial-of-service attacks, and reduces the dependency of the bitcoin network on any single system. The decentralization of user nodes and miners also mitigates the risk of a 51% attack, which would be very costly and difficult to execute with respect to bitcoin because the Bitcoin network is open source and widely distributed, and transactions on the blockchain require significant computing power to be validated. However, while the Bitcoin network as a whole is decentralized, the private keys used to access bitcoin balances are not widely distributed and are susceptible to phishing and other attacks designed to obtain sensitive information or gain access to password-protected systems. Loss of such private keys can result in an inability to access, and effective loss of, the corresponding bitcoin. Consequently, bitcoin holdings are susceptible to all of the risks inherent in holding any electronic data, such as power failure, data corruption, security breach, communication failure and user error, among others. These risks, in turn, make bitcoin substantially more susceptible to theft, destruction, or loss of value from hackers, corruption, viruses and other technology-specific factors as compared to conventional fiat currency or other conventional financial assets. +In addition, the Bitcoin network relies on open-source developers to maintain and improve the Bitcoin protocol. Accordingly, bitcoin may be subject to protocol design changes, governance disputes such as “forked” protocols, competing protocols, and other open source-specific risks that do not affect conventional proprietary software. +Our Healthcare Technology Solutions Products and Services +Our subsidiary, Semler Scientific, currently markets a patented and FDA-cleared, vascular testing product, QuantaFlo. QuantaFlo is a four-minute in-office blood flow test that features a sensor clamp placed on the toe and finger. Infrared light emitted from the clamp on the dorsal surface of the digit is scattered and reflected by the red blood cells coursing through the area of illumination. Returning light is ‘sensed’ by the sensor. A blood flow waveform is instantaneously constructed by our proprietary software algorithm. Semler Scientific primarily utilizes a license model rather than an outright sales model for QuantaFlo. Semler Scientific has placed its QuantaFlo product with healthcare insurance plans, integrated delivery networks, independent physician groups, hospitals and companies contracting with the healthcare industry such as risk assessment groups and retailers in addition to doctors’ offices. Semler Scientific previously reported that it is experiencing and expects to continue to experience decreased usage of its QuantaFlo device due various factors, including the 2024 Medicare Advantage and Part D Final Rate Announcement issued by the Centers for Medicare and Medicaid Services (“CMS”). Semler Scientific manufactures its product, QuantaFlo, in the United States through independent contractors whom it pays for finished goods. +Intellectual Property +We use various methods to establish and protect our intellectual property, and rely on intellectual property laws in the United States and other countries, along with contractual measures to do so. +8 +We own numerous trademarks (under common law, pending US Trademark applications, and a federally registered trademark for STRIVE), proprietary research, and copyrightable educational content distributed through our corporate digital channels. We protect intellectual-property rights via trademark registrations, confidentiality agreements, and strict access controls. We do not rely on patented technology for our core business. For our healthcare business, we have been issued one patent for Semler Scientific’s apparatus, U.S. Patent No. 7,628,760, which expires December 11, 2027. +Government Regulation +Bitcoin Regulation +The laws and regulations applicable to bitcoin and digital assets are evolving and subject to interpretation and change. +Governments around the world have reacted differently to digital assets; certain governments have deemed them illegal, and others have allowed their use and trade without restriction, while in some jurisdictions, such as the U.S., digital assets are subject to overlapping, uncertain and evolving regulatory requirements. +As digital assets have grown in both popularity and market size, the U.S. Executive Branch, Congress and a number of U.S. federal and state agencies, including the Financial Crimes Enforcement Network, the Commodity Futures Trading Commission (“CFTC”), the U.S. Securities and Exchange Commission ("SEC"), the Financial Industry Regulatory Authority, the Consumer Financial Protection Bureau, the Department of Justice, the Department of Homeland Security, the Federal Bureau of Investigation, the IRS and state financial regulators, have been examining the operations of digital asset networks, digital asset users and digital asset exchanges, with particular focus on the extent to which digital assets can be used to violate state or federal laws, including to facilitate the laundering of proceeds of illegal activities or the funding of criminal or terrorist enterprises, and the safety and soundness and consumer-protective safeguards of exchanges or other service-providers that hold, transfer, trade or exchange digital assets for users. Many of these state and federal agencies have issued consumer advisories regarding the risks posed by digital assets to investors. In addition, federal and state agencies, and other countries have issued rules or guidance regarding the treatment of digital asset transactions and requirements for businesses engaged in activities related to digital assets. +Depending on the regulatory characterization of bitcoin, the markets for bitcoin in general, and our activities in particular, our business and our bitcoin strategy may be subject to regulation by one or more regulators in the United States and globally. Ongoing and future regulatory actions may alter, to a materially adverse extent, the nature of digital assets markets, the participation of industry participants, including service providers and financial institutions in these markets, and our ability to pursue our bitcoin strategy. Additionally, U.S. state and federal and foreign regulators and legislatures have taken action against industry participants, including digital assets businesses, and enacted restrictive regimes in response to adverse publicity arising from hacks, consumer harm, or criminal activity stemming from digital assets activity. U.S. federal and state energy regulatory authorities are also monitoring the total electricity consumption of cryptocurrency mining, and the potential impacts of cryptocurrency mining to the supply and dispatch functionality of the wholesale grid and retail distribution systems. Many state legislative bodies have passed, or are actively considering, legislation to address the impact of cryptocurrency mining in their respective states. +The CFTC takes the position that some digital assets, including bitcoin, fall within the definition of a “commodity” under the Commodity Exchange Act of 1936, as amended (the “CEA”). Under the CEA, the CFTC has broad enforcement authority to police market manipulation and fraud in spot digital assets markets in which we may transact. Beyond instances of fraud or manipulation, the CFTC generally does not oversee cash or spot market exchanges or transactions involving digital asset commodities that do not utilize margin, leverage, or financing. In addition, CFTC regulations and CFTC oversight and enforcement authority apply with respect to futures, swaps, other derivative products and certain retail leveraged commodity transactions involving digital asset commodities, including the markets on which these products trade. +The SEC and its staff have taken the position that certain other digital assets fall within the definition of a “security” under the U.S. federal securities laws. Public statements made by senior officials and senior members of the staff at the SEC indicate that the SEC does not consider bitcoin to be a security under the federal securities laws. However, such statements are not official policy statements by the SEC and reflect only the speakers’ views, which are not binding on the SEC or any other agency or court and cannot be generalized to any other digital assets. +In addition, since transactions in bitcoin provide a degree of anonymity, they are susceptible to misuse for criminal activities, such as money laundering. This misuse, or the perception of such misuse, could lead to greater regulatory oversight of bitcoin and Bitcoin platforms, and there is the possibility that law enforcement agencies could close or blacklist bitcoin platforms or other bitcoin-related infrastructure with little or no notice and prevent users from accessing or retrieving bitcoin held via such platforms or infrastructure. For example, the U.S. Treasury Department’s Office of Foreign Assets Control has issued updated advisories regarding the use of virtual currencies, added a number of digital asset +9 +exchanges and service providers to the Specially Designated Nationals and Blocked Persons list and engaged in several enforcement actions, including a series of enforcement actions that have either shut down or significantly curtailed the operations of several smaller digital asset exchanges associated with Russian and/or North Korean nationals. +U.S. Food and Drug Administration Regulation +QuantaFlo is a medical device subject to extensive regulation by the FDA and other federal, state, local and foreign regulatory bodies. FDA regulations govern, among other things, activities that Semler Scientific or Semler Scientific’s partners perform and will continue to perform, including product design and development, product testing, product manufacturing, product safety, post-market adverse event reporting, post-market surveillance, product labeling, product storage, record keeping, premarket clearance or approval, post-market approval studies, advertising and promotion, and product sales and distribution. +Healthcare Fraud and Abuse +Semler Scientific’s operations are subject to federal and state healthcare laws and regulations including fraud and abuse laws, such as anti-kickback and false claims laws, data privacy and security laws and transparency laws related to payments and/or other transfers of value made to physicians and other healthcare professionals and teaching hospitals. +The federal Anti-Kickback Law prohibits unlawful inducements for the referral of business reimbursable under federally-funded healthcare programs, such as remuneration provided to physicians to induce them to use certain tissue products or medical devices reimbursable by Medicare or Medicaid. The federal Anti-Kickback Law is subject to evolving interpretations. For example, the government has enforced the federal Anti-Kickback Law to reach large settlements with healthcare companies based on, among other things, inappropriate consultant arrangements with physicians or questionable joint venture arrangements. The majority of states also have anti-kickback laws, which establish similar prohibitions that may apply to items or services reimbursed by any third-party payor, including commercial insurers. Further, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, the “Health Care Reform Law”), among other things, amended the intent requirement of the federal Anti-Kickback Law and criminal healthcare fraud statutes. A person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it in order to have committed a violation. In addition, the Health Care Reform Law provided that the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Law constitutes a false or fraudulent claim for purposes of the civil False Claims Act and certain criminal healthcare fraud statutes. +Additionally, the civil False Claims Act prohibits knowingly presenting or causing the presentation of a false, fictitious or fraudulent claim for payment to the U.S. government. Actions under the False Claims Act may be brought by the U.S. Attorney General or as a qui tam action by a private individual in the name of the government. The federal government is using the civil False Claims Act, and the accompanying threat of significant liability, in its investigations of healthcare providers and suppliers throughout the country for a wide variety of Medicare billing practices and has obtained multi-million and multi-billion dollar settlements in addition to individual criminal convictions. The federal False Claims Act provides for treble damages and per-claim penalties. Semler Scientific has been cooperating with civil investigative demands from DOJ (as defined below) since 2017 related to claims for reimbursement related to Semler Scientific’s QuantaFlo device and entered into a settlement agreement with DOJ related thereto in September 2025. See “ Risk Factors— Risks Related to Our Healthcare Legal and Regulatory Environment—We are subject to various healthcare fraud and abuse laws and regulations, recently entered into a settlement agreement with DOJ relating to a qui tam action under the False Claims Act, and is now subject to additional litigation and risk relating to the DOJ matter and disclosures regarding the same. ” for more information. In addition, off-label promotion has been pursued as a violation of the federal False Claims Act. Pursuant to FDA regulations, Semler Scientific can only market Semler Scientific’s products for cleared or approved uses. Although physicians are permitted to use medical devices for indications other than those cleared or approved by the FDA based on their independent medical judgment, Semler Scientific is prohibited from promoting products for such off-label uses. Given the significant size of actual and potential settlements, it is expected that the government will continue to devote substantial resources to investigating healthcare providers’ and suppliers’ compliance with the healthcare reimbursement rules and fraud and abuse laws. +Additionally, the majority of states in which Semler Scientific markets Semler Scientific’s products have similar fraud and abuse laws, such as anti-kickback, false claims, anti-fee splitting and self-referral laws, which may apply to items or services reimbursed by any third-party payor, including commercial insurers, and violations may result in substantial civil, criminal and administrative penalties. +The Health Care Reform Law also included the federal Physician Payments Sunshine Act, which requires device manufacturers for which payment is available under Medicare, Medicaid, or the Children’s Health Insurance Program to +10 +disclose annually to CMS any “transfer of value” made or distributed to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors), other licensed health care practitioners, and teaching hospitals. Such information is now made publicly available in a searchable format, and device manufacturers are now required to report and disclose any investment interests held by physicians and their family members during the preceding calendar year. Failure to submit required information may result in significant civil monetary penalties for all payments, transfers of value or ownership or investment interests not reported in an annual submission. Additionally, the commercial compliance environment is continually evolving in the healthcare industry, and some states, including California, Massachusetts and Vermont, mandate implementation of corporate compliance programs, along with the tracking and reporting of gifts, compensation and other remuneration to physicians and other healthcare providers. The shifting compliance environment and the need to build and maintain robust and expandable systems to comply in multiple jurisdictions with different compliance and/or reporting requirements increases the possibility that a healthcare company may run afoul of one or more of the requirements. +Semler Scientific’s business operations may also be subject to certain federal and state laws regarding the use and disclosure of individually identifiable health information, such as the federal Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, which impose obligations on certain entities with respect to safeguarding the privacy, security and transmission of individually identifiable health information. +To enforce compliance with the federal laws, the DOJ has also increased its scrutiny of interactions between healthcare companies and healthcare providers (including Semler Scientific), which has led to an unprecedented level of investigations, prosecutions, convictions and settlements in the healthcare industry. Dealing with investigations can be time- and resource-consuming. Additionally, if a healthcare company settles an investigation with the DOJ or other law enforcement agencies, the company may be required to agree to additional compliance and reporting requirements as part of a consent decree or corporate integrity agreement. +The U.S. and foreign government regulators have increased regulation, enforcement, inspections and governmental investigations of the medical device industry, including increased U.S. government oversight and enforcement of the Foreign Corrupt Practices Act. Whenever a governmental authority concludes that Semler Scientific is not in compliance with applicable laws or regulations, that authority can impose fines, delay or suspend regulatory clearances, institute proceedings to detain or seize Semler Scientific’s products, issue a recall, impose operating restrictions, enjoin future violations and assess civil penalties against Semler Scientific or Semler Scientific’s officers or employees and can recommend criminal prosecution. Moreover, governmental authorities can ban or request the recall, repair, replacement or refund of the cost of devices Semler Scientific distributes. +If a governmental authority were to conclude that Semler Scientific is not in compliance with applicable fraud and abuse laws and regulations, Semler Scientific and Semler Scientific’s officers and employees could be subject to severe penalties including, for example, civil, criminal and administrative penalties, damages, fines, disgorgement, individual imprisonment, exclusion from participation as a supplier of product to beneficiaries covered by Medicare or Medicaid, additional reporting obligations and oversight if subject to a corporate integrity agreement or other agreement to resolve allegations of non-compliance with these laws, contractual damages, reputational harm, diminished profits and future earnings, and curtailment or restructuring of operations, any of which could adversely affect Semler Scientific’s ability to operate Semler Scientific’s business and the results of Semler Scientific’s operations. +It is uncertain whether and how future legislation, whether domestic or foreign, could affect prospects for QuantaFlo or what actions foreign, federal, state or private payors for health care treatment and services may take in response to any such health care reform proposals or legislation. +Human Capital +As of December 31, 2025, we employed 28 full-time employees. None of our employees are represented by a labor union. We believe our human-capital practices — centered on meritocracy, performance-based compensation, and equity ownership — are critical to attracting and retaining top talent. We consider our relationship with our employees to be good and have not experienced any work stoppages. We also regularly engage consultants and subcontractors on an as-needed basis. +Our executive management team regularly review and update our talent strategy, monitoring a variety of data, including turnover, diversity, and tenure, to design and implement effective reward/recognition, training, development, succession, and benefit programs to meet the needs of our businesses and our employees. +11 +Available Information +Our website is located at www.strive.com. We make available free of charge, on or through the Investor Relations section of our website (https://investors.strive.com), our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after electronically filing or furnishing such reports with the SEC. Information found on our website is not part of this Annual Report or any other report filed with the SEC. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers, including us, that file or furnish electronically with the SEC at www.sec.gov. We also maintain a dashboard on our website (https://treasury.strive.com/) as a disclosure channel for providing broad, non-exclusionary distribution of information regarding the Company to the public, including information regarding market prices of our outstanding securities, bitcoin acquisitions and holdings, certain KPI metrics and other supplemental information, and as one means of disclosing non-public information in compliance with our disclosure obligations under Regulation FD. Investors and others are encouraged to regularly review the information that we make public via the website dashboard. \ No newline at end of file diff --git a/raw/filings/0001920406/2025/0001628280-26-019879/item13.txt b/raw/filings/0001920406/2025/0001628280-26-019879/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..ff515cb884ec4aeff8f60d9f6579b7fd2d47ac42 --- /dev/null +++ b/raw/filings/0001920406/2025/0001628280-26-019879/item13.txt @@ -0,0 +1,3 @@ +Item 13. +Certain Relationships and Related Transactions, and Director Independence +76 \ No newline at end of file diff --git a/raw/filings/0001921865/2024/0000950170-25-047694/filing.txt b/raw/filings/0001921865/2024/0000950170-25-047694/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..08d00d8ce76dde5ae52b305e8879d58c67b4c8df --- /dev/null +++ b/raw/filings/0001921865/2024/0000950170-25-047694/filing.txt @@ -0,0 +1,4490 @@ +10-K +0001921865 FY false 1 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us-gaap:FairValueInputsLevel3Member us-gaap:ConvertibleNotesPayableMember 2023-12-31 0001921865 aspi:OfficeAndLaboratoryPretoriaSouthAfricaMember 2024-12-31 0001921865 aspi:PlantMember 2024-12-31 0001921865 aspi:SeptemberTwoThousandTwentyFourTwoMember 2024-12-31 xbrli:pure xbrli:shares aspi:Segment iso4217:ZAR iso4217:USD xbrli:shares iso4217:GBP aspi:Customer iso4217:USD +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +FORM 10-K +☒ +ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the year ended December 31 , 2024 +OR +☐ +TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the transition period from to +Commission File Number 001-41555 +ASP Isotopes Inc. +(Exact name of registrant as specified in its charter) +Delaware +87-2618235 +(State or other jurisdiction of incorporation or organization) +(I.R.S. Employer Identification No.) +601 Pennsylvania Avenue NW +South Building , Suite 900 +Washington , DC +20004 +(Address of principal executive offices) +(Zip code) +( 202 ) 756-2245 +(Registrant’s telephone number, including area code) +Not Applicable +(Former name, former address and former fiscal year, if changed since last report) +Securities registered pursuant to Section 12(b) of the Act: +Name of exchange +Title of each class +Trading Symbol +on which registered: +Common stock, par value $0.01 per share +ASPI +The Nasdaq Capital Market LLC +Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ +Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒ +Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ +Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ +Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. +Large accelerated filer +☐ +Accelerated filer +☐ +Non-accelerated Filer +☒ +Smaller reporting company +☒ +Emerging growth company +☒ +If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ +Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐ +If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐ +Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ +Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ +The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 30, 2024 was approximately $ 96.0 million. +There were 72,068,059 shares of the registrant’s common stock, $0.01 par value, outstanding as of March 31, 2025. +DOCUMENTS INCORPORATED BY REFERENCE +Portions of the registrant’s definitive proxy statement for its 2025 Annual Meeting of Stockholders (the “Proxy Statement”), to be filed within 120 days of the registrant’s fiscal year ended December 31, 2024 , are incorporated by reference in Part III of this Annual Report on Form 10-K. Except with respect to information specifically incorporated by reference in this Annual Report on Form 10-K, the Proxy Statement is not deemed to be filed as part of this Annual Report on Form 10-K. +ASP Isotopes Inc. +Annual Report on Form 10-K +For the Year Ended December 31, 2024 +Table of Contents +Page +PART I +Item 1. +Business +4 +Item 1A. +Risk Factors +22 +Item 1B. +Unresolved Staff Comments +50 +Item 1C. +Cybersecurity +50 +Item 2. +Properties +50 +Item 3. +Legal Proceedings +51 +Item 4. +Mine Safety Disclosures +51 +PART II +Item 5. +Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +51 +Item 6. +[Reserved] +52 +Item 7. +Management’s Discussion and Analysis of Financial Condition and Results of Operations +53 +Item 7A. +Quantitative and Qualitative Disclosures About Market Risk +63 +Item 8. +Financial Statements and Supplementary Data +64 +Item 9. +Changes in and Disagreements with Accountants on Accounting and Financial Disclosure +95 +Item 9A. +Controls and Procedures +95 +Item 9B. +Other Information +96 +Item 9C. +Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +96 +PART III +Item 10. +Directors, Executive Officers and Corporate Governance +97 +Item 11. +Executive Compensation +97 +Item 12. +Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +97 +Item 13. +Certain Relationships and Related Transactions and Director Independence +97 +Item 14. +Principal Accounting Fees and Services +97 +PART IV +Item 15. +Exhibits, Financial Statement Schedules +98 +Item 16. +Form 10-K Summary +100 +2 +SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS +This Annual Report on Form 10-K contains "forward-looking statements" within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact contained in this Annual Report on Form 10-K, including statements regarding our future results of operations and financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. +In some cases, you can identify forward-looking statements by terms such as “may,” “should,” “would,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this Annual Report on Form 10-K are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Annual Report on Form 10-K and are subject to a number of risks, uncertainties and assumptions described in the section titled “Risk Factors” and elsewhere in this Annual Report on Form 10-K. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Some of the key factors that could cause actual results to differ from our expectations include: +• +our ability to achieve or sustain positive cash flows from operations or profitability; +• +our ability to complete the construction of, commission and successfully operate isotope enrichment plants in a cost-effective manner; +• +our ability to meet, and to continue to meet, applicable regulatory requirements for the use of the isotopes we may produce using the ASP technology or the Quantum Enrichment technology; +• +our ability to obtain regulatory approvals for the production and distribution of isotopes; +• +our ability to comply on an ongoing basis with the numerous regulatory requirements applicable to the ASP technology, the Quantum Enrichment technology and our enrichment facilities in South Africa; +• +the introduction, market acceptance and success of Mo-100 that we may produce using ASP technology as an alternative and potentially more convenient production route for Tc-99m; +• +the success or profitability of our future offtake arrangements with respect to various isotopes that we may produce using ASP technology or the Quantum Enrichment technology; +• +a failure of demand for various isotopes that we may produce using ASP technology or the Quantum Enrichment technology; +• +our future capital requirements and sources and uses of cash; +• +our ability to obtain funding for our operations and future growth; +• +the extensive costs, time and uncertainty associated with new technology development; +• +our ability to implement and maintain effective internal controls; +• +developments and projections relating to our competitors and industry; +• +the ability to recognize the anticipated benefits of acquisitions, including our acquisition of assets of Molybdos (Pty) Limited in the “business rescue” auction, the assets and intellectual property we acquired from Klydon Proprietary Ltd, and our investment in PET Labs Pharmaceuticals; +• +problems with the performance of the ASP technology or the Quantum Enrichment technology in the enrichment of isotopes; +• +our dependence on a limited number of third-party suppliers for certain components; +• +our inability to adapt to changing technology and diagnostic landscape, such as the emergence of new diagnostic scanners or tracers; +3 +• +our expected dependence on a limited number of key customers for isotopes that we may produce using ASP technology or the Quantum Enrichment technology; +• +our inability to protect our intellectual property and the risk of claims that we have infringed on the intellectual property of others; +• +our inability to compete effectively; +• +risks associated with the current economic environment; +• +risks associated with our international operations; +• +our credit counterparty risks; +• +geopolitical risk and changes in applicable laws or regulations; +• +our inability to adequately protect our technology infrastructure; +• +our inability to hire or retain skilled employees and the loss of any of our key personnel; +• +operational risk; +• +costs and other risks associated with becoming a reporting company and becoming subject to the Sarbanes-Oxley Act; and +• +other factors that are described in “Risk Factors,” beginning on page 22 . +These statements relate to future events or to our future financial performance and involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those set forth in Part I, Item 1A - “Risk Factors” below and for the reasons described elsewhere in this Annual Report on Form 10-K. Any forward-looking statement in this Annual Report on Form 10-K reflects our current view with respect to future events and is subject to these and other risks, uncertainties, and assumptions relating to our operations, results of operations, industry, and future growth. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future. +This Annual Report on Form 10-K also contains estimates, projections, and other information concerning our industry, our business, and the potential markets for certain isotopes, including data regarding the estimated size of those markets, their projected growth rates, and the incidence of certain medical conditions. Information that is based on estimates, forecasts, projections, or similar methodologies is inherently subject to uncertainties, and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained these industry, business, market, and other data from reports, research surveys, studies, and similar data prepared by third parties, industry, medical and general publications, government data, and similar sources. In some cases, we do not expressly refer to the sources from which these data are derived. +Except where the context otherwise requires, in this Annual Report on Form 10-K, “we,” “us,” “our,” “ASP Isotopes,” and the “Company” refer to ASP Isotopes Inc. and, where appropriate, its consolidated subsidiaries. +Trademarks +All trademarks, service marks, and trade names included in this Annual Report on Form 10-K are the property of their respective owners. Solely for convenience, the trademarks and trade names in this report may be referred to without the ® and ™ symbols, but such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto. +PART I +Item 1. Business +Overview +We are a development stage advanced materials company dedicated to the development of technology and processes that, if successful, will allow for the enrichment of natural isotopes into higher concentration products, which could be used in several industries. Our proprietary technologies, the Aerodynamic Separation Process (“ASP technology”) and Quantum Enrichment +4 +technology (“QE technology”), are designed to enable the production of isotopes used in several industries. Our initial focus is on the production and commercialization of enriched Carbon-14 (“C-14”), Silicon-28 (“Si-28”) and Ytterbium-176 (“Yb-176”). +We have completed the commissioning phase and are commencing commercial production at our C-14 and Si-28 enrichment facilities in Pretoria, South Africa. We are in the process of commissioning and commencing commercial production at our Yb-176 enrichment facility in Pretoria, South Africa. Our C-14 and Si-28 enrichment facilities utilize the ASP technology and our Yb-176 enrichment facility utilizes QE technology. We expect our first three enrichment facilities to generate commercial product during 2025. In addition, we have started planning additional isotope enrichment plants both in South Africa and in other jurisdictions, including Iceland and the United States. We believe the C-14 we may produce using the ASP technology could be used in the development of new pharmaceuticals and agrochemicals. We believe the Si-28 we may produce using the ASP technology may be used to create advanced semiconductors and in quantum computing. We believe the Yb-176 we may produce using the QE technology may be used to create radiotherapeutics that treat various forms of oncology. +In addition, we are considering the future development of the ASP technology for the separation of Zinc-68 and Xenon-129/136 for potential use in the healthcare end market, Germanium 70/72/74 for potential use in the semiconductor end market, and Chlorine -37 for potential use in the nuclear energy end market. We are also considering the future development of QE technology for the separation of Nickel-64, Gadolinium-160, Ytterbium-171, Lithium 6 and Lithium7. +We are currently pursuing an initiative to apply our enrichment technologies to the enrichment of Uranium-235 (“U-235”) in South Africa. We believe that the U-235 we may produce using quantum enrichment technology may be commercialized as a nuclear fuel component for use in the new generation of high-assay low-enriched uranium (HALEU)-fueled small modular reactors that are now under development for commercial and government uses. In furtherance of our uranium enrichment initiative, in October 2024, we entered into a term sheet with TerraPower, LLC which contemplates the parties entering into definitive agreements pursuant to which TerraPower would provide funding for the construction of a HALEU production facility and agree to purchase all HALEU produced at the facility over a 10-year period after the planned completion of the facility in 2027. In addition, in November 2024, we entered into a memorandum of understanding with The South African Nuclear Energy Corporation (Necsa), a South African state-owned company responsible for undertaking and promoting research and development in the field of nuclear energy and radiation sciences, to collaborate on the research, development and ultimately the commercial production of advanced nuclear fuels. Subject to the receipt of funding and all required permits and licenses to begin enrichment of U-235 in South Africa, it is anticipated that the research, development and ultimate construction of a HALEU production facility will take place at South Africa’s main nuclear research center at Pelindaba in Pretoria. +We operate principally through subsidiaries. ASP Isotopes Guernsey Limited (the holding company of ASP Isotopes South Africa (Proprietary) Limited, Enlightened Isotopes (Pty) Ltd) and ASPI South Africa Asset Finance (Pty) Ltd, which will be focused on the development and commercialization of high-value, low-volume isotopes for highly specialized end markets (such as C-14, Si-28 and Yb-176). In September 2023, we formed a new subsidiary, Quantum Leap Energy LLC, which also has a subsidiary in the United Kingdom (Quantum Leap Energy Ltd), to focus on the development and commercialization of advanced nuclear fuels such as HALEU and Lithium-6. ASP Isotopes UK Ltd is the owner of our technology. In addition, we have a 51% ownership stake in PET Labs Pharmaceuticals Proprietary Limited (PET Labs), a South African radiopharmaceutical operations company focused on the production of fluorinated radioisotopes and active pharmaceutical ingredients, through which we entered the downstream medical isotope production and distribution market. +5 +Our corporate structure and ownership of our subsidiaries is set forth in the chart below: +Our Segments +As of December 31, 2023, we managed our operations as a single segment, specialist isotopes and related services. Beginning in 2024, primarily as a result of the increased business activities of our subsidiary, Quantum Leap Energy LLC, we manage our operations as two operating segments: (i) nuclear fuels, and (ii) specialist isotopes and related services: +• +Nuclear Fuels. This segment is focused on research and development of technologies and methods used to produce HALEU and Lithium-6 for the advanced nuclear fuels target end market. +• +Specialist Isotopes and Related Services. This segment is focused on research and development of technologies and methods used to separate high-value, low-volume isotopes (such as C-14, Mo-100 and Si-28) for highly specialized target end markets other than advanced nuclear fuels, including pharmaceuticals and agrochemicals, nuclear medical imaging and semiconductors, as well as services related to these isotopes, and this segment includes PET Labs. +Our Strategy +Commence commercial production at each of our enrichment facilities in Pretoria, South Africa. +We commenced commercial production of enriched isotopes at our ASP enrichment facilities located in Pretoria, South Africa during the first quarter of 2025. Our first ASP enrichment facility is designed to enrich light isotopes, such as Carbon-14. The second ASP enrichment facility, which is substantially larger than the first, should have the potential to enrich kilogram quantities of relatively heavier isotopes, including but not limited to Silicon-28 and Molybdenum-100. We anticipate shipping the first commercial batches of enriched Carbon-14 in mid-2025 and enriched Silicon-28 during the second quarter of 2025. We are in the process of commissioning and commencing commercial production at our third enrichment facility, a QE technology facility, which will be our first laser-based enrichment plant and is expected to be able to achieve a 99.75% enrichment for Ytterbium-176. We expect to commence commercial production of Ytterbium-176 during the second quarter of 2025. +Demonstrate the capability to produce commercial quantities of enriched C-14, Si-28 and Yb-176 using the ASP and QE technologies and capitalize on the opportunity to solve many supply chain challenges that currently exist. +We intend to demonstrate the capability to produce C-14, Si-28 and Yb-176 at a scale that can support anticipated customer demand for all three isotopes. +Historically, Russia has been the sole supplier of C-14, which is used as a tracer in the development of new pharmaceuticals and agrochemicals. The supply chain has been inherently fragile with inconsistent service. We have received an initial supply of feedstock from our customer and have started the enrichment of C-14. +6 +Isotopically enriched silicon is regarded as a promising material for semiconductor quantum information due to its very long coherence times and its compatibility with the readily available industrial platform. We believe that the ASP technology is ideally suited to the production of this isotope because it has the ability to enrich molecules of low molecular mass. Other electronic gasses that can likely be enriched using ASP Technology include disilane and germane. +Enriched Ytterbium-176 can be irradiated to produce Lutetium-177, which has been identified for use in oncology, particularly in targeted radionuclide therapy ("TRT"). TRT is used in the treatment of various types of cancers, including neuroendocrine tumors, prostate cancer, and bone metastases, among others. There are numerous ongoing clinical trials studying Lutetium-177 PSMA-617 in patients with metastatic castration-resistant prostate cancer. We have obtained all necessary licenses within South Africa to proceed with the commercial development of this product. +Continue identifying potential offtake customers and strategic partners for our enriched isotopes. +We have significant interest from potential offtake customers for the enriched isotopes that we intend to produce. In June 2023, we entered into a tolling agreement with a Canadian customer for the entire capacity of our C-14 production facility. In April and June 2024, we entered into purchase orders with a US semiconductor company and a global industrial gas company for the supply of highly enriched silicon-28. We are currently in discussions with potential customers that have an interest in entering into long-term supply agreements for kilogram quantities of Si-28 and larger quantities of Xe-129, Ge 72, Ge-74, Zn-68, and Cl-37. We intend to identify additional potential customers and strategic partners for isotopes that we may produce at our existing and planned enrichment facilities. +Demonstrate the capability to produce high-assay low-enriched uranium (HALEU) using our enrichment technologies and meet anticipated demand for the new generation of HALEU-fueled small modular reactors and advanced reactor designs that are now under development for commercial and government uses. +We plan to begin research and development for the enrichment of uranium to demonstrate our capability to produce HALEU using Quantum Enrichment technology. We anticipate a future demand for HALEU for the new generation of HALEU-fueled small modular reactors ("SMRs") and advanced reactor designs that are now under development for commercial and government uses. SMRs are viewed as being cheaper, safer, and more versatile than traditional large-scale nuclear reactors, and development of the new technology is receiving considerable funding from the U.S. Department of Energy, as well as from the governments of other countries. There is currently no commercial production of HALEU in the United States. We are currently conducting a feasibility study with respect to constructing an enrichment facility in South Africa, the U.S. and the United Kingdom. We are currently in discussions with nuclear regulatory authorities in multiple countries, including the UK Atomic Energy Authority, UK Office of Nuclear Regulation (ONR), Nuclear Energy Corporation of South Africa (NECSA), the South African Department of Mineral Resources and Energy (DMRE), United States Department of Energy (DOE) and the United States Nuclear Regulatory Commission (NRC), regarding the construction of a nuclear fuel plant in these countries. +We intend to progress our uranium enrichment initiative first in South Africa. In November 2024, we entered into a Memorandum of Understanding ("MOU") with The South African Nuclear Energy Corporation (Necsa) to collaborate on the research, development and ultimately the commercial production of advanced nuclear fuels. Necsa is a state-owned company established by the Republic of South Africa Nuclear Energy Act in 1999 with a mandate to undertake and promote research and development in the field of nuclear energy and radiation sciences. Necsa is also responsible for processing source material, and co-operating with other institutions on nuclear and related matters. The proposed structure under discussion for the delivery of the objectives of the MOU contemplates the formation of a new entity in South Africa with a board of directors consisting of at least two representatives from ASPI and Necsa. It is anticipated that the research, development and ultimate construction of a HALEU production facility will take place at South Africa’s main nuclear research center located at Pelindaba, Pretoria. +Alongside our talks with regulators, we are currently discussing with multiple counterparties engaged in the development of SMR reactors to produce HALEU to further their research efforts and future commercial endeavors. We have entered into two MOUs with US-based SMR companies for the supply of HALEU. For example, our term sheet with TerraPower, LLC which contemplates the parties entering into definitive agreements pursuant to which TerraPower would provide funding for the construction of a HALEU production facility and agree to purchase all HALEU produced at the facility over a 10-year period after the planned completion of the facility in 2027. +Demonstrate the effectiveness and value in the use of stable isotopes in the downstream radiopharmacy market, after acquiring 51% ownership interest in PET Labs, the leading radiopharmacy in South Africa. This investment will address the radioisotope needs of South Africa as well as certain neighboring countries. +Under the terms of a Share Purchase Agreement, dated October 30, 2023, we acquired 51% of the issued share capital of PET Labs Pharmaceuticals Proprietary Limited, a company incorporated in the Republic of South Africa (“PET Labs”). PET Labs is a South African radiopharmaceutical operations company, dedicated to nuclear medicine and the science of radiopharmaceutical +7 +production. As a result of this transaction, we entered into the downstream radiopharmacy market that we intend to service in the future. This transaction will help provide the market with adequate proof of concept of the value of utilizing Mo-100 in downstream SPECT imaging procedures while providing supply chain stability to the region of South Africa and neighboring countries. We intend to expand PET Labs’ existing operations by adding two new cyclotrons to its service footprint, enabling the company to properly expand its other revenue generation mediums, which is anticipated to drive free cash flow to the company. +Our Strengths +ASP technology initially developed by Klydon and further developed by ASP Isotopes Inc.. +The aerodynamic separation technique has its origins in the South African uranium enrichment program in the 1980s, and the ASP technology had been developed during the last two decades by the scientists at Klydon. The scientists at Klydon had constructed two ASP plants for the enrichment of oxygen-18 and silicon-28 in Pretoria, South Africa, which were commissioned in October 2015 and July 2018, respectively. While the technology has not yet been used to enrich either Uranium or heavier isotopes, we believe the success of the enrichment process for oxygen-18 and silicon-28 has demonstrated the efficacy and commercial scalability of the ASP technology. If our research and development is successful (and subject to obtaining applicable regulatory approvals and appropriate licenses), we plan to commercialize many different isotopes produced using the ASP technology. To date, we have not produced commercial quantities of any enriched isotopes and we have not demonstrated the ability to produce any enriched isotopes in commercial quantities using ASP technology. +Extensive Research and Development Experience in Aerodynamic Separation Technology and Processes. +Subject to successful research and development, our ASP technology has the potential to produce many different types of isotopes. Klydon had spent the last two decades and tens of millions of dollars developing the aerodynamic separation technique used in the ASP technology, generating critical trade secrets. We believe our competitors lag behind us in terms of the technical expertise of our senior management and the know-how contained in the aerodynamic separation technique and will be unable to replicate the expected results of the ASP technology, even as we expect to continue to improve the existing technology and processes. Additionally, the high capital costs of development of proprietary technologies, significant lead times required to construct new enrichment facilities, as well as stringent regulatory and operating requirements applicable to enrichment facilities, adds to the significant barriers to entry for smaller competing market participants. +ASP technology is a flexible platform with the potential to produce many different isotopes that could serve large addressable markets. +ASP technology is a flexible platform, compact in size and weight, and could be easily scaled to an industrial level with number of separation devices added in parallel. The ASP technology also has few moving parts, with low capital and operating costs in comparison to alternatives. The technology is particularly efficient at enriching isotopes of low atomic mass. We believe that, assuming receipt of required regulatory approvals and governmental permits, the ASP technology can be deployed quickly and with a relatively minimal capital cost, to enrich many different isotopes that we believe consumers require both today and in the future in end markets such as healthcare, technology and energy. +The ASP technology is designed to be scalable, low cost, low energy, and environmentally friendly, with no radioactive waste or hazardous materials produced in the process and planned arrangements to reuse chemical by-products. +QE technology has the potential to produce many different enriched isotopes that cannot be enriched using ASP Technology. +Our QE technology is potentially a highly efficacious enrichment technology with the greatest enrichment factor of any enrichment process. In laboratory tests our scientists have achieved enrichment factors of up to 678 which compares to enrichment factors of less than 50 for AVLIS and 1.15 for a traditional centrifuge. QE can also be used to enrich elements where there is no known gaseous form of that element. We have completed the construction of our first QE enrichment facility in Pretoria, South Africa where we intend to produce 99.75% enriched Ytterbium-176. +Experienced team +Our board of directors and advisers have specialized expertise in isotope enrichment, research and development, technology, plant development, and manufacturing. Dr Hendrik Strydom, our chief technology officer and one of our directors, previously co-founded Klydon and has over 40 years of experience in isotope enrichment and laser design and manufacture. The scientific team that joined our company from Klydon combined has decades of experience in research and development of isotope enrichment and amassed deep knowledge in the field. +8 +Our board of directors and our management team also have broad experience and successful track records in fusion technology and fusion materials, biopharmaceutical research, chemicals, manufacturing and commercialization, as well as in business, operations, and finance. Our board of directors’ and management team’s experience was gained at leading companies and financial institutions that include, Bear Stearns, Deutsche Bank, Highbridge Capital, Investec Bank, Morgan Stanley and Soros Fund Management. +Technical Background +What are Isotopes? +Isotopes are two or more types of atoms that have the same atomic number (number of protons in their nuclei) and position in the periodic table (and hence belong to the same chemical element), and that differ in nucleon numbers (mass numbers) due to different numbers of neutrons in their nuclei. While all isotopes of a given element have almost the same chemical properties, they have different atomic masses and physical properties. +The number of protons within the atom’s nucleus is called atomic number and is equal to the number of electrons in the neutral (non-ionized) atom. Each atomic number identifies a specific element, but not the isotope; an atom of a given element may have a wide range in its number of neutrons. The number of nucleons (both protons and neutrons) in the nucleus is the atom’s mass number, and each isotope of a given element has a different mass number. For example, carbon-12, carbon-13, and carbon-14 are three isotopes of the element carbon with mass numbers 12, 13, and 14, respectively. The atomic number of carbon is 6, which means that every carbon atom has 6 protons so that the neutron numbers of these isotopes are 6, 7, and 8 respectively. +There are 23 isotopes of Silicon, all of which have 14 protons and between 8 and 30 neutrons. The table below shows a selection of those isotopes. Three isotopes are stable which have mass numbers of 28, 29 and 30 which have 14, 15 and 16 neutrons respectively. The other 20 isotopes are radioactive and decay with short half-lives and are therefore do not typically exist in naturally occurring silicon. In naturally occurring silicon, the isotope with atomic mass of 28 is usually the most abundant, typically accounting for approximately 92.22% of the material. The isotope with atomic mass of 29 typically accounts for 4.69% of the material and the isotope with atomic mass of 30 typically accounts for 3.09% of the material. +Molybdenum has 33 known isotopes, ranging in atomic mass from 83 to 115, as well as four metastable nuclear isomers. Seven isotopes occur naturally, with atomic masses of 92, 94, 95, 96, 97, 98, and 100. All unstable isotopes of molybdenum decay into isotopes of zirconium, niobium, technetium, and ruthenium. +Uranium is a naturally occurring radioactive element that has no stable isotope. It has two primordial isotopes, uranium-238 and uranium-235, which have long half-lives and are found in appreciable quantity in the Earth’s crust. The decay product, uranium-234 is also found. Other isotopes such as uranium-233 have been produced in breeder reactors. In addition to isotopes found in nature or nuclear reactors, many isotopes with far shorter half-lives have been produced, ranging from U-214 to U-242 (with the exception of U-220 and U-241). The standard atomic weight of natural uranium is 238.02891 with 99.27% of naturally occurring uranium being the isotope with an atomic mass of 238. +Selected isotopes of Silicon +Selected isotopes of Molybdenum +Selected isotopes of Uranium +Nuclide +Protons +Neutrons +Isotopic +Mass +Half +Life +Natural +abundance +Nuclide +Protons +Neutrons +Isotopic +Mass +Half +Life +Natural +abundance +Nuclide +Protons +Neutrons +Isotopic +Mass +Half +Life +Natural +abundance +22 +14 +8 +22.036 +29 ms +91 +42 +49 +90.912 +15.49 min +225 +92 +133 +225.029 +62 ms +23 +14 +9 +23.025 +42.3 ms +92 +42 +50 +91.907 +Stable +14.65% +226 +92 +134 +226.029 +269 ms +24 +14 +10 +24.012 +140 ms +93 +42 +51 +92.907 +4000 y +227 +92 +135 +227.031 +1.1 m +25 +14 +11 +25.004 +220 ms +94 +42 +52 +93.905 +Stable +9.19% +228 +92 +136 +228.031 +9.1 m +26 +14 +12 +25.992 +2.245 s +95 +42 +53 +94.906 +Stable +15.87% +229 +92 +137 +229.034 +57.8 m +27 +14 +13 +26.987 +4.15 s +96 +42 +54 +95.905 +Stable +16.67% +230 +92 +138 +230.034 +20.23 d +28 +14 +14 +27.977 +Stable +92.22% +97 +42 +55 +96.906 +Stable +9.58% +231 +92 +139 +231.036 +4.2 d +29 +14 +15 +28.977 +Stable +4.69% +98 +42 +56 +97.905 +Stable +24.29% +232 +92 +140 +232.037 +68.9 y +30 +14 +16 +29.974 +Stable +3.09% +99 +42 +57 +98.908 +2.75 d +233 +92 +141 +233.04 +1.592 e5 y +Trace +31 +14 +17 +30.975 +157.36 min +100 +42 +58 +99.907 +Stable +9.74% +234 +92 +142 +234.041 +2.455 e5 y +Trace +32 +14 +18 +31.974 +153 y +trace +101 +42 +59 +100.910 +14.61 m +235 +92 +143 +235.044 +7.038 e8 y +0.72% +33 +14 +19 +32.978 +6.18 s +102 +42 +60 +101.910 +11.3 m +236 +92 +144 +236.046 +2.342 e7 y +Trace +34 +14 +20 +33.979 +2.77 s +103 +42 +61 +102.913 +67.5 s +237 +92 +145 +237.049 +6.752 d +Trace +35 +14 +21 +34.985 +780 ms +104 +42 +62 +103.914 +60 s +238 +92 +146 +238.051 +4.468 e9 y +99.27% +36 +14 +22 +35.987 +450 ms +105 +42 +63 +104.917 +35.6 s +239 +92 +147 +239.054 +23.45 m +37 +14 +23 +36.993 +90 ms +106 +42 +64 +105.918 +8.73 s +240 +92 +148 +240.057 +14.1 h +Trace +38 +14 +24 +37.996 +90 ms +107 +42 +65 +106.922 +3.5 s +242 +92 +150 +242.063 +16.8 m +Methods of Separation and Enrichment of Isotopes +Isotope enrichment is the process of concentrating specific isotopes of a chemical element by removing other isotopes. During the last century, a number of different methods have been developed to separate and enrich isotopes. The current separation or +9 +enrichment processes are based either on the atomic weight of the isotope, small differences in chemical reaction rates produced by different atomic weights or are based on properties not directly connected to atomic weight such as nuclear resonances. +Diffusion +Often performed on gases, but also on liquids, the diffusion method relies on the fact that in thermal equilibrium, two isotopes with the same energy will have different average velocities. The lighter atoms (or the molecules containing them) will travel more quickly and be more likely to diffuse through a membrane. The difference in speeds is proportional to the square root of the mass ratio, so the amount of separation is small, and many cascaded stages are needed to obtain high purity. This method is expensive due to the work needed to push gas through a membrane and the many stages necessary. +Centrifugal +Centrifugal methods rapidly rotate the material allowing the heavier isotopes to go closer to an outer radial wall. This too is often done in gaseous form using a Zippe-type centrifuge. +A Zippe-type centrifuge relies on the force resulting from centripetal acceleration to separate molecules according to their mass, and can be applied to most fluids. The dense (heavier) molecules move towards the wall and the lighter ones remain close to the center. The centrifuge consists of a rigid body rotor rotating at high speed. Concentric gas tubes located on the axis of the rotor are used to introduce feed gas into the rotor and extract the heavier and lighter separated streams. For U-235 production, the heavier stream is the waste stream and the lighter stream is the product stream. Modern Zippe-type centrifuges are tall cylinders spinning on a vertical axis, with a vertical temperature gradient applied to create a convective circulation rising in the center and descending at the periphery of the centrifuge. Diffusion between these opposing flows increases the separation by the principle of countercurrent multiplication. +In practice, since there are limits to how tall a single centrifuge can be made, several such centrifuges are connected in series. Each centrifuge receives one input and produces two output lines, corresponding to light and heavy fractions. The input of each centrifuge is the output (light) of the previous centrifuge and the input of the following stage. This produces an almost pure light fraction from the output (light) of the last centrifuge and an almost pure heavy fraction from the output (heavy) of the first centrifuge. +Electromagnetic +Electromagnetic separation is mass spectrometry on a large scale, so it is sometimes referred to as mass spectrometry. It uses the fact that charged particles are deflected in a magnetic field and the amount of deflection depends upon the particle’s mass. It is very expensive for the quantity produced, as it has an extremely low throughput, but it can allow very high purities to be achieved. This method is often used for processing small amounts of pure isotopes for research or specific use (such as isotopic tracers), but is impractical for industrial use. +Laser +In this method, a laser is tuned to a wavelength which excites only one isotope of the material and ionizes those atoms preferentially. The resonant absorption of light for an isotope is dependent upon its mass and certain hyperfine interactions between electrons and the nucleus, allowing finely tuned lasers to interact with only one isotope. After the atom is ionized it can be removed from the sample by applying an electric field. This method is often abbreviated as AVLIS (atomic vapor laser isotope separation). This method has only recently been developed as laser technology has improved, and is currently not used extensively. +Chemical Methods +Although isotopes of a single element are normally described as having the same chemical properties, this is not strictly true. In particular, reaction rates are very slightly affected by atomic mass. Techniques using this are most effective for light atoms such as hydrogen. Lighter isotopes tend to react or evaporate more quickly than heavy isotopes, allowing them to be separated. This is how heavy water is produced commercially. +Gravity +Isotopes of carbon, oxygen, and nitrogen can be purified by chilling these gases or compounds nearly to their liquefaction temperature in very tall (200 to 700 feet (61 to 213 m)) columns. The heavier isotopes sink and the lighter isotopes rise, where they are easily collected. +10 +The Aerodynamic Separation Process ("ASP") Technology +ASP technology is proprietary technology originally licensed from Klydon which succeeds earlier work, first detailed in the scientific media in the mid-1970s, relating to an industrial scale enrichment plant for uranium that was constructed utilizing the so-called “stationary-wall centrifuge”. The original technology was highly energy consuming and was not able to compete on an economic basis with other methods of isotope separation. The innovative development of the ASP technology over the past two decades has culminated in a more advanced separation device that we believe can compete on a commercial scale with other methods of isotope separation. The ASP separation device separates both gas species and isotopes in a volatile state via an approximate flow pattern as shown below. +The ASP enrichment process uses an aerodynamic technique similar to a stationary wall centrifuge. The isotope material in raw gas form enters the stationary tube at high speed by tangential injection through finely placed and sized openings in the surface of the tube. The gas then follows a flow pattern that results in two gas vortexes occurring around the geometrical axis of the separator. The isotope material becomes separated in the radial dimension as a result of the spin speed of the isotope material reaching several hundred meters per second. An axial mass flow component in each tube feeds isotope material to the respective ends of the separator where the collection of the portions of isotope material is accomplished. +The advantages of ASP technology are as follows: +• +No moving parts, with low capital and operating costs in comparison to alternatives. +• +Compact in size and weight. +• +Easily scaled to industrial level with number of separation devices added in parallel. +• +The separation process occurs inside a closed cylindrical container and is a volume technology, i.e., the process efficiency is not affected by poisoning of surface contaminates as is the case for surface separation processes. +• +ASP operates very efficiently at molecular masses below 100 atomic mass units, unlike other separation processes which are more efficient at higher masses, which ASP can achieve equally well or to a superior degree. +• +ASP easily separates hydrogen gas from other gas components, e.g., harvesting hydrogen gas from carbon monoxide and carbon dioxide and altering the ratio of syngas mixture. +• +With the right material choice ASP can handle even the most corrosive gases. +• +ASP can separate any isotopes that have a gaseous or volatile chemical compound. +• +Most of the subsystems are procured from off-the-shelf components. +• +An ASP plant can be constructed in any country that adheres to the International Atomic Energy Agency (IAEA) protocols for the protection of dual use technology. +11 +ASP Plant Configuration +The figure below shows a schematic of an ASP cascade in operation. The cascade consists of several enrichment stages, connected in a 1-up-1-down cascade configuration. The stages can be grouped into segments. (This method of organizing stages is not reflected in the figure) +The bold blue arrows represent flows of the element into and out of the cascade: +• +H is the product, enriched in the isotope. +• +L is the tails, stripped of the isotope. +• +F = FX + FY is the feed stream at natural isotopic composition. +• +FX is the feed into the product stream of an adjoining stage. +• +FY is the feed into the tails stream of an adjoining stage. +Each stage in the cascade is operated in one of two configurations: +(1) +A net backward flow of the isotope: Xi > Yi. These stages are referred to as “product”, situated in the so-called “product cascade section”, and their flows are marked with an “H” subscript. +(2) +A net forward flow of isotope: Xi < Yi. These stages are referred to as “tails”, situated in the so-called “tails cascade section”, and their flows are marked with an “L” subscript. +The red arrows represent the addition or extraction of carrier gas from the process. The arrows have been added for clarity and orientation, but the mass flows of the carrier gas will be ignored in the rest of the discussion as it pertains to the isotope mass flows only (as represented by the blue arrows). The carrier gas mass flows can be superimposed on any isotope mass balance using the molar mass characteristics of the ASP stages (see below). +The block marked “GS” represents the gas separator: a piece of equipment used to separate the carrier gas from the element of interest to the degree necessary to provide a suitable reflux stream to the tails cascade section. +The blue squares are simply suitable areas where streams can be split or mixed. +An ASP stage is characterized by functions of Y, the flow of isotope in its tails stream. The characteristics of interest are: +• +α(Y): the separation factor between the tails and product streams. +• +MY(Y): the molar mass of the tails stream. +• +MX(Y): the molar mass of the product stream. +• +P(Y): the stage’s power usage. +• +X(θ,Y): the flow of Zinc in the product stream, where θ = Y/(X+Y) is the cut defined in terms of isotope flows. +Note the following: +• +α is the ratio of the tails and product stream abundance ratios. +12 +• +Y, X(θ,Y) and α(Y) describe the stage’s behaviour with regards to Zinc, while MY(Y) and MX(Y) defines its behaviour with regards to the carrier gas. +• +P, the stage’s power usage, depends on the ASP separator, but also on factors such as compressor efficiency, friction losses etc. It is therefore a partial function of stage design. +• +It is possible to define Pmin, the theoretical minimum energy usage of a stage, by assuming 100% efficient compressors and no losses in the stage. Pmin is a function of the ASP separator only. In practice P is a more useful metric, as the contribution of compressor inefficiencies to power consumption is significant. +• +Except for X, the stage’s characteristics are not defined in terms of the cut θ, as they are simply not sensitive to it above a certain lower limit θmin. In practice θmin is small enough that it has no influence on the normal operating envelope of the stage. +• +X is per definition a function of Y via θ as indicated. +The cut of an ASP stage can be dynamically adjusted to any value larger than θmin, allowing its operating point to be changed online during production. +All stages in the product cascade section are operated at the same point < XH,YH >, where XH > YH, ensuring that a net backward flow of the process element, H = XH — YH is achieved. This corresponds to a cut of less than 50% and ensures a positive flow of enriched product. +All stages in the tails cascade section are operated at the same point < XL,YL >, where XL < YL, ensuring that a net backward flow of the process element, L = XL — YL is achieved. This corresponds to a cut of more than 50% and ensures a positive flow of stripped tails. +Depending on the production requirements of the cascade the product and tails section operation points can be moved relative to each other during production, obtaining different combinations of H and L (and therefore different feeds F = H + L). The smaller H (or L) is chosen, the closer the product (or tails) section cut moves to 50%. If all stages are operated at a cut of 50%, the cascade is operated at full reflux, no product, tails, or feed streams are present, and the maximum process element concentration gradient will exist. +ASP Technology In Use +The scientists at Klydon had constructed two ASP plants for the enrichment of oxygen-18 and silicon-28 in Pretoria, South Africa, which were commissioned in October 2015 and July 2018, respectively. We believe the success of the enrichment of oxygen-18 and silicon-28 has demonstrated the efficacy and commercial scalability of the ASP technology. We have completed the commissioning phase and are commencing commercial production at our Carbon-14 enrichment facility and our “multi-isotope” enrichment plant, which has its initial production run designated for enriched Silicon-28. We anticipate shipping the first commercial batches of enriched Carbon-14 in mid-2025 and enriched Silicon-28 during the second quarter of 2025. +Quantum Enrichment Technology +Isotopes of every element have unique spectroscopic “signatures” defined by the electromagnetic radiation or “light” absorbed by their atoms from electron transitions. QE separates two isotopes by taking advantage of the slight differences in the transition energy between two isotopes. This method is described as a “quantum mechanics” method. In principle, Quantum Enrichment can separate isotopes of most elements, achieving desired enrichment in a single step. +The atomic vapor laser isotope separation method (“AVLIS”), which is the forerunner of the QE technology, proposed by Letokhov et al. (1977)], has been in progress during the last 45 years. The main efforts during these years were devoted to attempts to get a nuclear fuel for industrial nuclear reactors. +Laser based isotope selective excitation followed by ionization and collection using electro-magnetic fields offers one of the most efficient techniques for isotope enrichment/denaturing. In the laser isotope separation (LIS) process, atoms of the target isotope in vapor stream get ionized after interaction with a tuned laser beam. Ionized atoms are separated from the main vapor stream by electrostatic field. In our Quantum Enrichment facility, a resistive heating system has been designed to evaporate Ytterbium by sublimation at temperature in the range of 500 oC to 700 oC to provide adequate Yb vapor atoms for laser interaction. +13 +During the process, the vapor jet comes out from the source to reach sonic speed at the exit plane, then it expands supersonically into vacuum. A thickness monitor reading gives average arrival rate of atomic vapor in terms of thickness per unit time (A/sec). +At the heart of laser-based isotope enrichment lies a proficient multi-step isotope selective photoionization scheme giving optimum selectivity and product yield. Yb has two valence electrons and very few transitions originating from its ground level. Its ionization potential is 6.254eV. This necessitates selection of a three-step photoionization scheme for selective photoionization of its isotopes using the available laser infrastructure supporting visible range of spectrum. +Dye lasers offer the best suitable choice for enrichment process as they suffice to all the requirements of the process like wavelength tunability, high power generation at high repetition rates. +Diode Pumped Solid State Green Lasers (DPSSGLs) with ~3GHz line width in multi-mode operation are used to pump the dye lasers. +The temporal delays between the pulses from the three lasers were arranged to ensure their sequential arrival in the interaction region with delay of several ns. +We believe Quantum Enrichment technology is superior to AVLIS with optimized spectroscopy utilization and superior laser beam shaping. +The key advantages include: +• +high selectivity, +• +suitability for vaporized metals, +• +relatively low capital cost, and +• +modular design which limits scalability risk. +Nuclear Medicine +Nuclear medicine is a medical specialty that utilizes radioactive isotopes, referred to as radionuclides, to diagnose and treat disease. These radionuclides are incorporated into radiopharmaceuticals and introduced into the body by injection, swallowing, or inhalation. Physiologic/metabolic processes in the body concentrate the tracers in specific tissues and organs; the radioactive emissions from the tracers can be used to noninvasively image these processes or kill cells in regions where radionuclides have concentrated. +Other types of noninvasive diagnostic procedures — for example, computed tomography (“CT”) and magnetic resonance imaging (MRI) — can detect anatomical changes in tissues and organs as the result of disease. Nuclear medicine procedures can often detect the physiological and metabolic changes associated with disease before any anatomical changes occur. Such procedures can be used to identify disease at early stages and evaluate patients’ early responses to therapeutic interventions. +Single Photon Emission Computed Tomography (“SPECT”) generates three-dimensional (“3D”) images of tissues and organs using radionuclides that emit gamma rays; the most used radionuclide is Technitium-99m (“Tc-99m”), often referred to as the ‘work-horse’ of nuclear medicine. Individual gamma rays emitted from the decay of these radionuclides (i.e., single photon emissions) are detected using a gamma camera. This camera technology is used to obtain two-dimensional (“2D”) images; 3D SPECT images are computer generated from many 2D images recorded at different angles. +14 +Positron Emission Tomography (PET) generates 3D images of tissues and organs using tracers that emit positrons (i.e., positive electrons): for example, fluorine-18 (F-18). Annihilation reactions between the positrons from these radionuclides and electrons present in tissues and organs produce photons. (Two photons are emitted simultaneously for each annihilation reaction and essentially travel in opposite directions.) The photon pairs are detected with a camera having a ring of very fast detectors and electronics. PET images generally have a higher contrast and spatial resolution than do SPECT images. However, PET equipment is more expensive and therefore not as widely available as SPECT equipment. Additionally, most PET tracers have short half-lives (e.g., nitrogen-13 (N-13): 10 minutes, carbon-11 (C-11): 20 minutes, and F-18: 110 minutes), so they must be produced close to their point of use. +Radionuclide therapy can be used to treat conditions such as hyperthyroidism, thyroid cancer, prostate cancer, skin cancer and blood disorders. In nuclear medicine therapy, the radiation treatment dose is administered internally (e.g. intravenous or oral routes) or externally direct above the area to treat in form of a compound (e.g. in case of skin cancer). The radiopharmaceuticals used in nuclear medicine therapy emit ionizing radiation that travels only a short distance, thereby minimizing unwanted side effects and damage to noninvolved organs or nearby structures. Most nuclear medicine therapies can be performed as outpatient procedures since there are few side effects from the treatment and the radiation exposure to the general public can be kept within a safe limit. +ASP Technology for Carbon-14 Enrichment +C-14 is a radioactive isotope of carbon with a half-life of 5,700 years that has a natural abundance of 1 part per trillion. The different isotopes of carbon do not differ appreciably in their chemical properties. This resemblance is used in chemical and biological research, in a technique called carbon labelling: carbon-14 atoms can be used to replace nonradioactive carbon, in order to trace chemical and biochemical reactions involving carbon atoms from any given organic compound. +Carbon-14 could be obtained from waste by-products in certain nuclear reactors. In June 2023, we entered into a multi-year supply agreement with a Canadian Customer for the supply of Carbon-14, which will be produced from our facility that was completed in March 2023. The customer agreed to supply carbon-14 in the form of carbon-dioxide gas as feedstock. We will then convert the carbon dioxide gas into methane under a chemical converting contract entered in June 2023. We will then enrich the methane to greater than 85% C-14 under a tolling agreement, also entered in June 2023. Finally, we will convert the enriched methane back into enriched carbon dioxide under a chemical converting contract. We have received an initial supply of feedstock from our customer and have started the enrichment of C-14. The tolling agreement has a minimum “take or pay” amount of approximately $2.5 million per year, supported by a bank letter of guarantee. In September 2023, we entered into a Memorandum of Understanding (MOU) with the same customer to separate Deuterium and Tritium currently stored at nuclear sites within Canada. The timing and commercial implications of this MOU are subject to future agreement between the parties. +ASP Technology for Silicon-28 Enrichment +Si-28 is a stable isotope of silicon. Isotopically enriched Si-28 is regarded as an ideal host material for semiconducting quantum computing due to the lack of Si-29 nuclear spins. The presence of Si-29 in concentrations above 500 parts per million (ppm) (0.05%) prevents effective performance. The lower the concentration of Si-29, the better a silicon quantum processor will perform in terms of computational power, accuracy and reliability. Unlike traditional centrifuges, which are suited to enriching gases with a high molecular mass, ASP Technology is highly suited to of enriching gases with a low molecular mass such as silane (SiH4), a gaseous compound that contains silicon. +Quantum computers are expected to be thousands or millions of times more powerful than the most advanced of today’s conventional computers, opening new frontiers and opportunities in many industries, including medicine, artificial intelligence, cybersecurity, global logistics and global financial systems. +We have entered into two purchase agreements for highly enriched Silicon-28. The first is with a U.S. semiconductor company. The second is with a global industrial gas company. +Quantum Enrichment Technology for Ytterbium-176 Enrichment +Ytterbium-176 (“Yb-176”) is a stable isotope of ytterbium, that is commonly used to produce Lutetium-177 (“Lu-177”). Lu-177 is a medical isotope used in targeted radionuclide therapy for treating neuroendocrine tumors and prostate cancer. Lu-177 is a medium energy beta emitter (Eβ = 0.149 keV). It is quite damaging, but only deposits its energy within a short range, decreasing collateral damaging effects to normal tissues. It has a half-life of 6.7 days and is compatible with various targeting agents, ranging from short peptides to large biomolecules. The half-life also allows for transport over longer distances and on-site preparation of pharmaceuticals. +15 +Lu-177 can be produced in two ways, either directly by irradiation of lutetium-176 (“Lu-176”) or indirectly by irradiation of ytterbium-176 (“Yb-176”). The irradiation of Lu-176 leads directly to Lu-177, while irradiation of Yb-176 will lead to the production of the short-lived intermediate radioisotope ytterbium-177 (“Yb-177”), which decays to Lu-177. +Using the direct method in which Lu-176 is irradiated, the Lu-177 is produced in a matrix (‘carrier’) of Lu-176, because only part of the Lu-176 is converted to Lu-177. This form of Lu-177 is called carried added. Also, the direct method leads to small amounts of the radioactive impurity Lu-177m. This lowers the radionuclide purity of Lu-177 and complicates the radiation protection and disposal of Lu-177 waste in hospitals. +The advantage of the direct production route is that it can create Lu-177 in high quantities by irradiating as little as 1 mg of Lu-176. On the other hand, the desired Lu-177 cannot be chemically isolated from the target material Lu-176, as they are isotopes of the same element. This is problematic as the lutetium administered to the patient should preferably only contain the ‘useful’ Lu-177. If it contains largely ‘useless’ Lu-176, the effectiveness of the treatment will diminish. +The indirect method, where ytterbium-176 is irradiated, does not generate this extra isotope. The Lu-177 is produced in a matrix of ytterbium, which is separated from the lutetium by a chemical process after irradiation. Therefore, it leads to Lu-177 no carrier added. In the indirect production route, Lu-177 differs from the target material Yb-176 and can be isolated chemically in no carrier added (“n.c.a.”) form. +Quantum Enrichment Technology for Uranium Enrichment +We believe our Quantum Enrichment technology is capable of enriching Uranium, which we may be able to commercialize as a nuclear fuel component for use in the new generation of HALEU-fueled small modular reactors that are now under development for commercial and government uses. +Uranium is a naturally occurring element and is mined from deposits located in Kazakhstan, Canada, Australia, and several other countries including the United States. According to the World Nuclear Association (“WNA”), there are adequate measured resources of natural uranium to fuel nuclear power at current usage rates for about 90 years. In its natural state, uranium is principally comprised of two isotopes: uranium-235 (“U-235”) and uranium-238 (“U-238”). The concentration of U-235 in natural uranium is only 0.711% by weight. Most commercial nuclear power reactors require Low Enriched Uranium (“LEU”) fuel which has a U-235 concentration greater than natural uranium and up to 5% by weight. Future reactor designs currently under development will likely require higher U-235 concentration levels of greater than 5% and below 20% (referred to as HALEU – High Assay Low Enriched Uranium). Uranium enrichment is the process by which the concentration of U-235 is increased (see discussion on HALEU demand below). +Separative work units(“SWU”) is a standard unit of measurement that represents the effort required to transform a given amount of natural uranium into two components: enriched uranium having a higher percentage of U-235 and depleted uranium having a lower percentage of U-235. The SWU contained in LEU is calculated using an industry standard formula based on the physics of enrichment. The amount of enrichment deemed to be contained in LEU under this formula is commonly referred to as its SWU component and the quantity of natural uranium deemed to be contained in LEU under this formula is referred to as its uranium or “feed” component. Currently, it is fairly common practice to purchase both the SWU and uranium components of LEU from the enrichment company. Therefore, LEU prices typically consist of three components: SWU, Conversion and uranium ore concentrate. +The following outlines the steps for converting natural uranium into LEU fuel, commonly known as the nuclear fuel cycle: +• +Mining and Milling . Natural, or unenriched, uranium is removed from the earth in the form of ore and then crushed and concentrated. +• +Conversion . Uranium ore concentrates (“UO”) are combined with fluorine gas to produce uranium hexafluoride (“UF”), a solid at room temperature and a gas when heated. UF is shipped to an enrichment plant. +• +Enrichment . UF is enriched in a process that increases the concentration of the U isotope in the UF from its natural state of 0.711% up to 5%, or LEU, which is usable as a fuel for current light water commercial nuclear power reactors. Future commercial reactor designs may use uranium enriched up to 20% U-235, or HALEU. +• +Fuel Fabrication . LEU is then converted to uranium oxide and formed into small ceramic pellets by fabricators. The pellets are loaded into metal tubes that form fuel assemblies, which are shipped to nuclear power plants. As the advanced reactor market develops, HALEU may be converted to uranium oxide, metal, chloride or fluoride salts, or other forms and loaded into a variety of fuel assembly types optimized for the specific reactor design. +16 +• +Nuclear Power Plant . The fuel assemblies are loaded into nuclear reactors to create energy from a controlled chain reaction. Nuclear power plants generate approximately 20% of U.S. electricity and 10% of the world’s electricity. +• +Used Fuel Storage . After the nuclear fuel has been in a reactor for several years, its efficiency is reduced and the assembly is removed from the reactor’s core. The used fuel is warm and radioactive and is kept in a deep pool of water for several years. Many utilities have elected to then move the used fuel into steel or concrete and steel casks for interim storage. +The World is Transitioning to Newer Smaller Reactors +As the world transitions to a decarbonized electric grid, society is gradually decreasing its reliance on fossil fuels and increasing its reliance on “clean energy”. There appears to be bipartisan support for the growth of nuclear energy. Nuclear power, through the operating light water reactor fleet and the deployment of advanced reactors, is poised to be an increasing contributor to carbon free energy in the U.S. and internationally. The United States leads the world in technology innovation with more developers of advanced reactors than any other country. +SMRs are advanced nuclear reactors that have a power capacity of up to 300 MW(e) per unit, which is about one-third of the generating capacity of traditional nuclear power reactors. SMRs, which can produce a large amount of low-carbon electricity, are: +• +Small — physically a fraction of the size of a conventional nuclear power reactor. +• +Modular — making it possible for systems and components to be factory-assembled and transported as a unit to a location for installation. +• +Reactors — harnessing nuclear fission to generate heat to produce energy. +Many of the benefits of SMRs are inherently linked to the nature of their design — small and modular. Given their smaller footprint, SMRs can be sited on locations not suitable for larger nuclear power plants. Prefabricated units of SMRs can be manufactured and then shipped and installed on site, making them more affordable to build than large power reactors, which are often custom designed for a particular location, sometimes leading to construction delays. SMRs offer savings in cost and construction time, and they can be deployed incrementally to match increasing energy demand. +In comparison to existing reactors, proposed SMR designs are generally simpler, and the safety concept for SMRs often relies more on passive systems and inherent safety characteristics of the reactor, such as low power and operating pressure. This means that in such cases no human intervention or external power or force is required to shut down systems, because passive systems rely on physical phenomena, such as natural circulation, convection, gravity and self-pressurization. These increased safety margins, in some cases, eliminate or significantly lower the potential for unsafe releases of radioactivity to the environment and the public in case of an accident. +SMRs have reduced fuel requirements. Power plants based on SMRs may require less frequent refueling, every 3 to 7 years, in comparison to between 1 and 2 years for conventional plants. Some SMRs are designed to operate for up to 30 years without refueling. SMRs are under construction or in the licensing stage in many countries including Argentina, Canada, China, Russia, South Korea and the United States of America. +Within the last five years significant legislation supporting the development and deployment of advanced reactors has been enacted: the Nuclear Innovation and Modernization Act, the Nuclear Energy Innovation and Capabilities Act, the Energy Act of 2020 and the Infrastructure Investment and Jobs Act. In addition, Congress established and funded the Advanced Reactor Demonstration Program which now supports two advanced reactor demonstrations to be deployed within seven years and eight other advanced reactor projects. +SMRs will require a different grade of enriched Uranium +Many advanced reactors, including the majority of the Advanced Reactor Demonstration Program awardees, will require HALEU, and fuel forms very different from those manufactured for the current Light Water Reactors (LWRs). For example, the current generation of LWRs uses fuel enriched to less than 5% uranium-235. In contrast, many advanced non-LWR designs require enrichments between 5% and 20% with most above 10%. +Currently it is not possible to purchase HALEU between 10% and 20% from a commercial enricher in the United States. In the U.S., the infrastructure for the front-end of the fuel cycle for the utilization of low enriched uranium up to 5% U-235 is well defined. The U.S. has mining, conversion, enrichment, fabrication, and transportation capability. However, the infrastructure for +17 +producing and utilizing HALEU, in particular enrichments above 10%, is not established in the U.S. The mining and conversion infrastructure are common to all enrichment levels. +In 2020, the DOE selected two companies for awards under the Advanced Reactor Demonstration Program (ARDP) Pathway 1: Advanced Reactor Demonstrations. Both reactor designs require HALEU and can be operational in about seven years. Today, it is estimated that the companies selected for the demonstration pathway will require HALEU for their reactors beginning in the late 2020's to support fuel fabrication ahead of reactor startup. In addition, one of the companies under Pathway 2: Risk Reduction for Future Demonstrations will require HALEU in the 2026-2027 timeframe and other companies in Pathway 2 and 3 of the ARDP will also require HALEU. Privately funded companies are also working to deploy HALEU fueled reactors by the mid-2020s. +The Nuclear Energy Institute (NEI) believes that it is virtually impossible for HALEU to be provided to these companies in the needed quantities and timeframes from DOE inventories or commercial enrichers located in the U.S or Western Europe. Therefore, acquiring HALEU from other international suppliers will be required in the near term to support the larger goal of deploying advanced reactors in the U.S. in a timely manner. Deploying these reactors before 2030 will support climate goals and position the U.S. to be a strong exporter of advanced reactor technology. Per the recent NEI white paper, a robust domestic HALEU infrastructure is necessary to support both the domestic deployment of advanced reactors and the export of U.S. advanced reactor technologies requiring HALEU. +In a letter to the DOE captioned “Updated Need for High-Assay Low Enriched Uranium” dated December 20, 2021, the NEI provided an estimate of what U.S. HALEU demand may be during the next 15 years by companies denoted A to J: +Estimated Annual Requirements for High Assay Low Enriched Uranium to 2035 (MTU/yr) +Company +A +B +C +D +E +F +G +H +I +J +Total +Cumulative +Year +2022 +0.1 +0.4 +0.2 +1.1 +0.0 +1.8 +1.8 +2023 +0.1 +3.1 +4.4 +0.1 +7.7 +9.5 +2024 +1.0 +5.6 +0.2 +3.0 +1.5 +6.6 +0.1 +18.0 +27.5 +2025 +1.0 +3.8 +0.4 +3.0 +5.0 +11.0 +1.6 +25.8 +53.3 +2026 +1.0 +15.1 +4.9 +10.0 +2.0 +24.2 +13.2 +1.7 +72.1 +125.4 +2027 +1.0 +26.5 +7.9 +4.0 +24.2 +13.2 +1.9 +78.7 +204.1 +2028 +1.0 +37.8 +16.6 +13.0 +23.0 +24.2 +13.2 +2.0 +130.8 +334.9 +2029 +1.0 +26.3 +1.8 +30.5 +17.0 +18.0 +14.0 +24.2 +16.5 +2.4 +151.7 +486.6 +2030 +1.0 +34.4 +1.8 +40.4 +46.0 +18.0 +30.0 +24.2 +16.5 +2.7 +215.0 +701.6 +2031 +23.0 +42.5 +6.2 +53.0 +29.0 +22.0 +33.0 +24.2 +16.5 +2.9 +252.3 +954.0 +2032 +35.0 +52.9 +12.5 +67.6 +46.0 +40.0 +50.0 +48.4 +19.8 +3.1 +375.3 +1,329.2 +2033 +47.0 +63.5 +32.2 +82.1 +46.0 +32.0 +80.0 +48.4 +19.8 +3.2 +454.2 +1,783.4 +2034 +58.0 +76.1 +62.4 +96.7 +46.0 +36.0 +80.0 +48.4 +19.8 +3.7 +527.1 +2,310.5 +2035 +70.0 +90.9 +96. +112.4 +91.0 +29.0 +50.0 +48.4 +22.0 +4.1 +613.8 +2,924.3 +Notes: +• +The material needs listed above are in metric tons of uranium per year and are a small amount compared to the approximately 2000 MTU used annually by the existing fleet of reactors. +• +The material needs listed above include enrichments between 10.9% and 19.75% U-235. +• +The year the material is needed is for fuel fabrication. Insertion in the reactor and reactor operations will occur in a later year. +• +The material needs that are less than 1 MTU/year are for irradiation samples, lead test rods and lead test fuel assemblies. +• +The material needs represent a few scenarios +o +The deployment of an advanced fuel design for the existing fleet of light-water reactors. +o +The deployment of multiple reactors of the same design that will not require refueling for many years. +o +The deployment of reactors that have annual refueling requirements. +• +These reactors include a range of sizes from a few Megawatt electric to 100s of Megawatt electric. +• +The data above does not include utilities that are considering enrichment between 5% and 10%. +18 +Quantum Enrichment Technology is ideally suited to the production of HALEU +We believe that we are in a very different position to many of the entrenched domestic and international enrichers. Our innovative isotope enrichment process has a number of advantages over traditional gas centrifuges and other novel approaches currently being explored by other companies: cheaper in capital expenditures, faster in construction, more flexible in design and location. +We estimate that the capital cost of constructing a Quantum Enrichment technology plant for uranium enrichment is approximately 75% cheaper than that of a traditional gas centrifuge enrichment facility. Our manufacturing plants are modular, so our construction time is likely faster and more flexible than competing technologies. Our enrichment facilities are smaller than traditional gas centrifuges which means we can place them near fuel fabrication facilities for enhanced security of production and transportation. Our operating costs of enriching uranium to 15.5% - 19.75% U-235 should be comparable to or cheaper than costs for other methods of uranium enrichment. +The table below represents management’s estimated comparison of the Quantum Enrichment technology with a traditional gas centrifuge. +Quantum Enrichment Technology Plant +Gas Centrifuge +Separation mechanism +Enhanced resonant multiphoton ionization +Differential diffusion +Capital Cost per plant +<$100 million +>$800 million +Energy use (kWh) per SWU +<40 +50-240 +Construction time +2-3 years +2-3 years +Levelized cost per SWU* +<$50 +$140 +* for enrichment from 0.71% U235 to 5% U235 +We are in the process of commissioning and commencing commercial production at our Ytterbium-176 enrichment facility using the Quantum Enrichment technology in Pretoria, South Africa. We received a manufacturing permit for this facility from the South African DMRE during 3Q 2023. The construction of this plant will provide us with valuable experience in the construction of Quantum Enrichment technology facilities in the future. Many of the control systems, compressors, lasers and hardware used in a uranium enrichment facility would be similar to parts used in this ytterbium-176 enrichment facility. +We expect the construction of a Uranium Enrichment facility would take approximately 30 months and the production volume would gradually ramp up to the final capacity of 20 metric tons per year. Importantly, subject to licensure, we believe we can produce commercial quantities of HALEU by 2027 to meet the anticipated demand from the advanced reactors currently in development. We believe that we can supply HALEU at a price lower than the HALEU currently imported from international enrichers and considerably lower than any potential domestic supply that may evolve. +Intellectual Property +Our business will depend on our proprietary ASP technology and QE technology. Enrichment is among the most sensitive nuclear technologies because it can produce weapons-grade materials, and our technology is highly controlled and subject to limitations on public disclosure or export. We believe patent protection in the United States for such sensitive nuclear technology developed in South Africa would be unusual, if even possible. To date, we have relied exclusively on trade secrets and other intellectual property laws, non-disclosure agreements with our respective employees, consultants, vendors, potential customers and other relevant persons and other measures to protect our intellectual property, and intend to continue to rely on these and other means. As we transition into the commercialization of isotopes, we envision our intellectual property and its security becoming more vital to our future. Pursuing patent protection remains part of the intellectual property protection philosophy and strategy and the advisability of establishing provisional patent rights is continuously assessed on a case-by-case basis in respect of both conceptual aspects and the specific applications thereof. Such assessments are made in consultation with regulatory bodies and with due consideration to the prospects of successfully obtaining patent protection in light of any disclosure constraints that are imposed by such bodies. To date, we have not determined that patent protection is appropriate or viable in light of these considerations. +Regulatory Environment +We are subject to a variety of laws and regulations, including but not limited to those of the United States and South Africa, that impose regulatory systems that govern many aspects of our operations, including our research and development activities involving the enrichment of isotopes in South Africa. In addition, these jurisdictions impose trade controls requirements that restrict trade to comply with applicable export controls and economic sanctions laws and requirements, and legal requirements that are intended to curtail bribery and corruption. +19 +There are a number of regulators and treaties that govern and control our business and industry. The two principal ones that control and regulate the manufacturing of isotopes at our isotope enrichment facility in South Africa are the IAEA and the Nuclear Non-Proliferation Treaty (NPT). +The IAEA is an international organization that seeks to promote the peaceful use of nuclear energy, and to inhibit its use for any military purpose, including nuclear weapons. The IAEA was established as an autonomous organization on July 29, 1957. Though established independently of the United Nations through its own international treaty, the IAEA Statute, the IAEA reports to both the United Nations General Assembly and Security Council. The IAEA statute currently has 173 member states, including South Africa. +The IAEA is authorized to conclude agreements with member states, in terms of which agreements the agency would perform certain functions and the relevant member states would be placed under certain obligations. The IAEA has concluded an extensive suite of agreements with South Africa. These agreements can be viewed on the website of the IAEA ( https://www.iaea.org/resources/legal/country-factsheets ) and include agreements that govern the physical protection of nuclear material, the notification of nuclear accidents, assistance in the case of nuclear accidents, nuclear safety, civil liability, and technical cooperation. +The Treaty on the Non-Proliferation of Nuclear Weapons, commonly known as the Non-Proliferation Treaty or NPT, is an international treaty whose objective is to prevent the spread of nuclear weapons and weapons technology, to promote cooperation in the peaceful uses of nuclear energy, and to further the goal of achieving nuclear disarmament and general and complete disarmament. Our South African subsidiary is registered with the South African Council for the Non-Proliferation of Weapons of Mass Destruction in terms of the Non-Proliferation of Weapons of Mass Destruction Act, 1993. Representatives from the South African Council for the Non-Proliferation of Weapons of Mass Destruction regularly inspect our facility and conduct tests to monitor the activities that are taking place at our facilities. +In South Africa, government Notice 493 relates to nuclear-related dual-use equipment, materials and software and related technologies which can be used in their entirety or in part for the separation of uranium isotopes. ASP technology is classified as a dual use technology under the protocols of the IAEA and, as such, is subject to the controls that are implemented under these protocols. These controls comprise requirements that include: +• +membership of the IAEA and adherence to its protocols; +• +membership of the Nuclear Suppliers Group (NSG) and adherence to its protocols; +• +agreement to an “additional protocol” in light of uranium enrichment capabilities; +• +local laws that require permits for possession, operation and commercialization and regular reporting; +• +ad hoc inspections by the IAEA on 24 hour and in some cases 2 hours pre-warning; +• +requirement for proposed patent applications to be approved at ministerial level; and +• +cross-border technology transfer to be handled by the respective governments and approved by IAEA. +These regulations place strict limitations on what we can and cannot do. Security measures at our production facility and our offices are stringent. Access to our manufacturing plants are highly controlled. All employees and all visitors to the manufacturing plant are pre-screened by the South African Council for the Non-Proliferation of Weapons of Mass Destruction before being allowed employment or entry into the facility. Some of our suppliers also need to be registered with the South African Council for the Non-Proliferation of Weapons of Mass Destruction. Many of our computer systems are not connected to the external internet and confidential information is secured at a controlled location. +Some of our future isotopes may be regulated by healthcare regulators such as the FDA in the USA, Health Canada in Canada, the European Medicines Agency in Europe and similar regulators in other countries. +U.S. laws restrict the ability of U.S. companies, U.S. citizens and U.S. permanent residents, or U.S. persons, from involvement in certain types of transactions with countries, businesses and individuals that have been targeted by U.S. economic sanctions. For example, U.S. persons are precluded from undertaking virtually any activity of any kind on the part of any U.S. person with regard to any potential or actual transactions involving Cuba, Iran and Sudan without the prior approval of the U.S. Department of Treasury’s Office of Foreign Assets Control, or OFAC. OFAC also administers U.S. sanctions against a lengthy list of entities and individuals, wherever they may be located, that the United States considers to be closely associated with these sanctioned countries or that are considered terrorists or traffickers in either narcotics or weapons of mass destruction. Furthermore, U.S. economic sanctions forbid U.S. persons from circumventing direct U.S. restrictions or from facilitating transactions by non-U.S. persons if +20 +those activities are forbidden to U.S. persons. Penalties for violating provisions such as these can include significant civil and criminal fines, imprisonment and loss of tax credits or export privileges. +The Foreign Corrupt Practices Act of 1977, or the FCPA, as amended by the Omnibus Trade and Competitiveness Act of 1988 and the International Anti-Bribery and Fair Competition Act of 1998, makes it a criminal offense for a U.S. corporation or other U.S. domestic concern to make payments, gifts or give anything of value directly or indirectly to foreign officials for the purpose of obtaining or retaining business, or to obtain any other unfair or improper advantage. In addition, the FCPA imposes accounting standards and requirements on publicly traded U.S. corporations and their foreign affiliates, which are intended to prevent the diversion of corporate funds to the payment of bribes and other improper payments, and to prevent the establishment of “off books” slush funds from which such improper payments can be made. We are also subject to laws and regulations covering subject matter similar to that of the FCPA that have been enacted by countries outside of the United States. For example, the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions was signed by the members of the Organization for Economic Cooperation and Development and certain other countries in December 1997. The Convention requires each signatory to enact legislation that prohibits local persons and firms from making payments to foreign officials for the purpose of obtaining business or securing other unfair advantages from foreign governments. Failure to comply with these laws could subject us to, among other things, penalties and legal expenses, which could harm our reputation and have a material adverse effect on our business, financial condition and results of operations. +Compliance with the myriad of export control laws of the various jurisdictions in which we do business is a challenge for any company involved in export activities within the nuclear and defense end markets. We have compliance systems in our U.S. and non-U.S. subsidiaries to identify those products and technologies that are subject to export control regulatory restrictions and, where required, we obtain authorization from relevant regulatory authorities for sales to foreign buyers or for technology transfers to foreign consultants, companies, universities or foreign national employees. We also have a compliance system that is intended to proactively address potential compliance issues including those related to export control, trade sanctions and embargoes, as well as anti-bribery situations, and we are implementing this through such mechanisms as training, formalizing contracting processes, performing diligence on agents and continuing to improve our record-keeping and auditing practices with respect to third-party relationships and otherwise. Thus far, as part of our compliance system, for instance, we have developed a Code of Ethics and Conduct that informs all of our employees of their compliance obligations. Furthermore, we have developed an ethics and conduct training program that all of our employees are required to undertake, as well as other targeted compliance training relevant to their position, such as specific FCPA training for all of our worldwide senior employees. Violations of any of the various U.S. or non-U.S. export control laws can result in significant civil or criminal penalties, or even loss of export privileges, as mentioned above. We recognize that an effective compliance program can help protect the reputation and relationship of a regulated company with the regulatory agencies administering these laws and regulations. In the United States, each of the regulatory agencies administering these laws and regulations has a voluntary disclosure program that offers the possibility of significantly reduced penalties, if any are applicable, and we intend to use these programs as part of our overall compliance program, as necessary. +Employees +As of December 31, 2024, we employed 136 people on a full-time basis. Of the total employees, 14 employees are in research and development, 63 employees are in engineering, construction and manufacturing, 32 employees are in plant operations and 27 employees are in general management. None of our employees are subject to collective bargaining agreements. We consider our relationship with our employees to be good. +Facilities +We lease five facilities in Pretoria, South Africa for production, research and development and offices. One lease is under automatic monthly extensions and the other four leases have terms that expire between February 28, 2026 and December 31, 2030. We believe that our existing facilities are adequate to meet our current needs. +Legal Proceedings +Except as described herein, we are currently not party to, and our property is not currently the subject of any material pending legal matters or claims. +On December 4, 2024, a purported stockholder of the Company filed a putative securities class action on behalf of purchasers of the Company’s securities between October 30, 2024 through November 26, 2024 against ASP Isotopes Inc. and certain of its executive officers in the United States District Court for the Southern District of New York ( Corredor v. ASP Isotopes Inc., et al. , Case No. 1:24-cv-09253 (S.D.N.Y)) (the “Securities Class Action”). The Securities Class Action alleges that the Company, its chief executive officer and chief financial officer (“Defendants”) made materially misleading or false statements or omissions regarding +21 +the Company’s business and asserts purported claims under §§ 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 promulgated thereunder. The complaint seeks unspecified compensatory damages, attorney’s fees and costs. +Defendants intend to vigorously defend against the Securities Class Action; however, we cannot be certain of the outcome and, if decided adversely to us, our business and financial condition may be adversely affected. +In addition to the matters described above, from time to time, we may become subject to arbitration, litigation or claims arising in the ordinary course of business. The results of any current or future claims or proceedings cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on us because of defense and litigation costs, diversion of management resources, reputational harm and other factors. +Item 1A. Risk Factors +Investing in our common stock involves a high degree of risk. You should carefully consider the risk factors below together with the information contained elsewhere in this Annual Report on Form 10-K, including Part II, Item 8 “Financial Statements and Supplementary Data” and Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and in our other public filings in evaluating our business. Before you decide to invest in our common stock, you should consider carefully the risks described below, together with the other information contained in this Annual Report, including our financial statements and the related notes. We believe the risks described below are the risks that are material to us as of the date of this Annual Report. If any of the following risks actually occur, our business, financial condition, results of operations and future growth prospects could be materially and adversely affected. In these circumstances, the market price of our common stock could decline, and our stockholders may lose all or part of their investment. +Summary of the Material and Other Risks Associated with Our Business +Our business is subject to numerous material and other risks and uncertainties that you should be aware of in evaluating our business. These risks include, but are not limited to, the following: +• +We have incurred significant net losses since inception, and we expect to continue to incur significant net losses for the foreseeable future. +• +We have a limited operating history, which may make it difficult to evaluate our prospects and likelihood of success. +• +Our current business is tied directly to the nuclear medicine and quantum computing industries and depends on our ability to successfully introduce our medical and other specialty isotopes to changing technology and a changing medical practice landscape. +• +Our business is dependent on our ability to recognize the anticipated benefits of acquisitions, including our acquisition of assets of Molybdos (Pty) Limited in the “business rescue” auction, the assets and intellectual property we acquired from Klydon Proprietary Ltd, and our investment in PET Labs Pharmaceuticals; +• +We currently have no sales attributable to isotopes, but we expect to be heavily dependent on a few large customers to generate a majority of our revenues from sales of our future isotopes. Our operating results could be adversely affected by a reduction in business with our future significant customers. +• +We are still conducting research and development efforts for isotopes such as Mo-100, Zinc-68, Xenon-129/136, Germanium-70/72/74 and Chlorine-37 using the ASP technology. If we are unable to advance our future isotopes in development, obtain applicable regulatory approval and ultimately commercialize our future isotopes, or experience significant delays in doing so, our business will be materially harmed. +• +We are awaiting the approvals necessary to conduct early research and development efforts for isotopes such as Uranium-235 utilizing the Quantum Enrichment technology. The necessary approvals may take a significant amount of time and may never materialize. As a result, we may not be able to enter into the nuclear energy space utilizing our technology. +• +Obtaining and maintaining our patent protection depends on compliance with various procedures, document submissions, fee payments and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements. +• +Since our listing on the Nasdaq Capital Market in November 2022, there has been only a limited prior public market for our Common Stock, the stock price of our Common Stock may be volatile or may decline regardless of our operating performance and you may not be able to resell your shares quickly or at the market price if trading in shares of our common stock is not active. +22 +• +If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud. As a result, stockholders could lose confidence in our financial and other public reporting, which would harm our business and the trading price of our Common Stock. +The material and other risks summarized above should be read together with the text of the full risk factors below and in the other information set forth in this Annual Report, including our consolidated financial statements and the related notes, as well as in other documents that we file with the SEC. If any such material and other risks and uncertainties actually occur, our business, prospects, financial condition and results of operations could be materially and adversely affected. The risks summarized above or described in full below are not the only risks that we face. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial may also materially adversely affect our business, prospects, financial condition and results of operations. +Risks Related to Our Limited Operating History, Financial Position and Need for Additional Capital +We have a very limited operating history, and we have incurred losses since our inception and anticipate that we will continue to incur significant losses for the foreseeable future. We may never generate any revenue attributable to sales of enriched isotopes or become profitable or, if we achieve profitability, we may not be able to sustain it. +We were incorporated in September 2021, and we have a very limited operating history upon which you can evaluate our business and prospects. Our operations to date have been primarily focused on acquiring assets, organizing and staffing our company, research and development activities, business planning, raising capital, and providing general and administrative support for these operations. We have not yet demonstrated the ability to produce commercial quantities of enriched isotopes using the ASP technology or Quantum Enrichment technology. We have not yet demonstrated an ability to overcome many of the risks and uncertainties frequently encountered by companies in the medical, technology and energy industries, including an ability to obtain applicable regulatory approvals, manufacture any isotopes at commercial scale, or conduct sales and marketing activities necessary for successful isotope commercialization. In addition, we have not yet sought any regulatory approval that may be necessary for application of isotopes that we may produce for the medical industry or the production of enriched U-235. Consequently, any predictions about our future performance may not be as accurate as they would be if we had a history of successfully developing and commercializing isotopes. +Investment in isotope enrichment technology is highly speculative because it entails substantial upfront capital expenditures and significant risk that any potential isotopes will fail to demonstrate adequate utility or effectiveness in the targeted application (or for medical indications, an acceptable safety profile), gain regulatory approval, if applicable, and become commercially viable. We have no products approved for commercial sale and have not generated any revenue to date attributable to isotopes (and only limited revenues attributable to PET Labs), and we continue to incur significant research and development and other expenses related to our ongoing operations. As a result, we are not profitable and have incurred losses since our inception in September 2021. For the years ended December 31, 2024 and 2023, we reported a net loss of $32.4 million and $16.3 million, respectively. As of December 31, 2024, we had an accumulated deficit of $56.2 million. +We expect to continue to incur significant losses for the foreseeable future, and we expect these losses to increase as we: +• +continue to invest in our research and development activities; +• +seek applicable regulatory approvals for any future isotopes that we may successfully develop; +• +experience any delays or encounter any issues with any of the above, including but not limited to failed research and development activities, safety issues, or other regulatory challenges; +• +hire additional engineering and production personnel and build our internal resources, including those related to audit, patent, other legal, regulatory and tax-related services associated with maintaining compliance with exchange listing and SEC requirements, director and officer insurance premiums and investor and public relations costs; +• +obtain, expand, maintain, enforce and protect our intellectual property portfolio; +• +establish a sales, marketing and distribution infrastructure and establish manufacturing capabilities, whether alone or with third parties, to commercialize future isotopes (assuming receipt of applicable regulatory approvals), if any; and +• +operate as a public company. +We expect limited commercial activity for our isotopes in the United States during the next two to three years and we anticipate that most of our initial revenues from future sales of our specialty isotopes will be derived from countries in Asia and EMEA (Europe, Middle East and Africa). To become and remain profitable, we must succeed in developing and eventually commercializing enriched isotopes that generate significant revenue. This will require us to be successful in a range of challenging +23 +activities, including completing research and development activities relating to our ASP technology, obtaining applicable regulatory approval for future isotopes, if any, and manufacturing, marketing and selling any future isotopes (assuming receipt of applicable regulatory approvals). We are only in the preliminary stages of most of these activities. We may never succeed in these activities and, even if we do, may never generate revenues that are significant enough to achieve profitability. Because of the numerous risks and uncertainties associated with chemical isotopes separation, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would depress the value of our company and could impair our ability to raise capital, expand our business, maintain our research and development efforts, diversify our future isotopes or even continue our operations. A decline in the value of our company could also cause you to lose all or part of your investment. +Our future prospects are tied directly to the end markets that use our isotopes including the diagnostic medical imaging industry and depend on our ability to successfully introduce our isotopes and adapt to a changing technology and medical practice landscape. +The field of diagnostic medical imaging is dynamic, with new products, including equipment, software and products, continually being developed and existing products continually being refined. New hardware (scanners), software or agents in a given diagnostic modality may be developed that provide benefits superior to the then-dominant hardware, software and agents in that modality, resulting in commercial displacement of the existing radiotracers. For example, alternate scanners and radiotracers could be introduced. Similarly, changing perceptions about comparative efficacy and safety, as well as changing availability of supply may favor one agent over another or one modality over another. In addition, new or revised appropriate use criteria developed by professional societies, to assist physicians and other health care providers in making appropriate imaging decisions for specific clinical conditions, can and have reduced the frequency of and demand for certain imaging modalities and imaging agents. Technological obsolescence in any of the medical imaging products that would use the specialty isotopes that we plan to manufacture could have a material adverse effect on our business, results of operations, financial condition and cash flows. +We may not realize the anticipated benefits of previous acquisitions. +The success of the company will depend in large part on the success of our management in integrating the acquired assets into the company. In October 2021, our subsidiary in South Africa acquired the assets of Molybdos after participating in and being declared the winner of a competitive auction process under Section 45 of the South Africa Consumer Protection Act, 2008 for ZAR 11,000,000 (which at the then current exchange rate was approximately $734,000), plus value added tax (VAT) levied by the government of South Africa at the rate of 15% and auctioneers’ commission at the rate of 10%. In July 2022, we acquired assets comprising a dormant Silicon-28 aerodynamic separation processing plant from Klydon located in Pretoria, South Africa for ZAR 6,000,000 (which at the then current exchange rate was approximately $364,000). In addition, in April 2023, we perfected our interest under the Acknowledgement of Debt Agreement, under which we acquired specific intellectual property from Klydon. To date, we have completed the construction of one isotope enrichment facility, but we have not yet produced any commercial quantities of isotopes and we have not yet demonstrated the ability to produce any isotope in commercial quantities using ASP technology. We will not know whether the assets that we acquired will work according to our expectations until we have produced commercial quantities of isotopes at our enrichment facilities. Our failure to achieve the integration of the acquired assets into the company and to commercialize the assets could result in our failure to realize the anticipated benefits of those acquisitions and could impair our results of operations, profitability and financial results. +The acquisition of a controlling interest in PET Labs Pharmaceuticals may fail to result in anticipated benefits but has involved significant investment of financial and other resources. +In October 2023, we entered into a Share Purchase Agreement with Nucleonics Imaging Proprietary Limited, a company incorporated in South Africa, to purchase 51% of the ordinary shares (the “initial shares”) in Nucleonics’ wholly-owned subsidiary, PET Labs Pharmaceuticals Proprietary Limited, a company incorporated in South Africa and dedicated to nuclear medicine and the science of radiopharmaceutical production. We agreed to pay a total of $2,000,000 for the initial shares in two installments. The first installment of $500,000 was paid in November 2023. In January 2024, the Company made a partial payment of $264,750 and the balance of $1,235,250 is expected to be paid in 2025. In addition, we have an option to purchase the remaining 49% of the ordinary shares (the “option shares”). If we exercise our option to purchase the option shares (which option is exercisable until January 31, 2027, provided that the initial shares have been paid for in full), we have agreed to pay $2,200,000 for the option shares. +Acquisitions generally create risks such as (i) the need to integrate and manage the businesses and products acquired with our own business and products; (ii) additional demands on our resources, systems, procedures and controls; (iii) disruption of our ongoing business; (iv) potential unknown or unquantifiable liabilities associated with the target company; and (v) diversion of management’s attention from other business concerns. Moreover, this acquisition involves substantial investment of funds. This acquisition may not be successful in generating material revenue, income or other returns, and any resources we committed will +24 +not be available to us for other purposes. Our inability to take advantage of growth opportunities or address risks associated with this acquisition and investment may negatively affect our operating results. This acquisition may not result in its anticipated benefits, and we may not be able to properly integrate the business with our future products and operations or successfully combine personnel and cultures. Failure to do so could deprive us of the intended benefits of this acquisition. +We currently have no sales attributable to enriched isotopes, but we expect to be heavily dependent on a few large customers to generate a majority of our revenues. Our operating results could be adversely affected by a reduction in business with our future significant customers. +We currently have no sales attributable to enriched isotopes. However, we expect to rely on a limited number of customers to purchase any isotopes that we produce using the ASP technology or quantum enrichment under long-term contracts. Our future key customers may stop ordering our isotopes at any time or may become bankrupt or otherwise unable to pay. The loss of any of our future key customers could result in lower revenues than we anticipate and could harm our business, financial condition or results of operations. +We will require substantial additional capital to finance our operations, which may not be available on acceptable terms, or at all. Failure to obtain this necessary capital when needed may force us to delay, limit or terminate certain of our product development efforts or other operations. +We expect our expenses to increase substantially in connection with our ongoing and planned activities, particularly as we continue our research and development activities, seek applicable regulatory approvals for any future isotopes that we may successfully develop, and expand our organization by hiring additional personnel. In addition, we expect to continue incurring significant costs associated with operating as a public company. +As of December 31, 2024, our cash was approximately $61.9 million. We believe, based on our current operating plan, that our existing cash, will be sufficient to fund our operations for at least the next 12 months from the date the financial statements are issued. +As we pursue additional research and development activities related to our ASP technology and seek applicable regulatory approval of our any future isotopes, and otherwise to support our continuing operations, we will require substantial additional capital to support our business operations. In addition, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution (assuming receipt of applicable regulatory approvals for our future isotopes). Even if we believe we have sufficient capital for our current or future operating plans, we may seek additional capital if market conditions are favorable or if we have specific strategic considerations. Any additional capital raising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize our future isotopes (assuming receipt of applicable regulatory approvals). +Additionally, as a result of severely diminished liquidity and credit availability, increased interest rates, inflationary pressures, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability, the global credit and financial markets have experienced extreme volatility and disruptions, including severely diminished liquidity and credit availability. The financial markets and the global economy may also be adversely affected by the current or anticipated impact of military conflict. If the equity and credit markets deteriorate, it may make any necessary debt or equity financing more difficult, more costly or more dilutive. If we do not raise additional capital in sufficient amounts, we may be prevented from pursuing development and commercialization efforts, which will harm our business, operating results and prospects. +We are subject to credit counterparty risk which could have a material adverse effect on our business, results of operations, financial condition and cash flows. +The Company maintains cash balances at many financial institutions in multiple geographies. While the majority of cash balances are currently held in USD at U.S. financial institutions, our cash balances at those institutions may exceed the Federal Deposit Insurance Corporation (“FDIC”) insurance limit of $250,000 per depositor, per insured bank for each account ownership category. Our non-US banking counterparties might not have protections offered to their customers that are considered standard in the U.S. and even if such deposit insurances do exist, there is no guarantee that the insurer will honor those insurance policies. Although the Company currently believes that the financial institutions with whom it does business, will be able to fulfill their commitments to the Company, there is no assurance that those institutions will be able to continue to do so. Any credit losses that may occur could have a material adverse effect on our business, results of operations, financial condition and cash flows. +25 +Raising additional capital or acquiring or licensing assets by issuing equity or debt securities may cause dilution to our stockholders, and raising funds through lending and licensing arrangements may restrict our operations or require us to relinquish proprietary rights. +We may plan to seek additional capital through a combination of public and private equity offerings, debt financings, strategic partnerships and alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms may include liquidation or other preferences that adversely affect your rights as a stockholder. The incurrence of indebtedness would result in increased fixed payment obligations and could involve certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. If we raise additional capital through future collaborations, strategic alliances or third-party licensing arrangements, we may have to relinquish valuable rights to our intellectual property, future revenue streams, research programs or future isotopes, or grant licenses on terms that may not be favorable to us. +If we are unable to raise additional capital when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts, or grant rights to develop and market our future isotopes (assuming receipt of applicable regulatory approvals for our future isotopes) that we would otherwise develop and market ourselves. +Risks Related to the Development and Commercialization of Our Future Isotopes +We are continuing our research and development efforts for isotopes using the ASP technology and the Quantum Enrichment technology. If we are unable to advance our future isotopes in development, obtain applicable regulatory approval and ultimately commercialize our future isotopes, or experience significant delays in doing so, our business will be materially harmed. +We are still conducting research and development efforts using ASP technology to produce a wide array of isotopes, and have not yet produced any isotope at commercial scale. It is possible that the research and development, proof-of-concept, construction of a plant and commercialization will take longer than anticipated due to unexpected delays. +We also plan to begin researching the enrichment of uranium, which is a chemical element we believe may have application in the clean, efficient and carbon-free energy industry, using Quantum Enrichment technology. Quantum Enrichment technology has never been used to produce isotopes at a commercial scale and the research that has been conducted using this technique has never been published. The IAEA has never inspected any facility that leverages this technology and there is no proof that this technology has ever been used to enrich uranium. There are significant regulatory hurdles associated with enabling our research and development efforts to enter the nuclear energy market. Multiple regulatory agencies need to provide approvals to allow us to proceed with the research and development necessary to show proof of concept to the market. If we demonstrate proof of concept, we anticipate that there will be further approvals needed to expand to a larger footprint to support commercial demand. We may not ever obtain these approvals. If we are unable to advance our future isotopes in development, obtain applicable regulatory approval and ultimately commercialize our future isotopes (assuming receipt of applicable regulatory approvals), or experience significant delays in doing so, our business will be materially harmed. +Our ability to generate product revenues will depend heavily on the success of our research and development activities, receipt of applicable regulatory approvals, and eventual commercialization of our future isotopes (assuming receipt of applicable regulatory approvals and compliance with all applicable regulatory authorities). +The success of our business, including our ability to finance our company and generate any revenue in the future, will primarily depend on the successful development, regulatory approval and commercialization of our currently planned future isotopes, which may never occur. +We will have to be successful in a range of challenging activities, including completing research and development activities relating to our ASP technology, obtaining applicable regulatory approval for future isotopes, if any, and manufacturing, marketing and selling any future isotopes (assuming receipt of applicable regulatory approvals). We are only in the preliminary stages of most of these activities. If we are unable to succeed in these activities, we may not be able to generate sufficient revenue to continue our business. +We rely on a limited number of suppliers to provide us components and a material interruption in supply could prevent or limit our ability to execute our strategic plan and development programs in the expected timeframe. +We depend upon a limited number of third-party suppliers for certain components required to construct the centrifuges and other equipment for the enrichment plants that are being constructed in South Africa. To date, we have been able to obtain the required components for our centrifuges without any significant delays or interruptions, except for certain delays related to COVID-19. If we lose any of these suppliers, we may be required to find and enter into supply arrangements with one or more replacement +26 +suppliers. Obtaining alternative sources of supply could involve significant delays and other costs, and these supply sources may not be available to us on reasonable terms or at all. Any disruption of supplies could delay completion and operations of the enrichment plants in South Africa, which could adversely affect our ability to execute our strategic plan and development programs in the expected timeframe. +Development activities at our facility in South Africa could be disrupted for a variety of reasons, which could prevent us from completing our development activities. +A disruption in development activities at our facility in South Africa could have a material adverse effect on our business. Disruptions could occur for many reasons, including power outages, fire, natural disasters, weather, unplanned maintenance or other manufacturing problems, public health crises, disease, strikes or other labor unrest, transportation interruption, government regulation, political unrest or terrorism. Alternative facilities with sufficient capacity or capabilities may not be available, may cost substantially more or may take a significant time to start production, each of which could negatively affect our business and financial performance. South Africa struggles with limited electricity supply and regions of the country regularly undergo load-shedding, during which electricity is not available. This uncertain supply of electricity could impact our ability to operate and produce commercial products and could negatively affect the financial position of the Company. +Risks associated with the development of ASP technology for enrichment of isotopes could cause substantial delays in production of our future isotopes. +Prior to October 2021, as a company, we had no involvement with or control over the research and development of the ASP technology. We relied on Klydon to have conducted such research and development in accordance with the applicable legal, regulatory and scientific standards. If the research and development processes or the results of the development programs associated with the ASP technology for development of isotopes prove to be unreliable, this could result in increased costs and delays in the development of our future isotopes, which could adversely affect any future revenue from these future isotopes (assuming receipt of applicable regulatory approvals). +Regulatory approval for production and distribution of radiopharmaceuticals used for medical imaging and therapeutic treatments may involve a lengthy and expensive process with an uncertain outcome. +Currently, the sale or use of many stable isotopes is not regulated by a healthcare regulator, such as the FDA, European Medicines Agency (EMA) or comparable foreign regulatory authorities. However, many products that are produced from stable isotopes in a radio pharmacy, such as Mo-99, Tc-99, Lu-177 and Ga 68 are regulated by healthcare regulators. +Our future customers who may use our stable isotopes to produce radiopharmaceuticals will likely require regulatory approval for their products. To date, only one healthcare regulator (Canada) has approved the use of Tc-99m produced from Mo-100 via a cyclotron. The regulatory approval of other products is also not standardized between different regions. Obtaining regulatory approval is expensive and can take many years to complete, and its outcome is inherently uncertain. Our customers’ regulatory approval process may not be conducted as planned or completed on schedule, if at all, and failure can occur at any time during the process. +In the future, we may need to obtain approval from the FDA, EMA or comparable foreign regulatory authorities prior to the sale of stable isotopes that we may produce using our ASP technology or QE technology for use in medical imaging and therapeutic treatments. If we require FDA, EMA or other comparable foreign regulatory authorities to approve the sale of stable isotopes that we may produce using our ASP technology or QE Technology for medical imaging and therapeutic treatments, we must demonstrate the safety and utility or efficacy of our stable isotopes. Obtaining regulatory approval is expensive and can take many years to complete, and its outcome is inherently uncertain. Our regulatory approval process may not be conducted as planned or completed on schedule, if at all, and failure can occur at any time during the process. +Other isotopes that we intend to produce in the future may also require approvals from healthcare regulators such as FDA, EMA or comparable foreign regulatory authorities. +Our success depends on our future customers’ ability to successfully commercialize products that are produced from our isotopes. +Our customers operate in a competitive environment. If our customers are unable to successfully commercialize products that they produce from our isotopes, our business will be negatively impacted. Our customers may fail for a number of reasons, including but not limited to pricing pressure from competing products and failure to gain regulatory approval for the production of their products from healthcare regulators. +27 +Our success depends on our ability to adapt to a rapidly changing competitive environment in the nuclear industry. +The nuclear industry in general, and the nuclear fuel industry in particular, is in a period of significant change, which could significantly transform the competitive landscape we face. The uranium and isotope enrichment sector is competitive. Changes in the competitive landscape may adversely affect pricing trends, change customer spending patterns, or create uncertainty. To address these changes, we may seek to adjust our cost structure and efficiency of operations and evaluate opportunities to grow our business organically or through acquisitions and other strategic transactions. We are actively considering, and expect to consider from time to time in the future, potential strategic transactions, which could involve, without limitation, changes in our capital structure, acquisitions and/or dispositions of businesses or assets, joint ventures or investments in businesses, products or technologies. +In connection with any such transaction, we may seek additional debt or equity financing, contribute or dispose of assets, assume additional indebtedness, or partner with other parties to consummate a transaction. Any such transaction may not result in the intended benefits and could involve significant commitments of our financial and other resources. Legal and consulting costs incurred in connection with debt or equity financing transactions in development are deferred and subject to immediate expensing if such a transaction becomes less likely to occur. If the actions we take in response to industry changes are not successful, our business, results of operations and financial condition may be adversely affected. +We may explore strategic collaborations that may never materialize or may fail. +We intend to accelerate the development of our enriched uranium program by selectively collaborating with energy companies in the United States. We intend to retain significant technology, economic and commercial rights to our programs in key geographic areas that are core to our long-term strategy. As a result, we intend to periodically explore a variety of possible additional strategic collaborations in an effort to gain access to additional resources. At the current time, we cannot predict what form such a strategic collaboration might take. We are likely to face significant competition in seeking appropriate strategic collaborators, and negotiations are difficult and time-consuming. We may not be able to negotiate strategic collaborations on acceptable terms, or at all. We are unable to predict when, if ever, we will enter into any additional strategic collaborations because of the numerous risks and uncertainties associated with establishing them. +If the market opportunities for our future enriched isotopes are smaller than we estimate (even assuming receipt of any required regulatory approval), our business may suffer. +We are currently focused on producing enriched isotopes using our ASP technology to meet critical needs in society. We also plan to research the production of enriched uranium using Quantum Enrichment technology to meet the future needs of developers of U.S. advanced reactor technologies requiring HALEU. Our projections of the potential markets are based on estimates that have been derived from a variety of sources, including scientific literature and market research, and which may prove to be incorrect. We must be able to successfully acquire a significant market share in our potential markets to achieve profitability and growth. Customers may become difficult to gain access to, which would adversely affect our results of operations and our business. +We face substantial competition, which may result in others discovering, developing or commercializing enriched isotopes before or more successfully than us. +The development and commercialization of radioisotopes and chemical elements is highly competitive. We face competition with respect to all the enriched isotopes that we may produce using our ASP technology from established biotechnology and nuclear medicine technology companies and will face competition with respect to enriched uranium that we may seek to develop or commercialize in the future from innovative technology and energy companies. There are a number of large biotechnology and nuclear medicine technology companies that currently market and sell radioisotopes to radiopharmacies, hospitals, clinics and others in the medical community (Mo-99 is the active ingredient for Tc-99m-based radiopharmaceuticals used in nuclear medicine procedures). There are also a number of technology and energy companies that are currently seeking to develop HALEU. Potential competitors also include academic institutions, government agencies and other public and private research organizations that conduct research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and commercialization. +More established companies may have a competitive advantage over us due to their greater size, resources and institutional experience. In particular, these companies have greater experience and expertise in securing reimbursement, government contracts, relationships with key opinion leaders, obtaining and maintaining regulatory approvals and distribution relationships to market products. These companies also have significantly greater research and marketing capabilities than we do. If we are not able to compete effectively against existing and potential competitors, our business and financial condition may be harmed. +As a result of these factors, our competitors may complete development of isotopes before we are able to, which may limit our ability to develop or commercialize our future isotopes. Our competitors may also develop radioisotopes or technologies that +28 +are safer, more effective, more widely accepted and cheaper than ours, and may also be more successful than us in manufacturing and marketing their isotopes. These appreciable advantages could render our future isotopes obsolete or non-competitive before we can recover the expenses of their development and commercialization. +Mergers and acquisitions in the technology and energy industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller and other early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties compete with us in recruiting and retaining qualified scientific, management and commercial personnel, as well as in acquiring technologies complementary to, or necessary for, our programs. +Even if the products that we or our customers may produce using the ASP technology receives regulatory approval, it may fail to achieve market acceptance by radiopharmacies, hospitals, clinics or others in the medical community necessary for commercial success. +Even if the isotopes that we may produce using the ASP technology for the medical industry, or the radioisotopes that we expect our future customers to produce using the stable isotopes that we plan to offer, receives regulatory approval, the isotopes may fail to gain sufficient market acceptance by radiopharmacies, hospitals, clinics and others in the medical community. If it does not achieve an adequate level of acceptance, we may not generate significant product revenue and may not become profitable. The degree of market acceptance of isotopes that we may produce using the ASP technology, or the radioisotopes that our future customers may produce, will depend on a number of factors, including but not limited to: +• +the potential advantages compared to alternative radioisotopes; +• +the timing of market introduction of the product as well as competitive products; +• +effectiveness of sales and marketing efforts; +• +the strength of our relationships with radiopharmacies, hospitals, clinics and others in the medical community; +• +the cost in relation to alternative radioisotopes; +• +our ability to offer isotopes that we may produce using the ASP technology for sale at competitive prices; +• +the convenience and ease of use compared to alternative radioisotopes; +• +the willingness of radiopharmacies, hospitals, clinics and others in the medical community to try an innovative radioisotope; and +• +the strength of marketing and distribution support. +Our efforts to educate radiopharmacies, hospitals, clinics and others in the medical community on the benefits of our isotopes that we may produce using the ASP technology may require significant resources and may never be successful. +Because we expect sales of isotopes that we may produce using the ASP technology (assuming receipt of applicable regulatory approvals for commercial sale) to generate substantially all of our revenues for the foreseeable future, the failure of these isotopes that we may produce using the ASP technology (assuming receipt of applicable regulatory approvals for commercial sale) to find market acceptance would harm our business and could require us to seek additional financing. +We currently have no marketing and sales organization for our future isotopes and have no experience as a company in commercializing products, and we may have to invest significant resources to develop these capabilities. If we are unable to establish marketing and sales capabilities or enter into agreements with third parties to market and sell our products, we may not be able to generate product revenue. +We have no internal sales, marketing or distribution capabilities for our future isotopes, nor have we commercialized any isotopes. If the isotopes that we may produce using our ASP technology gains market acceptance and our customers receive regulatory approval for the isotopes they produce, we must build a marketing and sales organization with technical expertise and supporting distribution capabilities to commercialize such product in the markets that we target, which will be expensive and time-consuming, or collaborate with third parties that have direct sales forces and established distribution systems, either to augment our own sales force and distribution systems or in lieu of our own sales force and distribution systems. We currently plan to independently commercialize the isotopes that we may produce using our ASP technology (assuming receipt of applicable regulatory approvals) in the United States by establishing a focused sales force and marketing infrastructure. We may opportunistically seek additional strategic collaborations to maximize the commercial opportunities for our medical isotopes business outside of the United States. We have no prior experience as a company in the marketing, sale and distribution of isotopes and there are significant risks involved in building and managing a sales organization, including our ability to hire, retain and +29 +incentivize qualified individuals, generate sufficient sales leads, provide adequate training to sales and marketing personnel and effectively manage a geographically dispersed sales and marketing team. Any failure or delay in the development of our internal sales, marketing and distribution capabilities would adversely impact the commercialization of these products. We may not be able to enter into collaborations or hire consultants or external service providers to assist us in sales, marketing and distribution functions on acceptable financial terms, or at all. In addition, our product revenues and our profitability, if any, may be lower if we rely on third parties for these functions than if we were to market, sell and distribute any products that we develop ourselves. We likely will have little control over such third parties, and any of them may fail to devote the necessary resources and attention to sell and market our products effectively. If we are not successful in commercializing our isotopes, either on our own or through arrangements with one or more third parties, we may not be able to generate any future product revenue and we would incur significant additional losses. +Obtaining regulatory approval for the stable isotopes that we may produce using the ASP technology or the QE technology, or the radioisotopes that our future customers may produce using the stable isotopes that we plan to offer, in one jurisdiction does not mean that we or they will be successful in obtaining regulatory approval of such future products in other jurisdictions. +Currently, the production and distribution of stable isotopes does not require any regulatory licenses from healthcare regulators. Healthcare regulators frequently change such requirements, and it is possible that in the future stable isotopes may be regulated as a healthcare product. Obtaining such regulatory licenses, if required, may be a timely and costly process and could materially impact our ability to commercialize the stable isotopes that we plan to offer. Obtaining regulatory approval of the stable isotopes that we may produce using the ASP technology or QE technology in one jurisdiction does not guarantee that we will be able to obtain regulatory approval in any other jurisdiction. For example, even if the FDA grants regulatory approval of the stable isotopes that we may produce using the ASP technology or QE technology, comparable regulatory authorities in foreign jurisdictions must also approve the manufacturing, marketing and promotion and reimbursement of such future product in those countries. However, a failure or delay in obtaining regulatory approval in one jurisdiction may have a negative effect on the regulatory approval process in others. Approval procedures vary among jurisdictions and can involve requirements and administrative review periods different from those in the United States. +Obtaining foreign regulatory approvals and establishing and maintaining compliance with foreign regulatory requirements could result in significant delays, difficulties and costs for us and could delay or prevent the introduction of the stable isotopes that we may produce using the ASP technology or QE technology. Products such as Tc-99m, Mo-99, Lu-177 and Ga-68 that may be produced by our future customers using the stable isotopes that we plan to offer will likely require regulatory licenses in most regions. Healthcare regulators frequently change such requirements and it is unclear what each healthcare regulator will require. To date, only one region (Canada) has approved the use of Tc-99m that has been produced from stable isotopes in a cyclotron. Obtaining such regulatory licenses, if required, may be a timely and costly process and could materially impact the ability of our future customers to operate and use the Mo-100 that we plan to offer. Obtaining regulatory approval in one jurisdiction does not guarantee that we or they will be able to obtain regulatory approval in any other jurisdiction. +If we or any future collaborator fail to comply with the regulatory requirements in international markets or fail to receive applicable marketing approvals, our target market will be reduced and our ability to realize the full market potential of the stable isotopes that we may produce using the ASP technology or QE technology will be harmed. +Product liability lawsuits against us could cause us to incur substantial liabilities and could limit commercialization of any isotopes that we may produce. +We face an inherent risk of product liability exposure if we commercialize any isotopes that we may produce. If we cannot successfully defend ourselves against claims that any such isotopes caused injuries, we could incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in: +• +decreased demand for any isotopes that we may produce; +• +loss of revenue; +• +substantial monetary awards to patients; +• +significant time and costs to defend the related litigation; +• +a diversion of management’s time and our resources; +• +initiation of investigations by regulators; +• +the inability to commercialize any isotopes that we may produce; +• +injury to our reputation and significant negative media attention; and +30 +• +a decline in our share price. +Any product liability insurance coverage that we obtain and maintain may not be adequate to cover all liabilities that we may incur. We anticipate that we will need to increase our insurance coverage each time we commence a clinical trial and if we successfully commercialize any isotopes. Insurance coverage is increasingly expensive. We may not be able to obtain or maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise. +Risks Related to Regulatory Compliance +Our business is and could become subject to a wide variety of extensive and evolving laws and regulations. Failure to comply with such laws and regulations and failure to obtain licenses, approvals and permits that may be required to execute on our strategy and develop our company’s business could have a material adverse effect on our business. +We are subject to a wide variety of laws and regulations relating to various aspects of our business, including with respect to the development of the ASP technology and our future isotopes, employment and labor, health care, tax, privacy and data security, health and safety, and environmental issues. Laws and regulations at the South African and foreign, federal, state and local levels frequently change, especially in relation to new and emerging industries, and we cannot always reasonably predict the impact of, or the ultimate cost of compliance with, current or future regulatory or administrative changes. In South Africa, our isotope enrichment facilities are heavily regulated. South Africa is a signatory to the IAEA conventions and has adopted safety standards from the IAEA. The design, construction and operation of the isotope enrichment plants are highly regulated and require government licenses, approvals and permits, and may be subject to the imposition of conditions. In some cases, these licenses, approvals and permits entail periodic review and inspections. While we and Klydon have received all licenses, approvals and permits required to build and operate our isotope enrichment facilities in South Africa, we cannot predict whether the conditions associated with such licenses, approvals and permits will be maintained. For example, each of Klydon and ASP Isotopes South Africa (Proprietary) Limited has received from the South African Council for The Non-Proliferation of Weapons of Mass Destruction (1) a registration certificate (which are valid for two years from the date of issuance) and (2) a Manufacturing and Services Permit. The permits provide that the Non-Proliferation Secretariat will conduct at least two industry visits in June and November (or as arranged) of every year. Each of the permits includes numerous conditions, including, for example, the obligation to keep the Council updated or informed on all separation projects at all times and at least through biannual declarations, which must be done through correspondence to the Council at the end of April and September every year. The permit issued to ASP Isotopes South Africa (Proprietary) Limited includes additional specific information requirements related to (i) the progress on the design and construction of the isotope separation plant, (ii) the progress on the manufacturing of isotope separation elements, and (iii) the commissioning of the plant. Each of the permits further provides that (i) any potential export of controlled goods and technology should be requested at an early stage through a Provisional Export Guidance Request, (ii) all isotope separation applications remain controlled regardless of the isotope atomic mass and will be dealt with on a case-by-case basis, and (iii) any ultimate transfer of these controlled goods and technology will be subject to the issuance of a permit by the Council as required in terms of the Non-Proliferation Act and related Government Notices and Regulations. +In addition, we cannot assure you that we will be able to obtain, on a timely basis or at all, any additional licenses, approvals and permits that may be required to execute on our strategy and develop our company’s business, including any such licenses, approvals and permits that may be required to introduce isotopes produced using ASP technology into the market and to begin the enrichment of uranium to demonstrate our capability to produce HALEU using the Quantum Enrichment technology. +Changes in law or the imposition of new or additional regulations or permit requirements that impact our business could negatively impact our performance in various ways, including by limiting our ability to collaborate with partners or customers or by increasing our costs and the time necessary to obtain required authorization. We monitor new developments and devote a significant amount of management’s time and external resources to compliance with these laws and regulations. We cannot assure you, however, that we are and will remain in compliance with all such requirements and, even when we believe we are in compliance, a regulatory agency may determine that we are not. In addition, we cannot assure you that we will be able to obtain all licenses, approvals and permits that may be required to execute on our strategy and develop our company’s business as currently contemplated. Failure by us, our employees, affiliates, partners or others with whom we work to comply with applicable laws and regulations or to obtain or comply with necessary licenses, approvals and permits could result in administrative, civil, commercial or criminal liabilities, including suspension or debarment from government contracts or suspension of our export/import privileges. Failure by us, our employees, affiliates, partners or others with whom we work to comply with the permits issued to us by the South African Council for The Non-Proliferation of Weapons of Mass Destruction could result in disruption of our development activities at our facility in South Africa, which could prevent us from completing our development activities. +31 +If technology developed for the purposes of enriching isotopes can be applied to the creation or development of weapons-grade materials, then our technology may be considered “dual use” technology and be subject to limitations on public disclosure or export. +Our research and development of isotope enrichment is dedicated not only to producing enriched isotopes for use in nuclear medical diagnostic procedures and concentrating uranium in the isotope uranium-235 for use in nuclear energy, but also to safeguarding any information with broad, dual-use potential that could be inappropriately applied. Enrichment is among the most sensitive nuclear technologies because it can produce weapon-grade materials. The ASP technology and the Quantum Enrichment technology may be considered dual use and could be subject to export control, for example, under the Wassenaar Arrangement. +Risks Related to Our Intellectual Property +Our intellectual property is not protected through patents or formal copyright registration. As a result, we do not have the full benefit of patent or copyright laws to prevent others from replicating the ASP technology and Quantum Enrichment technology. +We have not yet protected our intellectual property rights through patents or formal copyright registration, and we currently have no patent applications pending. To date, we have relied exclusively on trade secrets and other intellectual property laws, non-disclosure agreements with our respective employees, consultants, vendors, potential customers and other relevant persons and other measures to protect our intellectual property, and intend to continue to rely on these and other means. As we intend to transition into the commercialization of isotopes, we envision our intellectual property and its security becoming more vital to our future. Until we protect our intellectual property through patent, trademarks and registered copyrights, we may not be able to protect our intellectual property and trade secrets or prevent others from independently developing substantially equivalent proprietary information and techniques or from otherwise gaining access to our intellectual property or trade secrets. In such an instance, our competitors could produce products that are nearly identical to ours, resulting in us selling less products or generating less revenue from our sales. +We may be unable to adequately protect our intellectual property and proprietary rights and prevent others from making unauthorized use of our products and technology. +Our success and competitiveness depend, in significant part, on our ability to protect our intellectual property rights, including the ASP technology and the Quantum Enrichment technology and certain other practices, tools, technologies and technical expertise we utilize in designing, developing, implementing and maintaining processes used in the development of our future isotopes. To date, we have relied exclusively on trade secrets and other intellectual property laws, non-disclosure agreements with our respective employees, consultants, vendors, potential customers and other relevant persons and other measures to protect our intellectual property, and intend to continue to rely on these and other means. +For strategic reasons, we have not yet protected our intellectual property by filing patent applications related to our technology, inventions and improvements. Even if we filed patent applications and patents were granted, we cannot assure you we would be fully protected against third parties as those patents may not be sufficiently broad in their coverage, may not be economically significant, or may not provide us with any competitive advantage. Competitors may be able to design around any patents and develop isotope production techniques comparable or superior to the ASP technology or the Quantum Enrichment technology. Furthermore, the filing of a patent would entail the disclosure of our know-how, and breaches of patent rights related to a wrongful use of this know-how would be difficult to enforce in the international landscape. We believe that our intellectual property strategy differs significantly from the strategies of others involved in the medical isotope industry, many of whom have extensive patent portfolios and rely heavily on intellectual property registrations to enforce their intellectual property rights. As a result of this discrepancy in strategy, we may be at a competitive disadvantage with respect to the strength of our intellectual property protection. Unlike others involved in the medical isotope industry, who generally have patents providing exclusive control over their innovations, we have no recourse against any entity that independently creates the same technology as ours or legitimately reverse-engineers our technology. +We generally enter into non-disclosure agreements with our employees, consultants and other parties with whom we have strategic relationships and business alliances. We cannot, however, assure you that these agreements will be effective in controlling access to and distribution of our technology and proprietary information. Since we do not protect our intellectual property by filing patent applications, we rely on our personnel to protect our trade secrets, know-how and other proprietary information to a greater degree than we would if we had patent protection for our intellectual property. In any jurisdiction in which our research and development is not protected by similar agreements, there is no protection against the manufacture and marketing of identical or comparable research and development by third parties, who are generally free to use, independently develop, and sell our developments and technologies without paying license or royalty fees. Furthermore, our former employees may perform work for our competitors and use our know-how in performing this work. In the event we scale our business by hiring additional personnel and entering into contracts with third parties, the risks associated with breaches of non-disclosure agreements, confidentiality +32 +agreements and other agreements pertaining to our technology and proprietary information will increase, and such breaches could have an adverse effect on our business and competitive position. +We may come to believe that third parties are infringing on, or otherwise violating, our intellectual property or other proprietary rights. To prevent infringement or unauthorized use, we may need to file infringement and/or misappropriation suits, which are expensive and time-consuming, could result in meritorious counterclaims against us and would distract management’s attention. In addition, in an infringement or misappropriation proceeding, a court may decide that one or more of our intellectual property rights is invalid, unenforceable, or both, in which case third parties may be able to use our technology without paying license fees or royalties. If we are unable to protect our intellectual property and proprietary rights, we may be unable to prevent competitors from using our own inventions and intellectual property to compete against us, and our business may be harmed. +Our ASP technology and Quantum Enrichment technology may be found to infringe third-party intellectual property rights. +Third parties may in the future assert claims or initiate litigation related to their intellectual property rights in technology that is important to us, including the ASP technology. For example, on October 25, 2022, we received a letter (the “NMS Letter”) from a law firm acting on behalf of Norsk Medisinsk Syklotronsenter AS (“NMS”), asserting, among other things, that the grant of the former license to the ASP technology to us by Klydon violated a pre-existing exclusive sub-license to the ASP technology granted to Radfarma. In November 2023, we entered into a mutual release with NMS, Radfarma, and certain board members and shareholders of Radfarma related to the claims asserted in the NMS letter and other matters, without any payment or license of any rights by any party to the release. Any future claims alleging infringement of intellectual property rights with respect to the ASP technology on which our company relies could be time-consuming, resulting in costly arbitration or litigation and diversion of technical and management personnel, or require us to develop non-infringing technology or enter into license agreements. We cannot assure you that licenses will be available on acceptable terms, if at all. Furthermore, because of the potential for significant damage awards, which are not necessarily predictable, it is not unusual to find even arguably unmeritorious claims resulting in large settlements. If any infringement or other intellectual property claim made against us by any third party is successful, or if we fail to develop non-infringing technology or license the proprietary rights on commercially reasonable terms and conditions, our business, operating results and financial condition could be materially adversely affected. +If the ASP technology infringes the proprietary rights of other parties, we could incur substantial costs, and we may have to take certain actions, including the following: +• +obtain licenses, which may not be available on commercially reasonable terms, if at all; +• +redesign our technology or processes to avoid infringement; +• +stop using the subject matter claimed to be held by others; +• +pay damages; or +• +defend arbitration, litigation or administrative proceedings which may be costly whether we win or lose (and may be prohibitively expensive, particularly for a company of our size), and which could result in a substantial diversion of our financial and management resources. +In addition, in an infringement proceeding, a court or tribunal may decide that our asserted intellectual property is not valid or is unenforceable. An adverse determination in any litigation, arbitration or defense proceedings could put our intellectual property at risk of being invalidated or interpreted narrowly. If our intellectual property rights are found to be invalid or unenforceable (in whole or in part), our ability to commercialize our future isotopes would suffer and our business, results of operations and financial condition may be adversely affected. +We may enter into collaboration agreements and strategic alliances, and we may not realize the anticipated benefits of such collaborations or alliances. +We may wish to form collaborations in the future with respect to our future isotopes but may not be able to do so or to realize the potential benefits of such transactions, which may cause us to alter or delay our development and commercialization plans. Research and development collaborations are subject to numerous risks, which may include the following: +• +collaborators have significant discretion in determining the efforts and resources that they will apply to a collaboration and may not commit sufficient efforts and resources or may misapply those efforts and resources; +• +collaborators may not pursue development and commercialization of future isotopes or may elect not to continue or renew development or commercialization programs; +• +collaborators may delay, provide insufficient resources to, or modify or stop development activities for future isotopes; +33 +• +collaborators could develop or acquire products outside of the collaboration that compete directly or indirectly with our future isotopes; +• +collaborators may not properly maintain or defend our intellectual property rights or may use our intellectual property or proprietary information in a way that gives rise to actual or threatened litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential liability; +• +disputes may arise between us and a collaborator that cause the delay or termination of the research, development or commercialization of our future isotopes, or that result in costly litigation or arbitration that diverts management attention and resources; +• +collaborations may be terminated and, if terminated, may result in a need for additional capital and personnel to pursue further development or commercialization of the applicable future isotopes; and +• +collaborators may own or co-own intellectual property covering our products that results from our collaborating with them, and in such cases, we may not have the exclusive right to commercialize such intellectual property. +The development and potential commercialization of our future isotopes will require substantial additional capital to fund expenses. We may form or seek further strategic alliances, create joint ventures or collaborations, or enter into additional licensing arrangements with third parties that we believe will complement or augment our development and commercialization efforts with respect to our future isotopes, including in territories outside the United States or for certain indications. These transactions can entail numerous operational and financial risks, including exposure to unknown liabilities, disruption of our business and diversion of our management’s time and attention in order to manage a collaboration or develop acquired products or technologies, incurrence of substantial debt or dilutive issuances of equity securities to pay transaction consideration or costs, higher than expected collaboration, acquisition or integration costs, write-downs of assets or goodwill or impairment charges, increased amortization expenses, difficulty and cost in facilitating the collaboration or combining the operations and personnel of any acquired business, impairment of relationships with key suppliers, manufacturers or customers of any acquired business due to changes in management and ownership and the inability to retain key employees of any acquired business. As a result, if we enter into acquisition or in-license agreements or strategic partnerships, we may not be able to realize the benefit of such transactions if we are unable to successfully integrate them with our existing operations and company culture, or if there are materially adverse impacts on our or the counterparty’s operations, which could delay our timelines or otherwise adversely affect our business. We also cannot be certain that, following a strategic transaction or license, we will achieve the revenue or specific net income that justifies such transaction or such other benefits that led us to enter into the arrangement. +In addition, we face significant competition in seeking appropriate strategic partners and the negotiation process is time-consuming and complex. We may not be successful in our efforts to establish a strategic partnership or other alternative arrangements for our future isotopes because they may be deemed to be at too early of a stage of development for collaborative effort and third parties may not view our future isotopes as having the requisite potential to demonstrate safety and efficacy. If and when we collaborate with a third-party for development and commercialization of a future isotope, we can expect to relinquish some or all of the control over the future success of that future isotope to the third-party. Our ability to reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of our technologies, future isotopes and market opportunities. The collaborator may also consider alternative isotopes or technologies for similar applications that may be available to collaborate on and whether such a collaboration could be more attractive than the one with us for our future isotope. We may also be restricted under any license agreements from entering into agreements on certain terms or at all with potential collaborators. +As a result of these risks, we may not be able to realize the benefit of our existing collaborations or any future collaborations or licensing agreements we may enter into. In addition, we may not be able to negotiate collaborations on a timely basis, on acceptable terms, or at all. If we are unable to do so, we may have to curtail the development of such future isotope, reduce or delay one or more of our other development programs, delay the potential commercialization or reduce the scope of any planned sales or marketing activities for such future isotope, or increase our expenditures and undertake development, manufacturing or commercialization activities at our own expense. If we elect to increase our expenditures to fund development, manufacturing or commercialization activities on our own, we may need to obtain additional capital, which may not be available to us on acceptable terms or at all. If we do not have sufficient funds, we may not be able to further develop our future isotopes or bring them to market and generate product revenue. +34 +We may be dependent on intellectual property licensed or sublicensed to us from, or for which development was funded or otherwise assisted by, government agencies, for development of our technology and future isotopes. Failure to meet our own obligations to any licensor or upstream licensors, including such government agencies, may result in the loss of our rights to such intellectual property, which could harm our business. +Government agencies may provide funding, facilities, personnel or other assistance in connection with the development of the intellectual property rights owned by or licensed to us in the future. Such government agencies may have retained rights in such intellectual property, including the right to grant or require us to grant mandatory licenses or sublicenses to such intellectual property to third parties under certain specified circumstances, including if it is necessary to meet health and safety needs that we are not reasonably satisfying or if it is necessary to meet requirements for public use specified by federal regulations, or to manufacture products in the United States. Any exercise of such rights, including with respect to any such required sublicense of these licenses could result in the loss of significant rights and could harm our ability to commercialize licensed products. +If we are unable to obtain patent protection for our future isotopes, or if the scope of the patent protection obtained is not sufficiently broad, we may not be able to compete effectively in our markets. +We anticipate that we may file patent applications both in the United States and in other countries, as appropriate. However, we cannot predict: +• +if and when any patents will issue; +• +the degree and scope of protection any issued patents will afford us against competitors, including whether third parties will find ways to invalidate or otherwise circumvent our patents; +• +whether others will apply for or obtain patents claiming aspects similar to those covered by our patents and patent applications; +• +whether we will need to initiate litigation or administrative proceedings to defend our patent rights, which may be costly whether we win or lose; or +• +whether the patent applications that we own or in-license will result in issued patents with claims that cover our future isotopes or uses thereof in the United States or in foreign countries. +We currently rely upon a combination of trade secret protection and confidentiality agreements to protect the intellectual property related to our isotope development techniques and future isotopes. Our success will depend in large part on our ability to obtain and maintain patent protection in the United States and other countries with respect to the ASP technology and the Quantum Enrichment technology. We may seek to protect our proprietary position by filing patent applications in the United States and abroad related to its current and future development programs and future isotopes to the extent permitted by applicable law. The patent prosecution process is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. +It is possible that we will fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection. The patent applications that we own or in-license may fail to result in issued patents with claims that cover our future isotopes in the United States or in foreign countries. There is no assurance that all of the potentially relevant prior art relating to our patents and patent applications has been found, which can invalidate a patent or prevent a patent from being issued from a pending patent application. Even if patents are successfully issued and even if such patents cover the ASP technology and the Quantum Enrichment technology, third parties may challenge their scope, validity, or enforceability, which may result in such patents being narrowed, invalidated, or held unenforceable. Any successful opposition to these patents or any other patents owned by or licensed to us could deprive us of rights necessary for the successful commercialization of any future isotopes using the ASP technology or the Quantum Enrichment technology. Further, if we encounter delays in regulatory approvals, the period of time during which we could market a future isotope could be reduced. +If the patent applications we hold or have in-licensed with respect to our development programs fail to issue, if their breadth or strength of protection is threatened, or if they fail to provide meaningful exclusivity for the ASP technology or the Quantum Enrichment technology, it could dissuade companies from collaborating with us, and threaten our ability to commercialize, isotopes produced using the ASP technology or the Quantum Enrichment technology. Any such outcome could have a negative effect on our business. +Even if we obtain patents covering the ASP technology or the Quantum Enrichment technology or our methods, we may still be barred from making, using and selling such technology or methods because of the patent rights of others. Others may have filed, and in the future may file, patent applications covering technology or methods that are similar or identical to ours, which could materially affect our ability to successfully develop our technology or to successfully commercialize any isotopes alone or with collaborators. +35 +Patent applications in the United States and elsewhere are generally published approximately 18 months after the earliest filing for which priority is claimed, with such earliest filing date being commonly referred to as the priority date. Therefore, patent applications covering our platform technologies and methods could have been filed by others without our knowledge. Additionally, pending claims in patent applications which have been published can, subject to certain limitations, be later amended in a manner that could cover our platform technologies. These patent applications may have priority over patent applications filed by us. +Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by government patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements. +Periodic maintenance fees, renewal fees, annuity fees and various other government fees on patents and/or applications will be due to be paid to the United States Patent and Trademark Office ("USPTO") and various government patent agencies outside of the United States over the lifetime of our owned and licensed patents and/or applications and any patent rights we may own or license in the future. We will rely on our outside counsel, patent annuity service providers, or our licensing partners to pay these fees due to non-U.S. patent agencies. The USPTO and various non-U.S. government patent agencies require compliance with several procedural, documentary, and other similar provisions during the patent application process. We will employ reputable law firms and other professionals to help us comply. In many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. There are situations, however, in which non-compliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, potential competitors might be able to enter the market and this circumstance could harm our business. +Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain and could have a negative impact on the success of our business. +Our commercial success depends, in part, upon our ability and the ability of our current or future collaborators to develop, manufacture, market and sell our future isotopes and use our proprietary technologies without infringing the proprietary rights and intellectual property of third parties. The technology industry is characterized by extensive and complex litigation regarding patents and other intellectual property rights. Our future isotopes and other proprietary technologies we may develop may infringe existing or future patents owned by third parties. We may in the future become party to, or be threatened with, adversarial proceedings or litigation regarding intellectual property rights with respect to our future isotopes and technology, including interference proceedings, post-grant review and inter partes review before the USPTO. Third parties may assert infringement claims against us based on existing patents or patents that may be granted in the future, regardless of their merit. There is a risk that third parties may choose to engage in litigation with us to enforce or to otherwise assert their patent rights against us. A court of competent jurisdiction could hold that these third-party patents are valid, enforceable and infringed, which could have a negative impact on our ability to commercialize our future isotopes. In order to successfully challenge the validity of any such U.S. patent in federal court, we would need to overcome a presumption of validity. As this burden is a high one requiring us to present clear and convincing evidence as to the invalidity of any such U.S. patent claim, there is no assurance that a court of competent jurisdiction would invalidate the claims of any such U.S. patent. If we are found to infringe a third party’s valid and enforceable intellectual property rights, we could be required to obtain a license from such third party to continue developing, manufacturing and marketing our future isotope(s) and technology. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors and other third parties access to the same technologies licensed to us, and it could require us to make substantial licensing and royalty payments. We could be forced, including by court order, to cease developing, manufacturing and commercializing the infringing technology or future isotope. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees, if we are found to have willfully infringed a patent or other intellectual property right. A finding of infringement could prevent us from manufacturing and commercializing our future isotopes or force us to cease some or all of our business operations, which could materially harm our business. Claims that we have misappropriated the confidential information or trade secrets of third parties could have a similar negative impact on our business, financial condition, results of operations and prospects. +Third parties asserting their patent or other intellectual property rights against us may seek and obtain injunctive or other equitable relief, which could effectively block our ability to further develop and commercialize our future isotopes or force us to cease some of our business operations. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of management and other employee resources from our business, cause development delays, and may impact our reputation. In the event of a successful claim of infringement against us, we may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, obtain one or more licenses from third parties, pay royalties, or redesign our infringing products, which may be impossible on a cost-effective basis or require substantial time and monetary expenditure. In that event, we would be unable to further develop and commercialize our future isotopes, which could harm our business significantly. Claims that we have misappropriated the confidential information or trade secrets of third parties could have a similar negative impact on our business. +36 +We may be subject to claims asserting that our employees, consultants or advisors have wrongfully used or disclosed alleged trade secrets of their current or former employers or claims asserting ownership of what we regard as our own intellectual property. +Certain of our employees, consultants or advisors are currently, or were previously, employed at universities or other technology companies. Although we try to ensure that our employees, consultants and advisors do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that these individuals or we have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such individual’s current or former employer. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management. +In addition, while it is our policy to require our employees and contractors who may be involved in the conception or development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who, in fact, conceives or develops intellectual property that we regard as our own. The assignment of intellectual property rights may not be self-executing or the assignment agreements may be breached, and we may be forced to bring claims against third parties, or defend claims that they may bring against us, to determine the ownership of what we regard as our intellectual property. +Reliance on third parties requires us to share our trade secrets, which increases the possibility that a competitor will discover them or that our trade secrets will be misappropriated or disclosed. +If we rely on third parties to manufacture or commercialize our future isotopes, or if we collaborate with additional third parties for the development of our future isotopes, we must, at times, share trade secrets with them. We may also conduct joint research and development programs that may require us to share trade secrets under the terms of our research and development partnerships or similar agreements. We seek to protect our proprietary technology in part by entering into confidentiality agreements and, if applicable, material transfer agreements, services agreements, consulting agreements or other similar agreements with our advisors, employees, third-party contractors and consultants prior to beginning research or disclosing proprietary information. These agreements typically limit the rights of the third parties to use or disclose our confidential information, including our trade secrets. Despite the contractual provisions employed when working with third parties, the need to share trade secrets and other confidential information increases the risk that such trade secrets become known by our competitors, are inadvertently incorporated into the technology of others, or are disclosed or used in violation of these agreements. Given that our proprietary position is based, in part, on our know-how and trade secrets, a competitor’s discovery of our trade secrets or other unauthorized use or disclosure could have an adverse effect on our business and results of operations. +In addition, these agreements typically restrict the ability of our advisors, employees, third-party contractors and consultants to publish data potentially relating to our trade secrets. Despite our efforts to protect our trade secrets, our competitors may discover our trade secrets, either through breach of our agreements with third parties, independent development or publication of information by any third-party collaborators. A competitor’s discovery of our trade secrets could harm our business. +Confidentiality agreements with employees and third parties may not prevent unauthorized disclosure of trade secrets and other proprietary information. +In addition to the protection afforded by patents, we seek to rely on trade secret protection and confidentiality agreements to protect proprietary know-how that is not patentable or that we elect not to patent, processes for which patents are difficult to enforce, and any other elements of our future isotopes, technology and product discovery and development processes that involve proprietary know-how, information, or technology that is not covered by patents. Any disclosure, either intentional or unintentional, by our employees, the employees of third parties with whom we share our facilities or third-party consultants and vendors that we engage, or misappropriation by third parties (such as through a cybersecurity breach) of our trade secrets or proprietary information could enable competitors to duplicate or surpass our technological achievements, thus eroding our competitive position in our market. Because we expect to rely on third parties in the development and manufacture of our future isotopes, we must, at times, share trade secrets with them. Our reliance on third parties requires us to share our trade secrets, which increases the possibility that a competitor will discover them or that our trade secrets will be misappropriated or disclosed. +Trade secrets and confidential information, however, may be difficult to protect. We seek to protect our trade secrets, know-how and confidential information, including our proprietary processes, in part, by entering into confidentiality agreements with our employees, consultants, outside scientific advisors, contractors, and collaborators. With our consultants, contractors, and outside scientific collaborators, these agreements typically include invention assignment obligations. We cannot guarantee that we have entered into such agreements with each party that may have or has had access to our trade secrets or proprietary technology and processes. Although we use reasonable efforts to protect our trade secrets, our employees, consultants, outside scientific advisors, +37 +contractors, and collaborators might intentionally or inadvertently disclose our trade secret information to competitors. In addition, competitors may otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. Despite these efforts, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor or other third-party, we would have no right to prevent them from using that technology or information to compete with us. Furthermore, the laws of some foreign countries do not protect proprietary rights to the same extent or in the same manner as the laws of the United States. As a result, we may encounter significant problems in protecting and defending our intellectual property both in the United States and abroad. If we are unable to prevent unauthorized material disclosure of our intellectual property to third parties, or misappropriation of our intellectual property by third parties, we may not be able to establish or maintain a competitive advantage in our market, which could materially adversely affect our business, operating results, and financial condition. +If we use hazardous and chemical materials in a manner that causes injury or violates applicable law, we may be liable for damages. +Our research and development activities and manufacturing process involve the controlled use of potentially hazardous substances, including chemical materials. We are subject to international and local laws and regulations in South Africa governing the use, manufacture, storage, handling and disposal of radioactive and hazardous materials. Although we believe that our procedures for using, handling, storing and disposing of these materials comply with legally prescribed standards, we cannot completely eliminate the risk of contamination or injury resulting from radioactive or hazardous materials. As a result of any such contamination or injury, we may incur liability or local, city, state or federal authorities may curtail the use of these materials and interrupt our business operations. In the event of an accident, we could be held liable for damages or penalized with fines, and the liability could exceed our resources. We do not have any insurance for liabilities arising from radioactive or hazardous materials. Compliance with applicable environmental laws and regulations is expensive, and current or future environmental regulations may impair our research, development, and production efforts, which could harm our business, prospects, financial condition, or results of operations. +Risks Related to Our Business Operations, Employee Matters and Managing Growth +We are highly dependent on the services of our senior management team, and if we are not able to retain these members of our management team and recruit and retain additional management, clinical and scientific personnel, our business will be harmed. +We are highly dependent on our senior management team. The employment agreements we have with these officers do not prevent such persons from terminating their employment with us at any time. The loss of the services of any of these persons could impede the achievement of our research, development and commercialization objectives. +In addition, we will need to attract, retain and motivate highly qualified additional management and scientific personnel. If we are not able to retain our management and to attract, on acceptable terms, additional qualified personnel necessary for the continued development of our business, we may not be able to sustain our operations or grow. +We may not be able to attract or retain qualified personnel in the future due to the intense competition for qualified personnel among biotechnology, pharmaceutical and other businesses. Many of the other pharmaceutical companies that we compete against for qualified personnel and consultants have greater financial and other resources, different risk profiles and a longer history in the industry than we do. They also may provide more diverse opportunities and better chances for career advancement. Some of these characteristics may be more appealing to high-quality candidates and consultants than what we have to offer. If we are unable to continue to attract, retain and motivate high-quality personnel and consultants to accomplish our business objectives, the rate and success at which we can develop future isotopes and our business will be limited, and we may experience constraints on our development objectives. +Our future performance will also depend, in part, on our ability to successfully integrate newly hired executive officers into our management team and our ability to develop an effective working relationship among senior management. Our failure to integrate these individuals and create effective working relationships among them and other members of management could result in inefficiencies in the development and commercialization of our future isotopes, harming future regulatory approvals, sales of our future isotopes and our results of operations. Additionally, we do not currently maintain “key person” life insurance on the lives of our executives or any of our employees. +38 +We will need to expand our organization, and we may experience difficulties in managing this growth, which could disrupt our operations. +As of December 31, 2024, we employed 136 people, 127 of whom are located in South Africa. We rely on service providers for certain general administrative, financial, accounting, tax, intellectual property and other legal services, and we will need to expand our organization to hire qualified personnel to perform these functions internally. Our management may need to divert significant attention and time to managing these growth activities. We may not be able to effectively manage the expansion of our operations, which may result in weaknesses in our infrastructure, operational inefficiencies, loss of business opportunities, loss of employees and reduced productivity among remaining employees. Our expected growth could require significant capital expenditures and may divert financial resources from other projects, such as the development of our future isotopes. If our management is unable to effectively manage our growth, our expenses may increase more than expected, our ability to generate and grow revenue could be reduced and we may not be able to implement our business strategy. Our future financial performance, our ability to commercialize future isotopes, develop a scalable infrastructure and compete effectively will depend, in part, on our ability to effectively manage any future growth. +Our employees, consultants and commercial partners may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements and insider trading. +We are exposed to the risk of fraud or other misconduct by our employees, consultants and commercial partners. Misconduct by these parties could include intentional failures to comply with FDA regulations or the regulations applicable in other jurisdictions, provide accurate information to the FDA and other regulatory authorities, report financial information or data accurately or disclose unauthorized activities to us. It is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from government investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. If any such actions are instituted against us and we are not successful in defending ourselves or asserting our rights, those actions could have a negative impact on our business, financial condition, results of operations and prospects, including the imposition of significant fines or other sanctions. +We and our contractors are highly dependent on the performance of sub-contractors and other third parties. +We and our contractors are highly dependent on the performance of sub-contractors and other third parties. If these contractors, sub-contractors and third parties are unable to deliver the results that we require, our operating results could be adversely affected and our business could be materially harmed. +Significant disruptions of our information technology systems or data security incidents could result in significant financial, legal, regulatory, business and reputational harm to us. +We are dependent on information technology systems and infrastructure, including mobile technologies, to operate our business. In the ordinary course of our business, we collect, store, process and transmit large amounts of sensitive information, including intellectual property, proprietary business information, personal information and other confidential information. It is critical that we do so in a secure manner to maintain the confidentiality, integrity and availability of such sensitive information. We have also outsourced elements of our operations (including elements of our information technology infrastructure) to third parties, and as a result, we manage a number of third-party vendors who may or could have access to our computer networks or our confidential information. In addition, many of those third parties, in turn, subcontract or outsource some of their responsibilities to third parties. While all information technology operations are inherently vulnerable to inadvertent or intentional security breaches, incidents, attacks and exposures, the accessibility and distributed nature of our information technology systems, and the sensitive information stored on those systems, make such systems potentially vulnerable to unintentional or malicious, internal and external attacks on our technology environment. In addition, some of our employees work remotely, which may make us more vulnerable to cyberattacks. Potential vulnerabilities can be exploited from inadvertent or intentional actions of our employees, third-party vendors, business partners, or by malicious third parties. Attacks of this nature are increasing in their frequency, levels of persistence, sophistication and intensity, and are being conducted by sophisticated and organized groups and individuals with a wide range of motives (including, but not limited to, industrial espionage) and expertise, including organized criminal groups, “hacktivists,” nation states and others. In addition to the extraction of sensitive information, such attacks could include the deployment of harmful malware, ransomware, denial-of-service attacks, social engineering and other means to affect service reliability and threaten the confidentiality, integrity and availability of information. In addition, the prevalent use of mobile devices increases the risk of data security incidents. +Significant disruptions of our, our third-party vendors’ and/or our business partners’ information technology systems or other similar data security incidents could adversely affect our business operations and/or result in the loss, misappropriation, and/or unauthorized access, use or disclosure of, or the prevention of access to, sensitive information, which could result in financial, legal, +39 +regulatory, business and reputational harm to us. In addition, information technology system disruptions, whether from attacks on our technology environment or from computer viruses, natural disasters, terrorism, war and telecommunication and electrical failures, could result in a material disruption of our development programs and our business operations. Additionally, theft of our intellectual property or proprietary business information could require substantial expenditures to remedy. If we or our third-party collaborators, consultants, contractors, suppliers, or service providers were to suffer an attack or breach, for example, that resulted in the unauthorized access to or use or disclosure of personal or health information, we may have to notify consumers, partners, collaborators, government authorities, and the media, and may be subject to investigations, civil penalties, administrative and enforcement actions, and litigation, any of which could harm our business and reputation. +There is no way of knowing with certainty whether we have experienced any data security incidents that have not been discovered. While we have no reason to believe this to be the case, attackers have become very sophisticated in the way they conceal access to systems, and many companies that have been attacked are not aware that they have been attacked. Any event that leads to unauthorized access, use or disclosure of personal information, including but not limited to personal information regarding our patients or employees, could disrupt our business, harm our reputation, compel us to comply with applicable federal and/or state breach notification laws and foreign law equivalents, subject us to time-consuming, distracting and expensive litigation, regulatory investigation and oversight, mandatory corrective action, require us to verify the correctness of database contents, or otherwise subject us to liability under laws, regulations and contractual obligations, including those that protect the privacy and security of personal information. This could result in increased costs to us, and result in significant legal and financial exposure and/or reputational harm. In addition, any failure or perceived failure by us or our vendors or business partners to comply with our privacy, confidentiality or data security-related legal or other obligations to third parties, or any further security incidents or other inappropriate access events that result in the unauthorized access, release or transfer of sensitive information, which could include personally identifiable information, may result in governmental investigations, enforcement actions, regulatory fines, litigation, or public statements against us by advocacy groups or others, and could cause third parties, including clinical sites, regulators or current and potential partners, to lose trust in us or we could be subject to claims by third parties that we have breached our privacy- or confidentiality-related obligations, which could materially and adversely affect our business and prospects. Moreover, data security incidents and other inappropriate access can be difficult to detect, and any delay in identifying them may lead to increased harm of the type described above. While we have implemented security measures intended to protect our information technology systems and infrastructure, there can be no assurance that such measures will successfully prevent service interruptions or security incidents. +Our international operations subject us to risks of doing business in foreign countries, which could adversely affect our business, financial condition and results of operations. +Our primary operations are located outside the U.S. (primarily the construction of isotope enrichment plants in South Africa), and we plan to sell our isotopes to customers outside the U.S. Accordingly, our business is subject to risks related to the differing legal, political, social and regulatory requirements and economic conditions of non-U.S. jurisdictions. Risks inherent in international operations include the following: +• +fluctuations in foreign currency exchange rates may affect product demand and may adversely affect the profitability in U.S. dollars of products and services we provide in international markets where payment for our products and services is made in the local currency; +• +transportation and other shipping costs may increase, or transportation may be inhibited; +• +increased cost or decreased availability of raw materials; +• +changes in foreign laws and tax rates or U.S. laws and tax rates with respect to foreign income may unexpectedly increase the rate at which our income is taxed, impose new and additional taxes on remittances, repatriation or other payments by subsidiaries, or cause the loss of previously recorded tax benefits; +• +foreign countries in which we do business may adopt other restrictions on foreign trade or investment, including currency exchange controls; +• +trade sanctions by or against these countries could result in our losing access to customers and suppliers in those countries; +• +unexpected adverse changes in foreign laws or regulatory requirements may occur; +• +our agreements with counterparties in foreign countries may be difficult for us to enforce and related receivables may be difficult for us to collect; +• +compliance with the variety of foreign laws and regulations may be unduly burdensome; +40 +• +compliance with anti-bribery and anti-corruption laws (such as the Foreign Corrupt Practices Act) as well as anti-money- laundering laws may be costly; +• +unexpected adverse changes in export duties, quotas and tariffs and difficulties in obtaining export licenses may occur; +• +general economic conditions in the countries in which we operate could have an adverse effect on our earnings from operations in those countries; +• +our foreign operations may experience staffing difficulties and labor disputes; +• +termination or substantial modification of international trade agreements may adversely affect our access to raw materials and to markets for our products outside the U.S.; +• +foreign governments may nationalize or expropriate private enterprises; +• +increased sovereign risk (such as default by or deterioration in the economies and creditworthiness of local governments) may occur; and +• +political or economic repercussions from terrorist activities, including the possibility of hyperinflationary conditions and political instability, may occur in certain countries in which we do business. +Unanticipated events, such as geopolitical changes, could result in a write-down of our investment in the affected joint venture or a delay or cause cancellation of those capital projects, which could negatively impact our future growth and profitability. Our success as a global business will depend, in part, upon our ability to succeed in differing legal, regulatory, economic, social and political conditions by developing, implementing and maintaining policies and strategies that are effective in each location where we and our joint ventures do business. +Furthermore, we will be subject to rules and regulations related to anti-bribery and anti-trust prohibitions of the U.S. and other countries, as well as export controls and economic embargoes, violations of which may carry substantial penalties. For example, export control and economic embargo regulations limit the ability of our subsidiaries to market, sell, distribute or otherwise transfer their products or technology to prohibited countries or persons. Failure to comply with these regulations could subject our subsidiaries to fines, enforcement actions and/or have an adverse effect on our reputation and the value of our Common Stock. +Our tangible assets may be subject to defects in title. +We have investigated our rights to the assets we have purchased and developed, and, to the best of our knowledge, those rights are in good standing. However, no assurance can be given that such rights will not be revoked, or significantly altered, to our detriment. There can also be no assurance that our rights will not be challenged or impugned by third parties, including by governments and non-governmental organizations. +We are subject to foreign currency risks. +Our operations are subject to foreign currency fluctuations. Our current operating expenses are primarily transacted in U.S. dollars, while our current revenues and some of our cash balances and expenses are measured in other currencies. As our business expands internationally, the U.S. dollar may or may not be our primary current for operating expenses. Any strengthening or weakening of the U.S. dollar in relation to the currencies of other countries or vice versa can have a material impact on our cash flows and profitability and affect the value of our assets and shareholders’ equity. +Risks Related to Ownership of Our Common Stock +Short sellers of our stock may seek to drive down the market price of our Common Stock, harm our brand and reputation, and negatively impact our business, operating results and financial condition. +Short sellers may take actions that could drive down the market price of our common stock, which could also result in related regulatory and governmental scrutiny, among other effects. +Short selling is the practice of selling securities that the seller does not own, but rather has borrowed or intends to borrow from a third party with the intention of buying identical securities at a later date to return to the lender. A short seller hopes to profit from a decline in the price of the securities between the sale of the borrowed securities and the purchase of the replacement shares, as the short seller hopes to pay less in that purchase than it received in the sale. It is therefore in the short seller’s interest for the price of the stock to decline. At any time, short sellers may publish, or arrange for the publication of, their opinions or characterizations of the Company that may cause negative market reactions and declines in the price of the Company’s common +41 +stock. Issuers, like us, whose common stock has historically had limited trading history or volumes and/or have been susceptible to relatively high volatility levels can be vulnerable to such short seller publications. +In November 2024, a short seller report was published about the Company, followed by a decrease in the price of our publicly traded securities. The short seller report and ensuing stock drop was followed by a purported stockholder filing a putative securities class action in the United States District Court for the Southern District of New York. For additional information, see Item 3 of Part I, “Legal Proceedings,” of this Annual Report on Form 10-K. +We may be the subject of future short seller publications which may result in the loss of customers, lawsuits and government investigations, the uncertainty and expense of which could harm our brand and reputation and negatively impact our business, operating results and financial condition. There are no assurances against future short seller publications, or claims related to our share price, which may result in the aforementioned adverse consequences. +We do not know whether an active, liquid and orderly trading market will develop for our Common Stock or what the market price of our Common Stock will be and as a result it may be difficult for you to sell your shares of our Common Stock. +Prior to our IPO in November of 2022, there was no public market for shares of our Common Stock. Although our Common Stock is listed on the Nasdaq Capital Market (Nasdaq), only a limited trading market for our shares has developed, and an active market may never develop or if developed be sustained in the future. You may not be able to sell your shares quickly or at the market price if trading in shares of our Common Stock is not active. Further, an inactive market may also impair our ability to raise capital by selling shares of our Common Stock and may impair our ability to enter into strategic partnerships or acquire companies or products by using our shares of Common Stock as consideration. +The price of our stock may be volatile, and you could lose all or part of your investment. +The trading price of our Common Stock has fluctuated significantly since our initial public offering (“IPO”), and may continue to be volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control, including limited trading volume. In addition to the factors discussed in this “Risk Factors” section and elsewhere in this Annual Report on Form 10-K, these factors include: +• +adverse results or delays in our development activities; +• +adverse regulatory decisions, including failure to receive regulatory approval for our future isotopes; +• +changes in laws or regulations applicable to our future isotopes, including but not limited to requirements for approvals; +• +any changes to our relationship with any manufacturers, suppliers, licensors, future collaborators or other strategic partners; +• +our inability to obtain adequate product supply for any future isotope or inability to do so at acceptable prices; +• +our inability to establish collaborations if needed; +• +our failure to commercialize our future isotopes; +• +additions or departures of key scientific or management personnel; +• +unanticipated serious safety concerns related to the use of our future isotopes; +• +introduction of new products or services offered by us or our competitors; +• +announcements of significant acquisitions, strategic partnerships, joint ventures, or capital commitments by us or our competitors; +• +our ability to effectively manage our growth; +• +actual or anticipated variations in quarterly operating results; +• +our cash position; +• +our failure to meet the estimates and projections of the investment community or that we may otherwise provide to the public; +• +publication of research reports about us or our industry or positive or negative recommendations or withdrawal of research coverage by securities analysts; +• +changes in the market valuations of similar companies; +• +overall performance of the equity markets; +42 +• +issuances of debt or equity securities; +• +sales of our Common Stock by us or our stockholders in the future or the perception that such sales may occur; +• +trading volume of our Common Stock; +• +changes in accounting practices; +• +ineffectiveness of our internal controls; +• +disputes or other developments relating to proprietary rights, including patents, litigation matters, and our ability to obtain patent protection for our technologies; +• +significant lawsuits, including patent or stockholder litigation; +• +general political and economic conditions, including military conflict or the effects of pandemics; and +• +other events or factors, many of which are beyond our control. +Stock markets in general and technology companies in particular have experienced volatility that has often been unrelated to the operating performance of a particular company. These broad market fluctuations could adversely affect the trading price of our common stock. These fluctuations may also cause short sellers to periodically enter the market on the belief that we may experience worse results in the future. We cannot predict the actions of market participants and, therefore, can offer no assurances that the market for our common stock will be stable or appreciate over time. +We do not intend to pay dividends on our Common Stock, so any returns will be limited to the value of our stock. +We have never declared or paid any cash dividend on our Common Stock. We currently anticipate that we will retain future earnings for the development, operation, and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. Any return to stockholders would therefore be limited to the appreciation, if any, of their stock. +Our principal stockholders and management own a significant percentage of our stock and will be able to exert significant control over matters subject to stockholder approval. +Our executive officers, current directors, greater than 5% holders, and their affiliates beneficially own, in the aggregate, approximately 20.5% of our Common Stock as of December 31, 2024. Therefore, these stockholders will have the ability to influence us through this ownership position. These stockholders may be able to determine all matters requiring stockholder approval. For example, these stockholders may be able to control elections of directors, amendments of our organizational documents, or approval of any merger, sale of assets, or other major corporate transaction. This may prevent or discourage unsolicited acquisition proposals or offers for our Common Stock that you may feel are in your best interest as one of our stockholders. +Sales of a substantial number of shares of our Common Stock by our existing stockholders in the public market, or the perception that such sales could occur, could cause our stock price to fall. +As of December 31, 2024, we had a total of 72,068,059 shares of Common Stock outstanding. If our existing stockholders sell, or indicate an intention to sell, substantial amounts of our Common Stock in the public market, the trading price of our Common Stock could decline. +Of our outstanding Common Stock, the shares held by directors, executive officers, and other affiliates are subject to volume limitations under Rule 144 under the Securities Act. In addition, 4,951,535 shares of Common Stock that are either subject to outstanding options or reserved for future issuance under our employee benefit plans will become eligible for sale in the public market to the extent permitted by the provisions of various vesting schedules, and Rule 144 and Rule 701 under the Securities Act. If these additional shares of Common Stock are sold, or if it is perceived that they will be sold in the public market, the trading price of our Common Stock could decline. Any sales of securities by our stockholders could have a material adverse effect on the trading price of our Common Stock. +Future sales and issuances of our Common Stock or rights to purchase Common Stock, including pursuant to our equity incentive plans, could result in additional dilution of the percentage ownership of our stockholders and could cause our stock price to fall. +We expect that we will need significant additional capital in the future to continue our planned operations, including development activities, commercialization efforts if we are able to obtain marketing approval of future isotopes, research and +43 +development activities, and costs associated with operating a public company. To raise capital, we may sell Common Stock, convertible securities or other equity securities in one or more transactions at prices and in a manner that we determine from time to time. If we sell Common Stock, convertible securities or other equity securities, investors may be materially diluted by subsequent sales. Such sales may also result in material dilution to our existing stockholders, and new investors could gain rights, preferences and privileges senior to the holders of our Common Stock. +Pursuant to our 2022 Plan, our management is authorized to grant stock options to our employees, directors and consultants. Additionally, the number of shares of our Common Stock reserved for issuance under our 2022 Plan will automatically increase on January 1 of each year, beginning on January 1, 2023 and continuing through and including January 1, 2032, by 5% of the total number of shares of our capital stock outstanding on December 31 of the preceding calendar year (determined on an as-converted to voting Common Stock basis, without regard to any limitations on the conversion of the non-voting Common Stock), or a lesser number of shares determined by our board of directors. Such issuances will result in dilution to our stockholders. +We have broad discretion in the use of our existing cash and cash equivalents and may not use them effectively. +Our management has broad discretion in the application of our existing cash and cash equivalents. Because of the number and variability of factors that will determine our use of our existing cash and cash equivalents, their ultimate use may vary substantially from their currently intended use. Our management might not apply our existing cash and cash equivalents in ways that ultimately increase the value of our Common Stock. The failure by our management to apply these funds effectively could harm our business. We intend to invest our existing cash and cash equivalents that are not used as described above in short- and medium-term, investment-grade, interest-bearing instruments, certificates of deposit or direct or guaranteed obligations of the U.S. government. These investments may not yield a favorable return to our stockholders. If we do not invest or apply our existing cash and cash equivalents in ways that enhance stockholder value, we may fail to achieve expected financial results, which could cause our stock price to decline. +We are an emerging growth company and a smaller reporting company, and the reduced reporting requirements applicable to emerging growth companies and smaller reporting companies may make our Common Stock less attractive to investors. +We are an emerging growth company, as defined in the JOBS Act. For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding nonbinding advisory votes on executive compensation and stockholder approval of any golden parachute payments not previously approved. We could be an emerging growth company until December 31, 2027, although circumstances could cause us to lose that status earlier, including if we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act or if we have total annual gross revenue of $1.235 billion or more during any fiscal year before that time, in which cases we would no longer be an emerging growth company as of the following December 31 or, if we issue more than $1.0 billion in non-convertible debt during any three year period before that time, we would cease to be an emerging growth company immediately. Even after we no longer qualify as an emerging growth company, we may still qualify as a “smaller reporting company” which would allow us to take advantage of many of the same exemptions from disclosure requirements including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements. Investors may find our Common Stock less attractive because we may rely on these exemptions. If some investors find our Common Stock less attractive as a result, there may be a less active trading market for our Common Stock and our stock price may be more volatile. +In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an emerging growth company to delay the adoption of accounting standards that have different effective dates for public and private companies until those standards would otherwise apply to private companies. We have elected to avail ourselves of this exemption from new or revised accounting standards, and therefore we will not be subject to the same requirements to adopt new or revised accounting standards as other public companies that are not emerging growth companies. +We are also a “smaller reporting company” as defined in the Exchange Act. We may continue to be a smaller reporting company even after we are no longer an emerging growth company. We may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as our voting and non-voting common stock held by non-affiliates is less than $250.0 million measured on the last business day of our second fiscal quarter, or our annual revenue is less than $100.0 million during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is less than $700.0 million measured on the last business day of our second fiscal quarter. +44 +Delaware law and provisions in our certificate of incorporation and bylaws, as amended, could make a merger, tender offer or proxy contest difficult, thereby depressing the trading price of our common stock. +Provisions of certificate of incorporation and bylaws as amended may delay or discourage transactions involving an actual or potential change in our control or change in our management, including transactions in which stockholders might otherwise receive a premium for their shares or transactions that our stockholders might otherwise deem to be in their best interests. Therefore, these provisions could adversely affect the price of our common stock. Among other things, our amended and restated certificate of incorporation and amended and restated bylaws: +• +permit our board of directors to issue up to 10,000,000 shares of preferred stock, with any rights, preferences and privileges as they may designate (including the right to approve an acquisition or other change in our control); +• +provide that the authorized number of directors may be changed only by resolution of the board of directors; +• +provide that our board of directors or any individual director may only be removed with cause and the affirmative vote of the holders of at least 66-2/3% of the voting power of all of our then-outstanding shares of the capital stock entitled to vote generally in the election of directors, voting together as a single class; +• +provide that all vacancies, including newly created directorships, may, except as otherwise required by law, be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum; +• +divide our board of directors into three classes; +• +require that any action to be taken by our stockholders must be effected at a duly called annual or special meeting of stockholders and not be taken by written consent; +• +provide that stockholders seeking to present proposals before a meeting of stockholders or to nominate candidates for election as directors at a meeting of stockholders must provide notice in writing in a timely manner and also specify requirements as to the form and content of a stockholder’s notice; +• +do not provide for cumulative voting rights (therefore allowing the holders of a majority of the shares of common stock entitled to vote in any election of directors to elect all of the directors standing for election, if they should so choose); +• +provide that special meetings of our stockholders may be called only by the chair of our board of directors, our Chief Executive Officer or by the board of directors pursuant to a resolution adopted by a majority of the total number of authorized directors; and +• +provide that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for the following types of actions or proceedings under state, statutory and common law: (i) any derivative action or proceeding brought on our behalf; (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders; (iii) any action asserting a claim pursuant to any provision of the Delaware General Corporation Law, our certificate of incorporation or our bylaws; (iv) any action as to which the Delaware General Corporation Law confers jurisdiction to the Court of Chancery of the State of Delaware; and (v) any action governed by the internal affairs doctrine, in all cases subject to the court’s having personal jurisdiction over the indispensable parties named as defendants; provided these provisions of our amended and restated certificate of incorporation and amended and restated bylaws will not apply to suits brought to enforce a duty or liability created by the Exchange Act, or any other claim for which the federal courts have exclusive jurisdiction; and provided that, unless we consent in writing to the selection of an alternative forum, to the fullest extent permitted by law, the federal district courts of the United States of America shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act of 1933, as amended (Securities Act), including all causes of action asserted against any defendant to such complaint. For the avoidance of doubt, this provision is intended to benefit and may be enforced by us, our officers and directors, the underwriters to any offering giving rise to such complaint, and any other professional or entity whose profession gives authority to a statement made by that person or entity and who has prepared or certified any part of the documents underlying the offering. +These provisions, with the exception of the ability of our board of directors to issue shares of preferred stock and designate any rights, preferences and privileges thereto, would require approval by the holders of at least 66-2/3% of our then-outstanding common stock. +In addition, as a Delaware corporation, we are subject to Section 203 of the Delaware General Corporation Law. These provisions may prohibit large stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or combining with us for a certain period of time. A Delaware corporation may opt out of this provision by express provision in its original certificate of incorporation or by amendment to its certificate of incorporation or bylaws approved by its stockholders. However, we have not opted out of this provision. +45 +These and other provisions in our certificate of incorporation and bylaws, as amended, and Delaware law could make it more difficult for stockholders or potential acquirors to obtain control of our board of directors or initiate actions that are opposed by our then-current board of directors, including delay or impede a merger, tender offer or proxy contest involving our company. The existence of these provisions could negatively affect the price of our common stock and limit opportunities for you to realize value in a corporate transaction. +Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware will be the exclusive forum for certain disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees. +Our amended and restated certificate of incorporation provides that, subject to the court’s having personal jurisdiction over the indispensable parties named as defendants, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for the following types of actions or proceedings: +• +any derivative action or proceeding brought on our behalf; +• +any action asserting a claim of breach of fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders; +• +any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, our certificate of incorporation or bylaws; +• +any action as to which the Delaware General Corporation Law confers jurisdiction to the Court of Chancery of the State of Delaware; and +• +any action asserting a claim that is governed by the internal affairs doctrine. +This provision would not apply to suits brought to enforce a duty or liability created by the Exchange Act. Furthermore, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all such Securities Act actions. Accordingly, both state and federal courts have jurisdiction to entertain such claims. To prevent having to litigate claims in multiple jurisdictions and the threat of inconsistent or contrary rulings by different courts, among other considerations, our amended and restated certificate of incorporation further provides that the federal district courts of the United States of America will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act. While the Delaware courts have determined that such choice of forum provisions are facially valid, a stockholder may nevertheless seek to bring a claim in a venue other than those designated in the exclusive forum provisions. In such instance, we would expect to vigorously assert the validity and enforceability of the exclusive forum provisions of our amended and restated certificate of incorporation. This may require significant additional costs associated with resolving such action in other jurisdictions and there can be no assurance that the provisions will be enforced by a court in those other jurisdictions. +These exclusive forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, or other employees, which may discourage lawsuits against us and our directors, officers and other employees. If a court were to find either exclusive forum provision in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur further significant additional costs associated with resolving the dispute in other jurisdictions, all of which could seriously harm our business. +We are currently listed on The Nasdaq Capital Market. If we are unable to maintain listing of our securities on Nasdaq or any stock exchange, our stock price could be adversely affected and the liquidity of our stock and our ability to obtain financing could be impaired and it may be more difficult for our shareholders to sell their securities. +Although our Common Stock is currently listed on The Nasdaq Capital Market, we may not be able to continue to meet the exchange’s minimum listing requirements or those of any other national exchange. If we are unable to maintain listing on Nasdaq or if a liquid market for our Common Stock does not develop or is sustained, our Common Stock may remain thinly traded. +The Listing Rules of Nasdaq require listing issuers to comply with certain standards in order to remain listed on its exchange. If, for any reason, we should fail to maintain compliance with these listing standards and Nasdaq should delist our securities from trading on its exchange and we are unable to obtain listing on another national securities exchange, a reduction in some or all of the following may occur, each of which could have a material adverse effect on our shareholders: +• +the liquidity of our Common Stock; +• +the market price of our Common Stock; +• +our ability to obtain financing for the continuation of our operations; +46 +• +the number of investors that will consider investing in our Common Stock; +• +the number of market makers in our Common Stock; +• +the availability of information concerning the trading prices and volume of our Common Stock; and +• +the number of broker-dealers willing to execute trades in shares of our Common Stock. +General Risk Factors +We will incur significant increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives. +We became a public company in November of 2022, and as a public company we will incur significant legal, accounting, and other expenses that we did not incur as a private company. We are subject to the reporting requirements of the Exchange Act, which require, among other things, that we file with the SEC annual, quarterly, and current reports with respect to our business and financial condition. In addition, the Sarbanes-Oxley Act, as well as rules subsequently adopted by the SEC and Nasdaq to implement provisions of the Sarbanes-Oxley Act, impose significant requirements on public companies, including requiring establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices. Further, in July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) was enacted. There are significant corporate governance and executive compensation-related provisions in the Dodd-Frank Act that require the SEC to adopt additional rules and regulations in these areas such as “say on pay” and proxy access. Emerging growth companies and smaller reporting companies are exempted from certain of these requirements, but we may be required to implement these requirements sooner than budgeted or planned and thereby incur unexpected expenses. Stockholder activism, the current political environment and the current high level of government intervention and regulatory reform may lead to substantial new regulations and disclosure obligations, which may lead to additional compliance costs and impact the manner in which we operate our business in ways we cannot currently anticipate. +We expect the rules and regulations applicable to public companies to substantially increase our legal and financial compliance costs and to make some activities more time-consuming and costly. If these requirements divert the attention of our management and personnel from other business concerns, they could have a material adverse effect on our business, financial condition, and results of operations. The increased costs will decrease our net income or increase our net loss, and may require us to reduce costs in other areas of our business or increase the prices of our products or services. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to incur substantial costs to maintain the same or similar coverage. We cannot predict or estimate the amount or timing of additional costs we may incur to respond to these requirements. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers. +We have identified a material weakness in our internal control over financial reporting. If our remediation of this material weakness is not effective, or if we experience material weaknesses in the future or otherwise fail to implement and maintain an effective system of internal controls in the future, we may not be able to accurately report our financial condition or results of operations which may adversely affect investor confidence in us, and as a result, the value of our Common Stock. +Our Common Stock was listed on the Nasdaq Stock Exchange on November 10, 2022. Prior to listing, we were a privately-held company, we were not required to evaluate our internal control over financial reporting in a manner that meets the standards of publicly traded companies required by Section 404(a) of the Sarbanes-Oxley Act, or Section 404. As a public company, we are subject to significant requirements for enhanced financial reporting and internal controls. The process of designing and implementing effective internal controls is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company. In addition, we are required, pursuant to Section 404, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting in the annual report. This assessment includes disclosure of any material weaknesses identified by our management in our internal control over financial reporting. A material weakness is a deficiency or combination of deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual and interim financial statements will not be detected or prevented on a timely basis. +The rules governing the standards that must be met for our management to assess our internal control over financial reporting are complex and require significant documentation, testing, and possible remediation. Testing and maintaining internal controls may divert management’s attention from other matters that are important to our business. Once we are no longer an “emerging growth company,” or a “smaller reporting company”, our auditors will be required to issue an attestation report on the effectiveness of our internal controls on an annual basis. +47 +In the course of preparing the financial statements that are included in this Annual Report on Form 10-K, management has determined that a material weakness exists within the internal controls over financial reporting. The material weakness identified relates to the lack of formal control documentation and consistent execution of control procedures, and the lack of a sufficient complement of personnel within the finance and accounting function with an appropriate degree of knowledge, experience and training. We also noted a material weakness related to logical security and privileged access in the area of information technology. We concluded that the material weaknesses in our internal control over financial reporting information technology occurred because, prior to our IPO, we were a private company and did not have the necessary business processes, systems, personnel, and related internal controls necessary to satisfy the accounting and financial reporting requirements of a public company. +In order to remediate the material weaknesses, we expect to enhance our formal documentation over internal control procedures and management controls infrastructure to allow for more consistent execution of control procedures and hire additional accounting, finance and information technology resources or consultants with public company experience. +We may not be able to fully remediate the identified material weakness until the steps described above have been completed and our internal controls have been operating effectively for a sufficient period of time. We believe we have already and will continue to make progress in our remediation plan but cannot assure you that we will be able to fully remediate the material weakness by such time. If the steps we take do not correct the material weakness in a timely manner, we will be unable to conclude that we maintain effective internal control over financial reporting. Accordingly, there could continue to be a reasonable possibility that a material misstatement of our financial statements would not be prevented or detected on a timely basis. We also may incur significant costs to execute various aspects of our remediation plan but cannot provide a reasonable estimate of such costs at this time. +In accordance with the provisions of the JOBS Act, we and our independent registered public accounting firm were not required to, and did not, perform an evaluation of our internal control over financial reporting as of December 31, 2024 nor any period subsequent in accordance with the provisions of the Sarbanes-Oxley Act. Accordingly, we cannot assure you that we have identified all material weaknesses. Material weaknesses may still exist when we report on the effectiveness of our internal control over financial reporting as required under Section 404 of the Sarbanes-Oxley Act. +In the future, it is possible that additional material weaknesses or significant deficiencies may be identified that we may be unable to remedy before the requisite deadline for these reports. Our ability to comply with the annual internal control reporting requirements will depend on the effectiveness of our financial reporting and data systems and controls across our company. Any weaknesses or deficiencies or any failure to implement new or improved controls, or difficulties encountered in the implementation or operation of these controls, could harm our operating results and cause us to fail to meet our financial reporting obligations, or result in material misstatements in our consolidated financial statements, which could adversely affect our business and reduce our stock price. +If we are unable to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404, our independent registered public accounting firm may not issue an unqualified opinion. If we are unable to conclude that we have effective internal control over financial reporting, investors could lose confidence in our reported financial information, which could have a material adverse effect on the trading price of our Common Stock. Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets. +We could be subject to securities class action litigation. +In the past, securities class action litigation has often been brought against a company following a decline in the market price of its securities. This risk is especially relevant for us because technology companies have experienced significant stock price volatility in recent years. If we face such litigation, it could result in substantial costs and a diversion of management’s attention and resources, which could harm our business. +Our failure to meet Nasdaq’s continued listing requirements could result in a delisting of our Common Stock. +If we fail to satisfy the continued listing requirements of Nasdaq, such as the corporate governance requirements or the minimum closing bid price requirement, Nasdaq may take steps to delist our Common Stock. Such a delisting would likely have a negative effect on the price of our Common Stock and would impair your ability to sell or purchase our Common Stock when you wish to do so. In the event of a delisting, we can provide no assurance that any action taken by us to restore compliance with listing requirements would allow our Common Stock to become listed again, stabilize the market price or improve the liquidity of our Common Stock, prevent our Common Stock from dropping below the Nasdaq minimum bid price requirement or prevent future non-compliance with the listing requirements of Nasdaq. +48 +If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline. +The trading market for our Common Stock depends in part on the research and reports that securities or industry analysts publish about us or our business. Securities and industry analysts do not currently, and may never, publish research on our company. If no securities or industry analysts commence coverage of our company, the trading price for our stock would likely be negatively impacted. In the event securities or industry analysts initiate coverage, if one or more of the analysts who covers us downgrades our stock or publishes inaccurate or unfavorable research about our business, our stock price may decline. If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our stock could decrease, which might cause our stock price and trading volume to decline. +49 +Item 1B. Unresolved Staff Comments +None. +Item 1C. Cybersecurity +Cybersecurity Risk Management and Strategy +Due to the size of our company, we have not yet developed robust policies and processes for assessing, identifying, and managing material risk from cybersecurity threats. We have implemented access controls with respect to our systems, which we monitor regularly and audit annually. Our most sensitive data is stored in offline air-gapped devices. We currently rely heavily on products and services provided by third-party suppliers to operate certain critical business systems, including without limitation, cloud-based infrastructure, encryption and authentication technology, email, and other functions. We rely on third party providers and outsourced IT services to monitor and address cybersecurity related risks, including installing software for threat protection and malware. Such third party providers are tasked with notifying management of any material risks or cybersecurity concerns that they identify, which management then assesses and may bring to our board of directors to discuss if deemed necessary or appropriate. Based on the results of our risk assessments, if deemed necessary or appropriate, we take steps to re-design, implement, and maintain reasonable safeguards to minimize identified risks; reasonably address any identified gaps in existing safeguards; and regularly monitor the effectiveness of our safeguards. +We intend to work with outside counsel and third party service providers in the near term to further develop our expertise, processes and procedures with respect to cybersecurity protection and our response plan. +To date, we have not (to our knowledge) encountered cybersecurity challenges that have materially impaired our operations or financial standing. For additional information regarding risks from cybersecurity threats, please refer to Item 1A, “Risk Factors,” in this Report. +Governance +Our management team is primarily responsible for assessing and managing our strategic risk exposures, including material risks from cybersecurity threats, with assistance from third-party service providers. Management oversees our cybersecurity process on a day-to-day basis, including those described under the heading “Cybersecurity Risk Management and Strategy” above. +Our audit committee is tasked with general oversight of our risk management process, including risks from cybersecurity threats. Members of management provide periodic briefings to the audit committee of our board of directors regarding our cybersecurity risks and activities, including any recent cybersecurity incidents and related responses, cybersecurity systems testing, activities of third parties, and the like. In furtherance thereof, the committee is responsible for monitoring and assessing strategic risk exposure. Our audit committee provides regular updates to the board of directors on such reports. +Item 2. Properties +As of December 31, 2024, we lease five facilities in Pretoria, South Africa for office, production and laboratory space. +One lease commenced in October 2021 with the initial term set to expire in December 2030. This space is used for office, production and laboratory activities. +The second lease commenced in April 2023 with the initial term expired in March 2024. Effective February 1, 2024, this lease was amended such that the new term begins on February 1, 2024 and expires in February 2026. The Company plans to remain in this space under the monthly renewal terms of the agreement. This space is used for production and laboratory activities. +The third lease commenced in November 2023 with the initial term set to expire in October 2026. This space is used for laboratory activities. +The fourth lease commenced with our acquisition of PET Labs Pharmaceuticals in October 2023 and has an initial term set to expire in March 2026 with automatic monthly extensions thereafter. This space is used for office and production activities. +The fifth lease commenced with our acquisition of PET Labs Pharmaceuticals in October 2023 and had an initial term which expired in December 2023 with automatic monthly extensions thereafter. The Company plans to remain in this space under the monthly renewal terms of the agreement. This space is used for production activities. +50 +We believe that our current facilities are sufficient to meet our current and near-term needs and that, should it be needed, suitable additional space will be available. +Item 3. Legal Proceedings +Except as described herein, we are currently not party to, and our property is not currently the subject of, any material pending legal matters or claims. +On December 4, 2024, a purported stockholder of the Company filed a putative securities class action on behalf of purchasers of the Company’s securities between October 30, 2024 through November 26, 2024 against ASP Isotopes Inc. and certain of its executive officers in the United States District Court for the Southern District of New York ( Corredor v. ASP Isotopes Inc., et al. , Case No. 1:24-cv-09253 (S.D.N.Y)) (the “Securities Class Action”). The Securities Class Action alleges that the Company, its chief executive officer and chief financial officer (“Defendants”) made materially misleading or false statements or omissions regarding the Company’s business and asserts purported claims under §§ 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 promulgated thereunder. The complaint seeks unspecified compensatory damages, attorney’s fees and costs. Defendants intend to vigorously defend against the Securities Class Action; however, we cannot be certain of the outcome and, if decided adversely to us, our business and financial condition may be adversely affected. +In addition to the matters described above, from time to time, we may become subject to arbitration, litigation or claims arising in the ordinary course of business. The results of any current or future claims or proceedings cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on us because of defense and litigation costs, diversion of management resources, reputational harm and other factors. +Item 4. Mine Safety Disclosures +Not applicable. +PART II +Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +Market Information and Holders of Record +Our common stock is traded on the Nasdaq Global Select Market under the symbol “ASPI.” Public trading of our common stock began on November 10, 2022. Prior to that, there was no public market for our common stock. +As of March 21, 2025, we had 30 registered shareholders, not including those shares held in street or nominee name. +Dividends +We have never declared or paid a cash dividend on our capital stock. We currently intend to retain any future earnings and do not expect to pay any dividends in the foreseeable future. Any future determinations to pay cash dividends will be made at the discretion of our board of directors, subject to applicable laws, and will depend on a number of factors, including our financial condition, results of operations, capital requirements, contractual restrictions, general business conditions, and any other factors that our board may deem relevant. +Securities Authorized for Issuance under Equity Compensation Plans +Information regarding the Securities Authorized for Issuance under our Equity Compensation Plans will be included in an amendment to this Annual Report in Form 10-K or incorporated by reference from our definitive proxy statement to be filed pursuant to Rule 14A. +Stock Performance Graph +As a smaller reporting company, we are not required to provide the information requested by this item pursuant to Item 201 of Regulation S-K. +Unregistered Sales of Equity Securities and Use of Proceeds +Unregistered sales of equity securities +None. +51 +Repurchases of equity securities by the issuer +None. +Rule 10b5-1 Trading Plans +During the quarter ended December 31, 2024, our directors and/or officers (as defined in Rule 16a-1(f) under the Securities Exchange Act of 1934, as amended (Exchange Act)) adopted or terminated the contracts, instructions, or written plans for the purchase or sale of our securities set forth in the table below. +Name and Title +Action +Adoption/ Termination Date +Rule 10b5-1 (1) +Non-Rule 10b5-1 (2) +Total Number of Shares of Common Stock to be Sold (3) +Expiration Date +Paul E. Mann (Chief Executive Officer and Executive Chairman) +Adoption +December 13, 2024 +X +— +Up to 1,150,000 +September 2, 2026 +Robert Ainscow (Chief Operating Officer) +Adoption +December 13, 2024 +X +— +Up to 275,000 +September 2, 2026 +(1) +Contract, instruction or written plan intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act. +(2) +“Non-Rule 10b5-1 trading arrangement” as defined in Item 408(c) of Regulation S-K under the Exchange Act. +(3) +Represents the maximum number of shares that may be sold pursuant to the 10b5-1 arrangement. The number of shares sold will be dependent on the satisfaction of certain conditions as set forth in the trading plan. +(4) +Rule 10b5-1 trading arrangement that is intended to provide for “eligible sell-to-cover transactions” (as described in Rule 10b5-1(c)(1)(ii)(D)(3) under the Exchange Act) to satisfy tax withholding obligations arising exclusively from vesting of restricted stock awards (RSAs) or restricted stock units (RSUs). The number of shares subject to covered RSAs or RSUs that will be sold to satisfy applicable tax withholding obligations upon vesting is not currently determinable as the number will vary based on the market price of our common stock and the extent to which vesting conditions are satisfied. This sell-to-cover arrangement provides solely for the automatic sale of shares that would otherwise be issuable in respect of a covered RSA or RSU in an amount sufficient to satisfy the applicable withholding obligation, with the proceeds of the sale delivered to us in satisfaction of the applicable withholding obligation. +Item 6. [Reserved] +52 +Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations +The following discussion and analysis of financial condition and results of operations is provided to enhance the understanding of, and should be read in conjunction with Part I, Item I, “Business” and Item 8, ‘Financial Statements and Supplementary Data.” For information on risks and uncertainties related to our business that may make past performance not indicative of future results or cause actual results to differ materially from any forward-looking statements, see “Special Note Regarding Forward-Looking Statements,” and Part I, Item 1A, ‘Risk Factors.” +Overview +We are a development stage advanced materials company dedicated to the development of technology and processes that, if successful, will allow for the enrichment of natural isotopes into higher concentration products, which could be used in several industries. Our proprietary technologies, the Aerodynamic Separation Process (“ASP technology”) and Quantum Enrichment technology (“QE technology”), are designed to enable the production of isotopes used in several industries. Our initial focus is on the production and commercialization of enriched Carbon-14 (“C-14”), Silicon-28 (“Si-28”) and Ytterbium-176 (“Yb-176”). +We have completed the commissioning phase and are commencing commercial production at our C-14and Si-28 enrichment facilities in Pretoria, South Africa. We are in the process of commissioning and commencing commercial production at our Yb-176 enrichment facility in Pretoria, South Africa. Our C-14 and Si-28 enrichment facilities utilize the ASP technology and our Yb-176 enrichment facility utilizes QE technology. We expect our first three enrichment facilities to generate commercial product during 2025. In addition, we have started planning additional isotope enrichment plants both in South Africa and in other jurisdictions, including Iceland and the United States. We believe the C-14 we may produce using the ASP technology could be used in the development of new pharmaceuticals and agrochemicals. We believe the Si-28 we may produce using the ASP technology may be used to create advanced semiconductors and in quantum computing. We believe the Yb-176 we may produce using the QE technology may be used to create radiotherapeutics that treat various forms of oncology. We anticipate shipping the first commercial batches of enriched Carbon-14 in mid-2025 and enriched Silicon-28 during the second quarter of 2025. We expect to commence commercial production of Ytterbium-176 during the second quarter of 2025. +In addition, we are considering the future development of the ASP technology for the separation of Zinc-68 and Xenon-129/136 for potential use in the healthcare end market, Germanium 70/72/74 for potential use in the semiconductor end market, and Chlorine -37 for potential use in the nuclear energy end market. We are also considering the future development of QE technology for the separation of Nickel-64, Gadolinium-160, Ytterbium-171, Lithium 6 and Lithium7. +We are currently pursuing an initiative to apply our enrichment technologies to the enrichment of Uranium-235 (“U-235”) in South Africa. We believe that the U-235 we may produce using quantum enrichment technology may be commercialized as a nuclear fuel component for use in the new generation of high-assay low-enriched uranium (HALEU)-fueled small modular reactors that are now under development for commercial and government uses. In furtherance of our uranium enrichment initiative, in October 2024, we entered into a term sheet with TerraPower, LLC which contemplates the parties entering into definitive agreements pursuant to which TerraPower would provide funding for the construction of a HALEU production facility and agree to purchase all HALEU produced at the facility over a 10-year period after the planned completion of the facility in 2027. In addition, in November 2024, we entered into a memorandum of understanding with The South African Nuclear Energy Corporation (Necsa), a South African state-owned company responsible for undertaking and promoting research and development in the field of nuclear energy and radiation sciences, to collaborate on the research, development and ultimately the commercial production of advanced nuclear fuels. Subject to the receipt of funding and all required permits and licenses to begin enrichment of U-235 in South Africa, it is anticipated that the research, development and ultimate construction of a HALEU production facility will take place at South Africa’s main nuclear research center at Pelindaba in Pretoria. +Our Subsidiaries +We operate principally through our subsidiaries. ASP Isotopes Guernsey Limited (the holding company for subsidiaries in the Cayman Islands, South Africa, Iceland and the United Kingdom) is focused on the development and commercialization of high-value, low-volume isotopes for highly specialized end markets (such as C-14, Mo-100, and Si-28). ASP Isotopes UK Ltd is the owner of our technology. +QLE . In September 2023, we formed Quantum Leap Energy LLC, or “QLE,” which also has subsidiaries in the United Kingdom (Quantum Leap Energy Limited) and South Africa (Quantum Leap Energy (Pty) Limited), to focus on the development and commercialization of advanced nuclear fuels such as HALEU and Lithium-6. +Although no assurance can be given, we plan to spin-out QLE as a separate public company and list the shares of QLE on a U.S. national exchange and distribute a portion of QLE’s common equity to ASPI’s stockholders as of a to-be-determined future record date, in each case subject to obtaining applicable approvals and consents and complying with applicable rules and regulations and public market trading and listing requirements. The regulatory landscape and supply chain for nuclear fuel production differs +53 +significantly from that of medical isotopes, hence we and QLE have different business models and we believe that both companies would benefit if QLE is independently managed and financed. +In connection with the anticipated spin-out, in February 2024, we entered into a number of agreements with QLE, including a License Agreement, pursuant to which QLE has licensed from us the rights to technologies and methods used to separate Uranium 235 and Lithium 6 (including but not limited to the quantum enrichment and ASP technologies) in exchange for a perpetual royalty in the amount of 10% of all future QLE revenues, and an EPC Services Framework Agreement, pursuant to which we will provide services for the engineering, procurement and construction of one or more turnkey Uranium-235 and Lithium-6 enrichment facilities in locations to be identified by QLE and owned or leased by QLE, and commissioning, start-up and test services for each such facility, subject to the receipt of all applicable regulatory approvals, permits, licenses, authorizations, registrations, certificates, consents, orders, variances and similar rights. In addition, in February 2024, we assigned to QLE certain existing memoranda of understanding with U.S.-based small modular reactor companies for the use of Quantum Enrichment for the production of High-Assay Low Enriched Uranium (HALEU). The MOUs provide for substantial financial support for the development of HALEU production facilities that should be capable of supplying metric ton quantities of HALEU by 2027. +PET Labs . We have a 51% ownership stake in PET Labs Pharmaceuticals Proprietary Limited (PET Labs), a South African radiopharmaceutical operations company focused on the production of fluorinated radioisotopes and active pharmaceutical ingredients, through which we entered the downstream medical isotope production and distribution market. Under the terms of the Share Purchase Agreement pursuant to which we acquired the shares in PET Labs, we agreed to pay a total of $2,000,000 for the shares in two installments. The first installment of $500,000 was paid in November 2023. In January 2024, we paid $264,750 towards the balance due. The remaining balance of $1,235,250 is due upon demand any time after October 31, 2024, and is expected to be paid in 2025. +Beginning in 2024, primarily as a result of the increased business activities of QLE, we have two operating segments: (i) nuclear fuels, and (ii) specialist isotopes and related services. +Financings +On November 15, 2022, we completed an IPO of our common stock and issued and sold 1,250,000 shares of common stock at a public offering price of $4.00 per share, resulting in net proceeds of $3.8 million after deducting underwriting discounts and commissions and offering expenses. +In March 2023, we issued 3,164,557 shares of our common stock at a purchase price of $1.58 per share and warrants to purchase up to an aggregate of 3,164,557 shares of our common stock with an exercise price of $1.75 per share for gross proceeds of $5.0 million. We incurred $506,390 in cash issuance costs and issued warrants to purchase up to an aggregate of 221,519 shares of common stock with an exercise price of $1.975 per share to the placement agent with an initial fair value of $179,116. +In October 2023, we entered into Securities Purchase Agreements with certain institutional and other accredited investors and certain directors of ours to issue and sell an aggregate of 9,952,510 shares of our common stock, for aggregate cash consideration of $9,129,495, as follows: (i) 8,459,093 shares to investors at a purchase price per share of $0.9105, (ii) 1,190,239 shares to investors at a purchase price per share of $0.9548, and (iii) 303,178 shares to directors at a purchase price per share of $0.96. We incurred issuance costs equivalent to 5% of the gross proceeds from new investors which was settled in stock through the issuance of 472,582 shares to the placement agent and additional cash issuance costs totaling $57,083. +In March 2024, our wholly owned subsidiary Quantum Leap Energy received gross proceeds of $20,550,000 through the issuance of Convertible Promissory Notes. These convertible notes have a stated interest rate of 6% for the first year and 8% thereafter. The maturity date of these convertible promissory notes is March 7, 2029. These convertible promissory notes automatically convert into common shares upon Quantum Leap Energy’s closing of an IPO or other qualifying public transaction at 80% of the share price taking into consideration a valuation cap. +In June 2024, our wholly owned subsidiary Quantum Leap Energy received gross proceeds of $5,386,228 through this issuance of additional Convertible Promissory Notes with a stated interest rate of 6% for the first year and 8% thereafter. One of the notes totaling $108,167 was issued to the placement agent in lieu of cash issuance costs. The maturity date of the Convertible Promissory Notes is March 7, 2029. The Convertible Promissory Notes automatically convert into common shares upon Quantum Leap Energy’s closing of an IPO or other qualifying public transaction at 80% of the share price taking into consideration a valuation cap. +In April 2024, we received approximately $5.5 million from the issuance of 3,164,557 shares of common stock upon the exercise of warrants. +54 +In July 2024, we issued 13,800,000 in a public offering at a public offering price of $2.50 per share resulting in net proceeds of approximately $32.3 million after deducting underwriting discounts, commissions and offering expenses. +In October 2024, a warrant to purchase 151,741 shares of common stock was exercised and the Company received gross proceeds of $299,688. +In November 2024, we issued 2,754,250 shares of common stock at a public offering price of $6.75 per share resulting in net proceeds of approximately $17.1 million after deducting underwriting discounts, commissions and offering expenses. +TerraPower, LLC +On April 4, 2024, we entered into an agreement with TerraPower LLC ("TerraPower") to develop a conceptual design, refined cost/schedule/financing, risk register, and term sheet for a High Assay Low Enriched Uranium (“HALEU”) facility (the “TerraPower Agreeement”). The TerraPower Agreement may be terminated for (a) breach or default, (b) our convenience or (c) TerraPower’s convenience. TerraPower is obligated to make all payments for milestones completed by us and these payments are nonrefundable. +On October 18, 2024, we signed a term sheet with TerraPower (the “TerraPower Term Sheet”) that provides for the execution of two definitive agreements: (1) an agreement pursuant to which TerraPower will provide funding for our construction of a uranium enrichment facility capable of producing HALEU using our proprietary aerodynamic separation process technology to be located in the Republic of South Africa and (2) An agreement pursuant to which we will deliver to TerraPower the full capacity of the enrichment facility. +For the year ended December 31, 2024, $200,000 has been recognized as collaboration revenue in the consolidated statements of operations and comprehensive loss. +Other Commercial Agreements +Below is a summary of the key terms of our other commercial agreements. +Lease for Molybdenum Processing Plant. On October 12, 2021, ASP South Africa entered into an agreement of lease with the landlord of the facility located at 33 Eland Street, Koedoespoort Industrial, Pretoria where we operate our Molybdenum processing plant where gaseous Molybdenum compound will be treated (which process comprises several stages of compression and expansion during which the product is purified). The term of the lease ends on December 31, 2030. +Lease for additional production space . On April 1, 2023, ASP South Africa entered into an agreement of lease with the landlord of facility located in Pretoria where we plan to perform production activities. The initial term of the lease was set to end on March 31, 2024. We entered into a new agreement of lease with the landlord. The terms of the new lease ends on February 28, 2026. +Lease for additional laboratory space. On November 1, 2023, ASP South Africa entered into an agreement of lease with the landlord of the facility located in Pretoria where we perform research and development activities. The term of the lease ends on October 30, 2026. +Lease for PET Labs operations . Commencing with our acquisition of PET Labs in October 2023, this facility has an initial term set to expire in March 2026 with automatic monthly extensions thereafter. This space is used for office and production activities. +Lease for additional PET Labs operations . Commencing with our acquisition of PET Labs in October 2023, this facility had an initial term which expired in December 2023 and is currently under automatic monthly extensions. This space is used for production activities. +Components of Results of Operations +Revenue +Effective with the acquisition of 51% of PET Labs Pharmaceuticals, the Company recognizes revenue from the sale of nuclear medical doses for PET scanning. +Cost of Goods Sold +Cost of goods sold associated with the sale of nuclear medical doses for PET scanning consist of labor, delivery and materials. +55 +Operating Expenses +Our operating expenses consist of (i) research and development expenses and (ii) selling, general and administrative expenses. +Research and Development +Our research and development expenses consist primarily of direct and indirect costs incurred in connection with the development activities for our future isotopes. +Direct costs include: +• +external research and development expenses; and +• +costs related to designing the development processes of isotope production. +Indirect costs include: +• +personnel-related costs, which include salaries, payroll taxes, employee benefits, and other employee-related costs, including stock-based compensation, for personnel engaged in research and development functions; and +• +facilities and other various expenses. +Research and development expenses are recognized as incurred and payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods or services are received. +We expect that our research and development expenses will increase substantially for the foreseeable future as we continue the development of our future isotopes. We cannot determine with certainty the timing of initiation, the duration or the completion costs of development activities. Actual development timelines, the probability of success and development costs can differ materially from expectations. +We will need to raise substantial additional capital in the future. In addition, we cannot forecast which future isotopes may be subject to future collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements. +Our research and development expenses may vary significantly based on a variety of factors, such as: +• +the scope, rate of progress, expense and results of our development activities; +• +the phase of development of our future isotopes; +• +the timing, receipt, and terms of any approvals from applicable regulatory authorities including the FDA and foreign regulatory authorities; +• +significant and changing government regulation and regulatory guidance; +• +the cost and timing of designing the development processes of isotope production; +• +the extent to which we establish additional strategic collaborations or other arrangements; and +• +the impact of any business interruptions to our operations or to those of the third parties with whom we work. +A change in the outcome of any of these variables with respect to the development of any of our future isotopes could significantly change the costs and timing associated with the development of that future isotope. +Selling, General and Administrative +Selling, general and administrative expenses consist primarily of personnel-related costs, which include salaries, payroll taxes, employee benefits, and other employee-related costs, including stock-based compensation, for personnel in executive, sales, finance and other administrative functions. Other significant costs include legal fees relating to corporate matters, professional fees for accounting and consulting services and facility-related costs. +We expect that our ongoing selling, general and administrative expenses will increase substantially for the foreseeable future to support our increased research and development activities and increased costs of operating as a public company and in building our internal resources. These increased costs will include increased expenses related to audit, legal, regulatory and tax-related +56 +services associated with maintaining compliance with exchange listing and SEC requirements, director and officer insurance premiums and investor and public relations costs associated with operating as a public company. +Segment Information +As of December 31, 2023, we managed our operations as a single segment, specialist isotopes and related services. Beginning in 2024, primarily as a result of the increased business activities of our subsidiary, Quantum Leap Energy LLC, we have two operating segments: (i) nuclear fuels, and (ii) specialist isotopes and related services. +The nuclear fuels segment is focused on research and development of technologies and methods used to produce high-assay low-enriched uranium (HALEU) and Lithium-6 for the advanced nuclear fuels target end market. +The specialist isotopes and related services segment is focused on research and development of technologies and methods used to separate high-value, low-volume isotopes (such as C-14, Mo-100 and Si-28) for highly specialized target end markets other than advanced nuclear fuels, including pharmaceuticals and agrochemicals, nuclear medical imaging and semiconductors, as well as services related to these isotopes, and this segment includes PET Labs. +The financial information is regularly reviewed by the chief operating decision maker (“CODM”) in deciding how to allocate resources. Our CODM is our chief executive officer. +We manage assets on a total company basis, not by operating segment, as the assets are shared or commingled. Therefore, the chief operating decision maker does not regularly review any asset information by operating segment and, accordingly, asset information is not reported on a segment basis. +Select information from the consolidated statements of operations and comprehensive loss as of the years ended December 31, 2024 and 2023 is as follows: +Revenues +Net Loss Before +Allocation to Noncontrolling Interest +Year Ended December 31, +Year Ended December 31, +Segment +2024 +2023 +2024 +2023 +Specialist isotopes and related services +$ +3,944,226 +$ +433,026 +$ +(21,367,787 +) +$ +(16,145,339 +) +Nuclear fuels +200,000 +— +(10,881,084 +) +— +Corporate +— +— +(173,857 +) +(148,787 +) +$ +4,144,226 +$ +433,026 +$ +(32,422,728 +) +$ +(16,294,126 +) +57 +Results of Operations +Comparison of the Years Ended December 31, 2024 and 2023 +The following table summarizes our results of operations for the years ended December 31, 2024 and 2023: +Year Ended December 31, +2024 +2023 +Change +Revenue +$ +4,144,226 +$ +433,026 +$ +3,711,200 +Cost of goods sold +2,544,614 +294,056 +2,250,558 +Gross profit +1,599,612 +138,970 +1,460,642 +Operating expenses: +Research and development +3,138,978 +764,581 +2,374,397 +Selling, general and administrative +24,814,288 +15,416,388 +9,397,900 +Total operating expenses +27,953,266 +16,180,969 +11,772,297 +Other (expense) income: +Foreign exchange transaction gain +69,865 +45,753 +24,112 +Change in fair value of share liability +(132,273 +) +(194,540 +) +62,267 +Change in fair value of convertible notes payable +(6,875,041 +) +— +(6,875,041 +) +Interest income +1,238,691 +9,074 +1,229,617 +Interest expense +(258,867 +) +(118,547 +) +(140,320 +) +Total other expense +(5,957,625 +) +(258,260 +) +(5,699,365 +) +Loss before income tax expense +$ +(32,311,279 +) +$ +(16,300,259 +) +$ +(16,011,020 +) +Revenue and Cost of Goods Sold +Effective with the acquisition of 51% of PET Labs, we have recognized revenue from the sale of nuclear medical doses for PET scanning for the two month period since the acquisition was effective on October 31, 2023 and December 31, 2023 and the year ended December 31, 2024. In addition, we have recognized the related cost of goods sold, operating expenses and other income and expenses of PET Labs for the same periods. +Research and Development Expenses +The following table summarizes our research and development expenses for the years ended December 31, 2024 and 2023: +Year Ended December 31, +2024 +2023 +Change +Personnel-related costs +$ +1,171,467 +$ +495,034 +$ +676,433 +Consulting and professional +655,895 +— +655,895 +Facility and depreciation expenses +766,960 +247,663 +519,297 +Other expenses +544,656 +21,884 +522,772 +Total research and development expenses +$ +3,138,978 +$ +764,581 +$ +2,374,397 +Research and development expenses were $3,138,978 for the year ended December 31, 2024, compared to $764,581 for the year ended December 31, 2023. The overall increase of $2,374,397 was primarily due to the following: +• +an increase in personnel-related costs of $676,433 is mainly due to the increase in headcount and related costs; +• +an increase in consulting and professional fees of $655,895 due to increased outsourced development activity for new specialty isotopes; +• +an increase in facility and depreciation expenses of $519,297 due to an increase in space dedicated to development; and +• +an increase in other expenses of $522,772 primarily related to repairs and maintenance and other general research and development expenses. +Selling, General and Administrative Expenses +Selling, general and administrative expenses were $24,814,288 for the year ended December 31, 2024, compared to $15,416,388 for the year ended December 31, 2023. The overall increase of $9,397,900 was primarily due to the following: +58 +• +an increase in personnel-related costs is mainly due to the increase in headcount and salaries of $1,779,619 and travel related costs of $459,644; +• +an increase in professional services and legal related fees of $4,029,537 primarily due to the timing of corporate activity and an increase in legal fees associated with the current campaign of misinformation and potential shareholders class actions lawsuits; +• +an increase in commissions and fees of $1,143,364 primarily due to the issuance of convertible notes in 2024; +• +an increase in facility and depreciation expenses of $850,982 due to the expansion of our operations in 2024; and +• +an increase in other selling, general and administrative expenses of $1,091,483, including insurance of $170,351 and franchise taxes of $191,663. +Other Income and Expense +Other expense for the year ended December 31, 2024 was $5,957,625, which includes a $6,875,041 change in the fair value of the convertible notes, a $132,273 change in the fair value of the share liability related to the shares issuable to a placement agent, $1,238,691 in interest income earned on our cash and cash equivalents and interest expense of $258,867. +Other expense for the year ended December 31, 2023 was $258,260, which includes a $194,540 change in the fair value of the share liability related to the shares issuable to a placement agent and other consultants and interest expense of $118,547. +Liquidity and Capital Resources +Sources of Liquidity +We have incurred net losses and negative cash flows from operations since our inception, and we expect to continue to incur significant and increasing net losses for the foreseeable future. We have principally financed our operations to date through the issuance of our common stock, including our IPO. In March and June 2024, the Company’s wholly owned subsidiary Quantum Leap Energy received gross proceeds of $20,550,000 and $5,386,228, respectively, through the issuance of convertible promissory notes with a stated interest rate of 6% for the first year and 8% thereafter. The maturity date of these convertible promissory notes is March 7, 2029. These convertible promissory notes automatically convert into common shares upon Quantum Leap Energy’s closing of an IPO or other qualified public transaction at 80% of the share price taking into consideration a valuation cap. On April 9, 2024, the Company received approximately $5.5 million from the issuance of 3,164,557 shares of common stock upon the exercise of warrants. In July 2024, we issued 13,800,000 shares of common stock in a public offering at a public offering price of $2.50 per share resulting in net proceeds of approximately $32.3 million after deducting underwriting discounts, commissions and offering expenses. In November 2024, we issued an additional 2,754,250 shares of common stock in a public offering at a public offering price of $6.75 per share resulting in net proceeds of approximately $17.1 million after deducting underwriting discounts, commissions and offering expenses. +As of December 31, 2024, we had cash of $61.9 million. We have not generated any revenue from the sale of our enriched isotopes, and our ability to generate product revenue from the sale of enriched isotopes sufficient to achieve profitability will depend on the successful development and eventual commercialization of one or more of our current or future enriched isotopes. +Effective with the acquisition of 51% of PET Labs Pharmaceuticals on October 31, 2023, we have begun to recognize revenue from the sale of nuclear medical doses for PET scanning in South Africa. Our ability to generate product revenue from the sale of nuclear medical doses for PET scanning sufficient to achieve profitability will depend on the successful expansion of production capabilities and commercialization of the results of that expansion. +Future Funding Requirements +Based on our current operating plan, we estimate that our existing cash and cash equivalents will be sufficient to fund our operating expenses and capital expenditure requirements through at least the next 12 months from the date the financial statements are issued. However, our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. We have based this estimate on assumptions that may prove to be wrong, and we could deplete our capital resources sooner than we expect. Additionally, the process of developing isotopes is costly, and the timing of progress and expenses in these development activities is uncertain. +59 +Our future capital requirements will depend on many factors, including: +• +the type, number, scope, progress, expansions, results, costs and timing of, our development activities for our future isotopes; +• +the outcome, timing and costs of regulatory review of our future isotopes; +• +the costs and timing of manufacturing for our future isotopes; +• +our efforts to enhance operational systems and hire additional personnel to satisfy our obligations as a public company, including enhanced internal controls over financial reporting; +• +the costs associated with hiring additional personnel and consultants as our preclinical and clinical activities increase; +• +the costs and timing of establishing or securing sales and marketing and distribution capabilities, whether alone or with third parties, to commercialize future isotopes for which we may obtain regulatory approval, if any; +• +our ability to achieve sufficient market acceptance, coverage and adequate reimbursement from third-party payors and adequate market share and revenue for any approved products; +• +the terms and timing of establishing and maintaining collaborations, licenses and other similar arrangements; +• +the costs of obtaining, expanding, maintaining and enforcing our patent and other intellectual property rights; and +• +costs associated with any products or technologies that we may in-license or acquire. +Developing isotopes is a time-consuming, expensive and uncertain process that takes years to complete, and we may never achieve the necessary results required or obtain applicable regulatory approval for any isotopes or generate revenue from the sale of any future isotopes (assuming applicable regulatory approval is received). In addition, our future isotopes (assuming applicable regulatory approval is received) may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of isotopes that we do not expect to be commercially available in substantial quantities until at least 2025. If we receive permits and licenses to enrich U-235 (which in itself is highly uncertain), we do not expect U-235 to be commercially available for at least several years, if ever. As a result, we may need substantial additional financing to support our continuing operations and further the development of and commercialization of our future isotopes. +Expansion of the production and distribution of nuclear medical doses for PET scanning is a time-consuming, expensive and uncertain process that may take years to complete. As a result, we may need substantial additional financing to support our continuing operations and further the development of and commercialization of future nuclear medical doses for PET scanning. +Until such time as we can generate significant revenue from sales of our future isotopes or nuclear medical doses for PET scanning, if ever, we expect to finance our cash needs through public or private equity or debt financings or other capital sources, including potential collaborations, licenses and other similar arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our ability to raise additional funds may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets in the United States and worldwide resulting severely diminished liquidity and credit availability, increased interest rates, inflationary pressures, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability. The financial markets and the global economy may also be adversely affected by the current or anticipated impact of military conflict. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be or could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through collaborations, or other similar arrangements with third parties, we may have to relinquish valuable rights to our future isotopes, future revenue streams or research programs or may have to grant licenses on terms that may not be favorable to us and/or may reduce the value of our common stock. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market our future isotopes even if we would otherwise prefer to develop and market such isotopes ourselves. +60 +Cash Flows +The following table summarizes our sources and uses of cash for each of the periods presented: +Year Ended December 31, +2024 +2023 +Net cash provided by (used in): +Operating activities +$ +(16,695,365 +) +$ +(5,412,392 +) +Investing activities +(11,372,399 +) +(2,453,191 +) +Financing activities +82,533,640 +13,385,491 +Net increase (decrease) in cash and cash equivalents +$ +54,465,876 +$ +5,519,908 +Operating Activities +Net cash used in operating activities was $16,695,365 for the year ended December 31, 2024 and was primarily due to our net loss of $32.4 million, adjusted for stock-based compensation expense of $8,561,404, non-cash issuance costs for the convertible notes payable of $621,915, amortization of right-of-use asset of $473,202, depreciation expense of $471,421, issuance of common stock to consultants with a fair value of $1,314,200, change in fair values for the convertible notes payable of $6,875,041 and change in fair value of share liability of $132,273, partially offset by a $2,622,890 change in our operating assets and liabilities. +Net cash used in operating activities was $5,412,392 for the year ended December 31, 2023 and was primarily due to our net loss of $16,294,126, adjusted for stock-based compensation expense of $8,743,799, amortization of right-of-use asset of $104,528, issuance of common stock to consultants with a fair value of $669,700, change in fair value of share liability of $194,540, and a $1,159,728 change in our operating assets and liabilities. +Investing Activities +Net cash used in investing activities was $11,372,399 for the year ended December 31, 2024 and was comprised of the purchases of machinery and equipment, vehicles and construction in progress. +Net cash used in investing activities was $2,453,191 for the year ended December 31, 2023 and was comprised of the purchase of machinery and equipment and construction in progress totaling $2,331,343 and $121,848 for the acquisition of PET Labs net of cash acquired. +Financing Activities +Net cash provided by financing activities was $82,533,640 for the year ended December 31, 2024 and was comprised primarily of net proceeds of $53,091,187 from the sale and issuance of our common stock, gross proceeds of $25,936,228 from the issuance of convertible notes payable, proceeds of $5,837,663 from the issuance of common stock for a warrant exercise, contributions from noncontrolling interest in VIE of $920,336, proceeds from collection of receivable from noncontrolling interest in VIE of $706,774, partially offset by costs to issue common stock of $3,648,385, principal payments on notes payable, finance leases and bank loans of $561,176, $100,611 and $51,381, respectively, and distribution to noncontrolling interest in VIE of $97,918. +Net cash provided by financing activities was $13,385,491 for the year ended December 31, 2023 and was comprised primarily of net proceeds of $13,566,022 from the sale and issuance of our common stock. +Contractual Obligations and Commitments +We lease our main facility in Pretoria, South Africa under a lease with a base monthly rent payment of approximately $9,000 with a term expiring on December 31, 2030. We also lease additional space on a short term basis in Pretoria, South Africa under a lease with a base monthly rent payment of approximately $18,000 with a term expiring on February 28, 2026 and the Company is continuing to occupy that space under the monthly extensions. We also lease additional space in Pretoria, South Africa under a lease with a base monthly rent payment of approximately $2,000 with a term expiring on October 30, 2026. +PET Labs Pharmaceuticals operates in a facility in Pretoria, South Africa is under a lease with a base monthly rent payment of approximately $27,000 with a term expiring on March 30. 2026 with automatic monthly extension afterwards. PET Labs Pharmaceuticals also rents space at a local hospital in Pretoria, South Africa for which there was a lease with a base monthly rent payment of approximately $5,000 which expired on December 31, 2023 and is currently in automatic monthly extensions. +61 +In November 2024 and 2023, the Company executed a promissory note payable with a finance company to fund its directors and officers’ insurance policy for $500,923 and $526,282, respectively. During 2024, the Company entered into several loans to purchase motor vehicles and certain equipment totaling $2,020,511. These loans are secured by the underlying assets included in property and equipment. Refer to Note 6 (Notes Payable) to our consolidated financial statements included in Part II, Item 8. for information regarding interest rates and maturities. +In addition, we enter into contracts in the normal course of business with vendors for services and products for operating purposes. These contracts do not contain any minimum purchase commitments and generally provide for termination after a notice period and, therefore, are not considered long-term contractual obligations. Payments due upon cancellation consist only of payments for services provided and expenses incurred up to the date of cancellation. +Off-balance Sheet Arrangements +We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC. +Critical Accounting Policies and Significant Judgments and Estimates +Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States, or U.S. GAAP. In preparing these financial statements, management is required to make estimates and assumptions that affect the reported amount of revenues, expenses, assets, liabilities and the disclosure of contingent liabilities. Actual results may differ from these estimates. Critical accounting estimates are those estimates that involve a significant level of estimation uncertainty and could have a material impact on our financial condition or results of operations. We have critical accounting estimates in the areas of accounting for the acquisition including goodwill, loss contingencies, stock-based compensation and convertible notes payable at fair value. Refer to Note 2 (Basis of Presentation and Summary of Significant Accounting Policies) to our consolidated financial statements included in Part II, Item 8. for a summary of significant accounting policies +Business Combinations +Assets acquired and liabilities assumed as part of a business acquisition are generally recorded at their fair value at the date of acquisition. The excess of purchase price over the fair value of assets acquired and liabilities assumed is recorded as goodwill. Determining fair value of identifiable assets, particularly intangibles, and liabilities acquired also requires management to make estimates, which are based on all available information and in some cases assumptions with respect to the timing and amount of future revenues and expenses associated with an asset. Accounting for business acquisitions requires management to make judgments as to whether a purchase transaction is a multiple element contract, meaning that it includes other transaction components such as a settlement of a preexisting relationship. This judgment and determination affects the amount of consideration paid that is allocable to assets and liabilities acquired in the business purchase transaction. +Goodwill +We test goodwill for impairment annually, or more frequently if events or changes in circumstances indicate that the carrying value may not be recoverable. If it is determined that carrying values of goodwill cannot be recovered, the unrecoverable amounts are charged against current earnings. Recoverability is dependent upon assumptions and judgments regarding market conditions, or business strategies. Other assumptions used in the calculation of recoverable amounts are discount rates, future cash flows and profit margins. A material change in assumptions may significantly impact the potential impairment of goodwill. +Loss Contingencies +We are currently involved in various claims and legal proceedings. The outcomes of legal proceedings and claims brought against us and other loss contingencies are subject to significant uncertainty. We accrue a charge against income when our management determines that it is probable that an asset has been impaired or a liability has been incurred and the amount of loss can be reasonably estimated. In addition, we accrue for the authoritative judgments or assertions made against us by government agencies at the time of their rendering regardless of our intent to appeal. In determining the appropriate accounting for loss contingencies, we consider the likelihood of loss or impairment of an asset or the incurrence of a liability, as well as our ability to reasonably estimate the amount of loss. We regularly evaluate current information available to us to determine whether an accrual should be established or adjusted. Estimating the probability that a loss will occur and estimating the amount of a loss or a range of loss involves significant judgment. +62 +Stock-Based Compensation +We account for stock-based compensation by measuring and recognizing as compensation expense the fair value of all share-based payment awards made to employees, including employee stock options and restricted stock awards, based on estimated grant date fair values. These fair values are calculated by applying a valuation model, which is in itself judgmental, and takes into account certain inherently uncertain assumptions. +Convertible Notes Payable at Fair Value +The fair values assigned to convertible notes payable carried at fair value are based upon available information at the time and do not necessarily represent amounts that might ultimately be paid. Because of the inherent uncertainty of valuation, these estimated fair values may differ significantly from the values that would have been used had a ready market for this debt existed, and those differences could be material. +Item 7A. Quantitative and Qualitative Disclosures About Market Risk +Interest Rate Risk +We are exposed to interest rate risk related to our outstanding debt. As of December 31, 2024 and 2023, our cash and cash equivalents consists of cash in readily available checking and interest bearing accounts. We do not hold any short-term investments. As a result, the fair value of our portfolio is relatively insensitive to interest rate changes. As of December 31, 2024 and 2023, we had $2,380,396 and 470,396, respectively, of notes payable bank outstanding primarily related to loans for motor vehicles and equipment in South Africa and financing of Directors and Officers’ insurance premiums. This results in a minimal exposure to interest rate risk with respect to debt. We believe a hypothetical 100 basis point increase or decrease in interest rates during the period presented would not have had a material impact on our financial results. +Foreign Currency Exchange Rate Risk +Our expenses are generally denominated in U.S. dollars but our operations are currently primarily located outside the United States and we have entered into a number of contracts with vendors that are denominated in foreign currencies. We are subject to foreign currency transaction gains or losses on our contracts denominated in foreign currencies. To date, foreign currency transaction gains and losses have not been material to our financial statements, and we have not had a formal hedging program with respect to foreign currency. We believe a hypothetical 100 basis point increase or decrease in exchange rates during the period presented would not have had a material impact on our financial results. +Effects of Inflation +Inflation generally affects us by increasing our cost of labor and research and development costs. We do not believe that inflation and changing prices had a significant impact on our results of operations for the period presented herein. +Credit Risk +We are potentially subject to concentrations of credit risk in our accounts receivable. Two customers, Customer A and Customer B, represent approximately 28% ($200,000) and 20% ($144,590), respectively, of consolidated accounts receivable as of December 31, 2024. Although the Company is directly affected by the financial condition of its customers, management does not believe significant credit risks exist at December 31, 2024. Generally, we do not require collateral or other securities to support its accounts receivable. +Major Customer +Revenues from one customer of our specialist isotopes and related services segment represent approximately 14% or $592,000 our consolidated revenues. for the year ended December 31, 2024. For year ended December 31, 2023, there were no customers that represented more than 10% of revenues. We expect to maintain this relationship with the customer. +63 +Item 8. Financial Statements and Supplementary Data +ASP Isotopes Inc. +Index to Consolidated Financial Statements +Report of Independent Registered Public Accounting Firm (PCAOB ID 274 ) +65 +Consolidated Balance Sheets as of December 31, 2024 and 2023 +66 +Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2024 and 2023 +67 +Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2024 and 2023 +68 +Consolidated Statements of Cash Flows for the years ended December 31, 2024 and 2023 +69 +Notes to Consolidated Financial Statements +70 +64 +Report of Independent Registered Public Accounting Firm +To the Board of Directors and Stockholders of +ASP Isotopes Inc +Opinion on the Financial Statements +We have audited the accompanying consolidated balance sheets of ASP Isotopes Inc. and Subsidiaries (the “Company”) as of December 31, 2024 and 2023, and the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity, and cash flows for each of the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2024 and 2023 , and the consolidated results of their operations and their cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America. +Basis for Opinion +These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. +Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. +/s/ EisnerAmper LLP +We have served as the Company’s auditor since 2022. +EISNERAMPER LLP +Iselin, New Jersey +March 31, 2025 +65 +ASP Isotopes Inc. +Consolidated Balance Sheets +December 31, +2024 +2023 +Assets +Current assets: +Cash and cash equivalents +$ +61,890,048 +$ +7,908,181 +Accounts receivable +706,925 +216,504 +Inventory +65,655 +— +Receivable from noncontrolling interests +27,556 +721,548 +Prepaid expenses and other current assets +3,053,478 +1,664,023 +Total current assets +65,743,662 +10,510,256 +Property and equipment, net +22,354,377 +10,712,839 +Operating lease right-of-use assets, net +1,122,134 +1,258,701 +Deferred tax assets +31,847 +— +Goodwill +3,168,101 +3,267,103 +Other noncurrent assets +1,927,867 +1,793,014 +Total assets +$ +94,347,988 +$ +27,541,913 +Liabilities and stockholders’ equity +Current liabilities: +Accounts payable +$ +1,021,393 +$ +1,111,819 +Accrued expenses +2,275,681 +1,311,245 +Notes payable - current +939,110 +470,396 +Finance lease liabilities – current +125,862 +61,941 +Operating lease liabilities – current +557,676 +336,564 +Deferred revenue +882,000 +882,000 +Other current liabilities +1,256,549 +1,500,000 +Total current liabilities +7,058,271 +5,673,965 +Deferred tax liabilities +— +110,578 +Convertible notes payable, at fair value +33,433,184 +— +Notes payable - noncurrent +1,441,286 +— +Finance lease liabilities – noncurrent +560,328 +207,092 +Operating lease liabilities – noncurrent +688,479 +1,066,647 +Other noncurrent liabilities +— +1,653,000 +Total liabilities +43,181,548 +8,711,282 +Commitments and contingencies (Note 8) +Stockholders’ equity +Preferred stock, $ 0.01 par value; 10,000,000 shares authorized, no shares issued and +outstanding as of December 31, 2024 and 2023 +— +— +Common stock, $ 0.01 par value; 500,000,000 shares authorized, 72,068,059 and +48,923,276 shares issued and outstanding as of December 31, 2024 and 2023, +respectively +720,681 +489,233 +Additional paid-in capital +105,515,005 +40,567,003 +Accumulated deficit +( 56,172,881 +) +( 23,839,300 +) +Accumulated other comprehensive loss +( 2,164,313 +) +( 920,982 +) +Total ASP Isotopes stockholders’ equity +47,898,492 +16,295,954 +Noncontrolling interests +3,267,948 +2,534,677 +Total stockholders’ equity +51,166,440 +18,830,631 +Total liabilities and stockholders’ equity +$ +94,347,988 +$ +27,541,913 +The accompanying notes are an integral part of these consolidated financial statements. +66 +ASP Isotopes Inc. +Consolidated Statements of Operations and Comprehensive Loss +Year Ended December 31, +2024 +2023 +Revenue +Product revenue +$ +3,944,226 +$ +433,026 +Collaboration revenue +200,000 +— +Total revenue +4,144,226 +433,026 +Cost of goods sold +2,544,614 +294,056 +Gross profit +1,599,612 +138,970 +Operating expenses: +Research and development +3,138,978 +764,581 +Selling, general and administrative +24,814,288 +15,416,388 +Total operating expenses +27,953,266 +16,180,969 +Loss from operations +( 26,353,654 +) +( 16,041,999 +) +Other income (expense): +Foreign exchange transaction gain +69,865 +45,753 +Change in fair value of share liability +( 132,273 +) +( 194,540 +) +Change in fair value of convertible notes payable +( 6,875,041 +) +— +Interest income +1,238,691 +9,074 +Interest expense +( 258,867 +) +( 118,547 +) +Total other expense +( 5,957,625 +) +( 258,260 +) +Loss before income tax expense +( 32,311,279 +) +( 16,300,259 +) +Income tax (expense) benefit +( 111,449 +) +6,133 +Net loss before allocation to noncontrolling interests +( 32,422,728 +) +( 16,294,126 +) +Less: Net loss attributable to noncontrolling interests +( 89,147 +) +( 7,892 +) +Net loss attributable to ASP Isotopes Inc. shareholders +before deemed dividend on inducement warrant for +common stock +$ +( 32,333,581 +) +$ +( 16,286,234 +) +Deemed dividend on inducement warrant for common stock +( 2,779,659 +) +— +Net loss attributable to ASP Isotopes Inc. shareholders +$ +( 35,113,240 +) +$ +( 16,286,234 +) +Net loss per share attributable to ASP Isotopes Inc. shareholders, basic and +diluted +$ +( 0.63 +) +$ +( 0.49 +) +Weighted average shares of common stock outstanding, basic and diluted +55,671,805 +33,066,708 +Comprehensive income (loss): +Net loss before allocation to noncontrolling interests +$ +( 32,422,728 +) +$ +( 16,294,126 +) +Foreign currency translation +( 1,243,331 +) +( 1,176,012 +) +Total comprehensive loss before allocation to noncontrolling interests +( 33,666,059 +) +( 17,470,138 +) +Less: Comprehensive (loss) income attributable to noncontrolling interests +( 119,417 +) +27,255 +Comprehensive loss attributable to ASP Isotopes Inc. +$ +( 33,546,642 +) +$ +( 17,497,393 +) +The accompanying notes are an integral part of these consolidated financial statements. +67 +ASP Isotopes Inc. +Consolidated Statements of Changes in Stockholders’ Equity +Common Stock +Additional +Paid-in +Accumulated Other Comprehensive +Accumulated +Noncontrolling +Total +Stockholders’ +Shares +Amount +Capital +(Loss) Income +Deficit +Interests +Equity +Balance as of December 31, 2022 +35,907,127 +$ +359,071 +$ +16,756,426 +$ +255,030 +$ +( 7,553,066 +) +$ +— +$ +9,817,461 +Issuance of common stock, net of issuance costs of $ 563,473 +13,117,067 +131,171 +13,434,851 +— +— +— +13,566,022 +Issuance of common stock for non-cash issuance costs +472,582 +4,726 +( 4,726 +) +— +— +— +— +Issuance of common stock to settle share liability +150,000 +1,500 +226,500 +228,000 +Settlement of liability with related parties +— +— +626,223 +— +— +— +626,223 +Settlement of liability with consultants +519,750 +5,198 +771,497 +— +— +— +776,695 +Cancellation of common stock received in exchange for issuance of convertible preferred stock in subsidiary +( 3,000,000 +) +( 30,000 +) +30,000 +— +— +— +— +Issuance of restricted shares +1,756,750 +17,567 +( 17,567 +) +— +— +— +— +Stock-based compensation +— +— +8,743,799 +— +— +— +8,743,799 +Noncontrolling interest in ASP Rentals +— +— +— +— +— +721,548 +721,548 +Acquisition of PET Labs +— +— +— +— +— +1,821,021 +1,821,021 +Foreign currency translation +— +— +— +( 1,176,012 +) +— +— +( 1,176,012 +) +Net loss +— +— +— +— +( 16,286,234 +) +( 7,892 +) +( 16,294,126 +) +Balance as of December 31, 2023 +48,923,276 +489,233 +40,567,003 +( 920,982 +) +( 23,839,300 +) +2,534,677 +18,830,631 +Issuance of common stock, net of issuance costs of $ 3,648,385 +16,554,250 +165,542 +49,277,260 +— +— +— +49,442,802 +Issuance of common stock from warrant exercise +3,316,298 +33,163 +5,804,500 +— +— +— +5,837,663 +Issuance of restricted common stock +2,523,554 +25,236 +( 25,236 +) +— +Issuance of common stock to consultants +60,000 +600 +183,000 +— +— +— +183,600 +Issuance of common stock to board members +670,681 +6,707 +( 6,707 +) +— +— +— +— +Retired unvested restricted shares +( 325,000 +) +( 3,250 +) +3,250 +— +— +— +— +Settlement of liabilities with consultant +345,000 +3,450 +1,151,400 +— +— +— +1,154,850 +Board fee liabilities settled with shares +— +— +240,000 +— +— +— +240,000 +Commission fee liability settled with cash and common stock warrant +— +— +( 1,006,763 +) +— +— +— +( 1,006,763 +) +Settlement of commission fee liability payable in common stock warrant +— +— +765,894 +— +— +— +765,894 +Stock-based compensation expense +— +— +8,561,404 +— +— +— +8,561,404 +Contribution from noncontrolling interest in VIE +— +— +— +— +— +920,336 +920,336 +Distribution to noncontrolling interest of VIE +— +— +— +— +— +( 97,918 +) +( 97,918 +) +Foreign currency translation +— +— +— +( 1,243,331 +) +— +— +( 1,243,331 +) +Net loss +— +— +— +— +( 32,333,581 +) +( 89,147 +) +( 32,422,728 +) +Balance as of December 31, 2024 +72,068,059 +$ +720,681 +$ +105,515,005 +$ +( 2,164,313 +) +$ +( 56,172,881 +) +$ +3,267,948 +$ +51,166,440 +The accompanying notes are an integral part of these consolidated financial statements. +68 +ASP Isotopes Inc. +Consolidated Statements of Cash Flows +Year Ended December 31, +2024 +2023 +Cash flows from Operating activities +Net loss +$ +( 32,422,728 +) +$ +( 16,294,126 +) +Adjustments to reconcile net loss to cash used in operating activities: +Foreign exchange transaction loss(gain) from intercompany +42,407 +( 44,649 +) +Depreciation +471,421 +37,433 +Loss on disposal of property and equipment +1,666 +— +Stock-based compensation +8,561,404 +8,743,799 +Convertible note payable for non-cash issuance costs +621,915 +— +Shares issued for non-cash consultant expense +1,314,200 +669,700 +Change in fair value of share liability +132,273 +194,540 +Change in fair value of convertible notes payable +6,875,041 +— +Change in right-of-use lease assets +473,202 +104,528 +Change in deferred tax assets, net +( 143,276 +) +16,655 +Changes in operating assets and liabilities, net of acquisition amounts: +Accounts receivable +( 505,952 +) +237,952 +Inventory +( 67,639 +) +— +Prepaid expenses and other current assets +( 1,356,761 +) +( 546,097 +) +Other noncurrent assets +( 9,190 +) +( 59,324 +) +Accounts payable +( 877,468 +) +( 224,598 +) +Accrued expenses +909,873 +873,705 +Deferred revenue +— +882,000 +Operating lease liability +( 427,460 +) +( 85,775 +) +Tax liability current +— +( 22,787 +) +Other current liabilities +( 288,293 +) +104,652 +Net cash used in operating activities +( 16,695,365 +) +( 5,412,392 +) +Cash flows from investing activities +Purchases of property and equipment +( 9,675,127 +) +( 2,331,343 +) +Cash advance paid for property and equipment +( 1,697,272 +) +— +Cash paid for acquisition of business, net of cash acquired +— +( 121,848 +) +Net cash used in investing activities +( 11,372,399 +) +( 2,453,191 +) +Cash flows from financing activities +Proceeds from issuance of common stock +53,091,187 +14,129,495 +Common stock issuance costs +( 3,648,385 +) +( 563,473 +) +Proceeds from exercise of warrants +5,837,663 +— +Proceeds from noncontrolling interest in VIE +920,336 +— +Proceeds from collection of receivable from noncontrolling interest in VIE +706,774 +— +Distribution to noncontrolling interest in VIE +( 97,918 +) +— +Proceeds from issuance of convertible notes payable +25,936,228 +— +Proceeds from issuance of notes payable +500,923 +526,282 +Payments of notes payable +( 561,176 +) +( 87,713 +) +Payment of bank loan +( 51,381 +) +( 609,499 +) +Payment of principal portion of finance leases +( 100,611 +) +( 9,601 +) +Net cash provided by financing activities +82,533,640 +13,385,491 +Net change in cash and cash equivalents +54,465,876 +5,519,908 +Effect of exchange rate changes on cash and cash equivalents +( 484,009 +) +( 867 +) +Cash and cash equivalents– beginning of year +7,908,181 +2,389,140 +Cash and cash equivalents– end of year +$ +61,890,048 +$ +7,908,181 +Supplemental disclosures of non-cash investing and financing activities: +Issuance of common stock in lieu of commissions +$ +— +$ +75,570 +Settlement of liabilities with related party +$ +— +$ +626,223 +Seller financed portion of investment in PET Labs Pharmaceuticals +$ +— +$ +1,500,000 +Purchase of property and equipment included in accounts payable +$ +795,264 +$ +453,985 +Right-of-use assets obtained in exchange for operating lease liability +$ +364,458 +$ +70,607 +Right-of-use assets obtained in exchange for financing lease liability +$ +538,768 +$ +— +Deemed dividend on inducement warrant +$ +2,779,659 +$ +— +Purchase of property and equipment with bank loans +$ +2,020,511 +$ +— +Board fees settled with common stock +$ +240,000 +$ +— +Commission fee settled with common stock warrant +$ +765,894 +$ +— +The accompanying notes are an integral part of these consolidated financial statements. +69 +ASP Isotopes Inc. +Notes to Consolidated Financial Statements +1. Orga nization +Description of Business +ASP Isotopes Inc. was incorporated in the state of Delaware on September 13, 2021 and has its principal operations in Washington, DC. ASP Isotopes Inc.’s subsidiary, ASP Isotopes Guernsey Limited (“ASP Guernsey”), has its principal operations in Guernsey. ASP Guernsey’s subsidiary, ASP Isotopes Holdings South Africa Proprietary Limited (“ASP South Africa”), has its principal operations in South Africa. ASP Rentals Proprietary Limited (“ASP Rentals”), a variable interest entity (“VIE”) of ASP South Africa, has its principal operations in South Africa. Enlightened Isotopes (Pty) Ltd (“Enlightened Isotopes”), a 80 % owned subsidiary of ASP South Africa, was formed in March 2023 and began operations in January 2024. ASP Isotopes UK Ltd (“ASP UK”), a subsidiary of ASP Guernsey, was incorporated in July 2022. ASPI South Africa Asset Finance Proprietary Limited ("ASP SA Asset Finance”), a subsidiary of ASP South Africa, was incorporated in July 2024. PET Labs Global Nuclear Medicine SEZC (“PET Labs Global”), a subsidiary of ASP Guernsey, was incorporated in June 2024 in the Cayman Islands. PET Labs Pharmaceuticals Proprietary Limited (“PET Labs”), a 51 % owned subsidiary of ASP Isotopes Inc. operates in South Africa. ASP Isotopes Inc.’s subsidiary, Quantum Leap Energy LLC, was formed in the state of Delaware in September 2023 and began operations in February 2024. Quantum Leap Energy LLC’s subsidiary Quantum Leap Energy Proprietary Limited (“Quantum Leap Energy South Africa”), has its operations in South Africa. ASP Isotopes Inc., its subsidiaries and ASP Rentals are collectively referred to as “the Company” throughout these consolidated statements. +The Company is a development stage advanced materials company dedicated to the development of technology and processes that, if successful, will allow for the enrichment of natural isotopes into higher concentration products, which could be used in several industries. The Company’s proprietary technologies, the Aerodynamic Separation Process (“ASP technology”) and Quantum Enrichment technology (“QE technology”), are designed to enable the production of isotopes used in several industries. The Company’s initial focus is on the production and commercialization of enriched Carbon-14 (“C-14”), Silicon-28 (“Si-28”) and Ytterbium-176 (“Yb-176”). +The Company has completed the commissioning phase and are commencing commercial production at the C-14 and Si-28 enrichment facilities located in Pretoria, South Africa. We are in the process of commissioning and commencing commercial production at our Yb-176 enrichment facility in Pretoria, South Africa. We expect our first three enrichment facilities to generate commercial supply during 2025. In addition, the Company has started planning additional isotope enrichment plants both in South Africa and in other jurisdictions. The Company believes the C-14 it may produce using the ASP technology may be used in the development of new pharmaceuticals and agrochemicals. The Company believes the Si-28 it may produce using the ASP technology may be used to develop advanced semiconductors and in quantum computing. The Company believes the Yb-176 we may produce using the QE technology may be used to create radiotherapeutics that treat various forms of oncology. +In addition, the Company is considering the future development of the ASP technology for the separation of Zinc-68, Xenon-129/136 for potential use in the healthcare end market, Germanium 70/72/74 for possible use in the semiconductor end market, and Chlorine-37 for potential use in the nuclear energy end market. +The Company is also considering the future development of QE technology for the separation of Nickel-64, Gadolinium-160, Lithium 6 and Lithium-7. The Company is also pursuing an initiative to apply our enrichment technologies to the enrichment of Uranium-235 (“U-235”). The Company believes the U-235 that it may produce using quantum enrichment technology may be commercialized as a nuclear fuel component for use in the new generation of high-assay low-enriched uranium (HALEU)-fueled small modular reactors that are now under development for commercial and government uses. +Liquidity +The Company has experienced net losses and negative cash flows from operating activities since its inception. The Company incurred net losses of $ 32.4 million and $ 16.3 million for the years ended December 31, 2024 and 2023, respectively. The Company currently expects that its cash and cash equivalents of $ 61.9 million as of December 31, 2024 will be sufficient to fund its operating expenses and capital requirements for more than 12 months from the date the financial statements are issued. +There can be no assurance that the Company will achieve or sustain positive cash flows from operations or profitability. The Company anticipates it will need to continue to raise capital through additional equity and/or debt financings and/or collaborative development agreements to fund its operations beyond the next year. However, such funding may not be available on a timely basis on terms acceptable to the Company, or at all. If the Company is unable to raise additional capital when required or on acceptable terms, the Company may be required to scale back or discontinue the advancement of product candidates, reduce headcount, reorganize, merge with another entity, or cease operations. +70 +ASP Isotopes Inc. +Notes to Consolidated Financial Statements (continued) +2. Basis of Presentation and Summary of Significant Accounting Policies +Basis of Presentation and Use of Estimates +The Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The preparation of the Company’s consolidated financial statements requires management to make estimates and assumptions that impact the reported amounts of assets, liabilities and expenses and disclosure in the Company’s consolidated financial statements and accompanying notes. The most significant estimates in the Company’s consolidated financial statements relate to stock-based compensation, fair value of convertible notes, loss contingencies and the accounting for the acquisition, including goodwill. Although these estimates are based on the Company’s knowledge of current events and actions it may undertake in the future, actual results may materially differ from these estimates and assumptions. +Principles of Consolidation +The Company’s consolidated financial statements include the accounts of ASP Isotopes Inc., its wholly-owned subsidiaries, the 80 % owned Enlightened Isotopes, the 51 % owned PET Labs and the 42 % owned VIE ASP Rentals. All intercompany balances and transactions have been eliminated in consolidation. +Currency and Currency Translation +The consolidated financial statements are presented in U.S. dollars, the Company’s reporting currency. The functional currency of ASP Isotopes Inc. and ASP Guernsey is the U.S. dollar. The functional currency of the Company’s subsidiaries ASP South Africa and Quantum Leap Energy South Africa is the South African Rand. The functional currency of the 80 % owned Enlighted Isotopes, the 51 % owned PET Labs and the 42 % owned VIE ASP Rentals is the South African Rand. Adjustments that arise from exchange rate changes on transactions of each group entity denominated in a currency other than the functional currency are included in other income and expense in the consolidated statements of operations and comprehensive loss. Assets and liabilities of the entities with functional currency of South African Rand are recorded in South African Rand and translated into the U.S. dollar reporting currency of the Company at the exchange rate on the balance sheet date. Revenue and expenses of the entities with functional currency of South African Rand are recorded in South African Rand and translated into the U.S. dollar reporting currency of the Company at the average exchange rate prevailing during the reporting period. Resulting translation adjustments are recorded separately in stockholders’ equity as a component of accumulated other comprehensive (loss) income. +Concentration of Credit Risk and other Risks +Cash balances are maintained at U.S. financial institutions and may exceed the Federal Deposit Insurance Corporation (“FDIC”) insurance limit of $ 250,000 per depositor, per insured bank for each account ownership category. Although the Company currently believes that the financial institutions with whom it does business, will be able to fulfill their commitments to the Company, there is no assurance that those institutions will be able to continue to do so. The Company has not experienced any credit losses associated with its balances in such accounts for the years ended December 31, 2024 and 2023. +The Company's foreign subsidiaries held cash of approximately $ 1,512,000 and $ 1,963,000 as of December 31, 2024 and 2023, respectively, which is included in cash and cash equivalents on the consolidated balance sheets. Our strategic plan does not require the repatriation of foreign cash in order to fund our operations in the U.S., and it is our current intention to indefinitely reinvest our foreign cash outside of the U.S. If we were to repatriate foreign cash to the U.S., we would be required to accrue and pay U.S. taxes in accordance with applicable U.S. tax rules and regulations as a result of the repatriation. +The Company is potentially subject to concentrations of credit risk in accounts receivable as the following customer balances exceed 10% of accounts receivable in the consolidated balance sheet as December 31, 2024 and 2023. +As of December 31, 2024 +As of December 31, 2023 +Accounts Receivable +% of Total Accounts Receivable +Accounts Receivable +% of Total Accounts Receivable +Customer A +$ +200,000 +28 +% +$ +— +— +Customer B +$ +144,590 +20 +% +$ +32,683 +15 +% +Customer C +$ +— +— +$ +27,398 +13 +% +Customer D +$ +— +— +$ +21,682 +10 +% +Although the Company is directly affected by the financial condition of its customers, management does not believe significant credit risks exist at December 31, 2024. Generally, we do not require collateral or other securities to support its accounts receivable. +71 +ASP Isotopes Inc. +Notes to Consolidated Financial Statements (continued) +Revenues from one customer of the Company’s specialist isotopes and related services segment represents approximately 14 % or $ 592,000 the Company’s consolidated revenues. for the year ended December 31, 2024. For the year ended December 31, 2023 , there were no customers representing 10 % or more of revenues. +Cash and cash equivalents +The Company considers all highly liquid investments with original maturities at the date of purchase of three months or less to be cash equivalents. Cash and cash equivalents are stated at fair value and may include money market funds, U.S. Treasury and U.S. government-sponsored agency securities, corporate debt, commercial paper and certificates of deposit. The Company had no cash equivalents as of December 31, 2024 and 2023 . +Fair Value of Financial Instruments +Accounting guidance defines fair value, establishes a consistent framework for measuring fair value, and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: +Level 1: Observable inputs such as quoted prices in active markets; +Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and +Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. +The Company’s share liability (Note 12) is measured at Level 1 fair value on a recurring basis. There was no share liability as of December 31, 2024 and 2023. The Company’s convertible notes payable (Note 6) is measured as a Level 3 fair value on a recurring basis and was $ 33,433,184 as of December 31, 2024 . There were no transfers among Level 1, Level 2 or Level 3 categories in the year ended December 31, 2024 . The following table provides a reconciliation of the Company’s liabilities measured as a Level 3 at fair value on a recurring basis using significant unobservable inputs: +Convertible +Notes Payable +Balance as of December 31, 2023 +— +Fair value at issuance +26,558,143 +Fair value adjustment +6,875,041 +Balance as of December 31, 2024 +$ +33,433,184 +The carrying amounts of accounts payable, accrued expenses and notes payable are considered to be representative of their respective fair values because of the short-term nature of those instruments. +Revenue Recognition +The Company’s product revenue relates to PET Labs, in which the Company acquired 51 % ownership on October 31, 2023 (Note 11). The Company recognizes revenue in accordance with Financial Accounting Standards Board ("FASB”) Accounting Standards Codification ("ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”). The Company enters into transactions with radiopharmacy companies that are within the scope of ASC 606. The terms of these transactions include payment for delivery of nuclear medical doses for PET scanning in South Africa. +Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine the appropriate amount of revenue to be recognized for arrangements determined to be within the scope of ASC 606, the Company performs the following five steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect consideration it is entitled to in exchange for the goods or services it transfers to the customer. +72 +ASP Isotopes Inc. +Notes to Consolidated Financial Statements (continued) +The Company’s evaluates a transaction’s performance obligations to determine if promised goods or services in a contract to transfer a distinct good or service to the customer and are considered distinct when (i) the customer can benefit from the good or service on its own or together with other readily available resources and (ii) the promised good or service is separately identifiable from other promises in the contract. In assessing whether promised goods or services are distinct, the Company considers whether the goods or services are integral or dependent to other goods or services in the contract. +The Company determines the transaction price based on the agreed government rates for the promised goods in the contract. The consideration is recognized as revenue when control is transferred for the related goods. +The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition. The Company receives payments from its customers based on billing schedules established in each contract. Upfront payments and fees are recorded as deferred revenue upon receipt or when due until the Company performs its obligations under these arrangements. Amounts are recorded as accounts receivable when the Company’s right to consideration is unconditional. +The Company’s collaboration revenue relates to TerraPower LLC ("TerraPower") (Note 10). At contract execution, the Company analyzes its collaborative arrangements and license agreements to assess whether both parties are active participants in the activities and are exposed to significant risks and rewards and therefore are within the scope of ASC 808, Collaborative arrangements (“ASC 808”). ASC 808 does not address the recognition and measurement of payments from collaborative arrangements and instead refers companies to use other authoritative accounting literature. For collaboration arrangements within the scope of ASC 808 that contain multiple elements, the Company first determines which elements of the collaboration reflect a vendor-customer relationship and therefore are within the scope of ASC 606, Revenue from Contracts with Customers. When the Company determines elements of a collaboration agreement do not reflect a vendor-customer relationship, the Company consistently applies a reasonable and rational policy election made by analogizing to authoritative accounting literature. The Company evaluates the income statement classification for presentation of amounts due from or owed to other participants in a collaboration arrangement based on the nature of each separate activity. +Accounts Receivable +Accounts receivable are stated at the amount management expects to collect from outstanding balances. An allowance for expected credit losses is estimated for those accounts receivable considered to be uncollectible based upon historical experience and management's evaluation of outstanding accounts receivable.The Company assesses collectibility by reviewing accounts receivable on a collective basis where similar characteristics exist and on an individual basis when the Company identifies specific customers with known disputes or collectibility issues. In determining the amount of the allowance for credit losses, the Company considers historical collectibility based on past due status and makes judgments about the creditworthiness of customers based on ongoing credit evaluations. The Company also considers customer-specific information, current market conditions, and reasonable and supportable forecasts of future economic conditions. Bad debts are written off against the allowance when identified. At December 31, 2024 and 2023 there was no allowance for expected credit losses. +Inventory +The Company uses the first in, first out inventory method to account for its inventory. As of December 31, 2024 , inventory consists of raw materials and is stated at the lower of cost or net realizable value. There was no inventory as of December 31, 2023 . +Property and Equipment +Property and equipment include costs of assets constructed, purchased or leased under a finance lease, related delivery and installation costs and interest incurred on significant capital projects during their construction periods. Expenditures for renewals and betterments also are capitalized, but expenditures for normal repairs and maintenance are expensed as incurred. Costs associated with yearly planned major maintenance are generally deferred and amortized over 12 months or until the same major maintenance activities must be repeated, whichever is shorter. The cost and accumulated depreciation applicable to assets retired or sold are removed from the respective accounts, and gains or losses thereon are included in the statement of operations and comprehensive loss. +The Company assigns the useful lives of our property and equipment based upon our internal engineering estimates, which are reviewed periodically. The estimated useful lives of the Company's property and equipment range from 3 to 10 years, or the shorter of the useful life or remaining life of the lease for leasehold improvements. Depreciation is recorded using the straight-line method. +Construction in progress (Note 4) is carried at cost and consists of specifically identifiable direct and indirect development and construction costs. While under construction, costs of the property are included in construction in progress until the property is placed in service, at which time costs are transferred to the appropriate property and equipment account, including, but not limited to, leasehold improvements or other such accounts. +73 +ASP Isotopes Inc. +Notes to Consolidated Financial Statements (continued) +Property and equipment acquired in the acquisition of PET Labs was measured at fair value on October 31, 2023. The fair value forms the new basis of these assets and is depreciated over the remaining estimated useful lives of the related assets. +Business Combination and Asset Acquisitions +The Company evaluates acquisitions of assets and other similar transactions to assess whether or not the transaction should be accounted for as a business combination or asset acquisition by first applying a screen to determine if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. If the screen is met, the transaction is accounted for as an asset acquisition. If the screen is not met, further determination is required as to whether or not the Company has acquired inputs and processes that have the ability to create outputs, which would meet the requirements of a business. If determined to be a business combination, the Company accounts for the transaction under the acquisition method of accounting in accordance with ASC Topic 805 Business Combinations ("ASC 805"), which requires the acquiring entity in a business combination to recognize the fair value of all assets acquired, liabilities assumed, and any non-controlling interest in the acquiree and establishes the acquisition date as the fair value measurement point. Accordingly, the Company recognizes assets acquired and liabilities assumed in business combinations, including contingent assets and liabilities, and non-controlling interest in the acquiree based on the fair value estimates as of the date of acquisition. In accordance with ASC 805, the Company recognizes and measures goodwill as of the acquisition date, as the excess of the fair value of the consideration paid over the fair value of the identified net assets acquired. +The consideration for the Company’s business acquisitions may include future payments that are contingent upon the occurrence of a particular event or events. The obligations for such contingent consideration payments are recorded at fair value on the acquisition date. The contingent consideration obligations are then evaluated each reporting period. Changes in the fair value of contingent consideration, other than changes due to payments, are recognized as a gain or loss and recorded within change in the fair value of deferred and contingent consideration liabilities in the consolidated statements of comprehensive loss. +If determined to be an asset acquisition, the Company accounts for the transaction under ASC 805-50, which requires the acquiring entity in an asset acquisition to recognize assets acquired and liabilities assumed based on the cost to the acquiring entity on a relative fair value basis, which includes transaction costs in addition to consideration given. No gain or loss is recognized as of the date of acquisition unless the fair value of non-cash assets given as consideration differs from the assets’ carrying amounts on the acquiring entity’s books. Consideration transferred that is non-cash will be measured based on either the cost (which shall be measured based on the fair value of the consideration given) or the fair value of the assets acquired and liabilities assumed, whichever is more reliably measurable. Goodwill is not recognized in an asset acquisition and any excess consideration transferred over the fair value of the net assets acquired is allocated to the identifiable assets based on relative fair values. +Contingent consideration payments in asset acquisitions are recognized when the contingency is resolved and the consideration is paid or becomes payable (unless the contingent consideration meets the definition of a derivative, in which case the amount becomes part of the basis in the asset acquired). Upon recognition of the contingent consideration payment, the amount is included in the cost of the acquired asset or group of assets. +Goodwill +Goodwill represents the amount of consideration paid in excess of the fair value of net assets acquired as a result of the Company’s business acquisitions accounted for using the acquisition method of accounting. Goodwill is not amortized and is subject to impairment testing at a reporting unit level on an annual basis or when a triggering event occurs that may indicate the carrying value of the goodwill is impaired. An entity is permitted to first assess qualitative factors to determine if a quantitative impairment test is necessary. Further testing is only required if the entity determines, based on the qualitative assessment, that it is more likely than not that the fair value of the reporting unit is less than its carrying amount. The Company performs its annual test for goodwill as of October 31. The result of the analysis performed as of October 31, 2024 did not indicate an impairment of goodwill. +Variable Interest Entities +The Company accounts for the investments it makes in certain legal entities in which equity investors do not have (1) sufficient equity at risk for the legal entity to finance its activities without additional subordinated financial support, or (2) as a group, the holders of the equity investment at risk do not have either the power, through voting or similar rights, to direct the activities of the legal entity that most significantly impact the entity’s economic performance, or (3) the obligation to absorb the expected losses of the legal entity or the right to receive expected residual returns of the legal entity. These certain legal entities are referred to as “variable interest entities” or “VIEs.” +The Company would consolidate the results of any such entity in which it determined that it had a controlling financial interest. The Company would have a “controlling financial interest” in such an entity if the Company had both the power to direct the activities that most significantly affect the VIE’s economic performance and the obligation to absorb the losses of, or right to receive benefits from, the VIE that could be potentially significant to the VIE. On a quarterly basis, the Company will reassess whether it has a controlling financial interest in any investments it has in these certain legal entities. +74 +ASP Isotopes Inc. +Notes to Consolidated Financial Statements (continued) +Convertible Notes Payable +Convertible notes payable are accounted for in accordance with ASC Topic 825, Financial Instruments ("ASC 825"). Upon issuance the Company has elected the fair value option to account for the convertible notes payable. Changes in fair value during the reporting period are recognized in other income (expense) in the consolidated statement of operations and comprehensive loss. +Leases +The Company accounts for leases in accordance with ASC Topic 842, Leases ("ASC 842"). At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on specific facts and circumstances, the existence of an identified asset(s), if any, and the Company’s control over the use of the identified asset(s), if applicable. Operating lease liabilities and their corresponding right-of-use ("ROU") assets are recorded based on the present value of future lease payments over the expected lease term. The interest rate implicit in lease contracts is typically not readily determinable. As such, the Company will utilize the incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment, and considering the region in which the ROU asset and liabilities are located. +The Company has elected to combine lease and non-lease components as a single component. Operating leases are recognized on the balance sheet as ROU lease assets, lease liabilities current and lease liabilities non-current. Fixed rents are included in the calculation of the lease balances, while variable costs paid for certain operating and pass-through costs are excluded. Lease expense is recognized over the expected term on a straight-line basis. +Finance leases are recognized on the balance sheet as property and equipment, finance lease liabilities current and finance lease liabilities non-current. Finance lease ROU assets and the related lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. The finance lease ROU assets are amortized on a straight-line basis over the lease term with the related interest expense of the lease liability payment recognized over the lease term using the effective interest method. +Impairment of Long-lived Assets +Long-lived assets consist primarily of property and equipment. The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset is not recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the asset exceeds the fair value of the assets. Fair value would be assessed using a discounted cash flows or other appropriate measures of fair value. The Company did no t recognize any impairment losses for the years ended December 31, 2024 and 2023 . +Research and Development Costs +Research and development costs consist primarily of fees paid to consultants, license fees and facilities costs. Nonrefundable advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made. All research and development costs are expensed as incurred. +Selling, General and Administrative Costs +Selling, general and administrative expenses consist primarily of salaries and related benefits, including stock-based compensation, related to our executive, finance, business development, legal, human resources and support functions. Other general and administrative expenses include professional fees for auditing, tax, consulting and patent-related services, rent and utilities and insurance. +Stock-based Compensation +The Company accounts for stock-based compensation in accordance with ASC 718, Compensation-Stock Compensation ("ASC 718"). Stock-based compensation expense represents the cost of the grant date fair value of employee stock awards recognized over the requisite service period of the awards (usually the vesting period) on a straight-line basis. The Company estimates the fair value of each stock-based award on the date of grant using the Black-Scholes option pricing model. The Black-Scholes option pricing model incorporates various assumptions, such as the value of the underlying common stock, the risk-free interest rate, expected volatility, expected dividend yield, and expected life of the options. Forfeitures are recognized as a reduction of stock-based compensation expense as they occur. +The Company also awards restricted stock to employees and directors. Restricted stock is generally subject to forfeiture if employment terminates prior to the completion of the vesting restrictions. The Company expenses the cost of the restricted stock, +75 +ASP Isotopes Inc. +Notes to Consolidated Financial Statements (continued) +which is determined to be the fair market value of the shares of common stock underlying the restricted stock at the date of grant, ratably over the period during which the vesting restrictions lapse. +Stock-based compensation expense is classified in the statement of operations and comprehensive loss in the same manner in which the award recipients’ payroll costs are classified or in which the award recipients’ service payments are classified. +Prior to the Company’s IPO, there was no public market of the Company’s common stock. The fair value of the shares of common stock underlying the Company’s share-based awards was estimated on each grant date by the Company’s board of directors based on then current facts and circumstances. To determine the fair value of the Company’s common stock underlying option grants, the board of directors considered, among other things, input from management and recent third-party financings consummated by the Company. +Income Taxes +Deferred income tax assets and liabilities arise from temporary differences associated with differences between the financial statements and tax basis of assets and liabilities, as measured by the enacted tax rates, which are expected to be in effect when these differences reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. +Prior to the acquisition of 51 % of PET Labs in October 2023, the Company had generated net losses since inception and accordingly had no t recorded a provision for income taxes. Subsequent to the acquisition of 51 % of PET Labs, the Company records the provision for income taxes for the activity from PET Labs operations. +The Company follows the provisions of ASC 740-10, Uncertainty in Income Taxes, ( " ASC 740-10"). The Company has no t recognized a liability for any uncertain tax positions. A reconciliation of the beginning and ending amount of unrecognized tax benefits has not been provided since there is no unrecognized benefit since the date of adoption. The Company has no t recognized interest expense or penalties as a result of the implementation of ASC 740-10. If there were an unrecognized tax benefit, the Company would recognize interest accrued related to unrecognized tax benefits and penalties in income tax expense. +The Company has identified the United States, South Africa and Guernsey as its major tax jurisdictions. Refer to Note 15 for further details. +Comprehensive Loss +Comprehensive loss is defined as a change in equity during a period from transactions and other events and circumstances from non-owner sources. The Company’s comprehensive loss is comprised of net loss and the effect of currency translation adjustments. +Recently Adopted Accounting Pronouncements +In November 2023, the Financial Accounting Standards Board (“FASB") issued Accounting Standards Update (“ASU") 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures ("ASU 2023-07"). ASU 2023-07 will improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses on an interim and annual basis. The ASU is effective for fiscal years beginning after December 15, 2023, and interim periods after December 15, 2024, with early adoption permitted. See Note 3 (Revenue and Segment Information) for additional disclosure. +Recently Issued Accounting Pronouncements +The Company has reviewed recently issued accounting pronouncements and plans to adopt those that are applicable to it. The Company does not expect the adoption of any recently issued pronouncements to have a material impact on its results of operations or financial position. +In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures" ("ASU 2023-09"), which enhances the transparency and decision usefulness of income tax disclosures. Adjustments to the annual disclosure of income taxes include: (1) A tabular rate reconciliation comprised of eight specific categories, (2) Incomes taxes paid, disaggregated between significant national, state, and foreign jurisdictions, (3) Eliminates requirements to disclose the nature and estimate of reasonably possible changes to unrecognized tax benefits in the next 12 months or that an estimated range cannot be made, and (4) Adds a requirement to disclose income (or loss) from continuing operations before income tax expense (or benefit) and income tax expense (or benefit) from continuing operations disaggregated between domestic and foreign. The ASU is effective for public business entities for fiscal years beginning on or after December 15, 2024 with early adoption permitted. The amendments in ASU 2023-09 should be applied on a prospective basis and retrospective application is permitted. The Company is in the process of evaluating the impact of adoption of ASU 2023-09 on the Company's consolidated financial statements. +In November 2024, the FASB issued ASU 2024-03, Disaggregation of Income Statement Expenses (“ASU 2024-03”) and is effective for annual reporting periods beginning after December 15, 2026 and interim reporting periods beginning after December +76 +ASP Isotopes Inc. +Notes to Consolidated Financial Statements (continued) +15, 2027. ASU 2024-03 requires disclosures about specific types of expenses included in the expense captions presented on the face of the income statement as well as disclosures about selling expenses. The Company is in the process of evaluating the impact of adopting ASU 2024-03 on the Company's consolidated financial statements. +3. Revenue and Segment Information +In connection with our acquisition of 51 % ownership of PET Labs in October 2023, the Company manufactures and sells nuclear medical doses for PET scanning in South Africa. The Company recognized product revenue of $ 3,944,226 and $ 433,026 , for the years ended December 31, 2024 and 2023, respectively. +The following tables present changes in the Company’s accounts receivable for the years ended December 31, 2024 and 2023: +Balance as of +December 31, 2023 +Additions +Deductions +Balance as of +December 31, 2024 +Accounts receivable +$ +216,504 +$ +4,144,226 +$ +( 3,653,805 +) +$ +706,925 +Balance as of +October 31, 2023 +Additions +Deductions +Balance as of +December 31, 2023 +Accounts receivable +$ +460,165 +$ +433,026 +$ +( 676,687 +) +$ +216,504 +Segment Information +As of December 31, 2023 , the Company managed its operations as a single segment, specialist isotopes and related services. Beginning in 2024, primarily as a result of increased business activities of its subsidiary, Quantum Leap Energy LLC, the Company has two operating segments: (i) nuclear fuels, and (ii) specialist isotopes and related services. +The nuclear fuels segment is focused on research and development of technologies and methods used to produce high-assay low-enriched uranium (HALEU) and Lithium-6 for the advanced nuclear fuels target end market. +The specialist isotopes and related services segment is focused on research and development of technologies and methods used to separate high-value, low-volume isotopes (such as C-14, Mo-100 and Si-28) for highly specialized target end markets other than advanced nuclear fuels, including pharmaceuticals and agrochemicals, nuclear medical imaging and semiconductors, as well as services related to these isotopes, and this segment includes PET Labs. +The Company’s chief operating decision maker (“CODM”) is its chief executive officer . The segment revenue and segment net loss is regularly reviewed by the CODM in deciding how to allocate resources. The Company manages assets on a total company basis, not by operating segment, as the assets are shared or commingled. Therefore, the CODM does not regularly review any asset information by operating segment and, accordingly, asset information is not reported on a segment basis. +Select information from the consolidated statements of operations and comprehensive loss as of the years ended December 31, 2024 and 2023 is as follows: +Revenues +Net Loss Before +Allocation to Noncontrolling Interest +Year Ended December 31, +Year Ended December 31, +Segment +2024 +2023 +2024 +2023 +Specialist isotopes and related services +$ +3,944,226 +$ +433,026 +$ +( 21,367,787 +) +$ +( 16,145,339 +) +Nuclear fuels +200,000 +— +( 10,881,084 +) +— +Corporate +— +— +( 173,857 +) +( 148,787 +) +$ +4,144,226 +$ +433,026 +$ +( 32,422,728 +) +$ +( 16,294,126 +) +77 +ASP Isotopes Inc. +Notes to Consolidated Financial Statements (continued) +A reconciliation of total segment revenue to total consolidated revenue and of total segment gross profit and segment operating income to total consolidated income before income taxes, for the years ended December 31, 2024 and 2023, is as follows: +Year Ended December 31, 2024 +Specialist isotopes and related services +Nuclear fuels +Corporate +Total +Sales from external customers +$ +3,944,226 +$ +— +$ +— +$ +3,944,226 +Collaboration revenue +— +200,000 +— +200,000 +Less: cost of sales +( 2,544,614 +) +— +— +( 2,544,614 +) +Segment gross profit +1,399,612 +200,000 +— +1,599,612 +Personnel expenses +12,392,833 +1,197,515 +— +13,590,348 +Professional fees +6,108,271 +1,631,772 +— +7,740,043 +Other segment expenses +4,794,818 +1,828,057 +— +6,622,875 +Segment operating loss +( 21,896,310 +) +( 4,457,344 +) +— +( 26,353,654 +) +Foreign exchange transaction gain +— +— +69,865 +69,865 +Change in fair value of share liability +— +— +( 132,273 +) +( 132,273 +) +Change in fair value of convertible notes payable +— +( 6,875,041 +) +— +( 6,875,041 +) +Interest income (expense), net +528,523 +451,301 +— +979,824 +Loss before income tax expense +$ +( 21,367,787 +) +$ +( 10,881,084 +) +$ +( 62,408 +) +$ +( 32,311,279 +) +Year Ended December 31, 2023 +Specialist isotopes and related services +Nuclear fuels +Corporate +Total +Sales from external customers +$ +433,026 +$ +— +$ +— +$ +433,026 +Less: cost of sales +( 294,056 +) +— +— +( 294,056 +) +Segment gross profit +138,970 +— +— +138,970 +Personnel expenses +11,134,296 +— +— +11,134,296 +Professional fees +2,994,611 +— +— +2,994,611 +Other segment expenses +2,052,062 +— +— +2,052,062 +Segment operating loss +( 16,041,999 +) +— +— +( 16,041,999 +) +Foreign exchange transaction gain +— +— +45,753 +45,753 +Change in fair value of share liability +— +— +( 194,540 +) +( 194,540 +) +Interest income (expense), net +( 109,473 +) +— +— +( 109,473 +) +Loss before income tax expense +$ +( 16,151,472 +) +$ +— +$ +( 148,787 +) +$ +( 16,300,259 +) +78 +ASP Isotopes Inc. +Notes to Consolidated Financial Statements (continued) +4. Property and Equipment +Property and equipment as of December 31, 2024 and 2023 consisted of the following: +Useful Lives +(Years) +December 31, +2024 +2023 +Construction in progress +— +$ +13,969,784 +$ +9,108,923 +Tools, machinery and equipment +3 - 10 +5,898,618 +1,458,654 +Plant +10 +2,269,204 +— +Computer equipment +3 - 4 +145,225 +60,447 +Vehicles +5 +292,498 +39,849 +Software +5 +1,590 +1,639 +Office furniture +7 - 10 +147,079 +59,588 +Leasehold improvements +5 +115,890 +21,446 +Property and equipment, at cost +22,839,888 +10,750,546 +Less accumulated depreciation +( 485,511 +) +( 37,707 +) +Property and equipment, net +$ +22,354,377 +$ +10,712,839 +The Carbon-14 plant was completed in June 2024 and depreciation began in July 2024. The Company is currently building two other plants in Pretoria, South Africa: a multi-isotope plant and a laser isotope separation plant using quantum enrichment technology. Costs incurred for the other two plants are considered construction in progress because the work is not complete as of December 31, 2024. Costs incurred for the plants as of December 31, 2024 and 2023 are considered construction in progress. There was no depreciation expense as it relates to the construction in progress for the years ended December 31, 2024 and 2023. Depreciation expense for all other asset categories was $ 471,421 and $ 37,433 for the years ended December 31, 2024 and 2023 , respectively. +5. Accrued Expenses +Accrued expenses as of December 31, 2024 and 2023 consisted of the following: +December 31, +2024 +2023 +Accrued professional +$ +671,314 +$ +447,295 +Accrued salaries and other employee costs +1,584,273 +845,344 +Accrued other +20,094 +18,606 +Total accrued expenses +$ +2,275,681 +$ +1,311,245 +6. Notes Payable +Debt consisted of the following as of December 31, 2024 and 2023: +December 31, +2024 +2023 +Promissory note +$ +409,696 +$ +470,396 +Motor vehicle and equipment loans +1,970,700 +— +Total notes payable +2,380,396 +470,396 +less current portion of notes payable +( 939,110 +) +( 470,396 +) +Long term portion of notes payable +$ +1,441,286 +$ +— +Promissory Note Payable +During 2021, the Company executed a promissory note payable with an aggregate principal balance of $ 33,500 ( 25,000 GBP). The note was due after a period of two months, followed by mutually agreed upon monthly extensions, and does not bear interest. As of December 31, 2024 and 2023 , the promissory note payable balance was $ 31,380 and $ 31,827 , respectively, and continues to be automatically extended on a monthly basis. +In conjunction with the acquisition of 51 % of PET Labs, ASP assumed a liability to a bank. Prior to December 31, 2023, the bank loan balance of $ 609,500 was paid off entirely. +79 +ASP Isotopes Inc. +Notes to Consolidated Financial Statements (continued) +In November 2024, the Company executed a promissory note payable with a finance company to fund its directors and officers’ insurance policy for $ 500,923 . This note bears interest at an annual rate of 8.45 % with seven monthly payments beginning in December 31, 2024 . In November 2023, the Company executed a promissory note payable with a finance company to fund its directors and officers' insurance policy for $ 526,282 . This note bore interest at an annual rate of 8.74 % with six monthly payments beginning in December 2023 . The note was repaid in full in May 2024. For the years ended December 31, 2024 and 2023 , the Company recorded interest expense of $ 17,872 and $ 2,249 , respectively. As of December 31, 2024 and 2023 , the promissory note payable balance was $ 378,316 and $ 438,569 , respectively. +Motor Vehicle and Equipment Loans +During 2024 , the Company entered into several loans to purchase motor vehicles and certain equipment totaling $ 2,020,511 . These loans are secured by the underlying assets included in property and equipment. The loans have variable interest rates ranging from 10.40 % to 12.25 % and mature from September 2028 to December 2029 . Minimum monthly payments total $ 40,120 . Interest expense under the outstanding loans was $ 70,975 for the year ended December 31, 2024. As of December 31, 2024 , motor vehicle and equipment loans totaled $ 1,970,700 . +Convertible Notes Payable +In March 2024, the Company issued convertible notes payable (“March 2024 Convertible Notes”) totaling $ 21,063,748 and received aggregate cash of $ 20,550,000 . One of the notes totaling $ 513,748 was issued to the placement agent in lieu of cash issuance costs. Issuance costs paid in cash totaling $ 521,423 and the value of the note issued upon issuance to the placement agent were expensed in selling, general and administrative costs in the consolidated statement of operations and comprehensive loss for the year ended December 31, 2024. +In June 2024, the Company issued additional convertible notes payable (“June 2024 Convertible Notes”) totaling $ 5,494,395 and received aggregate cash of $ 5,386,228 . One of the notes totaling $ 108,167 was issued to the placement agent in lieu of cash issuance costs and was expensed in selling, general and administrative costs in the condensed consolidated statement of operations and comprehensive loss for the year ended December 31, 2024. Issuance costs paid in cash were negligible. The March 2024 Convertible Notes and the June 2024 Convertible Notes are collectively the “Convertible Notes”. +The Convertible Notes are payable on demand in March 2029 and bear an annual interest rate of 6 % through March 7, 2025 and 8 % thereafter. Upon a qualified financing event the Convertible Notes convert into the shares issued in that qualified financing event at a price per share equal to 80 % of the share price issued subject to a valuation cap. Upon a qualified transaction, the noteholders may elect to receive either 1.5x the principal and accrued interest balance in cash or convert into common shares. +The Convertible Notes are recorded on the consolidated balance sheet at their fair values. The fair value of the March Convertible Notes on the date of issuance was $ 21,063,748 . The fair value of the June Convertible Notes on the date of issuance was $ 5,494,395 . The fair value of the Convertible Notes as of December 31, 2024 has been determined to be $ 33,433,184 and the resultant change in fair value of $ 6,875,041 has been recorded in other income and expense in the consolidated statement of operations and comprehensive loss for the year ended December 31, 2024. As of December 31, 2024, the total principal and accrued interest of the Convertible Notes is $ 27,782,210 of which $ 1,224,067 is from the interest. +7. Deferred Revenues +In June 2023, the Company entered into a Supply Agreement with a customer for the delivery of molybdenum-100 and molybdenum-98 beginning in 2024. In conjunction with the Supply Agreement, the Company received $ 882,000 in September 2023, as an advance towards future revenue. The Company has recorded $ 882,000 as deferred revenue on the balance sheet as of December 31, 2024 and 2023. No amount of deferred revenue was recorded as of January 1, 2023. +8. Commitments and Contingencies +Purchase of Cyclotron +In November 2023, the cyclotron that the Company ordered was shipped. As of December 31, 2023, the equipment had not been delivered; however, the Company was obligated to purchase this equipment and recorded the full cost of $ 1,653,000 in other noncurrent assets and other noncurrent liabilities on the consolidated balance sheet as of December 31, 2023. +In March 2024, the cyclotron was received by the Company and is recorded as property and equipment. The financing company has paid the vendor. During 2024, the Company financed the cost of this equipment and is recorded in notes payable as of December 31, 2024. +80 +ASP Isotopes Inc. +Notes to Consolidated Financial Statements (continued) +Klydon Proprietary Limited +In November 2021, the Company entered into an agreement with Klydon Proprietary Limited (“Klydon”) to design and build a plant to enrich Molybdenum in South Africa (the "Turnkey Contract"). The initial phase of the project included the building of a plant that can support the production of at least 5kgs of Mo-100. The contracted cost for this phase was $ 6,800,000 . The second phase of the project included the production to be increased to 20kgs of Mo-100 with an additional cost of $ 6,000,000 . +Klydon performed a portion of the services required under the Turnkey Contract; however, some services were incomplete and many of the services were not completed within the time frame required. As a result, Klydon and ASP South Africa entered into an Acknowledgement of Debt Agreement dated November 30, 2022, whereby Klydon (i) agreed to pledge its assets (the “Pledged Assets”) to ASP South Africa to secure its performance of the Turnkey Contract by December 31, 2022, and (ii) acknowledged that ASP South Africa would suffer damages in the amount of $ 6,050,000 (“Damage Amount”) should it fail to perform. Under the Acknowledgement of Debt Agreement, the Pledged Assets would serve as collateral for Klydon’s obligation to pay the Damage Amount should Klydon fail to perform. In connection therewith, also on November 30, 2022, ASP South Africa and Klydon entered into a Deed of Security Agreement whereby, if Klydon failed to complete its obligations under the Turnkey Contract by December 31, 2022, all of Klydon’s rights of any nature to and interests of any nature in the Pledged Assets would be transferred to ASP South Africa. Klydon failed to complete its obligations under the Turnkey Contract by December 31, 2022, however, the Company did not perfect its interests in the assets until April 4, 2023. The Company did not believe that the amounts owed by Klydon were realizable, nor did the Company know the timing of any recovery payments. Therefore, a loss recovery receivable was not recorded at any time prior to April 4, 2023. +On April 4, 2023, the Company perfected its interest under the Acknowledgement of Debt Agreement, pursuant to which the Company acquired certain intellectual property from Klydon (“Klydon Settlement”). In addition, the Company acquired Klydon's interest in four entities which are inactive and in the process of being dissolved. The Company has concluded that the Klydon Settlement is accounted for as an asset acquisition under ASC 805 since the assets acquired were concentrated in a single identifiable asset from a related party. In conjunction with the Klydon Settlement, the Company recorded an increase to additional paid-in capital for the settlement of all liabilities owed to Klydon at the time of settlement totaling $ 626,223 . +Two individuals who were officers and board members of Klydon, one who is now an officer of ASP Isotopes Inc. and the other who was a scientific advisor of ASP Isotopes Inc., received warrants to purchase common stock of the Company and therefore are considered related parties. See Notes 10 and 12. The individual who was a scientific advisor of ASP Isotopes Inc, has resigned from that role, given his age and deteriorating health. +Share Purchase Agreement relating to PET Labs +On October 31, 2023, the Company entered into a Share Purchase Agreement with Nucleonics Imaging Proprietary Limited, a company incorporated in the Republic of South Africa (the “Seller”), relating to the purchase and sale of ordinary shares in the issued share capital of PET Labs. PET Labs is a South African radiopharmaceutical operations company, dedicated to nuclear medicine and the science of radiopharmaceutical production. +Under the Purchase Agreement, the Company has agreed to purchase from the Seller 51 ordinary shares in the issued share capital of PET Labs (the “Initial Sale Shares”) (representing 51 % of the issued share capital of PET Labs) and has an option to purchase from the Seller the remaining 49 ordinary shares in the issued share capital of PET Labs (the “Option Shares”) (representing the remaining 49 % of the issued share capital of PET Labs). The Company agreed to pay to the Seller an aggregate of $ 2,000,000 for the Initial Sale Shares, of which aggregate amount of $ 500,000 was payable on the completion of the sale of the Initial Sale Shares and $ 1,500,000 is payable on demand after one calendar year from the agreement date. In January 2024, the Company agreed to pay $ 264,750 to the Seller. The balance due for the Initial Sale Shares as of December 31, 2024 is $ 1,235,250 and is recorded in other current liabilities on the consolidated balance sheet. If the Company exercises its option to purchase the Option Shares (which option is exercisable from the agreement date until January 31, 2027, provided that the Initial Sale Shares have been paid for in full), the Company has agreed to pay $ 2,200,000 for the Option Shares. +PET Labs Global +In August 2024, PET Labs Global entered into a three-year service agreement with Cayman Enterprise City and is licensed to operate from within the Cayman Islands’ Special Economic Zone (“SEZ”). The service fee includes among other things the right to use certain office space and associated facilities within the SEZ. The Company has applied the guidance in ASC 842 and determined that this agreement is not a leasing arrangement. Management has determined that based on the nature of the combined services the expense should be recognized as incurred. The Company recorded fees under this agreement totaling $ 26,459 for the year ended December 31, 2024. +81 +ASP Isotopes Inc. +Notes to Consolidated Financial Statements (continued) +Contingencies +From time to time, the Company may have certain contingent liabilities that arise in the ordinary course of its business activities. The Company accrues liabilities for such matters when future expenditures are probable and such expenditures can be reasonably estimated. +On December 4, 2024, a purported stockholder of the Company filed a putative securities class action on behalf of purchasers of the Company’s securities between October 30, 2024 through November 26, 2024 against ASP Isotopes Inc. and certain of its executive officers in the United States District Court for the Southern District of New York ( Corredor v. ASP Isotopes Inc., et al. , Case No. 1:24-cv-09253 (S.D.N.Y)) (the “Securities Class Action”). The Securities Class Action alleges that the Company, its chief executive officer and chief financial officer (“Defendants”) made materially misleading or false statements or omissions regarding the Company’s business and asserts purported claims under §§ 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 promulgated thereunder. The complaint seeks unspecified compensatory damages, attorney’s fees and costs. Defendants intend to vigorously defend against the Securities Class Action; however, we cannot be certain of the outcome and, if decided adversely to us, our business and financial condition may be adversely affected. +In addition to the matters described above, from time to time, we may become subject to arbitration, litigation or claims arising in the ordinary course of business. The results of any current or future claims or proceedings cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on us because of defense and litigation costs, diversion of management resources, reputational harm and other factors. +9. Leases +The Company accounts for facility leases in accordance with ASC 842 (Note 2). The Company is party to five facility leases in South Africa for office, manufacturing and laboratory space. +A lease for office and laboratory space in Pretoria, South Africa commenced in October 2021 with the initial term set to expire in December 2030 . The Company has applied the guidance in ASC 842 and has determined that it should be classified as an operating lease. The Company’s incremental borrowing rate for this lease is 7.5 % based on the remaining lease term of the applicable lease. Consequently, a ROU lease asset of $ 952,521 with a corresponding lease liability of $ 952,521 based on the present value of the minimum rental payments of such lease was recorded at the inception of the lease. +A lease for additional production space in Pretoria, South Africa commenced in April 2023 with the initial term set to expire in March 2024. Effective February 1, 2024, this lease was amended such that the new term begins on February 1, 2024 and expires in February 2026 . Prior to the amendment, the Company had applied the guidance in ASC 842 and determined that this lease was a short term lease and expensed the monthly payments as incurred. The Company has applied the guidance in ASC 842 to the amended lease and has determined that it should be classified as an operating lease. The Company’s incremental borrowing rate for this lease is 10.6 % based on the lease term of the applicable lease. A ROU lease asset of $ 364,458 with a corresponding lease liability of $ 364,458 based on the present value of the minimum rental payments of such lease was recorded at the commencement of the amended lease. +A lease for laboratory space in Pretoria, South Africa commenced in November 2023 with the initial term set to expire in October 2026 . The Company has applied the guidance in ASC 842 and has determined that it should be classified as an operating lease. The Company’s incremental borrowing rate for this lease is 13.16 % based on the remaining lease term of the applicable lease. Consequently, a ROU lease asset of $ 70,607 with a corresponding lease liability of $ 70,607 based on the present value of the minimum rental payments of such lease was recorded at the inception of the lease. +A lease for office and production space in Pretoria, South Africa commenced prior to October 31, 2023 with the initial term set to expire in March 2026 . The Company has applied the guidance in ASC 842 and has determined that it should be classified as an operating lease effective on the date of ASP Isotopes acquisition of 51 % of PET Labs. The Company’s incremental borrowing rate is approximately 12.875 % based on the expected remaining lease term of the applicable lease. Consequently, a ROU lease asset of $ 592,304 which reflects an $ 84,858 unfavorable adjustment based on the fair value of the lease terms and a corresponding lease liability of $ 677,163 based on the present value of the minimum rental payments of such lease was recorded at the date of ASP Isotopes acquisition of 51 % of PET Labs. Dr. Gerdus Kemp, an officer of PET Labs and an employee of ASP UK, is the sole owner of the facility under this lease agreement. +A summary of long-term leases in the consolidated balance sheet as of December 31, 2024 is as follows: +82 +ASP Isotopes Inc. +Notes to Consolidated Financial Statements (continued) +ROU Asset +Operating Lease Liability - Current +Operating Lease Liability – Non-Current +Total Operating Lease Liability +Lease: +Office and laboratory, Pretoria, South Africa +$ +538,942 +$ +63,703 +$ +554,332 +$ +618,035 +Additional production, Pretoria, South Africa +211,829 +179,948 +31,881 +211,829 +Laboratory, Pretoria, South Africa +45,433 +23,653 +23,674 +47,327 +Office and production, Pretoria, South Africa +325,930 +290,372 +78,592 +368,964 +Total +$ +1,122,134 +$ +557,676 +$ +688,479 +$ +1,246,155 +A summary of long-term leases in the consolidated balance sheet as of December 31, 2023 is as follows: +ROU Asset +Operating Lease Liability - Current +Operating Lease Liability – Non-Current +Total Operating Lease Liability +Lease: +Office and laboratory, Pretoria, South Africa +$ +626,548 +$ +53,504 +$ +637,348 +$ +690,852 +Laboratory, Pretoria, South Africa +68,089 +19,608 +48,805 +68,413 +Office and production, Pretoria, South Africa +564,064 +263,452 +380,494 +643,946 +Total +$ +1,258,701 +$ +336,564 +$ +1,066,647 +$ +1,403,211 +A lease for additional production space in Pretoria, South Africa commenced prior to October 31, 2023 with the initial term expiring in March 2024 and the Company is maintaining the lease under the agreed upon monthly extensions. The Company has applied the guidance in ASC 842 and has determined that this lease is a short term lease effective on the date of ASP Isotopes acquisition of 51 % of PET Labs and expensed the monthly payments for the years ended December 31, 2024 and 2023. +Quantitative information regarding the Company’s operating lease liabilities is as follows: +Year Ended December 31, +2024 +2023 +Operating Lease Cost +Operating lease cost +$ +663,662 +$ +178,610 +Other Information +Operating cash flows paid for amounts included in the +measurement of lease liabilities +$ +644,793 +$ +153,988 +Operating lease liabilities arising from obtaining right-of +-use assets +$ +364,458 +$ +70,607 +Weighted average remaining lease term (years) +3.61 +4.62 +Weighted average discount rate +9.83 +% +10.24 +% +Future lease payments under noncancelable operating lease liabilities are as follows as of December 31, 2024: +Operating +Leases +Future Lease Payments +2025 +$ +651,437 +2026 +253,779 +2027 +124,770 +2028 +134,128 +2029 +144,188 +Thereafter +155,002 +Total lease payments +$ +1,463,304 +Less: imputed interest +( 217,149 +) +Total operating lease liabilities +$ +1,246,155 +Less current portion +( 557,676 +) +Operating lease liability - noncurrent +$ +688,479 +The Company records the expense from short term leases as incurred. The Company recorded lease expense from its short term leases of $ 31,746 and $ 121,312 for the year ended December 31, 2024 and 2023, respectively. +83 +ASP Isotopes Inc. +Notes to Consolidated Financial Statements (continued) +The Company accounts for finance leases in accordance with ASC 842 (Note 2). Subsequent to the acquisition of 51 % of PET Labs on October 31, 2023, the Company is party to several ongoing finance leases in South Africa for certain fixed assets. In addition, In May and October 2024, the Company entered into new finance leases for additional equipment. +Quantitative information regarding the Company’s finance lease liabilities is as follows: +Year Ended December 31, +2024 +2023 +Finance Lease Cost +Interest on lease liabilities +$ +68,609 +$ +5,059 +Other Information +Operating cash flows paid for amounts included in the +measurement of finance lease liabilities +$ +100,611 +$ +9,601 +Amortization of right-of-use assets +$ +43,039 +$ +6,445 +Weighted average remaining lease term (years) +4.4 +3.9 +Weighted average discount rate +13.1 +% +11.3 +% +Future lease payments under noncancelable finance lease liabilities are as follows as of December 31, 2024: +Finance +Leases +Future Lease Payments +2025 +$ +208,222 +2026 +211,913 +2027 +207,117 +2028 +170,443 +2029 +66,218 +Thereafter +64,914 +Total lease payments +$ +928,827 +Less: imputed interest +( 242,637 +) +Total lease liabilities +$ +686,190 +Less current portion +( 125,862 +) +Finance lease liability - noncurrent +$ +560,328 +10. License and Collaboration Agreements +Klydon Proprietary Ltd (“Klydon”) +In September 2021, ASP South Africa licensed certain intellectual property from Klydon for the development, production distribution, marketing and sale of Mo-100. The license had a term of 999 years, unless terminated earlier by either party under certain provisions. Two individuals who are officers and board members of Klydon received warrants to purchase common stock of the Company (See Note 12). Effective July 26, 2022, the parties agreed to terminate the Mo-100 license, which was superseded and replaced by a new license agreement (described below). +In January 2022, ASP South Africa licensed certain intellectual property from Klydon for the development, production distribution, marketing and sale of uranium isotope U-235 (“U-235”). The license had a term of 999 years, unless terminated earlier by either party under certain provisions. The Company paid an upfront fee of $ 100,000 , which was expensed to research and development expense. The Company was required to pay a nominal royalty per Kg of product sold plus 10 % royalties on product net profits over the term of the contract. One of the officers, who is also a board member of Klydon, became a board member and consultant of ASP Isotopes Inc. and an employee of ASP Guernsey in January 2022. Effective July 26, 2022, the parties agreed to terminate the U-235 license, which was superseded and replaced by a new license agreement (described below). +In July 2022, ASP UK entered into a license agreement with Klydon, as licensor, pursuant to which ASP Isotopes UK Ltd acquired from Klydon an exclusive license to use, develop, modify, improve, subcontract and sublicense certain intellectual property rights relating to the ASP technology for the production, distribution, marketing and sale of all isotopes produced using the ASP technology (the “Klydon license agreement”). The Klydon license agreement superseded and replaced the Mo-100 license and U-235 license described in Note 8 above. The Klydon license agreement is royalty-free, has a term of 999 years and is worldwide for the development of the ASP technology and the distribution, marketing and sale of isotopes. Future production of +84 +ASP Isotopes Inc. +Notes to Consolidated Financial Statements (continued) +isotopes is limited to member countries of the Nuclear Suppliers Group. In connection with the Klydon license agreement the Company agreed to make an upfront payment of $ 100,000 (to be included within the payments the Company makes under the Turnkey Contract) and deferred payments of $ 300,000 over 24 months, which was expensed to research and development expense. +In July 2022, ASP South Africa acquired assets comprising a dormant Silicon-28 aerodynamic separation processing plant from Klydon for ZAR 6,000,000 (which at the then current exchange rate was approximately $ 354,000 ), which was recorded to property and equipment, would have been payable to Klydon on the later of 180 days of the acquisition and the date on which the assets generate any revenues of any nature. +On April 4, 2023, the Company perfected its interest under the Acknowledgement of Debt Agreement (see Note 8), pursuant to which the Company acquired certain intellectual property from Klydon (“Klydon Settlement”). The Company concluded that the Klydon Acquisition is accounted for under ASC 805, Business Combinations as an asset acquisition since the assets acquired were concentrated in a single identifiable asset from a related party. In conjunction with the Klydon Settlement, the Company recorded an increase to additional paid-in capital for the settlement of all liabilities owed to Klydon at the time of settlement totaling $ 626,223 . +TerraPower, LLC +On April 4, 2024, the Company entered into an agreement with TerraPower to develop a conceptual design, refined cost/schedule/financing, risk register, and term sheet for a High Assay Low Enriched Uranium (“HALEU”) facility (the “TerraPower Agreement”). The TerraPower Agreement may be terminated for (a) breach or default, (b) the Company’s convenience or (c) TerraPower’s convenience. TerraPower is obligated to make all payments for milestones completed by the Company and these payments are nonrefundable. +On October 18, 2024, the Company and TerraPower signed a term sheet (the “TerraPower Term Sheet”) that provides for the execution of two definitive agreements: (1) an agreement pursuant to which TerraPower will provide funding for the Company’s construction of a uranium enrichment facility capable of producing HALEU using the Company’s proprietary aerodynamic separation process technology to be located in the Republic of South Africa and (2) An agreement pursuant to which the Company will deliver to TerraPower the full capacity of the enrichment facility. +The Company accounts for the TerraPower Agreement in accordance with ASC 808. The Company has concluded that other authoritative accounting literature does not apply directly to these payments from TerraPower, either directly or by analogy, including ASC 606 because TerraPower is not a customer. The Company has concluded that TerraPower is not a customer because TerraPower has not contracted with the Company to obtain goods or services that are an output of the Company’s ordinary activities in exchange for consideration. The Company also has concluded that there is no other authoritative accounting literature that is appropriate to apply by analogy, and, accordingly, its accounting policy is to evaluate the income statement classification for presentation of amounts associated with each separate activity. As a result, the Company concludes that all portions of the net receivable from TerraPower are directly related to the conceptual design of the HALEU facility. Furthermore, the Company and TerraPower will jointly develop criteria for optimization of the HALEU facility’s operations. TerraPower shares the risks and rewards of designing the HALEU facility since its successful completion will enable TerraPower to purchase output from the HALEU facility in the future. +For the year ended December 31, 2024, $ 200,000 has been recognized as collaboration revenue in the consolidated statements of operations and comprehensive loss. +11. Acquisitions +PET Labs Pharmaceuticals +In October 2023, the Company completed the acquisition of PET Labs. The acquisition is intended to accelerate the distribution of the Company’s pipeline. The acquisition of PET Labs has been accounted for as a business combination in accordance with ASC 805. +Pursuant to the terms of the agreement, the Company acquired 51 % of the common shares issued and outstanding for total purchase consideration of $ 2,000,000 in cash of which $ 500,000 was paid up front. In January 2024, the Company made a partial payment of $ 264,750 and the balance of $ 1,235,250 is expected to be paid in 2025 and is recorded in other current liabilities on the consolidated balance sheet. +In addition to the purchase consideration, the Company has an option to purchase the remaining 49 % of the issued and outstanding shares for an agreed consideration totaling $ 2,200,000 . No consideration or value relating to this option was recognized as it was not considered probable at the time of acquisition and as of December 31, 2024. +85 +ASP Isotopes Inc. +Notes to Consolidated Financial Statements (continued) +The Company incurred approximately $ 4,000 in transaction costs related to the acquisition of PET Labs, which is recorded in general and administrative expenses in the consolidated statement of operations and comprehensive loss for the year ended December 31, 2023. +Dr. Gerdus Kemp is an officer of PET Labs and, effective November 1, 2023, an employee of ASP UK. In addition, Dr. Kemp controls the remaining 49 % ownership of PET Labs. +The following table summarizes the allocation of the purchase consideration to the fair value of the assets acquired and liabilities assumed: +Consideration +Cash +$ +500,000 +Present value of balance due +1,395,348 +$ +1,895,348 +Recognized amounts of identifiable assets acquired and +liabilities assumed +Cash and cash equivalents +$ +378,152 +Accounts receivable +460,165 +Other current assets +184,457 +Property and equipment +821,926 +Right of use assets +592,304 +Financial liabilities +( 1,248,699 +) +Right of use liabilities +( 677,163 +) +Total identifiable net assets +511,142 +Noncontrolling interest +( 1,821,021 +) +Goodwill +3,205,227 +$ +1,895,348 +Goodwill arising from the acquisition as of October 31, 2023 of $ 3,205,227 was attributable mainly to buyer specific synergies expected to arise from the acquisition. No goodwill from this acquisition is deductible for income tax purposes. The Company considered the contractual value of accounts receivable to be the same as the fair value and the full amount was collected. The results of PET Labs have been included in the consolidated financial statements from the date of the acquisition. +The Company accounts for business combinations in accordance with ASU No. 2015-16, Business Combinations (Topic 805), which requires an acquirer to retrospectively adjust provisional amounts recognized in a business combination during the measurement period (which represents a period not to exceed one year from the date of the acquisition), in the reporting period in which the adjustment is determined, as well as present separately on the face of the income statement or as a disclosure in the notes to the consolidated financial statements, the portion of the amount recorded in current period earnings that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. +The changes to the carrying value of goodwill is as follows: +Balance as of October 31, 2023 (acquisition date) +$ +3,205,227 +Translation adjustment +61,876 +Balance as of December 31, 2023 +$ +3,267,103 +Translation adjustment +( 99,002 +) +Balance as of December 31, 2024 +$ +3,168,101 +ASP Rentals +In December 2023, ASP South Africa entered into a Shareholders Agreement (“ASP Rentals Shareholders Agreement”) with ASP Rentals, a newly formed equipment financing service provider formed for the sole purpose of providing financing to ASP South Africa for its significant asset purchases in South Africa. In accordance with the terms of the ASP Rentals Shareholders Agreement, ASP Rentals issued 24 % of its capital stock to ASP South Africa for total consideration of ZAR 3,300,829 (which at the exchange rate as of December 31, 2023 was $ 180,387 ) and the remaining 76 % of its capital stock was issued to two third party entities for combined consideration of ZAR 13,203,317 (which at the exchange rate as of December 31, 2023 was $ 721,548 ). +86 +ASP Isotopes Inc. +Notes to Consolidated Financial Statements (continued) +In June 2024, ASP Rentals issued additional capital stock to support additional financing to ASP South Africa and PET Labs. Per the terms of the ASP Rentals Shareholder Agreement, ASP Rentals issued 20 % of the new capital to ASP South Africa for total consideration of ZAR 3,671,412 (which at the exchange rate as of June 30, 2024 was $ 201,994 ) and the remaining 80 % of the new capital to one of the two original third party entities for a combined consideration of ZAR 18,357,063 (which at the exchange rate as of June 30, 2024 was $ 1,009,969 ). +In August 2024, ASP Rentals issued additional capital stock to support additional financing to PET Labs. Per the terms of the ASP Rentals Shareholder Agreement, ASP Rentals issued 20 % of the new capital to ASP South Africa for total consideration of ZAR 369,965 (which at the exchange rate as of August 23, 2024 was $ 21,421 ) and the remaining 80 % of the new capital to one of the two original third party entities for a combined consideration of ZAR 1,849,826 (which at the exchange rate as of August 23, 2024 was $ 104,925 ). +In December 2024, ASP Rentals issued additional capital stock to support additional financing to ASP South Africa. Per the terms of the ASP Rentals Shareholder Agreement, ASP Rentals issued 20 % of the new capital to ASP South Africa for total consideration of ZAR 130,000 (which at the exchange rate as of December 31, 2024 was $ 6,889 ) and the remaining 80 % of the new capital to one of the two original third party entities for a combined consideration of ZAR 650,000 (which at the exchange rate as of December 31, 2024 was $ 35,746 ). +As a result of the additional financings in 2024, ASP South Africa now controls 42 % of ASP Rentals. +In addition to issuance of these shares, future ASP South Africa and PET Labs equipment purchases may also be financed by ASP Rentals through the issuance of additional shares. ASP South Africa will only be entitled to dividend distributions upon the two third party entities receiving a designated return on their investment. +In conjunction with the ASP Rental Shareholders Agreement, ASP South Africa and PET Labs have both entered into an Asset Sale Agreement and an Asset Rental Agreement with ASP Rentals in order to facilitate the financing of equipment recently purchased by ASP South Africa and PET Labs. As a result of the transactions contemplated by these agreements, collectively, ASP Rentals is considered a variable interest entity. In addition, since the only function of ASP Rentals is to provide financing to ASP South Africa and PET Labs, ASP Isotopes is considered to be the primary beneficiary of ASP Rentals. Therefore, ASP Rentals has been consolidated in accordance with ASC 810. +Pursuant to the terms of the ASP Rentals Shareholders Agreement, as of December 31, 2023 ASP South Africa was obligated to acquire and ASP Rentals was obligated to issue 24 % of the common shares of ASP Rentals to be issued and outstanding for total purchase consideration of ZAR 3,300,829 (which at the exchange rate as of December 31, 2023 was $ 180,387 ). As of December 31, 2023 these amounts are eliminated in consolidation. +As of December 31, 2023, ASP Rentals had a receivable and an obligation to issue 76 % of the common shares of ASP Rentals with non-affiliates for an aggregate of ZAR 13,203,317 (which at the exchange rate as of December 31, 2023 was $ 721,548 ). As of December 31, 2023, the Company had recorded $ 721,548 as a receivable from noncontrolling interest in current assets and a non-controlling interest in equity. All consideration for these common shares of ASP Rentals was received in January 2024. +12. Stockholders’ Equity +Preferred stock +The Company has 10,000,000 shares of preferred stock authorized, of which no shares were issued and outstanding as of December 31, 2024 and 2023. +Common stock +The Company has 500,000,000 shares of common stock authorized, of which 72,068,059 and 48,923,276 shares were issued and outstanding as of December 31, 2024 and 2023 , respectively. Common stockholders are entitled to one vote for each share of outstanding common stock held at all meetings of stockholders and written actions in lieu of meetings. Common stockholders are entitled to receive dividends for each share of outstanding common stock, if and when declared by the Board. No dividends have been declared or paid by the Company through December 31, 2024. +In March 2023, an officer and scientific advisor of the Company exchanged an aggregate of 3,000,000 shares of ASP Isotopes Inc. common stock for 2,500 shares of Enlighted Isotopes convertible preferred stock. In conjunction with the exchange, Enlightened Isotopes transferred the common shares of ASP Isotopes Inc. to ASP Isotopes and then ASP Isotopes immediately cancelled all 3,000,000 shares. The Company will report the non-controlling interest of future net income or loss on the consolidated balance sheet and statement of operations and comprehensive loss. As of December 31, 2023, negligible activity had been recorded for Enlightened Isotopes. Activities for Enlightened Isotopes began in 2024. +87 +ASP Isotopes Inc. +Notes to Consolidated Financial Statements (continued) +The Company’s non-employee board members agreed to receive the 2022 and 2023 director fees totaling $ 240,000 in shares of common stock. In August 2024, 163,632 shares of common stock were issued and the value of the fees totaling $ 165,000 is recorded as par and additional paid-in capital on the consolidated balance sheet. In December 2024, 77,626 shares of common stock were issued and the value of the fees totaling $ 75,000 is recorded as additional paid-in capital on the consolidated balance sheet. The Company's non-employee board members received 429,423 shares of common stock during 2024, of which $ 400,000 and $ 100,000 was recorded as stock compensation expense in 2024 and 2023, respectively. +In March 2023, the Company issued 3,164,557 shares of the Company’s common stock at a purchase price of $ 1.58 per share and warrants to purchase up to an aggregate of 3,164,557 shares of its common stock with an exercise price of $ 1.75 per share for gross proceeds of $ 5,000,000 . The Company incurred $ 506,390 in cash issuance costs and issued warrants to purchase up to an aggregate of 221,519 shares of common stock with an exercise price of $ 1.975 per share to the placement agent with an initial fair value of $ 179,116 . +In October 2023, the Company entered into Securities Purchase Agreements with certain institutional and other accredited investors and certain directors of the Company to issue and sell an aggregate of 9,952,510 shares of the Company’s common stock, for aggregate cash consideration of $ 9,129,495 , as follows: (i) 8,459,093 shares to investors at a purchase price per share of $ 0.9105 , (ii) 1,190,239 shares to investors at a purchase price per share of $ 0.9548 , and (iii) 303,178 shares to directors at a purchase price per share of $ 0.96 . The Company incurred issuance costs equivalent to 5% of the gross proceeds from new investors which was settled in stock through the issuance of 472,582 shares to the placement agent and additional cash issuance costs totaling $ 57,083 . +In July 2024, the Company issued 13,800,000 shares of common stock in a public offering at a public offering price of $ 2.50 per share for aggregate gross proceeds totaling $ 34,500,000 . Issuance costs, including commissions and expenses totaled $ 2,194,041 . +In November 2024, the Company issued an additional 2,754,250 shares of common stock in a public offering at a public offering price of $ 6.75 per share for aggregate gross proceeds totaling $ 18,591,187 . Issuance costs, including commissions and expenses totaled $ 1,454,344 . +The following shares were issued to consultants and vendors for the year ended December 31, 2024: +Description +Origination Date +Shares +Fair Value +Settlement Date +Fair Value at Settlement +Change in Fair Value +Settlement of liability with consultants +January 2024 +100,000 +$ +195,000 +September 2024 +$ +219,500 +$ +( 24,500 +) +Settlement of liability with consultants +April 2024 +60,000 +240,600 +June 2024 +183,600 +$ +57,000 +Issuance of common stock to consultant +June 2024 +60,000 +183,600 +June 2024 +183,600 +$ +— +Settlement of liability with consultants +July 2024 +50,000 +164,000 +September 2024 +109,750 +$ +54,250 +Issuance of restricted common stock to consultants +September 2024 +150,000 +— +September 2024 +— +$ +— +Settlement of liability with consultants +December 2024 +135,000 +531,000 +December 2024 +642,000 +$ +( 111,000 +) +555,000 +$ +1,314,200 +$ +1,338,450 +$ +( 24,250 +) +88 +ASP Isotopes Inc. +Notes to Consolidated Financial Statements (continued) +The following shares were issued to consultants and vendors for the year ended December 31, 2023: +Description +Origination Date +Shares +Fair Value +Settlement Date +Fair Value at Settlement +Change in Fair Value +Issuance of common stock in lieu of commissions +October 2022 +57,250 +$ +90,455 +March 2023 +$ +75,570 +$ +14,885 +Settlement of liability with consultants +November 2022 +12,500 +50,000 +August 2023 +18,125 +$ +31,875 +Settlement of liability with consultants +February 2023 +100,000 +172,500 +August 2023 +145,000 +$ +27,500 +Settlement of liability with consultants +March 2023 +100,000 +93,700 +August 2023 +145,000 +$ +( 51,300 +) +Issuance of common stock to settle share liability +May 2023 +100,000 +65,100 +November 2023 +152,000 +$ +( 86,900 +) +Issuance of common stock to settle share liability +May 2023 +50,000 +30,900 +November 2023 +76,000 +$ +( 45,100 +) +Settlement of liability with consultants +July 2023 +150,000 +181,500 +August 2023 +248,000 +$ +( 66,500 +) +Settlement of liability with consultants +August 2023 +100,000 +126,000 +August 2023 +145,000 +$ +( 19,000 +) +669,750 +$ +810,155 +$ +1,004,695 +$ +( 194,540 +) +During 2023 and 2024, the Company issued shares of common stock to consultants and vendors to settle share liabilities. The fair value of these shares is recorded to share liability in the consolidated balance sheet and the change in fair value upon settlement of the share liability is recorded to change in fair value of share liability in the consolidated statements of operations and comprehensive loss. +Activity of the share liabilities for the year ended December 31, 2024 is as follows: +Share Liabilities +as of +December 31, +2023 +New Share +Liabilities +in 2024 +Mark to +Market +Adjustments +in 2024 +Liabilities +Settled +in 2024 +Share Liabilities +as of +December 31, +2024 +Share liabilities +$ +— +$ +1,130,600 +$ +24,250 +$ +( 1,154,850 +) +$ +— +Activity of the share liabilities for the year ended December 31, 2023 is as follows: +Share Liabilities +as of +December 31, +2022 +New Share +Liabilities +in 2023 +Mark to +Market +Adjustments +in 2023 +Liabilities +Settled +in 2023 +Share Liabilities +as of +December 31, +2023 +Share liabilities +$ +140,455 +$ +669,700 +$ +194,540 +$ +( 1,004,695 +) +$ +— +Common Stock Warrants +In September 2023, the Company issued warrants to purchase 3,386,076 shares of common stock. The fair value of these warrants was determined to be $ 2,882,621 and estimated based on the Black-Scholes model, using the following assumptions: +Expected volatility +60.3 +% +Weighted-average risk-free rate +3.44 +% +Expected term in years +5.5 +Expected dividend yield +— +% +In April 2024, a warrant to purchase 3,164,557 shares of common stock was exercised and the Company received gross proceeds of $ 5,537,975 . As an inducement for the warrant holder to exercise in cash, a warrant to purchase 1,225,000 shares of common stock at an exercise price of $ 3.90 per share was issued to that same warrant holder for no consideration (“Inducement Warrant”). The Inducement Warrant vests in October 2024 and expires in October 2029 . The Company evaluated the terms of the +89 +ASP Isotopes Inc. +Notes to Consolidated Financial Statements (continued) +Inducement Warrant and determined that it should be accounted for as an equity-based warrant. The Company also evaluated the circumstances of the award and determined that the inducement should be treated as a deemed dividend. +The fair value of the Inducement Warrant was determined to be $ 2,779,659 and estimated based on the Black-Scholes model, using the following assumptions: +Expected volatility +73.5 +% +Weighted-average risk-free rate +4.37 +% +Expected term in years +5.5 +Expected dividend yield +— +% +The fair value of the Inducement Warrant is considered a deemed dividend and the amount is reflected in the calculation of earnings (loss) per share on a basic and diluted basis. +In conjunction with the exercise of the warrant in April 2024, the Company is now obligated to issue to an underwriter, a warrant to purchase 221,519 shares of common stock (“Commission Warrant”) in addition to a cash payment totaling $ 387,658 . The Company evaluated the terms of the Commission Warrant and determined that it should be accounted for as an equity-based warrant. The fair value of the Commission Warrant was determined to be $ 657,871 and estimated based on the Black-Scholes model, using the following assumptions: +Expected volatility +73.5 +% +Weighted-average risk-free rate +4.60 +% +Expected term in years +5.5 +Expected dividend yield +— +% +The cash payment and the issuance of the Commission Warrant was settled in December 2024. The fair value of the Commission Warrant upon issuance was $ 765,894 . The resulting change in fair value of share liability was a loss of $ 108,023 for the year ended December 31, 2024 and is included in change in fair value of share liability in the statement of operations and comprehensive loss. +In October 2024, a warrant to purchase 151,741 shares of common stock was exercised and the Company received gross proceeds of $ 299,688 . +13. Stock Compensation Plan +Equity Incentive Plan +In October 2021, the Company adopted the 2021 Stock Incentive Plan (“2021 Plan”) that provided for the issuance of common stock to employees, nonemployee directors, and consultants. Recipients of incentive stock options are eligible to purchase shares of common stock at an exercise price equal to no less than the estimated fair market value of such stock on the date of grant. The 2021 Plan provided for the grant of incentive stock options, non-statutory stock options, restricted stock, restricted stock units, stock awards and stock appreciation rights. The maximum contractual term of options granted under the 2021 Plan is ten years . The maximum number of shares initially available for issuance under the 2021 Plan was 6,000,000 . No further options were available to be issued under the 2021 Plan. +In November 2022, the Company adopted the 2022 Equity Incentive Plan (“2022 Plan”) that provides for the issuance of common stock to employees, nonemployee directors, and consultants. Recipients of incentive stock options are eligible to purchase shares of common stock at an exercise price equal to no less than the estimated fair market value of such stock on the date of grant. The 2022 Plan provides for the grant of incentive stock options, non-statutory stock options, restricted stock, restricted stock units, stock awards and stock appreciation rights. The maximum contractual term of options granted under the 2022 Plan is ten years . The number of shares of the Company’s common stock initially reserved for issuance under the 2022 Plan is equal to 5,000,000 , subject to an annual increase, to be added on the first day of each fiscal year, beginning with the fiscal year ending December 31, 2023 and continuing until, and including, the fiscal year ending December 31, 2033, equal to the lesser of 5 % of the number of shares of the Company’s common stock outstanding on such date or an amount determined by the Company’s board of directors. On January 1, 2024, the Company added 2,446,164 shares to the 2022 Plan. As of December 31, 2024, 395,535 shares remain available for future grant under the Plan. +In June 2024, the Company adopted the 2024 Inducement Equity Incentive Plan (“2024 Plan”). The 2024 Plan will be used exclusively for the grant of equity awards to individuals who were not previously employees or directors of the Company, or following a bona fide period of non-employment, as an inducement material to such individuals entering into employment with the Company, pursuant to Nasdaq Listing Rule 5635(c)(4). Recipients of stock options are eligible to purchase shares of common stock at an exercise price equal to no less than the estimated fair market value of such stock on the date of grant. The 2024 Plan provides +90 +ASP Isotopes Inc. +Notes to Consolidated Financial Statements (continued) +for the grant of non-statutory stock options, restricted stock, restricted stock units, stock awards and stock appreciation rights. The maximum contractual term of options granted under the 2024 Plan is ten years. The number of shares of the Company’s common stock initially reserved for issuance under the 2024 plan is equal to 2,500,000 . As of December 31, 2024, 1,825,000 shares remain available for future grant under the 2024 Plan. +Stock Options +The following table sets forth the activity for the Company’s stock options during the periods presented: +Number +of Options +Weighted- +Average +Exercise +Price +per Share +Weighted +Average +Remaining +Contractual +Term +(in Years) +Aggregate +Intrinsic +Value +Outstanding as of December 31, 2022 +2,901,000 +$ +1.91 +9.4 +$ +199,500 +Granted +— +$ +— +Forfeited +( 135,000 +) +$ +2.00 +Outstanding as of December 31, 2023 +2,766,000 +$ +1.91 +8.4 +$ +231,000 +Granted +— +$ +— +Forfeited +( 35,000 +) +$ +2.00 +Outstanding as of December 31, 2024 +2,731,000 +$ +1.90 +7.4 +$ +7,171,930 +Exercisable as of December 31, 2024 +2,339,807 +$ +1.89 +7.4 +$ +6,182,213 +Vested or expected to vest as of December 31, 2024 +2,731,000 +$ +1.90 +7.4 +$ +7,171,930 +No options were granted in the years ended December 31, 2024 and 2023. +The Company recorded stock compensation from options of $ 783,145 and $ 973,844 for the year ended December 31, 2024 and 2023, respectively. As of December 31, 2024, there was $ 466,234 of unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Plan, which is expected to be recognized over a weighted average period of approximately 0.5 years. +Stock Awards +In October 2021, the Company issued 1,500,000 shares of restricted common stock to its Chief Executive Officer. The number of shares that vest is dependent on achieving certain performance conditions and dependent market conditions upon the third anniversary from the date of grant. The Company determined that the fair value of this award was $ 0.25 per share for a total value of $ 375,000 . The Company determined the performance condition probable and recognized stock-based compensation expense of $ 375,000 for the year ended December 31, 2024. +The Company recorded stock-based compensation expense from stock awards totaling $ 7,778,259 and $ 7,669,955 for the years ended December 31, 2024 and 2023, respectively. As of December 31, 2024, there is $ 7,982,308 of unrecognized stock-based compensation expense related to the non-vested portion of restricted stock awards that is expected to be recognized over the next 2.2 years. +The following table summarizes awards and vesting of restricted common stock: +Number of +Shares +Weighted +Average Grant +Date +Fair Value +Per Share +Unvested as of December 31, 2022 +7,000,000 +$ +1.75 +Granted +1,756,750 +$ +1.52 +Vested +( 4,267,564 +) +$ +1.84 +Unvested as of December 31 2023 +4,489,186 +$ +1.42 +Granted +2,523,554 +$ +3.79 +Vested +( 3,873,037 +) +$ +1.76 +Forfeited and retired +( 325,000 +) +$ +1.19 +Unvested as of December 31 2024 +2,814,703 +$ +3.24 +91 +ASP Isotopes Inc. +Notes to Consolidated Financial Statements (continued) +Of the 2,523,554 shares of restricted common stock granted in 2024, 150,000 shares were issued to consultants and 170,088 shares were issued to the Company's non-employee board members. +Stock-based Compensation Expense +Stock-based compensation expense for all stock awards recognized in the accompanying consolidated statements of operations is as follows: +Year Ended December 31, +2024 +2023 +Selling, general and administrative +$ +8,231,386 +$ +8,378,875 +Research and development +330,018 +364,924 +Total +$ +8,561,404 +$ +8,743,799 +14. Net Loss Per Share +The Company has reported losses since inception and has computed basic net loss per share attributable to common stockholders by dividing net loss attributable to common stockholders by the weighted-average number of shares of Common Stock outstanding for the period, without consideration for potentially dilutive securities. The Company computes diluted net loss per share of Common Stock after giving consideration to all potentially dilutive shares of common stock, including options to purchase common stock and warrants to purchase common stock, outstanding during the period determined using the treasury-stock and if-converted methods, except where the effect of including such securities would be antidilutive. Because the Company has reported net losses since inception, these potential shares of Common Stock have been anti-dilutive and basic and diluted loss per share were the same for all periods presented. +The following table sets forth the computation of basic and diluted net loss per share: +Year Ended December 31, +2024 +2023 +Numerator: +Net loss attributable to ASP Isotopes +shareholders +$ +( 35,113,240 +) +$ +( 16,286,234 +) +Denominator: +Weighted average common stock outstanding, +basic and diluted +55,671,805 +33,066,708 +Net loss per share, basic and diluted +$ +( 0.63 +) +$ +( 0.49 +) +The following table sets forth the potentially dilutive securities that have been excluded from the calculation of diluted net loss per share because to include them would be anti-dilutive: +Year Ended December 31, +2024 +2023 +Options to purchase common stock +2,731,000 +2,766,000 +Restricted stock +2,814,703 +4,489,186 +Warrants to purchase common stock +1,516,297 +3,386,076 +Total shares of common stock equivalents +7,062,000 +10,641,262 +15. Income Taxes +The components of net loss before taxes are as follows: +Year Ended December 31, +2024 +2023 +Domestic +$ +( 24,777,514 +) +$ +( 12,892,377 +) +Foreign +( 7,533,765 +) +( 3,407,882 +) +Total net loss before taxes +$ +( 32,311,279 +) +$ +( 16,300,259 +) +92 +ASP Isotopes Inc. +Notes to Consolidated Financial Statements (continued) +Income tax (benefit) expense for the years ended December 31, 2024 and 2023 is comprised of the following: +December 31, +2024 +2023 +Current: +U.S. Federal +$ +60,253 +$ +— +State +1,484 +— +Foreign +193,045 +— +Total Current +254,782 +— +Deferred: +Foreign +( 143,333 +) +( 6,133 +) +Total Deferred +( 143,333 +) +( 6,133 +) +Total income tax expense (benefit) +$ +111,449 +$ +( 6,133 +) +The effective tax rate of the Company’s provision for income taxes differs from the federal statutory rate for the years ended December 31, 2024 and 2023 as follows: +Year Ended December 31, +2024 +2023 +Tax computed at federal statutory rate +21.00 +% +21.00 +% +Earnings in jurisdictions taxed at rates different +from the statutory U.S. federal tax rate +1.78 +% +( 0.58 +)% +Return to provision +( 3.88 +)% +— +Change in fair value of convertible notes +( 4.47 +)% +— +Non-deductible stock compensation expense +( 5.58 +)% +( 11.19 +)% +Permanent differences +( 0.09 +)% +0.24 +% +Other +— +( 2.44 +)% +Valuation allowance +( 9.10 +)% +( 7.00 +)% +Income tax expense +( 0.34 +)% +0.03 +% +Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (b) operating losses and tax credit carryforwards. Significant components of deferred tax assets (liabilities) are as follows: +December 31, +2024 +2023 +Deferred tax assets: +Net operating loss carryforwards +$ +5,261,986 +$ +2,321,339 +Capitalized R&D costs +33,758 +31,622 +Share-based compensation +— +3,644 +Accruals and reserves +142,146 +12,647 +Right-of-use lease liability +336,287 +276,134 +Total deferred tax assets +5,774,177 +2,645,386 +Deferred tax liabilities: +Property and equipment, net +( 315,806 +) +( 256,315 +) +Right-of-use lease asset +( 325,246 +) +( 339,850 +) +Total deferred tax liabilities +( 641,052 +) +( 596,165 +) +Total net deferred tax assets +5,133,125 +2,049,221 +Less: valuation allowance +( 5,101,278 +) +( 2,159,799 +) +Net deferred taxes (liabilities) assets +$ +31,847 +$ +( 110,578 +) +The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and deferred tax liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, the Company determines deferred tax assets and deferred tax liabilities on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and deferred tax liabilities is recognized in income in the period that includes the enactment date. +93 +ASP Isotopes Inc. +Notes to Consolidated Financial Statements (continued) +The Company recognize deferred tax assets to the extent that the Company believes that these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, carryback potential if permitted under the tax law, and results of recent operations. If the Company determines that it would not be able to realize its deferred tax assets in the future in excess of the net recorded amount, the Company would make an adjustment to the deferred tax assets through recognizing a valuation allowance, which would increase the provision for income taxes. +The Company records uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) the Company determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. +We recognize interest and penalties related to UTBs on the income tax expense line in the accompanying consolidated statement of operations. Accrued interest and penalties are included on the related tax liability line in the consolidated balance sheet. +Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing DTAs. On the basis of this evaluation, as of December 31, 2024, a full valuation allowance has been recorded against the federal, state, and South Africa deferred tax assets, excluding PET Labs and ASP Rentals which have no valuation allowance recorded. The amount of the DTA considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased or if objective negative evidence in the form of cumulative losses becomes present and less weight is given to subjective evidence such as our projections for growth. +We are subject to taxation in the United States and various states and foreign jurisdictions. The statute of limitations remains open for all periods of taxable loss until the losses have been utilized. +16. Subsequent Events +Effective on January 1, 2025, the Company added 3,603,403 shares to the 2022 Equity Incentive Plan. +The Company has evaluated subsequent events through March 31, 2025, the date on which the accompanying financial statements were issued, and no other events were noted. +94 +Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure +None. +Item 9A. Controls and Procedures +Disclosure Controls and Procedures +Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2024. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, mean controls and other procedures of a company that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company on the reports that it files or submits under the Exchange Act is accumulated and communicated to management, including, our principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure. +Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgement in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of December 31, 2024, our Chief Executive Officer and Chief Financial Officer concluded that, as a result of a material weakness identified in our internal control over financial reporting, our disclosure controls and procedures were not effective as of December 31, 2024 . +In the course of preparing the financial statements that are included in this Form 10-K, management has determined that a material weakness exists within the internal controls over financial reporting. The material weakness identified relates to the lack of formal control documentation and consistent execution of control procedures, and the lack of a sufficient complement of personnel within the finance and accounting function with an appropriate degree of knowledge, experience and training. We also noted a material weakness related to logical security and privileged access in the area of information technology. We concluded that the material weaknesses in our internal control over financial reporting information technology occurred because, prior to becoming a public company, we were a private company and did not have the necessary business processes, systems, personnel, and related internal controls necessary to satisfy the accounting and financial reporting requirements of a public company. +In order to remediate the material weaknesses, we expect to enhance our formal documentation over internal control procedures and management controls infrastructure to allow for more consistent execution of control procedures and hire additional accounting, and finance and information technology resources or consultants with public company experience. +We may not be able to fully remediate the identified material weakness until the steps described above have been completed and our internal controls have been operating effectively for a sufficient period of time. We believe we have already and will continue to make progress in our remediation plan during the year ending December 31, 2025, but cannot assure you that we will be able to fully remediate the material weakness in 2025. If the steps we take do not correct the material weakness in a timely manner, we will be unable to conclude that we maintain effective internal control over financial reporting. Accordingly, there could continue to be a reasonable possibility that a material misstatement of our financial statements would not be prevented or detected on a timely basis. We also may incur significant costs to execute various aspects of our remediation plan but cannot provide a reasonable estimate of such costs at this time. +Management’s Annual Report on Internal Controls Over Financial Reporting +Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Our internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes, in accordance with generally accepted accounting principles in the United States. Due to inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness of the internal control over financial reporting to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies and procedures may deteriorate. Our management, under the supervision and with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our internal control over financial reporting as of the end of the period covered by this Annual Report on Form 10-K based on the framework in Internal Control---Integrated Framework (2013 framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO. Based on such evaluation, our management concluded that our internal control over financial reporting was not effective as of the end of the period covered by this Annual Report on Form 10-K due to the material weaknesses described above. +95 +This Annual Report on Form 10-K does not include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. Our auditors will not be required to opine on the effectiveness of our internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002 until we are no longer an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012. +Changes in Internal Control Over Financial Reporting +There has been no change in our internal control over financial reporting as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act during the quarter ended December 31, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. +Item 9B. Other Information +None. +Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +None. +96 +PART III +Item 10. Directors, Executive Officers and Corporate Governance +The information required by this item will be included in an amendment to this Annual Report on Form 10-K or incorporated by reference from our definitive proxy statement to be filed pursuant to Rule 14A. +Item 11. Executive Compensation +The information required by this item will be included in an amendment to this Annual Report on Form 10-K or incorporated by reference from our definitive proxy statement to be filed pursuant to Rule 14A. +Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +The information required by this item will be included in an amendment to this Annual Report on Form 10-K or incorporated by reference from our definitive proxy statement to be filed pursuant to Rule 14A. +Item 13. Certain Relationships and Related Transactions and Director Independence +The information required by this item will be included in an amendment to this Annual Report on Form 10-K or incorporated by reference from our definitive proxy statement to be filed pursuant to Rule 14A. +Item 14. Principal Accounting Fees and Services +The information required by this item will be included in an amendment to this Annual Report on Form 10-K or incorporated by reference from our definitive proxy statement to be filed pursuant to Rule 14A. +97 +PART IV +Item 15. Exhibits, Financial Statement Schedules +The following documents are filed as part of this Annual Report on Form 10-K: +(a) +Financial Statements +The information concerning our consolidated financial statements and Report of Independent Registered Public Accounting Firm required by this Item is incorporated by reference herein to the section of this Annual Report on Form 10-K in Item 8, entitled “Financial Statements and Supplementary Data.” +(b) +Financial Statement Schedules +All schedules have been omitted because the required information is not present or not present in amounts sufficient to require submission of the schedules, or because the information required is included in the Financial Statements or notes thereto. +(c) +Exhibits +The list of exhibits filed with this report is set forth in the Exhibit Index immediately preceding the signature page and is incorporated herein by reference. +Exhibit +Number +Description of Document +3.1 +Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.3 to the Form S-1/A filed on November 9, 2022 (File No. 333-267392)). +3.2 +Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to the Annual Report on Form 10-K for the year ended December 31, 2023, filed on April 10, 2024). +4.1 +Description of Securities Registered Under Section 12 of the Securities Exchange Act of 1934 (incorporated by reference to Exhibit 4.1 to the Annual Report on Form 10-K for the year ended December 31, 2023, filed on April 10, 2024). +4.2 +Common Stock Purchase Warrant dated March 17, 2023 (incorporated by reference to Exhibit 4.2 to the Annual Report on Form 10-K for the year ended December 31, 2023). +4.3 +Placement Agent Common Stock Purchase Warrant dated March 17, 2023 (incorporated by reference to Exhibit 4.3 to the Annual Report on Form 10-K for the year ended December 31, 2023). +4.4 +Warrant issued to Armistice Capital Master Fund Ltd. dated April 10, 2024 (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the SEC on April 9, 2024). +10.1+ +ASP Isotopes Inc. 2021 Stock Incentive Plan, as amended, and form of award agreements thereunder (incorporated by reference to Exhibit 10.1 to the Form S-1/A filed on November 9, 2022 (File No. 333-267392)). +10.2+ +ASP Isotopes Inc. 2022 Equity Incentive Plan and form of award agreements thereunder (incorporated by reference to Exhibit 10.2 to the Form S-1/A filed on November 9, 2022 (File No. 333-267392)) +10.3+ +Performance Share Award Grant Notice and Performance Share Award Agreement with Paul Mann, dated October 4, 2021, as amended (incorporated by reference to Exhibit 10.3 to the Form S-1/A filed on November 9, 2022 (File No. 333-267392)). +10.4+ +Form of Indemnification Agreement between the registrant and each of its directors and executive officers (incorporated by reference to Exhibit 10.4 to the Form S-1/A filed on November 9, 2022 (File No. 333-267392)). +10.5+ +Form of Director Agreement (incorporated by reference to Exhibit 10.5 to the Form S-1/A filed on November 9, 2022 (File No. 333-267392)). +10.6+ +Executive Employment Agreement by and between the registrant and Paul Mann, dated October 4, 2021 (incorporated by reference to Exhibit 10.6 to the Form S-1/A filed on November 9, 2022 (File No. 333-267392)). +10.7+ +Executive Employment Agreement by and between ASP Isotopes Guernsey Limited and Hendrik Strydom, dated January 19, 2022 (incorporated by reference to Exhibit 10.7 to the Form S-1/A filed on November 9, 2022 (File No. 333-267392)). +10.8+ +Executive Employment Agreement by and between ASP Isotopes Guernsey Limited and Robert Ainscow, dated October 4, 2021, as amended (incorporated by reference to Exhibit 10.8 to the Form S-1/A filed on November 9, 2022 (File No. 333-267392)). +98 +10.9 +Letter Agreements between the registrant and Dr Einar Ronander and Dr Hendrik Strydom, dated January 2021 (incorporated by reference to Exhibit 10.13 to the Form S-1/A filed on November 9, 2022 (File No. 333-267392)). +10.10 +Chief Scientific Adviser Agreement between the registrant and Dr Einar Ronander, dated January 2021 (incorporated by reference to Exhibit 10.14 to the Form S-1/A filed on November 9, 2022 (File No. 333-267392)). +10.11 +Lease for Molybdenum Processing Plant between ASP Isotopes South Africa (Proprietary) Limited (formerly PDS Photonica Holdings South Africa (Proprietary) Limited) and Morgan Creek Properties 311 Pty Ltd. (incorporated by reference to Exhibit 10.15 to the Form S-1/A filed on November 9, 2022 (File No. 333-267392)). +10.12 +Form of Subscription Agreement (incorporated by reference to Exhibit 10.16 to the Form S-1/A filed on November 9, 2022 (File No. 333-267392)). +10.13 +License Agreement between ASP Isotopes UK Ltd and Klydon (Proprietary) Limited dated July 26, 2022 (incorporated by reference to Exhibit 10.17 to the Form S-1/A filed on November 9, 2022 (File No. 333-267392)). +10.14 +Amended Executive Employment Agreement between the registrant and Paul Mann effective December 20, 2022 (incorporated by reference to Exhibit 10.19 to the Annual Report on Form 10-K for the year ended December 31, 2023, filed on April 10, 2024). +10.15 +Acknowledgement of Debt Agreement between ASP Isotopes South Africa (Proprietary) Limited and Klydon (Proprietary) Limited dated November 30, 2022 (incorporated by reference to Exhibit 10.20 to the Annual Report on Form 10-K for the year ended December 31, 2023, filed on April 10, 2024). +10.16 +Deed of Security Agreement between ASP Isotopes South Africa (Proprietary) Limited and Klydon (Proprietary) Limited dated November 30, 2022 (incorporated by reference to Exhibit 10.21 to the Annual Report on Form 10-K for the year ended December 31, 2023, filed on April 10, 2024). +10.17 +Securities Purchase Agreement dated March 14, 2023 (private placement of shares and warrants) (incorporated by reference to Exhibit 10.22 to the Annual Report on Form 10-K for the year ended December 31, 2023, filed on April 10, 2024). +10.18 +Registration Rights Agreement dated March 14, 2023 (private placement of shares and warrants) (incorporated by reference to Exhibit 10.23 to the Annual Report on Form 10-K for the year ended December 31, 2023, filed on April 10, 2024). +10.19 +Release Agreement, dated March 23, 2023 between Revere Securities LLC and ASP Isotopes Inc. (incorporated by reference to Exhibit 10.24 to the Annual Report on Form 10-K for the year ended December 31, 2023, filed on April 10, 2024) +10.20 +Form of Securities Purchase Agreement by and between ASP Isotopes Inc. and the purchasers named therein (October 2023 private placement of shares) (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 12, 2023). +10.21 +Form of Registration Rights Agreement by and between ASP Isotopes Inc. and the purchasers named therein (October 2023 private placement of shares) (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on October 12, 2023). +10.22 +Share Purchase Agreement, dated October 30, 2023, by and between ASP Isotopes Inc., as purchaser, and Nucleonics Imaging Proprietary Limited, as seller, relating to the purchase and sale of ordinary shares of Pet Labs Pharmaceuticals Proprietary Limited (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 30, 2023). +10.23 +Convertible Note Purchase Agreement (including Form of Convertible Promissory QLE Note), dated as of February 29, 2024, by and among Quantum Leap Energy LLC and the Purchasers listed therein (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on February 29, 2024). +10.24 +Registration Rights Agreement, dated as of February 29, 2024, by and among Quantum Leap Energy LLC and the Purchasers listed therein (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on February 29, 2024). +10.25+ +Quantum Leap Energy LLC 2024 Equity Incentive Plan (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on February 29, 2024). +10.26 +Form of Warrant Inducement Agreement by and between ASP Isotopes Inc. and Armistice Capital Master Fund Ltd. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on April 9, 2024). +99 +10.27 +ASP Isotopes Inc. 2024 Inducement Equity Incentive Plan and forms of award agreement thereunder (incorporated by reference to Exhibit 10.1 to the Form 8-K filed on June 13, 2024). +10.28 +Executive Employment Agreement by and between the Company and Heather Kiessling, dated June 10, 2024 (incorporated by reference to Exhibit 10.1 to the Form 10-Q filed on November 19, 2024). +10.29 +Convertible Note Purchase Agreement (including Form of Convertible Promissory QLE Note), dated as of June 5, 2024, by and among Quantum Leap Energy LLC and the Purchasers listed therein (incorporated by reference to Exhibit 10.1 to the Form 8-K filed on June 6, 2024). +10.30 +Registration Rights Agreement, dated as of June 5, 2024, by and among Quantum Leap Energy LLC and the Purchasers listed therein (incorporated by reference to Exhibit 10.2 to the Form 8-K filed on June 6, 2024). +10.31 * +Non-Employee Director Compensation Policy adopted effective October 30, 2024. +19.1 * +Insider Trading Policy +21.1 * +List of Subsidiaries of the Registrant +23.1 * +Consent of EisnerAmper LLP, independent registered public accounting firm. +24.1 * +Power of Attorney (included as part of the signature page to this report). +31.1 * +Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. +31.2 * +Certification of Principal Accounting Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. +32.1 * +Certification of Principal Executive Officer and Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. +97.1 +Policy Relating to Recovery of Erroneously Awarded Compensation, effective October 2, 2023 2023 (incorporated by reference to Exhibit 97.1 to the Form 10-K filed on April 10, 2024). +99.1 +License Agreement, dated as of February 16, 2024, among ASP Isotopes UK Limited, as licensor, and Quantum Leap Energy LLC and Quantum Leap Energy Limited, as licensee (incorporated by reference to Exhibit 99.4 to the Form 8-K filed on February 29, 2024). +99.2 +EPC Services Framework Agreement, dated as of February 16, 2024, between ASP Isotopes Inc. and Quantum Leap Energy LLC (incorporated by reference to Exhibit 99.5 to the Form 8-K filed on February 29, 2024). +101.INS +Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document +101.SCH +Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents +104 +Cover Page Interactive Data File (embedded within the Inline XBRL document) +* Filed herewith. +** Furnished herewith. ++ Management contract or compensatory plan or arrangement. +Item 16. Form 10-K Summary +None. +100 +SIGNATURES +Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 31st day of March, 2025. +ASP Isotopes Inc. +By +/s/ PAUL E. MANN +Paul E. Mann +Chairman, Chief Executive Officer and Director +We, the undersigned directors and officers of ASP Isotopes Inc., hereby severally constitute Paul E. Mann and Heather Kiessling, and each of them singly, as our true and lawful attorneys with full power to each of them to sign for us, in our names in the capacities indicated below, any and all amendments to this Annual Report on Form 10-K filed with the Securities and Exchange Commission. +This power of attorney may only be revoked by a written document executed by the undersigned that expressly revokes this power by referring to the date and subject hereof. +Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated. +Signature +Title +Date +/s/ PAUL E. MANN +Chief Executive Officer, Chairman and Director (Principal Executive Officer) +March 31, 2025 +Paul E. Mann +/s/ HEATHER KIESSLING +Chief Financial Officer (Principal Financial and Accounting Officer) +March 31, 2025 +Heather Kiessling +/s/ MICHAEL GORLEY, Ph.D. +Director +March 31, 2025 +Michael Gorley, Ph.D. +/s/ DUNCAN MOORE, Ph.D. +Director +March 31, 2025 +Duncan Moore, Ph.D. +/s/ ROBERT RYAN +Director +March 31, 2025 +Robert Ryan +/s/ HENDRIK STRYDOM, Ph.D. +Director +March 31, 2025 +Hendrik Strydom, Ph.D. +/s/ TODD WIDER, M.D. +Director +March 31, 2025 +Todd Wider, M.D. +101 \ No newline at end of file diff --git a/raw/filings/0001921865/2024/0000950170-25-047694/filing_metadata.csv b/raw/filings/0001921865/2024/0000950170-25-047694/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..029bc9a61932af8d5fd6d47243c83ce140c9cfe5 --- /dev/null +++ b/raw/filings/0001921865/2024/0000950170-25-047694/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001921865,ASPI,ASP Isotopes Inc.,2024,10-K,2025-03-31,2024-12-31,2025-03-31T20:05:31.000Z,0000950170-25-047694,aspi-20241231.htm,10-K,17667335,1,1,https://www.sec.gov/Archives/edgar/data/1921865/000095017025047694/aspi-20241231.htm,https://www.sec.gov/Archives/edgar/data/1921865/000095017025047694/ diff --git a/raw/filings/0001921865/2024/0000950170-25-047694/item1.txt b/raw/filings/0001921865/2024/0000950170-25-047694/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..ff1cc5291cf58dacf455425eb031201e4486a988 --- /dev/null +++ b/raw/filings/0001921865/2024/0000950170-25-047694/item1.txt @@ -0,0 +1,797 @@ +Item 1. Business +Overview +We are a development stage advanced materials company dedicated to the development of technology and processes that, if successful, will allow for the enrichment of natural isotopes into higher concentration products, which could be used in several industries. Our proprietary technologies, the Aerodynamic Separation Process (“ASP technology”) and Quantum Enrichment +4 +technology (“QE technology”), are designed to enable the production of isotopes used in several industries. Our initial focus is on the production and commercialization of enriched Carbon-14 (“C-14”), Silicon-28 (“Si-28”) and Ytterbium-176 (“Yb-176”). +We have completed the commissioning phase and are commencing commercial production at our C-14 and Si-28 enrichment facilities in Pretoria, South Africa. We are in the process of commissioning and commencing commercial production at our Yb-176 enrichment facility in Pretoria, South Africa. Our C-14 and Si-28 enrichment facilities utilize the ASP technology and our Yb-176 enrichment facility utilizes QE technology. We expect our first three enrichment facilities to generate commercial product during 2025. In addition, we have started planning additional isotope enrichment plants both in South Africa and in other jurisdictions, including Iceland and the United States. We believe the C-14 we may produce using the ASP technology could be used in the development of new pharmaceuticals and agrochemicals. We believe the Si-28 we may produce using the ASP technology may be used to create advanced semiconductors and in quantum computing. We believe the Yb-176 we may produce using the QE technology may be used to create radiotherapeutics that treat various forms of oncology. +In addition, we are considering the future development of the ASP technology for the separation of Zinc-68 and Xenon-129/136 for potential use in the healthcare end market, Germanium 70/72/74 for potential use in the semiconductor end market, and Chlorine -37 for potential use in the nuclear energy end market. We are also considering the future development of QE technology for the separation of Nickel-64, Gadolinium-160, Ytterbium-171, Lithium 6 and Lithium7. +We are currently pursuing an initiative to apply our enrichment technologies to the enrichment of Uranium-235 (“U-235”) in South Africa. We believe that the U-235 we may produce using quantum enrichment technology may be commercialized as a nuclear fuel component for use in the new generation of high-assay low-enriched uranium (HALEU)-fueled small modular reactors that are now under development for commercial and government uses. In furtherance of our uranium enrichment initiative, in October 2024, we entered into a term sheet with TerraPower, LLC which contemplates the parties entering into definitive agreements pursuant to which TerraPower would provide funding for the construction of a HALEU production facility and agree to purchase all HALEU produced at the facility over a 10-year period after the planned completion of the facility in 2027. In addition, in November 2024, we entered into a memorandum of understanding with The South African Nuclear Energy Corporation (Necsa), a South African state-owned company responsible for undertaking and promoting research and development in the field of nuclear energy and radiation sciences, to collaborate on the research, development and ultimately the commercial production of advanced nuclear fuels. Subject to the receipt of funding and all required permits and licenses to begin enrichment of U-235 in South Africa, it is anticipated that the research, development and ultimate construction of a HALEU production facility will take place at South Africa’s main nuclear research center at Pelindaba in Pretoria. +We operate principally through subsidiaries. ASP Isotopes Guernsey Limited (the holding company of ASP Isotopes South Africa (Proprietary) Limited, Enlightened Isotopes (Pty) Ltd) and ASPI South Africa Asset Finance (Pty) Ltd, which will be focused on the development and commercialization of high-value, low-volume isotopes for highly specialized end markets (such as C-14, Si-28 and Yb-176). In September 2023, we formed a new subsidiary, Quantum Leap Energy LLC, which also has a subsidiary in the United Kingdom (Quantum Leap Energy Ltd), to focus on the development and commercialization of advanced nuclear fuels such as HALEU and Lithium-6. ASP Isotopes UK Ltd is the owner of our technology. In addition, we have a 51% ownership stake in PET Labs Pharmaceuticals Proprietary Limited (PET Labs), a South African radiopharmaceutical operations company focused on the production of fluorinated radioisotopes and active pharmaceutical ingredients, through which we entered the downstream medical isotope production and distribution market. +5 +Our corporate structure and ownership of our subsidiaries is set forth in the chart below: +Our Segments +As of December 31, 2023, we managed our operations as a single segment, specialist isotopes and related services. Beginning in 2024, primarily as a result of the increased business activities of our subsidiary, Quantum Leap Energy LLC, we manage our operations as two operating segments: (i) nuclear fuels, and (ii) specialist isotopes and related services: +• +Nuclear Fuels. This segment is focused on research and development of technologies and methods used to produce HALEU and Lithium-6 for the advanced nuclear fuels target end market. +• +Specialist Isotopes and Related Services. This segment is focused on research and development of technologies and methods used to separate high-value, low-volume isotopes (such as C-14, Mo-100 and Si-28) for highly specialized target end markets other than advanced nuclear fuels, including pharmaceuticals and agrochemicals, nuclear medical imaging and semiconductors, as well as services related to these isotopes, and this segment includes PET Labs. +Our Strategy +Commence commercial production at each of our enrichment facilities in Pretoria, South Africa. +We commenced commercial production of enriched isotopes at our ASP enrichment facilities located in Pretoria, South Africa during the first quarter of 2025. Our first ASP enrichment facility is designed to enrich light isotopes, such as Carbon-14. The second ASP enrichment facility, which is substantially larger than the first, should have the potential to enrich kilogram quantities of relatively heavier isotopes, including but not limited to Silicon-28 and Molybdenum-100. We anticipate shipping the first commercial batches of enriched Carbon-14 in mid-2025 and enriched Silicon-28 during the second quarter of 2025. We are in the process of commissioning and commencing commercial production at our third enrichment facility, a QE technology facility, which will be our first laser-based enrichment plant and is expected to be able to achieve a 99.75% enrichment for Ytterbium-176. We expect to commence commercial production of Ytterbium-176 during the second quarter of 2025. +Demonstrate the capability to produce commercial quantities of enriched C-14, Si-28 and Yb-176 using the ASP and QE technologies and capitalize on the opportunity to solve many supply chain challenges that currently exist. +We intend to demonstrate the capability to produce C-14, Si-28 and Yb-176 at a scale that can support anticipated customer demand for all three isotopes. +Historically, Russia has been the sole supplier of C-14, which is used as a tracer in the development of new pharmaceuticals and agrochemicals. The supply chain has been inherently fragile with inconsistent service. We have received an initial supply of feedstock from our customer and have started the enrichment of C-14. +6 +Isotopically enriched silicon is regarded as a promising material for semiconductor quantum information due to its very long coherence times and its compatibility with the readily available industrial platform. We believe that the ASP technology is ideally suited to the production of this isotope because it has the ability to enrich molecules of low molecular mass. Other electronic gasses that can likely be enriched using ASP Technology include disilane and germane. +Enriched Ytterbium-176 can be irradiated to produce Lutetium-177, which has been identified for use in oncology, particularly in targeted radionuclide therapy ("TRT"). TRT is used in the treatment of various types of cancers, including neuroendocrine tumors, prostate cancer, and bone metastases, among others. There are numerous ongoing clinical trials studying Lutetium-177 PSMA-617 in patients with metastatic castration-resistant prostate cancer. We have obtained all necessary licenses within South Africa to proceed with the commercial development of this product. +Continue identifying potential offtake customers and strategic partners for our enriched isotopes. +We have significant interest from potential offtake customers for the enriched isotopes that we intend to produce. In June 2023, we entered into a tolling agreement with a Canadian customer for the entire capacity of our C-14 production facility. In April and June 2024, we entered into purchase orders with a US semiconductor company and a global industrial gas company for the supply of highly enriched silicon-28. We are currently in discussions with potential customers that have an interest in entering into long-term supply agreements for kilogram quantities of Si-28 and larger quantities of Xe-129, Ge 72, Ge-74, Zn-68, and Cl-37. We intend to identify additional potential customers and strategic partners for isotopes that we may produce at our existing and planned enrichment facilities. +Demonstrate the capability to produce high-assay low-enriched uranium (HALEU) using our enrichment technologies and meet anticipated demand for the new generation of HALEU-fueled small modular reactors and advanced reactor designs that are now under development for commercial and government uses. +We plan to begin research and development for the enrichment of uranium to demonstrate our capability to produce HALEU using Quantum Enrichment technology. We anticipate a future demand for HALEU for the new generation of HALEU-fueled small modular reactors ("SMRs") and advanced reactor designs that are now under development for commercial and government uses. SMRs are viewed as being cheaper, safer, and more versatile than traditional large-scale nuclear reactors, and development of the new technology is receiving considerable funding from the U.S. Department of Energy, as well as from the governments of other countries. There is currently no commercial production of HALEU in the United States. We are currently conducting a feasibility study with respect to constructing an enrichment facility in South Africa, the U.S. and the United Kingdom. We are currently in discussions with nuclear regulatory authorities in multiple countries, including the UK Atomic Energy Authority, UK Office of Nuclear Regulation (ONR), Nuclear Energy Corporation of South Africa (NECSA), the South African Department of Mineral Resources and Energy (DMRE), United States Department of Energy (DOE) and the United States Nuclear Regulatory Commission (NRC), regarding the construction of a nuclear fuel plant in these countries. +We intend to progress our uranium enrichment initiative first in South Africa. In November 2024, we entered into a Memorandum of Understanding ("MOU") with The South African Nuclear Energy Corporation (Necsa) to collaborate on the research, development and ultimately the commercial production of advanced nuclear fuels. Necsa is a state-owned company established by the Republic of South Africa Nuclear Energy Act in 1999 with a mandate to undertake and promote research and development in the field of nuclear energy and radiation sciences. Necsa is also responsible for processing source material, and co-operating with other institutions on nuclear and related matters. The proposed structure under discussion for the delivery of the objectives of the MOU contemplates the formation of a new entity in South Africa with a board of directors consisting of at least two representatives from ASPI and Necsa. It is anticipated that the research, development and ultimate construction of a HALEU production facility will take place at South Africa’s main nuclear research center located at Pelindaba, Pretoria. +Alongside our talks with regulators, we are currently discussing with multiple counterparties engaged in the development of SMR reactors to produce HALEU to further their research efforts and future commercial endeavors. We have entered into two MOUs with US-based SMR companies for the supply of HALEU. For example, our term sheet with TerraPower, LLC which contemplates the parties entering into definitive agreements pursuant to which TerraPower would provide funding for the construction of a HALEU production facility and agree to purchase all HALEU produced at the facility over a 10-year period after the planned completion of the facility in 2027. +Demonstrate the effectiveness and value in the use of stable isotopes in the downstream radiopharmacy market, after acquiring 51% ownership interest in PET Labs, the leading radiopharmacy in South Africa. This investment will address the radioisotope needs of South Africa as well as certain neighboring countries. +Under the terms of a Share Purchase Agreement, dated October 30, 2023, we acquired 51% of the issued share capital of PET Labs Pharmaceuticals Proprietary Limited, a company incorporated in the Republic of South Africa (“PET Labs”). PET Labs is a South African radiopharmaceutical operations company, dedicated to nuclear medicine and the science of radiopharmaceutical +7 +production. As a result of this transaction, we entered into the downstream radiopharmacy market that we intend to service in the future. This transaction will help provide the market with adequate proof of concept of the value of utilizing Mo-100 in downstream SPECT imaging procedures while providing supply chain stability to the region of South Africa and neighboring countries. We intend to expand PET Labs’ existing operations by adding two new cyclotrons to its service footprint, enabling the company to properly expand its other revenue generation mediums, which is anticipated to drive free cash flow to the company. +Our Strengths +ASP technology initially developed by Klydon and further developed by ASP Isotopes Inc.. +The aerodynamic separation technique has its origins in the South African uranium enrichment program in the 1980s, and the ASP technology had been developed during the last two decades by the scientists at Klydon. The scientists at Klydon had constructed two ASP plants for the enrichment of oxygen-18 and silicon-28 in Pretoria, South Africa, which were commissioned in October 2015 and July 2018, respectively. While the technology has not yet been used to enrich either Uranium or heavier isotopes, we believe the success of the enrichment process for oxygen-18 and silicon-28 has demonstrated the efficacy and commercial scalability of the ASP technology. If our research and development is successful (and subject to obtaining applicable regulatory approvals and appropriate licenses), we plan to commercialize many different isotopes produced using the ASP technology. To date, we have not produced commercial quantities of any enriched isotopes and we have not demonstrated the ability to produce any enriched isotopes in commercial quantities using ASP technology. +Extensive Research and Development Experience in Aerodynamic Separation Technology and Processes. +Subject to successful research and development, our ASP technology has the potential to produce many different types of isotopes. Klydon had spent the last two decades and tens of millions of dollars developing the aerodynamic separation technique used in the ASP technology, generating critical trade secrets. We believe our competitors lag behind us in terms of the technical expertise of our senior management and the know-how contained in the aerodynamic separation technique and will be unable to replicate the expected results of the ASP technology, even as we expect to continue to improve the existing technology and processes. Additionally, the high capital costs of development of proprietary technologies, significant lead times required to construct new enrichment facilities, as well as stringent regulatory and operating requirements applicable to enrichment facilities, adds to the significant barriers to entry for smaller competing market participants. +ASP technology is a flexible platform with the potential to produce many different isotopes that could serve large addressable markets. +ASP technology is a flexible platform, compact in size and weight, and could be easily scaled to an industrial level with number of separation devices added in parallel. The ASP technology also has few moving parts, with low capital and operating costs in comparison to alternatives. The technology is particularly efficient at enriching isotopes of low atomic mass. We believe that, assuming receipt of required regulatory approvals and governmental permits, the ASP technology can be deployed quickly and with a relatively minimal capital cost, to enrich many different isotopes that we believe consumers require both today and in the future in end markets such as healthcare, technology and energy. +The ASP technology is designed to be scalable, low cost, low energy, and environmentally friendly, with no radioactive waste or hazardous materials produced in the process and planned arrangements to reuse chemical by-products. +QE technology has the potential to produce many different enriched isotopes that cannot be enriched using ASP Technology. +Our QE technology is potentially a highly efficacious enrichment technology with the greatest enrichment factor of any enrichment process. In laboratory tests our scientists have achieved enrichment factors of up to 678 which compares to enrichment factors of less than 50 for AVLIS and 1.15 for a traditional centrifuge. QE can also be used to enrich elements where there is no known gaseous form of that element. We have completed the construction of our first QE enrichment facility in Pretoria, South Africa where we intend to produce 99.75% enriched Ytterbium-176. +Experienced team +Our board of directors and advisers have specialized expertise in isotope enrichment, research and development, technology, plant development, and manufacturing. Dr Hendrik Strydom, our chief technology officer and one of our directors, previously co-founded Klydon and has over 40 years of experience in isotope enrichment and laser design and manufacture. The scientific team that joined our company from Klydon combined has decades of experience in research and development of isotope enrichment and amassed deep knowledge in the field. +8 +Our board of directors and our management team also have broad experience and successful track records in fusion technology and fusion materials, biopharmaceutical research, chemicals, manufacturing and commercialization, as well as in business, operations, and finance. Our board of directors’ and management team’s experience was gained at leading companies and financial institutions that include, Bear Stearns, Deutsche Bank, Highbridge Capital, Investec Bank, Morgan Stanley and Soros Fund Management. +Technical Background +What are Isotopes? +Isotopes are two or more types of atoms that have the same atomic number (number of protons in their nuclei) and position in the periodic table (and hence belong to the same chemical element), and that differ in nucleon numbers (mass numbers) due to different numbers of neutrons in their nuclei. While all isotopes of a given element have almost the same chemical properties, they have different atomic masses and physical properties. +The number of protons within the atom’s nucleus is called atomic number and is equal to the number of electrons in the neutral (non-ionized) atom. Each atomic number identifies a specific element, but not the isotope; an atom of a given element may have a wide range in its number of neutrons. The number of nucleons (both protons and neutrons) in the nucleus is the atom’s mass number, and each isotope of a given element has a different mass number. For example, carbon-12, carbon-13, and carbon-14 are three isotopes of the element carbon with mass numbers 12, 13, and 14, respectively. The atomic number of carbon is 6, which means that every carbon atom has 6 protons so that the neutron numbers of these isotopes are 6, 7, and 8 respectively. +There are 23 isotopes of Silicon, all of which have 14 protons and between 8 and 30 neutrons. The table below shows a selection of those isotopes. Three isotopes are stable which have mass numbers of 28, 29 and 30 which have 14, 15 and 16 neutrons respectively. The other 20 isotopes are radioactive and decay with short half-lives and are therefore do not typically exist in naturally occurring silicon. In naturally occurring silicon, the isotope with atomic mass of 28 is usually the most abundant, typically accounting for approximately 92.22% of the material. The isotope with atomic mass of 29 typically accounts for 4.69% of the material and the isotope with atomic mass of 30 typically accounts for 3.09% of the material. +Molybdenum has 33 known isotopes, ranging in atomic mass from 83 to 115, as well as four metastable nuclear isomers. Seven isotopes occur naturally, with atomic masses of 92, 94, 95, 96, 97, 98, and 100. All unstable isotopes of molybdenum decay into isotopes of zirconium, niobium, technetium, and ruthenium. +Uranium is a naturally occurring radioactive element that has no stable isotope. It has two primordial isotopes, uranium-238 and uranium-235, which have long half-lives and are found in appreciable quantity in the Earth’s crust. The decay product, uranium-234 is also found. Other isotopes such as uranium-233 have been produced in breeder reactors. In addition to isotopes found in nature or nuclear reactors, many isotopes with far shorter half-lives have been produced, ranging from U-214 to U-242 (with the exception of U-220 and U-241). The standard atomic weight of natural uranium is 238.02891 with 99.27% of naturally occurring uranium being the isotope with an atomic mass of 238. +Selected isotopes of Silicon +Selected isotopes of Molybdenum +Selected isotopes of Uranium +Nuclide +Protons +Neutrons +Isotopic +Mass +Half +Life +Natural +abundance +Nuclide +Protons +Neutrons +Isotopic +Mass +Half +Life +Natural +abundance +Nuclide +Protons +Neutrons +Isotopic +Mass +Half +Life +Natural +abundance +22 +14 +8 +22.036 +29 ms +91 +42 +49 +90.912 +15.49 min +225 +92 +133 +225.029 +62 ms +23 +14 +9 +23.025 +42.3 ms +92 +42 +50 +91.907 +Stable +14.65% +226 +92 +134 +226.029 +269 ms +24 +14 +10 +24.012 +140 ms +93 +42 +51 +92.907 +4000 y +227 +92 +135 +227.031 +1.1 m +25 +14 +11 +25.004 +220 ms +94 +42 +52 +93.905 +Stable +9.19% +228 +92 +136 +228.031 +9.1 m +26 +14 +12 +25.992 +2.245 s +95 +42 +53 +94.906 +Stable +15.87% +229 +92 +137 +229.034 +57.8 m +27 +14 +13 +26.987 +4.15 s +96 +42 +54 +95.905 +Stable +16.67% +230 +92 +138 +230.034 +20.23 d +28 +14 +14 +27.977 +Stable +92.22% +97 +42 +55 +96.906 +Stable +9.58% +231 +92 +139 +231.036 +4.2 d +29 +14 +15 +28.977 +Stable +4.69% +98 +42 +56 +97.905 +Stable +24.29% +232 +92 +140 +232.037 +68.9 y +30 +14 +16 +29.974 +Stable +3.09% +99 +42 +57 +98.908 +2.75 d +233 +92 +141 +233.04 +1.592 e5 y +Trace +31 +14 +17 +30.975 +157.36 min +100 +42 +58 +99.907 +Stable +9.74% +234 +92 +142 +234.041 +2.455 e5 y +Trace +32 +14 +18 +31.974 +153 y +trace +101 +42 +59 +100.910 +14.61 m +235 +92 +143 +235.044 +7.038 e8 y +0.72% +33 +14 +19 +32.978 +6.18 s +102 +42 +60 +101.910 +11.3 m +236 +92 +144 +236.046 +2.342 e7 y +Trace +34 +14 +20 +33.979 +2.77 s +103 +42 +61 +102.913 +67.5 s +237 +92 +145 +237.049 +6.752 d +Trace +35 +14 +21 +34.985 +780 ms +104 +42 +62 +103.914 +60 s +238 +92 +146 +238.051 +4.468 e9 y +99.27% +36 +14 +22 +35.987 +450 ms +105 +42 +63 +104.917 +35.6 s +239 +92 +147 +239.054 +23.45 m +37 +14 +23 +36.993 +90 ms +106 +42 +64 +105.918 +8.73 s +240 +92 +148 +240.057 +14.1 h +Trace +38 +14 +24 +37.996 +90 ms +107 +42 +65 +106.922 +3.5 s +242 +92 +150 +242.063 +16.8 m +Methods of Separation and Enrichment of Isotopes +Isotope enrichment is the process of concentrating specific isotopes of a chemical element by removing other isotopes. During the last century, a number of different methods have been developed to separate and enrich isotopes. The current separation or +9 +enrichment processes are based either on the atomic weight of the isotope, small differences in chemical reaction rates produced by different atomic weights or are based on properties not directly connected to atomic weight such as nuclear resonances. +Diffusion +Often performed on gases, but also on liquids, the diffusion method relies on the fact that in thermal equilibrium, two isotopes with the same energy will have different average velocities. The lighter atoms (or the molecules containing them) will travel more quickly and be more likely to diffuse through a membrane. The difference in speeds is proportional to the square root of the mass ratio, so the amount of separation is small, and many cascaded stages are needed to obtain high purity. This method is expensive due to the work needed to push gas through a membrane and the many stages necessary. +Centrifugal +Centrifugal methods rapidly rotate the material allowing the heavier isotopes to go closer to an outer radial wall. This too is often done in gaseous form using a Zippe-type centrifuge. +A Zippe-type centrifuge relies on the force resulting from centripetal acceleration to separate molecules according to their mass, and can be applied to most fluids. The dense (heavier) molecules move towards the wall and the lighter ones remain close to the center. The centrifuge consists of a rigid body rotor rotating at high speed. Concentric gas tubes located on the axis of the rotor are used to introduce feed gas into the rotor and extract the heavier and lighter separated streams. For U-235 production, the heavier stream is the waste stream and the lighter stream is the product stream. Modern Zippe-type centrifuges are tall cylinders spinning on a vertical axis, with a vertical temperature gradient applied to create a convective circulation rising in the center and descending at the periphery of the centrifuge. Diffusion between these opposing flows increases the separation by the principle of countercurrent multiplication. +In practice, since there are limits to how tall a single centrifuge can be made, several such centrifuges are connected in series. Each centrifuge receives one input and produces two output lines, corresponding to light and heavy fractions. The input of each centrifuge is the output (light) of the previous centrifuge and the input of the following stage. This produces an almost pure light fraction from the output (light) of the last centrifuge and an almost pure heavy fraction from the output (heavy) of the first centrifuge. +Electromagnetic +Electromagnetic separation is mass spectrometry on a large scale, so it is sometimes referred to as mass spectrometry. It uses the fact that charged particles are deflected in a magnetic field and the amount of deflection depends upon the particle’s mass. It is very expensive for the quantity produced, as it has an extremely low throughput, but it can allow very high purities to be achieved. This method is often used for processing small amounts of pure isotopes for research or specific use (such as isotopic tracers), but is impractical for industrial use. +Laser +In this method, a laser is tuned to a wavelength which excites only one isotope of the material and ionizes those atoms preferentially. The resonant absorption of light for an isotope is dependent upon its mass and certain hyperfine interactions between electrons and the nucleus, allowing finely tuned lasers to interact with only one isotope. After the atom is ionized it can be removed from the sample by applying an electric field. This method is often abbreviated as AVLIS (atomic vapor laser isotope separation). This method has only recently been developed as laser technology has improved, and is currently not used extensively. +Chemical Methods +Although isotopes of a single element are normally described as having the same chemical properties, this is not strictly true. In particular, reaction rates are very slightly affected by atomic mass. Techniques using this are most effective for light atoms such as hydrogen. Lighter isotopes tend to react or evaporate more quickly than heavy isotopes, allowing them to be separated. This is how heavy water is produced commercially. +Gravity +Isotopes of carbon, oxygen, and nitrogen can be purified by chilling these gases or compounds nearly to their liquefaction temperature in very tall (200 to 700 feet (61 to 213 m)) columns. The heavier isotopes sink and the lighter isotopes rise, where they are easily collected. +10 +The Aerodynamic Separation Process ("ASP") Technology +ASP technology is proprietary technology originally licensed from Klydon which succeeds earlier work, first detailed in the scientific media in the mid-1970s, relating to an industrial scale enrichment plant for uranium that was constructed utilizing the so-called “stationary-wall centrifuge”. The original technology was highly energy consuming and was not able to compete on an economic basis with other methods of isotope separation. The innovative development of the ASP technology over the past two decades has culminated in a more advanced separation device that we believe can compete on a commercial scale with other methods of isotope separation. The ASP separation device separates both gas species and isotopes in a volatile state via an approximate flow pattern as shown below. +The ASP enrichment process uses an aerodynamic technique similar to a stationary wall centrifuge. The isotope material in raw gas form enters the stationary tube at high speed by tangential injection through finely placed and sized openings in the surface of the tube. The gas then follows a flow pattern that results in two gas vortexes occurring around the geometrical axis of the separator. The isotope material becomes separated in the radial dimension as a result of the spin speed of the isotope material reaching several hundred meters per second. An axial mass flow component in each tube feeds isotope material to the respective ends of the separator where the collection of the portions of isotope material is accomplished. +The advantages of ASP technology are as follows: +• +No moving parts, with low capital and operating costs in comparison to alternatives. +• +Compact in size and weight. +• +Easily scaled to industrial level with number of separation devices added in parallel. +• +The separation process occurs inside a closed cylindrical container and is a volume technology, i.e., the process efficiency is not affected by poisoning of surface contaminates as is the case for surface separation processes. +• +ASP operates very efficiently at molecular masses below 100 atomic mass units, unlike other separation processes which are more efficient at higher masses, which ASP can achieve equally well or to a superior degree. +• +ASP easily separates hydrogen gas from other gas components, e.g., harvesting hydrogen gas from carbon monoxide and carbon dioxide and altering the ratio of syngas mixture. +• +With the right material choice ASP can handle even the most corrosive gases. +• +ASP can separate any isotopes that have a gaseous or volatile chemical compound. +• +Most of the subsystems are procured from off-the-shelf components. +• +An ASP plant can be constructed in any country that adheres to the International Atomic Energy Agency (IAEA) protocols for the protection of dual use technology. +11 +ASP Plant Configuration +The figure below shows a schematic of an ASP cascade in operation. The cascade consists of several enrichment stages, connected in a 1-up-1-down cascade configuration. The stages can be grouped into segments. (This method of organizing stages is not reflected in the figure) +The bold blue arrows represent flows of the element into and out of the cascade: +• +H is the product, enriched in the isotope. +• +L is the tails, stripped of the isotope. +• +F = FX + FY is the feed stream at natural isotopic composition. +• +FX is the feed into the product stream of an adjoining stage. +• +FY is the feed into the tails stream of an adjoining stage. +Each stage in the cascade is operated in one of two configurations: +(1) +A net backward flow of the isotope: Xi > Yi. These stages are referred to as “product”, situated in the so-called “product cascade section”, and their flows are marked with an “H” subscript. +(2) +A net forward flow of isotope: Xi < Yi. These stages are referred to as “tails”, situated in the so-called “tails cascade section”, and their flows are marked with an “L” subscript. +The red arrows represent the addition or extraction of carrier gas from the process. The arrows have been added for clarity and orientation, but the mass flows of the carrier gas will be ignored in the rest of the discussion as it pertains to the isotope mass flows only (as represented by the blue arrows). The carrier gas mass flows can be superimposed on any isotope mass balance using the molar mass characteristics of the ASP stages (see below). +The block marked “GS” represents the gas separator: a piece of equipment used to separate the carrier gas from the element of interest to the degree necessary to provide a suitable reflux stream to the tails cascade section. +The blue squares are simply suitable areas where streams can be split or mixed. +An ASP stage is characterized by functions of Y, the flow of isotope in its tails stream. The characteristics of interest are: +• +α(Y): the separation factor between the tails and product streams. +• +MY(Y): the molar mass of the tails stream. +• +MX(Y): the molar mass of the product stream. +• +P(Y): the stage’s power usage. +• +X(θ,Y): the flow of Zinc in the product stream, where θ = Y/(X+Y) is the cut defined in terms of isotope flows. +Note the following: +• +α is the ratio of the tails and product stream abundance ratios. +12 +• +Y, X(θ,Y) and α(Y) describe the stage’s behaviour with regards to Zinc, while MY(Y) and MX(Y) defines its behaviour with regards to the carrier gas. +• +P, the stage’s power usage, depends on the ASP separator, but also on factors such as compressor efficiency, friction losses etc. It is therefore a partial function of stage design. +• +It is possible to define Pmin, the theoretical minimum energy usage of a stage, by assuming 100% efficient compressors and no losses in the stage. Pmin is a function of the ASP separator only. In practice P is a more useful metric, as the contribution of compressor inefficiencies to power consumption is significant. +• +Except for X, the stage’s characteristics are not defined in terms of the cut θ, as they are simply not sensitive to it above a certain lower limit θmin. In practice θmin is small enough that it has no influence on the normal operating envelope of the stage. +• +X is per definition a function of Y via θ as indicated. +The cut of an ASP stage can be dynamically adjusted to any value larger than θmin, allowing its operating point to be changed online during production. +All stages in the product cascade section are operated at the same point < XH,YH >, where XH > YH, ensuring that a net backward flow of the process element, H = XH — YH is achieved. This corresponds to a cut of less than 50% and ensures a positive flow of enriched product. +All stages in the tails cascade section are operated at the same point < XL,YL >, where XL < YL, ensuring that a net backward flow of the process element, L = XL — YL is achieved. This corresponds to a cut of more than 50% and ensures a positive flow of stripped tails. +Depending on the production requirements of the cascade the product and tails section operation points can be moved relative to each other during production, obtaining different combinations of H and L (and therefore different feeds F = H + L). The smaller H (or L) is chosen, the closer the product (or tails) section cut moves to 50%. If all stages are operated at a cut of 50%, the cascade is operated at full reflux, no product, tails, or feed streams are present, and the maximum process element concentration gradient will exist. +ASP Technology In Use +The scientists at Klydon had constructed two ASP plants for the enrichment of oxygen-18 and silicon-28 in Pretoria, South Africa, which were commissioned in October 2015 and July 2018, respectively. We believe the success of the enrichment of oxygen-18 and silicon-28 has demonstrated the efficacy and commercial scalability of the ASP technology. We have completed the commissioning phase and are commencing commercial production at our Carbon-14 enrichment facility and our “multi-isotope” enrichment plant, which has its initial production run designated for enriched Silicon-28. We anticipate shipping the first commercial batches of enriched Carbon-14 in mid-2025 and enriched Silicon-28 during the second quarter of 2025. +Quantum Enrichment Technology +Isotopes of every element have unique spectroscopic “signatures” defined by the electromagnetic radiation or “light” absorbed by their atoms from electron transitions. QE separates two isotopes by taking advantage of the slight differences in the transition energy between two isotopes. This method is described as a “quantum mechanics” method. In principle, Quantum Enrichment can separate isotopes of most elements, achieving desired enrichment in a single step. +The atomic vapor laser isotope separation method (“AVLIS”), which is the forerunner of the QE technology, proposed by Letokhov et al. (1977)], has been in progress during the last 45 years. The main efforts during these years were devoted to attempts to get a nuclear fuel for industrial nuclear reactors. +Laser based isotope selective excitation followed by ionization and collection using electro-magnetic fields offers one of the most efficient techniques for isotope enrichment/denaturing. In the laser isotope separation (LIS) process, atoms of the target isotope in vapor stream get ionized after interaction with a tuned laser beam. Ionized atoms are separated from the main vapor stream by electrostatic field. In our Quantum Enrichment facility, a resistive heating system has been designed to evaporate Ytterbium by sublimation at temperature in the range of 500 oC to 700 oC to provide adequate Yb vapor atoms for laser interaction. +13 +During the process, the vapor jet comes out from the source to reach sonic speed at the exit plane, then it expands supersonically into vacuum. A thickness monitor reading gives average arrival rate of atomic vapor in terms of thickness per unit time (A/sec). +At the heart of laser-based isotope enrichment lies a proficient multi-step isotope selective photoionization scheme giving optimum selectivity and product yield. Yb has two valence electrons and very few transitions originating from its ground level. Its ionization potential is 6.254eV. This necessitates selection of a three-step photoionization scheme for selective photoionization of its isotopes using the available laser infrastructure supporting visible range of spectrum. +Dye lasers offer the best suitable choice for enrichment process as they suffice to all the requirements of the process like wavelength tunability, high power generation at high repetition rates. +Diode Pumped Solid State Green Lasers (DPSSGLs) with ~3GHz line width in multi-mode operation are used to pump the dye lasers. +The temporal delays between the pulses from the three lasers were arranged to ensure their sequential arrival in the interaction region with delay of several ns. +We believe Quantum Enrichment technology is superior to AVLIS with optimized spectroscopy utilization and superior laser beam shaping. +The key advantages include: +• +high selectivity, +• +suitability for vaporized metals, +• +relatively low capital cost, and +• +modular design which limits scalability risk. +Nuclear Medicine +Nuclear medicine is a medical specialty that utilizes radioactive isotopes, referred to as radionuclides, to diagnose and treat disease. These radionuclides are incorporated into radiopharmaceuticals and introduced into the body by injection, swallowing, or inhalation. Physiologic/metabolic processes in the body concentrate the tracers in specific tissues and organs; the radioactive emissions from the tracers can be used to noninvasively image these processes or kill cells in regions where radionuclides have concentrated. +Other types of noninvasive diagnostic procedures — for example, computed tomography (“CT”) and magnetic resonance imaging (MRI) — can detect anatomical changes in tissues and organs as the result of disease. Nuclear medicine procedures can often detect the physiological and metabolic changes associated with disease before any anatomical changes occur. Such procedures can be used to identify disease at early stages and evaluate patients’ early responses to therapeutic interventions. +Single Photon Emission Computed Tomography (“SPECT”) generates three-dimensional (“3D”) images of tissues and organs using radionuclides that emit gamma rays; the most used radionuclide is Technitium-99m (“Tc-99m”), often referred to as the ‘work-horse’ of nuclear medicine. Individual gamma rays emitted from the decay of these radionuclides (i.e., single photon emissions) are detected using a gamma camera. This camera technology is used to obtain two-dimensional (“2D”) images; 3D SPECT images are computer generated from many 2D images recorded at different angles. +14 +Positron Emission Tomography (PET) generates 3D images of tissues and organs using tracers that emit positrons (i.e., positive electrons): for example, fluorine-18 (F-18). Annihilation reactions between the positrons from these radionuclides and electrons present in tissues and organs produce photons. (Two photons are emitted simultaneously for each annihilation reaction and essentially travel in opposite directions.) The photon pairs are detected with a camera having a ring of very fast detectors and electronics. PET images generally have a higher contrast and spatial resolution than do SPECT images. However, PET equipment is more expensive and therefore not as widely available as SPECT equipment. Additionally, most PET tracers have short half-lives (e.g., nitrogen-13 (N-13): 10 minutes, carbon-11 (C-11): 20 minutes, and F-18: 110 minutes), so they must be produced close to their point of use. +Radionuclide therapy can be used to treat conditions such as hyperthyroidism, thyroid cancer, prostate cancer, skin cancer and blood disorders. In nuclear medicine therapy, the radiation treatment dose is administered internally (e.g. intravenous or oral routes) or externally direct above the area to treat in form of a compound (e.g. in case of skin cancer). The radiopharmaceuticals used in nuclear medicine therapy emit ionizing radiation that travels only a short distance, thereby minimizing unwanted side effects and damage to noninvolved organs or nearby structures. Most nuclear medicine therapies can be performed as outpatient procedures since there are few side effects from the treatment and the radiation exposure to the general public can be kept within a safe limit. +ASP Technology for Carbon-14 Enrichment +C-14 is a radioactive isotope of carbon with a half-life of 5,700 years that has a natural abundance of 1 part per trillion. The different isotopes of carbon do not differ appreciably in their chemical properties. This resemblance is used in chemical and biological research, in a technique called carbon labelling: carbon-14 atoms can be used to replace nonradioactive carbon, in order to trace chemical and biochemical reactions involving carbon atoms from any given organic compound. +Carbon-14 could be obtained from waste by-products in certain nuclear reactors. In June 2023, we entered into a multi-year supply agreement with a Canadian Customer for the supply of Carbon-14, which will be produced from our facility that was completed in March 2023. The customer agreed to supply carbon-14 in the form of carbon-dioxide gas as feedstock. We will then convert the carbon dioxide gas into methane under a chemical converting contract entered in June 2023. We will then enrich the methane to greater than 85% C-14 under a tolling agreement, also entered in June 2023. Finally, we will convert the enriched methane back into enriched carbon dioxide under a chemical converting contract. We have received an initial supply of feedstock from our customer and have started the enrichment of C-14. The tolling agreement has a minimum “take or pay” amount of approximately $2.5 million per year, supported by a bank letter of guarantee. In September 2023, we entered into a Memorandum of Understanding (MOU) with the same customer to separate Deuterium and Tritium currently stored at nuclear sites within Canada. The timing and commercial implications of this MOU are subject to future agreement between the parties. +ASP Technology for Silicon-28 Enrichment +Si-28 is a stable isotope of silicon. Isotopically enriched Si-28 is regarded as an ideal host material for semiconducting quantum computing due to the lack of Si-29 nuclear spins. The presence of Si-29 in concentrations above 500 parts per million (ppm) (0.05%) prevents effective performance. The lower the concentration of Si-29, the better a silicon quantum processor will perform in terms of computational power, accuracy and reliability. Unlike traditional centrifuges, which are suited to enriching gases with a high molecular mass, ASP Technology is highly suited to of enriching gases with a low molecular mass such as silane (SiH4), a gaseous compound that contains silicon. +Quantum computers are expected to be thousands or millions of times more powerful than the most advanced of today’s conventional computers, opening new frontiers and opportunities in many industries, including medicine, artificial intelligence, cybersecurity, global logistics and global financial systems. +We have entered into two purchase agreements for highly enriched Silicon-28. The first is with a U.S. semiconductor company. The second is with a global industrial gas company. +Quantum Enrichment Technology for Ytterbium-176 Enrichment +Ytterbium-176 (“Yb-176”) is a stable isotope of ytterbium, that is commonly used to produce Lutetium-177 (“Lu-177”). Lu-177 is a medical isotope used in targeted radionuclide therapy for treating neuroendocrine tumors and prostate cancer. Lu-177 is a medium energy beta emitter (Eβ = 0.149 keV). It is quite damaging, but only deposits its energy within a short range, decreasing collateral damaging effects to normal tissues. It has a half-life of 6.7 days and is compatible with various targeting agents, ranging from short peptides to large biomolecules. The half-life also allows for transport over longer distances and on-site preparation of pharmaceuticals. +15 +Lu-177 can be produced in two ways, either directly by irradiation of lutetium-176 (“Lu-176”) or indirectly by irradiation of ytterbium-176 (“Yb-176”). The irradiation of Lu-176 leads directly to Lu-177, while irradiation of Yb-176 will lead to the production of the short-lived intermediate radioisotope ytterbium-177 (“Yb-177”), which decays to Lu-177. +Using the direct method in which Lu-176 is irradiated, the Lu-177 is produced in a matrix (‘carrier’) of Lu-176, because only part of the Lu-176 is converted to Lu-177. This form of Lu-177 is called carried added. Also, the direct method leads to small amounts of the radioactive impurity Lu-177m. This lowers the radionuclide purity of Lu-177 and complicates the radiation protection and disposal of Lu-177 waste in hospitals. +The advantage of the direct production route is that it can create Lu-177 in high quantities by irradiating as little as 1 mg of Lu-176. On the other hand, the desired Lu-177 cannot be chemically isolated from the target material Lu-176, as they are isotopes of the same element. This is problematic as the lutetium administered to the patient should preferably only contain the ‘useful’ Lu-177. If it contains largely ‘useless’ Lu-176, the effectiveness of the treatment will diminish. +The indirect method, where ytterbium-176 is irradiated, does not generate this extra isotope. The Lu-177 is produced in a matrix of ytterbium, which is separated from the lutetium by a chemical process after irradiation. Therefore, it leads to Lu-177 no carrier added. In the indirect production route, Lu-177 differs from the target material Yb-176 and can be isolated chemically in no carrier added (“n.c.a.”) form. +Quantum Enrichment Technology for Uranium Enrichment +We believe our Quantum Enrichment technology is capable of enriching Uranium, which we may be able to commercialize as a nuclear fuel component for use in the new generation of HALEU-fueled small modular reactors that are now under development for commercial and government uses. +Uranium is a naturally occurring element and is mined from deposits located in Kazakhstan, Canada, Australia, and several other countries including the United States. According to the World Nuclear Association (“WNA”), there are adequate measured resources of natural uranium to fuel nuclear power at current usage rates for about 90 years. In its natural state, uranium is principally comprised of two isotopes: uranium-235 (“U-235”) and uranium-238 (“U-238”). The concentration of U-235 in natural uranium is only 0.711% by weight. Most commercial nuclear power reactors require Low Enriched Uranium (“LEU”) fuel which has a U-235 concentration greater than natural uranium and up to 5% by weight. Future reactor designs currently under development will likely require higher U-235 concentration levels of greater than 5% and below 20% (referred to as HALEU – High Assay Low Enriched Uranium). Uranium enrichment is the process by which the concentration of U-235 is increased (see discussion on HALEU demand below). +Separative work units(“SWU”) is a standard unit of measurement that represents the effort required to transform a given amount of natural uranium into two components: enriched uranium having a higher percentage of U-235 and depleted uranium having a lower percentage of U-235. The SWU contained in LEU is calculated using an industry standard formula based on the physics of enrichment. The amount of enrichment deemed to be contained in LEU under this formula is commonly referred to as its SWU component and the quantity of natural uranium deemed to be contained in LEU under this formula is referred to as its uranium or “feed” component. Currently, it is fairly common practice to purchase both the SWU and uranium components of LEU from the enrichment company. Therefore, LEU prices typically consist of three components: SWU, Conversion and uranium ore concentrate. +The following outlines the steps for converting natural uranium into LEU fuel, commonly known as the nuclear fuel cycle: +• +Mining and Milling . Natural, or unenriched, uranium is removed from the earth in the form of ore and then crushed and concentrated. +• +Conversion . Uranium ore concentrates (“UO”) are combined with fluorine gas to produce uranium hexafluoride (“UF”), a solid at room temperature and a gas when heated. UF is shipped to an enrichment plant. +• +Enrichment . UF is enriched in a process that increases the concentration of the U isotope in the UF from its natural state of 0.711% up to 5%, or LEU, which is usable as a fuel for current light water commercial nuclear power reactors. Future commercial reactor designs may use uranium enriched up to 20% U-235, or HALEU. +• +Fuel Fabrication . LEU is then converted to uranium oxide and formed into small ceramic pellets by fabricators. The pellets are loaded into metal tubes that form fuel assemblies, which are shipped to nuclear power plants. As the advanced reactor market develops, HALEU may be converted to uranium oxide, metal, chloride or fluoride salts, or other forms and loaded into a variety of fuel assembly types optimized for the specific reactor design. +16 +• +Nuclear Power Plant . The fuel assemblies are loaded into nuclear reactors to create energy from a controlled chain reaction. Nuclear power plants generate approximately 20% of U.S. electricity and 10% of the world’s electricity. +• +Used Fuel Storage . After the nuclear fuel has been in a reactor for several years, its efficiency is reduced and the assembly is removed from the reactor’s core. The used fuel is warm and radioactive and is kept in a deep pool of water for several years. Many utilities have elected to then move the used fuel into steel or concrete and steel casks for interim storage. +The World is Transitioning to Newer Smaller Reactors +As the world transitions to a decarbonized electric grid, society is gradually decreasing its reliance on fossil fuels and increasing its reliance on “clean energy”. There appears to be bipartisan support for the growth of nuclear energy. Nuclear power, through the operating light water reactor fleet and the deployment of advanced reactors, is poised to be an increasing contributor to carbon free energy in the U.S. and internationally. The United States leads the world in technology innovation with more developers of advanced reactors than any other country. +SMRs are advanced nuclear reactors that have a power capacity of up to 300 MW(e) per unit, which is about one-third of the generating capacity of traditional nuclear power reactors. SMRs, which can produce a large amount of low-carbon electricity, are: +• +Small — physically a fraction of the size of a conventional nuclear power reactor. +• +Modular — making it possible for systems and components to be factory-assembled and transported as a unit to a location for installation. +• +Reactors — harnessing nuclear fission to generate heat to produce energy. +Many of the benefits of SMRs are inherently linked to the nature of their design — small and modular. Given their smaller footprint, SMRs can be sited on locations not suitable for larger nuclear power plants. Prefabricated units of SMRs can be manufactured and then shipped and installed on site, making them more affordable to build than large power reactors, which are often custom designed for a particular location, sometimes leading to construction delays. SMRs offer savings in cost and construction time, and they can be deployed incrementally to match increasing energy demand. +In comparison to existing reactors, proposed SMR designs are generally simpler, and the safety concept for SMRs often relies more on passive systems and inherent safety characteristics of the reactor, such as low power and operating pressure. This means that in such cases no human intervention or external power or force is required to shut down systems, because passive systems rely on physical phenomena, such as natural circulation, convection, gravity and self-pressurization. These increased safety margins, in some cases, eliminate or significantly lower the potential for unsafe releases of radioactivity to the environment and the public in case of an accident. +SMRs have reduced fuel requirements. Power plants based on SMRs may require less frequent refueling, every 3 to 7 years, in comparison to between 1 and 2 years for conventional plants. Some SMRs are designed to operate for up to 30 years without refueling. SMRs are under construction or in the licensing stage in many countries including Argentina, Canada, China, Russia, South Korea and the United States of America. +Within the last five years significant legislation supporting the development and deployment of advanced reactors has been enacted: the Nuclear Innovation and Modernization Act, the Nuclear Energy Innovation and Capabilities Act, the Energy Act of 2020 and the Infrastructure Investment and Jobs Act. In addition, Congress established and funded the Advanced Reactor Demonstration Program which now supports two advanced reactor demonstrations to be deployed within seven years and eight other advanced reactor projects. +SMRs will require a different grade of enriched Uranium +Many advanced reactors, including the majority of the Advanced Reactor Demonstration Program awardees, will require HALEU, and fuel forms very different from those manufactured for the current Light Water Reactors (LWRs). For example, the current generation of LWRs uses fuel enriched to less than 5% uranium-235. In contrast, many advanced non-LWR designs require enrichments between 5% and 20% with most above 10%. +Currently it is not possible to purchase HALEU between 10% and 20% from a commercial enricher in the United States. In the U.S., the infrastructure for the front-end of the fuel cycle for the utilization of low enriched uranium up to 5% U-235 is well defined. The U.S. has mining, conversion, enrichment, fabrication, and transportation capability. However, the infrastructure for +17 +producing and utilizing HALEU, in particular enrichments above 10%, is not established in the U.S. The mining and conversion infrastructure are common to all enrichment levels. +In 2020, the DOE selected two companies for awards under the Advanced Reactor Demonstration Program (ARDP) Pathway 1: Advanced Reactor Demonstrations. Both reactor designs require HALEU and can be operational in about seven years. Today, it is estimated that the companies selected for the demonstration pathway will require HALEU for their reactors beginning in the late 2020's to support fuel fabrication ahead of reactor startup. In addition, one of the companies under Pathway 2: Risk Reduction for Future Demonstrations will require HALEU in the 2026-2027 timeframe and other companies in Pathway 2 and 3 of the ARDP will also require HALEU. Privately funded companies are also working to deploy HALEU fueled reactors by the mid-2020s. +The Nuclear Energy Institute (NEI) believes that it is virtually impossible for HALEU to be provided to these companies in the needed quantities and timeframes from DOE inventories or commercial enrichers located in the U.S or Western Europe. Therefore, acquiring HALEU from other international suppliers will be required in the near term to support the larger goal of deploying advanced reactors in the U.S. in a timely manner. Deploying these reactors before 2030 will support climate goals and position the U.S. to be a strong exporter of advanced reactor technology. Per the recent NEI white paper, a robust domestic HALEU infrastructure is necessary to support both the domestic deployment of advanced reactors and the export of U.S. advanced reactor technologies requiring HALEU. +In a letter to the DOE captioned “Updated Need for High-Assay Low Enriched Uranium” dated December 20, 2021, the NEI provided an estimate of what U.S. HALEU demand may be during the next 15 years by companies denoted A to J: +Estimated Annual Requirements for High Assay Low Enriched Uranium to 2035 (MTU/yr) +Company +A +B +C +D +E +F +G +H +I +J +Total +Cumulative +Year +2022 +0.1 +0.4 +0.2 +1.1 +0.0 +1.8 +1.8 +2023 +0.1 +3.1 +4.4 +0.1 +7.7 +9.5 +2024 +1.0 +5.6 +0.2 +3.0 +1.5 +6.6 +0.1 +18.0 +27.5 +2025 +1.0 +3.8 +0.4 +3.0 +5.0 +11.0 +1.6 +25.8 +53.3 +2026 +1.0 +15.1 +4.9 +10.0 +2.0 +24.2 +13.2 +1.7 +72.1 +125.4 +2027 +1.0 +26.5 +7.9 +4.0 +24.2 +13.2 +1.9 +78.7 +204.1 +2028 +1.0 +37.8 +16.6 +13.0 +23.0 +24.2 +13.2 +2.0 +130.8 +334.9 +2029 +1.0 +26.3 +1.8 +30.5 +17.0 +18.0 +14.0 +24.2 +16.5 +2.4 +151.7 +486.6 +2030 +1.0 +34.4 +1.8 +40.4 +46.0 +18.0 +30.0 +24.2 +16.5 +2.7 +215.0 +701.6 +2031 +23.0 +42.5 +6.2 +53.0 +29.0 +22.0 +33.0 +24.2 +16.5 +2.9 +252.3 +954.0 +2032 +35.0 +52.9 +12.5 +67.6 +46.0 +40.0 +50.0 +48.4 +19.8 +3.1 +375.3 +1,329.2 +2033 +47.0 +63.5 +32.2 +82.1 +46.0 +32.0 +80.0 +48.4 +19.8 +3.2 +454.2 +1,783.4 +2034 +58.0 +76.1 +62.4 +96.7 +46.0 +36.0 +80.0 +48.4 +19.8 +3.7 +527.1 +2,310.5 +2035 +70.0 +90.9 +96. +112.4 +91.0 +29.0 +50.0 +48.4 +22.0 +4.1 +613.8 +2,924.3 +Notes: +• +The material needs listed above are in metric tons of uranium per year and are a small amount compared to the approximately 2000 MTU used annually by the existing fleet of reactors. +• +The material needs listed above include enrichments between 10.9% and 19.75% U-235. +• +The year the material is needed is for fuel fabrication. Insertion in the reactor and reactor operations will occur in a later year. +• +The material needs that are less than 1 MTU/year are for irradiation samples, lead test rods and lead test fuel assemblies. +• +The material needs represent a few scenarios +o +The deployment of an advanced fuel design for the existing fleet of light-water reactors. +o +The deployment of multiple reactors of the same design that will not require refueling for many years. +o +The deployment of reactors that have annual refueling requirements. +• +These reactors include a range of sizes from a few Megawatt electric to 100s of Megawatt electric. +• +The data above does not include utilities that are considering enrichment between 5% and 10%. +18 +Quantum Enrichment Technology is ideally suited to the production of HALEU +We believe that we are in a very different position to many of the entrenched domestic and international enrichers. Our innovative isotope enrichment process has a number of advantages over traditional gas centrifuges and other novel approaches currently being explored by other companies: cheaper in capital expenditures, faster in construction, more flexible in design and location. +We estimate that the capital cost of constructing a Quantum Enrichment technology plant for uranium enrichment is approximately 75% cheaper than that of a traditional gas centrifuge enrichment facility. Our manufacturing plants are modular, so our construction time is likely faster and more flexible than competing technologies. Our enrichment facilities are smaller than traditional gas centrifuges which means we can place them near fuel fabrication facilities for enhanced security of production and transportation. Our operating costs of enriching uranium to 15.5% - 19.75% U-235 should be comparable to or cheaper than costs for other methods of uranium enrichment. +The table below represents management’s estimated comparison of the Quantum Enrichment technology with a traditional gas centrifuge. +Quantum Enrichment Technology Plant +Gas Centrifuge +Separation mechanism +Enhanced resonant multiphoton ionization +Differential diffusion +Capital Cost per plant +<$100 million +>$800 million +Energy use (kWh) per SWU +<40 +50-240 +Construction time +2-3 years +2-3 years +Levelized cost per SWU* +<$50 +$140 +* for enrichment from 0.71% U235 to 5% U235 +We are in the process of commissioning and commencing commercial production at our Ytterbium-176 enrichment facility using the Quantum Enrichment technology in Pretoria, South Africa. We received a manufacturing permit for this facility from the South African DMRE during 3Q 2023. The construction of this plant will provide us with valuable experience in the construction of Quantum Enrichment technology facilities in the future. Many of the control systems, compressors, lasers and hardware used in a uranium enrichment facility would be similar to parts used in this ytterbium-176 enrichment facility. +We expect the construction of a Uranium Enrichment facility would take approximately 30 months and the production volume would gradually ramp up to the final capacity of 20 metric tons per year. Importantly, subject to licensure, we believe we can produce commercial quantities of HALEU by 2027 to meet the anticipated demand from the advanced reactors currently in development. We believe that we can supply HALEU at a price lower than the HALEU currently imported from international enrichers and considerably lower than any potential domestic supply that may evolve. +Intellectual Property +Our business will depend on our proprietary ASP technology and QE technology. Enrichment is among the most sensitive nuclear technologies because it can produce weapons-grade materials, and our technology is highly controlled and subject to limitations on public disclosure or export. We believe patent protection in the United States for such sensitive nuclear technology developed in South Africa would be unusual, if even possible. To date, we have relied exclusively on trade secrets and other intellectual property laws, non-disclosure agreements with our respective employees, consultants, vendors, potential customers and other relevant persons and other measures to protect our intellectual property, and intend to continue to rely on these and other means. As we transition into the commercialization of isotopes, we envision our intellectual property and its security becoming more vital to our future. Pursuing patent protection remains part of the intellectual property protection philosophy and strategy and the advisability of establishing provisional patent rights is continuously assessed on a case-by-case basis in respect of both conceptual aspects and the specific applications thereof. Such assessments are made in consultation with regulatory bodies and with due consideration to the prospects of successfully obtaining patent protection in light of any disclosure constraints that are imposed by such bodies. To date, we have not determined that patent protection is appropriate or viable in light of these considerations. +Regulatory Environment +We are subject to a variety of laws and regulations, including but not limited to those of the United States and South Africa, that impose regulatory systems that govern many aspects of our operations, including our research and development activities involving the enrichment of isotopes in South Africa. In addition, these jurisdictions impose trade controls requirements that restrict trade to comply with applicable export controls and economic sanctions laws and requirements, and legal requirements that are intended to curtail bribery and corruption. +19 +There are a number of regulators and treaties that govern and control our business and industry. The two principal ones that control and regulate the manufacturing of isotopes at our isotope enrichment facility in South Africa are the IAEA and the Nuclear Non-Proliferation Treaty (NPT). +The IAEA is an international organization that seeks to promote the peaceful use of nuclear energy, and to inhibit its use for any military purpose, including nuclear weapons. The IAEA was established as an autonomous organization on July 29, 1957. Though established independently of the United Nations through its own international treaty, the IAEA Statute, the IAEA reports to both the United Nations General Assembly and Security Council. The IAEA statute currently has 173 member states, including South Africa. +The IAEA is authorized to conclude agreements with member states, in terms of which agreements the agency would perform certain functions and the relevant member states would be placed under certain obligations. The IAEA has concluded an extensive suite of agreements with South Africa. These agreements can be viewed on the website of the IAEA ( https://www.iaea.org/resources/legal/country-factsheets ) and include agreements that govern the physical protection of nuclear material, the notification of nuclear accidents, assistance in the case of nuclear accidents, nuclear safety, civil liability, and technical cooperation. +The Treaty on the Non-Proliferation of Nuclear Weapons, commonly known as the Non-Proliferation Treaty or NPT, is an international treaty whose objective is to prevent the spread of nuclear weapons and weapons technology, to promote cooperation in the peaceful uses of nuclear energy, and to further the goal of achieving nuclear disarmament and general and complete disarmament. Our South African subsidiary is registered with the South African Council for the Non-Proliferation of Weapons of Mass Destruction in terms of the Non-Proliferation of Weapons of Mass Destruction Act, 1993. Representatives from the South African Council for the Non-Proliferation of Weapons of Mass Destruction regularly inspect our facility and conduct tests to monitor the activities that are taking place at our facilities. +In South Africa, government Notice 493 relates to nuclear-related dual-use equipment, materials and software and related technologies which can be used in their entirety or in part for the separation of uranium isotopes. ASP technology is classified as a dual use technology under the protocols of the IAEA and, as such, is subject to the controls that are implemented under these protocols. These controls comprise requirements that include: +• +membership of the IAEA and adherence to its protocols; +• +membership of the Nuclear Suppliers Group (NSG) and adherence to its protocols; +• +agreement to an “additional protocol” in light of uranium enrichment capabilities; +• +local laws that require permits for possession, operation and commercialization and regular reporting; +• +ad hoc inspections by the IAEA on 24 hour and in some cases 2 hours pre-warning; +• +requirement for proposed patent applications to be approved at ministerial level; and +• +cross-border technology transfer to be handled by the respective governments and approved by IAEA. +These regulations place strict limitations on what we can and cannot do. Security measures at our production facility and our offices are stringent. Access to our manufacturing plants are highly controlled. All employees and all visitors to the manufacturing plant are pre-screened by the South African Council for the Non-Proliferation of Weapons of Mass Destruction before being allowed employment or entry into the facility. Some of our suppliers also need to be registered with the South African Council for the Non-Proliferation of Weapons of Mass Destruction. Many of our computer systems are not connected to the external internet and confidential information is secured at a controlled location. +Some of our future isotopes may be regulated by healthcare regulators such as the FDA in the USA, Health Canada in Canada, the European Medicines Agency in Europe and similar regulators in other countries. +U.S. laws restrict the ability of U.S. companies, U.S. citizens and U.S. permanent residents, or U.S. persons, from involvement in certain types of transactions with countries, businesses and individuals that have been targeted by U.S. economic sanctions. For example, U.S. persons are precluded from undertaking virtually any activity of any kind on the part of any U.S. person with regard to any potential or actual transactions involving Cuba, Iran and Sudan without the prior approval of the U.S. Department of Treasury’s Office of Foreign Assets Control, or OFAC. OFAC also administers U.S. sanctions against a lengthy list of entities and individuals, wherever they may be located, that the United States considers to be closely associated with these sanctioned countries or that are considered terrorists or traffickers in either narcotics or weapons of mass destruction. Furthermore, U.S. economic sanctions forbid U.S. persons from circumventing direct U.S. restrictions or from facilitating transactions by non-U.S. persons if +20 +those activities are forbidden to U.S. persons. Penalties for violating provisions such as these can include significant civil and criminal fines, imprisonment and loss of tax credits or export privileges. +The Foreign Corrupt Practices Act of 1977, or the FCPA, as amended by the Omnibus Trade and Competitiveness Act of 1988 and the International Anti-Bribery and Fair Competition Act of 1998, makes it a criminal offense for a U.S. corporation or other U.S. domestic concern to make payments, gifts or give anything of value directly or indirectly to foreign officials for the purpose of obtaining or retaining business, or to obtain any other unfair or improper advantage. In addition, the FCPA imposes accounting standards and requirements on publicly traded U.S. corporations and their foreign affiliates, which are intended to prevent the diversion of corporate funds to the payment of bribes and other improper payments, and to prevent the establishment of “off books” slush funds from which such improper payments can be made. We are also subject to laws and regulations covering subject matter similar to that of the FCPA that have been enacted by countries outside of the United States. For example, the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions was signed by the members of the Organization for Economic Cooperation and Development and certain other countries in December 1997. The Convention requires each signatory to enact legislation that prohibits local persons and firms from making payments to foreign officials for the purpose of obtaining business or securing other unfair advantages from foreign governments. Failure to comply with these laws could subject us to, among other things, penalties and legal expenses, which could harm our reputation and have a material adverse effect on our business, financial condition and results of operations. +Compliance with the myriad of export control laws of the various jurisdictions in which we do business is a challenge for any company involved in export activities within the nuclear and defense end markets. We have compliance systems in our U.S. and non-U.S. subsidiaries to identify those products and technologies that are subject to export control regulatory restrictions and, where required, we obtain authorization from relevant regulatory authorities for sales to foreign buyers or for technology transfers to foreign consultants, companies, universities or foreign national employees. We also have a compliance system that is intended to proactively address potential compliance issues including those related to export control, trade sanctions and embargoes, as well as anti-bribery situations, and we are implementing this through such mechanisms as training, formalizing contracting processes, performing diligence on agents and continuing to improve our record-keeping and auditing practices with respect to third-party relationships and otherwise. Thus far, as part of our compliance system, for instance, we have developed a Code of Ethics and Conduct that informs all of our employees of their compliance obligations. Furthermore, we have developed an ethics and conduct training program that all of our employees are required to undertake, as well as other targeted compliance training relevant to their position, such as specific FCPA training for all of our worldwide senior employees. Violations of any of the various U.S. or non-U.S. export control laws can result in significant civil or criminal penalties, or even loss of export privileges, as mentioned above. We recognize that an effective compliance program can help protect the reputation and relationship of a regulated company with the regulatory agencies administering these laws and regulations. In the United States, each of the regulatory agencies administering these laws and regulations has a voluntary disclosure program that offers the possibility of significantly reduced penalties, if any are applicable, and we intend to use these programs as part of our overall compliance program, as necessary. +Employees +As of December 31, 2024, we employed 136 people on a full-time basis. Of the total employees, 14 employees are in research and development, 63 employees are in engineering, construction and manufacturing, 32 employees are in plant operations and 27 employees are in general management. None of our employees are subject to collective bargaining agreements. We consider our relationship with our employees to be good. +Facilities +We lease five facilities in Pretoria, South Africa for production, research and development and offices. One lease is under automatic monthly extensions and the other four leases have terms that expire between February 28, 2026 and December 31, 2030. We believe that our existing facilities are adequate to meet our current needs. +Legal Proceedings +Except as described herein, we are currently not party to, and our property is not currently the subject of any material pending legal matters or claims. +On December 4, 2024, a purported stockholder of the Company filed a putative securities class action on behalf of purchasers of the Company’s securities between October 30, 2024 through November 26, 2024 against ASP Isotopes Inc. and certain of its executive officers in the United States District Court for the Southern District of New York ( Corredor v. ASP Isotopes Inc., et al. , Case No. 1:24-cv-09253 (S.D.N.Y)) (the “Securities Class Action”). The Securities Class Action alleges that the Company, its chief executive officer and chief financial officer (“Defendants”) made materially misleading or false statements or omissions regarding +21 +the Company’s business and asserts purported claims under §§ 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 promulgated thereunder. The complaint seeks unspecified compensatory damages, attorney’s fees and costs. +Defendants intend to vigorously defend against the Securities Class Action; however, we cannot be certain of the outcome and, if decided adversely to us, our business and financial condition may be adversely affected. +In addition to the matters described above, from time to time, we may become subject to arbitration, litigation or claims arising in the ordinary course of business. The results of any current or future claims or proceedings cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on us because of defense and litigation costs, diversion of management resources, reputational harm and other factors. \ No newline at end of file diff --git a/raw/filings/0001921865/2024/0000950170-25-047694/item13.txt b/raw/filings/0001921865/2024/0000950170-25-047694/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..66e6ff0b6af32b88da87a912cfde6bb39bfec699 --- /dev/null +++ b/raw/filings/0001921865/2024/0000950170-25-047694/item13.txt @@ -0,0 +1,3 @@ +Item 13. +Certain Relationships and Related Transactions and Director Independence +97 \ No newline at end of file diff --git a/raw/filings/0001921865/2025/0001193125-26-151294/filing.txt b/raw/filings/0001921865/2025/0001193125-26-151294/filing.txt new file mode 100644 index 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2023-11-30 0001921865 aspi:NuclearFuelsMember us-gaap:ProductMember 2024-01-01 2024-12-31 0001921865 aspi:SkylineBuildersGroupHoldingLtdMember us-gaap:AccumulatedOtherComprehensiveIncomeMember 2025-01-01 2025-12-31 0001921865 aspi:CommissionWarrantMember 2025-01-01 2025-12-31 0001921865 2025-07-04 2025-07-04 0001921865 us-gaap:CommonStockMember 2024-01-01 2024-12-31 xbrli:pure xbrli:shares aspi:Segment iso4217:HKD iso4217:ZAR iso4217:USD xbrli:shares iso4217:GBP aspi:Customer iso4217:USD +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +FORM 10-K +☒ +ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the year ended December 31 , 2025 +OR +☐ +TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the transition period from to +Commission File Number 001-41555 +ASP Isotopes Inc. +(Exact name of registrant as specified in its charter) +Delaware +87-2618235 +(State or other jurisdiction of incorporation or organization) +(I.R.S. Employer Identification No.) +2200 Ross Avenue +Suite 4575E +Dallas , TX +75201 +(Address of principal executive offices) +(Zip code) +( 214 ) 432-8219 +(Registrant’s telephone number, including area code) +Not Applicable +(Former name, former address and former fiscal year, if changed since last report) +Securities registered pursuant to Section 12(b) of the Act: +Name of exchange +Title of each class +Trading Symbol +on which registered: +Common stock, par value $0.01 per share +ASPI +The Nasdaq Stock Market LLC +Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ +Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒ +Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ +Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ +Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. +Large accelerated filer +☐ +Accelerated filer +☐ +Non-accelerated Filer +☒ +Smaller reporting company +☒ +Emerging growth company +☒ +If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ +Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐ +If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐ +Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ +Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ +The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 30, 2025 was approximately $ 399.8 million. +There were 125,903,447 shares of the registrant’s common stock, $0.01 par value, outstanding as of April 6, 2026. +DOCUMENTS INCORPORATED BY REFERENCE +Portions of the registrant’s definitive proxy statement for its 2026 Annual Meeting of Stockholders (the “Proxy Statement”), to be filed within 120 days of the registrant’s fiscal year ended December 31, 2025 , are incorporated by reference in Part III of this Annual Report on Form 10-K. Except with respect to information specifically incorporated by reference in this Annual Report on Form 10-K, the Proxy Statement is not deemed to be filed as part of this Annual Report on Form 10-K. +ASP Isotopes Inc. +Annual Report on Form 10-K +For the Year Ended December 31, 2025 +Table of Contents +Page +PART I +Item 1. +Business +5 +Item 1A. +Risk Factors +27 +Item 1B. +Unresolved Staff Comments +79 +Item 1C. +Cybersecurity +79 +Item 2. +Properties +79 +Item 3. +Legal Proceedings +79 +Item 4. +Mine Safety Disclosures +80 +PART II +Item 5. +Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +80 +Item 6. +[Reserved] +81 +Item 7. +Management’s Discussion and Analysis of Financial Condition and Results of Operations +82 +Item 7A. +Quantitative and Qualitative Disclosures About Market Risk +98 +Item 8. +Financial Statements and Supplementary Data +100 +Item 9. +Changes in and Disagreements with Accountants on Accounting and Financial Disclosure +146 +Item 9A. +Controls and Procedures +146 +Item 9B. +Other Information +147 +Item 9C. +Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +147 +PART III +Item 10. +Directors, Executive Officers and Corporate Governance +148 +Item 11. +Executive Compensation +148 +Item 12. +Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +148 +Item 13. +Certain Relationships and Related Transactions and Director Independence +148 +Item 14. +Principal Accounting Fees and Services +148 +PART IV +Item 15. +Exhibits, Financial Statement Schedules +149 +Item 16. +Form 10-K Summary +153 +2 +SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS +This Annual Report on Form 10-K contains "forward-looking statements" within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact contained in this Annual Report on Form 10-K, including statements regarding our future results of operations and financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. +In some cases, you can identify forward-looking statements by terms such as “may,” “should,” “would,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this Annual Report on Form 10-K are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Annual Report on Form 10-K and are subject to a number of risks, uncertainties and assumptions described in the section titled “Risk Factors” and elsewhere in this Annual Report on Form 10-K. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Some of the key factors that could cause actual results to differ from our expectations include: +• +our ability to achieve or sustain positive cash flows from operations or profitability; +• +our ability to complete the construction of, commission and successfully operate isotope enrichment plants and Phase 2 of the Virginia Gas Project in a cost-effective manner; +• +our ability to meet, and to continue to meet, applicable regulatory requirements for the use of the isotopes we may produce using the ASP technology or the QE technology; +• +our ability to obtain regulatory approvals for the enrichment of uranium and the production and distribution of other isotopes; +• +our ability to comply on an ongoing basis with the numerous regulatory requirements applicable to the ASP technology, the QE technology and our enrichment facilities in South Africa; +• +our ability to execute on various projects and strategic initiatives with potential customers and partners, including our initiative to commence enrichment of uranium in South Africa and to complete development of Phase 2 of the Virginia Gas Project; +• +the success or profitability of our future offtake arrangements with respect to various isotopes that we may produce using ASP technology or the QE technology or with respect to helium or liquified natural gas (“LNG”) we may produce at the Virginia Gas Project; +• +a failure of demand for various isotopes that we may produce using ASP technology or the QE technology or for helium or LNG we produce at the Virginia Gas Project; +• +our future capital requirements and sources and uses of cash; +• +our ability to obtain funding for our operations and future growth; +• +the extensive costs, time and uncertainty associated with new technology development; +• +our ability to implement and maintain effective internal controls; +• +developments and projections relating to our competitors and industry; +• +the ability to recognize the anticipated benefits of acquisitions and investments, including our acquisition of Renergen, our investment in Skyline Builders Group Holding Limited (Nasdaq: SKBL), the assets we acquired from One 30 Seven, Inc., our radiopharmacy acquisitions, our investment in PET Labs Pharmaceuticals Proprietary Limited (“PET Labs”), the assets and intellectual property we acquired from Klydon Proprietary Ltd (“Klydon”), and our acquisition of assets of Molybdos (Pty) Limited (“Molybdos”) in the “business rescue” auction; +• +problems with the performance of the ASP technology or the QE technology in the enrichment of isotopes; +3 +• +our dependence on a limited number of third-party suppliers for certain components and our inability to obtain third-party providers or contractors to conduct our operations, including with respect to the development of Phase 2 of the Virginia Gas Project; +• +our inability to adapt to changing technology and diagnostic landscapes, such as the emergence of new diagnostic scanners or tracers; +• +our expected dependence on a limited number of key customers for isotopes that we may produce using ASP technology or the QE technology; +• +our inability to protect our intellectual property and the risk of claims asserting that we have infringed on the intellectual property of others; +• +our inability to compete effectively; +• +risks associated with the current economic environment, including any future economic downturn, the impact of inflation or tariffs, disruptions in financial credit and other disruptions resulting from geo-political events such as the Russian invasion of Ukraine, conflicts in the Middle East, including the United States-Israel-Iran war, trade tensions between the U.S. and China and U.S. military operations in Venezuela; +• +fluctuations in the market price and demand for LNG, helium and other natural gases and the drivers of such fluctuations; +• +risks associated with our international operations; +• +our credit counterparty risks; +• +geopolitical risk and changes in applicable laws or regulations, including alteration, suspension or cancellation of our Exploration Rights and Production Right in South Africa; +• +our inability to manage commodity risks; +• +the highly speculative nature of Renergen’s exploration projects; +• +our inability to adequately protect our technology infrastructure; +• +our inability to hire or retain skilled employees and the loss of any of our key personnel; +• +operational risk; +• +costs and other risks associated with being a reporting company and being subject to the Sarbanes-Oxley Act; +• +our ability to complete the listing of Quantum Leap Energy as a standalone public company within the anticipated timeframe or at all; and +• +other factors that are described in “Risk Factors,” beginning on page 27 . +These statements relate to future events or to our future financial performance and involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those set forth in Part I, Item 1A, “Risk Factors” below and for the reasons described elsewhere in this Annual Report on Form 10-K. Any forward-looking statement in this Annual Report on Form 10-K reflects our current view with respect to future events and is subject to these and other risks, uncertainties, and assumptions relating to our operations, results of operations, industry, and future growth. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future. +This Annual Report on Form 10-K also contains estimates, projections, and other information concerning our industry, our business, and the potential markets for certain isotopes and for helium and LNG, including data regarding the estimated size of those respective markets, their respective projected growth rates, and, in the case of our isotope enrichment platform, the incidence of certain medical conditions. Information that is based on estimates, forecasts, projections, or similar methodologies is inherently subject to uncertainties, and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained these industry, business, market, and other data from reports, research surveys, studies, and similar data prepared by third parties, industry, medical and general publications, government data, and similar sources. In some cases, we do not expressly refer to the sources from which these data are derived. +4 +Note Regarding Company References +Unless the context otherwise requires, references to the “Company,” “our Company,” “ASPI,” “we,” “us” and “our” refer to ASP Isotopes Inc. and its direct and indirect subsidiaries; references to “ASP Isotopes” refer to ASP Isotopes Inc. and not to any of its subsidiaries; references to “QLE” refer to Quantum Leap Energy, LLC; references to “Renergen” refer to Renergen Limited, a public corporation incorporated in 2014 and existing under the South African Companies Act 71 of 2008, as amended, together with its subsidiaries unless the context dictates otherwise; references to “Tetra4” refer to Tetra4 Proprietary Limited; references to “Skyline” refer to Skyline Builders Group Holding Limited, together with its subsidiaries. +Trademarks +All trademarks, service marks, and trade names included in this Annual Report on Form 10-K are the property of their respective owners. Solely for convenience, the trademarks and trade names in this report may be referred to without the ® and ™ symbols, but such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto. +PART I +Item 1. Business +Overview +We are an advanced materials company dedicated to the development of a differentiated isotope enrichment platform to strengthen global supply chain access to critical materials used in nuclear medicine, next-generation semiconductors, and nuclear energy. In addition, in January 2026, we acquired Renergen, which is South Africa’s leading onshore natural gas explorer and the first integrated producer of both liquid helium and LNG (as discussed further below). Our proprietary enrichment technologies, the Aerodynamic Separation Process (“ASP technology”) and Quantum Enrichment technology (“QE technology”), are designed to enable the production of isotopes for a range of industrial and advanced technology applications. Our initial focus with respect to our isotope enrichment platform is on the production and commercialization of enriched Carbon-14 (“C-14”), Silicon-28 (“Si-28”) and Ytterbium-176 (“Yb-176”). +We commenced commercial production of enriched isotopes at both of our ASP enrichment facilities located in Pretoria, South Africa during the first half of 2025. Our first ASP enrichment facility is designed to enrich light isotopes, such as C-14 and C-12. The second ASP enrichment facility, which is substantially larger than the first, should have the potential to enrich kilogram quantities of relatively heavier isotopes, including but not limited to Si-28. We are targeting initial commercial shipments of enriched C-14 in mid-2026. We are targeting initial commercial shipments of enriched Si-28 during the second quarter of 2026. We have also completed the commissioning phase and are producing commercial samples of highly enriched Yb-176 at our third enrichment facility, a QE technology facility, which is our first laser-based enrichment plant. We are targeting initial commercial shipments of Yb-176 in mid-2026 or the third quarter of 2026. +In addition, we have started planning additional isotope enrichment plants both in South Africa and in other jurisdictions, including Iceland and the United States. We believe the C-14 we may produce using the ASP technology could be used in the development of new pharmaceuticals and agrochemicals. We believe the Si-28 we may produce using the ASP technology may be used to create advanced semiconductors and in quantum computing. We believe the Yb-176 we may produce using the QE technology may be used to create radiotherapeutics that treat various forms of oncology. We are considering the future development of the ASP technology for the separation of Zinc-68 and Xenon-129/136 for potential use in the healthcare end market, Germanium 70/72/74 for potential use in the semiconductor end market, and Chlorine -37 for potential use in the nuclear energy end market. We are also considering the future development of QE technology for the separation of Nickel-64, Gadolinium-160, Ytterbium-171, Lithium-6 and Lithium-7. +QLE is currently pursuing an initiative to apply our enrichment technologies to the enrichment of Uranium-235 (“U-235”) in South Africa. We believe that the U-235 QLE may produce has the potential to be commercialized as a nuclear fuel component for use in the new generation of high-assay low-enriched uranium (“HALEU”)-fueled small modular reactors that are now under development for commercial and government uses. In furtherance of our uranium enrichment initiative in South Africa, we have entered into certain definitive agreements with TerraPower, LLC (“TerraPower”), including a term loan subject to conditions to support construction of a new uranium enrichment facility at Pelindaba, South Africa and supply agreements for the future supply of HALEU to TerraPower, as a customer. In addition, QLE’s South African subsidiary has entered into a Pre-Implementation Services Contract Agreement (“Services Contract”) with The South African Nuclear Energy Corporation (“Necsa”), a South African state-owned company responsible for undertaking and promoting research and development in the field of nuclear energy and radiation sciences, pursuant to which Necsa has agreed to provide to QLE’s South African subsidiary certain facilities, infrastructure, utilities and services related to the siting, design, construction, commission and operation of an enrichment facility on the Necsa site in Pelindaba. In the period since our inception to date, we have not applied our enrichment technologies to the +5 +enrichment of U-235, nor received permission or regulatory approval to conduct testing of our enrichment technologies on U-235, except for the activities contemplated by the Services Contract with Necsa. Our expectation that QLE’s initiative to apply our enrichment technologies to the enrichment of U-235 could be successful is based upon research conducted by certain of our scientists prior to joining the company, as well as the demonstrated effectiveness of QE technology on Yb-176. +QLE acquired a controlling interest in Skyline in August 2025. Skyline is a holding company, and its operations are conducted through its wholly owned operating subsidiaries, Kin Chiu Engineering Limited and Kin Chiu Development Company Limited. Operations primarily consist of construction activities which include public civil engineering works, such as road and drainage works, in Hong Kong. Skyline mostly undertakes civil engineering works in the role as a subcontractor but is fully qualified to undertake such works in the capacity of a main contractor. QLE intends to pursue opportunities to acquire assets in the critical materials supply chain. +We acquired Renergen in January 2026. Renergen is South Africa’s leading onshore natural gas explorer and the first integrated producer of both liquid helium and LNG, both of which are produced from the natural gas reserve base that underpins Renergen’s natural gas development project (the “Virginia Gas Project”). The Virginia Gas Project includes (i) the liquefaction of natural gas into LNG, (ii) the separation of helium from natural gas, and (iii) the further liquefaction of helium into 99.999% pure liquid helium. This liquefaction and separation takes place at Renergen’s natural gas processing plant in the Free State Province of South Africa (the “Viriginia Gas Plant”). Renergen’s principal asset is its 94.5% equity ownership in Tetra4, which holds an onshore petroleum production right and is the entity developing the Virginia Gas Project. +Our Subsidiaries +We operate principally through our subsidiaries as described below. +Specialist Isotopes . ASP Isotopes Guernsey Limited (the holding company for certain subsidiaries in the Cayman Islands, South Africa, Iceland and the United Kingdom) is focused on the development and commercialization of high-value, low-volume isotopes for highly specialized end markets (such as C-14, Molybdenum-100 (“Mo-100"), and Si-28). ASP Isotopes UK Ltd is the owner of our enrichment technology. +Quantum Leap Energy . In September 2023, we formed QLE, which also has subsidiaries in the United Kingdom (Quantum Leap Energy Limited) and South Africa (Quantum Leap Energy (Pty) Limited), to focus on the development and commercialization of advanced nuclear fuels, such as HALEU and Lithium-6. QLE’s direct wholly owned subsidiary Quantum Leap Energy Limited (“QLE UK”), has its operations in the United Kingdom. QLE UK’s direct wholly owned subsidiary, Quantum Leap Energy Proprietary Limited (“QLE South Africa”), has its operations in South Africa. QLE also formed QLE TP Funding SPE LLC, a Delaware limited liability company (the “QLE SPE Borrower”), as a wholly owned subsidiary to act as a special purpose borrower for a loan transaction with TerraPower, a US nuclear innovation company. The QLE SPE Borrower has formed a subsidiary in South Africa to act as the project company for a proposed new uranium enrichment facility at Pelindaba, South Africa. +QLE’s mission is to address perceived gaps in the nuclear fuel cycle, promote safe nuclear power, and enhance the sustainability of the nuclear fuel cycle for advanced nuclear reactors and fusion systems, as well as the existing nuclear fleet. We believe that many advanced nuclear reactors, including small modular reactors (“SMRs”), will rely on fuels with higher uranium enrichment levels, specifically HALEU, which we intend to produce. QLE also intends to produce high-isotopic purity fuel feedstock, such as Lithium-6, for fusion reactors, and by extension, Lithium-7 for Light Water Reactor control. These fuels may enable greater efficiency, compact reactor footprints, and lengthened operational cycles between refueling. Given the flexible nature of our enrichment technology and integrated value chain approach, QLE also intends to make available LEU+ to the existing fleet of nuclear reactors currently running on LEU, thus enabling existing reactors to lengthen the time between refueling, cut costs and boost power output. +As previously announced, our board of directors intends to pursue the separation of our Nuclear Fuels business and Specialist Isotopes and Related Services business into two independent companies. The regulatory landscape and supply chain for nuclear fuel production differs significantly from that of medical isotopes, hence we and QLE have different business models and we believe that both companies would benefit if QLE is independently managed and financed. We plan to effect the separation through a listing of QLE in a transaction that results in QLE existing as a separate public company with shares listed on a U.S. national securities exchange and a portion of QLE’s common equity being distributed to our stockholders as of a to-be-determined future record date. Although no assurance can be given, our goal is to list QLE on such exchange, subject to market conditions, obtaining applicable approvals and consents, and complying with applicable rules and regulations and public market trading and listing requirements. In November 2025, we announced that QLE had confidentially submitted a draft registration statement on Form S-1 to the SEC relating to the proposed initial public offering of QLE’s Class A common stock. While we currently expect that a listing of QLE as a separate public company is the most likely separation transaction, our board of directors remains committed to maximizing shareholder value creation, and will continue to evaluate other options for separation to maximize shareholder value. +We entered into a number of agreements with QLE, including a License Agreement, pursuant to which QLE has licensed from us the rights to technologies and methods used to separate U-235 and Lithium-6 (including but not limited to the QE and ASP technologies) in exchange for a perpetual royalty in the amount of 10% of all future QLE revenues, and an Engineering, Procurement +6 +and Construction (“EPC”) Services Framework Agreement, pursuant to which we will provide services for the engineering, procurement and construction of one or more turnkey U-235 and Lithium-6 enrichment facilities in locations to be identified by QLE and owned or leased by QLE, and commissioning, start-up and test services for each such facility, subject to the receipt of all applicable regulatory approvals, permits, licenses, authorizations, registrations, certificates, consents, orders, variances and similar rights. +PET Labs. We have a 51% ownership stake in PET Labs, a South African radiopharmaceutical operations company focused on the production of fluorinated radioisotopes and active pharmaceutical ingredients, through which we entered the downstream medical isotope production and distribution market. Under the terms of the Share Purchase Agreement pursuant to which we acquired the shares in PET Labs, we agreed to pay a total of $2.0 million for the shares in two installments, which has been paid in full as of December 2025. In addition, we have an option to purchase the remaining 49% of the outstanding equity in PET Labs, exercisable until January 31, 2027, for $2.2 million. +East Coast Nuclear Pharmacy. In October 2025, we completed the acquisition of East Coast Nuclear Pharmacy ("ECNP"). The acquisition is intended to supplement the distribution of our pipeline. Pursuant to the terms of the agreement, we acquired 100% of the issued and outstanding membership interests for total purchase consideration of $2.5 million of which $2.0 million was paid up front in cash and the remaining $0.5 million was deferred through the issuance of notes payable that are to be repaid by June 30, 2026. +Skyline Builders Group Holding Ltd. In August 2025, QLE completed the acquisition of a controlling interest in Skyline. QLE entered into a Stock Purchase Agreement to purchase all 1,995,000 of Skyline's Class B Ordinary Shares for the aggregate purchase price of $1,000,000. Additionally, QLE entered into a Securities Purchase Agreement to purchase (i) 454,794 Class A Ordinary Shares, (ii) a Prefunded Warrant to purchase 1,600,000 Class A Ordinary Shares at an exercise price of $0.0001 per share ("Prefunded Warrants"), (iii) a Class A Ordinary Share Purchase Warrant A to purchase up to 2,054,794 Class A Ordinary Shares at an exercise price of $0.60 per share ("A Warrant"), and (iv) a Class A Ordinary Share Purchase Warrant B to purchase 2,054,794 Class A Ordinary Shares at an exercise price of $0.65 per share ("B Warrant" and together with Prefunded Warrant and A Warrant, "Warrants"), for the aggregate purchase price of $1,500,000 ("Skyline Purchase Agreement"). +Each Class A Ordinary Share shall entitle the holder thereof to one (1) vote on all matters subject to vote at general meetings of Skyline, and each Class B Ordinary Share shall entitle the holder thereof to twenty (20) votes on all matters subject to vote at general meetings of Skyline. Currently there is no mechanism in which Class A Ordinary Shares are convertible into Class B Ordinary Shares. Currently there is no mechanism in which Class B Ordinary Shares are convertible into Class A Ordinary Shares. On the acquisition date, QLE became the holder of 79.14% of the aggregate voting power represented by all of Skyline's outstanding Class A Ordinary Shares and Class B Ordinary Shares, and thereby gaining control over Skyline. +Skyline is a holding company, and its operations are conducted through its wholly owned operating subsidiaries, Kin Chiu Engineering Limited and Kin Chiu Development Company Limited. Operations primarily consist of construction activities which include public civil engineering works, such as road and drainage works, in Hong Kong. Skyline mostly undertakes civil engineering works in the role as a subcontractor but is fully qualified to undertake such works in the capacity of a main contractor. QLE intends to pursue opportunities to acquire assets in the critical materials supply chain. +Effective September 18, 2025, Dr. Ryno Pretorius, Chief Executive Officer of QLE, was appointed as an independent director of Skyline. In addition, an employee of ASP Isotopes was appointed as an independent director of Skyline. Effective January 1, 2026, the Skyline board of directors appointed Paul Mann as Executive Chairman. Effective March 31, 2026, the employee of ASP Isotopes that held one of the director positions at Skyline resigned was replaced by a new independent director. +On January 23, 2026, Skyline entered into a warrant exchange agreement (the “Skyline Exchange Agreement”) with the holders of Skyline Class A Ordinary Share Purchase Warrant A’s and Skyline Class A Ordinary Share Purchase Warrant B’s (collectively, the “Skyline Holder Warrants”), to purchase an aggregate of 48,698,628 Skyline Class A Ordinary Shares, that were purchased in the Skyline Series A Private Placement, to exchange the Skyline Holder Warrants issued on August 29, 2025, for an aggregate of 47,326,025 newly issued Series A preferred shares of Skyline (“Skyline Series A Preferred Shares”) and allotted among the holders in accordance with the Skyline Exchange Agreement. Each Skyline Series A Preferred Share is convertible, at the option of a holder thereof, into Skyline Class A Ordinary Shares. +On February 11, 2026, Skyline entered into (i) a securities purchase agreement (the “Reg D Purchase Agreement”) for an offering of Skyline’s Series B Convertible Preferred Shares (the “Skyline Series B Preferred Shares”) in a private placement (the “Reg D Private Placement”) pursuant to Regulation D under the Securities Act of 1933, as amended and (ii) a securities purchase agreement (the “Reg S Purchase Agreement”) for an offering of the Skyline Series B Preferred Shares in a private placement pursuant to Regulation S under the Securities Act (the “Reg S Private Placement” and together with the Reg D Private Placement, the “February 2026 Skyline Series B Private Placements”), in each case, for the purchase and sale of the Skyline Series B Preferred Shares. +The February 2026 Skyline Series B Private Placements closed on February 13, 2026 at which Skyline issued 6,322 of the Skyline Series B Preferred Shares. The purchase price for each Skyline Series B Preferred Share was $5,000. Each Skyline Series B Preferred Share is convertible into Skyline Class A ordinary shares with a conversion price of $2.40 per share, subject to certain +7 +anti-dilution adjustments that are subject to a floor of $1.50 per share and other customary adjustments for share splits, recapitalizations, reorganizations and similar transactions. The gross proceeds of the Skyline Series B Private Placement were approximately $31.6 million, before deducting placement agent fees and other offering expenses payable by Skyline. +In connection with the February 2026 Skyline Series B Private Placements, Skyline also entered into placement agency agreements dated February 10, 2026 that included the payment of a cash fee equal to 8.0% of the aggregate gross proceeds of the February 2026 Skyline Series B Private Placements and the issuance of non-callable warrants exercisable for a number of Skyline's Class A Ordinary Shares equal to 6% of the Class A Ordinary Shares underlying the Skyline Series B Preferred Shares. The warrants have an exercise price of $2.40 per share. +On March 20, 2026, Skyline entered into (i) a senior unsecured convertible note purchase agreement for an offering of approximately $16.6 million of Skyline's senior unsecured convertible notes (the “2026 Skyline Notes”) in a private placement and (ii) a securities purchase agreement dated March 20, 2026 for an offering of $0.6 million of Skyline’s Series B Preferred Shares (the “March 2026 Skyline Preferred Shares”) in a private placement (the "March 2026 Skyline Private Placement"). +The March 2026 Skyline Private Placement closed on March 25, 2026. The 2026 Skyline Notes are convertible into Skyline's class A ordinary shares, par value $0.00001 per share at a conversion price of $2.40 per share, subject to certain anti-dilution adjustments, that are subject to a floor of $1.50 per share. The conversion price of the 2026 Skyline Notes is also subject to other customary adjustments for share splits, recapitalizations, reorganizations and similar transactions The purchase price for each March 2026 Skyline Preferred Share was $5,000. Each March 2026 Skyline Preferred Share is convertible into Class A ordinary shares at a conversion price of $2.40 per share, subject to certain anti-dilution adjustments that are subject to a floor of $1.50 per share. The gross proceeds of the March 2026 Skyline Private Placement was approximately $17.2 million, before deducting placement agent fees and other offering expenses that were paid by Skyline. +In connection with the March 2026 Skyline Private Placement, Skyline also entered into placement agency agreements dated March 20, 2026 that included the payment of a cash fee equal to 8.0% of the aggregate gross proceeds of the March 2026 Skyline Private Placement and the issuance of non-callable warrants exercisable for a number of Skyline's Class A Ordinary Shares equal to 8% and 6% of the Class A Ordinary Shares underlying the 2026 Skyline Notes and March 2026 Skyline Preferred Shares, respectively. The warrants have an exercise price of $2.40 per share. +On March 29, 2026, QLE entered into a securities exchange agreement with an investor (the "QLE Exchange Agreement"). Per the QLE Exchange Agreement, the investor assigned and transferred 1,995,000 Class A Ordinary Shares held by the investor to QLE in exchange for an equal number of Class B Ordinary Shares held by QLE. +On March 31, 2026, Skyline issued an additional $3.0 million of 2026 Skyline Notes in a private placement. +Renergen Acquisition. On January 6, 2026, ASP Isotopes acquired all of the issued and outstanding ordinary shares of Renergen (“Renergen Ordinary Shares”) from Renergen shareholders in exchange for shares of our common stock at an exchange ratio of 0.09196 shares of our common stock for each Renergen Ordinary Share (the “Consideration Shares”) through the implementation of a scheme of arrangement (the “Scheme”) in accordance with Sections 114 and 115 of the South African Companies Act, No. 71 of 2008, resulting in the issuance of an aggregate of 14,270,000 Consideration Shares. As a result of the transactions contemplated by the Scheme, the ordinary shares of Renergen, which were publicly traded on the Johannesburg Stock Exchange (JSE: REN) and the Australian Securities Exchange (ASX:RLT), were delisted and Renergen became a wholly owned subsidiary of ASP Isotopes. +Renergen is South Africa’s leading onshore natural gas explorer and the first integrated producer of both liquid helium and LNG, both of which are produced from the large natural gas reserve base that underpins Renergen’s Virginia Gas Project. The Virginia Gas Project includes (i) the liquefaction of natural gas into LNG, (ii) the separation of helium from natural gas, and (iii) the further liquefaction of helium into 99.999% pure liquid helium. This liquefaction and separation takes place at the natural gas processing plant (the “Virginia Gas Plant”) in the Free State Province of South Africa. Based on the drilled and flow-tested wells, Renergen’s average helium concentration exceeds 3.0%, which is well above typical conventional natural gas reservoirs containing helium in small concentrations (less than 0.5%). +In South Africa, petroleum production rights are issued by the South African Department of Mineral Resources and Energy (the “DMRE”) and serve as the mechanism through which all entities, mostly private, are granted the right to extract and sell hydrocarbons and associated coproducts. The Petroleum Agency of South Africa is responsible for (i) promoting onshore and offshore exploration and production of petroleum; (ii) receiving and evaluating applications for reconnaissance permits, technical cooperation permits, exploration rights and production rights; and (iii) making recommendations on such applications to the Minister of Mineral Resources and Energy. South African production rights are valid for 30 years and are renewable for further periods, each of which must not exceed 30 years at a time in respect of each renewal, provided that the holder can justify that it can continue production operations. Production rights may be encumbered by mortgages for the purposes of raising debt financing. +Renergen’s principal asset is its 94.5% equity ownership in Tetra4, which holds South Africa’s first and only onshore petroleum production right (the “Production Right”) and is the entity developing the Virginia Gas Project. Our Production Right is currently valid through September 20, 2042 and renewable for an additional 30-year period thereafter. The Virginia Gas Project +8 +spans an area of over 187,000 hectares (over 462,000 acres) in the Free State Province approximately 250 kilometers (155 miles) southwest of Johannesburg, where natural gas-emitting boreholes were discovered through other mineral exploration activities. We have confirmed our Production Right as a major global helium resource with an average helium concentration of over 3% based on drilled and flow-tested wells. Additionally, the purity of our natural gas is high, with an average of over 90% natural gas and almost zero percent higher alkanes or sulphur, reducing the complexity and cost of liquefaction. The remaining approximately 7% of our production is nitrogen, which is utilized to separate the helium from the natural gas stream in Phase 1 of the Virginia Gas Project (“Phase 1”) production process. We receive an economic advantage from this coproduced nitrogen source, as it would otherwise have to be sourced externally to separate the helium from the natural gas stream. +In addition to our Production Right, the South African government also granted us petroleum exploration rights (“Exploration Rights”). Exploration Rights allow the holder to carry out the entire value chain of petroleum exploration such as acquisition and processing of new geological/geophysical data, reprocessing of existing geological/geophysical data and any other related activity to define a trap to be tested by drilling, logging and testing, including well appraisal activities. The Exploration Rights correspond to our operations in the Free State Province and are expected to contain significant helium and natural gas resources exceeding the scope of the Virginia Gas Project. Our Exploration Rights were set to expire on August 23, 2024. However, we submitted an application to incorporate the Exploration Rights into our Production Right, by means of an amendment to the Production Right in accordance with Section 102 of the South African Mineral and Petroleum Resources Development Act 28 of 2002 (“MPRDA”), which we expect will extend our ability to carry out petroleum exploration activities through the expiration date of our Production Right. Our application was submitted on July 16, 2024 and the application was authorized on May 9, 2025. Following the authorization, two appeals were made by various parties and the appeal process is ongoing. We expect the appeal process to be resolved in 2027. +Phase 1 has commenced commercial LNG operations. Phase 1 drilling of wells to reach the required cumulative nameplate flow rate is now complete. The gas gathering and tie in connections for these wells is ongoing. Once the tie in connections are complete the facility is expected to operate at maximum production capacity and include liquid helium operations. Phase 1 serves as both proof of concept for the larger development that will be Phase 2 of the Virginia Gas Project (“Phase 2”), and sales and revenue generation to establish a foundational customer base and foster customer relationships. +The Virginia Gas Project benefits from favorable supply and demand trends in both the LNG and liquid helium sectors. The LNG is and will continue to be sold domestically in South Africa into a market suffering energy and natural gas shortages, and we plan to sell helium directly to global customers at a time when the world is suffering helium supply shortages, which have been further exacerbated by the ongoing United States-Israel-Iran war. We believe that it was for these two reasons that the Virginia Gas Project was conditionally approved to be funded by the U.S. International Development Finance Corporation (“DFC”) as part of the U.S.’s initiative to ensure new helium supply comes online as aerospace and the semiconductor industry increase helium requirements in the face of diminished supply, while increasing South Africa’s domestic energy supply. +Helium is a vital and irreplaceable element in many modern industries because it is both chemically and electrically inert and, when in liquid form, is the coldest substance known to man at 3 degrees Kelvin (minus 454.3 degrees Fahrenheit). For these reasons, it can be used in the manufacture of semiconductors, to purge laboratory or manufacturing environments, act as a fuel propellant for other cryogenic fuels, and/or provide deep cryogenic cooling. It is commonly used in space exploration and rocketry, high-level physics experiments (e.g., particle accelerators, quantum mechanics), medical science within MRI devices, fiber optic cable production, commercial diving gas, specialized welding, coolant for nuclear power stations and lifting balloons. +We believe that Renergen’s LNG supply can play an important role in reducing South Africa's relatively high carbon emissions by being the first, and currently the only, LNG supplier in the country. According to Energy Institute (2024), coal has a 69% share of national primary energy consumption, with gas only around 3.5%. As such, according to the World Bank, South Africa ranks as the fifth-worst carbon emissions country per kilogram per purchasing power parity of gross domestic product (“GDP”). This ranking is largely due to South Africa’s high reliance on low-grade coal to provide electricity, supplemented by Sasol’s use of coal to liquids technology. Sasol Limited is one of the country’s largest energy suppliers and operator of the natural gas pipeline supplying gas from Mozambique into Johannesburg. LNG is a significantly lower carbon-emitting fuel than either of coal (by 50%) and diesel (25%), upon combustion. Therefore, the introduction of Renergen’s LNG into South Africa’s energy supply mix, including the possible direct substitution of Renergen’s LNG for first diesel, and then potentially coal, may help reduce South Africa’s overall carbon emissions intensity as the country moves towards its net zero carbon emissions targets by 2050. +Investments in Early Stage Drug Development Companies +IsoBio . On July 28, 2025, we purchased 2,000,000 shares of IsoBio, Inc. (“IsoBio”) Series Seed-1 Preferred Stock at $2.50 per share for a total aggregate purchase price of $5.0 million. IsoBio is a U.S.-based radiotherapeutic development company focused on developing a broad pipeline of mAb-based radioisotope therapeutics targeting both derisked and novel tumor antigens for patients in need of new cancer therapies. As the owner of the Series Seed-1 Preferred Stock, we have the right to designate one board member. An officer and director of ours was designated to fill that board seat. In addition, another board member of ours is a board member and executive officer of IsoBio. +9 +Opeongo . On January 26, 2026, we purchased 4,356,918 shares of Opeongo, Inc. (“Opeongo”) Series Seed-1 Preferred Stock at $2.2952 per share for a total aggregate purchase price of $10.0 million. Opeongo is a biotechnology company developing novel therapeutics using extracellular matrix modulation to target fibrosis, inflammation, and cancer. Opeongo was co-founded by David Baram, Ph.D. who serves as Opeongo’s Chief Executive Officer and director. As the owner of the Series Seed-1 Preferred Stock, we have the right to designate one board member. An officer and director of ours was designated to fill that board seat. In addition, another board member of ours is a board member and executive officer of Opeongo. +Skyline Investments +Skyline Reemag Investment. In November 2025, Skyline acquired a 13.09% ownership of Reemag LLC ("Reemag") for a cash purchase price of $3.0 million. Skyline will subscribe for additional membership interests of Reemag in tranches, resulting in ownership percentages of 13.09%, 20.06%, 33.42% and 50.10% at the initial, second, third and fourth closing respectively for an aggregate purchase price of $20.0 million. The second, third and fourth closings were scheduled on or before January 31, 2026, March 31, 2026 and by the earlier of a $200.0 million capital raise or July 31, 2026, respectively. However, in March 2026, Skyline entered into the first amendment to the subscription agreement with Reemag that amended the dates of the second, third and fourth closings to May 31, 2026, July 31, 2026 and September 30, 2026, respectively. +Skyline Critical Minerals Space Investment. On October 31, 2025, Skyline entered into a subscription and unit purchase agreement with a limited liability company engaged in the critical minerals space, pursuant to which Skyline subscribed for an approximate 20% membership interest in such company for a subscription price of $20.0 million. +Agreements with TerraPower LLC +On April 4, 2024, we entered into an agreement with TerraPower to develop a conceptual design, refined cost/schedule/financing, risk register, and term sheet for a HALEU facility (the “TerraPower Agreement”). The TerraPower Agreement may be terminated for (a) breach or default, (b) our convenience or (c) TerraPower’s convenience. TerraPower is obligated to make all payments for milestones completed by us and these payments are nonrefundable. +On October 18, 2024, we signed a term sheet with TerraPower (the “TerraPower Term Sheet”) that provides for the execution of two definitive agreements: (1) an agreement pursuant to which TerraPower will provide funding for our construction of a uranium enrichment facility capable of producing HALEU using our proprietary aerodynamic separation process technology to be located in the Republic of South Africa and (2) an agreement pursuant to which we will deliver to TerraPower the full capacity of the enrichment facility. +In May 2025, we entered into a Loan Agreement with TerraPower (the “TerraPower Loan Agreement”), which provides conditional commitments from TerraPower to us through one of our wholly-owned U.S.-based subsidiaries for a multiple advance term loan totaling $22.0 million for the purpose of partially funding the construction of a proposed new uranium enrichment facility in South Africa. The total loan amount is inclusive of a 10% original issue discount on each disbursement and carries a fixed interest rate of 10% per annum. Per the terms of the TerraPower Loan Agreement and subject to the satisfaction of various conditions precedent to disbursements (including receiving all required licenses and permits to perform uranium enrichment in South Africa), we will receive aggregate loan disbursements of $20.0 million. Such loan matures on May 16, 2032. Interest will begin accruing upon each milestone disbursement we receive and will be added to the principal balance until November 2027. Principal and interest payments will be made in 60 equal installments beginning in November 2027. We plan to request drawdowns on this loan beginning in the third quarter of 2026. +In addition to the TerraPower Loan Agreement, in May 2025, we and TerraPower have entered into two supply agreements for the HALEU expected to be produced at our uranium enrichment facility. The initial core supply agreement is intended to support the supply of the required first fuel cores for the initial loading of TerraPower’s Natrium project in Wyoming. The long-term supply agreement is a 10-year supply agreement of up to a total of 150 metric tons of HALEU, commencing in 2028 through end of 2037. +Our Segments +Beginning in 2024, primarily as a result of the increased business activities of our subsidiary, QLE, we had two operating segments: (i) nuclear fuels, and (ii) specialist isotopes and related services. Beginning in August 2025, primarily as a result of the acquisition of Skyline, we have three operating segments: (i) nuclear fuels, (ii) specialist isotopes and related services, and (iii) construction services: +• +Nuclear Fuels. This segment is focused on research and development of technologies and methods used to produce HALEU and Lithium-6 for the advanced nuclear fuels target end market. +• +Specialist Isotopes and Related Services. This segment is focused on research and development of technologies and methods used to separate high-value, low-volume isotopes (such as C-14, Si-28 and Yb-176) for highly specialized target end markets other than advanced nuclear fuels, including pharmaceuticals and agrochemicals, nuclear medical imaging and semiconductors, as well as services related to these isotopes, and this segment includes PET Labs. +10 +• +Construction Services. This segment is focused on public civil engineering services in Hong Kong, such as road and drainage works which includes construction of footway, drain, ducts, and pipelines. In executing these projects, we may be required to perform a range of activities including to (i) clear the construction site and make demolition of existing structures; (ii) install concrete and reinforcing steel bars; (iii) conduct excavation, deposition, disposal and compaction of fill material; and (iv) plant trees, plants, irrigation system and general establishment works. +Our Strategy +Commence commercial production at each of our enrichment facilities in Pretoria, South Africa. +We commenced commercial production of enriched isotopes at our ASP enrichment facilities located in Pretoria, South Africa during the first quarter of 2025. Our first ASP enrichment facility is designed to enrich light isotopes, such as C-14. The second ASP enrichment facility, which is substantially larger than the first, should have the potential to enrich kilogram quantities of relatively heavier isotopes, including but not limited to Si-28 and Mo-100. We are targeting initial commercial shipments of enriched C-14 in mid-2026 and initial commercial shipments of enriched Si-28 during the second quarter of 2026. We have also completed the commissioning phase and are producing commercial samples of highly enriched Yb-176 at our third enrichment facility, a QE technology facility, which will be our first laser-based enrichment plant. We are targeting initial commercial shipments of Yb-176 in mid-2026 or the third quarter of 2026. +Demonstrate the capability to produce commercial quantities of enriched C-14, Si-28 and Yb-176 using the ASP and QE technologies and capitalize on the opportunity to solve many supply chain challenges that currently exist. +We intend to demonstrate the capability to produce C-14, Si-28 and Yb-176 at a scale that can support anticipated customer demand for all three isotopes. +Historically, Russia has been the sole supplier of C-14, which is used as a tracer in the development of new pharmaceuticals and agrochemicals. The supply chain has been inherently fragile with inconsistent service. We have received an initial supply of feedstock from our customer and have started the enrichment of C-14. +Isotopically enriched silicon is regarded as a promising material for semiconductor quantum information due to its very long coherence times and its compatibility with the readily available industrial platform. We believe that the ASP technology is ideally suited to the production of this isotope because it has the ability to enrich molecules of low molecular mass. Other electronic gasses that can likely be enriched using ASP technology include disilane and germane. +Enriched Yb-176 can be irradiated to produce Lutetium-177, which has been identified for use in oncology, particularly in targeted radionuclide therapy ("TRT"). TRT is used in the treatment of various types of cancers, including neuroendocrine tumors, prostate cancer, and bone metastases, among others. There are numerous ongoing clinical trials studying Lutetium-177 PSMA-617 in patients with metastatic castration-resistant prostate cancer. We believe we have obtained all necessary licenses within South Africa to proceed with the commercial development of this product. +Continue identifying potential offtake customers and strategic partners for our enriched isotopes. +We currently have no sales attributable to enriched isotopes, but we have significant interest from potential offtake customers for the enriched isotopes that we intend to produce. In June 2023, we entered into a tolling agreement with a Canadian customer for the entire capacity of our C-14 production facility. In April and June 2024, we entered into purchase orders with a US semiconductor company and a global industrial gas company for the supply of highly enriched Si-28. We are currently in discussions with potential customers that have an interest in entering into long-term supply agreements for kilogram quantities of Si-28 and larger quantities of Xe-129, Ge 72, Ge-74, Zn-68, and Cl-37. We intend to identify additional potential customers and strategic partners for isotopes that we may produce at our existing and planned enrichment facilities. +Demonstrate the capability to produce HALEU using our enrichment technologies and meet anticipated demand for the new generation of HALEU-fueled small modular reactors and advanced reactor designs that are now under development for commercial and government uses. +We plan to begin research and development for the enrichment of uranium to demonstrate our capability to produce HALEU using QE technology. We anticipate a future demand for HALEU for the new generation of HALEU-fueled SMRs and advanced reactor designs that are now under development for commercial and government uses. SMRs are viewed as being cheaper, safer, and more versatile than traditional large-scale nuclear reactors, and development of the new technology is receiving considerable funding from the U.S. Department of Energy, as well as from the governments of other countries. There is currently no commercial production of HALEU in the United States. We are currently conducting a feasibility study with respect to constructing an enrichment facility in South Africa, the U.S. and the United Kingdom. We are currently in discussions with nuclear regulatory +11 +authorities in multiple countries, including the UK Atomic Energy Authority, UK Office of Nuclear Regulation (UK ONR), Necsa, the DMRE, United States Department of Energy (DOE) and the United States Nuclear Regulatory Commission (NRC), regarding the construction of a nuclear fuel plant in these countries. In the period since our inception to date, we have not applied our enrichment technologies to the enrichment of U-235, nor received permission or regulatory approval to conduct testing of our enrichment technologies on U-235, except for the activities contemplated by the Services Contract with Necsa (described in the next paragraph). Our expectation that QLE’s initiative to apply our enrichment technologies to the enrichment of U-235 could be successful is based upon research conducted by certain of our scientists prior to joining the company, as well as the demonstrated effectiveness of QE technology on Yb-176. +We intend to progress our uranium enrichment initiative first in South Africa. In November 2024, we entered into a Memorandum of Understanding ("MOU") with Necsa to collaborate on the research, development and ultimately the commercial production of advanced nuclear fuels. Necsa is a state-owned company established by the Republic of South Africa Nuclear Energy Act in 1999 with a mandate to undertake and promote research and development in the field of nuclear energy and radiation sciences. Necsa is also responsible for processing source material, and co-operating with other institutions on nuclear and related matters. In February 2026, QLE South Africa and Necsa entered into a Services Contract as part of the collaboration contemplated by the MOU. Under the Services Contract, Necsa has agreed to provide to QLE South Africa certain facilities, infrastructure, utilities and services related to the siting, design, construction, commission and operation of an enrichment facility on the Necsa site in Pelindaba. A Joint Coordination Committee, to be comprised of two representatives of QLE South Africa and Necsa, has been established to oversee and govern the implementation of the Services Contract. +In March 2026, QLE UK entered into an agreement with the University of Bristol related to the design of a state-of-the-art lithium laser research facility in the UK. Under the terms of the agreement, the University of Bristol is expected to lead the design and feasibility study for a site-agnostic laser enrichment research facility over an estimated four-month initial phase. The project involves comprehensive desk-based concept design work, detailed engineering specifications, and safety reviews to establish the foundation for what could become a groundbreaking research hub. The University of Bristol is expected to coordinate a comprehensive team of specialists, including experts in mechanical, electrical, and plumbing specification, structural engineering, architecture, construction project management, pyrophoric lithium handling, and laser safety. The project is expected to progress through multiple phases, including documentation review, safety assessments, cell design development, and detailed facility design work culminating in RIBA Stage 4 (Technical Design) completion. Subject to a positive feasibility assessment, the parties intend to proceed with construction of the facility at a suitable University of Bristol site off-campus where it will be planned to enable cutting-edge research commissioned and funded by QLE. QLE’s UK program of work has been developed in consultation with key UK government and regulatory bodies, including the UK Department for Energy Security and Net Zero, the UK Atomic Energy Authority, the UK ONR, and the UK Environment Agency. +Alongside our talks with regulators, we have entered into agreements or are currently discussing with multiple counterparties engaged in the development of SMR reactors to produce HALEU to further their research efforts and future commercial endeavors. For example, in May 2025, we entered into the TerraPower Loan Agreement, which provides conditional commitments from TerraPower to us through one of our wholly-owned U.S.-based subsidiaries for a multiple advance term loan totaling $22,000,000 for the purpose of partially funding the construction of a proposed new uranium enrichment facility in South Africa. Per the terms of the TerraPower Loan Agreement and subject to the satisfaction of various conditions precedent to disbursements (including receiving all required licenses and permits to perform uranium enrichment in South Africa), we will receive aggregate loan disbursements of $20,000,000. We plan to request an initial drawdown on this loan during 2026 when construction of the uranium enrichment facility is expected to begin. In addition to the TerraPower Loan Agreement, in May 2025, we and TerraPower entered into two supply agreements for the HALEU expected to be produced at our uranium enrichment facility in South Africa. The initial core supply agreement is intended to support the supply of the required first fuel cores for the initial loading of TerraPower’s Natrium project in Wyoming. The long-term supply agreement is a 10-year supply agreement of up to a total of 150 metric tons of HALEU, commencing in 2028 through end of 2037. +Demonstrate the effectiveness and value in the use of stable isotopes in the downstream radiopharmacy market, after acquiring 51% ownership interest in PET Labs, the leading radiopharmacy in South Africa. This investment will address the radioisotope needs of South Africa as well as certain neighboring countries. +Under the terms of a Share Purchase Agreement, dated October 30, 2023, we acquired 51% of the issued share capital of PET Labs, a company incorporated in the Republic of South Africa. PET Labs is a South African radiopharmaceutical operations company, dedicated to nuclear medicine and the science of radiopharmaceutical production. As a result of this transaction, we entered into the downstream radiopharmacy market that we intend to service in the future. This transaction will help provide the market with adequate proof of concept of the value of utilizing Mo-100 in downstream SPECT imaging procedures while providing supply chain stability to the region of South Africa and neighboring countries. We intend to expand PET Labs’ existing operations by adding two new cyclotrons to its service footprint, enabling the company to properly expand its other revenue generation mediums, which is anticipated to drive free cash flow to the company. +12 +Develop world class helium reserves at Virginia Gas Project. +The Virginia Gas Project contains high purity natural gas and is one of the richest concentrations of helium globally. Some wells contain up to 12% helium concentration in recorded tests, and based on the drilled and tested flow rates, our average helium concentration exceeds 3%, which compares with the average concentrations of Qatar at 0.05%, Russia at 0.06% and the USA at 0.35%. The LNG is and will continue to be sold domestically in South Africa into a market suffering energy and natural gas shortages, and we plan to sell the helium directly to global customers at a time when the world is suffering helium supply shortages, which have been further exacerbated by the ongoing United States-Israel-Iran war. +Capitalize on the Acquisition of a Controlling Interest in Skyline Builders Group Holding Limited. +On August 29, 2025, QLE became a controlling shareholder of Skyline Builders Group Holding Limited, a company incorporated under the laws of the Cayman Islands (“SKBL”) with its Class A Ordinary Shares listed on The Nasdaq Stock Market LLC (“Nasdaq”) under the symbol “SKBL.” QLE invested in SKBL’s Class A Ordinary Shares, Class B Ordinary Shares and warrants to purchase Class A Ordinary Shares for the aggregate purchase price of $2.5 million. Each warrant is immediately exercisable and entitles the holder to acquire Class A Ordinary Shares for a period of five years following August 29, 2025. QLE, as a holder of warrants, does not have the right to exercise any portion of any warrant, to the extent that QLE (together with the holder’s affiliates) would beneficially own in excess of 9.99% of the number of Class A Ordinary Shares outstanding immediately after giving effect to the exercise of the applicable warrant. +As of the date of this annual report on Form 10-K, QLE is the holder of 4.74% of the aggregate voting power represented by all outstanding Class A Ordinary Shares and Class B Ordinary Shares of SKBL. +In addition, on August 29, 2025, Paul Mann, our Chairman and Chief Executive Officer and Chairman of the Board of Managers of QLE, purchased, for the aggregate purchase price of $2.5 million, as an individual investor: Class A Ordinary Shares and certain warrants to purchase Class A Ordinary Shares of SKBL on the same terms as QLE’s investment in Class A Ordinary Shares and warrants, provided that Mr. Mann, as a holder of warrants, does not have the right to exercise any portion of any warrant, to the extent that such holder (together with the holder’s affiliates) would beneficially own in excess of 4.99% of the number of Class A Ordinary Shares outstanding immediately after giving effect to the exercise of the applicable warrant. +Competition +Radioisotopes and Chemical Elements Competition +The development and commercialization of radioisotopes and chemical elements is highly competitive. We face competition with respect to all the enriched isotopes that we may produce using our ASP technology from established biotechnology and nuclear medicine technology companies and will face competition with respect to enriched uranium that we may seek to develop or commercialize in the future from innovative technology and energy companies. There are a number of large biotechnology and nuclear medicine technology companies that currently market and sell radioisotopes to radiopharmacies, hospitals, clinics and others in the medical community (Mo-99 is the active ingredient for Tc-99m-based radiopharmaceuticals used in nuclear medicine procedures). There are also a number of technology and energy companies that are currently seeking to develop HALEU. Potential competitors also include academic institutions, government agencies and other public and private research organizations that conduct research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and commercialization. +We believe our competitors lag behind us in terms of the technical expertise of our senior management and the know-how contained in the aerodynamic separation technique, and will be unable to replicate the expected results of the ASP technology, even as we expect to continue to improve the existing technology and processes. Additionally, the high capital costs of development of proprietary technologies, significant lead times required to construct new enrichment facilities, as well as stringent regulatory and operating requirements applicable to enrichment facilities, adds to the significant barriers to entry for smaller competing market participants. +LNG and Helium Competition +The South African gas market has historically been stagnant and almost entirely dependent on local production of liquefied petroleum gas (“LPG”) and natural gas imported from Mozambique. There are frequent constraints in LPG supply in South Africa. Natural gas imported from Mozambique comes via the Republic of Mozambique Pipeline Company pipeline to Johannesburg and is supplied mainly to users close to the pipeline at low pressures. In addition to LPG, South Africa relies primarily on coal for electricity generation. Currently, only approximately 3% of South Africa’s energy mix comes from natural gas. The current source of natural gas and coal supply is unable to fully supply existing energy demand. As the holder of South Africa’s first and only onshore petroleum Production Right, we believe our biggest competition for our LNG includes producers and distributors of LPG, including the Republic of Mozambique Pipeline Company, and producers of other fuel sources such as compressed natural gas and coal. Additionally, although South Africa has historically not imported LNG from outside of the continent, South Africa received its first import of LNG in November 2021 in the port of Ngqura. In the future, we may face geographic competition if other companies are granted Exploration Rights or Production Rights in South Africa and begin producing LNG, or if such companies +13 +import LNG from external sources outside of the continent due to grants of rights to import LNG into South Africa. However, we believe that our position as the sole LNG provider in South Africa allows us a competitive advantage in the local LNG market, particularly as customers transition to LNG as a liquid fuel substitution of choice. +Helium is sold as a globally traded commodity, which is currently in tight supply and disruptions in the helium market can easily create shortages. Helium has traditionally been traded on long-term private contracts, keeping prices opaque and reducing incentives for helium exploration. The entire global helium supply is produced by approximately 30 liquefaction plants, located in the United States, Poland, Russia, Algeria, Qatar and China, among other locations. A smaller number of players control the distribution of helium, which is often subject to privately negotiated contracts. Location is often a primary competitive factor as the difficulties associated with transporting helium limit the distance it can be transported. We believe we compare favorably with many of our helium competitors due our geographic location near the Cape of Good Hope, which we believe will allow us to provide helium to parts of the world that other competitors, such as companies located in Qatar, cannot. Additionally, helium becomes more economically viable to extract from natural gas at higher concentrations. We believe we compare favorably with many of our competitors due to the high concentration of helium in the Virginia Gas Project relative to our competitors. +Competitive conditions may be substantially affected by various forms of energy legislation and/or regulation considered from time to time by the South African government. Our larger or more integrated competitors may be able to absorb the burden of existing, and any changes to, international, federal, state and local laws and regulations more easily than we can, which would adversely affect our competitive position. Additionally, other countries may not impose similar laws or regulations on the production of helium. It is not possible to predict the nature of any such legislation or regulation that may ultimately be adopted or its effects upon our future operations. Such laws and regulations may substantially increase the costs of exploring for, developing or producing natural gas and helium, and may prevent or delay the commencement or continuation of a given operation. The effect of these risks cannot be accurately predicted. +Technical Background +What are Isotopes? +Isotopes are two or more types of atoms that have the same atomic number (number of protons in their nuclei) and position in the periodic table (and hence belong to the same chemical element), and that differ in nucleon numbers (mass numbers) due to different numbers of neutrons in their nuclei. While all isotopes of a given element have almost the same chemical properties, they have different atomic masses and physical properties. +The number of protons within the atom’s nucleus is called atomic number and is equal to the number of electrons in the neutral (non-ionized) atom. Each atomic number identifies a specific element, but not the isotope; an atom of a given element may have a wide range in its number of neutrons. The number of nucleons (both protons and neutrons) in the nucleus is the atom’s mass number, and each isotope of a given element has a different mass number. For example, Carbon-12, Carbon-13, and Carbon-14 are three isotopes of the element carbon with mass numbers 12, 13, and 14, respectively. The atomic number of carbon is 6, which means that every carbon atom has 6 protons so that the neutron numbers of these isotopes are 6, 7, and 8 respectively. +There are 23 isotopes of silicon, all of which have 14 protons and between 8 and 30 neutrons. The table below shows a selection of those isotopes. Three isotopes are stable which have mass numbers of 28, 29 and 30 which have 14, 15 and 16 neutrons respectively. The other 20 isotopes are radioactive and decay with short half-lives and are therefore do not typically exist in naturally occurring silicon. In naturally occurring silicon, the isotope with atomic mass of 28 is usually the most abundant, typically accounting for approximately 92.22% of the material. The isotope with atomic mass of 29 typically accounts for 4.69% of the material and the isotope with atomic mass of 30 typically accounts for 3.09% of the material. +Molybdenum has 33 known isotopes, ranging in atomic mass from 83 to 115, as well as four metastable nuclear isomers. Seven isotopes occur naturally, with atomic masses of 92, 94, 95, 96, 97, 98, and 100. All unstable isotopes of molybdenum decay into isotopes of zirconium, niobium, technetium, and ruthenium. +Uranium is a naturally occurring radioactive element that has no stable isotope. It has two primordial isotopes, uranium-238 (“U-238”) and U-235, which have long half-lives and are found in appreciable quantity in the Earth’s crust. The decay product, uranium-234 is also found. Other isotopes such as uranium-233 have been produced in breeder reactors. In addition to isotopes found in nature or nuclear reactors, many isotopes with far shorter half-lives have been produced, ranging from U-214 to U-242 (with the exception of U-220 and U-241). The standard atomic weight of natural uranium is 238.02891 with 99.27% of naturally occurring uranium being the isotope with an atomic mass of 238. +14 +Selected isotopes of Silicon +Selected isotopes of Molybdenum +Selected isotopes of Uranium +Nuclide +Protons +Neutrons +Isotopic +Mass +Half +Life +Natural +abundance +Nuclide +Protons +Neutrons +Isotopic +Mass +Half +Life +Natural +abundance +Nuclide +Protons +Neutrons +Isotopic +Mass +Half +Life +Natural +abundance +22 +14 +8 +22.036 +29 ms +91 +42 +49 +90.912 +15.49 min +225 +92 +133 +225.029 +62 ms +23 +14 +9 +23.025 +42.3 ms +92 +42 +50 +91.907 +Stable +14.65% +226 +92 +134 +226.029 +269 ms +24 +14 +10 +24.012 +140 ms +93 +42 +51 +92.907 +4000 y +227 +92 +135 +227.031 +1.1 m +25 +14 +11 +25.004 +220 ms +94 +42 +52 +93.905 +Stable +9.19% +228 +92 +136 +228.031 +9.1 m +26 +14 +12 +25.992 +2.245 s +95 +42 +53 +94.906 +Stable +15.87% +229 +92 +137 +229.034 +57.8 m +27 +14 +13 +26.987 +4.15 s +96 +42 +54 +95.905 +Stable +16.67% +230 +92 +138 +230.034 +20.23 d +28 +14 +14 +27.977 +Stable +92.22% +97 +42 +55 +96.906 +Stable +9.58% +231 +92 +139 +231.036 +4.2 d +29 +14 +15 +28.977 +Stable +4.69% +98 +42 +56 +97.905 +Stable +24.29% +232 +92 +140 +232.037 +68.9 y +30 +14 +16 +29.974 +Stable +3.09% +99 +42 +57 +98.908 +2.75 d +233 +92 +141 +233.04 +1.592 e5 y +Trace +31 +14 +17 +30.975 +157.36 min +100 +42 +58 +99.907 +Stable +9.74% +234 +92 +142 +234.041 +2.455 e5 y +Trace +32 +14 +18 +31.974 +153 y +trace +101 +42 +59 +100.910 +14.61 m +235 +92 +143 +235.044 +7.038 e8 y +0.72% +33 +14 +19 +32.978 +6.18 s +102 +42 +60 +101.910 +11.3 m +236 +92 +144 +236.046 +2.342 e7 y +Trace +34 +14 +20 +33.979 +2.77 s +103 +42 +61 +102.913 +67.5 s +237 +92 +145 +237.049 +6.752 d +Trace +35 +14 +21 +34.985 +780 ms +104 +42 +62 +103.914 +60 s +238 +92 +146 +238.051 +4.468 e9 y +99.27% +36 +14 +22 +35.987 +450 ms +105 +42 +63 +104.917 +35.6 s +239 +92 +147 +239.054 +23.45 m +37 +14 +23 +36.993 +90 ms +106 +42 +64 +105.918 +8.73 s +240 +92 +148 +240.057 +14.1 h +Trace +38 +14 +24 +37.996 +90 ms +107 +42 +65 +106.922 +3.5 s +242 +92 +150 +242.063 +16.8 m +Methods of Separation and Enrichment of Isotopes +Isotope enrichment is the process of concentrating specific isotopes of a chemical element by removing other isotopes. During the last century, a number of different methods have been developed to separate and enrich isotopes. The current separation or enrichment processes are based either on the atomic weight of the isotope, small differences in chemical reaction rates produced by different atomic weights or are based on properties not directly connected to atomic weight such as nuclear resonances. +Diffusion +Often performed on gases, but also on liquids, the diffusion method relies on the fact that in thermal equilibrium, two isotopes with the same energy will have different average velocities. The lighter atoms (or the molecules containing them) will travel more quickly and be more likely to diffuse through a membrane. The difference in speeds is proportional to the square root of the mass ratio, so the amount of separation is small, and many cascaded stages are needed to obtain high purity. This method is expensive due to the work needed to push gas through a membrane and the many stages necessary. +Centrifugal +Centrifugal methods rapidly rotate the material allowing the heavier isotopes to go closer to an outer radial wall. This too is often done in gaseous form using a Zippe-type centrifuge. +A Zippe-type centrifuge relies on the force resulting from centripetal acceleration to separate molecules according to their mass, and can be applied to most fluids. The dense (heavier) molecules move towards the wall and the lighter ones remain close to the center. The centrifuge consists of a rigid body rotor rotating at high speed. Concentric gas tubes located on the axis of the rotor are used to introduce feed gas into the rotor and extract the heavier and lighter separated streams. For U-235 production, the heavier stream is the waste stream and the lighter stream is the product stream. Modern Zippe-type centrifuges are tall cylinders spinning on a vertical axis, with a vertical temperature gradient applied to create a convective circulation rising in the center and descending at the periphery of the centrifuge. Diffusion between these opposing flows increases the separation by the principle of countercurrent multiplication. +In practice, since there are limits to how tall a single centrifuge can be made, several such centrifuges are connected in series. Each centrifuge receives one input and produces two output lines, corresponding to light and heavy fractions. The input of each centrifuge is the output (light) of the previous centrifuge and the input of the following stage. This produces an almost pure light fraction from the output (light) of the last centrifuge and an almost pure heavy fraction from the output (heavy) of the first centrifuge. +Electromagnetic +Electromagnetic separation is mass spectrometry on a large scale, so it is sometimes referred to as mass spectrometry. It uses the fact that charged particles are deflected in a magnetic field and the amount of deflection depends upon the particle’s mass. It is very expensive for the quantity produced, as it has an extremely low throughput, but it can allow very high purities to be achieved. This method is often used for processing small amounts of pure isotopes for research or specific use (such as isotopic tracers), but is impractical for industrial use. +Laser +In this method, a laser is tuned to a wavelength which excites only one isotope of the material and ionizes those atoms preferentially. The resonant absorption of light for an isotope is dependent upon its mass and certain hyperfine interactions between electrons and the nucleus, allowing finely tuned lasers to interact with only one isotope. After the atom is ionized it can be removed +15 +from the sample by applying an electric field. This method is often abbreviated as AVLIS (atomic vapor laser isotope separation). This method has only recently been developed as laser technology has improved, and is currently not used extensively. +Chemical Methods +Although isotopes of a single element are normally described as having the same chemical properties, this is not strictly true. In particular, reaction rates are very slightly affected by atomic mass. Techniques using this are most effective for light atoms such as hydrogen. Lighter isotopes tend to react or evaporate more quickly than heavy isotopes, allowing them to be separated. This is how heavy water is produced commercially. +Gravity +Isotopes of carbon, oxygen, and nitrogen can be purified by chilling these gases or compounds nearly to their liquefaction temperature in very tall (200 to 700 feet (61 to 213 m)) columns. The heavier isotopes sink and the lighter isotopes rise, where they are easily collected. +The ASP Technology +ASP technology is proprietary technology originally licensed from Klydon which succeeds earlier work, first detailed in the scientific media in the mid-1970s, relating to an industrial scale enrichment plant for uranium that was constructed utilizing the so-called “stationary-wall centrifuge.” The original technology was highly energy consuming and was not able to compete on an economic basis with other methods of isotope separation. The innovative development of the ASP technology over the past two decades has culminated in a more advanced separation device that we believe can compete on a commercial scale with other methods of isotope separation. The ASP separation device separates both gas species and isotopes in a volatile state via an approximate flow pattern as shown below. +The ASP enrichment process uses an aerodynamic technique similar to a stationary wall centrifuge. The isotope material in raw gas form enters the stationary tube at high speed by tangential injection through finely placed and sized openings in the surface of the tube. The gas then follows a flow pattern that results in two gas vortexes occurring around the geometrical axis of the separator. The isotope material becomes separated in the radial dimension as a result of the spin speed of the isotope material reaching several hundred meters per second. An axial mass flow component in each tube feeds isotope material to the respective ends of the separator where the collection of the portions of isotope material is accomplished. +The advantages of ASP technology are as follows: +• +No moving parts, with low capital and operating costs in comparison to alternatives. +• +Compact in size and weight. +• +Easily scaled to industrial level with number of separation devices added in parallel. +• +The separation process occurs inside a closed cylindrical container and is a volume technology, i.e., the process efficiency is not affected by poisoning of surface contaminates as is the case for surface separation processes. +• +ASP operates very efficiently at molecular masses below 100 atomic mass units, unlike other separation processes which are more efficient at higher masses, which ASP can achieve equally well or to a superior degree. +• +ASP easily separates hydrogen gas from other gas components, e.g., harvesting hydrogen gas from carbon monoxide and carbon dioxide and altering the ratio of syngas mixture. +• +With the right material choice ASP can handle even the most corrosive gases. +16 +• +ASP can separate any isotopes that have a gaseous or volatile chemical compound. +• +Most of the subsystems are procured from off-the-shelf components. +• +An ASP plant can be constructed in any country that adheres to the International Atomic Energy Agency (“IAEA”) protocols for the protection of dual use technology. +ASP Plant Configuration +The figure below shows a schematic of an ASP cascade in operation. The cascade consists of several enrichment stages, connected in a 1-up-1-down cascade configuration. The stages can be grouped into segments. (This method of organizing stages is not reflected in the figure) +The bold blue arrows represent flows of the element into and out of the cascade: +• +H is the product, enriched in the isotope. +• +L is the tails, stripped of the isotope. +• +F = FX + FY is the feed stream at natural isotopic composition. +• +FX is the feed into the product stream of an adjoining stage. +• +FY is the feed into the tails stream of an adjoining stage. +Each stage in the cascade is operated in one of two configurations: +(1) +A net backward flow of the isotope: Xi > Yi. These stages are referred to as “product,” situated in the so-called “product cascade section,” and their flows are marked with an “H” subscript. +(2) +A net forward flow of isotope: Xi < Yi. These stages are referred to as “tails,” situated in the so-called “tails cascade section,” and their flows are marked with an “L” subscript. +The red arrows represent the addition or extraction of carrier gas from the process. The arrows have been added for clarity and orientation, but the mass flows of the carrier gas will be ignored in the rest of the discussion as it pertains to the isotope mass flows only (as represented by the blue arrows). The carrier gas mass flows can be superimposed on any isotope mass balance using the molar mass characteristics of the ASP stages (see below). +The block marked “GS” represents the gas separator: a piece of equipment used to separate the carrier gas from the element of interest to the degree necessary to provide a suitable reflux stream to the tails cascade section. +The blue squares are simply suitable areas where streams can be split or mixed. +An ASP stage is characterized by functions of Y, the flow of isotope in its tails stream. The characteristics of interest are: +• +α(Y): the separation factor between the tails and product streams. +• +MY(Y): the molar mass of the tails stream. +• +MX(Y): the molar mass of the product stream. +17 +• +P(Y): the stage’s power usage. +• +X(θ,Y): the flow of Zinc in the product stream, where θ = Y/(X+Y) is the cut defined in terms of isotope flows. +Note the following: +• +α is the ratio of the tails and product stream abundance ratios. +• +Y, X(θ,Y) and α(Y) describe the stage’s behaviour with regards to Zinc, while MY(Y) and MX(Y) defines its behaviour with regards to the carrier gas. +• +P, the stage’s power usage, depends on the ASP separator, but also on factors such as compressor efficiency, friction losses etc. It is therefore a partial function of stage design. +• +It is possible to define Pmin, the theoretical minimum energy usage of a stage, by assuming 100% efficient compressors and no losses in the stage. Pmin is a function of the ASP separator only. In practice P is a more useful metric, as the contribution of compressor inefficiencies to power consumption is significant. +• +Except for X, the stage’s characteristics are not defined in terms of the cut θ, as they are simply not sensitive to it above a certain lower limit θmin. In practice θmin is small enough that it has no influence on the normal operating envelope of the stage. +• +X is per definition a function of Y via θ as indicated. +The cut of an ASP stage can be dynamically adjusted to any value larger than θmin, allowing its operating point to be changed online during production. +All stages in the product cascade section are operated at the same point < XH,YH >, where XH > YH, ensuring that a net backward flow of the process element, H = XH — YH is achieved. This corresponds to a cut of less than 50% and ensures a positive flow of enriched product. +All stages in the tails cascade section are operated at the same point < XL,YL >, where XL < YL, ensuring that a net backward flow of the process element, L = XL — YL is achieved. This corresponds to a cut of more than 50% and ensures a positive flow of stripped tails. +Depending on the production requirements of the cascade the product and tails section operation points can be moved relative to each other during production, obtaining different combinations of H and L (and therefore different feeds F = H + L). The smaller H (or L) is chosen, the closer the product (or tails) section cut moves to 50%. If all stages are operated at a cut of 50%, the cascade is operated at full reflux, no product, tails, or feed streams are present, and the maximum process element concentration gradient will exist. +ASP Technology In Use +The scientists at Klydon had constructed two ASP plants for the enrichment of oxygen-18 and Si-28 in Pretoria, South Africa, which were commissioned in October 2015 and July 2018, respectively. We believe the success of the enrichment of oxygen-18 and silicon-28 has demonstrated the efficacy and commercial scalability of the ASP technology. We have completed the commissioning phase and are commencing commercial production at our C-14 enrichment facility and our “multi-isotope” enrichment plant, which has its initial production run designated for enriched Si-28. We are targeting initial commercial shipments of enriched C-14 mid-2026 and initial commercial shipments of enriched Si-28 during the second quarter of 2026. +QE Technology +Isotopes of every element have unique spectroscopic “signatures” defined by the electromagnetic radiation or “light” absorbed by their atoms from electron transitions. QE separates two isotopes by taking advantage of the slight differences in the transition energy between two isotopes. This method is described as a “quantum mechanics” method. In principle, Quantum Enrichment can separate isotopes of most elements, achieving desired enrichment in a single step. +The atomic vapor laser isotope separation method (“AVLIS”), which is the forerunner of the QE technology, proposed by Letokhov et al. (1977), has been in progress during the last 45 years. The main efforts during these years were devoted to attempts to get a nuclear fuel for industrial nuclear reactors. +Laser based isotope selective excitation followed by ionization and collection using electro-magnetic fields offers one of the most efficient techniques for isotope enrichment/denaturing. In the laser isotope separation process, atoms of the target isotope in +18 +vapor stream get ionized after interaction with a tuned laser beam. Ionized atoms are separated from the main vapor stream by electrostatic field. In our Quantum Enrichment facility, a resistive heating system has been designed to evaporate Ytterbium by sublimation at temperature in the range of 500 o C to 700 o C to provide adequate Ytterbium vapor atoms for laser interaction. +During the process, the vapor jet comes out from the source to reach sonic speed at the exit plane, then it expands supersonically into vacuum. A thickness monitor reading gives average arrival rate of atomic vapor in terms of thickness per unit time (A/sec). +At the heart of laser-based isotope enrichment lies a proficient multi-step isotope selective photoionization scheme giving optimum selectivity and product yield. Ytterbium has two valence electrons and very few transitions originating from its ground level. Its ionization potential is 6.254eV. This necessitates selection of a three-step photoionization scheme for selective photoionization of its isotopes using the available laser infrastructure supporting visible range of spectrum. +Dye lasers offer the best suitable choice for enrichment process as they suffice to all the requirements of the process like wavelength tunability, high power generation at high repetition rates. +Diode Pumped Solid State Green Lasers with ~3GHz line width in multi-mode operation are used to pump the dye lasers. +The temporal delays between the pulses from the three lasers were arranged to ensure their sequential arrival in the interaction region with delay of several ns. +We believe QE technology is superior to AVLIS with optimized spectroscopy utilization and superior laser beam shaping. +The key advantages include: +• +high selectivity, +• +suitability for vaporized metals, +• +relatively low capital cost, and +• +modular design which limits scalability risk. +Nuclear Medicine +Nuclear medicine is a medical specialty that utilizes radioactive isotopes, referred to as radionuclides, to diagnose and treat disease. These radionuclides are incorporated into radiopharmaceuticals and introduced into the body by injection, swallowing, or inhalation. Physiologic/metabolic processes in the body concentrate the tracers in specific tissues and organs; the radioactive emissions from the tracers can be used to noninvasively image these processes or kill cells in regions where radionuclides have concentrated. +Other types of noninvasive diagnostic procedures — for example, computed tomography (“CT”) and magnetic resonance imaging (MRI) — can detect anatomical changes in tissues and organs as the result of disease. Nuclear medicine procedures can often detect the physiological and metabolic changes associated with disease before any anatomical changes occur. Such procedures can be used to identify disease at early stages and evaluate patients’ early responses to therapeutic interventions. +Single Photon Emission Computed Tomography (“SPECT”) generates three-dimensional (“3D”) images of tissues and organs using radionuclides that emit gamma rays; the most used radionuclide is Technitium-99m (“Tc-99m”), often referred to as the ‘work-horse’ of nuclear medicine. Individual gamma rays emitted from the decay of these radionuclides (i.e., single photon emissions) are detected using a gamma camera. This camera technology is used to obtain two-dimensional (“2D”) images; 3D SPECT images are computer generated from many 2D images recorded at different angles. +19 +Positron Emission Tomography (“PET”) generates 3D images of tissues and organs using tracers that emit positrons (i.e., positive electrons): for example, fluorine-18 (“F-18”). Annihilation reactions between the positrons from these radionuclides and electrons present in tissues and organs produce photons. (Two photons are emitted simultaneously for each annihilation reaction and essentially travel in opposite directions.) The photon pairs are detected with a camera having a ring of very fast detectors and electronics. PET images generally have a higher contrast and spatial resolution than do SPECT images. However, PET equipment is more expensive and therefore not as widely available as SPECT equipment. Additionally, most PET tracers have short half-lives (e.g., Nitrogen-13: 10 minutes, Carbon-11: 20 minutes, and F-18: 110 minutes), so they must be produced close to their point of use. +Radionuclide therapy can be used to treat conditions such as hyperthyroidism, thyroid cancer, prostate cancer, skin cancer and blood disorders. In nuclear medicine therapy, the radiation treatment dose is administered internally (e.g. intravenous or oral routes) or externally direct above the area to treat in form of a compound (e.g. in case of skin cancer). The radiopharmaceuticals used in nuclear medicine therapy emit ionizing radiation that travels only a short distance, thereby minimizing unwanted side effects and damage to noninvolved organs or nearby structures. Most nuclear medicine therapies can be performed as outpatient procedures since there are few side effects from the treatment and the radiation exposure to the general public can be kept within a safe limit. +ASP Technology for Carbon-14 Enrichment +C-14 is a radioactive isotope of carbon with a half-life of 5,700 years that has a natural abundance of 1 part per trillion. The different isotopes of carbon do not differ appreciably in their chemical properties. This resemblance is used in chemical and biological research, in a technique called carbon labeling: C-14 atoms can be used to replace nonradioactive carbon, in order to trace chemical and biochemical reactions involving carbon atoms from any given organic compound. +C-14 could be obtained from waste by-products in certain nuclear reactors. In June 2023, we entered into a multi-year supply agreement with a Canadian Customer for the supply of C-14, which will be produced from our facility that was completed in March 2023. The customer agreed to supply C-14 in the form of carbon dioxide gas as feedstock. We will then convert the carbon dioxide gas into methane under a chemical converting contract entered in June 2023. We will then enrich the methane to greater than 85% C-14 under a tolling agreement, also entered in June 2023. Finally, we will convert the enriched methane back into enriched carbon dioxide under a chemical converting contract. We have received an initial supply of feedstock from our customer and have started the enrichment of C-14. The tolling agreement has a minimum “take or pay” amount of approximately $2.5 million per year, supported by a bank letter of guarantee. In September 2023, we entered into a Memorandum of Understanding with the same customer to separate Deuterium and Tritium currently stored at nuclear sites within Canada. The timing and commercial implications of this Memorandum of Understanding are subject to future agreement between the parties. +ASP Technology for Silicon-28 Enrichment +Si-28 is a stable isotope of silicon. Isotopically enriched Si-28 is regarded as an ideal host material for semiconducting quantum computing due to the lack of Si-29 nuclear spins. The presence of Si-29 in concentrations above 500 parts per million (ppm) (0.05%) prevents effective performance. The lower the concentration of Si-29, the better a silicon quantum processor will perform in terms of computational power, accuracy and reliability. Unlike traditional centrifuges, which are suited to enriching gases with a high molecular mass, ASP technology is highly suited to enriching gases with a low molecular mass such as silane (SiH4), a gaseous compound that contains silicon. +Quantum computers are expected to be thousands or millions of times more powerful than the most advanced of today’s conventional computers, opening new frontiers and opportunities in many industries, including medicine, artificial intelligence, cybersecurity, global logistics and global financial systems. +We have entered into three purchase agreements for highly enriched Si-28. The first is with a U.S. semiconductor company. The second is with a global industrial gas company. The third is with a large U.S. buyer. +QE Technology for Ytterbium-176 Enrichment +Yb-176 is a stable isotope of ytterbium, that is commonly used to produce Lutetium-177 (“Lu-177”). Lu-177 is a medical isotope used in targeted radionuclide therapy for treating neuroendocrine tumors and prostate cancer. Lu-177 is a medium energy beta emitter (Eβ = 0.149 keV). It is quite damaging, but only deposits its energy within a short range, decreasing collateral damaging effects to normal tissues. It has a half-life of 6.7 days and is compatible with various targeting agents, ranging from short peptides to large biomolecules. The half-life also allows for transport over longer distances and on-site preparation of pharmaceuticals. +20 +Lu-177 can be produced in two ways, either directly by irradiation of lutetium-176 (“Lu-176”) or indirectly by irradiation of Yb-176. The irradiation of Lu-176 leads directly to Lu-177, while irradiation of Yb-176 will lead to the production of the short-lived intermediate radioisotope ytterbium-177 (“Yb-177”), which decays to Lu-177. +Using the direct method in which Lu-176 is irradiated, the Lu-177 is produced in a matrix (‘carrier’) of Lu-176, because only part of the Lu-176 is converted to Lu-177. This form of Lu-177 is called carried added. Also, the direct method leads to small amounts of the radioactive impurity Lu-177m. This lowers the radionuclide purity of Lu-177 and complicates the radiation protection and disposal of Lu-177 waste in hospitals. +The advantage of the direct production route is that it can create Lu-177 in high quantities by irradiating as little as 1 mg of Lu-176. On the other hand, the desired Lu-177 cannot be chemically isolated from the target material Lu-176, as they are isotopes of the same element. This is problematic as the lutetium administered to the patient should preferably only contain the ‘useful’ Lu-177. If it contains largely ‘useless’ Lu-176, the effectiveness of the treatment will diminish. +The indirect method, where Yb-176 is irradiated, does not generate this extra isotope. The Lu-177 is produced in a matrix of ytterbium, which is separated from the lutetium by a chemical process after irradiation. Therefore, it leads to Lu-177 no carrier added. In the indirect production route, Lu-177 differs from the target material Yb-176 and can be isolated chemically in no carrier added form. +QE Technology for Uranium Enrichment +We believe our QE technology is capable of enriching Uranium, which we may be able to commercialize as a nuclear fuel component for use in the new generation of HALEU-fueled small modular reactors that are now under development for commercial and government uses. +Uranium is a naturally occurring element and is mined from deposits located in Kazakhstan, Canada, Australia, and several other countries including the United States. According to the World Nuclear Association (“WNA”), there are adequate measured resources of natural uranium to fuel nuclear power at current usage rates for about 90 years. In its natural state, uranium is principally comprised of two isotopes: U-235 and U-238. The concentration of U-235 in natural uranium is only 0.711% by weight. Most commercial nuclear power reactors require Low Enriched Uranium (“LEU”) fuel which has a U-235 concentration greater than natural uranium and up to 5% by weight. Future reactor designs currently under development will likely require higher U-235 concentration levels of greater than 5% and below 20% (referred to as HALEU – High Assay Low Enriched Uranium). Uranium enrichment is the process by which the concentration of U-235 is increased (see discussion on HALEU demand below). +Separative work units (“SWU”) is a standard unit of measurement that represents the effort required to transform a given amount of natural uranium into two components: enriched uranium having a higher percentage of U-235 and depleted uranium having a lower percentage of U-235. The SWU contained in LEU is calculated using an industry standard formula based on the physics of enrichment. The amount of enrichment deemed to be contained in LEU under this formula is commonly referred to as its SWU component and the quantity of natural uranium deemed to be contained in LEU under this formula is referred to as its uranium or “feed” component. Currently, it is fairly common practice to purchase both the SWU and uranium components of LEU from the enrichment company. Therefore, LEU prices typically consist of three components: SWU, Conversion and uranium ore concentrate. +The following outlines the steps for converting natural uranium into LEU fuel, commonly known as the nuclear fuel cycle: +• +Mining and Milling . Natural, or unenriched, uranium is removed from the earth in the form of ore and then crushed and concentrated. +• +Conversion . Uranium ore concentrates (“UO”) are combined with fluorine gas to produce uranium hexafluoride (“UF”), a solid at room temperature and a gas when heated. UF is shipped to an enrichment plant. +• +Enrichment . UF is enriched in a process that increases the concentration of the U isotope in the UF from its natural state of 0.711% up to 5%, or LEU, which is usable as a fuel for current light water commercial nuclear power reactors. Future commercial reactor designs may use uranium enriched up to 20% U-235, or HALEU. +• +Fuel Fabrication . LEU is then converted to uranium oxide and formed into small ceramic pellets by fabricators. The pellets are loaded into metal tubes that form fuel assemblies, which are shipped to nuclear power plants. As the advanced reactor market develops, HALEU may be converted to uranium oxide, metal, chloride or fluoride salts, or other forms and loaded into a variety of fuel assembly types optimized for the specific reactor design. +• +Nuclear Power Plant . The fuel assemblies are loaded into nuclear reactors to create energy from a controlled chain reaction. Nuclear power plants generate approximately 20% of U.S. electricity and 10% of the world’s electricity. +21 +• +Used Fuel Storage . After the nuclear fuel has been in a reactor for several years, its efficiency is reduced and the assembly is removed from the reactor’s core. The used fuel is warm and radioactive and is kept in a deep pool of water for several years. Many utilities have elected to then move the used fuel into steel or concrete and steel casks for interim storage. +The World is Transitioning to Newer Smaller Reactors +As the world transitions to a decarbonized electric grid, society is gradually decreasing its reliance on fossil fuels and increasing its reliance on “clean energy.” There appears to be bipartisan support for the growth of nuclear energy. Nuclear power, through the operating light water reactor fleet and the deployment of advanced reactors, is poised to be an increasing contributor to carbon-free energy in the U.S. and internationally. The United States leads the world in technology innovation with more developers of advanced reactors than any other country. +SMRs are advanced nuclear reactors that have a power capacity of up to 300 MW(e) per unit, which is about one-third of the generating capacity of traditional nuclear power reactors. SMRs, which can produce a large amount of low-carbon electricity, are: +• +Small — physically a fraction of the size of a conventional nuclear power reactor. +• +Modular — making it possible for systems and components to be factory-assembled and transported as a unit to a location for installation. +• +Reactors — harnessing nuclear fission to generate heat to produce energy. +Many of the benefits of SMRs are inherently linked to the nature of their design — small and modular. Given their smaller footprint, SMRs can be sited on locations not suitable for larger nuclear power plants. Prefabricated units of SMRs can be manufactured and then shipped and installed on site, making them more affordable to build than large power reactors, which are often custom designed for a particular location, sometimes leading to construction delays. SMRs offer savings in cost and construction time, and they can be deployed incrementally to match increasing energy demand. +In comparison to existing reactors, proposed SMR designs are generally simpler, and the safety concept for SMRs often relies more on passive systems and inherent safety characteristics of the reactor, such as low power and operating pressure. This means that in such cases no human intervention or external power or force is required to shut down systems, because passive systems rely on physical phenomena, such as natural circulation, convection, gravity and self-pressurization. These increased safety margins, in some cases, eliminate or significantly lower the potential for unsafe releases of radioactivity to the environment and the public in case of an accident. +SMRs have reduced fuel requirements. Power plants based on SMRs may require less frequent refueling, every 3 to 7 years, in comparison to between 1 and 2 years for conventional plants. Some SMRs are designed to operate for up to 30 years without refueling. SMRs are under construction or in the licensing stage in many countries including Argentina, Canada, China, Russia, South Korea and the United States of America. +Within the last five years significant legislation supporting the development and deployment of advanced reactors has been enacted: the Nuclear Innovation and Modernization Act, the Nuclear Energy Innovation and Capabilities Act, the Energy Act of 2020 and the Infrastructure Investment and Jobs Act. In addition, Congress established and funded the Advanced Reactor Demonstration Program which now supports two advanced reactor demonstrations to be deployed within seven years and eight other advanced reactor projects. +SMRs will require a different grade of enriched Uranium +Many advanced reactors, including the majority of the Advanced Reactor Demonstration Program awardees, will require HALEU, and fuel forms very different from those manufactured for the current Light Water Reactors (LWRs). For example, the current generation of LWRs uses fuel enriched to less than 5% U-235. In contrast, many advanced non-LWR designs require enrichments between 5% and 20% with most above 10%. +Currently it is not possible to purchase HALEU between 10% and 20% from a commercial enricher in the United States. In the U.S., the infrastructure for the front-end of the fuel cycle for the utilization of low enriched uranium up to 5% U-235 is well defined. The U.S. has mining, conversion, enrichment, fabrication, and transportation capability. However, the infrastructure for producing and utilizing HALEU, in particular enrichments above 10%, is not established in the U.S. The mining and conversion infrastructure are common to all enrichment levels. +22 +In 2020, the DOE selected two companies for awards under the Advanced Reactor Demonstration Program (ARDP) Pathway 1: Advanced Reactor Demonstrations. Both reactor designs require HALEU and can be operational in about seven years. Today, it is estimated that the companies selected for the demonstration pathway will require HALEU for their reactors beginning in the late 2020's to support fuel fabrication ahead of reactor startup. In addition, one of the companies under Pathway 2: Risk Reduction for Future Demonstrations will require HALEU in the 2026-2027 timeframe and other companies in Pathway 2 and 3 of the ARDP will also require HALEU. Privately funded companies are also working to deploy HALEU fueled reactors by the mid-2020s. +The Nuclear Energy Institute ("NEI") believes that it is virtually impossible for HALEU to be provided to these companies in the needed quantities and timeframes from DOE inventories or commercial enrichers located in the U.S or Western Europe. Therefore, acquiring HALEU from other international suppliers will be required in the near term to support the larger goal of deploying advanced reactors in the U.S. in a timely manner. Deploying these reactors before 2030 will support climate goals and position the U.S. to be a strong exporter of advanced reactor technology. Per the recent NEI white paper, a robust domestic HALEU infrastructure is necessary to support both the domestic deployment of advanced reactors and the export of U.S. advanced reactor technologies requiring HALEU. +In a letter to the DOE captioned “Updated Need for High-Assay Low Enriched Uranium” dated December 20, 2021, the NEI provided an estimate of what U.S. HALEU demand may be during the next 15 years by companies denoted A to J: +Estimated Annual Requirements for High Assay Low Enriched Uranium to 2035 (MTU/yr) +Company +A +B +C +D +E +F +G +H +I +J +Total +Cumulative +Year +2022 +0.1 +0.4 +0.2 +1.1 +0.0 +1.8 +1.8 +2023 +0.1 +3.1 +4.4 +0.1 +7.7 +9.5 +2024 +1.0 +5.6 +0.2 +3.0 +1.5 +6.6 +0.1 +18.0 +27.5 +2025 +1.0 +3.8 +0.4 +3.0 +5.0 +11.0 +1.6 +25.8 +53.3 +2026 +1.0 +15.1 +4.9 +10.0 +2.0 +24.2 +13.2 +1.7 +72.1 +125.4 +2027 +1.0 +26.5 +7.9 +4.0 +24.2 +13.2 +1.9 +78.7 +204.1 +2028 +1.0 +37.8 +16.6 +13.0 +23.0 +24.2 +13.2 +2.0 +130.8 +334.9 +2029 +1.0 +26.3 +1.8 +30.5 +17.0 +18.0 +14.0 +24.2 +16.5 +2.4 +151.7 +486.6 +2030 +1.0 +34.4 +1.8 +40.4 +46.0 +18.0 +30.0 +24.2 +16.5 +2.7 +215.0 +701.6 +2031 +23.0 +42.5 +6.2 +53.0 +29.0 +22.0 +33.0 +24.2 +16.5 +2.9 +252.3 +954.0 +2032 +35.0 +52.9 +12.5 +67.6 +46.0 +40.0 +50.0 +48.4 +19.8 +3.1 +375.3 +1,329.2 +2033 +47.0 +63.5 +32.2 +82.1 +46.0 +32.0 +80.0 +48.4 +19.8 +3.2 +454.2 +1,783.4 +2034 +58.0 +76.1 +62.4 +96.7 +46.0 +36.0 +80.0 +48.4 +19.8 +3.7 +527.1 +2,310.5 +2035 +70.0 +90.9 +96. +112.4 +91.0 +29.0 +50.0 +48.4 +22.0 +4.1 +613.8 +2,924.3 +Notes: +• +The material needs listed above are in metric tons of uranium per year and are a small amount compared to the approximately 2000 MTU used annually by the existing fleet of reactors. +• +The material needs listed above include enrichments between 10.9% and 19.75% U-235. +• +The year the material is needed is for fuel fabrication. Insertion in the reactor and reactor operations will occur in a later year. +• +The material needs that are less than 1 MTU/year are for irradiation samples, lead test rods and lead test fuel assemblies. +• +The material needs represent a few scenarios +o +The deployment of an advanced fuel design for the existing fleet of light-water reactors. +o +The deployment of multiple reactors of the same design that will not require refueling for many years. +o +The deployment of reactors that have annual refueling requirements. +• +These reactors include a range of sizes from a few Megawatt electric to 100s of Megawatt electric. +• +The data above does not include utilities that are considering enrichment between 5% and 10%. +23 +QE Technology is ideally suited to the production of HALEU +We believe that we are in a very different position compared to many of the entrenched domestic and international enrichers. Our innovative isotope enrichment process has a number of advantages over traditional gas centrifuges and other novel approaches currently being explored by other companies: cheaper in capital expenditures, faster in construction, more flexible in design and location. +We estimate that the capital cost of constructing a QE technology plant for uranium enrichment is approximately 75% cheaper than that of a traditional gas centrifuge enrichment facility. Our manufacturing plants are modular, so our construction time is likely faster and more flexible than competing technologies. Our enrichment facilities are smaller than traditional gas centrifuges which means we can place them near fuel fabrication facilities for enhanced security of production and transportation. Our operating costs of enriching uranium to 15.5% - 19.75% U-235 should be comparable to or cheaper than costs for other methods of uranium enrichment. +The table below represents management’s estimated comparison of the QE technology with a traditional gas centrifuge. +QE Technology Plant +Gas Centrifuge +Separation mechanism +Enhanced resonant multiphoton ionization +Differential diffusion +Capital Cost per plant +<$100 million +>$800 million +Energy use (kWh) per SWU +<40 +50-240 +Construction time +2-3 years +2-3 years +Levelized cost per SWU* +<$50 +$140 +* for enrichment from 0.71% U235 to 5% U235 +We have completed the commissioning phase and producing commercial samples at our Yb-176 enrichment facility using the QE technology in Pretoria, South Africa. This plant will provide us with valuable experience in the construction of QE technology facilities in the future. Many of the control systems, compressors, lasers and hardware used in a uranium enrichment facility would be similar to parts used in this Yb-176 enrichment facility. +We expect the construction of a Uranium Enrichment facility would take approximately 30 months and the production volume would gradually ramp up to the final capacity of 20 metric tons per year. Importantly, subject to licensure, we believe we can produce quantities of HALEU by 2027 for fuel testing and evaluation by developers of SMRs and other advanced reactors currently in development. We believe that we can supply HALEU at a price lower than the HALEU currently imported from international enrichers and considerably lower than any potential domestic supply that may evolve. In the period since our inception to date, we have not applied our enrichment technologies to the enrichment of U-235, nor received permission or regulatory approval to conduct testing of our enrichment technologies on uranium, except for the activities contemplated by the Services Contract with Necsa. Our expectation that QLE’s initiative to apply our enrichment technologies to the enrichment of uranium could be successful is based upon research conducted by certain of our scientists prior to joining the company, as well as the demonstrated effectiveness of QE technology on Yb-176. +Intellectual Property +Our business will depend on our proprietary ASP technology and QE technology. Enrichment is among the most sensitive nuclear technologies because it can produce weapons-grade materials, and our technology is highly controlled and subject to limitations on public disclosure or export. We believe patent protection in the United States for such sensitive nuclear technology developed in South Africa would be unusual, if even possible. To date, we have relied exclusively on trade secrets and other intellectual property laws, non-disclosure agreements with our respective employees, consultants, vendors, potential customers and other relevant persons and other measures to protect our intellectual property, and intend to continue to rely on these and other means. As we transition into the commercialization of isotopes, we envision our intellectual property and its security becoming more vital to our future. Pursuing patent protection remains part of the intellectual property protection philosophy and strategy and the advisability of establishing provisional patent rights is continuously assessed on a case-by-case basis in respect of both conceptual aspects and the specific applications thereof. Such assessments are made in consultation with regulatory bodies and with due consideration to the prospects of successfully obtaining patent protection in light of any disclosure constraints that are imposed by such bodies. To date, we have not determined that patent protection is appropriate or viable in light of these considerations. +Regulatory Environment +We are subject to a variety of laws and regulations, including but not limited to those of the United States and South Africa, that impose regulatory systems that govern many aspects of our operations, including our research and development activities +24 +involving the enrichment of isotopes in South Africa. In addition, these jurisdictions impose trade controls requirements that restrict trade to comply with applicable export controls and economic sanctions laws and requirements, and legal requirements that are intended to curtail bribery and corruption. +There are a number of regulators and treaties that govern and control our business and industry. The two principal ones that control and regulate the manufacturing of isotopes at our isotope enrichment facility in South Africa are the IAEA and the Nuclear Non-Proliferation Treaty (Treaty on Non-Proliferation of Nuclear Weapons) (“NPT"). +The IAEA is an international organization that seeks to promote the peaceful use of nuclear energy, and to inhibit its use for any military purpose, including nuclear weapons. The IAEA was established as an autonomous organization on July 29, 1957. Though established independently of the United Nations through its own international treaty, the IAEA Statute, the IAEA reports to both the United Nations General Assembly and Security Council. The IAEA statute currently has 173 member states, including South Africa. +The IAEA is authorized to conclude agreements with member states, in terms of which agreements the agency would perform certain functions and the relevant member states would be placed under certain obligations. The IAEA has concluded an extensive suite of agreements with South Africa. These agreements can be viewed on the website of the IAEA ( https://www.iaea.org/resources/legal/country-factsheets ) and include agreements that govern the physical protection of nuclear material, the notification of nuclear accidents, assistance in the case of nuclear accidents, nuclear safety, civil liability, and technical cooperation. +The NPT is an international treaty whose objective is to prevent the spread of nuclear weapons and weapons technology, to promote cooperation in the peaceful uses of nuclear energy, and to further the goal of achieving nuclear disarmament and general and complete disarmament. Our South African subsidiary is registered with the South African Council for the Non-Proliferation of Weapons of Mass Destruction in terms of the Non-Proliferation of Weapons of Mass Destruction Act, 1993. Representatives from the South African Council for the Non-Proliferation of Weapons of Mass Destruction regularly inspect our isotope enrichment facility and conduct tests to monitor the activities that are taking place at our isotope enrichment and production facilities. +In South Africa, government Notice 493 relates to nuclear-related dual-use equipment, materials and software and related technologies which can be used in their entirety or in part for the separation of uranium isotopes. ASP technology is classified as a dual use technology under the protocols of the IAEA and, as such, is subject to the controls that are implemented under these protocols. These controls comprise requirements that include: +• +membership of the IAEA and adherence to its protocols; +• +membership of the Nuclear Suppliers Group (NSG) and adherence to its protocols; +• +agreement to an “additional protocol” in light of uranium enrichment capabilities; +• +local laws that require permits for possession, operation and commercialization and regular reporting; +• +ad hoc inspections by the IAEA on 24 hour and in some cases 2 hours pre-warning; +• +requirement for proposed patent applications to be approved at ministerial level; and +• +cross-border technology transfer to be handled by the respective governments and approved by IAEA. +These regulations place strict limitations on what we can and cannot do. Security measures at our production facility and our offices are stringent. Access to our manufacturing plants are highly controlled. All employees and all visitors to the manufacturing plant are pre-screened by the South African Council for the Non-Proliferation of Weapons of Mass Destruction before being allowed employment or entry into the facility. Some of our suppliers also need to be registered with the South African Council for the Non-Proliferation of Weapons of Mass Destruction. Many of our computer systems are not connected to the external internet and confidential information is secured at a controlled location. +Some of our future isotopes may be regulated by healthcare regulators such as the U.S. Food and Drug Administration (“FDA”) in the USA, Health Canada in Canada, the European Medicines Agency (“EMA”) in Europe and similar regulators in other countries. +U.S. laws restrict the ability of U.S. companies, U.S. citizens and U.S. permanent residents, or U.S. persons, from involvement in certain types of transactions with countries, businesses and individuals that have been targeted by U.S. economic sanctions. For example, U.S. persons are precluded from undertaking virtually any activity of any kind on the part of any U.S. person with regard to any potential or actual transactions involving Cuba, Iran and Sudan without the prior approval of the U.S. Department of Treasury’s Office of Foreign Assets Control, or OFAC. OFAC also administers U.S. sanctions against a lengthy list of entities and +25 +individuals, wherever they may be located, that the United States considers to be closely associated with these sanctioned countries or that are considered terrorists or traffickers in either narcotics or weapons of mass destruction. Furthermore, U.S. economic sanctions forbid U.S. persons from circumventing direct U.S. restrictions or from facilitating transactions by non-U.S. persons if those activities are forbidden to U.S. persons. Penalties for violating provisions such as these can include significant civil and criminal fines, imprisonment and loss of tax credits or export privileges. +The Foreign Corrupt Practices Act of 1977, or the FCPA, as amended by the Omnibus Trade and Competitiveness Act of 1988 and the International Anti-Bribery and Fair Competition Act of 1998, makes it a criminal offense for a U.S. corporation or other U.S. domestic concern to make payments, gifts or give anything of value directly or indirectly to foreign officials for the purpose of obtaining or retaining business, or to obtain any other unfair or improper advantage. In addition, the FCPA imposes accounting standards and requirements on publicly traded U.S. corporations and their foreign affiliates, which are intended to prevent the diversion of corporate funds to the payment of bribes and other improper payments, and to prevent the establishment of “off books” slush funds from which such improper payments can be made. We are also subject to laws and regulations covering subject matter similar to that of the FCPA that have been enacted by countries outside of the United States. For example, the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions was signed by the members of the Organization for Economic Cooperation and Development and certain other countries in December 1997. The Convention requires each signatory to enact legislation that prohibits local persons and firms from making payments to foreign officials for the purpose of obtaining business or securing other unfair advantages from foreign governments. Failure to comply with these laws could subject us to, among other things, penalties and legal expenses, which could harm our reputation and have a material adverse effect on our business, financial condition and results of operations. +Compliance with the myriad of export control laws of the various jurisdictions in which we do business is a challenge for any company involved in export activities within the nuclear and defense end markets. We have compliance systems in our U.S. and non-U.S. subsidiaries to identify those products and technologies that are subject to export control regulatory restrictions and, where required, we obtain authorization from relevant regulatory authorities for sales to foreign buyers or for technology transfers to foreign consultants, companies, universities or foreign national employees. We also have a compliance system that is intended to proactively address potential compliance issues including those related to export control, trade sanctions and embargoes, as well as anti-bribery situations, and we are implementing this through such mechanisms as training, formalizing contracting processes, performing diligence on agents and continuing to improve our record-keeping and auditing practices with respect to third-party relationships and otherwise. Thus far, as part of our compliance system, for instance, we have developed a Code of Ethics and Conduct that informs all of our employees of their compliance obligations. Furthermore, we have developed an ethics and conduct training program that all of our employees are required to undertake, as well as other targeted compliance training relevant to their position, such as specific FCPA training for all of our worldwide senior employees. Violations of any of the various U.S. or non-U.S. export control laws can result in significant civil or criminal penalties, or even loss of export privileges, as mentioned above. We recognize that an effective compliance program can help protect the reputation and relationship of a regulated company with the regulatory agencies administering these laws and regulations. In the United States, each of the regulatory agencies administering these laws and regulations has a voluntary disclosure program that offers the possibility of significantly reduced penalties, if any are applicable, and we intend to use these programs as part of our overall compliance program, as necessary. +Employees +As of December 31, 2025, we employed 271 people on a full-time basis. Of the total employees, 21 employees are in research and development, 122 employees are in engineering, construction and manufacturing, 54 employees are in plant operations and 74 employees are in general management. None of our employees are subject to collective bargaining agreements. We consider our relationship with our employees to be good. +Facilities +Our headquarters is located in leased offices in Dallas, Texas. We lease facilities in Pretoria, South Africa and Hong Kong for production, research and development and offices. One leases have terms that expire between September 30, 2026 and January 31, 2056. We believe that our existing facilities are adequate to meet our current needs. +Renergen has a lease for offices at Sandton Gate Office Park 7 Minerva Avenue, Glen Adrienne, Sandton, 2196 South Africa. Tetra4 owns land on two farm properties in the Free State. The total land size is 408.5897 hectares. +26 +Item 1A. Risk Factors +Investing in our common stock involves a high degree of risk. You should carefully consider the risk factors below together with the information contained elsewhere in this Annual Report on Form 10-K, including Part II, Item 8, “Financial Statements and Supplementary Data” and Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and in our other public filings in evaluating our business. Before you decide to invest in our common stock, you should consider carefully the risks described below, together with the other information contained in this Annual Report, including our financial statements and the related notes. We believe the risks described below are the risks that are material to us as of the date of this Annual Report. If any of the following risks actually occur, our business, financial condition, results of operations and future growth prospects could be materially and adversely affected. In these circumstances, the market price of our common stock could decline, and our stockholders may lose all or part of their investment. +Summary of Risk Factors +Our business is subject to numerous material and other risks and uncertainties, further described below, that you should be aware of in evaluating our business. These risks include, but are not limited to, the following: +Risks Related to Our Limited Operating History, Financial Position and Need for Additional Capital +• +We have incurred significant net losses since inception, and we expect to continue to incur significant net losses for the foreseeable future. +• +We also have a limited operating history, which may make it difficult to evaluate our prospects and likelihood of success. +• +Our business is dependent on our ability to recognize the anticipated benefits of acquisitions. +• +We currently have no sales attributable to enriched isotopes, but we expect to be heavily dependent on a few large customers to generate a majority of our revenues. +• +We will require substantial additional capital to finance our operations, which may not be available on acceptable terms, or at all. +Risks Related to the Development and Commercialization of Our Future Isotopes +• +We are continuing our research and development efforts for isotopes using the ASP technology and the QE technology. We may be unable to advance our future isotopes in development, obtain applicable regulatory approval and ultimately commercialize our future isotopes, or experience significant delays in doing so. +• +Our success depends on our future customers’ ability to successfully commercialize products that are produced from our isotopes, as well as our suppliers’ ability to provide us components as and when expected and at expected prices. +• +Even if the products that we or our customers may produce using the ASP technology receive regulatory approval, it may fail to achieve market acceptance by our target market of customers. +Risks Related to Regulatory Compliance +• +Our business is and could become subject to a wide variety of extensive and evolving laws and regulations. For example, if technology developed for the enrichment of isotopes can be applied to the creation or development of weapons-grade materials, then it may be considered “dual use” technology and be subject to limitations on public disclosure or export. +• +Our Exploration Rights and Production Right in South Africa could be altered, suspended, or canceled for a variety of reasons, including uncertainties associated with national and local legislation. +Risks Related to our Operations in South Africa +• +Our operations in South Africa could be disrupted for a variety of reasons, including economic, political or social instability, which could prevent us from completing our development activities or have a material adverse effect on our operations and profits. +Risks Related to Our Intellectual Property +• +Our and certain of Renergen’s intellectual property and other proprietary rights, products or processes is not protected through patents or formal copyright registration. As a result, we do not have the full benefit of patent or copyright laws to prevent others from replicating our technologies and we may be unable to adequately protect our intellectual property and proprietary rights and prevent others from making unauthorized use of our products and technology. +• +Our ASP technology and QE technology may be found to infringe third-party intellectual property rights. +27 +• +If we fail to comply with Renergen’s obligations under license or technology agreements with third parties, we may be required to pay damages and could lose license rights that are critical to Renergen’s business. +Risks Related to Our Business Operations, Employee Matters and Managing Growth +• +We will need to expand our organization, and we may experience difficulties in managing this growth. +• +Our international operations subject us to risks of doing business in foreign countries. +Risks Related to Ownership of Our Common Stock +• +Since our listing on the Nasdaq Capital Market in November 2022, there has been only a limited public market for our Common Stock and the price of our stock may be volatile. Additionally, if we are unable to maintain listing of our securities on Nasdaq or any stock exchange, our stock price could be adversely affected and the liquidity of our stock and our ability to obtain financing could be impaired. +• +We are an emerging growth company and a smaller reporting company, and the reduced reporting requirements applicable to such companies may make our Common Stock less attractive to investors. +General Risk Factors +• +We will incur significant increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives. +• +We have identified a material weakness in our internal control over financial reporting. If our remediation of this material weakness is not effective, or if we experience material weaknesses in the future or otherwise fail to implement and maintain an effective system of internal controls in the future, we may not be able to accurately report our financial condition or results of operations which may adversely affect investor confidence in us, and as a result, the value of our Common Stock. +• +We have been and could be in the future subject to securities class action litigation. +Risks Related to Quantum Leap Energy’s Business and Industry +• +QLE’s future success depends, in part, on target markets that are not yet, and may never be, established. Furthermore, even if QLE’s target markets grow as expected by our management team, our ability to penetrate these markets is uncertain. +• +Technological changes could render QLE’s technology uncompetitive or obsolete, which could prevent QLE from achieving market share and sales. Further, QLE may be unable to attract customers as quickly as expected, or at all, and competition from existing or new companies could cause QLE to experience downward pressure on prices, fewer customer orders, reduced margins, the inability to take advantage of new business opportunities, and the loss of market share. +Risks Related to the Expansion of the Virginia Gas Project +• +As we further expand Renergen’s current operations into Phase 2, we may face additional problems associated with natural gas exploration and development projects, including potential problems securing additional supporting authorizations, licenses and permits, as well as unforeseen difficulties, delays and costs in construction (including potential cost-overruns, if underlying assumptions prove to be inaccurate) and operation of Phase 2. +• +Managing a project as substantial in size as Phase 2 of the Virginia Gas Project requires sufficient technical, commercial and project management capacity. There can be no assurance that Renergen’s current management team has sufficient capacity, or that the project will operate as expected, incur costs within expected estimates, or that we will be able to obtain the necessary financing for Phase 2 in a timely manner and/or on acceptable terms, if at all. +Risks Related to Renergen’s Business +• +Renergen’s drilling results in South Africa may be more uncertain than drilling results in areas that are developed and have established production. Additionally, Renergen’s identified drilling locations are scheduled out over many years, making them susceptible to uncertainties that could materially alter the occurrence or timing of their drilling. +• +Natural gas prices are volatile. A sustained decline in natural gas prices could adversely affect our business, financial condition and results of operations. Further, we may be unable to obtain, maintain or renew permits, leases or licenses necessary for Renergen’s operations, the failure of which could impair our ability to conduct Renergen’s operations. +Risks Related to Renergen’s Indebtedness and Liquidity +• +The DFC Credit Facility Agreement and IDC Loan Agreement place operating restrictions on Renergen and create +28 +default risks. Further, we may not be able to generate sufficient cash to service all of Renergen’s indebtedness and may be forced to take other actions to satisfy Renergen’s obligations under applicable debt instruments, which may not be successful. +• +Renergen’s outstanding indebtedness under the IDC Loan Agreement bears interest at a variable rate, which makes us more vulnerable to increases in interest rates and could cause Renergen’s interest expense to increase and decrease cash available for operations and other purposes. +The material and other risks summarized above should be read together with the text of the full risk factors below and in the other information set forth in this Annual Report, including our consolidated financial statements and the related notes, as well as in other documents that we file with the SEC. If any such material and other risks and uncertainties actually occur, our business, prospects, financial condition and results of operations could be materially and adversely affected. The risks summarized above or described in full below are not the only risks that we face. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial may also materially adversely affect our business, prospects, financial condition and results of operations. +Risks Related to Our Limited Operating History, Financial Position and Need for Additional Capital +We have a very limited operating history, and we have incurred losses since our inception and anticipate that we will continue to incur significant losses for the foreseeable future. We may never generate any revenue attributable to sales of enriched isotopes or become profitable or, if we achieve profitability, we may not be able to sustain it. +We were incorporated in September 2021, and we have a very limited operating history upon which you can evaluate our business and prospects. Our operations to date have been primarily focused on acquiring assets, organizing and staffing our company, research and development activities, business planning, raising capital, and providing general and administrative support for these operations. We have not yet demonstrated the ability to produce commercial quantities of enriched isotopes using the ASP technology or QE technology nor an ability to overcome many of the risks and uncertainties frequently encountered by companies in the medical, technology and energy industries, including an ability to obtain applicable regulatory approvals, manufacture any isotopes at commercial scale, or conduct sales and marketing activities necessary for successful isotope commercialization. In addition, we have not yet sought any regulatory approval that may be necessary for application of isotopes that we may produce for the medical industry or the production of enriched U-235. Furthermore, Renergen’s LNG and helium extraction operations similarly have a limited financial and operating history. Renergen began producing LNG in September 2022 and has produced limited quantities of LNG to date. The selling and distribution of LNG began in November 2022. Helium commissioning and production was achieved in January 2023. Consequently, any predictions about our future performance may not be as accurate as they would be if we had a history of successfully developing and commercializing isotopes, and such predictions may differ materially from our actual results of operations and financial performance. +Investment in isotope enrichment technology is highly speculative because it entails substantial upfront capital expenditures and significant risk that any potential isotopes will fail to demonstrate adequate utility or effectiveness in the targeted application (or for medical indications, an acceptable safety profile), gain regulatory approval, if applicable, and become commercially viable. We have no products approved for commercial sale and have not generated any revenue to date attributable to isotopes (and only limited revenues attributable to PET Labs), and we continue to incur significant research and development and other expenses related to our ongoing operations. As a result, we are not profitable and have incurred losses since our inception in September 2021. For the years ended December 31, 2025 and 2024, we reported a net loss of $159.8 million and $32.4 million, respectively. As of December 31, 2025, we had an accumulated deficit of $231.3 million. +We expect to continue to incur significant losses for the foreseeable future, and we expect these losses to increase as we: +• +continue to invest in our research and development activities; +• +continue to develop Phase 2 of the Virginia Gas Project; +• +seek applicable regulatory approvals for any future isotopes that we may successfully develop; +• +experience any delays or encounter any issues with any of the above, including but not limited to failed research and development activities, safety issues, or other regulatory challenges; +• +hire additional engineering and production personnel and build our internal resources, including those related to audit, patent, other legal, regulatory and tax-related services associated with maintaining compliance with exchange listing and SEC requirements, director and officer insurance premiums and investor and public relations costs; +• +obtain, expand, maintain, enforce and protect our intellectual property portfolio; +29 +• +establish a sales, marketing and distribution infrastructure and establish manufacturing capabilities, whether alone or with third parties, to commercialize future isotopes (assuming receipt of applicable regulatory approvals), if any; and +• +operate as a public company. +We expect limited commercial activity for our isotopes in the United States during the next two to three years and we anticipate that most of our initial revenues from future sales of our specialty isotopes will be derived from countries in Asia and EMEA (Europe, Middle East and Africa). To become and remain profitable, we must succeed in developing and eventually commercializing enriched isotopes that generate significant revenue. This will require us to be successful in a range of challenging activities, including completing research and development activities relating to our ASP technology, obtaining applicable regulatory approval for future isotopes, if any, and manufacturing, marketing and selling any future isotopes (assuming receipt of applicable regulatory approvals). We are only in the preliminary stages of most of these activities. We may never succeed in these activities and, even if we do, may never generate revenues that are significant enough to achieve profitability. Because of the numerous risks and uncertainties associated with chemical isotopes separation, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would depress the value of our company and could impair our ability to raise capital, expand our business, maintain our research and development efforts, diversify our future isotopes or even continue our operations. A decline in the value of our company could also cause you to lose all or part of your investment. +Certain of our future prospects are tied directly to the end markets that use our isotopes including the diagnostic medical imaging industry and depend on our ability to successfully introduce our isotopes and adapt to a changing technology and medical practice landscape. +The field of diagnostic medical imaging is dynamic, with new products, including equipment, software and products, continually being developed and existing products continually being refined. New hardware (scanners), software or agents in a given diagnostic modality may be developed that provide benefits superior to the then-dominant hardware, software and agents in that modality, resulting in commercial displacement of the existing radiotracers. For example, alternate scanners and radiotracers could be introduced. Similarly, changing perceptions about comparative efficacy and safety, as well as changing availability of supply may favor one agent over another or one modality over another. In addition, new or revised appropriate use criteria developed by professional societies, to assist physicians and other health care providers in making appropriate imaging decisions for specific clinical conditions, can and have reduced the frequency of and demand for certain imaging modalities and imaging agents. Technological obsolescence in any of the medical imaging products that would use the specialty isotopes that we plan to manufacture could have a material adverse effect on our business, results of operations, financial condition and cash flows. +We may not realize the anticipated benefits of previous acquisitions. +Our success will depend in large part on the success of our management in integrating the acquired assets into our operations. In October 2021, our subsidiary in South Africa acquired the assets of Molybdos after participating in and being declared the winner of a competitive auction process under Section 45 of the South Africa Consumer Protection Act, 2008 for ZAR 11,000,000 (which at the then-current exchange rate was approximately $734,000), plus value added tax (VAT) levied by the government of South Africa at the rate of 15% and auctioneers’ commission at the rate of 10%. In July 2022, we acquired assets comprising a dormant Si-28 aerodynamic separation processing plant from Klydon located in Pretoria, South Africa for ZAR 6,000,000 (which at the then-current exchange rate was approximately $364,000). In addition, in April 2023, we perfected our interest under the Acknowledgement of Debt Agreement, under which we acquired specific intellectual property from Klydon. +In October 2023, we entered into a Share Purchase Agreement with Nucleonics Imaging Proprietary Limited, a company incorporated in South Africa, to purchase 51% of the ordinary shares (the “initial shares”) in Nucleonics’ wholly-owned subsidiary, PET Labs, a company incorporated in South Africa and dedicated to nuclear medicine and the science of radiopharmaceutical production. We agreed to pay a total of $2.0 million for the initial shares in two installments, which has been paid in full as of December 2025. In addition, we have an option to purchase the remaining 49% of the ordinary shares, exercisable until January 31, 2027, for $2,200,000. +In addition, in August 2025 QLE completed the acquisition of a controlling interest in Skyline and in January 2026, we acquired all of the issued and outstanding ordinary shares of Renergen. To date, we have completed the construction of one isotope enrichment facility, but we have not yet produced any commercial quantities of isotopes and we have not yet demonstrated the ability to produce any isotope in commercial quantities using ASP technology. Acquisitions generally create risks such as (i) the need to integrate and manage the businesses and products acquired with our own business and products; (ii) additional demands on our resources, systems, procedures and controls; (iii) disruption of our ongoing business; (iv) potential unknown or unquantifiable liabilities associated with the target company; and (v) diversion of management’s attention from other business concerns. We will not know whether the assets that we acquired will work according to our expectations or be successful in generating material +30 +revenue, income or other returns, and any resources we committed will not be available to us for other purposes. Our failure to achieve the integration of the acquired assets into the company and to commercialize the assets could result in our failure to realize the anticipated benefits of those acquisitions and could impair our results of operations, profitability and financial results. +We currently have no sales attributable to enriched isotopes, but we expect to be heavily dependent on a few large customers to generate a majority of our revenues. Our operating results could be adversely affected by a reduction in business with our future significant customers. +We currently have no sales attributable to enriched isotopes. However, we expect to rely on a limited number of customers to purchase any isotopes that we produce using the ASP or QE technologies under long-term contracts. Our future key customers may stop ordering our isotopes at any time or may become bankrupt or otherwise unable to pay. The loss of any of our future key customers could result in lower revenues than we anticipate and could harm our business, financial condition or results of operations. +We will require substantial additional capital to finance our operations, which may not be available on acceptable terms, or at all. Failure to obtain this necessary capital when needed may force us to delay, limit or terminate certain of our product development efforts or other operations. +We expect our expenses to increase substantially in connection with our ongoing and planned activities, particularly as we continue our research and development activities, seek applicable regulatory approvals for any future isotopes that we may successfully develop, expand our organization by hiring additional personnel, continue to integrate acquired assets into our company and continue the development of Phase 2 of the Virginia Gas Project. In addition, we expect to continue incurring significant costs associated with operating as a public company. +As of December 31, 2025, our cash and cash equivalents were approximately $285.6 million and short term investments were approximately $47.7 million. We believe, based on our current operating plan, that our existing cash and cash equivalents, proceeds from short-term investments, cash flow from operations, the IDC Debt Funding (defined below), the SBSA Loan (defined below), the DFC Credit Facility (defined below) and the conditionally approved senior secured debt facilities expected to be funded by the DFC and the Standard Bank of South Africa, will be sufficient to fund our operations for at least the next 12 months from the date the financial statements are issued and beyond. +As we pursue additional research and development activities related to our ASP technology and seek applicable regulatory approval of any future isotopes, and otherwise to support our continuing operations, including the development of Phase 2 of the Virginia Gas Project, we will require substantial additional capital to support our business operations. As an example, from our latest cost estimate we anticipate we will need to incur at least approximately $1.16 billion in costs (including borrowing costs and general corporate costs during construction) to complete Phase 2 of the Virginia Gas Project. See “—There can be no assurance that we will be able to obtain the necessary financing for Phase 2 in a timely manner and/or on acceptable terms, if at all.” In addition, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution (assuming receipt of applicable regulatory approvals for our future isotopes). Even if we believe we have sufficient capital for our current or future operating plans, we may seek additional capital if market conditions are favorable or if we have specific strategic considerations. Any additional capital raising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize our future isotopes (assuming receipt of applicable regulatory approvals) and Phase 2 of the Virginia Gas Project. +Additionally, as a result of increased interest rates, inflationary pressures, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability, the global credit and financial markets have experienced extreme volatility and disruptions, including severely diminished liquidity and credit availability. The financial markets and the global economy may also be adversely affected by the current or anticipated impact of military conflict. If the equity and credit markets deteriorate, it may make any necessary debt or equity financing more difficult, more costly or more dilutive. If we do not raise additional capital in sufficient amounts, we may be prevented from pursuing development and commercialization efforts, which will harm our business, operating results and prospects. +We are subject to credit counterparty risk which could have a material adverse effect on our business, results of operations, financial condition and cash flows. +We maintain cash balances at many financial institutions in multiple geographies. While the majority of cash balances are currently held in USD at U.S. financial institutions, our cash balances at those institutions may exceed the Federal Deposit Insurance Corporation insurance limit of $250,000 per depositor, per insured bank for each account ownership category. Our non-US banking counterparties might not have protections offered to their customers that are considered standard in the U.S. and even if such deposit insurances do exist, there is no guarantee that the insurer will honor those insurance policies. Although we currently believe that the financial institutions with whom we do business will be able to fulfill their commitments to us, there is no assurance that those +31 +institutions will be able to continue to do so. Any credit losses that may occur could have a material adverse effect on our business, results of operations, financial condition and cash flows. +Raising additional capital or acquiring or licensing assets by issuing equity or debt securities may cause dilution to our stockholders, and raising funds through lending and licensing arrangements may restrict our operations or require us to relinquish proprietary rights. +We may plan to seek additional capital through a combination of public and private equity offerings, debt financings, strategic partnerships and alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms may include liquidation or other preferences that adversely affect your rights as a stockholder. The incurrence of indebtedness would result in increased fixed payment obligations and could involve certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. If we raise additional capital through future collaborations, strategic alliances or third-party licensing arrangements, we may have to relinquish valuable rights to our intellectual property, future revenue streams, research programs or future isotopes, or grant licenses on terms that may not be favorable to us. +If we are unable to raise additional capital when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts, or grant rights to develop and market our future isotopes (assuming receipt of applicable regulatory approvals for our future isotopes), LNG and helium that we would otherwise develop and market ourselves. +Risks Related to the Development and Commercialization of Our Future Isotopes +We are continuing our research and development efforts for isotopes using the ASP technology and the QE technology. If we are unable to advance our future isotopes in development, obtain applicable regulatory approval and ultimately commercialize our future isotopes, or experience significant delays in doing so, our business will be materially harmed. +We are still conducting research and development efforts using ASP technology to produce a wide array of isotopes, and have not yet produced any isotope at commercial scale. It is possible that the research and development, proof-of-concept, construction of a plant and commercialization will take longer than anticipated due to unexpected delays. +We also plan to begin researching the enrichment of uranium, which is a chemical element we believe may have application in the clean, efficient and carbon-free energy industry, using QE technology. QE technology has never been used to produce isotopes at a commercial scale and the research that has been conducted using this technique has never been published. In the period since our inception to date, we have not applied our enrichment technologies to the enrichment of U-235, nor received permission or regulatory approval to conduct testing of our enrichment technologies on U-235, except for the activities contemplated by the Services Contract with Necsa. Our expectation that QLE’s initiative to apply our enrichment technologies to the enrichment of U-235 could be successful is based upon research conducted by certain of our scientists prior to joining the company, as well as the demonstrated effectiveness of QE technology on Yb-176. The IAEA has never inspected any facility that leverages this technology and there is no proof that this technology has ever been used to enrich uranium. There are significant regulatory hurdles associated with enabling our research and development efforts to enter the nuclear energy market. Multiple regulatory agencies need to provide approvals to allow us to proceed with the research and development necessary to show proof of concept to the market. If we demonstrate proof of concept, we anticipate that there will be further approvals needed to expand to a larger footprint to support commercial demand. We may not ever obtain these approvals. If we are unable to advance our future isotopes in development, obtain applicable regulatory approval and ultimately commercialize our future isotopes (assuming receipt of applicable regulatory approvals), or experience significant delays in doing so, our business will be materially harmed. +Our ability to generate product revenues will depend heavily on the success of our research and development activities, receipt of applicable regulatory approvals, and eventual commercialization of our future isotopes (assuming receipt of applicable regulatory approvals and compliance with all applicable regulatory authorities). +The success of our business, including our ability to finance our company and generate any revenue in the future, will primarily depend on the successful development, regulatory approval and commercialization of our currently planned future isotopes, which may never occur. +We will have to be successful in a range of challenging activities, including completing research and development activities relating to our enrichment technologies, obtaining applicable regulatory approval for future isotopes, if any, and manufacturing, marketing and selling any future isotopes (assuming receipt of applicable regulatory approvals). We are only in the preliminary +32 +stages of most of these activities. If we are unable to succeed in these activities, we may not be able to generate sufficient revenue to continue our business. +We rely on a limited number of suppliers to provide us components and a material interruption in supply could prevent or limit our ability to execute our strategic plan and development programs in the expected timeframe. +We depend upon a limited number of third-party suppliers for certain components required to construct the centrifuges and other equipment for the enrichment plants that are being constructed in South Africa. To date, we have been able to obtain the required components for our centrifuges without any significant delays or interruptions. If we lose any of these suppliers, or if such suppliers encounter difficulties in supplying us with the requisite components for our operations, we may be required to find and enter into supply arrangements with one or more replacement suppliers. Obtaining alternative sources of supply could involve significant delays and other costs, and these supply sources may not be available to us on reasonable terms or at all. Any disruption of supplies could delay completion and operations of the enrichment plants in South Africa, which could adversely affect our ability to execute our strategic plan and development programs in the expected timeframe. +Risks associated with the development of ASP technology for enrichment of isotopes could cause substantial delays in production of our future isotopes. +Prior to October 2021, as a company, we had no involvement with or control over the research and development of the ASP technology. We relied on Klydon to have conducted such research and development in accordance with the applicable legal, regulatory and scientific standards. If the research and development processes or the results of the development programs associated with the ASP technology for development of isotopes prove to be unreliable, this could result in increased costs and delays in the development of our future isotopes, which could adversely affect any future revenue from these future isotopes (assuming receipt of applicable regulatory approvals). +Regulatory approval for production and distribution of radiopharmaceuticals used for medical imaging and therapeutic treatments may involve a lengthy and expensive process with an uncertain outcome. +Currently, the sale or use of many stable isotopes is not regulated by a healthcare regulator, such as the FDA, EMA or comparable foreign regulatory authorities. However, many products that are produced from stable isotopes in a radiopharmacy, such as Mo-99, Tc-99, Lu-177 and Ga-68 are regulated by healthcare regulators. +Our future customers who may use our stable isotopes to produce radiopharmaceuticals will likely require regulatory approval for their products. The regulatory approval of products is not standardized between different regions. Obtaining regulatory approval is expensive and can take many years to complete, and its outcome is inherently uncertain. Our customers’ regulatory approval process may not be conducted as planned or completed on schedule, if at all, and failure can occur at any time during the process. +In the future, we may need to obtain approval from the FDA, EMA or comparable foreign regulatory authorities prior to the sale of stable isotopes that we may produce using our ASP technology or QE technology for use in medical imaging and therapeutic treatments. If we require FDA, EMA or other comparable foreign regulatory authorities to approve the sale of stable isotopes that we may produce using our ASP technology or QE technology for medical imaging and therapeutic treatments, we must demonstrate the safety and utility or efficacy of our stable isotopes. Obtaining regulatory approval is expensive and can take many years to complete, and its outcome is inherently uncertain. Our regulatory approval process may not be conducted as planned or completed on schedule, if at all, and failure can occur at any time during the process. +Other isotopes that we intend to produce in the future may also require approvals from healthcare regulators such as FDA, EMA or comparable foreign regulatory authorities. +Our success depends on our future customers’ ability to successfully commercialize products that are produced from our isotopes. +Our customers operate in a competitive environment. If our customers are unable to successfully commercialize products that they produce from our isotopes, our business will be negatively impacted. Our customers may fail for a number of reasons, including but not limited to pricing pressure from competing products and failure to gain regulatory approval for the production of their products from healthcare regulators. +Our success depends on our ability to adapt to a rapidly changing competitive environment in the nuclear industry. +The nuclear industry in general, and the nuclear fuel industry in particular, is in a period of significant change, which could significantly transform the competitive landscape we face. The uranium and isotope enrichment sector is competitive. Changes in +33 +the competitive landscape may adversely affect pricing trends, change customer spending patterns, or create uncertainty. To address these changes, we may seek to adjust our cost structure and efficiency of operations and evaluate opportunities to grow our business organically or through acquisitions and other strategic transactions. We are actively considering, and expect to consider from time to time in the future, potential strategic transactions, which could involve, without limitation, changes in our capital structure, acquisitions and/or dispositions of businesses or assets, joint ventures or investments in businesses, products or technologies. +In connection with any such transaction, we may seek additional debt or equity financing, contribute or dispose of assets, assume additional indebtedness, or partner with other parties to consummate a transaction. Any such transaction may not result in the intended benefits and could involve significant commitments of our financial and other resources. Legal and consulting costs incurred in connection with debt or equity financing transactions in development are deferred and subject to immediate expensing if such a transaction becomes less likely to occur. If the actions we take in response to industry changes are not successful, our business, results of operations and financial condition may be adversely affected. +We may explore strategic collaborations that may never materialize or may fail. +We intend to accelerate the development of our enriched uranium program by selectively collaborating with energy companies in the United States. We intend to retain significant technology, economic and commercial rights to our programs in key geographic areas that are core to our long-term strategy. As a result, we intend to periodically explore a variety of possible additional strategic collaborations in an effort to gain access to additional resources. At the current time, we cannot predict what form such a strategic collaboration might take. We are likely to face significant competition in seeking appropriate strategic collaborators, and negotiations are difficult and time-consuming. We may not be able to negotiate strategic collaborations on acceptable terms, or at all. We are unable to predict when, if ever, we will enter into any additional strategic collaborations because of the numerous risks and uncertainties associated with establishing them. +If the market opportunities for our future enriched isotopes are smaller than we estimate (even assuming receipt of any required regulatory approval), our business may suffer. +We are currently focused on producing enriched isotopes using our ASP technology to meet critical needs in society. We also plan to research the production of enriched uranium using QE technology to meet the future needs of developers of U.S. advanced reactor technologies requiring HALEU. Our projections of the potential markets are based on estimates that have been derived from a variety of sources, including scientific literature and market research, and which may prove to be incorrect. We must be able to successfully acquire a significant market share in our potential markets to achieve profitability and growth. Customers may become difficult to gain access to, which would adversely affect our results of operations and our business. +We face substantial competition, which may result in others discovering, developing or commercializing enriched isotopes before or more successfully than us. +The development and commercialization of radioisotopes and chemical elements is highly competitive. We face competition with respect to all the enriched isotopes that we may produce using our ASP technology from established biotechnology and nuclear medicine technology companies and will face competition with respect to enriched uranium that we may seek to develop or commercialize in the future from innovative technology and energy companies. There are a number of large biotechnology and nuclear medicine technology companies that currently market and sell radioisotopes to radiopharmacies, hospitals, clinics and others in the medical community (Mo-99 is the active ingredient for Tc-99m-based radiopharmaceuticals used in nuclear medicine procedures). There are also a number of technology and energy companies that are currently seeking to develop HALEU. Potential competitors also include academic institutions, government agencies and other public and private research organizations that conduct research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and commercialization. +More established companies may have a competitive advantage over us due to their greater size, resources and institutional experience. In particular, these companies have greater experience and expertise in securing reimbursement, government contracts, relationships with key opinion leaders, obtaining and maintaining regulatory approvals and distribution relationships to market products. These companies also have significantly greater research and marketing capabilities than we do. If we are not able to compete effectively against existing and potential competitors, our business and financial condition may be harmed. +As a result of these factors, our competitors may complete development of isotopes before we are able to, which may limit our ability to develop or commercialize our future isotopes. Our competitors may also develop radioisotopes or technologies that are safer, more effective, more widely accepted and cheaper than ours, and may also be more successful than us in manufacturing and marketing their isotopes. These appreciable advantages could render our future isotopes obsolete or non-competitive before we can recover the expenses of their development and commercialization. +34 +Mergers and acquisitions in the technology and energy industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller and other early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties compete with us in recruiting and retaining qualified scientific, management and commercial personnel, as well as in acquiring technologies complementary to, or necessary for, our programs. +Even if the products that we or our customers may produce using the ASP technology receive regulatory approval, they may fail to achieve market acceptance by radiopharmacies, hospitals, clinics or others in the medical community necessary for commercial success. +Even if the isotopes that we may produce using the ASP technology for the medical industry, or the radioisotopes that we expect our future customers to produce using the stable isotopes that we plan to offer, receives regulatory approval, the isotopes may fail to gain sufficient market acceptance by radiopharmacies, hospitals, clinics and others in the medical community. If it does not achieve an adequate level of acceptance, we may not generate significant product revenue and may not become profitable. The degree of market acceptance of isotopes that we may produce using the ASP technology, or the radioisotopes that our future customers may produce, will depend on a number of factors, including but not limited to: +• +the potential advantages compared to alternative radioisotopes; +• +the timing of market introduction of the product as well as competitive products; +• +effectiveness of sales and marketing efforts; +• +the strength of our relationships with radiopharmacies, hospitals, clinics and others in the medical community; +• +the cost in relation to alternative radioisotopes; +• +our ability to offer isotopes that we may produce using the ASP technology for sale at competitive prices; +• +the convenience and ease of use compared to alternative radioisotopes; +• +the willingness of radiopharmacies, hospitals, clinics and others in the medical community to try an innovative radioisotope; and +• +the strength of marketing and distribution support. +Our efforts to educate radiopharmacies, hospitals, clinics and others in the medical community on the benefits of our isotopes that we may produce using the ASP technology may require significant resources and may never be successful. +Because we expect sales of isotopes that we may produce using the ASP technology (assuming receipt of applicable regulatory approvals for commercial sale) to generate significant revenues for the foreseeable future, the failure of these isotopes that we may produce using the ASP technology (assuming receipt of applicable regulatory approvals for commercial sale) to find market acceptance would harm our business and could require us to seek additional financing. +We currently have no marketing and sales organization for our future isotopes and have no experience as a company in commercializing products, and we may have to invest significant resources to develop these capabilities. If we are unable to establish marketing and sales capabilities or enter into agreements with third parties to market and sell our products, we may not be able to generate product revenue. +We have no internal sales, marketing or distribution capabilities for our future isotopes, nor have we commercialized any isotopes. If the isotopes that we may produce using our ASP technology gain market acceptance and our customers receive regulatory approval for the isotopes they produce, we must build a marketing and sales organization with technical expertise and supporting distribution capabilities to commercialize such product in the markets that we target, which will be expensive and time-consuming, or collaborate with third parties that have direct sales forces and established distribution systems, either to augment our own sales force and distribution systems or in lieu of our own sales force and distribution systems. We currently plan to independently commercialize the isotopes that we may produce using our ASP technology (assuming receipt of applicable regulatory approvals) in the United States by establishing a focused sales force and marketing infrastructure. We may opportunistically seek additional strategic collaborations to maximize the commercial opportunities for our medical isotopes business outside of the United States. We have no prior experience as a company in the marketing, sale and distribution of isotopes and there are significant risks involved in building and managing a sales organization, including our ability to hire, retain and incentivize qualified individuals, generate sufficient sales leads, provide adequate training to sales and marketing personnel and effectively manage a geographically dispersed sales and marketing team. Any failure or delay in the development of our internal sales, marketing and distribution capabilities would adversely impact the commercialization of these products. We may not be able to enter into collaborations or hire consultants or external service providers to assist us in sales, marketing and distribution functions +35 +on acceptable financial terms, or at all. In addition, our product revenues and our profitability, if any, may be lower if we rely on third parties for these functions than if we were to market, sell and distribute any products that we develop ourselves. We likely will have little control over such third parties, and any of them may fail to devote the necessary resources and attention to sell and market our products effectively. If we are not successful in commercializing our isotopes, either on our own or through arrangements with one or more third parties, we may not be able to generate any future product revenue and we would incur significant additional losses. +Obtaining regulatory approval for the stable isotopes that we may produce using the ASP technology or the QE technology, or the radioisotopes that our future customers may produce using the stable isotopes that we plan to offer, in one jurisdiction does not mean that we or they will be successful in obtaining regulatory approval of such future products in other jurisdictions. +Currently, the production and distribution of stable isotopes does not require any regulatory licenses from healthcare regulators. Healthcare regulators frequently change such requirements, and it is possible that in the future stable isotopes may be regulated as a healthcare product. Obtaining such regulatory licenses, if required, may be a timely and costly process and could materially impact our ability to commercialize the stable isotopes that we plan to offer. Obtaining regulatory approval of the stable isotopes that we may produce using the ASP technology or QE technology in one jurisdiction does not guarantee that we will be able to obtain regulatory approval in any other jurisdiction. For example, even if the FDA grants regulatory approval of the stable isotopes that we may produce using the ASP technology or QE technology, comparable regulatory authorities in foreign jurisdictions must also approve the manufacturing, marketing and promotion and reimbursement of such future product in those countries. However, a failure or delay in obtaining regulatory approval in one jurisdiction may have a negative effect on the regulatory approval process in others. Approval procedures vary among jurisdictions and can involve requirements and administrative review periods different from those in the United States. +Obtaining foreign regulatory approvals and establishing and maintaining compliance with foreign regulatory requirements could result in significant delays, difficulties and costs for us and could delay or prevent the introduction of the stable isotopes that we may produce using the ASP technology or QE technology. Products such as Tc-99m, Mo-99, Lu-177 and Ga-68 that may be produced by our future customers using the stable isotopes that we plan to offer will likely require regulatory licenses in most regions. Healthcare regulators frequently change such requirements and it is unclear what each healthcare regulator will require. Obtaining such regulatory licenses, if required, may be a timely and costly process and could materially impact the ability of our future customers to operate and use the Mo-100 that we plan to offer. Obtaining regulatory approval in one jurisdiction does not guarantee that we or they will be able to obtain regulatory approval in any other jurisdiction. +If we or any future collaborator fail to comply with the regulatory requirements in international markets or fail to receive applicable marketing approvals, our target market will be reduced and our ability to realize the full market potential of the stable isotopes that we may produce using the ASP technology or QE technology will be harmed. +Product liability lawsuits against us could cause us to incur substantial liabilities and could limit commercialization of any isotopes that we may produce. +We face an inherent risk of product liability exposure if we commercialize any isotopes that we may produce. If we cannot successfully defend ourselves against claims that any such isotopes caused injuries, we could incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in: +• +decreased demand for any isotopes that we may produce; +• +loss of revenue; +• +substantial monetary awards to patients; +• +significant time and costs to defend the related litigation; +• +a diversion of management’s time and our resources; +• +initiation of investigations by regulators; +• +the inability to commercialize any isotopes that we may produce; +• +injury to our reputation and significant negative media attention; and +• +a decline in our share price. +Any product liability insurance coverage that we obtain and maintain may not be adequate to cover all liabilities that we may incur. We anticipate that we will need to increase our insurance coverage each time we commence a clinical trial and if we +36 +successfully commercialize any isotopes. Insurance coverage is increasingly expensive. We may not be able to obtain or maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise. +Risks Related to Regulatory Compliance +Our business is and could become subject to a wide variety of extensive and evolving laws and regulations. Failure to comply with such laws and regulations and failure to obtain licenses, approvals and permits that may be required to execute on our strategy and develop our company’s business could have a material adverse effect on our business. +We are subject to a wide variety of laws and regulations relating to various aspects of our business, including with respect to the development of the ASP technology and our future isotopes, development of the Virigina Gas Project and related LNG and Helium extraction and sales, employment and labor, health care, tax, privacy and data security, health and safety, and environmental issues. Laws and regulations at the South African and foreign, federal, state and local levels frequently change, especially in relation to new and emerging industries, and we cannot always reasonably predict the impact of, or the ultimate cost of compliance with, current or future regulatory or administrative changes. +In South Africa, our isotope enrichment facilities are heavily regulated. South Africa is a signatory to the IAEA conventions and has adopted safety standards from the IAEA. The design, construction and operation of the isotope enrichment plants are highly regulated and require government licenses, approvals and permits, and may be subject to the imposition of conditions. In some cases, these licenses, approvals and permits entail periodic review and inspections. While we and Klydon have received all licenses, approvals and permits required to build and operate our isotope enrichment facilities in South Africa, we cannot predict whether the conditions associated with such licenses, approvals and permits will be maintained. For example, each of Klydon and ASP Isotopes South Africa (Proprietary) Limited has received from the South African Council for The Non-Proliferation of Weapons of Mass Destruction (1) a registration certificate (which are valid for two years from the date of issuance) and (2) a Manufacturing and Services Permit. The permits provide that the Non-Proliferation Secretariat will conduct at least two industry visits in June and November (or as arranged) of every year. Each of the permits includes numerous conditions, including, for example, the obligation to keep the Council updated or informed on all separation projects at all times and at least through biannual declarations, which must be done through correspondence to the Council at the end of April and September every year. The permit issued to ASP Isotopes South Africa (Proprietary) Limited includes additional specific information requirements related to (i) the progress on the design and construction of the isotope separation plant, (ii) the progress on the manufacturing of isotope separation elements, and (iii) the commissioning of the plant. Each of the permits further provides that (i) any potential export of controlled goods and technology should be requested at an early stage through a Provisional Export Guidance Request, (ii) all isotope separation applications remain controlled regardless of the isotope atomic mass and will be dealt with on a case-by-case basis, and (iii) any ultimate transfer of these controlled goods and technology will be subject to the issuance of a permit by the Council as required in terms of the Non-Proliferation Act and related Government Notices and Regulations. +In addition, we cannot assure you that we will be able to obtain, on a timely basis or at all, any additional licenses, approvals and permits that may be required to execute on our strategy and develop our company’s business, including any such licenses, approvals and permits that may be required to introduce isotopes produced using ASP technology into the market and to begin the enrichment of uranium to demonstrate our capability to produce HALEU using the QE technology. +Moreover, Renergen’s exploration, technical cooperations, production and operational development activities are subject to South African laws and regulations governing various matters. These include laws and regulations relating to environmental protection, the management of natural resources, the management and use of hazardous substances and explosives, exploration, production and post-closure reclamation and rehabilitation, exports, the regulation of the trading of gas, price controls, repatriation of capital and exchange controls, taxation, labor standards and other employment-related laws and occupational health and safety and historic and cultural preservation. +Changes in law or the imposition of new or additional regulations or permit requirements that impact our business could negatively impact our performance in various ways, including by limiting our ability to collaborate with partners or customers or by increasing our costs and the time necessary to obtain required authorization. We monitor new developments and devote a significant amount of management’s time and external resources to compliance with these laws and regulations. We cannot assure you, however, that we are and will remain in compliance with all such requirements and, even when we believe we are in compliance, a regulatory agency may determine that we are not. In addition, we cannot assure you that we will be able to obtain all licenses, approvals and permits that may be required to execute on our strategy and develop our company’s business as currently contemplated. Failure by us, our employees, affiliates, partners or others with whom we work to comply with applicable laws and regulations or to obtain or comply with necessary licenses, approvals and permits could result in administrative, civil, commercial or criminal liabilities, including suspension or debarment from government contracts or suspension of our export/import privileges. Failure by us, our employees, affiliates, partners or others with whom we work to comply with the permits issued to us by the South African Council for The Non-Proliferation of Weapons of Mass Destruction could result in disruption of our development activities at our isotope enrichment facility in South Africa, which could prevent us from completing our development activities. +37 +Moreover, environmental and regulatory laws and regulations change frequently (due to general amendments or amendments brought about as a result of case law) and are generally becoming more stringent across the global natural gas industry. If our environmental compliance obligations were to change as a result of changes to laws or regulations or as a result of changes in certain assumptions we make to estimate liabilities, or if unanticipated conditions were to arise in connection with our operations, our expenses and provisions would increase to reflect these changes. If material, these expenses and provisions could adversely affect our business, operating results and financial condition +If technology developed for the purposes of enriching isotopes can be applied to the creation or development of weapons-grade materials, then our technology may be considered “dual use” technology and be subject to limitations on public disclosure or export. +Our research and development of isotope enrichment is dedicated not only to producing enriched isotopes for use in nuclear medical diagnostic procedures and concentrating uranium in the isotope U-235 for use in nuclear energy, but also to safeguarding any information with broad, dual-use potential that could be inappropriately applied. Enrichment is among the most sensitive nuclear technologies because it can produce weapon-grade materials. The ASP technology and the QE technology may be considered dual use and could be subject to export control, for example, under the Wassenaar Arrangement. +Our Exploration Rights and Production Right in South Africa could be altered, suspended, or canceled for a variety of reasons, including uncertainties associated with national and local legislation. +Various national and local policies, laws and regulations, norms and standards govern our Exploration Rights and Production Right, which are characterized by significant uncertainties associated with both their formulation as well as implementation. Under the applicable South African laws and regulations, we are required to obtain certain permits, licenses and approvals for our exploration and production activities, including, among others, Exploration Rights, Production Rights, environmental authorizations and integrated water use licenses. Moreover, we are required to comply with the terms and conditions attached to such permits, licenses and approvals, including by filing certain reports and plans with the relevant authorities from time to time. These permits, licenses and approvals are issued by ministries and/or agencies of the South African government and are crucial to our business operations. Although we have obtained or are otherwise applying for all consents necessary to conduct our business, there can be no assurance that we will obtain, retain, timely renew or comply with all of the terms and conditions attaching to such consents. +Any failure to obtain, renew or retain or any delay (and/or failure by relevant government authorities) in obtaining, retaining or renewing any required permits, licenses or approvals, may result in a delay in our investment or development of a resource which may have a material adverse effect on our business, results of operations, financial position and/or growth prospects. Additionally, our existing licenses, permits and other authorizations may be suspended, terminated or revoked if we fail to comply with the relevant requirements. Should we fail to fulfil the specific terms of permits, licenses and other authorizations or if we operate our business in a manner that violates applicable law, regulators may impose fines or suspend or terminate such licenses, permits or other authorizations. The failure to comply with the terms and conditions attached to such consents timely and strictly in line with the applicable requirements could negatively affect our operations, and subject us to a variety of administrative or criminal penalties, other government actions or reputational harm, which may have a material adverse effect on our business, results of operations, financial position and/or growth prospects. +Our Production Right expires on September 20, 2042. Our Exploration Rights were set to expire on August 23, 2024. However, we submitted an application to incorporate the Exploration Rights into our Production Right, by means of an amendment to the Production Right in accordance with Section 102 of the South African Mineral and Petroleum Resources Development Act 28 of 2002 (“MPRDA”), which we expect will extend our ability to carry out petroleum exploration activities through the expiration date of our Production Right. Our application was submitted on July 16, 2024 and the application was authorized on May 9, 2025. Following the authorization, two appeals were made by various parties and the appeal process is ongoing. We expect the appeal process to be resolved by in 2027. If such rights expire and we are unable to renew such rights, we will lose Renergen’s right to explore, produce and develop the related properties. Although we intend to renew such rights prior to their expiration, we cannot provide assurance that we will be successful in extending such rights. +We are subject to risks associated with litigation and regulatory proceedings, which could have a material adverse effect on our business, operating results and financial condition. +We may be involved, from time to time, as a party in various lawsuits, arbitrations, regulatory proceedings or other disputes. +Increasing attention on climate change and water use management issues may also lead to an increase in complaints and litigation on grounds of contribution to, or failure to mitigate the effects of, climate change and/or water scarcity. For instance, the High Court of South Africa, Gauteng Provincial Division, Pretoria recently considered, in the case of EarthLife Africa, Johannesburg v Minister of Environmental Affairs and Others, the impact of a coal-fired power plant on global climate and its contribution to climate change should it continue to be operated until 2060. This was the first case of this nature to be adjudicated +38 +by South African courts and paves the way for additional litigation relating to the impacts of various actions on climate change and/or water resource impacts. Following this case, the Minister of the Department of Forestry, Fisheries and the Environment (the “DFFE”) published a notice inviting consultation on her intention to publish the National Guideline for Consideration of Climate Change Implications in Applications for Environmental Authorizations, Atmospheric Emission Licenses and Waste Management Licenses (GN. 559 of June 25, 2021). Although these guidelines will not apply retroactively to our current authorizations, once published, the guidelines will be considered in any prospective applications made by us for the applicable licenses. Another example is the case of Sustaining the Wild Coast NPC and Others v. Minister of Mineral Resources and Energy and Others, in which both the High Court and subsequently the Supreme Court of Appeal found that the granting of an Exploration Right and its implications had not been made known to affected communities and that “the mere ticking of a checklist” did not constitute meaningful consultation. The courts set aside the decision to grant the Exploration Right on the basis that it was procedurally unfair, but also noted that it failed to pass muster on several other grounds, including the failure to take account of relevant information, including climate change and the right to food, a failure to take account of the Integrated Coastal Management Act, 2008, and the failure to comply with various legal requirements such as the requirement to create opportunities for historically disadvantaged people to participate in the minerals and petroleum industries. The courts further found that the DMRE had failed to consider the communities’ spiritual and cultural rights and their rights to livelihood, the potential climate change implications, and the anticipated harm to the marine and bird life along the Eastern Cape coast. The respondents in this case have lodged an application for leave to appeal to the Constitutional Court. Consequently, to avoid the risks associated with climate change litigation, we would be required to manage our climate change impacts responsibly, which may result in considerable expenses being incurred. +Litigation, arbitration, regulatory proceedings and other types of disputes involve inherent uncertainties and, as a result, we face risks associated with adverse judgments or outcomes in these matters. Even in cases where we may ultimately prevail on the merits of any such dispute, we may face significant costs defending our rights, lose certain rights or benefits during the pendency of any such litigation, arbitration, regulatory proceeding or other dispute, or suffer reputational damage as a result of our involvement therein. There can be no assurance as to the outcome of any litigation, arbitration, regulatory proceeding or other dispute, and the adverse determination of material litigation could have a material adverse effect on our business, operating results and financial condition. See also “Business—Legal Proceedings.” +Once an amendment to the South African loss carry forward rules comes into operation, it could have an adverse effect on our financial results. +Renergen’s principal operating subsidiaries are South African tax residents. The loss carry forward rules are regulated by section 20 of the South African Income Tax Act No. 58 of 1962 (as amended from time to time) (the “South African Income Tax Act”). In determining taxable income as per enacted legislation, corporate taxpayers must set off their full extent of the balance of assessed loss carried forward from the preceding tax year against their income, with any unutilized assessed loss balance carried forward to future years of assessment to be set off against future income. +In an attempt to broaden the corporate income tax base, the South African Taxation Laws Amendment Act No. 20 of 2021 was promulgated on January 19, 2022, resulting in the amendment of section 20 of the South African Income Tax Act regulating use of assessed losses by companies. Pursuant to this amendment, companies are permitted to set-off the balance of an assessed loss carried from the prior year of assessment (i.e., the historic position), but only to the extent that the set-off does not exceed the higher of R1 million and 80% of the amount of taxable income determined for that year (before taking into account such balance of assessed loss). The unutilized balance of assessed loss will be carried forward to the following year of assessment. The amended loss utilization provisions will apply to years of assessment which end on or after March 31, 2023. +Due to the amendment to Section 20 of the South African Income Tax Act, we may experience delays in the utilization of the balance of our assessed losses carried forward, which could have an adverse effect on our financial results. +Amendments to tax legislation, tax rates or the administration or interpretation thereof may impact our business, results of operations, financial condition and/or prospects. +We are subject to various direct and indirect taxes. Tax legislation or the administration or interpretation thereof is subject to change occasioned by amendments, court decisions and the respective revenue authorities’ pronouncements on accepted practice in South Africa. These changes could affect our overall effective tax rate, thereby impacting our earnings, or could impact demand for our products, which could, in turn, have a material adverse effect on our business, financial results and/or prospects. +We cannot predict the impact of future changes in tax legislation, or interpretation thereof. Amendments to existing tax legislation, or the introduction of new rules in South Africa, may have an impact on the investment decisions of either existing or potential shareholders. +We may be exposed to historical environmental liability risk in respect of Renergen’s closed, closing or sold assets. +Section 28 of the South African National Environmental Management Act 107 of 1998 (“NEMA”) and section 19 of the National Water Act No. 36 of 1998 (the “NWA”) both impose a statutory duty of care for significant environmental pollution or degradation and require remedial measures to be taken in order to address any such environmental degradation, regardless of when +39 +it occurred. This duty applies retrospectively and may expose us to historical environmental liability risks in respect of Renergen’s closed, closing or sold assets. Under NEMA, the liability of the gas facility continues post-closure indefinitely, notwithstanding the issuance of a closure certificate by the relevant minister, especially where the treatment of water is incorporated. Notwithstanding the onerous statutory duty imposed by NEMA and NWA, we may, in the future, be subject to further incremental legislation that imposes increased environmental liability and may result in significant costs being incurred well above the costs anticipated by us. Any assessment on or adverse finding against us of historical environmental liability may result in significant costs being incurred by us, which may, in turn, have a material adverse effect on our business, results of operations, and financial condition. +Risks Related to our Operations in South Africa +Our operations in South Africa could be disrupted for a variety of reasons, which could prevent us from completing our development activities. +A disruption in our operations in South Africa could have a material adverse effect on our business. Disruptions could occur for many reasons, including power outages, fire, natural disasters, weather, unplanned maintenance or other manufacturing problems, public health crises, disease, strikes or other labor unrest, transportation interruption, government regulation, political unrest or terrorism. Alternative facilities with sufficient capacity or capabilities may not be available, may cost substantially more or may take a significant time to start production, each of which could negatively affect our business and financial performance. +South Africa struggles with limited electricity supply and regions of the country regularly undergo load-shedding, during which electricity is not available. In 2022 and 2023, South Africa experienced multiple electricity supply crises due to the inability of Eskom, the sole, state-owned energy supplier, to reliably provide electrical power throughout the country. Both the government of South Africa and the U.S. Embassy & Consulates in South Africa have declared a “State of Disaster” in response to ongoing power shortages. The country’s energy crisis includes sustained load-shedding (planned and unplanned rolling blackouts) at varying intervals and is expected to extend beyond 2023. However, in 2024 and 2025, the supply situation has improved significantly with Eskom’s Energy Availability Factor currently approaching excess capacity. South Africa has endured several reductions in the power supply recently, such as South Africa’s order to Eskom in 2021 to reduce by one-third its operating capacity to limit its greenhouse gas emissions (which has been subsequently been significantly amended, with a delay in decommissioning of multiple units). 2022 saw more than twice as many blackouts as any other year, as aging coal-fired power plants broke down and Eskom struggled to buy diesel for emergency generators. Load-shedding resulted in 2023 in localized power outages of up to six hours or more per day throughout the country. Consequentially, we have experienced, and could continue to experience, increased electricity prices. This uncertain supply of electricity and other potential disruptions to our operations in South Africa could impact our ability to operate and produce our products, including isotopes, LNG and helium, and could negatively affect the financial position of the Company. +Economic, political or social instability in South Africa may have a material adverse effect on our operations and profits. +Certain of our operations are located in South Africa. High levels of unemployment and a shortage of critical skills in South Africa, despite increased government expenditure on education and training, remain issues that impact the local economy. Changes to, or increased instability in the economic, political or social environment in South Africa or surrounding countries could create uncertainty, which discourages investment in the region and may affect investments in us. In addition, socio-political instability and unrest may also disrupt our business and operations, compromise safety and security, increase costs, affect employee morale, impact our ability to deliver our operational plans, create uncertainty regarding our exploration and production licenses, and cause reputational damage; any of which could have a material adverse effect on our business, results of operations and financial condition. +Community disruptions could result in access to our petroleum and isotope operations being obstructed, our property being damaged and production or development activities being interrupted. Any threats, or actual proceedings, to nationalize any of our assets could cause a cessation or curtailment of our operations, resulting in a material adverse effect on our business, operating results and financial condition. If any of these risks materialize, this could cause a rapid decline in the value of our securities, thereby possibly causing investors to lose their respective investments. +More specifically, South African petroleum companies are experiencing increasing trends of incitement, breaches of perimeter security, vandalism and robbery, as well as the intimidation and murder of employees. +In addition, economic and political instability and geopolitical events in regions outside of South Africa, including the Russian invasion of Ukraine, the United States-Israel-Iran war, trade tensions between the U.S. and China and U.S. military operations in Venezuela may result in unavoidable uncertainties and events that could: negatively affect the risk appetite for investments in the equity markets, South Africa and petroleum companies in particular; cause volatility in currency exchange rates, commodity prices, interest rates, and worldwide political, regulatory, economic or market conditions; and contribute to instability in political institutions, regulatory agencies, and financial markets. Any of these factors could have a material adverse effect on our business, operating results and financial condition. +40 +South African exchange control regulations could materially constrain our financial flexibility. +South Africa’s existing Exchange Control Regulations restrict the ability of South African companies to convert or transfer sums in foreign currencies to or from South Africa. Transactions between South African residents (including companies) and non-residents (excluding residents of the Common Monetary Area (“CMA”) are subject to exchange controls enforced by the SARB. +As a result, Renergen’s ability to raise or deploy loan funding outside the CMA is currently subject to consent from either the SARB, or where such authority has been delegated, an “Authorized Dealer” with full capacity at an approved bank operating in South Africa, particularly any debt funding that we may require from offshore lenders. These limitations placed on flowing all funds in an unregulated manner could hinder our financial and strategic flexibility, particularly our ability to raise funds outside South Africa. +In February 2020, the Minister of Finance announced a new capital flow management system in the 2020 Budget Speech, in terms of which all foreign-currency transactions will be allowed, except for a risk-based list of capital flow measures. The 2021 Budget Speech on February 24, 2021 stated the new capital flow management framework would continue to be developed and that new regulations in this regard will be published “shortly.” To date, the new framework and regulations have not yet been published, although there has been an ongoing relaxation of current exchange controls with a view to easing controls and implementing a prudential-based system. +There is no assurance that restrictions on currency exchange will not be reinstated or implemented in the future or that these restrictions will not limit the ability of our subsidiaries to transfer cash or borrow from outside the CMA, which could have a material adverse effect on our business, results of operations, financial condition and prospects. +Our business, results of operations, and financial condition may be adversely affected by inflation. +South Africa may continue to experience high levels of inflation in the future, which may increase our costs, such as labor and energy, as well as our revenues. Inflationary pressures may also curtail our ability to access international financial markets and may lead to further government intervention in the economy. This may include the introduction of government policies that may materially and adversely affect the overall performance of the South African economy, which in turn may materially and adversely affect us. +HIV/AIDS, tuberculosis and other contagious diseases pose risks to us in terms of lost productivity and increased costs. +The prevalence of HIV/AIDS in South Africa poses risks to us in terms of potentially reduced productivity and increased medical and other costs. Compounding this are the concomitant infections, such as tuberculosis, that can accompany HIV illness, particularly during the latter stages, and cause additional healthcare-related costs. Additionally, the spread of contagious diseases such as respiratory diseases is exacerbated by communal housing. The spread of such diseases could impact employees’ productivity, treatment costs and, therefore, operational costs. If there is a significant increase in the prevalence of HIV/AIDS infection and related diseases, or other diseases among the workforce, this may have a material adverse effect on our business, results of operations and financial condition. +The costs of healthcare services may increase in the future depending on underlying legislation and the profile of our employees. +Healthcare costs in South Africa have increased in recent years. Healthcare, and particularly occupational healthcare, is provided by Discovery, Bonitas and Medihelp. There is a risk that the cost of providing such services could change in the future, depending on, among other things, the nature of underlying legislation and the profile of employees. This cost, should it transpire, is difficult to estimate. Significant increases in the costs of healthcare provided to our employees at our facilities or mandated contributions to any national healthcare fund could have an adverse effect on our business, financial condition and results of operations. +Risks Related to Our Intellectual Property +Our intellectual property is not protected through patents or formal copyright registration. As a result, we do not have the full benefit of patent or copyright laws to prevent others from replicating the ASP technology and QE technology. +We have not yet protected our intellectual property rights through patents, and we currently have no patent applications pending. To date, we have relied exclusively on trade secrets and other intellectual property laws, non-disclosure agreements with our respective employees, consultants, vendors, potential customers and other relevant persons and other measures to protect our intellectual property, and intend to continue to rely on these and other means. As we intend to transition into the commercialization of isotopes, we envision our intellectual property and its security becoming more vital to our future. Until we protect our intellectual property through patent, trademarks and registered copyrights, we may not be able to protect our intellectual property and trade secrets or prevent others from independently developing substantially equivalent proprietary information and techniques or from +41 +otherwise gaining access to our intellectual property or trade secrets. In such an instance, our competitors could produce products that are nearly identical to ours, resulting in us selling less products or generating less revenue from our sales. +We may be unable to adequately protect our intellectual property and proprietary rights and prevent others from making unauthorized use of our products and technology. +Our success and competitiveness depend, in significant part, on our ability to protect our intellectual property rights, including the ASP technology and the QE technology and certain other practices, tools, technologies and technical expertise we utilize in designing, developing, implementing and maintaining processes used in the development of our future isotopes. To date, we have relied exclusively on trade secrets and other intellectual property laws, non-disclosure agreements with our respective employees, consultants, vendors, potential customers and other relevant persons and other measures to protect our intellectual property, and intend to continue to rely on these and other means. +For strategic reasons, we have not yet protected our intellectual property by filing patent applications related to our technology, inventions and improvements. Even if we filed patent applications and patents were granted, we cannot assure you we would be fully protected against third parties as those patents may not be sufficiently broad in their coverage, may not be economically significant, or may not provide us with any competitive advantage. Competitors may be able to design around any patents and develop isotope production techniques comparable or superior to the ASP technology or the QE technology. Furthermore, the filing of a patent would entail the disclosure of our know-how, and breaches of patent rights related to a wrongful use of this know-how would be difficult to enforce in the international landscape. We believe that our intellectual property strategy differs significantly from the strategies of others involved in the medical isotope industry, many of whom have extensive patent portfolios and rely heavily on intellectual property registrations to enforce their intellectual property rights. As a result of this discrepancy in strategy, we may be at a competitive disadvantage with respect to the strength of our intellectual property protection. Unlike others involved in the medical isotope industry, who generally have patents providing exclusive control over their innovations, we have no recourse against any entity that independently creates the same technology as ours or legitimately reverse-engineers our technology. +We generally enter into non-disclosure agreements with our employees, consultants and other parties with whom we have strategic relationships and business alliances. We cannot, however, assure you that these agreements will be effective in controlling access to and distribution of our technology and proprietary information. Since we do not protect our intellectual property by filing patent applications, we rely on our personnel to protect our trade secrets, know-how and other proprietary information to a greater degree than we would if we had patent protection for our intellectual property. In any jurisdiction in which our research and development is not protected by similar agreements, there is no protection against the manufacture and marketing of identical or comparable research and development by third parties, who are generally free to use, independently develop, and sell our developments and technologies without paying license or royalty fees. Furthermore, our former employees may perform work for our competitors and use our know-how in performing this work. In the event we scale our business by hiring additional personnel and entering into contracts with third parties, the risks associated with breaches of non-disclosure agreements, confidentiality agreements and other agreements pertaining to our technology and proprietary information will increase, and such breaches could have an adverse effect on our business and competitive position. +We may come to believe that third parties are infringing on, or otherwise violating, our intellectual property or other proprietary rights. To prevent infringement or unauthorized use, we may need to file infringement and/or misappropriation suits, which are expensive and time-consuming, could result in meritorious counterclaims against us and would distract management’s attention. In addition, in an infringement or misappropriation proceeding, a court may decide that one or more of our intellectual property rights is invalid, unenforceable, or both, in which case third parties may be able to use our technology without paying license fees or royalties. If we are unable to protect our intellectual property and proprietary rights, we may be unable to prevent competitors from using our own inventions and intellectual property to compete against us, and our business may be harmed. +Our ASP technology and QE technology may be found to infringe third-party intellectual property rights. +Third parties may in the future assert claims or initiate litigation related to their intellectual property rights in technology that is important to us, including the ASP technology. For example, on October 25, 2022, we received a letter (the “NMS Letter”) from a law firm acting on behalf of Norsk Medisinsk Syklotronsenter AS (“NMS”), asserting, among other things, that the grant of the former license to the ASP technology to us by Klydon violated a pre-existing exclusive sub-license to the ASP technology granted to Radfarma. In November 2023, we entered into a mutual release with NMS, Radfarma, and certain board members and shareholders of Radfarma related to the claims asserted in the NMS Letter and other matters, without any payment or license of any rights by any party to the release. Any future claims alleging infringement of intellectual property rights with respect to the ASP technology on which our company relies could be time-consuming, resulting in costly arbitration or litigation and diversion of technical and management personnel, or require us to develop non-infringing technology or enter into license agreements. We cannot assure you that licenses will be available on acceptable terms, if at all. Furthermore, because of the potential for significant +42 +damage awards, which are not necessarily predictable, it is not unusual to find even arguably unmeritorious claims resulting in large settlements. If any infringement or other intellectual property claim made against us by any third party is successful, or if we fail to develop non-infringing technology or license the proprietary rights on commercially reasonable terms and conditions, our business, operating results and financial condition could be materially adversely affected. +If the ASP technology infringes the proprietary rights of other parties, we could incur substantial costs, and we may have to take certain actions, including the following: +• +obtain licenses, which may not be available on commercially reasonable terms, if at all; +• +redesign our technology or processes to avoid infringement; +• +stop using the subject matter claimed to be held by others; +• +pay damages; or +• +defend arbitration, litigation or administrative proceedings which may be costly whether we win or lose (and may be prohibitively expensive, particularly for a company of our size), and which could result in a substantial diversion of our financial and management resources. +In addition, in an infringement proceeding, a court or tribunal may decide that our asserted intellectual property is not valid or is unenforceable. An adverse determination in any litigation, arbitration or defense proceedings could put our intellectual property at risk of being invalidated or interpreted narrowly. If our intellectual property rights are found to be invalid or unenforceable (in whole or in part), our ability to commercialize our future isotopes would suffer and our business, results of operations and financial condition may be adversely affected. +We may enter into collaboration agreements and strategic alliances, and we may not realize the anticipated benefits of such collaborations or alliances. +We may wish to form collaborations in the future with respect to our future isotopes but may not be able to do so or to realize the potential benefits of such transactions, which may cause us to alter or delay our development and commercialization plans. Research and development collaborations are subject to numerous risks, which may include the following: +• +collaborators have significant discretion in determining the efforts and resources that they will apply to a collaboration and may not commit sufficient efforts and resources or may misapply those efforts and resources; +• +collaborators may not pursue development and commercialization of future isotopes or may elect not to continue or renew development or commercialization programs; +• +collaborators may delay, provide insufficient resources to, or modify or stop development activities for future isotopes; +• +collaborators could develop or acquire products outside of the collaboration that compete directly or indirectly with our future isotopes; +• +collaborators may not properly maintain or defend our intellectual property rights or may use our intellectual property or proprietary information in a way that gives rise to actual or threatened litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential liability; +• +disputes may arise between us and a collaborator that cause the delay or termination of the research, development or commercialization of our future isotopes, or that result in costly litigation or arbitration that diverts management attention and resources; +• +collaborations may be terminated and, if terminated, may result in a need for additional capital and personnel to pursue further development or commercialization of the applicable future isotopes; and +• +collaborators may own or co-own intellectual property covering our products that results from our collaborating with them, and in such cases, we may not have the exclusive right to commercialize such intellectual property. +The development and potential commercialization of our future isotopes will require substantial additional capital to fund expenses. We may form or seek further strategic alliances, create joint ventures or collaborations, or enter into additional licensing arrangements with third parties that we believe will complement or augment our development and commercialization efforts with respect to our future isotopes, including in territories outside the United States or for certain indications. These transactions can entail numerous operational and financial risks, including exposure to unknown liabilities, disruption of our business and diversion of our management’s time and attention in order to manage a collaboration or develop acquired products or technologies, incurrence of substantial debt or dilutive issuances of equity securities to pay transaction consideration or costs, higher than expected collaboration, acquisition or integration costs, write-downs of assets or goodwill or impairment charges, increased amortization +43 +expenses, difficulty and cost in facilitating the collaboration or combining the operations and personnel of any acquired business, impairment of relationships with key suppliers, manufacturers or customers of any acquired business due to changes in management and ownership and the inability to retain key employees of any acquired business. As a result, if we enter into acquisition or in-license agreements or strategic partnerships, we may not be able to realize the benefit of such transactions if we are unable to successfully integrate them with our existing operations and company culture, or if there are materially adverse impacts on our or the counterparty’s operations, which could delay our timelines or otherwise adversely affect our business. We also cannot be certain that, following a strategic transaction or license, we will achieve the revenue or specific net income that justifies such transaction or such other benefits that led us to enter into the arrangement. +In addition, we face significant competition in seeking appropriate strategic partners and the negotiation process is time-consuming and complex. We may not be successful in our efforts to establish a strategic partnership or other alternative arrangements for our future isotopes because they may be deemed to be at too early of a stage of development for collaborative effort and third parties may not view our future isotopes as having the requisite potential to demonstrate safety and efficacy. If and when we collaborate with a third-party for development and commercialization of a future isotope, we can expect to relinquish some or all of the control over the future success of that future isotope to the third-party. Our ability to reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of our technologies, future isotopes and market opportunities. The collaborator may also consider alternative isotopes or technologies for similar applications that may be available to collaborate on and whether such a collaboration could be more attractive than the one with us for our future isotope. We may also be restricted under any license agreements from entering into agreements on certain terms or at all with potential collaborators. +As a result of these risks, we may not be able to realize the benefit of our existing collaborations or any future collaborations or licensing agreements we may enter into. In addition, we may not be able to negotiate collaborations on a timely basis, on acceptable terms, or at all. If we are unable to do so, we may have to curtail the development of such future isotope, reduce or delay one or more of our other development programs, delay the potential commercialization or reduce the scope of any planned sales or marketing activities for such future isotope, or increase our expenditures and undertake development, manufacturing or commercialization activities at our own expense. If we elect to increase our expenditures to fund development, manufacturing or commercialization activities on our own, we may need to obtain additional capital, which may not be available to us on acceptable terms or at all. If we do not have sufficient funds, we may not be able to further develop our future isotopes or bring them to market and generate product revenue. +We may be dependent on intellectual property licensed or sublicensed to us from, or for which development was funded or otherwise assisted by, government agencies, for development of our technology and future isotopes. Failure to meet our own obligations to any licensor or upstream licensors, including such government agencies, may result in the loss of our rights to such intellectual property, which could harm our business. +Government agencies may provide funding, facilities, personnel or other assistance in connection with the development of the intellectual property rights owned by or licensed to us in the future. Such government agencies may have retained rights in such intellectual property, including the right to grant or require us to grant mandatory licenses or sublicenses to such intellectual property to third parties under certain specified circumstances, including if it is necessary to meet health and safety needs that we are not reasonably satisfying or if it is necessary to meet requirements for public use specified by federal regulations, or to manufacture products in the United States. Any exercise of such rights, including with respect to any such required sublicense of these licenses could result in the loss of significant rights and could harm our ability to commercialize licensed products. +If we are unable to obtain patent protection for our future isotopes, or if the scope of the patent protection obtained is not sufficiently broad, we may not be able to compete effectively in our markets. +We anticipate that we may file patent applications both in the United States and in other countries, as appropriate. However, we cannot predict: +• +if and when any patents will issue; +• +the degree and scope of protection any issued patents will afford us against competitors, including whether third parties will find ways to invalidate or otherwise circumvent our patents; +• +whether others will apply for or obtain patents claiming aspects similar to those covered by our patents and patent applications; +• +whether we will need to initiate litigation or administrative proceedings to defend our patent rights, which may be costly whether we win or lose; or +44 +• +whether the patent applications that we own or in-license will result in issued patents with claims that cover our future isotopes or uses thereof in the United States or in foreign countries. +We currently rely upon a combination of trade secret protection and confidentiality agreements to protect the intellectual property related to our isotope development techniques and future isotopes. Our success will depend in large part on our ability to obtain and maintain patent protection in the United States and other countries with respect to the ASP technology and the QE technology. We may seek to protect our proprietary position by filing patent applications in the United States and abroad related to its current and future development programs and future isotopes to the extent permitted by applicable law. The patent prosecution process is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. +It is possible that we will fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection. The patent applications that we own or in-license may fail to result in issued patents with claims that cover our future isotopes in the United States or in foreign countries. There is no assurance that all of the potentially relevant prior art relating to our patents and patent applications has been found, which can invalidate a patent or prevent a patent from being issued from a pending patent application. Even if patents are successfully issued and even if such patents cover the ASP technology and the QE technology, third parties may challenge their scope, validity, or enforceability, which may result in such patents being narrowed, invalidated, or held unenforceable. Any successful opposition to these patents or any other patents owned by or licensed to us could deprive us of rights necessary for the successful commercialization of any future isotopes using the ASP technology or the QE technology. Further, if we encounter delays in regulatory approvals, the period of time during which we could market a future isotope could be reduced. +If the patent applications we hold or have in-licensed with respect to our development programs fail to issue, if their breadth or strength of protection is threatened, or if they fail to provide meaningful exclusivity for the ASP technology or the QE technology, it could dissuade companies from collaborating with us, and threaten our ability to commercialize, isotopes produced using the ASP technology or the QE technology. Any such outcome could have a negative effect on our business. +Even if we obtain patents covering the ASP technology or the QE technology or our methods, we may still be barred from making, using and selling such technology or methods because of the patent rights of others. Others may have filed, and in the future may file, patent applications covering technology or methods that are similar or identical to ours, which could materially affect our ability to successfully develop our technology or to successfully commercialize any isotopes alone or with collaborators. +Patent applications in the United States and elsewhere are generally published approximately 18 months after the earliest filing for which priority is claimed, with such earliest filing date being commonly referred to as the priority date. Therefore, patent applications covering our platform technologies and methods could have been filed by others without our knowledge. Additionally, pending claims in patent applications which have been published can, subject to certain limitations, be later amended in a manner that could cover our platform technologies. These patent applications may have priority over patent applications filed by us. +Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by government patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements. +Periodic maintenance fees, renewal fees, annuity fees and various other government fees on patents and/or applications will be due to be paid to the United States Patent and Trademark Office ("USPTO") and various government patent agencies outside of the United States over the lifetime of our owned and licensed patents and/or applications and any patent rights we may own or license in the future. We will rely on our outside counsel, patent annuity service providers, or our licensing partners to pay these fees due to non-U.S. patent agencies. The USPTO and various non-U.S. government patent agencies require compliance with several procedural, documentary, and other similar provisions during the patent application process. We will employ reputable law firms and other professionals to help us comply. In many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. There are situations, however, in which non-compliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, potential competitors might be able to enter the market and this circumstance could harm our business. +Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain and could have a negative impact on the success of our business. +Our commercial success depends, in part, upon our ability and the ability of our current or future collaborators to develop, manufacture, market and sell our future isotopes and use our proprietary enrichment technologies without infringing the proprietary rights and intellectual property of third parties. The technology industry is characterized by extensive and complex litigation regarding patents and other intellectual property rights. Our future isotopes and other proprietary technologies we may develop may +45 +infringe existing or future patents owned by third parties. We may in the future become party to, or be threatened with, adversarial proceedings or litigation regarding intellectual property rights with respect to our future isotopes and technology, including interference proceedings, post-grant review and inter partes review before the USPTO. Third parties may assert infringement claims against us based on existing patents or patents that may be granted in the future, regardless of their merit. There is a risk that third parties may choose to engage in litigation with us to enforce or to otherwise assert their patent rights against us. A court of competent jurisdiction could hold that these third-party patents are valid, enforceable and infringed, which could have a negative impact on our ability to commercialize our future isotopes. In order to successfully challenge the validity of any such U.S. patent in federal court, we would need to overcome a presumption of validity. As this burden is a high one requiring us to present clear and convincing evidence as to the invalidity of any such U.S. patent claim, there is no assurance that a court of competent jurisdiction would invalidate the claims of any such U.S. patent. If we are found to infringe a third party’s valid and enforceable intellectual property rights, we could be required to obtain a license from such third party to continue developing, manufacturing and marketing our future isotope(s) and technology. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors and other third parties access to the same technologies licensed to us, and it could require us to make substantial licensing and royalty payments. We could be forced, including by court order, to cease developing, manufacturing and commercializing the infringing technology or future isotope. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees, if we are found to have willfully infringed a patent or other intellectual property right. A finding of infringement could prevent us from manufacturing and commercializing our future isotopes or force us to cease some or all of our business operations, which could materially harm our business. Claims that we have misappropriated the confidential information or trade secrets of third parties could have a similar negative impact on our business, financial condition, results of operations and prospects. +Third parties asserting their patent or other intellectual property rights against us may seek and obtain injunctive or other equitable relief, which could effectively block our ability to further develop and commercialize our future isotopes or force us to cease some of our business operations. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of management and other employee resources from our business, cause development delays, and may impact our reputation. In the event of a successful claim of infringement against us, we may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, obtain one or more licenses from third parties, pay royalties, or redesign our infringing products, which may be impossible on a cost-effective basis or require substantial time and monetary expenditure. In that event, we would be unable to further develop and commercialize our future isotopes, which could harm our business significantly. Claims that we have misappropriated the confidential information or trade secrets of third parties could have a similar negative impact on our business. +We may be subject to claims asserting that our employees, consultants or advisors have wrongfully used or disclosed alleged trade secrets of their current or former employers or claims asserting ownership of what we regard as our own intellectual property. +Certain of our employees, consultants or advisors are currently, or were previously, employed at universities or other technology companies. Although we try to ensure that our employees, consultants and advisors do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that these individuals or we have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such individual’s current or former employer. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management. +In addition, while it is our policy to require our employees and contractors who may be involved in the conception or development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who, in fact, conceives or develops intellectual property that we regard as our own. The assignment of intellectual property rights may not be self-executing or the assignment agreements may be breached, and we may be forced to bring claims against third parties, or defend claims that they may bring against us, to determine the ownership of what we regard as our intellectual property. +Reliance on third parties requires us to share our trade secrets, which increases the possibility that a competitor will discover them or that our trade secrets will be misappropriated or disclosed. +If we rely on third parties to manufacture or commercialize our future isotopes, or if we collaborate with additional third parties for the development of our future isotopes, we must, at times, share trade secrets with them. We may also conduct joint research and development programs that may require us to share trade secrets under the terms of our research and development partnerships or similar agreements. We seek to protect our proprietary enrichment technology in part by entering into confidentiality agreements and, if applicable, material transfer agreements, services agreements, consulting agreements or other similar agreements with our advisors, employees, third-party contractors and consultants prior to beginning research or disclosing proprietary +46 +information. These agreements typically limit the rights of the third parties to use or disclose our confidential information, including our trade secrets. Despite the contractual provisions employed when working with third parties, the need to share trade secrets and other confidential information increases the risk that such trade secrets become known by our competitors, are inadvertently incorporated into the technology of others, or are disclosed or used in violation of these agreements. Given that our proprietary position is based, in part, on our know-how and trade secrets, a competitor’s discovery of our trade secrets or other unauthorized use or disclosure could have an adverse effect on our business and results of operations. +In addition, these agreements typically restrict the ability of our advisors, employees, third-party contractors and consultants to publish data potentially relating to our trade secrets. Despite our efforts to protect our trade secrets, our competitors may discover our trade secrets, either through breach of our agreements with third parties, independent development or publication of information by any third-party collaborators. A competitor’s discovery of our trade secrets could harm our business. +Confidentiality agreements with employees and third parties may not prevent unauthorized disclosure of trade secrets and other proprietary information. +In addition to the protection afforded by patents, we seek to rely on trade secret protection and confidentiality agreements to protect proprietary know-how that is not patentable or that we elect not to patent, processes for which patents are difficult to enforce, and any other elements of our future isotopes, technology and product discovery and development processes that involve proprietary know-how, information, or technology that is not covered by patents. Any disclosure, either intentional or unintentional, by our employees, the employees of third parties with whom we share our facilities or third-party consultants and vendors that we engage, or misappropriation by third parties (such as through a cybersecurity breach) of our trade secrets or proprietary information could enable competitors to duplicate or surpass our technological achievements, thus eroding our competitive position in our market. Because we expect to rely on third parties in the development and manufacture of our future isotopes, we must, at times, share trade secrets with them. Our reliance on third parties requires us to share our trade secrets, which increases the possibility that a competitor will discover them or that our trade secrets will be misappropriated or disclosed. +Trade secrets and confidential information, however, may be difficult to protect. We seek to protect our trade secrets, know-how and confidential information, including our proprietary processes, in part, by entering into confidentiality agreements with our employees, consultants, outside scientific advisors, contractors, and collaborators. With our consultants, contractors, and outside scientific collaborators, these agreements typically include invention assignment obligations. We cannot guarantee that we have entered into such agreements with each party that may have or has had access to our trade secrets or proprietary technology and processes. Although we use reasonable efforts to protect our trade secrets, our employees, consultants, outside scientific advisors, contractors, and collaborators might intentionally or inadvertently disclose our trade secret information to competitors. In addition, competitors may otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. Despite these efforts, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor or other third-party, we would have no right to prevent them from using that technology or information to compete with us. Furthermore, the laws of some foreign countries do not protect proprietary rights to the same extent or in the same manner as the laws of the United States. As a result, we may encounter significant problems in protecting and defending our intellectual property both in the United States and abroad. If we are unable to prevent unauthorized material disclosure of our intellectual property to third parties, or misappropriation of our intellectual property by third parties, we may not be able to establish or maintain a competitive advantage in our market, which could materially adversely affect our business, operating results, and financial condition. +If we use hazardous and chemical materials in a manner that causes injury or violates applicable law, we may be liable for damages. +Our research and development activities and manufacturing process involve the controlled use of potentially hazardous substances, including chemical materials. We are subject to international and local laws and regulations in South Africa governing the use, manufacture, storage, handling and disposal of radioactive and hazardous materials. Although we believe that our procedures for using, handling, storing and disposing of these materials comply with legally prescribed standards, we cannot completely eliminate the risk of contamination or injury resulting from radioactive or hazardous materials. As a result of any such contamination or injury, we may incur liability or local, city, state or federal authorities may curtail the use of these materials and interrupt our business operations. In the event of an accident, we could be held liable for damages or penalized with fines, and the liability could exceed our resources. We do not have any insurance for liabilities arising from radioactive or hazardous materials. Compliance with applicable environmental laws and regulations is expensive, and current or future environmental regulations may impair our research, development, and production efforts, which could harm our business, prospects, financial condition, or results of operations. +47 +If we fail to comply with Renergen’s obligations under license or technology agreements with third parties, we may be required to pay damages and could lose license rights that are critical to Renergen’s business. +We license certain intellectual property rights, including technologies and data from third parties, which are important to Renergen’s business, and, in the future, we may enter into additional agreements that provide us with licenses to valuable intellectual property rights or technology. For example, we currently license satellite vegetation stress analyses software, detailed sub-surface modeling software, advanced DCS, SCADA or PLC systems and software, as well as hardware related licenses for specialist cryogenic equipment. Renergen’s future technological needs may be subjected to proprietary licensing requirements. +If we fail to comply with any of the obligations under Renergen’s license agreements, we may be required to pay damages and the licensor may have the right to terminate the license. Termination by the licensor would cause us to lose valuable rights and could prevent us from selling Renergen’s products and services, or inhibit our ability to commercialize future products and services. Renergen’s business would suffer if any current or future licenses terminate, if the licensors fail to abide by the terms of the license, if the licensors fail to enforce licensed patents against infringing third parties, if the licensed intellectual property rights are found to be invalid or unenforceable, or if we are unable to enter into necessary licenses on acceptable terms. In addition, Renergen’s rights to certain technologies are licensed to us on a non-exclusive basis. The owners of these non-exclusively licensed technologies are therefore free to license them to third parties, including Renergen’s competitors, on terms that may be superior to those offered to us, which could place us at a competitive disadvantage. Moreover, Renergen’s licensors may own or control intellectual property rights that have not been licensed to us and, as a result, we may be subject to claims, regardless of their merit, that we are infringing, misappropriating or otherwise violating the licensor’s rights. In addition, the agreements under which we license intellectual property rights or technology from third parties are generally complex, and certain provisions in such agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could narrow what we believe to be the scope of Renergen’s rights to the relevant intellectual property rights or technology, or increase what we believe to be Renergen’s financial or other obligations under the relevant agreement. Any of the foregoing could have a material adverse effect on our competitive position, business, financial condition, and results of operations. +We may not be successful in obtaining, maintaining, enforcing, defending and protecting Renergen’s intellectual property and other proprietary rights, products or processes, including Renergen’s unpatented proprietary knowledge and trade secrets, or in avoiding claims that we infringed, misappropriated or otherwise violated the intellectual property rights of others. +Renergen’s business and our ability to compete effectively depend on our ability to obtain, maintain, defend, protect and enforce Renergen’s intellectual property rights, confidential information, know-how and other proprietary rights, products or processes. We rely on intellectual property laws in South Africa and other countries, as well as confidentiality procedures, cybersecurity practices and contractual provisions and restrictions, to protect the intellectual property rights and other proprietary rights relating to Renergen’s products, proprietary processes and proprietary technology. Despite Renergen’s efforts to obtain, maintain, defend, protect and enforce Renergen’s intellectual property rights and other proprietary rights, products or processes, there can be no assurance that these protections will be available in all cases or will be adequate to prevent Renergen’s competitors or other third parties from copying, accessing or otherwise obtaining and using Renergen’s technology, intellectual property rights or other proprietary rights, products or processes without Renergen’s permission. Further, there can be no assurance that Renergen’s competitors will not independently develop products or processes that are substantially equivalent or superior to ours or design around Renergen’s intellectual property rights and other proprietary rights. In each case, our ability to compete could be significantly impaired. +We may, over time, increase Renergen’s investment in protecting Renergen’s intellectual property rights through patent, trademark, copyright and other intellectual property filings, which could be expensive and time-consuming. We may not be able to obtain registered intellectual property protection for Renergen’s products or processes, and, even if we are successful in obtaining effective patent, trademark, trade secret and copyright protection, it is expensive and time-consuming to maintain, and defend, these rights in terms of application and maintenance costs. Moreover, Renergen’s failure to develop and properly manage new intellectual property rights could hurt Renergen’s market position and business opportunities. +In addition, these measures may not be sufficient to offer us meaningful protection or provide us with any competitive advantages. We will not be able to protect Renergen’s intellectual property rights if we are unable to enforce Renergen’s rights or if we do not detect unauthorized use of Renergen’s intellectual property rights. Moreover, any changes in, or unexpected interpretations of, intellectual property laws may compromise our ability to enforce Renergen’s trade secrets, intellectual property rights and other proprietary rights. If we are unable to adequately protect Renergen’s intellectual property rights and other proprietary rights, Renergen’s competitive position and Renergen’s business could be harmed, as third parties may be able to commercialize and use products and technologies that are substantially the same as ours to compete with us without incurring the development and licensing costs that we have incurred. Any of Renergen’s owned or licensed intellectual property rights could be challenged, invalidated, circumvented, infringed, misappropriated or violated, Renergen’s trade secrets and other confidential information could be disclosed in an unauthorized manner to third parties, or Renergen’s intellectual property rights may not be sufficient to permit us to take advantage of current market trends or to otherwise provide us with competitive advantages, which could result in costly redesign efforts, discontinuance of some of Renergen’s product offerings or other competitive harm. +48 +We believe that we have sufficient intellectual property rights to allow us to conduct Renergen’s business without incurring liability to third parties. However, we or Renergen’s products may nonetheless infringe, misappropriate or otherwise violate the intellectual property rights of third parties, or we may determine in the future that we may be required to enter into costly license agreements or require other rights to intellectual property rights held by third parties. Such a license or other rights may not be available to us on commercially reasonable terms or at all, in which case we may be prevented from using, providing or manufacturing certain products or services, as applicable, or using brands as we see fit. We may in the future become involved in lawsuits to protect or enforce Renergen’s intellectual property rights. An adverse result in any litigation proceeding could harm our business. +Risks Related to Our Business Operations, Employee Matters and Managing Growth +We are highly dependent on the services of our senior management team, and if we are not able to retain these members of our management team and recruit and retain additional management, clinical and scientific personnel, our business will be harmed. +We are highly dependent on our senior management team. The employment agreements we have with these officers do not prevent such persons from terminating their employment with us at any time. The loss of the services of any of these persons could impede the achievement of our research, development and commercialization objectives. +In addition, we will need to attract, retain and motivate highly qualified additional management and scientific and technical personnel. If we are not able to retain our management and to attract, on acceptable terms, additional qualified personnel necessary for the continued development of our business, we may not be able to sustain our operations or grow. +We may not be able to attract or retain qualified personnel in the future due to the intense competition for qualified personnel among biotechnology, pharmaceutical and other businesses, including energy infrastructure projects. The energy industry in South Africa continues to experience a shortage of qualified senior management and technically skilled employee and many of the other pharmaceutical companies and energy companies that we compete against for qualified personnel and consultants have greater financial and other resources, different risk profiles and a longer history in the industry than we do. They also may provide more diverse opportunities and better chances for career advancement. Some of these characteristics may be more appealing to high-quality candidates and consultants than what we have to offer. If we are unable to continue to attract, retain and motivate high-quality personnel and consultants to accomplish our business objectives, the rate and success at which we can develop future isotopes, the Virginia Gas Project and our other business will be limited, and we may experience constraints on our development objectives. With respect to our South African operations, our inability to hire or retain appropriate management and technically skilled personnel from designated groups may also affect our compliance with our employment equity obligations and the undertakings that we have made in our social and labor plan in respect of the employment of historically disadvantaged persons. +Our future performance will also depend, in part, on our ability to successfully integrate newly hired executive officers into our management team and our ability to develop an effective working relationship among senior management. Our failure to integrate these individuals and create effective working relationships among them and other members of management could result in inefficiencies in the development and commercialization of our future isotopes, harming future regulatory approvals, sales of our future isotopes and our results of operations. Additionally, we do not currently maintain “key person” life insurance on the lives of our executives or any of our employees. +We will need to expand our organization, and we may experience difficulties in managing this growth, which could disrupt our operations. +As of December 31, 2025, we employed 271 people full-time, 189 of whom are located in South Africa. We rely on service providers for certain general administrative, financial, accounting, tax, intellectual property and other legal services, and we will need to expand our organization to hire qualified personnel to perform these functions internally. Our management may need to divert significant attention and time to managing these growth activities. We may not be able to effectively manage the expansion of our operations, which may result in weaknesses in our infrastructure, operational inefficiencies, loss of business opportunities, loss of employees and reduced productivity among remaining employees. Our expected growth could require significant capital expenditures and may divert financial resources from other projects, such as the development of our future isotopes. If our management is unable to effectively manage our growth, our expenses may increase more than expected, our ability to generate and grow revenue could be reduced and we may not be able to implement our business strategy. Our future financial performance, +49 +our ability to commercialize future isotopes, develop a scalable infrastructure and compete effectively will depend, in part, on our ability to effectively manage any future growth. +Our employees, consultants and commercial partners may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements and insider trading. +We are exposed to the risk of fraud or other misconduct by our employees, consultants and commercial partners. Misconduct by these parties could include intentional failures to comply with FDA regulations or the regulations applicable in other jurisdictions, provide accurate information to the FDA and other regulatory authorities, report financial information or data accurately or disclose unauthorized activities to us. It is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from government investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. If any such actions are instituted against us and we are not successful in defending ourselves or asserting our rights, those actions could have a negative impact on our business, financial condition, results of operations and prospects, including the imposition of significant fines or other sanctions. +We and our contractors are highly dependent on the performance of sub-contractors and other third parties. +We and our contractors are highly dependent on the performance of sub-contractors and other third parties. If these contractors, sub-contractors and third parties are unable to deliver the results that we require, our operating results could be adversely affected and our business could be materially harmed. +Significant disruptions of our information technology systems or data security incidents could result in significant financial, legal, regulatory, business and reputational harm to us. +We are dependent on information technology systems and infrastructure, including mobile technologies, to operate our business. In the ordinary course of our business, we collect, store, process and transmit large amounts of sensitive information, including intellectual property, proprietary business information, personal information and other confidential information. It is critical that we do so in a secure manner to maintain the confidentiality, integrity and availability of such sensitive information. We have also outsourced elements of our operations (including elements of our information technology infrastructure) to third parties, and as a result, we manage a number of third-party vendors who may or could have access to our computer networks or our confidential information. In addition, many of those third parties, in turn, subcontract or outsource some of their responsibilities to third parties. While all information technology operations are inherently vulnerable to inadvertent or intentional security breaches, incidents, attacks and exposures, the accessibility and distributed nature of our information technology systems, and the sensitive information stored on those systems, make such systems potentially vulnerable to unintentional or malicious, internal and external attacks on our technology environment. In addition, some of our employees work remotely, which may make us more vulnerable to cyberattacks. Potential vulnerabilities can be exploited from inadvertent or intentional actions of our employees, third-party vendors, business partners, or by malicious third parties. Attacks of this nature are increasing in their frequency, levels of persistence, sophistication and intensity, and are being conducted by sophisticated and organized groups and individuals with a wide range of motives (including, but not limited to, industrial espionage) and expertise, including organized criminal groups, “hacktivists,” nation states and others. In addition to the extraction of sensitive information, such attacks could include the deployment of harmful malware, computer viruses, unauthorized access, ransomware, denial-of-service attacks, social engineering and other means to affect service reliability and threaten the confidentiality, integrity and availability of information. In addition, the prevalent use of mobile devices increases the risk of data security incidents. +Significant disruptions of our, our third-party vendors’ and/or our business partners’ information technology systems or other similar data security incidents could adversely affect our business operations and/or result in the loss, misappropriation, and/or unauthorized access, use or disclosure of, or the prevention of access to, sensitive information, which could result in financial, legal, regulatory, business and reputational harm to us. In addition, information technology system disruptions, whether from attacks on our technology environment or from computer viruses, natural disasters, terrorism, war and telecommunication and electrical failures, could result in a material disruption of our development programs and our business operations. Additionally, theft of our intellectual property or proprietary business information could require substantial expenditures to remedy. If we or our third-party collaborators, consultants, contractors, suppliers, or service providers were to suffer an attack or breach, for example, that resulted in the unauthorized access to or use or disclosure of personal or health information, we may have to notify consumers, partners, collaborators, government authorities, and the media, and may be subject to investigations, civil penalties, administrative and enforcement actions, and litigation, any of which could harm our business and reputation. +50 +There is no way of knowing with certainty whether we have experienced any data security incidents that have not been discovered. While we have no reason to believe this to be the case, attackers have become very sophisticated in the way they conceal access to systems, and many companies that have been attacked are not aware that they have been attacked. Any event that leads to unauthorized access, use or disclosure of personal information, including but not limited to personal information regarding our patients or employees, could disrupt our business, harm our reputation, compel us to comply with applicable federal and/or state breach notification laws and foreign law equivalents, subject us to time-consuming, distracting and expensive litigation, regulatory investigation and oversight, mandatory corrective action, require us to verify the correctness of database contents, or otherwise subject us to liability under laws, regulations and contractual obligations, including those that protect the privacy and security of personal information. This could result in increased costs to us, and result in significant legal and financial exposure and/or reputational harm. In addition, any failure or perceived failure by us or our vendors or business partners to comply with our privacy, confidentiality or data security-related legal or other obligations to third parties, or any further security incidents or other inappropriate access events that result in the unauthorized access, release or transfer of sensitive information, which could include personally identifiable information, may result in governmental investigations, enforcement actions, regulatory fines, litigation, or public statements against us by advocacy groups or others, and could cause third parties, including clinical sites, regulators or current and potential partners, to lose trust in us or we could be subject to claims by third parties that we have breached our privacy- or confidentiality-related obligations, which could materially and adversely affect our business and prospects. Moreover, data security incidents and other inappropriate access can be difficult to detect, and any delay in identifying them may lead to increased harm of the type described above. While we have implemented security measures intended to protect our information technology systems and infrastructure, there can be no assurance that such measures will successfully prevent service interruptions or security incidents. Any remedial costs or other liabilities related to cyber-attacks may not be fully insured or indemnified by other means. +Our international operations subject us to risks of doing business in foreign countries, which could adversely affect our business, financial condition and results of operations. +Our primary operations are located outside the U.S. (primarily the construction of isotope enrichment plants and the Virginia Gas Project in South Africa), and we plan to sell our isotopes, LNG and helium to customers outside the U.S. Accordingly, our business is subject to risks related to the differing legal, political, social and regulatory requirements and economic conditions of non-U.S. jurisdictions. Risks inherent in international operations include the following: +• +fluctuations in foreign currency exchange rates may affect product demand and may adversely affect the profitability in U.S. dollars of products and services we provide in international markets where payment for our products and services is made in the local currency; +• +transportation and other shipping costs may increase, or transportation may be inhibited; +• +increased cost or decreased availability of raw materials; +• +changes in foreign laws and tax rates or U.S. laws and tax rates with respect to foreign income may unexpectedly increase the rate at which our income is taxed, impose new and additional taxes on remittances, repatriation or other payments by subsidiaries, or cause the loss of previously recorded tax benefits; +• +foreign countries in which we do business may adopt other restrictions on foreign trade or investment, including currency exchange controls; +• +trade sanctions by or against these countries could result in our losing access to customers and suppliers in those countries; +• +unexpected adverse changes in foreign laws or regulatory requirements may occur; +• +our agreements with counterparties in foreign countries may be difficult for us to enforce and related receivables may be difficult for us to collect; +• +compliance with the variety of foreign laws and regulations may be unduly burdensome; +• +compliance with anti-bribery and anti-corruption laws (such as the Foreign Corrupt Practices Act) as well as anti-money- laundering laws may be costly; +• +unexpected adverse changes in export duties, quotas and tariffs and difficulties in obtaining export licenses may occur; +• +general economic conditions in the countries in which we operate could have an adverse effect on our earnings from operations in those countries; +• +our foreign operations may experience staffing difficulties and labor disputes; +• +termination or substantial modification of international trade agreements may adversely affect our access to raw materials and to markets for our products outside the U.S.; +51 +• +foreign governments may nationalize or expropriate private enterprises; +• +increased sovereign risk (such as default by or deterioration in the economies and creditworthiness of local governments) may occur; and +• +political or economic repercussions from terrorist activities, including the possibility of hyperinflationary conditions and political instability, may occur in certain countries in which we do business. +Unanticipated events, such as geopolitical changes, could result in a write-down of our investment in the affected joint venture or a delay or cause cancellation of those capital projects, which could negatively impact our future growth and profitability. Our success as a global business will depend, in part, upon our ability to succeed in differing legal, regulatory, economic, social and political conditions by developing, implementing and maintaining policies and strategies that are effective in each location where we and our joint ventures do business. +Furthermore, we will be subject to rules and regulations related to anti-bribery, anti-corruption, anti-money-laundering and anti-trust prohibitions of the U.S. and other countries, as well as export controls and economic embargoes, violations of which may carry substantial penalties. For example, export control and economic embargo regulations limit the ability of our subsidiaries to market, sell, distribute or otherwise transfer their products or technology to prohibited countries or persons. Moreover, we have to comply with the South African anti-corruption law, the Prevention and Combating of Corrupt Activities Act, No. 12 of 2004, as amended (“PRECCA”), which prohibits public and private bribery and criminalizes various categories of corrupt activities. PRECCA also contains a reporting obligation to authorities of known or suspected corrupt activities which is triggered when the value of any known or suspected acts of corruption exceeds R100,000. Failure to report said corrupt activities is a criminal offense under PRECCA and imposes significant penalties on those convicted of corrupt activities. Regulation 43 of the Companies Act also contains a number of anti-corruption compliance obligations that we must adhere to. Some applicable anti-corruption laws may also prohibit so-called commercial or private bribery of private individuals. We are subject to the jurisdiction of various governments and regulatory agencies around the world, which may bring our personnel and representatives into contact with government officials responsible for, among other things, issuing or renewing permits, licenses or approvals or for enforcing other governmental regulations. Failure to comply with these regulations could subject our subsidiaries to fines, enforcement actions and/or have an adverse effect on our reputation and the value of our Common Stock. +The ongoing military conflict between Russia and Ukraine and the USA, Israel and Iran could have a material adverse effect on the global energy industry and our business, financial condition and results of operations. +The long-term impact on our business resulting from the disruption of trade by the conflicts and associated sanctions is uncertain at this time due to the fluid nature of the ongoing military conflict and response. The potential impacts include supply chain and logistics disruptions, financial impacts including volatility in foreign exchange and interest rates, increased inflationary pressure on raw materials and energy, and other risks, including an elevated risk of cybersecurity threats and the potential for further sanctions. +The continuation of the conflict may trigger a series of additional economic and other sanctions enacted by the United States and other countries. The potential impact of supply chain and logistics disruptions, financial impacts, including volatility in helium and LNG prices, foreign exchange rates and interest rates, inflationary pressures on raw materials and energy and heightened cybersecurity threats, is uncertain at the current time due to the fluid nature of the conflict and international responses to it. To the extent any international conflict may adversely affect Renergen’s business, it may also have the effect of heightening many of the other risks described in Renergen’s risk factors, such as those relating to data security, supply chain, volatility in prices of inputs, and market conditions, any of which could negatively affect our business and financial condition. +Although we monitor developments in international relations to assess any potential future impacts that may arise, we cannot provide assurance that we will not be impacted by any current or future international conflict. The adverse effects of the ongoing conflict between Russia and Ukraine, and/or economic sanctions and import and/or export controls to be imposed on the Russian government by the United States or others, and the above-mentioned adverse effect on the global economy and market conditions could have a material adverse effect on our business, financial condition and results of operations. +Our tangible assets may be subject to defects in title. +We have investigated our rights to the assets we have purchased and developed, and, to the best of our knowledge, those rights are in good standing. However, no assurance can be given that such rights will not be revoked, or significantly altered, to our detriment. There can also be no assurance that our rights will not be challenged or impugned by third parties, including by governments and non-governmental organizations. See also “—Exploration Rights and Production Right in South Africa could be altered, suspended, or canceled for a variety of reasons, including uncertainties associated with national and local legislation.” +52 +We are subject to foreign currency risks. +Our operations are subject to foreign currency fluctuations. Our current operating expenses are primarily transacted in U.S. dollars, while our current revenues and some of our cash balances and expenses are measured in other currencies. As our business expands internationally, the U.S. dollar may or may not be our primary current for operating expenses. Any strengthening or weakening of the U.S. dollar in relation to the currencies of other countries or vice versa can have a material impact on our cash flows and profitability and affect the value of our assets and shareholders’ equity. +A prolonged government shutdown or lapse in federal appropriations could disrupt our offshore operations and delay required regulatory approvals. +Any disruption in the operations of the U.S. federal government, including as a result of any future temporary or prolonged shutdowns resulting from the failure of Congress to enact appropriations bills, raise the federal debt ceiling or otherwise, could adversely affect our business, operations and financial condition. Recently, beginning on October 1, 2025 through November 12, 2025, the U.S. federal government shut down, during which time certain regulatory agencies, such as the SEC, furloughed large numbers of employees and stopped routine activities and operations. Additionally, on October 10, 2025, the U.S. federal government implemented substantial layoffs and workforce reductions in connection with the federal government shutdown, which resulted in the suspension or delay of various government-funded programs. Furthermore, the recent federal government shutdown resulted in reduced availability of government services, and the suspension or delay of activities by key agencies that regulate or otherwise interact with our business, including the SEC. As a result, review and approval of our filings, applications, and submissions could be delayed, and we may be unable to access or rely upon certain government data or systems. Any U.S. federal government shutdown or prolonged budget negotiation uncertainty may further adversely affect the broader U.S. economy, investor confidence, and capital markets. Such conditions could negatively impact the liquidity or trading volume of our securities, which in turn could have a material adverse effect on our business, results of operations, and stock prices. +Changes in U.S. trade policy and the impact of tariffs may have a negative effect on our business, financial condition and results of operations. +Our business and results of operations may be adversely affected by uncertainty and changes in U.S. trade policies, including tariffs, trade agreements or other trade restrictions imposed by the U.S. or other governments. For example, on April 2, 2025, the U.S. government announced a 10% tariff on product imports from almost all countries and individualized higher tariffs on certain other countries. Several tariff announcements have been followed by announcements of limited exemptions and temporary pauses. Global trade policy continues to evolve and the ultimate impact of recent developments with respect to U.S. tariffs is unclear. On February 20, 2026, the United States Supreme Court issued a ruling striking down certain tariffs previously imposed under the International Emergency Economic Powers Act (“IEEPA”). Following the Supreme Court’s decision, the U.S. presidential administration announced its intention to invoke other laws to collect tariffs and announced new tariffs on imports from all countries, in addition to any existing non-IEEPA tariffs. +There remains substantial uncertainty regarding the duration of existing and newly announced tariffs, potential changes or pauses to such tariffs, tariff levels, and whether further additional tariffs or other retaliatory actions may be imposed, modified, or suspended, and the impacts of such actions on our business. Furthermore, the process for potential refunds remains unclear. These and future changes in tariffs, trade policies, trade actions, or retaliatory trade measures in response, have resulted and may continue to result in decreased demand and price for the commodities that we produce, increase our operating costs and contribute to inflation in the markets in which we operate. +Changes in tariffs and trade restrictions can be announced with little or no advance notice. The adoption and expansion of tariffs or other trade restrictions, increasing trade tensions, or other changes in governmental policies related to taxes, tariffs, trade agreements or policies, are difficult to predict, which makes attendant risks difficult to anticipate and mitigate. Although we are continuing to monitor the economic effects of such announcements, as well as opportunities to mitigate their related impacts, costs and other effects associated with the tariffs remain uncertain. If we are unable to navigate further changes in U.S. or international trade policy, it could have a material adverse impact on our business and results of operations. +Strikes, riots and labor disruptions can damage economic growth and, in turn, negatively impact our business. +Strikes, riots and labor disruptions can damage economic growth and, in turn, lead to loss of production and/or interruption of our operations. We could suffer supply chain disruptions due to any labor disputes, slowdowns or shutdowns that may occur. For example, during the height of the COVID-19 pandemic due to government enforced lockdowns, Renergen suffered project delays for various components of Renergen’s gas gathering system, balance of plant utilities and LNG and liquid helium processing plant because of supply chain challenges. Renergen also experienced a two to three times increase in shipping transit times from China, Europe and the U.S. to South Africa, which exacerbated many of Renergen’s project delays. Additionally, South Africa experienced a period of political unrest in July 2021 as a result of the sentencing of the former President Jacob Zuma for contempt of court, which led to significant labor disruptions in the regions of Kwa-Zulu Natal and Gauteng. Any labor strikes, riots and/or +53 +labor disruptions may negatively impact our employment relationships and could increase our risk exposure, which in turn could negatively impact on our results of operations and financial condition. +Unplanned stoppages and unforeseen operational interruptions and operational accidents or injuries could adversely affect our performance. +Unplanned stoppages and unforeseen operational interruptions and operational accidents or injuries could adversely affect our performance. Our operational processes may be subject to operational accidents, including but not limited to processing plant fires and explosions, damages caused by abnormal wear, inclement weather, incorrect operation, rock bursts, cave-ins or falls of ground, collapse of pit walls, flooding, loss of power supply, environmental pollution and mechanical critical equipment failures. Additionally, non-compliance with critical controls could lead to safety incidents or potential fatalities. The occurrence of one or more of these events may result in the death of, or personal injury to, personnel, the loss of equipment, damage to or destruction of properties or facilities, disruptions in production, increased costs, environmental damage and potential legal liabilities, all of which could have an adverse effect on our business financial condition and results of operations. +Risks Related to Ownership of Our Common Stock +Short sellers of our stock may seek to drive down the market price of our Common Stock, harm our brand and reputation, and negatively impact our business, operating results and financial condition. +Short sellers may take actions that could drive down the market price of our common stock, which could also result in related regulatory and governmental scrutiny, among other effects. +Short selling is the practice of selling securities that the seller does not own, but rather has borrowed or intends to borrow from a third party with the intention of buying identical securities at a later date to return to the lender. A short seller hopes to profit from a decline in the price of the securities between the sale of the borrowed securities and the purchase of the replacement shares, as the short seller hopes to pay less in that purchase than it received in the sale. It is therefore in the short seller’s interest for the price of the stock to decline. At any time, short sellers may publish, or arrange for the publication of, their opinions or characterizations of us that may cause negative market reactions and declines in the price of our common stock. Issuers, like us, whose common stock has historically had limited trading history or volumes and/or have been susceptible to relatively high volatility levels can be vulnerable to such short seller publications. +In November 2024, a short seller report was published about us, followed by a decrease in the price of our publicly traded securities. The short seller report and ensuing stock drop was followed by a purported stockholder filing a putative securities class action in the United States District Court for the Southern District of New York. For additional information, see Item 3 of Part I, “Legal Proceedings,” of this Annual Report on Form 10-K. +We may be the subject of future short seller publications which may result in the loss of customers, lawsuits and government investigations, the uncertainty and expense of which could harm our brand and reputation and negatively impact our business, operating results and financial condition. There are no assurances against future short seller publications, or claims related to our share price, which may result in the aforementioned adverse consequences. +We do not know whether an active, liquid and orderly trading market will be sustained for our Common Stock or what the market price of our Common Stock will be and as a result it may be difficult for you to sell your shares of our Common Stock. +Prior to our IPO in November of 2022, there was no public market for shares of our Common Stock. Although our Common Stock is listed on the Nasdaq Capital Market, only a limited trading market for our shares has developed, and an active market may never develop or if developed be sustained in the future. You may not be able to sell your shares quickly or at the market price if trading in shares of our Common Stock is not active. Further, an inactive market may also impair our ability to raise capital by selling shares of our Common Stock and may impair our ability to enter into strategic partnerships or acquire companies or products by using our shares of Common Stock as consideration. +The price of our stock may be volatile, and you could lose all or part of your investment. +The trading price of our Common Stock has fluctuated significantly since our initial public offering (“IPO”), and may continue to be volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control, including limited trading volume. In addition to the factors discussed in this “Risk Factors” section and elsewhere in this Annual Report on Form 10-K, these factors include: +• +adverse results or delays in our development activities; +• +adverse regulatory decisions, including failure to receive regulatory approval for our future isotopes; +54 +• +changes in laws or regulations applicable to our future isotopes, including but not limited to requirements for approvals; +• +any changes to our relationship with any manufacturers, suppliers, licensors, future collaborators or other strategic partners; +• +our inability to obtain adequate product supply for any future isotope or inability to do so at acceptable prices; +• +our inability to establish collaborations if needed; +• +our failure to commercialize our future isotopes; +• +additions or departures of key scientific or management personnel; +• +unanticipated serious safety concerns related to the use of our future isotopes; +• +introduction of new products or services offered by us or our competitors; +• +announcements of significant acquisitions, strategic partnerships, joint ventures, or capital commitments by us or our competitors; +• +our ability to effectively manage our growth; +• +actual or anticipated variations in quarterly operating results; +• +our cash position; +• +our failure to meet the estimates and projections of the investment community or that we may otherwise provide to the public; +• +publication of research reports about us or our industry or positive or negative recommendations or withdrawal of research coverage by securities analysts; +• +changes in the market valuations of similar companies; +• +overall performance of the equity markets; +• +issuances of debt or equity securities; +• +sales of our Common Stock by us or our stockholders in the future or the perception that such sales may occur; +• +trading volume of our Common Stock; +• +changes in accounting practices; +• +ineffectiveness of our internal controls; +• +disputes or other developments relating to proprietary rights, including patents, litigation matters, and our ability to obtain patent protection for our technologies; +• +significant lawsuits, including patent or stockholder litigation; +• +general political and economic conditions, including military conflict or the effects of pandemics; and +• +other events or factors, many of which are beyond our control. +Stock markets in general and technology companies in particular have experienced volatility that has often been unrelated to the operating performance of a particular company. These broad market fluctuations could adversely affect the trading price of our common stock. These fluctuations may also cause short sellers to periodically enter the market on the belief that we may experience worse results in the future. We cannot predict the actions of market participants and, therefore, can offer no assurances that the market for our common stock will be stable or appreciate over time. +We do not intend to pay dividends on our Common Stock, so any returns will be limited to the value of our stock. +We have never declared or paid any cash dividend on our Common Stock. We currently anticipate that we will retain future earnings for the development, operation, and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. Any return to stockholders would therefore be limited to the appreciation, if any, of their stock. +55 +Our principal stockholders and management own a significant percentage of our stock and will be able to exert significant control over matters subject to stockholder approval. +Our executive officers, current directors, greater than 5% holders, and their affiliates beneficially own, in the aggregate, approximately 20.5% of our Common Stock as of December 31, 2025. Therefore, these stockholders will have the ability to influence us through this ownership position. These stockholders may be able to determine all matters requiring stockholder approval. For example, these stockholders may be able to control elections of directors, amendments of our organizational documents, or approval of any merger, sale of assets, or other major corporate transaction. This may prevent or discourage unsolicited acquisition proposals or offers for our Common Stock that you may feel are in your best interest as one of our stockholders. +Sales of a substantial number of shares of our Common Stock by our existing stockholders in the public market, or the perception that such sales could occur, could cause our stock price to fall. +As of April 6, 2026, we had a total of 125,903,447 shares of Common Stock outstanding. If our existing stockholders sell, or indicate an intention to sell, substantial amounts of our Common Stock in the public market, the trading price of our Common Stock could decline. +Of our outstanding Common Stock, the shares held by directors, executive officers, and other affiliates are subject to volume limitations under Rule 144 under the Securities Act. In addition, 4,108,036 shares of Common Stock that are either subject to outstanding options or reserved for future issuance under our employee benefit plans will become eligible for sale in the public market to the extent permitted by the provisions of various vesting schedules, and Rule 144 under the Securities Act. If these additional shares of Common Stock are sold, or if it is perceived that they will be sold in the public market, the trading price of our Common Stock could decline. Any sales of securities by our stockholders could have a material adverse effect on the trading price of our Common Stock. +Future sales and issuances of our Common Stock or rights to purchase Common Stock, including pursuant to our equity incentive plans, could result in additional dilution of the percentage ownership of our stockholders and could cause our stock price to fall. +We expect that we will need significant additional capital in the future to continue our planned operations, including development activities, commercialization efforts if we are able to obtain marketing approval of future isotopes, research and development activities, and costs associated with operating a public company. To raise capital, we may sell Common Stock, convertible securities or other equity securities in one or more transactions at prices and in a manner that we determine from time to time. If we sell Common Stock, convertible securities or other equity securities, investors may be materially diluted by subsequent sales. Such sales may also result in material dilution to our existing stockholders, and new investors could gain rights, preferences and privileges senior to the holders of our Common Stock. +Pursuant to our 2022 Plan, our management is authorized to grant stock options to our employees, directors and consultants. Additionally, the number of shares of our Common Stock reserved for issuance under our 2022 Plan will automatically increase on January 1 of each year, beginning on January 1, 2023 and continuing through and including January 1, 2032, by 5% of the total number of shares of our capital stock outstanding on December 31 of the preceding calendar year (determined on an as-converted to voting Common Stock basis, without regard to any limitations on the conversion of the non-voting Common Stock), or a lesser number of shares determined by our board of directors. Such issuances will result in dilution to our stockholders. +We have broad discretion in the use of our existing cash and cash equivalents and may not use them effectively. +Our management has broad discretion in the application of our existing cash and cash equivalents. Because of the number and variability of factors that will determine our use of our existing cash and cash equivalents, their ultimate use may vary substantially from their currently intended use. Our management might not apply our existing cash and cash equivalents in ways that ultimately increase the value of our Common Stock. The failure by our management to apply these funds effectively could harm our business. We intend to invest our existing cash and cash equivalents that are not used as described above in short- and medium-term, investment-grade, interest-bearing instruments, certificates of deposit or direct or guaranteed obligations of the U.S. government. These investments may not yield a favorable return to our stockholders. If we do not invest or apply our existing cash and cash equivalents in ways that enhance stockholder value, we may fail to achieve expected financial results, which could cause our stock price to decline. +56 +We are an emerging growth company and a smaller reporting company, and the reduced reporting requirements applicable to emerging growth companies and smaller reporting companies may make our Common Stock less attractive to investors. +We are an emerging growth company, as defined in the JOBS Act. For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding nonbinding advisory votes on executive compensation and stockholder approval of any golden parachute payments not previously approved. We could be an emerging growth company until December 31, 2027, although circumstances could cause us to lose that status earlier, including if we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act or if we have total annual gross revenue of $1.235 billion or more during any fiscal year before that time, in which cases we would no longer be an emerging growth company as of the following December 31 or, if we issue more than $1.0 billion in non-convertible debt during any three year period before that time, we would cease to be an emerging growth company immediately. Even after we no longer qualify as an emerging growth company, we may still qualify as a “smaller reporting company” which would allow us to take advantage of many of the same exemptions from disclosure requirements including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements. Investors may find our Common Stock less attractive because we may rely on these exemptions. If some investors find our Common Stock less attractive as a result, there may be a less active trading market for our Common Stock and our stock price may be more volatile. +In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an emerging growth company to delay the adoption of accounting standards that have different effective dates for public and private companies until those standards would otherwise apply to private companies. We have elected to avail ourselves of this exemption from new or revised accounting standards, and therefore we will not be subject to the same requirements to adopt new or revised accounting standards as other public companies that are not emerging growth companies. +We are also a “smaller reporting company” as defined in the Exchange Act. We may continue to be a smaller reporting company even after we are no longer an emerging growth company. We may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as our voting and non-voting common stock held by non-affiliates is less than $250.0 million measured on the last business day of our second fiscal quarter, or our annual revenue is less than $100.0 million during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is less than $700.0 million measured on the last business day of our second fiscal quarter. +Delaware law and provisions in our certificate of incorporation and bylaws, as amended, could make a merger, tender offer or proxy contest difficult, thereby depressing the trading price of our common stock. +Provisions of certificate of incorporation and bylaws as amended may delay or discourage transactions involving an actual or potential change in our control or change in our management, including transactions in which stockholders might otherwise receive a premium for their shares or transactions that our stockholders might otherwise deem to be in their best interests. Therefore, these provisions could adversely affect the price of our common stock. Among other things, our amended and restated certificate of incorporation and amended and restated bylaws: +• +permit our board of directors to issue up to 10,000,000 shares of preferred stock, with any rights, preferences and privileges as they may designate (including the right to approve an acquisition or other change in our control); +• +provide that the authorized number of directors may be changed only by resolution of the board of directors; +• +provide that our board of directors or any individual director may only be removed with cause and the affirmative vote of the holders of at least 66-2/3% of the voting power of all of our then-outstanding shares of the capital stock entitled to vote generally in the election of directors, voting together as a single class; +• +provide that all vacancies, including newly created directorships, may, except as otherwise required by law, be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum; +• +divide our board of directors into three classes; +57 +• +require that any action to be taken by our stockholders must be effected at a duly called annual or special meeting of stockholders and not be taken by written consent; +• +provide that stockholders seeking to present proposals before a meeting of stockholders or to nominate candidates for election as directors at a meeting of stockholders must provide notice in writing in a timely manner and also specify requirements as to the form and content of a stockholder’s notice; +• +do not provide for cumulative voting rights (therefore allowing the holders of a majority of the shares of common stock entitled to vote in any election of directors to elect all of the directors standing for election, if they should so choose); +• +provide that special meetings of our stockholders may be called only by the chair of our board of directors, our Chief Executive Officer or by the board of directors pursuant to a resolution adopted by a majority of the total number of authorized directors; and +• +provide that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for the following types of actions or proceedings under state, statutory and common law: (i) any derivative action or proceeding brought on our behalf; (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders; (iii) any action asserting a claim pursuant to any provision of the Delaware General Corporation Law, our certificate of incorporation or our bylaws; (iv) any action as to which the Delaware General Corporation Law confers jurisdiction to the Court of Chancery of the State of Delaware; and (v) any action governed by the internal affairs doctrine, in all cases subject to the court’s having personal jurisdiction over the indispensable parties named as defendants; provided these provisions of our amended and restated certificate of incorporation and amended and restated bylaws will not apply to suits brought to enforce a duty or liability created by the Exchange Act, or any other claim for which the federal courts have exclusive jurisdiction; and provided that, unless we consent in writing to the selection of an alternative forum, to the fullest extent permitted by law, the federal district courts of the United States of America shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act of 1933, as amended (Securities Act), including all causes of action asserted against any defendant to such complaint. For the avoidance of doubt, this provision is intended to benefit and may be enforced by us, our officers and directors, the underwriters to any offering giving rise to such complaint, and any other professional or entity whose profession gives authority to a statement made by that person or entity and who has prepared or certified any part of the documents underlying the offering. +These provisions, with the exception of the ability of our board of directors to issue shares of preferred stock and designate any rights, preferences and privileges thereto, would require approval by the holders of at least 66-2/3% of our then-outstanding common stock. +In addition, as a Delaware corporation, we are subject to Section 203 of the Delaware General Corporation Law. These provisions may prohibit large stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or combining with us for a certain period of time. A Delaware corporation may opt out of this provision by express provision in its original certificate of incorporation or by amendment to its certificate of incorporation or bylaws approved by its stockholders. However, we have not opted out of this provision. +These and other provisions in our certificate of incorporation and bylaws, as amended, and Delaware law could make it more difficult for stockholders or potential acquirors to obtain control of our board of directors or initiate actions that are opposed by our then-current board of directors, including delay or impede a merger, tender offer or proxy contest involving our company. The existence of these provisions could negatively affect the price of our common stock and limit opportunities for you to realize value in a corporate transaction. +Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware will be the exclusive forum for certain disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees. +Our amended and restated certificate of incorporation provides that, subject to the court’s having personal jurisdiction over the indispensable parties named as defendants, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for the following types of actions or proceedings: +• +any derivative action or proceeding brought on our behalf; +• +any action asserting a claim of breach of fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders; +58 +• +any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, our certificate of incorporation or bylaws; +• +any action as to which the Delaware General Corporation Law confers jurisdiction to the Court of Chancery of the State of Delaware; and +• +any action asserting a claim that is governed by the internal affairs doctrine. +This provision would not apply to suits brought to enforce a duty or liability created by the Exchange Act. Furthermore, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all such Securities Act actions. Accordingly, both state and federal courts have jurisdiction to entertain such claims. To prevent having to litigate claims in multiple jurisdictions and the threat of inconsistent or contrary rulings by different courts, among other considerations, our amended and restated certificate of incorporation further provides that the federal district courts of the United States of America will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act. While the Delaware courts have determined that such choice of forum provisions are facially valid, a stockholder may nevertheless seek to bring a claim in a venue other than those designated in the exclusive forum provisions. In such instance, we would expect to vigorously assert the validity and enforceability of the exclusive forum provisions of our amended and restated certificate of incorporation. This may require significant additional costs associated with resolving such action in other jurisdictions and there can be no assurance that the provisions will be enforced by a court in those other jurisdictions. +These exclusive forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, or other employees, which may discourage lawsuits against us and our directors, officers and other employees. If a court were to find either exclusive forum provision in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur further significant additional costs associated with resolving the dispute in other jurisdictions, all of which could seriously harm our business. +We are currently listed on The Nasdaq Capital Market. If we are unable to maintain listing of our securities on Nasdaq or any stock exchange, our stock price could be adversely affected and the liquidity of our stock and our ability to obtain financing could be impaired and it may be more difficult for our shareholders to sell their securities. +Although our Common Stock is currently listed on The Nasdaq Capital Market, we may not be able to continue to meet the exchange’s minimum listing requirements or those of any other national exchange. If we are unable to maintain listing on Nasdaq or if a liquid market for our Common Stock does not develop or is sustained, our Common Stock may remain thinly traded. +The Listing Rules of Nasdaq require listing issuers to comply with certain standards in order to remain listed on its exchange. If, for any reason, we should fail to maintain compliance with these listing standards and Nasdaq should delist our securities from trading on its exchange and we are unable to obtain listing on another national securities exchange, a reduction in some or all of the following may occur, each of which could have a material adverse effect on our shareholders: +• +the liquidity of our Common Stock; +• +the market price of our Common Stock; +• +our ability to obtain financing for the continuation of our operations; +• +the number of investors that will consider investing in our Common Stock; +• +the number of market makers in our Common Stock; +• +the availability of information concerning the trading prices and volume of our Common Stock; and +• +the number of broker-dealers willing to execute trades in shares of our Common Stock. +General Risk Factors +We will incur significant increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives. +We became a public company in November of 2022, and as a public company we will incur significant legal, accounting, and other expenses that we did not incur as a private company. We are subject to the reporting requirements of the Exchange Act, which require, among other things, that we file with the SEC annual, quarterly, and current reports with respect to our business and financial condition. In addition, the Sarbanes-Oxley Act, as well as rules subsequently adopted by the SEC and Nasdaq to implement provisions of the Sarbanes-Oxley Act, impose significant requirements on public companies, including requiring establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices. Further, in July 2010, the +59 +Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) was enacted. There are significant corporate governance and executive compensation-related provisions in the Dodd-Frank Act that require the SEC to adopt additional rules and regulations in these areas such as “say on pay” and proxy access. Emerging growth companies and smaller reporting companies are exempted from certain of these requirements, but we may be required to implement these requirements sooner than budgeted or planned and thereby incur unexpected expenses. Stockholder activism, the current political environment and the current high level of government intervention and regulatory reform may lead to substantial new regulations and disclosure obligations, which may lead to additional compliance costs and impact the manner in which we operate our business in ways we cannot currently anticipate. +We expect the rules and regulations applicable to public companies to substantially increase our legal and financial compliance costs and to make some activities more time-consuming and costly. If these requirements divert the attention of our management and personnel from other business concerns, they could have a material adverse effect on our business, financial condition, and results of operations. The increased costs will decrease our net income or increase our net loss, and may require us to reduce costs in other areas of our business or increase the prices of our products or services. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to incur substantial costs to maintain the same or similar coverage. We cannot predict or estimate the amount or timing of additional costs we may incur to respond to these requirements. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers. +We have identified a material weakness in our internal control over financial reporting. If our remediation of this material weakness is not effective, or if we experience material weaknesses in the future or otherwise fail to implement and maintain an effective system of internal controls in the future, we may not be able to accurately report our financial condition or results of operations which may adversely affect investor confidence in us, and as a result, the value of our Common Stock. +Our Common Stock was listed on the Nasdaq Capital Market on November 10, 2022. Prior to listing, we were a privately-held company, we were not required to evaluate our internal control over financial reporting in a manner that meets the standards of publicly traded companies required by Section 404(a) of the Sarbanes-Oxley Act, or Section 404. As a public company, we are subject to significant requirements for enhanced financial reporting and internal controls. The process of designing and implementing effective internal controls is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company. In addition, we are required, pursuant to Section 404, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting in the annual report. This assessment includes disclosure of any material weaknesses identified by our management in our internal control over financial reporting. A material weakness is a deficiency or combination of deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual and interim financial statements will not be detected or prevented on a timely basis. +The rules governing the standards that must be met for our management to assess our internal control over financial reporting are complex and require significant documentation, testing, and possible remediation. Testing and maintaining internal controls may divert management’s attention from other matters that are important to our business. Once we are no longer an “emerging growth company,” or a “smaller reporting company,” our auditors will be required to issue an attestation report on the effectiveness of our internal controls on an annual basis. +In the course of preparing the financial statements that are included in this Annual Report on Form 10-K, management has determined that a material weakness exists within the internal controls over financial reporting. The material weakness identified relates to the lack of formal control documentation and consistent execution of control procedures, and the lack of a sufficient complement of personnel within the finance and accounting function with an appropriate degree of knowledge, experience and training. We also noted a material weakness related to logical security and privileged access in the area of information technology. We concluded that the material weaknesses in our internal control over financial reporting information technology occurred because, prior to our IPO, we were a private company and did not have the necessary business processes, systems, personnel, and related internal controls necessary to satisfy the accounting and financial reporting requirements of a public company. +In order to remediate the material weaknesses, we expect to enhance our formal documentation over internal control procedures and management controls infrastructure to allow for more consistent execution of control procedures and hire additional accounting, finance and information technology resources or consultants with public company experience. +60 +We may not be able to fully remediate the identified material weakness until the steps described above have been completed and our internal controls have been operating effectively for a sufficient period of time. We believe we have already and will continue to make progress in our remediation plan but cannot assure you that we will be able to fully remediate the material weakness by such time. If the steps we take do not correct the material weakness in a timely manner, we will be unable to conclude that we maintain effective internal control over financial reporting. Accordingly, there could continue to be a reasonable possibility that a material misstatement of our financial statements would not be prevented or detected on a timely basis. We also may incur significant costs to execute various aspects of our remediation plan but cannot provide a reasonable estimate of such costs at this time. +In the future, it is possible that additional material weaknesses or significant deficiencies may be identified that we may be unable to remedy before the requisite deadline for these reports. Our ability to comply with the annual internal control reporting requirements will depend on the effectiveness of our financial reporting and data systems and controls across our company. Any weaknesses or deficiencies or any failure to implement new or improved controls, or difficulties encountered in the implementation or operation of these controls, could harm our operating results and cause us to fail to meet our financial reporting obligations, or result in material misstatements in our consolidated financial statements, which could adversely affect our business and reduce our stock price. +If we are unable to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404, our independent registered public accounting firm may not issue an unqualified opinion. If we are unable to conclude that we have effective internal control over financial reporting, investors could lose confidence in our reported financial information, which could have a material adverse effect on the trading price of our Common Stock. Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets. +We have been and could be in the future subject to securities class action litigation. +Securities class action litigation has often been brought against a company following a decline in the market price of its securities. For example, on December 4, 2024, a purported stockholder of the Company filed a putative securities class action on behalf of purchasers of the Company’s securities between October 30, 2024 through November 26, 2024 against ASP Isotopes Inc. and certain of its executive officers in the United States District Court for the Southern District of New York (Corredor v. ASP Isotopes Inc., et al., Case No. 1:24-cv-09253 (S.D.N.Y.)) (the “Securities Class Action”). The Securities Class Action alleges that the Company, its chief executive officer and chief financial officer (“Defendants”) made materially misleading or false statements or omissions regarding the Company’s business and asserts purported claims under §§ 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 promulgated thereunder, seeking unspecified compensatory damages, attorney’s fees and costs. On June 27, 2025, Defendants filed a motion to dismiss the Amended Complaint. Also on June 27, 2025, Plaintiffs filed a motion for class certification. On December 4, 2025, the Court denied in part Defendants’ motion to dismiss and granted Plaintiffs’ motion for class certification. On April 3, 2026, following a mediation in which the parties reached an agreement-in-principle to resolve all claims in the Securities Class Action, subject to the Court’s approval, the parties filed a Joint Stipulation agreeing to stay the Securities Class Action (the “Stipulation”). The Stipulation requires the parties to file a stipulation of settlement and for the Plaintiffs to file a motion for preliminary approval of the stipulation of settlement within 60 days of the Court’s approval of the Stipulation. On April 6, 2026, the Court approved the Joint Stipulation. We cannot be certain of the outcome of the Securities Class Action and, if decided adversely to us, our business and financial condition may be adversely affected. This risk continues to be relevant for us because technology companies continue to experience significant stock price volatility. The Securities Class action and any future similar securities class action litigation could result in substantial costs and a diversion of management’s attention and resources, which could harm our business. +Our failure to meet Nasdaq’s continued listing requirements could result in a delisting of our Common Stock. +If we fail to satisfy the continued listing requirements of Nasdaq, such as the corporate governance requirements or the minimum closing bid price requirement, Nasdaq may take steps to delist our Common Stock. Such a delisting would likely have a negative effect on the price of our Common Stock and would impair your ability to sell or purchase our Common Stock when you wish to do so. In the event of a delisting, we can provide no assurance that any action taken by us to restore compliance with listing requirements would allow our Common Stock to become listed again, stabilize the market price or improve the liquidity of our Common Stock, prevent our Common Stock from dropping below the Nasdaq minimum bid price requirement or prevent future non-compliance with the listing requirements of Nasdaq. +61 +If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline. +The trading market for our Common Stock depends in part on the research and reports that securities or industry analysts publish about us or our business. Securities and industry analysts do not currently, and may never, publish research on our company. If no securities or industry analysts commence coverage of our company, the trading price for our stock would likely be negatively impacted. In the event securities or industry analysts initiate coverage, if one or more of the analysts who covers us downgrades our stock or publishes inaccurate or unfavorable research about our business, our stock price may decline. If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our stock could decrease, which might cause our stock price and trading volume to decline. +Risks Related to Quantum Leap Energy’s Business and Industry +QLE’s future success depends, in part, on target markets that are not yet, and may never be, established. Furthermore, even if QLE’s target markets grow as expected by our management team, our ability to penetrate these markets is uncertain. +QLE’s ability to make sales of certain critical isotopes for advanced nuclear fuels, specifically HALEU, LEU+ and enriched Lithium-6 as well as Lithium-7, depends on growth in markets that have not yet been established, including the SMR and the fusion reactor industries. Our expectations regarding the potential for future growth in the markets for certain critical isotopes for advanced nuclear fuels, and the third-party growth estimates for these markets, are subject to uncertainty. Furthermore, even if there is successful development and deployment of SMRs and fusion reactors, we cannot assure you that demand for certain critical isotopes for advanced nuclear fuels will grow commensurate with such development and deployment. If market demand for these critical isotopes does not grow as expected, we cannot be sure that our business will grow at a similar rate, or at all, and our business and prospects may be adversely affected. +In addition, QLE may face significant competition in the future from others who may develop new technologies to make sales of critical isotopes for advanced nuclear fuels that could render our products or services less desirable or noncompetitive. If QLE is unable to produce commercial quantities of HALEU, LEU+, Lithium-6 or Lithium-7 to meet customer demands at scale or as efficiently as our competitors, our business, results of operations, financial condition and growth prospects will be adversely affected. +If QLE is unable to advance its current and future research and development activities, obtain applicable regulatory approval and ultimately commercialize critical isotopes for advanced nuclear fuels, or experience significant delays in doing so, QLE’s business will be materially harmed. +QLE has launched four programs to date across four countries, comprising eleven projects spanning conversion, enrichment of lithium and uranium, deconversion and waste treatment technologies. QLE’s business model is based on the anticipated future demand for HALEU for the new generation of HALEU-fueled SMRs and advanced reactor designs that are now under development for commercial and government uses. QLE may need to invest significant financial resources in research and product development to keep pace with anticipated technological advances in the industry and to compete in the future, and we may be unable to secure such financing on favorable terms or at all. +QLE’s ability to generate product revenues will depend heavily on the success of QLE’s current and future research and development activities, receipt of applicable regulatory approvals, and eventual commercialization of critical isotopes for advanced nuclear fuels (assuming receipt of applicable regulatory approvals and compliance with all applicable regulatory authorities). +The success of QLE’s business, including its ability to finance its operations and generate any revenue in the future, will primarily depend on the successful development, regulatory approval and commercialization of QLE’s currently planned critical isotopes for advanced nuclear fuels, which may never occur. +QLE will have to be successful in a range of challenging activities, including completing current and future research and development activities relating to QLE’s licensed technology, obtaining applicable regulatory approvals and manufacturing, marketing and selling isotopes (assuming receipt of applicable regulatory approvals). QLE is only in the preliminary stages of most of these activities. If we are unable to succeed in these activities, we may not be able to generate sufficient revenue to continue QLE’s business. +In the period since our inception to date, neither we nor QLE has applied our enrichment technologies to the enrichment of U-235, nor have we or QLE received permission or regulatory approval to conduct testing of our enrichment technologies on U-235, except for the activities contemplated by the Services Contract with Necsa. Our expectation that QLE’s initiative to apply our enrichment technologies to the enrichment of U-235 could be successful is based upon research conducted by certain of our scientists prior to joining the company, as well as the demonstrated effectiveness of QE technology on Yb-176. +62 +If QLE cannot acquire regulatory approvals to leverage its technologies across borders, QLE may need to develop distinctly unique commercial production methods for enriching lithium and uranium for fuel production in each of South Africa, the US and the UK, and QLE’s success in developing and obtaining regulatory approval of QLE’s production method in one jurisdiction does not mean that QLE will be successful in developing and obtaining regulatory approval of a different production method in another jurisdiction. +QLE plans to leverage its existing footprint to develop intellectual property simultaneously in the US, the UK and South Africa. Developing and obtaining regulatory approval of QLE’s production method in one jurisdiction does not guarantee that QLE will be able to develop and obtain regulatory approval of a different production method in another jurisdiction. A failure or delay in developing or obtaining regulatory approval of QLE’s production method in one jurisdiction may have a negative effect on the development or regulatory approval process of a different production method in another jurisdiction. Regulatory approval procedures vary among jurisdictions and can involve requirements and administrative review periods different from jurisdiction to jurisdiction. Any delay in developing and obtaining regulatory approval of QLE’s production methods could result in significant difficulties and costs for us. If QLE fails to develop or receive applicable regulatory approval of QLE’s production methods in one or more of QLE’s active jurisdictions, QLE’s ability to realize the full market potential for isotopes for advanced fission and fusion reactors will be adversely affected. +Technological changes could render QLE’s technology uncompetitive or obsolete, which could prevent QLE from achieving market share and sales. +QLE’s failure to refine or advance QE technology could cause QLE to become uncompetitive or obsolete, which, in turn, could prevent QLE from achieving market share and sales. A variety of competing alternative technologies may be in development by other companies that could result in lower commercialization or operating costs and/or higher performance than those expected for QLE’s technology. QLE’s development efforts may be rendered obsolete by the technological advances of others, and other technologies may prove more advantageous for commercialization. +QLE is a party to several non-binding memorandums of understanding with third parties that may not result in the parties entering into definitive agreements. +QLE is a party to several non-binding memorandums of understanding with third parties for uranium enrichment. QLE’s South African subsidiary, Quantum Leap Energy (Pty) Ltd., has entered into a Services Contract with Necsa as part of the collaboration contemplated by the MOU. Under the Services Contract, Necsa has agreed to provide to QLE South Africa certain facilities, infrastructure, utilities and services related to the siting, design, construction, commission and operation of an enrichment facility on the Necsa site in Pelindaba. However, QLE anticipates entering into additional agreements with Necsa and, except for the Services Contract with Necsa, QLE has not entered into any definitive agreements with third parties for uranium enrichment to date, and such definitive agreements may not ultimately be entered into on terms contemplated, if at all. If QLE is unable to enter into definitive agreements with one or more of these third parties, QLE’s business, results of operations and financial condition may be materially adversely affected. +Competition from existing or new companies could cause QLE to experience downward pressure on prices, fewer customer orders, reduced margins, the inability to take advantage of new business opportunities, and the loss of market share. +The nuclear fuel cycle industry is highly concentrated among several well-established players whose activities are mostly focused on commercial LEU production for use in nuclear fuel fabricated for existing large light water reactors (“LWRs”), and to our knowledge, no existing LWR has announced any intent to use HALEU. Uranium enrichment technology today for making LEU primarily consists of a very large number of cascades of centrifuges. HALEU production can be done with centrifuges but requires significant CAPEX to expand from LEU to HALEU (as evidenced by the $2.7 billion that DOE recently awarded to companies to try to jump start commercial HALEU production), and the enrichment process takes longer to produce HALEU than LEU because there are more stages to get from 5% to 19.75% enriched uranium. Should these incumbents seek to expand into LEU+ and HALEU markets, we believe that they would need to acquire or develop new technologies to do so. One company in the US that currently has the capability to produce HALEU is Centrus Energy Corp., which is projecting a multi-year buildout for its commercial HALEU facility with significant capital requirements. In addition, Urenco Group was recently approved by the NRC to produce LEU+ in the US. Both of these companies use gas centrifuges, as opposed to lasers, to enrich uranium. These companies and others, currently or in the future, may compete with some or all of QLE’s offerings. In addition, in some instances, QLE has strategic or other commercial relationships with companies with which QLE currently or in the future may compete. +Many of QLE principal competitors have substantially longer operating histories, larger numbers of existing customers, greater capital and research and development resources, broader sales and marketing capabilities, stronger brand and customer recognition, larger intellectual property portfolios and broader global distribution and presence. QLE’s competitors may be able to produce critical isotopes or offer services similar to QLE’s services at a more attractive price than QLE can. Acquisitions and consolidation in QLE’s industry may provide QLE’s competitors even more resources or may increase the likelihood of QLE’s competitors offering integrated products with which QLE cannot effectively compete. New innovative start-ups and existing large companies that are making significant investments in research and development could also launch new technologies and services +63 +that could gain market acceptance quickly. If QLE were unable to anticipate or react to these competitive challenges, QLE’s competitive position would weaken, which would adversely affect QLE’s business, results of operations and financial condition. +QLE may be unable to attract customers as quickly as expected, or at all, and in certain instances expect to be heavily dependent on a limited number of customers to generate a majority of QLE’s revenues. +SMRs and advanced nuclear technologies are relatively new and unproven and may be more costly than alternatives. Accordingly, adoption of SMRs and advanced nuclear technologies among QLE’s potential customers may progress more slowly than we anticipate or it may be more expensive to bring potential customers into QLE’s pipeline. Any delay or failure to attract potential customers may have a material and adverse impact on QLE’s business and financial condition. +Additionally, to date, ASP Isotopes has entered into supply agreements with TerraPower for the future supply of HALEU, including an Initial Supply Agreement and Long-Term Supply Agreement, which QLE expects to assume prior to completion of this offering. The Initial Supply Agreement is intended to support the supply of the HALEU for the first fuel core for TerraPower’s initial Natrium reactor project in Wyoming (“Initial Supply Agreement”). The Long-Term Supply Agreement is a 10-year supply agreement of up to a total of 150 metric tons of HALEU, commencing in 2028 through end of 2037 (“Long-Term Supply Agreement”). QLE may be heavily dependent on TerraPower or other customers in the future. +QLE has not entered into any supply agreements for enriched lithium isotopes. Furthermore, we expect QLE to rely on a limited number of customers to purchase any critical isotopes for advanced nuclear fuels that QLE may produce using the licensed technology under long-term contracts. QLE’s future key customers may stop ordering QLE’s products at any time or may become bankrupt or otherwise unable to pay. The loss of any key customer would harm QLE’s business, financial condition and results of operations. +The HALEU supply agreements with TerraPower are terminable, for convenience, at TerraPower’s sole election; accordingly, QLE may never realize any revenue or profit as a result of these agreements. +TerraPower may terminate the two HALEU supply agreements it has entered into with ASP Isotopes, for convenience, by providing written notice to ASP Isotopes. It is possible that TerraPower may seek to terminate these agreements for a variety of reasons, including the availability of other sources of HALEU. Furthermore, the supply agreements contain a number of covenants and representations that we expect QLE to be bound upon their assignment to QLE by ASP Isotopes. There can be no assurance that QLE will be able to comply with, or that QLE will not breach, the terms and conditions of the supply agreements or that TerraPower will grant any necessary waivers if QLE is unable to do so. +In the event that TerraPower terminates these supply agreements, QLE’s business, financial condition and results of operations would be adversely impacted. +QLE operates in a politically sensitive industry, and the public perception of nuclear energy can affect QLE’s current and future customers, which could adversely impact QLE’s business, financial condition and results of operations. +Successful execution of QLE’s business model depends in large part on public support for nuclear power in the US and other countries. The risks associated with uses of radioactive materials by QLE’s customers in future deployments of SMR and other advanced nuclear designs, and the public perception of those risks, can affect QLE’s business. Opposition by third parties can delay or prevent the licensing and construction of new nuclear power facilities and in some cases can limit the operation of nuclear reactors. Adverse public reaction to developments in the use of nuclear power could directly affect QLE’s customers and, accordingly, indirectly affect QLE’s business. In the past, adverse public reaction, increased regulatory scrutiny and related litigation have contributed to extended licensing and construction periods for new nuclear reactors, sometimes delaying construction schedules by decades or more, or even shutting down operations at already-constructed reactors. +Accidents involving nuclear power facilities, including, but not limited to, events similar to any of the Three Mile Island, Chernobyl or Fukushima Daiichi nuclear accidents, or terrorist acts or other high profile events involving radioactive materials, could materially and adversely affect public perception of the safety of nuclear energy, QLE’s customers and the markets in which QLE operates and potentially decrease demand for nuclear energy or facilities, increase regulatory requirements and costs or result in liabilities or claims that could materially and adversely affect QLE’s business. +Historical nuclear accidents and fears of a new nuclear accident can hinder widespread acceptance of nuclear power. QLE understands that nuclear power faces strong opposition from certain individuals and organizations both in the US and other countries. With respect to public perceptions, the accident that occurred at the Fukushima nuclear power plant in Japan in 2011 increased public opposition to nuclear power in some countries, resulting in a slowdown in, or, in some cases, a complete halt to new construction of nuclear power plants, an early shut down of existing power plants and a dampening of the favorable regulatory climate needed to introduce new nuclear technologies. As a result of the Fukushima accident, some countries that were considering launching new domestic nuclear power programs delayed or cancelled the preparatory activities they were planning to undertake as part of such programs. If a high-visibility or high-consequence nuclear accident, including the loss or mishandling of nuclear materials, or other event, such as a terrorist attack involving a nuclear facility, occurs, public opposition to nuclear power may +64 +increase dramatically, regulatory requirements and costs could become more onerous or prohibitory, and customer demand for nuclear energy could suffer, which could materially and adversely affect QLE’s business and operations. +QLE’s future growth depends in large part on the success of QLE’s partner and customer relationships. +QLE is dependent on certain commercial partners, including, but not limited to: (1) Fermi America, QLE’s planned joint venture partner in the US; (2) TerraPower, which is a customer for future supply of HALEU that QLE may produce; and (3) Necsa, with whom ASP Isotopes has entered into a non-binding memorandum of understanding to collaborate on the research, development and commercial production of advanced nuclear fuel, to execute QLE’s business plan. QLE’s future growth will be increasingly dependent on the success of QLE’s partner and customer relationships, and if those relationships do not provide such benefits, QLE’s ability to grow QLE’s business will be harmed. If QLE is unable to execute QLE’s partner and customer relationships effectively, our results of operations could be adversely affected. +QLE’s existing arrangements with its commercial partners and customers are generally non-exclusive, meaning QLE’s partners and customers may enter into similar agreements with different companies, including companies that compete with us. If QLE’s partners or customers choose to work with QLE’s competitors instead of QLE, QLE’s ability to grow its business and produce critical isotopes for advanced nuclear fuels (HALEU and enriched Lithium-6 and Lithium-7) will be harmed. The loss of any of QLE’s partners or customers, QLE’s possible inability to replace them or the failure to engage with additional partners or customers could harm our results of operations. +Risks Related to the Expansion of the Virginia Gas Project +As we further expand Renergen’s current operations into Phase 2, we may face additional problems associated with natural gas exploration and development projects. +Our ability to sustain or increase levels of helium and LNG production is dependent in part on the successful expansion of Renergen’s operations, including the development of the Virginia Gas Project. The development of a natural gas facility takes a number of years to complete and requires substantial capital investment. The economic feasibility of such project is based upon many factors, including, among others: the accuracy of reserve estimates; helium and LNG recoveries; sufficient quality and/or quantity of feed gas; capital and operating costs; government regulations relating to prices, taxes, royalties, land tenure, land use, importing, exporting and environmental protection; and helium and LNG commodity prices. Projects to replace existing capacity or expansions are also subject to the successful completion of feasibility studies, the issuance of necessary governmental permits and the availability of adequate financing. If we are unable to execute such projects successfully, we could face problems such as delays, cost overruns and lower than predicted revenues, which could have an adverse effect on our business, financial condition and results of operations. +Renergen has several additional supporting authorizations, licenses and permits to obtain before Phase 2 of the Virginia Gas Project is considered fully permitted, which we may not timely obtain or obtain at all. +Renergen has several additional supporting authorizations to obtain before Phase 2 of the Virginia Gas Project is considered fully permitted. We may have difficulty obtaining these required authorizations, permits and licenses for the operation of Phase 2. These permits, licenses and approvals are issued by ministries and/or agencies of the South African government and are crucial to the success of Phase 2. Although we have applied for all consents necessary to conduct Renergen’s business, there can be no assurance that we will obtain, retain, timely renew or comply with all of the terms and conditions attaching to such consents, which could delay Renergen’s progress or curtail some of Renergen’s plans entirely. +Renergen’s overall cost to complete construction of Phase 2 is an estimate based on assumptions that may be inaccurate and are based on existing economic and operating conditions that may change in the future. If actual costs are materially greater than our estimates, our business, financial condition and results of operations may be negatively impacted. +The estimated build cost to complete construction of Phase 2, which as of our latest cost estimate is expected to be approximately $1.16 billion (including borrowing costs and general corporate costs during construction), is based on assumptions that may be inaccurate and existing economic and operating conditions that may change in the future, which could materially and adversely affect the cost of construction beyond our estimates. The cost of construction could change for a variety of reasons including, but not limited to, increased labor costs, increased energy costs and cost overruns. Furthermore, the world economy is facing the risk of increasingly high inflation as a result of, among other things, continued supply constraints with rising demand and increased energy prices. This sharp rise in inflation has created pressure on economies and their central banks to reconsider accommodative and expansionary monetary policies, resulting in higher interest rates and associated monetary policy aimed at reducing excess liquidity in the market. The current levels of inflation in South Africa, and globally, may prevent comparison between the development of Phase 1 and the development of Phase 2, as the costs of goods and services used in the development of Phase 1 may not correlate with the costs of goods and services used for the development of Phase 2, making it difficult to predict the cost of materials and the price of labor needed to complete the construction of Phase 2. Additionally, high rates of inflation may curtail our ability to access international financial markets and may lead to further government intervention in the economy, which +65 +may introduce government policies that may materially and adversely affect Renergen and constrain our ability to purchase the materials or hire the labor required to complete the development of Phase 2. If the actual costs of construction are materially greater than our estimates, our business, financial condition and results of operations will be negatively impacted. +There can be no assurance that we will be able to obtain the necessary financing for Phase 2 in a timely manner and/or on acceptable terms, if at all. +We have received conditional approval by the DFC, pursuant to the delineated application review process of the DFC, to fund Phase 2 with up to $500 million of senior secured debt. Additionally, the Standard Bank of South Africa has conditionally approved an additional $250 million of senior secured debt funding for Phase 2, which is anticipated to be funded substantially concurrently with the aforementioned DFC funding. Conditions to such funding by the DFC and Standard Bank of South Africa are anticipated to include, among other things, receipt by the DFC and the Standard Bank of South Africa of satisfactory evidence that (i) Tetra4 owns or has the right to use at least 90% of the real property on which the Phase 2 facilities and wells are located (whether through ownership, leases, easements, rights-of-way or similar arrangements); (ii) Tetra4 has entered into business, construction and operational arrangements to deliver the Phase 2 facilities to the satisfaction of the lenders; (iii) Tetra4 has marketing plans for helium and LNG sales (including timing, amount and pricing) to ensure financial covenants under such secured debt arrangements will continue to be met; (iv) Tetra4 has received definitive offtake agreements for helium and LNG produced at the Phase 2 facilities with contracted revenues equal to at least 50% of the debt service under such secured debt arrangements;; (v) Renergen shall contribute sufficient equity into the project such that Tetra4’s debt to equity ratio will not exceed 65% to 35%; and (vi) the conclusion of an EIA and Environmental Management Plan for Phase 2 in compliance with the Equator Principles and IFC Performance Standards. If we do not complete the standard conditions precedent or successfully complete additional or equity or debt financings, we may not obtain the necessary financing for Phase 2 in a timely manner, on acceptable terms, or at all. +If we are unable to fund Renergen’s planned capital expenditure for Renergen’s projects as a result of, among other factors, difficulties in raising funding to support future capital expenditures and investments, we may no longer be able to complete capital projects. In addition, we may be unable to develop new capital projects so as to continue production at cost-effective levels. Renergen’s capital expenditures financed by borrowing additional funds may increase our leverage and make it more difficult for Renergen to satisfy its obligations, limit our ability to obtain additional financing to operate Renergen’s business, and require Renergen to dedicate a substantial portion of its cash flow to payments on its debt, which may reduce our ability to use Renergen’s cash flow to fund working capital, capital expenditures and other general corporate requirements, and place Renergen at a competitive disadvantage relative to some of Renergen’s competitors that have less debt. +Managing a project as substantial in size as Phase 2 of the Virginia Gas Project requires sufficient technical, commercial and project management capacity and there can be no assurance that Renergen’s current management team has sufficient capacity. +Successful implementation of Phase 2 of the Virginia Gas Project requires sufficient technical, commercial and project management capacity. As part of the execution strategy for Phase 2, we have retained Worley, a global engineering entity, WorleyParsons Limited, to act as engineer to ensure sufficient skill set, experience, management capability and resources are available to us for the execution of Phase 2 of the Virginia Gas Project. The scope of the owners engineer’s work and its execution will be overseen by Renergen’s management team. However, there can be no assurance that Renergen’s current management team has sufficient capacity, or that it can acquire additional skills to supplement that capacity, to manage a project of this scale and to realize cost and operational efficiencies throughout Phase 2 or maintain those at the existing operations. +Even if Phase 2 is completed, the project may not operate as expected or may cost more to operate than expected. +We categorize Phase 2 as the expansion of Renergen’s existing, authorized operations through the drilling of additional wells, the construction of additional natural gas gathering pipelines and the construction of a significantly larger (approximately 12x larger) processing and liquefaction facility, and the associated road tanker distribution facilities and downstream customer dispensing facilities. Phase 2 is a major undertaking and we may encounter unexpected obstacles in the future, such as inflationary pressures, rising interest rates and associated monetary policy and increasing power shortages or blackouts, that were not present during the construction of Phase 1 and that we cannot overcome within budget, within Renergen’s expected timeframe, or at all. Even if Phase 2 is completed, the project may not operate as expected or may cost more to operate than expected. Renergen’s results of operations and financial condition are, to a large extent, dependent upon the overall success of Phase 2. Accordingly, any changes in the expected operation or cost of operation of the projects in Phase 2 may adversely impact our results of operations and financial condition. +The construction and operation of gas gathering pipelines may pose unforeseen difficulties, delays or costs, which could impact Renergen’s profitability and cause a delay in Renergen’s operations. +The development of the Virginia Gas Project includes construction, and ultimately operation, of low-pressure well-site gathering pipelines that deliver production to a liquefaction facility. The construction and operation of the gathering pipelines poses a number of risks, including risks related to: +66 +• +design flaws in the pipeline infrastructure; +• +technical vulnerabilities in information systems that are used to manage and control the flow of gas; +• +delays in construction caused by third-party providers or contractors or delays in obtaining necessary permits, authorizations or licenses for construction or operation of the pipelines; +• +improper installation techniques, material defects, and/or environmental factors resulting in corrosion or material fatigue that could impact ongoing pipeline operations; +• +delays caused by Renergen’s lack of ownership of the land on which we will own Renergen’s pipelines; +• +inadequate maintenance and quality management, which may affect overall performance, recoverability and efficiency; +• +costs and liabilities resulting from performance of pipeline integrity testing programs and related repairs; +• +construction and operating cost overruns that cannot be passed on to the customer; +• +unforeseen plant outages; +• +inability to access gas gathering infrastructure due to abnormally inclement weather or other unforeseen circumstances; +• +damage to Renergen’s pipelines and other facilities due to climatic events and severe weather; +• +production variability or system disruptions; +• +theft or vandalism of wellhead and/or pipeline infrastructure; +• +community protest, including protest caused by a perceived lack of local community participation in the project and permanent job opportunities for local residents; and +• +inability to deliver production due to a force majeure event or other unforeseen circumstances. +There is no assurance that we will be able to execute future take-or-pay agreements with customers on favorable pricing terms, if at all. +Renergen’s results of operations depend on our ability to strategically execute offtake agreements with customers. We expect to contract the majority of the LNG we produce on five- to eight-year take-or-pay agreements, servicing the industrial, logistics and potentially gas-to-power industries. There is no assurance that we will be able to execute these agreements on favorable pricing terms, if at all. If we are unable to negotiate these contracts, or are unable to secure favorable prices and terms, our business, financial condition, results of operation and prospects could be adversely affected. +As Renergen’s customer contracts expire, we may not be able to replace them with agreements on similar terms, or at all. +Certain helium and LNG contracts in Renergen’s portfolio will be subject to expiration. If the price of helium or LNG is declining at the time of negotiating a replacement contract, our ability to negotiate or replace these contracts on terms that are acceptable to us, or at all, may be adversely impacted. Renergen has a limited customer base and we expect that a significant portion of Renergen’s future revenues will be from a limited number of customers, which could result in us having less leverage in contract negotiations. Further, because of Renergen’s limited customer base, the loss of any significant customer could adversely affect Renergen’s operating results. We cannot provide any assurance that we will be able to negotiate or replace these contracts once they expire, and, even if we are able to do so, we cannot provide any assurance that we will be able to obtain the same prices or terms we currently receive. If we are unable to negotiate or replace these contracts, or are unable to secure prices and terms at least equal to the current prices and terms we receive, our business, financial condition, results of operation and prospects could be adversely affected. +We cannot assure you that there will be consumer demand for Renergen’s LNG filling stations or that customers will transition to LNG as a liquid fuel. +As part of Phase 2, we plan to establish a number of LNG filling stations for trucks at Renergen’s customers’ depots and potentially along the major highways in South Africa. We cannot assure you that there will be consumer demand for Renergen’s LNG filling stations or that customers will transition to LNG as a liquid fuel. There are constraints on the volume of hazardous goods, including LNG, which may be stored on a site at any time without approval from the EIA for a greater volume. This adds to the complexity and frequency of LNG deliveries to Renergen’s customers and may increase the cost and risk profile associated with Renergen’s LNG operations. In addition, medium to large customers typically prefer to buy and dispense diesel in their own depots, which may reduce the attractiveness of refilling at one of Renergen’s LNG filling stations. Finally, customers may view the fact that Renergen is the sole producer of LNG in South Africa as a risk to their operations, preventing them from transitioning to +67 +LNG. If Renergen’s expectations regarding consumer demand for Renergen’s LNG filling stations or the customer transition to LNG as a liquid fuel are not realized, our business, financial condition, results of operation and prospects could be adversely affected. +Renergen’s success is partially dependent on the willingness of truckers and other consumers to transition from diesel to LNG, which may not occur in a timely manner, at expected levels or at all. +Renergen’s success is partially dependent on the adoption by trucks and other consumers of Renergen’s LNG as a substitute for diesel. Although there is wide acknowledgement in the industry that LNG represents a less expensive and more environmentally friendly alternative to diesel fuel, a significant portion of the transportation industry is not currently utilizing LNG. As the sole producer of LNG in South Africa, the lack of alternative sources may be perceived as a risk to the transportation industry, which may hinder the transition from diesel to LNG. If the market for Renergen’s LNG as a substitute for diesel does not develop, or if a market develops but Renergen is not able to capture a significant share of the market or the market subsequently declines, our business, prospects, financial condition, and operating results would be harmed. +We may experience unforeseen difficulties, delays or costs in implementing Renergen’s business strategy and operational plan. +Our ability to grow Renergen’s business will depend on the successful implementation of Renergen’s existing and proposed strategic initiatives and current operational plans. The successful implementation of Renergen’s strategic initiatives and operational plans, including the realization of Renergen’s production growth, depends upon many factors, with some of such factors outside Renergen’s control. We may prove unable to deliver on production targets. Unforeseen difficulties, delays or costs may adversely affect the successful implementation of Renergen’s business strategy and plans, and such strategy and plans may not result in the potential benefits. For example, a number of factors, including, but not limited to, operating costs, safety-related issues, organized labor action and technical issues may result in a failure to meet operations targets or strategic goals. Any such difficulties, delays or costs could prevent us from fully implementing Renergen’s business strategy, which could have a material adverse effect on our business, operating results and financial condition. +Risks Related to Renergen’s Business +Because Renergen holds South Africa’s first and only onshore petroleum Production Right for the extraction and production of natural gas and helium and part of Renergen’s business strategy involves using some of the latest available slant well drilling and completion techniques, Renergen’s drilling results in South Africa may be more uncertain than drilling results in areas that are developed and have established production. +Renergen is a new producer of liquid helium and hold South Africa’s first and only onshore petroleum Production Right for the extraction and production of natural gas and helium. As a result, Renergen’s drilling results in South Africa may be more uncertain than drilling results in areas that are developed and have established production. Newer formations and areas have limited or no production history and, consequently, Renergen is more limited in assessing future drilling results in these areas. In addition, part of Renergen’s drilling strategy to maximize recoveries involves the drilling of slant wells, the locations of which are determined based on aeromagnetic and gravity surveys, re-processed seismics and data obtained from prior drilling campaigns. The difficulties we face drilling slant wells include: the fracturing of drill rods and rapid loss of inclination due to the intersection of softer rocks, which reduces the entry angle and decreases the probability of success. The difficulties we face while completing slant wells include: the loss of inclination that affects trajectory, the gravitational impact on centralization efforts, which can cause improper cement bonds and necessitate the insertion of additional migratory casings, and reductions in our ability to log accurately, which reduces the quality of data received. Renergen’s experience with drilling slant wells in the area to date, as well as the industry’s drilling and production history in these formations, is limited. Since Renergen has limited drilling history, we cannot assure you that all drilling prospects will be economically viable or that we will not abandon Renergen’s investments. We cannot assure you that targeted well locations for prospects within Renergen’s area will be profitably developed, that wells drilled by Renergen in prospects that we pursue will be productive or that we will recover all or any portion of Renergen’s investment in such unproved property or wells. +Renergen’s identified drilling locations are scheduled out over many years, making them susceptible to uncertainties that could materially alter the occurrence or timing of their drilling. In addition, we may not be able to raise the substantial amount of capital that would be necessary to drill such locations. +Renergen’s management and technical teams have specifically identified and scheduled certain drilling locations as an estimation of Renergen’s future multi-year drilling activities. Renergen’s ability to drill and develop these locations depends on a number of uncertainties, including natural gas prices, the availability and cost of capital, drilling and production costs, availability of drilling services and equipment, drilling results, gathering system and pipeline transportation constraints, access to and availability of water sourcing and distribution systems, regulatory approvals and other factors. Because of these uncertain factors, we do not know if the numerous drilling locations we have identified will ever be drilled or if we will be able to produce natural +68 +gas from these or any other drilling locations. As such, Renergen’s actual drilling activities may materially differ from those presently identified. +We may be unable to drill many of Renergen’s identified locations. In addition, we will require significant additional capital over a prolonged period in order to pursue the development of these locations, and we may not be able to raise or generate the capital required to do so. Any drilling activities we are able to conduct on these locations may not be successful, which could have a material adverse effect on our future business and results of operations. +Renergen’s results of operations and financial condition are dependent upon the economic, environmental, social and political conditions in South Africa. +All of Renergen’s existing assets are in South Africa, and we expect to complete construction projects and secure additional development projects in South Africa. As a result, the performance of Renergen’s operations are dependent upon the economic, environmental, social and political conditions in South Africa, and we are exposed to a variety of risks, including risks related to: +• +heightened economic volatility; +• +difficulty in obtaining authorizations, permits and licenses required for the operation of Renergen’s projects and planned projects; +• +fluctuations in revenues, operating margins and/or other financial measures due to currency exchange rate fluctuations and restrictions on currency and earnings repatriation; +• +trade protection measures, import or export restrictions, licensing requirements and/or restrictive conditions, codes, norms and standards; +• +occupational safety, work hazards, and local labor laws and regulations; +• +potentially adverse tax developments or interpretations; +• +changes in political and/or social conditions; +• +fluctuations in the availability of funding; +• +changes in Renergen’s relationships with the different stakeholders in the communities surrounding Renergen’s facilities; +• +the proximity, cost, availability and capacity of natural gas and helium pipelines and other transportation facilities and equipment; +• +changes in the regulatory legal framework, including the costs of complying with environmental and energy regulations; and +• +consumer demand for lower-carbon forms of energy. +Renergen’s Virginia Gas Plant, located near Virginia in the Free State Province of South Africa, is subject to poor socio-economic conditions, which could hinder Renergen’s progress. +Renergen’s Virginia Gas Plant is located in the Free State Province of South Africa. South Africa’s unemployment rate was 31.9% in the third quarter of 2024. Poor socio-economic conditions in these communities increase expectations for employment from businesses operating in these communities and other socio-economic benefits. Historically, high unemployment rates contribute to social unrest. Furthermore, local governments and communities have demonstrated an increased reliance and growing expectations on energy companies to combat such unemployment, which may contribute to disruptions in operations due to community activism and lack of local delivery services. We strive to employ from, and integrate, local communities where possible, and we regularly engage and monitor Renergen’s interaction with local communities in which we operate, including through community development programs with localized procurement opportunities; however, any such disruptions in Renergen’s operations due to community activism or social unrest may adversely affect us. +We use third-party providers and contractors to conduct Renergen’s operations, and the lack of availability of, or failure to properly perform services by, one or more of these third-party providers or contractors may adversely affect us. +The lack of availability of, or failure to properly perform services by, one or more of Renergen’s third-party providers or contractors could result in a decrease in Renergen’s production and/or delay the development of projects. A number of resources, such as compressors, liquefaction equipment, helium and cryogenic equipment and control systems, are only available through a limited number of third parties, and lead-times, work slowdowns, stoppages, or other labor- or services-related developments or disputes involving such third parties or contractors or their respective employees or services providers are out of Renergen’s control. +69 +There can be no assurance that we will be able to secure in a timely manner, or on commercially acceptable terms or at all the provision of all the services that we will need to execute Renergen’s business plans, or that such arrangements (both current and planned) will be sufficient for Renergen’s future needs and/or will not be interrupted. Renergen has previously entered into various Agreements of Mandatory, commonly known as Section 37(2) Agreements, which limit Renergen’s liability to third parties by placing the legal liability on the third-parties for acts or omissions undertaken by their employees. We also require all of Renergen’s third-party service providers to be in good standing with a compensation fund in order to mitigate any potential liability we may face in terms of the Compensation for Occupational Injuries and Diseases Act. However, we cannot be certain that we will not incur liability to third parties as a result of the actions of Renergen’s contractors. +In addition, certain of the services we require are, or may in the future be, only available from a limited number of specialized providers, and we may encounter difficulties in securing the services of specialized contractors due to high demand for those services. As a result, we are dependent on external contractors performing and fulfilling their obligations satisfactorily. While we are not aware of any specific failures or delays in providing such services, Renergen’s business and development plans may be adversely affected by any failure or delay by third parties in providing these services, by any change to the terms on which these services are made available, or by the failure of such third-party providers to provide services that meet Renergen’s quality or volume requirements. If we determine it necessary to change a provider of such services, we may experience additional costs, delays, interruptions to production, or other adverse effects on Renergen’s business, and we may not be able to find adequate replacement services on commercially acceptable terms, on a timely basis, or at all. In addition, pursuant to the conditional approval of up to $500 million in senior secured debt from DFC and up to $250 million in senior secured debt from the Standard Bank of South Africa, which we anticipate to be funded substantially concurrently with the aforementioned DFC funding, we will be required to enter into business, construction and operational arrangements to deliver the Phase 2 facilities with suitably skilled contractor(s) to the satisfaction of the DFC and the Standard Bank of South Africa. +We currently rely on outside contractors to perform key roles, such as drilling, downhole (wireline) logging and compositional sampling. We will also rely on Worley to perform the owners engineer role on behalf of us for Phase 2 of the Virginia Gas Project, and we will rely on specialist EPC contractors for execution and construction of the Phase 2 plant. We may also rely on specialized operating and maintenance contractors who are appointed for the short- to medium-term to assist with the operation of Renergen’s Phase 1 plant and the development of Renergen’s Phase 2 plant. These contractors will be selected based on international and, where possible, local experience. During the construction of Phase 2, we also plan to appoint an independent consultant who must be registered with the South African Council for the Project and Construction Management Professions to oversee and audit Renergen’s OHSA implementation and Renergen’s third-party service providers. The success of Renergen’s operations and activities remains significantly dependent on the efforts, abilities and performance of outside contractors. +Should we be unable to acquire or retain third-party providers or contractors of key services on favorable terms, or should there be interruptions to, or inadequacies with, any services provided, we may need to incur additional capital and operating expenditures to perform or correct such services. The occurrence of one or more of these risks could have a material adverse effect on our business, results of operations and financial condition. +All of Renergen’s operations are conducted in one geographic area. Any adverse developments at Renergen’s facility could have a material adverse effect on our business, results of operations and financial condition. +Because all of Renergen’s operations are conducted in one geographic area located in Virginia, Free State Province, South Africa, an event such as an explosion, substantial gas leak, fire, equipment malfunction or severe weather conditions, including water shortages or other drought-related conditions, that adversely affect Renergen’s facility could significantly disrupt Renergen’s natural gas or helium production operations and our ability to supply LNG and helium to Renergen’s customers. Additionally, as a result of this concentration, we may be disproportionately exposed to the impact of regional supply and demand factors, delays or interruptions of production from wells in these areas caused by governmental regulation, processing or transportation capacity constraints, market limitations, availability of equipment and personnel, or interruption of the processing or transportation of natural gas. Any sustained disruption in our ability to meet Renergen’s obligations under Renergen’s sales agreements could have a material adverse effect on our business, results of operations and financial condition. +Natural gas prices are volatile. A sustained decline in natural gas prices could adversely affect our business, financial condition and results of operations and our ability to meet Renergen’s capital expenditure obligations and financial commitments. +The prices we receive for Renergen’s natural gas production heavily influence Renergen’s revenue, profitability, access to capital, and future rate of growth. Natural gas is a commodity, and its price may fluctuate widely in response to market uncertainty and to relatively minor changes in the supply of and demand for natural gas. Historically, natural gas prices have been volatile. For example, during the period from January 1, 2014 through November 7, 2016, the Henry Hub spot price for natural gas declined from a high of $8.15 per MMBtu on February 10, 2014 to a low of $1.49 per MMBtu on March 4, 2016. The prices we receive for Renergen’s production, and the levels of Renergen’s production, depend on numerous factors beyond Renergen’s control, which include the following: +70 +• +worldwide and regional economic conditions impacting the global supply and demand for natural gas; +• +the price and quantity of foreign imports of natural gas; +• +political and economic conditions in or affecting other producing regions or countries, including the Middle East, Africa, South America and Russia; +• +the level of global exploration, development and production of natural gas; +• +the level of global inventories of natural gas; +• +the proximity, capacity, cost and availability of gathering and transportation facilities; +• +localized and global supply and demand fundamentals and transportation availability; +• +the cost of exploring for, developing, producing and transporting reserves; +• +weather conditions and natural disasters; +• +technological advances affecting energy consumption; +• +the price and availability of alternative fuels; +• +expectations about future commodity prices; +• +energy supply, production, and conservation measures, including policies and initiatives by governmental authorities; and +• +governmental regulation and taxes. +Lower commodity prices may reduce Renergen’s cash flow and borrowing ability. If we are unable to obtain needed capital or financing on satisfactory terms, our ability to develop future reserves could be adversely affected. Also, using lower prices in estimating proved reserves may result in a reduction in proved reserve volumes due to economic limits. In addition, sustained periods with natural gas prices at levels lower than current Henry Hub strip prices may adversely affect Renergen’s drilling economics and our ability to raise capital, which may require us to re-evaluate and postpone or eliminate Renergen’s development program, and result in the reduction of some of Renergen’s operational data. As a result, a substantial or extended decline in commodity prices may materially and adversely affect our future business, financial condition, results of operations, liquidity and ability to finance planned capital expenditures. +The world’s helium supply is located in a few countries, which may cause volatility in helium prices, impact Renergen’s competition and affect our business or results of operations. +Helium is a commodity business, which means that Renergen’s operations and earnings may be significantly affected by changes in helium prices and in margins on helium sales. Helium prices and margins on helium sales depend on local, regional and global events or conditions that affect supply and demand for helium. The world’s helium supply is located primarily in the United States, Algeria, and Qatar, in addition to South Africa, Russia and a few other countries. The scarcity of this resource limits the number of competitors in the helium industry and, if Renergen’s competitors in any of these countries experience a problem with production of helium, the price of helium may spike. For example, an explosion at a Russian helium production facility in January 2022 has caused a continued delay in production at that site and contributed to global helium supply concerns, which impacted the prices for the commodity. Any material decline in helium prices could have a material adverse effect on certain of our operations and financial condition. +We face competition based upon the international market price for LNG. +We may be subject to the risk of LNG price competition when we need to replace any existing sale purchase agreement (“SPA”), whether due to natural expiration, default or otherwise, or enter into new LNG SPAs. Factors relating to competition may prevent us from entering into a new or replacement SPA on economically comparable terms as existing SPAs, or at all. Such an event could have a material adverse effect on Renergen’s business, contracts, financial condition, operating results, cash flow, liquidity and prospects. Factors that may negatively affect potential demand for LNG from Renergen’s liquefaction projects are diverse and include, among others: +• +increases in worldwide LNG production capacity and availability of LNG for market supply; +• +LNG demand at levels below those required to maintain current price equilibrium with respect to supply; +• +increases in the cost to supply natural gas feedstock to Renergen’s liquefaction projects; +• +decreases in the cost of competing sources of natural gas or alternate fuels, such as coal, heavy fuel oil and diesel; +71 +• +decreases in the price of non-South African LNG, including decreases in price as a result of contracts indexed to lower oil prices; +• +increases in capacity and utilization of nuclear power and related facilities; and +• +displacement of LNG by pipeline natural gas or alternate fuels, including in locations where access to these energy sources is not currently available. +Actual and potential supply chain shortages and increases in the prices of production inputs may have a material adverse effect on us as we expand Renergen’s current operations. +Renergen’s results of operations have been and may in the future be affected by the availability and pricing of raw materials and other essential production inputs, including equipment, fuel and steel. The price and quality of raw materials have been and may in the future be substantially affected by changes in global supply and demand, along with weather conditions, including those due to climate change, governmental controls and other factors. A sustained interruption in the supply of any of these materials could require us to find substitute suppliers and to pay higher prices for such materials. Furthermore, the cost of construction materials and the prices of certain of Renergen’s production inputs are impacted by, among other things, the prices of such raw materials, including oil and steel, which have been, and may continue to be, subject to price volatility. The price of these materials may continue to rise as a result of inflation, resulting in significantly higher construction costs as we expand Renergen’s current operations into Phase 2. Any significant increase in the prices of these materials could increase Renergen’s operating costs and affect production considerations, which may have a material adverse effect on our operations and liquidity. +We depend on third parties to manufacture and to supply key semiconductor components necessary for operations at the Virginia Gas Plant. If these third party suppliers become unwilling or unable to provide an adequate supply of semiconductors, with respect to which there is a global shortage, we may not be able to find alternative sources in a timely manner and our business could be adversely impacted. +Semiconductors are a vital input to certain components of Renergen’s Virginia Gas Plant. Many of the key semiconductors used in these components come from limited or single sources of supply, and, therefore, a disruption with any one manufacturer or supplier in Renergen’s supply chain would have an adverse effect on our ability to continue Renergen’s operations. Due to Renergen’s reliance on these semiconductors, we are subject to the risk of shortages and long lead times in their supply. Renergen has in the past experienced, and may in the future experience, semiconductor shortages, and the availability and cost of these components would be difficult to predict. To the extent such shortage persists, Renergen’s business could be adversely impacted. Additionally, Renergen’s manufacturers may experience temporary or permanent disruptions in their manufacturing operations due to equipment breakdowns, labor strikes or shortages, natural disasters, component or material shortages, cost increases, acquisitions, insolvency, changes in legal or regulatory requirements, or other similar problems, further exacerbating the global shortage. The shortage of semiconductors could negatively impact our ability to source an adequate supply of semiconductors used in Renergen’s operations, which may adversely affect our business, results of operations and financial condition. +We may be unable to obtain, maintain or renew permits, leases or licenses necessary for Renergen’s operations, the failure of which could impair our ability to conduct Renergen’s operations and have a material adverse effect on our results of operations. +Renergen’s operations require us to obtain a number of consents, permits, authorizations, leases and licenses that may impose strict regulations on various environmental and operational matters. These include consents issued by various agencies and regulatory bodies. The permitting rules, and the interpretations of these rules, are complex, change frequently and are subject to discretionary interpretations by Renergen’s regulators, all of which may make compliance difficult or impractical and may impair Renergen’s existing operations or the development of future facilities. Although we believe that we have obtained all consents, permits, authorizations, leases and licenses to operate Renergen’s operations to date, if any consents, permits, authorizations, leases and licenses that may be required for future operations are not issued or timely renewed as statutorily prescribed or at all, or are conditioned in a manner that may restrict our ability to conduct Renergen’s operations economically, Renergen’s cash flows may decline, which could negatively impact our operations and results of operations. +Renergen’s results of operations may be adversely affected by permitting, operating or construction delays and requirements introduced via community, political or regulatory opposition to Renergen’s projects. +Certain persons, associations and groups could oppose natural gas or helium projects in general or Renergen’s projects specifically, citing, for example, misuse of water resources, contribution to climate change, landscape degradation, land use or price increase and harm to the environment. Moreover, regulation may restrict the development of LNG or helium plants in certain areas. In order to develop an LNG or helium project, we are typically required to obtain, among other things, petroleum rights to explore and/or produce LNG and helium, environmental authorizations, water use entitlements, and/or other related authorizations, land use, zoning and/or other infrastructure-related building permits, which in turn require environmental impact and applicable specialist studies to be undertaken and mandatory prescribed public participation processes, during which any interested or affected +72 +individual, association or group may oppose a project or expansion of an existing project. Any objection resulting from the public participation process must be taken into account by the relevant decision-making authority, which could in turn result in the applicable consents being delayed or not being granted or being granted solely on the condition that we carry out certain mitigation measures regarding the impact of the proposed project. Objections to Renergen’s application for the relevant consents, successful appeal and/or judicial review challenges in respect to the granting of Renergen’s applicable consents could adversely affect Renergen’s operating plans. +Authorization for the use, construction, and operation of systems and associated transmission facilities will also require the assessment and evaluation of existing limited real rights of third parties, such as mineral rights, private rights-of-way, and other easements; environmental, agricultural, traditional community entitlements, cultural, recreational, and aesthetic impacts; biodiversity loss, and the likely mitigation of adverse effects to these and other resources and uses. The inability to obtain the required consents and other governmental approvals, and any delays in obtaining such consents and other related approvals due, for example, to applicant or third party internal appeals and litigation, could potentially prevent us from successfully constructing and operating such projects in a timely manner and could result in the potential forfeiture of any deposit we have made with respect to a given project. Moreover, project approvals subject to project modifications and conditions, including mitigation requirements and costs, could affect the financial success of a given project. Changing regulatory requirements and the discovery of unknown site conditions could also adversely affect the financial success of a given project. +Further, we may be adversely affected by operating or construction delays. Due to the size and duration of construction in Phase 2, actual construction costs may be significantly higher than our current estimates as a result of many factors, including but not limited to changes in scope, the ability of Renergen’s contractors to execute successfully under their agreements, changes in commodity prices, escalating labor costs and the potential need for additional funds to be expended to maintain construction schedules or comply with existing or future environmental or other regulations. As construction progresses, we may decide or be forced to alter operations or Renergen’s construction plans due to unforeseen events, which could result in longer construction periods, higher construction costs or both, including change orders to comply with existing or future environmental or other regulations. Any significant operating or construction delay, whatever the cause, could have a material impact on our business, financial condition, results of operations or liquidity. +Poor general economic, business, or political conditions may have a material adverse effect on our results of operations, liquidity, and financial condition. +Renergen’s current business plan contemplates that a portion of Renergen’s revenue will be derived from the sale of helium and LNG. The demand for helium and LNG is largely driven by the economic, political and regulatory conditions of the countries where we plan to sell such commodities (for example, the USA and South Africa). Therefore, Renergen’s results of operations and financial condition are, to a large extent, dependent upon the overall level of economic activity in these countries. +During the last few years, concerns over inflation, energy costs, volatile oil and natural gas prices, geopolitical issues, the availability and cost of credit, rising interest rates, the overall health of the banking sector, the slowdown in economic growth in large emerging and developing markets, regional or worldwide increases in tariffs or other trade restrictions, and other issues have contributed to increased economic uncertainty and diminished expectations for the global economy. +Concerns about global economic conditions have had a significant adverse impact on domestic and international financial markets and commodity prices. If uncertain or poor economic, business, or industry conditions in the United States or abroad remain prolonged, demand for petroleum products could diminish or stagnate, and production costs could increase. These situations could impact the price at which we can sell Renergen’s LNG and helium, affect Renergen’s vendors’, suppliers’, and customers’ ability to continue operations, and ultimately adversely impact our business, financial condition, results of operations or liquidity. +Extreme weather and changing climatic conditions exacerbated by climate change impacts, including prolonged droughts, could lead to delays in Renergen’s projects and adversely affect our operations. +Renergen’s operations are subject to various physical weather and climate risks, which may be exacerbated by climate change. Climate change may result in the increased frequency or severity of extreme weather events (including storms, droughts, floods, and wildfires) or changes in meteorological and hydrological patterns, which could adversely impact our operations and financial results through, for example, water use curtailments in response to drought or construction delays resulting from more frequent storms and flooding. We take proactive measures to monitor water availability and quality within Renergen’s operations to help avoid and mitigate impacts to Renergen’s operations. In addition, the occurrence of extreme weather events has the potential to result in supply chain disruptions. While extreme weather events have increased in frequency and intensity in some areas where we operate, to date such events have not had a material impact on Renergen’s operations nor materially adversely affected Renergen’s business. +73 +Power stoppages, fluctuations, usage constraints and limited access to sufficient water may force us to halt or curtail operations and/or increase costs. +Renergen’s operations are dependent on electricity supplied by Eskom, a state-owned utility company that historically has held a monopoly over electricity supply in the South African market. Over the past decade, electricity supply in South Africa has been constrained, with multiple power supply disruptions and load shedding constraints, which is a controlled process of restricting the electricity supply in response to unplanned events that commenced in South Africa in 2008. For example, after a strike at Eskom in June 2018, Eskom re-commenced load shedding to protect the power system from going offline. In 2022 and 2023, Eskom increased implementation of load shedding due to various constraints on its power generation units, which have resulted in certain unplanned outages. Although the position has materially improved in 2024 and 2025, load shedding may return in the short- to medium-term, particularly as the South African economy may increase growth under the GNU. Later in the decade, Eskom will also start to decommission some of its coal-fired power plants. Despite Eskom’s efforts to protect the national power grid to date, there is no assurance that Eskom’s efforts will prevent a nationwide blackout. Eskom has been unable to generate and supply the amount of electricity required by South Africa, which has resulted in significant and often unpredictable electricity supply disruptions. Eskom has implemented a number of short- and long-term mitigation plans to correct these issues but supply disruptions have continued to occur regularly and with no predictability. Prolonged power outages, disruptions, or shortages in supply of electricity to Renergen’s operations would have a material adverse impact on production and our results of operations. +Eskom has increasing costs of generation emanating from, among others, primary energy costs such as high diesel consumption related to its use of peaking power plants to supplement the shortfall in base load generation, reduced generation of electricity from its base load fleet as a result of a very low energy availability factor at its old power stations, operating costs and asset related revenue recovery. Eskom is required to submit regular applications to the National Energy Regulator of South Africa (“NERSA”), an independent regulatory body, in accordance with, among others, the principles set out in the Electricity Regulation Act, 2006 (Act No. 4 of 2006) requesting an increase in the power tariffs. Each tariff increase request, if granted by NERSA, results in higher energy costs for electricity users in South Africa, including us. During certain periods of load shedding, Eskom has burned significant amounts of diesel to run its gas turbines and has asked large power users to curtail their demand. This has contributed to Eskom’s ongoing financial difficulties and above inflation tariff applications to NERSA. Eskom has expressed concern that these increases may not be adequate to prevent future electricity interruptions and has indicated that it intends to challenge NERSA’s decision not to grant the requested tariff increase. In several instances, the court has ruled in Eskom’s favor, allowing retrospective recovery through tariff increases. +Furthermore, in February 2019, the President of South Africa announced the vertical unbundling of Eskom. While full state ownership will be maintained, the unbundling is expected to result in the separation of Eskom’s generation, transmission and distribution functions into separate entities, which may require legislative and/or policy reform, which could take a significant amount of time and could cause poor reliability of the supply of electricity, instability in prices, and a possible tariff increase above inflation that could continue through the unbundling process. Should we experience further power tariff increases, Renergen’s operating results and financial condition may be adversely impacted. +Although the South African Department of Electricity and Energy is developing a recovery program to improve the reliability of power supply in South Africa, there can be no assurance that this program will provide sufficient supply for the needs of the country or for us to run Renergen’s operations at full capacity or at all. +Renergen’s operations also require significant amounts of water. We are dependent on the availability of water in Renergen’s areas of operations and, in particular, on the provision of a sufficient allocation of water to enable us to conduct Renergen’s business. Renergen’s operations are located in historically water scarce areas, which such scarcity may be further impacted by climate change. Renergen’s current water supply to Renergen’s facilities and Renergen’s operations comes directly from the municipal main supply system, which also supplies the mining houses in the area and historically has not been prone to supply constraints. This municipal main supply system would also be the main source of water supply for Phase 2 of the Virginia Gas Project. Renergen’s on-site service water tank has sufficient water storage should unplanned service interruptions occur. Additionally, Phase 1 and Phase 2 of the Virginia Gas Project are designed for efficient water usages, including the recycling of produced water from plant operation wastewater and the recycling of treated sewage waste. However, shifting rainfall patterns, population growth and urban development in the areas surrounding Renergen’s operations are expected to lead to increased demands on the existing water supply, which, coupled with inadequate upgrades to existing water infrastructure, may cause water shortages in relation to Renergen’s areas of operations. If we cannot be supplied with sufficient water, our results of operations and financial condition may be adversely impacted. +Drilling for and producing natural gas and helium are high risk activities with many uncertainties that could adversely affect our financial condition or results of operations. +Renergen’s drilling activities are subject to many risks, including the risk that they will not discover commercially productive reservoirs. Drilling for natural gas and helium can be uneconomical, not only from dry holes, but also from productive wells that do not produce sufficient revenues to be commercially viable. There is no way to predict in advance of drilling and testing whether any particular prospect will yield natural gas or helium in sufficient quantities to recover drilling or completion costs or to be +74 +economically viable. The use of micro-seismic data and other technologies and the study of producing fields in the same area will not enable us to know conclusively prior to drilling whether natural gas or helium will be present or, if present, whether natural gas or helium will be present in commercial quantities. We cannot assure you that the analogies we draw from available data from other wells will be applicable to Renergen’s drilling prospects. In addition, drilling and producing operations on Renergen’s acreage may be curtailed, delayed or canceled as a result of other factors, including: +• +declines in natural gas or helium prices; +• +infrastructure limitations; +• +the high cost of, shortages in or delays with respect to receipt of equipment, materials and services; +• +unexpected operational events, pipeline ruptures or spills, adverse weather conditions, facility malfunctions or title problems; +• +compliance with environmental and other governmental requirements; +• +regulations, restrictions, moratoria and bans on injection wells and water disposal; +• +unusual or unexpected geological formations; +• +environmental hazards, such as natural gas or well fluids spills or releases, pipeline or tank ruptures and discharges of toxic gas; +• +fires, blowouts, craterings and explosions; +• +uncontrollable flows of natural gas or well fluids; +• +changes in the cost of decommissioning or plugging wells; +• +maintenance of quality, purity and thermal quality standards both for commodity sales and purposes of transportation; +• +members of the public have engaged in physical confrontations or acts of sabotage to impede or prevent transportation of hydrocarbons; and +• +pipeline capacity curtailments. +In addition to causing curtailments, delays and cancellations of drilling and producing operations, many of these events can cause substantial losses, including personal injury or loss of life, damage to or destruction of property, natural resources and equipment, pollution, environmental contamination, loss of wells and regulatory penalties. The occurrence of an event that is not fully covered by insurance could have a material adverse impact on our business activities, financial condition and results of operations. +We use information, communication, and technology systems, which record personal information. Failure of these systems, or the failure to protect personal information, could impact our business and operations. +We receive, generate, store and otherwise process sensitive information, such as personal information. +We face a number of risks relative to protecting this critical information, including loss of access risk, inappropriate use or disclosure, inappropriate modification, and the risk of Renergen’s being unable to adequately monitor, audit and modify Renergen’s controls over Renergen’s critical information. This risk extends to the third-party vendors and subcontractors we use to manage this sensitive data. +The right to privacy of both natural and juristic persons (including companies) is regulated by the Protection of Personal Information Act, 2013 (the “POPIA”), which works alongside the Promotion of Access to Information Act, 2000 (the “PAIA”). With effect from July 1, 2021, a “responsible party” must ensure that it processes personal information of another (known as a “data subject’’) in accordance with the principles contained in the POPIA. The “processing” of personal information refers to any operation or activity concerning such personal information and includes collection, storage, use, alteration, retrieval (amongst others). In addition, the POPIA includes provisions relating to the processing of “special personal information,” which includes information concerning a data subject’s religious or philosophical beliefs, race or ethnic origin, trade union membership, political persuasion, health or sex life and criminal behavior or biometric information. The POPIA would apply to the “processing” of personal information relating to Renergen’s employees, customers, suppliers, shareholders and service providers. It also regulates the transfer of personal information outside South Africa by the Company and the processing of personal information for a responsible party by an independent third party known as an “operator” (data processor). +Any person (being natural or juristic persons, private or public bodies) who believes that we have failed to comply with Renergen’s obligations under the POPIA may lodge a complaint with the Information Regulator, who is, among others, empowered to monitor and enforce compliance with the provisions of the PAIA and the POPIA (the “Information Regulator”), and who is required to investigate the complaint. The Information Regulator may commence an investigation on its own initiative. In +75 +conducting this investigation, the Information Regulator may summon and enforce the appearance of persons before the Information Regulator, compel the production of documents, access and search any premises, conduct interviews, and carry out any inquiries at the premises that the Information Regulator deems fit. The Information Regulator is also empowered to issue a request for information by way of an information notice. +Upon completion of the investigation, the Information Regulator may refer the complaint to the Enforcement Committee of the POPIA (the “Enforcement Committee”) for consideration, a finding in respect of the complaint, and a recommendation in respect of the proposed action to be taken by the Information Regulator in respect of the complaint. Based on the recommendations of the Enforcement Committee, the Information Regulator may issue the responsible party with an enforcement notice directing the responsible party to take specific measures or to stop processing personal information or take the steps specified in the notice or refrain from taking such steps. The Information Regulator may also impose an administrative fine. +We cannot guarantee that Renergen’s POPIA compliance efforts will be deemed appropriate or sufficient by regulatory authorities or the courts. South African law provides protection to the personal information of both individuals and companies, the latter forming the vast majority of entities with whom we do business. Moreover, we may have difficulty adapting Renergen’s systems and processes to the new legislation. The changes have impacted, and could further adversely impact, Renergen’s business by increasing Renergen’s operational and compliance costs. Renergen’s or Renergen’s third-party vendors’ failure to comply with applicable data protection laws and regulations (such as in the event of a security breach) could result in claims, disputes, proceedings, government enforcement actions (which could include civil or criminal penalties), loss in customers and suppliers, private litigation and/or adverse publicity, monetary penalties or other liabilities, all of which could increase Renergen’s costs of doing business, distract Renergen’s management, require us to change Renergen’s operations and negatively affect Renergen’s operating results and business. Claims that we have violated data subjects’ privacy rights, failed to comply with data protection laws, or breached Renergen’s contractual obligations or privacy policies, even if we are not found liable, could be expensive and time consuming to defend, could result in adverse publicity and could have a material adverse effect on our business, financial condition and results of operations. We may also be contractually required to indemnify and hold harmless third parties from the costs or consequences of non-compliance with any laws, rules and regulations or other legal obligations relating to privacy or consumer protection or any inadvertent or unauthorized use or disclosure of personal information that we store or otherwise process as part of operating Renergen’s business. +Operational risks may adversely impact Renergen’s business or results of operations. +Renergen’s operating results are dependent on the continued operation of Renergen’s exploration and production facilities, our ability to meet customer contract requirements and other needs. Insufficient or excess capacity with respect to Renergen’s exploration and production facilities threatens our ability to generate competitive profit margins and may expose us to liabilities related to contract commitments. Renergen’s operating results are also dependent on our ability to obtain statutorily required consents on time, complete new construction projects on time, on budget and in accordance with performance requirements. Failure to do so may expose Renergen’s business to loss of revenue, potential litigation and loss of business reputation. +Also inherent in the management of Renergen’s production facilities and delivery systems, including storage, vehicle transportation and pipelines, are operational risks that require continuous training, oversight and control. Material operating failures at production or storage facilities or pipelines, including fire, toxic release and explosions, or the occurrence of vehicle transportation accidents could result in loss of life, damage to the environment, loss of production and/or extensive property damage, all of which may negatively impact our financial results. +The third parties on whom we may rely for gathering and transportation services are subject to complex laws that may adversely impact Renergen’s business or results of operations. +Generally, we are responsible for conveying gas from the Virginia Gas Plant with a direct connection to trucks owned by us and for transporting the gas directly to end customers. There may be instances where we might rely on a third-party service provider for gathering and transportation services using the transportation fleet of the relevant third-party service provider. Such third-party service providers are subject to complex and stringent laws and regulations that require obtaining and maintaining numerous permits, approvals and certifications from various government authorities. These third parties may incur substantial costs in order to comply with existing laws and regulations. If existing laws and regulations governing such third party services are revised or reinterpreted, if new laws and regulations become applicable to their operations, or if these third parties otherwise change the rates, terms, or conditions of service, such changes may affect the availability of or the costs that we pay for services. Similarly, a failure to comply with such laws and regulations by the third parties could have a material adverse effect on Renergen’s business, financial condition, and results of operations. Moreover, the operations of these third parties could be subject to legal challenges that could disrupt service to Renergen’s operations and consequently adversely impact our business or results of operations. +Renergen’s insurance coverage may not adequately satisfy all potential claims in the future. +Although we believe we have sufficient insurance coverage, we may become subject to liability for pollution, occupational illness, climate change and other resource impacts or other hazards against which we have not been insured, cannot insure or are +76 +insufficiently insured, including those relating to past operations. Renergen’s existing property and liability insurance contains specific exclusions and limitations on coverage. Should we suffer a major loss, which is insufficiently covered, future earnings could be affected. In addition, certain classes of insurance may not continue to be available at economically acceptable premiums. As a result, in the future, Renergen’s insurance coverage may not fully cover the extent of claims against it or any cross-claims made. +If any of Renergen’s operations do not perform in line with Renergen’s expectations, we may be required to write down the carrying value of Renergen’s investment, which could affect Renergen’s profitability and the ability to pay dividends. +Under the IFRS, we are required to test the carrying value of long-term assets or cash-generating units for impairment at least annually and more frequently if we have reason to believe that Renergen’s expectations for the future cash flows generated by these assets may no longer be valid. If the results of operations and cash flows generated by Renergen’s operations are not in line with Renergen’s expectations due to, for example, fluctuations in commodity prices, evaluations of Renergen’s development plans, or new production data economics, we may be required to write down the carrying value of Renergen’s investment. A write down constitutes a non-cash impairment charge to earnings. Any write down could materially affect our business, operating results and financial condition. +Possible disputes in relation to access, use and servitude agreements entered into with landowners could result in timing delays. +To enable us to commence Renergen’s operations and exploration and development activities, we enter into access, use and servitude agreements with the respective landowners. Such agreements allow us to access the property to do exploration and construction work and to construct the pipeline, and the landowner permits us to register a pipeline servitude, booster station servitude, or production well servitude. Any disputes between the respective landowner and us could lead to delays in our ability to complete exploration and construction work, resulting in time delays and additional costs. +A duly executed agreement to grant a servitude (or so-called unregistered servitude) gives rise to a real right only when it has been registered. Prior to registration, a third party, in particular a purchaser of the underlying land without notice of the servitude, is therefore not bound to recognize it, although the agreement becomes binding immediately inter partes (between the landowner and us). Once registered, or if any third parties have actual knowledge of it, the servitude becomes enforceable against third parties. Registration of the servitudes can be delayed from a timing perspective should the underlying land be encumbered by a mortgage bond and there is a delay in obtaining bondholder consent to register the servitude. +We may not be able to compete with less carbon-intensive sources of energy, such as renewable natural gas and renewable power, given the expected global energy transition to a low carbon economy. +While we believe we offer a competitive, less carbon-intensive source of helium and natural gas for use in transportation, industrial processes and power generation, we cannot guarantee that we Renergen’s products will remain competitive with other sources of energy or that even lower carbon intensive alternatives to Renergen’s products may emerge in the market. Many stakeholders are focused on the development of zero-carbon or carbon negative resources, such as renewable power from wind, solar, or other sources, or renewable natural gas, to assist in the global transition to a low carbon economy, and we cannot guarantee that changes in consumer demand for Renergen’s products will not adversely affect our business and results of operations. +Risks Related to Renergen’s Indebtedness and Liquidity +The DFC Credit Facility Agreement and IDC Loan Agreement place operating restrictions on Renergen and create default risks. +The DFC Credit Facility Agreement and the IDC Loan Agreement contain covenants that place restrictions on Renergen’s operating activities. For more information about certain financial covenants and negative covenants in the DFC Credit Facility and the IDC Loan Agreement, see “Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources— Contractual Obligations and Commitments.” These restrictions may interfere with our ability to obtain financing or to engage in other business activities, which may have a material adverse effect on our business, financial condition or results of operations. +If we are unable to comply with the covenants contained in the DFC Credit Facility Agreement and the IDC Loan Agreement, it could constitute an event of default and Renergen’s lenders could declare all borrowings outstanding, together with all other amounts owing under the related financing documents and accrued and unpaid interest, to be immediately due and payable. If we are unable to repay or otherwise refinance these borrowings when due, Renergen’s lenders could sell the collateral securing the DFC Credit Facility Agreement and the IDC Loan Agreement, which constitute substantially all of Renergen’s assets. +77 +We will continue to have the ability to incur debt and Renergen’s levels of debt may affect Renergen’s operations and our ability to pay the principal of and interest on Renergen’s debt. +In the future, we and Renergen’s subsidiaries may be able to incur substantial additional debt from amendments to the DFC Credit Facility Agreement or IDC Loan Agreement, additional lending sources subject to the restrictions contained in the DFC Credit Facility Agreement and IDC Loan Agreement, or because of certain additional debt instruments we may issue. +Renergen’s indebtedness could be costly or have adverse consequences, such as: +• +requiring us to dedicate a substantial portion of Renergen’s cash flows from operations to payments on Renergen’s debt; +• +limiting our ability to obtain future financing for working capital, capital expenditures, debt obligations and other general corporate requirements; +• +making us more vulnerable to adverse conditions in the general economy or Renergen’s industry and to fluctuations in Renergen’s operating results, including affecting our ability to comply with and maintain any financial tests and ratios required under Renergen’s indebtedness; +• +limiting Renergen’s flexibility to engage in certain transactions or to plan for, or react to, changes in Renergen’s business and industry; +• +putting us at a disadvantage compared to competitors that have less relative and/or less restrictive debt; and +• +subjecting us to additional restrictive financial and other covenants. +If we incur substantial additional indebtedness in the future, these higher levels of indebtedness may affect our ability to pay the principal of and interest on existing indebtedness and our creditworthiness generally. +We may not be able to generate sufficient cash to service all of Renergen’s indebtedness and may be forced to take other actions to satisfy Renergen’s obligations under applicable debt instruments, which may not be successful. +Our ability to make scheduled payments on or to refinance Renergen’s indebtedness obligations, including under the DFC Credit Facility Agreement and the IDC Loan Agreement, depends on Renergen’s financial condition and operating performance, which are subject to prevailing economic and competitive conditions and certain financial, business and other factors beyond Renergen’s control. We may not be able to maintain a level of cash flow from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on Renergen’s indebtedness. Additionally, we anticipate incurring a substantial amount of indebtedness to fund the anticipated build cost to construct Phase 2, which will increase the risk that we are unable to generate sufficient cash to service all of Renergen’s indebtedness. +Renergen’s outstanding indebtedness under the IDC Loan Agreement bears interest at a variable rate, which makes us more vulnerable to increases in interest rates and could cause Renergen’s interest expense to increase and decrease cash available for operations and other purposes. +Borrowings under the IDC Loan Agreement bear interest at a variable rate, which increases and decreases based upon changes in the underlying interest rate. Any such increases in the interest rate or increases of Renergen’s borrowings under the IDC Loan Agreement will increase Renergen’s interest expense and reduce Renergen’s funds available for operations and other purposes. Although from time to time we may enter into agreements to hedge a portion of Renergen’s interest rate exposure, these agreements may be costly and may not protect against all interest rate fluctuations. Accordingly, we may experience material increases in our interest expense as a result of increases in interest rate levels generally. +We may incur losses on interest rate swap and hedging arrangements. +We may periodically enter into agreements to reduce the risks associated with increases in interest rates, such as interest rate swaps. Although these agreements may partially protect against rising inflation rates, they also may reduce the benefits to us if interest rates decline. +78 +Item 1B. Unresolved Staff Comments +None. +Item 1C. Cybersecurity +Cybersecurity Risk Management and Strategy +Due to the size of our company, we have not yet developed robust policies and processes for assessing, identifying, and managing material risk from cybersecurity threats. We have implemented access controls with respect to our systems, which we monitor regularly and audit annually. Our most sensitive data is stored in offline air-gapped devices. We currently rely heavily on products and services provided by third-party suppliers to operate certain critical business systems, including without limitation, cloud-based infrastructure, encryption and authentication technology, email, and other functions. We rely on third party providers and outsourced IT services to monitor and address cybersecurity related risks, including installing software for threat protection and malware. Such third party providers are tasked with notifying management of any material risks or cybersecurity concerns that they identify, which management then assesses and may bring to our board of directors to discuss if deemed necessary or appropriate. Based on the results of our risk assessments, if deemed necessary or appropriate, we take steps to re-design, implement, and maintain reasonable safeguards to minimize identified risks; reasonably address any identified gaps in existing safeguards; and regularly monitor the effectiveness of our safeguards. +We intend to work with outside counsel and third party service providers in the near term to further develop our expertise, processes and procedures with respect to cybersecurity protection and our response plan. +To date, we have not (to our knowledge) encountered cybersecurity challenges that have materially impaired our operations or financial standing. For additional information regarding risks from cybersecurity threats, please refer to Item 1A, “Risk Factors,” in this Report. +Governance +Our management team is primarily responsible for assessing and managing our strategic risk exposures, including material risks from cybersecurity threats, with assistance from third-party service providers. Management oversees our cybersecurity process on a day-to-day basis, including those described under the heading “Cybersecurity Risk Management and Strategy” above. +Our audit committee is tasked with general oversight of our risk management process, including risks from cybersecurity threats. Members of management provide periodic briefings to the audit committee of our board of directors regarding our cybersecurity risks and activities, including any recent cybersecurity incidents and related responses, cybersecurity systems testing, activities of third parties, and the like. In furtherance thereof, the committee is responsible for monitoring and assessing strategic risk exposure. Our audit committee provides regular updates to the board of directors on such reports. +Item 2. Properties +As of December 31, 2025, we are party to several facility leases in South Africa and Hong Kong for office, manufacturing and laboratory space. We believe that our current facilities are sufficient to meet our current and near-term needs and that, should it be needed, suitable additional space will be available. Please also see the section captioned “Facilities” in Part I, Item 1 above. +Item 3. Legal Proceedings +Except as described herein, we are currently not party to, and our property is not currently the subject of, any material pending legal matters or claims. +On December 4, 2024, a purported stockholder of the Company filed a putative securities class action on behalf of purchasers of the Company’s securities between October 30, 2024 through November 26, 2024 against ASP Isotopes Inc. and certain of its executive officers in the United States District Court for the Southern District of New York (Corredor v. ASP Isotopes Inc., et al., Case No. 1:24-cv-09253 (S.D.N.Y.)) (the “Securities Class Action”). The Securities Class Action alleges that the Company, its chief executive officer and chief financial officer (“Defendants”) made materially misleading or false statements or omissions regarding the Company’s business and asserts purported claims under §§ 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 promulgated thereunder. The complaint seeks unspecified compensatory damages, attorney’s fees and costs. On May 2, 2025, the Court appointed Mark Leone (“Leone”) as lead plaintiff and directed the Clerk of court to amend the caption to substitute Leone for Alexander Corredor as plaintiff. On May 2, 2025, the Court also appointed lead counsel and set deadlines for filing an amended consolidated class action complaint and briefing schedules for a motion to dismiss, if any, and class certification. On May 27, 2025, Leone and two additional named plaintiffs (“Plaintiffs”) filed the amended class action complaint +79 +(“Amended Complaint”), that asserts the same causes of action and seeks the same relief as the initial complaint and is based upon substantially similar factual allegations as the initial complaint. On June 27, 2025, Defendants filed a motion to dismiss the Amended Complaint. Also on June 27, 2025, Plaintiffs filed a motion for class certification. On December 4, 2025, the Court denied in part Defendants’ motion to dismiss and granted Plaintiffs’ motion for class certification. On April 3, 2026, following a mediation in which the parties reached an agreement-in-principle to resolve all claims in the Securities Class Action, subject to the Court’s approval, the parties filed a Joint Stipulation agreeing to stay the Securities Class Action (the “Stipulation”). The Stipulation requires the parties to file a stipulation of settlement and for the Plaintiffs to file a motion for preliminary approval of the stipulation of settlement within 60 days of the Court’s approval of the Stipulation. On April 6, 2026, the Court approved the Stipulation. The Company cannot be certain of the outcome of the Securities Class Action and, if decided adversely to us, our business and financial condition may be adversely affected. +On January 30, 2026, a purported stockholder of the Company filed a derivative action against certain members of the Company’s board of directors in the United States District Court for the Northern District of Texas asserting claims for, among others, breach of fiduciary duty, violation of § 14(a) of the Securities Exchange Act of 1934 and a claim for contribution pursuant to § 21D thereof (Jenis v. Mann, et al., Case No. 3:26-cv-251 (N.D. Tex.)) (the “Jenis Action”). The Company is named as a Nominal Defendant. On March 2, 2026, a different purported stockholder of the Company filed a derivative action against certain members of the Company’s board of directors in the United States District Court for the Southern District of New York asserting claims for, among others, breach of fiduciary duty, violations of §§ 14(a) and 20(a) of the Securities Exchange Act of 1934, and a claim for contribution pursuant to § 21D thereof (Stewart v. Mann, et al., Case No. 1:26-cv-1712 (S.D.N.Y.)) (the “Stewart Action”) (together with the Jenis Action, the “Derivative Actions”)). The Company is named as a Nominal Defendant. The Derivative Actions arise out of similar allegations as those made in the Securities Class Action. The plaintiffs in the Derivative Actions seek unspecified damages, disgorgement of compensation, corporate governance reforms, fees, interests, and costs. The defendants have not yet responded to the complaints in the Derivative Actions. The Company cannot be certain of the outcome of the Derivative Actions and, if decided adversely to us, our business and financial condition may be adversely affected. +In addition to the matters described above, from time to time, we may become subject to arbitration, litigation or claims arising in the ordinary course of business. The results of any current or future claims or proceedings cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on us because of defense and litigation costs, diversion of management resources, reputational harm and other factors. Please also see the section captioned “Legal Proceedings” in Part I, Item 1 above. +Item 4. Mine Safety Disclosures +Not applicable. +PART II +Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +Market Information and Holders of Record +Our common stock is traded on the Nasdaq Capital Market under the symbol “ASPI.” Public trading of our common stock began on November 10, 2022. Prior to that, there was no public market for our common stock. +As of April 3, 2026, we had 1,691 registered shareholders, not including those shares held in street or nominee name. +Dividends +We have never declared or paid a cash dividend on our capital stock. We currently intend to retain any future earnings and do not expect to pay any dividends in the foreseeable future. Any future determinations to pay cash dividends will be made at the discretion of our board of directors, subject to applicable laws, and will depend on a number of factors, including our financial condition, results of operations, capital requirements, contractual restrictions, general business conditions, and any other factors that our board may deem relevant. +Securities Authorized for Issuance under Equity Compensation Plans +For equity compensation plan information, refer to Item 12, Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters of this Annual Report on Form 10-K. +80 +Stock Performance Graph +As a smaller reporting company, we are not required to provide the information requested by this item pursuant to Item 201 of Regulation S-K. +Unregistered Sales of Equity Securities and Use of Proceeds +Unregistered sales of equity securities +None. +Repurchases of equity securities by the issuer +None. +Item 6. [Reserved] +81 +Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations +The following discussion and analysis of financial condition and results of operations is provided to enhance the understanding of, and should be read in conjunction with Part I, Item 1, “Business” and Item 8, ‘Financial Statements and Supplementary Data.” For information on risks and uncertainties related to our business that may make past performance not indicative of future results or cause actual results to differ materially from any forward-looking statements, see “Special Note Regarding Forward-Looking Statements,” and Part I, Item 1A, ‘Risk Factors.” +Overview +We are an advanced materials company dedicated to the development of a differentiated isotope enrichment platform to strengthen global supply chain access to critical materials used in nuclear medicine, next-generation semiconductors, and nuclear energy. Our proprietary enrichment technologies, the Aerodynamic Separation Process (“ASP technology”) and QE technology, are designed to enable the production of isotopes for a range of industrial and advanced technology applications. Our initial focus is on the production and commercialization of enriched Carbon-14 (“C-14”), Silicon-28 (“Si-28”) and Ytterbium-176 (“Yb-176”). +We commenced commercial production of enriched isotopes at both of our ASP enrichment facilities located in Pretoria, South Africa during the first half of 2025. Our first ASP enrichment facility is designed to enrich light isotopes, such as C-14 and C-12. The second ASP enrichment facility, which is substantially larger than the first, should have the potential to enrich kilogram quantities of relatively heavier isotopes, including but not limited to Si-28. We are targeting initial commercial shipments of enriched C-14 in mid-2026. We are targeting initial commercial shipments of enriched Si-28 during the second quarter of 2026. We have also completed the commissioning phase and are producing commercial samples of highly enriched Yb-176 at our third enrichment facility, a QE technology facility, which is our first laser-based enrichment plant. We are targeting initial commercial shipments of Yb-176 in mid-2026 or the third quarter of 2026. +In addition, we have started planning additional isotope enrichment plants both in South Africa and in other jurisdictions, including Iceland and the United States. We believe the C-14 we may produce using the ASP technology could be used in the development of new pharmaceuticals and agrochemicals. We believe the Si-28 we may produce using the ASP technology may be used to create advanced semiconductors and in quantum computing. We believe the Yb-176 we may produce using the QE technology may be used to create radiotherapeutics that treat various forms of oncology. We are considering the future development of the ASP technology for the separation of Zinc-68 and Xenon-129/136 for potential use in the healthcare end market, Germanium 70/72/74 for potential use in the semiconductor end market, and Chlorine -37 for potential use in the nuclear energy end market. We are also considering the future development of QE technology for the separation of Nickel-64, Gadolinium-160, Ytterbium-171, Lithium-6 and Lithium-7. +QLE, our subsidiary, is currently pursuing an initiative to apply our enrichment technologies to the enrichment of Uranium-235 (“U-235”) in South Africa. We believe that the U-235 QLE may produce has the potential to be commercialized as a nuclear fuel component for use in the new generation of high-assay low-enriched uranium (“HALEU”)-fueled small modular reactors that are now under development for commercial and government uses. In furtherance of our uranium enrichment initiative in South Africa, we have entered into certain definitive agreements with TerraPower, LLC (“TerraPower”), including a term loan subject to conditions to support construction of a new uranium enrichment facility at Pelindaba, South Africa and supply agreements for the future supply of HALEU to TerraPower, as a customer. In addition, QLE’s South African subsidiary has entered into a Pre-Implementation Services Contract Agreement (“Services Contract”) with The South African Nuclear Energy Corporation (“Necsa”), a South African state-owned company responsible for undertaking and promoting research and development in the field of nuclear energy and radiation sciences, pursuant to which Necsa has agreed to provide to QLE’s South African subsidiary certain facilities, infrastructure, utilities and services related to the siting, design, construction, commission and operation of an enrichment facility on the Necsa site in Pelindaba. In the period since our inception to date, we have not applied our enrichment technologies to the enrichment of U-235, nor received permission or regulatory approval to conduct testing of our enrichment technologies on U-235, except for the activities contemplated by the Services Contract with Necsa. Our expectation that QLE’s initiative to apply our enrichment technologies to the enrichment of U-235 could be successful is based upon research conducted by certain of our scientists prior to joining the company, as well as the demonstrated effectiveness of QE technology on Yb-176. +QLE acquired a controlling interest in Skyline in August 2025. Skyline is a holding company, and its operations are conducted through its wholly owned operating subsidiary, Kin Chiu Engineering Limited. Operations primarily consist of construction activities which include public civil engineering works, such as road and drainage works, in Hong Kong. Skyline mostly undertakes civil engineering works in the role as a subcontractor but is fully qualified to undertake such works in the capacity of a main contractor. QLE intends to pursue opportunities to acquire assets in the critical materials supply chain. +We acquired Renergen in January 2026. Renergen is South Africa’s leading onshore natural gas explorer and the first integrated producer of both liquid helium and LNG, both of which are produced from the natural gas reserve base that underpins Renergen’s Virginia Gas Project. The Virginia Gas Project includes (i) the liquefaction of natural gas into LNG, (ii) the separation of helium from natural gas, and (iii) the further liquefaction of helium into 99.999% pure liquid helium. This liquefaction and +82 +separation takes place at Renergen’s Virginia Gas Plant. Renergen’s principal asset is its 94.5% equity ownership in Tetra4, which holds an onshore petroleum production right and is the entity developing the Virginia Gas Project. +Our Subsidiaries and Segments +We operate principally through our subsidiaries. ASP Isotopes Guernsey Limited (the holding company for our subsidiaries in the Cayman Islands, South Africa, Iceland and the United Kingdom) is focused on the development and commercialization of high-value, low-volume isotopes for highly specialized end markets (such as C-14, Mo-100, and Si-28). ASP Isotopes UK Ltd is the owner of our technology. +Beginning in 2024, primarily as a result of increased business activities of our subsidiary, QLE, we had two operating segments: (i) nuclear fuels, and (ii) specialist isotopes and related services. Beginning in August 2025, primarily as a result of the acquisition of Skyline, we have three operating segments: (i) nuclear fuels, (ii) specialist isotopes and related services, and (iii) construction services. +QLE . In September 2023, we formed QLE, which also has subsidiaries in the United Kingdom (Quantum Leap Energy Limited) and South Africa (Quantum Leap Energy (Pty) Limited), to focus on the development and commercialization of advanced nuclear fuels, such as HALEU and Lithium-6. QLE’s direct wholly owned subsidiary QLE UK, has its operations in the United Kingdom. QLE UK’s direct wholly owned subsidiary, QLE South Africa, has its operations in South Africa. QLE also formed QLE SPE Borrower, as a wholly owned subsidiary to act as a special purpose borrower for a loan transaction with TerraPower, a US nuclear innovation company. The QLE SPE Borrower has formed a subsidiary in South Africa to act as the project company for a proposed new uranium enrichment facility at Pelindaba, South Africa. +QLE’s mission is to address perceived gaps in the nuclear fuel cycle, promote safe nuclear power, and enhance the sustainability of the nuclear fuel cycle for advanced nuclear reactors and fusion systems, as well as the existing nuclear fleet. We believe that many advanced nuclear reactors, including SMRs, will rely on fuels with higher uranium enrichment levels, specifically HALEU, which we intend to produce. QLE also intends to produce high-isotopic purity fuel feedstock, such as Lithium-6, for fusion reactors, and by extension, Lithium-7 for Light Water Reactor control. These fuels may enable greater efficiency, compact reactor footprints, and lengthened operational cycles between refueling. Given the flexible nature of our enrichment technology and integrated value chain approach, QLE also intends to make available LEU+ to the existing fleet of nuclear reactors currently running on LEU, thus enabling existing reactors to lengthen the time between refueling, cut costs and boost power output. +As previously announced, our board of directors intends to pursue the separation of our Nuclear Fuels business and Specialist Isotopes and Related Services business in two independent companies. The regulatory landscape and supply chain for nuclear fuel production differs significantly from that of medical isotopes, hence we and QLE have different business models and we believe that both companies would benefit if QLE is independently managed and financed. We plan to effect the separation through a listing of QLE in a transaction that results in QLE existing as a separate public company with shares listed on a U.S. national securities exchange and a portion of QLE’s common equity being distributed to our stockholders as of a to-be-determined future record date. Although no assurance can be given, our goal is to list QLE on such exchange, subject to market conditions, obtaining applicable approvals and consents, and complying with applicable rules and regulations and public market trading and listing requirements. In November 2025, we announced that QLE had confidentially submitted a draft registration statement on Form S-1 to the SEC relating to the proposed initial public offering of QLE’s Class A common stock. While we currently expect that a listing of QLE as a separate public company is the most likely separation transaction, our board of directors remains committed to maximizing shareholder value creation, and will continue to evaluate other options for separation to maximize shareholder value. +We entered into a number of agreements with QLE, including a License Agreement, pursuant to which QLE has licensed from us the rights to technologies and methods used to separate U-235 and Lithium-6 (including but not limited to the QE and ASP technologies) in exchange for a perpetual royalty in the amount of 10% of all future QLE revenues, and an EPC Services Framework Agreement, pursuant to which we will provide services for the engineering, procurement and construction of one or more turnkey U-235 and Lithium-6 enrichment facilities in locations to be identified by QLE and owned or leased by QLE, and commissioning, start-up and test services for each such facility, subject to the receipt of all applicable regulatory approvals, permits, licenses, authorizations, registrations, certificates, consents, orders, variances and similar rights. +PET Labs . We have a 51% ownership stake in PET Labs, a South African radiopharmaceutical operations company focused on the production of fluorinated radioisotopes and active pharmaceutical ingredients, through which we entered the downstream medical isotope production and distribution market. Under the terms of the Share Purchase Agreement pursuant to which we acquired the shares in PET Labs, we agreed to pay a total of $2.0 million for the shares in two installments, which has been paid in full as of December 2025. In addition, we have an option to purchase the remaining 49% of the outstanding equity in PET Labs, exercisable until January 31, 2027, for $2.2 million. +East Coast Nuclear Pharmacy. In October 2025, we completed the acquisition of East Coast Nuclear Pharmacy ("ECNP"). The acquisition is intended to supplement the distribution of our pipeline. Pursuant to the terms of the agreement, we acquired 100% of the issued and outstanding membership interests for total purchase consideration of $2.5 million of which $2.0 million +83 +was paid up front in cash and the remaining $0.5 million was deferred through the issuance of notes payable that are to be repaid by June 30, 2026. +Skyline Builders Group Holding Ltd. In August 2025, QLE completed the acquisition of a controlling interest in Skyline. QLE entered into a Stock Purchase Agreement to purchase all 1,995,000 of Skyline's Class B Ordinary Shares for the aggregate purchase price of $1,000,000. Additionally, QLE entered into a Securities Purchase Agreement to purchase (i) 454,794 Class A Ordinary Shares, (ii) a Prefunded Warrant to purchase 1,600,000 Class A Ordinary Shares at an exercise price of $0.0001 per share ("Prefunded Warrants"), (iii) a Class A Ordinary Share Purchase Warrant A to purchase up to 2,054,794 Class A Ordinary Shares at an exercise price of $0.60 per share ("A Warrant"), and (iv) a Class A Ordinary Share Purchase Warrant B to purchase 2,054,794 Class A Ordinary Shares at an exercise price of $0.65 per share ("B Warrant" and together with Prefunded Warrant and A Warrant, "Warrants"), for the aggregate purchase price of $1,500,000 ("Skyline Purchase Agreement"). +Each Class A Ordinary Share shall entitle the holder thereof to one (1) vote on all matters subject to vote at general meetings of Skyline, and each Class B Ordinary Share shall entitle the holder thereof to twenty (20) votes on all matters subject to vote at general meetings of Skyline. Currently there is no mechanism in which Class A Ordinary Shares are convertible into Class B Ordinary Shares. Currently there is no mechanism in which Class B Ordinary Shares are convertible into Class A Ordinary Shares. On the acquisition date, QLE became the holder of 79.14% of the aggregate voting power represented by all of Skyline's outstanding Class A ordinary shares and Class B ordinary shares, and thereby gaining control over Skyline. +Skyline is a holding company, and its operations are conducted through its wholly owned operating subsidiaries, Kin Chiu Engineering Limited and Kin Chiu Development Company Limited. Operations primarily consist of construction activities which include public civil engineering works, such as road and drainage works, in Hong Kong. Skyline mostly undertakes civil engineering works in the role as a subcontractor but is fully qualified to undertake such works in the capacity of a main contractor. QLE intends to pursue opportunities to acquire assets in the critical materials supply chain. +Effective September 18, 2025, Dr. Ryno Pretorius, Chief Executive Officer of QLE, was appointed as an independent director of Skyline. In addition, an employee of ASP Isotopes was appointed as an independent director of Skyline. Effective January 1, 2026, the Skyline board of directors appointed Paul Mann as Executive Chairman of Skyline. Effective March 30, 2026, the employee of ASP Isotopes that held one of the director positions at Skyline resigned and was replaced by a new independent director. +On January 23, 2026, Skyline entered into a warrant exchange agreement (the “Skyline Exchange Agreement”) with the holders of Skyline Class A Ordinary Share Purchase Warrant A’s and Skyline Class A Ordinary Share Purchase Warrant B’s (collectively, the “Skyline Holder Warrants”), to purchase an aggregate of 48,698,628 Skyline Class A Ordinary Shares, that were purchased in the Skyline Series A Private Placement, to exchange the Skyline Holder Warrants issued on August 29, 2025, for an aggregate of 47,326,025 newly issued Series A preferred shares of Skyline (“Skyline Series A Preferred Shares”) and allotted among the holders in accordance with the Skyline Exchange Agreement. Each Skyline Series A Preferred Share is convertible, at the option of a holder thereof, into Skyline Class A Ordinary Shares. +On February 11, 2026, Skyline entered into (i) a securities purchase agreement (the “Reg D Purchase Agreement”) for an offering of Skyline’s Series B Convertible Preferred Shares (the “Skyline Series B Preferred Shares”) in a private placement (the “Reg D Private Placement”) pursuant to Regulation D under the Securities Act of 1933, as amended and (ii) a securities purchase agreement (the “Reg S Purchase Agreement”) for an offering of the Skyline Series B Preferred Shares in a private placement pursuant to Regulation S under the Securities Act (the “Reg S Private Placement” and together with the Reg D Private Placement, the “February 2026 Skyline Series B Private Placements”), in each case, for the purchase and sale of the Skyline Series B Preferred Shares. +The February 2026 Skyline Series B Private Placements closed on February 13, 2026 at which Skyline issued 6,322 of the Skyline Series B Preferred Shares. The purchase price for each Skyline Series B Preferred Share was $5,000. Each Skyline Series B Preferred Share is convertible into Skyline Class A ordinary shares with a conversion price of $2.40 per share, subject to certain anti-dilution adjustments that are subject to a floor of $1.50 per share and other customary adjustments for share splits, recapitalizations, reorganizations and similar transactions. The gross proceeds of the Skyline Series B Private Placement were approximately $31.6 million, before deducting placement agent fees and other offering expenses payable by Skyline. +In connection with the February 2026 Skyline Series B Private Placements, Skyline also entered into placement agency agreements dated February 10, 2026 that included the payment of a cash fee equal to 8.0% of the aggregate gross proceeds of the February 2026 Skyline Series B Private Placements and the issuance of non-callable warrants exercisable for a number of Skyline's Class A Ordinary Shares equal to 6% of the Class A Ordinary Shares underlying the Skyline Series B Preferred Shares. The warrants have an exercise price of $2.40 per share. +On March 20, 2026, Skyline entered into (i) a senior unsecured convertible note purchase agreement for an offering of approximately $16.6 million of Skyline's senior unsecured convertible notes (the “2026 Skyline Notes”) in a private placement and (ii) a securities purchase agreement dated March 20, 2026 for an offering of $0.6 million of Skyline’s Series B Preferred Shares (the “March 2026 Skyline Preferred Shares”) in a private placement (the "March 2026 Skyline Private Placement"). +84 +The March 2026 Skyline Private Placement closed on March 25, 2026. The 2026 Skyline Notes are convertible into Skyline's class A ordinary shares, par value $0.00001 per share at a conversion price of $2.40 per share, subject to certain anti-dilution adjustments, that are subject to a floor of $1.50 per share. The conversion price of the 2026 Skyline Notes is also subject to other customary adjustments for share splits, recapitalizations, reorganizations and similar transactions The purchase price for each March 2026 Skyline Preferred Share was $5,000. Each March 2026 Skyline Preferred Share is convertible into Class A ordinary shares at a conversion price of $2.40 per share, subject to certain anti-dilution adjustments that are subject to a floor of $1.50 per share. The gross proceeds of the March 2026 Skyline Private Placement was approximately $17.2 million, before deducting placement agent fees and other offering expenses that were paid by Skyline. +In connection with the March 2026 Skyline Private Placement, Skyline also entered into placement agency agreements dated March 20, 2026 that included the payment of a cash fee equal to 8.0% of the aggregate gross proceeds of the March 2026 Skyline Private Placement and the issuance of non-callable warrants exercisable for a number of Skyline's Class A Ordinary Shares equal to 8% and 6% of the Class A Ordinary Shares underlying the 2026 Skyline Notes and March 2026 Skyline Preferred Shares, respectively. The warrants have an exercise price of $2.40 per share. +On March 29, 2026, QLE entered into a securities exchange agreement with an investor (the "QLE Exchange Agreement"). Per the QLE Exchange Agreement, the investor assigned and transferred 1,995,000 Class A Ordinary Shares held by the investor to QLE in exchange for an equal number of Class B Ordinary Shares held by QLE. +On March 31, 2026, Skyline issued an additional $3.0 million of 2026 Skyline Notes in a private placement. +Renergen Acquisition. On January 6, 2026, ASP Isotopes acquired all of the issued and outstanding Renergen Ordinary Shares from Renergen shareholders in exchange for the Consideration Shares through the implementation of the Scheme in accordance with Sections 114 and 115 of the South African Companies Act, No. 71 of 2008, resulting in the issuance of an aggregate of 14,270,000 Consideration Shares. As a result of the transactions contemplated by the Scheme, the Renergen Ordinary Shares, which were publicly traded on the Johannesburg Stock Exchange (JSE: REN) and the Australian Securities Exchange (ASX:RLT), were delisted and Renergen became a wholly owned subsidiary of ASP Isotopes. +Renergen is South Africa’s leading onshore natural gas explorer and the first integrated producer of both liquid helium and LNG, both of which are produced from the large natural gas reserve base that underpins Renergen’s Virginia Gas Project. The Virginia Gas Project includes (i) the liquefaction of natural gas into LNG, (ii) the separation of helium from natural gas, and (iii) the further liquefaction of helium into 99.999% pure liquid helium. This liquefaction and separation takes place at Renergen’s Virginia Gas Plant in the Free State Province of South Africa. Based on the drilled and flow-tested wells, Renergen’s average helium concentration exceeds 3.0%, which is well above typical conventional natural gas reservoirs containing helium in small concentrations (less than 0.5%). +Renergen’s principal asset is its 94.5% equity ownership in Tetra4, which holds South Africa’s first and only onshore petroleum Production Right and is the entity developing the Virginia Gas Project. Phase 1 of the Virginia Gas Project has commenced commercial LNG and liquid helium operations. The Virginia Gas Project benefits from favorable supply and demand trends in both the LNG and liquid helium sectors. The LNG is and will continue to be sold domestically in South Africa into a market suffering energy and natural gas shortages, and we plan to sell helium directly to global customers at a time when the world is suffering helium supply shortages, which have been further exacerbated by the ongoing United States-Israel-Iran war. We believe that it was for these two reasons that the Virginia Gas Project was conditionally approved to be funded by the U.S. International Development Finance Corporation (“DFC”) as part of the U.S.’s initiative to ensure new helium supply comes online as aerospace and the semiconductor industry increase helium requirements in the face of diminished supply, while increasing South Africa’s domestic energy supply. +Helium is a vital and irreplaceable element in many modern industries because it is both chemically and electrically inert and, when in liquid form, is the coldest substance known to man at 3 degrees Kelvin (minus 454.3 degrees Fahrenheit). For these reasons, it can be used in the manufacture of semiconductors, to purge laboratory or manufacturing environments, act as a fuel propellant for other cryogenic fuels, and/or provide deep cryogenic cooling. It is commonly used in space exploration and rocketry, high-level physics experiments (e.g., particle accelerators, quantum mechanics), medical science within MRI devices, fiber optic cable production, commercial diving gas, specialized welding, coolant for nuclear power stations and lifting balloons. +We believe that Renergen’s LNG supply can play an important role in reducing South Africa's relatively high carbon emissions by being the first, and currently the only, LNG supplier in the country. According to Energy Institute (2024), coal has a 69% share of national primary energy consumption, with gas only around 3.5%. As such, according to the World Bank, South Africa ranks as the fifth-worst carbon emissions country per kilogram per purchasing power parity of gross domestic product (“GDP”). This ranking is largely due to South Africa’s high reliance on low-grade coal to provide electricity, supplemented by Sasol’s use of coal to liquids technology. Sasol Limited is one of the country’s largest energy suppliers and operator of the natural gas pipeline supplying gas from Mozambique into Johannesburg. LNG is a significantly lower carbon-emitting fuel than either of coal (by 50%) and diesel (25%), upon combustion. Therefore, the introduction of Renergen’s LNG into South Africa’s energy supply mix, including the possible direct substitution of Renergen’s LNG for first diesel, and then potentially coal, may help reduce South Africa’s overall carbon emissions intensity as the country moves towards its net zero carbon emissions targets by 2050. +85 +Investments in Early Stage Drug Development Companies +IsoBio . On July 28, 2025, we purchased 2,000,000 shares of IsoBio Series Seed-1 Preferred Stock at $2.50 per share for a total aggregate purchase price of $5.0 million. IsoBio is a U.S.-based radiotherapeutic development company focused on developing a broad pipeline of mAb-based radioisotope therapeutics targeting both derisked and novel tumor antigens for patients in need of new cancer therapies. As the owner of the Series Seed-1 Preferred Stock, we have the right to designate one board member. An officer and director of ours was designated to fill that board seat. In addition, another board member of ours is a board member and executive officer of IsoBio. +Opeongo . On January 26, 2026, we purchased 4,356,918 shares of Opeongo Series Seed-1 Preferred Stock at $2.2952 per share for a total aggregate purchase price of $10,000,000. Opeongo is a biotechnology company developing novel therapeutics using extracellular matrix modulation to target fibrosis, inflammation, and cancer. Opeongo was co-founded by David Baram, Ph.D. who serves as Opeongo’s Chief Executive Officer and director. As the owner of the Series Seed-1 Preferred Stock, we have the right to designate one board member. An officer and director of ours was designated to fill that board seat. In addition, another board member of ours is a board member and executive officer of Opeongo. +Skyline Investments +Skyline Reemag Investment. In November 2025, Skyline acquired a 13.09% ownership of Reemag LLC ("Reemag") for a cash purchase price of $3.0 million. Skyline will subscribe for additional membership interests of Reemag in tranches, resulting in ownership percentages of 13.09%, 20.06%, 33.42% and 50.10% at the initial, second, third and fourth closing respectively for an aggregate purchase price of $20.0 million. The second, third and fourth closings were scheduled on or before January 31, 2026, March 31, 2026 and by the earlier of a $200.0 million capital raise or July 31, 2026, respectively. However, in March 2026, Skyline entered into the first amendment to the subscription agreement with Reemag that amended the dates of the second, third and fourth closings to May 31, 2026, July 31, 2026 and September 30, 2026, respectively. +Skyline Critical Minerals Space Investment. On October 31, 2025, Skyline entered into a subscription and unit purchase agreement with a limited liability company engaged in the critical minerals space, pursuant to which Skyline subscribed for an approximate 20% membership interest in such company for a subscription price of $20.0 million. +Agreements with TerraPower LLC +On April 4, 2024, we entered into the TerraPower Agreement with TerraPower to develop a conceptual design, refined cost/schedule/financing, risk register, and term sheet for a HALEU facility. The TerraPower Agreement may be terminated for (a) breach or default, (b) our convenience or (c) TerraPower’s convenience. TerraPower is obligated to make all payments for milestones completed by us and these payments are nonrefundable. +On October 18, 2024, we signed the TerraPower Term Sheet that provides for the execution of two definitive agreements: (1) an agreement pursuant to which TerraPower will provide funding for our construction of a uranium enrichment facility capable of producing HALEU using our proprietary aerodynamic separation process technology to be located in the Republic of South Africa and (2) An agreement pursuant to which we will deliver to TerraPower the full capacity of the enrichment facility. +For the year ended December 31, 2024, $0.2 million has been recognized as collaboration revenue in the consolidated statements of operations and comprehensive loss. No collaboration revenue was recognized for the year ended December 31, 2025. +In May 2025, we entered into the TerraPower Loan Agreement, which provides conditional commitments from TerraPower to us through one of our wholly-owned U.S.-based subsidiaries for a multiple advance term loan totaling $22.0 million for the purpose of partially funding the construction of a proposed new uranium enrichment facility in South Africa. The total loan amount is inclusive of a 10% original issue discount on each disbursement and carries a fixed interest rate of 10% per annum. Per the terms of the TerraPower Loan Agreement and subject to the satisfaction of various conditions precedent to disbursements (including receiving all required licenses and permits to perform uranium enrichment in South Africa), we will receive aggregate loan disbursements of $20.0 million. Such loan matures on May 16, 2032. Interest will begin accruing upon each milestone disbursement we receive and will be added to the principal balance until November 2027. Principal and interest payments will be made in 60 equal installments beginning in November 2027. We plan to request drawdowns on this loan beginning in the third quarter of 2026. +In addition to the TerraPower Loan Agreement, in May 2025, we and TerraPower have entered into two supply agreements for the HALEU expected to be produced at our uranium enrichment facility. The initial core supply agreement is intended to support the supply of the required first fuel cores for the initial loading of TerraPower’s Natrium project in Wyoming. The long-term supply agreement is a 10-year supply agreement of up to a total of 150 metric tons of HALEU, commencing in 2028 through end of 2037. +Financings +In March 2024, our wholly owned subsidiary QLE received gross proceeds of $20.6 million through the issuance of Convertible Promissory Notes. These convertible notes had a stated interest rate of 6% for the first year and 8% thereafter. The maturity date of these convertible promissory notes was March 7, 2029. These convertible promissory notes would have +86 +automatically converted into common shares upon Quantum Leap Energy’s closing of an IPO or other qualifying public transaction at 80% of the share price taking into consideration a valuation cap. +In June 2024, our wholly owned subsidiary QLE received gross proceeds of $5.4 million through this issuance of additional Convertible Promissory Notes with a stated interest rate of 6% for the first year and 8% thereafter. One of the notes totaling $0.1 million was issued to the placement agent in lieu of cash issuance costs. The maturity date of the Convertible Promissory Notes was March 7, 2029. The Convertible Promissory Notes would have automatically converted into common shares upon Quantum Leap Energy’s closing of an IPO or other qualifying public transaction at 80% of the share price taking into consideration a valuation cap. +In April 2024, we received approximately $5.5 million from the issuance of 3,164,557 shares of common stock upon the exercise of warrants. +In July 2024, we issued 13,800,000 in a public offering at a public offering price of $2.50 per share resulting in net proceeds of approximately $32.3 million after deducting underwriting discounts, commissions and offering expenses. +In October 2024, a warrant to purchase 151,741 shares of common stock was exercised and we received gross proceeds of $0.3 million. +In November 2024, we issued 2,754,250 shares of common stock at a public offering price of $6.75 per share resulting in net proceeds of approximately $17.1 million after deducting underwriting discounts, commissions and offering expenses. +In June 2025, we issued 7,518,797 shares of common stock at $6.65 per share in a registered direct offering resulting in net proceeds of approximately $46.8 million after deducting underwriting discounts, commissions and offering expenses. +In July 2025, we issued 7,500,000 shares of common stock at $8.00 per share in a registered direct offering resulting in net proceeds of approximately $56.3 million after deducting underwriting discounts, commissions and offering expenses. +In October 2025, we issued 17,167,380 shares of common stock in a registered offering at the offering price of $12.25 per share, for net proceeds of approximately $199.3 million, after deducting underwriting discounts and commissions and estimated offering expenses. +On November 19, 2025, QLE received gross proceeds of $72.2 million through the issuance of convertible promissory notes with a stated interest rate of 8% (the “2025 Notes”). The maturity date of the 2025 Notes is November 19, 2030. The 2025 Notes automatically convert into common shares upon QLE’s closing of an IPO or other qualifying public transaction at 80% of the share price taking into consideration a valuation cap. In connection with the issuance of the 2025 Notes, QLE’s outstanding convertible promissory notes originally issued in March 2024 and June 2024 automatically converted into 2025 Notes with a value of $147.7 million. QLE received $10.0 million in gross proceeds from American Ventures LLC, Series IX Quantum Leap, a related party, and $30.0 million in gross proceeds from ASP Isotopes, its parent. +On January 6, 2026, the Company issued 14,270,000 Consideration Shares in connection with the acquisition of Renergen. +Other Contractual Obligations +We enter into contracts in the normal course of business for testing, manufacturing and other services and products for operating purposes. These contracts do not contain any minimum purchase commitments and are cancelable by us upon prior notice. For additional details regarding our contractual obligations, see Note 11 "Commitments and Contingencies" and Note 12 “Leases” to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K. +Components of Results of Operations +Revenue +Effective with the acquisition of 51% of PET Labs and 100% of ECNP, we recognize revenue from the sale of nuclear medical doses for PET scanning. Effective with the acquisition of 79% of the voting interest of Skyline, we recognize revenue from performing construction services, including roads and drainage. +Cost of Revenue +Cost of revenue associated with the sale of nuclear medical doses for PET scanning consist of labor, delivery and materials. Cost of revenue associated with performing construction services is primarily comprised of subcontracting costs, staff costs and materials costs, which are expensed as incurred. +Operating Expenses +Our operating expenses consist of (i) research and development expenses and (ii) selling, general and administrative expenses. +87 +Research and Development +Our research and development expenses consist primarily of direct and indirect costs incurred in connection with the development activities for our future isotopes. +Direct costs include: +• +external research and development expenses; and +• +costs related to designing the development processes of isotope production. +Indirect costs include: +• +personnel-related costs, which include salaries, payroll taxes, employee benefits, and other employee-related costs, including stock-based compensation, for personnel engaged in research and development functions; and +• +facilities and other various expenses. +Research and development expenses are recognized as incurred and payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods or services are received. +We expect that our research and development expenses will increase substantially for the foreseeable future as we continue the development of our future isotopes. We cannot determine with certainty the timing of initiation, the duration or the completion costs of development activities. Actual development timelines, the probability of success and development costs can differ materially from expectations. +We will need to raise substantial additional capital in the future. In addition, we cannot forecast which future isotopes may be subject to future collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements. +Our research and development expenses may vary significantly based on a variety of factors, such as: +• +the scope, rate of progress, expense and results of our development activities; +• +the phase of development of our future isotopes; +• +the timing, receipt, and terms of any approvals from applicable regulatory authorities including the FDA and foreign regulatory authorities; +• +significant and changing government regulation and regulatory guidance; +• +the cost and timing of designing the development processes of isotope production; +• +the extent to which we establish additional strategic collaborations or other arrangements; and +• +the impact of any business interruptions to our operations or to those of the third parties with whom we work. +A change in the outcome of any of these variables with respect to the development of any of our future isotopes could significantly change the costs and timing associated with the development of that future isotope. +Acquired In-Process Research and Development Expense +Acquired in-process research and development (“IPR&D”) expense resulted from the One 30 Seven acquisition by QLE in October 2025 which was accounted for as an asset acquisition. The acquisition cost allocated to acquire IPR&D with no alternative future use was recorded as an expense at the acquisition date and no additional IPR&D expense relating to the One 30 Seven acquisition is expected to be reported in future periods. +Selling, General and Administrative +Selling, general and administrative expenses consist primarily of personnel-related costs, which include salaries, payroll taxes, employee benefits, and other employee-related costs, including stock-based compensation expense, for personnel in executive, sales, finance and other administrative functions. Other significant costs include legal fees relating to corporate matters, professional fees for accounting and consulting services and facility-related costs. +We expect that our ongoing selling, general and administrative expenses will increase substantially for the foreseeable future to support our increased research and development activities and increased costs of operating as a public company and in building our internal resources. These increased costs will include increased expenses related to audit, legal, regulatory and tax-related services associated with maintaining compliance with exchange listing and SEC requirements, director and officer insurance premiums and investor and public relations costs associated with operating as a public company. +88 +Segment Information +Beginning in 2024, primarily as a result of increased business activities of our subsidiary, QLE, we had two operating segments: (i) nuclear fuels, and (ii) specialist isotopes and related services. Beginning in August 2025, primarily as a result of the acquisition of Skyline, we have three operating segments: (i) nuclear fuels, (ii) specialist isotopes and related services, and (iii) construction services. +The nuclear fuels segment is focused on research and development of technologies and methods used to produce HALEU and Lithium-6 for the advanced nuclear fuels target end market. +The specialist isotopes and related services segment is focused on research and development of technologies and methods used to separate high-value, low-volume isotopes (such as C-14, Si-28 and Yb-176) for highly specialized target end markets other than advanced nuclear fuels, including pharmaceuticals and agrochemicals, nuclear medical imaging and semiconductors, as well as services related to these isotopes, and this segment includes PET Labs and ECNP. +The construction services segment is focused on performing public civil engineering, including roads and drainage, to its customers in Hong Kong. This segment includes Skyline. +The financial information is regularly reviewed by the chief operating decision maker (“CODM”) in deciding how to allocate resources. Our CODM is our chief executive officer. Prior to the acquisition of Skyline, we managed assets on a total company basis, not by operating segment, as the assets were shared or commingled. After the acquisition of Skyline, the CODM regularly reviews any asset information by operating segment and, accordingly, asset information is reported on a segment basis. +The following table shows total assets by segment and a reconciliation to the consolidated financial statements as of December 31, 2025 and 2024 (in thousands): +December 31, +2025 +2024 +Segment assets: +Specialist isotopes and related services +$ +323,690 +$ +71,771 +Nuclear fuels +94,252 +22,577 +Construction services +80,078 +— +Total assets +$ +498,020 +$ +94,348 +Select information from the consolidated statements of operations and comprehensive loss as of the years ended December 31, 2025 and 2024 is as follows (in thousands): +Revenues +Net Income (Loss) Before +Allocation to Noncontrolling Interest +Year Ended December 31, +Year Ended December 31, +Segment +2025 +2024 +2025 +2024 +Specialist isotopes and related services +$ +5,674 +$ +3,944 +$ +(33,259 +) +$ +(21,542 +) +Nuclear fuels +— +200 +(144,125 +) +(10,881 +) +Construction services +18,175 +— +17,541 +— +$ +23,849 +$ +4,144 +$ +(159,843 +) +$ +(32,423 +) +89 +Results of Operations +Comparison of the Years Ended December 31, 2025 and 2024 +The following table summarizes our results of operations for the years ended December 31, 2025 and 2024 (in thousands): +Year Ended December 31, +2025 +2024 +Change +Revenue +$ +23,849 +$ +4,144 +$ +19,705 +Cost of revenue +20,444 +2,545 +17,899 +Gross profit +3,405 +1,599 +1,806 +Operating expenses: +Acquired in-process research and development +2,717 +— +2,717 +Research and development +12,358 +3,139 +9,219 +Selling, general and administrative +48,238 +24,814 +23,424 +Total operating expenses +63,313 +27,953 +35,360 +Other (expense) income: +Foreign exchange transaction gain +(134 +) +70 +(204 +) +Change in fair value of share liability +(121 +) +(132 +) +11 +Change in fair value of convertible notes payable +(123,719 +) +(6,875 +) +(116,844 +) +Change in fair value of investments +17,932 +— +17,932 +Interest income +6,790 +1,238 +5,552 +Interest expense +(575 +) +(259 +) +(316 +) +Other income +174 +— +174 +Total other expense +(99,653 +) +(5,958 +) +(93,695 +) +Loss before income tax expense +$ +(159,561 +) +$ +(32,312 +) +$ +(127,249 +) +Revenue and Cost of Revenue +We have recognized revenue of PET Labs and ECNP, since its acquisition in October 2025, from the sale of nuclear medical doses for PET scanning. With the acquisition of Skyline in August 2025, we also recognized revenue from performing construction services, including roads and drainage In addition, we have recognized the related cost of revenue, operating expenses and other income and expenses of PET Labs, ECNP and Skyline for the periods presented. +Revenue was $23.8 million for the year ended December 31, 2025, which includes $18.2 million in construction service revenue from Skyline and $5.6 million from the sale of nuclear medical doses for PET scanning. Revenue was $4.1 million for the year ended December 31, 2024, which includes $3.9 million from the sale of nuclear medical doses for PET scanning and $0.2 million in collaboration revenue from TerraPower. +Acquired In-Process Research and Development +In October 2025, QLE acquired substantially all of the assets, including an international patent application and its related rights, from One 30 Seven Inc., a Canadian company engaged in the business of researching and developing decontamination solutions for nuclear waste, particularly radioactive waste from radioactive materials from nuclear power plants, radiopharmaceuticals, and military sources. The One 30 Seven acquisition was accounted for as an asset acquisition and the cost attributable to the IPR&D totaling $2.7 million was expensed in our consolidated statements of operations and comprehensive loss for the year ended December 31, 2025. +Research and Development Expenses +The following table summarizes our research and development expenses for the years ended December 31, 2025 and 2024 (in thousands): +Year Ended December 31, +2025 +2024 +Change +Personnel-related costs +$ +4,921 +$ +1,171 +$ +3,750 +Manufacturing engineering +1,925 +— +1,925 +Consulting and professional +1,488 +656 +832 +Facility and depreciation expenses +3,569 +767 +2,802 +Other expenses +455 +545 +(90 +) +Total research and development expenses +$ +12,358 +$ +3,139 +$ +9,219 +90 +Research and development expenses were $12.4 million for the year ended December 31, 2025, compared to $3.1 million for the year ended December 31, 2024. The overall increase of $9.2 million was primarily due to the following: +• +an increase in personnel-related costs of $3.8 million primarily due to the increase in headcount, salaries and related costs; +• +an increase in manufacturing engineering testing expenses of $1.9 million in order to optimize commercial production; +• +an increase in facility and depreciation expenses of $2.8 million due to an increase in space dedicated to development, noncapitalized expenses and repairs and maintenance; and +• +an increase in consulting and professional fees of $0.8 million due to increases in outsourced development activity. +Selling, General and Administrative Expenses +Selling, general and administrative expenses were $48.2 million for the year ended December 31, 2025, compared to $24.8 million for the year ended December 31, 2024. The overall increase of $23.4 million was primarily due to the following: +• +an increase in personnel-related costs of $12.4 million primarily due to the increase in headcount, salaries and related costs; +• +an increase in professional fees of $7.0 million primarily due to corporate development activity and consulting costs related to new general ledger system; +• +an increase in facility and depreciation expenses of $0.4 million due to an increase in space dedicated to development, noncapitalized expenses and repairs and maintenance; +• +an increase in employee travel and related expenses of $0.9 million ; and +• +an increase in other selling, general and administrative expenses of $4.0 million. +This increase is partially offset by a decrease in commissions and fees of $1.1 million primarily due to the issuance of convertible notes in 2024. +Other Income (Expense) +Other expense for the year ended December 31, 2025 was $99.7 million, which includes an expense of $123.7 million due to the change in the fair value of convertible notes, a change in the fair value of the share liability related to the shares issuable to consultants of $0.1 million, interest expense of $0.6 million and a foreign exchange transaction loss of $0.1 million, partially offset by interest income of $6.8 million, a change in the fair value of our investments of $17.9 million and other income of $0.2 million. +Other expense for the year ended December 31, 2024 was $6.0 million, which includes an expense of $6.9 million due to the change in the fair value of convertible notes, a $0.1 million change in the fair value of the share liability related to the shares issuable to consultants and interest expense of $0.3 million, partially offset by interest income of $1.2 million. +Non-GAAP Financial Information +We use certain measures to assess the financial performance of our business, as well as to comply with the reporting requirements of the JSE. Certain of these measures are termed “non-GAAP measures” because they exclude amounts that are included in, or include amounts that are excluded from, the most directly comparable measure calculated and presented in accordance with GAAP, or are calculated using financial measures that are not calculated in accordance with GAAP. These non-GAAP measures include headline loss, and headline loss per common share. +An explanation of the relevance of the non-GAAP measure, a reconciliation of the non-GAAP measure to the most directly comparable measure calculated and presented in accordance with GAAP and a discussion of its limitations are set out below. We do not regard these non-GAAP measures as a substitute for, or superior to, the equivalent measure calculated and presented in accordance with GAAP or that calculated using financial measures that are calculated in accordance with GAAP. +Headline Loss per Share +In connection with our secondary listing on the JSE, we are required to calculate and publicly disclose headline loss per share and diluted headline loss per share. Headline loss per share is calculated using net loss which has been determined in accordance with GAAP. Headline loss for the period represents the loss for the period attributable to our common stockholders adjusted for the remeasurements that are more closely aligned to the operating or trading results as set forth below, and headline loss per share represents headline loss divided by the weighted average number of shares of common stock outstanding. +91 +The table below presents a reconciliation between net loss attributable to common stockholders to headline loss (in thousands). +Year Ended December 31, +2025 +2024 +Net loss attributable to ASP Isotopes Inc. shareholders +$ +(175,092 +) +$ +(35,114 +) +Adjusted for: +Deemed dividend on inducement warrant for common stock +— +2,780 +Change in fair value of share liability +121 +132 +Change in fair value of convertible notes payable +123,719 +6,875 +Change in fair value of investments +(17,932 +) +— +Headline loss +$ +(69,184 +) +$ +(25,327 +) +Weighted average common shares outstanding on which the net loss attributable to ASP Isotopes Inc. shareholders per share and headline loss per share has been calculated - basic and diluted +83,013,594 +55,671,805 +Net loss per share, attributable to ASP Isotopes Inc. shareholders, basic and diluted +$ +(2.11 +) +$ +(0.63 +) +Headline loss per share, attributable to ASP Isotopes Inc. shareholders, basic and diluted +$ +(0.83 +) +$ +(0.45 +) +The above disclosure was prepared for the purpose of complying with the reporting requirements of the JSE and includes certain non-GAAP measures, such as headline loss and headline loss per common share, and related reconciliations. +Liquidity and Capital Resources +Sources of Liquidity +We have incurred net losses and negative cash flows from operations since our inception, and we expect to continue to incur significant and increasing net losses for the foreseeable future. We have principally financed our operations to date through the issuance of our common stock, including our IPO, and the issuance of convertible notes payable. In June 2025, we issued 7,518,797 shares of common stock at $6.65 per share in a registered direct offering resulting in net proceeds of approximately $46.8 million after deducting underwriting discounts, commissions and offering expenses. In July 2025, we issued 7,500,000 shares of common stock at $8.00 per share in a registered direct offering resulting in net proceeds of approximately $56.3 million after deducting underwriting discounts, commissions and offering expenses. In October 2025, we issued 17,167,380 shares of common stock in a registered offering at the offering price of $12.25 per share, for net proceeds of approximately $199.3 million, after deducting underwriting discounts and commissions and estimated offering expenses. In November 2025, QLE received gross proceeds of $72.2 million through the issuance of convertible promissory notes with a stated interest rate of 8% (the “2025 Notes”). The maturity date of the 2025 Notes is November 19, 2030. The 2025 Notes automatically convert into common shares upon QLE’s closing of an IPO or other qualifying public transaction at 80% of the share price taking into consideration a valuation cap. In connection with the issuance of the 2025 Notes, QLE’s outstanding convertible promissory notes originally issued in March 2024 and June 2024 automatically converted into 2025 Notes with a value of $147.7 million. QLE received $10.0 million in gross proceeds from American Ventures LLC, Series IX Quantum Leap, a related party, and $30.0 million in gross proceeds from ASP Isotopes, its parent. +As of December 31, 2025, we had cash and cash equivalents of $285.6 million and $47.7 in short-term investments. We have not generated any revenue from the sale of our enriched isotopes, and our ability to generate product revenue from the sale of enriched isotopes sufficient to achieve profitability on a consolidated basis will depend on the continued successful development and commercialization of our current or future enriched isotopes. +We recognize revenue from the sale of nuclear medical doses for PET and SPECT scanning in South Africa and the U.S. Our ability to generate product revenue from the sale of nuclear medical doses for PET and SPECT scanning sufficient to achieve profitability will depend on the successful expansion of production capabilities and commercialization of the results of that expansion. Effective with the acquisition of 79% of the voting interest of Skyline in August 2025, we also recognize revenue from performing construction services, including roads and drainage. +In addition, after completion of the Renergen acquisition, portions of our revenue will be recognized from the sale of helium and LNG. Our ability to generate revenue from the sale of helium and LNG sufficient to achieve profitability will depend on the successful expansion of production capabilities and commercialization of the results of that expansion. Renergen’s outstanding debt funding may also materially affect our liquidity. +92 +Future Funding Requirements +Based on our current operating plan, we estimate that our existing cash and cash equivalents, proceeds from short-term investments, cash flow from operations, the IDC Debt Funding, the SBSA Loan, the DFC Credit Facility and the conditionally approved senior secured debt facilities expected to be funded by the DFC and the Standard Bank of South Africa, will be sufficient to fund our operating expenses and capital expenditure requirements through at least the next 12 months from the date the financial statements are issued and beyond. However, our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. We have based this estimate on assumptions that may prove to be wrong, and we could deplete our capital resources sooner than we expect. Additionally, the process of developing isotopes is costly, and the timing of progress and expenses in these development activities is uncertain. +Our future capital requirements will depend on many factors, including: +• +the type, number, scope, progress, expansions, results, costs and timing of, our development activities for our future isotopes, helium and LNG; +• +the outcome, timing and costs of regulatory review of our future isotopes or for helium or LNG we produce during Phase 2 of the Virginia Gas Project; +• +the costs and timing of manufacturing for our future isotopes and of exploring for, developing or producing natural gas and helium; +• +our efforts to enhance operational systems and hire additional personnel to satisfy our obligations as a public company, including enhanced internal controls over financial reporting; +• +the costs associated with hiring additional personnel and consultants as our preclinical and clinical activities increase; +• +the costs and timing of establishing or securing sales and marketing and distribution capabilities, whether alone or with third parties, to commercialize future isotopes or with respect to LNG and helium we produce at the Virginia Gas Plant for which we may obtain regulatory approval, if any; +• +the timing of construction of Phase 2, which based on our latest cost estimate is expected to be approximately $1.16 billion (including borrowing costs and general corporate costs during construction); +• +the price at which we sell our LNG and liquid helium; +• +unforeseen plant disruptions, operational issues and the cost and availability of raw materials, including current supply chain issues, related to the Virginia Gas Project; +• +our ability to achieve sufficient market acceptance, coverage and adequate reimbursement from third-party payors and adequate market share and revenue for any approved products; +• +the terms and timing of establishing and maintaining collaborations, licenses and other similar arrangements; +• +the costs of obtaining, expanding, maintaining and enforcing our patent and other intellectual property rights; +• +the costs to list QLE as a separate public company; and +• +costs associated with any products or technologies that we may in-license or acquire. +Developing and commercializing isotopes is a time-consuming, expensive and uncertain process that takes years to complete, and we may never achieve the necessary results required or obtain applicable regulatory approval for any isotopes or generate revenue from the sale of any future isotopes (assuming applicable regulatory approval is received). In addition, our future isotopes (assuming applicable regulatory approval is received) may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of isotopes that we do not expect to be commercially available in substantial quantities until at least the middle of 2026. If we receive permits and licenses to enrich U-235 (which in itself is highly uncertain), we do not expect U-235 to be commercially available for at least several years, if ever. As a result, we may need substantial additional financing to support our continuing operations and further the development of and commercialization of our future isotopes. +Expansion of the production and distribution of nuclear medical doses for PET scanning is a time-consuming, expensive and uncertain process that may take years to complete. As a result, we may need substantial additional financing to support our continuing operations and further the development of and commercialization of future nuclear medical doses for PET scanning. +Large amounts of capital are required to support the growth in our business and operations in South Africa, including to maintain and progress toward full commercial operation of Phase 1 of the Virginia Gas Project, and for the construction and development of Phase 2 of our Virginia Gas Project, and long-term production and processing requires both significant capital expenditure and ongoing maintenance expenditure. Our revenues related to the sale of helium and LNG may vary significantly from period to period as a result of changes in volumes of production sold and commodity prices. Natural gas prices have historically +93 +been volatile. Lower commodity prices may not only decrease our revenues, but also potentially the amount of natural gas that we can produce economically. We plan to add reserves through drilling. Our ability to add reserves through drilling projects is dependent on many factors, including our ability to borrow or raise capital and procure materials, services and personnel. Phase 2 of the Virginia Gas Project requires a significant amount of capital and is currently estimated to cost approximately $1.16 billion (including borrowing costs and general corporate costs during construction) based on our latest cost estimate, which could change based on inaccurate assumptions and changing economic and operating conditions. We anticipate funding this amount through debt, such as the up to $500 million of senior secured debt provided by the DFC, which has been conditionally approved, pursuant to the delineated application review process of the DFC. Additionally, the Standard Bank of South Africa has conditionally approved an additional $250 million of senior secured debt funding for Phase 2, which is anticipated to be funded substantially concurrently with the aforementioned DFC funding. As a result, we may need substantial additional financing to support our continuing operations, ramp up production of Phase 1, and further the development of Phase 2 and commercialization of the Virginia Gas Project. +Until such time as we can generate significant revenue from sales of our future isotopes, nuclear medical doses for PET and SPECT scanning and sales of helium and LNG, if ever, we expect to finance our cash needs through public or private equity or debt financings or other capital sources, including potential collaborations, licenses and other similar arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our ability to raise additional funds may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets in the United States and worldwide resulting severely diminished liquidity and credit availability, increased interest rates, inflationary pressures, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability. The financial markets and the global economy may also be adversely affected by the current or anticipated impact of military conflict. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be or could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through collaborations, or other similar arrangements with third parties, we may have to relinquish valuable rights to our future isotopes, future helium and LNG production and sales, future revenue streams or research programs or may have to grant licenses on terms that may not be favorable to us and/or may reduce the value of our common stock. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market our future isotopes and helium and LNG production even if we would otherwise prefer to develop and market such isotopes, helium and LNG ourselves. +Cash Flows +The following table summarizes our sources and uses of cash for each of the periods presented (in thousands): +Year Ended December 31, +2025 +2024 +Net cash provided by (used in): +Operating activities +$ +(37,780 +) +$ +(16,696 +) +Investing activities +(110,794 +) +(11,372 +) +Financing activities +371,600 +82,534 +Net increase (decrease) in cash and cash equivalents +$ +223,026 +$ +54,466 +Operating Activities +Net cash used in operating activities was $37.8 million for the year ended December 31, 2025 and was primarily due to our net loss of $159.8 million, adjusted for stock-based compensation expense of $16.0 million, non cash IPR&D of $2.6 million, noncash interest on the note receivable of $2.0 million, amortization of right-of-use lease assets of $0.7 million, depreciation and amortization expense of $1.9 million, issuance of common stock to consultants with a fair value of $0.7 million, change in fair values for the convertible notes payable of $123.7 million, change in fair values of investments of $17.9 million and a change in fair value of share liability of $0.1 million, partially offset by a $3.6 million change in our operating assets and liabilities. +Net cash used in operating activities was $16.7 million for the year ended December 31, 2024 and was primarily due to our net loss of $32.4 million, adjusted for stock-based compensation expense of $8.6 million, non-cash issuance costs for the convertible notes payable of $0.6 million, amortization of right-of-use asset of $0.5 million, depreciation and amortization expense of $0.5 million, issuance of common stock to consultants with a fair value of $1.3 million, change in fair values for the convertible notes payable of $6.9 million and a change in fair value of share liability of $0.1 million, partially offset by a $2.6 million change in our operating assets and liabilities. +94 +Investing Activities +Net cash used in investing activities was $110.8 million for the year ended December 31, 2025 and was comprised of cash paid for a note receivable of $30.0 million, purchase of short-term investments of $47.7 million, purchase of the IsoBio investment of $5.0 million, purchase of ECNP of $2.0 million, purchase of Skyline investments of $23.0 million and the purchases of machinery and equipment, vehicles and construction in progress of $9.6 million, partially offset by cash provided by the acquisition of Skyline of $6.5 million. +Net cash used in investing activities was $11.4 million for the year ended December 31, 2024 and was comprised of the purchase of machinery and equipment and construction in progress. +Financing Activities +Net cash provided by financing activities was $371.6 million for the year ended December 31, 2025 and was comprised primarily of net proceeds of $320.3 million from the sale and issuance of our common stock, gross proceeds of $42.2 million from the issuance of convertible notes payable, proceeds of $4.9 million from the issuance of common stock for a warrant exercise, proceeds from the issuance of debt of $15.5 million, contributions from noncontrolling interests of $20.8 million related to the Skyline October 2025 Private Placement and amounts due to related parties of $2.6 million, partially offset by costs to issue common stock of $18.0 million, deferred issuance costs of $0.2 million, principal payments on debt and finance leases of $15.8 million and $0.4 million, respectively, and distribution to noncontrolling interest in VIE of $0.4 million. +Net cash provided by financing activities was $82.5 million for the year ended December 31, 2024 and was comprised primarily of net proceeds of $53.1 million from the sale and issuance of our common stock, gross proceeds of $25.9 million from the issuance of convertible notes payable, proceeds of $5.8 million from the issuance of common stock for a warrant exercise, contributions from noncontrolling interest in VIE of $0.9 million, proceeds from collection of receivable from noncontrolling interest in VIE of $0.7 million, partially offset by costs to issue common stock of $3.6 million, principal payments on debt and finance leases and bank loans of $0.6 million and $0.1 million, respectively, and distribution to noncontrolling interest in VIE of $0.1 million. +Contractual Obligations and Commitments +Leases +We lease our main facility in Pretoria, South Africa under a lease with a base monthly rent payment of approximately $9,000 with a term expiring on December 31, 2030. We also lease additional space on a short term basis in Pretoria, South Africa under a lease with a base monthly rent payment of approximately $18,000 with a term that expired on February 28, 2026 and we are continuing to occupy that space under the monthly extensions. We also lease additional space in Pretoria, South Africa under leases with a base monthly rent payment of approximately (i) $2,000 with a term expiring on October 30, 2026 and (ii) $3,000 with a term expiring on May 31, 2028. +PET Labs Pharmaceuticals operates in a facility in Pretoria, South Africa is under a lease with a base monthly rent payment of approximately $27,000 with a term expiring on January 31, 2056. PET Labs Pharmaceuticals also rents space at a local hospital in Pretoria, South Africa for which there was a lease with a base monthly rent payment of approximately $5,000 which expired on December 31, 2023 and is currently in automatic monthly extensions. +Promissory Note and Loans +In November 2024, we executed a promissory note payable with a finance company to fund our directors and officers’ insurance policy for $0.5 million. During 2025 and 2024, we entered into several loans to purchase motor vehicles and certain equipment totaling $0.3 million and $2.0 million, respectively. These loans are secured by the underlying assets included in property and equipment. Refer to Note 9 (Debt) to our consolidated financial statements included in Part II, Item 8 for information regarding interest rates and maturities, as well as information regarding Skyline’s debt obligations and QLE’s convertible notes. +Renergen Acquisition Agreements +On March 31, 2025, we entered into an Exclusivity Agreement with Renergen, an entity in South Africa that was previously listed on the Johannesburg Stock Exchange (“JSE”), the Australian Securities Exchange and the A2X. On May 18, 2025, the Exclusivity Agreement was amended. Per the terms of the amended Exclusivity Agreement, we received the rights to negotiate the terms of the acquisition of Renergen during an exclusive negotiation period that ended on May 31, 2025. In April 2025, we paid an exclusivity fee of $10.0 million to Renergen. On May 19, 2025 we entered into a Firm Intention Letter with Renergen. The Firm Intention Letter set the acquisition terms for us to purchase 100% of the outstanding shares of Renergen in exchange for our shares. The acquisition was consummated on January 6, 2026, and as a result, Renergen became a direct, wholly owned subsidiary of us, and the Renergen Ordinary Shares were delisted from the JSE, the Australian Securities Exchange and the A2X. +95 +In addition, we entered into a loan agreement with Renergen (the “Renerge Loan”) in which a total of $30.0 million was provided by us in periodic payments for the purpose of funding Renergen’s operations. In conjunction with the Renergen Loan, the full amount of the previously paid exclusivity fee of $10.0 million was applied to the loan. The remaining $20.0 million available under the loan was paid by us to Renergen prior to June 30, 2025. The Renergen Loan was amended to extend the repayment date to January 20, 2026 and amended again to establish the repayment date as sixty days after written demand by us. The Renergen acquisition closed in January 2026. +Renergen Contractual Obligations and Commitments +As previously discussed, we acquired Renergen (and its indirect 94.5% equity ownership in Tetra4) in January 2026, which entities are subject to certain contractual obligations and commitments discussed further below. +Normal Course Operating Agreements +In addition, we entered into contracts in the normal course of business with vendors for services and products for operating purposes. These contracts do not contain any minimum purchase commitments and generally provide for termination after a notice period and, therefore, are not considered long-term contractual obligations. Payments due upon cancellation consist only of payments for services provided and expenses incurred up to the date of cancellation. +DFC Credit Facility +On August 20, 2019, Tetra4 and the DFC, as successor and assign of the Overseas Private Investment Corporation, entered into that certain Finance Agreement (as amended by Amendment No. 1 to Finance Agreement, dated as of March 30, 2020, Amendment No. 2 to Finance Agreement, dated as of April 28, 2020, Amendment No. 3 to Finance Agreement, dated as of February 26, 2021, Amendment No. 4 to Finance Agreement, dated as of August 24, 2021 and Amendment No. 5 to Finance Agreement, dated December 16, 2021 (the “DFC Credit Facility Agreement”), pursuant to which DFC made available a credit facility of up to $40.0 million (the “DFC Credit Facility”). The first draw down of $20.0 million took place in September 2019, the second draw down of $12.5 million in June 2020 and the final drawdown of $7.5 million on September 28, 2021. The first draw down attracted an interest rate at 2.11% per annum, while the second and final draw down is 1.49% and 1.24% per annum, respectively. Tetra4 shall repay the loan in equal quarterly installments of $1.15 million (R19.1 million using the rate at December 31, 2025) on each payment date which began on August 1, 2022 and will end on August 15, 2031. +Pursuant to the DFC Credit Facility Agreement, Tetra4 is required to maintain at all times (a) (i) a ratio of all interest bearing Debt to EBITDA of not more than 3.0 to 1; (ii) a ratio of Current Assets to Current Liabilities of not less than 1 to 1; and (iii) a Reserve Tail Ratio of not less than 25%; and (b) (i) a ratio of Cash Flow for the most recently completed four (4) consecutive full fiscal quarters, taken as a single accounting period, to Debt Service for the most recently completed four (4) consecutive full fiscal quarters, taken as a single accounting period, of not less than 1.30 to 1; and (ii) a ratio of Cash Flow for the most recently completed four (4) consecutive full fiscal quarters, taken as a single accounting period, to Debt Service for the next succeeding four (4) consecutive full fiscal quarters of not less than 1.3 to 1. Additionally, at all times (c) Tetra4 is required to ensure that the Debt Service Reserve Account is funded in an amount equal to the aggregate amount of the sum of all payments of principal, interest and fees made or required to be made by Tetra4 in respect of its indebtedness with respect to the Loan for the immediately succeeding six-month period. The covenants in (a)(i), (a)(2) and (b) will apply 18 months after the completion of the construction of the Virginia Gas Plant. The DFC Credit Facility Agreement contains negative covenants, which include that Tetra4 shall not make any Restricted Payment, which includes any dividend or distribution on account of any interest in Tetra4, any payment of principal or interest on any indebtedness of Tetra4 to or for the benefit of any Shareholder or other Affiliate of Tetra4, and any purchase, redemption, acquisition or retirement of any limited liability company interests of Tetra4 or any indebtedness of Tetra4 held by any Shareholder or any Affiliate of Tetra4, or any payment to or on behalf of any Shareholder or Affiliate of any Shareholder; provided that after Project Completion and Tetra4 has paid at least one Principal Installment, Tetra4 may make such payments on a Restricted Payment Date if, but only if, after giving effect to each such payment, (i) no Default or Event of Default shall have occurred and be continuing or will occur as a result of such payment and (ii) Tetra4 shall be in compliance with the financial ratios set forth in the DFC Credit Facility Agreement, including those described above. We believe that we will be able to comply with all covenants throughout the tenure of the loan. The loan is secured by Tetra4's physical assets and the DSRA. As of December 31, 2025, the outstanding principal amount of the DFC Credit Facility totaled $24.9 million (R413.0 million). All capitalized terms used in this paragraph but not defined have the meaning ascribed to them in the DFC Credit Facility Agreement. +IDC Debt Funding +On December 20, 2021, Tetra4, as borrower, entered into a loan agreement (the “IDC Loan Agreement”) with the Industrial Development Corporation of South Africa Limited (“IDC”), as lender, for R160.7 million (the “IDC Debt Funding”) for the procurement of the virtual pipeline equipment and dispensing equipment to be constructed on Renergen customers’ premises. An amount of R158.8 million was drawn down on December 22, 2021 and is repayable in 102 equal monthly payments which commenced in June 2023 and the remainder thereafter on the first day of each succeeding month until the outstanding principal amount has been repaid in full. The following financial covenants apply to the IDC Debt Funding: Tetra4 is required to maintain (a) a ratio of all interest bearing Debt to EBITDA of not more than 3.0 to 1; (b) a ratio of Current Assets to Current Liabilities of not less than 1 to 1; (c) a ratio of Cash Flow for the most recently completed four (4) consecutive full fiscal quarters, taken as a +96 +single accounting period, to Debt Service for the most recently completed four (4) consecutive full fiscal quarters, taken as a single accounting period, of not less than 1.30 to 1; (d) a ratio of Cash Flow for the most recently completed four (4) fiscal quarters, taken as a single accounting period, to Debt Service for the next succeeding four (4) consecutive full fiscal quarters of not less than 1.3 to 1; and (e) at all times, a Reserve Tail Ratio of not less than 25%.These financial covenants will be measured by Tetra4 on each Calculation Date. Additionally, at all times (f) Tetra4 is required to ensure that the DSRA is funded in an amount equal to, on any given date, a Rand amount equal to the aggregate amount of the sum of all payments of principal, interest and fees made or required to be made by Tetra4 under the IDC Loan Agreement for the immediately succeeding six-month period, to be used as a payment buffer for Tetra4’s repayment obligations under and in terms of the IDC Loan Agreement. The IDC Loan Agreement contains negative covenants, which include that Tetra4 shall not make any shareholder dividend distribution, repay any shareholders’ loans and/or pay any interest on shareholders’ loans or make any payments whatsoever to its shareholders without the IDC’s prior written consent if (i) Tetra4 is in breach of any term of the IDC Loan Agreement; or (ii) the making of such payment would result in a breach of any one or more of the financial ratios described above. We believe that we will be able to comply with all covenants throughout the tenure of the loan. The loan accrues interest at the prime lending rate plus 3.5% and is secured by a pledge of Tetra4’s physical assets and the DSRA. As of December 31, 2025 the outstanding principal amount of the IDC Debt Funding totaled $8.9 million (R148.2 million). All capitalized terms used in this paragraph but not defined herein have the meaning ascribed to them in the IDC Loan Agreement. +SBSA Loan +Renergen obtained a $9.3 million (R155.0 million) secured loan from Standard Bank South Africa (“SBSA”) on August 30, 2024 (“SBSA Loan”). The first draw down of $6.2 million (R103.3 million) occurred on August 31, 2024 and the second draw down of $3.1 million (R51.7 million) occurred on October 17, 2024. Proceeds were used to fund the working capital and expansion of the Virginia Gas Project. Part of the proceeds of the SBSA Loan were also used to pay transaction costs attributable to the loan arrangement. The SBSA Loan accrues interest at a rate linked to 3-month Johannesburg Interbank Average Rate plus a variable margin, and interest is compounded and capitalized to the principal amount. The SBSA Loan was repayable on the earlier of the receipt of proceeds from the Renergen proposed Nasdaq IPO or August 31, 2025. SBSA and Renergen are in discussions to renegotiate the loan terms, which include revisions to both the interest rate and the maturity date. +The SBSA Loan is secured by a third ranking pledge of Tetra4’s assets and shares held by Renergen in Tetra4. In addition, NTIGT Investments Proprietary Limited ("NTIGT"), an associate of Mr. Nicholas Mitchell, and Mr. Stefano Marani, have entered into cession and pledge agreements ("Pledges") with SBSA, under the terms of which NTIGT have pledged and ceded as security, but remain in possession unless called, collectively 1,546,268 shares of our common stock, to and in favor of SBSA. The SBSA Loan outstanding on December 31, 2025 amounted to $12.2 million (R202.5 million). +Molopo Loan +Tetra4 entered into a $3.0 million (R50.0 million) loan agreement (the “Molopo Loan”) with Molopo Energy Limited (“Molopo”) on April 11, 2014. The loan term was for an initial period of ten financial years and six months, beginning on July 1, 2014. During this period, the loan was unsecured and interest free. As the loan was not repaid on 31 August 2024, it now accrues interest at the prime lending rate plus 2%. The loan can only be repaid when Tetra4 declares a dividend and utilizing a maximum of 36% of the distributable profits in order to pay the dividend. The declaration of the dividends is in the control of Tetra4. It is not expected that the loan will be repaid in the next 12 months given the unavailability of distributable profits based on Tetra4's most recent forecasts. As such, the loan is classified as long term. The amount of the Molopo Loan outstanding on December 31, 2025 amounted to $3.5 million (R58.8 million). +On November 14, 2024, Molopo initiated legal proceedings against Tetra4 in the High Court of South Africa, Gauteng Local Division, Johannesburg, by issuing summons alleging a breach of contract when Renergen sold a 5.5% stake in Tetra4 to Mahlako Gas Energy Proprietary Limited ("MGE"). The claim pertains to a written loan agreement concluded between Molopo, as the lender, and Tetra4, as the borrower, on or about April 11, 2014. As a consequence, Molopo has purported to cancel the loan agreement, which cancellation is disputed by Tetra4 on the basis that the investment by MGE did not trigger a payment by Tetra4 to its parent in the sale. According to the Lead Times Bulletin for the High Court in Gauteng, the soonest hearing date is estimated to take place in December 2030, hence the loan continues to be classified as non-current, and interest continues to be accounted for at the prime lending rate plus 2% as per the Molopo Loan agreement. +Unsecured Convertible Debentures with AIRSOL +Renergen entered into a $7.0 million unsecured convertible debenture subscription agreement ("Subscription Agreement") with AIRSOL, an Italian wholly-owned subsidiary of SOL, on August 30, 2023. The Subscription Agreement provided for two tranches of funding: $3.0 million (“Tranche 1”), received on August 30, 2023, and $4.0 million (“Tranche 2”), received on March 18, 2024. The debentures include a contractual maturity date, initially set at February 28, 2025 and amended by agreement to August 31, 2025, subject to the terms of the Subscription Agreement (as amended) and the related Helium Sale and Purchase Agreement. The debentures accrue interest at 13% per annum, calculated and compounded semi-annually, with interest payable on February 28 and August 31 each year. The contractual maturity date has passed and the liability remains outstanding as a result of a dispute +97 +between the parties in respect of repayment. The carrying amount of the debentures outstanding at December 31, 2025 was $7.0 million. +Critical Accounting Policies and Significant Judgments and Estimates +Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States, or U.S. GAAP. In preparing these financial statements, management is required to make estimates and assumptions that affect the reported amount of revenues, expenses, assets, liabilities and the disclosure of contingent liabilities. Actual results may differ from these estimates. Critical accounting estimates are those estimates that involve a significant level of estimation uncertainty and could have a material impact on our financial condition or results of operations. Refer to Note 2 (Basis of Presentation and Summary of Significant Accounting Policies) to our consolidated financial statements included in Part II, Item 8 for a summary of significant accounting policies +Item 7A. Quantitative and Qualitative Disclosures About Market Risk +Interest Rate Risk +We are exposed to interest rate risk primarily through our holdings of cash, cash equivalents and outstanding debt obligations. Changes in interest rates may affect the interest income earned on our investment portfolio as well as the interest expense associated with our variable‑rate borrowings. +Our cash and cash equivalents are held in the United States and in various foreign jurisdictions. Our short-term investments are held in the U.S. These balances are invested primarily in high‑quality, highly liquid instruments, including money market funds, commercial paper, U.S. Treasury securities, and investment‑grade corporate securities. Because these instruments generally have short maturities, the fair value of our portfolio is relatively insensitive to changes in interest rates. However, declines in market interest rates would reduce the interest income we earn on new investments or reinvestments of maturing securities. We believe a hypothetical 100 basis point increase or decrease in interest rates during the period presented would not have had a material impact on our financial results. +We have debt obligations in both the United States and certain foreign countries. Our debt consists of a combination of fixed‑rate and variable‑rate instruments. Additionally, interest rate risk arises from Renergen’s IDC borrowings, which incur interest at a variable rate, though Renergen’s DFC borrowings incur interest at a fixed rate. Interest rate changes affect the fair value of our fixed‑rate debt but do not impact the associated cash interest payments. For our variable‑rate debt, changes in market interest rates directly affect the interest expense we incur. Fluctuations in market interest rates may negatively affect our financial condition and results of operations. We are exposed to floating interest rate on floating rate bank borrowings and bank overdrafts. We have not used any derivative financial instruments to manage the interest rate exposure. We believe a hypothetical 100 basis point increase or decrease in interest rates during the period presented would not have had a material impact on our financial results. +Foreign Currency Exchange Rate Risk +Our expenses are generally denominated in U.S. dollars but our operations are currently primarily located outside the United States and we have entered into a number of contracts with vendors that are denominated in foreign currencies. We are subject to foreign currency transaction gains or losses on our contracts denominated in foreign currencies. For example, sales of Renergen’s LNG are priced in South African rand. Appreciation of the rand against the U.S. dollar would result in our revenues, operating margins and dollar debt to decrease. Conversely, should the rand depreciate against the U.S. dollar, revenues, operating margins, and dollar debt would increase. Additionally, international commodity prices are quoted in U.S. dollars, which exposes our revenue cash flows to foreign exchange variances. To date, foreign currency transaction gains and losses have not been material to our financial statements, and we have not had a formal hedging program with respect to foreign currency. We believe a hypothetical 100 basis point increase or decrease in exchange rates during the period presented would not have had a material impact on our financial results. +Commodity Price Risk +Commodity price risk arises from the effect on current and future earnings due to fluctuations in commodity prices, in particular the price of LNG and helium. Most of these prices are determined in U.S. dollars and are internationally determined in the open market. We regularly measure exposure to commodity price risk by stress-testing our forecasted financial position to changes in LNG and helium prices. We do not actively hedge future commodity prices against price fluctuations; however, with the commencement of operations at the Virginia Gas Project, the Company may consider options available to hedge commodity price risk exposure associated with LNG and helium reserves. At December 31, 2025, our exposure to commodity price risk was not material. +Liquidity Risk +We are also exposed to liquidity risk, which is the risk that we will be unable to provide sufficient capital resources and liquidity to meet our commitments and business needs. Liquidity risk is controlled by the application of financial position analysis +98 +and monitoring procedures. When necessary, we will turn to other financial institutions and related parties to obtain short-term funding to cover any liquidity shortage. +Effects of Inflation +Inflation generally affects us by increasing our cost of labor and research and development costs. We do not believe that inflation and changing prices had a significant impact on our results of operations for the period presented herein. However, we are undertaking a significant capital project, the completion of Phase 1 and the development and initiation of Phase 2 of the Virginia Gas Project, and as a result of inflation, the cost of materials and price of labor incurred with the development and expansion of Phase 1 will likely not be comparable to the cost of materials and price of labor as we develop Phase 2. +Credit Risk +Credit risk represents the risk that we will suffer a financial loss due to the other party of a financial instrument not discharging its obligation. We are potentially subject to concentrations of credit risk in our accounts receivable. Four customers represent approximately 28% ($5.0 million), 23% ($4.1 million), 18% ($3.2 million) and 13% ($2.3 million), respectively, of consolidated accounts receivable as of December 31, 2025. Although we are directly affected by the financial condition of its customers, management does not believe significant credit risks exist at December 31, 2025. Generally, we do not require collateral or other securities to support its accounts receivable. +Major Customers +Revenues from two customers in our construction services segment represent approximately 32.2% ($7.7 million) and 13.7% ($3.3 million), respectively, of our consolidated revenues for the year ended December 31, 2025. There was one customer in our specialist isotopes and related services segment that represented 14% ($0.6 million) of our consolidated revenues for the year ended December 31, 2024. We expect to maintain these relationships with our customers. +99 +Item 8. Financial Statements and Supplementary Data +ASP Isotopes Inc. +Index to Consolidated Financial Statements +Report of Independent Registered Public Accounting Firm (PCAOB ID 274 ) +101 +Consolidated Balance Sheets as of December 31, 2025 and 2024 +102 +Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2025 and 2024 +103 +Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2025 and 2024 +104 +Consolidated Statements of Cash Flows for the years ended December 31, 2025 and 2024 +105 +Notes to Consolidated Financial Statements +107 +100 +Report of Independent Registered Public Accounting Firm +To the Board of Directors and Stockholders of +ASP Isotopes Inc. +Opinion on the Financial Statements +We have audited the accompanying consolidated balance sheets of ASP Isotopes Inc. and Subsidiaries (the “Company”) as of December 31, 2025 and 2024, and the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity, and cash flows for each of the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2025 and 2024 , and the consolidated results of their operations and their cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America. +Basis for Opinion +These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. +Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. +/s/ EisnerAmper LLP +We have served as the Company’s auditor since 2022. +EISNERAMPER LLP +Iselin, New Jersey +April 9, 2026 +101 +ASP Isotopes Inc. +Consolidated Balance Sheets +(in thousands, except share and per share amounts) +December 31, +2025 +2024 +Assets +Current assets: +Cash and cash equivalents +$ +285,563 +$ +61,890 +Short-term investments +` +47,745 +— +Accounts receivable +17,882 +707 +Inventories +1,098 +66 +Receivable from noncontrolling interests +— +28 +Note receivable +32,005 +— +Deferred offering costs +1,782 +— +Prepaid expenses and other current assets +13,844 +3,053 +Total current assets +399,919 +65,744 +Property and equipment, net +33,452 +22,354 +Operating lease right-of-use assets, net +1,512 +1,122 +Deferred tax assets +— +32 +Intangible assets +1,478 +— +Goodwill +8,570 +3,168 +Lease receivable - noncurrent +426 +— +Equity method investments +1,327 +— +Other investments +45,979 +— +Other noncurrent assets +5,357 +1,928 +Total assets +$ +498,020 +$ +94,348 +Liabilities and stockholders’ equity +Current liabilities: +Accounts payable +$ +5,755 +$ +1,021 +Accrued expenses +6,224 +2,276 +Debt - current +12,885 +939 +Finance lease liabilities – current +167 +126 +Operating lease liabilities – current +584 +558 +Deferred revenue +882 +882 +Due to related parties +4,162 +— +Other current liabilities +2,037 +1,257 +Total current liabilities +32,696 +7,059 +Deferred tax liabilities +102 +— +Convertible notes payable, at fair value +199,323 +33,433 +Debt - noncurrent +1,471 +1,441 +Finance lease liabilities – noncurrent +471 +560 +Operating lease liabilities – noncurrent +1,059 +688 +Total liabilities +235,122 +43,181 +Commitments and contingencies (Note 11) +Stockholders’ equity +Preferred stock, $ 0.01 par value; 10,000,000 shares authorized, no shares issued and +outstanding as of December 31, 2025 and 2024 +— +— +Common stock, $ 0.01 par value; 500,000,000 shares authorized, 111,677,771 and +72,068,059 shares issued and outstanding as of December 31, 2025 and 2024, respectively +1,117 +721 +Additional paid-in capital +431,757 +105,515 +Accumulated deficit +( 231,265 +) +( 56,173 +) +Accumulated other comprehensive income (loss) +2,542 +( 2,164 +) +Total stockholders’ equity attributed to ASP Isotopes Inc. stockholders +204,151 +47,899 +Noncontrolling interests in consolidated subsidiaries +58,747 +3,268 +Total stockholders’ equity +262,898 +51,167 +Total liabilities and stockholders’ equity +$ +498,020 +$ +94,348 +The accompanying notes are an integral part of these consolidated financial statements. +102 +ASP Isotopes Inc. +Consolidated Statements of Operations and Comprehensive Loss +(in thousands, except share and per share amounts) +Year Ended December 31, +2025 +2024 +Revenue +Product revenue +$ +5,674 +$ +3,944 +Construction services revenue +18,175 +— +Collaboration revenue +— +200 +Total revenue +23,849 +4,144 +Cost of revenue +20,444 +2,545 +Gross profit +3,405 +1,599 +Operating expenses: +Acquired in-process research and development +2,717 +— +Research and development +12,358 +3,139 +Selling, general and administrative +48,238 +24,814 +Total operating expenses +63,313 +27,953 +Loss from operations +( 59,908 +) +( 26,354 +) +Other income (expense): +Foreign exchange transaction (loss) gain +( 134 +) +70 +Change in fair value of share liability +( 121 +) +( 132 +) +Change in fair value of convertible notes payable +( 123,719 +) +( 6,875 +) +Change in fair value of investments +17,932 +— +Interest income +6,790 +1,238 +Interest expense +( 575 +) +( 259 +) +Other income +174 +— +Total other expense +( 99,653 +) +( 5,958 +) +Loss before income tax expense +( 159,561 +) +( 32,312 +) +Income tax expense +( 282 +) +( 111 +) +Net loss before allocation to noncontrolling interests +( 159,843 +) +( 32,423 +) +Less: Net income (loss) attributable to noncontrolling interests +15,249 +( 89 +) +Net loss attributable to ASP Isotopes Inc. shareholders +before deemed dividend on inducement warrant for +common stock +$ +( 175,092 +) +$ +( 32,334 +) +Deemed dividend on inducement warrant for common stock +— +( 2,780 +) +Net loss attributable to ASP Isotopes Inc. shareholders +$ +( 175,092 +) +$ +( 35,114 +) +Net loss per share attributable to ASP Isotopes Inc. shareholders, basic and +diluted +$ +( 2.11 +) +$ +( 0.63 +) +Weighted average shares of common stock outstanding, basic and diluted +83,013,594 +55,671,805 +Comprehensive loss: +Net loss before allocation to noncontrolling interests +$ +( 159,843 +) +$ +( 32,423 +) +Foreign currency translation +4,706 +( 1,243 +) +Total comprehensive loss before allocation to noncontrolling interests +( 155,137 +) +( 33,666 +) +Less: Comprehensive income (loss) attributable to noncontrolling interests +15,659 +( 119 +) +Comprehensive loss attributable to ASP Isotopes Inc. +$ +( 170,796 +) +$ +( 33,547 +) +The accompanying notes are an integral part of these consolidated financial statements. +103 +ASP Isotopes Inc. +Consolidated Statements of Changes in Stockholders’ Equity +(in thousands, except share amounts) +Common Stock +Additional +Paid-in +Accumulated Other Comprehensive +Accumulated +Noncontrolling +Total +Stockholders’ +Shares +Amount +Capital +(Loss) Income +Deficit +Interests +Equity +Balance as of December 31, 2023 +48,923,276 +$ +489 +$ +40,567 +$ +( 921 +) +$ +( 23,839 +) +$ +2,535 +$ +18,831 +Issuance of common stock, net of issuance costs of $ 3,648 +16,554,250 +$ +166 +49,277 +— +— +— +49,443 +Issuance of common stock from warrant exercise +3,316,298 +$ +33 +5,805 +— +— +— +5,838 +Issuance of restricted common stock +2,523,554 +$ +25 +( 25 +) +— +Issuance of common stock to consultants +60,000 +$ +1 +183 +— +— +— +184 +Issuance of common stock to board members +670,681 +$ +7 +( 7 +) +— +— +— +— +Retired unvested restricted shares +( 325,000 +) +$ +( 3 +) +3 +— +— +— +— +Settlement of liabilities with consultant +345,000 +$ +3 +1,152 +— +— +— +1,155 +Board fee liabilities settled with shares +— +$ +— +240 +— +— +— +240 +Commission fee liability settled with cash and common stock warrant +— +— +( 1,007 +) +— +— +— +( 1,007 +) +Settlement of commission fee liability payable in common stock warrant +— +— +766 +— +— +— +766 +Stock-based compensation expense +— +— +8,561 +— +— +— +8,561 +Contribution from noncontrolling interest in VIE +— +— +— +— +— +920 +920 +Distribution to noncontrolling interest of VIE +— +— +— +— +— +( 98 +) +( 98 +) +Foreign currency translation +— +— +— +( 1,243 +) +— +— +( 1,243 +) +Net loss +— +— +— +— +( 32,334 +) +( 89 +) +( 32,423 +) +Balance as of December 31, 2024 +72,068,059 +721 +105,515 +( 2,164 +) +( 56,173 +) +3,268 +51,167 +Issuance of common stock, net of issuance costs of $ 17,965 +32,186,177 +322 +302,017 +— +— +— +302,339 +Issuance of common stock from warrant exercise +1,294,778 +13 +4,902 +— +— +— +4,915 +Issuance of common stock from cashless exercise of warrants +123,497 +1 +( 1 +) +— +— +— +— +Issuance of common stock from cashless exercise of options +1,337,245 +14 +( 14 +) +— +— +— +— +Issuance of common stock from cash exercise of options +3,000 +— +6 +— +— +— +6 +Issuance of restricted common stock +4,275,967 +43 +( 43 +) +— +Issuance of common stock to acquire One 30 Seven +266,113 +2 +2,558 +— +— +— +2,560 +Settlement of liabilities with consultant +122,935 +1 +793 +— +— +— +794 +Stock-based compensation expense +— +— +16,024 +— +— +— +16,024 +Fair value of noncontrolling interest at acquisition of Skyline +— +— +— +— +— +19,762 +19,762 +Contribution from noncontrolling interest +— +— +— +— +— +20,799 +20,799 +Distribution to noncontrolling interest of VIE +— +— +— +— +— +( 402 +) +( 402 +) +Foreign currency translation +— +— +— +4,706 +— +71 +4,777 +Net income (loss) +— +— +— +— +( 175,092 +) +15,249 +( 159,843 +) +Balance as of December 31, 2025 +111,677,771 +$ +1,117 +$ +431,757 +$ +2,542 +$ +( 231,265 +) +$ +58,747 +$ +262,898 +The accompanying notes are an integral part of these consolidated financial statements. +104 +ASP Isotopes Inc. +Consolidated Statements of Cash Flows +(in thousands) +Year Ended December 31, +2025 +2024 +Cash flows from Operating activities +Net loss +$ +( 159,843 +) +$ +( 32,423 +) +Adjustments to reconcile net loss to cash used in operating activities: +Foreign exchange transaction loss from intercompany +— +42 +Non cash in-process research and development +2,560 +— +Depreciation and amortization +1,912 +471 +Allowance for credit losses +58 +— +Loss on disposal of property and equipment +— +2 +Non cash interest income on note receivable +( 2,005 +) +— +Stock-based compensation +16,024 +8,561 +Convertible note payable for non-cash issuance costs +— +622 +Shares issued for non-cash consultant expense +673 +1,314 +Change in fair value of share liability +121 +132 +Change in fair value of convertible notes payable +123,719 +6,875 +Change in fair value of investments +( 17,932 +) +— +Change in right-of-use lease assets +676 +473 +Non-cash lease income +( 69 +) +— +Change in deferred taxes +( 45 +) +( 143 +) +Changes in operating assets and liabilities, net of acquisition amounts: +Accounts receivable +( 482 +) +( 506 +) +Receivable from noncontrolling interest +28 +— +Inventories +( 315 +) +( 68 +) +Prepaid expenses and other current assets +( 2,829 +) +( 1,357 +) +Other noncurrent assets +1,220 +( 9 +) +Accounts payable +782 +( 877 +) +Accrued expenses +570 +910 +Operating lease liability +( 695 +) +( 427 +) +Other current liabilities +( 1,908 +) +( 288 +) +Net cash used in operating activities +( 37,780 +) +( 16,696 +) +Cash flows from investing activities +Purchases of property and equipment +( 9,654 +) +( 9,675 +) +Purchases of short-term investments +( 47,745 +) +— +Cash advance paid for property and equipment +— +( 1,697 +) +Purchase of equity investments +( 27,995 +) +— +Principal collections from lease receivable +26 +— +Cash advance in exchanges for note receivable +( 30,000 +) +— +Cash received for acquisition of businesses, net of cash paid +4,574 +— +Net cash used in investing activities +( 110,794 +) +( 11,372 +) +Cash flows from financing activities +Proceeds from issuance of common stock +320,304 +53,091 +Payment of common stock issuance costs +( 17,965 +) +( 3,648 +) +Payment of deferred issuance costs +( 169 +) +— +Proceeds from exercise of warrants +4,915 +5,838 +Proceeds from exercise of options +6 +— +Due to related parties +2,571 +— +Contributions from noncontrolling interest +20,799 +— +Proceeds from noncontrolling interest in VIE +— +920 +Proceeds from collection of receivable from noncontrolling interest in VIE +— +707 +Distribution to noncontrolling interest in VIE +( 402 +) +( 98 +) +Proceeds from issuance of convertible notes payable +42,171 +25,936 +Proceeds from issuance of debt +15,506 +501 +Payments of principal portion of debt +( 15,758 +) +( 612 +) +Payment of principal portion of finance leases +( 378 +) +( 101 +) +Net cash provided by financing activities +371,600 +82,534 +Net change in cash and cash equivalents +223,026 +54,466 +Effect of exchange rate changes on cash and cash equivalents +647 +( 484 +) +Cash and cash equivalents– beginning of year +61,890 +7,908 +Cash and cash equivalents– end of year +$ +285,563 +$ +61,890 +The accompanying notes are an integral part of these consolidated financial statements. +105 +ASP Isotopes Inc. +Consolidated Statements of Cash Flows +(in thousands) +Supplemental cash flow information: +Cash paid for taxes +$ +79 +$ +— +Supplemental disclosures of non-cash investing and financing activities: +Derecognition of asset as a result of sales-type lease +$ +370 +$ +— +Lease receivable +$ +393 +$ +— +Purchase of property and equipment included in accounts payable +$ +194 +$ +795 +Right-of-use assets obtained in exchange for operating lease liability +$ +851 +$ +364 +Right-of-use assets obtained in exchange for financing lease liability +$ +312 +$ +539 +Seller financed portion of investment in East Coast Nuclear Pharmacy +$ +500 +$ +— +Unpaid financing fees +$ +1,613 +$ +— +Deemed dividend on inducement warrant +$ +— +$ +2,780 +Purchase of property and equipment with bank loans +$ +— +$ +2,021 +Board fees settled with common stock +$ +— +$ +240 +Commission fee settled with common stock warrant +$ +— +$ +766 +The accompanying notes are an integral part of these consolidated financial statements. +106 +ASP Isotopes Inc. +Notes to Consolidated Financial Statements +1. Orga nization +Description of Business +ASP Isotopes Inc. was incorporated in the state of Delaware on September 13, 2021 and has its headquarters in Dallas, Texas. ASP Isotopes Inc., its subsidiaries and ASP Rentals are collectively referred to as “the Company” throughout these consolidated financial statements. +The Company is an advanced materials company dedicated to the development of a differentiated isotope enrichment platform to strengthen global supply chain access to critical materials used in nuclear medicine, next-generation semiconductors, and nuclear energy. Our proprietary enrichment technologies, the Aerodynamic Separation Process (“ASP technology”) and Quantum Enrichment technology (“QE technology”), are designed to enable the production of isotopes for a range of industrial and advanced technology applications. Our initial focus is on the production and commercialization of enriched Carbon-14 (“C-14”), Silicon-28 (“Si-28”) and Ytterbium-176 (“Yb-176”). +The Company commenced commercial production of enriched isotopes at both of its ASP enrichment facilities located in Pretoria, South Africa during the first half of 2025. The Company's first ASP enrichment facility is designed to enrich light isotopes, such as C-14 and C-12. The second ASP enrichment facility, which is substantially larger than the first, should have the potential to enrich kilogram quantities of relatively heavier isotopes, including but not limited to Si-28. The Company is targeting initial commercial shipments of enriched C-14 in mid-2026. The Company is targeting initial commercial shipments of enriched Si-28 during the second quarter of 2026. The Company has also completed the commissioning phase and is producing commercial samples of highly enriched Yb-176 at its third enrichment facility, a QE technology facility, which is the Company's first laser-based enrichment plant. The Company is targeting initial commercial shipments of Yb-176 in mid-2026 or the third quarter of 2026. +In addition, the Company has started planning additional isotope enrichment plants both in South Africa and in other jurisdictions, including Iceland and the United States. The Company believes the C-14 it may produce using the ASP technology could be used in the development of new pharmaceuticals and agrochemicals. The Company believes the Si-28 we may produce using the ASP technology may be used to create advanced semiconductors and in quantum computing. The Company believes the Yb-176 it may produce using the QE technology may be used to create radiotherapeutics that treat various forms of oncology. The Company is considering the future development of the ASP technology for the separation of Zinc-68 and Xenon-129/136 for potential use in the healthcare end market, Germanium 70/72/74 for potential use in the semiconductor end market, and Chlorine -37 for potential use in the nuclear energy end market. The Company is also considering the future development of QE technology for the separation of Nickel-64, Gadolinium-160, Ytterbium-171, Lithium-6 and Lithium-7. +Quantum Leap Energy LLC (“QLE”), the Company's subsidiary, is currently pursuing an initiative to apply its enrichment technologies to the enrichment of Uranium-235 (“U-235”) in South Africa. The Company believes that the U-235 QLE it may produce has the potential to be commercialized as a nuclear fuel component for use in the new generation of high-assay low-enriched uranium (“HALEU”)-fueled small modular reactors that are now under development for commercial and government uses. In furtherance of the Company's uranium enrichment initiative, in October 2024, the Company entered into a term sheet with TerraPower, LLC (“TerraPower”) which contemplates the parties entering into definitive agreements pursuant to which TerraPower would provide funding for the construction of a HALEU production facility and agree to purchase all HALEU produced at the facility over a 10-year period after the planned completion of the facility in 2027. In addition, in November 2024, the Company entered into a memorandum of understanding with The South African Nuclear Energy Corporation (“Necsa”), a South African state-owned company responsible for undertaking and promoting research and development in the field of nuclear energy and radiation sciences, to collaborate on the research, development and ultimately the commercial production of advanced nuclear fuels. As part of the collaboration contemplated by the MOU with Necsa, QLE’s South African subsidiary has entered into a Pre-Implementation Services Contract Agreement (“Services Contract”) with Necsa, pursuant to which Necsa has agreed to provide to QLE’s South African subsidiary certain facilities, infrastructure, utilities and services related to the siting, design, construction, commission and operation of an enrichment facility on the Necsa site in Pelindaba. See the section captioned “TerraPower” below for disclosures regarding certain definitive agreements entered into between TerraPower and us and/or the Company's subsidiaries, including a term loan subject to conditions to support construction of a new uranium enrichment facility at Pelindaba, South Africa and supply agreements for the future supply of HALEU to TerraPower, as a customer. +QLE acquired a controlling interest in Skyline in August 2025. Skyline is a holding company, and its operations are conducted through its wholly owned operating subsidiaries, Kin Chiu Engineering Limited and Kin Chiu Development Company Limited. Operations primarily consist of construction activities which include public civil engineering works, such as road and drainage works, in Hong Kong. Skyline mostly undertakes civil engineering works in the role as a subcontractor but is fully qualified to undertake such works in the capacity of a main contractor. QLE intends to pursue opportunities to acquire assets in the critical materials supply chain. +The Company acquired Renergen in January 2026. Renergen is South Africa’s leading onshore natural gas explorer and the first integrated producer of both liquid helium and liquified natural gas (“LNG”), both of which are produced from the natural gas +107 +ASP Isotopes Inc. +Notes to Consolidated Financial Statements (continued) +reserve base that underpins Renergen’s natural gas development project (the “Virginia Gas Project”). The Virginia Gas Project includes (i) the liquefaction of natural gas into LNG, (ii) the separation of helium from natural gas, and (iii) the further liquefaction of helium into 99.999% pure liquid helium. This liquefaction and separation takes place at Renergen’s natural gas processing plant in the Free State Province of South Africa. Renergen’s principal asset is its 94.5 % equity ownership in Tetra4, which holds an onshore petroleum production right and is the entity developing the Virginia Gas Project. +Liquidity +The Company has experienced net losses and negative cash flows from operating activities since its inception. The Company incurred net losses of $ 159.8 million and $ 32.4 million for the years ended December 31, 2025 and 2024, respectively. On June 3, 2025, the Company sold 7,518,797 shares of its common stock in a registered direct offering at the offering price of $ 6.65 per share, for net proceeds of approximately $ 46.8 million, after deducting underwriting discounts and commissions and estimated offering expenses. On July 25, 2025, the Company raised an additional $ 56.3 million in net proceeds from issuing 7,500,000 shares of its common stock at a price of $ 8.00 per share. On October 16, 2025, the Company issued 17,167,380 shares of its common stock in a registered offering at the offering price of $ 12.25 per share, for net proceeds of approximately $ 199.3 million, after deducting underwriting discounts and commissions and estimated offering expenses. The Company currently expects that its cash and cash equivalents of $ 285.6 million and short-term investments of $ 47.7 million as of December 31, 2025 will be sufficient to fund its operating expenses and capital requirements for more than 12 months from the date the financial statements are issued. +There can be no assurance that the Company will achieve or sustain positive cash flows from operations or profitability. The Company anticipates it will need to continue to raise capital through additional equity and/or debt financings and/or collaborative development agreements to fund its operations. However, such funding may not be available on a timely basis on terms acceptable to the Company, or at all. If the Company is unable to raise additional capital when required or on acceptable terms, the Company may be required to scale back or discontinue the advancement of product candidates, reduce headcount, reorganize, merge with another entity, or cease operations. +2. Basis of Presentation and Summary of Significant Accounting Policies +Basis of Presentation and Use of Estimates +The Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The preparation of the Company’s consolidated financial statements requires management to make estimates and assumptions that impact the reported amounts of assets, liabilities and expenses and disclosure in the Company’s consolidated financial statements and accompanying notes. The most significant estimates in the Company’s consolidated financial statements relate to stock-based compensation, fair value of convertible notes, equity and other investments, loss contingencies and the accounting for acquisitions, including goodwill. Although these estimates are based on the Company’s knowledge of current events and actions it may undertake in the future, actual results may materially differ from these estimates and assumptions. +Principles of Consolidation +The Company’s consolidated financial statements include the accounts of ASP Isotopes Inc., its wholly-owned subsidiaries, the 80 % owned Enlightened Isotopes, the 78 % voting interest of Skyline, the 51 % owned PET Labs and the 42 % owned VIE ASP Rentals. All intercompany balances and transactions have been eliminated in consolidation. +Currency and Currency Translation +The consolidated financial statements are presented in U.S. dollars, the Company’s reporting currency. The functional currency of ASP Isotopes Inc. and ASP Guernsey is the U.S. dollar. The functional currency of the Company’s subsidiaries ASP South Africa and Quantum Leap Energy South Africa is the South African Rand. The functional currency of the 80 % owned Enlightened Isotopes, the 51 % owned PET Labs and the 42 % owned VIE ASP Rentals is the South African Rand. The functional currency of the 78 % owned Skyline is the Hong Kong Dollar. Adjustments that arise from exchange rate changes on transactions of each group entity denominated in a currency other than the functional currency are included in other income and expense in the consolidated statements of operations and comprehensive loss. Assets and liabilities of the entities with functional currency of South African Rand or Hong Kong Dollar are recorded in South African Rand or Hong Kong Dollar, respectively, and translated into the U.S. dollar reporting currency of the Company at the exchange rate on the balance sheet date. Revenue and expenses of the entities with functional currency of South African Rand or Hong Kong Dollar are recorded in South African Rand or Hong Kong Dollar, respectively, and translated into the U.S. dollar reporting currency of the Company at the average exchange rate prevailing during the reporting period. Resulting translation adjustments are recorded separately in stockholders’ equity as a component of accumulated other comprehensive (loss) income. +108 +ASP Isotopes Inc. +Notes to Consolidated Financial Statements (continued) +Concentration of Credit Risk and other Risks +Cash balances are maintained at U.S. financial institutions and may exceed the Federal Deposit Insurance Corporation insurance limit of $ 250,000 per depositor, per insured bank for each account ownership category. Although the Company currently believes that the financial institutions with whom it does business, will be able to fulfill their commitments to the Company, there is no assurance that those institutions will be able to continue to do so. The Company has not experienced any credit losses associated with its balances in such accounts for the years ended December 31, 2025 and 2024. +The Company's foreign subsidiaries held cash of approximately $ 9.6 million and $ 1.5 million as of December 31, 2025 and 2024, respectively, which is included in cash and cash equivalents on the consolidated balance sheets. Our strategic plan does not require the repatriation of foreign cash in order to fund our operations in the U.S., and it is our current intention to indefinitely reinvest our foreign cash outside of the U.S. If we were to repatriate foreign cash to the U.S., we would be required to accrue and pay U.S. taxes in accordance with applicable U.S. tax rules and regulations as a result of the repatriation. +The Company is potentially subject to concentrations of credit risk in accounts receivable as the following customer balances exceed 10% of accounts receivable in the consolidated balance sheet as December 31, 2025 and 2024 (in thousands). +As of December 31, 2025 +As of December 31, 2024 +Accounts Receivable +% of Total Accounts Receivable +Accounts Receivable +% of Total Accounts Receivable +Customer A +$ +— +0 +% +$ +200 +28 +% +Customer B +$ +— +0 +% +$ +145 +20 +% +Customer C +$ +2,327 +13 +% +$ +— +— +Customer D +$ +4,082 +23 +% +$ +— +— +Customer E +$ +5,044 +28 +% +$ +— +— +Customer F +$ +3,234 +18 +% +$ +— +— +Although the Company is directly affected by the financial condition of its customers, management does not believe significant credit risks exist at December 31, 2025. Generally, we do not require collateral or other securities to support its accounts receivable. +There were two customers in the construction services segment representing $ 7.7 million and $ 3.3 million, or 32.2 % and 13.7 %, respectively, o f the Company's consolidated revenues for the year ended December 31, 2025 . Revenues from one customer of the Company’s specialist isotopes and related services segment represent approximately 14 % or $ 592,000 the Company’s consolidated revenues. for the year ended December 31, 2024 . +Cash and cash equivalents +The Company considers all highly liquid investments with original maturities at the date of purchase of three months or less to be cash equivalents. Cash and cash equivalents are stated at fair value and may include money market funds, U.S. Treasury and U.S. government-sponsored agency securities, corporate debt, commercial paper and certificates of deposit. The Company had $ 267.4 million in cash equivalents as of December 31, 2025 . The Company had no cash equivalents as of December 31, 2024 . +Short-term Investments +The Company maintains its short-term investments in U.S. treasury and U.S. government-sponsored agency securities and has classified them as held-to-maturity at the time of purchase. Held-to-maturity purchases are those securities in which the Company has the ability and intent to hold until maturity. Held-to-maturity securities are recorded at amortized cost, adjusted for the amortization or accretion of premiums and discounts. Premiums and discounts are amortized or accreted over the life of the related held-to-maturity security using a straight-line method. +Fair Value of Financial Instruments +Accounting guidance defines fair value, establishes a consistent framework for measuring fair value, and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: +Level 1: Observable inputs such as quoted prices in active markets; +Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and +109 +ASP Isotopes Inc. +Notes to Consolidated Financial Statements (continued) +Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. +The Company’s share liability (Note 16) is measured at Level 1 fair value on a recurring basis. The Company’s convertible notes payable (Note 9) is measured as a Level 3 fair value on a recurring basis +Equity Investments +The Company accounts for investments in entities over which it has significant influence, but not control, using the equity method of accounting in accordance with ASC 323, Investments - Equity Method and Joint Ventures ("ASC 323"). Significant influence is generally presumed when the Company owns 20 % to 50 % of the voting interests in the investee, unless other factors indicate otherwise. The Company's equity method investments include the Company's investment in Skyline's joint ventures with KC-Glory JV, KC-Geotech JV and KC-CRFG JV. +Under the equity method, the Company initially records the investment at cost and subsequently adjusts the carrying amount to reflect its share of the investee’s earnings or losses, which are recognized in the consolidated statements of income. Dividends received from equity method investees reduce the carrying amount of the investment. The Company evaluates its equity method investments for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. +The Company also holds investments in equity securities without readily determinable fair values. These investments are accounted for under the measurement alternative in accordance with ASC 321, Investments - Equity Securities ("ASC 321"), which allows the Company to record the investments at cost, less impairments, plus or minus observable price changes in orderly transactions for the identical or similar investment. The Company's investments recorded at cost include IsoBio and Skyline’s investment in Reemag LLC ("Reemag") and a company in the critical minerals space. +If the Company determines that an impairment is other-than-temporary, it recognizes a loss equal to the difference between the investment’s carrying amount and its fair value. Equity method investments and investments at cost are included in “Equity investments” and "Other investments," respectively, on the consolidated balance sheet. +Accounts Receivable +Accounts receivable are stated at the amount management expects to collect from outstanding balances. An allowance for expected credit losses is estimated for those accounts receivable considered to be uncollectible based upon historical experience and management's evaluation of outstanding accounts receivable. The Company maintains an allowance for expected credit losses for accounts receivable, which is recorded as an offset to accounts receivable, and changes in such are classified as selling, general and administrative expense in the Consolidated Statements of Operations and Comprehensive Loss. The Company assesses collectability by reviewing accounts receivable on a collective basis where similar characteristics exist and on an individual basis when the Company identifies specific customers with known disputes or collectability issues. In determining the amount of the allowance for expected credit losses, the Company considers historical collectability based on past due status and make judgments about the creditworthiness of customers based on ongoing credit evaluations. The Company also considers customer-specific information, current market conditions, and reasonable and supportable forecasts of future economic conditions. Bad debts are written off against the allowance when identified. There was $ 0.1 million and no allowance for expected credit losses a s of December 31, 2025 and 2024 , respectively. +Prepaid Expenses and Other Current Assets +Prepaid expenses and other current assets primarily consist of amounts paid in advance for goods and services that will be consumed within twelve months. These assets are recorded at historical cost and expensed in the period in which the related benefits are realized. Prepaid expenses and other current assets mainly compromised the prepayment for advertising, insurance, deposits, and advance payments to subcontractors. The Company reviews prepaid expenses and other current assets for impairment or non-recoverability at each reporting date. +Inventories +Inventories are stated at the lower of cost or net realizable value. Cost is determined using the first in, first out inventory method. Inventory cost includes materials, labor, and applicable overhead incurred in bringing the inventories to their present location and condition. Net realizable value represents the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Inventories are primarily located in facilities in South Africa and are not pledged as collateral for any debt arrangements +The components of inventories as of December 31, 2025 and 2024 were as follows (in thousands): +110 +ASP Isotopes Inc. +Notes to Consolidated Financial Statements (continued) +December 31, 2025 +December 31, 2024 +Raw material +$ +484 +$ +66 +Work in process +614 +— +Finished goods +— +— +Total inventories +$ +1,098 +$ +66 +No significant write-downs to net realizable value or reversals of write-downs occurred in the years ended December 31, 2025 and 2024 . +Property and Equipment +Property and equipment include costs of assets constructed, purchased or leased under a finance lease, related delivery and installation costs and interest incurred on significant capital projects during their construction periods. Expenditures for renewals and betterments also are capitalized, but expenditures for normal repairs and maintenance are expensed as incurred. Costs associated with yearly planned major maintenance are generally deferred and amortized over 12 months or until the same major maintenance activities must be repeated, whichever is shorter. The cost and accumulated depreciation applicable to assets retired or sold are removed from the respective accounts, and gains or losses thereon are included in the statement of operations and comprehensive loss. +The Company assigns the useful lives of its property and equipment based upon its internal engineering estimates, which are reviewed periodically. The estimated useful lives of the Company's property and equipment range from 3 to 10 years, or the shorter of the useful life or remaining life of the lease for leasehold improvements. Depreciation is recorded using the straight-line method. +Construction in progress (Note 6) is carried at cost and consists of specifically identifiable direct and indirect development and construction costs. While under construction, costs of the property are included in construction in progress until the property is placed in service, at which time costs are transferred to the appropriate property and equipment account, including, but not limited to, leasehold improvements or other such accounts. +Business Combination and Asset Acquisitions +The Company evaluates acquisitions of assets and other similar transactions to assess whether or not the transaction should be accounted for as a business combination or asset acquisition by first applying a screen to determine if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. If the screen is met, the transaction is accounted for as an asset acquisition. If the screen is not met, further determination is required as to whether or not the Company has acquired inputs and processes that have the ability to create outputs, which would meet the requirements of a business. If determined to be a business combination, the Company accounts for the transaction under the acquisition method of accounting in accordance with ASC Topic 805 Business Combinations ("ASC 805"), which requires the acquiring entity in a business combination to recognize the fair value of all assets acquired, liabilities assumed, and any non-controlling interest in the acquiree and establishes the acquisition date as the fair value measurement point. Accordingly, the Company recognizes assets acquired and liabilities assumed in business combinations, including contingent assets and liabilities, and non-controlling interest in the acquiree based on the fair value estimates as of the date of acquisition. In accordance with ASC 805, the Company recognizes and measures goodwill as of the acquisition date, as the excess of the fair value of the consideration paid over the fair value of the identified net assets acquired. +The consideration for the Company’s business acquisitions may include future payments that are contingent upon the occurrence of a particular event or events. The obligations for such contingent consideration payments are recorded at fair value on the acquisition date. The contingent consideration obligations are then evaluated each reporting period. Changes in the fair value of contingent consideration, other than changes due to payments, are recognized as a gain or loss and recorded within change in the fair value of deferred and contingent consideration liabilities in the consolidated statements of comprehensive loss. +If determined to be an asset acquisition, the Company accounts for the transaction under ASC 805-50, which requires the acquiring entity in an asset acquisition to recognize assets acquired and liabilities assumed based on the cost to the acquiring entity on a relative fair value basis, which includes transaction costs in addition to consideration given. No gain or loss is recognized as of the date of acquisition unless the fair value of non-cash assets given as consideration differs from the assets’ carrying amounts on the acquiring entity’s books. Consideration transferred that is non-cash will be measured based on either the cost (which shall be measured based on the fair value of the consideration given) or the fair value of the assets acquired and liabilities assumed, whichever is more reliably measurable. Goodwill is not recognized in an asset acquisition and any excess consideration transferred over the fair value of the net assets acquired is allocated to the identifiable assets based on relative fair values. +Contingent consideration payments in asset acquisitions are recognized when the contingency is resolved and the consideration is paid or becomes payable (unless the contingent consideration meets the definition of a derivative, in which case the amount becomes part of the basis in the asset acquired). Upon recognition of the contingent consideration payment, the amount is included in the cost of the acquired asset or group of assets. +111 +ASP Isotopes Inc. +Notes to Consolidated Financial Statements (continued) +Goodwill and Identifiable Intangible Assets +Goodwill represents the amount of consideration paid in excess of the fair value of net assets acquired as a result of the Company’s business acquisitions accounted for using the acquisition method of accounting. Identifiable intangible assets recognized in conjunction with acquisitions are recorded at fair value. Significant unobservable inputs are used to determine the fair value of the identifiable intangible assets based on the income approach valuation model whereby the present worth and anticipated future benefits of the identifiable intangible assets are discounted back to their net present value. +Goodwill and identifiable intangible assets with indefinite lives are not amortized and are subject to impairment testing at a reporting unit level on an annual basis or when a triggering event occurs that may indicate the carrying value of the goodwill or identifiable intangible assets are impaired. An entity is permitted to first assess qualitative factors to determine if a quantitative impairment test is necessary. Further testing is only required if the entity determines, based on the qualitative assessment, that it is more likely than not that the fair value of the reporting unit is less than its carrying amount. The Company performs its annual test for goodwill or identifiable intangible assets as of October 31. +Identifiable intangible assets with definite lives are amortized over their estimated useful lives, ranging from 2 to 5 years. The Company's intangible assets include trademarks and customer-related intangible assets related to the Skyline and ECNP acquisitions. The Company uses the straight-line method of amortization for identifiable intangible assets with definite lives. +Variable Interest Entities +The Company accounts for the investments it makes in certain legal entities in which equity investors do not have (1) sufficient equity at risk for the legal entity to finance its activities without additional subordinated financial support, or (2) as a group, the holders of the equity investment at risk do not have either the power, through voting or similar rights, to direct the activities of the legal entity that most significantly impact the entity’s economic performance, or (3) the obligation to absorb the expected losses of the legal entity or the right to receive expected residual returns of the legal entity. These certain legal entities are referred to as “variable interest entities” or “VIEs.” +The Company would consolidate the results of any such entity in which it determined that it had a controlling financial interest. The Company would have a “controlling financial interest” in such an entity if the Company had both the power to direct the activities that most significantly affect the VIE’s economic performance and the obligation to absorb the losses of, or right to receive benefits from, the VIE that could be potentially significant to the VIE. On a quarterly basis, the Company will reassess whether it has a controlling financial interest in any investments it has in these certain legal entities. +Leases +Leases are accounted for in accordance with ASC Topic 842, Leases ("ASC 842"). The Company enters into lease arrangements both as lessee and a lessor for office, laboratories and production facilities, vehicles and equipment. At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on specific facts and circumstances, the existence of an identified asset(s), if any, and the Company’s control over the use of the identified asset(s), if applicable. +Lessee arrangements +Operating lease liabilities and their corresponding right-of-use ("ROU") assets are recorded based on the present value of future lease payments over the expected lease term. The interest rate implicit in lease contracts is typically not readily determinable. As such, the Company will utilize the incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment, and considering the region in which the ROU asset and liabilities are located. +The Company has elected to combine lease and non-lease components as a single component. Operating leases are recognized on the balance sheet as ROU lease assets, lease liabilities current and lease liabilities non-current. Fixed rents are included in the calculation of the lease balances, while variable costs paid for certain operating and pass-through costs are excluded. Lease expense is recognized over the expected term on a straight-line basis. +Finance leases are recognized on the balance sheet as property and equipment, finance lease liabilities current and finance lease liabilities non-current. Finance lease ROU assets and the related lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. The finance lease ROU assets are amortized on a straight-line basis over the lease term with the related interest expense of the lease liability payment recognized over the lease term using the effective interest method. +Lessor arrangements +For leases where the Company retains ownership of the underlying asset, the Company classifies the lease as an operating lease. Lease revenue is recognized on a straight-line basis and the associated asset is depreciated. +112 +ASP Isotopes Inc. +Notes to Consolidated Financial Statements (continued) +When control of the underlying asset is transferred to the lessee, the Company classifies the lease as sales-type lease. The Company derecognizes the asset, recognizes a net investment in the lease, and recognizes selling profit and interest income over the lease term. This classification applies if certain criteria are met, including transfer of ownership, a purchase option, a lease term covering a major part of the asset's life, the present value of payments covering substantially all of the asset's fair value, or the asset being specialized. +For all other leases that do not meet the sales-type criteria and meet conditions related to the sum of payments/residual value covering substantially all of the asset's fair value and the lessor's likelihood of collecting payments, the Company classifies as direct financing leases. Similar to sales-type leases, the Company recognizes a net investment. Selling profit is recognized as interest income using the effective interest method. +Impairment of Long-lived Assets +Long-lived assets consist primarily of property and equipment. The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset is not recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the asset exceeds the fair value of the assets. The Company did no t recognize any impairment losses for the years ended December 31, 2025 and 2024 . +Secured Borrowing +Transfers of financial assets are accounted for under Accounting Standards Codification (ASC) 860, "Transfers and Servicing." The accounting treatment under ASC 860 depends on whether the transfer qualifies as a sale or a secured borrowing. A transfer is recognized as a sale only if the assets are legally isolated from the transferor, the transferee has the unrestricted right to pledge or exchange the assets, and the transferor does not retain effective control through repurchase agreements or other arrangements. When the transfer qualifies as a sale, the financial assets are derecognized from the transferor's balance sheet, and any resulting gain or loss on the sale is recognized in other income. In certain transactions, servicing responsibilities may be retained, which would represent continuing involvement. If the criteria for sale accounting are not met, the transaction is accounted for as a secured borrowing and the financial assets remain on the transferor's balance sheet. +In August 2025, the Company acquired Skyline (Note 14). Skyline previously entered into a discounting and factoring agreement to sell its customers’ accounts receivable on a recourse basis to a third-party financial institution. The aggregate amount available under the agreement is $ 3.0 million as of December 31, 2025. This transaction is accounted for as a secured borrowing and the accounts receivable remain on the Company’s consolidated balance sheets. Since the Skyline acquisition date through December 31, 2025, there wer e no accounts receivable designated as sold and derecognized. +Convertible Notes Payable +Convertible notes payable are accounted for in accordance with ASC Topic 825, Financial Instruments ("ASC 825"). Upon issuance the Company has elected the fair value option to account for the convertible notes payable. Changes in fair value during the reporting period are recognized in other income (expense) in the consolidated statement of operations and comprehensive loss. +Revenue Recognition +The Company recognizes revenue in accordance with Accounting Standard Codification ("ASC") Topic 606, Revenue from Contracts with Customers (“ASC 606”). Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine the appropriate amount of revenue to be recognized for arrangements determined to be within the scope of ASC 606, the Company performs the following five steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect consideration it is entitled to in exchange for the goods or services it transfers to the customer. +The Company evaluates a transaction’s performance obligations to determine if promised goods or services in a contract to transfer a distinct good or service to the customer and are considered distinct when (i) the customer can benefit from the good or service on its own or together with other readily available resources and (ii) the promised good or service is separately identifiable from other promises in the contract. In assessing whether promised goods or services are distinct, the Company considers whether the goods or services are integral or dependent to other goods or services in the contract. The Company determines the transaction price based on the agreed government rates for the promised goods in the contract. The consideration is recognized as revenue when control is transferred for the related goods. +113 +ASP Isotopes Inc. +Notes to Consolidated Financial Statements (continued) +The Company enters into revenue generating transactions with radiopharmacy companies that include payment for delivery of nuclear medical doses for PET scanning in South Africa. +The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition. The Company receives payments from its customers based on billing schedules established in each contract. Upfront payments and fees are recorded as deferred revenue upon receipt or when due until the Company performs its obligations under these arrangements. Amounts are recorded as accounts receivable when the Company’s right to consideration is unconditional. +The Company’s collaboration revenue relates to TerraPower LLC ("TerraPower") (Note 10). At contract execution, the Company analyzes its collaborative arrangements and license agreements to assess whether both parties are active participants in the activities and are exposed to significant risks and rewards and therefore are within the scope of ASC 808, Collaborative arrangements (“ASC 808”). ASC 808 does not address the recognition and measurement of payments from collaborative arrangements and instead refers companies to use other authoritative accounting literature. For collaboration arrangements within the scope of ASC 808 that contain multiple elements, the Company first determines which elements of the collaboration reflect a vendor-customer relationship and therefore are within the scope of ASC 606, Revenue from Contracts with Customers. When the Company determines elements of a collaboration agreement do not reflect a vendor-customer relationship, the Company consistently applies a reasonable and rational policy election made by analogizing to authoritative accounting literature. The Company evaluates the income statement classification for presentation of amounts due from or owed to other participants in a collaboration arrangement based on the nature of each separate activity. +In August 2025, the Company acquired Skyline (Note 14). Skyline performs public civil engineering works, including road and drainage works, under master construction agreements and other contracts with customer-specified requirements. These construction services are provided solely for the benefit of the Company’s customers, as the assets being created or maintained are controlled by them, and the services Skyline provide have no alternative use. +The performance obligation is satisfied when control of the promised goods or services is transferred to the customer over time, aligning with the ongoing services provided, with customers simultaneously receiving and benefiting from Skyline’s work. Contracts which include construction services are generally accounted for as a single deliverable (a single performance obligation). Skyline has not bundled any goods or services that are not considered distinct. +Revenue from public civil engineering works is recognized over time, using the output method based on surveys of completed work. These surveys are certified by architects, surveyors, or other customer-appointed representatives, or are estimated with reference to the progress payment applications submitted by Skyline to the customer. +Skyline’s cost of revenue is primarily comprised of the subcontracting costs, staff costs and materials costs. These costs are expensed as incurred. As part of ongoing work orders, Skyline may advance payments to subcontractors primarily due to projects that necessitate substantial cash flows for the procurement of materials required to achieve milestone and the set up of new work stages, which is included in prepaid expenses and other current assets. The cost of revenue associated with these advances is recognized upon the completion of the respective milestones and work stages, in accordance with Skyline ’s revenue recognition policy. +Skyline has enforceable rights to consideration from customers for the provision of roads and drainage services. Contract assets arise when Skyline has performed work under these contracts but has not yet received certification from independent surveyors appointed by customers. These assets represent Skyline ’s right to consideration for work completed but not yet billable. Skyline classifies these assets within “Prepaid expenses and other current assets” and ‘Other noncurrent assets’ on Skyline ’s consolidated balance sheets. Contract assets are converted to accounts receivable on an ongoing basis upon certification surveyors. Retention receivables, included in contract assets, represent the amounts withheld from billings pursuant to provisions in the contracts and may not be paid until the completion of specific tasks or the completion of the project. Retention receivables may also be subject to restrictive conditions such as performance guarantees. +When consideration is received from a customer prior to transferring goods or services to the customer under the terms of a construction contract, a contract liability is recorded. The Company classifies these liabilities within “Other current liabilities” on the Company’s consolidated balance sheets. Contract liabilities are recognized as revenue after control of the goods and services are transferred to the customer and all revenue recognition criteria have been met. +Research and Development Costs +Research and development costs consist primarily of fees paid to consultants, license fees and facilities costs. Nonrefundable advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made. All research and development costs are expensed as incurred. +114 +ASP Isotopes Inc. +Notes to Consolidated Financial Statements (continued) +Acquired in-process research and development +The Company measures and recognizes asset acquisitions that are not deemed to be business combinations based on the cost to acquire the assets, including transaction costs. In an asset acquisition, the cost allocated to acquire in-process research and development ( " IPR&D") with no alternative future use is charged to expense at the acquisition date. +Selling, General and Administrative Costs +Selling, general and administrative expenses consist primarily of salaries and related benefits, including stock-based compensation expense, related to the Company's executive, finance, business development, legal, human resources and support functions. Other general and administrative expenses include professional fees for auditing, tax, consulting and patent-related services, rent and utilities and insurance . +Stock-based Compensation +Stock-based compensation expense represents the cost of the grant date fair value of employee stock awards recognized over the requisite service period of the awards (usually the vesting period) on a straight-line basis. The Company estimates the fair value of each stock-based award on the date of grant using the Black-Scholes option pricing model. The Black-Scholes option pricing model incorporates various assumptions, such as the value of the underlying common stock, the risk-free interest rate, expected volatility, expected dividend yield, and expected life of the options. Forfeitures are recognized as a reduction of stock-based compensation expense as they occur. +The Company also awards restricted stock to employees and directors. Restricted stock is generally subject to forfeiture if employment terminates prior to the completion of the vesting restrictions. The Company expenses the cost of the restricted stock, which is determined to be the fair market value of the shares of common stock underlying the restricted stock at the date of grant, ratably over the period during which the vesting restrictions lapse. +Stock-based compensation expense is classified in the consolidated statements of operations and comprehensive loss in the same manner in which the award recipients’ payroll costs are classified or in which the award recipients’ service payments are classified . +Income Taxes +Deferred income tax assets and liabilities arise from temporary differences associated with differences between the financial statements and tax basis of assets and liabilities, as measured by the enacted tax rates, which are expected to be in effect when these differences reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. +The Company records the provision for income taxes for the activity from PET Labs and Skyline's operations. +The Company follows the provisions of ASC 740-10, Uncertainty in Income Taxes, or ASC 740-10. The Company has no t recognized a liability for any uncertain tax positions. A reconciliation of the beginning and ending amount of unrecognized tax benefits has not been provided since there is no unrecognized benefit since the date of adoption. The Company has no t recognized interest expense or penalties as a result of the implementation of ASC 740-10. If there were an unrecognized tax benefit, the Company would recognize interest accrued related to unrecognized tax benefits and penalties in income tax expense. +The Company has identified the United States, South Africa, Hong Kong and Guernsey as its major tax jurisdictions. Refer to Note 19 for further details. +Comprehensive Loss +Comprehensive loss is defined as a change in equity during a period from transactions and other events and circumstances from non-owner sources. The Company’s comprehensive loss is comprised of net loss and the effect of currency translation adjustments. +Related Parties +Parties, either an entity or individual, are considered to be related if the Company has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Companies are also considered to be related if they are subject to common control or common significant influence, such as a family member or relative, shareholder, or a related corporation +Recently Issued Accounting Pronouncements +The Company has reviewed recently issued accounting pronouncements and plans to adopt those that are applicable to it. The Company does not expect the adoption of any recently issued pronouncements to have a material impact on its results of operations or financial position. +115 +ASP Isotopes Inc. +Notes to Consolidated Financial Statements (continued) +In November 2024, the FASB issued ASU 2024-03, Disaggregation of Income Statement Expenses (“ASU 2024-03”) and is effective for annual reporting periods beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027. ASU 2024-03 requires disclosures about specific types of expenses included in the expense captions presented on the face of the income statement as well as disclosures about selling expenses. The Company is still assessing the impact of adopting this standard. +In July 2025, the FASB issued ASU 2025-05, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets ("ASU 2025-05") and is effective for fiscal years beginning after December 15, 2025, including interim periods within those fiscal years. Early adoption is permitted. ASU 2025-05 provides a practical expedient that allows entities to assume that conditions existing at the balance sheet date will remain unchanged over the remaining life of current accounts receivable and contract assets arising from revenue transactions under ASC 606. Additionally, entities other than public business entities that elect the practical expedient may also make an accounting policy election to consider subsequent collection activity occurring after the balance sheet date when estimating expected credit losses. The Company does not expect the adoption of this standard to have a material effect on the consolidated financial results. +In August 2025, the FASB issued ASU 2025-08, Financial Instruments—Credit Losses (Topic 326): Purchased Loans (“ASU 2024-08”) and is effective for fiscal years beginning after December 15, 2026, including interim periods within those fiscal years with early adoption permitted. ASU 2025-08 clarifies the accounting for purchased loans under the current expected credit loss (CECL) model, including guidance on recognizing and measuring expected credit losses and presentation of related amounts. The Company is still assessing the impact of adopting this standard. +In September 2025, the FASB issued ASU 2025-06, Targeted Improvements to the Accounting for Internal-Use Software ("ASU 2025-06") and is effective January 1, 2028 with early adoption permitted. ASU 2025-06 modernizes the accounting for internal use software costs and requires entities to start capitalizing eligible costs when (1) management has authorized and committed to funding the software project, and (2) it is probable that the project will be completed and the software will be used to perform the function intended. The guidance can be applied on a prospective basis, a modified basis for in-process projects, or a retrospective basis. The Company is still assessing the impact of adopting this standard. +Recently Adopted Accounting Pronouncements +In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires an annual tabular effective tax rate reconciliation disclosure including information for specified categories and jurisdiction levels, as well as, disclosure of income taxes paid, net of refunds received, disaggregated by federal, state/local, and significant foreign jurisdiction. This ASU is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company adopted this standard prospectively on January 1, 2025, which expanded the Company's disclosures beginning with its annual consolidated financial statements for the year ended December 31, 2025 , but did not have an impact on the consolidated financial results. +3. Short-term Investments +The Company had no held-to-maturity investments as of December 31, 2024. A summary of the Company’s held-to-maturity investments as of December 31, 2025 consisted of the following (in thousands): +Year Ended December 31, 2025 +Amortized Cost +Unrealized Gains +Unrealized Losses +Fair Value +U.S. Treasury securities - mature April 2026 +$ +47,745 +$ +32 +$ +— +$ +47,777 +Total +$ +47,745 +$ +32 +$ +— +$ +47,777 +There is no allowance for credit losses in short-term investments at December 31, 2025 . +4. Fair Value Measurements +The Company classified its U.S. Treasury securities (Note 3) within Level 2 because their fair values are determined using alternative pricing sources or models that utilized market observable inputs. The Company’s convertible notes payable (Note 9) is measured as a Level 3 fair value on a recurring basis and was $ 199.3 million and $ 33.4 million as of December 31, 2025 and 2024, respectively. +The Company holds an equity investment in IsoBio. The Company previously measured the investment at cost because no observable price changes were identified. In October 2025, IsoBio completed a preferred stock financing with unrelated third‑party +116 +ASP Isotopes Inc. +Notes to Consolidated Financial Statements (continued) +investors. The transaction represented an observable price change for an identical or other similar equity security held by the Company. Accordingly, the Company remeasured the investment to fair value and recorded an unrealized gain of $ 0.6 million within Other income (expense). The resulting carrying value of the IsoBio investment is $ 5.6 million as of December 31, 2025. Because the valuation incorporates significant unobservable inputs, the investment is classified as a Level 3 fair value measurement. +The Company holds an equity investment in a limited liability company engaged in the critical minerals space . The Company initially measured the investment at cost in October 2025. In December 2025, this company completed a financing with unrelated third‑party investors. The transaction represented an observable price change for an identical or other similar equity security held by the Company. Accordingly, the Company remeasured the investment to fair value and recorded an unrealized gain of $ 17.3 million within Other income (expense). The resulting carrying value of this investment is $ 37.3 million as of December 31, 2025. Because the valuation incorporates significant unobservable inputs, the investment is classified as a Level 3 fair value measurement. +There were no transfers among Level 1, Level 2 or Level 3 categories in the year ended December 31, 2025. The carrying amounts of accounts payable, accrued expenses and debt are considered to be representative of their respective fair values because of the short-term nature of those instruments. +A summary of the assets and liabilities that are measured at fair value as of December 31, 2025 is as follows (in thousands): +Year Ended December 31, 2025 +Carrying Value +Quoted Price in Active Markets for Identical Assets (Level 1) +Significant Other Observable Inputs (Level 2) +Significant Unobservable Inputs (Level 3) +Assets: +U.S. Treasury securities +$ +47,745 +$ +— +$ +47,745 +$ +— +Other investments (ASC 321) +45,979 +— +— +45,979 +Total +$ +93,724 +$ +— +$ +47,745 +$ +45,979 +Liabilities: +Convertible notes payable +199,323 +— +— +199,323 +Total +$ +199,323 +$ +— +$ +— +$ +199,323 +The Company had no U.S. Treasury securities as of December 31, 2024. +The following table provides a reconciliation of the Company’s assets and liabilities measured as a Level 3 at fair value on a recurring basis using significant unobservable inputs (in thousands): +Other Investments +Convertible +Notes Payable +Balance as of December 31, 2023 +$ +— +$ +— +Fair value at issuance +— +26,558 +Fair value adjustment +— +6,875 +Balance as of December 31, 2024 +— +33,433 +Fair value at issuance +28,047 +42,171 +Fair value adjustment +17,932 +123,719 +Balance as of December 31, 2025 +$ +45,979 +$ +199,323 +5. Revenue and Segment Information +In connection with our acquisition of 51 % ownership of PET Labs in October 2023, the Company manufactures and sells nuclear medical doses for PET scanning in South Africa. In August 2025, the Company acquired a 79 % voting interest of Skyline, a Hong Kong-based company that generates revenue primarily through the provision of civil engineering services, including road and drainage construction for public infrastructure projects. +The following table presents revenue from continuing operations disaggregated by geography based on the Company’s locations (in thousands): +117 +ASP Isotopes Inc. +Notes to Consolidated Financial Statements (continued) +Year Ended December 31, +Segment +2025 +2024 +South Africa +$ +4,822 +$ +4,144 +Hong Kong +18,175 +— +United States +852 +— +Total Revenue +$ +23,849 +$ +4,144 +The following tables present changes in the Company’s accounts receivable for the years ended December 31, 2025 and 2024 (in thousands): +Balance as of +December 31, 2024 +Additions +Deductions +Balance as of +December 31, 2025 +Accounts receivable +$ +707 +$ +42,133 +$ +( 24,958 +) +$ +17,882 +Balance as of +December 31, 2023 +Additions +Deductions +Balance as of +December 31, 2024 +Accounts receivable +$ +217 +$ +4,144 +$ +( 3,654 +) +$ +707 +Prior to the acquisition of Skyline, the Company did no t recognize any contract assets or contract liabilities. Upon completion of the acquisition, the Company assumed a contract asset balance of $ 1.7 million and a contract liability balance of $ 2.0 million (Note 14). +As of December 31, 2025, contract assets, which are included in prepaid expenses and other current assets and other noncurrent assets on the consolidated balance sheets, consisted of the following (in thousands): +Contract Assets +Retention receivables of construction contracts at acquisition date of Skyline +$ +1,900 +Add: Unbilled revenue of construction contracts +486 +Less: Allowance for expected credit losses +( 58 +) +Total +2,328 +Less: Contract assets, noncurrent +( 1,268 +) +Contract assets, current +$ +1,060 +As of December 31, 2025, contract liabilities, which are included in other current liabilities on the consolidated balance sheets, consisted of the following (in thousands): +Contract Liabilities +Balance as of acquisition date of Skyline +$ +1,967 +Decrease as a result of recognizing revenue during the period +( 2,340 +) +Increase as a result of billings in advance of performance obligations under contracts +969 +Foreign exchange impact +276 +Balance as of December 31, 2025 +$ +872 +118 +ASP Isotopes Inc. +Notes to Consolidated Financial Statements (continued) +Segment Information +Beginning in 2024, primarily as a result of increased business activities of its subsidiary, Quantum Leap Energy LLC, the Company had two operating segments: (i) nuclear fuels, and (ii) specialist isotopes and related services. Beginning in August 2025, primarily as a result of the acquisition of Skyline, the Company has three operating segments: (i) nuclear fuels, (ii) specialist isotopes and related services, and (iii) construction services. +The nuclear fuels segment is focused on research and development of technologies and methods used to produce high-assay low-enriched uranium (HALEU) and Lithium-6 for the advanced nuclear fuels target end market. +The specialist isotopes and related services segment is focused on research and development of technologies and methods used to separate high-value, low-volume isotopes (such as C-14, Molybdenum-100 (“Mo-100"), Si-28 and Yb-176) for highly specialized target end markets other than advanced nuclear fuels, including pharmaceuticals and agrochemicals, nuclear medical imaging and semiconductors, as well as services related to these isotopes, and this segment includes PET Labs and ECNP. +The construction services segment is focused on public civil engineering services in Hong Kong, such as road and drainage works which includes construction of footway, drain, ducts, and pipelines. In executing these projects, the Company may be required to perform a range of activities including to (i) clear the construction site and make demolition of existing structures; (ii) install concrete and reinforcing steel bars; (iii) conduct excavation, deposition, disposal and compaction of fill material; and (iv) plant trees, plants, irrigation system and general establishment works. +The Company’s chief operating decision maker (“CODM”) is its chief executive officer . The segment revenue and segment net loss is regularly reviewed by the CODM in deciding how to allocate resources. Prior to the acquisition of Skyline, the Company managed assets on a total company basis, not by operating segment, as the assets were shared or commingled. After the acquisition of Skyline, the CODM regularly reviews any asset information by operating segment and, accordingly, asset information is reported on a segment basis . +The following table shows total assets by segment and a reconciliation to the consolidated financial statements as of December 31, 2025 and 2024 (in thousands): +December 31, +2025 +2024 +Segment assets: +Specialist isotopes and related services +$ +323,690 +$ +71,771 +Nuclear fuels +94,252 +22,577 +Construction services +80,078 +— +Total assets +$ +498,020 +$ +94,348 +Select information from the consolidated statements of operations and comprehensive loss as of the years ended December 31, 2025 and 2024 is as follows (in thousands): +Revenues +Net Income (Loss) Before +Allocation to Noncontrolling Interest +Year Ended December 31, +Year Ended December 31, +Segment +2025 +2024 +2025 +2024 +Specialist isotopes and related services +$ +5,674 +$ +3,944 +$ +( 33,259 +) +$ +( 21,542 +) +Nuclear fuels +— +200 +( 144,125 +) +( 10,881 +) +Construction services +18,175 +— +17,541 +— +$ +23,849 +$ +4,144 +$ +( 159,843 +) +$ +( 32,423 +) +119 +ASP Isotopes Inc. +Notes to Consolidated Financial Statements (continued) +A reconciliation of total segment revenue to total consolidated revenue and of total segment gross profit and segment operating income to total consolidated income before income taxes, for the years ended December 31, 2025 and 2024, is as follows (in thousands): +Year Ended December 31, 2025 +Specialist isotopes and related services +Nuclear fuels +Construction services +Total +Sales from external customers +$ +5,674 +$ +— +$ +18,175 +$ +23,849 +Less: cost of sales +( 4,047 +) +— +( 16,397 +) +( 20,444 +) +Segment gross profit +1,627 +— +1,778 +3,405 +Personnel expenses +20,515 +9,058 +196 +29,769 +Professional fees +8,680 +6,372 +586 +15,638 +Other segment expenses +12,754 +4,506 +646 +17,906 +Segment operating loss +( 40,322 +) +( 19,936 +) +350 +( 59,908 +) +Foreign exchange transaction loss +( 131 +) +( 3 +) +— +( 134 +) +Change in fair value of share liability +( 121 +) +— +— +( 121 +) +Change in fair value of convertible notes payable +1,500 +( 125,219 +) +— +( 123,719 +) +Change in fair value of investments +580 +— +17,352 +17,932 +Interest income (expense), net +5,430 +1,033 +( 248 +) +6,215 +Other income +6 +— +168 +174 +Income (loss) before income tax expense +$ +( 33,058 +) +$ +( 144,125 +) +$ +17,622 +$ +( 159,561 +) +Year Ended December 31, 2024 +Specialist isotopes and related services +Nuclear fuels +Corporate +Total +Sales from external customers +$ +3,944 +$ +— +$ +— +$ +3,944 +Collaboration revenue +— +200 +— +200 +Less: cost of sales +( 2,545 +) +— +— +( 2,545 +) +Segment gross profit +1,399 +200 +— +1,599 +Personnel expenses +12,393 +1,197 +— +13,590 +Professional fees +6,108 +1,632 +— +7,740 +Other segment expenses +4,795 +1,828 +— +6,623 +Segment operating loss +( 21,897 +) +( 4,457 +) +— +( 26,354 +) +Foreign exchange transaction gain +— +— +70 +70 +Change in fair value of share liability +— +— +( 132 +) +( 132 +) +Change in fair value of convertible notes payable +— +( 6,875 +) +— +( 6,875 +) +Interest income (expense), net +528 +451 +— +979 +Loss before income tax expense +$ +( 21,369 +) +$ +( 10,881 +) +$ +( 62 +) +$ +( 32,312 +) +120 +ASP Isotopes Inc. +Notes to Consolidated Financial Statements (continued) +6. Property and Equipment +Property and equipment as of December 31, 2025 and 2024 consisted of the following (in thousands): +Useful Lives +(Years) +December 31, +2025 +2024 +Construction in progress +— +$ +4,950 +$ +13,970 +Tools, machinery and equipment +3 - 10 +7,916 +5,899 +Plant +10 +21,291 +2,269 +Computer equipment +3 - 4 +332 +145 +Vehicles +5 +909 +292 +Software +5 +613 +2 +Office furniture +7 - 10 +303 +147 +Leasehold improvements +Lesser of estimated useful life or the remaining lease term +137 +116 +Property and equipment, at cost +36,451 +22,840 +Less accumulated depreciation +( 2,999 +) +( 486 +) +Property and equipment, net +$ +33,452 +$ +22,354 +The Company has three plants in Pretoria, South Africa: a C-14 plant, a multi-isotope plant and a laser isotope separation plant using QE technology. The multi-isotope plant and the laser isotope separation plant were completed in March 2025 and depreciation began in April 2025. The C-14 plant was completed in June 2024 and depreciation began in July 2024. As of December 31, 2024, costs incurred for the multi-isotope plant and the laser isotope separation plant were considered construction in progress because the work was not complete. Depreciation expense was $ 1.7 million and $ 0.5 million for the years ended December 31, 2025 and 2024, respectively. Depreciation expense included as part of inventory costs was $ 0.6 million for the year ended December 31, 2025 . +7. Prepaid Expenses and Other Current Assets +Prepaid expenses and other current assets as of December 31, 2025 and 2024 consisted of the following (in thousands): +December 31, +2025 +2024 +Advances to subcontractors and suppliers +$ +7,396 +$ +— +Advertising +203 +— +Contract assets +1,060 +— +Value-added tax refund receivable +763 +1,575 +Insurance +1,982 +— +Deposits +1,305 +— +Other +1,135 +1,478 +Total prepaid expenses and other current assets +$ +13,844 +$ +3,053 +8 . Accrued Expenses +Accrued expenses as of December 31, 2025 and 2024 consisted of the following (in thousands): +December 31, +2025 +2024 +Accrued professional +$ +1,306 +$ +672 +Accrued salaries and other employee costs +3,579 +1,584 +Accrued other +1,339 +20 +Total accrued expenses +$ +6,224 +$ +2,276 +9. Debt +Debt consisted of the following as of December 31, 2025 and 2024 (in thousands): +121 +ASP Isotopes Inc. +Notes to Consolidated Financial Statements (continued) +December 31, +2025 +2024 +Promissory note +$ +106 +$ +409 +Motor vehicle and equipment loans +1,949 +1,971 +Revolving credit facility +7,756 +— +Secured term loans +691 +— +Receivables financing facility (secured borrowing) +2,955 +— +Other borrowings +899 +— +Total debt +14,356 +2,380 +less current portion of debt +( 12,885 +) +( 939 +) +Long term portion of debt +$ +1,471 +$ +1,441 +There is no material covenant stated for all debt outstanding. Credit facility and term loans contain a repayment on demand clause. Management believes the carrying values of debt outstanding approximates fair value based on the interest rates and scheduled maturities applicable to the outstanding borrowings. +Promissory Note Payable +During 2021, the Company executed a promissory note payable with an aggregate principal balance of $ 33,500 ( 25,000 GBP). The note was due after a period of two months, followed by mutually agreed upon monthly extensions, and does not bear interest. This note was paid in full on April 2, 2025. As of December 31, 2025 and 2024 , this promissory note payable balance was $ 0 and $ 31,380 , respectively. +In November 2024, the Company executed a promissory note payable with a finance company to fund its directors and officers’ insurance policy for $ 0.5 million. This note bears interest at an annual rate of 8.45 % with seven monthly payments beginning in December 2024 . The note was repaid in full in June 2025. In November 2023, the Company executed a promissory note payable with a finance company to fund its directors and officers' insurance policy for $ 0.5 million. This note bore interest at an annual rate of 8.74 % with six monthly payments beginning in December 2023 . The note was repaid in full in May 2024. For the years ended December 31, 2025 and 2024 , the Company recorded interest expense of $ 9,378 and $ 17,872 , respectively. As of December 31, 2025 and 2024 , the promissory note payable balance was $ 0 and $ 0.4 million, respectively. +In August 2025, the Company executed a promissory note payable with a finance company to fund a general liability insurance policy for $ 0.2 million. This note bears interest at an annual rate of 10.0 % with twelve monthly payments beginning in August 2025 . As of December 31, 2025 , this promissory note payable balance was $ 0.1 million. +Motor Vehicle and Equipment Loans +Periodically, the Company enters into loans to purchase motor vehicles and certain equipment. For the year ended December 31, 2025 , the Company entered into new loans totaling $ 0.3 million. For the year ended December 31, 2024, the Company entered into loans totaling $ 2.0 million. These loans are secured by the underlying assets included in property and equipment. The loans have variable interest rates ranging from 9.9 % to 11.75 % and mature from September 2028 to March 2030 . Minimum monthly payments total $ 55,418 . For the years ended December 31, 2025 and 2024, interest expense under the outstanding loans was $ 0.2 million and $ 70,975 , respectively . As of December 31, 2025 and 2024 , motor vehicle and equipment loans totaled $ 1.9 million and $ 2.0 million, respectively. +Revolving Credit Facilities +Skyline has several secured revolving credit facilities to provide working capital with total commitments of up to $ 7.8 million (HK$ 64.6 million) with maturities ranging from March 2026 through March 2030 . Since the credit facilities contain a repayment on demand clause, they are included in debt - current in the consolidated balance sheets . These credit facilities bear interest at an annual interest rate indexed to Hong Kong Interbank Offered Rate (“HIBOR”) ranging from 4.53 % to 6.21 %. The credit facilities are secured by personal guarantees from Mr. Ngo Chiu Lam (director of Skyline) and Mr. Wong Chak Lam (a former employee of Skyline) and the entire life insurance policy from Mr. Ngo Chiu Lam and Mrs. Po Lok Sze (Mr. Ngo Chiu Lam’s wife) . The cash surrender value is $ 1.4 million as of date of transfer to bank in March 2025. As of December 31, 2025 , the outstanding principal balance on these credit facilities was approximately $ 7.8 million with a weighted average interest of 5.79 %. For the year ended December 31, 2025 , interest expense under the credit facilities was $ 0.2 million. There was no interest expense from credit facilities for the year ended December 31, 2024. +Secured Term Loans +Skyline has several term loans with original principal amount of $ 1.2 million (HK$ 9.0 million), with maturity ranging from April 2031 through June 2033 . Since the term loans contain a repayment on demand clause, they are included in debt - current in +122 +ASP Isotopes Inc. +Notes to Consolidated Financial Statements (continued) +the consolidated balance sheets . The term loans bear interest at an annual interest rate of HSBC Prime Lending Rate minus 2.25 %. As of December 31, 2025 , the outstanding principal balance on these term loans were $ 0.7 million with a weighted-average interest rate of 3 %. The term loans are secured by Mr. Ngo Chiu Lam. For the year ended December 31, 2025 , interest expense under the term loans was approximately $ 7,000 . There was no interest expense from term loans for the year ended December 31, 2024. +Receivables financing facility (secured borrowing) +Skyline maintains a receivables financing facility with a maximum borrowing capacity of $ 3.0 million (HK$ 23.0 million). Under the facility, Skyline pledges certain trade receivables as collateral and may obtain advances up to the lesser of the facility limit or the borrowing base. The arrangement does not meet the criteria for sale accounting under ASC 860 and is accounted for as a secured borrowing. Accordingly, the pledged receivables remain in trade receivables, and advances are recorded as receivables financing facility within debt. The interest rate for the factoring agreement is 2 % per annum over 1-month HIBOR on such day. The loan is repayable 90 days from the date of drawdown and secured by personal guarantees from Mr. Ngo Chiu Lam and Mr. Wong Chak Lam. As of December 31, 2025 and December 31, 2024, outstanding borrowings under the facility were $ 3.0 million and $ 0 , respectively. The weighted-average interest rate on outstanding borrowings was 4.71 %. Trade receivables pledged as collateral totaled $ 3.0 million (Note 2). Borrowings and repayments under the receivables financing facility are presented as financing activities in the consolidated statements of cash flows. Interest and service charge are included within “Interest expense” in the consolidated statements of operations. For the year ended December 31, 2025 , interest expense under the receivable financing facility was approximately $ 46,000 . There was no interest expense from receivable financing facility for the year ended December 31, 2024. +Other Debt +Skyline has an export invoice finance facility for borrowing against outstanding accounts receivables in an aggregate amount not to exceed $ 0.9 million (HK$ 7.0 million). The loan is secured by an assignment of receivables. The interest rate for the export invoice finance facility is 12 % per annum. The loan is repayable 9 months from the date of drawdown. As of December 31, 2025 , the outstanding principal balance on the export invoice finance facility was $ 0.9 million. For the year ended December 31, 2025 , interest expense under the export invoice finance facility was approximately $ 49,000 . There was no interest expense from the export invoice finance facility for the year ended December 31, 2024. +Scheduled maturities of the Company’s debt as of December 31, 2025 are as follows (in thousands): +2026 +$ +12,885 +2027 +529 +2028 +555 +2029 +383 +2030 +4 +Thereafter +— +Total notes payable +$ +14,356 +Convertible Notes Payable +In March 2024, QLE issued convertible notes payable (“March 2024 Convertible Notes”) totaling $ 21.1 million and received aggregate cash of $ 20.6 million. One of the notes totaling $ 0.5 million was issued to the placement agent in lieu of cash issuance costs. Issuance costs paid in cash totaling $ 0.5 million and the value of the note issued upon issuance to the placement agent were expensed in selling, general and administrative costs in the consolidated statement of operations and comprehensive loss for the year ended December 31, 2024. +In June 2024, QLE issued additional convertible notes payable (“June 2024 Convertible Notes”) totaling $ 5.5 million and received aggregate cash of $ 5.4 million. One of the notes totaling $ 0.1 million was issued to the placement agent in lieu of cash issuance costs and was expensed in selling, general and administrative costs in the consolidated statement of operations and comprehensive loss for the year ended December 31, 2024. Issuance costs paid in cash were negligible. The March 2024 Convertible Notes and the June 2024 Convertible Notes are collectively the “2024 Convertible Notes.” +The 2024 Convertible Notes were payable on demand in March 2029 and bear an annual interest rate of 6 % through March 7, 2025 and 8 % thereafter. Upon a qualified financing event the Convertible Notes convert into the shares issued in that qualified financing event at a price per share equal to 80 % of the share price issued subject to a valuation cap. Upon a qualified transaction, the noteholders may elect to receive either 1.5x the principal and accrued interest balance in cash or convert into common shares. +123 +ASP Isotopes Inc. +Notes to Consolidated Financial Statements (continued) +The 2024 Convertible Notes were recorded on the consolidated balance sheet at their fair values. The fair value of the March Convertible Notes on the date of issuance was $ 21.1 million. The fair value of the June Convertible Notes on the date of issuance was $ 5.5 million. In connection with the issuance of the 2025 Convertible Notes, QLE’s outstanding 2024 Convertible Notes originally issued in March 2024 and June 2024 automatically converted into 2025 Convertible Notes with a value of $ 147.7 million. +In November 2025, QLE issued convertible notes payable (“2025 Convertible Notes”) totaling $ 72.2 million and received aggregate cash of $ 69.6 million. The maturity date of the 2025 Convertible Notes is November 19, 2030 . The 2025 Convertible Notes automatically convert into common shares upon QLE’s closing of an IPO or other qualifying public transaction at 80 % of the share price taking into consideration a valuation cap. QLE received $ 10.0 million in gross proceeds from American Ventures LLC, Series IX Quantum Leap, a related party, and $ 30.0 million in gross proceeds from ASP Isotopes, its parent. Issuance costs paid in cash totaling $ 2.6 million were expensed in selling, general and administrative costs in the consolidated statement of operations and comprehensive loss for the year ended December 31, 2025. +The 2025 Convertible Notes are recorded on the consolidated balance sheet at their fair values. The fair value of the 2025 Convertible Notes as of December 31, 2025 has been determined to be $ 199.3 million. The resultant change in fair value of the 2024 Convertible Notes and 2025 Convertible Notes for the years ended December 31, 2025 and 2024 was $ 123.7 million and $ 6.9 million, respectively, and has been recorded in other income and expense in the consolidated statement of operations and comprehensive loss. As of December 31, 2025, the total principal and accrued interest of the Convertible Notes is $ 221.9 of which $ 2.0 million is from the interest. +The Company announced plans to list QLE as a standalone public company in the second half of 2025. The Company has also announced QLE and certain of its subsidiaries have entered into a loan agreement with TerraPower (the “TerraPower Loan Agreement”), a US nuclear innovation company, for a multiple advance term loan of up to $ 22.0 million related to financing support for the construction of a new uranium enrichment facility capable of producing HALEU in South Africa. Per the terms of the TerraPower Loan Agreement and subject to the satisfaction of various conditions precedent to each disbursement (including receiving all required licenses and permits to perform uranium enrichment in South Africa), the borrower could receive aggregate loan disbursements of $ 20.0 million. +American Ventures Advisory Agreement +On October 28, 2025, QLE entered into an Advisory Agreement (“Advisory Agreement”) with American Ventures LLC, a Delaware limited liability company (“American Ventures”). Under the Advisory Agreement, American Ventures will provide various services to the Company related to QLE and its present and future subsidiaries’ business and operations and is considered a related party based on its 2025 Convertible Notes holdings. +In October 2025, pursuant to the Advisory Agreement, QLE issued RSUs representing a right to receive a number of units or shares of common equity of QLE equal to 4.0% of the common equity of QLE deemed outstanding as of the date of grant, treating as outstanding only (i) ASP Isotopes’ membership interest in the Company and (ii) the shares or units of common equity issuable upon conversion of the 2024 Convertible Notes (or any securities issued upon conversion or exchange thereof) . The total number of such RSUs cannot yet be calculated because the precise number of these units is based on a percentage of common equity deemed outstanding, which is contingent, in part, on the amount of securities issuable upon the conversion of certain of QLE’s 2025 Convertible Notes that were issued upon conversion of certain 2024 Convertible Notes. Such RSUs will vest as follows: (x) 50 % upon the completion of the listing event, provided that such listing event occurs within 24 months of October 28, 2025, and (y) 50 % on the six-month anniversary of such listing event. +10. Deferred Revenues +In June 2023, the Company entered into a Supply Agreement with a customer for the delivery of Mo-100 and molybdenum-98 beginning in 2024. In conjunction with the Supply Agreement, the Company received $ 0.9 million in September 2023, as an advance towards future revenue. The Company has recorded $ 0.9 million as deferred revenue on the balance sheet as of December 31, 2025 and 2024 . +11. Commitments and Contingencies +Commitments +Share Purchase Agreement relating to PET Labs +On October 31, 2023, the Company entered into a Share Purchase Agreement with Nucleonics Imaging Proprietary Limited, a company incorporated in the Republic of South Africa (the “Seller”), relating to the purchase and sale of ordinary shares in the issued share capital of PET Labs. PET Labs is a South African radiopharmaceutical operations company, dedicated to nuclear medicine and the science of radiopharmaceutical production. +124 +ASP Isotopes Inc. +Notes to Consolidated Financial Statements (continued) +Under the Purchase Agreement, the Company has agreed to purchase from the Seller 51 ordinary shares in the issued share capital of PET Labs (the “Initial Sale Shares”) (representing 51 % of the issued share capital of PET Labs) and has an option to purchase from the Seller the remaining 49 ordinary shares in the issued share capital of PET Labs (the “Option Shares”) (representing the remaining 49 % of the issued share capital of PET Labs). The Company agreed to pay to the Seller an aggregate of $ 2.0 million for the Initial Sale Shares, of which aggregate amount of $ 0.5 million was payable on the completion of the sale of the Initial Sale Shares and $ 1.5 million was payable on demand after one calendar year from the agreement date. In January 2024, the Company agreed to pay $ 0.3 million to the Seller. The Company paid an additional $ 0.7 million and $ 0.5 million in January 2025 and December 2025, respectively, The Initial Sale Shares have been paid in full as of December 31, 2025 . If the Company exercises its option to purchase the Option Shares (which option is exercisable from the agreement date until January 31, 2027, provided that the Initial Sale Shares have been paid for in full), the Company has agreed to pay $ 2.2 million for the Option Shares. +PET Labs Global +In August 2024, PET Labs Global entered into a three-year service agreement with Cayman Enterprise City and is licensed to operate from within the Cayman Islands’ Special Economic Zone (“SEZ”). The service fee includes among other things the right to use certain office space and associated facilities within the SEZ. The Company has applied the guidance in ASC 842 and determined that this agreement is not a leasing arrangement. Management has determined that based on the nature of the combined services the expense should be recognized as incurred. +Renergen Firm Intention Letter and Loan Agreement +On March 31, 2025, the Company entered into an Exclusivity Agreement with Renergen Limited (“Renergen”) an entity in South Africa listed on the Johannesburg Stock Exchange (“JSE”) and the Australian Stock Exchange. On May 18, 2025, the Exclusivity Agreement was amended. Per the terms of the amended Exclusivity Agreement, the Company received the rights to negotiate the terms of the acquisition of Renergen during an exclusive negotiation period that ended on May 31, 2025. In April 2025, the Company paid an exclusivity fee of $ 10.0 million to Renergen. +As contemplated in the Exclusivity Agreement signed on March 31, 2025 and amended on May 18, 2025, the Company entered into a Firm Intention Letter with Renergen on May 19, 2025. The Firm Intention Letter sets the acquisition terms for the Company to purchase 100 % of the outstanding shares of Renergen in exchange for shares of the Company. The completion of the acquisition was subject to several closing conditions including Renergen shareholder approval, which was obtained on July 10, 2025. The acquisition was consummated on January 6, 2026, and as a result, Renergen became a direct, wholly owned +subsidiary of us, and the Renergen Ordinary Shares were delisted from the JSE, the Australian Securities Exchange and +the A2X (Note 21). +In addition, the Company entered into a loan agreement with Renergen ("Renergen Loan") in which a total of $ 30.0 million will be provided by the Company in periodic payments for the purpose of funding Renergen’s operations. In conjunction with the Renergen Loan, the full amount of the previously paid exclusivity fee of $ 10.0 million was applied to the Renergen Loan. The remaining $ 20.0 million available under the Renergen Loan was paid by the Company to Renergen in June 2025. The Renergen Loan matured and repayment was due on September 30, 2025 and bears interest at the South African Prime Rate which is currently 10.50 %. The Renergen Loan was amended to extend the repayment date to January 20, 2026 and amended again to establish the repayment date as sixty days after written demand by the Company. Interest income accrued under the Renergen Loan was $ 2.0 million for the year ended December 31, 2025. +Contingencies +From time to time, the Company may have certain contingent liabilities that arise in the ordinary course of its business activities. The Company accrues liabilities for such matters when future expenditures are probable and such expenditures can be reasonably estimated. +On December 4, 2024, a purported stockholder of the Company filed a putative securities class action on behalf of purchasers of the Company’s securities between October 30, 2024 through November 26, 2024 against ASP Isotopes Inc. and certain of its executive officers in the United States District Court for the Southern District of New York (Corredor v. ASP Isotopes Inc., et al., Case No. 1:24-cv-09253 (S.D.N.Y)) (the “Securities Class Action”). The Securities Class Action alleges that the Company, its chief executive officer and chief financial officer (“Defendants”) made materially misleading or false statements or omissions regarding the Company’s business and asserts purported claims under §§ 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 promulgated thereunder. The complaint seeks unspecified compensatory damages, attorney’s fees and costs. On May 2, 2025, the Court appointed Mark Leone (“Leone”) as lead plaintiff and directed the Clerk of court to amend the caption to substitute Leone for Alexander Corredor as plaintiff. On May 2, 2025, the Court also appointed lead counsel and set deadlines for filing an amended consolidated class action complaint and briefing schedules for a motion to dismiss, if any, and class certification. On May 27, 2025, Leone and two additional named plaintiffs (“Plaintiffs”) filed the amended class action complaint (“Amended Complaint”), that asserts the same causes of action and seeks the same relief as the initial complaint and is based upon substantially similar factual allegations as the initial complaint. On June 27, 2025, Defendants filed a motion to dismiss the +125 +ASP Isotopes Inc. +Notes to Consolidated Financial Statements (continued) +Amended Complaint. Also on June 27, 2025, Plaintiffs filed a motion for class certification. On December 4, 2025, the Court denied in part Defendants’ motion to dismiss and granted Plaintiffs’ motion for class certification. On April 3, 2026, following a mediation in which the parties reached an agreement-in-principle to resolve all claims in the Securities Class Action, subject to the Court’s approval, the parties filed a Joint Stipulation agreeing to stay the Securities Class Action (the “Stipulation”). The Stipulation requires the parties to file a stipulation of settlement and for the Plaintiffs to file a motion for preliminary approval of the stipulation of settlement within 60 days of the Court’s approval of the Stipulation. . On April 6, 2026, the Court approved the Stipulation. The Company cannot be certain of the outcome and, if decided adversely to us, our business and financial condition may be adversely affected. +On January 30, 2026, a purported stockholder of the Company filed a derivative action against certain members of the Company’s board of directors in the United States District Court for the Northern District of Texas asserting claims for, among others, breach of fiduciary duty, violation of § 14(a) of the Securities Exchange Act of 1934 and a claim for contribution pursuant to § 21D thereof (Jenis v. Mann, et al., Case No. 3:26-cv-251 (N.D. Tex.)) (the “Jenis Action”). The Company is named as a Nominal Defendant. On March 2, 2026, a different purported stockholder of the Company filed a derivative action against certain members of the Company’s board of directors in the United States District Court for the Southern District of New York asserting claims for, among others, breach of fiduciary duty, violations of §§ 14(a) and 20(a) of the Securities Exchange Act of 1934, and a claim for contribution pursuant to § 21D thereof (Stewart v. Mann, et al., Case No. 1:26-cv-1712 (S.D.N.Y.)) (the “Stewart Action”) (together with the Jenis Action, the “Derivative Actions”)). The Company is named as a Nominal Defendant. The Derivative Actions arise out of similar allegations as those made in the Securities Class Action. The plaintiffs in the Derivative Actions seek unspecified damages, disgorgement of compensation, corporate governance reforms, fees, interests, and costs. The defendants have not yet responded to the complaints in the Derivative Actions. The Company cannot be certain of the outcome of the Derivative Actions and, if decided adversely to us, our business and financial condition may be adversely affected. +In addition to the matters described above, from time to time, the Company may become subject to arbitration, litigation or claims arising in the ordinary course of business. The results of any current or future claims or proceedings cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on us because of defense and litigation costs, diversion of management resources, reputational harm and other factors. +12. Leases +Operating leases +The Company is party to several facility leases in South Africa and Hong Kong for office, manufacturing and laboratory space. Dr. Gerdus Kemp, an officer of PET Labs and an employee of ASP Guernsey, is the sole owner of a leased office and production facility in Pretoria, South Africa. A lease for production space in Pretoria, South Africa is being accounted for as a short-term lease effective with the acquisition of 51 % of PET Labs. +Quantitative information regarding the Company’s operating lease liabilities is as follows (in thousands): +Year Ended December 31, +2025 +2024 +Operating Lease Cost +Operating lease cost +$ +830 +$ +664 +Other Information +Operating cash flows paid for amounts included in the +measurement of lease liabilities +$ +797 +$ +645 +Operating lease liabilities arising from obtaining right-of +-use assets +$ +851 +$ +364 +Weighted average remaining lease term (years) +3.18 +3.61 +Weighted average discount rate +8.62 +% +9.83 +% +126 +ASP Isotopes Inc. +Notes to Consolidated Financial Statements (continued) +Future lease payments under noncancelable operating lease liabilities are as follows as of December 31, 2025 (in thousands): +Operating +Leases +Future Lease Payments +2026 +$ +711 +2027 +582 +2028 +262 +2029 +164 +2030 +176 +Thereafter +— +Total lease payments +$ +1,895 +Less: imputed interest +( 252 +) +Total operating lease liabilities +$ +1,643 +Less current portion +( 584 +) +Operating lease liabilities - noncurrent +$ +1,059 +The Company records the expense from short term leases as incurred. The Company recorded lease expense from its short term leases of $ 128,686 and $ 31,746 for the years ended December 31, 2025 and 2024, respectively. +Financing leases +The Company is party to several ongoing finance leases in South Africa and Hong Kong for vehicles and equipment. Some of these finance leases include arrangements with variable interest rates indexed to the prime interest rate in South Africa. The variable interest expense was $ 1,798 and $ 0 for the years ended December 31, 2025 and 2024, respectively. The Company elects to include finance lease right-of-use assets in property and equipment, net. +Quantitative information regarding the Company’s finance lease liabilities is as follows (in thousands): +Year Ended December 31, +2025 +2024 +Finance Lease Cost +Interest on lease liabilities +$ +86 +$ +69 +Other Information +Operating cash flows paid for amounts included in the +measurement of finance lease liabilities +$ +148 +$ +101 +Amortization of right-of-use assets +$ +124 +$ +43 +Weighted average remaining lease term (years) +3.6 +4.4 +Weighted average discount rate +13.1 +% +13.1 +% +Future lease payments under noncancelable finance lease liabilities are as follows as of December 31, 2025 (in thousands): +Finance +Leases +Future Lease Payments +2026 +$ +241 +2027 +235 +2028 +194 +2029 +75 +2030 +25 +Thereafter +49 +Total lease payments +$ +819 +Less: imputed interest +( 181 +) +Total lease liabilities +$ +638 +Less current portion +( 167 +) +Finance lease liabilities - noncurrent +$ +471 +127 +ASP Isotopes Inc. +Notes to Consolidated Financial Statements (continued) +Lease receivable +The Company leases certain equipment to customers under sales-type leases and records the leases within lease receivables on the Company’s consolidated balance sheets and records interest income in the Company’s consolidated statements of operations and comprehensive loss. The Company does not have significant variable lease payments or residual value guarantees associated with these leases. Credit risk is monitored regularly, and no allowance for credit losses was recorded as of the reporting date. +The Company’s net investment in sales-type leases were comprised of the following (in thousands): +December 31, 2025 +Total undiscounted cash flows +$ +1,099 +Present value discount +( 657 +) +Net investment in sales-type leases +$ +442 +Less current portion +$ +( 16 +) +Net investment in sales-type leases - noncurrent +$ +426 +Future minimum lease payments to be collected under sales-type leases, excluding lease payments that are not fixed and determinable, as of September 30, 2025 are as follows (in thousands): +Sales-type +Leases +Future Lease Payments To Be Collected +2026 +$ +113 +2027 +113 +2028 +113 +2029 +113 +2030 +112 +Thereafter +535 +Total undiscounted cash flows +$ +1,099 +Interest income recognized from sales-type leases for the year ended December 31, 2025 was $ 68,868 . +13. License and Collaboration Agreements +TerraPower, LLC +TerraPower Agreement +On April 4, 2024, the Company entered into an agreement with TerraPower LLC (“TerraPower”) to develop a conceptual design, refined cost/schedule/financing, risk register, and term sheet for a HALEU facility (the “TerraPower R&D Agreement”). The TerraPower R&D Agreement may be terminated for (a) breach or default, (b) the Company’s convenience or (c) TerraPower’s convenience. TerraPower is obligated to make all payments for tasks completed by the Company per the statement of work in the TerraPower R&D Agreement totaling $ 2.0 million and these payments are nonrefundable. Neither party has any additional rights or obligations outside what is in the statement of work in the TerraPower R&D Agreement. +On October 18, 2024, the Company and TerraPower signed a term sheet (the “TerraPower Term Sheet”) that provides for the execution of two definitive agreements: (1) an agreement pursuant to which TerraPower will provide funding for the Company’s construction of a uranium enrichment facility capable of producing HALEU using the Company’s proprietary aerodynamic separation process technology to be located in the Republic of South Africa and (2) an agreement pursuant to which the Company will deliver to TerraPower the full capacity of the enrichment facility. +The Company accounts for the TerraPower R&D Agreement in accordance with ASC 808. The Company has concluded that other authoritative accounting literature does not apply directly to these payments from TerraPower, either directly or by analogy, including ASC 606 because TerraPower is not a customer. The Company has concluded that TerraPower is not a customer because TerraPower has not contracted with the Company to obtain goods or services that are an output of the Company’s ordinary activities in exchange for consideration. The Company also has concluded that there is no other authoritative accounting literature that is appropriate to apply by analogy, and, accordingly, its accounting policy is to evaluate the income statement classification for presentation of amounts associated with each separate activity. As a result, the Company concludes that all portions of the net receivable from TerraPower are directly related to the conceptual design of the HALEU facility. Furthermore, the Company and TerraPower will jointly develop criteria for optimization of the HALEU facility’s operations. TerraPower shares the risks and rewards of designing the HALEU facility since its successful completion will enable TerraPower to purchase output from the HALEU facility in the future. +128 +ASP Isotopes Inc. +Notes to Consolidated Financial Statements (continued) +For the year ended December 31, 2024 , $ 0.2 million has been recognized as collaboration revenue in the consolidated statements of operations and comprehensive loss. No collaboration revenue was recognized during 2025. +TerraPower Loan Agreement and HALEU Supply Agreements +In May 2025, the Company entered into the TerraPower Loan Agreement, which provides conditional commitments from TerraPower to the Company through one of its wholly-owned U.S.-based subsidiaries (“Borrower”) for a multiple advance term loan totaling $ 22.0 million for the purpose of partially funding the construction of a proposed new uranium enrichment facility in South Africa. The total loan amount is inclusive of a 10% original issue discount on each disbursement and carries a fixed interest rate of 10% per annum. Per the terms of the TerraPower Loan Agreement and subject to the satisfaction of various conditions precedent to disbursements (including receiving all required licenses and permits to perform uranium enrichment in South Africa), the Company will receive aggregate loan disbursements of $ 20.0 million. Such loan matures on May 16, 2032 . Interest will begin accruing upon each milestone disbursement received by the Company and will be added to the principal balance until November 2027. Principal and interest payments will be made in 60 equal installments beginning in November 2027. The Company plans to request drawdowns on this loan beginning in the third quarter of 2026. +In addition to the Terra Power Loan Agreement, the Company and TerraPower have entered into two supply agreements for the HALEU expected to be produced at the Company’s uranium enrichment facility. The initial core supply agreement is intended to support the supply of the required first fuel cores for the initial loading of TerraPower’s Natrium project in Wyoming. The long-term supply agreement is a 10-year supply agreement of up to a total of 150 metric tons of HALEU, commencing in 2028 through end of 2037. +14. Acquisitions, Goodwill and Intangible Assets +The Company accounts for business combinations in accordance with ASU No. 2015-16, Business Combinations (Topic 805), which requires an acquirer to retrospectively adjust provisional amounts recognized in a business combination during the measurement period (which represents a period not to exceed one year from the date of the acquisition), in the reporting period in which the adjustment is determined, as well as present separately on the face of the income statement or as a disclosure in the notes to the consolidated financial statements, the portion of the amount recorded in current period earnings that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. +PET Labs Pharmaceuticals +In October 2023, the Company completed the acquisition of PET Labs. The acquisition is intended to accelerate the distribution of the Company’s pipeline. +Pursuant to the terms of the agreement, the Company acquired 51 % of the common shares issued and outstanding for total purchase consideration of $ 2.0 million in cash of which $ 0.5 million was paid up front. In December 2025, January 2025 and January 2024, the Company made partial payments of $ 0.5 million, $ 0.7 million and $ 0.3 million, respectively. The balance as of December 31, 2024 was $ 1.2 million and is recorded in other current liabilities on the consolidated balance sheet. There is no balance remaining as of December 31, 2025. +In addition to the purchase consideration, the Company has an option to purchase the remaining 49 % of the issued and outstanding shares for an agreed consideration totaling $ 2.2 million. No consideration or value relating to this option was recognized as it was not considered probable at the time of acquisition and as of December 31, 2025. +Dr. Gerdus Kemp is an officer of PET Labs and, effective November 1, 2023, an employee of ASP Guernsey . In addition, Dr. Kemp controls the remaining 49 % ownership of PET Labs. +ASP Rentals +In December 2023, ASP South Africa entered into a Shareholders Agreement (“ASP Rentals Shareholders Agreement”) with ASP Rentals, a newly formed equipment financing service provider formed for the sole purpose of providing financing to ASP South Africa for its significant asset purchases in South Africa. In accordance with the terms of the ASP Rentals Shareholders Agreement, ASP Rentals issued 24 % of its capital stock to ASP South Africa for total consideration of ZAR 3.3 million (which at the exchange rate as of December 31, 2023 was $ 0.2 million) and the remaining 76 % of its capital stock was issued to two third party entities for combined consideration of ZAR 13.2 million (which at the exchange rate as of December 31, 2023 was $ 0.7 million). +In June 2024, ASP Rentals issued additional capital stock to support additional financing to ASP South Africa and PET Labs. Per the terms of the ASP Rentals Shareholder Agreement, ASP Rentals issued 20 % of the new capital to ASP South Africa for total consideration of ZAR 3.7 million (which at the exchange rate as of June 30, 2024 was $. 0.2 million) and the remaining 80 % of the +129 +ASP Isotopes Inc. +Notes to Consolidated Financial Statements (continued) +new capital to one of the two original third party entities for a combined consideration of ZAR 18.4 million (which at the exchange rate as of June 30, 2024 was $ 1.0 million). +In August 2024, ASP Rentals issued additional capital stock to support additional financing to PET Labs. Per the terms of the ASP Rentals Shareholder Agreement, ASP Rentals issued 20 % of the new capital to ASP South Africa for total consideration of ZAR 0.4 million (which at the exchange rate as of August 23, 2024 was $ 21,421 ) and the remaining 80 % of the new capital to one of the two original third party entities for a combined consideration of ZAR 1.8 million (which at the exchange rate as of August 23, 2024 was $ 0.1 million). +In December 2024, ASP Rentals issued additional capital stock to support additional financing to ASP South Africa. Per the terms of the ASP Rentals Shareholder Agreement, ASP Rentals issued 20 % of the new capital to ASP South Africa for total consideration of ZAR 0.1 million (which at the exchange rate as of December 31, 2024 was $ 6,889 ) and the remaining 80 % of the new capital to one of the two original third party entities for a combined consideration of ZAR 0.7 million (which at the exchange rate as of December 31, 2024 was $ 35,746 ). +As a result of the additional financings in 2024, ASP South Africa now controls 42 % of ASP Rentals. +In addition to issuance of these shares, future ASP South Africa and PET Labs equipment purchases may also be financed by ASP Rentals through the issuance of additional shares. ASP South Africa will only be entitled to dividend distributions upon the two third party entities receiving a designated return on their investment. +In conjunction with the ASP Rental Shareholders Agreement, ASP South Africa and PET Labs have both entered into an Asset Sale Agreement and an Asset Rental Agreement with ASP Rentals in order to facilitate the financing of equipment recently purchased by ASP South Africa and PET Labs. As a result of the transactions contemplated by these agreements, collectively, ASP Rentals is considered a variable interest entity. In addition, since the only function of ASP Rentals is to provide financing to ASP South Africa and PET Labs, ASP Isotopes is considered to be the primary beneficiary of ASP Rentals. Therefore, ASP Rentals has been consolidated in accordance with ASC 810. +Skyline Builders Group Holding Ltd. +In August 2025, Skyline closed a private placement (the “Skyline Private Placement”) pursuant to which Skyline issued and sold (i) 1,359,314 Class A Ordinary Shares, (ii) prefunded warrants to purchase 22,990,000 Class A Ordinary Shares, at an exercise price of $ 0.0001 per share (“Prefunded Warrants”) (iii) Class A Ordinary Share Purchase Warrant As to purchase up to 24,349,314 Class A Ordinary Shares, at an exercise price of $ 0.60 per share (“A Warrants”), (iv) Class A Ordinary Share Purchase Warrant Bs to purchase up to 24,349,314 Class A Ordinary Shares, at an exercise price of $ 0.65 per share (“B Warrants” and together with the Prefunded Warrants and A Warrants, “Warrants”), and (v) placement agent warrants to purchase 1,947,945 Class A Ordinary Shares issued to the placement agents of the Private Placement as compensation. Skyline received aggregate gross proceeds of $ 17.8 million from the Private Placement, before deducting fees and offering expenses. Approximately $ 7.0 million of the proceeds from the Private Placement was used to retire 18,500,000 Class A Ordinary Shares owned by Supreme Development (BVI) Holdings Limited, Skyline’s previous controlling shareholder. +In August 2025, QLE completed an acquisition of Skyline. QLE entered into a Stock Purchase Agreement to purchase all 1,995,000 of Skyline's Class B Ordinary Shares for the aggregate purchase price of $ 1,000,000 ("Skyline Stock Agreement"). Additionally, QLE entered into a Securities Purchase Agreement to purchase (i) 454,794 Class A Ordinary Shares, (ii) a Prefunded Warrant to purchase 1,600,000 Class A Ordinary Shares at an exercise price of $ 0.0001 per share, (iii) a Class A Ordinary Share Purchase Warrant A to purchase up to 2,054,794 Class A Ordinary Shares at an exercise price of $ 0.60 per share , and (iv) a Class A Ordinary Share Purchase Warrant B to purchase 2,054,794 Class A Ordinary Shares at an exercise price of $ 0.65 per share, for the aggregate purchase price of $ 1.5 million ("Skyline Purchase Agreement"). +In addition, on August 29, 2025, Paul Mann, Executive Chairman of the Company and Chairman of the Board of Managers of QLE, purchased, as an individual investor: (i) 454,657 Class A Ordinary Shares, (ii) Prefunded Warrant to purchase 2,970,000 Class A Ordinary Shares, (iii) A Warrant to purchase 3,424,657 Class A Ordinary Shares, and (iv) B Warrant to purchase 3,424,657 Class A Ordinary Shares, for the aggregate purchase price of $ 2.5 million, pursuant to the Purchase Agreement. Further, on October 28, 2025, Mr. Mann purchased, as an individual investor: (i) 727,272 Class A Ordinary Shares and (ii) A Warrant to purchase 727,272 Class A Ordinary Shares. +Each Class A Ordinary Share shall entitle the holder thereof to one (1) vote on all matters subject to vote at general meetings of Skyline, and each Class B Ordinary Share shall entitle the holder thereof to twenty (20) votes on all matters subject to vote at general meetings of Skyline. Currently there is no mechanism in which Class A Ordinary Shares are convertible into Class B Ordinary Shares. Currently there is no mechanism in which Class B Ordinary Shares are convertible into Class A Ordinary Shares. On the acquisition date, QLE became the holder of 79.14 % of the aggregate voting power represented by all of Skyline's outstanding Class A ordinary shares and Class B ordinary shares and thereby gaining control over Skyline. +Skyline is a holding company, and its operations are conducted through its wholly owned operating subsidiary, Kin Chiu +130 +ASP Isotopes Inc. +Notes to Consolidated Financial Statements (continued) +Engineering Limited. Operations primarily consist of construction activities which include public civil engineering works, such as road and drainage works, in Hong Kong. Skyline mostly undertakes civil engineering works in the role as a subcontractor but is fully qualified to undertake such works in the capacity of a main contractor. QLE intends to pursue opportunities to acquire assets in the critical materials supply chain. +Effective September 18, 2025, Dr. Ryno Pretorius, Chief Executive Officer of QLE LLC, was appointed as an independent director of Skyline. In addition, an employee of ASP Isotopes was appointed as an independent director of Skyline. On November 5, 2025, the board of directors of Skyline appointed Paul E. Mann (Executive Chairman of the Company and Chairman of the Board of Managers of QLE) as Executive Chairman of Skyline, effective January 1, 2026. In connection with his appointment, Skyline entered into an executive employment agreement with Mr. Mann, effective January 1, 2026. Effective March 31, 2026, the employee of ASP Isotopes that held one of the director positions was replaced by an independent director. +The following table summarizes the consideration transferred to acquire Skyline and the amounts of identified assets acquired and liabilities assumed, as well as the fair value of the noncontrolling interest in Skyline at the acquisition date (in thousands): +Fair value of business combination +Cash consideration +$ +2,500 +Identifiable assets acquired and liabilities assumed +Cash and cash equivalents +9,033 +Accounts receivable +16,042 +Prepaid expenses and other current assets +7,265 +Property and equipment, net +179 +Operating lease right-of-use asset, net +89 +Identifiable intangible assets +1,230 +Equity method investments +1,321 +Other non-current assets +4,245 +Accounts payable +( 2,287 +) +Debt - current +( 11,951 +) +Finance lease liabilities - current +( 18 +) +Operating lease liabilities - current +( 75 +) +Due to related parties +( 1,582 +) +Other current liabilities +( 4,444 +) +Deferred tax liabilities +( 138 +) +Other noncurrent liabilities +( 34 +) +Total identifiable assets acquired and liabilities assumed +18,875 +Goodwill +3,387 +Noncontrolling interest +( 19,762 +) +Total purchase consideration +$ +2,500 +The initial allocation of the purchase price was based upon a preliminary valuation, and accordingly, our estimates and assumptions are subject to change as we obtain additional information during the measurement period. During the fourth quarter of 2025, the Company adjusted its estimates of the fair values of acquired assets and liabilities based on additional information obtained about conditions that existed as of the acquisition date. The adjustments primarily related to the valuation of working capital accounts. As a result, goodwill decreased by approximately $ 1,300 . QLE anticipates finalizing the purchase price allocation within 12 months from the acquisition date. +Goodwill arising from the acquisition as of August 29, 2025 of $ 3.4 million was attributable mainly to the further acquisition opportunities of Skyline. QLE expects that no goodwill from this acquisition will be deductible for income tax purposes. QLE considered the contractual value of accounts receivable to approximate fair value. The net realizable value reflects QLE's best estimate of the amount expected to be collected. The results of Skyline have been included in the consolidated financial statements from the date of the acquisition. +On October 28, 2025 , Skyline entered into a securities purchase agreement with certain accredited investors in a brokered private placement of (i) 17,370,909 Class A ordinary shares, par value $ 0.00001 per share (and/or prefunded warrants in lieu of Class A Ordinary Shares, and (ii) 17,370,909 Class A Ordinary Share Purchase Warrants to purchase Class A Ordinary Shares. The private placement closed on November 3, 2025. The gross proceeds of the private placement were approximately $ 23.9 million, before deducting placement agent fees and other offering expenses payable by Skyline of approximately $ 3.1 million. +131 +ASP Isotopes Inc. +Notes to Consolidated Financial Statements (continued) +East Coast Nuclear Pharmacy +In October 2025 , the Company completed the acquisition of East Coast Nuclear Pharmacy ("ECNP"). The acquisition is intended to supplement the distribution of the Company’s pipeline. The acquisition of PET Labs has been accounted for as a business combination in accordance with ASC 805. +Pursuant to the terms of the agreement, the Company acquired 100 % of the issued and outstanding membership interests for total purchase consideration of $ 2.5 million of which $ 2.0 million was paid up front in cash and the remaining $ 0.5 million was deferred through the issuance of notes payable that are to be repaid by June 30, 2026. The balance of the notes payable as of December 31, 2025 was $ 0.5 million. +The following table summarizes the allocation of the purchase consideration to the fair value of the assets acquired and liabilities assumed (in thousands): +Fair value of business combination +Cash consideration +$ +2,000 +Notes payable to Sellers +500 +Identifiable assets acquired and liabilities assumed +Cash and cash equivalents +40 +Accounts receivable +550 +Inventory +92 +Prepaid expenses and other current assets +6 +Identifiable intangible assets +430 +Accounts payable +( 113 +) +Other current liabilities +( 79 +) +Total identifiable assets acquired and liabilities assumed +926 +Goodwill +1,574 +Total purchase consideration +$ +2,500 +Goodwill arising from the acquisition as of October 1, 2025 of $ 1.6 million was attributable mainly to buyer specific synergies expected to arise from the acquisition. No goodwill from this acquisition is deductible for income tax purposes. The Company considered the contractual value of accounts receivable to be the same as the fair value and the full amount was collected. The results of ECNP have been included in the consolidated financial statements from the date of the acquisition. +One 30 Seven Inc. ("One 30 Seven") Acquisition +In October 2025 , QLE acquired substantially all of the assets, including an international patent application and its related rights, from One 30 Seven Inc., a Canadian company engaged in the business of researching and developing decontamination solutions for nuclear waste, particularly radioactive waste from radioactive materials from nuclear power plants, radiopharmaceuticals, and military sources. QLE made an initial cash payment of $ 150,000 and issued 266,113 shares of the Company’s common stock. The Company may be required to make additional payments, in cash or shares of the Company’s common stock, totaling $ 17.0 million upon completion of certain milestones. This contingent payment was not considered probable at the acquisition date and therefore no contingent consideration was recorded for the year ended December 31, 2025 . +In connection with the acquisition of assets from One 30 Seven, QLE entered into a consulting agreement with B-Con Engineering Inc., led by inventor Brian Creber, to develop and validate the functional operation of a Creber Mini Unit at an estimated cost of $ 4.5 million over 18 months, followed by either a Midi or Maxi Unit at approximately $ 12.5 million to $ 13.0 million over another 18 months. QLE has agreed to fund the project through quarterly advances, with acceptance testing and monthly reporting to ensure milestones are met. In addition, QLE entered into a royalty agreement with One 30 Seven pursuant to which QLE agreed to pay a 6.0 % royalty on net revenues from product sales or licensing for 15 years per product, starting from the first commercial sale. The royalty agreement will terminate if the commercialization of a Creber Unit is not achieved by the fourth anniversary of closing of the acquisition of assets from One 30 Seven. +The Company determined that the cost to acquire the One 30 Seven assets was $ 2.7 million, based on the cash paid of $ 150,000 , fair value of the equity consideration issued of $ 2.6 million and direct costs of the acquisition of $ 7,000 . The One 30 Seven acquisition was accounted for as an asset acquisition as One 30 Seven was not considered to be a business under ASC 805 or SEC Rule 11-01(d) as substantially all of the fair value of the non-monetary assets acquired was concentrated in a single identifiable asset. In the estimation of fair value of the asset purchase consideration, the Company used fair value attributable to the acquired IPR&D. Since One 30 Seven was in the development stage and no commercial production had commenced at the time of the acquisition, the cost attributable to the IPR&D was expensed in the Company’s consolidated statements of operations and comprehensive loss for the year ended December 31, 2025, as the acquired IPR&D had no alternative future use. +132 +ASP Isotopes Inc. +Notes to Consolidated Financial Statements (continued) +Goodwill +Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired in a business combination. Goodwill is tested for impairment at least annually, or more frequently if events or changes in circumstances indicate that it is more likely than not that the carrying value of a reporting segment exceeds its fair value. No goodwill impairments were recognized for the years presented. +The carrying amount of goodwill by reporting segment as of December 31, 2025 and 2024 is as follows (in thousands): +December 31, +2025 +2024 +Specialist isotopes and related services +$ +5,179 +$ +3,168 +Construction services +3,391 +— +Total goodwill +$ +8,570 +$ +3,168 +The changes to the carrying value of goodwill is as follows (in thousands): +Description +Amount +Balance as of December 31, 2023 +$ +3,267 +Translation adjustment +( 99 +) +Balance as of December 31, 2024 +$ +3,168 +Acquisition of Skyline +3,387 +Acquisition of ECNP +1,574 +Translation adjustment +441 +Balance as of December 31, 2025 +$ +8,570 +Intangible Assets +Amortization expense was $ 0.2 million for the year ended December 31, 2025 . There was no amortization expense related to identifiable intangible assets recorded in 2024. +The changes to the carrying value of intangible assets, which is included in the construction services and s pecialist isotopes and related services segments, is as follows (in thousands): +Description +Amount +Balance as of December 31, 2024 +$ +— +Trademarks and customer-related from Skyline acquisition +1,230 +Trademarks from ECNP acquisition +430 +Translation adjustment +2 +Amortization +( 184 +) +Balance as of December 31, 2025 +$ +1,478 +The following table outlines the estimated future amortization expense related to intangible assets held as of December 31, 2025 (in thousands): +Amortization Expense +Year Ended December 31, +2026 +$ +574 +2027 +454 +2028 +214 +2029 +171 +2030 +65 +Thereafter +— +Total +$ +1,478 +133 +ASP Isotopes Inc. +Notes to Consolidated Financial Statements (continued) +15. Equity Method and Other Investments +Investment in IsoBio, Inc. +On July 28, 2025, the Company purchased 2,000,000 shares of IsoBio, Inc. (“IsoBio”) Series Seed-1 Preferred Stock at $ 2.50 per share for a total aggregate purchase price of $ 5.0 million. IsoBio is a U.S.-based radiotherapeutic development company focused on developing a broad pipeline of mAb-based radioisotope therapeutics targeting both derisked and novel tumor antigens for patients in need of new cancer therapies. +As the owner of the Series Seed-1 Preferred Stock, the Company has the right to designate one board member. An officer and director of the Company was designated to fill that board seat. In addition, another board member of the Company is a board member, executive officer and shareholder of IsoBio. +The investment in IsoBio does not have a readily determinable fair value and is therefore measured at cost, adjusted for observable price changes and impairments, in accordance with ASC 321. As of December 31, 2025 , the carrying value of the investment was $ 5.6 million. This investment is included in “Other investments” on the consolidated balance sheet. +The Company monitors the investment for indicators of impairment and observable price changes on a quarterly basis. If indicators of impairment exist, the Company performs a qualitative assessment to determine whether the investment is impaired and adjusts the carrying value accordingly. During the year ended December 31, 2025 , the Company identified an observable price change related to this investment and recorded a change in fair value of investment of $ 0.6 million. Therefore, the Company has included this investment in the fair value hierarchy disclosure (Note 4). +Skyline joint ventures +Skyline acquired a 51 % ownership of KC-Glory JV, 51 % ownership of KC-Geotech JV and 35 % ownership of KC-CRFG JV (the "Joint Ventures). As of December 31, 2025, Skyline does not control the Joint Ventures but has the ability to exercise significant influence over their respective operating and financial policies. Skyline’s exposure to loss is limited to its investment in each joint venture. Accordingly, the investments are accounted for under the equity method of accounting in accordance with ASC 323. Accordingly, Skyline accounted for the transaction under the equity method and recorded the carrying value of Skyline’s investment in joint ventures’ common shares at cost, including the transaction costs incurred to obtain the equity method investment, in the consolidated balance sheets. +The Company recorded the initial carrying amount of the investments in the Joint Ventures of $ 1.3 million, representing the fair value of the interest acquired as of the acquisition date. As of December 31, 2025 , the carrying amount of the investments in the Joint Ventures was $ 1.3 million and is included in equity method investments on the consolidated balance sheet. +Skyline Reemag Investment +In November 2025, Skyline acquired a 13.09 % ownership of Reemag LLC ("Reemag") for a cash purchase price of $ 3.0 million. Skyline will subscribe for additional membership interests of Reemag in tranches, resulting in ownership percentages of 13.09 %, 20.06 %, 33.42 % and 50.10 % at the initial, second, third and fourth closing respectively for an aggregate purchase price of $ 20.0 million. The second, third and fourth closings were scheduled on or before January 31, 2026, March 31, 2026 and by the earlier of a $ 200.0 million capital raise or July 31, 2026, respectively. However, in March 2026, Skyline entered into the first amendment to the subscription agreement with Reemag that amended the dates of the second, third and fourth closings to May 31, 2026, July 31, 2026 and September 30, 2026, respectively. +The investment in Reemag does not have a readily determinable fair value and is therefore measured at cost, adjusted for observable price changes and impairments, in accordance with ASC 321. The Company has not identified any observable price changes in orderly transactions for identical or similar investments and did no t recognize any impairment losses. As of December 31, 2025 , the carrying value of the investment was $ 3.0 million. This investment is included in “Other investments” on the consolidated balance sheet. The Company does not include this investment in the fair value hierarchy disclosure as it is not measured at fair value on a recurring basis. +The Company monitors the investment for indicators of impairment and observable price changes on a quarterly basis. If indicators of impairment exist, the Company performs a qualitative assessment to determine whether the investment is impaired and adjusts the carrying value accordingly. During the year ended December 31, 2025, the Company did not identify any indicators of impairment or observable price changes. +Skyline Critical Minerals Investment +On October 31, 2025, Skyline entered into a subscription and unit purchase agreement with a limited liability company engaged in the critical minerals space, pursuant to which Skyline subscribed for an approximate 20 % membership interest in such company for a subscription price of $ 20.0 million. +134 +ASP Isotopes Inc. +Notes to Consolidated Financial Statements (continued) +This investment does not have a readily determinable fair value and is therefore measured at cost, adjusted for observable price changes and impairments, in accordance with ASC 321. As of December 31, 2025 , the carrying value of the investment was $ 37.3 million. This investment is included in “Other investments” on the consolidated balance sheet. +The Company monitors the investment for indicators of impairment and observable price changes on a quarterly basis. If indicators of impairment exist, the Company performs a qualitative assessment to determine whether the investment is impaired and adjusts the carrying value accordingly. During the year ended December 31, 2025 , the Company identified an observable price change related to this investment and recorded a change in fair value of investment of $ 17.3 million. Therefore, the Company has included this investment in the fair value hierarchy disclosure (Note 4). +16. Stockholders’ Equity +Preferred stock +The Company has 10,000,000 shares of preferred stock authorized, of which no shares were issued and outstanding as of December 31, 2025 and 2024. +Common stock +The Company has 500,000,000 shares of common stock authorized, of which 111,677,771 and 72,068,059 shares were issued and outstanding as of December 31, 2025 and 2024 , respectively. Common stockholders are entitled to one vote for each share of outstanding common stock held at all meetings of stockholders and written actions in lieu of meetings. Common stockholders are entitled to receive dividends for each share of outstanding common stock, if and when declared by the Board. No dividends have been declared or paid by the Company through December 31, 2025. +In July 2024, the Company issued 13,800,000 shares of common stock in a public offering at a public offering price of $ 2.50 per share for aggregate gross proceeds totaling $ 34,500,000 . Issuance costs, including commissions and expenses totaled $ 2.2 million. +In November 2024, the Company issued an additional 2,754,250 shares of common stock in a public offering at a public offering price of $ 6.75 per share for aggregate gross proceeds totaling $ 18.6 million. Issuance costs, including commissions and expenses totaled $ 1.5 million. +In June 2025, the Company issued 7,518,797 shares of common stock at $ 6.65 per share resulting in net proceeds of approximately $ 46.8 million after deducting underwriting discounts, commissions and offering expenses. +In July 2025, the Company issued 7,500,000 shares of common stock at a public offering price of $ 8.00 per share resulting in net proceeds of approximately $ 56.3 million after deducting underwriting discounts, commissions and offering expenses. +In October 2025, the Company issued 17,167,380 shares of common stock at a public offering price of $ 12.25 per share resulting in net proceeds of approximately $ 199.3 million after deducting underwriting discounts, commissions and offering expenses. +The following shares were issued to consultants and vendors for the year ended December 31, 2025 (in thousands, except share amounts): +Description +Origination Date +Shares +Fair Value +Settlement Date +Fair Value at Settlement +Change in Fair Value +Settlement of liability with consultants +January 2025 +50,000 +$ +247 +April 2025 +$ +327 +$ +80 +Issuance of common stock to consultant +April 2025 +22,935 +100 +November 2025 +141 +41 +Issuance of common stock to consultant +April 2025 +50,000 +327 +April 2025 +327 +— +122,935 +$ +674 +$ +795 +$ +121 +135 +ASP Isotopes Inc. +Notes to Consolidated Financial Statements (continued) +The following shares were issued to consultants and vendors for the year ended December 31, 2024 (in thousands, except share amounts): +Description +Origination Date +Shares +Fair Value +Settlement Date +Fair Value at Settlement +Change in Fair Value +Settlement of liability with consultants +January 2024 +100,000 +$ +195 +September 2024 +$ +219 +$ +( 24 +) +Settlement of liability with consultants +April 2024 +60,000 +241 +June 2024 +184 +57 +Issuance of common stock to consultant +June 2024 +60,000 +183 +June 2024 +183 +— +Settlement of liability with consultants +July 2024 +50,000 +164 +September 2024 +110 +54 +Issuance of restricted common stock to consultants +September 2024 +150,000 +— +September 2024 +— +— +Settlement of liability with consultants +December 2024 +135,000 +531 +December 2024 +642 +( 111 +) +555,000 +$ +1,314 +$ +1,338 +$ +( 24 +) +During 2025 and 2024, the Company issued shares of common stock to consultants and vendors to settle share liabilities. The fair value of these shares is recorded to share liability in the consolidated balance sheet and the change in fair value upon settlement of the share liability is recorded to change in fair value of share liability in the consolidated statements of operations and comprehensive loss. +Activity of the share liabilities for the year ended December 31, 2025 is as follows (in thousands): +Share Liabilities +as of December 31, 2024 +New Share +Liabilities +in 2025 +Mark to +Market +Adjustments +in 2025 +Liabilities +Settled +in 2025 +Share Liabilities +as of December 31, 2025 +Share liabilities +$ +— +$ +674 +$ +121 +$ +( 795 +) +$ +— +Activity of the share liabilities for the year ended December 31, 2024 is as follows (in thousands): +Share Liabilities +as of +December 31, +2023 +New Share +Liabilities +in 2024 +Mark to +Market +Adjustments +in 2024 +Liabilities +Settled +in 2024 +Share Liabilities +as of +December 31, +2024 +Share liabilities +$ +— +$ +1,131 +$ +24 +$ +( 1,155 +) +$ +— +Common Stock Warrants +In April 2024, a warrant to purchase 3,164,557 shares of common stock was exercised and the Company received gross proceeds of $ 5.5 million. As an inducement for the warrant holder to exercise in cash, a warrant to purchase 1,225,000 shares of common stock at an exercise price of $ 3.90 per share was issued to that same warrant holder for no consideration (“Inducement Warrant”). The Inducement Warrant vests in October 2024 and expires in October 2029 . The Company evaluated the terms of the Inducement Warrant and determined that it should be accounted for as an equity-based warrant. The Company also evaluated the circumstances of the award and determined that the inducement should be treated as a deemed dividend. +The fair value of the Inducement Warrant was determined to be $ 2.8 million and estimated based on the Black-Scholes model, using the following assumptions: +Expected volatility +73.5 +% +Weighted-average risk-free rate +4.37 +% +Expected term in years +5.5 +Expected dividend yield +— +% +The fair value of the Inducement Warrant is considered a deemed dividend and the amount is reflected in the calculation of earnings (loss) per share on a basic and diluted basis. +In conjunction with the exercise of the warrant in April 2024, the Company was obligated to issue to an underwriter, a warrant to purchase 221,519 shares of common stock (“Commission Warrant”) in addition to a cash payment totaling $ 0.4 million. The +136 +ASP Isotopes Inc. +Notes to Consolidated Financial Statements (continued) +Company evaluated the terms of the Commission Warrant and determined that it should be accounted for as an equity-based warrant. The fair value of the Commission Warrant was determined to be $ 0.7 million and estimated based on the Black-Scholes model, using the following assumptions: +Expected volatility +73.5 +% +Weighted-average risk-free rate +4.60 +% +Expected term in years +5.5 +Expected dividend yield +— +% +The cash payment and the issuance of the Commission Warrant was settled in December 2024. The fair value of the Commission Warrant upon issuance was $ 0.8 million . The resulting change in fair value of share liability was a loss of $ .01 million for the year ended December 31, 2024 and is included in change in fair value of share liability in the statement of operations and comprehensive loss. +In October 2024, a warrant to purchase 151,741 shares of common stock was exercised and the Company received gross proceeds of $ 0.3 million. +In May 2025, a warrant to purchase 1,294,778 shares of common stock was exercised and the Company received gross proceeds of $ 4.9 million. In July and September 2025, cashless exercises of warrants to purchase 151,741 shares of common stock were executed, resulting in the issuance of 123,497 shares of common stock. As of December 31, 2025 and 2024 , there were warrants to purchase shares of common stock outstanding of 69,778 and 1,516,297 shares, respectively. +Skyline Private Placement +On October 28, 2025 , Skyline entered into a securities purchase agreement with certain accredited investors in a brokered private placement (the “Skyline October 2025 Private Placement”) of (i) 17,370,909 Class A ordinary shares (each, a “ Skyline Class A Ordinary Share”) (and/or prefunded warrants in lieu of Skyline Class A Ordinary Shares (the “Skyline Pre-funded Warrants”)), and (ii) 17,370,909 Skyline Class A Ordinary Share Purchase Warrants to purchase Skyline Class A Ordinary Shares (the “Skyline Ordinary Warrants”).The gross proceeds of the Skyline October 2025 Private Placement were approximately $ 23.9 million, before deducting placement agent fees and other offering expenses payable by Skyline. +The Skyline October 2025 Private Placement closed on November 3, 2025. The Skyline Class A Ordinary Shares (and/or Prefunded Warrants) were issued together with the Skyline Ordinary Warrants at the closing. The purchase price for each Skyline Class A Ordinary Share and accompanying Skyline Ordinary Warrant was $ 1.375 . The purchase price for each Skyline Pre-funded Warrant and accompanying Skyline Ordinary Warrant was $ 1.3749 , which equals the purchase price of a Skyline Class A Ordinary Share and Skyline Ordinary Warrant, less the $ 0.0001 exercise price of the Skyline Pre-funded Warrant. +Each Skyline Pre-funded Warrant is immediately exercisable upon issuance to acquire one Skyline Class A Ordinary Share for US$ 0.0001 until fully exercised. Each Skyline Ordinary Warrant is immediately exercisable upon issuance to purchase one Skyline Class A Ordinary Share for $ 1.50 per share and will expire on the fifth anniversary of its issuance. The exercise price of the Skyline Pre-funded Warrants and Skyline Ordinary Warrants are subject to customary adjustments for stock splits, recapitalizations, reorganizations and similar transactions. +17. Stock Compensation Plan +Equity Incentive Plan +In October 2021, the Company adopted the 2021 Stock Incentive Plan (“2021 Plan”) that provided for the issuance of common stock to employees, nonemployee directors, and consultants. Recipients of incentive stock options are eligible to purchase shares of common stock at an exercise price equal to no less than the estimated fair market value of such stock on the date of grant. The 2021 Plan provided for the grant of incentive stock options, non-statutory stock options, restricted stock, restricted stock units, stock awards and stock appreciation rights. The maximum contractual term of options granted under the 2021 Plan is ten years . The maximum number of shares initially available for issuance under the 2021 Plan was 6,000,000 . No further options are available to be issued under the 2021 Plan. +In November 2022, the Company adopted the 2022 Equity Incentive Plan (“2022 Plan”) that provides for the issuance of common stock to employees, nonemployee directors, and consultants. Recipients of incentive stock options are eligible to purchase shares of common stock at an exercise price equal to no less than the estimated fair market value of such stock on the date of grant. The 2022 Plan provides for the grant of incentive stock options, non-statutory stock options, restricted stock, restricted stock units, stock awards and stock appreciation rights. The maximum contractual term of options granted under the 2022 Plan is ten years . The number of shares of the Company’s common stock initially reserved for issuance under the 2022 Plan is equal to 5,000,000 , subject to an annual increase, to be added on the first day of each fiscal year, beginning with the fiscal year ending December 31, 2023 and +137 +ASP Isotopes Inc. +Notes to Consolidated Financial Statements (continued) +continuing until, and including, the fiscal year ending December 31, 2033, equal to the lesser of 5 % of the number of shares of the Company’s common stock outstanding on such date or an amount determined by the Company’s board of directors. On January 1, 2025, the Company added 3,603,403 shares to the 2022 Plan. As of December 31, 2025, 385,036 shares remain available for future grant under the Plan. +In June 2024, the Company adopted the 2024 Inducement Equity Incentive Plan (“2024 Plan”). The 2024 Plan will be used exclusively for the grant of equity awards to individuals who were not previously employees or directors of the Company, or following a bona fide period of non-employment, as an inducement material to such individuals entering into employment with the Company, pursuant to Nasdaq Listing Rule 5635(c)(4). Recipients of stock options are eligible to purchase shares of common stock at an exercise price equal to no less than the estimated fair market value of such stock on the date of grant. The 2024 Plan provides for the grant of non-statutory stock options, restricted stock, restricted stock units, stock awards and stock appreciation rights. The maximum contractual term of options granted under the 2024 Plan is ten years . The number of shares of the Company’s common stock initially reserved for issuance under the 2024 plan is equal to 2,500,000 . As of December 31, 2025, 915,000 shares remain available for future grant under the 2024 Plan. +2025 Inducement Equity Incentive Plan +On July 16, 2025, upon recommendation of the Compensation Committee of the Company’s Board, the Board approved and adopted the Company’s 2025 Inducement Equity Incentive Plan (the “Inducement Equity Plan”), and subject to the adjustment provisions of the Inducement Equity Plan, reserved 2,000,000 shares of Common Stock for issuance of equity awards under the Inducement Equity Plan. The Company expects to issue awards under the Inducement Equity Plan to new hires from Renergen upon completion of the acquisition, which occurred in January 2026 (Note 21). +The Inducement Equity Plan was approved and adopted without stockholder approval pursuant to Nasdaq Listing Rule 5635(c)(4). The Inducement Equity Plan provides for grants of stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards (consisting of performance shares or performance units) and other cash-based or stock-based awards (each, an “Inducement Award”). In addition, the Board also approved and adopted forms of Notice of Grant of Restricted Stock and Restricted Stock Agreement, and Notice of Grant of Stock Option and Stock Option Agreement for use with the Inducement Equity Plan. The terms and conditions of the Inducement Equity Plan are intended to comply with the Nasdaq inducement award rules. +In accordance with Nasdaq Listing Rule 5635(c)(4), the only persons eligible to receive grants of Inducement Awards are individuals who were not previously employees or directors of the Company (or following a bona fide period of non-employment), as an inducement material to the individuals’ entry into employment with the Company. As of December 31, 2025, 2,000,000 shares remain available for future grant under the Inducement Equity Plan. +QLE 2024 Equity Incentive Plan +In March 2024, the Company adopted the QLE 2024 Equity Incentive Plan (“QLE 2024 Plan”). The QLE 2024 Plan provides for the grant of incentive stock options, non-statutory stock options, restricted stock, restricted stock units, stock awards, performance awards and stock appreciation rights to employees, nonemployee directors, and consultants. The maximum contractual term of options granted under the QLE 2024 Plan is ten years and incentive stock options granted under the QLE 2024 Plan shall not exceed 50 % of the maximum number of shares or units of common equity that may be issued under the QLE 2024 Plan. The maximum number of shares or units of QLE’s common equity that may be issued under the QLE 2024 Plan is equal to 15 % of the common equity deemed outstanding as of the effective date of the QLE 2024 Plan. As of December 31, 2025, no common equity deemed outstanding remain available for future grant under the QLE 2024 Plan. +In September 2025, QLE granted restricted stock units (“September 2025 RSUs”) totaling 11 % of the common equity deemed outstanding to certain officers, employees and directors of QLE. The September 2025 RSUs will vest subject to the occurrence of a Listing Event and, if applicable, an additional service-based vesting condition. A Listing Event shall mean the consummation of any of the following transactions by QLE, a corporate successor to QLE or a holding company established with respect to QLE’s equity securities in connection with any of the following transactions (a “Public Issuer”): (i) a listing of common equity of QLE (or the common equity of such Public Issuer) through acquisition by or merger of such Public Issuer with a special purpose acquisition company or another entity listed on the NYSE or NASDAQ, (ii) a firm commitment underwritten public offering pursuant to an effective registration statement under the Securities Act and in connection with such offering the common equity of QLE is listed for trading on the Nasdaq, the NYSE or another exchange or marketplace approved by the Board, or (iii) a direct listing of common equity of QLE (or the common equity securities of the Public Issuer) on the NYSE or Nasdaq. +In October 2025, QLE granted restricted stock units (“October 2025 RSU”) totaling 4 % of the common equity deemed outstanding to a certain related party in conjunction with a consulting agreement. The October 2025 RSU will vest subject to the occurrence of a Listing Event and, if applicable, an additional service-based vesting condition. +138 +ASP Isotopes Inc. +Notes to Consolidated Financial Statements (continued) +Since the vesting of the September 2025 RSUs and October 2025 RSU are based on a liquidity event, no compensation cost will be recognized until the Performance Goal (Listing Event) is consummated. However, the fair value of the awards is calculated at the date of grant, which results in a total fair value of approximately $ 37.4 million. +Stock Options +The following table sets forth the activity for the Company’s stock options during the periods presented: +Number +of Options +Weighted- +Average +Exercise +Price +per Share +Weighted +Average +Remaining +Contractual +Term +(in Years) +Aggregate +Intrinsic +Value +Outstanding as of December 31, 2023 +2,766,000 +$ +1.91 +8.4 +$ +231,000 +Forfeited +( 35,000 +) +$ +2.00 +Outstanding as of December 31, 2024 +2,731,000 +$ +1.90 +7.4 +$ +7,171,930 +Granted +205,000 +$ +6.16 +Exercised +( 1,708,000 +) +$ +1.85 +Forfeited +( 420,000 +) +$ +2.00 +Outstanding as of December 31, 2025 +808,000 +$ +3.06 +7.3 +$ +2,020,050 +Exercisable as of December 31, 2025 +612,716 +$ +2.07 +6.5 +$ +2,020,050 +Vested or expected to vest as of December 31, 2025 +808,000 +$ +3.06 +7.3 +$ +2,020,050 +There were 205,000 options granted with a weighted average grant date fair value of $ 3.53 in the year ended December 31, 2025 . No options were granted in the year ended December 31, 2024. C ashless exercises of options to purchase 1,705,000 shares of common stock were executed, resulting in the issuance of 1,337,245 shares of common stock and proceeds of $ 41 resulting from the rounding of shares that were issued in the year ended December 31, 2025 . Cash exercises of options to purchase 3,000 shares of common stock were executed for proceeds of $ 6,000 in the year ended December 31, 2025. +The Company recorded stock compensation from options of $ 0.3 million and $ 0.8 million for the year ended December 31, 2025 and 2024, respectively. As of December 31, 2025, there was $ 0.7 million of unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Plan, which is expected to be recognized over a weighted average period of approximately 0.8 years. +Stock Awards +In October 2021, the Company issued 1,500,000 shares of restricted common stock to its Chief Executive Officer. The number of shares that vest is dependent on achieving certain performance conditions and dependent market conditions upon the third anniversary from the date of grant. The Company determined that the fair value of this award was $ 0.25 per share for a total value of $ 0.4 million. The Company determined the performance condition probable and recognized stock-based compensation expense of $ 0.4 million for the year ended December 31, 2024. +The Company recorded stock-based compensation expense from stock awards totaling $ 15.7 million and $ 7.8 million for the years ended December 31, 2025 and 2024, respectively. As of December 31, 2025, there is $ 21.3 million of unrecognized stock-based compensation expense related to the non-vested portion of restricted stock awards that is expected to be recognized over the next 2.3 years. +139 +ASP Isotopes Inc. +Notes to Consolidated Financial Statements (continued) +The following table summarizes awards and vesting of restricted common stock: +Number of +Shares +Weighted +Average Grant +Date +Fair Value +Per Share +Unvested as of December 31, 2023 +4,489,186 +$ +1.42 +Granted +2,523,554 +$ +3.79 +Vested +( 3,873,037 +) +$ +1.76 +Forfeited and retired +( 325,000 +) +$ +1.19 +Unvested as of December 31, 2024 +2,814,703 +$ +3.24 +Granted +4,275,967 +$ +6.77 +Vested +( 2,920,715 +) +$ +4.93 +Unvested as of December 31, 2025 +4,169,955 +$ +5.68 +Stock-based Compensation Expense +Stock-based compensation expense for all stock awards recognized in the accompanying consolidated statements of operations is as follows (in thousands): +Year Ended December 31, +2025 +2024 +Selling, general and administrative +$ +15,788 +$ +8,231 +Research and development +236 +330 +Total +$ +16,024 +$ +8,561 +18. Net Loss Per Share +The Company has reported losses since inception and has computed basic net loss per share attributable to common stockholders by dividing net loss attributable to common stockholders by the weighted-average number of shares of Common Stock outstanding for the period, without consideration for potentially dilutive securities. The Company computes diluted net loss per share of Common Stock after giving consideration to all potentially dilutive shares of common stock, including options to purchase common stock and warrants to purchase common stock, outstanding during the period determined using the treasury-stock and if-converted methods, except where the effect of including such securities would be antidilutive. Because the Company has reported net losses, these potential shares of Common Stock are anti-dilutive and basic and diluted loss per share were the same for all periods presented. +The following table sets forth the computation of basic and diluted net loss per share (in thousands, except share and per share amounts): +Year Ended December 31, +2025 +2024 +Numerator: +Net loss attributable to ASP Isotopes +shareholders +$ +( 175,092 +) +$ +( 35,114 +) +Denominator: +Weighted average common stock outstanding, +basic and diluted +83,013,594 +55,671,805 +Net loss per share, basic and diluted +$ +( 2.11 +) +$ +( 0.63 +) +140 +ASP Isotopes Inc. +Notes to Consolidated Financial Statements (continued) +The following table sets forth the potentially dilutive securities that have been excluded from the calculation of diluted net loss per share because to include them would be anti-dilutive: +Year Ended December 31, +2025 +2024 +Options to purchase common stock +808,000 +2,731,000 +Restricted stock +4,169,955 +2,814,703 +Warrants to purchase common stock +69,778 +1,516,297 +Total shares of common stock equivalents +5,047,733 +7,062,000 +19. Income Taxes +The components of net loss before taxes are as follows (in thousands): +Year Ended December 31, +2025 +2024 +Domestic +$ +( 157,153 +) +$ +( 24,778 +) +Foreign +( 2,408 +) +( 7,534 +) +Total net loss before taxes +$ +( 159,561 +) +$ +( 32,312 +) +Income tax (benefit) expense for the years ended December 31, 2025 and 2024 is comprised of the following (in thousands): +December 31, +2025 +2024 +Current: +U.S. Federal +$ +— +$ +60 +State +— +1 +Foreign +237 +193 +Total Current +237 +254 +Deferred: +Foreign +45 +( 143 +) +Total Deferred +45 +( 143 +) +Total income tax expense (benefit) +$ +282 +$ +111 +The effective tax rate of the Company’s provision for income taxes differs from the federal statutory rate for the year ended December 31, 2025 as follows (in thousands): +Year Ended December 31, 2025 +Tax expense at statutory rate +$ +( 33,508 +) +21.00 +% +Increase (decrease) in tax resulting from: +Foreign tax effects: +South Africa: +Change in valuation allowance +4,057 +( 2.54 +)% +Other adjustments +( 831 +) +0.52 +% +Hong Kong: +Fair value adjustment +( 3,644 +) +2.28 +% +Other adjustments +113 +( 0.07 +)% +Other foreign jurisdictions: +Other adjustments +1,092 +( 0.68 +)% +Change in valuation allowance +3,919 +( 2.46 +)% +Nontaxable or nondeductible items: +Change in fair value of convertible notes +25,981 +( 16.28 +)% +Other adjustments +3,142 +( 1.97 +)% +Other adjustments +( 39 +) +0.02 +% +Effective tax rate +$ +282 +( 0.18 +)% +141 +ASP Isotopes Inc. +Notes to Consolidated Financial Statements (continued) +The effective tax rate of the Company’s provision for income taxes differs from the federal statutory rate for the year ended December 31, 2024 as follows: +Year Ended December 31, +2024 +Tax computed at federal statutory rate +21.00 +% +Earnings in jurisdictions taxed at rates different +from the statutory U.S. federal tax rate +1.78 +% +Return to provision +( 3.88 +)% +Change in fair value of convertible notes +( 4.47 +)% +Non-deductible stock compensation expense +( 5.58 +)% +Permanent differences +( 0.09 +)% +Valuation allowance +( 9.10 +)% +Income tax expense +( 0.34 +)% +Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (b) operating losses and tax credit carryforwards. Significant components of deferred tax assets (liabilities) are as follows (in thousands): +December 31, +2025 +2024 +Deferred tax assets: +Net operating loss carryforwards +$ +13,385 +$ +5,262 +Capitalized R&D costs +584 +34 +Other assets +84 +— +Accruals and reserves +535 +142 +Property and equipment, net +234 +— +Right-of-use lease liability +419 +336 +Total deferred tax assets +15,241 +5,774 +Deferred tax liabilities: +Property and equipment, net +— +( 316 +) +Right-of-use lease asset +( 379 +) +( 325 +) +Total deferred tax liabilities +( 379 +) +( 641 +) +Total net deferred tax assets +14,862 +5,133 +Less: valuation allowance +( 14,964 +) +( 5,101 +) +Net deferred taxes (liabilities) assets +$ +( 102 +) +$ +32 +The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and deferred tax liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, the Company determines deferred tax assets and deferred tax liabilities on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and deferred tax liabilities is recognized in income in the period that includes the enactment date. +The Company recognize deferred tax assets to the extent that the Company believes that these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, carryback potential if permitted under the tax law, and results of recent operations. If the Company determines that it would not be able to realize its deferred tax assets in the future in excess of the net recorded amount, the Company would make an adjustment to the deferred tax assets through recognizing a valuation allowance, which would increase the provision for income taxes. +The Company records uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) the Company determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. +142 +ASP Isotopes Inc. +Notes to Consolidated Financial Statements (continued) +We recognize interest and penalties related to UTBs on the income tax expense line in the accompanying consolidated statement of operations. Accrued interest and penalties are included on the related tax liability line in the consolidated balance sheet. +Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing DTAs. On the basis of this evaluation, as of December 31, 2025, a full valuation allowance has been recorded against the federal, state, and South Africa deferred tax assets, excluding PET Labs and ASP Rentals which have no valuation allowance recorded. The amount of the DTA considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased or if objective negative evidence in the form of cumulative losses becomes present and less weight is given to subjective evidence such as our projections for growth. +We are subject to taxation in the United States and various states and foreign jurisdictions. The statute of limitations remains open for all periods of taxable loss until the losses have been utilized. The Company paid $ 79,000 for income taxes for the year ended December 31, 2025 . The Company did no t make payments or receive refunds for income taxes for the year ended December 31, 2024. +On July 4, 2025, the “One Big Beautiful Bill Act” (OBBBA) was enacted into law. The legislation made several changes to the U.S. tax code, including the return of 100 % bonus depreciation, the ability to immediately deduct domestic research and development costs, a more favorable rule for deducting interest expenses, and updates to international tax rules around global intangible low-taxed income and foreign-derived intangible income. The Company has evaluated the impact of the new tax provision and determined it to have an immaterial impact on the consolidated financial results. +20. Related Party Transactions +Skyline, acquired in the third quarter of fiscal year 2025, has certain transactions with parties affiliated with a director and joint ventures which are investments accounted for under the equity method. The transactions with these parties continued following the acquisition date and are summarized as follows: +Name of related parties +Relationship with Skyline +Ngo Chiu Lam +Director of Skyline +Kin Chiu-China Railway First Group Joint Venture +An equity method investment of Skyline +Kin Chiu-Glory Joint Venture +An equity method investment of Skyline +Kin Chiu-Geotech Joint Venture +An equity method investment of Skyline +Due to related parties as of December 31, 2025 and 2024 consisted of the following (in thousands): +December 31, 2025 +December 31, +2024 +Ngo Chiu Lam +$ +3,473 +$ +— +Kin Chiu-China Railway First Group Joint Venture +131 +— +Kin Chiu-Glory Joint Venture +320 +— +Kin Chiu-Geotech Joint Venture +238 +— +Total due to related parties +$ +4,162 +$ +— +The balances represented advances from the director and amounts due to joint ventures for operation purposes. All amounts were unsecured, interest-free and repayable on demand. +Accounts receivable, net from joint ventures as of December 31, 2025 and 2024 consisted of the following (in thousands): +December 31, 2025 +December 31, +2024 +Kin Chiu-Glory Joint Venture +$ +1,553 +$ +— +Balances of contract assets, net from joint ventures as of December 31, 2025 and 2024 consisted of the following (in thousands): +December 31, 2025 +December 31, +2024 +Kin Chiu-China Railway First Group Joint Venture +$ +352 +$ +— +Kin Chiu-Glory Joint Venture +203 +— +Kin Chiu-Geotech Joint Venture +43 +— +Total balances of contract assets, net from joint ventures +$ +598 +$ +— +143 +ASP Isotopes Inc. +Notes to Consolidated Financial Statements (continued) +Balances of contract liabilities, net from joint ventures as of December 31, 2025 and 2024 consisted of the following: +December 31, 2025 +December 31, +2024 +Kin Chiu-China Railway First Group Joint Venture +$ +72 +$ +— +PET Labs has an operating lease for office and production space in Pretoria, South Africa with the term set to expire in January 2056. The sole owner of the facility under the lease agreement is Dr. Gerdus Kemp, an officer of PET Labs and an employee of ASP Guernsey. +21. Subsequent Events +The Company has evaluated subsequent events through April 9, 2026, the date on which the accompanying financial statements were issued, and no other events were noted. +2022 Plan +Effective on January 1, 2026, the Company added 5,583,889 shares to the 2022 Equity Incentive Plan. +Renergen +On January 6, 2026 , the Company completed the acquisition of Renergen and acquired all of the issued Renergen Ordinary Shares from Renergen shareholders in exchange for shares of the Company's common stock at an exchange ratio of 0.09196 shares of Company common stock for each Renergen Ordinary Share (the “Consideration Shares”) through the implementation of the Scheme, resulting in the issuance of an aggregate of 14,270,000 Consideration Shares. As a result of the Transaction, Renergen became a direct, wholly owned subsidiary of ASP Isotopes. +In connection with the transaction, Renergen Ordinary Shares were delisted from the Johannesburg Stock Exchange (the “JSE”), the Australian Securities Exchange and A2X. The Company's common stock continues to be listed on The Nasdaq Capital Market and on the JSE. +In addition, on the closing date, Stefano Marani, the Chief Executive Officer of Renergen, has been appointed as the President, Electronics and Space of the Company, and Nick Mitchell, the Chief Operating Officer of Renergen, has been appointed Co-Chief Operating Officer of the Company. +NuMed Diagnostics, LLC ("NuMed") Acquisition +On January 22, 2026 , the Company acquired 60 % of the issued and outstanding membership interests of NuMed for $ 0.8 million. NuMed is an independent radiopharmacy dedicated to nuclear medicine and the science of radiopharmaceutical production. In addition to the purchase consideration, the Company has an option to purchase the remaining 40 % of the issued and outstanding membership interests within two years following the closing for an agreed consideration totaling $ 0.5 million. +Opeongo Investment +On January 26, 2026, the Company entered into a Series Seed-1 Preferred Stock Purchase Agreement with Opeongo, Inc., a Delaware corporation (“ Opeongo ”), pursuant to which the Company purchased from Opeongo 4,356,918 shares of Opeongo’s Series Seed-1 Preferred Stock, $ 0.0001 par value per share at a price of $ 2.2952 per share (the “ Opeongo Investment ”) for $ 10.0 million . Opeongo is a biotechnology company developing novel therapeutics using extracellular matrix (ECM) modulation to target fibrosis, inflammation, and cancer. +Skyline Warrant Exchange +On January 23, 2026, Skyline entered into a warrant exchange agreement (the “Skyline Exchange Agreement”) with the holders of Skyline Class A Ordinary Share Purchase Warrant A’s and Skyline Class A Ordinary Share Purchase Warrant B’s (collectively, the “Skyline Holder Warrants”), to purchase an aggregate of 48,698,628 Skyline Class A Ordinary Shares, that were purchased in the Skyline Series A Private Placement, to exchange the Skyline Holder Warrants issued on August 29, 2025, for an aggregate of 47,326,025 newly issued Series A preferred shares of Skyline (“Skyline Series A Preferred Shares”) and allotted among the holders in accordance with the Skyline Exchange Agreement. Each Skyline Series A Preferred Share is convertible, at the option of a holder thereof, into Skyline Class A Ordinary Shares. +Skyline Private Placements +On February 11, 2026, Skyline entered into (i) a securities purchase agreement (the “Reg D Purchase Agreement”) for an offering of Skyline’s Series B Convertible Preferred Shares (the “Skyline Series B Preferred Shares”) in a private placement (the “Reg D Private Placement”) pursuant to Regulation D under the Securities Act of 1933, as amended and (ii) a securities purchase agreement (the “Reg S Purchase Agreement”) for an offering of the Skyline Series B Preferred Shares in a private placement pursuant to Regulation S under the Securities Act (the “Reg S Private Placement” and together with the Reg D Private Placement, +144 +ASP Isotopes Inc. +Notes to Consolidated Financial Statements (continued) +the “February 2026 Skyline Series B Private Placements”), in each case, for the purchase and sale of the Skyline Series B Preferred Shares. +The February 2026 Skyline Series B Private Placements closed on February 13, 2026 at which Skyline issued 6,322 of the Skyline Series B Preferred Shares. The purchase price for each Skyline Series B Preferred Share was $ 5,000 . Each Skyline Series B Preferred Share is convertible into Skyline Class A ordinary shares with a conversion price of $ 2.40 per share, subject to certain anti-dilution adjustments that are subject to a floor of $ 1.50 per share and other customary adjustments for share splits, recapitalizations, reorganizations and similar transactions. The gross proceeds of the Skyline Series B Private Placement were approximately $ 31.6 million, before deducting placement agent fees and other offering expenses payable by Skyline. +In connection with the February 2026 Skyline Series B Private Placements , Skyline also entered into placement agency agreements dated February 10, 2026 that included the payment of a cash fee equal to 8.0 % of the aggregate gross proceeds of the February 2026 Skyline Series B Private Placements and the issuance of non-callable warrants exercisable for a number of Skyline's Class A Ordinary Shares equal to 6 % of the Class A Ordinary Shares underlying the Skyline Series B Preferred Shares . The warrants have an exercise price of $ 2.40 per share. +On March 20, 2026, Skyline entered into (i) a senior unsecured convertible note purchase agreement for an offering of approximately $ 16.6 million of Skyline's senior unsecured convertible notes (the “2026 Skyline Notes”) in a private placement and (ii) a securities purchase agreement dated March 20, 2026 for an offering of $ 0.6 million of Skyline’s Series B Preferred Shares (the “March 2026 Skyline Preferred Shares”) in a private placement (the "March 2026 Skyline Private Placement"). +The March 2026 Skyline Private Placement closed on March 25, 2026. The 2026 Skyline Notes are convertible into Skyline's class A ordinary shares, par value $ 0.00001 per share at a conversion price of $ 2.40 per share, subject to certain anti-dilution adjustments, that are subject to a floor of $ 1.50 per share. The conversion price of the 2026 Skyline Notes is also subject to other customary adjustments for share splits, recapitalizations, reorganizations and similar transactions The purchase price for each March 2026 Skyline Preferred Share was $ 5,000 . Each March 2026 Skyline Preferred Share is convertible into Class A ordinary shares at a conversion price of $ 2.40 per share, subject to certain anti-dilution adjustments that are subject to a floor of $ 1.50 per share. The gross proceeds of the March 2026 Skyline Private Placement was approximately $ 17.2 million, before deducting placement agent fees and other offering expenses that were paid by Skyline. +In connection with the March 2026 Skyline Private Placement , Skyline also entered into placement agency agreements dated March 20, 2026 that included the payment of a cash fee equal to 8.0 % of the aggregate gross proceeds of the March 2026 Skyline Private Placement and the issuance of non-callable warrants exercisable for a number of Skyline's Class A Ordinary Shares equal to 8 % and 6 % of the Class A Ordinary Shares underlying the 2026 Skyline Notes and March 2026 Skyline Preferred Shares, respectively . The warrants have an exercise price of $ 2.40 per share. +On March 29, 2026, QLE entered into a securities exchange agreement with an investor (the "QLE Exchange Agreement"). Per the QLE Exchange Agreement, the investor assigned and transferred 1,995,000 Class A Ordinary Shares held by the investor to QLE in exchange for an equal number of Class B Ordinary Shares held by QLE. +On March 31, 2026, Skyline issued an additional $ 3.0 million of 2026 Skyline Notes in a private placement. +145 +Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure +None. +Item 9A. Controls and Procedures +Disclosure Controls and Procedures +Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2025. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, mean controls and other procedures of a company that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company on the reports that it files or submits under the Exchange Act is accumulated and communicated to management, including, our principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure. +Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgement in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of December 31, 2025, our Chief Executive Officer and Chief Financial Officer concluded that, as a result of material weaknesses identified in our internal control over financial reporting, our disclosure controls and procedures were not effective as of December 31, 2025 . +In the course of preparing the financial statements that are included in this Form 10-K, management has determined that material weaknesses exist within the internal controls over financial reporting. The material weakness identified relates to the lack of formal control documentation and consistent execution of control procedures, and the lack of a sufficient complement of personnel within the finance and accounting function with an appropriate degree of knowledge, experience and training. We also noted a material weakness related to logical security and privileged access in the area of information technology. We concluded that the material weaknesses in our internal control over financial reporting information technology occurred because, prior to becoming a public company, we were a private company and did not have the necessary business processes, systems, personnel, and related internal controls necessary to satisfy the accounting and financial reporting requirements of a public company. +In order to remediate the material weaknesses, we expect to enhance our formal documentation over internal control procedures and management controls infrastructure to allow for more consistent execution of control procedures and hire additional accounting, and finance and information technology resources or consultants with public company experience. +We may not be able to fully remediate the identified material weakness until the steps described above have been completed and our internal controls have been operating effectively for a sufficient period of time. We believe we have already and will continue to make progress in our remediation plan during the year ending December 31, 2026, but cannot assure you that we will be able to fully remediate the material weakness in 2026. If the steps we take do not correct the material weakness in a timely manner, we will be unable to conclude that we maintain effective internal control over financial reporting. Accordingly, there could continue to be a reasonable possibility that a material misstatement of our financial statements would not be prevented or detected on a timely basis. We also may incur significant costs to execute various aspects of our remediation plan but cannot provide a reasonable estimate of such costs at this time. +Management’s Annual Report on Internal Controls Over Financial Reporting +Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Our internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes, in accordance with generally accepted accounting principles in the United States. Due to inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness of the internal control over financial reporting to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies and procedures may deteriorate. Our management, under the supervision and with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our internal control over financial reporting as of the end of the period covered by this Annual Report on Form 10-K based on the framework in Internal Control---Integrated Framework (2013 framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO. Based on such evaluation, our management concluded that our internal control over financial reporting was not effective as of the end of the period covered by this Annual Report on Form 10-K due to the material weaknesses described above. +146 +This Annual Report on Form 10-K does not include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. Our auditors will not be required to opine on the effectiveness of our internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002 until we are no longer an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012. +Changes in Internal Control Over Financial Reporting +There has been no change in our internal control over financial reporting as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act during the quarter ended December 31, 2025 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. +Item 9B. Other Information +Trading Arrangements of Section 16 Reporting Persons. +During the quarter ended December 31, 2025, the directors and officers of the Company (as defined in Rule +16a-1(f) of the Exchange Act) adopted or terminated the contracts, instructions, or written plans for the purchase or sale of our securities set forth in the table below. +Name and Title +Action +Adoption/ Termination Date +Rule 10b5-1 (1) +Non-Rule 10b5-1 (2) +Total Number of Shares of Common Stock to be Sold (3) +Expiration Date +Heather Kiessling ( Chief Financial Officer ) +Adoption +December 19, 2025 +X +— +Up to 92,496 +April 14, 2027 +Paul E. Mann ( Chief Executive Officer and Executive Chairman ) +Adoption (4) +December 30, 2025 +X +— +1,005,100 +March 3, 2027 +Duncan Moore ( Director ) +Adoption +December 31, 2025 +X +— +11,462 +April 16, 2026 +(1) +Contract, instruction or written plan intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act. +(2) +“Non-Rule 10b5-1 trading arrangement” as defined in Item 408(c) of Regulation S-K under the Exchange Act. +(3) +Rule 10b5-1 trading arrangements that are intended to provide for “eligible sell-to-cover transactions” (as described in Rule 10b5-1(c)(1)(ii)(D)(3) under the Exchange Act) to satisfy tax withholding obligations arising exclusively from vesting of restricted stock awards (RSAs). +(4) +The adoption of the Stock Sale Plan, dated December 30, 2025, by Mr. Mann also terminated his Stock Sale Plan, dated December 13, 2024. +Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +None. +147 +PART III +Item 10. Directors, Executive Officers and Corporate Governance +The information required by this item will be included in an amendment to this Annual Report on Form 10-K or incorporated by reference from our Proxy Statement to be filed pursuant to Regulation 14A within 120 days of the end of the fiscal year covered by this Annual Report on Form 10-K. +You can find our governance documents, including our corporate governance guidelines and our code of business conduct and ethics, on our website www.aspisotopes.com under “Investor - Governance - Governance Documents.” Our Board regularly reviews and updates our governance materials in light of legal and regulatory requirements, evolving best practices and other developments. We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding amendment to, or waiver from, a provision of our code of business conduct and ethics by posting such information on the website address and location specified above. +Item 11. Executive Compensation +The information required by this item will be included in an amendment to this Annual Report on Form 10-K or incorporated by reference from our Proxy Statement to be filed pursuant to Regulation 14A within 120 days of the end of the fiscal year covered by this Annual Report on Form 10-K. +Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +The information required by this item will be included in an amendment to this Annual Report on Form 10-K or incorporated by reference from our Proxy Statement to be filed pursuant to Regulation 14A within 120 days of the end of the fiscal year covered by this Annual Report on Form 10-K. +Item 13. Certain Relationships and Related Transactions and Director Independence +The information required by this item will be included in an amendment to this Annual Report on Form 10-K or incorporated by reference from our Proxy Statement to be filed pursuant to Regulation 14A within 120 days of the end of the fiscal year covered by this Annual Report on Form 10-K. +Item 14. Principal Accounting Fees and Services +The information required by this item will be included in an amendment to this Annual Report on Form 10-K or incorporated by reference from our Proxy Statement to be filed pursuant to Regulation 14A within 120 days of the end of the fiscal year covered by this Annual Report on Form 10-K. +148 +PART IV +Item 15. Exhibits, Financial Statement Schedules +The following documents are filed as part of this Annual Report on Form 10-K: +(a) +Financial Statements +The information concerning our consolidated financial statements and Report of Independent Registered Public Accounting Firm required by this Item is incorporated by reference herein to the section of this Annual Report on Form 10-K in Item 8, entitled “Financial Statements and Supplementary Data.” +(b) +Financial Statement Schedules +All schedules have been omitted because the required information is not present or not present in amounts sufficient to require submission of the schedules, or because the information required is included in the Financial Statements or notes thereto. +(c) +Exhibits +The list of exhibits filed with this report is set forth in the Exhibit Index immediately preceding the signature page and is incorporated herein by reference. +Exhibit +Number +Description of Document +2.1 +Firm Intention Letter Agreement, dated May 20,2025, by and between ASP Isotopes Inc. and Renergen Limited (incorporated by reference to Exhibit 2.1 to the Form 8-K filed on May 20, 2025). +2.2 +Letter Agreement, dated November 27, 2025, by and among ASP Isotopes Inc. and Renergen Limited (incorporated by reference to Exhibit 2.1 to the Form 8-K filed on November 28, 2025). +3.1 +Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.3 to the Form S-1/A filed on November 9, 2022 (File No. 333-267392)). +3.2 +Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to the Annual Report on Form 10-K for the year ended December 31, 2023, filed on April 10, 2024). +4.1 +Description of Securities Registered Under Section 12 of the Securities Exchange Act of 1934 (incorporated by reference to Exhibit 4.1 to the Annual Report on Form 10-K for the year ended December 31, 2023, filed on April 10, 2024). +4.2 +Common Stock Purchase Warrant dated March 17, 2023 (incorporated by reference to Exhibit 4.2 to the Annual Report on Form 10-K for the year ended December 31, 2023). +4.3 +Placement Agent Common Stock Purchase Warrant dated March 17, 2023 (incorporated by reference to Exhibit 4.3 to the Annual Report on Form 10-K for the year ended December 31, 2023). +4.4 +Warrant issued to Armistice Capital Master Fund Ltd. dated April 10, 2024 (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the SEC on April 9, 2024). +10.1+ +ASP Isotopes Inc. 2021 Stock Incentive Plan, as amended, and form of award agreements thereunder (incorporated by reference to Exhibit 10.1 to the Form S-1/A filed on November 9, 2022 (File No. 333-267392)). +10.2+ +ASP Isotopes Inc. 2022 Equity Incentive Plan and form of award agreements thereunder (incorporated by reference to Exhibit 10.2 to the Form S-1/A filed on November 9, 2022 (File No. 333-267392)) +10.3+ +Performance Share Award Grant Notice and Performance Share Award Agreement with Paul Mann, dated October 4, 2021, as amended (incorporated by reference to Exhibit 10.3 to the Form S-1/A filed on November 9, 2022 (File No. 333-267392)). +10.4+ +Form of Indemnification Agreement between the registrant and each of its directors and executive officers (incorporated by reference to Exhibit 10.4 to the Form S-1/A filed on November 9, 2022 (File No. 333-267392)). +10.5+ +Form of Director Agreement (incorporated by reference to Exhibit 10.5 to the Form S-1/A filed on November 9, 2022 (File No. 333-267392)). +10.6+ +Executive Employment Agreement by and between the registrant and Paul Mann, dated October 4, 2021 (incorporated by reference to Exhibit 10.6 to the Form S-1/A filed on November 9, 2022 (File No. 333-267392)). +149 +10.7+ +Executive Employment Agreement by and between ASP Isotopes Guernsey Limited and Hendrik Strydom, dated January 19, 2022 (incorporated by reference to Exhibit 10.7 to the Form S-1/A filed on November 9, 2022 (File No. 333-267392)). +10.8+ +Executive Employment Agreement by and between ASP Isotopes Guernsey Limited and Robert Ainscow, dated October 4, 2021, as amended (incorporated by reference to Exhibit 10.8 to the Form S-1/A filed on November 9, 2022 (File No. 333-267392)). +10.9 +Letter Agreements between the registrant and Dr Einar Ronander and Dr Hendrik Strydom, dated January 2021 (incorporated by reference to Exhibit 10.13 to the Form S-1/A filed on November 9, 2022 (File No. 333-267392)). +10.10 +Chief Scientific Adviser Agreement between the registrant and Dr Einar Ronander, dated January 2021 (incorporated by reference to Exhibit 10.14 to the Form S-1/A filed on November 9, 2022 (File No. 333-267392)). +10.11 +Lease for Molybdenum Processing Plant between ASP Isotopes South Africa (Proprietary) Limited (formerly PDS Photonica Holdings South Africa (Proprietary) Limited) and Morgan Creek Properties 311 Pty Ltd. (incorporated by reference to Exhibit 10.15 to the Form S-1/A filed on November 9, 2022 (File No. 333-267392)). +10.12 +Form of Subscription Agreement (incorporated by reference to Exhibit 10.16 to the Form S-1/A filed on November 9, 2022 (File No. 333-267392)). +10.13 +License Agreement between ASP Isotopes UK Ltd and Klydon (Proprietary) Limited dated July 26, 2022 (incorporated by reference to Exhibit 10.17 to the Form S-1/A filed on November 9, 2022 (File No. 333-267392)). +10.14 +Amended Executive Employment Agreement between the registrant and Paul Mann effective December 20, 2022 (incorporated by reference to Exhibit 10.19 to the Annual Report on Form 10-K for the year ended December 31, 2023, filed on April 10, 2024). +10.15 +Acknowledgement of Debt Agreement between ASP Isotopes South Africa (Proprietary) Limited and Klydon (Proprietary) Limited dated November 30, 2022 (incorporated by reference to Exhibit 10.20 to the Annual Report on Form 10-K for the year ended December 31, 2023, filed on April 10, 2024). +10.16 +Deed of Security Agreement between ASP Isotopes South Africa (Proprietary) Limited and Klydon (Proprietary) Limited dated November 30, 2022 (incorporated by reference to Exhibit 10.21 to the Annual Report on Form 10-K for the year ended December 31, 2023, filed on April 10, 2024). +10.17 +Securities Purchase Agreement dated March 14, 2023 (private placement of shares and warrants) (incorporated by reference to Exhibit 10.22 to the Annual Report on Form 10-K for the year ended December 31, 2023, filed on April 10, 2024). +10.18 +Registration Rights Agreement dated March 14, 2023 (private placement of shares and warrants) (incorporated by reference to Exhibit 10.23 to the Annual Report on Form 10-K for the year ended December 31, 2023, filed on April 10, 2024). +10.19 +Release Agreement, dated March 23, 2023 between Revere Securities LLC and ASP Isotopes Inc. (incorporated by reference to Exhibit 10.24 to the Annual Report on Form 10-K for the year ended December 31, 2023, filed on April 10, 2024) +10.20 +Form of Securities Purchase Agreement by and between ASP Isotopes Inc. and the purchasers named therein (October 2023 private placement of shares) (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 12, 2023). +10.21 +Form of Registration Rights Agreement by and between ASP Isotopes Inc. and the purchasers named therein (October 2023 private placement of shares) (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on October 12, 2023). +10.22 +Share Purchase Agreement, dated October 30, 2023, by and between ASP Isotopes Inc., as purchaser, and Nucleonics Imaging Proprietary Limited, as seller, relating to the purchase and sale of ordinary shares of Pet Labs Pharmaceuticals Proprietary Limited (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 30, 2023). +10.23 +Convertible Note Purchase Agreement (including Form of Convertible Promissory QLE Note), dated as of February 29, 2024, by and among Quantum Leap Energy LLC and the Purchasers listed therein (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on February 29, 2024). +150 +10.24 +Registration Rights Agreement, dated as of February 29, 2024, by and among Quantum Leap Energy LLC and the Purchasers listed therein (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on February 29, 2024). +10.25+ +Quantum Leap Energy LLC 2024 Equity Incentive Plan (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on February 29, 2024). +10.26 +Form of Warrant Inducement Agreement by and between ASP Isotopes Inc. and Armistice Capital Master Fund Ltd. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on April 9, 2024). +10.27 +ASP Isotopes Inc. 2024 Inducement Equity Incentive Plan and forms of award agreement thereunder (incorporated by reference to Exhibit 10.1 to the Form 8-K filed on June 13, 2024). +10.28 +Executive Employment Agreement by and between the Company and Heather Kiessling, dated June 10, 2024 (incorporated by reference to Exhibit 10.1 to the Form 10-Q filed on November 19, 2024). +10.29 +Convertible Note Purchase Agreement (including Form of Convertible Promissory QLE Note), dated as of June 5, 2024, by and among Quantum Leap Energy LLC and the Purchasers listed therein (incorporated by reference to Exhibit 10.1 to the Form 8-K filed on June 6, 2024). +10.30 +Registration Rights Agreement, dated as of June 5, 2024, by and among Quantum Leap Energy LLC and the Purchasers listed therein (incorporated by reference to Exhibit 10.2 to the Form 8-K filed on June 6, 2024). +10.31 + +Non-Employee Director Compensation Policy adopted effective October 30, 2024 (incorporated by reference to Exhibit 10.31 to the Form 10-K filed on March 31, 2025). +10.32 +Loan Agreement, dated May 19, 2025, by and among ASP Isotopes Inc., ASP Isotopes South Africa Proprietary Limited, as lender, and Renergen Limited, as borrower (incorporated by reference to Exhibit 10.1 to the Form 8-K filed on May 20, 2025). +10.33 +Loan Agreement, dated May 16, 2025, by and between QLE TP Funding SPE LLC, as borrower, and TerraPower, LLC, as lender (incorporated by reference to Exhibit 10.1 to the Form 8-K filed on May 22, 2025). +10.34 + +ASP Isotopes Inc. 2025 Inducement Equity Incentive Plan and forms of award agreement thereunder (incorporated by reference to Exhibit 10.1 to the Form 10-Q filed on August 14, 2025). +10.35 +Natrium Project Procurement Terms and Conditions – Enrichment Services by and between TerraPower, LLC and ASP Isotopes Inc., dated as of May 16, 2025 (incorporated by reference to Exhibit 10.3 to the Form 10-Q filed on August 14, 2025). +10.36 +HALEU Long-Term Supply Agreement by and between TerraPower, LLC and ASP Isotopes Inc., dated as of May 16, 2025 (incorporated by reference to Exhibit 10.4 to the Form 10-Q filed on August 14, 2025). +10.37 +Form of Convertible Note Purchase Agreement (including Form of Convertible Promissory QLE Note), by and among Quantum Leap Energy LLC and the Purchasers party thereto (incorporated by reference to Exhibit 10.1 to the Form 8-K filed on November 14, 2025). +10.38 +Form of Registration Rights Agreement, by and among Quantum Leap Energy LLC and the Investors party thereto (incorporated by reference to Exhibit 10.2 to the Form 8-K filed on November 14, 2025). +10.39 +Letter to the Term Loan Facility Agreement, dated November 27, 2025, by and among ASP Isotopes Inc., ASP Isotopes South Africa Proprietary Limited, as lender, and Renergen Limited, as borrower (incorporated by reference to Exhibit 10.1 to the Form 8-K filed on November 28, 2025). +10.40 * +Loan Agreement, between Industrial Development Corporation of South Africa Limited and Tetra4 Proprietary Limited, dated December 20, 2021. +10.41 * +Amendment, dated October 10, 2023, to Loan Agreement between Industrial Development Corporation of South Africa Limited and Tetra4 Proprietary Limited. +10.42 * +Amendment, dated September 1, 2025, to Loan Agreement between Industrial Development Corporation of South Africa Limited and Tetra4 Proprietary Limited. +10.43 * +Finance Agreement, between U.S. International Development Finance Corporation, as successor in interest to Overseas Private Investment Corporation, and Tetra4 Proprietary Limited, dated August 20, 2019. +151 +10.44 * +Amendment No. 1 to Finance Agreement, between United States. International Development Finance Corporation and Tetra4 Proprietary Limited, dated March 30, 2020. +10.45 * +Amendment No. 2 to Finance Agreement, between United States. International Development Finance Corporation and Tetra4 Proprietary Limited, dated April 28, 2020. +10.46 * +Amendment No. 3 to Finance Agreement, between United States. International Development Finance Corporation and Tetra4 Proprietary Limited, dated February 26, 2021. +10.47 * +Amendment No. 4 to Finance Agreement, between United States. International Development Finance Corporation and Tetra4 Proprietary Limited, dated August 24, 2021. +10.48 * +Amendment No. 5 to Finance Agreement, between United States. International Development Finance Corporation and Tetra4 Proprietary Limited, dated December 16, 2021. +10.49 * +Amended And Restated Secured Term Loan Facility Agreement between Renergen Limited and the Standard Bank of South Africa Limited, dated December 12, 2025. +10.50 +Series Seed-1 Preferred Stock Purchase Agreement, dated as of July 28, 2025, by and between IsoBio, Inc. and ASP Isotopes Inc. (incorporated by reference to Exhibit 10.1 to the Form 10-Q filed on November 19, 2025). +10.51 +Investors’ Rights Agreement, dated as of July 28, 2025, by and among IsoBio, Inc. and the Investors named therein (incorporated by reference to Exhibit 10.2 to the Form 10-Q filed on November 19, 2025). +10.52 +Voting Agreement, dated as of July 28, 2025, by and among IsoBio, Inc., ASP Isotopes Inc. and the Key Holders named therein (incorporated by reference to Exhibit 10.3 to the Form 10-Q filed on November 19, 2025). +10.53 +Right of First Refusal and Co-Sale Agreement, dated as of July 28, 2025, by and among IsoBio, Inc. ASP Isotopes Inc. and the Key Holders named therein (incorporated by reference to Exhibit 10.4 to the Form 10-Q filed on November 19, 2025). +10.54 *+ +Second Amendment to Executive Employment Agreement between the registrant and Paul Mann dated April 5, 2024. +19.1 * +Insider Trading Policy. +21.1 * +List of Subsidiaries of the Registrant +23.1 * +Consent of EisnerAmper LLP, independent registered public accounting firm. +24.1 * +Power of Attorney (included as part of the signature page to this report). +31.1 * +Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. +31.2 * +Certification of Principal Accounting Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. +32.1 ** +Certification of Principal Executive Officer and Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. +97.1 +Policy Relating to Recovery of Erroneously Awarded Compensation, effective October 2, 2023 2023 (incorporated by reference to Exhibit 97.1 to the Form 10-K filed on April 10, 2024). +99.1 +License Agreement, dated as of February 16, 2024, among ASP Isotopes UK Limited, as licensor, and Quantum Leap Energy LLC and Quantum Leap Energy Limited, as licensee (incorporated by reference to Exhibit 99.4 to the Form 8-K filed on February 29, 2024). +99.2 +EPC Services Framework Agreement, dated as of February 16, 2024, between ASP Isotopes Inc. and Quantum Leap Energy LLC (incorporated by reference to Exhibit 99.5 to the Form 8-K filed on February 29, 2024). +101.INS +Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document +101.SCH +Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents +104 +Cover Page Interactive Data File (embedded within the Inline XBRL document) +* Filed herewith. +152 +** Furnished herewith. ++ Management contract or compensatory plan or arrangement. +Item 16. Form 10-K Summary +None. +153 +SIGNATURES +Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 10th day of April, 2026. +ASP Isotopes Inc. +By +/s/ PAUL E. MANN +Paul E. Mann +Executive Chairman, Chief Executive Officer and Director +We, the undersigned directors and officers of ASP Isotopes Inc., hereby severally constitute Paul E. Mann and Heather Kiessling, and each of them singly, as our true and lawful attorneys with full power to each of them to sign for us, in our names in the capacities indicated below, any and all amendments to this Annual Report on Form 10-K filed with the Securities and Exchange Commission. +This power of attorney may only be revoked by a written document executed by the undersigned that expressly revokes this power by referring to the date and subject hereof. +Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated. +Signature +Title +Date +/s/ PAUL E. MANN +Chief Executive Officer, Executive Chairman and Director (Principal Executive Officer) +April 10, 2026 +Paul E. Mann +/s/ HEATHER KIESSLING +Chief Financial Officer (Principal Financial and Accounting Officer) +April 10, 2026 +Heather Kiessling +/s/ MICHAEL GORLEY, Ph.D. +Director +April 10, 2026 +Michael Gorley, Ph.D. +/s/ RALPH L. HUNTER, Jr. +Director +April 10, 2026 +Ralph L Hunter, Jr. +/s/ SIPHO N. MASEKO +Director +April 10, 2026 +Sipho N. Maseko +/s/ DUNCAN MOORE, Ph.D. +Director +April 10, 2026 +Duncan Moore, Ph.D. +/s/ ROBERT RYAN +Director +April 10, 2026 +Robert Ryan +/s/ TODD WIDER, M.D. +Director +April 10, 2026 +Todd Wider, M.D. +154 \ No newline at end of file diff --git a/raw/filings/0001921865/2025/0001193125-26-151294/filing_metadata.csv b/raw/filings/0001921865/2025/0001193125-26-151294/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..9cb4e12f57d9b745ac5a4cba0d4feae0fae1c6e2 --- /dev/null +++ b/raw/filings/0001921865/2025/0001193125-26-151294/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001921865,ASPI,ASP Isotopes Inc.,2025,10-K,2026-04-10,2025-12-31,2026-04-10T20:15:41.000Z,0001193125-26-151294,aspi-20251231.htm,10-K,27507755,1,1,https://www.sec.gov/Archives/edgar/data/1921865/000119312526151294/aspi-20251231.htm,https://www.sec.gov/Archives/edgar/data/1921865/000119312526151294/ diff --git a/raw/filings/0001921865/2025/0001193125-26-151294/item1.txt b/raw/filings/0001921865/2025/0001193125-26-151294/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..8de9e5003304753408fd377c2660e309021c21fe --- /dev/null +++ b/raw/filings/0001921865/2025/0001193125-26-151294/item1.txt @@ -0,0 +1,847 @@ +Item 1. Business +Overview +We are an advanced materials company dedicated to the development of a differentiated isotope enrichment platform to strengthen global supply chain access to critical materials used in nuclear medicine, next-generation semiconductors, and nuclear energy. In addition, in January 2026, we acquired Renergen, which is South Africa’s leading onshore natural gas explorer and the first integrated producer of both liquid helium and LNG (as discussed further below). Our proprietary enrichment technologies, the Aerodynamic Separation Process (“ASP technology”) and Quantum Enrichment technology (“QE technology”), are designed to enable the production of isotopes for a range of industrial and advanced technology applications. Our initial focus with respect to our isotope enrichment platform is on the production and commercialization of enriched Carbon-14 (“C-14”), Silicon-28 (“Si-28”) and Ytterbium-176 (“Yb-176”). +We commenced commercial production of enriched isotopes at both of our ASP enrichment facilities located in Pretoria, South Africa during the first half of 2025. Our first ASP enrichment facility is designed to enrich light isotopes, such as C-14 and C-12. The second ASP enrichment facility, which is substantially larger than the first, should have the potential to enrich kilogram quantities of relatively heavier isotopes, including but not limited to Si-28. We are targeting initial commercial shipments of enriched C-14 in mid-2026. We are targeting initial commercial shipments of enriched Si-28 during the second quarter of 2026. We have also completed the commissioning phase and are producing commercial samples of highly enriched Yb-176 at our third enrichment facility, a QE technology facility, which is our first laser-based enrichment plant. We are targeting initial commercial shipments of Yb-176 in mid-2026 or the third quarter of 2026. +In addition, we have started planning additional isotope enrichment plants both in South Africa and in other jurisdictions, including Iceland and the United States. We believe the C-14 we may produce using the ASP technology could be used in the development of new pharmaceuticals and agrochemicals. We believe the Si-28 we may produce using the ASP technology may be used to create advanced semiconductors and in quantum computing. We believe the Yb-176 we may produce using the QE technology may be used to create radiotherapeutics that treat various forms of oncology. We are considering the future development of the ASP technology for the separation of Zinc-68 and Xenon-129/136 for potential use in the healthcare end market, Germanium 70/72/74 for potential use in the semiconductor end market, and Chlorine -37 for potential use in the nuclear energy end market. We are also considering the future development of QE technology for the separation of Nickel-64, Gadolinium-160, Ytterbium-171, Lithium-6 and Lithium-7. +QLE is currently pursuing an initiative to apply our enrichment technologies to the enrichment of Uranium-235 (“U-235”) in South Africa. We believe that the U-235 QLE may produce has the potential to be commercialized as a nuclear fuel component for use in the new generation of high-assay low-enriched uranium (“HALEU”)-fueled small modular reactors that are now under development for commercial and government uses. In furtherance of our uranium enrichment initiative in South Africa, we have entered into certain definitive agreements with TerraPower, LLC (“TerraPower”), including a term loan subject to conditions to support construction of a new uranium enrichment facility at Pelindaba, South Africa and supply agreements for the future supply of HALEU to TerraPower, as a customer. In addition, QLE’s South African subsidiary has entered into a Pre-Implementation Services Contract Agreement (“Services Contract”) with The South African Nuclear Energy Corporation (“Necsa”), a South African state-owned company responsible for undertaking and promoting research and development in the field of nuclear energy and radiation sciences, pursuant to which Necsa has agreed to provide to QLE’s South African subsidiary certain facilities, infrastructure, utilities and services related to the siting, design, construction, commission and operation of an enrichment facility on the Necsa site in Pelindaba. In the period since our inception to date, we have not applied our enrichment technologies to the +5 +enrichment of U-235, nor received permission or regulatory approval to conduct testing of our enrichment technologies on U-235, except for the activities contemplated by the Services Contract with Necsa. Our expectation that QLE’s initiative to apply our enrichment technologies to the enrichment of U-235 could be successful is based upon research conducted by certain of our scientists prior to joining the company, as well as the demonstrated effectiveness of QE technology on Yb-176. +QLE acquired a controlling interest in Skyline in August 2025. Skyline is a holding company, and its operations are conducted through its wholly owned operating subsidiaries, Kin Chiu Engineering Limited and Kin Chiu Development Company Limited. Operations primarily consist of construction activities which include public civil engineering works, such as road and drainage works, in Hong Kong. Skyline mostly undertakes civil engineering works in the role as a subcontractor but is fully qualified to undertake such works in the capacity of a main contractor. QLE intends to pursue opportunities to acquire assets in the critical materials supply chain. +We acquired Renergen in January 2026. Renergen is South Africa’s leading onshore natural gas explorer and the first integrated producer of both liquid helium and LNG, both of which are produced from the natural gas reserve base that underpins Renergen’s natural gas development project (the “Virginia Gas Project”). The Virginia Gas Project includes (i) the liquefaction of natural gas into LNG, (ii) the separation of helium from natural gas, and (iii) the further liquefaction of helium into 99.999% pure liquid helium. This liquefaction and separation takes place at Renergen’s natural gas processing plant in the Free State Province of South Africa (the “Viriginia Gas Plant”). Renergen’s principal asset is its 94.5% equity ownership in Tetra4, which holds an onshore petroleum production right and is the entity developing the Virginia Gas Project. +Our Subsidiaries +We operate principally through our subsidiaries as described below. +Specialist Isotopes . ASP Isotopes Guernsey Limited (the holding company for certain subsidiaries in the Cayman Islands, South Africa, Iceland and the United Kingdom) is focused on the development and commercialization of high-value, low-volume isotopes for highly specialized end markets (such as C-14, Molybdenum-100 (“Mo-100"), and Si-28). ASP Isotopes UK Ltd is the owner of our enrichment technology. +Quantum Leap Energy . In September 2023, we formed QLE, which also has subsidiaries in the United Kingdom (Quantum Leap Energy Limited) and South Africa (Quantum Leap Energy (Pty) Limited), to focus on the development and commercialization of advanced nuclear fuels, such as HALEU and Lithium-6. QLE’s direct wholly owned subsidiary Quantum Leap Energy Limited (“QLE UK”), has its operations in the United Kingdom. QLE UK’s direct wholly owned subsidiary, Quantum Leap Energy Proprietary Limited (“QLE South Africa”), has its operations in South Africa. QLE also formed QLE TP Funding SPE LLC, a Delaware limited liability company (the “QLE SPE Borrower”), as a wholly owned subsidiary to act as a special purpose borrower for a loan transaction with TerraPower, a US nuclear innovation company. The QLE SPE Borrower has formed a subsidiary in South Africa to act as the project company for a proposed new uranium enrichment facility at Pelindaba, South Africa. +QLE’s mission is to address perceived gaps in the nuclear fuel cycle, promote safe nuclear power, and enhance the sustainability of the nuclear fuel cycle for advanced nuclear reactors and fusion systems, as well as the existing nuclear fleet. We believe that many advanced nuclear reactors, including small modular reactors (“SMRs”), will rely on fuels with higher uranium enrichment levels, specifically HALEU, which we intend to produce. QLE also intends to produce high-isotopic purity fuel feedstock, such as Lithium-6, for fusion reactors, and by extension, Lithium-7 for Light Water Reactor control. These fuels may enable greater efficiency, compact reactor footprints, and lengthened operational cycles between refueling. Given the flexible nature of our enrichment technology and integrated value chain approach, QLE also intends to make available LEU+ to the existing fleet of nuclear reactors currently running on LEU, thus enabling existing reactors to lengthen the time between refueling, cut costs and boost power output. +As previously announced, our board of directors intends to pursue the separation of our Nuclear Fuels business and Specialist Isotopes and Related Services business into two independent companies. The regulatory landscape and supply chain for nuclear fuel production differs significantly from that of medical isotopes, hence we and QLE have different business models and we believe that both companies would benefit if QLE is independently managed and financed. We plan to effect the separation through a listing of QLE in a transaction that results in QLE existing as a separate public company with shares listed on a U.S. national securities exchange and a portion of QLE’s common equity being distributed to our stockholders as of a to-be-determined future record date. Although no assurance can be given, our goal is to list QLE on such exchange, subject to market conditions, obtaining applicable approvals and consents, and complying with applicable rules and regulations and public market trading and listing requirements. In November 2025, we announced that QLE had confidentially submitted a draft registration statement on Form S-1 to the SEC relating to the proposed initial public offering of QLE’s Class A common stock. While we currently expect that a listing of QLE as a separate public company is the most likely separation transaction, our board of directors remains committed to maximizing shareholder value creation, and will continue to evaluate other options for separation to maximize shareholder value. +We entered into a number of agreements with QLE, including a License Agreement, pursuant to which QLE has licensed from us the rights to technologies and methods used to separate U-235 and Lithium-6 (including but not limited to the QE and ASP technologies) in exchange for a perpetual royalty in the amount of 10% of all future QLE revenues, and an Engineering, Procurement +6 +and Construction (“EPC”) Services Framework Agreement, pursuant to which we will provide services for the engineering, procurement and construction of one or more turnkey U-235 and Lithium-6 enrichment facilities in locations to be identified by QLE and owned or leased by QLE, and commissioning, start-up and test services for each such facility, subject to the receipt of all applicable regulatory approvals, permits, licenses, authorizations, registrations, certificates, consents, orders, variances and similar rights. +PET Labs. We have a 51% ownership stake in PET Labs, a South African radiopharmaceutical operations company focused on the production of fluorinated radioisotopes and active pharmaceutical ingredients, through which we entered the downstream medical isotope production and distribution market. Under the terms of the Share Purchase Agreement pursuant to which we acquired the shares in PET Labs, we agreed to pay a total of $2.0 million for the shares in two installments, which has been paid in full as of December 2025. In addition, we have an option to purchase the remaining 49% of the outstanding equity in PET Labs, exercisable until January 31, 2027, for $2.2 million. +East Coast Nuclear Pharmacy. In October 2025, we completed the acquisition of East Coast Nuclear Pharmacy ("ECNP"). The acquisition is intended to supplement the distribution of our pipeline. Pursuant to the terms of the agreement, we acquired 100% of the issued and outstanding membership interests for total purchase consideration of $2.5 million of which $2.0 million was paid up front in cash and the remaining $0.5 million was deferred through the issuance of notes payable that are to be repaid by June 30, 2026. +Skyline Builders Group Holding Ltd. In August 2025, QLE completed the acquisition of a controlling interest in Skyline. QLE entered into a Stock Purchase Agreement to purchase all 1,995,000 of Skyline's Class B Ordinary Shares for the aggregate purchase price of $1,000,000. Additionally, QLE entered into a Securities Purchase Agreement to purchase (i) 454,794 Class A Ordinary Shares, (ii) a Prefunded Warrant to purchase 1,600,000 Class A Ordinary Shares at an exercise price of $0.0001 per share ("Prefunded Warrants"), (iii) a Class A Ordinary Share Purchase Warrant A to purchase up to 2,054,794 Class A Ordinary Shares at an exercise price of $0.60 per share ("A Warrant"), and (iv) a Class A Ordinary Share Purchase Warrant B to purchase 2,054,794 Class A Ordinary Shares at an exercise price of $0.65 per share ("B Warrant" and together with Prefunded Warrant and A Warrant, "Warrants"), for the aggregate purchase price of $1,500,000 ("Skyline Purchase Agreement"). +Each Class A Ordinary Share shall entitle the holder thereof to one (1) vote on all matters subject to vote at general meetings of Skyline, and each Class B Ordinary Share shall entitle the holder thereof to twenty (20) votes on all matters subject to vote at general meetings of Skyline. Currently there is no mechanism in which Class A Ordinary Shares are convertible into Class B Ordinary Shares. Currently there is no mechanism in which Class B Ordinary Shares are convertible into Class A Ordinary Shares. On the acquisition date, QLE became the holder of 79.14% of the aggregate voting power represented by all of Skyline's outstanding Class A Ordinary Shares and Class B Ordinary Shares, and thereby gaining control over Skyline. +Skyline is a holding company, and its operations are conducted through its wholly owned operating subsidiaries, Kin Chiu Engineering Limited and Kin Chiu Development Company Limited. Operations primarily consist of construction activities which include public civil engineering works, such as road and drainage works, in Hong Kong. Skyline mostly undertakes civil engineering works in the role as a subcontractor but is fully qualified to undertake such works in the capacity of a main contractor. QLE intends to pursue opportunities to acquire assets in the critical materials supply chain. +Effective September 18, 2025, Dr. Ryno Pretorius, Chief Executive Officer of QLE, was appointed as an independent director of Skyline. In addition, an employee of ASP Isotopes was appointed as an independent director of Skyline. Effective January 1, 2026, the Skyline board of directors appointed Paul Mann as Executive Chairman. Effective March 31, 2026, the employee of ASP Isotopes that held one of the director positions at Skyline resigned was replaced by a new independent director. +On January 23, 2026, Skyline entered into a warrant exchange agreement (the “Skyline Exchange Agreement”) with the holders of Skyline Class A Ordinary Share Purchase Warrant A’s and Skyline Class A Ordinary Share Purchase Warrant B’s (collectively, the “Skyline Holder Warrants”), to purchase an aggregate of 48,698,628 Skyline Class A Ordinary Shares, that were purchased in the Skyline Series A Private Placement, to exchange the Skyline Holder Warrants issued on August 29, 2025, for an aggregate of 47,326,025 newly issued Series A preferred shares of Skyline (“Skyline Series A Preferred Shares”) and allotted among the holders in accordance with the Skyline Exchange Agreement. Each Skyline Series A Preferred Share is convertible, at the option of a holder thereof, into Skyline Class A Ordinary Shares. +On February 11, 2026, Skyline entered into (i) a securities purchase agreement (the “Reg D Purchase Agreement”) for an offering of Skyline’s Series B Convertible Preferred Shares (the “Skyline Series B Preferred Shares”) in a private placement (the “Reg D Private Placement”) pursuant to Regulation D under the Securities Act of 1933, as amended and (ii) a securities purchase agreement (the “Reg S Purchase Agreement”) for an offering of the Skyline Series B Preferred Shares in a private placement pursuant to Regulation S under the Securities Act (the “Reg S Private Placement” and together with the Reg D Private Placement, the “February 2026 Skyline Series B Private Placements”), in each case, for the purchase and sale of the Skyline Series B Preferred Shares. +The February 2026 Skyline Series B Private Placements closed on February 13, 2026 at which Skyline issued 6,322 of the Skyline Series B Preferred Shares. The purchase price for each Skyline Series B Preferred Share was $5,000. Each Skyline Series B Preferred Share is convertible into Skyline Class A ordinary shares with a conversion price of $2.40 per share, subject to certain +7 +anti-dilution adjustments that are subject to a floor of $1.50 per share and other customary adjustments for share splits, recapitalizations, reorganizations and similar transactions. The gross proceeds of the Skyline Series B Private Placement were approximately $31.6 million, before deducting placement agent fees and other offering expenses payable by Skyline. +In connection with the February 2026 Skyline Series B Private Placements, Skyline also entered into placement agency agreements dated February 10, 2026 that included the payment of a cash fee equal to 8.0% of the aggregate gross proceeds of the February 2026 Skyline Series B Private Placements and the issuance of non-callable warrants exercisable for a number of Skyline's Class A Ordinary Shares equal to 6% of the Class A Ordinary Shares underlying the Skyline Series B Preferred Shares. The warrants have an exercise price of $2.40 per share. +On March 20, 2026, Skyline entered into (i) a senior unsecured convertible note purchase agreement for an offering of approximately $16.6 million of Skyline's senior unsecured convertible notes (the “2026 Skyline Notes”) in a private placement and (ii) a securities purchase agreement dated March 20, 2026 for an offering of $0.6 million of Skyline’s Series B Preferred Shares (the “March 2026 Skyline Preferred Shares”) in a private placement (the "March 2026 Skyline Private Placement"). +The March 2026 Skyline Private Placement closed on March 25, 2026. The 2026 Skyline Notes are convertible into Skyline's class A ordinary shares, par value $0.00001 per share at a conversion price of $2.40 per share, subject to certain anti-dilution adjustments, that are subject to a floor of $1.50 per share. The conversion price of the 2026 Skyline Notes is also subject to other customary adjustments for share splits, recapitalizations, reorganizations and similar transactions The purchase price for each March 2026 Skyline Preferred Share was $5,000. Each March 2026 Skyline Preferred Share is convertible into Class A ordinary shares at a conversion price of $2.40 per share, subject to certain anti-dilution adjustments that are subject to a floor of $1.50 per share. The gross proceeds of the March 2026 Skyline Private Placement was approximately $17.2 million, before deducting placement agent fees and other offering expenses that were paid by Skyline. +In connection with the March 2026 Skyline Private Placement, Skyline also entered into placement agency agreements dated March 20, 2026 that included the payment of a cash fee equal to 8.0% of the aggregate gross proceeds of the March 2026 Skyline Private Placement and the issuance of non-callable warrants exercisable for a number of Skyline's Class A Ordinary Shares equal to 8% and 6% of the Class A Ordinary Shares underlying the 2026 Skyline Notes and March 2026 Skyline Preferred Shares, respectively. The warrants have an exercise price of $2.40 per share. +On March 29, 2026, QLE entered into a securities exchange agreement with an investor (the "QLE Exchange Agreement"). Per the QLE Exchange Agreement, the investor assigned and transferred 1,995,000 Class A Ordinary Shares held by the investor to QLE in exchange for an equal number of Class B Ordinary Shares held by QLE. +On March 31, 2026, Skyline issued an additional $3.0 million of 2026 Skyline Notes in a private placement. +Renergen Acquisition. On January 6, 2026, ASP Isotopes acquired all of the issued and outstanding ordinary shares of Renergen (“Renergen Ordinary Shares”) from Renergen shareholders in exchange for shares of our common stock at an exchange ratio of 0.09196 shares of our common stock for each Renergen Ordinary Share (the “Consideration Shares”) through the implementation of a scheme of arrangement (the “Scheme”) in accordance with Sections 114 and 115 of the South African Companies Act, No. 71 of 2008, resulting in the issuance of an aggregate of 14,270,000 Consideration Shares. As a result of the transactions contemplated by the Scheme, the ordinary shares of Renergen, which were publicly traded on the Johannesburg Stock Exchange (JSE: REN) and the Australian Securities Exchange (ASX:RLT), were delisted and Renergen became a wholly owned subsidiary of ASP Isotopes. +Renergen is South Africa’s leading onshore natural gas explorer and the first integrated producer of both liquid helium and LNG, both of which are produced from the large natural gas reserve base that underpins Renergen’s Virginia Gas Project. The Virginia Gas Project includes (i) the liquefaction of natural gas into LNG, (ii) the separation of helium from natural gas, and (iii) the further liquefaction of helium into 99.999% pure liquid helium. This liquefaction and separation takes place at the natural gas processing plant (the “Virginia Gas Plant”) in the Free State Province of South Africa. Based on the drilled and flow-tested wells, Renergen’s average helium concentration exceeds 3.0%, which is well above typical conventional natural gas reservoirs containing helium in small concentrations (less than 0.5%). +In South Africa, petroleum production rights are issued by the South African Department of Mineral Resources and Energy (the “DMRE”) and serve as the mechanism through which all entities, mostly private, are granted the right to extract and sell hydrocarbons and associated coproducts. The Petroleum Agency of South Africa is responsible for (i) promoting onshore and offshore exploration and production of petroleum; (ii) receiving and evaluating applications for reconnaissance permits, technical cooperation permits, exploration rights and production rights; and (iii) making recommendations on such applications to the Minister of Mineral Resources and Energy. South African production rights are valid for 30 years and are renewable for further periods, each of which must not exceed 30 years at a time in respect of each renewal, provided that the holder can justify that it can continue production operations. Production rights may be encumbered by mortgages for the purposes of raising debt financing. +Renergen’s principal asset is its 94.5% equity ownership in Tetra4, which holds South Africa’s first and only onshore petroleum production right (the “Production Right”) and is the entity developing the Virginia Gas Project. Our Production Right is currently valid through September 20, 2042 and renewable for an additional 30-year period thereafter. The Virginia Gas Project +8 +spans an area of over 187,000 hectares (over 462,000 acres) in the Free State Province approximately 250 kilometers (155 miles) southwest of Johannesburg, where natural gas-emitting boreholes were discovered through other mineral exploration activities. We have confirmed our Production Right as a major global helium resource with an average helium concentration of over 3% based on drilled and flow-tested wells. Additionally, the purity of our natural gas is high, with an average of over 90% natural gas and almost zero percent higher alkanes or sulphur, reducing the complexity and cost of liquefaction. The remaining approximately 7% of our production is nitrogen, which is utilized to separate the helium from the natural gas stream in Phase 1 of the Virginia Gas Project (“Phase 1”) production process. We receive an economic advantage from this coproduced nitrogen source, as it would otherwise have to be sourced externally to separate the helium from the natural gas stream. +In addition to our Production Right, the South African government also granted us petroleum exploration rights (“Exploration Rights”). Exploration Rights allow the holder to carry out the entire value chain of petroleum exploration such as acquisition and processing of new geological/geophysical data, reprocessing of existing geological/geophysical data and any other related activity to define a trap to be tested by drilling, logging and testing, including well appraisal activities. The Exploration Rights correspond to our operations in the Free State Province and are expected to contain significant helium and natural gas resources exceeding the scope of the Virginia Gas Project. Our Exploration Rights were set to expire on August 23, 2024. However, we submitted an application to incorporate the Exploration Rights into our Production Right, by means of an amendment to the Production Right in accordance with Section 102 of the South African Mineral and Petroleum Resources Development Act 28 of 2002 (“MPRDA”), which we expect will extend our ability to carry out petroleum exploration activities through the expiration date of our Production Right. Our application was submitted on July 16, 2024 and the application was authorized on May 9, 2025. Following the authorization, two appeals were made by various parties and the appeal process is ongoing. We expect the appeal process to be resolved in 2027. +Phase 1 has commenced commercial LNG operations. Phase 1 drilling of wells to reach the required cumulative nameplate flow rate is now complete. The gas gathering and tie in connections for these wells is ongoing. Once the tie in connections are complete the facility is expected to operate at maximum production capacity and include liquid helium operations. Phase 1 serves as both proof of concept for the larger development that will be Phase 2 of the Virginia Gas Project (“Phase 2”), and sales and revenue generation to establish a foundational customer base and foster customer relationships. +The Virginia Gas Project benefits from favorable supply and demand trends in both the LNG and liquid helium sectors. The LNG is and will continue to be sold domestically in South Africa into a market suffering energy and natural gas shortages, and we plan to sell helium directly to global customers at a time when the world is suffering helium supply shortages, which have been further exacerbated by the ongoing United States-Israel-Iran war. We believe that it was for these two reasons that the Virginia Gas Project was conditionally approved to be funded by the U.S. International Development Finance Corporation (“DFC”) as part of the U.S.’s initiative to ensure new helium supply comes online as aerospace and the semiconductor industry increase helium requirements in the face of diminished supply, while increasing South Africa’s domestic energy supply. +Helium is a vital and irreplaceable element in many modern industries because it is both chemically and electrically inert and, when in liquid form, is the coldest substance known to man at 3 degrees Kelvin (minus 454.3 degrees Fahrenheit). For these reasons, it can be used in the manufacture of semiconductors, to purge laboratory or manufacturing environments, act as a fuel propellant for other cryogenic fuels, and/or provide deep cryogenic cooling. It is commonly used in space exploration and rocketry, high-level physics experiments (e.g., particle accelerators, quantum mechanics), medical science within MRI devices, fiber optic cable production, commercial diving gas, specialized welding, coolant for nuclear power stations and lifting balloons. +We believe that Renergen’s LNG supply can play an important role in reducing South Africa's relatively high carbon emissions by being the first, and currently the only, LNG supplier in the country. According to Energy Institute (2024), coal has a 69% share of national primary energy consumption, with gas only around 3.5%. As such, according to the World Bank, South Africa ranks as the fifth-worst carbon emissions country per kilogram per purchasing power parity of gross domestic product (“GDP”). This ranking is largely due to South Africa’s high reliance on low-grade coal to provide electricity, supplemented by Sasol’s use of coal to liquids technology. Sasol Limited is one of the country’s largest energy suppliers and operator of the natural gas pipeline supplying gas from Mozambique into Johannesburg. LNG is a significantly lower carbon-emitting fuel than either of coal (by 50%) and diesel (25%), upon combustion. Therefore, the introduction of Renergen’s LNG into South Africa’s energy supply mix, including the possible direct substitution of Renergen’s LNG for first diesel, and then potentially coal, may help reduce South Africa’s overall carbon emissions intensity as the country moves towards its net zero carbon emissions targets by 2050. +Investments in Early Stage Drug Development Companies +IsoBio . On July 28, 2025, we purchased 2,000,000 shares of IsoBio, Inc. (“IsoBio”) Series Seed-1 Preferred Stock at $2.50 per share for a total aggregate purchase price of $5.0 million. IsoBio is a U.S.-based radiotherapeutic development company focused on developing a broad pipeline of mAb-based radioisotope therapeutics targeting both derisked and novel tumor antigens for patients in need of new cancer therapies. As the owner of the Series Seed-1 Preferred Stock, we have the right to designate one board member. An officer and director of ours was designated to fill that board seat. In addition, another board member of ours is a board member and executive officer of IsoBio. +9 +Opeongo . On January 26, 2026, we purchased 4,356,918 shares of Opeongo, Inc. (“Opeongo”) Series Seed-1 Preferred Stock at $2.2952 per share for a total aggregate purchase price of $10.0 million. Opeongo is a biotechnology company developing novel therapeutics using extracellular matrix modulation to target fibrosis, inflammation, and cancer. Opeongo was co-founded by David Baram, Ph.D. who serves as Opeongo’s Chief Executive Officer and director. As the owner of the Series Seed-1 Preferred Stock, we have the right to designate one board member. An officer and director of ours was designated to fill that board seat. In addition, another board member of ours is a board member and executive officer of Opeongo. +Skyline Investments +Skyline Reemag Investment. In November 2025, Skyline acquired a 13.09% ownership of Reemag LLC ("Reemag") for a cash purchase price of $3.0 million. Skyline will subscribe for additional membership interests of Reemag in tranches, resulting in ownership percentages of 13.09%, 20.06%, 33.42% and 50.10% at the initial, second, third and fourth closing respectively for an aggregate purchase price of $20.0 million. The second, third and fourth closings were scheduled on or before January 31, 2026, March 31, 2026 and by the earlier of a $200.0 million capital raise or July 31, 2026, respectively. However, in March 2026, Skyline entered into the first amendment to the subscription agreement with Reemag that amended the dates of the second, third and fourth closings to May 31, 2026, July 31, 2026 and September 30, 2026, respectively. +Skyline Critical Minerals Space Investment. On October 31, 2025, Skyline entered into a subscription and unit purchase agreement with a limited liability company engaged in the critical minerals space, pursuant to which Skyline subscribed for an approximate 20% membership interest in such company for a subscription price of $20.0 million. +Agreements with TerraPower LLC +On April 4, 2024, we entered into an agreement with TerraPower to develop a conceptual design, refined cost/schedule/financing, risk register, and term sheet for a HALEU facility (the “TerraPower Agreement”). The TerraPower Agreement may be terminated for (a) breach or default, (b) our convenience or (c) TerraPower’s convenience. TerraPower is obligated to make all payments for milestones completed by us and these payments are nonrefundable. +On October 18, 2024, we signed a term sheet with TerraPower (the “TerraPower Term Sheet”) that provides for the execution of two definitive agreements: (1) an agreement pursuant to which TerraPower will provide funding for our construction of a uranium enrichment facility capable of producing HALEU using our proprietary aerodynamic separation process technology to be located in the Republic of South Africa and (2) an agreement pursuant to which we will deliver to TerraPower the full capacity of the enrichment facility. +In May 2025, we entered into a Loan Agreement with TerraPower (the “TerraPower Loan Agreement”), which provides conditional commitments from TerraPower to us through one of our wholly-owned U.S.-based subsidiaries for a multiple advance term loan totaling $22.0 million for the purpose of partially funding the construction of a proposed new uranium enrichment facility in South Africa. The total loan amount is inclusive of a 10% original issue discount on each disbursement and carries a fixed interest rate of 10% per annum. Per the terms of the TerraPower Loan Agreement and subject to the satisfaction of various conditions precedent to disbursements (including receiving all required licenses and permits to perform uranium enrichment in South Africa), we will receive aggregate loan disbursements of $20.0 million. Such loan matures on May 16, 2032. Interest will begin accruing upon each milestone disbursement we receive and will be added to the principal balance until November 2027. Principal and interest payments will be made in 60 equal installments beginning in November 2027. We plan to request drawdowns on this loan beginning in the third quarter of 2026. +In addition to the TerraPower Loan Agreement, in May 2025, we and TerraPower have entered into two supply agreements for the HALEU expected to be produced at our uranium enrichment facility. The initial core supply agreement is intended to support the supply of the required first fuel cores for the initial loading of TerraPower’s Natrium project in Wyoming. The long-term supply agreement is a 10-year supply agreement of up to a total of 150 metric tons of HALEU, commencing in 2028 through end of 2037. +Our Segments +Beginning in 2024, primarily as a result of the increased business activities of our subsidiary, QLE, we had two operating segments: (i) nuclear fuels, and (ii) specialist isotopes and related services. Beginning in August 2025, primarily as a result of the acquisition of Skyline, we have three operating segments: (i) nuclear fuels, (ii) specialist isotopes and related services, and (iii) construction services: +• +Nuclear Fuels. This segment is focused on research and development of technologies and methods used to produce HALEU and Lithium-6 for the advanced nuclear fuels target end market. +• +Specialist Isotopes and Related Services. This segment is focused on research and development of technologies and methods used to separate high-value, low-volume isotopes (such as C-14, Si-28 and Yb-176) for highly specialized target end markets other than advanced nuclear fuels, including pharmaceuticals and agrochemicals, nuclear medical imaging and semiconductors, as well as services related to these isotopes, and this segment includes PET Labs. +10 +• +Construction Services. This segment is focused on public civil engineering services in Hong Kong, such as road and drainage works which includes construction of footway, drain, ducts, and pipelines. In executing these projects, we may be required to perform a range of activities including to (i) clear the construction site and make demolition of existing structures; (ii) install concrete and reinforcing steel bars; (iii) conduct excavation, deposition, disposal and compaction of fill material; and (iv) plant trees, plants, irrigation system and general establishment works. +Our Strategy +Commence commercial production at each of our enrichment facilities in Pretoria, South Africa. +We commenced commercial production of enriched isotopes at our ASP enrichment facilities located in Pretoria, South Africa during the first quarter of 2025. Our first ASP enrichment facility is designed to enrich light isotopes, such as C-14. The second ASP enrichment facility, which is substantially larger than the first, should have the potential to enrich kilogram quantities of relatively heavier isotopes, including but not limited to Si-28 and Mo-100. We are targeting initial commercial shipments of enriched C-14 in mid-2026 and initial commercial shipments of enriched Si-28 during the second quarter of 2026. We have also completed the commissioning phase and are producing commercial samples of highly enriched Yb-176 at our third enrichment facility, a QE technology facility, which will be our first laser-based enrichment plant. We are targeting initial commercial shipments of Yb-176 in mid-2026 or the third quarter of 2026. +Demonstrate the capability to produce commercial quantities of enriched C-14, Si-28 and Yb-176 using the ASP and QE technologies and capitalize on the opportunity to solve many supply chain challenges that currently exist. +We intend to demonstrate the capability to produce C-14, Si-28 and Yb-176 at a scale that can support anticipated customer demand for all three isotopes. +Historically, Russia has been the sole supplier of C-14, which is used as a tracer in the development of new pharmaceuticals and agrochemicals. The supply chain has been inherently fragile with inconsistent service. We have received an initial supply of feedstock from our customer and have started the enrichment of C-14. +Isotopically enriched silicon is regarded as a promising material for semiconductor quantum information due to its very long coherence times and its compatibility with the readily available industrial platform. We believe that the ASP technology is ideally suited to the production of this isotope because it has the ability to enrich molecules of low molecular mass. Other electronic gasses that can likely be enriched using ASP technology include disilane and germane. +Enriched Yb-176 can be irradiated to produce Lutetium-177, which has been identified for use in oncology, particularly in targeted radionuclide therapy ("TRT"). TRT is used in the treatment of various types of cancers, including neuroendocrine tumors, prostate cancer, and bone metastases, among others. There are numerous ongoing clinical trials studying Lutetium-177 PSMA-617 in patients with metastatic castration-resistant prostate cancer. We believe we have obtained all necessary licenses within South Africa to proceed with the commercial development of this product. +Continue identifying potential offtake customers and strategic partners for our enriched isotopes. +We currently have no sales attributable to enriched isotopes, but we have significant interest from potential offtake customers for the enriched isotopes that we intend to produce. In June 2023, we entered into a tolling agreement with a Canadian customer for the entire capacity of our C-14 production facility. In April and June 2024, we entered into purchase orders with a US semiconductor company and a global industrial gas company for the supply of highly enriched Si-28. We are currently in discussions with potential customers that have an interest in entering into long-term supply agreements for kilogram quantities of Si-28 and larger quantities of Xe-129, Ge 72, Ge-74, Zn-68, and Cl-37. We intend to identify additional potential customers and strategic partners for isotopes that we may produce at our existing and planned enrichment facilities. +Demonstrate the capability to produce HALEU using our enrichment technologies and meet anticipated demand for the new generation of HALEU-fueled small modular reactors and advanced reactor designs that are now under development for commercial and government uses. +We plan to begin research and development for the enrichment of uranium to demonstrate our capability to produce HALEU using QE technology. We anticipate a future demand for HALEU for the new generation of HALEU-fueled SMRs and advanced reactor designs that are now under development for commercial and government uses. SMRs are viewed as being cheaper, safer, and more versatile than traditional large-scale nuclear reactors, and development of the new technology is receiving considerable funding from the U.S. Department of Energy, as well as from the governments of other countries. There is currently no commercial production of HALEU in the United States. We are currently conducting a feasibility study with respect to constructing an enrichment facility in South Africa, the U.S. and the United Kingdom. We are currently in discussions with nuclear regulatory +11 +authorities in multiple countries, including the UK Atomic Energy Authority, UK Office of Nuclear Regulation (UK ONR), Necsa, the DMRE, United States Department of Energy (DOE) and the United States Nuclear Regulatory Commission (NRC), regarding the construction of a nuclear fuel plant in these countries. In the period since our inception to date, we have not applied our enrichment technologies to the enrichment of U-235, nor received permission or regulatory approval to conduct testing of our enrichment technologies on U-235, except for the activities contemplated by the Services Contract with Necsa (described in the next paragraph). Our expectation that QLE’s initiative to apply our enrichment technologies to the enrichment of U-235 could be successful is based upon research conducted by certain of our scientists prior to joining the company, as well as the demonstrated effectiveness of QE technology on Yb-176. +We intend to progress our uranium enrichment initiative first in South Africa. In November 2024, we entered into a Memorandum of Understanding ("MOU") with Necsa to collaborate on the research, development and ultimately the commercial production of advanced nuclear fuels. Necsa is a state-owned company established by the Republic of South Africa Nuclear Energy Act in 1999 with a mandate to undertake and promote research and development in the field of nuclear energy and radiation sciences. Necsa is also responsible for processing source material, and co-operating with other institutions on nuclear and related matters. In February 2026, QLE South Africa and Necsa entered into a Services Contract as part of the collaboration contemplated by the MOU. Under the Services Contract, Necsa has agreed to provide to QLE South Africa certain facilities, infrastructure, utilities and services related to the siting, design, construction, commission and operation of an enrichment facility on the Necsa site in Pelindaba. A Joint Coordination Committee, to be comprised of two representatives of QLE South Africa and Necsa, has been established to oversee and govern the implementation of the Services Contract. +In March 2026, QLE UK entered into an agreement with the University of Bristol related to the design of a state-of-the-art lithium laser research facility in the UK. Under the terms of the agreement, the University of Bristol is expected to lead the design and feasibility study for a site-agnostic laser enrichment research facility over an estimated four-month initial phase. The project involves comprehensive desk-based concept design work, detailed engineering specifications, and safety reviews to establish the foundation for what could become a groundbreaking research hub. The University of Bristol is expected to coordinate a comprehensive team of specialists, including experts in mechanical, electrical, and plumbing specification, structural engineering, architecture, construction project management, pyrophoric lithium handling, and laser safety. The project is expected to progress through multiple phases, including documentation review, safety assessments, cell design development, and detailed facility design work culminating in RIBA Stage 4 (Technical Design) completion. Subject to a positive feasibility assessment, the parties intend to proceed with construction of the facility at a suitable University of Bristol site off-campus where it will be planned to enable cutting-edge research commissioned and funded by QLE. QLE’s UK program of work has been developed in consultation with key UK government and regulatory bodies, including the UK Department for Energy Security and Net Zero, the UK Atomic Energy Authority, the UK ONR, and the UK Environment Agency. +Alongside our talks with regulators, we have entered into agreements or are currently discussing with multiple counterparties engaged in the development of SMR reactors to produce HALEU to further their research efforts and future commercial endeavors. For example, in May 2025, we entered into the TerraPower Loan Agreement, which provides conditional commitments from TerraPower to us through one of our wholly-owned U.S.-based subsidiaries for a multiple advance term loan totaling $22,000,000 for the purpose of partially funding the construction of a proposed new uranium enrichment facility in South Africa. Per the terms of the TerraPower Loan Agreement and subject to the satisfaction of various conditions precedent to disbursements (including receiving all required licenses and permits to perform uranium enrichment in South Africa), we will receive aggregate loan disbursements of $20,000,000. We plan to request an initial drawdown on this loan during 2026 when construction of the uranium enrichment facility is expected to begin. In addition to the TerraPower Loan Agreement, in May 2025, we and TerraPower entered into two supply agreements for the HALEU expected to be produced at our uranium enrichment facility in South Africa. The initial core supply agreement is intended to support the supply of the required first fuel cores for the initial loading of TerraPower’s Natrium project in Wyoming. The long-term supply agreement is a 10-year supply agreement of up to a total of 150 metric tons of HALEU, commencing in 2028 through end of 2037. +Demonstrate the effectiveness and value in the use of stable isotopes in the downstream radiopharmacy market, after acquiring 51% ownership interest in PET Labs, the leading radiopharmacy in South Africa. This investment will address the radioisotope needs of South Africa as well as certain neighboring countries. +Under the terms of a Share Purchase Agreement, dated October 30, 2023, we acquired 51% of the issued share capital of PET Labs, a company incorporated in the Republic of South Africa. PET Labs is a South African radiopharmaceutical operations company, dedicated to nuclear medicine and the science of radiopharmaceutical production. As a result of this transaction, we entered into the downstream radiopharmacy market that we intend to service in the future. This transaction will help provide the market with adequate proof of concept of the value of utilizing Mo-100 in downstream SPECT imaging procedures while providing supply chain stability to the region of South Africa and neighboring countries. We intend to expand PET Labs’ existing operations by adding two new cyclotrons to its service footprint, enabling the company to properly expand its other revenue generation mediums, which is anticipated to drive free cash flow to the company. +12 +Develop world class helium reserves at Virginia Gas Project. +The Virginia Gas Project contains high purity natural gas and is one of the richest concentrations of helium globally. Some wells contain up to 12% helium concentration in recorded tests, and based on the drilled and tested flow rates, our average helium concentration exceeds 3%, which compares with the average concentrations of Qatar at 0.05%, Russia at 0.06% and the USA at 0.35%. The LNG is and will continue to be sold domestically in South Africa into a market suffering energy and natural gas shortages, and we plan to sell the helium directly to global customers at a time when the world is suffering helium supply shortages, which have been further exacerbated by the ongoing United States-Israel-Iran war. +Capitalize on the Acquisition of a Controlling Interest in Skyline Builders Group Holding Limited. +On August 29, 2025, QLE became a controlling shareholder of Skyline Builders Group Holding Limited, a company incorporated under the laws of the Cayman Islands (“SKBL”) with its Class A Ordinary Shares listed on The Nasdaq Stock Market LLC (“Nasdaq”) under the symbol “SKBL.” QLE invested in SKBL’s Class A Ordinary Shares, Class B Ordinary Shares and warrants to purchase Class A Ordinary Shares for the aggregate purchase price of $2.5 million. Each warrant is immediately exercisable and entitles the holder to acquire Class A Ordinary Shares for a period of five years following August 29, 2025. QLE, as a holder of warrants, does not have the right to exercise any portion of any warrant, to the extent that QLE (together with the holder’s affiliates) would beneficially own in excess of 9.99% of the number of Class A Ordinary Shares outstanding immediately after giving effect to the exercise of the applicable warrant. +As of the date of this annual report on Form 10-K, QLE is the holder of 4.74% of the aggregate voting power represented by all outstanding Class A Ordinary Shares and Class B Ordinary Shares of SKBL. +In addition, on August 29, 2025, Paul Mann, our Chairman and Chief Executive Officer and Chairman of the Board of Managers of QLE, purchased, for the aggregate purchase price of $2.5 million, as an individual investor: Class A Ordinary Shares and certain warrants to purchase Class A Ordinary Shares of SKBL on the same terms as QLE’s investment in Class A Ordinary Shares and warrants, provided that Mr. Mann, as a holder of warrants, does not have the right to exercise any portion of any warrant, to the extent that such holder (together with the holder’s affiliates) would beneficially own in excess of 4.99% of the number of Class A Ordinary Shares outstanding immediately after giving effect to the exercise of the applicable warrant. +Competition +Radioisotopes and Chemical Elements Competition +The development and commercialization of radioisotopes and chemical elements is highly competitive. We face competition with respect to all the enriched isotopes that we may produce using our ASP technology from established biotechnology and nuclear medicine technology companies and will face competition with respect to enriched uranium that we may seek to develop or commercialize in the future from innovative technology and energy companies. There are a number of large biotechnology and nuclear medicine technology companies that currently market and sell radioisotopes to radiopharmacies, hospitals, clinics and others in the medical community (Mo-99 is the active ingredient for Tc-99m-based radiopharmaceuticals used in nuclear medicine procedures). There are also a number of technology and energy companies that are currently seeking to develop HALEU. Potential competitors also include academic institutions, government agencies and other public and private research organizations that conduct research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and commercialization. +We believe our competitors lag behind us in terms of the technical expertise of our senior management and the know-how contained in the aerodynamic separation technique, and will be unable to replicate the expected results of the ASP technology, even as we expect to continue to improve the existing technology and processes. Additionally, the high capital costs of development of proprietary technologies, significant lead times required to construct new enrichment facilities, as well as stringent regulatory and operating requirements applicable to enrichment facilities, adds to the significant barriers to entry for smaller competing market participants. +LNG and Helium Competition +The South African gas market has historically been stagnant and almost entirely dependent on local production of liquefied petroleum gas (“LPG”) and natural gas imported from Mozambique. There are frequent constraints in LPG supply in South Africa. Natural gas imported from Mozambique comes via the Republic of Mozambique Pipeline Company pipeline to Johannesburg and is supplied mainly to users close to the pipeline at low pressures. In addition to LPG, South Africa relies primarily on coal for electricity generation. Currently, only approximately 3% of South Africa’s energy mix comes from natural gas. The current source of natural gas and coal supply is unable to fully supply existing energy demand. As the holder of South Africa’s first and only onshore petroleum Production Right, we believe our biggest competition for our LNG includes producers and distributors of LPG, including the Republic of Mozambique Pipeline Company, and producers of other fuel sources such as compressed natural gas and coal. Additionally, although South Africa has historically not imported LNG from outside of the continent, South Africa received its first import of LNG in November 2021 in the port of Ngqura. In the future, we may face geographic competition if other companies are granted Exploration Rights or Production Rights in South Africa and begin producing LNG, or if such companies +13 +import LNG from external sources outside of the continent due to grants of rights to import LNG into South Africa. However, we believe that our position as the sole LNG provider in South Africa allows us a competitive advantage in the local LNG market, particularly as customers transition to LNG as a liquid fuel substitution of choice. +Helium is sold as a globally traded commodity, which is currently in tight supply and disruptions in the helium market can easily create shortages. Helium has traditionally been traded on long-term private contracts, keeping prices opaque and reducing incentives for helium exploration. The entire global helium supply is produced by approximately 30 liquefaction plants, located in the United States, Poland, Russia, Algeria, Qatar and China, among other locations. A smaller number of players control the distribution of helium, which is often subject to privately negotiated contracts. Location is often a primary competitive factor as the difficulties associated with transporting helium limit the distance it can be transported. We believe we compare favorably with many of our helium competitors due our geographic location near the Cape of Good Hope, which we believe will allow us to provide helium to parts of the world that other competitors, such as companies located in Qatar, cannot. Additionally, helium becomes more economically viable to extract from natural gas at higher concentrations. We believe we compare favorably with many of our competitors due to the high concentration of helium in the Virginia Gas Project relative to our competitors. +Competitive conditions may be substantially affected by various forms of energy legislation and/or regulation considered from time to time by the South African government. Our larger or more integrated competitors may be able to absorb the burden of existing, and any changes to, international, federal, state and local laws and regulations more easily than we can, which would adversely affect our competitive position. Additionally, other countries may not impose similar laws or regulations on the production of helium. It is not possible to predict the nature of any such legislation or regulation that may ultimately be adopted or its effects upon our future operations. Such laws and regulations may substantially increase the costs of exploring for, developing or producing natural gas and helium, and may prevent or delay the commencement or continuation of a given operation. The effect of these risks cannot be accurately predicted. +Technical Background +What are Isotopes? +Isotopes are two or more types of atoms that have the same atomic number (number of protons in their nuclei) and position in the periodic table (and hence belong to the same chemical element), and that differ in nucleon numbers (mass numbers) due to different numbers of neutrons in their nuclei. While all isotopes of a given element have almost the same chemical properties, they have different atomic masses and physical properties. +The number of protons within the atom’s nucleus is called atomic number and is equal to the number of electrons in the neutral (non-ionized) atom. Each atomic number identifies a specific element, but not the isotope; an atom of a given element may have a wide range in its number of neutrons. The number of nucleons (both protons and neutrons) in the nucleus is the atom’s mass number, and each isotope of a given element has a different mass number. For example, Carbon-12, Carbon-13, and Carbon-14 are three isotopes of the element carbon with mass numbers 12, 13, and 14, respectively. The atomic number of carbon is 6, which means that every carbon atom has 6 protons so that the neutron numbers of these isotopes are 6, 7, and 8 respectively. +There are 23 isotopes of silicon, all of which have 14 protons and between 8 and 30 neutrons. The table below shows a selection of those isotopes. Three isotopes are stable which have mass numbers of 28, 29 and 30 which have 14, 15 and 16 neutrons respectively. The other 20 isotopes are radioactive and decay with short half-lives and are therefore do not typically exist in naturally occurring silicon. In naturally occurring silicon, the isotope with atomic mass of 28 is usually the most abundant, typically accounting for approximately 92.22% of the material. The isotope with atomic mass of 29 typically accounts for 4.69% of the material and the isotope with atomic mass of 30 typically accounts for 3.09% of the material. +Molybdenum has 33 known isotopes, ranging in atomic mass from 83 to 115, as well as four metastable nuclear isomers. Seven isotopes occur naturally, with atomic masses of 92, 94, 95, 96, 97, 98, and 100. All unstable isotopes of molybdenum decay into isotopes of zirconium, niobium, technetium, and ruthenium. +Uranium is a naturally occurring radioactive element that has no stable isotope. It has two primordial isotopes, uranium-238 (“U-238”) and U-235, which have long half-lives and are found in appreciable quantity in the Earth’s crust. The decay product, uranium-234 is also found. Other isotopes such as uranium-233 have been produced in breeder reactors. In addition to isotopes found in nature or nuclear reactors, many isotopes with far shorter half-lives have been produced, ranging from U-214 to U-242 (with the exception of U-220 and U-241). The standard atomic weight of natural uranium is 238.02891 with 99.27% of naturally occurring uranium being the isotope with an atomic mass of 238. +14 +Selected isotopes of Silicon +Selected isotopes of Molybdenum +Selected isotopes of Uranium +Nuclide +Protons +Neutrons +Isotopic +Mass +Half +Life +Natural +abundance +Nuclide +Protons +Neutrons +Isotopic +Mass +Half +Life +Natural +abundance +Nuclide +Protons +Neutrons +Isotopic +Mass +Half +Life +Natural +abundance +22 +14 +8 +22.036 +29 ms +91 +42 +49 +90.912 +15.49 min +225 +92 +133 +225.029 +62 ms +23 +14 +9 +23.025 +42.3 ms +92 +42 +50 +91.907 +Stable +14.65% +226 +92 +134 +226.029 +269 ms +24 +14 +10 +24.012 +140 ms +93 +42 +51 +92.907 +4000 y +227 +92 +135 +227.031 +1.1 m +25 +14 +11 +25.004 +220 ms +94 +42 +52 +93.905 +Stable +9.19% +228 +92 +136 +228.031 +9.1 m +26 +14 +12 +25.992 +2.245 s +95 +42 +53 +94.906 +Stable +15.87% +229 +92 +137 +229.034 +57.8 m +27 +14 +13 +26.987 +4.15 s +96 +42 +54 +95.905 +Stable +16.67% +230 +92 +138 +230.034 +20.23 d +28 +14 +14 +27.977 +Stable +92.22% +97 +42 +55 +96.906 +Stable +9.58% +231 +92 +139 +231.036 +4.2 d +29 +14 +15 +28.977 +Stable +4.69% +98 +42 +56 +97.905 +Stable +24.29% +232 +92 +140 +232.037 +68.9 y +30 +14 +16 +29.974 +Stable +3.09% +99 +42 +57 +98.908 +2.75 d +233 +92 +141 +233.04 +1.592 e5 y +Trace +31 +14 +17 +30.975 +157.36 min +100 +42 +58 +99.907 +Stable +9.74% +234 +92 +142 +234.041 +2.455 e5 y +Trace +32 +14 +18 +31.974 +153 y +trace +101 +42 +59 +100.910 +14.61 m +235 +92 +143 +235.044 +7.038 e8 y +0.72% +33 +14 +19 +32.978 +6.18 s +102 +42 +60 +101.910 +11.3 m +236 +92 +144 +236.046 +2.342 e7 y +Trace +34 +14 +20 +33.979 +2.77 s +103 +42 +61 +102.913 +67.5 s +237 +92 +145 +237.049 +6.752 d +Trace +35 +14 +21 +34.985 +780 ms +104 +42 +62 +103.914 +60 s +238 +92 +146 +238.051 +4.468 e9 y +99.27% +36 +14 +22 +35.987 +450 ms +105 +42 +63 +104.917 +35.6 s +239 +92 +147 +239.054 +23.45 m +37 +14 +23 +36.993 +90 ms +106 +42 +64 +105.918 +8.73 s +240 +92 +148 +240.057 +14.1 h +Trace +38 +14 +24 +37.996 +90 ms +107 +42 +65 +106.922 +3.5 s +242 +92 +150 +242.063 +16.8 m +Methods of Separation and Enrichment of Isotopes +Isotope enrichment is the process of concentrating specific isotopes of a chemical element by removing other isotopes. During the last century, a number of different methods have been developed to separate and enrich isotopes. The current separation or enrichment processes are based either on the atomic weight of the isotope, small differences in chemical reaction rates produced by different atomic weights or are based on properties not directly connected to atomic weight such as nuclear resonances. +Diffusion +Often performed on gases, but also on liquids, the diffusion method relies on the fact that in thermal equilibrium, two isotopes with the same energy will have different average velocities. The lighter atoms (or the molecules containing them) will travel more quickly and be more likely to diffuse through a membrane. The difference in speeds is proportional to the square root of the mass ratio, so the amount of separation is small, and many cascaded stages are needed to obtain high purity. This method is expensive due to the work needed to push gas through a membrane and the many stages necessary. +Centrifugal +Centrifugal methods rapidly rotate the material allowing the heavier isotopes to go closer to an outer radial wall. This too is often done in gaseous form using a Zippe-type centrifuge. +A Zippe-type centrifuge relies on the force resulting from centripetal acceleration to separate molecules according to their mass, and can be applied to most fluids. The dense (heavier) molecules move towards the wall and the lighter ones remain close to the center. The centrifuge consists of a rigid body rotor rotating at high speed. Concentric gas tubes located on the axis of the rotor are used to introduce feed gas into the rotor and extract the heavier and lighter separated streams. For U-235 production, the heavier stream is the waste stream and the lighter stream is the product stream. Modern Zippe-type centrifuges are tall cylinders spinning on a vertical axis, with a vertical temperature gradient applied to create a convective circulation rising in the center and descending at the periphery of the centrifuge. Diffusion between these opposing flows increases the separation by the principle of countercurrent multiplication. +In practice, since there are limits to how tall a single centrifuge can be made, several such centrifuges are connected in series. Each centrifuge receives one input and produces two output lines, corresponding to light and heavy fractions. The input of each centrifuge is the output (light) of the previous centrifuge and the input of the following stage. This produces an almost pure light fraction from the output (light) of the last centrifuge and an almost pure heavy fraction from the output (heavy) of the first centrifuge. +Electromagnetic +Electromagnetic separation is mass spectrometry on a large scale, so it is sometimes referred to as mass spectrometry. It uses the fact that charged particles are deflected in a magnetic field and the amount of deflection depends upon the particle’s mass. It is very expensive for the quantity produced, as it has an extremely low throughput, but it can allow very high purities to be achieved. This method is often used for processing small amounts of pure isotopes for research or specific use (such as isotopic tracers), but is impractical for industrial use. +Laser +In this method, a laser is tuned to a wavelength which excites only one isotope of the material and ionizes those atoms preferentially. The resonant absorption of light for an isotope is dependent upon its mass and certain hyperfine interactions between electrons and the nucleus, allowing finely tuned lasers to interact with only one isotope. After the atom is ionized it can be removed +15 +from the sample by applying an electric field. This method is often abbreviated as AVLIS (atomic vapor laser isotope separation). This method has only recently been developed as laser technology has improved, and is currently not used extensively. +Chemical Methods +Although isotopes of a single element are normally described as having the same chemical properties, this is not strictly true. In particular, reaction rates are very slightly affected by atomic mass. Techniques using this are most effective for light atoms such as hydrogen. Lighter isotopes tend to react or evaporate more quickly than heavy isotopes, allowing them to be separated. This is how heavy water is produced commercially. +Gravity +Isotopes of carbon, oxygen, and nitrogen can be purified by chilling these gases or compounds nearly to their liquefaction temperature in very tall (200 to 700 feet (61 to 213 m)) columns. The heavier isotopes sink and the lighter isotopes rise, where they are easily collected. +The ASP Technology +ASP technology is proprietary technology originally licensed from Klydon which succeeds earlier work, first detailed in the scientific media in the mid-1970s, relating to an industrial scale enrichment plant for uranium that was constructed utilizing the so-called “stationary-wall centrifuge.” The original technology was highly energy consuming and was not able to compete on an economic basis with other methods of isotope separation. The innovative development of the ASP technology over the past two decades has culminated in a more advanced separation device that we believe can compete on a commercial scale with other methods of isotope separation. The ASP separation device separates both gas species and isotopes in a volatile state via an approximate flow pattern as shown below. +The ASP enrichment process uses an aerodynamic technique similar to a stationary wall centrifuge. The isotope material in raw gas form enters the stationary tube at high speed by tangential injection through finely placed and sized openings in the surface of the tube. The gas then follows a flow pattern that results in two gas vortexes occurring around the geometrical axis of the separator. The isotope material becomes separated in the radial dimension as a result of the spin speed of the isotope material reaching several hundred meters per second. An axial mass flow component in each tube feeds isotope material to the respective ends of the separator where the collection of the portions of isotope material is accomplished. +The advantages of ASP technology are as follows: +• +No moving parts, with low capital and operating costs in comparison to alternatives. +• +Compact in size and weight. +• +Easily scaled to industrial level with number of separation devices added in parallel. +• +The separation process occurs inside a closed cylindrical container and is a volume technology, i.e., the process efficiency is not affected by poisoning of surface contaminates as is the case for surface separation processes. +• +ASP operates very efficiently at molecular masses below 100 atomic mass units, unlike other separation processes which are more efficient at higher masses, which ASP can achieve equally well or to a superior degree. +• +ASP easily separates hydrogen gas from other gas components, e.g., harvesting hydrogen gas from carbon monoxide and carbon dioxide and altering the ratio of syngas mixture. +• +With the right material choice ASP can handle even the most corrosive gases. +16 +• +ASP can separate any isotopes that have a gaseous or volatile chemical compound. +• +Most of the subsystems are procured from off-the-shelf components. +• +An ASP plant can be constructed in any country that adheres to the International Atomic Energy Agency (“IAEA”) protocols for the protection of dual use technology. +ASP Plant Configuration +The figure below shows a schematic of an ASP cascade in operation. The cascade consists of several enrichment stages, connected in a 1-up-1-down cascade configuration. The stages can be grouped into segments. (This method of organizing stages is not reflected in the figure) +The bold blue arrows represent flows of the element into and out of the cascade: +• +H is the product, enriched in the isotope. +• +L is the tails, stripped of the isotope. +• +F = FX + FY is the feed stream at natural isotopic composition. +• +FX is the feed into the product stream of an adjoining stage. +• +FY is the feed into the tails stream of an adjoining stage. +Each stage in the cascade is operated in one of two configurations: +(1) +A net backward flow of the isotope: Xi > Yi. These stages are referred to as “product,” situated in the so-called “product cascade section,” and their flows are marked with an “H” subscript. +(2) +A net forward flow of isotope: Xi < Yi. These stages are referred to as “tails,” situated in the so-called “tails cascade section,” and their flows are marked with an “L” subscript. +The red arrows represent the addition or extraction of carrier gas from the process. The arrows have been added for clarity and orientation, but the mass flows of the carrier gas will be ignored in the rest of the discussion as it pertains to the isotope mass flows only (as represented by the blue arrows). The carrier gas mass flows can be superimposed on any isotope mass balance using the molar mass characteristics of the ASP stages (see below). +The block marked “GS” represents the gas separator: a piece of equipment used to separate the carrier gas from the element of interest to the degree necessary to provide a suitable reflux stream to the tails cascade section. +The blue squares are simply suitable areas where streams can be split or mixed. +An ASP stage is characterized by functions of Y, the flow of isotope in its tails stream. The characteristics of interest are: +• +α(Y): the separation factor between the tails and product streams. +• +MY(Y): the molar mass of the tails stream. +• +MX(Y): the molar mass of the product stream. +17 +• +P(Y): the stage’s power usage. +• +X(θ,Y): the flow of Zinc in the product stream, where θ = Y/(X+Y) is the cut defined in terms of isotope flows. +Note the following: +• +α is the ratio of the tails and product stream abundance ratios. +• +Y, X(θ,Y) and α(Y) describe the stage’s behaviour with regards to Zinc, while MY(Y) and MX(Y) defines its behaviour with regards to the carrier gas. +• +P, the stage’s power usage, depends on the ASP separator, but also on factors such as compressor efficiency, friction losses etc. It is therefore a partial function of stage design. +• +It is possible to define Pmin, the theoretical minimum energy usage of a stage, by assuming 100% efficient compressors and no losses in the stage. Pmin is a function of the ASP separator only. In practice P is a more useful metric, as the contribution of compressor inefficiencies to power consumption is significant. +• +Except for X, the stage’s characteristics are not defined in terms of the cut θ, as they are simply not sensitive to it above a certain lower limit θmin. In practice θmin is small enough that it has no influence on the normal operating envelope of the stage. +• +X is per definition a function of Y via θ as indicated. +The cut of an ASP stage can be dynamically adjusted to any value larger than θmin, allowing its operating point to be changed online during production. +All stages in the product cascade section are operated at the same point < XH,YH >, where XH > YH, ensuring that a net backward flow of the process element, H = XH — YH is achieved. This corresponds to a cut of less than 50% and ensures a positive flow of enriched product. +All stages in the tails cascade section are operated at the same point < XL,YL >, where XL < YL, ensuring that a net backward flow of the process element, L = XL — YL is achieved. This corresponds to a cut of more than 50% and ensures a positive flow of stripped tails. +Depending on the production requirements of the cascade the product and tails section operation points can be moved relative to each other during production, obtaining different combinations of H and L (and therefore different feeds F = H + L). The smaller H (or L) is chosen, the closer the product (or tails) section cut moves to 50%. If all stages are operated at a cut of 50%, the cascade is operated at full reflux, no product, tails, or feed streams are present, and the maximum process element concentration gradient will exist. +ASP Technology In Use +The scientists at Klydon had constructed two ASP plants for the enrichment of oxygen-18 and Si-28 in Pretoria, South Africa, which were commissioned in October 2015 and July 2018, respectively. We believe the success of the enrichment of oxygen-18 and silicon-28 has demonstrated the efficacy and commercial scalability of the ASP technology. We have completed the commissioning phase and are commencing commercial production at our C-14 enrichment facility and our “multi-isotope” enrichment plant, which has its initial production run designated for enriched Si-28. We are targeting initial commercial shipments of enriched C-14 mid-2026 and initial commercial shipments of enriched Si-28 during the second quarter of 2026. +QE Technology +Isotopes of every element have unique spectroscopic “signatures” defined by the electromagnetic radiation or “light” absorbed by their atoms from electron transitions. QE separates two isotopes by taking advantage of the slight differences in the transition energy between two isotopes. This method is described as a “quantum mechanics” method. In principle, Quantum Enrichment can separate isotopes of most elements, achieving desired enrichment in a single step. +The atomic vapor laser isotope separation method (“AVLIS”), which is the forerunner of the QE technology, proposed by Letokhov et al. (1977), has been in progress during the last 45 years. The main efforts during these years were devoted to attempts to get a nuclear fuel for industrial nuclear reactors. +Laser based isotope selective excitation followed by ionization and collection using electro-magnetic fields offers one of the most efficient techniques for isotope enrichment/denaturing. In the laser isotope separation process, atoms of the target isotope in +18 +vapor stream get ionized after interaction with a tuned laser beam. Ionized atoms are separated from the main vapor stream by electrostatic field. In our Quantum Enrichment facility, a resistive heating system has been designed to evaporate Ytterbium by sublimation at temperature in the range of 500 o C to 700 o C to provide adequate Ytterbium vapor atoms for laser interaction. +During the process, the vapor jet comes out from the source to reach sonic speed at the exit plane, then it expands supersonically into vacuum. A thickness monitor reading gives average arrival rate of atomic vapor in terms of thickness per unit time (A/sec). +At the heart of laser-based isotope enrichment lies a proficient multi-step isotope selective photoionization scheme giving optimum selectivity and product yield. Ytterbium has two valence electrons and very few transitions originating from its ground level. Its ionization potential is 6.254eV. This necessitates selection of a three-step photoionization scheme for selective photoionization of its isotopes using the available laser infrastructure supporting visible range of spectrum. +Dye lasers offer the best suitable choice for enrichment process as they suffice to all the requirements of the process like wavelength tunability, high power generation at high repetition rates. +Diode Pumped Solid State Green Lasers with ~3GHz line width in multi-mode operation are used to pump the dye lasers. +The temporal delays between the pulses from the three lasers were arranged to ensure their sequential arrival in the interaction region with delay of several ns. +We believe QE technology is superior to AVLIS with optimized spectroscopy utilization and superior laser beam shaping. +The key advantages include: +• +high selectivity, +• +suitability for vaporized metals, +• +relatively low capital cost, and +• +modular design which limits scalability risk. +Nuclear Medicine +Nuclear medicine is a medical specialty that utilizes radioactive isotopes, referred to as radionuclides, to diagnose and treat disease. These radionuclides are incorporated into radiopharmaceuticals and introduced into the body by injection, swallowing, or inhalation. Physiologic/metabolic processes in the body concentrate the tracers in specific tissues and organs; the radioactive emissions from the tracers can be used to noninvasively image these processes or kill cells in regions where radionuclides have concentrated. +Other types of noninvasive diagnostic procedures — for example, computed tomography (“CT”) and magnetic resonance imaging (MRI) — can detect anatomical changes in tissues and organs as the result of disease. Nuclear medicine procedures can often detect the physiological and metabolic changes associated with disease before any anatomical changes occur. Such procedures can be used to identify disease at early stages and evaluate patients’ early responses to therapeutic interventions. +Single Photon Emission Computed Tomography (“SPECT”) generates three-dimensional (“3D”) images of tissues and organs using radionuclides that emit gamma rays; the most used radionuclide is Technitium-99m (“Tc-99m”), often referred to as the ‘work-horse’ of nuclear medicine. Individual gamma rays emitted from the decay of these radionuclides (i.e., single photon emissions) are detected using a gamma camera. This camera technology is used to obtain two-dimensional (“2D”) images; 3D SPECT images are computer generated from many 2D images recorded at different angles. +19 +Positron Emission Tomography (“PET”) generates 3D images of tissues and organs using tracers that emit positrons (i.e., positive electrons): for example, fluorine-18 (“F-18”). Annihilation reactions between the positrons from these radionuclides and electrons present in tissues and organs produce photons. (Two photons are emitted simultaneously for each annihilation reaction and essentially travel in opposite directions.) The photon pairs are detected with a camera having a ring of very fast detectors and electronics. PET images generally have a higher contrast and spatial resolution than do SPECT images. However, PET equipment is more expensive and therefore not as widely available as SPECT equipment. Additionally, most PET tracers have short half-lives (e.g., Nitrogen-13: 10 minutes, Carbon-11: 20 minutes, and F-18: 110 minutes), so they must be produced close to their point of use. +Radionuclide therapy can be used to treat conditions such as hyperthyroidism, thyroid cancer, prostate cancer, skin cancer and blood disorders. In nuclear medicine therapy, the radiation treatment dose is administered internally (e.g. intravenous or oral routes) or externally direct above the area to treat in form of a compound (e.g. in case of skin cancer). The radiopharmaceuticals used in nuclear medicine therapy emit ionizing radiation that travels only a short distance, thereby minimizing unwanted side effects and damage to noninvolved organs or nearby structures. Most nuclear medicine therapies can be performed as outpatient procedures since there are few side effects from the treatment and the radiation exposure to the general public can be kept within a safe limit. +ASP Technology for Carbon-14 Enrichment +C-14 is a radioactive isotope of carbon with a half-life of 5,700 years that has a natural abundance of 1 part per trillion. The different isotopes of carbon do not differ appreciably in their chemical properties. This resemblance is used in chemical and biological research, in a technique called carbon labeling: C-14 atoms can be used to replace nonradioactive carbon, in order to trace chemical and biochemical reactions involving carbon atoms from any given organic compound. +C-14 could be obtained from waste by-products in certain nuclear reactors. In June 2023, we entered into a multi-year supply agreement with a Canadian Customer for the supply of C-14, which will be produced from our facility that was completed in March 2023. The customer agreed to supply C-14 in the form of carbon dioxide gas as feedstock. We will then convert the carbon dioxide gas into methane under a chemical converting contract entered in June 2023. We will then enrich the methane to greater than 85% C-14 under a tolling agreement, also entered in June 2023. Finally, we will convert the enriched methane back into enriched carbon dioxide under a chemical converting contract. We have received an initial supply of feedstock from our customer and have started the enrichment of C-14. The tolling agreement has a minimum “take or pay” amount of approximately $2.5 million per year, supported by a bank letter of guarantee. In September 2023, we entered into a Memorandum of Understanding with the same customer to separate Deuterium and Tritium currently stored at nuclear sites within Canada. The timing and commercial implications of this Memorandum of Understanding are subject to future agreement between the parties. +ASP Technology for Silicon-28 Enrichment +Si-28 is a stable isotope of silicon. Isotopically enriched Si-28 is regarded as an ideal host material for semiconducting quantum computing due to the lack of Si-29 nuclear spins. The presence of Si-29 in concentrations above 500 parts per million (ppm) (0.05%) prevents effective performance. The lower the concentration of Si-29, the better a silicon quantum processor will perform in terms of computational power, accuracy and reliability. Unlike traditional centrifuges, which are suited to enriching gases with a high molecular mass, ASP technology is highly suited to enriching gases with a low molecular mass such as silane (SiH4), a gaseous compound that contains silicon. +Quantum computers are expected to be thousands or millions of times more powerful than the most advanced of today’s conventional computers, opening new frontiers and opportunities in many industries, including medicine, artificial intelligence, cybersecurity, global logistics and global financial systems. +We have entered into three purchase agreements for highly enriched Si-28. The first is with a U.S. semiconductor company. The second is with a global industrial gas company. The third is with a large U.S. buyer. +QE Technology for Ytterbium-176 Enrichment +Yb-176 is a stable isotope of ytterbium, that is commonly used to produce Lutetium-177 (“Lu-177”). Lu-177 is a medical isotope used in targeted radionuclide therapy for treating neuroendocrine tumors and prostate cancer. Lu-177 is a medium energy beta emitter (Eβ = 0.149 keV). It is quite damaging, but only deposits its energy within a short range, decreasing collateral damaging effects to normal tissues. It has a half-life of 6.7 days and is compatible with various targeting agents, ranging from short peptides to large biomolecules. The half-life also allows for transport over longer distances and on-site preparation of pharmaceuticals. +20 +Lu-177 can be produced in two ways, either directly by irradiation of lutetium-176 (“Lu-176”) or indirectly by irradiation of Yb-176. The irradiation of Lu-176 leads directly to Lu-177, while irradiation of Yb-176 will lead to the production of the short-lived intermediate radioisotope ytterbium-177 (“Yb-177”), which decays to Lu-177. +Using the direct method in which Lu-176 is irradiated, the Lu-177 is produced in a matrix (‘carrier’) of Lu-176, because only part of the Lu-176 is converted to Lu-177. This form of Lu-177 is called carried added. Also, the direct method leads to small amounts of the radioactive impurity Lu-177m. This lowers the radionuclide purity of Lu-177 and complicates the radiation protection and disposal of Lu-177 waste in hospitals. +The advantage of the direct production route is that it can create Lu-177 in high quantities by irradiating as little as 1 mg of Lu-176. On the other hand, the desired Lu-177 cannot be chemically isolated from the target material Lu-176, as they are isotopes of the same element. This is problematic as the lutetium administered to the patient should preferably only contain the ‘useful’ Lu-177. If it contains largely ‘useless’ Lu-176, the effectiveness of the treatment will diminish. +The indirect method, where Yb-176 is irradiated, does not generate this extra isotope. The Lu-177 is produced in a matrix of ytterbium, which is separated from the lutetium by a chemical process after irradiation. Therefore, it leads to Lu-177 no carrier added. In the indirect production route, Lu-177 differs from the target material Yb-176 and can be isolated chemically in no carrier added form. +QE Technology for Uranium Enrichment +We believe our QE technology is capable of enriching Uranium, which we may be able to commercialize as a nuclear fuel component for use in the new generation of HALEU-fueled small modular reactors that are now under development for commercial and government uses. +Uranium is a naturally occurring element and is mined from deposits located in Kazakhstan, Canada, Australia, and several other countries including the United States. According to the World Nuclear Association (“WNA”), there are adequate measured resources of natural uranium to fuel nuclear power at current usage rates for about 90 years. In its natural state, uranium is principally comprised of two isotopes: U-235 and U-238. The concentration of U-235 in natural uranium is only 0.711% by weight. Most commercial nuclear power reactors require Low Enriched Uranium (“LEU”) fuel which has a U-235 concentration greater than natural uranium and up to 5% by weight. Future reactor designs currently under development will likely require higher U-235 concentration levels of greater than 5% and below 20% (referred to as HALEU – High Assay Low Enriched Uranium). Uranium enrichment is the process by which the concentration of U-235 is increased (see discussion on HALEU demand below). +Separative work units (“SWU”) is a standard unit of measurement that represents the effort required to transform a given amount of natural uranium into two components: enriched uranium having a higher percentage of U-235 and depleted uranium having a lower percentage of U-235. The SWU contained in LEU is calculated using an industry standard formula based on the physics of enrichment. The amount of enrichment deemed to be contained in LEU under this formula is commonly referred to as its SWU component and the quantity of natural uranium deemed to be contained in LEU under this formula is referred to as its uranium or “feed” component. Currently, it is fairly common practice to purchase both the SWU and uranium components of LEU from the enrichment company. Therefore, LEU prices typically consist of three components: SWU, Conversion and uranium ore concentrate. +The following outlines the steps for converting natural uranium into LEU fuel, commonly known as the nuclear fuel cycle: +• +Mining and Milling . Natural, or unenriched, uranium is removed from the earth in the form of ore and then crushed and concentrated. +• +Conversion . Uranium ore concentrates (“UO”) are combined with fluorine gas to produce uranium hexafluoride (“UF”), a solid at room temperature and a gas when heated. UF is shipped to an enrichment plant. +• +Enrichment . UF is enriched in a process that increases the concentration of the U isotope in the UF from its natural state of 0.711% up to 5%, or LEU, which is usable as a fuel for current light water commercial nuclear power reactors. Future commercial reactor designs may use uranium enriched up to 20% U-235, or HALEU. +• +Fuel Fabrication . LEU is then converted to uranium oxide and formed into small ceramic pellets by fabricators. The pellets are loaded into metal tubes that form fuel assemblies, which are shipped to nuclear power plants. As the advanced reactor market develops, HALEU may be converted to uranium oxide, metal, chloride or fluoride salts, or other forms and loaded into a variety of fuel assembly types optimized for the specific reactor design. +• +Nuclear Power Plant . The fuel assemblies are loaded into nuclear reactors to create energy from a controlled chain reaction. Nuclear power plants generate approximately 20% of U.S. electricity and 10% of the world’s electricity. +21 +• +Used Fuel Storage . After the nuclear fuel has been in a reactor for several years, its efficiency is reduced and the assembly is removed from the reactor’s core. The used fuel is warm and radioactive and is kept in a deep pool of water for several years. Many utilities have elected to then move the used fuel into steel or concrete and steel casks for interim storage. +The World is Transitioning to Newer Smaller Reactors +As the world transitions to a decarbonized electric grid, society is gradually decreasing its reliance on fossil fuels and increasing its reliance on “clean energy.” There appears to be bipartisan support for the growth of nuclear energy. Nuclear power, through the operating light water reactor fleet and the deployment of advanced reactors, is poised to be an increasing contributor to carbon-free energy in the U.S. and internationally. The United States leads the world in technology innovation with more developers of advanced reactors than any other country. +SMRs are advanced nuclear reactors that have a power capacity of up to 300 MW(e) per unit, which is about one-third of the generating capacity of traditional nuclear power reactors. SMRs, which can produce a large amount of low-carbon electricity, are: +• +Small — physically a fraction of the size of a conventional nuclear power reactor. +• +Modular — making it possible for systems and components to be factory-assembled and transported as a unit to a location for installation. +• +Reactors — harnessing nuclear fission to generate heat to produce energy. +Many of the benefits of SMRs are inherently linked to the nature of their design — small and modular. Given their smaller footprint, SMRs can be sited on locations not suitable for larger nuclear power plants. Prefabricated units of SMRs can be manufactured and then shipped and installed on site, making them more affordable to build than large power reactors, which are often custom designed for a particular location, sometimes leading to construction delays. SMRs offer savings in cost and construction time, and they can be deployed incrementally to match increasing energy demand. +In comparison to existing reactors, proposed SMR designs are generally simpler, and the safety concept for SMRs often relies more on passive systems and inherent safety characteristics of the reactor, such as low power and operating pressure. This means that in such cases no human intervention or external power or force is required to shut down systems, because passive systems rely on physical phenomena, such as natural circulation, convection, gravity and self-pressurization. These increased safety margins, in some cases, eliminate or significantly lower the potential for unsafe releases of radioactivity to the environment and the public in case of an accident. +SMRs have reduced fuel requirements. Power plants based on SMRs may require less frequent refueling, every 3 to 7 years, in comparison to between 1 and 2 years for conventional plants. Some SMRs are designed to operate for up to 30 years without refueling. SMRs are under construction or in the licensing stage in many countries including Argentina, Canada, China, Russia, South Korea and the United States of America. +Within the last five years significant legislation supporting the development and deployment of advanced reactors has been enacted: the Nuclear Innovation and Modernization Act, the Nuclear Energy Innovation and Capabilities Act, the Energy Act of 2020 and the Infrastructure Investment and Jobs Act. In addition, Congress established and funded the Advanced Reactor Demonstration Program which now supports two advanced reactor demonstrations to be deployed within seven years and eight other advanced reactor projects. +SMRs will require a different grade of enriched Uranium +Many advanced reactors, including the majority of the Advanced Reactor Demonstration Program awardees, will require HALEU, and fuel forms very different from those manufactured for the current Light Water Reactors (LWRs). For example, the current generation of LWRs uses fuel enriched to less than 5% U-235. In contrast, many advanced non-LWR designs require enrichments between 5% and 20% with most above 10%. +Currently it is not possible to purchase HALEU between 10% and 20% from a commercial enricher in the United States. In the U.S., the infrastructure for the front-end of the fuel cycle for the utilization of low enriched uranium up to 5% U-235 is well defined. The U.S. has mining, conversion, enrichment, fabrication, and transportation capability. However, the infrastructure for producing and utilizing HALEU, in particular enrichments above 10%, is not established in the U.S. The mining and conversion infrastructure are common to all enrichment levels. +22 +In 2020, the DOE selected two companies for awards under the Advanced Reactor Demonstration Program (ARDP) Pathway 1: Advanced Reactor Demonstrations. Both reactor designs require HALEU and can be operational in about seven years. Today, it is estimated that the companies selected for the demonstration pathway will require HALEU for their reactors beginning in the late 2020's to support fuel fabrication ahead of reactor startup. In addition, one of the companies under Pathway 2: Risk Reduction for Future Demonstrations will require HALEU in the 2026-2027 timeframe and other companies in Pathway 2 and 3 of the ARDP will also require HALEU. Privately funded companies are also working to deploy HALEU fueled reactors by the mid-2020s. +The Nuclear Energy Institute ("NEI") believes that it is virtually impossible for HALEU to be provided to these companies in the needed quantities and timeframes from DOE inventories or commercial enrichers located in the U.S or Western Europe. Therefore, acquiring HALEU from other international suppliers will be required in the near term to support the larger goal of deploying advanced reactors in the U.S. in a timely manner. Deploying these reactors before 2030 will support climate goals and position the U.S. to be a strong exporter of advanced reactor technology. Per the recent NEI white paper, a robust domestic HALEU infrastructure is necessary to support both the domestic deployment of advanced reactors and the export of U.S. advanced reactor technologies requiring HALEU. +In a letter to the DOE captioned “Updated Need for High-Assay Low Enriched Uranium” dated December 20, 2021, the NEI provided an estimate of what U.S. HALEU demand may be during the next 15 years by companies denoted A to J: +Estimated Annual Requirements for High Assay Low Enriched Uranium to 2035 (MTU/yr) +Company +A +B +C +D +E +F +G +H +I +J +Total +Cumulative +Year +2022 +0.1 +0.4 +0.2 +1.1 +0.0 +1.8 +1.8 +2023 +0.1 +3.1 +4.4 +0.1 +7.7 +9.5 +2024 +1.0 +5.6 +0.2 +3.0 +1.5 +6.6 +0.1 +18.0 +27.5 +2025 +1.0 +3.8 +0.4 +3.0 +5.0 +11.0 +1.6 +25.8 +53.3 +2026 +1.0 +15.1 +4.9 +10.0 +2.0 +24.2 +13.2 +1.7 +72.1 +125.4 +2027 +1.0 +26.5 +7.9 +4.0 +24.2 +13.2 +1.9 +78.7 +204.1 +2028 +1.0 +37.8 +16.6 +13.0 +23.0 +24.2 +13.2 +2.0 +130.8 +334.9 +2029 +1.0 +26.3 +1.8 +30.5 +17.0 +18.0 +14.0 +24.2 +16.5 +2.4 +151.7 +486.6 +2030 +1.0 +34.4 +1.8 +40.4 +46.0 +18.0 +30.0 +24.2 +16.5 +2.7 +215.0 +701.6 +2031 +23.0 +42.5 +6.2 +53.0 +29.0 +22.0 +33.0 +24.2 +16.5 +2.9 +252.3 +954.0 +2032 +35.0 +52.9 +12.5 +67.6 +46.0 +40.0 +50.0 +48.4 +19.8 +3.1 +375.3 +1,329.2 +2033 +47.0 +63.5 +32.2 +82.1 +46.0 +32.0 +80.0 +48.4 +19.8 +3.2 +454.2 +1,783.4 +2034 +58.0 +76.1 +62.4 +96.7 +46.0 +36.0 +80.0 +48.4 +19.8 +3.7 +527.1 +2,310.5 +2035 +70.0 +90.9 +96. +112.4 +91.0 +29.0 +50.0 +48.4 +22.0 +4.1 +613.8 +2,924.3 +Notes: +• +The material needs listed above are in metric tons of uranium per year and are a small amount compared to the approximately 2000 MTU used annually by the existing fleet of reactors. +• +The material needs listed above include enrichments between 10.9% and 19.75% U-235. +• +The year the material is needed is for fuel fabrication. Insertion in the reactor and reactor operations will occur in a later year. +• +The material needs that are less than 1 MTU/year are for irradiation samples, lead test rods and lead test fuel assemblies. +• +The material needs represent a few scenarios +o +The deployment of an advanced fuel design for the existing fleet of light-water reactors. +o +The deployment of multiple reactors of the same design that will not require refueling for many years. +o +The deployment of reactors that have annual refueling requirements. +• +These reactors include a range of sizes from a few Megawatt electric to 100s of Megawatt electric. +• +The data above does not include utilities that are considering enrichment between 5% and 10%. +23 +QE Technology is ideally suited to the production of HALEU +We believe that we are in a very different position compared to many of the entrenched domestic and international enrichers. Our innovative isotope enrichment process has a number of advantages over traditional gas centrifuges and other novel approaches currently being explored by other companies: cheaper in capital expenditures, faster in construction, more flexible in design and location. +We estimate that the capital cost of constructing a QE technology plant for uranium enrichment is approximately 75% cheaper than that of a traditional gas centrifuge enrichment facility. Our manufacturing plants are modular, so our construction time is likely faster and more flexible than competing technologies. Our enrichment facilities are smaller than traditional gas centrifuges which means we can place them near fuel fabrication facilities for enhanced security of production and transportation. Our operating costs of enriching uranium to 15.5% - 19.75% U-235 should be comparable to or cheaper than costs for other methods of uranium enrichment. +The table below represents management’s estimated comparison of the QE technology with a traditional gas centrifuge. +QE Technology Plant +Gas Centrifuge +Separation mechanism +Enhanced resonant multiphoton ionization +Differential diffusion +Capital Cost per plant +<$100 million +>$800 million +Energy use (kWh) per SWU +<40 +50-240 +Construction time +2-3 years +2-3 years +Levelized cost per SWU* +<$50 +$140 +* for enrichment from 0.71% U235 to 5% U235 +We have completed the commissioning phase and producing commercial samples at our Yb-176 enrichment facility using the QE technology in Pretoria, South Africa. This plant will provide us with valuable experience in the construction of QE technology facilities in the future. Many of the control systems, compressors, lasers and hardware used in a uranium enrichment facility would be similar to parts used in this Yb-176 enrichment facility. +We expect the construction of a Uranium Enrichment facility would take approximately 30 months and the production volume would gradually ramp up to the final capacity of 20 metric tons per year. Importantly, subject to licensure, we believe we can produce quantities of HALEU by 2027 for fuel testing and evaluation by developers of SMRs and other advanced reactors currently in development. We believe that we can supply HALEU at a price lower than the HALEU currently imported from international enrichers and considerably lower than any potential domestic supply that may evolve. In the period since our inception to date, we have not applied our enrichment technologies to the enrichment of U-235, nor received permission or regulatory approval to conduct testing of our enrichment technologies on uranium, except for the activities contemplated by the Services Contract with Necsa. Our expectation that QLE’s initiative to apply our enrichment technologies to the enrichment of uranium could be successful is based upon research conducted by certain of our scientists prior to joining the company, as well as the demonstrated effectiveness of QE technology on Yb-176. +Intellectual Property +Our business will depend on our proprietary ASP technology and QE technology. Enrichment is among the most sensitive nuclear technologies because it can produce weapons-grade materials, and our technology is highly controlled and subject to limitations on public disclosure or export. We believe patent protection in the United States for such sensitive nuclear technology developed in South Africa would be unusual, if even possible. To date, we have relied exclusively on trade secrets and other intellectual property laws, non-disclosure agreements with our respective employees, consultants, vendors, potential customers and other relevant persons and other measures to protect our intellectual property, and intend to continue to rely on these and other means. As we transition into the commercialization of isotopes, we envision our intellectual property and its security becoming more vital to our future. Pursuing patent protection remains part of the intellectual property protection philosophy and strategy and the advisability of establishing provisional patent rights is continuously assessed on a case-by-case basis in respect of both conceptual aspects and the specific applications thereof. Such assessments are made in consultation with regulatory bodies and with due consideration to the prospects of successfully obtaining patent protection in light of any disclosure constraints that are imposed by such bodies. To date, we have not determined that patent protection is appropriate or viable in light of these considerations. +Regulatory Environment +We are subject to a variety of laws and regulations, including but not limited to those of the United States and South Africa, that impose regulatory systems that govern many aspects of our operations, including our research and development activities +24 +involving the enrichment of isotopes in South Africa. In addition, these jurisdictions impose trade controls requirements that restrict trade to comply with applicable export controls and economic sanctions laws and requirements, and legal requirements that are intended to curtail bribery and corruption. +There are a number of regulators and treaties that govern and control our business and industry. The two principal ones that control and regulate the manufacturing of isotopes at our isotope enrichment facility in South Africa are the IAEA and the Nuclear Non-Proliferation Treaty (Treaty on Non-Proliferation of Nuclear Weapons) (“NPT"). +The IAEA is an international organization that seeks to promote the peaceful use of nuclear energy, and to inhibit its use for any military purpose, including nuclear weapons. The IAEA was established as an autonomous organization on July 29, 1957. Though established independently of the United Nations through its own international treaty, the IAEA Statute, the IAEA reports to both the United Nations General Assembly and Security Council. The IAEA statute currently has 173 member states, including South Africa. +The IAEA is authorized to conclude agreements with member states, in terms of which agreements the agency would perform certain functions and the relevant member states would be placed under certain obligations. The IAEA has concluded an extensive suite of agreements with South Africa. These agreements can be viewed on the website of the IAEA ( https://www.iaea.org/resources/legal/country-factsheets ) and include agreements that govern the physical protection of nuclear material, the notification of nuclear accidents, assistance in the case of nuclear accidents, nuclear safety, civil liability, and technical cooperation. +The NPT is an international treaty whose objective is to prevent the spread of nuclear weapons and weapons technology, to promote cooperation in the peaceful uses of nuclear energy, and to further the goal of achieving nuclear disarmament and general and complete disarmament. Our South African subsidiary is registered with the South African Council for the Non-Proliferation of Weapons of Mass Destruction in terms of the Non-Proliferation of Weapons of Mass Destruction Act, 1993. Representatives from the South African Council for the Non-Proliferation of Weapons of Mass Destruction regularly inspect our isotope enrichment facility and conduct tests to monitor the activities that are taking place at our isotope enrichment and production facilities. +In South Africa, government Notice 493 relates to nuclear-related dual-use equipment, materials and software and related technologies which can be used in their entirety or in part for the separation of uranium isotopes. ASP technology is classified as a dual use technology under the protocols of the IAEA and, as such, is subject to the controls that are implemented under these protocols. These controls comprise requirements that include: +• +membership of the IAEA and adherence to its protocols; +• +membership of the Nuclear Suppliers Group (NSG) and adherence to its protocols; +• +agreement to an “additional protocol” in light of uranium enrichment capabilities; +• +local laws that require permits for possession, operation and commercialization and regular reporting; +• +ad hoc inspections by the IAEA on 24 hour and in some cases 2 hours pre-warning; +• +requirement for proposed patent applications to be approved at ministerial level; and +• +cross-border technology transfer to be handled by the respective governments and approved by IAEA. +These regulations place strict limitations on what we can and cannot do. Security measures at our production facility and our offices are stringent. Access to our manufacturing plants are highly controlled. All employees and all visitors to the manufacturing plant are pre-screened by the South African Council for the Non-Proliferation of Weapons of Mass Destruction before being allowed employment or entry into the facility. Some of our suppliers also need to be registered with the South African Council for the Non-Proliferation of Weapons of Mass Destruction. Many of our computer systems are not connected to the external internet and confidential information is secured at a controlled location. +Some of our future isotopes may be regulated by healthcare regulators such as the U.S. Food and Drug Administration (“FDA”) in the USA, Health Canada in Canada, the European Medicines Agency (“EMA”) in Europe and similar regulators in other countries. +U.S. laws restrict the ability of U.S. companies, U.S. citizens and U.S. permanent residents, or U.S. persons, from involvement in certain types of transactions with countries, businesses and individuals that have been targeted by U.S. economic sanctions. For example, U.S. persons are precluded from undertaking virtually any activity of any kind on the part of any U.S. person with regard to any potential or actual transactions involving Cuba, Iran and Sudan without the prior approval of the U.S. Department of Treasury’s Office of Foreign Assets Control, or OFAC. OFAC also administers U.S. sanctions against a lengthy list of entities and +25 +individuals, wherever they may be located, that the United States considers to be closely associated with these sanctioned countries or that are considered terrorists or traffickers in either narcotics or weapons of mass destruction. Furthermore, U.S. economic sanctions forbid U.S. persons from circumventing direct U.S. restrictions or from facilitating transactions by non-U.S. persons if those activities are forbidden to U.S. persons. Penalties for violating provisions such as these can include significant civil and criminal fines, imprisonment and loss of tax credits or export privileges. +The Foreign Corrupt Practices Act of 1977, or the FCPA, as amended by the Omnibus Trade and Competitiveness Act of 1988 and the International Anti-Bribery and Fair Competition Act of 1998, makes it a criminal offense for a U.S. corporation or other U.S. domestic concern to make payments, gifts or give anything of value directly or indirectly to foreign officials for the purpose of obtaining or retaining business, or to obtain any other unfair or improper advantage. In addition, the FCPA imposes accounting standards and requirements on publicly traded U.S. corporations and their foreign affiliates, which are intended to prevent the diversion of corporate funds to the payment of bribes and other improper payments, and to prevent the establishment of “off books” slush funds from which such improper payments can be made. We are also subject to laws and regulations covering subject matter similar to that of the FCPA that have been enacted by countries outside of the United States. For example, the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions was signed by the members of the Organization for Economic Cooperation and Development and certain other countries in December 1997. The Convention requires each signatory to enact legislation that prohibits local persons and firms from making payments to foreign officials for the purpose of obtaining business or securing other unfair advantages from foreign governments. Failure to comply with these laws could subject us to, among other things, penalties and legal expenses, which could harm our reputation and have a material adverse effect on our business, financial condition and results of operations. +Compliance with the myriad of export control laws of the various jurisdictions in which we do business is a challenge for any company involved in export activities within the nuclear and defense end markets. We have compliance systems in our U.S. and non-U.S. subsidiaries to identify those products and technologies that are subject to export control regulatory restrictions and, where required, we obtain authorization from relevant regulatory authorities for sales to foreign buyers or for technology transfers to foreign consultants, companies, universities or foreign national employees. We also have a compliance system that is intended to proactively address potential compliance issues including those related to export control, trade sanctions and embargoes, as well as anti-bribery situations, and we are implementing this through such mechanisms as training, formalizing contracting processes, performing diligence on agents and continuing to improve our record-keeping and auditing practices with respect to third-party relationships and otherwise. Thus far, as part of our compliance system, for instance, we have developed a Code of Ethics and Conduct that informs all of our employees of their compliance obligations. Furthermore, we have developed an ethics and conduct training program that all of our employees are required to undertake, as well as other targeted compliance training relevant to their position, such as specific FCPA training for all of our worldwide senior employees. Violations of any of the various U.S. or non-U.S. export control laws can result in significant civil or criminal penalties, or even loss of export privileges, as mentioned above. We recognize that an effective compliance program can help protect the reputation and relationship of a regulated company with the regulatory agencies administering these laws and regulations. In the United States, each of the regulatory agencies administering these laws and regulations has a voluntary disclosure program that offers the possibility of significantly reduced penalties, if any are applicable, and we intend to use these programs as part of our overall compliance program, as necessary. +Employees +As of December 31, 2025, we employed 271 people on a full-time basis. Of the total employees, 21 employees are in research and development, 122 employees are in engineering, construction and manufacturing, 54 employees are in plant operations and 74 employees are in general management. None of our employees are subject to collective bargaining agreements. We consider our relationship with our employees to be good. +Facilities +Our headquarters is located in leased offices in Dallas, Texas. We lease facilities in Pretoria, South Africa and Hong Kong for production, research and development and offices. One leases have terms that expire between September 30, 2026 and January 31, 2056. We believe that our existing facilities are adequate to meet our current needs. +Renergen has a lease for offices at Sandton Gate Office Park 7 Minerva Avenue, Glen Adrienne, Sandton, 2196 South Africa. Tetra4 owns land on two farm properties in the Free State. 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country:MX 2023-12-31 0001921963 country:FR 2024-12-31 0001921963 country:FR 2023-12-31 0001921963 country:KR 2024-12-31 0001921963 country:KR 2023-12-31 0001921963 atmu:OTHERINTERNATIONALMember 2024-12-31 0001921963 atmu:OTHERINTERNATIONALMember 2023-12-31 0001921963 2024-10-01 2024-12-31 +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +Form 10-K +x +Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31 , 2024 or +o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from __________ to __________ +Commission File Number: 001-41710 +Atmus Filtration Technologies Inc. +(Exact name of registrant as specified in its charter) +Delaware +88-1611079 +(State or other jurisdiction of +incorporation or organization) (I.R.S. Employer +Identification No.) +26 Century Boulevard , Nashville , Tennessee 37214 +(Address of principal executive offices) (Zip Code) +Registrant’s telephone number, including area code: ( 615 ) 514-7339 +Securities registered pursuant to Section 12(b) of the Act: +Title of each class Trading Symbol(s) Name of each exchange on which registered +Common Stock, $0.0001 par value ATMU New York Stock Exchange +Securities registered pursuant to Section 12(g) of the Act: None +Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. x Yes o No +Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. o Yes x No +Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes o No +Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T ( § 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). x Yes o No +Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. +Large accelerated filer x Accelerated filer o +Non-accelerated filer o Smaller reporting company o +Emerging growth company o +1 +Table of Contents +If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o +Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. x +If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. o +Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). o +Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). o Yes x No +As of June 30, 2024, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of common stock held by non-affiliates of the registrant was $ 2,399.1 million (based on the closing price of $28.78 as reported on the New York Stock Exchange as of that date). +As of January 31, 2025, 82,866,170 shares of the registrant’s common stock, par value $0.0001 per share, were outstanding. +Documents Incorporated by Reference +Part III of this Annual Report on Form 10-K incorporates information from certain portions of the registrant’s definitive proxy statement relating to the registrant’s 2025 annual meeting of shareholders, which will be filed with the Securities and Exchange Commission on Schedule 14A within 120 days after the fiscal year to which this report relates. +2 +Table of Contents +ATMUS FILTRATION TECHNOLOGIES INC. +ANNUAL REPORT ON FORM 10-K +TABLE OF CONTENTS +Page +PART I +Item 1. +Business +4 +Item 1A. +Risk Factors +13 +Item 1B. +Unresolved Staff Comments +35 +Item 1C. +Cybersecurity +35 +Item 2. +Properties +37 +Item 3. +Legal Proceedings +37 +Item 4. +Mine Safety Disclosures +37 +PART II +Item 5. +Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities +38 +Item 6. +Reserved +38 +Item 7. +Management’s Discussion and Analysis of Financial Condition and Results of Operations +39 +Item 7A. +Quantitative and Qualitative Disclosures About Market Risk +53 +Item 8. +Financial Statements and Supplementary Data +55 +Item 9. +Changes in and Disagreements W ith Accountants on Accounting and Financial Disclosure +86 +Item 9A. +Controls and Procedures +86 +Item 9B. +Other Information +87 +Item 9C. +Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +87 +PART III +Item 10. +Directors, Executive Officers and Corporate Governance +88 +Item 11. +Executive Compensation +88 +Item 12. +Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters +88 +Item 13. +Certain Relationships and Related Transactions and Director Independence +88 +Item 14. +Principal Accounting Fees and Services +88 +PART IV +Item 15. +Exhibits and Financial Statement Schedules +89 +Item 16. +Form 10-K Summary +91 +Signatures +92 +3 +Table of Contents +PART I +Item 1. Business +Overview +Atmus is one of the global leaders of filtration products for on-highway commercial vehicles and off-highway agriculture, construction, mining and power generation vehicles and equipment. Atmus designs and manufactures advanced filtration products, principally under the Fleetguard brand, that enable lower emissions and provide superior asset protection. Atmus estimates that approximately 14% of Atmus’ net sales in 2024 were generated through first-fit sales to original equipment manufacturers (“OEM”s), where Atmus’ products are installed as components for new vehicles and equipment, and approximately 86% were generated in the aftermarket, where Atmus’ products are installed as replacement or repair parts, leading to a strong recurring revenue base. Building on Atmus’ more than 65-year history, Atmus continues to grow and differentiate itself through its global footprint, comprehensive offering of premium products, technology leadership and multi-channel path to market. +For the year ended December 31, 2024, Atmus generated $1,669.6 million in Net sales, $185.6 million in Net income and $329.5 million in Adjusted EBITDA. See “ Management’s Discussion and Analysis of Financial Condition and Results of Operations - Non-GAAP Measures ” in this Annual Report on Form 10-K for a description of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to Net income, the most directly comparable financi al measure calculated in accordance with U.S. GAAP. +Atmus’ Business Strategy +The company has four pillars as part of its strategy to create value for customers and drive profitable growth. Below are each of the priorities and areas of focus related to each priority. +Grow share in first-fit in core markets +• Grow market share with leading OEMs. +• Support technology transitions with leading OEMs. +• Enhanced product content per vehicle. +• Accelerate new product development. +Accelerate profitable growth in the aftermarket +• Expand Atmus’ product portfolio. +• Use analytics to target and capture growth opportunities. +4 +Table of Contents +• Expand reach through multi-channel distribution. +• Invest in product technology advantage to enhance value and protect revenue. +Transform Atmus’ supply chain +• Drive services and availability . +• Optimize network . +• Transform cost structure . +• Invest in capabilities for the future . +Expand into Industrial Filtration Markets +• Build sustainable growth by expanding and diversifying into the industrial filtration market. +• Leverage global footprint and existing technical capabilities to open new opportunities for growth. +• Develop capabilities, whether organically or through acquisitions or strategic partnerships, to enter new markets with long-term growth prospects. +Atmus’ Global Footprint +Atmus serves end-users globally, with approximately 48% of its Net sales in 2024 from outside of the United States and Canada. Atmus believes that it, together with its joint ventures in China and India, has a leading position in its core markets, based on Net sales in 2024. Atmus maintains strong global customer relationships, supported by an established salesforce with work locations in over 25 countries as of December 31, 2024. Also, as of December 31, 2024, Atmus operates through 11 distribution centers, 10 manufacturing facilities and five technical facilities plus 10 manufacturing facilities and two technical facilities operated by its joint ventures, giving Atmus presence on six continents. +5 +Table of Contents +Atmus’ Premium Products +Atmus offers a full spectrum of filtration solutions that enable lower emissions and provide superior asset protection. Atmus’ filtration products provide comprehensive and differentiated solutions, which allow its end-users to extend service intervals, reduce maintenance costs and increase uptime. Atmus’ products include fuel filters, lube filters, air filters, crankcase ventilation, hydraulic filters and coolants and other chemicals. Atmus’ broad range of products in each of its core markets enables one-stop shopping, which Atmus believes is a key competitive advantage. +Atmus’ Competitive Strengths +Technology leadership and deep industry knowledge enable Atmus to deliver better customer solutions +Atmus combines a culture of innovation with deep-seated experience in its industry to deliver superior filtration solutions for its customers. Atmus’ technical team develops a range of filtration technologies, including filtration media, filter element formation, filtration systems integration and service-related solutions such as remote digital diagnostic and prognostic platforms and analytics. Atmus’ technical team of approximately 350 engineers, scientists and technical specialists are located in five technical centers around the world, with approximately 25% holding advanced technical degrees. Atmus’ team draws on a more than 65-year history focused on filtration and media technologies. Atmus has a broad IP portfolio with over 1,200 worldwide active or +6 +Table of Contents +pending patents and patent applications and over 600 worldwide trademark registrations and applications as of December 31, 2024 . +Atmus has leveraged this expertise not only to develop its cutting-edge filters, filter systems and filtration media but also to manufacture a large portion of its proprietary filtration media. This allows Atmus to move swiftly from development to application of filtration technologies that protect and enhance the operation of its customer’s equipment and machines. StrataPore, NanoNet, NanoForce, NanoNet Plus and most recently, NanoNet N3 product families have enabled engines and equipment to meet continually changing emissions and performance requirements . +Atmus’ technical team works closely with Atmus’ customers to develop and apply filtration technologies that help them improve their operations. Atmus’ technology allows it to deliver performance-enabling and customized filtration solutions for its end-users, which creates long-lasting partnerships with its customers . +Iconic Fleetguard brand with premium products +Atmus believes that Fleetguard is a premium, leading brand that is strongly associated with reliability and strong performance. Atmus offers a full suite of Fleetguard-branded filtration products. With its broad line of high-quality filtration products, Atmus’ Fleetguard brand provides filters for nearly all makes of vehicles and equipment in its core markets, which further enhances Atmus’ availability, visibility and brand recognition. Atmus’ Fleetguard brand is further supported by a competitive warranty that gives Atmus’ customers and end-users high confidence in the performance and durability of its products . +Partnering with leading OEMs +Atmus has a strong history as a supplier to leading OEMs, including Cummins, Daimler, Deere, Doosan, Foton, Komatsu, Paccar/DAF, the Traton Group, Stellantis and Volvo. Atmus sells both first-fit and aftermarket products to these customers and has been selling to each of them for at least 10 years. These customers in the aggregate accounted for approximately 68% of Atmus’ net sales in 2024 and have consistently accounted for more than 67% of Atmus’ net sales in each of the last five years. Atmus has written agreements with most of its key customers that specify certain purchase parameters, but do not obligate them to specific volumes. Atmus invests in its relationships and utilizes its technical strengths to win first-fit business with these OEMs, which drives Atmus’ installed base, yielding strong recurring revenue streams in the aftermarket. The OEMs also provide Atmus with early insight into technological developments and evolving product requirements within the broader engine and industrial application industry, allowing Atmus to be well positioned as the world shifts towards more complex modular filtration systems and filtration for other power sources . +Cummins is Atmus’ largest customer and accounted for approximately 17.6% of Atmus’ net sales in 2024. This relationship is defined by the first-fit supply agreement and the aftermarket supply agreement. These supply agreements will help give Atmus visibility and stability to its future sales within the terms of the agreements. In addition, for 65 years prior to the Separation, Atmus’ sales and technical teams have been embedded with Cummins, allowing Atmus to have a deep understanding of their needs, which enables Atmus to deliver high-quality, high-performance products that deliver value to Cummins. Atmus partners with Cummins in all regions to win end-user accounts in the aftermarket and create a preference for the Fleetguard brand . +Multi-channel path to diverse global markets +Atmus’ global presence provides a diverse and stable customer base across truck, bus, agriculture, construction, mining and power generation vehicles and equipment markets. Atmus’ current core markets are on-highway and off-highway, representing approximately 60% and 40% of Atmus’ net sales in 2024, respectively . +Atmus estimates that approximately 86% of Atmus’ net sales in 2024 were generated in the aftermarket . +To drive these net sales, Atmus has developed a multi-channel path to global markets that ensures broad product availability and provides end-users with choice and flexibility in purchasing. Atmus distributes its products through a broad range of OEM dealers, independent distributors, and retail outlets, including truck stops . +7 +Table of Contents +The dealers of the OEMs are typically the channel preferred by customers in many markets. Atmus’ close relationships with the OEMs and strong first-fit installed base position Atmus well with the OEM dealer network and large fleet customers. For example, the dealers of four of the largest North America on-highway OEMs carry a significant range of Atmus’ products at their dealerships . +In addition, Cummins distributors, independent distributors and retailers enable Atmus to reach a broader end-user market and create additional points of sale or service. Atmus also works directly with major customers of its channel partners (such as large fleets or mining companies), across its end markets, to create strong brand preference, which, in turn, leads to strong demand for its products and generates recurring revenue. Atmus continues to increase geographic coverage within regions to better serve its customers by investing in distribution expansion . +Atmus typically ships directly from its 11 distribution centers (as of December 31, 2024) worldwide to its channel partners, which provides direct connection and detailed understanding of Atmus’ customer and end-user base. Atmus’ comprehensive distribution and market coverage are vital to maintaining its broad reach, global presence and brand recognition . +Experienced leadership team with a proven track record of driving growth +Atmus is led by an energized and experienced senior leadership team with extensive industry experience with Cummins and other leading industrial companies. Atmus’ strategic vision and culture are directed by its executive leadership team under the leadership of its Chief Executive Officer and President, Stephanie J. Disher, its Senior Vice President, Chief Financial Officer and Chief Accounting Officer, Jack M. Kienzler, its Senior Vice President and Chief People Officer, Renee M. Swan and its Senior Vice President and President, Power Solutions, Charles E. Masters. Stephanie J. Disher joined Cummins in 2013 and has over 20 years of experience in leadership positions, including international assignments in Australia, Asia, and the United States. Most recently, Stephanie J. Disher served as Vice President, Cummins and President, Cummins Filtration where she has demonstrated a continued track record of strong business performance, innovation and operational excellence. Jack M. Kienzler joined Cummins in 2014 and has over 15 years of finance experience. He most recently served as the Executive Director of Investor Relations at Cummins, having formerly led the Corporate Development team. Renee M. Swan joined Atmus in August 2023 and has over 20 years of experience in human resources and talent management. Charles E. Masters joined Cummins in 2003 and has over 20 years of experience in global sales and operational leadership roles within Cummins. Atmus’ leadership team has the ability to develop and execute its strategic vision and aims to create long-term shareholder value. Atmus benefits from its team’s industry knowledge and track record of successful product innovation and financial performance. Additionally, members of Atmus’ senior leadership team have strong experience executing and integrating acquisitions and strategic partnerships to drive accelerated growth and improved profitability . +Supply +The performance of the end-to-end supply chain, extending through to Atmus’ suppliers, is foundational to its ability to meet customers’ expectations and support long-term growth. Atmus is committed to having a robust strategy for how it selects and manages its suppliers to enable a market focused supply chain. This requires Atmus to continuously evaluate and upgrade its supply base, as necessary, as Atmus strives to ensure it is meeting the needs of its customers . +Atmus uses a combination of proactive and reactive methodologies to enhance its understanding of supply base risks, which guide its development of risk monitoring and sourcing strategies. Atmus’ category sourcing strategy process (a process designed to create the most value for the company) supports the review of its long-term needs and guides decisions on what it makes internally and what it purchases externally. For the items Atmus decides to purchase externally, the strategies also identify the suppliers it should partner with long-term to provide the best technology, the lowest total cost and highest supply chain performance. Key suppliers are managed through long-term supply agreements that secure capacity, delivery, quality and ensure cost requirements are met over an extended period . +8 +Table of Contents +Other important elements of Atmus’ sourcing strategy include : +• selecting and managing suppliers to comply with its Supplier Code of Conduct ; and +• assuring its suppliers comply with its prohibited and restricted materials policy. +Atmus monitors supply chain disruptions and conducts structured supplier risk and resiliency assessments. Atmus increased the frequency of its formal and informal supplier engagement to address potentially impactful supply base constraints and enhanced collaboration to develop specific countermeasures to mitigate risks. Atmus’ global team, located in different regions of the world, uses various approaches to identify and resolve threats to supply continuity . +Supply chain disruptions can impact Atmus’ business as well as its suppliers and customers, resulting in longer lead times in some areas of its business. Orders are typically issued as rolling releases with a specific lead time. When these orders are on backlog, they are often subject to cancellation on reasonable notice without cancellation charges, and therefore are not considered firm. Atmus is working closely with its customers to meet demand and work through backlogs as efficiently as possible . +Materials +The principal materials that Atmus uses directly in manufacturing its products are steel, filter media and petrochemical-based products, including plastic, rubber and adhesives products. Atmus expects these materials to be available from numerous sources in quantities sufficient to meet our requirements. In 2024, material costs represented approximately 61% of Atmus’ cost of sales, compared to 57% of Atmus’ cost of sales in 2023 . +Customer Concentration +Atmus has thousands of customers around the world and has developed long-standing business relationships with many of them. Cummins is Atmus’ largest customer, accounting for approximately 17.6% of Atmus’ net sales in 2024, 17.4% in 2023 and 19.3% in 2022, respectively. In connection with the Separation, Atmus entered into a first-fit supply agreement and an aftermarket supply agreement with Cummins for Atmus’ first-fit and aftermarket products. These agreements provide for continuation of Atmus’ supply to Cummins for all of its first-fit applications that Atmus currently supports, commitment to first-fit supply for certain upcoming product launches, and continued supply to Cummins of its full line of aftermarket filtration needs. It does not commit a specific volume of filters or related products. The loss of this customer or a significant decline in the production level of Cummins engines that use Atmus’ filters would have an adverse effect on Atmus’ business, financial condition, results of operations or cash flows . +In addition to the agreement Atmus entered into with Cummins, Atmus has long-term agreements with many of its largest customers. Collectively, Atmus’ net sales from its next four top customers, other than Cummins, was approximately 40% of Atmus’ net sales in 2024 and approximately 39% in 2023 and 2022, respectively. Excluding Cummins, two other customers, PACCAR and the Traton Group, accounted for more than 10% of Atmus’ net sales in 2024. Atmus’ customer agreements typically contain standard purchase and sale agreement terms covering filter pricing, quality and delivery commitments, as well as engineering product support obligations. The basic nature of Atmus’ agreements with OEM customers is that they are long-term price and operations agreements that provide for the availability of Atmus’ products to each customer through the duration of the respective agreements. Where Atmus has such agreements in place, its customers typically place purchase orders with it pursuant to these agreements. Agreements with most OEMs contain bilateral termination provisions giving either party the right to terminate in the event of a material breach, change of control or insolvency or bankruptcy of the other party . +Intellectual Property +Atmus owns or controls a broad range of intellectual property rights, including a significant number of patents, trademarks, copyrights, trade secrets and other forms of intellectual property rights in the United States and foreign countries. Atmus has a broad IP portfolio with over 1,200 worldwide active or pending patents and patent applications and over 650 worldwide trademark registrations and applications as of December 31, 2024, which were granted and registered over a period of years. Atmus’ leading brand house trademark is Fleetguard. Atmus protects its innovations that arise from research and development through patent filings, as well as through trade secrets. Although these patents, trademarks and trade secrets are generally considered beneficial +9 +Table of Contents +to Atmus’ operations, Atmus does not believe any patent, group of patents, trademark or trade secret is solely responsible for protecting its products . +Research, Development and Engineering +In 2024, Atmus continued to invest in future critical technologies and products. Atmus will continue to make investments to develop new technologies and improve its current products to meet increasing and changing emissions and engine performance requirements globally for diesel and hydrocarbon-powered equipment. In addition to building on its core technologies, Atmus is making investments in filtration and separation technologies required and used by electric powered vehicles, hydrogen production and other industrial systems . +Atmus’ research, development and engineering programs are focused on product improvements, product extensions, innovations and cost reductions for its customers. Research, development and engineering expenditures include salaries, contractor fees, building costs, utilities, testing, technical IT, administrative expenses and allocation of corporate costs and are expensed when incurred. Research, development and engineering expenses were $40.6 million, $42.5 million, and $38.6 million for the years ended December 31, 2024, 2023 and 2022, respectively . +Seasonality +Many of the Company’s end markets are generally stronger in the first half of the Company’s fiscal year. In addition, the second half of the fiscal year contains more holiday periods, which typically includes more customer closures. Also, individual product lines may experience modest seasonal variation in production, this does not, however, have material impact on demand on a quarterly basis. +Competition +Atmus is a leading global participant in the filtration engine products markets. Atmus’ products include fuel filters, lube filters, air filters, crankcase ventilation, hydraulic filters and coolants and other chemicals. Key global participants in this market include MANN+HUMMEL, Donaldson, Parker and MAHLE. The rest of the market is highly fragmented and occupied by various specialized and regional players. Most of the large global players serve both first-fit and aftermarket channels, while smaller, regional players tend to focus on the aftermarket. The filtration market offers a unique multi-channel path to market, and diversification across first-fit, OEM service and aftermarket. The recurring revenue model and mission-critical role of filters drive consistent demand across regions and end markets . +Principal methods of competition in the filtration markets are product quality and performance, price, geographic and application coverage, availability, customer service, ease of doing business and brand reputation. Atmus believes it is a market leader within many of its product lines, including filters in Atmus’ on-highway and off-highway markets, and that its success in the market is due to its technology, its iconic Fleetguard brand, its global footprint, strong customer relationships and the talent within its organization . +Human Capital Resources +As of December 31, 2024, Atmus employed approximately 4,500 persons worldwide. As of December 31, 2024, approximately 53% of Atmus’ employees worldwide were represented by various unions under collective bargaining agreements. Among these collective bargaining agreements, those for the employees in Mexico, Brazil and France are renewed annually after compensation negotiations, while the collective bargaining agreement for the Cookeville, Tennessee plant typically has a four- to five-year term. Collective bargaining for Brazil Annual Profit Sharing will take place on February 19, 2025. Annual term collective bargaining for Mexico and France were recently successfully completed. These collective bargaining agreements have terms that will expire between December 2025 and February 2026. Contract negotiations at the Cookeville, Tennessee plant took place in February of 2024 resulting in a new four year contract that will expire at the end of its four year term on February 29, 2028. +Throughout Atmus’ more than 65-year history, Atmus has always recognized that people are the strength of its business and drive its ability to effectively serve its customers and sustain its competitive position. Atmus believes that the composition of its workforce gives it advantages relating to cost and capability when compared to its peers. The global COVID-19 pandemic redefined the way Atmus has traditionally worked and created both new expectations by employees, as well as new ways to work flexibly and seamlessly on a global basis. Atmus +10 +Table of Contents +is embracing these opportunities as Atmus simplifies its organizational structures and processes, further empowers managers and employees to make decisions and generate positive results, increases employee communication and interaction with senior leadership and enhances a work environment that is inclusive, transparent, agile and team-oriented . +Purpose and Core Values +Atmus is a purpose-driven company. Atmus’ purpose is ‘ Creating a better future by protecting what is important .’ Atmus creates and innovates every day. With a forward focus, Atmus never sits still. Atmus realizes the world is bigger than it, and it aspires for a better future for shared humanity. Atmus’ products protect its customers, their equipment and their livelihoods. Atmus protects What is important to its people, the planet, and its customers . +Atmus’ culture is shaped by its core values: +• Build Trust in every relationship every day. +• Have Courage to speak up, take action and shape the future. +• Be Inclusive by embracing differences and building a community where everyone feels valued. +• Show Caring by engaging with kindness and consideration for the wellbeing of others. +Leadership and Talent Management +The capability of Atmus’ people and their ability to work effectively in agile teams is a primary enabler of Atmus’ success. Atmus strives to create a leadership culture that is authentic, transparent and approachable. By minimizing organizational layers, simplifying its organizational structure and process, Atmus empowers its employees to have an increased impact on its results. Atmus’ leaders are tasked with providing their employees with the support, development and encouragement needed to be successful. Further, Atmus’ leaders connect Atmus’ people and their work to Atmus’ purpose, values, brand promise and strategies. Atmus will continue to invest in leadership development. Atmus will maintain the emphasis that the primary role of leaders at all levels is to focus on people development, supporting the unique needs of each employee in reaching their greatest positive impact at work, in the community and at home . +Atmus’ talent management approach seeks to develop the skills and capabilities of a diverse, global workforce and utilize Atmus’ talent to deliver excellent results. Atmus advances and invests in its people based on strong performance, demonstration of core values in how work is accomplished and the individual motivation to have a larger impact on organization results . +Competitive Pay and Benefits +To attract and retain the best employees, Atmus maintains a positive work environment that is grounded in its core values, a leadership culture that supports the development of its people and competitive pay and benefits . +When designing its base pay compensation ranges, Atmus completes market analyses to maintain pay ranges that are current and related to the work it performs. Atmus also completes annual compensation studies to assess market movement for key skills as well as internal pay equity. Atmus incorporates living wage assessment into its annual compensation reviews to ensure that current and new hires are not below this threshold. Collectively, Atmus’ global wage assessments seek to ensure Atmus is fair, equitable and competitive in its ability to attract and retain the best talent. Everywhere possible, individual performance is the primary path for Atmus’ employees to advance their earning potential. In addition, all employees also participate in annual variable compensation plans that encourage collaboration in the achievement of overall business results . +Atmus’ benefit programs are aligned with Atmus’ values, including health insurance, retirement plans and wellness programs. The U.S. medical benefits include a tiered cost-sharing structure based on salary. This is in place to make healthcare more affordable for lower income employees and helps to attract and retain talent across the organization. +11 +Table of Contents +Employee Safety and Wellness +Atmus has a health, safety and environment commitment to protect what is important - its people, the planet and its customers. Every day, Atmus is committed to continually improve the health and safety of its work environment, taking action to achieve its goal that nobody gets hurt. +In pursuit of this goal, Atmus embraces a positive safety culture that encourages its employees to recognize potentially unsafe situations, report concerns and work together to remove potential hazards from the work environment before incidents occur. Additionally, Atmus’ Global Health and Safety Policy sets the standard for Atmus’ facilities based on best practices that often exceed regulatory requirements. Atmus manages its sites using the International Standards for Health, Safety and Environment to create a strong framework for risk reduction and continual improvement, with certification to ISO45001 and ISO14001 . +Atmus encourages its leaders to promote safety through strategic planning, enforcement and accountability, fostering the right environment, and influencing employees and other stakeholders. Atmus encourages its employees to promote safety through personal accountability, managing risk, and adopting positive behaviors. By employing these safety guidelines, Atmus seeks to achieve its goal of zero serious injury fatalities caused by machinery safety hazards due to the lack of or failure of safety control measures . +Where Atmus identifies a risk, it ensures that improvement actions are shared across the organization to promote a learning-oriented culture where Atmus’ employees are empowered to make their work environment safer and better. Using leading indicators of performance, Atmus recognizes the contribution of individuals and teams to reinforce safe work behaviors in the workplace, homes and communities . +Inclusion and Diversity +Inclusion and diversity at all levels of Atmus are critical to its ability to innovate, win in the marketplace and create sustainable success. Having inclusive and diverse workplaces allows Atmus to attract and retain the best employees to deliver results for its shareholders. Building on a long history that has emphasized inclusion and diversity, Atmus will continue to seek opportunities and invest in processes that attract, develop and retain diverse talent, globally. Atmus will measure outcomes and ensure that all employees can benefit from being a part of Atmus. This starts by ensuring that the leadership of Atmus is diverse. At this time, three out of Atmus’ seven directors are female, including its Chief Executive Officer, and two out of its seven directors are ethnically diverse. In addition, 38% of Atmus’ executive team is female, including its Chief Executive Officer, and 13% is ethnically diverse. +Regulatory Matters +Atmus faces extensive government regulation both within and outside the United States relating to the development, manufacture, marketing, sale and distribution of its products, including regulations relating to data privacy, trade compliance, anti-corruption and anti-bribery. These are not the only regulations with which Atmus must comply. For a description of risks related to the regulations that Atmus is subject to, please refer to the section entitled “ Risks Related to Government Regulation .” +Available Information +The Company makes its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and other information, including amendments to those reports, available free of charge through its website at investors.atmus.com , as soon as reasonably practicable after it electronically files such material with, or furnishes such material to, the Securities and Exchange Commission (SEC). These filings are available on the SEC’s website at www.sec.gov . +12 +Table of Contents +MANAGEMENT OF ATMUS +Executive Officers +The following table sets forth information, as of February 21, 2025, regarding the individuals who serve as Atmus’ executive officers, followed by a biography of each executive officer. +Name Age +Positions +Stephanie J. Disher +49 +Chief Executive Officer and President +Jack M. Kienzler +39 +Senior Vice President, Chief Financial Officer and Chief Accounting Officer +Renee M. Swan +44 +Senior Vice President and Chief People Officer +Charles E. Masters +52 +Senior Vice President and President, Power Solutions +Stephanie J. Disher currently serves as Atmus’ Chief Executive Officer and President. Ms. Disher previously served as Vice President, Cummins and President, Cummins Filtration. Prior to that role, Ms. Disher served in various leadership roles since joining Cummins in 2013, including as Operations Director and Managing Director for Cummins in the South Pacific region. Ms. Disher holds a bachelor’s degree in Commerce from the University of Western Sydney and a Master of Business Administration from the University of Melbourne . +Jack M. Kienzler currently serves as Atmus’ Senior Vice President, Chief Financial Officer and Chief Accounting Officer. Mr. Kienzler previously oversaw the financial activities of Cummins Filtration Inc. as its Chief Financial Officer. Mr. Kienzler served in various leadership roles since joining Cummins in 2014. Mr. Kienzler holds a Bachelor of Science in Finance and Accounting from Indiana University and a Master of Business Administration from the Indiana University Kelley School of Business . +Renee M. Swan currently serves as Atmus’ Senior Vice President and Chief People Officer. Ms. Swan previously served as Vice President of Human Resources for the communication systems segment of L3Harris Technologies, Inc. Ms. Swan has over two decades of experience in human resources disciplines, having spent time with Kennametal, Honeywell International, and Eaton Corporation in progressive human resources responsibilities. Ms. Swan has a Master of Professional Studies in Human Resource Management from Cornell University, a Master of Business Administration degree from Point Park University and a Bachelor's in Communications from the University of Pittsburgh . +Charles E. Masters currently serves as Atmus’ Senior Vice President and President, Power Solutions and previously served as Executive Director of Global Sales and Marketing of Cummins Filtration Inc. Prior to that role, Mr. Masters served in various leadership roles since joining Cummins in 2003, including as General Manager of Eaton Cummins Automated Transmission Technologies from 2018 to 2021 and as President of Cummins Western Canada from 2016 to 2018. Mr. Masters holds a Bachelor of Commerce from the University of Alberta and a Master of Business Administration from Harvard Business School . +Item 1A. Risk Factors +These risk factors could materially affect our business, financial condition, results of operations and cash flows. These risk factors are not exhaustive and investors are encouraged to perform their own investigation with respect to the business, financial condition and prospects of our business. You should carefully consider the following risk factors in addition to the other information included in this Annual Report on Form 10-K for the fiscal-year ended December 31, 2024, and should also carefully consider the matters addressed in the section herein entitled “Cautionary Statements and Risk Factor Summary.” We may face additional risks and uncertainties that are not presently known to us, or that we currently deem immaterial, which may also impair our business, financial condition, results of operation or cash flows. The following discussion should be read in conjunction with the “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our financial statements and notes to the financial statements included herein. +Summary of Risk Factors +The following summarizes the risks facing our business, all of which are more fully described below. This summary should be read in conjunction with the risk factors below and should not be relied upon as an exhaustive summary of the material risks facing our business. The order of presentation is not necessarily indicative of the level of risk that each factor poses to us. +13 +Table of Contents +Risks Related to Our Business Operations +• Significant customer concentration among Cummins, PACCAR, and the Traton Group. +• The loss of a top OEM relationship or changes in the preferences of Atmus' aftermarket end-users. +• Deriving significant earnings from investees that Atmus does not directly control. +• Significant competition in the markets Atmus serves. +• Evolving customer needs and developing technologies. +• Reliance on Atmus’ executive leadership and other key personnel. +• Strategic transactions, such as acquisitions, divestitures, and joint ventures. +• Management of productivity improvements. +• Work stoppages and other labor matters. +• Variability in material and commodity costs. +• Raw material, transportation and labor price increases and supply shortages. +• Complexity of supply chain and manufacturing. +• Atmus’ customers operating in cyclical industries and the current economic conditions in these industries. +• Exposure to potential claims related to warranties and claims for support outside of standard warranty obligations. +• Products being subject to recall for performance or safety-related issues. +• Inability or failure to adequately protect and enforce Atmus’ intellectual property rights and the cost of protecting or enforcing Atmus' intellectual property rights. +• Unexpected events, including natural disasters. +• Difficulty operating as a standalone company. +Risks Related to Legal and Regulatory Issues +• Sales of counterfeit versions of products, as well as unauthorized sales of products. +• Statutory and regulatory requirements that can significantly increase costs. +• Changes in international, national and regional trade laws, regulations and policies affecting international trade. +• Unanticipated changes in Atmus' effective tax rate, the adoption of new tax legislation or exposure to additional income tax liabilities, as well as audits by tax authorities resulting in additional tax payments for prior periods. +• Changes in tax law relating to multinational corporations. +14 +Table of Contents +• Significant compliance costs and reputational and legal risks imposed by Atmus' global operations and the laws and regulations to which these are subject. +• Effects of climate change may cause Atmus to incur increased costs. +• Operations being subject to increasingly stringent environmental laws and regulations as well as to laws requiring cleanup of contaminated property. +Risks Related to Cybersecurity and Information Technology Infrastructure +• Potential system or data security breaches or other disruptions. +• Dependence on information technology infrastructure and assets that are increasing in complexity. +Risks Related to Finance and Financial Market Conditions +• Foreign currency exchange rate. +• Potential economic downturns that could cause the balances of recorded goodwill to decrease. +Risks Related to Macroeconomic and Geopolitical Conditions +• Increased tariffs or the imposition of other barriers to international trade. +• Political, economic, and social uncertainty in geographies where Atmus has significant operations or large offerings of products. +• Uncertain worldwide and regional market and economic conditions. +Risks Related to Atmus’ Relationship with Cummins +• Potential failure of performance by Atmus or Cummins under transaction agreements executed as part of the Separation. +• Potential indemnification liabilities to Cummins pursuant to the Separation Agreement. +• Potential indemnification from Cummins may be insufficient to insure Atmus against the full amount of such liabilities; +• Terms from unaffiliated third parties may have been better than what Atmus received in agreements with Cummins; +Risks Related to Atmus’ Capital Structure +• Changes in capital and credit markets. +• Substantial indebtedness consisting of Atmus’ term loan and revolving credit facility, which may impact Atmus' ability to service all its indebtedness and react to changes in the industry. +• Substantially all Atmus' assets pledged as security for its term loan and revolving credit facility. +Risks Related to Ownership of Atmus Common Stock +• Fluctuations in the price of Atmus common stock. +• Atmus’ stock repurchase program may be suspended or terminated at any time. +15 +Table of Contents +• No guarantee of the payment, timing or amount of any dividend. +• Applicable laws and regulations, provisions of Atmus' amended and restated certificate of incorporation and Atmus' bylaws and certain contractual rights granted to Cummins that may discourage takeover attempts and business combinations that stockholders might consider in their best interests. +• The designation of the Court of Chancery in the State of Delaware and the federal district courts for the District of Delaware as exclusive forums provision in Atmus’ amended and restated certificate of incorporation. +• Atmus’ historical consolidated financial statements are not necessarily representative of the results that would have been achieved as a standalone company. +Risks Related to Our Business Operations +We have significant customer concentration, with Cummins, PACCAR and the Traton Group respectively accounting for approximately 17.6% , 16.5% and 12.2% of our net sales for the year ended December 31, 2024. The loss of such net sales to any of such significant customers would have a material and adverse effect on our business, financial condition, results of operations and cash flows. +Cummins is our largest customer. For the year ended December 31, 2024, net sales to Cummins accounted for approximately 17.6% of our net sales. Sales to Cummins joint ventures and to distributors that Cummins has a relationship also account for a portion of our net sales. A portion of our net sales is dependent upon customer acceptance of, and demand for, Cummins’ engines or generators that use our filters. This customer concentration increases the risk of fluctuations in our operating results and our sensitivity to any material adverse developments experienced by Cummins. While our relationship with Cummins is defined by our first-fit supply agreement and aftermarket supply agreement, we may fail in the future to renew these contracts, and, moreover, even if renewed, Cummins’ purchasing power may give it the ability to make greater demands on us with regard to pricing and contractual terms in general. In addition, Cummins may procure supplemental supply of top volume aftermarket products from alternative suppliers for a limited time if we fail to meet certain delivery performance requirements or if we do not offer a product or similar product for sale. +Cummins historically did not seek competitive bids for filtration products. However, prior to the completion of the IPO, Cummins initiated a competitive process to source a selective group of future first-fit programs and associated aftermarket products from its filtration product suppliers, including us. Subsequently, we were successful in being awarded this business. In the future, we expect that Cummins will continue to seek competitive bids for new filtration products and, while we will have a preferred supplier relationship with Cummins, we will have to successfully win bids through Cummins’ bidding process in order to maintain or grow our current level of sales to Cummins and cannot guarantee that Cummins will always select our products. The loss of, or any substantial reduction in sales to, Cummins would have a material adverse effect on our business, financial condition, results of operations and cash flows. +For the year ended December 31, 2024, net sales to PACCAR and the Traton Group accounted for approximately 16.5% and 12.2%, respectively, of our net sales. We cannot guarantee that PACCAR or the Traton Group will always choose to purchase our products. The loss or substantial reduction of sales to PACCAR or the Traton Group could materially and adversely affect our business, financial condition, results of operations or cash flows. +In addition, our association with Cummins has contributed to the relationships we have with certain significant customers due to the relationship those customers had with Cummins. We may not be able to attract new customers of Cummins, or retain existing customers, without Cummins’ support . +The loss of a top OEM relationship, or changes in the preferences of our aftermarket end-users, could adversely impact the recurring nature of our aftermarket sales. +We supply filtration products to many of the largest OEMs for both first-fit and aftermarket, which results in recurring revenue for our products. Our relationships with these OEMs also allow us to be closely attuned to our customers' requirements and preferences and react quickly to any changes. The use of our filtration products as +16 +Table of Contents +a standard first-fit component creates a steady demand for that product in the aftermarket, as end-users often return to the OEM for aftermarket service for multiple years and may continue to prefer our products as replacement or repair parts. +We may not be able to maintain our current top OEM relationships in the future or may not become the preferred supplier for additional OEMs. In addition, our channel partners’ and end-users’ preferences for replacement or repair filtration products may change in the future. The loss of a top OEM relationship, or changes in the preferences of our aftermarket end-users, could adversely impact the recurring nature of our aftermarket sales. +We derive significant earnings from investees that we do not directly control. +We earn equity, royalty and interest income from our joint venture in China — Shanghai Fleetguard Filter Co. Ltd., where we indirectly hold 50% of the economic interest. We also earn equity, royalty and interest income from our joint ventures in India — Fleetguard Filter Private Ltd. (“FFPL”), where we directly hold 49.491% of the economic interest (and 50% of the voting interest), and Filtrum Fibretechnologies Pvt. Ltd., where we hold, directly or indirectly, 49.75% of the economic interests (25% directly and 24.75% indirectly through our proportionate ownership of FFPL’s 50% ownership interest). For the year ended December 31, 2024, we recognized $34.3 million of equity, royalty and interest income from investees, compared to $33.6 million for the year ended December 31, 2023 and $28.0 million for the year ended December 31, 2022. Of these amounts, $21.8 million, $21.5 million and $17.1 million, respectively, were from our joint venture in India — FFPL. Although a significant percentage of our net income is derived from these unconsolidated entities (which were approximately 18.5% for the year ended December 31, 2024, approximately 19.6% for the year ended December 31, 2023 and 16.4% for the year ended December 31, 2022, of which approximately 11.7%, approximately 12.6% and approximately 10.0% were from FFPL for the year ended December 31, 2024, 2023 and 2022, respectively), we do not unilaterally control their management or their operations, which puts a substantial portion of our net income and cash flow through dividend payments at risk from the actions or inactions of these entities. A significant reduction in the level of contribution by these entities to our net income would likely have a material adverse effect on our business, financial condition, results of operations or cash flows. +We face significant competition in the markets we serve and maintaining a competitive advantage requires consistent investment with uncertain returns. +The businesses and product lines in which we participate are very competitive and we risk losing business based on a wide range of factors, including price, quality, technological and engineering capability, manufacturing and distribution capability, innovation, performance, reliability and availability, geographic coverage, delivery and customer service. Our customers continue to seek technological innovation, productivity gains and competitive prices from us and our other suppliers. As a result of these and other factors, if we do not meet our customers’ expectations, we may not be able to compete effectively. +Additionally, we operate in highly competitive markets and have numerous competitors who are well-established in those markets. Our competitors include companies that may have greater name recognition or financial, technical, operational, marketing or other resources than us. We expect our competitors to continue improving the design and performance of their products and to introduce new products that could be competitive in both price and performance. We believe that we have certain technological advantages over our competitors in the markets in which we operate, but maintaining these advantages requires us to consistently invest in research and development, sales and marketing and customer service and support. There is no guarantee that we will be successful in maintaining these advantages. +The competitive environment in which we operate is also subject to change. There is no guarantee that we will be successful in implementing new product expansions, as we may fail to successfully complete product development or achieve the level of sales for these products that we expect. There may also be unexpected costs for such new product offerings, which would lower our margins. In addition, certain competitors may have a competitive advantage in these new markets and if they are able to successfully develop a product before we do, they could reach the market before we do or gain broader market acceptance. +17 +Table of Contents +Evolving customer needs and developing technologies may threaten our existing business and growth. +The ongoing energy transition away from fossil fuels and the increased adoption of electrified powertrains in some market segments could result in lower demand for current diesel or natural gas engines and components and, over time, reduce the demand for related parts and service revenues. Specifically, our core markets may be impacted by technology transitions, including the transition to battery-electric vehicles, hydrogen-powered internal combustion engines, fuel cell electric vehicles and alternate power sources. Substantially all of our net sales are related to internal combustion engine filtration products. Concerns regarding the effects of emissions of GHG on the climate have driven (and will likely continue to drive) international, national, regional and local legislative and regulatory responses, including those imposing more stringent emissions standards, requiring higher fuel efficiency and/or banning sales of gas-powered vehicles in the future. Such responses may generate or accelerate changes in technology and in customer and end-user preference, including wider adoption of, and preference for, technologies providing alternatives to diesel engines, such as electrification of equipment, which could reduce or eliminate the demand for our products. +Moreover, on November 15, 2019, Cummins, our largest customer, established a new set of goals for 2030 as part of its environmental sustainability strategy and since then has continued to implement such strategy to make progress towards its target of reaching carbon neutrality in its products and operations by 2050. Among Cummins’ new goals for 2030 is reducing its Scope 3 absolute lifetime GHG emissions from newly sold products, and partnering with its customers to reduce its indirect GHG emissions from its products. These goals may result in Cummins preferring products that reduce its direct and/or indirect GHG emissions. As a result of these risks, and as we have seen OEMs begin to invest heavily in these new technologies and launch new non internal combustion engines, we have been working, and continue to work, to expand our product offerings across industries and application types, including electric powertrain, hydrogen internal combustion engines and fuel cells, among others. However, there can be no assurance that we will be successful in doing so, or even if we are successful, that such new products will generate the same revenue or margin as internal combustion engine filtration products. Some of these technologies, such as battery electric vehicles, may not utilize as much filtration content. Additionally, there can be no assurance that our expectations regarding new and developing alternate fuel technologies, including with respect to which technologies will prevail and the development of filtration content for those technologies, will prove to be accurate. Such disruptive innovation could create new markets for others and displace existing companies and products. If we are unsuccessful in adapting our technologies or expanding into adjacent markets, these disruptions could result in significant negative consequences for us. Our future growth is dependent on properly addressing future customer and end-user needs and adapting our products in line with global technology trends. +We rely on our executive leadership team and other key personnel as a critical part of our human capital resources. +We depend on the skills, institutional knowledge, working relationships and continued services and contributions of key personnel, including our executive leadership team, as critical parts of our human capital resources. In addition, our ability to achieve our operating and strategic goals depends on our ability to identify, hire, train and retain qualified individuals. We compete with other companies, both within and outside of our industry, for talented personnel and we may lose key personnel or fail to attract, train and retain other talented personnel. Any such loss or failure could have material adverse effects on our business, financial condition, results of operations or cash flows. +In particular, our continued success will depend in part on our ability to retain the talents and dedication of key employees. As of December 31, 2024, we employed approximately 350 total technical employees. As of December 31, 2024, 47% of our technical employees were employed outside the United States, in India, China and France, many of whom we consider key employees. If enough key employees terminate their employment or become ill or otherwise cannot work, our business activities may be adversely affected and our management team’s attention may be diverted. In addition, we may not be able to locate suitable replacements for any key employees who leave. +We face risks from strategic transactions, such as acquisitions, divestitures, joint ventures and other similar arrangements that we may pursue or undertake. +We are actively evaluating potential strategic acquisitions or investment opportunities and consider divestitures of non-strategic business lines, and the filtration business has historically pursued and undertaken +18 +Table of Contents +certain of those opportunities. For example, in 1987 and 1994, our filtration business established our joint ventures in India and China, respectively, for our entry into those two markets, and has continued to explore additional joint ventures since then. Acquisitions, joint ventures and strategic investments could negatively impact our profitability and financial condition due to operating and integration inefficiencies, the incurrence of debt, contingent liabilities and amortization of expenses related to intangible assets. There are also a number of other risks inherent to acquisitions, including the potential loss of key customers and suppliers of the acquired businesses or adverse effects on relationships with existing customers and suppliers; the inability to identify all issues or potential liabilities during due diligence; difficulties or delays in integrating and assimilating the acquired operations and products or in realizing projected efficiencies, growth prospects, cost savings and synergies; the loss of key employees; the potential increase in exposure to more onerous or costly legal and regulatory requirements and the diversion of management’s time and attention away from other business matters, which may prevent us from realizing the anticipated return on our investment. Additionally, we may require substantial additional capital, which could be raised pursuant to debt or equity financings, to pursue acquisitions and other business ventures, if any, in the future. We cannot assure you that we will be able to raise such additional capital on commercially reasonable terms, or at all. Divestitures may involve significant challenges and risks, such as difficulty separating out portions of our business or the potential loss of revenue or negative impacts on margins. Divestitures may also result in ongoing financial or legal proceedings, such as retained liabilities, which could have an adverse impact on our business, financial condition, results of operations and cash flows. Further, during the pendency of a proposed transaction, we may be subject to risks related to a decline in the business, loss of employees, customers or suppliers and the risk that the transaction may not close, any of which could adversely impact our business. Additionally, because acquisitions, divestitures, joint ventures, strategic partnerships and other similar arrangements are inherently risky, any such transaction may not be successful and may, in some cases, harm our business, financial condition, results of operations or cash flows. Failure to complete any such planned transaction may adversely impact our business, financial condition, results of operations or cash flows. +Our long term performance targets assume certain ongoing productivity improvements; if we do not successfully manage productivity improvements, we may not realize the expected benefits. +Our long-term performance targets assume certain ongoing productivity improvements as a key component of our business strategy to, among other things, contain operating expenses, increase operating efficiencies and align manufacturing capacity to demand. We may not be able to realize the expected benefits and cost savings if we do not successfully execute these plans while continuing to invest in business growth. Factors that can cause us to not realize expected benefits or execute our plans for productivity improvements include, but are not limited to, unanticipated costs or complications resulting from the Separation, unforeseen complications arising from leveraging existing filtration technology to new industries, global commodities pricing and availability, manufacturing costs and delays, inflationary pressures and labor availability. If any of these, or other, difficulties are encountered, expected benefits of such cost savings may not otherwise be realized, which could adversely impact our business, financial condition, results of operations or cash flows. +We may be adversely impacted by work stoppages and other labor matters. +As of December 31, 2024, we employed approximately 4,500 persons worldwide. As of December 31, 2024, approximately 53% of our employees worldwide were represented by various unions under collective bargaining agreements. Among these collective bargaining agreements, those for the employees in Mexico, Brazil and France are renewed annually after compensation negotiations, while the collective bargaining agreement for the Cookeville, Tennessee plant typically has a four- to five-year term. Collective bargaining for Brazil Annual Profit Sharing will take place on February 19, 2025. Annual term collective bargaining for Mexico and France were recently successfully completed. These collective bargaining agreements have terms that will expire between December 2025 and February 2026. Contract negotiations at the Cookeville, Tennessee plant took place in February of 2024 resulting in a new four year contract that will expire at the end of its four year term on February 29, 2028. While we have no reason to believe that we will be materially impacted by work stoppages or other labor matters, there can be no assurance that future issues with our labor unions will be resolved favorably or that we will not encounter future strikes, work stoppages, or other types of conflicts with labor unions or our employees. For example, during periodic collective bargaining in 2020, the United Auto Workers union representing manufacturing employees at the Cookeville, Tennessee site conducted a strike for six weeks after failing to accept modified terms and conditions offered. Any of these consequences may have an adverse effect on us or may limit our flexibility in dealing with our workforce. In addition, many of our customers and suppliers have unionized work forces. Work stoppages or slowdowns experienced by us, our +19 +Table of Contents +customers or suppliers could result in slowdowns or closures that would have a material adverse effect on our business, financial condition, results of operations or cash flows. +Our products are exposed to variability in material and commodity costs. +Our business establishes prices with our customers in accordance with contractual timeframes; however, the timing of material and commodity market price increases may prevent us from passing these additional costs on to our customers through timely pricing actions, which may lead to an adverse impact on our profit margins. Additionally, higher material and commodity costs around the world may offset our efforts to reduce our cost structure. Economies around the world have also generally seen significant inflationary pressures since 2021. Although those inflationary pressures began to abate towards the end of 2023 and stabilize by the end of 2024, we are still subject to the risk of material and commodity cost increases and there can be no assurances that such cost increases do not return in 2025 and beyond. As of the date of this Annual Report on Form 10-K, we have not entered into any hedging arrangements or agreements with respect to the purchase of the commodities used in our products. While we customarily have contractual pricing adjustment mechanisms with our first-fit customers that attempt to address some of these risks (notably with respect to steel and resins), there can be no assurance that material and commodity price fluctuations will not adversely affect our business, financial condition, results of operations or cash flows. In addition, while the use of contractual pricing adjustments may provide us with some protection from adverse fluctuations in commodity prices, we potentially forego the benefits that might result from favorable fluctuations in costs. As a result, higher material and commodity costs, as well as hedging these commodity costs during periods of decreasing prices, could result in declining margins. +We are vulnerable to raw material, transportation and labor price increases and supply shortages, which have adversely impacted and could continue to adversely impact our operations. +In recent years, we have experienced supply chain disruptions, including longer lead times for materials used in manufacturing our products and increased commodity prices and related challenges throughout the supply chain. For example, in the wake of the COVID-19 pandemic, shortages in steel, resin, other petrochemical products and electronic components, as well as shortages in labor at our suppliers, resulted in reduced capacity at our North America plants in 2021 and 2022. While conditions moderated in 2023, many of the underlying risks remain. We source a significant number of parts and raw materials critical to our business operations. Any delay in our suppliers’ deliveries may adversely affect our operations at multiple manufacturing locations, forcing us to seek alternative supply sources to avoid serious disruptions. Delays may be caused by factors affecting our suppliers (including pandemics, capacity constraints, port congestion, labor disputes, economic downturns, availability of credit, impaired financial condition and geopolitical turmoil), suppliers’ allocations to other purchasers, weather emergencies, natural disasters, acts of government or acts of war or terrorism. In particular, if there are extended periods of commercial, transportation or other restrictions we could incur global supply disruptions. Any extended delay in receiving critical supplies could impair our ability to deliver products to our customers and have a material adverse effect on our business, financial condition, results of operations or cash flows. +Although we have taken a number of actions to mitigate these impacts, including, but not limited to, adding new supply sources, moving production among our facilities or outsourcing production to third-party manufacturers, adapting product design to reduce reliance on constrained materials, and investing in additional tooling and equipment, these mitigating actions may not be sufficient to overcome these impacts. +Complexity of supply chain and manufacturing could perpetuate the inability to meet demand and result in the loss of customers. +Our ability to fulfill customer orders is dependent on our manufacturing and distribution operations. Although we forecast demand, additional plant capacity takes significant time to bring online and thus changes in demand could result in longer lead times. We cannot guarantee that we will be able to adjust manufacturing capacity, in the short-term, to meet higher customer demand. For example, the COVID-19 pandemic caused significant supply chain disruptions. These disruptions impacted the availability of raw materials, including steel, resin, other petrochemical products and electronic components, and freight availability and reliability, which resulted in increased lead times. Efficient operations require streamlining processes, which we may not be capable of achieving. Unacceptable levels of service for key customers may result if we are not able to fulfill orders on a timely basis or if product quality or warranty or safety issues result from compromised production. Due to the +20 +Table of Contents +complexity of our manufacturing operations, we may be unable to timely respond to fluctuations in demand, which could adversely impact our business, financial condition, results of operations or cash flows. +While we have not experienced significant global surges or declines in demand, for much of 2022, overall demand exceeded our ability to fully meet such demand, resulting in an elevated level of backlog. During 2023 and 2024, the level of backlog reduced and stabilized from peak level. +A number of our customers operate in similar cyclical industries and economic conditions in these industries could impact our sales. +Three customers each accounted for 10% or more of our net sales in 2024, 2023 and 2022. Cummins is one of our key customers and accounted for approximately 17.6% of our net sales in 2024. While our relationship with Cummins has been secured through our first-fit supply agreement and aftermarket supply agreement, both of which have an initial term of five years from the date of our IPO (except with respect to certain new products under the first-fit supply agreement, for which a five-year term commences from the date of the start of production), Cummins operates in both global off-highway and on-highway industries and is subject to the cyclicality of those industries. A number of our other customers, including PACCAR and the Traton Group, are also concentrated in similar cyclical industries, including off-highway industries such as construction, agriculture, mining, oil and gas and power generation, as well as on-highway industries such as truck, bus, vocational and recreational vehicles. This exposes our business to additional risk based on our customers’ respective economic conditions. Our success is also dependent on retaining key customers, which requires us to successfully manage relationships and anticipate the needs of our customers in the channels in which we sell our products. Changes in economic conditions could materially and adversely impact our business, financial condition, results of operations or cash flows. +Our business is exposed to potential claims related to warranties and claims for support outside of standard warranty obligations. +We face an inherent business risk of exposure to warranty claims if our products fail to perform to specification, or are alleged to result in property damage. At any given time, we are subject to various and multiple warranty claims, any one of which, if decided adversely to us, may have a material adverse effect on our business, financial condition, results of operations and cash flows in the period in which our liability with respect to any such claim is recognized. This can include customer claims for support outside of standard warranty obligations. +Our products are subject to recall for performance or safety-related issues. +Our products are subject to recall for performance or safety-related issues. Product recalls subject us to reputational risk, loss of current and future customers, reduced revenue and product recall costs. Product recall costs are incurred when we decide, either voluntarily or involuntarily, to recall a product through a formal campaign to solicit the return of specific products due to known or suspected performance or safety issues. Any significant product recalls could have material adverse effects on our business, financial condition, results of operations and cash flows. Additionally, any significant returns or warranty claims, as well as the timing of such returns or claims, could result in significant additional costs to us and could adversely affect our business, financial condition, results of operations or cash flows. +Inability or failure to adequately protect or enforce our intellectual property could reduce or eliminate any competitive advantage and reduce our sales and profitability and the cost of protecting or enforcing our intellectual property may be significant. +Our long-term success depends on our ability to market innovative competitive products. We own a number of patents, trade secrets, copyrights, trademarks, trade names and other forms of intellectual property related to our products and services throughout the world and the operation of our business, on which we rely to distinguish our services and solutions from those of our competitors. Patents have a limited life and, in some cases, have expired or will expire in the near future. We also have non-exclusive rights to intellectual property owned by others in certain of our markets. For example, some of our products may include components that are manufactured by our competitors. Our intellectual property may be challenged, opposed, invalidated, diluted, cancelled, declared generic, stolen, circumvented, infringed or otherwise violated upon by third parties or we may be unable to maintain, renew or enter into new license agreements with third-party owners of intellectual property on reasonable terms, or at all. In addition, the global nature of our business increases the risk that our +21 +Table of Contents +intellectual property may be subject to infringement, theft or other unauthorized use or disclosure by others. Our ability to protect and enforce intellectual property rights, including through litigation or other legal proceedings, also varies across jurisdictions. In some cases, our ability to protect or enforce our intellectual property rights by legal recourse or otherwise may be limited, particularly in countries where laws or enforcement practices are less protective than those in the United States. Our inability to obtain sufficient protection for our intellectual property, or to effectively maintain or enforce our intellectual property rights, could lead to reputational harm and/or adversely impact our competitive position, business, financial condition, results of operations or cash flows. +Competitors and others may also initiate litigation or other proceedings to challenge the scope, validity or enforceability of our intellectual property or allege that we infringed, misappropriated or otherwise violated their intellectual property. Any litigation or proceedings to defend us against allegations of infringement, misappropriation, or other violations of intellectual property rights, regardless of merit, could be costly, divert attention of management and may not ultimately be resolved in our favor. If we are unable to successfully defend against claims that we have infringed the intellectual property rights of others, we may be prevented from using certain intellectual property or offering certain products, or may be liable for substantial damages, which in turn could materially adversely affect our business, financial condition, results of operations or cash flows. We may also be required to develop an alternative, non-infringing product that could be costly, time-consuming or impossible, or seek a license from a third party, which may not be available on terms that are favorable to us, or at all. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations or cash flows. +Unexpected events, including natural disasters, may increase our cost of doing business or disrupt our operations. +There could be an occurrence of one or more unexpected events, including a terrorist attack, war or civil unrest, a weather event, an earthquake, a pandemic, cyber-attack or other catastrophe in countries in which we operate or in which our suppliers are located. +Such an event could result in physical damage to and complete or partial closure of one or more of our headquarters, manufacturing facilities or distribution centers, temporary or long-term disruption in the supply of component products from some local and international suppliers, disruption in the transport of our products to customers and disruption of information systems. The insurance coverage we have entered into, may not provide protection for all costs that may arise from any such event. Any disruption in our operations could have an adverse impact on our ability to meet our customer needs or may require us to incur additional expenses in order to produce sufficient inventory. Certain unexpected events could adversely impact our business, financial condition, results of operations or cash flows. +As a result of the Separation, we may experience difficulty operating as a standalone company. +Because we have limited experience operating as a standalone company following the Separation, we may encounter difficulties doing so in the future. For example, if we do not accurately estimate the level of resources required to operate as a standalone company, we may need to acquire additional assets and resources, which could be costly, and in connection with the Separation, may also face difficulty in separating certain aspects of our business from Cummins, including incurring accounting, tax, legal and other professional services costs, recruiting and relocation costs associated with hiring or reassigning our personnel, costs related to establishing a new brand identity in the marketplace and costs to separate information systems and creating standalone administrative units or distribution centers in our business post-separation. For example, we established our own standalone warehouse in Belgium in November 2024, and we have not yet realized normal operating levels. Our business, financial condition, results of operations or cash flows could be materially adversely affected if we have difficulty operating as a standalone company. +Risks Related to Legal and Regulatory Issues +Sales of counterfeit versions of our products, as well as unauthorized sales of our products, may adversely affect our business, financial condition, results of operations or cash flows. +Third parties may illegally make, distribute and sell counterfeit versions of our products that do not meet the standards of our design, development, manufacturing and distribution processes. Such counterfeit products divert sales from genuine products, often are of lower cost and quality and may pose safety risks. If illegal sales +22 +Table of Contents +of counterfeit products result in adverse product liability or negative consumer experiences, we may be associated with negative publicity resulting from such incidents. Although we proactively monitor the existence of counterfeit products and initiate actions to seize, remove them from sale or destroy, we may not be able to prevent third parties from manufacturing, selling or purporting to sell counterfeit products competing with our products, which may negatively impact our sales, brand reputation, business, financial condition, results of operations or cash flows. +Our products are subject to statutory and regulatory requirements that can significantly increase our costs and could have a material adverse impact on our business, financial condition, results of operations or cash flows. +Our products are subject to many laws and regulations in the jurisdictions in which we operate. We routinely incur costs to comply with these laws and regulations. We may be adversely impacted by new or changing laws and regulations that affect both our operations and our ability to develop and sell products that meet our customers’ requirements. The discovery of noncompliance issues could have a material adverse impact on our reputation, brand, business, financial condition, results of operations or cash flows. +Developing products to meet more stringent and changing regulatory requirements, with different implementation timelines and requirements, makes developing products efficiently for multiple markets complicated and could result in substantial additional costs that may be difficult to recover in certain markets. The successful development and introduction of new and enhanced products in order to comply with new regulatory requirements are subject to other risks, such as delays in product development, cost overruns and unanticipated technical and manufacturing difficulties. +In addition to these risks, the nature and timing of government implementation and enforcement of increasingly stringent regulatory standards in our worldwide markets are unpredictable and subject to change. Any delays in implementation or enforcement could result in a loss of our competitive advantage and could have a material adverse impact on our business, financial condition, results of operations or cash flows. +We operate our business on a global basis and changes in international, national and regional trade laws, regulations, and policies affecting and/or restricting international trade could adversely impact the demand for our products and our competitive position. +We manufacture, sell and service products globally and rely upon a global supply chain to deliver the raw materials, components, systems and parts that we need to manufacture and service our products. Changes in laws, regulations and government policies on foreign trade and investment, including as a result of the recent change in U.S. presidential administration, can affect the demand for our products and services, causing customers and end-users to shift preferences toward domestically manufactured or branded products and impact the competitive position of our products or prevent us from being able to sell products in certain countries. Our business benefits from free trade agreements, such as the United States-Mexico-Canada Agreement, the U.S. trade relationships with China, Brazil and France and the Comprehensive Economic Partnership Agreement between India and South Korea. Efforts to withdraw from, or substantially modify such agreements or arrangements, in addition to the implementation of more restrictive trade policies, such as more detailed inspections, higher tariffs (including, but not limited to, additional tariffs on the import of steel or aluminum and imposition of new or retaliatory tariffs against certain countries, including based on developments in U.S.-China, U.S.-Mexico, U.S.-Canada, U.S.-Russia and EU-Russia relations), import or export licensing requirements, and exchange controls or new barriers to entry, could limit our ability to capitalize on current and future growth opportunities in international markets, impair our ability to ship media from our plant in South Korea directly to our joint venture partners, impair our ability to expand the business by offering new technologies, products, and services, and could adversely impact our production costs, customer and end-user demand and our relationships with customers and suppliers. Any of these consequences could have a material adverse effect on our business, financial condition, results of operations or cash flows. +Embargoes, sanctions and export controls imposed by the U.S. and other governments restricting or prohibiting transactions with certain persons or entities, including financial institutions, to certain countries or regions, or involving certain products, may limit the sales of our products. Embargoes, sanctions, and export control laws are changing rapidly for certain geographies, including with respect to China and Russia. In particular, changing U.S. and European export controls and sanctions on China, as well as other restrictions affecting transactions involving China and Chinese parties and Russia and Russian parties, could affect our +23 +Table of Contents +ability to collect receivables, provide aftermarket and warranty support for our products, sell products, and otherwise impact our reputation and business, any of which could have a material adverse effect on our business, financial condition, results of operations or cash flows. Moreover, the enforceability of contracts in China, especially with governmental entities, including state-owned enterprises, is relatively uncertain. If counterparties repudiated our contracts or defaulted on their obligations, we might not have adequate remedies. Such uncertainties or inability to enforce our contracts could materially and adversely affect our business, financial condition, results of operations or cash flows. +Unanticipated changes in our effective tax rate, the adoption of new tax legislation or exposure to additional income tax liabilities could adversely affect our profitability and cash flow. In addition, audits by tax authorities could result in additional tax payments for prior periods. +We are subject to income taxes in the U.S. and numerous international jurisdictions. Our income tax provision and cash tax liability in the future could be adversely affected by the adoption of new tax legislation, changes in the amounts or composition of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities and the discovery of new information in the course of our tax return preparation process. Additionally, we have been subject to tax audits. These audits can involve complex issues, which may require an extended period of time to resolve and can be highly judgmental. Tax authorities may disagree with certain tax reporting positions taken by us and, as a result, assess additional taxes against us. We may have to engage in litigation to achieve the results reflected in our tax estimates, and such litigation may be time consuming and expensive. We regularly assess the likely outcomes of any audits in order to determine the appropriateness of our tax provision. The amounts ultimately paid upon resolution of these or subsequent tax audits could be materially different from the amounts previously included in our income tax provisions and accruals, which could materially and adversely affect our business, financial condition, results of operations or cash flows. +Changes in tax law relating to multinational corporations could adversely affect our tax position. +The U.S. Congress, government agencies in non-U.S. jurisdictions where we and our affiliates do business, and the Organisation for Economic Co-operation and Development (“OECD”) have recently focused on issues related to the taxation of multinational corporations. One example is in the area of “base erosion and profit shifting,” where profits are claimed to be earned for tax purposes in low-tax jurisdictions, or payments are made between affiliates from a jurisdiction with high tax rates to a jurisdiction with lower tax rates. The OECD has released several components of its comprehensive plan to create an agreed set of international rules for addressing base erosion and profit shifting. As a result, the tax laws in the United States and other countries in which we do business could change on a prospective or retroactive basis, including as a result of the recent change in U.S. presidential administration, and any such changes could adversely affect our business, financial condition, results of operations or cash flows. +Our global operations are subject to laws and regulations that impose significant compliance costs and create reputational and legal risk. +Due to the international scope of our operations, we are subject to a complex system of commercial regulations around the world. Recent years have seen an increase in the development and enforcement of laws regarding trade compliance, as well as new regulatory requirements regarding privacy and data protection, such as the European Union General Data Protection Regulation. For example, in January 2024, the Tax Administration Service in Mexico amended the customs requirements for transactions between a maquiladora in Mexico shipping its manufactured goods to a domestic Mexican company resulting in increased costs for our Mexican operations. Our foreign subsidiaries and affiliates are governed by laws, rules and business practices that differ from those of the U.S. The activities of these entities may not comply with U.S. laws or business practices or our Code of Business Conduct. Violations of these laws may result in severe criminal or civil sanctions, could disrupt our business and result in an adverse effect on our reputation, business, financial condition, results of operations or cash flows. We cannot predict the nature, scope or effect of future regulatory requirements to which our operations might be subject or the manner in which existing laws might be administered or interpreted. +We are subject to national and international anti-corruption laws and regulations laws, such as the U.S. Foreign Corrupt Practices Act (“FCPA”), the U.K. Bribery Act (the “Bribery Act”) and export controls and economic sanctions programs, including those administered by the U.S. Treasury Department’s Office of +24 +Table of Contents +Foreign Assets Control (“OFAC”), relating to our business and our employees. As part of our business, we deal with state-owned business enterprises, the employees of which are considered foreign officials for purposes of the FCPA’s prohibition on providing anything of value to foreign officials for the purposes of obtaining or retaining business or securing any improper business advantage. In addition, the provisions of the Bribery Act extend beyond bribery of foreign public officials and also apply to transactions with individuals that a government does not employ. Some of the international locations in which we operate lack a developed legal system and have higher than normal levels of corruption. +Our continued expansion outside the United States, including in China, India and developing countries, and our development of new partnerships worldwide, could increase the risk of FCPA, OFAC or Bribery Act violations in the future. Despite our policies, procedures and compliance programs, our internal control and compliance systems may not be able to protect from prohibited acts willfully committed by our employees, agents or business partners that would violate such applicable laws and regulations. Additionally, there can be no assurance that our policies and procedures will effectively prevent us from violating these regulations in every transaction in which we may engage or provide a defense to any alleged violation. For example, actions taken by OFAC in response to the Russia-Ukraine War have included the imposition of export controls and broad financial and economic sanctions against Russia, Belarus and specific areas of Ukraine. Any violation or alleged violation of these laws and regulations, even if prohibited by our policies, could result in criminal or civil sanctions, reputational damage or other substantial costs and penalties, any of which could adversely affect our business, financial condition, results of operations or cash flows. In particular, we may be held liable for actions that our joint venture partners take inside or outside of the United States, even though our partners may not be subject to these laws. Any such improper acts could damage our reputation, subject us to civil or criminal judgments, fines or penalties, and could otherwise disrupt our business. +Our operations are also subject to certain antitrust and competition laws in the jurisdictions in which we conduct our business, in particular the United States and Europe. These laws prohibit, among other things, anticompetitive agreements and practices. If any of our commercial agreements or practices are found to violate or infringe such laws, we may be subject to civil and other penalties. We may also be subject to third-party claims for damages. Further, agreements that infringe antitrust and competition laws may be void and unenforceable, in whole or in part, or require modification in order to be lawful and enforceable. Accordingly, any violation of these laws could harm our reputation and could have a material adverse effect on our business, financial condition, results of operations or cash flows. +From time to time, we are subject to litigation or other commercial disputes and other legal and regulatory proceedings relating to our business, including actual or perceived failure to comply with the laws and regulations mentioned above. Due to the inherent uncertainties of any litigation, commercial disputes or other legal or regulatory proceedings, we cannot accurately predict their ultimate outcome, including the outcome of any related appeals. An unfavorable outcome could materially adversely impact our business, financial condition, results of operations or cash flows. Furthermore, as required by U.S. GAAP, we establish reserves based on our assessment of contingencies, including contingencies related to legal claims asserted against us. Subsequent developments in legal proceedings may affect our assessment and estimates of the loss contingency recorded as a reserve and require us to make payments in excess of our reserves, which could have an adverse effect on our business, financial condition, results of operations or cash flows. +We may be adversely impacted by the effects of climate change and may incur increased costs and experience other impacts due to climate change. +The scientific consensus indicates that emissions of GHG continue to alter the composition of Earth’s atmosphere in ways that are affecting, and are expected to continue to affect, the global climate. The potential impacts of climate change on our customers and end-users, product offerings, operations, facilities and suppliers are accelerating and uncertain, as they will be particular to local, customer-specific circumstances. These potential impacts may include, among other things, rising sea levels and the frequency and severity of weather events as well as customer and end-user product changes either through preference or regulation. +Concerns regarding climate change may lead to additional international, national, regional and local legislative and regulatory responses. For example, proposed SEC rules to enhance disclosures regarding the effects of climate change could increase our reporting and compliance costs, and in October 2023, the California Governor signed the Climate-Related Financial Risk and the Climate Corporate Data Accountability Act into law, which impose significant and mandatory climate-related reporting requirements for large +25 +Table of Contents +companies doing business in the state. Similarly, enhanced mandatory climate reporting requirements came into force in 2019 and again in 2022 in the United Kingdom and broader sustainability reporting requirements (including climate) will apply to certain European Union entities on a staged basis from 2024 and to their non-European Union parent undertakings from 2028. We believe these reporting requirements could increase our reporting and compliance costs. Various stakeholders, including legislators and regulators, shareholders and non-governmental organizations, are continuing to look for ways to reduce GHG emissions, including limits on GHG emissions, bans on future sales of gas-powered vehicles, and measures intended to incentivize GHG reduction such as fuel taxes, carbon taxes and subsidies. As the impact of any future GHG legislative or regulatory requirements on our global businesses and products is dependent on the timing, scope and design of the mandates or standards, we are currently unable to predict the potential impact. Moreover, as discussed in “— Risks Related to our Business Operations — Evolving customer needs and developing technologies may threaten our existing business and growth ”, certain consequences of climate change, such as shifts in customer and end-user preferences and the pace and extent to which customers and end-users adopt alternative power, including electrified vehicles, could impact demand for our products and could have a material adverse effect on our business, financial condition, results of operations or cash flows. +Our operations are subject to increasingly stringent environmental laws and regulations, and we are also subject to laws requiring cleanup of contaminated property. +Our plants and operations are subject to increasingly stringent environmental laws and regulations in all of the countries in which we operate, including laws and regulations governing air emissions, wastewater and storm water discharges and the generation, handling, storage, transportation, treatment and disposal of waste materials. While we believe that we are in compliance in all material respects with these environmental laws and regulations, there can be no assurance that we will not be adversely impacted by costs, liabilities or claims with respect to existing or subsequently acquired operations, under either present laws and regulations or those that may be adopted or imposed in the future. We are also subject to laws requiring the cleanup of contaminated property, including laws that impose strict liability for contamination at owned property and for hazardous materials or wastes generated by our plants and operations or those of our predecessors. If a release of hazardous substances occurs at or from any of our (or our predecessors’) current or former properties or at a landfill or another location where we or our predecessors have disposed of (or arranged for the disposal of) hazardous materials, we may be held liable for the contamination and the amount of such liability could be material. We may become subject to additional evolving regulations related to the cleanup of contaminated property. +Risks Related to Cybersecurity and Information Technology Infrastructure +Our information technology environment and our products are exposed to potential security or data breaches or other disruptions, which may adversely impact our operations. +We rely on the capacity, reliability and security of our information technology environment and data security infrastructure in connection with various aspects of our business activities. We also rely on our ability to expand and continually update these technologies and related infrastructure in response to the changing needs of our business. As we implement new technologies, they may not perform as expected. We face the challenge of supporting our older technologies and implementing necessary upgrades. In addition, some of these technologies are managed by third-party service providers and are not under our direct control. If we experience a problem with an important technology, including during upgrades and/or new implementations of technologies, the resulting disruptions could have an adverse effect on our business and reputation. As customers and end-users adopt and rely on cloud-based digital technologies and services we offer, any disruption of the confidentiality, integrity or availability of those services could have an adverse effect on our business and reputation. +Our operations routinely involve collecting, receiving, storing, processing and transmitting personal, sensitive and other confidential information pertaining to our business, customers, end-users, dealers, suppliers, employees and other sensitive matters. The data handled by our technologies is vulnerable to security threats. In addition, our products contain interconnected and increasingly complex technologies that monitor and transmit data and these technologies are potentially subject to cyber-attacks and disruption. For example, we have developed the filtration intelligence technology (FIT) system, which embeds sensors and software within the filtration equipment system designed to optimize filtration maintenance and monitor equipment health. In addition, we provide opportunities for remote working to our employees, which may pose additional information +26 +Table of Contents +technology risks. The impact of a significant information technology event on either our information technology environment or our products could negatively affect the performance of our products, our reputation, and competitive position. +While we continually work to safeguard our information technology environment and mitigate potential risks, there is no assurance that these actions will be sufficient to timely detect or prevent information technology security threats, such as security breaches, computer malware, ransomware attacks and other cyber-attacks, which are increasing in both frequency and sophistication, along with power outages or hardware failures. These threats could result in unauthorized access, use, modification, disclosure, loss or theft of information, including intellectual property, costly investigations, remediation efforts, notification requirements, privacy or data protection-related compliance obligations, legal claims or proceedings, government enforcement actions, civil or criminal penalties, fines, diversion of management attention, operational changes or other response measures, loss of customer confidence in our security measures, loss of business partners, and negative publicity that could adversely affect our brand, reputation, business, financial condition, results of operations or cash flows. Our cyber insurance policies may not cover, or may cover only a portion of, any potential claims related to such events or may not be adequate to indemnify us for all or any portion of liabilities that may be imposed or defense costs incurred. We also cannot be certain that we will be able to maintain insurance coverage, on acceptable terms or in amounts sufficient to cover the potentially significant losses that may result from a security incident or breach, or that the insurer will not deny coverage of any future claim. +In addition, data we collect, store and process are subject to a variety of U.S. and international laws and regulations, such as the European Union's General Data Protection Regulation, which may carry significant potential penalties for noncompliance. +A number of our operations depend on information technology infrastructure and assets that are increasing in complexity, which are undergoing changes as a result of the Separation. +In order to support the new business processes under the terms of our transition services agreement with Cummins, we have made significant configuration, process and data changes within many of the information technology systems that we use. If our information technology systems and processes are not sufficient to support our business and financial reporting functions, or if we fail to properly implement our new business processes, manufacturing, shipping, invoicing or other critical operating activities may be interrupted or negatively affected, and our financial reporting may be delayed or inaccurate and, as a result, our business, financial condition, results of operations or cash flows may be materially adversely affected. Even if we are able to successfully configure and change our systems, all technology systems, even with implementation of security measures, are vulnerable to disability, failures or unauthorized access. If our information technology systems were to fail or be breached, this could materially adversely affect our reputation and our ability to perform critical business functions, and sensitive and confidential data could be compromised. +Risks Related to Finance and Financial Market Conditions +We are subject to foreign currency exchange rate and other related risks. +We conduct operations in many areas of the world involving transactions denominated in a variety of currencies. We are subject to foreign currency exchange rate risk to the extent that our costs are denominated in currencies other than those in which we earn revenues. In addition, since our financial statements are denominated in U.S. dollars, changes in foreign currency exchange rates between the U.S. dollar and other currencies have had, and will continue to have, an impact on our business, financial condition, results of operations or cash flows. For example, 39% of our net sales in 2024 were denominated in a currency other than the U.S. dollar. Additionally, the appreciation of the U.S. dollar against foreign currencies has had and could continue to have a negative impact on our consolidated results of operations due to translation impacts. We currently manage exchange rate and other related risks through the selective use of derivatives, but there can be no assurance that fluctuations in exchange rates and other related risks will not have a material adverse effect upon our business, financial condition, results of operations or cash flows. +We have recorded goodwill as a result of prior acquisitions, and an economic downturn could cause these balances to become impaired, requiring write-downs that would reduce our operating income. +Goodwill amounted to approximately $84.7 million as of December 31, 2024. As required under current accounting rules, we assess goodwill for impairment at least annually and whenever changes in circumstances +27 +Table of Contents +indicate that the carrying amount may not be recoverable from estimated future cash flows. As of December 31, 2024, management has deemed there is no impairment of our recorded goodwill. However, if future operating performance at one or more of our operating units were to fall significantly below forecast levels or if market conditions for one or more of our acquired businesses were to decline, we could be required to incur a non-cash charge to operating income for impairment. Management will continue to monitor our operating results, our market capitalization, and the impact of the economy to determine if there is an impairment of goodwill in future periods. +Risks Related to Macroeconomic and Geopolitical Conditions +Increased tariffs or the imposition of other barriers to international trade could impact demand for our products and our competitive position. +Changes to trade protection measures and import or export licensing requirements; the imposition of new, additional, or retaliatory tariffs, quotas, exchange controls, sanctions, trade barriers or other restrictions (including recent U.S. tariffs imposed or threatened to be imposed by the current U.S presidential administration on China, Canada and Mexico and other countries and any retaliatory actions taken by such countries); and the withdrawal from or modification of trade agreements or the negotiation of new trade agreements, in countries where we operate, particularly in Mexico, Canada, China, and India, could impact the cost of our products, demand for our products and the competitive position of our products. Our largest global manufacturing facility is in San Luis Potosi, Mexico, and it supplies products to our U.S. market. There can be no assurance that the consequences of these actions, given our global operations, will not have a material adverse effect upon our business, financial condition, results of operations or cash flows. +Political, economic and social uncertainty in geographies where we have significant operations or large offerings of our products could significantly change the dynamics of our competition, customer and end-user base and product offerings and impact our growth opportunities globally. +Our business is subject to the political, economic and other risks that are inherent in operating in numerous countries, including: +• public health crises, including the spread of a contagious disease, such as COVID-19 and other catastrophic events; +• the difficulty of enforcing agreements and collecting receivables through foreign legal systems; +• the imposition of taxes on foreign income and tax rates in certain foreign countries that exceed those in the U.S.; +• difficulty in staffing and managing widespread operations and the application of foreign labor regulations; +• required compliance with a variety of foreign laws and regulations; and +• changes in general economic and political conditions, including changes in relationship with the U.S. in countries where we operate, particularly in Mexico, Canada, China, India and other emerging markets. +As we continue to operate and grow our business globally, our success will depend, in part, on our ability to anticipate and effectively manage these and other related risks. There can be no assurance that the consequences of these and other factors relating to our multinational operations will not have a material adverse effect upon our business, financial condition, results of operations or cash flows. +Risks arising from uncertainty in worldwide and regional market and economic conditions may harm our business and make it difficult to project long-term performance. +Our business is sensitive to global macroeconomic conditions. Future macroeconomic downturns may have an adverse effect on our business, financial condition, results of operations or cash flows, as well as on our distributors, customers, end-users and suppliers, and on activity in many of the industries and markets we serve. Among the economic factors which may have such an effect are: public health crises such as pandemics and epidemics, currency exchange rates, difficulties entering new markets, tariffs and governmental trade and +28 +Table of Contents +monetary policies, and general economic conditions such as inflation, deflation, interest rates and credit availability. +In addition, we face several risks associated with international business and are subject to global events beyond our control, including war, trade disputes, economic sanctions, trade wars and their collateral impacts and other international events. Any of these events could have a material adverse effect on our reputation, business, financial condition, results of operations or cash flows. There may be changes to our business if there is instability, disruption or destruction in a significant geographic region, regardless of cause, including war, terrorism, riot, civil insurrection or social unrest; and natural or man-made disasters, including famine, flood, fire, earthquake, storm or disease. +Risks Related to our Relationship with Cummins +We, or Cummins, may fail to perform under various transaction agreements that were executed as part of the IPO or we may fail to have necessary systems and services in place when certain of the transaction agreements expire. +The separation agreement and other agreements entered into in connection with the IPO determined the allocation of assets and liabilities between Cummins and us following the IPO for those respective areas and include certain indemnifications related to liabilities and obligations. The transition services agreement provides for the performance of certain services by Cummins and us for the benefit of the other for a period of time after the IPO. We will rely on Cummins to satisfy Cummins’ performance and payment obligations under these agreements. If Cummins is unable to satisfy its obligations under these agreements, including its indemnification obligations, we could incur operational difficulties or losses. If we do not have in place our own systems and services, or if we do not have agreements with other providers of these services once certain transaction agreements expire, we may not be able to operate our businesses effectively and our business, financial condition, results of operations or cash flows could be materially adversely affected. We are in the process of creating our own, or engaging third parties to provide, systems and services to replace many of the systems and services that Cummins currently provides to us. However, we may not be successful in implementing these systems and services or in transitioning data from Cummins’ systems to us. In addition, we have historically received certain informal support from Cummins, including customer relationship management, marketing, communications, technical support, market intelligence and market data, which may not be addressed in our transition services agreement. The level of this informal support may be eliminated following the Separation. +In particular, our day-to-day business operations rely on our information technology systems. A significant portion of the communications among our personnel, customers and suppliers take place on our information technology platforms. We expect the separation of information technology systems from Cummins to be complex, time-consuming and costly. There is risk of data loss in the process of transferring information technology. As a result of our reliance on information technology systems, the cost of such information technology integration and transfer and any such loss of key data could have an adverse effect on our business, financial condition, results of operations or cash flows. +In addition, our historical consolidated financial statements include the attribution of certain assets and liabilities that historically have been held at the Cummins corporate level but which are specifically identifiable or attributable to the businesses transferred to us in connection with the Separation. The value of the assets and liabilities we assumed in connection with the Separation could ultimately be materially different than such attributions, which could have a material adverse effect on our business, financial condition, results of operations or cash flows. +Potential indemnification liabilities to Cummins pursuant to the separation agreement could materially and adversely affect our businesses, financial condition, results of operations and cash flows. +The separation agreement, among other things, provides for indemnification obligations designed to make us financially responsible for liabilities that may exist relating to our business activities, whether incurred prior to or after the Separation. If we are required to indemnify Cummins under the circumstances set forth in the separation agreement, we may be subject to substantial liabilities. +In connection with the Separation, Cummins has indemnified us for certain liabilities. However, there can be no assurance that the indemnity will be sufficient to insure us against the full amount of such +29 +Table of Contents +liabilities, or that Cummins’ ability to satisfy its indemnification obligation will not be impaired in the future. +Pursuant to the separation agreement and certain other agreements with Cummins, Cummins agreed to indemnify us for certain liabilities as discussed further in “ Agreements Between Cummins and Atmus and Other Related Party Transactions — Relationship between Atmus and Cummins — Separation Agreement — Release of Claims and Indemnification .” However, third parties could also seek to hold us responsible for any of the liabilities that Cummins has agreed to retain, and there can be no assurance that the indemnity from Cummins will be sufficient to protect us against the full amount of such liabilities, or that Cummins will be able to fully satisfy its indemnification obligations. In addition, Cummins’ insurance will not necessarily be available to us for liabilities associated with occurrences of indemnified liabilities prior to the IPO, and in any event Cummins’ insurers may deny coverage to us for liabilities associated with certain occurrences of indemnified liabilities prior to the IPO. Moreover, even if we ultimately succeed in recovering from Cummins or such insurance providers any amounts for which we are held liable, we may be temporarily required to bear these losses. Each of these risks could negatively affect our business, financial condition, results of operations or cash flows. +We may have received better terms from unaffiliated third parties than the terms we received in our agreements with Cummins. +The agreements we entered with Cummins in connection with the separation, including the separation agreement, transition services agreement, employee matters agreement, tax matters agreement, intellectual property license agreement, first-fit supply agreement, aftermarket supply agreement, transitional trademark license agreement and the registration rights agreement, were prepared in the context of our separation from Cummins while we were still a wholly-owned subsidiary of Cummins. Accordingly, during the period in which the terms of those agreements were prepared, we did not have an independent board of directors or a management team that was independent of Cummins. As a result, the terms of those agreements may not reflect terms that would have resulted from arm’s-length negotiations between unaffiliated third parties. Arm’s-length negotiations between Cummins and an unaffiliated third party in another form of transaction, such as a buyer in a sale of a business transaction, may have resulted in more favorable terms to the unaffiliated third party. +Risks Related to our Capital Structure +Changes in the capital and credit markets may negatively affect our ability to access financing to support strategic initiatives. +Disruption of the global financial and credit markets may have an effect on our long-term liquidity and financial condition. Our operations, investment opportunities, access to capital and ability to enforce the obligations of counterparties may be adversely affected by disruptions to the banking system and other financial market volatility. There can be no assurance that the cost or availability of future borrowings will not be impacted by future capital market disruptions. Our term loan agreement and revolving credit facility each contain covenants to maintain certain financial ratios that, under certain circumstances, could restrict our ability to incur additional indebtedness, make investments and other restricted payments, create liens and sell assets. +We have substantial indebtedness and may incur substantial additional debt from time to time, which may impact our ability to service all our indebtedness and react to changes in our industry and limit our ability to seek further financing on favorable terms. +We have approximately $592.5 million of outstanding indebtedness consisting of proceeds of the term loan as of December 31, 2024. See “ Description of Material Indebtedness of Atmus .” +Our ability to make scheduled payments on or refinance our debt obligations depends on our financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to certain financial, business, legislative, regulatory and other factors beyond our control. We may be unable to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal and interest on our indebtedness. +If our cash flows and capital resources are insufficient to fund our debt service obligations, we could face substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures or to dispose of material assets or operations, alter our dividend policy, seek additional debt or equity capital or restructure or refinance our indebtedness. We may not be able to affect any such alternative measures on +30 +Table of Contents +commercially reasonable terms or at all and, even if successful, those alternative actions may not allow us to meet our scheduled debt service obligations. The instruments that will govern our indebtedness may restrict our ability to dispose of assets and may restrict the use of proceeds from those dispositions and may also restrict our ability to raise debt or equity capital to be used to repay other indebtedness when it becomes due. We may not be able to consummate those dispositions or to obtain proceeds in an amount sufficient to meet any debt service obligations when due. +In addition, we conduct operations through our subsidiaries and joint ventures. Accordingly, repayment of our indebtedness will depend on the generation of cash flow by these entities, and their ability to make such cash available to us, by dividend, debt repayment or otherwise. These entities may not have any obligation to pay amounts due on our indebtedness or to make funds available for that purpose. These entities may not be able to, or may not be permitted to, make adequate distributions to enable us to make payments in respect of our indebtedness. Each of these entities is a distinct legal entity and, under certain circumstances, legal, tax and contractual restrictions may limit our ability to obtain cash from them. In the event that we do not receive distributions from these entities, we may be unable to make required principal and interest payments on our indebtedness. +Our inability to generate sufficient cash flows to satisfy our debt obligations, or to refinance our indebtedness on commercially reasonable terms or at all, may materially adversely affect our business, financial condition, results of operations and cash flows and our ability to satisfy our obligations under our indebtedness or pay dividends on our common stock. +We may incur substantial additional debt from time to time, including secured indebtedness, to finance working capital, capital expenditures, research and development, investments or acquisitions or for other purposes. If we do so, the risks related to our high level of debt could intensify. Specifically, our high level of debt could have important consequences, including: +• making it more difficult for us to satisfy our obligations with respect to our debt; +• limiting our ability to obtain additional financing to fund future working capital, capital expenditures, business development or other general corporate requirements, including dividends; +• increasing our vulnerability to general adverse economic and industry conditions; +• exposing us to the risk of increased interest rates as certain of our borrowings are and may in the future be at variable rates of interest; +• limiting our flexibility in planning for and reacting to changes in our industry; +• impacting our effective tax rate; and +• increasing our cost of borrowing. +Substantially all of our assets, subject to certain exceptions, are pledged as security for our term loan and revolving credit facility, and if we default on our obligations, we may suffer adverse consequences, including foreclosure on our assets. +In connection with the revolving credit facility and term loan, we signed a pledge and security agreement, whereby all of our assets, subject to certain exceptions, are pledged as collateral to secure borrowings thereunder. If we default on our obligations under such facilities, the lenders may have the right to foreclose upon and sell, or otherwise transfer, the collateral subject to their security interests or their superior claim. In such event, we may be forced to sell our investments to raise funds to repay our outstanding borrowings in order to avoid foreclosure and these forced sales may be at times and at prices we would not consider advantageous. Moreover, such deleveraging of us could significantly impair our ability to effectively operate our business in the manner in which we intend to operate. As a result, we could be forced to curtail or cease new investment activities and lower or eliminate any dividends that we may pay to our shareholders in the future. +In addition, if the lenders exercise their right to sell the assets pledged under our secured credit facilities, such sales may be completed at distressed sale prices, thereby diminishing or potentially eliminating the amount of cash available to us after repayment of the amounts outstanding under such facilities. +31 +Table of Contents +Risks Related to Ownership of our Common Stock +The price of our common stock may fluctuate substantially, and you could lose all or part of your investment in our common stock as a result. +There may be wide fluctuations in the market value of our common stock as a result of many factors. Factors that may cause the market price of our common stock to fluctuate, some of which may be beyond our control, include: +• our quarterly or annual earnings, or those of other companies in our industry; +• actual or anticipated fluctuations in our operating results; +• changes in earnings estimated by securities analysts or our ability to meet those estimates; +• the operating and stock price performance of other comparable companies; +• changes to the regulatory and legal environment in which we operate; +• overall market fluctuations and domestic and worldwide economic conditions; and +• other factors described in these “ Risk Factors ” and elsewhere in this Annual Report on Form 10-K. +Stock markets in general have experienced volatility that has often been unrelated to the operating performance of a particular company. These broad market fluctuations may adversely affect the trading price of our common stock. In the past, following periods of volatility in the overall market and the market price of a company’s securities, securities class action litigation has often been instituted against these companies. Such litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources. +Our stock repurchase program could affect the price of our common stock and may be suspended or terminated at any time, which may result in a decrease in the trading price of our common stock. +Our repurchase program does not have an expiration date and we are not obligated to repurchase a specified number or dollar value of shares. Further, our stock repurchase program may be suspended, delayed or discontinued at any time, which could cause the market price of our common stock to decline. Repurchases pursuant to our stock repurchase program could affect our stock price and the existence of our stock repurchase program could also cause our stock price to be higher than it would be in the absence of such a program. There can be no assurance that any stock repurchases will enhance stockholder value because the market price of our common stock may decline below the levels at which we repurchased shares of common stock. +We cannot guarantee the payment of dividends on our common stock, or the timing, or amount of any such dividends. +We have no obligation to continue paying a quarterly cash dividend to holders of our common stock, and our dividend policy may change at any time without notice to our stockholders. The payment of any dividends in the future to our stockholders, and the timing and amount thereof, will fall within the discretion of our board of directors. Our board of directors’ decisions regarding the payment of dividends will depend on many factors, such as our financial condition, earnings, capital requirements, debt service obligations, restrictive covenants in the agreements governing our indebtedness, general economic business conditions, industry practice, legal requirements and other factors that our board of directors may deem relevant. Our ability to pay dividends will depend on our ongoing ability to generate cash from operations and on our access to the capital markets. We cannot assure you that we will pay our anticipated dividend in the same amount or frequency, or at all, in the future. +Applicable laws and regulations, provisions of our amended and restated certificate of incorporation and bylaws and certain contractual rights granted to Cummins may discourage takeover attempts and business combinations that shareholders might consider in their best interests. +32 +Table of Contents +Applicable laws, provisions of our amended and restated certificate of incorporation and bylaws and certain contractual provisions under the separation agreement that may delay, deter, prevent or render more difficult a takeover attempt that our shareholders might consider in their best interests. For example, they may prevent our shareholders from receiving the benefit from any premium to the market price of our common stock offered by a bidder in a takeover context. Even in the absence of a takeover attempt, the existence of these provisions may adversely affect the prevailing market price of our common stock if they are viewed as discouraging takeover attempts in the future. +Our amended and restated certificate of incorporation and bylaws provide provisions that are intended to encourage prospective acquirers to negotiate with our board of directors and management team, rather than to attempt a hostile takeover, which could deter coercive takeover practices and inadequate takeover bids. These provisions provide for: +• a classified board of directors, with our board of directors divided into three classes and with each class serving a staggered three-year term; +• advance notice requirements regarding how our shareholders may present proposals or nominate directors for election at shareholder meetings; +• the right of our board of directors to issue one or more series of preferred stock with such powers, rights and preferences as the board of directors shall determine; +• the inability of shareholders to call special meetings of shareholders and the requirement that all shareholder action be taken at a meeting rather than by written consent; +• our directors may be removed only for cause and only by a 75% shareholder vote; and +• a 75% shareholder vote requirement to amend the section of our amended and restated certificate of incorporation and bylaws related to (i) our board of directors, including related to our classified board of directors and the removal of directors only for cause; (ii) our shareholders, including related to the inability of shareholders to call special meetings of shareholders and the inability of shareholders to act by written consent; and (iii) the ability of our board of directors and our shareholders to amend or repeal our bylaws. +Under the tax matters agreement with Cummins, we are subject to certain restrictions, including restrictions on our ability to enter into acquisition, merger, liquidation, sale and stock redemption transactions with respect to our stock. These restrictions may limit our ability to pursue certain strategic transactions or other transactions that it may believe to be in the best interests of our shareholders or that might increase the value of our business. +We are also subject to Section 203 of the Delaware General Corporation Law (the “DGCL”), an anti-takeover statute. In general, Section 203 of the DGCL prohibits a publicly held Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years following the time the person became an interested stockholder. +These limitations may adversely affect the prevailing market price and market for our Common Stock if they are viewed as limiting the liquidity of our stock or discouraging takeover attempts in the future. +The provision of our amended and restated certificate of incorporation designating the Court of Chancery in the State of Delaware and the federal district courts for the District of Delaware as the exclusive forums for certain types of lawsuits may have the effect of discouraging lawsuits against our directors and officers. +Our amended and restated certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, to the extent permitted by law, the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, the federal district court for the District of Delaware) shall be the sole and exclusive forum for: (i) any derivative action or proceeding brought on behalf of us, (ii) any action asserting a claim of breach of fiduciary duty owed by any director, officer or other employee of us to us or our shareholders, (iii) any action arising pursuant to any provision of the DGCL, our amended and restated certificate of incorporation or our bylaws or (iv) any action asserting a claim governed by the internal affairs +33 +Table of Contents +doctrine. It further provides that, unless we consent in writing to the selection of an alternative forum, to the extent permitted by law, the federal district courts of the U.S. shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act of 1933, as amended (the “Securities Act”). The exclusive forum clauses described above shall not apply to suits brought to enforce a duty or liability created by the Securities Exchange Act of 1934, as amended (the “Exchange Act”) or any other claim for which the federal courts have exclusive jurisdiction. Any person or entity purchasing or otherwise acquiring any interest in shares of our common stock will be deemed to have notice of, and consented to, the exclusive forum provisions in our amended and restated certificate of incorporation. +Although we believe these provisions benefit us by providing increased consistency in the application of applicable law in the types of lawsuits to which they apply, the provisions may have the effect of discouraging lawsuits against our directors and officers and may limit a shareholder’s ability to bring a claim in a judicial forum it finds favorable for disputes with us or our directors, officers or employees. The enforceability of similar choice of forum provisions in other companies’ certificates of incorporation has been challenged in legal proceedings and there is uncertainty as to whether a court would enforce such provisions, in particular with respect to causes of action arising under the Securities Act. In addition, investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. It is possible that, in connection with any applicable action brought against us, a court could find the choice of forum provisions contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable in such action. If so, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business, financial condition, results of operations or cash flows. +Our historical consolidated financial statements are not necessarily representative of the results we would have achieved as a standalone company and may not be a reliable indicator of our future results. +Our historical consolidated financial statements included in this Annual Report on Form 10-K do not reflect the financial condition, results of operations or cash flows we would have achieved as a standalone company during the periods presented or those it will achieve in the future. This is primarily the result of the following factors: +• Prior to the Separation, our business was operated by Cummins as part of its broader corporate organization, rather than as an independent, publicly traded company. Cummins or one of its affiliates performed various corporate functions that are provided on a centralized basis within Cummins, such as expenses for executive oversight, treasury, legal, finance, human resources, tax, internal audit, financial reporting, information technology and investor relations that may be higher or lower than the comparable expenses we would have actually incurred, or will incur in the future, as a standalone company; +• Significant increases have occurred in our cost structure as a result of the IPO, including costs related to public company reporting, investor relations and compliance with the Sarbanes-Oxley Act; +• Our historical consolidated financial statements reflect the direct and indirect costs for the services historically provided by Cummins. Following the completion of the IPO, Cummins currently provides some of these services to us on a transitional basis pursuant to the Transition Services Agreement. Our historical consolidated financial statements do not reflect our obligations under the various transitional agreements we entered into with Cummins in connection with the Separation. At the end of the transitional periods specified in these agreements, we will need to perform these functions ourselves or hire third parties to perform these functions on our behalf, and these costs may exceed the comparable expenses we have incurred in the past; +• Our working capital requirements and capital expenditures have historically been satisfied as part of Cummins’ corporate-wide cash management and centralized funding programs, and Atmus’ cost of debt and other capital may differ from the historical amounts reflected in Atmus’ historical consolidated financial statements; +34 +Table of Contents +• Our cost of debt and capital structure will be different from that reflected in our historical consolidated financial statements; and +• The IPO and the Separation may have a material effect on our customers and other business relationships, including supplier relationships, and may result in the loss of preferred pricing available by virtue of our reduced relationship with Cummins. +Our financial condition and future results of operations will be materially different from amounts reflected in our historical consolidated financial statements included elsewhere in this Annual Report on Form 10-K. As a result of the Separation, it may be difficult for investors to compare our future results to historical results or to evaluate our relative performance or trends in our business. +Item 1B. Unresolved Staff Comments +None. +Item 1C. Cybersecurity +Our management and board of directors (the “Board”) recognize the importance of maintaining the capacity, reliability and security of our information technology environment and data security infrastructure to deliver on the expectations, and maintain the trust and confidence, of our customers, clients, business partners, employees and investors. The Board is actively involved in our risk management practices, including oversight of our overall enterprise risk management (“ERM”) framework, in which cybersecurity risk management is reviewed by the Board on at least an annual basis. Our cybersecurity and privacy programs align with the recognized frameworks established by the National Institute of Standards and Technology and leverage the International Organization for Standardization and other applicable industry standards. The focus of our cybersecurity program is preserving the confidentiality, security and availability of our systems and data, preventing and mitigating cybersecurity threats and effectively responding to cybersecurity incidents when they occur. +Cybersecurity Risk Management and Strategy +We have established and implemented processes to assess, identify and manage material cybersecurity risks. Cybersecurity risks are assessed, identified, and managed by our Executive Director of Cybersecurity and Infrastructure, with direct supervision by our Vice President and Chief Information Officer (“CIO”) and with the assistance of our internal audit and legal teams. Our Executive Director of Cybersecurity and Infrastructure shares information regarding such risks with our management’s senior level information security council (the “Information Security Council”), which consists of our CIO, Senior Vice President and Chief Financial Officer, Vice President and Chief Technical Officer, Senior Vice President and Chief Legal Officer & Corporate Secretary (currently vacant), Vice President of Strategy and Director of Internal Audit & Enterprise Risk Management, and which supports the Audit Committee’s oversight of cybersecurity risk, including by providing regular reports on various cybersecurity matters. +We have in place robust physical, technical, administrative, and organizational controls for the securing of our information systems. +We maintain a comprehensive, risk-based, third-party risk management process to identify , assess and manage cybersecurity risks associated with third-party service providers. Third-party service providers undergo thorough pre-engagement due diligence, including security and privacy assessments. All contracts with such third-party service providers are required to contain security and data processing terms no less stringent than those employed by us in safeguarding our own data. Any third-party service providers with access to confidential or sensitive data are subject to ongoing oversight activities, including assessments and audits, throughout the lifetime of the engagement. +Additionally, we maintain an incident response plan (the “Incident Response Plan”), which establishes a comprehensive, effective, and repeatable process for identifying, escalating and responding to cybersecurity incidents. We test and evaluate the Incident Response Plan, including contingency and recovery plans, on a regular basis, and we develop, implement and review contingency and recovery plans for information systems, both internal and vendor managed. The results of such assessments drive changes and enhancements to +35 +Table of Contents +governance, policies, procedures, technologies, and partner decisions to continuously monitor and improve our cybersecurity risk management. The Information Security Council practices the procedures of the Incident Response Plan through tabletop exercises facilitated by external consultants. We also leverage third-party support, including vendors, consultants, and assessors, to analyze risk exposure, to identify remediation opportunities and to reduce our overall cybersecurity risk. +Previous cybersecurity incidents have not materially affected us, including our business strategy, financial condition, results of operations or cash flows. However, risks from cybersecurity threats, including but not limited to security breaches, computer malware, ransom attacks, other cyber-attacks, or other similar threats may materially affect us, including our business, financial condition, results of operations or cash flows. +Governance +The Board oversees the Company’s overall ERM process, including the management of risks arising from cybersecurity threats. The Audit Committee is responsible for overseeing our risk exposure to information security, cybersecurity, and data protection, as well as the steps management has taken to monitor and control such exposures, and regularly provides reports to the Board on cybersecurity risk management. The Audit Committee Charter explicitly sets forth the Audit Committee’s responsibility for such oversight. The Audit Committee receives regular presentations and reports from our Executive Director of Cybersecurity and Infrastructure and our CIO on cybersecurity risks and prompt and timely information regarding any cybersecurity incident that meets established reporting thresholds. Our Executive Director of Cybersecurity and Infrastructure and our CIO also report to the Board at least annually and to Audit Committee at least quarterly on current internal and external developments in cybersecurity, as part of the Board’s enterprise risk management review, and the Board receives reports of Audit Committee discussions regarding its oversight of cybersecurity risk. We have protocols by which certain cybersecurity incidents that meet established reporting thresholds are escalated internally and, where appropriate, reported to the Audit Committee or the Board in a timely manner. +Our Global Cybersecurity Operations function is a global team led by our Executive Director of Cybersecurity and Infrastructure, who reports to our CIO. In turn, our CIO reports to our Chief Executive Officer. The Information Security Council provides additional oversight for assessing and managing cybersecurity risk . +Our Executive Director of Cybersecurity and Infrastructure has over 15 years of cybersecurity and information technology experience, including as Director of Cybersecurity for various institutions. Our Executive Director of Cybersecurity and Infrastructure has a Bachelor of Science in Information Science and Technology and a master’s degree in information sciences, cybersecurity, and information assurance, and he has a Certified Information Systems Security Professional certification, a GIAC Information Security Professional certification and a CompTIA Network+ ce certification. Our CIO has over 25 years of information technology experience, including serving in the information technology function at Cummins Inc., where she served as the information technology leader for Cummins Filtration Inc. Our CIO holds an undergraduate degree in business administration with emphasis in management information systems. Each of the other members of the Information Security Council have relevant educational and industry experience, including managing risks at our Company and at similar companies. +36 +Table of Contents +Item 2. Properties +Atmus maintains strong global customer relationships, supported by an established salesforce with work locations in over 25 countries as of December 31, 2024. Also, as of December 31, 2024, Atmus operates through 11 distribution centers, 10 manufacturing facilities and five technical facilities plus 10 manufacturing facilities and two technical facilities operated by its joint ventures, giving Atmus presence on six continents. Our corporate headquarters are located in Nashville, Tennessee. We consider our properties to be suitable for their present purposes, well-maintained and in good operating condition. +Our headquarters and principal facilities are as follows: +Facility Type U.S. Facilities Facilities Outside the U.S. +Headquarters +Tennessee : Nashville (30,500 square feet), leased. +Manufacturing +Wisconsin : Neillsville (166,000 square feet), owned. +Australia : Kilsyth (129,000 square feet), leased. +Brazil : São Paulo (76,000 square feet), leased. +China : Shanghai (109,000 square feet), leased. +Mexico : San Luis Potosi (472,000 square feet), leased. +South Africa : Johannesburg (30,200 square feet), leased. +South Korea : Mado (95,000 square feet), leased; Suwon (64,000 square feet), owned. +Facility Type U.S. Facilities Facilities Outside the U.S. +Technology +Wisconsin : Stoughton (59,000 square feet), leased. +China : Wuhan (23,000 square feet), leased. +India: Pune (20,500 square feet), leased. +Manufacturing and technology +Tennessee: Cookeville (385,000 square feet), leased. +France: Quimper (98,000 square feet), owned. +Item 3. Legal Proceedings +The matters described under Legal Proceedings in Note 14, Commitments and Contingencies to the Consolidated Financial Statements are incorporated herein by reference. +Item 4. Mine Safety Disclosures +Not applicable. +37 +Table of Contents +PART II +Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities +The Company’s common stock is traded on the New York Stock Exchange under the symbol “ATMU.” As of January 31, 2025, there were 9 registered shareholders of common stock. This does not include the number of persons whose stock is in nominee or “street” name accounts through brokers. +We did not sell any equity securities during 2024 in offerings that were not registered under the Securities Act. +Our stock repurchase activity for each of the three months in the quarter ended December 31, 2024 was: +Issuer Purchases of Equity Securities +Period +Total Number of Shares Purchased +Average Price Paid per Share +Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs +Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs +October 1-31, 2024 +— $ — — $ 140.0 +November 1-30, 2024 +230,052 43.49 230,052 130.0 +December 1-31, 2024 +— — — 130.0 +For the Quarter Ended December 31, 2024 +230,052 $ 43.49 230,052 +On July 17, 2024, our Board of Directors authorized a $150 million share repurchase program. The program does not have an expiration date and may be suspended or discontinued at any time. Since the inception of the program, we repurchased approximately $20.0 million of common stock pursuant to this authorization and as of December 31, 2024, we had approximately $130.0 million of share repurchase authorization remaining. See related information in Note 16, Share Repurchase Program . While not considered repurchases of shares, the Company does at times withhold shares that would otherwise be issued under stock-based awards to pay the related taxes for grants of stock-based awards that vested. +Comparison of Cumulative Total Return +The following graph compares the cumulative total return on our common stock with the cumulative total return to the S&P 500 Index and S&P 500 Industrial Index. The graph assumes, in each case, that an initial investment of $100 is made as of May 26, 2023, our first day of trading. The cumulative total return reflects market prices at the end of each quarter post May 26, 2023. +Item 6. Reserved +Reserved. +38 +Table of Contents +Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations +The discussion and analysis presented below provides information which management believes is relevant to an assessment and understanding of Atmus Filtration Technologies Inc. (the “Company,” “Atmus,” “we,” “our” and “us”) consolidated results of operations and financial condition. The discussion should be read in conjunction with Atmus’ consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described under the heading “Risk Factors.” Actual results may differ materially from those contained in any forward-looking statements. Unless the context otherwise requires, references in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” to “Atmus” is intended to mean the business and operations of Atmus Filtration Technologies Inc. and its consolidated subsidiaries. +The following is the discussion and analysis of changes in the financial condition and results of operations for the year ended December 31, 2024 compared to the year ended December 31, 2023 and the year ended December 31, 2023 compared to the year ended December 31, 2022. +Cautionary Note Regarding Forward-Looking Statements +This Annual Report on Form 10-K contains forward-looking statements within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995, including, without limitation, those that are based on current expectations, estimates and projections about the industries in which we operate and management’s views, plans, objectives, projections, beliefs and assumptions. Forward-looking statements may be identified by the use of words such as “anticipates,” “expects,” “forecasts,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “could,” “should,” “may” or words of similar meaning. Examples of forward-looking statements include, but are not limited to, statements we make regarding the outlook for our future business and financial performance, discussions of future operations, impact of planned acquisitions and dispositions, our strategy for growth, product development activities, regulatory approvals, market position, expenditures and the effects of the Separation and IPO (each as defined in Note 1, Description of the Business , to our Consolidated Financial Statements included herein). These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions, which we refer to as “future factors,” which are difficult to predict. If the underlying assumptions prove correct, or known or unknown risks or uncertainties materialize, our actual outcomes, results and financial condition may differ materially from what is expressed, implied or forecasted in such forward-looking statements. Risks and uncertainties include, but are not limited to: +• Significant customer concentration among Cummins, PACCAR, and the Traton Group; +• The loss of a top OEM relationship or changes in the preferences of Atmus' aftermarket end-users; +• Deriving significant earnings from investees that Atmus does not directly control; +• Significant competition in the markets Atmus serves; +• Evolving customer needs and developing technologies; +• Reliance on Atmus’ executive leadership and other key personnel; +• Strategic transactions, such as acquisitions, divestitures, and joint ventures; +• Management of productivity improvements; +• Work stoppages and other labor matters; +• Variability in material and commodity costs; +• Raw material, transportation and labor price increases and supply shortages; +• Complexity of supply chain and manufacturing; +39 +Table of Contents +• Atmus’ customers operating in cyclical industries and the current economic conditions in these industries; +• Exposure to potential claims related to warranties and claims for support outside of standard warranty obligations; +• Products being subject to recall for performance or safety-related issues; +• Inability or failure to adequately protect and enforce Atmus’ intellectual property rights and the cost of protecting or enforcing Atmus' intellectual property rights; +• Unexpected events, including natural disasters; +• Difficulty operating as a standalone company; +• Sales of counterfeit versions of products, as well as unauthorized sales of products; +• Statutory and regulatory requirements that can significantly increase costs; +• Changes in international, national and regional trade laws, regulations and policies affecting international trade; +• Unanticipated changes in Atmus' effective tax rate, the adoption of new tax legislation or exposure to additional income tax liabilities, as well as audits by tax authorities resulting in additional tax payments for prior periods; +• Changes in tax law relating to multinational corporations; +• Significant compliance costs and reputational and legal risks imposed by Atmus' global operations and the laws and regulations to which these are subject; +• Effects of climate change may cause Atmus to incur increased costs; +• Operations being subject to increasingly stringent environmental laws and regulations as well as to laws requiring cleanup of contaminated property; +• Potential system or data security breaches or other disruptions; +• Dependence on information technology infrastructure and assets that are increasing in complexity; +• Foreign currency exchange rate; +• Potential economic downturns that could cause the balances of recorded goodwill to decrease; +• Increased tariffs or the imposition of other barriers to international trade; +• Political, economic, and social uncertainty in geographies where Atmus has significant operations or large offerings of products; +• Uncertain worldwide and regional market and economic conditions; +• Potential failure of performance by Atmus or Cummins under transaction agreements executed as part of the Separation; +• Potential indemnification liabilities to Cummins pursuant to the separation agreement; +• Potential indemnification from Cummins may be insufficient to insure Atmus against the full amount of such liabilities; +• Terms from unaffiliated third parties may have been better than what Atmus received in agreements with Cummins; +40 +Table of Contents +• Changes in capital and credit markets; +• Substantial indebtedness consisting of Atmus’ term loan and revolving credit facility, which may impact Atmus' ability to service all its indebtedness and react to changes in the industry; and +• Substantially all Atmus' assets pledged as security for its term loan and revolving credit facility. +Additional information about these future factors and the material factors or assumptions underlying such forward-looking statements may be found under the section entitled Risk Factors in this Annual Report on Form 10-K. It is not possible to predict or identify all such factors, and the risks described above should not be considered a complete statement of all potential risks and uncertainties. Readers are urged to consider these factors carefully in evaluating forward-looking statements and are cautioned not to place undue reliance on forward-looking statements. The forward-looking statements made herein are made only as of the date hereof and we undertake no obligation to publicly update or to revise any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law. +General Overview +Company Overview +We are one of the global leaders of filtration products for on-highway commercial vehicles and off-highway agriculture, construction, mining and power generation vehicles and equipment. We design and manufacture advanced filtration products, principally under the Fleetguard brand, that provide superior asset protection and enable lower emissions. We estimate that approximately 14% of our net sales in 2024 were generated through first-fit sales to OEMs, where our products are installed as components for new vehicles and equipment. We estimate that approximately 86% of our net sales in 2024 were generated in the aftermarket, where our products are installed as replacement or repair parts, leading to a strong recurring revenue base. Building on our more than 65-year history, we continue to grow and differentiate ourselves through our global footprint, comprehensive offering of premium products, technology leadership and multi-channel path to market. +Separation from Cummins +In April 2022, Cummins Inc. (“Cummins”) announced its intention to separate its filtration business (the “Filtration Business”) into a standalone publicly traded company (the “Separation”). We were incorporated in Delaware on April 1, 2022, as a wholly-owned subsidiary of Cummins, in anticipation of the Separation, and prior to the completion of our initial public offering (the “IPO”), Cummins completed, in all material respects, the transfer of the assets and liabilities of the Filtration Business to us and our subsidiaries. +Our Registration Statement on Form S-1, as amended, filed on May 16, 2023, was declared effective on May 25, 2023, and our common shares began trading on the New York Stock Exchange under the symbol “ATMU” on May 26, 2023. On May 30, 2023, the IPO was completed through Cummins’ exchange of 16,243,070 shares of our common stock, including the underwriters’ full exercise of their option to purchase 2,118,661 shares to cover over-allotments. None of the proceeds of the IPO were for the benefit of Atmus. As of the closing of the IPO, Cummins owned approximately 80.5% of the outstanding shares of our common stock. +On September 30, 2022, and as amended on February 15, 2023, Atmus entered into a $1.0 billion credit agreement (“Credit Agreement”) with a syndicate of banks, providing for a $600 million term loan facility (the “term loan”) and a $400 million revolving credit facility (the “revolving credit facility”), in anticipation of the Separation. Borrowings under the Credit Agreement did not become available until the IPO occurred. Upon completion of the IPO, we borrowed $650 million, consisting of proceeds of the term loan and amounts drawn under the revolving credit facility, and paid such amounts to Cummins in partial consideration for the Separation. +In connection with the Separation, we entered into various agreements with Cummins, including a separation agreement. In the separation agreement, there were certain assets and liabilities identified in the schedules which were retained by Cummins, and those that were transferred to the Company. These agreements comprehensively provide a framework for our relationship with Cummins and govern various interim and ongoing relationships between us and Cummins post IPO. +On February 14, 2024, Cummins announced an exchange offer whereby Cummins shareholders could exchange all or a portion of Cummins common stock for shares of Atmus common stock owned by Cummins. +41 +Table of Contents +The divestiture of Atmus shares by Cummins was completed on March 18, 2024 and resulted in the full separation of Atmus and divestitures of Cummins’ entire ownership and voting interest in Atmus (“Full Separation”). +Basis of Presentation +For the periods prior to the IPO, the discussion below relates to the financial position and results of operations of a combination of entities under common control that have been “carved out” of Cummins’ historical consolidated financial statements and accounting records. The historical combined financial statements reflect our historical financial position, results of operations and cash flows, in conformity with generally accepted accounting principles in the United States of America (“U.S. GAAP”). Refer to Note 2, Basis of Presentation , to the Consolidated Financial Statements included elsewhere in this report for additional information. +For the period subsequent to our IPO on May 26, 2023, as a standalone public company, we present our financial statements on a consolidated basis. The Consolidated Financial Statements have been prepared in conformity with U.S. GAAP. +Factors Affecting Our Performance +Our financial performance depends, in large part, on varying conditions in the markets we serve. Demand in these markets tends to fluctuate in response to overall economic conditions. Our revenues may also be impacted by OEM inventory levels, production schedules, commodity prices, work stoppages and supply chain challenges. Economic downturns in markets we serve generally result in reduced sales of our products and can result in price reductions in certain products and/or markets. As a worldwide business, our operations are also affected by currency exchange rate changes, political and economic uncertainty, public health crises (epidemics or pandemics) and regulatory matters, including adoption and enforcement of environmental and emission standards in the countries we serve. Some of the more important factors affecting our performance are briefly discussed below. +Market demand +Aftermarket demand remained depressed in 2024 reflecting soft market conditions and first-fit demand softened across many of our key markets during the second half of 2024. It is uncertain when a recovery can be expected. +Global supply chain +While overall supply chain conditions continue to affect inventory and backlog levels, they have largely stabilized with minimal disruptions now being experienced and backorders largely recovered. Our management team continues to monitor and evaluate all of these factors and the related impacts of our business and operations, and we are diligently working to continue to minimize any supply chain impacts to our business and to our customers. +Commodity prices, labor, inflation and foreign currency exchange rates +We have seen inflationary impacts largely subside in the second half of 2024. Direct material cost pressures, driven largely by steel, resin and other petrochemical products, have stabilized, but we continue to see impacts from labor. +During 2024, our Selling, general and administrative expenses increased as a result of increased people-related and consulting expenses. +Additionally, the appreciation of the U.S. dollar against foreign currencies has had an unfavorable impact on our consolidated results of operations in 2024. There can be no assurances as to the impact of foreign currency exchange rates on our results in 2025. +42 +Table of Contents +Standalone costs +We have incurred, and expect to continue to incur, additional costs associated with becoming a standalone public company. During the year ended December 31, 2024, we incurred approximately $25.2 million related to one-time separation costs including $14.5 million within Selling, general and administrative expenses and $10.7 million within Cost of sales. We expect to incur one-time expenses of approximately $5 million to $10 million in 2025 in connection with becoming a standalone public company. In addition, we expect to incur capital expenditures in connection with the Separation of approximately $5 million to $10 million in 2025. These expenses and capital expenditures primarily relate to the establishment of functions previously co-mingled with Cummins, such as information technologies, distribution centers, manufacturing and human resources. The actual amount of the expenses and capital expenditures we will incur as a stand-alone public company may be higher, perhaps significantly, from our current estimates for a number of reasons, including, among others, the final terms we are able to negotiate with service providers, as well as additional costs we may incur that we have not currently anticipated. Additionally, the actual timing of when we incur these incremental expenses may be different, perhaps significantly, from our current estimates for a number of reasons, including, among others, unforeseen events that may cause delays or interruptions in our plans or our service providers’ ability to provide their services. +43 +Table of Contents +Results of Operations +Operating results were as follows (in millions, except per share amounts): +Years Ended December 31, +Favorable +(Unfavorable) +2024 vs. 2023 +Favorable +(Unfavorable) +2023 vs. 2022 +2024 2023 2022 Amount % Amount % +(in millions) +NET SALES $ 1,669.6 $ 1,628.1 $ 1,562.1 $ 41.5 2.5 % $ 66.0 4.2 % +Cost of sales 1,207.5 1,195.4 1,202.9 (12.1) (1.0) % 7.5 0.6 % +GROSS MARGIN 462.1 432.7 359.2 29.4 6.8 % 73.5 20.5 % +OPERATING EXPENSES AND INCOME +Selling, general and administrative expenses 187.6 174.7 139.7 (12.9) (7.4) % (35.0) (25.1) % +Research, development and engineering expenses 40.6 42.5 38.6 1.9 4.5 % (3.9) (10.1) % +Equity, royalty and interest income from investees 34.3 33.6 28.0 0.7 2.1 % 5.6 20.0 % +Other operating expense, net 2.0 0.7 5.0 (1.3) (185.7) % 4.3 86.0 % +OPERATING INCOME 266.2 248.4 203.9 17.8 7.2 % 44.5 21.8 % +Interest expense 40.6 25.8 0.7 (14.8) (57.4) % (25.1) (3585.7) % +Other income, net 9.2 3.8 8.8 5.4 142.1 % (5.0) (56.8) % +INCOME BEFORE INCOME TAXES 234.8 226.4 212.0 8.4 3.7 % 14.4 6.8 % +Income tax expense 49.2 55.1 41.6 5.9 10.7 % (13.5) (32.5) % +NET INCOME $ 185.6 $ 171.3 $ 170.4 $ 14.3 8.3 % $ 0.9 0.5 % +PER SHARE DATA: +Basic earnings per share $ 2.23 $ 2.06 $ 2.05 $ 0.17 8.3 % $ 0.01 0.5 % +Diluted earnings per share $ 2.22 $ 2.05 $ 2.05 $ 0.17 8.3 % $ — — % +Years Ended December 31, +Favorable +(Unfavorable) +2024 vs. 2023 +Favorable +(Unfavorable) +2023 vs. 2022 +Percent of Net sales 2024 2023 +2022 +Percentage Points Percentage Points +Gross margin 27.7 % 26.6 % 23.0 % 1.1% 3.6% +Selling, general and administrative expenses 11.2 % 10.7 % 8.9 % (0.5)% (1.8)% +Research, development and engineering expenses 2.4 % 2.6 % 2.5 % 0.2% (0.1)% +2024 vs. 2023 +Net Sales +Net sales were $1,669.6 million for the year ended December 31, 2024, an increase of $41.5 million compared to $1,628.1 million for the year ended December 31, 2023. The increase in Net sales was mainly due to $26.3 million of favorable pricing impacts and higher volumes of $22.3 million, partially offset by the unfavorable impacts of currency of $7.1 million. +Gross Margin +Gross margin was $462.1 million f or the year ended December 31, 2024, an increase of $29.4 million compared to $432.7 million for the year ended December 31, 2023. The increase in Gross margin was mainly due to approximately $26.3 million of favorable pricing impacts as described above, higher volumes of approximately $7.8 million, favorable variable compensation of $7.2 million and favorable materials costs of $7.0 million, partially offset by higher manufacturing and other costs of $9.0 million, higher logistics costs of $5.8 million, unfavorable currency impacts of $2.7 million and higher one-time restructuring costs of $1.4 million. Gross margin as a percentage of Net sales was 27.7% , an increase of 1.1 percentage points +44 +Table of Contents +compared to 26.6% . The increase in Gross margin as a percentage of Net sales was primarily due to the items noted above. +Selling, General and Administrative Expenses +Selling, general and administrative expenses were $187.6 million for the year ended December 31, 2024, an increase of $12.9 million compared to $174.7 million for the year ended December 31, 2023. The increase was primarily driven by increased people-related and consulting expenses, including one-time restructuring costs, partially offset by lower one-time separation costs. Selling, general and administrative expenses as a percentage of Net sales were 11.2% for the year ended December 31, 2024 , an increase of 0.5 percentage points compared to 10.7% for the year ended December 31, 2023 . The increase in Selling, general and administrative expenses as a percentage of Net sales was primarily driven by the items noted above increasing at a higher rate in relation to the increase in Net sales. +Research, Development and Engineering Expenses +Research, development and engineering expenses were $40.6 million for the year ended December 31, 2024, a decrease of $1.9 million compared to $42.5 million for the year ended December 31, 2023. The decrease was primarily due to standalone costs being favorable to previously allocated expenses under Cummins and lower variable compensation costs. Research, development and engineering expenses as a percentage of Net sales were 2.4% for the year ended December 31, 2024, a decrease of 0.2 percentage points compared to 2.6% for the year ended December 31, 2023. The decrease in Research, development and engineering expenses as a percentage of Net sales was mainly due to the items noted above. +Equity, Royalty and Interest Income from Investees +Equity, royalty and interest income from investees was $34.3 million for the year ended December 31, 2024, an increase of $0.7 million compared to $33.6 million for the year ended December 31, 2023. The increase was primarily due to higher earnings of $0.5 million from our joint ventures in India and China. +Other Operating Expense, Net +Other operating expense, net was $2.0 million for the year ended December 31, 2024, an increase of $1.3 million compared to $0.7 million for the year ended December 31, 2023. The increase in Other operating expense, net was primarily due to inventory write-offs related to warehouse transitions made during the year. +Interest Expense +Interest expense was $40.6 million for the year ended December 31, 2024, an increase of $14.8 million compared to $25.8 million for the year ended December 31, 2023. The increase in Interest expense was primarily due to the timing of borrowings under the Credit Agreement which began with our IPO in May 2023 compared to 2024 where we have had outstanding borrowings for the duration of the year. +Other Income, Net +Other income, net was $9.2 million for the year ended December 31, 2024, an increase of $5.4 million compared to $3.8 million for the year ended December 31, 2023. The increase in Other income, net was primarily due to higher interest income, as a result of higher cash balances. +Income Tax Expense +In connection with the Separation, the Company entered into a Tax Matters Agreement with Cummins that, among other things, formalized our agreement related to the responsibility for historical tax positions for the period prior to the IPO for jurisdictions where our business was included in the consolidated or combined tax returns of Cummins. +Our effective tax rate for the year ended December 31, 2024 was 21.0% , a decrease of 3.3 percentage points compared to 24.3% for the year ended December 31, 2023. The decrease in the effective tax rate was driven by a favorable change in the mix of earnings among tax jurisdictions and discrete tax items +45 +Table of Contents +related to US and foreign tax return filings. Our effective tax rate differs from the U.S. statutory rate primarily due to differences in rates applicable to foreign subsidiaries, withholding taxes and state income taxes. +2023 vs. 2022 +Net Sales +Net sales were $1,628.1 million (which included related party sales of $390.8 million) for the year ended December 31, 2023, an increase of $66.0 million compared to $1,562.1 million (which included related party sales of $344.9 million) for the year ended December 31, 2022. Of the total net sales increase of $66.0 million, $20.1 million was an increase in external sales and $45.9 million was an increase in related party sales. Additionally, sales increased by approximately $102.0 million due to increased pricing, partially offset by lower volumes of $34.2 million and the negative impacts of currency of $1.8 million. +Gross Margin +Gross margin was $432.7 million for the year ended December 31, 2023, an increase of $73.5 million compared to $359.2 million for the year ended December 31, 2022. The increase in Gross margin was mainly due to favorable pricing as described above (approximately $102.0 million) and approximately $41.0 million of favorable freight and commodities costs, partially offset by $32.1 million of unfavorable manufacturing and other costs, $11.9 million due to lower volumes, $11.1 million of increased variable compensation costs, $9.2 million of one-time separation costs, and $5.2 million of unfavorable currency impacts. Gross margin as a percentage of Net sales was 26.6% for the year ended December 31, 2023, an increase of 3.6% compared to 23.0% for the year ended December 31, 2022. The increase in Gross margin as a percentage of Net sales was primarily due to items noted above. +Selling, General and Administrative Expenses +Selling, general and administrative expenses were $174.7 million for the year ended December 31, 2023, an increase of $35.0 million compared to $139.7 million for 2022. The increase was primarily driven by $13.5 million of increased variable compensation costs, $9.8 million of one-time separation costs, $6.3 million of higher executive and incentive based compensation and $5.4 million of higher merit and other costs. Selling, general and administrative expenses as a percentage of Net sales were 10.7% for the year ended December 31, 2023, an increase of 1.8% compared to 8.9% for the year ended December 31, 2022. The increase in Selling, general and administrative expenses as a percentage of Net sales was primarily driven by the items noted above increasing at a higher rate in relation to the increase in Net sales. +Research, Development and Engineering Expenses +Research, development and engineering expenses were $42.5 million for the year ended December 31, 2023, an increase of $3.9 million compared to $38.6 million for the year ended December 31, 2022. The increase was primarily due to increased variable compensation costs. Research, development and engineering expenses as a percentage of Net sales were 2.6% for the year ended December 31, 2023, an increase of 0.1% compared to 2.5% for the year ended December 31, 2022. The increase in Research, development and engineering expenses as a percentage of Net sales was mainly due to the items noted above. +Equity, Royalty and Interest Income from Investees +Equity, royalty and interest income from investees were $33.6 million for the year ended December 31, 2023, an increase of $5.6 million compared to $28.0 million for the year ended December 31, 2022. The increase was primarily due to higher earnings of $4.9 million from our joint ventures in China and India. +Other Operating Expense, Net +Other operating expense, net was $0.7 million for the year ended December 31, 2023, a decrease of $4.3 million compared to $5.0 million for the year ended December 31, 2022. The decrease was primarily due to prior year asset write-offs related to a discontinued program and the establishment of reserves against accounts receivable from Russian customers in 2022 that did not recur. +46 +Table of Contents +Interest Expense +Interest expense was $25.8 million for the year ended December 31, 2023, an increase of $25.1 million compared to $0.7 million for the year ended December 31, 2022. The increase was primarily due to the interest on our borrowings under the Credit Agreement in 2023. +Other Income, Net +Other income, net was $3.8 million for the year ended December 31, 2023, a decrease of $5.0 million compared to $8.8 million for the year ended December 31, 2022. The decrease in Other income, net was primarily due to the net loss on foreign exchange rate hedging, partially offset by higher interest income as a result of cash balances held in interest-bearing accounts which we did not have prior to IPO. +Income Tax Expense +In connection with the Separation, the Company entered into a Tax Matters Agreement with Cummins that, among other things, formalized our agreement related to the responsibility for historical tax positions for the period prior to the IPO for jurisdictions where our business was included in the consolidated or combined tax returns of Cummins. +Our effective tax rate for the year ended December 31, 2023 was 24.3%, an increase of 4.7% compared to 19.6% for the year ended December 31, 2022. The increase in the effective tax rate was driven by a change in the mix of earnings among tax jurisdictions and changes in discrete tax items. Our effective tax rate differs from the U.S. statutory rate primarily due to differences in rates applicable to foreign subsidiaries, withholding taxes and state income taxes. +47 +Table of Contents +Liquidity and Capital Resources +Our facilities under the Credit Agreement provide for $1.0 billion in total capacity, which includes a $600 million term loan and a $400 million revolving credit facility. As of December 31, 2024 , we have outstanding borrowings of $592.5 million on the term loan and zero on the revolving credit facility. As a result, we had capacity under our revolving credit facility of $400 million as of December 31, 2024 . +We believe that cash from operations and the facilities under our Credit Agreement will continue to provide sufficient liquidity for our working capital needs, planned capital expenditures and future payments of our contractual, tax and benefit plan obligations and payments for share repurchases and quarterly dividends in both the short and long term. Overall, we do not expect negative effects to our funding sources that would have a material effect on our liquidity. However, if a serious economic or credit market crisis ensues or other adverse developments arise, it could have a material adverse effect on our liquidity, financial condition, results of operations and cash flows. +Our most significant ongoing short-term cash requirements relate primarily to funding operations (including expenditures for raw materials, labor, manufacturing and distribution, trade and promotions, advertising and marketing, tax liabilities, benefit plan obligations and lease expenses) as well as periodic expenditures for anticipated capital investments, shareholder returns (such as dividend payments and share repurchases), interest payments on our long-term debt and supporting any future acquisitions. +Long-term cash requirements primarily relate to funding long-term debt repayments and our long-term benefit plan obligations. +Cash Flow +Our management reviews our liquidity needs in determining any and all indebtedness options. We have the ability to access the capital markets following the IPO, and we continue to generate substantial cash from operating activities and believe that our operating cash flow and other sources of liquidity will be sufficient to allow us to manage our business and give us flexibility to meet our short- and long-term financial commitments. Our cash flow activity is noted below: +For the Years Ended December 31, +2024 2023 2022 +(in millions) +Net cash provided by operating activities $ 105.4 $ 189.0 $ 165.7 +Net cash used in investing activities (48.6) (45.8) (37.5) +Net cash (used in) provided by financing activities +(35.8) 24.8 (128.2) +Operating Cash Flow +Net cash provided by operating activities was $105.4 million for the year ended December 31, 2024, a decrease of $83.6 million compared to Net cash provided by operating activities of $189.0 million for the year ended December 31, 2023. The decrease was driven primarily by higher working capital requirements of $117.1 million, partially offset by higher net income, higher equity income from investees and a favorable change in other liabilities. During the year ended December 31, 2024, higher working capital requirements resulted in a cash outflow of $103.3 million compared to a cash inflow of $11.3 million for the year ended December 31, 2023, mainly due to lower trade accounts payable, lower other accrued expenses, higher inventories, higher prepaids and higher trade accounts receivable. +Net cash provided by operating activities was $189.0 million for the year ended December 31, 2023, an increase of $23.3 million compared to Net cash provided by operating activities of $165.7 million for the year ended December 31, 2022. The increase was driven primarily by lower working capital requirements of $26.1 million and a favorable change in other liabilities of $6.0 million, partially offset by an unfavorable change in income from equity method investees of $8.2 million. During the year ended December 31, 2023, lower working capital requirements resulting in a cash inflow of $11.3 million compared to a cash outflow of $14.8 million for the year ended December 31, 2022, mainly due to higher other accrued expenses, higher trade accounts +48 +Table of Contents +payable, lower trade and related party receivables and lower inventories, partially offset by lower related party payables. +Dividends received from our unconsolidated equity investees were $25.5 million and $19.8 million for the years ended December 31, 2024 and December 31, 2023, respectively. Dividends are included in Net cash provided by operating activities. +Investing Cash Flow +Net cash used in investing activities for each fiscal year presented was primarily used for capital expenditures. Our capital expenditures were $48.6 million (of which approximately $15.0 million related to one-time separation costs), $45.8 million (of which approximately $9.2 million related to one-time separation costs) and $37.5 million for the years ended December 31, 2024, December 31, 2023,and December 31, 2022, respectively, corresponding to approximately 2.9%, 2.8% and 2.4% of Net sales in 2024, 2023 and 2022, respectively. +Financing Cash Flow +Net cash used in financing activities for the year ended December 31, 2024 consisted primarily of repurchases of common stock of $20.0 million, dividends paid of $8.3 million and payments made on our term loan of $7.5 million. Net cash provided by financing activities for the year ended December 31, 2023 consisted primarily of long-term debt proceeds from our borrowings of $650 million under our Credit Agreement, partially offset by net transfers of $579.5 million to Cummins as part of the Separation and $50.0 million in payments made on our revolving credit facility. Net cash used in financing activities for the year ended December 31, 2022 consisted entirely of transfers to Cummins. +Dividends +We paid dividends of $8.3 million in 2024 and none in 2023 and 2022. The current quarterly dividend rate is $0.05 per share of common stock. The declaration of dividends is subject to the discretion of our Board of Directors and depends on various factors, including our net earnings, financial condition, cash requirements, future prospects and other factors that our Board of Directors deems relevant to its analysis and decision making. +2024 distributions have been characterized as dividends under the U.S. federal income tax rules. The final determination was made on an IRS Form 1099-DIV issued in early 2025. +Contractual Obligations +Our commitments consist of lease obligations for real estate and equipment. For more information regarding our lease obligations, see Note 9, Leases , to the Consolidated Financial Statements , which provides a summary of our future minimum lease payments. +Debt +Our total debt outstanding was $592.5 million at December 31, 2024 and was $600.0 million at December 31, 2023. We had no debt outstanding at December 31, 2022. At December 31, 2024, the weighted-average term of our outstanding long-term debt was 2.9 years. Refer to Note 12, Debt and Borrowing Arrangements , to the Consolidated Financial Statements for more information on our debt and debt covenants. +49 +Table of Contents +Non-GAAP Measures +We use non-GAAP financial information and believe it is useful to investors as it provides additional information to facilitate comparisons of historical operating results, identify trends in our underlying operating results and provide additional insight and transparency on how we evaluate our business. We use non-GAAP financial measures to budget, make operating and strategic decisions and evaluate our performance. We have detailed the non-GAAP adjustments that we make in our non-GAAP definitions below. We believe the non-GAAP measures should always be considered along with the related U.S. GAAP financial measures. We have provided the reconciliations between the U.S. GAAP and non-GAAP financial measures below, and we also discuss our underlying U.S. GAAP results throughout our Management’s Discussion and Analysis of Financial Condition and Results of Operations in this Annual Report on Form 10-K. +Our primary non-GAAP financial measures are listed below and reflect how we evaluate our current and prior-year operating results. As new events or circumstances arise, these definitions could change. When our definitions change, we provide the updated definitions and present the related non-GAAP historical results on a comparable basis. +• “EBITDA” is defined as earnings or losses before interest expense, income taxes, depreciation and amortization and “EBITDA margin” is defined as EBITDA as a percent of Net sales. We believe EBITDA and EBITDA margin are useful measures of our operating performance as they assist investors and debt holders in comparing our performance on a consistent basis without regard to financing methods, capital structure, income taxes or depreciation and amortization methods, which can vary significantly depending upon many factors. Additionally, we believe these metrics are widely used by investors, securities analysts, ratings agencies and others in our industry in evaluating performance. +• “Adjusted EBITDA” is defined as EBITDA after adding back certain one-time expenses, reflected in Cost of sales and Selling, general and administrative expenses, associated with becoming a standalone public company and one-time restructuring costs and “Adjusted EBITDA margin” is defined as Adjusted EBITDA as a percent of Net sales. We believe Adjusted EBITDA and Adjusted EBITDA margin are useful measures of our operating performance as they allow investors and debt holders to compare our performance on a consistent basis without regard to one-time costs attributable to our becoming a standalone public company. +• “Adjusted earnings per share” is defined as diluted earnings per share (the most comparable U.S. GAAP financial measure) after adding back certain one-time expenses, reflected in Cost of sales and Selling, general and administrative expenses, associated with becoming a standalone public company and one-time restructuring costs less the related tax impact of the same one-time expenses. We believe Adjusted earnings per share provides improved comparability of underlying operating results. +• “Free cash flow” is defined as cash flows provided by (used for) operating activities less capital expenditures and “Adjusted free cash flow” is defined as Free cash flow after adding back certain one-time capital expenditures and other separation related costs associated with becoming a standalone public company and one-time restructuring costs. We believe Free cash flow and Adjusted free cash flow are useful metrics used by management and investors to analyze our ability to service and repay debt and return value to shareholders. +The metrics defined above are not in accordance with, or alternatives for, U.S. GAAP financial measures and may not be consistent with measures used by other companies. The metrics should be considered supplemental data; however, the amounts included in the EBITDA, EBITDA margin, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted earnings per share, Free cash flow and Adjusted free cash flow calculations are derived from amounts included in the consolidated statements of net income and cash flows. We do not consider our non-GAAP financial measures as superior to, or a substitute for, the equivalent measures calculated and presented in accordance with GAAP. Some of the limitations are: +• such measures do not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments; +• such measures do not reflect changes in, or cash requirements for, our working capital needs; +50 +Table of Contents +• such measures do not reflect the interest expense or the cash requirements necessary to service interest or principal payments on our debt; +• although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future and such measures do not reflect any cash requirements for such replacements; and +• other companies in our industry may calculate such measures differently than we do, limiting their usefulness as comparative measures. +To properly and prudently evaluate our business, we encourage you to review the consolidated financial statements included elsewhere in this report and not rely on a single financial measure to evaluate our business. +A reconciliation of Net income to EBITDA and Adjusted EBITDA is shown in the table below: +For the Years Ended +December 31, +2024 +2023 +2022 +(in millions) +NET INCOME $ 185.6 $ 171.3 $ 170.4 +Plus: +Interest expense 40.6 25.8 0.7 +Income tax expense 49.2 55.1 41.6 +Depreciation and amortization 24.8 21.5 21.6 +EBITDA (non-GAAP) $ 300.2 $ 273.7 $ 234.3 +Plus: +One-time restructuring costs +$ 4.1 $ — $ — +One-time separation costs (a) +25.2 28.6 9.0 +Adjusted EBITDA (non-GAAP) $ 329.5 $ 302.3 $ 243.3 +Net sales $ 1,669.6 $ 1,628.1 $ 1,562.1 +Net income margin 11.1 % 10.5 % 10.9 % +EBITDA margin (non-GAAP) 18.0 % 16.8 % 15.0 % +Adjusted EBITDA margin (non-GAAP) 19.7 % 18.6 % 15.6 % +(a) Primarily comprised of one-time expenses related to Information Technology, warehousing, manufacturing and Human Resources separation costs. +A reconciliation of Diluted earnings per share to Adjusted earnings per share is shown in the table below: +For the Years Ended +December 31, +2024 +2023 +2022 +(per share) +Diluted earnings per share $ 2.22 $ 2.05 $ 2.05 +Plus: +One-time restructuring costs (a) +$ 0.05 $ — $ — +One-time separation costs (a) +0.30 0.34 0.11 +Less: +Tax impact of one-time restructuring costs (a) +$ 0.01 $ — $ — +Tax impact of one-time separation costs (a) +0.06 0.08 0.02 +Adjusted earnings per share (non-GAAP) $ 2.50 $ 2.31 $ 2.13 +51 +Table of Contents +(a) Primarily comprised of one-time expenses related to Information Technology, warehousing, manufacturing, restructuring and Human Resources separation costs and the related tax impact of those expenses. The tax impact of one-time restructuring costs for the year ended December 31, 2024 were $0.9 million and the tax impact of one-time separation costs for the years ended December 31, 2024 , 2023 and 2022 were $5.3 million, $6.9 million and $1.8 million, respectively. +A reconciliation of Net cash provided by operating activities to Free cash flow and Adjusted free cash flow is shown in the table below: +For the Years Ended +December 31, +2024 +2023 +2022 +(in millions) +Cash provided by operating activities $ 105.4 $ 189.0 $ 165.7 +Less: +Capital expenditures $ 48.6 $ 45.8 $ 37.5 +Free cash flow (non-GAAP) $ 56.8 $ 143.2 $ 128.2 +Plus: +One-time restructuring costs +$ 4.1 $ — $ — +One-time separation capital expenditures 15.0 9.2 0.5 +Other one-time separation related (a) +38.6 — — +Adjusted free cash flow (non-GAAP) $ 114.5 $ 152.4 $ 128.7 +(a) Primarily comprised of one-time working capital inefficiencies associated with the move from intercompany settlement terms with Cummins to standalone practices. +Critical Accounting Policies and Estimates +We prepare our Consolidated Financial Statements in conformity with U.S. GAAP. The preparation of our financial statements requires the use of estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the periods presented. Actual results could differ from those estimates and assumptions. See Note 3, Summary of Significant Accounting Policies , in the notes accompanying Atmus’ financial statements included elsewhere herein for a summary of Atmus’ significant accounting policies, and discussion of recent accounting pronouncements. Atmus believes that the following discussion addresses Atmus’ most critical accounting policies, which are those that are most important to the portrayal of Atmus’ financial condition and results of operations and require management’s most difficult, subjective and complex judgments . +Revenue Recognition +We sell to customers either through long-term arrangements or standalone purchase orders. Our long-term arrangements generally do not include committed volumes until underlying purchase orders are issued. Typically, we recognize revenue on the products we sell at a point in time, in accordance with shipping terms or other contractual arrangements. +The transaction price of a contract could be reduced by variable consideration, including aftermarket rebates, volume and growth rebates and sales returns. At the time of sale to a customer, we record an estimate of variable consideration as a reduction from gross sales. We primarily rely on historical experience and anticipated future performance to estimate the variable consideration. Revenue is recognized to the extent that it is probable that a significant reversal of revenue will not occur when the contingency is resolved. +For aftermarket rebates and volume and growth rebates, management estimates are based on the terms of the arrangements with customers, historical payment experience, volume in quantity or mix of purchases of product during a specified time period and expectations for changes in relevant trends in the future. Adjustments to rebate accruals are made as actual usage becomes known in order to properly estimate the amounts necessary to generate consumer demand based on market conditions as of the balance sheet date. +52 +Table of Contents +For product returns, some aftermarket customers are permitted to return small amounts of parts and filters each year. An estimate of future returns is accounted for at the time of sale as a reduction in the overall sales revenue based on historical return rates. +Accounting for Income Taxes +We determine our income tax expense using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax effects of temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. We recognize the tax impact of including certain foreign earnings in U.S. taxable income as a period cost. Future tax benefits of net operating loss and credit carryforwards are also recognized as deferred tax assets. We evaluate the recoverability of our deferred tax assets each quarter by assessing the likelihood of future profitability and available tax planning strategies that could be implemented to realize our net deferred tax assets. At December 31, 2024 , we recorded net deferred tax assets of $16.9 million. The assets included $8.6 million for the value of net operating loss and credit carryforwards. A valuation allow ance of $8.5 million was recorded to reduce the tax assets to the net value management believed was more likely than not to be realized. In t he event our operating performance deteriorates, future assessments could conclude that a larger valuation allowance will be needed to further reduce the deferred tax assets. +In addition, we operate within multiple taxing jurisdictions and are subject to tax audits in these jurisdictions. These audits can involve complex issues, which may require an extended period of time to resolve. We accrue for the estimated additional tax and interest that may result from tax authorities disputing uncertain tax positions. We believe we made adequate provisions for income taxes for all years that are subject to audit based upon the latest information available. A more complete description of our income taxes and the future benefits of our net operating loss and credit carryforwards is disclosed in Note 6, “Income Taxes,” to our Consolidated Financial Statements included herein. +Item 7A. Quantitative and Qualitative Disclosures About Market Risk +Foreign Currency Exchange Risk +As a result of our international business presence, we are exposed to foreign currency exchange rate risks. We transact business in foreign currencies and, as a result, our income and financial condition are exposed to movements in foreign currency exchange rates. This risk is closely monitored and managed through the use of financial derivative instruments. Financial derivatives are used by Atmus expressly for hedging purposes and under no circumstances are they used for speculative purposes. Substantially all of Atmus’ derivative contracts are subject to master netting arrangements, which provide the option to settle certain contracts on a net basis when they settle on the same day with the same currency. In addition, these arrangements provide for a net settlement of all contracts with a given counterparty in the event that the arrangement is terminated due to the occurrence of default or a termination event. +To minimize the income volatility resulting from the remeasurement of net monetary assets and liabilities denominated in a currency other than the functional currency, Atmus enters into foreign currency forward contracts, which are considered economic hedges and are not designated as hedges for accounting purposes. The objective is to offset the gain or loss from remeasurement with the gain or loss from the fair market valuation of the forward contract. +The potential gain or loss in the fair value of our outstanding foreign currency contracts, assuming a hypothetical 10% fluctuation in the currencies of such contracts, would not have a material impact on the consolidated financial statements for the years ended December 31, 2024 , 2023 and 2022. The sensitivity analysis of the effects of changes in foreign currency exchange rates assumes the notional value to remain constant for the next 12 months. The analysis ignores the impact of foreign exchange movements on our competitive position and potential changes in sales levels. Any change in the value of the contracts, real or hypothetical, would be significantly offset by an inverse change in the value of the underlying hedged items. +53 +Table of Contents +Interest Rate Risk +Our interest rate risk relates primarily to our $600 million term loan facility and our five-year $400 million revolving credit facility. Borrowings under these facilities bear interest at varying rates, depending on the type of loan and, in some cases, the rates of designated benchmarks and the applicable election made by us. Generally, U.S. dollar-denominated loans bear interest at an adjusted term SOFR (which includes a 0.10 percent credit spread adjustment to SOFR) for the applicable interest period plus a rate ranging from 1.125 percent to 1.75 percent depending on our net leverage ratio. Based on our outstanding borrowings at December 31, 2024 , a 0.125% change in SOFR would have a $0.7 million annual impact on interest expense. Refer to Note 12, Debt and Borrowing Arrangements, to the Consolidated Financial Statements for further information. +54 +Table of Contents +Item 8. Financial Statements and Supplementary Data +Index to Consolidated Financial Statements +PAGE +Report of PricewaterhouseCoopers LLP (PCAOB ID 238 ), Independent Registered Public Accounting Firm +56 +Consolidated Statements of Net Income +58 +Consolidated Statements of Comprehensive Income +59 +Consolidated Balance Sheets +60 +Consolidated Statements of Cash Flows +61 +Consolidated Statements of Changes in Equity +62 +Notes to the Financial Statements +63 +55 +Table of Contents +Report of Independent Registered Public Accounting Firm +To the Board of Directors and Shareholders of Atmus Filtration Technologies Inc. +Opinions on the Financial Statements and Internal Control over Financial Reporting +We have audited the accompanying consolidated balance sheets of Atmus Filtration Technologies Inc. and its subsidiaries (the "Company") as of December 31, 2024 and 2023, and the related consolidated statements of net income, of comprehensive income, of changes in equity and of cash flows for each of the three years in the period ended December 31, 2024, including the related notes (collectively referred to as the "consolidated financial statements"). We also have audited the Company's internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). +In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO. +Basis for Opinions +The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. +Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. +Definition and Limitations of Internal Control over Financial Reporting +A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. +56 +Table of Contents +Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. +Critical Audit Matters +The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. +Revenue Recognition +As described in Notes 3 and 4 to the consolidated financial statements, the Company sells to customers either through long-term arrangements or standalone purchase orders. The Company’s long-term arrangements generally do not include committed volumes until underlying purchase orders are issued. Typically, revenue is recognized on the products the Company sells at a point in time, in accordance with shipping terms or other contractual arrangements. For the year ended December 31, 2024, the Company’s net sales were $1,669.6 million. +The principal consideration for our determination that performing procedures relating to revenue recognition is a critical audit matter is a high degree of auditor effort in performing procedures related to the Company’s revenue recognition. +Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the revenue recognition process. These procedures also included, among others, (i) testing revenue recognized for a sample of revenue transactions by obtaining and inspecting source documents, such as purchase orders, invoices, shipping documentation, and subsequent cash receipts, and (ii) confirming a sample of outstanding customer invoice balances as of December 31, 2024 and, for confirmations not returned, obtaining and inspecting source documents, such as subsequent cash receipts or shipping documentation. +/s/ PricewaterhouseCoopers LLP +Nashville, Tennessee +February 21, 2025 +We have served as the Company’s auditor since 2021. +57 +Table of Contents +ATMUS FILTRATION TECHNOLOGIES INC. AND SUBSIDIARIES +CONSOLIDATED STATEMENTS OF NET INCOME +(in millions of U.S. dollars, except per share data) +For the Years Ended +December 31, +2024 2023 2022 +NET SALES (a) +$ 1,669.6 $ 1,628.1 $ 1,562.1 +Cost of sales 1,207.5 1,195.4 1,202.9 +GROSS MARGIN 462.1 432.7 359.2 +OPERATING EXPENSES AND INCOME +Selling, general and administrative expenses 187.6 174.7 139.7 +Research, development and engineering expenses 40.6 42.5 38.6 +Equity, royalty and interest income from investees 34.3 33.6 28.0 +Other operating expense, net 2.0 0.7 5.0 +OPERATING INCOME 266.2 248.4 203.9 +Interest expense 40.6 25.8 0.7 +Other income, net 9.2 3.8 8.8 +INCOME BEFORE INCOME TAXES 234.8 226.4 212.0 +Income tax expense 49.2 55.1 41.6 +NET INCOME $ 185.6 $ 171.3 $ 170.4 +PER SHARE DATA: +Weighted-average shares for basic EPS 83.2 83.3 83.3 +Weighted-average shares for diluted EPS 83.6 83.4 83.3 +Basic earnings per share $ 2.23 $ 2.06 $ 2.05 +Diluted earnings per share $ 2.22 $ 2.05 $ 2.05 +(a) Includes sales to related p arties of $ 121.9 million , $ 390.8 million and $ 344.9 million for th e years ended December 31, 2024, 2023 and 2022, respectively. +58 +Table of Contents +ATMUS FILTRATION TECHNOLOGIES INC. AND SUBSIDIARIES +CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME +(in millions of U.S. dollars) +For the Years Ended +December 31, +2024 2023 2022 +NET INCOME $ 185.6 $ 171.3 $ 170.4 +Other comprehensive income (loss), net of tax +Change in pension and other postretirement defined benefit plans 0.5 ( 1.0 ) 2.4 +Foreign currency translation adjustments ( 23.3 ) 0.6 ( 16.6 ) +Total other comprehensive loss, net of tax $ ( 22.8 ) $ ( 0.4 ) $ ( 14.2 ) +COMPREHENSIVE INCOME $ 162.8 $ 170.9 $ 156.2 +59 +Table of Contents +ATMUS FILTRATION TECHNOLOGIES INC. AND SUBSIDIARIES +CONSOLIDATED BALANCE SHEETS +(in millions of U.S. dollars, except share data) +December 31, 2024 December 31, 2023 +ASSETS +Cash and cash equivalents $ 184.3 $ 168.0 +Accounts and notes receivable, net 254.2 246.8 +Inventories 266.6 250.0 +Prepaid expenses and other current assets 49.9 28.2 +Total current assets 755.0 693.0 +Property, plant and equipment, net 186.2 174.6 +Investments and advances related to equity method investees 84.9 84.8 +Goodwill 84.7 84.7 +Other assets 79.5 51.5 +TOTAL ASSETS $ 1,190.3 $ 1,088.6 +LIABILITIES +Accounts payable $ 193.1 $ 236.6 +Accrued compensation, benefits and retirement costs 37.2 41.8 +Current portion of accrued product warranty 4.9 5.4 +Current maturities of long-term debt 22.5 7.5 +Other accrued expenses 87.2 83.7 +Total current liabilities 344.9 375.0 +Long-term debt 570.0 592.5 +Accrued product warranty 7.3 8.6 +Other liabilities 40.7 31.8 +TOTAL LIABILITIES 962.9 1,007.9 +Commitments and contingencies (Note 14) +EQUITY +Common stock, $ 0.0001 par value ( 2,000,000,000 shares authorized, 83,403,813 and 83,297,796 shares issued at December 31, 2024 and December 31, 2023, respectively) +— — +Additional paid-in capital 61.9 49.7 +Retained earnings 264.5 87.2 +Accumulated other comprehensive loss ( 79.0 ) ( 56.2 ) +Treasury stock, at cost ( 537,643 shares at December 31, 2024 and no shares at December 31, 2023) +( 20.0 ) — +TOTAL EQUITY 227.4 80.7 +TOTAL LIABILITIES AND EQUITY $ 1,190.3 $ 1,088.6 +60 +Table of Contents +ATMUS FILTRATION TECHNOLOGIES INC. AND SUBSIDIARIES +CONSOLIDATED STATEMENTS OF CASH FLOWS +(in millions of U.S. dollars) +For the Years Ended December 31, +2024 2023 2022 +CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES +Net income $ 185.6 $ 171.3 $ 170.4 +Adjustments to reconcile net income to operating cash flows: +Depreciation and amortization 24.8 21.5 21.6 +Deferred income taxes ( 7.7 ) ( 10.0 ) ( 12.7 ) +Equity in income of investees, net of dividends ( 2.5 ) ( 7.8 ) 0.4 +Share-based compensation 11.9 7.2 — +Foreign currency remeasurement and transaction exposure ( 3.6 ) ( 4.5 ) ( 1.9 ) +Changes in current assets and liabilities: +Trade and other receivables ( 16.8 ) ( 10.1 ) ( 18.3 ) +Inventories ( 25.4 ) ( 4.3 ) ( 9.7 ) +Prepaid expenses and other current assets ( 20.0 ) ( 8.9 ) ( 6.1 ) +Accounts payable ( 39.3 ) 4.4 18.5 +Other accrued expenses ( 1.8 ) 30.2 0.8 +Changes in other liabilities 5.2 0.3 ( 5.7 ) +Other, net ( 5.0 ) ( 0.3 ) 8.4 +Net cash provided by operating activities 105.4 189.0 165.7 +CASH USED IN INVESTING ACTIVITIES +Capital expenditures ( 48.6 ) ( 45.8 ) ( 37.5 ) +Net cash used in investing activities ( 48.6 ) ( 45.8 ) ( 37.5 ) +CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES +Long-term debt proceeds — 650.0 — +Payments on long-term debt ( 7.5 ) ( 50.0 ) — +Repurchases of Common stock ( 20.0 ) — — +Dividends paid ( 8.3 ) — — +Net transfers to Parent — ( 579.5 ) ( 128.2 ) +Other, net — 4.3 — +Net cash (used in) provided by financing activities ( 35.8 ) 24.8 ( 128.2 ) +Effect of exchange rate changes on cash and cash equivalents ( 4.7 ) — — +Net increase in cash and cash equivalents 16.3 168.0 — +Cash and cash equivalents at beginning of period 168.0 — — +CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 184.3 $ 168.0 $ — +SUPPLEMENTAL CASH FLOW INFORMATION: +Non-cash investing and financing activities: +Non-cash settlements with Parent $ — $ 29.4 $ — +Non-cash Capital expenditures — ( 1.5 ) ( 4.1 ) +61 +Table of Contents +ATMUS FILTRATION TECHNOLOGIES INC. AND SUBSIDIARIES +CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY +(in millions of U.S. dollars) +Common Stock Net Parent +Investment Additional Paid-in Capital Retained Earnings Accumulated +Other +Comprehensive +Loss Treasury Stock Total Equity +Balance at December 31, 2021 $ — $ 469.2 $ — $ — $ ( 41.6 ) $ — $ 427.6 +Net income — 170.4 — — — — 170.4 +Other comprehensive income, net of tax — — — — ( 14.2 ) — ( 14.2 ) +Net transfers (to) from Parent — ( 128.2 ) — — — — ( 128.2 ) +Balances at December 31, 2022 $ — $ 511.4 $ — $ — $ ( 55.8 ) $ — $ 455.6 +Net income — 84.1 — 87.2 — — 171.3 +Other comprehensive loss, net of tax — — — — ( 0.4 ) — ( 0.4 ) +Share-based awards — — 4.3 — — — 4.3 +Net transfers (to) from Parent — ( 595.5 ) 45.4 — — — ( 550.1 ) +Balances at December 31, 2023 $ — $ — $ 49.7 $ 87.2 $ ( 56.2 ) $ — $ 80.7 +Net income — — — 185.6 — — 185.6 +Other comprehensive loss, net of tax — — — — ( 22.8 ) — ( 22.8 ) +Share-based awards — — 12.2 — — — 12.2 +Common stock repurchased — — — — — ( 20.0 ) ( 20.0 ) +Cash dividends declared ($ 0.10 per share) +— — — ( 8.3 ) — — ( 8.3 ) +Balances at December 31, 2024 $ — $ — $ 61.9 $ 264.5 $ ( 79.0 ) $ ( 20.0 ) $ 227.4 +62 +Table of Contents +ATMUS FILTRATION TECHNOLOGIES INC. AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +NOTE 1. DESCRIPTION OF THE BUSINESS +Atmus Filtration Technologies Inc. (“Atmus” or the “Company”) is one of the global leaders of filtration products for on-highway commercial vehicles and off-highway agriculture, construction, mining and power generation vehicles and equipment. Atmus designs and manufactures advanced filtration products, principally under the Fleetguard brand, that provide superior asset protection and enable lower emissions. Approximately 14 % of Atmus’ net sales in 2024 were generated through first-fit sales to OEMs, where its products are installed as components for new vehicles and equipment. Approximately 86 % of Atmus’ net sales in 2024 were generated in the aftermarket, where its products are installed as replacement or repair parts, leading to a strong recurring revenue base. Building on its more than 65-year history, Atmus continues to grow and differentiate itself through its global footprint, comprehensive offering of premium products, technology leadership and multi-channel path to market. +In April 2022, Cummins Inc. (“Cummins”) announced its intention to separate its filtration business (the “Filtration Business”) into a standalone publicly traded company (the “Separation”). In preparation for the Separation from Cummins, Atmus, as its predecessor in interest, was incorporated as a wholly-owned subsidiary of Cummins in Delaware on April 1, 2022 in connection with the planned Separation. Prior to the completion of Atmus’ initial public offering (the “IPO”), Cummins completed, in all material respects, the transfer of the assets and liabilities of the Filtration Business to Atmus and its subsidiaries as detailed in the separation agreement Atmus entered into with Cummins. +On September 30, 2022, and as amended on February 15, 2023, Atmus entered into a $ 1.0 billion credit agreement (“Credit Agreement”) with a syndicate of banks, providing for a $ 600 million term loan facility (the “term loan”) and a $ 400 million revolving credit facility (the “revolving credit facility”), in anticipation of the Separation. Borrowings under the Credit Agreement did not become available until the IPO occurred. The facilities covered by the Credit Agreement will mature on September 30, 2027. +Atmus’ Registration Statement on Form S-1, as amended, filed with the Securities and Exchange Commission (“Commission”) on May 16, 2023, was declared effective on May 25, 2023, and Atmus’ common shares began trading on the New York Stock Exchange under the symbol “ATMU” on May 26, 2023. On May 30, 2023, the IPO was completed through the sale on behalf of certain commercial paper holders of Cummins of 16,243,070 shares of common stock, including the underwriters’ full exercise of their 30-day option to purchase an additional 2,118,661 shares to cover over-allotments. None of the proceeds of the IPO were for the benefit of Atmus. As of the closing of the IPO, Cummins owned approximately 80.5 % of the outstanding shares of Atmus common stock. +Upon completion of the IPO, Atmus borrowed $ 650 million, consisting of proceeds of the term loan and amounts drawn under the revolving credit facility, and paid such amounts to Cummins in partial consideration for the Separation. +On February 14, 2024, Cummins announced an exchange offer whereby Cummins shareholders could exchange all or a portion of Cummins common stock for shares of Atmus common stock owned by Cummins. The divestiture of Atmus shares by Cummins was completed on March 18, 2024 and resulted in the full separation of Atmus and divestiture of Cummins’ entire ownership and voting interest in Atmus (“Full Separation”). +NOTE 2. BASIS OF PRESENTATION +As Atmus became a publicly traded company upon the IPO, its financial statements are now presented on a consolidated basis. In preparation for the IPO, the Company’s historical combined financial statements were prepared on a standalone basis, which reflected a combination of entities under common control that had been “carved out” of and derived from the historical consolidated financial statements and accounting records of Cummins. +The financial statements for all periods presented, including the historical results of the Company prior to May 26, 2023, are now referred to as “Consolidated Financial Statements”, and have been prepared in +63 +Table of Contents +accordance with generally accepted accounting principles in the United States of America (GAAP). All intercompany balances and transactions are eliminated in consolidation. +Periods Prior to the IPO +Prior to the IPO, Atmus, previously the Filtration Business of Cummins, functioned as part of the larger group of businesses controlled by Cummins and accordingly, utilized centralized functions of Cummins, such as facilities and information technology, to support its operations. A portion of the shared service costs were historically allocated to the Filtration Business. Cummins also performed certain corporate functions for the Filtration Business. The corporate expenses related to the Filtration Business were allocated from Cummins. These allocated costs primarily related to certain governance and corporate functions, including finance, human resources, investor relations, legal, tax, treasury and certain other costs. Where it was possible to specifically attribute such expenses to activities of the Filtration Business, these amounts were charged or credited directly to the Filtration Business without allocation or apportionment. Allocation of other such expenses was based on a reasonable reflection of the utilization of the service provided or benefit received by the Filtration Business for the periods presented prior to the Separation, on a consistent basis, such as a relative percentage of headcount and third-party sales. The aggregate costs allocated for these functions to the Filtration Business are included within the Consolidated Statements of Net Income for the periods presented prior to the Separation. +Management believes these cost allocations were a reasonable reflection of the utilization of services provided to, or the benefit derived by, the Filtration Business during the period prior to the IPO, though the allocations may not be indicative of the actual costs that would have been incurred had the Filtration Business operated as a standalone public company. Actual costs that may have been incurred if the Filtration Business had been a standalone company would depend on a number of factors, including the chosen organizational structure, whether functions were outsourced or performed by the Filtration Business employees, and strategic decisions made in areas such as manufacturing, selling and marketing, research and development, information technology and infrastructure. +Historically, Atmus’ cash was transferred to Cummins on a daily basis. This arrangement was not reflective of the manner in which Atmus would have been able to finance its operations had it been a standalone business separate from Cummins during each of the periods presented. +Cummins’ debt and related interest expense were not allocated to Atmus for any of the periods presented since Atmus was not the legal obligor of the debt and Cummins’ borrowings were not directly attributable to Atmus. +As the separate legal entities that made up the Filtration Business were not historically held by a single legal entity, Cummins’ net investment in this business (“Net Parent Investment”) was presented in lieu of a controlling interest’s equity in the Consolidated Financial Statements. +For the Filtration Business, transactions with Cummins affiliates were included in the Consolidated Statements of Net Income and related balances were reflected as related party receivables and related party payables. Other balances between the Filtration Business and Cummins were considered to be effectively settled in the Consolidated Financial Statements at the time the transactions were recorded. +As of the IPO Date +In connection with the Separation, Atmus entered into various agreements with Cummins, including a separation agreement. In the separation agreement, there were certain assets and liabilities identified in the schedules, including leases and unrecognized tax liabilities, which were retained by Cummins and were reflected as Net Parent Investment in the Company’s Consolidated Financial Statements, and those that were transferred to the Company, including additional pension assets, other compensation obligations and certain other assets and liabilities, which were transferred to the Company through Net Parent Investment in the Company’s Consolidated Financial Statements. These various agreements comprehensively provide a +64 +Table of Contents +framework for our relationship with Cummins and govern various interim and ongoing relationships between us and Cummins post IPO. +As part of the Separation, Net Parent Investment was reclassified as Additional Paid-in Capital. +Periods Post IPO +Following the IPO, certain services continue to be provided by Cummins under the transition services agreement. The Company incurred certain costs in its establishment as a standalone public company and expects to incur ongoing additional costs associated with operating as an independent, publicly traded company. +Post IPO, Atmus filed a consolidated Federal income tax return and returns in certain other jurisdictions with Cummins. +Post IPO, Retained earnings began to accumulate and the balance reflected on the Consolidated Balance Sheets reflects earnings for the period May 26, 2023 through December 31, 2024. +Periods Post Full Separation +Following Full Separation, Cummins will continue to provide certain services to Atmus under the transition services agreement. The transition services agreement relates primarily to administrative services, which are expected to be completed by August 2025. Atmus will continue to pay Cummins mutually agreed upon fees for these services. +Post Full Separation, Cummins is no longer considered a related party and activity post March 18, 2024, between Atmus and Cummins has been treated as arm’s-length transactions. +Atmus files tax returns in all jurisdictions on its own behalf post Full Separation, and tax balances and effective income tax rates may differ from the amounts reported in the historical periods. +NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES +Investments in Equity Investees +We use the equity method to account for our investments in joint ventures, affiliated companies and alliances in which we have the ability to exercise significant influence, generally represented by equity ownership or partnership equity of at least 20 percent but not more than 50 percent. Generally, under the equity method, original investments in these entities are recorded at cost and subsequently adjusted by our share of equity in income or losses after the date of acquisition. Equity in income or losses of each investee is recorded according to our level of ownership; if losses accumulate, we record our share of losses until our investment has been fully depleted. If our investment has been fully depleted, we recognize additional losses only when we are the primary funding source. We eliminate (to the extent of our ownership percentage) in our Consolidated Financial Statements the profit in inventory held by our equity method investees that has not yet been sold to a third-party. Dividends received from equity method investees reduce the amount of our investment when received and do not impact our earnings. Our investments are classified as “Investments and advances related to equity method investees” in our Consolidated Balance Sheets. Our share of the results from joint ventures, affiliated companies and alliances is reported in our Consolidated Statements of Net Income as “Equity, royalty and interest income from investees” and is reported net of all applicable income taxes. Our foreign equity investees are presented net of applicable foreign income taxes in our Consolidated Statements of Net Income. See Note 5, Investments in Equity Investees , for additional information. +Use of Estimates in the Preparation of the Consolidated Financial Statements +Preparation of financial statements requires management to make estimates and assumptions that affect reported amounts presented and disclosed in our Consolidated Financial Statements. Significant estimates and assumptions in these Consolidated Financial Statements require the exercise of judgment and are used for, but not limited to, estimates of future cash flows and other assumptions associated with goodwill and long-lived asset impairment tests, useful lives for depreciation and amortization, warranty programs, restructuring costs, income taxes, deferred tax valuation allowances, contingencies and allowances for doubtful accounts. Due to +65 +Table of Contents +the inherent uncertainty involved in making estimates, actual results reported in future periods may be different from these estimates. +Revenue From Contracts with Customers +Revenue Recognition Sales of Products +We sell to customers either through long-term arrangements or standalone purchase orders. Our long-term arrangements generally do not include committed volumes until underlying purchase orders are issued. Typically, we recognize revenue on the products we sell at a point in time, in accordance with shipping terms or other contractual arrangements. All related shipping and handling costs are accrued at the time the related performance obligation has been satisfied. +Our sales arrangements may include the collection of sales and other similar taxes that are then remitted to the related taxing authority. We have elected to present the amounts collected for these taxes net of the related tax expense rather than presenting them as additional revenue. +We grant credit limits and terms to customers based upon traditional practices and competitive conditions. Typical terms vary by market, but payments are generally due in 60 days or less from invoicing for most of our product sales. +Sales Incentives +We provide various sales incentives to both our distribution network and OEM customers. These programs are designed to promote the sale of our products or encourage the usage of our products by OEM customers. When there is uncertainty surrounding these sales incentives, we may reduce the amount of revenue we recognize under a contract through an incentive accrual. When the uncertainty has been resolved the accrual will be adjusted accordingly. Sales incentives primarily fall into three categories: +• Aftermarket rebates; +• Volume and growth rebates; and +• Marketing Development Fund (“MDF”). +For aftermarket rebates, we provide incentives to promote sales to certain dealers and end-markets. These rebates are typically paid on a quarterly, or more frequent, basis. At the time of the sale, we consider the expected amount of these rebates when determining the overall transaction price. Estimates are adjusted at the end of each month or quarter based sales and historical experience. +For volume and growth rebates, we provide certain customers with rebate opportunities for attaining specified volumes during a particular quarter or year. We consider the expected amount of these rebates at the time of the original sale as we determine the sales revenue. We update our assessment of the amount of rebates that will be earned on a monthly or quarterly basis based on our best estimate of the volume levels the customer will reach during the measurement period. +For MDF’s, these are funds to support our customers primarily for business development, marketing and advertising programs, promotional items jointly developed, dealer incentives and partnering programs. Depending on the agreement, the funds are accrued for and paid on a quarterly basis, annual basis, or as agreed with those customers receiving these funds. +Sales Returns +The initial determination of the sales revenue may also be impacted by product returns. Rights of return do not exist for the majority of our sales other than for quality issues. We do offer certain return rights in our aftermarket business, where some aftermarket customers are permitted to return a small amount of filters each year. An estimate of future returns is accounted for at the time of sale as a reduction in the overall sales revenue based on historical return rates. +66 +Table of Contents +Foreign Currency Transactions and Translation +We translate assets and liabilities of foreign entities to U.S. dollars, where the local currency is the functional currency, at month-end exchange rates. We translate income and expenses to U.S. dollars using weighted-average exchange rates. We record adjustments resulting from translation in a separate component of accumulated other comprehensive loss and include the adjustments in net income only upon sale, loss of controlling financial interest or liquidation of the underlying foreign investment. +Foreign currency transaction gains and losses are included in net income. For foreign entities where the U.S. dollar is the functional currency, including those operating in highly inflationary economies when applicable, we remeasure non-monetary balances and the related income statement amounts using historical exchange rates. We include the resulting gains an d losses in net income, including the effect of derivatives in our Consolidated Statements of Net Income, which combined with transaction gains (losses) amounted to $ 2.8 million, $( 3.3 ) million and $ 0.3 million for the years ended December 31, 2024, 2023 and 2022, respectively. +Income Tax Accounting +We determine our income tax expense using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax effects of temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Future tax benefits of net operating loss and credit carryforwards are also recognized as deferred tax assets. We evaluate the recoverability of our deferred tax assets each quarter by assessing the likelihood of future profitability and available tax planning strategies that could be implemented to realize our net deferred tax assets. A valuation allowance is recorded to reduce the tax assets to the net value management believes is more likely than not to be realized. In the event our operating performance deteriorates, future assessments could conclude that a larger valuation allowance will be needed to further reduce the deferred tax assets. In addition, we operate within multiple taxing jurisdictions and are subject to tax audits in these jurisdictions. These audits can involve complex issues, which may require an extended period of time to resolve. We accrue for the estimated additional tax and interest that may result from tax authorities disputing uncertain tax positions. We believe we made adequate provisions for income taxes for all years that are subject to audit based upon the latest information available. +Our income tax provision was prepared following the separate return method, which applies Accounting Standards Codification (“ASC”) 740 to the standalone financial statements of each member of the combined group as if the group member were a separate and standalone enterprise. Due to this treatment, tax transactions included in the Consolidated Financial Statements of the Parent may not be included in the separated Consolidated Financial Statements of the Company. Similarly, there may be certain tax attributes within the Consolidated Financial Statements of the Company that would not be found in the Consolidated Financial Statements and tax returns of the Parent. Examples of such items include net operating losses, tax credits carry forwards and valuation allowances, which may exist in the standalone financial statements but not in the Parent’s Consolidated Financial Statements. +The international tax framework introduced by the Organization for Economic Co-operation and Development under its Pillar Two initiative includes a global minimum tax of 15 percent. Legislation adopting these provisions has been enacted in certain jurisdictions where the Company operates and is effective for the Company's 2024 fiscal year. The Company has assessed this legislation and the Pillar Two provisions do not have a material impact on the Company’s tax expense. +A more complete description of our income taxes and the future benefits of our net operating loss and credit carryforwards is disclosed in Note 6, Income Taxes . +Cash and Cash Equivalents +Cash and cash equivalents consist of bank checking accounts and money market accounts. Atmus considers all highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents. Cash and cash equivalents are carried at cost, which approximates fair value. +Accounts Receivable and Allowance for Doubtful Accounts +67 +Table of Contents +Trade accounts receivable represent amounts billed to customers and not yet collected or amounts that have been earned but may not be billed until the passage of time and are recorded when the right to consideration becomes unconditional. Trade accounts receivable are recorded at the invoiced amount, which approximates net realizable value and generally do not bear interest. The allowance for doubtful accounts is our best estimate of the amount of expected credit losses in our existing accounts receivable. We determine the allowance based on our historical collection experience and by performing an analysis of our accounts receivable in light of the current economic environment. This estimate of expected losses reflects those losses expected to occur over the contractual life of the receivable. We review our allowance for doubtful accounts at least quarterly, and more frequently as needed . In addition, when necessary, we provide an allowance for the full amount of specific accounts deemed to be uncollectible. Account balances are charged off against the allowance in the period in which we determine that it is probable the receivable will not be recovered. The allowance for doubtful accounts balances were $ 3.0 million and $ 2.9 million at December 31, 2024 and 2023, respectively . Bad debt write-offs were not material during the three years ended December 31, 2024. +Inventories +Our invento ries are stated at the lower of cost or net realizable value. As of December 31, 2024 and 2023, approximately 30.3 % and 32.1 % , respectively, of our inventories were valued using the last-in, first-out (LIFO) cost method. The cost of other inventories is generally valued using the first-in, first-out (FIFO) cost method. Our inventories include estimates for adjustments related to annual physical inventory results and for inventory cost changes under the LIFO cost method. Due to significant movements of partially-manufactured components and parts between manufacturing plants, we do not internally measure, nor do our accounting systems provide, a meaningful segregation between raw materials and work-in-process. See Note 7, Inventories , for additional information. +Property, Plant and Equipment +We record property, plant and equipment at cost, inclusive of finance lease assets, with the adoption of ASC 842. We depreciate the cost of the majority of our property, plant and equipment using the straight-line method with depreciable lives ranging from 20 to 40 years for buildings and 3 to 15 years for machinery, equipment and fixtures. Finance lease asset amortization is recorded in depreciation expense. We expense normal maintenance and repair costs as incurred. Depreciation expense totaled $ 24.8 million , $ 21.5 million and $ 20.7 million for the years ended December 31, 2024, 2023 and 2022, respectively. See Note 8, Property, Plant and Equipment and Note 9, Leases , for additional information. +Impairment of Long-Lived Assets +We review our long-lived assets for possible impairment whenever events or circumstances indicate that the carrying value of an asset or asset group may not be recoverable. We assess the recoverability of the carrying value of the long-lived assets at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. An impairment of a long-lived asset or asset group exists when the expected future pre-tax cash flows (undiscounted and without interest charges) estimated to be generated by the asset or asset group is less than its carrying value. If these cash flows are less than the carrying value of such asset or asset group, an impairment loss is measured based on the difference between the estimated fair value and carrying value of the asset or asset group. Assumptions and estimates used to estimate cash flows in the evaluation of impairment and the fair values used to determine the impairment are subject to a degree of judgment and complexity. Any changes to the assumptions and estimates resulting from changes in actual results or market conditions from those anticipated may affect the carrying value of long-lived assets and could result in a future impairment charge. +Leases +We determine if an arrangement contains a lease in whole or in part at the inception of the contract. Right-of-use (“ROU”) assets represent our right to use an underlying asset for the lease term while lease liabilities represent our obligation to make lease payments arising from the lease. All leases greater than 12 months result in the recognition of a ROU asset and a liability at the lease commencement date based on the present value of the lease payments over the lease term. As most of our leases do not provide the information required to determine the implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. This rate is determined considering +68 +Table of Contents +factors such as the lease term, our credit standing and the economic environment of the location of the lease. We use the implicit rate when readily determinable. +Our lease terms include all non-cancelable periods and may include options to extend (or to not terminate) the lease when it is reasonably certain that we will exercise that option. Leases that have a term of 12 months or less at the commencement date are expensed on a straight-line basis over the lease term and do not result in the recognition of an asset or a liability. +Lease expense for operating leases is recognized on a straight-line basis over the lease term. Lease expense for finance leases is generally front-loaded as the finance lease ROU asset is depreciated on a straight-line basis, but interest expense on the liability is recognized utilizing the interest method that results in more expense during the early years of the lease. We have lease agreements with lease and non-lease components, primarily related to real estate, vehicle and information technology (“IT”) assets. For vehicle and real estate leases, we account for the lease and non-lease components as a single lease component. For IT leases, we allocate the payment between the lease and non-lease components based on the relative value of each component. See Note 9, Leases , for additional information. +Goodwill +We have the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value as a basis for determining whether it is necessary to perform an annual quantitative goodwill impairment test. We have elected this option for our reporting unit. In addition, the carrying value of goodwill must be tested for impairment on an interim basis in certain circumstances where impairment may be indicated. +When we are required or opt to perform the quantitative impairment test, the fair value of our reporting unit is estimated with either the market approach or the income approach using a discounted cash flow model. Our income approach method uses a discounted cash flow model in which cash flows anticipated over several periods, plus a terminal value at the end of that time horizon, are discounted to their present value using an appropriate rate of return. +The discounted cash flow model requires us to make projections of revenue, gross margin, operating expenses, working capital investment and fixed asset additions for our reporting unit over a multi-year period. Additionally, management must estimate a weighted-average cost of capital, which reflects a market rate, for our reporting unit for use as a discount rate. The discounted cash flows are compared to the carrying value of the reporting unit and, if less than the carrying value, the difference is recorded as a goodwill impairment loss. In addition, we also perform a sensitivity analysis to determine how much our forecasts can fluctuate before the fair value of a reporting unit would be lower than its carrying amount. +We perform the required procedures as of the end of our fiscal third quarter. +Changes in our projections or estimates, a deterioration of our operating results and the related cash flow effect or a significant increase in the discount rate could decrease the estimated fair value of our reporting unit and result in a future impairment of goodwill. See Note 10, Goodwill , for additional information. +Warranty +We estimate and record a liability for standard warranty programs at the time our products are sold. Our estimates are based on historical experience and reflect management’s best estimates of expected costs at the time products are sold and subsequent adjustment to those expected costs when actual costs differ. As a result of the uncertainty surrounding the nature and frequency of product campaigns, the liability for such campaigns is recorded when we commit to a recall action or when a recall becomes probable and estimable, which generally occurs when it is announced. We review and assess the liability for these programs on a quarterly basis. See Note 11, Product Warranty Liability , for additional information. +Research, Development and Engineering +Our research, development and engineering programs are focused on product improvements, product extensions, innovations and cost reductions for our customers. Research, development and engineering expenditures include salaries, contractor fe es, building costs, utilities, testing, technical IT, administrative +69 +Table of Contents +expenses and allocation of corporate costs and are expensed, net of contract reimbursements, when incurred. Research, development and engineering expenses were $ 40.6 million , $ 42.5 million and $ 38.6 million for t he years ended December 31, 2024, 2023 and 2022, respectively. +Related Party Transactions +In accordance with the provisions of various joint venture agreements, we may purchase products and components from our joint ventures, sell products and components to our joint ventures and our joint ventures may sell products and components to unrelated parties. Joint venture transfer prices may differ from normal selling prices. Certain joint venture agreements transfer product at cost, some transfer product on a cost-plus basis, and others transfer product at market value. These purchases and sales take place on terms resulting in margins within a reasonable range of market rates. See Note 17, Relationship with Parent and Related Parties , for additional information. +Segment Information +We operate our business as one operating segment and also one reportable segment based on the manner in which we review and evaluate operating performance. The types of products from which revenue is derived are the same as those described in the description of the business section and the accounting policies are the same as those described in the summary of significant accounting policies. +The operating results are regularly reviewed by Atmus’ chief operating decision maker on a consolidated basis. The chief operating decision maker is our Chief Executive Officer. The chief operating decision maker assesses performance for our business and decides how to allocate resources based on net income that also is reported on the income statement as consolidated net income and is regularly provided with consolidated expense information from the income statement. The measurement of business assets is reported on the balance sheet as total consolidated assets. +The chief operating decision maker uses net income predominately in the annual budget and forecasting process. The chief operating decision maker considers budget-to-actual in deciding whether to reinvest profit into the operating segment or for other entity initiatives, such as acquisitions, paying dividends, or share repurchases. The chief operating decision maker also uses the profit or loss measure for determining compensation of certain employees. +Stock-Based Compensation +We maintain a share-based compensation plan, which authorizes the granting of various equity-based incentives, including restricted stock units (“RSU”s) and performance share units (“PSU”s). Stock compensation expense is generally amortized on a straight line basis over the service period during which awards are expected to vest, generally three years . +RSUs are typically granted to selected employees on an annual basis and vest over three years . Dividend equivalents are paid during the vesting period. The fair value of our RSUs and other stock-based awards is measured at the market price of our Common Stock on the grant date. +PSUs vest based on varying performance, market and service conditions. The fair value of our PSUs is measured at the market price of our Common Stock on the grant date. The final award may equal 0 - 200 percent of the target grant, based on our actual performance during the vesting period. +Forfeitures are estimated on the grant date for all of our stock-based compensation awards. +Pensions and other Postretirement Benefits +Atmus provides a range of benefits, including pensions, postretirement and post-employment benefits to eligible current and former employees, of which certain of our employees participate. For purposes of Atmus’ Consolidated Financial Statements, participation in Atmus plans are treated as single-employer plans. See Note 13, Pensions and Other Postretirement Benefits , for more information. +70 +Table of Contents +Net Parent Investment +Net Parent Investment represents Cummins’ historical investment in us, our accumulated net earnings after taxes and the net effect of transactions with and allocations from Cummins prior to the IPO. +The Consolidated Statements of Changes in Equity include net cash transfers between Cummins and Atmus pursuant to the centralized cash management and other treasury-related functions performed by Cummins for the periods prior to the IPO. The Net Parent Investment account includes the settlement and net effect of transactions with and corporate allocations from Cummins including administrative expenses such as corporate finance, accounting and field shared services, information services, human resources, marketing, corporate office and other services. +In the separation agreement, there were certain assets and liabilities which were retained by Cummins and were reflected as Net Parent Investment in the Company’s Consolidated Financial Statements, and those that were transferred to the Company through Net Parent Investment in the Company’s Consolidated Financial Statements. +The net effect of other assets and liabilities and related income and expenses recorded at the corporate level and pushed down to Atmus are also included in Net Parent Investment. +All transactions reflected in Net Parent Investment in the historical Consolidated Balance Sheets have been considered cash receipts and payments for purposes of the Consolidated Statements of Cash Flows and are reflected in financing activities in the accompanying Consolidated Statements of Cash Flows with the exception of certain non-cash items related to an unrecognized tax liability for FIN48 reserves and leased assets and related depreciation, which were retained by Cummins upon completion of Atmus’ IPO. These items have been included as supplemental information to the Consolidated Statements of Cash Flows. +Recent Accounting Pronouncements +Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures +In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires a public entity to disclose significant segment expenses and other segment items on an annual and interim basis and provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually. Additionally, it requires a public entity to disclose the title and position of the Chief Operating Decision Maker (“CODM”). The ASU does not change how a public entity identifies its operating segments, aggregates them, or applies the quantitative thresholds to determine its reportable segments. The new standard is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. A public entity should apply the amendments in this ASU retrospectively to all prior periods presented in the financial statements. We adopted this standard in the fourth quarter of 2024 and it did not have a material impact on our disclosures and no impacts to our results of operations, cash flows and financial condition. +Income Taxes (Topic 740): Improvements to Income Tax Disclosures +In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, that requires entities to disclose additional information about federal, state, and foreign income taxes primarily related to the income tax rate reconciliation and income taxes paid. The new standard also eliminates certain existing disclosure requirements related to uncertain tax positions and unrecognized deferred tax liabilities. The guidance is effective for our fiscal year ending December 31, 2025, with early adoption permitted. The guidance does not affect recognition or measurement in our consolidated financial statements. We expect this ASU to only impact our disclosures with no impacts to our results of operations, cash flows and financial condition. +Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses +In November 2024, the FASB issued ASU No. 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement +71 +Table of Contents +Expenses, which requires disclosure of certain costs and expenses on an interim and annual basis in the notes to the consolidated financial statements. The guidance is effective for annual reporting periods beginning after December 15, 2026 and interim periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted. The guidance is to be applied either prospectively to financial statements issued for reporting periods after the effective date or retrospectively to any or all prior periods presented in the financial statements. We are currently evaluating the potential impact of adopting this new guidance on our consolidated financial statements and related disclosures. +NOTE 4: REVENUE FROM CONTRACTS WITH CUSTOMERS +Disaggregation of Revenue +Revenue by Geographic Area +The table below presents our consolidated sales by geographic area. Net sales attributed to geographic areas were based on the location of the customer. +Years ended December 31, +In millions 2024 2023 2022 +United States $ 782.3 $ 746.5 $ 720.5 +Other international 887.3 881.6 841.6 +Total net sales $ 1,669.6 $ 1,628.1 $ 1,562.1 +Revenue by Product Category +The table below presents our consolidated sales by product category. +Years ended December 31, +In millions 2024 2023 2022 +Fuel $ 720.2 $ 705.2 $ 674.7 +Lube 326.8 305.4 306.9 +Air 288.6 282.4 267.8 +Other 334.0 335.1 312.7 +Total net sales $ 1,669.6 $ 1,628.1 $ 1,562.1 +Revenue by Major Customer +For the years ended December 31, 2024, 2023 and 2022, three external customers, Cummins, PACCAR and the Traton Group, each represented greater than 10% of our annual net sales. These customers represented 17.6 % , 16.5 % and 12.2 % of net sales in 2024, 17.4 %, 15.6 % and 11.8 % of net sales in 2023 and 19.3 %, 16.2 % and 12.0 % of net sales in 2022. No other customers exceeded 10% of net sales in the three years presented. +NOTE 5: INVESTMENTS IN EQUITY INVESTEES +Investments and advances related to equity method investees and our ownership percentages were as follows: +December 31, +In millions Ownership Percentage 2024 2023 +Shanghai Fleetguard Filter Co. Ltd. 50.0 % $ 24.3 $ 24.9 +Fleetguard Filters Pvt. Ltd. 49.5 % 58.5 58.0 +Filtrum Fibretechnologies Pvt. Ltd. 49.7 % 2.1 1.9 +Investments and advances related to equity method investees $ 84.9 $ 84.8 +72 +Table of Contents +Dividends received fr om our unconsolidated equity investees were $ 25.5 million, $ 19.8 million and $ 23.1 million in 2024, 2023 and 2022, respectively. +Equity, royalty and interest income from investees, net of applicable taxes, was as follows: +Years ended December 31, +In millions 2024 2023 2022 +Shanghai Fleetguard Filter Co. Ltd $ 5.9 $ 5.9 $ 5.3 +Fleetguard Filters Pvt. Ltd. 21.8 21.5 17.1 +Filtrum Fibretechnologies Pvt. Ltd 0.4 0.2 0.3 +Atmus share of net income $ 28.1 $ 27.6 $ 22.7 +Royalty and interest income 6.2 6.0 5.3 +Equity, royalty and interest income from investees $ 34.3 $ 33.6 $ 28.0 +Our joint ventures are primarily intended to allow us to increase our market penetration in geographic regions, reduce capital spending, streamline our supply chain management and develop technologies. The results and investments in our joint ventures in which we have 50 percent or less ownership are included in “Equity, royalty and interest income from investees” and “Investments and advances related to equity method investees” in our Consolidated Statements of Net Income and Consolidated Balance Sheets, respectively. +• Shanghai Fleetguard Filter Co. Ltd.  — Shanghai Fleetguard Filter Co. Ltd. is a limited liability company (Sinoforeign joint venture) incorporated in Shanghai of the People’s Republic of China on April 27, 1994 by Dongfeng Motor Parts and Components Group Co., Ltd. and Cummins (China) Investment Co. with 50 % partnership. Shanghai Fleetguard Filter Co. Ltd.’s approved scope of business operations includes the manufacture and sales of various filters and filter spare parts for diesel engines, trucks, buses, mining, excavators and other construction equipment to customers in China and exports to Atmus. Shanghai Fleetguard Filter Co. Ltd. has three manufacturing sites, Shanghai, Wuhan and Shiyan, with Shanghai being the primary location. +• Fleetguard Filters Pvt. Ltd.  — Fleetguard Filters Pvt. Ltd. is a limited company incorporated in 1987 by Perfect Sealing Systems Private Limited (India) and Cummins Filtration Inc. (USA) which set a benchmark by providing premium filtration solutions for both on and off-highway applications from Air, Lube, Fuel, Hydraulic and Water Filtration to Coolants & Chemicals. They focus on supplies to first fit and aftermarket customers in India and exports to Atmus. The Head Office of Fleetguard Filters Pvt. Ltd. is located at Baner, in Pune, Maharashtra, India and has seven manufacturing plants in different states of India — Dharwad in Karnataka, Hosur in Tamil Nadu, Jamshedpur in Jharkhand, Nandur, Wadki and Loni Khalbhor in Maharashtra, and Sitarganj in Uttarakhand. +73 +Table of Contents +Equity Investee Financial Summary +Summary financial information for our equity investees was as follows: +Years ended December 31, +In millions 2024 2023 2022 +Net sales $ 456.7 $ 435.2 $ 392.5 +Gross margin 183.0 170.0 136.3 +Net income 57.4 56.2 38.4 +Atmus share of net income 28.1 27.6 22.7 +Royalty and interest income 6.2 6.0 5.3 +Total equity, royalty and interest income from investees 34.3 33.6 28.0 +Current assets 173.8 182.5 157.9 +Non-current assets 89.6 87.4 82.0 +Current liabilities ( 85.8 ) ( 89.1 ) ( 75.9 ) +Non-current liabilities ( 5.3 ) ( 4.7 ) ( 7.3 ) +Net assets 172.3 176.1 156.7 +Atmus share of net assets $ 84.9 $ 85.7 $ 78.9 +NOTE 6: INCOME TAXES +The following table summarizes income before income taxes: +Years ended December 31, +In millions 2024 2023 2022 +U.S. income (1) +$ 126.0 $ 136.3 $ 69.1 +Foreign income (1) +108.8 90.1 142.9 +Income before income taxes $ 234.8 $ 226.4 $ 212.0 +(1) The change in the mix of earnings between U.S. and foreign operations from 2022 to 2023 primarily relates to a legal entity restructuring implemented in anticipation of the IPO and the Separation. +Income tax expense (benefit) consisted of the following: +Years ended December 31, +In millions 2024 2023 2022 +Current +U.S. federal and state $ 30.5 $ 38.4 $ 28.6 +Foreign 26.4 26.7 25.7 +Total current income tax expense 56.9 65.1 54.3 +Deferred +U.S. federal and state ( 5.4 ) ( 10.4 ) ( 11.4 ) +Foreign ( 2.3 ) 0.4 ( 1.3 ) +Total deferred income tax expense (benefit) ( 7.7 ) ( 10.0 ) ( 12.7 ) +Income tax expense $ 49.2 $ 55.1 $ 41.6 +Total income taxes paid were approximately $ 66.9 million, $ 41.3 million and $ 20.3 million in 2024, 2023 and 2022, respectively. +74 +Table of Contents +A reconciliation of the statutory U.S. federal income tax rate to the effective tax rate was as follows: +Years ended December 31, +2024 2023 2022 +Statutory U.S. federal income tax rate 21.0 % 21.0 % 21.0 % +State income tax, net of federal effect 1.3 % 1.4 % 0.9 % +Differences in rates and taxability of foreign subsidiaries and joint ventures ( 0.7 )% 3.9 % ( 2.6 )% +Research tax credits ( 1.1 )% ( 1.3 )% ( 0.6 )% +Foreign derived intangible income ( 1.3 )% ( 1.7 )% ( 1.3 )% +Valuation allowance 2.0 % — % ( 0.4 )% +Uncertain tax positions 0.1 % 0.1 % 2.5 % +Other, net ( 0.3 )% 0.9 % 0.1 % +Effective tax rate 21.0 % 24.3 % 19.6 % +Our effective tax rate for 2024 was 21.0 %, compared to 24.3 % for 2023 and 19.6 % for 2022. The decrease in the effective tax rate was driven by a favorable change in the mix of earnings among tax jurisdictions and discrete tax items related to US and foreign tax return filings. +At December 31, 2024 , $ 199.5 million of non-U.S. earnings are considered indefinitely reinvested in operations outside the U.S. for which deferred taxes have not been provided. Determination of the related deferred tax liability, if any, is not practicable because of the complexities associated with the hypothetical calculation. +Carryforward tax benefits and the tax effect of temporary differences between financial and tax reporting that give rise to net deferred tax assets (liabilities) were as follows: +December 31, +In millions 2024 2023 +Deferred tax assets +Employee benefit plans +8.2 — +Foreign carryforward benefits 8.6 5.6 +Accrued expenses 10.8 14.3 +Warranty expenses 3.1 2.5 +Lease liabilities 10.8 2.7 +Research and development capitalization 19.2 15.6 +Other 3.0 5.1 +Gross deferred tax assets 63.7 45.8 +Valuation allowance ( 8.5 ) ( 3.7 ) +Total deferred tax assets 55.2 42.1 +Deferred tax liabilities +Property, plant and equipment 11.6 7.8 +Unremitted income of foreign subsidiaries and joint ventures 16.2 13.9 +Employee benefit plans — 0.7 +Lease assets 9.8 3.2 +Other 0.7 3.7 +Total deferred tax liabilities 38.3 29.3 +Net deferred tax assets +$ 16.9 $ 12.8 +Our foreign carryforward benefits as of December 31, 2024 may be carried forward indefinitely, subject to certain utilization limitations. +75 +Table of Contents +A valuation allowance is recorded to reduce the gross deferred tax assets to an amount we believe is more likely than not to be realized. The valuation allowance is primarily attributable to the uncertainty regarding the realization of foreign net operating loss, foreign currency loss and foreign tax credits. +A reconciliation of the valuation allowance for the years ended December 31, 2024, 2023 and 2022 was as follows: +Years ended December 31, +In millions 2024 2023 2022 +Balance at beginning of year $ 3.7 $ 16.4 $ 17.6 +Additions charged to tax expense 5.4 0.1 0.4 +Valuation allowance reversal ( 0.6 ) — ( 1.6 ) +Other (1) +— ( 12.8 ) — +Balance at end of year $ 8.5 $ 3.7 $ 16.4 +(1) Pursuant to the Separation Agreement, includes certain assets and liabilities, including deferred tax assets, and corresponding valuation allowances which were retained by Cummins. In addition, includes impact of currency changes and the expiration of net operating losses for which a full valuation allowance was recorded. +Our Consolidated Balance Sheets contain the following tax related items: +December 31, +In millions 2024 2023 +Prepaid expenses and other current assets +Refundable income taxes $ 14.2 $ 2.0 +Other assets +Deferred income tax assets $ 18.5 $ 14.2 +Other accrued expenses +Income tax payable $ 6.8 $ 10.3 +Other liabilities +Deferred income tax liabilities $ 1.4 $ 1.4 +A reconciliation of unrecognized tax benefits for the years ended December 31, 2024, 2023 and 2022 was as follows: +December 31, +In millions 2024 2023 2022 +Balance at beginning of year $ 0.2 $ 22.2 $ 19.0 +Additions to current year tax positions 0.2 0.2 3.2 +Additions to prior years’ tax positions — — — +Reductions to prior years’ tax positions (1) +— ( 22.2 ) — +Balance at end of year $ 0.4 $ 0.2 $ 22.2 +(1) Pursuant to the Separation Agreement, includes certain assets and liabilities, including contingency reserves which were retained by Cummins +The total amount of unrecognized tax benefits in 2024, 2023 and 2022, if recognized, would favorably impact the effective tax rate in future periods. +We have accr ued interest expense related to the unrecognized tax benefits of $ 0 million, $ 0 million and $ 7.0 million as of December 31, 2024, 2023 and 2022, respectively. We recognize potential accrued int erest and penalties related to unrecognized tax benefits in income tax expense. +Audit outcomes and the timing of audit settlements are subject to significant uncertainty. Although we believe that adequate provision has been made for such issues, there is the possibility that the ultimate +76 +Table of Contents +resolution of such issues could have an adverse effect on our earnings. Conversely, if these issues are resolved favorably in the future, the related provision would be reduced, thus having a positive impact on earnings. +As a result of our global operations, we file income tax returns in various jurisdictions including U.S. federal, state and foreign jurisdictions. We are routinely subject to examination by taxing authorities throughout the world, including Australia, Belgium, Brazil, Canada, China, France, India, Mexico, the U.K. and the U.S. With few exceptions, our U.S. federal, major state and foreign jurisdictions are no longer subject to income tax assessments for years before 2020. +NOTE 7: INVENTORIES +Inventories are stated at the lower of cost or net realizable value. Inventories included the following: +December 31, +In millions 2024 2023 +Finished products $ 213.3 $ 179.2 +Work-in-process and raw materials 91.1 101.1 +Inventories at FIFO cost 304.4 280.3 +Excess of FIFO over LIFO ( 37.8 ) ( 30.3 ) +Total inventories $ 266.6 $ 250.0 +NOTE 8: PROPERTY, PLANT AND EQUIPMENT +Details of our property, plant and equipment balance were as follows: +December 31, +In millions 2024 2023 +Land and buildings $ 69.9 $ 69.9 +Machinery, equipment and fixtures 361.0 320.8 +Construction in process 42.4 57.3 +Property, plant and equipment, gross 473.3 448.0 +Less: Accumulated depreciation ( 287.1 ) ( 273.4 ) +Property, plant and equipment, net $ 186.2 $ 174.6 +NOTE 9: LEASES +Our lease portfolio consists primarily of real estate and equipment leases. Our real estate leases primarily consist of land, office, distribution, warehousing and manufacturing facilities. These leases typically range in term from 2 to 50 years and may contain renewal options for periods up to 10 years at our discretion. Our equipment lease portfolio consists primarily of vehicles, fork trucks and IT equipment. These leases typically range in term from two years to three years and may contain renewal options. Our leases generally do not contain variable lease payments other than (1) certain foreign real estate leases which have payments indexed to inflation and (2) certain real estate executory costs (such as taxes, insurance and maintenance), which are paid based on actual expenses incurred by the lessor during the year. Our leases generally do not include residual value guarantees. +Our operating lease cost was $ 15.7 million, $ 10.5 million, and $ 10.7 million for the years ended December 31, 2024, 2023 and 2022, respectively. Our variable lease cost was $ 1.0 million for the year ended December 31, 2024 and was immaterial for the years December 31, 2023 and 2022. Our finance lease cost and short-term lease cost were immaterial for the years ended December 31, 2024, 2023 and 2022. +77 +Table of Contents +Supplemental balance sheet information related to leases: +December 31, +In millions 2024 2023 Balance Sheet Location +Assets +Operating $ 37.3 $ 24.8 Other assets +Finance (1) +$ 1.5 $ 0.7 Property, plant and equipment, net +Total lease assets $ 38.8 $ 25.5 +Liabilities +Current +Operating $ 12.0 $ 7.1 Other accrued expenses +Finance $ 0.5 $ 0.3 Other accrued expenses +Long-term +Operating $ 26.6 $ 18.5 Other liabilities +Finance $ 1.0 $ 0.5 Other liabilities +Total lease liabilities $ 40.1 $ 26.4 +(1) Finance lease assets were recorded net of accumulated amortization of $ 1.2 million and $ 0.9 million at December 31, 2024 and 2023. +Supplemental cash flow and other information related to leases: +Years ended December 31, +In millions 2024 2023 2022 +Cash paid for amounts included in the measurement of lease liabilities +Operating cash flows from operating leases $ 14.3 $ 8.8 $ 9.4 +Right-of-use assets obtained in exchange for lease obligations +Operating leases $ 14.5 $ 11.8 $ 7.4 +Finance leases $ 1.1 $ 0.2 $ 0.8 +Additional information related to leases: +December 31, +2024 2023 +Weighted-average remaining lease term (in years) +Operating leases 3.3 4.2 +Finance leases 3.2 3.2 +Weighted-average discount rate +Operating leases 4.6 % 4.9 % +Finance leases 4.4 % 2.2 % +Following is a summary of the future minimum lease payments due to finance and operating leases with terms of more than one year at lease commencement at December 31, 2024, together with the net present value of the minimum payments: +78 +Table of Contents +In millions Finance Leases Operating Leases +2025 $ 0.6 $ 13.1 +2026 0.5 12.0 +2027 0.3 7.4 +2028 0.2 5.1 +2029 — 3.1 +After 2029 — 1.4 +Total minimum lease payments 1.6 42.1 +Interest ( 0.1 ) ( 3.5 ) +Present value of net minimum lease payments $ 1.5 $ 38.6 +NOTE 10: GOODWILL +Goodwill is not amortized but it is subject to impairment testing at the reporting unit on an annual basis, or more often if events or circumstances indicate there may be impairment. We perform a goodwill impairment evaluation for our reporting unit annually. There was no impairment of goodwill during the periods covered by these Consolidated Financial Statements. +NOTE 11: PRODUCT WARRANTY LIABILITY +A tabular reconciliation of the product warranty liability, including accrued product campaigns, was as follows: +December 31, +In millions 2024 2023 2022 +Balance, beginning of year $ 14.0 $ 15.5 $ 23.9 +Provision for base warranties issued 5.4 8.6 1.6 +Payments made during period ( 5.7 ) ( 6.0 ) ( 7.0 ) +Changes in estimates for pre-existing product warranties ( 1.4 ) ( 4.0 ) ( 2.6 ) +Foreign currency translation and other ( 0.1 ) ( 0.1 ) ( 0.4 ) +Balance, end of year $ 12.2 $ 14.0 $ 15.5 +Warranty liabilities on our Consolidated Balance Sheets were as follows: +December 31, +In millions 2024 2023 +Current portion $ 4.9 $ 5.4 +Long-term portion 7.3 8.6 +Total $ 12.2 $ 14.0 +NOTE 12. DEBT AND BORROWING ARRANGEMENTS +Atmus entered into the Credit Agreement with a syndicate of banks, providing for a term loan and a revolving credit facility, in anticipation of the Separation. Borrowings under the Credit Agreement did not become available under the Credit Agreement until the IPO occurred. The facilities covered by the Credit Agreement will mature on September 30, 2027. +Upon completion of the IPO, we borrowed $ 650 million under the Credit Agreement, consisting of proceeds of the term loan and amounts drawn under the revolving credit facility, and paid such amounts to Cummins in partial consideration for the Separation. +Borrowings under the Credit Agreement bear interest at varying rates, depending on the type of loan and, in some cases, the rates of designated benchmarks and the applicable election made. Generally, U.S. dollar-denominated loans bear interest at an adjusted term Secured Overnight Financing Rate (“SOFR”) (which +79 +Table of Contents +includes a 0.10 percent credit spread adjustment to SOFR) for the applicable interest period plus a rate ranging from 1.125 percent to 1.75 percent depending on Atmus’ net leverage ratio. As of December 31, 2024, $ 592.5 million has been drawn on the term loan and no amount was drawn on the revolving credit facility. The revolving credit facility includes an allowance of up to $ 50.0 million for outstanding letters of credit drawn under the facility that reduces the availability of funds. As of December 31, 2024, no letters of credit were outstanding. These amounts are included within Long-term debt and Current maturities of long-term debt on the Balance Sheet. As of December 31, 2024, Atmus’ fair value of Long-term debt was approximately $ 592.5 million , which was derived from Level 2 input measures. +Our credit lines available as of December 31, 2024 and December 31, 2023 include: +As of December 31, 2024 +As of December 31, 2023 +Facility Amount Borrowed Amount Facility Amount Borrowed Amount +(in millions) +Credit facilities: +Term loan +September 30, 2027 (1) +$ 600.0 $ 592.5 $ 600.0 $ 600.0 +Revolving credit facility +September 30, 2027 (1) +400.0 — 400.0 — +(1) Atmus maintains a term loan facility and a revolving credit facility as part of the Credit Agreement. The Credit Agreement includes financial covenants that Atmus maintain certain net leverage, secured net leverage and interest coverage ratios. At December 31, 2024, Atmus was in compliance with all financial covenants under the Credit Agreement. The Credit Agreement also contains customary representations, events of default and covenants, including restrictions on the level of borrowing. +Over the next five years, aggregate principal maturities of our long-term debt are (in millions): +2025 2026 2027 2028 2029 Thereafter Total +$ 22.5 $ 30.0 $ 540.0 $ — $ — $ — $ 592.5 +NOTE 13: PENSIONS AND OTHER POSTRETIREMENT BENEFITS +Pension Plans +Atmus Plans +Atmus has defined benefit pension plans, which provide retirement benefits to eligible participants and are collectively referred to as the “Atmus Plans.” The plans’ benefits are primarily based on employee earnings and credited service. +Plans in two countries, Belgium and Mexico, were newly established in 2023. +The total Atmus Plans’ defined benefit pension plan expenses were $ 1.7 million in 2024, $ 0.9 million in 2023 and $ 2.0 million in 2022. Service costs allocated to Atmus were $ 1.3 million in 2024, $ 0.6 million in 2023 and $ 1.5 million in 2022. These costs are reflected in the Consolidated Financial Statements as a component of Cost of sales, Research, development and engineering expenses and Selling, general and administrative expenses. The non-service costs allocated to Atmus were immaterial for each of the years ended December 31, 2024, 2023 and 2022. These non-service costs are reflected in the Consolidated Financial Statements as a component of Other income, net. +The aggregate status of all over funded plans is recognized as an asset and the aggregate status of all underfunded plans is recognized as a liability in the Consolidated Balance Sheets. The liabilities were $ 11.0 million and $ 9.6 million as of December 31, 2024 and 2023, respectively, and are reflected in the Consolidated Financial Statements as a component of Other liabilities. The current portion of the liabilities were immaterial as of December 31, 2024 and 2023. The amounts recognized as assets were $ 2.1 million and $ 0 million as of December 31, 2024 and 2023, respectively, and are reflected in the Consolidated Financial Statements as a component of Other assets. +80 +Table of Contents +The following is a listing of significant Atmus Plans: +Country Name of Defined Benefit Plan(s) +Belgium Reglement Plannen Leven en Overligden +France Indemnité de Départ en Retraite +Germany ersorgungsordnung von October 1979 +Japan Employee Retirement Allowance Plan +Mexico +Pension Plan, Seniority Premium, Termination Indemnity +NOTE 14: COMMITMENTS AND CONTINGENCIES +Legal Proceedings +T he Company is subject to lawsuits and claims arising out of the ordinary course of its business. The Company does not have any currently pending claims or litigation that the Company believes, individually or in the aggregate, will have a material adverse effect on its financial position, results of operations, cash flows, liquidity or capital resources. Atmus carries various forms of commercial, property and casualty, product liability and other forms of insurance; however, such insurance may not be applicable or adequate to cover the costs associated with a judgment against Atmus with respect to these lawsuits, claims and proceedings. While the Company believes it has established adequate accruals for our expected future liability with respect to pending lawsuits, claims and proceedings, where the nature and extent of any such liability can be reasonably estimated based upon presently available information, there can be no assurance that the final resolution of any existing or future lawsuits, claims or proceedings will not have a material adverse effect on Atmus’ business, results of operations, financial condition or cash flows. +Indemnifications +Periodically, Atmus enters various contractual arrangements where it agrees to indemnify a third-party against certain types of losses. Atmus regularly evaluates the probability of having to incur costs associated with these indemnities and accrue for expected losses that are probable. Because the indemnifications are not related to specified known liabilities, and due to their uncertain nature, Atmus is unable to estimate the maximum amount of the potential loss associated with these indemnifications. +81 +Table of Contents +NOTE 15: ACCUMULATED OTHER COMPREHENSIVE LOSS +Following are the changes in accumulated other comprehensive income (loss) by component: +For the Years Ended December 31, +2024 2023 2022 +(in millions) +Currency translation adjustments: +Balance at beginning of period $ ( 56.1 ) $ ( 56.7 ) $ ( 40.1 ) +Currency translation adjustments ( 23.3 ) 0.6 ( 16.6 ) +Other comprehensive (loss) income, net +( 23.3 ) 0.6 ( 16.6 ) +Balance at end of period ( 79.4 ) ( 56.1 ) ( 56.7 ) +Pensions and other benefit plans: +Balance at beginning of period $ ( 0.1 ) $ 0.9 $ ( 1.5 ) +Change in pensions and other benefit plans 0.6 ( 1.5 ) 3.1 +Tax (expense) benefit +( 0.1 ) 0.5 ( 0.7 ) +Other comprehensive income (loss), net +0.5 ( 1.0 ) 2.4 +Balance at end of period 0.4 ( 0.1 ) 0.9 +Accumulated other comprehensive loss: +Balance at beginning of period $ ( 56.2 ) $ ( 55.8 ) $ ( 41.6 ) +Total other comprehensive loss, net ( 22.8 ) ( 0.4 ) ( 14.2 ) +Balance at end of period $ ( 79.0 ) $ ( 56.2 ) $ ( 55.8 ) +NOTE 16: SHARE REPURCHASE PROGRAM +Effective July 17, 2024, Atmus’ Board of Directors authorized a $ 150.0 million share repurchase program. The program does not have an expiration date and may be suspended or discontinued at any time. Repurchases under the program are determined by management and are wholly discretionary. +Since inception of the program, the Company repurchased approximately 0.5 million shares of common stock at an average cost of $ 37.22 per share, or an aggregate cost of approximately $ 20.0 million, all of which was paid during the period. All share repurchases were funded through available cash on hand. As of December 31, 2024, the Company had approximately $ 130.0 million in remaining share repurchase capacity. +NOTE 17: RELATIONSHIP WITH RELATED PARTIES +As described in Note 1, Description of the Business , Atmus had been managed and operated in the normal course of business with other subsidiaries of Cummins until March 18, 2024, when the Full Separation was completed. Accordingly, certain shared costs prior to the IPO have been allocated to Atmus and reflected as expenses in the Consolidated Financial Statements. Management of Cummins and Atmus consider the allocation methodologies used to be reasonable and appropriate reflections of historical expenses of Cummins attributable to Atmus for purposes of the Consolidated Financial Statements; however, the expenses reflected in the Consolidated Financial Statements may not be indicative of the actual expenses that would have been incurred during the periods presented if Atmus historically operated as a separate, stand-alone entity. In addition, the expenses reflected in the Consolidated Financial Statements may not be indicative of expenses that will be incurred in the future by Atmus. +The Company entered into the separation agreement and transition services agreement with Cummins, among other transaction agreements, all of which will govern the parties relationship following the IPO and Full Separation. This relationship includes services provided by Cummins to the Company for a fixed term on a service-by-service basis. We will pay Cummins mutually agreed-upon fees for the services provided under the transition services agreement. The fees paid to Cummins may not be indicative of costs for the same services provided by another provider. +82 +Table of Contents +Corporate Costs/Allocations +The Consolidated Financial Statements include corporate costs incurred by Cummins for services that were provided to or on behalf of Atmus for the period prior to IPO. Such costs represent shared services and infrastructure provided by Cummins, including administrative, finance, human resources, information technology, legal, and other corporate and infrastructure services. +The corporate costs reflected in the Consolidated Financial Statements consist of direct charges to the business and indirect allocations to Atmus. The costs that were directly charged to Atmus, such as the shared services for finance provided by Cummins Business Services, were primarily determined based on actual usage. +Indirect allocations are related to shared services and infrastructure provided by Cummins that would benefit Atmus but were not directly charged to Atmus in a manner discussed above. These corporate costs were allocated to Atmus using methods management believes are consistent and reasonable. The primary allocation factor was third-party revenue; however, other relevant metrics were also utilized based on the nature of the underlying activities. For example, headcount is used as the allocation driver to allocate the human resource departmental costs. +The expenses allocated and directly charged reflect all expenses that Cummins incurred on behalf of the Company. The expenses reflected in the Consolidated Financial Statements prior to the IPO may not be indicative of the actual expenses that would have been incurred during the period presented if Atmus historically operated as a separate, stand-alone entity. All corporate charges and allocations have been deemed paid by Atmus to Cummins in the period in which the cost was recognized in the Consolidated Statements of Income. +Total corporate costs allocated t o Atmus wer e $ 0 million , $ 13.7 million and $ 45.0 million fo r the years ended December 31, 2024, 2023 and 2022, respectively. Allocated corporate costs are included in Net sales, Cost of sales, Selling, general and administrative expenses, Research, development and engineering expenses and Other income, net. Post-IPO, Atmus has and will continue to incur its own corporate costs associated with being a standalone publicly traded company. +Related Party Balances +Following the full separation, Cummins is no longer considered a related party. Atmus had trade receivables of $ 37.9 million for products sold to, and accounts payable of $ 54.8 million for products and services purchased in the ordinary course from Cummins as of December 31, 2023. Atmus’ sales to Cummins from January 1, 2024 through the date of full separation, March 18, 2024, were $ 65.4 million compared to $ 282.5 million and $ 302.2 million for the years ended December 31, 2023 and 2022 , respectively. +NOTE 18: STOCK-BASED COMPENSATION +Under the Atmus 2022 Omnibus Incentive Plan, Atmus is authorized to issue a maximum of 7.5 million shares of common stock to Atmus employees and non-employee directors. +Restricted Stock Units and Performance Share Units +During the years ended December 31, 2024, 2023, and 2022, Atmus recognized compensation expense related to RSUs and PSUs, as a component of Selling, general, and administrative expense, in its Consolidated Statements of Income of $ 11.9 million, $ 5.5 million, and $ 0 million, respectively. The unamortized compensation expense related to Atmus RSUs and PSUs was $ 18.8 million and is expected to be recognized over a weighted-average period of 1.6 years. +Our RSU and PSU activity is reflected below: +83 +Table of Contents +Number of Shares +Grant Date +Weighted-Average Fair Value Per Share +Weighted-Average Aggregate Fair Value +Balance at January 1, 2023 +— $ — +Granted 763,480 +Various +28.34 $ 21.6 million +Vested — — +Forfeited — — +Balance at December 31, 2023 +763,480 $ 28.34 +Granted 391,385 +Various +36.78 $ 14.4 million +Vested ( 52,894 ) 28.03 $ 1.5 million +Forfeited ( 80,774 ) 31.40 +Balance at December 31, 2024 1,021,197 $ 31.35 +NOTE 19: EARNINGS PER SHARE +Basic net earnings per share (“EPS”) is computed by dividing net earnings by the weighted average number of outstanding common shares. Diluted net EPS reflects the increase in weighted average common shares outstanding that would result from the assumed exercise of outstanding stock incentive plan awards calculated using the treasury stock method. +Basic and diluted EPS were calculated as follows: +For the Years Ended December 31, +2024 2023 2022 +(in millions, except per share data) +Net income $ 185.6 $ 171.3 $ 170.4 +Weighted-average shares for basic EPS 83.2 83.3 83.3 +Plus incremental shares from assumed conversions of long-term incentive plan shares 0.4 0.1 — +Weighted-average shares for diluted EPS 83.6 83.4 83.3 +Basic earnings per share $ 2.23 $ 2.06 $ 2.05 +Diluted earnings per share $ 2.22 $ 2.05 $ 2.05 +Basic and diluted EPS for the year ended December 31, 2022 was calculated using the shares of common stock that were issued and outstanding as of the completion of the IPO. For the periods prior to the IPO, it is assumed that there were no dilutive equity instruments as there were no equity awards of Atmus outstanding prior to the IPO. Post IPO, there were no anti-dilutive shares. +NOTE 20. SUPPLEMENTAL BALANCE SHEET DATA +Other assets included the following: +December 31, +2024 December 31, +2023 +(in millions) +Operating lease assets +$ 37.3 $ 24.8 +Deferred income taxes 18.5 14.2 +Long-term receivables 3.0 3.1 +Other 20.7 9.4 +Other assets $ 79.5 $ 51.5 +84 +Table of Contents +Geographic data for long-lived assets, excluding deferred taxes, goodwill, intangible assets and equity method investments, included the following: +December 31, +2024 December 31, +2023 +(in millions) +United States $ 103.5 $ 87.4 +Mexico 42.6 34.9 +France 25.9 28.8 +Korea 25.6 28.6 +Other international 25.8 19.7 +Long-lived assets $ 223.4 $ 199.4 +Other accrued expenses included the following: +December 31, +2024 December 31, +2023 +(in millions) +Marketing accruals $ 46.9 $ 42.6 +Other taxes payables 14.9 12.7 +Current portion of operating lease liabilities +12.0 7.1 +Income taxes payable 6.8 10.3 +Current portion of finance lease liabilities 0.5 0.3 +Other 6.1 10.7 +Other accrued expenses $ 87.2 $ 83.7 +Other liabilities included the following: +December 31, 2024 December 31, 2023 +(in millions) +Long-term portion of operating lease liabilities +$ 26.6 $ 18.5 +Deferred income taxes 1.4 1.4 +Long-term income taxes +0.4 0.2 +Other long-term liabilities 12.3 11.7 +Other liabilities $ 40.7 $ 31.8 +85 +Table of Contents +Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure +None. +Item 9A. Controls and Procedures +Evaluation of Disclosure Controls and Procedures +The Company's disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure . +As required by Rules 13a-15 and 15d-15 under the Exchange Act, management, including our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures as of December 31, 2024. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective as of December 31, 2024. +Report of Management on Internal Control over Financial Reporting +Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, and effected by the Company’s Board of Directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those written policies and procedures that: +• Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets; +• Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles; +• Provide reasonable assurance that receipts and expenditures are being made only in accordance with management and director authorization; and +• Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the consolidated financial statements. +Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. +Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2024. Management based this assessment on the criteria described in “ Internal Control - Integrated Framework ” (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). +Based on this assessment, management concluded that the Company’s internal control over financial reporting is effective as of December 31, 2024, based on the criteria in Internal Control - Integrated Framework issued by the COSO. +PricewaterhouseCoopers LLP, an independent registered public accounting firm, has audited the effectiveness of the Company’s internal control over financial reporting as of December 31, 2024, as stated in their report that appears under Item 8. +86 +Table of Contents +Changes in Internal Control over Financial Reporting +The Company is in the process of implementing a broad, multi-year, technology transformation project to modernize enterprise resource planning, middleware and legacy systems to achieve better process efficiencies across customer service, merchandising, sourcing, payroll and accounting through the use of various solutions. During the quarter ended December 31, 2024 , the Company transitioned one of its warehouses over to a new warehouse management system. There have been no material additional implementations during the quarter ended December 31, 2024 . As the Company’s technology transformation project continues, the Company continues to emphasize the maintenance of effective internal controls and assessment of the design and operating effectiveness of key control activities throughout development and deployment of each phase and will evaluate as additional phases are deployed. +There was no other change in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the quarter ended December 31, 2024 that materially affected, or is reasonably likely to materially affect, Atmus’ internal control over financial reporting. +Item 9B. Other Information +(b) 10b5-1 Trading Arrangements +During the three months ended December 31, 2024 , no director or executive officer of the Company adopted, modified or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K. +Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +Not applicable. +87 +Table of Contents +PART III +Item 10. Directors, Executive Officers and Corporate Governance +The information required by this Item, not already provided herein under Item 1. Business – Management , will be included in our Proxy Statement for the 2025 Annual Meeting of Shareholders (the “2025 Proxy Statement”). The 2025 Proxy Statement will be filed within 120 days after the close of the fiscal year ended December 31, 2024. Except as otherwise specifically incorporated by reference, our Proxy Statement is not deemed to be filed as part of this Annual Report. +Item 11. Executive Compensation +The information required by this Item will be included in the 2025 Proxy Statement. The 2025 Proxy Statement will be filed within 120 days after the close of the fiscal year ended December 31, 2024 and such information is incorporated herein by referenc e. +Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters +The information required by this Item will be included in the 2025 Proxy Statement. The 2025 Proxy Statement will be filed within 120 days after the close of the fiscal year ended December 31, 2024 and such information is incorporated herein by reference. +Item 13. Certain Relationships and Related Transactions and Director Independence +The information required by this Item will be included in the 2025 Proxy Statement. The 2025 Proxy Statement will be filed within 120 days after the close of the fiscal year ended December 31, 2024 and such information is incorporated herein by reference. +Item 14. Principal Accounting Fees and Services +The information required by this Item will be included in the 2025 Proxy Statement. The 2025 Proxy Statement will be filed within 120 days after the close of the fiscal year ended December 31, 2024 and such information is incorporated herein by reference. +88 +Table of Contents +PART IV +Item 15. Exhibits and Financial Statement Schedules +Documents filed with this report: +(1) Financial Statements +Report of Independent Registered Public Accounting Firm (PCAOB ID 238) +Consolidated Statements of Net Income — years ended December 31, 2024, 2023 and 2022 +Consolidated Statements of Comprehensive Income — years ended December 31, 2024, 2023 and 2022 +Consolidated Balance Sheets — December 31, 2024 and 2023 +Consolidated Statements of Cash Flows — years ended December 31, 2024, 2023 and 2022 +Consolidated Statements of Changes in Equity — years ended December 31, 2024, 2023 and 2022 +Notes to Consolidated Financial Statements +(2) Financial Statement Schedules +All other schedules (Schedules I, II, III, IV and V) for which provision is made in the applicable accounting regulations of the SEC are not required under the related instruction, or are inapplicable and therefore have been omitted or the required information is shown in the consolidated financial statements or the accompanying notes to the consolidated financial statements. +(3) Exhibits +Exhibit Index +Exhibit No. +Description +3.1 +Amended and Restated Certificate of Incorporation of Atmus Filtration Technologies Inc. (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K of Atmus Filtration Technologies Inc. filed with the Commission on June 1, 2023). +3.2 +Amended and Restated Bylaws of Atmus Filtration Technologies Inc. (incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K of Atmus Filtration Technologies Inc. filed with the Commission on June 1, 2023). +4.1 +Description of Securities of the Registrant (incorporated by reference to Exhibit 4.1 to the Annual Report on Form 10-K of Atmus Filtration Technologies Inc. filed with the Commission on February 14, 2024). +10.1# +Separation Agreement, dated as of May 29, 2023, by and between Atmus Filtration Technologies Inc. and Cummins Inc. (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of Atmus Filtration Technologies Inc. filed with the Commission on June 1, 2023). +10.2# +Transition Services Agreement, dated as of May 29, 2023, by and between Atmus Filtration Technologies Inc. and Cummins Inc. (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K of Atmus Filtration Technologies Inc. filed with the Commission on June 1, 2023). +10.3# +Tax Matters Agreement, dated as of May 29, 2023, by and between Atmus Filtration Technologies Inc. and Cummins Inc. (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K of Atmus Filtration Technologies Inc. filed with the Commission on June 1, 2023). +10.4# +Employee Matters Agreement, dated as of May 29, 2023, by and between Atmus Filtration Technologies Inc. and Cummins Inc. (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K of Atmus Filtration Technologies Inc. filed with the Commission on June 1, 2023). +10.5# +First-Fit Supply Agreement, dated as of May 29, 2023, by and between Atmus Filtration Technologies Inc. and Cummins Inc. (incorporated by reference to Exhibit 10.5 to the Current Report on Form 8-K of Atmus Filtration Technologies Inc. filed with the Commission on June 1, 2023). +10.6# +Aftermarket Supply Agreement, dated as of May 29, 2023, by and between Atmus Filtration Technologies Inc. and Cummins Inc. (incorporated by reference to Exhibit 10.6 to the Current Report on Form 8-K of Atmus Filtration Technologies Inc. filed with the Commission on June 1, 2023). +89 +Table of Contents +10.7# +Registration Rights Agreement, dated as of May 29, 2023, by and between Atmus Filtration Technologies Inc. and Cummins Inc. (incorporated by reference to Exhibit 10.7 to the Current Report on Form 8-K of Atmus Filtration Technologies Inc. filed with the Commission on June 1, 2023). +10.8# +Transitional Trademark License Agreement, dated as of May 29, 2023, by and between Atmus Filtration Technologies Inc. and Cummins Inc. (incorporated by reference to Exhibit 10.8 to the Current Report on Form 8-K of Atmus Filtration Technologies Inc. filed with the Commission on June 1, 2023). +10.9# +Intellectual Property License Agreement, dated as of May 29, 2023, by and between Atmus Filtration Technologies Inc. and Cummins Inc. (incorporated by reference to Exhibit 10.9 to the Current Report on Form 8-K of Atmus Filtration Technologies Inc. filed with the Commission on June 1, 2023). +10.10+ +2022 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.10 to the Current Report on Form 8-K of Atmus Filtration Technologies Inc. filed with the Commission on June 1, 2023). +10.11 +Credit Agreement, dated as of September 30, 2022, among FILT Red, Inc., Cummins Filtration Inc., the lenders party thereto, and Bank of America, N.A., as administrative agent (incorporated by reference to Exhibit 10.11 to the Current Report on Form 8-K of Atmus Filtration Technologies Inc. filed with the Commission on June 1, 2023). +10.12 +Amendment No. 1 to Credit Agreement, dated as of February 15, 2023, among Atmus Filtration Technologies Inc., Cummins Filtration Inc., the lenders party thereto, and Bank of America N.A., as administrative agent (incorporated by reference to Exhibit 10.12 to the Current Report on Form 8-K of Atmus Filtration Technologies Inc. filed with the Commission on June 1, 2023). +10.13+ +Employment Transition and Release Agreement, effective as of August 26, 2022, among Mark J. Osowick, Cummins Inc., and Cummins Filtration Inc. (incorporated by reference to Exhibit 10.12 to Amendment No. 2 to the Registration Statement on Form S-1 of Atmus Filtration Technologies Inc. filed with the Commission on May 16, 2023). +10.14+ +Separation Agreement and General Release, dated April 18, 2024, between Atmus Filtration Technologies Inc. and Toni Y. Hickey (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K of Atmus Filtration Technologies Inc. filed with the Commission on April 19, 2024). +10.15+ +Form of Indemnification Agreement for Independent Directors (incorporated by reference to Exhibit 10.15 to Amendment No. 2 to the Registration Statement on Form S-1 of Atmus Filtration Technologies Inc. filed with the Commission on May 16, 2023). +10.16+ +Restricted Stock Unit Award Agreement under the 2022 Omnibus Incentive Plan (Executive Officers) (incorporated by reference to Exhibit 10.15 to the Annual Report on Form 10-K of Atmus Filtration Technologies Inc. filed with the Commission on February 14, 2024). +10.17+ +Performance Stock Unit Award Agreement under the 2022 Omnibus Incentive Plan (Executive Officers) (incorporated by reference to Exhibit 10.16 to the Annual Report on Form 10-K of Atmus Filtration Technologies Inc. filed with the Commission on February 14, 2024). +10.18+ +Restricted Stock Unit Award Agreement under the 2022 Omnibus Incentive Plan (Non-Employee Directors) (incorporated by reference to Exhibit 10.17 to the Annual Report on Form 10-K of Atmus Filtration Technologies Inc. filed with the Commission on February 14, 2024). +10.19+ +Deferred Compensation Plan (incorporated by reference to Exhibit 10.18 to the Annual Report on Form 10-K of Atmus Filtration Technologies Inc. filed with the Commission on February 14, 2024). +10.20+ +Deferred Compensation Plan for Non-Employee Directors (incorporated by reference to Exhibit 10.19 to the Annual Report on Form 10-K of Atmus Filtration Technologies Inc. filed with the Commission on February 14, 2024). +10.21+ +Executive Severance Plan (incorporated by reference to Exhibit 10.20 to the Annual Report on Form 10-K of Atmus Filtration Technologies Inc. filed with the Commission on February 14, 2024). +10.22+ +Executive Change of Control Severance Plan (incorporated by reference to Exhibit 10.21 to the Annual Report on Form 10-K of Atmus Filtration Technologies Inc. filed with the Commission on February 14, 2024). +10.23+ +First Amendment to Separation Agreement, dated as of September 25, 2023, by and between Atmus Filtration Technologies Inc. and Cummins Inc. (incorporated by reference to Exhibit 10.22 to the Annual Report on Form 10-K of Atmus Filtration Technologies Inc. filed with the Commission on February 14, 2024). +19 +Insider Trading Policy (filed herewith) . +21 +Subsidiaries of the Registrant (filed herewith). +23 +Consent of PricewaterhouseCoopers LLP (filed herewith). +90 +Table of Contents +31.1 +Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). +31.2 +Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). +32.1 +Certifications of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith). +97 +Policy Relating to Recovery of Erroneously Awarded Compensation (incorporated by reference to Exhibit 97 to the Annual Report on Form 10-K of Atmus Filtration Technologies Inc. filed with the Commission on February 14, 2024). +101.INS* Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. +101.SCH* Inline XBRL Taxonomy Extension Schema Document. +101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document. +101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document. +101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document. +101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document. +104 Cover Page Interactive Data File (embedded with the Inline XBRL Document). ++ Identifies each management contract or compensatory plan or arrangement. +# +Certain exhibits and schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The registrant hereby undertakes to furnish supplementally a copy of any omitted exhibit or schedule upon request by the Commission. +* +Filed with this annual report on Form 10-K are the following materials formatted in iXBRL (Inline Extensible Business Reporting Language): (i) the Consolidated Statements of Net Income for the years ended December 31, 2024, 2023, and 2022, (ii) the Consolidated Statements of Comprehensive Income for the years ended December 31, 2024, 2023 and 2022, (iii) the Consolidated Balance Sheets at December 31, 2024 and December 31, 2023, (iv) the Consolidated Statements of Cash Flows for the years ended December 31, 2024, 2023 and 2022, (v) the Consolidated Statements of Changes in Equity for the years ended December 31, 2024, 2023 and 2022, and (vi) Notes to Consolidated Financial Statements. +Item 16. Form 10-K Summary +None. +91 +Table of Contents +SIGNATURES +Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on February 21, 2025 . +ATMUS FILTRATION TECHNOLOGIES INC. +By +/s/ Jack M. Kienzler +Jack M. Kienzler +Senior Vice President, Chief Financial Officer and Chief Accounting Officer +(Principal Financial Officer) +Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated, on February 21, 2025 . +Signature +Title +/s/ Stephanie J. Disher +Chief Executive Officer and President (Principal Executive Officer) and Director +Stephanie J. Disher +/s/ R. Edwin Bennett +R. Edwin Bennett +Director +/s/ Diego Donoso +Diego Donoso +Director +/s/ Gretchen Haggerty +Gretchen Haggerty +Director +/s/ Jane Leipold +Jane Leipold +Director +/s/ Stephen Macadam +Stephen Macadam +Director +/s/ Stuart Taylor II +Stuart Taylor II +Director +92 \ No newline at end of file diff --git a/raw/filings/0001921963/2024/0001921963-25-000029/filing_metadata.csv b/raw/filings/0001921963/2024/0001921963-25-000029/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..5b937c3d65e3ecb3f4d7c5dd7cd760847eb7d5dd --- /dev/null +++ b/raw/filings/0001921963/2024/0001921963-25-000029/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001921963,ATMU,Atmus Filtration Technologies Inc.,2024,10-K,2025-02-21,2024-12-31,2025-02-21T20:26:18.000Z,0001921963-25-000029,atmu-20241231.htm,10-K,12157892,1,1,https://www.sec.gov/Archives/edgar/data/1921963/000192196325000029/atmu-20241231.htm,https://www.sec.gov/Archives/edgar/data/1921963/000192196325000029/ diff --git a/raw/filings/0001921963/2024/0001921963-25-000029/item1.txt b/raw/filings/0001921963/2024/0001921963-25-000029/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..778f98ee15a1f50cc2eec2902a04af6f62f59735 --- /dev/null +++ b/raw/filings/0001921963/2024/0001921963-25-000029/item1.txt @@ -0,0 +1,141 @@ +Item 1. Business +Overview +Atmus is one of the global leaders of filtration products for on-highway commercial vehicles and off-highway agriculture, construction, mining and power generation vehicles and equipment. Atmus designs and manufactures advanced filtration products, principally under the Fleetguard brand, that enable lower emissions and provide superior asset protection. Atmus estimates that approximately 14% of Atmus’ net sales in 2024 were generated through first-fit sales to original equipment manufacturers (“OEM”s), where Atmus’ products are installed as components for new vehicles and equipment, and approximately 86% were generated in the aftermarket, where Atmus’ products are installed as replacement or repair parts, leading to a strong recurring revenue base. Building on Atmus’ more than 65-year history, Atmus continues to grow and differentiate itself through its global footprint, comprehensive offering of premium products, technology leadership and multi-channel path to market. +For the year ended December 31, 2024, Atmus generated $1,669.6 million in Net sales, $185.6 million in Net income and $329.5 million in Adjusted EBITDA. See “ Management’s Discussion and Analysis of Financial Condition and Results of Operations - Non-GAAP Measures ” in this Annual Report on Form 10-K for a description of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to Net income, the most directly comparable financi al measure calculated in accordance with U.S. GAAP. +Atmus’ Business Strategy +The company has four pillars as part of its strategy to create value for customers and drive profitable growth. Below are each of the priorities and areas of focus related to each priority. +Grow share in first-fit in core markets +• Grow market share with leading OEMs. +• Support technology transitions with leading OEMs. +• Enhanced product content per vehicle. +• Accelerate new product development. +Accelerate profitable growth in the aftermarket +• Expand Atmus’ product portfolio. +• Use analytics to target and capture growth opportunities. +4 +Table of Contents +• Expand reach through multi-channel distribution. +• Invest in product technology advantage to enhance value and protect revenue. +Transform Atmus’ supply chain +• Drive services and availability . +• Optimize network . +• Transform cost structure . +• Invest in capabilities for the future . +Expand into Industrial Filtration Markets +• Build sustainable growth by expanding and diversifying into the industrial filtration market. +• Leverage global footprint and existing technical capabilities to open new opportunities for growth. +• Develop capabilities, whether organically or through acquisitions or strategic partnerships, to enter new markets with long-term growth prospects. +Atmus’ Global Footprint +Atmus serves end-users globally, with approximately 48% of its Net sales in 2024 from outside of the United States and Canada. Atmus believes that it, together with its joint ventures in China and India, has a leading position in its core markets, based on Net sales in 2024. Atmus maintains strong global customer relationships, supported by an established salesforce with work locations in over 25 countries as of December 31, 2024. Also, as of December 31, 2024, Atmus operates through 11 distribution centers, 10 manufacturing facilities and five technical facilities plus 10 manufacturing facilities and two technical facilities operated by its joint ventures, giving Atmus presence on six continents. +5 +Table of Contents +Atmus’ Premium Products +Atmus offers a full spectrum of filtration solutions that enable lower emissions and provide superior asset protection. Atmus’ filtration products provide comprehensive and differentiated solutions, which allow its end-users to extend service intervals, reduce maintenance costs and increase uptime. Atmus’ products include fuel filters, lube filters, air filters, crankcase ventilation, hydraulic filters and coolants and other chemicals. Atmus’ broad range of products in each of its core markets enables one-stop shopping, which Atmus believes is a key competitive advantage. +Atmus’ Competitive Strengths +Technology leadership and deep industry knowledge enable Atmus to deliver better customer solutions +Atmus combines a culture of innovation with deep-seated experience in its industry to deliver superior filtration solutions for its customers. Atmus’ technical team develops a range of filtration technologies, including filtration media, filter element formation, filtration systems integration and service-related solutions such as remote digital diagnostic and prognostic platforms and analytics. Atmus’ technical team of approximately 350 engineers, scientists and technical specialists are located in five technical centers around the world, with approximately 25% holding advanced technical degrees. Atmus’ team draws on a more than 65-year history focused on filtration and media technologies. Atmus has a broad IP portfolio with over 1,200 worldwide active or +6 +Table of Contents +pending patents and patent applications and over 600 worldwide trademark registrations and applications as of December 31, 2024 . +Atmus has leveraged this expertise not only to develop its cutting-edge filters, filter systems and filtration media but also to manufacture a large portion of its proprietary filtration media. This allows Atmus to move swiftly from development to application of filtration technologies that protect and enhance the operation of its customer’s equipment and machines. StrataPore, NanoNet, NanoForce, NanoNet Plus and most recently, NanoNet N3 product families have enabled engines and equipment to meet continually changing emissions and performance requirements . +Atmus’ technical team works closely with Atmus’ customers to develop and apply filtration technologies that help them improve their operations. Atmus’ technology allows it to deliver performance-enabling and customized filtration solutions for its end-users, which creates long-lasting partnerships with its customers . +Iconic Fleetguard brand with premium products +Atmus believes that Fleetguard is a premium, leading brand that is strongly associated with reliability and strong performance. Atmus offers a full suite of Fleetguard-branded filtration products. With its broad line of high-quality filtration products, Atmus’ Fleetguard brand provides filters for nearly all makes of vehicles and equipment in its core markets, which further enhances Atmus’ availability, visibility and brand recognition. Atmus’ Fleetguard brand is further supported by a competitive warranty that gives Atmus’ customers and end-users high confidence in the performance and durability of its products . +Partnering with leading OEMs +Atmus has a strong history as a supplier to leading OEMs, including Cummins, Daimler, Deere, Doosan, Foton, Komatsu, Paccar/DAF, the Traton Group, Stellantis and Volvo. Atmus sells both first-fit and aftermarket products to these customers and has been selling to each of them for at least 10 years. These customers in the aggregate accounted for approximately 68% of Atmus’ net sales in 2024 and have consistently accounted for more than 67% of Atmus’ net sales in each of the last five years. Atmus has written agreements with most of its key customers that specify certain purchase parameters, but do not obligate them to specific volumes. Atmus invests in its relationships and utilizes its technical strengths to win first-fit business with these OEMs, which drives Atmus’ installed base, yielding strong recurring revenue streams in the aftermarket. The OEMs also provide Atmus with early insight into technological developments and evolving product requirements within the broader engine and industrial application industry, allowing Atmus to be well positioned as the world shifts towards more complex modular filtration systems and filtration for other power sources . +Cummins is Atmus’ largest customer and accounted for approximately 17.6% of Atmus’ net sales in 2024. This relationship is defined by the first-fit supply agreement and the aftermarket supply agreement. These supply agreements will help give Atmus visibility and stability to its future sales within the terms of the agreements. In addition, for 65 years prior to the Separation, Atmus’ sales and technical teams have been embedded with Cummins, allowing Atmus to have a deep understanding of their needs, which enables Atmus to deliver high-quality, high-performance products that deliver value to Cummins. Atmus partners with Cummins in all regions to win end-user accounts in the aftermarket and create a preference for the Fleetguard brand . +Multi-channel path to diverse global markets +Atmus’ global presence provides a diverse and stable customer base across truck, bus, agriculture, construction, mining and power generation vehicles and equipment markets. Atmus’ current core markets are on-highway and off-highway, representing approximately 60% and 40% of Atmus’ net sales in 2024, respectively . +Atmus estimates that approximately 86% of Atmus’ net sales in 2024 were generated in the aftermarket . +To drive these net sales, Atmus has developed a multi-channel path to global markets that ensures broad product availability and provides end-users with choice and flexibility in purchasing. Atmus distributes its products through a broad range of OEM dealers, independent distributors, and retail outlets, including truck stops . +7 +Table of Contents +The dealers of the OEMs are typically the channel preferred by customers in many markets. Atmus’ close relationships with the OEMs and strong first-fit installed base position Atmus well with the OEM dealer network and large fleet customers. For example, the dealers of four of the largest North America on-highway OEMs carry a significant range of Atmus’ products at their dealerships . +In addition, Cummins distributors, independent distributors and retailers enable Atmus to reach a broader end-user market and create additional points of sale or service. Atmus also works directly with major customers of its channel partners (such as large fleets or mining companies), across its end markets, to create strong brand preference, which, in turn, leads to strong demand for its products and generates recurring revenue. Atmus continues to increase geographic coverage within regions to better serve its customers by investing in distribution expansion . +Atmus typically ships directly from its 11 distribution centers (as of December 31, 2024) worldwide to its channel partners, which provides direct connection and detailed understanding of Atmus’ customer and end-user base. Atmus’ comprehensive distribution and market coverage are vital to maintaining its broad reach, global presence and brand recognition . +Experienced leadership team with a proven track record of driving growth +Atmus is led by an energized and experienced senior leadership team with extensive industry experience with Cummins and other leading industrial companies. Atmus’ strategic vision and culture are directed by its executive leadership team under the leadership of its Chief Executive Officer and President, Stephanie J. Disher, its Senior Vice President, Chief Financial Officer and Chief Accounting Officer, Jack M. Kienzler, its Senior Vice President and Chief People Officer, Renee M. Swan and its Senior Vice President and President, Power Solutions, Charles E. Masters. Stephanie J. Disher joined Cummins in 2013 and has over 20 years of experience in leadership positions, including international assignments in Australia, Asia, and the United States. Most recently, Stephanie J. Disher served as Vice President, Cummins and President, Cummins Filtration where she has demonstrated a continued track record of strong business performance, innovation and operational excellence. Jack M. Kienzler joined Cummins in 2014 and has over 15 years of finance experience. He most recently served as the Executive Director of Investor Relations at Cummins, having formerly led the Corporate Development team. Renee M. Swan joined Atmus in August 2023 and has over 20 years of experience in human resources and talent management. Charles E. Masters joined Cummins in 2003 and has over 20 years of experience in global sales and operational leadership roles within Cummins. Atmus’ leadership team has the ability to develop and execute its strategic vision and aims to create long-term shareholder value. Atmus benefits from its team’s industry knowledge and track record of successful product innovation and financial performance. Additionally, members of Atmus’ senior leadership team have strong experience executing and integrating acquisitions and strategic partnerships to drive accelerated growth and improved profitability . +Supply +The performance of the end-to-end supply chain, extending through to Atmus’ suppliers, is foundational to its ability to meet customers’ expectations and support long-term growth. Atmus is committed to having a robust strategy for how it selects and manages its suppliers to enable a market focused supply chain. This requires Atmus to continuously evaluate and upgrade its supply base, as necessary, as Atmus strives to ensure it is meeting the needs of its customers . +Atmus uses a combination of proactive and reactive methodologies to enhance its understanding of supply base risks, which guide its development of risk monitoring and sourcing strategies. Atmus’ category sourcing strategy process (a process designed to create the most value for the company) supports the review of its long-term needs and guides decisions on what it makes internally and what it purchases externally. For the items Atmus decides to purchase externally, the strategies also identify the suppliers it should partner with long-term to provide the best technology, the lowest total cost and highest supply chain performance. Key suppliers are managed through long-term supply agreements that secure capacity, delivery, quality and ensure cost requirements are met over an extended period . +8 +Table of Contents +Other important elements of Atmus’ sourcing strategy include : +• selecting and managing suppliers to comply with its Supplier Code of Conduct ; and +• assuring its suppliers comply with its prohibited and restricted materials policy. +Atmus monitors supply chain disruptions and conducts structured supplier risk and resiliency assessments. Atmus increased the frequency of its formal and informal supplier engagement to address potentially impactful supply base constraints and enhanced collaboration to develop specific countermeasures to mitigate risks. Atmus’ global team, located in different regions of the world, uses various approaches to identify and resolve threats to supply continuity . +Supply chain disruptions can impact Atmus’ business as well as its suppliers and customers, resulting in longer lead times in some areas of its business. Orders are typically issued as rolling releases with a specific lead time. When these orders are on backlog, they are often subject to cancellation on reasonable notice without cancellation charges, and therefore are not considered firm. Atmus is working closely with its customers to meet demand and work through backlogs as efficiently as possible . +Materials +The principal materials that Atmus uses directly in manufacturing its products are steel, filter media and petrochemical-based products, including plastic, rubber and adhesives products. Atmus expects these materials to be available from numerous sources in quantities sufficient to meet our requirements. In 2024, material costs represented approximately 61% of Atmus’ cost of sales, compared to 57% of Atmus’ cost of sales in 2023 . +Customer Concentration +Atmus has thousands of customers around the world and has developed long-standing business relationships with many of them. Cummins is Atmus’ largest customer, accounting for approximately 17.6% of Atmus’ net sales in 2024, 17.4% in 2023 and 19.3% in 2022, respectively. In connection with the Separation, Atmus entered into a first-fit supply agreement and an aftermarket supply agreement with Cummins for Atmus’ first-fit and aftermarket products. These agreements provide for continuation of Atmus’ supply to Cummins for all of its first-fit applications that Atmus currently supports, commitment to first-fit supply for certain upcoming product launches, and continued supply to Cummins of its full line of aftermarket filtration needs. It does not commit a specific volume of filters or related products. The loss of this customer or a significant decline in the production level of Cummins engines that use Atmus’ filters would have an adverse effect on Atmus’ business, financial condition, results of operations or cash flows . +In addition to the agreement Atmus entered into with Cummins, Atmus has long-term agreements with many of its largest customers. Collectively, Atmus’ net sales from its next four top customers, other than Cummins, was approximately 40% of Atmus’ net sales in 2024 and approximately 39% in 2023 and 2022, respectively. Excluding Cummins, two other customers, PACCAR and the Traton Group, accounted for more than 10% of Atmus’ net sales in 2024. Atmus’ customer agreements typically contain standard purchase and sale agreement terms covering filter pricing, quality and delivery commitments, as well as engineering product support obligations. The basic nature of Atmus’ agreements with OEM customers is that they are long-term price and operations agreements that provide for the availability of Atmus’ products to each customer through the duration of the respective agreements. Where Atmus has such agreements in place, its customers typically place purchase orders with it pursuant to these agreements. Agreements with most OEMs contain bilateral termination provisions giving either party the right to terminate in the event of a material breach, change of control or insolvency or bankruptcy of the other party . +Intellectual Property +Atmus owns or controls a broad range of intellectual property rights, including a significant number of patents, trademarks, copyrights, trade secrets and other forms of intellectual property rights in the United States and foreign countries. Atmus has a broad IP portfolio with over 1,200 worldwide active or pending patents and patent applications and over 650 worldwide trademark registrations and applications as of December 31, 2024, which were granted and registered over a period of years. Atmus’ leading brand house trademark is Fleetguard. Atmus protects its innovations that arise from research and development through patent filings, as well as through trade secrets. Although these patents, trademarks and trade secrets are generally considered beneficial +9 +Table of Contents +to Atmus’ operations, Atmus does not believe any patent, group of patents, trademark or trade secret is solely responsible for protecting its products . +Research, Development and Engineering +In 2024, Atmus continued to invest in future critical technologies and products. Atmus will continue to make investments to develop new technologies and improve its current products to meet increasing and changing emissions and engine performance requirements globally for diesel and hydrocarbon-powered equipment. In addition to building on its core technologies, Atmus is making investments in filtration and separation technologies required and used by electric powered vehicles, hydrogen production and other industrial systems . +Atmus’ research, development and engineering programs are focused on product improvements, product extensions, innovations and cost reductions for its customers. Research, development and engineering expenditures include salaries, contractor fees, building costs, utilities, testing, technical IT, administrative expenses and allocation of corporate costs and are expensed when incurred. Research, development and engineering expenses were $40.6 million, $42.5 million, and $38.6 million for the years ended December 31, 2024, 2023 and 2022, respectively . +Seasonality +Many of the Company’s end markets are generally stronger in the first half of the Company’s fiscal year. In addition, the second half of the fiscal year contains more holiday periods, which typically includes more customer closures. Also, individual product lines may experience modest seasonal variation in production, this does not, however, have material impact on demand on a quarterly basis. +Competition +Atmus is a leading global participant in the filtration engine products markets. Atmus’ products include fuel filters, lube filters, air filters, crankcase ventilation, hydraulic filters and coolants and other chemicals. Key global participants in this market include MANN+HUMMEL, Donaldson, Parker and MAHLE. The rest of the market is highly fragmented and occupied by various specialized and regional players. Most of the large global players serve both first-fit and aftermarket channels, while smaller, regional players tend to focus on the aftermarket. The filtration market offers a unique multi-channel path to market, and diversification across first-fit, OEM service and aftermarket. The recurring revenue model and mission-critical role of filters drive consistent demand across regions and end markets . +Principal methods of competition in the filtration markets are product quality and performance, price, geographic and application coverage, availability, customer service, ease of doing business and brand reputation. Atmus believes it is a market leader within many of its product lines, including filters in Atmus’ on-highway and off-highway markets, and that its success in the market is due to its technology, its iconic Fleetguard brand, its global footprint, strong customer relationships and the talent within its organization . +Human Capital Resources +As of December 31, 2024, Atmus employed approximately 4,500 persons worldwide. As of December 31, 2024, approximately 53% of Atmus’ employees worldwide were represented by various unions under collective bargaining agreements. Among these collective bargaining agreements, those for the employees in Mexico, Brazil and France are renewed annually after compensation negotiations, while the collective bargaining agreement for the Cookeville, Tennessee plant typically has a four- to five-year term. Collective bargaining for Brazil Annual Profit Sharing will take place on February 19, 2025. Annual term collective bargaining for Mexico and France were recently successfully completed. These collective bargaining agreements have terms that will expire between December 2025 and February 2026. Contract negotiations at the Cookeville, Tennessee plant took place in February of 2024 resulting in a new four year contract that will expire at the end of its four year term on February 29, 2028. +Throughout Atmus’ more than 65-year history, Atmus has always recognized that people are the strength of its business and drive its ability to effectively serve its customers and sustain its competitive position. Atmus believes that the composition of its workforce gives it advantages relating to cost and capability when compared to its peers. The global COVID-19 pandemic redefined the way Atmus has traditionally worked and created both new expectations by employees, as well as new ways to work flexibly and seamlessly on a global basis. Atmus +10 +Table of Contents +is embracing these opportunities as Atmus simplifies its organizational structures and processes, further empowers managers and employees to make decisions and generate positive results, increases employee communication and interaction with senior leadership and enhances a work environment that is inclusive, transparent, agile and team-oriented . +Purpose and Core Values +Atmus is a purpose-driven company. Atmus’ purpose is ‘ Creating a better future by protecting what is important .’ Atmus creates and innovates every day. With a forward focus, Atmus never sits still. Atmus realizes the world is bigger than it, and it aspires for a better future for shared humanity. Atmus’ products protect its customers, their equipment and their livelihoods. Atmus protects What is important to its people, the planet, and its customers . +Atmus’ culture is shaped by its core values: +• Build Trust in every relationship every day. +• Have Courage to speak up, take action and shape the future. +• Be Inclusive by embracing differences and building a community where everyone feels valued. +• Show Caring by engaging with kindness and consideration for the wellbeing of others. +Leadership and Talent Management +The capability of Atmus’ people and their ability to work effectively in agile teams is a primary enabler of Atmus’ success. Atmus strives to create a leadership culture that is authentic, transparent and approachable. By minimizing organizational layers, simplifying its organizational structure and process, Atmus empowers its employees to have an increased impact on its results. Atmus’ leaders are tasked with providing their employees with the support, development and encouragement needed to be successful. Further, Atmus’ leaders connect Atmus’ people and their work to Atmus’ purpose, values, brand promise and strategies. Atmus will continue to invest in leadership development. Atmus will maintain the emphasis that the primary role of leaders at all levels is to focus on people development, supporting the unique needs of each employee in reaching their greatest positive impact at work, in the community and at home . +Atmus’ talent management approach seeks to develop the skills and capabilities of a diverse, global workforce and utilize Atmus’ talent to deliver excellent results. Atmus advances and invests in its people based on strong performance, demonstration of core values in how work is accomplished and the individual motivation to have a larger impact on organization results . +Competitive Pay and Benefits +To attract and retain the best employees, Atmus maintains a positive work environment that is grounded in its core values, a leadership culture that supports the development of its people and competitive pay and benefits . +When designing its base pay compensation ranges, Atmus completes market analyses to maintain pay ranges that are current and related to the work it performs. Atmus also completes annual compensation studies to assess market movement for key skills as well as internal pay equity. Atmus incorporates living wage assessment into its annual compensation reviews to ensure that current and new hires are not below this threshold. Collectively, Atmus’ global wage assessments seek to ensure Atmus is fair, equitable and competitive in its ability to attract and retain the best talent. Everywhere possible, individual performance is the primary path for Atmus’ employees to advance their earning potential. In addition, all employees also participate in annual variable compensation plans that encourage collaboration in the achievement of overall business results . +Atmus’ benefit programs are aligned with Atmus’ values, including health insurance, retirement plans and wellness programs. The U.S. medical benefits include a tiered cost-sharing structure based on salary. This is in place to make healthcare more affordable for lower income employees and helps to attract and retain talent across the organization. +11 +Table of Contents +Employee Safety and Wellness +Atmus has a health, safety and environment commitment to protect what is important - its people, the planet and its customers. Every day, Atmus is committed to continually improve the health and safety of its work environment, taking action to achieve its goal that nobody gets hurt. +In pursuit of this goal, Atmus embraces a positive safety culture that encourages its employees to recognize potentially unsafe situations, report concerns and work together to remove potential hazards from the work environment before incidents occur. Additionally, Atmus’ Global Health and Safety Policy sets the standard for Atmus’ facilities based on best practices that often exceed regulatory requirements. Atmus manages its sites using the International Standards for Health, Safety and Environment to create a strong framework for risk reduction and continual improvement, with certification to ISO45001 and ISO14001 . +Atmus encourages its leaders to promote safety through strategic planning, enforcement and accountability, fostering the right environment, and influencing employees and other stakeholders. Atmus encourages its employees to promote safety through personal accountability, managing risk, and adopting positive behaviors. By employing these safety guidelines, Atmus seeks to achieve its goal of zero serious injury fatalities caused by machinery safety hazards due to the lack of or failure of safety control measures . +Where Atmus identifies a risk, it ensures that improvement actions are shared across the organization to promote a learning-oriented culture where Atmus’ employees are empowered to make their work environment safer and better. Using leading indicators of performance, Atmus recognizes the contribution of individuals and teams to reinforce safe work behaviors in the workplace, homes and communities . +Inclusion and Diversity +Inclusion and diversity at all levels of Atmus are critical to its ability to innovate, win in the marketplace and create sustainable success. Having inclusive and diverse workplaces allows Atmus to attract and retain the best employees to deliver results for its shareholders. Building on a long history that has emphasized inclusion and diversity, Atmus will continue to seek opportunities and invest in processes that attract, develop and retain diverse talent, globally. Atmus will measure outcomes and ensure that all employees can benefit from being a part of Atmus. This starts by ensuring that the leadership of Atmus is diverse. At this time, three out of Atmus’ seven directors are female, including its Chief Executive Officer, and two out of its seven directors are ethnically diverse. In addition, 38% of Atmus’ executive team is female, including its Chief Executive Officer, and 13% is ethnically diverse. +Regulatory Matters +Atmus faces extensive government regulation both within and outside the United States relating to the development, manufacture, marketing, sale and distribution of its products, including regulations relating to data privacy, trade compliance, anti-corruption and anti-bribery. These are not the only regulations with which Atmus must comply. For a description of risks related to the regulations that Atmus is subject to, please refer to the section entitled “ Risks Related to Government Regulation .” +Available Information +The Company makes its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and other information, including amendments to those reports, available free of charge through its website at investors.atmus.com , as soon as reasonably practicable after it electronically files such material with, or furnishes such material to, the Securities and Exchange Commission (SEC). These filings are available on the SEC’s website at www.sec.gov . +12 +Table of Contents +MANAGEMENT OF ATMUS +Executive Officers +The following table sets forth information, as of February 21, 2025, regarding the individuals who serve as Atmus’ executive officers, followed by a biography of each executive officer. +Name Age +Positions +Stephanie J. Disher +49 +Chief Executive Officer and President +Jack M. Kienzler +39 +Senior Vice President, Chief Financial Officer and Chief Accounting Officer +Renee M. Swan +44 +Senior Vice President and Chief People Officer +Charles E. Masters +52 +Senior Vice President and President, Power Solutions +Stephanie J. Disher currently serves as Atmus’ Chief Executive Officer and President. Ms. Disher previously served as Vice President, Cummins and President, Cummins Filtration. Prior to that role, Ms. Disher served in various leadership roles since joining Cummins in 2013, including as Operations Director and Managing Director for Cummins in the South Pacific region. Ms. Disher holds a bachelor’s degree in Commerce from the University of Western Sydney and a Master of Business Administration from the University of Melbourne . +Jack M. Kienzler currently serves as Atmus’ Senior Vice President, Chief Financial Officer and Chief Accounting Officer. Mr. Kienzler previously oversaw the financial activities of Cummins Filtration Inc. as its Chief Financial Officer. Mr. Kienzler served in various leadership roles since joining Cummins in 2014. Mr. Kienzler holds a Bachelor of Science in Finance and Accounting from Indiana University and a Master of Business Administration from the Indiana University Kelley School of Business . +Renee M. Swan currently serves as Atmus’ Senior Vice President and Chief People Officer. Ms. Swan previously served as Vice President of Human Resources for the communication systems segment of L3Harris Technologies, Inc. Ms. Swan has over two decades of experience in human resources disciplines, having spent time with Kennametal, Honeywell International, and Eaton Corporation in progressive human resources responsibilities. Ms. Swan has a Master of Professional Studies in Human Resource Management from Cornell University, a Master of Business Administration degree from Point Park University and a Bachelor's in Communications from the University of Pittsburgh . +Charles E. Masters currently serves as Atmus’ Senior Vice President and President, Power Solutions and previously served as Executive Director of Global Sales and Marketing of Cummins Filtration Inc. Prior to that role, Mr. Masters served in various leadership roles since joining Cummins in 2003, including as General Manager of Eaton Cummins Automated Transmission Technologies from 2018 to 2021 and as President of Cummins Western Canada from 2016 to 2018. 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the Securities Exchange Act of 1934 for the fiscal year ended December 31 , 2025 or +o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from __________ to __________ +Commission File Number: 001-41710 +Atmus Filtration Technologies Inc. +(Exact name of registrant as specified in its charter) +Delaware +88-1611079 +(State or other jurisdiction of +incorporation or organization) (I.R.S. Employer +Identification No.) +26 Century Boulevard , Nashville , Tennessee 37214 +(Address of principal executive offices) (Zip Code) +Registrant’s telephone number, including area code: ( 615 ) 514-7339 +Securities registered pursuant to Section 12(b) of the Act: +Title of each class Trading Symbol(s) Name of each exchange on which registered +Common Stock, $0.0001 par value ATMU New York Stock Exchange +Securities registered pursuant to Section 12(g) of the Act: None +Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. x Yes o No +Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. o Yes x No +Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes o No +Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T ( § 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). x Yes o No +Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. +Large accelerated filer x Accelerated filer o +Non-accelerated filer o Smaller reporting company o +Emerging growth company o +1 +Table of Contents +If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o +Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. x +If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. o +Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). o +Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). o Yes x No +As of June 30, 2025, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of common stock held by non-affiliates of the registrant was $ 2,992.2 million (based on the closing price of $36.42 as reported on the New York Stock Exchange as of that date). +As of January 31, 2026, 81,508,591 shares of the registrant’s common stock, par value $0.0001 per share, were outstanding. +Documents Incorporated by Reference +Part III of this Annual Report on Form 10-K incorporates information from certain portions of the registrant’s definitive proxy statement relating to the registrant’s 2026 annual meeting of shareholders, which will be filed with the Securities and Exchange Commission on Schedule 14A within 120 days after the fiscal year to which this report relates. +2 +Table of Contents +ATMUS FILTRATION TECHNOLOGIES INC. +ANNUAL REPORT ON FORM 10-K +TABLE OF CONTENTS +Page +PART I +Item 1. +Business +4 +Item 1A. +Risk Factors +14 +Item 1B. +Unresolved Staff Comments +32 +Item 1C. +Cybersecurity +32 +Item 2. +Properties +34 +Item 3. +Legal Proceedings +34 +Item 4. +Mine Safety Disclosures +34 +PART II +Item 5. +Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities +35 +Item 6. +Reserved +35 +Item 7. +Management’s Discussion and Analysis of Financial Condition and Results of Operations +35 +Item 7A. +Quantitative and Qualitative Disclosures About Market Risk +47 +Item 8. +Financial Statements and Supplementary Data +49 +Item 9. +Changes in and Disagreements with Accountants on Accounting and Financial Disclosure +83 +Item 9A. +Controls and Procedures +83 +Item 9B. +Other Information +84 +Item 9C. +Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +84 +PART III +Item 10. +Directors, Executive Officers and Corporate Governance +85 +Item 11. +Executive Compensation +85 +Item 12. +Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters +85 +Item 13. +Certain Relationships and Related Transactions and Director Independence +85 +Item 14. +Principal Accounting Fees and Services +85 +PART IV +Item 15. +Exhibits and Financial Statement Schedules +86 +Item 16. +Form 10-K Summary +88 +Signatures +89 +3 +Table of Contents +PART I +Item 1. Business +Overview +Atmus is one of the global leaders of filtration products for on-highway commercial vehicles and off-highway agriculture, construction, mining and power generation vehicles and equipment. Atmus designs and manufactures advanced filtration products, principally under the Fleetguard brand, that enable lower emissions and provide superior asset protection. Atmus estimates that approximately 14% of Atmus’ net sales in 2025 were generated through first-fit sales to original equipment manufacturers (“OEM”s), where Atmus’ products are installed as components for new vehicles and equipment, and approximately 86% were generated in the aftermarket, where Atmus’ products are installed as replacement o r repair parts, leading to a strong recurring revenue base. Building on Atmus’ more than 65-year history, Atmus continues to grow and differentiate itself through its global footprint, comprehensive offering of premium products, technology leadership and multi-channel path to market. +For the year ended December 31, 2025 , Atmus generated $1,764.3 million in Net sales, $207.4 million in Net income and $353.5 million in Adjusted EBITDA. See “ Management’s Discussion and Analysis of Financial Condition and Results of Operations - Non-GAAP Measures ” in this Annual Report on Form 10-K for a description of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to Net income, the most directly comparable financi al measure calculated in accordance with U.S. GAAP. +Atmus’ Business Strategy +The company has four pillars as part of its strategy to create value for customers and drive profitable growth. Below are each of the priorities and areas of focus related to each priority. +Grow share in first-fit in core markets +• Grow market share with leading OEMs. +• Enhanced product content per vehicle. +• Accelerate new product development. +• Support technology transitions with leading OEMs. +Accelerate profitable growth in the aftermarket +• Expand Atmus’ product portfolio. +4 +Table of Contents +• Use analytics to target and capture growth opportunities. +• Expand reach through multi-channel distribution. +• Invest in product technology advantage to enhance value and protect revenue. +Transform Atmus’ supply chain +• Drive services and availability . +• Optimize network . +• Transform cost structure . +• Invest in capabilities for the future . +Expand into Industrial Filtration Markets +• Build sustainable growth by expanding and diversifying into the industrial filtration market. +• Leverage global footprint and existing technical capabilities to open new opportunities for growth. +• Develop capabilities, whether organically or through acquisitions or strategic partnerships, to enter new markets with long-term growth prospects. +Atmus’ Global Footprint +Atmus serves end-users globally, with approximately 46% of its Net sales in 2025 from outside of the United States and Canada. Atmus believes that it, together with its joint ventures in China and India, has a leading position in its core markets, based on Net sales in 2025. Atmus maintains strong global customer relationships, supported by an established salesforce with work locations in over 25 countries as of December 31, 2025. Also, as of December 31, 2025, Atmus operates through 11 distribution centers, 10 manufacturing facilities and five technical facilities plus 10 manufacturing facilities and two technical facilities operated by its joint ventures, giving Atmus presence on six continents. +5 +Table of Contents +Atmus’ Premium Products +Atmus offers a full spectrum of filtration solutions that enable lower emissions and provide superior asset protection. Atmus’ filtration products provide comprehensive and differentiated solutions, which allow its end-users to extend service intervals, reduce maintenance costs and increase uptime. Atmus’ products include fuel filters, lube filters, air filters, crankcase ventilation, hydraulic filters and coolants and other chemicals. Atmus’ broad range of products in each of its core markets enables one-stop shopping, which Atmus believes is a key competitive advantage. +Atmus’ Competitive Strengths +Technology leadership and deep industry knowledge enable Atmus to deliver better customer solutions +Atmus combines a culture of innovation with deep-seated experience in its industry to deliver superior filtration solutions for its customers. Atmus’ technical team develops a range of filtration technologies, including filtration media, filter element formation, filtration systems integration and service-related solutions such as remote digital diagnostic and prognostic platforms and analytics. Atmus’ technical team of approximately 350 engineers, scientists and technical specialists are located in five technical centers around the world, with approximately 25% holding advanced technical degrees. Atmus’ team draws on a more than 65-year history focused on filtration and media technologies. Atmus has a broad IP portfolio with approximately 1,200 worldwide active or pending patents and patent applications and over 650 worldwide trademark registrations and applications as of December 31, 2025. +6 +Table of Contents +Atmus has leveraged this expertise not only to develop its cutting-edge filters, filter systems and filtration media but also to manufacture a large portion of its proprietary filtration media. This allows Atmus to move swiftly from development to application of filtration technologies that protect and enhance the operation of its customer’s equipment and machines. StrataPore, NanoNet, NanoForce, NanoNet Plus and most recently, NanoNet N3 product families have enabled engines and equipment to meet continually changing emissions and performance requirements . +Atmus’ technical team works closely with Atmus’ customers to develop and apply filtration technologies that help them improve their operations. Atmus’ technology allows it to deliver performance-enabling and customized filtration solutions for its end-users, which creates long-lasting partnerships with its customers . +Iconic Fleetguard brand with premium products +Atmus believes that Fleetguard is a premium, leading brand that is strongly associated with reliability and strong performance. Atmus offers a full suite of Fleetguard-branded filtration products. With its broad line of high-quality filtration products, Atmus’ Fleetguard brand provides filters for nearly all makes of vehicles and equipment in its core markets, which further enhances Atmus’ availability, visibility and brand recognition. Atmus’ Fleetguard brand is further supported by a competitive warranty that gives Atmus’ customers and end-users high confidence in the performance and durability of its products . +Partnering with leading OEMs +Atmus has a strong history as a supplier to leading OEMs, including Cummins, Daimler, Deere, Doosan, Foton, Komatsu, Paccar/DAF, the Traton Group, Stellantis and Volvo. Atmus sells both first-fit and aftermarket products to these customers and has been selling to each of them for at least 10 years. These customers in the aggregate accounted for approximately 70% of Atmus’ net sales in 2025 and have consistently accounted for more than 67% of Atmus’ net sales in each of the last five years. Atmus has written agreements with most of its key customers that specify certain purchase parameters, but do not obligate them to specific volumes. Atmus invests in its relationships and utilizes its technical strengths to win first-fit business with these OEMs, which drives Atmus’ installed base, yielding strong recurring revenue streams in the aftermarket. The OEMs also provide Atmus with early insight into technological developments and evolving product requirements within the broader engine and industrial application industry, allowing Atmus to be well positioned as the world shifts towards more complex modular filtration systems and filtration for other power sources . +Cummins is Atmus’ largest customer and accounted for approximately 18.8% of Atmus’ net sales in 2025. This relationship is defined by the first-fit supply agreement and the aftermarket supply agreement. Atmus maintains its strong relationship with Cummins, supported by these contractual relationships and due to its 65 year history embedded with Cummins. This gives Atmus a deep understanding of Cummins needs, which enables Atmus to deliver high-quality, higher-performance products that deliver value to Cummins. +Multi-channel path to diverse global markets +Atmus’ global presence provides a diverse and stable customer base across truck, bus, agriculture, construction, mining and power generation vehicles and equipment markets. Atmus’ current core markets are on-highway and off-highway, representing approximately 58% and 42% of Atmus’ net sales in 2025, respectively. +Atmus estimates that approximately 86% of Atmus’ net sales in 2025 were generated in the aftermarket. +To drive these net sales, Atmus has developed a multi-channel path to global markets that ensures broad product availability and provides end-users with choice and flexibility in purchasing. Atmus distributes its products through a broad range of OEM dealers, independent distributors, and retail outlets, including truck stops . +The dealers of the OEMs are typically the channel preferred by customers in many markets. Atmus’ close relationships with the OEMs and strong first-fit installed base position Atmus well with the OEM dealer network and large fleet customers. For example, the dealers of four of the largest North America on-highway OEMs carry a significant range of Atmus’ products at their dealerships . +7 +Table of Contents +In addition, independent distributors and retailers enable Atmus to reach a broader end-user market and create additional points of sale or service. Atmus also works directly with major customers of its channel partners (such as large fleets or mining companies), across its end markets, to create strong brand preference, which, in turn, leads to strong demand for its products and generates recurring revenue. Atmus continues to increase geographic coverage within regions to better serve its customers by investing in distribution expansion . +Atmus typically ships directly from its 11 distribution centers (as of December 31, 2025) worldwide to its channel partners, which provides direct connection and detailed understanding of Atmus’ customer and end-user base. Atmus’ comprehensive distribution and market coverage are vital to maintaining its broad reach, global presence and brand recognition . +Experienced leadership team with a proven track record of driving growth +Atmus is led by an energized and experienced senior leadership team with extensive industry experience with Cummins and other leading industrial companies. Atmus’ strategic vision and culture are directed by its executive leadership team under the leadership of its Chief Executive Officer and President, Stephanie J. Disher, its Senior Vice President, Chief Financial Officer and Chief Accounting Officer, Jack M. Kienzler, its Senior Vice President and Chief People Officer, Renee M. Swan, its Senior Vice President and President, Power Solutions, Charles E. Masters, and its Senior Vice President, Chief Legal Officer and Corporate Secretary, Laura Heltebran. Stephanie J. Disher joined Cummins in 2013 and has over 20 years of experience in leadership positions, including international assignments in Australia, Asia, and the United States. Prior to her current role, Stephanie J. Disher served as Vice President, Cummins and President, Cummins Filtration where she has demonstrated a continued track record of strong business performance, innovation and operational excellence. Jack M. Kienzler joined Cummins in 2014 and has over 15 years of finance experience. He most recently served as the Executive Director of Investor Relations at Cummins, having formerly led the Corporate Development team. Renee M. Swan joined Atmus in August 2023 and has over 20 years of experience in human resources and talent management. Charles E. Masters joined Cummins in 2003 and has over 20 years of experience in global sales and operational leadership roles within Cummins. Laura Heltebran joined Atmus in May 2025 and brings over 25 years of legal, ethics and compliance experience with public companies across several industries including, technology, hospitality, and aviation. Atmus’ leadership team has the ability to develop and execute its strategic vision and aims to create long-term shareholder value. Atmus benefits from its team’s industry knowledge and track record of successful product innovation and financial performance. Additionally, members of Atmus’ senior leadership team have strong experience executing and integrating acquisitions and strategic partnerships to drive accelerated growth and improved profitability . +Supply +The performance of the end-to-end supply chain, extending through to Atmus’ suppliers, is foundational to its ability to meet customers’ expectations and support long-term growth. Atmus is committed to having a robust strategy for how it selects and manages its suppliers to enable a market focused supply chain. This requires Atmus to continuously evaluate and upgrade its supply base, as necessary, as Atmus strives to ensure it is meeting the needs of its customers . +Atmus uses a combination of proactive and reactive methodologies to enhance its understanding of supply base risks, which guide its development of risk monitoring and sourcing strategies. Atmus’ category sourcing strategy process (a process designed to create the most value for the company) supports the review of its long-term needs and guides decisions on what it makes internally and what it purchases externally. For the items Atmus decides to purchase externally, the strategies also identify the suppliers it should partner with long-term to provide the best technology, the lowest total cost and highest supply chain performance. Key suppliers are managed through long-term supply agreements that secure capacity, delivery, quality and ensure cost requirements are met over an extended period . +8 +Table of Contents +Other important elements of Atmus’ sourcing strategy include : +• selecting and managing suppliers to comply with its Supplier Code of Conduct ; and +• assuring its suppliers comply with its prohibited and restricted materials policy. +Atmus monitors supply chain disruptions and conducts structured supplier risk and resiliency assessments. Atmus performs formal and informal supplier engagements to address potentially impactful supply base constraints and enhanced collaboration to develop specific countermeasures to mitigate risks. Atmus’ global team, located in different regions of the world, uses various approaches to identify and resolve threats to supply continuity . +Supply chain disruptions can impact Atmus’ business as well as its suppliers and customers, resulting in longer lead times in some areas of its business. Orders are typically issued as rolling releases with a specific lead time. When these orders are on backlog, they are often subject to cancellation on reasonable notice without cancellation charges, and therefore are not considered firm . +Materials +The principal materials that Atmus uses directly in manufacturing its products are steel, filter media and petrochemical-based products, including plastic, rubber and adhesives products. Atmus expects these materials to be available from numerous sources in quantities sufficient to meet our requirements. In 2025, material costs represented approximately 60% of Atmus’ cost of sales, compared to 61% of Atmus’ cost of sales in 2024. +Customer Concentration +Atmus has thousands of customers around the world and has developed long-standing business relationships with many of them. Cummins is Atmus’ largest customer, accounting for approximately 18.8% of Atmus’ net sales in 2025, 17.6% in 2024 and 17.4% in 2023, respectively. In connection with the Separation, Atmus entered into a first-fit supply agreement and an aftermarket supply agreement with Cummins for Atmus’ first-fit and aftermarket products. These agreements provide for continuation of Atmus’ supply to Cummins for all of its first-fit applications that Atmus currently supports, commitment to first-fit supply for certain upcoming product launches, and continued supply to Cummins of its full line of aftermarket filtration needs. It does not commit a specific volume of filters or related products. The loss of this customer or a significant decline in the production level of Cummins engines that use Atmus’ filters would have an adverse effect on Atmus’ business, financial condition, results of operations or cash flows . +In addition to the agreement Atmus entered into with Cummins, Atmus has long-term agreements with many of its largest customers. Collectively, Atmus’ net sales from its next four top customers, other than Cummins, was approximately 40% of Atmus’ net sales in 2025 and approximately 40% in 2024 and 39% in 2023, respectively. Excluding Cummins, two other customers, PACCAR and the Traton Group, accounted for more than 10% of Atmus’ net sales in 2025. Atmus’ customer agreements typically contain standard purchase and sale agreement terms covering filter pricing, quality and delivery commitments, as well as engineering product support obligations. The basic nature of Atmus’ agreements with OEM customers is that they are long-term price and operations agreements that provide for the availability of Atmus’ products to each customer through the duration of the respective agreements. Where Atmus has such agreements in place, its customers typically place purchase orders with it pursuant to these agreements. Agreements with most OEMs contain bilateral termination provisions giving either party the right to terminate in the event of a material breach, change of control or insolvency or bankruptcy of the other party . +Intellectual Property +Atmus owns or controls a broad range of intellectual property rights, including a significant number of patents, trademarks, copyrights, trade secrets and other forms of intellectual property rights in the United States and foreign countries. Atmus has a broad IP portfolio with approximately 1,200 worldwide active or pending patents and patent applications and over 650 worldwide trademark registrations and applications as of December 31, 2025, which were granted and registered over a period of years. Atmus’ leading brand house trademark is Fleetguard. Atmus protects its innovations that arise from research and development through patent filings, as well as through trade secrets. Although these patents, trademarks and trade secrets are +9 +Table of Contents +generally considered beneficial to Atmus’ operations, Atmus does not believe any patent, group of patents, trademark or trade secret is solely responsible for protecting its products . +Research, Development and Engineering +In 2025, Atmus continued to invest in future critical technologies and products. Atmus will continue to make investments to develop new technologies and improve its current products to meet increasing and changing emissions and engine performance requirements globally for diesel and hydrocarbon-powered equipment. In addition to building on its core technologies, Atmus is making investments in filtration and separation technologies required and used by electric powered vehicles, hydrogen production and other industrial systems . +Atmus’ research, development and engineering programs are focused on product improvements, product extensions, innovations and cost reductions for its customers. Research, development and engineering expenditures include salaries, contractor fees, building costs, utilities, testing, technical IT, administrative expenses and allocation of corporate costs and are expensed when incurred. Research, development and engineering expenses were $40.7 million, $40.6 million, and $42.5 million for the years ended December 31, 2025, 2024 and 2023, respectively. +Seasonality +Many of the Company’s end markets are generally stronger in the first half of the Company’s fiscal year. In addition, the second half of the fiscal year contains more holiday periods, which typically includes more customer closures. Also, individual product lines may experience modest seasonal variation in production, this does not, however, have material impact on demand on a quarterly basis. +Competition +Atmus is a leading global participant in the filtration engine products markets. Atmus’ products include fuel filters, lube filters, air filters, crankcase ventilation, hydraulic filters and coolants and other chemicals. Key global participants in this market include MANN+HUMMEL, Donaldson, Parker and MAHLE. The rest of the market is highly fragmented and occupied by various specialized and regional players. Most of the large global players serve both first-fit and aftermarket channels, while smaller, regional players tend to focus on the aftermarket. The filtration market offers a unique multi-channel path to market, and diversification across first-fit, OEM service and aftermarket. The recurring revenue model and mission-critical role of filters drive consistent demand across regions and end markets . +Principal methods of competition in the filtration markets are product quality and performance, price, geographic and application coverage, availability, customer service, ease of doing business and brand reputation. Atmus believes it is a market leader within many of its product lines, including filters in Atmus’ on-highway and off-highway markets, and that its success in the market is due to its technology, its iconic Fleetguard brand, its global footprint, strong customer relationships and the talent within its organization . +Human Capital Resources +As of December 31, 2025, Atmus employed approximately 4,500 persons worldwide. As of December 31, 2025, approximately 53% of Atmus’ employees worldwide were represented by various unions under collective bargaining agreements. Among these collective bargaining agreements, those for the employees in Mexico, Brazil and France are renewed annually after compensation negotiations, while the collective bargaining agreement for the Cookeville, Tennessee plant typically has a four- to five-year term. Collective bargaining for Brazil Annual Profit Sharing will take place on February 19, 2026. Annual term collective bargaining for Mexico and France were recently successfully completed. These collective bargaining agreements have terms that will expire between December 2026 and February 2027. Contract negotiations at the Cookeville, Tennessee plant took place in February of 2024 resulting in a new four year contract that will expire at the end of its four year term on February 29, 2028. +Throughout Atmus’ more than 65-year history, Atmus has always recognized that people are the strength of its business and drive its ability to effectively serve its customers and sustain its competitive position. Atmus believes that the composition of its workforce gives it advantages relating to cost and capability when compared to its peers. Atmus empowers managers and employees to make decisions and generate positive results, +10 +Table of Contents +increases employee communication and interaction with senior leadership and enhances a work environment that is inclusive, transparent, agile and team-oriented . +Purpose and Core Values +Atmus is a purpose-driven company. Atmus’ purpose is ‘ Creating a better future by protecting what is important .’ Atmus creates and innovates every day. With a forward focus, Atmus never sits still. Atmus realizes the world is bigger than it, and it aspires for a better future for shared humanity. Atmus’ products protect its customers, their equipment and their livelihoods. Atmus protects what is important to its people, the planet, and its customers . +Atmus’ culture is shaped by its core values: +• Build Trust in every relationship every day. +• Have Courage to speak up, take action and shape the future. +• Be Inclusive by embracing differences and building a community where everyone feels valued. +• Show Caring by engaging with kindness and consideration for the wellbeing of others. +Leadership and Talent Management +The capability of Atmus’ people and their ability to work effectively in agile teams is a primary enabler of Atmus’ success. Atmus strives to create a leadership culture that is authentic, transparent and approachable. By minimizing organizational layers, simplifying its organizational structure and process, Atmus empowers its employees to have an increased impact on its results. Atmus’ leaders are tasked with providing their employees with the support, development and encouragement needed to be successful. Further, Atmus’ leaders connect Atmus’ people and their work to Atmus’ purpose, values, brand promise and strategies. Atmus will continue to invest in leadership development. Atmus will maintain the emphasis that the primary role of leaders at all levels is to focus on people development, supporting the unique needs of each employee in reaching their greatest positive impact at work, in the community and at home . +Atmus’ talent management approach seeks to develop the skills and capabilities of a diverse, global workforce and utilize Atmus’ talent to deliver excellent results. Atmus advances and invests in its people based on strong performance, demonstration of core values in how work is accomplished and the individual motivation to have a larger impact on organization results . +Competitive Pay and Benefits +To attract and retain the best employees, Atmus maintains a positive work environment that is grounded in its core values, a leadership culture that supports the development of its people and competitive pay and benefits . +When designing its base pay compensation ranges, Atmus completes market analyses to maintain pay ranges that are current and related to the work it performs. Atmus also completes annual compensation studies to assess market movement for key skills as well as internal pay equity. Atmus incorporates living wage assessment into its annual compensation reviews to ensure that current and new hires are not below this threshold. Collectively, Atmus’ global wage assessments seek to ensure Atmus is fair, equitable and competitive in its ability to attract and retain the best talent. Everywhere possible, individual performance is the primary path for Atmus’ employees to advance their earning potential. In addition, all employees also participate in annual variable compensation plans that encourage collaboration in the achievement of overall business results . +Atmus’ benefit programs are aligned with Atmus’ values, including health insurance, retirement plans and wellness programs. The U.S. medical benefits include a tiered cost-sharing structure based on salary. This is in place to make healthcare more affordable for lower income employees and helps to attract and retain talent across the organization. +11 +Table of Contents +Employee Safety and Wellness +Atmus has a health, safety and environment commitment to protect what is important - its people, the planet and its customers. Every day, Atmus is committed to continually improving the health and safety of its work environment, taking action to achieve its goal that nobody gets hurt. +In pursuit of this goal, Atmus embraces a positive safety culture that encourages its employees to recognize potentially unsafe situations, report concerns and work together to remove potential hazards from the work environment before incidents occur. Additionally, Atmus’ Global Health and Safety Policy sets the standard for Atmus’ facilities based on best practices that often exceed regulatory requirements. Atmus manages its sites using the International Standards for Health, Safety and Environment to create a strong framework for risk reduction and continual improvement, with certification to ISO45001 and ISO14001 . +Atmus encourages its leaders to promote safety through strategic planning, enforcement and accountability, fostering the right environment, and influencing employees and other stakeholders. Atmus encourages its employees to promote safety through personal accountability, managing risk, and adopting positive behaviors. By employing these safety guidelines, Atmus seeks to maintain its goal of zero serious injury fatalities caused by machinery safety hazards due to the lack of or failure of safety control measures . +Where Atmus identifies a risk, it ensures that improvement actions are shared across the organization to promote a learning-oriented culture where Atmus’ employees are empowered to make their work environment safer and better. Using leading indicators of performance, Atmus recognizes the contribution of individuals and teams to reinforce safe work behaviors in the workplace, homes and communities . +Inclusion and Diversity +Inclusion and diversity of perspective at all levels of Atmus are critical to its ability to innovate, win in the marketplace and create sustainable success. Having inclusive and diverse workplaces allows Atmus to attract and retain the best employees to deliver results for its shareholders. Building on a long history that has emphasized inclusion and diversity, Atmus will continue to seek opportunities and invest in processes that attract, develop and retain diverse talent, globally. Atmus will ensure that all employees can benefit from being a part of Atmus. This begins with the leadership team at Atmus. At this time, three out of Atmus’ eight directors are female, including its Chief Executive Officer, and two out of its eight directors are ethnically diverse. In addition, 43% of Atmus’ executive team is female, including its Chief Executive Officer, and 14% is ethnically diverse. +Regulatory Matters +Atmus faces extensive government regulation both within and outside the United States relating to the development, manufacture, marketing, sale and distribution of its products, including regulations relating to data privacy, trade compliance, anti-corruption and anti-bribery. These are not the only regulations with which Atmus must comply. For a description of risks related to the regulations that Atmus is subject to, please refer to the section entitled “ Risks Related to Government Regulation .” +Available Information +The Company makes its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and other information, including amendments to those reports, available free of charge through its website at investors.atmus.com , as soon as reasonably practicable after it electronically files such material with, or furnishes such material to, the Securities and Exchange Commission (SEC). These filings are available on the SEC’s website at www.sec.gov . +12 +Table of Contents +MANAGEMENT OF ATMUS +Executive Officers +The following table sets forth information, as of February 13, 2026, regarding the individuals who serve as Atmus’ executive officers, followed by a biography of each executive officer. +Name Age +Positions +Stephanie J. Disher +50 +Chief Executive Officer and President +Jack M. Kienzler +40 +Senior Vice President, Chief Financial Officer and Chief Accounting Officer +Laura B. Heltebran +61 +Senior Vice President, Chief Legal Officer and Corporate Secretary +Charles E. Masters +53 +Senior Vice President and President, Power Solutions +Renee M. Swan +45 +Senior Vice President and Chief People Officer +Stephanie J. Disher currently serves as Atmus’ Chief Executive Officer and President. Ms. Disher previously served as Vice President, Cummins and President, Cummins Filtration. Prior to that role, Ms. Disher served in various leadership roles since joining Cummins in 2013, including as Operations Director and Managing Director for Cummins in the South Pacific region. Ms. Disher holds a bachelor’s degree in Commerce from the University of Western Sydney and a Master of Business Administration from the University of Melbourne . +Jack M. Kienzler currently serves as Atmus’ Senior Vice President, Chief Financial Officer and Chief Accounting Officer. Mr. Kienzler previously oversaw the financial activities of Cummins Filtration Inc. as its Chief Financial Officer. Mr. Kienzler served in various leadership roles since joining Cummins in 2014. Mr. Kienzler holds a Bachelor of Science in Finance and Accounting from Indiana University and a Master of Business Administration from the Indiana University Kelley School of Business . +Laura B. Heltebran currently serves as Atmus’ Senior Vice President, Chief Legal Officer and Corporate Secretary. Ms. Heltebran previously served as Executive Vice President, Chief Legal Office and Corporate Secretary with Wheels Up. Prior to Wheels Up, Ms. Heltebran served as Senior Vice President and Deputy General Counsel at Hilton Worldwide. Ms. Heltebran holds a Bachelor of Arts degree from George Mason University and a Juris Doctor degree from Antonin Scalia Law School, George Mason University. +Charles E. Masters currently serves as Atmus’ Senior Vice President and President, Power Solutions and previously served as Executive Director of Global Sales and Marketing of Cummins Filtration Inc. Prior to that role, Mr. Masters served in various leadership roles since joining Cummins in 2003, including as General Manager of Eaton Cummins Automated Transmission Technologies from 2018 to 2021 and as President of Cummins Western Canada from 2016 to 2018. Mr. Masters holds a Bachelor of Commerce from the University of Alberta and a Master of Business Administration from Harvard Business School . +Renee M. Swan currently serves as Atmus’ Senior Vice President and Chief People Officer. Ms. Swan previously served as Vice President of Human Resources for the communication systems segment of L3Harris Technologies, Inc. Ms. Swan has over two decades of experience in human resources disciplines, having spent time with Kennametal, Honeywell International, and Eaton Corporation in progressive human resources responsibilities. Ms. Swan has a Master of Professional Studies in Human Resource Management from Cornell University, a Master of Business Administration degree from Point Park University and a Bachelor's in Communications from the University of Pittsburgh . +13 +Table of Contents +Item 1A. Risk Factors +These risk factors could materially affect our business, financial condition, results of operations and cash flows. These risk factors are not exhaustive and investors are encouraged to perform their own investigation with respect to the business, financial condition and prospects of our business. You should carefully consider the following risk factors in addition to the other information included in this Annual Report on Form 10-K for the fiscal-year ended December 31, 2025, and should also carefully consider the matters addressed in the section herein entitled “Cautionary Statements and Risk Factor Summary.” We may face additional risks and uncertainties that are not presently known to us, or that we currently deem immaterial, which may also impair our business, financial condition, results of operation or cash flows. The following discussion should be read in conjunction with the “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our financial statements and notes to the financial statements included herein. +Summary of Risk Factors +The following summarizes the risks facing our business, all of which are more fully described below. This summary should be read in conjunction with the risk factors below and should not be relied upon as an exhaustive summary of the material risks facing our business. The order of presentation is not necessarily indicative of the level of risk that each factor poses to us. +Risks Related to Our Business Operations +• Significant customer concentration among Cummins, PACCAR, and the Traton Group. +• The loss of a top OEM relationship or changes in the preferences of Atmus' aftermarket end-users. +• Deriving significant earnings from investees that Atmus does not directly control. +• Significant competition in the markets Atmus serves. +• Ability to attract and retain qualified personnel. +• Strategic transactions, such as acquisitions, divestitures, and joint ventures. +• Management of productivity improvements. +• Work stoppages and other labor matters. +• Variability in material and commodity costs. +• Interruptions in the supply of critical materials and components. +• Complexity of supply chain and manufacturing. +• Customers operating in cyclical industries and the current economic conditions in these industries. +• Exposure to potential claims related to warranties and claims for support outside of standard warranty obligations. +• Products being subject to recall for performance or safety-related issues. +• Inability or failure to adequately protect and enforce Atmus’ intellectual property rights and the cost of protecting or enforcing Atmus' intellectual property rights. +Risks Related to Legal and Regulatory Issues +• Sales of counterfeit versions of products, as well as unauthorized sales of products. +• Statutory and regulatory requirements that can significantly increase costs. +• Changes in international, national and regional trade laws, regulations and policies affecting international trade. +14 +Table of Contents +• Unanticipated changes in Atmus' effective tax rate, the adoption of new tax legislation or exposure to additional income tax liabilities, as well as audits by tax authorities resulting in additional tax payments for prior periods. +• Significant compliance costs and reputational and legal risks imposed by Atmus' global operations and the laws and regulations to which these are subject. +• Effects of climate change may cause Atmus to incur increased costs. +• Operations being subject to increasingly stringent environmental laws and regulations as well as to laws requiring cleanup of contaminated property. +Risks Related to Cybersecurity and Information Technology Infrastructure +• Potential system or data security breaches or other disruptions. +Risks Related to Finance and Financial Market Conditions +• Foreign currency exchange rate. +• Potential economic downturns that could cause the balances of recorded goodwill to decrease. +Risks Related to Macroeconomic and Geopolitical Conditions +• Increased tariffs or the imposition of other barriers to international trade. +• Political, economic, and social uncertainty in geographies where Atmus has significant operations or large offerings of products. +Risks Related to Atmus’ Relationship with Cummins +• Atmus or Cummins fail to perform under various transaction agreements that were executed as part of the IPO. +• We may have received better terms from unaffiliated third parties than the terms we received in our agreements with Cummins. +Risks Related to Atmus’ Capital Structure +• Changes in capital and credit markets. +• Substantial indebtedness consisting of Atmus’ term loan and revolving credit facility, which may impact Atmus' ability to service all its indebtedness and react to changes in the industry. +• Substantially all Atmus' assets pledged as security for its term loan and revolving credit facility. +Risks Related to Ownership of Atmus Common Stock +• Fluctuations in the price of Atmus common stock. +• Atmus’ stock repurchase program may be suspended or terminated at any time. +• No guarantee of the payment, timing or amount of any dividend. +• Applicable laws and regulations, provisions of Atmus' Second Amended and Restated Certificate of Incorporation (the “Charter”) and Atmus' Amended and Restated Bylaws (the “Bylaws”) and certain contractual rights granted to Cummins that may discourage takeover attempts and business combinations that shareholders might consider in their best interests. +• The designation of the Court of Chancery in the State of Delaware and the federal district courts for the District of Delaware as exclusive forums provision in Atmus’ Charter. +15 +Table of Contents +Risks Related to Our Business Operations +We have significant customer concentration, with Cummins, PACCAR and the Traton Group respectively accounting for approximately 18.8% , 16.3% and 11.5% of our net sales for the year ended December 31, 2025. The loss of such net sales to any of such significant customers would have a material and adverse effect on our business, financial condition, results of operations and cash flows. +For the year ended December 31, 2025, net sales to Cummins, our largest customer, accounted for approximately 18.8% of our net sales. Sales to Cummins joint ventures and to distributors that Cummins has a relationship with also account for a portion of our net sales. A portion of our net sales is dependent upon customer acceptance of, and demand for, Cummins’ engines or generators that use our filters. This customer concentration increases the risk of fluctuations in our operating results and our sensitivity to any material adverse developments experienced by Cummins. While our relationship with Cummins is defined by our first-fit supply agreement and aftermarket supply agreement, we may fail in the future to renew these contracts, and, moreover, even if renewed, Cummins’ purchasing power may give it the ability to make greater demands on us with regard to pricing and contractual terms in general. In addition, Cummins may procure supplemental supply of top volume aftermarket products from alternative suppliers for a limited time if we fail to meet certain delivery performance requirements or if we do not offer a product or similar product for sale. +Cummins historically did not seek competitive bids for filtration products. However, prior to the completion of the IPO, Cummins initiated a competitive process to source a selective group of future first-fit programs and associated aftermarket products from its filtration product suppliers, including us. Subsequently, we were successful in being awarded this business. In the future, we expect that Cummins will continue to seek competitive bids for new filtration products. While we will have a preferred supplier relationship with Cummins, we will have to successfully win bids through Cummins’ bidding process in order to maintain or grow our current level of sales to Cummins and cannot guarantee that Cummins will always select our products. The loss of, or any substantial reduction in sales to, Cummins would have a material adverse effect on our business, financial condition, results of operations and cash flows. In addition, our association with Cummins has contributed to the relationships we have with certain significant customers due to the relationship those customers had with Cummins. We may not be able to attract new customers of Cummins, or retain existing customers, without Cummins’ support. +For the year ended December 31, 2025, net sales to PACCAR and the Traton Group accounted for approximately 16.3% and 11.5%, respectively, of our net sales. We cannot guarantee that PACCAR or the Traton Group will always choose to purchase our products. The loss or substantial reduction of sales to PACCAR or the Traton Group could materially and adversely affect our business, financial condition, results of operations or cash flows. +The loss of a top OEM relationship, or changes in the preferences of our aftermarket end-users, could adversely impact the recurring nature of our aftermarket sales. +We supply filtration products to many of the largest OEMs for both first-fit and aftermarket, which results in recurring revenue for our products. Our relationships with these OEMs also allow us to be closely attuned to our customers' requirements and preferences and react quickly to any changes. The use of our filtration products as a standard first-fit component creates a steady demand for that product in the aftermarket, as end-users often return to the OEM for aftermarket service for multiple years and may continue to prefer our products as replacement or repair parts. +We may not be able to maintain our current top OEM relationships in the future or may not become the preferred supplier for additional OEMs. In addition, our channel partners’ and end-users’ preferences for replacement or repair filtration products may change in the future. The loss of a top OEM relationship, or changes in the preferences of our aftermarket end-users, could adversely impact the recurring nature of our aftermarket sales. +We derive significant earnings from investees that we do not directly control. +We earn equity, royalty and interest income from our joint venture in China — Shanghai Fleetguard Filter Co. Ltd., where we indirectly hold 50% of the economic interest. We also earn equity, royalty and interest income from our joint ventures in India — Fleetguard Filter Private Ltd. (“FFPL”), where we directly hold 49.491% of the economic interest (and 50% of the voting interest), and Filtrum Fibretechnologies Pvt. Ltd., +16 +Table of Contents +where we hold, directly or indirectly, 49.75% of the economic interests (25% directly and 24.75% indirectly through our proportionate ownership of FFPL’s 50% ownership interest). For the year ended December 31, 2025, we recognized $33.8 million of equity, royalty and interest income from investees, compared to $34.3 million for the year ended December 31, 2024 and $33.6 million for the year ended December 31, 2023. Although a significant percentage of our net income is derived from these unconsolidated entities, we do not unilaterally control their management or their operations, which puts a substantial portion of our net income and cash flow through dividend payments at risk from the actions or inactions of these entities. A significant reduction in the level of contribution by these entities to our net income would likely have a material adverse effect on our business, financial condition, results of operations or cash flows. +We face significant competition in the markets we serve and maintaining a competitive advantage requires consistent investment with uncertain returns. +The businesses and product lines in which we participate are very competitive and we risk losing business based on a wide range of factors, including price, quality, technological and engineering capability, manufacturing and distribution capability, innovation, performance, reliability and availability, geographic coverage, delivery and customer service. Our customers continue to seek technological innovation, productivity gains and competitive prices from us and our other suppliers. As a result of these and other factors, if we do not meet our customers’ expectations, we may not be able to compete effectively. The competitive environment in which we operate is also subject to change. There is no guarantee that we will be successful in implementing new product expansions, as we may fail to successfully complete product development or achieve the level of sales for these products that we expect. There may also be unexpected costs for such new product offerings, which would lower our margins. +Additionally, we operate in highly competitive markets and have numerous competitors who are well-established in those markets. Our competitors include companies that may have greater name recognition or financial, technical, operational, marketing or other resources than us. We expect our competitors to continue improving the design and performance of their products and to introduce new products that could be competitive in both price and performance. We believe that we have certain technological advantages over our competitors in the markets in which we operate, but maintaining these advantages requires us to consistently invest in research and development, sales and marketing and customer service and support. There is no guarantee that we will be successful in maintaining these advantages. +Evolving customer needs and developing technologies may threaten our existing business and growth. +The ongoing energy transition away from fossil fuels and the increased adoption of electrified powertrains in some market segments could result in lower demand for current diesel or natural gas engines and components and, over time, reduce the demand for related parts and service revenues. Specifically, our core markets may be impacted by technology transitions, including the transition to battery-electric vehicles, hydrogen-powered internal combustion engines, fuel cell electric vehicles and alternate power sources. Substantially all of our net sales are related to internal combustion engine filtration products. Concerns regarding the effects of emissions of GHG on the climate have driven (and will likely continue to drive) international, national, regional and local legislative and regulatory responses, including those imposing more stringent emissions standards, requiring higher fuel efficiency and/or banning sales of gas-powered vehicles in the future. Such responses may generate or accelerate changes in technology and in customer and end-user preference, including wider adoption of, and preference for, technologies providing alternatives to diesel engines, such as electrification of equipment, which could reduce or eliminate the demand for our products. +For example, Cummins, our largest customer, has established 2030 environmental sustainability goals to, among other things, reduce its Scope 3 absolute lifetime GHG emissions from newly sold products, and partner with its customers to reduce its indirect GHG emissions from its products. These goals may result in Cummins preferring products that reduce its direct and/or indirect GHG emissions. As a result of these risks, and as we have seen OEMs begin to invest in these new technologies and launch new non internal combustion engines, we have been working, and continue to work, to expand our product offerings across industries and application types. However, there can be no assurance that we will be successful in doing so, or even if we are successful, that such new products will generate the same revenue or margin as internal combustion engine filtration products. Some of these technologies, such as battery electric vehicles, may not utilize as much filtration content. Additionally, there can be no assurance that our expectations regarding new and developing alternate fuel technologies, including with respect to which technologies will prevail and the development of filtration +17 +Table of Contents +content for those technologies, will prove to be accurate. Such disruptive innovation could create new markets for others and displace existing companies and products. If we are unsuccessful in adapting our technologies or expanding into adjacent markets, these disruptions could result in significant negative consequences for us. Our future growth is dependent on properly addressing future customer and end-user needs and adapting our products in line with global technology trends. +Our ability to attract and retain qualified personnel is critical to our success. +Our success depends on the skills, institutional knowledge, working relationships and continued services and contributions of qualified personnel, including our executive leadership team. Our ability to achieve our operating and strategic goals depends on our ability to identify, hire, train and retain qualified individuals and successfully execute management transitions at leadership levels of the Company. We compete with other companies, both within and outside of our industry, for talented personnel and we may lose key personnel or fail to attract, train and retain other talented personnel. Any such loss or failure could have material adverse effects on our business, financial condition, results of operations or cash flows. +Our continued success will depend in part on our ability to retain the talents and dedication of technical employees. As of December 31, 2025, we employed approximately 355 total technical employees and 51% of our technical employees were employed outside the United States, in India, China and France . If enough technical employees terminate their employment or become ill or otherwise cannot work, our business activities may be adversely affected and our management team’s attention may be diverted. In addition, we may not be able to locate suitable replacements for any technical employees who leave. +We face risks from strategic transactions, such as acquisitions, divestitures, joint ventures and other similar arrangements that we may pursue or undertake. +We are actively evaluating potential strategic acquisitions or investment opportunities and consider divestitures of non-strategic business lines, and we have historically pursued and undertaken certain of those opportunities. For instance, in 2026 we closed the acquisition of a business in the industrial filtration market and in 1987 and 1994, we established our joint ventures in India and China, respectively, for our entry into those two markets. Acquisitions, joint ventures and strategic investments could negatively impact our profitability and financial condition due to operating and integration inefficiencies, the incurrence of debt, contingent liabilities and amortization of expenses related to intangible assets. There are also a number of other risks inherent to acquisitions, including the potential loss of key customers and suppliers of the acquired businesses or adverse effects on relationships with existing customers and suppliers; the inability to identify all issues or potential liabilities during due diligence; difficulties or delays in integrating and assimilating the acquired operations and products or in realizing projected efficiencies, growth prospects, cost savings and synergies; the loss of key employees; the potential increase in exposure to more onerous or costly legal and regulatory requirements and the diversion of management’s time and attention away from other business matters, which may prevent us from realizing the anticipated return on our investment. Additionally, we may require substantial additional capital, which could be raised pursuant to debt or equity financings, to pursue acquisitions and other business ventures, if any, in the future. We cannot assure you that we will be able to raise such additional capital on commercially reasonable terms, or at all. +Divestitures may involve significant challenges and risks, such as difficulty separating out portions of our business or the potential loss of revenue or negative impacts on margins. Divestitures may also result in ongoing financial or legal proceedings, such as retained liabilities, which could have an adverse impact on our business, financial condition, results of operations and cash flows. Further, during the pendency of a proposed transaction, we may be subject to risks related to a decline in the business, loss of employees, customers or suppliers and the risk that the transaction may not close, any of which could adversely impact our business. Additionally, because acquisitions, divestitures, joint ventures, strategic partnerships and other similar arrangements are inherently risky, any such transaction may not be successful and may, in some cases, harm our business, financial condition, results of operations or cash flows. Failure to complete any such planned transaction may adversely impact our business, financial condition, results of operations or cash flows. +Our long term performance targets assume certain ongoing productivity improvements; if we do not successfully manage productivity improvements, we may not realize the expected benefits. +Our long-term performance targets assume certain ongoing productivity improvements as a key component of our business strategy to, among other things, contain operating expenses, increase operating efficiencies +18 +Table of Contents +and align manufacturing capacity to demand. We may not be able to realize the expected benefits and cost savings if we do not successfully execute these plans while continuing to invest in business growth. Factors that can cause us to not realize expected benefits or execute our plans for productivity improvements include, but are not limited to unforeseen complications arising from leveraging existing filtration technology to new industries, global commodities pricing and availability, manufacturing costs and delays, inflationary pressures and labor availability. If any of these, or other, difficulties are encountered, expected benefits of such cost savings may not otherwise be realized, which could adversely impact our business, financial condition, results of operations or cash flows. +We may be adversely impacted by work stoppages and other labor matters. +As of December 31, 2025, we employed approximately 4,500 persons worldwide and approximately 53% were represented by various unions under collective bargaining agreements. Agreements covering employees in Mexico, Brazil and France are renewed annually following compensation negotiations, which were recently completed for Mexico and Brazil and will begin in February 2026 for Brazil, with terms expiring between December 2026 and February 2027. The collective bargaining agreement for our Cookeville, Tennessee plant was renegotiated in February 2024 and will remain in effect through February 29, 2028. While we have no reason to believe that we will be materially impacted by work stoppages or other labor matters, we have experienced such issues and there can be no assurance that future issues with our labor unions will be resolved favorably or that we will not encounter future strikes, work stoppages, or other types of conflicts with labor unions or our employees. Any of these consequences may have an adverse effect on us or may limit our flexibility in dealing with our workforce. In addition, many of our customers and suppliers have unionized work forces. Work stoppages or slowdowns experienced by us, our customers or suppliers could result in slowdowns or closures that would have a material adverse effect on our business, financial condition, results of operations or cash flows. +Our products are exposed to variability in material and commodity costs. +Our business establishes prices with our customers in accordance with contractual timeframes; however, the timing of material and commodity market price increases may prevent us from passing these additional costs on to our customers through timely pricing actions, which may lead to an adverse impact on our profit margins. Additionally, higher material and commodity costs around the world may offset our efforts to reduce our cost structure. In recent years, economies around the world have also generally seen significant inflationary pressures. While those inflationary pressures have stabilized, we are still subject to the risk of material and commodity cost increases and there can be no assurances that such cost increases do not return. As of the date of this Annual Report on Form 10-K, we have not entered into any hedging arrangements or agreements with respect to the purchase of the commodities used in our products. While we customarily have contractual pricing adjustment mechanisms with our first-fit customers that attempt to address some of these risks (notably with respect to steel and resins), there can be no assurance that material and commodity price fluctuations will not adversely affect our business, financial condition, results of operations or cash flows. In addition, while the use of contractual pricing adjustments may provide us with some protection from adverse fluctuations in commodity prices, we potentially forego the benefits that might result from favorable fluctuations in costs. As a result, higher material and commodity costs could result in declining margins. +Interruptions in the supply of critical materials and components could materially and adversely affect our business. +We source a significant number of parts and raw materials critical to our business operations. Any delay in our suppliers’ deliveries may adversely affect our operations at multiple manufacturing locations, forcing us to seek alternative supply sources to avoid serious disruptions. Delays may be caused by factors affecting our suppliers (including pandemics, capacity constraints, port congestion, labor disputes, economic downturns, availability of credit, impaired financial condition and geopolitical turmoil), suppliers’ allocations to other purchasers, weather emergencies, natural disasters, acts of government or acts of war or terrorism. In particular, if there are extended periods of commercial, transportation or other restrictions we could incur global supply disruptions. Any extended delay in receiving critical supplies could impair our ability to deliver products to our customers and have a material adverse effect on our business, financial condition, results of operations or cash flows. +19 +Table of Contents +Complexity of supply chain and manufacturing could perpetuate the inability to meet demand and result in the loss of customers. +Our ability to fulfill customer orders is dependent on our manufacturing and distribution operations. Although we forecast demand, additional plant capacity takes significant time to bring online and thus changes in demand could result in longer lead times. We cannot guarantee that we will be able to adjust manufacturing capacity, in the short-term, to meet higher customer demand. Efficient operations require streamlining processes, which we may not be capable of achieving. Unacceptable levels of service for key customers may result if we are not able to fulfill orders on a timely basis or if product quality, warranty, or safety issues result from compromised production. Due to the complexity of our manufacturing operations, we may be unable to timely respond to fluctuations in demand, which could adversely impact our business, financial condition, results of operations or cash flows. +A number of our customers operate in similar cyclical industries and economic conditions in these industries could impact our sales. +A substantial portion of our sales is tied to customers that serve highly cyclical end markets, including on‑highway and off‑highway industries such as truck and bus, construction, agriculture, mining, oil and gas, power generation and recreational vehicles. Demand in these industries is affected by macroeconomic factors such as freight activity, infrastructure investment, commodity prices, and interest rates. As these industries experience fluctuations, our customers’ production schedules and purchasing patterns may vary significantly, which exposes our business to additional risk based on the economic conditions in the markets our customers serve. Any downturn or prolonged softness in the industries in which our customers operate could reduce demand for our products and materially and adversely impact our business, financial condition, results of operations or cash flows. +Our business is exposed to potential claims related to warranties and claims for support outside of standard warranty obligations. +We face an inherent business risk of exposure to warranty claims if our products fail to perform to specification, or are alleged to result in property damage. At any given time, we are subject to various and multiple warranty claims, any one of which, if decided adversely to us, may have a material adverse effect on our business, financial condition, results of operations and cash flows in the period in which our liability with respect to any such claim is recognized. This can include customer claims for support outside of standard warranty obligations. +Our products are subject to recall for performance or safety-related issues. +Our products are subject to recall for performance or safety-related issues. Product recalls subject us to reputational risk, loss of current and future customers, reduced revenue and product recall costs. Product recall costs are incurred when we decide, either voluntarily or involuntarily, to recall a product through a formal campaign to solicit the return of specific products due to known or suspected performance or safety issues. Any significant product recalls could have material adverse effects on our business, financial condition, results of operations and cash flows. Additionally, any significant returns or warranty claims, as well as the timing of such returns or claims, could result in significant additional costs to us and could adversely affect our business, financial condition, results of operations or cash flows. +Inability or failure to adequately protect or enforce our intellectual property could reduce or eliminate any competitive advantage and reduce our sales and profitability and the cost of protecting or enforcing our intellectual property may be significant. +Our long-term success depends on our ability to market innovative competitive products. We own a number of patents, trade secrets, copyrights, trademarks, trade names and other forms of intellectual property related to our products and services throughout the world and the operation of our business, on which we rely to distinguish our services and solutions from those of our competitors. Patents have a limited life and, in some cases, have expired or will expire in the near future. We also have non-exclusive rights to intellectual property owned by others in certain of our markets. For example, some of our products may include components that are manufactured by our competitors. Our intellectual property may be challenged, opposed, invalidated, diluted, cancelled, declared generic, stolen, circumvented, infringed or otherwise violated upon by third parties or we may be unable to maintain, renew or enter into new license agreements with third-party owners of intellectual +20 +Table of Contents +property on reasonable terms, or at all. In addition, the global nature of our business increases the risk that our intellectual property may be subject to infringement, theft or other unauthorized use or disclosure by others. Our ability to protect and enforce intellectual property rights, including through litigation or other legal proceedings, also varies across jurisdictions. In some cases, our ability to protect or enforce our intellectual property rights by legal recourse or otherwise may be limited, particularly in countries where laws or enforcement practices are less protective than those in the United States. Our inability to obtain sufficient protection for our intellectual property, or to effectively maintain or enforce our intellectual property rights, could lead to reputational harm and/or adversely impact our competitive position, business, financial condition, results of operations or cash flows. +Competitors and others may also initiate litigation or other proceedings to challenge the scope, validity or enforceability of our intellectual property or allege that we infringed, misappropriated or otherwise violated their intellectual property. Any litigation or proceedings to defend us against allegations of infringement, misappropriation, or other violations of intellectual property rights, regardless of merit, could be costly, divert attention of management and may not ultimately be resolved in our favor. If we are unable to successfully defend against claims that we have infringed the intellectual property rights of others, we may be prevented from using certain intellectual property or offering certain products, or may be liable for substantial damages. We may also be required to develop an alternative, non-infringing product that could be costly, time-consuming or impossible, or seek a license from a third party, which may not be available on terms that are favorable to us, or at all. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations or cash flows. +Unexpected events, including natural disasters, may increase our cost of doing business or disrupt our operations. +There could be an occurrence of one or more unexpected events, including a terrorist attack, war or civil unrest, a weather event, an earthquake, a pandemic, cyber-attack or other catastrophe in countries in which we operate. +Such an event could result in physical damage to and complete or partial closure of one or more of our headquarters, manufacturing facilities or distribution centers, as well as disruptions to the transport of our products to customers and to our information systems. The insurance coverage we maintain, may not provide protection for all costs that may arise from any such event. Any disruption in our operations could have an adverse impact on our ability to meet customer needs or require us to incur additional expenses to produce sufficient inventory. Certain unexpected events could adversely impact our business, financial condition, results of operations or cash flows. +Risks Related to Legal and Regulatory Issues +Sales of counterfeit versions of our products, as well as unauthorized sales of our products, may adversely affect our business, financial condition, results of operations or cash flows. +Third parties may illegally make, distribute and sell counterfeit versions of our products that do not meet the standards of our design, development, manufacturing and distribution processes. Such counterfeit products divert sales from genuine products, often are of lower cost and quality and may pose safety risks. If illegal sales of counterfeit products result in adverse product liability or negative consumer experiences, we may be associated with negative publicity resulting from such incidents. Although we proactively monitor the existence of counterfeit products and initiate actions to seize, remove them from sale or destroy, we may not be able to prevent third parties from manufacturing, selling or purporting to sell counterfeit products competing with our products, which may negatively impact our sales, brand reputation, business, financial condition, results of operations or cash flows. +Our products are subject to statutory and regulatory requirements that can significantly increase our costs and could have a material adverse impact on our business, financial condition, results of operations or cash flows. +Our products are subject to many laws and regulations in the jurisdictions in which we operate. We routinely incur costs to comply with these laws and regulations. We may be adversely impacted by new or changing laws and regulations that affect both our operations and our ability to develop and sell products that meet our +21 +Table of Contents +customers’ requirements. The discovery of noncompliance issues could have a material adverse impact on our reputation, brand, business, financial condition, results of operations or cash flows. +Developing products to meet more stringent and changing regulatory requirements, with different implementation timelines and requirements, makes developing products efficiently for multiple markets complicated and could result in substantial additional costs that may be difficult to recover in certain markets. The successful development and introduction of new and enhanced products in order to comply with new regulatory requirements are subject to other risks, such as delays in product development, cost overruns and unanticipated technical and manufacturing difficulties. +In addition to these risks, the nature and timing of government implementation and enforcement of increasingly stringent regulatory standards in our worldwide markets are unpredictable and subject to change. Any delays in implementation or enforcement could result in a loss of our competitive advantage and could have a material adverse impact on our business, financial condition, results of operations or cash flows. +We operate our business on a global basis and changes in international, national and regional trade laws, regulations, and policies affecting and/or restricting international trade could adversely impact the demand for our products and our competitive position. +We manufacture, sell and service products globally and rely upon a global supply chain to deliver the raw materials, components, systems and parts that we need to manufacture and service our products. Changes in laws, regulations and government policies on foreign trade and investment, including as a result of changes in U.S. presidential administration, can affect the demand for our products and services, causing customers and end-users to shift preferences toward domestically manufactured or branded products and impact the competitive position of our products or prevent us from being able to sell products in certain countries. Our business benefits from free trade agreements, such as the United States-Mexico-Canada Agreement, the U.S. trade relationships with China, Brazil and France and the Comprehensive Economic Partnership Agreement between India and South Korea. Efforts to withdraw from, or substantially modify such agreements or arrangements, in addition to the implementation of more restrictive trade policies, such as more detailed inspections, higher tariffs (including, but not limited to, additional tariffs on the import of steel or aluminum and imposition of new or retaliatory tariffs against certain countries, including based on developments in U.S.-China, U.S.-Mexico, U.S.-Canada, U.S.-Russia and EU-Russia relations), import or export licensing requirements, and exchange controls or new barriers to entry, could limit our ability to capitalize on current and future growth opportunities in international markets, impair our ability to ship media from our plant in South Korea directly to our joint venture partners, impair our ability to expand the business by offering new technologies, products, and services, and could adversely impact our production costs, customer and end-user demand and our relationships with customers and suppliers. Any of these consequences could have a material adverse effect on our business, financial condition, results of operations or cash flows. +Embargoes, sanctions and export controls imposed by the U.S. and other governments restricting or prohibiting transactions with certain persons or entities, including financial institutions, to certain countries or regions, or involving certain products, may limit the sales of our products. Embargoes, sanctions, and export control laws are changing rapidly for certain geographies, including with respect to China and Russia. In particular, changing U.S. and European export controls and sanctions on China, as well as other restrictions affecting transactions involving China and Chinese parties and Russia and Russian parties, could affect our ability to collect receivables, provide aftermarket and warranty support for our products, sell products, and otherwise impact our reputation and business, any of which could have a material adverse effect on our business, financial condition, results of operations or cash flows. Moreover, the enforceability of contracts in China, especially with governmental entities, including state-owned enterprises, is relatively uncertain. If counterparties repudiated our contracts or defaulted on their obligations, we might not have adequate remedies. Such uncertainties or inability to enforce our contracts could materially and adversely affect our business, financial condition, results of operations or cash flows. +Unanticipated changes in our effective tax rate, the adoption of new tax legislation or exposure to additional income tax liabilities could adversely affect our profitability and cash flow. In addition, audits by tax authorities could result in additional tax payments for prior periods. +We are subject to income taxes in the U.S. and numerous international jurisdictions. Our income tax provision and cash tax liability in the future could be adversely affected by the adoption of new tax legislation, +22 +Table of Contents +changes in the amounts or composition of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities and the discovery of new information in the course of our tax return preparation process. Additionally, we have been subject to tax audits. These audits can involve complex issues, which may require an extended period of time to resolve and can be highly judgmental. Tax authorities may disagree with certain tax reporting positions taken by us and, as a result, assess additional taxes against us. We may have to engage in litigation to achieve the results reflected in our tax estimates, and such litigation may be time consuming and expensive. We regularly assess the likely outcomes of any audits in order to determine the appropriateness of our tax provision. The amounts ultimately paid upon resolution of these or subsequent tax audits could be materially different from the amounts previously included in our income tax provisions and accruals, which could materially and adversely affect our business, financial condition, results of operations or cash flows. +Changes in tax law relating to multinational corporations could adversely affect our tax position. +The U.S. Congress, government agencies in non-U.S. jurisdictions where we and our affiliates do business, and the Organisation for Economic Co-operation and Development (“OECD”) have recently focused on issues related to the taxation of multinational corporations. One example is in the area of “base erosion and profit shifting,” where profits are claimed to be earned for tax purposes in low-tax jurisdictions, or payments are made between affiliates from a jurisdiction with high tax rates to a jurisdiction with lower tax rates. The OECD has released several components of its comprehensive plan to create an agreed set of international rules for addressing base erosion and profit shifting. As a result, the tax laws in the United States and other countries in which we do business could change on a prospective or retroactive basis, including as a result of the recent change in U.S. presidential administration, and any such changes could adversely affect our business, financial condition, results of operations or cash flows. +Our global operations are subject to laws and regulations that impose significant compliance costs and create reputational and legal risk. +Due to the international scope of our operations, we are subject to a complex system of commercial regulations around the world. Recent years have seen an increase in the development and enforcement of laws regarding trade compliance, as well as new regulatory requirements regarding privacy and data protection, such as the European Union General Data Protection Regulation. For example, in January 2024, the Tax Administration Service in Mexico amended the customs requirements for transactions between a maquiladora in Mexico shipping its manufactured goods to a domestic Mexican company resulting in increased costs for our Mexican operations. Our foreign subsidiaries and affiliates are governed by laws, rules and business practices that differ from those of the U.S. The activities of these entities may not comply with U.S. laws or business practices or our Code of Business Conduct. Violations of these laws may result in severe criminal or civil sanctions, could disrupt our business and result in an adverse effect on our reputation, business, financial condition, results of operations or cash flows. We cannot predict the nature, scope or effect of future regulatory requirements, or the ability to obtain any government certification or permit pursuant to any regulatory requirement, to which our operations might be subject or the manner in which existing laws might be administered or interpreted. +We are subject to national and international anti-corruption laws and regulations laws, such as the U.S. Foreign Corrupt Practices Act (“FCPA”), the U.K. Bribery Act (the “Bribery Act”) and export controls and economic sanctions programs, including those administered by the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”), relating to our business and our employees. As part of our business, we deal with state-owned business enterprises, the employees of which are considered foreign officials for purposes of the FCPA’s prohibition on providing anything of value to foreign officials for the purposes of obtaining or retaining business or securing any improper business advantage. In addition, the provisions of the Bribery Act extend beyond bribery of foreign public officials and also apply to transactions with individuals that a government does not employ. Some of the international locations in which we operate lack a developed legal system and have higher than normal levels of corruption. +Our continued expansion outside the United States, including in China, India and developing countries, and our development of new partnerships worldwide, could increase the risk of FCPA, OFAC or Bribery Act violations in the future. Despite our policies, procedures and compliance programs, our internal control and compliance systems may not be able to protect from prohibited acts willfully committed by our employees, agents or business partners that would violate such applicable laws and regulations. Additionally, there can be +23 +Table of Contents +no assurance that our policies and procedures will effectively prevent us from violating these regulations in every transaction in which we may engage or provide a defense to any alleged violation. For example, actions taken by OFAC in response to the Russia-Ukraine War have included the imposition of export controls and broad financial and economic sanctions against Russia, Belarus and specific areas of Ukraine. Any violation or alleged violation of these laws and regulations, even if prohibited by our policies, could result in criminal or civil sanctions, reputational damage or other substantial costs and penalties, any of which could adversely affect our business, financial condition, results of operations or cash flows. In particular, we may be held liable for actions that our joint venture partners take inside or outside of the United States, even though our partners may not be subject to these laws. Any such improper acts could damage our reputation, subject us to civil or criminal judgments, fines or penalties, and could otherwise disrupt our business. +Our operations are also subject to certain antitrust and competition laws in the jurisdictions in which we conduct our business, in particular the United States and Europe. These laws prohibit, among other things, anticompetitive agreements and practices. If any of our commercial agreements or practices are found to violate or infringe such laws, we may be subject to civil and other penalties. We may also be subject to third-party claims for damages. Further, agreements that infringe antitrust and competition laws may be void and unenforceable, in whole or in part, or require modification in order to be lawful and enforceable. Accordingly, any violation of these laws could harm our reputation and could have a material adverse effect on our business, financial condition, results of operations or cash flows. +From time to time, we are subject to litigation or other commercial disputes and other legal and regulatory proceedings relating to our business, including actual or perceived failure to comply with the laws and regulations mentioned above. Due to the inherent uncertainties of any litigation, commercial disputes or other legal or regulatory proceedings, we cannot accurately predict their ultimate outcome, including the outcome of any related appeals. An unfavorable outcome could materially adversely impact our business, financial condition, results of operations or cash flows. Furthermore, as required by U.S. GAAP, we establish reserves based on our assessment of contingencies, including contingencies related to legal claims asserted against us. Subsequent developments in legal proceedings may affect our assessment and estimates of the loss contingency recorded as a reserve and require us to make payments in excess of our reserves, which could have an adverse effect on our business, financial condition, results of operations or cash flows. +We may be adversely impacted by the effects of climate change and may incur increased costs and experience other impacts due to climate change. +The scientific consensus indicates that emissions of GHG continue to alter the composition of Earth’s atmosphere in ways that are affecting, and are expected to continue to affect, the global climate. The potential impacts of climate change on our customers and end-users, product offerings, operations, facilities and suppliers are accelerating and uncertain, as they will be particular to local, customer-specific circumstances. These potential impacts may include, among other things, rising sea levels and the frequency and severity of weather events as well as customer and end-user product changes either through preference or regulation. +Concerns regarding climate change may lead to additional international, national, regional and local legislative and regulatory responses. For example, enhanced mandatory climate reporting requirements came into force in 2019 and again in 2022 in the United Kingdom and broader sustainability reporting requirements (including climate) will apply to certain European Union entities on a staged basis from 2024 and to their non-European Union parent undertakings from 2028. We believe these reporting requirements could increase our reporting and compliance costs. Various stakeholders, including legislators and regulators, shareholders and non-governmental organizations, are continuing to look for ways to reduce GHG emissions, including limits on GHG emissions, bans on future sales of gas-powered vehicles, and measures intended to incentivize GHG reduction such as fuel taxes, carbon taxes and subsidies. As the impact of any future GHG legislative or regulatory requirements on our global businesses and products is dependent on the timing, scope and design of the mandates or standards, we are currently unable to predict the potential impact. Moreover, as discussed in “— Risks Related to our Business Operations — Evolving customer needs and developing technologies may threaten our existing business and growth ”, certain consequences of climate change, such as shifts in customer and end-user preferences and the pace and extent to which customers and end-users adopt alternative power, including electrified vehicles, could impact demand for our products and could have a material adverse effect on our business, financial condition, results of operations or cash flows. +24 +Table of Contents +Our operations are subject to increasingly stringent environmental laws and regulations, and we are also subject to laws requiring cleanup of contaminated property. +Our plants and operations are subject to increasingly stringent environmental laws and regulations in all of the countries in which we operate, including laws and regulations governing air emissions, wastewater and storm water discharges and the generation, handling, storage, transportation, treatment and disposal of waste materials. While we believe that we are in compliance in all material respects with these environmental laws and regulations, there can be no assurance that we will not be adversely impacted by costs, liabilities or claims with respect to existing or subsequently acquired operations, under either present laws and regulations or those that may be adopted or imposed in the future. We are also subject to laws requiring the cleanup of contaminated property, including laws that impose strict liability for contamination at owned property and for hazardous materials or wastes generated by our plants and operations or those of our predecessors. If a release of hazardous substances occurs at or from any of our (or our predecessors’) current or former properties or at a landfill or another location where we or our predecessors have disposed of (or arranged for the disposal of) hazardous materials, we may be held liable for the contamination and the amount of such liability could be material. We may become subject to additional evolving regulations related to the cleanup of contaminated property. +Risks Related to Cybersecurity and Information Technology Infrastructure +Our information technology environment and our products are exposed to potential security or data breaches or other disruptions, which may adversely impact our operations. +We rely on the capacity, reliability and security of our information technology environment and data security infrastructure in connection with various aspects of our business activities. We also rely on our ability to expand and continually update these technologies and related infrastructure in response to the changing needs of our business. As we implement new technologies, they may not perform as expected. We face the challenge of supporting our older technologies and implementing necessary upgrades. In addition, some of these technologies are managed by third-party service providers and are not under our direct control. If we experience a problem with an important technology, including during upgrades and/or new implementations of technologies, the resulting disruptions could have an adverse effect on our business and reputation. As customers and end-users adopt and rely on cloud-based digital technologies and services we offer, any disruption of the confidentiality, integrity or availability of those services could have an adverse effect on our business and reputation. +Our operations routinely involve collecting, receiving, storing, processing and transmitting personal, sensitive and other confidential information pertaining to our business, customers, end-users, dealers, suppliers, employees and other sensitive matters. The data handled by our technologies is vulnerable to security threats. In addition, our products contain interconnected and increasingly complex technologies that monitor and transmit data and these technologies are potentially subject to cyber-attacks and disruption. For example, we have developed the filtration intelligence technology (FIT) system, which embeds sensors and software within the filtration equipment system designed to optimize filtration maintenance and monitor equipment health. In addition, we provide opportunities for remote working to our employees, which may pose additional information technology risks. The impact of a significant information technology event on either our information technology environment or our products could negatively affect the performance of our products, our reputation, and competitive position. +While we continually work to safeguard our information technology environment and mitigate potential risks, there is no assurance that these actions will be sufficient to timely detect or prevent information technology security threats, such as security breaches, computer malware, ransomware attacks and other cyber-attacks, which are increasing in both frequency and sophistication, along with power outages or hardware failures. These threats could result in unauthorized access, use, modification, disclosure, loss or theft of information, including intellectual property, costly investigations, remediation efforts, notification requirements, privacy or data protection-related compliance obligations, legal claims or proceedings, government enforcement actions, civil or criminal penalties, fines, diversion of management attention, operational changes or other response measures, loss of customer confidence in our security measures, loss of business partners, and negative publicity that could adversely affect our brand, reputation, business, financial condition, results of operations or cash flows. Our cyber insurance policies may not cover, or may cover only a portion of, any potential claims related to such events or may not be adequate to indemnify us for all or any portion of liabilities that may be +25 +Table of Contents +imposed or defense costs incurred. We also cannot be certain that we will be able to maintain insurance coverage, on acceptable terms or in amounts sufficient to cover the potentially significant losses that may result from a security incident or breach, or that the insurer will not deny coverage of any future claim. +In addition, data we collect, store and process are subject to a variety of U.S. and international laws and regulations, such as the European Union's General Data Protection Regulation, which may carry significant potential penalties for noncompliance. +A number of our operations depend on information technology infrastructure and assets that are increasing in complexity, which are undergoing changes as a result of the Separation . +In order to support the new business processes under the terms of our transition services agreement with Cummins, we made significant configuration, process and data changes within many of the information technology systems that we use. If our information technology systems and processes were not sufficient to support our business and financial reporting functions, or if we failed to properly implement our new business processes, manufacturing, shipping, invoicing or other critical operating activities may be interrupted or negatively affected, and our financial reporting may be delayed or inaccurate and, as a result, our business, financial condition, results of operations or cash flows may be materially adversely affected. Even if we were able to successfully configure and change our systems, all technology systems, even with implementation of security measures, are vulnerable to disability, failures or unauthorized access. If our information technology systems were to fail or be breached, this could materially adversely affect our reputation and our ability to perform critical business functions, and sensitive and confidential data could be compromised. +Risks Related to Finance and Financial Market Conditions +We are subject to foreign currency exchange rate and other related risks. +We conduct operations in many areas of the world involving transactions denominated in a variety of currencies. We are subject to foreign currency exchange rate risk to the extent that our costs are denominated in currencies other than those in which we earn revenues. In addition, since our financial statements are denominated in U.S. dollars, changes in foreign currency exchange rates between the U.S. dollar and other currencies have had, and will continue to have, an impact on our business, financial condition, results of operations or cash flows. For example, 37% o f our net sales in 2025 were denominated in a currency other than the U.S. dollar. Additionally, the appreciation of the U.S. dollar against foreign currencies has had and could continue to have a negative impact on our consolidated results of operations due to translation impacts. We currently manage exchange rate and other related risks through the selective use of derivatives, but there can be no assurance that fluctuations in exchange rates and other related risks will not have a material adverse effect upon our business, financial condition, results of operations or cash flows. +We have recorded goodwill as a result of prior acquisitions, and an economic downturn could cause these balances to become impaired, requiring write-downs that would reduce our operating income. +Goodwill amounted to approximately $84.7 million as of December 31, 2025. As required under current accounting rules, we assess goodwill for impairment at least annually and whenever changes in circumstances indicate that the carrying amount may not be recoverable from estimated future cash flows. As of December 31, 2025, management has deemed there is no impairment of our recorded goodwill. However, if future operating performance at one or more of our operating units were to fall significantly below forecast levels or if market conditions for one or more of our acquired businesses were to decline, we could be required to incur a non-cash charge to operating income for impairment. Management will continue to monitor our operating results, our market capitalization, and the impact of the economy to determine if there is an impairment of goodwill in future periods. +Risks Related to Macroeconomic and Geopolitical Conditions +Increased tariffs or the imposition of other barriers to international trade could impact the cost of our products, demand for our products and our competitive position. +Changes to trade protection measures and import or export licensing requirements; the imposition of new, additional, or retaliatory tariffs, quotas, exchange controls, sanctions, trade barriers or other restrictions; and the withdrawal from or modification of trade agreements or the negotiation of new trade agreements, in countries +26 +Table of Contents +where we operate, particularly in Mexico, Canada, China, and India, could impact the cost of our products, demand for our products and the competitive position of our products. Our largest global manufacturing facility is in San Luis Potosi, Mexico, and it supplies products to our U.S. and global markets. There can be no assurance that the consequences of these actions, given our global operations, will not have a material adverse effect upon our business, financial condition, results of operations or cash flows. +For example, since February 2025, the U.S. presidential administration has announced new and substantial tariff increases on imports to the United States from China, Mexico, Canada and India. Since then, various modifications and delays to these tariffs have been implemented, with further changes anticipated. These modifications include additional sector-specific tariffs or other measures. These actions have prompted a variety of tariff responses by countries, which have the potential to affect our business. Several tariff announcements have been followed by announcements of temporary pauses and limited exemptions, such as the temporary exemption for goods that enter the U.S. as qualifying goods under the United States-Mexico-Canada Agreement (“USMCA”), for which the majority of our products from Mexico for the U.S. market are certified compliant, or expected to be certified compliant. These temporary exemptions, including those we are availing ourselves to under the USMCA, may be reduced or eliminated in the future. The ongoing trade disputes associated with these tariff measures and the potential escalation of trade disputes would pose a significant risk to our business and would affect our revenue and cost of goods sold. For instance, we have raised the prices of certain of our products in response to cost increases we have incurred on purchases of finished and other goods and some raw materials due to tariffs. The extent and duration of the tariffs and the resulting impact on general economic conditions and our business are uncertain and depend on various factors, such as negotiations between the U.S. and affected countries, the responses of other countries or regions, exemptions or exclusions that may be granted, availability and cost of alternative sources of supply, and demand for our products in affected markets. Further, actions we take to adapt to new tariffs or trade restrictions, including raising the prices of our products or shifting supply sourcing or production locations, may cause us to modify our operations, lose customers, experience increased costs, or forgo business opportunities. +Political, economic and social uncertainty in geographies where we have significant operations or large offerings of our products could significantly change the dynamics of our competition, customer and end-user base and product offerings and impact our growth opportunities globally. +Our business is subject to the political, economic and other risks that are inherent in operating in numerous countries, including: +• public health crises, including the spread of a contagious disease and other catastrophic events; +• the difficulty of enforcing agreements and collecting receivables through foreign legal systems; +• the imposition of taxes on foreign income and tax rates in certain foreign countries that exceed those in the U.S.; +• difficulty in staffing and managing widespread operations and the application of foreign labor regulations; +• required compliance with a variety of foreign laws and regulations; and +• changes in general economic and political conditions, including changes in relationship with the U.S. in countries where we operate, particularly in Mexico, Canada, China, India and other emerging markets. +As we continue to operate and grow our business globally, our success will depend, in part, on our ability to anticipate and effectively manage these and other related risks. There can be no assurance that the consequences of these and other factors relating to our multinational operations will not have a material adverse effect upon our business, financial condition, results of operations or cash flows. +Risks arising from uncertainty in worldwide and regional market and economic conditions may harm our business and make it difficult to project long-term performance. +Our business is sensitive to global macroeconomic conditions. Future macroeconomic downturns may have an adverse effect on our business, financial condition, results of operations or cash flows, as well as on our distributors, customers, end-users and suppliers, and on activity in many of the industries and markets we +27 +Table of Contents +serve. Among the economic factors which may have such an effect are: public health crises such as pandemics and epidemics, currency exchange rates, difficulties entering new markets, tariffs and governmental trade and monetary policies, and general economic conditions such as inflation, deflation, interest rates and credit availability. +In addition, we face several risks associated with international business and are subject to global events beyond our control, including war, trade disputes, economic sanctions, trade wars and their collateral impacts and other international events. Any of these events could have a material adverse effect on our reputation, business, financial condition, results of operations or cash flows. There may be changes to our business if there is instability, disruption or destruction in a significant geographic region, regardless of cause, including war, terrorism, riot, civil insurrection or social unrest; and natural or man-made disasters, including famine, flood, fire, earthquake, storm or disease. +Risks Related to our Relationship with Cummins +We, or Cummins, may fail to perform under various transaction agreements that were executed as part of the IPO. +The separation agreement and other agreements executed in connection with the IPO determined the allocation of assets and liabilities between Cummins and us following the IPO for those respective areas and include certain indemnifications related to liabilities and obligations. We will rely on Cummins to satisfy Cummins’ performance and payment obligations under these agreements. If Cummins is unable to satisfy its obligations under these agreements, including its indemnification obligations, we could incur operational difficulties or losses that could have an adverse effect on our business, financial condition, results of operations or cash flows. +We may have received better terms from unaffiliated third parties than the terms we received in our agreements with Cummins. +The agreements we entered with Cummins in connection with the separation, including the employee matters agreement, tax matters agreement, intellectual property license agreement, first-fit supply agreement, aftermarket supply agreement, and transitional trademark license agreement, were prepared in the context of our separation from Cummins while we were still a wholly-owned subsidiary of Cummins. Accordingly, during the period in which the terms of those agreements were prepared, we did not have an independent board of directors or a management team that was independent of Cummins. As a result, the terms of those agreements may not reflect terms that would have resulted from arm’s-length negotiations between unaffiliated third parties. Arm’s-length negotiations between Cummins and an unaffiliated third party in another form of transaction, such as a buyer in a sale of a business transaction, may have resulted in more favorable terms to the unaffiliated third party. +Risks Related to our Capital Structure +Changes in the capital and credit markets may negatively affect our ability to access financing to support strategic initiatives. +Disruption of the global financial and credit markets may have an effect on our long-term liquidity and financial condition. Our operations, investment opportunities, access to capital and ability to enforce the obligations of counterparties may be adversely affected by disruptions to the banking system and other financial market volatility. There can be no assurance that the cost or availability of future borrowings will not be impacted by future capital market disruptions. Our term loan agreement and revolving credit facility each contain covenants to maintain certain financial ratios that, under certain circumstances, could restrict our ability to incur additional indebtedness, make investments and other restricted payments, create liens and sell assets. +We have substantial indebtedness and may incur substantial additional debt from time to time, which may impact our ability to service all our indebtedness and react to changes in our industry and limit our ability to seek further financing on favorable terms. +We have approximately $570.0 million of outstanding indebtedness consisting of proceeds of the term loan as of December 31, 2025. See “ Description of Material Indebtedness of Atmus .” +28 +Table of Contents +Our ability to make scheduled payments on or refinance our debt obligations depends on our financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to certain financial, business, legislative, regulatory and other factors beyond our control. We may be unable to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal and interest on our indebtedness. +If our cash flows and capital resources are insufficient to fund our debt service obligations, we could face substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures or to dispose of material assets or operations, alter our dividend policy, seek additional debt or equity capital or restructure or refinance our indebtedness. We may not be able to affect any such alternative measures on commercially reasonable terms or at all and, even if successful, those alternative actions may not allow us to meet our scheduled debt service obligations. The instruments that will govern our indebtedness may restrict our ability to dispose of assets and may restrict the use of proceeds from those dispositions and may also restrict our ability to raise debt or equity capital to be used to repay other indebtedness when it becomes due. We may not be able to consummate those dispositions or to obtain proceeds in an amount sufficient to meet any debt service obligations when due. +In addition, we conduct operations through our subsidiaries and joint ventures. Accordingly, repayment of our indebtedness will depend on the generation of cash flow by these entities, and their ability to make such cash available to us, by dividend, debt repayment or otherwise. These entities may not have any obligation to pay amounts due on our indebtedness or to make funds available for that purpose. These entities may not be able to, or may not be permitted to, make adequate distributions to enable us to make payments in respect of our indebtedness. Each of these entities is a distinct legal entity and, under certain circumstances, legal, tax and contractual restrictions may limit our ability to obtain cash from them. In the event that we do not receive distributions from these entities, we may be unable to make required principal and interest payments on our indebtedness. +Our inability to generate sufficient cash flows to satisfy our debt obligations, or to refinance our indebtedness on commercially reasonable terms or at all, may materially adversely affect our business, financial condition, results of operations and cash flows and our ability to satisfy our obligations under our indebtedness or pay dividends on our common stock. +We may incur substantial additional debt from time to time, including secured indebtedness, to finance working capital, capital expenditures, research and development, investments or acquisitions or for other purposes. If we do so, the risks related to our high level of debt could intensify. Specifically, our high level of debt could have important consequences, including: +• making it more difficult for us to satisfy our obligations with respect to our debt; +• limiting our ability to obtain additional financing to fund future working capital, capital expenditures, business development or other general corporate requirements, including dividends; +• increasing our vulnerability to general adverse economic and industry conditions; +• exposing us to the risk of increased interest rates as certain of our borrowings are and may in the future be at variable rates of interest; +• limiting our flexibility in planning for and reacting to changes in our industry; +• impacting our effective tax rate; and +• increasing our cost of borrowing. +Substantially all of our assets, subject to certain exceptions, are pledged as security for our term loan and revolving credit facility, and if we default on our obligations, we may suffer adverse consequences, including foreclosure on our assets. +In connection with the revolving credit facility and term loan, we signed a pledge and security agreement, whereby all of our assets, subject to certain exceptions, are pledged as collateral to secure borrowings thereunder. If we default on our obligations under such facilities, the lenders may have the right to foreclose +29 +Table of Contents +upon and sell, or otherwise transfer, the collateral subject to their security interests or their superior claim. In such event, we may be forced to sell our investments to raise funds to repay our outstanding borrowings in order to avoid foreclosure and these forced sales may be at times and at prices we would not consider advantageous. Moreover, such deleveraging of us could significantly impair our ability to effectively operate our business in the manner in which we intend to operate. As a result, we could be forced to curtail or cease new investment activities and lower or eliminate any dividends that we may pay to our shareholders in the future. +In addition, if the lenders exercise their right to sell the assets pledged under our secured credit facilities, such sales may be completed at distressed sale prices, thereby diminishing or potentially eliminating the amount of cash available to us after repayment of the amounts outstanding under such facilities. +Risks Related to Ownership of our Common Stock +The price of our common stock may fluctuate substantially, and you could lose all or part of your investment in our common stock as a result. +There may be wide fluctuations in the market value of our common stock as a result of many factors. Factors that may cause the market price of our common stock to fluctuate, some of which may be beyond our control, include: +• our quarterly or annual earnings, or those of other companies in our industry; +• actual or anticipated fluctuations in our operating results; +• changes in earnings estimated by securities analysts or our ability to meet those estimates; +• the operating and stock price performance of other comparable companies; +• changes to the regulatory and legal environment in which we operate; +• overall market fluctuations and domestic and worldwide economic conditions; and +• other factors described in these “ Risk Factors ” and elsewhere in this Annual Report on Form 10-K. +Stock markets in general have experienced volatility that has often been unrelated to the operating performance of a particular company. These broad market fluctuations may adversely affect the trading price of our common stock. In the past, following periods of volatility in the overall market and the market price of a company’s securities, securities class action litigation has often been instituted against these companies. Such litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources. +Our stock repurchase program could affect the price of our common stock and may be suspended or terminated at any time, which may result in a decrease in the trading price of our common stock. +Our repurchase program does not have an expiration date and we are not obligated to repurchase a specified number or dollar value of shares. Further, our stock repurchase program may be suspended, delayed or discontinued at any time, which could cause the market price of our common stock to decline. Repurchases pursuant to our stock repurchase program could affect our stock price and the existence of our stock repurchase program could also cause our stock price to be higher than it would be in the absence of such a program. There can be no assurance that any stock repurchases will enhance shareholder value because the market price of our common stock may decline below the levels at which we repurchased shares of common stock. +We cannot guarantee the payment of dividends on our common stock, or the timing, or amount of any such dividends. +We have no obligation to continue paying a quarterly cash dividend to holders of our common stock, and our dividend policy may change at any time without notice to our shareholders. The payment of any dividends in the future to our shareholders, and the timing and amount thereof, will fall within the discretion of our board of directors. Our board of directors’ decisions regarding the payment of dividends will depend on many factors, such as our financial condition, earnings, capital requirements, debt service obligations, restrictive covenants in +30 +Table of Contents +the agreements governing our indebtedness, general economic business conditions, industry practice, legal requirements and other factors that our board of directors may deem relevant. Our ability to pay dividends will depend on our ongoing ability to generate cash from operations and on our access to the capital markets. We cannot assure you that we will pay our anticipated dividend in the same amount or frequency, or at all, in the future. +Applicable laws and regulations and provisions of our Charter and Bylaws may discourage takeover attempts and business combinations that shareholders might consider in their best interests. +Applicable laws and provisions of our Charter and Bylaws may delay, deter, prevent or render more difficult a takeover attempt that our shareholders might consider in their best interests. For example, they may prevent our shareholders from receiving the benefit from any premium to the market price of our common stock offered by a bidder in a takeover context. Even in the absence of a takeover attempt, the existence of these provisions may adversely affect the prevailing market price of our common stock if they are viewed as discouraging takeover attempts in the future. +Our Charter and Bylaws provide provisions that are intended to encourage prospective acquirers to negotiate with our board of directors and management team, rather than to attempt a hostile takeover, which could deter coercive takeover practices and inadequate takeover bids. These provisions provide for: +• advance notice requirements regarding how our shareholders may present proposals or nominate directors for election at shareholder meetings; +• the right of our board of directors to issue one or more series of preferred stock with such powers, rights and preferences as the board of directors shall determine; and +• the inability of shareholders to call special meetings of shareholders and the requirement that all shareholder action be taken at a meeting rather than by written consent. +Under the tax matters agreement with Cummins, we are subject to certain restrictions, including restrictions on our ability to enter into acquisition, merger, liquidation, sale and stock redemption transactions with respect to our stock. These restrictions may limit our ability to pursue certain strategic transactions or other transactions that it may believe to be in the best interests of our shareholders or that might increase the value of our business. +We are also subject to Section 203 of the Delaware General Corporation Law (the “DGCL”), an anti-takeover statute. In general, Section 203 of the DGCL prohibits a publicly held Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years following the time the person became an interested stockholder. +These limitations may adversely affect the prevailing market price and market for our Common Stock if they are viewed as limiting the liquidity of our stock or discouraging takeover attempts in the future. +The provision of our Charter designating the Court of Chancery in the State of Delaware and the federal district courts for the District of Delaware as the exclusive forums for certain types of lawsuits may have the effect of discouraging lawsuits against our directors and officers. +Our Charter provides that, unless we consent in writing to the selection of an alternative forum, to the extent permitted by law, the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, the federal district court for the District of Delaware) shall be the sole and exclusive forum for: (i) any derivative action or proceeding brought on behalf of us, (ii) any action asserting a claim of breach of fiduciary duty owed by any director, officer or other employee of us to us or our shareholders, (iii) any action arising pursuant to any provision of the DGCL, our Charter or our Bylaws or (iv) any action asserting a claim governed by the internal affairs doctrine. It further provides that, unless we consent in writing to the selection of an alternative forum, to the extent permitted by law, the federal district courts of the U.S. shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act of 1933, as amended (the “Securities Act”). The exclusive forum clauses described above shall not apply to suits brought to enforce a duty or liability created by the Securities Exchange Act of 1934, as amended (the “Exchange Act”) or any other claim for which the federal courts have exclusive jurisdiction. Any person or entity purchasing or +31 +Table of Contents +otherwise acquiring any interest in shares of our common stock will be deemed to have notice of, and consented to, the exclusive forum provisions in our Charter. +Although we believe these provisions benefit us by providing increased consistency in the application of applicable law in the types of lawsuits to which they apply, the provisions may have the effect of discouraging lawsuits against our directors and officers and may limit a shareholder’s ability to bring a claim in a judicial forum it finds favorable for disputes with us or our directors, officers or employees. The enforceability of similar choice of forum provisions in other companies’ certificates of incorporation has been challenged in legal proceedings and there is uncertainty as to whether a court would enforce such provisions, in particular with respect to causes of action arising under the Securities Act. In addition, investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. It is possible that, in connection with any applicable action brought against us, a court could find the choice of forum provisions contained in our Charter to be inapplicable or unenforceable in such action. If so, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business, financial condition, results of operations or cash flows. +Item 1B. Unresolved Staff Comments +None. +Item 1C. Cybersecurity +Our management and board of directors (the “Board”) recognize the importance of maintaining the capacity, reliability and security of our information technology environment and data security infrastructure to deliver on the expectations, and maintain the trust and confidence, of our customers, clients, business partners, employees and investors. The Board is actively involved in our risk management practices, including oversight of our overall enterprise risk management (“ERM”) framework, in which cybersecurity risk management is reviewed by the Board on at least an annual basis. Our cybersecurity and privacy programs align with the recognized frameworks established by the National Institute of Standards and Technology and leverage the International Organization for Standardization and other applicable industry standards. The focus of our cybersecurity program is preserving the confidentiality, security and availability of our systems and data, preventing and mitigating cybersecurity threats and effectively responding to cybersecurity incidents when they occur. +Cybersecurity Risk Management and Strategy +We have established and implemented processes to assess, identify and manage material cybersecurity risks. Cybersecurity risks are assessed, identified, and managed by our Executive Director of Cybersecurity and Infrastructure, with direct supervision by our Chief Information Officer (“CIO”) and with the assistance of our internal audit and legal teams. Our Executive Director of Cybersecurity and Infrastructure shares information regarding such risks with our management’s senior level information security council (the “Information Security Council”), which consists of our CIO, Senior Vice President and Chief Financial Officer, Vice President and Chief Technical Officer, Senior Vice President and Chief Legal Officer & Corporate Secretary, Senior Vice President of Strategy and President, Industrial Solutions and Director of Internal Audit & Enterprise Risk Management, which supports the Audit Committee’s oversight of cybersecurity risk, including by providing regular reports on various cybersecurity matters. +We have in place robust physical, technical, administrative and organizational controls for the securing of our information systems. +We maintain a comprehensive, risk-based, third-party risk management process to identify , assess and manage cybersecurity risks associated with third-party service providers. Third-party service providers undergo thorough pre-engagement due diligence, including security and privacy assessments. All contracts with such third-party service providers are required to contain security and data processing terms no less stringent than those employed by us in safeguarding our own data. Any third-party service providers with access to confidential or sensitive data are subject to ongoing oversight activities, including assessments and audits, throughout the lifetime of the engagement. +Additionally, we maintain an incident response plan (the “Incident Response Plan”), which establishes a comprehensive, effective, and repeatable process for identifying, escalating and responding to cybersecurity +32 +Table of Contents +incidents. We test and evaluate the Incident Response Plan, including contingency and recovery plans, on a regular basis, and we develop, implement and review contingency and recovery plans for information systems, both internal and vendor managed. The results of such assessments drive changes and enhancements to governance, policies, procedures, technologies, and partner decisions to continuously monitor and improve our cybersecurity risk management. The Information Security Council practices the procedures of the Incident Response Plan through tabletop exercises facilitated by external consultants. We also leverage third-party support, including vendors, consultants, and assessors, to analyze risk exposure, to identify remediation opportunities and to reduce our overall cybersecurity risk. +Previous cybersecurity incidents have not materially affected us, including our business strategy, financial condition, results of operations or cash flows. However, risks from cybersecurity threats, including but not limited to security breaches, computer malware, ransom attacks, other cyber-attacks, or other similar threats may materially affect us, including our business, financial condition, results of operations or cash flows. +Governance +The Board oversees the Company’s overall ERM process, including the management of risks arising from cybersecurity threats. The Audit Committee is responsible for overseeing our risk exposure to information security, cybersecurity and data protection, as well as the steps management has taken to monitor and control such exposures, and regularly provides reports to the Board on cybersecurity risk management. The Audit Committee Charter explicitly sets forth the Audit Committee’s responsibility for such oversight. The Audit Committee receives regular presentations and reports from our Executive Director of Cybersecurity and Infrastructure and our CIO on cybersecurity risks and prompt and timely information regarding any cybersecurity incident that meets established reporting thresholds. Our Executive Director of Cybersecurity and Infrastructure and our CIO also report to the Board at least annually and to the Audit Committee at least quarterly on current internal and external developments in cybersecurity, as part of the Board’s enterprise risk management review, and the Board receives reports of Audit Committee discussions regarding its oversight of cybersecurity risk. We have protocols by which certain cybersecurity incidents that meet established reporting thresholds are escalated internally and, where appropriate, reported to the Audit Committee or the Board in a timely manner. +Our Global Cybersecurity Operations function is a global team led by our Executive Director of Cybersecurity and Infrastructure, who reports to our CIO. In turn, our CIO reports to our Chief Financial Officer. The Information Security Council provides additional oversight for assessing and managing cybersecurity risk . +Our Executive Director of Cybersecurity and Infrastructure has over 15 years of cybersecurity and information technology experience, including as Director of Cybersecurity for various institutions. Our Executive Director of Cybersecurity and Infrastructure has a Bachelor of Science in Information Science and Technology and a Master’s of Science in Information Sciences, Cybersecurity, and Information Assurance, and a Doctorate in Cybersecurity; he also has a Certified Information Systems Security Professional certification, a GIAC Information Security Professional certification and a CompTIA Security+ certification. Our CIO has over 30 years of experience in information technology, having held multiple executive leadership roles, including CIO positions at several organizations. Our CIO holds a bachelor’s degree in computer science. Each of the other members of the Information Security Council have relevant educational and industry experience, including managing risks at our Company and at similar companies. +33 +Table of Contents +Item 2. Properties +Atmus maintains strong global customer relationships, supported by an established salesforce with work locations in over 25 countries as of December 31, 2025. Also, as of December 31, 2025, Atmus operates through 11 distribution centers, 10 manufacturing facilities and five technical facilities plus 10 manufacturing facilities and two technical facilities operated by its joint ventures, giving Atmus presence on six continents. Our corporate headquarters are located in Nashville, Tennessee. We consider our properties to be suitable for their present purposes, well-maintained and in good operating condition. +Our headquarters and principal facilities are as follows: +Facility Type U.S. Facilities Facilities Outside the U.S. +Headquarters +Tennessee : Nashville (30,500 square feet), leased. +Manufacturing +Wisconsin : Neillsville (166,000 square feet), owned. +Australia : Kilsyth (129,000 square feet), leased. +Brazil : São Paulo (76,000 square feet), leased. +China : Shanghai (109,000 square feet), leased. +Mexico : San Luis Potosi (472,000 square feet), leased. +South Africa : Johannesburg (30,200 square feet), leased. +South Korea : Mado (95,000 square feet), leased; Suwon (64,000 square feet), owned. +Technology +Wisconsin : Stoughton (59,000 square feet), leased. +China : Wuhan (23,000 square feet), leased. +India: Pune (20,500 square feet), leased. +Manufacturing and technology +Tennessee: Cookeville (385,000 square feet), leased. +France: Quimper (98,000 square feet), owned. +Item 3. Legal Proceedings +The matters described under Legal Proceedings in Note 14, Commitments and Contingencies to the Consolidated Financial Statements are incorporated herein by reference. +Item 4. Mine Safety Disclosures +Not applicable. +34 +Table of Contents +PART II +Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities +The Company’s common stock is traded on the New York Stock Exchange under the symbol “ATMU.” As of January 31, 2026, there were 8 registered shareholders of common stock. This does not include the number of persons whose stock is in nominee or “street” name accounts through brokers. +We did not sell any equity securities during 2025 in offerings that were not registered under the Securities Act. +We did not have any stock repurchase activity for each of the three months in the quarter ended December 31, 2025. +On July 17, 2024, our Board of Directors authorized a $150 million share repurchase program. The program does not have an expiration date and may be suspended or discontinued at any time. Since the inception of the program, we repurchased approximately $80.7 million of common stock pursuant to this authorization and as of December 31, 2025, we had approximately $69.3 million of share repurchase authorization remaining. See related information in Note 16, Share Repurchase Program . While not considered repurchases of shares, the Company does at times withhold shares that would otherwise be issued under stock-based awards to pay the related taxes for grants of stock-based awards that vested. +Comparison of Cumulative Total Return +The following graph compares the cumulative total return on our common stock with the cumulative total return to the S&P 500 Index and S&P 500 Industrial Index. The graph assumes, in each case, that an initial investment of $100 is made as of May 26, 2023, our first day of trading. The cumulative total return reflects market prices at the end of each fiscal year post May 26, 2023. +Item 6. Reserved +Reserved. +Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations +The discussion and analysis presented below provides information which management believes is relevant to an assessment and understanding of Atmus Filtration Technologies Inc. (the “Company,” “Atmus,” “we,” “our” and “us”) consolidated results of operations and financial condition. The discussion should be read in conjunction with Atmus’ consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described under the heading “Risk Factors.” Actual results may differ materially from those contained in any forward-looking statements. Unless the context otherwise requires, references in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” to +35 +Table of Contents +“Atmus” is intended to mean the business and operations of Atmus Filtration Technologies Inc. and its consolidated subsidiaries. +The following is the discussion and analysis of changes in the financial condition and results of operations for the year ended December 31, 2025 compared to the year ended December 31, 2024. A discussion of the changes in the financial condition and results of operations for the year ended December 31, 2024 compared to the year ended December 31, 2023 can be found in Part II, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2024, which was filed with the SEC on February 21, 2025. +Cautionary Note Regarding Forward-Looking Statements +This Annual Report on Form 10-K contains forward-looking statements within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995, including, without limitation, those that are based on current expectations, estimates and projections about the industries in which we operate and management’s views, plans, objectives, projections, beliefs and assumptions. Forward-looking statements may be identified by the use of words such as “anticipates,” “expects,” “forecasts,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “could,” “should,” “may” or words of similar meaning. Examples of forward-looking statements include, but are not limited to, statements we make regarding the outlook for our future business and financial performance, discussions of future operations, impact of planned acquisitions and dispositions, our strategy for growth, product development activities, regulatory approvals, market position, expenditures and the effects of the Separation and IPO (each as defined in Note 1, Description of the Business , to our Consolidated Financial Statements included herein). These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions, which we refer to as “future factors,” which are difficult to predict. If the underlying assumptions prove correct, or known or unknown risks or uncertainties materialize, our actual outcomes, results and financial condition may differ materially from what is expressed, implied or forecasted in such forward-looking statements. Risks and uncertainties include, but are not limited to: +• Significant customer concentration among Cummins, PACCAR, and the Traton Group; +• The loss of a top OEM relationship or changes in the preferences of Atmus' aftermarket end-users; +• Deriving significant earnings from investees that Atmus does not directly control; +• Significant competition in the markets Atmus serves; +• Ability to attract and retain qualified personnel; +• Strategic transactions, such as acquisitions, divestitures, and joint ventures; +• Management of productivity improvements; +• Work stoppages and other labor matters; +• Variability in material and commodity costs; +• Interruptions in the supply of critical materials and components; +• Complexity of supply chain and manufacturing; +• Atmus’ customers operating in cyclical industries and the current economic conditions in these industries; +• Exposure to potential claims related to warranties and claims for support outside of standard warranty obligations; +• Products being subject to recall for performance or safety-related issues; +• Inability or failure to adequately protect and enforce Atmus’ intellectual property rights and the cost of protecting or enforcing Atmus' intellectual property rights; +36 +Table of Contents +• Sales of counterfeit versions of products, as well as unauthorized sales of products; +• Statutory and regulatory requirements that can significantly increase costs; +• Changes in international, national and regional trade laws, regulations and policies affecting international trade; +• Unanticipated changes in Atmus' effective tax rate, the adoption of new tax legislation or exposure to additional income tax liabilities, as well as audits by tax authorities resulting in additional tax payments for prior periods; +• Significant compliance costs and reputational and legal risks imposed by Atmus' global operations and the laws and regulations to which these are subject; +• Effects of climate change may cause Atmus to incur increased costs; +• Operations being subject to increasingly stringent environmental laws and regulations as well as to laws requiring cleanup of contaminated property; +• Potential system or data security breaches or other disruptions; +• Foreign currency exchange rate; +• Potential economic downturns that could cause the balances of recorded goodwill to decrease; +• Increased tariffs or the imposition of other barriers to international trade; +• Political, economic, and social uncertainty in geographies where Atmus has significant operations or large offerings of products; +• Potential failure of performance by Atmus or Cummins under transaction agreements executed as part of the IPO; +• Terms from unaffiliated third parties may have been better than what Atmus received in agreements with Cummins; +• Changes in capital and credit markets; +• Substantial indebtedness consisting of Atmus’ term loan and revolving credit facility, which may impact Atmus' ability to service all its indebtedness and react to changes in the industry; and +• Substantially all Atmus' assets pledged as security for its term loan and revolving credit facility. +Additional information about these future factors and the material factors or assumptions underlying such forward-looking statements may be found under the section entitled Risk Factors in this Annual Report on Form 10-K. It is not possible to predict or identify all such factors, and the risks described above should not be considered a complete statement of all potential risks and uncertainties. Readers are urged to consider these factors carefully in evaluating forward-looking statements and are cautioned not to place undue reliance on forward-looking statements. The forward-looking statements made herein are made only as of the date hereof and we undertake no obligation to publicly update or to revise any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law. +General Overview +Company Overview +We are one of the global leaders of filtration products for on-highway commercial vehicles and off-highway agriculture, construction, mining and power generation vehicles and equipment. We design and manufacture advanced filtration products, principally under the Fleetguard brand, that provide superior asset protection and enable lower emissions. We estimate that approximately 14% of our net sales in 2025 were generated through first-fit sales to OEMs, where our products are installed as components for new vehicles and equipment. We estimate that approximately 86% of our net sales in 2025 were generated in the aftermarket, where our +37 +Table of Contents +products are installed as replacement or repair parts, leading to a strong recurring revenue base. Building on our more than 65-year history, we continue to grow and differentiate ourselves through our global footprint, comprehensive offering of premium products, technology leadership and multi-channel path to market. +Separation from Cummins +In April 2022, Cummins Inc. (“Cummins”) announced its intention to separate its filtration business (the “Filtration Business”) into a standalone publicly traded company (the “Separation”). We were incorporated in Delaware on April 1, 2022, as a wholly-owned subsidiary of Cummins, in anticipation of the Separation, and prior to the completion of our initial public offering (the “IPO”), Cummins completed, in all material respects, the transfer of the assets and liabilities of the Filtration Business to us and our subsidiaries. +Our Registration Statement on Form S-1, as amended, filed on May 16, 2023, was declared effective on May 25, 2023, and our common shares began trading on the New York Stock Exchange under the symbol “ATMU” on May 26, 2023. On May 30, 2023, the IPO was completed through Cummins’ exchange of 16,243,070 shares of our common stock, including the underwriters’ full exercise of their option to purchase 2,118,661 shares to cover over-allotments. None of the proceeds of the IPO were for the benefit of Atmus. As of the closing of the IPO, Cummins owned approximately 80.5% of the outstanding shares of our common stock. +On September 30, 2022, and as amended on February 15, 2023, Atmus entered into a $1.0 billion credit agreement (“Credit Agreement”) with a syndicate of banks, providing for a $600 million term loan facility (the “term loan”) and a $400 million revolving credit facility (the “revolving credit facility”), in anticipation of the Separation. Borrowings under the Credit Agreement did not become available until the IPO occurred. Upon completion of the IPO, we borrowed $650 million, consisting of proceeds of the term loan and amounts drawn under the revolving credit facility, and paid such amounts to Cummins in partial consideration for the Separation. +In connection with the Separation, we entered into various agreements with Cummins, including a separation agreement. In the separation agreement, there were certain assets and liabilities identified in the schedules which were retained by Cummins, and those that were transferred to the Company. These agreements comprehensively provide a framework for our relationship with Cummins and govern various interim and ongoing relationships between us and Cummins post IPO. +On February 14, 2024, Cummins announced an exchange offer whereby Cummins shareholders could exchange all or a portion of Cummins common stock for shares of Atmus common stock owned by Cummins. The divestiture of Atmus shares by Cummins was completed on March 18, 2024 and resulted in the full separation of Atmus and divestitures of Cummins’ entire ownership and voting interest in Atmus (“Full Separation”). +Following full separation, Cummins continued to provide certain services to Atmus under the transition services agreement. The transition services agreement related primarily to administrative services for which Atmus paid Cummins mutually agreed upon fees. These services were provided through and ended in September 2025. +Basis of Presentation +For the periods prior to the IPO, the discussion below relates to the financial position and results of operations of a combination of entities under common control that have been “carved out” of Cummins’ historical consolidated financial statements and accounting records. The historical combined financial statements reflect our historical financial position, results of operations and cash flows, in conformity with generally accepted accounting principles in the United States of America (“U.S. GAAP”). Refer to Note 2, Basis of Presentation , to the Consolidated Financial Statements included elsewhere in this report for additional information. +For the period subsequent to our IPO on May 26, 2023, as a standalone public company, we present our financial statements on a consolidated basis. The Consolidated Financial Statements have been prepared in conformity with U.S. GAAP. +38 +Table of Contents +Factors Affecting Our Performance +Our financial performance depends, in large part, on varying conditions in the markets we serve. Demand in these markets tends to fluctuate in response to overall economic conditions. Our revenues may also be impacted by OEM inventory levels, production schedules, commodity prices, work stoppages and supply chain challenges. Economic downturns in markets we serve generally result in reduced sales of our products and can result in price reductions in certain products and/or markets. As a worldwide business, our operations are also affected by currency exchange rate changes, political and economic uncertainty, public health crises (epidemics or pandemics) and regulatory matters, including adoption and enforcement of environmental and emission standards in the countries we serve. Some of the more important factors affecting our performance are briefly discussed below. +Market demand +Aftermarket demand remained soft throughout 2025. We continue to be in a period of slow growth in global aftermarkets, and this trend is expected to continue into 2026. First-fit experienced reduced demand in 2025 reflecting depressed market conditions. First-fit demand is expected to remain at reduced levels in 2026 based on overall market cyclicality. +Global supply chain +Overall supply chain conditions remained largely stable during 2025 with minimal disruptions being experienced. Logistics costs increased during 2025, primarily due to the transition to a standalone distribution network as part of the Separation and the impact of tariffs. Our management team continues to monitor and evaluate all of these factors and the related impacts of our business and operations, and we are diligently working to continue to minimize any supply chain impacts to our business and to our customers. +Commodity prices, labor, inflation and foreign currency exchange rates +We have experienced general variability in direct material costs during 2025. While the costs of our principal materials fluctuate, generally we believe there will continue to be an adequate supply of the materials we use and they will remain available. +Labor and people related costs have remained stable with increases primarily driven by annual merit and variable compensation programs. +Additionally, the appreciation of the U.S. dollar against foreign currencies has had an unfavorable impact on our consolidated results of operations in 2025. There can be no assurances as to the impact of foreign currency exchange rates on our results in 2026. +Standalone costs +We have incurred additional costs associated with becoming a standalone public company. During the year ended December 31, 2025, we incurred approximately $15.5 million related to one-time separation costs including $11.2 million within Cost of Sales and $4.3 million within Selling, general and administrative expenses. In addition, we have incurred capital expenditures in connection with the Separation of approximately $9.5 million. These expenses and capital expenditures primarily relate to the establishment of functions previously co-mingled with Cummins, such as information technologies, distribution centers, manufacturing and human resources. The one-time costs incurred during the year ended December 31, 2025, were primarily associated with establishing our own distribution network and our technology transformation and modernization project. The transition services agreement under which Cummins had continued to provide certain services related primarily to administrative services ended in September 2025. With the conclusion of this agreement, we do not expect to incur any additional one-time expenses or capital expenditures in future periods in connection with becoming a standalone public company. +39 +Table of Contents +Results of Operations +Operating results were as follows (in millions, except per share amounts): +Years Ended December 31, +Favorable +(Unfavorable) +2025 vs. 2024 +Favorable +(Unfavorable) +2024 vs. 2023 +2025 2024 +2023 +Amount % Amount % +NET SALES $ 1,764.3 $ 1,669.6 $ 1,628.1 $ 94.7 5.7 % $ 41.5 2.5 % +Cost of sales 1,266.0 1,207.5 1,195.4 (58.5) (4.8) % (12.1) (1.0) % +GROSS MARGIN 498.3 462.1 432.7 36.2 7.8 % 29.4 6.8 % +OPERATING EXPENSES AND INCOME +Selling, general and administrative expenses 184.3 187.6 174.7 3.3 1.8 % (12.9) (7.4) % +Research, development and engineering expenses 40.7 40.6 42.5 (0.1) (0.2) % 1.9 4.5 % +Equity, royalty and interest income from investees 33.8 34.3 33.6 (0.5) (1.5) % 0.7 2.1 % +Other operating expense, net 8.1 2.0 0.7 (6.1) (305.0) % (1.3) (185.7) % +OPERATING INCOME 299.0 266.2 248.4 32.8 12.3 % 17.8 7.2 % +Interest expense 33.4 40.6 25.8 7.2 17.7 % (14.8) (57.4) % +Other income, net 0.6 9.2 3.8 (8.6) (93.5) % 5.4 142.1 % +INCOME BEFORE INCOME TAXES 266.2 234.8 226.4 31.4 13.4 % 8.4 3.7 % +Income tax expense 58.8 49.2 55.1 (9.6) (19.5) % 5.9 10.7 % +NET INCOME $ 207.4 $ 185.6 $ 171.3 $ 21.8 11.7 % $ 14.3 8.3 % +PER SHARE DATA: +Basic earnings per share $ 2.52 $ 2.23 $ 2.06 $ 0.29 13.0 % $ 0.17 8.3 % +Diluted earnings per share $ 2.50 $ 2.22 $ 2.05 $ 0.28 12.6 % $ 0.17 8.3 % +Years Ended December 31, +Favorable +(Unfavorable) +2025 vs. 2024 +Favorable +(Unfavorable) +2024 vs. 2023 +Percent of Net sales +2025 +2024 +2023 Percentage Points Percentage Points +Gross margin 28.2 % 27.7 % 26.6 % 0.5 % 1.1 % +Selling, general and administrative expenses 10.4 % 11.2 % 10.7 % 0.8 % (0.5) % +Research, development and engineering expenses 2.3 % 2.4 % 2.6 % 0.1 % 0.2 % +2025 vs. 2024 +Net sales +Net sales were $1,764.3 million for the year ended December 31, 2025, an increase of $94.7 million compared to $1,669.6 million for the year ended December 31, 2024. The increase in Net sales was mainly due to higher volumes of $51.9 million and favorable pricing impacts of $50.0 million, partially offset by unfavorable impacts of currency of $7.3 million. The favorable impact from pricing is primarily driven by normal pricing initiatives and select increases as a result of tariffs. +Gross margin +Gross margin was $498.3 million f or the year ended December 31, 2025, an increase of $36.2 million compared to $462.1 million for the year ended December 31, 2024. The increase in Gross margin was mainly due to favorable pricing of $50.0 million as described above, favorable volumes of $21.0 million, a $7.7 million decrease in manufacturing and other costs and a $0.9 million reduction in one-time restructuring and separation costs, partially offset by unfavorable logistics and duties costs of $36.2 million, $5.8 million in unfavorable currency impacts and a $1.4 million increase in warranty costs. Gross margin as +40 +Table of Contents +a percentage of Net sales was 28.2% , an increase of 0.5 percentage points compared to 27.7% . The increase in Gross margin as a percentage of Net sales was primarily due to the items noted above. +Selling, general and administrative expenses +Selling, general and administrative expenses were $184.3 million for the year ended December 31, 2025, a decrease of $3.3 million compared to $187.6 million for the year ended December 31, 2024. The decrease was primarily driven by lower one-time separation and restructuring costs of $11.6 million, partially offset by increased people-related and consulting expenses and an increase in amortization of internal-use software. Selling, general and administrative expenses as a percentage of Net sales were 10.4% for the year ended December 31, 2025 , a decrease of 0.8 percentage points compared to 11.2% for the year ended December 31, 2024 . The decrease in Selling, general and administrative expenses as a percentage of Net sales was primarily driven by the items noted above. +Research, development and engineering expenses +Research, development and engineering expense was generally consistent for the year ended December 31, 2025 compared the year ended December 31, 2024. +Equity, royalty and interest income from investees +Equity, royalty and interest income from investees was generally consistent for the year ended December 31, 2025 compared to the year ended December 31, 2024. +Other operating expense, net +Other operating expense, net was $8.1 million for the year ended December 31, 2025, an increase of $6.1 million compared to $2.0 million for the year ended December 31, 2024. The increase was primarily due to long-lived asset impairment charges on idled machinery, equipment and fixtures. +Interest expense +Interest expense was $33.4 million for the year ended December 31, 2025, a decrease of $7.2 million compared to $40.6 million for the year ended December 31, 2024. The decrease in interest expense was primarily driven by a reduction to the interest rate on our borrowing and lower outstanding borrowings on our Credit Agreement as principal payments were made. +Other income, net +Other income, net was $0.6 million for the year ended December 31, 2025, a decrease of $8.6 million compared to $9.2 million for the year ended December 31, 2024. The decrease in Other income, net was due to an increase in the net loss on foreign exchange rate hedging which offset interest income that remained stable between the comparable periods. +Income tax expense +Our effective tax rate for the year ended December 31, 2025 was 22.1%, an increase of 1.1 percentage points compared to 21.0% for the year ended December 31, 2024. The increase in the effective tax rate was driven by unfavorable changes in the mix of earnings and lower U.S. credits and incentives following cash tax planning around recent U.S. tax law changes, partially offset by a valuation allowance release on foreign deferred tax assets. Our effective tax rate differs from the U.S. statutory rate primarily due to differences in rates applicable to foreign subsidiaries, withholding taxes and state income taxes . +41 +Table of Contents +Liquidity and Capital Resources +Our facilities under the Credit Agreement provide for $1.0 billion in total capacity, which includes a $600 million term loan and a $400 million revolving credit facility. As of December 31, 2025 , we have outstanding borrowings of $570.0 million on the term loan and zero on the revolving credit facility. As a result, we had capacity under our revolving credit facility of $400 million as of December 31, 2025 . Subsequent to current year end, on January 7, 2026, the Company entered into an Amended and Restated Credit Agreement which provided for a term loan facility of $1.0 billion and $500 million revolving credit facility, both of which mature on January 7, 2031. The term loan facility was drawn on fully for the amount of $1.0 billion with proceeds used to refinance the outstanding term loan facility and to finance in part the acquisition of Koch Filter Corporation. Refer to Note 21, Subsequent Events , to the Consolidated Financial Statements for more information. +We believe that cash from operations and the facilities under our Credit Agreement will continue to provide sufficient liquidity for our working capital needs, planned capital expenditures and future payments of our contractual, tax and benefit plan obligations and payments for share repurchases and quarterly dividends in both the short and long term. Overall, we do not expect negative effects to our funding sources that would have a material effect on our liquidity. However, if a serious economic or credit market crisis ensues or other adverse developments arise, it could have a material adverse effect on our liquidity, financial condition, results of operations and cash flows. +Our most significant ongoing short-term cash requirements relate primarily to funding operations (including expenditures for raw materials, labor, manufacturing and distribution, trade and promotions, advertising and marketing, tax liabilities, benefit plan obligations and lease expenses) as well as periodic expenditures for anticipated capital investments, shareholder returns (such as dividend payments and share repurchases), interest payments on our long-term debt and supporting any future acquisitions. +Long-term cash requirements primarily relate to funding long-term debt repayments and our long-term benefit plan obligations. +Cash Flow +Our management reviews our liquidity needs in determining any and all indebtedness options. We have the ability to access the capital markets following the IPO, and we continue to generate substantial cash from operating activities and believe that our operating cash flow and other sources of liquidity will be sufficient to allow us to manage our business and give us flexibility to meet our short- and long-term financial commitments. Our cash flow activity is noted below: +For the Years Ended December 31, +2025 2024 2023 +(in millions) +Net cash provided by operating activities $ 202.7 $ 105.4 $ 189.0 +Net cash used in investing activities (53.9) (48.6) (45.8) +Net cash (used in) provided by financing activities +(101.7) (35.8) 24.8 +Operating Cash Flow +Net cash provided by operating activities was $202.7 million for the year ended December 31, 2025, an increase of $97.3 million compared to Net cash provided by operating activities of $105.4 million for the year ended December 31, 2024. The increase was driven primarily by a favorable change in working capital requirements of $40.1 million, a favorable change in deferred taxes of $26.4 million and higher net income of $21.8 million. During the year ended December 31, 2025, higher working capital requirements resulted in a cash outflow of $63.2 million compared to a cash outflow of $103.3 million for the year ended December 31, 2024, mainly due to higher trade accounts payable and lower prepaids, partially offset by higher trade and other receivables including VAT receivables. +Dividends received from our unconsolidated equity investees were $21.0 million, $25.5 million and $19.8 million for the years ended December 31, 2025, December 31, 2024 and December 31, 2023, respectively. Dividends are included in Net cash provided by operating activities. +42 +Table of Contents +Investing Cash Flow +Net cash used in investing activities for each fiscal year presented was primarily used for capital expenditures. Our capital expenditures were $53.9 million (of which approximately $9.5 million related to one-time separation costs) and $48.6 million (of which approximately $15.0 million related to one-time separation costs) for the years ended December 31, 2025 and December 31, 2024, respectively, corresponding to approximately 3.1% and 2.9% of Net sales in 2025 and 2024, respectively. +Financing Cash Flow +Net cash used in financing activities for the year ended December 31, 2025 consisted primarily of repurchases of common stock of $60.7 , payments made on our term loan of $22.5 million and dividends paid of $17.3 million . Net cash used in financing activities for the year ended December 31, 2024 consisted primarily of repurchases of common stock of $20.0 million, dividends paid of $8.3 million and payments made on our term loan of $7.5 million. +Dividends +We paid dividends of $17.3 million in 2025, $8.3 million in 2024 and none in 2023. The first quarter 2025 dividend of $0.05 per share, declared on February 19, 2025 for shareholders of record as of March 4, 2025, was paid on March 19, 2025. The second quarter of 2025 dividend of $0.05 per share, declared on May 21, 2025 for shareholders of record as of June 3, 2025, was paid on June 18, 2025. The third quarter 2025 dividend of $0.055 per share, declared on August 13, 2025 for shareholders of record as of August 26, 2025, was paid on September 10, 2025. The fourth quarter dividend of $0.055 per share, declared on November 12, 2025 for shareholders of record as of November 25, 2025, was paid on December 10, 2025. The declaration of dividends is subject to the discretion of our Board of Directors and depends on various factors, including our net earnings, financial condition, cash requirements, future prospects and other factors that our Board of Directors deems relevant to its analysis and decision making. +2025 distributions have been characterized as dividends under the U.S. federal income tax rules. The final determination was made on an IRS Form 1099-DIV issued in early 2026. +Contractual Obligations +Our commitments consist of lease obligations for real estate and equipment. For more information regarding our lease obligations, see Note 9, Leases , to the Consolidated Financial Statements , which provides a summary of our future minimum lease payments. +Debt +Our total debt outstanding was $570.0 million at December 31, 2025, was $592.5 million at December 31, 2024, and was $600.0 million at December 31, 2023 . At December 31, 2025, the weighted-average term of our outstanding long-term debt was 1.9 years. Refer to Note 12, Debt and Borrowing Arrangements , and Note 21, Subsequent Events , to the Consolidated Financial Statements for more information on our debt and debt covenants. +43 +Table of Contents +Non-GAAP Measures +We use non-GAAP financial information and believe it is useful to investors as it provides additional information to facilitate comparisons of historical operating results, identify trends in our underlying operating results and provide additional insight and transparency on how we evaluate our business. We use non-GAAP financial measures to budget, make operating and strategic decisions and evaluate our performance. We have detailed the non-GAAP adjustments that we make in our non-GAAP definitions below. We believe the non-GAAP measures should always be considered along with the related U.S. GAAP financial measures. We have provided the reconciliations between the U.S. GAAP and non-GAAP financial measures below, and we also discuss our underlying U.S. GAAP results throughout our Management’s Discussion and Analysis of Financial Condition and Results of Operations in this Annual Report on Form 10-K. +Our primary non-GAAP financial measures are listed below and reflect how we evaluate our current and prior-year operating results. As new events or circumstances arise, these definitions could change. When our definitions change, we provide the updated definitions and present the related non-GAAP historical results on a comparable basis. +• “EBITDA” is defined as earnings or losses before interest expense, income taxes, depreciation and amortization and “EBITDA margin” is defined as EBITDA as a percent of Net sales. We believe EBITDA and EBITDA margin are useful measures of our operating performance as they assist investors and debt holders in comparing our performance on a consistent basis without regard to financing methods, capital structure, income taxes or depreciation and amortization methods, which can vary significantly depending upon many factors. Additionally, we believe these metrics are widely used by investors, securities analysts, ratings agencies and others in our industry in evaluating performance. +• “Adjusted EBITDA” is defined as EBITDA after adding back certain one-time expenses, reflected in Cost of sales and Selling, general and administrative expenses, associated with becoming a standalone public company, one-time restructuring costs and long-lived asset impairment charges and “Adjusted EBITDA margin” is defined as Adjusted EBITDA as a percent of Net sales. We believe Adjusted EBITDA and Adjusted EBITDA margin are useful measures of our operating performance as they allow investors and debt holders to compare our performance on a consistent basis without regard to one-time costs attributable to our becoming a standalone public company and non-recurring long-lived asset impairment charges. +• “Adjusted earnings per share” is defined as diluted earnings per share (the most comparable U.S. GAAP financial measure) after adding back certain one-time expenses, reflected in Cost of sales and Selling, general and administrative expenses, associated with becoming a standalone public company, one-time restructuring costs and long-lived asset impairment charges less the related tax impact of the same one-time expenses and asset impairment charges. We believe Adjusted earnings per share provides improved comparability of underlying operating results. +• “Free cash flow” is defined as cash flows provided by (used for) operating activities less capital expenditures and “Adjusted free cash flow” is defined as Free cash flow after adding back certain one-time capital expenditures and other separation related costs associated with becoming a standalone public company and one-time restructuring costs. We believe Free cash flow and Adjusted free cash flow are useful metrics used by management and investors to analyze our ability to service and repay debt and return value to shareholders. +The metrics defined above are not in accordance with, or alternatives for, U.S. GAAP financial measures and may not be consistent with measures used by other companies. The metrics should be considered supplemental data; however, the amounts included in the EBITDA, EBITDA margin, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted earnings per share, Free cash flow and Adjusted free cash flow calculations are derived from amounts included in the consolidated statements of net income and cash flows. We do not consider our non-GAAP financial measures as superior to, or a substitute for, the equivalent measures calculated and presented in accordance with GAAP. Some of the limitations are: +• such measures do not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments; +• such measures do not reflect changes in, or cash requirements for, our working capital needs; +44 +Table of Contents +• such measures do not reflect the interest expense or the cash requirements necessary to service interest or principal payments on our debt; +• although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future and such measures do not reflect any cash requirements for such replacements; and +• other companies in our industry may calculate such measures differently than we do, limiting their usefulness as comparative measures. +To properly and prudently evaluate our business, we encourage you to review the consolidated financial statements included elsewhere in this report and not rely on a single financial measure to evaluate our business. +A reconciliation of Net income to EBITDA and Adjusted EBITDA is shown in the table below: +For the Years Ended December 31, +2025 +2024 +2023 +(in millions) +NET INCOME $ 207.4 $ 185.6 $ 171.3 +Plus: +Interest expense 33.4 40.6 25.8 +Income tax expense 58.8 49.2 55.1 +Depreciation and amortization 30.0 24.8 21.5 +EBITDA (non-GAAP) $ 329.6 $ 300.2 $ 273.7 +Plus: +Impairment charges - Long-lived assets (a) +$ 8.4 $ — $ — +One-time restructuring costs +— 4.1 — +One-time separation costs (b) +15.5 25.2 28.6 +Adjusted EBITDA (non-GAAP) $ 353.5 $ 329.5 $ 302.3 +Net sales $ 1,764.3 $ 1,669.6 $ 1,628.1 +Net income margin 11.8 % 11.1 % 10.5 % +EBITDA margin (non-GAAP) 18.7 % 18.0 % 16.8 % +Adjusted EBITDA margin (non-GAAP) 20.0 % 19.7 % 18.6 % +(a) During 2025, Atmus recognized fixed asset impairment charges on idled machinery, equipment and fixtures. We do not expect the idling of the assets to have a material adverse effect on our financial position, results of operations, cash flows, liquidity or capital resources. +(b) Primarily comprised of one-time expenses related to Information Technology, warehousing, manufacturing and Human Resources separation costs. +45 +Table of Contents +A reconciliation of Diluted earnings per share to Adjusted earnings per share is shown in the table below: +For the Years Ended December 31, +2025 +2024 +2023 +(per share) +Diluted earnings per share $ 2.50 $ 2.22 $ 2.05 +Plus: +Impairment charges - Long-lived assets (a) +$ 0.10 $ — $ — +One-time restructuring costs (b) +— 0.05 — +One-time separation costs (b) +0.19 0.30 0.34 +Less: +Tax impact of impairment charges (a) +$ 0.02 $ — $ — +Tax impact of one-time restructuring costs (b) +— 0.01 — +Tax impact of one-time separation costs (b) +0.04 0.06 0.08 +Adjusted earnings per share (non-GAAP) $ 2.73 $ 2.50 $ 2.31 +(a) During 2025, Atmus recognized fixed asset impairment charges on idled machinery, equipment and fixtures. The tax impact of the impairment charges for the year ended December 31, 2025, was $1.9 million . +(b) Primarily comprised of one-time expenses related to Information Technology, warehousing, manufacturing, restructuring and Human Resources separation costs and the related tax impact of those expenses. The tax impact of one-time restructuring costs for the year ended December 31, 2024 was $0.9 million and the tax impact of one-time separation costs for the years ended December 31, 2025, 2024 and 2023 were $3.4 million, $5.3 million and $6.9 million, respectively. +A reconciliation of Net cash provided by operating activities to Free cash flow and Adjusted free cash flow is shown in the table below: +For the Years Ended December 31, +2025 +2024 +2023 +(in millions) +Cash provided by operating activities $ 202.7 $ 105.4 $ 189.0 +Less: +Capital expenditures $ 53.9 $ 48.6 $ 45.8 +Free cash flow (non-GAAP) $ 148.8 $ 56.8 $ 143.2 +Plus: +One-time restructuring costs +$ — $ 4.1 $ — +One-time separation capital expenditures 9.5 15.0 9.2 +Other one-time separation related (a) +— 38.6 — +Adjusted free cash flow (non-GAAP) $ 158.3 $ 114.5 $ 152.4 +(a) Primarily comprised of one-time working capital inefficiencies associated with the move from intercompany settlement terms with Cummins to standalone practices. +Critical Accounting Policies and Estimates +We prepare our Consolidated Financial Statements in conformity with U.S. GAAP. The preparation of our financial statements requires the use of estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the periods presented. Actual results could differ from those estimates and assumptions. See Note 3, Summary of Significant Accounting Policies , in the notes accompanying Atmus’ financial statements included elsewhere herein for a summary of Atmus’ significant accounting policies, and discussion of recent accounting pronouncements. Atmus believes that the following discussion addresses Atmus’ most critical accounting policies, which are those that are most important to the portrayal of Atmus’ financial condition and results of operations and require management’s most difficult, subjective and complex judgments . +46 +Table of Contents +Revenue Recognition +We sell to customers either through long-term arrangements or standalone purchase orders. Our long-term arrangements generally do not include committed volumes until underlying purchase orders are issued. Typically, we recognize revenue on the products we sell at a point in time, in accordance with shipping terms or other contractual arrangements. +The transaction price of a contract could be reduced by variable consideration, including aftermarket rebates, volume and growth rebates and sales returns. At the time of sale to a customer, we record an estimate of variable consideration as a reduction from gross sales. We primarily rely on historical experience and anticipated future performance to estimate the variable consideration. Revenue is recognized to the extent that it is probable that a significant reversal of revenue will not occur when the contingency is resolved. +For aftermarket rebates and volume and growth rebates, management estimates are based on the terms of the arrangements with customers, historical payment experience, volume in quantity or mix of purchases of product during a specified time period and expectations for changes in relevant trends in the future. Adjustments to rebate accruals are made as actual usage becomes known in order to properly estimate the amounts necessary to generate consumer demand based on market conditions as of the balance sheet date. +For product returns, some aftermarket customers are permitted to return small amounts of parts and filters each year. An estimate of future returns is accounted for at the time of sale as a reduction in the overall sales revenue based on historical return rates. +Accounting for Income Taxes +We determine our income tax expense using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax effects of temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. We recognize the tax impact of including certain foreign earnings in U.S. taxable income as a period cost. Future tax benefits of net operating loss and credit carryforwards are also recognized as deferred tax assets. We evaluate the recoverability of our deferred tax assets each quarter by assessing the likelihood of future profitability and available tax planning strategies that could be implemented to realize our net deferred tax assets. At December 31, 2025 , we recorded net deferred tax assets of $0.9 million. The assets included $9.7 million for the value of net operating loss and credit carryforwards. A valuation allowance of $6.7 million was recorded to reduce the tax assets to the net value management believed was more likely than not to be realized. In t he event our operating performance deteriorates, future assessments could conclude that a larger valuation allowance will be needed to further reduce the deferred tax assets. +In addition, we operate within multiple taxing jurisdictions and are subject to tax audits in these jurisdictions. These audits can involve complex issues, which may require an extended period of time to resolve. We accrue for the estimated additional tax and interest that may result from tax authorities disputing uncertain tax positions. We believe we made adequate provisions for income taxes for all years that are subject to audit based upon the latest information available. A more complete description of our income taxes and the future benefits of our net operating loss and credit carryforwards is disclosed in Note 6, Income Taxes , to our Consolidated Financial Statements included herein. +Item 7A. Quantitative and Qualitative Disclosures About Market Risk +Foreign Currency Exchange Risk +As a result of our international business presence, we are exposed to foreign currency exchange rate risks. We transact business in foreign currencies and, as a result, our income and financial condition are exposed to movements in foreign currency exchange rates. This risk is closely monitored and managed through the use of financial derivative instruments. Financial derivatives are used by Atmus expressly for hedging purposes and under no circumstances are they used for speculative purposes. Substantially all of Atmus’ derivative contracts are subject to master netting arrangements, which provide the option to settle certain contracts on a net basis when they settle on the same day with the same currency. In addition, these arrangements provide for a net settlement of all contracts with a given counterparty in the event that the arrangement is terminated due to the occurrence of default or a termination event. +47 +Table of Contents +To minimize the income volatility resulting from the remeasurement of net monetary assets and liabilities denominated in a currency other than the functional currency, Atmus enters into foreign currency forward contracts, which are considered economic hedges and are not designated as hedges for accounting purposes. The objective is to offset the gain or loss from remeasurement with the gain or loss from the fair market valuation of the forward contract. +The potential gain or loss in the fair value of our outstanding foreign currency contracts, assuming a hypothetical 10% fluctuation in the currencies of such contracts would be approximately $10.3 million for the year ended December 31, 2025 and would not have a material impact on the consolidated financial statements for the years ended December 31, 2024 and 2023. The sensitivity analysis of the effects of changes in foreign currency exchange rates assumes the notional value to remain constant for the next 12 months. The analysis ignores the impact of foreign exchange movements on our competitive position and potential changes in sales levels. Any change in the value of the contracts, real or hypothetical, would be significantly offset by an inverse change in the value of the underlying hedged items. +Interest Rate Risk +Our interest rate risk relates primarily to our $600 million term loan facility and our five-year $400 million revolving credit facility. Borrowings under these facilities bear interest at varying rates, depending on the type of loan and, in some cases, the rates of designated benchmarks and the applicable election made by us. Generally, U.S. dollar-denominated loans bear interest at an adjusted term SOFR (which includes a 0.10 percent credit spread adjustment to SOFR) for the applicable interest period plus a rate ranging from 1.125 percent to 1.75 percent depending on our net leverage ratio. Based on our outstanding borrowings at December 31, 2025 , a 0.125% change in SOFR would have a $0.7 million annual impact on interest expense. Refer to Note 12, Debt and Borrowing Arrangements, to the Consolidated Financial Statements for further information. +48 +Table of Contents +Item 8. Financial Statements and Supplementary Data +Index to Consolidated Financial Statements +Page +Report of PricewaterhouseCoopers LLP (PCAOB ID 238 ), Independent Registered Public Accounting Firm +50 +Consolidated Statements of Net Income +52 +Consolidated Statements of Comprehensive Income +53 +Consolidated Balance Sheets +54 +Consolidated Statements of Cash Flows +55 +Consolidated Statements of Changes in Equity +56 +Notes to the Financial Statements +57 +49 +Table of Contents +Report of Independent Registered Public Accounting Firm +To the Board of Directors and Shareholders of Atmus Filtration Technologies Inc. +Opinions on the Financial Statements and Internal Control over Financial Reporting +We have audited the accompanying consolidated balance sheets of Atmus Filtration Technologies Inc. and its subsidiaries (the "Company") as of December 31, 2025 and 2024, and the related consolidated statements of net income, of comprehensive income, of changes in equity and of cash flows for each of the three years in the period ended December 31, 2025, including the related notes (collectively referred to as the "consolidated financial statements"). We also have audited the Company's internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). +In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2025 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO. +Basis for Opinions +The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. +Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. +Definition and Limitations of Internal Control over Financial Reporting +A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. +50 +Table of Contents +Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. +Critical Audit Matters +The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. +Revenue Recognition +As described in Notes 3 and 4 to the consolidated financial statements, for the year ended December 31, 2025, the Company’s net sales were $1,764.3 million. The Company sells to customers either through long-term arrangements or standalone purchase orders. The Company’s long-term arrangements generally do not include committed volumes until underlying purchase orders are issued. Typically, revenue is recognized on the products the Company sells at a point in time, in accordance with shipping terms or other contractual arrangements. +The principal consideration for our determination that performing procedures relating to revenue recognition is a critical audit matter is a high degree of auditor effort in performing procedures related to the Company’s revenue recognition. +Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the revenue recognition process. These procedures also included, among others (i) testing certain revenue transactions by developing an independent expectation of revenue and comparing the independent expectation to the amount recorded, and testing the completeness and accuracy of certain data provided by management; (ii) testing certain revenue transactions, on a sample basis, by obtaining and inspecting source documents, such as purchase orders, invoices, shipping documentation, and subsequent cash receipts; and (iii) confirming, on a sample basis, outstanding customer invoice balances as of December 31, 2025 and, for confirmations not returned, obtaining and inspecting source documents, such as purchase orders, invoices, shipping documentation, and subsequent cash receipts. +/s/ PricewaterhouseCoopers LLP +Nashville, Tennessee +February 13, 2026 +We have served as the Company’s auditor since 2021. +51 +Table of Contents +ATMUS FILTRATION TECHNOLOGIES INC. AND SUBSIDIARIES +CONSOLIDATED STATEMENTS OF NET INCOME +(in millions of U.S. dollars, except per share data) +For the Years Ended December 31, +2025 2024 2023 +NET SALES (a) +$ 1,764.3 $ 1,669.6 $ 1,628.1 +Cost of sales 1,266.0 1,207.5 1,195.4 +GROSS MARGIN 498.3 462.1 432.7 +OPERATING EXPENSES AND INCOME +Selling, general and administrative expenses 184.3 187.6 174.7 +Research, development and engineering expenses 40.7 40.6 42.5 +Equity, royalty and interest income from investees 33.8 34.3 33.6 +Other operating expense, net 8.1 2.0 0.7 +OPERATING INCOME 299.0 266.2 248.4 +Interest expense 33.4 40.6 25.8 +Other income, net 0.6 9.2 3.8 +INCOME BEFORE INCOME TAXES 266.2 234.8 226.4 +Income tax expense 58.8 49.2 55.1 +NET INCOME $ 207.4 $ 185.6 $ 171.3 +PER SHARE DATA: +Weighted-average shares for basic EPS 82.2 83.2 83.3 +Weighted-average shares for diluted EPS 82.8 83.6 83.4 +Basic earnings per share $ 2.52 $ 2.23 $ 2.06 +Diluted earnings per share $ 2.50 $ 2.22 $ 2.05 +(a) Includes sales to related p arties of $ 57.1 million , $ 121.9 million and $ 390.8 million for th e years ended December 31, 2025, 2024 and 2023, respectively. +52 +Table of Contents +ATMUS FILTRATION TECHNOLOGIES INC. AND SUBSIDIARIES +CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME +(in millions of U.S. dollars) +For the Years Ended December 31, +2025 2024 2023 +NET INCOME $ 207.4 $ 185.6 $ 171.3 +Other comprehensive income (loss), net of tax +Foreign currency translation adjustments 12.3 ( 23.3 ) 0.6 +Change in pension and other postretirement defined benefit plans ( 1.3 ) 0.5 ( 1.0 ) +Unrealized loss on derivatives ( 0.1 ) — +Total other comprehensive income (loss), net of tax 10.9 ( 22.8 ) ( 0.4 ) +COMPREHENSIVE INCOME $ 218.3 $ 162.8 $ 170.9 +53 +Table of Contents +ATMUS FILTRATION TECHNOLOGIES INC. AND SUBSIDIARIES +CONSOLIDATED BALANCE SHEETS +(in millions of U.S. dollars, except share data) +December 31, 2025 December 31, 2024 +ASSETS +Cash and cash equivalents $ 236.4 $ 184.3 +Trade and other receivables, net 320.1 254.2 +Inventories 282.3 266.6 +Prepaid expenses and other current assets 53.6 49.9 +Total current assets 892.4 755.0 +Property, plant and equipment, net 197.1 186.2 +Investments and advances related to equity method investees 89.2 84.9 +Goodwill 84.7 84.7 +Other assets 87.3 79.5 +TOTAL ASSETS $ 1,350.7 $ 1,190.3 +LIABILITIES +Accounts payable $ 201.9 $ 193.1 +Accrued compensation, benefits and retirement costs 37.9 37.2 +Current portion of accrued product warranty 5.4 4.9 +Current maturities of long-term debt 30.0 22.5 +Other accrued expenses 93.0 87.2 +Total current liabilities 368.2 344.9 +Long-term debt 540.0 570.0 +Accrued product warranty 8.0 7.3 +Other liabilities 56.0 40.7 +TOTAL LIABILITIES 972.2 962.9 +Commitments and contingencies (Note 14) +EQUITY +Common stock, $ 0.0001 par value ( 2,000,000,000 shares authorized, 83,504,555 and 83,403,813 shares issued at December 31, 2025 and December 31, 2024, respectively) +— — +Additional paid-in capital 72.7 61.9 +Retained earnings 454.6 264.5 +Accumulated other comprehensive loss ( 68.1 ) ( 79.0 ) +Treasury stock, at cost ( 1,995,964 shares at December 31, 2025 and 537,643 shares at December 31, 2024) +( 80.7 ) ( 20.0 ) +TOTAL EQUITY 378.5 227.4 +TOTAL LIABILITIES AND EQUITY $ 1,350.7 $ 1,190.3 +54 +Table of Contents +ATMUS FILTRATION TECHNOLOGIES INC. AND SUBSIDIARIES +CONSOLIDATED STATEMENTS OF CASH FLOWS +(in millions of U.S. dollars) +For the Years Ended December 31, +2025 2024 2023 +CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES +Net income $ 207.4 $ 185.6 $ 171.3 +Adjustments to reconcile net income to operating cash flows: +Depreciation and amortization 30.0 24.8 21.5 +Deferred income taxes 18.7 ( 7.7 ) ( 10.0 ) +Equity in income of investees, net of dividends ( 6.6 ) ( 2.5 ) ( 7.8 ) +Share-based compensation 12.4 11.9 7.2 +Impairment charges - Long-lived assets 8.4 — — +Foreign currency remeasurement and transaction exposure ( 3.9 ) ( 3.6 ) ( 4.5 ) +Changes in current assets and liabilities: +Trade and other receivables ( 55.2 ) ( 16.8 ) ( 10.1 ) +Inventories ( 7.1 ) ( 25.4 ) ( 4.3 ) +Prepaid expenses and other current assets ( 4.0 ) ( 20.0 ) ( 8.9 ) +Accounts payable ( 2.3 ) ( 39.3 ) 4.4 +Other accrued expenses 5.4 ( 1.8 ) 30.2 +Changes in other liabilities 2.2 5.2 0.3 +Other, net ( 2.7 ) ( 5.0 ) ( 0.3 ) +Net cash provided by operating activities 202.7 105.4 189.0 +CASH USED IN INVESTING ACTIVITIES +Capital expenditures ( 53.9 ) ( 48.6 ) ( 45.8 ) +Net cash used in investing activities ( 53.9 ) ( 48.6 ) ( 45.8 ) +CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES +Long-term debt proceeds — — 650.0 +Payments on long-term debt ( 22.5 ) ( 7.5 ) ( 50.0 ) +Repurchases of Common stock ( 60.7 ) ( 20.0 ) — +Dividends paid ( 17.3 ) ( 8.3 ) — +Net transfers to Parent — — ( 579.5 ) +Other, net ( 1.2 ) — 4.3 +Net cash (used in) provided by financing activities ( 101.7 ) ( 35.8 ) 24.8 +Effect of exchange rate changes on cash and cash equivalents 5.0 ( 4.7 ) — +Net increase in cash and cash equivalents 52.1 16.3 168.0 +Cash and cash equivalents at beginning of period 184.3 168.0 — +CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 236.4 $ 184.3 $ 168.0 +SUPPLEMENTAL CASH FLOW INFORMATION: +Non-cash investing and financing activities: +Non-cash settlements with Parent $ — $ — $ 29.4 +Non-cash Capital expenditures — — ( 1.5 ) +55 +Table of Contents +ATMUS FILTRATION TECHNOLOGIES INC. AND SUBSIDIARIES +CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY +(in millions of U.S. dollars) +Common Stock Net Parent +Investment Additional Paid-in Capital Retained Earnings Accumulated +Other +Comprehensive +Loss Treasury Stock Total Equity +Balances at December 31, 2022 $ — $ 511.4 $ — $ — $ ( 55.8 ) $ — $ 455.6 +Net income — 84.1 — 87.2 — — 171.3 +Other comprehensive loss, net of tax — — — — ( 0.4 ) — ( 0.4 ) +Share-based awards — — 4.3 — — — 4.3 +Net transfers (to) from Parent — ( 595.5 ) 45.4 — — — ( 550.1 ) +Balances at December 31, 2023 $ — $ — $ 49.7 $ 87.2 $ ( 56.2 ) $ — $ 80.7 +Net income — — — 185.6 — — 185.6 +Other comprehensive loss, net of tax — — — — ( 22.8 ) — ( 22.8 ) +Share-based awards — — 12.2 — — — 12.2 +Common stock repurchased — — — — — ( 20.0 ) ( 20.0 ) +Cash dividends declared ($ 0.10 per share) +— — — ( 8.3 ) — — ( 8.3 ) +Balances at December 31, 2024 $ — $ — $ 61.9 $ 264.5 $ ( 79.0 ) $ ( 20.0 ) $ 227.4 +Net income — — — 207.4 — — 207.4 +Other comprehensive income, net of tax — — — — 10.9 — 10.9 +Share-based awards — — 10.8 — — — 10.8 +Common stock repurchased — — — — — ( 60.7 ) ( 60.7 ) +Cash dividends declared ($ 0.21 per share) +— — — ( 17.3 ) — — ( 17.3 ) +Balances at December 31, 2025 $ — $ — $ 72.7 $ 454.6 $ ( 68.1 ) $ ( 80.7 ) $ 378.5 +56 +Table of Contents +ATMUS FILTRATION TECHNOLOGIES INC. AND SUBSIDIARIES +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +NOTE 1. DESCRIPTION OF THE BUSINESS +Atmus Filtration Technologies Inc. (“Atmus” or the “Company”) is one of the global leaders of filtration products for on-highway commercial vehicles and off-highway agriculture, construction, mining and power generation vehicles and equipment. Atmus designs and manufactures advanced filtration products, principally under the Fleetguard brand, that provide superior asset protection and enable lower emissions. Approximately 14 % of Atmus’ net sales in 2025 were generated through first-fit sales to OEMs, where its products are installed as components for new vehicles and equipment. Approximately 86 % of Atmus’ net sales in 2025 were generated in the aftermarket, where its products are installed as replacement or repair parts, leading to a strong recurring revenue base. Building on its more than 65-year history, Atmus continues to grow and differentiate itself through its global footprint, comprehensive offering of premium products, technology leadership and multi-channel path to market. +In April 2022, Cummins Inc. (“Cummins”) announced its intention to separate its filtration business (the “Filtration Business”) into a standalone publicly traded company (the “Separation”). In preparation for the Separation from Cummins, Atmus, as its predecessor in interest, was incorporated as a wholly-owned subsidiary of Cummins in Delaware on April 1, 2022 in connection with the planned Separation. Prior to the completion of Atmus’ initial public offering (the “IPO”), Cummins completed, in all material respects, the transfer of the assets and liabilities of the Filtration Business to Atmus and its subsidiaries as detailed in the separation agreement Atmus entered into with Cummins. +On September 30, 2022, and as amended on February 15, 2023, Atmus entered into a $ 1.0 billion credit agreement (“Credit Agreement”) with a syndicate of banks, providing for a $ 600 million term loan facility (the “term loan”) and a $ 400 million revolving credit facility (the “revolving credit facility”), in anticipation of the Separation. Borrowings under the Credit Agreement did not become available until the IPO occurred. The facilities covered by the Credit Agreement will mature on September 30, 2027. +Atmus’ Registration Statement on Form S-1, as amended, filed with the Securities and Exchange Commission (“Commission”) on May 16, 2023, was declared effective on May 25, 2023, and Atmus’ common shares began trading on the New York Stock Exchange under the symbol “ATMU” on May 26, 2023. On May 30, 2023, the IPO was completed through the sale on behalf of certain commercial paper holders of Cummins of 16,243,070 shares of common stock, including the underwriters’ full exercise of their 30-day option to purchase an additional 2,118,661 shares to cover over-allotments. None of the proceeds of the IPO were for the benefit of Atmus. As of the closing of the IPO, Cummins owned approximately 80.5 % of the outstanding shares of Atmus common stock. +Upon completion of the IPO, Atmus borrowed $ 650 million, consisting of proceeds of the term loan and amounts drawn under the revolving credit facility, and paid such amounts to Cummins in partial consideration for the Separation. +On February 14, 2024, Cummins announced an exchange offer whereby Cummins shareholders could exchange all or a portion of Cummins common stock for shares of Atmus common stock owned by Cummins. The divestiture of Atmus shares by Cummins was completed on March 18, 2024 and resulted in the full separation of Atmus and divestiture of Cummins’ entire ownership and voting interest in Atmus (“Full Separation”). +NOTE 2. BASIS OF PRESENTATION +As Atmus became a publicly traded company upon the IPO, its financial statements are now presented on a consolidated basis. In preparation for the IPO, the Company’s historical combined financial statements were prepared on a standalone basis, which reflected a combination of entities under common control that had been “carved out” of and derived from the historical consolidated financial statements and accounting records of Cummins. +The financial statements for all periods presented, including the historical results of the Company prior to May 26, 2023, are now referred to as “Consolidated Financial Statements”, and have been prepared in +57 +Table of Contents +accordance with generally accepted accounting principles in the United States of America (GAAP). All intercompany balances and transactions are eliminated in consolidation. +Periods Prior to the IPO +Prior to the IPO, Atmus, previously the Filtration Business of Cummins, functioned as part of the larger group of businesses controlled by Cummins and accordingly, utilized centralized functions of Cummins, such as facilities and information technology, to support its operations. A portion of the shared service costs were historically allocated to the Filtration Business. Cummins also performed certain corporate functions for the Filtration Business. The corporate expenses related to the Filtration Business were allocated from Cummins. These allocated costs primarily related to certain governance and corporate functions, including finance, human resources, investor relations, legal, tax, treasury and certain other costs. Where it was possible to specifically attribute such expenses to activities of the Filtration Business, these amounts were charged or credited directly to the Filtration Business without allocation or apportionment. Allocation of other such expenses was based on a reasonable reflection of the utilization of the service provided or benefit received by the Filtration Business for the periods presented prior to the Separation, on a consistent basis, such as a relative percentage of headcount and third-party sales. The aggregate costs allocated for these functions to the Filtration Business are included within the Consolidated Statements of Net Income for the periods presented prior to the Separation. +Management believes these cost allocations were a reasonable reflection of the utilization of services provided to, or the benefit derived by, the Filtration Business during the period prior to the IPO, though the allocations may not be indicative of the actual costs that would have been incurred had the Filtration Business operated as a standalone public company. Actual costs that may have been incurred if the Filtration Business had been a standalone company would depend on a number of factors, including the chosen organizational structure, whether functions were outsourced or performed by the Filtration Business employees, and strategic decisions made in areas such as manufacturing, selling and marketing, research and development, information technology and infrastructure. +Historically, Atmus’ cash was transferred to Cummins on a daily basis. This arrangement was not reflective of the manner in which Atmus would have been able to finance its operations had it been a standalone business separate from Cummins during each of the periods presented. +Cummins’ debt and related interest expense were not allocated to Atmus for any of the periods presented since Atmus was not the legal obligor of the debt and Cummins’ borrowings were not directly attributable to Atmus. +As the separate legal entities that made up the Filtration Business were not historically held by a single legal entity, Cummins’ net investment in this business (“Net Parent Investment”) was presented in lieu of a controlling interest’s equity in the Consolidated Financial Statements. +For the Filtration Business, transactions with Cummins affiliates were included in the Consolidated Statements of Net Income and related balances were reflected as related party receivables and related party payables. Other balances between the Filtration Business and Cummins were considered to be effectively settled in the Consolidated Financial Statements at the time the transactions were recorded. +As of the IPO Date +In connection with the Separation, Atmus entered into various agreements with Cummins, including a separation agreement. In the separation agreement, there were certain assets and liabilities identified in the schedules, including leases and unrecognized tax liabilities, which were retained by Cummins and were reflected as Net Parent Investment in the Company’s Consolidated Financial Statements, and those that were transferred to the Company, including additional pension assets, other compensation obligations and certain other assets and liabilities, which were transferred to the Company through Net Parent Investment in the Company’s Consolidated Financial Statements. These various agreements comprehensively provide a +58 +Table of Contents +framework for our relationship with Cummins and govern various interim and ongoing relationships between us and Cummins post IPO. +As part of the Separation, Net Parent Investment was reclassified as Additional Paid-in Capital. +Periods Post IPO +Following the IPO, certain services continue to be provided by Cummins under the transition services agreement. The Company incurred certain costs in its establishment as a standalone public company and expects to incur ongoing additional costs associated with operating as an independent, publicly traded company. +Post IPO, Atmus filed a consolidated Federal income tax return and returns in certain other jurisdictions with Cummins. +Post IPO, Retained earnings began to accumulate and the balance reflected on the Consolidated Balance Sheets reflects earnings for the period May 26, 2023 through December 31, 2025. +Periods Post Full Separation +Following Full Separation, Cummins continued to provide certain services to Atmus under the transition services agreement. The transition services agreement related primarily to administrative services, which were provided through September 2025. Atmus paid Cummins mutually agreed upon fees for these services. +Post Full Separation, Cummins is no longer considered a related party and activity post March 18, 2024, between Atmus and Cummins has been treated as arm’s-length transactions. +Atmus files tax returns in all jurisdictions on its own behalf post Full Separation, and tax balances and effective income tax rates may differ from the amounts reported in the historical periods. +NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES +Investments in Equity Investees +We use the equity method to account for our investments in joint ventures, affiliated companies and alliances in which we have the ability to exercise significant influence, generally represented by equity ownership or partnership equity of at least 20 percent but not more than 50 percent. Generally, under the equity method, original investments in these entities are recorded at cost and subsequently adjusted by our share of equity in income or losses after the date of acquisition. Equity in income or losses of each investee is recorded according to our level of ownership; if losses accumulate, we record our share of losses until our investment has been fully depleted. If our investment has been fully depleted, we recognize additional losses only when we are the primary funding source. We eliminate (to the extent of our ownership percentage) in our Consolidated Financial Statements the profit in inventory held by our equity method investees that has not yet been sold to a third-party. Dividends received from equity method investees reduce the amount of our investment when received and do not impact our earnings. Our investments are classified as “Investments and advances related to equity method investees” in our Consolidated Balance Sheets. Our share of the results from joint ventures, affiliated companies and alliances is reported in our Consolidated Statements of Net Income as “Equity, royalty and interest income from investees” and is reported net of all applicable income taxes. Our foreign equity investees are presented net of applicable foreign income taxes in our Consolidated Statements of Net Income. See Note 5, Investments in Equity Investees , for additional information. +Use of Estimates in the Preparation of the Consolidated Financial Statements +Preparation of financial statements requires management to make estimates and assumptions that affect reported amounts presented and disclosed in our Consolidated Financial Statements. Significant estimates and assumptions in these Consolidated Financial Statements require the exercise of judgment and are used for, but not limited to, estimates of future cash flows and other assumptions associated with goodwill and long-lived asset impairment tests, useful lives for depreciation and amortization, warranty programs, restructuring costs, income taxes, deferred tax valuation allowances, contingencies and allowances for doubtful accounts. Due to +59 +Table of Contents +the inherent uncertainty involved in making estimates, actual results reported in future periods may be different from these estimates. +Revenue From Contracts with Customers +Revenue Recognition Sales of Products +We sell to customers either through long-term arrangements or standalone purchase orders. Our long-term arrangements generally do not include committed volumes until underlying purchase orders are issued. Typically, we recognize revenue on the products we sell at a point in time, in accordance with shipping terms or other contractual arrangements. All related shipping and handling costs are accrued at the time the related performance obligation has been satisfied. +Our sales arrangements may include the collection of sales and other similar taxes that are then remitted to the related taxing authority. We have elected to present the amounts collected for these taxes net of the related tax expense rather than presenting them as additional revenue. +We grant credit limits and terms to customers based upon traditional practices and competitive conditions. Typical terms vary by market, but payments are generally due in 60 days or less from invoicing for most of our product sales. +Sales Incentives +We provide various sales incentives to both our distribution network and OEM customers. These programs are designed to promote the sale of our products or encourage the usage of our products by OEM customers. When there is uncertainty surrounding these sales incentives, we may reduce the amount of revenue we recognize under a contract through an incentive accrual. When the uncertainty has been resolved the accrual will be adjusted accordingly. Sales incentives primarily fall into three categories: +• Aftermarket rebates; +• Volume and growth rebates; and +• Marketing Development Fund (“MDF”). +For aftermarket rebates, we provide incentives to promote sales to certain dealers and end-markets. These rebates are typically paid on a quarterly, or more frequent, basis. At the time of the sale, we consider the expected amount of these rebates when determining the overall transaction price. Estimates are adjusted at the end of each month or quarter based sales and historical experience. +For volume and growth rebates, we provide certain customers with rebate opportunities for attaining specified volumes during a particular quarter or year. We consider the expected amount of these rebates at the time of the original sale as we determine the sales revenue. We update our assessment of the amount of rebates that will be earned on a monthly or quarterly basis based on our best estimate of the volume levels the customer will reach during the measurement period. +For MDF’s, these are funds to support our customers primarily for business development, marketing and advertising programs, promotional items jointly developed, dealer incentives and partnering programs. Depending on the agreement, the funds are accrued for and paid on a quarterly basis, annual basis, or as agreed with those customers receiving these funds. +Sales Returns +The initial determination of the sales revenue may also be impacted by product returns. Rights of return do not exist for the majority of our sales other than for quality issues. We do offer certain return rights in our aftermarket business, where some aftermarket customers are permitted to return a small amount of filters each year. An estimate of future returns is accounted for at the time of sale as a reduction in the overall sales revenue based on historical return rates. +60 +Table of Contents +Foreign Currency Transactions and Translation +We translate assets and liabilities of foreign entities to U.S. dollars, where the local currency is the functional currency, at month-end exchange rates. We translate income and expenses to U.S. dollars using weighted-average exchange rates. We record adjustments resulting from translation in a separate component of accumulated other comprehensive loss and include the adjustments in net income only upon sale, loss of controlling financial interest or liquidation of the underlying foreign investment. +Foreign currency transaction gains and losses are included in net income. For foreign entities where the U.S. dollar is the functional currency, including those operating in highly inflationary economies when applicable, we remeasure non-monetary balances and the related income statement amounts using historical exchange rates. We include the resulting gains an d losses in net income, including the effect of derivatives in our Consolidated Statements of Net Income, which combined with transaction (losses) gains amounted to $( 4.6 ) million, $ 2.8 million and $( 3.3 ) million for the years ended December 31, 2025, 2024 and 2023, respectively. +Income Tax Accounting +We determine our income tax expense using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax effects of temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Future tax benefits of net operating loss and credit carryforwards are also recognized as deferred tax assets. We evaluate the recoverability of our deferred tax assets each quarter by assessing the likelihood of future profitability and available tax planning strategies that could be implemented to realize our net deferred tax assets. A valuation allowance is recorded to reduce the tax assets to the net value management believes is more likely than not to be realized. In the event our operating performance deteriorates, future assessments could conclude that a larger valuation allowance will be needed to further reduce the deferred tax assets. In addition, we operate within multiple taxing jurisdictions and are subject to tax audits in these jurisdictions. These audits can involve complex issues, which may require an extended period of time to resolve. We accrue for the estimated additional tax and interest that may result from tax authorities disputing uncertain tax positions. We believe we made adequate provisions for income taxes for all years that are subject to audit based upon the latest information available. +Our income tax provision was prepared following the separate return method, which applies Accounting Standards Codification (“ASC”) 740 to the standalone financial statements of each member of the combined group as if the group member were a separate and standalone enterprise. Due to this treatment, tax transactions included in the Consolidated Financial Statements of the Parent may not be included in the separated Consolidated Financial Statements of the Company. Similarly, there may be certain tax attributes within the Consolidated Financial Statements of the Company that would not be found in the Consolidated Financial Statements and tax returns of the Parent. Examples of such items include net operating losses, tax credits carry forwards and valuation allowances, which may exist in the standalone financial statements but not in the Parent’s Consolidated Financial Statements. +The international tax framework introduced by the Organization for Economic Co-operation (“OECD”) and Development under its Pillar Two initiative includes a global minimum tax of 15 percent. Legislation adopting these provisions has been enacted in certain jurisdictions where the Company operates and was effective for the Company's 2025 fiscal year. The Company has assessed this legislation and does not anticipate any incremental taxes for the 2025 tax year. +In January 2026, the OECD released administrative guidance establishing a ‘Side-by-Side’ safe harbor for eligible U.S.-headquartered multinational groups, effective for fiscal years beginning on or after January 1, 2026. If elected, this safe harbor generally reduces Pillar Two top-up tax exposure under the Income Inclusion Rule and Undertaxed Profits Rule to zero, while Qualified Domestic Minimum Top-up Taxes in jurisdictions where we operate may continue to apply. The Company continues to monitor and evaluate ”the ‘Side-by-Side’ safe harbor and, where appropriate, expect to leverage applicable safe harbor provisions beginning with the fiscal year starting on or January 1, 2026. +On July 4, 2025, the On Big Beautiful Bill Act (“OBBBA”) was enacted in the U.S. The OBBBA includes significant provisions, such as the permanent extension of certain expiring provision of the Tax Cut and Jobs Act, modifications to the international tax framework and the restoration of favorable tax treatment for certain business provisions. The legislation has multiple effective dates, with certain provisions effective in 2025 and +61 +Table of Contents +others implemented through 2027. The Company has evaluated the OBBBA and reflected its impact on the consolidated financial statements. We will continue to evaluate the full impact of these legislative changes as additional guidance become available. +A more complete description of our income taxes and the future benefits of our net operating loss and credit carryforwards is disclosed in Note 6, Income Taxes . +Cash and Cash Equivalents +Cash and cash equivalents consist of bank checking accounts and money market accounts. Atmus considers all highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents. Cash and cash equivalents are carried at cost, which approximates fair value. +Trade and Other Accounts Receivable +Trade accounts receivable represent amounts billed to customers and not yet collected or amounts that have been earned but may not be billed until the passage of time and are recorded when the right to consideration becomes unconditional. Trade accounts receivable are recorded at the invoiced amount, which approximates net realizable value and generally do not bear interest. Other receivables primarily represent Value-added tax (“VAT”) receivables. Atmus’ purchases, sales and intercompany transfers of goods are subject to VAT. We offset qualified VAT payments to suppliers against our output VAT liabilities. We believe we are entitled to the full VAT amount and that it will be received. The VAT receivable balances were $ 41.2 million and $ 19.3 million at December 31, 2025 and 2024, respectively. +Allowance for Doubtful Accounts +The allowance for doubtful accounts is our best estimate of the amount of expected credit losses in our existing accounts receivable. We determine the allowance based on our historical collection experience and by performing an analysis of our accounts receivable in light of the current economic environment. This estimate of expected losses reflects those losses expected to occur over the contractual life of the receivable. We review our allowance for doubtful accounts at least quarterly, and more frequently as needed . In addition, when necessary, we provide an allowance for the full amount of specific accounts deemed to be uncollectible. Account balances are charged off against the allowance in the period in which we determine that it is probable the receivable will not be recovered. The allowance for doubtful accounts balances were $ 3.4 million and $ 3.0 million at December 31, 2025 and 2024, respectively . Bad debt write-offs were not material during the three years ended December 31, 2025. +Inventories +Our invento ries are stated at the lower of cost or net realizable value. As of December 31, 2025 and 2024, approximately 32.0 % and 30.3 % , respectively, of our inventories were valued using the last-in, first-out (LIFO) cost method. The cost of other inventories is generally valued using the first-in, first-out (FIFO) cost method. Our inventories include estimates for adjustments related to annual physical inventory results and for inventory cost changes under the LIFO cost method. Due to significant movements of partially-manufactured components and parts between manufacturing plants, we do not internally measure, nor do our accounting systems provide, a meaningful segregation between raw materials and work-in-process. See Note 7, Inventories , for additional information. +Property, Plant and Equipment +We record property, plant and equipment at cost, inclusive of finance lease assets, with the adoption of ASC 842. We depreciate the cost of the majority of our property, plant and equipment using the straight-line method with depreciable lives ranging from 20 to 40 years for buildings and 3 to 15 years for machinery, equipment and fixtures. Finance lease asset amortization is recorded in depreciation expense. We expense normal maintenance and repair costs as incurred. Depreciation expense totaled $ 26.6 million , $ 24.8 million and $ 21.5 million for the years ended December 31, 2025, 2024 and 2023, respectively. See Note 8, Property, Plant and Equipment and Note 9, Leases , for additional information. +62 +Table of Contents +Impairment of Long-Lived Assets +We review our long-lived assets for possible impairment whenever events or circumstances indicate that the carrying value of an asset or asset group may not be recoverable. We assess the recoverability of the carrying value of the long-lived assets at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. An impairment of a long-lived asset or asset group exists when the expected future pre-tax cash flows (undiscounted and without interest charges) estimated to be generated by the asset or asset group is less than its carrying value. If these cash flows are less than the carrying value of such asset or asset group, an impairment loss is measured based on the difference between the estimated fair value and carrying value of the asset or asset group. Assumptions and estimates used to estimate cash flows in the evaluation of impairment and the fair values used to determine the impairment are subject to a degree of judgment and complexity. Any changes to the assumptions and estimates resulting from changes in actual results or market conditions from those anticipated may affect the carrying value of long-lived assets and could result in a future impairment charge. During the year ended December 31, 2025, we recognized impairment charges totaling $ 8.4 million on idled machinery, equipment, and fixtures. The impairment charges are reflected in the Consolidated Financial Statements as a component of Other operating expense, net. +Leases +We determine if an arrangement contains a lease in whole or in part at the inception of the contract. Right-of-use (“ROU”) assets represent our right to use an underlying asset for the lease term while lease liabilities represent our obligation to make lease payments arising from the lease. All leases greater than 12 months result in the recognition of a ROU asset and a liability at the lease commencement date based on the present value of the lease payments over the lease term. As most of our leases do not provide the information required to determine the implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. This rate is determined considering factors such as the lease term, our credit standing and the economic environment of the location of the lease. We use the implicit rate when readily determinable. +Our lease terms include all non-cancelable periods and may include options to extend (or to not terminate) the lease when it is reasonably certain that we will exercise that option. Leases that have a term of 12 months or less at the commencement date are expensed on a straight-line basis over the lease term and do not result in the recognition of an asset or a liability. +Lease expense for operating leases is recognized on a straight-line basis over the lease term. Lease expense for finance leases is generally front-loaded as the finance lease ROU asset is depreciated on a straight-line basis, but interest expense on the liability is recognized utilizing the interest method that results in more expense during the early years of the lease. We have lease agreements with lease and non-lease components, primarily related to real estate, vehicle and information technology (“IT”) assets. For vehicle and real estate leases, we account for the lease and non-lease components as a single lease component. For IT leases, we allocate the payment between the lease and non-lease components based on the relative value of each component. See Note 9, Leases , for additional information. +Goodwill +We have the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value as a basis for determining whether it is necessary to perform an annual quantitative goodwill impairment test. We have elected this option for our reporting unit. In addition, the carrying value of goodwill must be tested for impairment on an interim basis in certain circumstances where impairment may be indicated. +When we are required or opt to perform the quantitative impairment test, the fair value of our reporting unit is estimated with either the market approach or the income approach using a discounted cash flow model. Our income approach method uses a discounted cash flow model in which cash flows anticipated over several periods, plus a terminal value at the end of that time horizon, are discounted to their present value using an appropriate rate of return. +The discounted cash flow model requires us to make projections of revenue, gross margin, operating expenses, working capital investment and fixed asset additions for our reporting unit over a multi-year period. +63 +Table of Contents +Additionally, management must estimate a weighted-average cost of capital, which reflects a market rate, for our reporting unit for use as a discount rate. The discounted cash flows are compared to the carrying value of the reporting unit and, if less than the carrying value, the difference is recorded as a goodwill impairment loss. In addition, we also perform a sensitivity analysis to determine how much our forecasts can fluctuate before the fair value of a reporting unit would be lower than its carrying amount. +We perform the required procedures as of the end of our fiscal third quarter. +Changes in our projections or estimates, a deterioration of our operating results and the related cash flow effect or a significant increase in the discount rate could decrease the estimated fair value of our reporting unit and result in a future impairment of goodwill. See Note 10, Goodwill , for additional information. +Warranty +We estimate and record a liability for standard warranty programs at the time our products are sold. Our estimates are based on historical experience and reflect management’s best estimates of expected costs at the time products are sold and subsequent adjustment to those expected costs when actual costs differ. As a result of the uncertainty surrounding the nature and frequency of product campaigns, the liability for such campaigns is recorded when we commit to a recall action or when a recall becomes probable and estimable, which generally occurs when it is announced. We review and assess the liability for these programs on a quarterly basis. See Note 11, Product Warranty Liability , for additional information. +Research, Development and Engineering +Our research, development and engineering programs are focused on product improvements, product extensions, innovations and cost reductions for our customers. Research, development and engineering expenditures include salaries, contractor fe es, building costs, utilities, testing, technical IT, administrative expenses and allocation of corporate costs and are expensed, net of contract reimbursements, when incurred. Research, development and engineering expenses were $ 40.7 million , $ 40.6 million and $ 42.5 million for t he years ended December 31, 2025, 2024 and 2023, respectively. +Related Party Transactions +In accordance with the provisions of various joint venture agreements, we may purchase products and components from our joint ventures, sell products and components to our joint ventures and our joint ventures may sell products and components to unrelated parties. Joint venture transfer prices may differ from normal selling prices. Certain joint venture agreements transfer product at cost, some transfer product on a cost-plus basis, and others transfer product at market value. These purchases and sales take place on terms resulting in margins within a reasonable range of market rates. See Note 17, Relationship with Parent and Related Parties , for additional information. +Segment Information +We operate our business as one operating segment and also one reportable segment based on the manner in which we review and evaluate operating performance. The types of products from which revenue is derived are the same as those described in the description of the business section and the accounting policies are the same as those described in the summary of significant accounting policies. +The operating results are regularly reviewed by Atmus’ chief operating decision maker on a consolidated basis. The chief operating decision maker is our Chief Executive Officer. The chief operating decision maker assesses performance for our business and decides how to allocate resources based on net income that also is reported on the income statement as consolidated net income and is regularly provided with consolidated expense information from the income statement. All expense categories reported within the consolidated income statement are significant expenses. The measurement of business assets is reported on the balance sheet as total consolidated assets. +The chief operating decision maker uses net income predominately in the annual budget and forecasting process. The chief operating decision maker considers budget-to-actual in deciding whether to reinvest profit into the operating segment or for other entity initiatives, such as acquisitions, paying dividends, or share +64 +Table of Contents +repurchases. The chief operating decision maker also uses the profit or loss measure for determining compensation of certain employees. +Stock-Based Compensation +We maintain a share-based compensation plan, which authorizes the granting of various equity-based incentives, including restricted stock units (“RSU”s) and performance share units (“PSU”s). Stock compensation expense is generally amortized on a straight line basis over the service period during which awards are expected to vest, generally three years . +RSUs are typically granted to selected employees on an annual basis and vest over three years . Dividend equivalents are paid during the vesting period. The fair value of our RSUs and other stock-based awards is measured at the market price of our Common Stock on the grant date. +PSUs vest based on varying performance, market and service conditions. The fair value of our PSUs is measured at the market price of our Common Stock on the grant date. The final award may equal 0 - 200 percent of the target grant, based on our actual performance during the vesting period. +Forfeitures are estimated on the grant date for all of our stock-based compensation awards. +Pensions and other Postretirement Benefits +Atmus provides a range of benefits, including pensions, postretirement and post-employment benefits to eligible current and former employees, of which certain of our employees participate. For purposes of Atmus’ Consolidated Financial Statements, participation in Atmus plans are treated as single-employer plans. See Note 13, Pensions and Other Postretirement Benefits , for more information. +Net Parent Investment +Net Parent Investment represents Cummins’ historical investment in us, our accumulated net earnings after taxes and the net effect of transactions with and allocations from Cummins prior to the IPO. +The Consolidated Statements of Changes in Equity include net cash transfers between Cummins and Atmus pursuant to the centralized cash management and other treasury-related functions performed by Cummins for the periods prior to the IPO. The Net Parent Investment account includes the settlement and net effect of transactions with and corporate allocations from Cummins including administrative expenses such as corporate finance, accounting and field shared services, information services, human resources, marketing, corporate office and other services. +In the separation agreement, there were certain assets and liabilities which were retained by Cummins and were reflected as Net Parent Investment in the Company’s Consolidated Financial Statements, and those that were transferred to the Company through Net Parent Investment in the Company’s Consolidated Financial Statements. +The net effect of other assets and liabilities and related income and expenses recorded at the corporate level and pushed down to Atmus are also included in Net Parent Investment. +All transactions reflected in Net Parent Investment in the historical Consolidated Balance Sheets have been considered cash receipts and payments for purposes of the Consolidated Statements of Cash Flows and are reflected in financing activities in the accompanying Consolidated Statements of Cash Flows with the exception of certain non-cash items related to an unrecognized tax liability for FIN48 reserves and leased assets and related depreciation, which were retained by Cummins upon completion of Atmus’ IPO. These items have been included as supplemental information to the Consolidated Statements of Cash Flows. +Recently Adopted Accounting Standards +Income Taxes (Topic 740): Improvements to Income Tax Disclosures +In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, that requires entities to disclose additional information about federal, state, and foreign income taxes primarily related to the income tax rate reconciliation and income taxes paid. The new standard also +65 +Table of Contents +eliminates certain existing disclosure requirements related to uncertain tax positions and unrecognized deferred tax liabilities. The guidance is effective for our fiscal year ending December 31, 2025, with early adoption permitted. The guidance does not affect recognition or measurement in our consolidated financial statements. We adopted this standard in the fourth quarter of 2025 on a prospective basis and it did not have a material impacts to our results of operations, cash flows and financial condition. +Recent Accounting Pronouncements Not Yet Adopted +Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses +In November 2024, the FASB issued ASU No. 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which requires disclosure of certain costs and expenses on an interim and annual basis in the notes to the consolidated financial statements. The guidance is effective for annual reporting periods beginning after December 15, 2026 and interim periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted. The guidance is to be applied either prospectively to financial statements issued for reporting periods after the effective date or retrospectively to any or all prior periods presented in the financial statements. We are currently evaluating the potential impact of adopting this new guidance on our consolidated financial statements and related disclosures. +Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40) - Targeted Improvements to the Accounting for Internal Use-Software +In September 2025, the FASB issued ASU No. 2025-06, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40) - Targeted Improvement to the Accounting for Internal-Use Software, which modernizes the accounting for software costs that are accounted for under ASC 350-40, Intangibles - Goodwill and Other Internal Use-Software. The guidance is effective for annual reporting periods beginning after December 15, 2027, and interim periods within those annual reporting periods. The guidance can be applied on a prospective basis, a modified basis, a modified basis for in-process projects or on retrospective basis. We are assessing the effect of this update on our consolidated financial statements and related disclosures. +Derivatives and Hedging (Topic 815) - Hedge Accounting Improvement +In November 2025, the FASB issued ASU No. 2025-09, Derivatives and Hedging (Topic 815) - Hedge Accounting Improvements, to better portray the economic results of an entity’s risk management activities in its financial statements and to make certain targeted improvements to simplify the application of the hedge accounting guidance. The guidance is effective for annual reporting periods beginning after December 15, 2026, and interim periods within those annual reporting periods. The guidance should be applied on a prospective basis for all hedging relationships. We are assessing the effect of this update on our consolidated financial statements and related disclosures. +NOTE 4. REVENUE FROM CONTRACTS WITH CUSTOMERS +Disaggregation of Revenue +Revenue by Geographic Area +The table below presents our consolidated sales by geographic area. Net sales attributed to geographic areas were based on the location of the customer. +Years ended December 31, +In millions 2025 2024 2023 +United States $ 892.3 $ 782.3 $ 746.5 +Other international 872.0 887.3 881.6 +Total net sales $ 1,764.3 $ 1,669.6 $ 1,628.1 +66 +Table of Contents +Revenue by Product Category +The table below presents our consolidated sales by product category. +Years ended December 31, +In millions 2025 2024 2023 +Fuel $ 797.6 $ 720.2 $ 705.2 +Lube 348.8 326.8 305.4 +Air 301.5 288.6 282.4 +Other 316.4 334.0 335.1 +Total net sales $ 1,764.3 $ 1,669.6 $ 1,628.1 +Revenue by Major Customer +For the years ended December 31, 2025, 2024 and 2023, three external customers, Cummins, PACCAR and the Traton Group, each represented greater than 10% of our annual net sales. These customers represented 18.8 % , 16.3 % and 11.5 % of net sales in 2025, 17.6 %, 16.5 % and 12.2 % of net sales in 2024 and 17.4 %, 15.6 % and 11.8 % of net sales in 2023. No other customers exceeded 10% of net sales in the three years presented. +NOTE 5. INVESTMENTS IN EQUITY INVESTEES +Investments and advances related to equity method investees and our ownership percentages were as follows: +December 31, +In millions Ownership Percentage 2025 2024 +Shanghai Fleetguard Filter Co. Ltd. 50.0 % $ 25.9 $ 24.3 +Fleetguard Filters Pvt. Ltd. 49.5 % 61.0 58.5 +Filtrum Fibretechnologies Pvt. Ltd. 49.7 % 2.3 2.1 +Investments and advances related to equity method investees $ 89.2 $ 84.9 +Dividends received fr om our unconsolidated equity investees were $ 21.0 million , $ 25.5 million and $ 19.8 million in 2025, 2024 and 2023, respectively. +Equity, royalty and interest income from investees, net of applicable taxes, was as follows: +Years ended December 31, +In millions 2025 2024 2023 +Shanghai Fleetguard Filter Co. Ltd $ 6.4 $ 5.9 $ 5.9 +Fleetguard Filters Pvt. Ltd. 20.8 21.8 21.5 +Filtrum Fibretechnologies Pvt. Ltd 0.3 0.4 0.2 +Atmus share of net income $ 27.5 $ 28.1 $ 27.6 +Royalty and interest income 6.3 6.2 6.0 +Equity, royalty and interest income from investees $ 33.8 $ 34.3 $ 33.6 +Our joint ventures are primarily intended to allow us to increase our market penetration in geographic regions, reduce capital spending, streamline our supply chain management and develop technologies. The results and investments in our joint ventures in which we have 50 percent or less ownership are included in “Equity, royalty and interest income from investees” and “Investments and advances related to equity method investees” in our Consolidated Statements of Net Income and Consolidated Balance Sheets, respectively. +• Shanghai Fleetguard Filter Co. Ltd.  — Shanghai Fleetguard Filter Co. Ltd. is a limited liability company (Sinoforeign joint venture) incorporated in Shanghai of the People’s Republic of China on +67 +Table of Contents +April 27, 1994 by Dongfeng Motor Parts and Components Group Co., Ltd. and Cummins (China) Investment Co. with 50 % partnership. Shanghai Fleetguard Filter Co. Ltd.’s approved scope of business operations includes the manufacture and sales of various filters and filter spare parts for diesel engines, trucks, buses, mining, excavators and other construction equipment to customers in China and exports to Atmus. Shanghai Fleetguard Filter Co. Ltd. has three manufacturing sites, Shanghai, Wuhan and Shiyan, with Shanghai being the primary location. +• Fleetguard Filters Pvt. Ltd.  — Fleetguard Filters Pvt. Ltd. is a limited company incorporated in 1987 by Perfect Sealing Systems Private Limited (India) and Cummins Filtration Inc. (USA) which set a benchmark by providing premium filtration solutions for both on and off-highway applications from Air, Lube, Fuel, Hydraulic and Water Filtration to Coolants & Chemicals. They focus on supplies to first fit and aftermarket customers in India and exports to Atmus. The Head Office of Fleetguard Filters Pvt. Ltd. is located at Baner, in Pune, Maharashtra, India and has seven manufacturing plants in different states of India — Dharwad in Karnataka, Hosur in Tamil Nadu, Jamshedpur in Jharkhand, Nandur, Wadki and Loni Khalbhor in Maharashtra, and Sitarganj in Uttarakhand. +Equity Investee Financial Summary +Summary financial information for our equity investees was as follows: +Years ended December 31, +In millions 2025 2024 2023 +Net sales $ 441.9 $ 456.7 $ 435.2 +Gross margin 175.3 183.0 170.0 +Net income 54.2 57.4 56.2 +Atmus share of net income 27.5 28.1 27.6 +Royalty and interest income 6.3 6.2 6.0 +Total equity, royalty and interest income from investees $ 33.8 $ 34.3 $ 33.6 +Current assets 197.8 173.8 182.5 +Non-current assets 94.6 89.6 87.4 +Current liabilities ( 100.0 ) ( 85.8 ) ( 89.1 ) +Non-current liabilities ( 5.9 ) ( 5.3 ) ( 4.7 ) +Net assets 186.5 172.3 176.1 +Atmus share of net assets $ 90.1 $ 84.9 $ 85.7 +68 +Table of Contents +NOTE 6. INCOME TAXES +The following table summarizes income before income taxes: +Years ended December 31, +In millions 2025 2024 2023 +U.S. income +$ 151.8 $ 126.0 $ 136.3 +Foreign income +114.4 108.8 90.1 +Income before income taxes $ 266.2 $ 234.8 $ 226.4 +Income tax expense (benefit) consisted of the following: +Years ended December 31, +In millions 2025 2024 2023 +Current +U.S. federal and state $ 12.0 $ 30.5 $ 38.4 +Foreign 28.1 26.4 26.7 +Total current income tax expense 40.1 56.9 65.1 +Deferred +U.S. federal and state $ 15.7 $ ( 5.4 ) $ ( 10.4 ) +Foreign 3.0 ( 2.3 ) 0.4 +Total deferred income tax expense (benefit) 18.7 ( 7.7 ) ( 10.0 ) +Income tax expense $ 58.8 $ 49.2 $ 55.1 +69 +Table of Contents +The Company adopted ASU 2023-09 on a prospective basis as of January 1, 2025. A reconciliation of the statutory U.S. federal income tax rate beginning with a computed income tax expense amount calculated by applying income before income taxes to the US Federal income tax rate to the effective tax rate and income tax expense amount was as follow: +Year ended December 31, 2025 +Amount +Percent +(in millions) +U.S. Federal Statutory Tax Rate +$ 55.9 21.0 % +Domestic Federal +Cross-Border Tax Laws +Other 0.9 0.3 % +Tax Credits +Research Credits +( 1.6 ) ( 0.6 ) % +Changes in valuation allowances +1.1 0.4 % +Other +( 1.8 ) ( 0.7 ) % +State and Local Income Taxes, Net of Federal Income Tax Effect (1) +3.3 1.3 % +Foreign Tax Effects +India +Equity in Earnings - Joint Ventures ( 4.4 ) ( 1.7 ) % +Withholding Taxes 2.9 1.1 % +Other ( 0.1 ) — % +South Africa +Changes in valuation allowances ( 3.1 ) ( 1.2 ) % +Other ( 0.5 ) ( 0.2 ) % +Other foreign jurisdictions 5.8 2.3 % +Worldwide changes in unrecognized tax benefits +0.4 0.1 % +Effective Tax Rate +$ 58.8 22.1 % +(1) The states that contribute to the majority (greater than 50%) of the tax effect in this category include California, Illinois, Indiana, Kentucky, Pennsylvania, and Tennessee. +A reconciliation of the statutory U.S. federal income tax rate to the effective tax rate for the periods before the adoption of the ASU 2023-09 was as follows: +Years ended December 31, +2024 2023 +Statutory U.S. federal income tax rate 21.0 % 21.0 % +State income tax, net of federal effect 1.3 % 1.4 % +Differences in rates and taxability of foreign subsidiaries and joint ventures ( 0.7 ) % 3.9 % +Research tax credits ( 1.1 ) % ( 1.3 ) % +Foreign derived intangible income ( 1.3 ) % ( 1.7 ) % +Valuation allowance 2.0 % — % +Uncertain tax positions 0.1 % 0.1 % +Other, net ( 0.3 ) % 0.9 % +Effective tax rate 21.0 % 24.3 % +Our effective tax rate for 2025 was 22.1 %, compared to 21.0 % for 2024 and 24.3 % for 2023. The increase in the effective tax rate from 2024 to 2025 was driven by unfavorable changes in the mix of earnings and lower U.S. credits and incentives following cash tax planning around recent U.S. tax law changes, partially offset by a valuation allowance release on foreign deferred tax assets. +70 +Table of Contents +At December 31, 2025, $ 181.3 million of non-U.S. earnings are considered indefinitely reinvested in operations outside the U.S. for which deferred taxes have not been provided. Determination of the related deferred tax liability, if any, is not practicable because of the complexities associated with the hypothetical calculation. +Carryforward tax benefits and the tax effect of temporary differences between financial and tax reporting that give rise to net deferred tax assets (liabilities) were as follows: +December 31, +In millions 2025 2024 +Deferred tax assets +Employee benefit plans +$ 9.9 $ 8.2 +Foreign carryforward benefits 9.7 8.6 +Accrued expenses 10.0 10.8 +Warranty expenses 2.7 3.1 +Lease liabilities 10.3 10.8 +Research and development capitalization 2.4 19.2 +Other 4.1 3.0 +Gross deferred tax assets 49.1 63.7 +Valuation allowance ( 6.7 ) ( 8.5 ) +Total deferred tax assets 42.4 55.2 +Deferred tax liabilities +Property, plant and equipment 14.1 11.6 +Unremitted income of foreign subsidiaries and joint ventures 17.0 16.2 +Lease assets 9.8 9.8 +Other 0.6 0.7 +Total deferred tax liabilities 41.5 38.3 +Net deferred tax assets $ 0.9 $ 16.9 +Our foreign carryforward benefits as of December 31, 2025 may be carried forward indefinitely, subject to certain utilization limitations. +A valuation allowance is recorded to reduce the gross deferred tax assets to an amount we believe is more likely than not to be realized. The valuation allowance is primarily attributable to the uncertainty regarding the realization of foreign net operating loss, foreign currency loss and foreign tax credits. +A reconciliation of the valuation allowance for the years ended December 31, 2025, 2024 and 2023 was as follows: +Years ended December 31, +In millions 2025 2024 2023 +Balance at beginning of year $ 8.5 $ 3.7 $ 16.4 +Additions charged to tax expense 2.8 5.4 0.1 +Valuation allowance reversal ( 4.6 ) ( 0.6 ) — +Other (1) +— — ( 12.8 ) +Balance at end of year $ 6.7 $ 8.5 $ 3.7 +(1) Pursuant to the Separation Agreement, includes certain assets and liabilities, including deferred tax assets, and corresponding valuation allowances which were retained by Cummins and includes the impact of currency changes and the expiration of net operating losses for which a full valuation allowance was recorded. +71 +Table of Contents +Our Consolidated Balance Sheets contain the following tax related items: +December 31, +In millions 2025 2024 +Prepaid expenses and other current assets +Refundable income taxes $ 20.5 $ 14.2 +Other assets +Deferred income tax assets $ 14.0 $ 18.5 +Other accrued expenses +Income tax payable $ 9.4 $ 6.8 +Other liabilities +Deferred income tax liabilities $ 13.1 $ 1.4 +A reconciliation of unrecognized tax benefits for the years ended December 31, 2025, 2024 and 2023 was as follows: +December 31, +In millions 2025 2024 2023 +Balance at beginning of year $ 0.4 $ 0.2 $ 22.2 +Additions to current year tax positions 0.4 0.2 0.2 +Reductions to prior years’ tax positions (1) +— — ( 22.2 ) +Balance at end of year $ 0.8 $ 0.4 $ 0.2 +(1) Pursuant to the Separation Agreement, includes certain assets and liabilities, including contingency reserves which were retained by Cummins +The total amount of unrecognized tax benefits in 2025, 2024 and 2023, if recognized, would favorably impact the effective tax rate in future periods. +We have accr ued interest expense related to the unrecognized tax benefits of $ 0.1 million, $ 0 million and $ 0 million as of December 31, 2025, 2024 and 2023, respectively. We recognize potential accrued int erest and penalties related to unrecognized tax benefits in income tax expense. +Audit outcomes and the timing of audit settlements are subject to significant uncertainty. Although we believe that adequate provision has been made for such issues, there is the possibility that the ultimate resolution of such issues could have an adverse effect on our earnings. Conversely, if these issues are resolved favorably in the future, the related provision would be reduced, thus having a positive impact on earnings. +As a result of our global operations, we file income tax returns in various jurisdictions including U.S. federal, state and foreign jurisdictions. We are routinely subject to examination by taxing authorities throughout the world, including Australia, Belgium, Brazil, Canada, China, France, India, Mexico, the U.K. and the U.S. With few exceptions, our U.S. federal, major state and foreign jurisdictions are no longer subject to income tax assessments for years before 2020. +72 +Table of Contents +Total income taxes paid were as follows: +In millions Year ended December 31, 2025 +U.S. federal $ 3.4 +Total state taxes paid 5.1 +Foreign +Australia $ 4.5 +Belgium 5.5 +Brazil 2.7 +China 6.0 +India 3.5 +Korea 4.0 +Mexico 5.5 +Other 2.9 +Total foreign taxes paid $ 34.6 +Total income taxes paid $ 43.1 +Total income taxes paid were approximately $ 66.9 million and $ 41.3 million in 2024 and 2023, respectively. +NOTE 7. INVENTORIES +Inventories are stated at the lower of cost or net realizable value. Inventories included the following: +December 31, +In millions 2025 2024 +Finished products $ 217.2 $ 213.3 +Work-in-process and raw materials 97.2 91.1 +Inventories at FIFO cost 314.4 304.4 +Excess of FIFO over LIFO ( 32.1 ) ( 37.8 ) +Total inventories $ 282.3 $ 266.6 +NOTE 8. PROPERTY, PLANT AND EQUIPMENT +Details of our property, plant and equipment balance were as follows: +December 31, +In millions 2025 2024 +Land and buildings $ 76.4 $ 69.9 +Machinery, equipment and fixtures 398.7 361.0 +Construction in process 38.9 42.4 +Property, plant and equipment, gross 514.0 473.3 +Less: Accumulated depreciation ( 316.9 ) ( 287.1 ) +Property, plant and equipment, net $ 197.1 $ 186.2 +NOTE 9. LEASES +Our lease portfolio consists primarily of real estate and equipment leases. Our real estate leases primarily consist of land, office, distribution, warehousing and manufacturing facilities. These leases typically range in term from 2 to 50 years and may contain renewal options for periods up to 10 years at our discretion. Our equipment lease portfolio consists primarily of vehicles, fork trucks and IT equipment. These leases typically range in term from two years to three years and may contain renewal options. Our leases generally do not contain variable lease payments other than (1) certain foreign real estate leases which have payments indexed +73 +Table of Contents +to inflation and (2) certain real estate executory costs (such as taxes, insurance and maintenance), which are paid based on actual expenses incurred by the lessor during the year. Our leases generally do not include residual value guarantees. +Our operating lease cost was $ 20.5 million, $ 15.7 million, and $ 10.5 million for the years ended December 31, 2025, 2024 and 2023, respectively. Our variable lease cost was $ 0.8 million and $ 1.0 million for the years ended December 31, 2025 and 2024 and was immaterial for the year December 31, 2023 . Our finance lease cost and short-term lease cost were immaterial for the years ended December 31, 2025, 2024 and 2023. +Supplemental balance sheet information related to leases: +December 31, +In millions 2025 2024 Balance Sheet Location +Assets +Operating $ 39.5 $ 37.3 Other assets +Finance (1) +2.1 1.5 Property, plant and equipment, net +Total lease assets $ 41.6 $ 38.8 +Liabilities +Current +Operating $ 17.1 $ 12.0 Other accrued expenses +Finance 0.9 0.5 Other accrued expenses +Long-term +Operating $ 23.8 $ 26.6 Other liabilities +Finance 1.2 1.0 Other liabilities +Total lease liabilities $ 43.0 $ 40.1 +(1) Finance lease assets were recorded net of accumulated amortization of $ 2.1 million and $ 1.2 million at December 31, 2025 and 2024. +Supplemental cash flow and other information related to leases: +Years ended December 31, +In millions 2025 2024 2023 +Cash paid for amounts included in the measurement of lease liabilities +Operating cash flows from operating leases $ 17.9 $ 14.3 $ 8.8 +Right-of-use assets obtained in exchange for lease obligations +Operating leases $ 10.8 $ 14.5 $ 11.8 +Finance leases $ 1.7 $ 1.1 $ 0.2 +Additional information related to leases: +December 31, +2025 2024 +Weighted-average remaining lease term (in years) +Operating leases 3.2 3.3 +Finance leases 2.7 3.2 +Weighted-average discount rate +Operating leases 4.5 % 4.6 % +Finance leases 4.5 % 4.4 % +Following is a summary of the future minimum lease payments due to finance and operating leases with terms of more than one year at lease commencement at December 31, 2025, together with the net present value of the minimum payments: +74 +Table of Contents +In millions Finance Leases Operating Leases +2026 $ 1.1 $ 17.5 +2027 0.9 11.8 +2028 0.4 7.6 +2029 0.2 4.7 +2030 — 2.6 +After 2030 — 0.2 +Total minimum lease payments 2.6 44.4 +Interest ( 0.5 ) ( 3.5 ) +Present value of net minimum lease payments $ 2.1 $ 40.9 +NOTE 10. GOODWILL +Goodwill is not amortized but it is subject to impairment testing at the reporting unit on an annual basis, or more often if events or circumstances indicate there may be impairment. We perform a goodwill impairment evaluation for our reporting unit annually. There was no impairment of goodwill during the periods covered by these Consolidated Financial Statements. +NOTE 11. PRODUCT WARRANTY LIABILITY +A tabular reconciliation of the product warranty liability, including accrued product campaigns, was as follows: +For the Years Ended December 31, +In millions 2025 2024 2023 +Balance, beginning of year $ 12.2 $ 14.0 $ 15.5 +Provision for base warranties issued 7.6 5.4 8.6 +Payments made during period ( 4.9 ) ( 5.7 ) ( 6.0 ) +Changes in estimates for pre-existing product warranties ( 2.0 ) ( 1.4 ) ( 4.0 ) +Foreign currency translation and other 0.5 ( 0.1 ) ( 0.1 ) +Balance, end of year $ 13.4 $ 12.2 $ 14.0 +Warranty liabilities on our Consolidated Balance Sheets were as follows: +December 31, +In millions 2025 2024 +Current portion $ 5.4 $ 4.9 +Long-term portion 8.0 7.3 +Total $ 13.4 $ 12.2 +NOTE 12. DEBT AND BORROWING ARRANGEMENTS +Atmus entered into the Credit Agreement with a syndicate of banks, providing for a term loan and a revolving credit facility, in anticipation of the Separation. Borrowings under the Credit Agreement did not become available under the Credit Agreement until the IPO occurred. The facilities covered by the Credit Agreement will mature on September 30, 2027. +Upon completion of the IPO, we borrowed $ 650 million under the Credit Agreement, consisting of proceeds of the term loan and amounts drawn under the revolving credit facility, and paid such amounts to Cummins in partial consideration for the Separation. +Borrowings under the Credit Agreement bear interest at varying rates, depending on the type of loan and, in some cases, the rates of designated benchmarks and the applicable election made. Generally, U.S. dollar- +75 +Table of Contents +denominated loans bear interest at an adjusted term Secured Overnight Financing Rate (“SOFR”) (which includes a 0.10 percent credit spread adjustment to SOFR) for the applicable interest period plus a rate ranging from 1.125 percent to 1.75 percent depending on Atmus’ net leverage ratio. As of December 31, 2025, $ 570.0 million has been drawn on the term loan and no amount was drawn on the revolving credit facility. The revolving credit facility includes an allowance of up to $ 50.0 million for outstanding letters of credit drawn under the facility that reduces the availability of funds. As of December 31, 2025, no letters of credit were outstanding. These amounts are included within Long-term debt and Current maturities of long-term debt on the Balance Sheet. As of December 31, 2025, Atmus’ fair value of Long-term debt was approximately $ 570.0 million , which was derived from Level 2 input measures. +Our credit lines available as of December 31, 2025 and December 31, 2024 include: +As of December 31, 2025 As of December 31, 2024 +Facility Amount Borrowed Amount Facility Amount Borrowed Amount +(in millions) +Credit facilities: +Term loan +September 30, 2027 (1) +$ 600.0 $ 570.0 $ 600.0 $ 592.5 +Revolving credit facility +September 30, 2027 (1) +400.0 — 400.0 — +(1) Atmus maintains a term loan facility and a revolving credit facility as part of the Credit Agreement. The Credit Agreement includes financial covenants that Atmus maintain certain net leverage, secured net leverage and interest coverage ratios. At December 31, 2025, Atmus was in compliance with all financial covenants under the Credit Agreement. The Credit Agreement also contains customary representations, events of default and covenants, including restrictions on the level of borrowing. +Over the next five years, aggregate principal maturities of our long-term debt are (in millions): +2026 2027 2028 2029 Thereafter Total +$ 30.0 $ 540.0 $ — $ — $ — $ 570.0 +NOTE 13. PENSIONS AND OTHER POSTRETIREMENT BENEFITS +Pension Plans +Atmus has defined benefit pension plans, which provide retirement benefits to eligible participants and are collectively referred to as the “Atmus Plans.” The plans’ benefits are primarily based on employee earnings and credited service. +Plans in two countries, Belgium and Mexico, were newly established in 2023. +The total Atmus Plans’ defined benefit pension plan expenses were $ 2.5 million in 2025, $ 1.7 million in 2024 and $ 0.9 million in 2023. Service costs allocated to Atmus were $ 1.7 million in 2025, $ 1.3 million in 2024 and $ 0.6 million in 2023. These costs are reflected in the Consolidated Financial Statements as a component of Cost of sales, Research, development and engineering expenses and Selling, general and administrative expenses. The non-service costs allocated to Atmus were immaterial for each of the years ended December 31, 2025, 2024 and 2023. These non-service costs are reflected in the Consolidated Financial Statements as a component of Other income, net. +The aggregate status of all over funded plans is recognized as an asset and the aggregate status of all underfunded plans is recognized as a liability in the Consolidated Balance Sheets. The liabilities were $ 13.8 million and $ 11.0 million as of December 31, 2025 and 2024, respectively, and are reflected in the Consolidated Financial Statements as a component of Other liabilities. The current portion of the liabilities were immaterial as of December 31, 2025 and 2024. The amounts recognized as assets were $ 2.3 million and $ 2.1 million as of December 31, 2025 and 2024, respectively, and are reflected in the Consolidated Financial Statements as a component of Other assets. +76 +Table of Contents +The following is a listing of significant Atmus Plans: +Country Name of Defined Benefit Plan(s) +Belgium Reglement Plannen Leven en Overligden +France Indemnité de Départ en Retraite +Germany ersorgungsordnung von October 1979 +Mexico +Pension Plan, Seniority Premium, Termination Indemnity +NOTE 14. COMMITMENTS AND CONTINGENCIES +Legal Proceedings +T he Company is subject to lawsuits and claims arising out of the ordinary course of its business. The Company does not have any currently pending lawsuits or claims that the Company believes, individually or in the aggregate, will have a material adverse effect on its financial position, results of operations, cash flows, liquidity or capital resources. The Company carries various forms of commercial, property and casualty, product liability and other forms of insurance; however, such insurance may not be applicable or adequate to cover the costs associated with a judgment against the Company with respect to these lawsuits, claims and proceedings. While the Company believes it has established adequate accruals for our expected future liability with respect to pending lawsuits, claims and proceedings, where the nature and extent of any such liability can be reasonably estimated based upon presently available information, there can be no assurance that the final resolution of any existing or future lawsuits, claims or proceedings will not have a material adverse effect on Atmus’ business, results of operations, financial condition or cash flows. +Indemnifications +Periodically, Atmus enters various contractual arrangements where it agrees to indemnify a third-party against certain types of losses. Atmus regularly evaluates the probability of having to incur costs associated with these indemnities and accrue for expected losses that are probable. Because the indemnifications are not related to specified known liabilities, and due to their uncertain nature, Atmus is unable to estimate the maximum amount of the potential loss associated with these indemnifications. +77 +Table of Contents +NOTE 15. ACCUMULATED OTHER COMPREHENSIVE LOSS +Following are the changes in accumulated other comprehensive income (loss) by component: +For the Years Ended December 31, +2025 2024 2023 +(in millions) +Currency translation adjustments: +Balance at beginning of period $ ( 79.4 ) $ ( 56.1 ) $ ( 56.7 ) +Currency translation adjustments 12.3 ( 23.3 ) 0.6 +Other comprehensive income (loss), net 12.3 ( 23.3 ) 0.6 +Balance at end of period ( 67.1 ) ( 79.4 ) ( 56.1 ) +Pensions and other benefit plans: +Balance at beginning of period $ 0.4 $ ( 0.1 ) $ 0.9 +Change in pensions and other benefit plans ( 1.8 ) 0.6 ( 1.5 ) +Tax benefit/(expense) 0.5 ( 0.1 ) 0.5 +Other comprehensive (loss) income, net ( 1.3 ) 0.5 ( 1.0 ) +Balance at end of period ( 0.9 ) 0.4 ( 0.1 ) +Unrealized loss on derivatives: +Balance at beginning of period $ — $ — $ — +Unrealized loss during period ( 0.1 ) — — +Other comprehensive loss, net ( 0.1 ) — — +Balance at end of period ( 0.1 ) — — +Accumulated other comprehensive loss: +Balance at beginning of period $ ( 79.0 ) $ ( 56.2 ) $ ( 55.8 ) +Total other comprehensive income (loss), net 10.9 ( 22.8 ) ( 0.4 ) +Balance at end of period $ ( 68.1 ) $ ( 79.0 ) $ ( 56.2 ) +NOTE 16. SHARE REPURCHASE PROGRAM +Effective July 17, 2024, Atmus’ Board of Directors authorized a $ 150.0 million share repurchase program. The program does not have an expiration date and may be suspended or discontinued at any time. Repurchases under the program are determined by management and are wholly discretionary. +Since inception of the program, the Company repurchased approximately 2.0 million shares of common stock at an average cost of $ 40.41 per share, or an aggregate cost of approximately $ 80.7 million. During the year ended December 31, 2025, the Company repurchased 1.5 million shares of Common stock at an average cost of $ 41.58 per share, or an aggregate cost of approximately $ 60.7 million, all of which was paid during the period. All share repurchases were funded through available cash on hand. As of December 31, 2025, the Company had approximately $ 69.3 million in remaining share repurchase capacity. +NOTE 17. RELATIONSHIP WITH RELATED PARTIES +As described in Note 1, Description of the Business , Atmus had been managed and operated in the normal course of business with other subsidiaries of Cummins until March 18, 2024, when the Full Separation was completed. Accordingly, certain shared costs prior to the IPO have been allocated to Atmus and reflected as expenses in the Consolidated Financial Statements. Management of Cummins and Atmus consider the allocation methodologies used to be reasonable and appropriate reflections of historical expenses of Cummins attributable to Atmus for purposes of the Consolidated Financial Statements; however, the expenses reflected in the Consolidated Financial Statements may not be indicative of the actual expenses that would have been incurred during the periods presented if Atmus historically operated as a separate, stand-alone entity. In addition, the expenses reflected in the Consolidated Financial Statements may not be indicative of expenses that will be incurred in the future by Atmus. +78 +Table of Contents +The Company entered into the separation agreement and transition services agreement with Cummins, among other transaction agreements, all of which will govern the parties relationship following the IPO and Full Separation. This relationship includes services provided by Cummins to the Company for a fixed term on a service-by-service basis. We paid Cummins mutually agreed-upon fees for the services provided under the transition services agreement, which were provided through September 2025. The fees paid to Cummins may not be indicative of costs for the same services provided by another provider. +Corporate Costs/Allocations +The Consolidated Financial Statements include corporate costs incurred by Cummins for services that were provided to or on behalf of Atmus for the period prior to IPO. Such costs represent shared services and infrastructure provided by Cummins, including administrative, finance, human resources, information technology, legal, and other corporate and infrastructure services. +The corporate costs reflected in the Consolidated Financial Statements consist of direct charges to the business and indirect allocations to Atmus. The costs that were directly charged to Atmus, such as the shared services for finance provided by Cummins Business Services, were primarily determined based on actual usage. +Indirect allocations are related to shared services and infrastructure provided by Cummins that would benefit Atmus but were not directly charged to Atmus in a manner discussed above. These corporate costs were allocated to Atmus using methods management believes are consistent and reasonable. The primary allocation factor was third-party revenue; however, other relevant metrics were also utilized based on the nature of the underlying activities. For example, headcount was used as the allocation driver to allocate the human resource departmental costs. +The expenses allocated and directly charged reflect all expenses that Cummins incurred on behalf of the Company. The expenses reflected in the Consolidated Financial Statements prior to the IPO may not be indicative of the actual expenses that would have been incurred during the period presented if Atmus historically operated as a separate, stand-alone entity. All corporate charges and allocations have been deemed paid by Atmus to Cummins in the period in which the cost was recognized in the Consolidated Statements of Income. +Total corporate costs allocated t o Atmus wer e $ 0 million , $ 0 million and $ 13.7 million fo r the years ended December 31, 2025 , 2024 and 2023 , respectively. Allocated corporate costs are included in Net sales, Cost of sales, Selling, general and administrative expenses, Research, development and engineering expenses and Other income, net. Post-IPO, Atmus has and will continue to incur its own corporate costs associated with being a standalone publicly traded company. +Related Party Balances +Following the full separation, Cummins is no longer considered a related party. Atmus’ sales to Cummins from January 1, 2024 through the date of full separation, March 18, 2024, were $ 65.4 million compared to $ 282.5 million for the year ended December 31, 2023. +NOTE 18. STOCK-BASED COMPENSATION +Under the Atmus 2022 Omnibus Incentive Plan, Atmus is authorized to issue a maximum of 7.5 million shares of common stock to Atmus employees and non-employee directors. +Restricted Stock Units and Performance Share Units +During the years ended December 31, 2025, 2024, and 2023, Atmus recognized compensation expense related to RSUs and PSUs, as a component of Selling, general, and administrative expense, in its Consolidated Statements of Income of $ 12.4 million, $ 11.9 million, and $ 5.5 million, respectively. The unamortized compensation expense related to Atmus RSUs and PSUs was $ 16.0 million and is expected to be recognized over a weighted-average period of 1.7 years. +79 +Table of Contents +Our RSU and PSU activity is reflected below: +Number of Shares Grant Date Weighted-Average Fair Value Per Share Weighted-Average Aggregate Fair Value +Balance at January 1, 2023 +— $ — +Granted 763,480 Various 28.34 $ 21.6 million +Vested — — +Forfeited — — +Balance at December 31, 2023 +763,480 $ 28.34 +Granted 391,385 +Various +36.78 $ 14.4 million +Vested ( 52,894 ) 28.03 $ 1.5 million +Forfeited ( 80,774 ) 31.40 +Balance at December 31, 2024 +1,021,197 $ 31.35 +Granted 364,357 Various 37.24 $ 13.6 million +Vested ( 130,499 ) 24.25 $ 3.2 million +Forfeited ( 52,740 ) 25.54 +Balance at December 31, 2025 +1,202,315 $ 34.16 +NOTE 19. EARNINGS PER SHARE +Basic net earnings per share (“EPS”) is computed by dividing net earnings by the weighted average number of outstanding common shares. Diluted net EPS reflects the increase in weighted average common shares outstanding that would result from the assumed exercise of outstanding stock incentive plan awards calculated using the treasury stock method. +Basic and diluted EPS were calculated as follows: +For the Years Ended December 31, +2025 2024 2023 +(in millions, except per share data) +Net income $ 207.4 $ 185.6 $ 171.3 +Weighted-average shares for basic EPS 82.2 83.2 83.3 +Plus incremental shares from assumed conversions of long-term incentive plan shares 0.6 0.4 0.1 +Weighted-average shares for diluted EPS 82.8 83.6 83.4 +Basic earnings per share $ 2.52 $ 2.23 $ 2.06 +Diluted earnings per share $ 2.50 $ 2.22 $ 2.05 +NOTE 20. SUPPLEMENTAL BALANCE SHEET DATA +Other assets included the following: +December 31, +2025 December 31, +2024 +(in millions) +Operating lease assets +$ 39.5 $ 37.3 +Deferred income taxes 14.0 18.5 +Long-term receivables 3.6 3.0 +Other 30.2 20.7 +Other assets $ 87.3 $ 79.5 +80 +Table of Contents +Geographic data for long-lived assets, excluding deferred taxes, goodwill, intangible assets and equity method investments, included the following: +December 31, +2025 December 31, +2024 +(in millions) +United States $ 102.4 $ 103.5 +Mexico 43.5 42.6 +France 30.8 25.9 +Korea 26.2 25.6 +Other international 33.7 25.8 +Long-lived assets $ 236.6 $ 223.4 +Other accrued expenses included the following: +December 31, +2025 December 31, +2024 +(in millions) +Marketing accruals $ 55.0 $ 46.9 +Current portion of operating lease liabilities +17.1 12.0 +Income taxes payable 9.4 6.8 +Other taxes payables 4.5 14.9 +Current portion of finance lease liabilities 0.9 0.5 +Other 6.1 6.1 +Other accrued expenses $ 93.0 $ 87.2 +Other liabilities included the following: +December 31, 2025 December 31, 2024 +(in millions) +Long-term portion of operating lease liabilities +$ 23.8 $ 26.6 +Deferred income taxes 13.1 1.4 +Long-term income taxes +0.8 0.4 +Other long-term liabilities 18.3 12.3 +Other liabilities $ 56.0 $ 40.7 +NOTE 21. SUBSEQUENT EVENTS +2026 Acquisition - Koch Filter Corporation +On November 21, 2025, the Company entered into a stock purchase agreement to acquire Koch Filter Corporations (“Koch Filter”). The transaction closed on January 7, 2026, whereby the Company purchased all of the issued and outstanding shares of Koch Filter for approximately $ 450 million in cash at closing, net of working capital adjustments. Koch Filter is a U.S. manufacturer of essential air filtration solutions for various end-markets, including industrial and commercial HVAC, data centers, and power generation. Koch Filter provides the Company a substantial platform for expanding into the industrial air filtration market. The acquired business will be reported in the Company’s Industrial Solutions segment, a reportable segment created with the acquisition of Koch Filter. +Credit Agreement +On January 7, 2026, the Company entered into an Amended and Restated Credit Agreement (the “2026 Credit Agreement”) with a syndicate of banks. The 2026 Credit Agreement amended and restated the Company’s previously existing credit agreement, which provided for a $ 600 million term loan facility, of which +81 +Table of Contents +approximately $ 570 million was outstanding as of the Closing Date, and a $ 400 million revolving credit facility. The 2026 Credit Agreement provides for a term loan facility of $ 1.0 billion and $ 500 million revolving credit facility, both of which mature on January 7, 2031. The term loan facility was drawn on fully for the amount of $ 1.0 billion. +The term loan facility will amortize in quarterly installments due on the last business day of each fiscal quarter, commencing with the fifth full fiscal quarter after the Closing Date, in an aggregate annual amount of 2.50 % of the original aggregate principal amount of the term loan facility incurred on the Closing Date, increasing on the last business day of the ninth full fiscal quarter after the Closing Date to an aggregate annual amount equal to 5.00 % of the original aggregate principal amount of the term loan facility incurred on the Closing Date, with the balance, plus accrued interest, due and payable on the term loan maturity date. +Borrowings under the 2026 Credit Agreement bear interest at varying rates, depending on the type of loan and, in some cases, the rates of designated benchmarks and the applicable election made. Generally, U.S. dollar-denominated loans bear interest at daily SOFR for the applicable interest period plus a rate ranging from 1.125 % to 1.750 % depending on Atmus’ net leverage ratio. +82 +Table of Contents +Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure +None. +Item 9A. Controls and Procedures +Evaluation of Disclosure Controls and Procedures +The Company's disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure . +As required by Rules 13a-15 and 15d-15 under the Exchange Act, management, including our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures as of December 31, 2025. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective as of December 31, 2025. +Report of Management on Internal Control over Financial Reporting +Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, and effected by the Company’s Board of Directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those written policies and procedures that: +• Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets; +• Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles; +• Provide reasonable assurance that receipts and expenditures are being made only in accordance with management and director authorization; and +• Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the consolidated financial statements. +Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. +Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2025. Management based this assessment on the criteria described in “ Internal Control - Integrated Framework ” (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). +Based on this assessment, management concluded that the Company’s internal control over financial reporting is effective as of December 31, 2025, based on the criteria in Internal Control - Integrated Framework issued by the COSO. +PricewaterhouseCoopers LLP, an independent registered public accounting firm, has audited the effectiveness of the Company’s internal control over financial reporting as of December 31, 2025, as stated in their report that appears under Item 8. +83 +Table of Contents +Changes in Internal Control over Financial Reporting +The Company is in the process of implementing a broad, multi-year, technology transformation project to modernize enterprise resource planning, middleware and legacy systems to achieve better process efficiencies across customer service, merchandising, sourcing, payroll and accounting through the use of various solutions. There have been no material additional implementations during the quarter ended December 31, 2025 . As the Company’s technology transformation project continues, the Company continues to emphasize the maintenance of effective internal controls and assessment of the design and operating effectiveness of key control activities throughout development and deployment of each phase and will evaluate as additional phases are deployed. +There was no other change in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the quarter ended December 31, 2025 that materially affected, or is reasonably likely to materially affect, Atmus’ internal control over financial reporting. +Item 9B. Other Information +(b) 10b5-1 Trading Arrangements +During the three months ended December 31, 2025 , no director or executive officer of the Company adopted, modified or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K. +Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +Not applicable. +84 +Table of Contents +PART III +Item 10. Directors, Executive Officers and Corporate Governance +The information required by this Item, not already provided herein under Item 1. Business – Management , will be included in our Proxy Statement for the 2026 Annual Meeting of Shareholders (the “2026 Proxy Statement”). The 2026 Proxy Statement will be filed within 120 days after the close of the fiscal year ended December 31, 2025. Except as otherwise specifically incorporated by reference, our Proxy Statement is not deemed to be filed as part of this Annual Report. +Item 11. Executive Compensation +The information required by this Item will be included in the 2026 Proxy Statement. The 2026 Proxy Statement will be filed within 120 days after the close of the fiscal year ended December 31, 2025 and such information is incorporated herein by referenc e. +Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters +The information required by this Item will be included in the 2026 Proxy Statement. The 2026 Proxy Statement will be filed within 120 days after the close of the fiscal year ended December 31, 2025 and such information is incorporated herein by reference. +Item 13. Certain Relationships and Related Transactions and Director Independence +The information required by this Item will be included in the 2026 Proxy Statement. The 2026 Proxy Statement will be filed within 120 days after the close of the fiscal year ended December 31, 2025 and such information is incorporated herein by reference. +Item 14. Principal Accounting Fees and Services +The information required by this Item will be included in the 2026 Proxy Statement. The 2026 Proxy Statement will be filed within 120 days after the close of the fiscal year ended December 31, 2025 and such information is incorporated herein by reference. +85 +Table of Contents +PART IV +Item 15. Exhibits and Financial Statement Schedules +Documents filed with this report: +(1) Financial Statements +Report of Independent Registered Public Accounting Firm (PCAOB ID 238) +Consolidated Statements of Net Income — years ended December 31, 2025, 2024 and 2023 +Consolidated Statements of Comprehensive Income — years ended December 31, 2025, 2024 and 2023 +Consolidated Balance Sheets — December 31, 2025 and 2024 +Consolidated Statements of Cash Flows — years ended December 31, 2025, 2024 and 2023 +Consolidated Statements of Changes in Equity — years ended December 31, 2025, 2024 and 2023 +Notes to Consolidated Financial Statements +(2) Financial Statement Schedules +All other schedules (Schedules I, II, III, IV and V) for which provision is made in the applicable accounting regulations of the SEC are not required under the related instruction, or are inapplicable and therefore have been omitted or the required information is shown in the consolidated financial statements or the accompanying notes to the consolidated financial statements. +(3) Exhibits +Exhibit Index +Exhibit No. +Description +3.1 +Second Amended and Restated Certificate of Incorporation of Atmus Filtration Technologies Inc. (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K of Atmus Filtration Technologies Inc. filed with the Commission on May 27, 2025). +3.2 +Amended and Restated Bylaws of Atmus Filtration Technologies Inc. (incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K of Atmus Filtration Technologies Inc. filed with the Commission on May 27, 2025 ). +4.1 +Description of Securities of the Registrant (incorporated by reference to Exhibit 4.1 to the Annual Report on Form 10-K of Atmus Filtration Technologies Inc. filed with the Commission on February 14, 2024). +10.1# +Separation Agreement, dated as of May 29, 2023, by and between Atmus Filtration Technologies Inc. and Cummins Inc. (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of Atmus Filtration Technologies Inc. filed with the Commission on June 1, 2023). +10.2# +Transition Services Agreement, dated as of May 29, 2023, by and between Atmus Filtration Technologies Inc. and Cummins Inc. (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K of Atmus Filtration Technologies Inc. filed with the Commission on June 1, 2023). +10.3# +Tax Matters Agreement, dated as of May 29, 2023, by and between Atmus Filtration Technologies Inc. and Cummins Inc. (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K of Atmus Filtration Technologies Inc. filed with the Commission on June 1, 2023). +10.4# +Employee Matters Agreement, dated as of May 29, 2023, by and between Atmus Filtration Technologies Inc. and Cummins Inc. (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K of Atmus Filtration Technologies Inc. filed with the Commission on June 1, 2023). +10.5# +First-Fit Supply Agreement, dated as of May 29, 2023, by and between Atmus Filtration Technologies Inc. and Cummins Inc. (incorporated by reference to Exhibit 10.5 to the Current Report on Form 8-K of Atmus Filtration Technologies Inc. filed with the Commission on June 1, 2023). +10.6# +Aftermarket Supply Agreement, dated as of May 29, 2023, by and between Atmus Filtration Technologies Inc. and Cummins Inc. (incorporated by reference to Exhibit 10.6 to the Current Report on Form 8-K of Atmus Filtration Technologies Inc. filed with the Commission on June 1, 2023). +86 +Table of Contents +10.7# +Registration Rights Agreement, dated as of May 29, 2023, by and between Atmus Filtration Technologies Inc. and Cummins Inc. (incorporated by reference to Exhibit 10.7 to the Current Report on Form 8-K of Atmus Filtration Technologies Inc. filed with the Commission on June 1, 2023). +10.8# +Transitional Trademark License Agreement, dated as of May 29, 2023, by and between Atmus Filtration Technologies Inc. and Cummins Inc. (incorporated by reference to Exhibit 10.8 to the Current Report on Form 8-K of Atmus Filtration Technologies Inc. filed with the Commission on June 1, 2023). +10.9# +Intellectual Property License Agreement, dated as of May 29, 2023, by and between Atmus Filtration Technologies Inc. and Cummins Inc. (incorporated by reference to Exhibit 10.9 to the Current Report on Form 8-K of Atmus Filtration Technologies Inc. filed with the Commission on June 1, 2023). +10.10+ +2022 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.10 to the Current Report on Form 8-K of Atmus Filtration Technologies Inc. filed with the Commission on June 1, 2023). +10.11+ +Employment Transition and Release Agreement, effective as of August 26, 2022, among Mark J. Osowick, Cummins Inc., and Cummins Filtration Inc. (incorporated by reference to Exhibit 10.12 to Amendment No. 2 to the Registration Statement on Form S-1 of Atmus Filtration Technologies Inc. filed with the Commission on May 16, 2023). +10.12+ +Separation Agreement and General Release, dated April 18, 2024, between Atmus Filtration Technologies Inc. and Toni Y. Hickey (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K of Atmus Filtration Technologies Inc. filed with the Commission on April 19, 2024). +10.13+ +Form of Indemnification Agreement for Independent Directors (incorporated by reference to Exhibit 10.15 to Amendment No. 2 to the Registration Statement on Form S-1 of Atmus Filtration Technologies Inc. filed with the Commission on May 16, 2023). +10.14+ +Restricted Stock Unit Award Agreement under the 2022 Omnibus Incentive Plan (Executive Officers) (incorporated by reference to Exhibit 10.15 to the Annual Report on Form 10-K of Atmus Filtration Technologies Inc. filed with the Commission on February 14, 2024). +10.15+ +Performance Stock Unit Award Agreement under the 2022 Omnibus Incentive Plan (Executive Officers) (incorporated by reference to Exhibit 10.16 to the Annual Report on Form 10-K of Atmus Filtration Technologies Inc. filed with the Commission on February 14, 2024). +10.16+ +Restricted Stock Unit Award Agreement under the 2022 Omnibus Incentive Plan (Non-Employee Directors) (incorporated by reference to Exhibit 10.17 to the Annual Report on Form 10-K of Atmus Filtration Technologies Inc. filed with the Commission on February 14, 2024). +10.17+ +Deferred Compensation Plan (incorporated by reference to Exhibit 10.18 to the Annual Report on Form 10-K of Atmus Filtration Technologies Inc. filed with the Commission on February 14, 2024). +10.18+ +Deferred Compensation Plan for Non-Employee Directors (filed herewith). +10.19+ +Executive Severance Plan (incorporated by reference to Exhibit 10.20 to the Annual Report on Form 10-K of Atmus Filtration Technologies Inc. filed with the Commission on February 14, 2024). +10.20+ +Executive Change of Control Severance Plan (incorporated by reference to Exhibit 10.21 to the Annual Report on Form 10-K of Atmus Filtration Technologies Inc. filed with the Commission on February 14, 2024). +10.21+ +First Amendment to Separation Agreement, dated as of September 25, 2023, by and between Atmus Filtration Technologies Inc. and Cummins Inc. (incorporated by reference to Exhibit 10.22 to the Annual Report on Form 10-K of Atmus Filtration Technologies Inc. filed with the Commission on February 14, 2024). +10.22 +Stock Purchase Agreement, dated as of November 21, 2025, by and among Cummins Filtration Inc., Atmus Filtration Technologies Inc. and Air Distribution Technologies, Inc. (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of Atmus Filtration Technologies Inc. filed with the Commission on November 24, 2025). +10.23 +Amended and Restated Credit Agreement, dated as of January 7, 2026, among Atmus Filtration Technologies Inc., Atmus Filtration Inc., certain subsidiary guarantors party thereto, Bank of American, N.A., as administrative agent and lender, and the other lenders party thereto (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of Atmus Filtration Technologies Inc. filed with the Commission on January 7, 2026). +19 +Insider Trading Policy (filed herewith). +21 +Subsidiaries of the Registrant (filed herewith). +23 +Consent of PricewaterhouseCoopers LLP (filed herewith). +87 +Table of Contents +31.1 +Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). +31.2 +Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). +32.1 +Certifications of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith). +97 +Policy Relating to Recovery of Erroneously Awarded Compensation (incorporated by reference to Exhibit 97 to the Annual Report on Form 10-K of Atmus Filtration Technologies Inc. filed with the Commission on February 14, 2024). +101.INS* Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. +101.SCH* Inline XBRL Taxonomy Extension Schema Document. +101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document. +101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document. +101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document. +101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document. +104 Cover Page Interactive Data File (embedded with the Inline XBRL Document). ++ Identifies each management contract or compensatory plan or arrangement. +# +Certain exhibits and schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The registrant hereby undertakes to furnish supplementally a copy of any omitted exhibit or schedule upon request by the Commission. +* +Filed with this annual report on Form 10-K are the following materials formatted in iXBRL (Inline Extensible Business Reporting Language): (i) the Consolidated Statements of Net Income for the years ended December 31, 2025, 2024, and 2023, (ii) the Consolidated Statements of Comprehensive Income for the years ended December 31, 2025, 2024 and 2023, (iii) the Consolidated Balance Sheets at December 31, 2025 and December 31, 2024, (iv) the Consolidated Statements of Cash Flows for the years ended December 31, 2025, 2024 and 2023, (v) the Consolidated Statements of Changes in Equity for the years ended December 31, 2025, 2024 and 2023, and (vi) Notes to Consolidated Financial Statements. +Item 16. Form 10-K Summary +None. +88 +Table of Contents +SIGNATURES +Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on February 13, 2026 . +ATMUS FILTRATION TECHNOLOGIES INC. +By +/s/ Jack M. Kienzler +Jack M. Kienzler +Senior Vice President, Chief Financial Officer and Chief Accounting Officer +(Principal Financial Officer) +Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated, on February 13, 2026 . +Signature +Title +/s/ Stephanie J. Disher +Chief Executive Officer and President (Principal Executive Officer) and Director +Stephanie J. Disher +/s/ R. Edwin Bennett +R. Edwin Bennett +Director +/s/ Diego Donoso +Diego Donoso +Director +/s/ Gretchen Haggerty +Gretchen Haggerty +Director +/s/ Jane Leipold +Jane Leipold +Director +/s/ Stephen Macadam +Stephen Macadam +Director +/s/ Heath Sharp +Heath Sharp +Director +/s/ Stuart Taylor II +Stuart Taylor II +Director +89 \ No newline at end of file diff --git a/raw/filings/0001921963/2025/0001921963-26-000015/filing_metadata.csv b/raw/filings/0001921963/2025/0001921963-26-000015/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..295849d043332419ae7855e1f3d0069c7aa2a2dc --- /dev/null +++ b/raw/filings/0001921963/2025/0001921963-26-000015/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001921963,ATMU,Atmus Filtration Technologies Inc.,2025,10-K,2026-02-13,2025-12-31,2026-02-13T19:01:04.000Z,0001921963-26-000015,atmu-20251231.htm,10-K,16337072,1,1,https://www.sec.gov/Archives/edgar/data/1921963/000192196326000015/atmu-20251231.htm,https://www.sec.gov/Archives/edgar/data/1921963/000192196326000015/ diff --git a/raw/filings/0001921963/2025/0001921963-26-000015/item1.txt b/raw/filings/0001921963/2025/0001921963-26-000015/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..c4304b9bcea4f419df7edc26d0b18691cac46d7c --- /dev/null +++ b/raw/filings/0001921963/2025/0001921963-26-000015/item1.txt @@ -0,0 +1,146 @@ +Item 1. Business +Overview +Atmus is one of the global leaders of filtration products for on-highway commercial vehicles and off-highway agriculture, construction, mining and power generation vehicles and equipment. Atmus designs and manufactures advanced filtration products, principally under the Fleetguard brand, that enable lower emissions and provide superior asset protection. Atmus estimates that approximately 14% of Atmus’ net sales in 2025 were generated through first-fit sales to original equipment manufacturers (“OEM”s), where Atmus’ products are installed as components for new vehicles and equipment, and approximately 86% were generated in the aftermarket, where Atmus’ products are installed as replacement o r repair parts, leading to a strong recurring revenue base. Building on Atmus’ more than 65-year history, Atmus continues to grow and differentiate itself through its global footprint, comprehensive offering of premium products, technology leadership and multi-channel path to market. +For the year ended December 31, 2025 , Atmus generated $1,764.3 million in Net sales, $207.4 million in Net income and $353.5 million in Adjusted EBITDA. See “ Management’s Discussion and Analysis of Financial Condition and Results of Operations - Non-GAAP Measures ” in this Annual Report on Form 10-K for a description of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to Net income, the most directly comparable financi al measure calculated in accordance with U.S. GAAP. +Atmus’ Business Strategy +The company has four pillars as part of its strategy to create value for customers and drive profitable growth. Below are each of the priorities and areas of focus related to each priority. +Grow share in first-fit in core markets +• Grow market share with leading OEMs. +• Enhanced product content per vehicle. +• Accelerate new product development. +• Support technology transitions with leading OEMs. +Accelerate profitable growth in the aftermarket +• Expand Atmus’ product portfolio. +4 +Table of Contents +• Use analytics to target and capture growth opportunities. +• Expand reach through multi-channel distribution. +• Invest in product technology advantage to enhance value and protect revenue. +Transform Atmus’ supply chain +• Drive services and availability . +• Optimize network . +• Transform cost structure . +• Invest in capabilities for the future . +Expand into Industrial Filtration Markets +• Build sustainable growth by expanding and diversifying into the industrial filtration market. +• Leverage global footprint and existing technical capabilities to open new opportunities for growth. +• Develop capabilities, whether organically or through acquisitions or strategic partnerships, to enter new markets with long-term growth prospects. +Atmus’ Global Footprint +Atmus serves end-users globally, with approximately 46% of its Net sales in 2025 from outside of the United States and Canada. Atmus believes that it, together with its joint ventures in China and India, has a leading position in its core markets, based on Net sales in 2025. Atmus maintains strong global customer relationships, supported by an established salesforce with work locations in over 25 countries as of December 31, 2025. Also, as of December 31, 2025, Atmus operates through 11 distribution centers, 10 manufacturing facilities and five technical facilities plus 10 manufacturing facilities and two technical facilities operated by its joint ventures, giving Atmus presence on six continents. +5 +Table of Contents +Atmus’ Premium Products +Atmus offers a full spectrum of filtration solutions that enable lower emissions and provide superior asset protection. Atmus’ filtration products provide comprehensive and differentiated solutions, which allow its end-users to extend service intervals, reduce maintenance costs and increase uptime. Atmus’ products include fuel filters, lube filters, air filters, crankcase ventilation, hydraulic filters and coolants and other chemicals. Atmus’ broad range of products in each of its core markets enables one-stop shopping, which Atmus believes is a key competitive advantage. +Atmus’ Competitive Strengths +Technology leadership and deep industry knowledge enable Atmus to deliver better customer solutions +Atmus combines a culture of innovation with deep-seated experience in its industry to deliver superior filtration solutions for its customers. Atmus’ technical team develops a range of filtration technologies, including filtration media, filter element formation, filtration systems integration and service-related solutions such as remote digital diagnostic and prognostic platforms and analytics. Atmus’ technical team of approximately 350 engineers, scientists and technical specialists are located in five technical centers around the world, with approximately 25% holding advanced technical degrees. Atmus’ team draws on a more than 65-year history focused on filtration and media technologies. Atmus has a broad IP portfolio with approximately 1,200 worldwide active or pending patents and patent applications and over 650 worldwide trademark registrations and applications as of December 31, 2025. +6 +Table of Contents +Atmus has leveraged this expertise not only to develop its cutting-edge filters, filter systems and filtration media but also to manufacture a large portion of its proprietary filtration media. This allows Atmus to move swiftly from development to application of filtration technologies that protect and enhance the operation of its customer’s equipment and machines. StrataPore, NanoNet, NanoForce, NanoNet Plus and most recently, NanoNet N3 product families have enabled engines and equipment to meet continually changing emissions and performance requirements . +Atmus’ technical team works closely with Atmus’ customers to develop and apply filtration technologies that help them improve their operations. Atmus’ technology allows it to deliver performance-enabling and customized filtration solutions for its end-users, which creates long-lasting partnerships with its customers . +Iconic Fleetguard brand with premium products +Atmus believes that Fleetguard is a premium, leading brand that is strongly associated with reliability and strong performance. Atmus offers a full suite of Fleetguard-branded filtration products. With its broad line of high-quality filtration products, Atmus’ Fleetguard brand provides filters for nearly all makes of vehicles and equipment in its core markets, which further enhances Atmus’ availability, visibility and brand recognition. Atmus’ Fleetguard brand is further supported by a competitive warranty that gives Atmus’ customers and end-users high confidence in the performance and durability of its products . +Partnering with leading OEMs +Atmus has a strong history as a supplier to leading OEMs, including Cummins, Daimler, Deere, Doosan, Foton, Komatsu, Paccar/DAF, the Traton Group, Stellantis and Volvo. Atmus sells both first-fit and aftermarket products to these customers and has been selling to each of them for at least 10 years. These customers in the aggregate accounted for approximately 70% of Atmus’ net sales in 2025 and have consistently accounted for more than 67% of Atmus’ net sales in each of the last five years. Atmus has written agreements with most of its key customers that specify certain purchase parameters, but do not obligate them to specific volumes. Atmus invests in its relationships and utilizes its technical strengths to win first-fit business with these OEMs, which drives Atmus’ installed base, yielding strong recurring revenue streams in the aftermarket. The OEMs also provide Atmus with early insight into technological developments and evolving product requirements within the broader engine and industrial application industry, allowing Atmus to be well positioned as the world shifts towards more complex modular filtration systems and filtration for other power sources . +Cummins is Atmus’ largest customer and accounted for approximately 18.8% of Atmus’ net sales in 2025. This relationship is defined by the first-fit supply agreement and the aftermarket supply agreement. Atmus maintains its strong relationship with Cummins, supported by these contractual relationships and due to its 65 year history embedded with Cummins. This gives Atmus a deep understanding of Cummins needs, which enables Atmus to deliver high-quality, higher-performance products that deliver value to Cummins. +Multi-channel path to diverse global markets +Atmus’ global presence provides a diverse and stable customer base across truck, bus, agriculture, construction, mining and power generation vehicles and equipment markets. Atmus’ current core markets are on-highway and off-highway, representing approximately 58% and 42% of Atmus’ net sales in 2025, respectively. +Atmus estimates that approximately 86% of Atmus’ net sales in 2025 were generated in the aftermarket. +To drive these net sales, Atmus has developed a multi-channel path to global markets that ensures broad product availability and provides end-users with choice and flexibility in purchasing. Atmus distributes its products through a broad range of OEM dealers, independent distributors, and retail outlets, including truck stops . +The dealers of the OEMs are typically the channel preferred by customers in many markets. Atmus’ close relationships with the OEMs and strong first-fit installed base position Atmus well with the OEM dealer network and large fleet customers. For example, the dealers of four of the largest North America on-highway OEMs carry a significant range of Atmus’ products at their dealerships . +7 +Table of Contents +In addition, independent distributors and retailers enable Atmus to reach a broader end-user market and create additional points of sale or service. Atmus also works directly with major customers of its channel partners (such as large fleets or mining companies), across its end markets, to create strong brand preference, which, in turn, leads to strong demand for its products and generates recurring revenue. Atmus continues to increase geographic coverage within regions to better serve its customers by investing in distribution expansion . +Atmus typically ships directly from its 11 distribution centers (as of December 31, 2025) worldwide to its channel partners, which provides direct connection and detailed understanding of Atmus’ customer and end-user base. Atmus’ comprehensive distribution and market coverage are vital to maintaining its broad reach, global presence and brand recognition . +Experienced leadership team with a proven track record of driving growth +Atmus is led by an energized and experienced senior leadership team with extensive industry experience with Cummins and other leading industrial companies. Atmus’ strategic vision and culture are directed by its executive leadership team under the leadership of its Chief Executive Officer and President, Stephanie J. Disher, its Senior Vice President, Chief Financial Officer and Chief Accounting Officer, Jack M. Kienzler, its Senior Vice President and Chief People Officer, Renee M. Swan, its Senior Vice President and President, Power Solutions, Charles E. Masters, and its Senior Vice President, Chief Legal Officer and Corporate Secretary, Laura Heltebran. Stephanie J. Disher joined Cummins in 2013 and has over 20 years of experience in leadership positions, including international assignments in Australia, Asia, and the United States. Prior to her current role, Stephanie J. Disher served as Vice President, Cummins and President, Cummins Filtration where she has demonstrated a continued track record of strong business performance, innovation and operational excellence. Jack M. Kienzler joined Cummins in 2014 and has over 15 years of finance experience. He most recently served as the Executive Director of Investor Relations at Cummins, having formerly led the Corporate Development team. Renee M. Swan joined Atmus in August 2023 and has over 20 years of experience in human resources and talent management. Charles E. Masters joined Cummins in 2003 and has over 20 years of experience in global sales and operational leadership roles within Cummins. Laura Heltebran joined Atmus in May 2025 and brings over 25 years of legal, ethics and compliance experience with public companies across several industries including, technology, hospitality, and aviation. Atmus’ leadership team has the ability to develop and execute its strategic vision and aims to create long-term shareholder value. Atmus benefits from its team’s industry knowledge and track record of successful product innovation and financial performance. Additionally, members of Atmus’ senior leadership team have strong experience executing and integrating acquisitions and strategic partnerships to drive accelerated growth and improved profitability . +Supply +The performance of the end-to-end supply chain, extending through to Atmus’ suppliers, is foundational to its ability to meet customers’ expectations and support long-term growth. Atmus is committed to having a robust strategy for how it selects and manages its suppliers to enable a market focused supply chain. This requires Atmus to continuously evaluate and upgrade its supply base, as necessary, as Atmus strives to ensure it is meeting the needs of its customers . +Atmus uses a combination of proactive and reactive methodologies to enhance its understanding of supply base risks, which guide its development of risk monitoring and sourcing strategies. Atmus’ category sourcing strategy process (a process designed to create the most value for the company) supports the review of its long-term needs and guides decisions on what it makes internally and what it purchases externally. For the items Atmus decides to purchase externally, the strategies also identify the suppliers it should partner with long-term to provide the best technology, the lowest total cost and highest supply chain performance. Key suppliers are managed through long-term supply agreements that secure capacity, delivery, quality and ensure cost requirements are met over an extended period . +8 +Table of Contents +Other important elements of Atmus’ sourcing strategy include : +• selecting and managing suppliers to comply with its Supplier Code of Conduct ; and +• assuring its suppliers comply with its prohibited and restricted materials policy. +Atmus monitors supply chain disruptions and conducts structured supplier risk and resiliency assessments. Atmus performs formal and informal supplier engagements to address potentially impactful supply base constraints and enhanced collaboration to develop specific countermeasures to mitigate risks. Atmus’ global team, located in different regions of the world, uses various approaches to identify and resolve threats to supply continuity . +Supply chain disruptions can impact Atmus’ business as well as its suppliers and customers, resulting in longer lead times in some areas of its business. Orders are typically issued as rolling releases with a specific lead time. When these orders are on backlog, they are often subject to cancellation on reasonable notice without cancellation charges, and therefore are not considered firm . +Materials +The principal materials that Atmus uses directly in manufacturing its products are steel, filter media and petrochemical-based products, including plastic, rubber and adhesives products. Atmus expects these materials to be available from numerous sources in quantities sufficient to meet our requirements. In 2025, material costs represented approximately 60% of Atmus’ cost of sales, compared to 61% of Atmus’ cost of sales in 2024. +Customer Concentration +Atmus has thousands of customers around the world and has developed long-standing business relationships with many of them. Cummins is Atmus’ largest customer, accounting for approximately 18.8% of Atmus’ net sales in 2025, 17.6% in 2024 and 17.4% in 2023, respectively. In connection with the Separation, Atmus entered into a first-fit supply agreement and an aftermarket supply agreement with Cummins for Atmus’ first-fit and aftermarket products. These agreements provide for continuation of Atmus’ supply to Cummins for all of its first-fit applications that Atmus currently supports, commitment to first-fit supply for certain upcoming product launches, and continued supply to Cummins of its full line of aftermarket filtration needs. It does not commit a specific volume of filters or related products. The loss of this customer or a significant decline in the production level of Cummins engines that use Atmus’ filters would have an adverse effect on Atmus’ business, financial condition, results of operations or cash flows . +In addition to the agreement Atmus entered into with Cummins, Atmus has long-term agreements with many of its largest customers. Collectively, Atmus’ net sales from its next four top customers, other than Cummins, was approximately 40% of Atmus’ net sales in 2025 and approximately 40% in 2024 and 39% in 2023, respectively. Excluding Cummins, two other customers, PACCAR and the Traton Group, accounted for more than 10% of Atmus’ net sales in 2025. Atmus’ customer agreements typically contain standard purchase and sale agreement terms covering filter pricing, quality and delivery commitments, as well as engineering product support obligations. The basic nature of Atmus’ agreements with OEM customers is that they are long-term price and operations agreements that provide for the availability of Atmus’ products to each customer through the duration of the respective agreements. Where Atmus has such agreements in place, its customers typically place purchase orders with it pursuant to these agreements. Agreements with most OEMs contain bilateral termination provisions giving either party the right to terminate in the event of a material breach, change of control or insolvency or bankruptcy of the other party . +Intellectual Property +Atmus owns or controls a broad range of intellectual property rights, including a significant number of patents, trademarks, copyrights, trade secrets and other forms of intellectual property rights in the United States and foreign countries. Atmus has a broad IP portfolio with approximately 1,200 worldwide active or pending patents and patent applications and over 650 worldwide trademark registrations and applications as of December 31, 2025, which were granted and registered over a period of years. Atmus’ leading brand house trademark is Fleetguard. Atmus protects its innovations that arise from research and development through patent filings, as well as through trade secrets. Although these patents, trademarks and trade secrets are +9 +Table of Contents +generally considered beneficial to Atmus’ operations, Atmus does not believe any patent, group of patents, trademark or trade secret is solely responsible for protecting its products . +Research, Development and Engineering +In 2025, Atmus continued to invest in future critical technologies and products. Atmus will continue to make investments to develop new technologies and improve its current products to meet increasing and changing emissions and engine performance requirements globally for diesel and hydrocarbon-powered equipment. In addition to building on its core technologies, Atmus is making investments in filtration and separation technologies required and used by electric powered vehicles, hydrogen production and other industrial systems . +Atmus’ research, development and engineering programs are focused on product improvements, product extensions, innovations and cost reductions for its customers. Research, development and engineering expenditures include salaries, contractor fees, building costs, utilities, testing, technical IT, administrative expenses and allocation of corporate costs and are expensed when incurred. Research, development and engineering expenses were $40.7 million, $40.6 million, and $42.5 million for the years ended December 31, 2025, 2024 and 2023, respectively. +Seasonality +Many of the Company’s end markets are generally stronger in the first half of the Company’s fiscal year. In addition, the second half of the fiscal year contains more holiday periods, which typically includes more customer closures. Also, individual product lines may experience modest seasonal variation in production, this does not, however, have material impact on demand on a quarterly basis. +Competition +Atmus is a leading global participant in the filtration engine products markets. Atmus’ products include fuel filters, lube filters, air filters, crankcase ventilation, hydraulic filters and coolants and other chemicals. Key global participants in this market include MANN+HUMMEL, Donaldson, Parker and MAHLE. The rest of the market is highly fragmented and occupied by various specialized and regional players. Most of the large global players serve both first-fit and aftermarket channels, while smaller, regional players tend to focus on the aftermarket. The filtration market offers a unique multi-channel path to market, and diversification across first-fit, OEM service and aftermarket. The recurring revenue model and mission-critical role of filters drive consistent demand across regions and end markets . +Principal methods of competition in the filtration markets are product quality and performance, price, geographic and application coverage, availability, customer service, ease of doing business and brand reputation. Atmus believes it is a market leader within many of its product lines, including filters in Atmus’ on-highway and off-highway markets, and that its success in the market is due to its technology, its iconic Fleetguard brand, its global footprint, strong customer relationships and the talent within its organization . +Human Capital Resources +As of December 31, 2025, Atmus employed approximately 4,500 persons worldwide. As of December 31, 2025, approximately 53% of Atmus’ employees worldwide were represented by various unions under collective bargaining agreements. Among these collective bargaining agreements, those for the employees in Mexico, Brazil and France are renewed annually after compensation negotiations, while the collective bargaining agreement for the Cookeville, Tennessee plant typically has a four- to five-year term. Collective bargaining for Brazil Annual Profit Sharing will take place on February 19, 2026. Annual term collective bargaining for Mexico and France were recently successfully completed. These collective bargaining agreements have terms that will expire between December 2026 and February 2027. Contract negotiations at the Cookeville, Tennessee plant took place in February of 2024 resulting in a new four year contract that will expire at the end of its four year term on February 29, 2028. +Throughout Atmus’ more than 65-year history, Atmus has always recognized that people are the strength of its business and drive its ability to effectively serve its customers and sustain its competitive position. Atmus believes that the composition of its workforce gives it advantages relating to cost and capability when compared to its peers. Atmus empowers managers and employees to make decisions and generate positive results, +10 +Table of Contents +increases employee communication and interaction with senior leadership and enhances a work environment that is inclusive, transparent, agile and team-oriented . +Purpose and Core Values +Atmus is a purpose-driven company. Atmus’ purpose is ‘ Creating a better future by protecting what is important .’ Atmus creates and innovates every day. With a forward focus, Atmus never sits still. Atmus realizes the world is bigger than it, and it aspires for a better future for shared humanity. Atmus’ products protect its customers, their equipment and their livelihoods. Atmus protects what is important to its people, the planet, and its customers . +Atmus’ culture is shaped by its core values: +• Build Trust in every relationship every day. +• Have Courage to speak up, take action and shape the future. +• Be Inclusive by embracing differences and building a community where everyone feels valued. +• Show Caring by engaging with kindness and consideration for the wellbeing of others. +Leadership and Talent Management +The capability of Atmus’ people and their ability to work effectively in agile teams is a primary enabler of Atmus’ success. Atmus strives to create a leadership culture that is authentic, transparent and approachable. By minimizing organizational layers, simplifying its organizational structure and process, Atmus empowers its employees to have an increased impact on its results. Atmus’ leaders are tasked with providing their employees with the support, development and encouragement needed to be successful. Further, Atmus’ leaders connect Atmus’ people and their work to Atmus’ purpose, values, brand promise and strategies. Atmus will continue to invest in leadership development. Atmus will maintain the emphasis that the primary role of leaders at all levels is to focus on people development, supporting the unique needs of each employee in reaching their greatest positive impact at work, in the community and at home . +Atmus’ talent management approach seeks to develop the skills and capabilities of a diverse, global workforce and utilize Atmus’ talent to deliver excellent results. Atmus advances and invests in its people based on strong performance, demonstration of core values in how work is accomplished and the individual motivation to have a larger impact on organization results . +Competitive Pay and Benefits +To attract and retain the best employees, Atmus maintains a positive work environment that is grounded in its core values, a leadership culture that supports the development of its people and competitive pay and benefits . +When designing its base pay compensation ranges, Atmus completes market analyses to maintain pay ranges that are current and related to the work it performs. Atmus also completes annual compensation studies to assess market movement for key skills as well as internal pay equity. Atmus incorporates living wage assessment into its annual compensation reviews to ensure that current and new hires are not below this threshold. Collectively, Atmus’ global wage assessments seek to ensure Atmus is fair, equitable and competitive in its ability to attract and retain the best talent. Everywhere possible, individual performance is the primary path for Atmus’ employees to advance their earning potential. In addition, all employees also participate in annual variable compensation plans that encourage collaboration in the achievement of overall business results . +Atmus’ benefit programs are aligned with Atmus’ values, including health insurance, retirement plans and wellness programs. The U.S. medical benefits include a tiered cost-sharing structure based on salary. This is in place to make healthcare more affordable for lower income employees and helps to attract and retain talent across the organization. +11 +Table of Contents +Employee Safety and Wellness +Atmus has a health, safety and environment commitment to protect what is important - its people, the planet and its customers. Every day, Atmus is committed to continually improving the health and safety of its work environment, taking action to achieve its goal that nobody gets hurt. +In pursuit of this goal, Atmus embraces a positive safety culture that encourages its employees to recognize potentially unsafe situations, report concerns and work together to remove potential hazards from the work environment before incidents occur. Additionally, Atmus’ Global Health and Safety Policy sets the standard for Atmus’ facilities based on best practices that often exceed regulatory requirements. Atmus manages its sites using the International Standards for Health, Safety and Environment to create a strong framework for risk reduction and continual improvement, with certification to ISO45001 and ISO14001 . +Atmus encourages its leaders to promote safety through strategic planning, enforcement and accountability, fostering the right environment, and influencing employees and other stakeholders. Atmus encourages its employees to promote safety through personal accountability, managing risk, and adopting positive behaviors. By employing these safety guidelines, Atmus seeks to maintain its goal of zero serious injury fatalities caused by machinery safety hazards due to the lack of or failure of safety control measures . +Where Atmus identifies a risk, it ensures that improvement actions are shared across the organization to promote a learning-oriented culture where Atmus’ employees are empowered to make their work environment safer and better. Using leading indicators of performance, Atmus recognizes the contribution of individuals and teams to reinforce safe work behaviors in the workplace, homes and communities . +Inclusion and Diversity +Inclusion and diversity of perspective at all levels of Atmus are critical to its ability to innovate, win in the marketplace and create sustainable success. Having inclusive and diverse workplaces allows Atmus to attract and retain the best employees to deliver results for its shareholders. Building on a long history that has emphasized inclusion and diversity, Atmus will continue to seek opportunities and invest in processes that attract, develop and retain diverse talent, globally. Atmus will ensure that all employees can benefit from being a part of Atmus. This begins with the leadership team at Atmus. At this time, three out of Atmus’ eight directors are female, including its Chief Executive Officer, and two out of its eight directors are ethnically diverse. In addition, 43% of Atmus’ executive team is female, including its Chief Executive Officer, and 14% is ethnically diverse. +Regulatory Matters +Atmus faces extensive government regulation both within and outside the United States relating to the development, manufacture, marketing, sale and distribution of its products, including regulations relating to data privacy, trade compliance, anti-corruption and anti-bribery. These are not the only regulations with which Atmus must comply. For a description of risks related to the regulations that Atmus is subject to, please refer to the section entitled “ Risks Related to Government Regulation .” +Available Information +The Company makes its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and other information, including amendments to those reports, available free of charge through its website at investors.atmus.com , as soon as reasonably practicable after it electronically files such material with, or furnishes such material to, the Securities and Exchange Commission (SEC). These filings are available on the SEC’s website at www.sec.gov . +12 +Table of Contents +MANAGEMENT OF ATMUS +Executive Officers +The following table sets forth information, as of February 13, 2026, regarding the individuals who serve as Atmus’ executive officers, followed by a biography of each executive officer. +Name Age +Positions +Stephanie J. Disher +50 +Chief Executive Officer and President +Jack M. Kienzler +40 +Senior Vice President, Chief Financial Officer and Chief Accounting Officer +Laura B. Heltebran +61 +Senior Vice President, Chief Legal Officer and Corporate Secretary +Charles E. Masters +53 +Senior Vice President and President, Power Solutions +Renee M. Swan +45 +Senior Vice President and Chief People Officer +Stephanie J. Disher currently serves as Atmus’ Chief Executive Officer and President. Ms. Disher previously served as Vice President, Cummins and President, Cummins Filtration. Prior to that role, Ms. Disher served in various leadership roles since joining Cummins in 2013, including as Operations Director and Managing Director for Cummins in the South Pacific region. Ms. Disher holds a bachelor’s degree in Commerce from the University of Western Sydney and a Master of Business Administration from the University of Melbourne . +Jack M. Kienzler currently serves as Atmus’ Senior Vice President, Chief Financial Officer and Chief Accounting Officer. Mr. Kienzler previously oversaw the financial activities of Cummins Filtration Inc. as its Chief Financial Officer. Mr. Kienzler served in various leadership roles since joining Cummins in 2014. Mr. Kienzler holds a Bachelor of Science in Finance and Accounting from Indiana University and a Master of Business Administration from the Indiana University Kelley School of Business . +Laura B. Heltebran currently serves as Atmus’ Senior Vice President, Chief Legal Officer and Corporate Secretary. Ms. Heltebran previously served as Executive Vice President, Chief Legal Office and Corporate Secretary with Wheels Up. Prior to Wheels Up, Ms. Heltebran served as Senior Vice President and Deputy General Counsel at Hilton Worldwide. Ms. Heltebran holds a Bachelor of Arts degree from George Mason University and a Juris Doctor degree from Antonin Scalia Law School, George Mason University. +Charles E. Masters currently serves as Atmus’ Senior Vice President and President, Power Solutions and previously served as Executive Director of Global Sales and Marketing of Cummins Filtration Inc. Prior to that role, Mr. Masters served in various leadership roles since joining Cummins in 2003, including as General Manager of Eaton Cummins Automated Transmission Technologies from 2018 to 2021 and as President of Cummins Western Canada from 2016 to 2018. Mr. Masters holds a Bachelor of Commerce from the University of Alberta and a Master of Business Administration from Harvard Business School . +Renee M. Swan currently serves as Atmus’ Senior Vice President and Chief People Officer. Ms. Swan previously served as Vice President of Human Resources for the communication systems segment of L3Harris Technologies, Inc. Ms. Swan has over two decades of experience in human resources disciplines, having spent time with Kennametal, Honeywell International, and Eaton Corporation in progressive human resources responsibilities. Ms. Swan has a Master of Professional Studies in Human Resource Management from Cornell University, a Master of Business Administration degree from Point Park University and a Bachelor's in Communications from the University of Pittsburgh . +13 +Table of Contents \ No newline at end of file diff --git a/raw/filings/0001921963/2025/0001921963-26-000015/item13.txt b/raw/filings/0001921963/2025/0001921963-26-000015/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..b9472f46a7d1b2fced688e35e8dc26bccd4a8940 --- /dev/null +++ b/raw/filings/0001921963/2025/0001921963-26-000015/item13.txt @@ -0,0 +1,3 @@ +Item 13. +Certain Relationships and Related Transactions and Director Independence +85 \ No newline at end of file diff --git a/raw/filings/0001922335/2024/0001493152-25-009873/filing.txt b/raw/filings/0001922335/2024/0001493152-25-009873/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..e3f430b60d1dd5c7f38c3cda73e1f854400a3611 --- 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+File Number 001-41822 +SYRA +HEALTH CORP. +(Exact +Name of Registrant as Specified in Its Charter) +Delaware +85-4027995 +(State +or other jurisdiction of +incorporation +or organization) +(I.R.S. +Employer +Identification +Number) +1119 +Keystone Way N. #201 +Carmel , +IN 46032 +(Address +of Principal Executive Offices) +Registrant’s +telephone number, including area code: (463) 345-8950 +Securities +registered pursuant to Section 12(b) of the Act: +Title +of each class +Trading +Symbol +Name +of each exchange on which registered +Common +Stock, par value $0.001 per share +SYRA +The +Nasdaq Capital Market +Securities +registered pursuant to Section 12(g) of the Act: None +Indicate +by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ +Indicate +by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒ +Indicate +by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange +Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) +has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ +Indicate +by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule +405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant +was required to submit such files). Yes ☒ No ☐ +Indicate +by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, +to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III +of this Form 10-K or any amendment to this Form 10-K. ☒ +Indicate +by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting +company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” +and “emerging growth company” in Rule 12b-2 of the Exchange Act.: +Large +accelerated filer ☐ +Accelerated +filer ☐ +Non-accelerated +filer ☒ +Smaller +reporting company ☒ +Emerging +growth company ☒ +If +an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying +with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ +Indicate +by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness +of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered +public accounting firm that prepared or issued its audit report. ☐ +If +securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant +included in the filing reflect the correction of an error to previously issued financial statements. ☐ +Indicate +by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation +received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ +Indicate +by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ +The +Registrant was not a public company as of the last business day of its most recently completed second fiscal quarter and, therefore, +cannot calculate the aggregate market value of its voting and non-voting common equity held by non-affiliates as of such date. +The +number of shares of the registrant’s Class A Common Stock outstanding as of March 7, 2025 was 11,312,544 . +Documents +Incorporated by Reference: +Specified +portions of the registrant’s proxy statement, which will be filed with the Securities and Exchange Commission pursuant to Regulation +14 A in connection with the registrant’s 2024 Annual Meeting of Stockholders (the “Proxy Statement”), are incorporated +by reference into Part III of this Annual Report on Form 10-K. Except with respect to information specifically incorporated by reference +in this Annual Report, the Proxy Statement is not deemed to be filed as part hereof. +TABLE +OF CONTENTS +Page +Cautionary Note Regarding Forward-Looking Statements +2 +Risk Factor Summary +3 +PART I +Item +1. +Business +4 +Item +1A. +Risk Factors +8 +Item +1B. +Unresolved Staff Comments +26 +Item +1C. +Cybersecurity +26 +Item +2. +Properties +26 +Item +3. +Legal Proceedings +26 +Item +4. +Mine Safety Disclosures +27 +PART +II +Item +5. +Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +27 +Item +6. +[Reserved] +27 +Item +7. +Management’s Discussion and Analysis of Financial Condition and Results of Operations +27 +Item +7A. +Quantitative and Qualitative Disclosures About Market Risk +34 +Item +8. +Financial Statements and Supplementary Data +F-1 +Item +9. +Changes in and Disagreements with Accountants on Accounting and Financial Disclosure +35 +Item +9A. +Controls and Procedures +35 +Item +9B. +Other Information +36 +Item +9C. +Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +36 +PART III +Item +10. +Directors, Executive Officers and Corporate Governance +36 +Item +11. +Executive Compensation +36 +Item +12. +Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +36 +Item +13. +Certain Relationships and Related Transactions, and Director Independence +36 +Item +14. +Principal Accountant Fees and Services +36 +PART IV +Item +15. +Exhibits and Financial Statement Schedules +37 +Item +16. +Form 10-K Summary +40 +SIGNATURES +41 +- 1 - +Cautionary +Note Regarding Forward-Looking Statements +This +Annual Report on Form 10-K contains forward-looking statements that involve risks and uncertainties. You should not place undue reliance +on these forward-looking statements. All statements other than statements of historical facts contained in this Annual Report on Form +10-K are forward-looking statements. The forward-looking statements in this Annual Report on Form 10-K are only predictions. In some +cases, you can identify these forward-looking statements by terms such as “anticipate,” “believe,” “continue,” +“could,” “depends,” “estimate,” “expects,” “intend,” “may,” “ongoing,” +“plan,” “potential,” “predict,” “project,” “should,” “will,” +“would” or the negative of those terms or other similar expressions, although not all forward-looking statements contain +those words. We have based these forward-looking statements on our current expectations and projections about future events and trends +that we believe may affect our financial condition, results of operations, strategy, short- and long-term business operations and objectives, +and financial needs. These forward-looking statements include, but are not limited to, statements concerning the following: +● +our +projected financial position and estimated cash burn rate; +● +our +estimates regarding expenses, future revenues and capital requirements; +● +our +ability to continue as a going concern; +● +our +need to raise substantial additional capital to fund our operations; +● +our +ability to compete in the healthcare industry; +● +the +timing, cost and success or failure of new product and service introductions, development and product upgrade releases; +● +competitive +pressures including offerings and pricing; +● +our +ability to establish and maintain strategic relationships; +● +undetected +errors or similar problems in our software products; +● +compliance +with existing laws, regulations and industry initiatives and future changes in laws or regulations in the healthcare industry; +● +the +possibility of services-related liabilities; +● +our +ability to obtain, maintain and protect our intellectual property rights and the potential for us to incur substantial costs from +lawsuits to enforce or protect our intellectual property rights; +● +our +reliance on third-party content providers; +● +the +success of competing products or services that are or become available; +● +our +ability to expand our organization to accommodate potential growth and our ability to retain and attract key personnel; and +● +the +successful development of our sales and marketing capabilities. +These +forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in “Risk +Factors.” Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is +not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which +any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements +we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Annual +Report on Form 10-K may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking +statements. +You +should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected +in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events +and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, except as required by law, neither +we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. +You +should read this Annual Report on Form 10-K and the documents that we reference in this Annual Report on Form 10-K with the understanding +that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we +expect. +- 2 - +Risk +Factor Summary +Our +business is subject to significant risks and uncertainties that make an investment in us speculative and risky. Below we summarize what +we believe are the principal risk factors but these risks are not the only ones we face, and you should carefully review and consider +the full discussion of our risk factors in the section titled “Risk Factors”, together with the other information in this +Annual Report on Form 10-K. If any of the following risks actually occurs (or if any of those listed elsewhere in this Annual Report +on Form 10-K occur), our business, reputation, financial condition, results of operations, revenue, and future prospects could be seriously +harmed. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important +factors that adversely affect our business. +● +Although +we have generated approximately $8.0 million and $5.5 million of revenues for the years ended December 31, 2024 and 2023, respectively, +our future profitability is uncertain. +● +We +will require substantial additional funding and if we are unable to raise capital on favorable terms when needed, we could be forced +to curtail, delay or discontinue our business. +● +Our +independent registered public accounting firm has expressed substantial doubt about our ability to continue as a going concern, which +may hinder our ability to obtain future financing. +● +Our +business strategy and future success depend on our ability to cross-sell our solutions. +● +If +we are unable to successfully expand our sales force productivity, sales of our solutions and the growth of our business and financial +performance could be harmed. +● +Our +ability to generate revenue could suffer if we do not continue to update and improve our existing solutions and develop new ones. +● +Achieving +market acceptance of new or updated solutions is necessary in order for them to become profitable and will likely require significant +efforts and expenditures. +● +Our +business would be adversely affected if we cannot obtain, process or distribute data we require to provide our solutions. +● +Disruptions +in service or damages to our data or systems failures could have a material adverse impact on our business, results of operations +or financial condition. In addition, breaches and failures of information technology (“IT”) systems and the sensitive +information we transmit, use and store expose us to potential liability and reputational harm. +● +We +rely on Internet infrastructure, bandwidth providers, data center providers, other third parties and our own systems in providing +certain of our solutions to our customers, and any failure or interruption in the services provided by these third parties or our +own systems could expose us to litigation and negatively impact our relationships with customers, adversely affecting our brand and +our business. +● +Failure +by our customers to obtain proper permissions or provide us with accurate and appropriate information may result in claims against +us or may limit or prevent our use of information, which could harm our business. Additionally, privacy concerns relating to our +business could damage our reputation and deter current and potential customers from using our solutions. +● +Our +independent content providers may fail to perform adequately or comply with laws, regulations or contractual covenants. +● +Our +work with government clients exposes us to additional risks inherent in the government contracting environment. +● +We +may be liable for the misdiagnoses, mistreatment, injury or other harm to patients resulting from the use of data that we provide +to health care providers, and any resulting claims could negatively impact our operating results and result in a decline in our stock +price. +● +The +protection of our intellectual property requires substantial resources and protections of our proprietary rights may not be adequate. +● +We +depend on a small number of large customers and the loss of one or more major customers could have a material adverse effect on our +business, financial condition and results of operations. +● +We +are subject to federal and state healthcare industry regulation including conduct of operations, costs and payment for services and +payment for referrals as well as laws regarding government contracting. +● +The +dual-class structure of our common stock as contained in our Certificate of Incorporation has the effect of concentrating voting +control with those stockholders who held our Class B common stock. This ownership will limit or preclude your ability to influence +corporate matters, including the election of directors, amendments of our organizational documents, and any merger, consolidation, +sale of all or substantially all of our assets, or other major corporate transactions requiring stockholder approval, and that may +adversely affect the trading price of our Class A common stock. +● +Our +principal stockholders will continue to have significant influence over the election of our board of directors and approval of any +significant corporate actions, including any sale of our Company. +- 3 - +PART +I +ITEM +1. BUSINESS +Overview +We +are a healthcare services company promoting preventative health, holistic wellness, health education, and equitable healthcare for all +patient demographics. We leverage deep scientific and healthcare expertise to create strategic frameworks and develop patient-centric +solutions for the betterment of patient lives and health outcome linked to developing a healthier population. We provide comprehensive +end-to-end solutions in behavioral and mental health, population health, digital health, health education and healthcare workforce. Our +offerings are centered on prevention, improved access, and affordable care. Our goal is to supply our solutions to payers, providers, +life sciences organizations, academic institutions, and the government. +Our +Services +Behavioral +and Mental Health +Mental +health concerns are rapidly growing on a global scale, yet the shortage of mental health professionals and access to treatment is leaving +millions of people without access to mental health resources. We strongly believe in behavioral and mental health equity and our mission +is to provide solutions that help improve health care and provide access to all populations, regardless of race, ethnicity, gender, socioeconomic +status, sexual orientation, or geographic location. With our specialized services, we believe that we can help solve the behavioral and +mental health needs of various organizations, including health organizations, large employers, and schools. +Syrenity +is a comprehensive mental health application that is aimed at providing preventative care and interventions for behavioral and mental +health and will utilize an artificial intelligence-driven user diary for engagement . Syrenity +is being designed to identify and prevent the progression of negative factors that can influence individuals’ mental health, by +offering targeted assignments, education, monitoring symptoms, and providing timely interventions such as cognitive behavioral therapy +and mindfulness techniques. Syrenity will enable users to connect with licensed mental health professionals, will allow users to schedule +virtual consultations with psychologists, psychiatrists, or mental health coaches, eliminating the need for in-person visits and will +provide education resources to help users understand their mental health concerns and learn coping strategies. We launched Syrenity in +the third quarter of 2024. +Population +Health +We +define population health services as the process of assessing and analyzing healthcare and its delivery to create improvement for a population +of individuals. We are developing end-to-end solutions and strategies to improve quality of care, access to care, health outcomes, and +healthcare policies. We believe that our solutions will assist individuals in reaching their full health potential through preventative +care, care coordination and patient engagement. Our team of service providers includes health economists, public health experts, subject +matter experts, data scientists, and biostatisticians who apply advanced health analytics to real-world data to provide meaningful insights +to improve quality of clinical care and understand patterns and trends around diagnosis, treatment, and continued care. We believe our +team helps stratify health risks based on social determinants of health, predict utilization of resources and health care costs, identify +patient-level interventions, and recommend population-level strategies. Within our population health service line we offer the following +services: analytics as a service, epidemiology, and health equity analytics solutions. +Digital +Health +We +use digital health to bring innovation into the healthcare practice. Our goal is to transform patient care and engagement by connecting +physicians, patients, caregivers, payers, and other key stakeholders through healthcare digital platforms. We are developing digital +and cloud-based platforms to help improve cost savings through the automation of health operations, which also provide clinical insights +that personalize care and improve patient satisfaction. Our solutions will include digital transformation, cloud and security, artificial +intelligence, patient engagement, and health applications. Within our digital health service line, we intend to offer SyraBot a chatbot +designed to foster connectivity and engagement throughout individuals’ care journeys, offering members round-the-clock access to +necessary information via our AI-powered customer support chat system). +- 4 - +Health +Education Services +We +believe that one of the main drivers of the healthcare education solutions market is the need to address challenges in the healthcare +industry through effective and innovative medical and scientific training. With evolving healthcare technology, healthcare professionals +must be knowledgeable with respect to various patient-care approaches to make better informed clinical decisions and assure patient satisfaction. +We believe that targeted and continuous healthcare education solutions are needed to help healthcare professionals improve their competency, +improve health equality and incorporate innovative and new therapeutic options into practice to improve overall patient care quality. +Therefore, we aim to provide medical education solutions to pharmaceutical and medical device manufacturers, biotechnology companies, +payers, large employers, academic institutions, and government agencies. Specifically, we develop medical education content to drive +the organizational and strategic brand goals and vision of our clients. Our education outreach plan utilizes omnichannel delivery approaches +from a suite of solutions for in-person, virtual and hybrid arrangements, and our deliverables include traditional print and electronic +formats. Some of our targeted education approaches include the utilization of artificial intelligence tools to provide real-time information +to customers. Within our health education service line we offer the following services: medical communications, patient education, and +healthcare training. +Healthcare +Workforce +Our +healthcare workforce solutions are intended to help evaluate the immediate and longitudinal workforce needs of our client’s organization. +Using agile implementation staffing methodologies we make it seamless and cost-efficient to expand our client’s clinical personnel. +We recruit experienced nurses and allied health professionals for long-term fixed contract positions at hospitals and healthcare facilities +across the country. Other staffing positions that we recruit include care coordinators, specialists to fill healthcare management roles, +healthcare educators, therapists, healthcare technicians and health plan specialists. +Market +Opportunity +Due +to the currently unmet healthcare needs, challenges, and attention to behavioral and mental health, we believe the overall market opportunity +for all the services we offer is growing at a rapid pace. +Behavioral +and Mental Health: The U.S. behavioral health market was valued at $151.7 billion in 2023 and is expected to exhibit growth at a +CAGR of 3.7% from 2024 to 2032 per Precedence Research. One in five U.S. adults experience mental illness each year, and one in six U.S. +youth aged 6 to 17 experience a mental health disorder each year according to a Fortune Business Insights report. Suicide is the second +leading cause of death among people aged 10 to 34. Key drivers include the rising awareness of mental health issues, increased access +to care, and the growing adoption of telehealth services. +Population +Health: According to Precedence Research, the U.S. population health management market was valued at $25.0 billion in 2022 and is +anticipated to grow at a CAGR of 19.5% from 2022 to 2030, reaching $103.7 billion by 2030. This growth is mainly driven by the increasing +demand for healthcare IT services and solutions that support value-based healthcare delivery, resulting in a transition from fee-for-service +to a value-based payment model. The healthcare quality management market in the U.S. was valued at $3.2 billion in 2020 and is projected +to reach $6.8 billion by 2028, growing at a CAGR of 13.2% from 2021 to 2028 according to Research and Markets. Factors fueling this growth +include the rise in the aging population, healthcare expenditure and medical errors, and an increase in the volume of unstructured data +in healthcare. +Digital +Health : The U.S. digital health market size was estimated at $81.17 billion in 2023 and is projected to grow at a CAGR of 19.5% from +2024 to 2030 according to Mercer. The digital health market includes mobile health applications, wearable devices, telemedicine, and +telehealth services aimed at managing chronic diseases more effectively among patients. Additionally, advancements in telehealth technologies +are driving growth within this sector as healthcare providers increasingly adopt digital solutions for patient management. +Health +Education Services: The U.S. health education market was valued at $110 billion in 2023 and is projected to reach approximately $280.6 +billion by 2033, growing at a compound annual growth rate (CAGR) of 11.0% according to a report from Verified Market Research. The U.S. +continuing medical education market was valued at approximately $2,712.6 million in 2021 and is expected to reach approximately $3,830.5 +million by 2027 according to a report from Spherical Insights. According to an Arizton Advisory & Intelligence study, the medical +writing market in the U.S. is expected to cross $5,285.3 billion by 2030 at a CAGR of 10.31%, with North America holding the largest +share. The medical affairs outsourcing market for the U.S. was estimated at $470.2 million in 2021 and is anticipated to reach $1,288.2 +million by 2030. Key drivers include technological advancements (e-learning, AI, VR), increasing demand for healthcare professionals, +and government support according to Grand View Research. +- 5 - +Healthcare +Workforce : According to Grand View Research, the U.S. healthcare staffing market size was valued at $36.9 billion in 2022 and is +expected to expand at a compound annual growth rate (CAGR) of 6.93% from 2023 to 2030. By 2030, global demand for health workers is predicted +to rise significantly; however, there will be a net shortage of approximately 15 million health workers globally. Mercer projects a deficit +of over 100,000 healthcare workers in the U.S. by 2028, worsening health disparities and impacting patient care. +Growth +Strategies +We +hope to become a leader in clinical healthcare solutions by providing customized and comprehensive end-to-end solutions for our customers +in the public and private healthcare sectors and expand our operations to other metropolitan areas. As we continue our expansion, we +anticipate that our professional pool and infrastructure will grow to support the breadth and depth of our services. With our rapid growth +of sales and business development teams, we intend to replicate our current projects with similar customers across the country. We plan +to open offices in multiple geographical locations to support our sales and business development efforts and intend to invest in partnerships +with subject matter experts to further enhance our service lines and provide real-world insights. In addition to organic efforts, we +may expand our footprint by acquiring companies that offer similar service lines. It is anticipated that such companies will strengthen +our current service offerings and may also include new services that we may offer to our clients. Our flagship product, Syrenity, is +a proprietary behavioral and mental health application designed to address the growing mental health crisis. We are strategically preparing +for its launch in global markets while continually advancing its scientific foundation and AI technology to enhance user outcomes. Additionally, +our government solutions service line of business positions us to work on federal government healthcare and related projects from several +agencies such as the United States Department of Health and Human Services, the Centers for Disease Control and Prevention, the National +Institutes of Health, the National Aeronautics and Space Administration and the United States Department of Defense. +Government +Regulations +Our +business is heavily regulated. We are subject to oversight by governmental entities in the U.S., and a failure, or alleged failure, by +us to comply with statutes, regulations, or other laws could have a material adverse impact to our business operations, reputation, results +of operations and financial position. +Government +Contracts: Our contracts with government entities typically are subject to procurement laws that include socio-economic, employment +practices, environmental protection, recordkeeping and accounting, and other requirements. These statutory and regulatory requirements +complicate our business and increase our compliance burden. We are subject to audits, investigations, and oversight proceedings about +our compliance with contractual and legal requirements. If we fail to comply with these requirements, or we fail an audit, we may be +subject to sanctions such as monetary damages, criminal and civil penalties, termination of contracts and suspension or debarment from +government contract work. Furthermore, the government may terminate any of our government contracts and subcontracts either at its convenience +or for default based on our performance. If a contract is terminated for convenience, we generally are protected by provisions covering +reimbursement for costs incurred on the contract and profit on those costs. If a contract is terminated for default, we generally are +entitled to payments for our work that has been accepted by the government; however, the government could make claims to reduce the contract +value or recover its procurement costs and could assess other special penalties. Additionally, our programs for the government often +operate for periods of time under undefinitized contract actions (“UCAs”), which means that we begin performing our obligations +before the terms, specifications or price are finally agreed to between the parties. The government’s power to unilaterally definitize +a contract can affect our ability to negotiate mutually agreeable contract terms and, if a contract is unilaterally imposed upon us, +it may negatively affect our expected profit and cash flows on a program or impose burdensome terms. +Governmental +entities in the U.S. continue to strengthen their position and scrutiny of practices that may indicate fraud, waste, and abuse affecting +government healthcare programs such as Medicare and Medicaid. Our relationships with pharmaceutical and medical product manufacturers, +healthcare providers, and other companies and individuals, as well as our provision of products and services to government entities, +subject our business to statutes, regulations, and government guidance that are intended to prevent fraud and abuse. Many of these laws +are vague or indefinite and have not been interpreted by the courts and, as such, may be interpreted or applied by a prosecutorial, regulatory, +or judicial authority in a manner that could require us to make changes in our operations at added expense. Failure to comply with these +laws could subject us to federal or state government investigations or qui tam actions, and to liability for damages and civil and criminal +penalties, including the loss of pursue government contracts. +- 6 - +Healthcare +Regulation: Our marketing practices are subject to state laws, as well as federal laws, such as the Anti-Kickback Statute and False +Claims Act, intended to prevent fraud and abuse in the healthcare industry. The Anti-Kickback Statute generally prohibits corruptly soliciting, +offering, receiving, or paying anything of value to generate business. The False Claims Act generally prohibits anyone from knowingly +and willingly presenting, or causing to be presented, any claims for payment for goods or services, including to government payers, such +as Medicare and Medicaid, that are false or fraudulent and generally treat claims generated through kickbacks as false or fraudulent. +The federal government and states also regulate sales and marketing activities and financial interactions between manufacturers and healthcare +providers, requiring disclosure to government authorities and the public of such interactions, and the adoption of compliance standards +or programs. Furthermore, the U.S. Foreign Corrupt Practices Act (“FCPA”) prohibits U.S. corporations and their representatives +from offering, promising, authorizing or making payments to any foreign government official, government staff member, political party +or political candidate to obtain or retain business abroad. The scope of the FCPA includes interactions with certain healthcare professionals +in many countries. Other countries have enacted similar anti-corruption laws and/or regulations. +Data +Security and Privacy: We are subject to a variety of privacy and data protection laws that change frequently and have requirements +that vary from jurisdiction to jurisdiction. For example, under HIPAA we must maintain administrative, physical, and technological safeguards +to protect individually identifiable health information (“protected health information”) and ensure the confidentiality, +integrity, and availability of electronic protected health information. We are subject to significant compliance obligations under privacy +laws some of which prohibit the transfer of personal information to certain other jurisdictions or otherwise limit our use of data. Many +of these laws also require us to provide access or other data rights (modification, deletion, portability, etc.) to consumers’ +and patients’ individual personal data records within specified periods of time. Laws such as the federal Cyber Incident Reporting +for Critical Infrastructure Act of 2022 may require us to provide notifications of significant data privacy breaches or cybersecurity +incidents before our investigations are complete. We are subject to privacy and data protection compliance audits or investigations by +various government agencies. Failure to comply with these laws subjects us to potential regulatory enforcement activity, fines, private +litigation including class actions, reputational impacts, and other costs. We may also have contractual obligations that might be breached +if we fail to comply with privacy and data security laws. +Employees +As +of March 7, 2025, we employed 57 full-time employees and 37 part-time employees. We are not a party to any collective bargaining agreements, +and we believe that we maintain good relations with our employees. +Our +Corporate History +We +were organized on November 20, 2020, as an Indiana corporation under the name Syra Health Corp. On March 11, 2022, we filed a Certificate +of Conversion with the Delaware Secretary of State whereby we converted from an Indiana corporation to a Delaware corporation. +Available +Information +Our +annual report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and other filings with the United States Securities +and Exchange Commission, or the SEC, and all amendments to these filings, are available, free of charge, on our website at www.Hepion.com +as soon as reasonably practicable following our filing of any of these reports with the SEC. You can also obtain copies free of charge +by contacting our Investor Relations department at our office address listed above. The public may read and copy any materials we file +with the SEC at the SEC’s Public Reference Room at 100 F Street NE, Room 1580, Washington, DC 20549. The public may obtain information +on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains +reports, proxy, and information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov. +The information posted on or accessible through these websites is not incorporated into this filing. +- 7 - +ITEM +1A. RISK FACTORS +An +investment in our securities involves a high degree of risk. You should carefully consider the risks described below as well as the other +information included in this Annual Report on Form 10-K, including “Information Regarding Forward-Looking Statements,” “Management’s +Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and the related notes thereto +included elsewhere in this Annual Report on Form 10-K, before making an investment decision. Our business, prospects, financial condition, +or operating results could be harmed by any of these risks, as well as other risks not currently known to us or that we currently consider +immaterial. The trading price of our securities could decline due to any of these risks, and, as a result, you may lose all or part of +your investment. +Risks +Related to Our Financial Position and Need for Additional Capital +Although +we have generated approximately $8.0 million and $5.5 million of revenues for the years ended December 31, 2024 and 2023, respectively, +our future profitability is uncertain. +Our +likelihood of success must be considered in light of the problems, expenses, difficulties, complications, and delays frequently encountered +in connection with the development and expansion of a business enterprise. Our net losses were $3,759,238 and $2,938,343 for the years +ended December 31, 2024 and 2023, respectively, and our accumulated deficit as of December 31, 2024 and December 31, 2023 was $8,824,193 +and $5,064,955, respectively. If we are unable to achieve and maintain profitability, we may be unable to continue our operations. +We +will require substantial additional funding and if we are unable to raise capital on favorable terms when needed, we could be forced +to curtail, delay or discontinue our business. +Since +our inception, we have not generated sufficient revenues from our operations to continue to fund the development and expansion of our +business. To date, we have funded a significant portion of our operations through the sale of our equity securities. As of December 31, +2024 and 2023, we had cash of $2,395,405 and $3,280,075, respectively. We expect that our existing cash and cash from revenue will be +sufficient to fund our current operations through at least 12 months from the date of this annual report. However, our operating plan +may change as a result of many factors currently unknown to us, and we may need to seek additional funds sooner than planned, through +public or private equity or debt financings or other third-party funding or a combination of these approaches. Even if we believe we +have sufficient funds for our current or future operating plans, we may seek additional capital if market conditions are favorable or +based upon specific strategic considerations. +Any +additional fundraising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to +develop and commercialize our products and services. In addition, we cannot guarantee that future financing will be available in sufficient +amounts or on terms acceptable to us, if at all. Moreover, the terms of any financing may adversely affect the holdings or the rights +of our stockholders and the issuance of additional securities, whether equity or debt, by us, or the possibility of such issuance, may +cause the market price of our shares to decline. The sale of additional equity or convertible securities may dilute our stockholders. +In addition, the future issuance of shares of Class B common stock may be dilutive to the holders of Class A common stock, particularly +with respect to their voting power. The incurrence of indebtedness would result in increased fixed payment obligations, and we may be +required to agree to certain restrictive covenants, such as limitations on our ability to make certain dividends, incur additional debt, +limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely +impact our ability to conduct our business. +If +we are unable to obtain funding on a timely basis, we may be required to significantly curtail, delay or discontinue our operations or +be unable to expand our operations or otherwise capitalize on our business opportunities, as desired, which could materially affect our +business, financial condition and results of operations. +- 8 - +Our +independent registered public accounting firm has expressed substantial doubt about our ability to continue as a going concern, which +may hinder our ability to obtain future financing. +Our +independent registered public accounting firm included in its opinion for the years ended December 31, 2024 and 2023 an explanatory paragraph +referring to our recurring losses from operations and expressing substantial doubt in our ability to continue as a going concern without +additional capital becoming available. Our ability to continue as a going concern is dependent upon our ability to obtain additional +equity or debt financing, reduce expenditures and generate significant revenue. Our financial statements as of December 31, 2024 did +not include any adjustments that might result from the outcome of this uncertainty. The reaction of investors to the inclusion of a going +concern statement by our auditors, and our potential inability to continue as a going concern, in future years could materially adversely +affect our share price and our ability to raise new capital. +Risks +Related to Our Business and Industry +We +face significant competition, which may harm our business, results of operations or financial condition. +We +face substantial competition in the healthcare services markets. Our key competitors include, among others, healthcare consulting service +providers, healthcare payment accuracy companies and providers of other data products and data analytics solutions, including healthcare +risk adjustment, quality, economic statistics, and other data. We also compete with certain of our customers that internally provide +some of the same solutions that we offer. The increasing standardization of certain healthcare services has made it easier for companies +to enter these markets with competitive products and services. We cannot fully anticipate whether or when companies in adjacent or other +product or service areas may launch competitive products and/or services, and any such entry may lead to obsolescence of our products +and/or services or loss of market share or erosion of the prices for our solutions, or both. The extent of this competition may vary +by the size of companies, geographical coverage and scope and breadth of products and services offered. Furthermore, some of our competitors +are significantly larger and have greater financial or other resources than we do. The vigorous competition we face requires us to provide +high quality, innovative products at a competitive price. We cannot guarantee that we will be able to upgrade our existing solutions +or introduce new solutions at the same rate as our competitors, or at all, nor can we guarantee that such upgrades or new solutions will +achieve market acceptance over or among competitive offerings, or at all. Therefore, these competitive pressures could have a material +adverse impact on our business, results of operations or financial condition. +If +we are unable to retain our existing customers or attract new customers, our business, financial condition, or results of operations +could suffer. +Our +success depends substantially upon the retention of our existing customers and attracting new customers. We may not be able to retain +our existing customers or attract new customers if we are unable to provide solutions or services that our existing or prospective customers +believe enable them to achieve improved efficiencies and cost-effectiveness. Our success in retaining and attracting customers will also +depend, in part, on our ability to be responsive to pricing pressures and changing business models. To remain competitive in the healthcare +services markets, we must continuously upgrade our existing solutions, and develop and introduce new solutions on a timely basis. Future +advances in the healthcare services market could lead to new products or services that are competitive with our solutions, resulting +in pricing pressure or rendering our solutions obsolete or not competitive. We also may not be able to retain or attract customers if +our solutions contain errors or otherwise fail to perform properly if our pricing structure is not competitive or if we are unable to +renegotiate our customer contracts upon expiration. If we are unable to maintain our customer retention rates, or if we are unable to +attract new customers, our business, results of operations or financial condition could be adversely impacted. +Our +business strategy and future success depend on our ability to cross-sell our solutions. +Our +ability to generate revenue and growth partly depends on our ability to cross-sell our solutions to our existing customers and new customers. +We may not be successful in cross-selling our solutions because our customers may find our additional solutions unnecessary, unattractive, +or cost-ineffective. Our failure to sell additional solutions to our existing and new customers could negatively affect our ability to +grow our business. +- 9 - +If +we are unable to successfully expand our sales force productivity, sales of our solutions and the growth of our business and financial +performance could be harmed. +We +continue to invest significantly in our sales force to obtain new customers and increase sales to existing customers. There is significant +competition for sales personnel with the skills and technical knowledge that we require. Our ability to achieve significant revenue growth +and profitably will depend, in large part, on our success in recruiting, training and retaining sufficient numbers of sales personnel +to support our sales efforts. A portion of our current sales personnel are new to our Company. New hires require significant training +and may require a lengthy onboarding process before they achieve full productivity. Our recent hires and planned hires may not become +productive as quickly as we expect, and we may be unable to hire or retain sufficient numbers of qualified individuals in the markets +where we do business or plan to do business. If we are unable to recruit, train and retain a sufficient number of productive sales personnel, +sales of our solutions and the growth of our business could be harmed. Additionally, if our efforts to improve sales force productivity +do not result in increased revenue, our operating results could be negatively impacted due to increased operating expenses associated +with these efforts. +An +economic downturn or volatility could have a material adverse impact on our business, results of operations or financial condition. +The +United States and world economies have experienced significant economic uncertainty and volatility during recent years. A weakening of +economic conditions could lead to reductions in demand for our solutions. As a result of volatile or uncertain economic conditions, we +may experience the negative effects of increased financial pressures on our customers. For instance, our business could be negatively +impacted by increased competitive pricing pressure and a decline in our customers’ creditworthiness, which could result in us incurring +increased bad debt expense. Additionally, volatile, or uncertain economic conditions in the United States and other parts of world could +lead our state and government customers to terminate, or elect not to renew, existing contracts with us, or not enter into new contracts +with us. Furthermore, demand for staffing services is sensitive to changes in economic activity. Many healthcare facilities utilize temporary +healthcare professionals to accommodate an increase in hospital admissions. Conversely, when hospital admissions decrease in economic +downturns or periods of high inflation, due to reduced consumer spending, the demand for staffing healthcare professionals typically +declines. In times of economic downturn and inflation, permanent full-time and part-time healthcare facility staff are generally inclined +to work more hours and overtime, resulting in fewer available vacancies and less demand for our services. If we are not able to timely +and appropriately adapt to changes resulting from a weak economic environment, it could have a material adverse impact on our business, +results of operations or financial condition. +Our +ability to generate revenue could suffer if we do not continue to update and improve our existing solutions and develop new ones. +We +must continually improve our existing solutions in a timely manner and introduce new and valuable solutions in order to respond to regulatory +developments and customer demands and, thereby, retain existing customers and attract new ones. For example, from time to time, government +agencies may alter format and data code requirements applicable to electronic transactions. In addition, our customers may request that +our solutions be customized to satisfy particular needs. We may not be successful in responding to regulatory developments or changing +customer needs. In addition, these regulatory or customer-imposed requirements may impact the profitability of particular solutions and +customer engagements. If we do not respond successfully to regulatory changes, as well as evolving industry standards and customer demands, +our solutions may become obsolete. If we lower our prices on some of our solutions, we will need to increase our margins on other solutions +in order to maintain our overall profitability. +- 10 - +Achieving +market acceptance of new or updated solutions is necessary in order for them to become profitable and will likely require significant +efforts and expenditures. +Our +future financial results will depend in part on whether our new or updated solutions receive sufficient customer acceptance. Achieving +market acceptance for new or updated solutions may require substantial marketing efforts and expenditure of significant funds to create +awareness and demand by our existing or prospective customers. Failure to achieve broad penetration in target markets with respect to +new or updated solutions could have a material adverse impact on our business, results of operations or financial condition. +Our +business would be adversely affected if we cannot obtain, process or distribute data we require to provide our solutions. +Our +business relies on our ability to obtain, process, monetize and distribute data in the healthcare industry in a manner that complies +with applicable law, regulation and contractual and restrictions. Our failure to obtain and distribute such data in a compliant manner +could have a harmful effect on our ability to use and disclose such data which in turn could impair our ability to share such data with +our customers or incorporate it into our services and offerings. In addition to complying with requirements in obtaining the data, the +use, processing and distribution of such data may require us to obtain consent from third parties or follow additional laws, regulations +or contractual restrictions that apply to the healthcare industry. Moreover, we may be subject to claims or liability for use or disclosure +of information. Any such claims or liabilities and other failures to comply with applicable requirements could subject us to unexpected +costs and adversely affect our operating results. +Poor +service, system errors or failures of our solutions to conform to specifications could cause unforeseen liabilities or injury, harm our +reputation and have a material adverse impact on our business, results of operations or financial condition. +Some +of our solutions are intended to provide information to healthcare professionals in the course of delivering patient care. Although our +contracts may disclaim liability for medical decisions and responsibility for patient care, if use of or inability to use our solutions +leads to faulty clinical decisions or injury to patients, such disclaimers may be unenforceable and we could be subject to claims or +litigation by healthcare professionals, their patients or our customers. Further, negative publicity regarding our services, whether +accurate or inaccurate, could harm our reputation, decrease demand for our services, lead to withdrawals of our services or impair our +ability to successfully launch and market our services in the future. +We +attempt to limit, by contract, our liability for damages arising from our negligence, errors, mistakes or security breaches. However, +contractual limitations on liability may not be accepted by our customers, may not be enforceable or may otherwise not provide sufficient +protection to us from liability for damages. We maintain liability insurance coverage, including coverage for cyber-liability. It is +possible, however, that claims could be denied or exceed the amount of our applicable insurance coverage, if any, or that this coverage +may not continue to be available on acceptable terms or in sufficient amounts. Even if these claims do not result in liability to us, +investigating and defending against them could be expensive and time consuming and could divert management’s attention away from +our operations. In addition, negative publicity caused by these events may negatively impact our customer relationships, market acceptance +of our solutions or may harm our reputation and our business. +- 11 - +Disruptions +in service or damages to our data or systems failures, could have a material adverse impact on our business, results of operations or +financial condition. +Our +business operations depend on our ability to maintain and protect our network and computer systems, some of which are outsourced to certain +third-party hosting providers. Our operations are vulnerable to interruption and/or damage from a number of sources, many of which are +beyond our control, including, without limitation: (1) power loss and telecommunications failures; (2) fire, flood, hurricane and other +natural disasters; (3) software and hardware errors, failures or crashes; and (4) cyber and ransomware attacks, computer viruses, hacking, +break-ins, sabotage, intentional acts of vandalism and other similar disruptive problems. The occurrence of any of these events could +result in interruptions, delays or cessations in service to users of our solutions, which could impair or prohibit our ability to provide +our solutions, reduce the attractiveness of our solutions to our customers and could have a material adverse impact on our business, +results of operations or financial condition. If customers’ access to our solutions is interrupted, we could be in breach of our +agreements with customers and/or exposed to significant claims. Any significant instances of system downtime could negatively affect +our reputation and ability to provide our services, which could have a material adverse impact on our business, results of operations +or financial condition. +Breaches +and failures of IT systems and the sensitive information we transmit, use and store, expose us to potential liability and reputational +harm. +Our +business relies on information systems to obtain, process, analyze, and manage data. To the extent IT systems are not successfully implemented +or fail, our business and results of operations may be adversely affected. Further, our business relies to a significant degree upon +the secure transmission, use and storage of sensitive information, including protected health information and other personally identifiable +information, financial information and other confidential information and data within these systems. +To +protect this information, we seek to implement commercially reasonable security measures and maintain information security policies and +procedures informed by requirements under applicable law and recommended practices, in each case, as applicable to the data collected, +hosted and processed. Despite our security management efforts our business is vulnerable to unauthorized access to data and/or breaches +of confidential information due to criminal conduct, physical break-ins, hackers, employee or insider malfeasance and/or improper employee +or contractor access, computer viruses, programming errors, denial-of-service attacks, ransomware events, phishing schemes, fraud, terrorist +attacks, human error or other breaches by insiders or third parties or similar disruptive problems. It is not possible to prevent all +security threats to our data. Techniques used to obtain unauthorized access, disable or degrade service or sabotage systems change frequently +and may be difficult to detect for long periods of time. Further, defects in the design or manufacture of applications we develop or +procure from third parties could compromise our data. These events, including unauthorized access, misappropriation, disclosure or loss +of sensitive information (including financial or personal health information) or a significant disruption of our network, expose us to +risks including risks to our ability to provide our solutions, management distraction and the obligation to devote significant financial +and other resources to mitigate such problems and increases to our future information security costs. Moreover, unauthorized access, +use or disclosure of certain sensitive information in our possession or our failure to satisfy legal requirements, including requirements +relating to safeguarding protected health information under the Health Insurance Portability and Accountability Act (“HIPAA”) +or state data privacy laws could result in civil and criminal liability and regulatory action, which could result in potential fines +and penalties, as well as costs relating to investigation of an incident or breach, corrective actions, required notifications to regulatory +agencies and customers, credit monitoring services and other necessary expenses. In addition, actual or perceived breaches of our security +management efforts can cause existing customers to terminate their relationship with us and deter existing or prospective customers from +using or purchasing our solutions in the future. These events can have a material adverse impact on our business, results of operations, +financial condition and reputation. +Because +our products and services involve the storage, use and transmission of personal information of consumers, we may be the target of attempted +cyber and other security threats by outside third parties, including technically sophisticated and well-resourced bad actors attempting +to access or steal the data we store. Vendor, insider or employee cyber and security threats also occur and are a significant concern +for all companies, including ours. There have, in the past, been a number of high-profile security breaches involving the improper dissemination +of personal information of individuals both within and outside of the healthcare industry. These breaches have resulted in lawsuits and +governmental enforcement actions that have sought or obtained significant fines and penalties, and have required companies to enter into +agreements with government regulators that impose ongoing obligations and requirements, including internal and external (third party) +monitorships for five years or more. While we maintain liability insurance coverage including coverage for cyber-liability, claims may +not be covered or could exceed the amount of our applicable insurance coverage, if any, or such coverage may not continue to be available +on acceptable terms or in sufficient amounts. +- 12 - +We +rely on Internet infrastructure, bandwidth providers, data center providers, other third parties and our own systems in providing certain +of our solutions to our customers, and any failure or interruption in the services provided by these third parties or our own systems +could expose us to litigation and negatively impact our relationships with customers, adversely affecting our brand and our business. +Our +ability to deliver our solutions is dependent on the development and maintenance of the infrastructure of the Internet and other telecommunications +services by third parties. This includes maintenance of a reliable network connection with the necessary speed, data capacity and security. +As a result, our information systems require an ongoing commitment of significant resources to maintain and enhance existing systems +and develop new systems in order to keep pace with continuing changes in information technology, emerging cybersecurity risks and threats, +evolving industry and regulatory standards and changing preferences of our customers. +We +may experience interruptions in these systems, including server failures that temporarily slow down the performance of our solutions. +We rely on internal systems as well as vendors, including bandwidth and telecommunications equipment providers, to provide our solutions. +We do not maintain redundant systems or facilities for some of these services. Interruptions in these systems, whether due to system +failures, computer viruses, physical or electronic break-ins or other catastrophic events, could affect the security or availability +of our solutions and prevent or inhibit the ability of our customers to access our solutions. +If +a catastrophic event were to occur with respect to one or more of these systems or facilities, we may experience an extended period of +system unavailability, which could result in substantial costs to remedy those problems or negatively impact our relationship with our +customers, results of operations and financial condition. +Failure +by our customers to obtain proper permissions or provide us with accurate and appropriate information may result in claims against us +or may limit or prevent our use of information, which could harm our business. Additionally, privacy concerns relating to our business +could damage our reputation and deter current and potential customers from using our solutions. +To +the extent we are not otherwise permitted to use and/or disclose customer information, we require our customers to provide necessary +notices and obtain necessary permissions for the use and disclosure of such information. If they do not provide necessary notices or +obtain necessary permissions, then our use and disclosure of information that we receive from them or on their behalf may be limited +or prohibited by federal or state privacy or other laws. Such failures by our customers could impair our functions, processes and databases +that reflect, contain or are based upon such information. Furthermore, such failures by our customers could interfere with or prevent +creation or use of analyses or other data-driven activities that benefit us, or make our solutions less useful. Accordingly, we may be +subject to claims or liability for inaccurate data. These claims or liabilities could damage our reputation, subject us to unexpected +costs and could have a material adverse impact on our business, results of operations or financial condition. +Additionally, +in recent years, consumer advocates, media and elected officials increasingly and publicly have criticized companies in data focused +industries regarding the collection, storage and use of personal data. Concerns about our practices with regard to the collection, use, +disclosure or security of personal information or other privacy related matters, even if unfounded, could damage our reputation and adversely +affect our business, results of operations or financial condition. +It +is difficult to predict the sales cycle and implementation schedule for our products and services. +The +duration of the sales cycle and implementation schedule for our products and services depends on a number of factors, including the nature +and size of the potential client and the extent of the commitment being made by the potential client, all of which may be difficult to +predict. Our sales and marketing efforts with respect to hospitals and large health organizations generally involve a lengthy sales cycle +due to these organizations’ complex decision-making processes. Additionally, in light of increased government involvement in healthcare +and related changes in the operating environment for healthcare organizations, our current and potential clients may react by reducing +or deferring investments, including their purchases of our solutions or services. If clients take longer than we expect to decide whether +to purchase our solutions, our revenues could decrease, which could materially and adversely impact our business, financial condition +and operating results. +- 13 - +Our +independent content providers may fail to perform adequately or comply with laws, regulations or contractual covenants. +We +depend on some independent content providers for the development of health education and other scientific content resources. Our ability +to rely on these services could be impaired as a result of the failure of such providers to comply with applicable laws, regulations +and contractual covenants or as a result of events affecting such providers, such as power loss, telecommunication failures, software +or hardware errors, computer viruses and similar disruptive problems, fire, flood and natural disasters. Any such failure or event could +adversely affect our relationships with our clients and damage our reputation. This could materially and adversely impact our business, +financial condition and operating results. We depend on our content providers to deliver high quality content from reliable sources and +to continually upgrade their content in response to demand and evolving regulations. If these parties fail to develop and maintain high +quality, attractive content, the value of our brand and our business, financial condition and operating results could be materially and +adversely impacted. +We +may be liable for use of content we provide. +If +any of the content that we provide to our customers, including content we generate as a result of our grant writing services, is incorrect +or incomplete, it may give rise to claims against us. While we maintain insurance coverage in an amount that we believe is sufficient +for our business, we cannot provide assurance that this coverage will prove to be adequate or will continue to be available on acceptable +terms, if at all. A claim that is brought against us that is uninsured or under-insured could materially and adversely impact our business, +financial condition and operating results. Even unsuccessful claims could result in substantial costs and diversion of management and +other resources. +Our +financial results may be adversely affected if we underprice our contracts, overrun our cost estimates or fail to receive approval for +or experience delays in documenting change orders. +Most +of our grant writing service contracts are either fee for service contracts or fixed-fee contracts. Our past financial results have been, +and our future financial results may be, adversely impacted if we initially underprice our contracts or otherwise overrun our cost estimates +and are unable to successfully negotiate a change order. Change orders typically occur when the scope of work we perform needs to be +modified from that originally contemplated by our contract with the client. Where we are not successful in converting out-of-scope work +into change orders under our current contracts, we will bear the cost of the additional work. Such underpricing, significant cost overruns +or delay in documentation of change orders could have a material adverse effect on our business, results of operations, financial condition +or cash flows. +As +we develop new services and clients, enter new lines of business, and focus more of our business on providing a full range of talent +solutions, the demands on our business and our operating risks may increase. +As +part of our strategy, we plan to extend our services. As we focus on developing new services, capabilities and clients, and engage in +business in new geographic locations, our operations may be exposed to additional as well as enhanced risks. In particular, our growth +efforts may place substantial additional demands on our management and other team members, as well as on our information, financial, +administrative, compliance and operational systems. We may not be able to manage these demands successfully. Growth may require increased +recruiting efforts, increased regulatory and compliance efforts, increased business development, selling, marketing and other actions +that are expensive and entail increased risk. We may need to invest more in our people and systems, controls, compliance efforts, policies +and procedures than we anticipate. As our business continues to evolve and we provide a wider range of services, we will become increasingly +dependent upon our employees. Failure to identify, hire, train and retain talented employees who share our values could have a negative +effect on our reputation and our business. The demands that our current and future growth place on our people and systems, controls, +compliance efforts, policies and procedures may exceed the benefits of such growth, and our operating results may suffer, at least in +the short-term, and perhaps in the long-term. +- 14 - +Consolidation +in the healthcare industry could adversely impact our business, financial condition and operating results. +Many +healthcare provider organizations are consolidating to create integrated healthcare delivery systems with greater market power. As provider +networks and managed care organizations consolidate, thus decreasing the number of market participants, competition to provide products +and services like ours will become more intense, and the importance of establishing and maintaining relationships with key industry participants +will increase. These industry participants may try to use their market power to negotiate price reductions for our products and services. +Any of these factors could materially and adversely impact our business, financial condition and operating results. +If +we do not continue to recruit and retain sufficient quality healthcare professionals at reasonable costs, it could increase our operating +costs and negatively affect our business and our profitability. +We +rely significantly on our ability to recruit and retain a sufficient number of healthcare professionals who possess the skills, experience +and licenses necessary to meet the requirements of our clients. With clinician burnout rates continuing to rise, an ongoing shortage +of certain qualified nurses and physicians in many areas of the United States and low unemployment rates for nurses and physicians, competition +for the hiring of these professionals remains intense. Our ability to recruit temporary and permanent healthcare professionals may be +exacerbated by continued low levels of unemployment. +We +compete with healthcare staffing companies, recruitment and placement agencies, including online staffing and recruitment agencies, and +with hospitals, healthcare facilities and physician practice groups to attract healthcare professionals based on the quantity, diversity +and quality of assignments offered, compensation packages, the benefits that we provide and speed and quality of our service. +The +costs of recruiting quality healthcare professionals and providing them with competitive compensation packages may be higher than we +anticipate, or we may be unable to pass these costs on to our hospital and healthcare facility clients, which may reduce our profitability. +Moreover, if we are unable to recruit temporary and permanent healthcare professionals, our service execution may deteriorate and, as +a result, we could lose clients or not meet our service level agreements with these clients that have negative financial repercussions. +The +ability of our clients to increase the efficiency and effectiveness of their staffing management and recruiting efforts may affect the +demand for our services that could negatively affect our business. +If +our clients are able to increase the effectiveness of their staffing and recruitment functions, their need for our services may decline. +With the advent of technology and more sophisticated staffing management and recruitment processes, including internal “travel” +and other healthcare staffing models, clients may be able to successfully increase the efficiency and effectiveness of their internal +staffing management and recruiting efforts, through more effective planning and analytic tools, internet- or social media-based recruiting +or otherwise. Such new technologies and processes could reduce the demand for our services, which could negatively affect our business. +Our +work with government clients exposes us to additional risks inherent in the government contracting environment. +Our +clients may include national, provincial, state, local and foreign governmental entities and their agencies. Our government work carries +various risks inherent in contracting with government entities. These risks include, but are not limited to, the following: +● +Government +entities, particularly in the United States, often reserve the right to audit our contracts and conduct reviews, inquiries and investigations +of our business practices and performance with respect to government contracts. If a government client discovers improper conduct +during its audits or investigations, we may become subject to various civil and criminal penalties, including those under the civil +U.S. False Claims Act, and administrative sanctions, which may include termination of contracts, suspension of payments, fines and +civil money penalties, and suspensions or debarment from doing business with other government agencies. +● +U.S. +government contracting regulations impose strict compliance and disclosure obligations and our failure to comply with these obligations +could be a basis for suspension or debarment, or both, from federal government contracting in addition to breach of the specific +contract. +- 15 - +● +Government +contracts are subject to heightened reputational and contractual risks compared to contracts with commercial clients and often involve +more extensive scrutiny and publicity. Negative publicity, including allegations of improper or illegal activity, poor contract performance, +or information security breaches, regardless of accuracy, may adversely affect our reputation. +● +Terms +and conditions of government contracts also tend to be more onerous, are often more difficult to negotiate and involve additional +costs. +● +Government +entities typically fund projects through appropriated monies. Any change in presidential administrations may affect budget priorities +for our ongoing work. +● +Government +entities reserve the right to change the scope of or terminate projects at their convenience for lack of approved funding or other +reasons, which could limit our recovery of reimbursable expenses or investments. In addition, government contracts may be protested, +which could result in administrative procedures and litigation, result in delays in performance and payment, be expensive to defend +and be incapable of prompt resolution. +The +occurrences or conditions described above could affect not only our business with the particular government entities involved, but also +our business with other entities of the same or other governmental bodies or with certain commercial clients and could have a material +adverse effect on our business, results of operations and financial condition. +We +may be a party to legal, regulatory and other proceedings that could result in unexpected adverse outcomes. +From +time to time, we may be a party to legal and regulatory proceedings and investigations, including matters involving governmental agencies +and entities with which we do business and other proceedings and investigations arising in the ordinary course of business. In addition, +there are an increasing number of, and we may be subject to, investigations and proceedings in the healthcare industry generally that +seek recovery under the HIPAA, Anti-Kickback Statute, the False Claims Act, the Civil Money Penalty, the Stark Law, the Sunshine Act, +state laws and other statutes and regulations applicable to our business. We also may be subject to legal proceedings under non-healthcare +federal, and state laws affecting our business, such as the Telephone Consumer Protection Act, Fair Debt Collection Practices Act, Fair +Credit Reporting Act, Controlling the Assault of Non-Solicited Pornography and Marketing Act, Junk Fax Prevention Act, Foreign Corrupt +Practices Act, employment, banking and financial services and USPS laws and regulations. Such proceedings are inherently unpredictable, +and the outcome can result in verdicts and/or injunctive relief that may affect how we operate our business or we may enter into settlements +of claims for monetary payments. In some cases, substantial non-economic remedies or punitive damages may be sought. Governmental investigations, +audits and other reviews could also result in criminal penalties or other sanctions, including restrictions, changes in the way we conduct +business or exclusion from participation in government programs. We evaluate our exposure to these legal and regulatory proceedings and +intend to establish reserves for the estimated liabilities in accordance with accounting principles generally accepted in the United +States of America, as necessary. Assessing and predicting the outcome of these matters involves substantial uncertainties. Unexpected +outcomes in these legal proceedings, or changes in management’s evaluations or predictions and accompanying changes in established +reserves, could have a material adverse impact on our business, results of operations or financial condition. +Litigation +is costly, time-consuming and disruptive to normal business operations. The defence of these matters could also result in continued diversion +of our management’s time and attention away from business operations, which could also harm our business. Even if these matters +are resolved in our favor, the uncertainty and expense associated with unresolved legal proceedings could harm our business and reputation. +- 16 - +We +may be liable for the misdiagnoses, mistreatment, injury or other harm to patients resulting from the use of data that we provide to +health care providers, and any resulting claims could negatively impact our operating results and result in a decline in our stock price. +We +provide, and facilitate providing, information for use by health care providers in treating patients. If this data is incorrect or incomplete, +the patient could be misdiagnosed or mistreated resulting in adverse consequences, including death, giving rise to claims against us. +In addition, certain of our solutions relate to patient health information, and a court or government agency may take the position that +our delivery of this information exposes us to personal injury liability or other liability for wrongful delivery or handling of health +care services or erroneous health information. While we maintain liability insurance coverage in an amount that we believe is sufficient +for the risks associated with our business, we cannot assure you that this coverage will prove to be adequate or will continue to be +available on acceptable terms, if at all. A claim brought against us that is uninsured or under-insured could harm our business, financial +condition and results of operations. Even unsuccessful claims could result in substantial costs and diversion of management resources +and could cause the trading price of our common stock to decline. +Our +success depends in part on our ability to identify, recruit and retain skilled management and technical personnel. If we fail to recruit +and retain suitable candidates or if our relationship with our employees changes or deteriorates, there could be a material adverse impact +on our business, results of operations or financial condition. +We +are highly dependent upon our personnel, including Deepika Vuppalanchi, our Chief Executive Officer and Chairman. The loss of Dr. Vuppalanchi’s +services could impede the achievement of our business objectives. We have not obtained, do not own, nor are we the beneficiary of, key-person +life insurance. Furthermore, our future success depends upon our continuing ability to identify, attract, hire and retain highly qualified +personnel, including skilled management and scientific personnel, all of whom are in high demand and are often subject to competing offers. +Competition for qualified personnel in the healthcare services industry is intense, and we may not be able to hire or retain a sufficient +number of qualified personnel to meet our requirements, or be able to do so at salary, benefit and other compensation costs that are +acceptable to us. A loss of a substantial number of key or qualified employees, or an inability to attract, retain and motivate additional +highly skilled employees required for expansion of our business, could have a material adverse impact on our business, results of operations +or financial condition. +Our +ability to utilize loss carry forwards may be limited. +We +have incurred net operating losses (“NOLs”) during our history. To the extent that we continue to generate taxable losses, +unused losses will carry forward to offset future taxable income, if any, until such unused losses expire (if at all). +Federal +NOLs incurred in tax years beginning after December 31, 2017 and before January 1, 2021 may be carried back to each of the five tax years +preceding such loss, and NOLs arising in tax years beginning after December 31, 2020 may not be carried back. Moreover, federal NOLs +generated in taxable years ending after December 31, 2017, may be carried forward indefinitely, but the deductibility of such federal +NOLs may be limited to 80% of our taxable income annually for tax years beginning after December 31, 2020. Our NOL carryforwards are +subject to review and possible adjustment by the Internal Revenue Service (the “IRS”), and state tax authorities. In addition, +in general, under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (“Code”), a corporation that undergoes +an “ownership change” is subject to limitations on its ability to utilize its pre-change NOLs or tax credits to offset future +taxable income or taxes. For these purposes, an ownership change generally occurs where the aggregate stock ownership of one or more +stockholders or groups of stockholders who own at least 5% of a corporation’s stock increases their ownership by more than 50 percentage +points over their lowest ownership percentage within a specified testing period. Our existing NOLs or credits may be subject to limitations +arising from previous ownership changes and ownership changes, which may further limit our ability to utilize NOLs or credits under Sections +382 and 383 of the Code. In addition, future changes in our stock ownership, many of which are outside of our control, could result in +an ownership change under Sections 382 and 383 of the Code. Our NOLs or credits may also be impaired under state law. Accordingly, we +may not be able to utilize a material portion of our NOLs or credits. If we were to determine that an ownership change has occurred and +our ability to use our historical NOLs or credits is materially limited, it would harm our future operating results by effectively increasing +our future tax obligations. Section 382 and 383 of the Code would apply to all net operating loss and tax credit carryforwards, whether +the carryforward period is indefinite or not. +- 17 - +Unanticipated +changes in tax laws may affect future financial results. +We +are a U.S. corporation and thus subject to U.S. corporate income tax on its worldwide operations. Our principal operations and certain +potential customers are located in the United States, and as a result, we are subject to various U.S. federal, state and local taxes. +New U.S. laws and policies relating to taxes may have an adverse effect on our business and future profitability. Further, existing U.S. +tax laws, statutes, rules, regulations or ordinances could be interpreted, changed, modified or applied adversely to us. +In +recent years, the federal government has made significant changes to U.S. tax laws, including through the Tax Cuts and Jobs Act of 2017 +(the “Tax Act”) and the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). On August 16, 2022, +the Inflation Reduction Act of 2022 (the “IRA”) was signed into law, with tax provisions primarily focused on implementing +a 15% minimum tax on global adjusted financial statement income, effective for tax years beginning after December 31, 2022, and a 1% +excise tax on share repurchases occurring after December 31, 2022. We may be subject to the new excise tax with respect to any redemptions +of our stock. Further, the current administration had previously set forth several tax proposals that would, if enacted, make further +significant changes to U.S. tax laws (including provisions enacted pursuant to the Tax Act). It is unclear whether these or similar changes +will be enacted and, if enacted, how soon any such changes could take effect. The passage of any legislation as a result of these proposals +and other similar changes in U.S. federal income tax laws could adversely affect our business and future profitability. Investors are +urged to consult with their legal and tax advisors with respect to any such legislation and the potential tax consequences of holding +our securities. +Our +use and development of artificial intelligence products may result in reputational harm and liability. +We +incorporate artificial intelligence in some of the products we offer. For example, some of our targeted education approaches include +the utilization of artificial intelligence tools to provide real-time information to customers, and we intend to offer an artificial +intelligence chatbot to facilitate and provide end-to-end query resolution for patients. The field of artificial intelligence is rapidly +developing, both technologically and from a regulatory and legal standpoint. As we incorporate this technology into our products we may +experience unexpected outcomes or impacts related to the technology, creating reputational, legal and regulatory risks. +Risks +Related to Intellectual Property +The +protection of our intellectual property requires substantial resources and protections of our proprietary rights may not be adequate. +We +rely or intend to rely upon a combination of trade secret, copyright and trademark laws, patents, license agreements, confidentiality +procedures, nondisclosure agreements and technical measures designed to protect the intellectual property used in our business. The steps +we have taken to protect and enforce our proprietary rights and intellectual property may not be adequate. For instance, our agreements +with employees, consultants and others who develop intellectual property for or on behalf of us could be breached and could result in +our trade secrets and confidential information being publicly disclosed. We may not have adequate remedies for any such breach. Third +parties also may infringe upon or misappropriate our intellectual property rights. If we believe a third party has misappropriated our +intellectual property, litigation may be necessary to enforce and protect those rights, which would divert management resources, could +be expensive and may not effectively protect our intellectual property. Even if we establish infringement, a court may decide not to +grant an injunction against further infringing activity and instead award only monetary damages, which may or may not be an adequate +remedy. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there +is a risk that some of our confidential information could be compromised by disclosure during litigation. There could also be public +announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive +these results to be negative, it could have a material adverse effect on the price of shares of our common stock. Moreover, there can +be no assurance that we will have sufficient financial or other resources to file and pursue such infringement claims. Even if we ultimately +prevail in such claims, the monetary cost of such litigation and the diversion of the attention of our management and scientific personnel +could outweigh any benefit we receive as a result of the proceedings. As a result, if we fail to maintain adequate intellectual property +protection or if a third party infringes or misappropriates our intellectual property, it may have a material adverse impact on our business, +results of operations or financial condition. +- 18 - +Many +of our products are based on or incorporate proprietary information. We actively seek to protect our proprietary information, including +our trade secrets and proprietary know-how, by generally requiring our employees, consultants, other advisors and other third parties +to execute agreements that contain confidentiality provisions. Despite these efforts and precautions, we may be unable to prevent a third +party from copying or otherwise obtaining and using our trade secrets or our other intellectual property without authorization and legal +remedies may not adequately compensate us for the damages caused by such unauthorized use. +In +addition, there can be no assurance that our competitors will not independently develop products or services that are equivalent or superior +to our solutions. +We +may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information +of third parties. +We +have received confidential and proprietary information from third parties. In addition, we may employ individuals who were previously +employed at other healthcare services companies. We may be subject to claims that we or our employees, consultants or independent contractors +have inadvertently or otherwise improperly used or disclosed confidential information of these third parties or our employees’ +former employers. Further, we may be subject to ownership disputes in the future arising, for example, from conflicting obligations of +consultants or others who are involved in developing our solutions. We may also be subject to claims that former employees, consultants, +independent contractors or other third parties have an ownership interest in our intellectual property. Litigation may be necessary to +defend against these and other claims challenging our right to and use of confidential and proprietary information. In addition to paying +monetary damages, if we fail in defending against any such claims we may lose our rights therein, which could have a material adverse +effect on our business. Even if we are successful in defending against these claims, litigation could result in substantial cost and +be a distraction to our management and employees. +We +depend on a small number of large customers and the loss of one or more major customers could have a material adverse effect on our business, +financial condition and results of operations. +For +the years ended December 31, 2024 and 2023, FSSA accounted for approximately 61% and 68% of our revenues and 56% and 30% of our accounts +receivable, respectively, as due from the combined divisions (NeuroDiagnostic Institute and Division of Mental Health and Addiction) +of the FSSA. It is possible that any of our large customers could decide to terminate their relationship with us in the future. The loss +of one or both of our top customers, or a substantial decrease in demand by any of those customers for our services and solutions, could +have a material adverse effect on our business, results of operations and financial condition. +Risks +Related to Government Regulations +We +are subject to federal and state healthcare industry regulation including conduct of operations, costs and payment for services and payment +for referrals as well as laws regarding government contracting. +The +healthcare industry is subject to extensive and complex federal and state laws and regulations related to conduct of operations, costs +and payment for services and payment for referrals. We provide talent solutions on a contract basis to our clients, who pay us directly. +Accordingly, Medicare, Medicaid and insurance reimbursement policy changes generally do not directly impact us. Nevertheless, reimbursement +changes in government programs, particularly Medicare and Medicaid, can and do indirectly affect the demand and the prices paid for our +services. For example, our clients could receive reduced or no reimbursements because of a change in the rates or conditions set by federal +or state governments that would negatively affect the demand and the prices for our services. Moreover, our hospital, healthcare facility +and physician practice group clients could suffer civil and criminal penalties, and be excluded from participating in Medicare, Medicaid +and other healthcare programs for failure to comply with applicable laws and regulations that may negatively affect our profitability. +A +portion of our hospital and healthcare facility clients are state and federal government agencies, where our ability to compete for new +contracts and orders, and the profitability of these contracts and orders, may be affected by government legislation, regulation or policy. +Additionally, in providing services to state and federal government clients and to clients who participate in state and federal programs, +we are also subject to specific laws and regulations, which government agencies have broad latitude to enforce. If we were to be excluded +from participation in these programs or should there be regulatory or policy changes or modification of application of existing regulations +adverse to us, it would likely materially adversely affect our brand, business, results of operations and cash flows. +- 19 - +Risks +Related to Our Class A Common Stock +Nasdaq +may delist our Class A common stock from trading on its exchange, which could limit investors’ ability to make transactions in +our Class A common stock and subject us to additional trading restrictions. +Our +Class A common stock is listed on the Nasdaq Capital Market and we expect to meet the minimum initial listing standards set forth in +the Nasdaq listing standards, we cannot assure you that our Class A common stock will be, or will continue to be, listed on Nasdaq in +the future. In order to continue listing our Class A common stock on Nasdaq, we must maintain certain financial, distribution and stock +price levels and must maintain a minimum number of holders of our Class A common stock. +If +Nasdaq delists our Class A common stock and we are not able to list our Class A common stock on another national securities exchange, +a reduction in some or all of the following may occur, each of which could have a material adverse effect on our stockholders: +● +the +liquidity of our Class A common stock; +● +the +market price of our Class A common stock; +● +our +ability to obtain financing for the continuation of our operations; +● +the +number of investors that will consider investing in our Class A common stock; +● +the +number of market makers in our Class A common stock; +● +the +availability of information concerning the trading prices and volume of our Class A common stock; and +● +the +number of broker-dealers willing to execute trades in shares of our Class A common stock. +The +market price of our Class A common stock may be volatile and fluctuate substantially, which could result in substantial losses for holders +of our Class A common stock. +The +market price of our Class A common stock is likely to be highly volatile and may be subject to wide fluctuations in response to a variety +of factors, including the following: +● +failure +to successfully develop and commercialize our digital health platforms; +● +regulatory +or legal developments in the United States; +● +changes +in physician, hospital or healthcare provider practices that may make our solutions less useful; +- 20 - +● +inability +to obtain additional funding; +● +failure +to meet or exceed financial projections we provide to the public; +● +failure +to meet or exceed the estimates and projections of the investment community; +● +changes +in the market valuations of companies similar to ours; +● +announcements +of significant acquisitions, strategic collaborations, joint ventures or capital commitments by us or our competitors; +● +additions +or departures of key scientific or management personnel; +● +sales +of our Class A common stock by us or our stockholders in the future; +● +trading +volume of our Class A common stock; +● +general +economic, industry and market conditions; +● +health +epidemics and outbreaks, such as the COVID-19 pandemic, or other natural or manmade disasters which could significantly disrupt our +operations; and +● +the +other factors described in this “Risk Factors” section. +Any +of these factors may result in large and sudden changes in the volume and price at which our Class A common stock will trade. In addition, +the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices +of equity securities of many companies. If there is extreme market volatility and trading patterns in our Class A common stock, it may +create several risks for investors, including the following: +● +the +market price of our Class A common stock may experience rapid and substantial increases or decreases unrelated to our actual or expected +operating performance, financial condition or prospects, which may make it more difficult for prospective investors to assess the +rapidly changing value of our Class A common stock; +● +if +our future market capitalization reflects trading dynamics unrelated to our actual or expected operating performance, financial performance +or prospects, purchasers of our Class A common stock could incur substantial losses as prices decline once the level of market volatility +has abated; and +● +if +the future market price of Class A our common stock declines, investors may be unable to resell their shares at or above the price +at which they acquired them. We cannot assure you that the market of our Class A common stock will not fluctuate or decline significantly +in the future, in which case you could incur substantial losses. +Broad +market and industry fluctuations, as well as general economic, political, regulatory and market conditions, may negatively affect the +market price of our Class A common stock, regardless of our actual operating performance. In addition, shares of our Class A common stock +may be more thinly traded than securities of larger, more established healthcare services companies and, as a result of this lack of +liquidity, sales of relatively small quantities of shares of our Class A common stock by our stockholders may disproportionately influence +the price of our Class A common stock. The market price of our Class A common stock may decline below the initial public offering price, +and you may lose some or all of your investment. +- 21 - +Unstable +market and economic conditions and adverse developments with respect to financial institutions and associated liquidity risk may have +serious adverse consequences on our business, financial condition and stock price. +The +global credit and financial markets have recently experienced extreme volatility and disruptions, including severely diminished liquidity +and credit availability, declines in consumer confidence, declines in economic growth, inflationary pressure and interest rate changes, +increases in unemployment rates and uncertainty about economic stability. The financial markets and the global economy may also be adversely +affected by the current or anticipated impact of military conflict, including the conflict between Russia and Ukraine, terrorism or other +geopolitical events. Sanctions imposed by the United States and other countries in response to such conflicts, including the one in Ukraine, +may also adversely impact the financial markets and the global economy, and any economic countermeasures by the affected countries or +others could exacerbate market and economic instability. More recently, the closures of Silicon Valley Bank and Signature Bank and their +placement into receivership with the Federal Deposit Insurance Corporation (“FDIC”) created bank-specific and broader financial +institution liquidity risk and concerns. Although the Department of the Treasury, the Federal Reserve, and the FDIC jointly confirmed +that depositors at SVB and Signature Bank would continue to have access to their funds, even those in excess of the standard FDIC insurance +limits, under a systemic risk exception, future adverse developments with respect to specific financial institutions or the broader financial +services industry may lead to market-wide liquidity shortages, impair the ability of companies to access near-term working capital needs, +and create additional market and economic uncertainty. There can be no assurance that future credit and financial market instability +and a deterioration in confidence in economic conditions will not occur. Our general business strategy may be adversely affected by any +such economic downturn, liquidity shortages, volatile business environment or continued unpredictable and unstable market conditions. +If the equity and credit markets deteriorate, or if adverse developments are experienced by financial institutions, it may cause short-term +liquidity risk and also make any necessary debt or equity financing more difficult, more costly and more dilutive. Failure to secure +any necessary financing in a timely manner and on favorable terms could have a material adverse effect on our growth strategy, financial +performance and stock price and could require us to delay or abandon our business plans. In addition, there is a risk that one or more +of our current clients, financial institutions or other third parties with whom we do business may be adversely affected by the foregoing +risks, which may have an adverse effect on our business. +The +dual-class structure of our common stock as contained in our Certificate of Incorporation has the effect of concentrating voting control +with those stockholders who held our Class B common stock. This ownership will limit or preclude your ability to influence corporate +matters, including the election of directors, amendments of our organizational documents, and any merger, consolidation, sale of all +or substantially all of our assets, or other major corporate transactions requiring stockholder approval, and that may adversely affect +the trading price of our Class A common stock. +Our +Class B common stock has 16.5 votes per share, and our Class A common stock has one vote per share. As of December 31, 2024, there were +833,334 shares of our Class B common stock outstanding, representing 79.6% of our total voting securities outstanding. Holders of all +of the issued and outstanding shares of our Class B common stock own 833,334 shares of Class B common stock representing approximately +60.5% of the voting power of our outstanding capital stock. Such Class B holders shall continue to have voting control until they hold +under 50.1% of the voting power of our outstanding capital stock, or approximately 583,000 shares of Class B common stock. In addition, +because of the 16.5-to-1 voting ratio between our Class B common stock and Class A common stock, the holders of our Class B common stock +could continue to control a majority of the combined voting power of our common stock and therefore control all matters submitted to +our stockholders for approval until converted by our Class B common stockholders. This concentrated control may limit or preclude your +ability to influence corporate matters for the foreseeable future, including the election of directors, amendments of our organizational +documents and any merger, consolidation, sale of all or substantially all of our assets or other major corporate transactions requiring +stockholder approval. In addition, this concentrated control may prevent or discourage unsolicited acquisition proposals or offers for +our capital stock that you may feel are in your best interest as one of our stockholders. As a result, such concentrated control may +adversely affect the market price of our Class A common stock. +Future +transfers by holders of Class B common stock will generally result in those shares converting to Class A common stock, subject to limited +exceptions as specified in our Certificate of Incorporation, such as transfers to family members and certain transfers effected for estate +planning purposes. +- 22 - +We +cannot predict the effect our dual-class structure may have on the market price of our Class A common stock. +We +cannot predict whether our dual-class structure will result in a lower or more volatile market price of our Class A common stock, adverse +publicity or other adverse consequences. For example, certain index providers have announced and implemented restrictions on including +companies with multiple-class share structures in certain of their indices. In July 2017, FTSE Russell announced that it would require +new constituents of its indices to have greater than 5% of the company’s voting rights (aggregated across all of its equity securities, +including those that are not listed or trading) in the hands of public stockholders. Pursuant to the FTSE Russell, this 5% minimum voting +rights requirement only applies to companies assigned a Developed market nationality within the FTSE Equity Country Classification scheme, +and, based upon the FTSE Equity Country Classification Interim Announcement published on March 30, 2023, the United States is assigned +a Developed market nationality within the FTSE. In addition, in July 2017, the S&P Dow Jones announced that it would no longer admit +companies with multiple-class share structures to certain of its indices; however, in October 2022, the S&P Dow Jones announced that +it was conducting a consultation with market participants on the multiple share class eligibility methodology requirement via a survey +that closed on December 15, 2022. Subsequently, the S&P Dow Jones Indices announced that, effective as of April 17, 2023, companies +with multiple share class structures will be considered eligible for the S&P Composite 1500 and its component indices, including +the S&P 500, the S&P MidCap 400 and the S&P SmallCap 600, if they meet all other eligibility criteria. Also in 2017, MSCI, +a leading stock index provider, opened public consultations on its treatment of no-vote and multi-class structures and temporarily barred +new multi-class listings from certain of its indices; however, in October 2018, MSCI announced its decision to include equity securities +“with unequal voting structures” in its indices. Additionally, MSCI announced that the securities of companies exhibiting +unequal voting structures will be eligible for addition to the MSCI ACWI IMI and other relevant indexes effective March 1, 2019. Currently, +MSCI offers the MSCI World Voting Rights-Adjusted Index. This index specifically includes voting rights in the weighting criteria and +construction methodology and aims to better align constituent weights with economic rights and voting power, while continuing to represent +the performance of a broad opportunity set. The dual-class structure of our common stock may make us ineligible for inclusion in certain +indices and, as a result, mutual funds, exchange-traded funds and other investment vehicles that attempt to passively track those indices +would not invest in our Class A common stock. In addition, it is unclear what effect, if any, such policies will have on the valuations +of publicly-traded companies excluded from such indices, but it is possible that they may adversely affect valuations, as compared to +similar companies that are included. Due to the dual-class structure of our common stock, we may be excluded from certain indices and +we cannot assure you that other stock indices (including Nasdaq) will not take similar actions. Given the sustained flow of investment +funds into passive strategies that seek to track certain indices, exclusion from certain stock indices may preclude investment by many +of these funds and could make our Class A common stock less attractive to other investors. As a result, the market price of our Class +A common stock may be adversely affected. +Our +principal stockholders will continue to have significant influence over the election of our board of directors and approval of any significant +corporate actions, including any sale of the Company. +Deepika +Vuppalanchi, our Chief Executive Officer and Priya Prasad, our Chief Financial Officer and Chief Operating Officer, in the aggregate, +beneficially own 51.0% of our Class B common stock and 30.9% of our outstanding voting securities. These stockholders currently have, +and likely will continue to have, significant influence with respect to the election of our board of directors and approval or disapproval +of all significant corporate actions. The concentrated voting power of these stockholders could have the effect of delaying or preventing +an acquisition of the Company or another significant corporate transaction. +We +could be subject to securities class action litigation. +In +the past, securities class action litigation has been brought against companies following a decline in the market price of their securities. +This risk is especially relevant for us because healthcare companies have experienced significant share price volatility in recent years. +If we face such litigation, it could result in substantial costs and a diversion of management’s attention and resources, which +could harm our business. +- 23 - +Anti-takeover +provisions contained in our Certificate of Incorporation and our Amended and Restated Bylaws (“Bylaws”), as well as provisions +of Delaware law, could impair a takeover attempt. +Our +Certificate of Incorporation, Bylaws and Delaware law contain provisions which could have the effect of rendering more difficult, delaying +or preventing an acquisition deemed undesirable by our board of directors. Our corporate governance documents include or will include +provisions: +● +authorizing +“blank check” preferred stock, which could be issued by our board of directors without stockholder approval and may contain +voting, liquidation, dividend, and other rights superior to our Class A common stock; +● +limiting +the liability of, and providing indemnification to, our directors and officers; +● +limiting +the ability of our stockholders to call and bring business before special meetings; +● +requiring +advance notice of stockholder proposals for business to be conducted at meetings of our stockholders and for nominations of candidates +for election to our board of directors; +● +controlling +the procedures for the conduct and scheduling of board of directors and stockholder meetings; and +● +providing +our board of directors with the express power to postpone previously scheduled annual meetings and to cancel previously scheduled +special meetings. +These +provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in our management. +As +a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the Delaware General Corporation +law, which prevents some stockholders holding more than 15% of our outstanding common stock from engaging in certain business combinations +without approval of the holders of substantially all of our outstanding common stock. +Any +provision of our Certificate of Incorporation, Bylaws or Delaware law that has the effect of delaying or deterring a change in control +could limit the opportunity for our stockholders to receive a premium for their shares of our Class A common stock and could also affect +the price that some investors are willing to pay for our Class A common stock. +Our +Certificate of Incorporation designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types +of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable +judicial forum for disputes with us or our directors, officers, or other employees. +Our +Certificate of Incorporation requires that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery +of the State of Delaware will, to the fullest extent permitted by law, be the sole and exclusive forum for each of the following: +● +any +derivative action or proceeding brought on our behalf; +● +any +action asserting a claim for breach of any fiduciary duty owed by any of our directors, officers, or other employees to us or our +stockholders; +● +any +action asserting a claim against us or any of our directors, officers or employees arising pursuant to any provision of the Delaware +General Corporation Law, our Certificate of Incorporation or our Bylaws; or +● +any +action asserting a claim against us, our directors, officers or employees governed by the internal affairs doctrine; +except +for, as to each of the above, any claim as to which the Court of Chancery determines that there is an indispensable party not subject +to the jurisdiction of the Court of Chancery (and the indispensable party does not consent to the personal jurisdiction of the Court +of Chancery within ten days following such determination), which is vested in the exclusive jurisdiction of a court or forum other than +the Court of Chancery, or for which the Court of Chancery does not have subject matter jurisdiction. +The +exclusive forum provision is limited to the extent permitted by law, and it will not apply to claims arising under the Exchange Act, +the Securities Act of 1933, as amended (the “Securities Act”), or for any other federal securities laws which provide for +exclusive or concurrent federal and state jurisdiction. +- 24 - +Our +Certificate of Incorporation provides that unless we consent in writing to the selection of an alternative forum, the federal district +courts of the United States of America will be the exclusive forum for the resolution of any complaint asserting a cause of action arising +under the Securities Act or the Exchange Act. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital +stock are deemed to have notice of and consented to this provision. +Furthermore, +Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all such Securities Act actions. Accordingly, +both state and federal courts have jurisdiction to entertain such claims. To prevent having to litigate claims in multiple jurisdictions +and the threat of inconsistent or contrary rulings by different courts, among other considerations, our Certificate of Incorporation +provides that the federal district courts of the United States of America will be the exclusive forum for resolving any complaint asserting +a cause of action arising under the Securities Act. While the Delaware courts have determined that such choice of forum provisions are +facially valid, a stockholder may nevertheless seek to bring such a claim arising under the Securities Act against us, our directors, +officers, or other employees in a venue other than in the federal district courts of the United States of America. In such instance, +we would expect to vigorously assert the validity and enforceability of the exclusive forum provisions of our Certificate of Incorporation. +Although +we believe this provision benefits us by providing increased consistency in the application of Delaware law in the types of lawsuits +to which it applies, this provision may limit or discourage a stockholder’s ability to bring a claim in a judicial forum that it +finds favorable for disputes with us or our directors, officers, or other employees, and may result in increased costs to our stockholders, +which may discourage such lawsuits against us and our directors, officers and other employees. Alternatively, if a court were to find +the choice of forum provision contained in our Certificate of Incorporation to be inapplicable or unenforceable in an action, we may +incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business and financial +condition. +We +note that there is uncertainty as to whether a court would enforce the provision and that investors cannot waive compliance with the +federal securities laws and the rules and regulations thereunder. Although we believe this provision benefits us by providing increased +consistency in the application of Delaware law in the types of lawsuits to which it applies, the provision may have the effect of discouraging +lawsuits against our directors and officers. +General +Risk Factors +If +securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, the market +price for the shares and trading volume could decline. +The +trading market for our Class A common stock will depend in part on the research and reports that securities or industry analysts publish +about us or our business. If research analysts do not establish and maintain adequate research coverage or if one or more of the analysts +who covers us downgrades our Class A common stock or publishes inaccurate or unfavorable research about our business, the market price +for our Class A common stock would likely decline. If one or more of these analysts cease coverage of our Company or fail to publish +reports on us regularly, we could lose visibility in the financial markets, which, in turn, could cause the market price or trading volume +for our Class A common stock to decline. +We +are an “emerging growth company,” and the reduced reporting requirements applicable to emerging growth companies may make +our Class A common stock less attractive to investors. +We +are an “emerging growth company,” as defined in the JOBS Act. For as long as we continue to be an emerging growth company, +we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging +growth companies, including exemption from compliance with the auditor attestation requirements of Section 404, reduced disclosure obligations +regarding executive compensation and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation +and stockholder approval of any golden parachute payments not previously approved. We will remain an emerging growth company until the +earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the closing of our initial public of, (b) in which +we have total annual gross revenue of at least $1.235 billion or (c) in which we are deemed to be a large accelerated filer, which means +the market value of our Class A common stock held by non-affiliates exceeds $700 million as of the end of our prior second fiscal quarter, +and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period. +- 25 - +In +addition, under the JOBS Act, emerging growth companies may delay adopting new or revised accounting standards until such time as those +standards apply to private companies. We may, in the future, elect not to avail ourselves of this exemption from new or revised accounting +standards and, therefore, may be subject to the same new or revised accounting standards as other public companies that are not emerging +growth companies. +We +cannot predict if investors will find our Class A common stock less attractive because we may rely on these exemptions. If some investors +find our Class A common less attractive as a result, there may be a less active trading market for our Class A common and our share price +may be more volatile. +ITEM +1B. UNRESOLVED STAFF COMMENTS +None. +ITEM +IC. CYBERSECURITY +We +believe cybersecurity is critical to advancing our technological advancements. As a healthcare services company, we face a multitude +of cybersecurity threats that range from attacks common to most industries, such as ransomware and denial-of service. Our customers, +suppliers, subcontractors, and business partners face similar cybersecurity threats, and a cybersecurity incident impacting us or any +of these entities could materially adversely affect our operations, performance, and results of operations. These cybersecurity threats +and related risks make it imperative that we expend resources on cybersecurity including protection across our operations and to ensure +the appropriate acquisition, access, use, and/or disclosure of protected health information (“PHI”), personal identifiable +information (“PII”), and payment card information (“PCI”) +The +Administrative Simplification Provisions of the Health Insurance Portability and Accountability Act (“HIPAA”) and its implementing +regulations include substantial restrictions and requirements with respect to the use and disclosure of a subset of PHI, and require +covered entities, including health plans, healthcare clearinghouses, and most healthcare providers, to implement administrative, physical, +and technical safeguards to protect the confidentiality, integrity, and availability of electronic PHI maintained or transmitted by them +or by others on their behalf. +Our +Board of Directors oversees management’s processes for identifying and mitigating risks, including cybersecurity risks, to help +align our risk exposure with our strategic objectives. The full Board retains oversight of cybersecurity because of its importance. In +the event of an incident, we intend to follow our detailed incident response playbook, which outlines the steps to be followed from incident +detection to mitigation, recovery, and notification, including notifying functional areas (e.g., legal), as well as senior leadership +and the Board, as appropriate. We have implemented a governance structure and processes to assess, identify, manage, and report cybersecurity +risks. +ITEM +2. PROPERTIES +Our +corporate headquarters are located at 1119 Keystone Way N. #201 Carmel, IN 46032 pursuant to a three-year lease which commenced on July +1, 2021 and was amended on May 1, 2022 and provides for a monthly rent of $10,711. The lease was further amended on June 26, 2024 and +provides for a base monthly rent of $11,209 per month, over a three-year term of the lease, which commenced on July 1, 2024. We believe +this to be sufficient to meet our needs for the foreseeable future and that any additional space we may require will be available on +commercially reasonable terms. +ITEM +3. LEGAL PROCEEDINGS +From +time to time, we may become a party to various legal actions and complaints arising in the ordinary course of business. In addition to +commitments and obligations in the ordinary course of business, we are subject to various claims, pending and potential legal actions +for damages, investigations relating to governmental laws and regulations and other matters arising out of the normal conduct of our +business. It is possible that cash flows or results of operations could be materially affected in any particular period by the unfavorable +resolution of one or more of these contingencies. +In +January 2024, a former employee filed a wrongful termination lawsuit against the Company in the U.S. District Court, Southern District +of Indiana. In January 2025, the Company entered into a settlement agreement with the former employee for an immaterial amount and the +case is dismissed. +- 26 - +ITEM +4. MINE SAFETY DISCLOSURES +Not +applicable. +ITEM +5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. +Market +Information +Our +common stock is listed on The Nasdaq Capital Market under the symbol “SYRA.” +Holders +As +of March 7, 2025, there were 11 and 3 stockholders of record of our Class A and Class B common stock, respectively. The actual number +of holders of our common stock is greater than this number of record holders, and includes stockholders who are beneficial owners, but +whose shares are held in street name by brokers or held by other nominees. This number of holders of record also does not include stockholders +whose shares may be held in trust by other entities. +Dividend +Policy +We +have never paid or declared any cash dividends on our common stock, and we do not anticipate paying any cash dividends on our common +stock in the foreseeable future. We intend to retain all available funds and any future earnings to fund the development and expansion +of our business. Any future determination to pay dividends will be at the discretion of our board of directors and will depend upon a +number of factors, including our results of operations, financial condition, future prospects, contractual restrictions, restrictions +imposed by applicable law and other factors our board of directors deems relevant. +Recent +Sales of Unregistered Securities +None. +Issuer +Purchases of Equity Securities +None. +ITEM +6. [RESERVED] +ITEM +7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. +You +should read the following discussion and analysis of our financial condition and results of operations together with our financial statements +and the related notes included elsewhere in this annual report. In addition to historical information, this discussion and analysis contains +forward-looking statements that are based on our current expectations, estimates and projections about our business and operations and +that involve risks, uncertainties and assumptions. Our actual results may differ materially from those currently anticipated and expressed +in such forward-looking statements as a result of a number of factors, including those which we discuss under “Risk Factors” +and elsewhere in this annual report. See “Information Regarding Forward-Looking Statements.” All amounts in this report are +in U.S. dollars, unless otherwise noted. +Overview +We +are a healthcare services company promoting preventative health, holistic wellness, health education, and equitable healthcare for all +patient demographics. We leverage deep scientific and healthcare expertise to create strategic frameworks and develop patient-centric +solutions for the betterment of patient lives and health outcome linked to developing a healthier population. We are developing comprehensive +end-to-end solutions in health education services, population health management, behavioral and mental health, healthcare workforce and +digital health. +Our +Services +Behavioral +and Mental Health +Mental +health concerns are rapidly growing on a global scale, yet the shortage of mental health professionals and access to treatment is leaving +millions of people without access to mental health resources. We strongly believe in behavioral and mental health equity and our mission +is to provide solutions that help improve health care and provide access to all populations, regardless of race, ethnicity, gender, socioeconomic +status, sexual orientation, or geographic location. With our specialized services, we believe that we can help solve the behavioral and +mental health needs of various organizations, including health organizations, large employers, and schools. +- 27 - +Syrenity +is a comprehensive mental health application that is aimed at providing preventative care and interventions for behavioral and mental +health and will utilize an artificial intelligence-driven user diary for engagement. Syrenity is being designed to identify and prevent +the progression of negative factors that can influence individuals’ mental health, by offering targeted assignments, education, +monitoring symptoms, and providing timely interventions such as cognitive behavioral therapy and mindfulness techniques. Syrenity will +enable users to connect with licensed mental health professionals, will allow users to schedule virtual consultations with psychologists, +psychiatrists, or mental health coaches, eliminating the need for in-person visits and will provide education resources to help users +understand their mental health concerns and learn coping strategies. We launched Syrenity in the fourth quarter of 2024. +Digital +Health +We +use digital health to bring innovation into healthcare practice. Our goal is to transform patient care and engagement by connecting physicians, +patients, caregivers, payers, and other key stakeholders through healthcare digital platforms. We are developing digital and cloud-based +platforms to help improve cost savings through the automation of health operations, which also provide clinical insights that personalize +care and improve patient satisfaction. Our solutions will include digital transformation, cloud and security, artificial intelligence, +patient engagement, and health applications. Within our digital health service line, we intend to offer SyraBot a chatbot designed to +foster connectivity and engagement throughout individuals’ care journeys, offering members round-the-clock access to necessary +information via our AI-powered customer support chat system), CarePlus (an electronic medical records solution designed for small to +mid-sized healthcare organization) and patient engagement and education services. +Population +Health +We +define population health services as the process of assessing and analyzing healthcare and its delivery to create improvement for a population +of individuals. We are developing end-to-end solutions and strategies to improve quality of care, access to care, health outcomes, and +healthcare policies. We believe that our solutions will assist individuals in reaching their full health potential through preventative +care, care coordination and patient engagement. Our team of service providers includes health economists, public health experts, subject +matter experts, data scientists, and biostatisticians who apply advanced health analytics to real-world data to provide meaningful insights +to improve quality of clinical care and understand patterns and trends around diagnosis, treatment, and continued care. We believe our +team helps stratify health risks based on social determinants of health, predict utilization of resources and health care costs, identify +patient-level interventions, and recommend population-level strategies. Within our population health service line we offer the following +services: analytics as a service, epidemiology, and health equity analytics solutions. +Health +Education Services +We +believe that one of the main drivers of the healthcare education solutions market is the need to address challenges in the healthcare +industry through effective and innovative medical and scientific training. With evolving healthcare technology, healthcare professionals +must be knowledgeable with respect to various patient-care approaches to make better informed clinical decisions and assure patient satisfaction. +We believe that targeted and continuous healthcare education solutions are needed to help healthcare professionals improve their competency, +improve health equality and incorporate innovative and new therapeutic options into practice to improve overall patient care quality. +Therefore, we aim to provide medical education solutions to pharmaceutical and medical device manufacturers, biotechnology companies, +payers, large employers, academic institutions, and government agencies. Specifically, we develop medical education content to drive +the organizational and strategic brand goals and vision of our clients. Our education outreach plan utilizes omnichannel delivery approaches +from a suite of solutions for in-person, virtual and hybrid arrangements, and our deliverables include traditional print and electronic +formats. Some of our targeted education approaches include the utilization of artificial intelligence tools to provide real-time information +to customers. Within our health education service line we offer the following services: medical communications, patient education, and +Healthcare +Workforce +Our +healthcare workforce solutions are intended to help evaluate the immediate and longitudinal workforce needs of our client’s organization. +Using agile implementation staffing methodologies we make it seamless and cost-efficient to expand our client’s clinical personnel. +We recruit experienced nurses and allied health professionals for long-term fixed contract positions at hospitals and healthcare facilities +across the country. Other staffing positions that we recruit include care coordinators, specialists to fill healthcare management roles, +healthcare educators, therapists, healthcare technicians and health plan specialists. +- 28 - +Growth +Strategies +We +hope to become a leader in clinical healthcare solutions by providing customized and comprehensive end-to-end solutions for our customers +in the public and private healthcare sectors and expand our operations to other metropolitan areas. As we continue our expansion, we +anticipate that our professional pool and infrastructure will grow to support the breadth and depth of our services. With our rapid growth +of sales and business development teams, we intend to replicate our current projects with similar customers across the country. We plan +to open offices in multiple geographical locations to support our sales and business development efforts and intend to invest in partnerships +with subject matter experts to further enhance our service lines and provide real-world insights. In addition to organic efforts, we +may expand our footprint by acquiring companies that offer similar service lines. It is anticipated that such companies will strengthen +our current service offerings and may also include new services that we may offer to our clients. Our flagship product, Syrenity, is +a proprietary behavioral and mental health application designed to address the growing mental health crisis. We are strategically preparing +for its launch in global markets while continually advancing its scientific foundation and AI technology to enhance user outcomes. Additionally, +our government solutions service line of business positions us to work on federal government healthcare and related projects from several +agencies such as the United States Department of Health and Human Services, the Centers for Disease Control and Prevention, the National +Institutes of Health, the National Aeronautics and Space Administration and the United States Department of Defence. +Results +of Operations for the Years Ended December 31, 2024, and 2023 +The +following table summarizes selected items from the statements of operations for the years ended December 31, 2024, and 2023. +For the Year +For the Year +Ended +Ended +December 31, +December 31, +Increase / +2024 +2023 +(Decrease) +Net revenues +Healthcare workforce +$ 5,896,433 +$ 4,259,292 +$ 1,637,141 +Population health management +1,659,804 +715,499 +944,305 +Digital health services +369,000 +515,250 +(146,250 ) +Behavioral and mental health +16,845 +12,797 +4,048 +Health education +40,000 +12,306 +27,694 +Net revenues +7,982,082 +5,515,144 +2,466,938 +Cost of services +6,329,119 +4,103,244 +2,225,875 +Gross profit +1,652,963 +1,411,900 +241,063 +Operating expenses: +Salaries and benefits +2,718,743 +2,292,295 +426,448 +Professional services +606,051 +586,463 +19,588 +Research and development expenses +585,146 +240,048 +345,098 +Selling, general and administrative expenses +1,445,170 +1,131,922 +313,248 +Depreciation +62,738 +48,771 +13,967 +Total operating expenses: +5,417,848 +4,299,499 +1,118,349 +Operating loss +(3,764,885 ) +(2,887,599 ) +(877,286 ) +Total other income (expense) +5,647 +(50,744 ) +56,391 +Net loss +$ (3,759,238 ) +$ (2,938,343 ) +$ (820,895 ) +- 29 - +Net +Revenues +Net +revenue increased by $2,466,938 or 45%, driven by an increase of $1,637,141 in our healthcare workforce services and a $944,305 increase +in population health revenues. The increase in healthcare workforce revenue was driven by new customer acquisitions and additions to +existing contracts. Population health revenues increased in 2024 due to additional services provided to state departments and other customers. +The decline in digital health revenues of $146,250 was due to phased transition from implementation to maintenance and operational support +services. On January 31, 2025, with the completion of the Company’s contract FSSA (NeuroDiagnostic Institute), the Company expects +a decline in revenue generation for healthcare workforce. A new contract from FSSA (NeuroDiagnostic Institute) has been executed with +a contract end date of June 30, 2025 with a ceiling value of approximately $1,480,000 in revenue. +Cost +of Services +Our +cost of services included wages and related payroll taxes, employee benefits and certain other employee-related costs of our contract +service employees while they work on contract assignments. We incurred $6,329,119 of cost of services for the year ended December 31, +2024, compared to $4,103,244 for the year ended December 31, 2023, an increase of $2,225,875, or 54%. Our gross profit was approximately +21% for the year ended December 31, 2024, compared to approximately 26% for the year ended December 31, 2023, a decrease of approximately +5%. Our cost of services increased primarily due to an increase in labor costs associated with the increased volume of contracts, and +increased consulting costs associated with a slight change in service mix from healthcare workforce services to project-based population +health services that carry better margins. +Salaries +and Benefits +Our +salaries and benefits include wages and related payroll taxes, employee benefits and certain other employee-related costs of our management +and office personnel. We incurred $2,718,743 of salaries and benefits during the year ended December 31, 2024, compared to $2,292,295 +for the year ended December 31, 2023, an increase of $426,448, or 19%. Salaries and benefits increased in 2024 as we supported our increased +operations and added office personnel following our IPO process. In an effort to reduce its operating costs, the Company, effective July +1, 2024, instituted a 25% payroll reduction for its executive officers for a period of five months. Salaries and benefits included $629,643 +and $535,909 of officer compensation for the years ended December 31, 2024 and 2023, respectively. +Professional +Services +Professional +services primarily consist of expenses incurred from business development, accounting, legal fees, and consulting activities. We incurred +$606,051 of professional services for the year ended December 31, 2024, compared to $586,463 for the year ended December 31, 2023, an +increase of $19,588, or 3%. Professional fees increased in 2024 due increased legal and other professional costs related to the Company’s +regulatory filings. +Research +and Development Expenses +Research +and development expenses primarily consist of consulting expenses incurred to develop our technology-based solutions. We incurred $585,146 +and $240,048 of research and development expenses for the years ended December 31, 2024 and 2023, respectively, related to continued +development of the Company’s Syrenity application for its Behavioral and Mental Health services. +Selling, +General and Administrative Expenses +SG&A +primarily consists of marketing, rent, office, insurance, travel and repair and maintenance expenses incurred. We incurred $1,445,170 +of SG&A expenses during the year ended December 31, 2024, compared to $1,131,922 for the year ended December 31, 2023, an increase +of $313,248, or 28%. Our SG&A expenses increased primarily due to our increased operations in 2024. SG&A included $142,725 and +$117,816 of rent incurred from STVentures, LLC, an entity beneficially owned by our principal owners, our management team and their affiliates, +$456,327 and $154,347 of insurance for the years ended December 31, 2024, and 2023, respectively. Stock based compensation expense increased +to $131,180 during the year ended December 31, 2024 compared to $32,831 in the year ended December 31, 2023. +- 30 - +Depreciation +We +incurred $62,738 of depreciation expense for the year ended December 31, 2024, compared to $48,771 of depreciation expense for the year +ended December 31, 2023, an increase of $13,967, or 29%. Depreciation increased as we expanded our office space and placed additional +office equipment into service during 2023. +Other +Income (Expense) +For +the year ended December 31, 2024, other expense on a net basis consisted of $15,600 of interest incurred on insurance finance charges, +partially offset by $21,247 of interest income. For the year ended December 31, 2023, other expense on a net basis consisted of $53,686 +of interest incurred on the line of credit that we entered into in 2022, convertible promissory notes payable, and insurance finance +charges, as partially offset by $2,942 of interest income. +Net +Loss +Our +net loss for the year ended December 31, 2024, was $3,759,238, compared to a net loss of $2,938,343 for the year ended December 31, 2023, +an increase of $820,895. Net loss increased primarily due to the increase in salary costs related to expanded operations in 2023. +Liquidity +and Capital Resources +We +believe that our existing sources of liquidity, along with cash expected to be generated from sales and services, will not be sufficient +to fund our operations, anticipated capital expenditures, working capital and other financing requirements for at least the next twelve +months from the issuance of the financial statements included elsewhere in this annual report. In the event we are unable to achieve +profitable operations in the near term, we may require additional equity and/or debt financing; however, we cannot provide assurance +that such financing will be available to us on favorable terms, or at all. We will continue to monitor our expenditures and cash flow +position. +The +following table summarizes total current assets, liabilities, accumulated deficit and working capital at December 31, 2024, and December +31, 2023. +December 31, +December 31, +2024 +2023 +Current Assets +$ 3,352,795 +$ 4,781,110 +Current Liabilities +$ 613,549 +$ 910,072 +Accumulated Deficit +$ (8,824,193 ) +$ (5,064,955 ) +Working Capital +$ 2,739,246 +$ 3,871,038 +Liquidity +is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate +on an ongoing basis. To date, we have funded our operations through equity and debt financings. Our primary uses of cash have been for +the development of operations, compensation, and professional fees. All funds received have been expended in the furtherance of growing +our business and establishing our healthcare staffing and medical communication services. The following trends are reasonably likely +to result in a material decrease in our liquidity over the near to long term: +● +A +substantial increase in working capital requirements to finance our operations; +● +Addition +of administrative and professional personnel as our business continues to grow; +● +The +cost of being a public company; and +● +Payments +for seeking and securing quality staffing personnel. +- 31 - +Cash +Flow Activities for the Years Ended December 31, 2024, and 2023 +Net +Cash Used in Operating Activities +Cash +used in operating activities for the years ended December 31, 2024, and 2023 was $2,932,033 and $2,759,068, respectively, which was primarily +attributable to our net loss for such years. +Net +Cash Used in Investing Activities +Cash +used in investing activities for the years ended December 31, 2024, and 2023 was $11,111 and $15,251, respectively, which related entirely +to the purchase of property and equipment in each year. +Net +Cash Provided by Financing Activities +Cash +provided by financing activities for the year ended December 31, 2024, was $2,058,474, which consisted of $2,469,150 of proceeds from +the sale of our Class A common stock, partially offset by $410,676 of repayments on notes payable. Cash provided by financing activities +for the year ended December 31, 2023, was $6,051,050, which consisted of $5,332,283 of proceeds from the sale of our Class A common stock, +$1,455,000 of proceeds received from convertible notes payable, $1,295,010 of advances received from related parties, and $300,000 of +proceeds received from line of credit, partially offset by $1,050,551 of repayments on the line of credit, $1,095,000 of repayments on +advances from related parties, and $185,692 of repayments on notes payable. +Financing +Transactions +Advances +from Related Party +On +various dates from July 11, 2023, through August 23, 2023, Sahasra Technologies Corp., doing business as STLogics, which is an entity +beneficially owned by the principal owners and management team of Syra, made short term, non-interest bearing advances due upon demand, +of which an aggregate of $1,295,010 was advanced and we repaid an aggregate $1,095,000 of such advances. The Company pays for payroll +and related costs for its employees that provide services to STLogics customers. During the year ended December 31, 2023, the Company +applied $200,010 of such costs to reduce the balance of the advance to $0. During the year ended December 31, 2024, the Company paid +$101,411 of payroll and related costs for these employees and had a receivable from STLogics of $0 and $50,614 for additional costs incurred +as of December 31, 2024 and December 31, 2023, respectively. +Common +Stock Sales +On +October 3, 2023 (the “Closing Date”), the Company completed its initial public offering (the “IPO”) of an aggregate +of 1,615,000 units (“Units”) at a public offering price of $4.125 per Unit, with each Unit consisting of (a) one share of +the Company’s Class A common stock and (b) one warrant (each, a “Warrant” and collectively, the “Warrants”) +to purchase one share of Class A common stock at an exercise price equal to $6.50 per share, exercisable until the fifth anniversary +of the issuance date, pursuant to that certain underwriting agreement dated as of September 28, 2023 (the “Underwriting Agreement”) +by and between the Company and Kingswood, a division of Kingswood Capital Partners, LLC, as representative of the several underwriters +named in the Underwriting Agreement (the “Representative”). The Company received gross proceeds of approximately $6.7 million +from the sale of the Units before deducting underwriting discounts, commissions and offering expenses. In addition, pursuant to the Underwriting +Agreement, the Company granted the Representative a 45-day option to purchase up to 242,250 Units at the initial public offering price, +less the underwriting discount, to cover over-allotments, if any (the “Over-Allotment Option”). On the Closing Date, the +Company issued an additional 242,500 Warrants to the underwriters pursuant to the partial exercise by the underwriters of the Over-Allotment +Option, generating gross proceeds of $2,422. +- 32 - +On +September 11, 2024, the Company completed a public offering of an aggregate of (i) 3,203,125 shares of Class A common stock of the Company, +par value $0.001 per share (the “Common Stock”), (ii) eighteen-month warrants (the “Series A Warrants”) to purchase +up to an aggregate of 3,203,125 shares of Common Stock at an exercise price of $0.64 per share, and (iii) five-year warrants (the “Series +B Warrants” and, together with the Series A Warrants, the “Warrants”) to purchase up to an aggregate of 3,203,125 shares +of Common Stock at an exercise price of $0.64 per share, at an offering price of $0.64 per share of Common Stock and related Warrants, +for aggregate gross proceeds of $2,050,000.00. The Company issued to Rodman or its designees warrants to purchase up to an aggregate +of 160,156 shares of Common Stock, at an exercise price of $0.80 per share and an expiration date of September 11, 2029. The Company +received net cash proceeds of $1,619,021 after offering expenses. The Series A Warrants expire 18 months from the date of the offering, +and the Series B Warrants expire on September 11, 2029. +During +the year ended December 31, 2024, two investors exercised 130,789 warrants to purchase Class A Common stock pursuant to which the Company +received cash proceeds of $850,129. +On +January 17, 2025, a total of 233,334 shares of Class B Common Stock previously held by the Company’s Executive Chairman and President, +Sandeep Allam, automatically converted into 2,333,340 shares of Class A common stock according to the terms of the Company’s Articles +of Incorporation. +Critical +Accounting Policies and Estimates +The +preparation of the financial statements included elsewhere in this annual report requires us to make estimates and assumptions that affect +the reported amounts of assets, liabilities, revenue, expenses, and related disclosures. We evaluate our estimates and assumptions on +an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under +the circumstances. Our actual results could differ from these estimates. +The +critical accounting estimates, assumptions and judgments that we believe have the most significant impact on our financial statements +are described below. +Leases +We +account for our leases under ASC 842 - Leases . We determine if an arrangement is a lease at inception. Operating leases are included +in operating lease right-of-use (“ROU”) assets, current portion of obligations under operating leases, and obligations under +operating leases, non-current on our balance sheets. +Operating +lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over +the lease term at commencement date, adjusted by the deferred rent liabilities at the adoption date. As our lease does not provide an +implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present +value of future payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial +direct costs incurred. Our terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise +that option. Operating lease expense is recognized on a straight-line basis over the lease term. +Revenue +Recognition +We +recognize revenue in accordance with ASC 606, the core principle of which is that an entity should recognize revenue to depict the transfer +of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to +receive in exchange for those goods or services. To achieve this core principle, five basic criteria must be met before revenue can be +recognized: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction +price; (4) allocate the transaction price to performance obligations in the contract; and (5) recognize revenue when or as we satisfy +a performance obligation. +We +account for revenues when both parties to the contract have approved the contract, the rights and obligations of the parties are identified, +payment terms are identified, and collectability of consideration is probable. Payment terms vary by client and the services offered. +- 33 - +We +have the following main forms of revenue: +– Healthcare +Workforce Services +– Behavioral +and Mental Health Services +– Digital +Health Services +– Population +Health Management +– Health +Education +We +primarily provide our Healthcare Workforce and Behavioral and Mental Health services to state and local government health agencies, payers, +and other private health organization. Healthcare Workforce and Behavioral Mental Health Service contracts are accounted for as a single +performance obligation satisfied over time because the customer simultaneously receives and consumes the benefits of our medical staffing +on an hourly or daily basis. Population Health Management, Health Education, and Digital Health Services contracts generally consist +of a single performance obligation to provide data analytics and reporting, training, or develop technology for implementation and maintenance +with the customer, with revenue recognized at a point in time when the customer obtains the benefit of the services are provided and +through maintenance for the life of the contract. +The +contracts generally stipulate bi-weekly or monthly billing, and we have elected the “as invoiced” practical expedient to +recognize revenue based on the hours incurred at the contractual rate as we have the right to payment in an amount that corresponds directly +with the value of performance completed to date. We may also be subject to penalties for violations of certain ethical standards and +non-performance measures within these state contracts. We recognize revenue net of penalties. +Recent +Accounting Standards +From +time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) that are adopted +by us as of the specified effective date. +In +November 2023, the Financial Accounting Standard Board (“ FASB ”) issued ASU 2023-07, Improvements to Reportable +Segment Disclosures , which amends the existing segment reporting guidance (ASC Topic 280) to improve reportable segment disclosure +requirements, primarily through enhanced disclosures about significant segment expenses that are regularly provided to the CODM and +included within each reported measure of segment profit or loss, an amount for other segment items by reportable segment and a description +of its composition, the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) +of segment profit or loss in assessing segment performance and deciding how to allocate resources. The amendments in this update were +effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. +The +Company adopted this standard on a retrospective basis within our annual report for the year ended December 31, 2024, with no material +impact to our financial statements. +There +are no other recently issued accounting pronouncements that we have yet to adopt that are expected to have a material effect on our financial +position, results of operations, or cash flows. +JOBS +Act +On +April 5, 2012, the JOBS Act was enacted. Section 107 of the JOBS Act provides that an “emerging growth company” can take +advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting +standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those +standards would otherwise apply to private companies. +We +have chosen to take advantage of the extended transition periods available to emerging growth companies under the JOBS Act for complying +with new or revised accounting standards until those standards would otherwise apply to private companies provided under the JOBS Act. +As a result, our financial statements may not be comparable to those of companies that comply with public company effective dates for +complying with new or revised accounting standards. +We +are in the process of evaluating the benefits of relying on other exemptions and reduced reporting requirements provided by the JOBS +Act. Subject to certain conditions set forth in the JOBS Act, as an “emerging growth company,” we intend to rely on certain +of these exemptions, including without limitation, (i) providing an auditor’s attestation report on our system of internal controls +over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act and (ii) complying with any requirement that may be adopted +by the Public Company Accounting Oversight Board (“PCAOB”) regarding mandatory audit firm rotation or a supplement to the +auditor’s report providing additional information about the audit and the financial statements, known as the auditor discussion +and analysis. We will remain an “emerging growth company” until the earliest of (i) the last day of the fiscal year in which +we have total annual gross revenues of $1.235 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of +the date of the completion of this offering; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during +the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC. +ITEM +7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. +We +are not required to provide the information required by this Item as are a “smaller reporting company,” as defined in Rule +12b-2 of the Exchange Act. +- 34 - +ITEM +8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA +SYRA +HEALTH CORP. +INDEX +TO FINANCIAL STATEMENTS +Report of Independent Registered Public Accounting Firm (PCAOB Firm ID: 2738 ) +F-2 +Balance Sheets at December 31, 2024 and 2023 +F-3 +Statements of Operations for the Years Ended December 31, 2024 and 2023 +F-4 +Statements of Stockholders’ Equity for the Years Ended December 31, 2024 and 2023 +F-5 +Statements of Cash Flows for the Years Ended December 31, 2024 and 2023 +F-6 +Notes to the Financial Statements +F-7 +F- 1 +REPORT +OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +To +the Board of Directors and +Stockholders +of Syra Health Corp. +Opinion +on the Financial Statements +We +have audited the accompanying balance sheets of Syra Health Corp. (the Company) as of December 31, 2024 and 2023, and the related statements +of operations, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2024 and the +related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements referred to +above present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results +of its operations and its cash flows for each of the years in the two-year period ended December 31, 2024, in conformity with accounting +principles generally accepted in the United States of America. +Going +Concern +The +accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note +2 to the financial statements, the Company had a cash balance of $2,395,405, working capital of $2,739,246 and an accumulated deficit +of $8,824,193 since inception, which raises substantial doubt about its ability to continue as a going concern. Management’s plans +regarding those matters are discussed in Note 2. The financial statements do not include any adjustments that might result from the outcome +of this uncertainty. +Basis +for Opinion +These +financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s +financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board +(United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities +laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We +conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain +reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company +is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, +we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion +on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. +Our +audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error +or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding +the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and the significant +estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe our audits provides +a reasonable basis for our opinion. +Critical +Audit Matter +The +critical audit matter communicated below is a matter arising from the current period audits of the financial statements that were communicated, +or required to be communicated, to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial +statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters +does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit +matter below, providing separate opinion on the critical audit matter or on the accounts or disclosures to which they relate. +Due +to the net loss for the year, the Company evaluated the need for a going concern. +Auditing +management’s evaluation of a going concern can be a significant judgement given the fact that the Company uses management estimates +on future revenues and expenses which are not able to be substantiated. +As +discussed in Note 2, the Company has a going concern due to its insufficient cash balance and accumulated net losses. +To +evaluate the appropriateness of the going concern, we examined and evaluated the financial information along with management’s +plans to mitigate the going concern and management’s disclosure on going concern. +/s/ +M&K CPAS, PLLC +We +have served as the Company’s auditor since 2023 +The +Woodlands, TX +March +11, 2025 +F- 2 +SYRA +HEALTH CORP. +BALANCE +SHEETS +December 31, +December 31, +2024 +2023 +ASSETS +Current assets: +Cash and cash equivalents +$ 2,395,405 +$ 3,280,075 +Accounts receivable, net +680,827 +1,060,634 +Accounts receivable related party +- +50,614 +Accounts receivable +- +50,614 +Other current assets +276,563 +389,787 +Total current assets +3,352,795 +4,781,110 +Property and equipment, net +27,347 +78,974 +Right-of-use asset +299,190 +63,199 +Total assets +$ 3,679,332 +$ 4,923,283 +LIABILITIES AND STOCKHOLDERS’ EQUITY +Current liabilities: +Accounts payable +$ 101,690 +$ 462,991 +Accrued expenses +230,383 +198,978 +Deferred revenue +16,611 +- +Current portion of operating lease liability, related party +111,978 +63,199 +Notes payable +152,887 +184,904 +Total current liabilities +613,549 +910,072 +Non-current portion of operating lease liability, related party +187,212 +- +Total liabilities +800,761 +910,072 +Commitments and contingencies +- +- +Stockholders’ equity: +Preferred stock, $ 0.001 par value, 10,000,000 shares authorized, no shares designated, issued and outstanding +- +- +Class A common stock, $ 0.001 par value, 100,000,000 shares authorized, 8,979,204 and 5,588,298 shares issued and outstanding at December 31, 2024 and December 31, 2023, respectively +8,979 +5,588 +Convertible class B common stock, $ 0.001 par value, 5,000,000 shares authorized, 833,334 shares issued and outstanding +833 +833 +Common stock, value +833 +833 +Additional paid-in capital +11,692,952 +9,071,745 +Accumulated deficit +( 8,824,193 ) +( 5,064,955 ) +Total stockholders’ equity +2,878,571 +4,013,211 +Total liabilities and stockholders’ equity +$ 3,679,332 +$ 4,923,283 +See +accompanying notes to audited financial statements. +F- 3 +SYRA +HEALTH CORP. +STATEMENTS +OF OPERATIONS +2024 +2023 +For the Year Ended +2024 +2023 +Net revenues +$ 7,982,082 +$ 5,515,144 +Cost of services +6,329,119 +4,103,244 +Gross profit +1,652,963 +1,411,900 +Operating expenses: +Salaries and benefits +2,718,743 +2,292,295 +Professional services +606,051 +586,463 +Research and development expenses +585,146 +240,048 +Selling, general and administrative expenses +1,445,170 +1,131,922 +Depreciation +62,738 +48,771 +Total operating expenses +5,417,848 +4,299,499 +Operating loss +( 3,764,885 ) +( 2,887,599 ) +Other income (expense): +Interest income +21,247 +2,942 +Interest expense +( 15,600 ) +( 53,686 ) +Total other income (expense) +5,647 +( 50,744 ) +Net loss +$ ( 3,759,238 ) +$ ( 2,938,343 ) +Weighted average common shares outstanding - basic and diluted +7,551,576 +4,877,861 +Net loss per common share - basic and diluted +$ ( 0.50 ) +$ ( 0.60 ) +See +accompanying notes to audited financial statements. +F- 4 +SYRA +HEALTH CORP. +STATEMENTS +OF CHANGES IN STOCKHOLDERS’ EQUITY +For +the Years Ended December 31, 2024 and 2023 +Shares +Amount +Shares +Amount +Shares +Amount +Capital +Deficit +Equity +Preferred Stock +Class A +Common Stock +Convertible +Class B +Common Stock +Additional +Paid-in +Accumulated +Total Stockholders’ +Shares +Amount +Shares +Amount +Shares +Amount +Capital +Deficit +Equity +Balance, December 31, 2023 +- +$ - +5,588,298 +$ 5,588 +833,334 +$ 833 +$ 9,071,745 +$ ( 5,064,955 ) +$ 4,013,211 +Class A common stock issued for services +- +- +56,992 +57 +- +- +71,321 +- +71,378 +Warrants exercised for cash +- +- +130,789 +131 +- +- +849,998 +- +850,129 +Class A common stock issued for cash +- +- +3,203,125 +3,203 +- +- +1,615,818 +- +1,619,021 +Class A common stock options issued for services +- +- +- +- +- +- +59,803 +- +59,803 +Options issued for Director fees +- +- +- +- +- +- +24,267 +- +24,267 +Net loss +- +- +- +- +- +- +- +( 3,759,238 ) +( 3,759,238 ) +Balance, December 31, 2024 +- +$ - +8,979,204 +$ 8,979 +833,334 +$ 833 +$ 11,692,952 +$ ( 8,824,193 ) +$ 2,878,571 +Preferred Stock +Class A +Common Stock +Convertible +Class B +Common Stock +Additional +Paid-in +Accumulated +Total Stockholders’ +Shares +Amount +Shares +Amount +Shares +Amount +Capital +Deficit +Equity +Balance, December 31, 2022 +- +$ - +3,568,758 +$ 3,569 +833,334 +$ 833 +$ 2,832,308 +$ ( 2,126,612 ) +$ 710,098 +Balance +- +$ - +3,568,758 +$ 3,569 +833,334 +$ 833 +$ 2,832,308 +$ ( 2,126,612 ) +$ 710,098 +Cancellation of Class A common stock +- +- +( 41,666 ) +( 42 ) +- +- +42 +- +- +Class A common stock issued for debt conversion +- +- +446,206 +446 +- +- +1,472,014 +- +1,472,460 +Stock-based compensation +- +- +- +- +- +- +32,831 +- +32,831 +Class A common stock options issued for cash +- +- +1,615,000 +1,615 +- +- +4,734,550 +4,736,165 +Net loss +- +- +- +- +- +- +- +( 2,938,343 ) +( 2,938,343 ) +Balance, December 31, 2023 +- +$ - +5,588,298 +$ 5,588 +833,334 +$ 833 +$ 9,071,745 +$ ( 5,064,955 ) +$ 4,013,211 +Balance +- +$ - +5,588,298 +$ 5,588 +833,334 +$ 833 +$ 9,071,745 +$ ( 5,064,955 ) +$ 4,013,211 +See +accompanying notes to audited financial statements . +F- 5 +SYRA +HEALTH CORP. +STATEMENTS +OF CASH FLOWS +2024 +2023 +For the Years Ended +December 31, +2024 +2023 +CASH FLOWS FROM OPERATING ACTIVITIES +Net loss +$ ( 3,759,238 ) +$ ( 2,938,343 ) +Adjustments to reconcile net loss to net cash used in operating activities: +Depreciation +62,738 +48,771 +Common stock issued for services +71,378 +- +Non-cash lease expense +89,500 +- +Stock-based compensation +59,803 +32,831 +Changes in operating assets and liabilities: +Accounts receivable +379,807 +( 59,547 ) +Accounts receivable, related party +50,614 +( 50,614 ) +Other current assets +491,883 +203,110 +Right-of-use asset +121,089 +Accounts payable +( 361,301 ) +30,603 +Accounts payable, related parties +- +( 3,200 ) +Deferred revenue +16,611 +- +Accrued expenses +55,672 +( 22,679 ) +Operating lease liability +( 89,500 ) +( 121,089 ) +Net cash used in operating activities +( 2,932,033 ) +( 2,759,068 ) +CASH FLOWS FROM INVESTING ACTIVITIES +Purchase of property and equipment +( 11,111 ) +( 15,251 ) +Net cash used in investing activities +( 11,111 ) +( 15,251 ) +CASH FLOWS FROM FINANCING ACTIVITIES +Proceeds from sale of common stock and exercise of warrants +2,469,150 +5,332,283 +Proceeds received from line of credit +- +300,000 +Repayments on line of credit +- +( 1,050,551 ) +Proceeds received from advances, related party +- +1,295,010 +Repayments on advances, related party +- +( 1,095,000 ) +Repayments on notes payable +( 410,676 ) +( 185,692 ) +Proceeds received from convertible notes payable +- +1,455,000 +Net cash provided by financing activities +2,058,474 +6,051,050 +NET CHANGE IN CASH AND CASH EQUIVALENTS +( 884,670 ) +3,276,731 +CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD +3,280,075 +3,344 +CASH AND CASH EQUIVALENTS AT END OF PERIOD +$ 2,395,405 +$ 3,280,075 +SUPPLEMENTAL INFORMATION: +Interest paid +$ 15,600 +$ 36,226 +Income taxes paid +$ - +$ - +NON-CASH INVESTING AND FINANCING ACTIVITIES: +Initial recognition of right-of-use asset and lease liability +$ 325,491 +$ - +Cancellation of Class A common stock +$ - +$ 42 +Non-cash application of invoices to STLogics loan +$ - +$ 200,010 +Class a common stock issued for debt and interest conversion +$ - +$ 1,472,460 +Options issued for accrued director fees +$ 24,267 +$ - +Prepaid asset financed with note payable +$ 378,659 +$ 370,596 +See +accompanying notes to audited financial statements. +F- 6 +SYRA +HEALTH CORP. +NOTES +TO FINANCIAL STATEMENTS +Note +1 – Nature of Business and Significant Accounting Policies +Nature +of Business +Syra +Health Corp. (“Syra” or the “Company”) was incorporated in the state of Indiana on November 20, 2020 to provide +workforce staffing solutions, health education and healthcare research consulting services to mental health hospitals and organizations, +including government agencies, integrated health networks, managed care entities and pharmaceutical manufacturers. On March 11, 2022, +the Company redomiciled to Delaware. The Company’s corporate office is located in Carmel, Indiana. +Basis +of Presentation +The +accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States +of America (“GAAP”). +Use +of Estimates +The +preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that may affect +the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements +and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. +Concentrations +of Credit Risk +The +Company maintains cash in bank deposit accounts, the balances of which at times may exceed federally insured limits. Accounts are guaranteed +by the Federal Deposit Insurance Corporation (“FDIC”) up to $ 250,000 under current regulations. The Company had $ 1,032,827 +cash in excess of FDIC insured limits at December 31, 2024. The Company has not experienced any losses in such accounts. +Fair +Value of Financial Instruments +Accounting +Standards Codification (“ASC”) 820 defines fair value, establishes a three-level valuation hierarchy for disclosures of fair +value measurement and enhances disclosure requirements for fair value measures. The three levels are defined as follows: +- +Level +1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. +- +Level +2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that +are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. +- +Level +3 inputs to valuation methodology are unobservable and significant to the fair measurement. +The +carrying value of the Company’s financial assets and liabilities, such as cash, accounts receivable and accounts payable are estimated +by management to approximate fair value primarily due to the short-term nature of the instruments. The Company’s advances from +related party approximates the fair value of such instruments based upon management’s best estimate of interest rates that would +be available to the Company for similar financial arrangements at December 31, 2024 and December 31, 2023. +Cash +and Cash Equivalents +Cash +equivalents include money market accounts which have maturities of three months or less when acquired. For the purpose of the statements +of cash flows, all highly liquid investments with an original maturity of three months or less are considered to be cash equivalents. +Cash equivalents are stated at cost plus accrued interest, which approximates market value. There were $ 1,749,977 cash equivalents on +hand at December 31, 2024, consistent of certificates of deposit with maturities of three months or less. There were no cash equivalents +at December 31, 2023. +Accounts +Receivable +Accounts +receivable is carried at their estimated collectible amounts. Accounts receivable is periodically evaluated for collectability based +on past credit history with customers and their current financial condition. The Company had an allowance of $ 5,520 at December 31, 2024 +and December 31, 2023. +F- 7 +Property +and Equipment +Property +and equipment is stated at cost, less accumulated depreciation. The cost of office equipment is depreciated using the straight-line method +based on a five -year life expectancy. +Repairs +and maintenance expenditures are charged to operations as incurred. Major improvements and replacements, which extend the useful life +of an asset, are capitalized and depreciated over the remaining estimated useful life of the asset. When assets are retired or sold, +the cost and related accumulated depreciation are eliminated, and any resulting gain or loss is reflected in operations. +Impairment +of Long-Lived Assets +In +accordance with the provisions of ASC Topic 360, “ Impairment or Disposal of Long-Lived Assets ”, all long-lived assets +such as property and equipment held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate +that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is evaluated by a comparison +of the carrying amount of an asset to its estimated future undiscounted cash flows expected to be generated by the asset. If such assets +are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amounts of the assets +exceed the fair value of the assets. +Leases +The +Company accounts for its leases under ASC 842 - Leases . The Company determines if an arrangement is a lease at inception. Operating +leases are included in operating lease right-of-use (“ROU”) assets, current portion of obligations under operating leases, +and obligations under operating leases, non-current on the Company’s balance sheets. +Operating +lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over +the lease term at commencement date, adjusted by the deferred rent liabilities at the adoption date. As the Company’s lease does +not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date +in determining the present value of future payments. The operating lease ROU asset also includes any lease payments made and excludes +lease incentives and initial direct costs incurred. The Company’s terms may include options to extend or terminate the lease when +it is reasonably certain that the Company will exercise that option. Operating lease expense is recognized on a straight-line basis over +the lease term. +Segment +Reporting +ASC +Topic 280, “ Segment Reporting ,” requires annual and interim reporting for an enterprise’s operating segments +and related disclosures about its products, services, geographic areas and major customers. An operating segment is defined as a component +of an enterprise that engages in business activities from which it may earn revenues and expenses, and about which separate financial +information is regularly evaluated by the chief operating decision maker in deciding how to allocate resources. In November 2023, the +FASB issued ASU No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosure.” The ASU updates +reportable segment disclosure requirements, primarily through requiring enhanced disclosures about significant segment expenses and information +used to assess segment performance. The amendments do not change how segments are determined, aggregated, or how thresholds are applied +to determine reportable segments. The Company adopted ASU No. 2023-07 during the year ended December 31, 2024. +Segment +information is prepared on the same basis that our CEO, who is our Chief Operating Decision Maker (“CODM”), manages our segments, +evaluates financial results, and makes key operating decisions. We have one reportable operating segment, Healthcare services. The reportable +segment derives its revenue from a variety of services primarily to state and federal health authorities. Our CODM uses net income to +evaluate and make key operating decisions. The Company operates as a single segment and will evaluate additional segment disclosure requirements +as it expands its operations. +F- 8 +Revenue +Recognition +The +Company recognizes revenue in accordance with ASC 606, the core principle of which is that an entity should recognize revenue to depict +the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be +entitled to receive in exchange for those goods or services. To achieve this core principle, five basic criteria must be met before revenue +can be recognized: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine +the transaction price; (4) allocate the transaction price to performance obligations in the contract; and (5) recognize revenue when +or as the Company satisfies a performance obligation. +The +Company accounts for revenues when both parties to the contract have approved the contract, the rights and obligations of the parties +are identified, payment terms are identified, and collectability of consideration is probable. Payment terms vary by client and the services +offered. +The +Company has the following main forms of revenue: +– +Healthcare +Workforce; +– +Population +Health +– +Digital +Health +– +Behavioral +and Mental Health Services +– +Health +Education +The +Company primarily provides its services to state health and social service agencies and universities. Healthcare Workforce, Health Education +and Behavioral Mental Health Service contracts are primarily accounted for as a single performance obligation satisfied over time because +the customer simultaneously receives and consumes the benefits of our medical staffing on an hourly or daily basis. Population Health +and Digital Health contracts generally consist of multiple performance obligations that are distinct, such as to provide data analytics +and reporting, training, or develop technology for implementation and maintenance with the customer. The Company allocates the transaction +price across the performance obligations based on the estimated fair value of the distinct performance obligations. Depending on the +performance obligation, revenue is recognized at a point in time when the customer obtains the benefit of the services are provide, or +over time in the case of digital health revenue where the customer simultaneously receives and consumes benefits of the contract, such +as ongoing performance of our technology product. +The +contracts generally stipulate bi-weekly or monthly billing, and the Company has elected the “as invoiced” practical expedient +to recognize revenue based on the hours incurred at the contractual rate as the Company has the right to payment in an amount that corresponds +directly with the value of performance completed to date. The Company may also be subject to penalties for violations of certain ethical +standards and non-performance measures within these state contracts. The Company recognizes revenue net of penalties. +Disaggregated +revenue data +The +Company’s revenue consists of the following revenue services within its industry: +Schedule of Disaggregation of Revenue +Year Ended +December 31, 2024 +December 31, 2023 +Net revenues: +Healthcare workforce +$ 5,896,433 +$ 4,259,292 +Population health +1,659,804 +715,499 +Digital health +369,000 +515,250 +Behavioral and mental services +16,845 +12,797 +Health education +40,000 +12,306 +Net revenues +$ 7,982,082 +$ 5,515,144 +F- 9 +Cost +of Services +The +cost of services includes wages and related payroll taxes, employee benefits and certain other employee-related costs of the Company’s +contract service employees, while the employees work on contract assignments. +Significant +Concentrations +The +majority of accounts receivable and revenue contracts are between the Company and different divisions within the Indiana Family and Social +Services Administration (“FSSA”). Most contracts require monthly payments as the projects progress. The Company generally +does not require collateral or advance payments. For the years ended December 31, 2024 and 2023, FSSA accounted for approximately 61 % +and 68 % of revenues, respectively, which was derived through a combination of divisions within the State of Indiana, including the FSSA-NeuroDiagnostic +Institute, representing $ 4,567,637 and $ 3,734,004 of the Company’s Healthcare Workforce revenue for years ended December 31, 2024 +and 2023, respectively, and the FSSA-Division of Mental Health and Addiction, representing $ 312,000 and $ 305,000 of the Company’s +Population Health revenues for each of the years ended December 31, 2024 and 2023, respectively. In addition, the combined divisions +of the FSSA (NeuroDiagnostic Institute and Division of Mental Health and Addiction), owed 56 % and one other customer represented 11 %, +of the Company’s accounts receivable respectively, at December 31, 2024, and FSSA represented 30 % of outstanding accounts receivable +as of December 31, 2023. +Stock-Based +Compensation +The +Company accounts for equity instruments issued to employees and non-employees in accordance with the provisions of ASC 718 Stock Compensation +(“ASC 718”). All transactions in which the consideration provided in exchange for the purchase of goods or services consists +of the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the +equity instrument issued, whichever is more reliably measurable. +Basic +and Diluted Loss Per Share +Basic +earnings per share (“EPS”) are computed by dividing net income (the numerator) by the weighted average number of common shares +outstanding for the period (the denominator). Weighted average shares for basic EPS are calculated based on weighted average Class A +and Class B shares outstanding. Diluted EPS is computed by dividing net income by the weighted average number of common shares and potential +common shares outstanding (if dilutive) during each period. Potential common shares include stock options, warrants, conversion of Class +B shares and restricted stock. The number of potential common shares outstanding relating to stock options, warrants, conversion of Class +B shares and restricted stock is computed using the treasury stock method. For the periods presented, potential dilutive securities had +an anti-dilutive effect and were not included in the calculation of diluted net loss per common share. +Income +Taxes +The +Company accounts for income taxes under the Financial Accounting Standards Board (“FASB”) ASC 740 Income Taxes (“ASC +740”), which requires use of the liability method. FASB ASC 740-10-25 provides that deferred tax assets and liabilities are recognized +for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities +and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable +income in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance is provided for +significant deferred tax assets when it is more likely than not, that such asset will not be recovered through future operations. +Uncertain +Tax Positions +In +accordance with ASC 740, the Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that +the tax position will be capable of withstanding examination by the taxing authorities based on the technical merits of the position. +These standards prescribe a recognition threshold and measurement attribute for the financial statement recognition and measurement of +a tax position taken or expected to be taken in a tax return. These standards also provide guidance on de-recognition, classification, +interest and penalties, accounting in interim periods, disclosure, and transition. +F- 10 +Various +taxing authorities may periodically audit the Company’s income tax returns. These audits include questions regarding the Company’s +tax filing positions, including the timing and amount of deductions and the allocation of income to various tax jurisdictions. In evaluating +the exposures connected with various tax filing positions, including state and local taxes, the Company records allowances for probable +exposures. A number of years may elapse before a particular matter, for which an allowance has been established, is audited and fully +resolved. The Company has not yet undergone an examination by any taxing authorities. The Company +recognizes interest and penalties related to uncertain tax positions, if any, as an income tax expense. +The +assessment of the Company’s tax position relies on the judgment of management to estimate the exposures associated with the Company’s +various filing positions. +Recent +Accounting Standards +From +time to time, new accounting pronouncements are issued by the FASB that are adopted by the Company as of the specified effective date. +In +November 2023, the Financial Accounting Standard Board (“ FASB ”) issued ASU 2023-07, Improvements to Reportable +Segment Disclosures , which amends the existing segment reporting guidance (ASC Topic 280) to improve reportable segment disclosure +requirements, primarily through enhanced disclosures about significant segment expenses that are regularly provided to the CODM and +included within each reported measure of segment profit or loss, an amount for other segment items by reportable segment and a description +of its composition, the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) +of segment profit or loss in assessing segment performance and deciding how to allocate resources. The amendments in this update were +effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. +The +Company adopted this standard on a retrospective basis within our annual report for the year ended December 31, 2024, with no material +impact to our financial statements. +Management +does not believe that any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material +effect on the Company’s financial statements. +Note +2 – Going Concern +As +shown in the accompanying financial statements, as of December 31, 2024, the Company had a cash balance of $ 2,395,405 , working capital +of $ 2,739,246 and an accumulated deficit of $ 8,824,193 since inception. The Company is too early in its development stage to project +revenue with a necessary level of certainty. Therefore, the Company may not have sufficient funds to sustain its operations for the next +twelve months from the issuance date of these financial statements and may need to raise additional cash to fund its operations. These +factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company has commenced sales and +continues to develop its operations. In the event sales do not materialize at the expected rates, management would seek additional financing +or would attempt to conserve cash by further reducing expenses. There can be no assurance that the Company will be successful in achieving +these objectives. +The +Company continues to pursue sources of additional capital through debt and financing transactions or arrangements, including equity financing +or other means. The Company may not be successful in identifying suitable funding transactions in a sufficient time period or at all +and may not obtain the required capital by other means. If the Company does not succeed in raising additional capital, resources may +not be sufficient to fund its business. The Company’s ability to scale production and distribution capabilities and further increase +the value of its brands, is largely dependent on its success in raising additional capital. From January through April of 2023, the Company +raised a total of $ 1,455,000 of capital from the sale of convertible notes. On October 3, 2023, the Company completed its IPO and received +net proceeds of approximately $ 5,332,283 . In October 2023, the convertible notes were converted into Class A common stock in accordance +with the terms of the convertible promissory notes as a result of the IPO. On September 11, 2024, the Company completed a public offering +and received net proceeds of $ 1,619,021 . +The +financial statements do not include any adjustments that might result from the outcome of any uncertainty as to the Company’s ability +to continue as a going concern. These financial statements also do not include any adjustments relating to the recoverability and classification +of recorded asset amounts or amounts and classifications of liabilities that might be necessary should the Company be unable to continue +as a going concern. +Note +3 – Related Party Transactions +The +Company pays for payroll and related costs for its employees that provide services to Sahasra Technologies Corp., doing business as +STLogics to service contracts of STLogics, which is an entity beneficially owned by the principal owners and management team of +Syra. During the year ended December 31, 2024, the Company paid $ 101,411 +of payroll and related costs for these employees and had a receivable from STLogics of $ 0 +and $ 50,614 for additional costs incurred as of December 31, 2024 and December 31, 2023, respectively. +F- 11 +Office +Lease +The +Company leases its current corporate headquarters under a three-year lease from STVentures, LLC (“STVentures”) , +an entity beneficially owned by the principal owners and the management team of Syra and their affiliates . +The lease commenced on July 1, 2021 and as amended on May 1, 2022, provides for a base monthly rent of $ 10,711 over the three-year term +of the lease. A total of $ 131,516 and $ 128,527 was included in selling, general and administrative expenses for the year ended December +31, 2024 and 2023, respectively. The lease was further amended on June 26, 2024, and provides for a base monthly rent of $ 11,209 over +the additional three-year term of the lease. +Information +Technology (“IT”) Services +The +Company incurred a total of $ 22,233 and $ 3,320 of services from RAD CUBE LLC, which is an entity beneficially owned by the principal +owners and the management team of Syra and their affiliates, for outsourced IT services which have been presented within selling, general +and administrative expenses in the statements of operations during the years ended December 31, 2024 and 2023, respectively. +Recruitment +and Human Resource Services +The +Company paid a total of $ 516,129 and $ 348,304 for recruitment and human resource services from NLogix, which is an entity beneficially +owned by the principal owners and the management team of Syra and their affiliates, which have been presented within cost of sales in +the statements of operations during the years ended December 31, 2024 and 2023, respectively . +Advances +from Related Party +On +various dates from July 11, 2023, through August 23, 2023, Sahasra Technologies Corp., doing business as STLogics, which is an entity +beneficially owned by the principal owners and management team of Syra, made short term, non-interest bearing advances due upon demand, +of which an aggregate of $ 1,295,010 was advanced and we repaid an aggregate $ 1,095,000 of such advances. The Company pays for payroll +and related costs for its employees that provide services to STLogics customers. During the year ended December 31, 2023, the Company +applied $ 200,010 of such costs to reduce the balance of the advance to $ 0 . During the year ended December 31, 2024, the Company paid +$ 101,411 of payroll and related costs for these employees and had a receivable from STLogics of $ 0 and $ 50,614 for additional costs incurred +as of December 31, 2024 and December 31, 2023, respectively. +Note +4 – Basic and Diluted Earnings per Share +During +the years ended December 31, 2024 and 2023, the Company used the two-class method to compute net loss per common share because it had +issued securities, other than a single class of common stock, that contractually entitled the holders to participate in dividends and +earnings. These participating securities included the Company’s Class A common stock, which was authorized pursuant to the Company’s +amendment to its Certificate of Incorporation on May 2, 2022, and convertible Class B common stock which are entitled to share equally, +on a per share basis, in all assets of the Company of whatever kind available for distribution to the holders of common stock. The two-class +method requires earnings for the period to be allocated between common stock and participating securities based upon their respective +rights to receive distributed and undistributed earnings. +Under +the two-class method, for periods with net income, basic net income per common share is computed by dividing the net income attributable +to common stockholders by the weighted average number of shares of common stock outstanding during the period. Net income attributable +to common stockholders is computed by subtracting from net income the portion of current period earnings that the participating securities +would have been entitled to receive pursuant to their dividend rights had all of the period’s earnings been distributed. No such +adjustment to earnings is made during periods with a net loss, as the holders of the participating securities have no obligation to fund +losses. +The +Company reports the more dilutive of the approaches (two-class or “if-converted”) as its diluted net income per share during +the period. For the periods presented, potential dilutive securities had an anti-dilutive effect and were not included in the calculation +of diluted net loss per common share. +F- 12 +Common +shares consisting of shares potentially dilutive that are excluded from the calculated of diluted earnings per share because they are +anti-dilutive as of December 31, 2024 and 2023 are as follows: +Schedule of Diluted Earnings Per Share +December 31, +2024 +December 31, +2023 +Warrants +8,192,967 +1,760,350 +Stock options +223,599 +140,750 +Total +8,416,566 +1,901,100 +Note +5 – Other Current Assets +Other +current assets included the following as of December 31, 2024 and December 31, 2023: +Schedule of Other Current Assets +December 31, +December 31, +2024 +2023 +Federal and state income tax receivable (1) +$ - +$ 73,069 +Prepaid expenses and other current assets +276,563 +316,718 +Total other current assets +$ 276,563 +$ 389,787 +(1) +Includes +$ 50,000 for a federal refundable payroll tax credit, called the Employee Retention Tax Credit (“ERTC”) Tax Credit, which +provides a credit to businesses who kept employees, or were negatively impacted, during the COVID-19 pandemic. +Note +6 – Property and Equipment +Property +and equipment at December 31, 2024 and December 31, 2023, consisted of the following: +Schedule of Property and Equipment +December 31, +December 31, +2024 +2023 +Office equipment – 5 year estimated life +$ 85,958 +$ 81,340 +Leasehold improvements – 2 year estimated life +60,783 +60,783 +Furniture and fixtures – 7 year estimated life +6,170 +677 +Property and equipment, gross +6,170 +677 +Less: Accumulated depreciation +( 126,564 ) +( 63,826 ) +Total property and equipment, net +$ 27,347 +$ 78,974 +Depreciation +of property and equipment was $ 62,738 and $ 48,771 for the years ended December 31, 2024 and 2023, respectively. +Note +7 – Accrued Expenses +Accrued +expenses at December 31, 2024 and December 31, 2023, consisted of the following: +Schedule of Accrued Expenses +December 31, +December 31, +2024 +2023 +Accrued payroll and taxes +$ 202,038 +$ 148,924 +Accrued expenses +28,345 +50,054 +Total accrued expenses +$ 230,383 +$ 198,978 +The +Company provides postretirement benefits pursuant to IRS code section 401(k) for employees meeting specified criteria. The Company matches +100 % of the employees’ contributions that are not in excess of 4 % of the employee’s contributions. These matching contributions +are fully vested and paid pursuant to the employees’ bi-weekly or semi-monthly pay periods. The Company does not prefund these +benefits and has the right to modify or terminate certain of these benefits in the future. For the year ended December 31, 2024, the +Company incurred $ 103,760 of IRA contribution expenses pursuant to the Company’s matching contributions, including $ 0 , as accrued +at December 31, 2024. For the year ended December 31, 2023, the Company incurred $ 88,327 of investment retirement account contribution +expenses pursuant to the Company’s matching contributions, including $ 8,778 , as accrued at December 31, 2023 +F- 13 +Note +8 – Lease +The +Company leases its current corporate headquarters under a three-year lease from STVentures, a related party. The lease, as amended on +May 1, 2022, to expand its office space from 2,976 square feet to approximately 5,978 square feet, commenced on July 1, 2021, and provides +for a base monthly rent of $ 10,711 , as increased from $ 5,332 per month, over the three-year term of the lease. The lease was further +amended on June 26, 2024 and provides for a base monthly rent of $ 11,209 per month, over a three-year term of the lease commencing on +July 1, 2024. The Company is occupying the space for executive and administrative offices. Rent expense for the years ended December +31, 2024 and 2023 was $ 131,516 and $1 28,527 , respectively , which is included in selling, +general and administrative expenses within the statements of operations . +The +components of lease expense were as follows: +Schedule +of Lease Expenses +2024 +2023 +For the Year Ended +December 31, +2024 +2023 +Operating lease cost: +Amortization of ROU asset +$ 282,876 +$ 121,089 +Interest on lease liability +16,314 +7,438 +Total operating lease cost +$ 299,190 +$ 128,527 +Supplemental +balance sheet information related to leases was as follows: +Schedule of Supplemental Balance Sheet Information +December +31, +December +31, +2024 +2023 +Operating +lease: +Operating +lease assets +$ +299,190 +$ +63,199 +Current +portion of operating lease liability, related party +$ +111,978 +63,199 +Noncurrent +operating lease liability, related party +187,212 +- +Total +operating lease liability +$ +299,190 +$ +63,199 +Weighted +average remaining lease term: +Operating +leases +2.50 +years +0.5 +years +Weighted +average discount rate: +Operating +lease +9.25 +% +5.75 +% +The +following payments are required under leases as of December 31, 2024: +Schedule of Payments Under Leases +Remaining +Operating +Term in +Lease +Years +2025 +134,505 +2026 +134,505 +2027 +67,252 +Total lease payments +336,262 +Less: imputed interest +( 37,072 ) +Present value of lease liability +299,190 +2.50 +F- 14 +Note +9 – Notes Payable +Line +of Credit +On +February 7, 2022, the Company entered into a business loan agreement (as amended, the “loan agreement”) with Citizens State +Bank of New Castle pursuant to which it originally received a revolving line of credit of up to $ 1,500,000 which was subsequently amended +to $ 800,000 (as amended, the “Revolving Line of Credit”). Pursuant to the terms of the Revolving Line of Credit, the outstanding +balance shall not exceed 75% of the Company’s outstanding accounts receivable due from the State of Indiana aged more than 90 days +together with all other accounts receivable aged less than 90 days. The Revolving Line of Credit was to terminate on December 31, 2022, +unless extended pursuant to the terms thereof. The Company received extensions on the Revolving Line of Credit such that it will now +terminate on October 24, 2023; however, no further advances are available under the Revolving Line of Credit. In the event of a default, +all commitments and obligations pursuant to the Revolving Line of Credit will terminate immediately and, at Citizens State Bank of New +Castle’s request, all Indebtedness (as defined in the loan agreement) shall become immediately due and payable. Advances on the +Revolving Line of Credit are pursuant to a promissory note dated February 7, 2022 which accrues interest at a variable rate of 1.5% above +the national prime interest rate as quoted in the Wall Street Journal, not to be less than 4.75% per annum or more than 21% per annum +or the maximum rate allowed by law. Interest shall increase by an 2.0% in the event of a default. Pursuant to the promissory note, the +Company has been required to pay monthly payments of unpaid interest since March 7, 2022. The Company may prepay all or a portion of +the amount due prior to the date upon which it is due without any penalty. In connection with the Revolving Line of Credit, the Company +entered into a commercial security agreement with Citizens State Bank of New Castle dated February 7, 2022, pursuant to which it granted +Citizens State Bank of New Castle a security interest in the Collateral (as defined in the commercial security agreement) to secure the +Indebtedness (as defined in the commercial security agreement). +During +the year ended December 31, 2023, the Company received proceeds of $ 300,000 and repaid total advances of $ 1,050,551 . In addition, the +Company paid an underwriting fee of $ 14,076 on February 7, 2022, which was amortized over the original life of the line of credit using +the straight-line method, which approximated the effective interest method. The balance of the line of credit was $ 0 at December 31, +2023, and was closed during the year ended December 31, 2023. +Convertible +Notes payable +On +various dates from January through April 7, 2023, the Company entered into subscription agreements with accredited investors pursuant +to which it issued convertible promissory notes in the aggregate principal amount of $ 1,455,000 . The notes mature on various dates between +July 10, 2024 and October 7, 2024 , accrue interest at 2 % per annum and may be prepaid by the Company at any time without any penalties. +The holders may convert the principal amount of the notes together with accrued interest thereon at any time prior to the earlier of +the maturity date and the effectiveness of the registration statement relating to the Company’s initial public offering at a conversion +price of $ 6.00 per share. Upon the closing of the Next Equity Financing (as defined herein), the principal amount of the notes together +with accrued interest thereon shall automatically convert into such number of shares of the Company’s Class A common stock determined +by dividing (x) the outstanding principal balance and unpaid accrued interest of the notes on the date of conversion by (y) the price +per share equal to the product of the price per Equity Security (as defined in the notes) sold in the Next Equity Financing multiplied +by 80%. “Next Equity Financing” means an initial public offering by the Company of its Equity Securities pursuant to which +such Equity Securities are listed on a national securities exchange. In addition, if prior to the maturity date of the notes, the notes +remains outstanding, then in the event of a Corporate Transaction (as defined in the notes), the holder of each note may elect to convert +the outstanding principal balance and unpaid accrued interest of each note, subject to the terms and conditions contained in the note, +into Conversion Shares (as defined in the notes) immediately prior to the closing of such Corporate Transaction based upon a conversion +price equal to the lesser of (i) the Corporate Transaction Price (as defined in the notes) or (ii) the quotient resulting from dividing +(x) the Valuation Cap (as defined in the notes) by (y) the fully diluted capitalization immediately prior to the closing of the Corporate +Transactions. +F- 15 +On +October 3, 2023, a total of $ 1,472,460 , consisting of $ 1,455,000 of principal and $ 17,460 of interest, was converted into an aggregate +446,206 shares of Class A common stock in accordance with the terms of the convertible promissory notes. +Insurance +Notes Payable +In +2023, the Company entered into three insurance policy financing arrangements to purchase various insurance policies. The total principal +of these arrangements was $ 370,596 with interest rates ranging from 10.38 % through 14.05 % and monthly payments totaling $ 32,328 are due +through July 2024. The Company made principal repayments of $ 184,904 and incurred interest expense of $ 6,265 during the year ended December +31, 2024. As of December 31, 2024 and December 31, 2023, the remaining balance was $ 0 and $ 184,904 , respectively. +In +2024, the Company entered into two insurance policy financing arrangements to purchase various insurance policies. The total principal +of these arrangements was $ 378,659 with interest rates of 10.350 % and 10.50 % and monthly payments of $ 11,783 and $ 19,171 due through +July 2025. The Company made principal repayments of $ 225,773 and incurred interest expense of $ 9,436 during the year ended December 31, +2024. As of December 31, 2024, the remaining balance was $ 152,887 . +The +Company recognized interest expense for the years ended December 31, 2024 and 2023 as follows: +Schedule of Recognized Interest Expense +December 31, +December 31, +2024 +2023 +Interest on line of credit +$ - +$ 27,054 +Interest on convertible notes payable +- +17,460 +Interest on notes payable +15,600 +8,966 +Amortization of underwriting fee on line of credit +- +- +Interest on credit card debt +- +206 +Total interest expense +$ 15,600 $ +53,686 +Note +10 – Commitments and Contingencies +Legal +Contingencies +From +time to time, we may be involved in various disputes and litigation matters that arise in the ordinary course of business. The Company +is currently not a party to any material legal proceedings. +In +January 2024, a former employee filed a wrongful termination lawsuit against the Company in the U.S. District Court, Southern District +of Indiana. This case was settled on January 15, 2025 with no material impact to the +Company. +Note +11 – Changes in Stockholders’ Equity +Class +A Common Stock +The +Company has 100,000,000 authorized shares of $ 0.001 par value Class A common stock, and 8,979,204 shares were issued and outstanding +as of December 31, 2024. +F- 16 +During +the year ended December 31, 2024, two investors exercised 130,789 warrants to purchase Class A Common stock pursuant to which the Company +received cash proceeds of $ 850,129 . +On +September 11, 2024, the Company completed a public offering of an aggregate of (i) 3,203,125 shares of Class A common stock of the Company, +par value $ 0.001 per share (the “Common Stock”), (ii) eighteen-month warrants (the “Series A Warrants”) to purchase +up to an aggregate of 3,203,125 shares of Common Stock at an exercise price of $ 0.64 per share, and (iii) five-year warrants (the “Series +B Warrants” and, together with the Series A Warrants, the “Warrants”) to purchase up to an aggregate of 3,203,125 shares +of Common Stock at an exercise price of $ 0.64 per share, at an offering price of $ 0.64 per share of Common Stock and related Warrants, +for aggregate gross proceeds of $ 2,050,000.00 . The Company issued to Rodman or its designees warrants to purchase up to an aggregate +of 160,156 shares of Common Stock, at an exercise price of $ 0.80 per share and an expiration date of September 11, 2029 . The Company +received net cash proceeds of $ 1,619,021 after offering expenses. The Series A Warrants expire 18 months from the date of the offering, +and the Series B Warrants expire on September 11, 2029 . +The +estimated fair value of the warrants issued in connection with the public offering was estimated using a Black-Scholes option pricing +model and the following assumptions: 1) dividend yield of 0 %; 2) risk-free rate of 3.45 % to 3.62 %; 3) volatility of 127 % to 138 %; 4) +a common stock price of $ 0.80 , and 5) a contractual term of 1.5 to 5 years. The fair value of the Class A Warrants was $ 1,677,768 , the +estimated fair value of the Class B Warrants was $ 2,235,055 and the estimated fair value of the underwriter warrants was $ 109,728 . The +fair value of the warrants was recognized as a cost of capital related to the public offering. +During +the year ended December 31, 2024, the Company issued 50,000 shares pursuant to a restricted stock award from November 2023. These shares +vest quarterly over a one-year period. The Company recognized expense of $ 67,378 and $ 8,122 for these awards during the years ended December +31, 2024 and 2023, respectively. +During +the year ended December 31, 2024, the Company issued 6,992 shares for services to a consultant with a fair value of $ 4,000 , recognized +as stock-based compensation. +On +August 13, 2024, the Company received written notification (the “Notice”) from the Listing Qualifications Department of +the Nasdaq Stock Market LLC (“Nasdaq”) indicating that the Company’s stockholder’s equity was below the +minimum requirement of $ 2,500,000 0 for continued listing on the Nasdaq Capital Market under Nasdaq Listing Rule 5550(b)(1) (the +“Minimum Shareholder Equity Requirement”). On November 1, 2024, the Company was notified by Nasdaq that it had regained compliance with the Minimum Shareholder +Equity Requirement. +On +October 18, 2024, the Company received a Notice from Nasdaq indicating that the bid price for its Class A common stock, for the last +30 consecutive business days for the last thirty consecutive business days, had closed below the minimum $ 1.00 per share and, as a result, +the Company was not in compliance with the $ 1.00 minimum bid price requirement (the “Minimum Bid Price Requirement”) for +the continued listing on the Nasdaq Capital Market, as set forth in Nasdaq Listing Rule 5550(a)(2). +If +the Company fails to comply with Nasdaq’s continued listing standards, the Company may be delisted and its Class A common stock +will trade, if at all, only on the over-the-counter market, such as the OTC Bulletin Board or OTCQX market, and then only if one or more +registered broker-dealer market makers comply with quotation requirements. In addition, delisting of the Company’s Class A common +stock could depress our stock price, substantially limit liquidity of our Class A common stock and materially adversely affect our ability +to raise capital on terms acceptable to us, or at all. Finally, delisting of the Class A common stock could result in the Class A common +stock becoming a “penny stock” under the Exchange Act. +F- 17 +Class +A Common Stock Warrants +Summary +of Activity of Outstanding Stock Warrants +The following is a summary of activity of outstanding stock warrants: +Weighted +Average +Number +Exercise +of Shares +Prices +Balance, December 31, 2023 +1,760,350 +$ 6.39 +Warrants granted +6,566,406 +0.64 +Warrants exercised +( 130,789 ) +6.50 +Warrants cancelled +- +- +Balance, December 31, 2024 +8,195,967 +$ 1.78 +Exercisable, December 31, 2024 +8,195,967 +$ 1.78 +The +warrants had a weighted average remaining life of 3.15 years and no intrinsic value as of December 31, 2024. +Convertible +Class B Common Stock +The +Company has 5,000,000 authorized shares of $ 0.001 par value convertible Class B common stock, and had 833,334 shares issued and outstanding +as of December 31, 2024, as retrospectively applied, pursuant to the Company’s subsequent recapitalization in 2022 and effective +as of May 3, 2022, whereby the founders exchanged their 83,334 Founders Shares for 833,334 shares of convertible Class B common stock. +Note +12 – Common Stock Options +Omnibus +Equity Incentive Plan +On +April 11, 2022, the Company’s board of directors adopted, and the Company’s stockholders approved, the Syra Health Corp. +2022 Omnibus Equity Incentive Plan, as amended on April 19, 2023 (as amended, the “2022 Plan”). No more than 1,041,667 shares +of the Company’s Class A common stock shall be issued pursuant to the exercise of incentive stock options under the 2022 Plan. +Class +A Common Stock Option Awards +During +the year ended December 31, 2024, the Company granted options to purchase an aggregate 42,000 +shares of the Company’s Class A common stock to employees at an exercise price ranging from $ 1.28 +to $ 1.88 +per share for terms of 10 +years and 5 +years under the 2022 Plan. These +options will vest 25% on each anniversary, and 25% quarterly, until fully vested . The options had no +intrinsic value. The aggregate estimated value using the Black-Scholes Pricing Model, based on an expected terms of 6.25 +and 3.54 +years, a weighted average volatility rate ranging from 109 % +to 126 %, +a weighted average risk-free interest rate ranging from 3.82 % +to +4.63 %, and a weighted average call option value ranging from $ 0.331 +to $ 1.450 , +was $ 79,383 . +The expected term was estimated using the simplified method allowed under SEC Staff Accounting Bulletin 107 (“SAB 107”). +During the years ended December 31, 2024 and 2023, the Company recognized expense of $ 59,803 +and $21,041, respectively, related to common stock options. As of December 31, 2024, a total of $ 179,549 +of unamortized expenses are expected to be expensed over the vesting period. +The +Company also granted options to purchase an aggregate of 73,349 shares of the Company’s Class A common stock to directors under +the 2022 Plan to settle an aggregate of $ 47,500 of accrued director fees. The options have an exercise price of $ 0.3683 , a term of 10 +years, with 25% of the options vesting immediately and the remaining over 12 months from the grant date . The aggregate estimated value +using the Black-Scholes Pricing Model, based on an expected term of 6.25 years, an estimated volatility of 124 %, a risk-free interest +rate of 4.32 %, and a call option value of $ 0.33 , was $ 24,267 . The expected term was estimated using the simplified method allowed under +SAB 107. The difference between the accrued expense and the value of the options was recognized in selling, general and administrative +expenses. +F- 18 +The +following is a summary of activity of outstanding stock options: +Summary of Activity of Outstanding Stock Options +Weighted +Average +Number +Exercise +of Shares +Prices +Balance, December 31, 2023 +140,750 +$ 1.82 +Options granted +115,349 +0.79 +Options cancelled +( 32,500 ) +- +Balance, December 31, 2024 +223,599 +$ 1.32 +Exercisable, December 31, 2024 +- +$ - +The +options had a weighted average remaining life of 8.20 years and no intrinsic value as of December 31, 2024. +Note +13 – Income Taxes +For +the period from November 20, 2020 (inception) through December 31, 2024, the Company incurred a net operating loss and, accordingly, +no provision for income taxes has been recorded. In addition, no benefit for income taxes has been recorded due to the uncertainty of +the realization of any tax assets. At December 31, 2024, the Company had approximately $ 8,265,000 of federal net operating losses. Under +the Tax Cuts and Jobs Act of 2017, the net operating loss carry forwards can be carried forward indefinitely, however the deductions +are limited to 80% of taxable income. +The +effective income tax rate for the years ended December 31, 2024 and 2023 consisted of the following: +Schedule +of Effective Income Tax Rate +December 31, +December 31, +2024 +2023 +Federal statutory income tax rate +21 % +21 % +State income taxes +3 % +3 % +Change in valuation allowance +( 24 )% +( 24 )% +Net effective income tax rate +- +- +The +components of the Company’s deferred tax asset are as follows: +Schedule +of Deferred Tax Assets +2024 +2023 +December 31, +2024 +2023 +Deferred tax assets: +Net deferred tax assets before valuation allowance +$ 1,900,457 +$ 1,029,723 +Less: Valuation allowance +( 1,900,457 ) +( 1,029,723 ) +Net deferred tax assets +$ - +$ - +Based +on the available objective evidence, including the Company’s history of its loss, management believes it is more likely than not +that the net deferred tax assets will not be fully realizable. Accordingly, the Company provided for a full valuation allowance against +its net deferred tax assets at December 31, 2024 and 2023, respectively. +In +accordance with FASB ASC 740, the Company has evaluated its tax positions and determined there are no uncertain tax positions. +Note +14 – Subsequent Events +The +Company evaluates events that have occurred after the balance sheet date through the date these financial statements were issued. +On +January 7, 2025, the Company granted options to purchase an aggregate 57,646 shares of the Company’s Class A common stock at an +exercise price of $ 0.7386 per share for terms of 10 years under the 2022 Plan. These options will vest 25% on each anniversary, and 25% +quarterly, until fully vested . +On +January 17, 2025, a total of 233,334 shares of Class B Common Stock previously held by the Company’s Executive Chairman and President, +Sandeep Allam, automatically converted into 2,333,340 shares of Class A common stock according to the terms of the Company’s Articles +of Incorporation. +On +January 31, 2025, with the completion of the Company’s contract FSSA (NeuroDiagnostic Institute), the Company expects a decline +in revenue generation for healthcare workforce. A new contract from FSSA (NeuroDiagnostic Institute) has been executed with a contract +end date of June 30, 2025 with a ceiling value of $ 1,480,000 in revenue . +F- 19 +ITEM +9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE +None. +ITEM +9A. CONTROLS AND PROCEDURES. +Evaluation +of Disclosure Controls +Our +principal executive officer and principal financial officer evaluated the effectiveness of our “disclosure controls and procedures” +as of December 31, 2024, the end of the period covered by this Annual Report on Form 10-K. The term “disclosure controls and procedures” +as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed +to ensure that information required to be disclosed by a company in the reports that it files under the Exchange Act is recorded, processed, +summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, +without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports +that it files under the Exchange Act is accumulated and communicated to a company’s management, including its principal executive +officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating +the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, +cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute +assurance that all control issues and instances of fraud, if any, within a company have been detected. Based on the evaluation of our +disclosure controls and procedures as of December 31, 2024, our Chief Executive Officer and our Chief Financial Officer concluded that, +as of such date, our disclosure controls and procedures were effective. +Management’s +Annual Report on Internal Control Over Financial Reporting +Our +management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined +in Exchange Act Rule 13a-15(f). Internal control over financial reporting is a process designed under the supervision and with the participation +of our management, including our principal executive officer and principal financial officer, to provide reasonable assurance regarding +the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with +U.S. GAAP. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined +to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. +A +material weakness is a deficiency, or a combination of deficiencies, in internal controls over financial reporting such that it is reasonably +possible that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. +The material weakness previously identified was due to (i) the design and implementation of appropriate segregation of duties to separate +the roles of authorizing, initiating, and recording transactions or reviewing transactions for the completeness and accuracy of contracts +with financial reporting implications and (ii) the Company lacking sufficient appropriate accounting and reporting knowledge to effectively +perform review controls surrounding technical accounting matters. As of December 31, 2024, our principal executive officer and principal +financial officer, conducted an evaluation of the effectiveness of our internal control over financial reporting based on the Committee +of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework - 2013. Based on this assessment and +implementation of our remediation plans, management concluded that, as of December 31, 2024, our internal controls over financial reporting +were effective. +This +Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm regarding internal +control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting +firm pursuant to the exemption provided to issuers that are not “large accelerated filers” nor “accelerated filers” +under the Dodd-Frank Wall Street Reform and Consumer Protection Act as well as issuers that are “emerging growth companies” +under the JOBS Act. +- 35 - +Changes +in Internal Control Over Financial Reporting +There +were no changes in our internal control over financial reporting that occurred during the year ended December 31, 2024 that have materially +affected, or are reasonably likely to materially affect, our internal control over financial reporting. +ITEM +9B. OTHER INFORMATION +During +the quarter ended December 31, 2024, none of our directors or executive officers adopted , modified , or terminated a “Rule 10b5-1 +trading arrangement” or a “non-Rule 10b5-1 trading arrangement” as such terms are defined under Rule 408 of Regulation +S-K. +ITEM +9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS. +Not +applicable. +PART +III +ITEM +10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE +The +information required by this item is incorporated by reference from the information contained in our Definitive Proxy Statement to be +filed with the Securities and Exchange Commission in connection with the Annual Meeting of Stockholders to be held in 2025 (the “2025 +Proxy Statement”), under the heading “Election of Directors.” +ITEM +11. EXECUTIVE COMPENSATION +The +information required by this item is incorporated by reference from the information contained in the 2025 Proxy Statement under the heading +“Executive Compensation.” +ITEM +12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS +The +information required by this item is incorporated by reference from the information contained in the 2025 Proxy Statement under the headings +“Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.” +ITEM +13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE +The +information required by this item is incorporated by reference from the information contained in the 2025 Proxy Statement under the headings +“Family Relationships and other Arrangements.” +ITEM +14. PRINCIPAL ACCOUNTANT FEES AND SERVICES +The +information required by this item is incorporated by reference from the information contained in the 2025 Proxy Statement under the heading +“Proposal 2: Ratification of the Appointment of Our Independent Registered Public Accounting Firm for Fiscal Year Ending December +31, 2025.” +- 36 - +PART +IV +ITEM +15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES +(a) +The following documents are filed as part of this report: +(1) +Financial +Statements: +Page +Index to Consolidated Financial Statements: +F-1 +Consolidated +Financial Statements: +Report of the Independent Registered Public Accounting Firm +F-2 +Consolidated Balance Sheets as of December 31, 2024 and 2023 +F-3 +Consolidated Statements of Operations for the Years Ended December 31, 2024 and 2023 +F-4 +Consolidated Statements of Changes in Stockholders’ Equity for the Years ended December 31, 2024 and 2023 +F-5 +Consolidated Statements of Cash Flows for the Years Ended December 31, 2024 and 2023 +F-6 +Notes to the Consolidated Financial Statements +F-7 +The +consolidated financial statements required by this Item are included beginning at page F-1. +(1) +Financial +Statement Schedules: +All +financial statement schedules have been omitted because they are not applicable, not required or the information required is shown in +the consolidated financial statements or the notes thereto. +- 37 - +Exhibit +No. +Description +3.1 +Amended and Restated Certificate of Incorporation, currently in effect (Incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1/A filed on September 13, 2023) +3.2 +Amendment to Amended and Restated Certificate of Incorporation dated October 6, 2022 (Incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-1/A filed on September 13, 2023) +3.3 +Amendment to Amended and Restated Certificate of Incorporation dated May 30, 2023 (Incorporated by reference to Exhibit 3.3 to the Company’s Registration Statement on Form S-1/A filed on September 13, 2023) +3.4 +Amended and Restated Bylaws (Incorporated by reference to Exhibit 3.5 to the Company’s Registration Statement on Form S-1/A filed on September 13, 2023) +3.5 +Amendment to Amended and Restated Certificate of Incorporation dated August 28, 2023 (Incorporated by reference to Exhibit 3.6 to the Company’s Registration Statement on Form S-1/A filed on September 13, 2023) +4.1 +Description of the Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934 (Incorporated by reference to Exhibit 4.1 to the Company’s Annual Report on From 10-K filed on March 25, 2024) +10.1 +Professional Services Contract dated as of May 4, 2021 by and between the Company and Indiana Family and Social Services Administration, NeuroDiagnostic Institute (Incorporated by reference to Exhibit 10.1 to the Company’s Registration Statement on Form S-1/A filed on September 13, 2023) +10.2 +Amendment No. 1 to Professional Services Contract by and between the Company and Indiana Family and Social Services Administration, NeuroDiagnostic Institute (Incorporated by reference to Exhibit 10.2 to the Company’s Registration Statement on Form S-1/A filed on September 13, 2023) +10.3 +Amendment No. 2 to Professional Services Contract by and between the Company and Indiana Family and Social Services Administration, NeuroDiagnostic Institute (Incorporated by reference to Exhibit 10.3 to the Company’s Registration Statement on Form S-1/A filed on September 13, 2023) +10.4+ +Syra Health Corp. 2022 Omnibus Equity Incentive Plan (Incorporated by reference to Exhibit 10.5 to the Company’s Registration Statement on Form S-1/A filed on September 13, 2023) +- 38 - +10.5+ +Employment Agreement by and between the Company and Deepika Vuppalanchi dated April 15, 2021 (Incorporated by reference to Exhibit 10.6 to the Company’s Registration Statement on Form S-1/A filed on September 13, 2023) +10.6+ +Amendment No. 1 to Employment Agreement by and between the Company and Deepika Vuppalanchi dated September 1, 2021 (Incorporated by reference to Exhibit 10.7 to the Company’s Registration Statement on Form S-1/A filed on September 13, 2023) +10.7+ +Amendment No. 2 to Employment Agreement by and between the Company and Deepika Vuppalanchi dated March 1, 2022 (Incorporated by reference to Exhibit 10.8 to the Company’s Registration Statement on Form S-1/A filed on September 13, 2023) +10.8+ +Amendment No. 3 to Employment Agreement by and between the Company and Deepika Vuppalanchi dated October 18, 2022 (Incorporated by reference to Exhibit 10.9 to the Company’s Registration Statement on Form S-1/A filed on September 13, 2023) +10.9 +Business Loan Agreement by and between the Company and Citizens State Bank of New Castle dated February 7, 2022 (Incorporated by reference to Exhibit 10.10 to the Company’s Registration Statement on Form S-1/A filed on September 13, 2023) +10.10 +Commercial Security Agreement by and between the Company and Citizens State Bank of New Castle dated February 7, 2022 (Incorporated by reference to Exhibit 10.11 to the Company’s Registration Statement on Form S-1/A filed on September 13, 2023) +10.11 +Promissory Note by and between the Company and Citizens State Bank of New Castle dated February 7, 2022 (Incorporated by reference to Exhibit 10.12 to the Company’s Registration Statement on Form S-1/A filed on September 13, 2023) +10.12 +Professional Services Contract dated as of September 3, 2021 by and between the Company and Indiana Family and Social Services Administration, Division of Mental Health and Addiction (Incorporated by reference to Exhibit 10.13 to the Company’s Registration Statement on Form S-1/A filed on September 13, 2023) +10.13 +STVentures Lease Agreement dated July 1, 2021 by and between the Company and STVentures LLC (Incorporated by reference to Exhibit 10.14 to the Company’s Registration Statement on Form S-1/A filed on September 13, 2023) +10.14 +Commercial Lease Addendum dated May 1, 2022 by and between the Company and STVentures LLC (Incorporated by reference to Exhibit 10.15 to the Company’s Registration Statement on Form S-1/A filed on September 13, 2023) +10.15 +Modification of Loan Agreement by and between the Company and Citizens State Bank of New Castle dated December 16, 2022 (Incorporated by reference to Exhibit 10.18 to the Company’s Registration Statement on Form S-1/A filed on September 13, 2023) +10.16 +Modification of Loan Agreement by and between the Company and Citizens State Bank of New Castle dated March 8, 2023 (Incorporated by reference to Exhibit 10.19 to the Company’s Registration Statement on Form S-1/A filed on September 13, 2023) +10.17+ +Employment Agreement by and between the Company and Sandeep Allam dated February 29, 2022 (Incorporated by reference to Exhibit 10.20 to the Company’s Registration Statement on Form S-1/A filed on September 13, 2023) +10.18+ +Amendment No. 1 to Employment Agreement by and between the Company and Sandeep Allam dated October 18, 2022 (Incorporated by reference to Exhibit 10.21 to the Company’s Registration Statement on Form S-1/A filed on September 13, 2023) +10.19+ +Employment Agreement by and between the Company and Priya Prasad dated February 29, 2022 (Incorporated by reference to Exhibit 10.22 to the Company’s Registration Statement on Form S-1/A filed on September 13, 2023) +10.20+ +Amendment No. 1 to Employment Agreement by and between the Company and Priya Prasad dated May 27, 2022 (Incorporated by reference to Exhibit 10.23 to the Company’s Registration Statement on Form S-1/A filed on September 13, 2023) +10.21+ +Amendment No. 2 to Employment Agreement by and between the Company and Priya Prasad dated October 18, 2022 (Incorporated by reference to Exhibit 10.24 to the Company’s Registration Statement on Form S-1/A filed on September 13, 2023) +10.22 +Amendment No. 1 to Professional Services Contract dated as of April 25, 2023 by and between the Company and Indiana Family and Social Services Administration, Division of Mental Health and Addiction (Incorporated by reference to Exhibit 10.25 to the Company’s Registration Statement on Form S-1/A filed on September 13, 2023) +- 39 - +10.23 +Business +Loan Agreement by and between the Company and Citizens State Bank of New Castle dated May 22, 2023 (Incorporated by reference to +Exhibit 10.26 to the Company’s Registration Statement on Form S-1/A filed on September 13, 2023) +10.24 +Commercial +Security Agreement by and between the Company and Citizens State Bank of New Castle dated May 22, 2023 (Incorporated by reference +to Exhibit 10.27 to the Company’s Registration Statement on Form S-1/A filed on September 13, 2023) +10.25 +Promissory +Note by and between the Company and Citizens State Bank of New Castle dated May 22, 2023 (Incorporated by reference to Exhibit 10.28 +to the Company’s Registration Statement on Form S-1/A filed on September 13, 2023) +10.26 +Modification +of Loan Agreement by and between the Company and Citizens State Bank of New Castle dated August 24, 2023 (Incorporated by reference +to Exhibit 10.29 to the Company’s Registration Statement on Form S-1/A filed on September 13, 2023) +19.1 +* +Insider Trading Policy +23.1* +Consent of M&K CPAS, PLLC, independent registered public accounting firm +24.1* +Power of Attorney (included on the signature page to this registration statement) +31.1* +Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 +31.2* +Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 +32.1* +Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002 +97.1 +Clawback Policy (Incorporated by reference to Exhibit 97.1 to the Company’s Form 10-K filed on March 25, 2024) +101.SCH* +Inline +XBRL Taxonomy Extension Schema Document +101.CAL* +Inline +XBRL Taxonomy Extension Calculation Linkbase Document +101.LAB* +Inline +XBRL Taxonomy Extension Label Linkbase Document +101.PRE* +Inline +XBRL Taxonomy Extension Presentation Linkbase Document +101.DEF* +Inline +XBRL Taxonomy Extension Definition Linkbase Document +104* +Cover +Page Interactive Data File - the cover page of the Registrant’s Annual Report on Form 10-K for the year ended December 31, +2023 is formatted in Inline XBRL +* +Filed +herewith. +** +Furnished +herewith. ++ +Indicates +a management contract or any compensatory plan, contract or arrangement. +† +Certain +of the schedules to this exhibit have been omitted in accordance with Regulation S-K Item 601(b)(10). The Company hereby undertakes +to furnish supplementally a copy of all omitted schedules to the SEC upon its request. +ITEM +16. FORM 10-K SUMMARY +None. +- 40 - +SIGNATURES +Pursuant +to the requirements of Section 13 and 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report +on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized on this 11th day of March, 2025. +SYRA +HEALTH CORP. +By: +/s/ +Deepika Vuppalanchi +Deepika +Vuppalanchi +Chief +Executive Officer and Director +- 41 - +POWER +OF ATTORNEY +KNOW +ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Deepika Vuppalanchi as +his or her attorney-in-fact, with full power of substitution and resubstitution, for him or her in any and all capacities, to sign any +and all amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection +therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact full power and authority to do and perform +each and every act and thing requisite and necessary to be done in connection therewith as fully to all intents and purposes as he might +or could do in person, hereby ratifying and confirming all that said attorney-in-fact, or his substitute or substitutes, may lawfully +do or cause to be done by virtue hereof. +Pursuant +to the requirements of the Securities Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on +behalf of the registrant and in the capacities and on the dates indicated. +Signature +Title +Date +/s/ +Deepika Vuppalanchi +Chief +Executive Officer (Principal Executive Officer) +March +11, 2025 +Deepika +Vuppalanchi +/s/ +Priya Prasad +Chief +Financial Officer and Chief Operating Officer +March +11, 2025 +Priya +Prasad +(Principal +Financial and Accounting Officer) +/s/ +Sherron Rogers +Director +March +11, 2025 +Sherron +Rogers +/s/ +Andrew M. Dahlem +Director +March +11, 2025 +Andrew +M. Dahlem +/s/ +Vijayapal R. Reddy +Director +March +11, 2025 +Vijayapal +R. Reddy +/s/ +Ketan Paranjape +Director +March +11, 2025 +Ketan +Paranjape +/s/ +Avutu S. Reddy +Director +March +11, 2025 +Avutu +S. Reddy +- 42 - \ No newline at end of file diff --git a/raw/filings/0001922335/2024/0001493152-25-009873/filing_metadata.csv b/raw/filings/0001922335/2024/0001493152-25-009873/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..66e2a90153bd007933a324109492456f35f332c8 --- /dev/null +++ b/raw/filings/0001922335/2024/0001493152-25-009873/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,year,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url +0001922335,SYRA,Syra Health Corp,2024,10-K,2025-03-11,2024-12-31,2025-03-11T21:00:24.000Z,0001493152-25-009873,form10-k.htm,,6050401,1,1,https://www.sec.gov/Archives/edgar/data/1922335/000149315225009873/form10-k.htm,https://www.sec.gov/Archives/edgar/data/1922335/000149315225009873/ diff --git a/raw/filings/0001922335/2024/0001493152-25-009873/item1.txt b/raw/filings/0001922335/2024/0001493152-25-009873/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..eb9235bc113f79667909057d4be345f047960427 --- /dev/null +++ b/raw/filings/0001922335/2024/0001493152-25-009873/item1.txt @@ -0,0 +1,207 @@ +ITEM +1. BUSINESS +Overview +We +are a healthcare services company promoting preventative health, holistic wellness, health education, and equitable healthcare for all +patient demographics. We leverage deep scientific and healthcare expertise to create strategic frameworks and develop patient-centric +solutions for the betterment of patient lives and health outcome linked to developing a healthier population. We provide comprehensive +end-to-end solutions in behavioral and mental health, population health, digital health, health education and healthcare workforce. Our +offerings are centered on prevention, improved access, and affordable care. Our goal is to supply our solutions to payers, providers, +life sciences organizations, academic institutions, and the government. +Our +Services +Behavioral +and Mental Health +Mental +health concerns are rapidly growing on a global scale, yet the shortage of mental health professionals and access to treatment is leaving +millions of people without access to mental health resources. We strongly believe in behavioral and mental health equity and our mission +is to provide solutions that help improve health care and provide access to all populations, regardless of race, ethnicity, gender, socioeconomic +status, sexual orientation, or geographic location. With our specialized services, we believe that we can help solve the behavioral and +mental health needs of various organizations, including health organizations, large employers, and schools. +Syrenity +is a comprehensive mental health application that is aimed at providing preventative care and interventions for behavioral and mental +health and will utilize an artificial intelligence-driven user diary for engagement . Syrenity +is being designed to identify and prevent the progression of negative factors that can influence individuals’ mental health, by +offering targeted assignments, education, monitoring symptoms, and providing timely interventions such as cognitive behavioral therapy +and mindfulness techniques. Syrenity will enable users to connect with licensed mental health professionals, will allow users to schedule +virtual consultations with psychologists, psychiatrists, or mental health coaches, eliminating the need for in-person visits and will +provide education resources to help users understand their mental health concerns and learn coping strategies. We launched Syrenity in +the third quarter of 2024. +Population +Health +We +define population health services as the process of assessing and analyzing healthcare and its delivery to create improvement for a population +of individuals. We are developing end-to-end solutions and strategies to improve quality of care, access to care, health outcomes, and +healthcare policies. We believe that our solutions will assist individuals in reaching their full health potential through preventative +care, care coordination and patient engagement. Our team of service providers includes health economists, public health experts, subject +matter experts, data scientists, and biostatisticians who apply advanced health analytics to real-world data to provide meaningful insights +to improve quality of clinical care and understand patterns and trends around diagnosis, treatment, and continued care. We believe our +team helps stratify health risks based on social determinants of health, predict utilization of resources and health care costs, identify +patient-level interventions, and recommend population-level strategies. Within our population health service line we offer the following +services: analytics as a service, epidemiology, and health equity analytics solutions. +Digital +Health +We +use digital health to bring innovation into the healthcare practice. Our goal is to transform patient care and engagement by connecting +physicians, patients, caregivers, payers, and other key stakeholders through healthcare digital platforms. We are developing digital +and cloud-based platforms to help improve cost savings through the automation of health operations, which also provide clinical insights +that personalize care and improve patient satisfaction. Our solutions will include digital transformation, cloud and security, artificial +intelligence, patient engagement, and health applications. Within our digital health service line, we intend to offer SyraBot a chatbot +designed to foster connectivity and engagement throughout individuals’ care journeys, offering members round-the-clock access to +necessary information via our AI-powered customer support chat system). +- 4 - +Health +Education Services +We +believe that one of the main drivers of the healthcare education solutions market is the need to address challenges in the healthcare +industry through effective and innovative medical and scientific training. With evolving healthcare technology, healthcare professionals +must be knowledgeable with respect to various patient-care approaches to make better informed clinical decisions and assure patient satisfaction. +We believe that targeted and continuous healthcare education solutions are needed to help healthcare professionals improve their competency, +improve health equality and incorporate innovative and new therapeutic options into practice to improve overall patient care quality. +Therefore, we aim to provide medical education solutions to pharmaceutical and medical device manufacturers, biotechnology companies, +payers, large employers, academic institutions, and government agencies. Specifically, we develop medical education content to drive +the organizational and strategic brand goals and vision of our clients. Our education outreach plan utilizes omnichannel delivery approaches +from a suite of solutions for in-person, virtual and hybrid arrangements, and our deliverables include traditional print and electronic +formats. Some of our targeted education approaches include the utilization of artificial intelligence tools to provide real-time information +to customers. Within our health education service line we offer the following services: medical communications, patient education, and +healthcare training. +Healthcare +Workforce +Our +healthcare workforce solutions are intended to help evaluate the immediate and longitudinal workforce needs of our client’s organization. +Using agile implementation staffing methodologies we make it seamless and cost-efficient to expand our client’s clinical personnel. +We recruit experienced nurses and allied health professionals for long-term fixed contract positions at hospitals and healthcare facilities +across the country. Other staffing positions that we recruit include care coordinators, specialists to fill healthcare management roles, +healthcare educators, therapists, healthcare technicians and health plan specialists. +Market +Opportunity +Due +to the currently unmet healthcare needs, challenges, and attention to behavioral and mental health, we believe the overall market opportunity +for all the services we offer is growing at a rapid pace. +Behavioral +and Mental Health: The U.S. behavioral health market was valued at $151.7 billion in 2023 and is expected to exhibit growth at a +CAGR of 3.7% from 2024 to 2032 per Precedence Research. One in five U.S. adults experience mental illness each year, and one in six U.S. +youth aged 6 to 17 experience a mental health disorder each year according to a Fortune Business Insights report. Suicide is the second +leading cause of death among people aged 10 to 34. Key drivers include the rising awareness of mental health issues, increased access +to care, and the growing adoption of telehealth services. +Population +Health: According to Precedence Research, the U.S. population health management market was valued at $25.0 billion in 2022 and is +anticipated to grow at a CAGR of 19.5% from 2022 to 2030, reaching $103.7 billion by 2030. This growth is mainly driven by the increasing +demand for healthcare IT services and solutions that support value-based healthcare delivery, resulting in a transition from fee-for-service +to a value-based payment model. The healthcare quality management market in the U.S. was valued at $3.2 billion in 2020 and is projected +to reach $6.8 billion by 2028, growing at a CAGR of 13.2% from 2021 to 2028 according to Research and Markets. Factors fueling this growth +include the rise in the aging population, healthcare expenditure and medical errors, and an increase in the volume of unstructured data +in healthcare. +Digital +Health : The U.S. digital health market size was estimated at $81.17 billion in 2023 and is projected to grow at a CAGR of 19.5% from +2024 to 2030 according to Mercer. The digital health market includes mobile health applications, wearable devices, telemedicine, and +telehealth services aimed at managing chronic diseases more effectively among patients. Additionally, advancements in telehealth technologies +are driving growth within this sector as healthcare providers increasingly adopt digital solutions for patient management. +Health +Education Services: The U.S. health education market was valued at $110 billion in 2023 and is projected to reach approximately $280.6 +billion by 2033, growing at a compound annual growth rate (CAGR) of 11.0% according to a report from Verified Market Research. The U.S. +continuing medical education market was valued at approximately $2,712.6 million in 2021 and is expected to reach approximately $3,830.5 +million by 2027 according to a report from Spherical Insights. According to an Arizton Advisory & Intelligence study, the medical +writing market in the U.S. is expected to cross $5,285.3 billion by 2030 at a CAGR of 10.31%, with North America holding the largest +share. The medical affairs outsourcing market for the U.S. was estimated at $470.2 million in 2021 and is anticipated to reach $1,288.2 +million by 2030. Key drivers include technological advancements (e-learning, AI, VR), increasing demand for healthcare professionals, +and government support according to Grand View Research. +- 5 - +Healthcare +Workforce : According to Grand View Research, the U.S. healthcare staffing market size was valued at $36.9 billion in 2022 and is +expected to expand at a compound annual growth rate (CAGR) of 6.93% from 2023 to 2030. By 2030, global demand for health workers is predicted +to rise significantly; however, there will be a net shortage of approximately 15 million health workers globally. Mercer projects a deficit +of over 100,000 healthcare workers in the U.S. by 2028, worsening health disparities and impacting patient care. +Growth +Strategies +We +hope to become a leader in clinical healthcare solutions by providing customized and comprehensive end-to-end solutions for our customers +in the public and private healthcare sectors and expand our operations to other metropolitan areas. As we continue our expansion, we +anticipate that our professional pool and infrastructure will grow to support the breadth and depth of our services. With our rapid growth +of sales and business development teams, we intend to replicate our current projects with similar customers across the country. We plan +to open offices in multiple geographical locations to support our sales and business development efforts and intend to invest in partnerships +with subject matter experts to further enhance our service lines and provide real-world insights. In addition to organic efforts, we +may expand our footprint by acquiring companies that offer similar service lines. It is anticipated that such companies will strengthen +our current service offerings and may also include new services that we may offer to our clients. Our flagship product, Syrenity, is +a proprietary behavioral and mental health application designed to address the growing mental health crisis. We are strategically preparing +for its launch in global markets while continually advancing its scientific foundation and AI technology to enhance user outcomes. Additionally, +our government solutions service line of business positions us to work on federal government healthcare and related projects from several +agencies such as the United States Department of Health and Human Services, the Centers for Disease Control and Prevention, the National +Institutes of Health, the National Aeronautics and Space Administration and the United States Department of Defense. +Government +Regulations +Our +business is heavily regulated. We are subject to oversight by governmental entities in the U.S., and a failure, or alleged failure, by +us to comply with statutes, regulations, or other laws could have a material adverse impact to our business operations, reputation, results +of operations and financial position. +Government +Contracts: Our contracts with government entities typically are subject to procurement laws that include socio-economic, employment +practices, environmental protection, recordkeeping and accounting, and other requirements. These statutory and regulatory requirements +complicate our business and increase our compliance burden. We are subject to audits, investigations, and oversight proceedings about +our compliance with contractual and legal requirements. If we fail to comply with these requirements, or we fail an audit, we may be +subject to sanctions such as monetary damages, criminal and civil penalties, termination of contracts and suspension or debarment from +government contract work. Furthermore, the government may terminate any of our government contracts and subcontracts either at its convenience +or for default based on our performance. If a contract is terminated for convenience, we generally are protected by provisions covering +reimbursement for costs incurred on the contract and profit on those costs. If a contract is terminated for default, we generally are +entitled to payments for our work that has been accepted by the government; however, the government could make claims to reduce the contract +value or recover its procurement costs and could assess other special penalties. Additionally, our programs for the government often +operate for periods of time under undefinitized contract actions (“UCAs”), which means that we begin performing our obligations +before the terms, specifications or price are finally agreed to between the parties. The government’s power to unilaterally definitize +a contract can affect our ability to negotiate mutually agreeable contract terms and, if a contract is unilaterally imposed upon us, +it may negatively affect our expected profit and cash flows on a program or impose burdensome terms. +Governmental +entities in the U.S. continue to strengthen their position and scrutiny of practices that may indicate fraud, waste, and abuse affecting +government healthcare programs such as Medicare and Medicaid. Our relationships with pharmaceutical and medical product manufacturers, +healthcare providers, and other companies and individuals, as well as our provision of products and services to government entities, +subject our business to statutes, regulations, and government guidance that are intended to prevent fraud and abuse. Many of these laws +are vague or indefinite and have not been interpreted by the courts and, as such, may be interpreted or applied by a prosecutorial, regulatory, +or judicial authority in a manner that could require us to make changes in our operations at added expense. Failure to comply with these +laws could subject us to federal or state government investigations or qui tam actions, and to liability for damages and civil and criminal +penalties, including the loss of pursue government contracts. +- 6 - +Healthcare +Regulation: Our marketing practices are subject to state laws, as well as federal laws, such as the Anti-Kickback Statute and False +Claims Act, intended to prevent fraud and abuse in the healthcare industry. The Anti-Kickback Statute generally prohibits corruptly soliciting, +offering, receiving, or paying anything of value to generate business. The False Claims Act generally prohibits anyone from knowingly +and willingly presenting, or causing to be presented, any claims for payment for goods or services, including to government payers, such +as Medicare and Medicaid, that are false or fraudulent and generally treat claims generated through kickbacks as false or fraudulent. +The federal government and states also regulate sales and marketing activities and financial interactions between manufacturers and healthcare +providers, requiring disclosure to government authorities and the public of such interactions, and the adoption of compliance standards +or programs. Furthermore, the U.S. Foreign Corrupt Practices Act (“FCPA”) prohibits U.S. corporations and their representatives +from offering, promising, authorizing or making payments to any foreign government official, government staff member, political party +or political candidate to obtain or retain business abroad. The scope of the FCPA includes interactions with certain healthcare professionals +in many countries. Other countries have enacted similar anti-corruption laws and/or regulations. +Data +Security and Privacy: We are subject to a variety of privacy and data protection laws that change frequently and have requirements +that vary from jurisdiction to jurisdiction. For example, under HIPAA we must maintain administrative, physical, and technological safeguards +to protect individually identifiable health information (“protected health information”) and ensure the confidentiality, +integrity, and availability of electronic protected health information. We are subject to significant compliance obligations under privacy +laws some of which prohibit the transfer of personal information to certain other jurisdictions or otherwise limit our use of data. Many +of these laws also require us to provide access or other data rights (modification, deletion, portability, etc.) to consumers’ +and patients’ individual personal data records within specified periods of time. Laws such as the federal Cyber Incident Reporting +for Critical Infrastructure Act of 2022 may require us to provide notifications of significant data privacy breaches or cybersecurity +incidents before our investigations are complete. We are subject to privacy and data protection compliance audits or investigations by +various government agencies. Failure to comply with these laws subjects us to potential regulatory enforcement activity, fines, private +litigation including class actions, reputational impacts, and other costs. We may also have contractual obligations that might be breached +if we fail to comply with privacy and data security laws. +Employees +As +of March 7, 2025, we employed 57 full-time employees and 37 part-time employees. We are not a party to any collective bargaining agreements, +and we believe that we maintain good relations with our employees. +Our +Corporate History +We +were organized on November 20, 2020, as an Indiana corporation under the name Syra Health Corp. On March 11, 2022, we filed a Certificate +of Conversion with the Delaware Secretary of State whereby we converted from an Indiana corporation to a Delaware corporation. +Available +Information +Our +annual report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and other filings with the United States Securities +and Exchange Commission, or the SEC, and all amendments to these filings, are available, free of charge, on our website at www.Hepion.com +as soon as reasonably practicable following our filing of any of these reports with the SEC. You can also obtain copies free of charge +by contacting our Investor Relations department at our office address listed above. The public may read and copy any materials we file +with the SEC at the SEC’s Public Reference Room at 100 F Street NE, Room 1580, Washington, DC 20549. The public may obtain information +on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains +reports, proxy, and information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov. +The information posted on or accessible through these websites is not incorporated into this filing. +- 7 - \ No newline at end of file diff --git a/raw/filings/0001922335/2024/0001493152-25-009873/item13.txt b/raw/filings/0001922335/2024/0001493152-25-009873/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..f9aa0356ce54b1649c1d996be2eaf88c3b7c5b29 --- /dev/null +++ b/raw/filings/0001922335/2024/0001493152-25-009873/item13.txt @@ -0,0 +1,4 @@ +Item +13. +Certain Relationships and Related Transactions, and Director Independence +36 \ No newline at end of file